Credicorp Ltd (BAP) 2024 Q4 法說會逐字稿

Good morning, everyone.

I would like to welcome you to the Credicorp Limited fourth quarter 2024 conference call.

A slide presentation will accompany today's webcast, which is available in the Investors section of Credicorp's website.

Today's conference call is being recorded.

(Operator Instructions)

Now it is my pleasure to turn the conference over to Credicorp's IRO, Milagros Ciguenas.

You may begin.

Thank you, and good morning, everyone.

Speaking on today's call will be Gianfranco Ferrari, our Chief Executive Officer; and Alejandro Perez-Reyes, our Chief Financial Officer.

Participating in the Q&A session will also be Francesca Raffo, Chief Innovation Officer; Cesar Rios, Chief Risk Officer; Diego Cavero, Head of Universal Banking; Cesar Rivera, CEO of Pacifico; and Carlos Sotelo, Mibanco's Chief Financial Officer.

Before we proceed, I would like to make the following safe harbor statement.

Today's call will contain forward-looking statements, which are based on management firms, expectations and beliefs and are subject to a number of risks and uncertainties and I refer you to the forward-looking statements section on our earnings release and recent filings with the SEC.

We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances.

Gianfranco Ferrari will start the call with remarks on a brief overview of our results and business strategy development for 2024, followed by Alejandro Perez-Reyes, who will comment on the macro environment improvement, our financial performance and provide our outlook for 2025.

Gianfranco, please go ahead.

Thank you, Milagros.

Good morning, everyone.

I'm very pleased with our full year results, delivering record profitability of PEN5.5 billion and an ROE of 16.5%, which equals 17.2% aligned to our guidance, while excluding one-off charges related to the Sartor case.

Operationally, the fourth quarter was robust with improved cost of risk at BCP and Mibanco increased lending and exceptional transactional volumes at BCP and Yape, providing a strong foundation for sustained growth in the years ahead.

These achievements underscore the impact of our strategic initiatives, which have strengthened resilience, enhance efficiency and reinforce our competitive advantages.

This enabled us to navigate periods of volatility effectively while capitalizing on market opportunities to drive future growth and further advance our strategy of the cap limit from the macroeconomic cycles.

Our efforts align well with Peru's economic recovery, which saw GDP expand by over 3% in 2024 after contracting in 2023.

Inflation fell to 2.2%, its lower level in 4 years as the Central Bank lowered its policy rate to support the recovery.

Improved weather boosted fishing primary manufacturing and agriculture, while strong copper and record high coal prices further supported economic performance.

Despite gain from increased public investment, private sector investment remains subdued.

Achieving long-term sustainability growth will require political stability, responsible fiscal policies and structural improvements in essential services to fully restore business confidence.

Looking ahead, we expect the Peruvian economy to grow around 3% in 2025, supported by historically high tens of trade, control inflation and continued recovery in real wages.

However, the onset of the electoral campaign towards the end of the year may introduce uncertainty as campaign activities intensified.

Reported ROE came in slightly below expectations as we chose to prioritize client relationships and mitigate their risks related to the Sartor [model] in the fourth quarter.

However, adjusting for this, we would have delivered an ROE of 17.2%, in line with expectations.

Our results were primarily driven by strong results at our Universal banking and insurance and pension business, aligns alongside continued improved performance at Mibanco.

This was further supported by growth in diversified revenue streams and record high transactional volumes, particularly in FX and digital transactions during the fourth quarter.

This shift enhances our revenue mix, advancing our strategy to diversify revenue income sources with the goal of achieving 10% of risk-adjusted revenues from new businesses by 2026.

Risk-adjusted NIM continued to strengthen, underpinned by disciplined interest rate management, a leading low-cost funding position and enhanced credit risk management.

Meanwhile, our investments in innovation and digital capabilities are delivering tangible results, driving a better-than-expected efficiency ratio, reinforcing our competitive advantages and deepening client relationships.

Client satisfaction also improved with a 5 percentage point increase in average NPS across our businesses while these efforts also promote greater financial inclusion.

Lastly, the significant asset quality improvement since late 3Q of 2024 has led us to gradually increase our risk appetite and allow for a more proactive lending approach at both BCP and Mibanco, particularly in the Retail segment, reflecting the improved operating conditions.

Please move to slide 3.

We're advancing our strategic priorities to proactively address challenges and capitalize on opportunities ensuring our long-term competitiveness.

These priorities are attracting and retaining top talent through a compelling value proposition, accelerating digital transformation and innovation and integrating sustainability into our core business strategy.

We cultivate innovating teams with a growth mindset, aligning their purpose with creditors to unlock potential.

Through continuous training and development, we're making Credicorp an increasingly agile organization that enhances both efficiency and experience.

Our strong value proposition led to a 12-point employee NPS increase, making Credicorp Peru's top employer brand for executives.

Additionally, 5 of our companies are number 1 in their respective categories in the Merco Talento Peru reputational ranking.

To further reinforce our identity, we launched Great Corp culture, a strategic framework built on shared values of teamwork and building innovation, customer centricity and ethics.

We drive the digital transformation and innovation by enhancing AI and cybersecurity capabilities.

Over the past decade, we've advanced data and analytics and technology, boosting productivity and customer experience.

AI-driven initiatives, such as improved voice for calls at BCP contact center have increased self-servicing tractions to 40%.

Moreover, the implementation of [skip-cap] copilot among over 1,500 developers boosted productivity by over 30%.

We strengthened internal cybersecurity management, invested in new technologies and improved processes to avail protection standards.

Recognizing that cybersecurity is an ongoing priority, we continuously monitor and adopt and are up to emerging threats while keeping both employees and clients will enhance digital security practices.

We integrate sustainability into our strategy to drive meaningful change.

As a leader in financial inclusion and education in Peru, we have brought over 5.7 million people into the financial system since 2020 and expanded access to insurance with more than 3.6 million inclusive policies issued.

We've also allocated over $1.5 billion in sustainable financing across agriculture, fishing, energy and textile sectors.

These are just a few of our many initiatives aimed at improving lives by reducing property in Peru.

Looking ahead, we will continue to focus on these 3 fundamental pillars: talent, digital transformation and sustainability as key drivers of Credicorp's long-term success.

Now let's turn to a summary of the performance across our business units and disruptive initiatives.

Our balanced portfolio innovation strategy, including disruptive initiatives allow Credicorp to decouple from that macro and drive resilience, profitability and long-term value creation.

At BCP, we prioritized customer experience and long-term competitiveness through investments in digital channels like Yape and mobile banking, which drive exponential transaction growth.

We now have 26% digital customers.

Our branch modernization efforts, including quick service modules and digital education funds supports this evolution.

Additionally, we improved multichannel value propositions raised NPS across segments, while our focus on optimized credit risk management in consumer and SME segments, is unlocking significant growth potential.

Mibanco's performance improved, driven by the broader economic recovery, enhanced risk management and operational efficiency improvements.

Our hybrid model helped navigate an acute cycle in Peru's micro finance system, supporting clients with great facilities and training.

We shifted to lower volume, higher profit credit tickets, improve monitoring and collection and implemented more effective risk controlled than our peers.

We also tracked savings, diversifying income and stretching resilience, boosting customer NPS by over 4 percentage points and turning in solid results in the quarter.

Looking ahead, we're exploring additional synergies with Credicorp to drive further structural improvements to achieve our minimum target of 20% of ROE.

Pacifico served our over 6.5 million clients in 2024, expanding its offerings through commercial partnerships and leveraging the Credicorp ecosystem with a particular focus on retail via bancassurance and Yape.

We developed a new strategic alliance, including a collaboration with Falabella in embedded insurance.

As a result, our NPS increased 2 percentage over the year.

Our commitment to enhancing digital capabilities supports our ambition of making Peru the most protected country in Latin America.

At Credicorp Capital, we recovered income and profitability driven by capital markets and wealth management, with growth in assets under management.

These results reaffirm the strength of our strategic approach.

Following the Chilean Financial Markets Commission intervention of Sartor, a third-party fund manager, we prioritize client interest by proactively protecting their investments in our factoring funds.

While we expect a partial recovery of funds, our actions reaffirm our commitment to long-term client relationships.

We continue to drive revenue growth through our consolidated innovation strategy.

Yape, now Peru's most recognized brand, reached profitability in 2024 with nearly 14 million active users.

As a leading payments platform, Yape has nearly doubled its transaction volume in 2024.

A standard trade access with 1.8 billion users [with grade] and became Peru's fifth largest e-commerce player.

In Bolivia, Yape has emerged as a top digital wallet with over 1.2 million active users.

Krealo, our corporate venture capital arm remains at the forefront of innovation with Tenpo in Chile set to become the country's first neo bank already serving over 750,000 users.

Strategic internal collaborations with like Monocera, a platform linking insurance to digital channels is enabling Yape to become a digital insurance distributor for Pacifico.

With that, I will now turn the call over to Alejandro, who will go into the highlights of the quarter and provide further detail on the macro environment, each of our operating businesses and our consolidated results.

Alejandro?

Thank you, Gianfranco, and good morning, everyone.

As Gianfranco mentioned, we delivered solid operating results in 2024 and are well positioned for a strong 2025.

Our 16.5% ROE was negatively impacted by PEN259 million one-off related to the Sartor case this quarter.

Excluding these charges, the ROE would have been 17.2%.

As I discussed the quarter's highlights, I will focus on the quarter-over-quarter results to emphasize recent shifts in key operating trends.

Loans expanded 0.7% measured in average daily balances and 2.2% in quarter end balances.

This expansion was primarily driven by short-term corporate loans, dormant program loans at SME business and mortgage loans.

Asset quality further improved this quarter.

The NPL ratio dropped 60 basis points to 5.3%, driven by BCP and Mibanco.

At BCP, the NPL contraction was led by SMEs and wholesale clients.

Provisions fell 14.4%, fueled an improvement in payment performance after the risk management measures at both BCP and Mibanco continued to

[get trhough].

As a result, the cost of risk fell to 2.1%.

Net interest income increased by 1.1%, primarily driven by a decrease in interest expenses via a drop in interest rates and by growth in low-cost deposits, which now represent 56.4% of the funding base.

The yield on interest-earning assets, however, fell 20 basis points as the asset mix shifted towards cash and equivalents and market interest rates dropped.

Consequently, NIM fell 9 basis points to stand at 6.3%.

Non-interest income expanded this quarter.

However, fee income contracted slightly by 0.4% due to a drop in brokerage results at Credicorp Capital.

This evolution was offset by a 29.4% increase in gain on tax transactions which was boosted by BCP Bolivia and BCP.

Lastly, the insurance underwriting results rose 7.2%, reflecting a stronger reinsurance result in the P&C business.

All in all, we delivered ROE of 13.3% this quarter, supported by steady revenue dynamics and asset quality improvement, but nonetheless, impacted mainly by one-off charges and seasonal expenses.

Next slide, please.

The Peruvian economy struck a more positive note at year-end in 2024, recovering from a contraction in 2023, which interrupted 25 years of constant growth except for the pandemic.

The economy grew around 4% year-over-year in the fourth quarter of 2024 and 3.2% for the year, and inflation is well controlled by 2%, one of the lowest figures among both advanced and developing economies.

Thanks to solid external accounts, the Peruvian Sol is one of the best-performing currency in emerging markets.

Credit rating agencies have upgraded their outlook for Peru from negatively stable, reducing the risk of a downgrade in the near term.

In 2025, the economy is expected to transition from early stage to mid-cycle recovery.

Some indicators that this phase has begun are already evident.

For example, recovery has broadened to include laggers such as car sale, local sales as revenue and imports, which are now experiencing growth.

Additionally, employment and real wages continue to gradually recover.

And according to the central [run] survey, investment expectations have recently accelerated and stood in the optimistic range throughout the second half of the year and a moderate improvement in prior investment is anticipated.

We expect the Peruvian economy to grow around 3% for the second consecutive year in 2025 despite uncertainty on the global front and a pre electoral environment in Peru.

Dynamism should continue to pick up in the first half of the year.

Finally, we anticipated GDP growth of 2.4% in Chile and 2.1% in Colombia.

Next slide, please.

Expectations for federal reserve rate cuts have diminished with some analysts even suggesting that the cuts are over.

President Trump's recent announcements aligned with his campaign promises and underscores his administration's intent to leverage tariffs that negotiated in tools.

Consequently, increased market volatility is anticipated during his presidency due to heightened uncertainty.

In Peru, as mentioned earlier, inflation is under control at 2%.

The Central Bank has guided its policy rate at 300 basis points in September 2023 and is expected to implement one or two additional rate cuts throughout the year as it approaches its neutral level.

In Colombia, inflation ended the year at 5.2% year-over-year, remaining above the upper limit of the target range of 4%.

The Central Bank decided to post at this February meeting after previously slowing the pace of rate cuts, adopting a cautious approach to allow time for evaluating the effects of multiple recent shops on inflation.

Finally, in Chile, markets have priced in only one additional rate.

The Chilean peso has depreciated around 6% since September and last month, the exchange rate reached its highest level since 2022.

Next slide, please.

BCP raised their full year ROE of 22%.

This strong performance was mainly driven by resilient margins, amid a shifting the loan portfolio to retail and solid transactional funding alongside diversified income streams.

On a quarterly basis, ROE stood at 20.1%, driven by the following quarter-over-quarter dynamics.

Total loans measured in average daily balances rose 0.9%, rebounding on the back of improving macro conditions.

Growth in average daily balance was driven mainly by an uptick in short-term corporate loans, particularly to the mining and [other] sectors.

The SME business and mortgage segment also contributed to loan growth.

NPL volumes fell 9.6% mainly driven by a drop in overdue loans in SMEs, debt repayments in wholesale banking and an increase in write-offs and debt repayments in consumer and credit cards.

NIM decreased 20 basis points to stand at 6%.

This decline was driven by growth in cash and corporate loans, coupled with a drop in market interest rates, both of which pressured the average asset yields downwards.

Other income in contract grew 1.9% on the back of FX transactions, which were bolstered by corporate transaction volumes.

Fee income also contributed to income growth driven mainly by record high transactional levels at Yape while debit and credit card activity at BCP remained at solid levels.

The cost of risk fell down to 3 basis points to stand at 1.8%.

The contraction in provisions was driven primarily by SME Pyme and mortgage portfolios.

In SME Pyme, provisions dropped due to improvement in payment performance, which reflected improvements in the portfolio's average risk profile.

In mortgage, the contraction was due to parameter updates to our risk models and to strengthen payment capacity in individuals.

The consumer and credit cards in contract reported an uptick in provisions due to a risk model calibration.

It is important to note that underlying risk has improved for both products.

Payment performance improved mainly after healthier vintages increased their waste within portfolios and rescheduling efforts were ramped up.

In this context, BCP's risk-adjusted NIM stood at 4.9%.

BCP's asset quality metrics have improved due to risk management measures, such as adjusting credit guidelines in high-risk segments, fine-tuning credit processes and calibrating specific models to better predict losses.

We will gradually increase risk appetite in certain segments with strict monitoring and a disciplined risk return approach.

From a full year perspective, I would like to highlight the following line up.

Loans decreased 0.7% in average daily balances, driven mainly by a drop in wholesale loans, where demand for long-term financing remains weak.

NIM rose 30 basis points to stand at 6%, bolstered by an improvement in the funding of which was positively impacted by lower interest rates and growth low-cost deposits.

An uptick in the yield on interest-earning assets also contributed to growth in NIM.

Other core income rose 15.2% as fee income was boosted by Yape consolidation as a key revenue stream and BCP's strong transactional activity.

Additionally, gains on FX transactions rose via an uptick in volumes and better pricing in retail and wholesale life.

Efficiency ratio stood at 39.3% for the year due to higher operating expenses and lower operating income growth.

Salaries and employee benefits increased alongside an uptick in variable compensation, which rose on the back of better business performance.

Technology costs increased standing high with an uptick in transactional volume.

It is worth noting that the core income to assets ratio remains high, illustrating the increasing diversification of BCP's income strains.

Next slide, please.

Yape reported close to 40 million active users, around 69% of the economically active population.

Today, Yape is on track to achieving its target of 16.5 million active users by 2026.

Revenues grew alongside an uptick in the use of features.

By quarter end, monthly revenue per active user reached

[PEN6.5].

Revenue generation outpaced growth in expenses despite seasonal charges related to marketing campaigns and IT expenses.

Fourth quarter seasonality effects were anticipated in line with results in previous years.

Consequently, monthly expenditures per active users stood at

[PEN5.3].

Yape's payments business is the up forerunner for revenue growth.

The year-over-year growth was primarily attributable to build and QR code payments at Yape for business.

Over the period, the total payment volume rose 1.9x. In the financial business line, revenues were mainly obtained from floating while loan disbursement continue to grow exponentially.

Year-over-year, loan disbursements rose 7.3x as Yape focused on loans with higher tickets and durations.

By the end of the fourth quarter, loans have been granted to 1.6 million Yape-ros, and we are well on our way to reaching our target of 5 million Yape-ros with a loan disbursed by 2026.

Finally, our e-commerce business has boosted customer engagement.

This is reflected in the gross merchant volume, which grew 3x year-over-year, mainly through Yape

[browse].

In 2025, Yape will enhance its offering with new features and improve its value proposition.

We will develop and implement new remodel to stand our lending business while maintaining the highest standards of security and stability.

Next slide, please.

After [attaining] this year marked by a complex trade cycle for the microfinance industry, Mibanco Peru is recovering profitability among improved credit risk management and a reduction in the cost of funds.

Fourth quarter ROE contribution rose to 17.3% as we move closer to our target levels of profitability.

I would like to highlight the quarter-over-quarter dynamics.

Mibanco's loans measured in average daily balances fell 1.2%.

Despite hitting a turning point this quarter as we probably ramped up disbursement of small ticket, higher yield loans.

Gains were overshadowed by a decrease in higher ticket loans.

The NPL ratio fell for the third consecutive quarter and improved at a faster pace than our peers.

This evolution, which was [rein] by a reduction in overdue loans reflects the positive impact of tighter adjustments in origination guidelines, the release facilities and improvement in debt collection processes.

NIM rose 30 basis points to 14.2%, boosted by a drop in the cost of funding after the funding rate decline.

Cost of risk fell 154 basis points to stand at 4.7% driven by improved payment performance and risk-adjusted NIM stood at 10.7%.

Improvements in Mibanco's service quality metrics reflect disciplined credit processes, including origination restrictions and stricter monitoring of the performance of

(technical difficulty).

From a full year perspective, I would like to highlight the resilience of Mibanco's NIM, which was [blowed] by active loan pricing management and a decrease in the cost of fund.

Improvement in risk management processes led to a decrease in cost of risk.

Finally, operating expenses remained under control with efficiency standing at 52.7%.

In this context, Mibanco's full year contribution to ROE stood at 10.9% on an accumulated basis.

Going forward, we expect profitability to continue to improve, a healthy loan growth resumes and newer and lower risk vintages increased their weight in the mix.

Mibanco Colombia's result improved significantly, thanks to our focus on efficiency and disciplined risk processes and controls despite a challenging business environment.

This helped us become the third largest private microfinance lender in Colombia.

Next slide, please.

Grupo Pacifico concluded 2024 with another year of remarkable performance, achieving an ROE of 23.7% on the back of solid commercial dynamics in both the P&C and Life business lines.

On a quarterly basis, ROE stood at 20.5%, driven by the following dynamics.

Net income dropped 10%, primarily impacted by an increase in the net loss on securities impacted by one credit downgrade in the investment portfolio and by higher operating expenses due to seasonality.

Insurance underwriting results rose 22% on the ramp of an improvement in both business lines, explained by credit life, cars and P&C risk.

From a full year perspective, in 2024, Grupo Pacifico delivered strong performance.

Net income slightly dropped 5%, mainly driven by lower insurance underwriting results due to normalization of underwriting margins in the life business, which was partially mitigated by strong performance in P&C and higher operating expenses attributable to investments to strengthen Pacifico's digital capabilities.

Next slide, please.

Operating dynamics have been strong throughout the year for investment management and adviser, which affirms that our new strategic approach is on target and puts us in good stead for 2025.

Managerial ROE for [Erao] business came in at below expectations due to our decision to prioritize client relationships and mitigate the risk related to the starter matter in the fourth quarter.

Excluding one-offs related to the Sartor case, ROE stood at 15.3% on a full year basis.

I will go through operating trends that drove from an year of fourth quarter ROE of around 10.9%, which excludes one-off charges.

Net income dropped 31%, driven primarily by higher operating expenses and a drop in trading results in our capital markets business due to market dynamics.

From a full year perspective, net income rose 15% led primarily by sales activities in our capital markets business.

Our wealth and asset management businesses also contributed to growth in net income, where AUMs climbed 16% and 18% in US dollars, respectively.

These dynamics were partially offset by a drop in treasury results.

Next slide, please.

Now I would like to review Credicorp's consolidated evolution beginning with the quarter-over-quarter dynamics for the balance sheet.

On the asset side, as previously mentioned, loans resumed growth but mainly in lower yield in corporate loans.

Meanwhile, cash and equivalents maintained an upward trend in the context of ample liquidity.

The shift towards lower-yielding assets resulted in a 20 basis point drop in the yield on interest-earning assets.

On the liability side, lower interest rates and growth in low-cost deposits continued to be at a slower pace than in previous quarters, contributing to a decrease in the cost of funds.

For full year basis, interest-earning assets rose 7.2%, mainly driven by cash and equivalents in a high liquidity environment.

In the meantime, we have slightly increased the duration of our investment portfolio to safeguard our interest income.

Lower interest rates and growth in low-cost deposits led the funding costs to drop 17 basis points.

Going forward, improving macroeconomic conditions should bolster lending and excess liquidity contracts, which will help us sustain a resilient NIM despite lower interest rates.

Next slide, please.

Moving on to loan portfolio quality.

NPL fell 8.3% quarter-over-quarter driven by both BCP and Mibanco.

It is important to note that NPL volume this quarter continued to drop after reaching a turning point in the third quarter, particularly in the segments most impacted by the recent credit cycle, individuals and the SME portfolio BCP being as well as Mibanco's portfolio.

The improvement in the payment performance, coupled with successful risk management measures at both BCP and Mibanco, net provisions to drop 14.4% quarter-over-quarter while the cost of risk decreased 34 basis points to stand at 2.1%.

In this context, the NPL coverage ratio rose by 566 basis points quarter-over-quarter to stand at 104.3%.

Next slide, please.

Let's move on to analysis of our income and expense.

Core income rose 1.7% quarter-over-quarter, driven mainly by NII and FX gains.

NII expanded on the back of a reduction in interest expenses.

FX gains were boosted by better results in Bolivia and by growth in FX volumes for corporate clients at BCP.

In terms of margins, NIM decreased 9 basis points to stand at 6.34% while risk-adjusted NIM rose 15 basis points to stand at 5.08%.

On a full year basis, core income grew 9.6%, which is steady as affordability to sustain growth as we see opportunities in a more dynamic environment.

Regarding margins, we achieved a NIM of 6.29% with a record high risk-adjusted NIM of 4.77%.

If we analyze expenses and efficiency on a full year basis, operating expenses rose 9.3% that driven primarily by core business at BCP and disruptive initiatives at the critical level.

Expenses for disruptive initiatives at the critical level rose 27.1%, mainly fueled by Yape via technology and systems-related expenses and my transactional costs.

Finally, an uptick in operating income and accelerating operating expenses led the efficiency ratio drop 33 basis points to stand at 45.8% for the year.

Next slide, please.

Credit or full year profitability was fueled by strong results at our Universal Banking and Insurance business and a gradual recovery on the micro finance plan.

ROE for the full year 2024 stood at 16.5%.

It is important to highlight that consolidated net income in 2024 represented a record high for our company despite an environment of low growth and high cost of risk.

This result demonstrates our ability to add to challenging circumstances, supported by our diversified sources of income in line with our recovering strategy.

Now I'll move on to our guidance.

Next slide, please.

As previously mentioned, we expect the GDP to grow around 3% in 2025.

Regarding loan growth, we expect our total loan book measured in average daily balances to grow around 3.5%, driven mainly by retail banking at BCP and Mibanco.

This growth is equivalent to around 6% growth measured in quarter end balances.

The ongoing shift of our loan growth towards a higher yield mix and stronger loan growth should ensure a resilient NIM despite potential policy rate reductions in soles and dollar down the line.

Accordingly, we expect NIM to stand between 6.2% and 6.5%.

The cost of risk guidance is between 2% and 2.4%.

This range reflects the recent improvements in asset quality indicators as well as the shift of our loan portfolio mix towards

[region].

Given this expected dynamic for NIM and cost of risk, risk-adjusted NIM should stand between 4.8% and 5%.

In 2025, we will continue to invest in a transformation and disruptive initiatives to bolster our long-term competitive position.

As mentioned in our earnings release, starting in 2025, we are adopting an accounting policy change related to our loyalty program.

Considering this adjustment, we expect that 2025 efficiency ratio to situate between 45% and 47%.

It is worth noting that the impact of this adjustment is a reduction of about 80 basis points in our cost to income.

Regarding non-interest income, we expect fee income growth to pick up and stand in the low double digits in 2025 as activity accelerates and our efforts to further diversify sources of income gain traction.

Additionally, insurance and direct results should remain solid and relatively stable against 2024.

Given the formation dynamics, we expect our ROE to stand at around 17.5% for the full year.

With these comments, I would like to start the Q&A session.

(Operator Instructions)

Ernesto Gabilondo, Bank of America.

My first question will be on the political side.

I know that it's still soon on the presidential elections, but which other political parties that could be in the next election?

How should we think about the left [let it go] and right parties?

Any color on this, I think, would be very helpful.

And related to this, what tends to be the loan growth for the industry and for Credicorp one year ahead of the presidential election?

Yes.

I'll take the first question.

Actually, as you said, it's too soon to tell.

There might be anything between 30- to 40 candidates.

So as of today, it's actually a rustle.

So I wouldn't venture myself in providing any color.

As you can imagine, if there are 30-, 40 candidates, and we're over a year away from elections, anything could happen.

We're totally cautious that this is a very relevant issue obviously, for us, but also for US investors and as we get closer and have a much more clear vision on what may happen, we will share that with you.

I'll ask Alejandro for the second part of the question.

Sure.

For second part of the question.

We are not expecting a high impact from the election process for most of the year.

This starts to happen late in the year, considering elections are in April of 2026.

And there's a lot of caveats.

So there's going to be more clarity towards the end of the year.

So we are expecting a good year for Peru in general terms with growth.

I mentioned something earlier.

The cycle is improving.

So going to the specific question, -- what we're seeing for the industry of loan growth for the banking industry is around 5.5% growth.

In our case, we're expecting to grow above the market for a year.

I mentioned earlier around 6%, probably a little bit more.

It's going to depend on factors and international volatility, but we're expecting a good year for 2025.

And then for my second question will be on your sustainable ROE.

So you are guiding around 17.5% for this year, but when do you expect to normalize OpEx growth from the disruptive initiatives?

And how should we think about the ROE in the next 2 years, like around 2027?

Yes, so as we mentioned before, our -- what we expect our sustainable ROE is to be around 18%.

We're very confident that we will achieve that tier by 2026.

Basically because the main lever for that is that we expect that actually in 2025 and onwards that the disruptive initiatives as a whole will generate a positive impact on ROE.

So yes, the answer is by 2026 onwards, we expect to be operating at an ROE of around 18%, which is a substantial ROE that we expect.

Renato Meloni, Autonomous Research.

So I think the tighter credit origination policy has contributed a lot to the improvement in asset quality.

So I'm wondering here what gives you conviction that you can already restart originating and grow next year with -- and still maintain the same asset quality level -- provisions level.

And then its still connected to this, right?

The guidance also implies the mix is -- shift towards consumer allowance, but at the same time, a lower or similar provisioning cost of risk here so just trying to reconcile these two as well.

Yes.

Maybe I'll take the broader vision and ask Alejandro to go into the details.

But yes, what gives us confidence is the macro environment is in a much better position nowadays as compared to 12 months ago, the trend is still positive.

Late December figures are positive.

Inflation in January was close to zero, the cumulative inflation for the last 12 months was the lowest inflation since prior to the pandemic.

So the overall macro environment is positive.

That's the macro answer.

And on the more specific answer, all of our bad -- all vintages which had a higher NPL ratios have been digested.

And the new vintages and new origination have a much better performance.

So that's the reason why we feel quite comfortable going forward.

I don't know, Cesar, if you want to add something?

Yes.

I'll probably add something to try to reconcile how is that possible.

I think it's a change in the composition -- we expect to have a cost of rate in the range that we have provided, but with different composition that implies that we are going to have this kind of cost of risk with much higher yields because they all been -- that has been digested -- for some time, we have been originated loans with lower cost of risk.

And gradually, we are starting to originate higher yield, higher cost of risk, but in a more, tighter controlled range.

Brian Flores, Citi.

Just wanted to touch upon the provisioning of Sartor.

So can you open a bit more on the details as to the level of provisioning?

Also, what is the base case regarding the evolution of the case.

I know you entered into a factoring operation.

So just what is like the base case you're already discussing internally.

And finally, just to confirm if the impact of the operation is directly in Credicorp Capital?

Yes, Alejandro?

Sure.

So as mentioned, we've done a provision of PEN259 million.

It's not at the Credicorp capital level.

So we've done provisions for losses in the fund, which are at Atlantic Security Holding, which is wholly for the group.

And we have also a small provision for a loan that was given to another unrelated to the Sartor fund at Atlantic Security Bank.

So it's not there.

We feel comfortable with the level of provision we have done with the information we have seen so far.

You have to bear in mind that this company is under intervention, it has a liquidator.

So they are managing most of the things.

But we think that the level of provision we have done should allow us to not have to raise any additional expenses this year.

It's still early in the process.

So we'll have to wait and see for the liquidator and information they might give us to have a clear sense of how is the collection going along.

Just a follow-up, just to be very clear, is this case expected to be resolved by 2025?

Or do you think it's something that could go beyond that?

I mean, at this time, as I said, it's hard to tell.

This is a factor in

[Fanso].

So theoretically speaking, at least from the maturity of the investment, it should be short maturity.

But again, there are a lot of things around it, and we'll have to wait and have a conversation with the liquidator.

It shouldn't be as long, but it depends on how it gets evolved.

Maybe just complementing what Alejandro mentioned, as to the best of our knowledge today, the economic impact we expect, overall, has been registered last year in the provisions we made in the last quarter -- in the fourth quarter of last year.

Tito Labarta, Goldman Sachs.

My first question, just on the efficiency ratio, the guidance implies stable to actually a little bit weaker.

So just to understand that because Yape -- you're already profitable there.

Some of these digital initiatives should begin to pay off.

So just to understand why you expect efficiency only stable to potentially a bit weaker this year.

Sure.

So yes, basically, the guidance we've given is slightly lower on the guidance we gave last year in the sense that it's almost -- if you adjust for the accounting change that I mentioned, it's almost the same 46% to 48%, but adjusting for it.

So yes, it implies similar levels, as you say, maybe a little bit of potential deterioration.

I would say that we are still investing in important way, both in innovation and also in the core business in developing some capabilities we have important projects in risk, also in our mobile banking between -- among others.

So we see it is important for us to keep investing to maintain our competitive advantage in the market.

Having said that, it is something that we look very closely into -- for example, this year, we ended up slightly below guidance, as you've seen.

And just to give you a little bit more color on how much we're looking into that as management, for example, our goal comes below the guidance that we've given, that's an internal guidance.

So the logic, besides, behind this is we think we need to do these investments, but we want to do them as efficiently as possible and are aiming to getting ideally on the lower side of the range and keep the cost to income stable.

Tito.

This is Gianfranco maybe just to complement, Alejandro.

Bear in mind, you mentioned Yape.

Bear in mind that Yape -- you're correct, it's profitable and profitability this year is going to be much higher than 2024, but the cost-to-income of Yape is way higher than the 45% or 47% were provided.

And as Yape grows, even though the ROE impact is positive, the efficiency ratio impact is negative because it's still operating at higher levels.

I don't know if I was clear.

Yes.

No, very clear.

So I guess, we should expect efficiency to get to that 18% longer-term ROE, we should begin to see efficiency improving in 2026.

I think if that makes sense.

And then just a second question on the insurance.

I think Gianfranco, you also mentioned you expect insurance results to be stable.

I mean, ROE this quarter was a bit lower than it was for the full year.

Just what do you think is the right level of ROE for the insurance business from here?

What we're expecting is low 20s in the future.

As we mentioned in previous calls, the insurance business has had two exceptional years for specific reasons related to the pension fund insurances, but we do not expect that to be sustainable going forward.

So we expect this business to operate at ROEs of low 20s.

[Nicolas Riva], Bank of America.

I have two questions on the bonds of both BCP and Credicorp.

First on BCP, you have the Tier 2s, the 2030s that you can call this year, [machine] outstanding is $850 million.

Is it reasonable to assume given that you can issue the older Tier 2s that those are going to be called and refinanced again with the issuance of Tier 2s?

And then my second question, Credicorp, the holding company also has a bond, which I believe matures in June for $500 million, if you can discuss the refinancing plans for that bond as well, if possible?

Sure.

I'll start with the second one.

We are thinking about letting it mature and not refinancing it.

We took it at a time where it made sense because of the price and the volatility in the world.

But as of now, there's no need to maintain debt for Credicorp.

For BCP, we are looking at our capital and the best way to manage those ones.

So we are assessing what to do in the market, and we'll let you know when we have a deficient in the market.

Yuri Fernandes, JPMorgan.

I have a question regarding capital distribution.

If you can provide some color on how should we think about payout and dividends.

This was a better year for dividends, I guess, a 65%, 66% payout.

So just checking if we should see a similar shareholder return and given when growth is not that sound yet?

So just checking the box here on dividends.

Sure.

So what we said before the policy that we're following is basically we pay out all of the money is not needed for the growth of the business.

So we basically look at the plan for the businesses in the year, and then all the excess capital is paid out as dividend.

We are also aiming to have a growing dividend in March.

So ideally, we'll be able to do that this year.

But from a policy perspective, the idea is to just not retain any capital that is not needed for the business in the particular year.

And what is the number like on the [current issue] one that you are working with as the minimum for you to pay the excess?

I'm sorry?

Yes, (multiple speakers) at BCP and it's 13.5% at Mibanco.

And if I may, just a second follow-up here on Yape.

This first, usually, we see a seasonality on expenses, right, on cost to serve.

Just wanted to ask you about your 2026 guidance for the new initiatives.

I think you had a 10% of your risk-adjusted revenues to come from new initiatives, Yape seems to be on track.

So just checking where we are, if you're comfortable, if you can be above the 10%, below how you are seeing basically the up evolution versus your prior 2026 guidance for the new initiatives?

Sure.

We're still aiming for above 10% at 2026.

That is from all disruptive initiatives.

That's the way we've defined it, not specifically for Yape, but of course, Yape the main contributor for the following years.

So yes, we are tracking to get to the number.

Sergey Dubin, HL.

Just a clarification regarding loan growth.

I think you mentioned on the call that you're expecting 5% to 6% for the banking industry.

And then you're showing in your guidance that you're looking at 3.5%.

So I was just not clear whether are going to be below the industry or in line with the industry?

Or how does the 3.5% relate to 5% and 6%?

Sure.

Thanks for the question and for the opportunity to clarify.

We guided for average daily balances, so not full year growth.

So in average daily balances, its at 3.5% growth.

And that is equivalent to around 6% growth in quarter end balances basically.

So that's the continuation.

Yes.

So we're expecting the market to grow at 5.5% and has to grow somewhat above the market this year.

And then the second question is regarding this Sartor case that you referred to.

So just to understand, the press release that you issued on December 30 says that the maximum possible exposure there is $125 million, right, which is about PEN460 million, and you provisioned to PEN259 million, so roughly 55% of that.

So is it your belief that your provision would fully cover the possible losses and therefore, you won't expect any more provision.

So the full exposure is not provisioned because you believe that probably a provision that's sufficient already.

Is that correct?

That's correct, Sergey.

As you just mentioned, the maximum closure at the time was that figure.

There were other funds which we invested.

And as I mentioned before, we expect that with the knowledge we have today, we expect that the major impact should be what we provisioned.

And then just to clarify one more thing.

Is this the kind of -- so you felt the need to backstop your clients who invested in this fund?

Is that kind of a typical practice?

Or is that because you felt like that was the oversight on your part that perhaps this kind of dealt with this entity or if you -- I guess what I'm trying to understand is if you're distributing funds by a third party and another one gets in trouble, would you continue -- like would you always do this?

Or was that just a one-off?

Or how should we think about this case?

Fair question.

It's not a usual practice whatsoever.

However, because of what this unprecedented environment and details with the counterpart, we decided to bear the whole risk and take our clients out of the matter.

It's not a usual practice whatsoever.

Okay.

So it's more of a one-off, right?

Hopefully.

That's correct.

Carlos Gomez, HSBC.

I would like to ask about expenses, in particular, verification of expenses.

As you mentioned, the fourth quarter tends to be higher.

I look at some of the lines such as professional fees, they really do jump a lot in the fourth quarter.

And I wonder if you are thinking of perhaps distributing expenses differently over the year so that we get a more clearer picture of how they evolve?

Second, in terms of also expenses, could you give us an idea about how much you think you might have to invest in Chile for the Tenpo operation in the coming years?

As for the first one, we haven't changed any process as of now.

So we are not planning on expensing this differently.

And for the second one, we're going to keep spending the same amount of money for next year in Tenpo.

Maybe just to provide some more additional color, Carlos.

Tenpo already got the final license of a full bank, the pending authorization is based on the -- Tenpo complies with all operational matters and connectivity matters, which we expect to be compliant by the last quarter of this year.

Okay.

No, that's my question.

So once you are fully operational and you have this full license, do you need to make an extra investment to make it a full-fledged bank to compete in the market?

The answer is yes -- actually, it has two answers.

I don't have the exact figures, one is that we need to make another capital equity investment by regulation.

And then we need to -- since Tenpo hasn't reached regular, it's going to need more funding from our side to ramp up operations.

Sorry for not being specific enough.

Maybe what is relevant is what I answered before.

Overall, we expect this year new ventures should generate -- should be cash flow, slightly cash flow negative or almost cash flow overall.

That's including everything.

It appears there are no further questions at this time.

So I will now turn the call back over to Mr. Gianfranco Ferrari, Chief Executive Officer for closing remarks.

Thank you.

In 2024, we achieved record-breaking results, reflecting our strategic strength and resilience amid the changing macroeconomic landscape.

Our success highlights our diversified portfolio digital innovation and strategic risk management.

Building on this momentum, we will continue to benefit from Peru's recovery, which is fueling growth across our key business lines.

These achievements highlight the effectiveness of our strategic initiatives in bolstering stability, improving efficiency and reinforcing our competitive advantages.

As a result, we are well positioned to navigate volatility and capitalize on opportunities to drive sustainable growth.

We reaffirm our sustainable ROE target of 18% by 2026.

This expectation is supported by a resilient NIM and an increasing risk-adjusted NIM as we continue to shift our loan portfolio towards retail and accelerate digital transformation, targeting 10% of risk-adjusted revenues from new business models by 2026.

This will also lead to an improvement in efficiency and our disruptive initiatives mature.

Looking ahead, we remain focused on 3 strategic pillars: attracting and retaining top talent, accelerating digital transformation and integrating sustainability into our core strategy.

By addressing these priorities, we will sharpen our competitive edge and drive long-term value in an evolving global landscape.

Our robust risk management framework is also central to our strategy.

Our '25-'27 risk transformation program with enhanced capabilities across all subsidiaries through automation and advanced monitoring and structure implementation approach.

Key initiatives include strengthening the risk function, scaling distinctive capabilities and embedding a stronger risk culture.

These efforts are expected to lead to higher growth of the lending portfolio while optimizing it, improve risk-adjusted profitability and expand financial access for underserved Peruvians.

We have a clear strategy, disciplined execution and a commitment to innovation, we are confident in our ability to drive sustainable growth and create long-term value for all stakeholders.

Thank you all.

Thank you, ladies and gentlemen.

This concludes today's presentation.

You may now disconnect your lines, and have a wonderful day.