Intercorp Financial Services Inc (IFS) 2024 Q2 法說會逐字稿

Good morning, and welcome to the Intercorp Financial Services second quarter 2024 conference call. All lines have been placed on mute to prevent any background noise. Please be advised that today's conference is being recorded. After the presentation, we will open the floor for questions. (Operator Instructions) It is now my pleasure to turn the call over to Mr. Ivan Peill from InspIR Group. Sir, you may begin.

Thank you, operator, and good morning, everyone. On today's call, Intercorp Financial Services will discuss its second quarter 2024 earnings. We are very pleased to have with us. Mr. Felipe -- sorry, Luis Felipe Castellanos, Chief Executive Officer, Intercorp Financial Services, Ms. Michela Casassa, Chief Financial Officer, Intercorp Financial Services, Mr. Carlos Tori, Chief Executive Officer, Interbank, Mr. Gonzalo Basadre, Chief Executive Officer, Interseguro, Mr. Bruno Ferreccio, Chief Executive Officer, Inteligo SAB. They will be discussing the results that were distributed by the company yesterday. There is also a webcast video presentation to accompany the discussion during this call.

If you didn't receive a copy of the presentation or the earnings report, they are now available on the company's website ifs.com.pe. Otherwise, if you needed any assistance today, please call InspIR Group in New York at 646-940-8843. I would like to remind you that today's call is for investors and analysts only. Therefore, questions from the media will not be taken.

Please be advised that forward-looking statements may be made during this conference call. Please do not account for future economic circumstances, industry conditions, the company's future performance or financial results, as such statements made are based on several assumptions and factors that could change, causing actual results to materially differ from the current expectations.

For a complete note on forward-looking statements, please refer to the earnings presentation and report issued yesterday.

It is now my pleasure to turn the call over to Mr. Luis Felipe Castellanos, Chief Executive Officer of Intercorp Financial Services for his opening remarks. Mr. Castellanos, please go ahead sir.

Thank you. Good morning all, and welcome to our second quarter 2024 earnings call. I want to thank everybody for attending our call today. I would like to start by addressing the macro situation in our country. In the first half of 2024, economic growth showed better numbers, posting a 5.3% growth in April and 5% in May, mainly due to a recovery in the fishing industry with associated services, also just a rebound effect over the first half of 2020.

In terms of inflation, it has decreased consistently, as in April, posted at 2.5% number being the lowest among other countries in the region of that month. And in May, the inflation was 2%, continuing its downward trend. Better market sentiment from consumers and businesses lead us to expect that GDP will be at around 3% plus for this year, which is our recovery compared to last year. Under this scenario, IFS is showing improvement in its results. Our core banking franchise continues to advance with a strong growth in commercial banking and improvement in risk indicators, although we still face volatility in our investment operations.

Overall, we continue in our recovery path. In Interbank, we have been able to grow our market shares in loans and deposits growing significantly in commercial banking, now consolidating at the third-largest bank in midsize companies and in total deposits, even though cost of RICs risk remains high, there is a clear improvement, showing a downward trend as we expected.

Finally, Interbank and Izipay continue working to create synergies well, while playing continues to engage more users. At Interseguro, we have seen relevant growth in premiums, mainly in private annuities and individual life maintaining market leadership in annuities. Our wealth management business has had a positive quarter in its core business as the assets under management have reached an all-time high.

As you all know, our strategic priority continues to be to achieved digital excellence for our customers. We want to become the leading digital platform with profitable growth. We want to create the best digital experience for our customers and to boost our core businesses by enhancing synergies among our companies in our platform and continuously develop our analytical capabilities always leveraging on the best talent.

To this end, we have invested in building a leading digital proposition, adaptable and scalable that is being rapidly adopted by potential and current customers, and we are offering 100% digital products and services to almost all segments. We remain confident about IHS outlook going forward as we monitor the macro conditions while we continue to build on our long term strategy with emphasis on our key strategic priorities, which, as you know, are growth, digital excellence, and focus on key businesses.

Finally, we wanted to share with you the award granted to Interbank from Euromoney as we have been named Peru's best bank, best digital bank, and best bank for corporate responsibility. This type of recognitions make us proud, but also tells that we continue in the right path.

Now let me pass it on to Michela for further explanation of our quarterly results. Thank you.

Thank you, Luis Felipe. Good morning and welcome again. To begin, I would like to review the macroeconomic outlook for Peru. On slide 2, complementing what Felipe just mentioned, we see signs of improvement in the macroenvironment as GDP for the second quarter and specifically in the month of April and May grow more than 5% above market expectations. It is estimated economic activity accumulated 2.7% growth in the first half of this year. This was mainly due to the recovery of the agricultural and fishing industries with associated services.

Additionally, pension fund withdrawals and the availability of severance indemnity deposits continued to activate internal consents. In that line, expected growth remains biased to the upside as we expect GDP to grow 3% in 2024. This considers the base effect versus 2023, the improvement of public investment, some positive impact from private investment and the recovery of labor-intensive activities.

On the other hand, Central Bank has reduced reference rate by 200 basis points from 7.75% at its peak to 5.5% as of today. Inflation is already within its target range of at 2.3% in June, with expectations anchored at 2.2%. This positions the Peruvian Central Bank among the first central banks to successfully control inflation. Additionally, the exchange rate continues to be the most stable currency in the region.

On slide 3, being consistent with the previous slide, we observe progress as domestic demand, consumer confidence and business trust materialize, a change in their trajectory. As of April, we have seen growth in formal employment, especially in sectors linked to consumption and growth in real formal wages. During June, (technical difficulty) increased 4.2% in real terms, which contributed to drive internal demand.

Additionally, private investment accumulated two consecutive positive quarters during the first half of 2024. So the expectation for private investment in 2024 surplus previous estimates reflecting some optimism. Despite this, the total system consumer loans showed a decrease of 2.1% on a year-to-date basis and 7% on a year-over-year basis, which indicates that this segment is still not growing.

However, total system loans increased by 1%, driven by commercial loans and mortgages, which grew 1.6% and 2.8% respectively, reflecting the increase in private and public investments.

Moving on, is in this context that we'll continue to build on our three key strategic priorities, which are first, profitable growth to become a leading digital platform. We continue to grow our customer's base by double digit for all the segments, consistent with the recovery in the macro environment. Also, IFS net income more than doubled in the second quarter when compared to the previous one in line with the important reduction of cost of risk at the banking sector. Second, create the best digital experience as now, more than 80% of our retail banking customers are digital and our current NPS for retail banking is 61%.

Third, we continue to focus on our core businesses with relevant market share in consumer banking loans at 21.8%. Total deposits up 13.6%, ranking number three in the Peruvian financial system and in annuities, up 31% as market leader. Also, we continue to increase our market share of commercial banking to a 10.2%. And finally, in wealth management, asset under management grew 15% year over year, reaching historically maximum.

Moving on we will review four sections of our earnings presentation: sustainable growth; building a digital platform; key businesses; and finally, some takeaways. Let us start with the first section, which focuses on sustainable growth.

On slide 7, we wanted to share our key messages for the quarter. First, better banking and insurance results drove earnings to grow by two-fold quarter over quarter, not only because of a decline in cost of risk, but also due to higher investment results. This result in an ROE that has doubled to 11.2% from the previous quarter with a net income of PEN286 million.

Second, cost of risk decreased by 70 basis points on the quarter and more than 120 basis points from the peak of the fourth quarter of 2023. As such, we see better results for Interbank with 4% higher ROE than the previous quarter.

Third, the cost of funds continues to improve, decreasing 40 basis points year over year and from the previous quarter outperforming the system average. This improvement is not only due to a declining market rates, but also because of our proactive management of efficient funding, hence in enhancing the funding mix.

Fourth, we are tactically derisking the portfolio given current system dynamics. And this is why there has been a significant growth in commercial banking with imports from Peru, with over 15% growth year over year in commercial loans. Additionally, we have gained more than 80 basis points of market share in this segment over the past year, highlighting mid-sized companies that we have consolidated their position as number three reaching 12.3% market share.

Fifth, there has been an important growth in insurance premiums that generated improvement in insurance core business and the recovery of investment results in higher net income.

Finally, in wealth management assets under management continued to grow nicely reaching a historically maximum driving also fee income up. As you can see, we are reporting IFRS figures in its three operating segments: banking, insurance, and wealth management. Payments will no longer be a separate segment as it has become an integral part of the core offering of and very synergic with the banking sector.

On slide 8, we can see earnings of PEN286 million in the quarter. Although we are still below the levels of a year ago, we have doubled from the net income reported last quarter. In banking, the quarter-over-quarter comparison is very positive. Even though cost of risk is still high, we continue to see an important recovery trend that allowed net income to grow 58% and ROE to be at 11.1%, which is higher than the previous quarter by 400 basis points.

In the insurance business, there is a recovery in the investment portfolio, adjusting by the non-recurring events from the previous quarter, the net income has no significant changes.

Finally, on the wealth management business, there is a good dynamic with clients as assets under managements continue to grow, but the investment portfolio hasn't performed as expected, compensating the improvement in fee income resulting in an ROE of 2.7% this quarter. On a cumulative basis, the wealth management ROE is around 7%, having a higher net income of 10% when comparing to first half 2023.

On slide 9, we see a year-over-year growth of revenues of 2%, mainly due to a sustained better performance of insurance core business compensated by lower revenues from wealth management. With a quarterly basis, there is also slightly higher revenue in banking, which we will explain in later slides.

On slide 10, we wanted to follow up with the evolution of the asset quality of the loan portfolio. First, we have increased our exposure to commercial banking passing from 44% in the second quarter 23% to 47% of Interbank's portfolio as of the second quarter of 2024. Tactically taking advantage of Internacional del Perú program, which has allowed us to grow with a better risk adjusted result in small and medium sized companies. This segment continues to perform well in our portfolio, even when excluding the warranted in Impulso Peru portion.

Second, the mix of our consumer portfolio has changed. The unsecured portion, which comprises credit cards and personal loans has decreased now representing 19% of the total loan book, down from 21% in the previous quarter and 24% a year ago. We have seen this trend happening also at market level with consumer lending decreasing year over year. Meanwhile, payroll deductible loans to the public sector employees at very low risk products now represents 13% of the loan book.

Consequently, we wanted to highlight that this quarter we see the inflection point of the consumer portfolio, not only due to the change in mix, but also because of a better payment behavior from customers. Additionally, this quarter with a better looking macro environment, the cost of risk is reflecting a downward trend, decreasing to 4% from 4.7% of the previous quarter and from the peak of 5.2% in the fourth quarter of 2023. There is good news as these levels are not only lower than the previous quarters, but are also slightly better than our estimates.

Finally, the change in trend is also reflected in the NPLs, which peaked in the first quarter 2024 and have started to decline to 3.7% in the second quarter, maintaining a lower NPL compared to our peers.

On slide 11, complementing the previous slide, the re-scheduled categories has slightly decreased now representing around 19% of the retail unsecured portfolio. As mentioned in previous calls, the payment behavior for performing loans is quite different for customers with re-schedules. The unpaid portion for regular customers is only 1.4%, while it is around 10% for re-scheduled clients for installments and material as of June.

Now we have observed an improvement in the payment behavior of customers on the back of the liquidity events of the second quarters, such as availability of severance, indemnity deposits, and pension funds withdrawals, and also because of proactive actions taken in collections. This is evident in the reduction of the unpaid installments by the re-scheduled clients passing from 15.8% to 10.5%.

Finally, on this section, on slide 12, as always, we wanted to highlight the tight cost management we continue to pursue with focus IFS level versus the previous year, only 3% increase from the banking sector. With this, the efficiency ratio is 38.6% for IFS and 39.7% for Interbank.

Moving on to the section of building a digital platform, on slide 15, we have positive news in our digital indicators, which continue to show nice trends when compared to the previous year. As of June 2024, digital sales reached 68%, up four points from last year and digital customers reached 81% of retail customers who interact with our digital channels without going to the stores, up six points from the past year. Furthermore, our digital self-service indicator is 77% in our NPS and our retail customers is 61%. As part of our digital value-added proposition to enhance customer experience, we want to give you a quick summary of the recent developments on Plin.

Plin interoperable, P2P system continues to enable Plin to accelerate its growth as volumes expand by two-fold in one year in users, which more than 9 million by the end of June, with Interbank participation stable at 44%. Moreover, our active users have grown to 2.2 million, a 33% increase compared to last year. And this should result in a higher engagement of clients with Interbank.

The campaigns such as [Yepineame] in Plin base POS have allowed Interbank to increase in transactions by 2.8 times. This development is helping to bring more Peruvians into the financial system, reducing the use of cash, which continues to be high in the country. Insurance and wealth management digital indicators show positive developments as well, with digital self-service reaching 66% at Interseguro. So our digital sales reaching 82% in digital premiums from Vida, slowly gaining relevance, which is 13%.

Wealth management, digital transactions for fund management reached 50% in Interfondos and ERNI users reached 23% of total Interfondos customers.

Now let's move on to show you some more details on the performance of our key businesses. On slide 19, we continue to grow double digit in lower risk products and segments such as payroll deductible loans and mortgage with 24% and 15% year-over-year growth in disbursements respectively. Also, we are growing heavily in commercial banking with lower risk as Impulso MyPeru is allowing us to grow in SMEs where our value proposition has had nice traction, multi-play, and disbursements more than two-fold when compared to last year. Important to mention that more than 90% of disbursements to SMEs have the guarantee of Impulso MyPeru.

Also, commercial banking portfolio as a whole grew 15% on a year-over-year basis and 12% from the previous quarter above the system as we reached 10.2% market share in this segment. Also, we wanted to highlight the growth of mid-sized company as we are now consistently ranked number three in this segment.

Finally, in line with the market trend because we remain cautious in the loan book, there is still impact in cash loans. Disbursements decreasing 48% year over year as well as on credit and debit card purchases. However, we see a recover of this last one of more than 20% during July.

On slide 20, we wanted to update you on the development from the Impulso MyPeru. As mentioned before, this program does not provide funding but gives more than gifts from 50% to 98% guarantee levels to credits given to SMEs and midsized companies and the allocation of the guarantee is conducted through our auctions. When the big variable is the interest rate offered to clients during the second quarter, we have disbursed more than PEN1,400 million.

Overall, almost PEN2 billion has been disbursed, of which almost 65% has gone to SMEs and the remaining to mid-size companies. Risk adjusted profitability has improved and these increasing volumes in clients represents also an opportunity to further cross-sell and financing, as was the case with Reactiva.

On slide 21, although risk adjusted NIM is still low, we will serve an important improvement of 50 basis points aligned, not only with the shift of the loan book mix, but also with a reduction of cost of risk in both retail and commercial banking, given the growth of Impulso MyPeru on the panel and the liquidity events mentioned before.

Additionally, there is still an impact on yields due to the lower rates driven by Impulso MyPeru and with the shift of the loan book mix. Unsecured loans, which includes credit cards and personal loans, decreased to 19% year over year. In that line, we see lower yield on loans of 20 basis points, reaching 10.6% and the NIM reduced by 10 basis points. Furthermore, this quarter brings positive news as the cost of funds consolidate a change in trend, decreasing 40 basis points to 3.6% with an accumulated reduction of 80 basis points from the peak of the fourth quarter last year.

As you know, our sensitivity to changes in rates is higher in the funding side as we have more short term deposits, both institutional and retail. This is why when rates increase, our cost of funds was hit. But now that we see lower market rates, we benefit more than others. In that sense, this improvement is attributable not only to lower market rates as the short duration of interest-bearing deposits allows for faster repricing, especially in local currency deposits and also to a better funding mix as the proportion of time deposits of retail deposits is decreasing given a proactive management of efficient funding.

Consequently, the cost of deposits has decreased 20 basis points in the quarter and 60 basis points year to date. More positive news is that the share of deposits in total funding remained stable and the retail deposit market share continues to increase, highlighting growth from saving deposits throughout the year.

Finally, our loan-to-deposit ratio of 99% is in line with the industry standards. We have also been working to generate further synergies with Izipay as we encourage the growth of our payment ecosystem, focusing on increasing transactional volumes, offering merchants value-added services, continue to pilot low risk loans to merchants in use Izipay, a distribution network for Interbank products as well as a source to increase float.

The results are evident as we follow four key figures, 27% yearly increase in Izipay flow coming to Interbank accounts and 40% increase in float from merchants. Moreover, there is a 2.2 times yearly increase in transactional volumes and 17% growth in float from micro merchants. Thanks to Izipay Ya.

Now moving to Insurance on slide 24. Premiums were up 8% in the quarter in around 25% year over year as market share of annuities remain at 29%. Individual life continues to grow nicely with an 18% increase year over year. Private annuities are the fastest growing products having more than doubled in the last year and increasing their share of premiums to 25%. This growth is driven by some clients switching from time deposits as banks now offer lower rates. On the other hand, retail insurance remained stable with credit life and card protection experiencing good growth.

On slide 25. Regarding the investment portfolio, the return on the investment portfolio increased 40 basis points compared to the previous year, mainly due to higher interest received from income, fixed income investments and an increase in rental income.

And finally, on wealth management, we continue to see growth in assets under management with a yearly growth of 15% and 5.5% on a quarterly basis, reaching the historically maximum of $6.8 billion. On the back of that, there is an important recovery of fee income on a quarterly and annual basis, reaching PEN42 million, which represents a 22% growth year over year and an 11% growth from the previous quarter.

Now let me move to the final part of the presentation where we provide an update on ESG, operating trends for 2024, and some takeaways. On slide 28, we want to share our sustainability update. On the environmental front, we've completed an initial climate risk assessment at Interbank, providing a robust foundation for future climate related strategies. Our sustainable loan portfolio has expanded to more than $200 million, reflecting our commitment to re-financing.

To defend a strategic partnership with EnelX, we further enhance our ability to identify and offer real loan products. In the social front, we keep strengthening our digital solutions, aiming to reach more Peruvians. Regarding our education, our financial education platform up in the mark, we have already reached over a million Peruvians.

In addition, our dedication to talent management has also been recognized by Merco a great place to work. In the governance front to foster a strong sustainability culture, we have implemented our first sustainability supply chain forum reaching 100 key providers. Second, our employees have been actively engaged in ESG material topics through five sustainability talks, and we supported local entrepreneurs by hosting to sustainability first at Inteligo group.

Finally, as Luis Felipe mentioned, Euromoney has also awarded Interbank for Peru's best bank for showing strong financial performance across key metrics such as business development, increased digital solutions and corporate governance. Second, Peru's best digital bank for our focus on digital innovation. And third, Peru's best bank for corporate responsibility, underscoring the positive impact of our initiatives on society and the environment.

On slide 29, let me give you an update on our operating results for the second quarter of 2024 in comparison to guidance. We continue to present sound capital levels with total capital ratio of 15% and core equity Tier 1 ratio of 11.2%, both above our guidance. First half 2024 ROE is 8.4%, still below mid-term range, but recovering to 11.2% in the quarter with a better cost of risk, and the year end ROE should be above 12% as guidance.

We anticipate that the ROE of Interbank and Inteligo should be higher in the second half of the year, and we continue to target our mid-term profitability ROE of 18%. Loan growth of around 4.5% is aligned with the guidance and expect to remain aligned throughout the year, supported by strong growth from commercial banking both the financial system then gaining market share.

For Interbank was 5.3% during the first half of the year. We expect it to slightly recover during the year as cost of funds decrease will continue in line with lower market rates and the efforts previously described. Cost of risk for banking was 4% in the quarter, slightly better than our expectations due to the improvement in the forward-looking variables in below our guidance, also mentioned in previous call.

Cost of risk should continue this path as we expect year-end numbers to be better than guidance. And finally, we continue to see good efficiency levels of IFS in line with guidance, but slightly impacted by revenues and not by cost as we are strictly monitoring and managing them, especially the bank, which has reached a cost income ratio below 40%.

Let me finalize the presentation with some key takeaways. First, we have seen improving banking and insurance result driving earnings recovery. Second, there is a significant growth in Commercial Banking loans. Third, lower cost of risk translates into better results for Interbank. Fourth, continuous improvement in cost of funds. Fifth, double digit growth in insurance premiums. And finally, a strong increase in assets under management in wealth management. Thank you very much.

Now we welcome any questions you might have.

(Operator Instructions) Ernesto Gabilondo, Bank of America.

Thank you.

Hi. Good morning, Felipe and Michela, and good morning to all the team. Thanks for the opportunity. My first question will be on the wealth management business. So probably a question for Bruno. We continue to see that the earnings are too very volatile. I think this was the only subsidiary and what I said I explained because of the performance of the investment portfolio. So I would like to see your thoughts on just like some pictures strategy to manage more stable earnings in Chilean subsidiary.

And my second question would be on asset quality. So we noticed the NPLs increased quarter-over-quarter, but effectively decline and one of your peers recently anticipated that the microfinance sector and some specific SMEs and retail segments could remain challenging in the second half. So wanted to hear from you if you are sharing the same thoughts or are you saying that those risks are already considered in your assumption for the cost of risks trending down? And then along my last question is if you can elaborate a little bit more on the potential driver for the second half to achieve the ROEs above the 12% again in the second half? Thank you.

Okay, Ernesto. Thanks very much for your questions to get organized. So let's go first with Bruno.

Yes, good morning, Ernesto. So with regards to Inteligo's results, a couple of things. First, highlighting what Michela already said through the presentation is that we've been seeing very strong growth in assets under management since basically starting the fourth quarter of last year and going through this year and that trend continues. So I think that we would anticipate fee income to continue to build strongly in comparison to the previous periods. So that would be one source of stable revenues.

The other with regards to the portfolio on your specific question, a few things that we've been doing. First of all, we have been increasing our fixed income holdings and at the same time, making sure that those are booked in a way that they impact -- they don't impact our P&L on a monthly basis because what we're trying to do is generate income from that. And so in the past, we had a lot of that impacting P&L instead of a net equity.

Okay. So we've made that change and we continue to do so. The second part of it is we've been derisking our portfolio. But as you know, from what we've been seeing in the market for, I don't know, the last year-and-a-half or so, we have to be patient with that because we don't want a realized losses or sale and rebalance our portfolio at a bad time. So we've been being very careful and taken the opportunity to do so throughout this year.

And going forward, we think that our portfolio is going to be in a much better place. And hopefully we are going to continue to be able to reduce the volatility that we have seen basically in the last 12 to 18 months in their portfolio.

Thank you, Bruno and Ernesto on your question, let me first give it a crack and then I'll pass it on to Michela or Carlos, so they can complement. And yeah, our cost of risk is coming down in basically a couple of factors now. First, we've been taking actions throughout last year. That obviously, that takes some time, but it's already showing up. So that profile of our portfolio is different to what we had some months ago. And the customers that had high PDLs have already been provisioned. So that portfolio has had at least in that front.

Second, we've been targeting lower risk customers. So that also has an effect. And third, there has been a mild, but still not a bad but at least recovery of the economic conditions overall, so that's -- it makes us to expect that this improvement will continue in the coming months as we continue to derisk the portfolio tactically and strategically, I would say tactically because we decided to go strongly over other segments, including corporate banking and medium-sized banking and also higher income segments.

And I guess that we've been positively surprised by the traction that we've had with those types of customers, not so that's not something that has impacted positively the results of the bank.

And then jumping a little bit on your third question, if this stock continues and the cost of funds continue to go down, as we do expect that only those two factors will have a positive impact on the ROE itself. So as Michela mentioned during the call, we do expect that Interbank's ROE and Inteligo's ROE, given the stabilization of market conditions, will boost ROE for the second half of the year.

Not I stop there and maybe Michela and Carlos can complement anything that I have not mentioned.

Yes, maybe a little bit more in relative terms, Ernesto is that when you look at our portfolio, I mean, Filipe already mentioned that the riskier part of the consumer book has decreased. It has already derisked. Okay. So this is a first consideration that is clearly showing in the downward trend of cost of risk of credit cards and personal loans. And we have seen these very clear this quarter.

In the second quarter, which I think is very less relevant given the macro scenario is our different strategy in commercial Banking, now, which has always been much more conservative. First, because of the incidence of the small businesses in our portfolio. Remember that we only have like 3%, 4% market share in SMEs, the small ones. And given that we've been lending in Impulso MyPeru, the cost of risk of that segment has significantly decreases. So it has decreased I don't know like 700 basis points over the past year.

Okay. So we don't have a big portfolio in the micro segment, which is the one that is key because only now you start to see the progress in that segment that was held first by Reactiva, then by the multiple expansion that the Reactiva program has for that specific segment. In the second portion of our more conservative approach in commercial loans is in the midsize companies where when you look at our PDL ratios is the lowest in EPS up between the four big banks in the countries. It has always been the case because we are conservative and we focus on the better risk profile clients.

So I guess you'll see a continuous deterioration of deteriorations in the system of midsize companies and small businesses. That is not the case in not to that extent in the in the Interbank portfolio. And linked to that, the trend in the ROE for the second half, it's actually coming from two specific things is the ROE of Interbank that with a lower cost of risk starts to get closer to the target level. So we have seen already not double digit ROE there, but this quarter in that or we should just continue to grow in the next quarter because of a lower cost of risk.

And the second one is Inteligo. Now, of course, there is a little bit more of uncertainty there, given market conditions. But we expect a much higher ROE for the second half of the year attainable when you compare to the first half, I'm not sure where these discoveries it's up in now.

Very detailed.

Super helpful. Thank you very much, Filipe, Bruno, and Michela.

Thank you, Ernesto.

Carlos Gomez, HSBC.

Yes, hello, and good morning and thank you for taking my questions. I want to ask you first about, you mentioned Reactiva and the guarantees and the fact that the new program also has guarantees. But what was your experience with the performance of the Reactiva program? And due to the guarantees, you significantly reduce your cost and that's the government and incurred a significant cost in that type of program?

And second, we know that there was a savings bank that failed in the quarter. How do you see the financial system in general, and I do confirm perhaps by some of your counterparty risks.

And finally, could you elaborate on the division to integrate Izipay and not have it a separate segment anymore than what actually quite useful to be able to monitor?

Carlos, can you repeat your question number two, please? I didn't get it very well.

I see my question was in regard to, I think absolutely it was (inaudible), the one that failed and whether you are concerned about other institutions in the financial system a bit?

Okay. Okay, great. Let me start by saying -- yeah, let me start addressing that that question. And so I think that we are not concerned about the financial system. I think that the system, the proven system is very well regulated, is very well provisioned. It's very well capitalized, obviously, with so many months of low growth even last year. We had a small recession in things are complicated for some institutions, especially the ones targeting the higher risk segments, but it's not something that is affecting the majority of the institutions.

I would tend to believe and understand that these are isolated cases. So there's not a significant concern. I think that Super Advisory by SBS is working well and they are very preemptive in making sure that things don't get complicated for customers. So that's one part of the question. I know our exposure to those types from the Interbank's perspective for those types of institutions is negligible, extremely limited. So there's no concern on that front from the Interbank perspective as well.

And then on the experience of the Reactiva and Impulso, I'm going to pass on to Carlos as well as a question number three. However, it's two different things. Not Reactiva was something that was built to face COVID. We had a positive experience, but different to Impulso, which is a program targeted to boost a recovery from last year's issue. So there are two different programs. In both cases, our experience has been positive, but let me pass it on to Carlos Tori, so he can complement that. And on your question about Izypay and Interbank as well.

Thank you, Filipe. Exactly, let me go through directly referenced program during COVID, which came with funding from the government from a very, very low cost rates as long they're in the experience having both, obviously, both for our clients and the system as well as for the banks. The loans were very small. So the operational process of diverging and getting back their guarantees from the warrants wasn't perfect, but it's worked well and we still have a small outstanding, but that portfolio basically is being repaid. Most of it at the end of this year, and there's going to be very little left for first quarter of next year.

Impulso is a different program. It does have a guarantee for the government, depending on the size of the loan goes from like 60% guarantee to like 90%, but it comes with our funding. So the economics on those loans obviously reflect a lower risk, but also have more economic return for the banks. So it's a different program that gives the clients longer term funds, which is very helpful for them and it gives the economy a boost.

But it's a different firm, I would say better and more sustainable, probably more comparable to similar programs that we see in other countries in the region. And it could be a forum that stays along the next couple of years. So very nice to hear both positive in. Is that -- I don't know that has actually --

I'm curious, about your credit loss experience in these programs. And I understand there are different types of companies?

No, it was very low, very low credit loss, much lower than that (multiple speakers)

But after I think, after the guarantee, I would imagine or before the guarantee?

Both actually. But yeah, afterwards, yeah. I mean, after being much lower than the rest of our portfolio and before the guarantee, it's similar to our portfolio.

And then on Izypay, so the rationale behind the acquisition of Izypay and the vision going forward has always been the integrating it to the business of the bank. There are a lot of synergies, particularly with our commercial banking segment in terms of bringing in the flows and having the flow and strengthening the relationship with the clients. And also on the payment side, there are a lot of synergies in terms of which systems and which networks we use to transfer payments and the funds.

So we've been going forward with that strategy. We've made some Board changes to foster those synergies working together here. So we feel like the stand-alone financials of Izypay no longer reflect the actual results because there's different things going on. We will continue to show the operational numbers and transactions and things like that. But yeah, so that's the reason why we haven't shown that Izypay numbers. Hope that explains.

We haven't said that we have seen, as Michela mentioned, a very strong increase in flows from Izypay to the bank and obviously strengthening relationships on our commercial clients, those floats.

Do you continue to operate with your former partner with Scotia Bank?

No, actually, Carlos, that's what Carlos mentioned. We acquired 100% of Izipay many months ago.

No, that I understood. So the question is whether that has meant that the Izypay's relationship with Scotia Bank has stopped becoming smaller?

No, we continue to offer them some services. We offer services to many financial institutions. And yes, the relationship with Scotia Bank and Izypay has remained stable. There are different things that go up and down. We give them several services, but it hasn't decreased due to the changing of ownership. No.

Yeah, that's all. Thank you so much.

Okay, thank you.

Alonso Aramburú, BTG.

Yes, hi, good morning. Thank you for the call. I wanted to ask about on loan growth and margins and the relationship between the two. You mentioned you'll have expect needs to improve in the second half of the year. And just wondering how much of that is on the asset side, the higher yield potentially as you grow growth accelerate in the retail side, how much of that is in the funding side as rates continue to come down and your funding cost continues to decline? And related to that, when do you expect a pickup in growth in credit card business runoff? Thank you.

Michela?

Hello, Alonso. Good morning, and let's start with yield. What we are seeing for the second half of the year -- I mean it is tough, okay. Because of the dynamics, because of the portfolio mix, not the yield is still slightly going down, but there are a number of things that should help a little bit yield on the lows, that we believe most of the recovery should come from the cost of funds.

Okay. But the thing that could help yield on loans is, that we are expecting the decrease in the consumer loan portfolio, I mean, to start stabilizing. So not that much decrease and the second thing is that if Impulso MyPeru does not renew and we don't have more funds to do that, we will start replacing and growing with some loans which have a little bit higher yield.

Okay. So that should help, but for sure, for what we've seen in the first half of the year and what because of what has already taken place in our funding base in our cost of funds, we expect that trend to continue and to be the main positive contributor.

If you want to need. Now on the growth of credit cards and personal loans, actually, that is also a little bit tricky because up until the official figures that we've seen at system level of June, not those two products have continued to shrink and we're talking about all the banks. Not we are all shrinking. This is mainly due to a number of reasons. Not for sure the liquidity. So the seven funds and the private pension funds are making people -- are helping people to repay their debt.

That's good. On provisions is not good for growth. But the second thing is also that we have not yet seen a strong recovery of employment or end of demand like a sustainable one that would push clients to start taking new debt. We have seen a recovery in July, has been very important in credit and debit cards turnover.

So the usage of credit and debit cards, so that's positive news because that is the base. Then for financing, that I guess, July will also be a month of decrease at system level because you have besides what we have seen in June also the extra salary for independent employees now. So I guess, it's going to be a decrease in what we are expecting in our estimate is just a stabilization and not yet a growth up until year end.

Just to complement that, Alonso, just summarized, we have been issuing more cards in the last couple of months. So we're not growing our portfolio, but -- and the usage has been a good. So activation is up and clients are taking the value proposition. But as Michela mentioned, there has been low use of financing on those starts. One part of that has to do with the segments that we're going that which until recently as Filipe mentioned, we're going a little bit lower risk, but also there's been a lot of liquidity in the consumer segment over the last couple of months.

First, due to CTS, not the basic, the other is the funds from the fees, which have been -- we're in the middle of that, you're probably around 60% of these versions have been done that if you assume anything in July is always a very liquid month, and that will continue for a couple of weeks. So it will be interesting to see what happens after that. We feel comfortable with the recent decisions we have made and we would expect a little bit more financing on those new cards over the next couple of months.

Thank you, Michela. Thank you, Carlos.

Andrés Soto, Santander.

Good morning to all, and thank you for the presentation. And my question is regarding the long-term strategy and how do you see your loan book over the medium term historically, Interbank was of outside exposure to consumer lending. After what we have seen in this credit cycle, has anything changed in that sense regarding your appetite for continue having this type of exposure?

And also considering that you have other initiatives targeting SMEs? Can we expect a higher phase after these be have a different composition or you think that all those factors are rather cyclical and once the economy recovers, we should see a reshuffling of your loan book to a more closer to historical levels?

Yes, hi, Andrés. Thanks very much for your question. We've actually always mentioned that we like that balanced approach to our portfolio like a 50% commercial 50% retail, obviously of some opportunities came in the last year. It does balance out a little bit more on consumer, but the view doesn't change. We want to go on a balanced portfolio strategy. I think that's what has done IFS successfully during the past, and that probably will be in the future.

Obviously, certain conditions of the country are changing. Probably certain segments will be growing more than others. And that's something we need to review, by as of now it doesn't change. We are going to go over our big, new five-year plan strategy review and strategic planning process starting actually these days and it will go for a couple more months.

So we're going to debate that. Obviously, Carlos Tori, in his new role brings new ideas that will be welcomed and discuss. And when we finalize that process, probably will be able to share. But so far, we believe Peru continues to be a country of opportunities. The balanced approach is what we have, and that's what we will entertain during the following months as we continue to deploy our strategy. I think our growth in core segments, digitalization and best use of analytics is what we'll continue.

Thank you, Filipe. And from that perspective, you previously mentioned that when you look at the long-term, will you should expect IFS to have a different composition in terms of NIM and cost of risk. Can you remind us what do you see as sustainable levels for those variables to target your 18% ROE for the consolidated entity?

Yes, I can remind you of the 18% ROE. I don't have the details on the -- I don't know if we have long-term numbers for that, but that 18% should be your driver base. Michela, I don't know if you can complement that?

Yeah, maybe the only thing, Andrés and I will add is that I mean cost of risk should be, I mean closer to 3%. Okay. Most likely is going to be above 3%. Okay. Because of the portfolio mix and in the things that we are thinking of rolling in there and different maybe risk profile. Okay. That I mean, last number we have reported is still 4%. Now this number should go back in closer to 3%. Now slightly above 3%. Also in the mid-term.

In expectation on when our cost of risk will normalize to these level?

Actually, you have seen already the movement from 4.7% to 4%. We expect to end the year in mid 3% or close to 3.5%. So we expect quarter-over-quarter to continue the decline.

That's very helpful. Thank you both.

Thank you, Andrés.

At this time we will take any webcast questions. I would now like to turn the call over to Mr. Ivan Peill from InspIR Group. Please go ahead, sir.

Thank you, operator. At this time, there are no webcast questions, so I'd like to turn the floor back to Ms. Casassa for closing remarks.

Okay. Thank you very much, everybody, for joining our call. And we will see each other again in August for our third-quarter results. Thank you. Bye-bye.

This concludes today's conference call. You may now disconnect.