Credicorp Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2024

There are 15 speakers on the call.

Operator

Good morning, everyone. I would like to welcome you to the Credicorp Limited Third Quarter 2024 Conference Call. A slide presentation will accompany today's web cast, which is available in the Investors section of Credicorp's website. Today's conference call is being recorded. As a reminder, all participants will be in listen only mode.

Operator

There will be an opportunity for you to ask questions at the end of today's presentation. Now it is my pleasure to turn the conference call over to Credicorp's IRO, Milagros Sigmuenas. You may now begin.

Speaker 1

Thank you, and good morning, everyone. Speaking on today's call will be Gianfranco Sarvari, our Chief Executive Officer and Alejandro Perez Reyes, our Chief Financial Officer. Participating in the Q and A session will also be Francesca Raffo, Chief Innovation Officer Chesa Rios, Chief Risk Officer Carlos Sotelo, Mibanco, 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's current expectations and beliefs and are subject to a number of risks and uncertainties.

Speaker 1

And I refer you to the forward looking statements section of 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 begin the call with remarks on the improved macro environment, a brief overview of our quarterly results and recent developments, followed by Alejandro Perez Reyes, who will provide a more detailed analysis of key macroeconomic indicators, our financial performance and revised outlook for 2024. Gianfranco, please go ahead.

Speaker 2

Thank you, Mr. Carlos. Good morning, everyone. Thank you for joining us today. The positive momentum we saw in the first half continued into the Q3, allowing us to deliver a record high bottom line of PEN1523 million this quarter.

Speaker 2

Additionally, we distributed our special dividend, achieving a total dividend payout of 75.3 percent to date. This performance was driven not only by an improving macroeconomic climate, liquidity inflows captured from pension withdrawals and a relatively more stable political environment, but more importantly, by the strategic initiatives we've implemented across the organization. We've reached a pivotal inflection point where the benefits of these initiatives are consistently materializing across our businesses, reinforcing our competitive strength and further decoupling our performance from the external macroeconomic factors. Despite geopolitical tensions in the Middle East, we are maintaining our GDP growth projections of 3% for 2024 and 2.8% for 2025 on continuing signs of recovery in Peru. Though we do recognize that ongoing developments in that region and the results of the U.

Speaker 2

S. Elections could cause some volatility. In October, inflation rose to 2%, up from 1.8% in the previous month, which was the lowest level in nearly 4 years. As such, it remains within the Central Bank's target range of 1% to 3%. Our strategy to diversify revenue streams with the goal of generating 10% of the risk adjusted revenues from new businesses by 2026 is strengthening our resilience in the current environment.

Speaker 2

This approach is particularly important given the slower than expected recovery in business confidence, which impacts private sector investment and demand for wholesale loans. At the same time, we remain committed to prudently managing retail loan growth. Importantly, we are seeing a reduction of NPLs, supported by additional liquidity from patient withdrawals. As discussed during our recent strategic update, we remain truly focused on deepening the market penetration with new value propositions, exploring untapped business segments and accelerating the adoption of transformative technologies. While we remain committed to leading the way in shaping the financial products and customer experience in the future, we will do so with a disciplined approach, ensuring alignment with our strategic goals and approved financial management.

Speaker 2

Now moving on to the regulatory front, after years of political debate, Peru enacted pension system reform in September, marking a significant step towards enhancing financial security for retirees. We're optimistic about its potential to strengthen the system's ability to channel national into infrastructure and productive investments, driving long term economic growth. Before turning to our Q3 results, let me discuss a few recent corporate developments. Starting with Tempo, our digital world in Chile. After quickly establishing a strong presence in a competitive market, we received provisional approval from the Chilean Financial Market Commission on October 25 to create a new banking entity named Tempo Bank Chile.

Speaker 2

This is a significant milestone from Graco's expansion into the Chilean financial market as Tempo advances towards securing full operational authorization, which we expect to happen in 2025, becoming the 1st digital bank to operate in Chile. Next steps for Tempo to become a new bank involve obtaining assistance and operational authorization from the CMS. Furthermore, reaffirming our commitment to innovation and our goal of revolutionizing the financial ecosystem in the region, Francesca Raffo, our Chief Innovation Officer, has resigned from her position as Deputy General Manager at DCP to focus exclusively on leading innovation at Credicorp and continue the transformation of the financial markets in Peru and Latin America. Lastly, I'm pleased to share that on October 31, we announced the acquisition of the remaining 50% stake in our joint venture with Vempresos Vamerica that includes 3 businesses: the pet medical insurance, corporate health insurance for employees and medical services. The acquisition strengthens Credicorp's ability to fulfill its aspiration of creating a more sustainable and inclusive economy by improving insurance and healthcare access, while advancing financial inclusion in Peru.

Speaker 2

Turning now to the 3rd quarter results. We delivered a strong ROE of 18.5%, primarily driven by Universal Banking and Insurance and supported by diversified revenue streams and high levels of fractional activities in a recovering economy. Risk adjusted NIM improved, reflecting a disciplined interest rate management strategy along with our leading low cost funding position and lower provisions. Notably, our vast solvency allowed us to declare a special dividend of Soles 11 per share, while also contemplating our plans for continued sustainable growth. We're witnessing significant benefits from our investments in innovation and enhancing digital capabilities.

Speaker 2

We strengthened our competitive modes, elevate our relationships with current clients and promote financial inclusion. Looking ahead, we maintain our GDP growth expectation of 3% for this year and expect a similar outlook for 2025. Mibanco's performance is improving, driven by both the overall economic recovery and the specific learnings and measures taken regarding origination, monitoring, collections and rescheduling processes. We are continually evaluating opportunities for further structural risk management and operational improvements to achieve our medium target of 20% ROE. As we make progress, we will keep you updated.

Speaker 2

We remain committed to the long term growth potential of the market served by Vibanco given its slow market penetration. Additionally, we have seen increasing synergies between Vibanco and Yape, derived from the potential for enhanced insights from the massive amounts of data collected by both companies. I will now turn the call over to Alejandro, who will go into further details on the macro environment, each of our operating businesses and our consolidated results. Alejandro?

Speaker 3

Thank you, Gianfranco, and good morning, everyone. As Gianfranco mentioned, we delivered strong overall operating and financial results, including our record high net income. This performance was achieved despite an environment of negative loan growth and an improving, but still elevated cost of risk, which attest to the resilience of our businesses and the power of Credicorp's diversified revenue base. As I described the highlights of the quarter, I will focus on the quarter over quarter results to emphasize recent shifts in trends. Results have been positively impacted by an uptick in transactional activity, favorable results from recent risk management measures and increased liquidity levels across the financial system, partly attributable to pension fund withdrawals.

Speaker 3

While the regional liquidity increased loan amortizations, it also positively impacted asset quality, funding costs and transactional debt. Loans contracted 1.2% measured in average daily balances and 3% in quarter end balances. This contraction was driven primarily by corporate loans at BCP and by Mibanco amid more restrictive expiration guidelines. On the other hand, asset quality improved. The NPL ratio dropped 12 basis points to 5.9%, driven primarily by BCP and Mibanco.

Speaker 3

At BCP, the NPL contraction was led by the corporate, consumer and credit card segments. Provisions fell 20.6% driven primarily by improved payment performance in retail banking at the BCPN MIBALO. As a result, the cost of risk fell to 2.4%. We delivered stronger margins with net interest income increasing by 3.5%. This growth was driven primarily by a decrease in interest expenses as low cost deposits continue to enter in the mix and now represent 56.2% of the funding base.

Speaker 3

As a result, NIM increased 10 basis points to stand at 6.4%. Non interest income contracted this quarter as regulatory changes impacted the foreign transfer service businesses at BCP Bolivia. Fee income contracted 3.5%. However, excluding BCP Bolivia, fee income rose 4.4%, benefiting from strong transactional activity at BCP through credit cards, debit cards and Yape. Gains on FX transactions contracted 20.6%.

Speaker 3

However, excluding BCP Bolivia, they grew by 1.9%, boosted by increased book volumes. Lastly, insurance underwriting results fell 7.5%, reflecting less favorable reinsurance results in the P and C business. All in all, we delivered an 18.5% ROE this quarter, supported by the aforementioned revenue dynamics, active risk management and disciplined trust control, while maintaining sound capital levels. On cumulative terms, ROE stood at 17.7%. Next slide, please.

Speaker 3

In the Q3, Peru's economy continued to recover. Economic activity grew 4% year over year on average in July August. Notably, non primary GDP accelerated by 4.2% in the same period, its highest growth rate in more than 2 years. In September, GDP growth is expected to have slowed down slightly, bringing the quarterly growth rate to approximately 3.5%. Stable commodity export prices, coupled with lower import prices, have driven peso's trade to historical highs.

Speaker 3

This trend is expected to provide a tailwind for growth in the coming quarters, particularly if it propels higher mining investments. According to the Central Bank, expectations for the economy and for investments have improved and have remained at the optimistic range for most of the year. The Chiang Kai Port, set to be inaugurated next week during the Asia Pacific Economic Cooperation Meetings, is projected to grow GDP by 0.3% in 2025 during its first phase of operation according to the Central Bank. The new port will reduce shipping times within Asia and Peru by 10 to 15 days. This improvement in efficiency has the potential to transform trade dynamics and routes between the West Coast of South America and Asia.

Speaker 3

Public investment has also driven economic growth, rising by 25% year over year in the 1st 9 months. This constitutes the best print in 11 years, excluding the pandemic period. Recently, Moody's and Fitch reaffirmed Peru's credit rating, 3 2 notches above investment grade, respectively. Both agencies upgraded the outlook from negative to stable. Moody's emphasized that the option of political reforms has alleviated million concerns about institutional stability.

Speaker 3

Meanwhile, Fitch noted that some policy making has supported economic recovery this year and preserved broad macro financial stability. Considering the recent economic developments, we reaffirm our Peru's GDP growth forecast of 3% for this year and expect a similar growth rate for 2025. Next slide, please. The federal reserve recently began using its policy stance with a 50 basis point cut in September, its first reduction since the pandemic, followed by a 25 basis point cut yesterday. While federal cuts are expected, uncertainty remains regarding their pace, particularly as the economy's trajectory will depend on the new government's policies.

Speaker 3

Consequently, volatility in dollar rates is likely to persist. Since April, inflation in Peru has been comfortably remain has comfortably remained within the Central Bank's target range of between 1% 3%, while core inflation follows suit more recently. The gradual rate cap approach adopted throughout the year is expected to continue in the coming months as the rate approaches its neutral level during the first half of next year. In Colombia, inflation slowed to 5.8% year over year in September. This rate continues to be above the upper limit of the target range, which is between 2% 4%.

Speaker 3

The Central Bank continues to pursue our restricted policy. Finally, in Chile, the Central Bank has gradually reduced the pace of monetary easing as the rate moves towards a neutral level and the bulk of caps have already occurred. Since July 2023, the policy rate has fallen 600 basis points. This has led the country's currency to depreciate nearly 10% year to date, offsetting the positive impact of higher copper prices. Next slide, please.

Speaker 3

This quarter, BCP's profitability has been boosted by a reduction in the cost of funding, higher financial levels and improvements in client payment performance as risk management measures took effect and liquidity rose in individuals on the lack of inflows from pension fund withdrawals. Key quarter over quarter dynamics included. Total loans measured in average daily balances fell 0.8 percent driven by a reduction in the corporate loan segment. After a large client from the construction sector, we paid a long term operation. And by a drop in individuals where excess liquidity was NPLs fell 4.6%, mainly driven by wholesale banking, which raised their loan repayments by a corporate client from the commercial real estate sector and consumer and credit cards, fueled by improvements in origination, monitoring, collections and rescheduling processes and by clients who leverage excess liquidity to make repayment.

Speaker 3

In terms of drivers of results, NIM rose 8 basis points to stand at 6.2%, aided by a low cost funding structure that reflects a strategy of strengthening primary banking relationships with our clients. Other core income grew 6.9%, driven primarily by an uptick in fee income from transactions via credit and debit cards and secondarily by higher fees on the payments line in Yap. Cost of risk fell 51 basis points to stand at 2.1%. The contraction in provisions was driven primarily by an improvement in payment performance in retail banking. In individuals, particularly consumer and credit cards, provisionals fell after the weight of newer and healthier vintages within the loan portfolio rose.

Speaker 3

Rescheduling efforts were ramped up in the last quarter and debt repayment rose in a context marked by higher liquidity across the business. In SMEs, the contraction in provisions reflected mainly the fact that newer and healthier vintages increased their weight within total loans and less refinancing was granted. Regarding year over year dynamics, I would like to highlight income growth. NII rose 12.8%, fueled mainly by an uptick in interest income and by a drop in the funding cost. Other core income rose 18.2%, posted by an increase in transactional level.

Speaker 3

BCP's transactional business has become increasingly irrelevant as illustrated by the upward trend in the ratio of other core income to assets, where Yate has contributed greatly to fee generation. On a year to date basis, BCP continues to improve efficiency with positive operating leverage. Operating expenses rose 10.4%, driven mainly by disruption, personnel expenses and the increased spending on licenses, system infrastructure usage and cloud capacity in a context of growth in transactions via digital channels. Meanwhile, operating income grew 12% and BCP's efficiency ratio stood at 37.4%. In this context, BCP's 3rd quarter contribution to ROE rose to 24 point 5%, standing at 22.9% year to date.

Speaker 3

Next slide, please. The number of active diapenos continue to grow this quarter to reach the $13,000,000 mark. This put us well on our way towards reaching our aspiration of 16,500,000 active users by 2026. These users are making on average 44 transactions per month. In this context, the upper revenues continue to accelerate while expenses remain under control.

Speaker 3

At the end of last quarter, revenue per active users reached PEN4.9, further decoupling from expenditures per active users. With these achievements, we are on track to realizing our aspiration of ensuring that disruptive initiatives contribute significantly to Credicorp's revenues after provisions. The app's payment business is the app's forerunner for revenue growth with a potential of growing 4x going forward, as mentioned in our strategic update. Income generation this quarter was fueled by Yate and Prezas, which offers value added services to businesses. Additionally, bill payment transactions have risen 3.3x since the Q3 of 2023.

Speaker 3

Within the financial business line, revenues are obtained mainly from floating, while loan disbursements continue to grow exponentially. By the end of September, we had disbursed loans to 1,100,000 clients and are on track to achieving our 2026 aspiration of 5,000,000 yaperos with a loan disbursed, while maintaining great risk under control. It is important to note that 42% of the aforementioned borrowers receive their 1st loans in the financial system through Yatra. Finally, our marketplace business has been a levering bolster in customer engagement. This is reflected in the gross merchant volume, which has grown 2.7 times year over year, mainly through Yahoo!

Speaker 3

Next slide, please. At Mibanco, the NPL ratio is improving at a faster pace than most of its peers, thanks to the risk management measures taken. On a quarter over quarter basis, Mibanco's total loans measured in average daily balances fell 4.8% impacted by stricter origination policies. This drop reflects a contraction mainly in higher ticket loans, which was partially offset by growth in new disbursements in small ticket higher yield loans. Despite the drop in loans, NIM rose 25 basis points to 13.9%, primarily due to the drop in the cost of funding after the funding rate decline.

Speaker 3

In terms of portfolio quality, NPL fell 8%, driven by a reduction in overdue loans. This evolution was fueled by tighter adjustments in origination guidelines, improvement in debt collection management and by debt relief facilities in June July of this year. The improvement in payment performance led to the cost of risk to fall 133 basis points to stand at 6.2%. From a year over year perspective, I would like to highlight the resilience of Mibanco NIM. Our active loan pricing management coupled with a decrease in the cost of funding helped sustain NIM despite a loan contraction.

Speaker 3

Operating expenses on a year to date basis remain under control and efficiencies stood up 52.8%. In this context, Vedanco's 3rd quarter contribution to ROE rose to 9.4% and stood at 8.9% year to date. We expect risk management measures to continue to yield positive results as healthy loan growth resumes. These dynamics should drive a controlled cost of risk and help us recover profitability levels. Nibanco Colombia's profitability has moved into positive terrain.

Speaker 3

Our recent strategy slowed down portfolio growth on flow risk and strengthened efficiency as bear fruits. Next slide, please. Profitability at Grupo Pacifico continued to be strong with ROE standing at 24.3%. This strength was attributable to solid investment performance and a favorable contribution from the corporate health insurance and medical services business. Net income, however, dropped 2% quarter over quarter on the lack of a deterioration in insurance underwriting results due to higher claims, particularly in credit lines.

Speaker 3

It is worth highlighting that this quarter, we started a 15 year partnership with Falabella for the distribution of insurance products. This partnership represents a great opportunity to facilitate access to insurance for more Peruvian. From a year over year perspective, group operating income dropped 23%. This decline was mainly driven by lower insurance underwriting results, driven by medical assistance and credit line products and a base effect associated with last year's one off net gain from exchange difference. This quarter's profitability is representative of the sustainable ROE level we expect to deliver at Pacific.

Speaker 3

Next slide, please. Now I want to address the transaction we announced last week. In line with our strategy to expand our presence in Peru's insurance and software markets, Credicorp reached an agreement to acquire empresas Banerica's 50% interest in our joint venture with Pacifico Seguros. The acquisition includes Valmedica's 50% stake in the private health insurance, corporate health insurance and medical services businesses and is subject to regulatory approvals and other standard regulations. The transaction value stands at PEN1131 million and is accretive to credit card's earnings from day 1.

Speaker 3

I would like to underscore 3 key aspects of this strategic move. 1st, significant growth potential remains in both insurance and healthcare sectors in Peru. The healthcare sector is underserved with only 1.6 hospital beds per 1,000 in the habitat. Similarly, private insurance penetration stands in the low single digits pointing out to significant growth in both sectors, we aim to deliver a comprehensive value proposition to clients while maintaining a strategic hedge across our business portfolio. 3rd, Credicorp holds deep expertise and a proven track record in these sectors, with over 25 years in health insurance and 13 years offering medical service.

Speaker 3

In summary, this acquisition is a natural progression for Credicorp, reinforcing our commitment to high quality products and services in the insurance and healthcare sectors. It has strategically positioned us to capture growth opportunities and continue delivering exceptional value to our clients and shareholders. Next slide, please. Profitability in investment management and advisory business remains sound, with ROE standing at 15.9%. This performance was attributable to favorable business dynamics at our less volatile units, mainly wealth management, asset management and our sales activities within capital markets.

Speaker 3

These units are benefiting from increased transactional activity and wealth in AUM. Net income, however, registered a 16% decrease quarter over quarter. This drop was primarily attributable to a basis, which was associated with our discontinued corporate finance business unit and to less favorable treasury results. On a year over year basis, net income rose 77%, led primarily by our Capital Markets business.

Operator

Pardon me, ladies and gentlemen. It appears we have lost connection to our speaker line. Please stand by while we reconnect. Thank you for your patience. Hello, everyone.

Operator

The speakers are back. So we will continue right where we left off. Apologies for any inconvenience.

Speaker 3

Yes. Sorry for the technical difficulties. I'm going to restart from the part of the consolidated evolution of Credicorp on Slide 13. So beginning with the quarter over quarter dynamics for the balance sheet for Credicorp's consolidated evolution. On the asset side, cash and equivalents grew in a context of excess liquidity, which boosted the level of interest earning assets despite a decline in loans.

Speaker 3

Loan balances decreased at BCP, mainly due to corporate and individuals and at Mibanco, as previously explained. This shift in the asset mix led the yield on interest earning assets to drop 5 basis points. On the liability side, an increase in low cost deposits, which was fueled by withdrawal from pension funds led our cost of funds to drop 18 basis points. On a year over year basis, on the asset side, cash and equivalents increased and the loan portfolio contracted, following similar dynamics as seen in the quarterly analysis. The investment portfolio in turn increased and its duration was extended.

Speaker 3

In this scenario, the yield on interest earning assets fell 9 basis points. On the funding side, the aforementioned increase in local deposits resulted in a favorable funding mix despite an increase in due to banks and recent bond issuances by BCP. Against this backdrop, the cost of funds fell 47 basis points, largely outpacing the decline in the yield on interest earning assets. Next slide, please. Moving on to loan portfolio quality.

Speaker 3

NPL fell 4.8% quarter over quarter driven by both BCP and Mibanco via the dynamics mentioned earlier. It is important to note that this quarter, the evolution of the NPL volume reached a turning point, particularly in the segment most impacted by the recent credit cycle, individuals and the structural SMEs portfolios at BCP as well as by Mibanco's portfolio. The improvement in the payment performance coupled with successful risk management measures at both BCP and Mibanco, led provisions to drop 20.6 percent quarter over quarter, while the cost of risk decreased 64 basis points to stand at 2.4%. In this context, the NPL coverage ratio rose 3 64 basis points quarter over quarter to stand at 98.7%. Next slide, please.

Speaker 3

Moving on to analyzing our income and expenses. To analyze the evolution of core income, the most efficient approach to exclude BCP Bolivia as regulatory changes impacted its foreign transfer service business. After excluding Bolivia, core income rose 3.7 percent quarter over quarter, driven mainly by NII through a decrease in the cost of funding and an uptick in fee income via credit cards, debit cards and JAPA transactions. In terms of margins, NIM increased 10 basis points to stand at 6.43 percent, while risk adjusted NIM rose 53 basis points to stand at 4.93%. I would like to emphasize that the year over year increase in NIM of 32 basis points reflect both the rising strategic advantage of our funding costs and the fruits of a disciplined interest rate risk management strategy.

Speaker 3

Analyzing expenses and efficiency on an accumulated basis, operating expenses rose 8.2%, driven primarily by core businesses at BCP and disruptive initiatives at the credit card level. Expenses for disruptive initiatives at the credit card level rose 28.1%. The most significant expenditures were in Yape, Kulki and Tempo, which combined accounted for 71% of disruptive expenses in the 1st 9 months of the year. Finally, an uptick in operating income and decelerating operating expenses led the efficiency ratio to drop 51 basis points to stand at 44.6% in the 1st 9 months of 2024. Next slide, please.

Speaker 3

This quarter, ROE stood at 18.5%, driven by strong results in our Universal Banking and Insurance businesses. ROE for the 1st 9 months was 17.7%. Net equity was slightly impacted this quarter by the payment of an extraordinary dividend of $0.11 per share. Accordingly, our dividend payout ratio stands at 75.3% for the year. It is important to note that BCP and Mibanco have not yet declared an additional deal.

Speaker 3

These results are a testament to our resilience and ability to adapt to challenging circumstances. And now I will move on to our updated guidance. Next slide, please. As previously stated, our expectation for GDP growth remains at 3%. Regarding loan growth, although economic activity continues to enjoy positive momentum, the appetite for long term financing in Wholesale Banking remains low.

Speaker 3

Additionally, our approach to origination in our Retail Banking and Microfinance segments has been cautious. These factors, coupled with the impact of pension fund withdrawals, have led us to revise our guidance for total loan growth measured in average daily balances to around 0%. Our NIM is expected to situate in the upper end of our guidance range, which is between 6% and 6.4%. We expect the cost of risk in turn to situate in the upper end of our guidance, which is between 2% and 2.5%. We achieved solid efficiency levels as we continue to invest in our disruptive initiatives.

Speaker 3

We are controlling growth in expenses in our core businesses and expect to close the year with an efficiency ratio near the lower end of our guidance, which is between 46% 48%. Given the aforementioned dynamics and based on the strong evolution of our other income and insurance underwriting results, we reaffirm our ROE guidance for 2024 at around 17%. With these comments, I would like to start the Q and A session.

Operator

We will now begin the Q and A session. And the first question comes from Ernesto Gabilondo with Bank of America. Please go ahead.

Speaker 4

Thank you. Hi, good morning, Gianfranco, Alejandro, Francesca, Cesar, Congrats on the results and thanks for the opportunity to ask questions. My first question will be on asset quality and cost to risk. So you have been mentioning the strategy to get higher exposure into the retail segment. But at the same time, probably, Medanco could be in a much better position next year.

Speaker 4

So wondering how you see the cost of risk evolving in 2025?

Speaker 2

Yes. Rejandro?

Speaker 3

Yes, sure. As you mentioned, we have seen an improvement this quarter. We think the trend will continue. There might be perhaps some change in the gradient of the trend once the pension money starts being goes out of the system, but still we are expecting cost of risk to continue to come down. And our expectation for the next year and the following years is to continue moving lower.

Speaker 3

Again, as you know, we are changing mix in we're expecting a changing mix in our portfolio. So we are not expecting to go back to cost of risk like pre pandemic, but more based on a mix than individual segments. So our expectations for 2025 are a lower cost of risk than what we are having this year.

Speaker 4

So, yes, so I'm going to follow-up on this. So cost of risk guidance for DG was between 2% to 3.5%, probably will be at the high end 2024. Looking to 2025, maybe between the mid to low end of that guidance, would that range?

Speaker 3

We haven't given guidance yet for next year. We will beginning of next year. I would just mention that we're expecting a lower number for the coming year. We'll give more details soon. The other thing to keep in mind to have a sense of the recovery is that we're expecting a lower number despite the fact that we're not returning any provisions like we did this year.

Speaker 3

So this year, we're going to be in the upper side of the 2 to 2.5, but we returned the provision from El Nino. Next year, we expect a lower number without necessarily having any kind of provisions return, specific provisions.

Speaker 4

Perfect. And then my second question will be on subsidiaries. So can you share with us which are the subsidiaries with ROEs below credit cards ROE of around 17%. And what do you think will be the strategy to get them closer to the credit cards ROE level? And considering that we will be developing these 2 neobanks, 1 in Peru and 1 in Chile, where do you see both banks reaching the breakeven point?

Speaker 3

I'm sorry, about the last part, reaching what? I didn't get that. The

Speaker 4

breakeven, the breakeven point.

Speaker 3

Okay. If you want, I can start with the ROE part. So basically, currently, when you look at the subsidiaries, most of them are having a good performance and trending towards the 18% with Pacifico BCP above the number, Credit or capital improving and hopefully it will get very close in a couple of years. Mibanco has been really hit by the credit cycle, but our expectations are in the coming years, it will go back to the number more closer to the 20% mark, which is what we aim for in that business. I don't know if any other subsidiaries.

Speaker 2

Yes. Maybe good morning, Ernesto. This is Gianfranco. Maybe just to complement Alejandro, from an overall perspective, I would say the underperforming line of business is microfinance. As Alejandro mentioned, we expect next year to obviously to have a much better year in terms of ROE.

Speaker 2

And as I mentioned in my initial words, we are targeting to have a sustainable ROE of 20% for the microfinance business. Maybe the other one is not that relevant, but the other one that is underperforming is BCP Bolivia. As I always say, it's the right franchise in the wrong country. We're doing what we can. The ROE there might be around 12%, 13%.

Speaker 2

And regarding the second part of your question, well, obviously, out of the large ventures or initial innovative business, Yape is beyond breakeven. Obviously, we have I've mentioned in previous calls, most of the sources of income at Yape have a J curve. So we expect next year to be significant in terms of income. And regarding the other large one, which is Tempo, we expect at least 2 to 3 years to reach breakeven. Having said that, Tempo is right on track and slightly better actually than the original business plan.

Speaker 4

Super happy. Thank you very much Franco and Alejandro.

Speaker 3

Thank you.

Operator

The next question comes from Renato Maloney with Autonomous Research. Please go ahead.

Speaker 5

Hi, good morning. Thanks for taking my question here. So you've mentioned how this excess liquidity in the system has helped the asset quality and your cost of funding. So I wanted to understand if this is a short lived impact or we're still going to see more of that in the upcoming quarters? And then how do you reconcile this asset quality improvement, but also excess liquidity with your growth perspectives for next year?

Speaker 5

Thank you.

Speaker 3

Sure. The specific event of the pension funds is a short lived event. It has already all the money has been deployed to clients. Some of it is still retained in account, so they could use more of that money if they wanted. The actual effect, direct effect has been considerable, but not the only reason why we've seen this decrease in cost of risk.

Speaker 3

So what we're expecting is that this will fade out as it has done before. Remember, this is like a 7th withdrawal from pension plans. So we've seen this dynamic before. But at the same time, when we think about what's going on, we're expecting and we're actually seeing growth in employment in the country, which is also very important. The last number for Lima for last quarter was a 5% increase in formal employment.

Speaker 3

We have leading indicators on payroll payments that are very strong right now. So what we're seeing is that this liquidity has given some air to people that were in a very tight position, but it is working at the same time as an improvement in the economy that should allow this trend that I was mentioning of cost of risk to continue to decrease.

Speaker 2

And maybe just to complement, Alejandro, these Central Bank figures, the expectations for them is private investment to grow 2% this year and 4% next year. So there are some as Alejandro mentioned, both micro and macro leading indicators that provide us a lot of confidence that next year should be a better year in terms of the performance of the loan book in terms of growth, I mean.

Speaker 5

Okay, great. So next year, like higher growth, lower, cost of risk? Thank you.

Speaker 2

Yes.

Operator

Question comes from Tito Labarta with Goldman Sachs. Please go ahead.

Speaker 6

Hi, good morning. Thank you for the call and taking my question. First question, just on the guidance, you maintained the ROE guidance at around 17% for this year. You are running above that and you have a very strong quarter in 3Q. So should we does that imply just normal seasonality in 4Q, so ROE should trend lower to get you down to that 17% or do you think there's upside to that 17% because you're running probably closer to 18% on ROCE.

Speaker 6

So just to clarify maybe some color on 4Q and if we should expect a relatively weaker quarter?

Speaker 3

Sure. It is what you said. We always had some seasonality on the last quarter of the year. It happened exactly the same way last year. So that should mean that we're not going to have we're going to annualize a quarter like this one.

Speaker 3

There's going to be more expenses. But we're thinking that we probably will end up on the upper side of the around 17% mark.

Speaker 6

Okay. That's helpful. And then my second question on your margin, you're running closer to the high end of guidance. But how do you think about the sensitivity to lower rates, I guess, particularly in the U. S.

Speaker 6

That's now cut rates again. How does the margin get impacted by lower rates both in Peru and in the U. S?

Speaker 3

Sure. I mentioned last quarter a calculation we have with we refined it a little bit for this quarter that a parallel shift in of a 100 basis points will have an impact on the 1st year of around 15 basis points on our margin and then goes up to around 25% in the coming year because of the duration of the portfolio. The full effect is felt in a longer period. So that is if we don't do anything, as you've seen, even though rates have been coming down for a little bit, we have been able to sustain a strong and actually a little bit growing NIM and expect to continue doing that going forward based on the local funding advantage as we expect to keep growing on that side and also pricing and the mix in that portfolio. So there is the sensitivity for sure and it is something that we're going to be facing in the coming months.

Speaker 3

But at the same time, with the local funding, the mix and the pricing, we think we'll be able to sustain and actually perhaps improve a little bit our NIM and more importantly, the risk adjusted NIM.

Speaker 6

Okay, great. Thank you.

Operator

And the next question comes from Thiago Batista with UBS. Please go ahead.

Speaker 7

Yes. Hi, guys. Thanks for the opportunity. I have a question on YAPI. YAPI reached the impressive number of 13,000,000 of active users, monthly active users, which is about probably half of the adult celebrities.

Speaker 7

So my question is, first, is informality a kind of bottleneck that could prevent further expansion of YAPI or no or you can see the number of users expanding further even with the high level of informality in Peru? And second, in the $16,500,000 target that you had for 10/26, if I'm not wrong, this is including any kind of expansion to Bolivia, Colombia or the $16,500,000 is only in Peru?

Speaker 2

Yes. Let me answer the second question first. The figure we provided regarding Yape is only Peru. Even though, as you all know, we already are operating in Bolivia with successfully, I would say. Regarding your first question, which is actually the more relevant question, let me go a step back and you're right.

Speaker 2

There's a point where the number of yaperos, even though we're still growing at around 300000 to 400000 Yaperos per month, at some point in time, there's a limited number of Peruvians. But the strategy since the very beginning at Yaperos had like a it was a 3 or it is a 3 stage strategy. First one was to get the largest number of the aperos. The second, which is to increase usage, as of today, Yaperos are using Yapero on average, 44 times a month. And the first stage, which we are already, obviously, the 3 stages were progress together is to generate income.

Speaker 2

So yes, there might not be the same level of growth in terms of either number of users or usage, but now we're focusing in terms of how income is going to keep growing. And that goes back to my original comment regarding the J curve in the new features we're launching within Yape.

Speaker 7

And

Operator

the next question comes from Brian Flores with Citibank. Please go ahead.

Speaker 2

Hi, Tim. Thank you for the opportunity. On Slide 13, we see a very improved composition, right, on the funding cost. So now low cost deposits are at 56% of the funding base. Just wanted to give you your thoughts, what is driving this big increase?

Speaker 2

What is your strategy going forward? And should we also think that these improvements in cost of risk should continue helping results? Thank you.

Speaker 3

Sure. We believe that the increase that you're seeing is mainly due to the transactionality capabilities and the principalities we've been developing with our clients. Our client centric approach has made us we've invested a lot in bringing them all the channels possible to interact with the bank as seamlessly as possible. And what we're seeing is more and more clients working with us and leaving their floating with us, and that is what explains that growth. And our expectation is that there is still some space to keep growing in that area.

Speaker 3

So we think that we'll be able to continue to capture some of that floating and continue to grow on that line. The second question was continued improving the provision.

Speaker 2

Risk, yes.

Speaker 3

Yes. As I mentioned a little bit earlier, we are seeing a much better trend in the economy, both by the things that we did on actively, cost of risk will continue to decrease, cost of risk will continue to decrease regardless of the specific liquidity event that happened with pension funds in the last quarter.

Speaker 2

Thank you.

Speaker 3

Thanks.

Operator

Next question comes from Yuri Fernandes with JPMorgan. Please go ahead.

Speaker 2

Thank you, everybody. I would like

Speaker 8

to explore a little bit the sustainable ROEs. In the past Digital Day, you mentioned a target of 18% and you are tracking above it, even though capital has been super strong for the bank. So I don't know, like looking versus 2019, it seems to be a better kind of a better quality early and you are just in the beginning of Yape and many of those initiatives. So just checking, do you continue to see 18% ROE as your sustainable target or no? Could we see some upside here?

Speaker 3

Well, at the time, we do continue to see the 18% as a sustainable number. There are other forces like, for example, regulation in Peru moving closer to Basel III that will require us to have potentially more capital. So when we look at the numbers as of now, we do think that the 18% is a reasonable sustainable ROE that allows us to continue investing into the future and at the same time provide a good return to our investors.

Speaker 2

Maybe Yuri, just to complement, bear in mind what we mentioned at the Investor Day, we haven't changed the appetite for investing up to 150 basis points of ROE going forward. That's not set in stone. We will obviously have a very disciplined keep our very disciplined approach. But if it's needed, we will keep investing for maintaining our success. And at the same time, we do believe that 18% is a very interesting ROE for our investors.

Speaker 8

No, no, super clear. If I may, a second one here, just on loan growth, because you already mentioned on margins. If I got right, margins should be resilient even though rates are coming down. But when should we see better loan growth? And I know you don't have a guidance yet for 2025, but if you can comment anything on the industry, like better economy, what should we expect?

Speaker 8

Because this was a little bit shy quarter for growth, right? So just wanted to understand when should we see a better volume in Peru? Thank you.

Speaker 3

Sure. Yes, we do expect a growth in loan growth, and it comes from a couple of factors. From one side, the improvement in cost of risk also allows us to be or to start to think about being a little bit more aggressive on the lending side because when you think about the reasons why for the loan growth, on the wholesale side, it's more of a demand issue in the sense that wholesales haven't been making long term investments as of yet. On the retail side, it's been much more on the offering side on our side and being more cautious and not necessarily accelerating. As the economy improves and the situation of our clients improve, we expect to be more active there.

Speaker 3

At the same time, Gianfranco mentioned, investor private investment, I'm sorry, growing at around 4 plus percent next year. I mentioned investor confidence being at the highest or actually having been this for having been positive for this long since 2019, early 2019. So we start seeing more and more indications that there's a reactivation in the broader economy because GDP has been growing, but more from the primary sectors. Now we're seeing it in a more broader sense. So those things make us feel that we are going to have growth in the coming year, and we have some calculation.

Speaker 3

We'll give the guidance beginning of next year, but we do expect growth to pick up.

Operator

And the next question comes from Carlos Gomez with HSBC. Please go ahead.

Speaker 9

Hello. Good morning, and thanks for taking my question. I want to start by congratulating you on the results and on achieving that detachment from the local economy that you intended to do in the Investor Day, and you seem to be succeeding at that. Two specific questions. First on Pan America, what is the main driver for this transaction?

Speaker 9

We understand that the shareholder in Chile obviously is going through their own issues. In the long run, I mean, you made a strategic decision sometime ago to have a partner in this business. Has that changed? Do you want to have this business by yourself? Or would you consider having a different partner in the future?

Speaker 9

And the second question, totally different, on cybersecurity. We know that there has been a big leakage of data at the competitor in Peru. Has that affected you in any way? And do you think that is something that you have to monitor more? Thank you.

Speaker 2

Good morning, Carlos. This is Gianfranco. So as of today, our decision is to run the business by ourselves. Bear in mind that we have run that business from both the health insurance and the health providing business for several years before doing the joint venture with Man Medica. So we feel quite comfortable to run it by ourselves.

Speaker 2

And also the whole management team is going to stay running the current operation. So no plans to do another joint venture with another operator. Obviously, the future is the future, but as of today, nothing on the table in that sense. I would ask Cesar to answer your second question.

Speaker 10

Yes. We have been monitoring very closely the event. It's a sad event for the country actually. And I have we have been reviewing the information that we have in relation to that event in relation to our practices governance. And so far we feel comfortable that the governance structure and investment we have been doing, but we strive to continue to improve our capabilities in this regard due to the growing trend in this kind of attacks and events globally.

Speaker 10

[SPEAKER RAMON ALVAREZ PEDROSA:]

Speaker 2

So we haven't been affected, Carlos.

Speaker 10

No, we have not been affected.

Speaker 2

[SPEAKER RAMON

Speaker 11

ALVAREZ PEDROSA:] No, we have not been affected.

Speaker 9

Very clear. Thank you so much.

Operator

And the next question comes from Tejasan, Kilometers with White Oak Capital. Please go ahead.

Speaker 12

Hi. Thank you for the opportunity. Just wanted to confirm my understanding, I think you commented on this before. The improvement in asset quality, do you see any positive trends in your clients beyond the impact of pension funded, Joel?

Speaker 3

Yes, we do. As I mentioned, we are seeing a lot of improvement in the economy, in the hiring, purchasing power of people in the country. So all of those dynamics should start to bring the cost of risk down. Also, we did a lot of measures from our side a few months ago that are starting to pay in origination, in collection, monitoring. So basically, we expect the trend to continue regardless of what's happening with pension plans.

Speaker 3

What might happen is that the speed at which it has decreased in this quarter might change a little bit in the coming quarters, but we are seeing an improvement in a more fundamental part of the situation of our clients regardless of this specific event. And just as a comment, for example, in the case of Mibanco, most of their clients don't have a pension plan and they haven't withdrawn anything, but yet the cost of risk in Mibanco has improved in a very important way. So those are the types of things that we also consider when we're thinking about the trends in cost of risk.

Speaker 10

Yes. Probably only to complement Alejandra in the same lines. We have trying to understand the effects in different layers. And one fundamental issue is the macro in terms of GDP, but also inflation that has helped particularly consumer segment, the reduction in inflation has been a powerful positive force. The second set of levers linked to our own management.

Speaker 10

We have been reducing the risk appetite, adjusting procedures and improve our capacity in some terms of collections and rescheduling. And this is going to continue, but this is a fundamental trend. And the effect of the pension funds has had 2 different impacts. 1, very directly regarding consumers in arrears with people who have received the funds in the bank or in other banks, but we have been linked very specifically the event and has also impacting positive clients that has reduced a little bit their volumes because clients in good condition has used the funds to reduce. So we have 2 main or fundamental trends that are going to continue.

Speaker 10

But even the third part has helped us to identify clients with high propensity willingness to pay and we are actively rescheduling them.

Speaker 12

Thank you. Thank you very much. Really appreciate your answer. Just to follow-up on this pension fund topic. I think during the pandemic when I think 3 or 4 rounds of this happened, I believe you commented that because these pension funds are now selling long term assets to meet the withdrawals, it led to an impact of long term yields going down.

Speaker 12

Do you expect that to affect your interest margins in the Q4 or maybe early 2025?

Speaker 3

I didn't get the question. Long term what coming down?

Speaker 12

Long term yields. Long term yields for your loans, yes.

Speaker 3

Okay. Due to the fact that pension plans are coming out of the market, you mean?

Speaker 4

Yes, yes, yes.

Speaker 3

Yes. No, we don't see really such a big impact there. Yes, they are less active in the market while they are recomposing their portfolio, but they will come back after this reform that Franco mentioned earlier. Pension plans should continue to grow and should continue to be an important player in the market. So we are not expecting any fundamental changes in the yield dynamics in the market.

Speaker 12

Got it. If I have time, just one last quick question. I think Pacifico has been helping ROEs strongly for 2, 3 years now. I think really appreciate the strong performance. Like you mentioned 20% as your target for, let's say, the microfinance business.

Speaker 12

Would it be possible for you to provide any color on what are your cross cycle expectations for the insurance business?

Speaker 2

Specifically for Pacifico, which as you just mentioned, has been outperforming, we mentioned it before, we expect to be in the 20s. So that's the sustainable ROE at Pacifico.

Speaker 12

Got it. Thank you very much and congratulations on the results.

Speaker 3

Thanks, Almir.

Operator

Next question comes from Serhii Dubin with H. L. Please go ahead.

Speaker 11

Good morning, Gianfranco and Alejandro. Thanks for the presentation. I just want to clarify regarding NIM sensitivity. So you mentioned that it's 400 bps of parallel rates, your NIM moves by 15 basis points. Is that are you talking about for both dollar portfolio and Soles portfolio?

Speaker 11

Can you give the separate sensitivity for dollar versus soles, please?

Speaker 3

Sure. I am talking for both. Sensitivity is a little bit higher on the dollar side than on the solar side because of the duration of the portfolio. But it is not I mean, if I'm talking about 15 basis points in the 1st year, you can think about 8, 9 to 7, 6 sensibility in each part of the portfolio. That is kind of the calculation we have right now.

Speaker 3

So it is a little bit higher on the dollar side.

Speaker 11

Okay. And then when you said that 15 basis points in year 1 and 25 basis in year 2, meaning it's not additional 25 basis points, it's a cumulative 25 by year 2, right? So if rates move by 100 bps year 1 and just stay there by year 2, if you do nothing, your NIM should contract by 25 bps. Is that correct broadly?

Speaker 3

Yes. If it contracts 100 basis points, it's going to come down 15 on the 1st year and then all the way to 25 accumulative in the 2nd year. That's right.

Speaker 11

Okay. Okay. And then just final question. So just looking at the slide on Page 6, where you show the Central Bank policy rates, it looks like Peru rates have started to come down earlier obviously than the U. S.

Speaker 11

So Peruvian rates according to the chart, start coming down in the end of 'twenty three. So you already had almost a year of lower rates in Peru. And then in the U. S, they just start coming down just last quarter or just September, I think. So what's your kind of expectation on the rate outlook in Peru specifically?

Speaker 11

And how much of this will how much of the repricing of the portfolio would you see would you expect to see in 2025?

Speaker 3

Sure. Yes, as you mentioned, the Central Bank started moving earlier. They were like they started in 7.25%, they are at 5% as of now. So we've already seen an important reduction in rates. Having said that, we our terminal rate or neutral rate for the Central Bank, we are around 4 to 4.25.

Speaker 3

It's going to depend a little bit on the U. S, the new government, whether it creates inflation or not and whether what's going to be the neutral rate for the Fed, which is, of course, is something that the Central Bank in Peru is going to have in mind. So we're expecting still for Peru 75 basis points to 100 basis points more coming down that we expect them all to happen during 2025. That is our current stance. Again, we'll have to see what's going on with the U.

Speaker 3

S. And the policies they make and whether it generates inflation or not. And of course, that's going to have an impact. But again, that calculation is assuming we don't do anything. And as you probably can see by looking, I don't know if you have in mind, but our NIM last year, at the end of last year was 6%.

Speaker 3

We are expecting to be at a higher NIM this year despite the reduction from the Central Bank, and we expect this to continue into the coming years. We think that this change in mix plus the pricing, the retail is less sensitive to the price. So this change in mix by the pricing plus the cost of funds should allow us to keep growing NIM despite the fact that we don't have to work against those forces.

Speaker 11

Okay. That's very clear. And then just a very quick follow-up. So this what someone asked before regarding low cost deposits now 56% of total and you said it's because you're improving transactionality. So basically as people if there's more kind of an easy way to move money around and transact, right, people will continue to keep these low cost deposits in there that helps you from a cost of funding side.

Speaker 11

Do you have a target? So it's 50 went up quite a bit, right? In the year, it went up by almost 6 whatever, 600 basis points, 5.50 basis points. Do you have a target in mind where that could get in the medium term?

Speaker 3

We have expectations and we're seeing we haven't given that guidance. We haven't given that information. We do see it growing in the coming quarters.

Speaker 2

Maybe, so just to complement and answer your last question, this is a very long term strategy. It's not like that we manage it quarter by quarter. I would argue that the results we're having today is the results of the investments we've been doing for years now in terms of value prop for our different segments like mobile banking, our web page, the whole transactional features we provide, Yape and so on. So there is not a target. It's very difficult to give a number.

Speaker 2

Having said that, we will thoroughly keep investing in that sense because bear in mind that the usage of cash in Peru is still very high. So we do see a huge opportunity there.

Speaker 11

Okay, understood. Thanks very much.

Speaker 2

Thank you.

Operator

And the next question comes from Andreas So to with Santander. Please go ahead.

Speaker 13

Hi, good morning to all. Thank you for the presentation. My question is regarding capital deployment. When I look at your capital ratios just before the extraordinary dividend and before the Bannebica transaction, BCP is running above 13% core equity Tier 1. Mibanco is at 18%.

Speaker 13

Do you have the numbers of how they would like after those two events, the extraordinary dividends and the Van Megha transaction, which based on your numbers, it would represent $300,000,000 Is that coming out of the holding? Or you will need to distribute the dividend at the subsidiary level in order to pay for that?

Speaker 2

Yes, Andres, Gianfranco here. Yes, the $300,000,000 have not been paid by the way, just to be very specific, the transaction has been set in Sodus. We should be paying that when the authorities both as Superint Valencia and the Copia approves the transaction. So that cash hasn't been paid and is going to be paid by Credicorp or the direct subsidiaries of Credicorp, not any operational subsidiary. Specifically on the capital at both Mibanco and DCB, even though the special dividend was paid by Credicorp, as of September, dividends weren't paid from BCP and Mibanco.

Speaker 2

So that figure will be lower obviously by year end or impacted negatively by year end. And as we always mentioned, going forward, we will keep our minimum common equity during one of those 2 subsidiaries and everything else is either paid as a dividend by Graycor or invested in a transaction, which, by the way, we have nothing on the table today.

Speaker 13

Understood. Thank you, Gianlofranco. So based on that, by year end, what will be the including the dividends from the subsidiaries and the payment of the Bank of America transaction, what will be the cash position at the holding company level?

Speaker 2

The cash position at the no, at CACOR level or at company level? So at Craycor level, we have like a buffer, what we call a buffer, which is around $200,000,000 That's what we normally do, which obviously higher now because we retain the equivalent to $300,000,000 for the Bannega transaction. That's an important point. When we decided on the special dividend, we already considered the fact that we were going to probably, if we got to

Speaker 3

an agreement with with Omega, we're going to have to pay an amount. So that is already accounted for in the flow.

Speaker 13

Understood. And looking at your loan growth outlook, I understand you're not providing specific guidance, but you had Peru you are giving actually guidance for Peru GDP growth next year at 3%, similar to this year. This year, the multiplier for loan growth was exactly 0. Does it make sense to expect that multiplier to be at 1.5x for next year, considering also your increased appetite for the consumer segment?

Speaker 2

Let me put it this way. We don't expect the loan growth the loan book to grow at 0 next year. Two main reasons, as Alejandro and Cesar have been I did quite clear before, business confidence is improving. As a matter of fact, investment private investment should grow next year. So on the wholesale and maybe I'm oversimplifying here, but on the wholesale business, we expect growth because the level of confidence and appetite for investment.

Speaker 2

And specifically, in mining, there are some brownfield projects that have already started. So that's one lever. And the other lever is that what Cesar mentioned that since the cost of risk in the retail business, both at BCP and Mibanco is decreasing, our risk appetite is going to increase. Having said all of that, I wouldn't, as of today, give you a multiplier. Obviously, the multiplier is going to be 0, but I wouldn't say it's going to be 1.5.

Speaker 2

Maybe next year in February when we provide guidance, we will be much more specific.

Speaker 13

Understood. Thank you, Gianfranco, and congratulations on the results.

Speaker 2

Thank you.

Operator

Our next question comes from Alonso Aramburu with BTG. Please go ahead.

Speaker 14

Yes. Hi. Good morning. Thank you for the call. You've answered most of the questions already, but just a quick follow-up on the loan growth and asset quality points that you made.

Speaker 14

I mean, you mentioned that you are at a turning point in the cycle. But you also mentioned a few times in the report that you still have a strict origination policy. So I'm just wondering, specifically at Mibanco, whether you're ready to relax some of those policies in the next couple of months before the end of the year so we can see some loan growth there? Thank you.

Speaker 3

Sure. As we're seeing this improvement in cost of risk, we are not necessarily relaxing the measurements, but we are seeing more growth in the portfolio. So the last couple of months, we've seen more activity in clients and we're expecting that to pick up. So yes, we will relax it during the coming months as we confirm the trends and we feel more comfortable about the cost of risk, but we should start to see more growth in the portfolio.

Speaker 14

Great. Thank you.

Operator

It appears there are no further questions at this time. I will now turn the call back over to Mr. Gianfranco Ferrari, Chief Executive Officer for closing remarks.

Speaker 2

Thank you for all your questions. Now wrapping up today's call. In the 1st 9 months of 2024, Cracor maintained a robust ROE of 17.7%. This performance is a direct result of the resiliency we have built into the business, which translated into a solid risk adjusted NIM. Our performance also reflects the positive contribution from diversified non interest revenues, which are seeing the benefits from high levels of transactional activity across the organization.

Speaker 2

At Mibanco, we're seeing improving profitability on the back of the macro recovery, together with our strengthened risk management practices and prudent loan origination. We remain committed to maintaining some lending standards while supporting micro entrepreneurs even through complex grade cycles and remain on track to meet our 20% ROE medium target for our macro finance business. Looking at the macro context, Peru's economic outlook for the remainder of the year 2025 remains positive, supported by low inflations, favorable commodity prices and public investments. Progress on large scale infrastructure projects will also provide additional support for the local economy. This positive environment aligns well with our strategic objectives and enhances the resilience of our core operations in the region.

Speaker 2

Against this backdrop, we also reaffirm our long term target of 18% ROE. This profitability level will be supported by a resilient NIM during a period of decreasing rate and a reduced cost of risk once the credit cycle is overcome. These dynamics will be further enhanced by diversified non interest revenue streams and optimize efficiency as disruptive initiatives become cash flow neutral by 2026. Lastly, we are on track to achieve our ambitious goals of having disruptive initiatives contribute 10% of credit card revenues after provisions by 2026. Investments in digital transformation, especially through platforms like Yape, demonstrate our commitment to leading innovation and financial inclusion.

Speaker 2

As we continue to expand our digital and customer centric offerings, Prairie Corp is well positioned to continue shaping the financial services of the future. Harnessing growth from these new business models to further decouple from the macro, while providing enhanced value for our customers and stakeholders alike. Thank you all for participating in today's call and have a nice weekend.

Operator

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Credicorp Q3 2024
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