Good morning, everyone. I would like to welcome all of you to the Credicorp Limited Second Quarter 2022 Conference Call. A slide presentation will accompany today’s webcast, which is available in the Investor section of Credicorp’s website. Today’s conference call is being recorded. [Operator Instructions] Now, it is my pleasure to turn the conference over to Creditcorp’s IRO, Milagros Cigüeñas, you may begin. Milagros Cigüeñas: Thank you. And good morning, everyone. Speaking on today’s call will be Gianfranco Ferrari, our Chief Executive Officer, and Cesar Rios, our Chief Financial Officer. Participating in the Q&A session will also be Francesca Raffo, Chief Innovation Officer; Reynaldo Llosa, Chief Risk Officer; Diego Cavero, Head of Universal Banking; and Cesar Rivera, Head of Insurance and Pensions. 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 risk and uncertainties. And I refer you to the forward-looking statement 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 change events or circumstances. Gianfranco Ferrari will start the call discussing our strategic initiatives followed by Cesar Rios who will comment on the macro environment in which we work, our financial performance and provide an update on our outlook for 2022. Gianfranco, please go ahead.

Thank you Milagros. Good morning, everyone. Thank you for joining us today. Please turn to slide 3 of our earnings presentation. During the quarter, we continued to advance on the execution of strategic initiatives across our operations, increasing digital customers and advancing on financial inclusion. We delivered another set of robust financial results and closed the quarter with a solid balance sheet while maintaining healthy asset quality. Cesar will discuss this in more detail shortly. Importantly, we are well positioned to leverage additional opportunities, even as we navigate the current challenging geopolitical environment. Before I turn to discussing the specific areas of our focus at Credicorp, I’d like to comment on the context in which we’re operating, particularly in Peru. Private investment is expected to decline this year and with a lack of meaningful public investment, our country is underperforming. Unfortunately, we Peruvians have been spending too much time discussing the political turmoil and not enough on addressing those matters that will truly make a difference to the wellbeing of our fellow citizens and the long-term health of our economy. The country requires its authorities, and especially the executive branch, to direct its efforts at promoting political and legal stability in order to assure private investment, as well as to efficiently execute the public budget with a goal of securing better public services for all, instead of enacting short-term measures with damaging inflationary consequences. The private sector is doing what it can, and we at Credicorp are committed to doing our part, but we certainly need the government to set up its execution capabilities across fundamental areas of our economy and safeguard our institutional framework to accelerate potential growth. I’d like now to review how Credicorp stands out in this context and how we are consolidating and [indiscernible] our core…

Thanks, Gianfranco, and good morning, everyone. As Gianfranco mentioned, we delivered solid operational and financial results. I want to start by highlighting some key quarter-over-quarter dynamics. [Indiscernible] structural loans grew 6.8% driven by BCP and Mibanco. We decreased our liquid assets to fund the aforementioned loan growth. Regarding deposits, clients migrated to higher-yielding deposits to take advantage of rising rates. In terms of asset quality, the structural NPL ratio dropped to 4.9%, driven by strong origination levels, while the structural cost of risk rose to 1.1%, reflecting a less favorable macroeconomic outlook. From a year-over-year perspective, volumes for structural loans and low cost deposits follow different trajectories. Where structural loan volumes were up 14.1%, low-cost deposit volumes were down 6.1%, and represented 56.7% of the funding base. In this scenario, core income, including net interest income, fees and gains on FX transactions, registered a strong growth of 18.7%, 6.7% and 12.8% respectively. Prudent risk management during the pandemic set a stage that allowed us to keep current provision expenses under control despite today’s challenging environment. We continue to maintain healthy structural allowances for loan losses equivalent to 5.9% of structural loans and our coverage level for structural non-performing loans stands at 120%. In the Insurance business, the loss ratio fell more than 37 percent points, which indicates that the business is on track to recover profitability. In summary, Credicorp consolidated its recovery this quarter and on the back of the banking and insurance businesses, secured an ROE of 16.9% while maintaining a sound capital base. Next slide, please. At the end of July, IMF cut its global growth forecast as central banks around the world tightened monetary policies to combat the highest inflation levels in a decade. This scenario was exacerbated by the war in Ukraine and persistent lockdowns in…

Thank you. We will now begin the Q&A session. [Operator Instructions] And our first question will be from Ernesto Gabilondo from Bank of America. Please go ahead.

Thank you. Hi, good morning, Gianfranco and Cesar, and good morning to all your team. And thank you for your presentation. My first question is on the regulatory framework. I would like to hear from you if you have some color on the new regulation approved by the Peruvian Congress to reduce interest rate for good payers for loans under $2,400. And also I would like to hear your first impressions on the potential impact to [indiscernible] Prima related to the large pension withdrawals. Thank you.

Yes. Good morning Ernesto, this is Gianfranco. Thank you for your question. The regulation proposal you just mentioned is one of the - I won’t qualify the initiative, but one of the 100s of regulatory initiatives at Congress. As of today, there’s nothing - that proposal has not gained track whatsoever. And regarding pensions, sorry about that, regarding pensions, the law was passed at Congress. However, we do not have the answer for that. It hasn’t been published. Having said that, we’re currently working on how to tackle the new regulation. And - but more importantly, I would say that - actually I’ve been saying this for the last, maybe couple of - the last couple of calls and in some meetings, is we as Credicorp are much more worried about the whole pension system rather than the specific regulation or the impact on Prima. What has been going on for the last maybe 2, 3 years is that the whole pension fund system in Peru has been constantly perforated and therefore damaged. I strongly - this is a personal opinion, but there’s no pension fund - there’s no pension system anymore in Peru. And for us, it’s much more relevant to have a formal and intelligent discussion with all the stakeholders in order to come up with a much more solid pension funds system - pension system, sorry - for the future. Otherwise, if we think that we have an issue regarding pension funds today, we will have - as a country, I mean - we’ll have a much more complicated situation in the future.

Perfect. Thank you, Gianfranco. So just last question on your operating expenses. We saw the OpEx has grown roughly 16% in the first half of the year. So I just wanted to understand how much has been related to inflation, how much related to FX, and how much to the digital transformation. And is this a level that we should expect for the rest of the year? And looking for next year, would it be reasonable to expect like a more moderate pace of growth in OpEx?

Cesar, can you answer this?

Yes. As I mentioned during the presentation, the speech, I think we have been - various specific drivers of this significant growth has been related to transactional levels and also an accelerating in the transformational initiatives and the IT expenses. Part of this effect has been driven by inflation, also FX expenses. But I will say that mainly it is driven by intentional accelerating in the transformation. Down the road, we expect a moderation in this expenses growth, but what we are going to monitor, as we mentioned previously, is a sound cost to income ratio. As the income follows us and we can drive income higher, we are going to maintain a fast investment pace.

Perfect. Thank you very much Cesar.

Thank you. And the next question will be from Jason Mollin from Scotiabank. Please go ahead.

Hello everyone. Congrats on the solid profitability, despite the challenging economic and geopolitical context. Gianfranco and cesar, thanks for your presentation, the opportunity to ask questions. I’m going to only ask one question as you requested. Mine is related to Mibanco. We saw Mibanco, the microfinance subsidiary generate an improved level of return on equity, reaching 20%. Can you talk about the addressable market for this segment, the competition and Mibanco’s market position now and going forward? Thank you.

Yes, good morning, Jason. The total addressable market for Mibanco Peru - and then I’ll go slightly into Colombia - we believe is still this is still a big opportunity because the level of unbanked potential clients is still large there. And as you know, we at Mibanco have also a goal in terms of financial inclusion and bringing new customers to the financial system through this really tiny loans. So as in your first - actually your first sub-question is that we still see opportunity for enlarging in the pie in that segment. Regarding competition, it’s a tricky question. Because of COVID, a lot of the super-intendancy provided or allowed the banking institutions, financial institutions, the [indiscernible] municipalities and so on, to relax the trade standards, create provisioning, capital requirements and things like that. Therefore, it is still not very clear how strong or weak are our competitors regarding that matter. From what we see in the market is that the risk appetite is not as strong as it was before. And at Mibanco, what we’re doing, what we are currently doing is and leveraging on the data we have, is targeting those really good risk clients from [indiscernible] since we don’t see them as aggressive as before. And, sorry, I missed your last question, the third one, sorry.

[Indiscernible]

[Indiscernible]? Okay. And maybe the third comment is both regarding Peru and Colombia, this hybrid model, which we’ve talked about previously is performing quite well. We’re further implementing it at Mibanco Peru, and we’re also implementing it in Mibanco, Colombia. Colombia’s still I would say at the initial stages, but the performance is quite good. We have some headwinds there regarding cost of funding. But already Mibanco Colombia already have roughly 12% of that market. So we’re very positive also in Colombia and with longer vision, we’re bullish in microfinance in Columbia.

Thank you for your comments. Appreciate it.

And the next question is from Andres Soto from Santander. Please go ahead.

Good morning to all. Thank you for the presentation and congratulations on the results. My first question is on your risk adjusted NIM, which is already at the level it was pre COVID. I’m curious to see your thoughts on how much upside are you expecting from this level. Do you think that this is what is sustainable, the 4.25% is what you believe are sustainable? Or we may have additional increases as monetary policy trickle down and you have a phasing out of the government programs portfolio?

Yes. Thank you, Andres. I will make a quick comment and then pass it to Cesar Actually I would say we’re already seeing upside because as we mentioned before, we were expecting, or in 2023, for that [indiscernible] adjusted NIM to come back to pre-COVID levels. And actually you just said it, we reached it in this quarter. So we already see upside. In the long run, what we expect is basically to stay at those levels, but I would ask Cesar to be much more going into the detail.

Yes. I will say that, as Gianfranco mentioned, we have been facing, I would say, a favorable dynamic that has accelerated the conversion that we were talking about. Why? Because the NIM has been growing faster due to the increase in market rates, and we have contained the risk in very low levels. Down the road, and I will say not for the long term but for the short term, we expect to have probably some improvement because the NIM is still growing at a healthy pace, and we still consider that we can maintain a reasonable levels of cost of risk. Down the road is what is going to happen is what Gianfranco mentioned is that we are going to have a not-as-high interest rates and a more stable level of risk that has inside an improvement in the underlying quality but has a change in the composition with an increasing part of retail banking and Mibanco as part of the overall mix. So I will say, in the short term, probably some improvement, but in the long term, following the dynamics of Gianfranco just mentioned. But we are having, I would say, at this point, a favorable perspective in both components of the indicator, NIM and cost of risk.

Perfect. That’s very clear. Thank you. And then my second question is on dividends. You have already BCP 11.6%, core equity tier one 15.3% at Mibanco. And outlook for both operations look pretty solid. You mentioned in the last quarter, the possibility of special dividend later this year. I would like to know your thoughts around this issue.

I think as we mentioned previously, this is a very dynamic process for us with very clear rules first, to fund the underlying growth of the business, [indiscernible] funds for a specific transaction. So probably later this year, we are going to meet with the Board and make a decision. At this point, we don’t have any updated information regards to this point.

Fair enough. Thank you, Cesar.

And the next question will come from Alonso Garcia from Credit Suisse, please go ahead.

Hi, good morning everyone, thank you for taking my question. My question is on the outlook for loan growth going forward, especially this year - next year. I mean, this quarter, you posted a very solid performance of your structural loan portfolio. So my question is, how do you think growth should look into 2023, considering probably a more challenging macro environment, but also the healthy trends that you are seeing in your total loans and the initiatives you have to address a larger share of the individual segment in Peru? That is my, like my question. Thank you.

Cesar, go ahead.

Okay. Thank you. I think in the long term, we still maintain our general guidance of 1.5 times nominal GDP. In the short term, we have been seen and we maintain a positive view regarding [indiscernible] in general, at BCP and Mibanco, and the consumer segments. We have been seeing significant challenges in the long-term portfolios, and this probably is going to be the wild card. At this point, we have been growing the portfolio mainly driven by short-term operations with very modest growth in long-term operations. And this probably can make a difference next year. If the environment, the political environment, remains volatile, we are going to face the same challenges. Otherwise we could have an initial engine of growth because the investment has been very contained the last year.

Very clear, thank you.

And thank you. The next question is from Tito Labarta from Goldman Sachs. Please go ahead.

Hi, good morning, thank you for the call and taking my question. My question on your ROE guidance for the year, [indiscernible] this quarter, a little bit lower probably due to a higher tax rate. How do you think about the ROE target for the rest of the year? And then also, I think longer term, you mentioned about an 18% ROE. Is that still your thinking given some of the economic macro challenges? And then also just what do you expect for the tax rate? Thank you.

Hello Tito, this is Gianfranco. I don’t know why, but we didn’t - we weren’t able to get your question quite clearly, but what we in basically, the ROE, real ROE for this year guidance and expectations for the upcoming years, if I’m correct, what Cesar mentioned before, we are - we stick to our guidance of ROE of around 17.5%. And we are quite sure that we will end up around that figure. And in the long run, still, and we’ve discussed it before, we expect to come back to the high-teens ROEs which we’ve delivered in the past, with caveat - a positive caveat, I would say, is that we are strongly investing in our digital transformation at all of our lines of business, plus the disruptive investments we’re doing at Krealo. So we strongly believe that in the upcoming years, our competitive position in this new environment is going to be as strong or even more strong - even stronger than it was in previous years.

Only if I can add a slight comment, that is going only a repetition of that we mentioned in the Digital Day, we are, as Gianfranco mentioned, investing heavily in the digital transformation. So when we expect a similar ROE down the road, is with a stronger business that can face a tougher competitive environment. That means that 17.5%, 18% 3, 4 years down the road, reflects higher capabilities and stronger digital capabilities that allow us to compete better in a tougher environment. This is our underlying assumption.

Thank you. And the next question will come from Thiago Batista from UBS. Please go ahead.

Yes. Hi guys, thanks for the opportunity. I have a follow-up on cost of risk. The cost of risk ended the first half on 0.8%, lower - on the low part of the guidance, but you already stated that cost of risk should end the year close to the top of the guidance, the 1.1%. So can you give us a little bit more color of this cost of risk dynamics? And if you believe that this level of around 1% should be the recurring level for the medium term?

Reynaldo, can you that one please?

Sure. Yes. I mean, the cost of risk, we’ve watched in 2021, and the first semester of the year has been quite low as you know, at least 50 or 60 basis points below pre-pandemic levels. So what we expect to get back to normal numbers starting next year. By the year we expect them to get closer to - as Cesar has mentioned, to the upper range of our guidance. So, I mean, we are positive this year. We see challenging macroeconomic outlook. [Indiscernible] that, the portfolios are still performing quite well.

Thank you. And then the next question will be from Carlos Gomez Lopez from HSBC. Please go ahead.

Hello. Good morning. And again, congratulations on a very good strong result. I would like to address costs again. As always, you mentioned that you’re investing heavily in your technology initiatives. In the past, we have referred to an investment period that would eventually come to an end. Is that is still the case? Should we expect a decline in expenses once the heavy phase is over? And how much would that be? I mean, I think in the past you have referred to something like 150 basis points in terms of ROE. Is that still guidance? Is that something like the amount of money that you’re spending right now? And could you quantify how much you have invested in Krealo? Thank you.

Hello, Carlos. This is Gianfranco. Great question because even though we - at the beginning maybe of the transformation, we were thinking like that. We do not expect this transformation process to end up somehow. What we can say, and we publicly said it in our Digital Day presentations in February, is that the new ventures, which obviously today are cash flow negative, should be cash flow - sorry, cash flow neutral as a portfolio by 2025. The more mature ones, like Yape, should be cash flow positive by that year. But obviously, since we will be investing and maybe [indiscernible] most of the investments we’re doing is we are registering it as an expense in order to be conservative. But the more new investments, which may show up down the road, obviously, will be cash flow negative. So again, our vision is that by 2025, this disruptive portfolio, just to put a name on it, should be cash flow neutral by 2025. And therefore, it wouldn’t cost that 150 basis points in terms of ROE we’re discussing today. I don’t know, Cesar if you want to add?

Yes, only complement. I will add the digital, the more disruptive parties, as Gianfranco mentioned. But in the internal business, we are conducting a thorough and profound transformation also of the business, changing the basic platform, the databases, improving cybersecurity capabilities and improving the operational capabilities. So this is also impacting the expenses. And what we have managed to do during the last year, and is very clear this year, in particular, is that the other part of the business has expense growth very well contained in the low single digits, and most of the increasing expenses is in digital. And you can see that in the report very clearly, is daily linked to IT expenses and marketing. And I would say, loyalty related, that is very linked to operational levels. So we intend to continue this path, building the capabilities inside and outside the core businesses.

If I may translate what you’re saying, it seems to me that you now see the level of expenditure as something that will be continuing, ongoing and the difference will be in the revenues of the new ventures that should increase, and that’s what will turn it cash flow positive. But again, it seems to me that we should look at changes in revenue rather than changes in expenses going forward.

Yes.

That’s exactly right.

That’s exactly right. And as I - sorry for repeating that self, what we monitor very closely is the ratio. We don’t have the intention to reduce expenses, what we have the intention is to improve efficiency.

Through income. Yes.

Okay, clear. Thank you so much.

The next question is from Yuri Fernandes with JP Morgan. Please go ahead.

Thank you all. And good morning. Also a follow-up here on the Yape and Krealo like investments. You provide some numbers on the efficiency ratio adjusted by those initiatives, right? And you have, I guess, 34 bps improvement for the semester and about 240 bps improvement for the quarter, if you exclude those vehicle initiatives. And we do back-of-the-envelope calculation here to estimate, it seems there was a big increase in the second Q on your investments here. And going back to that point, like, are you really kind of going to be more flattish on those investments for Krealo and Yape? Or should we continue to see an acceleration? Because again, the second Q kind of imply some acceleration, I guess, about - we really don’t know the breakdown between operating expenses and operating income from those initiatives, but something around like PLN 100 million being deployed on those initiatives. So just checking if that’s really the message, like maybe second Q is the peak and we should see this kind of negative PLN 100 million per quarter on those things? Or if this calculation is too high and it’s lower than that. And also on Yape, you mentioned new initiatives. And I guess that’s part of the path to monetization, the microloans that you were testing, you had the pilot. My question is how much those microloans may help you to be breakeven - to break even the initiatives. On the app is small, but like how big can be microloans for Yape? Thank you very much.

Thank you for your question, Yuri. Maybe from a broader perspective, what the whole new ventures, investments - and when I say new ventures, it’s not only Krealo or Yape, because we have a few other initiatives within the incumbents - is costing us 300 basis points of cost to income. I don’t know if that helps you. So it’s roughly 150 basis points of ROE, 300 basis points in terms of cost to income. Regarding your question on, I would call it nano loans in Yape. Obviously, we have to - the approach is actually to lend to learn at the beginning. We have over 6 million active users today. So the quantity and quality of data we’re gathering is huge, but we have to be cautious. This is a completely new segment. Loans are going to be disbursed and collected through a completely new channel. So there are challenges going forward. However, if you see it in a -- with a longer vision, the play is not necessarily -- and obviously, we’re going to be profitable by lending money. But the vision is much broader in the sense that what we want Yape to become is a super-app for Peruvian and Peruvians operating in that segment. Therefore, loans or lending is going to be one of the verticals in which Yape’s going to play. But there are several other verticals so that the day - most of the daily necessities of these Peruvians can be figured out through Yape. That’s the vision.

Only to complement, being loans relevant is part of one of the verticals, that is the financial services, and we tend to be a super-app that provides payment facilities, a lot of support for the client, another vertical based on financial services and also in a marketplace. So [indiscernible] is not the only play, it’s part of a portfolio of initiative of the super-app.

Super clear guys, and thank you and congrats on the 10 million clients for Yape and the better engagements on there. Thank you very much.

Thank you.

[Operator Instructions] The next question is a follow-up question from Jason Mollin from Scotiabank. Please go ahead.

Hi. I just wanted to ask about the government program loan, so the nonstructural loans, and we saw the balance decline to I think around 9.9% from over - about 17% last year. What should we be expecting on that front going forward? Thank you.

Hey, Jason, again. The trend is that BCP, it’s PLN 700 million per month, is being paid. So by year-end, the figure you said, which is 10%, roughly 10%, should go to 7%. We do believe that it’s a non-issue anymore. There might be some refinancing, but it’s not a non-issue anymore. Both the quality of that portfolio is much better of what we expected at the beginning, a couple of years ago. The whole process of executing collateral is working quite well. For us, it’s not an issue anymore. And maybe an issue that some of you guys asked us before was about the concern of the pickup in interest rates, specifically - more importantly, at Mibanco. That hasn’t been an issue also.

Very helpful. Thank you, Gianfranco.

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

Thank you all for joining us in this conference call. I’d like to reiterate that despite the continued political volatility, Peru’s macro fundamentals remain solid and the economy remains resilient. As Cesar noted, we may face some regulatory challenges ahead, but, as always, we expect to navigate any changes and continue to generate solid returns. Furthermore, we acknowledge that high inflation and tighter monetary policy and the impact in our businesses are among the main concerns in the market. In this environment, we are well positioned to continue to drive our businesses to meet our expectations. We anticipate structural loans to continue growing through the end of the year, although at a slower pace as compared to the first half. This dynamic, coupled with core income prospects and prudent risk management, led us to believe that there could be an upside potential to our ROE estimates. Going forward, while client payment activity is within expectations, we will continue to monitor closely any increases in early delinquency indicators and take appropriate steps to manage risk and protect asset quality. We remain confident that the prudent approach we took at the beginning of the pandemic has put us in a good position today and especially for the future. Summing up, I am very pleased with the results of Credicorp and excited about the initiatives we’re undertaking to strengthen and consolidate our position as a leading player in our markets while developing our own disruptors. We will continue to deliver on our strategy to drive sustainable, profitable growth, advance on our digitalization initiatives and attract and retain the best talent. Finally, as I noted in my opening comments, for our country to accelerate growth with a meaningful impact on the well-being of Peruvians, we need the government to focus on generating stability, securing our institutional framework and deploying the fiscal budget toward building capabilities across our economy. Again, thank you all for joining us.

And thank you, sir. And thank you, ladies and gentlemen, this concludes today’s presentation. You may now disconnect.