Good morning, and welcome to the Intercorp Financial Services First Quarter 2024 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] It is now my pleasure to turn the call over to Anna DeAssis of InspIR Group. Ma'am, you may begin.

Thank you. And good morning, everyone. On today's call, Intercorp Financial Services will discuss its first quarter 2024 earnings. We are very pleased to have with us, Mr. Luis Felipe Castellanos, Chief Executive Officer, Intercorp Financial Services; Ms. Michela Casassa, Chief Financial Officer, Intercorp Financial Services; Mr. Gonzalo Basadre, Chief Executive Officer, Interseguro; Mr. Bruno Ferreccio, Chief Executive Officer, Inteligo; Mr. Carlos Tori, Chief Executive Officer, Interbank. They will be discussing the results that were distributed by the company yesterday. There is also a webcast video presentation to accompany discussion during this call. If you didn't receive a copy of the presentation or the earnings report, they are now available on the company's website, ifs.com.pe. Otherwise, if you need any assistance today, please call InspIR Group in New York at (646) 940-8843. I would like to remind you that today's call is for investors and analysts only; therefore, questions from the media will not be taken. Please be advised that forward looking statements may be made during this conference call. These do not account for future economic circumstances, industry conditions, the company's future performance, or financial results. As such, the statements made are based on several assumptions and factors that could change, causing actual results to materially differ from the current expectations. For a complete note on forward looking statements, please refer to the earnings presentation and report issued yesterday. It is now my pleasure to turn the call over to Mr. Luis Felipe Castellanos, Chief Executive Officer of Intercorp Financial Services, for his opening remarks. Mr. Castellanos, please go ahead, sir.

Thank you. Good morning, everyone, and welcome to our first quarter's 2024 earnings call. I want to thank you for attending our call today. This is my first call with my revamped role as CEO of IFS that started May 1st. As announced, this new role will allow me to be more focused on growing our platform and creating synergies within our operating companies. Carlos Tori, formerly VP of Payments, has taken over Interbank's CEO role. He has deep expertise in retail, commercial banking and in payments. We believe that this new leadership platform will allow IFS to continue on its growing path with more focus to face on the upcoming challenges and opportunities. I will start by assessing the macro situation in Peru. We began 2024 with a slightly better feeling than 2023. Economic growth was positive in the first two months of the year as El Nino was not as strong as expected. Although the recovery is delayed in consumer-linked sectors. In terms of inflation, it has decreased consistently, entering back to the Central Bank's target range in April. In that line, the Central Bank has reduced the Soles reference rate by 200 basis points from its peak to the current level of 5.75%. The combination of falling interest rates, elevated metal prices and better market sentiment leads us to expect GDP growth to be around 3% for this year, which is a recovery versus last year, but still with several challenges ahead. Moving on to our business. Our key strategic priority continues to be to achieve digital excellence for our customers by providing them with a world-class, flexible and secure digital platform. We're breaking down geographic barriers through 100% digital products and services that empower Peruvians. We want to become the leading digital platform providing profitable solutions…

Thank you, Luis Felipe. Good morning, and welcome again everyone, to Intercorp Financial Services' 2024 first quarter earnings call. Today, we will review four sections of our earnings presentations. And before we start, let me get a little bit deeper into the macro outlook for Peru. On Slide 3, complementing what Luis Felipe just mentioned, we see early signs of recovery in the macro environment as GDP for the first two months of the year grew 2.1%. Inflation is finally within the Central Bank's boundaries at 2.4% in April and the exchange rate has remained relatively stable. As you know, the Central Bank started to cut rates the second half of 2023 and has continued to do so reducing 200 basis points from 7.75% at its peak to 5.75% as of today. We expect 2024 to be a year of recovery for the Peruvian economy with an expectation of 3% GDP growth, mainly due to a base effect versus 2023, as no major disruption was caused by El Nino. Second, recovery on public investment after the first year of the newly elected regional governments and finally, to some positive impacts from private investments. On Slide 4, we observe signs of progress as leading indicators show moderate improvement. Consumer confidence remains stable while business trust starts improving its trajectory. Moreover, the expectation for private investment in 2024 surpassed previous estimates reflecting some optimism. We wanted to mention that even though economic data is starting to reflect a better sentiment, S&P recently downgraded Peru from BBB to BBB minus, which had an effect in the ratings of several entities in the financial sector. Interbank was the only bank to maintain its previous rating while all other financial companies were downgraded one notch, including IFS. Moving on, it's in this context that we…

Pardon me, we seem to have lost a connection. We will work on it. Just hold on for a second. Thank you for your patience.

Excuse me, this is the operator, Mr. Luis, if you could open up your audio, Ms. Michela has disconnected. And again, this is the operator, Mr. Luis, if you could open up your audio, Ms. Michela's video has disconnected. We will need to have your audio open so that she can finish her remarks. Thank you.

Hello? I'm sorry, can you hear us now?

Yes, and excuse me, this is the operator. Ms. Michela's line is now reconnected. Thank you.

Okay. Sorry for that. So Michela, I think you need to repeat the takeaways. Sorry to everybody.

Okay, let me go back to Slide 31, to finalize the presentations with some key takeaways. First, macro environment is showing first recovery signs in 2024. Second, the investment portfolio was impacted by non-recurring events and by mark-to-market and we expect a recovery over the year. Third, selective growth in retail banking with a slight improvement in cost of risk. Fourth, Impulso MyPeru enables growth in commercial banking at low risk. Fifth, tight management of costs reflected in solid efficiency levels. And finally, we continue strengthening our digital positioning and presence in payments. Thank you very much. Now we welcome any questions you might have.

Thank you very much. At this time, we will open the floor for your questions. First, we will take the questions from the conference call and then the questions from the webcast. [Operator Instructions] And our first question is coming from Alonso Aramburu from BTG Alonso. Please go ahead.

Yes. Hi, good morning, and thank you for the call. Two questions on my side. First, you mentioned some early signs of economic recovery. Can you maybe comment if you're seeing some early signs of demand for loans, whether that's improving or not? And second, regarding your payment business, are you growing volume and merchants in numbers year-over-year but fees are flat? Can you comment maybe on the dynamic of fee income and competition at Izipay. Thank you.

Okay. Thanks, Alonso, for your questions. Let me pass it on to Carlos Tori, so he can also make his debut in answering questions as recently appointed CEO of Interbank.

Hello, Alonso, how are you doing? Thanks for your question. On the first one, in terms of the economy and loans, we have seen, well, everybody expected the year to start very negatively with El Nino, right? So just not having El Nino was positive. But we have also seen the Central Bank controlling inflation and lower rates and slight growth in GDP. So all of that helps. Consumption is growing slightly, and we have been able to, or we're confident on our new vintages of loans are performing well in terms of the last six, nine months of vintages. We're still going through the older vintages in terms of credit risk, but the new portfolio is performing well. We are being cautiously confident in terms of growth. We want to start growing again, but we want to do it in the products and segments where we are comfortable. We have been growing more in commercial banking and we have been able to build on the Impulso MyPeru program for small -- for SMEs. So that is helping us grow. And hopefully the GDP growth and inflation will continue to GDP growth grow and inflation to continue to be under control. So that's kind of what we're looking at. And then in terms of your questions for Izipay, well, there's basically, I would say two, maybe three things that impact the competition dynamic. The first one is there's more competitors. There used to be two acquisition players, Niubiz and Izipay. Today there are five. There are three new competitors. So there is pressure on pricing for sure. We have been able to hold our market share and we have had to be more aggressive on pricing on certain segments. We're trying to have a mix of keeping our market share…

Thank you, Carlos. And congratulations on the new role.

Thank you.

Thank you.

[Operator Instructions] And at this time we can continue by moving to the webcast questions. So I will turn the call over to InspIR Group.

Thanks, operator. The first question comes from Juan Nicolas Pardo from Credit Corp. Could you go through the details of the investment portfolio events that took place during the quarter?

Okay, let me pass it on to Gonzalo, so he can help us addressing the investment portfolio results. Let me just do a brief introduction. I guess the non-recurrent that was reported includes some accounting changes that represent approximately 20% to 25% of the reported number, and then the investment portfolio effects. So now Gonzalo can help us in the specific of the investment portfolio tax.

Sure. Thanks, Luis Felipe. As you mentioned, the 100 million solar systems is composed of actually three different things, first is the accounting change you mentioned is around 23 million soles. Then we have an impairment. Regarding Rutas de Lima, as Michela mentioned, that's around 42 million soles. And then for 33 million soles it's a loss on the evaluation of some investments. Remember our portfolio of above 16 billion soles in assets. We infrequently have this a loss of this magnitude, this is not very common because most of our investments are fixed income and health to maturity. But from time to time we may have this kind of either losses or in other cases, gains.

Thank you, Gonzalo.

The next question comes from Yuri Fernandez from JP Morgan. Can you please explain in details the 100 million soles potential non-recurring? My apologies. The question, oh, we're moving to another question. That question was taken away. The next question comes from Jose Ignacio Mejia. Regarding your banking operations, our analysis shows that your delinquency rate adjusted by charge offs has been increasing at a significant pace over the last months, while the NPL coverage ratio is at a historical low point. Given these trends, when can we expect to see an improvement in loan quality and a subsequent reduction in loan provisions?

Sure, let me answer that. I guess obviously we're going through the credit cycle. Based on what we're seeing, we think that we might be hitting the bottom. So it's probably this and the next quarter. We already, as Carlos mentioned, seeing early signs of recovery. So hopefully, based on our models and our expectations of the economy, we will see marginal improvement going forward. Actually, this quarter was a marginal improvement versus last quarter. Given what Carlos mentioned about vintages and the evolution of the economy, probably this trend should continue. Maybe, maybe not as fast as we expected. Given that the economic recovery is lagging in terms of consumer activity and consumer confidence. However, we're probably already in the path of a slight recovery.

Let me maybe just add something related to the NPL coverage ratio, which as of the first quarter was 141% for the bank. Particularly the coverage ratio for retail banking was 176% which is a pretty high coverage ratio, considering that it is more than 200% for the consumer unsecured portfolio knowing much lower for mortgages and payroll deductible loans. So you see a decrease in this level over the past two years. But this is because we had some, let's say, expert criteria provisions that were made during COVID that brought those levels to, let's say, historically high levels, and they have been normalizing over the quarters.

Thank you, Michela.

The next question comes from Rodrigo Freire, an Independent Investor. I would like to know the ROE expectations for Q2?

Sure. Well, it's actually pretty, pretty hard to give you an exact number, however, given what has been mentioned during the call. Probably this was a low ROE number for this quarter. And assuming that we will reach our 12%, around 12% for the year, we should start seeing a recovery in the upcoming quarters, including next quarter. But at the end, the whole year should bring us to what we guided for. So numbers should start coming up. The big question mark continues to be the market volatility and the pace at which consumer payments start to proof.

The next question comes from Diego Guzman from BTG Pactual. Does your ROE guidance for 2024 includes this $100 million one-off? That can be an early range of guidance of a 2025 ROE with a smooth operation with a new NIM mix and strategic reality.

I'm sorry, can you repeat the question, please?

Of course. The question is, does your ROE guidance for 2024 includes this $100 million one-off? That can be an early range of guidance of a 2025 ROE with a smoother operation with a new NIM makes in a strategic reality.

Sure. Yes. We expect where we stand today that we will be able to recoup this one time through our normal activities. Again, that will be subject to market conditions, but that continues to hold as true. And then I think it's early to tell 2025 range for ROE. However, we do expect that as the macro conditions normalize, we will be targeting to go back to what we believe is our sustainable ROE, which is around 18% for IFS. However, when we will be targeting. That depends on the evolution and we'll keep you posted.

Luis, we lost you on the last sentence. We could not hear you.

Excuse me, this is the operator. I've opened up Mr. Luis's audio. Can you speak again, sir?

I think they've lost connection. I'll answer if there's any remaining questions.

At this time, there are no further questions. Thank you, Carlos. I will turn the call back to the operator.

It was the last question. Thank you very much. Did you all hear the last answer? I thought it was full, but if you have a follow up on that, I'll be happy to answer it.

There are no follow-ups. We just missed the last sentence. We heard most of the answer.

Okay. All right. Thank you.

Thank you very much. And there appears to be no further questions at this time. So I would like to turn the floor back over to Ms. Casassa for any closing remarks.

Thank you very much, everybody.

Hold on one second. Can you hear Michela now?

Hello?

Yes, we can hear her now. Thank you.

Thank you everybody for joining our call. We'll see each other again in the second quarter results. Bye-bye.

Thank you very much. This concludes today's conference call. You may now disconnect and have a great day.

Thank you.