Credicorp Ltd. (NYSE:BAP) Q4 2024 Earnings Call Transcript

Credicorp Ltd. (NYSE:BAP) Q4 2024 Earnings Call Transcript February 11, 2025

Operator: Good morning, everyone. I would like to welcome you to the Credicorp Ltd. Fourth Quarter 2024 Conference Call. A slide presentation will accompany today’s webcast, which is available in the Investors section of Credicorp’s website. Today’s conference call is being recorded. As a reminder, all participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today’s presentation. If you are connected to the call using the HD web phone on your computer, use the keypad on your computer screen. If you are using a speakerphone, please make sure you mute your mute. Now it is my pleasure to turn the conference over to Credicorp’s 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 Alejandro Perez-Reyes, our Chief Financial Officer. Participating in the Q&A session will also be Francesca Raffo, Chief Innovation Officer, Cesar Rios, Chief Risk Officer, and Tito Labarta, Head of Universal Banking. 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 firm expectations and beliefs and are subject to a number of risks and uncertainties. I refer you to the forward-looking statements section on our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances.

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

Gianfranco Ferrari: Thank you, Milagros. Good morning, everyone. I’m very pleased with our full-year results, delivering record profitability of $5.5 billion and an ROE of 16.5%, which equals 17.2% aligned to our guidance, while excluding one-off charges related to the Sartorius case. Operationally, the fourth quarter was robust, with improved cost of risks at DCP and Livanco, increased lending, and exceptional transactional volumes at BCP and Yape, providing a strong foundation for sustained growth in the years ahead. These achievements underscore the impact of our strategic initiatives, which have strengthened resilience and reinforced our competitive advantages. This enabled us to navigate periods of volatility effectively while capitalizing on market opportunities to drive future growth and further advance our strategy of decoupling from the macroeconomic cycles.

Our efforts align well with Peru’s economic recovery, which saw GDP expand by over 3% in 2024 after contracting in 2023. Inflation fell to 2.2%, its lowest level in four years, as the central bank lowered its policy rate to support the recovery. Improved weather boosted fishing, primary manufacturing, and agriculture, while strong copper and record-high gold prices further supported economic performance. Despite gains from increased public investment, private sector investment remains subdued. Achieving long-term sustainable growth will require political stability, responsible fiscal policies, and structural improvements in essential services to fully restore business confidence. Looking ahead, we expect the Peruvian economy to grow around 3% in 2025, supported by historically high terms of trade, controlled inflation, and continued recovery in real wages.

However, the onset of the electoral campaign toward the end of the year may introduce uncertainty as campaign activities intensify. Reported ROE came in slightly below expectations, as we chose to prioritize client relationships and mitigate the risk related to the Sartor matters in the fourth quarter. However, adjusting for this, we have delivered an ROE of 17.2%, in line with expectations. Our results were primarily driven by strong results at our universal banking and insurance and patient business lines, alongside continued improved performance at Miwa. This was further supported by growth in device fiber revenue streams and record-high transactional volumes, particularly in FX and diesel transactions during the fourth quarter. This shift enhances our revenue mix, advancing our strategy to diversify revenue income sources with the goal of achieving 10% of risk-adjusted revenues from new businesses by 2026.

Risk-adjusted NIM continued to strengthen, underpinned by disciplined interest rate management, a leading low-cost funding position, and enhanced credit risk management. Meanwhile, our investments in innovation and digital capabilities are delivering tangible results, driving a better-than-expected efficiency ratio, reinforcing our competitive advantages, and deepening client relationships. Client satisfaction also improved, with a 5% percentage point increase in average NPS across our businesses. Greater financial inclusion. Lastly, the significant asset quality improvement since Q3 of 2024 has led us to gradually increase our risk appetite and allow for a more proactive lending approach at both BCP and Livanco, particularly in the retail segment, reflecting the improved operating conditions.

Please move to Slide three. We’re advancing our strategic priorities to proactively address challenges and capitalize on opportunities, ensuring our long-term competitiveness. These priorities are: attracting and retaining top talent through a compelling value proposition, accelerating digital transformation and innovation, and integrating sustainability into our core business strategy. We cultivate innovative teams with a growth mindset, aligning their purpose with Credicorp’s to unlock potential. Through continuous training and development, we’re making Credicorp an increasingly agile organization that enhances both efficiency and experience. Our strong value proposition led to a 12-point employee NPS increase, making Credicorp Peru’s top employer brand for executives.

Additionally, five of our companies are number one in their respective categories in the Merco Peru reputational ranking. To further reinforce our identity, we launched Credicorp culture, a strategic framework built on shared values of teamwork and vision, innovation, customer centricity, and ethics. We drive digital transformation and innovation by enhancing AI and cybersecurity capabilities. Over the past decade, we’ve advanced data analytics and technology, boosting productivity and customer experience. AI-driven initiatives such as improved voice for bots at BCP contact center have increased self-service interactions to 40%. Moreover, the implementation of Skip Capilot among over 1,500 developers boosted productivity by over 30%. We strengthened internal cybersecurity management, invested in new technologies, and improved processes to elevate protection standards.

Recognizing that cybersecurity is an ongoing priority, we continuously monitor and adapt to emerging threats while keeping both employees and clients with enhanced digital security practices. We integrate sustainability into our strategy to drive meaningful change. As a leader in financial inclusion and education in Peru, we have brought over 5.7 million people into the financial system since 2020 and expanded access to insurance with more than 3.6 million inclusive policies issued. We’ve also allocated over $1.5 billion in sustainable financing across agriculture, fishing, energy, and textile sectors. These are just a few of our many initiatives aimed at improving lives and reducing poverty in Peru. Looking ahead, we will continue to focus on these three fundamental pillars: talent, digital transformation, and sustainability, as key drivers of Credicorp’s long-term success.

Now let’s turn to a summary of performance across our business units and disruptive initiatives. Our balanced portfolio innovation strategy, including disruptive initiatives, allows Credicorp to decouple from the macro and drive resilience, profitability, and long-term value creation. At BCP, we prioritize customer experience and long-term competitiveness through investments in digital channels like Yape and mobile banking, which drive exponential transaction growth. We now have 26% digital customers. Our branch modernization efforts, including quick service modules and digitalization zones, support this evolution. Additionally, we improved multichannel value propositions based on NPS across segments, while our focus on optimized credit risk management in consumer and SME segments is unlocking significant growth potential.

MiBanco’s performance improved, driven by the broader economic recovery, enhanced risk management, and operational efficiency improvements. Our hybrid model helped navigate an acute cycle in Peru’s microfinance system, supporting clients with credit facilities and training. We shifted to lower volume, higher profit credit tickets, improved monitoring and collection, and implemented more effective risk controls than our peers. We also tracked the savings, diversifying income and strengthening resilience, boosting customer NPS by over four percentage points and turning in solid results in the quarter. Looking ahead, we’re exploring additional synergies with Credicorp to drive further structural improvements to achieve our minimum target of 20% ROE.

Pacifico served over 6.5 million clients in 2024, expanding its offerings through commercial partnerships and leveraging the Credicorp ecosystem, with a particular focus on retail via bancassurance and Yape. We developed a new strategic alliance, including a collaboration with Parabella in Embedded Insurance. As a result, our NPS increased two percentage points over the year. Our commitment to enhancing digital capabilities supports our ambition of making Peru the most protected country in Latin America. At Credicorp Capital, we recovered income, profit, and profitability, driven by capital markets and wealth management, with growth in assets under management. These results reaffirm the strength of our strategic approach. Following the Chilean Financial Markets Commission intervention in Sartor, a third-party fund manager, we prioritized client interest by proactively protecting their investments in our factoring funds.

While we expect a partial recovery of funds, our actions reaffirm our commitment to long-term client relationships. We continue to drive revenue growth through our consolidated innovation strategy. Yape, now Peru’s most recognized brand, reached profitability in 2024 with nearly 14 million active users. As a leading payments platform, Yape has nearly doubled its transaction volume in 2024, expanded paid assets with 1.8 million users with trade, and became Peru’s fifth-largest e-commerce player. In Bolivia, Yape has emerged as a top digital wallet with over 1.2 million active users. Krealo, our corporate venture capital arm, remains at the forefront of innovation, with Tempo in Chile set to become the country’s first NeoBank, already serving over 750,000 users.

Strategic internal collaborations with platforms like Monroquera, linking insurance to digital channels, are enabling Yape to become a digital insurance distributor. With that, I will now turn the call over to Alejandro, who will go into the highlights of the quarter and provide further detail on the macro environment, each of our operating businesses, and our consolidated results. Alejandro?

Alejandro Perez-Reyes: Thank you, Gianfranco, and good morning, everyone. As Gianfranco mentioned, we delivered solid operating results in 2024 and are well-positioned for a strong 2025. Our 15.5% ROE was negatively impacted by a 259 million soles one-off related to the Sartor case. Excluding these charges, the ROE would have been 17.2%. As I discuss the quarter’s highlights, I will focus on the quarter-over-quarter results to emphasize recent shifts in key operating trends. Loans expanded 0.7% measured in average daily balances and 2.2% in quarter-end balances. This expansion was primarily driven by short-term corporate loans, borrowing program loans at SME business, and mortgage loans. Asset quality further improved this quarter.

The NPL ratio dropped 60 basis points to 5.3%, driven by BCP and MiBanco. At BCP, the NPL contraction was led by SMEs and wholesale clients. Provisions fell 14.4%, fueled by improvement in payment performance after the risk management measures at both BCP and MiBanco continue to bear fruit. As a result, the cost of risk fell to 2.1%. The net interest income increased by 1.1%, primarily driven by a decrease in interest expenses via a drop in interest rates and by growth in low-cost deposits, which now represent 56.4% of the funding base. The yield on interest-earning assets, however, fell 20 basis points as the asset mix shifted towards cash and equivalents and market interest rates dropped. Consequently, NIM fell nine basis points to stand at 6.3%.

Interest income expanded this quarter. However, fee income contracted slightly by 0.4% due to a drop in broker results at Credicorp Capital. This evolution was offset by a 29.4% increase in gains on FX transactions, which was boosted by BCP Bolivia and BCP. Lastly, the insurance underwriting results rose 7.2%, reflecting a stronger reinsurance result in the P&C business. All in all, we delivered an ROE of 13.3% this quarter, supported by steady revenue dynamics and asset quality improvement but nonetheless impacted mainly by one-off charges and seasonal expenses. Next slide, please. The Peruvian economy struck a more positive note year-end in 2024, recovering from a contraction in 2023, which interrupted 25 years of constant growth except for the pandemic.

The economy grew around 4% year-over-year in the fourth quarter of 2024 and 3.2% for the year, and inflation is well controlled at 2%, one of the lowest figures among both advanced and developing economies. Thanks to solid external accounts, the Peruvian sol is one of the best-performing currencies in emerging markets. Credit rating agencies have upgraded their outlook for Peru from negative to stable, reducing the risk of a downgrade in the near term. In 2025, the economy is expected to transition from early-stage to mid-cycle recovery. Some indicators that these stages have begun already ending. For example, recovery has broadened to include areas such as retail, local sales, sales tax revenue, and imports, which are now experiencing growth.

Additionally, employment and real wages continue to gradually recover, and according to the Central Bank survey, investment expectations have recently accelerated and stood in the optimistic range throughout the second half of the year. A moderate improvement in private investment is anticipated. We expect the Peruvian economy to grow around 3% for the second consecutive year in 2025, despite uncertainty on the global front and a pre-electoral environment in Peru. The momentum should continue to pick up in the first half of the year. Finally, we anticipate GDP growth of 2.4% in Chile and 2.1% in Colombia. Next slide. Expectations for further reserve rate cuts have diminished, with some analysts even suggesting that the cuts are over. President Trump’s recent announcement, aligned with his campaign promises, underscores his administration’s intent to leverage tariffs as negotiating tools.

Consequently, increased market volatility is anticipated during his presidency due to heightened uncertainty. In Peru, as mentioned earlier, inflation is under control at 2%. The central bank has cut its policy rate by 300 basis points since September 2023 and is expected to implement one or two additional rate cuts throughout the year as it approaches its neutral level. In Colombia, inflation ended the year at 5.2% year-over-year, remaining above the upper limit of the target range of 4%. The Central Bank decided to pause at this February meeting after previously slowing the pace of rate cuts, adopting a cautious approach to allow time for evaluating the effects of multiple recent shocks on inflation. Finally, in Chile, markets have priced in only one additional rate cut.

The Chilean peso has depreciated around 6% since September, and last month, the exchange rate reached its highest level since 2020. BCP raised their full-year ROE of 20%. This strong performance was mainly driven by resilient margins amid a shift in the loan portfolio to retail and solid transactional funding, alongside diversified income streams. On a quarterly basis, ROE stood at 20.1%, driven by the following quarter-over-quarter dynamics. Total loans measured in average daily balances rose 0.9%, rebounding on the back of improving macro conditions. Growth in average daily balance was driven mainly by an uptick in short-term corporate loans, particularly to the mining and energy sectors. The SME business and mortgage segment also contributed to loan growth.

NPL volumes fell 9.6%, mainly driven by a drop in overdue loans in SMEs, debt repayments in wholesale banking, and an increase in write-offs and debt repayments in consumer and credit cards. NIM decreased 20 basis points to stand at 6%. This decline was driven by growth in cash and corporate loans, coupled with a drop in market interest rates, both of which pressured the average asset yields downward. Other income, in contrast, grew 1.9% on the back of FX transactions, which were bolstered by corporate transaction volumes. Fee income also contributed to income growth, driven mainly by record-high transactional levels at Yape, debit, and credit card activity at BCP remained at solid levels. The cost of risk fell 33 basis points to stand at 1.8%.

The contraction in provisions was driven primarily by SME payment and mortgage portfolios. SME payment provisions dropped due to an improvement in payment performance, which reflected improvements in the portfolio’s average risk profile. In mortgage, the contraction was due to parameter updates and a strengthened payment capacity in individuals. The consumer and credit cards, in contrast, reported an uptick in provisions due to our risk model calibration. It is important to note that underlying risk has improved for both products. Payment performance improved mainly after healthier vintages increased their weight within portfolios, and our rescheduling efforts were ramped up. In this context, BCP’s risk-adjusted NIM stood at 4.9%. BCP’s asset quality metrics have improved due to risk management measures such as adjusting credit balance in hybrid segments, fine-tuning credit processes, and calibrating specific models to better predict losses.

We will gradually increase risk appetite in certain segments with strict monitoring on a disciplined risk-return approach. From a full-year perspective, I would like to highlight the following dynamics. Loans decreased 0.7% in average daily balance, driven mainly by a drop in wholesale loans, where demand for long-term financing remains weak. NIM rose 30 basis points to stand at 6%, bolstered by an improvement in the funding cost, which was positively impacted by lower interest rates and growth in low-cost deposits. An uptick in the yield on interest-earning assets also contributed to growth in NIM. Other core income rose 15.2%, as fee income was boosted by Yape’s consolidation as a key revenue stream and BCP’s strong transactional activity.

Additionally, gains on FX transactions rose via an uptick in volumes and better pricing in retail and wholesale clients. The efficiency ratio stood at 39.3% for the year, due to higher operating expenses and slower operating income growth. Salaries and employee benefits increased alongside an uptick in variable compensation, which rose on the back of better business performance. Technology costs increased hand in hand with higher transactional volume. It is worth noting that the other core income to assets ratio remained high, illustrating the increasing diversification of BCP’s income streams. Next slide. Yape reported close to 14 million active users, around 69% of the economically active population. Today, Yape is on track to achieving its target of 16.5 million active users by 2026.

Revenues grew alongside elasticity in the use of features. By quarter-end, non-revenue per active user reached 6.5 soles. Revenue generation outpaced growth in expenses, despite seasonal charges related to marketing campaigns and IT expenses. Quarter seasonality expenses were anticipated in line with the results in previous years. Consequently, monthly expenditures per active user stood at 5.3 soles. The app and payments business is the upper runner for revenue growth. Year-over-year growth was primarily attributable to bill and QR code payments, and Yape for business. Over the period, the total payment volume rose 1.9 times. In the financial business line, revenues were mainly obtained from floating, while loan disbursements continued to grow exponentially.

Year-over-year, loan disbursements rose 7.3 times, as Yape focused on loans with higher tickets and durations. By the end of the fourth quarter, loans had been granted to 1.6 million, and we are well on our way to reaching our target of 5 million with loans disbursed by 2026. Finally, our e-commerce business has boosted customer engagement. This is reflected in the gross merchant volume, which grew three times year-over-year, mainly through YapePros. In 2025, Yape will enhance its offering with new features and improve its value proposition. We will develop and implement new models to expand our lending business while maintaining the highest standards of security and stability. After a challenging year marked by a complex trade cycle for the microfinance industry, MiBanco Peru is recovering profitability among improved credit risk management and a reduction in the cost of funds.

Fourth-quarter ROE contribution rose to 17.3%, moving closer to our target levels of profitability. I would like to highlight a quarter-over-quarter dynamic. MiBanco’s loans measured in average daily balances fell 1.2%. Despite hitting a turning point this quarter, we promptly ramped up disbursement of small-ticket, higher-yield loans. Gains were overshadowed by a decrease in higher-ticket loans. The NPL ratio fell for a third consecutive quarter and improved at a faster pace than our peers. This evolution was driven by a reduction in overdue loans, reflecting the positive impact of tighter adjustments in origination guidelines, debt relief facilities, and improvement in debt collection processes. NIM rose 30 basis points to 14.2%, boosted by a drop in the cost of funding after the funding rate declined.

The cost of risk fell 154 basis points to stand at 4.7%, driven by improved payment performance, and risk-adjusted NIM stood at 10.7%. Improvements in MiBanco’s asset quality metrics reflect disciplined credit processes, including origination restrictions and stricter monitoring of the performance of vintages. From a full-year perspective, I would like to highlight the resilience of MiBanco’s main business. We were buoyed by active loan pricing management and a decrease in the cost of funds. Improvements in risk management processes led to a decrease in the cost of risk. Finally, operating expenses remained under control, with efficiency standing at 52.7%. In this context, MiBanco’s full-year contribution to ROE stood at 10.9% on an accumulated basis.

Going forward, we expect profitability to continue to improve as healthy loan growth resumes and newer and lower-risk vintages increase their weight in the mix. Movado, Colombia’s result improved significantly thanks to a focus on efficiencies and disciplined risk processes and controls. Despite a challenging business environment, this helped us become the third-largest private microfinance lender in Colombia. Next slide, please. Grupo Pacifico concluded 2024 with another year of remarkable performance, achieving an ROE of 23.7% on the back of solid commercial dynamics in both the P&C and life business lines. On a quarterly basis, ROE stood at 20.5%, driven by the following dynamics. Net income dropped 10%, primarily impacted by an increase in the net loss on securities impacted by one credit downgrade in the investment portfolio and by higher operating expenses due to seasonality.

Insurance underwriting results rose 22% on the back of an improvement in both business lines, explained by credit life, cars, and P&C risk. From a full-year perspective, in 2024, Grupo Pacifico had a year of strong performance. Net income slightly dropped 5%, mainly driven by lower insurance underwriting results due to normalization of underwriting margins in the life business. This was partially mitigated by strong performance in P&C and higher operating expenses attributable to investments to strengthen Pacifico’s digital capabilities. Next slide. Operating performance remained strong throughout the year for investment management and advisory, which affirmed that our new strategic approach is on target and puts us in good stead for 2025. Managerial ROE for the rental business came in below expectations due to our decision to prioritize client relationships and mitigate the risk related to the Sartor matter in the fourth quarter.

Excluding one-off related to the Sartor case, ROE stood at 15.3% on a full-year basis. I will go through operating trends that drove our managerial fourth-quarter ROE around 10.9%, which excludes one-off charges. Net income dropped 31%, driven primarily by higher operating expenses and a drop in trading results in our capital markets business due to market dynamics. From a full-year perspective, net income rose 15%, led primarily by sales activities in our capital markets business. Our wealth and asset management businesses also contributed to growth in net income, where AUM climbed 16% and 18% in US dollars, respectively. These dynamics were partially offset by a drop in pressure results.

Gianfranco Ferrari: Next slide.

Alejandro Perez-Reyes: Now I would like to review Credicorp’s consolidated evolution, beginning with the quarter-over-quarter dynamics for the balance sheet. On the asset side, as previously mentioned, loans resumed growth but mainly in lower-yielding corporate loans. Meanwhile, cash and equivalents maintained an upward trend in a context of ample liquidity. The shift toward lower-yielding assets resulted in a 20 basis point drop in the yield on interest-earning assets. On the liability side, lower interest rates and growth in low-cost deposits continued to be at a slower pace than the previous quarter, contributing to a decrease in the cost of funding. On a full-year basis, interest-earning assets rose 7.2%, mainly driven by cash and equivalents in a high liquidity environment.

In the meantime, we have slightly increased the duration of our investment portfolio to safeguard our interest income. Lower interest rates and growth in low-cost deposits led the funding cost to drop seven basis points. Moving forward, improving macroeconomic conditions should bolster lending as excess liquidity contracts, which will help us sustain a resilient NIM despite lower interest rates. Next slide. Moving on to loan portfolio quality, NPL fell 8.3% quarter-over-quarter, driven by both BCP and MiBanco. It is important to note that NPL volume this quarter continued to drop after reaching a turning point in the third quarter, particularly in the segments most impacted by the recent credit cycle: individuals and the SME portfolio of BCP, as well as MiBanco’s portfolio.

The improvement in payment performance, coupled with successful risk management measures at both BCP and MiBanco, led provisions to drop 14.4% quarter-over-quarter, while the cost of risk decreased 34 basis points to stand at 2.1%. In this context, the NPL coverage ratio rose 566 basis points quarter-over-quarter to stand at 104.3%. Next slide, please. Let’s move on to an analysis of core income. Core income rose 1.7% quarter-over-quarter, driven mainly by NII and FX gains. NII expanded on the back of a reduction in interest expenses, while FX gains were boosted by better results in Bolivia and by growth in FX volumes for corporate clients at BCP. In terms of margins, NIM decreased nine basis points to stand at 6.34%, while risk-adjusted NIM rose 15 basis points to stand at 5.08%.

On a full-year basis, core income grew 9.6%, which is evidence of our ability to sustain growth as we seize opportunities in a more dynamic environment. Regarding margins, we achieved a NIM of 6.29%, with a record-high risk-adjusted NIM of 4.77%. We analyze expenses and efficiency on a full-year basis. Operating expenses rose 9.3%, driven primarily by core business at BCP and disruptive initiatives at the Credicorp level. Expenses for disruptive initiatives at the Credicorp level rose 27.1%, mainly fueled by Yape via technology and systems-related expenses amid transactional growth. Finally, an uptick in operating income and accelerating operating expenses led the efficiency ratio to grow 33 basis points to 45.8% for the year. Next slide, please.

Credicorp’s full-year profitability was fueled by strong results at our universal banking and insurance business, along with growth in the microfinance sector. ROE for the full year 2024 stood at 16.5%. It is important to highlight that consolidated net income in 2024 represented a record high for our company, despite an environment of low growth and high cost of risk. These results illustrate our ability to adapt to challenging circumstances, supported by our diversified sources of income in line with our decoupling strategy. Now we’ll move on to our guidance. Next slide, please. As previously mentioned, we expect the Peruvian GDP to grow around 3% in 2025. Regarding loan growth, we expect our total loan book measured in average daily balances to grow around 3.5%, driven mainly by retail banking at BCP and MiBanco.

This growth is equivalent to around 6% growth measured in quarter-end balances. The ongoing shift of our loan book towards a higher yield mix and stronger loan growth should ensure a resilient NIM despite potential policy rate reductions in soles and dollars down the line. Accordingly, we expect NIM to stand between 6.2% and 6.5%. The cost of risk guidance is between 2% and 2.4%. This range reflects the recent improvement in asset quality indicators as well as the shift of our loan portfolio mix towards retail. Given this expected dynamic for NIM and cost of risk, risk-adjusted NIM should stand between 4.8% and 5%. In 2025, we’ll continue to invest in digital transformation and disruptive initiatives to bolster our long-term competitive position.

As mentioned in our earnings release, starting in 2025, we are adopting an accounting policy change related to our loyalty program. Considering this adjustment, we expect the 2025 efficiency ratio to situate between 45% and 47%. It is worth noting that the impact of this adjustment is a reduction of about 80 basis points. Regarding non-interest income, we expect fee income growth to pick up and stand in the low double digits in 2025 as activity accelerates and our efforts to diversify sources of income gain traction. Additionally, insurance underwriting results should remain solid and relatively stable against 2024. Given these formation dynamics, we expect our ROE to stand at around 17.5% for the full year. With these comments, I would like to start the Q&A session.

Operator: Thank you. We will now begin the Q&A session. If you have connected to the call using the HD web phone on your computer, use the keypad on your computer screen. If you are using the speakerphone, please make sure your mute is turned off to allow your signal to reach our equipment. We will pause just a moment to allow everyone the opportunity to ask questions. We also ask that you please ask only one question at a time. After each question has been addressed by our speakers, you will then be allowed to ask as many follow-ups as needed. But again, only ask one question at a time. Thank you. And today’s first question comes from Ernesto Gabilondo with Bank of America. Please go ahead.

Q&A Session

Ernesto Gabilondo: Thank you. Hi. Good morning, Gianfranco, Alejandro, Francesca, Cesar, Milagros, and good morning to all your team. And thanks for the opportunity to ask questions. My first question will be on the political side. I know that it’s still soon on the presidential elections. But which are the political parties that could be in the next election? How should we think about the left, radical, and right parties? Any color on this, I think, will be very helpful. And related to this, what tends to be the long road for the industry and for Credicorp one year ahead of the presidential election?

Gianfranco Ferrari: Yeah. Good morning, Ernesto. I’ll take the first question. Actually, as you said, there might be anything between thirty to forty candidates for as of today, it’s actually a raffle. So I wouldn’t venture myself in saying in providing any color. As you can imagine, if there are thirty-four candidates and we’re over a year away from elections, anything could happen. We’re totally cautious that it is a very relevant issue for obviously for us, but also for you as investors, and as we get closer and have a much clearer vision on what may happen, we’ll share that with you. I’ll ask Alejandro for the second part of it.

Alejandro Perez-Reyes: On both parts of the question, we are not expecting a high impact from the election process for most of the year. This starts to happen late in the year, considering elections starting April of 2026, there’s a lot of candidates. So there’s gonna be more clarity towards the end of the year. So we’re expecting a good year for Peru in general terms with growth. I mentioned something earlier. The cycle is improving. So going to the specific question, we’re seeing for the industry of loan growth, the banking industry is around five and a half percent growth. In our case, we’re expected to grow above the market for a year. I mentioned earlier around six percent, probably a little bit more, gonna depend on factors and international volatility, but expecting a good year for 2025.

Ernesto Gabilondo: Perfect. And then for my second question will be on your sustainable ROE. So you’re guiding around seventeen and a half for this year, but when do you expect to normalize OpEx growth from the disruptive initiatives, and how should we think about the ROE in the next two years, like, around 2027?

Gianfranco Ferrari: Yeah. And so as we mentioned before, we expect to say though, ROE to be around eighteen percent. We’re very confident that we will achieve that tier by 2026. Basically, because the main lever for that is that we expect that actually from 2025, and onwards, the disruptive initiatives as a whole will generate a positive ROE. A positive impact on ROE. So, yes, the answer is by 2026 onwards, we will be operating, we expect to be operating at ROE of around eighteen percent, which is the sustainable that we expect.

Ernesto Gabilondo: Okay. Perfect. Thank you very much.

Operator: Thank you. And our next question today comes from Renato Meloni with Autonomous Research. Please go ahead.

Renato Meloni: Hi, everyone. Thanks for taking the question here. So I think the tighter origination policy has contributed a lot to the improvement in asset quality. So I’m wondering here what gives you conviction that you can already restart originating and grow next year while still maintaining the same asset quality level, provision level. And then still connected to this, right? The guidance also implies a mix shift towards consumer loans but at the same time, a lower or similar provisioning cost of risk here. So just trying to reconcile this deal as well. Thank you.

Gianfranco Ferrari: Yep. Maybe I’ll take the broader vision and ask Cesar to go into the details. But, yes, what gives us confidence is the macro environment is in a much better position nowadays as compared to twelve months ago, the trend is still positive. Late December figures are positive. Inflation in January was close to zero. The cumulative inflation for the last twelve months was the lowest inflation since prior to the pandemic. So the overall macro environment is positive. That’s the macro answer. And on the more specific answer, all of our bad B2G, all B2G, sorry, which had higher NPL ratios have been digested, and the new vintages, the new origination have a much better performance. So that’s the reason why we feel comfortable going forward. Cesar, if you want to add.

Cesar Rios: Probably to try to reconcile how is that possible. I think it’s a change in the composition. We expect to have a cost of risk in the range that we are provided, but with a different composition that implies that we are going to have this kind of cost of risk with much higher yields because the old vintages have been digested. For some time, it has been originated loans with lower cost of risk, and gradually, we are starting to originate higher yield, higher cost of risk, but in a more tightly controlled bench.

Renato Meloni: Understood. Thank you.

Operator: Our next question comes from Brian Flores at Citi. Please go ahead.

Brian Flores: Hi, team. Thank you for the opportunity. Just wanted to touch upon the provisioning of Sartorius. So can you open a bit more the details as to the level of provisioning? Also, what is the base case regarding the evolution, just what is, like, the base case you’re already discussing internally? And finally, just to confirm, if the impact of the operation is directly in Credicorp Capital. Thank you.

Alejandro Perez-Reyes: Yes. Alejandro? Sure. So as mentioned, we’ve done a provision of 259 million soles. It’s not at the Credicorp Capital level, so we’ve done a provision for losses in the fund, which are at Atlantic Security Holding, which is a holding for the group. We have also a small provision for a loan that was given to another unrelated Hartford fund at Atlantic Security Bank. So it’s not there. We feel comfortable with the level of provision we have done with the information we have seen so far. You have to bear in mind that this company is under intervention. It has a liquidator. So they are managing most of the things, but we think that the level of provision we have done should allow us to not have to raise or any additional expenses this year. They might give us. It’s still early in the process, so we’ll have to wait and see for the liquidator and information to have a clear sense of how the collection is going along.

Brian Flores: Perfect. Just to follow-up, just to be very clear, is this case expected to be resolved by 2025, or do you think it’s something that could go beyond that?

Alejandro Perez-Reyes: I mean, at this time, as I said, it’s hard to tell. These are fast-growing funds, so theoretically speaking, at least from the maturity of the investment, it should be short maturity, but again, there are a lot of things around it, and we’ll have to wait and have a conversation with the liquidator. It shouldn’t be as long, but it depends on how it gets resolved.

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

Brian Flores: Yeah. Super clear. Thank you.

Operator: Our next question comes from Tito Labarta with Goldman Sachs. Please go ahead.

Tito Labarta: Hi, good morning. Thanks for the call and taking my question. My first question, just on the efficiency ratio, the guidance implies stable to actually a little bit weaker. So just to understand that because, you know, Yape is you’re already profitable there, you know, some of these digital initiatives should begin to pay off. So just understand why you expect efficiency only stable to potentially a bit weaker this year. Thank you.

Alejandro Perez-Reyes: Sure. So, yeah, basically, the guidance we’ve given is slightly lower than the guidance we gave last year in the sense that it’s almost if you adjust for the accounting change that I mentioned, it’s almost the same 46 to 48, but adjusting for it. So, yes, it implies similar levels. As you say, maybe a little bit of potential deterioration, I would say that we are still investing in an important way, both in innovation and also in the core business in developing some capabilities. We have important projects in risk, also in our mobile banking, among others. So we see it is important for us to keep investing to maintain our competitive advantage in the market. Having said that, it is something that we look very closely into.

For example, this year, we ended up slightly below guidance as you’ve seen. And just to give you a little bit more color on how much we’re looking into that, as management, for example, our goal comes below the guidance that we’ve given. That’s an internal guidance. So the logic behind it is we think we need to do this investment, but we want to do them as efficiently as possible and aim to get ideally on the lower side of the range and keep the cost to income stable.

Gianfranco Ferrari: Bear in mind, you mentioned Yape. Bear in mind that Yape, you’re correct, is profitable. Profitability this year is gonna be much higher than 2024. But the cost to income of Yape is way higher than the 45 or 47 we’re providing. And as Yape grows, that deteriorates even though the ROE impact is positive, the efficiency ratio impact is negative because it’s still operating at higher levels. I don’t know if I was clear.

Tito Labarta: Yeah. No. Very clear. Thanks, Gianfranco, for that. So I guess that makes sense. And then just a second question on the insurance. I think Gianfranco, you also mentioned you expect insurance results to be stable. I mean, ROE this quarter was a bit lower than it was for the full year. Just what do you think is the right level of ROE for the insurance business from here? Thank you.

Gianfranco Ferrari: That’s what we’re expecting is low twenties in the future. As we mentioned in previous calls, the insurance business has had two exceptional years for specific reasons related to the pension funds insurances. We do not expect that to be sustainable going forward. So we expect the insurance business to operate at ROEs of low twenties.

Tito Labarta: Okay. Very clear. Thanks, Gianfranco.

Operator: Thank you. And our next question today comes from Nicholas Rebo with Bank of America. Please go ahead.

Nicholas Rebo: Thanks very much, Gianfranco and team, for the chance to ask questions. I have two questions on the bonds of both BCP and Credicorp. First on BCP, you have the tier twos, the 2030s, that you can call this year. I think the outstanding is $850 million. Is it reasonable to assume, given that you can issue the old style tier twos, that those are gonna be called and refinanced again with the issuance of tier twos? And then my second question, Credicorp, the holding company, also has a bond, which I believe matures in June for $400 million. If you can discuss the refinancing plans for that bond as well, if possible. Thanks.

Alejandro Perez-Reyes: Sure. Sure. I’ll start with the second one. We are thinking about letting it mature and not refinancing it. We took it at a time where it made sense because of the price and the volatility in the world. But as of now, there’s no need to maintain that debt for Credicorp. For BCP, we are looking at our capital and the best way to manage those bonds. So we are assessing what to do in the market. We’ll let you know when we have a decision in the market.

Nicholas Rebo: Okay. Thank you very much.

Operator: Thank you. And our next question today comes from Yuri Fernandes with JPMorgan. Go ahead.

Yuri Fernandes: Hello, everyone. Good morning. I have a question regarding capital distribution. If you can provide some color on how should we think about payout and dividends. This was a better year for dividends, I guess, 65, 66% payout. So just checking if we should see a similar, you know, shareholders return, a minimum growth is not that sound yet. So just checking the box here on dividends.

Alejandro Perez-Reyes: Sure. So we said before the policy that we’re following is basically we pay out all of the money that is not needed for the growth of the business. So we basically look at the plan for the businesses in the year, and then all the excess capital is paid out as dividends. We are also aiming to have a growing dividend in March. So ideally, we will be able to do that this year, but from a policy perspective, the idea is to just not retain any capital that is not needed for the business in the particular year.

Yuri Fernandes: And what is the number, like, on that on the correct issue one that you are working with as a minimum for you to pay the excess?

Alejandro Perez-Reyes: I’m sorry? The current is.

Yuri Fernandes: Yeah. If you are living at BCP?

Alejandro Perez-Reyes: And it’s thirteen, fourteen, forty. Thirteen point five at the bank.

Yuri Fernandes: No. Great. Super clear. And if I may, just a second follow-up here on Yape. This first year, usually, we see a seasonality on expenses, right, on cost to serve. Just trying to ask you about your 2026 guidance. Or the new initiatives? I think you had a ten percent of your risk-adjusted revenues to come from new initiatives. Yape seems to be on track. So just checking where we are, if you are comfortable, if it can be above the ten percent, below how you are seeing, basically, the Yape evolution versus your prior 2026 guidance for the new initiatives.

Alejandro Perez-Reyes: Thank you. Sure. We’re still aiming for the above ten percent at 2026. That is from all disruptive initiatives. That’s the way we define it. Not specifically from Yape, but of course, Yape is the main contributor for the following years. So, yeah, we are tracking to get to the number.

Yuri Fernandes: Okay. Thank you very much.

Operator: Sure.

Sergey Dubin: Thank you. And our next question today comes from Sergey Dubin with H. O. Please go ahead.

Sergey Dubin: Yes. Hello. Thanks for the call, Gianfranco, Alejandro. Just a clarification regarding loan growth, I think you mentioned on the call that you’re expecting five to six percent for the banking industry. And then you’re showing on your guidance that you’re looking at three and a half percent. So I was just not clear whether you’re gonna be below the industry or in line with the industry, or how does three point five relate to five and six.

Alejandro Perez-Reyes: Sure. Thanks for the question and for the opportunity to clarify it. We guided for average daily balances. So not full-year growth. So in average daily balances, it’s at three and a half percent. And that is basically equivalent to around six percent growth in quarter-end balances.

Sergey Dubin: So that’s the conclusion. Okay.

Alejandro Perez-Reyes: Yes. So we’re expecting the market to grow five and a half and have to grow somewhat above the market this year.

Sergey Dubin: Understood. Understood. Okay. And then the second question is regarding this Sartor case that you referred to. So just to understand, the press release that you issued on December 30 says that the maximum possible exposure there is $125 million, right, which is about 460 million soles. And you provisioned 259, so roughly 55% of that. So is it your belief that your provision would fully cover the possible losses and therefore you won’t expect any more provisions? So the full exposure is not provisioned because you believe that you have provisioned the system already. Is that correct?

Alejandro Perez-Reyes: That’s correct, Sergey. As you just mentioned, the maximum exposure at the time was that tier. There were other funds in which we invested, and as I mentioned before, we expect that the major impact, with the knowledge we have today, should be what we’ve provisioned.

Sergey Dubin: Okay. And then just to clarify one more thing. Is this the kind of a situation where you felt the need to backstop your clients who invested in this fund? Is that kind of a typical practice, or is that because you felt like there was an oversight on your part that perhaps this, you know, kind of dealt with this entity? Or, you know, if you just, I guess what I’m trying to understand is if you’re distributing a fund by a third party and another one gets in trouble, would you continue, like, would you always do this, or was that just a one-off, or how should we think about this case?

Gianfranco Ferrari: Fair question. It’s not a usual practice whatsoever. However, because of what this unprecedented environment and details with the counterpart, we decided to bear the whole risk and take our clients out of the matter. It’s not a usual practice whatsoever.

Sergey Dubin: Okay. So it’s more of a one-off. Right? Hopefully.

Gianfranco Ferrari: That’s correct. That’s correct.

Sergey Dubin: Okay. Okay. Very clear. Thanks.

Operator: Thank you. And as a reminder, if you’d like to ask a question, our next question comes from Carlos Gomez at HSBC. Please go ahead.

Carlos Gomez: Hello. Good morning, and thank you for taking my question. I would like to ask about expenses and, in particular, the verification of expenses. As you mentioned, the fourth quarter tends to be higher. I look at, you know, some of the lines such as, you know, procedural things, and they really do jump a lot in the fourth quarter. And I wonder if you know, you are thinking of perhaps distributing the expenses differently over the year so that we could, you know, have a more clearer picture of how they’re able. Second, in terms of also expenses, could you give us an idea about how much you think you might have to invest in Chile for the Tempo operation in the coming years? Thank you.

Alejandro Perez-Reyes: Thank you for the question, Carlos. As for the first one, we haven’t changed any process as of now. So we are not planning on expensing things differently. And for the second one, we’re gonna be spending the same amount of money for the next year in Tempo.

Gianfranco Ferrari: Maybe just to provide some more additional follow-up, Carlos. They’ve already got the final license as a full bank. Depending on the operation, lots of authorization is based on the Tempo of applied with all operational matters, connectivity matters, which we expect to be complied by the last quarter of this year.

Carlos Gomez: Okay. No. That’s my question. So once you are fully operational and you have the full license, do you need to make an extra investment to make it a full-fledged bank to complete the market?

Gianfranco Ferrari: The answer is yes. Actually, it has two answers. I don’t have the exact figures. One is that we need to make another equity investment. It is, like, regulation, and then we need to, since Tempo hasn’t reached breakeven, it’s gonna need more funding from our side to ramp up operations.

Alejandro Perez-Reyes: Yeah. Sorry for not being specific enough. Maybe what is relevant is what I’ve answered before. Overall, we expect this year that the new ventures should generate, should be cash flow slightly cash flow negative, almost cash flow neutral. Overall. Included in everything.

Carlos Gomez: Thank you.

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

Gianfranco Ferrari: Thank you. In 2024, we achieved record-breaking results, reflecting our strategic strength and resilience amid a changing macroeconomic landscape. Our success highlights our diversified portfolio, digital innovation, and strategic risk management. Building on this momentum, we will continue to benefit from Peru’s recovery, which is fueling growth across our key business lines. These achievements highlight the effectiveness of our strategic initiatives in bolstering stability, improving efficiency, and reinforcing our competitive advantages. As a result, we are well-positioned to navigate volatility and capitalize on opportunities to drive sustainable growth. We reaffirm our sustainable ROE target of 18% by 2026.

This expectation is supported by a resilient NIM and an increasing risk-adjusted NIM as we continue to shift our loan portfolio towards retail and accelerate digital transformation, targeting 10% of risk-adjusted revenues from new business models by 2026. This will also lead to an improvement in efficiency as our disruptive initiatives mature. Looking ahead, we remain focused on three strategic pillars: attracting and retaining top talent, accelerating digital transformation, and integrating sustainability into our strategy. By advancing these priorities, we will sharpen our competitive edge and drive long-term value in an evolving global landscape. A robust risk management framework is also central to our 2025-2027 risk transformation program, with enhanced capabilities and growth across all subsidiaries through automation, advanced monitoring, and a structured implementation approach.

Key initiatives include strengthening the risk function, scaling distinctive capabilities, and embedding a stronger risk culture. These efforts are expected to lead to higher growth of the lending portfolio while optimizing it, improving risk-adjusted profitability, and expanding financial access for underserved communities. With a clear strategy, disciplined execution, and a commitment to innovation, we are confident in our ability to drive sustainable growth and create long-term value for all stakeholders. Thank you all.

Operator: Thank you, ladies and gentlemen. This concludes today’s presentation. You may now disconnect your lines, and have a wonderful day.