Luis Felipe Castellanos: Thanks, Nicolas. That’s a perfect question to be answered by Michela. Go ahead, Ms. Michela.
Michela Casassa: Hi, Nicolas. Thank you for your question. Listen, first, related to the Tier 2 that will mature or will be callable during next year, it’s something that we are expecting to renew for sure. We do need the additional $300 million of debt for our total capital ratio. And as why the super-intendency allows banks to issue old style bonds, that I wouldn’t know the exact why, but what I can tell you is that, you know, Peru has been for a long period of time in stage that we always describe at Basel 2.5. The latest regulation that was issued during last year brought us to Basel 2.95 to say it in some way. And the only feature that has not been implemented is the one that you’re asking. So everything else has been aligned to Basel 3.
But the Tier 2 bonds have remained with those characteristics. So basically the one that we issued in January is an old style which at the end is pretty liked by the investors. And we are not sure really whether or not there is going to be additional regulation going forward. But if not, most likely the new that we will issue next year will also be in this way unless there are news in the regulation.
Nicolas Riva: Okay. Understood. Michela, one follow on your prior comment. When you said we need the $300 million Tier 2 capital from the 2030s we expect, you mean — in that sense you mean that you expect to call that bond and to replace it with a new legacy Tier 2 issuance?
Michela Casassa: I mean, we will need to evaluate of course, all the economics now, but — which we will need to be in closer to the call date of the bond.
Nicolas Riva: Okay. And just one last question on that. If you were not to call that bond, does it start losing capital treatment?
Michela Casassa: Yes, it does. 20% per year.
Nicolas Riva: Okay. Thanks very much Michela.
Michela Casassa: Thank you.
Operator: The next question will come from Carlos Gomez with HSBC. Please go ahead.
Carlos Gomez: Thank you very much for taking my call and thank you Michela and Luis Felipe. I joined late and I may — you may already have answered this, but can you tell us your views about the level of indebtedness of the SMEs and the consumers in Peru? And what is a realistic outlook for credit growth, not only for this year, but for the coming two or three years? And second, during the COVID pandemic, you tried to make a push for SMEs through the Reactiva program. Where do you stand there? And do you have more ambitions to go in that segment? Thank you.
Luis Felipe Castellanos: Okay. Yeah. Thank you, Carlos, for your question. The level of indebtedness in [indiscernible] let me take a crack to answering your question in two fronts. The first one, there’s still lots of room in terms of increasing bank capitalization in Peru on the debt side. Okay. So I think we still stand at 40% total loans over GDP, and consumer loans is well below that. So the growth potential for the Peruvian system remains as strong as it has been in the last years. Obviously, we are undergoing a negative credit cycle right now, given economic conditions and the overall environment. But we know that that will pass and probably growth will return moving forward. And if that couple — is coupled with the recovery of the economy, then growth will be even stronger.
And the same happens for SMEs. I think one of the things in SME is the informality in Peru is an issue in order to be more aggressive, and so we are working on building digital capabilities and analytical capabilities to get to them. The push that we did during the pandemic working with Reactiva was very positive for us. It allowed us to learn very much about our clients in a segment that we are not really big. However, given current macro environment, we are not inherited (ph) in terms of taking additional risk. We are very aggressive, if you want, in our retail portfolio. We don’t need to be — to do that in our commercial portfolio that includes SMEs. So we do have a solid 3% market share. We are building detailed capabilities, analytical capabilities to serve that market.
And we’ve learned a lot and we see what’s working with them. However, until the cycle does not turn around, we’ll probably remain in our conservative approach towards SMEs. The Izipay acquisition has put us very close to merchants, and that creates an avenue of growth for our customer segment that that company knows very well. And as Michela mentioned, we are already seeing [indiscernible]. So we have good assets in terms of take a crack at that segment without this proportionally increasing risk levels. I think that’s it from my side, I don’t know, Michela, if you want to complement something.
Michela Casassa: The only thing I would add is that from all the new clients that we started working with during the Reactiva loans, in the small business segment, okay, we were not able to lend to many of them. I think it’s somewhere below 15%, the percentage of loans that we were able to renew without the guarantee of Reactiva. But what was really positive news from that was that the number of clients increased substantially in that segment, and also the float with that segment, so deposits. And together with those deposits, fees coming from transfers and also trading income. So there was a side business coming from that segment with the Reactiva program. And when we move upwards to the mid-size company there, the impact was even higher.
We were able to replace Reactiva loans there. I think it was around 40% or something like that. And also the collateral business, trading income and fees, was very important. And I think that that, together with some other things that we have been doing in the mid-corporate segment, has allowed us to reach the number three position in the market as of year-end. We used to be number four. Now we are number three in the market.
Carlos Gomez: Thank you. And you said your market share is, did I understand 3% or 13%?
Michela Casassa: No, in the small business it’s only 3%.
Carlos Gomez: In the small — that is small business, that’s not SMEs, right?
Michela Casassa: A proportion of both, mid corporates plus small business, yes.
