Credicorp Ltd. Q3 FY2024 earnings call

Macro Environment - Peru's economy continued to recover with GDP growth expectations of 3% in 2024 and 2.8% in 2025, inflation within Central Bank's target range. - Fed began easing policy, with rate cuts expected. - Colombia and Chile had respective inflation and monetary policy situations. ### Business Developments - Tenpo in Chile received provisional approval to create Tenpo Bank Chile. - Acquired remaining 50% stake in joint venture with Empresas Banmedica. - Francesca Raffo resigned to focus on innovation at Credicorp. ### Financial Performance - Delivered record high net income of PEN1,523 million in Q3, ROE of 18.5%, risk-adjusted NIM improved, NPLs reduced, special dividend declared.

BCP: Delivered strong profitability with ROE of 24.5% in Q3, loans in average daily balances fell, NPLs decreased, cost of funding reduced, net interest income grew. Yape: Active users reached 13 million, average 44 transactions per month, revenues accelerated, loan disbursements to 1.1 million clients. Mibanco: NPL ratio improved, loans in average daily balances fell, NIM rose 25 basis points to 13.9%, cost of risk fell 133 basis points. Grupo Pacifico: ROE at 24.3%, but net income decreased quarter-over-quarter due to less favorable reinsurance results. Investment management and advisory business: ROE at 15.9%, net income decreased quarter-over-quarter.

• Maintained GDP growth expectation of 3% for 2024 and similar for 2025. - Revised total loan growth guidance to around 0% due to low wholesale banking appetite and cautious retail origination. - NIM expected in upper end of 6%-6.4% range. - Cost of risk expected in upper end of 2%-2.5% range. - Efficiency ratio expected near lower end of 46%-48% range. - Reaffirmed ROE guidance for 2024 at around 17%.

• Geopolitical tensions in Middle East and U.S. election results could cause volatility. - Slower-than-expected recovery in business confidence impacting private sector investment and wholesale loan demand. - Regulatory changes may affect operations. - Digital security risks as seen with competitor data leakage.

Q: Congrats on the results. My first question will be on asset quality and cost of risk. So you have been mentioning the strategy to get higher exposure into the retail segment. But at the same time, probably Mibanco could be in a much better position next year. So wondering how you see the cost of risk evolving in 2025?

A: Yes, sure. As you mentioned, we have seen an improvement this quarter. We think the trend will continue. There might be perhaps some change in the gradient of the trend once the pension money starts being -- goes out of the system. But still, we are expecting cost of risk to continue to come down. And our expectation for the next year and the following years is to continue moving lower. Again, as you know, we are changing mix in -- we were expecting a change in mix in our portfolio. So we are not expecting to go back to cost of risk like pre-pandemic, but more based on a mix than the individual segment. So our expectations for 2025 are a lower cost of risk than what we are having this year.

Q: So just again, a follow-up on this. So cost of risk guidance for this year was between 2% to 2.5%, probably you will be at the high end in 2024. Looking to 2025, maybe between the mid to low end of that guidance for that range?

A: We haven't given guidance yet for next year -- with beginning of next year. I would just mention that we're expecting a lower number for the coming year. We'll give more details soon. The other thing to keep in mind to have a sense of the recovery is that we're expecting a lower number despite the fact that we're not returning any provisions like we did this year. So this year, we're going to be in the upper side of the 2% to 2.5%, but we returned the provisions from El Nino. Next year, we expect a lower number without necessarily having any kind of provisions return, specific provisions.