Credicorp Ltd Q3 FY2025 Earnings Call

Good morning, everyone. I would like to welcome you to the Credicorp Ltd. Third Quarter 2025 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. Now it is my pleasure to turn the conference call over to Credicorp's IRO, Milagros Ciguenas. You may begin.

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; Cesar Rivera, CFO of Insurance & Pensions; and Rocio Benavides, Mibanco's Chief Financial Officer. 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 risks and uncertainties, and I refer you to the forward-looking statements 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 changed events or circumstances. Gianfranco Ferrari will begin the call with remarks on key messages of our recent Investor Day, our recent political and macro environment and a brief overview of our quarterly results followed by Alejandro Perez-Reyes, who will provide a more detailed analysis of key macroeconomic indicators, our financial performance and our outlook for full year 2025. Gianfranco, please go ahead.

Thank you, Milagros. Good morning, everyone and thank you for joining us to review Credicorp's results for the third quarter of 2025. Just over a month ago, we had the pleasure of hosting our Investor Day in New York, where we marked 30 years since Credicorp's listing on the New York Stock Exchange and shared our roadmap for sustainable growth and impact. Our strategy is anchored in 3 key pillars. First, we are accelerating the scalability and monetization of our digital ecosystem by financially including more people and expanding the formal cashless economy. Platforms like Yape, Tenpo and Warda are playing a bigger role across payments, credit and savings and are already generating new revenue streams. Second, we're unlocking growth through business synergies across all our businesses by leveraging shared capabilities in data and AI talent and cross-business platforms to drive revenue diversification and efficiency. And third, we're executing with discipline with a focus on profitability thresholds, capital allocation and long-term value creation across both our core and disruptive initiatives. We also reaffirm our medium-term targets, an ROE of 19.5% and an efficiency ratio around 42% over a 3 to 4-year period. These goals are underpinned by scalable platforms, improving asset quality, and disciplined growth. Before turning to the quarter's results, let me take a moment to acknowledge the recent political developments in Peru and macro conditions across the markets where we operate. Late on October 9, Peru's Congress voted to impeach President Dina Boluarte, citing permanent moral incapacity. Shortly after, the Head of Congress, Jose Jeri, was sworn in as President. This follows a period of low approval ratings and growing public frustration with crime and governance. While broad leadership transitions have unfortunately become part of the Peruvian landscape, the country has also demonstrated a long history of economic resilience and institutional continuity. At Credicorp, we've built our strategy and operating model for resilience. Our geographic and business diversification, strong capital and liquidity position, and disciplined risk management allow us to stay focused on delivery even as the external environment shifts. Over the past 30 years as a listed company, we've generated an annual total shareholder return above 14%, consistently outperforming our regional peers. That track record reflects more than strong financials. It speaks to a business model built to navigate uncertainty, decoupled from macro cycles and anchored in long-term value creation. That's why when events like recent political changes unfold, we remain grounded and focused on what we can control. As always, we are monitoring developments closely. The macroeconomic environment during the quarter was relatively stable with key indicators pointing to a global recovery across the region. In Peru, GDP growth for 2025 is now projected at 3.4%, up slightly above 3%. This revision is driven by higher-than-expected export prices and a boost to consumption following the eighth pension fund withdrawal. Domestic demand is forecast to grow nearly 6%, its fastest pace in over a decade outside the pandemic rebound. Driven by a more advanced economic cycle, record terms of trade control inflation, supporting real wages and rising trade demand. These trends point to improving business conditions with mining investments outlook strengthened by favorable export prices and new project ramp-ups. Despite the upcoming 2026 elections, we expect GDP growth to remain resilient, between 3% to 3.5%, largely supported by sustained gains in terms of trade. With inflation forecasted at 1.8% for 2025 and 2% for 2026, it remains comfortably within the Central Bank's 1% to 3% target range. In September, the Central Bank cut its policy rate for the third time this year to 4.25%, bringing it close to a neutral level. This easing cycle is already supporting credit growth and private consumption. FX markets and external balances also remained stable, supported by high commodity prices. In Chile, GDP growth is driven by favorable terms of trade, mining investment and resilient consumption, with a broader market outlook boosting medium-term expectations. Colombia's GDP is expected to grow 2.3% in 2025, up from just 1.6% in 2024, though fiscal pressures keep market sentiment cautious. In Bolivia, economic adjustment challenges remain, but Rodrigo Paz's election ends two decades of mass rule, raising hopes for a more pragmatic reform-oriented economic agenda. All in all, we continue to navigate a dynamic external environment with prudence, agility and a focused approach to the areas where we can drive long-term value. With that context, let me now walk you through the key results of the third quarter. We had another strong quarter with robust performance across our core businesses and consistent delivery on our strategic priorities. These results drove an ROE of 19.6% anchored in healthy operations and a proven risk posture. Universal Banking and Insurance & Pensions delivered very strong results, while Microfinance continued progressing steadily towards its medium-term profitability target. Fee-based and transactional income also grew, underscoring the strength and diversity of our platform. Our innovation portfolio contributed 7.4% of our risk-adjusted revenue, keeping us firmly on track to our 10% target for 2026. Turning to credit activity, dynamics improved and FX-neutral loan growth accelerated to 7% year-over-year. Origination pipelines remain healthy, particularly in Retail Banking and Microfinance, positioning us for further momentum in the fourth quarter. The positive credit momentum also supported margins. Risk-adjusted NIM stood at 5.5% in year-to-date figures, supported by better asset quality and our structurally efficient low-cost funding base. On the deposit side, we raised the share of demand and saving accounts to 39.5%, a direct reflection of our digital engagement strategy and the trust we've earned from our clients. Asset quality also continued to trend favorably, benefiting from enhanced origination standards, refined risk-based pricing and stronger collection execution. Lastly, from an operational standpoint, our efficiency ratio came in at 46.4%, well within our expected range, reflecting the leverage in our digital capabilities and our disciplined cost management. Capital levels remain strong across all businesses. With that, I'll turn it over to Alejandro to discuss our results and provide more insight into our operational and financial performance. Alejandro, please go ahead.

Thank you, Gianfranco, and good morning, everyone. This quarter's 19.6% return on equity demonstrates ongoing strength in our core businesses and the growing impact of our innovation efforts. We adjusted Bolivia's balance sheet with a more market-aligned exchange rate, resulting in a year-over-year decrease of 2.1% in Credicorp's total assets this quarter. In sharing the quarter's highlights, I will emphasize the year-over-year operating trends. Loans at quarter-end increased by 1.5%, affected negatively by the balance sheet revaluation in Bolivia and the dollar portfolio depreciation at BCP. If we exclude these influences, foreign exchange-neutral loan growth for the quarter was 7%. This growth was primarily driven by BCP, especially through mortgages and consumer loans in Retail Banking, as well as by Mibanco. Asset quality has significantly improved year-over-year, with non-performing loans contracting across all segments, leaving Credicorp's non-performing loan ratio at 4.8% this quarter. The cost of risk decreased to 1.7%, driven by enhanced risk management and bolstered by improvements in payment performance and the Peruvian economy. Net interest income rose by 2.7%, prompted by a decline in interest expenses after interest rates dropped, and low-cost deposits grew, accounting for 58.1% of our funding base. Consequently, net interest margin increased to 6.6%. Other core income grew by 11.9%, with fee income rising 8.2% due to increased transactional activity at Yape and BCP. Gains from foreign exchange transactions surged by 23.4% due to higher volumes at BCP. Finally, the insurance underwriting result advanced 33.1%, reflecting stronger outcomes in our Life insurance business. Our cost-to-income ratio remained within guidance at 46.4%. The economic outlook for Peru stays positive even after former President Boluarte's impeachment, with no notable impacts on key financial variables like interest rates and exchange rates thus far. GDP growth accelerated to approximately 3.5% year-over-year in the third quarter, with domestic demand growing robustly at 6% for the fourth consecutive quarter. This sustained momentum is attributed to the mid-cycle economic phase and favorable trade terms, which are at the best levels seen in 75 years. High-frequency indicators continue to signal strong economic activity, driven by a steady recovery in employment and real wages. Business expectations, a key driver of private investment, remain optimistic. Core indicators such as heavy-duty vehicle sales, capital goods, imports, and trade terms continue to see double-digit growth. We have raised our year-end GDP growth forecast from slightly above 3% to 3.4% due to two primary factors: rising export prices for gold, copper, and silver, which together make up half of local exports, and the anticipated boost in private spending from the eighth pension fund withdrawal, which will support household consumption. We expect strong economic activity to persist through the upcoming year, with GDP growth projected between 3% and 3.5%, despite the forthcoming elections in 2026. The Federal Reserve cut its policy rate for the second consecutive meeting, responding to signs of a cooling labor market, and futures markets indicate an equal chance of another rate reduction in December. Meanwhile, Peru's annual inflation has stayed below 2% for 11 months, one of the lowest figures globally. Following a 25 basis points cut in September, the central bank's policy rate is now at 4.25%, nearing what it considers the neutral rate. In contrast, Colombia's inflation rose to 5.2% year-over-year in September, exceeding the target range, prompting the central bank to keep its rate stable at 9.25% during the last three meetings. In Chile, inflation slowed to 3.4% year-over-year in October, the lowest rate in over a year, which boosted talk of a rate cut in December, especially ahead of this Sunday's general election, where expectations of a more pro-market administration could support growth. BCP achieved a solid return on equity of 25.6%, reflecting resilient margins, diversified revenue streams, and low costs of risk. Quarter-over-quarter, total loans at quarter-end rose by 1.7%, with foreign exchange-neutral growth of 2.4%, mainly fueled by the Retail Banking segment, which grew by 3%, while the Wholesale Banking portfolio saw a 1.8% increase. Net interest margin was 6.1%, an increase of 10 basis points due to a shift in the asset mix. Other core income rose by 1.6%, driven by fee income from Yape. Non-performing loan volumes fell by 0.9%, with declines in Retail Banking led by individuals and SMEs. Provisions increased by 9.6%, reflecting ongoing dynamics within Retail Banking and specific situations in Wholesale Banking. Retail provisions for individuals remained stable, while SME provisions rose slightly due to higher reversals last quarter linked to increased debt repayments. In Wholesale Banking, a notable rise in credit risk was seen with one corporate client, which remains current on payments. The cost of risk increased to 1.3% due to provisions and loan growth dynamics supported by favorable macroeconomic conditions in Peru. Consequently, BCP's risk-adjusted net interest margin reached 5.2%. Year-over-year, loan balances grew by 4.6%, while foreign exchange-neutral terms showed growth of 7%, with retail segments leading, closely followed by wholesale loans. Strong economic conditions benefited retail segments and consumer loans, while lower interest rates enhanced mortgage growth. In Wholesale Banking, middle market loans rose this quarter, supported by short-term lending to agri-businesses. Non-performing loans dropped across all BCP segments, mainly in SMEs and individuals, with repayments in individuals bolstered by higher liquidity and improvements in loan origination and debt collection management. Net interest margin declined by 6 basis points, driven by lower yields on interest-earning assets, partially balanced by lower funding costs in line with market trends. The cost of risk fell in Retail Banking segments, aided by improved payment performance, supported by a strengthening economic backdrop. Other core income increased by 10.8%, primarily fueled by fee income with solid results from Yape and BCP, alongside gains from foreign exchange transactions driven by increased retail segment activity. The ratio of other core income to assets has maintained its upward trajectory, reflecting initiatives to diversify BCP's income streams and investments in technology to enhance our transactional platform. The efficiency ratio stood at 38.7% by the end of the third quarter, with operating expense growth driven by variable compensation provisions and recruitment of digital talent for strategic projects. Yape continues to add value across the Credicorp ecosystem, achieving 15.5 million monthly active users, representing 82% of the economically active population. We aim to grow this user base to 18 million by 2028, with current users making an average of 58.5 transactions per month, though only 12% of these transactions generate revenue, indicating significant potential for further monetization. Financially, revenue per monthly active user reached PEN 7.4, while expenses per user stood at PEN 5, showing improvements in profitability and operational scalability. Although marketing campaigns to boost feature adoption led to higher expenses, no material change in cost structure was seen. Revenue nearly doubled year-over-year in the last quarter. We expect revenues to triple by 2028, primarily through increased revenue per user as more monetizable features are adopted. Payments remain the largest revenue contributor, at 53%, driven by strong growth in QR payments, bill payments, and checkout functionalities. Lending is gaining momentum, now making up 20% of Yape's revenue, with over 3 million clients receiving disbursements, including 1 million first-time borrowers. We plan to expand this client base to 8 million by 2028, refining our understanding of user payment habits and enhancing risk management capabilities. E-commerce continues to flourish, supported by Yape promotions and gaming, creating a third revenue pillar. Overall, Yape contributed 6.6% to Credicorp's risk-adjusted revenue this quarter, furthering its mission to enhance financial inclusion, scale monetization, and strengthen its role as a growth driver in Credicorp's digital ecosystem. The ongoing economic recovery positively impacts Peru's microfinance sector, with Mibanco outperforming competitors. Mibanco's profitability reached 18.8% this quarter, aided by a rebound in loan disbursements and improved credit risk management. Key quarter-over-quarter dynamics show loan growth of 2.4%, boosted by record-high loan disbursements in September. The non-performing loan ratio fell for the fifth consecutive quarter to 5.7%, while net interest margin increased by 15%, helped by a shift toward small-ticket, higher-yield loans. The cost of risk decreased by 17 basis points to 5.2%, while risk-adjusted net interest margin achieved a four-year high of 11%. Year-over-year, loan balances grew by 8%, with active pricing management and reduced funding costs enhancing net interest margin. The cost of risk dropped by 101 basis points as lower-risk vintages gained ground, now comprising 78% of total loans. Operating expenses were well managed, with an efficiency ratio of 51.4%. Mibanco's year-to-date contribution to return on equity was 16%, moving closer to our target of low 20s for medium-term ROE. Mibanco Colombia continued to post improved results, achieving double-digit loan growth year-over-year, effective risk management, and enhanced efficiency due to a more favorable economic environment for microfinance. Profitability stood at 12.3% at quarter-end. In Grupo Pacifico, strong insurance underwriting results were recorded this quarter, supported by solid operational dynamics in both P&C and Life businesses, with return on equity reaching 20.9%. Quarter-to-quarter, net income remained stable. Insurance underwriting results rose by 7%, driven by the Life segment, where a decrease in insurance service expenses was largely due to fewer claims. The FASA business also showed improvements in underwriting results, though to a lesser extent, with some offsets from declines in P&C underwriting performance linked to higher claims. The growth in underwriting results was countered by a reduction in net interest income from life insurance contracts. Year-over-year, net income increased by 23%, mainly due to the full consolidation of corporate health insurance and medical services operations at Pacifico. Excluding this consolidation effect, net income rose by 10%. Underwriting results for the Life business improved, led by lower claims on disability, survival, and credit life policies, while the P&C segment saw growth in direct premiums for cars and medical assistance. These gains were somewhat countered by rising operating expenses and an uptick in net losses on securities due to credit downgrades on some assets in the investment portfolio. Profitability in our Investment Management and Advisory business improved this quarter, with return on equity at 17.4%. Core income-generating businesses performed robustly this quarter, reflecting better capital markets dynamics, especially in trading, along with growth in Wealth Management and Asset Management, where assets under management in U.S. dollars rose by 6% and 14%, respectively. Higher operating expenses partially offset these gains, resulting in a 10% increase in net income. Year-over-year, net income increased by 5%, primarily due to solid performance from the trading unit in Capital Markets and stronger treasury performance, albeit tempered by rising operating expenses. Now, I will review Credicorp's consolidated evolution concerning quarter-over-quarter dynamics. Loan growth was led by retail segments, resulting in a higher yield on interest-earning assets, which rose by 13 basis points. Low-cost deposits increased their share of total funding, and bond maturities led to lower interest expenses. These positive dynamics were partly balanced by a rise in time deposits at BCP. Consequently, funding costs decreased by 1 basis point. Year-over-year, the positive impact from a higher yield on interest-earning assets was offset by the adverse effects of lower market rates, resulting in a 9 basis points decline in yield on interest-earning assets. Interest rate dynamics along with our competitive edge in local funding led to a 25 basis points reduction in funding costs. In this context, net interest margin was 6.6%, up 9 basis points. Looking forward, retail lending growth, bolstered by enhanced risk management capabilities, will support continued net interest margin growth. Regarding loan portfolio quality, asset quality slightly improved this quarter, with non-performing loan volumes contracting across segments to levels below those before the 2023 recession. As the economy recovers, provisioning levels have decreased over the past year due to better payment performance and effective risk management measures at both BCP and Mibanco. This positive improvement has kept provisioning levels low this quarter, leading to an increase in the non-performing loan coverage ratio to 110.1%. Going forward, we will maintain our focus on accelerating retail origination while managing risks effectively. In the coming quarters, asset quality could continue to improve as liquidity rises post eighth pension fund withdrawal between November 2025 and February 2026. Following that period, we expect loan growth to regain momentum, with a slight rise in the cost of risk, but still within our appetite. Core income expanded by 5.1% year-over-year, highlighting our capacity for consistent growth. Net interest income grew by 2.7%, supported by a stronger funding mix and an improved yield loan portfolio, which increased net interest margin to 6.6%, signaling resilience in our margin. Other core income rose by 11.9%, fueled by momentum from Yape and BCP, with a 23.4% rise in foreign exchange gains driven by higher volumes. As noted during our Investor Day, diversity in revenue sources is increasingly crucial for Credicorp's strategy, including scaling digital monetization on Yape, broadening bancassurance, increasing remittance growth, and enhancing transactional engagements across traditional platforms. Risk-adjusted net interest margin increased by 50 basis points year-over-year, reaching a record high of 5.5%, reflecting how our risk management practices are becoming a competitive advantage that allows for growth into new market segments. The efficiency ratio for the first nine months was well within expected guidance at 45.7%. Operating expenses rose by 12.8%, largely due to core businesses at BCP and investment in our innovation portfolio. Core expense growth at BCP stemmed mainly from variable compensation provisions and elevated IT costs. Expenses for our innovation portfolio surged by 16.1%, dominated by Yape, Tenpo, and Culqi, which constituted 83% of disruptive expenses in the first nine months of this year. Our return on equity for the first nine months was 20.1%, backed by strong business performance and bolstered by an extraordinary gain from the Banmedica transaction in Q1. If this transaction is excluded, our adjusted ROE is 19.3% for the first nine months. On an accumulated basis, net income reached a record high even without considering the gains from the Banmedica transaction in the first quarter. This was achieved through leveraging low funding costs, lowering the cost of risk, and increasing lending. We are dedicated to generating a diversified and robust revenue stream as we ramp up revenues from other core income sources and move towards a stronger, more resilient business model. As previously stated, we expect our GDP to grow by 3.4% this year. We project our loan book will grow approximately 6.5% year-over-year based on end-of-period balances. These estimates do not factor in the impact of asset revaluation at BCP Bolivia but do consider the revaluation of the U.S. dollar against the Peruvian sol. With a more dynamic economic environment and strengthened origination levels in the first nine months of the year, we anticipate balanced growth to continue accelerating in the last quarter, primarily driven by Retail Banking at BCP and Mibanco. The expected acceleration in loan growth along with a shift towards retail should support net interest margin as interest rates decline. Accordingly, we foresee net interest margin remaining within our guidance range. While a slight increase in the cost of risk is expected in the final quarter due to a stronger emphasis on lending to higher-yielding segments, we anticipate closing at the lower end of the guidance range. On the efficiency side, we expect to remain within our guidance. Regarding fee income and insurance underwriting results, we project low double-digit growth this year, strengthened by accelerating economic activity and ongoing diversification of our income sources. Thus, we maintain our full-year ROE guidance at approximately 19%, reflecting both solid core performance and sustained risk management discipline. With these remarks, I would like to open the floor for questions.

Our first question comes from Ernesto Gabilondo from Bank of America.

My question will be related to asset quality. So NPLs and cost of risk are behaving much better than expected this year, well below your guidance provided. You mentioned you're expecting cost of risk to be at the low end of the guidance. It should be around 2%. So my question is if it's not too conservative, this guidance, because cost of risk will have to be above 2% in the last quarter, so I just wanted to hear your thoughts on that. Looking to 2026 that probably you will accelerate the growth into high-yield segment, how should we think about the cost of risk? Should we start about 2% or similar guidance that you have provided this year?

Ernesto, this is Gianfranco. Allow Cesar to get into the details.

Thank you for the question. I would say that, in fact, the results are better than we initially expected at the beginning of the year, a combination of better results in the measures taken in the risk management front but also a more dynamic economic backdrop. As we mentioned and Alejandro has been highlighted, the economy is growing faster, particularly if you consider consumer spending, and this is positive for the quality of the portfolio. And at the end of the year, another factor is that we are going to have liquidity events, the AFP withdrawals that are going to impact negatively, we'll say loan growth but positively credit quality. So this is going to contribute to the numbers that we are laying out. Alejandro mentioned in the guideline that the cost of risk is going to be around the lower end, and the lower end is 1.8%. That's the first part of the question. In the second part, what we expect for the next year is to increase gradually, as we have mentioned previously, the shift in the composition of the portfolio. But I will again emphasize that the positive thing is that we expect to do that, increasing the NIM. And so the risk-adjusted NIM should also increase in absolute terms in relation to the current levels.

Excellent. And just for a second question is on OpEx growth. So we noticed this quarter came at a double digit. As you mentioned, the idea is to have revenue growth outpacing OpEx growth over the next years. But how should we think about OpEx growth next year? I don't know if you can break it down, your expectation of OpEx growth. How much will be related to the disruptive initiatives like Yape, Tenpo and how much to the ongoing business?

Alejandro?

We have observed significant growth in operating expenses this quarter, but it remains within our guidance. This increase was anticipated as we enhance our capabilities in both our core business and innovation segments. We plan to continue investing for the future, although in the core business, we expect this to happen at a slower pace compared to this year due to specific projects we undertook. In terms of innovation, we forecast similar spending levels, which will help us generate more revenue and work towards our mid-term goal of 42% in approximately three years, as Gianfranco mentioned. Therefore, you can expect a slight reduction in expense growth for the core business while maintaining comparable growth in the innovation sector.

Our next question comes from Brian Flores from Citi.

I have a question related to growth, right, because your long-term guidance of ROE is 19.5%, and as you mentioned, you were ramping up. The economy is going well. Just wanted to see what should we think about the first quarter of the year given the political uncertainty. We have elections in April. So just wondering if we might see some deceleration in the first quarter as mostly corporates tend to be a bit more cautious, and as you mentioned, there are some impacts from withdrawals probably carrying into January, February. So if you think maybe we could see ROE levels similar to this year, which obviously are very positive or do you think we are, I would say, converging into this 19.5% long term in a sooner way? And then I'll ask my second question.

Sure. Brian, this is Gianfranco. I will address the uncertainty regarding the elections next year. Based on historical data from the last four or five elections, there typically isn't a decline in long-term growth or investment in the preceding year. However, we do see a slowdown during the first quarter of the election year, which aligns with your observation. That said, it is a complex situation because, as Cesar and Alejandro noted earlier, various indicators such as GDP growth, consumer spending, and trade balances are currently at their highest levels in a decade, with trade balances at record high levels in over 70 years. Therefore, if I had to provide my perspective, I believe that the first quarter of next year will not experience as much of a decline as we have seen in past election years. As for ROE in the coming years, we will offer guidance during the next call rather than in the next couple of days.

I also want to add a few comments. Gianfranco has noted that the economy is finishing the year very strongly. Private investment in the third quarter grew by 10.4%, the highest since 2013. We previously mentioned private consumption, so we are entering the year with a very positive outlook. There may be some election-related effects, but it's interesting to see which factors will have more impact. We don't anticipate a significant change in the first quarter. Additionally, there will be aid withdrawal from the pension plan, which we expect will have an effect of approximately 0.5% in reduced growth, but this is more related to increased cash in the hands of consumers and loan prepayments. Nevertheless, in this economic context, we expect the next year to be strong in growth for Credicorp, and we will provide guidance in the next call.

No, perfect. Just to clarify, that 0.5% impact is full year or is it year-over-year in the first quarter?

It will be a full year effect, but most of it will likely occur in the first quarter since the withdrawal starts in November and ends in February. The total impact is estimated to be around 0.5 percentage points, but again, it will probably be concentrated in the early part of the year.

No. Okay. Perfect. And just to confirm, the baseline we should consider for growth is, based on my understanding, similar to this level for 2025, right, that it's included in the guidance?

We will provide guidance again in the next call. To summarize, the growth in the first half of 2025 was not very strong, but it has accelerated in the last quarter. Therefore, there is likely an opportunity for even better growth when considering a full year in 2026.

Definitely. Yes, very probably.

Our next question comes from Renato Meloni from Autonomous Research.

Congrats on the results. It's Renato from Autonomous Research. I wanted to follow up on loan growth. Based on your earlier comments, should we expect to meet this year's loan growth guidance, and is that adjusted for foreign exchange or just the nominal value? My second question is about the net interest margin expansion. I want to clarify your comments since we see the mix shift driving yields higher, while you're also mentioning that lower risk vintages are positively impacting the cost of risk. I'm trying to understand how these two factors come together.

Yes, Alejandro, would you take that, the first one? The first one was the loan growth.

Sure. Loan growth is generally in line with our guidance, which is nominal but includes adjustments from Bolivia's restatement due to changes in accounting standards related to exchange rates. It does not account for the effects of the sol-dollar exchange rate. We expect to achieve this growth, especially considering the retail growth we experienced in the third quarter. By maintaining that retail momentum along with some wholesale growth, we should be able to reach our target. Given the current economic conditions, we believe this goal is very attainable this year.

Yes. Go ahead, Cesar, the second question.

Yes. The second question. I understand your question because you say it's a combination of better quality but after the better quality, higher cost of risk. The issue is that we are talking about fundamentally of two different portfolios. We have been improving the quality of originations, so the traditional portfolios are having less cost of risk gradually. As Alejandro mentioned, as the year goes, we have more of newly originated part of the portfolio in relation to the originated portfolio in year 2023 that came with higher cost of risk. So this is a trend that goes the cost of risk down. As the year passes, we are starting to originate in new segments with purposely higher cost of risk, higher margin, and this percentage is growing gradually. So the combination of these factors explains the initial draw, diminishing the cost of risk and the gradual improve as the year ends and the next year began. I don't know if it's clarified the points.

No, that's pretty clear. Congrats on the results.

Our next question comes from Yuri Fernandes from JPMorgan.

I have a question about Bolivia. I understand that this year has been quite volatile with foreign exchange and the portfolio impairments. However, there has been a significant political change in Bolivia. While I recognize that this is a small part of your overall operations, it appears that this quarter has already shown some improvement. Can you share your expectations for Bolivia moving forward, particularly if the elections and the new President provide any benefits, such as improvements in security? I'm trying to see if Bolivia, which has been a challenge in previous years, might turn into a positive factor for you now.

Yuri, let me take that question because I have a strong background in Bolivia from my time running the bank there for three years. It's still early in the new government's term, but their initial decisions are showing positive signs. The executive cabinet is very supportive of the market and operates professionally. They recently appointed a well-qualified Central Bank President. The early signs are encouraging. While BCP Bolivia has been a small part of our overall operations, I see it as a potential opportunity that could become significant in the future. We are optimistic about Bolivia's prospects. However, there are still many political, economic, and social challenges ahead for the government. Nevertheless, we remain hopeful about the potential developments moving forward.

So we'll keep asking about the updates, but good to know that you have the optionality there. If I may, just a quick second one, payout and dividends. Your capital accumulation has been pretty strong. I know you have the cash payment of the legal debate you have on the taxes. But what should we expect here? Like guide us through capital returns for shareholders.

Yes, can you take it, Alejandro?

Yes. So basically, this year, the payout has been 58%. And as you alluded, we did that in just the regular dividend. We didn't pay an extraordinary dividend. Going forward, I mean there's growth in our business that, of course, consumes capital, but we do expect to maintain our increasing ordinary dividend and potentially with also extraordinary dividends. And I would say probably payout ratios should be higher than this year in the high 60s. But again, it's going to depend on whether there's any particular transactions. There's always the possibility of something that changes that. But in ordinary business, we should see an increase from this year not necessarily to the 2024 level, where we had a payout of 75%. But we were generating a lot of income without loan growth, so that, of course, doesn't consume capital. But again, higher than this year and with increasing ordinary dividends is what I would think we're going to see in the coming years.

Right. In the case of inorganic acquisition, like which areas do you see value for? Like insurance, you just had Banmedica. But anything that is important for Credicorp nowadays?

So nothing relevant at the moment, Yuri. As Alejandro just mentioned, we will retain whatever is necessary for financing growth, including possible acquisitions. Everything else will be distributed as dividends, and the goal is to continue increasing the regular dividend. However, at this time, there is nothing significant regarding M&A.

Next question comes from Lindsey Shema from Goldman Sachs.

Just a follow-up on the impacts of the eighth pension fund withdrawal. I was wondering if you could kind of weigh the impacts against each other. I mean, it sounds like there's going to be better asset quality but slower loan growth. And then are you seeing any impacts to Prima? And then net-net, how are you seeing the impacts on the business? And then I'll ask a second follow-up afterwards.

Yes, Alejandro?

Yes, we anticipate the withdrawal to be approximately PEN 25 billion. Considering the usual share we retain within Credicorp, that could amount to around PEN 10 billion, which would positively affect local funding. We expect this to result in about a 1% increase in local funding compared to our previous expectations for both this year and next year. However, regarding loan growth at Credicorp, we foresee a decrease of about 0.5 percentage points next year, which will negatively impact us. For Prima, the current year's effects are minimal due to the timing and the impact primarily on fee income, which occurs late in the year. Next year, we anticipate a significant impact on fee income, potentially around 10% based on the withdrawal numbers we expect to hold.

Yes. Just a quick comment that goes beyond your question: we believe that the pension system in Peru has unfortunately been undermined by politicians. We have been active in proposing reasonable solutions that have not been considered. We hope that in the coming years, both the public and private pension systems can be improved, and we can create a reasonable value proposition for Peruvians. Otherwise, there could be significant issues in 10 or 15 years.

And then for my second question, you continue to see strong loan growth at Yape. Could you provide an update on the unit economics, especially as you've started to increase the multi-installment loans?

Yes, as I mentioned, we are expanding the multi-installment loans in Yape. Currently, the cost of risk compared to the rate we are charging is very favorable for the business. While it is still a small segment, we anticipate scaling it further in the future. I don't have the unit economics details to provide right now, but it is a growing business that currently accounts for around 20% of Yape's overall income from lending, and we expect this to continue to grow and become a more significant part of Yape's offerings.

To add to Alejandro's response regarding how we manage the loan book at Yape, we start by offering small installment loans primarily to unbanked or underbanked individuals. As we gather information and data from our customers, we adjust the offering to enhance the value in terms of loan duration and size. Both simple installment loans and multi-installment loans are profitable endeavors. Although we do not have the exact unit economics for each loan, we monitor them by loan vintages, and overall, the results are encouraging.

Yes, and it has a very positive impact in the population because it's for more than 1 million clients, it's the first loan that they have gained access to.

Our next question comes from Daniel Vaz from Safra.

Congrats on the strong performance. Very good results. I'm particularly interested in Mibanco, which continues to impress us. I think the return on equity is expanding, and asset quality is improving along with good net interest margins. You've experienced a decline in loan growth since 2023, but now we're seeing positive growth, increasing from 1% last quarter to 8% currently. Additionally, Colombia is showing strong numbers with a 20% year-over-year growth. Overall, if I'm accurate, this outperformance and controlled asset quality should enhance your confidence to accelerate growth in Mibanco. Looking ahead to 2026, I would anticipate loan growth shifting from single digit to low teens, possibly mid-teens in terms of portfolio growth. It's evident that asset quality is very good and return on equity is expanding. Should we expect Mibanco to perform like this in the upcoming quarters?

Thank you, Daniel, for your question. Let me take a step back to provide a broader perspective. The microfinance sector in Peru has faced significant challenges over the past four to five years. It's been the worst situation possible as interest rates have increased. Most microfinance institutions rely on time deposits or local capital markets for funding rather than retail or transactional funding. As rates rose, they were unable to pass on these increases, leading to higher risk costs and severely squeezed margins. Additionally, the transactional business and fee income at microfinance institutions, including Mibanco, have been quite weak. This has created a perfect storm for the past three to four years. Moving forward, I agree with your observation about lending at Mibanco, as we expect the quality of the portfolio to improve significantly. The newer loans are performing better than the older ones, so we are optimistic about lending in the future. Moreover, Mibanco is focusing on enhancing its business model, and in the coming years, we anticipate that fee income and transactional business will grow at a faster rate than lending, which will also help reduce the cost of funding.

Our next question comes from Carlos Gomez from HSBC.

Congratulations, particularly on Yape and particularly on Bolivia. You really took my question because I know that is close to your heart. But in that regard, you have the changes in Bolivia. You have the elections in Chile, the elections in Colombia as well as Peru. So it seems to me that you might have a target-rich environment for investment around the region. Does that make you more inclined to perhaps invest more and distribute less? And if so, do you have a particular geographical difference right now? That will be the question, yes.

Yes, Carlos, our region has a long history with Credicorp being here for 30 years and BCP for over 130 years. Our vision extends beyond the political landscape. While the political environment does affect our countries' performance and our investment appetite, we remain optimistic about the potential, particularly in Bolivia, Chile, and Peru. It's important to note that our outlook isn't solely influenced by the changes in government toward a more pro-market stance. While that matters, the more significant factor is the situation with commodity prices—specifically copper, lithium, and gold in Peru. Copper prices are expected to remain high for an extended period due to investments in data centers, which require substantial energy. Lithium is crucial for the transition to electric vehicles, and gold serves as a hedge against the dollar. We are optimistic about these developments. Both Chile and Bolivia hold significant lithium reserves, while Chile and Peru are key players in copper reserves. There are many dynamics at play, but overall, we see a much more favorable environment for the coming years compared to the past four or five years in these three countries.

We're happy to hear. And if I can sneak in one more question on the rates, could you give us an update on your sensitivity to rates, both U.S. dollars and soles?

Alejandro?

Sure. Carlos, we've discussed this previously. The theoretical impact of a 100 basis points decrease in rates, both in soles and dollars, is currently 17 basis points. Of that, 15 basis points come from the dollar portion, and just 2 from the soles part. This is a theoretical example. As I noted during the Investor Day, in practice, our net interest margin has been growing even while rates in Peru have fallen by over 300 basis points. Thus, the theoretical sensitivity remains at 17 basis points. We expect our net interest margin to remain strong, with risk-adjusted margins also expected to grow in the coming years.

Our next question comes from Marcelo Mizrahi from Bradesco BBI. And we'll move on to our next question. We have Andres Soto from Santander.

My question is regarding Yape and some of the numbers that you mentioned during the call. You said you expect revenue in Yape to triple by 2028. And the revenue in Yape already represents 6.5% of Credicorp total revenue, so it will be fair to assume that, by 2028, that number should increase to 15%, the revenue contribution from Yape? And if so and making assumptions also regarding the efficiency, the contribution to the bottom line should be in excess of 20%. Is this the way that you guys look at this?

Yes. Well, to your point, Yape is going to be a mere contributor year-over-year for Credicorp. We are expecting it to be around the 15% mark of not necessarily revenue but net result for Credicorp in the next 3 years or so.

Okay. But even in that conservative assumption, Alejandro, if it represents 15% of income of earnings in 2028, currently, when you look at the fourth quarter, it represented less than 5%, for the full year, I would say, 2.5%, something like that. You will see an earnings accretion in excess of 10% of the level that you have now, and the ROE of Credicorp is already at 19%, even higher than that. So the ROE by 2028 should be 21%. My point here is the 19.5% that you present as a medium-term target sounds conservative considering the potential for earnings accretion coming from Yape.

Sure. I believe your numbers make a lot of sense. We mentioned around 19.5%. With elections happening in all the countries this coming year, we tend to be conservative in this kind of projection. We'll definitely come back and revise that later when there's more certainty regarding the political outlook for other countries. If everything proceeds as planned, around 19.5% will likely be at the upper end of that range. But again, we'll revisit that in the future.

No worries. No worries.

No. I mean we're going to be around 19.5%. We're going to be on the ramp to the upside more than to the downside. That's what I'm trying to say.

Andres, your concerns are valid. However, while we are optimistic about the potential developments in the region, we must acknowledge that we are still operating in Latin America, where volatility is inherent. The growth in income at Yape relies on numerous assumptions and carries execution risks. As you well know, we have a positive outlook, and Yape could significantly contribute to that positive trajectory.

Not today, but in 3 years can be also a little bit of cannibalization between several vehicles. That is not relevant at all now.

Yes, that's a fair assumption, Cesar, but the cannibalization will come against Mibanco and this will be with a much higher potential for ROE. So it will be even accretive if that comes to happen.

You're totally right, Andres. The cannibalization should generate value rather than destroy value.

Our next question comes from Alonso Aramburu from BTG.

Yes. Just following up on your recent comments. You mentioned that Yape is doing a pilot for the SME segment. So I'm just wondering if you can give us some color on that. How different is that to the strategy you're following compared to Mibanco? Is this targeting the same Mibanco clients or are these different clients? Are you using reps to visit some of these clients? Just give us some color into how you're approaching this via Yape.

We're approaching Yape with a different model than Mibanco, primarily based on transactions we gather through the app, which eliminates human contact. This model is significantly cheaper and more efficient than the Mibanco model, although it's still untested at this stage. The early results, while not yet relevant, are performing quite well. In contrast, the Mibanco model is more expensive but has a proven track record with high returns on equity and customer satisfaction. We still believe there is considerable room for growth, especially among the unbanked and underbanked populations. Mibanco currently holds just over 20 percent market share in the microfinance sector, indicating there's plenty of opportunity for expansion. As Cesar mentioned, we are not concerned about cannibalization between Mibanco and Yape at this point. However, in two to three years, we may need to reevaluate our approach to microfinance and SMEs in Peru.

Our next question comes from Marcelo Mizrahi from Bradesco BBI.

My first time here. Very good to be here with you. So my question is regarding the insurance business. So in the last couple of quarters, the loss ratios are going down on Life and also in Crediseguro. My question is to look forward if it is recurring. So look forward, these loss ratios will return to the levels of 50% on Life or not. This is a new level of loss ratios to this line and looking to the Crediseguro, the same question.

Sure. Marcelo, there's been a particular effect on the survival business related to a restatement done from some pension plans on the number of people registered. So the thing is it's been an unusual positive result, and it should go back to more normalized levels going forward.

Okay. But those levels are around 20%, 30% loss ratios or they will come back to 50% as they were in the last years.

The short answer is as Alejandro mentioned. There are some unusual impacts on the loss ratios this quarter. To address your question about whether it will return to 50%, the brief answer is yes. A more detailed response is that as we continue to expand our bancassurance and life insurance offerings into more retail and lower-end segments, the ratio should improve. The margins in those areas are better. Therefore, while we won't maintain the ratios we have this quarter, in the medium to long term, the ratios we had in the past should be more favorable going forward.

And the last one about insurance. So do you guys believe that this line will maintain this pace of growing more than the other lines, so it will generate value, add value comparing to the other lines of the bank?

That's a great question. We often mention that the financial system in Peru is underpenetrated. When you look at the penetration level in insurance, it's not ideal in terms of providing coverage to the Peruvian population, but it does present a significant business opportunity. To answer your question, we are very optimistic that this sector will experience substantial growth in the coming years. We are actively working on launching new products, creating new channels, and enhancing our value propositions to reach the underinsured population in Peru.

And ladies and gentlemen, there appear to be no further questions at this time. I would like to turn the floor back over to Mr. Gianfranco Ferrari, Chief Executive Officer, for closing remarks.

Thank you. We're entering the final months of the year with strong operating foundations and a clear sense of strategic direction. I want to reiterate the core message we shared at our Investor Day. Our strategy is built not just to perform in favorable conditions but to endure and thrive across cycles. Over the past 4 years, we have grown net income 3x faster than Peru's nominal GDP, driven by the strength of our diversified business model, scalable platforms and disciplined execution. In that context, we've raised our medium-term ROE target from around 18% to approximately 19.5%, reflecting the benefits of a more inclusive digitally enabled business as we expand into new segments and broaden our addressable market. To get there, our strategy is focused on unlocking operating leverage and driving sustainable profitability. We will deliver higher risk-adjusted NIM through a more retail-oriented loan portfolio while increasing transactional and noninterest income from our disruptive initiatives. Together, these drivers will accelerate income growth, enhance efficiency toward the 42% level and strengthen our ability to generate superior long-term returns. At the same time, we remain mindful of the broader context. While Peru continues to face political uncertainty, including its seventh presidential transition in under a decade, its macroeconomic institutions remain intact. This is a familiar pattern, political volatility coexisting with economic resilience. That said, political uncertainty does carry an opportunity cost, and we hope that in time, greater political stability will allow the country to fully unlock its growth potential. Early signs from the new administration point to a more pragmatic tone and renewed efforts to engage the private sector. Business sentiment is gradually improving, with more companies planning to invest, hire and expand activity in the upcoming quarters. In this environment, our focus is clear: execute with discipline, expand financial inclusion and deliver long-term value for our shareholders and the societies we serve. Thank you for your continued trust and partnership.

Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect your lines.