Credicorp Ltd Q1 FY2026 Earnings Call

Good morning, everyone. I would like to welcome you to the Credicorp Limited First Quarter 2026 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 would like to ask a question, please signal by pressing star then 1 on your telephone keypad. If you have connected to the call using the HD web phone on your computer, please use the keypad on your computer screen. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Now it is my pleasure to turn the conference over to Credicorp's Investor Relations Officer, Ms. Milagros Cigüeñas. 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 at the Q&A session will also be Francesca Raffo, Chief Innovation Officer; César Ríos, Chief Risk Officer; and Eduardo Montero, Head of Insurance and Pension. 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. 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 the recent macro and political environment, the key levers of our decoupling strategy, 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 2026. Gianfranco, please go ahead.

Thank you, Milagros. Good morning, everyone, and thank you for joining us today. Let me begin by thanking our shareholders for the strong support at our recent Annual General Meeting. The outcome of the Board elections reflects a deliberate, strategy-led refreshment process fully aligned with Credicorp's long-term priorities. As announced, shareholders approved the appointment of three new directors and the reelection of six current members. The new directors bring complementary expertise in areas that are increasingly critical for us, particularly technology and AI, financial and regulatory oversight, and strategic execution. As we continue advancing our transformation and strengthening our operating model, importantly, our governance framework remains robust with key safeguards firmly in place, including a fully independent audit committee and independent directors leading critical committees. This provides a strong foundation as we navigate different operating environments. At the global level, recent geopolitical tensions, particularly in the Middle East, have increased uncertainty, mainly through higher energy prices and their potential impact on inflation and the outlook for foreign interest rates. Since our last conference call, Peru's economic activity has been affected by a series of temporary supply-side shocks, including higher oil prices related to the conflict in the Middle East, a localized energy disruption, and adverse weather conditions that led to contraction in primary sectors. That said, the positive momentum of the economy continues to remain solid. Several activity indicators, including private investment, continue posting double-digit growth, supported by resilient macroeconomic fundamentals and favorable export prices, with copper currently trading at around $66.5 per pound. Against this backdrop, we are maintaining our GDP growth expectation for 2026 at around 3.5%, though our outlook has become more skewed to the downside, with recent macroeconomic indicators tracking closer to 3.2%. More importantly, domestic demand remains particularly dynamic, growing above 4%, which we view as the more relevant driver for loan growth going forward. As we await the official confirmation of results, the presidential runoff appears likely to feature candidates with markedly different economic visions, including one advocating for a significantly more interventionist role for the state. Should that candidate prevail, some initial market uncertainty could emerge. However, we believe the composition of the Senate is the more decisive factor and is trending toward a configuration that supports macroeconomic fundamentals and institutional continuity. In our view, this legislative balance will act as an effective counterweight, helping to preserve a quality of stability. Peru's structural safeguards, including the Senate's veto authority and constitutional hurdles to significant policy shifts, are likely to act as effective constraints, helping preserve the independence of the Central Bank and its mandate, particularly regarding monetary financing to the treasury. Given this, we remain confident that Peru's economic model will continue to prove resilient, supported by solid institutional frameworks. Against this backdrop, we continue to closely monitor price dynamics and monetary conditions. Inflation has seen an uptick to 4% year-over-year, mainly driven by transport, energy, and food costs. As a result, monetary conditions are likely to remain somewhat tighter than previously anticipated. Across the region, the operating environment remains mixed, reflecting the initial impact of external pressures. In Colombia, activity remains relatively resilient, supported by consumption, while policy uncertainty persists ahead of the presidential elections on May 31. In Chile, growth has softened amid weaker early-year activity and higher oil prices; at the same time, the new government offers improved prospects for private investment. In Bolivia, macroeconomic conditions remain challenging, with performance exceeding expectations. Overall, while external conditions remain dynamic, the resilience of our core markets combined with the strengths and attractiveness of our offerings give us confidence that 2026 will remain a solid year. As we look ahead, we will further execute our decoupling strategy through four differentiated growth anchors. First, we are strengthening our leading position in the unpenetrated markets, where we continue to see clear avenues of growth. We see significant room to deepen financial inclusion and expand our reach across client segments where structural gaps persist. This enables us to grow while maintaining disciplined risk standards. Second, we are scaling our integrated digital ecosystem. In 2026, we will leverage our platforms to accelerate client acquisition, deepen engagement, and increase cross-sell, while also improving efficiency and customer experience. A key component in our innovation portfolio is our neobank unit, which, effective April 1, brings together Yape and Eo in Peru, Tenpo in Chile, and Yape in Bolivia under a common umbrella led by Raimundo Morales. These platforms expand our reach and open new avenues for growth, particularly in payments and lending. More broadly, we are deepening our competitive moat by leveraging our scale, client base, and ecosystem integration to drive sustained differentiation and progressively higher monetization. Third, we are unlocking synergies by leveraging shared capabilities across our ecosystem. We are placing greater emphasis on data analytics and risk management capabilities that can be deployed across businesses. This also includes advancing our knowledge-sharing agenda so that best practices can be applied across subsidiaries, improving decision making, client targeting, and risk assessment. While we are still in the early stages, we are already seeing tangible benefits, and we believe this represents a meaningful opportunity going forward. Finally, delivering strong and resilient returns across economic cycles. This is underpinned by a prudent and holistic approach to risk and capital management across the organization. We continue to strengthen our capabilities across credit, liquidity, and operational risk while maintaining a disciplined approach to capital allocation. This integrated framework is translating into more consistent performance and reinforces our resilience, enhancing our ability to navigate volatility, support sustainable growth, and protect returns across different macro environments. Turning now to the first quarter results, we reported a very solid ROE of 21.1%, which exceeded expectations and reflects strong fundamentals across our core businesses. Operational performance was robust across core businesses. Additionally, we achieved 9% of risk-adjusted revenues from our innovation portfolio this quarter, advancing toward our 10% target by the end of this year. We are seeing an acceleration of credit demand across our main lending segments. In the first quarter, loan growth was robust in BCP and Mibanco. We expect retail segments and microfinance to accelerate in the coming quarters. Risk-adjusted NIM strengthened sequentially, supported by improved asset quality and a resilient underlying NIM as our loan portfolio expanded and funding mix improved. Deposit growth remained strong, reflecting system liquidity and sustained client confidence, while continued investments in service and digital capabilities deepened our client relationships and drove market share gains in low-cost funding, reaching 41.2% this quarter. Asset quality reflects proactive measures taken since 2023, including tighter origination standards, risk repricing, enhanced loan rescheduling, and greater investments in analytics, alongside a favorable macro environment. Additionally, our strong solvency has enabled us to increase our dividend to PEN 50 per share while also supporting our plans for sustained long-term growth. Our efficiency ratio is at 45.8%, within our guidance range, as strategic investments in innovation and digital capabilities continue to drive diversified income streams and scalable growth through deeper market penetration. These results underscore the strength of our core operations and our long-term commitment to building a more agile, client-centric, and resilient financial platform. Before I turn the call over to Alejandro, I would like to congratulate him on his appointment to lead our microfinance business at Mibanco. These transitions reflect the depth of talent we continue to build across Credicorp and our disciplined approach to succession planning and leadership development. We are also very pleased that Ignacio Belaúnde will assume the CFO role later this year, bringing strong financial and strategic experience to the position. In the meantime, we still have Alejandro with us for one more quarter of earnings calls before this transition takes effect. With that, Alejandro, please go ahead.

Thank you, Gianfranco, and good morning, everyone. As Gianfranco mentioned, we delivered remarkable overall operating results, including record-high net income, which reflects solid growth in risk-adjusted revenue streams in our business ecosystem. As I discuss the quarter highlights, I will focus on the year-over-year operating trends. Loans measured in quarter-end balances increased 8.2%. This uptick was driven primarily by BCP through both retail and wholesale banking and by Mibanco. Asset quality improved across the board, with Credicorp's NPL ratio declining to 4.3% for the quarter. This positive trend was driven by higher debt repayments, especially among retail banking clients, supported by ongoing refinements in underwriting standards and collections management and growth in liquidity through pension inflows. In this context, the cost of risk stood at 1.3%, bolstered by improvements in payment performance in a more favorable macroeconomic environment and by strengthened risk management. Net interest income increased 10.9%, spurred by growth in interest income driven mainly by loan portfolio expansion, by a contraction in interest expenses as interest rates fell, and as low-cost deposits continued to gain share to account for 63.9% of the funding base at quarter-end. In this context, NIM stood at 6.6%. Other core income grew 19.5%. Fee income increased 15.6%, boosted by transactional activity at Yape and BCP. Gains on FX transactions rose 30.6% through higher volumes at BCP. Lastly, the insurance underwriting result fell 9.1% on the back of lower premiums in the P&C business and inflationary pressures on claims expenses in the Life business; these inflation-linked claims have no net impact on the bottom line given that the claims are compensated with inflation-linked financial instruments. Excluding inflation-based impacts on claims expenses, the underwriting result rose 4% year-over-year, driven mainly by the Life business. We delivered 21.1% ROE this quarter, fueled by strong loan growth, strengthened asset quality, and diversified income sources, showcasing the success of our decoupling strategy, risk management measures, and investment in digital capabilities. Finally, as Gianfranco mentioned, we recently declared a record-high ordinary dividend of PEN 50 per share as we moved capital levels closer to target across our subsidiaries. Next slide, please. GDP is expected to have grown close to 3% year-over-year in the first quarter, reflecting solid momentum in the economy despite localized energy disruptions and higher oil prices in March. More importantly, domestic demand is expected to have expanded by more than 5% year-over-year for the sixth consecutive quarter. High-frequency indicators continue to signal broad-based and robust expansion, with several indicators posting double-digit year-over-year growth. For instance, during the first quarter, light vehicle sales led the gain, rising by nearly 40%, followed by an uptick of nearly 20% in capital goods imports and 14% for cement consumption. Historic high terms of trade and ongoing business cycle momentum remain the key drivers of this performance. While higher oil prices introduce uncertainty, Peru is less vulnerable than other peers in the region given its lesser net importer position. Another source of uncertainty going forward will be the impact of the El Niño event. So far, this has been felt in the first anchovy fishing season, but it is still early to tell how it will develop going forward. Also, as Gianfranco mentioned, while the presidential elections may generate some near-term uncertainty, the broader institutional framework, including the role of the Senate, should help limit the scope of broad changes and provide a measure of stability. Next slide, please. The Federal Reserve has maintained its policy rate since December as it continues to assess incoming economic data and determine how rising oil prices impact inflation and employment. In Peru, annual inflation rose to 4% year-over-year in April, its highest level in more than two years, reflecting primarily higher local transportation prices. The Central Bank has indicated that inflation is expected to return to the target range within the forecast horizon and converge to 2% next year as the effects of these shocks gradually dissipate. In Colombia, annual inflation accelerated to 5.6% in March, due in part to the 23% minimum wage increase rolled out at the beginning of 2026. To contain inflation expectations, the Central Bank has increased its rate by 200 basis points since December. Presidential elections will be held in two weeks, and polls suggest a runoff is likely in June. In Chile, investment sentiment improved after President Kast's election, although recent gasoline price increases have tempered the outlook. Annual inflation reached 4% in April and the Central Bank has held the policy rate at 4.5%. Next slide, please. BCP's profitability posted a solid start to the year, supported by loan growth under disciplined risk management and diversified sources of revenue. In this context, ROE stood at 30.5%. On a year-over-year basis, total loans measured in end-of-period balances rose 7.3%. In FX neutral terms, loan growth stood at 9.1%, driven by both wholesale and retail banking. Notably, disbursements of long-term wholesale loans were buoyed by a favorable outlook for private investment. Retail banking loan growth accelerated mainly in individuals, reflecting an increase in our risk appetite for consumer loans and an uptick in mortgage loan disbursements, also supported by lower interest rates. SME payment loan disbursements were also boosted by an increase in our risk appetite. NIM rose 21 basis points to stand at 6%, mainly due to a decrease in funding cost while the yield on interest-earning assets remained resilient in an environment of lower interest rates. NPL volumes declined 11.1%, mainly due to debt cancellations by SME-Pyme clients under judicial recovery and secondarily by debt repayments from individuals who availed themselves of funds from pension withdrawals. Improvement in the quality of origination and in collections management also contributed to the result. Provisions fell 35.1% driven mainly by retail banking, which was positively impacted by improvements in payment performance across earlier vintages in consumer and credit card loans, and by reversals in wholesale banking after a corporate client regularized issues regarding refinanced exposure. In this scenario, the cost of risk decreased to 0.8%, while risk-adjusted NIM stood at a record high of 5.5%. Other core income rose 18.7% driven mainly by an increase in fee income. Strong transactional activity was channeled through Yape and other transactional products at BCP. A secondary driver was growth in gains on FX transactions, which was fueled mainly by retail clients served through the digital channel. Variations in volume reflect volatility related to tensions in the Middle East and the electoral calendar. Although the ratio of other core income to assets stabilized this quarter due to asset growth, the contribution of fee income plus net gains from FX transactions reached its highest level since 2022, reflecting the strength of our diversified sources of revenue. Operating expenses rose 15.1%, mainly due to an uptick in administrative expenses. This evolution was driven primarily by Yape's use of cloud infrastructure and IT-related services, and secondarily by marketing and consulting expenses in the traditional business. Our personnel expenses rose this quarter as we ramped up core business projects to develop commercial and technological capabilities. In this context, operating expenses and personnel expenses, in particular, led the efficiency ratio to stand at 38.6%. Next slide, please. With 16.4 million monthly active users, Yape continues to expand its MAU base while shifting its focus towards deeper engagement and monetization. Reaching approximately 82% of Peru's economically active population, the platform has achieved nationwide scale. At this level of penetration, incremental growth is driven by higher recurrence, broader multi-product adoption, and monetization of an already large installed base, positioning Yape to continue cutting into cashless share of payments. The platform's positive evolution into a super app is reflected in its engagement metrics: users transact 6-7 times per month, supported by consistently strong customer satisfaction with an NPS of 77. Deeper engagement translates into improved unit economics, with revenue per MAU increasing 65% year-over-year while this surpasses growth in expenses per MAU, which rose 26%. This proves that operating leverage is on the rise, consistent with Yape's asset-light and scalable model. Payments account for 47% of total revenues, while also serving as a core engine for data generation and cross-selling. Revenue-generating total payment volume grew 80% year-over-year, reinforcing Yape's position as Peru's leading digital payment network. Lending revenue grew 3.6x year-over-year, positioning it as the platform's fastest-growing vertical. In 2026, more than 5.7 million loans were disbursed, leveraging proprietary data, digital underwriting, and distribution to serve the underbanked. With credit penetration at approximately 30% of MAUs, there is still significant upside to accelerate adoption. Yape has the potential to significantly scale its contributions to Credicorp over time. As of the first quarter, the app represented 17% of the group's fee income and 8% of the group's risk-adjusted revenues year-over-year, up from 1% and 2.5% respectively. Next slide, please. As Peru's microfinance system continues to gain traction amid a more dynamic economic backdrop, Mibanco's performance has followed an upward trend. In this context, Mibanco outperformed its peers by strengthening its transactional value proposition, gaining productivity, and strengthening credit risk management. As a result, Mibanco sustained double-digit loan growth and robust profitability of 21.7% this quarter. From a year-over-year perspective, loans measured in quarter-end balances grew 12.4%, riding an upswing in loan disbursements, which hit a new all-time high in March. The NPL ratio continued its downward trajectory that began last year, falling to 4.9%, an all-time low. Our active pricing management, coupled with a decrease in the cost of funding, boosted NIM, which stood at a strong 14.9%. The cost of risk fell 29 basis points on the back of lower-risk vintages that currently account for 88% of total loans. The cost of risk remained low this quarter; we anticipate some gradual normalization in 2026 as we incorporate newer and smaller customer segments to bolster portfolio growth while remaining comfortably within our risk appetite. In parallel, risk-adjusted NIM stood at 11.3%, slightly below the four-year high achieved last quarter. Operating expenses increased due to higher administrative expenses related to ongoing investments in strategic projects, primarily linked to digital transformation initiatives to modernize our technological architecture and improve client experience. Efficiency improved despite these investments and stood at 49.2% at quarter-end. Mibanco Colombia's results continue to register double-digit loan growth both quarter-over-quarter and year-over-year, bolstered by controlled risk management and improving productivity. Consequently, profitability stood at 18.3% at quarter-end, which represents a sizable improvement over the single-digit levels reported at the same time last year. Next slide, please. Grupo Pacífico delivered solid underlying results in the first quarter with ROE of 18.9% for the quarter. Organic net income grew 11% year-over-year, driven mainly by the Life business and partially offset by the P&C business. In our Life business, commercial execution was strong, supported by growth in our bancassurance channel and an uptick in issuances of optional policies in the retail segment, both consistent with our strategy to deepen penetration in high-value customer segments. The net loss on securities dropped this quarter, reflecting a base effect generated by credit downgrades on a couple of assets in the investment portfolio in the first quarter of last year. In our P&C business, net income fell. This evolution was fueled primarily by a drop in premiums in the corporate segment and secondarily by an uptick in claims in the personal and medical assistance lines. In addition to organic growth, net income accelerated year-over-year following the consolidation of Pacífico Salud, which includes medical assistance, corporate health insurance, and medical businesses that continue to advance through solid commercial dynamics and disciplined cost management, which bolsters our confidence in Pacífico Salud's long-term earnings contribution. If we include the full consolidation of Pacífico Salud's operations, Grupo Pacífico's consolidated net income rose 19% year-over-year. Next slide, please. ROE for our investment management and advisory business stood at 15.7% in the first quarter. Quarter results showed mixed dynamics. Revenues benefited from stronger performance in our wealth and asset management businesses with AUMs expanding by 28% and 34%, respectively. Our capital market line also evolved favorably in line with market conditions. These favorable business dynamics were partially offset by an increase in operating expenses, which was mainly attributable to a particularly low comparative base of 2025. In this context, net income fell 8% over the period. Next slide, please. Now I would like to review Credicorp's consolidated evolution. Interest-earning assets rose sequentially, driven mainly by growth in investment balances as we took advantage of tactical opportunities to capitalize on our cash position. Loan growth fueled by BCP also contributed to the uptick in interest-earning assets albeit to a lesser extent. On the liability side, low-cost deposits posted an increase thanks to our solid transactional offering and inflows from pension fund withdrawals. Structural balance sheet trends are better explained on a year-over-year basis. Loan growth, which was driven mainly by BCP and Mibanco, led the interest-earning asset mix to generate higher yield despite cash buildup. In this context, the yield on interest-earning assets rose 10 basis points year-over-year. On the liability side, lower interest rates along with an increase in the share of low-cost deposits resulted in a 31-basis-point decrease in the funding cost over the same period. In this context, NIM stood at 6.6% for the quarter. Next slide, please. Moving on to loan portfolio quality. Asset quality continued to improve this quarter as NPL volumes contracted across segments. The NPL ratio at quarter-end was 4.3% and is below the levels reported prior to the 2023 recession. Provisions dropped over the last 12 months, buoyed by steady economic recovery which strengthened repayment dynamics and by effective risk management at both BCP and Mibanco. In this context, the NPL coverage ratio rose and stood at 113.8%. Going forward, we will continue to accelerate retail while maintaining a disciplined approach to risk. We expect loan growth to maintain dynamism. The cost of risk in turn is expected to increase modestly but remain within our risk appetite. Next slide, please. Core income reached new record levels, supported by this quarter's operating momentum across core businesses, which was driven by loan growth in higher-yield segments, a drop in the funding cost, and an upward trajectory for transactional activity. On a yearly basis, 13.3% growth in core income was driven by revenue streams with net interest income, fees, and FX gains reporting double-digit gains. Net interest income grew 10.9%, benefiting from sustained growth in our low-cost deposit base and resilient asset yields. Fee income in turn rose 15.6% on the back of dynamic bancassurance, payments, and transactional services, while the 30.6% uptick in FX gains was supported by higher transactional volumes and disciplined pricing. Profitability metrics continue to strengthen with risk-adjusted NIM trending upward to 5.81%, reflecting improved pricing, portfolio mix optimization, and effective risk management. The efficiency ratio for the year stood within guidance at 45.8%. Operating expenses grew 13.1% fueled primarily by core businesses at BCP and investments in our innovation portfolio. Growth in core expenses at BCP was driven mainly by IT expenses for commercial and transactional capabilities. Expenses for our innovation portfolio, which were led by Yape, Tenpo, and Culqi, rose 40% and represented 84% of disruptive expenses for the quarter. Next slide, please. ROE for the quarter was 21.1%, supported by solid business performance and a favorable economic backdrop. Net income reached a record high once again. We achieved this by capitalizing on our structural strength, our differentiated digital and transactional capabilities, low funding cost advantage, loan portfolio growth, particularly in retail segments, and sustained improvements in risk management. Now, we will move on to our guidance. Next slide, please. We maintain our expectation for Peru GDP growth at around 3.5% in 2026, though we recognize that risks to this outlook are tilted to the downside. We expect our total loan book to grow around 8.5% measured in quarter-end balances, or around 10.5% on an FX-neutral basis. Amid a dynamic economic backdrop and strengthened origination levels, we expect growth in balances to continue accelerating over the remainder of the year, driven primarily by retail banking at BCP and by Mibanco. The acceleration anticipated for loan growth and the shift in the mix towards retail should support NIM, which we expect to stand between 6.4% and 6.7%. This quarter's cost of risk was below expectations. We anticipate that retail origination will continue to increase. As a result, the cost of risk is expected to approach the lower end of our guidance range and our risk-adjusted NIM is expected to remain within guidance. On the efficiency front, we maintain our guidance range for 2026. Turning to non-interest income, as we mentioned in our previous earnings call, we continue to expect fee income to grow in the low double-digits this year driven by an ongoing uptick in economic activity and in the diversification of our income sources. On the insurance side, our underlying insurance business is expected to continue performing solidly. However, the insurance underwriting result, which was bolstered by extraordinary reversals in the D&S business in 2025, is expected to drop by high single digits. Excluding the D&S business, the result is on track to deliver high single-digit growth. Although we are reaffirming our ROE guidance of around 19.5% for 2026, the strength of our first-quarter performance and the ongoing positive trends suggest that we are well positioned to achieve results on the upper side of this level. We remain prudent in the face of global and local uncertainties, but our outlook reflects confidence in our ability to deliver strong value for shareholders. With this comment, I would like to open the Q&A session.

Thank you. We will now begin the Q&A session. If you would like to ask a question, if you have connected to the call using the HD web phone on your computer, please use the keypad on your computer screen. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We will pause for just a moment to allow everyone the opportunity for questions. We ask that you please only ask 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, please only ask one question at a time. Thank you. Our first question comes from Ernesto Gabilondo with Bank of America. Please go ahead.

Thank you. Hi. Good morning, Gianfranco, Alejandro, César, Francesca, and Milagros. Alejandro, best of luck in your new position. And Ignacio, wishing you the same. Congrats on your record-high results. My first question is whether you could provide some color on the presidential election and the potential impact of El Niño. Regarding the election, with almost 100% of the votes counted—and as you mentioned in your remarks—the second round appears likely to be between Fujimori and Sánchez. Could you share any insights on potential alliances or support these candidates may receive from other contenders not passing to the second round? And on El Niño, expectations are currently pointing to a strong event; Super Niño is being ruled out for now. But based on your experience with this type of weather phenomenon, how likely is that this outlook will change throughout the year? And in case of a strong El Niño, what measures would you expect to evaluate or implement? Thank you.

Good morning, Ernesto. This is Gianfranco. Thank you for your kind words. Let me take the political question, and then I will ask César and Alejandro if you want to comment on the El Niño. Officially, there are no final results yet, so we do not know with absolute certainty the two candidates that will go to the runoff, but the probability of Fujimori and Sánchez going to the second round is very high given current vote counts. Regarding your question on alliances, there is nothing material to report at this time. Bear in mind that endorsement power in Peru is quite limited, so we will have to wait and see how things evolve. The only public poll available after the first round suggests that Fujimori and Sánchez are essentially tied. With that, I will ask César to comment on El Niño.

Yes, Gianfranco. Hi, Ernesto. Regarding El Niño, first it is important to clarify that there are two different phenomena to consider: the Coastal El Niño, which we are already experiencing in some areas, and the Central Pacific El Niño, which is the phenomenon that draws more global attention. They are distinct phenomena and depending on the timing of the year, they can affect Peru differently. They become particularly dangerous when the confluence of these phenomena coincides with the summer. Concerning the local Coastal El Niño, we are already in a low-to-moderate effect at this point. It has already affected some fishing zones; for instance, the anchovy season has been temporarily halted and only about one-fourth of the usual harvest volume is expected this year, so these effects are already impacting the economy. We are closely monitoring the effects on the agricultural sectors. Usually the impact manifests as diminished productivity, but in some cases it is partially compensated by higher prices. At this point we are not changing our credit policy. We expect to have much clearer indications around September and at that time we would consider measures if necessary, taking into account heavy rains in the north and other potential effects. For now, we are considering a moderate impact and are closely monitoring the potential for higher impact toward the end of the year. I hope this helps.

Yes. Thank you very much. And yes, sorry.

Hi. This is Alejandro. Thanks for your words. I just wanted to give you a bit more numerical color on the impact of El Niño over time. In 1998 we had an extraordinary El Niño and the impact on Peru's GDP was around 1.7%. The moderate El Niño of 2017 had an impact of about 0.8% and the strong El Niño of 2017-2018 showed around 1.1%. So, depending on the development and the confluence of the Coastal El Niño and the Central Pacific El Niño this summer, if it materializes it could imply an impact on the order of around 1% of Peru's GDP. But it is still too early to know precisely and we will monitor developments closely.

Great. Super helpful. Good color. And then just my second question is related to asset quality. The cost of risk has become very well below your guidance. So just wondering whether there are potential downside risks or is it still early to assess that considering we need to wait for the outcome of the presidential election and to evaluate the impact of El Niño?

Yes. César?

Thank you, Ernesto. I would like to highlight two different behaviors in our portfolio. For Mibanco, as Alejandro mentioned, performance has been very good and the trend is consistent with prior evolution; these numbers reflect improved risk performance but not a dramatic change in the quarter. In Mibanco we are increasing exposure in lower ticket segments, particularly below PEN 5,000, and these vintages are performing well. In the case of BCP, you can see a significant change in the quarter. There are two types of effects. One is structural: the combination of origination measures we have taken recently that improved the quality of originations segment by segment. We are starting to see the contribution of provisions for the new originations in higher-yielding segments which has been more pronounced since last quarter—this is structural. On top of that, there were some one-off effects that impacted the quarter in particular: an unusually high profit-sharing boom in the mining sector that improved one-off payment capacity in the middle segment, pension fund withdrawals that increased liquidity and repayments, and some liberations in provision in the wholesale portfolio where last quarter we had additional provisions for construction-related exposures. So the quarter benefited from a combination of improved structural behavior and some point-in-time effects that accentuated the decrease in the cost of risk. As we start to originate faster in higher-yield segments, we expect the cost of risk to increase toward our expected guidance, and our expectation is to be around the lower end of that guidance range with the information we have today.

The next question comes from Brian Flores with Citi. Please go ahead.

Hi, team. Thank you for the opportunity to ask questions. I have one quick question—a follow-up on Ernesto's question regarding asset quality. So, is it fair to say that these maybe extraordinary improvements in the cost of risk that we have seen are allowing you to maybe allocate a bit more capital to higher-yielding credit? Should we see this during this year? And then maybe my question is on your ROE guidance. I think you mentioned that you could be on the upper side given the trends that you are seeing. And I think maybe cost of risk is perhaps the one that is allowing you to already be mentioning this. So I just wanted to see if, besides cost of risk, you see also another of these key variables—maybe efficiency—allowing you to be on the upper side of the range, as you were mentioning? Thank you.

Good morning, Brian. Let me provide a longer-term view regarding the cost of risk question, and then I will ask César and Alejandro to add. First, we do not manage the company by only looking at cost of risk but, most importantly, looking at risk-adjusted NIM. We expect risk-adjusted NIM to increase even though we expect the cost of risk to rise modestly as retail and microfinance and the Yape lending book grow at a faster pace. We are making decisions based on a longer, structural view about opportunities in retail, the underbanked, and the unbanked, leveraging the data we have gathered over the last decade through Yape and other digital channels. Regarding guidance on ROE, it is not only a matter of cost of risk. The first quarter has been above 20% already and the economy in Peru is performing quite well, so there are multiple tailwinds: loan growth, funding mix improvements, and diversified income sources. I will ask César and Alejandro if they want to add.

I think Gianfranco explained our general approach well. If we are taking confidence to increase risk taking, it is because segment by segment we are seeing results within or slightly better than our expectations, and that gives us confidence to continue growing in higher-yield segments. The temporary effects in the quarter were welcome but our strategy continues to perform based on the measures we are implementing and the results we monitor.

Hi, Brian. I will add something on the ROE guidance. We have not changed the guidance, which is around 19.5%, but as I mentioned in my remarks we expect to be on the upper side of that number given what we have already seen this first quarter and the strength of the economy. Of course, there are important events to monitor—like the elections and El Niño—but given the progress in risk management, transactional capabilities, and the revenue trends we see, we should be able to be on the upper side. It's not just cost of risk; loan growth and a strong risk-adjusted NIM are also drivers. That combination can allow us to be above the 19.5% guidance, but we remain prudent given current uncertainties.

No, very clear. I appreciate it. Just to confirm, given the improvement in margin and ROE, is your priority in capital allocation reinvestment in growing the business rather than extraordinary dividends, because the unit economics look healthier?

Sure. The priority is definitely growth. We believe there are significant opportunities in the segments we serve and we will continue to allocate capital to support sustainable growth while remaining disciplined on capital management.

The next question comes from Thiago with UBS. Please go ahead.

Hi, guys. Congratulations on the results—very strong numbers. Can you give us some indication about the performance of Yape in Bolivia? And also, do you believe this platform can be implemented in other places, for instance in Chile? So those two points: how Yape is performing in Bolivia and whether we can see a kind of internationalization of Yape?

Francesca, could you answer that please?

Sure. Thank you, Thiago, for the question. Yape Bolivia has been growing at a steady pace and last year accelerated its growth, reaching over 2 million customers in Bolivia, which is significant for a smaller market. Bolivia had a different starting point with an interoperable payments system in place, so the model there is different. We have been successful in gaining market share and becoming a leading payments platform. Transactions in Bolivia are more merchant-driven (P2M) rather than purely P2P, and we are monetizing through utility payments and other services while digitizing payments overall. This builds rich data to offer lending and other value-added services. Regarding internationalization, as Gianfranco mentioned, on April 1 we formed a neobank unit under Raimundo Morales to bring together Yape Peru, Eo, Tenpo, and Yape Bolivia. The technological capability and a platformized approach are important, and we believe the Yape model is increasingly exportable. In Chile, Tenpo provides a solid starting point. There are opportunities for international expansion, but it depends on local market dynamics, regulatory frameworks, and the interoperability options in each market.

To complement Francesca's answer, we announced on April 1 the creation of a neobank unit led by Raimundo Morales, which consolidates Yape Peru, Yape Bolivia, Eo, and Tenpo. The logic is to leverage tech capabilities and market knowledge. This creates opportunities to scale and explore selective internationalization where it makes strategic sense.

The next question comes from Renato Meloni with Autonomous Research. Please go ahead.

Hi, everyone. Congrats on the results. My question is on growth. You had been mentioning earlier this year that you expected wholesale growth to remain solid, but this quarter we saw a pickup in wholesale lending. Could you explain the drivers for that, whether you expect this to continue, and whether you see upside to the loan growth guidance?

Morning, Renato. Thank you for the question. If you look at our loan book over the last several years, wholesale lending was relatively flat because Peru went through a period of very low investment—COVID and political instability led to stalled investment across industries. We started to see private investment grow double-digits last year and that momentum has continued, with private investment keeping pace this quarter. At the same time, domestic demand has been consistently strong—growing around 4-5% over the last several quarters—so many companies are operating at full capacity and seeking longer-term financing to expand capacity. Those factors explain the recent wholesale loan growth. Regarding whether the 8.5% loan growth guidance is too conservative: it could be, given the current momentum, but we remain cautious because of global uncertainty, oil price volatility, and local political uncertainty around the elections. We will have more clarity after the second round of the presidential election.

The next question comes from Lindsey Shema with Goldman Sachs. Please go ahead.

Hi, good morning. Congrats on the results, and thank you for taking my question. First on deposits: we saw a favorable improvement in deposit mix which was partially attributed to pension fund withdrawals. How much would you attribute to pension fund withdrawal deposits? The last time we talked, the flows were running strong and you captured a good percentage of the liquidity into the system. How sticky would you consider those deposits? Is this something we can expect as a tailwind going forward? I have a second question after that.

Sure. We did capture an important part of the pension fund withdrawals, but that is money that starts to be used and reduces over the following months. I would say that about half of the deposit growth we saw is related to pension fund withdrawals. The other half is structural, driven by our transactional capabilities and customers operating more of their transactions in the banking system. There is a structural trend of more funds staying in accounts as the economy becomes less cash-driven. The pension fund withdrawal impact should decrease during the year and largely disappear, and it also contributed to retail repayments in the first quarter. So roughly half pension withdrawals, half structural growth.

That was very clear. My second question is on operating leverage and expenses at Yape. You showed a pretty solid increase in operating leverage. How much of that was seasonality in expenses versus sustainable? Especially with the new digital bank initiative, do you expect material impacts on expenses or growth from that expansion? How should we think about the expense trajectory?

There is some seasonality in expenses—election-related activity and end-of-year effects—but we are also continuing to invest in technology capabilities at Yape around lending, distribution, and internationalization of the platform. We are mindful of expenses and they are within our expectations relative to planned growth in revenue and investments. The investments are under control and aligned with our strategy. Over time we expect income to grow faster than expenses. We believe Yape in two to three years should operate at a much lower cost-to-income ratio, and as Yape becomes a larger contributor to Credicorp, it will have a positive impact on the group cost-to-income overall.

Yes. To complement Francesca, we see income growing faster than expenses, and we expect Yape to achieve operating leverage over time which will be beneficial to Credicorp's overall efficiency metrics.

The next question comes from Carlos Gomez-Lopez with HSBC. Please go ahead.

Hello. Let me join in the congratulations to Alejandro, and congrats in particular for the increase in the margin. My question is again on asset quality and the lower cost of risk. Could you quantify what portion of the improvement is due to recoveries in the corporate portfolio? For example, you mentioned the wholesale provision being unusually high last quarter and negative this quarter—how much recovery are we talking about in monetary terms or basis points? Also, a question on the Central Bank rolling out a UPI-like system: could you tell us what impact, positive or negative, that might have on your business?

César, can you take the quantification?

Carlos, thank you. Normally BCP's cost of risk for wholesale is between 0.1% and 0.2% in a usual quarter. The last quarter of last year was unusually high at around 0.5%, and this quarter it was minus 0.1%. So you can estimate the difference versus a usual quarter as roughly 20 to 30 basis points impact on the wholesale portfolio. The last quarter of last year was an outlier with specific cases that required additional provisions, and this quarter sees partial reversals or regularizations, hence the significant change quarter-to-quarter.

Yes. And on the UPI-like system, what could be the implications for Yape and your payments ecosystem?

There are two dimensions to consider with a UPI-like system. First, we believe there is still a lot of cash to capture as Peru is a cash-based economy, so there is potential to grow transaction volumes even with new entrants. Having said that, a UPI or interoperable payments system could introduce new players in the payment ecosystem. From Yape's perspective, our strategy is to be a super app and neobank that offers multiple services and cross-sells products. We have been able to increase features per active user and monetize beyond payments. We expect to connect to an interoperable system, and we will be able to operate our own closed loop for certain transactions where we want to. Interoperability generally makes the market bigger and is positive for user adoption. We are actively participating with the regulator in the design and expect to be connected to such an interoperable system while preserving options for our own product experience and economics.

The next question comes from Andres Soto with Santander. Please go ahead.

Good morning and thank you for the presentation. My question is also around Yape in terms of contribution to Credicorp. When I look at the contribution to revenue, it is already at 8% for the quarter, and contribution to EBT is up to 7%. I have three separate questions: first, previously you mentioned expecting disruptive initiatives to represent 10% of Credicorp's risk-adjusted income. Yape alone is almost at that level. Will you set a new target for disruptive initiatives' revenue contribution to Credicorp? Second, will the metric remain revenue for disruptive initiatives, or will you shift focus to profitability metrics as they mature? Third, could Yape represent a material portion of Credicorp's earnings by 2028 as it scales?

Good morning, Andres. Initially we set a target four years ago for disruptive initiatives to represent 10% of risk-adjusted income for Credicorp. We are very pleased that Yape is contributing significantly and ahead of initial expectations in timing and magnitude. We are currently reviewing metrics and targets for the next cycle because some initiatives are maturing faster than we thought. For disruptive initiatives, revenue is still a relevant metric at this stage, but as ventures become profitable we will incorporate profitability indicators such as ROE and cost-to-income limits. We are currently working on updated targets and governance for the next three to four years and expect to provide more clarity in the coming months. The new metrics will include revenue contribution and profitability thresholds once initiatives reach maturity.

To complement Francesca, we are in the process of recalibrating the targets for disruptive initiatives. Yape's performance has exceeded our expectations in timing and scale, and we are working internally to set new public targets. We expect to share more about this next quarter. We do expect the disruptive initiatives as a whole to be accretive to Credicorp's ROE this year.

The follow-up: will the metric remain revenue? In my numbers, if Yape scales as you expect, it could represent a substantial portion of group earnings by 2028. Do you see any reasons this would not happen or will you shift to profitability as the relevant metric?

We will look at both revenue and profitability. For disruptive initiatives in their growth phase, revenue and risk-adjusted income are the correct metrics. As they become profitable, we will incorporate ROE and cost-to-income thresholds. We are working on those targets now and will share them once finalized in the next couple of months.

We are undertaking that process now. When we set the 10% goal originally, there was a lot of uncertainty given these were disruptive initiatives. Yape's success has accelerated the timeline, and we will provide guidance on new targets soon. We expect the disruptive initiatives to be accretive to group ROE this year.

The next question comes from Yuri Fernandes with JP Morgan. Please go ahead.

Hi, guys. Good morning. On margins and cost of risk: cost of risk was low in the quarter due to seasonality and wholesale factors, and you are growing, so cost of risk should move up. But funding is very good which helps margins. Given the asset mix shift, wholesale growth, and retail acceleration, do you believe there is upside risk for margins? Correct me if I'm wrong, but could risk-adjusted NIM be above your guidance given the quarter's strength?

Good morning, Yuri. Your thesis is reasonable: everything points to possible upside. However, given the global uncertainties and local political uncertainty, there are too many 'ifs' for us to change guidance now. So while we see potential upside, we prefer to remain conservative until there is greater clarity.

Hi, Yuri. Your assumption is correct in that, given the low cost of risk we are experiencing and strong margins, we should be on the upper side of risk-adjusted NIM for the year. But as Gianfranco noted, there are uncertainties we are monitoring. We believe risk-adjusted NIM can continue to improve over the coming quarters.

Just a quick second question: looking at profitability of subsidiaries—BCP, Mibanco, Pacífico—where do you see upside risk for profitability among subsidiaries? Are there opportunities to improve ROE further at any of them, or is most of the earnings upside coming from Yape and group-level initiatives?

Great question, Yuri. On Pacífico, we believe a sustainable ROE is closer to 20% rather than the mid-20s that was seen in some recent periods. Mibanco is performing where we want it to be in terms of ROE. At Credicorp Capital there may be potential to slightly increase ROE, though we also see growth opportunities that may require some investment. Yape is clearly a driver of future upside, but other initiatives and subsidiaries also have room for incremental improvement. Overall, there could be further positive impact across the group as disruptive initiatives graduate and as operational improvements continue.

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

Thank you. Let me close by putting things in perspective and reflecting on the strengths of our franchise. Credicorp has been around for over 30 years, and through BCP we have more than 135 years of banking experience navigating complex and often volatile environments. Over that time, we have played a key role in supporting Peru's development, consistently working to expand access to financial services and advance the progress of individuals, businesses, and communities. This commitment is deeply connected to our mission of improving life through financial inclusion, and it is what has allowed us to build a resilient institution with a truly long-term perspective. Looking ahead, we continue to see compelling opportunities in the region. The external backdrop remains favorable, with what could evolve into a new commodity super cycle, and countries such as Peru and Chile are particularly well positioned to benefit. Peru, in particular, is entering this period with healthy domestic demand, low inflation, and a financial system that remains solid and liquid. These conditions create an important opportunity to accelerate investment, employment, and productivity over the coming years. Credicorp is uniquely positioned to capture that opportunity. This quarter is another clear reflection of that position, with record-high results that demonstrate both the consistency and strength of our franchise. At the same time, we have increasing clarity around our strategic priorities and are seeing tangible progress across our key growth anchors, reinforcing our confidence in our ability to sustain performance over the medium term while continuing to support our clients and the broader economy. Before closing, I would like to briefly step back from the short-term political debate. While the leading presidential candidates represent different visions for the country's economic future, we believe Peru's institutional framework and system of checks and balances continue to provide important safeguards for stability and policy continuity. What matters most now is preserving the conditions that allow the country to move forward while continuing to advance key social priorities such as education, healthcare, infrastructure, and poverty reduction. Peru has a unique opportunity to achieve a more profound and lasting transformation, and it cannot afford to lose that momentum. Thank you for your time today, and we look forward to speaking with you again next quarter.

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