Credicorp Ltd. (BAP) Earnings Call Transcript & Summary

Welcome to the Credicorp Investor Day conference. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to the company's IRO, Milagros Cigeas. Please go ahead.

Good morning, everyone. I am Milagros Cigeas, IRO of Credicorp. Thank you for joining us today on our Credicorp Investor Day, commemorating our 25th year anniversary of listing in the New York Stock Exchange. Over the next 2.5 hours, you will hear about our several milestones achieved, our operating and growth strategies as well as new opportunities and the way we are looking toward the future. You will get to see an overview of our growth, our transformation process and several of our business unit priorities in action through a series of videos. Finally, you will have an opportunity to ask questions. On the slide, you can see a detailed agenda for this morning. Now I will run through a couple of administrative details. Following our management presentations, we will have a 5-minute break before starting our Q&A session. [Operator Instructions] We will be compiling those questions, which will be answered at the Q&A session. [Operator Instructions] Now please take a look at our safe harbor statement, and I will pause for a moment. Now I would like to introduce to you Mr. Luis Enrique Romero, our Executive Chairman, who has opening remarks for you. But just before, Chris Taylor, VP of Listings and Services at the New York Stock Exchange, has a message to share. Thank you.

Good morning from the gallery overlooking the trading floor of the New York Stock Exchange. My name is Chris Taylor. I'm Global Head of Listings at the NYSE. It is my privilege to congratulate Credicorp on 25 years of being listed on the New York Stock Exchange. We call the 2,200 companies that are listed on the NYSE the greatest community of companies in the world. And Credicorp has been a key part of that community for the last quarter century. From all of us, thank you again, and we look forward to another 25 years.

Good morning, everyone, and welcome to Credicorp Investor Day. I hope you and your loved ones are healthy and safe. I'm very pleased to join you today in my first opportunity since being elected as Chairman of the Board. This is a very special time for all of us as it is Credicorp's 25th anniversary of its listing on the New York Stock Exchange. My relationship with the group goes back to 1985 when I worked as a junior credit officer at BCP's New York office and later at security -- Atlantic Security Bank in Panama City. Starting in 1991, I worked many years as CFO and then COO of the Romero companies and joined the Board of BCP in 2009 and later Credicorp's in 2017. And since then, I have been closely involved in working with the management team to determine the strategic direction of the organization. Since it was established, Credicorp has had multiple accomplishments, including consolidating its position as the premier financial group in the Peruvian economy. Currently, Credicorp, through its subsidiaries, is the main provider of financial services for the Peruvian market. We have been successful in diversifying our customer base and increasing substantially our presence in the retail segment. Today, Credicorp has 16.5 million clients, equal to 50% of the population of Peru compared to less than 1 million in 1995, with a population of 24 million. Additionally, we have acquired and developed financial subsidiaries in Bolivia, Chile and Colombia, supported by our offshore bank Atlantic Security and BCP's branches in Miami and Panama. The results, since inception through December 2019, in terms of returns to our shareholders as well as that of our current positioning for future growth, have been more than satisfactory. Despite the short-term effects of COVID-19 on our profitability and our share price, Credicorp has delivered an annual total shareholder return of 11.7%. As you may recall, in 2018, we've reorganized the management of Credicorp subsidiaries into 4 lines of business, with the key goals of improving client experience, leveraging best practices and enhancing synergistic opportunities across the group. Today, you will hear from each of the business heads. Earlier this year, we announced a series of initiatives to bolster our corporate governance to drive long-term stakeholder value and demonstrate leadership in this area. These initiatives involve increasing the independence and diversification of the Board, including expanding the Board size, adopting a more stringent definition for director independence consistent with global best practices and simplifying our Board Committee structure to improve the independence and balance of director skills and experiences. I'm pleased to say that today, 5 of our core 8 Board members are independent. 2 independent directors are women, and 3 of our 4 committees are chaired by independent directors. In all, we refreshed 4 directors in 2020 and recently announced the nomination of another new candidate, Leslie Pierce, to be elected as part of the Board expansion. His energy, strategic mindset, knowledge of the consumer and track record in building and leading large corporations make him an excellent addition to our Board. I'm honored to be chairing the Board of this organization today, particularly at this time of tremendous transition with the initiative that we embarked upon a few years ago, accelerated by a new reality in the context of the global pandemic. This 25th anniversary period is a crucial time for Credicorp, and we are reflecting on both the opportunity to build a stronger regional financial services institution while supporting our resilient economy with a more sustainable future. To that end, we have accelerated a project we began planning at the end of last year related to integrating sustainability at the core of our business strategy to ensure long-term stakeholder value for all. As Walter will discuss in a moment, we are rethinking our role in society and the value we add to all the stakeholders. In addition to our continuous effort in strengthening corporate governance, our management team is also working on efforts to incorporate social and environmental commitments with each of the strategies. We are well positioned to continue to capture opportunities from changing megatrends, leveraging our strategic focus and agility to adapt to new realities. We continue to execute on strategies to enhance long-term competitiveness, delivering value creation and retain business resilience. Finally, I would like to thank you for your trust in our Board and management team who, through their leadership and professionalism, guarantee Credicorp's sustained growth and future success. Now I would like to introduce Walter who will tell you more about Credicorp story.

Thank you, [ Lucio ]. Good morning to all of you, and thank you for joining us on our Credicorp Day to commemorate our first 25 years. I have had the privilege of being part of this company since its inception and have been a firsthand witness of its evolution into a dynamic, innovative and growth-driven organization. I would like to share with you some of my thoughts and forward-looking perspective from this journey. As most of you know, Credicorp's origin was the combination of the ownership of what were, until that time, 3 independent companies that shared a somewhat similar shareholder and customer base. Credicorp was successfully launched with a market capitalization of slightly below $1 billion. Initially, the 3 companies basically maintained their independent operating models, and Credicorp acted as a pure holding company, with a minimal level of interaction and coordination among the operating journeys. The first years were very favorable until the late '90s when Peru was severely impacted by a combination of effects, including: a world economic crisis, which drastically reduced liquidity in emerging markets; a much needed opening up of the Peruvian economy, which created dislocations of massive redeployment of capital and [ byprocess; ] and last but not least, the climatic impacts of El Nio. After this very dramatic adjustment, Peru and Credicorp embarked upon a 20-year period of uninterrupted growth, leading us to achieve the growth rates shown in the graph. But Credicorp not only grew in size but also in complexity. Today, we have more than 60 million customers in 4 countries, and we also have entered new businesses, such as life insurance, health insurance, pension funds, asset management, investment banking, microfinance and health services. We are clearly now one of the leading financial groups in the region, and we are positioned to continue to generate value for our customers, employees, shareholders and the countries in which we operate through 4 key growth levers. These include: one, our positioning as a leading player in an underpenetrated region; two, our ability to remain close to our customers for our expansive footprint, facilitating cross-selling opportunities; three, the actively managed approach of our independent business lines, leveraging best practices, synergies and scale; and four, our innovative culture and ability to replicate successes throughout the organization. We continue to see an important growth potential based on the low levels of penetration the financial industry has in the markets in which we operate. Peru, which continues to be our main market, has advanced this past decade but as the chart shows, continues to have potential to at least double in size during the next 10 years. Peru is expected to grow at approximately 3% in real terms per annum. Correlations from the last couple of years lead us to believe that launch of the financial system as a proxy to bank penetration should grow at 1.5x nominal GDP. This metric leads us to estimate that both BCP and Mibanco should double the size of their loan portfolios during the next decade. This dynamic, coupled with the widespread utilization of digital channels, indicates to us that the long-term profitability of both banks can be maintained. A combination of growth and the elimination of important cost elements in our distribution should counter effects of reduction in margin and fees. While we continue to see Peru as the focus of our growth, we are also very interested in the opportunities in Colombia, both in microfinance and in wealth management. Each of our lines of business has made extensive efforts in becoming customer-centric, understanding our customers better and developing processes and products that solve their needs without creating pain points. Data utilization has been key in understanding patterns and developing solutions. From Credicorp's perspective, we are very focused on capturing cross-selling opportunities when more than 1 line of business is involved. We follow very closely these initiatives, some of which are outlined in this chart. Each initiative has a very ambitious targets, which are regularly reported at Credicorp's Management Committee. Over the past years, we have developed what we call today Credicorp's Way. This is better described as designing and putting into practice Credicorp's operating model. We went through a very disciplined process, through which we reviewed all of our staff functions to determine which structure is best suited for each particular staff function. Our objective was to balance, on the one hand, having structures and forums that allow for best practices to be shared among the different units while on the other hand, watching closely not to increase bureaucracy and cost with a centralized staff. This is a process and is continuously adjusted over time as the impact of each of these initiatives is constantly evaluated. On the chart, you can see some of the staff functions that we have centralized under best practices in order to capture synergies or to create sectors -- centers of excellence to facilitate the sharing of best practices on specialized topics with expert staff. Each of our different lines of business has a very detailed working agenda tailored to the needs of the individual customers and to priorities and situation of each unit. Later, the head of each line of business will share with you their strategy, priorities, challenges and objectives, but they all have common objectives, which are to rapidly adjust and transform our operating models and our distribution channels in order to achieve 2 purposes: improve customer experience while capturing cost efficiencies. 2 years ago, we set up Krealo, our open innovation initiative, to be better connected to the fintech ecosystem in search of opportunities that fit our long-term vision. Krealo aims to drive digital inclusion across Latin America as a means to achieve financial inclusion. Our goal is to increase the size of the financial services market while upgrading Credicorp's technology and business models. To do this, Credicorp builds, invests in partners, with start-ups that create sustainable digital businesses. Our operating model combines the discipline and efficiency of the corporate world with the agile model of start-ups and a culture of challenging the status quo. Krealo has an independent governing body, with outside advisers that oversees its budget and investment plans. As you can see in the chart, we have focused on 3 themes: e-commerce, to help Peruvian businesses sell online and increase their target market; digital consumer in Colombia and Chile, to bring banking transactional and investing to the underbanked in a cost efficient way; SME services, to digitize collections, cash management, CRM and inventory management. The team dedicated to these initiatives has grown to 400 employees. By the end of 2020, we have expect -- we expect to have 500,000 registered clients with $300 million of gross processing volume. We have made 6 investments and are very focused on scaling them in their respective markets. This initiative is, of course, a medium-term investment to which Credicorp's Board has committed. For many years, all of Credicorp's subsidiaries have had an active participation in the societies and economies in which we operate. Some of these initiatives are shown in this chart. Nevertheless, it became apparent to us that we needed a more comprehensive approach to ESG and one in which the initiatives are part of the everyday strategies and activities in the organization rather than initiatives developed and deployed by a specific unit within each of the business lines. During the last 5 months, we have worked with more than 30 leaders of 6 of our operating companies to analyze ESG-related risks and opportunities in each of the business lines. We have identified business opportunities, which could create value and growth while generating a positive impact in society. At the senior management level, we have recently concluded a series of strategy design workshops and have established a very ambitious target in this respect. We aim to make sustainability a core component of our strategy to ensure long-term competitiveness. The 3 North Star ambitions are outlined in the chart, and there are topics that have always been close to what we are. First, we create a more sustainable and inclusive economy. This initiative has always been a priority for BCP in that we have always focused on financial inclusion and finding ways to increase the number of Peruvians that are part of the financial system. This initiative clearly has gained more importance with us since our participation in microfinance. We believe that supporting SMEs and microfinance customers in their growth will be a strong positive for Peru and Colombia and will bring the added benefit of contributing to the formalization of the economy. Going forward, we plan to reinforce our focus on environmental-related risks within our risk management framework and to develop the related policies. Second, improve the financial health of citizens in Peru and now in Colombia. BCP, Pacifico and, of course, Mibanco have traditionally had an active participation in financial education, and we intend to continue with this initiative, which goes a long way in building trusted and transparent relationships. Moreover, as you will hear from our business leaders, we are all committed to accelerating the innovation to anticipate customer needs. Third, empower our people to thrive. Developing our workforce has and will continue to be a priority. To successfully achieve our ambitious transformation targets, we will need to develop a diverse and inclusive workforce to foster creativity and innovation. Moreover, as we have communicated throughout the year, we are and will be committed to a strong governance structure and to encourage people to do the right thing. I'd like to refer you to this final slide of my presentation. This statement encapsulates our vision of integrating our role as future-oriented stakeholder, focused on corporate citizens and how we plan and make our business decisions for the benefit of ensuring long-term value creation to all our stakeholders. I will leave you with a video that summarizes our 25-year history and our commitment and vision for the future. After that, Gianfranco Ferrari will discuss our strategy and vision for the Universal Banking business. [Presentation]

Thanks, Walter. Good morning, everyone. It is a pleasure to be with you today and have the opportunity to share with you our vision for the future. I hope all of you are safe wherever you are today. About 5 years ago, we started an introspective journey to be well prepared for the anticipated challenges of a changing world. At the end of this journey, we defined BCP's newest purpose, transforming plans into reality. From that moment on, we have set our aspirations, goals and ways of working with that purpose in our mind. We want to accompany our clients and their country as they grow, ensuring that plans become reality. Our goal is to provide the best customer experience in Peru and to be among the most efficient financial institutions in Lat Am. While doing so, we will make a significant positive impact in the country. To achieve these goals, we are leveraging on our solid historical competencies, which we are reinforcing with our WOW! transformation strategy by adding new and differentiating capabilities. This includes establishing a strong focus on customer centricity, innovation and digitalization, supported by robust data and analytics. Additionally, we're enhancing cybersecurity and implementing an agile organization and culture. The implementation of our WOW! culture and digital transformation has driven significant improvement in customer satisfaction across our most important customer journeys. This has boosted customer satisfaction across all segments. And as a result, today, BCP is ranked as the best bank among its peers in terms of [indiscernible] customer satisfaction in every segment. In the case of the Consumer segment, BCP has achieved an impressive improvement from 2017 levels. While we have made significant progress, we are halfway through to meeting our goal of becoming the company in Peru that provides the best customer experience. Leveraging on digital tools and channels is an important part of our strategy to achieve our purpose and objectives. The use of digital channels has dramatically increased over the last 4 years, with 28% of monetary transactions taking place through our digital channels as of June. At the same time, the share of digital clients has more than doubled. This is allowing us to provide a better customer experience at a substantially lower cost. Now I'd like to show you a brief video highlighting our focus on user experience and interaction through our digital applications. [Presentation]

As mentioned in the video, we are committed to proactively launch new digital products and features that allow us to continue improving our customer experience in each of their interactions with BCP. The continued increase in digital sales has led to strong improvements in efficiency, including achieving higher volumes and profitability per employee, along with a significant drop in unit transactional costs, as we show on the table to the right of this slide. This has allowed us to keep our investment strategy in technology. This strategy is paying off and has allowed us to rank among the most efficient leading banks in Latin America. However, we will continue pursuing this journey as I am convinced that banking products are commodities. And if you are in a commodity business, you better be the lowest-cost producer. Our quest for innovation is paramount, as we explain in the following video. [Presentation]

The COVID-19 pandemic has generated an enormous stress test for our purpose, our way of working, culture and our organization overall. During the past months, we have quickly adapted to the new normal and have continued to create value for our stakeholders. As you will see in the next video, our accelerating investments in IT, data and analytics and fostering agile methodologies in our organization and culture have been key enablers in this transformation process. [Presentation]

However, we realize that we have to do more to pursue our purpose. In alignment with Credicorp's ESG program, we have added a new set of metrics and initiatives that will enable us to deepen our ties with all of our stakeholders, therefore ensuring a long-term sustainable strategy that enable us to maximize the value of our purpose, transforming plans into reality. Before turning the floor to Javier Ichazo, who will discuss our microfinance business, let me leave you with a final video that shows how we are accelerating our initiatives to improve financial inclusion and education, achieve greater social and economic development and reflects our team's commitment to our purpose and the well-being of citizens in the country where we operate. [Presentation]

Good morning, everyone. Microfinance is a social business, 2 words that may seem contradictory but we are complementary. To success in microfinance, you need to strike a balance between the economic and the social. At Credicorp, we are convinced that the success of our business depend on the social development of our clients, their employees and communities. We are also aware that the growth must be guided by efficiency and adequate risk management to ensure long-term sustainability. Over the last 11 years, we have embarked on a path of learning and grow in the countries in which we operate. This has allowed us to consolidate our presence while internationalizing and scaling our business model. With a loan book of over $3.5 billion, we are the leading group in microfinance in the Americas and the second largest private microfinance bank worldwide. We provide micro loans to 2 million customers and are present in Peru, Colombia and Bolivia. In 2019, the microfinance business unit contributed $120 million to Credicorp's net income. Our clients are mainly entrepreneurs. They believe that success and effort go hand in hand. They are accustomed to adversity and highly resilient that may entirely began with a small capital base from family members and grew within what we call the spiral of progress. We have seen many success stories over the years. Our customers operate mainly in cash because their value system and payment chains are set up this way. Our typical customer has limited financial education and lacks the resources to hire specialists. Their main sources of information are their families or business people in the community. Thus, they greatly value the specialized advisory services and financial education we provide. As they don't maintain savings in the formal banking system, we represent an important financial infrastructure and source of financing. These are typically small loans. Just to give you an idea, 60% of our loans are for less than $1,400. The following video gives you an idea of the challenge some of our clients face and how we are helping them to move forward and build better life for themselves and their family. [Presentation]

In Peru, we are the leaders in microfinance, measured both in terms of loans as well as in number of customers. Our contribution to the country's economic and social growth are extremely relevant. Over the past 5 years, over the 500,000 Peruvian have accessed the financial system through our company. 1 out of 5 Peruvian that entered the system are banked by Mibanco. We operate in countries with significant unbanked population, which represent significant long-term potential as well as the need for financial inclusion. In Peru, 42% of our micro business owners have yet to be banked. This gap is even greater in Colombia, where 67% of micro business owners are still unbanked. The significant growth potential in both markets is a good match for our commitment to contribute to the financial evolution of the people in the countries we operate in a profitable and efficient manner. The opportunity in Colombia is to replicate the improvements we already shown we can achieve in terms of productivity, cost of risk and efficiency at Encumbra, to new acquisitions such as Bancompartir. With this goal in mind, we have developed the Mibanco way operating model, which allows us to transfer knowledge and execution to guarantee the continuity of our microfinance business in the region. We have begun our process to consolidate in Colombia and are seeking to lead the market through inorganic and organic growth. This aspiration drive the process we have undertaken to evolve from a traditional business model. At Mibanco, we have already transitioned from a purely traditional model, which is people and office-intensive, towards a multichannel hybrid model that is driven by data and analytics. This digital hybrid model approach allow us to become more efficient while further strengthening the relationship with our clients in this unique market segment. If we were to apply the traditional model, all the bars in the figure will be colored blue, indicating the need for human interaction. Currently, 26% of our loans are granted without involving the adviser in the assessment stage, and there is still considerable potential to increase that percentage of centralized decision-making. In the early stages of the process, the model combines in-person and digital elements. This move toward a digital model without compromising the sense of our business, which is our differentiated focus on customer relationship, is a significant competitive advantage. While we have enhanced our business model, our overall strategy remains unchanged. We continue to ensure that our commercial and risk model evolve in ways that preserve our customer-centric focus. We also have clear enablers that support our goals, such as a solid, differentiated culture where each of our employees is engaged in contributing to developing both the bank and the communities where we operate. We also continue to further enhance the capabilities of our credit models and technological infrastructure to support the evolution of our hybrid model. This include supporting the growth and construction of digital channels, building cybersecurity and preventing fraud. COVID-19 has led us to accelerate our digitalization effort by approximately 1.5 years. We have also reprioritized our strategic projects. On the retail front, we're working on 2 areas at the same time. On one hand, we are digitalizing client bank interactions by providing our adviser with digital tools for fieldwork. The objective is to optimize [ intelligent routine, ] provide access to lead for [ developments ] in the field and roll out platform for digital services. On the other hand, we are accompanying our clients as they digitalize the client interaction process, beginning with payments. This helps drive our clients' business and provides information to significantly improve our centralized assessment models. We accomplished all of this by providing our adviser with intensive training. Complementing our business, we have also begun to establish commercial partnerships that entail a fully digital business model. We have launched this new model through an alliance with Uber and have started by providing microloans to the Gold drivers. This model not only expand our client base selectively but also provide a great deal of information to expand our business with controlled risk as we see an interesting opportunity to replicate this business model with other leading service and consumer companies. The following video highlights this partnership. [Presentation]

The synergies Mibanco enjoys with other companies in Credicorp drive our growth and innovation. We outpaced the competition by offering products and services that are tailor-made for our clients, including oncological coverage through Pacifico Seguros and digital solution through Krealo, such as providing payment services through Culqi, one of the group's payment ecosystems. As a leader in Latin America in microfinance and the second largest globally, adviser and financial inclusion is at the core of our purpose. We will continue to pursue our goal of transforming the life of our customers, their families and the communities where we operate. Now let me turn to Alvaro Correa, who will discuss our insurance and pensions business. Thank you so much.

Thanks, Javier. Good morning, everyone. I am delighted to share with you the strategic direction of Credicorp's insurance and pensions business for the years to come. I want to start by stressing that the vision of this business unit is to create products, services and capabilities that will accompany people throughout their lives, always striving to strengthen their protection and secure their well-being. This is supported by the purpose of our companies, which aim to bring peace of mind to all our customers. In Peru, over the years, we have secured a solid leadership position in the personal insurance categories, in life, health and property and casualty, with over 30% market share overall. We know, though, that there is an enormous potential for growth in a market that still has low levels of penetration, unattended segments of the population and informality levels. This is reflected in the Vida Ley and pension penetrations where more than 80% of the population is not currently covered. A similar picture can be observed in the car, home and private health insurance categories. In the last few years, we have seen a greater level of awareness in the need for protection. This was evidenced by the interest generated by certain high-volume, low-ticket products, which we have successfully introduced. Moreover, the current situation has generated an even greater desire for protection and a wider acceptance of digital channels in both insurance and pensions categories. Financial inclusion through protection is paramount, and the journey to augment formality in the long run should facilitate this process. These opportunities are even more evident in Bolivia where Crediseguros' bancassurance business model with BCP Bolivia has proven to be the right approach to penetrate that market. The strategy that we have put in place to capture this growth opportunity is based on 3 axes: customer-centric innovation, a focus on Credicorp distribution channels and digitalization for both sales and services. The first strategic axis is geared towards customer centricity through innovation by closely understanding our market and generating products based on the current and future needs of the population. Let me give you some examples. At Pacifico, after the introduction of the law that allows the retrieval of over 90% of an individual's pension fund upon retirement, we developed flexible annuities, which have grown threefold since their launch. Likewise, in a joint effort with Mibanco, we developed an oncological indemnity product that provides immediate compensation for a cancer diagnosis that reached more than 20,000 insured clients in a year. Additionally, in 2019, we developed a new car insurance product called Plan Kilmetros where clients pay a low fixed premium plus a variable amount based on the use of their car. This product has grown significantly in the first few months after launching, and we are seeing increased interest during and after the pandemic lockdown. In line with innovation, Prima has developed voluntary goal-oriented savings products where clients can contribute small amounts and keep track of their progress until they have achieved specific targets. These are just some examples, but more opportunities lie ahead. A second strategic axis focuses on capitalizing on the reach and capillarity provided by Credicorp channels. Currently, BCP and Mibanco have over 9 million customers, which provides a great opportunity for Pacifico to cross-sell and grow. In fact, out of those 9 million customers, only 2.1 million have optional insurance products. To speed up this process, we decided to organize differently. Last year, we created a bancassurance tribe, combining team members from BCP and Pacifico, all focused on generating business and products for BCP customers. This collaborative approach ensures we are working together, aligned with the common objectives. Additionally, earlier this year, we created the first combined squad with both Pacifico and Mibanco team members to develop ad hoc products adapted to the needs of lower-income clients. As I mentioned before, bancassurance in Bolivia has become a successful business model, given the reach provided by BCP Bolivia channels and Crediseguros' focus on subscription capabilities and operational efficiency. Finally, to strengthen Pacifico's own channels, we implemented a 100% remote and digital advisory model for our more than 1,500 sales executives. Not only have speed and productivity increased, but our sales force has been working remotely during this health crisis. In addition to that, Pacifico's online product offering is getting broader, facilitating a seamless purchase experience for the increasingly digital customer base. The third strategic axis is oriented around digitalization. Our industry will become increasingly digital, and we must be at the forefront of this trend. As I mentioned before, Pacifico has been adding products to its e-commerce platform with great success. In only 2 years, our direct digital sales have grown 14x. However, this still represents a very low percentage of total sales transactions. Prima as well has been working on digital transactions and the use of new technologies. An example is digital facial recognition to facilitate transactions, such as transferring pension funds. In addition, self-service capabilities in Pacifico and Prima are being implemented, digitizing our large part of service requests, reinforcing the trend towards greater use of digital tools in a new lower-touch economy. Digitalization is already a reality, but our intent is to fully transform products, sales and service processes and tools to provide an extraordinary experience to our customers in the most efficient way. All these strategic axes have 3 main enablers that are crucial to succeed. First, by implementing agility and scale, we are experiencing a real transformation in our culture and the ways in which we work, providing a much better response to people's needs, along with greater collaboration in our organizations. Second, we are strengthening our capabilities to use data in a highly effective way. Pacifico, BCP and Mibanco have access to highly valuable customer behavioral data that with the right analytical capabilities will allow our companies to offer the right products to the right customers to cover their protection needs. Such information will be protected with best-in-class digital security practices, and we will use it in the most ethical way. And all of this is supported by our focus on efficiency. Our companies have led their industries for years as the most efficient companies and will continue to do so. Our discipline on cost management and joint efforts between Prima and Pacifico in search for synergies will secure our success. In summary, we strongly believe that there is a tremendous opportunity to increase the degree of protection in markets with significant underpenetration and with a growing population. Today, we have our leading franchises in Peru and a well-positioned bancassurance business in Bolivia. Credicorp's acquisition of Bancompartir in Colombia also points to a promising future regarding the expansion of our insurance business into that market. We play a key role in society in protecting the well-being of the population. Our purpose ensures that what we do benefits the people and, thereby, our business. Before passing it on to Eduardo, who will discuss our investment banking and wealth management business, I will leave you with a short video that illustrates our commitment to our purpose and our aspiration. Thank you. [Presentation]

Thank you, Alvaro. Good morning. I'm pleased to share with you today the achievements we have accomplished to date as well as our plans for the future. Established 8 years ago, Credicorp Capital is investment bank with the Credicorp group. Resulting from the integration of 2 market leaders in Chile and Colombia and the spin-off of the investment banking businesses at BCP, Credicorp was built, with the goal of becoming one of the leaders in the region. This move represented a strategic response to a new competitive landscape that required a broader and more comprehensive advisory services for our clients. Soon after the integration process concluded, we focused on defining our regional business lines to provide a consistent value proposition for all our clients across countries. A few years after and with the benefit of getting to know each other, we understood the importance of creating a company vision, particularly in our case, since we were coming from 3 different companies and based in 5 countries. This entailed putting in place an ambitious cultural program called [ ALMA ] that allowed us to start to work on our identity and, with that, to define our aspiration. We aspire to be the advisory and financial services company preferred by the clients, the best talents of the region, known for its excellence, ethics and commitment. Building and maintaining a shared culture is a constant task that must be embedded in our day-to-day actions as an organization. After establishing our business strategies and starting the process of building a unique culture, in 2019, we embarked in our first acquisition with the purchase of Ultraserfinco, a financial services company in Colombia with a broker-dealer and investment adviser in the U.S. The merger concluded successfully in June 2020. And with that, Credicorp Capital in Colombia doubled its assets under management, consolidated its leadership in capital markets and gained a relevant presence in Medelln, Colombia's second largest city, that in addition to the possibility to build a robust capital markets and wealth management platform in the U.S. This year, we began a profound transformation process that will involve redesigning our operational model as well as renewing our IT platforms and capabilities, which is fundamental to continue and accelerate our growth plans. With operations in Chile, Peru and Colombia, we are consolidating our leadership position to 4 business lines: wealth management, asset management, capital markets and corporate finance. Atlantic Security Bank, or ASB, is our banking operation in Panama that supports our wealth management business, consolidates some of our capital markets trading strategies and increasingly provides its balance sheet to support our corporate finance business line. Credicorp Capital U.S., our Miami-based operation, is a wealth management and capital markets platform that provides direct access to and from the U.S. market through its broker-dealer and investment adviser licenses. We are convinced that a strong presence in the U.S. is fundamental for our value proposition in the region. Our integrated strategy has allowed us to gain leading market positions and consolidate regional operations by transferring knowledge, best practices and taking advantage of growth opportunities. Our business model and strategy are underscored by 3 key elements: first, client centricity and the ability to truly understand customer needs and the capacity to deliver adequate solutions to experienced teams; second, a real local presence, with teams on the ground with direct access to clients, markets and companies; and third, talent, which truly makes a significant difference in a business that requires expertise, track record and, above all, trust. All of these 3 factors allow us to leverage our local knowledge, best practices and regional reach. Our client-centric culture is evidenced in our wealth management comprehensive value proposition where we offer our clients a broad range of products, an expert adviser model and a multiplatform that provides access to local, regional and international markets, including the U.S. Our customers are at the core of our advisory model, with our private bankers serving as the main point of contact that understand their needs and bring to the conversation the required specialist. This successful and evolving model that has allowed us to capture 30% plus market share in Peru is now fully deployed for our Chilean and Colombian clients. This rollout is driving double-digit expansion, and there is a clear opportunity to increase our share, which is below 5% in both markets. We recently launched our brand Vicctus, a renewed multifamily office service for the ultra-high net worth clientele of the region and led by a senior and highly talented team. Vicctus, among other things, offers the most exclusive investment opportunities, specialized services beyond financial and investment advisory, direct access to the U.S., to Credicorp Capital U.S. and the possibility to provide advisory within third-party platforms. We constantly strive to improve our customer satisfaction, and we considered a fundamental for our long-term success. Our local presence with complete teams on the ground is another key factor that drives our success in the region. Having relevant teams on the ground allows us to remain close to our clients and provide them with our top execution capabilities. This also puts us in a strong position to leverage our profound knowledge of the political landscape, the economies, markets and the companies in each of the countries where we operate. This enables us to offer one of the most, if not the most, complete coverage of public companies that compose the main indices of stock markets in Chile, Colombia and Peru where we have been consistently been recognized for the quality and depth of our research. Our annual Credicorp Capital investor conference has become the leading venue in the Andean region. The 2020 investor conference is a fully virtual event and the place to receive firsthand information from the main players in the financial and capital markets. Close ties, superb customer service and a [indiscernible] advisory are key in building long-lasting relations that transcend generations. To that extent, over the past 40 years, we have built a wealth management practice and have been once again recognized as the best private banking practice in Peru by Euromoney in 2020. Our goal is to be the best asset manager in Lat Am strategies for clients within and outside the region. Our focus is on attracting institutional clients, and we have worked hard over the last 7 years to build a sophisticated buy side research team, hiring talent with deep knowledge in Lat Am markets, and enhancing our investment process in order to achieve that goal. We picked Luxembourg [indiscernible] as a main platform for Lat Am funds due to its unparalleled regulatory security and global distribution footprint. Today, we are proud to say that after 6 years, our assets under management in Luxembourg have grown by 13x, reaching $640 million among 3 funds, with a significant participation of institutional clients within the region. The journey has not ended. We plan to continue enhancing our platform with new strategies as well as reach new pockets of funds in foreign markets through alliances with [ payment ] agents in Europe and in the U.S. In addition to our Luxembourg funds, we have also focused on establishing a platform for alternative funds. This platform includes, among others, a $500 million joint venture infrastructure fund and a $1 billion real estate portfolio. In corporate finance, we have pioneered transactions in the region, and we are very proud to have structured the first social and green bond offers in Peru, in line with our commitment as an organization to foster and responsible social investments. In addition, the trust that our clients put in our team's expertise and track record is reflected in the origination of 100% of the bond exchange transactions in the Chilean market, an expertise that will be used to help clients in other markets. We're consistently striving to deliver outstanding value to our clients, which is reflected in relevant and, in some cases, pioneering transactions over the years. Last year, we embarked on one of our most ambitious projects in the past years, the redesign of our operating model to accelerate growth and enhance value for our stakeholders. Historically, we operated in a segregated way, with a country employing different processes and distinct technologies. This created lots of inefficiencies and complexities in running the company and hindered our ability to deliver on our promise of outstanding customer experience in an increasingly sophisticated technological environment. This project involves the redesign of all our operations to get standardized, scalable and automated process across all businesses, the change of our core systems of 3 of our business units plus changes in other technological components of the company and the creation of new capabilities to better serve our customers. For example, we are upgrading our digital onboarding capabilities, and our new data team is working to deliver data-driven insights to better serve our clients. By 2023, we will have completely redesigned our operational model to work as 1 company with better operational control, increased collaboration and a focus on growth and customer experience while also generating significant OpEx savings. In these first 8 years, we have focused on building a regional organization and aligning our company behind a unique vision. Both milestones have been fundamental in consolidating and, in some cases, advancing our leadership position in our different businesses and in the countries where we operate. We clearly understood that to achieve our future growth ambitions, we need the right infrastructure to generate efficiencies, scale, but also improve customer experience through digital capabilities. Focusing on customer experience is a top priority, an ongoing task and is fundamental for long-term success. We are committed to maintaining the right environment to attract, develop and foster exceptional talent, which is a key factor to sustainable performance. To our talented teams, we not only provide expert advice to our clients but also serve society through various initiatives in our social responsibility program, such as advising endowments and social impact entrepreneurs on a pro bono basis. As Credicorp Capital, we aspire to be one of the leading investment banks of the region, but above all, to be recognized as the preferred and most trusted adviser for our clients. Now let me pass it to Cesar Rios, who will comment on Credicorp group's financial strengths and dynamics.

Thank you, Eduardo. Good morning, everyone. As each of our business leader has shared, we are executing strategies to enhance long-term competitiveness, create value and maintain business resilience. Let me give you an overview of where we stand to continue capturing opportunities by leveraging our strategic focus and agility to adapt to new realities. Today's focus will be on medium-term dynamics, but I would like to start with a very brief macroeconomic and situational update. While the impact of this pandemic has been severe, macro and operational indicators in Peru are pointing in the right direction. We expect sustained growth to resume next year. GDP growth has improved consistently since hitting a low last April, and employment trends are improving. This positive trend is also evident in transactional activity at BCP through both debit and credit cards. In this context, we expect GDP to continue recovering in coming quarters, expanding between 8% and 10% in 2021 after an anticipated drop of approximately 12% this year. The relief measures offered by the government, the financial system and Credicorp, in particular, are attenuating the impact of this crisis on the financial health of both individuals and companies. Progress is reflected in the evolution of the indicator of on-time payments over installments due during the month in course. It is important to note that the expiration of short-term relief measures coincided with an uptick in the number of monthly payments due in the retail portfolios at BCP and Mibanco. In the case of BCP, the indicator jumped to 91% in August from 35% in May. While at Mibanco, the indicator recovered to 80% in August, up from 52% in May. While these are encouraging trends, we continue to take a prudent approach to provisioning and will carefully monitor the evolution of payments and transactional behavior of our clients. In this reactivation process, we are conducting in-depth assessment of our customer risk profiles and rapidly restarting sales in those segments that are aligned with our risk appetite while adapting to changes in the behavior and financial situation of our clients. Despite near-term challenges, we operate in highly underpenetrated markets that offer significant long-term opportunities to continue driving financial inclusion. In Peru, the pandemic has underscored the importance of education and financial inclusion, the value of retirement plans and insurance coverage and the convenience of digital payments. Moreover, it has become evident that financial inclusion is driving force in economic development. Today, our society is more sensitive to and aware of these needs, and we believe this represents a great opportunity for Credicorp. After the businesses resumed risk control growth, we believe that microfinance has considerable potential at the regional level. A smaller undercapitalized players face barriers to assessing funding and represent an opportunity to expand the microfinance footprint. We also see opportunities to continue consolidated our regional position in the investment banking and wealth management businesses. Additionally, our innovative fintech initiatives, such Tenpo in Chile and Tyba in Colombia, provide important inroads to access opportunities in these countries. In this unprecedented environment, the strength of our franchises has become more evident and is reflected in the growth of our customer base and solid retention rates. In this context, we are accelerating our operational transformation to consolidate and fortify our leadership. This implies evolving from a model that relies on solid traditional client institution relations to distribute products and services to a model that builds on existing strengths and revs up distribution capabilities through digital and data-driven venues that are customer-centric and synergetic. This approach will allow us to use the synergies between different business lines to increase scale and efficiency, further strengthening our payment hub capacities with additional channels. Consequently, we will be better positioned to consolidate our market position and seize new opportunities. As we progress in our operational transformation, we will remain resilient and flexible. We have been investing heavily in digital transformation initiatives. Over the past few years, we have developed capabilities and future sources of income, such as Yape and Krealo while maintaining the cost-to-income ratio under control. In fact, each of these subsidiaries has improved efficiency, with the exception of Mibanco, which materially increased its sales force last year, resulting in a consolidated full year cost-to-income ratio that remain relatively stable. Although some sources of income has been temporarily affected this year, Credicorp has drawn on additional capabilities to ensure long-term growth by becoming more active in market-related activities. We have applied several short-term cost control measures, such as reducing nonessential expenses and variable compensation, among others. At the same time, we have ramped up operating and capital investments for our business transformation process to optimize efficiency down the road. We are well aware that now is the time to accelerate business transformation. Going forward, each line of business must meet an ambitious efficiency goal, which has been tailored to reflect its specific strategy. On the income side, each business is implementing strategies to optimize income from existing portfolios, such as repricing and adopting balance sheet structure changes as it seeks out and develops new sources of income. On the cost side, each business line is working on comprehensive cost optimization programs, freeing up resources to invest in growth-oriented initiative while evolving its operational business models. Moreover, we are challenging our operating models in terms of our physical distribution network, support functions, organization and IT architecture to leverage new technologies. This requires an ongoing deeper review of the procurement process, among other key initiatives. Integral risk management is a particular strength and a key pillar of our strategy. It has evolved in scope and sophistication but has maintained a disciplined and conservative approach. Credicorp's risk management framework reflects a comprehensive approach to defining risk appetite that assesses solvency, liquidity, profitability and growth, results stability and balance sheet structure. In recent years, nonfinancial risk has gained relevance, which is reflected in our sharper focus on cyber risk and compliance. Going forward, we plan to reinforce the focus on ESG-related risks within our company-wide risk management framework. Fine-tuned credit risk modeling has become increasingly important, particularly in retail banking and microfinance operations. This has been a key element in attracting and serving new segments of clients in a profitable and sustainable way. Our income generation capacity allows us to effectively balance our conservative approach to provisioning and strong solvency levels with growth initiatives. Our risk management models has evolved as we leverage advanced analytics and technology, generating competitive advantages by obtaining value from internal and external transactional data and focusing more on real-time responses. This is a key component of our strategy to reach and efficiently serve new segments of clients while deepening relations with our current client base. We have stepped up efforts to develop core capabilities among business units to obtain economics of scale and share skill sets. Another foundation of Credicorp's competitive position, alongside market leadership and strong risk management, is its distinctive liquidity and capital base. At BCP, we have developed a stable and low-cost funding base as a payment hub for individuals and companies. And this crisis has confirmed our clients' preference for and confidence in our products and services. Although the economic value of this competitive advantage in the current low-interest environment has attenuated, in the medium and long term, this strong base will provide considerable financial muscle to sustain profitability. We offer a broad range of products for cash management and investments and have become leaders in managing medium- and long-term funds by offering different types of deposits, pension funds and insurance products and have bolstered our position in assets under management by broadening our offer of asset classes. We are actively managing the books' increasing term transformation as platforms to seize opportunities while maintaining short-term liquidity positions and solid RCL levels. Our strong capacity to generate returns is what fuels our capital base. We will maintain prudent solvency levels to support growth and pursue very focused M&A opportunities. As we navigate today's turbulent waters, we remain confident that we will continue creating value for shareholders and stakeholders. In the short term, our profitability dynamics are challenged by a combination of factors that are pressuring margins, fee income and cost of risk. Low reference rates have affected short-term investments and loan profitability, in particular, and the cost of risk has been severely impacted. Nonetheless, we are rapidly adapting and leading recovery. We expect an increase in profitability as the economic rebounds and the effects of income loss and debt are absorbed by our clients. In the short-term, insurance premiums are expected to decrease. On the claims front, claims in the P&C and health businesses are expected to decrease, but the life insurance claims will increase driven by COVID-related fatalities. We see potential for loan portfolio growth of 1.5x nominal GDP on average beginning in 2022, after the extra liquidity provided by government programs, which significantly expanded total loans in 2020 is absorbed and partially repaid in 2021. Additionally, we expect that efforts to develop digital and data-driven capabilities together with our customer-centric approach will drive a recovery in the retail banking and microfinance businesses, which offer higher margins. The strength of our balance sheet, coupled with a steep local currency rate cure, will allow us to grow the investment portfolio, gradually offsetting the negative impact of low interest rate by increasing volumes. As for nonfinancial income, this will grow less than assets due to digitalization, which will allow us to optimize our operating expenses but also lead to a drop in commissions. Investments in recent fintech innovation such as Yape and Cocos y Lucas as well as new products and segments in banking and insurance and wealth management are expected to generate new sources of nonfinancial income. Bancassurance is a particular promising source of growth that combines the expertise of the insurance business with the distribution capabilities of the bank units and new digitally-driven insights to better understand and accompany our clients. After expected credit defaults are provisioned mainly in 2020 and early 2021, the cost of risk should come back to previous levels in each segment. On a consolidated basis, the cost of risk will evolve in line with an increase in the relative weight of retail. We expect efficiency levels to improve in line with business model transformation. Financial inclusion initiatives will accelerate with increased scalability while we play a very active role in society. The cumulative effect of these factors, combined with a solid capital base will allow us to return to an ROE in the high teens in the vicinity of precrisis levels in the medium term. Finally, let me close with our main messages. First, we foresee development opportunities ahead, and we are well-positioned to foster a more sustainable and inclusive economy, capturing growth opportunities. Second, our transformation investments has been key to optimizing customer experience and consolidating new competitive advantages. Third, we will continue to improve efficiency, demonstrating disciplined risk and capital management. Fourth, we are empowering and developing our talent, fostering diversity, equality, values and a strong corporate governance. And finally, fifth, we are working on placing sustainability at the core of our both our strategy and business plan execution efforts to enhance long-term competitiveness, create value and maintain business resilience. We are now going to take a 5-minute break. And after that, we will open the floor for Q&A.

[Operator Instructions] [Break]

Thank you for your patience, everyone. Today's presentation will resume here momentarily. Thank you for your patience. Thank you. We will now begin the question-and-answer session. We will begin with questions submitted via the webcast and then move to live questions. [Operator Instructions] At this time, Milagros Cigüeñas will begin with the written questions. Mrs. Cigüeñas, you may begin.

Yes. Hello again. Let me start with 2 questions from the webcast, and then we will go to the phone line. To begin, there are some questions regarding asset quality. Let me read 2 of them, which I think summarizes the main concerns of investors. "You mentioned on your last call, you needed until the end of September to have a better understanding of the health of the reprogram portfolio. We also already shared the recent payment behavior of customers. Then regarding your program loan book, could you give us a bit more color on the current risk portfolio of this client base and the expected levels of provisions we could expect for the following quarters?" And the other question is, "Can you please give us an update on how the restructured loans are performing? How is delinquency trends going so far versus expectations? And what is the current thinking of the level and timing of the peak in delinquency? Cesar, I think you can answer this question, please.

Sure. Thanks for the question. Before answering, I am going to take the opportunity to mention that we would like to focus today on strategy and medium and long-term trends. But of course, I can update about these specific questions today. We can go in further detail in the quarter business review in November. Regarding to the performance of the portfolio, we have reaffirmed in the aspect that we mentioned in our previous conference call, the trends are very encouraging. As you can hear a few minutes ago, the trends are positive in terms of payment, both in BCP and Mibanco, reaching levels of 92% in BCP, 81% in Mibanco. But we are still being conscious regarding to the portion of the portfolio that has not been due at this month. And we are carefully monitoring this performance. We expect that the provisions in the third quarter will be lower than in the second quarter, probably similar to the first one.

Okay. Let me read the next question. "Also please speak to a new program proposed to a borrowers struggling with [indiscernible] the payments as [indiscernible] the Finance Minister, which appears to have been created by the Central Bank and regulator. We understand there are 2 other proposals in Congress."

Sure. A combination of having new members of Congress and the current economic crisis has led the Congress to produce a whole series of initiatives with very good intention, aiming at obviously elevating the impact of the crisis on the general population. But though, the way those initiatives were drafted will probably have produced the counter effect of what they were originally intentioned. Fortunately, the process -- through the process of getting those laws approved, input by several groups, has been incorporated into this loss. And by the groups, I mean, our banking regulators, the Central Bank, the Ministry of Finance, the trade groups, such as the Banking Association or the AFP Association in the case of loss-related pension funds and some of the leading sin tax. The end results have been -- have not been bad. I think some of those legislation that has come up, will produce the desired results. In particular, regarding this one, I would like to pass on to Gianfranco, so he could give us his latest comments on what is currently being proposed in Congress. Gianfranco, could you help me with this?

Sure. Thank you, Walter. Yes. Currently, there are 2 initiatives at Congress level, but 2 different groups, 2 different committees. The executive power has presented yesterday a third initiative, which is -- it incorporates collateral from the public -- from the government. And actually, as we speak, there are -- the executive power is presenting, making a public presentation on this proposal. And the 3 proposals still need to be discussed within the committees and at the Congress level. As Walter mentioned, there has been an evolution of the initial ideas as where we are today, and we hope that the end result will be a law that will improve and -- yes, improve the facilities for debtors, that is our proposal, that is constitutional and that banks can provide it to its customer voluntarily in order to make their payments profiles better.

Thanks, Gianfranco and Walter. Let's go with the third question. Your cost-to-income ratio was 40.8% at the end of 2019. What are your long-term aspirations here to be the best in LatAm or best in emerging markets? What is achievable by 2030, 25% or better? I think the [indiscernible] half year, please.

Yes. Very interesting question. Thank you. I think at BCP level, these mid-teens are challenging but achievable. But at BCP credit card level, I will think a little bit above that due to the combination of the business -- different business lines. For example, micro finance can be probably in the mid or high 40s, investment banking in mid-60s. And the combination of this and some corporate expenses will make that the achievable level for Credicorp is going to be a little bit above what will be the target for universal bank like BCP. So a little bit above the figures that we have mentioned being challenging but achievable in the medium term.

Thank you, Cesar. I think we can now go to the phone line questions. Go ahead, sir.

[Operator Instructions] And our first question will come from Thiago Batista with USB.

It's Thiago Batista from UBS. I have a couple of questions on the micro-finance business. The first one is, if you believe that it's possible to really move this micro-finance business to a kind of digital platform? You guys mentioned in the presentation that most of the transactions in this segment is in cash. If it's really feasible to move strongly to the digital channels in this segment? And another point here in the microfinance, if you believe that Mibanco can resume to have an ROE of, let's say, 20, 28-plus as the bank presented in the last few years? And my final one, if I can. Just one is more follow-up about the guidance. Only double check if I got the right message on the margins. Is it possible to say that the bank is expecting a pressure in the loan margins in coming years, but the shift in the loan mix towards the retail business can support somehow the bank's margins in the end?

Okay. Thank you. I think I'll let Javier tackle the first questions regarding microfinance, and I'll help with the translation. And then, Cesar, you can probably take the last portion of the question. So Javier, please, back to you.

Okay. [Foreign Language]

[Interpreted] Okay. So basically, yes, the answer, we can get to pre-COVID returns in the microfinance business. Through this crisis, what we have seen is an accelerated adoption of digital channels through customers of Mibanco that traditionally were not big users of digital channels. So we think that we have the possibility to scale up and accelerate our digital transformation that will allow us to grow with a more efficient infrastructure base. We are confident that this can be achieved probably in -- by 2022.

Okay. Probably, I continue with the margin question. Thiago, you are right. We are going to suffer pressure on margins -- already are suffering the pressure of margins due to the change in reference rate and LIBOR. This impacts directly our liquidity investments that have a decrease the profitability in the short term. But in the medium term, the dynamics are going to be more influenced by the change in the composition of BCP going from a more corporate and middle market to a more retail and going down in specific sectors. These are going to increase margins. And additionally, we are also being more active in capital markets, leveraging the gap in opportunities that the current rate environments provide us. So a very important impact in the short-term due to the decrease in reference rate. And after that, we are going to change the composition of the assets. And there is also a factor in the cost of funds. For example, we have been repricing our funding base in case of medium-term deposits. And even in the bonds, recently, we have issued very successfully a bond -- a couple of bonds at BCP, lowering the rate from 6-point something to low 3%. That helps in our cost funds, and it's going to be felt starting the last quarter of this year.

And our next question will come from Alonso Garcia with Crédit Suisse.

My question is also on efficiency and also touching base on ROE. I mean, it looks like efficiency will probably be the strongest driver in the coming years to return ROE near to pre-pandemic levels of high teens. However, as you mentioned in the presentation, efficiency for the company has remained largely stable over the past few years at the group level with only some slight improvement in BCP. So considering that challenges in top line will likely continue, given the low rate scenario and pressures on fees or to digitalization process. Could you please provide some color on the level of OpEx growth behind your efficiency and ROE guidance that you have provided? I mean, are you anticipating low single-digit growth in expenses to achieve these flat expenses? And also on the short term, how much can you lower expenses in the short-term to tackle the short-term pressures in top line and cost of risk this year?

Okay. Thank you. I think in terms of profitability dynamics, the efficiencies are key, of course. But in the short term, I am referring short-term next year, basically, we are going to have a significant adjustment in the cost of risk also. The impact in risk this year is significant and it's going to be significant, but we expect a decrease in the cost of risk next year and down the road, an evolution in line with the composition of the portfolio. So the cost of risk is going to be a key element also to achieve higher levels of profitability. And in terms of efficiency, we have different dynamics. We have, I will say, a more day-to-day dynamics based on a strong discipline, control of costs and looking for marginal improvements that are going to help to maintain a reasonable and very controlled cost base. But at the same time, we are working in a more transformational initiatives that are solidly anchored in digital models, but also in business models. What I'm trying to say? Down the road, the digital transformation is going to help us decrease distribution cost and gain scalability, but we are also, as a result of that, questioning our business models in general, reducing the footprint, the way that we relate with clients and the combination of these factors are going to be key to reduce the levels of cost-to-income down the road. But you need to first develop the capabilities, gain scale, and we are exactly in this process right now.

Yes. Let me add something to that with a little bit more of a longer vision. As we have mentioned in our presentation, we continue to see a lot of growth opportunities, particularly in Peru. The numbers that I mentioned in my presentation indicate that we would double the size of our loan portfolio at both banks within the next 10 years as we have doubled the size of the portfolio in the past. But this time around, there will be one important difference, which is that we will not have to double the size of our footprint. In the past, I think, 3 years, we have reduced by about 10% -- over the 3 years, the number of our branches. And only this year, we have reduced by about 15 branches out of about 400 and something. So we will double the size of our loan portfolio over the next decade. But not only we will not double the size of our footprint, which is the largest cost of element, but it will probably not only stay the same, but even be lower in absolute terms. So those are huge efficiency costs and tremendous amount of cost that we will take out of the system. Now those efficiencies and costs will not flow to the bottom line, but will help counter their pressures in margins and fees. That is the dynamic that we see that will be -- allow us to maintain the returns of equity that we have been used to in the past.

Our next question will come from Jason Mollin with Scotiabank.

I just want to say that it's positive to continue to see Credicorp's commitment to transparency and open communication with analysts like myself and the market in general. My question is really focused on capital allocation. Walter, when you hosted the investor event in New York 2 years ago, you talked about utilizing excess capital, putting it to work, looking in particular at M&A possibilities. And you did make some small acquisitions in micro finance, for instance, in Colombia. But can you give us an update on allocation of capital, uses of capital? We've seen you pay special or extraordinary dividends in the past. These are challenging times, but maybe you can give us some color about what you see for the upcoming years. In particular, perhaps providing more how you see the total return for shareholders. You did mention the strong total return. And in other conversations, I can't remember if you actually mentioned it in this one that you expect perhaps the returns to come more going forward from dividends than earnings growth?

Yes. Thank you, Jason. Okay. So first, let me tackle the strategic point of view regarding M&A. A couple of points. Our strategy has not changed. We continue to be driven by organic growth and inorganic growth is a complement. We have had, as we have mentioned in the past, a lot of interaction between the board and management as to what we are willing to do, where and what we are not willing to do, which is equally as important. And we have, of course, focused on basically the markets in which we operate, which are Chile, Colombia, Peru and Bolivia. We said that we would not do anything transformational. And transformational, we defined as something that could be around more than 15%, 20% of market share -- of our market capitalization, sorry. So we will not [indiscernible] the CrediCorp transaction. We understand the difficulties of cross-border financial M&A transactions. So we will go about this in a rather conservative way. Unfortunately, because of those parameters, we do not aspire to be a large universal bank in Colombia or Chile. With that amount, you will not be able to gain the sufficient market share. We believe the universal bank in order to be successful, you need to be one of the 3 or 4 players in the market. Otherwise, it's not a very strong franchise. So in those markets, we'd probably be more of a niche player. What niches do we like? We are particularly enthusiastic about microfinance, as you have seen in Javier's presentation. We think that, of course, Colombia offers a good opportunity. There is some market fragmentation there. And we think that we can transfer our model. And we've done this in a rather conservative way, first with Encumbra as a start-up to see whether we could actually transfer the model. We did this for 2 years or 3, and then we gave one step up last year with Bancompartir. We need to digest, integrate and take to the standards that we believe can be achieved before we make the next move. So that -- and then we like the asset management and wealth management business in those countries. So yes, we're constantly looking for opportunities, but they are not going to be transformational and will probably be in the sizes of what you have seen in the past. So if we go back to my prior response to the question, where we think that we will get back to the returns of equity that we have before crisis levels. And combine that with a slower growth, particularly in Peru. Putting this into perspective, we think that Peru will grow, as I mentioned in my speech, around 3% per annum. And this means that risk-weighted assets will probably grow around 7%. So the dynamic is a company that needs to retain capital to sustain a 7% or 8% increase in risk-weighted assets with a 17%, 18%, 19% return on equity. So we will be generating excess cash. So the total shareholder return composition, we think can be maintained what we have done in the past, but with a different composition. Less growth, obviously the country will grow less. And since we have a higher level of banking penetration, the multiple at which we grow will be less than what it was in the past. But to counter that, we will continue to generate excess capital, which we will give to our shareholders. So the combination of lower growth and higher dividend payout, we think will allow us to continue to be consistent with our return -- the total shareholder return to our shareholders. Did I answer the question, Jason?

[Operator Instructions] The next question will come from Tito Labarta with Goldman Sachs.

All right. A couple of questions. I guess, one following up a bit on the margins. Just to understand, how much do you think the loan mix will need to shift to offset the reduction in interest rates? So another way to think of it is how sensitive is your margin to lower rates? Like can you return to the mid-to-high teens ROE if interest rates remain at like 0.25%? Or do you need some type of interest rate increase to support the margin and profitability improving? And then second question on your provisioning outlook. Just to understand, you said -- you mentioned your payments are doing well so far. And you're provisioning a lot more than most banks in the region. So just to try to understand in terms of how conservative do you think you're being in provisioning? Do you think if things work -- turn out well and people pay on time that you can reverse some of these provisions? And how much would that potentially contribute to profitability? And so is it kind of thinking, is it like a 2-year sort of time frame to get back to that mid-to-high teens ROE? Or given the level of provisions you've had so far this year, is it feasible to do next year if things work well and you're able to reverse some of these provisions?

I will just take a quick stab and then Cesar, I'll pass it on to you. We are right now in the process of articulating our 3-year program, strategies, plans, budgets, et cetera. So it's a little premature. I don't have a very detailed answer. But the overall objective that -- or the path that we're setting for ourselves, as we have mentioned before, is really trying to front-load as much as possible, the provisioning, so that we basically take care of provisioning this year. I'm sure there will be a tail end. Hopefully, no more than the first quarter next year. The bulk of the provision, we are really trying to get it done this year. We think that whoever comes out of this crisis earlier, will come out stronger with a better proposition to be able to capture the growth opportunities and the better customers. So strategy for this year, try to get as much of the provisioning done, so we can get out of the way the issue of credit quality in our portfolio and start to focus next year on rebuilding our profitable business. This is particularly dramatic at Mibanco, where the duration of the portfolio is about 13 to 14 months. So every month, you do not replenish or grow, your portfolio starts to shrink. So the challenge next year is, of course, the NIM, but also the size of the interest margin because our portfolios have shrunk, and they have only grown because of the Reactiva, which has very, very small margins left for the bank. So this year, let's try to get as much or all, if possible, of the provisioning out of the way. So we can focus next year of rebuilding our portfolios and our profitable business. So my objective would be that by 2022, we are back where we were before crisis level. Next year, we'll probably be more of a transition between where we will finish this year and where we want to be more in the medium term. With this initial comment, I'll pass it on to you, Cesar, so you can give us some more color and feedback. Thank you.

Thank you, Walter. Talking about margins, I think it's our convergency process. In the case of BCP, because we have had only a limited impact in the size of the portfolio, since we start originating retail loans that is starting to happen right now, we are starting this process of changing the portfolio especially in terms of mortgages, consumer loans, credit card that has been impacted in the short term, while probably in the commercial side, the growth is going to be limited due to the very important amount of Reactiva loans. In the case of BCP, the Reactiva loans amounts of almost PEN 20 billion. So in certain segments, the demand is going to be limited in the short term. But when we start to -- starting to -- the clients are starting to repay the Reactiva loans at the middle of next year, the process that I mentioned is going to be cleared. So next year, we are starting to see the process, but it's going to be more clearly in 2022 when the relative weight of Reactiva decreases in portfolios. This is the dynamic for BCP. In the case of the Mibanco, the dynamic is similar, but it's going to take a little bit more time due to the fact that Walter already mentioned -- is that in the short term, the portfolio of Mibanco has shrink because the duration is around 14 months. So few months without strong origination has impacted the total size of the portfolio. The dynamic is going to be similar, but it's going to take a little bit more time. That's in relation to margins and in relation to provisions, I think Walter have his -- gave already a very detailed explanation, and I only would like to mention that we are carefully monitoring the results. And we think that this year, we are going to end up having not only a much clearer picture of the risk, but with a solid provisioning base for our loans. In terms of content without other institutions in other countries, we need to take into consideration 2 differentiated factors. One is that the decrease in GDP has been more severe. We are thinking about 12% or 13% decrease in GDP this year, with a strong rebound next year and this is more severe than in other countries. And another effect is the composition of the portfolio with a relatively important exposure to Pine, that are more severely impacted in these downturns. So these are important factors to the level of provisions of this year and down the road, the comeback is going to be stronger also.

Great. Very helpful. Just one follow-up. Just on the sensitivity to the lower interest rates. Do you need interest rates to increase? Can you achieve your goals if interest rates stay where they are today?

Excuse me, I couldn't understand very well the question. Could you please repeat?

Yes. Yes. Just in terms of like your profitability and margins, to get to the mid-to-high teens ROE, do you need interest rates to increase from the 0.25 where you are today? Or can you do it even if rates stay at these levels?

The decrease in interest rate impacts our entire profitability. And as mentioned previously, we are counterbalance that with the decrease of certain funds, the cost of certain funds, deposits, bonds, the change in the portfolio and doing a little bit more of gapping, investing in medium-term bonds. Down the road when the interest rate increases as a reference rate, this is going to give a further impulse to our profitability, but we are conducting our business plan considering that we are going to be in a relative lengthy period of low insurance rates probably 2, 3 years as a base case scenario.

And the next question will come from Ernesto Gabilondo with Bank of America.

Congratulations in your 25 years [indiscernible] anniversary. My question is in the digital transformation. During your presentation, you mentioned that you have the target to have 70% of your sales served digitally. And you mentioned that the COVID-19 has helped to accelerate the digitalization process by 1.5 year. So can you remind us what is your current level? And when do you expect to achieve this target? And can you clarify what would be the year for the medium-term targets regarding efficiency in ROE? And then my second question is on your loan mix. As you mentioned, you would like to increase your exposure into retail loans. So can you remind us how much of your loan book is in retail loans and Mibanco, and how much do you expect them to represent of your total loan book in the next years? In considering this new loan mix for the future, what would be the normal cost to risk and how does it compare to your loan book pre-COVID-19 levels?

Okay. Thank you. I think there are about 7 questions there. But I will pass it on to Gianfranco to tackle the first portion of the theme and then Cesar, and you can complement some of the answers as well. Thank you. You're on mute, Gianfranco.

So thank you, thank you for your comments. The objective, this is at BCP level to achieve 70% of total sales is by 2023. Currently, we're at over 40%. That figure is quite misleading because the denominator of non-digital sales have reduced. So we might see a downturn going forward. Having said that, the idea to have 70% of digital sales is not just to achieve that goal for achieving the goal. It's because what we strongly believe is that if we leverage on digital channels, we will be able to reach new segments of the population because the acquisition cost and the cost to serve through digital channels is much lower than through physical channels. If we build our whole distribution strategy based on digital channels, plus the data and analytics strategy where -- and capabilities we're building on, we strongly believe that we will not only reach the 70% goal, but most importantly, reach new segments of the population that today, we are not able to serve or to reach in a profitable way. We've been doing that for the last couple of years. Pre-COVID, we were already selling an important number of personal loans through digital channels and bearing more risk because acquisition cost again was lower. Regarding the transactional business, we're leveraging on both Yape and our mobile app. As of today, more than 50% of our clients are already digital -- what we define as digital clients. And on the Yape channel, we are actually achieving 2 goals there. One is to, again, bridge new and more clients but the other one 1 is that we believe that Yape is going to be the most important channel in our financial inclusion strategy. As of today, we have close to 4 million clients in Yape, 0.5 million are already -- were already unbanked -- were unbanked before. For next year, we expect to have 10 million clients in Yape out of -- 3 million out of those 10 million will be previously unbanked. So it is not only reaching digital for the sake of being digital, but reaching digital clients and through digital channels in order to enlarge the size of the pie and grow in new segments of the population. Cesar, I hand over to you.

Okay. Yes, I continue with the second part of the question. In regards of the change in the portfolio composition, I think there are 2 different stories. In the case of BCP, this trend has already been underway for many years. BCP in the past was mainly a corporate bank in the asset side and we have been developing the retail banking for many years, and this trend is going to continue. The difference in rates should be around 2%, 3% more growth in retail than in wholesale, with certain bumps down the road. So the growth is going to continue, but not only different in rates of growth, but also in the composition among retail because when we -- when the crisis passes, we are going to come back to serve the lower segments of the population that carries higher margins and also higher levels of risk. But our good business is done in a good and controlled basis. So this is in the case of BCP. In the case of Mibanco, Mibanco is already basically a microfinance with a certain Pine composition. So they are going to be a micro-finance business with a [indiscernible] PMI position in the portfolio. And in this regard, it shouldn't be a change in the composition of Mibanco. Regarding to provisions, we expect to be in 2022 at segment levels at levels similar to 2019. But I would like to emphasize that at this point, the composition has been -- will be already a little bit different. So the absolute level of risk should be a little bit higher than in 2019. And this trend is going to continue based on the relative composition of the portfolios.

It is super helpful. So just in digital sales, you expect to reach 70% for 2023. And for the target for the efficiency ratio in mid-30s and the ROE returning to high teens, when do you expect that, in 2022, 2023?

I would think that in an horizon of probably 3 years, these are reasonable targets.

I would push for 2.

Perfect.

[Operator Instructions] At this time, I would like to pass the call back to Ms. Cigüeñas, who will entertain the question from the web.

Yes. Let's continue with the digital transformation subject. We have some questions regarding that. "Can you comment on the digital offering from the other major banks in Peru? How is it compared to Credicorp? In addition, what are some of our popular fintech applications from new entrants in Peru, and what is good for those applications?" Another question is, "Could you discuss specific KPI, but would you measure success of your digital initiative? Where you are now and where you want to be in the next 3 to 5 years?" And finally, "Which profit pools -- sorry, which profit pools are [indiscernible] to [ lever ] to fintech competitors and how are you conveying this split?" I think Walter can help us?

Sure. I'll tackle some of the longer view issues. And then I would like to pass it on to Gianfranco to complement. First of all, if I had to guess, I would bet that 10 years down the road, it will continue to be the 4 of us banks competing aggressively in the market and still having somewhat similar market shares. And there are several reasons behind that. One, I think -- and I have a lot of respect for the 3 large banks with whom we compete. We all have our strengths, our weaknesses. We do something better than the other. And of course, we are extremely competitive against one another. So I would bet that -- and we're all aggressively embarking in very cohesive digital transformation programs. So my bet is that down the road, it will continue to be the 4 of us competing aggressively against one another. But the other thought I want to give -- share with you is that we try to juggle several things at the same time. One is, of course, we try to have short-term results and quarter-after-quarter results and the margin and the provisions, while we continue to invest because we have to invest in order to advance and even accelerate the transformation as we have described. So you have to juggle short-term with long term. But on the other hand, we are also watching what's happening in the market. We have seen some very aggressive disruptions happening in some of our neighboring countries. And we're watching very closely whether some of those disruptive business models come to our market. On the one hand, Peru is clearly not the hottest market around. If there is a very aggressive disruptive model, that is invented anywhere in the world or in the region, the markets that usually focus are the larger ones, the Brazils, the Mexico, the Argentinas and eventually, they get to Colombia, Peru. So I think that we have benefited, as we have in the past, from watching what is happening in other markets to be able to anticipate the moves and have a cohesive strategic response. Our response has always been, let's be very aggressive in transforming our own financial institutions, which are leaders and have very strong brands and very large customer bases. While we transform, we build our own disruptors. In case we have to accelerate the putting into market of those disruptors because we see somebody coming into our markets. So it's juggling all these combinations at the same time that we think will allow us to continue to be in a leading market position down the road. Again, we have a lot of respect for what our competitors are doing. And we think that down the road, the 4 of us will continue to have the relative market shares that we have in a very competitive market, but very different models. We are all going to evolve from physical platforms into a more digital platforms. And all of us are doing the same time while we juggle the short term, long-term and watching that nobody gets into our market. With this, I would like to pass it on to you, Gianfranco, to give us a lot more color.

Yes. Building -- thank you, Walter. Building on what you just mentioned, we're trying to be preemptive, actually. Actually, the largest disruptors in the Peruvian market today are the incumbent banks. I'm trying to -- I'm going to try to answer your questions at once. I do see that there are like 3 profit pools that are under attack, not only in Peru, but in the world: payments, foreign exchange, and electronic invoicing, factoring because of electronic invoicing. And that's the reason why we launched Yape, which is today, the largest digital wallet in Peru, and our competitors have launched similar wallets. We launched Cocos with y Lucas, which is our FX disruptors. And we're in the process of embarking on a more aggressive strategy regarding factoring. The case obviously we set KPIs for each of our digital initiatives, those KPIs or the kind of the KPIs we define depend on the stage where we are in the development of our initiatives. And obviously on the horizons of those initiatives. So I don't know. Yape today has basically 2 KPIs, number of users, amount transacted and the third one is number of transactions. Where next year, it will start having a monetization indicators. There are other much smaller and earlier-stage initiatives whereas -- where the indicators are more related to level of adoption. So that's what -- where we are. As Walter mentioned, we're trying to be preemptive and proactive. Obviously watching what's going on, not only LatAm, but everywhere -- anywhere else in the world and trying to be the disruptor. Specifically on payments, you could -- there are like 2 sides of the coin. One is, yes, we might be disrupting part of our business but you have to bear in mind that in Peru, still 85% to 90% of the amount transacted by individuals is done in cash. So what we see is that we might disrupt part of our debit and credit card business, but we -- there's a huge opportunity to actually take an important part of market share out of the payments that are done in cash.

And we will move back to our phone questions. The next phone question will come from Geoffrey Elliott with Autonomous Research.

I guess, the slides are quite helpful in terms of the midterm outlook and some of the drivers that you think are going to get the net interest margin back up. But can you help us understand what sort of pace you're going to be growing revenues of? Clearly, quite a few pressures in the second half of this year. So how tough is it going to be? What revenue is going to look at -- look like relative to where you were in 2Q and give us that base that you can start to grow off?

I can tackle that. I think probably the most severe impact in terms of risk has been in the second quarter and in margins, in the second and third quarter. Down the road, we have been already been booked a significant part of the short-term impacts of the reduction in the return of the short-term investments. And we are starting to originate more retail loans at BCP. So probably the toughest quarters are going to be in this order, risk, the second; and in terms of margin, the third. And in the fourth, we are starting to see a stabilization and growth in volumes and a more balanced composition in the books.

And you were very helpful on the risk side in terms of kind of saying provisions in 3Q should be similar to the first quarter. Can you give us a sense on net interest income relative to where you've been? How tough it's going to get in 3Q?

The third quarter is going to be already impacted, as previously mentioned, and it's going to take a little bit more time to increase the margins. So we are going to see still lower margins in the third and fourth quarter this year, if we are focusing short-term dynamics.

The last part, when you say lower, is that after adjusting for the one-off in the second quarter? Or is that...

Yes. Lower in comparison to last year due to the short-term impact that I already mentioned.

[Operator Instructions] The next question will come from Johanna Castro with Itaú.

I have kind of a strategic question, and please don't take this rush because I know it's kind of hard. But in the current low rate scenario, I believe that for Prima and for the bank, it's kind of difficult to get returns these days. But would it be better to kind of kindly push out of your balance sheet, the large corporate clients who are in the asset side and try to accompany then the other investment banks to list equity in the Peruvian equity market, and then solving issues of long-term returns for Prima and long-term returns for your commercial bank? I know it doesn't depend 100% on you, but I guess the largest corporates in Peru that can be listed in the Peruvian market as your current clients. So -- and this applies for Colombia as well, both countries have really it -- really small equity market compared to their size. So I guess I don't know if there is a -- sorry for our question. Is this just how do you see this issue?

Let me see if I understood the question. The question is, why don't we take some of our corporate customers to the equity market? Was that the question?

Yes.

Well, it's their decision. We'd love to do that. We -- that is our business, making underwriting securities, be them equity debt or whatever, both domestically and internationally. And we'd love to do that more, but our customers have not expressed their wish to do that. But we would love that. So now regarding Prima, what was the question on Prima? I'm sorry, the connection was not that great.

No. Is that -- actually in the long term, the returns for Prima is there is no Peruvian equity market and it's kind of hard because it will be better to have local securities to invest in. And therefore, that's why I'm asking for the long term, it will be better for BCP to have more a diversified focused SME kind of portfolio and leaving the large corporates to finance themselves in the equity capital markets. So if you kind of kindly accompany them the last corporate to lease, then you will [ toss ] issues in Prima and in the bank's profitability

Okay. Prima for credit corporate is a very profitable business. It requires relatively small amounts of capital. And it has been a very good business for us in the past. The -- obviously the assets under management are off-balance sheet. So it's been a very profitable business. Now when you manage a portfolio of pension money, you do want to have a good level of diversification. And by diversification, one of the key elements is country risk diversification. It's probably not a good idea to have all your pension money in one country. It's better to have it diversified. And that is what the private pension funds portfolio diversification is. I think they have about 50% of their portfolio in Peru and the rest outside, which is a good hedge for a country that has a certain level of volatility. So I think there are separate decisions, but whoever goes to the capital market, it's the customer's decision. As I mentioned before, we would love to do that. So there's a couple of questions involved there. One is, is Prima a good business for Credicorp? Yes. Will Prima benefit from a more active domestic capital market? Of course, we would. But we have been rather unsuccessful in increasing the size of the domestic capital markets. The only large players are the private pension funds, and they do want to have a good level of diversification as is wise. And only -- and then the large corporates have been active going to the capital markets. But because of size, sometimes they tend to go to the international capital markets. As I mentioned, the domestic capital markets is not huge. So there are a whole bunch of angles around this. And I don't know if Alvaro or Eduardo, would you like to make some comments on -- both on the pension funds or on the investment banking interest of our customers going to the domestic capital markets?

During the -- this is Alvaro. I don't have much to add, Walter. I think you explained it very clearly. It's a limited capital market. All the funds, both through Credicorp Capital and Prima, would love to have more options locally. But the size of the company's traditional structure of governance in the companies, set a limit, a structural limit to that. So it's, as you said, difficult to change.

Walter, I would like to add something on the BCP side because from the regional question, I got that, why don't BCP pushes out its corporate clients into the capital markets? We, at BCP, as Cesar mentioned it before, we've been in Peru for over 130 years, serving basically from the start, our corporate clients. So it's a very long-term relationship with them. We are trying to be much more customer-centric for everyone working with BCP. So from the BCP side, what we're trying to do is become not only the most important bank for our corporate clients, but the best bank in serving their own interests. So we are a tough competitor to, I don't know, Credicorp Capital, all the capital markets in Peru because we want to best serve those corporate -- large corporate issuers.

We'll move to our next question, and that question is from Andres Soto with Santander.

My question is related to margins over the medium term. And this is specifically related to the repayment of the Reactiva loans. When you think about that discussion that we are going to have with our clients, that got this loan paying at 1.1% interest rate, and you will offer them a new loan at what used to be 12% interest rate. How successful or how concerned are you in that -- in terms of the discussion being successful and being able to replace loans at the same rate they used to have or Reactiva will definitely have a long-term consequence for your margin?

Thank you for the question. We have had this conversation quite many times, as you can imagine. But regardless of whether there will be a difficulty or not, and I will give you my opinions afterwards. We felt we had to do this. This was clearly good for the country. It was clearly good for the customers. And regardless of whether it had any impact on our medium-term profitability, we felt it was the right thing to do. Some banks, by the way, decided not to participate in Reactiva precisely for the reason you mentioned. Will there be an adjustment afterwards, how will that adjustment happen? Will there be more political pressure once Reactiva dries up? And of course, we don't have all the answers, but we think we've done what we had to do and we are confident that the market will play out itself -- by itself at the end. And that once companies have used up the Reactiva, they will need to go to the markets and the markets will price whatever the markets decide the price -- the adequate pricing is. And it was a very competitive market to start with. So at the end of the day, we think the prices will be what the caliber between supply and demand because that is what we think works. I don't think we can leave it a subsidized interest rate environment forever. So those are my thoughts. But maybe Gianfranco, you have some idea or Javier? Do you have afterwards some ideas on how do you think the Mibanco's customers will react? Which are the ones that have probably seen the highest level of interest rate reductions? Franco?

Yes. Walter, on BCP side, that's exactly what we decided to do to be very proactive in serving not only our traditional clients, but new clients, new BCP clients basically because what we saw was that we had to do this in order to improve the financial health of both our customers and therefore, the country. For sure, there's going to be an important interest increase in a year time. I agree with you, we will figure out and the market will figure out how it works. We don't expect to have any major problems going forward. And in the end, is a market -- it's a client choice. Either they repay the Reactiva loans with their cash flow or they go to the market, not only to BCP, but to any other bank, and they can get another loan in order to repay Reactiva at whatever the rates are at that moment.

Walter, Javier [Foreign Language]

[Interpreted] Okay. From Mibanco's point of view, we have been very explicit with our customers in explaining that this subsidized loans that we are granting are part of our social role. And that we have distributed that because we -- the banks have received very low-cost funding from the Central Bank, and we decided to pass along without even covering our distribution costs. So we've been very explicit about this. So Javier is not worried at all. I concur with him. And I would further add that probably this month, we are already at the level of disbursing 50% of the amount of loans at regular rates that we disbursed prior to the crisis. So reality, takes customers that if they want to continue to operate, they have to take loans at the prevailing market rates, as Gianfranco was mentioning. So in the case of Mibanco, Javier feel very comfortable that this is not an issue.

Thank you. At this time, we will move back to Ms. Cigüeñas who will entertain a couple of more questions from the web.

Yes. Let's give you a couple of topics. First, this question goes to Eduardo regarding wealth management. The questions are, "Can you please give some more color on the Panama wealth management office? It seems to be a service center. Why in that location? Can you give confidence there is no ranking?" And the second question, "What opportunities to expand the asset management business would you consider in the near future after the [indiscernible] decision?" Go ahead, Eduardo.

Okay. I'm going to go for the first question. ASB, or Atlantic Security Bank, is part of the Credicorp Group since its inception, even further than that. It is specifically a service center, but for efficiency reasons. We do not serve clients in that location. We serve clients in the region, mainly in Peru. And I can assure you that we have the same strict standards in terms of AML and [ KOAC ] as we have in the rest of the organization. In terms of the question about Ultraserfinco. Ultraserfinco has several benefits for us in Colombia. The first one is that it has allowed us to double our assets under management in Colombia, going from $1.6 billion to almost $3 billion. In second place, it has allowed us to be a more decentralized operation, a very decentralized country. Before this, we had 85% organization in Bogotá. Now that number is in the low 70s. And Ultraserfinco had a very important presence in Medellín, which is Colombia's second largest city. We have a big interest on that. We have also increased our leadership in the capital markets, close to 25% in the -- excuse me, 12% in the fixed income market and 25% in the equities market. And besides that, the third point is that it has given us a possibility to really robust our platform in the U.S. for the region. But we are very, very, very motivated with this merger that occurred in June 2020, and we have high expectations of the growth rates that we're going to have in Colombia.

Thank you, Eduardo. And now as the last question, we will talk about ESG. I would like Alvaro as sponsor of our sustainability program to help us improve this question. "What do you mean by putting sustainability at the core of Credicorp? Can you please give some practical examples? And the second question would be, "Given the continuing efforts on implementation of ESG initiatives, could we expect Credicorp to provide sustainability reports in the near future?" Thank you. Go ahead, Alvaro.

Okay. Thank you, Milagros. We just finished a 5-month project on ESG on sustainability that ended up with creating or setting a vision for Credicorp that Walter mentioned, and 3 pillars and 12 objectives. And all of them are somehow, to some extent, related to what we already do. So it's not a project on philanthropy. On welfare, that's welcomed, and we will continue to support society through those means. But the critical element here is to realize that what we do on a daily basis is what will make us accomplish that vision. And that has to do directly with products and services that we offer, that we already offer or that we should be offering and how we manage our business, how we make decisions. We already have -- when we talk about Yape and oncological indemnity at Mibanco and other products, we already accomplished a very important ESG goal, which is through financial inclusion, provide a more sustainable or create help -- create in the country a more sustainable and inclusive economy. Through transparency programs, the way we offer products and services, we help people learn more, understand better and have a clear understanding of how they could become better and bring financial health to citizens. So those are just a few examples. But the critical thing here is on the decision -- on the planning and decision-making process of everything that we do. How we impact not only the bottom line of the company, ROEs and so on and so forth, something that has traditionally been very critical for shareholders. But as critical to shareholders is how we will continue to be sustainable in the next 10, 20, 30 years, and that has a lot to do with how we impact through those decisions to other stakeholders. How? By launching this product, we affect community; how we help clients to have a better impact on climate change, for instance, through our products and services, again; how we help suppliers to become better, better suppliers, better companies; are they incorporating gender quality policies; are we supporting companies that do not go along our goals. Those are the decisions that we do every day, and we have to implement in our planning and in our decision-making. As to the sustainability reports, we have already started. We will have, by next year, closing this calendar year, we should have a much more comprehensive sustainability report. Thank you.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Walter Bayly, CEO of Credicorp, for any closing remarks.

Thank you very much. Just a very quick closing comments. First of all, Milagros, to you and your team, thank you very much for organizing this. You've done a terrific job. At Credicorp, we are very enthusiastic about the next 25 years. We are particularly proud of our position in the market, of our customer base, our employees, but we're also very proud of our shareholder base. As some of you may know, I have been in close contact with our main institutional shareholders over the past 25 years. And they have remained rather a very consistent group of well-respected institutional investors from all over the world. We want to really thank you for your confidence and continued trust with us. We have, as an organization, gone through crisis before. All the crisis are different, but we have remained a resilient company with a combination of strong capital base, strong fundamentals in the markets in which we operate and very solid market positions. We are confident that going through this very special crisis will allow us to come stronger and be able to continue our path to growth. Again, I want to thank you, all our shareholders, for your continued confidence and our Board for the confidence in the management, and to all of you guys for making this happen today. Thank you very much, and goodbye.

Okay, and thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Take care.