Credicorp Ltd. ($BAP)

Good morning, everyone. I would like to welcome you to the Credit Corp Limited First Quarter 2026 Conference Call. A slide presentation will accompany today's webcast which is available in the Investors section of Credicorp's website. Today's conference call is being recorded. [Operator Instructions]. Now it is my pleasure to turn the conference over to Credicorp's IRO, Ms. Milagros Ciguenas, you may begin.

Thank you, and good morning, everyone. Speaking on today's call will be Gianfranco Ferrari, our Chief Executive Officer; and Alejandro Perez-Reyes, our Chief Financial Officer. . Participating at the Q&A session will also be Francesca Raffo, Chief Innovation Officer; Cesar Rios, Chief Risk Officer; and Eduardo Montero, Head of Insurance and Pensions. Before we proceed, I would like to make the following safe harbor statements. Today's call will contain forward-looking statements, which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties, and I refer you to the forward-looking statements section on our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. Gianfranco Ferrari will begin the call with remarks on recent macro and political environment. the key levers of our recent strategy and a brief overview of our quarterly results, followed by Alejandro Perez-Reyes, who will provide a more detailed analysis of key macroeconomic indicators, our financial performance and our outlook for full year 2026. Gianfranco, please go ahead.

Thank you, Milagros. Good morning, everyone, and thank you for joining us today. Let me begin by thanking our shareholders for the strong support at our recent Annual General meeting. The outcome of the Board elections reflects a deliberate strategy-led refreshment process, fully aligned with Credicorp's long-term priorities. As announced, shareholders approved the appointment of 3 new directors and the reelection of 6 current members. The new directors bring complementary expertise in areas that are increasingly critical for us, particularly technology and AI, financial and regulatory oversight and strategic execution as we continue advancing our transformation and strengthening our operating model. Importantly, our governance framework remains robust with key safeguards firmly in place, including a fully independent audit committee and independent directors leading critical committees. This provides a strong foundation as we navigate different operating environments. At the global level, recent geopolitical tensions, particularly in the Middle East, have increased uncertainty mainly through higher energy prices and the potential impact on inflation and the outlook for interest rates. Since our last conference call, Peru's economic activity has been affected by a series of temporary supply side shocks, including higher oil prices related to the conflict in the Middle East a localized energy disruption and adverse weather conditions that led to contraction in primary sectors. That said, the positive momentum of the economy continues to remain solid. Several activities indicated including private investment, continued posting double-digit growth, supported by resilient macroeconomic fundamentals and favorable export prices, with copper currently trading at around 6.5 per pound. Against this backdrop, we're maintaining our GDP growth expectations for 2026 at around 3.5%, though our outlook has become more skewed to the downside, with recent macroeconomic indicators tracking closer to 3.2%. More importantly, domestic demand remains particularly dynamic growing above 4%, which we view as the more relevant driver for loan growth going forward. As we await the official confirmation of results. The presidential runoff appears likely to feature candidates with markedly different economic visions, including one advocating for a significantly more interventionist role for the state. Should that candidate prevail some initial market uncertainty could emerge. However, we believe the composition of the Senate is a more decisive factor and it is trending towards a configuration that supports macroeconomic fundamentals and institutional continuity. In our view, this legislative balance will act as an effective counterweight helping to preserve political stability. Peru's structural safeguards, including the Senate veto authority and constitutional hurdles to significant policy shifts are likely to act as effective constraints. Helping preserve the independence of the Central Bank and its mandate, particularly regarding monetary financing to the treasury. Given this, we remain confident that Peru's economic model will continue to be resilient supported by solid institutional frameworks. Against this backdrop, we continue to closely monitor price dynamics and monetary conditions. Inflation has seen an uptick to 4% year-over-year mainly driven by transport, energy and food costs. As a result, monetary conditions are likely to remain somewhat tighter than previously anticipated. Across the region, the operating environment remains mixed, reflecting the initial impact of external pressures. In Colombia, activity remains relatively resilient, supported by consumption while policy uncertainty persists ahead of the presidential elections on May 31. In Chile, growth has softened amid weaker early year activity and higher oil prices. At the same time, the new government offers improved prospects for private investment. In Bolivia, macro conditions remain challenging with performance exceeding expectations. Overall, while external conditions remain dynamic, the resilience of our core markets, combined with the strength and the attractiveness of our offerings give us confidence that 2026 will remain a solid year. As we look ahead, we will further execute our decoupling strategy to our 4 differentiated growth anchors. First, we're strengthening our leading position in the underpenetrated market, where we continue to see clear avenues of growth. We see significant room for deepen -- to deepen financial inclusion and expand our reach across client segments where structural gaps persist. This enables us to grow while maintaining disciplined risk standards. Second, we're scaling our integrated digital ecosystem. In 2026, we will leverage our platforms to accelerate client acquisition, deepen engagement and increased cross-sell while also improving efficiency and customer experience. A key component in our innovation portfolio is our neobank unit, which effective April 1, brings together Yape and EO in Peru, Tempo in Chile and [indiscernible] Bolivia, in Bolivia and common umbrella, led by Ramon do Morales. These platforms expand our reach and open avenues for growth, particularly in payments and lending. More broadly, we're deepening our competitive mode by leveraging our scale, client base and ecosystem integration to drive sustained differentiation and progressively higher monetization. Third, we are unlocking synergies by leveraging shared capabilities across our ecosystem. We're placing greater emphasis on data, analytics and risk management capabilities that can be deployed across businesses. This also includes advancing our knowledge sharing agenda so that these practices can be applied across subsidiaries, improving decision-making, client targeting and risk assessment. While we are still in the early stages, we are already seeing tangible benefits, and we believe this represents a meaningful opportunity going forward. Finally, delivering strong and resilient returns across economic cycles. This is underpinned by a prudent and holistic approach to risk and capital management across the organization. We continue to strengthen our capabilities across credit, liquidity and operational risk, while maintaining a disciplined approach to capital allocation. This integrated framework is translating into more consistent performance and reinforces our resilience, enhancing our ability to navigate volatility support sustainable growth and protect returns across different macro environments. Turning now to the first quarter results. We reported a very solid ROE of 21.1%, which exceeded expectations and reflects strong fundamentals across our core businesses. Operational performance was robust across core businesses. Additionally, we achieved 9% of risk-adjusted revenues from our innovation portfolio this quarter, advancing toward our 10% target by the end of this year. We're seeing an acceleration of credit demand across our main lending segments. In the first quarter, loan growth was robust in BCP and Mibanco. We expect retail segments and microfinance to accelerate in the coming quarters. Risk-adjusted NIM strengthened sequentially supported by improved asset quality and a resilient underlying NIM as our loan portfolio expanded and funding mix improved. Deposit growth remained strong. reflecting system liquidity and sustained client confidence, while continued investments in service and digital capabilities deepened our client relationships and drove market share gains in low-cost funding reaching 41.2% this quarter. Asset quality reflects proactive measures taken since 2023, including tighter origination standards, risk repricing, enhanced loan rising and greater investments in analytics alongside a favorable macro environment. Additionally, our strong solvency has enabled us to increase our dividend to PLN 50 per share while also supporting our plans for sustained long-term growth. Our efficiency ratio is at 45.8% with our guidance -- within our guidance range. Our strategic investments in innovation and digital capabilities continue to drive the diversified income streams and scalable growth through deeper market penetration. These results underscore the strength of our core operations and our long-term commitment to building a more agile client-centric and resilient financial platform. Before I turn the call over to Alejandro, I would like to congratulate him on his appointment to lead our mine finance business and Mibanco. These transitions reflect the depth of talent we continue to build across Credicorp and our disciplined approach to succession planning and leadership development. We're also very pleased that Ignacio Velagunde will assume the CFO role later this year. bringing strong financial and strategic experience to the position. In the meantime, we still have a hand with us for 1 more quarter of earnings calls before this transition takes effect. With that, Alejandro, please go ahead. Thank you, Amando, and good morning, everyone. As Gianfranco mentioned, we delivered remarkable overall operating results. including record high net income, which reflects solid growth in risk-adjusted revenue streams in our business ecosystem. As I discuss the quarter highlights, I will focus on the year-over-year operating trends. Loans measured in quarter end balances increased 8.2%. This uptick was driven primarily by BCP through both retail and wholesale banking and by Mibanco. Asset quality improved across the board with Credicorp's NPL ratio declined to 4.3% for the quarter. This positive trend was driven by higher debt repayments, especially among retail banking clients supported by ongoing refinements in underwriting standards and collections management and growth in liquidity through pension inflows. In this context, the cost of risk stood at 1.3%, bolstered by improvements in payment performance in a more favorable macroeconomic environment and by strengthened risk management. Net interest income increased 10.9% spurred by growth in interest income, driven mainly by loan portfolio expansion, by a contraction in interest expenses as interest rates fell and low-cost deposits continue to gain share to account for 63.9% of the funding base at quarter end. In this context, NIM stood at 6.6%. Other core income grew 19.5%. Fee income increased 15.6% boosted by transactional activity at Yapi and BCP. Gains on FX transactions rose 30.6% and through higher volumes at BCP. Lastly, the insurance underwriting results fell 9.1% on the back of lower premiums in the P&C business and inflationary pressures on expenses for claims in the Life business which have no impact on the bottom line even that these claims are compensated with inflation-linked financial income. Excluding inflation-based impacts on claims expenses, the underwriting result rose 4% year-over-year. driven mainly by the Life business. We delivered 21.1% ROE this quarter, fueled by strong loan growth, strengthened asset quality and diversified income sources showcasing the success of our decoupling strategy, risk management measures and investment in tidal capabilities. Finally, as Jafranco mentioned, we recently declared a record high ordinary dividend of PLN 50 per share as we move capital levels closer to target across our subsidiaries. Next slide, please. GDP is expected to have grown close to 3% year-over-year in the first quarter. reflecting solid momentum in the economy despite localized energy disruptions and higher oil prices in March. More importantly, domestic demand is expected to have expanded by more than 5% year-over-year for the sixth consecutive quarter. High-frequency indicators continue to signal broad-based and robust expansion, with several indicators posting double-digit year-over-year growth. For instance, during the first quarter, light vehicle sales led the gains rising by nearly 40% and followed by upticks of nearly 20% in capital goods imports and 14% for cement consumption. Historic high terms of trade and ongoing business cycle momentum remain the key drivers of this performance. While higher oil prices introduce uncertainty, [indiscernible] is vulnerable than other peers of the region, given its lesser net importer position. Another source of uncertainty going forward will be the impact of an Ellinoevent. So far, this has been felt in the first anchovy fishing season, but it is still early to tell how we will develop going forward. Also, as Gianfranco mentioned, while the presidential elections may generate some near-term uncertainty, the broader institutional framework, including the role of the Senate, should help limit the scope of abrupt changes and provide a measure of stability. Next slide, please. The Federal Reserve has maintained its policy rate since December as it continues to assess incoming economic data and determine how rising oil prices impact inflation and employee. In Peru, annual inflation rose to 4% year-over-year in April, its highest level in more than 2 years, reflecting primarily higher local transportation prices. The Central Bank has indicated that inflation is expected to return to the target range within the forecast horizon and convert to 2% next year as the effects of these shops gradually dissipate. In Colombia, Annual inflation accelerated to 5.6% in March, driven in part by the 23% minimum wage increase rolled at the beginning of 2026. To contain inflation expectations, the Central Bank has increased its rate by 200 basis points since December. Presidential elections will be held in 2 weeks and past suggest a runoff is likely in June. In Chile, investment sentiment improved after President cash selection, although recent gasoline price increases have tempered the outlook. Annual inflation reached 4% in April and the Central Bank has held the policy rate of 4.5%. Next slide, please. BCP's profitability posted a solid start to the year, supported by loan growth and their disciplined risk management and diversified sources of revenue. In this context, ROE stood at 30.5%. On a year-over-year basis, total loans measured in end-of-period balances rose 7.3%. In FX-neutral terms, loan growth stood at 9.1%, driven by both wholesale and retail banking. Notably, disbursement of long-term wholesale loans were buoyed by a favorable outlook for private investment. In Retail Banking, loan growth accelerated mainly in individuals, reflecting an increase in our risk capital for consumer loans and an uptick in mortgage loan disbursements, which rose on the back of lower interest rates. SME loan disbursements were also boosted by an increase in our risk appetite. NIM rose 21 basis points to stand at 6%, mainly due to a decrease in the funding cost while the yield on interest-earning assets remained resilient in an environment of lower interest rates. NPL volumes declined 11.1%, mainly due to debt cancellations by SME [indiscernible] clients under judicial recovery and secondarily by debt repayments from individuals who available funds from pension fund withdrawals. Improvements in the quality of origination and in collections management also contributed to the result. Provisions were 35.1%, driven mainly by retail banking, which was positively impacted by improvements in payment performance across early vintages in consumer and credit card loans, by reversal in Wholesale Banking after a corporate client regularizes refinance exposure. In this scenario, the cost of risk decreased to 0.8%, while risk-adjusted NIM stood at a record high of 5.5%. We Other core income rose 18.7% driven mainly by an increase in fee income, where strong transactional activity was channeled through [indiscernible] and other transactional products at BCP. A secondary driver was growth in gains on FX transactions, which was fueled mainly by retail clients served through the Ital channel. Variations in volumes reflect volatility related to tensions in the Middle East and the [indiscernible] calendar. Although the ratio of other core income to assets stabilized this quarter due to asset growth, the contribution of fee income plus net gains from FX transactions reached its highest level in 2022, reflecting the strength of our diversified sources of revenue. Operating expenses rose 15.1%, mainly due to an uptick in administrative expenses. This evolution was driven primarily by Yape use of cloud infrastructure and IT-related services and secondarily by marketing and consulting expenses in the traditional business. Our personnel expenses rose this quarter as we ramped up core business projects to develop commercial and technological capabilities. In this context, operating expenses and personnel expenses, in particular led the efficiency ratio to stand at 38.6%. Next slide, please. With 16.4 million monthly active users, Yape continues to expand its malt-based while shifting its focus towards deeper engagement and monetization, reaching approximately 82% of Peru's economic active population, the platform has achieved nationwide scale. At this level of penetration, incremental growth is driven by higher recurrence broader multiproduct adoption and monetization of an already large installed base, positioning Yape to continue cutting into cash's share of payments. The platform's positive evolution into a super app is reflected in engagement metrics. Users transact 67 times per month. supported by consistent and strong customer satisfaction with an NPS of 77%. This deeper engagement translates into unit economics, with revenue per mile increasing 65% year-over-year to PLN 10.3 while the surpassing growth in expenses per month, which rose 26% to $5.9. This proves that operating leverage is on the right, consistent with Yape asset-light and scalable model. Payments account for 47% of total revenues, while also serving as a core engine for data generation and cross-selling. Revenue generating total payment volume grew 80% year-over-year, reinforcing Yape's position as Peru's leading digital payment network. Lending revenue grew 3.6x year-over-year, positioning as the platform's fastest-growing vertical. In the first quarter of 2026, more than 5.7 million loans were disbursed, leveraging proprietary data, digital underwriting and distribution to serve the under bank with great penetration at approximately 30% of mouse, there's still significant upside to accelerate adoption. Yape has the potential to significantly scale its contributions to Credicorp over time. As of the first quarter, the app represented 17% of the group's fee income and 8% of the group's risk-adjusted revenues year-over-year. up from 12% and 5%, respectively. Next slide, please. As Peru's macro finance system continues to interaction amid a more dynamic economic backdrop, its performance has followed an upward trend. In this context, Mibanco outperformed its peers by strengthening its transactional value proposition gaining productivity and strengthening credit risk management. As a result, Mibanco sustained double-digit loan growth and robust profitability of 21.7% this quarter. From a year-over-year perspective, loans measured in quarter end balances grew 12.4%, writing an upswing in loan disbursements, which hit a new all-time high in margin. The NPL ratio continued with a downward [indiscernible] trajectory that began last year, falling to 4.9% at all-time low. Our active pricing management, coupled with the decrease in the cost of funding, boosted NIM which stood at a strong 14.9%. The cost of rigs fell 29 basis points on the back of lower risk vintages, which currently account for 88% of total loans. While the cost of risk remained low this quarter, we anticipate some gradual normalization in the second half of 2026 as we incorporate newer and smaller customer segments to bolster portfolio growth while remaining comfortably within our risk appetite. In parallel, risk-adjusted NIM stood at 11.3%, slightly below the 4-year high achieved last quarter. Operating expenses increased due to higher administrative expenses related to ongoing investments in strategic projects. primarily linked to digital transformation initiatives to modernize our technological architecture and improve client experience. Efficiency improved despite these investments and stood at 49.2% at quarter end. Mibanco Colombia's results continue to rise and raise their double-digit loan growth both quarter-over-quarter and year-over-year, bolstered by control risk management and improving productivity. Consequently, profitability stood at 18.3% at quarter end, which represents a sizable improvement over the single deal levels reported at the same time last year. Next slide, please. Grupo Pacifico delivered solid underlying results in the first quarter, with ROE of 18.9% for the quarter. Organic net income grew 11% year-over-year, driven mainly by the Life business and partially offset by the P&C business. In our Life business, commercial execution was strong, supported by growth in our bancassurance channel and an uptick in issuances of optional policies in retail segments, both consistent with our strategy to deepen penetration in high-value customer segment. The net loss on securities dropped this quarter, reflecting a base effect generated by credit downgrades on a couple of assets in the investment portfolio in the first quarter of last year. In our P&C business, net income fell. This evolution was fueled primarily by a drop in premiums in the corporate segment and secondarily by an uptick in claims in the personal and medical assistance lines. In addition to organic growth, our net income accelerated year-over-year following the consolidation of Pacifico Salud, which includes medical assistance, corporate health insurance and medical services. This business has continued to advance through solid commercial dynamics and disciplined cost management, which bolsters our confidence in Pacific Coal's long-term earnings contribution. If we include the full consolidation of Pacifico Salud's operations in Grupo Pacifico results, Consolidated net income rose 19% year-over-year. Next slide, please. ROE for our Investment Management and advisory business stood at 15.7% in the first quarter. Let me give a brief overview of this quarter's year-over-year dynamics and underlying structural trends. Quarterly results showed mix dynamics. Revenues benefited from stronger performance in our wealth and asset management businesses with AUMs expanding by 28% and 34%, respectively. Our capital market line also evolved favorably in line with market conditions. These favorable business dynamics were partially offset by an increase in operating expenses, which was mainly attributable to a particularly low comparative base in the first quarter. In this context, net income fell 8% over the period. Next slide, please. Now I would like to review Credicorp's consolidated evolution. It's inter-turng assets rose sequentially, driven mainly by growth in investment balances as we took advantage of tactical opportunities to capitalize on our cash position. Loan growth, fueled by BCP also contributed to the uptick in interest earning assets albeit to a lesser extent. On the liability side, low-cost deposits posted an increase, thanks to our solid transactional offering and inflows from pension fund withdrawals. Structural balance sheet trends are better expected on a year-over-year basis. Loan growth, which was driven mainly by BCP and Mibanco led the interest-earning asset mix to generate higher yield despite cash buildup. In this context, the yield on interest-earning assets rose 10 basis points year-over-year. On the liability side, lower interest rates, along with an increase in the share of low-cost deposits resulted in a 31 basis point decrease in the funding costs over the same period. In this context, NIM stood at 6.6% for the quarter. Next slide, please. Moving on to loan portfolio quality. Asset quality continued to improve this quarter as NPL volumes contracted across segments. The NPL ratio at quarter end was 4.3%, which is below the levels reported prior to the 2023 recession. Provisions dropped over the last 12 months, buoyed by steady economic recovery, which strengthened repayment dynamics and by effective risk management at both BCP and Mibanco. In this context, the NPL coverage ratio rose and stood at 13.8%. Going forward, we will continue to accelerate retail originations while maintaining a disciplined approach to risk. We expect loan growth to maintain dynamism. The cost of risk in turn is expected to increase modestly, but remain within our risk appetite. Next slide, please. Core income reached new record levels supported by this quarter's operating momentum across our businesses, which was driven by loan growth in higher-yield segments, a drop in the funding cost and an upward trajectory for transactional activity. On a yearly basis, 13.3% growth in core income was driven by dive streams with net interest income, fees and gains Fans reporting double-digit gains. Net interest income grew 10.9%, benefiting from sustained growth in our low-cost deposit base and resilient asset yield. Fee in in turn, rose 15.6% on the back of Dynamisemi bancassurance, payments and transactional services, while the 30.6% uptick in FX gains was supported by higher transactional volumes and disciplined pricing. Profitability metrics continue to strengthen with risk-adjusted NIM trending upward to 5.81%, reflecting improved pricing, portfolio mix optimization and effective risk management. The efficiency ratio for the year stood within guidance at 45.8%. Operating expenses grew 13.1%, fueled primarily by core businesses at BCP and investments and our innovation portfolio. Growth in core expenses at BCP was driven mainly by IT expenses for commercial and transactional capability development. Expenses for our innovation portfolio, which were led by Yape [indiscernible] and Kuki rose 40% and represented 84% of disruptive expenses for the quarter. Next slide, please. ROE for the quarter was 21.1%, supported by solid business performance and a favorable economic backdrop. Net income reached a record high once again. We achieved this by capitalizing on our structural strength, our differentiated digital and transactional capabilities low funding cost advantage, loan portfolio growth, particularly in retail segments and sustained improvements in risk management. Now I will move on to our guidance. Next slide, please. We maintain our expectation for Peru GDP growth stands at around 3.5% in 2026, though we recognize that risk to this outlook are [indiscernible] to the downside. We expect our total loan book to grow around 8.5% measured in quarter end balances or around 10.5% on a FX-neutral basis. Amid a dynamic economic backdrop and strengthened origination levels we expect growth in balances to continue accelerating over the remainder of the year, driven primarily by retail banking at BCP and by Milan. The acceleration anticipated for loan growth and the shift in the mix towards retail support, which we expect to stand between 6.4% and 6.7%. This quarter's cost of risk was below expectations. We anticipate that retail origination will continue to increase. As a result, the cost of risk is expected to approach the lower end of our guidance range, and our risk-adjusted NIM is expected to remain within guidance. On the efficiency front, we maintain our guidance range for 2026. Turning to noninterest income. As we mentioned in our previous earnings call, we continue to expect fee income to grow in the low double digits this year, driven by an ongoing uptick in economic activity and in the diversification of our income sources. On the insurance side, our underlying insurance business is expected to continue performing solidly. However, the insurance underwriting result, which was bolstered by extraordinary reversals for the D&S business in 2025 is expected to drop by high single digits. Excluding the D&S business, the result is on track to deliver high single-digit growth. Although we are reaffirming our ROE guidance of around 19.5% for 2026, the strength of our first quarter performance and the ongoing positive trends suggest that we are well positioned to achieve results on the upper side of this level. We remain prudent in the face of global and local uncertainties, but our outlook reflects confidence in our ability to deliver strong value for shareholders. With this comment, I would like to open the Q&A session.

[Operator Instructions] Our first question comes from Ernesto Gabilondo with Bank of America.

[indiscernible] Francesca and Milagros. Alejandro, best of locking your new position and innate wishing you the same. Congrats on your record high results. My first question is whether you could provide some color and the presidential election and the potential impact of [indiscernible]. Regarding the election, with almost 100% of the boats counted. And as you mentioned in your remarks, the second round appears likely to be between Fujimori and Sanchez. Could you share any insights on potential alliances or support. These candidates may receive from other potential tenders that are not passing to the second round. And on amino expectations are currently pointing to a strong event. Superina is being rolled out for now. But based on your experience with this type of weather phenomenon how likely is that this outlook change throughout the year? And in case of a strong Nino, what measures would you expect to evaluate or implement .

This is Jan Franco. Thank you for your words. Let me take the political question, and then I'll ask Cesar and Alejandro want to comment on the El Nino, which by the way, they are actually too early or as we speak, the effect effects have also speak Yes, you're right. Officially, there's no official results, and so we do know who the candies that are going to go to the [indiscernible] runoff. But yes, we're close to 100% on the probability of Puqimoria and Sanchez going to the second round is very high. Regarding your question on alliances and phone, there's nothing material as we speak. But on top of that, also bear in mind that the endorse and power that there is in Peru is quite limited. So we'll have to see what happens going on. actually, the only poll that was published or is public after the first round is that they're basically, when I say they Mr. [indiscernible] and Mr. Sanchez are basically tied. So with that, I will ask Cesar to go with the comments on Nino, please.

[indiscernible] Regarding [indiscernible], I think first, it's important to clarify that we deal with 2 different phenomena. The cost mean that we are already in an El Nino phenomenon at this point. I am going to detail a little bit more. And the second 1 that probably is the more globally awareness is the Central Pacific Nino. These are 2 different phenomenons, depending on the period of the year, this can affect Peru differently and particularly are on Europe when the confluence of this phenomenon Cosi with the summer, even say that, regarding the local El Nino, we are already in a low moderate effect at this point. It has already affected the efficient season has been temporarily halted after only 1/4 of the usual harvest volume is expected for this year. So these effects are already impacting the economy. And we are also closely monitoring the effects at this point in the agricultural sectors. Usually, the impact is diminish the level of productivity. But in some cases, in some cases, is also compensated by higher prices. So we are in the point that we are closely monitoring. We are still not changing our credit policy. And probably around September, we are going to have much clear indication of the real impact. And in this point, we should start taking measures considering not only this already mentioned in effect, but heavy rains in the north part of the city. So in our expectations, we are already considering this moderate impact and closely monitoring potential higher impact for the last part of the year. I don't know if this helps.

This is Alejandro. First, thanks for your words. I just wanted to give you a little bit more color or numerical color on the impact of [indiscernible] over time. In 1998, we had what is considered an extraordinary in and the impact on GDP in Peru was 1.7%. The moderate beginning of [indiscernible] was $0.8 million and the strong no 2023 was 1.1%. So depending on going back to Cesar's comments, it's still very early to know what kind of Nino will get depending on the summer and the confusion of both the El Nino Costero loan Nino, whether it's going to be moderate or strong we're going to see the impacts around 1% of GDP of Peru, if it were to materialize.

Now great. Super helpful. Good color. And then just my second question is related to asset quality. The cost of risk has become very well low your guidance. So just whether -- wondering whether there are potential downs risks -- or it's still early to assess that considering. And we need to wait for the outcome of the presidential election and to evaluate the impact of Enno. . Cesar? .

Yes. Thank you, Ernesto. I would like to highlight 2 different behaviors in our portfolio. Let's say [indiscernible], as Alejandro has mentioned, has had a very good format but not a drama changed recently, as you can see in the recent evolution. And these numbers reflect improved risk performance because at the same time that we are decreasing the cost of risk, we are increasing our exposure in low segment tickets, particularly below PLN 5,000. So a good performance, but not a dramatical change on the quarter. In the case of BCP, you can see a significant change on the quarter. And I would like to mentioned 2 different kind of effects. One is a more structural effect. That is the combination of the origination and the measures that we have taken recently that has improved the quality of rig segment by segment. and we are reaping the benefits of these measures taken. And additionally, we are starting to see also the contribution -- the increased contribution of more provisions of the new origination in higher unit segment that has been more pronounced in the last quarter of last year and this first quarter, as you have seen in our figures [indiscernible] structural and segment by segment, we are still seeing an improvement, but it's not a dramatical improvement. But the effect that has been changing recently has been some one-off effect that has impacted the quarter in particular. We have an unusually high as a product of the boom in the mining sector of profit sharing. So this profit sharing has improved the one-off payment capacity of the middle segment that was the focus of our origination in the last 2 years, so good payment -- additional payment from the source the liberated fund from the pension funds that has improved also in the same segment. And on top of that, a combination of payments in the wholesale portfolio. In contrast with the last quarter in which we have additional provision for a number of construction-related segment clients. In this quarter, we have liberation of provision. So you have good underlying behavior in BCP with a slight decrease of the cost of risk, gradually increasing as we shift the portfolio but the combination of 3 very point-in-time effects in the quarter that I would say the exacerbate the decrease of the cost of risk. As we start to originate faster and faster in higher yield segments. We are going to increase the cost of risk towards the expected rates that Alejandro has shared, and our expectation is to be with the information that we have in the lower range of the guidance.

The next question comes from Brian Flores with Citi. .

I have one quick question, or sorry, a follow-up on Rene's question regarding asset quality. So is it fair to say that these may be extraordinary cost of risk that we have seen is allowing you to maybe allocate a bit more capital on, as you mentioned, higher yielding credit and we should see this maybe during this year. And then maybe my question is on your ROE guidance. I think you mentioned that maybe you could be on the upper side, given the trajecdtory, and I think maybe Cost of risk is perhaps the 1 that is allowing you to already be mentioning this. So I just wanted to see if besides cost of risk, you see also another of these key variables, maybe efficiency allowing you to be on the upper side of the range, as you were mentioning.

Brian. Let me provide a more let's say, longer-term vision regarding the question on cost of risk and then I'll ask both [indiscernible] to answer on both the cost of risk and ROE. First of all, we do not manage the company by only taking a look at cost of risk, but most importantly, by taking a look at risk-adjusted NIM. So what we've been providing, I believe Alejandro mentioned it when he commented about guidance is that we do expect cost -- sorry, risk-adjusted NIM to increase, even though we expect cost of risk at the same time to increase. And the main reason is because the retail portfolio and mostly microfinance and the app lending book is going to -- are going to grow at a much faster pace. We are not -- having said that, we're not taking -- making decisions based on short-term cost of risk results but on a much more longer and structural vision regarding the opportunities we see mostly, again, in the retail portfolio in the under bank and the land bank and leveraging a lot on the data we've been gathering over the last actually 10 years through Yape and other digital channels. . And maybe I'll end that with the comment on guidance on -- it's not only a matter of cost of risk. Well, the first quarter has been over 20% already. The economy in Peru is really performing quite well. Therefore, we have a lot -- so it's not only a matter of what we're doing as a company, but also the environment is quite good. I don't know if Cesar and Alejandro would like to add something in that sense. I think Jan Franco has explained perfectly our general approach. And I will say, if we are taking confidence to increase our risk taking is because segment by segment, we are having results within our expectations or slightly better. That's what gives us confidence to continue growing and accelerating the retaking in higher yield, higher risk segments. The temporary effects were exactly the temporary effects that are very welcome, but our strategy continues to perform based on the capabilities that we are building and the results that we are monitoring and adjusting.

Yes. Brian, this is Alejandro. I'm going to add up something on the ROE guidance. We haven't changed the guidance, which is around 19.5%. But as I mentioned in my remarks, we are expecting to be on the upper side of that number, given what we've already seen in this first quarter, and we've had an ROE above 20% and the strength of the economy. Having said that, there are, of course, some important events that we need to monitor and might have an impact like the elections and the El Nino that we were already discussing, but we believe that given the strength of the economy, given all the things that we've been developing, both in risk management, transactional capabilities, et cetera. And what we see we should be able to be on the upper side of the 19.5% for this year going forward. And again, it's not just cost of risk. There's also the loan growth that we're expecting that can be a little bit stronger. And then you have the risk-adjusted NIM that Gian Branco mentioned probably being strong for the year, and all those figures together will probably allow us to be above the 9.5%. But again, we are at a moment in the year where we've seen an amazing first 4 months because April has also been very strong in the economy. But we are about to choose a new president and there's this mine effect going on. So that's the reason why we want to remain prudent as of now.

Very clear team. I appreciate it. Just if I understood correctly, given the improvement in marginal ROE your priority in capital allocation, i.e., if I understand correctly, should be reinvestment in growing right rather than extraordinary wide all of that because I think the unit economics are healthier, right? .

Sure. I mean the priority is definitely growth and we believe there's a big opportunity in many of the segments that we serve.

The next question comes from Thiago Batista with UBS BB.

One for the results, very strong numbers. Can you give me -- can you give us some indication about the performance of tipi in Bolivia? And also, if you believe this platform can be implemented in other places, let's say, in Chile, for instance, [indiscernible]. So those 2 points, how YP is performing in Bolivia. And if it's possible to see kind of international internationalization of Yape?

Francesca, could you answer that, please? .

Thank you, Thiago, for the question. [indiscernible] Bolivia has been growing at a steady pace. I would say that last year is accelerated with growth reaching over 2 million customer lines, for a smaller country in Bolivia. But bear in mind that Bolivia has a different starting point at Peru. It had an interoperable system in place. So it's a different. It's a different model that we have been successful to gain market and to be the leader in the market. Having said that, we have a very solid competitor that is closed by [indiscernible] so at a transactional pace, we are growing different again than Peru, more than just P2P transactions, there's a lot of P2M transaction. So it's a merchant driving system. And we are following in the past, similar to Peru in having monetization, which is putting a lot of services around utility payments and so forth and digitizing payments as a whole, and then gaining a lot of information to go into value-added services around lending and other products. So Bolivia is performing good we've worked a lot around technology as well. As you know, we have a bank there, and we began that process with their technology. And then in into the next -- your next comment around the internationalization. So Chile for our with Tempo as a neobank there as entrance leveraging capabilities and there is a cash-based economy in Chile as well that we're, of course, looking at. But the technological piece, I think is super important, and Yape has been working around creating a platform that is much more exportable.

Maybe Garo, just to complement Francesca's answer. We are announcing that on April 1, we created the neobanking unit Ander Ramundo Morales, CEO. the current CEO of Yape Peru, I mean, under that unit, Yape Peru, Yape Olivia, EO and Tempo are going to be operating. The logic -- part of the logic well, most of the logic is to leverage on tech capabilities, note of the market and so on. And part of the logic is what you just said. Is there -- are there any possibilities to grow elsewhere?

The next question comes from Renato Malone with Autonomous Research.

Congrats on the results. My question is on growth, right? You have been mentioning earlier this year. There's your expected retail growth to remain solid. But this quarter, we saw a nice pickup on wholesale lending. I wonder if you could explain a bit the drivers for that. Do you expect this to continue? And then if you see some upside to the loan growth guidance.

Renato, thank you for your words. And regarding your question on the wholesale growth, and please, after anyone could tell me in that sense, but what we've been -- so let me go a step back. If you were to look at our book in the last, I don't know, 5 years, it's been basically flattish and mostly in the corporate or in the wholesale world because I would say that Peru has gone through the perfect storm over the last 5 years. [indiscernible],I don't know, 6 presidents in 5 years or whatever, lack of stability and so on. And therefore, private investment in general, and this was across industries, really stalled. We started to see, and I believe we commented last call, private investment grew double digits. I believe it was 11% last year. And that has that pace has -- so the private investment has been -- has kept its space this quarter -- the last quarter, sorry. And what has happened on the other hand is that the domestic demand, as Alejandro mentioned, has been growing between 4% to 5% consistently over the last 6 quarter -- quarters. So across industries, there are companies that are operating at full capacity, so that's the main reason for loan growth in the wholesale portfolio. .

That's perfect. But if you also consider this positive economic background that you mentioned, don't you think that the 8.5% loan growth guidance for the year might be a bit too conservative.

Could be, yes. But again, on the other hand, you're right. On the other hand, the uncertainty that we mentioned at the beginning regarding global uncertainty, definitely all prices are going to -- [indiscernible] importer. So oil prices could could let the economy and the uncertainty because of the elections, and we're going back basically to somehow a binary scenario would bring some slowdown in that sense. We'll have much more clarity after the second row.

The next question comes from Lindsay [indiscernible] with Goldman Sachs. .

Congrats on the results, First, on deposits, we saw a really favorable improvement in deposit mix, which was partially attributed to deposits from the pension fund withdrawal. First off, how much would you attribute to pension fund withdrawal deposits? I know the last time we had talked, it was running pretty strong, and you captured a good percentage of the liquidity into the system. And then also how sticky would you consider those deposits? Is it something that we can expect as kind of a tailwind going forward? And then I have a second question, but I'll ask after that.

Thank you, Lindsay. Alejandro, can you take that one?

Sure. Lindsay. So yes, we did capture an important part of the withdrawal of the pension plan, but it's money that starts to get used and reduces over the following months. I would say that of the growth that we've seen in our deposit base, around half of it has been related to the pension fund withdrawal. The other half of it is our transactional capabilities and people operating and our principality and people operating in our system in an economy that is slowly, but turning more and more or less cash driven. So the money remains in the accounts. So I think there's a structural reason why we've been growing still on that side. plus there's also this pension fund withdrawal that we should see a decrease during this year and probably basically disappear. And it's also related to the prior question, it's also part of some of the retail repayments that we've seen. People use that money to repay retail and have an impact on the retail growth in the first quarter. But saran half and half between pension and withdrawals and more structural reasons.

And that was very clear. And then my second question is just on operating leverage and expenses at Yape I mean, saw pretty solid increase in operating leverage. How much of that was kind of just seasonality in expenses? How much is sustainable especially with this new digital bank initiative. And then you mentioned that you could see some material impacts from that. Is that on the expense side? Is that on revenue growth because you're talking about going into different markets, expanding on that end? Just kind of what are the impacts there.

Frank, can you take that 1 or Alejandro, whoever? .

Yes. So for sure that seasonality is end of the year and also the election, tape has been very active in the branding positioning around a long-term view for growth for the country. So that's one part of it. But you're spot on in terms of -- there's still a lot of technological capability and investment being building Yape around lending, around distribution, around the internationalization of the platform. So we're very mindful of the expenses. So they are not exceeding our expectations in terms of what we are planning for growth for revenue and cost as well. So I would say, under control, but yes, there's still investments to be done.

And maybe complementing that, Lindsay. How we see this as far as income growth at a faster pace than expenses were okay. We really believe that Yape in the 2, 3 years should be operating at a much lower cost to income, which is what we care about it. And we'll have also an impact is actually is a double impact. So the cost to income will be lower Yap will be a much more relevant business within Credicorp therefore, the positive impact in cost to income overall. .

The next question comes from Carlos Gomez Lopez with HSBC. .

Let me join in the congratulations to Alejandro. Here for a short time, we'll miss you, but congratulations and others, in particular, for the increase in the margin. You've been telling as it was going to go up. We said it would not, but -- so congratulations on that. My question would be, again, on the asset quality and the cost of risk, which is low at this time. Could you please quantify what those recoveries in the corporate portfolio would be like. I mean when I look at the numbers, I guess your number is EUR 120 million, EUR 140 million lower than what I would have expected. How much did you recover? Is that 40-50, 60? Could you quantify [indiscernible] [indiscernible]

In a usual month PCP, you have a cost of risk of wholesale between 0.1%, 0.2%. The last quarter of last year was initially high at 0.5%. And in this quarter was minus 0.1%. So you can say between 20 and maximum 30 basis points impact as a difference between what is usual. In relation to the last quarter, is very significant, but last -- but the last quarter of last year was unusually high for the special cases that I previously described.

Okay. So 20 or 30 basis points on the wholesale portfolio.

And if I can ask a question on Yape. We understand that the Central Bank is bringing in UPI from India. Could you tell us what impact positive or negative that might have on your business?

Franc, can you take that one, please? .

Yes, it's Carlos. Definitely, there's 2 views or 2 dimensions around the UPI. So we do believe that there is still an opportunity to capture after cash Peru is a based economy. So there is potential to grow in transactions. And having said that, of course, there's one of the other players, new entrants in this payment ecosystem. But if you look at the APEX results and Apex plants over time, of being a super app and now a neobank into that. we have consistently been able to cross-sell our products. We're almost reaching 3 features per active users in Yape, different fixed margin payments, but whether it's utilities lending. So it gives us an opportunity to tap into a bigger market. And this is the view we're having, and we're participating aggressively with the [indiscernible] in the pilot.

And the project could be another payment network or you would join the payment network or you will be connected possible.

Yes. We will definitely be connected. So this is a completely interoperable system, and we could have our own closed loop for our own transactions wherever we want -- we believe this is better, whether it's a UX experience or -- of course, if it's a cost issue, but it makes the market bigger because it becomes -- everything becomes interoperable.

The next question comes from Andres Soto with Santander.

My question also is around Japan this time around in terms of the contribution to Credicorp. When I look at the contribution to revenue, it's already at 8% for the quarter. contribution to EBITDA is at 7%. So I have 3 spur questions around these numbers. The first one is, previously, you had mentioned that you expected the [indiscernible] initiatives to represent 10% of revenue. Yape alone is already almost at that level. So what will be your new target for your disruptive initiatives in terms of the revenue contribution to Credicorp.

Andres, great question. All your Francesca.

So initially, we've shared many times with you in the Investor Day and the digital conversations we've been having. We set ourselves our target 4 years ago to represent 10% of risk adjusted income for Credicorp. We're very happy, of course, as you mentioned that Yape is one of the big ones. And our initial expectation was once these initiatives got into specific growth, they would graduate into more mature businesses. In the case of Vape, what we are seeing is that it's still offering growth at a much faster pace than of businesses that are more incumbent. So we are actually today working around what the new North metric would be. And as you know, we're going to set aggressive metrics in terms of the contribution of the initiatives. Having said that, we're also beginning to see relevant contributions. Of course, they're smaller around cookie, around other initiatives as [indiscernible], what we've mentioned before. And we are currently reviewing to get a new appetite for the next 4 years or 3 years.

And the metric will be still around revenue because for Jake specifically, the number for contribution to profitability is almost the same as for revenue. So in my numbers, I have that Yape would represent as much as 30% of earnings of Credicorp by 2028. And do you see any reasons for that not to happen? Or in terms of how you measure your digital appetite will be still revenue, the relevant metric? Or you will start looking at profitability? .

So we're actually going to look at 2 things. One is the portfolio for disruptive initiatives, we think revenue is still the correct metric. And as you remember, we also set limit in terms of investments around ROE and around cost to income, which is something that we are constantly looking at and reviewing. But once we have a venture that is profitable, of course, we're going to set profitability indicators as well. And once we have this much clearer, we'll share what initiatives actually contribute to the limits of whether it's ROE or cost to income or the amount of cash expenditures ones that need still time to mature where revenue adjusted income is the right metric. So this is a work in progress, and we will have this here for the next 2 months or 3 months.

Exactly. Just to complement Francesca, Andreas, I don't remember if I said [indiscernible] at the beginning. We're exactly in that process. When we said that, that goal was 2, 3 years ago, we -- there was a lot of uncertainty because these are disruptive initiatives. As we all know, Yape has been quite a success is, I would say, much more advanced in terms of results than what we originally expected in terms of size of the results and timing of the results. And we're in that -- exactly in that process. Should we start measuring something and providing something different to the market. And that's the process. We hope that by next quarter, we will share that with you. Just a quick comment. We do expect this year that the overall disruptive initiatives, ROE are going to be accretive to Credicorp's ROE.

Perfect. And on that note, Japan setting new targets. I think that the other new target that we need to hear from you is regarding the overall medium-term target for Credicorp as a whole. In my numbers, if Yape is bound to represent, as I said, 30% of earnings that will represent -- that will imply that credit card barrow by 2028 is going to be 25%. So the 19.5% is extremely, extremely conservative.

I'm taking note for us to set the goal for the team. No, jokes aside, remember last call that when we provided the -- actually, Alejandro prior guidance, he said, which is all of us, that by next call, after the results of the elections, we depending on the results, we may provide what we call a sustainable ROE that might be in north of 20. So let's wait. We're I don't know, 3, 4 months away from that and let's see what happens. And at the same time, we're working on what Francesca just mentioned.

Congratulations to Alejandro on his new responsibilities. . The next question comes from Yuri Fernandes with JPMorgan.

Franco, Alejandra, Francesco [indiscernible]. Congrats in [indiscernible] and also Alejandro, so repeating the words of everybody here. I'm going to miss you, Alejandro. So on -- just a follow-up on trying to match 2 different questions on the call. margins and cost of risk for the guidance on risk adjusted, right? So what I understood from the call is cost of risk was low on wholesale and all the seasonality and you're growing so cost of risk should move up, but you feel very comfortable with asset quality. But margins, the funding question, I think it's good, right? You have a very good funding. I think that helps. And on the asset mix, this quarter, another question was wholesale, right? You're growing more on wholesale after years of not growing and now it's going to be coming from retail. So the way I see here is there is upside risk for your margins and correct me if you disagree. But cost of risk should also move up. Thinking those things together, Jon Franco, do you believe like you can continue to have your risk-adjusted NIM above the guidance as you are seeing here because again, asset quality has been good, means could have an upside. So just trying to understand if the guidance for risk-adjusted margins would it be a little bit better or at least to stay on the high level that we are seeing this quarter?

Yes, again, if there wasn't this uncertainty, global uncertainty and the political situation in Peru, maybe we would have provided a new guidance today, so I will be providing a strong yes to you. But there are 2 if -- too many IPs, we believe, as we speak. So everything tells us that your question is totally valid and your hypothesis is correct, but we'd rather wait and see really. Sorry for being so vague in my response, but that's what we feel today. What we [indiscernible]

No. It helps to understand the potential upside risk, but you are somewhat being conservative given the uncertainties in the center. It helps us here. If I may just so -- go ahead. .

Sorry, this is Alejandro. Let me you to Yupe. So no, I just wanted to say that your assumption is correct in the sense that given the low cost of risk we're experiencing and the strong NIM, we should be on the upper side of the risk-adjusted NIM for the year. But again, as [indiscernible] Franco has mentioned, there are a lot of questions still out there. But we believe we can have a risk-adjusted NIM that continues to improve in the coming quarters.

[indiscernible]. If I may, just a second one quick one. Just thinking about the profitability of the subsidiaries, right? When you go to Credicorp Capital, Pacifico, Mibanco. Well, BCP was amazing this quarter. All the subsidiaries, they are running on levels of ROEs that historically, I believe, is the number that you usually mentioned. I think maybe Pacifico is a little bit below the 20s, but very close to that. Maybe to Franco, like, where do you see upside risk other Tania on the subsidiaries? Do you think like there is room for further improvement of profitability of any of the subsidiaries or are most of your take here is maybe a be the main driver for further profitability improvement for the group.

Great question, Yuri. And specifically on Pacifico, what we believe and we've been vocal about it is that Pacifico over the last few -- couple of years, it's ROE has been over, I believe, 25%. We believe that's not sustainable. What we believe it's sustainable. It's around which is where it is today. About the other subsidiaries, Mibanco is where we want to have it in terms of ROE. Maybe record capital, there's a potential opportunity to increase to slightly increase ROE, even though we do have opportunities for growth there. So we might be investing a little bit more. And you're right. [indiscernible] is going to be a driver for sure. But also bearing and, as I just mentioned, that the overall disruptive initiatives are being accretive. And [indiscernible] is the most obvious one, obvious one, but there are others that they're either positive already or less negative and reaching breakeven. So overall, there might be a further positive impact going forward.

Congrats on the execution in all those years.

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

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

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