Intercorp Financial Services Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 7, 2025

Key Takeaways

  • Intercorp reported a 71% year‐over‐year increase in 4Q net income to $490 million, delivering an ROE of 18.2% and surpassing its midterm target.
  • In the banking segment, a derisking strategy drove the cost of risk down to 2.6% in Q4, while Interbank expanded its market share in loans (+80 bps) and deposits to become the largest bank in both categories.
  • Interseguro maintained leadership in individual life and annuities with double‐digit growth in core business and an 18% increase in contractual service margin.
  • Inteligo’s wealth management business reached a record high of $7.3 billion in assets under management, up 17% year‐over‐year, driving a 28% jump in fee income and market share gains.
  • For 2025, IFS is guiding to high single‐digit loan growth, NIM above 5.4%, cost of risk around 3%, and ROE of ~16%, supported by continued recovery and a new shareholder buyback program.
AI Generated. May Contain Errors.
Earnings Conference Call
Intercorp Financial Services Q4 2024
00:00 / 00:00

There are 10 speakers on the call.

Operator

Good morning, and welcome to the Intercorp Financial Services First Quarter twenty twenty four Conference Call. All lines have been placed on mute to prevent any background noise. Please be advised that today's conference is being recorded. After the presentation, we will open the floor for questions. At that time, instructions will be given as to the procedure to follow if you would like to ask a question.

Operator

Also, you can submit online questions at any time today using the window on the webcast, and It is now my pleasure to turn this call over to Mr. Ivan Peel from Inspire Group. Sir, you may begin.

Speaker 1

Thank you, and good morning, everyone. On today's call, Intercorp Financial Services will discuss its fourth quarter twenty twenty four earnings. We are pleased to have with us Mr. Luis Felipe Castellanos, Chief Executive Officer, Intercorp Financial Services Ms. Michela Casassa, Chief Financial Officer, Intercorp Financial Services Mr.

Speaker 1

Carlos Torre, Chief Executive Officer, Interbank Mr. Gonzalo Basadere, Chief Executive Officer, Inter Seguro Mr. Bruno Ferrecho, Chief Executive Officer, Intellico. They will be discussing the results that were distributed by the company yesterday. There is also a webcast video presentation to accompany the discussion during this call.

Speaker 1

If you didn't receive a copy of the presentation or the earnings report, they are now available on the company's website, ifs.com.pe. Otherwise, if you need any assistance today, please call Inspire Group in New York at (646) 940-8843. I would like to remind you that today's call is for investors and analysts only. Therefore, questions from the media will not be taken. Please be advised that forward looking statements may be made during this conference call.

Speaker 1

These do not account for future economic circumstances, industry conditions, the company's future performance or financial results. As such, statements made are based on several assumptions and factors that could change, causing actual results to materially differ from the current expectations. For a complete note on forward looking statements, please refer to the earnings presentation and report issued yesterday. It is now my pleasure to turn the call over to Mr. Luis Felipe Castellanos, Chief Executive Officer of Intercorp Financial Services, for his opening remarks.

Speaker 1

Mr. Castellanos, please go ahead, sir.

Speaker 2

Thank you. Good morning and welcome to our fourth quarter twenty twenty four earnings call. I want to thank you all for attending our call today. 2024 marked a period of recovery both for our country and for IFS. In the macroeconomic front, we finished the year with an improved sentiment and outlook on the back of our rebound in manufacturing, construction, agro and fishing.

Speaker 2

Inflation remained under control and our currency, the result was stable. We're anticipating a GDP growth of 3.2% for the year 2024, primarily driven by the mentioned recovery in diverse sectors and improved drivers of private investment and consumption. Peru will probably be the country with the highest growth in the region for 2024. Looking ahead to 2025, we continue to be modestly optimistic about the future growth of Peru. We expect private investments and consumption to continue its positive strength.

Speaker 2

However, we're cautious given that 2025 is a pre electoral year and changes in the external environment could create certain volatility. 2024 results for IFS confirm that we are emerging from the most challenging phase of the credit cycle. During the first half of twenty twenty four, we still carried the challenges coming from the deterioration of the consumer portfolio from the previous year, but as expected in the half. And particularly in this last Q, we saw an important recovery boosted by the liquidity events that helped Peruvian consumers, including the release of pension funds and the availability of severance indemnity deposits. The derisking strategy we implemented in the banking segment has definitely paid off as the cost of risk has returned to low levels.

Speaker 2

Additionally, the market performance has had a positive impact on our investment portfolio, both in the insurance and the wealth management segments. As a result, the recovery of our business is evident. We achieved an ROE of 18% plus in the fourth quarter, a fast recovery that demonstrates the resilience and value of our operations. We believe that these trends should continue. At Interbank, we had a positive year as we have been able to increase our market shares in loans and deposits, consolidating our position as the largest bank in both.

Speaker 2

Our growth in loans has been driven by Commercial Banking, where we have gained over 80 basis points in market share. We believe we have begun our recovery path in the consumer portfolio. We have deployed enhanced internal risk models, thus further improving our underwriting standards, although we are still being cautious. EasyPay and Interbank continue to seize business opportunities together, while Plym keeps increasing the engagement of users, fostering more primary banking relationships and supporting growth. On a separate note in the banking segment, it is worth to mention that by year end, we executed a successful issuance of subordinated bonds at the lowest ever spread for Intrabank, which reaffirms the market's confidence in our franchise.

Speaker 2

At Intraseguro, we have seen relevant growth in our core business, mainly in Individual Life and Annuities, where we continue to be the market leader. Our Wealth Management segment, Intellivo, had a positive year in its core business as assets under management reached an all time high, growing by 17% in the year. The investment portfolio's performance also improved. Our key strategic priority at IFS continues to be to achieve digital excellence for our customers to generate primary relationships. Our ambition is to be a leading digital platform with focus on key businesses and profitable growth, providing a comprehensive offering of the best digital experience with deep analytical capabilities as our competitive advantage.

Speaker 2

Going forward, we continue to be optimistic about IFS' franchise and outlook on the back of the continued recovery of producer momentum, while we continue to execute our long term strategy. Now let me pass it on to Michela for further explanation of this quarter and full year results. Thank you.

Speaker 3

Thank you, Mr. Felipe. Good morning, and welcome, everyone, to Intercor Financial Services twenty twenty four's fourth quarter and full year earnings call. To begin, we would like to review the macroeconomic outlook for Peru. On Slide two, complementing what Ms.

Speaker 3

Felipe mentioned, the improvement in macroeconomic indicators has been constant throughout the year. Peru's economic recovery has consolidated in the fourth quarter, driven by investment and consumption. As such, GDP for the fourth quarter grew around 3.7%, marking three consecutive quarters with growth above 3%. November alone showed a 3.9% growth, accumulating 3.1% for the year. Primary sectors drove growth, accumulating 3.5% for the year, driven by the fishing season and a rebound in the agricultural business, while nonprimary sectors accumulated 3%.

Speaker 3

In terms of monetary policy, the Central Bank has been able to control inflation and anchor it within its range with the expectation of 2% for 2025. Within the region, Peru was the to reduce reference rates, already capping 300 basis points from the peak of 7.75% to the current 4.75%. Although the Central Bank is closer to the neutral interest rate, we believe it still has room to continue reducing rates as low as the Fed continues to cut as expected. Moreover, the currency has been stable throughout the year. Both inflation and the exchange rate are expected to remain stable during 2025.

Speaker 3

For 2025, the Peruvian economy is projected to grow by around 2.8%, with a stronger half due to the reelectoral year, which typically reduces dynamism in the half. The dynamism in sectors include trade, services, construction, agriculture, mining and tourism is expected to contribute significantly to growth during this year, in line with the increase in private spending. Higher prices in copper and gold should generate additional support. However, the fiscal deficit will close at 3.6% of GDP in 2024, still better compared to the region. Finally, it will be important to closely monitor the evolution of economic policy in The U.

Speaker 3

S, which could negatively impact the business environment. On Slide three, consistent with the previous slide, indicators show optimism in the labor market and private investment, while a key driver for domestic demand improvement has been private consumption. Consumer confidence has gradually improved each quarter, aligning with economic optimism, market recovery. As of November, formal employment and real formal wages have shown year over year growth, positively impacting private consumption. This recovery in consumption has also been accelerated by pension fund withdrawals and severance indemnity deposits, enhancing people's purchasing power and consumption levels.

Speaker 3

Business trust has remained stable and positive throughout the year. The Central Bank's latest report anticipates private investment to grow by 4.1% in 2025, reflecting a more optimistic view of the Peruvian economy. According to the Ministry of Foreign Affairs, there are more than 60 infrastructure projects in the pipeline for upcoming years 2025, 2026, represented in an estimated total amount invested of $16,000,000,000 of which $7,600,000,000 are expected to commence for 2025. For instance, the new Carretera Central, the Linea 2 of the Metro Del Ima and the reposition of Charcoban. In terms of mining projects, there are several for the upcoming years, as the total investment is expected to surpass billion euros by 2028.

Speaker 3

Some examples include Tia Maria, Llanacocha and Los Chancas. In this context, we continue to build on our three key strategic priorities. On Slide 4, we aim for profitable growth to become a leading digital platform. IFS has demonstrated solid recovery, showing resilience through their credit cycle with a net income 70% higher than the same period last year and achieving over 18% ROE in the fourth quarter, in line with our midterm target. Additionally, we continue to grow our customer base at double digit rates across all segments consistent with the macroeconomic recovery.

Speaker 3

we strive to create the best digital experience, aiming to generate primary banking relationships.

Speaker 2

As a

Speaker 3

result, more than 80% of our retail banking customers and over 70% of our commercial customers are digital, and our NPS for retail banking was 55 points as of the December, with a positive trend for January as our internal estimate is above 60 points. we continue to focus on our core businesses, maintaining a significant market share in consumer banking loans at 21%, ranking in the market retail deposits around 15%, ranking in the market and in annuities as the leader with over 30% market share. Finally, Management, asset under management continued to grow at double digit rates, reaching 17% year over year and surpassing previous maximum. On Slide five, we wanted to share our key messages for the quarter. we have observed a strong recovery in earnings and profitability in the last quarter of the year, driven by banking and investment results, reaching a net income of $490,000,000 at the IFS level.

Speaker 3

This has resulted in an ROE now exceeding 18%, marking a significant improvement from the previous quarter and aligning with our medium term ROE goal. our quarterly cost of risk continued to decrease, standing at 2.6%, which is 180 basis points below last year and 50 basis points lower than the previous quarter. Consequently, we see better results for Interbank with an ROE at 16%, higher than both the previous quarter and the same period last year. the cost of funds continues to improve, decreasing by 100 basis points year over year, outperforming the system's average decrease by 40 basis points. This improvement is primarily due to faster repricing and a better funding mix supported by synergies with EasyPay and the proactive management of low cost funding, which enabled us to increase low cost deposits by 16% year over year.

Speaker 3

we have strengthened our commercial and payments ecosystem, generating primary banking relationships that allowed us to increase our market share in commercial banking by more than 130 basis points in 2024. Additionally, the share of EasyPay's flows to interbank accounts is currently above 40%. we have achieved double digit growth in Individual Life and annuities, demonstrating improvement in our insurance core business and maintaining our leadership in annuities. And finally, in Wealth Management, we experienced a record year in asset under management, which grew significantly throughout the year. This growth drove the fee income up when also allowed us to gain market share in Interfondos, our mutual fund company.

Speaker 3

Moving on, we will review four sections of our earnings presentation: sustainable growth, key businesses, digital uptake and finally, guidance and takeaways. Let us start with the section, which focuses on sustainable growth. On Slide eight, the net income of million for the quarter is 71% higher than the net income reported last year and 26% higher than the previous quarter. This improvement results in an ROE of 18.2%, which is already in line with our midterm ROE goal as previously mentioned. In banking, net income has almost tripled year over year comparisons, primarily due to lower and lower cost of risk and a slight improvement in margins through a reduction in the cost of funds.

Speaker 3

This has allowed net income to grow by 2.6x compared to last year, reaching an ROE of 16%, which is more than double that of the previous year. It is important to mention that there is a seasonal effect on banking results due to the high level of activity in December. In the insurance business, our core operations remained solid as annuities and life insurance continue to grow. The year over year decrease is attributed to the extraordinary results from the investment portfolio in the fourth quarter of twenty twenty three. Finally, in the Wealth Management business, the positive dynamic with clients continues as asset under management hit record levels once again, driving fee income upward.

Speaker 3

Additionally, the investment portfolio had an extraordinary performance in the last quarter. Consequently, there is a significant recovery year over year, rebounding 1.9 times and improving ROE to 28.3%. On Slide nine, we aim to highlight the consistent improvement in quarterly earnings at the banking segment, which represents around 70% of IFRS results. Firstly, the cost of risk exhibited a positive trend throughout the year, falling below our 3% appetite for the fourth quarter of twenty twenty four. This improvement followed the rise in provisions in 2023 within the consumer portfolio, which was due to the deterioration in the payment capabilities of retail clients amid sustained high inflation, low economic growth and various disruptions caused by weather and political factors in 2023.

Speaker 3

Secondly, better net interest income was achieved through a reduction in the cost of funds, which will be elaborated on in subsequent slides. Interval's ROE reached 16 in the fourth quarter, two from the same period of a year ago, driven by a 1.6x growth in net income. These results, along with the insurance and wealth management mentioned in the previous slides, positioned IFS on a recovery trend, achieving midterm ROE in the fourth quarter. On Slide 10, we see a recovery in revenues in the last quarter, mainly due to an important improvement in revenues from Intelligo as fees continue to grow and the investment portfolio had a good quarter. Additionally, an improvement in margins at Interbank on a year over year basis is driven by a reduction in the cost of funds.

Speaker 3

Finally, we see good performance of core business at Intersebullo with a better return on the investment portfolio in the last quarter. Finally, in this section on Slide 11, we wanted to highlight that the efficiency remains a top priority for us. There is a 5% increase in total expenses at IFS level versus the previous year, driven by the 5% increase from the banking segment, mainly due to variable costs. The costincome ratios are still within the expected levels at 37% for IFS and 39% for Interbank for the full year, which is best practice in LatAm. Now let's move on to show you more details on the performance of our three key businesses.

Speaker 3

On Slide 13, we wanted to show you the evolution of our loan portfolio as we observed a full year loan growth of 6.5% in a context where the overall market has grown a little bit below 2%. On one side, the commercial book had an important growth this year. With 17% growth year over year, it has gained relevance in the mix, passing from 44 to 48%. During the year, we have leveraged on the Impuso Miperu program, which allowed us to grow in SME and midsized companies with government guarantees. Moreover, sales finance remains one of our key products with market share growing from 17.7% just 12 ago to more than 19%, ranking in the market.

Speaker 3

Therefore, the commercial banking portfolio has outperformed the system as midsized companies gained over 80 basis points in market share, now consolidating as onethree in the market, boosting our commercial banking market share by 130 basis points to 10.9%, which is our all time high. On the other side, we see two separate trends in the retail loan book. we experienced significant growth in mortgages and payroll deductible loans with over 7% year over year growth each. In the half of the year, we had a boost in our mortgage loans, gaining 40 basis points market share over the past year. the fourth quarter was an inflection point for consumer loans.

Speaker 3

The regulation in consumption and the increase in cash loans disbursement have driven a recovery in the retail segment with a slight increase of 0.4% in the portfolio in the last quarter. Still, with a conservative approach to growth, the enhancement of our internal models, including customer centricity mission, helps us generate a more comprehensive value proposition for our clients, allowing us to grow in a healthy manner. On Slide 14, risk adjusted NIM had a gradual increase during the year with a full year improvement of 40 basis points and 160 basis points from the bottom by the end of last year. This trend is in line with the reduction in cost of risk. Meanwhile, there was an impact on yields due to the shift of the loan book mix.

Speaker 3

Consumer loans, which include credit cards and personal loans, decreased from 22% to 18% year over year. Quickly, we see lower yield of loans of 70 basis points in the annual comparison, reaching 10.5% for the full year 2024. However, we have been proactive in managing our investment portfolio to offset this effect, taking advantage of market opportunities to generate additional margins. On Slide 15, we wanted to point out that the cost of risk and NPLs are already below risk appetite at 2.62.5%, respectively. Both indicators have followed a downward trend as anticipated, given the improvement in the economic indicators and, to some extent, the liquidity events from the second quarter.

Speaker 3

The improved microenvironment is slowly starting to enhance people's purchasing power and increase their disposable income, leading to better payment behavior from customers. Now let's walk through some additional insights. we have increased our exposure to commercial banking, moving from 44% in 2023 to 48% of Interbank's portfolio as of the end of twenty twenty four. This segment has performed well during the year as approximately 13% of the commercial portfolio is backed by guarantees from the Impulso Mifengu program, which generated growth at a lower cost of risk. For the following year, we expect to continue growing this segment, still with a conservative approach.

Speaker 3

during this year, we have tactically been growing on lower risk products, shifting the mix of our retail portfolio. Credit cards and personal loans have decreased, now representing 18% of the total loan book, although in the fourth quarter, we have seen a slight improvement. Meanwhile, low cost products such as stable deductible loans to the public sector employees and mortgages have remained stable at 1222% respectively. This shift has allowed the cost of risk from retail to reduce around $3.40 basis points from its peak a year ago, down to below our internal appetite levels. It has also impacted on the NPL coverage ratio for retail, resulting in a lower coverage ratio when compared to a year ago, an effect which is purely due to the mix of the portfolio and not to the ratios in each specific retail product as consumer products continue to have over 200% coverage.

Speaker 3

Finally, we are taking advantage of our analytic capabilities, enhancing our strategy in origination and risk management, aiming to promote growth in a healthy manner. Consequently, the right allocation of loans will result in a cost of risk within our risk appetite. On Slide 16, we had a positive year in terms of the cost of funds as the downward trend was constant throughout the year. This was due to: lower market rates and the short duration of interest bearing deposits allows for faster rewriting, especially in local currency deposits due to a better funding mix and the efficient funding or low cost funding has gained relevance, improving from 33% in 2023 to 36% in 2024. Deposits have become a more relevant part of our funding structure, increasing from 78% to 81% in the last twelve months.

Speaker 3

As a result, our cost of funds improved by 100 basis points on a year over year basis and 40 basis points in the full year comparison. The emphasis on low cost funding and the synergies with Isipei has shown results as we continue to grow deposits faster than our competitors, reaching an annual growth rate of 11.2% compared to 10.8% of the banking system. Additionally, we have been working to enhance our value proposition to clients, aiming to increase primary banking relationships, which has positively impacted our deposits. Our market share in recent in retail deposits has consistently grown over the past few years to 14.6% as of December 2024, positioning Interbank as the largest bank in retail deposits and also in total deposits. Finally, our loan to deposit ratio of 96% is in line with the industry's average.

Speaker 3

On Slide 17, we wanted to take a closer look at the efficient funding strategy of Interbank, which primarily focuses on capturing savings deposits in current accounts with low interest rates. To achieve this, we have implemented various initiatives aimed at enhancing the value added services provided to clients. For example, the synergies with Isipei have enabled us to offer a more comprehensive service to our clients, thereby increasing the flow that Interval receives from EasyPay and generating rise in transactional deposits. Additionally, the growth of new clients through the Inclusum Ibero program has also positively impacted midsized and small companies. All this contributes to a 15% increase in commercial low cost funding year over year.

Speaker 3

Retail low cost funding has also seen an 11% increase year over year, driven by several strategies. Firstly, we captured 20% of the private pension funds withdrawals, successfully retaining 13% of these balances by year end. Secondly, we are working on providing additional benefits to clients who have uncopped from such stable accounts. And finally, we are continuously enhancing the customer experience to foster primary banking relationships. As a result, we achieved a 16% year over year increase and a 12% compound annual growth rate from 2016 in our low cost funding raising its share of funding from twenty eight percent in 2019 to 36% in 2024.

Speaker 3

Now moving to insurance on Slide 18. On a yearly basis, we see an increase in the contractual service margin of 18%, and that was mostly driven by individual life and annuities, partially offset by Credit Life due to a cleanup in the database. In the fourth quarter, we observed growth in Individual Life and Annuities reserves of 2822%, respectively, driven by the generation of new business, which surfaces the monthly amortization of the CSM. The result from investments increased in the last quarter of the year to 6.1%, mainly due to better real estate valuation. On the other hand, the year over year reduction is mainly explained by the extraordinary gains of the fourth quarter of twenty twenty three.

Speaker 3

Finally, in Wealth Management, we continue to see growth in asset under management with a yearly growth of 17% and a quarterly growth of 2%, reaching a gain at a historical maximum of $7,300,000,000 which have led to the recoveries in fee income. In the front, those had an important year, and the digital developments with Erbil have allowed us to grow more than 45% in the last year, outperforming our peers, hence gaining market share, which is now at 16.5%. Additionally, market volatility and client interest in shifting from time deposits to market positions has also driven the recovery of fee income. Overall, fee income showed 28% year over year growth and 17% full year growth. Now let's move on to the digital update.

Speaker 3

On Slide 21, we have a full scale digital platform with world class and scalable digital propositions, continuously developing solutions to meet our clients' needs. For instance, our clients can open fully digital accounts and utilize the piggy bank features for savings. They can also use IsiPay and Clean for Payments and have the flexibility within the app to adjust their credit card limits, complementing the physical and e commerce business offerings with dividend. In terms of insurance, our offerings is diverse, including travel insurance, digital SOA, life insurance, Rovugo and credit card insurance, among others. For investments, Ermi enables our clients to onboard and subscribe to mutual funds entirely digitally.

Speaker 3

Finally, our clients have access to the ShopStar marketplace and various loyalty programs. On Slide 22, we continue to highlight the positive trends in our digital indicators compared to the previous year. Interval Digital Experience is defined as everything you need in a single app. We have made significant progress in our journey towards becoming more digital, developing necessary capabilities to meet our customers' needs and providing them with the best experience. As a result, we have seen substantial growth in both retail and commercial digital customers, increasing from 75% to 82% and from 69% to 73%, respectively.

Speaker 3

In the case of retail, the number of digital customers has increased by 17%. The digital self-service increase the income of 80%, always on communication actions, which focus on educating customers about new self-service functionalities through the app and our virtual assistant. Finally, during the last quarter, we experienced a negative impact on NPS in the yearly analysis due to a onetime issue with app functionalities. However, we have already seen a recovery during January as our internal estimate is to be above 60 points in NPS. As part of our digital value added proposition on Slide 23, we believe we are creating significant value in primary banking relationship through CLIN.

Speaker 3

CLIN serves as an accelerator, evidenced by the fact that 60% of the average monthly transactions of customers that use it the rank of their primary bank are explained by transactions sent and received with Plin. We have been implementing commercial actions focused on increasing usage and transactions through various campaigns, which have resulted in accelerated growth for BIM. The number of transactions increased 2.3x in the full year comparison, with active users increasing by more than 22% and the average number of transactions per user rising by 37%. At Interbank, the proportion of primary banking clients increased to approximately 34% of all retail clients in 2024. These clients have 1.6x more products, 1.4x more deposits, 97% less churn and 3x higher NPS.

Speaker 3

We have continued working to generate further synergies as we encourage the growth of our payment ecosystem, focusing on increasing transactional volumes, offering merchants value added services and using EasyPay as a distribution network for interbank products as well as a source to increase flow. As such, the interbank share of IsiPay flows is above 40%. The results are evident as we follow four key figures: around 30% yearly increase in dissipate cash flow coming from Interbank coming to Interbank accounts and 39% increase in float from merchants 2.7x yearly increase transactional volumes and 63% growth in float from micro merchants, thanks to Isipeia. Finally, in this section, on Slide 25, insurance and wealth management digital indicators show positive developments as well as digital adoption increasing. In insurance, during this year, we have focused on enhancing the digital experience for our clients and expanding our distribution network to new digital channels like WhatsApp.

Speaker 3

The development of internal capabilities has allowed us to increase digital self-service to 69% from 59% of the previous year. Similarly, so our digital sales have reached 85%. Moreover, Digital Life premiums experienced an important growth, although slowly gaining relevance, reaching 15%. In Wealth Management, Interfondo's digital transactions reached 53%, and early users now account for 27% of total Intrafondo's customers. To achieve these results, we have focused and will continue to work on enhancing communication and sales through digital channels and on the development of products with special characteristics tailored for digital clients.

Speaker 3

And as mentioned before, results of the digital strategy are reflected also in higher asset under management and higher fees. Now let me move to the final part of the presentation, where we will provide some takeaways and the guidance for 2025. On Slide '27, let me give you the guidance for this year. The point is on capital. Capital ratios should remain at some levels with a total capital ratio above 15% and the core equity Tier one ratio above 11.

Speaker 3

Our guidance for 2025 ROE is to be around 16%, expecting a significant improvement compared to the full year 2024 of 12.6% and closer to the 18% midterm target by the end of the year. Although the ROE for the last quarter of twenty twenty four was above 18%, this was due to some positive impact from the regular seasonality of banking results and the good performance of the Intenigo investment portfolio, which we don't expect to be repeated in each quarter. For loan growth, we expect a high single digit growth, surpassing twenty twenty four's growth, driven by a commercial banking and the recovery of the consumer portfolio. We expect this to be above system average growth as to continue gaining market share in key businesses. In that line, we expect a slight recovery of NIM for Interbank to be above 5.4% as the cost of funds continue to improve due to a better funding mix and the yield of loans recovery in line with the consumer portfolio growth.

Speaker 3

Cost of risk for banking is expected to remain sound at around 3%, below the 3.6% of full year 2024 and in line with our midterm path. We continue to focus on efficiency at IFS as we expect a costincome ratio of around 37%, driven by the improvement in the top line income. Let me finalize the presentation with some key takeaways: strong recovery of earnings and profitability for IFS low cost of risk at the banking segment better funding mix and cost of funds we have strengthened our commercial and payments ecosystem double digit growth in individual life and annuities and a strong increase in asset under management in wealth management, gaining market share in Intercom. Additionally, we would like to provide you with an update of the buyback program that we have. As you are aware, we have a buyback program in place that was approved by the General Shareholders' Meeting in 2023 for up to $100,000,000 amount, of which we have already purchased approximately $75,000,000 The Board has currently approved a new buyback program, which is subject to being discussed and approved in the next General Shareholders' Meeting.

Speaker 3

Thank you very much. Now we welcome any questions you might have.

Operator

Thank you. At this time, we will open the floor for your questions. we will take the questions from the conference call and then the webcast questions. Questions. Questions will be taken in the order in which they are received.

Operator

For the webcast viewers, simply type your question in the box and click Submit Question. We will pause momentarily to compile a list of questioners. And today's question comes from Ernesto Gabilondo with Bank of America. Please go ahead.

Speaker 4

Thank you. Hi, good morning, Ms. Felipe, Michela, Carlos and good morning to all your team. Congrats on your first fourth quarter results and 2025 guidance. My question will be in terms of growth.

Speaker 4

So considering you're expecting higher loan growth in 2025, how should we think about fee income growth? It would also be supported by EasyPay, internal response, cash management. How much of your fees or total revenues are coming from digital channels? And I don't know if you have, like, a long term target or or how much digital revenues will represent of total revenues? So that's for my one.

Speaker 4

My one will be on the wealth management business. As you pointed out, we continue to see a recovery in this business. So just wondering what will be the variables that we should monitor to see this further recovery during 2025? I don't know, inflation rates, anything that you can provide us some color will be very helpful. The last question is on your effective tax rate.

Speaker 4

We saw it was kind of low in '24 when compared to historical levels. So what should be the level we should expect in 2025 and the next years? Thank you.

Speaker 2

Okay. Thank you, Ernesto, for your kind words. We are also very happy with the recovery and performance in the 4Q. We expect to continue consolidating this trend in the coming year. I'm going to go on number one, I'm going to go to Miguel.

Speaker 2

After that, we can go to Bruno, please, for the Wealth Management business. And maybe Miguel can touch upon number one and three.

Speaker 3

Yes. Okay. Morning, Ernesto. of all, talking about fees. We are expecting fees to grow at, I mean, between high single digits and maybe low, low double digits, and this is mainly due to the composition of our fees.

Speaker 3

As you have seen, when you see IFS as a whole, fees have been growing nicely in some of the business segments like, for example, Intelligo, and they have also been growing nicely in commercial bank. The portion of fees that was impacted during 2024 was the one related to the consumer loan book, so to credit and debit cards. Now even though now we are expecting a recovery of that business, we are expecting that portion of fees to be the one that impacts positively and makes us grow faster than what you have seen during 2024. You talked about digital fees. I guess, for us, it is difficult to split it because most of the fees that we have today are coming from digital because of the higher incidence of the digital claims, as you have seen, with the 80% retail clients and 70% commercial clients.

Speaker 3

As far as the tax rate is concerned, I mean, tax rate actually varies a little bit depending of the weight of two things, not the weight of bank versus insurance versus wealth management. That is one of the factors that impacts the tax rate of IFS. But the one that has impacted specifically the tax rate of the bank is the mix between the, let's say, the portion of the earnings or for the income of the bank that comes from tax exempted instruments, okay? So basically, especially at the beginning of the year, the tax rate for Interbank was particularly low because of the mix, and that has been going up to more normalized level as of the fourth quarter. So I guess when you look at the tax rate as a whole, during 2025, you should see a slightly higher tax rate when you put everything together and extra for IFX as a whole.

Speaker 3

So with the higher revenues of the bank as a whole and of the core business earnings.

Speaker 2

Yes. Maybe moving to the wealth management question, Bruno, Bruno, do you have a comment there?

Speaker 5

With regards to wealth management, we've already seen good growth in fees all 2024. We expect that to continue to be the case during 2025. The first half was a little slower in terms of portfolio returns with a good performance on the half. So we would expect a normalization on that end. I'm sure you know, but the last probably eighteen months were very volatile and in couple of quarters were affecting results.

Speaker 5

But again, the fourth quarter was very solid, and we expect that to normalize during the year. Perhaps the one thing that wasn't that great during 2024 was NIM. We were expecting rates to fall or Fed rates to come down a little bit faster than we saw last year. But as those rates continue to go down a little bit, we expect NIM to recuperate and do better this year as opposed to last. So I would say continued growth in fees, better NIM and more stable results in the portfolio should be the explanation for this year's results.

Speaker 2

Thank you, Ernesto.

Operator

Thank you. And our next question today comes from Nicolas Ribaud with Bank of America. Please go ahead.

Speaker 6

Thanks, Miguel and Mr. Ribaud for taking my questions. I have only one question about the Tier two bonds of Interbank. So last week, you raised the $325,000,000 the $350,000,000 with a new 2,035 bonds. I wanted to ask about the plan for the regarding the call option on the 2,030 Tier 2s in July.

Speaker 6

I would assume, given the new issue last week, that you're going to be calling the 2030s in July. But if you can discuss your thoughts on that, that would be helpful. Yes. Well, thank you very much.

Speaker 2

It's very simple. Yes, we're planning to execute that goal. That's the reason of the user proceeds of the issues with it. So you're right.

Speaker 6

Thanks, Vincent. Thank

Operator

you. And our next question today comes from Yuri Fernandes with JPMorgan. Please go ahead.

Speaker 7

Hey, guys. Thank you. Good morning, and congrats also for the 18% ROE. I have a question actually on this, on your guidance for ROEs on the 60%. I understand the cost of risk was very low this quarter, you also have the Intelligle help on high ROE.

Speaker 7

But 16% for next year, it's not embedding a lot of recovery, right? Like I know versus the full year, yes, it's a recovery, but versus the pace we are seeing on the 4Q. So I'm trying to understand if I'm being a little bit more conservative, if it is the tax rate going up a little bit, it's just the cost of risk in the 4Q that is not a good sample and should converge to the 3% of your guidance. Just trying to understand because not saying 60% is not bad, but I know your goal at some point was to return to 18%. And I don't know, I just would like to understand a little bit more the path towards like a higher fees ROE.

Speaker 2

Okay. No, thanks very much. That's a very good question. So actually, we're very happy with the result of this quarter, obviously. As you know, there's some seasonality in the results of IFS, especially at the bank, at Interbank.

Speaker 2

It usually ramps up. The last quarter, especially December, are normally the highest points of the year in terms of returns. And as you mentioned, Integer had very strong investment results. So I think they look like a 28% ROE. We're targeting more than 20% is our sustainable in terms of what we are looking at.

Speaker 2

So if you go through those types of adjustments, you'll get to lower numbers than the 80% that we specifically booked on the specific quarter. However, we need to well, we all need to understand we are rebuilding the consumer book. If that happens faster in a more efficient way in terms of cost of risk, depending on the performance of the premium economy, probably we have some upshot risk potential in terms of the numbers that we have guided. It's not that we are being extremely conservative. I think we are being cautious because there are some unknowns around next year.

Speaker 2

But obviously, we'll be trying to get on to each opportunity that comes up. So the combination of the seasonality, the way that we're going to ramp up the recovery and the strong results from investments are the ones that explain a little bit why we are still guiding a little bit below that. We do see is that last probably the last part of the year, we will be at those 18% levels. However, the question mark will be how we build into the first half of next year.

Speaker 7

Got it. So 80% to the target, maybe for the first half of next year. Is that correct understanding?

Speaker 2

Yes. So it's going to be lower in the first half, and then we'll be building up in the half.

Speaker 7

Super clear. Can you also provide some guidance on the ROE of the subsidiaries? The 20% on Intelligo, like as a more normalized, is a good guidance. Can you say on the insurance and the bank division, how do you see the ROEs of those units also?

Speaker 2

Yes. The way we're talking about medium term targets, yes, maybe I can pass it on to Miguel for a specific next year. Don't go that detail, I think, on guidance, okay? But our targets for ROE, again, is for IFS as a whole, 'eighteen, and that will be built up by, like, 'twenty and 'twenty for Intellu and Interceguro and 'eighteen at Intrubac. But we I think we'll say a way of going like year over year detail.

Speaker 2

It's just the overall number that you should focus on.

Speaker 7

No, no, no. Super clear. Yes, I understand. And just a topic here, just on growth. It's pretty good, high single digits, but I would like to understand how do you guys see the competition?

Speaker 7

You should see other players also like, I don't know, with this ambition to grow high single digits? Or basically, IFF gaining market share, like trying to understand the competitive outlook in Peru? Thank you.

Speaker 2

Yes. Obviously, the competitive landscape is we feel this very strong brew. I think we've proven year in, year out. We've built a franchise that can gain not able to gain scratch market share from competitors. So our idea in a system that does not grow that aggressively is to continue scratching market share on a reasonable and sustainable way, but that's our aim.

Speaker 2

Obviously, there are businesses where we have a higher chance of doing that and others where we already have a large footprint, it will be a little bit more difficult, but our aim is to, year continue to grow market share over our competitors. And this is particularly about banking. So maybe I can pass it on to Carlos, if you want to complement anything on how you particularly are seeing the competitive landscape for banking accounts?

Speaker 8

Yes. Thank you, Felipe. I would say the same thing. I don't know if we would enter and discuss each competitor. But the way we look at this is we're expecting the market to grow probably around or the system, not to grow around somewhere between 5% to 7%, which is a 2x multiplier over our expected GDP.

Speaker 8

And we've been growing higher than that for the last several years. Possibly, as Luis Felipe mentioned, we aim to recover a bit of the consumer finance book and maybe a little more growth there. We've seen in 2024, we grew more in commercial banking, where the system didn't grow. We aim to continue to grow a little bit higher than the system. So yes, we will grow we will gain market share.

Speaker 8

That is our aim. It won't be crazy. It will probably be a little above the market, particularly in consumer.

Speaker 7

Super clear. Thanks and congrats again on the quarter.

Speaker 2

Thank you.

Operator

Thank you. And our next question comes from Alonso Aramburu with BTG. Please go ahead.

Speaker 6

Yes. Hi, good morning, and thank you for the call. Two questions on my end. The one, a little bit of a follow-up on the previous question. Just trying to reconcile a little bit how you get to an 18% ROE, specifically at Interbank.

Speaker 6

You had a 16% ROE this quarter with a cost of risk of 2.6%. So if you're saying that your cost of risk is going to be 3%, it seems like something else has to improve materially for the ROE to go to 18%. So I'm just wondering whether that is margins, is that I mean efficiency? I mean, what how do you get there? And then my question is if you can give us some color on the mark to market gains at Intellio specifically, which securities were the ones that had those gains?

Speaker 6

Thank you.

Speaker 2

Okay. Also, yes, so to your question, it's basically just seeing how our consumer book has shrunk. So by rebuilding that consumer book and bringing in the yields of the consumer book and more activity, you'll have both positive impact of higher yielding loans plus more fee income because of activity and a bit of the control balance will be that this change in mix will increase cost of risk. But obviously, what we're planning is that the equation has to be positive. That will bring NIM up.

Speaker 2

Then we have some space for improved cost of funds a bit more. I think we are still in the recovery phase of going back to cost of funds where we had it some years ago. And I'm focused on efficiency as well. I think there's still some room. It will be more evident to be seen because of the increase in revenues, but still, we plan to continue market efficiencies and cost control.

Speaker 2

So that equation should bring back ROEs of the bank at levels that we've seen before of around 18%. And then on Intevigo, I think it's tough to go specific in terms of what instruments were the ones that brought the strong results. However, I would say it's the overall market sentiment for investments in last quarter was positive, both for fixed income and what we have in equity. So it's been across the board. Maybe Bruno, you can complement any particulars, but I think that's the overall sense that we have on the portfolio.

Speaker 2

Bruno?

Speaker 5

Yes. So like you were saying, Felipe, it was pretty much across the board. I think on in the fourth quarter, there was the main contributor was the equity part of our portfolio. And we have some investments in financials and technology stocks that performed well in the fourth quarter, and those had a good contribution to the overall performance of the portfolio.

Speaker 2

Okay. you. I hope we answered your questions, Alonso.

Speaker 6

Yes. Thank you very much.

Speaker 2

Thank you.

Operator

Thank you. And our next question today comes from Andre So to with Santander. Please go ahead.

Speaker 9

Good morning to all and thank you for the opportunity to ask questions. My question is a follow-up. I want to make clear if the numbers that you suggested in terms of the ROE for the business units, Is that what you expect in 2025? Or it's the medium term number? And specifically for 2025, what will be target mostly for Interbank?

Speaker 2

Yes. What I referred to was the medium term targets, Andres. So that's the way we build the vision of our sustainable eighteen percent ROE for IFS. So that's a new medium term. I think we're not going specifically subsidiary by subsidiary.

Speaker 2

Maybe we can do a follow-up on that. Right? I think we don't have that info right now. I don't if guys have any problem with this.

Speaker 3

I mean, just to say, you know, we have always we have always started at the 18% ROE medium term, which was a combination of 20% in terms of order, 20% in Teligo, and around 18% Interbank. So if you see what has happened in the fourth quarter of this year, the number that we have on the slides there, the 18.5% of IFS is a combination of a higher ROE of Inteligo, a high ROE of Intego, but Interbank still on 16% ROE despite the seasonality that we have discussed. So basically, due to the mix of the portfolio and the fact that we are still in the recovery phase of that business, that is the ROE that is still not on the midterm range. If you look at the numbers that we have already provided to you, and when we target the 16% ROE of next year, I mean, what I can say is that it's mainly because the bank is not yet in our midterm ROE. So that's the way how it works, and that should get to the 18% full year, not in most likely the year next to that because of the full recovery of the bank.

Speaker 3

I guess maybe that can help the explanation.

Speaker 9

That's clear. Thank you, Bob. And when I look at your NIM guidance for next year, it looks a bit conservative, considering the improvement in the funding cost and you expect already a recovery in consumer lending, so the mix should at least remain the same. What are your thoughts about the NIM? Is there any structural change in the system, in the bank that prevents you to have a higher NIM than the one that you currently have?

Speaker 9

Or is this the driver that is going to take the ROE to the 18% over the medium term?

Speaker 2

Yes. I think it's related to the pace of recovery of the consumer book. Again, we're happy the economy is improving at this. We're seeing no doubt that the salaries of Peruvians improving, but this is a process. It's not going to be automatic.

Speaker 2

So it's not that the first quarter of next year, we're going to see super growth in our consumer book. We again, we've been through cycles. We know that we're seeing some indicators of our recovery. However, we're still being very cautious in our approach to going back with more strength into the market. We need to see more indicators of this consolidating, and then our book will start to grow.

Speaker 2

And then in the half, we have to be cautious because of the potential volatility coming up from the pre electoral year. So that is still early to tell, usually, we know how this moves in terms of investments being delayed until there are more clarity in the picture. So again, we're cautiously optimistic, but we're being cautious even in the way we think we're going to rebuild them. If things turn out that this year that we get projects or crisis, obviously, we'll be ready to deploy more resources into growing our group faster. However, we coming from the part of the great cycle that we've gone through, we'd rather be careful rather than aggressive at this point.

Speaker 9

That's clear, Felipe. Thank you so much and congratulations on the results.

Speaker 2

Thank you.

Operator

Thank you. There appear to be no further questions at this time. So I'd like to turn the floor back to Ms. Casaso for closing remarks.

Speaker 3

Okay. Thank you, and thank you, everybody, for being with us today. We will see everybody again during our first quarter twenty twenty five results. Bye bye.

Operator

Thank you. This concludes today's conference call. You may now disconnect your lines, and have a wonderful day.

Powered by Quartr