Intercorp Financial Services Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2025

Key Takeaways

  • Intercorp reported a Q1 net income of $146 million—3.2 times last year’s result—with ROE exceeding 16%, marking a strong start toward its medium-term targets.
  • Commercial banking momentum drove an 8.2% YoY loan growth overall, with commercial loans up 19% and a 120 bps market-share gain, reinforcing its position as Peru’s largest bank.
  • Credit costs continued to improve, with the quarterly cost of risk at 2.8% (2.5% ex-Telefonica effects), down 190 bps YoY, and NPL coverage steady above 140%.
  • Insurance and wealth management remained leaders in their segments, with retail premiums up 36% and assets under management climbing 16% to a new all-time high.
  • Provisions for the Telefónica exposure totaled €144 million in Q1, creating a one-time drag on earnings and warranting close monitoring of any further fallout.
AI Generated. May Contain Errors.
Earnings Conference Call
Intercorp Financial Services Q1 2025
00:00 / 00:00

There are 6 speakers on the call.

Operator

Good morning, and welcome to the Intercor Financial Services First Quarter twenty twenty five 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, can submit online questions at any time today using the window on the webcast and they will be answered after the presentation during the Q and A session. Simply type your question in the box and click Submit Question. It is now my pleasure to turn the 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 first quarter twenty twenty five earnings. We are very pleased to have with Luis Felipe Castellanos, Chief Executive Officer, Intercorp Financial Services Ms. Michela Casasa, Chief Financial Officer, Intercorp Financial Services Mr.

Speaker 1

Carlos Torre, Chief Executive Officer, Interbank Mr. Consalo Desadre, Chief Executive Officer, Intertekuro Mr. Bruno Ferreto, Chief Executive Officer, Intelligo. 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 on (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. We're calling all as a pleasure to our twenty twenty five first quarter earnings call. I want to thank you for attending our call today. We have started the year with a positive sentiment of certain stability in the Peruvian economy with several consecutive quarters of growth exceeding 3%. This growth is driven by increased dynamism in sectors that linked to consumption and the sustained momentum of private investment, which is projected to grow by 6.7% year over year as of March 2025.

Speaker 2

We remain moderately optimistic about the future growth of Peru as private investments and consumption continue their positive trends. Consequently, the forecast for GDP growth is 3.2% according to the Central Bank. Nevertheless, before, we're cautious given that 2025 is a pre electoral year, which could generate some volatility. We are also aware of external factors that could impact global growth, which we expect could be offset by persistent high commodity prices. Moreover, the International Monetary Fund has recently updated its growth estimates, adjusting global growth downward by 0.5%, while increasing Peru's GDP estimate by 0.2, positioning Peru as one of the highest growing countries in the region for the year.

Speaker 2

The first quarter of the year of 2025 was positive for IFS with our ROE exceeding 16%. This performance aligns with our expectations and sets us on a path towards achieving our long term targets. We believe the positive trend should continue throughout the year. At Endrew Bank, we had a better than expected start to the year. We managed to increase our market share in loans, strengthening our position as the largest bank in

Speaker 3

the country.

Speaker 2

This growth has been mainly driven by our commercial banking business, where we gained over 120 basis points in market share. Moreover, we believe we are on

Speaker 4

the right path to for the recovery of our consumer portfolio, as we

Speaker 2

are seeing more cash loan disbursements, thanks to our improved underwriting standards and the more benign macro environment. However, we are not there yet. TCPAY and Interbank continue to seize business opportunities together, while GIM keeps increasing the engagement of users, fostering more primary banking relationships and supporting growth. At Intraseburo, 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, Intelligo, continues a positive dynamic with clients as assets under management reached a new all time high, growing by 16% year over year.

Speaker 2

We want to reaffirm our conviction to place our customers at the center of our decisions. As such, our key strategic priority at IFS is to achieve digital excellence for our customers and fostering primary relationships. Our ambition is to become a leading digital platform with a clear focus on key businesses and profitable growth, always providing a comprehensive suite of services supported by a world class digital experience and leveraging analytics as our competitive advantage. Going forward, we continue to be optimistic about IFS' prospects, which have proven to be resilient through the bottom part of the credit cycle. Our outlook on the back of the continued expected recovery of produced fundamentals is positive.

Speaker 2

As such, we continue executing our long term strategy. Now, let me pass it on to Michela for further explanation of this quarter results. Thank you.

Speaker 4

Thank you, Ms. Felipe. Good morning and welcome again everyone to Intercorp Financial Services twenty twenty five first quarter earnings call. We would like to start with our key messages for the quarter. we had a solid start to the year as we observed a good trend in earnings and profitability.

Speaker 4

Our net income reached million at IFS level and ROE exceeds 16%. we are strengthening our commercial and payments ecosystem as interest share of ECB flows now stands at 40%, allowing us to increase our market share in Commercial Banking by more than 120 basis points in the last year. Moreover, our consumer portfolio has stabilized in the past two quarters and started to grow back in the last three months including April. our quarterly cost of risk stood at 2.8%, which is 190 basis points below last year. Although, it is 20 basis points higher than the previous quarter due to the Telefonica impact on provisions.

Speaker 4

Excluding this effect, the cost of risk would have been 2.5% driven by the constant reduction in the retail cost of risk. the cost of funds remained stable this quarter, although showing an improvement on a year over year basis of 80 basis points. This improvement is primarily due to a faster pricing and improving funding mix. we are increasing primary banking relationships through a top digital experience. As a result, our retail primary banking customers grew 15% in the past in the last year.

Speaker 4

we have continued strong growth in our insurance and wealth management core businesses. The retail premiums grew 36%, driven by annuities and life insurance and assets under management grew 16%. Finally, this result includes an impact of around €144,000,000 in provisions due to the Telefonica deterioration. Even including this effect, the results are above our expectations, marking a strong starting point for the year and setting us on the path to our medium term ROE goal. Let's start with our key message.

Speaker 4

On slide four, the improvement in macroeconomic indicators has been steady over the last twelve months, primarily driven by investment and consumption. Consequently, GDP grew around 3.5% for the two months of the year, marking several consecutive quarters with growth above 3% as Ms. Felipe mentioned. Over the past year, most sectors have experienced growth with the most significant contributions coming from manufacturing, trade, other services, agriculture and fishing. In February, the primary sector contributed 2.3%, while the non primary sector contributed 2.5%.

Speaker 4

Regarding monetary policy, the Central Bank has successfully controlled inflation and currently within its target range with an expectation of 2% for 2025. The Central Bank has been proactive in managing the reference rate as yesterday it surprised the market cutting an additional 25 basis points standing now at 4.5% with no spread above the Fed rate. Additionally, the currency has remained steady throughout the year. Both inflation and the exchange rate are expected to remain stable in 2025. Looking ahead to 2025, the Peruvian economy is projected to grow by around 3.2%.

Speaker 4

This growth is anticipated to be stronger in the half of the year due to the pre electoral period, which typically reduces the dynamism in the half. Additionally, the IMF updated its global estimates increasing Peru's growth by 20 basis points to 2.8% despite reducing global growth by 0.5%. On slide five, consistent with the previous one, indicators show optimism in the labor market and private investment, while a key driver for growth has been the improvement in private consumption. Consumer confidence continues its positive trend, aligning with economic optimism and labor market recovery. As of February, formal employment and real formal wages have shown a year over year growth positively impacting private consumption.

Speaker 4

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. Analysts estimate a 6.7% growth in private investment in the first quarter. Regarding mining, several projects are planned for the upcoming years with total investments expected to surplus $50,000,000,000 by 2028. Some examples include Tia Maria and Llanacocha.

Speaker 4

According to Proimbercion, there are more than 80 infrastructure projects in the pipeline for the next two years with an estimated total investment of $17,000,000 mainly in the transportation and telecom sectors. Finally, although the fiscal deficit is above 3% of GDP, it is still better when compared to the region and the expectation for it is to return to 2.2%, which is within the fiscal group. On slide six, we are closely monitoring the evolution of economic policy in The United States, which is generating uncertainty in the business environment. In this context, we wanted to review the current status of Peru's trade. Firstly, it is important to note that The United States is no longer Peru's primary commercial partner, that's the representing approximately 13% of our total exports.

Speaker 4

Secondly, our main export products to The United States are agricultural goods, which have low price sensitivity. Therefore, we do not anticipate a significant impact of these products from tariffs. Finally, our main export products copper and gold remain at high historic levels in terms of price, which should provide additional support for investment in GDP growth. We believe that in the short term, the direct impact of these policies will be mild. However, as the trade war escalates and affects global growth, it could have repercussions in Peru's growth for 2026 and beyond.

Speaker 4

On slide seven and moving to the results and the good start of the year for IFS, IFS achieved earnings of $146,000,000 which is 3.2 times last year's result. The ROE reached 16.3%, surpassing our short term expectation and setting us on a path towards our medium term ROE goal. The year over year improvement is primarily linked to banking results as both the cost of risk and the cost of funds have significantly declined. Furthermore, insurance results had a positive quarter when compared to the negative first quarter of twenty twenty four. In banking, during the last quarter, net income has remained stable, which is positive considering the seasonal effect on banking results in the fourth quarter due to the high level of activity in December of every year and to the fact that in the first quarter twenty twenty five, we had around €41,000,000 impact related to our indirect exposure to Telefonica.

Speaker 4

In the insurance business, our core operations remained solid with annuities and life insurance continuing to grow. Moreover, this is the first quarter where the disability and survivorship premiums acquired from the Peruvian private pension system start. The increase in earnings in the first quarter of twenty twenty five is also attributed to a good performance in the portfolio despite the impact of around €63,000,000 due to the reform. Finally,

Speaker 2

in

Speaker 4

the Wealth Management business, the positive dynamic with clients continues. Additionally, investment portfolio performed well on a year over year basis. On slide eight, we have positive news as revenues increased 14% in the last year, a good performance in the three operating comments. we see 37% increase in revenues from Interseguro as we see most of the business lines, highlighting the visibility of rights mentioned before came into effect. there has been an important improvement in revenues at Interbank for Nigeria deliveries, driven by a reduction in the cost of funds and increase in fee income and other income.

Speaker 4

Finally, we continue to see strong performance in the core business at Telugu with better returns from the investment portfolio compared to the previous year. To conclude this section, we would like to share with you the key businesses in which we have focused our growth efforts. We continue to see strong growth in our commercial business showing a 19% year over year increase. Moreover, small businesses have shown 60% increase in loans and an 18% growth in deposits. Both have been boosted by our synergies with EasyPay, the strong focus on sales financing as well as our digital capabilities.

Speaker 4

On the retail side, consumer loans excluding favorable loans have stabilized. Meanwhile, mortgages are showing a 7% increase gaining market share and now ranking number three in the system. In insurance, we continue to grow our contractual service margin 27% in the last year as long term insurance such as life insurance, annuities and credit life show a positive path. Finally, wealth management will continue to grow with asset under management increasing 17% in a year over year basis. Now let's move on to our key message.

Speaker 4

Over the last quarters, we have observed a significant change in trend in the credit cards and personal loans portfolio. As the last three months including April has shown growth. Our focus has been on exploring different growth avenues within specific segments. Additionally, we have seen a reactivation in cash loans disbursements, which have increased by 27% and credit capture number, which has risen by 11% over the past year. We are growing with a better risk profile as we can see from the constant improvement in cost of risk of retail during 2024 and 2025.

Speaker 4

The enhancement of our internal models including customer centricity vision is allowing us to address growth in a healthy manner. On slide 12, we observed a year over year loan growth total loan growth of 8.2% in a context where the overall market has grown only around 2%. On the retail side, we experienced nice growth in mortgages with around 7% year over year. The consumer portfolio has still decreased by 4.8% on a yearly basis, although it has been stable in the last two quarters. The commercial loan book experienced significant growth this year.

Speaker 4

With a 19% year over year increase, it has gained relevance in the mix rising from 44% to 48% getting closer to our fifty-fifty balanced portfolio target. During 2024, we leveraged the Inbuso Mi Peru program, although we did not use the program in the first quarter of twenty twenty five. Midsize companies gained over two seventy basis points in market share, now consolidating as in the market. Sales finance remains one of our key products with market share growing from 16.9% just twelve months ago to more than 18% ranking in the market. Therefore, the commercial banking portfolio has outperformed the system gaining 120 basis points in market share reaching almost 11%, which is our all time high.

Speaker 4

As part of our strategy, we continue to strengthen our payment ecosystem with Plym and EasyPay. 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 Easy Pay as a distribution network for internal products as well as a source to increase growth. In this manner, our digital retail customers have grown by 16% and our clean active users by 20% over the last year. Moreover, Isipei and Isipei continue to gain traction with volumes from Isipei increasing two point x times, resulting in more flow coming to Interbank. Consequently, small businesses deposits have grown by 18% and Interbank share of Easy Place flows now stands at 40%.

Speaker 4

As a result of the synergies mentioned, we see positive trends in four key indicators as you can see in slide 13. Around 30% yearly increase in ECB cash flow coming to interbank accounts and 52% increase in float from merchants and 2.8 times share increase in transactional volumes and 66% growth in flow from micro merchants thanks to Isipela. Following with the message, we continue to see a positive trend in cost of risk. On slide 16, we wanted to highlight that the cost of risk and NPLs continue to be at low levels at 2.82.2%, 2.5% respectively. If we exclude the Telefonica effect, the cost of risk would have been 2.5% continuing the positive trend in this indicator.

Speaker 4

In general, both indicators have followed a downward trend over the last year, thanks to the improvement in economic indicators and better payment behavior from clients. The main driver for this positive trend has been the improvement in the retail risk profile. Over the last twelve months, credit cards and personal loans have decreased in size now representing 18% of the total loan book, down from 22% a year ago. The new vintages are healthier as the better macro environment is having a positive impact on the payment behavior of our customers. This has allowed cost of risk from retail to reduce consistently during the last twelve months to 4.1%, which is three eighty basis points below the levels of a year ago.

Speaker 4

Regarding Commercial Banking, the cost of risk was impacted by provisions made due to letters of guarantee held by Telefonica. Excluding this effect, the cost of risk would have been 0.3. This segment has performed well over the last year with approximately 11% of the commercial portfolio backed by guarantees from the Iguzu Mi Peru program. Finally, the NPL coverage ratio has remained stable above 140%. On slide 17, NIM has remained relatively stable, while risk adjusted NIM improved by 120 basis points on a year over year basis, in line with the improvement in cost of risk mentioned in the previous slide.

Speaker 4

The risk adjusted NIM excluding the Telefonica effect has remained stable in the last quarter. There continues to be an impact on yields due to the lower market rates and the shift of the loan book mix. Consequently, we see lower income loans of 80 basis points in the annual comparison reaching 10% by the first quarter. This trend should improve as we continue to grow the consumer portfolio. Now, we will deep dive into the cost of funds improvement.

Speaker 4

On slide 19, the cost of deposits continues a positive downward trend, not only due to lower market rates as we continue to reprice our liabilities, but also due to a better funding mix as the low cost funding has gained relevance representing 35% of our funding. It is important to mention that deposits have become a more relevant part of our funding structure increasing from 78% to 81% in the last twelve months with growth in both retail and commercial deposits. As a result, our cost of funds improved by 80 basis points on a year over year basis, although stable in the last quarter. Finally, our loan to deposit ratio stands at 97% in line with the industry's average. On slide 20, we wanted to take a closer look at the low cost funding strategy of Interbank, which primarily focuses on factoring saving deposits in current accounts with low to zero interest rates.

Speaker 4

To achieve this, we have implemented various initiatives aimed at enhancing the value added services provided to our clients. For example, the synergies we dissipate have enabled us to offer a more comprehensive service to our clients, thereby increasing the flow that stays at interbank accounts from IsiPay and generating a rise in the transactional deposits. This has contributed to a 16% increase in commercial low cost funding. Additionally, we continue to work on the engagement of clients and enhancing the customer experience to foster primary banking relationships in retail. Consequently, retail low cost funding has seen a 10% increase over the year.

Speaker 4

As a result, we achieved a 14% year over year increase, raising our share of low cost funding from 32% to 35% in the last year. Moving on to our digital strategy. We believe we are creating significant value in primary banking relationships through our digital developments and GIMP. Over the last year, we have been able to increase our retail primary banking customers by 15%, now representing more than 32% of our retail client base. To achieve this, we have been implementing commercial actions focused on increasing engagement and transactions, which have resulted in accelerated growth for Ping.

Speaker 4

The number of transactions doubled in the year over year comparison with active user increasing by more than 19% and the average number of transactions per user rising by 40%. Additionally, we believe we have solid key performance indicators that continue to improve. For example, our inflow paper accounts hold around 14% market share, Retail deposits are at approximately 15 market share and credit card accounts for account for about 26% market share. All of these metrics are supported by an NPS of 58, reflecting our commitment to customer satisfaction and loyalty. On slide 23, we continue to highlight the positive trends in our digital indicators compared to the previous year as we are continuously developing solutions to meet our customer needs.

Speaker 4

As a result, we have seen substantial growth in retail digital customers increasing from 77% to 82% as our commercial digital clients stand at 72%. The digital self-service indicator and digital sales have risen to 7870% respectively, thanks to our always on communication actions, which focus on educating customers about new self-service functionalities through the app and our virtual assistants. Finally, our NPS has recovered during the last quarter from 55 to 58%. Finally, the message is that there is strong growth in insurance and wealth management. Moving to insurance on slide 25.

Speaker 4

On a yearly basis, we see an increase in the contractual service margin of 27%, mostly driven by individual life and annuities. In the first quarter, we observed growth in individual life and annuities, reserves of 3638% respectively, driven by the generation of new business, which surfaces the monthly amortization of the CSM. Also, we see an increase in short term insurance premiums of 124 mainly due to disability and survivorship premiums acquired from the Peruvian private pension system through a two year billing process. The results from investments increased to 35% year over year. The return on investment portfolio reached 6.2%, mainly due to better real estate and investment funds valuation, offsetting the €63,000,000 provision due to telephoning.

Speaker 4

In insurance, we continue to focus on enhancing the digital experience for our clients and expanding ourselves from digital channels. The redevelopment of internal capabilities has allowed us to increase digital self-service to 69% from 63% of the previous year. Also, Bancassurance digital sales have reached 30% of total Bancassurance premiums and direct digital sales continue to grow reaching $23,000,000 in the quarter, up 15% from last year. For wealth management, assets under management continue to grow at an annual rate of 163% on a quarterly basis, reaching a new all time high of $7,500,000,000 despite a slight impact of market valuations due to lower volatility. Indrafondos had a important growth as the digital developments with the app earning have allowed us to grow more than 43% when compared with the previous year.

Speaker 4

This growth continues to support strong fee generation, which remains steady at $46,000,000 for the quarter. On the digital front, we continue to enhance our Interfolios app with the goal of shifting its role from a transactional platform to a true digital adviser for our mutual fund clients. As a result, we have seen a sustained increase in both the app adoption with a seven point year over year increase and digital transactions, which grew by nine points annually and now represent more than half of all client transactions. Now, let me move to the final part of the presentation, where we provide some takeaways. On slide 30, we wanted to give you a summary of our strategy, which focuses on three key strategic priorities.

Speaker 4

we aim to become a leading digital platform with profitable growth. IFS has demonstrated solid recovery during 2024 and continues to perform well during the first quarter of twenty twenty five with a net income 3.2 times larger than the same period last year. we strive to build primary relationships by placing the customer at the center of our decisions and offering the best digital experience. As a result, NPAs like the Retail Banking NPAs at 58 are at top levels and our retail digital clients are more than 80%. we continue to focus on our key businesses, maintaining a significant market share in consumer banking above 21%, ranking in the market.

Speaker 4

Retail deposits are around 15% market share, ranking in the market And Commercial Banking holds approximately an 11% market share, growing its relevance in the market. In annuities, we are the leader in over 30% market share. Finally, Wealth Management, Asset Under Management continued to grow at double digit rate reaching 17% year over year and surpassing previous markets. On slide 31, let me give you a review of the operating trends of the first quarter. Capital ratios remained at some levels with a total capital ratio above 17% and the core equity Tier one ratio close to 12%.

Speaker 4

Let's remember that we issued a Tier two bond for Interbank in January. Our ROE for the first quarter was 16.3 in line with our guidance for 2025 setting us on the correct path to achieve our long term goal. For loan growth, we grew 8.2% year over year in line with our guidance of high single digit growth. The first quarter was driven by commercial banking. We expect this trend of total loan growth to continue as we resume growth in the consumer portfolio.

Speaker 4

We expect a recovery of NIM for the rest of the year as the cost of funds improve due to a better funding mix and the yield on loans recovers in line with the consumer portfolio growth. Cost of risk remains in line with the last week guidance. And we continue to focus on efficiency at AFS as our cost to income was around 35% below guidance. On slide 32, we highlight our sustainability performance in the first quarter of twenty twenty five. On the environmental pillar, we continue to drive impacts through sustainable finance.

Speaker 4

Our outstanding sustainable portfolio has grown to $380,000,000 representing a $40,000,000 increase compared to 2024. Regarding our own environmental footprint, we have verified our 2024 carbon emissions, achieving a significant reduction of 27% compared to previous years alongside a 4% decrease in energy consumption, a key driver of our financial stores and many offices efficiencies. On the social pillar, we are consistently empowering entrepreneurs through our digital wallet EasyPay app, which reached over 47,000 entrepreneurs this quarter, totaling 1,100,000 users. Furthermore, underscoring our commitment to financial education, we have provided financial training to over 2,500,000 clients and non clients. Our inclusive insurance offerings also saw growth with more than 1,800 new sales of Roomba and Vida cash policies during this quarter.

Speaker 4

On the governance and transparency pillar, IFRS has been included in the Dow Jones Sustainability Yearbook 2025 for the consecutive year. We have also published a comprehensive IFS Sustainability Report in accordance with Let me finalize the presentation with some key takeaways. we have had a solid start to the year. growing commercial and payment ecosystem, while stabilizing the consumer portfolio. positive trend in cost of risk continues.

Speaker 4

improved funding cost continues driven by growth in deposits. we are increasing primary banking relationships to adopt digital experience. And six, growth important growth in insurance and wealth management continues. Thank you very much. Now we welcome any questions you might have.

Operator

Thank you. At this time, we will open the floor for questions. we will take the questions from the conference call and then the webcast questions. And the question will come from Andre So to with Santander. Please go ahead.

Operator

Pardon me, Mr. Sotel, you may be muted.

Speaker 3

Hi, good morning. Thank you for taking my questions. My question is related to your guidance and your expectations for 2025. During the call, mentioned expecting 15% ROE. I would like to confirm if that's still your expectation.

Speaker 3

And given that you're already at that level in the first quarter, which typically is seasonally low, what prevents you to expect a higher level for this year?

Speaker 2

Thanks very much for the question. Yes, at this point, we continue maintaining our guidance views. Obviously, we had a solid start to the year. However, we're not ready to change it yet. So we're remaining at that level and hopefully we'll have risk to the asset, but still early in the year or two.

Speaker 3

Thank you, Lucille. And regarding specifically loan growth, do you have any updated view on that front? You mentioned across the presentation significant improvement in investment and also consumer sentiment. Can we expect a forward revision to your initial expectations for loan growth? Or how you are seeing this year evolving?

Speaker 2

Yes. It's the same as mentioned before Andres. So we're seeing positive trends. However, this has to consolidate and materialize. So as you've seen, the consumer portfolio has not recovered yet, even though there's a positive sentiment, I guess, Peruvians are not looking to get in debt now.

Speaker 2

There's been lots of liquidity events in the market. There's talks about CPF being released again. There's talks about pension funds that might have another release that's being structured in Congress. So there are many moving parts towards And that consumer portfolio is still we're starting to see function. However, we are not where we expect to see it yet.

Speaker 2

And we are going to be very aware and bad enough as to change our view straight.

Speaker 3

Understood. Thank you, Lucille, and congratulations on the results.

Speaker 2

Thank you, Andres.

Operator

Your next question will come from Alonso Aramburu with BTG. Please go ahead.

Speaker 3

Yes. Hi, good morning. Thank you for the call. Two questions wanted to ask you if you expect any additional potential provisions or impairments from Telefonica?

Speaker 3

Or are you basically comfortable with the provisions you did in the And regarding your cost of risk, you have been around 2.5% the last couple of quarters. I believe the guidance was closer to 3%. I suspect that with the growth of consumer loans, cost of risk can trend higher assuming that happens. So just wondering if you can give us some color whether you expect this cost of risk to remain closer to 2.5 and not 3%? Thank you.

Speaker 2

Okay. Hi, Alex. So thanks very much for the questions. Regarding the Telefonica, based on the information we have now and our analysis of that situation, what we have in the book is our best understanding of the level will be needed for the short to medium term unless something drastically changes in terms of the process. As Guquena mentioned, our we have exposure in two of our subsidiaries.

Speaker 2

One is very straightforward. This is Interceguro that has bonds issued and we were more than 50% covered on that front. That's what our models are saying. And then in the bank, it's a little bit tricky because it's not direct exposure. Miguel mentioned as well.

Speaker 2

It's a contingent credit subject to certain procedures with tax authority. So the probability of that becoming a real obligation is not that direct. I mean, it will probably take some time. However, we've been cautious and we've done a big chunk of what could become at some point direct exposure. So based on what we have now, we feel comfortable.

Speaker 2

Again, if there will be the process as well, our understanding is that we are well covered. However, if something drastically changes, we'll need to do something else, and we'll obviously communicate as soon as we get that. Regarding cost of risk, maybe capacity to Carlos or Michele, but I guess that 3% seems or the growth of the consumer, not the recovery of the credit cards and cash loans portfolio. Don't know, Carlos, maybe you can complement on it.

Speaker 5

Yes, definitely. So we have started to grow in the credit card and portfolio and cash portfolio. The last two months, we have grown not as much as we would have liked. However, the growth, Alonso, I think when we look at credit cards, there's two things that are very important. The one is whether our banking organization is working and clients are using our cards, and that is happening.

Speaker 5

We've seen we have seen over 10% growth in turnover with our cards, and that is good. The value proposition is working. We're seeing traction. So that is good. However, as you have seen over the last couple of quarters, our vintages have been focused on lower risk and higher profile clients.

Speaker 5

So those clients are paying faster their loans and it's harder to grow the portfolio. So even though we have been seeing good results in the value proposition, we have not been able to grow the portfolio as much. The later vintages, the last couple of months, we have started to increase the level of risk. We're being very conservative on how we do this.

Speaker 2

We don't want to go

Speaker 5

on the other side. And there are certain things that obviously help prepayments, which is as Luis Felipe mentioned, the CTS. Obviously, December, Peruvians get a double salary. So that kind of lowers the amount of our portfolio. But we have seen this trend reverse and we will continue to monitor.

Speaker 5

If we increase risk, you will see two effects. It will affect NIM positively obviously, but also maybe a little bit of increase in the cost of risk taking us closer to the 3% that was in our guidance.

Speaker 4

Yes. Maybe if I just can complement one thing related to what we were expecting and what we are seeing, We are growing the portfolio 8%. So this is what we were expecting. Maybe the mix is being a little bit different. So in the mix, we are seeing a little bit less consumer lending.

Speaker 4

So in the numbers that you see, there is a little bit of pressure in NIM, but also improving the cost of risk. So at the end, the NIM after risk is the one that is performing better than what we expected, and that is also helping the ROE.

Speaker 5

Absolutely.

Speaker 3

Perfect. Thank you. Very helpful.

Speaker 2

Thank you very much.

Operator

Our next question will come from Ernesto Gabilondo with Bank of America. Please go ahead.

Speaker 3

Thank you. Good morning, Luis Felipe, Nicolas. Congrats in the results despite the impact of Telefonica. Most of my questions have been answered. So just a question in terms of competition and also the evolution in terms of the credit card portfolio.

Speaker 3

As you are mentioning, it's in a gradual recovery expected to accelerate in the half. And how are you seeing also this evolution in your competitors? I believe in the past conference call you were saying that you were trying to see to be relatively flat or experience a smaller decline when compared to the competition. So I just want to compare that now how you're seeing competition and the evolution of the credit card portfolio. Thank you.

Speaker 2

Okay. Hi, Ernesto. Thanks very much for the question. I guess, yes, the initial competition are the same. Like after the impact of the credit cycle that was I was looking at some numbers of course in the last ten years, everybody went to the cautious perspective in the portfolio.

Speaker 2

And we are starting given the positive macro backdrop that we are experiencing more appetite towards growth in the consumer books, including credit cards. So again, that very decent chance that what we have described for our portfolio. We are starting to see growth in our book, and we are also seeing the system as a whole recover. Some competitors being more aggressive than others. Some are still digesting late vintages where they put the rates later than others.

Speaker 2

But overall, the trends continue to be the same.

Speaker 3

Perfect. Thank you very much, Cusandice.

Speaker 2

You're welcome.

Operator

At this time, we will take webcast questions. I will now turn the call over to Mr. Ivan Peel from Inspire Group.

Speaker 1

Thank you, operator. The question comes from Daniel Mora of Credicorp Capital. What is the status of the Telefonica corporate case? Did you reach the desired level of coverage? Or can we expect higher provisions in the upcoming quarters?

Speaker 1

And what would be the normalized figure of net profits and return on average equity in the first quarter if we clean for this effect?

Speaker 2

Harry, Daniel. I guess, we already answered that question. Again, based on our model and our analysis and the current status of the Telefonica case, we think we're well covered. If something drastically changes, we'll probably have to do more. Or if something improves, obviously, we could release some of the provisions.

Speaker 2

But based on the information we have now, we are comfortable with the level of issues that we have. We don't expect to do anything in the short term. And if you take almost that one time and you want to see that way probably our earnings would have been north of $100,000,000

Speaker 1

Is there further room for a cost of funds improvement considering the recent decrease in the Central Bank rate? What are the NIM expectations for the rest of the year due to the funding repricing, but still weak consumer segment dynamics?

Speaker 4

Yes. There is still room that is little room to improve the cost of funds, okay? There is space because of the decrease in the reference rate. But on the other side, we have also issued

Speaker 1

The next question comes from Santiago Martinez of Credit Corp Capital. We saw the consumer loan portfolio contracting 4.8% year over year in first quarter twenty twenty five, mostly due to a 9% decline in credit cards. You've mentioned a recovery is expected in the half of the year. What key indicators are you monitoring to support this view? And do you expect consumer loan growth to be strong enough to meaningfully support NIM and overall profitability in the

Speaker 2

increasing our risk appetite. It's a matter of the consumer preference as well. There's lots of liquidity in the system right now. That's kind of a general overview. Let me pass it on to Carlos, who is more engaged in the detailed strategy of the actions we're taking in our commercial strategy, so he can give you more clarity on your question.

Speaker 2

Yes. I guess

Speaker 5

it's similar to what I mentioned earlier. The I heard the question is how many people use our card things. And we have seen an increase in the use of our cards over the last couple of months. Some of that is being prepaid and some of that is being kept as a revolver. We have seen growth over the last two months.

Speaker 5

So that is positive. It's still small, but it's a reverse in the trend that you mentioned in your question. So that is good. We have seen an improvement in salaries informal salaries and formal employment, which usually is a good indicator. And then there are other forces that work against the growth of the portfolio as I mentioned, which are if there's a lot of liquidity in the system due to the releases of CPAs or if there's an AFP release again, that might make clients prepay some loans.

Speaker 5

But in general, we're seeing good trends in terms of usage, in terms of preference and also some increases in balance with very or with good cost of risk. So in general, those are the things we look at. And it's trending positively, not hugely positive, but positive trends. So that's something that we're monitoring closely.

Speaker 2

Thank you, Carlos.

Speaker 1

At this time, there are no further questions. I would like to turn the call over to the operator.

Operator

Thank you. There appear to be no further audio questions as well. I would like to turn the floor back over to Ms. Kasassa for any closing remarks.

Speaker 4

Okay. Thank you very much. Just to summarize that we are very happy about a strong beginning of the year And we'll see you all again in our second quarter earnings call. See you. Bye bye.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.

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