Good morning, everyone. I would like to welcome you all to the Credicorp Ltd. Fourth Quarter 2022 Conference Call. A slide presentation will accompany today's webcast, which is available in the investor section of Credicorp's website. Today's conference call is being recorded. As a reminder, all participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you have connected to the call using the HD web phone on your computer, please use the keypad on your computer screen. If you are using a speakerphone, please make sure Your mute function is turned off to allow your signal to reach our equipment. Now it is my pleasure to turn the conference over to Credicorp's IRO, Milagros Cifuentes. You may begin. Thank you and good morning speaking on today's call will be Gianfranco Ferrari, our Chief Executive Officer, and Cesar Rios, our Chief Financial Officer. Participating in the Q&A session will also be Reynaldo Llosa, Chief Risk Officer, Diego Cavero, Head of Universal Banking, Francesca Raffo, Chief Innovation Officer, Cesar Rivera, Head of Insurance and Pension, and Carlos Sotelo, Mi Banco's Chief Financial Officer. Before we proceed, I would like to make the following safe harbor statement. Today's call will contain forward-looking statements which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties, and I refer you to the forward-looking statements section of our annual release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. Gianfranco Ferrari will open the call and will comment on the key milestones achieved in 2022, followed by Cesar Rios, who will comment on the macro environment in which we work, our financial performance, and provide our guidance for 2023. Gianfranco, please go ahead. Thank you Milagros good morning everyone thank you for joining us. While we reported a solid quarter, I would like to reflect on some of the key accomplishments of the year. First of all, I am closing my first year as CEO of Credicorp. As you know, when I came into the role earlier in 2022, I had already spent many years with the group, and in particular, at BCP. I had worked as part of the prior leadership to establish the foundation of what are the key strategic initiatives that guide us today. In particular, I am very proud of the important work we've done in advancing our governance and operating structures over the last three years, aimed at ensuring that sustainability would remain an important part of how we do business. Today, sustainability is being integrated into our strategy, propelling our ability to become the change agent that we aspire to be and driving positive impact in the countries in which we operate. As sustainability becomes more entwined with the core of our business strategy, it is present in how we think and act every day. We have shifted the way we operate in record time because our purpose and commitment have been embraced from top-down to bottom-up, leveraging our competitive advantages to be a key enabler of financial inclusion and financial education in the Andean region. We've launched multiple initiatives across our subsidiaries. I would like to highlight that in 2022, we have financially included more than 1.1 million people through Yape, and our financial educational web series at BCP surpassed 47 million views. This year has also been a year of learning for me and an opportunity to flex my strengths. I reinforced my knowledge of all our businesses, including insurance and wealth management, which were newer to me. Moreover, I lent a hand to our overall digital transformation strategy based on my experience at BCP, where we are more advanced in this area. Fundamentally, our digital strategy is aimed at facilitating our ability to live our purpose and achieve our sustainable growth objective for expanding our total addressable market and strengthening our operational drivers. We highlighted at our digital day in March of last year, the innovation initiatives that are taking place through innovation labs, where we're disrupting ourselves and expanding our tech capabilities and data-driven approach at each of our subsidiaries. Our more mature disruptive initiatives, such as Yape, keep growing exponentially and are positively impacting society. At the end of the year, Yape had over 11 million users in Peru and is a daily part of Yaperos' lives solving their financial needs. To give you a sense of how prevalent Yaperos are in Peru, approximately half of the adult population in Peru use Yape. We are on the track to be the payment network for Peru. Please turn to slide one. Overall, we have had a very positive year, not only based on our solid financial results, but most importantly, I would say that as a holding, we have already absorbed the negative impacts due to COVID. On a full year basis, our net income grew almost 30%, and ROE was 16.7. We maintain our prudent stance in managing risk, and our cost of risk is on the road to normalization. We go into 2023 with a very strong balance sheet to both support our initiatives as well as navigate any near-term volatility in front of us. It is important to highlight that despite continued political instability, fundamentals in Peru remain strong, including the relatively low levels of debt to GDP, important levels of international reserves, and an independent central bank led by a technical and experienced board. Having said that, there are some important highlights of the year that I would like to point out. First, the very strong performance of BCP, turning in an ROE of 22% for the year. Second, Mi Banco is on track to deliver the ROEs we expect for that business. Finally, Pacifico, a business where you had expressed reservations in the past, has now reached an ROE of 19.2%. We are optimistic about our ability to keep increasing the levels of penetration of this business. On the other hand, we still face a challenging environment for investment banking and wealth management, requiring us to redefine our strategy going forward to reach the ROEs we aspire to with these businesses. I expect that we will be able to share more details on this regard during our next call. Before I pass the word to Cesar, I do want to acknowledge how concerned we are that, again, the continued political turmoil and the social unrest we're experiencing in Peru after the failed coup of December 7th, has resulted in near-term headwinds, not only to our businesses, but most importantly, to Peru and its citizens. We at Credicorp remain focused on fulfilling our purpose and take very seriously our responsibility and obligation to step up, speak up, and more proactively work to solve the fundamental structural issues in the countries we operate. We are accelerating our agenda of inclusion and financial education, key factors related to poverty alleviation. Through greater inclusion, we aim to offer to those more vulnerable greater levels of security through savings, income generation, and economic independence. Cesar, please go ahead. Thanks Gianfranco good morning everyone we are closing a very good year where the fourth quarter reflects less favorable macroeconomic perspective in Peru, which translated into higher provision and the habitual seasonality in expenses at year-end. I want to start by highlighting some key quarter-over-quarter dynamics. Structural loans grew 0.8%, measuring average daily balances, driven primarily by retail banking at BCP and Mi Banco. Deposits contracted 3% due to a drop in demand deposits in a context marked by lower liquidity across the financial system. Low cost deposits, which have fallen in recent quarters after having increased significantly in 2020 due to the pandemic relief measures, still represent a significant proportion of our funding base, weighting in with 50.7% share at quarter-end, offset by the improvement on Mi Banco and consumer segment NPL portfolio. A structural cost of risk increased by 85 basis points to a stand at 2.06%. At BCP, growth in provisions was driven by an update to our estimate for key macroeconomic variables such as inflation, interest rate, and GDP growth, and also reflects the negative impact that rising inflation has had on payment behavior in the consumer segment. Provisions at Mi Banco also increased materially this quarter due to an unusually low comparative base and to an increase in the low portfolio default ratio. This evolution was driven by maturities of a specific vintages, which led to us change our credit policy in the second quarter of 2022. From a year-over-year perspective, net interest income registered very strong growth of 30.9%, driven by 10.4% expansion in structural loans measured in average daily balances. Ongoing repricing of our portfolio in a context of higher rates and a very competitive funding base. Gains on FX transactions increased due to improvements in products and channels. Fee income decreased due to a drop registered in investment banking and wealth management, which was partially offset by growth at BCP Stand-alone. Provision expenses increased materially over an atypically low base last year. Asset quality remains adequate, and we continue to maintain a strong allowances for loan losses, which are equivalent to 5.6% of the structural loans. Our coverage level for structural and non-performing loans remains substantial at 112.2%. In the insurance business, the low ratio fell significantly to 65.4%. At the beginning of 2023, conditions for emerging markets improved due to two main drivers. First, inflation in the U.S., to the surprise of many, is trending downward and is now far from its peak in June. This has raised expectations that the Fed will slow down the pace of rate increases even further in what is already its most aggressive rate hike cycle in four decades. The Chinese government shifted gears and eased its highly restrictive COVID-19 stance and moved to shore up the real estate sector, seeking to propel economic growth. Both of these factors have had a positive effect on metal prices. Prices for copper, Peru and Chile's main export product, reached the highest level in seven months of around $4.2 per pound. Gold, another of Peru primary exports, hit a nine-month high. As inflation decelerates, U.S. Treasury yields have dropped, which generates a more favorable environment for emerging markets as a whole. Next slide, please. Peru's GDP is expected to grow around 2% this year if social unrest ceases this quarter. We believe that GDP in Colombia will decelerate to 1.3% after posting one of the highest growth rates in the world in 2022. Chile, in turn, is expected to contract 0.5%. Latin central banks have been decisive in preventing the deanchoring of inflation expectations. In the context of a slowing inflation, Chile Central Bank maintained the same monetary policy rate in four consecutive sessions. Colombia Central Bank, on the other hand, instituted rate hikes at a strong pace given the inflation shows no signs of peaking. In Peru, upside risks to inflation have emerged recently in a context of social unrest. As such, central bank decisions in the immediate future are likely to be influenced by the impact of the current scenario, which may mean that record high interest rates continue longer than previously expected. Next slide, please. Despite the challenging context, BCP continues to deliver a strong profitability. Regarding key quarter-over-quarter dynamics, results were driven by an increase of 8.4% in core income. This evolution was spewed by 12.2% growth in net interest income, which rose despite the fact that the average daily balances of structural loans registered little variation. Our disciplined approach to pass-through in a context of rising interest rate, coupled with our ability to leverage a transactional funding base to mitigate the impact of rising funding costs, has bolstered our results. This quarter, gains in FX transaction grows as we leverage intelligence capabilities in a volatile FX market. Fincom failed this quarter after fees were eliminated for transfers between different cities in September 2022. Accordingly, transactional fees paid to third parties were up due to higher volumes. The aforementioned growth was offset by an increase in provisioning, mainly in retail banking, due to new macroeconomic perspective for inflation, reference rates, and GDP. Additionally, payment behavior in the consumer segment was impacted by raising inflation. Finally, provision expenses increased in wholesale banking over a low base last quarter. Operating expenses were also up due to seasonality. In this context, return on average equity stood at 20.4%. On a full year basis, growth in net income was spewed by a 28.5% increase in net interest income, which was bolstered by rising interest rate and a 12.2% increase in structural loans measuring average daily balances. Wholesale banking grew 12.3%, while retail banking expanded 12%. Additionally, Fincom increased 11.3%, fueled by an uptick in transactional levels, particularly through digital channels and POS, and growth of 12.4% in the net gain in FX transactions as we manage FX volatility and roll out improvements in product and channel offerings. Loan loss provisions increased 55.6%, driven by the consumer and SME segments. In the consumer segment, payment behavior was affected by higher observed inflation and an unusually low base in 2021. In SME payment, higher provisions respond to growth in higher risk segments, particularly through the new digital offer, which correlate with higher interest rates. Operating expenses grew 13.4%, driven by growth in variable compensation, which was in line with higher income, an uptick in IT expenses to bolster transactions capabilities, and an increase in investments in disruptive initiatives. In this context, BCP's efficiency ratio stood at 40.7% and its ROE at 22%. These indicators reflect improvements of 270 and 230 basis points respectively. Please turn to the next slide. Yape has more than 11 million users and 8.1 million active users. If we consider users that make at least one transaction per month, Yape is closest to reaching its 2026 target of 10 million active users. Currently, 42% of Yape's active users generate revenue, and this number is on the rise. We continue to see positive trends across most of our metrics, including the measurement of our transactional volume, which grew more than 2.6 x this year to reach PEN 66.2 billion in 2022, with 19.5 monthly transactions per active users. Yape top-ups are trending upward and reached PEN 9.8 million in December. This translated into market share of 25% of total top ups in the Peruvian market. As one of Peru's most important distribution channels, Yape, is creating new sources of income for Credicorp through Yape Promos and Yape Microloans. By 2026, we expect 5 million affiliates will have accesses a financial product through Yape. Next slide, please. Mi Banco registered a drop in profitability this quarter, which was primarily driven by growth in provisions. I would like to look at the key quarter-over-quarter dynamics. The company hit a record high for disbursements, and a peak in disbursement yield helped us mitigate growth in the cost of funds. Nonetheless, results were impacted by higher provision due to two factors. First, as anticipated, we've registered a unusually low base last quarter after methodology improvements were incorporated to the model. Second, a specific vintages matured, which increased the portfolio default ratio. The higher risk reflect on these vintages was expected and drove our decision to review our risk appetite in the second quarter of 2022. Mi Banco's structural NPL ratio dropped due to an uptick in write-offs, and it stood at 5%. As a result, Mi Banco's quarterly earnings dropped 68% quarter-over-quarter. From a full year perspective, net interest income grew 15% in 2022, driven by an increase in structural loans and in disbursement rates. Provision expenses rose 15% in 2022, which was attributable to loan growth and evaluation in our risk appetite. Operating expenses grew 7% year-over-year, driven mainly by marketing and IT expenses and by variable compensation, which reflected growth in earnings and fulfillment of commercial targets. In this context, the efficiency ratio dropped to 51.3% in 2022, while ROE stood at 16.5%. At Mi Banco Colombia, pricing strategies and significant loan growth were challenged by a quick rise in the cost of funds, which reflected the evolution of market rates. Provision expenses were well controlled. Operating expenses grew in line with portfolio expansion and initiative to develop new capabilities. Next slide, please. Grupo Pacifico net income, it decreased 25.4% quarter-over-quarter. In the life business, net earning premiums decreased over a particularly high base due to seasonal effects. This dynamic was partially offset by a drop in net claims of COVID-19. In the PC business, net earning premiums increased primarily in commercial lines due to an uptick in renewals. This evolution was partially offset by higher claims in commercial lines. From a full year perspective, Grupo Pacifico's net income rebounded, driven by both the life and PC business. In the life business, net earning premiums increased, driven primarily by group life through price adjustments and an increase in sales of the complementary insurance for occupational risk products, and secondarily by an increase in the affiliate base in disability and survivorship. This positive dynamic was accompanied by a drop in COVID-19 claims, which were substantial in 2021. In the property and casualty business, net earning premiums increased primarily in personalized due to growth in sales of car protection products through bancassurance and oncology products via medical assistance. Claim growth, particularly in the commercial line after economic activities normalized. These dynamics led the total loss ratio to a standard 67%, which is close to pre-pandemic levels. In this context, Grupo Pacifico's return on equity stood at 19.2% this year. Next slide, please. The investment banking and wealth management business, while still challenged by market conditions, has registered a slight recovery in recent quarters. On a quarter-over-quarter basis, earnings rose driven primarily by capital markets, where gains were registered in the proprietary fixed income portfolio, and secondarily by corporate finance, where a number of deals were closed at year-end. Asset management and wealth management remain flat. From a full year perspective, assets under management dropped 18.7%, driven by fund outflows in Peru and Chile, and a decrease in market value of funds. In this context, income fell 13.1%, primarily in asset management. This reduction occurred over a high base last year when we registered a strong gain from anticipated redemptions and third-party upfront fees due to migration to offshore products in a context marked by political risks. The change in the market environment led us to initiate a strategic review for this business, which is close to completion. We have identified key levers to achieve long-term profitability and are determining which business represent the greatest opportunities for growth and which can be used as platform to capture efficiencies. Next slide, please. We will talk about Credicorp consolidating dynamics. On a quarter-over-quarter basis, our interest earning assets fell 3.1% due to a drop in available funds, investments, and Reactiva loans. Structural loans grew 0.8%, driven by retail segments and Mi Banco. Amortizations in wholesale banking clients partially offset this growth. Our funding base dropped 4.7%, spurred mainly by a decrease in demand deposits. The positive impact of asset repricing and higher yield assets-A structural help offset the increase in the funding costs. In this context, the yield on our interest earning assets rose 65 basis points versus an expansion of 29 basis points in the funding cost. On a full year basis, interest earning assets and funding followed trends similar to those in this quarter. On the asset side, there was a shift in the mix where higher yield structural loans, namely microfinance and consumer loans, registered higher growth than that seen in other segments. In terms of our deposit base, the mix tilted to higher cost products, where time deposits were up 23%. These dynamics, and the fact that we maintain a large share of the market transactional deposits, led increase in our asset yields to outpace growth in the cost of funding. Next slide, please. I will discuss the evolution of core income. On a quarter-over-quarter basis, core income grew 5.6%, driven primarily by an increase in net interest income. The net interest margin rose 42 basis points to a stand at 4.73%, while the structural NIM stood at 5.95%. Risk-adjusted NIM fell 6 basis points to a stand of 4.44%. The net gain in interest transaction also increased. Fee income fell 4%, driven primarily by the elimination of fees for intercity transfer and the decrease in fees paid for third parties, mainly to the higher transactional volumes. On a full year basis, core income grew 17.9%, fueled by growth in net interest income, which rose 23.1%, in line with an uptick in loan volumes and interest rates. NIM grew 97 basis points and reached 5.07% in 2022. Risk-adjusted NIM stood at 4.27%. Net gains on interest transactions grew 17.5% and also boosted the core income results. Fee income rose 4.2% driven by an uptick in POS transactions, higher fees for personal loans disbursement, and an increase in bank-to-bank transfer. The 9.4% increase in banking services fees was partially offset by a drop in fee income from mutual funds. Next slide, please. I will now move to Credicorp's structural loan quality dynamics. On a quarter-over-quarter basis, our structural NPL volumes increased slightly. NPL volumes increased mainly in wholesale banking after some clients in the retail and wholesale sectors avails of refinancing after having been reprogrammed during the pandemic. SME team, due to overdue loans of clients in a segment which higher risk profiles but also higher margins. Asset quality in each segment remains within our expectations and provision levels remain adequate. The aforementioned increases were partially offset by a reduction in NPL volumes at Mi Banco and in consumer loans due to write-offs. Year-over-year, similar to quarter-over-quarter, the increase in NPL volumes was driven primarily by wholesale and SME-Pyme. Write-offs in SME-Pyme and Mi Banco are expected to continue given that regulatory restrictions or charge-off of loans to clients that possesses both a structured and Reactiva loan have been lifted. Credicorp's structural NPL ratio was basically flat at 4.95% after decreasing NPL volumes while it was offset by higher loans balances. Next slide, please. Let me explain structurally long lost provisions dynamics. On a quarter-over-quarter basis, growth in structural provisions was driven mainly by BCP and Mi Banco. The main drivers at BCP were updates to macroeconomic projections for inflation, interest rate, and GDP, which impacted retail banking in particular. The impact of high inflation on payment behavior in the consumer segment. At Mi Banco, the main drivers were unusually low base last quarter and the maturity of specific vintages which led to default ratios for the portfolio to rise. On a full year basis, the structural provision expenses increased 38% over an exceptionally low base and are moving towards normalized levels. In this context, the structural cost of risk stood at 2.06% this quarter and 1.26% this year. The structural coverage ratio stood at 112.2%. Next slide, please. As mentioned last quarter, a significant portion of our annual expenses are registered in the last quarter of every year. To base our analysis on comparable figures, we explain the evolution of efficiency in accumulated terms. Operating expenses grew 11.5% on a full year basis, which reflected an increase in administrative expenses and in salaries and employee benefits. Growth in administrative expenses were driven by an uptick in IT expenses related to cyber security, new functionalities, a significant higher digital transactional volumes, and an increase in expenses for fees, which reflect growth in transactions. Finally, the acceleration in disruptive initiatives. Salaries and employee benefits grew 10.5%, driven by growth in variable compensation and by an uptick in hiring of the specialists for disruptive projects and IT. In this context, Credicorp's efficiency ratio improved 150 basis points on a full year basis, driven by higher core income at BCP standalone and Mi Banco. If we exclude investments in disruptive initiatives such as Yape and Krealo, the efficiency ratio for the year stands at 41.6%, which represents a difference of 290 basis points from the reported figure. At BCP and Mi Banco, which account for a significant part of operating expenses, operating income grew faster than operating expenses in 2022. In this context, BCP efficiency ratio fell 270 basis points and Mi Banco's 410 basis points. Next slide, please. Credicorp's full year profitability was fueled by better results at Universal Banking and Microfinance and a solid recovery on the insurance front. Profitability was impacted by lower results at the holding level, mainly due to a decrease in net financial results and higher expenses for withholding taxes. Net financial results at the holding were impacted by an increase in the negative carry of the senior bonds, in line with the devaluation of the investments made with the use of these proceeds. Regarding tax expenses at the holding, in 2022, the provisions for withholding tax increased, reflecting higher expectations of dividend payments. ROE for the full year stood at 16.7% this year, 276 basis points above the level of 2021. Note that ROEs for the first and second semester were somewhat higher than the full year figure, given that the equity balance at the end of June was lower. This reflected dividend payments and the accumulation of unrealized losses at the end of the first half of the year. I will move on to the outlook. Despite current political volatility and social unrest, Peru's macro fundamentals remain solid and we expect Peru GDP to grow between 1.8% and 2.2% in 2023. In terms of our loan portfolio, we expect our structural loan portfolio measure in average daily balances to grow between 6% and 10%, driven mainly by retail banking. The evolution of total loans will depend on the pace at which Reactiva balances are amortized. High levels of interest rate, the shift our loan books toward a higher yield mix, and our competitive funding base will positively impact NIM. Accordingly, we expect NIM to stand between 5.8% and 6.2%. The cost of risk guidance is between 1.5% and 2%. This range reflects higher uncertainty and an ongoing trend back to pre-pandemic figures at a segment level and the shift of our loan portfolio mix towards retail. In 2023, we will continue to invest significantly in digital transformation and disruptive initiatives to bolster our long-term competitive position. In this scenario, the efficiency ratio is expected to situate between 44% and 46%. In the aforementioned context, we expect our ROE to situate around 17.5%. Please consider that this guidance is based on the application of the IFRS 4 accounting standard. This may lead us to adjust these numbers in May as we implement IFRS 17 in the insurance business. With these comments, I would like to start the Q&A session. Thank you. We will now begin the Q&A session. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you have connected to the call using the HD web phone on your computer, please use the keypad on your computer screen. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We will pause for just a moment to allow everyone the opportunity for questions. We also ask that you please only ask one question at a time. After each question has been addressed by our speakers, you will then be allowed to ask as many follow-ups as needed. Again, please only ask one question at a time. Thank you. Our first question comes from Roberto Gerona with the Bank of America. Please go ahead. Hi good morning Ernesto Gabilondo from Bank of America. Hi Gianfranco, Francesca and Cesar thank you for the opportunity. My first question is on operating expenses and the digital investments strategy. We have seen a trend in the region that is focusing in profitability versus client growth, and also looking for an accelerated pathway to monetize the clients. The experience in the region has been to have digital deposits and digital loans to monetize the clients. I think it has been coming from both and not starting with the asset or the funding side. Also we have seen that digital payments, digital wealth management, the marketplace, digital insurance, are more complementary products, but are not enough to monetize the clients. We have seen Credicorp has been investing in two neobanks, in the digital payments. It's exploring to launch a marketplace and has investments in some fintechs among other initiatives that you have. However, considering that Peru is still not facing fintech competition like in Brazil, Mexico or Colombia, wouldn't it be reasonable to refocus the digital strategy on accelerated profitability and then maybe use those earnings to invest in other digital initiatives? I would like to hear your thoughts on this and how should we expect in terms of the operating expenses and the digital investments. Thank you. Hi good morning Roberto thank you for your question. As we mentioned in the... I don't recall if it was the previous call or two calls ago, we do see the new competitive environment as positive, but for the exact same reasons you mentioned, as positive for incumbents like us, because the what I call happy money has somehow dried up for new ventures. Regarding our strategy, we do believe that the current strategy we have is the right one. We as Cesar mentioned, I believe 280 basis points out of the cost to income of Credicorp, it was expensed, not spent, sorry, in digital initiatives. That's within the range we provided, which is up to 300 basis points of cost to income and up to 150 basis points of ROE. We're on track. We don't believe that we need to change our commitment in, regarding digital ventures. Having said that, what we're seeing is because there's less new money coming into these ventures, the path to monetization is gonna be faster. The more mature or the most mature venture we have, which is Yape, is right on track in that sense. We're very positive with what we're seeing. We shared with you the number of active users, which keep increasing, the number of transactions per user, and also the number of users already generating income, so. Which is at a faster pace than we originally planned. We're on track. Obviously, if some of these ventures diverge, we will make the right corrections. Thank you again Franco my second question is on asset quality. I don't know if you can give us how much of the provision charges of the quarter were related to the social unrest impacts. When looking to your cost of risk guidance, it seems wider when compared to the one you guided in 2022. Would you see a realistic cost of risk would be around 1.7%, and then your guidance is conservative to the 2% in case social unrest increases? Just wanted to hear your thoughts on that. Yes. Reynaldo? Yes Roberto hi this is Reynaldo Llosa. Yes. I mean, as Cesar has explained during his presentations, there are several reasons that are impacting the cost of risk and the guidance for this year. Basically, the return to normal levels, as we have mentioned in previous calls. Also, the fact that the macroeconomic environment is challenging due to what we've been watching in the country in the previous months and actually. For the fact that we are growing faster in the retail market than in the wholesale market. Having said that, I mean, there's still a lot of uncertainty for the following months. That's why we have provided a guidance that is open between 1.5% and 2%. It would be reasonable that we would be some point in the middle, I would say it's a little too soon to have a precise number of or the final number for the year. Thank you very much. Our next question comes from Tito Labarta with Goldman Sachs. Please go ahead. Hi good morning thank you for the call and taking my question. I guess my question is on your guidance, I guess particularly the ROE guidance. just to try to understand how to get to that 17.5% that you're expecting for this year. I mean, I know margin's looking better than expected, but, you know, that cost of risk seems to be increasing. you know, just taking the 4Q number of 1.9%, and given the uncertain macro and political outlook, you know, it does seem like you would be closer to that higher end of the cost of risk, if not even above that. just to try to see, you know, what you're thinking gets you to that 17.5%. Maybe if you can provide some, what you think, like, on fee income growth or expense growth that will maybe help you achieve that? Thank you. Cesar? Hi Tito thank you for the question I think, the numbers that we provided in the previous guidance were coherent as a whole, but as you can see, we had at the end, a little bit more, cost of risk that in the middle of the range. That explains the 16.7% basically. For 2023, I would argue that we are, modeling something similar, in the sense that, the combination of the different factors lead us to have an around 17.5%. I would like to stress, like the previous call, that this is an around, it's not exact figure with, decimal points. Regarding the specific question regarding, risk, as Reynaldo already mentioned, we have during the year- That was expected to come back to more pre-pandemic levels and at the same time to shift a more retail portfolio. If you see as a whole, it doesn't looks that the shift is radical between wholesale and retail, but within retail, we have been growing significantly faster in consumer and payment than in whole, mortgages, for example. The risk profile has changed. We expect the same behavior during 2023. If we take out the specific events that impacted the fourth quarter, we consider that the range of cost of risk between 1.5% and 2% is reasonable according to, and I'm going to review, the general trend and the come back to the risk profile at segment level, the shift towards more retail portfolio, the specific short-term impacts of the political unrest that are going to impact the last quarter of last year and the first quarter and this year. I will say if you put all of this in a package, lead us to believe that this range is reasonable. I don't know if this helps you. Yeah, no, that's very helpful. Maybe just to try to triangulate everything, any color you can provide, like, on the fee income growth and also expenses. I know you give the guidance for efficiency, but just any color on the specific growth in those segments. Particularly I guess, on expenses because, you know, just given all the IT investments that you're doing, any color you can give on the growth that you expect in those lines. Yes. Probably additional comments. In terms of fees, we mentioned at the beginning of last year that we have experienced a significant rebound in specific lines of fees related, for example, in Mi Banco, to the comeback of disbursement that are aligned with the specific commissions. In the case of BCP transactional activity, that rebounds very significantly and well above pre-pandemic levels propelled by our digital capabilities. This significant rebound has already occurred, and now what we are going to have is an increase more aligned with business volumes in the asset side and increased digitalization and transactional capabilities in the deposit side, but not at the same pace that at the beginning of 2022. For this reason as a whole, the fee income is going to grow less than the net interest margin. In terms of expenses, I think the general trends are going to be similar, but with different rates than in 2022. A slight increase in variable compensation and a significant increase in two or three accounts. IT expenses to increase product offering, transactional activity, volumes that are growing significantly and market associate expenses. Lastly, the disruptive initiatives that are growing income faster than expenses, but as a whole, it still impacts the core the efficiency ratio being more significant in relative terms. Okay, great. Thank you Cesar. Our next question comes from Geoffrey Elliott, with Autonomous Research. Please go ahead. Hello. Thank you very much for taking the question. I wanted to dig in a little bit more detail into the Mi Banco vintages that you mentioned. Can you give us a little bit more detail on those loans, when they were originated, what the characteristics of the customers were? Also help us understand why are we seeing the increased provisions now if it seems like this has been a known issue for a couple of quarters, and you adjusted underwriting, I think you said back in the second quarter. Thank you. Ricardo? Yes. In the terms of the specific vintages, we had as you have seen in the first semester, quite important growth in the Mi Banco portfolio. We're quite optimistic on the evolution of, or the performance of those segments of the market. Having said that, we identified by the end of the first semester some specific risk increase in the quality of those segments. We decided to put a halt on our strategy on the second semester. Our growth expectations of, for the portfolio were halted by that event. That's basically what has happened is these vintages have been maturing and we are ending up the process of identifying the losses associated with those segments. That's basically what has happened. Great. Thanks very much. Our next question comes from Yuri Fernandes with JP Morgan. Please go ahead. Thank you Cesar, Gianfranco, Milagros. I have a question just to follow up on Tito's on efficiency. When we look to your guidance, the margins are very strong, right? Like you have structural loans growing six to 10, meaning expanding in the midpoint some 90 basis points. When we plot this to your NII, this imply, I don't know, like more than 20% NII growth if you assume interest and assets will grow at the same pace as loans, right? It's a very solid top line. Looking to your efficiency guidance, they are kind of flat versus this year, right? This year, I guess you had about 11, 12% expenses growth, BCP leading, and it's totally clear, it's the digital transformation, and I think we're doing a good job. Given your main revenue line, NII, should grow those 20%, assuming our calculation here is correct, what's gonna happen with expenses? Are you calling for such an increase in expenses? Should we see, you know, expenses approaching those 20% levels or no, it's a combination of fees, as we were discussing previously? I'm just struggling a bit here to understand these expenses, you know, because I get it, you have this investment plan, but given the revenue that should be so strong, I'm not getting, you know, like if we should consider G&A accelerating as much. Thank you. Yes Yuri I think it's a very sensible question. I think it's very reasonable one. I will try to explain this way. Thinking of P&L, we have the net interest margin, as you mentioned, driven by the NIM and the volumes is going to have an important increase, the combination of volume and higher average NIMs through the year. The second source of income is fees, and for the reason that I explained previously, the fee income is going to grow at a slower pace than before, more attached to the volume of a number of specific clients that the significant rebound that you experienced at the beginning of last year. Also in FX, although we continue to deploy significant capabilities, last year we have a number of specific volatility events that we capitalize on that we cannot project that are going to occur again. Summarizing the income part, very solid in terms of margins and a slower growth in terms of fees. Okay, this is part of the explanation. The second part relates to expenses. As you point out, we plan to continue investing heavily in developing capabilities inside the business unit and in the disruptive ones. Inside the business units, the growth is going to be in line with the expansion of client transactional activity and so on. In terms of the disruptive initiatives, what is going to happen is that although the income of these initiatives are going to grow at a faster pace than the previous year and starting to be significant contribution, the cost base are also going to increase, and the relative weight of the disruptive initiatives are going to be bigger than the previous year. Let's have a very simple example. The, the figures are not exact at all. If I have an efficiency ratio of the disruptive initiative of 100%, to say something, because we still lose money, the total size is 100, in fact less than when we have 110% efficiency ratio. That is a significant improvement. The relative size have been double. Do you I am clear? So the combination- Yeah. Of these four parts explains why we're having a significant increase in net interest margin. We still expect to have an efficiency ratio that if you see the margins are not very different from the 2020 actual figures. No, that's super clear and thank you for all the color and explanation. Just a final efficiency like. I guess you already discussed this in previous calls, but what should be the target, let's say three years from now? Like do you see the efficiency going to 40? Like, because as you said, there are some components here, they are kind of, you know, they are not structural expenses, right? You are doing, you know, some kind of CapEx, you know, developing new products. At some point, we should see G&A coming down to more inflation-like levels, right? When that happens, what is the level of efficiency we should expect for Credicorp? Yes. I am going to provide you a figure that reflects that we have already communicated to the market in the digital day and is 43%. That reflects a number of changes in our composition, including the relative weight of the disruptive initiatives in our P&L. That continues to have the factor that I mentioned, more efficient by itself, but bigger in relative terms to the whole portfolio. Perfect. Thank you. Our next question comes from Juan Recalde with Scotiabank. Please go ahead. Hi good morning thank you for taking my question. My question is related to deposits and funding. The deposits had been relatively flat year-on-year in 2022, and at the same time, we saw low cost deposits decreasing as a% of total funding and interest bearing deposits increasing. How should we think about deposit growth and the funding breakdown evolution for 2023? And what role do you think Yape can play in the deposits growth and breakdown? Thank you. Okay. I think to understand the short-term dynamics, we need to come back to the pandemic period. Previous to the pandemic, we have a certain structure in the funding base and the relative sizes of the low cost deposits in the financial system. During the pandemic that was a significant infuse of low cost deposits, if I can remember in relative terms. We have the impact of Reactiva. As you remember, we're almost PEN 60 billion soles of Reactivas with PEN 50 something billion funds of the central bank that recirculate in the economy and end up being very much transactional deposits, significant short-term impulse from that. Another source was the impact of the releases of the private pension funds. Five releases. A lot of these funds temporarily went to short-term deposits. Finally, during some period of time, the people who had income didn't have the opportunity to spend much money due to the restrictions in the economy. The combination of these three factors increased the floating, the transactional deposits in the economy and at record high levels. We capitalized that using our transactional capabilities. We not only capture our share, but we increase our market share. When we start to normalize the economy, all these factors are starting to dilute or reverse. For example, the people start to spending money again. There were not a significant disbursement from the pension funds, and more importantly, the Reactiva were paid. At this point, around 60% of the initial Reactiva fund, 65% Reactiva fund, has already been paid. That is liquidity that you take out of the market. In addition to that, we have a significant increase in interest rates. The opportunity cost for the people who have excess deposits increases from 0.25% to almost 8%. The composition is, in general terms, explained for that. What we expect is that the figures are going to come back, not to pre-pandemic levels, but something between the very high temporary levels and pre-pandemic levels, promoted for our digitalization, our transactional capabilities. What role plays Yape in all of this? We have measured, when you digitalize money, instead of going to the bank and take out the bills, you leave the money in the bank, and you make your payments only with electronic transfers. The average figure that we have identified is that around we can maintain 25% or 20% of the average transactional volume of a client as an additional transactional deposit. It's a significant and valuable contribution. We measure that to measure the performance of Yape as a whole. That's very helpful. Thank you for the comment. Our next question comes from Serguei Gaboven with Harvey Levener & Company. Please go ahead. Yes good morning gentlemen I have three questions, so I'm just gonna go one by one. The first one regarding loan growth. You said, your guidance is for structural loan growth of 6%-10%, but of course that, you know, what I'm interested in is total loan growth, which, I would guess it would be around 0% or 1% because Reactiva are now 7%, I think, of your total loans. Implicitly, you believe that Reactiva loans would be fully repaid, so that structural of 6%-10%, let's call it 7.5%, once Reactiva is repaid, is more or less 0%. Is that a correct assumption or no? Yes, it's a reasonable assumption, but as we stated, the impact of Reactiva in the P&L is very marginal. Yeah Serg this is Gianfranco your assumption is correct. basically we'll be very flattish in terms of total loans. As Cesar mentioned, Reactiva loans have basically no margin. The impact on margin is completely different. Okay. Good. That was actually my next question regarding the margin. If I look at you again, your guidance, you're assuming a pretty significant NIM expansion, and you said that Reactiva impact of that is, if anything, it's, you know, margin accretive because these are very thin margin loans. I guess how much of that NIM expansion that you are assuming is coming from that mix shift to retail, and you spoke about within retail, you're going to hire, you know, PMA and things like that. How much of that is structural, which I mean by like mix shift, and how much of that is still from the interest rate delayed impact of interest rate increases? I think the direct answer is that the rates are a significant contribution because the average rates of 2023, we expect are going to be higher than the average rate of 2022, even though the trend is different. During 2022 was an upward trend. In 2023, it's going to be at some point a downward trend. The average of the year is going to be higher, so this is going to be a key component of the expansion of the NIM. The second factor, less significant because it's more gradual, is the shift in the portfolio composition, as you mentioned. Okay. Okay, got it. Then, the final question, with regards to this Mi Banco. Here is what I'm not understanding. You just spoke, and you have a slide in your presentation that maturity of specific vintages led to the default ratio in this portfolio to rise, and that led you to increase the cost of risk, which is shown on your slides. When I look at your presentation, on your earnings release, there is a chart there that shows, I think it's on page 19, that shows the cost of risk or structural NPL, sorry, structural NPL ratio for your various businesses, and that one shows that Mi Banco has actually declined in December 2022 to 4.96%. It's gone anywhere from 7% in 2021, and it's been on gradual decline, and it's already like at under 5%. My question is this: How should I think about the disconnect between your NPL ratio trajectory and your cost of risk trajectory with respect to Mi Banco? Yes. Basically, I mean, the improvement in the NPL ratio basically responds to the aggressive write-off strategy we've implemented in Mi Banco, and that basically reflects creates loans already 100% provision. Remember that, besides the specific things of the specific case of the vintages I mentioned before, it also reflects the challenging macro environment that we are facing in 2023 that is incorporated in our projections of the expected loss expected loss calculations for the year end of 2022. There are like two mixed factors. Okay. I just want to be very clear. You're saying that the reason your NPL ratio has declined is because you've written off some loans which are non-performing, right? You accelerated your write-off policy with respect to these loans, correct? Correct. An important percentage of those write-offs were basically due to the fact that we have also written off the Reactiva loans. We write off the whole positions. Reactiva loans plus the positions they have directly with Mi Banco funds, not guaranteed by the government. Okay. Okay. Then regarding the cost of risk, you're saying because there's higher inflation and higher potentially, like, higher defaults, right? Because people maybe are squeezed in terms of income. You now think that your model, so your cost of whatever your IFRS model is telling you that your cost of risk for this loan should be higher, right? That's like a, an assumption that like, whatever you fit into the model, it spits out higher cost of risk, essentially, right? Exactly. That's reflected on the 5.9 cost of risk of the last quarter of 2022. Okay. The very final question. I heard something very brief mention about. You said something about IFRS 17 implementing in your insurance business. Like, first of all, what that's all about, and second is how big impact is it? Is that even material or not? Hi thank you for the question We believe that the initial impact of the IFRS 17 will not have an important or material impact in Credicorp equity or in Pacifico equity. Only as a reference, Pacifico equity represent 8% of Credicorp equity. Our first estimations are around, we will need an increase in around 2% of the reserve or 8% of the total equity in Pacifico' equity. The impact at the end won't be material at Credicorp level. Okay. Understood. All right. That's helpful. Thank you very much. Our next question comes from Andres Soto with Santander. Please go ahead. Good morning to all, and thank you for the presentation. My question is regarding your asset quality outlook, vis-à-vis Peru's current political and social environment. Which areas are you concerned about? You before mentioned tourism as an area that may suffer in the current context. I would like to understand better, where are you concerned about if this situation prolongs beyond the first quarter, as you mentioned, which pocket of your business may start to suffer, be that this exposure to the tourism industry or how concerned are you also on your microfinance exposure? Thank you. have, we are quite concerned in what might happen in the tourism industry as well in the commercial real estate. Having said that, those portfolios are well collateralized. We have real estate behind it. So it's a matter of patience and providing those clients with the necessary help to go through this crisis. And we hopefully will see better times in the following months. That's basically on the wholesale markets. In terms of retail, of course, the specific loan segments of both consumers and SME portfolios are the most affected. We did in the pandemic, contacting member, contacting them very aggressively to provide them the necessary help in different ways. I mean, the experience on the COVID crisis helps us a lot in defining some different alternatives that at the end resulted in a much lower default rate than we initially expected. Those are the segments that probably are gonna be most exposed to this current crisis. And remember, as Cesar mentioned, those are loans that generate better margins than the traditional segments on both consumer and SME portfolios. Thank you Reynaldo on that, the dimension on the tourism and commercial real estate, how much of your loan book is exposed to these segments? It's not... I don't have a precise number today, it is not that big. I mean, there are specific cases, we have, basically, hotels all over the country, but basically concentrated in Lima. I mean, we... The effect it's quite manageable for the industry as a whole. As we've seen before, it's basically a matter of time, and providing them the necessary time to go through their enterprise. Understood. Thank you very much. Our next question comes from Tejkiran Kannaluri Magesh with WhiteOak Capital. Please go ahead. Hi thank you for the opportunity. I have two questions. The first is a bit of understanding of the provision flows. We have around, you know, PEN 730 million provisions in absolute terms this quarter, which is higher than last quarter, which was around PEN 460 million. The overall stock of allowance for loan losses from the balance sheet has gone down to PEN 7.87 billion from PEN 8.03 billion. And the write-offs also on a consolidated credit card basis is lower than last quarter at PEN 754 million. We have higher provisions but lower write-offs and lower allowance for loan losses. Could you please help me understand where the extra provisions have gone? That's my first question. I'll come back with my second. Thank you. I don't know if I got your question correctly. Basically, I mean, we've grown with the provisions because of the reasons we have explained. Remember that some of the provisions that are required for specifically the wholesale segment, that it's well collateralized. We have guarantees and a good coverage ratio. Requires less provisions than the retail segment. The retail segment it usually written off a lot faster than the other portfolios that have collaterals behind. That's basically a general macro explanation of the questions if I got it right. Understood. Can you comment on the recoveries and upgradations from the, you know, stressed loans and how the post rate of recoveries have been this quarter compared to the last one? I mean, basically we've seen. We have a, like a stable level of recoveries of written off loans. Basically we haven't seen an important change in that number in the last few quarters. Understood. Thank you. My last question is on dollarization levels. Specifically in the SME loans at BCP, it has gone up to 36% from 26%. Is that a sustained trend? Do you think that's because of the current difficulties in the macro slash political environments? Is there any chance this higher levels of dollarization will spill over to other portfolios as well? Maybe I can take that one. Regarding the funding in soles, there's no limits whatsoever because of the current political situation. If I got it right, you said 36% of the SME portfolio in dollars. That number. Sorry, let me check in the number but SME business. That's the mid-market companies. Well, it has gone from 26%- 36% over the last year. That's basically because the companies that have dollar exposure are related to dollar-generating businesses. Right. Either they export directly or they are suppliers to exporters. We have no concerns regarding that dollar foreign exchange exposure in that segment. Understood. Thank you. Those are my questions. Our next question comes from Carlos Gomez-Lopez with HSBC. Please go ahead. Hello. Thank you for taking my question. It's more on the economic and political side. How concerned are you today, and what impact have the current disturbances had over your operations on a day-to-day basis? Again, do you see the situation better or worse today than you did six or 12 months ago? Thank you. Hello Carlos this is Gianfranco I was going to answer you if how much more concerned or less concerned I am today as compared to yesterday. That too. Really difficult question. There's a lot of volatility in terms of political noise and turmoil and so on. This is a very personal opinion, and I'm sure all of the people that are sitting at this table today may not have the same opinion, but I do see light at the end of the tunnel. Unfortunately, the prior government was. This is based on public information. There are a lot of judiciary processes-To both the president and its ministers and the executive power and so on because of corruption. On top of that, the lack of capacity of execution was very high. I would say we are more positive in what we see going forward. Obviously, there's a lot of political turmoil and social unrest today, which is generating the troubles we've been talking about over the last few minutes. Overall, we are more positive today as compared to, I don't know, six months ago or even three months ago. Thank you. In terms of the impact on your operations? In terms of operations, we have had some. Two answers there. We have had some operating issues at BCP, which we've managed correctly. Basically, we've had to shut down some branches even on an hourly basis or on a daily basis. That hasn't had a major impact whatsoever. Since Mi Banco operates in much more rural areas, and because of the microfinance business, we have two of Mi Banco branches were burned. Those branches are closed today. Luckily, no personal impact in terms of our employees. Nothing happened in terms of personal impact. What we're concerned there is a small portfolio, around 80 million soles, and we're somehow concerned because of the lack of capacity for our clients of where logistic problems on where to pay, and on our side, on how to collect. Those are, I would say, on the operational side, the major impacts. Thank you very much. It appears there are no further questions at this time. I will now turn the call back over to Mr. Gianfranco Ferrari, Chief Executive Officer, for closing remarks. Thank you all for your questions. Despite the near-term outlook, which involves more uncertainty, we will keep delivering based on our purpose, executing on our strategy, and advancing the many initiatives we have underway throughout 2023. However, we will be prudent, as we have always been, in managing risk given the current local environment. Although it's still early to accurately estimate the potential impact of current social unrest in our economy and our businesses, our guidance of maintaining our ROE in the high teens in 2023 includes our best estimates based on the information we have today. We expect NIM will continue to increase as the period of high levels of interest rates could be prolonged, and our loan portfolio continues to shift towards retail. Cost of risk will continue to normalize towards pre-pandemic levels. Finally, we expect to register high single-digit growth in the loan book. To make this possible, we will continue investing in digitalizing our traditional businesses and disruptive ventures. I am hopeful that the next general election brings the stability needed to rebuild the country in an environment of peace, democracy, and inclusion. Peru still maintains the institutional framework and macroeconomic fundamentals, which led the country to 14 consecutive years of poverty reduction prior to the pandemic. We hope that those that are elected protect those fundamentals and prioritize solving the structural problems in Peru, widespread poverty and unequal access to health and education. We are committed to contributing to achieve the goal of poverty alleviation, which is closely tied to increasing financial education and inclusion. By accelerating our financial inclusion agenda, we can support the efforts of those that are the least included: women, the elderly, people living in rural areas, as well as those of lower socioeconomic and educational levels, to achieve greater levels of security through savings, great income generation and economic independence. We also believe that Peru has an important opportunity for an advancement in the context of the global energy transition process. The prior government have wasted the opportunity of positioning our country as a leading participant in this process. The energy matrix will change fundamentally in the next five to 10 years due to environmental and resulting policy changes, with investments shifting away from fossil fuel to renewables. Global demand for metals is growing exponentially as governments commit to advancing energy technologies capable of addressing the climate change. The Andean region should be a key supplier of these required metals. If only our governments can focus on stability and strengthening our fundamental infrastructure needs, then we can realize and reach more quickly the tremendous potential in front of us, therefore having a positive impact on poverty reduction and improvement in education and health services. Thank you all, I look forward to speaking with you on our next call. Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect.