Intercorp Financial Services Inc.
Q4 2021 Earnings Call Transcript

Published: 11 Feb 2022

[Operator:]

Good morning, and welcome to Intercorp Financial Services Fourth Quarter 2021 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. Also, you can submit online questions at any time today using the window on your webcast. And they will be answered after the presentation during the Q&A. Simply type your question in the box and click submit question. It is now my pleasure to turn the call over to Rafael Borja of InspIR Group. Sir, you may begin.

[Rafael Borja:]

Thank you, and good morning, everyone. On today's call, Intercorp Financial Services, we will discuss its fourth quarter 2021 earnings. We are very pleased to have with us Mr. Luis Felipe Castellanos, Chief Executive Officer of Intercorp Financial Services; Mrs. Michela Casassa Chief Financial Officer of Intercorp Financial Services; Mr. Juan Pablo Segura Chief Financial Officer of Interseguro; and Mr. Bruno Ferreccio Chief Executive Officer of Inteligo. 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. If you didn't receive a copy of a presentation or the earnings report, they are now available on the Company's website ifs.com.pe to download a copy. Otherwise for any reason if you need any assistance today, please call InspIR Group in New York at 212-710-9686. 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. These do not account for future economic circumstances, industry conditions, the Company's future performance or financial results. As such, the 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 Mrs. Michela Casassa, Chief Financial Officer of Intercorp Financial Services, who will bring her presentation. Mrs. Casassa. Please go ahead.

[Michela Casassa:]

Good morning, and welcome everyone to Intercorp Financial Services fourth quarter and year-end 2021 results. This time we will focus on three items on the agenda, which include financial highlights, key messages and takeaways. I will start with a brief summary of financial highlights on Slides 3 to 8. The main highlights are

[Operator:]

Thank you. At this time, we will open the floor for your questions. First, we will take the questions from the conference call and then the webcast questions. The first question today comes from Ernesto Gabilondo from Bank of America. Please go ahead.

[Ernesto Gabilondo:]

Good morning, Luis Felipe and Michela. Thanks for the opportunity to take questions. My first question will be in your 2020 guidance. Just want to double-check. What was the recurring net income base in 2021. If we exclude the nonrecurring items I'm getting to PEN1.5 billion, and a recurring ROE of around 16%. So if that is the case, your 2020 guidance is assuming a recurring ROE above 15%. So would that be PEN1.56 billion of -- at least PEN1.6 billion of net income this year. I just want to check if that is correct? And then what would be the dividend payout ratio that you are considering in your ROE guidance? And also the same topic, where do you see the IFS long-term sustainable ROE.

[Luis Felipe Castellanos:]

Hi. Thank you, Ernesto, for your questions. Let me answer really quick and maybe Michela can complement. I think your numbers -- obviously, I cannot go into detail, but they look ballpark, right? Maybe what I would say is the type of -- how do we get to those earnings will be a little bit different. As you know this year, we had very strong results from investments at the three subsidiaries, Interbank, at Inteligo and at Interseguro. So probably, what you will see next year will be a different mix with the core operating indicators having stronger performance. That's our expectation. On your second question on the dividend payout, we are still reviewing that. Obviously, last year, Interbank, which was the main contributor to cash flow for dividends given COVID did not upstream dividends to the holding company. This year will be completely different. So we do expect to get back to normal. So it will be what we've done in the recent past, except 2021 should be a good indicator. But that's still under discussion. We'll come back to the market as soon as we define that. And on the third one, it's -- I don't believe very much on sustainable ROEs, change in environment that we have today, our target is to get back to north of 18% ROEs, which is what we've been delivering before COVID. So a target that we are aiming would be around that. Let me ask Michela if she has something to complement on that front.

[Michela Casassa:]

No. You have already said everything, I guess. Maybe just to comment a couple of trends on what Luis Felipe was mentioning in terms of the different mix of the profitability of 2022, which I think is important. 2021 has been a year in which -- the bank has taken a little bit longer in order to recover, especially in terms of revenue generation and especially in terms of net interest income and NIM. And there has been a stronger contribution of Inteligo and Interseguro and other income. Thanks to the strong growth we have experienced in the second half of the year, and especially in the last quarter at Interbank in the retail portfolio. This is starting to change and with the increase in rates even further. So what we are expecting for next year is a much different revenue mix with a stronger contribution of net interest income coming from Interbank and a lower incidence on investment income from the other two subsidiaries.

[Ernesto Gabilondo:]

Thank you very much, Luis Felipe and Michela. I just have two last couple of questions. One is in terms of your expectations on fees and OpEx, I think those are two key variables that will be embedded in your guidance. Fee growth was 14% in '21. So I was wondering if you continue to see that pace of growth in this year? And in terms of the expenses, they're same, they grew 18% last year. Should we continue to see OpEx growing at that level? Or do you think it would be more at the low double-digit growth? So that's my second question. And then the last question is on the digital transformation. We have seen some banks in the region separating the traditional bank and creating digital banks as they are seeing different metrics in terms of clients and future profitability. And we have been seeing that they continue to invest in the digital transformation for the traditional client base. But at the same time, they want to create these digital banks to attend the unbanked segment and again following different client base, different key performance metrics. So I just wanted to understand, in your case, are you evaluating to have a similar structure like having the traditional bank and a digital bank or you will continue to keep the same metrics inside the traditional bank?

[Luis Felipe Castellanos:]

Okay. Thanks, Ernesto. On the first one, I'm going to have completely refer to Michela. She is the expert on growth and OpEx. But let me address first the second part of your question. We have -- as you've seen, a dual strategy, our strategy is basically a digital strategy. We're trying to digitalize everything what we do in order for every customer or client of Interbank to be able to do whatever they need to do digital. And then the second part of our strategy is to create these new sources of growth, new businesses, where we have some initiatives that in other markets, you could perfectly conceive them as spinning them off. However, in Peru, we're bounded by regulation. We do not have two banking licenses. So even though that's the regulatory part, we do -- are organizing ourselves to manage these on separate ways. We have internal P&Ls of each of those solutions. We are working in order to understand the KPIs of the different type of customers that we have. So the strategy, the way we're executing is very different. But unless regulation changes in Peru that allows us to have another license, then we'll be able to happen in Peru at least in the short term. So that's kind of where we are on that front. However, again, internally, we do have like separate accounts, separate P&Ls, and we're tracking very closely each of those initiatives and measuring the impact separately. And now let me pass it on to Michela, so she can respond to question number one.

[Michela Casassa:]

Okay. Ernesto, on fees, this year, not the strong growth that we have seen, has a number of components. I mean, first of all, we have the recovery of the fees at Interbank because the turnover of both credit cards and debit cards, as you have seen, has grown substantially and it kind of declined in 2020. And then we've also had very strong fees coming from Inteligo. So what we are expecting from the future is not a double-digit fee growth. It's more in the single-digit growth. And moving on to expenses, there is also a similar explanation. Expenses this year, as I explained, have a strong component of variable costs that comes from a low level of activity, especially at credit cards at Interbank that started to recover. That will be the case for the future, but we were starting from a very low base this year. So in terms of growth of expenses, we are not expecting for the next year the strong double-digit growth that you saw this year. But we are more in the single-digit growth of expenses for IFS line.

[Ernesto Gabilondo:]

Super helpful. Thank you very much. Well, I was just wanting to -- a final comment. I think it would be very interesting and helpful to have some indicators of your separated P&Ls in the future. You're giving to that comment. Thank you.

[Luis Felipe Castellanos:]

Great. Thank you.

[Michela Casassa:]

Thanks.

[Operator:]

The next question comes from Daniel Mora with CrediCorp Capital. Please go ahead.

[Daniel Mora:]

Good morning, Luis Felipe and Michela. Thank you so much for the presentation. I have a couple of questions. The first one is with the positive evolution of the loan portfolio and also the increase in rates. When do you see the NIM returning to pre-pandemic levels? And if you can please provide the sensitivity analysis of the increases of the Central Bank rate. For 100 basis points increase in the Central Bank rate, what can we expect of the NIM at Interbank? That will be the first one. The second one is if considering the reversal of provisions in the fourth quarter, can we expect also additional reversal in the coming months, at least in the short term or it was just a one-off in the fourth quarter? And the third one is regarding the strategy of RappiBank in Peru, given the strategy of RappiBank or RappiPay in other regions. We already start seeing the disbursement of credit cards. But how this -- how do you see this initiative in the coming months? And also how this strategy complement with the strategy of Tunki, the other application that you have?

[Luis Felipe Castellanos:]

Great. Let's see. On question number one, what I can tell you is that the recovery of the NIM or NIM getting back to previous levels will be dependent on how we get back to our structural composition of consumer loans in the overall book. And on the sensitivity, I'm going to refer it to Michela and the reversal of provisions also to Michela, and then I'll come back with Rappi. Go ahead, Michela.

[Michela Casassa:]

Okay. Good morning, Daniel. I mean talking about NIM, okay? This year 2022, we -- by year-end, we are not still considering that the credit card portfolio will be at the levels of 2019, okay? So in terms -- and relating to that, NIM will still take a little bit longer to recover to pre-pandemic levels. And then to be sincere, I mean, the sensitivity that we have today to a 100 basis points increase in rates, it's a neutral impact, okay. But I have to say that we are reviewing the sensitivity by month by month because what's going on now is that as we have had so many increasing rates so quickly, this sensitivity will depend at the end of the day, first, on the speed on which we will be able to translate to clients this increasing rate. And on the other hand, we will be able to delay the impact on the financial expenses. And then given the high number of increasing rates to what extent we will be able to translate most of it, okay? So the theoretical exercise that we have now is this neutral impact on our numbers. Moving on to the additional reversion of provisions, I want to bring your attention back to the fact that, I mean, the levels of coverage ratio that we have as of year-end in the retail portfolio, especially are still very high, okay? We've had this reversal of provisions and you've seen the total coverage ratio of the bank going down from 182% in 2020 to 131%. But the number of 2019 was 118%. That's for the total bank. But when you look at the retail portfolio, the numbers are much more -- are much higher. So the coverage ratio as of year-end is 190% which is very close to what we had in 2020 when we did the expert criteria because of COVID, and it's well above the 135%. So today, we have like this extra coverage ratio. And of course, we need to see how the portfolio evolves in the determine the net provisions. Now let me pass it back to Luis Felipe for Rappi.

[Luis Felipe Castellanos:]

Thank you, Michela. Okay. On Rappi, yes, you're right, Daniel, the initial product that we have placed are basically accounts and the core focus because we want to be able to monetize this as soon as possible has been credit cards. We're very happy with the traction we've had in this first month. So that's good. It's a different product than Tunki, our digital wallet, as mentioned by Michela during the presentation. The wallet is more targeted to the unbanked or the people that do not want to do banking, and that's getting good traction there. And then we have a strategy once they are there, which type of customers we bring into the bank, or we keep them at the wallet with Plin being the bridge between the bank and unbanked. So that strategy is very clear. We have the bridge to provide financial services, and that's working well. RappiBank has a different target. It's mainly for people that want to do banking in a different way. Obviously, 100% digital. That's why we conceive it is as a Neobank. And what we are finding is that the preferred customers that are taking that product are very young customers between, I would say, 25 and 35. So that's the majority of the customers. So the strategy is targeting to focus on those -- on that segment of customers, which is finding this very attractive. And we are using the Rappi channel for like people do everyday things in that channel. Obviously, it's very appealing to them to get financial services solution that will allow us to make true whatever they're trying to do with -- while being in the Rappi app. But also what we're finding at that customers, given how nice the credit card and the value proposition is are also using it very strongly outside of the Rappi platform. So basically, those are the differences. And the strategy, again, it's early. It's promising. We'll continue to learn. But so far, we're very pleased with the way it's evolved.

[Operator:]

There appears to be no further questions at this time. I would like to turn the floor back over to Mr. Castellanos for any closing remarks.

[Luis Felipe Castellanos:]

Okay. So I first wanted to thank everyone for attending our call. 2021, as you've seen, has been a record year for IFS with strong performance by Inteligo and Interseguro. Interbank continues its recovery path after the effects of COVID during 2020. As you've seen, Peru is going through times of political instability. The economy while growing below its potential remains with good indicators based on macro discipline. IFS platform has proven to be very resilient under these circumstances, and I believe it is well-positioned to continue growth -- to continue leading growth in the financial sector in the coming years. We remain committed to building a great Company as evidenced by our financial results, our ESG indicators and our Great Place to Work position. Our vision is to become a leading digital financial services platform for the benefit of our consumers and to impact positively the life of Peruvians. Our strategy continues to drive our efforts. Again, I hope you remain safe and healthy and look forward to seeing you in our next conference call. Thank you.

[Operator:]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.