Good morning and welcome to Intercorp Financial Services Third 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 the webcast, and they will be answered after the presentation during the question-and-answer session. 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.

Thank you and good morning everyone. On today's call, Intercorp Financial Services will discuss its third 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. Gonzalo Basadre, Chief Executive 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 November 9th. There is also a video webcast presentation to accompany the discussion during this call. 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 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 Mr. Luis Felipe Castellanos, Chief Executive Officer of Intercorp Financial Services, for his opening remarks. Mr. Castellanos, please go ahead, sir.

Thank you Rafael. Good morning everyone. Welcome to our third quarter 2021 earnings call. We appreciate you taking the time to attend our call. I hope that you and your families remain safe and healthy. Let me start by giving you a brief overview of the health and macro situation in Peru. On the sanitary front, Peru was able to speed up its vaccination process. As a result, currently half of the population or 16 million individuals are fully vaccinated. Restrictive measures have significantly softened across the country. And although there has been a slight increase in the number of COVID cases recently, a third wave is not yet in the horizon. We are hopeful that 2022 will take us back to a new normality, very much like the one we had before the pandemic. Moving on, accumulated GDP growth levels as of the month of August showed a strong rebound. However, estimates for GDP for the rest of the year remain close to zero. As a result, we foresee around 12% full year GDP growth in '21, mainly we expect GDP versus the previous year and despite the forecasted deterioration of the last quarter of the year. In the political front, we continue to see volatility. Political challenges remain high legislative branches continue to establish themselves. The consumer and business confidence indicators remain at low levels. The political front continues to be an uncertainty factor and this might still be the case in the coming months. Nevertheless, under this challenging environment, IFS continues to prove strength and resilience. As you will see later during the presentation, our results continue to improve based on the recovery path set after the effects of the pandemic. Our clear strategic focus has taken IFS to reach another solid quarter, with strong results in all of our operating segments. We strongly believe that our people, our management team, our ability to adapt to changes and our digital oriented strategy, are our strengths and the basis that will allow us to grow profitably in the future. We will continue to grow in a sustainable way in order to fulfill our purpose, to empower all Peruvians to achieve financial wellbeing. Now I would pass it on to Michela to update you on the results of this quarter and with a detailed review of our operations. Thank you very much.

Thank you, Luis Felipe, and good morning and welcome everyone to Intercorp Financial Services third quarter 2021 earnings call. This time, we have divided the presentation in four parts, which include financial highlights, key messages, results by segments and trends and takeaways at the end. I will start with a brief summary of financial highlights on Slides 3 to 5. The main highlights are that Intercorp Financial Services had record earnings of PEN551 million in the third quarter with a return on adjusted equity at 23.1%. Strong business performance reviewed 2021 guidance for ROE and cost of risk. The 9-month cumulated earnings of PEN1,535 million with a 22% ROE and 2.3% return on assets. Revenues are growing almost 18% in the 9-month with efficiency ratio at 32%. We have a growing customer base, thanks to digital adoption and solid capitalization and strong liquidity at all operating companies. At Interbank, earnings of PEN299 million with a return on equity of 18.6%, extending its positive ramp this year. Retail loans grew 3.6% in the quarter, gaining 10 basis points market share to 18.8% and the market share in retail deposits is a all-time high at 15.2%. We have a sequential improvement in NIM up 20 - up 10 basis points this quarter and the credit risk profile is better than pre-COVID levels. Recovery in expenses is driven by increased activity and digital investments. At Interseguro, the quarterly results are affected by lower other income and higher technical reserves. Gross premiums plus collections grew almost 17% on a quarterly basis and 90% on a yearly basis. Regular annuities are leading this beat versus pre-COVID levels. We have a PEN13 billion investment portfolio, with a return on the portfolio of 6.7% in the third quarter. We continue to be the market leader in annuities…

And our first question comes from Ernesto Gabilondo of Bank of America. Please go head.

Good morning, Luis Felipe and Michela and good morning to all your teams. Congratulations on your strong bottom line growth, your new ROE guidance and your extraordinary dividend. My first question is on loan growth and net interest income. We noted that during the quarter, there was practically no loan growth. So, just wanted to hear from you, what are you thinking for next year? Are you expecting better lending dynamics, despite we can have a lower GDP growth and how Reactiva loans should continue to impact in loan growth? And related to this, do you think that the net interest income should start to be above loan growth if we consider a higher retail exposure, especially in credit cards and also the higher interest rates? And also, can you remind us how is your sensitivity to higher rates? So, this is my first question and I understand there's a lot of questions inside that one. For my second question, is in terms of your cost of risk, as you pointed out, cost of risk came below pre-pandemic levels for the third consecutive quarter, so where do you see cost of risk normalizing next year? And finally, my last question is on your sustainable ROE, your new guidance assumes 18% ROE for the year. Where do you see the sustainable ROE and where do you expect to be close to get to that level? Thank you.

Ernesto, thanks very much for your questions. Let me jump straight to Michela. I'm sure she will be able to answer the three of them. Michela?

Good morning, Ernesto. So let's start with loan growth. Okay. This quarter, loan growth is flat, but this is mainly because of the Reactiva loans in amortizations. Okay. When you look at the growth of retail, retail has grown 3.6% this quarter with a very, very nice growth of almost 10% in credit cards and other consumer loans. So basically what is driving the growth down is commercial loans, which is 3% negative this quarter, that is a positive number when you exclude the Reactiva balances. So that is also helping net interest income. Okay. So just, I mean one first comment, there is growth in the portfolio when you exclude the impact of Reactiva. Now, for next year, with the deceleration of GDP, now we are expecting similar trends. So retail continue growing and commercial decreasing because of Reactiva and also because of a slowdown in the level of investment given the uncertainty. Okay. The second point was, how fast is the net interest income going to increase related to the loan growth. We see positive trends in the yields and this is coming from a number of factors. First, the increase in rates. Second, more credit cards in the portfolio but also a recovery in the overall risk profile mix of the credit card portfolio itself. On the other hand, we have increase in rates, which is also impacting cost of funds. So basically, net interest income should increase slightly above loan growth and this leads me to the sensitivity of the balance sheet, which we have recently revised in with increasing rates of a 100 basis points in soles. The impact on the balance sheet is relatively flat. And of course here there are a number of things that need to happen in order to improve that…

The next question comes from Jason Mollin of Scotiabank. Please go ahead.

Hi, Luis Felipe and Michela. I have two questions. The first is on the political side. You mentioned that political uncertainty is still impacting the macro. We did see a real bounce from our market lows. If you could talk about perhaps some improvement in the political uncertainty from your perspective, and what still remains to be seen and what your concerns are on that front? And secondly, I wanted to ask on the deposit dynamics. You showed market share gains, the highest record level that you've seen 15.2%, particularly coming from retail which looks very attractive. If you can talk about the strategy there and what kind of clients are bringing their deposits to Interbank, what's driving that? Are these from other clients of other banks? Are these new entrants in the banking system, et cetera? Thank you.

As you are all very aware, there is still - again, it's early in the new government, recently celebrated 100 days. However, the period has been marked but, does the executive branch trying to establish basically a working team, no, even in the cabinet. So they are still reshuffling in the cabinet. As you know, the Prime Minister was changed recently, a new team came in, I think that change decreased the level of uncertainty and worst part of the rebound. However, there is still a number of positions that are being observed and the people including Congress are taking a very serious look at in terms of the qualifications of the people that are coming into government and not only at the cabinet level, but also throughout the team that the executive branch has to put together, no. So I guess until there is more stability in that front, the consumer confidence and the business community confidence will continue to be at low levels and the change could be to your messages towards the right people in place and stability in terms of supporting the strength of the institutions, clear rules fostering in private investment and all that we usually talk about in order to strengthen growth in a country, no, so, again still things being observed, some noise during these days in terms of what that meant, that the people there been recruited to be part of the executive branch and that needs to be cleared in order to continue to set a path forward for that economy of the country. In terms of deposits, we have been able to increase our retail deposit base. Basically, I would attribute that to our very aggressive strategy, realizing that this has been a very liquid year where there is money…

The next question comes from Andres Soto of Santander. Please go ahead.

Good morning and thank you for the presentation. My first question is regarding efficiency, when in your initial remarks you mentioned, you expect the expenses to remain high in the fourth quarter. My question is mostly regarding 2022, if we assume continued growth in credit cards and additional digital expenses, can we assume that your efficiency ratio will remain under pressure for a few years from now and it's going to be at around 40%? Or you expect to do any better than this? And my second question is regarding Reactiva loans. We have not seen the exploration or repayment of those loans. I'm curious to see if you guys have been able to offer those clients regular loans in view of those Reactiva loans and overall if you can comment on your strategy to entering Reactiva as an opportunity for you guys to expand into the SME segment? Thank you.

Then maybe Michela can complement on the efficiency. Yes, you're right, efficiency will be under pressure because we are - well, this year has particularly been special, because we were seeing a rebound in expenses compared to last year. However, and going forward, our heavy investment in digital will continue to put some pressure on base. Here, the thing is, if we are able to rebuild the credit card portfolio and income, our revenue start coming back from that part of the portfolio, the pressure will be released somehow. And then, I think the other important thing is that we see Interseguro and Inteligo still be with very, very high levels of efficiency. So all sum up together we'll continue to have IFS as a whole and below 40%. The bank will be mid-40%s probably for some time. I don't know if it's going to be for years, as you mentioned, maybe in the following quarters, it is more likely, until the credit card portfolio and some of the retail loans continue to come in close to what we had in 2019, where we were able to have in Interbank below 40% efficiency levels. Regarding Reactiva loans, yes the strategy spinoff, actually we've had a couple of ideas when going strongly to Reactiva. The first one obviously was to help our customers and help Peruvians in this situation. And then the second objective was to increase our customer base and get new customers with this facilities that were designed very well by the Central Bank and the Met at that time. Yes, we are offering replacement of those loans to the customers. If they are clients, that actually married that and we have models working towards that, so especially in medium sized enterprises this is playing very well. In small sized enterprises, we kind of double-down in terms of the strategy. We increased more than 1,000 customers, probably even more, Michela can actually tell, it was a big number of customers. There we are taking it with lots of caution, we are building our models, because that's a different type of underwriting that we need to do there. So we're building our models probably going to take a little bit more time in order to fully understand that segment. Today we're working with those customers, which with the guarantee of Reactiva, once our models start giving us good information about the risk profile of those customers, we'll be able to become more aggressive, behind the big growth in Reactiva in the small sized enterprises was done to be able to get more familiar with those types of customer, something that Interbank before did not have and based on that, grow our franchise on the small sized companies. Michela, maybe I missed something that you want to complement?

Yes, I mean maybe just to say that when we launched the Reactiva strategy, we were more aggressively thinking in the SMEs and so far what has happened is that we increased the number of clients with loans. I mean big numbers in SMEs, but also in the mid-sized companies. So basically the Reactiva loans that have started to mature as of today, are the corporates and the mid-mid-sized companies. So we have started to replace those Reactiva loans with traditional loans at higher yields and in the case of mid-sized companies is between 30% and 40% what we are being able to keep out of the Reactiva loans that go away. So that is working quite nicely I believe. But in the case of the small businesses, there have been very few deadlines of the loans, because remember that they have also had this chance to extend further lean out 12 months the loans, so as l show you in the Slide of Reactiva, the PEN2 billion soles loans that we have with the small businesses is pretty stable, because there have not been many maturities yet. So in that segment, I guess things and moving a little bit slower and more cautiously as Mr. Luis Felipe was mentioning. And maybe just one last comment on the efficiencies specifically for Interbank. We have seen a high increase when you look at it at percentage points in the expenses of Interbank, also because we had a very low base last year. So, basically, we don't expect expenses to increase in 2022 as much as in 2021. Still all the comments of Luis Felipe for efficiency ratio hold. Our challenge there is to improve the operating leverage of Interbank, so being enable which will start to take place in 2022, being able to grow revenues much faster than an expense.

Our next question on the phone comes from Alonso Aramburu of BTG Pactual. Please go ahead.

Yes. Hi, good morning and thank you for the call. I wanted to ask about the digital payment solutions. Can you give us some color on what are your monetization expectations? Where you are today in that respect, what initiatives are you planning? I guess, especially for Tunki, but as well as Plin? Thank you.

Thanks for your question. Yes. Let's see, Plin is much simpler, it's, as you know, it's a P2P among banks and there, what we're doing is work with merchants that are able to receive payments with Plin. So one of the first monetization's solutions that we have is basically getting float going through those merchants and then the other one will be, giving more accessibility to customers that want to do their transfers in a simple way, and they're getting deposits is important for us. In terms of Tunki, we have I think - and Michela can complement this, but we've started since inception with monetization solutions there and it's going very well. We have top-ups in Tunki. We have of - we are able to build the same strategy of like - besides top-ups and float, we are also able to pay some services, like let's say, or VAT and we get a fee on that and that's also already running in the platform. And then the same ecosystem concept of Merchant Acquiring and being able to move payments through that ecosystem. So basically that's it. And then we already have further plans and we will be presenting once we get them into the platform, rather than just offering or promising, we would like to say about - to talk about the things that we are actually able to do.

Okay. Great. Thank you. And Felipe, and as far as the number of users, what are your expectations for next year?

Michela, do we have guidance on that yet?

No. Not yet. Sorry.

We'll come back to you with that, Alonso. Obviously it's growing at - I've seen, it's growing like 6%, 7% per month basically on both fronts. We expect that trend to continue or accelerate based on the things we're doing, but we don't have specific numbers that we are showing now.

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

Okay. Thank you very much everybody for joining this call and we will be meeting again to review our year-end results next year. Stay safe. Bye-bye.

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