Good morning, and welcome to Intercorp Financial Services' Second Quarter 2022 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. It is now my pleasure to turn the call over to Rafael Borja of InspIR Group. Sir, you may begin.

Thank you, operator. Good morning, everyone. On today's call, Intercorp Financial Services, we will discuss its second quarter 2022 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; Mr. Bruno Ferreccio, Chief Executive Officer of Inteligo; Mr. Carlos Tori, Executive Vice President of Payment at Intercorp Financial Services. They will be discussing the results that were distributed by the company yesterday, August 15th. 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 Mr. Luis Felipe Castellanos, Chief Executive Officer of Intercorp Financial Services, for his opening remarks. Mr. Castellanos, please go ahead, sir.

Thank you. Good morning and welcome to our second quarter 2022 earnings call. We appreciate you taking the time to attend this call. I wanted to start by thanking to all of you that participated in our first Investor Day on June the 22nd. We're very happy to share with you in detail our strategic priorities and progress including our two-tier digital strategy, the review of our main businesses, our sustainability initiatives, and the key pillars that we are executing to achieve our objectives in the short-term and the medium term, and also to achieve our purpose, which is to make sure that Peruvians achieve their dreams. Focusing on the recent developments affecting our country, we continue to see an uncertain political environment where the confrontational relationship between the executive and legislative branches continues. Unfortunately, we're getting used to frequent rotation of cabinet members, as well as to hear about many corruption accusations targeted to senior members of the executive branch, including the President and close member of his family and his team. The economic front also continues to be challenging, pressured by the international environment, high inflation numbers, and a slowing economy affected by a reduction of public and private investments and reduced consumer confidence. The new Economy Minister has initially cut the official GDP growth forecast to 2.2% for this year, from the prevailing 3.6% He has announced a plan to boost public investment and implement an economic reactivation plan which is expected to be announced soon. The latest GDP growth print for June was held yesterday. The economy accelerated to grow about 3.4% for the month when compared to May's 2.3%. As a result, growth for the last 12 months now stands at 5.5% and continues its soft landing towards the range of between 2% and 3%…

Thank you, Luis Felipe. Good morning, everybody and welcome again to the Intercorp Financial Services' second quarter 2022 earnings calls. This time I will focus on two items of the agenda which includes financial highlights and then our key messages and takeaways. I will start with a brief summary of financial highlights on slides three to 10. The main highlights are on slides three and five, IFS had strong results in banking, insurance and newly added payments, but had a negative impact from investment in wealth management. Earnings are $251 million in the quarter and $655 million in the first half of the year, reflecting a loss in the investment portfolio and in Inteligo of $147 million this quarter, and 171 million in the first half of the year. This is impacting the quarterly ROE of IFS, which stands at 11% and driving down the ROE of the first semester to 14.2%. Banking, insurance, and payments had very strong results in the quarter with 19.4%, 31.6%, and 26.9% ROE respectively. The same is true for the first half results of the three subsidiaries with first half ROEs of 19.1% for banking, for 24.6% for insurance, and 30.9% in payments. On banking, we had a strong quarter in activity with double-digit growth in net interest income and fees and client base continues to grow almost 20% per year. The shift in loan mix and repricing of new loan disbursement has boosted in this quarter up to 4.9% and in line with the portfolio mix, cost of risk has reached 1.8%. On insurance profits almost double QoQ driving ROE up to 31.6% thanks to a strong growth in interest income of 27% QoQ and 30% on a yearly basis. It was strong investment income with return on the investment portfolio of 7.7%…

Thank you. And at this time, we will open the floor for your questions. And our first question today will come from Ernesto Gabilondo with Bank of America. Please go ahead.

Hi, good morning Luis Felipe, Michela and good morning to all your team. Thank you for your presentation. I have three questions from my side. The first one is on the wealth management business. Can you elaborate what was behind the loss? Was it related to fixing compositions or equities? And also if you can provide which sectors? And what would be the strategies that you will be implementing to have more stable numbers and to avoid too much volatility in the results, especially as the rest of the subsidiaries have ROE is above 19% and this is clearly the one affecting the consolidated number? Then the second question is on asset quality. We noticed that as your Stage 3 portfolio showed the lower MPL ratio for the quarter. However, when look into Stage 2 and 3, was increased due to the low mix. So how should we think about the MPL in the next quarters? And when do you see them returning to the pre-pandemic levels? And then, lastly, is a question on your digital channels. If you can provide us some color on what is the level of profitability that you currently have at Ezipay, Plin and Tunki? And when you expect them to become profitable, if that is not the case? Thank you.

Okay, Ernesto, thanks very much for your questions. Let me give you a background answer and will pass it on to each of the members. On the wealth management on the investments its, -- obviously, what has happened there as mentioned during my introduction, it's very much market related. Now, we've seen what has happened in the market during these three months, especially May and June have been very volatile. And, again, our portfolio which is a mix, and maybe we can get a little bit more detail later is of some equity and fixed income, but even the fixed income indexes have come down significantly given what's happening in inflation. So, we track our investments against a certain benchmarks and although we have over performed our benchmarks, the results overall have been impacted. And if you remember, profitability for Inteligo year-in year-out has been at around 25% ROE. So, this year is a particular one because of international market conditions. And obviously, again, it has not been immune to those strengths. We are very confident on the investments we have. They are related to financial services, technology, very close to obviously what we do because the vision there is a twofold. First, we do believe medium term and long-term, there are good investment and we liked the industry dynamics, but also, it allows us to have a foothold in order to be close to companies where we can learn about their operations in their own jurisdictions. And that brings an edge to our management teams in order to be close, in certain instances by just following the companies or even having access to management or participate more actively in the understanding of their strategy, technology, and developments. So, basically, that's the overall concept. So, hopefully, volatility will go down once the markets get a little bit more stable. We do see Inteligo returning medium long-term to the levels of profitability that we have been seen again, because we think those are sound names or sectors where we are looking at. The particularities, maybe I don't know if Bruno, you can elaborate a little bit more.

Yes, I think you answered pretty much everything. But on the first part of where what type of asset class has contributed to the mark to market losses. Like Luis Felipe was saying, it's both equity and fixed income. Basically, everything was down for the first six months in the market. So, those mark-to-market losses have affected the portfolio. The other thing I wanted to mention is we have about 80% of the results in our portfolio go through P&L and only 20% through other comprehensive income. So, what we're seeing here is most of the impact is going through our P&L. And that's why it seems a little bit large, but I think it's the way the accounting mandates and it's, I think it's a little more transparent also, because we are taking most of our results again, through P&L in a quarterly basis. So, I think that's it Luis Felipe.

Yes, basically what you see there is what you get. Now on the second part, the asset quality, yes, I think a Ernesto, Michela mentioned there's a couple things. So, first, there's a change in the asset mix, we're getting more heavier than previous week, basically returning to our previous levels, pre-pandemic of consumer loans and credit cards. And they're also we've been seen, given the high inflation levels or digital deterioration of the portfolio itself. And as Michela, I mentioned, we are already -- we have been already taken measures for the last three or four months actually in order to cut a little bit or improve our underwriting standards in certain segments. So, hopefully, we will return to lower numbers I would say by year end or early next year, but maybe Michela can help us a little bit more on parts as well.

Yes. Good morning Ernesto. As I showed in the slide, the cost of risk for this quarter was up to 1.8%, still slightly below pre-COVID levels. And this is being driven as Luis Felipe is mentioning due to a portfolio mix and the recovery in the balances of especially credit cards, but also personal loans. Now, where the cost of risk of total return is at 3.6%, now close to the 4% of pre-COVID. I mean actually what I think is going to happen is that we will be close to these levels now as of the end of the year. But we do see credit card, especially, already very close to pre-COVID levels. So, even if still not due to the portfolio mix now we have also a little bit more mortgages than before, et cetera, the overall cost of risk is still below pre-COVID levels. It is really, really getting close to it especially within the consumer loan book. So, most likely during next year, we will already see all the effects of this new portfolio and levers we will be mainly -- maybe even slightly above the pre-COVID of 2.2%.

Okay, and then the third part, the digital channels, let's see, these. Izipay is already a profitable company. And we've again, we're taking a cut and showing the numbers as 50% of Izipay always went through Interbank's financials and now that we acquired the other 50%, we have been able to isolate that to try to illuminate a little bit more the value of that platform or franchise. And as Michela mentioned, this is still preliminary because we're still doing the accounting work. However, we do expect that for next quarter, we'll have the complete view of the fair value of the assets, the accounting treatment and goodwill or whatever gets created there. That's on the works. So, we'll be updating on the numbers. On the other solutions, again, just to remember when we explained this vastly in our Investor Day is basically a network that is facilitating B2B and B2M transfers for our customers. So, it is that, a network and Tunki, it is a digital wallet itself and we have some numbers there that are very interesting in terms of acquisition costs and operating costs much lower obviously, than the traditional channels. I don't know Carlos, you if you can give us some light on those type of numbers, so we can put some guidance on this.

So, as you mentioned first going to Izipay, it is profitable like income before taxes for the first half has been PEN45 million for this half. And after-tax has been PEN28 million. EBITDA is strong and we continue to grow in that business, so that is good and healthy. And we -- as mentioned by Michela, we expect to continue to grow in Izipay. So, that's solid. In terms of Tunki, it's probably the lowest acquisition cost we have at IFS. We continue to grow. We've grown almost probably around 8% or 9% per month in the last quarter. So, we grow. In terms of income, it's still not profitable. But the expense is very low. It's very organic. And so we say we're trying to put together statements for the whole payments vertical and we'll try to show that in the future. But right now we're focused in continue to grow Tunki and its income and obviously the number of merchants and transactions.

Okay, thank you, Carlos.

It was super helpful. Thank you so much.

Thank you Ernesto.

And our next question will come from Juan with Scotiabank. Please go ahead.

Hi, thank you for taking the question. I had a follow-up on the payments business. So, I think I want to know more about the profitability and growth expectations. So, in particular, you showed the thing Izipay had about 10% ROE in the first half of last year, 31% ROE in the first half of this year. So, how should we think about the sustainable or long-term ROE for these parts of the business? And in terms of growth expectations, what are your growth expectations for this business?

Okay. Hi. Thank you very much for your question. Let me take a crack at it and then I'll pass it on to Carlos. But again, I want to reiterate that -- again, we had 50% of the numbers of Izipay were already at Interbank. So, what we've done we've taken them out and add not the performance of the other 50%. We're still working on the final accounting of that. Once we have the complete accounting numbers, we will be able to have a more specific number for the overall transaction after purchase. But yes, it's a very profitable operation. It continues to grow because the opportunities are very big. I think we're not ready to provide guidance at this stage. Because we -- again, this is a very new acquisition. However, the prospects are very positive. We though -- we still continue to think that growth is going to be very important. And obviously, we probably with a new strategy, we will accelerate investment levels. But as soon as we go deep into that, we will be able to share it with you and the market. So far, this is still work in progress. Let me pass it on to Carlos to see if there are anything I missed. But again, guidance on Izipay is still something that we are not ready to share.

Yes. No, I agree with Luis Felipe, just to make it clear on the accounting numbers what may change because of the goodwill is how you calculate the ROE or the equity within IFS, but the income is there and it won't change. So, that's something that's good. In terms of growth, obviously, we cannot give specific guidance. We've been growing in the past couple of quarters. We being gaining share in physical POS. We reached we believe around 50% coming from 15% four years ago. So, we reached 50% in the last few months. We expect to continue growing that, but probably not so much market share, but the market continues to grow. There is more payments. So, probably the number of growth in merchants, will, kind of, might slow down but we see more payments every month as people are changing their habits. The additional opportunity for growth is e-commerce. We continue to grow as we showed in the presentation right now, e-commerce represents 16% of the fees that we charge. We expect to grow that. It has been growing from 12% to 15% to 16%. So, that's another avenue of growth. And then we will look for avenues of additional income as Michela mentioned, aggregated services, cash advance and stuff like that should come in the next few quarters as we develop, we try it and start to penetrate our customers. We have 800,000 merchants. So, it's a lot of opportunity for additional services and processes. So, that's kind of the plan. No specific guidance. But those are the avenues of growth for the next couple of quarters.

Still lots of work to be done -- that we take advantage of those opportunities.

Yes.

Thank you. That's helpful and one more question if I may, this one is related to the consumer loans. So, I saw that the payroll loans are growing at a slower pace versus credit cards and other type of consumer loans. So, I was wondering if you can comment on what's driving the differences and where you expect it to continue to being the case?

Sure, yes . I think what is driving this is first, it's our discipline on rates, basically, -- that's the main explanation. We've seen competitors do some crazy things in that market. And again, we're very disciplined in pricing with cost of funds going up a and certain deterioration of the overall economy. We were very disciplined. I'm sure we were very focused on sustainable growth. And I think that some rates that we're seeing in the market are not ones that we're ready to be very aggressive. So, probably that's going to continue for some months ahead. And once the specific costs of funding, go through the P&L of competitors probably that is going to decelerate a little bit their aggressiveness as well. That is very much market related an appetite about profitability for us in that business. I don't know Michela or Carlos, if you want to add something to it?

No, I think is that though I mean, we've been very disciplined in the payroll loans which is the one that is growing a slowly or not, because I mean, we are market leaders there are. So, basically we are like, trying not to contaminate if you want the overall rates. Now, in a market of growing rates, we've been seeing a decrease in rates on new disbursement from competitors. So that was the reason why we have tried to be as much conservative as possible to try to preserve the profitability of that business.

Yes. That’s very helpful. Thank you for the comments.

You're welcome.

And our next question will come from Jorge Henderson with Santander. Please go ahead.

Hi, thanks for the Q&A space and presentation. I have two questions. I'd like to understand your expectations on risk adjusted NIM for the rest of the year? Do you see appetite for your first half 4% level? Or do you expect a more balanced mix of higher cost risk and net interest margin containing risk adjusted NIM at current levels? Also, I wanted to ask you about the effective tax rate. What's the reason behind the higher than 30% effective tax rate on the this quarter and also, what is the effective tax rate that is implied for your guidance of the year of above 16% ROE? Thanks.

Okay. Number one, I'm going to pass it straight to Michela. Number two, I'm going to venture to answer it and maybe Michela can correct me or compliment it, but I think particularly this quarter, the high effective tax rate is related to the Inteligo results, basically it's a loss that normally it's tax exempt. So, probably that hitting it, but Michela will be able again to answer number one and correct me, number two.

Yes. On tax rate, you are right, just adding up that also there is a slightly higher rate on Interbank I mean, the taxes are calculated on local accounts and the tax base has been a little bit higher in local accounting standards. That's also to add to the tax rate. On the first question related to the expectation of risk adjusted NIM. I mean, we expect NIM first of all, to continue to improve throughout the year, though, at a more moderate pace. Now, you've seen at the bank, we've had 40 basis points improvement in NIM in one quarter. We don't expect to see that in the next of the year, but it should continue to slightly recover. But also cost of risk is kind of a slightly moving upward due to mix. So, most likely, when we put the two things together, the risk adjusted NIM I mean, either is going to be stable most likely. I don't see it going upward any further because of the two opposite effects driving it. And I think the last question was related to the ROE guidance for the year end.

Implied tax rate -- the implied tax rate for the ROE guidance.

Okay.

And the -- guidance was even on the last quarter or the first quarter I think so I mean we have more information, but I just want to understand not that tax rate maybe, but more what do you expect going forward, if you expect the effective tax rate to be around 29% rate or higher, lower?

I mean, on the effective tax rate to be sincere, it will all depend on the impacts of the investment portfolio. I mean with normal conditions, it should be around the levels that we have seen a in the past year. So, below that 29% but we need to check with the investment portfolio because I mean, normally we see numbers more close to 25%, 27% effective tax rates. So, if we have positive results in Inteligo, we should see numbers, normalizing to those levels, and related to ROE as I previously mentioned, I mean banking, insurance and payments have shown strong ROEs in the first half and we expect that to continue to happen in the rest of the year. The question mark is the recovery of the investment portfolio and how it all adapts to the IFS ROE.

Okay, great. Very good. Thank you very much for the color.

No, thank you for the question.

And our next question will come from Daniel Mora with Credicorp Capital. Please go ahead.

Hi, good morning, Luis Felipe, Michela and thank you so much for the presentation. I have a couple of questions. The first one is regarding the loan growth. Even so as you mentioned that you split a single-digit loan growth in 2022, what could be the expectations going forward considering the high inflation, the higher interest rates, the economic deceleration? Do you feel that you're going to see like a strong deceleration for example, in consumer demand given the challenge in a macro scenario? And considering these scenario, my second question is regarding to NIM in the coming quarters by considering also the loan grow and the performance of the higher interest rates. When do you feel that we can see the peak of the NIM and what should be like the normal figure of NIM in the long-term for the company? Thank you so much.

Okay, let me pass it on to Michela to elaborate on those questions. Thanks a lot.

Okay, good morning, Daniel. Thanks for your questions. I mean, related to loan growth, as you have seen the total loan growth excluding Reactiva has been very high as of June is 14% that we are guiding to go back to single-digit levels for year end. What we have seen already starting July is lower growth in consumer financing. So, that part if you want is already there -- and we have also seen a little bit of slower growth in mortgages hand--in-hand with increase in rates that has been very strong now in terms of new disbursement. Commercial banking though has seen strong second quarter, first because SMEs recovery, but also because we were very cautious in terms of rates in the first quarter and then once the -- most of the increasing rates are already there in the market, we have started to learn short-term working capital loans to large and medium sized corporates. Now, for sure the investment from companies I mean, are not there due to the situation. So, commercial banking will slightly decelerate, but there is a positive effect there related to the repayments of Reactiva. So, basically companies are replacing all Reactiva loans with traditional loans and that is helping commercial loans to continue to grow even if investments are not there. So, only known for year-end single-digit still retail, especially, consumer will continue to be double-digit and most likely I mean, we are not giving guidance yet for 2023, but most likely we will see I mean lower levels of growth next year when compared to this year, when there was also still kind of our recovery effect or base effect from COVID levels. And taking these to NIM. I mean, yield on loans specially will continue to go up I mean for some quarters. I don't have the all the quarters of 2023. But it will continue to go up because first the portfolio mix has already changed and that has a full year effect in the numbers in the coming NIM. But also the increasing rates has been steep and gradual and we've had new increases of rates even in July and August. So, basically the yield will continue to increase. So, all this creates a positive effect in the loan loss which will drive NIM up even if we are also seeing also faster also increase in cost of funds because of the hiking in rates. But all-in-all a we will see yield on loans still increasing in the coming quarters and that should drive also NIM upwards during the rest of the year and part of 2023.

Perfect. Thank you so much for the answers.

Thank you.

And our next question will come from Yuri Fernandes with JPMorgan. Please go ahead.

Thanks, everyone. I had just a question regarding equity growth like your OCI impact. I guess Inteligo had some hits and you mentioned during the call that part of the losses they were to P&L and part on the equity side. But when we look to the bank and insurance company, we also had some OCI hit. So, my question is, what should we expect to hear for the coming quarters, I guess, the 10-year in Peru, it's more stable now. So, maybe is the worst behind for OCI? And how does OCI affect your capital ratios? Because we don't see a lot of things on Tier 1 ratio, but just checking how OCI losses could impact you there? Thank you.

Thank you, Yuri. Let's see, I think you're right. Some of our portfolio, especially probably at the insurance company at the bank, you're right. Because again, in Inteligo, most everything -- mostly everything goes through equity -- through P&L I'm sorry. So obviously, for the bank, like Interbank and Interseguro, the fixed income portfolio, basically, that's all fixed income, at least in the Interbank level that's hitting OCI. I agree with you probably the worst, is what we're seeing now or actually, it has improved recently, but what we have seen by the end of June maybe at the beginning of July. So, we do expect some upside on that front. However, again, we'd have to closely follow market evolution. We're very well-capitalized or having its toll, but it's not affected insignificantly depending on the month of the year, especially, I think, for year end, we won't see significant changes probably early next year, we'll see something. But maybe I can pass it on to Michela to elaborate a little bit more on this.

Yes. Thank you, Luis Felipe. Yuri actually, we do have already an impact in the ratio, especially at the bank level. So, the unrealized losses, if you are not the ones that go through the OCI at the bank, because of the increase in rates in the impact on the sovereign bond portfolio we already have an impact in the ratios that you see. So, basically, the total capital ratio that we show the numbers that we have share, and also the core equity tier one already are reflecting a negative impact of this. So, basically, what I'm trying to say is that the 15.2% total capital ratio, and the 11.1% capital ratio actually would be much higher if the negative impact on unrealized gains was not there in the portfolio, and we're talking of numbers that could be even like 50 basis points above the ones that we are showing. So, actually, I mean, there is upside potential, therefore the ratios, but let me also mention that as Felipe was pointing out, there is a seasonal effect with these impacts, especially in the first half of the year because those results are offset by the retained earnings that you have. So, basically, what happens is that at the beginning of the year now, what you do not have -- I mean, after you have capitalized and also distributed dividends, you see the negative impact altogether, and then once the retained earnings continue to build up throughout the year those impacts reverse in the second, third and fourth quarter of the year. So, that was also one of the reasons why the core equity Tier 1 ratio in the first quarter was slightly below 11%, 10.9% because we had the two impacts together, the distribution of dividends, but also negative impact from the unrealized gains in equity. I don't know if that's clear.

No, it does. Thank you, Luis Felipe and Michela. I guess that was my point. If you have some kind of upside on your capital was, and hopefully rates become more stable in Peru. Thank you very much.

I think arguably, one more thing, just in terms of that portfolio. Just to that's basically and global related to like global bonds like Peru risk. So, I am sure -- no long-term data. So, another effect is given their long tenure once we go through like that time effect on that portfolio should also help and bring an important role towards diminishing those numbers as well.

Perfect. Thank you.

Yuri -- let me add one thing Yuri, sorry just not to leave the impression that we will have the capital ratios at the super more higher than what we're showing is that starting January, we will be implementing some changes in the definitions that the super-intendency has already disclosed, but it's kind of I mean, regulating into the details. And there are a couple of things that we are still evaluating or things that first were a risk weighted assets that now could go directly to the reduction of equity. That could have some impact in the ratios. So, once we have that sorted out, because we are in the face of giving comments to the super-intendency we could give you a little bit more light on that.

So just to make clear Michela is this part, like bottom-line is that maybe the risk density may increase a little bit in Peru. Is that right. In Peru, we can have some--

No, no. No, increase in risk weighted assets? No, there are a couple of things that were before in risk weighted assets that could go to be deductions directly from equity. So, basically, it's a different impact. It's bigger the impact when you deduct deducted directly from equity versus when you have them in risk weighted assets?

Got it. So, basically like we have these in some countries, like the VTAs you are using, like some kind of risk factor on your RWA and now you kind of deduct directly from the capital. And because you have that base effect, you can have some effects on the ratios, like if you -- like factor assets as RWA and some things like equity deduction.

Yes, it's not. I mean, it's not big numbers we're talking about but there are some things that may impact, so that that's why I wanted to make it clear.

Okay. No, it's very clear. my point was like should we see OCI improving from loan and if there is any kind of impact, and you were very clear on your answers. So, thank you very much.

where the markets going, Yuri, we will tell you quite happily.

I wish I knew. Thank you guys.

Thank you.

Well this will conclude the audio questions. I'd like to turn the conference over to Rafael to read any webcast questions. Rafael?

Thank you, operator. So, we have some questions via chat. The first one is coming from Greg Mitchell . Can you please discuss the challenges and opportunities for attracting and retaining talent, especially at the highest levels of the company and in the digital strategy?

Sure. Thank you. Hi Greg. Great question. Obviously, one of the biggest challenge that we are facing strategically and in terms of building what we want to build is talent, not only for digital, but also for analytics and all the new skills that are required for that information of a company like ours and being able to compete in the current environment. However, I do feel comfortable that even though it's a challenge, we're taking the right steps. Our team has been reinforced in the recent years with many talents and were exploring different avenues. And actually what we've seen through the pandemic and the way we have changed in terms of how we're working now with our newly deployed Interbank way of working, which is pretty much remote first and hybrid is also helping us, okay. So, first, obviously, we have an specific HR team targeting, attracting, monitoring, developing and retaining that talent. So, we have a specific team targeted towards the digital and analytical talent. So, we're very focused on that. Then our way of working helps us very much because this talent is looking for flexibility, but not also that it also helped us to expand the way we're looking for talent. So, today, we have a setup where we have people working from Argentina, specifically for analytics from Colombia, our cybersecurity team is based from there. From Chile. So, Peru is not longer the bottleneck because of that, and we are pursuing that strongly. And then we are making sure that we have the right projects because as you know, this is all projects based. And we think that the type of projects that we are developing in terms of analytical things that we're doing, and digital solutions that we're bringing to market and the…

We have another question from Parag Jariwala from White Oak Capital. What is the split between equity and debt of the losses in wealth management business? Are there any further losses in wealth management that have accrue and shall come through in upcoming quarters?

Okay. Thanks very much for that question. Let me pass it on to Bruno so he can maybe give us a little bit more of a specific I think we talked plenty about this. But anyhow, Bruno, do you have anything to add?

Yes. So, approximately I would say 40% of the mark-to-market is due to fixed income and 60% due to equity. So that will answer the first part of the question. With regards to what do we expect, I think it's early to tell. Certainly the second quarter, the markets have been behaving better. So, that should bode well for the portfolio. But we're only 45 days into the quarter. And then -- there's a lot still to come for the second half of the year but certainly we should, if the market behaves better, our portfolio should do the same. And again, like I said, most of the results from the portfolio are going through P&L. So, we should see that impact for the third quarter and the second half of the year.

We have another question from Daniel is regarding capital allocation. Could you consider a share buyback program as a way to create value for shareholders considering that you are having good, some good results and expect to reach an ROE over 16%? But the company's nowadays is only being valued at around 1.2% book value.

Yes, let me take that question Luis Felipe. I don't know if he's there, but let me just take it Luis Felipe. The question is related to share buyback opportunities given our more than 60% ROE in the low valuation?

Yes. Sorry, I will just interrupt for a moment but I can take it. So, thanks very much for the question. We're always evaluating alternatives. Right now we don't have that in plans. So, we will continue to monitor in both capital requirements, performance, our prospects, own liquidity, other vehicles where we can do this but so far, although we do think there is an opportunity on that front. We have not yet proposed anything or taking that decision. It's obviously always on the table and being evaluated. But we also look at the liquidity of the stock. So, again, we did our IPO in 2018 in order to boost liquidity and enable it to have more showing and trading. So, those are like balances that we need to take into account before actually taking a decision. But I mean we'll make sure every possible avenue through operations or through any of a different alternative is taking into account in order to make sure that once the volatility and the dust settles on the international conditions and the local conditions, we can get back to where we think the value of our franchise should be.

We have one more question from from White Oak Capital. The commercial loans have contracted year-over-year with increasing commodity prices. It would seem that the demand for working capital loans will increase, but it does not seem to be the case. So, could you comment on the demand outlook and your approach to commercial and working capital loans?

Yes, obviously. Again, the economic prospects for the country are not very positive. We see that there's a deceleration of the GDP. And both investors sorry, consumer confidence and the business environment over all, private investment and public investment are not picking up. So, we do see a second semester of the year where demand for new loans or new projects is not there. However, there are always opportunities -- if we take out the Reactiva part of it, probably we'll be able to see some recovery in the corporate and enterprise and medium-sized enterprises, but not very aggressive. Maybe Michela can complement a little bit on what--

Yes, I just wanted to add to what Luis Felipe was mentioning that I mean, there is this positive effect of the replacement of the Reactiva loans which is healthy. So, remember I mean, there were almost PEN60 billion injected in loans to the financial system for commercial loans in 2020 during COVID times, and those loans are being rebate but there is still we, for example, lent PEN7 billion out of that and we still have 3 point something billion in our portfolio. So, basically what is happening is that as those loans which had low rates continue to mature, companies need to replace that chip funding with new working capital. So, that's why when you look at the numbers excluding those repayments of Reactiva, commercial banking continues to grow, it will continue to be the case for the rest of the year and a part of 2023.

So, at this time, I'm showing no further questions. So, I would like to turn the call over to the operator.

This will -- there appears to be no further questions at this time. I'd like to turn the floor back over to Ms. Casassa for any closing remarks.

Okay, thank you very much. Again, thank you, everybody, for joining us and for joining us also during our last -- first Investor Day. We hope to have a little bit less volatility in the coming quarters and expect to see you in our third quarter conference call results. Bye everybody.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.