Credicorp - Q3 2024

Transcript

Operator (participant)

Good morning, everyone. I would like to welcome you to the Credicorp Limited Third Quarter 2024 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're using a speakerphone, please make sure your mute function is turned off, to allow the signal to reach our equipment. Now, it is my pleasure to turn the conference call over to Credicorp's IRO, Milagros Cigüeñas. You may now begin.

Milagros Cigüeñas (Head of Investor Relations)

Thank you and good morning, everyone. Speaking on today's call will be Gianfranco Ferrari, our Chief Executive Officer, and Alejandro Pérez-Reyes, our Chief Financial Officer. Participating in the Q&A session will also be Francesca Raffo, Chief Innovation Officer; César Ríos, Chief Risk Officer; Carlos Sotelo, Mibanco'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.

I refer you to the forward-looking statements section of our earnings 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 begin the call with remarks on the improved macro environment, a brief overview of our quarterly results and recent developments, followed by Alejandro Pérez-Reyes, who will provide a more detailed analysis of key macroeconomic indicators, our financial performance, and revised outlook for 2024. Gianfranco, please go ahead.

Gianfranco Ferrari (CEO)

Thank you, Milagros. Good morning, everyone. Thank you for joining us today. The positive momentum we saw in the first half continued into the third quarter, allowing us to deliver a record high bottom line of PEN 1,523 million this quarter. Additionally, we distributed a special dividend, achieving a total dividend payout of 75.3% to date. This performance was driven not only by an improving macroeconomic climate, liquidity inflows captured from pension withdrawals, and a relatively more stable political environment, but more importantly, by the strategic initiatives we've implemented across the organization. We've reached a pivotal inflection point where the benefits of these initiatives are consistently materializing across our businesses, reinforcing our competitive strength and further decoupling our performance from the external macroeconomic factors.

Despite geopolitical tensions in the Middle East, we're maintaining our GDP growth projections of 3% for 2024 and 2.8% for 2025, on continuing signs of recovery in Peru, though we do recognize that ongoing developments in that region and the results of the US elections could cause some volatility. In October, inflation rose to 2%, up from 1.8% in the previous month, which was the lowest level in nearly four years. As such, it remains within the central bank's target range of 1%-3%. Our strategy to diversify revenue streams with the goal of generating 10% of the risk-adjusted revenues from new businesses by 2026 is strengthening our resilience in the current environment. This approach is particularly important given the slower-than-expected recovery in business confidence, which impacts private sector investment and demand for wholesale loans. At the same time, we remain committed to prudently managing retail loan growth.

Importantly, we are seeing a reduction of NPLs, supported by additional liquidity from pension withdrawals. As discussed during our recent strategic update, we remain truly focused on deepening market penetration with new value propositions, exploring untapped business segments, and accelerating the adoption of transformative technologies. While we remain committed to leading the way in shaping the financial products and customer experience of the future, we will do so with a disciplined approach, ensuring alignment with our strategic goals and improving financial management. Now, moving onto the regulatory front, after years of political debate, Peru enacted pension system reform in September, marking a significant step towards enhancing financial security for retirees. We're optimistic about its potential to strengthen the system's ability to channel national savings into infrastructure and productive investments, driving long-term economic growth. Before turning to our third quarter results, let me discuss a few recent corporate developments.

Starting with Tenpo, our digital wallet in Chile, after quickly establishing a strong presence in a competitive market, we received provisional approval from the Chilean Financial Market Commission on October 25th to create a new banking entity named Tenpo Bank Chile. This is a significant milestone from Credicorp's expansion into the Chilean financial market as Tenpo advances towards securing full operational authorization, which we expect to happen in 2025, becoming the first digital bank to operate in Chile. Next steps for Tenpo to become a neobank involve obtaining assistance and operational authorizations from the CMF. Furthermore, reaffirming our commitment to innovation and our goal of revolutionizing the financial ecosystem in the region, Francesca Raffo, our Chief Innovation Officer, has resigned from her position as Deputy General Manager at BCP to focus exclusively on leading innovation at Credicorp and continue the transformation of the financial markets in Peru and Latin America.

Lastly, I'm pleased to share that on October 31st, we announced the acquisition of the remaining 50% stake in our joint venture with Empresas Banmédica, that includes three businesses: the pet medical insurance, corporate health insurance for employees, and medical services. The acquisition strengthens Credicorp's ability to fulfill its aspiration of creating a more sustainable and inclusive economy by improving insurance and healthcare access while advancing financial inclusion in Peru. Turning now to the third quarter results, we delivered a strong ROE of 18.5%, primarily driven by universal banking and insurance, and supported by diversified revenue streams and high-level transactional activities in a recovering economy. Risk-adjusted NIM improved, reflecting a disciplined interest rate management strategy, along with our leading low-cost funding position and lower provisions.

Notably, our vast solvency allowed us to declare a special dividend of PEN 11 per share, while also contemplating our plans for continued sustainable growth. We're witnessing significant benefits from our investments in innovation and enhancing digital capabilities, which strengthen our competitive moats, elevate our relationships with current clients, and promote financial inclusion. Looking ahead, we maintain our GDP growth expectation of 3% for this year and expect a similar outlook for 2025. Mibanco's performance is improving, driven by both the overall economic recovery and the specific learnings and measures taken regarding origination, monitoring, collections, and rescheduling processes.

We're continually evaluating opportunities for further structural risk management and operational improvements to achieve our medium target of 20% ROE. As we make progress, we will keep you updated. We remain committed to the long-term growth potential of the market served by Mibanco, given its slow market penetration. Additionally, we're seeing increasing synergies between Mibanco and Yape, derived from the potential for enhanced insights from the massive amounts of data collected by both companies. I will now turn the call over to Alejandro, who will go into further detail on the macro environment, each of our operating businesses, and our consolidated results. Alejandro.

Alejandro Pérez-Reyes (CFO)

Thank you, Gianfranco, and good morning, everyone. As Gianfranco mentioned, we deliver strong overall operating and financial results, including our record high net income. This performance was achieved despite an environment of negative loan growth and an improving but still elevated cost of risk, which attests to the resilience of our businesses and the power of Credicorp's diversified revenue base. As I discuss the highlights of the quarter, I will focus on the quarter-over-quarter results to emphasize recent shifts in trends. Results have been positively impacted by an uptick in transactional activity, favorable results from recent risk management measures, and increased liquidity levels across the financial system, partly attributable to pension fund withdrawals. While the additional liquidity increased loan amortizations, it also positively impacted asset quality, funding costs, and transactional levels. Loans contracted 1.2% measured in average daily balances and 3% in quarter-end balances.

This contraction was driven primarily by corporate loans at BCP and by Mibanco, amid more restrictive provision guidelines. On the other hand, asset quality improved. The NPL ratio dropped 12 basis points to 5.9%, driven primarily by BCP and Mibanco. At BCP, the NPL contraction was led by the corporate, consumer, and Credicorp segments. Provisions fell 20.6%, driven primarily by improved payment performance in retail banking at BCP and Mibanco. As a result, the cost of risk fell to 2.4%. We delivered stronger margins, with net interest income increasing by 3.5%. This growth was driven primarily by a decrease in interest expenses, as low-cost deposits continue to enter in the mix and now represent 56.2% of the funding base. As a result, NIM increased 10 basis points to stand at 6.4%. Non-interest income contracted this quarter as regulatory changes impacted the foreign transfer service businesses at BCP Bolivia.

Fee income contracted 3.5%. However, excluding BCP Bolivia, fee income rose 4.4%, benefiting from strong transactional activity at BCP through credit cards, debit cards and Yape. Gain on FXtransactions contracted 20.6%. However, excluding BCP Bolivia, they grew by 1.9%, boosted by increased book volumes. Lastly, insurance underwriting results fell 7.5%, reflecting less favorable reinsurance results in the P&C business. All in all, we delivered an 18.5% ROE this quarter, supported by the aforementioned revenue dynamics, active risk management, and disciplined cost control, while maintaining sound capital levels. On cumulative terms, ROE stood at 17.7%. Next slide, please. In the third quarter, Peru's economy continued to recover. Economic activity grew 4% year-over-year on average in July and August. Notably, non-primary GDP accelerated by 4.2% in the same period, its highest growth rate in more than two years.

In September, GDP growth is expected to have slowed down slightly, bringing the quarterly growth rate to approximately 3.5%. Favorable commodity export prices, coupled with lower import prices, have driven terms of trade to historical highs. This trend is expected to provide a tailwind for growth in the coming quarters, particularly if it propels higher mining investments. According to the central bank, expectations for the economy and for investments have improved and have remained at the optimistic range for most of the year. The Chancay Port, set to be inaugurated next week during the Asia-Pacific Economic Cooperation meetings, is projected to boost GDP by 0.3% in 2025 during its first phase of operation, according to the central bank. The new port will reduce shipping times within Asia and Peru by 10-15 days.

This improvement in efficiency has the potential to transform trade dynamics and routes between the West Coast of South America and Asia. Public investment has also driven economic growth, rising by 25% year-over-year in the first nine months. This constitutes the best print in 11 years, excluding the pandemic period. Recently, Moody's and Fitch reaffirmed Peru's credit rating, three and two notches above investment grade, respectively. Both agencies upgraded the outlook from negative to stable. Moody's emphasized that the adoption of political reforms has alleviated medium-term concerns about institutional stability. Meanwhile, Fitch noted that sound policymaking has supported economic recovery this year and preserved broad macro-financial stability. Considering the recent economic developments, we reaffirm our Peru's GDP growth forecast of 3% for this year and expect a similar growth rate for 2025. Next slide, please.

The Federal Reserve recently began easing its policy stance with a 50 basis point cut in September, its first reduction since the pandemic, followed by a 25 basis point cut yesterday. While further cuts are expected, uncertainty remains regarding their pace, particularly as the economy's trajectory will depend on the new government's policies. Consequently, volatility in dollar rates is likely to persist. Since April, inflation in Peru has comfortably remained within the central bank's target range of between 1% and 3%, while core inflation followed suit more recently. The gradual rate cut approach adopted throughout the year is expected to continue in the coming months as the rate approaches its neutral level during the first half of next year. In Colombia, inflation slowed to 5.8% year-over-year in September.

This rate continues to be above the upper limit of the target range, which is between 2% and 4%. The central bank continues to pursue a restrictive policy. Finally, in Chile, the central bank has gradually reduced the pace of monetary easing as the rate moves towards a neutral level and the bulk of cuts have already occurred. Since July 2023, the policy rate has fallen 600 basis points. This has led the country's currency to depreciate nearly 10% year-to-date, offsetting the positive impact of higher copper prices. Next slide, please. This quarter, BCP's profitability has been boosted by a reduction in the cost of funding, higher transactional levels, and improvements in client payment performance, as risk management measures took effect and liquidity rose in individuals on the back of inflows from pension fund withdrawals.

Key quarter-over-quarter dynamics included: total loans measured in average daily balances fell 0.8%, driven by a reduction in the corporate loan segment after a large client from the construction sector repaid a long-term operation, and by a drop in individuals, where excess liquidity was. NPLs fell 4.6%, mainly driven by wholesale banking, which raised their loan repayments by a corporate client from the commercial real estate sector, and consumer and Credicorp's, fueled by improvements in origination, monitoring, collections, and rescheduling processes, and by clients who leveraged excess liquidity to make repayments. In terms of drivers of results, NIM rose 8 basis points to stand at 6.2%, aided by a low-cost funding structure that reflects our strategy of strengthening primary banking relationships with our clients.

Other core income grew 6.9%, driven primarily by an uptick in fee income from transactions via credit and debit cards, and secondarily by higher fees from the payments line in Yape. Cost of risk fell 51 basis points to stand at 2.1%. The contraction in provisions was driven primarily by an improvement in payment performance in retail banking. In individuals, particularly in consumer and Credicorp's, provisions fell after the weight of newer and healthier vintages within the loan portfolio rose, rescheduling efforts were ramped up in the last quarter, and debt repayments rose in a context marked by higher liquidity across the system. In SMEs, the contraction in provisions reflected mainly the fact that newer and healthier vintages increased their weight within total loans and less refinancing was granted. Regarding year-over-year dynamics, I would like to highlight income growth.

NII rose 12.8%, fueled mainly by an uptick in interest income and by a drop in the funding cost. Other core income rose 18.2%, boosted by an increase in transactional levels. BCP's transactional business has become increasingly relevant, as illustrated by the upward trend in the ratio of other core income to assets, where Yape has contributed greatly to fee generation. On a year-to-date basis, BCP continues to improve efficiency through positive operating leverage. Operating expenses rose 10.4%, driven mainly by disruptions, personnel expenses, and increased spending on licenses, system infrastructure usage, and cloud capacity in a context of growth in transactions via digital channels. Meanwhile, operating income grew 12%, and BCP's efficiency ratio stood at 37.4%. In this context, BCP's third-quarter contribution to ROE rose to 24.5%, standing at 22.9% year-to-date. Next slide, please.

The number of active Yaperos continued to grow this quarter and reached the 13 million mark. This put us well on our way towards reaching our aspiration of 16.5 million active users by 2026. These users are making, on average, 44 transactions per month. In this context, Yape revenues continue to accelerate while expenses remain under control. At the end of last quarter, revenue per active users reached PEN 4.9, further decoupling from expenditures per active user. With this achievement, we are on track to realizing our aspiration of ensuring that disruptive initiatives contribute significantly to Credicorp's revenues after provisions. Yape's payment business is the apt forerunner for revenue growth, with a potential of growing four times going forward, as mentioned in our strategic statement. Income generation this quarter was fueled by Yape Empresas, which offers value-added services to businesses.

Additionally, bill payment transactions have risen 3.3x since the third quarter of 2023. Within the financial business line, revenues are obtained mainly from float, while loan disbursements continue to grow exponentially. By the end of September, we had disbursed loans to 1.1 million clients and are on track to achieving our 2026 aspiration of 5 million Yaperos with a loan disbursed, while maintaining credit risk under control. It is important to note that 42% of the aforementioned borrowers received their first loans in the financial system through Yape. Finally, our marketplace business has been a lever in bolstering customer engagement. This is reflected in the gross merchant volume, which has grown 2.7x year-over-year, mainly through Yape Promos. Next slide, please. At Mibanco, the NPL ratio is improving at a faster pace than most of its peers, thanks to the risk management measures taken.

On a quarter-over-quarter basis, Mibanco's total loans measured in average daily balances fell 4.8%, impacted by stricter origination policies. This drop reflects a contraction mainly in higher ticket loans, which was partially offset by growth in new disbursements in small ticket, higher yield loans. Despite the drop in loans, NIM rose 25 basis points to 13.9%, primarily due to the drop in the cost of funding after the funding rate decline. In terms of portfolio quality, NPL fell 8%, driven by a reduction in overdue loans. This evolution was fueled by tighter adjustments in origination guidelines, improvements in debt collection management, and by debt relief facilities in June and July of this year. The improvement in payment performance led to the cost of risk to fall 133 basis points to stand at 6.2%. From a year-over-year perspective, I would like to highlight the resilience of Mibanco's NIM.

Our active loan pricing management, coupled with a decrease in the cost of funding, helped sustain NIM despite a loan contraction. Corporate expenses on a year-to-date basis remain under control, and efficiency stood at 52.8%. In this context, Mibanco's third-quarter contribution to ROE rose to 9.4% and stood at 8.9% year-to-date. We expect risk management measures to continue to yield positive results as healthy loan growth resumes. These dynamics should drive a controlled cost of risk and help us recover profitability levels. Mibanco Colombia's profitability has moved into positive terrain. Our recent strategy to slow down portfolio growth, control risk, and strengthen efficiency has borne fruit. Next slide, please. Profitability at Grupo Pacífico continued to be strong, with ROE standing at 24.3%. This strength was attributable to solid investment performance and a favorable contribution from the corporate health insurance and medical services business.

Net income, however, dropped 2% quarter-over-quarter on the back of a deterioration in insurance underwriting results due to higher claims, particularly in credit lines. It is worth highlighting that this quarter we started a 15-year partnership with Falabella for the distribution of insurance products. This partnership represents a great opportunity to facilitate access to insurance for more Peruvians. From a year-over-year perspective, Grupo Pacífico's net income dropped 23%. This decline was mainly driven by lower insurance underwriting results, driven by medical assistance and credit line products, and a base effect associated with last year's one-off net gain from exchange difference. This quarter's profitability is representative of the sustainable ROE level we expect to deliver at Pacific. Next slide, please. Now I want to address the transaction we announced last week.

In line with our strategy to expand our presence in Peru's insurance and software markets, Credicorp reached an agreement to acquire Empresas Banmédica's 50% interest in our joint venture with Pacífico Seguros. The acquisition includes Banmédica's 50% stake in the private health insurance, corporate health insurance, and medical services businesses, and is subject to regulatory approvals and other standard conditions. The transaction value stands at PEN 1,131 million and is accretive to Credicorp's earnings from day one. I would like to underscore three key aspects of this strategic move. First, significant growth potential remains in both the insurance and software sectors in Peru. The healthcare sector is underserved, with only 1.6 hospital beds per 1,000 inhabitants. Similarly, private insurance penetration stands in the low single digits, pointing to significant growth opportunities.

Second, by increasing our participation in both sectors, we aim to deliver a comprehensive value proposition to clients while maintaining a strategic hedge across our business portfolio. Third, Credicorp holds deep expertise and a proven track record in these sectors, with over 25 years in health insurance and 13 years offering medical services. In summary, this acquisition is a natural progression for Credicorp, reinforcing our commitment to high-quality products and services in the insurance and healthcare sectors. It is strategically positioned us to capture growth opportunities and continue delivering exceptional value for clients and shareholders. Next slide, please. Profitability in investment management and advisory business remains sound, with ROE standing at 15.9%. This performance was attributable to favorable business dynamics at our less volatile units, namely wealth management, asset management, and our sales activities within capital markets. These units are benefiting from increased transactional activity and growth in AUM.

Net income, however, registered a 16% decrease quarter-over-quarter. This drop was primarily attributable to a basis effect which was associated with our discontinued corporate finance business unit and to less favorable treasury results. On a year-over-year basis, net income rose 77%, led primarily by our capital markets business.

Operator (participant)

Pardon me, ladies and gentlemen. It appears we have lost connection to our speaker line. Please stand by while we reconnect. Thank you for your patience. Hello everyone. The speakers are back, so. We will continue right where we left off. Apologies for any inconvenience.

Alejandro Pérez-Reyes (CFO)

Sorry for the technical difficulties. I'm going to restart from the part of the consolidated evolution of Credicorp, that's slide 13. So, beginning with the quarter-over-quarter dynamics for the balance sheet for Credicorp's consolidated evolution. On the asset side, cash and equivalents grew in a context of excess liquidity, which boosted the level of interest-earning assets despite declining loans. Loan balances decreased at BCP, mainly due to corporates and individuals and at Mibanco, as previously explained.

This shift in the asset mix led the yield on interest-earning assets to drop 5 basis points. On the liability side, an increase in low-cost deposits, which was fueled by withdrawals from pension funds, led our cost of funds to drop 18 basis points. On a year-over-year basis, on the asset side, cash and equivalents increased and the loan portfolio contracted, following similar dynamics as seen in the quarterly analysis. The investment portfolio, in turn, increased and its duration was extended. In this scenario, the yield on interest-earning assets fell 9 basis points.

On the funding side, the aforementioned increase in low-cost deposits resulted in a favorable funding mix despite an increase in due to bonds and recent bond issuances by BCP. Against this backdrop, the cost of funds fell 47 basis points, largely outpacing the decline in the yield on interest-earning assets. Next slide, please. Moving on to loan portfolio quality, NPL fell 4.8% quarter-over-quarter, driven by both BCP and Mibanco, via the dynamics mentioned earlier. It is important to note that this quarter, the evolution of the NPL volume reached a turning point, particularly in the segments most impacted by the recent credit cycle: individuals and the structural SMEs' portfolios at BCP, as well as by Mibanco's portfolio. The improvement in the payment performance, coupled with successful risk management measures at both BCP and Mibanco, led provisions to drop 20.6% quarter-over-quarter, while the cost of risk decreased 64 basis points to stand at 2.4%.

In this context, the NPL coverage ratio rose 364 basis points quarter-over-quarter to stand at 98.7%. Next slide, please. Moving on to analyzing our income and expenses. To analyze the evolution of core income, the most efficient approach is to exclude BCP Bolivia, as regulatory changes impacted its foreign transfer service business. After excluding Bolivia, core income rose 3.7% quarter-over-quarter, driven mainly by NII through a decrease in the cost of funding and an uptick in fee income via credit cards, debit cards, and Yape transactions. In terms of margins, NIM increased 10 basis points to stand at 6.43%, while risk-adjusted NIM rose 53 basis points to stand at 4.93%. I would like to emphasize that the year-over-year increase in NIM of 32 basis points reflects both the rising strategic advantage of our funding costs and the fruits of a disciplined interest rate risk management strategy.

Analyzing expenses and efficiency on an accumulated basis, operating expenses rose 8.2%, driven primarily by core businesses at BCP and disruptive initiatives at the Credicorp level. Expenses for disruptive initiatives at the Credicorp level rose 28.1%. The most significant expenditures were in Yape, Culqi, and Tenpo, which combined accounted for 71% of disruptive expenses in the first nine months of the year. Finally, an uptick in operating income and accelerating operating expenses led the efficiency ratio to drop 51 basis points to stand at 44.6% in the first nine months of 2024. Next slide, please. This quarter, ROE stood at 18.5%, driven by strong results in our universal banking and insurance businesses. ROE for the first nine months was 17.7%. Net equity was slightly impacted this quarter by the payment of an extraordinary dividend of PEN 11 per share. Accordingly, our dividend payout ratio stands at 75.3% for the year.

It is important to note that BCP and Mibanco have not yet declared an additional dividend. These results are a testament to our resilience and ability to adapt to challenging circumstances. And now I will move on to our updated guidance. Next slide, please. As previously stated, our expectation for GDP growth remains at 3%. Regarding loan growth, although economic activity continues to enjoy positive momentum, the appetite for long-term financing in wholesale banking remains low. Additionally, our approach to origination in our retail banking and microfinance segments has been cautious. These factors, coupled with the impact of pension fund withdrawals, have led us to revise our guidance for total loan growth, measured in average daily balances to around 0%. Our NIM is expected to situate in the upper end of our guidance range, which is between 6% and 6.4%.

We expect the cost of risk, in turn, to situate in the upper end of our guidance, which is between 2% and 2.5%. We achieved solid efficiency levels as we continue to invest in our disruptive initiatives. We are controlling growth in expenses in our core businesses and expect to close the year with an efficiency ratio near the lower end of our guidance, which is between 46% and 48%. Given the aforementioned dynamics and based on the strong evolution of our other income and insurance underwriting results, we reaffirm our ROE guidance for 2024 at around 17%. With these comments, I would like to start the Q&A session.

Operator (participant)

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 are using a speakerphone, please make sure you mute. 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. But again, please only ask one question at a time. Thank you. And the first question comes from Ernesto Gabilondo with Bank of America. Please go ahead.

Ernesto Gabilondo (BBVA Financial's Equity Analyst)

Thank you. Hi, good morning, Gianfranco, Alejandro, Francesca, César. Good morning to all your team. Congrats on the results and thanks for the opportunity to ask questions. My first question will be on asset quality and cost of risk. We have been mentioning the strategy to get higher exposure into the retail segment. But at the same time, probably Mibanco could be in a much better position next year, so wondering how you see the cost of risk evolving in 2025.

Gianfranco Ferrari (CEO)

Yes, Alejandro?

Alejandro Pérez-Reyes (CFO)

Yes, sure. As you mentioned, we have seen an improvement this quarter. We think the trend will continue. There might be perhaps some change in the gradient of the trend once the pension money starts being rolled out of the system. But still, we are expecting cost of risk to continue to come down. And our expectation for the next year and the following years is to continue moving lower. Again, as you know, we are changing mix in we were expecting a changing mix in our portfolio. We are not expecting to go back to cost of risk like pre-pandemic, but more based on a mix than individual segments. Our expectations for 2025 are a lower cost of risk than what we are having this year.

Ernesto Gabilondo (BBVA Financial's Equity Analyst)

Just again, a follow-up on detail. Cost of risk guidance for this year was between 2%-2.5%, probably will be at the high end in 2024. Looking to 2025, maybe we'll be in the mid to low end of that guidance for that range.

Alejandro Pérez-Reyes (CFO)

We haven't given guidance yet for next year. We will beginning of next year. I would just mention that we're expecting a lower number for the coming year. We'll give more details soon. The other thing to keep in mind to have a sense of the recovery is that we're expecting a lower number despite the fact that we're not returning any provisions like we did this year. So this year, we're going to be in the upper side of the two and a half, but we returned the provision from El Niño. Next year, we expect a lower number without necessarily having any kind of provisions return, specific provisions.

Ernesto Gabilondo (BBVA Financial's Equity Analyst)

Perfect. Perfect. Thank you. And then my second question will be on subsidiaries. So can you share with us which are the subsidiaries with ROEs below Credicorp's ROE of around 17%? And what do you think will be the strategy to get them closer to the Credicorp's ROE level? Considering that you will be developing these two mobile banks, one in Peru and one in Chile, where do you see both banks reaching the break-even point?

Alejandro Pérez-Reyes (CFO)

I'm sorry. What's the last part? Reaching what? I didn't get that.

Ernesto Gabilondo (BBVA Financial's Equity Analyst)

The break-even. The break-even point.

Alejandro Pérez-Reyes (CFO)

Okay. If you want, I can start with the ROE part. So basically, currently, when you look at the subsidiaries, most of them are having a good performance and trending towards the 18%, with Pacífico BCP above the number. Credicorp Capital improving, and hopefully, it will get very close in a couple of years. Mibanco has been really hit by the credit cycle, but our expectations are that in the coming years, it will go back to the number more closer to the 20% mark, which is what we aim for in that business. I don't know if any other subsidiaries.

Gianfranco Ferrari (CEO)

Yes. Good morning, Ernesto. This is Gianfranco. Maybe just to complement Alejandro, from an overall perspective, I would say the underperforming line of business is microfinance. As Alejandro mentioned, we expect next year to, obviously, have a much better year in terms of ROE. As I mentioned in my initial words, we are targeting to have a sustainable ROE of 20% for the microfinance business. Maybe the other one is not that relevant, but the other one that is underperforming is BCP Bolivia. As I always say, it's the right franchise in the wrong country. We're doing what we can. The ROE there might be around 12%-13%.

Regarding the second part of your question, well, obviously, out of the large ventures or initial innovative business, Yape is beyond break-even. Obviously, we have. I've mentioned it in previous calls. Most of the sources of income at Yape have a J-curve. So we expect next year to be significant in terms of income. And regarding the other large one, which is Tenpo, we expect at least two to three years to reach break-even. Having said that, Tenpo is right on track, slightly better, actually, than the original business plan.

Ernesto Gabilondo (BBVA Financial's Equity Analyst)

No, super helpful. Thank you very much, Gianfranco and Alejandro.

Gianfranco Ferrari (CEO)

Thank you.

Operator (participant)

The next question comes from Renato Meloni with Autonomous Research. Please go ahead.

Renato Meloni (Equity Research Analyst)

Hi, good morning. Thanks for taking my question here. So you've mentioned how this excess liquidity in the system has helped the asset quality and your cost of funding. So I wanted to understand if this is a short-lived impact or we're still going to see more of that in the upcoming quarters. And then how do you reconcile this asset quality improvement, but also excess liquidity, with your growth perspectives for next year? Thank you.

Alejandro Pérez-Reyes (CFO)

Sure. The specific event of the pension fund is a short-lived event. All the money has been deployed to clients. Some of it is still retained in accounts, so they could use more of that money if they wanted. The actual direct effect has been considerable, but not the only reason why we've seen this decrease in cost of risk. So what we're expecting is that this will fade out, as it has done before. Remember, this is like the seventh withdrawal from pension plans. So we've seen this dynamic before. But at the same time, when we think about what's going on, we are expecting and we are actually seeing growth in employment in the country, which is also very important.

The last number for Lima for the last quarter was a 5% increase in formal employment. We have leading indicators on payroll payments that are very strong right now. So what we're seeing is that this liquidity has given some air to people that were in a very tight position, but it is working at the same time as an improvement in the economy that should allow this trend that I was mentioning of cost of risk to continue to decrease.

Gianfranco Ferrari (CEO)

And maybe just to complement Alejandro, these central bank figures, the expectation for them is private investment to grow 2% this year and 4% next year. So there are some, as Alejandro mentioned, both micro and macro leading indicators that provide us a lot of confidence that next year should be a better year in terms of the performance of the loan book, in terms of growth, I mean. Okay, great. So next year, higher growth, lower cost of risk.

Renato Meloni (Equity Research Analyst)

Thank you.

Operator (participant)

Question comes from Tito Labarta with Goldman Sachs. Please go ahead.

Tito Labarta (VP)

Hi, good morning. Thank you for the call and taking my question. First question, just on the guidance, you maintain the ROE guidance at around 17% for this year. You are running above that in a very strong quarter in three Qs. So does that imply just normal seasonality in four Qs? So ROE should trend lower to get you down to that 17%, or do you think there's upside to that 17% because you're running probably closer to 18% on ROE? So just to clarify, maybe some color on four Qs and if we should expect a relatively weaker quarter.

Alejandro Pérez-Reyes (CFO)

Sure. It is what you said. We always have some seasonality on the last quarter of the year. It happened exactly the same way last year. So that should mean that we cannot analyze a quarter like this one. There's going to be more expenses. But we're thinking that we probably will end up on the upper side of the around 17 mark.

Tito Labarta (VP)

Okay. That's helpful. And then my second question on your margin, so you're running it closer to the high end of guidance. But how do you think about the sensitivity to lower rates, I guess, particularly in the U.S. that's now cut rates again? How does the margin get impacted by lower rates, both in Peru and in the U.S.?

Alejandro Pérez-Reyes (CFO)

Sure. I mentioned last quarter our calculation. We've refined it a little bit for this quarter that a parallel shift of 100 basis points will have an impact on the first year of around 15 basis points on our margin and then goes up to around 25% in the coming year because of the duration of the portfolio. The full effect is felt in a longer period, so that is if we don't do anything.

As you've seen, even though rates have been coming down for a little bit, we have been able to sustain a strong and actually a little bit growing NIM and expect to continue doing that going forward based on the low-cost funding advantage that we expect to keep growing on that side, and also pricing and the mix in the portfolio. So there is this sensitivity, for sure, and it is something that we are going to be facing in the coming months but at the same time, with the low-cost funding, the mix, and the pricing, we think we'll be able to sustain and actually perhaps improve a little bit our NIM and, more importantly, the risk-adjusted NIM.

Tito Labarta (VP)

Okay. Great. Thank you.

Operator (participant)

And the next question comes from Thiago Batista with UBS. Please go ahead.

Thiago Batista (Equity Research Analyst)

Yes. Hi, guys. Thanks for the opportunity. I have a question on Yape. Yape reached the impressive number of 13 million active users, monthly active users, which is about probably half of the adult Peruvians. So my question is, first, is the informality a kind of bottleneck that could prevent further expansion of Yape, or no, or you can see the number of users expanding further, even with the high level of informality in Peru? And second, in the 16.5 million targets that you had for 2026, if I'm not wrong, this is including any kind of expansion to Bolivia, Colombia, or this 16.5 is only in Peru?

Gianfranco Ferrari (CEO)

Yeah. Let me answer the second question first. The figure we provided regarding Yape is only Peru. Even though, as you all know, we already are operating in Bolivia successfully, I would say. Regarding your first question, which is actually the more relevant question, let me go a step back. You're right. There's a point where the number of Yaperos, even though we're still growing at around 300-400 thousand Yaperos per month, at some point in time, there's a limited number of Peruvians. The strategy since the very beginning at Yape had like a it was a three, or it is a three-stage strategy.

First one was to get the largest number of Yaperos. The second, which is to increase usage. As of today, Yaperos are using Yape on average 44x a month. The first stage, which we are already, obviously, the three stages where progress together, is to generate income. So yes, there might not be the same level of growth in terms of either number of users or usage, but now we're focusing in terms of how income is going to keep growing. And that goes back to my original comment regarding the J-curve in the new features we're launching within Yape.

Thiago Batista (Equity Research Analyst)

No, that's clear. Thanks.

Operator (participant)

The next question comes from Brian Flores with Citibank. Please go ahead.

Brian Flores (Equity Research Analyst)

Hi, Team. Thank you for the opportunity. On slide number 13, we see a very improved composition right on the funding cost. So now low-cost deposits are at 56% of the funding base. Just wanted to hear your thoughts. What is driving this big increase? What is your strategy going forward? And should we also think that these improvements in cost of risk should continue helping results? Thank you.

Alejandro Pérez-Reyes (CFO)

Sure. We believe that the increase that you're seeing is mainly due to the transactionality capabilities and the principality we've been developing with our clients. Our client-centric approach has made us. We've invested a lot in bringing them all the channels possible to interact with the bank as seamlessly as possible. What we're seeing is more and more clients working with us and leaving their float with us. That is what explains that growth. Our expectation is that there is still some space to keep growing in that area. What we think is that we'll be able to continue to capture some of that float and continue to grow on that line. The second question was—

Brian Flores (Equity Research Analyst)

continue improving in the provision risk.

Alejandro Pérez-Reyes (CFO)

Yeah. Risk. Yes. Yes. As I mentioned a little bit earlier, we are seeing a much better trend in the economy, both by the things that we did actively and also by the situation and the better situation in hiring and growth in the economy. So our view is that cost of risk will continue to decrease regardless of this specific liquidity event that happened with pension funds in the last quarter.

Brian Flores (Equity Research Analyst)

Good to hear. Thank you.

Alejandro Pérez-Reyes (CFO)

Thanks.

Operator (participant)

Next question comes from Yuri Fernandes with JP Morgan. Please go ahead.

Yuri Fernandes (Equity Research Analyst)

Thank you, everybody. I would like to explore a little bit the sustainable ROE. In the past Digital Day, you mentioned a target of 18%, and you are tracking above it, even though capital has been super strong for the bank. So I don't know. Looking versus 2019, it seems to be kind of a better quality ROE, and you are just in the beginning of Yape and many of those initiatives. So just checking, do you continue to see 18% ROE as your sustainable target, or no? Could we see some upside here?

Alejandro Pérez-Reyes (CFO)

Well, at the time, we do continue to see the 18% as a sustainable number. There are other forces, like for example, regulation in Peru moving closer to Basel III that will require us to have potentially more capital. So when we look at the numbers as of now, we do think that the 18% is a reasonable sustainable ROE that allows us to continue investing into the future and at the same time provide a good return to our investors.

Gianfranco Ferrari (CEO)

Maybe, Yuri, just to complement, bearing in mind what we mentioned at the Investor Day, we haven't changed the appetite for investing up to 150 basis points of ROE going forward. That's not set in stone. We will obviously keep our very disciplined approach, but if it's needed, we will keep investing for maintaining our success. And at the same time, we do believe that 18% is a very interesting ROE for our investors.

Yuri Fernandes (Equity Research Analyst)

No, no, super clear. If I may, a second one here, just on loan growth, because you already mentioned on margins, if I got it right, margins should be resilient even though rates are coming down. But when should we see better loan growth? And I know you don't have guidance yet for 2025, but if you can comment anything on the industry, like better economy, what should we expect? Because this was a little bit shy quarter for growth, right? So just wanted to understand when should we see better volumes in Peru? Thank you.

Alejandro Pérez-Reyes (CFO)

Sure. Yes. We do expect a growth in loan growth, and it comes from a couple of factors. From one side, the improvement in cost of risk also allows us to be or to start to think about being a little bit more aggressive on the lending side, because when you think about the reasons for the low loan growth, on the wholesale side, it's more of a demand issue in the sense that wholesales haven't been making long-term investments as of yet. On the retail side, it's been much more on the offering side on our side and being more cautious and not necessarily accelerating. As the economy improves and the situation of our clients improves, we expect to be more active there.

At the same time, Gianfranco mentioned investor private investment, I'm sorry, growing at around 4 plus % next year. I mentioned investor confidence being at the highest or actually having been positive for this long since 2019, early 2019. So we start seeing more and more indications that there's a reactivation in the broader economy because GDP has been growing, but more from the primary sectors. Now we're seeing it in a more broader sense. So those things make us feel that we are going to have growth in the coming year. And we have some calculations we'll give the guidance beginning of next year, but we do expect growth to pick up.

Yuri Fernandes (Equity Research Analyst)

Amazing. Thank you very much.

Operator (participant)

The next question comes from Carlos Gómez with HSBC. Please go ahead.

Carlos Gomez (Head of LatAm Financial Institutions)

Hello, good morning. Thanks for taking my question. I'm going to start by congratulating you on the results and on achieving that detachment from the local economy that you intended to do in January today, and you seem to be succeeding at that. Two specific questions. First, on Banmédica. What is the main driver for this transaction? We understand that the shareholder in Chile obviously is going through their own issues.

In the long run, you made strategic decisions some time ago to have a partner in this business. Has that changed? Do you want to have this business by yourself, or would you consider having a different partner in the future? And the second question, totally different on cybersecurity. We know that there has been a big leakage of data at a competitor in Peru. Has that affected you in any way? And do you think that is something that you have to monitor more? Thank you.

Gianfranco Ferrari (CEO)

Good morning, Carlos. This is Gianfranco. So as of today, our decision is to run the business by ourselves, bearing in mind that we've run that business, the health insurance and the health providing business for several years before doing the joint venture with Banmédica. So we feel quite comfortable to run it by ourselves. And also, the whole management team, sorry, is going to stay running the current operation. So no plans to do another joint venture with another operator. Obviously, the future is the future, but as of today, nothing on the table in that sense. I would ask César to answer your second question.

Cesar Rios (CRO)

Yes. We have been monitoring very closely the event. It's a sad event for the country, actually. And we have been reviewing the information that we have in relation to that event in relation to our practices, governance. And so far, we feel comfortable that the governance structure and investment we have been doing, but we strive to continue to improve our capabilities in this regard due to the growing trend in this kind of attacks and events globally.

Gianfranco Ferrari (CEO)

So we haven't been affected, Carlos.

Cesar Rios (CRO)

No, we have not been affected.

Gianfranco Ferrari (CEO)

To your specific question.

Carlos Gomez (Head of LatAm Financial Institutions)

Very clear. Thank you so much.

Operator (participant)

The next question comes from Terry Leijon with White Oak Capital. Please go ahead.

Hi. Thank you for the opportunity. Just wanted to confirm my understanding. I think you commented on this before. The improvement in asset quality, do you see any positive trends in your clients beyond the impact of pension fund withdrawals?

Gianfranco Ferrari (CEO)

Yes, we do. As I mentioned, we are seeing a lot of improvement in the economy, in the hiring, purchasing power of people in the country. All of those dynamics should start to bring the cost of risk down. Also, we did a lot of measures from our side a few months ago that are starting to pay in origination, in collection, monitoring. Basically, we expect the trend to continue regardless of what's happening with pension plans.

What might happen is that the speed at which it has decreased in this quarter might change a little bit in the coming quarters, but we are seeing an improvement in the more fundamental part of the situation of our clients regardless of this specific event. Just as a comment, for example, in the case of Mibanco, most of their clients don't have a pension plan, and they haven't withdrawn anything. Yet, the cost of risk in Mibanco has improved in a very important way. So those are the types of things that we also consider when we're thinking about the trend in cost of risk.

Cesar Rios (CRO)

Yes. Probably only to complement Alejandro along the same lines, we have tried to understand the effects in different layers. And one fundamental issue is the macro in terms of GDP, but also inflation that has helped particularly the consumer segment. The reduction in inflation has been a powerful positive force. The second set of levers linked to our own management, we have been reducing the risk appetite, adjusting procedures, and improving our capacities in terms of collections and rescheduling. And this is going to continue, but this is a fundamental trend. And the effect of the pension funds has had two different impacts.

One very directly regarding consumers in arrears, with people who have received the funds in the bank or in other banks, but we have been linked very specifically the event, and has also impacted positive clients that has reduced a little bit the volumes because clients with conditions have used the funds to reduce, so we have two main or fundamental trends that are going to continue, but even the third part has helped us to identify clients with high propensity, willingness to pay, and we are actively rescheduling them.

Thank you. Thank you very much. Really appreciate your answer. Just to follow up on this pension fund topic, I think during the pandemic, when I think three or four rounds of this happened, I believe you commented that because these pension funds are now selling long-term assets to meet the withdrawals, it led to an impact of long-term yields going down. Do you expect that to affect your interest margins in the fourth quarter or maybe early 2025?

Gianfranco Ferrari (CEO)

I didn't get the question. Long-term what? Coming down?

Long-term yields.

Yields?

Longer tenure yields for your loans, yeah.

Okay. Due to the fact that pension plans are coming out of the market, you mean?

Yeah, yeah, yeah.

Yeah. No, we don't see really such a big impact there. Yes, they are less active in the market while they are recomposing their portfolio, but they will come back after this reform that Gianfranco mentioned earlier. Pension plans should continue to grow and should continue to be an important player in the market. So we are not expecting any fundamental changes in the yield dynamics in the market.

Got it. If I have time, just one last quick question. I think Pacífico has been helping ROEs strongly for two, three years now. I think really appreciate the strong performance. Like you mentioned, 20% as your target for, let's say, the microfinance business. Would it be possible for you to provide any color on what are your cross-cycle expectations for the insurance business?

Alejandro Pérez-Reyes (CFO)

Specifically for Pacífico, which, as you just mentioned, has been outperforming. We mentioned it, yes, before. We expect to be in the 20s. So that's the sustainable ROE at Pacífico.

Got it. Thank you very much, and congratulations on the results.

Thank you. Thanks for all my questions.

Operator (participant)

Next question comes from Sergey Dubin with HL. Please go ahead.

Sergey Dubin (Analyst)

Yeah. Good morning, Gianfranco and Alejandro. Thanks for the presentation. I just want to clarify regarding NIM sensitivity. So you mentioned that it's 400 basis points of parallel rates. Your NIM moves by 15 basis points. Are you talking about for both dollar portfolio and soles portfolio? Can you give the separate sensitivity for dollar versus soles, please?

Gianfranco Ferrari (CEO)

Sure. I am talking for both. Sensitivity is a little bit higher on the dollar side than on the soles side because of the duration of the portfolio. But it is not. I mean, if I'm talking about 15 basis points in the first year, you can think about an 8-9 to a 7-6 sensitivity in each part of the portfolio. That is kind of the calculation we have right now. So it is a little bit higher on the dollar side.

Sergey Dubin (Analyst)

Okay. Okay. And then when you said that 15 basis points in year one and 25 basis points in year two, meaning it's not additional 25 basis points, it's a cumulative 25 by year two, right? So if rates move by 100 basis points year one and just stay there, by year two, if you do nothing, your NIM should contract by 25 basis points. Is that correct, broadly?

Gianfranco Ferrari (CEO)

Yeah. If it contracts 100 basis points, it's going to come down 15 on the first year and then all the way to 25 cumulative in the second year. That's right.

Sergey Dubin (Analyst)

Okay. Okay. And then just final question. So just looking at the slide on page 6 where you show the central bank policy rates, it looks like Peru rates have started to come down earlier, obviously, than the U.S. So Peruvian rates, according to this chart, started coming down in the end of 2023. So you already had almost a year of lower rates in Peru. And then in the U.S., they just started coming down just last quarter or just September, I think. So what's your kind of expectation on the rate outlook in Peru specifically, and how much of the repricing of the portfolio would you expect to see in 2025?

Gianfranco Ferrari (CEO)

Sure. Yes. As you mentioned, the central bank started moving earlier. They started in 7.75%. They're at 5% as of now. So we've already seen an important reduction in rates. Having said that, our terminal rate, our neutral rate for the central bank, we are around 4%-4.25%. It's going to depend a little bit on the U.S., the new government, whether it creates inflation or not, and what's going to be the neutral rate for the Fed, which is, of course, something that the central bank in Peru is going to have in mind.

So we're expecting still for Peru, 75 to 100 basis points more coming down that we expect them all to happen during 2025. That is our current stance. Again, we'll have to see what's going on with the U.S. and the policies they make and whether it generates inflation or not. And of course, that's going to have an impact. But again, that calculation is assuming we don't do anything. And as you probably can see by looking, I don't know if you have in mind, but our NIM last year, at the end of last year, was 6%.

We are expecting to be at a higher NIM this year despite the reduction from the central bank. And we expect this to continue into the coming years. We think that this change in mix plus the pricing and the retail is less sensitive to the price. So this change in mix plus the pricing plus the cost of funds should allow us to keep growing NIM despite the fact that we're going to have to work against those forces.

Sergey Dubin (Analyst)

Okay. That's very clear. And just a very quick follow-up. So what someone asked before regarding low-cost deposits, now 56% of total, and you said it's because you're improving transactionality. So basically, if there's more kind of an easy way to move money around and transact, right, people will continue to keep these low-cost deposits in there. That helps you from a cost of funding side.

Do you have a target? So it went up quite a bit, right? In a year, it went up by almost 600, 550 basis points. Do you have a target in mind where that could get to in the medium term? We have expectations and what we're seeing. We haven't given that guidance. We haven't given that information. But we do see it growing in the coming quarters.

Alejandro Pérez-Reyes (CFO)

Maybe just to complement and answer your last question, this is a very long-term strategy. It's not like that we manage it quarter by quarter. I would argue that the results we're having today is the results of the investments we've been doing for years now in terms of value prop for our different segments like mobile banking, our web page, the whole transactional features we provide, Yape, and so on. So there's not a target. It's very difficult to give a number. Having said that, we will stubbornly keep investing in that sense because bearing in mind that the usage of cash in Peru is still very high. So we do see a huge opportunity there.

Sergey Dubin (Analyst)

Okay. Understood. Thanks very much.

Alejandro Pérez-Reyes (CFO)

Thank you.

Operator (participant)

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

Andres Soto (Executive Director at latAm Equity Research)

Hi. Good morning, Saul. Thank you for the presentation. My question is regarding capital deployment. When I look at your capital ratios just before the extraordinary dividend and before the Banmédica transaction, BCP is running above 15% correct with the tier one. Mibanco is at 18%. Do you have the numbers of how they would look like after those two events, the extraordinary dividend and the Banmédica transaction, which based on your numbers, it would represent $300 million. Is that coming out of the holding, or you will need to distribute dividends at the subsidiary level in order to pay for that?

Gianfranco Ferrari (CEO)

Yes. Andres, Gianfranco here. Yes. The $300 million have not been paid. By the way, just to be very specific, the transaction has been set in soles. We should be paying that when the authorities, both the Superintendencia and Indecopi, approve the transaction. So that cash hasn't been paid, and it's going to be paid by Credicorp or the direct subsidiaries of Credicorp, not any operational subsidiary. Specifically on the capital at both Mibanco and BCP, even though the special dividend was paid by Credicorp as of September, dividends weren't paid from BCP and Mibanco.

So that figure will be lower, obviously, by year-end or impacted negatively by year-end. As we always mentioned, going forward, we will keep our minimum common equity to one of those two subsidiaries, and everything else is either paid as a dividend by Credicorp or invested in a transaction, which, by the way, we have nothing on the table today.

Andres Soto (Executive Director at latAm Equity Research)

Understood. Thank you, Gianfranco. So based on that, by year-end, what will be the including the dividends from the subsidiaries and the payment of the Banmédica transaction, what will be the cash position at the holding company level? The cash position at the Credicorp level or at company level?

Gianfranco Ferrari (CEO)

At Credicorp level, we have what we call a buffer, which is around $200 million. That's what we normally keep, which obviously is higher now because we retain the equivalent of $300 million for the Banmédica transaction. That's an important point. When we decided on the special dividend, we already considered the fact that we were going to probably, if we got to an agreement with Banmédica, we were going to have to pay an amount. So that is already accounted for in the flow.

Andres Soto (Executive Director at latAm Equity Research)

Understood. Looking at your long-run outlook, I understand you're not providing specific guidance, but you had for Peru you had given, actually, guidance for Peru GDP growth next year at 3%, similar to this year. This year, the multiplier for loan growth was exactly zero. Does it make sense to expect that multiplier to be at 1.5x for next year, considering also your increased appetite for the consumer segment?

Gianfranco Ferrari (CEO)

Let me put it this way. We don't expect the loan growth to grow at zero next year. Two main reasons, Alejandro and César have been quite clear before. Business confidence is improving. As a matter of fact, private investment should grow next year. So on the wholesale, and maybe oversimplifying here, but on the wholesale business, we expect growth because of the level of confidence and appetite for investment. And specifically in mining, there are some brownfield projects that have already started. So that's one lever.

The other lever is that what César mentioned, that since the cost of risk in the retail business, both at BCP and Mibanco, is decreasing, our risk appetite is going to increase. Having said all of that, I wouldn't, as of today, give you a multiplier. Obviously, the multiplier is not going to be zero, but I wouldn't say it's going to be 1.5. Maybe next year in February, when we provide guidance, we will be much more specific.

Andres Soto (Executive Director at latAm Equity Research)

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

Gianfranco Ferrari (CEO)

Thank you.

Operator (participant)

Again, if you have a question, please press star, then one. Our next question comes from Alonso Aramburu with BTG. Please go ahead.

Alonso Aramburu (Associate Partner)

Yes. Hi. Good morning, and thank you for the call. You've answered most of the questions already, but just a quick follow-up on the loan growth and asset quality points that you made. I mean, you mentioned that you are at a turning point in the cycle, but you also mentioned a few times in the report that you still have a strict origination policy. So I'm just wondering, specifically at Mibanco, whether you're ready to relax some of those policies in the next couple of months before the end of the year so we can see some loan growth. Thank you.

Gianfranco Ferrari (CEO)

Sure. As we're seeing this improvement in cost of risk, we are not necessarily relaxing the measurements, but we are seeing more growth in the portfolio. So the last couple of months, we've seen more activity in clients, and we're expecting that to pick up. So yes, we will relax it during the coming months as we confirm the trends and we feel more comfortable about the cost of risk, but we should start to see more growth in the portfolio.

Alonso Aramburu (Associate Partner)

Great. Thank you.

Operator (participant)

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.

Gianfranco Ferrari (CEO)

Thank you for all your questions. Now wrapping up today's call. In the first nine months of 2024, Credicorp maintained a robust ROE of 17.7%. This performance is a direct result of the resiliency we have built into the business, which translated into a solid risk-adjusted NIM. Our performance also reflects the positive contribution from diversified non-interest revenues, which are seeing the benefits from high levels of transactional activity across the organization. At Mibanco, we're seeing improving profitability on the back of the macro recovery, together with our strengthened risk management practices and prudent loan origination.

We remain committed to maintaining sound lending standards while supporting microentrepreneurs, even through complex credit cycles, and remain on track to meet our 20% ROE medium-term target for our microfinance business. Looking at the macro context, Peru's economic outlook for the remainder of the year and 2025 remains positive, supported by low inflation, favorable commodity prices, and public investment. Progress on large-scale infrastructure projects will also provide additional support for the local economy. This positive environment aligns well with our strategic objectives and enhances the resilience of our operations in the region.

Against this backdrop, we also reaffirm our long-term target of 18% ROE. This profitability level will be supported by a resilient NIM during a period of decreasing rates and a reduced cost of risk once the credit cycle is overcome. These dynamics will be further enhanced by diversified non-interest revenue streams and optimized efficiency, as disruptive initiatives become cash flow neutral by 2026. Lastly, we're on track to achieve our ambitious goal of having disruptive initiatives contribute 10% of Credicorp's revenues after provisions by 2026.

Investments in digital transformation, especially through platforms like Yape, demonstrate our commitment to leading innovation and financial inclusion. As we continue to expand our digital and customer-centric offerings, Credicorp is well-positioned to continue shaping the financial services of the future, harnessing growth from these new business models to further decouple from the macro while providing enhanced value for our customers and stakeholders alike. Thank you all for participating in today's call, and have a nice weekend.

Operator (participant)

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