FOURTH QUARTER 2024 EARNINGS CONFERENCE CALL

Evolution of Loan Dollarization (in Average Daily Balances) ⁽¹⁾⁽²⁾

In 4Q24, Net Interest Income (NII) rose 1.1% QoQ, driven by a drop in Interest and similar expenses. These reductions were fueled by a decrease in interest on deposits, in a juncture marked by lower market rates and an uptick in low-cost deposits’ share of the mix. Interest and similar income increased, spurred mainly by growth in interest on deposits with banks.   YoY, NII grew 8.4% on the back of growth in Interest and similar income, which rose primarily due to an increase in interest on deposits with banks and secondarily to an increase in interest on loans, which reflects advances in pricing management in key sectors at BCP. Interest and similar expenses also contributed to NII’s expansion, via the same drivers mentioned in the QoQ analysis. NIM dropped 9 bps QoQ to stand at 6.34%. Notwithstanding, full-year growth reported a 29-bps increase in 2024, bolstered by a shift in the composition of the loan portfolio towards retail loans. Lastly, risk-adjusted NIM rose 15 bps QoQ and 39 bps for the full-year in 2024. FY24 risk-adjusted NIM stood at 4.8% which represents a record high1 on the back of improvements in the risk profile of the loan portfolio.

QoQ, Net Interest Income (INI) rose 1.1% due to a drop in Interest and similar expenses, which was spurred by: i) renewals of liabilities at lower rates after the Fed and BCRP instituted rate cuts, and ii) growth in low-cost deposits, which led to a funding composition with lower rates. Net interest income also rose, albeit to a lesser extent, due to growth in the volume of available funds.

YoY, NII increased 8.4%. This evolution was mainly attributable to growth in Interest and similar income and secondarily by a reduction in Interest and similar expenses. Interest and similar income were boosted primarily by growth in Interest on deposits with banks, which registered a marked increase in volumes in a context of high liquidity. Interest on loans was a secondary contributor to growth in income, buoyed by fine-tuning of pricing management and a consequent increase in rates on working capital loans in the SME-Pyme segment. Interest and similar expenses dropped over the year, driven, as was the case QoQ, by a drop in market rates and a funding composition that included a higher proportion of low-cost deposits.

For the full year (FY), NII rose 9.1% in 4Q24, bolstered by growth in Interest and similar income, which was in turn driven by reconfiguring of the loan portfolio to favor a higher proportion of retail loans. A secondary driver was the increase in interest on securities, which were impacted by the strategy to extend the portfolio’s duration by increasing bond holdings. To a lesser extent, a decrease in Interest and similar expenses, which was driven by the same factors seen YoY, contributed to NII growth.

Net Interest Margin

NIM fell 9 bps QoQ to stand at 6.34%. This evolution was due primarily to a lower yield on IEAs, which dropped due to: i) more significant growth in balances in Cash and equivalents, and low growth in Loans, which led to a less profitable mix; and ii) reference rate cuts at the Fed and BCRP, which led to a downward repricing in rates. Although the funding cost continued to follow a downward

Net Margin Dynamics by Currency

(1)	Unlike the NIM figure calculated according to the formula in Appendix 12.7, the NIM presented in this table includes “Financial Expense associated with the insurance and reinsurance activity, net”.

QoQ, Net Interest Income (NII) rose 1.1%, driven mainly by higher NII in FC, while NII in LC increased only marginally. IEAs in LC represent 54.7% of total IEAs and account for 68.8% of interest income generated in 4Q24.

 

Local Currency Dynamics (LC)

Foreign Currency Dynamics (FC)

 

 

Interest expenses fell 4.0% QoQ. This evolution was fueled by a decrease in market rates (which reflects rates cuts from the Fed) which led to a downward repricing, particularly for time deposits and BCRP + due to banks. In this scenario, the funding cost in FC dropped from 3.0% to stand at 2.8% QoQ. Income was a minor contributor to growth in NII given that the increase in interest on available funds, which was attributable to a positive volume effect, was offset by a drop in interest on loans.

YoY, NII rose 8.4%, driven by NII in both LC and FC:

Local Currency Dynamics (LC)

Interest expenses dropped 19.2%, driven mainly by deposits. The average deposit balance rose, but associated interest expenses dropped, which reflected: i) downward repricing of rates, which were impacted by reference rate cuts at BCRP, and ii) growth in low- cost deposits’ share of total deposits. In this context, the cost of funding in LC dropped 82 bps YoY.

Interest income remained relatively stable (+0.4% YoY), given that growth in the loan volume was concentrated in wholesale segments, which yield lower interest rates. In this context, the yield on IEAs dropped 6 bps to 10.6%.

 

Foreign Currency Dynamics (FC)

 

Average IEA in FC rose 13.4% YoY, driven by growth in the volume of available funds, which was capitalized mainly through overnight deposits in BCRP. The positive volume effect led interest income to rise 8.9%. Nevertheless, less profitable assets predominated in the IEA mix, which led the yield on IEAs to drop 24 bps and stand at 5.8%.

 

Funding, in turn, increased 6.6% YoY, driven mainly by debt issuances at BCP this year and secondarily by growth in the deposit balance. Interest expenses rose 3.4%, fueled primarily by an issuance effect. Notwithstanding, the downward trend in the Fed’s reference rate offset this effect, as interest expenses fell alongside lower rates on deposits. The combination of the aforementioned dynamics led the funding cost to drop 9 bps.

 

At the end of 2024, NII rose 9.1%, driven by NII in both LC and FC.

Local Currency Dynamics (FC)

Interest expenses dropped 14.7% over the course of 2024, driven by the same dynamics mentioned in the YoY analysis and by a decrease in interest on deposits, which fell from 3.7% to 3.0%. Interest income reported a marginal contribution to growth in NII in LC, which was fueled by the factors in play YoY and by growth in interest on Investments due to our strategy to extend the portfolio’s duration through sovereign bond holdings.

Foreign Currency Dynamics (FC)

NII in FC rose 12.5% in 2024. This evolution was primarily attributable to growth in Interest on loans, driven mainly by pricing improvements and reflected in the rise in the implicit interest rate. A positive volume effect, fueled by growth in the wholesale loan balance, was the second most important contributor to the FY increase in NII. The third player in NII’s evolution in terms of impact was the uptick in interest on Cash and equivalents, where volumes rose, albeit to a lesser extent than loans.

Interest expenses, which played only a minor role in FY growth in NII, fell in 2024 due to a decrease in Interest on deposits. This decline was driven by the same factors indicated in the YoY analysis.

		This quarter, NPLs continued to drop after reaching a turning point in 3Q24, particularly in the segments most impacted by the recent credit cycle: the Individuals and the SME-Pyme portfolio at BCP Stand-alone, and the loan portfolio at Mibanco. This is the result of successful risk management measures at BCP and Mibanco. At BCP, portfolio quality metrics improved due to risk management measures such as adjusting credit guidelines in high-risk segments, shoring up credit processes and calibrating specific models to better predict losses; while at Mibanco, portfolio quality metrics improved due to the positive impact of stricter origination policies, improvements in debt collection management and the debt relief facilities rolled out as of 2Q24.   QoQ, the decline in the NPL portfolio at BCP was fueled primarily by a reduction in overdue loans in Small Businesses and debt cancellations in Wholesale. At Mibanco, the reduction in NPLs was attributable to a drop in overdue loans. As a result, the NPL ratio dropped 60 bps and 63 pbs QoQ and YoY, respectively, to stand at 5.3%. On the other hand, provisions fell this quarter, mainly on the back of BCP, which reported an improvement in payment performance in SME-Pyme and Mortgage, followed by the same dynamic at Mibanco. This evolution was partially offset by an increase in provisions for Consumer and Credit Cards, due to risk model calibrations. Despite higher provisions, the underlying risk improved for both segments. In this context, the cost of risk dropped 34 bps and 118 bps QoQ and YoY, respectively, to stand at 2.1%.
	5.1 Portfolio Quality

Quality of Total Loans (in quarter-end balances)

 

At BCP Stand-alone, portfolio quality metrics have improved due to risk management measures such as adjusting credit guidelines in high-risk segments, shoring up credit processes and calibrating specific models to better predict losses. QoQ, the reduction in NPLs was mainly attributable to (i) SME-Pyme, where overdue loans dropped mainly via the lower-risk, mid-sized ticket segment (> s/ 150 thousand); (ii) Wholesale, on the back of debt cancellation by a refinanced client in the hotel and restaurant sector; (iii) SME- business, which reported a drop in overdue loans after improvements in debt collection management led to extraordinary recoveries; and (iv) Consumer and Credit Cards, due to a) an extraordinary charge-off, b) debt cancellations, given that the impact generated the liquidity surplus associated with pension fund withdrawals has yet to dissipate, and c) improvements in debt collection management. At Mibanco, the reduction in NPLs was driven by a drop in overdue loans, which was mainly attributable to stricter origination policies; improvements in debt collection management; and the debt relief facilities rolled out as of 2Q24.

At BCP Stand-alone YoY, the reduction in NPLs was driven by the following segments: (i) SME-Pyme, via an increase in honoring processes for Reactiva loans and due to the same dynamics seen QoQ; (ii) Wholesale, where the decrease was fueled mainly by the debt cancellation of a refinanced client in the real estate sector ; and (iii) SME-Business, which was impacted by the same drivers seen in the QoQ evolution. At Mibanco, the drop in NPLs was driven by the same dynamics seen QoQ.