Intercorp Financial Services(US:IFS)2023-02-18 19:16Financial Data and Key Metrics Changes - Reported earnings for Q4 2022 reached PEN 403 million, a 3% increase quarter-on-quarter and over 50% growth year-on-year [11] - Full-year reported earnings totaled PEN 1,671 million, or PEN 1,448 million when excluding one-off items [12] - Return on Equity (ROE) for Q4 was 16.5%, with banking and payments showing strong ROE at 20.2% and 22.3% respectively [11][33] - Cost of funds increased to 3.2% in Q4, up 40 basis points quarter-on-quarter and 160 basis points year-on-year [65] Business Line Data and Key Metrics Changes - Banking revenues grew 7% in Q4, with net interest income increasing by 23% and fee income by 12% [73][88] - Wealth Management showed a recovery with a positive result of PEN 56 million in Q4, but still below sustainable profitability [28][101] - The payments business, particularly Izipay, saw acquiring fees up 8% quarter-on-quarter and 32% year-on-year, with strong growth in merchants and transactional volumes [29][102] Market Data and Key Metrics Changes - The Peruvian economy is expected to grow less than 2% in 2023, with inflation remaining high at 8.5% as of December [62][82] - Credit and debit card purchases increased by 7% quarter-on-quarter and 28% year-on-year, reflecting a growing market share [83][87] - The loan-to-deposit ratio for the company stands at 101%, better than the system average of 107% [65] Company Strategy and Development Direction - The company is focusing on a two-tier digital strategy to enhance customer experience and operational efficiency [58][112] - There is an emphasis on sustainability and ESG practices, with a goal to improve corporate sustainability assessment scores [56][105] - The company aims to leverage data and analytics to increase its customer base and enhance profitability [59][100] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging macroeconomic environment and political instability in Peru, which may impact consumer payment capacity [40][62] - The company expects an increase in the cost of risk due to economic conditions and has adjusted its credit underwriting standards [70][90] - Despite challenges, management remains optimistic about the fundamentals of the Peruvian market and the growth potential in digital payments [62][100] Other Important Information - The efficiency ratio for Q4 was 34.8%, returning to pre-pandemic levels, with a full-year efficiency ratio of 36.1% [74][76] - The company has made significant progress in digital transformation, with 71% of customers interacting with the bank digitally [14][97] - The company plans to implement changes to capital ratio calculations in line with new regulations starting January 2023 [84] Q&A Session Summary Question: What are the expectations for the cost of risk in 2023? - Management indicated that the cost of risk is expected to increase due to a mix change and deteriorating macroeconomic variables, particularly affecting the consumer segment [37][40][48] Question: How will the digital initiatives translate into efficiencies and higher ROE? - Management emphasized that the digital strategy is focused on profitability and efficiency, with expectations for improved ROE as digital initiatives mature [114] Question: Can you break down the ROE guidance for different banking units? - Management provided insights into expected ROE across banking, insurance, and payments, indicating a cautious but optimistic outlook [117]