Prepared remarks
Good morning, and welcome to the Intercorp Financial Services Second Quarter 2026 Conference Call. All lines have been placed on mute to prevent any background noise. Please be advised that today's conference is being recorded. After the presentation, we will open the floor for questions. At that time, instructions will be given as to the procedure to follow if you would like to ask a question. Also, you can submit online questions at any time today using the window on the webcast and they will be answered after the presentation during the Q&A session. Simply type your question in the box and click submit question. It is now my pleasure to turn the call over to Mr. Ivan Peill from Inspire Group. Sir, you may begin.
Thank you, and good morning, everyone. On today's call, Intercorp Financial Services will discuss its second quarter 2026 earnings. We are very pleased to have with us Mr. Luis Felipe Castellanos, Chief Executive Officer, Intercorp Financial Services; Mrs. Michela Casassa, Chief Financial Officer, Intercorp Financial Services; Mr. Carlos Tori, Chief Executive Officer, Interbank; Mr. Gonzalo Basadre, Chief Executive Officer, Interseguro; and Mr. Bruno Ferreccio, Chief Executive Officer, Intelligo. They will be discussing the results that were distributed by the company yesterday. There is also a webcast video presentation to accompany the discussion during this call. If you did not receive a copy of the presentation or the earnings report, they are now available on the company's website ifs.com.pe. Otherwise, if you need any assistance today, please call Inspire Group in New York at (646) 940-8840. 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, 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.
Good morning, and thank you all for joining our second quarter 2026 earnings call. First, let me start with the macro and political environment. In the second quarter, economic activity in Peru moderated after the strong momentum seen earlier this year. Even so, the underlying picture remains constructive, supported by resilient domestic demand. Private investment is expected to grow 17.5% in the quarter, its strongest pace since 2012, excluding the post-pandemic rebound. At the same time, employment indicators continue to improve supporting consumption. On the political front, as you are all aware, Peru now has a new administration in place. The new government has set out a clear agenda for the coming months, focused on reinforcing the preparedness for the El Niño phenomenon, strengthening security, reactivating economic growth through private investment, modernizing the public sector, and improving health care and social programs. These measures are consistent with the expectations for stronger private investment and consumption and support our view of GDP growth of about above 3.4% in 2026. While the international backdrop remains volatile, we are especially focused on El Niño-related risks in the country. We see it as a relevant risk for Peru, with potential effects on primary sectors, infrastructure, supply chains, and certain customer segments. At IFS, we are monitoring this closely and maintaining a prudent approach to risk management. Based on our analysis, we expect any potential impact on our results to materialize starting in the second half of the year. In this context, IFS delivered another solid quarter. Net income remained strong at PEN 640 million, and ROE reached 18.5%, above our midterm target. While earnings were lower than in the previous quarter, this mainly reflects a normalization of certain investment results and a gradual normalization in cost of risk as expected following an exceptionally strong first quarter. At Interbank, quarterly net income remained strong and the underlying business continued to show positive trends. Loan growth was positive across segments, with particularly strong momentum in consumer loans where the pace of growth accelerated, and in small business where we continue to grow above the market. Overall, these higher-yielding segments are now expanding at a double-digit rate. We continue to strengthen our payments ecosystem through Izipay and PLIN. These platforms are important levers to deepen relationships, increase engagement, and support the growth of low-cost funding. Interseguro maintained strong momentum in long-term insurance, supported by annuities and life, while preserving its leadership in annuities. The business continues to leverage synergies with Intelligo and Interbank to advance more integrated solutions to our clients. Intelligo continued to grow at a double-digit rate, reaching a new record in assets under management, supported by healthy client engagement and a strong advisory model. Overall, this quarter confirms that we remain on track in terms of results and profitability, supported by a diversified platform, clear growth opportunities across businesses, and disciplined execution of our model. Our strategy remains focused on profitable growth with the customer at the center of our decisions and continued investments in the capabilities that support long-term value creation, including investment in digital channels, data analytics, data products, cybersecurity, and generative AI. Looking ahead, we believe IFS is well positioned to continue growing with discipline while sustaining profitability and strengthening our leadership in Peru over the long term. Now let me pass on to Michela, who will walk you through this quarter's results in more detail. Thank you.
Thank you, Luis Felipe, and good morning, and welcome, everyone, to Intercorp Financial Services Second Quarter 2026 Earnings Call. Let me begin with our quarterly key messages. First, we continue to consistently deliver strong profitability: in the second quarter IFS reported net income of PEN 640 million and ROE of 18.5%, remaining above our midterm target and supported by solid performance across all of our businesses. Second, higher-yielding loans accelerated during the quarter, growing 12% year over year and almost 6% in the quarter. Third, risk-adjusted NIM remained resilient at 3.5%, up 10 basis points year over year while cost of risk normalized to 2.1%, still below our risk appetite, but with a lower impact from the excess liquidity from the eighth release of the private pension funds, which took place until February this year. Fourth, we continue to deepen primary banking relationships. As a result, our retail primary banking customer base grew 16% and our Net Promoter Score remained strong at 61 points. Finally, insurance and wealth management continued to deliver strong growth with premiums up 9% year over year mainly driven by annuities and life and assets under management up 14% year over year. Let's start with our first key message. At slide 4, entering into a brief update of the macro environment, GDP growth for the second quarter is expected at around 2.8%, reflecting a more moderate pace after the strong momentum seen in late 2025 and early 2026. This lower growth in GDP is mainly due to the fishing sector, which was impacted by El Niño. Even so, we expect activity to improve in the second half supported by resilient domestic demand, private spending, favorable commodity prices, and greater political stability. For the full year, GDP is expected to grow 3.4% in 2026 and 3.2% in 2027. We have already incorporated the expected impact from El Niño which most analysts estimate at between 0.7 and 1 percentage point of GDP. Growth should continue to be supported by non-primary sectors, particularly construction, commerce, and services. Inflation rose to 4.1% year over year in July and monetary policy remains with the reference rate at 4.25%. We expect inflation to remain around these levels throughout the year before returning to the Central Bank's target range in 2027. At this point, we do not expect additional rate cuts. Peru continues to offer strong fundamentals and attractive long-term opportunities with growth expected to remain above 3% over the next two years and with an upside potential given the new government leading the regions. On domestic demand, the outlook has improved. The Central Bank revised its 2026 projection upward to 5.9% from 4.9% mainly reflecting stronger expectations for private consumption and investment. This is consistent with confidence indicators. Business confidence climbed to 69% at the end of the second quarter and with the result of the election is the highest level in the past year, while consumer confidence recovered to 51 in July. Together with solid fundamentals and better terms of trade, this gives us a constructive view on growth for the coming years. Having said that, we are also preparing for the potential impact of El Niño. Water temperatures have continued to increase and the probability of a strong to extraordinary event has risen from almost zero to a combined probability of 80% for the fourth quarter of 2026. We are maintaining a prudent risk management approach with constant portfolio monitoring by segment, sector, and geography while staying close to clients more exposed to potential El Niño-related disruption in specific areas, including agriculture and fishing where we have El Niño clauses in place. We have successfully navigated previous El Niño episodes and have a comprehensive contingency plan that allows us to respond quickly and support customers when needed through working capital solutions, grace periods, and reschedules while preserving disciplined risk standards. Finally, we are already seeing this better backdrop reflected in credit demand. Banking system loans accelerated to 8% year over year as of June, mainly led by retail loans, which is consistent with the recovery. We are also seeing it in our own consumer and small business portfolios. On Slide 6, IFS delivered another solid quarter with net income of PEN 640 million and ROE of 18.5%. Compared to last quarter, earnings declined 3% mainly due to the normalization versus the first quarter of strong financial transaction results and a gradual normalization in cost of risk with the effects of the excess liquidity from private pension funds withdrawals fading away. On a year-over-year basis, it is important to remember that the comparison includes extraordinary investment results recorded last year at both Intelligo and at the holding company level. At the bank, last quarter benefited from sovereign bond gains, strong FX results, dividends from 2023, supported by lower provisions, higher income from loans, stronger fees with ROE at 15.6%. At Interseguro, performance remained strong mainly supported by a solid insurance result, particularly in annuities as well as higher interest income excluding the inflation effect and the absence of impairments during the quarter. At Intelligo, results remained solid supported by good performance from the investment portfolio which delivered a 9.4% result over the last 12 months. The year-over-year decline mainly reflects the strong portfolio return achieved in the second quarter of last year. Overall, it was a solid quarter across all IFS business lines with core operating performance as the main driver of profitability. On Slide 8, IFS revenues increased 3% year over year and declined slightly versus last quarter. The year-over-year comparison is again affected by the unusually strong investment gains recorded in the same quarter of last year at both Intelligo and the holding company, which created a high comparison base. At the bank, revenues declined modestly quarter over quarter mainly due to lower financial transaction results after a particularly strong first quarter and some funding cost pressure. Year over year, revenues increased 9% supported by higher loan volume income and stronger fees. At Interseguro, revenues improved year over year, mainly supported by better insurance results in annuities and life. Compared to last quarter, revenues were lower, reflecting the inflation adjustment during the period. Excluding this effect, revenues would have increased 3% quarter over quarter. At Intelligo, fee income remained stable, while investment portfolio results continue to normalize with returns of approximately 9% over the last 12 months. On Slide 9, expenses increased 11% year over year, broadly in line with the investments we continue to make to support the growth and transformation of our businesses. The increase was mainly driven by personnel expenses partly associated with the expansion of Interseguro sales force as well as investments in key talent to support execution and by technology as we continue strengthening digital capabilities, cyber infrastructure, and data and analytics. The year-over-year increase in the ratio also reflects positive non-recurring revenue effects recorded last year which created a higher revenue comparison base. Despite this increase, we continue to sustain best-in-class efficiency with a cost-to-income ratio at 37%. Overall, this continues to reflect our ongoing focus on expense discipline while investing in the capabilities needed for long-term growth. Now let's move to our second message on Slide 11. We are seeing higher-yielding loans regain momentum, growing 12% year over year and close to 6% during the quarter. The encouraging news this quarter is the acceleration in consumer lending. Consumer loans grew 9% year over year in June compared to 5% in March. This was supported by stronger activity with cash loan disbursements up 37% year over year, and credit card turnover up 21%, in line with improving confidence in a more constructive macro backdrop. Small businesses continue to grow steadily, up 31% year over year with disbursements up 54%. This remains an attractive segment for us supported by our combined value proposition of banking and acquiring. Overall, the combination of consumer and small business growth is supporting the recovery of higher-yielding loans which now represent 22% of total loans. We are encouraged by this momentum, but we remain cautious particularly given the higher probability of El Niño and the greater exposure of consumer and small business clients to potential weather-related disruptions in certain areas of the country. On Slide 12, loan growth was 6% year over year or 7% when adjusted for FX, reflecting a positive trend in both commercial and retail banking. In retail banking, consumer loans with a 9% year over year growth previously mentioned were supported by the acceleration we just discussed, while mortgages continue to grow steadily and payroll-deductible loans remain broadly stable. On the commercial side, the portfolio also continued to expand supported by growth in small business and also commercial loans, in line with our strategy to deepen relationships with key clients and continue capturing opportunities in segments where we see attractive returns. Turning to our third key message, risk-adjusted margins remained resilient. On Slide 14, cost of risk is normalizing, while asset quality remains sound. Cost of risk increased to 2.1% from the unusually low 1.4% reported last quarter, but remained well below the risk appetite and the 2.5% recorded a year ago. We see this as a normalization towards more typical levels, not as a deterioration in credit quality. Around 30 basis points of the increase versus last quarter came from normalization, while roughly 10 basis points were due to portfolio growth and mix particularly toward higher-yielding segments. This is consistent with the portfolio mix we are building: higher-yielding segments naturally carry higher cost of risk upfront but also higher yields and attractive risk-adjusted returns. On the retail side, cost of risk increased from 2.7% to 3.3%, which remains comfortably within our risk appetite. Consumer credit quality continues to perform broadly in line with expectations and recent vintages continue to show healthy behavior. In commercial banking, cost of risk increased to 0.8%, which remains within the range we consider normal for the business and is still consistent with healthy asset quality trends across the portfolio. At the same time, given the higher probability of El Niño, we are doing detailed monitoring and follow-up across the portfolio, staying close to clients and sectors that may be more exposed to potential weather-related disruptions. So far, we are not seeing signs of deterioration in asset quality. Our focus is preventive: to anticipate potential risk pockets, stay close to clients and take timely actions if conditions change. On Slide 15, let me spend a moment on NIM and risk-adjusted NIM. Starting with reported NIM, we saw some pressure during the quarter mainly explained by two factors. First, funding costs increased 20 basis points quarter over quarter. Around half of this increase was related to higher treasury funding associated with our forwards arbitrage strategy and inflation-related adjustments, which we view as mostly temporary. The remaining 10 basis points reflected a change in the deposit mix as funds related to pension fund withdrawals began to decline together with keeping extra liquidity as a conservative measure during the election, and also the full effect of the bond issuance that we did during the first quarter. Second, yield on assets declined 10 basis points reflecting a larger cash position associated with treasury's forward strategy. But on the positive side, yield on loans remained stable during the quarter for the first time, which is encouraging as growth continues to shift towards higher-yielding segments particularly in the mass market segment of retail. Moreover, during the month of July, we have already seen a partial recovery of NIM and an increase in yields. In terms of risk-adjusted NIM, we still see a slight improvement year over year. However, the decline versus the last quarter was mainly explained by the normalization of cost of risk after the unusually low level recorded in the first quarter. But with NIM recovering in the next quarters, we should also see a recovery in risk-adjusted NIM. On Slide 16, as discussed on the previous slide, cost of funds reached 3%, 20 basis points higher than the last quarter. Efficiency funding declined to 37% as funds related to private pension funds withdrawal started to decrease, although it remained above the 34% reported a year ago. On the commercial side, efficient deposits continued to grow strongly, up 22% year over year, supported by our payments ecosystem and deeper transactional relationships with clients. Importantly, deposits continue to represent more than 80% of total funding, which remains a key strength of our balance sheet. At the same time, the year-over-year trend remains favorable: cost of funds is still 20 basis points below last year's 3.2%, while cost of deposits declined 20 basis points year over year to 2.4% supported by a better funding mix. Looking ahead, we expect the funding mix to continue improving gradually supporting a lower cost of funds over time and contributing to the recovery in margins. Moving on to our digital strategy on Slide 18, we continue to build more transactional relationships with our clients and support the growth of low-cost funding. Our payments ecosystem, mainly through Izipay and PLIN, remains a key part of this strategy helping us increase transactional volumes, offer value-added services, and deepen the use of Interbank products across our client base. We continue to see strong traction from the synergies between Izipay and Interbank. Izipay float to Interbank increased close to 50% year over year, while total float to Interbank accounts grew 40%, reinforcing the value of our integrated ecosystem for business clients. In parallel, deposits in small business grew 32% and now represent around 36% of wholesale low-cost deposits. The 1-app Negocios is also becoming an important lever to strengthen our value proposition and drive greater transactionality. Transaction volumes in the app increased 117% from January to June, equivalent to 7% quarter over quarter showing encouraging early traction in usage. PLIN also continued to gain traction reaching 2.8 million monthly active clients and monthly transactions up 45% year over year. P2M payments remain a key driver of recurrence, now representing 60% of transactions while pure POS payments grew 65% year over year. On Slide 19, we continue to strengthen primary banking relationships with retail primary banking customers growing 16% year over year. Interbank-PLIN transactions reached 34 million, up 44% year over year, reinforcing higher engagement and daily usage. Digital engagement also continued to improve: retail digital customers reached 86%, while commercial digital customers increased to 76% supported by more targeted digitalization initiatives. This quarter, our digital assistant Abi became a first digital point of contact for clients not yet using the app helping digitalize over 16 thousand clients. All of these reinforce our commitment to delivering a simpler, safer, and more convenient experience for our customers. Finally, Net Promoter Score remained strong at 61 in retail and 76 in commercial, up 10 and 11 points versus December, supported by the agility and simplicity of our apps and consistently strong service quality. In insurance, we continue to enhance the digital experience for our clients and expand sales through digital channels. Internal capabilities have helped increase digital self-service to 73%, while direct digital sales grew 27% year over year. And in wealth management, we continue improving the Interfondos app, with the goal of evolving it from a transactional tool into a more comprehensive digital adviser for mutual fund clients. Engagement continues to increase with digital users reaching 39% and digital transactions representing 60% of total platform activity. Let's now move to insurance and wealth management, where both businesses continue to deliver strong growth. On Slide 22, Interseguro continued to deliver strong growth in long-term insurance with contractual service margin increasing 10% year over year. This was mainly supported by annuities and individual life which remain key growth engines for the business. Short-term insurance premiums also grew 8% year over year, reflecting steady performance across the portfolio. On investments, results increased 28% year over year with ROI at 7.1%. The quarter-over-quarter normalization was mainly related to inflation adjustments in the portfolio. Excluding this effect, the return would have been 6.7%. Overall, Interseguro continues to show strong execution in a well-diversified insurance platform. On Slide 23, Intelligo continues to show solid momentum with assets under management including deposits reaching a new record high close to $10 billion, up 14% year over year. This growth was supported by market performance and continued client engagement. Fee income remained broadly stable and when adjusted for FX increased 7% year over year. Overall, Wealth Management continues to deliver strong growth supported by an important advisory model and healthy demand for investment solutions. Now let me move to the final part of the presentation where we provide some takeaways. And before moving to our operating trends, let me summarize where we are focusing our growth efforts. In banking, growth is focused on segments where we see attractive risk-adjusted returns. Consumer loans grew 9% year over year, while small businesses continue to expand strongly up 31%, supported by solid disbursement trends and our combined digital value proposition of banking and acquiring through the 1-app Negocios. Commercial loans also showed positive momentum, growing 7% year over year on an FX-adjusted basis as we continue deepening relationships with key clients and leveraging EasyPay synergies to strengthen transaction. In insurance, long-term products remain the main growth driver with CSM stock increasing 10% year over year supported by annuities and individual life. And in wealth management, assets under management, including deposits, reached a new record high close to $10 billion, up 14% year over year. Overall, these trends reinforce our ability to grow in attractive segments across IFS while maintaining a disciplined approach to profitability, funding, and risk. On Slide 26, let's go through our first semester operating trends. Our ROE for the first semester reached 18.9% above our guidance. While we are encouraged by this performance, we are not changing our guidance at this point and continue to expect full-year ROE above 17%. We believe this is the prudent approach, particularly as we monitor potential El Niño-related risks during the second half of the year. In terms of loan growth, as of June, we were up 6% or close to 7% adjusted for FX appreciation. We continue to expect high single-digit growth for the full year. And finally, we remain focused on efficiency at IFS. Our cost-to-income ratio is around 37% well in line with our guidance range. Let me close the presentation with our key takeaways. First, we are consistently delivering strong profitability. Second, our higher-yielding loans are accelerating. Third, we see a resilient risk-adjusted NIM. Fourth, we are strengthening primary banking relationships. And finally, insurance and wealth management continue to deliver healthy growth. Thank you very much. Now we welcome any questions you may have. Thank you.
Questions and answers
At this time, we will open the floor for questions. We will take the questions from the conference call and then the webcast questions. To ask a question, press star then 1 on your touch-tone phone. Questions will be taken in the order in which they are received. If at any time you would like to remove yourself from the questioning queue, press star then 2. For the webcast viewers, simply type your question in the box and click submit question. We will pause momentarily to compile a list of questioners. The first question will come from Ernesto Gabilondo with Bank of America. Please go ahead.
Thank you. Hi, good morning Luis Felipe, Carlos and Michela, and good morning to all your team. Congrats on your results. And thanks for the opportunity to ask questions. My first question will be on this potential threat of El Niño. We believe some of your peers will be already creating upfront provisions related to El Niño in this quarter. So can you remind us how much provisions you created for El Niño two years ago and how are you evaluating this time the potential impact of El Niño? That is my first question. And for my second question, on your ROE expectations. As you mentioned, the first half the ROE is already above the 17% guided. You mentioned that you do not want to increase it because you want to be prudent because of the risks. But if you created additional provisions in the second half, do you still think you can achieve your 17% ROE? And looking beyond this year, how should we think about the ROE of IFS in the medium term? Thank you.
Okay Ernesto, thank you very much for your questions. Let me start with the latter one. Yes, you mentioned it right. We want to be prudent. There are a lot of moving parts even though we are very pleased with the way the platform and the businesses are performing, we are taking a prudent approach because not only inflation is remaining somewhat sticky, and that could have an impact in the second half, but also El Niño is something that we are evaluating. As Michela mentioned, we are monitoring and our first interest is to remain close to our customers to be able to help them pass through whatever comes. That prudent approach leads us to the position that despite potential provisions coming from El Niño effects we could continue guiding towards the 17% plus ROE that we have been discussing. In terms of the specifics of the El Niño effects and numbers, let me pass it on to Carlos who, being at the bank, has been much closer to building on this analysis. Carlos, if you can help out with the first question, please.
Yes, thank you, Luis Felipe. Hello, Ernesto. Thank you for your question. On El Niño, we are closely monitoring it. Obviously, it will have an impact, but there are two points: we do not expect a large impact on corporate clients. Our industrial clients and fishery sector will probably have less sales and less production, but they will be able to manage it. There will be less activity, but all of them have an El Niño clause in their financing. What this does is they do not have to pay capital on a period of El Niño, which allows them to manage their finances. So we do not expect a big effect in the large companies. We do expect some impact in the consumer book particularly in the areas where there will be rains and flooding. We will probably see some forward-looking credit provisions in the third quarter and fourth quarter as we get closer to that. We have been looking, obviously, at what happened in 2023 and 2017, but I do not think we are in the same scenario as 2023. In 2023, El Niño came really fast; it was a coastal El Niño and we found out probably a week or two before. The country was recovering from post-COVID high inflation; there were a lot of other problems in 2023 in addition to El Niño, so I do not think it is representative. Plus, we had a much higher risk portfolio back then. We are going into this El Niño with a lower risk portfolio. So I would say probably 2017 is closer to what we expect, but we were a much smaller bank as well. So we are monitoring. I think the focus right now is to be close to our clients during the next couple of months—the larger fishing and agricultural clients—and then, when the rains start in December, January, February, being very close to our consumer clients and being able to work through their loans. Do you feel that answers your question, Ernesto?
Yes. This is very, very helpful, especially as you were saying, it is a different economic situation than two years ago in 2023. You had the recovery from post-COVID, high inflation, a riskier portfolio. So all of that you do not have today. But still, being prudent as you are evaluating to create or upfront provisions in the fourth quarter, as usually the El Niño effect usually materializes during January and February, how much did you create last time? Do you think you need to create the same amount this time or will it be different because of what you mentioned? Just to have an idea of how you are thinking about this potential impact of El Niño?
We do not want to commit to a number right now. We will do that in the third quarter and the fourth quarter. As we are seeing it today, probably the El Niño phenomenon will be stronger than 2023 in terms of the amount of rain that we are going to receive. I believe the impact on our portfolio will be lower based on everything I mentioned before. Also, given the expectations of growth and how the country is doing, we believe there will be an impact, but it will be short term. So we will have a number in the third quarter. We are monitoring, we have an idea, but I do not think we should share it until we have it finalized.
To sum up, even though the impact will come probably closer to January–February next year, we do see a scenario where we will be booking forward-looking provisions in the second half of this year.
Yes. Absolutely. Thank you so much. Thank you.
The next question will come from Yuri Fernandes with JPMorgan. Please go ahead.
Hello, everyone. Good morning, and thanks for the presentation. I will have just one question regarding margins. Michela already mentioned a little bit the funding and the other moving pieces, but I guess a highlight for me here that I was not expecting was margins coming down and funding cost going up in a more stable outlook. So if you can help us with some explanation and some guidance here, what should we expect on margins? And also, refresh what drove this weakness this quarter? Thank you.
Hey Yuri, thank you very much for your question. I think you are right. We have seen pressure this quarter due to very specific reasons and we do expect a recovery in the latter part of this year in line with the actions we are taking, the rebuilding of the higher-yielding loans, and getting past certain pressures that we had at the end of this quarter. Carlos or Michela can go into more detail on the explanation you are looking for.
On the cost of funds side, there were a couple of effects that were not huge individually, but they accumulated in the second quarter. The first was we had some funding that is inflation-pegged and April was a very high inflation month, so that impacted cost of funds for the quarter. The other impact was that we issued bonds in the first quarter and the second quarter was the first quarter that we had the full impact of those bonds. We are amortizing or paying out the old bonds in the fourth quarter, so that will be a short-term effect. Also, we found opportunities in the market for forwards arbitrage which were profitable and generated fees but required more funding, which increased the cost and affected NIM, although overall income from that was positive. Finally, during the election period we were conservative and held more liquidity in May and June, and that was also a short-term impact. So yes, it was affected, but I do not believe there is anything structural and we expect that to recover over the next couple of months and quarters. In terms of margins, we have been growing the higher-yielding segments—credit cards and consumer loans have grown over the last three months consistently—and we expect that to continue. Small businesses as well. So we should see a recovery on both sides.
Just one more piece of information: the positive impact of the forward arbitrage strategy we see in the results of financial operations. If you see accumulated income coming from that, it has grown as of June 26% year over year. So the negative you see in reported NIM, the positive you see in another line of total revenues of the company.
Thank you. Super. Thank you very much.
The next question will come from Carlos Gomez-Lopez with HSBC. Please go ahead.
Hello. Thank you for taking my question, and congratulations on the quarter. We are entering a new presidency in Peru and there are high hopes. What in particular are you expecting from this administration? What should we be looking at in terms of positive or negative news for the sector? Second, in this new environment would you consider entering businesses in which you are not currently present? I am thinking in particular about microfinance or pension fund management—does that interest you? And finally, again on margin, should we understand that the pressures coming from the elections and perhaps tighter liquidity have eased in the third and fourth quarter? Thank you.
On the political and macro environment overall, we have a positive sentiment regarding the Peruvian economy evolution. It is early days as the new government just took office at the end of July. However, they have appointed a good set of ministers mixing experienced people with technical expertise. The focus is on fighting insecurity, promoting investments, and trying to make structural reforms. One very important focus is organizing the country to be able to face El Niño in a better situation. The sentiment is positive as expressed in confidence indicators in late July. In terms of entering new businesses, we are always open to opportunities and looking at new alternatives. The decision to expand is not only a matter of a change of presidency. We have been active throughout the years in buying businesses and expanding as long as the risk–return equation pays off and we can add value to Peruvian clients. Anything related to financial services is something we explore, although we do not have a specific deal to comment on today. Regarding margins, as Carlos mentioned, much has been said: we expect some recovery and there were a number of one-off and temporary factors that affected the second quarter. Carlos can add more detail if you want.
In terms of margin, we are growing in higher-yielding segments and that should continue to happen. We have good traction in our credit card portfolio and our loans as well as in small businesses. That will gradually improve income as the mix changes. The impacts on the cost side were a couple of one-off items that should take care of themselves. We continue to be disciplined on cost of funds and pricing on loans.
The theoretical sensitivity we have is that for each 100 basis points increase in reference rates, we would have close to a 10 basis points negative impact on NIM due to faster repricing of liabilities in our balance sheet. The dollar is more neutral and the impact is marginal for dollar rates.
That is very interesting. Thank you.
The next question will come from Andres Soto with Santander. Please go ahead.
Good morning to all. Thank you for the presentation. Given the probability of a strong El Niño, should we expect you to take a more cautious approach to loan origination over the next few quarters, particularly in the consumer and SME business? Or are you comfortable maintaining the current growth trajectory and managing the risk primarily through provisions and selective underwriting?
Thank you Andres. I think we are comfortable with the approach we have. We are monitoring certain areas that could be impacted, but we have a dual role: we need to be conservative in terms of growth and, at the same time, help our customers. We will be close to our customers to help them pass through this. This will likely be a short-term effect and we are building toward the medium and long term, so the overall growth trajectory should not change materially—maybe a couple of adjustments—but we want to be there for customers.
We are monitoring this closely. The impact in the consumer book will likely come in December–February, and we will be close to our clients, providing what they need to get through it. It will be a short-term impact as in previous episodes, and we are entering this El Niño with a much lower risk profile than before.
Thank you. Taking advantage of those comments, Carlos, I remember from your 2023 cycle you built provisions equivalent to an additional 1 percentage point of cost of risk for the full year in 2023. Can you help us understand what was this related to—SME and retail portfolios, or specific corporates exposed to El Niño such as fishing and agriculture?
In 2023, the provisions were mostly related to our consumer portfolio. Back then, our SME portfolio was small so only a small portion could have been related to SMEs. 2023 was not comparable: there were many other things happening post-COVID, high inflation, and low growth, so it was a different environment.
To complement, 2023 was a very atypical year with multiple shocks and social unrest at the beginning of the year, creating a stronger impact on activity. It was the perfect storm and not directly comparable to today.
The other question I had was related to margins. You already mentioned some recovery in NIM in July. Can you help us quantify this recovery after the sharp decrease in the second quarter? Given that part of the origination in the loan portfolio was tilted to the end of the quarter, I imagine that is going to help. Can you give us a sense of how much of a recovery we can expect for the third quarter?
Hola Andres. The projections we have show a recovery of NIM above the levels of June, though not necessarily returning to earlier peak levels immediately. What happened in the second quarter is that the forward arbitrage strategy increased cost of funds but also generated income in other financial transactions. Yield on loans has been stable this quarter, which is encouraging. As the composition of the portfolio improves and higher-yielding loans continue to grow, you should see a positive trend in yield on loans through the end of the year and into 2027. That should help NIM and risk-adjusted NIM.
Thank you, Michela. Thank you.
The next question will come from Alonso Aramburú with BTG. Please go ahead.
Hi, good morning. Thank you for the call. I wanted to ask about cost of risk, which increased in the quarter. Is this the normal level we should expect for the second half of the year, excluding whatever provisions you decide to do for El Niño? Thank you.
I think Michela will jump in to answer that in detail.
Hello Alonso. We would expect cost of risk to gradually increase going forward as the portfolio mix shifts toward higher-yielding segments. Remember that IFRS requires us to book forward-looking provisions upfront, so as consumer loans and small businesses continue to grow double-digit, we should see a slightly higher cost of risk. Pre-COVID we used to be closer to 3% cost of risk historically; we are not saying we want to get there, but for sure this number will continue to trend higher because of the mix of the portfolio. It may move closer to 2.5% or even a little above that over time, driven mainly by the mix rather than a deterioration in credit quality.
To complement Michela, if you grow in consumer or high-yield portfolios, even if the loans perform well, you get an upfront effect on provisions due to accounting. That is what Michela was referring to: it is front-loaded, not necessarily a sign of credit deterioration.
That makes sense. On loan yields, because you grew more on credit cards I would have expected loan yields to increase in the quarter and they were flat. Is that a timing issue or how do you explain that?
Yes, it is mostly a timing issue. You grow the end balance, but not the average immediately. You will see the full impact of that growth in the following full quarter when the new balances are reflected in averages.
Especially since the acceleration in growth was more present in the latter part of the quarter, the full effect will be more visible in the next quarter's averages.
Thank you.
At this time, we will take the webcast questions. I will now turn the call over to Mr. Ivan Peill from Inspire Group. Please go ahead.
Thank you, operator. The first webcast question comes from Daniel Mora of Credicorp Capital: Where should the risk-adjusted net interest margin land in the second half of 2026 and in 2027 considering that the cost of risk is normalizing faster than the expansion of loan yields along with a marginal increase in the cost of funding?
Thank you, Daniel. We have given explanations around NIM. Remember that under IFRS, when you originate consumer loans or SMEs, provisions are front-loaded and the yield shows up through time. We expect the cost of funding to normalize during the second half of the year and the build-up of higher-yielding loans to continue, so the impact on NIM for the second half should be positive.
The next webcast question comes from Tejkaran of White Oak Capital Management: Could you please explain again why cash balances grew strongly at 25% year over year? Is this a conscious strategy?
Thank you, Tejkaran. As addressed earlier by Carlos and Michela, by the end of the quarter we were conservative given the potential outcomes of the political scenario and elections and held higher liquidity. That was intentional and it has been normalized since then.
The next webcast question comes from Johan Klavico of Sura Asset Management: Could you please provide more details on your treasury forward strategy to better understand the impact on NIMs both on interest income and interest expense and the other factors that impacted net interest income this quarter? Are these impacts expected to be temporary?
We have explained many of these points earlier. Carlos, do you want to comment specifically on the treasury forward strategy?
The treasury forward strategy involves taking forward positions and, when an arbitrage opportunity appears, taking profitable positions. These opportunities require more funding and can temporarily affect NIM, but they have generated positive income in other financial results. We monitor these positions daily and will only take positions that are profitable. For now, we do not see anything material in the near future.
At this time, there are no further questions from the webcast. I would like to turn the call over to Ms. Casassa for closing remarks.
Thank you very much. Thank you everybody for a very active Q&A session and conference call. We will see each other again for the third quarter results. Bye. Stay safe. Thank you, everyone.
This concludes today's conference call. You may now disconnect.