Sergey Dubin : Okay, so these — at the moment is borrowers are paying right, they’re not in default that paying on what — as you refinance, if they continue to pay interest in principle, is that correct?
Cesar Rios : Yes. Basically, they were — before they were paying on interest and now they are starting to pay principal as well.
Sergey Dubin : Okay. All right. And then also on consumer book, my impression — my very distinct impression from the last call was that you guys — what you communicated actually was that you tighten the credit standards and consumer book you obviously foresaw this macro, macro pain, so to speak, so you tighten the credit standards. I was on the impression that that should help in terms of asset quality, but it doesn’t look like that was really what transpired. So can you explain why your reduced risk appetite didn’t translate into better credit quality on the consumer book side?
Cesar Rios : Yeah, what we’re doing is refocusing on our appetite on those clients that we know better. And that’s basically what explains why we are growing in the consumer portfolios. Basically, in times like this, when we don’t have GDP growth, we obviously become more conservative in our approach to those plans that we know better. We still do some pilots with specific segments, but relatively with a much less proportion that what we have done in the previous years, that basically, what explains that our strategy today.
Raimundo Morales : Probably may I add something? But I think what I understand what you’re hearing, too, of course, we adjust our credit orientation policy, and the new vintages are being originated and actually are coming with lower risk profiles. But they already booked loans has soured, as I suspected. So we have a combination of all books that are already deteriorating, and a higher rate a rate and newbie integers that are smaller in size higher quality. And the result that you are going to see during the next quarter is a combination of these two dynamics.
Sergey Dubin : Okay. And then is there any way to — so I’m going to put a linear side because that’s completely unpredictable phenomenon that depends on nature, it’s not up to you. I understand all that. But if you looked at your underlying borrower health, so to speak, and kind of a cost of corporate risk trends and NPL trends, again, putting a linear aside for a moment, are you seeing that we sort of at the bottom of this cycle, or there’s more pain? And if so — if it’s later, how much more pain are we going to see in the here?
Cesar Rios : Yes, our expectations putting the EL Nino aside as you mentioned, is that we would reach the higher cost of risks of those portfolios during this midyear, and during 2024, that will be we will see that — we would have seen a decline. I would say that EL Nino is around the corner. So we have to consider that on our projections.
Sergey Dubin : Okay, so ex-El Nino, you should see a decline in cost of risk in ’24, relative to ’23?
Raimundo Morales : Specific portfolios. I also want to emphasize that we are shifting gradually the portfolio towards a more retail. So the cost of risk for a specific portfolios are going to decline. But the long term trend is to shift the portfolio towards a more retail one that entails higher costs of risk. That’s important to consider.
Sergey Dubin : Yeah, that’s a longer trend, but like in the shorter term, you’re going to – it’s — like maybe that’s a question actually, like in the shorter term? Are you going to maybe pull back on retail a little bit and really, manage risk? Because I think that’s where a lot of pain is going, right.
Cesar Rios : No, there is no change in the strategy. What is an adjustment to react to the current macroeconomic conditions is an adjustment in a specific sector that are more vulnerable, but the long term strategy remains the same, I would say in general terms.
Sergey Dubin : Okay. And that last question because it’s also related. So as of, I believe, as of Q3, right, you have 3.1% of your loan portfolio, which is these Reactiva loans. Right. So they’re very, they’re only — they’re very thinly covered, right. It’s only 17% I think NPL coverage on that specific segment. Because obviously, they are government backed. So if you, — let’s assume you’re going to all of them, will they pay down by the end of the year, when you grow your retail book from — on year-on-year that new originated loans in retail, that would have to be covered up from 17% to probably I don’t know 100%. So with that, how much — if that’s the — if I’m describing the dynamic correctly, what will be the incremental delta and the cost of lifts that you would see from that specific point?
Raimundo Morales : I can give you some general comments. And after Reynaldo can compliment me. First the Reactiva loan at this point is around PEN4 billion only, it’s not going to be entirely paid down at the end of the year. The level of coverage is significant. The wholesale part is 84%, 91 in retail BCP and 97%, in Mibanco, so the risks associated with this is substantially covered by the government. And this portfolio is going to be paid down substantially over the next year, but not at the end of the year, the payment of this year probably be around PEN900 millions out of the PEN4 billion.
Reynaldo Llosa: Having said that, I mean, your assumption that these will require higher provisions is true, but also we will provide a much higher margin, because remember that in the Reactiva loans, there were very, very low government funded interest rate that almost only covered operating costs. But back to normal, they will provide a much higher yield on those loans as well, that will compensate the higher provisions you mentioned.
Sergey Dubin : Okay, okay. So by the end of the year, only PEN100 million will be paid down, and they will be paid down gradually, or next 13 or 16 months or whatever. So — and I guess, I know that your strategy is to grow retail book longer term, but again, given the macroeconomic pain, and then this El Nino coming up, do you think it will be prudent to perhaps emphasize wholesaled book more in this next 12 to 16 months, or you still are going to emphasize retail as well? Like, I’m just trying to see how you think about growth in this challenging environment?
Cesar Rios : Well, we view the environmentally. Today we see it proper to adjust our underwriting policies on the specific segments that could be affected on the northern side of Peru and those specific industries like fishmeal and agriculture that could be affected. But that’s in permanent revisions. I mean, we will see how the El Nino evolves and then we will adjust either further or we lost a little bit our underwriting policies as well. It’s a permanent process as you know. Today, we are providing you with the best information we have at hand.
