Credicorp Ltd. 4Q2009 Earnings Summary
Business Context and Reporting Period
Credicorp Ltd. (NYSE: BAP), a leading Peruvian financial services holding company, reported unaudited consolidated results for the fourth quarter and full year ended December 31, 2009. The filing, submitted on February 5, 2010, covers operations across banking (BCP), insurance (Pacífico), asset management (ASHC), and pension funds (Prima AFP). Results are presented in nominal U.S. Dollars in accordance with IFRS.
Key Financial Metrics
| Metric | 4Q2009 | Full Year 2009 | Full Year 2008 |
|---|---|---|---|
| Net Income (Attributed to Credicorp) | $122.3 million | $469.8 million | $357.8 million |
| Net Interest Income | $238.0 million | $891.9 million | $822.9 million |
| Non-Financial Income | $176.8 million | $690.7 million | $592.5 million |
| Operating Expenses | $260.1 million | $898.6 million | $810.5 million |
| Provisions for Loan Losses | $44.0 million | $163.4 million | $47.8 million |
| Total Loans | $11.59 billion | $11.59 billion | $10.55 billion |
| Net Shareholders' Equity | $2.31 billion | $2.31 billion | $1.69 billion |
| Return on Average Equity (ROAE) | 22.0% (Q4) | 24.1% (FY) | 22.3% (FY) |
| Return on Average Assets (ROAA) | 2.28% (Q4) | 2.22% (FY) | 1.72% (FY) |
| Net Interest Margin (NIM) | 5.1% (Q4) | 4.8% (FY) | 4.6% (FY) |
| Efficiency Ratio | 44.0% (Q4) | 42.1% (FY) | 41.7% (FY) |
| Past Due Loans (PDL) Ratio | 1.59% | 1.59% | 0.79% |
| PDL Coverage Ratio | 192.0% | 192.0% | 270.7% |
Material Changes vs. Prior Period
- Profitability Surge: Full-year net income increased 31.3% to $469.8 million, driven by a recovery in non-banking segments and improved asset quality. Q4 net income was flat compared to Q3 ($122.3M vs $121.7M) but represented an 806.5% increase over Q4 2008.
- Loan Growth Recovery: After a contraction in early 2009, total loans grew 8.6% QoQ in Q4, reaching 9.9% growth for the full year. Real loan growth (net of currency revaluation) was approximately 7.4%.
- Asset Quality Deterioration: The PDL ratio doubled from 0.79% in 2008 to 1.59% in 2009 due to the economic slowdown. Consequently, loan loss provisions increased 242.1% year-over-year to $163.4 million.
- Non-Banking Turnaround: Insurance (Pacífico) and Asset Management (ASHC) segments returned to strong profitability, offsetting losses recorded in 2008. Pacífico reported a record $49.2 million in earnings for 2009, reversing a $15.9 million loss the prior year.
- Margin Expansion: NIM improved to 4.8% for the year (from 4.6% in 2008) due to sound funding strategies and a defensive policy on margins despite low interest rates.
Outlook, Risks, and Management Commentary
- Economic Outlook: Management expects the Peruvian economy to grow 4.9% in 2010, driven by public investment and recovery in private consumption. The Central Bank is expected to continue intervening to moderate exchange rate volatility.
- Segment Performance:
- BCP (Banking): Q4 contribution rose 6% QoQ to $104.5 million. Full-year contribution dropped 5% YoY to $388.5 million due to high provisions and operating costs, though ROAE remained strong at 26.6%.
- BCP Bolivia: Q4 contribution increased 11% to $9.5 million, but full-year contribution fell 33% to $29 million due to regulatory interventions and a stagnant local economy.
- ASHC (Asset Management): Reported a record Q4 contribution of $14.9 million and a full-year contribution of $29.7 million, recovering from significant 2008 losses.
- Prima AFP: Full-year contribution grew 86% to $20.1 million, benefiting from fee increases and a stable labor market.
- Risks and Contingencies:
- Macroeconomic: Adverse changes in the Peruvian economy, inflation, and currency devaluation.
- Political: Potential reversal of market-oriented reforms or failure of economic recovery measures.
- Market: Increased competition and decreased demand for financial services.
- Currency: The appreciation of the Nuevo Sol (8% in 2009) impacted the translation of local currency costs and assets.
- Unusual Items: The 2008 results included a $43.5 million provision related to the Atlantic Blue Chip Fund (Madoff-related), which did not recur in 2009. Q4 2009 included a $5.8 million provision for the acquisition of Financiera Edyficar.
Investor Verification Checklist
- Asset Quality Trend: Verify if the PDL ratio of 1.59% stabilizes or continues to rise in 2010 given the economic recovery lag.
- Provision Adequacy: Assess the sustainability of the 192% coverage ratio for past due loans against potential future charge-offs.
- Non-Banking Sustainability: Confirm if the record performance of insurance and asset management segments is repeatable or driven by one-time market recoveries.
- Currency Impact: Monitor the effect of the Nuevo Sol's appreciation on the U.S. Dollar value of local currency-denominated assets and liabilities.
- Cost Control: Evaluate the efficiency ratio deterioration (42.1% in 2009 vs 41.7% in 2008) and the impact of network expansion costs.