Business context and reporting period
Intercorp Financial Services Inc. (IFS) filed this audited Form 20-F on April 25, 2022, for the fiscal year ended December 31, 2021. It is an annual report, not a standalone 2021 fourth-quarter filing; quarterly Q4 results are not separately provided in the supplied filing text. IFS is a Panama-incorporated holding company whose principal operations are in Peru through banking (Interbank), insurance (Interseguro) and wealth management (Inteligo). Financial statements are prepared in soles under IFRS.
Key financial metrics
Amounts below are in S/ millions unless stated otherwise. Consolidated net profit includes non-controlling interests; attributable profit is shown separately.
| Metric | 2021 | 2020 |
|---|---|---|
| Net profit | 1,800.2 | 383.5 |
| Net profit attributable to IFS shareholders | 1,790.2 | 383.2 |
| Net interest and similar income | 3,547.7 | 3,472.7 |
| Fee income from financial services, net | 823.8 | 723.5 |
| Other income | 905.6 | 776.7 |
| Net premiums earned less claims and benefits | (272.1) | (279.1) |
| Other expenses | (2,262.8) | (1,910.7) |
| Net interest margin | 4.1% | 4.5% |
| Risk-adjusted net interest margin | 3.7% | 1.4% |
| Efficiency ratio | 34.7% | 32.2% |
| ROE / ROA | 19.3% / 2.0% | 4.5% / 0.5% |
IFS reported total assets of S/89,953.9 million, gross loans of S/44,688.2 million, deposits and obligations of S/48,897.9 million, and equity of S/9,555.4 million at year-end 2021. These compare with S/88,236.0 million, S/43,081.9 million, S/47,149.3 million and S/8,953.9 million, respectively, at year-end 2020.
Cash and cash equivalents were S/16,416.3 million at year-end, versus S/18,145.9 million in 2020. Cash flow from operating activities was S/1,345.8 million; investing activities used S/2,326.5 million and financing activities used S/861.7 million. Cash and cash equivalents decreased S/1,842.4 million during 2021.
Debt-related balances included S/8,389.7 million of bonds, notes and other obligations and S/8,522.8 million due to banks and correspondents. IFS also had US$300 million of 4.125% senior notes due 2027. Interbank’s regulatory capital ratio was 15.9% and its Core Equity Tier 1 ratio was 12.5%; Inteligo Bank’s capital ratio was 24.4%. Interseguro’s SBS solvency ratio was 152.8%.
Material changes versus the prior comparable period
- Net profit increased to S/1,800.2 million from S/383.5 million, chiefly as loan impairment expense fell to S/381.6 million from S/2,393.9 million. Management attributed the prior-year charge to COVID-related uncertainty and model adjustments, and the 2021 reduction to improved credit and payment behavior.
- Net interest income rose 2.2%, but net interest margin narrowed from 4.5% to 4.1%. Interest and similar income fell 1.3%, while interest expense declined 11.3%.
- Net fee income increased 13.9% and other income increased 16.6%. Other expenses rose 18.4%, including higher administrative costs, salaries and employee benefits.
- Gross loans rose 3.7%; the year-end past-due-loan ratio increased to 3.5% from 3.3%. The loan allowance-to-gross-loans ratio declined to 4.7% from 7.1%.
- Interbank loans subject to rescheduling fell to S/6.3 billion, or 14.6% of its portfolio, from S/10.5 billion, or 25.2%, at year-end 2020. Reactiva Peru loans outstanding at Interbank were S/4.9 billion, down 26% year over year; 40% of that portfolio was rescheduled.
- Dividends declared for fiscal 2021 were US$202.0 million, compared with US$88.9 million for fiscal 2020. IFS also paid a US$75.0 million extraordinary dividend in December 2021.
Outlook, management commentary, risks and unusual items
Management cited a recovery in Peru’s economy and improved results across subsidiaries, while emphasizing continued digital expansion and investment. Peru’s GDP grew 13.3% in 2021 after contracting 11.0% in 2020. The Central Reserve Bank’s March 2022 forecast, as quoted in the filing, was growth of 3.4% in 2022 and 3.2% in 2023. IFS stated that its 2022 dividend, based on 2021 results, would be US$202.0 million. These are not company earnings or revenue forecasts.
- Key risks include political and economic uncertainty in Peru, inflation and sol volatility, interest-rate changes, possible regulatory changes including interest-rate caps, credit deterioration, concentrated exposure to sovereign and global bonds, and uncertainty around COVID-19 impacts.
- Management applied expert judgment and model adjustments to expected credit losses to reflect Peru’s political and economic uncertainty and potential effects from COVID-19 variants. The auditor identified expected credit losses and insurance contract liabilities as critical audit matters.
- Interseguro’s 2021 earnings benefited from stronger investment returns and annuity sales, including higher survivorship annuity premiums amid increased COVID-19 mortality; claims and technical reserves also increased.
- IFS disclosed ongoing litigation involving Inteligo Bank related to Fairfield/Madoff feeder-fund redemption payments. The filing describes appeals and proceedings but does not establish a final outcome.
- Auditors issued unqualified opinions on the IFRS financial statements and the effectiveness of internal control over financial reporting. The filing states that 2021 accounting-standard adoptions had no significant impact; IFRS 17 was expected to take effect in 2023, with its impact still under evaluation.
Important facts for investors to verify
- Review the audited financial statements and notes for cash-flow definitions, loan-loss allowance reconciliation, and distinctions between IFRS and SBS GAAP figures.
- Assess the durability of the sharp reduction in impairment expense, loan migration and repayment performance, and the remaining rescheduled and Reactiva Peru exposures.
- Check capital and liquidity headroom against regulatory requirements, debt maturities, deposit stability, and the effects of currency and interest-rate movements.
- Evaluate the assumptions and sensitivity of insurance reserves, investment-property valuations and expected credit losses, including management’s expert adjustments.
- Confirm the status and potential exposure of the Inteligo litigation, the announced US$500 million Interbank bond authorization, and the April 2022 acquisition of the remaining 50% of payment processor PMP.
- Reconcile reported dividend declarations and payments with subsidiary distribution capacity and regulatory capital constraints.