Credicorp Ltd. First Quarter 2012 Results Summary
Business Context and Reporting Period
Credicorp Ltd. (NYSE: BAP), the leading financial services holding company in Peru, reported unaudited consolidated results for the first quarter of 2012 (ended March 31, 2012). The results are presented in nominal U.S. Dollars in accordance with IFRS. The reporting period reflects strong income generation driven by portfolio growth in the Peruvian and Andean economies, despite international market volatility and local political uncertainty.
Key Financial Metrics
- Net Income: US$ 189.1 million attributed to Credicorp (flat QoQ, +8.0% YoY).
- Operating Income: US$ 239.7 million (+14.7% QoQ, +0.6% YoY).
- Net Interest Income (NII): US$ 372.3 million (+4.8% QoQ, +20.1% YoY).
- Non-Financial Income: US$ 242.7 million (+6.0% QoQ, +17.9% YoY).
- Net Interest Margin (NIM): 5.1% (stable QoQ, up from 4.9% YoY).
- Efficiency Ratio: 40.7% (improved from 44.9% in 4Q11).
- Return on Average Equity (ROAE): 22.0% (down from 23.4% in 4Q11).
- Total Loans: US$ 18.1 billion (+3.7% QoQ, +23.3% YoY).
- Total Deposits: US$ 21.2 billion (+11.6% QoQ, +17.2% YoY).
- Past Due Loan (PDL) Ratio: 1.66% (up 17 bps QoQ).
- Coverage of PDLs: 188.0%.
Material Changes vs. Prior Period
While operating income expanded significantly by 14.7% QoQ due to strong NII growth and lower operating expenses, net income remained flat compared to 4Q11. This divergence was primarily caused by a 58.1% QoQ decline in translation gains (due to a slower appreciation of the Peruvian Sol) and a 25.1% increase in income taxes.
Loan growth remained dynamic at 3.7% QoQ, driven by the retail segment which now represents 48% of the total loan book. However, provisions for loan losses remained high at US$ 69.6 million, reflecting the strategic expansion into lower-income, higher-risk segments. Consequently, the PDL ratio increased to 1.66%.
The insurance business (Pacifico Grupo Asegurador) reported a weaker quarter with a 28% decrease in premium income net of claims. This was driven by severe seasonal claims (rainy season) and a specific large fire event, resulting in a combined ratio of 126% for the P&C business.
Segment Performance and Outlook
- Banco de Crédito del Perú (BCP): Contributed US$ 166.6 million (+3.5% QoQ). Strong retail loan growth (+5.6% QoQ) drove NII expansion. ROAE remained robust at 29.2%.
- Financiera Edyficar: Reported excellent results with a 4.8% QoQ increase in contribution, driven by strong portfolio growth (+7.8%) and NII expansion (+9.8%).
- Atlantic Security Bank (ASB): Contribution rose 26.1% QoQ to US$ 11.6 million, aided by gains on sales of securities and lower provisions.
- Prima AFP: Maintained market leadership with a 3.6% QoQ increase in net income, reflecting strong economic activity and expense control.
- BCP Bolivia: Contribution dropped 32% QoQ due to higher provisions and operating expenses.
Outlook: Management expects continued growth in the Peruvian market, with GDP estimated at 6% for 1Q12. The company is pursuing acquisitions in investment banking to develop a top regional firm. Risks include continued volatility in international markets, local political noise, and the inherent risks of expanding into lower-income loan segments.
Investor Verification Checklist
- Verify the sustainability of the 1.66% PDL ratio as the bank continues to expand into lower-income retail segments.
- Monitor the insurance business (PGA) combined ratio to ensure severe claims remain within long-term underwriting expectations.
- Assess the impact of the Peruvian Sol's appreciation rate on future translation gains and net income volatility.
- Confirm the execution of announced investment banking acquisitions and their integration timeline.
- Review the efficiency ratio trend as the company continues to expand its branch and agent network.