Credicorp Ltd. — FY2018 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing. Credicorp is a Bermuda-incorporated financial holding company operating primarily in Peru, with banking, microfinance, insurance and pensions, and investment banking and wealth management businesses. Financial statements are audited, prepared under IFRS, and presented in Peruvian soles unless stated otherwise. The 2018 financial-instrument balances reflect adoption of IFRS 9; 2017 comparatives were not restated.
Key financial results and position
| Metric | FY2018 / Dec. 31, 2018 | Prior comparable period |
|---|---|---|
| Net interest income | S/8.49 billion | S/8.07 billion; up 5.2% |
| Net profit attributable to Credicorp shareholders | S/3.98 billion | S/4.09 billion; down 2.6% |
| Basic earnings per share | S/50.13 | S/51.49 |
| Commissions and fees | S/3.13 billion | S/2.91 billion; up 7.4% |
| Net premiums earned less claims | S/861 million | S/690 million |
| Total assets | S/177.26 billion | S/170.47 billion; up 4.0% |
| Total loans | S/110.76 billion | S/100.48 billion; up 10.2% |
| Total deposits | S/103.98 billion, excluding interest payable | S/96.72 billion; up 7.5% |
| Equity attributable to shareholders | S/23.84 billion | S/21.76 billion |
| Operating cash flow | Negative S/122 million | Positive S/9.30 billion |
Profitability and credit indicators: reported net interest margin was 5.30% (2017: 5.33%); ROAE was 17.47% (19.76%) and ROAA was 2.29% (2.50%). Net credit-loss provision expense after recoveries declined to S/1.53 billion from S/1.79 billion; cost of risk fell to 1.38% from 1.78%. Internal overdue loans were 2.82% of loans, versus 3.01%; the non-performing loan ratio, including refinanced and restructured loans, was 3.97%, versus 3.92%. Allowance coverage of internal overdue loans was 158.75%.
Capital and liquidity: Credicorp’s regulatory capital ratio was 16.22% of risk-weighted assets, compared with 15.92% in 2017. BCP Stand-alone reported a 14.17% regulatory capital ratio and an 11.55% CET1 ratio. Average December liquidity ratios for BCP Stand-alone and Mibanco combined were 30.87% in soles and 38.50% in foreign currency, above stated regulatory minimums of 8% and 20%. Total liabilities were S/153.00 billion; bonds and notes issued were S/15.46 billion. The filing reports no debt defaults or required rescheduling.
Material changes versus 2017
- Loan balances accelerated, rising 10.2% at year-end; growth was led by wholesale banking and mortgages. Deposits grew 7.5%.
- Lower credit-loss expense supported earnings, reflecting improved BCP consumer and credit-card portfolio quality, reversals of some Lava Jato-related provisions, and the absence of certain 2017 El Niño and Lava Jato provisions.
- Net profit declined despite higher net interest income and commissions. Other income fell, especially securities gains: 2017 included gains from sales of BCI and Enel shares totaling approximately S/445 million. 2018 also included a S/38 million goodwill impairment in Credicorp Capital Chile.
- Other expenses rose 7.5%, primarily from higher administrative costs and compensation; the reported operating-efficiency ratio increased to 43.95% from 43.42%.
- Operating cash flow swung to negative S/122 million from positive S/9.30 billion, largely amid loan growth and changes in balance-sheet funding and assets. Cash and cash equivalents ended the year at S/22.16 billion, down from S/23.21 billion.
- IFRS 9 replaced IAS 39 for 2018 financial instruments, introducing expected-credit-loss staging. Adoption increased opening loan-loss allowance by about S/321 million; reported comparability with 2017 is therefore affected.
Reporting caveat: The filing gives different NIM figures in different sections: 5.30% in selected financial data and 5.50% in the detailed operating discussion. It also reports differing efficiency ratios (43.95% and 43.73%). The text does not clearly reconcile these differences; confirm definitions and calculation bases in the audited statements and management discussion.
Outlook, risks and contingencies
- Management expected a slight recovery in Peru’s economic growth in 2019, while describing the environment as challenging, particularly for universal banking and the recovery of private investment. No specific Credicorp earnings or margin guidance was provided.
- Management’s priorities included digital banking and customer experience, balancing growth, market share, profitability and efficiency, expanding microfinance deposits, improving health-insurance profitability, and growing regional wealth management.
- Principal risks include Peru’s political and economic conditions, loan quality and higher-risk consumer and middle-market growth, competition and margin pressure, interest and foreign-exchange movements, regulatory and tax changes, natural disasters, cybersecurity and operational failures, insurance claims and reserving, and reinsurance counterparty risk. Around 91% of Credicorp income was generated by Peruvian subsidiaries.
- ASB faces Madoff Trustee litigation seeking approximately US$120 million. The Second Circuit reversed an earlier dismissal in February 2019; rehearing was denied, and the mandate was stayed in April pending a potential Supreme Court petition. Management said ASB had substantial defenses and would contest the claims.
- Fairfield litigation sought approximately US$115.2 million. The Bankruptcy Court entered an order dismissing the proceeding against ASB on April 5, 2019; the liquidator could appeal. Management stated it would continue to contest the claims.
- Credicorp’s directors were summoned as witnesses in a Peruvian political-campaign-contributions investigation. The company said it did not expect a material business or financial effect. It separately stated that neither Credicorp nor its subsidiaries was involved in a government investigation.
- Bermuda was placed on the EU list of non-cooperative tax jurisdictions in March 2019; the potential effect was unclear. Management was assessing the implications.
- The Board declared a cash dividend of S/20 per share for 2018 results, payable May 10, 2019. The stated policy targets cash dividends of at least 25% of consolidated net profit, subject to legal, capital and other conditions.
- IFRS 16 was to be adopted January 1, 2019. Management expected to recognize right-of-use assets of approximately S/1.58 billion and lease liabilities of approximately S/1.58 billion.
The auditor issued an unqualified opinion on the IFRS financial statements and effective internal control over financial reporting; management reported no material weakness.
Important facts for investors to verify
- Reconcile the NIM and efficiency-ratio figures that differ across sections of the filing, and assess the effect of IFRS 9 on year-over-year credit costs and asset quality.
- Review the operating cash-flow decline, funding mix, near-term deposit maturities, and the liquidity and capital measures applicable to the regulated subsidiaries.
- Track credit quality by business line, especially Mibanco and higher-risk SME, consumer and mortgage lending, as well as allowance coverage and the treatment of collateral and refinanced loans.
- Check subsequent court developments in the Madoff and Fairfield matters, including the potential exposure, procedural status and any change in management’s assessment.
- Confirm the dividend payment, relevant withholding and subsidiary distribution capacity; assess potential effects of Bermuda’s EU listing and the expected IFRS 16 balance-sheet adoption.