Credicorp Ltd. — FY2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing; the supplied filing does not provide a clear set of Q4-only financial results. Credicorp is a Bermuda holding company operating principally in Peru through universal banking, microfinance, insurance and pensions, and investment banking and wealth management. Financial statements are prepared under IFRS in Peruvian soles (S/). Its shares trade on the NYSE as BAP.
Financial performance and position
| Metric | FY2021 / Dec. 31, 2021 | Comparable period |
|---|---|---|
| Interest and similar income | S/11.850 billion | S/11.548 billion in 2020 |
| Net interest income | S/9.362 billion | S/8.571 billion in 2020; up 9.2% |
| Net provision for credit losses | S/1.212 billion | S/5.921 billion in 2020 |
| Other income, excluding net premiums | S/4.927 billion | S/4.406 billion in 2020; up 11.8% |
| Net premiums earned | S/2.672 billion | S/2.428 billion in 2020 |
| Insurance underwriting result | Loss of S/3.7 million | Income of S/358.1 million in 2020 |
| Profit before tax | S/5.333 billion | S/224.2 million in 2020 |
| Net profit attributable to Credicorp shareholders | S/3.585 billion; basic EPS S/45.09 | S/346.9 million; basic EPS S/4.37 in 2020 |
| ROAE / ROAA | 13.94% / 1.49% | 1.36% / 0.16% in 2020 |
| Total assets | S/244.822 billion | S/237.406 billion in 2020 |
| Total loans | S/147.597 billion | S/137.660 billion in 2020 |
| Deposits | S/150.341 billion including interest payable; S/149.588 billion excluding it | S/142.366 billion including interest payable in 2020 |
| Total equity | S/27.037 billion; parent-attributable equity S/26.497 billion | S/25.446 billion; parent-attributable equity S/24.946 billion in 2020 |
| Cash and due from banks | S/39.321 billion | S/36.753 billion in 2020 |
| Cash flows | Operating S/3.973 billion; investing outflow S/3.728 billion; financing outflow S/465.3 million | Operating S/12.687 billion; investing outflow S/1.873 billion; financing outflow S/2.088 billion in 2020 |
Margins, credit quality and capital: Reported net interest margin was 4.10%, down from 4.30% in 2020. The selected financial data reports operating efficiency of 44.96%; the MD&A cites 45.9% using a different presentation/definition. Internal overdue loans were 3.77% of loans and the non-performing loan ratio was 4.99%, versus 3.40% and 4.62%, respectively, in 2020. Loan-loss allowance was S/9.071 billion, or 5.74% of total loans in the selected-data table. The BIS regulatory capital ratio was 16.71%, versus 16.44% in 2020.
Funding and debt: Total liabilities were S/217.785 billion. At year-end, reported funding included S/22.014 billion of payables from repurchase agreements and securities lending, S/7.213 billion due to banks and correspondents, and S/17.079 billion of bonds and notes issued. Deposits represented about 76.9% of total funding; low-cost savings and demand deposits grew during the year. The filing states that Credicorp had never defaulted on debt or been forced to reschedule its obligations.
Material changes versus 2020
- Shareholder-attributable net profit rebounded to S/3.585 billion from S/346.9 million, but remained below FY2019’s S/4.265 billion. The 2020 result reflected pandemic-related credit provisioning and weaker activity.
- Net credit-loss provisions fell 79.5% from 2020’s exceptionally high level. Management attributed the decline to economic reopening, improved payment behavior, model recalibration and recoveries; write-offs also rose, to S/2.929 billion from S/1.194 billion.
- Loans increased 7.2% and deposits increased 5.6%. Growth was supported by wholesale banking, SME-Pyme and Mibanco; government-backed Reactiva lending continued to amortize.
- Net interest income grew 9.2%, while NIM declined 20 basis points as lower market rates weighed on yields. Interest expense fell as funding costs declined and low-cost deposits grew.
- Insurance underwriting moved from a S/358.1 million gain to a S/3.7 million loss. Life claims rose, principally due to COVID-19 mortality during the second wave.
- Total other expenses increased 7.6%, including higher administrative costs associated with digital transformation and higher variable compensation. The 2020 S/64.0 million goodwill impairment related to Mibanco Colombia was not recorded again in 2021.
- Other comprehensive income included a S/2.492 billion net loss on investments at fair value through other comprehensive income, compared with a gain in 2020; this reduced total comprehensive income despite the earnings recovery.
Outlook, management commentary and risks
Management expected Peru’s GDP to grow about 2.5% in 2022. Its disclosed outlook anticipated 8%–10% growth in the structural loan portfolio in average daily balances, an upward NIM trend as market rates rose, and cost of risk remaining below pre-pandemic levels. It expected premium growth to continue and claims to decline, while expenses related to digital transformation and innovation would remain elevated. These are expectations, not guaranteed results; the filing does not provide formal consolidated earnings or EPS guidance.
Management’s strategy emphasizes digital transformation, customer experience, efficiency, financial inclusion and scaling digital ventures. BCP reported more than 8 million Yape users at year-end. The company also warned that digital investments may not deliver expected growth, efficiencies or returns.
- Macroeconomic and political exposure: Results depend heavily on Peru. Political uncertainty, social unrest, inflation, currency depreciation, interest-rate changes, weaker commodity prices or slower growth could affect borrowers, funding, asset values and demand. Operations also expose Credicorp to conditions in Bolivia, Colombia, Chile and Panama.
- Credit and pandemic risk: Loan quality could deteriorate as grace periods expire and government-backed loans are repaid; SMEs, consumer borrowers, tourism, restaurants and real estate are among the cited exposures. Further COVID-19 waves could increase credit losses, insurance claims and operational disruption.
- Regulatory risk: Peru’s interest-rate caps and restrictions on certain fees, pension withdrawals and possible further reforms could affect margins, pension assets under management and insurance or banking operations. Basel III-related regulatory capital changes were expected to take effect from 2023, subject to further rules.
- Liquidity, market and currency risk: The Group is exposed to interest rates, foreign exchange, securities valuations and counterparty risk. Peru’s dollarization remains relevant: the filing reports that 23.0% of loans and 36.2% of deposits were in U.S. dollars at December 2021.
- Legal and unusual matters: ASB faces Madoff Trustee claims seeking about US$120 million and Fairfield Liquidator claims seeking US$115.2 million, plus related costs. Management says it has defenses; it has recorded a provision it considers reasonable, but the filing text does not provide a clear amount. SMV proceedings over political campaign contributions resulted in fines against Credicorp and subsidiaries; Credicorp paid its fines and is challenging the decision in court. BCP and Mibanco proceedings remained with the SMV. CEO Gianfranco Ferrari was included in a prosecutor’s investigation concerning BCP’s advisory services for the Olmos Project; the company says it sees no liability or material operating impact.
- Insurance accounting: IFRS 17 was scheduled to take effect January 1, 2023. Management expected higher life insurance liabilities and a possible reduction in equity, with an assessment then planned for 2022; it did not expect a material effect on regulatory capital needs.
- Dividends and ratings: No dividend on FY2021 earnings had been declared by the filing date; the board expected to consider a distribution after subsidiaries’ dividend decisions. S&P affirmed Credicorp at BBB with a negative outlook in March 2022; Fitch affirmed BBB with a stable outlook in April 2022.
Important facts for investors to verify
- Reconcile the reported 2021 profit recovery with the exceptionally low 2020 comparison, and assess whether lower credit provisions and higher write-offs are sustainable.
- Review subsequent loan delinquency, Stage 2 and Stage 3 migration, Reactiva portfolio repayments, restructured loans and allowance coverage.
- Check the underlying drivers of the insurance underwriting deterioration, COVID-related claims and expected reserve effects from IFRS 17.
- Confirm the status, potential exposure and provision for the Madoff and Fairfield litigation, the SMV proceedings and the Olmos investigation.
- Monitor capital buffers against regulatory changes, liquidity and deposit mix, foreign-currency exposures, and the effect of rising interest rates on NIM and borrowers.
- Track the board’s FY2021 dividend decision and the execution, costs and returns of digital and innovation investments.
Audit and controls: The auditor issued unqualified opinions on the IFRS consolidated financial statements and internal control over financial reporting as of December 31, 2021. Management reported effective disclosure controls and no identified material weakness. The auditor identified expected credit-loss allowances and annuity mathematical reserves as critical audit matters because of the judgment and assumptions involved.