Credicorp Ltd. 2018 Annual Financial Summary
Business Context and Reporting Period
This Form 6-K, filed on February 28, 2019, reports the audited consolidated financial statements for Credicorp Ltd. and its subsidiaries for the fiscal year ended December 31, 2018. Credicorp is a Bermuda-based holding company operating primarily in Peru through its major subsidiary, Banco de Crédito del Perú (BCP), with significant operations in insurance (Pacífico Seguros), microfinance (Mibanco), and investment banking across Latin America. The financial statements were prepared in accordance with International Financial Reporting Standards (IFRS), marking the first full year of application for IFRS 9 (Financial Instruments).
Key Financial Metrics (Year Ended Dec 31, 2018)
| Metric | 2018 (S/ millions) | 2017 (S/ millions) |
|---|---|---|
| Total Assets | 177,263 | 170,472 |
| Net Profit | 4,071 | 4,182 |
| Net Profit Attributable to Shareholders | 3,984 | 4,092 |
| Net Interest Income | 8,489 | 8,071 |
| Provision for Credit Losses (Net) | (1,532) | (1,789) |
| Total Deposits and Obligations | 104,551 | 97,170 |
| Total Equity | 24,266 | 22,254 |
| Basic Earnings Per Share (S/) | 50.13 | 51.49 |
Material Changes vs. Prior Period
- Profitability: Net profit decreased by approximately 2.6% to S/4,071 million, primarily driven by a significant reduction in "Net gain on securities" (down from S/761 million in 2017 to S/243 million in 2018) due to the absence of large one-time asset sales in 2018. However, core banking performance remained strong with Net Interest Income rising 5.2%.
- Credit Quality: The net provision for credit losses decreased by 14.4% to S/1,532 million, reflecting improved portfolio quality and the impact of the new IFRS 9 expected credit loss model, which resulted in a lower provision requirement compared to the incurred loss model of IAS 39.
- Balance Sheet Growth: Total assets grew 4.0% to S/177.3 billion, supported by a 7.6% increase in deposits and obligations. Loans net of allowances increased by 10.2% to S/105.8 billion.
- Accounting Policy Change: The adoption of IFRS 9 resulted in a restatement of opening equity on January 1, 2018, with a net decrease of S/192 million due to the reclassification of financial instruments and the recognition of expected credit losses.
Guidance, Outlook, and Risks
Management Commentary: Management highlighted the successful integration of new business lines (Universal Banking, Insurance/Pensions, Microfinance, Investment Banking) and the robustness of the loan portfolio. The Group maintained a strong capital position, exceeding regulatory requirements by S/4,658 million.
Key Risks and Contingencies:
- Legal Litigation (Madoff/Fairfield): A significant contingency involves ongoing litigation with the Madoff Trustee and Fairfield Liquidator seeking recovery of funds (approx. US$120 million and US$115 million, respectively). On February 25, 2019, the U.S. Court of Appeals revoked a lower court ruling that had previously dismissed the Madoff Trustee's claims against foreign entities. Management maintains that substantial defenses exist, noting that the subsidiary (Atlantic Security Bank) ultimately suffered a net loss on the funds managed.
- Insurance Reserves: Valuation of mathematical life insurance reserves (S/4,073 million) remains a key audit matter, sensitive to changes in interest rates and mortality assumptions.
- Market Risk: The Group is exposed to interest rate and foreign exchange risks, managed through hedging strategies and Value at Risk (VaR) models. The consolidated VaR for the trading book increased to S/10.4 million in 2018 due to higher price and interest rate risks.
Investor Verification Checklist
- IFRS 9 Impact: Verify the specific impact of the transition from IAS 39 to IFRS 9 on the allowance for loan losses and the reclassification of investment portfolios.
- Legal Exposure: Monitor the status of the Madoff Trustee and Fairfield Liquidator litigation, specifically the implications of the February 2019 Court of Appeals decision on potential liability.
- Non-Recurring Gains: Analyze the sustainability of earnings by excluding the one-time "Net gain on securities" from 2017 to assess core operational performance trends.
- Regulatory Capital: Confirm the Group's continued compliance with the Superintendencia de Banca, Seguros y AFP (SBS) capital adequacy requirements across all jurisdictions.
- Dividend Policy: Review the cash dividend payout of S/1,130 million (US$343.5 million) and the additional dividend paid in 2017 to assess capital return strategies.