BAP

Credicorp Ltd. (NYSE: BAP) - Q4 2015 Results Summary

Business Context and Reporting Period

This Form 6-K reports the unaudited consolidated results for Credicorp Ltd. for the fourth quarter of 2015 (4Q15), filed on February 9, 2016. Results are presented in Peruvian Soles (S/.) in accordance with IFRS. The reporting period covers the financial performance of the group's banking, insurance, and pension fund subsidiaries, primarily operating in Peru, Bolivia, and the United States.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability Growth: Net income attributed to Credicorp increased 47.5% year-over-year (YoY) in 4Q15, driven by a 23% YoY increase in recurring net income. Full-year 2015 net income grew 29.5% compared to 2014.
• Loan Expansion: Total loans grew 13.1% YoY. Unlike previous quarters, Retail Banking led the quarter-over-quarter (QoQ) growth (+2.8%), while Wholesale Banking continued to lead YoY growth (+19.7%).
• Net Interest Income: NII expanded 15.4% YoY, the highest quarterly growth of the year, offsetting a slight increase in interest expenses. This was driven by higher interest income on loans.
• Provisions and Risk: Net provisions increased 14.9% YoY, leading to a QoQ rise in the cost of risk to 2.23%. However, the full-year cost of risk improved to 2.08% (down from 2.15% in 2014), reflecting better portfolio quality in SME and Mibanco segments.
• Insurance Performance: The insurance underwriting result improved significantly, with the combined ratio for Property & Casualty falling to 86.4% (from 100.2% in 4Q14), driven by lower acquisition costs and claims.
• Efficiency: The efficiency ratio deteriorated QoQ (+140 bps) due to seasonal administrative expenses but improved significantly YoY (-180 bps) and for the full year (-200 bps) due to the ongoing efficiency program.

Guidance, Outlook, and Risks

• Economic Outlook: Management notes an adverse macroeconomic context with market volatility. Peru's GDP growth is estimated at 2.9% for 2015, with inflation at 4.4% (above the central bank's target range). The Central Reserve Bank of Peru (BCRP) increased the reference rate to 4.0% in early 2016 to control inflation expectations.
• Capital Position: Credicorp maintains a comfortable capitalization level at 1.13 times the regulatory requirement. BCP Stand-alone reported a BIS ratio of 14.34% and a Common Equity Tier 1 ratio of 9.34%.
• De-dollarization: The company continues to de-dollarize its loan portfolio. Local currency (LC) loans now represent 59.4% of total loans, up from 58.0% in 3Q15. BCP Stand-alone has met its regulatory de-dollarization targets.
• Risks: Key risks include adverse changes in the Peruvian economy (inflation, growth, currency devaluation), political instability, and increased competition. The filing includes a standard safe harbor statement regarding forward-looking statements.
• Unusual Items: Non-recurring expenses of S/. 38.4 million impacted 4Q15 results, primarily related to goodwill impairment at Credicorp Capital and other adjustments. Excluding these, recurring income showed stronger growth.

Investor Verification Checklist

• Recurring vs. Reported Income: Verify the impact of non-recurring items (S/. 38.4 million expense) on the reported net income versus the recurring net income (S/. 769.6 million).
• Cost of Risk Trend: Monitor the QoQ increase in the cost of risk (2.23%) driven by Wholesale, Mortgage, and Credit Card segments, despite the full-year improvement.
• Net Interest Margin Pressure: Assess the impact of increased funding costs and the use of BCRP instruments on the NIM, which declined 11 bps YoY.
• De-dollarization Progress: Confirm the continued shift toward local currency loans and the associated margin implications.
• Insurance Combined Ratio: Validate the sustainability of the improved combined ratio (86.4%) in the insurance segment.
• Capital Adequacy: Review the Common Equity Tier 1 ratio (9.34%) to ensure it remains well above regulatory minimums amidst loan growth.