BAP

Credicorp Ltd. Q2 2015 Financial Summary

Business Context and Reporting Period

This Form 6-K reports the unaudited consolidated results for Credicorp Ltd. (NYSE: BAP) for the second quarter of 2015 (ended June 30, 2015). The results are prepared in accordance with IFRS and reported in Nuevos Soles (S/.). The company operates primarily in Peru through its banking subsidiary Banco de Crédito del Perú (BCP), as well as in Bolivia, the United States, and other Latin American markets through insurance, asset management, and pension fund subsidiaries.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability: Reported net income attributed to Credicorp decreased 6.9% QoQ to S/. 749.3 million, primarily due to the absence of a S/. 105.1 million non-recurring gain from the Grupo Pacífico/Banmedica joint venture recorded in 1Q15. However, recurring net income increased 7.1% QoQ and 36.6% YoY, reflecting solid core business performance.
• Loan Growth: Total loans grew 2.3% QoQ and 13.7% YoY. Real growth was 1.2% QoQ. Wholesale Banking led expansion (+5.5% QoQ), while Retail Banking grew 2.5% QoQ. The Local Currency (LC) loan portfolio share increased to 55.4%.
• Asset Quality: The Cost of Risk improved significantly to 2.07% (lowest in two years), driven by a 14% QoQ reduction in net provisions. However, the NPL ratio increased to 3.56% due to the maturity of refinanced loan portfolios and high collateral levels delaying write-offs.
• Income Mix: Net Interest Income grew 2.9% QoQ. Non-financial income fell 13.5% QoQ due to the lack of the one-time JV gain, though core fee income grew 5.2% QoQ.
• Insurance: The underwriting result improved 11.7% QoQ, driven by Property & Casualty (P&C) performance, offsetting a negative result in Life insurance due to reserve increases.

Outlook, Risks, and Management Commentary

• Economic Outlook: Management revised Peru's 2015 GDP growth forecast downward to a range of 2.5%–3.0% (from 3.5%) due to a decline in private investment and public spending. Risks include the intensity of the El Niño phenomenon and political uncertainty.
• De-dollarization: BCP Stand-alone exceeded regulatory targets for reducing foreign currency (FC) loans, reducing the FC portfolio subject to the plan by 21% (target was 5%).
• Liquidity and Funding: The company increased its use of Central Bank (BCRP) instruments by 25.8% QoQ to secure stable, long-term funding at low costs, replacing higher-cost time deposits. The Loan-to-Deposit ratio remained stable at 103.2%.
• Capital Adequacy: Credicorp maintained a comfortable capitalization level at 1.19 times the regulatory requirement. BCP Stand-alone's Common Equity Tier 1 (CET1) ratio improved to 8.38%.

Investor Verification Checklist

• Recurring vs. Reported Earnings: Verify the distinction between reported net income (impacted by one-time JV gains in 1Q15) and recurring net income to assess true operational trends.
• NPL Coverage Trends: Monitor the coverage ratio for Non-Performing Loans (NPLs), which declined to 121.9% QoQ, and the drivers behind the NPL ratio increase (maturity of refinanced loans vs. new vintages).
• De-dollarization Progress: Confirm the sustainability of the shift toward Local Currency loans and the impact of exchange rate volatility on the remaining FC portfolio.
• Cost of Risk Sustainability: Assess whether the 2.07% cost of risk is sustainable given the economic slowdown and the maturity cycle of older loan vintages.
• Insurance Underwriting: Review the volatility in Life insurance claims reserves and the stability of the P&C combined ratio (90.6% in 2Q15).