Credicorp Ltd. Form 20-F Summary (Fiscal Year Ended December 31, 2002)
Business Context and Reporting Period
Credicorp Ltd. is a Bermuda-based holding company and the largest financial services group in Peru. The company operates primarily through four principal subsidiaries: Banco de Crédito del Perú (BCP), Atlantic Security Holding Corporation (ASHC), El Pacífico-Peruano Suiza Compañía de Seguros y Reaseguros (PPS), and Banco Tequendama. BCP accounted for 86.6% of total revenues and 141.2% of net income in 2002. The reporting period covers the fiscal year ended December 31, 2002. Financial statements are prepared in accordance with International Accounting Standards (IAS) and presented in U.S. Dollars.
Key Financial Metrics
| Metric (US$ in millions) | 2002 | 2001 |
|---|---|---|
| Net Interest Income | 353.8 | 376.2 |
| Non-Interest Income | 335.7 | 329.1 |
| Provision for Loan Losses | 99.6 | 119.4 |
| Net Income (IAS) | 42.4 | 54.5 |
| Net Income (U.S. GAAP) | 45.4 | 55.9 |
| Total Assets | 8,616.8 | 7,581.8 |
| Total Loans (Gross) | 4,817.7 | 4,064.5 |
| Total Deposits | 6,381.2 | 5,543.4 |
| Shareholders' Equity | 823.8 | 796.8 |
| Net Interest Margin | 5.07% | 5.28% |
| Return on Average Assets | 0.52% | 0.72% |
| Return on Average Equity | 5.23% | 6.90% |
| Past Due Loans (% of Total) | 8.43% | 8.63% |
| Reserves vs. Past Due Loans | 104.41% | 98.18% |
Material Changes vs. Prior Period
- Net Income Decline: Net income decreased 22.2% to $42.4 million in 2002 compared to $54.5 million in 2001. This decline was primarily due to the absence of non-recurring gains in 2002 that were present in 2001, specifically a $19.0 million gain from the sale of Banco Capital and Backus shares. Additionally, 2002 included $14.4 million in non-recurring expenses related to structural changes in information systems, corporate image rebranding, and staff restructuring.
- Asset Growth: Total assets increased 13.7% to $8.6 billion, driven largely by the acquisition of Banco Santander Central Hispano-Perú (BSCH-Perú) in December 2002. Total loans grew 18.5% to $4.8 billion, and deposits grew 15.1% to $6.4 billion.
- Loan Quality: The ratio of past due loans to total loans improved slightly to 8.43% from 8.63%. Coverage of past due loans by reserves increased significantly to 104.41% from 98.18%.
- Interest Rates: Net interest income decreased 6.0% due to lower interest rates on loans and deposits, reflecting excess liquidity in the Peruvian market and declining international rates. The net interest margin compressed to 5.07% from 5.28%.
Guidance, Outlook, and Risks
Outlook: Management expects 2003 to be a year of improvement and consolidation with higher profitability. Strategies include reducing net income volatility, lowering operating costs (targeting an efficiency ratio of 50% for BCP), and expanding into under-banked retail segments (small businesses and consumer loans). The company plans to limit international expansion, focusing primarily on Peru and Bolivia.
Risks and Contingencies:
- Peruvian Country Risk: Operations are heavily concentrated in Peru. Results are sensitive to Peruvian economic conditions, political stability, and government policies regarding inflation and exchange rates.
- Currency Risk: While financial statements are in U.S. Dollars, a significant devaluation of the Nuevo Sol could adversely affect the ability of borrowers to repay loans and the value of dividends remitted from subsidiaries.
- Loan Portfolio Composition: A strategic shift toward middle-market and consumer lending increases credit risk exposure in sectors where the company has less historical experience.
- Competition: Increased competition from foreign banks and local pension funds is pressuring margins and market share.
- Legal Proceedings: Credicorp is involved in litigation regarding the acquisition of Banco Tequendama, though management does not believe the outcome will have a material adverse effect.
Key Facts for Investor Verification
- Non-Recurring Items: Verify the impact of the $19.0 million gain in 2001 and $14.4 million in restructuring costs in 2002 on the year-over-year net income comparison.
- Acquisition Integration: Monitor the integration of BSCH-Perú (acquired Dec 2002) and its impact on 2003 financial results and efficiency ratios.
- Loan Loss Provisions: Assess the adequacy of loan loss reserves given the strategic shift to higher-risk consumer and middle-market lending segments.
- Exchange Rate Exposure: Review the sensitivity of net income to fluctuations in the Nuevo Sol/U.S. Dollar exchange rate, given the high percentage of foreign currency-denominated loans.
- IAS vs. U.S. GAAP: Note the reconciliation differences; Net Income under U.S. GAAP was $45.4 million compared to $42.4 million under IAS, primarily due to the treatment of goodwill amortization.