BAP

Credicorp Ltd. Fourth Quarter 2011 Results Summary

Business Context and Reporting Period

Credicorp Ltd. (NYSE: BAP), Peru's leading financial services holding company, reported unaudited consolidated results for the fourth quarter of 2011 (ended December 31, 2011) and the full year 2011. The results are presented in nominal U.S. Dollars in accordance with IFRS. The reporting period was characterized by continued adversity in international markets and local political uncertainty, yet the company maintained a positive growth trend.

Key Financial Metrics

• Net Earnings: Q4 2011 net income attributed to Credicorp was US$ 189.2 million (up 10.7% QoQ and 46.3% YoY). Full-year 2011 net income reached US$ 709.3 million (up 24.2% YoY).
• Profitability: Return on Average Equity (ROAE) for Q4 2011 was 23.4%. Full-year 2011 ROAE was 23.5%.
• Revenue: Net Interest Income (NII) for Q4 2011 was US$ 355.3 million (up 7.5% QoQ). Non-financial income was US$ 228.9 million (up 10.9% QoQ).
• Margins: Net Interest Margin (NIM) improved to 5.2% in Q4 2011 from 5.0% in Q3 2011. The full-year NIM remained flat at 5.0% compared to 2010.
• Loan Portfolio: Total loans grew 6.4% QoQ to US$ 17.44 billion. Full-year loan growth was 21.3%.
• Asset Quality: The Past Due Loan (PDL) ratio stood at 1.49% with a coverage ratio of 200.5%. The Non-Performing Loan (NPL) ratio was 2.03% with coverage of 146.6%.
• Efficiency: The efficiency ratio improved to 41.6% for the full year 2011 (down from 42.5% in 2010), though it peaked at 44.9% in Q4 due to seasonal expenses.
• Liquidity and Capital: Total deposits and obligations grew 5.1% QoQ to US$ 18.99 billion. Net shareholders' equity increased 9.1% QoQ to US$ 3.38 billion.

Material Changes vs. Prior Period

• Provisions: Net provisions for loan losses increased significantly by 65.1% QoQ to US$ 70.5 million. This was driven by robust loan growth and a voluntary generic provision of approximately US$ 12 million to strengthen coverage, rather than a deterioration in asset quality.
• Operating Income: Operating income dropped 13.1% QoQ to US$ 209.0 million, primarily due to higher provisions, increased operating expenses (15.2% QoQ growth), and a weaker performance in the insurance segment.
• Insurance Segment: The insurance business (Pacifico Grupo Asegurador) reported a 9.8% decrease in income for Q4 due to lower net earned premiums (-1.7%) and higher claims (+2.2%). However, accumulated results for 2011 showed 19.4% growth.
• Translation Results: The appreciation of the Peruvian Nuevo Sol generated a translation gain of US$ 31.4 million in Q4, compared to a loss of US$ 7.2 million in Q3.
• Subsidiary Performance:
  • BCP (Banking): Contributed US$ 161 million (up 15% QoQ), driven by retail loan growth and fee income.
  • ASB (Investment Banking): Contribution rose 24% QoQ to US$ 9.2 million due to a recovery in financial margins and reduced volatility in derivative valuations.
  • Prima (AFP): Contribution grew 16% QoQ to US$ 8.9 million, maintaining market leadership in funds under management.

Outlook, Risks, and Management Commentary

Management highlighted that the strong Q4 results confirmed the positive growth trend observed in previous quarters, despite a challenging global environment. The company noted that loan growth was particularly strong in the retail segment, which helped offset slower growth in the corporate sector due to companies accessing international capital markets.

Risks and Contingencies:

• Macroeconomic Factors: Risks include adverse changes in the Peruvian economy (inflation, growth, currency devaluation) and political uncertainty.
• Market Conditions: Continued volatility in international markets and potential deterioration in the external outlook (European debt crisis) could impact asset valuations and economic growth.
• Competition: Increased competition in the insurance and brokerage sectors has pressured fees and increased commission costs.

Forward-Looking Statements: The filing includes standard safe harbor language cautioning that actual results may differ materially from expectations due to economic, political, and market factors.

Key Facts for Investor Verification

• Verify the sustainability of the 21.3% annual loan growth rate, particularly the shift toward higher-margin retail lending.
• Monitor the impact of the voluntary US$ 12 million provision on future earnings and whether asset quality metrics (PDL/NPL) remain stable.
• Assess the performance of the insurance segment (PGA) in Q1 2012 to determine if the Q4 weakness was seasonal or indicative of structural issues in the life and health lines.
• Track the exchange rate of the Nuevo Sol, as translation gains significantly impacted Q4 results (US$ 31.4 million gain).
• Review the efficiency ratio trajectory, as Q4 expenses were elevated due to seasonal factors (Christmas campaigns, bonuses) which may not persist in Q1.