Business Context and Reporting Period
Company: Intercorp Financial Services Inc. (IFS)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Fiscal year ended December 31, 2023
Filing Date: March 18, 2024
Auditor: Tanaka, Valdivia & Asociados (Ernst & Young member firm)
Context: IFS is a holding company incorporated in Panama, with primary operations in Peru through subsidiaries including Interbank (banking), Interseguro (insurance), Inteligo (asset management/brokerage), and Izipay (payments). The financial statements were approved by the Board of Directors on March 18, 2024, and are pending shareholder approval.
Key Financial Metrics (2023 vs. 2022)
| Metric | 2023 (S/ '000) | 2022 (S/ '000) | Change |
|---|---|---|---|
| Net Profit for the Year | 1,079,276 | 1,678,114 | (35.7%) |
| Net Interest Income | 4,528,045 | 4,209,613 | +7.6% |
| Impairment Loss on Loans | (1,981,818) | (830,551) | +138.6% (Increase in loss) |
| Fee Income (Net) | 1,178,462 | 1,137,386 | +3.6% |
| Total Assets | 89,624,779 | 87,482,089 | +2.4% |
| Total Equity (Net) | 10,008,101 | 9,426,227 | +6.2% |
| Cash & Cash Equivalents | 9,074,211 | 12,707,776 | (28.6%) |
| Operating Cash Flow | 2,875,192 | (1,012,077) | Significant Improvement |
Note: All figures are in Peruvian Soles (S/). 2022 figures are restated due to the adoption of IFRS 17.
Material Changes and Drivers
- Profit Decline: Net profit decreased by approximately 36% primarily due to a significant increase in impairment losses on loans (S/1.98 billion in 2023 vs. S/0.83 billion in 2022). Management applied expert judgment to increase provisions reflecting the potential impact of the El Niño event and political/economic uncertainty.
- IFRS 17 Adoption: The Group adopted IFRS 17 "Insurance Contracts" effective January 1, 2023. This resulted in the restatement of 2022 comparative figures. The standard changed the presentation of insurance results, separating insurance service results from financial results.
- Loan Portfolio Growth: Gross loans increased to S/48.25 billion (from S/47.03 billion), driven by growth in consumer and mortgage segments, though this was accompanied by higher credit risk provisioning.
- Investment Property: Investment property fair value increased to S/1.30 billion, with a net gain on valuation of S/7.1 million recognized in 2023.
Outlook, Risks, and Contingencies
- Key Audit Matters: The auditor highlighted the IT environment, the Expected Credit Loss (ECL) estimate for the loan portfolio, and the construction of the discount rate for pension insurance liabilities under IFRS 17 as key areas of focus.
- Macroeconomic Risks: The filing notes the impact of the "El Niño" phenomenon and the political/social context in Peru (following the 2022 political crisis) as factors influencing credit risk models and provisioning.
- Interest Rate Benchmark Reform: The Group has completed the transition from LIBOR to SOFR (Secured Overnight Financing Rate) for its derivative and loan portfolios as of June 2023.
- Regulatory Capital: As of December 31, 2023, Interbank maintained a global capital ratio of 15.45%, well above the regulatory requirement of 9% (increasing to 10% in September 2024). Interseguro and Inteligo Bank also reported compliance with their respective regulatory capital requirements.
- Dividends: The Board approved dividends for 2023 profits to be submitted to the Annual General Shareholders Meeting on April 1, 2024. No specific guidance for 2024 earnings was provided in this filing.
Investor Verification Checklist
- Credit Quality Trends: Verify the trajectory of Stage 2 and Stage 3 loans and the sustainability of the increased impairment provisions in light of the El Niño event.
- IFRS 17 Impact: Review the detailed reconciliation of insurance results under IFRS 17 to understand the shift in profitability recognition for the Interseguro subsidiary.
- Liquidity Position: Assess the 29% decline in cash and cash equivalents and the reliance on inter-bank funding and bond issuances to support loan growth.
- Investment Portfolio Valuation: Monitor the fair value movements of debt instruments measured at fair value through other comprehensive income (FVOCI), which showed significant unrealized losses in prior periods.
- Regulatory Compliance: Confirm continued compliance with the phased increase in regulatory capital requirements for Interbank (reaching 10% in late 2024).