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, 2019
Filing Date: March 17, 2020
Auditor: Paredes Burga & Asociados (Ernst & Young member)
Business Overview: IFS is a holding company incorporated in Panama, primarily operating in Peru through its subsidiaries: Banco Internacional del Perú (Interbank), Interseguro (insurance), and Inteligo Group (asset management and brokerage). The group operates under International Financial Reporting Standards (IFRS).
Key Financial Metrics (2019 vs. 2018)
| Metric (S/ in thousands) | 2019 | 2018 |
|---|---|---|
| Total Assets | 71,562,293 | 63,744,409 |
| Total Liabilities | 62,658,845 | 56,655,933 |
| Total Equity (Net) | 8,903,448 | 7,088,476 |
| Net Interest Income | 3,439,319 | 3,150,696 |
| Net Profit for the Year | 1,450,115 | 1,091,394 |
| Net Profit Attributable to Shareholders | 1,441,258 | 1,084,280 |
| Earnings Per Share (Basic & Diluted) | S/ 12.78 | S/ 9.82 |
| Cash & Cash Equivalents (End of Year) | 9,851,729 | 7,087,062 |
| Loans, Net | 37,136,853 | 32,960,917 |
| Deposits and Obligations | 38,093,224 | 33,681,950 |
Material Changes vs. Prior Period
- Profitability Growth: Net profit attributable to shareholders increased by approximately 33% (from S/1.08 billion to S/1.44 billion), driven by higher net interest income and gains on financial assets.
- Balance Sheet Expansion: Total assets grew by 12.3%, primarily due to an increase in loans (12.7% growth) and financial investments.
- Impairment Charges: Impairment loss on loans increased to S/750.8 million in 2019 from S/660.1 million in 2018, reflecting the adoption of IFRS 9 expected credit loss models.
- Insurance Operations: Net premiums earned rose to S/426.6 million, while net claims and benefits incurred were S/722.3 million, resulting in a net negative contribution from insurance premiums and claims of S/295.7 million.
- Capital Structure: Equity increased significantly due to the Initial Public Offering (IPO) in 2019, which raised approximately S/684.1 million (net of expenses).
Guidance, Outlook, and Risks
- Accounting Standards: The Group adopted IFRS 16 "Leases" in 2019, recognizing right-of-use assets and lease liabilities. IFRS 9 "Financial Instruments" was adopted in 2018, impacting impairment calculations.
- Interest Rate Benchmark Reform: The Group has exposure to US$-Libor rates in derivative positions (interest rate swaps and cross-currency swaps). Management is monitoring the transition to new benchmarks, though no immediate disruption is expected.
- Debt Redemption: Interbank's Board agreed in January 2020 to redeem the entirety of its Junior Subordinated Notes (US$200 million) in April 2020. Additionally, a buyback offering for Senior Notes (US$650 million) was executed in late 2019.
- Investment Property: The Group holds significant investment property (S/972.1 million) valued using the fair value model. Valuations are sensitive to discount rates and rental growth assumptions.
- Contingencies: The Group maintains provisions for legal contingencies and insurance claims. Management believes current provisions are sufficient.
Key Facts for Investor Verification
- Loan Portfolio Quality: Verify the composition of Stage 2 and Stage 3 loans under IFRS 9, as impairment allowances increased year-over-year.
- Insurance Reserves: Review the sensitivity analysis of technical reserves for annuities and life insurance, which are highly sensitive to interest rate fluctuations (e.g., a 100 bps rate increase reduces reserves by ~10%).
- Debt Maturity Profile: Confirm the repayment schedule for bonds and notes, particularly the upcoming redemption of Junior Subordinated Notes in April 2020.
- Related Party Transactions: Note significant transactions with related entities (e.g., sales of investment properties to related parties, acquisitions of portfolios).
- Derivative Exposure: Assess the notional value of derivatives (S/17.7 billion) used for hedging and trading, and their impact on earnings volatility.