Business context and reporting period
Intercorp Financial Services Inc. (IFS) filed this audited annual report on Form 20-F on April 26, 2021, covering the fiscal year ended December 31, 2020, with comparisons to 2019 and 2018. It is a Panama-incorporated holding company whose principal businesses operate through Interbank (banking), Interseguro (insurance) and Inteligo (wealth management), predominantly in Peru. The financial statements are prepared in soles under IFRS as issued by the IASB.
This is an annual filing, not a quarterly earnings report; the provided filing text does not give standalone 2020 Q4 results. Amounts below are in soles unless otherwise indicated.
Financial performance and position
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Net profit | S/383.5 million | S/1,450.1 million | Down 73.6% |
| Net interest and similar income | S/3,472.7 million | S/3,423.3 million | Up 1.4% |
| Impairment loss on loans, net of recoveries | S/2,393.9 million | S/750.8 million | Up S/1,643.1 million |
| Net fee income from financial services | S/723.5 million | S/925.9 million | Down 21.9% |
| Net interest margin / risk-adjusted NIM | 4.5% / 1.4% | 5.3% / 4.1% | Both declined |
| Past-due loans as a share of gross loans / cost of risk | 3.3% / 5.8% | 2.5% / 2.1% | Both deteriorated |
| Total assets | S/88.2 billion | S/71.6 billion | Up 23.3% |
| Gross loans | S/43.1 billion | S/38.3 billion | Up 12.6% |
| Deposits and obligations | S/47.1 billion | S/38.1 billion | Up 23.8% |
| Total equity | S/9.0 billion | S/8.9 billion | Up 0.6% |
Net profit attributable to IFS shareholders was S/383.3 million, versus S/1,441.3 million in 2019. Management’s non-IFRS adjusted net profit was S/513.9 million, excluding S/130.4 million after tax attributed to the initial impact of COVID-related loan rescheduling. This adjustment excludes any recovery of that amount after initial recognition and should not be viewed as a substitute for IFRS results. ROE was 4.5% (adjusted: 6.0%), versus 18.3% (adjusted: 18.6%) in 2019.
Operating cash flow was S/13.0 billion, investing cash flow was negative S/4.0 billion, and financing cash flow was negative S/0.6 billion. Cash and cash equivalents ended the year at S/18.1 billion, up from S/9.9 billion. Operating cash generation included substantial deposit and bank-funding inflows; it should be considered alongside the balance-sheet and funding movements.
Total liabilities were S/79.3 billion. Bonds, notes and other obligations were S/7.8 billion, while amounts due to banks and correspondents were S/9.7 billion, up from S/4.0 billion. Interbank’s regulatory capital ratio was 17.0%, with a core equity tier 1 ratio of 11.5%; Inteligo Bank’s capital ratio was 28.4%, compared with an 8.0% minimum requirement. Interseguro’s SBS solvency ratio was 165.7%.
Material changes versus prior periods
- The pandemic and economic contraction drove a sharp increase in expected credit losses, especially in Interbank’s rescheduled and consumer loan exposures. Its loan-loss allowance rose to S/3.0 billion from S/1.4 billion.
- Interbank’s reported 2020 result was a S/5.7 million loss, versus S/1.23 billion profit in 2019. Its 2020 adjusted profit was S/124.7 million, excluding the rescheduling impact. Retail loans weakened, while commercial lending expanded, supported by government-guaranteed Reactiva Peru lending.
- Interseguro earned S/141.1 million, up from S/130.4 million under IFRS, despite net premiums declining and claims rising. The company reported a S/235.3 million reduction in valuation of real estate investments under SBS GAAP, partly reflecting a temporary COVID-related regulatory valuation exception.
- Inteligo’s profit increased 21.4% to S/243.1 million, helped by higher mark-to-market investment gains. Its assets under management grew 14.7% to S/21.0 billion.
- IFS’s consolidated efficiency ratio improved to 32.2% from 34.4%, supported by cost containment. The group also continued migrating customers and transactions to digital channels.
Outlook, management commentary, risks and contingencies
Management identified COVID-19, loan quality, rescheduling outcomes, and Peru’s economic and political conditions as material uncertainties. Peru’s GDP contracted 11.1% in 2020. The Central Reserve Bank’s March 2021 forecast cited in the filing projected growth of 10.7% in 2021 and 4.5% in 2022; these are macroeconomic forecasts, not IFS earnings guidance. The report gives no specific company earnings guidance.
- At December 31, 2020, S/10.5 billion, or 25.2% of Interbank’s portfolio, had been rescheduled. Reactiva Peru loans outstanding at Interbank were S/6.6 billion. The eventual repayment performance of these loans remains a key credit risk.
- IFS’s reported loan impairment expense includes significant management overlays and stage migrations reflecting pandemic uncertainty. The independent auditor identified expected credit losses as a critical audit matter, citing model complexity, forward-looking assumptions and COVID-related adjustments.
- Other important exposures include low interest rates and margin pressure; sol-dollar exchange movements; sovereign and global bonds (47.3% of the investment portfolio before accrued interest); insurance reserve and mortality assumptions; and real estate valuations and tenant payment risk.
- Political uncertainty, regulatory change, competition, cybersecurity and operational disruption are additional risks. A Peruvian bill approved in March 2021 would impose caps on certain consumer and small-business lending rates if it takes effect; the executive branch had stated an intention to challenge it.
- IFS declared a dividend of US$88.9 million for 2020, payable in 2021. Interbank paid no dividend for 2020 and agreed to capitalize its distributable income. Subsidiary distributions are subject to regulatory capital, liquidity and local accounting constraints.
- IFS reported no material legal proceedings affecting its financial position. Inteligo Bank disclosed litigation concerning approximately US$11 million of Madoff-related redemption payments; proceedings remained ongoing as of the filing date.
The auditor issued unqualified opinions on the IFRS financial statements and internal control over financial reporting. The other critical audit matter was valuation of insurance contract liabilities, which depends on actuarial assumptions including mortality tables and discount rates.
Most important facts for investors to verify
- Confirm the IFRS net profit decline and distinguish it from management’s adjusted, non-IFRS measure.
- Review the composition and adequacy of the S/3.0 billion loan-loss allowance, post-model adjustments, and performance of the S/10.5 billion rescheduled portfolio and Reactiva Peru exposures.
- Check the quality and sustainability of 2020 cash generation, including the effects of deposit growth, central-bank funding and investment purchases.
- Verify current capital and liquidity ratios, debt terms and maturities, and any restrictions on subsidiary dividends or distributions to IFS.
- Assess the effects of interest-rate, currency, sovereign-bond, insurance-reserve and real-estate valuation risks, as well as the status of the proposed lending-rate legislation and disclosed litigation.