Business Context and Reporting Period
Company: Intercorp Financial Services Inc. (IFS)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Second Quarter 2019 (Ended June 30, 2019)
Announcement Date: August 12, 2019
Currency: Peruvian Soles (S/)
IFS is a financial holding company operating in Peru and Panama through three main segments: Interbank (Banking), Interseguro (Insurance), and Inteligo (Wealth Management). The results are reported on a consolidated basis under IFRS.
Key Financial Metrics
| Metric | 2Q19 | 1Q19 | 2Q18 | YoY Change |
|---|---|---|---|---|
| Net Profit (Consolidated) | S/ 350.1 million | S/ 352.7 million | S/ 204.9 million | +70.8% |
| Net Profit (Attributable to IFS) | S/ 347.9 million | S/ 350.6 million | S/ 203.1 million | +71.3% |
| Return on Average Equity (ROAE) | 18.5% | 19.0% | 12.7% | +580 bps |
| Total Revenues (1H19) | N/A | N/A | N/A | +8.4% (1H19 vs 1H18) |
| Efficiency Ratio | 34.8% | 33.7% | 38.7% | -390 bps |
| Total Assets | S/ 67,172.2 million | S/ 65,756.2 million | S/ 60,065.1 million | +11.8% |
| Loans (Net) | S/ 35,647.0 million | S/ 35,019.0 million | S/ 31,596.6 million | +12.8% |
| Deposits and Obligations | S/ 35,373.8 million | S/ 34,790.0 million | S/ 30,910.2 million | +14.4% |
Material Changes vs. Prior Period
- Profitability Surge: Consolidated net profit increased 70.8% YoY. This growth is primarily driven by a one-time adjustment of S/ 144.8 million in technical reserves in 2Q18 related to the adoption of new mortality tables in the insurance segment. Excluding this effect, profits remained stable YoY.
- Interbank Performance: The banking segment reported stable profits QoQ (S/ 300.2 million) and a 5.1% YoY increase. Net Interest Margin (NIM) improved to 5.8% (up 20 bps YoY). Loan growth was 12.7% YoY, driven by a 17.3% increase in retail loans.
- Interseguro Performance: The insurance segment reported a profit of S/ 32.8 million, a significant improvement from a loss of S/ 113.7 million in 2Q18. This turnaround is largely due to the absence of the one-time mortality table adjustment seen in the prior year. Gross premiums plus collections grew 9.6% YoY.
- Inteligo Performance: The wealth management segment reported a profit of S/ 33.4 million, down 57.4% QoQ and 32.2% YoY. Results were impacted by a negative mark-to-market valuation of S/ 14.9 million on its proprietary investment portfolio. Despite this, Assets Under Management (AUM) grew 8.9% YoY.
- Impairment Losses: Impairment loss on loans increased 71.4% YoY to S/ 192.9 million, primarily due to higher requirements for credit cards and a base effect from a release of provisions for construction sector exposures in 2Q18.
Guidance, Outlook, and Risks
- Subsequent Event (IPO): On July 18, 2019, IFS announced an Initial Public Offering (IPO) of approximately 9 million common shares at US$46.00 per share. The offering included shares sold by IFS, Interbank, and the controlling shareholder (Intercorp Perú Ltd.). Trading began on the NYSE on July 19, 2019, under the ticker "IFS".
- Regulatory Capital: Interbank's regulatory capital ratio stood at 16.1% as of June 30, 2019, well above the minimum requirement of 11.6%. The Core Equity Tier 1 (CET1) ratio increased to 10.6% YoY.
- Tax Contingencies: Interbank faces a tax contingency of approximately S/ 393 million related to "interests in suspense" for fiscal years 2000-2006. Management believes there is sufficient technical support for their position and has not recorded a provision. Another contingency of S/ 53 million for the 2013 fiscal year is under appeal.
- Market Risks: Inteligo's results are sensitive to market volatility, as evidenced by the negative mark-to-market adjustments in 2Q19. The Group manages foreign exchange risk, with most foreign currency assets and liabilities denominated in US Dollars.
Investor Verification Checklist
- Adjusted Profitability: Verify the "normalized" profit growth by excluding the S/ 144.8 million one-time insurance reserve adjustment from 2Q18 to assess organic performance.
- Inteligo Volatility: Monitor the proprietary portfolio valuations at Inteligo, as mark-to-market fluctuations significantly impact quarterly earnings.
- Loan Quality: Review the trend in impairment losses, specifically the cost of risk for credit cards, which drove the 71.4% YoY increase in provisions.
- Capital Adequacy: Confirm Interbank's regulatory capital ratios remain above the 11.6% minimum requirement amidst loan growth.
- IPO Impact: Assess the dilution and ownership structure changes resulting from the July 2019 IPO, where the controlling shareholder's stake decreased from 74.32% to 70.62%.