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, 2022
Filing Date: March 17, 2023
Auditor: Tanaka, Valdivia & Asociados (Ernst & Young member firm)
Context: IFS is a holding company incorporated in Panama, with principal operations in Peru through subsidiaries including Interbank (banking), Interseguro (insurance), Inteligo (investment management), and Izipay (payments). The financial statements were approved by the Board of Directors on March 17, 2023, pending shareholder approval.
Key Financial Metrics (2022 vs. 2021)
| Metric (S/ in thousands) | 2022 | 2021 |
|---|---|---|
| Net Interest Income | 4,209,204 | 3,547,688 |
| Total Operating Income (Net of Impairment) | 5,045,733 | 4,926,459 |
| Net Profit for the Year | 1,670,657 | 1,800,179 |
| Net Profit Attributable to Shareholders | 1,660,581 | 1,790,155 |
| Earnings Per Share (Basic & Diluted) | S/ 14.39 | S/ 15.51 |
| Total Assets | 87,482,632 | 89,953,909 |
| Total Liabilities | 77,436,681 | 80,398,547 |
| Total Equity | 10,045,951 | 9,555,362 |
| Cash and Cash Equivalents (End of Year) | 12,707,776 | 16,416,311 |
| Net Cash Flow from Operating Activities | (1,012,077) | 1,345,804 |
Material Changes vs. Prior Period
- Profitability Decline: Net profit attributable to shareholders decreased by approximately 7.3% (S/129.6 million) compared to 2021. This was primarily driven by a significant increase in impairment losses on loans and losses on financial assets at fair value.
- Impairment Losses: Impairment loss on loans increased to S/830.6 million in 2022 from S/381.6 million in 2021. Management applied expert judgment to reflect political and economic uncertainty in Peru, leading to higher provisions.
- Investment Losses: The Group recorded a net loss of S/262.1 million on financial assets at fair value through profit or loss, compared to a gain of S/24.8 million in 2021. Additionally, there was a loss of S/12.8 million on impairment of financial investments.
- Acquisition of Izipay: In April 2022, IFS acquired the remaining 50% of Izipay (payments processor) for approximately S/312.6 million. This resulted in a fair value adjustment gain of S/222.5 million on the previously held interest, recorded in "Other income."
- Operating Cash Flow Reversal: Operating cash flow turned negative (S/1.0 billion outflow) in 2022, compared to a positive inflow of S/1.3 billion in 2021. This was largely due to a net increase in the loan portfolio (S/3.2 billion) and a decrease in deposits.
- Dividends: Dividends paid increased to S/751.5 million in 2022 from S/633.9 million in 2021.
Guidance, Outlook, Risks, and Contingencies
- Political and Social Context: The filing highlights significant political instability in Peru following the December 2022 dissolution of Congress and subsequent protests. The Group is monitoring the implications of the state of emergency declared in certain regions.
- IFRS 17 Adoption: The Group expects to adopt IFRS 17 "Insurance Contracts" for periods beginning January 1, 2023. Preliminary estimates suggest this may result in a reduction of net equity between 8% and 10%, recorded in retained earnings as of January 1, 2022.
- Interest Rate Benchmark Reform: The Group is transitioning from LIBOR to SOFR. As of December 31, 2022, exposures to LIBOR are not significant (less than 3% of assets/liabilities), and fallback clauses are being incorporated into contracts.
- Tax Contingencies:
- Interbank: Facing ongoing tax audits and litigation regarding "interest in suspense" (approx. S/290 million liability claimed by SUNAT). Management believes no provision is necessary based on favorable court rulings.
- Interseguro: Subject to audits for years 2017 and 2020. Management does not expect significant additional tax liabilities.
- Key Audit Matters: The auditor highlighted risks related to the IT environment, the estimation of expected credit losses (ECL) for the loan portfolio, and the valuation of technical reserves for annuities.
Important Facts for Investor Verification
- Loan Portfolio Quality: Verify the sustainability of the increased loan impairment provisions (S/830.6M) in the context of Peru's economic recovery and political stability.
- IFRS 17 Impact: Monitor the actual impact of IFRS 17 adoption on 2023 financial statements, specifically the projected 8-10% reduction in equity.
- Cash Flow Dynamics: Analyze the shift to negative operating cash flow driven by loan growth and deposit outflows, and its impact on liquidity management.
- Investment Valuation: Review the volatility in fair value measurements for financial assets, which swung from a gain in 2021 to a significant loss in 2022.
- Tax Litigation: Track the resolution of the "interest in suspense" tax dispute with SUNAT, which represents a material contingent liability.