Credicorp Ltd. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Performance: 2024 delivered record profitability of $5.5 billion and ROE of 16.5% (17.2% excluding Sartorius charges). Fourth quarter was robust with improved cost of risks, increased lending, and exceptional transaction volumes.
• Strategic Priorities:
  • Attracting and retaining top talent with a strong value proposition, resulting in 12-point employee NPS increase and being Peru's top employer brand for executives.
  • Accelerating digital transformation and innovation, enhancing AI and cybersecurity capabilities, with AI-driven initiatives increasing self-service interactions at BCP contact center by 40%.
  • Integrating sustainability into core strategy, with over 5.7 million people brought into the financial system since 2020 and $1.5 billion in sustainable financing allocated.
• Operational Highlights: Client satisfaction improved with 5% NPS increase; significant asset quality improvement led to more proactive lending, especially in retail.

Segment Performance

• BCP: Loans expanded 0.7% in average daily balances and 2.2% in quarter-end balances. NPL ratio dropped 60 basis points to 5.3%. NIM fell 9 basis points to 6.3%. Drove growth through digital channels like Yape and branch modernization.
• Yape: Reached profitability in 2024 with nearly 14 million active users. Transaction volume nearly doubled, paid assets with 1.8 million users, and became Peru's fifth-largest e-commerce player.
• MiBanco: Performance improved, ROE contribution rose to 17.3% in Q4. NPL ratio fell for a third consecutive quarter. NIM rose 30 basis points to 14.2%.
• Pacifico: Served over 6.5 million clients in 2024. NPS increased 2 percentage points. Insurance underwriting results rose 7.2%.
• Credicorp Capital: Recovered income, profit, and profitability driven by capital markets and wealth management, with growth in assets under management.

Guidance

• Peruvian Economy: Expected to grow around 3% in 2025, supported by historically high terms of trade, controlled inflation, and real wage recovery.
• Loans: Total loan book expected to grow ~3.5% in average daily balances (~6% in quarter-end), driven by retail banking at BCP and MiBanco.
• NIM: Expected between 6.2%-6.5%.
• Cost of Risk: Expected between 2%-2.4%, risk-adjusted NIM between 4.8%-5%.
• ROE: Expected around 17.5% in 2025, aiming for 18% by 2026 as disruptive initiatives generate positive ROE impact.

Risks

• Political Uncertainty: Upcoming Peruvian elections introduce uncertainty, especially as the electoral campaign intensifies toward year-end.
• Global Market Volatility: President Trump's policies may lead to increased market volatility due to heightened uncertainty.
• Sartorius Case: Exposure to Sartorius case with $259 million provision, though partial recovery of funds is expected, but ongoing monitoring is required.

Question and Answer

Q: On the political side, which political parties could be in the next election and impact on Credicorp?

A: Gianfranco Ferrari stated there are 30-40 candidates, too early to predict, and Alejandro Perez-Reyes mentioned no high impact expected early in the year.

Q: When to expect normalization of OpEx growth from disruptive initiatives and ROE normalization?

A: Gianfranco Ferrari expects ROE to reach 18% by 2026 as disruptive initiatives generate positive ROE impact.

Q: Confidence in restarting lending while maintaining asset quality?

A: Gianfranco Ferrari cited improved macro environment and better performance of new loan vintages; Cesar Rios mentioned change in loan composition with lower cost of risk for new vintages.

Q: Details on Sartorius provisioning and base case?

A: Alejandro Perez-Reyes stated $259 million provision, impact at Atlantic Security Holding, with partial recovery expected.

Q: Efficiency ratio guidance and investment in innovation?

A: Alejandro Perez-Reyes mentioned still investing in innovation and core business, aiming to keep efficiency ratio in range, with Yape profitable but high cost to income initially.

Q: Bond refinancing plans for BCP and Credicorp?

A: Alejandro Perez-Reyes said Credicorp considers letting bond mature, BCP assessing capital and market conditions for bond management.

Q: Dividends and capital distribution?

A: Alejandro Perez-Reyes stated dividends paid from excess capital not needed for business growth, aiming for growing dividend in March.

Q: Loan growth guidance vs industry and Sartorius provision coverage?

A: Alejandro Perez-Reyes explained 3.5% average daily balance loan growth is ~6% quarter-end, and Sartorius provision covers maximum exposure with expected partial recovery.

Q: Expenses and investment in Chile for Tempo?

A: Alejandro Perez-Reyes said no plan to expense differently, and same amount invested in Tempo, with need for additional equity investment and funding to ramp up operations.