Credicorp Ltd. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Macro Environment: Peru's macro environment is improving with terms of trade historically high, inflation below 2%, real wages recovering, and GDP expected to grow 3.2% in 2025. Domestic demand is growing around 4.5%.
• Q2 Performance: Credicorp delivered a solid quarter with an ROE of 20.7%, supported by strong contributions from core businesses and innovation portfolio. Credit dynamics improved, risk-adjusted NIM hit a record 5.4%, and efficiency ratio was 44.2%.
• Strategic Initiatives: Focus on digital transformation, integrating AI across operations for improved customer experience, operational efficiency, and strategic decision-making. Yape continues to scale, serving nearly 15 million monthly active users, and plans for Tenpo, a digital bank, are underway.
• SUNAT Situation: Credicorp paid approximately PEN 1.6 billion in alleged and paid income tax and associated interest to SUNAT, but maintains confidence in a favorable legal resolution and will defend its position through appropriate channels.

Segment Performance

• Universal Banking: Delivered strong results with an ROE of 20.7%, supported by solid operating performance and disciplined risk management.
• Insurance & Pensions: ROE stood at 21.1%, with strong underwriting results in both P&C and Life businesses. Insurance underwriting results rose 27% this quarter, driven by lower claims in certain segments.
• Microfinance: Mibanco's profitability was 16.3% this quarter, supported by a rebound in loan disbursements, strengthened credit risk management, and effective interest rate strategies. Loans grew 2.1% quarter-over-quarter, NPL ratio fell to 6.1%, NIM reached 14.4%. Mibanco Colombia also showed improved results with 11.1% profitability.
• Investment Management and Advisory: ROE was 15.5%, resilient but net income decreased 20% year-over-year due to the absence of one-off income from a discontinued business, though treasury performance and lower tax expenses partially offset this.
• BCP: Registered an ROE of 30.9%, driven by resilient margins, diversification of income, and low cost of risk. Loans measured in quarter-end balances rose 1.4% or 2.5% in FX-neutral terms, mainly from Retail Banking.
• Yape: Continues to lead Peru's digital financial services landscape with nearly 15 million monthly active users. Revenue doubled year-over-year to represent 5.5% of Credicorp's risk-adjusted revenue, with lending emerging as the fastest-growing segment, serving 3 million users and accounting for 18% of total revenue.

Guidance

• GDP Growth: Expect GDP growth to remain around 3%.
• Loan Growth: Expect loan book to grow ~6.5% year-over-year in end-of-period balances, accelerating in the second half driven by Retail Banking at BCP and Mibanco.
• NIM: Expect NIM to be in the upper end of the guidance range of 6.2% to 6.5%.
• Cost of Risk: Updated guidance to 1.8% to 2.2% reflecting lower-than-anticipated provisioning in the first half.
• ROE: Increased full-year ROE guidance to around 19%, with a longer-term sustainable ROE range revised upward to ~19.5% driven by better loan mix, risk-adjusted NIM, and fee income growth.
• Efficiency Ratio: Maintains guidance range for 2025, with fee income expected to grow in the low double digits.

Risks

• Regulatory Uncertainty: Ongoing legal proceedings with SUNAT, which could take 1 to 3 years in tax court or extend by an additional 5 years through the judiciary.
• Global Economic Uncertainty: Persistent global uncertainty, including President Trump's announcements, which contribute to unpredictability in the external environment.
• SUNAT Tax Issue: Payment of approximately PEN 1.6 billion to SUNAT impacts cash flow at Credicorp level, affecting potential extraordinary dividends.

Question and Answer

Q: Brian Flores asked about cost of risk improvement and long-term vision on physical branch network.

A: Cesar Rios explained that the low cost of risk in the first half was due to risk appetite measures, and origination of higher-yielding portfolios will change the mix. Gianfranco Ferrari mentioned a reduction in BCP's branch network, with branches now serving an educational and commercial role.

Q: Lindsey Shema inquired about long-term cost of risk trend and loan growth guidance.

A: Cesar Rios stated that cost of risk is expected to increase as higher-risk, higher-yield portfolios are originated, but with improved profitability. Alejandro Perez-Reyes discussed loan growth expectations driven by a strong economy, improved consumer situation, and Credicorp's risk and origination capabilities.

Q: Renato Meloni asked about loan growth guidance divergence and drivers of higher long-term ROE.

A: Alejandro Perez-Reyes attributed loan growth to a strong economy and Credicorp's capabilities, with retail and consumer lending driving growth. Higher long-term ROE is driven by a better loan mix, risk-adjusted NIM, and fee income growth from various businesses.

Q: Carlos Gomez-Lopez asked about bond exchange gain tax status and Yape's contribution.

A: Alejandro Perez-Reyes said the gain is before tax. Francesca Raffo mentioned Yape's goal to be a major contributor to revenue, with lending in retail and SME segments being key drivers.

Q: Yuri Fernandes inquired about low-cost deposits and dividends.

A: Gianfranco Ferrari noted seasonal fluctuations in low-cost deposits, with year-over-year growth strong, and digital wallets like Yape driving reduction in cash transactions. Alejandro Perez-Reyes stated no extraordinary dividends expected this year due to cash used to pay SUNAT claim.