Credicorp .(BAP)2024-03-03 16:00IT Environment and Financial Reporting - The Group's IT environment is critical for processing operations, accounting records, and preparing consolidated financial statements, with a focus on ensuring completeness and accuracy of accounting records to mitigate fraud or error risks[8] - The Group's financial reporting process is overseen by those responsible for corporate governance, with significant findings and internal control deficiencies communicated during the audit[15] - The Group's consolidated financial statements for 2023 were approved on February 29, 2024, and will be presented for final approval at the Annual General Meeting of Shareholders[36] - The consolidated financial statements are prepared in accordance with IFRS and presented in Soles (S/), with values rounded to thousands of soles[40] - The Group's consolidated financial statements include assets, liabilities, income, and expenses of Credicorp and its subsidiaries, with intra-group transactions eliminated[51] Expected Credit Loss Model and Loan Portfolio - The Group's expected credit loss model for loan portfolios is based on probability of default (PD), loss given default (LGD), and exposure at default (EAD), considering macroeconomic effects and forward-looking forecasts[9] - Significant assumptions in the expected credit loss model include debtor payment behavior, internal rating models, fair value of guarantees, and forward-looking economic scenarios[9] - The Group's loan portfolio provision for credit losses is a key audit matter due to the complexity of models, assumptions, and judgments, which could materially affect the provision calculation[10] - The Group applies a three-stage expected credit loss model for financial assets at amortized cost, debt instruments at fair value through other comprehensive income, and indirect loans[107] - Expected credit loss is calculated using probability of default (PD), loss given default (LGD), and exposure at default (EAD), considering macroeconomic effects[108] - Phase 1 financial assets recognize a reserve for losses equivalent to 12-month expected credit losses, while Phase 2 and Phase 3 cover the remaining life of the asset[107] - A significant increase in credit risk is defined as more than 30 days late, or a 50% increase in PD compared to origination date[110] - The Group uses three macroeconomic scenarios (base, optimistic, pessimistic) to estimate expected credit losses, with a three-year projection period[110] Insurance Contracts and Liabilities - The Group's life insurance contract liabilities are estimated using actuarial methods under IFRS 17, including discount rates, risk adjustments, and contractual service margins (CSM)[11] - Insurance liabilities are a key audit matter due to potential material effects from changes in assumptions and data, requiring complex actuarial models and specialist involvement[12] - The Group re-evaluates the Contractual Service Margin (CSM) each period based on experience and updates parameters to reflect changes in assumptions, including mortality, longevity, disability, expenses, and falls[12] - The Group's consolidated financial statements for 2022 were restated due to the initial implementation of IFRS 17, Insurance Contracts, with adjustments related to the retroactive effect of the implementation[13] - The Group adopted IFRS 17 "Insurance Contracts" starting January 1, 2023, which significantly impacts the recognition and measurement of insurance contracts[44] - The Group restated its 2022 financial statements under IFRS 17, resulting in a decrease in equity of S/210.8 million as of January 1, 2022, and an increase in equity of S/15.5 million as of December 31, 2022[51] - The Group uses the fair value transition methodology for insurance contracts, with a discount rate determined using the bottom-up approach[49] - The Group's insurance contracts are grouped and measured based on product portfolio, currency, cost, and year of issue[46] - The Group's insurance service result and underwriting result are presented separately in the income statement under IFRS 17[47] - The Group measures insurance contracts using the general model, which includes fulfillment cash flows, a risk adjustment for non-financial risk, and the contractual service margin (CSM)[79] - For insurance contracts with a duration of one year or less, the Group applies the Premium Allocation Approach (PAA) under the simplified model[79] - The Group recognizes income or expenses for variations in the book value of the Liability for Remaining Coverage (LRC) and the liability for claims incurred[81] - Changes in compliance cash flows related to future service, such as adjustments for claims experience and operating assumptions, are recorded against the CSM[81] - The Group recognizes a loss in the period's results for net outflows from onerous contract groups, with the loss component released based on systematic allocation of subsequent changes[83] Financial Performance and Key Metrics - Total assets increased to S/238,840,188,000 in 2023 from S/235,414,157,000 in 2022, reflecting a growth of 1.5%[18] - Net interest income rose to S/12,937,972,000 in 2023, up 16.6% from S/11,091,618,000 in 2022[19] - Provision for credit losses on loan portfolio, net of recoveries, increased to S/3,622,345,000 in 2023, up 99.9% from S/1,811,538,000 in 2022[19] - Net result after income tax grew to S/4,959,878,000 in 2023, a 4.2% increase from S/4,760,110,000 in 2022[21] - Equity attributable to Credicorp's equity holders increased to S/32,460,004,000 in 2023, up 11.9% from S/29,003,644,000 in 2022[18] - Total other income reached S/5,655,825,000 in 2023, a 11.6% increase from S/5,066,096,000 in 2022[19] - Net basic earnings per share attributable to Credicorp's equity holders rose to S/61.22 in 2023, up 4.8% from S/58.44 in 2022[20] - Loans decreased to S/144,976,051,000 in 2023, down 2.5% from S/148,626,374,000 in 2022[18] - Total liabilities remained stable at S/205,733,123,000 in 2023, a slight decrease from S/205,818,944,000 in 2022[18] - Technical result of insurance improved to S/1,211,100,000 in 2023, up 43.9% from S/841,448,000 in 2022[19] - Net profit for 2023 increased to S/4,959,878,000, up 4.2% from S/4,760,110,000 in 2022[23] - Total comprehensive income for 2023 reached S/5,541,476,000, a 36% increase from S/4,074,794,000 in 2022[23] - Net gain on investments at fair value through other comprehensive income was S/1,334,943,000 in 2023, compared to a loss of S/1,614,053,000 in 2022[23] - Exchange differences on translation of foreign operations resulted in a gain of S/73,464,000 in 2023, reversing a loss of S/302,083,000 in 2022[23] - Net movement in hedges of net investments in foreign businesses showed a gain of S/18,950,000 in 2023, compared to a gain of S/39,587,000 in 2022[23] - Total other comprehensive income for 2023 was S/581,598,000, a significant improvement from a loss of S/685,316,000 in 2022[23] - Credicorp's equity holders' share of total comprehensive income was S/5,437,495,000 in 2023, up 37% from S/3,967,497,000 in 2022[23] - Non-controlling interest in total comprehensive income was S/103,981,000 in 2023, slightly down from S/107,297,000 in 2022[23] - Net profit for the year 2021 was $3,584,582,000[26] - Total comprehensive income for 2021 was $1,954,586,000[26] - Dividend distribution in 2021 amounted to $346,994,000[26] - Net profit for the year 2022 increased to $4,647,818,000[26] - Total comprehensive income for 2022 was $3,967,497,000[26] - Dividend distribution in 2022 was $2,354,859,000[26] - Dividends paid to noncontrolling interest of subsidiaries in 2022 totaled $48,577,000[26] - Purchase of treasury stock in 2022 amounted to $83,605,000[26] - Share-based payment transactions in 2022 totaled $59,834,000[26] - Total equity as of December 31, 2022, was $29,595,213,000[26] - Net profit for the year 2023 increased to S/4,959,878,000, up from S/4,760,110,000 in 2022[30] - Provision for credit losses on loan portfolio rose to S/3,957,143,000 in 2023, compared to S/2,158,555,000 in 2022[30] - Total comprehensive income for 2023 reached S/5,541,476,000, including net profit and other comprehensive income[27] - Retained earnings as of December 31, 2023, stood at S/4,572,444,000, up from S/4,277,159,000 in 2022[27] - Dividends paid to noncontrolling interests of subsidiaries amounted to S/62,051,000 in 2023[27] - Depreciation and amortization expenses for 2023 totaled S/511,174,000, slightly higher than S/485,207,000 in 2022[30] - Net gain on securities in 2023 was S/425,144,000, a significant increase from S/5,468,000 in 2022[30] - Investments at fair value through other comprehensive income decreased by S/5,164,701,000 in 2023[30] - Total equity as of December 31, 2023, was S/33,107,065,000, up from S/29,595,213,000 in 2022[27] - Net cash flow from operating activities in 2023 was S/4,079,719, a significant increase from S/(1,151,422) in 2022[31] - Net cash flows from investing activities in 2023 were S/(1,255,064), compared to S/(1,094,965) in 2022[31] - Dividends paid in 2023 amounted to S/1,994,037, up from S/1,196,422 in 2022[31] - Cash and cash equivalents at the end of 2023 were S/33,920,614, down from S/34,120,962 at the end of 2022[33] - Interest received in 2023 was S/18,658,791, compared to S/14,717,523 in 2022[33] - Subordinated bonds as of December 31, 2023, were S/5,680,120, down from S/5,738,414 at the beginning of the year[35] - Lease liabilities as of December 31, 2023, were S/512,579, down from S/578,074 at the beginning of the year[35] - The Group rescheduled retail loans totaling S/692.6 million as of December 31, 2023, up from S/116.9 million in 2022[38] - The Group did not carry out significant acquisitions, incorporations, or mergers in 2023 and 2022[38] Financial Assets and Liabilities - The Group classifies financial assets into categories based on business model and contractual cash flow characteristics, including fair value through profit or loss, fair value through other comprehensive income, and amortized cost[93] - Financial assets at amortized cost are valued using the effective interest rate method, with interest income included in "Interest and similar income"[95] - Investments in debt instruments at fair value through other comprehensive income are measured at fair value, with unrealized gains/losses recorded in comprehensive income until sold[97] - Equity instruments designated at fair value through other comprehensive income are measured at fair value, with gains/losses recorded in comprehensive income and transferred to retained earnings upon sale[99] - Financial assets at fair value through profit or loss include debt instruments, equity instruments for trading, and derivatives, with changes recorded in "Net gain on securities"[99] - Financial liabilities are classified as measured at amortized cost, except for those at fair value through profit or loss, which include derivatives measured at fair value[102] - The Group uses the expected loss approach for impairment of financial assets, with losses recognized in the income statement for investments and credit loss provisions for loans[97] - Financial assets are reclassified only when the business model changes, with gains/losses recognized in profit or loss or other comprehensive income depending on the reclassification[90] - The Group uses the Matching Adjustment methodology to determine discount rates for insurance contracts, adding a spread to the risk-free rate based on asset-liability IRR differences[88] - Insurance contract liabilities are measured using discount rates reflecting the time value of money, with separate rates for market valuation and locked-in rates[86] - The Group reassesses the Contractual Service Margin (CSM) each period, adjusting for experience and evaluating hypotheses like mortality, longevity, and disability[86] Investments and Securities - Total investments at fair value through other comprehensive income increased to S/37,043.9 million in 2023 from S/30,786.2 million in 2022, reflecting growth in corporate bonds and equity instruments[166] - Corporate bonds accounted for S/13,176.8 million in 2023, with unrealized profits of S/177.4 million, compared to S/12,780.7 million in 2022[166] - Government bonds and securitization instruments increased to S/10,364.9 million and S/677.9 million respectively in 2023, up from S/8,528.7 million and S/666.9 million in 2022[166] - Equity instruments designated at initial recognition grew to S/36,235.6 million in 2023, with unrealized profits of S/399.2 million, compared to S/30,052.9 million in 2022[166] - The company's investment funds in Peru, the USA, Colombia, and other countries represented 54.3%, 28.1%, 10.0%, and 7.6% respectively in 2023, showing a shift from 2022 allocations[161] - Mutual funds from Luxembourg, Bolivia, Ireland, and other countries accounted for 52.0%, 35.5%, 6.7%, and 5.8% of the total in 2023, with Luxembourg's share decreasing from 64.2% in 2022[161] - The company held 520 certificates of deposit worth US$51.9 million (S/192.7 million) as of December 31, 2023, accruing interest at an effective annual rate of 5.68%[163] - Repurchase agreements for government bonds and BCRP certificates of deposit reached an estimated fair value of S/4,269.9 million in 2023, up from S/1,108.1 million in 2022[169] - The Group entered into IRS agreements for a nominal amount of S/778.9 million in 2023, down from S/926.5 million in 2022, to hedge fixed-rate bonds in US dollars[169] - Corporate bonds issued by companies in the United States of America, Peru, Colombia, and other countries represent 40.2%, 34.2%, 4.3%, and 21.3% of the total as of December 31, 2023, compared to 39.2%, 37.4%, 4.4%, and 19.0% respectively as of December 31, 2022[171] - The Group maintains Cross Currency Swaps (CCS) for nominal amounts of S/126.6 million as of December 31, 2023, down from S/131.4 million as of December 31, 2022[171] - The Group holds 111,613 BCRP certificates of deposit as of December 31, 2023, up from 70,253 as of December 31, 2022[171] - Peruvian Government Bonds increased to S/8,260,261 thousand in 2023 from S/6,126,564 thousand in 2022, while United States Government Bonds decreased to S/1,740,125 thousand from S/2,103,713 thousand[172] - The balance of securitization instruments increased to S/677,885 thousand in 2023 from S/666,924 thousand in 2022, with Inmuebles Panamericana S.A. contributing S/153,034 thousand[174] - The balance of certificates in other currencies decreased to S/462.6 million in 2023 from S/573.2 million in 2022[174] - Peruvian Government Bonds at amortized cost decreased to S/9,323,970 thousand in 2023 from S/9,573,026 thousand in 2022, with a fair value of S/8,860,624 thousand[176] - The expected loss of investments at amortized cost decreased to S/2.3 million in 2023 from S/3.9 million in 2022[176] Loans and Credit Portfolio - Direct loans decreased to S/137,350,087 thousand in 2023 from S/141,244,490 thousand in 2022, with credit cards increasing to S/7,112,268 thousand from S/6,187,910 thousand[181] - The gross credit balance decreased to S/163,947,270 thousand in 2023 from S/168,818,002 thousand in 2022, with direct loans accounting for S/143,483,254 thousand[184] - Commercial loans balance as of December 31, 2023, decreased to S/83,928,787 from S/86,190,457 in 2022, a decline of 2.6%[185] - Residential mortgage loans balance increased to S/19,150,069 in 2023 from S/18,640,432 in 202