Credicorp .(BAP) - 2023 Q3 - Quarterly Report

Financial Performance - Net income attributable to Credicorp declined 6.4% YoY to S/1,238 million, resulting in a ROE of 16.2% compared to 19.8% in 3Q22[6] - In Q3 2023, net earnings attributable to Credicorp totaled S/1,238 million, reflecting a decrease of 11.6% QoQ and 6.4% YoY[25] - Net profit for 3Q23 was S/1,354,764, a decrease of 11.6% QoQ and 6.7% YoY, while net profit attributable to Credicorp was S/1,322,909, also down by 11.6% QoQ and 6.4% YoY[34] - The company reported a net gain from associates increased by 35.3% QoQ and 24.2% YoY, reaching S/32,056 in 3Q23[104] - The net gain from foreign exchange transactions was S/262,167, which is a 1.1% decrease quarter-over-quarter and a 20.4% decrease year-over-year[198] Loan and Deposit Trends - Total loans increased by 1.6% QoQ to S/151,392,202 but decreased by 4.1% YoY, while deposits and obligations rose by 3.5% QoQ to S/152,792,014, reflecting a 2.8% YoY decline[34] - Total deposits increased 3.5% QoQ, primarily driven by time and demand deposits, while YoY deposits declined 2.8% due to a shift towards time deposits in a high-interest rate environment[6] - The Loan/Deposit (L/D) ratio dropped by 150 bps at BCP and 890 bps at Mibanco QoQ, reflecting an increase in total deposits[66] - Total structural loans increased to S/ 111,857 million in September 2023, reflecting a 1.0% QoQ growth and a 0.6% YoY increase[45] - The dollarization level of total deposits decreased by 30 bps QoQ to 48.9%, remaining below the average of the last two years[64] Interest Income and Margin - Net Interest Income (NII) grew 1.6% QoQ to S/3,254 million, with a YoY increase of 12.9%, supported by a shift towards retail loans[16] - The net interest margin for 3Q23 was 5.33%, down 11 bps QoQ and 78 bps YoY, while the risk-adjusted net interest margin was 4.51%, a decrease of 11 bps QoQ and 6 bps YoY[34] - The net interest margin (NIM) stood at 6.11% at the end of 3Q23, reflecting a growth of 9 bps QoQ[75] - Interest income from loans reached S/ 4,819,101, a 20.8% increase compared to Q3 2022[185] - The yield on IEAs increased to 8.73%, up 29 bps from the previous quarter, driven by a higher proportion of investments in government securities[76] Provisions and Risk Management - Provisions increased 13.8% QoQ and 85.0% YoY, with a cost of risk rising to 2.5%[6] - The Structural NPL ratio increased 29 bps QoQ and 64 bps YoY to 5.6%, influenced by high inflation and interest rates affecting client payment performance[6] - The allowance for loan losses increased by 1.5% QoQ to S/7,942.82 million, reflecting a proactive approach to managing credit risk[52] - The structural coverage ratio of NPLs decreased to 101.4%, down 626 bps QoQ, indicating a reduction in the buffer against potential loan losses[52] - The most affected segments for provisions included Consumer Loans and Credit Cards, particularly among vulnerable sub-segments, with a notable uptick in provisions for Mortgage loans due to higher expected losses[91] Operational Efficiency - The efficiency ratio improved by 160 bps in 9M23 to 45.1%, reflecting operating income growth at BCP and Pacífico[8] - The efficiency ratio for 3Q23 was 45.5%, an increase of 170 bps QoQ, suggesting a rise in operating efficiency[34] - Operating expenses rose 11.0% YTD, primarily driven by BCP's core businesses and disruptive initiatives at Credicorp[24] - The efficiency ratio improved to 39.2% in 3Q23, up from 37.3% in 2Q23, driven by growth in core income at BCP and an increase in the Insurance Underwriting Result at Pacifico[120] - Administrative and general expenses grew by 13.8% YTD, primarily due to increased IT expenses and marketing efforts[115] Economic Environment - Peru's economic performance is weaker than expected, leading to a revised outlook for the business and increased provisions for expected losses[32] - The Peruvian economy contracted by 0.9% YoY in 3Q23, marking its third consecutive quarterly decline, with non-primary sectors falling by 1.6%[133] - Annual inflation rate in Peru is expected to close at 4.0% by the end of 2023, down from 8.5% in 2022[130] - The "El Niño Costero" phenomenon reached a "Strong" intensity in 3Q23, significantly impacting the fishing, agricultural, and primary manufacturing sectors, which reported their worst performance in over two decades[134] - The expectation of the "El Niño Costero" continuing until 1Q24 has led to increased caution among agents regarding private consumption and investment decisions[134] Technology and Innovation - Yape, the leading payment network in Peru, is on track to reach cashflow break-even in 2024, with revenue per monthly active user increasing 26% QoQ to S/2.9[8] - Digital monetary transactions increased to 76% in 3Q23, with a transactional cost per unit of 0.07, reflecting improved efficiency in operations[37] - The mobile banking rating for iOS remained stable at 4.7, while the Android rating decreased to 4.2, indicating a need for improvement in user experience on Android platforms[37] - Yape reached 13.4 million users in Q3 2023, with 9.8 million (73%) being monthly active users (MAU) who made transactions[39] - The company launched a new exchange rate functionality in September 2023, with over 12,000 transactions completed by quarter-end[39] Insurance Performance - The Insurance Underwriting Result increased by 11.6% QoQ and 8.9% YoY, mainly due to improvements in the Life Business[20] - Year-to-date, the insurance underwriting result rose by 31.1%, driven by a 10.3% increase in income from insurance services[107] - The insurance underwriting result for Life increased by 15.1% QoQ, driven by improved income from insurance services[107] - Income from insurance services decreased by 0.9% QoQ, attributed to reduced sales in Individual Life and lower premium levels in Pensions[112] - Loss on reinsurance increased by 23.1% YoY, indicating higher recoveries on reinsurance claims[112]