Credicorp .(BAP) - 2023 Q4 - Annual Report

Credicorp Ltd. 4Q23 and FY23 Earnings Release Operating and Financial Highlights Credicorp maintained resilient profitability in 4Q23 and FY23, with a 15.8% FY23 ROE, despite a S/250 million El Niño provision, while Yape achieved strong user growth and is on track for 2024 breakeven 4Q23 and FY23 Key Financial Metrics | Metric | 4Q23 | FY23 | 3Q23 | 4Q22 | FY22 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Income (Attributable, S/ millions) | 841.8 | 4,866 | 1,238.2 | 1,010.2 | 4,648 | | Return on Equity (ROE) | 10.6% | 15.8% | 16.2% | 14.4% | 16.8% | | Net Interest Margin (NIM) | 6.21% | 6.01% | 6.11% | 5.75% | 5.09% | | Risk-Adjusted NIM | 4.10% | 4.38% | 4.45% | 4.45% | 4.29% | | Structural NPL Ratio | 5.6% | - | 5.53% (implied) | - | - | | Structural NPL Coverage | 102.4% | - | - | - | - | | Cost of Risk | 3.2% | 2.5% | 2.5% | 2.0% | 1.2% | - A significant provision of approximately S/250 million was set aside for the El Niño Phenomenon (FEN) in 4Q23, impacting profitability metrics for the quarter[5][8] - Yape, the company's digital wallet, reached 11 million monthly active users (MAU) with revenue per MAU increasing by 34.5% QoQ. It is expected to achieve cashflow break-even in 2024[10] - Capital adequacy remains strong, with BCP's IFRS CET1 Ratio at 13.2% and Mibanco's at 18.4%, both exceeding their internal targets of 11% and 15% respectively[10] Senior Management Quotes Senior management expressed confidence in Credicorp's resilience, highlighting portfolio diversity, digital capabilities, and prudent risk management, while anticipating improved macroeconomic conditions and Yape's 2024 breakeven - CEO's Outlook: Anticipates improved macroeconomic conditions in 2024, driven by a waning El Niño, lower interest rates, and controlled inflation. Yape is expected to reach breakeven in 2024[12] - CFO's Performance Summary: Acknowledged that 4Q23 results were impacted by provisions for El Niño and a goodwill impairment for Mibanco Colombia. However, favorable balance sheet dynamics led to a higher NIM, driven by retail loan growth and an increase in low-cost deposits[13] Summary of Financial Performance and Outlook Credicorp's FY23 net income grew 4.7% to S/4,866 million with a 15.8% ROE, driven by Universal Banking and Insurance, and projects a 17.0% ROE for 2024 - 2024 Outlook: Credicorp expects to close 2024 with an ROE of around 17.0%, driven by a resilient NIM, a reduction in the cost of risk, and economic reactivation boosting loan and fee growth[39] 4Q23 Net Income Contribution by Subsidiary (S/ millions) | Subsidiary | Net Income Contribution | ROE | | :--- | :--- | :--- | | BCP (stand-alone) | 811.4 | 17.9% | | Grupo Pacifico | 134.5 | 43.8% (ex-goodwill) | | Mibanco | 52.7 | 7.3% | | Credicorp Capital | 28.0 | 14.0% | | Prima AFP | 40.4 | 33.7% | | BCP Bolivia | 19.7 | 8.8% | | ASB Bank Corp | 21.6 | 11.9% | | Mibanco Colombia | (64.1) | - | | Others & Eliminations | (282.5) | - | - Segment Performance FY23: - Universal Banking (BCP): Increased profitability driven by higher Net Interest Income - Microfinance (Mibanco): Decreased profitability due to a substantial increase in provisions - Insurance (Grupo Pacífico): Extraordinarily high results due to positive dynamics in the Life business - Investment Management & Advisory: Benefitted from improved market performance and cost control[34][36][38] Financial Overview Credicorp Ltd. Financials Credicorp's 4Q23 net income was S/841.8 million (10.6% ROE), while FY23 net income grew 4.7% to S/4,865.5 million (15.8% ROE), with improved efficiency Credicorp Ltd. Financial Summary (S/ thousands) | Metric | 4Q23 | 3Q23 | 4Q22 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net interest income (S/ thousands) | 3,347,684 | 3,254,043 | 3,140,404 | 12,937,972 | 11,091,618 | | Net profit attributable (S/ thousands) | 841,827 | 1,238,173 | 1,010,155 | 4,865,540 | 4,647,818 | | Total loans (S/ thousands) | 144,976,051 | 145,129,260 | 148,626,374 | 144,976,051 | 148,626,374 | | Total deposits (S/ thousands) | 147,704,994 | 148,471,535 | 147,020,787 | 147,704,994 | 147,020,787 | | Net equity (S/ thousands) | 32,460,004 | 31,267,592 | 29,003,644 | 32,460,004 | 29,003,644 | | ROE | 10.6% | 16.2% | 14.4% | 15.8% | 16.8% | | NPL ratio | 5.9% | 6.0% | 5.4% | 5.9% | 5.4% | | Cost of risk | 3.2% | 2.5% | 2.0% | 2.5% | 1.2% | | Efficiency ratio | 49.0% | 46.3% | 49.5% | 46.1% | 47.5% | Credicorp's Strategy Update Disruptive Initiatives: Yape Yape achieved significant user and transaction growth in 2023, reaching 10.7 million MAU and over 1 billion transactions, and is on track for 2024 breakeven Yape Key Performance Indicators | Metric | 4Q23 | 3Q23 | 4Q22 | | :--- | :--- | :--- | :--- | | Users (millions) | 14.2 | 13.4 | 11.9 | | Monthly Active Users (MAU, millions) | 10.7 | 9.8 | 7.9 | | Fee Income Generating MAU (millions) | 7.9 | 6.5 | 3.4 | | ** Monthly Transactions (millions)** | 378.3 | 285.8 | 162.5 | | TPV (S/ millions) | 137.8 | 90.7 | 66.2 | | Monthly Revenues / MAU (S/) | 3.9 | 2.9 | 1.8 | | Microloans Disbursements (thousands) | 290.5 | 219.8 | 105.7 | - Yape is on a clear path to profitability, with a target to reach breakeven in 2024. At the end of 2023, 73% of active users were engaged in transactions that generate income for Yape[43] Integrating Sustainability in Our Businesses Credicorp advanced its sustainability program in 4Q23, publishing its first TCFD report, significantly increasing green financing to US$585.8 million, and expanding financial inclusion - Environmental: Published its first TCFD report. BCP approved 59 green transactions for US$585.8 million by 4Q23, nearly doubling the amount from 3Q23[45] - Social: Expanded financial inclusion, reaching 4.1 million people through BCP since 2020. Extensive financial education programs were conducted, training over 614,000 people through BCP's online courses and over 272,000 clients through Mibanco's digital guidance program in 2023[46][47] Analysis of 4Q23 Consolidated Results Loans and Portfolio Quality Structural loans grew 0.4% QoQ in 4Q23, driven by BCP Retail Banking, while the structural NPL ratio increased to 5.6% due to portfolio deterioration Structural Loans Growth (Average Daily Balances, S/ millions) | Metric | Dec 23 | Sep 23 | Dec 22 | QoQ Change | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Structural Loans | 138,348 | 137,745 | 137,934 | +0.4% | +0.3% | | BCP Stand-alone | 112,644 | 111,857 | 112,566 | +0.7% | +0.1% | | Mibanco | 13,102 | 13,642 | 13,121 | -4.0% | -0.1% | Structural Portfolio Quality (Quarter-end Balance) | Metric | 4Q23 | 3Q23 | 4Q22 | | :--- | :--- | :--- | :--- | | Structural NPLs (S/ thousands) | 7,966,571 | 7,832,083 | 6,889,993 | | Structural NPL Ratio | 5.6% | 5.6% | 5.0% | | Structural NPL Coverage Ratio | 102.4% | 101.4% | 112.2% | - Loan growth was led by BCP's Retail Banking, particularly SME-Pyme and Mortgages. This was offset by contractions in Corporate Banking due to low private investment and at Mibanco due to tighter credit policies[49][51] - The increase in the Structural NPL ratio was driven by deterioration in older SME-Pyme vintages, consumer/credit card loans overdue more than 120 days, and high-ticket loans at Mibanco[56][59] Deposits Credicorp's total deposits decreased slightly by 0.5% QoQ to S/147.7 billion, with a favorable shift to low-cost deposits, which now comprise 68.1% of the total base Deposit Composition (S/ thousands) | Deposit Type | Dec 23 | Sep 23 | Dec 22 | QoQ Change | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Deposits (S/ thousands) | 147,704,994 | 148,471,535 | 147,020,787 | -0.5% | +0.5% | | Demand deposits (S/ thousands) | 48,229,322 | 45,120,127 | 48,467,247 | +6.9% | -0.5% | | Saving deposits (S/ thousands) | 52,375,813 | 49,395,543 | 54,769,045 | +6.0% | -4.4% | | Time deposits (S/ thousands) | 42,484,664 | 49,213,763 | 38,897,010 | -13.7% | +9.2% | - There was a notable shift from higher-cost Time Deposits to lower-cost Demand and Savings deposits during 4Q23, improving the funding mix[66] - Low-cost deposits (Demand + Savings) recovered to represent 68.1% of the total deposit base, up 445 bps QoQ. Credicorp leads the Peruvian market with a 41.6% share in this category[68][84] Interest Earning Assets and Funding Interest Earning Assets grew 0.7% QoQ to S/224.3 billion, driven by investments, while total funding decreased 0.5% QoQ to S/184.7 billion due to reduced BCRP instruments IEA and Funding Composition (S/ thousands) | Category | Dec 23 | Sep 23 | QoQ Change | | :--- | :--- | :--- | :--- | | Total Interest Earning Assets (S/ thousands) | 224,336,482 | 222,667,631 | +0.7% | | - Total investments (S/ thousands) | 52,215,528 | 51,116,913 | +2.1% | | - Total loans (S/ thousands) | 144,976,051 | 145,129,260 | -0.1% | | Total Funding (S/ thousands) | 184,746,887 | 185,617,598 | -0.5% | | - Deposits and obligations (S/ thousands) | 147,704,994 | 148,471,535 | -0.5% | | - BCRP instruments (S/ thousands) | 7,461,674 | 9,616,150 | -22.4% | | - Due to banks and correspondents (S/ thousands) | 12,278,681 | 10,493,411 | +17.0% | Net Interest Income (NII) Net Interest Income rose 2.9% QoQ to S/3,348 million, expanding NIM to 6.21%, but Risk-Adjusted NIM fell to 4.10% due to El Niño provisions NII and Margin Performance | Metric | 4Q23 | 3Q23 | 4Q22 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Interest Income (S/ thousands) | 3,347,684 | 3,254,043 | 3,140,404 | 12,937,972 | 11,091,618 | | Net Interest Margin (NIM) | 6.21% | 6.11% | 5.75% | 6.01% | 5.09% | | Risk-Adjusted NIM | 4.10% | 4.45% | 4.45% | 4.38% | 4.29% | | Cost of Funds | 3.03% | 3.15% | 2.35% | 2.91% | 1.83% | - The QoQ increase in NIM was driven by a stable yield on interest-earning assets (8.72%) while the cost of funding fell by 12 bps to 3.03%, thanks to a recovery in low-cost deposits[90][92] - Risk-adjusted NIM dropped significantly QoQ to 4.10%, with provisions for the El Niño Phenomenon (FEN) accounting for a 45 bps negative impact[92] Provisions Provisions for loan losses significantly increased in 4Q23, primarily due to a S/250 million charge for El Niño, raising the Cost of Risk to 3.2% for the quarter - A key driver for the quarter's provisions was an additional charge of approximately S/250 million for expected losses from the El Niño Phenomenon (FEN)[97][98] Provisions and Cost of Risk (CoR) | Metric | 4Q23 | 3Q23 | 4Q22 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | | Provision for credit losses, net (S/ thousands) | (1,173,454) | (917,642) | (730,681) | (3,622,345) | (1,811,538) | | Cost of Risk (Total Portfolio) | 3.2% | 2.5% | 2.0% | 2.5% | 1.2% | | Structural Cost of Risk | 3.3% | 2.6% | 2.1% | 2.5% | 1.3% | - Excluding the FEN impact, the QoQ rise in provisions was driven by a base effect in Wholesale Banking and deterioration in SME-Pyme, partially offset by reversals in Mortgages and lower provisions at Mibanco[98] Other Income Other Core Income rose 2.1% QoQ, driven by FX gains and fees, while Other Non-Core Income grew 29.6% QoQ due to higher net gains on securities Other Income Breakdown (S/ thousands) | Category | 4Q23 | 3Q23 | 4Q22 | QoQ Change | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Other Core Income (S/ thousands) | 1,204,220 | 1,184,575 | 1,188,510 | +1.7% | +1.3% | | - Fee income (S/ thousands) | 986,173 | 975,955 | 895,295 | +1.0% | +10.2% | | - Net gain on FX (S/ thousands) | 218,047 | 208,620 | 293,215 | +4.5% | -25.6% | | Total Other Non-Core Income (S/ thousands) | 282,603 | 218,028 | 139,352 | +29.6% | +102.8% | | - Net gain on securities (S/ thousands) | 115,825 | 53,591 | 77,513 | +116.1% | +49.4% | - BCP Bolivia's adjusted fee structure for foreign transfers significantly impacted fee income and FX gains. Excluding this, core income still grew 2.1% QoQ[107] Insurance Underwriting Results Insurance Underwriting Result fell 13.2% QoQ to S/287.3 million due to higher claims in P&C and Life, despite a 43.9% full-year increase Insurance Underwriting Result by Segment (S/ millions) | Segment | 4Q23 | 3Q23 | 4Q22 | QoQ Change | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Underwriting Result | 287.3 | 330.9 | 136.8 | -13.2% | +110.0% | | P&C | 49.3 | 84.2 | 62.4 | -41.4% | -20.9% | | Life | 215.2 | 226.6 | 61.1 | -5.0% | +252.3% | | Crediseguros | 16.5 | 15.0 | 11.4 | +10.2% | +44.9% | - P&C Insurance: The QoQ decline was caused by a 26.4% increase in expenses for insurance services, stemming from higher claims in P&C Risks and Medical Assistance[117] - Life Insurance: The full-year result grew 75.0% YTD, driven by higher income from D&S (Disability & Survivorship) and Credit Life, coupled with lower claims compared to COVID-19 affected periods[118] Operating Expenses Operating expenses grew 9.8% in FY23 to S/8,781 million, primarily driven by disruptive initiatives and BCP's core business, with a 5.6% growth excluding disruption - Operating expenses rose 9.8% YTD. Growth was driven by disruptive initiatives (47.2% of total growth) and BCP's core business (35.4% of total growth)[123] - Expenses for disruptive initiatives (Yape, Tenpo, etc.) grew 66.6% YTD, representing 10.6% of total expenses in 2023[123] - Excluding expenses for disruption, YTD growth in operating expenses was 5.6%[120][121] Operating Efficiency Credicorp's efficiency ratio improved by 142 basis points to 46.1% in 2023, driven by operating income growth outpacing expense growth, primarily at BCP Efficiency Ratio by Subsidiary (YTD) | Subsidiary | 2023 | 2022 | Change (bps) | | :--- | :--- | :--- | :--- | | Credicorp | 46.1% | 47.5% | -142 | | BCP | 38.8% | 40.7% | -190 | | Mibanco Perú | 52.7% | 51.3% | +140 | | Pacífico | 26.5% | 34.3% | -780 | - The efficiency ratio improved to 46.1% in 2023 from 47.5% in 2022. This was due to operating income growing faster than operating expenses[30][125] Regulatory Capital Credicorp maintained a strong capital position in 4Q23, with BCP's CET1 ratio at 13.20% and Mibanco's at 18.37%, both exceeding internal targets IFRS CET1 Capital Ratios (4Q23) | Entity | IFRS CET1 Ratio | Internal Target | | :--- | :--- | :--- | | BCP Stand-alone | 13.20% | 11.0% | | Mibanco | 18.37% | 15.0% | - BCP's Global Capital ratio was 17.46%, well above the regulatory minimum of 12.59%[129] - Mibanco's Global Capital ratio was 20.56%, significantly higher than the regulatory minimum of 12.81%[131] Economic Outlook Peru's economy contracted 0.5% in 2023 but is projected to rebound with 2.5% GDP growth in 2024, as inflation decelerates and the BCRP eases rates Peru: Economic Forecast | Indicator | 2022 | 2023 (e) | 2024 (f) | | :--- | :--- | :--- | :--- | | Real GDP (% change) | 2.7% | (0.5)% | 2.5% | | Inflation, end of period | 8.5% | 3.2% | 2.2% | | Reference Rate, end of period | 7.5% | 6.8% | 4.8% | | Exchange rate, end of period | 3.8 | 3.7 | 3.8 | | Fiscal balance (% GDP) | (1.6)% | (2.8)% | (2.5)% | - GDP fell 0.5% in 2023, the worst performance since 1998 (excluding the pandemic), but is forecast to rebound to 2.5% growth in 2024[137][133] - Inflation slowed significantly from 8.5% at end-2022 to 3.2% at end-2023. The BCRP began a rate-cutting cycle, reducing the policy rate by a cumulative 75 bps in 4Q23[140] Appendix Implementation of IFRS 17 IFRS 17 implementation, effective January 2023, standardizes insurance accounting, reclassifying P&L items and requiring restatement of 2022 figures for comparability - IFRS 17 was implemented to standardize accounting for insurance contracts, improving transparency and comparability. The impact on Credicorp's net income is not material[5][150] - The new standard required the reformulation of key financial indicators, including Net Interest Margin (NIM), Funding Cost, and the Efficiency Ratio, to properly segregate insurance-related financial components. 2022 figures were restated for comparability[157][161][164] Loan Portfolio Quality Details This section provides detailed tables on loan portfolio quality, including Government Program loans with a 15.74% IOL ratio and 21.1% coverage, supporting the main analysis Government Program (GP) Loan Portfolio Quality (4Q23) | Metric | 4Q23 | 3Q23 | | :--- | :--- | :--- | | GP Total loans (S/ thousands) | 3,595,503 | 4,179,770 | | GP IOL ratio | 15.74% | 19.79% | | GP Coverage ratio of IOLs | 21.1% | 13.8% | - This section provides granular, supplementary data tables on loan portfolio quality, including breakdowns by business segment, currency, and for government programs, supporting the analysis in the main report[168] Regulatory Capital Details This section provides detailed calculations and breakdowns of regulatory capital for Credicorp, BCP, and Mibanco, including Tier 1, Tier 2, and RWAs - Provides detailed tables breaking down the calculation of regulatory capital, risk-weighted assets, and capital adequacy ratios for Credicorp, BCP, and Mibanco, supporting the main capital analysis[187][190][193] Financial Statements and Ratios by Business This section provides comprehensive financial statements and key indicators for Credicorp's main business segments, enabling deep-dive analysis of each subsidiary's performance - This appendix contains full financial statements and key performance indicators for each major business unit, including BCP, Mibanco, Grupo Pacifico, and Prima AFP, allowing for detailed segmental analysis[199][205][225]