Credicorp .(US:BAP)2020-08-09 02:04Financial Data and Key Indicators Changes - Credicorp reported a loss of PEN 620 million in Q2 2020, resulting in a return on equity of -10.7% [20] - The loan portfolio grew by 21.4% year-over-year, primarily driven by government relief programs, while the structural loan portfolio grew by 7.7% [38] - The cost of risk was significantly impacted, sitting at 7.76% for the quarter, with provisions increasing by 79.3% quarter-over-quarter and 510.7% year-over-year [25][40] Business Line Data and Key Indicators Changes - BCP's loan portfolio grew by 18.6% year-over-year, with SME loans increasing by 30.6%, largely due to Reactiva loans [21] - Mibanco's loan growth was attributed to government relief programs, with a 7.9% year-over-year increase in average daily balances [29] - The insurance and pensions business saw improved net income year-over-year, driven by a rise in property and casualty results [35] Market Data and Key Indicators Changes - The Peruvian economy experienced a severe contraction, with GDP expected to decline between 11% and 15% in 2020, but is projected to rebound by 6% to 10% in 2021 [8][9] - Household consumption has recovered to 77% of pre-pandemic levels, indicating signs of economic reactivation [7] - The financial system is highly liquid, with total loans in the private sector growing around 13% year-over-year, supported by the Reactiva Peru program [12] Company Strategy and Development Direction - The company is focused on digital transformation, with a significant increase in digital clients and transactions, aiming to enhance customer experience and operational efficiency [16][17] - Credicorp is committed to maintaining a solid financial condition while supporting stakeholders, including providing medical coverage for employees and financial support for clients [12][13] - The company plans to continue investing in digital capabilities and optimizing operations to adapt to the changing environment [42][47] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about economic recovery, noting that the worst appears to be behind for GDP figures [8] - The company anticipates lower levels of year-over-year contraction in the coming months, with expectations for a gradual recovery in the economy [9] - Forward-looking provisions are expected to decrease in the second half of 2020 compared to the first half, reflecting improved portfolio performance [48] Other Important Information - Credicorp's common equity Tier 1 levels remain above internal targets, indicating a strong capital base [44] - The company issued $500 million in senior notes as a conservative measure to manage liquidity during the COVID-19 situation [45] - The efficiency ratio deteriorated year-over-year, primarily due to decreased operating income, but cost-saving measures are being implemented [42] Q&A Session Summary Question: Provision charges normalization expectations - Management expects lower provisions in the second half of the year compared to the first half, but not as favorable as the last half of 2019 [50][52] Question: Risk exposure in the wholesale loan portfolio - Management does not anticipate significant provision charges from the wholesale loan portfolio, citing positive payment trends [53][54] Question: Political and regulatory outlook - Management noted ongoing legislative initiatives regarding interest rates and support for debtors, with a stable cabinet structure [55][56] Question: NIM and NII recovery - Management indicated that the impairment charge is a one-off event and that NII may stabilize as loan payments resume [58][59] Question: Risk profile of renegotiated loans - Management reported active restructuring of loans, with both collateralized and non-collateralized loans performing better than expected [63][65] Question: IT investment plans - Management confirmed continued investment in digital channels to achieve long-term efficiencies despite short-term impacts on traditional fee income [66][67] Question: Long-term ROE expectations - Management acknowledged that ROEs may remain lower for a while due to the impact of Reactiva loans, but they are working towards efficiency improvements [68][69]