Credicorp Ltd. (BAP) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call reflects strong financial performance, including record high net income and risk-adjusted NIM. While there are concerns about cost of risk and political uncertainties, optimistic guidance on loan growth, dividends, and strategic initiatives like Yape suggest positive momentum. The Q&A indicates analysts' confidence in management's ability to navigate challenges, supporting a positive stock price outlook.

Key Financial Performance

Return on Equity (ROE) 19.6%, an increase from the previous year, driven by robust performance across core businesses, consistent delivery on strategic priorities, and contributions from the innovation portfolio.

FX-neutral loan growth 7% year-over-year, supported by healthy origination pipelines, particularly in Retail Banking and Microfinance.

Risk-adjusted Net Interest Margin (NIM) 5.5% year-to-date, supported by better asset quality and a low-cost funding base.

Share of demand and saving accounts 39.5%, reflecting the success of the digital engagement strategy.

Efficiency ratio 46.4%, within the expected range, due to digital capabilities and disciplined cost management.

Net interest income Increased by 2.7% year-over-year, driven by a contraction in interest expenses and an expansion in low-cost deposits.

Fee income Increased by 8.2% year-over-year, boosted by transactional activity at Yape and BCP.

Gains on FX transactions Increased by 23.4% year-over-year, driven by higher volumes at BCP.

Insurance underwriting result Grew by 33.1% year-over-year, reflecting stronger results in the Life business.

Loan balances Grew by 1.5% year-over-year, negatively impacted by Bolivia's balance sheet revaluation and depreciation in BCP's dollar portfolio. Excluding these effects, FX-neutral loan growth was 7%.

Non-performing loan (NPL) ratio 4.8%, showing improvement due to enhanced origination standards and stronger collection execution.

Cost of risk 1.7%, a decrease attributed to fortified risk management and improvements in payment performance.

Yape's contribution to risk-adjusted revenue 6.6%, with revenue per monthly active user at PEN 7.4 and expenses per mile at PEN 5.

Mibanco's profitability 18.8%, supported by a rebound in loan disbursements and strengthened credit risk management.

Grupo Pacifico's ROE 20.9%, driven by strong operational dynamics in both P&C and Life businesses.

Investment Management and Advisory business ROE 17.4%, reflecting improved capital markets activity and growth in Wealth and Asset Management.

Core income Expanded by 5.1% year-over-year, with net interest income up 2.7% and other core income up 11.9%.

Risk-adjusted NIM Increased by 50 basis points year-over-year to a record high of 5.5%.

Efficiency ratio (first 9 months) 45.7%, within guidance, with operating expenses growing by 12.8%.

Net income Reached a record high for the first 9 months, even when excluding extraordinary gains from the Banmedica transaction.

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Operating Highlights

Digital Ecosystem Expansion: Platforms like Yape, Tenpo, and Warda are generating new revenue streams across payments, credit, and savings.

Innovation Portfolio Contribution: Innovation portfolio contributed 7.4% of risk-adjusted revenue, on track for 10% target by 2026.

Geographic Diversification: Credicorp operates across Peru, Chile, Colombia, and Bolivia, leveraging diverse markets to mitigate risks.

Economic Resilience in Peru: Despite political instability, Peru's GDP growth is projected at 3.4% for 2025, supported by favorable export prices and domestic demand.

Loan Growth: FX-neutral loan growth accelerated to 7% year-over-year, driven by Retail Banking and Microfinance.

Efficiency Ratio: Efficiency ratio at 46.4%, reflecting disciplined cost management and digital capabilities.

Asset Quality: NPL ratio improved to 4.8%, supported by enhanced risk management and better payment performance.

Sustainable Growth Strategy: Focused on digital scalability, business synergies, and disciplined execution to achieve long-term value creation.

ROE and Efficiency Targets: Medium-term targets reaffirmed: ROE of 19.5% and efficiency ratio around 42% over 3-4 years.

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Risk or Challenges

Political Instability in Peru: The impeachment of President Dina Boluarte and subsequent leadership changes in Peru create uncertainty. While the company emphasizes resilience, political instability could impact economic conditions and business operations.

Economic Adjustment Challenges in Bolivia: Bolivia faces economic adjustment challenges, which could affect Credicorp's operations in the region. The revaluation of Bolivia's balance sheet has already led to a contraction in Credicorp's total assets.

Regulatory and Fiscal Pressures in Colombia: Colombia's fiscal pressures and inflation concerns could create challenges for Credicorp's operations in the country, particularly in maintaining profitability and managing risks.

Rising Costs in Innovation Portfolio: Expenses for innovation initiatives like Yape, Tenpo, and Culqi have risen significantly, which could pressure overall profitability if revenue growth does not keep pace.

Credit Risk in Wholesale Banking: A notable increase in credit risk for one corporate client in Wholesale Banking has been identified, which could lead to higher provisions and impact profitability.

Pending Elections in Peru (2026): The upcoming elections in Peru could introduce further political and economic uncertainties, potentially affecting business operations and market conditions.

Macroeconomic Volatility: While the macroeconomic environment is relatively stable, external factors like fluctuating commodity prices and global economic conditions could impact growth and profitability.

Operational Efficiency Challenges: The efficiency ratio, while within guidance, reflects rising operating expenses, particularly in IT and digital talent hiring, which could strain margins if not managed effectively.

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Guidance & Outlook

GDP Growth: GDP growth for 2025 is projected at 3.4%, slightly above 3%. Domestic demand is forecast to grow nearly 6%, its fastest pace in over a decade outside the pandemic rebound. GDP growth is expected to remain resilient between 3% to 3.5% in 2026, supported by sustained gains in terms of trade.

Inflation: Inflation is forecasted at 1.8% for 2025 and 2% for 2026, remaining within the Central Bank's 1% to 3% target range.

Central Bank Policy Rate: The Central Bank cut its policy rate to 4.25%, close to a neutral level. This easing cycle is supporting credit growth and private consumption.

Loan Growth: Loan growth is expected to accelerate in the last quarter of 2025, driven by Retail Banking at BCP and Mibanco. Full-year loan book growth is projected at around 6.5% year-over-year.

Net Interest Margin (NIM): NIM is expected to remain within the guidance range, supported by a shift in the mix towards retail lending and downward trending interest rates.

Cost of Risk: The cost of risk is anticipated to increase in the final quarter of 2025 due to a stronger focus on lending to higher-yielding segments but is expected to close at the lower end of the guidance range.

Risk-Adjusted NIM: Risk-adjusted NIM is expected to move closer to the upper end of the guidance range.

Fee Income and Insurance Underwriting Results: Growth is expected to stand at low double digits for 2025, supported by an acceleration in economic activity and diversification of income sources.

Return on Equity (ROE): Full-year ROE guidance is maintained at around 19%, reflecting solid core performance and sustained discipline on the risk front.

Yape Revenue Growth: Yape's revenue is expected to triple by 2028, driven by higher revenue per user as monetizable features are adopted.

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Shareholder Return Plan

Annual Total Shareholder Return: Over the past 30 years as a listed company, Credicorp has generated an annual total shareholder return above 14%, consistently outperforming regional peers.

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Key Q&A

Q:What are the expectations for cost of risk in 2026, especially with the shift to high-yield segments?

A:The cost of risk is expected to increase gradually due to the shift in portfolio composition. However, the risk-adjusted NIM is also expected to increase in absolute terms.

Q:How should we think about OpEx growth next year, particularly in relation to disruptive initiatives like Yape and Tenpo?

A:Operating expenses growth is expected to be lower in the core business compared to this year, while growth in the innovation side (e.g., Yape, Tenpo) will likely remain similar. This aligns with the mid-term target of 42% efficiency in the next three years.

Q:What is the outlook for ROE in the first quarter of next year given political uncertainty and economic factors?

A:While there may be a slowdown in the first quarter due to elections, the strong economic backdrop (e.g., record trade balances, private investment growth) suggests that the first quarter may not be as low as in previous election years. ROE guidance will be provided in the next call.

Q:What is the expected impact of the eighth pension fund withdrawal on the business?

A:The withdrawal is expected to have a positive impact on local funding (around PEN 10 billion retained) but a negative impact on loan growth (0.5 percentage point less growth next year). Prima's fee income will see a 10% reduction next year due to the withdrawal.

Q:What is the outlook for loan growth and NIM expansion?

A:Loan growth guidance is nominal and considers adjustments like Bolivia's restatement. NIM expansion is driven by a mix shift to higher-yield portfolios, despite lower risk vintages positively impacting cost of risk.

Q:What are the expectations for Bolivia under the new government?

A:The new government in Bolivia has made positive initial decisions, such as appointing a pro-market Central Bank President. While there is optimism about Bolivia's potential, significant political, economic, and social challenges remain.

Q:What is the outlook for dividends and capital returns?

A:The payout ratio is expected to increase from this year's 58% to the high 60s, with a focus on maintaining and increasing ordinary dividends. Extraordinary dividends are also possible, depending on growth and potential inorganic operations.

Q:What is the update on Yape's contribution and growth potential?

A:Yape's contribution to Credicorp's income is expected to grow significantly, potentially reaching double digits by 2026. The lending business within Yape is profitable and represents around 20% of its income, with plans for further scaling.

Q:What is the outlook for Mibanco's growth and performance?

A:Mibanco's portfolio quality has improved, and new vintages are performing well. Loan growth is expected to accelerate, and there is a focus on increasing transactionality and fee income to complement the lending business.

Q:What is the impact of political and economic conditions in the region on investment and growth?

A:The region's positive outlook, driven by high commodity prices (e.g., copper, lithium, gold), outweighs political volatility. Credicorp sees opportunities in Bolivia, Chile, and Peru, supported by strong macroeconomic fundamentals.

Q:What is the sensitivity of Credicorp to interest rate changes?

A:A 100 basis point decrease in rates would theoretically impact NIM by 17 basis points (15 from the dollar book and 2 from the soles book). However, actual NIM has grown despite rate decreases, and risk-adjusted NIM is expected to remain strong.

Q:What is the strategy for Yape's SME segment?

A:Yape's SME lending model is based on transactional data and is more efficient than Mibanco's traditional model. While still in early stages, the model shows promise and targets unbanked or underbanked segments.

Q:What is the outlook for the insurance business?

A:The insurance business is expected to grow at high rates due to under-penetration in Peru. Loss ratios may normalize to historical levels but could improve structurally over the long term as the business expands into retail and lower-end segments.

Q:Review of Unclear Management Responses

A:Management avoided providing specific guidance on ROE for the first quarter of next year, citing the need to wait for more clarity on political and economic conditions. Similarly, they did not provide detailed unit economics for Yape's lending business or specific plans for inorganic acquisitions, stating that there are no relevant M&A opportunities at the moment.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

BAP Transcript

Credicorp Ltd. (BAP) Q3 2025 Earnings Call Transcript

Positive11-14

Credicorp Ltd. (BAP) Q2 2025 Earnings Call Transcript

Positive8-15

The earnings call summary and Q&A highlight several positive factors: strong loan growth, optimistic guidance on NIM and ROE, and significant contributions expected from digital initiatives like Yape. While there are concerns about increased risk, the focus on risk-adjusted NIM and profitability is reassuring. No extraordinary dividend is a minor negative, but overall, the strategic focus and growth prospects suggest a positive sentiment for the stock.

Credicorp Ltd. (NYSE:BAP) Q1 2025 Earnings Call Transcript

Positive5-20

The earnings call highlights strong financial performance with increased ROE, net interest income, and fee income. The shareholder return plan is positive with increased dividends. However, management's reluctance to update guidance and unclear responses in the Q&A indicate some uncertainty. The positive aspects, such as improved asset quality and diversified income streams, outweigh the negatives, leading to a positive sentiment.

Credicorp Ltd. (BAP) Q3 2024 Earnings Call Transcript

Positive11-9

The financial performance is strong with increased net income and ROE, and a special dividend indicates shareholder value return. The breakeven of Yape and improved loan portfolio quality are positive. However, operational expenses and market competition pose challenges. The Q&A suggests confidence in risk management and ROE targets, though some guidance was unclear. Overall, the positive financial metrics and strategic initiatives outweigh the negatives, leading to a positive sentiment.

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