Credicorp’s Q1 2024 performance benefited from an improved macro environment and strategic initiatives.
Despite a sovereign credit rating downgrade by S&P, Peru’s GDP growth forecast for 2024 was revised upward to 3%.
The company highlighted its focus on innovation and digital capabilities to strengthen competitive advantage and financial inclusion.
Financial Performance
Credicorp reported a strong ROE of 18.2% for Q1 2024, highlighting disciplined interest rate management and a leading low-cost funding position.
Total loans decreased by 3.1%, with NII growing 9.4% due to retail loan shift and dollar book repricing.
Non-performing loan (NPL) ratio increased to 6.2%, with NPL coverage at 93.5%.
Operating expenses grew by 6.9% year-over-year, primarily driven by digital initiatives.
The company announced a dividend payout of 35 soles per share.
Business Unit Performance
Yape registered over 11.5 million monthly active users, with fee income growing 24.1% quarter-over-quarter.
Mibanco faced a loan decrease of 3.1% quarter-over-quarter but reported a NII increase of 1.4%.
Grupo Pacifico’s ROE stood at 28.9%, with net income growing 60% quarter-over-quarter.
Outlook and Guidance
Credicorp maintains its ROE guidance for 2024 at around 17%, with GDP growth expected to be around 3%.
The company expects loan growth to be at the lower end of the guidance range, with NIM, cost of risk, and efficiency within the guidance range.
Question and Answer
Yape’s Contribution to Fee Income and Growth
Question
What is the potential impact of Yape on fee income, and what can be expected for fee growth in 2024?
Answer
Yape’s contribution to fee income is difficult to quantify due to its evolving business model and the J-curve effect on income generation.
The company’s overall fee growth is driven by its “War on Cash” strategy, focusing on becoming the payment hub in Peru, and is expected to be in the low teens without the distortion from Bolivia.
Regulation and Potential Impacts
Question
Can you elaborate on the potential impacts of recent regulatory proposals in Congress, particularly those related to banking transfers, credit card payments, and pension reforms?
Answer
Recent pension reform proposals have not been approved, and the company expresses concerns about the sustainability of the pension system without structural reforms.
Specific regulations on fees, including interbank fees, are uncertain in terms of approval timelines due to the rising populism in Congress.
Reconciling Growth and Cost of Risk Guidance
Question
How does the company plan to achieve its growth guidance while maintaining its cost of risk guidance, considering the current economic conditions and tight coverage ratio?
Answer
The company expects gradual improvement in the economic outlook and cost of risk, particularly in the second half of the year, which will support loan growth.
Loan growth is expected to accelerate in the second quarter, benefiting from both economic factors and easier comparisons to the previous year.
Yape’s Growth and Revenue Potential
Question
With Yape already reaching a significant portion of the adult population in Peru, how much more can its client base expand, and what is the potential for its revenue growth and revenue mix in the future?
Answer
Yape’s current focus is on increasing usage and monetization rather than adding new users, with a target of 300,000 new users per month.
The company expects Yape to diversify its revenue sources and explore new income streams beyond its current mature businesses, such as payments, lending, and marketplaces.
NIM Outlook and Margin Expansion
Question
Is there room for further net interest margin (NIM) expansion, considering the expected loan growth and declining interest rates? What is the sensitivity of margins to further rate decreases?
Answer
The company anticipates maintaining current NIM levels, which are significantly higher than pre-pandemic levels, and focuses on managing risk-adjusted NIM through portfolio duration and the shift towards a more retail-oriented loan portfolio.
Operating Expenses and Efficiency Ratio
Question
Given the company’s performance relative to its efficiency ratio guidance, are there opportunities to improve efficiency further, particularly as new initiatives mature and technology investments pay off? What is the long-term goal for efficiency?
Answer
The company acknowledges that without investments in new technologies, efficiency could improve, but it remains committed to its disruptive initiatives and expects them to be cash flow neutral by 2025.
While overall expenses have increased, the composition of expenses is shifting towards more efficient traditional businesses, while disruptive initiatives are gaining scale and relative weight.
The company acknowledges the potential for efficiency improvement as new initiatives mature and break even, but remains committed to investing in innovation.
Other Initiative Performance: Tenpo and EO
Question
Can you provide an update on the performance of other initiatives, such as Tenpo in Chile and EO in Peru?
Answer
Tenpo is performing well and on track with its leading indicators, but it is not expected to break even in the short term. The company has filed for a full banking license in Chile.
EO is focusing on the mass affluent segment in Peru with a digital value proposition and is showing promising early results in terms of transaction levels and customer stickiness.
Dividends and Capitalization Levels
Question
What factors influenced the company’s dividend distribution, and is there potential for further distribution throughout the year?
Answer
The company considers the capitalization levels of its operating units, such as BCP and Mibanco, when determining dividends.
A growing first dividend is expected throughout the year, and further dividends may be evaluated based on performance and capital needs.
Yape’s Multi-Installment Loans and Asset Quality
Question
Can you comment on the asset quality of Yape’s multi-installment loans, including their size, target clients, and the development of risk models based on Yape data?
Answer
Yape’s multi-installment loans are in early stages, and the company is using data and pilot programs to enhance risk models, both with BCP data and Yape’s data.
Excess Capital and FX Volatility
Question
Does the company have excess capital at the holding level, and can you clarify the impact of FX volatility on capital, particularly for loans in dollars?
Answer
The company retains excess capital at the holding level and distributes the remaining profits to Credicorp.
The company maintains a structurally balanced book in its subsidiaries, minimizing the impact of FX volatility on capital.
