SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 under the

Securities Exchange Act of 1934

 

For the month of November 2020

 

Commission File Number: 001-14014

 

CREDICORP LTD.

(Translation of registrant’s name into English)

 

Clarendon House

Church Street

Hamilton HM 11 Bermuda

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F x Form 40-F¨

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨

 

The information in this Form 6-K (including any exhibit hereto) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act.

 

 

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: November 6th, 2020

 

 

CREDICORP LTD.

(Registrant)

     
  By: /s/ Miriam Bottger
    Miriam Bottger
    Authorized Representative

 

 

 

 

 

 

Exhibit 99.1

 

 

 

Lima, Peru, November 5, 2020 – Credicorp Ltd. (NYSE: BAP) announced its unaudited results for the third quarter of 2020. These results are consolidated according to IFRS in Soles.

 

Third Quarter 2020 results

 

In 3Q20, Credicorp reported net income of S/104.6 million, which translated into an ROAE and ROAA of 1.8% and 0.2% respectively. If we exclude non-recurring events this quarter for a total of S/184.8 million (income tax adjusted), adjusted earnings and ROE in 3Q20 is S/289.4 million and 4.9% respectively. With these results, Credicorp is on the road to recovery from the COVID-19 crisis.

 

Economic activity shows signs of recovery in 3Q20 and appears to have left the worst behind after having reported a drop of -30% YoY in the second quarter. In September, indicators such as electricity demand, cement dispatchments, real estate transactions and light vehicle sales have exhibited a V shaped recovery and are situated close to their pre-pandemic levels. Moreover, GDP growth forecasts for 2021 have been revised upwards.

 

Credicorp’s operating and financial indicators show signs of recovery, both in SMEs and Individuals. In the first case, SMEs that have benefited from government program facilities show better payment performance than those who have not. In the second case, Individuals who are payroll clients show better payment performance than non-payroll clients. Personal loans are up this quarter and the month of September marked a turning point on the road to recovering normal origination levels and the reprogramming portfolio has stabilized. Finally, we are seeing on-going acceleration in our clients’ adoption of digital channels.

 

The results in 3Q20 show:

 

QoQ expansion in average daily loans balances was driven by Government Programs (GP) loans rather than structural loans. The latter posted a contraction, mainly driven by BCP Wholesale Banking, where clients repaid liquidity facilities disbursed at the beginning of the crisis. In the YoY analysis, total loans grew 19.6% measured in average daily balances and 21.3% measured in quarter-end-balances, while structural loans (excluding GP loans) grew +1.9% measured in average daily balances but fell -0.3% measured in quarter-end-balances.

 

NII began to recover 3Q20 and posted expansion of +10.2% QoQ. Interest income grew +8.3% QoQ, after having reported non-recurring charges for impairment due to frozen loans in 2Q20. Adjusted Interest Income fell -6,2%, driven mainly by a drop in interest rates and a contraction in the structural portfolio. Interest Expenses grew 3.3% QoQ but if we exclude a non-recurring expense for bonds exchange at BCP, adjusted interest expenses contracted -10.8% QoQ due to effective management of the funding mix and cost. In this context, recurring NII fell -4.6% this QoQ. In terms of Margins, NIM and Structural NIM situated at 4.05% and 4.46% respectively this quarter.

 

In terms of client payment performance at BCP and Mibanco, we have seen a slight improvement and the reprogrammed portfolio has stabilized. Provisions this quarter have been significantly lower than those registered in 2Q20, driven by an improvement in macroeconomic expectations and adjustments to the expected loss model, which include new variables to generate a better overview of our clients’ status. In this scenario, the Cost of Risk (CofR) at Credicorp was situated at 3.84% in 3Q20 and 5.08% YTD. If we adjust provisions and loans for GP disbursements, the Structural Cost of Risk was situated at 4.37% in 3Q20 and 5.89% YTD. Given that growth in provisions outpaced the expansion reported for the NPL portfolio, the coverage ratio for the NPL portfolio rose from 108.9% in 3Q19 to 169.9% in 3Q20.

 

Non-financial income reflected expansion of 8.8% QoQ, which was mainly attributable to an increase in transactions after an uptick in economic activity. This, coupled with the reactivation of fee exceptions offered to clients as facilities to overcome the crisis during 2Q20, led Fee income to grow 54% this quarter, mainly though BCP Stand-alone. YoY and YTD, non-financial income fell -12.4% and -15.3% respectively due to a decrease in transactional activity in 2Q20.

 

The underwriting result for insurance was negative QoQ, YoY and YTD, situating at -103.2%, -103.5% and -22.5% respectively. This was driven mainly by an increase in claims due to an increase in provisions (COVID-19 IBNR) and growth in claims in the life insurance business during the pandemic. The aforementioned was attenuated by a drop in claims and a partial recovery in net earned premiums in Property & Casual business.

 

The efficiency ratio stood at 45.0%, while adjusted Efficiency (excluding non-recurring events from Operating income) stood at 44.8% this quarter. In the YoY analysis, the adjusted efficiency ratio deteriorated 170 pbs, which was mainly due to a decrease in both margins and fees. The aforementioned was attenuated by the measures Credicorp is taking to control operating expenses in the adverse context generated by COVID-19.

 

 

 

 

 

 

Table of Contents

 

Credicorp Ltd. (NYSE: BAP): Third Quarter Results 2020 3
Financial Overview 3
Credicorp and subsidiaries 4
1.   Interest-earning assets (IEA) 5
1.1. Evolution of IEA 5
1.2. Credicorp Loans 6
1.2.1. Loan evolution by business segment 6
1.2.2. Evolution of the level of dollarization by segment 10
1.2.3. Market share in loans 11
2.   Funding Sources 12
2.1. Funding Structure 12
2.2. Deposits 13
2.2.1. Deposits: dollarization level 14
2.2.2. Market share in Deposits 15
2.3. Other funding sources 15
2.4. Loan / Deposit (L/D) 16
2.5. Funding Cost 17
3.   Portfolio quality and Provisions for loan losses 20
3.1. Provisions for loan losses 20
3.2. Portfolio Quality: Delinquency ratios 21
3.2.1. Delinquency indicators by business line 23
4.   Net Interest Income (NII) 27
4.1. Interest Income 27
4.2. Interest Expenses 29
4.3. Net Interest Margin (NIM) and Risk-Adjusted NIM 30
5.   Non-Financial Income 33
5.1. Fee Income 35
5.1.1. By subsidiary 35
5.1.2. Fee income in the Banking Business 36
6.   Insurance Underwriting Result 37
6.1. Life Insurance 37
6.2. Property and Casualty Insurance 38
6.3. Acquisition Cost 40
6.4 Underwriting Result by Business 41
7.   Operating Expenses and Efficiency 42
7.1. Credicorp’s Administrative, General and Tax Expenses 43
7.2. Efficiency Ratio 44
8.   Regulatory Capital 46
8.1. Regulatory Capital – BAP 46
8.2. Regulatory Capital – BCP Stand-alone based on Peru GAAP 47
8.3. Regulatory Capital at Mibanco based on Peru GAAP 49
9.   Distribution channels 51
9.1. Universal Banking 51
9.1.1. Points of contact by geographic area – BCP Stand-alone 51
9.1.2. Transactions per channel – BCP Stand-alone 52
9.1.3. Points of Contact – BCP Bolivia 53
9.2. Microfinance 53
9.2.1. Points of Contact – Mibanco 53
10.   Economic Perspectives 54
10.1. Peru Economic Forecasts 54
10.2. Main Economic Variables 54
11.   Appendix 58
11.1. Credicorp 58
11.2. Credicorp Stand-alone 60
11.3. BCP Consolidated 61
11.4. BCP Stand-alone 64
11.5. Mibanco 67
11.6. BCP Bolivia 68
11.7. Credicorp Capital 69
11.8. Atlantic Security Bank 70
11.9. Grupo Pacifico 72
11.10. Prima AFP 74
11.11. Table of calculations 75
11.12. Non-recurring events 76
11.13. Glossary of terms 77

 

 

 

 

Credicorp Ltd. (NYSE: BAP): Third Quarter Results 2020

 

Financial Overview

 

Credicorp Ltd.  Quarter   % change   YTD   % change 
S/ 000   3Q19    2Q20    3Q20    QoQ    YoY    Sep 19    Sep 20    Sep 20 / Sep 19 
Net interest income (1)   2,276,400    1,961,128    2,161,695    10.2%   -5.0%   6,725,971    6,502,122    -3.3%
Provision for credit losses on loan portfolio, net of recoveries   (502,772)   (2,540,457)   (1,305,905)   -48.6%   159.7%   (1,334,277)   (5,187,843)   288.8%
Risk-adjusted net interest income (1)   1,773,628    (579,329)   855,790    n.a.    -51.7%   5,391,694    1,314,279    -75.6%
Non-financial income (1)   1,299,256    1,015,349    1,102,597    8.6%   -15.1%   3,687,029    3,075,811    -16.6%
Insurance underwriting result (1)   125,151    135,680    (4,340)   n.a.    n.a.    352,487    273,267    -22.5%
Total expenses (1)   (1,679,234)   (1,627,912)   (1,801,920)   10.7%   7.3%   (4,831,983)   (5,208,467)   7.8%
Profit before income tax (1)   1,518,801    (1,056,212)   152,127    n.a.    -90.0%   4,599,227    (545,110)   n.a. 
Income taxes (1)   (403,221)   414,775    (55,539)   n.a.    n.a.    (1,239,852)   213,437    n.a. 
Net profit   1,115,580    (641,437)   96,588    n.a.    -91.3%   3,359,375    (331,673)   n.a. 
Non-controlling interest   22,545    (21,046)   (8,018)   -61.9%   n.a.    66,900    (25,163)   n.a. 
Net profit attributable to Credicorp   1,093,035    (620,391)   104,606    n.a.    -90.4%   3,292,475    (306,510)   n.a. 
Net income / share (S/)   13.75    (7.81)   1.32    n.a.    -90.4%   41.41    (3.86)   n.a. 
Loans   112,209,990    132,741,720    136,148,711    2.6%   21.3%   112,209,990    136,148,711    21.3%
Deposits and obligations   107,391,720    129,664,332    137,202,674    5.8%   27.8%   107,391,720    137,201,587    27.8%
Net equity   26,000,638    23,396,028    23,594,683    0.8%   -9.3%   26,000,638    23,594,683    -9.3%
Profitability                                        
Net interest margin (2)   5.40%   4.03%   4.05%   2 bps    -135 bps    5.37%   4.41%   -96 bps 
Risk-adjusted Net interest margin (2)   4.21%   -1.19%   1.60%   n.a.    -261 bps    4.31%   0.89%   -342 bps 
Funding cost (2)   2.46%   1.86%   1.74%   -12 bps    -72 bps    2.40%   1.90%   -50 bps 
ROAE (2)   17.1%   -10.7%   1.8%   n.a.    -1530 bps    17.62%   -1.60%   n.a. 
ROAA (2)   2.4%   -1.2%   0.2%   n.a.    -220 bps    2.4%   -0.2%   n.a. 
Loan portfolio quality                                        
IOL ratio (3)   2.98%   2.89%   3.04%   15 bps    6 bps    2.98%   3.04%   6 bps 
IOL over 90 days ratio   2.26%   1.50%   1.72%   22 bps    -54 bps    2.26%   1.72%   -54 bps 
NPL ratio (4)   4.07%   3.78%   4.17%   39 bps    10 bps    4.07%   4.17%   10 bps 
Cost of risk (2)(5)   1.79%   7.66%   3.84%   -382 bps    205 bps    1.59%   5.08%   349 bps 
Coverage ratio of IOLs   148.8%   218.9%   233.1%   1420 bps    8430 bps    148.8%   233.1%   8430 bps 
Coverage ratio of IOL 90-days   196.0%   423.2%   413.4%   -980 bps    21740 bps    196.0%   413.4%   21740 bps 
Coverage ratio of NPLs   108.9%   167.5%   169.9%   240 bps    6100 bps    108.9%   169.9%   6100 bps 
Operating efficiency                                        
Efficiency ratio (1) (6)   43.1%   50.1%   45.0%   -510 bps    190 bps    42.9%   45.9%   300 bps 
Operating expenses/Total average assets (1) (7)   3.67%   3.07%   2.93%   -14 bps    -74 bps    3.62%   3.17%   -45 bps 
Insurance ratios                                        
Combined ratio of P&C (8)(9)   97.9%   79.8%   84.8%   500 bps    -1310 bps    99.8%   84.8%   -1500 bps 
Loss ratio (9)(10)   63.8%   59.8%   86.0%   2620 bps    2220 bps    64.5%   68.5%   400 bps 
Capital adequacy (11)                                        
BIS ratio (12)   15.45%   14.80%   15.39%   59 bps    -6 bps    15.45%   15.39%   -6 bps 
Tier 1 ratio (13)   11.79%   10.54%   10.70%   16 bps    -109 bps    11.79%   10.70%   -109 bps 
Common equity tier 1 ratio (14)   11.95%   11.22%   11.45%   23 bps    -50 bps    11.95%   11.45%   -50 bps 
Employees   35,174    38,219    37,572    -1.7%   6.8%   35,119    37,572    7.0%
Share Information                                        
Outstanding Shares   94,382    94,382    94,382    0.0%   0.0%   94,382    94,382    0.0%
Treasury Shares (15)   14,872    14,977    14,977    0.0%   0.7%   14,872    14,977    0.7%
Floating Shares (1)   79,510    79,405    79,405    0.0%   -0.1%   79,510    79,405    -0.1%

 

(1) Figures differ from previously reported, please consider the data presented on this report.

(2) Annualized.

(3) Internal overdue loans include overdue loans and loans under legal collection, according to our internal policy for overdue loans. Internal Overdue ratio: Internal overdue loans / Total loans.

(4) Non-performing loans (NPL): Internal overdue loans + Refinanced loans. NPL ratio: NPL / Total loans.

(5) Cost of risk: Annualized Provision for credit losses on loan portfolio, net of recoveries / Total loans.

(6) Efficiency ratio = (Salaries and employee benefits + Administrative expenses + Depreciation and amortization + Association in participation + Acquisition cost) / (Net interest income + Fee Income + Net gain on foreign exchange transactions + Net Gain from associates + Net gain on derivatives held for trading + Result on exchange differences + Net Premiums Earned).

(7) Operating expenses / Average of Total Assets. Average is calculated with period-beginning and period-ending balances. "

(8) Combined ratio = (Net claims / Net earned premiums) + [(Acquisition cost + Operating expenses) / Net earned premiums]. Does not include Life insurance business.

(9) Considers Grupo Pacifico's figures before eliminations for consolidation to Credicorp.

(10) Net claims / Net earned premiums.

(11) All Capital ratios are for BCP Stand-alone and based on Peru GAAP.

(12) Regulatory Capital / Risk-weighted assets (legal minimum = 10% since July 2011).

(13) Tier 1 = Capital + Legal and other capital reserves + Accumulated earnings with capitalization agreement + (0.5 x Unrealized profit and net income in subsidiaries) - Goodwill - (0.5 x Investment in subsidiaries) + Perpetual subordinated debt (maximum amount that can be included is 17.65% of Capital + Reserves + Accumulated earnings with capitalization agreement + Unrealized profit and net income in subsidiaries - Goodwill).

(14) Common Equity Tier I = Capital + Reserves – 100% of applicable deductions (investment in subsidiaries, goodwill, intangibles and net deferred taxes that rely on future profitability) + retained earnings + unrealized gains.

Adjusted Risk-Weighted Assets = Risk-weighted assets - (RWA Intangible assets, excluding goodwill, + RWA Deferred tax assets generated as a result of temporary differences in income tax, in excess of 10% of CET1, + RWA Deferred tax assets generated as a result of past losses)."

(15) Include shares held by Atlantic Security Holding Corporation (ASHC) and share-based payments.

  

3

 

 

Credicorp and subsidiaries

 

Earnings contribution *  Quarter   % change   Year   % change 
S/ 000  3Q19   2Q20   3Q20   QoQ   YoY   Sep 19   Sep 20   Sep 20 / Sep 19 
Universal Banking                                        
BCP Stand-alone   831,423    (528,404)   421,770    n.a.    -49.3%   2,437,771    35,569    -98.5%
BCP Bolivia   25,575    (39,583)   (20,753)   -47.6%   n.a.    65,021    (53,507)   n.a. 
Microfinance                                        
Mibanco (1)   95,137    (271,439)   (154,812)   -43.0%   n.a.    291,654    (392,925)   n.a. 
Bancompartir S.A   -    (12,932)   (66,814)   416.7%   n.a.    -    (83,158)   n.a. 
Encumbra   852    (1,164)   (1,569)   34.8%   n.a.    3,940    (1,686)   n.a. 
Insurance and Pensions                                        
Grupo Pacifico (2)   88,949    99,686    (14,545)   n.a.    n.a.    263,239    183,802    -30.2%
Prima AFP   42,394    51,232    38,037    25.8%   -10.3%   149,761    85,190    -43.1%
Investment Banking and Wealth Management                                        
Credicorp Capital   13,010    15,616    26,782    71.5%   105.9%   39,252    42,757    8.9%
Atlantic Security Bank   43,376    127,105    (60,949)   n.a.    n.a.    143,716    65,644    -54.3%
Others (3)   (47,682)   (60,507)   (62,541)   -3.4%   -31.2%   (101,880)   (188,196)   84.7%
Net income attributed to Credicorp   1,093,034    (620,390)   104,606    n.a.    -90.4%   3,292,474    (306,510)   n.a. 

 

*Contributions to Credicorp reflect the eliminations for consolidation purposes (e.g. eliminations for transactions among Credicorp’s subsidiaries or between Credicorp and its subsidiaries).

(1) The figure is lower than the net income of Mibanco because Credicorp owns 99.921% of Mibanco (directly and indirectly).

(2) The contribution is higher than Grupo Pacifico’s net income because Credicorp owns 65.20% directly, and 33.59% through Grupo Credito.

(3) Includes Grupo Credito excluding Prima (Servicorp and Emisiones BCP Latam), others of Atlantic Security Holding Corporation and others of Credicorp Ltd.

 

   Quarter   Year 
ROAE  3Q19   2Q20   3Q20   Sep 19   Sep 20 
Universal Banking                         
BCP Stand-alone   21.7%   -13.6%   11.3%   21.5%   0.3%
BCP Bolivia   14.4%   -22.5%   -12.0%   12.2%   -10.1%
Microfinance                         
Mibanco (1)   18.7%   -56.0%   -35.8%   19.7%   -28.4%
Bancompartir   0.0%   -47.0%   -319.9%   0.0%   -112.2%
Encumbra   5.8%   -8.5%   -11.2%   9.1%   -3.9%
Insurance and Pensions                         
Grupo Pacifico (2)   11.0%   14.5%   -2.1%   11.7%   8.8%
Prima   26.0%   35.8%   24.6%   30.6%   17.0%
Investment Banking and Wealth Management                         
Credicorp Capital   9.3%   10.2%   16.3%   8.4%   8.6%
Atlantic Security Bank   20.3%   73.5%   -29.9%   22.8%   12.1%
Credicorp   17.1%   -10.7%   1.8%   17.6%   -1.6%

 

(1) ROAE including goodwill of BCP from the acquisition of Edyficar (Approximately US$ 50.7 million) was 17.49% in 3Q19, -52.24% in 2Q20 and -33.18% in 3Q20. YTD was 18.43% for September 2019 and -26.43% for September 2020.

(2) Figures include unrealized gains or losses that are considered in Pacifico’s Net Equity from the investment portfolio of Pacifico Vida. ROAE excluding such unrealized gains was 16.28% in 3Q19, 16.74% in 2Q20 and -2.5% in 3Q20."" YTD was 15.73% for September 2019 and 10.25% for September 2020."

 

In 3Q20, Credicorp registered a net income of S/ 104.6 million, which translated into a ROAE of 1.8%.

 

This quarter, Credicorp recorded multiple non-recurring events, which are detailed in this report and Annex 11.12. These non-recurring events impacted Credicorp’s 3Q20 results by S/ 184.8 million, after taxes. If we exclude non-recurring events, Credicorp’s adjusted 3Q20 net income was S/ 289.4 million, which represented an improvement compared to the adjusted loss of S/ -447.3 million registered in 2Q20. In this context, Credicorp’s adjusted 3Q20 ROAE was situated at 4.9%, which topped the –7.7% registered in 2Q20.

 

4

 

 

1.       Interest-earning assets (IEA)

 

At the end of September 2020, IEAs registered growth of +5.9% QoQ and +28.4% YoY. This expansion was mainly attributable to growth in the loan and investment portfolios. Loans reported expansion of +4.5% QoQ and +19.6% YoY in average daily balances. This was attributable to an increase in the share of loans contributed by Retail banking via the SME-Business and SME segments, which received an influx of loan disbursements through the government program “Reactiva Peru”. If we exclude the effect generated by government programs (Reactiva Perú y FAE-Mype), loans in the Structural Portfolio fell -5.4% QoQ and increased +1.9% YoY measured in average daily balances. 

 

Interest earning assets  As of   % change 
S/ 000  Sep 19   Jun 20   Sep 20   QoQ   YoY 
Cash and due from banks   20,004,002    29,425,115    28,219,512    -4.1%   41.1%
Interbank funds   254,175    5,403    2,031    -62.4%   -99.2%
Total investments   33,956,227    41,637,044    51,648,986    24.0%   52.1%
Cash collateral, reverse repurchase agreements and securities borrowing   3,903,051    2,920,789    2,821,116    -3.4%   -27.7%
Financial assets designated at fair value through profit or loss   617,387    662,634    729,059    10.0%   18.1%
Total loans (1)   112,209,990    132,741,720    136,148,711    2.6%   21.3%
Total interest earning assets   170,944,832    207,392,705    219,569,415    5.9%   28.4%

  

(1) Figures differ from previously reported, please consider the data presented on this report.

 

Total Investments  As of   % change 
S/ 000  Sep 19   Jun 20   Sep 20   QoQ   YoY 
Fair value through profit or loss investments   3,808,137    5,118,994    6,658,680    30.1%   74.9%
Fair value through other comprehensive income investments   26,794,192    32,213,665    40,712,831    26.4%   51.9%
Amortized cost investments   3,353,898    4,304,385    4,277,475    -0.6%   27.5%
Total investments   33,956,227    41,637,044    51,648,986    24.0%   52.1%

  

1.1. Evolution of IEA

 

Total loans

 

Total loans, measured in quarter-end balances, grew +2.6% QoQ, driven primarily by Reactiva loans through BCP Stand-alone and Mibanco. If we exclude loans disbursed through government programs (Reactiva Perú and FAE-Mype), loans in the “Structural Portfolio” fell -5.0% QoQ.

 

The quarterly evolution of the portfolio was primarily driven by variations in loan balances at BCP Stand-alone (+1.4% QoQ) and Mibanco (+12.8% QoQ):

 

(i)The highest growth registered in the loan portfolio was attributable to Retail Banking at BCP Stand-alone. This increase was driven mainly by loans disbursed through the Reactiva Peru program in the SME segment and, to a lesser extent, through the SME-Business segment. BCP was awarded with an important share of total loans granted through Reactiva Peru.

 

Mibanco’s portfolio also reported a significant increase in loan disbursements after increasing its participation in phase 2 of the Reactiva Program, whose design facilitated outreach to microbusinesses and the informal sector. Mibanco also participated in the FAE-Mype program, and was awarded a large share of the total loans granted. The quarterly evolution is also attributable to the exchange rate effect on the FC loan portfolio after the US dollar appreciated 1.7% YoY. If we exclude the exchange rate effect, total loans grew 2.0% QoQ in real terms for the total portfolio but fell -5.6% for the structural portfolio.

 

YoY, loans measured in quarter-end balances increased +21.3%, driven mainly by the participation of BCP Stand-alone and Mibanco in Reactiva Peru. If we exclude the loans disbursed through the Governments’ program (Reactiva Perú and FAE-Mype), loans in the “Structural Portfolio” fell -0.3% YoY measured in quarter-end balances. YoY expansion was attributable to growth in loan balances at BCP Individual (+21.9% YoY) and Mibanco (+17.4% YoY):

 

5

 

 

(i)Growth in the Retail Banking portfolio at BCP Stand-alone was led, in order, by the SME and SME-Business segments, which reported an increase in disbursements for working capital in LC through the Reactiva Peru program.

 

(ii)Loan expansion in the Wholesale Banking portfolio at BCP Stand-alone was led, in order of contribution to total growth by Middle Market Banking loans, in line with an increase in disbursements in LC through Reactiva Peru, followed by Corporate Banking loans, which balances increased due to an uptick in the demand for working capital and medium-term, fixed rate financings in LC and FC at the end of 2019 (period of low interest rates); and lastly, by an increase in companies’ use of credit lines to protect liquidity during the pandemic.

 

(iii)Growth in Mibanco’s portfolio (+17.4% YoY), where growth in quarter-end balances was driven mainly by the Reactiva Peru and FAE-Mype programs.

 

YoY growth in loans was also attributable to the impact of the exchange rate effect on the FC portfolio, which was driven by a 6.3% YoY increase in the value of the dollar. If we exclude the exchange rate effect, total loans grew 19.0% YoY in real terms for the total portfolio but fell -2.7% YoY for the structural portfolio. At the end of September 2020, FC loans represented 32.7% of total loans, versus 38.7% in 3Q19. This decrease was attributable to an increase in disbursements in LC through government programs and to a drop in FC loans in the Wholesale Portfolio.

 

Investments

 

Total investments increased +24.0% QoQ and +52.1% YoY, which was attributable to growth in the fair value through other comprehensive income portfolio at BCP Stand-alone. This expansion was driven by an uptick in purchases of low-risk profitable assets in a context of higher liquidity. Credicorp is currently optimizing its mix of earning assets to increase the profitability of liquid assets and is seeking investment opportunities through the sovereign curve to boost our portfolio returns.

 

Other IEA

 

Available funds increased 41.1% YoY due to excess liquidity, which was generated by Government loans. Most of this fresh capital was deposited in bank accounts, primarily at BCP, and subsequently used to cover payments to suppliers, payroll and other working capital needs. Available funds fell -4.1% QoQ, spurred by an increase in purchases of low-risk profitable assets as explained in the Investment section.

 

Non-Interest-Earning Assets

 

Regarding Non-interest-earning Assets, there was an adjustment to Bancompartir´s Goodwill this quarter for S/ 64MM. It is important that note that we acquired this business prior to crisis and as such, the current estimated value has varied from our initial projections. Nonetheless, we still see significant potential value down the road, which can be leveraged through credit risk management, and an improvement in efficiency and productivity.

 

1.2. Credicorp Loans

 

1.2.1. Loan evolution by business segment

 

Next, we will discuss the composition of loans by subsidiary and business segment measured in average daily balances. These balances provide the most complete picture of how loan interest, which constitutes Credicorp’s primary source of income, has evolved. Additionally, average daily balances reflect trends or variations to a different degree than quarter-end balances which may include pre-payments or loans made at the end of the quarter. In comparative terms, these payments, affect average daily balances less than quarter-end balances and as such, the former provide a more balanced picture of loan evolution.

 

Average daily loan balances increased +4.5% QoQ and +19.6% YoY, which was mainly attributable to an increase in balances in the SME-Business and SME segment in Retail Banking at BCP Stand-alone after BCP took on a vast portion of the loans offered through the Reactiva Peru program. If we exclude loans linked to the Government’s financial relief programs, loans in the “Structural Portfolio” fell -5.4% QoQ but grew 1.9% YoY. QoQ and YoY growth in loan balances was concentrated in local currency given that loans through government programs are made in Soles.

 

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Loan evolution measured in average daily balances by segment (1)(2)

 

   TOTAL LOANS       % change         
   Expressed in million S/   Structural   % change   Structural   % Part. in total loans   Structural 
   3Q19   2Q20   3Q20   2Q20   3Q20   QoQ   YoY   QoQ   YoY   3Q19   2Q20   3Q20   3Q20 
BCP Stand-alone   91,700    106,610    111,385    99,218    93,444    4.5%   21.5%   -5.8%   1.9%   82.1%   83.4%   83.4%   82.1%
Wholesale Banking   46,434    55,940    54,838    52,628    48,330    -2.0%   18.1%   -8.2%   4.1%   41.6%   43.8%   41.1%   42.5%
Corporate   28,024    34,028    31,448    33,572    30,626    -7.6%   12.2%   -8.8%   9.3%   25.1%   26.6%   23.5%   26.9%
Middle - Market   18,410    21,912    23,389    19,056    17,704    6.7%   27.0%   -7.1%   -3.8%   16.5%   17.1%   17.5%   15.6%
Retail Banking   45,266    50,670    56,547    46,590    45,113    11.6%   24.9%   -3.2%   -0.3%   40.5%   39.7%   42.3%   39.7%
SME - Business   5,544    7,532    10,014    5,262    4,574    33.0%   80.6%   -13.1%   -17.5%   5.0%   5.9%   7.5%   4.0%
SME - Pyme   9,851    11,928    16,062    10,118    10,068    34.7%   63.1%   -0.5%   2.2%   8.8%   9.3%   12.0%   8.9%
Mortgage   16,095    16,939    16,816    16,939    16,816    -0.7%   4.5%   -0.7%   4.5%   14.4%   13.3%   12.6%   14.8%
Consumer   8,239    9,118    9,018    9,118    9,018    -1.1%   9.5%   -1.1%   9.5%   7.4%   7.1%   6.8%   7.9%
Credit Card   5,538    5,153    4,637    5,153    4,637    -10.0%   -16.3%   -10.0%   -16.3%   5.0%   4.0%   3.5%   4.1%
Mibanco   10,068    10,823    11,593    10,635    9,729    7.1%   15.1%   -8.5%   -3.4%   9.0%   8.5%   8.7%   8.6%
Bolivia   7,431    7,902    8,149    7,902    8,149    3.1%   9.7%   3.1%   9.7%   6.7%   6.2%   6.1%   7.2%
ASB   2,467    2,443    2,438    2,443    2,438    -0.2%   -1.1%   -0.2%   -1.1%   2.2%   1.9%   1.8%   2.1%
BAP's total loans   111,666    127,779    133,565    120,199    113,760    4.5%   19.6%   -5.4%   1.9%   100.0%   100.0%   100.0%   100.0%

 

Highest growth in volumes
Largest contraction in volumes

 

For consolidation purposes, loans generated in FC are converted to LC.

(1)  Includes Work out unit, and other banking.

(2)  Structural Portfolio excludes the average daily balances from loans offered through de Reactiva Peru y FAE-Mype Government Programs.

 

Loan Growth QoQ in Average Daily Balances

Expressed in millions of S/

 

+4.5% (-5.4% Structural Portfolio)

 

 

 

 Structural
 Government programs (Reactiva and FAE-Mype)

 

In the analysis by segment, it is evident that growth in average daily balances QoQ was driven by portfolios that received loan injections through Government programs rather than by growth in structural loans.

 

The largest share of loan expansion in this scenario was driven by Retail Banking, which experienced an uptick after loan balances for the SME-Pyme segment (+S/4,135 million, +34.7% QoQ) and SME-Business (+S/2,482 million, +33.0% QoQ) were bolstered by disbursements for working capital through the Reactiva Peru Program. Other retail segments, including Mortgage, Consumer and Credit Cards, registered a decrease in their average daily balances that was attributable to a drop in household consumption because of the pandemic. If we exclude Government programs, the balance for SME-Pyme fell –0.5% QoQ and SME-Business, -13.1%.

 

Growth in total loans was also boosted, albeit to a lesser degree, by the +7.1% QoQ uptick in average daily loan balances in the Mibanco portfolio. This expansion was primarily attributable to an influx of loans from the Reactiva 2 program, which prioritized outreach to micro and small business by increasing maximum loan amounts and offering more flexible conditions to improve access for smaller-scale businesses. If we exclude the Government’s program, Mibanco’s structural portfolio contracted –8.5% QoQ.

 

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The Wholesale Banking portfolio reported a drop in average daily balances of -2.0% QoQ, driven by a significant decrease in the structural balances for the Middle Market and Corporate Banking segments. In this case, the effect of a considerable influx of Reactiva loans was insufficient to offset the decline in structural loans. The drop in Wholesale Banking is attributable by a higher balance base in 2Q20 due to an uptick in Wholesale clients’ use of credit lines to prevent liquidity shortages during the pandemic.

 

At BCP Bolivia, the loan portfolio grew +3.1% QoQ after growth in Corporate Banking offset the drop in Retail balances, which was primarily registered by individual products and the SME-Pyme segment.

 

Loan Growth YoY in Average Daily Balances

Expressed in millions of S/

 

+ 19.6% (1.9% Structural Portfolio)

 

 

 

 Structural
 Government programs (Reactiva and FAE-Mype)

 

If we analyze YoY growth by segment measured in average daily balances, we see:

 

Growth in Retail Banking, where the business segments of SME-Pyme (+S/6,211 million, +63.1% YoY) and SME-Business (+S/4,470 million, +80.6% YoY) led expansion through Reactiva Peru loans. Average daily balances were also boosted, although to a lesser degree, by the Consumer segment (+S/780 million, +9.5% YoY) and Mortgage (+S/721 million, +4.5% YoY), which were highly dynamic in 1Q20 before the pandemic hit. Balances in the Credit Card segment fell after household consumption dropped during the pandemic. If we exclude the Government programs, SME-PYME grew +2.2% YoY while SME-Business contracted -17.5%.

 

Growth in Wholesale Banking, where the Middle Market segment posted significant growth (+S/4,979 million, +27.0% YoY) due to disbursements under the Reactiva Peru program, and, to a lesser extent, to growth in Corporate Banking (+S/3,424 million, +12.2% YoY). Growth in the latter was attributable to an uptick in disbursements in LC and FC for working capital and medium-term, fixed-rate financing that was requested by clients prior to the end of 1Q20 in a context of attractive rates. It is important to note that growth in these segments was also driven, albeit to a lesser extent, by the exchange rate effect generated by the appreciation of the US Dollar. 40.2% of the loans in the Middle Market segment and 54.8% in the Corporate Banking segment are made in FC. If we exclude the exchange rate effect, the Middle Market and Corporate Banking segments register growth of 24.6% and 9.2% respectively. If we exclude Government programs, Middle Market Banking fell –3.8% YoY while Corporate Banking grew 9.3% YoY.

 

8

 

 

Loan growth at Mibanco (+15.1% AaA), which was attributable to loans disbursed through Reactiva Perú and FAE-Mype. Reactiva and FAE loans represent approximately 16% of Mibanco’s portfolio in average daily balances. Mibanco increased its participation in phase 2 of Reactiva Peru versus its role in phase 1. In this second phase, the Government made the conditions that smaller businesses must meet to qualify for loans more flexible, which opened the door to many of Mibanco’s clients. If we exclude Government programs, Mibanco’s structural portfolio fell –3.4% YoY.

 

9.7% YoY growth at BCP Bolivia. BCP’s Bolivia’s microbusiness loans fell considerably (more than ~30% in average daily balances). This was, nonetheless, offset by loan growth in the Wholesale Banking portfolio and the Mortgage and SME-Pyme loans. In this scenario, the subsidiary’s loan book evolved positively.

 

Accumulated growth in average daily loan balances by segment

Expressed in millions of S/

 

+14.8% (+6.5% Structural Portfolio)

 

 

 

 Structural
 Government programs (Reactiva and FAE-Mype)

 

 

The YTD analysis by segment, measured in average daily balances, shows: 

 

(i)Growth in Retail Banking was responsible for the bulk of the increase in total loans and was led by the SME-Pyme segments (+S/3,166 million, +33.0% YTD) and SME-Business (+S/2,287 million, +42.5% YTD), where expansion was driven by Reactiva Peru disbursements. Other segments that contributed to expansion were Mortgage (+S/1,309 million, +8.4% YTD), which was boosted by a dynamic loan market in early 2020 and Consumer (+S/1,120 million, +14.1% YTD), whose evolution mirrored that of the Mortgage segment in 1Q20. On the contrary, Credit Card Balances fell, after use declined due to a drop in household consumption during the pandemic. If we exclude Government programs, the SME-Pyme segment grew +5.9% YTD while SME-Business fell -5.3%.

 

(ii)Growth in Wholesale Banking, which was led by Corporate Banking (+S/3,621 million, +13.0% YTD). This increase was driven by growth in disbursements in LC and FC for working capital and medium-term, fixed-rate financing in the period prior to the pandemic. Middle Market Banking also posted significant growth (+S/3,319 million, +18.5% YTD), which was bolstered by Reactiva Peru disbursements. Growth in these segments was also attributable, albeit to a lesser extent, by the exchange rate effect generated by an appreciation in the US Dollar.

 

(iii)Expansion in Mibanco loans (+10.1% YTD) was linked to portfolio growth in 1Q20 and to the Government’s programs for financial relief, Reactiva Perú and FAE. This expansion began in 2Q20 but picked up speed in 3Q20 with phase 2 of Reactiva, which extends loan possibilities to a larger number of clients in the microfinance segment. The YTD evolution at BCP Bolivia mirrored that seen QoQ and YoY and was up +9.0% drive by expansion in the Wholesale Banking portfolio and in the Mortgage segment within Retail Banking.

 

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1.2.2. Evolution of the level of dollarization by segment

 

Loan evolution by currency - average daily balances (1)(2)

 

   DOMESTIC CURRENCY LOANS      % change   FOREIGN CURRENCY LOANS   % part. by currency 
   Expressed in million S/   Structural   % change   Structural   Expressed in million US$   3Q20 
    3Q19    2Q20    3Q20    2Q20    3Q20    QoQ    YoY     QoQ    YoY     3Q19    2Q20    3Q20    QoQ    YoY    LC    FC  
BCP Stand-alone   57,636    70,856    78,056    63,464    60,115    10.2%   35.4%   -5.3%   4.3%   10,132    10,371    9,375    -9.6%   -7.5%   70.1%   29.9%
Wholesale Banking   19,964    27,207    28,201    23,895    21,694    3.7%   41.3%   -9.2%   8.7%   7,873    8,335    7,493    -10.1%   -4.8%   51.4%   48.6%
Corporate   11,320    15,245    14,204    14,789    13,381    -6.8%   25.5%   -9.5%   18.2%   4,969    5,449    4,851    -11.0%   -2.4%   45.2%   54.8%
Middle-Market   8,644    11,962    13,997    9,105    8,313    17.0%   61.9%   -8.7%   -3.8%   2,905    2,886    2,642    -8.5%   -9.0%   59.8%   40.2%
Retail Banking   37,672    43,649    49,855    39,569    38,421    14.2%   32.3%   -2.9%   2.0%   2,258    2,036    1,882    -7.5%   -16.7%   88.2%   11.8%
SME - Business   2,614    4,740    7,545    2,470    2,105    59.2%   188.6%   -14.8%   -19.5%   871    810    694    -14.3%   -20.3%   75.4%   24.6%
SME - Pyme   9,628    11,700    15,862    9,891    9,868    35.6%   64.8%   -0.2%   2.5%   66    66    56    -14.6%   -15.1%   98.8%   1.2%
Mortgage   13,632    14,794    14,673    14,794    14,673    -0.8%   7.6%   -0.8%   7.6%   733    622    603    -3.1%   -17.7%   87.3%   12.7%
Consumer   7,057    7,899    7,717    7,899    7,717    -2.3%   9.4%   -2.3%   9.4%   352    353    366    3.5%   4.1%   85.6%   14.4%
Credit Card   4,742    4,515    4,058    4,515    4,058    -10.1%   -14.4%   -10.1%   -14.4%   237    185    163    -11.9%   -31.2%   87.5%   12.5%
Mibanco   9,522    10,276    11,085    10,088    9,221    7.9%   16.4%   -8.6%   -3.2%   162    159    143    -10.0%   -11.9%   95.6%   4.4%
Bolivia   -    -    -    -    -    -    -    -    -    2,210    2,291    2,292    0.1%   3.7%   -    100.0%
ASB   -    -    -    -    -    -    -    -    -    734    708    686    -3.2%   -6.5%   -    100.0%
Total loans   67,158    81,131    89,141    73,552    69,336    9.9%   32.7%   -5.7%   3.2%   13,238    13,529    12,496    -7.6%   -5.6%   66.7%   33.3%

 

Highest growth in volumes
Largest contraction in volumes

 

For consolidation purposes, loans generated in FC are converted to LC.

(1) Includes Work out unit, and other banking.

(2) Structural Portfolio excludes the average daily balances from loans offered through de Reactiva Peru y FAE-Mype Government Programs.

 

The QoQ and YoY analysis of loan expansion in average daily balances by currency reflects the preponderant effect that loan disbursements under Reactiva Peru has had on the upward evolution of LC balances. This expansion was driven by government loans to the Retail Banking segments, primarily via SME-Pyme and SME-Business, and by loans to Wholesale Banking clients, mainly through Middle Market Banking. In the structural portfolio, which excludes Government loans, loan growth in LC in the Corporate, SME-Pyme, Mortgage and Consumer segments also evolved positively YoY (+18.2%, +2.5%, +7.6% and +9.4%, respectively), in line with portfolio expansion in 1Q20. This evolution was offset, to a large extent, by a decrease in loan origination due to the pandemic. FC loan balances during both periods fell in all segments due to a drop in commercial activity and business due to the pandemic and the impact of low-cost financing in Soles guaranteed by the Government through the aforementioned programs.  

 

YoY evolution of the level of dollarization by segment (1)(2)(3)

 

FC portfolio participation:

- Credicorp: 39.9% in 3Q19 and 33.3% in 3Q20

-BCP Stand-alone:37.1% in 3Q19 and 29.9% in 3Q20

 

 

 

Average daily balances.

(1) The FC share of Credicorp’s loan portfolio is calculated including BCP Bolivia and ASB, however the chart shows only the loan books of BCP Stand-alone and Mibanco.

(2) The year with the historic maximum level of dollarization for Wholesale Banking was 2012, for Mibanco was 2016 and for the rest of segments was 2009.

 

At BCP Stand-alone, the dollarization level fell YoY to situate at 29.9%. A downward trend is evident in all segments but the most significant reduction in the dollarization level was in the SME-Business segment, which fell from 53% in September 2019 to 25% in September 2020. The aforementioned was due to the fact that a high proportion of loan disbursements for this segment were made in LC via the Reactiva Peru program.

 

10

 

 

1.2.3. Market share in loans

 

Market share in Peru (1)

 

 

 

(1) Market shares are different that previously reported, please consider the figures presented on this report.

 

Peruvian Financial System

 

At the end of August 2020, BCP Stand-alone continued to lead the Peruvian financial system1 with a market share (MS) of 30.4%, compared to 18.7% for its closest competitor. The MS of Mibanco is situated at 3.2% within the total Finanical System, which represents an improvement over the 3.0% registered last quarter. BCP and Mibanco have significantly increased their share of total loans within the system, particularly in the SME-Pyme segment, due to the loans disbursed under the Reactiva Peru and FAE-Mype programs.

 

In Wholesale Banking, the Corporate Banking segment registered an MS of 39.0%, which represented growth of +30bps QoQ and +120pbs YoY. Middle Market banking increased its share, going from 35.5% in 3Q19 and 37.1% in 2Q20 to 37.5% in 3Q20 due to the influx of Reactiva Peru loans. It is important to note that BCP continues to lead these segments in MS.

 

Within Retail Banking, BCP continued to lead the market in the Mortgage segment (-30 bps QoQ and -40bps YoY) and in SME-Business (-30bps QoQ and +430bps YoY). Leadership in the SME-Business segment has been bolstered by BCP’s prevailing share of disbursements under Reactiva Peru. In the Consumer and Credit Card segments, BCP is ranked second.

 

In the SME-Pyme segment, Mibanco continues to lead the pack with an MS of 20.0%. The decrease in MS in the YoY comparison (20.4% in 2Q20 and 21.8% in 3Q19) is due to the fact that BCP increased its share of this segment (+20bps QoQ and +420bps YoY) by disbursing a large portion of the loans offered by Reactiva Peru. BCP continues to rank second in this segment with an MS of 15.8%.

 

Bolivian Financial System

 

Finally, BCP Bolivia MS registered a decrease both QoQ and YoY, due to the increase in the loan portfolio of local leading competitors by refinancing and relief programs offered to individuals and enterprises. The subsidiary is ranked fifth in the Bolivian financial system with a 9.3% market share.

 

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2.       Funding Sources

 

At the end of 3Q20, total funding increased +5.6% QoQ and +34.0% YoY. Expansion was attributable to growth in Deposits and obligations and BCRP Instruments. The increase in deposits was spurred by growth in demand deposits, particularly non-interest bearing, and savings deposits, both of which imply lower costs, while expansion in the volume of BCRP Instruments was driven by the Reactiva Peru and FAE programs. The aforementioned offset the reduction in Other sources of funding, which were replaced by lower-cost sources. In this context, Credicorp’s structural funding cost fell -32 bps QoQ, -85 bps YoY and -49 bps YTD due to the funding mix and rate effect.

 

Funding   As of     % change  
S/ 000   Sep 19     Jun 20     Sep 20     QoQ     YoY   
Demand deposits     32,626,001       48,926,791       53,574,151       9.5 %     64.2 %
Saving deposits     33,681,765       42,562,229       45,999,882       8.1 %     36.6 %
Time deposits     33,194,331       30,019,871       29,785,440       -0.8 %     -10.3 %
Severance indemnity deposits     7,205,449       7,441,044       7,127,617       -4.2 %     -1.1 %
Interest payable     684,174       714,397       715,584       0.2 %     4.6 %
Deposits and obligations     107,391,720       129,664,332       137,202,674       5.8 %     27.8 %
Due to banks and correspondents     8,624,286       8,374,009       6,601,722       -21.2 %     -23.5 %
BCRP instruments     4,144,908       19,441,733       25,344,724       30.4 %     511.5 %
Repurchase agreements     2,031,025       2,091,798       1,204,487       -42.4 %     -40.7 %
Bonds and notes issued     17,160,564       17,250,531       16,425,832       -4.8 %     -4.3 %
Total funding     139,352,503       176,822,403       186,779,439       5.6 %     34.0 %

  

2.1. Funding Structure

 

Evolution of the funding structure and cost – BAP

(S/ millions)

 

 

  

(1) 2019 figures differ from previously reported due to the implementation of IFRS 19, where financing expenses related to lease agreements are included

 

The figure depicting the Evolution of Credicorp’s Funding Structure and Cost is calculated with quarter-end balances. Overall, the funding structure reflects:

 

(i)Significant growth in deposits (+5.8% QoQ and +27.8% YoY), the main source of funding, which imply lower costs than Other sources of funding. The increase in the deposit volume was driven by an uptick in funds held in accounts after an: i) expansion in funds held in Retail accounts after the government liberated a portion of Severance Indemnity funds and AFP pension funds and ii) growth in funds held in Wholesale accounts rose after clients at BCP Stand-alone and Mibanco received financing through the Reactiva and FAE programs. Growth in deposits represented 75.7% and 62.9% of the total increase in funding QoQ and YoY respectively.

 

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(ii)Within in the deposit mix, demand deposits and savings deposits reported significant growth at the end of September 2020. These deposits represent 72.6% of the total share of deposits (vs 70.6% in June 20 and 61.7% in Sept 19). The increase in the shares registered for these deposits within total deposits is also attributable to the fact that other types of deposits contracted and were replaced by these lower-cost alternatives in the deposit mix.

 

(iii)The expansion of Other sources of funding was attributable to growth in the volume of BCRP Instruments, which was driven by the effects of government programs. This offset the contraction in other sources of funding, which will be explained in greater detail in section 2.3 Other sources of funding. It is important to note the growth in the share of BCRP Instruments in total funding, which situated at 13.6% this quarter (in comparison to 11.0% in June 20 and 3.0% in Sept 19). As of Sep 20, the government funding from BCRP Instruments represented 13% of the total funding volume.

 

2.2. Deposits

 

Deposits and obligations   As of     % change  
S/ 000   Sep 19     Jun 20     Sep 20     QoQ     YoY  
Demand deposits     32,626,001       48,926,791       53,574,151       9.5 %     64.2 %
Saving deposits     33,681,765       42,562,229       45,999,882       8.1 %     36.6 %
Time deposits     33,194,331       30,019,871       29,785,440       -0.8 %     -10.3 %
Severance indemnity deposits     7,205,449       7,441,044       7,127,617       -4.2 %     -1.1 %
Interest payable     684,174       714,397       715,584       0.2 %     4.6 %
Deposits and obligations     107,391,720       129,664,332       137,202,674       5.8 %     27.8 %

  

Deposits and obligations expanded +5.8% QoQ. The QoQ evolution of the deposit mix indicates:

 

(i)The +9.5% increase in demand deposits was driven by an increase in the deposit volume in current accounts held by clients at BCP Stand-alone. This growth was mainly spurred by the influx of loans from the Reactiva Peru program, whose balances were transferred and held in institutional client accounts. It is important to note that 94% of the growth in demand deposits was attributable to non-interest bearing deposits, which had a positive impact on the cost of funding.

 

(ii)Growth in savings deposits, which increased +8.1% QoQ, mainly in LC. This expansion reflects the effects of the measures taken by the Peruvian government to mitigate the impacts of COVID-19, which included: (i) partial withdrawal of Severance indemnity deposits, (ii) liberation of up to 25% of the AFP pension funds, (iii) nightly curfews from Monday-Saturday and restrictions on movement all day Sunday in addition to orders to close entertainment, recreational and commercial establishments during restricted periods, which led consumption and billing levels to drop, as was reflected in the decline in credit and debit card use. Growth in savings deposits was also attributable to the fact that employers deposited employee bonuses in July and to bank campaigns to capture deposits through digital and cost-efficient channels.

 

(iii)The decline in Severance indemnity deposits, mainly at BCP Stand-alone and in LC due to a government decree in mid-June that allowed affiliates to withdraw S/ 2,400.

 

(iv)The contraction in time deposits, mainly at Mibanco, which was attributable to a decrease in campaigns to capture this type of deposit. It is important to note that time deposits have been replaced by lower-cost deposit types.

 

In YoY terms, total deposits and obligations reported growth of +27.8%. This increase followed the same trend as that seen in the QoQ analysis. The aforementioned was partially attenuated by a drop in time deposits, which fell primarily in Middle-Market Banking at BCP Stand-alone and, to a lesser extent, by a decline in retail and treasury deposits at Mibanco.

  

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2.2.1. Deposits: dollarization level

 

Dollarization Level of Deposits (1) – BAP

 

 

 

(1) Q-end balances.

 

 

Credicorp – Deposit Dollarization measured in quarter-end balances

 

 

 

 

The dollarization level of Credicorp’s deposits remained stable QoQ, which was attributable to the fact that LC and FC deposits grew at similar rates (+6.0% in LC vs +5.6% in FC).

 

Growth in LC volumes was driven primarily by an increase in savings deposits and demand deposits. These deposit types reported advances of +9.9% and +7.9% in LC, respectively. Expansion in savings deposits was primarily attributable to natural persons while growth in demand deposits was driven by Wholesale Banking clients, both at BCP Stand-alone. The aforementioned helped offset the contraction in other types of deposits in LC.

 

In the case of FC volumes, growth was also driven by demand deposits, and, to a lesser extent, by savings deposits. The expansion in demand deposits represents 78% of the total increase in FC deposits. The aforementioned was driven by an increase in volumes from institutional clients in Middle Market banking at BCP Stand-alone. The quarterly evolution was also attributable to the exchange rate effect spurred by a +1.7% appreciation in the US Dollar QoQ, which drove FC deposit volumes upward. If we exclude the exchange rate effect, total FC deposits grew +3.9% QoQ in real terms versus +5.6% QoQ in nominal terms.

 

The YoY evolution reflects a significant contraction in the dollarization level, which was attributable to the fact that LC volumes rose by +38.3% versus +17.4% growth in FC. The aforementioned was driven by growth in demand deposits and savings deposits in LC of +100.5% and 48.9%, respectively. Growth in FC volumes was also seen in demand and savings deposits, which grew +37.8% y +21.8% respectively.

 

YoY growth in FC deposits was also attributable to the exchange rate effect that was generated by a +6.3% appreciation in the US Dollar YoY, which affected deposit volumes in FC. If we eliminate the exchange rate effect, total deposits grew 10.4% YoY in real terms versus 17.4% YoY in nominal terms. At the end of September 20, FC deposits represented 46.4% of total deposits, which fell below the 50.5% reported in September 19.

 

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It is important to note that the increase in demand and savings deposits in LC (QoQ and YoY) was driven by the economic relief measures implemented by the Peruvian government to assist businesses and individuals by providing liquidity to mitigate the impacts of COVID-19. Consequently, businesses that received loan benefits from government programs (GP), and individuals who drew down their severance accounts or AFP funds, deposited the corresponding balances in their accounts at both BCP Stand-alone and Mibanco. The effect of immediate liquidity also explains the reduction in time deposits in both LC and FC.

 

2.2.2. Market share in Deposits

 

Market share in Peru

 

 

 

Source: SBS

(1) Figures may not add due to rounding.

 

Peruvian Financial System

 

At the end of Aug 20, the subsidiaries of Credicorp in Peru, BCP Stand-alone and Mibanco, reported a MS of 31.1% and 2.3% respectively. Credicorp continued to dominate the market for deposits in the financial system, outpacing its closest competitor by a significant margin (competitor’s MS: 19.9%).

 

In the YoY analysis, which eliminates any seasonal effect, BCP registered a 180 bps increase in its MS in comparison to the figure registered at the end of Sept 19. This was primarily attributable to an increase in the MS of demand deposits (+350 bps). Mibanco’s MS fell to 2.3% (vs 2.8% in Sept 19) due to a contraction in in the MS of time deposits.

 

Bolivian Financial System

 

BCP Bolivia continued to rank fifth in the Bolivian financial system with an MS of 9.3% at the end of Sep 20 (versus 9.4% in Jun 20). In the YoY analysis, the MS fell -20 bps in comparison to the figure at the end of Sep 19 (9.5%).

 

2.3. Other funding sources

 

Other funding sources   As of     % change  
S/ 000   Sep 19     Jun 20     Sep 20     QoQ     YoY    
Due to banks and correspondents     8,624,286       8,374,009       6,601,722       -21.2 %     -23.5 %
BCRP instruments     4,144,908       19,441,733       25,344,724       30.4 %     N/A  
Repurchase agreements     2,031,025       2,091,798       1,204,487       -42.4 %     -40.7 %
Bonds and notes issued     17,160,564       17,250,531       16,425,832       -4.8 %     -4.3 %
Total other funding sources     31,960,783       47,158,071       49,576,765       5.1 %     55.1 %

 

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The total of Other funding sources increased +5.1% QoQ. Growth was primarily driven by an increase in the volume of BCRP instruments, whose share of total Other funding sources increased to 51.1% (in comparison to 41.2% at the end of June 20).

 

Due to banks and correspondents fell this quarter due to (i) the evolution at BCP Individual, after operations with foreign institutions in FC expired and, to a lesser extent, to (ii) the evolution at Mibanco, mainly due to the expiration of operations with institutions in the Peruvian financial system, and (iii) the evolution at ASB, due to a decrease in FC obligations that expired and were not renewed.

 

In terms of BCRP Instruments, significant growth was attributable to the evolution at BCP Stand-alone and, to a lesser extent, to movements at Mibanco after inflows of new regular repos and CDs. Growth in these instruments was driven by the liquidity facilities offered by the Peruvian government for loan disbursements under Reactiva Peru and FAE. This non-structural funding (which include funds from government loans), represented 81% of total BCRP instruments at the end of Sept 20. It is important to note that repos with BCRP that are tied to GP are lent at low rates below 1%.

 

Repurchase agreements contracted after repos with foreign institutions in FC expired at BCP Stand-alone and ASB.

 

Bonds and notes issued decreased due to the partial reserve set aside for two subordinated bonds in the month of July and the expiration of a corporate bond in September, all at BCP Stand-alone and in FC. As part of its debt restructuring strategy, BCP Stand-alone executed an international debt issuance in the month of July. Through this effort, two subordinated bonds for $476 million and $720 million were restructured with maturities in 2026 and 2027 at coupon rates of 6.857% and 6.125% respectively with a repurchase for $768 million plus “New Money” for $82 million (new issuance for $850 million) with a new expiration date in July 2030 and a coupon rate of 3.125%.

 

The YoY evolution indicates an increase of +55.1% in Other funding sources, which was attributable to an increase in BCRP Instruments (driven by the same reasons as those outlined for the QoQ evolution). Growth in this source represented 120% of the total increase in Other funding sources, which offset the contraction in other funding sources.

 

2.4. Loan / Deposit (L/D)

 

Loan / Deposit Ratio by Subsidiary

 

 

 

The L/D ratio at Credicorp contracted QoQ and situated at 99.2% after growth in deposits (+5.8%), outpaced the expansion reported for loans (+2.6%).

 

The analysis by subsidiary shows the same trend for BCP Stand-alone (99.1% Sept 20 vs 105.1% June 20). QoQ decrease in the L/D at BCP Stand-alone was driven by the fact that the expansion reported in the deposit volume (+7.5%) outstripped that registered for loans (+1.4%). The increase in deposits, which was seen in both current and savings accounts, was attributable to two factors: i) government-mandated facilities to provide liquidity to individuals, including permission to draw down severance and pension funds, and ii) government loans to businesses, which were made primarily through Reactiva Peru and to a lesser extent, via FAE-Mype. In the case of Mibanco, QoQ growth in the L/D reflected the fact that the +12.7% increase in loans outpaced the expansion of +1.9% reported for deposits. Significant loan growth was primarily attributable to the influx of loans through Reactiva Peru and FAE.

 

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In the YoY analysis, the L/D ratio at Credicorp and BCP Stand-alone fell after the increase in the deposit volume (+27.8% and +30.2%, respectively) outpaced growth in loans (+21.3% and +21.9% respectively. The L/D ratio at Mibanco followed the same trend as that described in the QoQ analysis.

 

Loan / Deposit Ratio by Currency

 

Local Currency  Foreign Currency
   

 

In the QoQ analysis by currency, the L/D ratio in LC at Credicorp and Mibanco rose, which was attributable to the influx of loans under Reactiva Peru and FAE. The slight contraction at BCP Stand-alone was driven by an uptick in individual deposits after clients received statutory bonus payments from their employers and availed of the severance and pension fund withdrawal facilities offered by the government. The contraction in the L/D ratio for FC at Credicorp and BCP Stand-alone was attributable to growth in deposits (+5.6% and +8.9% respectively) and to a decrease in loans (-5.7% and -8.2% respectively). In the case of Mibanco, the L/D ratio in FC presented a slight contraction due to lower volumes of loans (-6.0%) after commercial transactions dropped.

 

In the YoY analysis, Credicorp posted a drop in its L/D ratio in LC and FC after deposits registered higher growth than loans, as analyzed in 2.2 Deposits.

 

2.5. Funding Cost

 

Funding Cost – Credicorp (1)(2)(3)

 

  

 

(1) The funding cost by currency is calculated with the average of period-beginning and period-end balances.

(2) 2019 figures differ from previously reported due to the implementation of IFRS 16, where financing expenses related to lease agreements are included.

(3) Structural Funding Cost deducts the impact in expenses and funding related to GP Loans (BCRP Repos) and deducts non-recurring events from Interest Expense

  

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Credicorp’s funding cost fell -12 bps QoQ and -72 bps YoY. The QoQ evolution shows:

 

(i)The funding cost in LC dropped (-50 bps), which was attributable to the -11.7% decrease in interest expenses (numerator of the calculation) and to growth of +9.9% in total funding (denominator of the calculation). The increase in the total funding volume in LC was attributable to the uptick of +30.4% in BCRP instruments, which was driven by government loan programs as well as other government-mandated economic facilities. The structural funding cost in LC (which excludes the effects of Central Bank funding and expenses), fell -44 bps (1.57% 3Q20 vs 2.01% 2Q20). This was primarily attributable to the decrease in interest on deposits (-25.9% QoQ), which reflects an improvement in the mix in 3Q20, where lower-cost deposits (savings and non-interest bearing demand deposits) reported higher growth.

 

(ii)The reduction in the total funding cost was attributable to an increase in the funding volume (+5.6%), where growth outpaced the expansion in interest expenses (+3.3). Growth in funding was driven by growth in deposits, the main source of funding, and by an expansion in BCRP instruments, while the increase in expenses was attributable to growth in interest on bonds. The analysis of total structural funding cost, which excludes interest expenses and funding on GP loans and non-recurring events, related to the one-off charge from the subordinated bond exchange at BCP, indicates that the funding cost was situated at 1.59% (-32 bps QoQ).

 

(iii)Expansion in the funding cost in FC (+34 bps) was attributable to an increase in interest on bonds and issued notes, which was slightly attenuated by the contraction in financial expenses in other funding sources. The structural funding cost in FC, which does not include the non-recurring charge for the exchange and issuance of a bond at BCP Stand-alone in the month of July for a total of S/ 108 million, situated at 1.62% (an improvement of -20 bps).

 

The YoY analysis shows a reduction in the total funding cost, which was attributable to:

 

(i)A more favorable deposit mix, where demand deposits and savings deposits posted the highest growth with variations of +64.2% and +36.6% respectively. Higher cost deposits, time and severance indemnity, registered drops of -10.1% and -1.1% respectively. In this scenario, interest expenses on deposits decreased -30.6% YoY.

 

(ii)The increase in total funding of +34.1% YoY and the contraction in interest expenses of -6.5% YoY. The aforementioned was partially offset by the +27.4% increase in interest expenses on bonds and issued notes related to the premium payment of the liability management.

 

(iii)The rate effect, given that the interest rates (national and international) have followed a downward trend due to the economic contraction spurred by the pandemic.

 

In this scenario, the total structural funding cost, LC and FC reflect a broad contraction of -85 bps, -106 bps and -70 bps YoY respectively. These levels represent the lowest registered in the past 4 years and indicate that Credicorp’s strategy to restructure liabilities to improve maturities and reduce the fund cost curve in FC and LC are working as planned.

 

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The funding cost by subsidiary is depicted in the following figure:

 

Funding Cost by subsidiary– Credicorp (1)(2)

 

 

 

(1) 2019 figures differ from previously reported due to the implementation of IFRS 16, where financing expenses related to lease agreements are included.

(2) Structural Funding Cost deducts the impact in expenses and funding related to GP Loans (BCRP Repos) and deducts non-recurring events from Interest Expense

 

(i)The funding cost at BCP Stand-alone followed the same trend as that registered for Credicorp funding and reflected a contraction QoQ and YoY. The drop was due to (i) an improvement in the funding mix after the volume of lower-cost funding sources rose, (ii) the rate effect, where all funding sources registered a decrease in their implicit rates and (ii) the volume effect, after BCRP Instruments and deposits (denominator of the calculation) reported significant growth. All of the aforementioned attenuated the increase in expenses from the bond exchanges. The structural funding cost at BCP Stand-alone, excluding the impact of Central Bank funding and expenses related to GP Loans and non-recurring charges at interest expenses related to the bond exchange, was situated at 1.28%, which represents a decrease of -35 bps QoQ and -88 bps YoY.

 

(ii)Mibanco also reported a significant contraction in the funding cost QoQ and YoY. In the QoQ and YoY analysis, the decrease in the financial expense (-7.5% and -11.1% respectively) was due to the drop in interest on deposits, which was mainly attributable to a decrease in the volume of time deposits. The total funding volume increased +12.2% QoQ and +17.5% YoY; this was attributable to repos of GP, which contributed to the denominator of the calculation. Finally, the structural funding cost at Mibanco, excluding the effects of Reactiva and FAE programs, was situated at 3.67%, which represents a decrease of -26 bps QoQ and -64 bps YoY. This contributed positively to interest margins.

 

(iii)The funding cost at BCP Bolivia remained stable QoQ given that funding costs and expenses registered similar growth (+1.9% and +1.7% respectively). The funding cost YoY reflected a slight increase of +2 bps, which was driven by an increase in interest expenses on deposits after the volume of higher cost deposits (time deposits) increased.

 

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3.       Portfolio quality and Provisions for loan losses

 

In an environment of economic reactivation, on-going improvement was seen in 3Q20 in on-time payment of structural loans due at both BCP and Mibanco and the performance of reprogramed loans reflected this trend. This quarter, provisions fell to levels significantly below those posted in 2Q20. The aforementioned was a result of improved macroeconomic expectations and to adjustments to the expected loss model, which included new variables that more accurately reflect our clients’ evolution.

 

In this context, Credicorp’s Cost of Risk (CofR) situated at 3.84% in 3Q20 and 5.08% YTD. If we adjust provisions and loans for government programs, the Structural Cost of Risk was situated at 4.37% in 3Q20 and 5.89% YTD. The ratios for portfolio quality, IOL and NPL, registered an uptick due to an increase in deterioration in the retail segment. Given that growth in provisions was greater than the expansion registered for the NPL portfolio, the coverage ratio for NPL loans rose from 108.9% in 3Q19 to 169.9% in 3Q20.

 

QoQ Eolution of the Cost of Risk (bps)

 

 

 

(1) Includes BCP Bolivia, Encumbra, Bancompartir, ASB and eliminations for consolidation purposes

 

Reprogrammed and Payment Ratios

 

In the third quarter, in line with on-going economic reactivation, an improvement was observed in the payment ratio of maturing installments at both BCP and Mibanco. In the case of BCP's Retail Banking, on-time payments rose from 72% in June to 94% in September while at Mibanco the ratio improved from 55% in June to 84% in September.1

 

As of September, the breakdown of our up-to-date structural portfolio was as follows:

 

In the case of Retail Banking at BCP, 23% reprogrammed and up-to-date, 71% were non-reprogrammed up-to-date loans, and 6% overdue loans. In the case of Mibanco, 61% reprogrammed and up-to-date, 35% were non-reprogrammed up-to-date loans, and 4% overdue loans.

 

Reprogramming facilities have helped prevent further deterioration in the portfolio.

 

3.1. Provisions for loan losses

 

Provision for credit losses on loan portfolio, net of recoveries   Quarter   % change   YTD   % change  
S/ 000   3Q19   2Q20   3Q20   QoQ   YoY   Sep 19   Sep 20   Sep 20 / Sep 19  
Gross provision for credit losses on loan portfolio   (568,034 ) (2,557,658 ) (1,348,726 ) -47.3 % 137.4 % (1,531,364 ) (5,295,096 ) 245.8 %
Recoveries of written-off loans   65,262   17,201   42,821   148.9 % -34.4 % 197,087   107,252   -45.6 %
Provision for credit losses on loan portfolio, net of recoveries   (502,772 ) (2,540,457 ) (1,305,905 ) -48.6 % 159.7 % (1,334,277 ) (5,187,844 ) 288.8 %

 

Provisions fell 47.3% QoQ due to:

 

(i)The Sophistication of the model variables and the update of the clients information by segment (update of surveys on the situation of clients and early alert variables), which reflected an improvement in our clients situation quarter-over-quarter.

 

 

1 Restated series replace the figures presented at the Investor Day, and are now aligned with BCP's methodology.

 

20

 

.

(ii)The improvement in Macroeconomic Expectations for 2021 and 2022.

 

The foregoing was attenuated by the increased participation of the new variables to the model, which more precisely represent the expected losses of customers who have had their income affected by COVID-19. Additionally, there was also a deterioration of specific customers of Wholesale Banking in BCP.

 

Cost of risk

 

    Quarter   % change   Year   % change  
Cost of risk and Provisions   3Q19   2Q20   3Q20   QoQ   YoY   Sep 19   Sep 20   Sep 20 / Sep 19  
Cost of risk (1)   1.79 % 7.66 % 3.84 % -382 bps   205 bps   1.59 % 5.08 % 349 bps  
Structural Cost of risk (2)   1.79 % 8.41 % 4.36 % -405 bps   257 bps   1.59 % 6.00 % 441 bps  
Provision for credit losses on loan portfolio, net of recoveries / Net interest income   19.9 % 56.4 % 129.5 % 7320 bps   10960 bps   18.7 % 89.4 % 7030 bps  

 

(1) Annualized Provision for credit losses on loan portfolio, net of recoveries / Total loans.

(2) The Structural Cost of risk excludes the provisions for credit losses on loan portfolio, net of recoveries and total loans from the Reactiva Peru and FAE Government Programs.

 

In the aforementioned scenario, Credicorp’s cost of risk fell 382 bps QoQ but increased 205 bps YoY and 349 bps YTD. If we exclude loans and provisions associated with disbursements under government programs, the cost of risk of the structural portfolio at Credicorp was situated at 4.36% in 3Q20 and at 6.00% YTD, which represented a drop of 405 bps QoQ and an increase of 257 bps YoY and 441 bps YTD.

 

3.2. Portfolio Quality: Delinquency ratios

 

Portfolio quality and Delinquency ratios    As of   % change  
S/ 000   Sep 19   Jun 20   Sep 20   QoQ    YoY  
Total loans (Quarter-end balance)   112,209,990   132,741,720   136,148,711   2.6 % 21.3 %
Structural Loan Portfolio   112,209,990   117,793,055   111,873,600   -5.0 % -0.3 %
Allowance for loan losses   4,977,809   8,412,544   9,656,383   14.8 % 94.0 %
Write-offs   456,932   42,104   20,249   -51.9 % -95.6 %
Internal overdue loans (IOLs) (1)   3,346,389   3,842,830   4,142,844   7.8 % 23.8 %
Internal overdue loans over 90-days (1)   2,539,751   1,987,988   2,336,000   17.5 % -8.0 %
Refinanced loans   1,225,691   1,179,031   1,539,484   30.6 % 25.6 %
Non-performing loans (NPLs) (2)   4,572,080   5,021,861   5,682,328   13.2 % 24.3 %
IOL ratio   2.98 % 2.89 % 3.04 % 15 bps   6 bps  
Structural IOL ratio   2.98 % 3.26 % 3.70 % 44 bps   72 bps  
IOL over 90-days ratio   2.26 % 1.50 % 1.72 % 22 bps   -54 bps  
NPL ratio   4.07 % 3.78 % 4.17 % 39 bps   10 bps  
Structural NPL ratio   4.07 % 4.26 % 5.08 % 82 bps   101 bps  
Allowance for loan losses over Total loans   4.44 % 6.34 % 7.09 % 80 bps   270 bps  
Coverage ratio of IOLs   148.8 % 218.9 % 233.1 % 1420 bps   8430 bps  
Coverage ratio of IOL 90-days   196.0 % 423.2 % 413.4 % -980 bps   21740 bps  
Coverage ratio of NPLs   108.9 % 167.5 % 169.9 % 240 bps   6100 bps  

 

(1) Includes overdue loans and loans under legal collection. (Quarter-end balances)

(2) Non-performing loans include internal overdue loans and refinanced loans. (Quarter-end balances)

 

In terms of delinquency ratios, it is important to note that: 

 

(i)The total IOL Portfolio increased 7.8% QoQ and 23.8% YoY. This growth was driven mainly by Retail Banking, and by the Consumer and Credit Card segments in particular, and by Mibanco, which saw an uptick after a number of clients unable to service their debt once the grace period facilities had matured. The Wholesale segment also registered deterioration, mainly due to the evolution of a client in the Corporate segment from energy sector in particular. The aforementioned was attenuated by a reduction in the IOL portfolio at BCP Bolivia given that a large percentage of retail loans have been refinanced.

 

(ii)The total of refinanced loans increased 30.6% QoQ and 25.6% YoY after clients in the consumer segment who were not eligible to use the facilities offered by Credicorp given that they were behind on their payments prior to February 15, or those who fell behind on payments after availing of the facilities offered, were offered refinancing options.

 

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The total of written off loans continued to fall this quarter due to changes in Peruvian regulations, which required banks to stop classifying customers as a loss situation until September. It is important to mention that the expected provisions for the loans that would have been written off have already been included in the expected loss model and as of next quarter, the write-offs should return to pre-pandemic levels.

 

Delinquency Ratios

 

 

 

(1) The Structural Cost of risk excludes the provisions for credit losses on loan portfolio, net of recoveries and total loans from the Reactiva Peru and FAE Government Programs.

 

The aforementioned led the IOL and NPL ratios for the Total loans and Structural loans.

 

In the context of COVID-19, the balance of provisions over total loans increased 75 bps QoQ and 265 bps YoY. Additionally, the NPL Coverage ratio showed a significant YoY increase.

 

Prior to analyzing the evolution of the delinquency indicators, it is important to note that: 

 

(i)Credicorp has offered its Retail Clients that, as of February 29th had less than 15 overdue days, the possibility of reprogramming and freezing their debts. In this context, the delinquency ratios for Retail segments fails to fully capture the portfolio’s real deterioration.

 

(ii)The delinquency ratios for the Wholesale, SME-Business and SME-Pyme segments are distorted by the presence of Reactiva Peru and FAE loans. For this reason, we are presenting adjusted ratios to isolate the effect and analyze the evolution of the quality of the structural loan portfolio.

 

(iii)Traditional delinquency ratios (IOL and NPL ratios) continue to be distorted by the presence of loans with real estate collateral (commercial and residential properties). This means that a significant portion of loans that are more than 150 days past due cannot be written off (despite the fact that provisions have been set aside) given that a judicial process must be initiated to liquidate the collateral, which takes five years on average.    Additionally, due to the change in the regulatory framework in March, loans without guarantees cannot be written off. This should regularize beginning next quarter.

 

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3.2.1. Delinquency indicators by business line

 

Wholesale Banking – Delinquency ratios

 

 

 

(i)The IOL and NPL ratios increased QoQ and YoY due to deterioration of one client in the Corporate Banking segment from the energy sectors

 

SME-Business – Delinquency ratios

 

 

 

(ii)The structural IOL and NPL ratios increased given that some clients fell a few days behind in their loan payments. In this segment, slight payment delays are usually remedied in the first few days of the month and as such, no provisions are triggered. It is important to note that this segment’s loan quality indicators are within the organization’s appetite for risk, whose objective is to maximize profitability while striking an adequate balance between risk and growth

 

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SME - Pyme – Delinquency ratios

 

 

 

(iii)In the SME-Pyme loan book, it is important to analyze the early delinquency ratio, which excludes loans that are overdue less than 60 days (volatile loans whose percentage of recovery is very high) and those overdue more than 150 days (loans that have been provisioned but which cannot be written off due to the existence of real estate collateral- commercial properties - that take five years on average to liquidate).

 

Similar to the situation in the Middle Market segment, the traditional and early delinquency ratios fell due to Reactiva Peru loans. If we exclude the increase in loans from government programs, the IOL and NPL ratios increased. This was due to the deterioration of clients that availed of the facilities offered by Credicorp but were unable to meet their debt obligations after grace periods expired. It is important to keep two things in mind when analyzing the SME segment, (i) the indicators for the IOL and NPL portfolios fail to reflect real deterioration given that some of clients with facilities are covered by a grace period through the initial months of 2021 and (ii) clients that have received a Reactiva Peru loan have registered significant improvements in their payment ratios.

 

Early delinquency has fallen due to the reprogramming facilities that Credicorp has offered its clients to attenuate the impact of COVID-19.

 

Mortgage – Delinquency ratios

 

 

 

(iv)In terms of Mortgage loans, it is important to remember that indicators are affected by the existence of real estate collateral (commercial properties). In these cases, the liquidation process can take up to 5 years, which impedes any attempt at write offs despite the fact that the loans are completely provisioned.

 

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Traditional delinquency an early delinquency ratios improved QoQ after more payment facilities were offered to clients in this segment in the last quarter.

 

Consumer – Delinquency ratios

 

 

 

(v)The consumer segment reported a significant increase in its delinquency ratios QoQ and YoY. The IOL portfolio increased after some clients were unable to recover their debt service capacity even with the facilities offered. It is important to note that some of the facilities granted have grace periods that will expire at the end of October.

 

The IOL portfolio registered an increase after refinancing was extended to clients that had received loan facilities (mainly debt freezing or skips) but were unable to meet their debt obligations once the grace period ended. These clients have been offered structural reprogramming that is aligned with their debt service capacity.

 

Early delinquency also increased QoQ and YoY given that some clients, which received at least one facility from Credicorp failed tot meet their debt obligations.

 

Credit Card – Delinquency ratios

 

 

 

(vi)The Credit Card segment posted an increase QoQ and YoY in its IOL and NLP ratios. The was primarily attributable to (i) an increase in IOL loans of clients and once the facilities of debt freezing and skips expired; and (ii) the drop in loans due to a decrease in the number of new credit cards.

 

Early delinquency fell due to a decrease in the number of clients that presented deterioration after Credicorp offered facilities to attenuate the impact of COVID-19.

 

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Mibanco – Delinquency ratios

 

 

(vii)     The IOL and NPL ratios fell QoQ due to growth in loans through government programs. If we exclude these loans, both ratios increased QoQ and YoY. The latter was attributable to deterioration in the payment situation of clients that decided not to take the financial facilities offered by Mibanco. Refinanced loans also increased because clients that were delinquent prior to February 15 of 2020 could not, according to the regulatory framework, receive the same facilities as clients that were up to date in their payments, and as such, were included in the refinanced portfolio.

 

The cost of risk reduced QoQ but remained at high levels given the update of the expected loss model, as mentioned in section 3.1. Provisions for loan losses.

 

BCP Bolivia – Delinquency ratios

 

 

(viii)BCP Bolivia continued to report improvements in its QoQ and YoY delinquency ratios after Bolivian law mandated automatic rescheduling of Retail Banking loans that deferred payments until December 2020, to attenuate the impact of COVID-19.

 

The cost of risk registered a deterioration YoY due to an increase in provisions in the context of COVID-19, as indicated in section 3.1 Provisions for loan losses.

 

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4.       Net Interest Income (NII)

 

In 3Q20, NII, the main component of income, began to recover and posted expansion of +10.2% QoQ. Interest income grew +8.3% QoQ, after having reported non-recurring charges for impairment due to frozen loans in 2Q20. Adjusted Interest Income fell -6,2%, driven mainly by an adjustment on interest income for the frozen loans in the last quarter, a drop in interest rates and a contraction in the structural portfolio. Interest Expenses grew +3.3% QoQ. If we exclude a non-recurring expense for bond exchange at BCP Stand-alone, adjusted interest expenses contracted -10.8% QoQ due to effective management of the funding mix and cost. As a result, adjusted NII fell -4.6% QoQ. In terms of Margins, NIM and Structural NIM situated at 4.05% and 4.46% respectively this quarter. Risk-adjusted NIM grew +279bps QoQ in line with an expansion in NII and a reduction in provisions.

 

Net interest income  Quarter   % change   YTD   % change 
S/ 000  3Q19   2Q20   3Q20   QoQ   YoY   Sep-19   Sep-20   Sep-20 /Sep-19 
Interest income   3,123,672    2,727,369    2,953,570    8.3%   -5.4%   9,208,969    8,844,548    -4.0%
Interest on loans   2,701,117    2,353,285    2,578,362    9.6%   -4.5%   7,896,052    7,701,997    -2.5%
Dividends on investments   2,915    4,867    8,871    82.3%   204.3%   21,496    21,617    0.6%
Interest on deposits with banks   79,723    9,264    7,981    -13.8%   -90.0%   251,899    66,357    -73.7%
Interest on securities   325,311    350,617    347,309    -0.9%   6.8%   1,000,029    1,020,661    2.1%
Other interest income   14,606    9,336    11,047    18.3%   -24.4%   39,493    33,916    -14.1%
Interest expense   847,272    766,241    791,875    3.3%   -6.5%   2,482,998    2,342,426    -5.7%
Interest on deposits   372,822    320,169    258,838    -19.2%   -30.6%   1,091,653    943,114    -13.6%
Interest on borrow ed funds   151,221    157,819    143,739    -8.9%   -4.9%   449,356    438,684    -2.4%
Interest on bonds and subordinated notes   236,567    199,347    301,347    51.2%   27.4%   690,934    698,809    1.1%
Other interest expense (1)(3)   86,662    88,906    87,951    -1.1%   1.5%   251,055    261,819    4.3%
Net interest income (1)(3)   2,276,400    1,961,128    2,161,695    10.2%   -5.0%   6,725,971    6,502,122    -3.3%
Risk-adjusted Net interest income (1)(3)   1,773,628    (579,329)   855,790    n.a.    -51.7%   5,391,694    1,314,279    -75.6%
Average interest earning assets (1)   168,631,427    194,719,984    213,481,060    9.6%   26.6%   166,952,088    196,742,569    17.8%
Net interest margin (1)(2)(3)   5.40%   4.03%   4.05%   2bps    -135bps    5.37%   4.41%   -96bps 
NIM on loans (1)(2)(3)   7.74%   5.85%   6.19%   34bps    -155bps    7.46%   6.57%   -89bps 
Risk-adjusted Net interest margin (1)(2)(3)   4.21%   -1.19%   1.60%   279bps    -261bps    4.31%   0.89%   -342bps 
Net provisions for loan losses / Net interest income (1)(2)(3)   22.09%   129.54%   60.41%   -69.1%   38.3%   19.84%   79.79%   59.95%

 

(1) Figures differ from previously reported, please consider the data presented on this report.

(2) Annualized.

(3) Figures differ from those presented previously

 

4.1. Interest Income

 

Interest Income - LC Interest Income – FC
(S/ millions) (S/ millions)

 

 

In the QoQ analysis, +8.3% growth in Interest Income was attributable to a +9.6% increase in interest on loans, which was in turn due to:

 

(i)The non-recurring expense of S/324 million reported in 2Q20, which was attributable to impairment of frozen loans impairment in April and May.

 

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(ii)The slight acceleration in growth in average daily loan balances (+4.5%) was led by Retail Banking and by SME-Business (+33.0%) and SME-Pyme (+34.7%) in particular, where balances were bolstered by inflows of government loans.

 

(iii)In the segment mix: SME-Business and SME-Pyme reported higher growth in loans than that registered for Wholesale Banking. Although both received inflows of loans under Reactiva 2, the SME-Business and SME-Pyme segments received the majority of the funding available through this tranche.

 

(iv)In the currency mix: the contraction in average daily balances of FC loans was offset by the expansion in average daily balances of MN loans, which offer higher margins.

 

Adjusted interest income contracted -6.2% QoQ, which was attributable to an adjustment in interest on loans due to the non-recurring charge from the frozen loans in 2Q20, decrease in structural loan portfolio and a drop in market rates.

 

In the YoY analysis, interest income fell -5.4% due to:

 

(i)the -4.5% contraction in interest on loans, which was attributable to the fact that government loans carry lower interest rates.

 

(ii)the -90.0% (-S/71 million) reduction in interest income on deposits with banks after the remuneration rate for the reserve fund contracted and the voluntary reserve fund at BCR was drawn down; funds from the latter were used to purchase investments seeking to capitalize on the excess liquidity.

 

YTD, interest income fell -4.0%, which was attributable to:

 

(i)the contraction in interest on deposits in other banks (-73.7%) after the renumeration rate on the legal reserve fell and the voluntary reserve fund was drawn down.

 

(ii)interest income on loans, which fell -2.5% due to:

 

a.expenses for S/323.4 million in 2Q20, which were generated by frozen installments in the months of April and May.

 

b.loans under government programs, which drove strong growth in volume but also pressured interest rates downward.

 

Slight growth of +2.1% in interest on securities, which was attributable to 52.2% growth in total investments YoY (representing +94.74% of Fair value through other comprehensive income investments at BCP Stand-alone), was insufficient to offset the results outlined above.

 

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4.2. Interest Expenses

 

Interest Expenses – LC Interest Expenses – FC
(S/ millions) (S/ millions)

 

 

In the QoQ analysis, interest expenses increased +3.3%, due to an increase in interest on bonds and subordinated notes (+ 51.2%) after an extraordinary expense of S / 108 million was reported for a bond issuance in July through BCP Stand-alone’s liability management strategy. The adjusted interest expense contracted -10.8%, which was attributable to a decrease in market rates and adequate management of the funding mix and cost.

 

As part of our debt liability management strategy, in the month of July, BCP Stand-alone executed an international issuance of subordinated debt for US$850.0MM at a rate of 3.125% with maturity in 2030. This allowed the bank to repurchase of two issuances with maturities in 2026 and 2027 ($768 millions) and coupon rates of 6.87% and 6.125% respectively. Thus, it was possible to extend the duration of subordinated debt at a lower cost.

 

Lower interest expenses on deposits, which were down -19.2% QoQ, were insufficient to offset the aforementioned increase in interest expenses on bonds and subordinated notes. The decrease in expenses on deposits was driven by:

 

(i)an improvement in the deposit mix given that non-interest-bearing deposits and savings deposits grew materially, facilitating a subsequent reduction in more costly alternatives.

 

(ii)the rate effect given that rates in both LC and FC followed a downward trend in recent quarters, which led to a subsequent decrease in expenses.  

 

In the YoY analysis, interest expenses fell -6.5%, which was attributable to:

 

(i)the contraction in interest expenses on deposits due to a decrease in more costly deposit alternatives, including time deposits, severance deposits and interest-bearing deposits.

 

(ii)The -4.9% decrease in interest expenses on loans after loans issued by foreign financial institutions and repos of CDs with BCR expired.

 

The aforementioned was partially offset by a +27.4% increase in interest expenses on bonds and subordinated notes, which correspond to premium payments on the repurchase of bonds. Excluding the extraordinary expense, adjusted expense fell -19.0%.

 

YTD, interest expenses fell -5.7%, which was attributable to a -13.6% contraction in interest on deposits. The main factors that drove this decrease were:

 

(i)deposit mix: although total deposits increased 27.8% YoY, interest expenses fell after the volume of more expensive deposit types. Time deposits and severance indemnity deposit fell -10.3% and -1.1% respectively.

 

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(ii)rate effect: rates have followed a downward trend in both currencies due to the economic contraction generated by the pandemic. 

 

Additionally, there was a -2.4% drop in interest expenses on loans after loans with foreign financial institutions and repos with BCR expired.

 

After excluding extraordinary expense for bond issuance in BCP Stand-alone, adjusted expense fell -10.0%.

 

4.3. Net Interest Margin (NIM) and Risk-Adjusted NIM

 

Credicorp’s NIM and Risk-Adjusted NIM (1)

 

 

(1) Starting on 1Q17, we exclude derivatives from the NII result. For comparative purposes, figures starting from 1Q16 have been recalculated with the new methodology

 

NIM fell YoY and YTD, which was attributable to:

 

(i)Lower Structural NIM, which was 4.46% this quarter and 4.93% YTD; this represented a -94bps decline YoY and -44bps YTD. The decrease in the margin was driven by:

 

a.A drop in market rates in both LC and FC.

 

b.The mix of interest-earning assets, which was characterized by a decrease in the share of loans (66% in 3Q19 versus 59% in 3Q20) versus an increase in the share of investments (21% in 3Q19 versus 24% in 3Q20).

 

(ii)Government Programs vs Structural Loan mix. The impact of Government Programs loans on NIM is -35bps.

 

(iii)Non-recurring events:

 

a.Additional interest income related to the zero-interest-rate loan impairment, and
b.Additional interest expense related to the bond exchange at BCP Stand-alone.