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 Feb 2021

 

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: February 11th, 2021

 

  CREDICORP LTD.
(Registrant)
   
  By: /s/ Miriam Bottger
    Miriam Bottger
    Authorized Representative

 

 

 

 

Exhibit 99.1 

 

 

 

Lima, Peru, February 8, 2021 – Credicorp Ltd. (NYSE: BAP) announced its unaudited results for the fourth quarter of 2020. These results are consolidated according to IFRS in Soles.

 

Fourth Quarter 2020 results

 

In 4Q20, Credicorp reported net income of S/653.4 million, which translated into an ROAE and ROAA of 10.8% and 1.1% respectively. YTD, Credicorp registered net income for 2020 of S/ 346.9 million. If we exclude non-recurring events this year for a total of S/539.4 million (adjusted for taxes), net income and adjusted ROE in 2020 were S/ 886.3 million and 3.5% respectively. These results reflect the most challenging environment that we have experienced at Credicorp in our 25 year history.

 

Economic activity recovered at a better-than-expected pace in 4Q20 as GDP posted significant improvement over the -30% registered in 2Q20. Recovery this quarter was driven by a more favorable external environment, which was marked by an increase in copper prices, and by an improvement in local economic indicators. For the fourth quarter of 2020, estimates suggest that GDP stands only 3% below its pre-pandemic levels.

 

Credicorp’s operating and financial indicators show signs of recovery i the microfinance, SME-Pyme and Individuals segments. Our clients’ recovery was also evident in the billing levels for loans, which registered growth in 4Q20, particularly in the Individuals segments.

 

The results in 4Q20 show:

 

QoQ expansion in average daily loan balances was driven by Government Loans (GP) while the structural loan portfolio registered a contraction, which was primarily fueled by a decrease in the balance levels for corporate banking at BCP, whose clients continued to repay facilities taken at the beginning of the crisis. In YoY terms, total loans grew 15.8% measured in average daily balances and 19.1% in quarter-end balances while structural loans (which do not include GP loans) registered growth of 4.2% in average daily balances and –2.2% in quarter-end balances.

 

NII contracted -4.3% QoQ. This was mainly driven by a decrease in interest income on loans, which was attributable to high inflows of low-interest government loans and to a decrease in the interest rates associated with structural loans. If we excluded non-recurring charges that affect interest income this quarter, NII situates at a stable level compared to last quarter. In 2020, NII fell –5.7%. This evolution was fueled by lower interest rates and a less profitable asset mix, which was partially offset by a decrease in interest expenses in a context of an improvement in the funding mix. Nevertheless, NII adjusted for non-recurring changes throughout the year fell –1%. The NIM and structural NIM margins were situated at 4.30% and 4.78% respectively in 2020.

 

Net provisions for loan losses fell significantly with regard to the level registered last quarter due to an improvement in macroeconomic expectations and to adjustments in the expected loss model, which led the cost of risk for the structural portfolio to situate at 2.44% in 4Q20. Provisions for loan losses in 2020 increased 220.7%, in line with the expected impact of the crisis. Thus, cost of risk in 2020 was 4.3%, compared to 1.6% in 2019. If we adjust provisions and loan balances excluding GP loans, structural cost of risk was 5.07% in 2020. Growth in provisions outpaced the expansion registered by the NPL portfolio; this led to a subsequent increase in the coverage ratio for the NPL portfolio, which situated at 156.1% in December 2020 versus 114.4% in December 2019.

 

Non-financial income expanded +20.7% QoQ in 4Q20, which was primarily attributable to the fact that fee exemptions were in place until the end of September, and as such the last quarter of the year was the only quarter that registered the impact of full fee collections. In 2020, non-financial income fell - 10.0%, which was attributable to a decrease in the transaction levels, particularly in the months of obligatory confinement in the first half of the year. In this context, fee income was the component that registered the most significant impact.

 

The underwriting result fell -27.9% in 2020. This was attributable to growth in claims in the Life business due to COVID-19-related mortality, which was slightly mitigated by a decrease in claims in P&C as indicated in the quarterly analysis.

 

The efficiency ratio increased +220bps QoQ, which reflected seasonal effects on operating expenses. In FY terms, the efficiency ratio in 2020 deteriorated 270 bps, which was due to a drop in income, mainly at BCP Stand-alone.

 

 

 

 

 

Table of Contents

 

Credicorp Ltd. (NYSE: BAP): Fourth 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 13
2.1. Funding Structure 13
2.2. Deposits 14
2.2.1. Deposits: dollarization level 15
2.2.2. Market share in Deposits 16
2.3. Other funding sources 16
2.4. Loan / Deposit (L/D) 17
2.5. Funding Cost 18
3.   Portfolio quality and Provisions for loan losses 21
3.1. Provisions for loan losses 21
3.2. Portfolio Quality: Delinquency ratios 23
3.2.1. Delinquency indicators by business line 24
4.   Net Interest Income (NII) 30
4.1. Interest Income 30
4.2. Interest Expenses 32
4.3. Net Interest Margin (NIM) and Risk-Adjusted NIM 33
5.   Non-Financial Income 36
5.1. Fee Income 37
5.1.1. By subsidiary 37
5.1.2. Fee income in the Banking Business 38
6.   Insurance Underwriting Result 40
6.1. Life Insurance 40
6.2. Property and Casualty Insurance 41
6.3. Acquisition Cost 43
6.4 Underwriting Result by Business 44
7.   Operating Expenses and Efficiency 45
7.1. Credicorp’s Administrative, General and Tax Expenses 46
7.2. Operating Efficency 46
7.3. Efficiency Ratio 48
8.   Regulatory Capital 50
8.1. Regulatory Capital – BAP 50
8.2. Regulatory Capital – BCP Stand-alone based on Peru GAAP 51
8.3. Regulatory Capital at Mibanco based on Peru GAAP 53
9.   Credicorp’s Channels 55
9.1 Distribution model at BCP Stand-alone 55
9.1.1. Digital Clients 55
9.1.1.1. Evolution of digital clients by segment 55
9.1.2. Transactions by channel 56
9.1.3. Sales in Retail Banking 57
9.2. Other Credicorp Subsidiaries 57
9.2.1. Physical points of contact Mibanco 57
9.2.2. Physical points of contact BCP Bolivia 58
10.   Economic Perspectives 59
10.1. Peru Economic Forecasts 59
10.2. Main Economic Variables 59
11.   Appendix 63
11.1. Credicorp 63
11.2. Credicorp Stand-alone 65
11.3. BCP Consolidated 66
11.4. BCP Stand-alone 69
11.5. Mibanco 72
11.6. BCP Bolivia 73
11.7. Credicorp Capital 74
11.8. Atlantic Security Bank 75
11.9. Grupo Pacifico 77
11.10. Prima AFP 79
11.11. Table of calculations 80
11.12. Non-recurring events 81
11.13. Glossary of terms 82

 

 

 

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

 

Financial Overview

 

Credicorp Ltd.  Quarter   % change   Year   % change 
S/ 000   4Q19    3Q20    4Q20    QoQ    YoY    2019    2020    2020/2019 
Net interest income (1)   2,365,050    2,161,695    2,069,220    -4.3%   -12.5%   9,091,751    8,571,342    -5.7        %
Provision for credit losses on loan portfolio, net of recoveries   (511,659)   (1,305,905)   (732,665)   -43.9%   43.2%   (1,845,936)   (5,920,508)   220.7%
Risk-adjusted net interest income (1)   1,853,391    855,790    1,336,555    56.2%   -27.9%   7,245,815    2,650,834    -63.4%
Non-financial income (1)   1,265,545    1,102,597    1,330,406    20.7%   5.1%   4,897,769    4,406,217    -10.0%
Insurance underwriting result (1)   142,443    (4,340)   84,866    -2055.4%   -40.4%   496,977    358,133    -27.9%
Total expenses (1)   (1,885,172)   (1,801,920)   (1,982,556)   10.0%   5.2%   (6,665,048)   (7,191,023)   7.9%
Profit before income tax (1)   1,376,207    152,127    769,271    405.7%   -44.1%   5,975,513    224,161    -96.2%
Income taxes (1)   (383,250)   (55,539)   (103,460)   86.3%   -73.0%   (1,623,182)   109,977    -106.8%
Net profit   992,957    96,588    665,811    589.3%   -32.9%   4,352,331    334,138    -92.3%
Non-controlling interest   20,127    (8,018)   12,407    -254.7%   -38.4%   87,027    (12,756)   -114.7%
Net profit attributable to Credicorp   972,830    104,606    653,404    524.6%   -32.8%   4,265,304    346,894    -91.9%
Net income / share (S/)   12.24    1.32    8.22    524.1%   -32.8%   53.64    4.37    -91.9%
Loans   115,609,679    136,148,711    137,659,885    1.1%   19.1%   115,609,679    137,659,885    19.1%
Deposits and obligations   112,005,385    137,202,674    142,365,502    3.8%   27.1%   112,005,385    142,365,502    27.1%
Net equity   26,237,960    23,594,683    24,945,870    5.7%   -4.9%   26,237,960    24,945,870    -4.9%
Profitability                                        
Net interest margin (2)   5.49%   4.05%   3.73%   -32bps    -176 bps   5.40%   3.82%   -158bps 
Risk-adjusted Net interest margin (2)   4.30%   1.60%   2.41%   n.a.    -189 bps   4.30%   1.18%   -312bps
Funding cost (2)   2.29%   1.74%   1.34%   -40 bps   -95 bps   2.36%   1.79%   -57 bps
ROAE (2)   14.9%   1.8%   10.8%   n.a.    -410 bps   17.03%   1.36%   n.a. 
ROAA (2)   2.1%   0.2%   1.1%   n.a.    -100 bps   2.3%   0.2%   n.a. 
Loan portfolio quality                                        
IOL ratio (3)   2.85%   3.04%   3.40%   36 bps   55 bps   2.85%   3.40%   55 bps
IOL over 90 days ratio   2.15%   2.53%   2.69%   16bps    54 bps   2.15%   2.69%   54 bps
NPL ratio (4)   3.88%   4.17%   4.61%   44 bps   73 bps   3.88%   4.61%   73 bps
Cost of risk (2)(5)   1.77%   3.84%   2.13%   -171bps    36 bps   1.60%   4.30%   270 bps
Coverage ratio of IOLs   155.4%   233.1%   211.7%   -2140bps    5630 bps   155.4%   211.7%   5630 bps
Coverage ratio of IOL 90-days   206.6%   280.5%   266.8%   -1370bps    6020 bps   206.6%   266.8%   6020 bps
Coverage ratio of NPLs   114.4%   169.9%   156.1%   -1380 bps   4170 bps   114.4%   156.1%   4170 bps
Operating efficiency                                        
Efficiency ratio (1) (6)   45.5%   45.0%   47.2%   220 bps   170 bps   43.6%   46.3%   270bps 
Operating expenses / Total average assets (1)(7)   4.02%   3.09%   3.06%   -3bps    -96 bps   4.96%   4.25%   -71 bps
Insurance ratios                                        
Combined ratio of P&C (8)(9)   94.1%   84.8%   81.4%   -340 bps   -1270 bps   94.1%   81.4%   -1270 bps
Loss ratio (9)(10)   62.7%   86.0%   75.4%   -1060 bps   1270 bps   64.0%   70.4%   640bps 
Capital adequacy (11)                                        
BIS ratio (12)   14.47%   15.39%   14.93%   -46 bps   46 bps   14.47%   14.93%   46 bps
Tier 1 ratio (13)   11.07%   10.70%   10.41%   -29 bps   -66 bps   11.07%   10.41%   -66 bps
Common equity tier 1 ratio (14)   12.35%   11.45%   11.40%   -5 bps   -95 bps   12.35%   11.40%   -95 bps
Employees   35,846    37,572    36,806    -2.0%   2.7%   35,846    36,806    2.7%
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    14,915    -0.4%   0.3%   14,872    14,915    0.3%
Floating Shares (1)   79,510    79,405    79,467    0.1%   -0.1%   79,510    79,467    -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   1Q19   4Q19   1Q20   QoQ    YoY    2019    2020    2020 /2019 
Universal Banking                                        
BCP Stand-alone   725,464    421,770    570,181    35.2%   -21.4%   3,163,236    605,751    -80.9%
BCP Bolivia   13,487    (20,753)   (20,750)   0.0%   n.a    78,508    (74,257)   n.a 
Microfinance   -    -    -    0.0%   0.0%   -    -    0.0%
Mi banco (1)   100,034    (154,812)   22,461    n.a    -77.5%   391,688    (370,465)   n.a 
Mibanco Colombia   (307)   (68,383)   (12,537)   -81.7%   n.a    3,633    (97,380)   n.a 
Insurance and Pensions   -    -    -    0.0%   0.0%   -    -    0.0%
Grupo Pacifico(2)   113,760    (14,545)   8,528    n.a    -925%   376,999    192,330    -49.0%
Prima AFP   46,829    38,037    62,951    65.5%   34.4%   196,590    148,141    -24.6%
Investment Banking and Wealth Management   -    -    -    0.0%   0.0%   -    -    0.0%
Credicorp Capital   4,631    25,782    13,140    -50.9%   183.7%   43,883    55,897    27.4%
Atlantic Security Bank   42,824    (60,949)   70,233    n.a    64.0%   186,540    135,877    -27.2%
Others(3)   (73,892)   (62,541)   (60,803)   -2.8%   -17.7%   (175,773)   (249,000)   41.7%
Net profit attributable to Credicorp   972,830    104,606    653,404    n.a    -32.8%   4,265,304    346, 894    -91.9%

 

*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 33.61% through Grupo Credito.

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

 

   Quarter   Year 
ROAE   4019    3Q20   4Q20   2019    2020 
Universal Banking                         
BCP Stand-alone   18.2%   11.3%   14.7%   20.4%   3.8%
BCP Bolivia   7.3%   -12.0%   -12.1%   11.0%   -10.4%
Microfinance                         
Mibanco(1)   19.4%   -35.8%   4.8%   20.1%   -18.1%
Mibanco Colombia   -7.4%   -107.5%   -18.8%   -7.5%   -30.5%
Insurance and Pensions                         
Grupo Pacifico (2)   14.7%   -2.1%   1.2%   14.0%   6.7%
Prima   27.3%   24.6%   37.7%   29.5%   21.2%
Investment Banking and Wealth Management                         
Credicorp Capital   3.1%   16.3%   7.8%   6.5%   8.4%
Atlantic Security Bank   22.2%   -29.9%   32.8%   26.1%   17.4%
Credicorp   14.9%   1.8%   10.8%   17.0%   1.4%

 

(1) ROAE including goodwill of BCP from the acquisition of Edyficar (Approximately US$ 50.7 million) was 18.2% in 4Q19, -33.2% in 3Q20 and 4.5% in 4Q20. YTD was 18.8% for December 2019 and -16.9% for December 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 19.9% in 4Q19, -2.5% in 3Q20 and 15% in 4Q19."""" YTD was 16.5% for December 2018 and 8.2% for December 2019.""

 

In 4Q20, Credicorp registered net income of S/ 653.4 million, which translated into a ROAE of 10.8% (10 pp above 3Q20 results).

 

This quarter, Credicorp recorded non-recurring events, which are detailed in this report and Annex 11.12. These non-recurring events impacted Credicorp’s 4Q20 results by S/ -71.8 million, after taxes. If we exclude non-recurring events, Credicorp’s adjusted 4Q20 net income was S/ 725.1 million, which represented an improvement compared to the S/ 289.4 million registered in 3Q20. In this context, Credicorp’s adjusted 4Q20 ROAE was situated at 12.0%, which topped the 4.9% reported in 3Q20. In full-year terms, Credicorp registered a net income for 2020 of S/ 346.9 million. If we exclude non-recurring events this year for a total of S/539.4 million (adjusted for taxes), net income and adjusted ROAE in 2020 were S/ 886.3 million and 3.5% respectively. 

 

4

 

 

1.       Interest-earning assets (IEA)

 

At the end of December 2020, IEAs registered growth of +2.3% QoQ and +29.2% YoY, which was driven primarily by expansion in the loan and investment portfolios. Loans, measured in average daily balances, reported growth of +2.0% QoQ and +18.8% YoY. This expansion was mainly attributable to an increase in loans at BCP Stand-alone that was led by the SME-Business and SME-Pyme retail segments, which was spurred by an inflow of government loans through Reactiva Peru. Mibanco also posted growth due to loans through Reactiva program and, to a lesser extent, modest recovery in disbursements for structural loans. If we isolate the effect generated by government programs (Reactiva Peru and FAE-Mype) in the calculation for total loan growth, loans in the Structural Portfolio fell -2.0% QoQ and -2.7% YoY in average daily balances.

 

Interest earning assets  As of   % change 
S/ 000  Dec 19   Sep 20   Dec 20   QoQ   YoY 
Cash and due from banks(1)   19,697,831    28,219,512    28,544,161    1.2%   44.9%
Interbank funds   111,575    2,031    32,221    1486.5%   -71.1%
Total investments(1)   33,530,531    51,648,986    55,173,742    6.8%   64.5%
Cash collateral, reverse repurchase agreements and securities borrowing   4,288,524    2,821,116    2,394,302    -15.1%   -44.2%
Financial assets designated at fair value through profit or loss   620,544    729,059    823,270    12.9%   32.7%
Total loans (2)   115,609,679    136,148,711    137,659,885    1.1%   19.1%
Total interest earning assets (1)   173,858,684    219,569,415    224,627,581    2.3%   29.2%

 

                          
Total Investments   As of    % change 
S/ 000   Dec 19    Sep 20    Dec 20    QoQ    YoY 
Fair value through profit or loss investments(1)   3,850,762    6,658,680    6,467,471    -2.9%   68.0%
Fair value through other comprehensive income investments(1)   26,202,723    40,712,831    43,743,889    7.4%   66.9%
Amortized cost investments   3,477,046    4,277,475    4,962,382    16.0%   42.7%
Total investments (1)   33,530,531    51,648,986    55,173,742    6.8%   64.5%

 

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

(2) Quarter-end balances.

 

1.1. Evolution of IEA

 

Total loans

 

Total loans measured in quarter-end balances grew +1.1% QoQ, driven by a number of factors. The final disbursements made under Reactiva Peru, coupled with the partial recovery registered in BCP Stand-alone’s retail segments and Mibanco’s portfolio contributed positively to the evolution of total loans. This evolution was partially offset by the decrease in the Wholesale portfolio and the Credit Card segment in BCP Stand-Alone. If we isolate the effect of loans granted through Government programs (Reactiva Peru and FAE-Mype), loans in the “Structural Portfolio” reported growth of +1.0% QoQ in quarter-end balances.

 

The quarterly evolution of the portfolio was mainly driven by a shift in average daily balances at BCP Stand-alone and at Mibanco:

 

(i)The largest increase in the portfolio was attributable to Retail Banking at BCP Stand-alone, which was primarily due to the partial recovery in the Consumer and Mortgage segments and to the final disbursements made to the SME-Pyme and SME-Business segments through the government program Reactiva Peru. This growth was partially offset by de decline in Wholesale balances.

 

(ii)The Mibanco portfolio also reported positive growth due to the final disbursements made through Reactiva Peru and to a recovery in the disbursement level of the structural portfolio.

 

Loans measured in quarter-end balances increased +19.1% YoY, driven primarily by the participation of BCP Stand-alone and Mibanco in Reactiva Peru. If we isolate the effect of loans granted through government programs (Reactiva Peru a d FAE-Mype) loans within the structural portfolio fell -2.2% YoY. If we look at the performance of the total universe of loans, YoY growth was attributable to an uptick in loan balances at BCP Individual (+18.8% YoY) and Mibanco (+20.5% YoY), which was driven by:

 

5

 

 

(i)Growth in the Retail Portfolio at BCP Stand-alone, which was led by SME-Pyme segment and to a lesser extent by SME-Business, after both segments experienced an uptick in disbursements for working capital loans in LC through Reactiva Peru.

 

(ii)Loan growth in the Wholesale Banking portfolio at BCP Stand-alone, which was led by an increase in disbursements in LC through Reactiva Peru in the Middle-Market segment. This expansion, however, was offset by the evolution in Corporate Banking, where demand for loans fell due to the economic lockdown and to the fact that many businesses had already moved to shore up liquidity through low-cost financing earlier in the pandemic.

 

(iii)Growth in the Mibanco portfolio, which was primarily attributable to loans through Reactiva Peru and FAE-Mype programs but also driven, albeit to a lesser extent, to a recovery in structural disbursements in the last two quarters of the year.

 

The YoY increase in loans was also attributable to the exchange rate effect on the FC portfolio generated by the 9.3% appreciation in the US Dollar YoY. If we exclude said effect, total loans reflect growth of 15.8% YoY in real terms for the total portfolio but register a decline of -5.2% YoY for the structural portfolio. At the end of December 2020, FC loans represented 32.5% of total loans versus 38.7% in December 2019. This reduction is attributable to an increase in LC loans, which was spurred by inflows of government loans, and to the drop in FC loans in the Wholesale Banking portfolio.

 

Investments

 

Total investments increased +6.8% QoQ and +64.5% YoY, driven by growth in the fair value through other comprehensive income portfolio at BCP Stand-alone, where expansion was spurred by an uptick in purchases of low-risk assets in the context of a highly liquid financial system. The government’s financial relief programs have been used by our clients to pay suppliers, payrolls and other working capital needs. Most of this fresh capital and payments have remained in account balances held in the financial system and in the case of Credicorp, at BCP, that led to a significant increase in the company liquidity. In this scenario, and in keeping with our strategy to optimize the structure of the balance while increasing the profitability of liquid assets, we moved to invest in low-risk assets such as certificates of deposit and sovereign bonds. These new investments were made in LC.

 

Other IEA

 

Available funds increased 44.9% YoY due to the excess liquidity generated by loan inflows from Government programs. A large portion of these loans were used to pay suppliers and payroll or to cover working capital needs but remain in account balances held in the financial system and in the case of Credicorp, at BCP. Available funds grew 1.2% QoQ in the context of a highly liquid financial system.

 

1.2. Credicorp Loans

 

1.2.1. Loan evolution by business segment

 

The table below shows loan composition 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 grew +2.0% QoQ and +18.8% YoY, which was due primarily to an increase in balances in the SME-Business and SME-Pyme segments at BCP Stand-alone given that BCP Stand-alone was a major player in loan disbursements through the government’s financial relief program “Reactiva Peru.” If we focus solely on the evolution of structural loans, rather than on the evolution of total loans (which include government loans), we see that the “Structural Portfolio” fell -2.0% QoQ and -2.7% YoY. QoQ and YoY growth in loan balances was concentrated in local currency given that government loans were disbursed in soles.

 

6

 

 

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

 

   TOTAL LOANS     % change         
   Expressed in million S/   Structural   % change   Strctural   % Part. in total loans   Structural 
    4Q19   3Q20   4Q20   3Q20   4Q20   QoQ    YoY    QoQ    YoY    4Q19   3Q20   4Q20   4Q20
BCP Stand-alone   94,390    111,385    112,981    93,444    91,075    1.4%   19.7%   -2.5%   -3.5%   82.3%   83.4%   82.9%   81.7%
Wholesale Banking   47,446    54,838    51,675    48,330    44,988    -5.8%   8.9%   -6.9%   -5.2%   41.4%   41.1%   37.9%   40.3%
Corporate   28,860    31,448    28,522    30,626    27,771    -9.3%   -1.2%   -9.3%   -3.8%   25.2%   23.5%   20.9%   24.9%
Middle - Market   18,586    23,389    23,153    17,704    17,216    -1.0%   24.6%   -2.8%   -7.4%   16.2%   17.5%   17.0%   15.4%
Retail Banking   46,944    56,547    61,306    45,113    46,088    8.4%   30.6%   2.2%   -1.8%   41.0%   42.3%   45.0%   41.3%
SME - Business   5,806    10,014    10,893    4,574    4,652    8.8%   87.6%   1.7%   -19.9%   5.1%   7.5%   8.0%   4.2%
SME - Pyme   10,194    16,062    19,239    10,068    10,262    19.8%   88.7%   1.9%   0.7%   8.9%   12.0%   14.1%   9.2%
Mortgage   16,590    16,816    17,218    16,816    17,218    2.4%   3.8%   2.4%   3.8%   14.5%   12.6%   12.6%   15.4%
Consumer   8,659    9,018    9,544    9,018    9,544    5.8%   10.2%   5.8%   10.2%   7.6%   6.8%   7.0%   8.6%
Credit Card   5,695    4,637    4,412    4,637    4,412    -4.9%   -22.5%   -4.9%   -22.5%   5.0%   3.5%   3.2%   4.0%
Mibanco   10,310    11,593    12,679    9,729    9,865    9.4%   23.0%   1.4%   -4.3%   9.0%   8.7%   9.3%   8.8%
Bolivia   7,563    8,149    8,272    8,149    8,272    1.5%   9.4%   1.5%   9.4%   6.6%   6.1%   6.1%   7.4%
ASB   2,368    2,438    2,293    2,438    2,293    -6.0%   -3.2%   -6.0%   -3.2%   2.1%   1.8%   1.7%   2.1%
BAP’s total loans   114,631    133,565    136,226    113,760    111,506    2.0%   18.8%   -2.0%   -2.7%   100.0%   100.0%   100.0%   100.0%

  

Largest contraction in volumes
Highest growth 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/

+2.0% (-2.0% Structural Portfolio) 

 

 

 

  Government programs (Reactiva and FAE Mype)
Structural

 

In the analysis by segment, QoQ growth in loans measured in average daily balances was led by segments that received loans through Government programs.

 

Retail Banking loans reported an increase in their share of loan growth due to an uptick in the balances of SME-Pyme (+S/3,177 million +19.8% QoQ) and SME-Business (+S/879 million, +8.8% QoQ). This expansion was driven by loans through Reactiva Peru for working capital. Other retail segments, namely Consumer and Mortgage, reversed the downward trend posted last quarter; on the contrary, Credit Card balances fell –4.9% QoQ. If we isolate the effect of government loans from the calculation for growth, SME-Pyme registered expansion of 1.9% QoQ while SME-Business grew 1.7%.

 

Mibanco’s loan portfolio reported growth of +9.4% QoQ, which was driven by final disbursements under government relief programs and, to a lesser extent, to disbursements for structural loans. When we extract government loans from the total loan base used to calculate growth, we find that Mibanco’s structural portfolio grew 1.4% QoQ.

 

7

 

 

Wholesale Banking reported a drop of -5.8% QoQ in average daily balances due to a strong reduction in structural balances in the Corporate segment and, to a lesser extent, in the Middle-Market segment. The decline was attributable to the fact that at the beginning of the pandemic, wholesale banking clients assumed a conservative position and harnessed credit utilization to ensure liquidity to buffer uncertainty. Now that operations have resumed, the need for financing has dropped and clients have begun to pay off short-term loans.

 

At BCP Bolivia, the loan portfolio grew +1.5% QoQ after growth in Wholesale Banking and Mortgage balances offset the drop in balances for retail products, namely consumer and small and medium loans.

 

Loan Growth YoY in Average Daily Balances

Expressed in millions of S/

+ 18.8% (-2.7% Portafolio Estructural)

 

Government programs (Reactiva and FAE Mype)
Structural

 

An analysis of YoY growth by segment measured in average daily balances shows:

 

Growth in Retail Banking, led by expansion in SME-Pyme (+S/9,046 million, +88.7% YoY) and SME- Business (+S/5,087 million +87.6% YoY) after an uptick in inflows through Reactiva Peru. Growth in these segments was followed by expansion in Consumer (+S/885 million, +10.2% YoY) and Mortgage (+S/628 million, +3.8% YoY), which experienced a drop in performance due to the pandemic and lockdown measures throughout 2Q20 and 3Q20 but in 4Q20, resumed growth in line with economic recovery. On the contrary, Credit Card balances fell, due in large part to the fact that this product is generally used most in sectors of the economy that have been hardest hit by lockdown restrictions, including travel, restaurants and retail establishments, which have yet to post significant recovery. The drop in CC balances was also attributable, albeit to a lesser extent, to the fact that the calculation base was larger in 4Q19, which was “pre-pandemic,” and given that in seasonal terms, 4Q hits a peak due to year-end economic activities. When we exclude Government program loans from the calculation base, SME-Pyme grew +0.7% YoY while SME-Business contracted -19.9%.

 

Growth in Wholesale Banking was led by Middle Market Banking, which registered significant expansion (+S/4,567 million, +24.6% YoY) due to disbursements through Reactiva Peru. On the contrary, Corporate Banking balances fell (-S/338 million, -1.2% YoY) after disbursements dropped in a context of economic slowdown and an increase in liquidity in the corporate sector, which sought out low-cost financing early in the pandemic when interest rates were low. These variations were also driven by the exchange rate effect generated by an appreciation in the US Dollar. 40.0% of the loans in the Middle Market segment and 55.8% of Corporate Banking loans are in FC. If we exclude the exchange rate effect, the Middle Market segment registers growth of 20.4% but the Corporate Banking Segment falls -5.7%. When we exclude loans from Government programs from the total loan base used to calculate growth, Middle Market Banking loans fall –7.4% YoY and Corporate Banking, -3.8%.

 

8

 

 

Loan growth at Mibanco (+23.0% YoY) was driven by loans disbursed through Reactiva Peru and FAE-Mype. Reactiva and FAE loans represented approximately 22% of Mibanco’s portfolio in average daily balances. Mibanco’s share of loans in phase 2 of Reactiva Peru was significantly higher than that registered for phase 1. This was due to the fact that in the latter stage, the Government relaxed loan access conditions for smaller businesses, which meant that a larger proportion of Mibanco’s clients was eligible for assistance. When we exclude Government loans from the calculation base, we find that Mibanco’s structural portfolio fell -4.3% YoY.

 

The increase of +9.4% YoY in loans at BCP Bolivia was led by growth in Corporate Banking, followed by expansion in Mortgage and SME-Pyme loans. It is important to note that the microlending segment in Bolivia reported a significant decline YoY (greater than ~30% YoY). The perspectives for this segment and for other are still uncertain, given that the financial sector is exercising caution with the onset of a second wave of Covid-19 infections and a difficult political environment.

 

Full year growth in average daily loan balances per segment (1)(2)(3)

Expressed in millions of S/ 

 

   TOTAL LOANS       Structural   % Part. in total loans 
   Expressed in million S/   Structural   change   Change           Structural 
   2019   2020   2020   S/   %   S/   %   2019   2020   2020 
BCP Stand-alone   90,935    106,515    94,705    15,579    17.1%   3,770    4.1%   82.1%   83.0%   82.1%
Wholesale Banking   46,266    52,528    48,401    6,262    13.5%   2,135    4.6%   41.8%   40.9%   42.0%
Corporate   28,155    30,785    30,279    2,631    9.3%   2,124    7.5%   25.4%   24.0%   26.3%
Middle - Market   18,111    21,741    18,122    3,631    20.0%   11    0.1%   16.3%   16.9%   15.7%
Retail Banking   44,670    53,987    46,304    9,317    20.9%   1,634    3.7%   40.3%   42.1%   40.2%
SME - Business   5,487    8,474    4,986    2,987    54.4%   -501    -9.1%   5.0%   6.6%   4.3%
SME - Pyme   9,754    14,390    10,194    4,636    47.5%   441    4.5%   8.8%   11.2%   8.8%
Mortgage   15,831    16,969    16,969    1,139    7.2%   1,139    7.2%   14.3%   13.2%   14.7%
Consumer   8,105    9,166    9,166    1,061    13.1%   1,061    13.1%   7.3%   7.1%   8.0%
Credit Card   5,493    4,988    4,988    -505    -9.2%   -505    -9.2%   5.0%   3.9%   4.3%
Mibanco   10,080    11,431    10,183    1,351    13.4%   103    1.0%   9.1%   8.9%   8.8%
Bolivia   7,334    8,002    8,002    669    9.1%   669    9.1%   6.6%   6.2%   6.9%
ASB   2,452    2,397    2,397    -54    -2.2%   -54    -2.2%   2.2%   1.9%   2.1%
BAP’s total loans   110,800    128,346    115,287    17,545    15.8%   4,487    4.0%   100.0%   100.0%   100.0%

 

Largest contraction in volumes
Highest growth 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

(3) Differs from previously reported, please consider the figures presented on this report.

 

Full year growth in average daily loan balances by segment

Expressed in millions of S/

 

+15.8% (+4.0% Structural Portfolio)

 

 

  Government programs (Reactiva and FAE-Mype)
Structural

 

9

 

 

An analysis of annual growth in average daily balances reveals the following: 

 

(i)Retail Banking was the largest contributor to total growth, led by SME-Pyme (+S/4,636 million, +47.5% YTD) and SME-Business (+S/2,987 million, +54.4% YTD.), both of which received large inflows of loans from Reactiva Peru. Other segments that contributed to expansion in this portfolio were the Mortgage segment (+S/1,139 million, +7.2% YTD) and Consumer (+S/1,061 million, +13.1% YTD), which were hit hard by the pandemic and lockdown measures in previous quarters but resumed growth in 4Q20 to close the year with positive contributions. On the contrary, Credit Card balances fell given that pre-pandemic calculation base in 2019 was markedly larger and the fact that the use of this product dropped when consumers cut household spending due to the pandemic. If we isolate the effect of Government loans in the calculation for total loan growth, expansion in SME-Pyme was situated at +4.5% YTD while SME-Business was down -9.1%.

 

(ii)Growth in Wholesale Banking, where both Middle Market Banking and Corporate Banking posted considerable expansion. Middle Market Banking grew +S/3,631 million, +20.0% YTD. This expansion was due primarily to disbursements through Reactiva Peru. Corporate Banking, in turn, grew +S/2,631 million, +9.3% YTD, driven by an increase in low-cost disbursements at the beginning of the pandemic in a context of attractive rates and the fact that businesses sought to safeguard liquidity in the face of uncertainty. Expansion in these segments was also attributable, although to a lesser extent, to the exchange rate effect generated by the appreciation in the US Dollar.

 

(iii)Growth in Mibanco loans (+13.4% YTD) was primarily associated with loans from government relief programs: Reactiva Peru and FAE. Expansion in these programs began in 2Q20 and picked up in 3Q20 with the roll out of phase 2 of Reactiva Peru, which reached a larger number of clients in the microfinance segment. If we extract the effect of government programs from the calculation for total growth, structural loans expanded 1.0%.

 

(iv)BCP Bolivia preformed positively and was up +9.1%; growth was led by the Wholesale Banking portfolio and the Mortgage segment in Retail Banking.

 

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$    4Q20 
    4Q19   3Q20   4Q20   3Q20   4Q20   QoQ    YoY    QoQ    YoY    4Q19   3Q20   4Q20   QoQ    YoY    LC    FC 
BCP Stand-alone   60,870    78,056    80,945    60,115    59,039    3.7%   33.0%   -1.8%   -3.0%   10,000    9,375    8,865    -5.4%   -11.3%   71.6%   28.4%
Wholesale Banking   21,614    28,201    26,490    21,694    19,802    -6.1%   22.6%   -8.7%   -8.4%   7,707    7,493    6,969    -7.0%   -9.6%   51.3%   48.7%
Corporate   12,854    14,204    12,596    13,381    11,845    -11.3%   -2.0%   -11.5%   -7.8%   4,775    4,851    4,407    -9.1%   -7.7%   44.2%   55.8%
Middle-Market   8,760    13,997    13,894    8,313    7,957    -0.7%   58.6%   -4.3%   -9.2%   2,931    2,642    2,562    -3.0%   -12.6%   60.0%   40.0%
Retail Banking   39,257    49,855    54,455    38,421    39,237    9.2%   38.7%   2.1%   0.0%   2,293    1,882    1,896    0.7%   -17.3%   88.8%   11.2%
SME - Business   2,695    7,545    8,402    2,105    2,161    11.4%   211.8%   2.7%   -19.8%   928    694    689    -0.7%   -25.7%   77.1%   22.9%
SME - Pyme   9,982    15,862    19,040    9,868    10,062    20.0%   90.7%   2.0%   0.8%   63    56    55    -2.1%   -12.9%   99.0%   1.0%
Mortgage   14,249    14,673    15,063    14,673    15,063    2.7%   5.7%   2.7%   5.7%   698    603    596    -1.1%   -14.6%   87.5%   12.5%
Consumer   7,465    7,717    8,119    7,717    8,119    5.2%   8.8%   5.2%   8.8%   356    366    394    7.8%   10.7%   85.1%   14.9%
Credit Card   4,865    4,058    3,831    4,058    3,831    -5.6%   -21.3%   -5.6%   -21.3%   248    163    161    -1.4%   -35.1%   86.8%   13.2%
Mibanco   9,785    11,085    12,191    9,221    9,377    10.0%   24.6%   1.7%   -4.2%   157    143    135    -5.5%   -13.7%   96.1%   3.9%
Bolivia   -    -    -    -    -    -    -    -    -    2,256    2,292    2,289    -0.1%   1.5%   -    100.0%
ASB   -    -    -    -    -    -    -    -    -    706    686    635    -7.5%   -10.2%   -    100.0%
Total loans   70,655    89,141    93,136    69,336    68,416    4.5%   31.8%   -1.3%   -3.2%   13,119    12,496    11,924    -4.6%   -9.1%   68.4%   31.6%

  

  Largest contraction in volumes
  Highest growth 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.

 

Government loan disbursements, which were in local currency, drove the upward trend in the LC portfolio both QoQ and YoY. In this regard, significant expansion was spurred by LC loans through Reactiva Peru for the SME-Pyme and SME-Business clients in Retail Banking, Middle Market borrowers in Wholesale Banking and Mibanco’s clients. The structural portfolio in LC contracted both QoQ and YoY after the drop in Corporate Banking and due to the fact that pandemic dealt a hefty blow to the Credit Card segment.

 

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The evolution of FC loans followed the opposite track, falling both QoQ and YoY in the majority of segments due to a downturn in commercial activity in the context of COVID-19 and to the fact that the government offered large amounts of state-backed, low-cost financing through relief programs in LC.

 

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

 

(1) Average daily balances.

(2) 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.

(3) 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 28.4%. The downward trend was evident across segments but the drop in dollarization in the SME-Business segment, which went from 54% at the end of December 2019 to 23% at the end of December 2020, was particularly noteworthy. The aforementioned was attributable to a significant increase in LC loan disbursements in this segment through the Reactiva Peru program.

 

1.2.3. Market share in loans

 

Market share in Peru (1)

 

 

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

 

Peruvian Financial System (1)

 

At the end of November 2020, BCP Stand-alone continued to lead the Peruvian financial system1 with a market share (MS) of 30.4%, which outpaced the 18.8% share registered by its closest competitor. Mibanco increased its share of the total Financial system to 3.4%, marking an improvement over the 3.3% reported last quarter. BCP and Mibanco have considerably increased their market shares in the system, particularly in the SME-Pyme segment due to loans through Reactiva Peru and FAE-Mype.

 

In Wholesale Banking, the Corporate Banking segment reported an MS of 37.8%, which represented a decline of -110pbs QoQ and growth of +30pbs YoY. Middle Market Banking registered an MS of 37.0%, which reflected a drop of -10pbs QoQ and +110pbs YoY. The YoY increase in Middle Market Banking was attributable to loan disbursements through Reactiva Peru. It is important to note that these segments at BCP Stand-alone lead their respective markets.

 

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Within Retail Banking, BCP continued to lead the market in the Mortgage and SME-Business segments with shares of 32.4% and 38.1%, respectively. Leadership in the SME-Business segment was boosted by the fact that BCP disbursed a large share of the loans offered by Reactiva Peru. In the Consumer and Credit Card segments, BCP ranked second for market share.

 

In the SME-Pyme segment, Mibanco continued to lead with a record-breaking market share of 28.6%. Growth QoQ and YoY (27.9% in 3Q20 and 20.8% in 4Q19) was attributable to disbursements through Reactiva Peru and FAE-Mype. BCP is the number 2 player in this segment in terms of market share with and MS of 18.9%, which reflects the significant boost provided by loans under Reactiva Peru.

 

Bolivian Financial System

 

Finally, MS at BCP Bolivia reported a drop both QoQ and YoY, while leading local competitors increased their balances in the Corporate segment. In this context, BCP Bolivia moved from fifth place to six place in the Bolivian Financial System with a MS of 9.2%.

 

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2.       Funding Sources

 

At the end of 4Q20, total funding increased +2.5% QoQ and +34.8% YoY. Growth was attributable to expansion in Deposits and obligations and in BCRP Instruments. The increase reported for deposits was driven by growth in saving deposits and in demand deposits, particularly non-interest-bearing deposits. Both of these deposit types are associated with lower costs. Growth in BCRP Instruments was driven by the government programs Reactiva Peru and FAE. The aforementioned offset the reduction in Other sources of funding, which were replaced by lower-cost alternatives. In this context, Credicorp’s structural funding cost fell -16 bps QoQ, -86 bps YoY and -57 bps YTD, which was attributable to funding mix and rate effects.

 

Funding  As of   % change 
S/ 000  Dec 19   Sep 20   Dec 20   QoQ   YoY 
Demand deposits   34,213,188    53,574,151    54,530,356    1.8%   59.4%
Saving deposits   35,179,770    45,999,882    50,069,129    8.8%   42.3%
Time deposits   34,034,037    29,785,440    29,324,090    -1.5%   -13.8%
Severance indemnity deposits   7,897,199    7,127,617    7,736,747    8.5%   -2.0%
Interest payable   681,191    715,584    705,180    -1.5%   3.5%
Deposits and obligations   112,005,385    137,202,674    142,365,502    3.8%   27.1%
Due to banks and correspondents   8,841,732    6,601,722    5,978,257    -9.4%   -32.4%
BCRP instruments   4,381,011    25,344,724    25,734,963    1.5%   487.4%
Repurchase agreements   1,820,911    1,204,487    1,072,920    -10.9%   -41.1%
Bonds and notes issued   14,946,363    16,425,832    16,319,407    -0.6%   9.2%
Total funding   141,995,402    186,779,439    191,471,049    2.5%   34.8%

 

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 cost and funding structure is calculated with quarter-end balances. In general, the funding structure reflects:

 

(i)Significant growth in deposits (+3.8% QoQ and +27.1% YoY), the main source of funding and a lower-cost alternative in comparison to Other sources of funding. The increase in the deposit volume was attributable to the measures taken by the government, which gave retail banking a platform to capture deposits and allowed clients in the wholesale banking, business and SME clients to benefit from loans from Reactiva Peru y FAE, which were subsequently deposited in accounts at BCP Stand-alone and Mibanco. Growth in deposits accounted for 108.7% and 61.3% of total growth in funding QoQ and YoY respectively.

 

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(ii)Within the deposit mix, demand deposits and savings deposits reported significant growth at the end of Dec 2020. These deposits account for 73.5% of total deposits (vs 72.6% in Sept 20 and 62.0% in Dec 19). Also, an increase in severance indemnity deposits due to statutory payments to dependent workers. Growth in the shares of aforementioned deposit types was attributable to a contraction in other types of deposits, which were replaced by lower-cost alternatives.

 

(iii)The contraction in Other sources of funding is attributable to maturities and expirations of obligations and repos (-0.8% QoQ). In percentual terms, this contraction was offset by an increase in BCRP Instruments, which was spurred by government programs (further details in section 2.3 Other sources of funding). In this context, BCRP Instruments share of total funding remained high (13.4% in Dec 20) in terms of the figure posted in Sept 20 (13.6%) but showed a notable increase with regard to the 3.1% registered in Dec 19.

 

2.2. Deposits

 

Deposits and obligations   As of     % change  
S/ 000   Dec 19     Sep 20     Dec 20     QoQ     YoY  
Demand deposits     34,213,188       53,574,151       54,530,356       1.8 %     59.4 %
Saving deposits     35,179,770       45,999,882       50,069,129       8.8 %     42.3 %
Time deposits     34,034,037       29,785,440       29,324,090       -1.5 %     -13.8 %
Severance indemnity deposits     7,897,199       7,127,617       7,736,747       8.5 %     -2.0 %
Interest payable     681,191       715,584       705,180       -1.5 %     3.5 %
Deposits and obligations     112,005,385       137,202,674       142,365,502       3.8 %     27.1 %

 

Deposits and Obligations expanded +3.8% QoQ. The QoQ evolution of the deposit mix indicates:

 

(i)Savings deposits posted +8.8% growth QoQ, mainly in LC. The increase is given by bonus payments recorded in the last month of the year. Likewise, these low-cost deposits led to an increase in funds held in savings accounts, bolstered by campaigns to attract savings through digital and cost-efficient channels.

 

(ii)The +1.8% growth in demand deposits was attributable to growth in the volume of current accounts in LC at BCP Stand-alone. This growth was primarily associated with loans under Reactiva Peru, whose balances were transferred and held in the accounts of institutional clients. Growth in demand deposits was due entirely to non-interest bearing deposits, which had a positive impact on the funding cost. Interest-earning deposits fell -12.5% QoQ.

 

(iii)Growth in severance indemnity deposits (+8.5%), mainly at BCP Stand-alone and in LC due to economic reactivation and the fact that dependent workers received statutory payments to this account in November 2020.

 

(iv)Contraction in time deposits, which was primarily attributable to BCP Stand-alone and driven by a decrease in this type of deposit. It is important to note that these deposits have been replaced by lower-cost deposits.

 

In YoY terms, deposits and obligations grew +27.1%. Growth in deposits followed the same trend found in the QoQ analysis. The aforementioned was partially attenuated by a drop in time deposits, which reflected the decreases reported in the Middle Market and BCP Stand-alone segments.

 

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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 experienced similar growth in volumes (+3.7% in LC vs +3.9% in FC). Saving, demand and severance deposits shows increase in the last quarter. Expansion in savings deposits was primarily attributable to individuals while the increase in demand deposits was associated with Wholesale Banking clients, both at BCP Stand-alone. Additionally, severance deposits registered an increase, commensurate with November depositing requirements for employers. The aforementioned offset the contraction in other types of deposits in LC.

 

In terms of FC volumes, growth was attributable to savings deposits and, to a lesser extent, to demand deposits. The quarterly evolution was attributable to the exchange rate effect generated by the +0.7% appreciation in the US Dollar, which drove an increase in FC deposits. In the case of demand deposits, growth was spurred by an uptick in volumes from institutional clients in Middle Market Banking at BCP Stand-alone.

 

The YoY evolution reveals a significant contraction at the dollarization level. The aforementioned was attributable to growth in demand deposits and savings deposits in LC, which was higher than the increase in deposits FC.

 

It is important to note that a significantly higher increase in deposit volumes for demand deposits and savings deposits in LC (QoQ and YoY) was driven by the different economic relief measures implemented by the Peruvian government to provide individuals and companies with liquidity, in soles, during the pandemic. In this context, companies received loan facilities backed by government programs and individuals were allowed to withdraw funds from their severance and pension accounts (severance indemnity and AFP). These funds were subsequently held in bank accounts at BCP Stand-alone and Mibanco. The immediate liquidity effect also explains the reduction in time deposits, both in LC and FC.

 

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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 Nov 20, Credicorp’s subsidiaries in Peru, BCP Stand-alone and Mibanco reported market shares of 31.8% and 2.3% respectively. In this context, Credicorp maintained leadership in the market for total deposits in the financial system with an MS significantly higher than that of its closest competitor (whose MS is 19.7%).

 

In the YoY analysis, which eliminates a seasonal effect, BCP Stand-alone increased its share by 200 bps with regard to the figure reported at the end of Dec 19. This was due primarily to the fact that demand deposits grew significantly this period (+410 bps). Mibanco’s market share fell 2.3% (vs 2.8% in Dec 19) due to a contraction in the MS for time deposits.

 

Bolivian Financial System

 

BPC Bolivia continued to rank fifth in the Bolivian financial system with an MS of 9.5% at the end of Dec 20 (versus 9.3% in Sep 20). In the YoY analysis, the MS fell -30 bps in comparison to the figure at the end of Dec 19 (9.8%).

 

2.3. Other funding sources

 

                 
Other funding sources      As of       % change 
S/ 000  Dec 19   Sep 20   Dec 20   QoQ   YoY 
Due to banks and correspondents   8,841,732    6,601,722    5,978,257    -9.4%   -32.4%
BCRP instruments   4,381,011    25,344,724    25,734,963    1.5%   N/A 
Repurchase agreements   1,820,911    1,204,487    1,072,920    -10.9%   -41.1%
Bonds and notes issued   14,946,363    16,425,832    16,319,407    -0.6%   9.2%
Total other funding sources   29,990,017    49,576,765    49,105,547    -1.0%   63.7%

 

The total level of Other sources of funding fell -0.8% QoQ. This was driven mainly by the expiration of sources of funding that carry higher rates. This reduction was offset by an increase in the volume of BCRP Instruments, which increased their share of total Other sources of funding to 52.4% (in comparison to 51.1% at the end of Sept 20).

 

Due to banks and correspondents fell, due to (i) BCP Stand-alone, where obligations in FC with foreign financial institutions expired and, to lesser extent to (ii) Mibanco, which was affected by expiration of obligations with companies in the national financial system, and (iii) ASB, after a decrease was registered in the volume of obligations in FC after products expired and were not renewed.

 

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In terms of BCRP Instruments, significant growth was attributable to the evolution at BCP Stand-alone to a lesser extent, to movements at Mibanco, after inflows of new repos. Growth in these instruments was driven by the liquidity facilities offered by the Peruvian government for loan disbursements under Reactiva Peru and FAE. It is important to note that BCRP repos, which are tied to funds from government relief programs, are administered at rates below 1%.

 

Repos contracted due to the expiration of repos with foreign financial institutions (FC) at BCP Stand-alone and ASB.

 

Bonds and issued notes registered a decrease after the exchange of a Senior Global bond in the month of October at BCP Stand-alone and in LC.

 

The YoY evolution reveals growth of +63.7% in Other sources of funding, which was attributable to an increase in the level of BCRP Instruments, as indicated in the QoQ analysis. Growth in this source represents 112% of the total increase in Other sources of funding, which may offset the drop registered in Other sources of funding.

 

2.4. Loan / Deposit (L/D)

 

Loan / Deposit Ratio by Subsidiary

 

 

The L/D ratio at Credicorp contracted QoQ to situate at 96.7%. Expansion was attributable to that fact that growth in deposits (+3.8%) outpaced the expansion registered by loans (+1.1%).

 

The analysis by subsidiary shows the same trend as that seen for BCP Stand-alone (95.9% Dec 20 vs 99.1% Sept 20). The QoQ drop in the L/D at BCP Stand-alone was generated by a scenario in which deposit growth (+3.5%) outstripped loan growth (+0.1%). The increase in deposits was driven by government financial relief programs for individuals and companies; withdrawals of severance and AFP funds; and the fact that disbursements from Reactiva Peru were deposited in current or savings accounts. The primary driven of growth in loans, on the other hand, were Reactiva Peru loans to companies. In the case of Mibanco, QoQ growth in the L/D was generated in a context marked by a +6.4% increase in loans versus +4.5% increase in deposits. Significant loan expansion this period was driven by disbursements under Reactiva Peru and FAE.

 

In the YoY analysis, the L/D ratio at Credicorp and BCP Stand-alone fell as growth in deposits (+27.1% and +30.2% respectively) outpaced expansion at the loan level (+19.1% and +18.8% respectively). Mibanco’s L/D ratio followed the same trend as that seen in the QoQ analysis.

 

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Loan / Deposit Ratio by Currency

 

Local Currency Foreign Currency

 

In the QoQ analysis by currency, we see a reduction in the L/C ratio in LC at Credicorp and BCP. This drop was generated by an increase in deposits (+3.6% and +3.7% respectively), which was driven by government facilities and a seasonal variation in severance deposits. The L/C in FC at Credicorp, BCP Stand-alone and Mibanco contracted due to growth in LC deposits. In the case of Mibanco, the L/D ratio in FC contracted slightly due to a decrease in loan volumes (-7.6%) in a context of a drop in the commercial transactions level.

 

In the YoY analysis, we see a contraction in the L/C ratio in LC and FC at Credicorp after growth in deposits outpaced expansion in loans, in line with the explanation provided 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 -40 bps QoQ and -96 bps YoY. The QoQ evolution shows:

 

(i)The reduction in the total funding cost was attributable to an increase in funding (+2.5%) and a decrease in interest expenses (-20.0%). Growth in the funding level was driven by an increase in deposits, the main source of funding and in BCRP Instruments, while the drop in expenses was due to a decrease in interest on deposits and bonds. An analysis of the total cost of structural funding that excludes interest and funding from government programs indicates that the ratio situated at 1.43% (-16 bps QoQ).

 

(ii)The drop in the funding cost in LC (-20 bps) was attributable to a -9.0% contraction in interest expenses and to growth of +2.5% in total funding. Expansion in the total funding volume in LC was attributable to growth of +3.7% in deposits and BCRP Instruments. If we analyze the cost of structural funding in LC (excluding the effects of government programs), said cost falls -21 bps (1.36% 4Q20 vs 1.57% 3Q20). This was primarily driven by a decrease in interest on deposits (-8.8% QoQ), which was in line with an improvement in the mix in 4Q20, where low-cost deposits (savings and non-interest-bearing deposits) reported the highest growth.

 

(iii)The reduction in the funding cost in FC (-65 bps) was driven by a decrease in interest expenses due to a drop in expenses for bonds and issued notes given that in 3Q20, a non-recurring charge was reported for liability management. This was accompanied by an increase in FC deposits, which was spurred by an exchange rate effect. The funding cost in FC in 4Q20 was situated at 1.51% (an improvement of -11 bps).

 

The YoY analysis reveals a reduction in the total funding cost due to:

 

(i)Growth in total funding of +34.8% YoY, which was primarily attributable to an increase in low-cost funding: deposits and low-cost funding from government programs. This was attributable to the high level of liquidity generated in the financial system by economic relief programs.

 

(ii)Deposit mix: given a -33.2% reduction in interest expenses on deposits was recorded YoY. This was attributable to an improvement in the deposit mix, when demand and savings deposits registered the highest growth with variations of +59.4% and +42.3% respectively while higher costs deposits, such as time and severance deposits, fell -13.8% and -2.0% respectively.

 

(iii)The effect rate: given that interest rates (national and international) have presented a downward trend in the context of economic contraction due to the pandemic.

 

In the aforementioned context, the total structural funding cost in LV and FC registered a broad contraction of -86 bps, -104 bps and -70 bps YoY respectively. Cost of funding is at the lowest level registered in the last 4 years, which attests to the success of the strategy to restructure liabilities at Credicorp with an eye on improving the profile of maturities and reducing the funding cost curve in national and foreign currencies.

 

In the FY analysis, the funding cost registered a 57 bps decline due to:

 

(i)An increase in the funding volume due to the measures taken by the Peruvian government in 2020 with the advent of COVID-19.

 

(ii)A decrease in expenses for deposits, which was mainly attributable to reduction in below-market rates, where demand deposits and savings deposits grew considerably.

 

 

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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 a trend similar to that seen for the funding cost at Credicorp, which registered a contraction QoQ and YoY. The decline was due to (i) the volume effect, which was driven by significant growth in BCRP Instruments and deposits, (ii) an improvement in the funding mix after the volume of lower-cost funding sources increased and (iii) the rate effect, where all funding sources registered a reduction in their implicit rates. The structural funding cost at BCP Stand-alone, excluding expenses and funding associated with government programs, situates at 1.12%, which represents a decline of -16 bps QoQ and -89 bps YoY. FY, funding cost decreased -58% due to measures relief from the Peruvian Government.

 

(ii)Mibanco also reported a considerable contraction QoQ and YoY in the funding cost. In the QoQ and YoY analysis, the decrease in the financial expense line (-12.9% and -28.4% respectively) was attributable to a drop in interest on deposits, which was primarily driven by a context of lower rates in the retail segment and for time deposits, as well as by an improvement in the funding mix. The total funding volume increased +6.2% QoQ and +19.8% YoY, spurred by repos under government programs, which contributed to the denominator of the calculation. Finally, the structural funding cost at Mibanco, excluding the effects of Reactiva and FAE, situates at 3.15% to represent a decline of -52 bps QoQ and -124 bps YoY. This contributes positively to interest margins. FY, funding cost of Miabnco decreased -90 bps due measures before mention.

 

(iii)The funding cost at BCP Bolivia registered a slight increase QoQ (+8 bps) due to similar growth in both expenses and funding (+6.5% y +6.4%, respectively). The YoY funding cost registered a small increase of +9 bps, which was attributable to growth in interest expenses on deposits after higher-cost deposits (time) registered an increase in volume. FY, growth of +14 bps was attributable to an increase in interest expenses on deposits.

 

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3.       Portfolio quality and Provisions for loan losses

 

At the end of 4Q20, net provisions for loan losses registered a significant decline with regard to the level posted last quarter (-43.9% QoQ), which was attributable to an improvement in expectations for 2021 and in the probability of default of specific segments. The aforementioned led the Cost of Risk (CofR) to situate at 2.13% with a structural CofR of 2.44% (compared to 3.84% and 4.36% in 3Q20 respectively). The variations in annual and full-year terms reflect the fact that COVID-19 has generated the deepest global recession since World War II.

 

In terms of traditional delinquency ratios, the IOL and NPL ratios registered growth after the grace periods on Credicorp’s pandemic relief facilities expired. The deterioration seen in both portfolios was mainly attributable to the evolution of the Retail portfolio at BCP Stand-alone, particularly in the Consumer segment, and to the performance of Mibanco. In this context, the coverage ratio for the NPL portfolio situated at 156.1% in 4Q20 (versus 169.9% in 3Q20 and 114.4% in 4Q19).

 

QoQ Evolution of the Cost of Risk (bps)

 

 

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

 

Reprogrammed and Payment Ratios

 

In 4Q20, 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 94% in September to 96% in December, while at Mibanco the ratio improved from 84% in September to 93% in December. 

 

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

 

In the case of Retail Banking at BCP, 20% reprogrammed and up-to-date, 74% were non-reprogrammed up-to-date loans, and 6% overdue loans (in comparison to the 23%, 71% and 6% in 3Q20, respectively). In the case of Mibanco, 45% were reprogrammed and up-to-date; 49% were non-reprogrammed up-to-date loans; and 6% overdue loans (in comparison to the 61%, 35% and 4% in 3Q20, respectively).

 

Incorporating the total of reprogrammed loans for the Wholesale and BCP Bolivia portfolios, the level of reprogrammed loans at Credicorp level represents approximately 15% of total 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  Year  % change 
S/ 000  4Q19  3Q20  4Q20  QoQ  YoY  2019  2020  2020 / 2019 
Gross provision for credit losses on loan portfolio  (568,727) (1,348,726) (785,194) -41.8% 38.1% (2,100,091) (6,080,289) 189.5%
Recoveries of written-off loans  57,068  42,821  52,529  22.7% -8.0% 254,155  159,781  -37.1%
Provision for credit losses on loan portfolio, net of recoveries  (511,659) (1,305,905) (732,665) -43.9% 43.2% (1,845,936) (5,920,508) 220.7%

 

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Provisions fell -43.9% QoQ due to:

 

(i)An improvement in macroeconomic expectations for coming years, aligned to the economic reactivation. It is important to note that these expectations may be affected by future waves of infections or strict confinement measures.

 

(ii)Since the beginning of the pandemic, forward-looking provisions were set aside in a context of high uncertainty regarding COVID-19’s total impact on the economy and on the credit quality of clients. Given the progress in clients’ payment behavior and a reduction in risk levels, in line with the improvement in transactional, provision expenses have gradually fallen since 2Q20.

 

In this context, the contraction in provisions was mainly attributable to Mibanco, due to (i) the improvement in the probability of default (PD), in line with the improvement in the risk quality of the new loans originated, (ii) improvements in the evolution of reprogrammed loans and collection processes, and (iii) a provisions reversal. BCP Stand-alone also contributed to a contraction in the provisions level, primarily via its SME-Pyme segment. The decrease in provisions expenses was primarily driven by drop in the probability of default.

 

The aforementioned was offset by the growth in provisions of Retail Banking at BCP Stand-alone, mainly in the Credit Card and Consumer segment, due to (i) the incorporation into Stage 3 of clients who had two facilities and arrears in excess of 30 days, (ii) an increase in entries in default, and (iii) growth in the volume of loans. In addition, BCP Bolivia recorded higher provisions this quarter due to political volatility stemming from the presidential election in 4Q20 and the possibility that new regulations may be enacted with potential adverse effects for financial institutions.

 

In the YoY and accumulated analysis, net provisions for loan losses net of recoveries registered a significant increase after clients experienced a reduction in their debt service capacities in the context of the COVID-19 pandemic. The increase in provisions was driven by the same retail segments that drove the QoQ analysis but was also impacted by the evolution in Wholesale Banking, where adjustments were made to the probability of default of clients in Stage 3 to anticipate potential difficulties in the execution of guarantees. Credicorp and the government have taken distinct measures to attenuate deterioration at the client and economic levels respectively.

 

Cost of risk

 

   Quarter   % change   Year   % change 
Cost of risk and Provisions  4Q19   3Q20   4Q20   QoQ   YoY   2019   2020   2020 / 2019 
Cost of risk (1)   1.77%   3.84%   2.13%   -171 bps    36 bps    1.60%   4.30%   270 bps 
Structural Cost of risk (2)   1.77%   4.36%   2.44%   -192 bps    67 bps    1.60%   5.07%   347 bps 
Provision for credit losses on loan portfolio, net of recoveries / Net interest income   21.6%   60.4%   35.4%   -2500 bps    1380 bps    20.3%   69.1%   4860 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 CofR fell -171 bps QoQ but increased +36 bps YoY and +270 bps full-year 2020. If we exclude provisions and loans associated with government programs (GP), the cost of risk for the structural portfolio at Credicorp situated at 2.44% in 4Q20 and 5.07% in FY 2020, which represented a reduction of -192 bps QoQ and an increase of +67 bps YoY and +347 bps FY 2020.

 

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3.2. Portfolio Quality: Delinquency ratios

 

Portfolio quality and Delinquency ratios  As of   % change 
S/ 000  Dec 19   Sep 20   Dec 20   QoQ   YoY 
Total loans (Quarter-end balance)   115,609,679    136,148,711    137,659,885    1.1%   19.1%
Structural Loan Portfolio   115,609,679    111,873,729    113,017,211    1.0%   -2.2%
Allowance for loan losses (1)   5,123,962    9,656,383    9,898,760    2.5%   93.2%
Write-offs   509,571    20,249    509,001    n.a    -0.1%
Internal overdue loans (lOLs) (2)   3,297,791    4,142,844    4,675,731    12.9%   41.8%
Internal overdue loans over 90-days (1)(2)   2,480,672    3,442,908    3,709,865    7.8%   49.6%
Refinanced loans   1,182,797    1,539,484    1,664,626    8.1%   40.7%
Non-performing loans (NPLs) (3)   4,480,588    5,682,328    6,340,357    11.6%   41.5%
IOL ratio   2.85%   3.04%   3.40%   36 bps    55 bps 
Structural IOL ratio   2.85%   3.70%   4.14%   44 bps    129 bps 
IOL over 90-days ratio (1)   2.15%   2.53%   2.69%   16 bps    54 bps 
NPL ratio   3.88%   4.17%   4.61%   44 bps    73 bps 
Structural NPL ratio   3.88%   5.08%   5.61%   53 bps    173 bps 
Allowance for loan losses over Total loans   4.43%   7.09%   7.19%   10 bps    280 bps 
Coverage ratio of IOLs   155.4%   233.1%   211.7%   -2140 bps    5630 bps 
Coverage ratio of IOL 90-days (1)   206.6%   280.5%   266.8%   -1370 bps    6020 bps 
Coverage ratio of NPLs   114.4%   169.9%   156.1%   -1380 bps   4170 bps 

 

(1) Figures differ from previously reported, please consider these.

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

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

 

In terms of portfolio delinquency, it is important to note: 

 

(i)Total IOL loans increased +12.9% QoQ and +41.8% YoY. This was primarily driven by Retail Banking at BCP Stand-alone, specifically in the Consumer and Credit Card segments and at Mibanco. At both subsidiaries, it is attributable to the deterioration in client debt service capacities after grace periods expired. Additionally, the Wholesale Banking segment registered deterioration, which was attributable to the evolution of the debt service capacity of corporate clients in the air transportation, agricultural and to a lesser extent, health and energy sectors.

The aforementioned was attenuated by a drop in total IOL loans at BCP Bolivia given that a large percentage of retail loans were refinanced under government-mandated financial relief directives in 4Q20.

 

(ii)Total refinanced loans increased +8.1% QoQ and +40.7% YoY after clients in the Consumer segment that were not eligible to receive the facilities initially offered by Credicorp, because they were behind in payments prior to the pandemic, were offered reprogramming facilities.

 

(iii)Total written-off loans increased significantly QoQ given that in 4Q20, banks began to write off the loans that were deemed unrecoverable under the expected loss model. Growth in this line was attributable to Peruvian regulatory requirements, which dictated that clients could not be classified as a situation of loss (due to days delinquent) – and its subsequent progression to charge-offs – until the end of August.

 

(iv)The coverage ratios for the IOL portfolio increased considerably YoY, in line with what was mentioned previously.  

 

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

 

(i)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.    

 

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(ii)During the second semester (2S) every year, loans are more dynamic, primarily in the SME-Pyme and Mibanco segments given that the main campaigns take place in the second semester and these short-term loans are paid in 1S of the following year.

 

Delinquency Ratios

 

(1) The Structura 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 IOL and NPL ratios increase for both the Total Portfolio and Structural Portfolio. This was attributable to the fact that grace periods expired and reflected the strategy to focus on disbursements in Retail Banking, which carry higher risks but are more profitable. The CofR fell -171 bps QoQ due to forward-looking provisions registered throughout the year in an environment driven by COVID-19 and its impacts. Additionally, when reviewing the results of 2020, it is important to note that:

 

(i)Credicorp offered reprogramming and freezing facilities to clients who were up to date in their payments as of February 15. As such, the delinquency ratios for the Retail segments began to reflect the real deterioration of client debt capacities in 4Q20, once facilities expired.

 

(ii)The delinquency ratios for the Wholesale, SME-Business and SME-Pyme segments are distorted due to Reactiva Perú and FAE loans. As such, we also provide adjusted ratios to isolate the effect and analyze the evolution of the quality of the structural loan portfolio.

 

3.2.1. Delinquency indicators by business line

 

Wholesale Banking – Delinquency ratios

 

 

IOL and NPL ratios increased QoQ, which was mainly driven by a deterioration in the situation of particular Corporate Banking clients and from a set of clients who were unable to make payments once grace periods expired.

 

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As of 4Q20, IOL portfolio was mainly composed by clients from air transport and energy sectors. Ratios also increased due to a contraction in loans. It is important to mention that, since the beginning of the pandemic, clients took a conservative approach to securing credit when seeking liquidity to face economic uncertainty. Over the months, some of these clients have seen their sales bounce back and their needs for financing have dropped; consequently, they have begun to pay off short-term debt.

 

In the YoY analysis, the deterioration seen in ratios was primarily driven by growth in the IOL portfolio, which outpaced the expansion registered for loans. Growth in this portfolio was directly related to the COVID-19 crisis, whose impacts were reflected in clients’ inability to service debt obligations. The YoY analysis shows a deterioration in ratios, which was mainly attributable to growth in the IOL portfolio, which outpaced the expansion posted by loans. The increase in total IOL loans reflected, once again, COVID-19’s impact on client debt service capacities. Additionally, some clients with refinanced loans began to register an increase in the number of days that they were behind in payments, which meant that these loans had to be shifted from the current loan portfolio to the IOL portfolio.

 

SME-Business – Delinquency ratios

 

 

IOL and NPL ratios fell QoQ and YoY. This was primarily attributable to the recovery of a number of clients that were behind on their payments and to loan growth. In the ambit of loan expansion, there are two important points to consider: (i) the SME-Business segment registered seasonality in loan origination in 4Q20, and (ii) a large number of clients received Reactiva Perú loans. As such, it is important to analyze NPL portfolio focusing on the YoY variation of the structural portfolio (which isolate GP loans). In this way, growth derives mainly from refinanced loans as a result of the facilities provided to clients.

 

It is important to note that this segment’s loan quality ratios remain within the defined risk appetite where the prime objective is to maximize the portfolio’s profitability while striking a good balance between risk quality and growth.

 

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SME - Pyme – Delinquency ratios

 

 

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).

 

Since 2014, early delinquency has followed a downward trend, in line with on-going improvements in the risk quality of vintages following adjustments to the anticipated loss model. In 4Q20, the portfolio grew at a faster pace, which was mainly attributable to loans under Reactiva Peru. In line with the latter, early delinquency ratio and traditional ratios for the SME-Pyme segment fell, but if we exclude the influx of government loans from the calculation base, the IOL and NPL ratios increased. This was attributable to deterioration in the debt service capacity of clients that received facilities from Credicorp but were unable to meet payment obligations once the grace periods expired. Structural early delinquency fell due to the reprogramming facilities offered to clients in the COVID-19 environment.

 

Mortgage – Delinquency ratios

 

 

In terms of Mortgage loans, it is important to remember that ratios 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 ratios registered an increase QoQ and YoY, after grace periods on loans extended earlier in the pandemic expired. Likewise, the increase is affected by higher origination of MiVivienda loans, as a result of the strategy of entering slightly riskier segments to maximize the portfolio's profitability, always within the risk appetite of the organization.

 

The early delinquency ratio, which excludes the effect of loans that are more than 150 days past due, also increased QoQ and YoY. It is important to note that this ratio is within the average levels observed since 2015.

 

Consumer – Delinquency ratios

 

 

The consumer segment registered a significant increase in its QoQ and YoY ratios. The IOL and NPL portfolios increased mainly due to the deterioration in the debt service capacity of clients from riskier sectors and due to refinancing for clients that were granted one facility (mainly a freezing facility or skip) but were unable to pay their obligations once grace periods expired. In some of these cases, a second facility was extended.

 

Early delinquency also increased QoQ and YoY, which was attributable to clients that were unable to comply with loan obligations payments and had sought facilities. It is important to note that adequate levels of forward-looking provisions were set aside to cover risks associated with the improbability of payments from clients affected by the pandemic and from products sold through digital channels, where higher risk of this last goes hand-in-hand with higher income and lower operating expenses.

 

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Credit Card – Delinquency ratios

 

 

The Credit Card segment registered strong growth QoQ and YoY in its IOL and NPL ratios, similar to the evolution seen in the Consumer segment. This was primarily attributable to (i) growth in IOL loans associated with clients that fell past due after freezing and skip facilities expired, (ii) a contraction in the loan balances for credit cards, and (iii) a low level of written-off loans throughout the year.

 

Early delinquency reported growth QoQ and YoY. This growth was attributable to an increase in net provisions for loan losses at year-end, in line with an increase in the portfolio’s probability of default.

 

Mibanco – Delinquency ratios

 

 

The IOL and NPL ratios for the total portfolio rose QoQ and YoY due to the deterioration in the debt service capacity of clients that opted not to use the financial facilities offered by Mibanco and delinquency among clients unable to pay after grace periods expired. It is important to bear in mind that the highest level of delinquent loans is reported by the reprogrammed portfolio with a 6-month grace period. The aforementioned was slightly attenuated by growth in written-off loans. Without these charge-offs, the NPL and Structural NPL ratio situates at 8.78% and 11.25% respectively. Finally, it is important to note that 35% of the total portfolio is still within a grace period (18% considering only the structural portfolio) and approximately 7% will mature in 1Q21.

 

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The cost of risk fell QoQ after forward-looking provisions made in previous quarters were reversed. Subsequently, net provisions for loan losses returned to pre-pandemic levels.

 

BCP Bolivia – Delinquency ratios

 

 

BCP Bolivia continued to report improvement in its delinquency ratios QoQ and YoY due to massive, automatic loan reprogramming in the Retail Banking segment, which was in effect until the end of December 2020 as mandated by Bolivian law in the context of COVID-19. This law stipulates deferments of up to 6 months for principal and interest payments and as such, we will not be able to fully determine deterioration at the portfolio level for several quarters.

 

The cost of risk increased significantly, after the anticipated loss model was updated to contemplate macroeconomic expectations under a second wave of infections and the post-election political context.

 

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4.       Net Interest Income (NII)

 

In 4Q20, NII, the main component of income, reported a decline of -4.3% QoQ and -12.5% AaA after interest income dropped but was partially attenuated by a decrease in interest expenses. Interest income fell –8.5% QoQ, –14.8% YoY and -6.7% YTD given the reduction of the structural portfolio and a less profitable balance due to high inflows of government loans and a decrease in rates. Additionally, in 4Q20, non-recurring charges impacted income. If we exclude these charges, recurring interest income registered a decline of –2.3% QoQ, –11.9% YoY and -4.1% YTD. Interest expenses fell –20.0% QoQ, which was due primarily to the fact that in 3Q20, this account included a non-recurring charge for liability management at BCP Stand-alone. If we exclude this charge, recurring interest expenses fell –7.3% QoQ thanks to an improvement in the funding mix and to a drop in market rates. In YoY and YTD terms, interest expenses fell -21.5% and -9.5% due to an improvement in the funding structure; a drop in market rates; and high inflow of low-cost funding from government programs. Recurring NII fell -0.8% QoQ, –8.6% YoY and -1.0% YTD. In terms of margin, the Structural NIM situated at 4.30% in the quarter (-16bps QoQ y –118bps YoY) and at 4.78% YTD (-62pbs YTD). Risk-adjusted NIM grew +80pbs QoQ, in line with a drop in net provisions for loan losses but fell -189bps YoY and -297bps YTD due to the provisions built to stave off the crisis.

 

Net interest income  Quarter   % change   YTD   % change 
S/ 000   4Q19   3Q20   4Q20   QoQ    YoY    Dec-19    Dec-20    Sep-20 /Sep-19 
Interest income   3,172,695    2,953,570    2,703,100    -8.5%   -14.8%   12,381,664    11,547,648    -6.7%
Interest on loans   2,768,468    2,578,362    2,325,836    -9.8%   -16.0%   10,664,520    10,027,834    -6.0%
Dividends on investments   3,764    8,871    3,987    -55.1%   5.9%   25,260    25,603    1.4%
Interest on deposits with banks   68,813    7,981    8,456    6.0%   -87.7%   320,712    74,813    -76.7%
Interest on securities   311,414    347,309    351,502    1.2%   12.9%   1,311,443    1,372,164    4.6%
Other interest income   20,236    11,047    13,319    20.6%   -34.2%   59,729    47,234    -20.9%
Interest expense   807,645    791,875    633,880    -20.0%   -21.5%   3,289,913    2,976,306    -9.5%
Interest on deposits   367,257    258,838    245,221    -5.3%   -33.2%   1,458,910    1,188,335    -18.5%
Interest on borrowed funds   141,552    143,739    118,457    -17.6%   -16.3%   590,908    557,141    -5.7%
Interest on bonds and subordinated notes   209,238    301,347    185,104    -38.6%   -11.5%   900,172    883,913    -1.8%
Other interest expense (1)(3)   89,598    87,951    85,098    -3.2%   -5.0%   339,923    346,917    2.1%
Net interest income (1)(3)   2,365,050    2,161,695    2,069,220    -4.3%   -12.5%   9,091,751    8,571,342    -5.7%
Risk-adjusted Net interest income (1)(3)   1,853,391    855,790    1,336,555    56.2%   -27.9%   7,245,815    2,650,834    -63.4%
Average interest earning assets (1)   172,401,759    213,481,060    222,098,498    4.0%   28.8%   168,409,014    199,243,133    18.3%
Net interest margin (1)(2)(3)   5.49%   4.05%   3.73%   -32 bps    -176 bps    5.40%   4.30%   -110 bps 
NIM on loans (1)(2)(3)   7.85%   6.19%   5.65%   -54 bps    -220 bps    7.47%   6.43%   -104 bps 
Risk-adjusted Net interest margin (1)(2)(3)   4.30%   1.60%   2.41%   81 bps    -189 bps    4.30%   1.33%   -297 bps 
Net provisions for loan losses / Net interest income (1)(2)(3)   21.63%   60.41%   35.41%   -25.0%   13.8%   20.30%   69.07%   48.77%

 

(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

 

 

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In the QoQ analysis, the -8.5% drop in Interest Income was attributable to a –9.8% decline in interest on loans, which was attributable to:

 

(i)A non-recurring charge of S/148 million in 4Q20 for income from loans in FC; this was attributable to an interest impairment for BCP Bolivia reprogrammed loans, after the Government mandated that these loans must be registered as zero-interest-rate loans and the interest capitalized by reprogramming during the pandemic must be condoned.

 

(ii)Structural Portfolio: the decrease in interest income was also due to -2.0% QoQ decline in the average daily balances of the structural portfolio.

 

(iii)Rate effect: In 4Q20, government loans’ share of total loans increased, and these products were offered at much lower rates than those associated with structural loans.

 

If we exclude the impairment reported at BCP Bolivia and the impairment amortization on zero-interest-rate loans, recurring net interest income fell -2.3% QoQ due to a decrease in the balance of structural loans and the high inflows of government loans.

 

In the YoY analysis, interest income fell -14.8% due to:

 

(i)Interest Earning Assets Mix: the decline in the structural portfolio and the drop in the share of these loans within the mix of interest earning assets.

 

(ii)Rate effect: high inflows of government loans and the decrease in market rates, coupled with the evolution of the assets mix explained above, led to a subsequent –16.0% YoY decline in interest on loans.

 

(iii)The reduction in interest income on deposits in other banks of -87.7% (-S/60 million), which was due to a lower remuneration rate of legal reserves and a reduction in voluntary legal reserves held in the Central Bank to fund the purchase of investments to boost the profitability of liquidity.

 

It is important to note that the YoY drop in Interest Income was partially offset by growth in Interest on Securities (+12.9%, +S/40 million) due to growth in the investment portfolio. This expansion reflects our strategy to optimize the structure of the balance and bolster the profitability of the excess liquidity generated by the Government for economic reactivation and to ensure the continuity of the chain of payments in the context of the pandemic.

 

If we exclude the reversals registered at BCP Bolivia and the impairment amortization on zero-interest-rate loans in other subsidiaries, recurring Interest Income fell -11.9% YoY, which was once again attributable to the decrease of structural loans, high inflows of government loans and lower interest rates.

 

In the YTD analysis, interest income fell -6.7%, explained by:

 

(i)         Contraction of interest income on loans contracted -6.0% due to:

 

a)Relief offered to help clients weather the crisis and, in particular, to mitigate the effects of the lockdowns in Peru and Colombia. These relief efforts led to an impairment related to the offering of zero-interest-rate loans for -S/472 million, including movements at BCP Stand-alone, Mibanco and Mibanco Colombia (formerly Bancocompartir and Encumbra). Additionally, there was an impairment for -S/148 million at BCP Bolivia after the Bolivian Government mandated that these loans must be registered as zero-interest-rate loans and interest capitalized under reprogramming during the pandemic must be condoned.

 

b)Lower interest rates within the structural portfolio and the presence of high levels of government loans in the portfolio mix, which led to significant growth in the loan volume but contributed little to profitability given that government loans were disbursed with low interest rates.

 

(ii)Contraction in interest on deposits in other banks (-76.7%, -S/246 million) due to a contraction in the remuneration rate for legal reserves and a reduction in voluntary reserves.

 

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The increase of +4.6% (+S/61 million) in interest on securities, which was driven by growth of 64.7% in total investments YoY, was insufficient to offset the evolution described above. Growth in investments YoY was attributable to an increase in fair value through other comprehensive income at BCP Stand-alone.

 

If we exclude non-recurring charges at BCP Bolivia and the provisions and amortizations associated with a deterioration of interest related to zero-interest-rate loans in other subsidiaries, recurring Interest Income fall -4.1% in 2020 with regard to the YTD figure reported in 2019. This was due, once again, to lower market rates, the decrease in structural loan origination and the impact of government programs.

 

4.2. Interest Expenses

 

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

 

 

 

In the QoQ analysis, interest expenses fell -20.0%. This was driven primarily by a decrease in interest on bonds and subordinated notes (-38.6%, -S/116 million), which was in turn attributable to the fact that in 3Q20, an extraordinary expense of S/108 million was reported for a bond exchange at BCP Stand-alone. Recurring interest expenses contracted -7.3% due to the improvement of the funding structure and the decrease in market interest rates:

 

(i)Funding mix: growth in savings and demand deposits and in non-interest-bearing deposits in particular, which was accompanied by new subordinated debt at lower interest rates, which led to a reduction in more costly funding alternatives and subsequent decline in associated interest expenses.

 

(ii)Rate effect: both LC and FC rates have followed a downward trend over the last few periods, which accentuated the drop in expenses.

 

In the YoY analysis, interest expenses fell -21.5%, which was attributable to:

 

(i)A contraction in interest expenses on deposits due to significant growth in demand deposits and savings deposits (+59.4% and +42.3% YoY, respectively), our main sources of funding. These deposit types also imply lower costs than other sources of funding. Consequently, and thanks to a reduction in the most expensive deposits such as time deposits, severance deposits and interest bearing demand deposits, interest expenses contracted 33.2% YoY.

 

(ii)The reduction in interest expenses from other sources of funding, which was associated with high inflows of low-interest government loans, which replaced other sources of more expensive funding such as bank loans.

 

(iii)Rate effect: lower market rates.

 

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At the YTD level, interest expenses fell -9.5%. If we exclude the non-recurring expense for a bond exchange at BCP, recurring interest expenses fell –12.7%. The reduction was due primarily to a decrease in interest on deposits (-18.5%, -S/271 million). The main factors that explain this decrease are:

 

(i)Deposit mix: significant growth of low-cost deposits and a contraction in the most expensive deposits type, which led to a subsequent decrease in interest expenses.

 

(ii)Context marked by low-cost funding due to the inflow of government relief funds.

 

(iii)Rate effect: rates have followed a downward trend in a scenario of economic contraction due to the pandemic.

 

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 was situated at 3.73% in 4Q20 and 4.30% for 2020. The margin continued to follow a downward trend, registering decreases QoQ, YoY and YTD, which was attributable to:

 

(i)The Structural portfolio registered a NIM of 4.30% in 4Q20 and 4.78% YTD, which represents a decline of -16 bps QoQ, –118 bps YoY and -62bps YTD. The drop in the margin was attributable to:

 

a)Mix of interest-earning assets: total loans have gone from representing 66.5% of the total mix to accounting for 61.43% in 4Q20 (56.5%, excluding government loans). Investments went from representing 19.3% of the total mix in 4Q19 and 23.5% in 3Q20 to accounting 24.6% of the mix in 4Q20 (27.6% excluding government programs).

 

b)The fact that structural loans were less profitable in a context marked by lower rates in both LC and FC and to a decrease in loan origination in 2019.

 

(ii)Mix of Government loans and Structural loans. Government loans were responsible for a -37bps decline in NIM QoQ and -23bps YTD. If we exclude these loans from the calculation, NIM without government program inflows situates at 4.10% for the quarter and 4.53% YTD.

 

(iii)Non-recurring events:

 

a)Impairments related to zero-interest-rate loans and subsequent amortizations in BCP Stand-Alone and Mibanco.

 

b)Impairment at BCP Bolivia after the government mandated that reprogrammed loans (granted during the pandemic) must change to zero-interest-rate loans and accrued interest from reprogrammed loans must be condoned.

 

c)Interest expenses on bond exchanges at BCP Stand-alone.

 

Combined impact of the effects of non-recurring effects on NIM is –18bps for the quarterly calculation and –23pbs YTD.

 

33

 

 

Risk-adjusted NIM increased +81bps QoQ given that the provisions level dropped in comparison to 3Q20’s level. Risk-adjusted NIM fell -189bps YoY and -297bps YTD in line with growth in provisions to absorb the impact of the pandemic.

 

NIIM on loans decreased QoQ, YoY and YTD. During these periods, the loan balance increased but was heavily weighted with low-interest government loans. Besides, zero-interest-rate facilities granted to our clients also led to impairment for deterioration in interest on loans.

 

NIM on loans in the Structural portfolio was situated at 7.37% this quarter, which represented a reduction of -13pbs QoQ and -48pbs YoY. This decrease was driven by lower market rates in both LC and FC.

 

NIM on loans (1)

 

 

It is also important to note analyze NIM by business line. The table below contains information on the interest margins for each of Credicorp’s business lines.

 

   Universal         
NIM Breakdown  Banking(1)   Microfinance(2)   Credicorp(3)(4) 
4Q19   4.89%   15.20%   5.49%
3Q20   3.53%   12.12%