Credicorp Ltd (BAP) Q2 2025 Earnings Call Highlights: Strong ROE and Digital Growth Amid Legal ...

ROE: 20.7% for Q2, with a full-year expectation of approximately 19%. Risk-Adjusted NIM: Record 5.4% for the quarter. Efficiency Ratio: 44.2% for the quarter. Loan Growth: Underlying growth of 2.6% for the quarter, excluding currency effects. NPL Ratio: 5% for the quarter. Cost of Risk: 1.6% for the quarter. Net Interest Income: Increased by 4.2% year-over-year. Fee Income: Increased by 8.2% year-over-year. Insurance Underwriting Results: Grew by 11.2% year-over-year. Yape Users: Nearly 15 million monthly active users. Yape Revenue Contribution: 5.5% of Credicorp's risk-adjusted revenue. Grupo Pacifico ROE: 21.1% for the quarter. Investment Management ROE: 15.5% for the quarter. GDP Growth Expectation: Around 3% for the year. Loan Book Growth Expectation: Around 6.5% year-over-year.

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Release Date: August 15, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Credicorp Ltd (NYSE:BAP) reported a strong ROE of 20.7% for Q2 2025, reflecting solid operating performance and disciplined risk management. The company is benefiting from Peru's favorable macroeconomic environment, with GDP expected to grow by 3.2% and domestic demand by 4.5% this year. Credicorp Ltd (NYSE:BAP) has successfully diversified its business model, with fee-based and transactional income growing, reinforcing its platform. The digital platform Yape continues to scale, now serving nearly 15 million monthly active users, contributing significantly to fee income. Asset quality trends remain favorable, with improved credit dynamics and a record risk-adjusted NIM of 5.4%.

Negative Points

Credicorp Ltd (NYSE:BAP) is facing a legal challenge with SUNAT, requiring a payment of approximately PEN1.6 billion in alleged unpaid income tax, impacting cash flow. The efficiency ratio reflects upfront investments in scaling digital capabilities, which may pressure short-term profitability. Loan growth was impacted by the revaluation of Bolivia's balance sheet and currency fluctuations, with a reported 4.1% drop in quarter-end balances. The cost of risk is expected to rise in the second half of the year due to stronger retail origination, potentially affecting profitability. Despite strong results, the company will not issue extraordinary dividends this year due to the cash impact of the SUNAT payment.

Q & A Highlights

Q: Can you elaborate on the improvement in cost of risk and the strategy for retail acceleration in the second half? A: The improvement in cost of risk is due to measures taken last year to ensure portfolios are within risk appetite, resulting in a very low cost of risk in the first half of the year. We are now originating higher-yielding, higher-risk portfolios successfully. The strategy is to continue this trend, which should reflect in the second half and continue in the following years. We manage our portfolio based on risk-adjusted NIM, not just cost of risk.

Story Continues

Q: What is your long-term vision for the physical branch network given the digital transformation? A: We have reduced our branch network from 450 to 300 over the past few years, shifting the role of branches from transactional to more educational and commercial. While the bulk of the reduction is done, we will continue to adapt as the world changes.

Q: How do you see the cost of risk trending long-term, and what are your expectations for loan growth this year? A: We expect the cost of risk to increase as we originate higher-risk portfolios, but this will also increase profitability. For loan growth, we expect a 6.5% increase year-over-year, driven by retail segments, particularly in Mibanco and BCP with mortgages and consumer credit.

Q: Can you provide insights into Yape's contribution to Credicorp's revenue and its future potential? A: Yape is expected to become the second-largest line of business for Credicorp in the next 3 to 5 years, primarily due to its lending business in retail and SME segments. Currently, Yape's lending is small but growing, with a focus on learning to lend effectively.

Q: What impact does the SUNAT payment have on dividends, and what is the outlook for extraordinary dividends? A: The PEN1.6 billion payment to SUNAT affects our cash position, so we won't issue an extraordinary dividend this year. However, this does not change our expectations for next year's ordinary and extraordinary dividends.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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