Credicorp Earnings Call: Record ROE Amid Rising Risks

Credicorp ((BAP)) has held its Q1 earnings call. Read on for the main highlights of the call.

Credicorp’s latest earnings call struck an upbeat tone, as management celebrated record net income and a 21.1% ROE, well above its own long‑term target. Executives highlighted broad-based strength across lending, margins and digital businesses, while stressing that inflation, politics and weather risks argue for cautious optimism rather than outright euphoria.

Record Profitability and ROE

Credicorp opened the quarter with record net income and a consolidated ROE of 21.1%, signaling that its business model is performing ahead of plan. Management underscored that this level of profitability reflects not only cyclical tailwinds but also structural gains across its main franchises.

Strong Loan Growth

Credit expansion remained healthy, with consolidated loans up 8.2% year over year on quarter‑end balances. BCP’s loan book grew 7.3% (9.1% FX‑neutral), while Mibanco delivered standout performance with 12.4% year‑over‑year growth, highlighting strong demand in the microfinance segment.

Improved Asset Quality and Coverage

Asset quality indicators improved as the NPL ratio fell to 4.3%, dipping below pre‑2023 levels and signaling better portfolio health. Coverage increased to 113.8%, while consolidated cost of risk was a low 1.3%, with BCP at 0.8% and Mibanco benefiting from lower vintage risk.

Margin and Core Income Expansion

Net interest income climbed 10.9% year over year, supporting a consolidated NIM of 6.6% in the quarter, comfortably inside guidance. Other core income lines were equally strong, with total core income up solidly, helped by a 15.6% rise in fees and a 30.6% jump in FX trading gains.

Digital and Innovation Momentum

Digital platform Yape continued to scale aggressively, reaching 16.4 million monthly active users, about 82% of Peru’s economically active population. Monetization is accelerating, with revenue per user up 65% year over year and Yape now contributing 17% of group fee income and 8% of risk‑adjusted revenues.

Operational and Segment Profitability

Core segments delivered robust returns, with BCP posting an impressive 30.5% ROE and a record 5.5% risk‑adjusted NIM as NPL volumes fell 11.1%. Mibanco showed a strong 21.7% profitability and a 14.9% NIM, while Grupo Pacifico generated an 18.9% ROE and 11% organic net income growth.

Deposit Mix Improvement and Funding Advantage

Funding quality improved as low‑cost deposits rose to 63.9% of the funding base, consolidating Credicorp’s competitive funding advantage. This shift helped compress funding costs by about 31 basis points year over year, supporting margins at a time of uncertain monetary conditions.

Capital Returns and Solvency

The balance sheet remains solid, allowing Credicorp to announce a record ordinary dividend of PEN 50 per share without compromising growth. Management framed this payout as evidence of strong solvency and disciplined capital allocation rather than a signal of slowing investment.

Progress Toward Innovation Revenue Targets

Innovation initiatives are becoming a material earnings driver, with the innovation portfolio contributing 9% of risk‑adjusted revenues in the quarter. This puts the group within striking distance of its 10% target for 2026 and underscores the rapid monetization of its digital ecosystem.

Operational Efficiency Within Guidance

Despite heavier spending on technology and strategic projects, Credicorp kept its consolidated efficiency ratio at 45.8%, in line with guidance. BCP’s efficiency ratio stood at a lean 38.6%, while Mibanco operated at 49.2%, reflecting both investment and scale benefits across units.

Macro and Political Uncertainty

Management acknowledged that the external environment is becoming more challenging, citing geopolitical tensions in the Middle East and upcoming presidential elections in Peru. While the base case for Peru’s 2026 GDP growth remains about 3.5%, recent data are tracking closer to 3.2% and risks are tilted to the downside.

Inflation and Monetary Conditions

Peru’s inflation rose to 4.0% year over year in April, the highest in more than two years, driven by transport, energy and food. This spike suggests monetary policy may stay tighter for longer than previously thought, potentially weighing on credit growth and funding costs.

One-off Drivers Behind Asset Quality Gains

Management cautioned that some of the asset quality strength was boosted by temporary factors such as pension withdrawals, profit‑sharing in mining and specific wholesale recoveries. As these one‑offs fade, the cost of risk is expected to normalize upwards from the unusually low levels seen in the quarter.

Rising Operating Expenses and Innovation Spend

Operating expenses increased 13.1% year over year at the group level, with BCP’s costs up 15.1% as digital and innovation spending surged. Disruptive initiatives, mainly Yape, Tenpo and Culqi, saw expenses jump about 40% and now account for the majority of disruptive costs, weighing on near‑term efficiency.

Insurance Underwriting Pressure

Grupo Pacifico’s underwriting result fell 9.1% year over year, reflecting lower P&C premiums and inflation‑driven pressure on life insurance claims. Management expects underwriting income to decline at a high single‑digit rate this year, even though underlying performance excluding inflation impacts shows modest growth.

Climate and Weather Risks

The group flagged El Niño as a tangible risk, with early effects already visible in weaker agricultural output and disruptions to the anchovy season. A moderate‑to‑strong event could trim around 1% from Peru’s GDP, creating downside risk to loan demand and portfolio quality.

Wholesale Volatility and Provisioning Noise

Wholesale provisioning remains lumpy, as shown by a swing in wholesale cost of risk from an unusually high 0.5% last quarter to -0.1% this quarter. These irregular recoveries and reversals can inject volatility into quarterly earnings, even when underlying credit trends remain sound.

Regional Headwinds Across Markets

Outside Peru, the operating backdrop is mixed, with growth in Chile slowing and Bolivia facing a tougher macro environment despite Credicorp’s relative outperformance. In Colombia, political uncertainty and inflation continue to weigh on sentiment ahead of elections, reinforcing the need for prudent risk management.

Guidance and Forward-Looking Outlook

Credicorp reaffirmed a cautiously constructive outlook, guiding total loan growth around 8.5% (about 10.5% FX‑neutral) and NIM between 6.4% and 6.7%, close to current levels. ROE guidance was maintained at roughly 19.5% for 2026, though management sees upside toward the upper end, while cost of risk is expected to drift modestly higher from today’s low base.

Credicorp’s call painted a picture of a bank firing on most cylinders, combining record profitability and rapid digitalization with still‑disciplined risk and capital management. Investors, however, will need to balance this strong execution against rising inflation, political uncertainty and weather‑related threats that could test the resilience of these record results over the coming quarters.