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Earnings release by Credicorp
Lima, Peru, November 07th , 2018 - Credicorp (NYSE: BAP) announced its unaudited results for the third quarter of 2018. These results are consolidated according to IFRS in Soles. Third Quarter Results 2018 In 3Q18, Credicorp reported net income of S/ 1,011.3 million, which translated into an ROAE and ROAA of 18.0% and 2.4% respectively.
This result represented an increase of 3.4% QoQ that was, nevertheless, 17.0% lower than the figure reported in 3Q17. The YoY contraction was due to the fact that in 3Q17, S/281 million were reported for the sale of BCI shares from the proprietary investment portfolio. Year-to-date (YTD), net income at Credicorp totaled S/ 3,026.9 million, which was close to the figure reported for the same period of last year. This translated into an ROAE and ROAA of 18.0% and 2.4% (vs. 19.4% and 2.5% for the same period in 2017).
The results in 3Q18 show:
• The mix of Interest-earning assets (IEAs) posted a decrease, for the second consecutive quarter, in both Cash & available funds and total investments while loans continued to expand. Growth in loans, the most profitable asset, continued to improve, translating into expansion of +2.2% QoQ and +10.4% YoY in the quarter-end loan balances, and growth of +1.5% QoQ and +9.8% YoY in average daily loan balances. This expansion was led by Retail Banking, in particular Mortgage and SME-Pyme, followed by Middle-Market Banking and BCP Bolivia.
• It is important to note that the loan mix by segment and by currency was favorable this quarter. In YTD terms, the quarter-end loan balance at the end of 3Q18 increased +4.5% versus the level posted at the end of December 2017. The average daily loan balances in the first nine months of this year grew +7.7% with regard to the average daily loan balances posted for the full-year 2017.
At the end of 3Q18 total funding fell QoQ, which was associated with a drop in Due to banks and correspondents and in Total deposits. The latter contracted mainly due to the reduction in deposits at ASB, which in turn reflects the transfer of these funds to investment products at ASB as AuMs. In the YoY analysis, there was a noteworthy re-composition of the funding structure as deposits increased their share in total funding and represented the main source of substitution for BCR Instruments. All of the aforementioned has helped keep Credicorp's funding cost at a level relatively stable since 2016 despite a scenario of rising international rates.
• All of the aforementioned translated into expansion of +4.1% QoQ +6.0% YoY in Net interest income (NII), which represented an improvement over the figure posted in 2Q18 (+0.9% QoQ and +4.8% YoY). The evolution of NII was due primarily to: (i) an increase in interest income, mainly due to growth in average daily loan balances and to a more favorable loan mix both by segment and currency; and (ii) the drop-in interest expenses due to a decrease in interest on deposits and loans; the latter was due to a decrease in the average volume of BCRP instruments. All of the aforementioned translated into an increase of +26 bps QoQ and +22 bps YoY in NIM. In YTD terms, NIM remained relatively stable.
• Unlike the scenario seen over the last six months, the total cost of risk (CofR) increased QoQ and YoY to situate at 1.67%. Nevertheless, the cost of risk of the underlying portfolio was situated at 1.43%, which was within the range registered in 1H18. The increase in the CofR was mainly attributable to the execution of a performance bond and consequent refinancing of debt held by a client in the construction sector not related to the Lava Jato case. YTD, the cost of risk was situated at 1.43%, 46 bps below the level reported for the same period in 2017.
• Risk-adjusted NIM was situated at 4.41%, which represented a drop of-7 bps QoQ and +9 bps YoY; consequently, in YTD terms, this indicator reported an improvement of +21 bps.
Total non-financial income increased QoQ due to gains on sales of securities; an increase in the exchange rate difference; and higher fee income. The YoY analysis reflects a drop in Sales of securities due to the sale of BCI shares in 3Q17; this was, nevertheless, slightly offset by growth in Fee income (+7.5% YoY) and in Gains of foreign exchange transactions (+21.2% YoY), which represent the main sources of non-financial income.
• The insurance underwriting result posted a drop of -4.0% QoQ; this was attributable to an increase in the net loss ratio posted by property and casualty insurance and life insurance, which was mitigated by an increase in the net earned premium in life insurance. In YoY terms, the underwriting result fell -12.1% due to an increase in the net loss ratio and in commissions in both business; this result was mitigated by growth in the net earned premium.
• The efficiency ratio improved 20 pbs YoY but it deteriorated 30 bps YTD. The YTD deterioration was due to growth in operating expenses, which was attributable to (i) an increase in salaries and administrative & general expenses, mostly at BCP; and (ii) growth in acquisition cost from the insurance business.