Credicorp LTD 2026 Q2 Earnings Call

You may begin. Thank you and good morning, everyone.

Speaking on today's call will be Gianfranco Ferrari, our Chief Executive Officer, and Alejandro Perez-Reyes, our Chief Financial Officer. Participating in the Q&A session will also be Francesca Raffo, Chief Innovation Officer, Cesar Rios, Chief Risk Officer, Diego Cavero, Head of Universal Banking, Eduardo Montero, Head of Insurance and Pensions, and Rocio Benavides, CFO at Mibanco. Before we proceed, I would like to make the following safe harbor statement. Today's call will contain forward-looking statements, which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties, and I refer you to the forward-looking statements section in our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances.

Gianfranco Ferrari will begin the call with remarks on the current operating environment, Credicorp's strategic priorities, and the key drivers underpinning our confidence in achieving a medium-term ROE of around 22%. He will also highlight our strong performance this quarter. Alejandro Perez-Reyes will then review our financial performance in greater detail and discuss our outlook for 2026. Gianfranco, please go ahead. Thank you, Milagros.

Good morning, everyone, and thank you for joining us today. Before reviewing our quarterly performance, I would like to begin by sharing why we have greater confidence in Peru's medium-term outlook and what this means for Credicorp. We believe Peru is entering a more favorable environment for growth. This confidence is grounded first in the continued improvement of the country's underlying economic fundamentals. Private investment, domestic demand, favorable commodity prices, and business confidence were already gaining momentum before the recent election. The political transition could help reinforce this momentum. Greater visibility around the policy agenda, a less segmented Congress, and continued commitment to Peru's sound macroeconomic framework and private investment will further support confidence.

Early signals of policy continuity and discipline, including the formation of a new and solid technical team at the Ministry of Economy and Finance and continuity at the central bank, are encouraging and consistent with a more predictable economic environment. Data support this view. Business confidence has recovered to its highest level in years. Private investment is growing by approximately 13% year-over-year, and domestic demand by more than 5%. Peru also continues to benefit from exceptional favorable commodity prices, with gold prices having roughly doubled since 2023 and copper prices increasing nearly 60%. Together, these factors are strengthening investment, trading demand, and economic activity, providing a solid foundation for stronger medium-term growth. The principal near-term risk to this outlook is El Niño.

While we recognize its potential impact on families, communities, and small businesses, we continue to view it as a temporary and manageable shock rather than a structural change in Peru's growth trajectory. At Credicorp, we are prepared to support our clients and communities through this period, leveraging our ecosystem, distribution channels, and digital capabilities to help them anticipate and manage potential disruptions. Alejandro Perez-Reyes will provide more details on the expected financial impact and how we're incorporating currently available information related to El Niño risk into our financial outlook. Importantly, based on the information currently available, El Niño does not alter our overall confidence in Peru's medium-term outlook or in Credicorp's ability to continue delivering sustainable growth. Across the region, the outlook remains mixed but constructive over the medium term.

In Chile, while near-term activities have been softer than expected, the investment pipeline, elevated copper prices, and policies aimed at encouraging foreign investment support a better outlook. In Colombia, despite ongoing challenges and the terrible impact of the recent earthquake, market sentiment has improved following recent political developments, reflected in a stronger currency and lower sovereign yields. Overall, the improving operating environment reinforces our confidence in Credicorp's long-term outlook. Against this backdrop, we delivered a strong second quarter with solid performance across our businesses and continued progress against our strategic priorities. Let me now walk you through the key results. We delivered another quarter of strong execution, reporting a 20.3% ROE, reflecting the strength of our diversified business model and solid performance across our core businesses. Operational momentum remained robust across the franchise.

Our innovation portfolio contributed 9.9% of Credicorp's risk-adjusted revenues, keeping us firmly on track toward our strategic objectives, while demonstrating how the portfolio is becoming an increasingly meaningful contributor to our earnings profile. We're also seeing credit demand continue to strengthen. Loan growth accelerated across our main lending businesses, supported by both retail and wholesale banking at BCP, as well as Mibanco. Our profitability continues to benefit from disciplined execution. Risk-adjusted NIM stood at 5.5%, supported by our low-cost funding advantage, healthy portfolio mix, and disciplined pricing. Our strong capital position and disciplined risk management continue to provide resilience. We're actively monitoring El Niño risk, reinforcing our ability to support clients while maintaining a sound risk profile. At the same time, we remain focused on building the business for the long term.

Our efficiency ratio stood at 45.4%, while investments in innovation and digital capabilities continue to broaden our revenue base, deepen customer engagement, foster financial inclusion, and support more scalable growth. As we have discussed in recent quarters, our previous medium-term ROE expectation of around 19.5% has become increasingly conservative as our performance strengthened and the underlying economics of our business continue to improve. With greater visibility across our key markets and earning drivers, we believe the time is right to update our medium-term ROE expectation. We now believe Credicorp has the capacity to deliver a medium-term return on equity of approximately 22%. This reflects a more stable operating environment, but more importantly, the structural transformation of our ecosystem.

Over the past several years, we've strengthened the drivers of our earnings, improving the quality of our loan portfolio, enhancing risk management capabilities, reinforcing our structural funding advantage, and diversifying our sources of revenues. At the same time, we have invested consistently in technology, data, and talent, creating a more scalable and efficient business model. Innovation is an increasingly important part of that transformation. It is expanding financial inclusion and deepening customer relationships while becoming a more meaningful contributor to growth, earnings diversification, and long-term resilience. Together, these structural improvements position us to deliver stronger and more sustainable profitability across economic cycles. We look forward to sharing more information about how our innovation strategy is becoming an increasingly important driver of growth and value creation across Credicorp at our digital strategic update on November 17th. Now, let me turn the call over to Alejandro.

Thank you, Gianfranco, and good morning, everyone. As Gianfranco mentioned, we delivered a 20.3% ROE this quarter, supported by strong operating performance, accelerated loan growth, and higher risk-adjusted revenues across our diversified business ecosystem. As I discuss the quarter's highlights, I will focus on the year-over-year operating trends. Loans measured in quarter-end balances increased 13.1%. This uptick was driven primarily by BCP, through both retail and wholesale banking, and by Mibanco. Asset quality improved further, with Credicorp's NPL ratio declining to 4.1% for the quarter, supported by better origination quality and enhanced collections capabilities. The cost of risk stood at 1.9%, reflecting portfolio growth within our risk appetite and an impact of 27 basis points due to El Niño-related provisions based on currently available information. Net interest income increased 13.3%, mainly driven by lower interest expenses supported by our local funding structure and by a higher yielding loan mix.

Against this backdrop, NIM stood at 6.6%. Other core income grew 19.7%. Fee income increased 15.9%, boosted by transactional activity at Yape and BCP. Gains on FX transactions rose 29.8% through higher volumes at BCP, which rose in the context of higher volatility. Lastly, the insurance underwriting results decreased, mainly reflecting a base effect from provision reversals recorded in the second quarter of last year in the life business. Our diversified business portfolio, strong capital position, and healthy asset quality puts us in good stead to navigate potential El Niño impacts as we continue to execute our strategic priorities. Next slide, please. Peru's economy remained resilient in the second quarter of the year, with GDP estimated to have grown by around 3% year-over-year. Robust domestic demand, supported by historically high terms of trade, employment gains, and ongoing business cycle momentum, helped offset a sharp contraction in primary activities.

Primary GDP is estimated to have fallen by nearly 5% year-over-year, marking its steepest decline since 2014, excluding the pandemic. As El Niño-related disruptions weighted on fishing, agriculture, and primary manufacturing. Despite these headwinds, domestic demand is estimated to have expanded roughly 5% year-over-year, reporting the seventh consecutive quarter of strong growth. High-frequency indicators continue to sign a broad-based and robust economic expansion, with several indicators posting double digits year-over-year growth. Private investment expectations have rebounded sharply following the presidential election, reaching their highest level since the series began in 2013. President Keiko Fujimori has confirmed Julio Velarde's continuation as governor of the Central Bank, and appointed Elmer Cuba, a respected macroeconomist and former Central Bank director, as Finance Minister, reinforcing expectations of solid and predictable macroeconomic policy under the new administration. Next slide, please. Under Chairman Kevin Warsh, the Federal Reserve has emphasized its commitment to price stability and signed off limited tolerance for persistently elevated inflation.