Central bank rate hike "marginally positive" for Credicorp - Deutsche Bank

Monday, January 10, 2011

The hike in the benchmark rate by Peruvian central bank BCRP last week will be "marginally positive" for the country's largest financial services holding, Credicorp (NYSE: BAP), Deutsche Bank (NYSE: DB) said in a research note.

BCRP's increase by 25bps to 3.25% was higher than expected by Deutsche Bank's economists, who had seen the rate remaining at 3% until the end of this quarter. They had expected BCRP to start increasing the rate next quarter and end this year at 4%.

"While funding costs could increase slightly, we think Credicorp benefits from its large deposit base in Peru with 34% market share. Furthermore, almost 60% of its deposits are low cost savings and demand deposits, and the majority of its time deposits carry fixed rates," analyst Tito Labarta wrote.

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Deutsche Bank also noted that Credicorp has some 40% of its assets in cash and securities -mainly central bank CDs - which will benefit directly from the higher benchmark rate. The bank also added that around 14% of Credicorp's loans have variable rates, which could also benefit from BCRP's rate increase.

"Finally, we think the bank's increasing focus on retail loans should also help its NIM [net interest margin], and we expect loan growth to remain above 20% in 2011. Therefore, we think the weakness in the stock today represents a buying opportunity," Labarta wrote. Deutsche Bank has a buy recommendation on the Credicorp stock.

Credicorp owns Peru's largest bank, Banco de Credito (BCP), and also has insurance, private pension and investment banking subsidiaries.