Credicorp's credit growth impresses analysts, but earnings leave them wanting more

Friday, August 12, 2011

Peru's largest financial services conglomerate, Credicorp (NYSE: BAP), surprised analysts with strong credit growth in 2Q11, but failed to win praise for its earnings generation in the quarter.

On Thursday (Aug 11), Credicorp reported recurring net income of US$162mn and ROE of 24.4% for the second quarter. Lending grew 26% year-on-year in the quarter, despite the great uncertainty that surrounded the presidential elections during April-June.

"On the operating side we were positively surprised by BAP's strong credit growth in Q2, quite an achievement in a quarter of uncertainty," Roberto Attuch and Fabio Zagatti, of UK investment bank Barclays Capital, said in a note to investors.

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The analysts, however, maintained their hold rating on the stock due to higher than expected operating expenses.

For his part, Deutsche Bank's Tito Labarta singled out much greater loan provisions as a reason for keeping the hold rating on Credicorp. The provisions of the group's flagship bank, Banco de Crédito del Perú, rose to US$60mn in 2Q11 from US$40mn in 1Q11.

"Operating trends were relatively solid and in line with expectations, but provisions were well above our forecasts," Labarta said in his note.

Chile's financial services firm, Celfin Capital, did not let those concerns spoil their good long-term view on Credicorp's prospects.

"In our opinion [Credicorp] is the best proxy for the Peruvian economy in the local stock market. Although our assessment of the long-term growth prospects for the group and the Peruvian credit market remains unchanged, we expect the climate of political risk, together with current volatility in international markets, to keep its stock price under pressure," wrote Celfin's Gustavo Fingeret.


Credicorp's insurance subsidiary PPS enjoyed a very strong second quarter, as its earnings of US$25.1mn were double that of 2Q10, and 64% higher than in 1Q11.

PPS's contribution to its parent has risen due to the increase in Credicorp's holding in insurer Pacífico Seguros, from 76.0% to 96.1% in 4Q10.

Celfin has reiterated its buy rating on the Credicorp stock.