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Credicorp's results for the third quarter have beaten expectations by a wide margin on the back of continued growth in the Peruvian economy and stronger banking and brokerage fees following recent acquisitions in Chile and Colombia.
The company put the improved performance down to its adjustments to its credit models to turn around the increase in delinquencies that required high provisions as well as its efforts to penetrate the low income segments in the second quarter.
Earnings for the third quarter, at US$2.85 per share increased by 32.3% compared to the third quarter in 2011; beating consensus expectations of US$2.42 per share, according to S&P Capital IQ and taking the increase for the first nine months of the year to over 20%.
As a result, the current consensus for the full year of 5.5% earnings growth may see some substantial upgrades in the coming days.
Consequently, return on equity bounced back to 23.7% from 19.2% in the previous quarter and return on assets increased to 2.5%, from 2% in the previous quarter.
The loan book increased by 5.5% from the previous quarter and by 23.7% in the first nine months of the year and the increase in provisions, which climbed by over 90% in the first nine months of the year, fell back by 14.8% compared to the previous quarter.
Net interest income in the third quarter of US$415mn increased by 5.4% on the previous quarter and by 25.6% year on year (yoy). Non-financial income increased by 9.9% on the previous quarter to US$276mn and by 36.2% yoy. Insurance income meanwhile rose by 25% to US$46mn and by 54.6% yoy.
As a result, the net interest margin increased to 5.19% from 5.08% in the previous quarter mainly due to the expansion in the retail business, which helped raise the NIM for the loan book to 8.12%.
Given an increase of 9% in operating expenses to US$368mn, operating income was up 15.4% to US$272mn on the previous quarter and is up by 12.9% yoy.
The efficiency or cost to income ratio increased by 2.2 percentage points to 43.6% accounted for by the consolidation of two new subsidiaries, Correval in Colombia and IM Trust in Chile as well revaluation in the local currency that partially explains the higher expense numbers reported at Credicorp. Real expansion in expenses is therefore around three percentage points lower.
Portfolio quality remained strong with the non-performing loans ratio rising only slightly on the previous quarter to 2.39% despite continued strong growth in the retail business. However, the increase in delinquencies reported in the last quarter and the effects on the loan mix is likely to lead to an increase in the past due loans from the current low level of 1.73%.
Hence, provisions that have dropped from the record high posted in the second quarter will continue to reflect the growth in riskier segments.
After minority interest, income attributed to Credicorp reached US$228mn of which US$188mn or 83% is accounted for by Banco de Credito BCP.