Credicorp remains confident in ROE despite weak Q4 results

Wednesday, February 6, 2013

Management at Peruvian financial services firm Credicorp remains confident that they can deliver 20% ROE following weak 4Q12 results, according to broker Deutsche Bank.

In a conference call, which followed from the bank's earnings release for the full year, Deutsche Bank highlighted Credicorp's branch expansion plan that will keep expense growth high, leading to a slight deterioration in efficiency from the 51% achieved in 2012.

Deutsche Bank analyst Tito Labarta pointed out that following the stock's 10% price decline in the days following the results it now trades at "13.5x 2013E P/E, a discount to banks in Chile, Colombia, and Mexico (average of 14.3x), despite better earnings growth and profitability than most."

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For 2013 and 2014, Deutsche Bank expects earnings at the bank to rise by 12% and 14%, respectively, with return on average equity of 19.8% and 19.6%, respectively.

The bank's conference call pointed to loan growth of 2.5-3.0 times GDP growth of approximately 6.5% in 2013, implying loan growth of 16-20%, in-line with the system but with faster growth in the retail segment, which should benefit the net interest margin (NIM).

Deutsche Bank forecasts loan growth of 18% for 2013 with NIM expanding 10bps and expense growth rising by 24% in 2013, partially offset by a 21% increase in operating revenues.

Deutsche Bank expects gradual deterioration in asset quality going forward with the NPL ratio rising 30bps from 1.8% in 2013, following a 20bps increase in 2012, mainly due to the shift in loan mix towards more retail loans.