Credicorp’s Resilient ROE and Digital Dominance Defy Macroheadwinds in 2025

Isaac LaneSaturday, May 17, 2025 3:18 am ET
58min read

Peru’s leading financial services group is proving that disciplined execution and digital innovation can turn macroeconomic headwinds into opportunities. Here’s why investors should consider it a top-tier Latin American play.

Strengths: A Fortress Balance Sheet and Digital Moats

Credicorp (NYSE: BAP) has emerged as a standout performer in a volatile year, thanks to its operational discipline and strategic focus on digital transformation. Key metrics highlight its resilience:

  • ROE Resilience: The company delivered a 20.3% ROE in Q1 2025, including one-off gains from a joint venture acquisition. Excluding these, its core ROE was 18.4%, well above regional peers. This underscores strong capital efficiency, even amid a slowdown in loan growth.
  • Yape’s Explosive Growth: The company’s digital wallet, Yape, now boasts 14.5 million monthly active users (MAU) after adding 0.5 million in Q1. This platform is a dual-edged asset: it drives fee income (up 16% YoY) and serves as a gateway to expand into SME lending—a strategic shift to diversify revenue streams.
  • Improved Asset Quality: Non-performing loans (NPLs) fell to 5.1% in Q1, down 112 basis points from a year earlier. A 107.4% coverage ratio and a 1.6% cost of risk reflect prudent risk management, even as Peru’s economy rebounded to 3.9% GDP growth in the quarter.

Risks: Navigating Political and Economic Crosscurrents

Credicorp is not immune to macroeconomic and geopolitical risks:

  • Peru’s Political Uncertainty: Upcoming elections could introduce policy volatility, particularly around fiscal reforms and mining royalties. The company’s exposure to Peru’s economy—where it holds 60% of its loans—leaves it vulnerable to shifts in political priorities.
  • Global Trade Tensions: Geopolitical conflicts, such as U.S.-China trade disputes, could dampen regional export demand. Credicorp’s exposure to sectors like mining and manufacturing amplifies this risk.
  • Declining Interest Rates: A 17 basis point sensitivity to interest rate shifts means falling rates could compress net interest margins (NIMs), which already face pressure from asset yield declines. Loan growth, at just 1.5% YoY, lags economic recovery, compounding this challenge.

Catalysts: Digital Diversification and Peru’s Economic Tailwind

Investors should focus on Credicorp’s ability to capitalize on near-term opportunities:

  • Digital Expansion: Yape is pivoting from consumer lending to multi-installment SME loans, which could dominate its outstanding balances by year-end. This shift aligns with Peru’s small business sector, which accounts for 60% of employment, offering scalable growth.
  • Peru’s Economic Rebound: The 3.9% GDP growth in Q1 2025 signals a pickup in domestic demand, which should eventually translate into stronger loan growth. Credicorp’s universal banking model—spanning retail, wholesale, and microfinance—positions it to capture this recovery.
  • Capital Returns: The PEN40 per share dividend reaffirms management’s confidence in liquidity and profitability, while its modernization of core systems reduces long-term costs.

The Case for a Buy: Discipline and Digital Moats Overcome Near-Term Risks

While Credicorp faces valid risks, its fundamentals argue for a long-term hold. The 18.4% core ROE and Yape’s fee income growth (now 16% of total revenue) create a self-reinforcing cycle: strong capital returns allow reinvestment in digital infrastructure, which in turn drives diversification and resilience.

Even if Peru’s political climate stirs volatility, the company’s 107% coverage ratio and $5.2 billion in deposits (up 9.7% YoY) act as buffers. Meanwhile, the 3.9% GDP rebound suggests that loan growth will accelerate as businesses rebuild inventories and households spend.

Final Call: Credicorp’s blend of operational excellence and digital innovation positions it as a top-tier financial services play in Latin America. While near-term risks warrant caution, the stock’s 1.5x price-to-book ratio and dividend yield of 4.5% offer a compelling risk-reward ratio for investors with a 12- to 18-month horizon.

Act now while macro fears suppress valuation—a perfect setup for disciplined long-term investors.