Executive Summary / Key Takeaways

• Credicorp (NYSE:BAP) is strategically transforming from a traditional credit growth model to a diversified financial services powerhouse, driven by digital innovation, fee generation, and enhanced client engagement. This shift is reflected in its upwardly revised long-term sustainable Return on Equity (ROE) target of 19.5%.
• The company's innovation portfolio, particularly its digital wallet Yape, is a core differentiator, rapidly expanding financial inclusion and becoming a significant revenue contributor. Yape is projected to be Credicorp's second-largest business line within three to five years, primarily through its growing lending operations.
• Credicorp delivered a robust Q2 2025 with an ROE of 20.7%, underpinned by strong operating performance, disciplined risk management, and improving macroeconomic conditions in Peru, which is expected to see GDP growth of 3.2% in 2025.
• Despite a PEN 1.577 billion payment to SUNAT impacting cash flow and precluding extraordinary dividends in 2025, Credicorp maintains a strong capital position and confidence in its legal challenge, with no change to its ordinary dividend policy or future extraordinary dividend expectations.
• The company is actively leveraging AI and data management to enhance customer experience, boost operational efficiency (over 30% productivity gains in some areas), and strengthen strategic decision-making, solidifying its competitive moat against regional and fintech rivals.

The Reshaping of Peruvian Finance: Credicorp's Strategic Evolution

Credicorp Ltd. (NYSE:BAP), founded in 1889 and headquartered in Lima, Peru, stands as a dominant force in the Andean region's financial services landscape. Historically a robust credit growth engine, Credicorp has strategically pivoted towards a more balanced and resilient business model. This transformation emphasizes diversified revenue streams through fee generation, deep client engagement, and scalable innovation, aiming to decouple its performance from macroeconomic cycles. The company's journey reflects a proactive response to evolving market dynamics and a commitment to shaping the future of finance in its operating regions.

Peru's macroeconomic environment provides a constructive backdrop for Credicorp's strategic initiatives. The nation is experiencing building momentum, characterized by historically high terms of trade driven by strong gold, silver, and copper prices, a solid trade surplus, and inflation consistently below 2% for seven consecutive months. Real wages are recovering, and formal employment is expanding, contributing to an expected GDP growth of 3.2% in 2025, with domestic demand projected to rise around 4.5%. This dynamism is evident in the renewed activity among small and midsized businesses, which are investing and expanding. Furthermore, significant infrastructure projects, such as the Shanghai port, are poised to boost GDP by 0.3% in 2025 and enhance trade efficiency between Asia and Peru.

In this evolving landscape, Credicorp faces a diverse competitive field. Direct competitors include major international banks with strong regional presences like BBVA (BBVA), Scotiabank (BNS), Itaú Unibanco (ITUB), and Banco Santander (SAN), all vying for market share in universal banking, insurance, and investment services. Credicorp's deep-rooted local presence and tailored services, particularly in microfinance, offer a qualitative edge in market positioning through stronger local relationships and regulatory familiarity. While global players may boast broader technological capabilities and international diversification, Credicorp counters with an integrated approach to insurance and pensions and a specialized focus on emerging segments like microfinance, where its operational execution and customer loyalty are notable strengths. Indirectly, fintech companies like PayPal (PYPL) and emerging blockchain platforms pose a challenge by offering accessible digital payment solutions and alternative lending, potentially eroding market share in retail banking. Credicorp's strategic investments in its own digital ecosystem are a direct response to these competitive pressures, aiming to maintain its leadership and capture new growth opportunities.

Technological Differentiators: Building a Digital Moat

Credicorp's strategic shift is fundamentally underpinned by its aggressive digital transformation and a portfolio of disruptive technologies. The company is not merely adopting technology; it is embedding it deeply into its operations to create lasting differentiation and enhance its competitive moat.

At the forefront of this technological drive is Yape, Credicorp's flagship digital wallet. Yape has become Peru's most recognized brand and a powerful engine for financial inclusion. By Q2 2025, Yape served nearly 15 million monthly active users, equivalent to 75% of Peru's economically active population. This platform demonstrates robust engagement, with users conducting an average of 54.5 monthly transactions and utilizing 2.7 features per user. The tangible benefits are clear: Yape's revenue doubled year-over-year in Q2 2025, contributing 5.5% to Credicorp's risk-adjusted revenue. Its monetization strategy is strengthening, with an average revenue per monthly active user reaching PEN 6.5, while corresponding expenses stood at PEN 4.4. This positive spread highlights Yape's growing operational leverage.

Yape's technological roadmap extends beyond payments into lending, which has emerged as its fastest-growing segment. It now serves 3 million users and accounts for 18% of Yape's total revenue. The platform is strategically expanding its lending operations, with multi-installment loans representing 50% of loan balances by Q2 2025, up from 25% at the beginning of 2024. In June 2025, Yape launched SME loans, a strategic move into higher-value, longer-term credit products. Critically, nearly 30% of Yape loan recipients are accessing their first loan in the formal financial system through the platform, underscoring its profound social and economic impact. Management expects Yape to become Credicorp's second-largest business line within the next three to five years, primarily driven by its lending operations in retail and SME segments, and its inclusion in newer segments such as marketplace and commerce.

Beyond Yape, Credicorp's innovation portfolio includes Tenpo, its corporate venture capital arm's digital bank in Chile, which received provisional approval in October 2024 and expects full operational authorization in 2025, aiming to be the country's first digital bank. The company is also deeply embedding AI and data management across its operations. This involves elevating customer experience through hyper-personalization and advanced chatbots, enhancing operational efficiency with AI copilots and productivity tools (driving over 30% productivity gains in cogeneration), and strengthening strategic decision-making by harnessing data insights for market opportunities, offering optimization, and risk management. These technological advancements are not just about efficiency; they are about fundamentally redefining client engagement and operational capabilities, providing a robust competitive edge in a rapidly digitizing financial world.

Financial Performance and Operational Excellence

Credicorp's recent financial performance reflects the positive impact of its strategic transformation and improving market conditions. For Q2 2025, the company reported a strong Return on Equity (ROE) of 20.7%, supported by solid operating performance and disciplined risk management. This figure included a positive 120 basis point impact from a significant gain in BCP's investment portfolio. The recurring ROE for the first half of 2025 stood at 20%, excluding an extraordinary gain from the Banmedica transaction. For the full year 2024, Credicorp achieved a record profitability of S/5.50 billion and an ROE of 16.5%, which adjusted for one-off charges related to the Sartor case, reached 17.2%.

Underlying loan growth for Q2 2025 was 2.6% (FX-neutral), primarily driven by BCP's mortgages and consumer loans, and Mibanco. The Non-Performing Loan (NPL) ratio contracted across all segments to 5% in Q2 2025, while the cost of risk fell to a low of 1.6%. This improvement in asset quality is attributed to fortified risk management, stricter origination standards implemented in 2023 and 2024, and a strengthening Peruvian economy. Net interest income increased by 4.2% in Q2 2025, bolstered by a reduction in interest expenses as low-cost deposits expanded to 57.2% of the funding base. Fee income also saw an 8.2% increase, driven by transactional activity at Yape and BCP.

Segment-Specific Performance:

• Universal Banking (BCP): BCP delivered a robust Q2 2025 ROE of 30.9%, reflecting resilient margins, income diversification, and a low cost of risk. Loans grew 1.4% quarter-over-quarter (2.5% FX-neutral), with retail banking leading the charge. Its efficiency ratio for 1H 2025 stood at 38%.
• Microfinance (Mibanco): Mibanco's profitability continued to improve, reaching an ROE of 16.3% in Q2 2025, supported by a rebound in loan disbursements and strengthened credit risk management. Its NPL ratio fell for the fourth consecutive quarter to 6.1%, and NIM rose to a peak of 14.4%. Mibanco is transitioning towards a sustainable ROE target in the low 20s.
• Insurance and Pensions (Grupo Pacifico): Grupo Pacifico maintained strong profitability with a Q2 2025 ROE of 21.1%, driven by solid operational dynamics in both P&C and Life businesses. Net income rose 23% quarter-over-quarter and 16% year-over-year. The company expects a sustainable ROE in the low 20s.
• Investment Management and Advisory (Credicorp Capital): This segment reported a Q2 2025 ROE of 15.5%, with strong results from core income-generating businesses like wealth management and capital markets, despite a quarter-over-quarter net income decline.
  \

Liquidity and Capital:
Credicorp's liquidity position was impacted by a payment of approximately S/1.577 billion (PEN 1.6 billion) to SUNAT in August 2025, related to alleged unpaid income tax and associated interest. This disbursement led to the decision not to issue extraordinary dividends for the remainder of 2025, as the funds were reallocated to cover this claim. However, management emphasizes that this does not affect the company's legal position, its confidence in a favorable outcome, or its expectations for ordinary and future extraordinary dividends. The company maintains a dividend policy of paying out all capital not needed for business growth. Credicorp is also considering letting its $400 million holding company bond mature in June without refinancing, indicating a comfortable liquidity stance at the holding level.

Strategic Growth and Future Outlook

Credicorp's forward-looking strategy is anchored in its diversified business model and digital innovation. The company has revised its full-year 2025 ROE guidance upwards to approximately 19%, including a 50 basis point boost from extraordinary income in the first half. More significantly, the long-term sustainable ROE outlook has been raised from 18% to around 19.5%. This upward adjustment is driven by stronger expectations of loan growth, particularly in higher-yielding retail segments, which will improve the loan mix and risk-adjusted Net Interest Margin (NIM). Enhanced expectations for fee income and foreign exchange gains, stemming from increased transactional activity across its diversified business lines, also contribute to this optimistic outlook.

The loan book is projected to grow around 6.5% year-over-year (end-of-period balances) or 3% (average daily balances) in 2025, with acceleration expected in the second half, primarily from Retail Banking at BCP and Mibanco. NIM is anticipated to be at the upper end of the 6.2% to 6.5% guidance range, supported by the favorable loan mix despite declining interest rates. The cost of risk guidance for 2025 has been updated to 1.8% to 2.2%, reflecting lower-than-anticipated provisioning levels due to effective risk management and improved macroeconomic conditions. Risk-adjusted NIM guidance has also been adjusted upward to between 5% and 5.2%.

Fee income is expected to grow in the low double digits in 2025, fueled by accelerating economic activity and ongoing income diversification. Insurance underwriting results are projected to remain solid and relatively stable compared to 2024. Management explicitly states that the impact of digital investments on ROE for 2025 is expected to be near zero, turning positive from 2026 onwards, signaling the maturity and profitability of these initiatives.

Risks and Challenges

While Credicorp's outlook is positive, several risks warrant investor attention. The ongoing dispute with SUNAT over the S/1.577 billion tax assessment, while not impacting operations or requiring expense provisions due to management's assessment of a remote contingency, does affect cash flow at the holding level and has precluded extraordinary dividends for 2025. The appeal process could extend for several years, introducing prolonged legal uncertainty.

Global uncertainties, including potential trade tensions and their impact on commodity prices and global growth, remain a concern for Peru's open economy. Any significant slowdown in key trading partners like China or the US could affect external demand and commodity prices, impacting Credicorp's operating environment. Additionally, while the Peruvian political environment has shown some stability, the onset of the electoral campaign towards the end of 2025 for the 2026 elections could introduce renewed uncertainty. The company also acknowledges the one-off charge related to the Sartor case in 2024, an unusual event where Credicorp prioritized client interests, highlighting a commitment to reputation but also the potential for unforeseen financial impacts.

Conclusion

Credicorp is undergoing a profound and successful transformation, evolving into a digitally-driven, diversified financial services leader in the Andean region. The company's strategic pivot towards fee generation, client engagement, and scalable innovation, particularly through its Yape platform, is yielding tangible financial benefits and expanding financial inclusion across Peru. With robust Q2 2025 results, an upward revision of its long-term sustainable ROE target to 19.5%, and a clear roadmap for loan growth and risk management, Credicorp is demonstrating its ability to deliver consistent value.

Despite the temporary cash flow impact from the SUNAT payment and ongoing global uncertainties, Credicorp's strong capital base, disciplined execution, and continuous investment in technological differentiation, including AI and data management, position it favorably against its competitors. The company's ability to leverage its deep local market knowledge, combined with its innovative digital ecosystem, creates a formidable competitive advantage. Investors should recognize Credicorp's strategic agility and technological leadership as key drivers for sustained profitability and long-term growth in a dynamic financial landscape.