Credicorp's Digital Metamorphosis: How Yape's Ecosystem Dominance Is Rewriting Latin American Banking (NYSE:BAP) - BAP Stock Research Report

## Executive Summary / Key Takeaways * Yape's Profitability Inflection Marks a Strategic Tipping Point: Yape reached profitability in 2024 and now contributes 7.4% of risk-adjusted revenue with 15.5 million monthly active users representing 82% of Peru's economically active population, transforming Credicorp from a traditional bank into a digital ecosystem with network effects that regional peers cannot replicate. * Resilient ROE Performance Across a Diversified Platform: Q3 2025 ROE of 19.6% demonstrates the durability of Credicorp's multi-segment model, with Universal Banking delivering 25.6% ROE, Microfinance recovering to 18.8% ROE, and Insurance & Pensions maintaining 20.9% ROE, proving the company can navigate macro volatility while generating superior returns. * Strategic Pivot from Credit-Only to Fee-Generating Ecosystem: Management is explicitly shifting beyond pure lending growth to a balanced model where fee generation, client engagement, and scalable innovation drive value, with Yape's lending business already accounting for 20% of its revenue and e-commerce emerging as a third monetization pillar. * Regional Expansion Leverages Peruvian Success: Tenpo in Chile (750,000+ users, full bank license) and Yape's expansion into Bolivia (1.2 million users) provide credible pathways to export the digital ecosystem model, while maintaining dominant ~36% asset market share in Peru's concentrated banking oligopoly. * Key Risk/Reward Hinges on Execution Velocity: The investment thesis depends on Yape scaling to 10% of risk-adjusted revenue by 2026 while maintaining profitability, and whether Microfinance's recovery to pre-pandemic asset quality levels is sustainable amid potential cannibalization from Yape's lending platform. ## Setting the Scene: From 19th Century Bank to 21st Century Ecosystem Credicorp Ltd., founded in Lima, Peru in 1889, has evolved from a traditional commercial bank into the dominant financial services holding company across the Andean region. This 136-year history provides institutional depth, regulatory relationships, and customer trust that fintech upstarts cannot replicate. The company operates through four core segments: Universal Banking (BCP), Microfinance (Mibanco), Insurance & Pensions (Grupo Pacifico), and Investment Management (Credicorp Capital), creating a diversified revenue base that decouples performance from any single macroeconomic cycle. \ The Peruvian banking market is highly concentrated, with the top four private banks controlling over 80% of assets. BCP commands approximately 36% market share, significantly larger than its closest competitor BBVA Perú (TICKER:BBVA) at 20.5%. This scale creates a low-cost funding advantage—demand and savings deposits reached 39.5% of the funding base in Q3 2025—and enables pricing power across product lines. While competitors like Scotiabank Perú (TICKER:BNS) (13% share) pursue conservative corporate-focused strategies and Interbank (TICKER:IFS) (13.5% share) competes on retail digital experience, Credicorp's ecosystem approach serves every customer segment from unbanked micro-entrepreneurs to multinational corporations. The industry is undergoing a structural shift driven by financial inclusion and digitalization. Cash usage in Peru has plummeted from 95% of transactions in 2013 to 64% in 2025, with digital wallets as the primary driver. This trend expands Credicorp's addressable market while reducing distribution costs. Since 2020, the company has brought 5.7 million people into the formal financial system and issued 3.6 million inclusive insurance policies, creating a captive customer base for cross-selling higher-margin products. ## Technology, Products, and Strategic Differentiation: The Yape Moat Yape is not merely a digital wallet; it is Peru's fifth-largest e-commerce player and the country's dominant financial super-app. With 15.5 million monthly active users representing 82% of the economically active population, Yape has achieved the critical mass necessary for network effects that traditional banks cannot replicate. This penetration transforms customer acquisition economics—digital customers now represent 26% of BCP's base while transaction volumes grow exponentially. The platform's monetization strategy is advancing on three pillars. First, payments generate 53% of Yape's revenue through merchant fees and transaction charges. Second, lending has emerged as the fastest-growing segment, accounting for 20% of revenue in Q3 2025 with over 3 million clients receiving disbursements, including 1 million first-ever formal loans. This demonstrates Yape's ability to serve the unbanked while generating risk-adjusted NIM that rivals traditional banking. Third, e-commerce is establishing itself as a third pillar, with GMV growing through Yape promos and gaming. Branch network modernization supports this digital evolution. BCP reduced branches by one-third from nearly 450 to 300, transforming remaining locations from transactional hubs to educational and commercial centers. This cuts fixed costs while improving customer experience—digital transactions carry lower unit costs than branch visits, and the shift frees capital for technology investment. The efficiency ratio of 38.7% in Q3 2025 reflects this operational leverage. Artificial intelligence and data management are being embedded across operations. AI-driven initiatives at BCP's contact center increased self-service interactions to 40%, while implementation of Skip Copilot among 1,500 developers boosted productivity by over 30%. This demonstrates tangible ROI on technology investments, supporting management's claim that digital initiatives will generate positive ROE from 2025 onwards, eliminating the previous drag on consolidated results. ## Financial Performance & Segment Dynamics: Evidence of Strategic Execution Universal Banking delivered Q3 2025 ROE of 25.6%, driven by resilient margins, diversified revenue streams, and a low cost of risk at 1.3%. Loan growth accelerated to 7% year-over-year in FX-neutral terms, led by retail mortgages and consumer loans. This shows BCP can grow responsibly while maintaining pricing discipline—risk-adjusted NIM held steady at 5.2% despite interest rate declines, cushioned by low-cost deposits representing 58.1% of the funding base. The NPL ratio contracted across all segments, reflecting enhanced origination standards and stronger collections.

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\ Microfinance's recovery is the most compelling turnaround story. After sector headwinds from 2020-2021 crushed margins, Mibanco adapted by shifting to lower-volume, higher-profit credit tickets and implementing stricter risk controls. The results: Q3 2025 ROE of 18.8%, NPL ratio falling for five consecutive quarters to 5.7%, and risk-adjusted NIM reaching a four-year high of 11%. This validates management's ability to navigate acute cycles while positioning for sustainable low-20s ROE. Mibanco Colombia's profitability improved to 12.3% ROE, making it the third-largest private microfinance lender in that market. Insurance & Pensions contributed 20.9% ROE in Q3 2025, with underwriting results growing 33.1% year-over-year. The full consolidation of the Banmedica joint venture in March 2025 generated extraordinary gains while expanding the health insurance footprint. Insurance penetration in Peru remains low, providing a long runway for growth through bancassurance and Yape distribution channels. The segment serves 6.5 million clients and is expanding offerings through embedded insurance partnerships. Investment Management delivered 17.4% ROE, with assets under management growing 6% in Wealth Management and 14% in Asset Management. The Sartor case provision of PEN 259 million in Q4 2024, while painful, demonstrates management's commitment to client protection and risk mitigation. This shows Credicorp will absorb losses to preserve trust, a long-term strategic decision that strengthens the brand despite short-term earnings impact. The innovation portfolio contributed 7.4% of risk-adjusted revenue in Q3 2025, on track to reach 10% by 2026. Yape's revenue per MAU grew to PEN 7.4 while expenses per MAU were PEN 5, demonstrating unit economics that improve with scale. This proves the digital ecosystem can generate profitable growth, with management expecting Yape to reach 15% of net results by 2028. ## Outlook, Management Guidance, and Execution Risk Management reaffirmed medium-term targets of 19.5% ROE and 42% efficiency ratio over 3-4 years, while guiding 2025 ROE to approximately 19%. This guidance signals confidence that the strategic transformation is working, despite global uncertainties. The 50 basis point boost from extraordinary Banmedica gains in H1 2025 is non-recurring, but core operations are performing above expectations. Key assumptions underpinning guidance include Peruvian GDP growth of 3.4% in 2025, inflation at 1.8%, and loan book growth of 6.5% year-over-year. The Central Bank's policy rate cuts to 4.25% support credit growth and private consumption. This shows management is not betting on a booming economy—rather, they expect resilient growth supported by record terms of trade from elevated commodity prices. The guidance appears conservative given Q3's 19.6% ROE and Yape's accelerating monetization. Execution risks center on three variables. First, Yape must scale from 7.4% to 10% of risk-adjusted revenue while maintaining profitability, requiring successful SME loan launches and e-commerce monetization. Second, Mibanco must continue its recovery trajectory without being cannibalized by Yape's lending platform—management acknowledges this may require rethinking the microfinance approach in 2-3 years. Third, regional expansion in Chile and Bolivia must replicate Peruvian success without diluting capital efficiency. The SUNAT tax dispute, while resolved with a PEN 1.6 billion payment in Q2 2025, impacts 2025 cash flow and eliminates extraordinary dividends. This demonstrates regulatory risk in Peru, though management maintains strong legal grounds and continues legal action. The one-off payment does not alter the long-term dividend policy of paying out all capital not needed for growth. ## Risks and Asymmetries: What Could Break the Thesis Political instability in Peru represents the most material exogenous risk. The impeachment of President Boluarte in October 2025 and subsequent swearing-in of Jose Jeri introduces uncertainty, though management correctly notes that Peru has demonstrated economic resilience through leadership transitions. Persistent political turmoil could delay structural reforms, dampen business confidence, and impact credit demand. However, Credicorp's geographic diversification across Chile, Colombia, Bolivia, and Panama provides a buffer—up to 60% of GDP volatility originates externally, but the company's multi-country presence reduces single-market dependency. Cannibalization between Yape and Mibanco presents an internal strategic risk. While management states they are "not worried whatsoever" today, they acknowledge that "2, 3 years down the road, we may rethink the whole approach." Yape's lending growth (20% of its revenue) directly competes with Mibanco's core business. The key question is whether this cannibalization generates value rather than destroying it—if Yape serves customers Mibanco cannot profitably reach, the ecosystem expands. If it merely shifts revenue from a high-margin traditional channel to a lower-margin digital one, consolidated returns suffer. Global trade tensions, particularly potential U.S. tariffs, create external headwinds. While direct impact on Peru's GDP is expected to be limited, slower global growth could affect commodity demand and prices, given that gold, copper, and silver represent roughly half of exports. This could reverse the record terms of trade that are currently boosting economic growth and supporting credit quality. Execution risk on digital scaling is the most critical variable. Yape must grow from 15.5 million to 18 million users by 2028 while increasing revenue per user and maintaining asset quality. The launch of SME loans in June 2025 and multi-installment loans representing 50% of balances shows progress, but rapid growth in unsecured digital lending could deteriorate credit quality if risk models prove inadequate for new segments. ## Competitive Context and Positioning Credicorp's regional peer outperformance is stark. Over 30 years as a public company, BAP generated 14% annual total shareholder returns, consistently beating regional peers. This demonstrates management's ability to create value across cycles. In Q3 2025, BAP's 19.6% ROE materially exceeded BBVA Perú's (TICKER:BBVA) ~15%, Scotiabank Perú's (TICKER:BNS) ~8%, and Interbank's (TICKER:IFS) ~16%, reflecting superior execution. The competitive advantage stems from three moats. First, market leadership at ~36% asset share enables cost leadership and pricing power that smaller peers cannot match. Second, diversification across banking, microfinance, insurance, and pensions reduces earnings volatility—when the microfinance sector was "hit very harshly" with rising rates and cost of risk from 2020-2021, Mibanco's adaptation allowed it to outperform sector peers. Third, Yape's digital ecosystem creates network effects that traditional banks cannot replicate, driving low-cost customer acquisition and cross-selling opportunities. Barriers to entry are high, with regulatory capital requirements, scale needs for profitability, and the two-decade investment in digital infrastructure favoring incumbents. This protects BAP's ~36% market share from disruption, even as fintechs nibble at the edges. The oligopolistic structure ensures rational pricing and stable returns for the top four players, with BAP leading in both growth and profitability. ## Valuation Context Trading at $257.21 per share, Credicorp trades at 10.88 times trailing earnings and 1.88 times book value, with a dividend yield of 4.28% and ROE of 18.55%. The valuation appears modest for a company delivering 19.6% ROE with accelerating digital monetization. The P/E multiple of 10.88x is comparable to regional peers like BBVA (TICKER:BBVA) at 10.67x despite superior growth, suggesting the market still prices BAP as a cyclical commodity bank rather than a digital ecosystem. Annual free cash flow of $3.99 billion represents a 22.9% FCF yield on enterprise value of $17.42 billion, indicating exceptional cash generation.

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\ Operating margins of 47.27% exceed Interbank's (TICKER:IFS) 41.24% and Scotiabank Perú's (TICKER:BNS) 39.74%, reflecting superior cost control from digital transformation.

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\ The payout ratio of 50.31% aligns with management's policy of distributing all capital not needed for growth, providing income while funding expansion. Relative to peers, BAP's valuation appears asymmetric. While BBVA (TICKER:BBVA) offers similar P/E and P/B multiples, its ROE of 18.63% is lower and its digital ecosystem less developed. Interbank (TICKER:IFS) trades at lower multiples but lacks BAP's scale and diversification. Scotiabank's (TICKER:BNS) depressed ROE of 8.58% reflects structural challenges that BAP has overcome. This suggests BAP's digital transformation is not yet reflected in its valuation multiple, creating potential upside as Yape's contribution grows from 7.4% toward the 10% target and beyond. ## Conclusion Credicorp stands at an inflection point where its 136-year banking heritage converges with a digitally-native ecosystem to create a uniquely resilient and profitable platform. The central thesis is that Yape's dominance—15.5 million users, 82% market penetration, and proven profitability—transforms BAP from a cyclical Latin American bank into a regional fintech leader with network effects and recurring fee revenue. This redefines the company's earnings power and risk profile, justifying a re-rating as investors recognize the durability of the digital moat. The investment case hinges on two variables. First, Yape must execute its path to 10% of risk-adjusted revenue by 2026 and 15% of net results by 2028 without sacrificing unit economics or asset quality. Second, Mibanco must complete its recovery to low-20s ROE while navigating potential cannibalization from Yape's lending platform. If management succeeds, the combination of traditional banking profitability and digital ecosystem growth could drive sustained ROE above 19.5% with lower earnings volatility. The asymmetry is favorable. Downside is cushioned by a 4.28% dividend yield, $3.99 billion in annual free cash flow, and a strong capital position. Upside comes from Yape's monetization acceleration, regional expansion in Chile and Bolivia, and potential multiple expansion as the market recognizes the ecosystem value. While political risks in Peru and global trade tensions remain real, Credicorp's geographic diversification and proven resilience through prior cycles suggest these are manageable rather than existential threats. The story is no longer about surviving Latin American volatility—it's about dominating the region's digital financial future.