BBVA - Good Execution At Credicorp Canceled Out By Political Risk

• Credicorp had a mixed quarter on weakness in insurance and higher opex meant to grow the business further down the line, but spread income and loan growth were positives.
• Credit quality continues to improve, and Credicorp management solidified their good reputation by acting quickly and conservatively on reserving early in the cycle.
• Digitalization remains a significant long-term opportunity for Credicorp, and customer utilization has improved as a result of the pandemic.
• The election of Pedro Castillo has created turmoil in the Peruvian economy and market, with considerable uncertainty over how much of the Marxist campaign rhetoric will become actual policy/law.
• Credicorp is undervalued on a long-term core earnings growth rate of 7% and mid-teens ROEs, but there is very high uncertainty and risk around the macro and regulatory environments.

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