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Credicorp cuts loan growth guidance for 2019 amid weak macro environment

Credicorp Ltd. cut its guidance for loan growth in 2019 to between 6% and 8% from a previous estimate of between 8% and 10%, citing sluggish economic growth and the recent interest rate cut from the central bank, executives of the bank said in a conference discussing its second-quarter results.

The Peruvian company's total loan portfolio hit 109.38 billion soles in the first six months of 2019, growing 6.4% from a year ago.

According to CFO César Ríos Briceño, Credicorp faces challenges in growing its corporate loan segment, partly due to weak investment activity in the country. However, its retail segment is seeing a better dynamic, buoyed by strong demand from small and medium-sized enterprises as well as solid consumer lending. The retail segment also tends to be less sensitive to interest rate cuts, Briceño said.

Credicorp lowered its real GDP growth forecast to between 2.5% and 3.0%, from 3.7% previously, driven by lower outlooks for domestic demand and private investment. The guidance for the bank's net interest margin fell to between 5.4% and 5.7%, while the forecast for cost of risk rose to between 1.4% and 1.6%.

Despite the less optimistic projections, the company maintained its outlook for return on average equity between 17.5% and 18.5%. The recognition of significant unrealized gains, which resulted in a decline in the ROAE for the second quarter, is expected to have less impact in the future, Briceño said.

In addition, the bank's profitability will continue to be supported by the deployment of a rainy-day reserve fund that also doubles as a financing source for M&A, according to the company's executives.

CEO Walter Bayly believes that the company's venture into microfinance in Colombia is a good investment given that the country has a favorable regulatory environment and a market that remains fragmented. However, the executive does not expect the company to make further investments in the sector at least in the short term, noting that it will keep a "very disciplined" approach regarding M&A.

"Inorganic growth is a complement to organic growth, but [it is] not the [main] driver of growth in Credicorp," Bayly said.

The company recently signed a deal to acquire a 74.49% stake in Colombian microfinance bank Bancompartir SA, noting that the deal is "an important step" in expanding its microfinance business in Latin America.

Credicorp does not expect any "dramatic changes" in the quality of its loan portfolio despite a 40.1% yearly increase in its loan-loss provisions, which is within its "risk appetite limit," Chief Risk Officer Reynaldo Llosa said.

The company's attributable second-quarter profit jumped 12.3% year over year to about 1.10 billion soles.

As of Aug. 8, US$1 was equivalent to 3.38 Peruvian soles.