As leveraged plays on macroeconomic conditions, banks are quite limited in just how much they can offset economic conditions beyond their control. Peru's Credicorp (BAP) is taking some prudent actions to preserve the business, including conservative reserving and participating in government-funded stimulus programs, but the economy has shrunk about one-quarter since COVID-19 began, and that is an incredible headwind to overcome.
Peru was in relatively good shape relative to its neighbors prior to the pandemic, and while I don't think the quality of governance has deteriorated all that much, this is still a major shock to the economy that is going to have lingering effects. Offsetting that, I think Credicorp's balance sheet is in good shape, better than most Latin American banks, and I believe the company's ability to participate at multiple levels of the economy (from large corporate lending to microfinance) is an important asset. I do think Credicorp will get back to double-digit core earnings growth in time, and I believe the shares are meaningfully undervalued, but near-term risks are still significant.
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Credicorp Taking Prudent Action, But COVID-19 Is Hitting Peru Hard
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