Credicorp (BAP) 20-F2022 FY Annual report (foreign)

PART I

 The Peruvian regulator has been working on the implementation of the risk-based capital model, which seeks to guarantee that insurance companies maintain the necessary capital to face the risks inherent to their activity in the face of possible stress scenarios (similar to the Solvency II regulation that applies to European insurers). It is expected that this model will come into force before the year 2026. In the first quantitative exercise that was carried out, the results for the company showed that Pacífico Seguros has an excess of the capital that would be required.

(1) Credicorp Overview

Contributing to improvement of lives by driving the changes that our countries need.

To be a sustainable financial services leader in Latin America. We are purpose-led, future-oriented and focused on creating superior and sustainable value for our employees, customers, shareholders, and the countries we operate in.

For further information about the Sustainability Committee, please see “ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES – 6.C Board Practices”.

At Credicorp, we are conscious that we are a significant player in and have notable shares of the markets in which we operate and, accordingly, must assume a proportionate role in promoting a more sustainable and inclusive economy. For this reason, our main ambitions include diverse efforts to drive the financial inclusion of people, as well as micro and small businesses. Our main initiatives on the financial inclusion front in 2022 included working with IPSOS to develop our second assessment of financial inclusion to measure gaps and monitor the evolution of inclusion in eight countries in Latin America. Additionally, our subsidiaries worked to create solutions that are aligned with our financial inclusion and education objectives, which were rolled out for micro, small and medium businesses and individuals through our main inclusive products: Yape (BCP Stand-alone); Crédito Mujer (Mibanco); Crediagua and microfinance loans (Mibanco); and inclusive insurance (Pacífico Seguros). In this regard, Yape has become one of the main conduits for low-value payments and transfers in Peru. On its part, Credito Mujer empowers female entrepreneurs by providing easier access to loans and financial education, thus helping them to achieve more financial freedom. In addition, Crediagua enables clients in low-income communities to fund necessary sanitary improvements such as access to potable water and sanitation. Finally, Pacifico Seguros offers low-cost insurance to customers in lower socio-economic groups through banking channels (BCP and Mibanco) and raises awareness about insurance products.

To fulfill our strategic objective to create a more sustainable and inclusive economy, our advances in environmental management are also fundamental. We are working on a corporate environmental strategy and our aspiration is to be our clients’ ally in their transition to more sustainable practices. Through our Sustainable Finance platform, we work to develop and offer financial solutions that motivate our clients to reduce their environmental impact: green financing, eco-factoring, green bonds, sustainable financial products, among others. In 2022, we published our Corporate Policy for Sustainable and Responsible Investment. We seek to be agents of change in the financial market by directing capital flows to sectors that develop increasingly sustainable practices and, in the stewardship front, by providing advice to clients and the companies in which we invest. A key enabler in this regard in our ESG Risk Management, which is transversal in scope and involves multidisciplinary teams with representatives from the Risk, Loan, Business and Sustainability Areas. The focus here is on transition, as opposed to merely identifying exclusions. We approved our first Environmental Taxonomy and developed mechanisms to identify environmental risks in prioritized sectors. For more information regarding environmental risk please see ITEM 3. KEY INFORMATION – 3.D Risk Factors – “Natural disasters in Peru could disrupt our businesses and affect our results of operations and financial condition” and “We may incur financial losses and damages to our reputation from environmental, social and governance (ESG) risks. In recent years, these risks have been recognized as increasingly relevant since they can affect the creation of long-term value for stakeholders of the Company.” Importantly, we began the base period of our commitment to becoming carbon neutral at our direct operations by 2032 by aligning methods and scopes of measurements across subsidiaries. The assessment of our emissions is developed under the ISO 14064-1, a GHG Protocol compatible standard, and is verified by a third party.

Experience has shown us that financial inclusion is highly correlated with financial education, and both are considered fundamental and inherent to our purpose and highly linked to our business model.

Financial education helps people develop a deeper understanding of the financial products and services available in the market so that they can make better decisions. We are convinced that a solid financial culture strengthens Peruvian’s trust of financial institutions, builds their confidence as users and promotes healthy relations with money and the adequate use of financial products and services.  Financial education is a key enabler of responsible financial inclusion.

At Credicorp, we have worked on different initiatives for financial education, including (a) mass communication of educational content, (b) on-site and online training programs and (c) education efforts for businesses. Each initiative seeks to impart knowledge and present tools to clients and the public in general to position them to take full advantage of everything the financial system has to offer.  We seek to align different initiatives across our subsidiaries, expand our scope using digital channels and key partnerships, and share successful cases that can be replicated at the Group’s companies.

We seek to build trust and long-term relationships with our clients by improving the simplicity and transparency of our communications and solutions so that clients can understand the conditions and costs attached to our products and services. To this end, personalized solutions and recommendations are provided to help clients achieve their goals and make better financial decisions.

Finally, we believe that our businesses must undergo digital transformation to continue pursuing our purpose to contribute to improving lives and accelerating the changes needed in the countries in which we operate. We have begun implementing our corporate innovation system to strengthen our innovation and entrepreneurial culture at the corporate level, align spaces where we can innovate and optimize returns on our innovation portfolio. This system focuses on the initiatives that are considered the most disruptive, given that they i) seek to generate new sources of income through new business models, ii) can compete with our traditional businesses and/or iii) are supported by the most advanced technological components.

As a Group, we seek to empower people both in and outside the organization so that they can thrive. We promote a diverse and inclusive workforce with equal opportunities to strengthen creativity and innovation, ensure long-term prosperity, and boost our employees’ motivation. For this purpose, we continue to implement our Gender Equality Program, which promotes equitable treatment at every level of the organization. In 2022, we fine-tuned governance of the Gender Equity Program to ensure that its guidelines are more functional and aligned with the decisions and focus of the chain of governance, which includes the Senior Committee for Gender Equity, Credicorp’s Management Committee and the CEOs of each line of business. Together with our efforts to achieve equality at our companies through equitable treatment, we have implemented initiatives to promote the development of our human capital. In a constantly changing environment, our workforce will require critical abilities in the area of digital knowledge, data management and agility. For this reason, the corporate office of Human Management and Development is strengthening training programs to bolster these skills and is working to ensure that the roll out is structured, phased, and organized in every company in the Group. In that sense, in 2022, Credicorp implemented the Credicorp Learning Community to promote the growth and development of our leadership and contribute to accelerating business transformation. The High Specialization Fund was also launched to provided financing at preferential rates to Credicorp’s employees who wish to study at top universities. Also, agility was established as a corporate capability with the goal of accelerating the agile transformation process of Credicorp companies.

We believe that human rights constitute a material issue to business sustainability and as such, have developed and articulated a comprehensive approach to human rights. We included our public commitment in our Code of Ethics and Credicorp’s Board of Directors approved our Corporate Human Rights Policy. This policy was approved in April 2022 and was developed using as an input the framework of the Guiding Principles on Business and Human Rights of the United Nations (UN).

In addition, we are committed to promoting spaces and initiatives that empower people by generating conditions for their complete inclusion in society and the economy. At Credicorp, we are aware that the gender gap in the region is significant, and we drive efforts to explore and develop business opportunities with women in mind through the platform “Opportunities and Products for Women”. Four companies in the Group Mibanco Peru, BCP Bolivia, Credicorp Capital and BCP Peru (through Yape) are actively analyzing data on our products to identify gaps or gender differences in client behavior or use of products. This analysis provides valuable information to improve product design and user experiences. In particular, Mibanco Peru has developed Crédito Mujer, which offers microloans to women from the lower income segment and with limited access to financial services in Peru, and Mujeres Pa´lante, which provides financing for working capital and fixed assets to women entrepreneurs in Colombia.

The three pillars described above are aligned with our core business operations and with the United Nations Sustainability Development Goals (SDGs), specifically with the following SDGs:

a) Diversified and independent LoBs,

b) Strong brand and extensive network of long-term client relationships,

c) Sound management with resilient track record, and;

d) Solid balance sheet and risk discipline.

Krealo seeks to become one of the most relevant actors in the Andean Venture Capital ecosystem by continuing to invest in fintech or startups with financial services angles.

Going forward, our strategic focus is to scale our businesses and increase user engagement. We strive to reduce our customer acquisition costs by leveraging organic channels, as well as partnerships with Credicorp’s companies and other market leaders. Furthermore, we are developing more products within our ventures to improve the stickiness of our solutions, generate cross-selling opportunities and keep our customers within our ecosystem with wider options according to their needs.