BAP Q2 2025: Innovation Portfolio Lifts to 6.2% of Revenue, Driving 19% ROE Guidance
BAP’s Q2 showcased a step-change in digital monetization, with disruptive platforms now contributing 6.2% of risk-adjusted revenue and a visible path to 10% by 2026. Management lifted full-year ROE guidance to 19%, underpinned by stronger fee income, risk-adjusted margin gains, and a deliberate pivot toward higher-yielding retail lending. Despite a one-off tax payment, BAP’s diversified model and digital scaling signal a structurally higher earnings base and improved resilience heading into 2026.
Summary
- Digital Platform Scale: Innovation portfolio now delivers 6.2% of risk-adjusted revenue, with YAPE approaching 15 million users.
- Margin and Mix Shift: Accelerated retail and consumer lending mix boosts risk-adjusted NIM and supports higher ROE guidance.
- Strategic Resilience: Diversification into fee and transactional income decouples performance from macro volatility.
Performance Analysis
BAP’s Q2 results reflected broad-based strength across universal banking, insurance, and a rapidly scaling digital ecosystem. Universal banking and insurance posted robust profitability, while microfinance rebounded on improved asset quality and disciplined risk pricing. Fee-based and transactional income expanded, led by digital wallet YAPE’s continued user and revenue growth. The innovation portfolio’s contribution to risk-adjusted revenues reached 6.2%, tracking toward the company’s 10% 2026 target.
Risk-adjusted net interest margin (NIM) hit a record 5.4%, reflecting both improved asset quality and BAP’s low-cost deposit base, with demand and savings accounts now 40.6% of total deposits. Asset quality trends were favorable, with non-performing loans (NPL) contracting and cost of risk declining to 1.6%. Efficiency ratio remained within guidance at 44.2%, balancing upfront digital investments with cost discipline.
- Retail Lending Acceleration: Mortgages and consumer loans drove underlying loan growth of 2.6% QoQ (FX-neutral), offsetting wholesale contraction.
- Fee and FX Income Growth: Transactional activity at YAPE and BCP lifted core income, with fee income up 8.2% and FX gains up 7.9% YoY.
- Insurance Outperformance: Insurance underwriting profit rose 11.2% YoY, driven by lower claims in life and credit segments.
Despite a one-off tax payment to Sunat, BAP maintained capital strength and confirmed no impact on subsidiary operations, though extraordinary dividends are suspended for 2025. The business model’s pivot toward diversified, fee-generating streams and digital engagement is increasingly visible in operating metrics and forward guidance.
Executive Commentary
"Momentum is building. Temps of trade remain historically high, driven by strong gold, silver, and copper prices... In this environment, PayCop is ready not just to participate in the recovery, but to lead it. We've built a resilient, diversified business anchored in digital infrastructure, deep-flying engagement, and scalable fee-generating platforms."
Gianfranco Ferrari, Chief Executive Officer
"This quarter's 2047% ROE reflects sustained momentum in our core businesses and the increasing contribution of our innovation portfolio... Asset quality has improved materially year over year. NPLs contracted across the board, and Credit Corp's NPL ratio stood at 5% this quarter. The cost of risk fell to a low of 1.6% on the back of fortified risk management and supported by improvements in payment performance and in the Peruvian economy."
Alejandro Pérez Reyes, Chief Financial Officer
Strategic Positioning
1. Digital Ecosystem Scaling
YAPE, BAP’s digital wallet, now serves nearly 15 million monthly active users, representing 75% of Peru’s economically active population. Monetization is accelerating: revenue per user reached 6.5 soles, and lending—now 18% of YAPE revenue—has emerged as the fastest-growing segment. The platform’s engagement and transaction volumes underpin BAP’s ambition for YAPE to become its second-largest business line within five years, primarily through retail and SME lending.
2. Retail and Microfinance Mix Shift
BAP is deliberately shifting loan growth toward higher-yielding retail and microfinance segments, leveraging improved risk models and digital origination. Mortgages and consumer credit are driving loan book expansion, with risk-adjusted NIM benefitting from this mix. Management’s focus on risk-adjusted return, not just cost of risk, enables BAP to accept higher loss rates in exchange for outsized margin, supporting higher sustainable ROE.
3. Fee and Transactional Income Diversification
Non-lending income streams are now central to BAP’s strategic model. Fee income, FX gains, and insurance underwriting all posted double-digit growth, decoupling overall profitability from pure credit cycles. Platforms like YAPE, TEMPO, and upcoming digital bank initiatives are designed to deepen client engagement, drive recurring fee income, and reduce earnings cyclicality.
4. Disciplined Digital Investment and Efficiency
BAP’s digital transformation is front-loaded in operating expenses, with most investments expensed rather than capitalized. As these ventures scale and mature, management expects the drag on ROE to reverse, with digital now forecasted to become accretive from 2026 onward. The efficiency ratio is managed with a trade-off between growth in higher-cost digital ventures and long-term operating leverage.
5. Macro and Regulatory Navigation
Management highlighted Peru’s constructive macro environment—low inflation, recovering wages, and strong terms of trade— as tailwinds for loan demand and asset quality. Regulatory risk remains a watchpoint, with the Sunat tax payment impacting cash flow but not capital or core operations. BAP’s diversified model and digital scale are designed to buffer against both macro and regulatory shocks.
Key Considerations
BAP’s Q2 marked an inflection in digital monetization and risk-adjusted profitability, with the business model now visibly more diversified and less reliant on traditional lending. Investors should focus on the following:
Key Considerations:
- YAPE Monetization Trajectory: Lending is set to become the primary revenue driver for YAPE, with a clear runway for multi-year fee and interest income growth.
- Retail Lending Risk Appetite: Management is intentionally accepting higher cost of risk in exchange for higher margin, with risk-adjusted return as the central metric.
- Digital Investment Payback: The drag from digital platform investments is expected to turn positive for ROE from 2026, marking a structural profitability uplift.
- Dividend Flexibility Constrained: Extraordinary dividend suspension in 2025 is a direct result of the Sunat tax payment, though ordinary dividend policy remains unchanged for future years.
- Efficiency Ratio Trade-offs: Scaling digital ventures can temporarily inflate the cost-to-income ratio, but should yield operating leverage as user monetization matures.
Risks
Regulatory and legal uncertainty remains material, as evidenced by the Sunat tax payment, which impacts cash flow and restricts capital return in the near term. Execution risk is elevated as BAP accelerates into higher-risk retail lending segments and scales digital platforms. A rapid shift in macro or asset quality trends could pressure margins or slow the digital payback cycle.
Forward Outlook
For Q3 2025, BAP guided to:
- Loan book growth of 6.5% YoY (end-of-period), led by retail and microfinance segments.
- Risk-adjusted NIM at the upper end of 6.2% to 6.5% guidance, supported by ongoing mix shift.
For full-year 2025, management raised guidance:
- ROE target increased to approximately 19%, including a 50 basis point boost from extraordinary income.
- Risk-adjusted margin guidance lifted to 5%–5.2% on improved macro and risk discipline.
Management emphasized ongoing digital scaling, continued fee income growth, and a more retail-oriented loan mix as the foundation for structurally higher returns. The Sunat payment will preclude extraordinary dividends in 2025, but is not expected to impact ordinary dividend policy in 2026 and beyond.
Takeaways
BAP’s Q2 demonstrated a visible structural shift in its business model, with digital platforms, fee income, and retail lending now driving both growth and resilience.
- Digital and Fee Income Scaling: YAPE and the innovation portfolio are on track to deliver 10% of revenue by 2026, with lending as a key engine.
- Margin Expansion Through Mix: Accelerated retail and microfinance lending, with higher risk tolerance, is boosting risk-adjusted profitability and supporting higher ROE targets.
- Watch Digital Payback and Execution: The transition to positive ROE from digital ventures will be a critical inflection for valuation; investors should monitor user monetization, asset quality, and regulatory developments closely.
Conclusion
BAP’s Q2 2025 results confirm a step-change in its earnings power and strategic resilience, driven by digital scale, diversified income streams, and a deliberate pivot into higher-margin retail lending. While regulatory risks and digital execution remain watchpoints, the business is now structurally positioned for higher, more consistent returns as it approaches its 2026 digital targets.
Industry Read-Through
BAP’s acceleration in digital wallet monetization and retail lending signals a broader shift for Latin American banks toward fintech-powered, fee-generating ecosystems. Incumbents with scalable digital platforms and a willingness to manage higher risk-adjusted margin portfolios are positioned to decouple from macro cycles and deliver superior returns. Regulatory and legal volatility remains a sector-wide risk, but those with diversified income and digital scale will be best equipped to weather shocks and capture outsized growth in underbanked markets.