IFS (IFS) Q1 2025: Commercial Loans Jump 19% as Digital Ecosystem Drives Market Share Gains

2025-05-10 | By EarningsIQ Research

IFS delivered a robust Q1, with commercial lending up 19% and digital initiatives fueling primary banking growth. The group’s multi-segment model—spanning banking, insurance, and wealth management—showed resilience despite Telefónica-driven provisions. Investors should watch for a consumer credit recovery and further digital monetization as key levers for margin and growth through year-end.

Summary

• Commercial Lending Outperformance: IFS captured significant market share through double-digit commercial loan growth and digital payment synergies.
• Digital Ecosystem Expansion: Plin and EasyPay scaled engagement, deepening primary relationships and driving low-cost funding gains.
• Consumer Credit Recovery Watch: The pace of consumer loan rebound remains a central variable for margin and risk in coming quarters.

Performance Analysis

IFS posted a strong start to 2025, with revenue up 14% year-over-year and return on equity (ROE) exceeding 16%. The group’s performance was anchored by a standout 19% growth in commercial banking loans, which now make up 48% of the portfolio, closing in on management’s 50-50 mix target between commercial and retail. This commercial momentum allowed Interbank, the banking arm, to gain 120 basis points in market share, reinforcing its position as Peru’s third largest bank.

Insurance and wealth management also contributed meaningfully: Interseguro, the insurance unit, saw a 36% surge in premiums, particularly in annuities and life, while Intelligo, the wealth business, grew assets under management by 16% to a record high. Despite a one-off 104 million soles provision tied to Telefónica, cost of risk fell 190 basis points year-over-year to 2.8%, reflecting both improved macro conditions and better underwriting. Excluding this provision, cost of risk would have landed at 2.5%, with retail risk metrics notably healthier.

• Commercial Banking Drives Revenue Mix: Commercial loans grew 19%, outpacing the market’s 2% and shifting the loan book toward higher-yielding business segments.
• Digital Payment Ecosystem Accelerates: EasyPay and Plin drove a 2.8x increase in transactional volumes, boosting deposit flows and supporting funding cost improvement.
• Insurance and Wealth Outperformance: Insurance premiums and AUM both posted double-digit growth, supporting fee income and offsetting retail softness.

While retail consumer lending contracted 4.8% year-over-year, stabilization in recent quarters and a 27% increase in cash loan disbursements suggest early signs of a rebound. Net interest margin (NIM) was pressured by mix, but risk-adjusted NIM improved 120 basis points year-over-year, underscoring the benefit of disciplined risk management and funding mix optimization.

Executive Commentary

Strategic Positioning

1. Commercial Banking as Growth Engine

IFS is doubling down on commercial banking, evidenced by a 19% loan growth rate and a rising mix of business lending. This shift is both a risk-mitigation and margin play: commercial loans now represent 48% of the portfolio, up from 44% last year. The focus on small business lending—up 60% in loans and 18% in deposits—leverages synergies with EasyPay, IFS’s digital wallet for merchants and microbusinesses.

2. Digital Payments Ecosystem

Plin, the peer-to-peer payment platform, and EasyPay, the merchant wallet, are central to IFS’s digital-first strategy. These platforms have driven a 20% increase in digital retail customers and a 2.8x surge in transaction volumes. The resulting growth in low-cost transactional deposits (now 35% of funding) has lowered the group’s cost of funds by 80 basis points year-over-year, directly supporting NIM and ROE improvement.

3. Retail Lending Stabilization and Cautious Re-entry

While the consumer portfolio contracted 4.8% year-over-year, management is signaling a gradual return to growth, with cash loan disbursements up 27% and credit card turnover up 11%. Underwriting remains conservative, prioritizing healthier vintages and higher-quality clients, with the expectation that consumer appetite will return as macro and salary trends improve.

4. Insurance and Wealth Management Scale

Interseguro and Intelligo continue to deliver scale benefits. Insurance contractual service margin grew 27%, and wealth AUM reached $7.5 billion. Digital sales penetration in insurance is rising, with self-service and bancassurance channels now accounting for a growing share of new business and premiums.

5. Capital and Funding Strength

IFS’s capital position remains robust, with a total capital ratio above 17% and core equity Tier 1 near 12%. Deposit funding has increased to 81% of total funding, further reducing reliance on higher-cost wholesale sources and positioning the group for continued margin resilience.

Key Considerations

IFS’s Q1 performance reflects a strategic pivot toward commercial banking and digital ecosystem expansion, but the consumer recovery and risk normalization remain key variables for the remainder of 2025.

Key Considerations:

• Commercial Loan Growth Outpaces Market: IFS’s commercial loan book grew 19%, versus 2% for the market, driving share gains and revenue mix shift.
• Digital Channels Deepen Customer Relationships: Plin and EasyPay are boosting engagement, with digital retail customers up 16% and active users up 20% year-over-year.
• Cost of Risk Management: Provisioning related to Telefónica was absorbed without derailing profitability, but further macro or corporate shocks could test risk controls.
• Retail Lending Recovery Still Formative: Consumer portfolio contraction has stabilized, but a full rebound is contingent on macro tailwinds and consumer sentiment shifts.

Risks

IFS faces uncertainty around the pace of consumer credit recovery, with retail lending still lagging and dependent on both consumer confidence and regulatory factors such as potential pension fund releases. Provisions related to Telefónica appear well covered for now, but any escalation could prompt further charges. Macroeconomic volatility, especially in a pre-election year, and competitive aggression in digital banking are additional watchpoints for margin and share stability.

Forward Outlook

For Q2 2025, IFS guided to:

• Continued high single-digit total loan growth, led by commercial banking
• Stable or slightly lower cost of funds as deposit mix improves

For full-year 2025, management maintained guidance:

• ROE in the mid-teens, consistent with Q1 levels
• Cost of risk trending toward 3% as consumer lending resumes

Management highlighted several factors that could influence results:

• Consumer lending recovery is expected to accelerate in the second half, but remains dependent on macro and consumer trends
• Further digital monetization and deposit growth are expected to support margin resilience

Takeaways

IFS’s Q1 underscores the strength of its multi-segment model and digital-first strategy, but the consumer credit cycle and macro backdrop will dictate the pace of further margin and ROE gains.

• Commercial and Digital Levers Drive Outperformance: Market share gains and funding cost improvements are direct results of commercial focus and payment ecosystem expansion.
• Telefónica Provision Absorbed, But Watch for Future Shocks: Management believes provisioning is adequate, but further changes in the case could require additional measures.
• Consumer Lending Remains a Swing Factor: A meaningful rebound in retail loans is needed to fully realize NIM and fee income upside, with digital engagement providing a foundation for future growth.

Conclusion

IFS’s Q1 2025 results reflect disciplined execution across commercial banking, digital payments, insurance, and wealth management, with risk controls and funding mix supporting strong profitability. Sustained outperformance will hinge on a consumer credit recovery and continued digital ecosystem monetization.

Industry Read-Through

IFS’s results highlight a broader trend in Latin American banking: commercial lending is outpacing retail as business confidence and investment rebound, while digital ecosystems are now critical to deposit growth and cost control. Competitors will likely intensify focus on merchant and SME relationships, as well as digital wallet penetration, to replicate funding and engagement gains. The ongoing shift toward digital self-service and primary banking relationships signals rising customer expectations and a need for continuous innovation across the sector.

IFS Financials Banking Digital Commercial Loans Payments Insurance Wealth Management