IFS (IFS) Q2 2025: ROE Tops 20% as Wealth Management, Insurance Drive Diversification
IFS delivered a robust second quarter, with profitability fueled by standout investment gains and expanding contributions from wealth management and insurance. The group’s digital and payments ecosystem is deepening customer engagement, while disciplined cost and risk management underpin performance despite a still-muted consumer lending recovery. Investors should monitor the pace of consumer loan growth and the sustainability of recent investment windfalls as IFS pivots toward a more diversified, tech-driven financial platform.
Summary
- Wealth and Insurance Upswing: Non-bank units are increasingly material to group earnings, signaling a more balanced business model.
- Payments Ecosystem Momentum: Digital adoption and payment platform synergies are strengthening core banking relationships and deposit growth.
- Consumer Lending Watchpoint: The speed of consumer portfolio recovery remains a key variable for future margin and risk trends.
Performance Analysis
IFS’s second quarter showcased a step-change in group profitability, with net income doubling year-over-year and return on equity (ROE) exceeding 20%. This outperformance was driven by a combination of strong investment results, particularly within the wealth management (Intelligo, wealth management and AUM business) and insurance (Interseguro, life and annuities business) segments, and resilient core banking operations. Notably, the bank’s share of total group earnings fell below 70% for the first half, highlighting the growing earnings diversification away from traditional lending.
Loan growth outpaced the Peruvian system average, with total loans up 6% year-over-year and commercial banking gaining 90 basis points of share, supported by targeted sales finance and mid-sized company strategies. However, consumer lending remains subdued, with only a modest 0.6% portfolio expansion in the quarter and management signaling a slow recovery trajectory. Deposit growth was robust, up 7.4% year-over-year, driving a healthier funding mix and supporting a 40 basis point annual decline in cost of funds. Fee income saw double-digit growth, reflecting increased transaction volumes and payment ecosystem engagement.
- Investment Gains Skew Results: Exceptional investment returns, especially in wealth management, boosted non-interest income and ROE, but management cautions normalization ahead.
- Cost Discipline Amid Tech Spend: Group expenses rose 10% year-over-year, with strategic investments in technology and talent, yet efficiency ratios remain at benchmark levels (36% for IFS, 42% for the bank).
- Risk Metrics Outperform Guidance: Cost of risk held at 2.5%, well below the 3% guidance, reflecting both a favorable portfolio mix and improved client payment behavior.
Overall, IFS’s multi-segment model is delivering resilience and upside, though the sustainability of investment-driven earnings and the pace of consumer lending normalization are critical swing factors for H2 and beyond.
Executive Commentary
"At IFS, we delivered a strong year-over-year recovery with an ROE exceeding 20%. This quarter's results were driven by solid performance in the core businesses across our subsidiaries, with particularly strong investment returns. These gains have allowed us to maintain a healthy ROE and reinforce our long-term targets."
Luis Felipe Castellanos, Chief Executive Officer
"Expenses grew 10% year over year, reflecting strategic investments aimed at supporting long-term growth. These include accelerated spending in technology, focused on resilience, user experience, cybersecurity, increased capacity, and AI, as well as efforts to strengthen leadership across key teams."
Miquela Casasa, Chief Financial Officer
Strategic Positioning
1. Diversification Beyond Core Banking
IFS is actively reducing earnings concentration risk by scaling up wealth management and insurance. Intelligo delivered a 14% annual AUM increase and a 31% ROE, while Interseguro’s premiums surged 77% year-over-year, driven by private annuities and life insurance. The bank’s share of group earnings dropping below 70% underscores this pivot, positioning IFS for more stable, multi-engine growth.
2. Digital and Payments Ecosystem Expansion
IFS’s digital strategy is deepening customer engagement and fueling deposit growth. Plin, the P2P and merchant payments platform, saw active users rise 13% and monthly transactions climb 44% year-over-year. Digital retail customers now represent 83% of the base, and EasyPay synergies are driving both merchant flows and small business deposit growth. These dynamics are fortifying IFS’s low-cost funding base and primary banking relationships.
3. Prudent Consumer Lending Approach
Consumer lending remains a drag on asset yield, with management maintaining a cautious stance amid ongoing liquidity events and muted credit demand. While cash loan disbursements and credit card turnover are rising, the portfolio mix is still skewed toward lower-risk, lower-yield segments. This approach is containing cost of risk but delaying margin recovery, with management signaling only gradual acceleration in the coming quarters.
4. Technology and Talent Investment
IFS is prioritizing technology upgrades and analytics capabilities, with expense growth outpacing inflation as digital adoption and transaction volumes surge. Management is targeting efficiency ratios of 40% (bank) and below 37% (group) medium-term, betting that digital scale will offset upfront cost pressures as the business grows.
5. Sustainability and Inclusive Finance
Environmental and social initiatives are gaining traction, with a 400 million sustainable loan portfolio, renewable energy certifications, and inclusive insurance products reaching underserved segments. These efforts support regulatory alignment and broaden IFS’s social license, potentially enhancing long-term stakeholder value.
Key Considerations
IFS’s Q2 results mark a turning point in business model diversification and digital engagement, but several strategic variables warrant close investor attention:
Key Considerations:
- Investment Results Normalization: Recent outsized gains in wealth management and insurance may not recur, with management guiding for a return to more typical levels in H2.
- Consumer Lending Recovery Pace: The speed at which higher-yielding consumer loans rebound will shape both margin and risk outcomes, particularly as liquidity events subside.
- Funding Mix and Deposit Growth: Sustained retail and commercial deposit inflows are critical for maintaining low funding costs and supporting loan growth ambitions.
- Expense Trajectory: Ongoing technology and talent investments will keep expense growth above inflation, requiring revenue scaling to preserve efficiency targets.
- Macroeconomic and Political Context: Peru’s favorable growth and low inflation backdrop could shift with external shocks or election-related volatility, impacting risk appetite and asset quality.
Risks
IFS faces several material risks, including potential normalization of investment-driven earnings, slower-than-expected consumer lending recovery, and cost pressures from sustained technology and talent investments. External risks include political uncertainty ahead of Peru’s 2026 presidential elections and possible macro headwinds, which could affect credit demand and asset quality. Management’s prudent approach to risk and expenses provides some buffer, but execution on digital and diversification strategies remains a key watchpoint.
Forward Outlook
For Q3 2025, IFS guided to:
- Continued gradual recovery in consumer lending, with some acceleration expected in portfolio growth.
- Stable to slightly improving NIM, as higher-yielding loans begin to contribute more meaningfully.
For full-year 2025, management maintained guidance:
- ROE expected to normalize toward 17% as investment results revert to historical averages.
- Loan growth of around 6%, above system average, with retail lending driving H2 momentum.
Management highlighted several factors that will shape H2:
- Risk-adjusted NIM improvement as cost of risk remains below guidance and funding costs trend lower.
- Expense growth moderating but remaining above inflation due to ongoing digital and analytics investments.
Takeaways
IFS’s Q2 demonstrates the strength of a diversified, digitally enabled financial platform, with wealth management and insurance now central to group performance. The main swing factors for investors are the pace at which consumer lending recovers and whether recent investment gains prove repeatable. Cost and risk discipline, combined with strong deposit growth and digital engagement, provide resilience, but execution on growth and efficiency targets will be tested as the business scales.
- Earnings Diversification: Wealth management and insurance are now material profit drivers, reducing reliance on traditional banking and enhancing stability.
- Digital Flywheel: Payments ecosystem and digital adoption are strengthening customer stickiness and funding mix, supporting future margin upside.
- Consumer Book Recovery: Investors should track the speed of consumer loan growth and associated risk trends as key drivers of margin and returns in H2 and 2026.
Conclusion
IFS’s Q2 marks a transition to a more balanced, tech-forward financial group, with robust profitability and improving risk metrics. The sustainability of investment-driven gains and the consumer lending rebound will define the trajectory into 2026. Investors should focus on execution in digital, expense scaling, and the ongoing shift toward diversified earnings streams.
Industry Read-Through
IFS’s results highlight several sector-wide themes for Latin American financials: digital adoption is now a core lever for deposit growth and customer engagement, while non-bank segments like wealth management and insurance are becoming central to group-level resilience. The muted recovery in consumer lending reflects both supply caution and demand-side liquidity, a trend mirrored across the region. Banks with diversified, tech-enabled platforms are best positioned to withstand macro and political volatility, with funding mix and risk discipline increasingly distinguishing sector winners. Watch for other regional players to accelerate technology and ecosystem investments as digital engagement and fee income become more critical to growth.