Banco Internacional del Perú A Interbank : INFORMES DE CLASIFICACIÓN DE RIESGO. CONVOCATORIA A JUNTAS DE ACCIONISTAS, JUNTA DE ACREEDORES O ASAMBLEA DE OBLIGACIONISTAS, Y ACUERDOS ADOPTADOS. DISTRIBUCIÓN O APLICACIÓN DE UTILIDADES. MODIFICACIÓN DE ESTATUTOS, TRANSFORMACIÓN, FUSIÓN, ESCISIÓN Y OTRAS FORMAS DE REORGANIZACIÓN SOCIETARIA. INFORMACIÓN FINANCIERA Y MEMORIA ANUAL.

Banco Internacional del Peru S.A.A. - Interbank

Key Rating Drivers

Negative Rating Outlook: Interbank's Issuer Default Ratings (IDRs) and senior debt ratings are driven by its 'bbb' Viability Rating (VR), which is in line with the implied VR. The Negative Rating Outlook on the Long-Term IDRs is aligned with the Negative Rating Outlook on Peru's sovereign rating. Fitch Ratings believes a slowdown in economic and loan growth, an increase in borrowing costs and a persistent political uncertainty could diminish Peruvian banking sector activity. However, sustained capitalization, improved profitability and lowered loan impairment charges provide sufficient ratings headroom to face stress from political uncertainty and external shocks, absent a sovereign downgrade.

Operating Environment Influence: The VR and Long-Term IDRs are sensitive to a material deterioration in the local operating environment (OE) or a negative sovereign rating action. OE pressures include a slow recovery of the GDP due to political uncertainty and the challenging investment and business environment.

Strong Franchise in Retail Lending: Interbank is Peru's fourth largest universal commercial bank, with a market share by loans and deposits of 12.8% and 13.5% at YE22, respectively. It has a strategic focus on retail banking in Peru, as reflected in its 21.8% and 14.9% market share in consumer loans and retail deposits, respectively at YE22, comparable with the largest Peruvian bank's market shares in these products.

Improved Asset Quality: At YE22, the 90 days nonperforming loan (NPL) ratio improved to 2.6%

(YE21: 3.0%), reflecting conservative loan growth after the government guarantee program "Reactiva Peru" ended in 2021 and some chargeoffs. Loan loss allowances coverage of impaired loans of 191.7% at YE22 (YE21: 159.1%) is adequate and similar to pre-pandemic levels. Fitch believes asset quality could slightly deteriorate in 2023 due to unseasoned retail loan growth and weaker borrower repayment capacity as a result of high interest rates and high inflation.

Improved Asset Quality: At YE22, the 90 days NPL ratio improved to 2.6% (YE21: 3.0%), reflecting conservative loan growth after the government guarantee program "Reactiva Peru" ended in 2021 and some chargeoffs. Loan loss allowances coverage of impaired loans of 191.7% at YE22 (YE21: 159.1%) is adequate and similar to pre-pandemic levels. Fitch believes asset quality could slightly deteriorate in 2023 due to unseasoned retail loan growth and weaker borrower repayment capacity as a result of high interest rates and high inflation.

Sound Probability: The operating profit to RWA ratio declined to 2.3% at YE22 from 2.8% at YE21, reflecting higher credit risks related to retail segment growth and the adjustments of expected loss estimations due to macroeconomic environment deterioration. The Net Interest Margin (NIM) improved, as higher yields on the loan portfolio more than offset the increased funding cost. Fitch expects profitability to decline slightly in 2023 due to lower credit demand and higher credit costs; nevertheless, it will remain sound at around 2%, supported by a strong NIM and good efficiency.

Adequate Capitalization: Interbank's FCC declined to 10.8% at YE22 compared to 12.5% at YE21, reflecting the increase in RWA density as the Reactiva Peru commercial loans matured and were partially replaced by regular commercial loans, while retail loans increased their relevance in the portfolio. Fitch expects Interbank's capitalization to remain adequate and commensurate with current ratings, sustained by moderate expected growth and sound earnings generation.

Firmado Digitalmente por:

ALBERTO HERNANDEZ MARIN

Fecha: 25/04/2023 06:17:42 p.m.

	Banks
	Peru
Ratings
Foreign Currency
Long-Term IDR	BBB
Short-Term IDR	F3
Local Currency
Long-Term IDR	BBB
Short-Term IDR	F3
Viability Rating	bbb
Government Support Rating	bbb-

Sovereign Risk (Peru)

Long-TermForeign-Currency IDR BBB

Long-TermLocal-Currency IDR	BBB
Country Ceiling	BBB+

Outlooks

Long-TermForeign-Currency IDR Negative

Long-TermLocal-Currency IDR	Negative
Sovereign Long-Term Foreign-
Currency IDR	Negative
Sovereign Long-Term Local-
Currency IDR	Negative

Applicable Criteria

Bank Rating Criteria (September 2022)

Related Research

Latin American Banks 2023 Outlook (December 2022)

Analysts

Robert Stoll

[phone] [e-mail]

Larisa Arteaga

[phone] [e-mail]

Rating Report │ April 25, 2023

fitchratings.com

1

Banks

Peru

Rating Sensitivities

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

INTERBANK

IDRs and VR

• The IDRs are sensitive to a negative rating action on the sovereign or any deterioration of Fitch's assessment on the operating environment score;
• Interbank's VR could be downgraded if asset quality deterioration causes a sustained decline in the bank's operating profit to RWAs ratio to less than 2.0%, and loss absorption capacity, either in the form of a FCC or CET1 ratio below 10% or a relevant decline in reserve coverage for more than four consecutive quarters.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

INTERBANK

IDRs and VR

• Interbank's IDRs currently have a Negative Rating Outlook in line with the sovereign, which makes an upgrade highly unlikely over the rating horizon as the bank's IDRs are constrained by the sovereign's ratings;
• Over the medium term, Interbank's ratings could be upgraded by the confluence of an improvement of the OE and the banks' financial profiles in the context of a sovereign upgrade.

Other Debt and Issuer Ratings

Rating Level	Rating	Outlook
Subordinated: Long Term	BB+
Source: Fitch Ratings

Subordinated Debt

Interbank's subordinated bonds are plain vanilla as they don't have coupon deferral features. Subordinated debt is two notches below the VR of 'bbb', reflecting the baseline notching for loss severity. There is no notching due to incremental nonperformance risk.

• The subordinated debt ratings would be downgraded if Interbank's VR is downgraded;
• Subordinated debt ratings would be upgraded if Interbank's VR are upgraded.

Significant Changes from Last Review

On October 2022, Fitch revised the Rating Outlook on the sovereign's Long-Term (LT) IDR to Negative as deteriorating political stability and government effectiveness have increased downside risks to Peru's ratings. We think that weaker governance poses greater downside risks to investment and economic growth.

Fitch believes the bank's credit profile is sensitive to a material deterioration in the local OE or a negative sovereign rating action. Consequently, the Rating Outlook on the OE score remains negative as a slowdown in economic and loan growth, an increase in borrowing costs and persistent political uncertainty are diminishing the Peruvian banking sector activity. However, sustained capitalization, improving profitability and lower loan impairment charges provide sufficient resilience to face stress from political uncertainty and external shocks.

Banco Internacional del Peru S.A.A. - Interbank
Rating Report │ April 25, 2023	fitchratings.com	2

Banks

Peru

Ratings Navigator

Banco Internacional del Peru S.A.A. - Interbank

ESG Relevance:

Banks

Ratings Navigator

Operating Environment

Financial Profile

Business Profile

Risk Profile

Asset Quality

Earnings & Profitability

Capitalisatio n & Leverage

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D or RD

The Key Rating Driver (KRD) weightings used to determine the implied VR are shown as percentages at the top. In cases where the implied VR is adjusted upwards or downwards to arrive at the VR, the KRD associated with the adjustment reason is highlighted in red. The shaded areas indicate the benchmark-implied scores for each KRD.

VR - Adjustments to Key Rating Drivers

The OE score has been assigned above the implied score due to the following adjustment reason: Sovereign Rating (positive) and Macroeconomic Stability (positive).

The Capitalization and Leverage score has been assigned above the implied score due to the following adjustment reason: Reserve Coverage and Asset Valuation (positive).

Banco Internacional del Peru S.A.A. - Interbank
Rating Report │ April 25, 2023	fitchratings.com	3

Banks

Peru

Company Summary and Key Qualitative Factors

Operating Environment

Peru's latest political crisis will increase the potential for downside risks to the country's banking system. The deeply polarized political environment and policy uncertainty will add to pressures on economic growth, business confidence and investment activity, which could result in weaker asset quality and lower profitability for the banking system beyond current expectations.

Despite Peru's strong economic recovery in 2021 after a sharp contraction in 2020, credit and asset growth continued to slow in 2022 due to cautious credit growth after the expiration of the Reactiva program, lower liquidity and market volatility in particular, amid heightened political uncertainty.

Fitch's expected recovery in the system's NPL ratio to pre-pandemic levels will be delayed until 2023 due to lower than expected loan growth. Downside risk to the economic recovery and credit growth due to uncertainty around Peru's policy trajectory will temper profits for the rest of 2023.

With the phase-in of Basel III regulation starting in 2023, Fitch does not expect Peruvian banks to face significant pressures on capitalization metrics, and believes capitalization will remain adequate and commensurate to its current ratings given strong coverage of impaired loans.

The system's liquidity position remained adequate, albeit declining, due to the cessation of liquidity support from Reactiva. Despite a steady de-dollarization trend in recent years, banks still have significant exposure to foreign currency assets and some dollarization on the liabilities side remains due to economic and political uncertainty.

While there is sufficient headroom for Peruvian banks' financial ratios to deteriorate at current rating levels, almost all of the banks' current ratings are either at the sovereign or country ceiling; therefore, any negative action on the sovereign would result in a similar action on the banks.

Business Profile

Interbank is Peru's fourth largest universal commercial bank, with a market share by loans and deposits of 12.8% and 13.5% at YE22, respectively. It has a strategic focus on retail banking in Peru, as reflected in its 21.8% and 14.9% market share in consumer loans and retail deposits, respectively, at YE22, comparable with the largest Peruvian bank's market shares in these products.

Interbank is 99.3% owned by Intercorp Financial Services (rated BBB-/Negative by Fitch), which is 70.6% owned by Intercorp Peru, one of Peru's largest business groups focused on serving Peru's growing middle class. Its businesses include financial services, retail, including shopping malls and supermarkets, commercial real estate development, education services, insurance and wealth management services, among others.

As a strong player in retail banking, 51% of Interbank's loan portfolio comprised consumer and mortgage loans. The commercial portfolio represented 49% of total loans at YE22.

Risk Profile

Interbank's loan portfolio is its primary source of credit risk, representing 65% of total assets at YE22. The bank's retail underwriting relies on credit scoring models for each of its major products and includes early warning signs based on the borrower's behavior, changes in gross indebtedness and market conditions. The bank maintains strict concentration limits by sector and has taken a highly conservative stance toward troubled sectors.

Interbank benefits from a robust risk management infrastructure with dedicated teams assigned to the bank's major business lines. The framework is established by the board of directors through the comprehensive risk management committee, which is responsible primarily for defining the bank's risk appetite and setting exposure limits.

Interbank's loan growth was low in 2022; however, it was higher than the banking system average (5.3% versus 1.9%, respectively). Credit growth was primarily related to an increase of 19.2% in retail loans (15.2% including mortgages), offset by the 3.4% contraction in commercial loans. As expected, in 2022, the commercial loans under the Reactiva Peru program reduced, and Interbank focused on recovering the participation of its core consumer business in its loan portfolio. In 2023, the bank expects one-digit growth, lower than 2022. Assets contracted by 2.5%, reflecting a 2.9% deposits contraction given the lower liquidity in the Peruvian financial system.

Banco Internacional del Peru S.A.A. - Interbank
Rating Report │ April 25, 2023	fitchratings.com	4

Banks

Peru

Financial Profile

Asset Quality

At YE22, the 90 days NPL ratio improved to 2.6% (YE21: 3.0%), reflecting conservative loan growth after the government guarantee program "Reactiva Peru" ended in 2021 and some chargeoffs. Loan loss allowances coverage of impaired loans of 191.7% at YE22 (YE21: 159.1%) is adequate and similar to pre-pandemic levels. Fitch believes asset quality could slightly deteriorate in 2023 due to unseasoned retail loan growth and weaker borrower repayment capacity as a result of high interest rates and high inflation.

Loans under the Reactiva Peru program (up to three-year tenure and 12-month grace period) accounted for 5% of total loans at YE22, all performing due to the Peruvian government guarantee. Reprogramed loans reduced to 11.1% of total loans at YE22 (YE21: 14.5%), mostly granted to the mortgage (37%) and consumer (35%) segments and to a lesser extent to the commercial sector (28%). These credit facilities have shown a decreasing trend since late 2020, as they are gradually maturing and financing needs are declining.

Net chargeoffs reduced to 1.8% at YE22 (YE21: 3%), lower than the last three-year average of 2.3%, and the expectations due to the economic and political risks. USD-denominated loans slightly increased to 29.6% of total loans compared to the previous year (YE21: 28%) and now are more aligned to the bank's structural levels that reduced in 2020 as the bank granted most of the loans in Peruvian Soles and under the 'Reactiva Peru' program.

Impaired Loans/Gross Loans

Operating Profit/Risk-Weighted Assets

	Interbank		Peer Average		Interbank		Peer Average
(%)					(%)
5					7				a
4				bbb	6
				5
3					4
2					3				bbb
1					2
				1
				a
0				0
12/20	12/21	12/22	12/23F	12/24F	FY20	FY21	FY22	FY23F	FY24F
F - Forecast					F - Forecast
Source: Fitch Ratings, Fitch Solutions			Source: Fitch Ratings, Fitch Solutions

Earnings and Profitability

The operating profit to RWA ratio declined to 2.3% at YE22 from 2.8% at YE21, reflecting higher credit risks related to retail segment growth and the adjustments of expected loss estimations due to macro-economic environment deterioration. The NIM improved, as higher yields on the loan portfolio more than offset the increased funding cost. Fitch expects profitability to decline slightly in 2023 due to lower credit demand and higher credit costs; nevertheless, it will remain sound at around 2%, supported by a strong NIM and good efficiency.

Interbank's net interest margin improved to 6.0% at YE22 from 5.2% at YE21, explained by higher interest rates on all segment loans and the change of the portfolio mix with higher participation of the retail segment and lower of the commercial portfolio, particularly the low-yield commercial loans of Reactiva Peru Program. Fitch notes that the more profitable consumer portfolio is gaining participation to converge to pre-pandemic levels, which should continue supporting profitability in 2023.

The impairment charges increased to 40.4% of pre-impairment operating profit at YE22 (21.8% at YE21). The increase in impairment charges reflected the reduced loss absorption cushions built up during the coronavirus pandemic, which was an outlier, as well as the adjustments of expected loss estimations due to macroeconomic environment deterioration.

Capital and Leverage

Interbank's FCC declined to 10.8% at YE22 compared to 12.5% at YE21, reflecting the increase in RWA density as the Reactiva Peru commercial loans matured and were partially replaced by regular commercial loans, while retail loans increased their relevance in the portfolio. Fitch expects Interbank's capitalization to remain adequate and commensurate with current ratings, sustained by moderate expected growth and sound earnings generation.

Tier II-compliant subordinated bonds contributed to a regulatory capital ratio of 15.1 % at YE22, well above the 10% minimum required by the Peruvian regulator. Tightening requirements for regulatory capital, including more restrictive treatment of subordinated debt, intangible assets and deferred tax assets in an approximation of Basel III standards, are attainable for Interbank.

Banco Internacional del Peru S.A.A. - Interbank
Rating Report │ April 25, 2023	fitchratings.com	5