El Niño Provisions Cost Intercorp PEN 87 Million of Quarterly Profit

Intercorp Financial Services (NYSE:IFS) reported third-quarter 2026 net income of PEN 457 million and a return on equity of 14%, after setting aside provisions for a potentially extraordinary El Niño event. Strip those charges out, and the picture changes considerably: net income of PEN 544 million, up 19% year over year, on a 16.6% return on equity. The company kept its full-year return-on-equity guidance of roughly 17% despite the provisions.

The accounting exercise rests on a weather forecast. Peru's ENFEN agency raised its estimated probability of an extraordinary El Niño in the first quarter of 2027 to 55% in October, from 9% in June. Chief Financial Officer Michela Casassa said the company expects effects to extend into the first half of 2027, particularly in agriculture, fishing and some northern regions.

How large is the El Niño exposure?

About 11% of the loan portfolio is potentially exposed, according to Casassa. The breakdown:

• Approximately 8% is commercial lending with direct exposure to agriculture and fishing.
• Roughly 3% consists of consumer and small-business loans in affected areas.

Casassa described the commercial exposure as low risk, noting that those clients carry clauses permitting refinancing or deferred payments. The retail book is rated medium risk, and the company plans to support eligible borrowers through rescheduling programs.

Interbank allocated PEN 185 million in El Niño provisions, comprising PEN 81 million already held under expert criteria and PEN 104 million in additional charges. Insurance unit IXP recorded PEN 37 million, half of which was recognized by the parent. The after-tax hit to net income was PEN 86 million, Casassa said. Chief Executive Officer Luis Felipe Castellanos said the provisions reflect the company's current extraordinary-event scenario and that management would reassess as conditions evolve. Based on current information, he does not expect additional fourth-quarter provisions.

Castellanas takes the long view. He said the company views El Niño as a temporary challenge and has raised its medium-term return-on-equity target to above 20%.

What is driving the margin recovery?

Growth in consumer and small-business lending, paired with lower funding costs, improved margins during the quarter. Performing loans grew 10% year over year and 4% sequentially. Higher-yielding consumer and small-business loans rose 21% year over year and 10% from the prior quarter, now representing 23% of the performing book. Consumer loans increased 18%; small-business loans rose 34%.

Casassa said the company is concentrating growth on lower-risk customers and areas not expected to be affected by El Niño, while tightening underwriting in exposed regions.

Net interest margin rose 20 basis points from the previous quarter to 5.1%. Excluding El Niño provisions, the risk-adjusted net interest margin (the margin after expected credit losses) climbed 40 basis points to 3.9%; including them, it was 3.4%. Quarterly cost of risk was 1.9% excluding the provisions, down from 2.1% in both the preceding quarter and the year-earlier period; including them, 2.7%. Casassa said the underlying cost of risk could drift toward 2.5% as higher-yielding loans grow. A bank would prefer a storm to be the reason.

Interbank CEO Carlos Tori said the bank wants higher-yielding loans to exceed 25% of the portfolio and expects lending growth and margin expansion to continue. Casassa added that further margin improvement should arrive in 2027 as the loan mix shifts, though she offered no specific forecast.

How did insurance and wealth management perform?

Interseguro posted net income of PEN 97 million with a return on equity above 30%. Its contractual service margin, a measure of future profits from long-term insurance, rose 8% year over year to PEN 1.2 billion.

At wealth manager Inteligo, net income was PEN 38 million as investment returns normalized after a strong first half. Assets under management, including deposits, reached $10.1 billion, up 13% year over year. Fee income rose 5% to PEN 53 million.

What about funding and capital?

The bank's cost of funds fell 10 basis points during the quarter, helped primarily by faster growth in low-cost retail, transactional and business deposits. Casassa cautioned that interest-rate trends could pressure funding costs ahead.

On capital, she said Interbank remained above its internal buffers and was reviewing its 2027 strategy, as lending is growing faster than expected. Castellanos confirmed a new share buyback program is under review but not yet defined, with management weighing it against capital needs for growth. A temptation deferred, for now.

Intercorp Financial Services is a Peru-based financial services holding company within the Intercorp group, providing banking, insurance, wealth management and payment services through Interbank, Interseguro and Inteligo.