SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 under the

Securities Exchange Act of 1934

 

For the month of November 2018

 

Commission File Number: 001-14014

 

CREDICORP LTD.

(Translation of registrant’s name into English)

 

Clarendon House

Church Street

Hamilton HM 11 Bermuda

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F x   Form 40-F ¨

 

 Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____

 

 Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____

 

 

 

   

 

 

The information in this Form 6-K (including any exhibit hereto) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act.

 

   

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: Nov 8th, 2018

 

 

CREDICORP LTD.

(Registrant)

 
       
  By: /s/ Miriam Bottger  
    Miriam Bottger  
    Authorized Representative  

 

   

 

 

 

Exhibit 99.1

 

 

 

Lima, Peru, November 07th, 2018 – Credicorp (NYSE: BAP) announced its unaudited results for the third quarter of 2018. These results are consolidated according to IFRS in Soles.

 

Third Quarter Results 2018

 

In 3Q18, Credicorp reported net income of S/ 1,011.3 million, which translated into an ROAE and ROAA of 18.0% and 2.4% respectively. This result represented an increase of 3.4% QoQ that was, nevertheless, 17.0% lower than the figure reported in 3Q17. The YoY contraction was due to the fact that in 3Q17, S/281 million were reported for the sale of BCI shares from the proprietary investment portfolio. Year-to-date (YTD), net income at Credicorp totaled S/ 3,026.9 million, which was close to the figure reported for the same period of last year. This translated into an ROAE and ROAA of 18.0% and 2.4% (vs. 19.4% and 2.5% for the same period in 2017).

 

The results in 3Q18 show:

 

• The mix of Interest-earning assets (IEAs) posted a decrease, for the second consecutive quarter, in both Cash & available funds and total investments while loans continued to expand. Growth in loans, the most profitable asset, continued to improve, translating into expansion of +2.2% QoQ and +10.4% YoY in the quarter-end loan balances, and growth of +1.5% QoQ and +9.8% YoY in average daily loan balances. This expansion was led by Retail Banking, in particular Mortgage and SME-Pyme, followed by Middle-Market Banking and BCP Bolivia.

 

• It is important to note that the loan mix by segment and by currency was favorable this quarter. In YTD terms, the quarter-end loan balance at the end of 3Q18 increased +4.5% versus the level posted at the end of December 2017. The average daily loan balances in the first nine months of this year grew +7.7% with regard to the average daily loan balances posted for the full-year 2017.

 

• At the end of 3Q18 total funding fell QoQ, which was associated with a drop in Due to banks and correspondents and in Total deposits. The latter contracted mainly due to the reduction in deposits at ASB, which in turn reflects the transfer of these funds to investment products at ASB as AuMs. In the YoY analysis, there was a noteworthy re-composition of the funding structure as deposits increased their share in total funding and represented the main source of substitution for BCR Instruments. All of the aforementioned has helped keep Credicorp’s funding cost at a level relatively stable since 2016 despite a scenario of rising international rates.

 

• All of the aforementioned translated into expansion of +4.1% QoQ +6.0% YoY in Net interest income (NII), which represented an improvement over the figure posted in 2Q18 (+0.9% QoQ and +4.8% YoY). The evolution of NII was due primarily to: (i) an increase in interest income, mainly due to growth in average daily loan balances and to a more favorable loan mix both by segment and currency; and (ii) the drop-in interest expenses due to a decrease in interest on deposits and loans; the latter was due to a decrease in the average volume of BCRP instruments. All of the aforementioned translated into an increase of +26 bps QoQ and +22 bps YoY in NIM. In YTD terms, NIM remained relatively stable.

 

• Unlike the scenario seen over the last six months, the total cost of risk (CofR) increased QoQ and YoY to situate at 1.67%. Nevertheless, the cost of risk of the underlying portfolio was situated at 1.43%, which was within the range registered in 1H18. The increase in the CofR was mainly attributable to the execution of a performance bond and consequent refinancing of debt held by a client in the construction sector not related to the Lava Jato case. YTD, the cost of risk was situated at 1.43%, 46 bps below the level reported for the same period in 2017.

 

• Risk-adjusted NIM was situated at 4.41%, which represented a drop of-7 bps QoQ and +9 bps YoY; consequently, in YTD terms, this indicator reported an improvement of +21 bps.

 

• Total non-financial income increased QoQ due to gains on sales of securities; an increase in the exchange rate difference; and higher fee income. The YoY analysis reflects a drop in Sales of securities due to the sale of BCI shares in 3Q17; this was, nevertheless, slightly offset by growth in Fee income (+7.5% YoY) and in Gains of foreign exchange transactions (+21.2% YoY), which represent the main sources of non-financial income.

 

• The insurance underwriting result posted a drop of -4.0% QoQ; this was attributable to an increase in the net loss ratio posted by property and casualty insurance and life insurance, which was mitigated by an increase in the net earned premium in life insurance. In YoY terms, the underwriting result fell -12.1% due to an increase in the net loss ratio and in commissions in both business; this result was mitigated by growth in the net earned premium.

 

• The efficiency ratio improved 20 pbs YoY but it deteriorated 30 bps YTD. The YTD deterioration was due to growth in operating expenses, which was attributable to (i) an increase in salaries and administrative & general expenses, mostly at BCP; and (ii) growth in acquisition cost from the insurance business.

 

   

 

 

Table of Contents

 

Credicorp (NYSE: BAP): Third Quarter Results 2018 3
Financial Overview 3
1. Interest-earning assets (IEA) 5
1.1. Evolution of IEA 5
1.2. Credicorp Loans 6
1.2.1. Loan evolution by business segment 6
1.2.2. Evolution of the level of dollarization by segment 8
1.2.3. BCRP de-dollarization plan at BCP Stand-alone 9
1.2.4. Market share in loans 10
2. Funding Sources 11
2.1. Funding Structure 11
2.2. Deposits 12
2.2.1. Deposits: dollarization level 13
2.2.2. Market share in Deposits 14
2.3. Other funding sources 14
2.4. Loan / Deposit (L/D) 15
2.5. Funding Cost 16
3. Portfolio quality and Provisions for loan losses 18
3.1. Provisions for loan losses 18
3.2. Portfolio Quality 19
3.2.1. Delinquency indicators by business line 20
4. Net Interest Income (NII) 26
4.1. Interest Income 26
4.2. Interest Expenses 27
4.3. Net Interest Margin (NIM) and Risk-Adjusted NIM 28
5. Non-Financial Income 30
5.1. Fee Income 31
5.1.1. By subsidiary 31
5.1.2. Banking Business 32
6. Insurance Underwriting Result 34
6.1. Net earned premiums 35
6.2. Net claims 36
6.3. Acquisition cost 36
7. Operating Expenses and Efficiency 38
7.1. Credicorp’s Administrative, General and Tax Expenses 39
7.2. Operating Expenses / Total Average Assets Ratio 40
7.3. Efficiency Ratio 41
8. Regulatory Capital 42
8.1. Regulatory Capital – BAP 42
8.2. Regulatory Capital – BCP Stand-alone based on Peru GAAP 43
9. Distribution channels 45
9.1 Points of contact – BCP Stand-alone 45
9.1.1 Points of contact by location – BCP Stand-alone 45
9.1.2 Transactions per channel – BCP Stand-alone 46
9.2 Points of contact – Mibanco 47
9.3 Points of contact – BCP Bolivia 47
10. Economic Perspectives 48
10.1. Peru Economic Forecasts 48
10.2. Main Economic Variables 49
11. Appendix 53
11.1. Credicorp 53
11.2. BCP Consolidated 55
11.3. Mibanco 58
11.4. BCP Bolivia 59
11.5. Credicorp Capital 60
11.6. Atlantic Security Bank 61
11.7. Grupo Pacifico 63
11.8. Prima AFP 65
11.9. Table of calculations 66
11.10. Disclosure about the impact of IFRS 9 67

 

   

 

 

Credicorp (NYSE: BAP): Third Quarter Results 2018

 

Financial Overview

 

Credicorp Ltd.  Quarter   % change   YTD   % change 
S/ 000  3Q17   2Q18   3Q18   QoQ   YoY   Sep 17   Sep 18   Sep 18 / Sep 17 
Net interest income *   2,024,516    2,062,818    2,146,461    4.1%   6.0%   6,005,514    6,252,966    4.1%
Provision for loan losses, net of recoveries   (378,202)   (313,172)   (439,558)   40.4%   16.2%   (1,347,915)   (1,123,754)   -16.6%
Net interest income after provisions   1,646,314    1,749,646    1,706,903    -2.4%   3.7%   4,657,599    5,129,212    10.1%
Non-financial income *   1,290,384    1,048,050    1,085,839    3.6%   -15.9%   3,392,670    3,235,105    -4.6%
Insurance services underwriting result   122,959    112,559    108,051    -4.0%   -12.1%   371,683    336,519    -9.5%
Total expenses   (1,445,137)   (1,523,840)   (1,506,544)   -1.1%   4.2%   (4,305,434)   (4,470,128)   3.8%
Operating income   1,614,520    1,386,415    1,394,249    0.6%   -13.6%   4,116,518    4,230,708    2.8%
Income taxes   (371,563)   (388,011)   (363,154)   -6.4%   -2.3%   (1,022,002)   (1,136,557)   11.2%
Net income   1,242,957    998,404    1,031,095    3.3%   -17.0%   3,094,516    3,094,151    0.0%
Non-controlling interest   24,656    20,566    19,809    -3.7%   -19.7%   66,420    67,219    1.2%
Net income attributed to Credicorp   1,218,301    977,838    1,011,286    3.4%   -17.0%   3,028,096    3,026,932    0.0%
Net income / share (S/)   15.27    12.26    12.68    3.4%   -17.0%   37.96    37.95    0.0%
Total loans   95,142,268    102,766,633    105,028,343    2.2%   10.4%   95,142,268    105,028,343    10.4%
Deposits and obligations   92,893,915    97,544,235    97,375,411    -0.2%   4.8%   92,893,915    97,375,411    4.8%
Net equity   21,964,556    21,889,218    23,006,133    5.1%   4.7%   21,964,556    23,006,133    4.7%
Profitability                                        
Net interest margin *   5.32%   5.28%   5.54%   26 bps    22 bps    5.34%   5.30%   -4 bps 
Risk adjusted Net interest margin *   4.32%   4.48%   4.41%   -7 bps    9 bps    4.14%   4.35%   21 bps 
Funding cost * (1)   2.36%   2.32%   2.34%   2 bps    -2 bps    2.41%   2.29%   -12 bps 
ROAE   22.8%   18.1%   18.0%   -10 bps    -480 bps    19.4%   18.0%   -140 bps 
ROAA   3.0%   2.3%   2.4%   10 bps    -60 bps    2.5%   2.4%   -10 bps 
Loan portfolio quality                                        
Delinquency ratio over 90 days   2.28%   2.25%   2.28%   3 bps    0 bps    2.28%   2.28%   0 bps 
Internal overdue ratio (2)   3.02%   3.03%   3.04%   1 bps    2 bps    3.02%   3.04%   2 bps 
NPL ratio (3)   4.03%   4.09%   4.15%   6 bps    12 bps    4.03%   4.15%   12 bps 
Cost of risk (4)   1.59%   1.22%   1.67%   45 bps    8 bps    1.89%   1.43%   -46 bps 
Coverage of internal overdue loans   153.8%   154.8%   154.3%   -50 bps    50 bps    153.8%   154.3%   50 bps 
Coverage of NPLs   115.2%   114.8%   112.8%   -200 bps    -240 bps    115.2%   112.8%   -240 bps 
Operating efficiency                                        
Efficiency ratio * (5)   43.7%   43.9%   43.5%   -40 bps    -20 bps    43.1%   43.4%   30 bps 
Operating expenses / Total average assets   3.62%   3.69%   3.77%   8 bps    15 bps    3.62%   3.64%   0 bps 
Insurance ratios                                        
Combined ratio of P&C (6)(7)   95.6%   102.7%   97.5%   -520 bps    190 bps    96.5%   101.6%   510 bps 
Loss ratio (7)   57.8%   58.7%   59.1%   40 bps    130 bps    58.9%   58.5%   -40 bps 
Underwriting result / net earned premiums (7)   10.7%   7.1%   9.2%   210 bps    -150 bps    10.6%   8.3%   -230 bps 
Capital adequacy - BCP Stand-alone (8)                                        
BIS ratio (9)   16.35%   15.07%   14.94%   -13 bps    -141 bps    16.35%   14.94%   -141 bps 
Tier 1 Ratio (10)   11.47%   11.09%   10.96%   -13 bps    -51 bps    11.47%   10.96%   -51 bps 
Common equity tier 1 ratio (11)   11.93%   11.11%   11.61%   50 bps    -32 bps    11.93%   11.61%   -32 bps 
Employees   33,467    33,447    33,528    0.2%   0.2%   33,467    33,528    0.2%
Share Information                                        
Outstanding Shares   94,382    94,382    94,382    0.0%   0.0%   94,382    94,382    0.0%
Treasury Shares (12)   14,621    14,621    14,621    0.0%   0.0%   14,621    14,621    0.0%
Floating Shares   79,761    79,761    79,761    0.0%   0.0%   79,761    79,761    0.0%

 

* This account or ratio has been modified retroactively, as a result of the improvement in the presentation of Credicorp's accounting accounts. This improvement allowed to

show the net gain in derivatives and the result by difference in exchange"

(1) The funding costs differs from previously reported due to a methodology change in the denominator, which no longer includes the following accounts: acceptances outstanding, reserves for property and casualty claims, reserve for unearned premiums, reinsurance payable and other liabilities."

(2) Internal overdue loans: includes overdue loans and loans under legal collection, according to our internal policy for overdue loans. Internal Overdue Ratio: Internal Overdue Loans / Total Loans

(3) Non-performing loans (NPL): Internal overdue loans + Refinanced loans. NPL ratio: NPLs / Total loans.

(4) Cost of risk: Annualized provision for loan losses, net of recoveries / Total loans.

(5) Efficiency ratio = [Total Expenses + Acquisition Cost - Other expenses] / [Net Interest Income + Fee Income + Net Gain on Foreign Exchange Transactions + Net Gain from Subsidiaries + Net Premiums Earned].

(6) Combined ratio= (Net claims / Net earned premiums) + [(Acquisition cost + Operating expenses) / Net earned premiums]. Does not include Life insurance business.

(7) Considers Grupo Pacifico's figures before eliminations for consolidation to Credicorp.

(8) All Capital ratios are for BCP Stand-alone and based on Peru GAAP

(9) Regulatory Capital / Risk-weighted assets (legal minimum = 10% since July 2011)

(10) Tier 1 = Capital + Legal and other capital reserves + Accumulated earnings with capitalization agreement + (0.5 x Unrealized profit and net income in subsidiaries) - Goodwill - (0.5 x Investment in subsidiaries) + Perpetual subordinated debt (maximum amount that can be included is 17.65% of Capital + Reserves + Accumulated earnings with capitalization agreement + Unrealized profit and net income in subsidiaries - Goodwill).

(11) Common Equity Tier I = Capital + Reserves – 100% of applicable deductions (investment in subsidiaries, goodwill, intangibles and net deferred taxes that rely on future profitability) + retained earnings + unrealized gains. Adjusted Risk-Weighted Assets = Risk-weighted assets - (RWA Intangible assets, excluding goodwill, + RWA Deferred tax assets generated as a result of temporary differences in income tax, in excess of 10% of CET1, + RWA Deferred tax assets generated as a result of past losses)."

(12) These shares are held by Atlantic Security Holding Corporation (ASHC).

 

  3

 

 

Credicorp and subsidiaries

 

Earnings contribution *  Quarter   % change   YTD   % change 
S/ 000  3Q17   2Q18   3Q18   QoQ   YoY   Sep 17   Sep 18   Sep 18 / Sep 17 
Banco de Credito BCP (1)   789,854    827,596    810,966    -2.0%   2.7%   2,203,589    2,498,803    13.4%
Mibanco (2)   110,489    122,151    102,428    -16.1%   -7.3%   257,734    345,390    34.0%
BCB   10,371    21,544    15,360    -28.7%   48.1%   56,635    55,384    -2.2%
Grupo Pacifico (3)   82,591    69,075    97,268    40.8%   17.8%   240,572    243,638    1.3%
Prima AFP   29,401    32,382    41,476    28.1%   41.1%   109,657    109,115    -0.5%
Credicorp Capital   14,288    11,128    17,771    59.7%   24.4%   55,288    49,973    -9.6%
Atlantic Security Bank   42,778    29,106    35,089    20.6%   -18.0%   126,442    94,894    -25.0%
Others (4)   249,018    (12,993)   (6,644)   -48.9%   -102.7%   235,913    (24,875)   -110.5%
Net income attributed to Credicorp   1,218,301    977,838    1,011,286    3.4%   -17.0%   3,028,096    3,026,932    -0.04%

 

* Contributions to Credicorp reflect the eliminations for consolidation purposes (e.g. eliminations for transactions among Credicorp’s subsidiaries or between Credicorp and its subsidiaries).

(1) Banco de Credito BCP includes BCP Stand-alone and subsidiaries such as Mibanco.

(2) The figure is lower than the net income of Mibanco because Credicorp owns 97.73% of Mibanco (directly and indirectly).

(3) The contribution is higher than Grupo Pacifico’s net income because Credicorp owns 65.20% directly, and 33.59% through Grupo Credito.

(4) Includes Grupo Credito excluding Prima (Servicorp and Emisiones BCP Latam), others of Atlantic Security Holding Corporation and others of Credicorp Ltd.

 

   Quarter   YTD 
ROAE  3Q17   2Q18   3Q18   Sep 17   Sep 18 
Banco de Credito BCP (1)   22.3%   22.2%   20.6%   20.9%   21.2%
Mibanco (2)   30.4%   27.9%   22.0%   22.1%   25.7%
BCB   6.7%   13.9%   9.5%   12.1%   11.4%
Grupo Pacifico (3)   13.1%   10.7%   15.3%   13.1%   12.0%
Prima   21.1%   23.0%   27.6%   24.6%   23.4%
Credicorp Capital   7.2%   6.1%   9.8%   9.3%   8.8%
Atlantic Security Bank   20.6%   16.1%   18.6%   19.6%   15.2%
Credicorp   22.8%   18.1%   18.0%   19.4%   18.0%

 

(1) Banco de Credito BCP includes BCP Stand-alone and subsidiaries such as Mibanco.

(2) ROAE including goodwill of BCP from the acquisition of Edyficar (Approximately US$ 50.7 million) was 21.6% in 2Q17, 26.5% in 1Q18 and 25.8% in 2Q18. As of YTD, was 17.3% for June 2017 and 25.8% for June 2018.

(3) Figures include unrealized gains or losses that are considered in Pacifico’s Net Equity from the investment portfolio of Pacifico Vida. ROAE excluding such unrealized gains was 17.4% in 2Q17, 15.1% in 1Q18 and 14.5% in 2Q18. As of YTD, was 16.8% for June 2017 and 14.8% for June 2018."

 

  4

 

 

1.Interest-earning assets (IEA)

 

The mix of IEA posted a decrease, for the second consecutive quarter, in both Cash and due from banks and Total investments while Total loans continued to post growth. In YTD terms, quarter-end balances at the end of 3Q18 grew by +4.5% when compared to the level posted in December 2017. Average daily loan balances of the first nine months of 2018 grew 7.7% when compared with the average daily loan balances for the full year 2017.

 

Interest earning assets      As of       % change 
S/ 000  Sep 17   Jun 18   Sep 18   QoQ   YoY 
Cash and due from banks   22,763,956    19,385,506    17,625,814    -9.1%   -22.6%
Interbank funds   59,038    172,607    357,910    107.4%   506.2%
Total investments   35,658,661    32,434,819    32,183,795    -0.8%   -9.7%
Total loans (1)   95,142,268    102,766,633    105,028,343    2.2%   10.4%
Total interest earning assets   153,623,923    154,759,565    155,195,862    0.3%   1.0%

 

(1) Quarter-end balance.

 

Total Investments (2)  As of   % change 
S/ 000  Sep 17   Jun 18   Sep 18   QoQ   YoY 
Fair value through profit or loss investments   5,010,358    4,986,068    4,559,897    -8.5%   -9.0%
Fair value through other comprehensive income investments   26,380,715    23,291,981    23,516,932    1.0%   -10.9%
Amortized cost investments   4,267,588    4,156,770    4,106,966    -1.2%   -3.8%
Total investments   35,658,661    32,434,819    32,183,795    -0.8%   -9.7%

 

(2) The names mandated by the IFRS9 norm are used in this chart. The former names, in the order presented in this chart, are: Trading securities, Investments available for sale and Investments held to maturity.

 

1.1. Evolution of IEA

 

Total loans

 

Total loans, measured in quarter-end balances, maintained the pace of growth posted last quarter (+2.2%). In this scenario and given that total investments have decreased for the second consecutive quarter, loans continue to register an increase in their share of IEA, situating at 67.7% in 3Q18 vs. 66.4% in 2Q18 and 61.9% in 3Q17.

 

The QoQ increase in quarter-end balances at Credicorp was attributable to:

 

(i)Expansion in Retail Banking, particularly in the Mortgage and Credit Card segments;

 

(ii)Growth in Wholesale Banking, which was led by Middle-Market Banking; and

 

(iii)The increase in loans at BCP Bolivia

 

The YoY evolution reflected an acceleration with regard to last quarter’s growth, increasing 10.4%. It is important to note that loans grew across all business segments and subsidiaries with the exception of ASB loans.

 

With regard to the end of 2017, although IEAs fell -2.5%, loans registered a +4.5% increase in quarter-end balances.

 

Investments

 

The QoQ drop in Total Investments primarily reflects the sale of CDs from BCRP at BCP Stand-alone from the fair value through profit or loss investment portfolio (formerly trading securities) and from the fair value through other comprehensive income investments portfolio (formerly securities available for sale). The aforementioned was generated in a context where Mark-to-Market of investment dropped significantly due to increases in global interest rates.

 

  5

 

 

Other IEA

 

Cash and due from banks fell -9.1% QoQ and -22.6% YoY due to a decrease in the balances held in banks and other companies in foreign financial systems, which were used to cover loan expansion.

 

1.2. Credicorp Loans

 

1.2.1. Loan evolution by business segment

 

The table below shows loan composition by subsidiary and business segment measured in average daily balances, which provide a clearer picture of interest income generation relative to loans, Credicorp’s primary source of income. These balances reflect trends or variations to a different degree than quarter-end balances, which may include pre-payments or loans made at the end of the quarter, which affect average daily balances less than quarter-end balances.

 

In general, average daily loan balances posted slightly lower QoQ growth with regard to last quarter’s figure. Nevertheless, YoY growth posted an increase for the third consecutive quarter after Wholesale Banking loans registered a recovery and loans at Retail Banking, Mibanco and BCP Bolivia reported growth.

 

Loan evolution measured in average daily balances by segment(1)

 

   TOTAL LOANS                     
   Expressed in million S/   % change   % Part. in total loans  
   3Q17   2Q18   3Q18   QoQ   YoY   3Q17   2Q18   3Q18 
BCP Stand-alone   77,488    84,099    85,289    1.4%   10.1%   81.6%   81.8%   81.8%
Wholesale Banking   40,593    44,898    44,963    0.1%   10.8%   42.7%   43.7%   43.1%
Corporate   25,929    28,505    27,499    -3.5%   6.1%   27.3%   27.7%   26.4%
Middle - Market   14,664    16,393    17,464    6.5%   19.1%   15.4%   15.9%   16.7%
Retail Banking   36,895    39,202    40,326    2.9%   9.3%   38.8%   38.1%   38.7%
SME - Business   5,073    5,286    5,384    1.9%   6.1%   5.3%   5.1%   5.2%
SME - Pyme   8,240    8,645    8,939    3.4%   8.5%   8.7%   8.4%   8.6%
Mortgage   12,837    13,721    14,159    3.2%   10.3%   13.5%   13.3%   13.6%
Consumer   6,514    7,123    7,275    2.1%   11.7%   6.9%   6.9%   7.0%
Credit Card   4,230    4,428    4,569    3.2%   8.0%   4.5%   4.3%   4.4%
Mibanco   8,840    9,553    9,585    0.3%   8.4%   9.3%   9.3%   9.2%
Bolivia   5,959    6,554    6,888    5.1%   15.6%   6.3%   6.4%   6.6%
ASB   2,723    2,576    2,551    -1.0%   -6.3%   2.9%   2.5%   2.4%
BAP's total loans   95,010    102,782    104,313    1.5%   9.8%   100.0%   100.0%   100.0%

 

      Highest growth in volumes
       
      Largest contraction in volumes

 

(1) Figures differ from previously reported due to the elimination of the “Others” segment (workout unit). Loans from said segment have been distributed among the other segments accordingly.

 

  6

 

 

Loan Growth QoQ in Average Daily Balances

Expressed in millions of S/

 

 

In the analysis by segment, QoQ growth in loans measured in average daily balances reflects:

 

(i)Loan expansion in Middle-Market Banking (6.5% QoQ) due to growth in medium- and long-term loans as well as in working capital and foreign trade loans.

 

(ii)Loan growth in the Mortgage and SME-Pyme segments within Retail Banking.

 

(iii)An increase of +5.1% QoQ in BCP Bolivia’s loans in 3Q18. This evolution was attributable to expansion in Corporate Banking and in the Mortgage segment (regulated portfolio).

 

These effects were offset by a drop in Corporate Banking loans (-3.5%), which registered a contraction in working capital and foreign trade loans.

 

Loan Growth YoY in Average Daily Balances

Expressed in millions of S/

 

 

If we analyze YoY growth by segment in terms of average daily balances, we see:

 

(i)Growth in Wholesale Banking loans, both in the Middle-Market Banking sub-segment (+19.1% YoY) and in Corporate Banking (6.1% YoY). In Middle-Market Banking, growth was attributable to an increase in medium- and long-term loans while in Corporate Banking, expansion was associated with working capital and sales financing loans.

 

(ii)Growth in the Mortgage, Consumer and SME-Pyme segments in Retail Banking.

 

  7

 

 

(iii)The increase in BCP Bolivia loans, which reported growth of +15.6% YoY in 3Q18. This evolution was due to growth in loans in Corporate Banking and in the Mortgage segment (regulated portfolio).

 

(iv)Growth in Mibanco loans (+8.4% YoY), which was in line with an improvement in the productivity of the sales force, which has allowed us to continue rolling out a strategy based on financial inclusion (new clients in the System) and on accompanying our clients’ growth.

 

Year-to-date growth in average daily balances per segment

Expressed in millions of S/

 

 

Finally, the average daily loan balances for the period between January and September 2018 reflect an increase of +7.7% with regard to the figure posted for the full year 2017. This growth was due primarily to loan expansion in Middle-Market Banking and Corporate Banking and, to a lesser extent, to the increase reported in loans in the Mortgage segment and at BCP Bolivia and Mibanco.

 

1.2.2. Evolution of the level of dollarization by segment

 

Loan evolution by currency - average daily balances(1)

 

   DOMESTIC CURRENCY LOANS   FOREIGN CURRENCY LOANS   % part. by currency 
   Expressed in million S/   Expressed in million US$   3Q18 
   3Q17   2Q18   3Q18   QoQ   YoY   3Q17   2Q18   3Q18   QoQ   YoY   LC   FC 
BCP Stand-alone   47,243    51,227    52,659    2.8%   11.5%   9,309    10,069    9,919    -1.5%   6.6%   61.7%   38.3%
Wholesale Banking   18,119    19,869    20,149    1.4%   11.2%   6,918    7,666    7,544    -1.6%   9.0%   44.8%   55.2%
Corporate   11,148    11,989    11,775    -1.8%   5.6%   4,550    5,059    4,780    -5.5%   5.1%   42.8%   57.2%
Middle-Market   6,970    7,880    8,374    6.3%   20.1%   2,368    2,607    2,763    6.0%   16.7%   47.9%   52.1%
Retail Banking   29,124    31,358    32,510    3.7%   11.6%   2,392    2,402    2,376    -1.1%   -0.7%   80.6%   19.4%
SME - Business   2,412    2,383    2,484    4.2%   3.0%   819    889    881    -0.8%   7.6%   46.1%   53.9%
SME - Pyme   7,926    8,375    8,672    3.5%   9.4%   97    83    81    -1.8%   -16.0%   97.0%   3.0%
Mortgage   9,635    10,836    11,328    4.5%   17.6%   986    884    861    -2.6%   -12.7%   80.0%   20.0%
Consumer   5,469    5,963    6,111    2.5%   11.7%   322    355    354    -0.4%   10.0%   84.0%   16.0%
Credit Card   3,682    3,801    3,916    3.0%   6.4%   169    192    199    3.4%   17.7%   85.7%   14.3%
Mibanco   8,331    9,016    9,048    0.4%   8.6%   156    164    163    -0.6%   4.5%   94.4%   5.6%
Bolivia   -    -    -    -    -    1,834    2,008    2,094    4.3%   14.2%   -    100.0%
ASB   -    -    -    -    -    838    789    775    -1.7%   -7.5%   -    100.0%
Total loans   55,574    60,243    61,707    2.4%   11.0%   12,138    13,030    12,952    -0.6%   6.7%   59.2%   40.8%

 

    Highest growth in volumes
     
    Largest contraction in volumes

 

(1) Figures differ from previously reported due to the elimination of the “Others” segment (work-out unit). Loans from said segment have been distributed among the other segments accordingly.

 

In the analysis of loan growth by currency, QoQ and YoY expansion is due primarily to an increase in the LC-denominated portfolio (+2.4% QoQ and +11.0% YoY).

 

  8

 

 

YoY evolution of the level of dollarization by segment (1)(2)

 

(1) Average daily balances.

(2) The FC share of Credicorp’s loan portfolio is calculated including BCP Bolivia and ASB, however the chart shows only the loan books of BCP Stand-alone and Mibanco.

(3) The year with the historic maximum level of dollarization for Wholesale Banking was 2012, for Mibanco was 2016 and for the rest of segments was 2009.

 

At BCP Stand-alone, the loan dollarization level fell YoY. This was mainly attributable to a strong decrease in FC loans in Corporate Banking and to growth in the LC mortgage segment, which was in turn associated with the decreasing interest rate differential between new disbursements in LC and FC loans, which was attributable to the downward and stable trend for LC and FC rates, respectively. These effects were partially mitigated by the increase in the dollarization level in SME-Business and Credit Card segments.

 

It is important to note that, as is evident in the figure below, the percentage of the loan portfolio that is highly exposed to FX risk on credit risk has returned to the level posted in March 2018 after registering a slight increase last quarter.

 

FX risk on credit risk – BCP Stand-alone

 

 

1.2.3. BCRP de-dollarization plan at BCP Stand-alone

 

At the end of 2014, BCRP set up a Program to reduce the dollarization level of the loan book in the Peruvian Banking System. As part of this Program, BCRP set some targets to reduce the loan balance in US Dollars progressively at the end of June 2015, December 2015, December 2016, December 2017 and December 2018. The balances that are subject to reduction targets are the total FC portfolio with some exceptions and the balance of the joint mortgage and car loan portfolio. The balance required at the end of December 2018 is as follows:

 

  9

 

 

(i)For the total portfolio in FC, the goal set for 2017 will continue to apply. In this context, the balance at the end of December 2018 must represent no more than 80% of the total loan balance in FC reported at the end of September 2013 (excluding loans that meet certain requirements.)

 

At the end of September 2018, BCP Stand-alone already registered a compliance level of 97% with regard to the goal set by BCRP for December 2018.

 

(ii)For the Mortgage and Car portfolio in FC, the goal set for 2017 will continue to apply until November 2018. In December, a 10% adjustment will be made. The goal will be adjusted by 10% every year to reach a minimum of 5% of net equity. The balance at the end of December 2018 must represent no more than 60% of the balance registered at the end of February 2013.

 

At the end of September 2018, BCP Stand-alone posted a compliance level with BCRP’s de-dollarization target of 99%.

 

1.2.4. Market share in loans

 

Market share in Peru

 

 

(1) Wholesale Banking market shares are different that previously reported because loans from COFIDE are now included in the denominator.

(2) Mortgage segment includes Mibanco's market share of 1.1% as of August 2018 and June 2018, and of 1.0% as of September 2017.

(3) Consumer segment includes Mibanco's market share of 1.5% as of August 2018, 1.6% as of June 2018, and 1.9% as of September 2017

(4) Market Shares for Corporate, Middle-market and SME-Business are as of September 2018.

 

At the end of August 2018, BCP Stand-alone continued to lead the market with a market share (MS) of 29.3%, which was higher than the level achieved by its closest competitor (18.2%). This level is the same as the one posted in 2Q18 and in 3Q17.

 

Corporate Banking reported a drop of -80 bps in its MS QoQ while Middle-Market Banking registered an increase of +60 bps. In the YoY evolution, Corporate Banking reported a drop of -50 bps in its MS while Middle-Market Banking achieved an increase of +300 pbs. It is important to note that both continue to lead their respective markets.

 

In Retail Banking, BCP’s market share was relatively stable and it continued to lead in almost all of its segments with the exception of SME-Business and Credit Card. In these segments, BCP is situated in second place, but is focused on growing its market share, as is evident in the expansion of +230 bps YoY posted by SME-Business and the increase of +150 bps QoQ registered by the Credit Card segment.

 

Mibanco reported an MS in the SME-Pyme segment that was +60 bps above that reported in 3Q17, situating at 23.0%.

 

Finally, BCP Bolivia’s market share remained unchanged QoQ but grew +10 bps YoY, which allowed it to remain in fourth place in the Bolivian Financial System.

  10

 

 

2.Funding Sources

 

At the end of September 2018, total funding fell QoQ due to a decrease in the level of Due to banks and correspondents and in Total deposits. The YoY analysis shows a change in the composition of the funding structure where deposits increased their share in total funding and represented the main source of funding to replace BCRP Instruments. These factors have allowed Credicorp to maintain a relatively stable funding cost since 2016 despite a scenario marked by increase in international interest rates.

 

Funding  As of   % change 
S/ 000  Set 17   Jun 18   Sep 18   QoQ   YoY 
Non-interest bearing demand deposits   24,506,234    24,630,138    24,975,666    1.4%   1.9%
Interest bearing Demand deposits   5,075,162    4,652,886    4,336,695    -6.8%   -14.6%
Saving deposits   26,652,822    29,709,658    30,396,175    2.3%   14.0%
Time deposits   29,619,222    30,762,161    30,186,076    -1.9%   1.9%
Severance indemnity deposits   6,609,242    7,275,824    6,923,829    -4.8%   4.8%
Interest payable   431,233    513,568    556,970    8.5%   29.2%
Total deposits   92,893,915    97,544,235    97,375,411    -0.2%   4.8%
Due to banks and correspondents   8,867,185    8,057,222    7,509,183    -6.8%   -15.3%
BCRP instruments   8,107,103    4,578,878    4,806,219    5.0%   -40.7%
Repurchase agreements (1)   2,471,814    2,710,701    2,785,216    2.7%   12.7%
Bonds and subordinated debt   15,236,054    15,283,893    15,194,775    -0.6%   -0.3%
Total funding (2)   127,576,071    128,174,929    127,670,804    -0.4%   0.1%

 

(1) Since 2Q18, repurchase agreements is excluded from Other liabilities and shown in a individual account. Also, it is included in the Total funding.

(2) Since 1Q18, Total Funding excludes the following accounts: acceptances outstanding, reserves for property and casualty claims, reserve for unearned premiums, reinsurance payable and other liabilities.

 

2.1. Funding Structure

 

Evolution of the funding structure and cost – BAP

(S/ billions)

 

 

(1) The funding cost differs from previously reported due to the methodology change of the denominator, which do not include the following accounts: acceptances outstanding, reserves for property and casualty claims, reserve for unearned premiums, reinsurance payable and other liabilities.

 

  11

 

 

The figure depicting the evolution of Credicorp’s structure and funding cost is calculated with period-end balances. The funding structure mainly reflects:

 

(i)The importance of deposits in the funding sources, whose share of total funding continued to increase QoQ and YoY despite the slight QoQ contraction in the volume of total deposits. It is important to note that the contraction QoQ is mainly due to a reduction in deposits at ASB, which in turn reflects the decision from clients to transfer those funds to AuMs in the same subsidiary.

 

(ii)The deposit mix continues to register a significant share of savings deposits and non-interest-bearing demand deposits, which represent 57% of total deposits (in 2Q18, these deposits accounted for 56% of the total) and offer lower cost than any other type of deposit.

 

(iii)Within other funding sources, an on-going drop in the volume of BCRP instruments is evident in the YoY evolution and it is important to note that these instruments have mainly been replaced by low-cost deposits. However, the QoQ analysis shows an increase in the level of BCRP instruments, which is within the business-as-usual levels.

 

All of the aforementioned has allowed the funding cost to remain relatively stable since December 2016.

 

2.2. Deposits

 

Deposits  As of   % change 
S/ 000  Sep 17   Jun 18   Sep 18   QoQ   YoY 
Non-interest bearing demand deposits   24,506,234    24,630,138    24,975,666    1.4%   1.9%
Interest bearing Demand deposits   5,075,162    4,652,886    4,336,695    -6.8%   -14.6%
Saving deposits   26,652,822    29,709,658    30,396,175    2.3%   14.0%
Time deposits   29,619,222    30,762,161    30,186,076    -1.9%   1.9%
Severance indemnity deposits   6,609,242    7,275,824    6,923,829    -4.8%   4.8%
Interest payable   431,233    513,568    556,970    8.5%   29.2%
Total deposits   92,893,915    97,544,235    97,375,411    -0.2%   4.8%

 

Total deposits fell slightly QoQ. The deposit mix shows that:

 

(i)Savings deposits increased mainly through savings accounts opened at Kiosks, which are cost-efficient, self-service platforms that allow clients to open a savings account in 3 minutes.

 

(ii)Non-interest-bearing demand deposits reported a slight increase after current accounts for Wholesale Banking clients posted growth.

 

(iii)Time Deposits and Severance indemnity deposits, which are high-cost deposits, posted a decrease QoQ due to:

 

a.Time deposits: a decrease in balances for deposits in the financial system and in institutional banking at BCP Stand-alone and, to a lesser extent, at ASB. The latter showed a contraction in the volume of deposits after funds were used to purchase investment products (off-balance sheet assets that ASB manages).

 

b.Severance indemnity deposits, which contracted after clients withdrew available funds corresponding to deposits made in 2Q (when the first Severance indemnity payment of the year is deposited; this reflects the seasonality of this component).

 

In YoY terms, total Deposits increased +4.8%, mainly due to:

 

(i)Savings deposits, whose growth reflects the results of campaigns to capture savings, mainly through digital channels, which have registered high levels of acceptance among BCP Stand-alone’s clients.

 

(ii)Increase in Time deposits at Mibanco due to an on-going campaign to capture stable and retail funding.

 

  12

 

 

(iii)Non-interest bearing deposits due to an increase in the average balance of current accounts held by Wholesale Banking clients.

 

2.2.1. Deposits: dollarization level

 

Dollarization Level of Deposits (1) – BAP

 

(1) Q-end balances.

 

Credicorp - Deposit Dollarization measured in quarter-end balances

 

 

The dollarization level of Credicorp’s deposits fell QoQ due to a contraction in the FC volumes of all deposit types. This decrease in FC was primarily attributable to time deposits and demand deposits(1). The aforementioned was accentuated by the increase in almost all deposit types in LC with the exception of Severance indemnity deposits.

 

The YoY evolution reveals a similar trend toward a drop in the dollarization level of total deposits, in line with growth in savings deposits and time deposits in LC. All the aforementioned reflected Credicorp’s interest in maintaining an adequate match between assets and liabilities by currency that is in accordance with Credicorp’s appetite.

 

 

(1) Includes interest-bearing and non-interest bearing demand deposits.

 

  13

 

 

2.2.2. Market share in Deposits

 

Market share in Peru

 

Source: BCP

(1) Demand deposits includes Mibanco's market share of 0.2% at the end of September 2017 and of 0.1% at the end of June 2018 and August 2018.

(2) Savings deposits includes Mibanco's market share of 1.3% at the end of September 2017 and June 2018 and of 1.2% at the end of August 2018.

(3) Time deposits includes Mibanco's market share of 5.7% at the end of September 2017 and of 6.3% at the end of June 2018 and August 2018.

(4) Severance indemnity deposits includes Mibanco's market share of 1.3% at the end of September 2017 and 1.2% at the end of June 2018 and August 2018.

 

At the end of August 2018, the subsidiaries of Credicorp in Peru, BCP and Mibanco, continued to lead in total deposits with a market share (MS) of 32.0%, which topped the MS of 19.1% reported by Credicorp’s closest competitor.

 

In the YoY analysis, total MS remained stable in comparison to the figure posted at the end of September 2017 (32.2%). It is important to note that Mibanco continued to increase its market share of time deposits, which was situated at 6.3% (+66 bps) at the end of August 2018 versus 5.7% at the end of September 2017.

 

BCP Bolivia continued to rank fifth in the Bolivian financial system with a MS of 9.9% at the end of September 2018 in comparison to 10.0% at the end of June 2018. In the YoY analysis, the MS remained stable in comparison to September 2017 (9.9%).

 

2.3. Other funding sources

 

Other funding sources  As of   % change 
S/ 000  Set 17   Jun 18   Sep 18   QoQ   YoY 
Due to banks and correspondents   8,867,185    8,057,222    7,509,183    -6.8%   -15.3%
BCRP instruments   8,107,103    4,578,878    4,806,219    5.0%   -40.7%
Repurchase agreements   2,471,814    2,710,701    2,785,216    2.7%   12.7%
Bonds and subordinated debt   15,236,054    15,283,893    15,194,775    -0.2%   -0.1%
Total Other funding sources   34,682,156    30,630,694    30,295,393    -1.1%   -12.6%

 

The Total of other sources of funding fell -1.1% QoQ. This was primarily due to a decrease in the level of Due to banks and correspondents and, to a lesser extent, to the drop in Bonds and subordinated debt. All of the aforementioned was offset by an increase in BCRP Instruments.

 

Due to banks and correspondents contracted QoQ due to a drop in the level of due-to banks with foreign banks and interbank funds, mainly through BCP Stand-alone.

 

  14

 

 

BCRP Instruments posted expansion QoQ due to an increase in regular repos; as expected, the level of substitution and expansion repos with BCRP fell.

 

Repurchase agreements grew QoQ and YoY due to an increase in volumes through ASB and BCP Stand-alone.

 

Bonds and subordinated debt posted a slight decrease due to the expiration of a corporate bond in LC at Mibanco; the bond expired in July 2018.

 

In the YoY evolution, the on-going reduction of BCRP Instruments continued to be noteworthy; these instruments have been replaced by deposits with shorter tenures, as indicated in section 2.2 Deposits.

 

2.4. Loan / Deposit (L/D)

 

Loan / Deposit Ratio by Subsidiary

 

 

The L/D ratio at Credicorp increased QoQ to situate at 107.9%. This was due to loan growth QoQ in an scenario in which deposits slightly contracted (+2.2% vs -0.2%, respectively). In the analysis by subsidiary, BCP Stand-alone posted an increase in its L/D ratio in line with the trend seen at Credicorp. This contrasted with the Mibanco’s L/D ratio, which fell 430 bps QoQ, which was due to growth in total deposits in a context in which loan, measured in quarter-end balances, slightly contracted.

 

  15

 

 

Loan / Deposit Ratio by Currency  

 

Local Currency       Foreign Currency
     

 

In the QoQ analysis by currency, a drop is evident in Credicorp’s L/D ratio. This was due to the increase in LC deposits that outpaced the growth posted in LC loans. The L/D ratio in FC reported an increase of 390 bps, which is mainly explained by the contraction in FC deposits at BCP Stand-alone.

 

The YoY analysis reveals an increase in both the L/D ratio in LC and in FC at Credicorp. Both increases were attributable to loan growth, which outpaced the increase in deposits.

 

2.5. Funding Cost

 

Credicorp’s funding cost was relatively stable and increased only 2 bps QoQ; 0 bps YoY. The accumulated result registered a significant drop of 12 bps.

 

Funding Cost – Credicorp

 

At the quarter level   At the accumulated level

 

 

The QoQ evolution was attributable primarily to:

 

(i)A more favorable funding mix because the volume of high-cost funding sources such as Due to banks & correspondents, Time deposits and Severance indemnity deposits, contracted.

 

(ii)A more favorable deposit mix because low-cost deposits, such as savings and non-interest-bearing demand deposits expanded, while high-cost deposits contracted.

 

In the YoY analysis, the funding cost remained stable in line with the re-composition of the funding structure, where deposited posted a significant increase in their share of total funding (76.3% in 3Q18, 76.1% 2Q18 and 72.8% in 3Q17) effectively replacing BCRP Instruments; this substitution implied a shift to lower cost funding.

 

  16

 

 

In the accumulated analysis, the funding cost reflects: 

 

(i)The efforts to obtain low-cost funding, mainly in LC, coupled with an on-going drop in interest rates in LC, which had a positive impact on the funding cost;

 

(ii)the on-going drop in funding in FC, which reduced the impact of the upward tren in international interest rates in 2018.

 

All the aforementioned translated into a decrease of 12 bps in the funding cost.

 

The funding cost(2) per subsidiary is shown in the following table:

 

   BCP       BCP     
   Stand-alone   Mibanco   Bolivia   ASB 
3Q17   2.08%   4.98%   2.62%   1.98%
2Q18   2.06%   4.28%   2.94%   1.44%
3Q18   2.09%   4.21%   3.04%   1.43%
YTD - Sep 17   2.16%   5.06%   2.27%   2.08%
YTD - Sep 18   2.04%   4.36%   2.94%   1.10%

 

(i)The funding cost at BCP Stand-alone increased 3 bps QoQ. This was due primarily to a decrease in the level of FC deposits and Due to banks and correspondents at the end of 3Q18. Both events led to a scenario in which the drop in the volume of funding sources was more significant than the decrease in expenses, as explained earlier. Consequently, the funding cost increased.

 

(ii)The funding cost at Mibanco, which experienced upward pressure from 2014-2017, stabilized in 2017 and fell in 2018, mainly due to the downward trend in Soles interest rates and the increase in the share of deposits in Mibanco’s funding mix.

 

(iii)The funding cost at BCP Bolivia continued to increase QoQ, which was attributable to an increase in interest on deposits.

 

 

(2) The funding costs differs from previously reported levels due to a change in the methodology to calculate the denominator, which no longer includes: outstanding account acceptances, reserves for property and casualty claims, reserve for unearned premiums, reinsurance payable and other liabilities. Since 2Q18, the account "Repurchase agreement" was excluded from Other liabilities and was included in the calculation of Total funding.

  17

 

 

3.Portfolio quality and Provisions for loan losses

 

Although the cost of risk (CofR) for the underlying portfolio (1.43%) remained within the range reported in 1H18, the total CofR increased QoQ and YoY to situate at 1.67%. This increase reflects the execution of a performance bond and the consequent refinancing for a specific client in the construction sector (not related to the Lava Jato case). In accumulated terms, the cost of risk was situated at 1.43%, which was 46 bps lower than the level reported for the same period in 2017.

 

 

3.1. Provisions for loan losses

 

Provisions for loan losses, net of recoveries  Quarter   % change   YTD   % change 
S/ 000  3Q17   2Q18   3Q18   QoQ   YoY   Sep 17   Sep 18   Sep 18 / Sep 17 
Gross Provisions   (447,504)   (385,131)   (511,710)   32.9%   14.3%   (1,547,704)   (1,335,714)   -13.7%
Loan loss recoveries   69,302    71,959    72,152    0.3%   4.1%   199,789    211,960    6.1%
Provision for loan losses, net of recoveries   (378,202)   (313,172)   (439,558)   40.4%   16.2%   (1,347,915)   (1,123,754)   -16.6%

 

The QoQ analysis shows an increase of 40.4% in provisions for loan losses, net of recoveries. This was attributable to:

 

(i)The increase in provisions for loan losses, which was associated with the execution of a performance bond and the consequent refinancing for a specific Corporate Banking client from the construction sector (not related to the Lava Jato case).

 

(ii)The increase in provisions for loan losses at Mibanco that was necessary due to (a) a higher-than-expected level of delinquency in some products, which in turn reflected the effects of some initiatives introduced some quarters ago; (b) the imbalance in the time-allocation of loan-officers to loan origination and collections; and in a lesser extent to (c) the maturity of the last vintages of the Skip program related to the El Nino Phenomenon. As of today, we have implemented most of the adjustments to fine-tune the balance between loan origination and collections.

 

(iii)Provisions required due to loan origination and the maturity of new vintages, mainly at BCP.

 

All of the aforementioned was partially offset by the improvement in portfolio quality of the Retail Banking segments, mainly in Consumer and Credit Card.

 

In the YoY analysis, provisions for loan losses net recoveries increased +16.2%, in line with explain outlined above.

 

  18

 

 

In the YTD analysis, provisions for loan losses, net of recoveries fell -16.6%, which mainly reflects:

 

(i)the improvement in the risk quality of the underlying portfolio, mainly in the loan portfolio of Retail Banking segments after these segments had reported higher-than-expected delinquency levels in previous years (SME-Pyme in 2014; Consumer and Credit Card in 2015-2016); and

 

(ii)the increase in provisions requirements in 2017 for the El Nino Phenomenon and the Lava Jato case.

 

3.2. Portfolio Quality

 

Cost of Risk

 

   Quarter   % change   YTD   % change 
Cost of risk and Provisions  3Q17   2Q18   3Q18   QoQ   YoY   Sep 17   Sep 18   Sep 18 / Sep 17 
Cost of risk (1)   1.59%   1.22%   1.67%   45 bps    8 bps    1.89%   1.43%   -46 bps 
Cost of risk of the underlying portfolio (2)   1.59%   1.22%   1.43%   21 bps    -16 bps    1.72%   1.35%   -37 bps 
Provisions for loan losses / Net interest income   18.7%   15.2%   20.5%   530 bps    180 bps    22.4%   18.0%   -447 bps 

 

(1) Annualized provisions for loans losses / Total loans.

(2) Cost of risk of the underlying portfolio excludes the effects of El Nino Phenomenon and the Lava Jato case in 1Q17 and 2Q17, and the effect of the execution of a performance bond of a company in the construction sector not related with the Lava Jato case in 3Q18.

 

Although the CofR of the underlying portfolio was 1.43% in 3Q18 and remained within the range reported in 1H18, the total CofR increased +45 bps QoQ and +8bps YoY to situate at 1.67%. This increase reflects the higher level of provisions that we explained in the previous section.

 

In the YTD analysis, the cost of risk was 1.43%, 46 bps lower than the level reported for the same period in 2017. Furthermore, the underlying CofR, which eliminates the effect of the provisions required in 1H17 due to El Nino Phenomenon and the Lava Jato case and those required in 3Q18 due to the execution of the performance bond, is 37 bps lower than the underlying CofR reported for the same period last year.

 

Delinquency ratios

 

Portfolio quality and Delinquency ratios  Quarter   % change 
S/ 000  3Q17   2Q18   3Q18   QoQ   YoY 
Total loans (Quarter-end balance)   95,142,268    102,766,633    105,028,343    2.2%   10.4%
Allowance for loan losses   4,419,769    4,819,704    4,920,319    2.1%   11.3%
Write-offs   332,995    345,253    366,709    6.2%   10.1%
Internal overdue loans (IOLs) (1)   2,874,071    3,113,014    3,188,393    2.4%   10.9%
Refinanced loans   963,807    1,086,135    1,172,338    7.9%   21.6%
Non-performing loans (NPLs) (2)   3,837,878    4,199,149    4,360,731    3.8%   13.6%
IOL over 90-days ratio   2.28%   2.25%   2.29%   4 bps    1 bps 
IOL ratio   3.02%   3.03%   3.04%   1 bps    2 bps 
NPL ratio   4.03%   4.09%   4.15%   6 bps    12 bps 
Coverage ratio of Internal overdue loans   153.8%   154.8%   154.3%   -50 bps    50 bps 
Coverage ratio of NPLs   115.2%   114.8%   112.8%   -200 bps    -240 bps 

 

(1) Includes overdue loans and loans under legal collection. (Quarter-end balances)

(2) Non-performing loans include internal overdue loans and refinanced loans. (Quarter-end balances)

 

Prior to analyzing the evolution of delinquency indicators, it is important to note that:

 

(i)Traditional delinquency ratios (IOL and NPL ratios) continue to be distorted by the presence of loans with real estate collateral (commercial and residential properties). This means that a significant portion of loans that are more than 150 days past due cannot be written-off (despite the fact that provisions have been set aside) given that a judicial process must be initiated to liquidate the collateral, which takes five years on average.

 

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(ii)In the second half (2H) of every year, loans are more dynamic, particularly in the SME-Pyme and Mibanco segments given that the main campaigns (Christmas and year-end campaigns) are held in the second semester (2H) and these short-term loans are paid off in 1H of the following year.

 

Delinquency Ratios

 

 

(1) Adjusted NPL ratio = (Non-performing loans+ Write-offs) / (Total loans + Write-offs)

(2) Cost of risk = Annualized provisions for loan losses net of recoveries / Total loans

(3) Cost of risk - Underlying portfolio excludes the effect of the execution of performance bonds of a company in the construction sector not related with the Lava Jato case

 

The IOL ratio remained stable QoQ and YoY but the NPL ratio increased +6 bps QoQ and +12 bps YoY. This was due primarily to the execution of a performance bond and consequent refinancing of debt for a specific Corporate Banking client, which also affected the cost of risk as explained above.

 

Coverage ratios

 

The IOL coverage ratio remained stable QoQ and YoY, while the NPL coverage ratio fell, in line with an increase in the pace of growth of the refinanced portfolio compared to that of the IOL portfolio, which was associated with the evolution of NPLs after the execution of a performance bond and consequent refinancing of debt of a Corporate Banking client from the construction sector not related to the Lava Jato case as indicated above.

 

3.2.1. Delinquency indicators by business line

 

Please consider that Credicorp reported the cost of risk per segment until the end of 2017. On January 1, 2018, the organization adopted the IFRS9 methodology to calculate provisions requirements of Credicorp.

 

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Wholesale Banking – Delinquency ratios

 

 

(i)The QoQ analysis shows a slight increase in the volume of IOLs in Wholesale Banking and a significant increase in the level of NPLs, which was mainly due to the execution of a performance bond, as mentioned above. In this context, the IOL ratio remained relatively stable while the NPL ratio rose +20 bps QoQ and +57 pbs YoY. The refinanced loan of the client described above increased the Wholesale Banking NPL ratio in +7 bps QoQ. In YTD terms, the executions of the performance bonds and the consequent refinancing of debt registered in the second and third quarter affected the NPL ratio of this segment in +41 bps.

 

BCP Bolivia – Delinquency ratios

 

 

(ii)BCP Bolivia reported IOL and NPL ratios that were relatively stable both QoQ and YoY; nevertheless, the cost of risk increased QoQ given that the level posted in 2Q18 was unusually low.

 

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SME-Business – Delinquency ratios

 

 

(iii)Given that loan origination in the SME-Business segment is affected by seasonality, it is important to focus on the YoY analysis, with shows that traditional delinquency ratios for the IOL and NPL portfolios increased +97 bps and +114 bps respectively. This scenario was driven by growth in the IOL portfolio, which was mainly due to a deterioration in the situation of some specific clients, who have been transferred to the workout unit, and to the deceleration of loan growth of the portfolio. It is important to note that the risk quality indicators for this segment remain comfortably within the risk appetite defined for this segment, which in turn aims to maximize the portfolio’s profitability while balancing risk quality and loan growth.

 

SME - Pyme – Delinquency ratios

 

 

(iv)In the SME-Pyme portfolio, it is important to analyze the early delinquency ratio, which excludes loans that are overdue less than 60 days (volatile loans whose percentage of recovery is very high) and those overdue more than 150 days (loans that have been provisioned but which cannot be written off due to the existence of real estate collateral- commercial properties that take five years on average to liquidate).

 

  22

 

 

Since the beginning of the second half of 2014, early delinquency has followed a downward trend YoY. This is in line with on-going improvement in the risk quality of vintages after adjustments were made in the SME-Pyme business model. The impact of these adjustments became more evident since the vintages of 2015. In 3Q18, early delinquency rose slightly YoY, which reflected Credicorp’s decision to enter segments with slightly higher risk to maximize the portfolio’s profitability while balancing risk quality and loan growth, but always within the risk framework defined by the organization. It is important to note that since 2017, this segment has situated “comfortably” within the risk appetite defined for the segment.

 

Mortgage – Delinquency ratios

 

 

(v)In terms of Mortgage loans, it is important to note that these ratios are also affected by the existence of real estate collateral and foreclosure takes around 5 years. During this period, these loans cannot be written-off, even when they are fully provisioned.

 

The traditional delinquency rates remained relatively stable both QoQ and YoY in line with the higher growth rate of the total portfolio given the acceleration in the origination of mortgage loans, as a result of the strategy of entering segments with a little more risk to maximize the profitability of the portfolio, always within the risk appetite of the organization.

 

The early delinquency ratio, which excludes the effect of loans that are over 150 days overdue, was relatively stable QoQ and YoY. It is important to note that this indicator is within the average levels observed over the past two years and is within the organization’s risk appetite.

 

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Consumer – Delinquency ratios

 

 

(vi)In the Consumer portfolio, the portfolio’s risk profile continues to improve in comparison to the level posted by vintages from 2015 or before, which led to the delinquency problem. This improvement has been achieved due to the different initiatives for risk management and collections that are in place today. The portfolio’s new composition reflects the calibrated profile generated by the change in the admissions risk policy.

 

Early delinquency decreased slightly -15 bps QoQ and -42 bps YoY to situate at its lower level since 2013, prior to the deterioration in risk quality. In this context, we have carried out a strategy to accelerate the pace of growth to maximize the portfolio’s profitability while preserving the organization’s risk appetite. Therefore, as you can see in the graph at the top, during 2018 this segment has accelerated its pace of growth, however there is still room to continue growing at a faster pace.

 

The traditional ratios for delinquency fell both QoQ and YoY mainly due to the higher growth rate of the total portfolio, given the adjustments in the origination guidelines and the development of campaigns with better offers for customers, all of the above in line with the strategy of accelerating the growth of this segment. Additionally, the IOL and NPL ratios reduced QoQ and YoY due to the reduction of the IOL portfolio in line with the continuous improvement in risk quality of the new vintages. It is important to note that the Consumer portfolio is within the organization’s risk appetite.

 

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Credit Card – Delinquency ratios

 

 

(vii)In the Credit Card segment, early delinquency fell QoQ and YoY, situating within the organization’s risk appetite. This reflects (i) an acceleration in the pace of growth of total loans and, (ii) the improvement in the risk quality of new vintages and in the portfolio mix after corrective measures were taken to address the delinquency problem that emerged at the end of 2015.

 

Mibanco – Delinquency ratios

 

 

(viii)The IOL and NPL ratios were relatively stable QoQ but increased YoY due to growth in internal overdue loans, as explained in section 3.1. Provisions for loan losses. It is noteworthy to mention that Mibanco has already implemented most of the adjustments that are necessary to fine-tune the balance between loan origination and collections.

 

The aforementioned led to an increase in the CofR both QoQ and YoY. It is important to note that the business’s risk quality indicators continue to fall within Mibanco’s risk appetite.

 

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4.Net Interest Income (NII)

 

In 3Q18, NII, the main source of income, expanded +4.1% QoQ and +6.0% YoY, which represents an improvement with regard to the evolution registered in 2Q18 (0.9% QoQ and +4.8% YoY). This favorable evolution is due primarily to: (i) growth in interest income, mainly due to the expansion in average daily loan balances; and (ii) the decrease in interest expenses, which was attributable to lower interest expense on deposits and to a contraction in the volume of substitution and expansion repos from BCRP. The aforementioned led NIM to increase +26 bps QoQ and +22 bps YoY, and to remain relatively stable in YTD terms.

 

Net interest income  Quarter   % change   YTD   % change 
S/ 000    3Q17   2Q18   3Q18   QoQ   YoY   Sep 17   Sep 18   Sep 18 / Sep 17 
Interest income   2,768,798    2,812,623    2,894,654    2.9%   4.5%   8,224,478    8,497,204    3.3%
Interest on loans   2,396,969    2,462,973    2,538,591    3.1%   5.9%   7,111,698    7,415,916    4.3%
Dividends on investments   8,530    7,483    10,221    36.6%   19.8%   42,876    26,299    -38.7%
Interest on deposits with banks   21,172    30,875    36,448    18.1%   72.2%   65,048    95,672    47.1%
Interest on securities   330,378    296,995    304,528    2.5%   -7.8%   975,763    925,591    -5.1%
Other interest income   11,749    14,297    4,866    -66.0%   -58.6%   29,093    33,726    15.9%
Interest expense   744,282    749,805    748,193    -0.2%   0.5%   2,218,964    2,244,238    1.1%
Interest on deposits   287,046    295,582    293,512    -0.7%   2.3%   838,673    877,403    4.6%
Interest on borrowed funds   185,962    149,799    148,565    -0.8%   -20.1%   583,595    465,796    -20.2%
Interest on bonds and subordinated notes   203,083    230,561    231,129    0.2%   13.8%   622,147    677,773    8.9%
Other interest expense (1)   68,191    73,863    74,987    1.5%   10.0%   174,549    223,266    27.9%
Net interest income (1)   2,024,516    2,062,818    2,146,461    4.1%   6.0%   6,005,514    6,252,966    4.1%
Risk-adjusted Net interest income (1)   1,646,314    1,749,646    1,706,903    -2.4%   3.7%   4,657,599    5,129,212    10.1%
Average interest earning assets   152,336,614    156,378,249    154,977,714    -0.9%   1.7%   150,033,279    157,200,337    4.8%
Net interest margin (1)(2)   5.32%   5.28%   5.54%   26bps    22bps    5.34%   5.30%   -4bps 
NIM on loans (1)(2)   8.20%   7.77%   7.84%   7bps    -36bps    8.01%   7.72%   -29bps 
Risk-adjusted Net interest margin (1)(2)   4.32%   4.48%   4.41%   -7bps    9bps    4.14%   4.35%   21bps 
Net provisions for loan losses / Net interest income (1)(2)   18.68%   15.18%   20.48%   530bps    180bps    22.44%   17.97%   -447bps 

 

(1) Figures differ from previously reported, please consider the data presented on this report.

(2) Annualized.

 

4.1. Interest Income

 

Interest Income - LC Interest Income – FC
(S/ millions) (S/ millions)
   

 

In the QoQ analysis, the 2.9% increase in Interest Income was due primarily to growth in interest income on loans, which was due primarily to:

 

(i)Growth in average daily loan balances (+1.5% QoQ), led by loan expansion in Retail Banking, primarily in the Mortgage and SME segments, accounted for 73% of growth in average daily balances in 3Q18 versus 33% in 2Q18. In this scenario, the volume effect and mix by segment have been more significant in 3Q18 versus 2Q18.

 

  26

 

 

(ii)Expansion in average daily loan balances was led by growth in LC loans, whose margins are generally higher than those generated by FC loans. As such, the effect of the currency mix also favored growth in interest income on loans.

 

(iii)The aforementioned was partially offset by a negative interest rate effect in LC, which was associated with a downward trend in market rates in LC and with high competition still present in the local environment.

 

In this context, interest on securities also increased QoQ but to a much lesser extent. This growth was seen mainly in FC and was related to the increase in fair value through other comprehensive income investments (formerly investments available for sale).

 

In the YoY analysis, interest income growth was +4.5%, which topped the figure reported in 2Q18. Similar to the QoQ scenario, an increase in interest on loans fueled a YoY recovery of this important component of income. The main factors that drove the +5.9% increase YoY in interest income from loans were:

 

(i)The volume effect, which was generated by an acceleration in the growth of average daily balances (+9.8% YoY) and by a more favorable mix by segment; in this context, Retail Banking and Mibanco accounted for approximately 45% of growth, as was the case in 2Q18.

 

(ii)The currency mix was also favorable given that the increase in average daily balances was due primarily to growth in the LC portfolio.

 

The aforementioned offset the contraction in interest on securities, which was attributable to a decrease in the fair value through profit or loss investments at BCP, as explained in section 1. Interest-earning assets.

 

All of the aforementioned also led the YTD result to post more favorable trends; in this context, interest income posted +3.3% growth YTD with regard to the YTD figure posted in September 2017.

 

4.2. Interest Expenses

 

Interest Expenses – LC Interest Expenses – FC
(S/ millions) (S/ millions)
   

 

 

Interest expenses fell -0.2% QoQ. This was mainly attributable to a decrease in interest expense on deposits. The main factors that drove the -0.7% QoQ drop in interest expenses on deposits are:

 

(i)The volume effect, which was attributable to the reduction in total deposits, and the deposit mix given that the high-interest deposits, such as time deposits and severance indemnity deposits, contracted while savings deposits and non-interest-bearing deposits increased.

 

(ii)The interest rate effect given that the rates on LC deposits continue to follow a downward trend, in line with the reductions of the reference rate by BCRP in 2018.

 

  27

 

 

Furthermore, interest expenses on loans also fell, specifically in LC, due to on-going decreases in the volume of substitution and expansion repos from BCRP.

 

In the YoY analysis, interest expenses grew +0.5%. Growth in this component is attributable to:

 

(i)The increase in interest expenses on bonds and subordinated notes that is related to a one-off effect of the cancellation of interest rate swaps for some FC issuances; this decision was taken in a scenario marked by increasing interest rates in dollars. It is important to note that this effect increases expenses for this component to a new level but reduces volatility down the line given that these issuances are at fixed rates.

 

(ii)Higher interest expenses on deposits due to YoY growth in deposits, mainly in LC.

 

The effect of the two factors mentioned above was offset by the decrease in interest expenses on borrowed funds, specifically in LC, which was associated with a drop in the volume of BCRP instruments.

 

YTD, the variation mirrored the scenario seen YoY. Interest expenses as of September 2018 grew 1.1% over the level reported as of September 2017. This was due primarily to growth in Interest expenses on bonds and subordinated notes and to an increase in interest expenses on deposits. The aforementioned was attenuated by a reduction in interest expenses on borrowed funds.

 

4.3. Net Interest Margin (NIM) and Risk-Adjusted NIM

 

Credicorp’s NIM and Risk-Adjusted NIM(1)

 

 

(1) Starting on 1Q17, we exclude derivatives from the NII result. For comparative purposes, figures starting from 1Q16 have been recalculated with the new methodology

 

NIM evolved favorably both QoQ and YoY, which was due to:

 

(i)Higher growth in NII (+4.1% QoQ vs 0.9% in 2Q18 and +6.0% YoY vs +4.8% in 2Q18), as explained previously; this was in line with an improvement in loan growth.

 

(ii)The slight QoQ drop in average IEAs, which was attributable to a significant decline in Available Funds, as explained in section 1. Interest-earning assets.

 

(iii)Higher loan growth in a scenario of a reduction in investments accentuated the change in the composition of IEAs where the share of loans, the most profitable asset, increased to 67% in comparison to 62% in September 2017.

 

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The risk-adjusted NIM fell -7 bps QoQ in line with the increase in provisions for loan losses; However, YoY the increase in the NII exceeded the increase in provisions, as such, risk-adjusted NIM increased +9 bps.

 

YTD, NIM fell -4 bps given that average IEA grew at a higher rate than the expansion posted by NII. Nevertheless, it is important to note that the favorable evolution registered QoQ and YoY in 3Q18 helped in reducing the contraction that was reported in the third quarter of this year.

 

NIM on loans registered a slight recovery QoQ, in line with growth in Retail Banking and SME-Business Loans, primarily in LC. The drop of -36 bps YoY and of -29 bps YTD on the NIM on loans is related to the drop in margins, mainly in LC, given that the same continue to be pressured by high competition in the local market (mainly in Wholesale Banking). Also, an environment marked by a downward trend in LC rates has had a negative impact on the margins of some segments of Retail Banking, namely Mortgage and SME.  

 

It is important to also analyze NIM by subsidiary. The table below contains the interest margins for each of Credicorp’s main subsidiaries.

 

NIM Breakdown  BCP
Stand-alone
   Mibanco   BCP
Bolivia
   ASB   Credicorp (1) 
3Q17   4.54%   15.91%   4.18%   2.28%   5.32%
2Q18   4.52%   16.07%   3.73%   2.15%   5.28%
3Q18   4.81%   15.88%   4.03%   2.20%   5.54%
YTD - Sep 17   4.57%   15.60%   4.36%   2.22%   5.34%
YTD - Sep 18   4.55%   15.99%   3.73%   2.20%   5.30%

NIM: Annualized Net interest income / Average period end and period beginning interest earning assets.

(1) Credicorp also includes Credicorp Capital, Prima, Grupo Credito and Eliminations for consolidation purposes.

 

The QoQ evolution of the global NIM by subsidiary shows an increase in Credicorp’s margin that was mainly attributable to BCP Stand-alone, which represents around 66% of net interest income. In this context, BCP Stand-alone shows clear recovery after several quarters of deterioration.

 

Mibanco, which represents around 23% of net interest income, posted a slight deterioration in NIM QoQ. This was mainly due to the decrease in LC rates due to competition, which affected the generation of interest income on loans, in a scenario in which we have slowdown loan origination to focus on recovering the effectiveness of collections.

 

 

(3) NIM on loans is calculated as follows:

 

 

The share of loans within total earning assets is calculated by dividing the average of the beginning and closing balances of total loans for the reporting period, by the average of the beginning and closing balances of the interest earning assets for the reporting period.

 

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5.Non-Financial Income

 

Total non-financial income reported an increase QoQ due to net gain on sales of securities, the result on exchange difference and fee income. The YoY analysis reflects a drop in net gain on sales of securities due to gains on the sale of BCI shares in 3Q17; this was, nevertheless, slightly offset by growth in fee income (+7.5% YoY) and in net gain on foreign exchange transactions (+21.2% YoY), which represent the main sources of non-financial income.

 

Non-financial income  Quarter   % change   YTD   % change 
S/ 000  3Q17   2Q18   3Q18   QoQ   YoY   Sep 17   Sep 18   Sep 18 / Sep 17 
Fee income (1)   719,539    766,994    773,529    0.9%   7.5%   2,122,570    2,290,215    7.9%
Net gain on foreign exchange transactions   150,777    180,669    182,777    1.2%   21.2%   477,519    525,741    10.1%
Net gain from associates (2)   (528)   9,506    4,974    -47.7%   N/A    11,469    22,867    99.4%
Net gain on sales of securities (3)   346,122    (8,756)   47,877    N/A    -86.2%   487,094    131,510    -73.0%
Net gain on derivatives   25,713    14,597    674    -95.4%   -97.4%   95,367    14,959    -84.3%
Result on exchange difference   4,028    1,031    8,834    N/A    119.3%   15,403    15,754    2.3%
Other non-financial income   44,733    84,009    67,174    -20.0%   50.2%   183,248    234,059    27.7%
Total non financial income   1,290,384    1,048,050    1,085,839    3.6%   -15.9%   3,392,670    3,235,105    -4.6%

 

(1) Figures differ from previously reported, please consider the data presented on this report.

(2) Mainly includes the agreement between Grupo Pacifico and Banmedica.

(3) Includes the sale of BCI shares in 3Q17 (S/ 281 million).

 

   Quarter   % change   YTD   % change 
Millions (S/)  3Q17   2Q18   3Q18   QoQ   YoY   Sep 17   Sep 18   Sep 18 / Sep 17 
(+) EPS contribution (50%)   5.05    13.29    10.69    -19.6%   111.7%   26.6    37.2    40.1%
(-) Private health insurance deduction (50%)   -5.58    -3.79    -5.71    50.7%   2.4%   -15.1    -14.4    -5.0%
(=) Net gain from associates excluding Non-recurring income / expense   -0.53    9.51    4.97    47.7%   N/A    11.5    22.9    99.4%
(+) Non-recurring income/expense   -    -    -    -    -    -    -    - 
(=) Net gain from associates   -0.53    9.51    4.97    -47.7%   N/A    11.5    22.9    99.4%

 

Non-financial income increased QoQ. This was due primarily to:

 

(i)Higher Net gain on sales of securities, mainly at Prima AFP, due a mark-to-market fluctuation in managed funds that had an impact on the profitability of Prima AFP’s legal reserves. Additionally, although to a lesser extent, BCP Stand-alone posted better results, which was due primarily to a recovery after having registered a decline due to the sale of some investments in a context for rising global interest rates in 2Q18.

 

(ii)The increase in the Result on exchange difference, which was mainly seen in Credicorp Capital after liabilities depreciated due to a drop in the US dollar in 2Q18.

 

(iii)The increase in Fee income, mainly at BCP stand-alone, due to improvements in businesses related to drafts and transfers, SME loans and payments and collections.

 

The aforementioned was slightly offset by:

 

(i)The contraction in Other income, which was due primarily to the fact that in 2Q18, this component reported a gain in Mibanco for the sale of a real estate holding.

 

(ii)The loss on Net gain on derivatives at BCP Stand-alone, mainly in the forward business to cover exchange rate exposure for investments in the trading portfolio and trading swaps.

 

Non-financial income posted a drop YoY due mainly to:

 

(i)The contraction in Net gain on sales of securities, which posted a high level in 3Q17 due to income generated by the sale of BCI shares (S/.281 million).

 

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The aforementioned attenuated:

 

(i)The increase in Fee income, mainly at BCP Stand-alone, due to an increase in drafts and transfers, credit cards and payments and collections.

 

(ii)The increase in Net gain on foreign exchange transactions at BCP Stand-alone due to an increase in volumes of FX transactions and, to a lesser extent, to the margin obtained despite a scenario of low volatility in the exchange rate this quarter.

 

(iii)Other income at BCP Stand-alone, mainly for reimbursements from Sunat and from the sale of real estate properties located in Callao, Limatambo branch and Los Jazmines branch.

 

In YTD terms (Jan-Sep18 vs Jan-Sep17), non-financial income posted significant growth in the following accounts:

 

(i)Fee income, mainly due to an increase in fee income at BCP Stand-alone and, to a lesser degree, at Mibanco,

 

(ii)Net gain on foreign exchange transactions at BCP Stand-alone due to an increase in FX transactions and, to a lesser extent, to the margin obtained despite the low volatility seen in the exchange rate thus far this year.

 

The aforementioned attenuated the contraction in net gain on the sale of securities, which posted a high level in 3Q17 due to income from the sale of BCI shares. In this context, non-financial income contracted -4.6% in accumulated terms.

 

5.1. Fee Income

 

5.1.1. By subsidiary

 

The figure below shows the contribution of each of Credicorp’s subsidiaries to growth in Credicorp’s fee income in 3Q18:

 

Evolution of fee income QoQ by subsidiary (S/ Million)

 

 

* Others include Grupo Pacifico and eliminations for consolidation purposes.

 

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The figure below shows the YoY evolution of fee income by subsidiary:

 

Evolution of fee income YoY by subsidiary (S/ Million)

 

 

* Others include Grupo Pacifico and eliminations for consolidation purposes.

 

5.1.2. Banking Business

 

Composition of Fee Income in the Banking Business

 

Fee Income  Quarter   % change   YTD   % change 
S/ 000  3Q17   2Q18   3Q18   QoQ   YoY   Sep 17   Sep 18   Sep 18 / Sep 17 
Miscellaneous accounts (1)   178,868    178,172    177,960    -0.1%   -0.5%   523,436    533,388    1.9%
Credit cards (2)   68,748    74,153    73,792    -0.5%   7.3%   213,111    219,186    2.9%
Drafts and transfers   47,590    55,136    59,121    7.2%   24.2%   131,022    163,223    24.6%
Personal loans (2)   26,809    23,401    23,119    -1.2%   -13.8%   75,534    69,418    -8.1%
SME loans (2)   12,625    15,171    17,342    14.3%   37.4%   45,864    49,562    8.1%
Insurance (2)   19,540    20,489    21,509    5.0%   10.1%   56,353    61,627    9.4%
Mortgage loans (2)   11,181    9,763    10,083    3.3%   -9.8%   31,718    29,028    -8.5%
Off-balance sheet (3)   49,225    51,376    51,559    0.4%   4.7%   136,602    154,480    13.1%
Payments and collections (3)   99,570    102,492    104,346    1.8%   4.8%   291,521    304,616    4.5%
Commercial loans (3)(4)   21,287    19,400    20,566    6.0%   -3.4%   57,014    60,562    6.2%
Foreign trade (3)   10,462    10,714    11,850    10.6%   13.3%   32,602    30,189    -7.4%
Corporate finance and mutual funds (4)   12,114    15,234    13,425    -11.9%   10.8%   45,985    44,046    -4.2%
ASB (4)   6,983    7,917    7,450    -5.9%   6.7%   13,419    16,654    24.1%
Others (4)(5)   56,393    60,805    60,477    -0.5%   7.2%   152,118    182,347    19.9%
Total fee income   621,394    644,223    652,597    1.3%   5.0%   1,806,299    1,918,325    6.2%

 

Source: BCP

(1) Saving accounts, current accounts, debit card and master account.

(2) Mainly Retail fees.

(3) Mainly Wholesale fees.

(4) Figures differ from previously reported, please consider the data presented on this report.

(5) Includes fees from BCP Bolivia, Mibanco, network usage and other services to third parties, among others.

 

In the QoQ analysis, fee income from the banking business increased 1.3% QoQ, mainly due to:

 

(i)The improvement in transactional activity, which was reflected in growth in Drafts and Transfers and Payments and Collections.

 

(ii)The increase in SME Loans due to regularizations in expenses for credit life insurance.

 

(iii)The increase in Commercial Loans due to higher commissions associated with Leasing.

 

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The aforementioned offset the contraction in commissions from Corporate Finance and mutual funds.

 

In the YoY analysis, +5.0% growth was attributable to:

 

(i)The improvement in Drafts and Transfers due to the El Nino Phenomenon campaign, which began at the end of 1Q17. Despite the slowdown that was expected at the end of December, this component continues to post growth.

 

(ii)The increase in Credit Cards, due to a higher volume of transactions.

 

(iii)A higher level of Payments and Collections due to due to the recovery that this service posted after having registered a decline in previous quarters due to the El Nino Phenomenon.

 

(iv)The increase in SME loans due to the recovery that this service posted after having registered a decline in 3Q17 (in the month of August) due to property insurance payments by clients affected by FEN.

 

(v)The increase in Others, mainly attributable to Mibanco, where the increase was due to a change in the methodology to calculate the penalty for late loan payments. It is important to note that previously, this penalty was charged through moratorium interest but now, fixed commissions are used.

 

The aforementioned offset the drop-in income from Personal loans after a change was made to how commissions are charged. Starting November 2017, these commissions are charged on the second day of overdue instead of the first day.

 

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6.Insurance Underwriting Result

 

The insurance underwriting result fell -4.0% QoQ due to an increase in net claims in both the property and casualty (P&C) and life business; this was mitigated by an increase in the net earned premium for the life insurance business. In the YoY analysis, the underwriting result fell -12.1% due to an increase in the net claims and acquisition cost in both businesses, which was mitigated by an increase in the net earned premium mainly through life business and to a lesser extent in property and casualty business.

 

Insurance underwriting result  Quarter   % change   YTD   % change 
S/ 000  3Q17   2Q18   3Q18   QoQ   YoY   Sep 17   Sep 18   Sep 18 / Sep 17 
Net earned premiums   473,457    511,960    523,077    2.2%   10.5%   1,405,136    1,543,239    9.8%
Net claims   (275,722)   (300,845)   (318,644)   5.9%   15.6%   (834,951)   (914,234)   9.5%
Acquisition cost (1)   (74,776)   (98,556)   (96,382)   -2.2%   28.9%   (198,502)   (292,486)   47.3%
Total insurance underwriting result   122,959    112,559    108,051    -4.0%   -12.1%   371,683    336,519    -9.5%

 

(1) Includes net fees and underwriting expenses.

 

Total underwriting result by business

(S/ millions)

 

 

The QoQ drop in the underwriting result was attributable to both businesses. In the life insurance business, was associated with (i) an increase net claims for Group Life, AFP and Annuities lines; and (ii) higher commissions in Credit Life. This impact was attenuated by an increase in the net earned premiums in Annuities and Credit life. In P&C business, the underwriting result was associated with an increase in net claims in Personal Lines and Medical Assistance; this was mitigated by a decrease in the underwriting expense in Commercial Lines.

 

In the YoY analysis, the underwriting result in P&C business fell due to (i) an increase in net claims in Medical Assistance and Personal Lines; (ii) higher acquisition costs in Medical Assistance and Commercial Lines. While on life insurance business, there is a net effect of higher net earned premium mitigated by higher claims and acquisition costs.

 

In the accumulated analysis (September 2018 vs September 2017), the underwriting result in 2018 fell -9.5% which was due primarily to an increase in net claims of both life and P&C business; and to a higher acquisition cost due to (i) an increase in life insurance commissions, and (ii) lower underwriting income due to the concept of policy fee reclassified as written premium. This was mitigated by the higher premiums in life insurance.

 

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6.1. Net earned premiums

 

Written premiums by business Net earned premiums by business
(S/ millions) (S/ millions)
   

 

Written premiums increased +3.1 QoQ; in property and casualty and life business due to:

 

(i)In P&C business, was mainly attributable in Commercial Lines (fire and technical risks); and in Personal Lines through Home Mortgage(4); this was slightly attenuated by a decrease in Medical Assistance.

 

(ii)In life insurance business, mainly through the Annuities segment due to an increase in the number of policies sold and Group Life line.

 

Net earned premiums increased 2.2% QoQ, mainly in life insurance through Credit life and Group life.

 

In the YoY analysis, Written premiums increased +19.9% primarily through the life insurance business, which was associated with the higher sales of “Renta Flex” and higher premiums in Credit life due to a growth in alliances´ channels; and in the P&C business due to an increase in Medical Assistance and Personal Lines because of Home Mortgage and Credit Card Protection products.

 

In the YoY analysis, net earned premiums increased 10.5% both in life insurance and in the P&C business. The increase in the life insurance business was registered in Credit life through the “alliance channels” and in Group Life given that extraordinary income was reported in 3Q18. In P&C, was attributable to Medical Assistance because of higher written premiums and lower technical reserves and in Personal Lines.

 

In the accumulated analysis (September 2018 vs September 2017), written premiums increased +16.5% with regard to 2017 mainly attributable to life insurance business and was associated with an increase in premiums from Annuities and Credit Life and in the P&C business to Medical Assistance.

 

 

(4) Home insurance for material damages caused by natural disasters or provoked by man in fortuitous situations.

 

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6.2. Net claims

 

Net claims by business

(S/ millions)

 

 

Net claims increase +5.9% QoQ in life and P&C business. Growth in life insurance was registered in (i) Group Life due to an increase in IBNR (incurred but not reported) reserves; (ii) in AFP due to an increase in reported cases and a decrease in the discount rates used to calculate claims; and, (iii) in Annuities due to pension payments for the “Renta Flex” product. In the P&C business the increase was registered in (i) Personal Lines for higher number of cases reported in Credit Card Protection product and, (ii) Medical Assistance due to growth in the number of reported cases on international coverage and oncological insurance.

 

In the YoY analysis, net claims increased +15.6% in P&C and in life business. In P&C, the increase was attributable in Medical Assistance, due to growth in the number of cases received, and in Car line. In life insurance growth was attributable to: (i) pensions linked to the “Renta Flex” product in Annuities; (ii) a drop in discount rates used to calculate claims in the AFP line; and iii) Group Life line.

 

In the accumulated analysis (September 2018 vs September 2017), the net claims increased +9.5% in Life Insurance business associated to Annuities and AFP lines; and Medical Assistance an Car line in P&C business

 

6.3. Acquisition cost

 

Acquisition cost by Business

(S/ millions)

 

 

  36

 

 

Acquisition cost  Quarter   % change   YTD   % change 
S/ 000  3Q17   2Q18   3Q18   QoQ   YoY   Sep 17   Sep 18   Sep 18 / Sep 17 
Net fees   (52,986)   (68,888)   (69,817)   1.3%   31.8%   (156,330)   (205,520)   31.5%
Underwriting expenses   (34,386)   (30,914)   (27,773)   -10.2%   -19.2%   (83,107)   (91,320)   9.9%
Underwriting income   12,596    1,246    1,208    -3.0%   -90.4%   40,935    4,354    -89.4%
Acquisition cost   (74,776)   (98,556)   (96,382)   -2.2%   28.9%   (198,502)   (292,486)   47.3%

 

The acquisition cost fell -2.2% QoQ due to a drop in the underwriting expenses in P&C business attributable to the decrease in provisions for uncollectible reinsurance premiums in the Commercial lines. The aforementioned was attenuated by higher commission in Credit Life for premiums sold through the Alliance channel.

 

In the YoY analysis, the acquisition cost increased due to:

 

(i)Higher commissions in the life insurance lines due to an increase in sales in Credit Life through the Alliance channel.

 

(ii)A reduction in the underwriting income, which is explained by a change in the nature of the policy fee, which was previously classified in this concept, but it is currently considered as part of written premiums and accrues over 12 months.

 

In the accumulated analysis (September 2018 vs September 2017), acquisition costs increased +47.3%. This was primarily attributable to an increase in commissions in the life insurance business via Credit Life and to a decrease in the underwriting income for both the life and P&C businesses due to a change in how the policy fee is reported (as explained above).

 

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7.Operating Expenses and Efficiency

 

Credicorp’s efficiency ratio improved QoQ (-40 bps) and YoY (-20 bps) but deteriorated 30 bps with regard to the accumulated result at the end of September 2017. The YoY effect was attributable to the fact that growth in operating income outpaced growth in operating expenses. YTD, the deterioration in the efficiency ratio was due to an increase in operating expenses, which was attributable to an expansion in salaries and administrative and general expenses, mostly at BCP, and in acquisition cost from the insurance business.

 

Total expenses  Quarter   % change   YTD   % change 
S/ 000  3Q17   2Q18   3Q18   QoQ   YoY   Sep 17   Sep 18   Sep 18 / Sep 17 
Salaries and employees benefits   760,441    780,827    794,634    1.8%   4.5%   2,260,206    2,352,806    4.1%
Administrative, general and tax expenses   534,204    560,514    577,291    3.0%   8.1%   1,563,724    1,634,180    4.5%
Depreciation and amortizacion   114,799    115,729    114,613    -1.0%   -0.2%   344,644    347,041    0.7%
Other expenses   35,693    66,770    20,006    -70.0%   -43.9%   136,860    136,101    -0.6%
Total expenses   1,445,137    1,523,840    1,506,544    -1.1%   4.2%   4,305,434    4,470,128    3.8%
Acquisition cost (1)   74,776    98,556    96,382    -2.2%   28.9%   123,726    196,104    58.5%
Operating income (2)   3,397,502    3,547,575    3,640,326    2.6%   7.1%   10,132,978    10,665,741    5.3%
Operating expenses (3)   1,484,220    1,555,626    1,582,920    1.8%   6.6%   4,367,076    4,626,513    5.9%
Reported efficiency ratio (4)   43.7%   43.9%   43.5%   -40 bps    -20 bps    43.1%   43.4%   30 bps 
Operating expenses / Total average assets (5)   3.62%   3.69%   3.77%   8 bps    15 bps    3.62%   3.64%   -3 bps 

 

(1) The acquisition cost of Pacífico iIncludes net fees and underwriting expenses.

(2) Operating income = Net interest income + Fee income + Gain on foreign exchange transactions + Net gain from associates + Net premiums earned + Net gain on derivatives+ Result on exchange difference.

(3) Operating expenses = Total expenses + Acquisition cost - Other expenses.

(4) Operating expenses / Operating income.

(5) Annualized operating currency / Average of Total Assets. Average is calculated with period-beginning and period-ending balances.

 

In the QoQ analysis, the improvement in efficiency took place in a context in which the 2.6% increase in operating income outpaced 1.8% growth in operating expenses (1.8%). It is important to note that operating expenses are affected by seasonality and as such, the YoY analysis paints a cleared picture of the business result.

 

In the YoY analysis, the efficiency ratio improved -20 bps, which was mainly attributable to the evolution of operating income, which reflects:

 

(i)The increase of the net interest income, as explained in section 4.1 Net interest income (NII)

 

(ii)The increase in fee income for financial services, mainly at BCP and in the draft and transfer business.

 

(iii)Growth in net earned premiums at Pacifico was seen in P&C and Life insurance businesses, as indicated in section 6.1 Net earned premiums.

 

In terms of operating expenses, the YoY increase reflects:

 

(i)The higher employee salaries and benefits; which was primarily attributable to BCP Stand-alone and due to an increase in the variable income paid to employees through productivity and performance bonuses.

 

(ii)Higher administrative and general expenses, which will be explained later in the text.

 

(iii)The increase in the acquisition cost due to factors explained in section 6.3 Acquisition Cost.

 

The YTD analysis reveals a deterioration of 30 bps, mainly due to an expansion in salaries and administrative and general expenses, mostly at BCP, and in acquisition cost from the insurance business.

 

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7.1. Credicorp’s Administrative, General and Tax Expenses

 

Credicorp’s administrative, general and tax expenses

 

Administrative, general and tax expenses  Quarter   % change   YTD   % change 
S/ 000  3Q17   %   2Q18   %   3Q18   %   QoQ   YoY   Sep 17   Sep 18   Sep 18 / Sep 17 
Marketing   68,432    13%   71,303    13%   75,489    13%   5.9%   10.3%   193,627    210,599    8.8%
Taxes and contributions   55,544    10%   59,295    11%   60,213    10%   1.5%   8.4%   159,527    175,755    10.2%
Insfrastructure   63,131    12%   70,408    13%   69,427    12%   -1.4%   10.0%   193,139    201,422    4.3%
Minor expenses(1)   53,465    10%   42,538    8%   54,952    10%   29.2%   2.8%   163,439    133,747    -18.2%
Systems outsourcing   54,255    10%   56,770    10%   58,283    10%   2.7%   7.4%   164,896    165,889    0.6%
Programs and systems   72,197    14%   62,295    11%   67,685    12%   8.7%   -6.2%   185,566    188,789    1.7%
Communications   21,398    4%   21,301    4%   19,816    3%   -7.0%   -7.4%   62,821    60,365    -3.9%
Rent   43,633    8%   45,238    8%   44,605    8%   -1.4%   2.2%   133,457    133,320    -0.1%
Consulting   25,958    5%   36,888    7%   47,084    8%   27.6%   81.4%   105,700    113,444    7.3%
Channels   52,630    10%   54,964    10%   58,127    10%   5.8%   10.4%   144,632    160,893    11.2%
Others (1)(2)   23,562    4%   39,513    7%   21,610    4%   -45.3%   -8.3%   56,920    89,956    58.0%
Total administrative, general and tax expenses   534,204    100%   560,514    100%   577,291    100%   3.0%   8.1%   1,563,724    1,634,180    4.5%

 

(1) Since 1Q18, the minor expenses account has decreased because it no longer includes the transfer cost between Pacífico EPS and Pacífico Vida and the others account has increased because it no longer considers the elimination of those expenses..

(2) Others include ASB, BCP Bolivia, Grupo Credito and eliminations for consolidation.

 

The QoQ increase in administrative and general expenses and taxes was attributable to:

 

(i)An increase minor expenses at BCP Stand-alone due to growth in expenses for legal advisory services and donations to the BCP scholarship program, which offers assistance to outstanding students throughout the country so that they can study at the country’s best universities and institutes.

 

(ii)The increase in expenses for consultants at BCP Stand-alone for three projects (i) to optimize the bank’s distribution model and improve the client’s experience, (ii) identify opportunities to optimize the bank’s processes reimagining them by using cutting-edge technology and (iii) the Digital Risk project to create new capacities to manage risk inherent to the process.

 

(iii)Increase in expenses for programming and systems, mainly at Prima AFP given that last quarter, after a reversal was posted in the provisions expense. In this context, last quarter’s expenses were lower than usual.

 

In the YoY analysis, the increase was due primarily to:

 

(i)An increase in consultancy expenses at BCP Stand-alone (outlined above);

 

(ii)Higher expenses for marketing at BCP Stand-alone due to an increase in expenses for the LATAM miles program and advertising expenses for different campaigns that took place during the quarter and, to a lesser extent, to advertising expenses at Mibanco;

 

(iii)Higher expenses in the infrastructure account (which includes expenses for security personnel and maintenance) due to an increase in the minimum wage since May 2018.

 

In YTD terms, the increase was due to higher marketing expenses at BCP Stand-alone and to an increase in the payments that BCP makes for LATAM miles; higher expenses in the channels, particularly for commissions paid to Agentes BCP, which was in line with growth in income for drafts and transfers as explained in section 5.1.2; and, to a lesser extent, to an increase in infrastructure expenses as explained in the YoY analysis.

 

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7.2. Operating Expenses / Total Average Assets Ratio

 

The operating expenses/total average assets ratio increased QoQ due to seasonality in operating expenses and to a slight decrease in total average assets. In the annual analysis, the deterioration is due to a larger increase, proportionally speaking, in operating expenses versus growth in total average assets, for the reasons described above.

 

Operating Expenses / Total Average Assets Ratio

 

 

The figure below shows the evolution of the variation of operating expenses with regard to average assets over the last 5 years. It is important to note that the levels obtained over the last few years have improved in comparison to 2014. This is mainly due to on-going control and management of operating expenses in a low-growth context for assets and for loans, particularly in 2016 and 2017.

 

% of Change QoQ of Operating Expenses and Total Average Assets

 

 

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7.3.Efficiency Ratio

 

Efficiency Ratio by Subsidiary (1)

 

   BCP       BCP       Grupo       Credicorp     
   Stand-alone   Mibanco   Bolivia   ASB (2)   Pacifico   Prima   Capital (3)   Credicorp 
3Q17   41.1%   48.4%   55.6%   19.0%   31.0%   51.3%   106.9%   43.7%
2Q18   40.9%   49.0%   65.9%   24.4%   31.9%   43.0%   106.8%   43.9%
3Q18   42.7%   46.0%   60.9%   23.8%   30.9%   45.3%   99.9%   43.5%
Var. QoQ   180 bps    -300 bps    -500 bps    -60 bps    -100 bps    230 bps    -690 bps    -40 bps 
Var. YoY   160 bps    -240 bps    530 bps    480 bps    -10 bps    -600 bps    -700 bps    -20 bps 
                                         
YTD - Sep 17   40.5%   52.5%   55.8%   21.1%   28.5%   46.0%   99.0%   43.1%
YTD - Sep 18   41.0%   48.2%   63.5%   23.9%   31.5%   46.0%   107.7%   43.4%

% change

Sep 18 / Sep 17

   50 bps    -430 bps    770 bps    280 bps    300 bps    0 bps    870 bps    30 bps 

 

(1) (Total expenses + acquisition cost - other expenses) / (Net interest income + fee income + Net gain on foreign exchange transactions + Result on exchange difference + Net gain on derivates + Net gain from associates + Net earned premiums).

(2) The figure of the 3Q17 differ from previously reported, please consider the data presented on this report.

(3) The efficiency ratio of Credicorp Capital, under Credicorp´s methodology, is around 100% because it does not include all the components of its core income (operating income + net gain on sales of securities). If we include all of Credicorp Capital´s core income, the efficiency ratio will be situated between 75%-85% over the last few quarters.

 

Due to the marked seasonality of operating expenses, the QoQ analysis reflects an improvement in Credicorp’s operating efficiency given that growth in operating income outpaced growth in operating expenses, as explained above.

 

In the YoY analysis, which eliminates the aforementioned seasonality, an improvement in Credicorp’s efficiency is also evident. This is due primarily to the improvement in operating efficiency at Mibanco, which was attributable to a drop expenses for consultants when expenses from last quarter were reversed. The aforementioned attenuated the deterioration in efficiency at BCP Stand-alone due to an increase in administrative and general expenses and in taxes for the reasons discussed in section 7.1. Credicorp – Administrative and general expenses and taxes and, to a lesser extent, due to an increase in employee salaries, mainly in the variable salary component.

 

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8.Regulatory Capital

 

8.1.Regulatory Capital – BAP

 

Regulatory Capital and Capital Adequacy Ratios  As of   % change 
S/ 000  Sep 17   Jun 18   Sep 18   QoQ   YoY 
Capital Stock   1,318,993    1,318,993    1,318,993    0.0%   0.0%
Treasury Stocks   (208,968)   (208,754)   (207,994)   -0.4%   -0.5%
Capital Surplus   271,124    248,535    249,397.74    0.3%   -8.0%
Legal and Other capital reserves (1)   15,883,350    17,555,309    17,576,109    0.1%   10.7%
Minority interest (2)   348,646    313,149    311,469    -0.5%   -10.7%
Loan loss reserves (3)   1,310,325    1,389,348    1,476,168    6.2%   12.7%
Perpetual subordinated debt   816,250    818,000    660,000    -19.3%   -19.1%
Subordinated Debt   5,013,769    4,479,672    4,680,739    4.5%   -6.6%
Investments in equity and subordinated debt of financial and insurance companies   (615,630)   (584,750)   (604,352)   3.4%   -1.8%
Goodwill   (636,671)   (635,829)   (635,968)   0.0%   -0.1%
Deduction for subordinated debt limit (50% of Tier I excluding deductions) (4)   -    -    -    -    - 
Deduction for Tier I Limit (50% of Regulatory capital) (4)   -    -    -    -    - 
Total Regulatory Capital (A)   23,501,188    24,693,674    24,824,563    0.5%   5.6%
Tier I (5)   12,669,949    13,632,682    13,464,685    -1.2%   6.3%
Tier II (6) + Tier III (7)   10,831,239    11,060,992    11,359,878    2.7%   4.9%
Financial Consolidated Group (FCG) Regulatory Capital Requirements   16,605,849    18,561,511    19,110,797    3.0%   15.1%
Insurance Consolidated Group (ICG) Capital Requirements   903,684    952,127    983,100    3.3%   8.8%
FCG Capital Requirements related to operations w ith ICG (8)   (246,221)   (296,132)   (225,561)   -23.8%   -8.4%
ICG Capital Requirements related to operations w ith FCG (9)   -    -    -    -    - 
Total Regulatory Capital Requirements (B)   17,263,312    19,217,507    19,868,336    3.4%   15.1%
Regulatory Capital Ratio (A) / (B)   1.36    1.28    1.25           
Required Regulatory Capital Ratio (10)   1.00    1.00    1.00           

 

(1) Legal and other capital reserves include restricted capital reserves (S/ 12,071 million) and optional capital reserves (S/ 5,505 million).

(2) Minority interest includes Tier I (S/ 311 million)

(3) Up to 1.25% of total risk-weighted assets of Banco de Credito del Peru, Solucion Empresa Administradora Hipotecaria, Mibanco and Atlantic Security Bank.

(4) Tier II + Tier III cannot be more than 50% of total regulatory capital.

(5) Tier I = capital + restricted capital reserves + Tier I minority interest - goodwill - (0.5 x investment in equity and subordinated debt of financial and insurance companies) + perpetual subordinated debt.

(6) Tier II = subordinated debt + TierII minority interest tier + loan loss reserves - (0.5 x investment in equity and subordinated debt of financial and insurance companies).

(7) Tier III = Subordinated debt covering market risk only.

(8) Includes regulatory capital requirements of the financial consolidated group.

(9) Includes regulatory capital requirements of the insurance consolidated group.

(10) Regulatory Capital / Total Regulatory Capital Requirements (legal minimum = 1.00).

 

Credicorp’s Total Regulatory Capital registered a slight increase of 0.5% QoQ, mainly due to growth of subordinated debt. However, YoY growth was situated at 5.6% as a result of the increase in legal and other capital reserves, which grow in March in every year with the capitalization of earnings.

 

With regards to the Regulatory Capital Ratio, Credicorp maintained a comfortable level at the end of 3Q18, which represented 1.25 times the capital required by the regulator in Peru. This ratio fell slightly QoQ due to an increase in the Total Regulatory Capital Requirement (+3.4% QoQ), which was primarily due to an expansion in the financial business due to favorable loan growth at BCP Consolidated.

 

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8.2. Regulatory Capital – BCP Stand-alone based on Peru GAAP

 

Regulatory Capital and Capital Adequacy Ratios  As of   % change 
S/ 000  Sep 17   Jun 18   Sep 18   QoQ   YoY 
Capital Stock   7,933,342    8,770,365    8,770,365    0.0%   10.6%
Legal and Other capital reserves   3,885,494