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 8^th, 2018

 

	CREDICORP LTD. (Registrant)
	By:	/s/ Miriam Bottger
		Miriam Bottger
		Authorized Representative

 

 

 

 

Exhibit 99.1

 

 

 

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).

 

 

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."

 

 

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.

 

 

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.

 

 

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.

 

 

(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).

 

 

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:

 

 

(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.

 

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.

 

 

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.

 

 

(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.

 

 

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.

 

 

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.

 

 

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.

 

 

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.

 

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.

 

 

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.

 

 

(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.

 

 

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.

 

 

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).

 

 

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.

 

 

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.

 

 

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.

 

 

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.

 

 

(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.

 

 

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.

 

 

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.

 

 

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).

 

 

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.

 

 

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.

 

 

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.

 

 

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.

 

 

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.

 

 

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)

 

 

 

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).

 

 

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.

 

 

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.

 

 

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

 

 

 

 

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.

 

 

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.

 

 

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				4,184,303				4,184,309				0.0	%			7.7	%
Accumulated earnings with capitalization agreement			-				-				-				-				-
Loan loss reserves (1)			1,157,365				1,175,836				1,190,912				1.3	%			2.9	%
Perpetual subordinated debt			734,625				654,400				660,000				0.9	%			-10.2	%
Subordinated Debt			4,492,968				4,098,116				4,133,057				0.9	%			-8.0	%
Unrealized profit (loss)			-				-				-				-				-
Investment in subsidiaries and others, net of unrealized profit and net income			(1,240,854	)			(1,323,742	)			(1,323,808	)			0.0	%			6.7	%
Investment in subsidiaries and others			(1,478,915	)			(1,728,854	)			(1,845,441	)			6.7	%			24.8	%
Unrealized profit and net income in subsidiaries			238,060				405,113				521,633				28.8	%			119.1	%
Goodwill			(122,083	)			(122,083	)			(122,083	)			0.0	%			0.0	%
Total Regulatory Capital			16,840,857				17,437,194				17,492,752				0.3	%			3.9	%
Off-balance sheet			31,827,183				81,688,289				83,769,728				2.5	%			163.2	%
Tier 1 (2)			11,810,950				12,825,113				12,830,686				0.0	%			8.6	%
Tier 2 (3) + Tier 3 (4)			5,029,906				4,612,081				4,662,065				1.1	%			-7.3	%
Total risk-weighted assets			102,972,396				115,681,027				117,083,174				1.2	%			13.7	%
Market risk-weighted assets (5)			1,757,740				1,118,132				1,256,762				12.4	%			-28.5	%
Credit risk-weighted assets			92,589,212				105,677,561				106,878,174				1.1	%			15.4	%
Operational risk-weighted assets			8,625,445				8,885,333				8,948,239				0.7	%			3.7	%
Adjusted Risk-Weighted Assets			102,362,554				114,929,164				116,212,161				1.1	%			13.5	%
Total risk-weighted assets			102,972,396				115,681,027				117,083,174				1.2	%			13.7	%
(-) RWA Intangible assets, excluding goodwill.			609,842				1,334,862				1,426,100				6.8	%			133.8	%
(+) RWA Deferred tax assets generated as a result of temporary differences in income tax, in excess of 10% of CET1			-				582,998				555,087				-4.8	%			-
(-) RWA Deferred tax assets generated as a result of past losses			-				-				-				-				-
Total capital requirement			12,778,437				14,402,739				15,012,149				4.2	%			17.5	%
Market risk capital requirement (5)			175,774				111,813				125,676				12.4	%			-28.5	%
Credit risk capital requirement			9,258,921				10,567,756				10,687,817				1.1	%			15.4	%
Operational risk capital requirement			862,544				888,533				894,824				0.7	%			3.7	%
Additional capital requirements			2,481,198				2,834,636				3,303,831				16.6	%			33.2	%
Capital ratios
Tier 1 ratio (6)			11.47	%			11.09	%			10.96	%
Common Equity Tier 1 ratio (7)			11.93	%			11.11	%			11.61	%
BIS ratio (8)			16.35	%			15.07	%			14.94	%
Risk-weighted assets / Regulatory capital			6.11				6.63				6.69

 

(1) Up to 1.25% of total risk-weighted assets.

(2) 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).

(3) Tier 2 = Subordinated debt + Loan loss reserves + (0.5 x Unrealized profit and net income in subsidiaries) - (0.5 x Investment in subsidiaries).

(4) Tier 3 = Subordinated debt covering market risk only. Tier 3 exists since 1Q10.

(5) It includes capital requirement to cover price and rate risk.

(6) Tier 1 / Risk-weighted assets

"(7) 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)."

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

 

 

At the end of 3Q18, the BIS ratio was situated at 14.94%, which fell below the figure reported at the end of 2Q18 (15.07%). It is important to note that this ratio reaches its highest point every 1Q when the Annual General Meeting of Shareholders approves the capitalization of retained earnings and the constitution of special reserves and restricted special reserves as part of the plan to distribute the net income attained the previous year. The drop in the BIS ratio was due to the increase in risk-weighted assets (+1.2% QoQ) generated by loan growth; since regulatory capital only grew 0.3%.

 

The Tier 1 ratio dropped from 11.09% in 2Q18 to 10.96% in 3Q18 in a scenario in which Tier 1 posted no growth while RWAs posted significant expansion (1.2%). This ratio also reaches its highest level every 1Q as explained above.

 

The Common equity tier 1 ratio (CET1), which is considered the most rigorous ratio to measure capitalization levels, posted growth of +50 bps QoQ, reaching 11.61% at the end of September. This increase was mainly due to 3Q18 earnings.

 

It is important to consider that from June and on the adjusted RWAs consider a new requirement from the Supervisor. The adjustment implies the inclusion of undrawn credit facilities for the calculation of RWAs. Without the adjustment required by the Supervisor, the BIS ratio would have decreased less than the reported figure and the CET1 ratio would have increased, as shown in the table below:

 

		Reported																				Without SBS change requirement
		As of												change								As of												change
		Sep 17				Jun 18				Sep 18				QoQ				YoY				Sep 17				Jun 18				Sep 18				QoQ				YoY
Common Equity Tier 1 ratio			11.93	%			11.11	%			11.61	%			49 bps				-32 bps				11.93	%			11.37	%			11.87	%			50 bps				-6 bps
BIS ratio			16.35	%			15.07	%			14.94	%			-13 bps				-141 bps				16.35	%			15.42	%			15.29	%			-13 bps				-106 bps

 

Common Equity Tier 1 Ratio – BCP Stand-alone

 

June 2018	September 2018

 

(1) Includes investments in BCP Bolivia and other subsidiaries.

 

 

9.

Distribution channels

 

The distribution channels at BCP Stand-alone, Mibanco and BCP Bolivia totaled 10,347 points of access at the end of 3Q18; this level represents an increase of 186 points QoQ.

 

9.1 Points of contact – BCP Stand-alone

 

		As of												change (units)
		Sep 17				Jun 18				Sep 18				QoQ				YoY
Branches			449				435				430				-5				-19
ATMs			2,332				2,326				2,294				-32				-38
Agentes BCP			6,173				6,456				6,646				190				473
Total BCP's Network			8,954				9,217				9,370				153				416

 

BCP Stand-alone posted a total of 9,370 points of contact at the end of 3Q18, which represented an increase of 153 points QoQ. The aforementioned was due primarily to an increase in the number of Agentes BCP (+190 QoQ), which was associated with the commercial strategy to increase points of contact through cost-efficient channels. The goal to top 6600 Agentes BCP by year-end was achieved this quarter.

 

In the YoY analysis, the total number of points of contact at BCP Stand-alone increased by 416 units, mainly due to growth in Agentes BCP (+473). The number of branches fell by 19 YoY, in line with the banking penetration strategy and due to client migration to cost-efficient channels.

 

9.1.1 Points of contact by location – BCP Stand-alone

 

		As of												change (units)
		Sep 17				Jun 18				Sep 18				QoQ				YoY
Lima			281				273				271				-2				-10
Provinces			168				162				159				-3				-9
Total Branches			449				435				430				-5				-19
Lima			1,579				1,533				1,513				-20				-66
Provinces			753				793				781				-12				28
Total ATM's			2,332				2,326				2,294				-32				-38
Lima			3,420				3,351				3,469				118				49
Provinces			2,753				3,105				3,177				72				424
Total Agentes BCP			6,173				6,456				6,646				190				473
Total points of contact			8,954				9,217				9,370				153				416

 

This quarter, BCP Stand-alone’s points of contact grew by 153; Lima registered an increase of 96 points and the provinces, 57.

 

In the YoY analysis, significant growth in total points of contract was due primarily to Agentes BCP, which increased by 473 points: 49 in Lima and 424 in the provinces. It is important to note that growth has been planned according to the historical performance of this channel in each territory to ensure that we hit the target for nationwide growth. Credicorp is betting on higher growth in the provinces because it is more profitable.

 

The aforementioned offset the drop in Branches and ATMs. Branch numbers fell both in Lima (-10) and in the provinces (-9) as clients migrated to cost-efficient channels. ATMS also reported a decline YoY (-66) after ATMs were disassembled at some branches. In the provinces, ATMs posted an increase (+28) after new machines were installed in offices and at neutral points.

 

 

9.1.2 Transactions per channel – BCP Stand-alone

 

Transactions per channel – BCP Stand-alone

 

								Monthly average in each quarter																				% change
		N° of Transactions per channel (1)		3Q17				%				2Q18				%				3Q18				%				QoQ				YoY
Traditional		Teller			8,341,552				6.8	%			8,029,752				5.6	%			8,102,687				5.3	%			0.9	%			-2.9	%
channels		Telephone banking			3,444,444				2.8	%			4,738,082				3.3	%			4,896,746				3.2	%			3.3	%			42.2	%
Cost-efficient		Agentes BCP			18,129,821				14.8	%			20,936,116				14.7	%			23,391,555				15.4	%			11.7	%			29.0	%
channels		ATMs			21,552,167				17.6	%			20,892,105				14.7	%			18,838,132				12.4	%			-9.8	%			-12.6	%
Digital		Mobile banking			26,914,282				22.0	%			41,967,471				29.4	%			48,996,671				32.3	%			16.7	%			82.0	%
channels		Internet banking Via BCP			18,968,107				15.5	%			18,571,866				13.0	%			19,148,190				12.6	%			3.1	%			0.9	%
		Balance inquiries			1,858,886				1.5	%			1,754,730				1.2	%			1,569,552				1.0	%			-10.6	%			-15.6	%
		Telecrédito			10,190,057				8.3	%			10,744,973				7.5	%			11,343,966				7.5	%			5.6	%			11.3	%
Others		Direct debit			609,961				0.5	%			667,155				0.5	%			664,662				0.4	%			-0.4	%			9.0	%
		Points of sale P.O.S.			12,024,620				9.8	%			14,035,053				9.8	%			14,333,713				9.5	%			2.1	%			19.2	%
		Other ATMs network			207,322				0.2	%			206,892				0.1	%			215,688				0.1	%			4.3	%			4.0	%
		Total transactions			122,241,218				100.0	%			142,544,197				100.0	%			151,501,562				100.0	%			6.3	%			23.9	%

 

(1) Figures include monetary and non-monetary transactions.

 

The monthly average of transactions increased QoQ (+2.9%) and YoY (+10.5%). It is important to note that in 3Q18, the increase in the transactions volume was seen primarily in Mobile Banking (+16.7%), which continued to considerably increase its share of total transactions to reach a level of 36.3% in 3Q18 in accordance with our strategy to encourage clients to migrate to digital channels.

 

The largest drop in transactions was posted by Internet banking via BCP (-62.2% QoQ) and, to a lesser extent, by ATMs (-9.8% QoQ).

 

The YoY analysis, which excludes the seasonal effect, reveals an increase in the monthly average of transactions, which was due primarily to growth in the volumes registered by the following channels:

 

(i)

Mobile Banking (+82.0% YoY) continues to grow its share of total transactions through the mobile applications “Banca Celular BCP” and “Tus Beneficios BCP”; through growth in time deposits; through an increase in digital token users, who can conduct operations safely and simply; and through loan or service payments. Different initiatives are also underway in Retail Banking to encourage use of this channel (such as campaigns in the social networks).

 

(ii)

Agentes BCP (+29.0% YoY) due to growth in drafts. It is important to note that the functionality of draft transactions has improved, and the transactions time has been reduced; this has boosted clients’ confidence levels and consequently, driven demand for transactions via this channel. Growth was also attributable, although to a lesser extent, to an increase in deposits, withdrawals and service payments. A large portion of the increase in transactions is due to expansion in the number of Agentes BCP (+473 YoY) and to growth in demand for this channel.

 

(iii)

Points of sale P.O.S (+19.2% YoY). The increase was due primarily to growth in the penetration of Visanet. This channel’s share of the total monthly average of transactions rose to 10.6% in 3Q18 vs. 9.8% in 3Q17.

 

The channel that posted a YoY decrease in transactions was ATMs (-12.6%) due to an increase in the use of Agentes BCP.

 

It is important to note that future growth in banking in the region will be concentrated mainly in digital channels; as such, Credicorp will continue to increase its strategic position in these cost-effective venues. This is in line with Credicorp’s Transformation Strategy and is the driving force behind the fact that Mobile Banking posted the highest growth in the total transactions volume.

 

 

9.2 Points of contact – Mibanco

 

As of

change (units)

Sep 17

Jun 18

Sep 18

QoQ

YoY

Total Mibanco's Network (1)

324

327

326

-1

2

 

(1) Mibanco does not have Agentes or ATMs because it uses the BCP network. Mibanco branches include Banco de la Nacion branches, which in Sep 17, Jun 18 and Sep 18 were 39, 38 and 38 respectively.

 

The number of branches at Mibanco remained stable QoQ. It is important to note that Mibanco has an agreement with the Banco de la Nacion that allows it to use their offices at the national level to reduce operating costs. At the end of 3Q18, these branches represented 12% (38 branches) of Mibanco’s total number of 326 branches.

 

Mibanco posted growth in its total number of branches (+2 YoY) due to on-going business expansion.

 

9.3 Points of contact – BCP Bolivia

 

		As of												change (units)
		Sep 17				Jun 18				Sep 18				QoQ				YoY
Branches			54				54				54				-				-
ATMs			264				274				279				5				15
Agentes BCP Bolivia			212				289				318				29				106
Total Bolivia's Network			530				617				651				34				121

 

BCP Bolivia posted a QoQ increase of 34 points of access in 3Q18; this was due to an increase in the number of Agentes BCP Bolivia, in line with the growth strategy to reach 300 Agentes at the end of 2018 (which was achieved in 3Q18).

 

BCP Bolivia reported an increase in its points of contact (+121 YoY), which was primarily due to growth in the Agentes component.

 

10.

Economic Perspectives

 

10.1. Peru Economic Forecasts

 

Peru		2015				2016				2017				2018				2019
GDP (US$ Millions)			192,353				195,707				215,411				230,506				243,222
Real GDP (% change)			3.3				4.0				2.5				4.0				3.7
GDP per capita (US$)			6,165				6,213				6,774				7,159				7,484
Domestic demand (% change)(1)			2.9				1.1				1.6				4.0				3.8
Total consumption (% change)(1)			4.9				2.7				2.3				3.1				3.4
Private Consumption (% change)			4.0				3.3				2.5				3.3				3.6
Gross fixed investment (as % GDP)(1)			25.0				22.9				22.3				22.3				22.6
Private Investment (% change)			-4.2				-5.7				0.3				4.5				6.0
Public Investment (% change)(1)			-9.5				-0.2				-2.3				3.5				-1.5
Public Debt (as % GDP)(1)			23.0				23.6				24.7				25.5				26.5
System loan growth (% change)(2)			14.4				4.9				5.6				-				-
Inflation(3)			4.4				3.2				1.4				2.5				2.5
Reference Rate			3.75				4.25				3.25				2.75				3.50
Exchange rate, end of period			3.41				3.36				3.24				3.25-3.30				3.30-3.35
Exchange rate, (% change)			14.6	%			-1.7	%			-3.5	%			1.0	%			1.5	%
Fiscal balance (% GDP)(1)			-2.1				-2.6				-3.1				-2.5				-2.3
Trade balance (US$ Millions)			-2,916				1,888				6,266				7,000				6,000
(As % GDP)			-1.5	%			1.0	%			2.9	%			3.0	%			2.5	%
Exports			34,414				37,020				44,918				50,200				52,500
Imports			37,330				35,132				38,652				43,200				46,500
Current account balance (US$ Millions)(1)			-9,169				-5,303				-2,716				-4,149				-4,864
(As % GDP)			-4.8	%			-2.7	%			-1.3	%			-1.8	%			-2.0	%
Net international reserves (US$ Millions)			61,485				61,686				63,621				62,600				64,400
(As % GDP)			32.0	%			31.5	%			29.5	%			27.2	%			26.5	%
(As months of imports)			20				21				20				17				17

 

Source: Estimates by BCP Economic Research as of October 2018; INEI, BCRP, and SBS.

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

(2) Multiple Banking, Current Exchange Rate

(3) Inflation target: 1% - 3%

 

 

10.2. Main Economic Variables

 

Economic Activity – GDP (% change YoY)

 

 

Source: INEI

 

In 2Q18, GDP grew 5.4% YoY (1Q18: 3.1%), driven by a recovery in domestic demand of 6.3% YoY (1Q18: 4.2%). Both figures reached its maximum levels for the past 5 years. Private investment increased 8.5% YoY (1Q18: 5.3%) and has remained in positive terrain for the past year.

 

In 3Q18, GDP grew around 2.4% YoY, the year’s lowest print. The primary sectors posted lower growth as expansion declined in the mining, primary resource manufacturing and hydrocarbon sectors. During this period, the non-primary sectors moderated their growth to under 3.5% YoY. Within these sectors, the downturn in the construction sector (in August, the print fell for the first time in 15 months), which was associated with a deceleration in public investment (in real terms, this component grew only 1% in 3Q18).

 

Inflation and Monetary Policy rate (%)

 

 

Source: INEI, BCRP

 

Annual inflation at the end of 3Q18 was situated at 1.3% YoY (2Q18: 1.4%). Annual inflation excluding food and energy closed at 2.1% YoY at the end of 3Q18 to accumulate almost 2 years within the BCRP’s target range.

 

In 3Q18, BCRP maintained its rate at 2.75% (after cutting its rate 50 bps in 1Q18). The entity believes that economic indicators show temporary signs of slower growth and that the economy continues to perform below its potential. As such, the Board of BCRP is maintaining monetary stimulus until inflation converges (at 2%) in a context where expectations for inflation are anchored to the target range and the economy is close to performing at its potential.

 

 

Fiscal Result and Current Account Balance (% of GDP, Quarter)

 

 

Source: BCRP

*BCP estimates

 

The annualized fiscal deficit at the end of 3Q18 was situated at 2.0% of GDP (2Q18: 2.2%). The drop in the fiscal deficit as mainly attributable to an increase in fiscal revenues, which accounted for 19.4% of GDP (2Q18: 19.0%) and increased for the fourth consecutive quarter. In the first nine months of the year, fiscal revenues increased 17% YoY. The components that saw that largest increase in collections were: (i) Income Tax (+20%), (ii) VAT (+12%) and (iii) Selective Consumption Tax (+9%). In contrast, non-financial expenses at the General Government level increased slightly to 20.1% of GDP (2T18: 20.0%). Between January and September 2018, current expenditure increased 7.9% YoY while public investment increased +10.8% YoY.

 

At the end of August 2018, the 12-month rolling trade balance reported a surplus of US$ 7,801 million. It is important to note that in annualized terms, exports totaled US$ 49.5 thousand million, which represents a historical maximum level. The solid trade surplus is mainly attributable to the increase in exports (+15.0%) in general and in copper deliveries in particular (+20.9%). Non-traditional exports also accelerated and grew 16.4% YoY. During this same period, imports increased 12.0% YoY, mainly due to higher imports of inputs (+19.5%), while imports of capital goods grew 5.9% YoY.

 

Exchange rate (S/ per US$)

 

 

Source: SBS

 

 

In 3T18, the exchange rate closed at 3.300 Soles per US Dollar. With this result, the Sol depreciated 0.9% with regards to the figure at the end of 2Q18 and accumulated depreciation of 1.8% vis a vis the figure posted at the close of 2017 (3.241 Soles per US Dollar). Since May, the exchange rate has oscillated within a range of 3.25-3.30 Soles per US Dollar due to different factors in the international environment, the most noteworthy of which are: the reversal of capital flows to emerging markets in May and the mounting trade tensions between the USA and China. In September, the exchange rate continued to rise in the face of an increase in US Treasury Rates at 10 years (the rate topped 3.0% in September).

 

In 3Q18, almost all of the region’s currencies depreciated. The sole exception was the Mexican Peso, which appreciated (+6.0%) while the Chilean Peso (0.4%), Peruvian Sol (0.9%), Colombian Peso (1.2%) and Brazilian Real (4.5%) all depreciated. In 3Q18, BCRP intervened very little in the exchange market via Cross-Currency Swap for a total of US$421 million in a context marked by depreciations in the region’s currencies and the expiration of previously placed Swaps.

 

 

Safe Harbor for Forward-Looking Statements

 

This material includes “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical information provided herein are forward-looking and may contain information about financial results, economic conditions, trends and known uncertainties. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on the Company’s current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions.

 

Forward-looking statements can be identified by words such as: "anticipate”, "intend", "plan", "goal”, "seek”, "believe”, "project", "estimate”, "expect", "strategy”, "future”, "likely”, "may”, "should”, "will" and similar references to future periods. Examples of forward-looking statements include, among others, statements or estimates we make regarding guidance relating to Return on Average Equity, Sustainable Return on Average Equity, Cost of Risk, Loan growth, Efficiency ratio, BCP Stand-alone Common Equity Tier 1 Capital ratio and Net Interest Margin, current or future volatility in the credit markets and future market conditions, expected macroeconomic conditions, our belief that we have sufficient liquidity to fund our business operations during the next year, expectations of the effect on our financial condition of claims, litigation, environmental costs, contingent liabilities and governmental and regulatory investigations and proceedings, strategy for customer retention, growth, product development, market position, financial results and reserves and strategy for risk management.

 

The Company cautions readers that actual results could differ materially from those expected by the Company, depending on the outcome of certain factors, including, without limitation: (1) adverse changes in the Peruvian economy with respect to the rates of inflation, economic growth, currency devaluation, and other factors, (2) adverse changes in the Peruvian political situation, including, without limitation, the reversal of market-oriented reforms and economic recovery measures, or the failure of such measures and reforms to achieve their goals, and (3) adverse changes in the markets in which the Company operates, including increased competition, decreased demand for financial services, and other factors. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements.

 

Any forward-looking statement made in this material is based only on information currently available to the Company and speaks only as of the date on which it is made. The Company undertakes no obligation to release publicly the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof, including, without limitation, changes in the Company’s business strategy or planned capital expenditures, or to reflect the occurrence of unanticipated events

 

 

11.

Appendix

 

11.1. Credicorp

 

CREDICORP LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In S/ thousands, IFRS)

 

		As of												% change
		3Q17				2Q18				3Q18				QoQ				YoY
ASSETS
Cash and due from banks
Non-interest bearing			4,557,709				5,271,950				5,430,994				3.0	%			19.2	%
Interest bearing			22,822,994				19,558,113				17,983,724				-8.0	%			-21.2	%
Total cash and due from banks			27,380,703				24,830,063				23,414,718				-5.7	%			-14.5	%
Fair value through profit or loss investments			5,010,358				4,986,068				4,559,897				-8.5	%			-9.0	%
Loans			95,142,268				102,766,633				105,028,343				2.2	%			10.4	%
Current			92,268,197				99,653,619				101,839,950				2.2	%			10.4	%
Internal overdue loans			2,874,071				3,113,014				3,188,393				2.4	%			10.9	%
Less - allowance for loan losses			(4,419,769	)			(4,819,704	)			(4,920,319	)			2.1	%			11.3	%
Loans, net			90,722,499				97,946,929				100,108,024				2.2	%			10.3	%
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	%
Reinsurance assets			691,786				706,419				827,001				17.1	%			19.5	%
Premiums and other policyholder receivables			602,291				709,294				741,316				4.5	%			23.1	%
Property, plant and equipment, net			1,631,641				1,564,188				1,531,571				-2.1	%			-6.1	%
Due from customers on acceptances			512,833				801,248				969,702				21.0	%			89.1	%
Investments in associates (1)			690,661				714,836				736,044				3.0	%			6.6	%
Other assets (2)			7,460,731				7,449,443				7,943,426				6.6	%			6.5	%
Total assets			165,351,806				167,157,239				168,455,597				0.8	%			1.9	%
LIABILITIES AND NET SHAREHOLDERS' EQUITY
Deposits and obligations
Non-interest bearing			24,506,234				24,630,138				24,975,666				1.4	%			1.9	%
Interest bearing			68,387,681				72,914,097				72,399,745				-0.7	%			5.9	%
Total deposits and obligations			92,893,915				97,544,235				97,375,411				-0.2	%			4.8	%
BCRP instruments			8,107,103				4,578,878				4,806,219				5.0	%			-40.7	%
Repurchase agreements (3)			2,471,814				2,710,701				2,785,216				2.7	%			12.7	%
Due to banks and correspondents			8,867,185				8,057,222				7,509,183				-6.8	%			-15.3	%
Bonds and subordinated debt			15,236,054				15,283,893				15,194,775				-0.6	%			-0.3	%
Acceptances outstanding			512,833				801,248				969,702				21.0	%			89.1	%
Reserves for property and casualty claims			1,160,390				1,244,312				1,340,913				7.8	%			15.6	%
Reserve for unearned premiums			6,093,439				6,617,540				6,834,070				3.3	%			12.2	%
Reinsurance payable			411,874				435,841				482,519				10.7	%			17.2	%
Other liabilities			7,157,432				7,581,544				7,720,422				1.8	%			7.9	%
Total liabilities			142,912,039				144,855,414				145,018,430				0.1	%			1.5	%
Net equity			21,964,556				21,889,218				23,006,133				5.1	%			4.7	%
Capital stock			1,318,993				1,318,993				1,318,993				0.0	%			0.0	%
Treasury stock			(208,968	)			(208,754	)			(207,994	)			-0.4	%			-0.5	%
Capital surplus			271,124				248,535				249,398				0.3	%			-8.0	%
Reserves			15,883,350				17,555,308				17,576,109				0.1	%			10.7	%
Unrealized gains (losses)			1,496,389				816,708				899,547				10.1	%			-39.9	%
Retained earnings			3,203,668				2,158,428				3,170,080				46.9	%			-1.0	%
Non-controlling interest			475,211				412,607				431,034				4.5	%			-9.3	%
Total equity			22,439,767				22,301,825				23,437,167				5.1	%			4.4	%
Total liabilities and net shareholders' equity			165,351,806				167,157,239				168,455,597				0.8	%			1.9	%
Off-balance sheet			65,810,312				114,863,672				120,784,835				5.2	%			83.5	%
Total performance bonds, stand-by and L/Cs.			18,363,023				18,891,761				18,723,556				-0.9	%			2.0	%
Undraw n credit lines, advised but not committed			24,266,177				72,238,593				74,633,738				3.3	%			207.6	%
Total derivatives (notional) and others			23,181,112				23,733,318				27,427,541				15.6	%			18.3	%

  

(1) Mainly includes JV between Grupo Pacifico and Banmedica.

(2) Mainly includes receivables, goodwill, tax credit, and others.

(3) Since 2Q18, repurchase agreements is excluded from Other liabilities and shown in a individual account.

 

 

CREDICORP LTD. AND SUBSIDIARIES

QUARTERLY INCOME STATEMENT

(In S/ thousands, IFRS)

 

		Quarter												% change								YTD								% change
		3Q17				2Q18				3Q18				QoQ				YoY				Sep 17				Sep 18				Sep 18 / Sep 17
Interest income and expense
Interest and dividend income			2,768,798				2,812,623				2,894,654				2.9	%			4.5	%			8,224,478				8,497,204				3.3	%
Interest expense (1)			(744,282	)			(749,805	)			(748,193	)			-0.2	%			0.5	%			(2,218,964	)			(2,244,238	)			1.1	%
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	%
Non-financial income
Fee income (1)			719,539				766,994				773,529				0.9	%			7.5	%			2,122,570				2,290,215				7.9	%
Net gains on foreign exchange transactions (2)			150,777				180,669				182,777				1.2	%			21.2	%			477,519				525,741				10.1	%
Net gains on sales of securities			346,122				(8,756	)			47,877				-646.8	%			-86.2	%			487,094				131,510				-73.0	%
Net gains from associates (3)			(528	)			9,506				4,974				-47.7	%			-1042.0	%			11,469				22,867				99.4	%
Net gains on derivatives (4)			25,713				14,597				674				-95.4	%			-97.4	%			95,367				14,959				-84.3	%
Result on exchange difference (2)			4,028				1,031				8,834				756.8	%			119.3	%			15,403				15,754				2.3	%
Other income			44,733				84,009				67,174				-20.0	%			50.2	%			183,248				234,059				27.7	%
Total non-financial income, net			1,290,384				1,048,050				1,085,839				3.6	%			-15.9	%			3,392,670				3,235,105				-4.6	%
Insurance underwriting result
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			(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	%
Total expenses
Salaries and social 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 amortization			(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	%
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	%

 

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

(2) The new account “Result on exchange difference” includes what was previously reported as: (i) the translation result and (ii) net gains on currency trading, which was previously included in net gains on foreign exchange transactions.

(3) Includes the agreement between Grupo Pacifico and Banmedica.

(4) Since 1Q17, “Net gains on derivatives” will be reported as non-financial income rather than net interest income, as was the case in the past.

 

 

11.2. BCP Consolidated

 

BANCO DE CREDITO DEL PERU AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(In S/ thousands, IFRS)

 

		As of												% change
		Sep 17				Jun 18				Sep 18				QoQ				YoY
ASSETS
Cash and due from banks
Non-interest bearing			4,177,459				4,848,683				5,011,137				3.4	%			20.0	%
Interest bearing			21,225,323				17,844,584				16,696,793				-6.4	%			-21.3	%
Total cash and due from banks			25,402,782				22,693,267				21,707,930				-4.3	%			-14.5	%
Fair value through profit or loss investments			2,932,379				796,848				350,710				-56.0	%			-88.0	%
Loans			86,209,416				93,710,313				95,616,875				2.0	%			10.9	%
Current			83,454,177				90,728,345				92,568,501				2.0	%			10.9	%
Internal overdue loans			2,755,239				2,981,968				3,048,374				2.2	%			10.6	%
Less - allowance for loan losses			(4,193,824	)			(4,590,459	)			(4,684,448	)			2.0	%			11.7	%
Loans, net			82,015,592				89,119,854				90,932,427				2.0	%			10.9	%
Fair value through other comprehensive income investments			14,342,250				12,640,745				12,310,693				-2.6	%			-14.2	%
Amortized cost investments			3,942,207				3,854,695				3,799,355				-1.4	%			-3.6	%
Property, plant and equipment, net			1,430,994				1,360,172				1,333,907				-1.9	%			-6.8	%
Due from customers acceptances			512,833				801,248				969,702				21.0	%			89.1	%
Other assets (1)			3,319,191				3,230,582				3,832,235				18.6	%			15.5	%
Total assets			133,898,228				134,497,411				135,236,959				0.5	%			1.0	%
LIABILITIES AND NET SHAREHOLDERS' EQUITY
Deposits and obligations			81,675,702				85,925,517				85,915,042				0.0	%			5.2	%
Demand deposits			26,282,548				25,739,587				25,992,849				1.0	%			-1.1	%
Saving deposits			24,975,134				27,730,886				28,400,733				2.4	%			13.7	%
Time deposits			23,620,907				24,990,143				24,399,519				-2.4	%			3.3	%
Severance indemnity deposits (CTS)			6,609,242				7,275,824				6,923,829				-4.8	%			4.8	%
Interest payable			187,871				189,077				198,112				4.8	%			5.5	%
BCRP instruments			8,107,103				4,578,878				4,806,219				5.0	%			-40.7	%
Repurchase agreements (2)			2,234,159				1,977,911				1,946,985				-1.6	%			-12.9	%
Due to banks and correspondents			9,302,864				8,368,396				7,666,566				-8.4	%			-17.6	%
Bonds and subordinated debt			14,254,656				14,524,087				14,450,969				-0.5	%			1.4	%
Acceptances outstanding			512,833				801,248				969,702				21.0	%			89.1	%
Other liabilities (3)			3,032,772				2,860,226				3,164,550				10.6	%			4.3	%
Total liabilities			119,120,089				119,036,263				118,920,033				-0.1	%			-0.2	%
Net shareholders' equity			14,632,576				15,326,366				16,177,667				5.6	%			10.6	%
Capital stock			7,639,962				8,476,984				8,476,984				0.0	%			11.0	%
Reserves			3,666,632				3,965,441				3,965,447				0.0	%			8.1	%
Unrealized gains and losses			54,952				28,364				49,695				75.2	%			-9.6	%
Retained earnings			1,007,086				1,126,930				1,127,119				0.0	%			11.9	%
Income for the year			2,263,944				1,728,647				2,558,422				48.0	%			13.0	%
Non-controlling interest			145,563				134,782				139,259				3.3	%			-4.3	%
Total equity			14,778,139				15,461,148				16,316,926				5.5	%			10.4	%
TOTAL LIABILITIES AND NET SHAREHOLDERS' EQUITY			133,898,228				134,497,411				135,236,959				0.5	%			1.0	%
Off-balance sheet			53,694,069				103,835,732				109,893,889				5.8	%			104.7	%
Total performance bonds, stand-by and L/Cs.			17,066,867				17,380,910				17,051,392				-1.9	%			-0.1	%
Undraw n credit lines, advised but not committed			15,065,364				64,520,719				66,950,168				3.8	%			344.4	%
Total derivatives (notional) and others			21,561,838				21,934,103				25,892,329				18.0	%			20.1	%

 

(1) Mainly includes intangible assets, other receivable accounts and tax credit.

(2) Since 2Q18, repurchase agreements is excluded from Other liabilities and shown in an individual account.

(3) Mainly includes other payable accounts.

 

 

BANCO DE CREDITO DEL PERU AND SUBSIDIARIES 

QUARTERLY INCOME STATEMENT

(In S/ thousands, IFRS)

 

		Quarter												% change								YTD								% change
		3Q17				2Q18				3Q18				QoQ				YoY				Sep 17				Sep 18				Sep 18 / Sep 17
Interest income and expense
Interest and dividend income			2,448,857				2,494,735				2,553,311				2.3	%			4.3	%			7,282,598				7,527,500				3.4	%
Interest expense			(659,316	)			(648,776	)			(647,701	)			-0.2	%			-1.8	%			(1,988,527	)			(1,948,132	)			-2.0	%
Net interest income			1,789,541				1,845,959				1,905,610				3.2	%			6.5	%			5,294,071				5,579,368				5.4	%
Provision for loan losses, net of recoveries			(349,597	)			(306,993	)			(422,473	)			37.6	%			20.8	%			(1,289,647	)			(1,084,584	)			-15.9	%
Non financial income
Fee income			588,762				613,102				624,494				1.9	%			6.1	%			1,724,982				1,835,021				6.4	%
Net gains on foreign exchange transactions (1)			152,473				171,602				174,330				1.6	%			14.3	%			456,915				500,951				9.6	%
Net gains on sales of securities			20,413				(30,665	)			1,405				-104.6	%			-93.1	%			63,155				9,028				-85.7	%
Net gains on derivatives (2)			17,092				6,165				(7,316	)			-218.7	%			-142.8	%			88,762				(4,546	)			-105.1	%
Result on exchange difference (1)			3,095				7,638				6,838				-10.5	%			120.9	%			14,735				20,204				37.1	%
Other income			19,542				64,259				58,706				-8.6	%			200.4	%			106,323				186,895				75.8	%
Total non financial income			801,377				832,101				858,457				3.2	%			7.1	%			2,454,872				2,547,553				3.8	%
Total expenses
Salaries and social benefits			(576,407	)			(591,780	)			(606,897	)			2.6	%			5.3	%			(1,726,594	)			(1,784,525	)			3.4	%
Administrative, general and tax expenses			(419,409	)			(441,698	)			(474,723	)			7.5	%			13.2	%			(1,245,925	)			(1,304,761	)			4.7	%
Depreciation and amortization			(88,049	)			(89,953	)			(89,181	)			-0.9	%			1.3	%			(263,954	)			(270,451	)			2.5	%
Other expenses			(28,175	)			(54,064	)			(24,460	)			-54.8	%			-13.2	%			(101,474	)			(117,117	)			15.4	%
Total expenses			(1,112,040	)			(1,177,495	)			(1,195,261	)			1.5	%			7.5	%			(3,337,947	)			(3,476,854	)			4.2	%
Operating income			1,129,281				1,193,572				1,146,333				-4.0	%			1.5	%			3,121,349				3,565,483				14.2	%
Income taxes			(313,591	)			(340,186	)			(311,995	)			-8.3	%			-0.5	%			(842,106	)			(988,689	)			17.4	%
Non-controlling interest			(6,693	)			(6,259	)			(4,563	)			-27.1	%			-31.8	%			(15,299	)			(18,372	)			20.1	%
Net income continuing operations			808,997				847,127				829,775				-2.0	%			2.6	%			2,263,944				2,558,422				13.0	%
Net income discontinuing operations			-				-				-				0.0	%			0.0	%			-				-				0.0	%
Net income			808,997				847,127				829,775				-2.0	%			2.6	%			2,263,944				2,558,422				13.0	%

 

(1) The new account “Result on exchange difference” includes what was previously reported as: (i) the translation result and (ii) net gains on currency trading, which was previously included in net gains on foreign exchange transactions. "

(2) Since 1Q17, “Net gain on derivatives” is reported as non-financial income rather than net interest income, as was the case in the past.

 

BANCO DE CREDITO DEL PERU AND SUBSIDIARIES

 

SELECTED FINANCIAL INDICATORS

 

		Quarter												YTD
		3Q17				2Q18				3Q18				Sep 17				Sep 18
Profitability
Earnings per share (1)			0.092				0.097				0.095				0.258				0.292
ROAA (2)(3)			2.4	%			2.5	%			2.5	%			2.3	%			2.5	%
ROAE (2)(3)			22.7	%			22.7	%			21.1	%			21.2	%			21.6	%
Net interest margin (2)(3)			5.62	%			5.65	%			5.92	%			5.62	%			5.66	%
Risk adjusted NIM (2)(3)			4.52	%			4.71	%			4.61	%			6.37	%			7.15	%
Funding Cost (2)(3)(4)			2.29	%			2.23	%			2.22	%			3.54	%			3.30	%
Quality of loan portfolio
IOL ratio			3.20	%			3.18	%			3.19	%			3.20	%			3.19	%
NPL ratio			4.28	%			4.32	%			4.39	%			4.10	%			4.23	%
Coverage of IOLs			152.2	%			153.9	%			153.7	%			152.2	%			153.7	%
Coverage of NPLs			113.6	%			113.5	%			111.5	%			116.4	%			113.5	%
Cost of risk (5)			1.62	%			1.31	%			1.77	%			2.99	%			2.27	%
Operating efficiency
Oper. expenses as a percent. of total income - reported (6)			42.5	%			42.5	%			43.3	%			43.3	%			42.5	%
Oper. expenses as a percent. of total income - including all other items			42.9	%			44.0	%			43.2	%			43.2	%			42.9	%
Oper. expenses as a percent. of av. tot. sssets (2)(3)(6)			3.27	%			3.29	%			3.47	%			3.30	%			3.26	%
Capital adequacy (7)
Total regulatory capital (S/ Million)			16,841				17,437				17,493				16,841				17,493
Tier 1 capital (S/ Million) (8)			11,811				12,825				12,831				11,811				12,831
Common equity tier 1 ratio (9)			11.93	%			11.11	%			11.61	%			11.9	%			11.6	%
BIS ratio (10)			16.4	%			15.1	%			14.9	%			16.4	%			14.9	%
Share Information
N° of outstanding shares (Million)			8,770.36				8,770.36				8,770.36				8,770.36				8,770.36

 

(1) Shares outstanding of 8,770 million is used for all periods since shares have been issued only for capitalization of profits.

(2) Ratios are annualized.

(3) Averages are determined as the average of period-beginning and period-ending balances.

(4) The funding costs differs from previously reported due to a methodoloy 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.

(5) Cost of risk: Annualized provision for loan losses / Total loans.

(6) Total income includes net interest income, fee income, net gain on foreign exchange transactions, result on exchange difference and net gain on derivatives. Operating expenses includes Salaries and social benefits, administrative, general and tax expenses and depreciation and amortization.

(7) All capital ratios are for BCP Stand-alone and based on Peru GAAP

(8) Tier 1 = Capital + Legal and other capital reserves + Accumulated earnings with capitalization agreement + 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).

(9) 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.

(10) Regulatory capital/ risk-weighted assets. Risk weighted assets include market risk and operational risk.

 

 

11.3. Mibanco

 

MIBANCO

(In S/ thousands, IFRS)

 

		As of												% change
		Sep 17				Jun 18				Sep 18				QoQ				YoY
ASSETS
Cash and due from banks			1,062,337				891,262				922,284				3.5	%			-13.2	%
Investments			1,891,857				2,062,243				2,008,445				-2.6	%			6.2	%
Total loans			9,126,393				9,804,137				9,785,229				-0.2	%			7.2	%
Current			8,579,731				9,146,397				9,133,812				-0.1	%			6.5	%
Internal overdue loans			425,163				530,593				531,585				0.2	%			25.0	%
Refinanced			121,499				127,147				119,832				-5.8	%			-1.4	%
Allowance for loan losses			-831,710				-894,680				-913,037				2.1	%			9.8	%
Net loans			8,294,683				8,909,457				8,872,192				-0.4	%			7.0	%
Property, plant and equipment, net			194,425				177,891				174,519				-1.9	%			-10.2	%
Other assets			560,223				541,482				600,903				11.0	%			7.3	%
Total assets			12,003,526				12,582,334				12,578,342				0.0	%			4.8	%
LIABILITIES AND NET SHAREHOLDERS' EQUITY
Deposits and obligations			7,020,563				7,871,279				8,135,187				3.4	%			15.9	%
Due to banks and correspondents			1,936,049				1,760,587				1,591,869				-9.6	%			-17.8	%
Bonds and subordinated debt			642,441				467,469				367,867				-21.3	%			-42.7	%
Other liabilities			829,033				662,248				559,591				-15.5	%			-32.5	%
Total liabilities			10,428,087				10,761,582				10,654,513				-1.0	%			2.2	%
Net equity			1,575,439				1,820,752				1,923,829				5.7	%			22.1	%
TOTAL LIABILITIES AND NET SHAREHOLDERS' EQUITY			12,003,526				12,582,334				12,578,342				0.0	%			4.8	%

 

		Quarter												% change								YTD								% change
		3Q17				2Q18				3Q18				QoQ				YoY				Sep 17				Sep 18				Sep 18 / Sep 17
Net interest income			462,950				490,270				495,385				1.0	%			7.0	%			1,341,940				1,471,557				9.7	%
Provision for loan losses, net of recoveries			-86,260				-102,861				-138,001				34.2	%			60.0	%			-296,164				-319,814				8.0	%
Net interest income after provisions			376,690				387,409				357,384				-7.8	%			-5.1	%			1,045,776				1,151,742				10.1	%
Non-financial income			24,147				60,365				26,589				-56.0	%			10.1	%			74,269				115,801				55.9	%
Total expenses			-237,317				-270,950				-240,347				-11.3	%			1.3	%			-744,623				-768,770				3.2	%
Translation result			-				-				-				0.0	%			0.0	%			-				-				0.0	%
Income taxes			-44,960				-51,168				-38,868				-24.0	%			-13.5	%			-98,862				-138,725				40.3	%
Net income			118,560				125,655				104,758				-16.6	%			-11.6	%			276,560				360,049				30.2	%
Efficiency ratio			48.4	%			49.0	%			46.0	%			-300 bps				-240 bps				48.4	%			46.0	%			-240 bps
ROAE			31.3	%			28.6	%			22.4	%			-620 bps				-890 bps				31.3	%			22.4	%			-890 bps
ROAE incl. goow dill			28.5	%			26.4	%			20.8	%			-560 bps				-770 bps				28.5	%			20.8	%			-770 bps
L/D ratio			130.0	%			124.6	%			120.3	%			-430 bps				-970 bps
IOL ratio			4.7	%			5.4	%			5.4	%			0 bps				70 bps
NPL ratio			6.0	%			6.7	%			6.7	%			0 bps				70 bps
Coverage of IOLs			195.6	%			168.6	%			171.8	%			320 bps				-2380 bps
Coverage of NPLs			152.1	%			136.0	%			140.2	%			420 bps				-1190 bps
Branches (1)			324				327				326				-0.3	%			-100.0	%
Employees			10,139				10,165				10,087				-0.8	%			-100.0	%

 

(1) Includes Banco de la Nacion branches, which in September 17 were 39, in June 18 were 38 and in September 18 were 38.

 

 

11.4. BCP Bolivia

 

BCP BOLIVIA 

(In S/ thousands, IFRS)

 

		As of												% change
		Sep 17				Jun 18				Sep 18				QoQ				YoY
ASSETS
Cash and due from banks			1,496,787				1,437,539				1,131,992				-21.3	%			-24.4	%
Investments			1,233,424				1,304,908				1,393,722				6.8	%			13.0	%
Total loans			6,203,300				6,836,296				7,059,563				3.3	%			13.8	%
Current			6,062,137				6,685,572				6,903,039				3.3	%			13.9	%
Internal overdue loans			115,241				127,607				136,115				6.7	%			18.1	%
Refinanced			25,922				23,117				20,408				-11.7	%			-21.3	%
Allowance for loan losses			-218,838				-220,997				-226,682				2.6	%			3.6	%
Net loans			5,984,461				6,615,299				6,832,881				3.3	%			14.2	%
Property, plant and equipment, net			56,094				76,561				77,069				0.7	%			37.4	%
Other assets			80,790				90,140				91,372				1.4	%			13.1	%
Total assets			8,851,556				9,524,447				9,527,036				0.0	%			7.6	%
LIABILITIES AND NET SHAREHOLDERS' EQUITY
Deposits and obligations			7,819,169				8,511,654				8,457,011				-0.6	%			8.2	%
Due to banks and correspondents			39,639				30,156				30,026				-0.4	%			-24.3	%
Bonds and subordinated debt			101,822				102,337				102,925				0.6	%			1.1	%
Other liabilities			264,757				247,139				272,694				10.3	%			3.0	%
Total liabilities			8,225,387				8,891,285				8,862,656				-0.3	%			7.7	%
Net equity			626,170				633,162				664,380				4.9	%			6.1	%
TOTAL LIABILITIES AND NET SHAREHOLDERS' EQUITY			8,851,556				9,524,447				9,527,036				0.0	%			7.6	%

 

		Quarter												% change								YTD								% change
		3Q17				2Q18				3Q18				QoQ				YoY				Sep 17				Sep 18				Sep 18 / Sep 17
Net interest income			78,294				73,589				82,737				12.4	%			5.7	%			235,026				227,113				-3.4	%
Provision for loan losses, net of recoveries			-27,479				-5,072				-15,325				202.1	%			-44.2	%			-54,623				-35,270				-35.4	%
Net interest income after provisions			50,814				68,517				67,412				-1.6	%			32.7	%			180,403				191,844				6.3	%
Non-financial income			29,257				34,833				22,775				-34.6	%			-22.2	%			86,202				92,846				7.7	%
Total expenses			-60,730				-69,929				-64,798				-7.3	%			6.7	%			-179,556				-197,570				10.0	%
Translation result			-82				-54				-13				-76.0	%			-84.4	%			-97				-169				74.5	%
Income taxes			-8,888				-11,823				-10,016				-15.3	%			12.7	%			-30,317				-31,566				4.1	%
Net income			10,371				21,544				15,360				-28.7	%			48.1	%			56,635				55,384				-2.2	%
Efficiency ratio			55.6	%			65.9	%			60.9	%			-503 pbs				529 pbs				55.8	%			63.5	%			900 bps
ROAE			6.7	%			13.9	%			9.5	%			-435 pbs				279 pbs				15.6	%			12.9	%			-240 bps
L/D ratio			79.3	%			80.3	%			83.5	%			316 pbs				415 pbs
IOL ratio			1.86	%			1.87	%			1.93	%			6 pbs				7 pbs
NPL ratio			2.28	%			2.20	%			2.22	%			2 pbs				-6 pbs
Coverage of IOLs			189.9	%			173.2	%			166.5	%			-665 pbs				-2336 pbs
Coverage of NPLs			155.0	%			146.6	%			144.8	%			-180 pbs				-1021 pbs
Branches			54				54				54				0				0
Agentes			212				289				318				29				106
ATMs			264				274				279				5				15
Employees			1,709				1,726				1,716				-10				7

 

 

11.5. Credicorp Capital

 

Credicorp Capital		Quarter												% change								YTD								% change
S/ 000		3Q17				2Q18				3Q18				QoQ				YoY				Sep 17				Sep 18				Sep 18 / Sep 17
Net interest income			-4,260				-10,996				-12,189				10.8	%			186	%			-2,029				-33,166				N/A
Non-financial income			127,258				142,357				141,301				-0.7	%			11.0	%			401,621				433,200				7.9	%
Fee income			94,802				102,284				95,200				-6.9	%			0.4	%			282,173				299,443				6.1	%
Net gain on foreign exchange transactions			-4,374				9,576				8,414				-12.1	%			-292.4	%			15,352				23,768				54.8	%
Net gain on sales of securities			30,110				23,404				27,379				17.0	%			-9.1	%			85,724				84,681				-1.2	%
Derivative Result			6,379				8,886				7,396				-16.8	%			15.9	%			7,261				18,819				159.2	%
Result from exposure to the exchange rate			-554				-6,289				1,108				-117.6	%			-300.0	%			-1,087				-5,407				397.4	%
Other income			895				4,496				1,804				-59.9	%			101.6	%			12,198				11,896				-2.5	%
Operating expenses (1)			-103,334				-112,857				-102,396				-9.3	%			-0.9	%			-317,156				-328,035				3.4	%
Operating income			19,664				18,504				26,716				44.4	%			35.9	%			82,436				71,999				-12.7	%
Income taxes			-2,396				-7,164				-8,766				22.4	%			265.9	%			-20,237				-21,395				5.7	%
Non-controlling interest (2)			-97				-211				-180				-14.7	%			85.6	%			-492				-631				28.3	%
Net income			17,171				11,129				17,770				59.7	%			3.5	%			61,707				49,973				-19.0	%

 

* Unaudited results.

(1) Includes: Salaries and employees’ benefits + Administrative expenses + Assigned expenses + Depreciation and amortization + Tax and contributions + Other expenses.

(2) Since 4Q17 Credicorp Capital Holding Colombia and Credicorp Capital Holding Chile have 100% percentage of Correval and IM Trust, respectively.

 

 

11.6. Atlantic Security Bank

 

ASB		Quarter												% change
US$ Millions		3Q17				2Q18				3Q18				QoQ				YoY
Total loans			826.2				764.6				766.4				0.2	%			-7.2	%
Total investments			996.2				968.7				1,018.7				5.2	%			2.3	%
Total assets			2,026.9				2,069.5				1,921.0				-7.2	%			-5.2	%
Total deposits			1,652.4				1,590.3				1,367.3				-14.0	%			-17.3	%
Net shareholder's equity			262.9				221.9				238.1				7.3	%			-9.4	%
Net income			13.2				8.9				10.7				19.7	%			-18.9	%

 

Interest earning assets

 

Interest earning assets*		Quarter												% change
US$ 000		3Q17				2Q18				3Q18				QoQ				YoY
Due from banks			73				264				148				-72.3	%			-50.5	%
Total loans			766				765				826				0.2	%			-7.2	%
Investments			972				936				964				3.8	%			0.9	%
Total interest earning assets			1,811				1,965				1,937				-7.8	%			-6.5	%

 

* Excludes investments in equities and mutual funds.

 

Liabilities

 

Liabilities		Quarter												% change
US$ 000		3Q17				2Q18				3Q18				QoQ				YoY
Deposits			1,367				1,590				1,652				-14.0	%			-17.3	%
Borrowed Funds			272				197				60				38.1	%			100.0	%
Other liabilities			44				60				52				-27.7	%			-15.6	%
Total liabilities			1,683				1,848				1,764				-8.9	%			-4.6	%

 

 

Assets under management and Deposits

(US$ Millions)

 

 

Portfolio distribution as of September 2018

 

 

 

11.7. Grupo Pacifico

 

GRUPO PACIFICO *

(S/ in thousands)

 

		As of												% change
		Sep 17				Jun 18				Sep 18				QoQ				YoY
Total assets			11,013,777				11,491,618				11,996,954				4.4	%			8.9	%
Invesment on securities (1)			8,087,030				8,324,108				8,861,566				6.5	%			9.6	%
Technical reserves			7,263,527				7,880,089				8,192,100				4.0	%			12.8	%
Net equity			2,711,176				2,479,023				2,596,213				4.7	%			-4.2	%

 

		Quarter												% change								YTD								% change
		3Q17				2Q18				3Q18				QoQ				YoY				Sep 17				Sep 18				Sep 18 / Sep 17
Net earned premiums			477,263				512,847				538,742				5.0	%			12.9	%			1,416,976				1,563,448				10.3	%
Net claims			275,721				300,846				318,645				5.9	%			15.6	%			834,951				914,235				9.5	%
Net fees			125,169				142,596				141,979				-0.4	%			13.4	%			380,363				424,756				11.7	%
Net underwriting expenses			25,273				33,204				28,767				-13.4	%			13.8	%			52,115				95,244				82.8	%
Underwriting result			51,100				36,202				49,351				36.3	%			-3.4	%			149,548				129,213				-13.6	%
Net financial income			143,191				119,643				142,449				19.1	%			-0.5	%			388,486				382,118				-1.6	%
Total expenses			110,345				104,412				93,601				-10.4	%			-15.2	%			307,941				302,129				-1.9	%
Other income			8,643				9,393				-6,779				-172.2	%			-178.4	%			26,455				14,086				-46.8	%
Traslations results			1,984				1,850				1,547				-16.4	%			-22.0	%			1,347				3,949				193.1	%
Gain (loss) from Grupo Pacifico and Banmedica agreement			-528				9,506				4,974				-47.7	%			-1042.3	%			11,469				22,867				99.4	%
Income tax			10,440				2,292				-487				-121.3	%			-104.7	%			25,908				3,567				-86.2	%
Income before minority interest			83,605				69,891				98,429				40.8	%			17.7	%			243,456				246,537				1.3	%
Non-controlling interest			-13,627				2,349				2,590				10.3	%			-119.0	%			5,081				6,964				37.1	%
Net income			97,232				67,542				95,839				41.9	%			-1.4	%			238,375				239,573				0.5	%
Ratios
Ceded			18.3	%			13.5	%			16.3	%			280 bps				-200 bps				17.4	%			14.7	%			-270 bps
Loss ratio (2)			57.8	%			58.7	%			59.1	%			40 bps				130 bps				58.9	%			58.5	%			-40 bps
Fees + underwriting expenses, net / net earned premiums			31.5	%			34.3	%			31.7	%			-260 bps				20 bps				30.5	%			33.3	%			280 bps
Underwriting results / net earned premiums			10.7	%			7.1	%			9.2	%			210 bps				-150 bps				10.6	%			8.3	%			-230 bps
Operating expenses / net earned premiums			23.1	%			20.4	%			17.4	%			-300 bps				-570 bps				21.7	%			19.3	%			-240 bps
ROAE (3)(4)			13.2	%			10.9	%			15.5	%			460 bps				230 bps				12.7	%			12.1	%			-60 bps
Return on written premiums			13.5	%			8.1	%			11.0	%			290 bps				-250 bps				11.2	%			9.6	%			-160 bps
Combined ratio of P&C (5)			95.6	%			102.7	%			97.5	%			-520 bps				190 bps				96.5	%			101.6	%			510 bps

 

*Financial statements without consolidation adjustments.

(1) Excluding investments in real estate.

(2) Net claims / Net earned premiums.

(3) Includes unrealized gains.

(4) Annualized and average are determined as the average of period beginning and period ending.

(5) (Net claims / Net earned premiums) + [(Acquisition cost + total expenses) / Net earned premiums].

 

From 1Q15 and on, Grupo Pacifico’s financial statements reflect the association with Banmedica. This partnership includes:

 

(i)

the private health insurance business, which is managed by Grupo Pacifico and incorporated in each line of Grupo Pacifico’s financial statements;

 

(ii)

corporate health insurance for payroll employees; and

 

(iii)

medical services.

 

The businesses described in ii) and iii) are managed by Banmedica, therefore they do not consolidate in Grupo Pacifico’s financial statements. The 50% of net income generated by Banmedica is recorded in Grupo Pacifico’s Income Statement as a gain/loss on investments in subsidiaries.

 

As explained before, corporate health insurance and medical services businesses are consolidated by Banmedica. The following table reflects the consolidated results from which Grupo Pacifico receives the 50% net income.

 

 

Corporate Health Insurance and Medical Services

(S/ in thousands)

 

		Quarter												% change								YTD								% change
		3Q17				2Q18				3Q18				QoQ				YoY				Sep 17				Sep 18				Sep 18 / Sep 17
Results
Net earned premiums			234,486				249,216				255,104				2.4	%			8.8	%			691,594				744,745				7.7	%
Net claims			-196,730				-208,490				-220,993				6.0	%			12.3	%			-572,316				-623,847				9.0	%
Net fees			-10,348				-10,918				-11,740				7.5	%			13.4	%			-31,416				-33,483				6.6	%
Net underwriting expenses			-3,022				-2,956				-2,676				-9.5	%			-11.5	%			-8,987				-8,951				-0.4	%
Underwriting result			24,385				26,852				19,695				-26.7	%			-19.2	%			78,875				78,464				-0.5	%
Net financial income			1,349				1,169				1,158				-1.0	%			-14.2	%			3,660				3,589				-1.9	%
Total expenses			-18,751				-17,353				-18,211				4.9	%			-2.9	%			-53,798				-54,698				1.7	%
Other income			-67				24				-164				-795.2	%			142.8	%			1,005				48				-95.2	%
Traslations results			-60				72				44				-39.5	%			-173.1	%			-152				75				-149.3	%
Income tax			-2,209				-3,555				-680				-80.9	%			-69.2	%			-9,180				-9,040				-1.5	%
Net income before Medical services			4,647				7,210				1,842				-74.4	%			-60.4	%			20,410				18,438				-9.7	%
Net income of Medical services			16,008				19,299				19,448				0.8	%			21.5	%			43,304				55,766				28.8	%
Net income			20,655				26,509				21,290				-19.7	%			3.1	%			63,714				74,204				16.5	%

 

 

 

11.8. Prima AFP

 

		Quarter												% change								YTD								% change
		3Q17				2Q18				3Q18				QoQ				YoY				Sep 17				Sep 18				Sep 18 / Sep 17
Income from commissions			89,136				98,816				94,417				-4.5	%			5.9	%			291,690				285,638				-2.1	%
Administrative and sale expenses			(39,840	)			(37,650	)			(38,229	)			1.5	%			-4.0	%			-116,861				-117,318				0.4	%
Depreciation and amortization			(5,843	)			(4,816	)			(4,464	)			-7.3	%			-23.6	%			-17,973				-14,024				-22.0	%
Operating income			43,453				56,350				51,724				-8.2	%			19.0	%			156,856				154,296				-1.6	%
Other income and expenses, net (profitability of lace)			1,354				(8,045	)			8,655				-207.6	%			539.3	%			1,159				5,422				367.7	%
Income tax			(15,377	)			(15,877	)			(18,729	)			18.0	%			21.8	%			-48,353				-50,374				4.2	%
Net income before translation results			29,429				32,429				41,650				28.4	%			41.5	%			109,662				109,344				-0.3	%
Translations results			(28	)			(46	)			(175	)			277.3	%			536.0	%			-5				-229				4666.7	%
Net income			29,401				32,383				41,475				28.1	%			41.1	%			109,657				109,115				-0.5	%
ROAE (1)			21.1	%			23.0	%			27.6	%			453 pbs				652 pbs				24.6	%			23.4	%			-122 pbs

 

		As of												% change
		Sep 17				Jun 18				Sep 18				QoQ				YoY
Total assets			830,346				791,528				854,996				8.0	%			3.0	%
Total liabilities			249,885				210,632				232,544				10.4	%			-6.9	%
Net shareholders' equity			580,461				580,896				622,452				7.2	%			7.2	%

 

(1) Net shareholders' equity includes unrealized gains from Prima's investment portfolio.

 

Funds under management

 

Funds under management		Jun 18				% share				Sep 18				% share
Fund 0			537				1.1	%			586				1.2	%
Fund 1			5,291				10.8	%			5,343				10.7	%
Fund 2			35,452				72.7	%			36,332				73.1	%
Fund 3			7,519				15.4	%			7,474				15.0	%
Total S/ Millions			48,798				100	%			49,735				100	%

 

Source: SBS

 

Nominal profitability over the last 12 months

 

		Jun 18 / Jun 17				Sep 18 / Sep 17
Fund 0			3.8	%			3.7	%
Fund 1			4.2	%			3.0	%
Fund 2			6.9	%			4.7	%
Fund 3			9.7	%			4.1	%

 

AFP fees

 

Fee based on flow	1.60%		Applied to the affiliates' monthly remuneration.
Mixed fee
Flow	0.18%		Applied to the affiliates' monthly remuneration since June 2017. Feb 17- may 17 =0.87%.
Balance	1.25%		Applies annualy to the new balance since February 2013 for new affiliates to the system and beginning on June 2013 for old affiliates who have chosen this commission scheme.

 

Main indicators

 

		Prima				System				% share				Prima				System				% share
Main indicators and market share		2Q18				2Q18				2Q18				3Q18				3Q18				3Q18
Affiliates			1,907,497				6,813,590				28.0	%			2,020,139				6,918,412				29.2	%
New affiliations (1)			101,038				101,038				100.0	%			110,289				110,289				100.0	%
Funds under management (S/ Millions)			48,798				156,009				31.3	%			49,735				158,850				31.3	%
Collections  (S/ Millions)			1,070				3,162				33.8	%			1,088				3,175				34.3	%
Voluntary contributions (S/ Millions)			958				2,205				43.5	%			976				2,210				44.2	%
RAM (S/ Millions) (2)			2,563				7,767				33.0	%			2,597				7,715				33.7	%

Source: SBS

(1) In April and May AFP Habitat had exclusivity of affiliation. From June Prima AFP it has exclusivity for being a winner of bidding.

(2) Prima AFP estimate: Average of aggregated income during the last 4 months, excluding special collections and voluntary contribution fees.

 

 

11.9. Table of calculations

 

 

(1) Averages are determined as the average of period-beginning and period-ending balances.

(2) Includes total deposits, due to banks and correspondents, BCRP instruments, repurchase agreements and bonds and subordinated debt.

(3) Does not include Life insurance business.

(4) Includes investment in subsidiaries, goodwill, intangibles and deferred tax that rely on future profitability.

 

 

11.10. Disclosure about the impact of IFRS 9

 

In July 2014, the IASB issued the complete version of IFRS 9, which combines the phases of classification and measurement, impairment and hedging accounting of the IASB project to replaces IAS 39 “Financial instruments: Measurement and Recognition”. The new requirements were applied adjusting Credicorp’s consolidated financial statements as of January 1st, 2018, the date of IFRS9 application, without re-stating the information for the year 2017.

 

With regards to the classification and measurement defined by IFRS 9, the requirements defined three categories of classification: Amortized cost, fair value through other comprehensive income and fair value through profit or loss. An instrument is classified depending on the objective of its business model, and if the contractual cash flows of the instrument only represent the payment of the principal and interest of the debt.

 

The combined application of the tests of the characteristics of the contractual cash flows and business models as of January 1^st, 2018 resulted in certain differences when comparing the financial assets classified under IAS 39 with the same financial assets classified under IFRS 9.

 

Approximately S/ 1,593.4 million of financial assets previously classified as available for sale under IAS 39 have been classified as fair value through profit or loss under IFRS 9. These assets had unrealized gains, which have been reclassified as retained earnings in the statement of changes in net equity.

 

IFRS 9 introduces a new model of impairment based on expected losses of the credit portfolio and other instruments which differ significantly from the current model under IAS 39 of credit losses incurred. In order to comply with the new model, it is necessary to classify each asset in one of the following phases of expected credit losses:

 

· Phase 1: For financial assets of which the credit risk has not deteriorated significantly since its initial recognition, a reserve for losses will be recognized, equivalent to the credit losses which are expected to occur from defaults in the next 12 months.

 

· Phase 2: For financial assets which have presented a significant increase in their credit risk, a reserve for losses will be recognized, equivalent to the credit losses which are expected to occur during the remaining life of the asset.

 

· Phase 3: For financial assets with evidence of impairment at the reporting date a reserve for losses will be recognized, equivalent to the expected credit losses during the entire life of the asset. Interest income will be recognized based on the asset’s carrying amount, net of the loss reserve.

 

The measurement of expected credit loss is mainly based on the product of the probability of default (PD), the loss given default (LGD) and the exposure at the time of default (EAD), discounted at the reporting date

 

Additionally, for the estimation of the parameters, the current macroeconomic condition is taken into account, as well as the expected macroeconomic conditions, based on three scenarios (base, optimistic and pessimistic), which are weighted to estimate the expected loss.

 

The application of the new model of impairment produced an increase in the reserve for credit losses. The most significant impacts that were recognized on January 1^st, 2018 are the following:

 

· An increase of S/320.7 millions in the provision for credit losses and the correspondent deferred income tax of S/ 94.6 million; resulting in a reduction in retained earnings of S/226.1 millions.

 

· An increase of S/68.0 millions in the provisions for investments and the correspondent deferred income tax, which is considered non-material, resulting in a reduction in retained earnings.

 

The new model of hedging accounting according to IFRS 9 seeks to simplify hedging accounting, aligning the accounting of the hedging relationships more closely with the risk management activities of an entity.

 

 

For more detail about IFRS 9 implementation in Credicorp, please refer to the note 3(ad)(i) of the consolidated financial statements below:

 

ad)

International Financial Reporting Standards issued but not yet effective -

The Group decided not to early adopt the following standards and interpretations that were issued but are not effective as of December 31, 2017:

 

(i)

IFRS 9 “Financial Instruments” -

 

In July 2014, the IASB issued the complete version of IFRS 9, which combines the phases of classification and measurement, impairment and hedging accounting of the IASB project to replaces IAS 39 “Financial instruments: Measurement and Recognition”.

 

Classification and measurement:

IFRS 9 establishes three categories of classification: Amortized cost, fair value through other comprehensive income and fair value through profit or loss.

 

A debt instrument is classified and measured at amortized cost if: a) the objective of the business model is to maintain the financial asset, to collect the contractual cash flows, and b) the contractual cash flows of the instrument only represent the payment of the principal and interest of the debt.

 

Likewise, a debt instrument is classified and measured at fair value through other comprehensive income if: a) the objective of the business model is to maintain the financial asset, both to collect the contractual cash flows, as well as to sell them, and b) the contractual cash flows of the instrument only represent the payment of the principal and interest of the debt.

 

All other debt instruments that do not satisfy the above-mentioned conditions must be classified and measured at fair value through profit or loss.

 

An equity instrument is classified at fair value through profit or loss, unless it is not maintained for trading purposes, in which case, an entity may make an irrevocable choice at its initial recognition, to classify it at fair value through other comprehensive income, without subsequently having to reclassify it to profit or loss.

 

The combined application of the tests on the characteristics of contractual cash flows and business models as of January 1, 2018, resulted in certain differences when comparing financial assets classified under IAS 39 with financial assets classified under IFRS 9.

 

Approximately S/1,593.4 million of financial assets previously classified as available for sale under IAS 39, have been classified as investments at fair value through profit or loss under IFRS 9. These financial assets held unrealized gains, which have been reclassified to the item retained earnings of the consolidated statement of changes in equity.

 

With regard to liabilities, most pre-existing requirements for classification and measurement previously included in IAS 39, have not changed in IFRS 9.

 

Impairment:

 

IFRS 9 introduces a new model of impairment based on expected losses of the credit portfolio and other instruments which differ significantly from the current model “under IAS 39 of credit losses incurred”, and it is expected to result in the early recognition of credit losses.

 

The financial assets classified or designated at fair value through profit or loss and the capital instruments designated at fair value through other comprehensive income, are not subject to impairment assessment.

 

 

Model of impairment of expected credit losses -

 

Under IFRS 9, provisions for credit losses will be measured at each reporting date, following a three phase model of expected credit losses:

 

· Phase 1: For financial assets of which the credit risk has not deteriorated significantly since its initial recognition, a reserve for losses will be recognized, equivalent to the credit losses which are expected to occur from defaults in the next 12 months.

 

· Phase 2: For financial assets which have presented a significant increase in their credit risk, a reserve for losses will be recognized, equivalent to the credit losses which are expected to occur during the remaining life of the asset.

 

· Phase 3: For financial assets with evidence of impairment at the reporting date a reserve for losses will be recognized, equivalent to the expected credit losses during the entire life of the asset. Interest income will be recognized based on the asset’s carrying amount, net of the loss reserve.

 

The reserves for credit losses of Phase 1 and Phase 2 effectively replace the general reserve determined for loans not yet identified as impaired under IAS 39, although the reserves for credit losses of Phase 3 effectively replace the general reserves determined for impaired loans.

 

Measurement -

 

The measurement of expected credit loss is mainly based on the product of the probability of default (PD), the loss given default (LGD) and the exposure at the time of default (EAD), discounted at the reporting date and considering the expected macroeconomic effects, all according to the new regulation.

 

The fundamental difference between the credit loss considered as Phase 1 and Phase 2 is the horizon of PD. The estimates of Phase 1 use a 12-month horizon, while those in Phase 2 use an expected loss calculated with the remaining term of the asset and it considers the effect of the significant increase in the risk. Finally, in Phase 3, the expected loss will be estimated based on the best estimate (“ELBE” from its initials in English), given the situation of the collection process of each asset.

 

The above method applies to all the portfolios, with the exception of some portfolios of reduced materiality and of which there is insufficient historical depth and/or loss experience.

In these cases, simplified approaches will be applied, based on the reality of each portfolio and with reasonable supported and documented criteria.

 

Changes from one phase to another -

 

The classification of an instrument as phase 1 or phase 2 depends on the concept of “significant impairment” on the reporting date in comparison with the origination date. In this sense, the definition used considers the following criteria:

 

-   An account is classified in phase 2 if it has been more than N days in arrears.

 

-   Risk thresholds have been established based on the internal models and on relative thresholds of differences (by portfolio and risk level) in which the instrument originated.

 

-   The follow up, warning and monitoring systems of the risk portfolios which depend on the current risk policy in Wholesale and Retail Banking, are integrated.

 

Additionally, all those accounts which are classified as in default at the reporting date are considered as phase 3. The evaluations of significant risk increase, and credit impairment are carried out independently at each reporting date. Assets can move in both directions from one phase to another.

 

 

Prospective information -

 

The measurement of expected credit losses for each phase and the evaluation of significant increases in credit risk must consider information regarding previous events and current conditions, as well as forecasts of future economic events and conditions. For the estimation of the risk parameters (PD, LGD, EAD), used in the calculation of the provision in phases 1 and 2, macroeconomic variables were included which vary between portfolios. These forecasts are for a three-year period and, additionally, there is a long-term forecast.

 

The estimation of the expected loss for phases 1, 2 and 3 will be a weighted estimate which considers three future macroeconomic scenarios. The basic, optimistic and pessimistic scenarios are based on macroeconomic forecasts provided by the in-house economic studies team and approved by Senior Management. This same team also provides the probability of occurrence of each scenario. It should be pointed out that the scenario design is adjusted at least once a year and this can be done more frequently if the conditions of the environment require it.

 

Expected life -

 

For the instruments in Phase 2 or 3, the reserves for losses will cover the expected credit losses during the lifetime of the instrument. For most of the instruments, the expected lifetime is limited to the remaining life of the product, adjusted for expected future payments. In the case of revolving products, an analysis was made in order to determine what would be the expected period of life.

 

The application of the new impairment model generated increases in the reserve for credit losses under the new requirements. Below we present the most significant impacts that were recognized on January 1, 2018:

 

-   Increase in the allowance for loan losses for S/320.7 million and its corresponding deferred income tax for S/94.6 million; resulting in a reduction in the retained earnings of S/226.1 million.

 

-   Increase in the provision for investments for S/68.1 million and its corresponding deferred income tax, which was immaterial, resulting in a reduction in the retained earnings.

 

Hedging accounting:

 

The new model of hedging accounting according to IFRS 9 seeks to simplify hedging accounting, align the accounting of the hedging relationships more closely with the risk management activities of an entity and permit hedging accounting to be applied more widely to a greater variety of hedging instruments and risks suitable for hedging accounting.

 

IFRS 9 is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted.

 

The new classification, measurement and impairment requirements will be applied adjusting our consolidated statement of financial position at January 1, 2018, date of initial application, without restating the financial information of the comparative period.