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 March 2021

 

Commission File Number: 001-14014

 

CREDICORP LTD.

(Translation of registrant’s name into English))

 

Of our subsidiary

Banco de Credito del Peru:

Calle Centenario 156

La Molina

Lima 12, Peru

(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): ____

 

 

 

 

 

 

March 2, 2021

 

 

 

Securities and Exchange Commission - SEC

 

Re.: MATERIAL EVENT

 

 

Dear Sirs:

 

Please find attached a copy of the audited consolidated financial statements of Credicorp Ltd. (the Company”) and its subsidiaries, for the fiscal year ended on December 31, 2020, including the report of the external independent auditors Gaveglio Aparicio y Asociados Sociedad Civil de Responsabilidad Limitada, members of PricewaterhouseCoopers in Peru, approved by the Company’s Board of Directors in its session held on February 25, 2021, and which will be presented to the Annual General Meeting of Shareholders on March 31,2021.

 

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.

 

Sincerely,

 

/s/ Miriam Böttger

Authorized Representative

Credicorp Ltd.

 

 

 

 

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: March 2, 2021

        

 

CREDICORP LTD.

(Registrant)

 
     
  By:  /s/ Miriam Böttger  
    Miriam Böttger  
    Authorized Representative  

 

 

 

 

Exhibit 99.1

 

CREDICORP LTD. AND SUBSIDIARIES

 

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020 AND 2019

 

 

 

 

CREDICORP LTD. AND SUBSIDIARIES

 

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020 AND 2019

 

CONTENTS Pages
   
Independent auditor’s report 1 - 8
   
Consolidated statement of financial position 9
   
Consolidated statement of income 10 - 11
   
Consolidated statement of comprehensive income 12
   
Consolidated statement of changes in net equity 13 -14
   
Consolidated statement of cash flows 15 - 18
   
Notes to the consolidated financial statements 19 - 197

 

US$ = United States dollar
S/ = Sol

 

 

 

 

(A free translation of the original in Spanish)

 

Independent auditor’s report

 

To the Shareholders

Credicorp Ltd. and subsidiaries

 

Our opinion

 

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Credicorp Ltd. and subsidiaries (the Group) as at December 31, 2020, their consolidated financial performance and consolidated cash flows for the year then ended in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

 

What we have audited

 

The Group’s consolidated financial statements comprise:

 

the consolidated statement of financial position as at December 31, 2020;

the consolidated statement of income for the year then ended;

the consolidated statement of comprehensive income for the year then ended;

the consolidated statement of changes in net equity for the year then ended;

the consolidated statement of cash flows for the year then ended; and

the Notes to the consolidated financial statements, which include a summary of the significant accounting policies.

 

Basis for opinion

 

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Independence

 

We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code of Ethics) and the ethical requirements of the Code of Professional Ethics issued by the Board of Deans of the Institutes of Peruvian Certified Public Accountants, which are relevant for our audit of the consolidated financial statements. We have fulfilled our other ethical responsibilities in accordance with the IESBA Code of Ethics and the ethical requirements of the Code of Professional Ethics issued by the Board of Deans of the Institutes of Peruvian Certified Accountants.

 

 

 

 

Our audit approach

 

Overview

 

  An audit is designed to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. Errors may arise due to error or fraud. These are considered material if, individually or in total, they could reasonably influence the economic decisions that users make based on the consolidated financial statements.
The scope of our audit and the nature, timing and extent of our procedures was determined by our risk assessment that the consolidated financial statements may contain material errors, whether due to fraud or error. We carried out our audit procedures based on the legal entities considered financially significant in the context of the Group, with a combination of full scope audits and specified procedures audit to achieve the desired level of evidence at a consolidated level.

Key Audit Matters (KAM) are those which, in our professional judgment, were the most significants in our audit of the consolidated financial statements of the current period:

 

•        Information technology environment;

•        Provision for credit losses on loan portfolio; and

•        Valuation of the mathematical reserves of annuities.

 

As part of the design of our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered the cases where management has made subjective judgments; for example, in respect of significant accounting estimates that involve making assumptions and considering future events that are inherently uncertain. We also addressed the risk of management override of internal controls, including, among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement in the financial statements due to fraud.

 

How we designed the scope of our audit of the Group

 

We have designed the scope of our audit in order to be able to carry out sufficient work to permit us to issue an opinion regarding the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls and the economic sector in which the Group operates.

 

Our audit for the year ended December 31, 2020 does not present significant changes in relation with the prior year audit; thus, in establishing the general approach for the Group audit, we determined the type of work that required to be done on the components, based mainly on individual legal entities. In that sense, we consider Banco de Crédito del Perú S.A. and Mibanco, Banco de la Microempresa S.A., are significant components based on their individual contributions to profit before tax, as well as Pacífico Compañía de Seguros y Reaseguros S.A. based on the significant risk related to the valuation of the mathematical reserves of annuities. Additionally, we have considered the individual work carried out in each subsidiary.

 

2

 

 

The audit of the subsidiaries includes work performed in other countries within the region, such as Panama, Chile, Colombia and Bolivia. For said components, we determined the level of audit work that would need to be performed in auditing those entities in order to conclude as to whether sufficient and appropriate audit evidence had been obtained as a basis for our opinion on the consolidated financial statements as a whole. This includes regular communications with the other PwC firms during the entire year, the issue of instructions, review of the work of the auditors of components by the key members of the engagement team and a review of the results of their audit main procedures including the nature, timing and extent of the work that affect the audit opinion on the Group.

 

Key Audit Matters (KAM)

 

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. The scope of our audit and the key audit matters have not changed significantly in relation to the prior. The audit matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not express a separate opinion on these matters.

 

Key Audit Matters (KAM) How our audit addressed the key audit matter
Information technology environment

Credicorp Ltd. and subsidiaries are highly dependent on their technology structure, both for processing their transactions, as well as for the fair preparation and presentation of their consolidated financial statements, which leads us to consider the information technology environment as an important area of focus in our audit.

 

Technology is critical for the evolution of the Group’s core businesses and significant investments have been made in systems and the IT environment, including cybersecurity.

 

The Group has technological infrastructure in place to support its business activities, as well as ongoing plans for the improvement and maintenance of the access management and changes in the respective systems and applications, the development of new programs, automated controls and automated components in the relevant business processes. Controls to authorize, restrict and cancel accesses to the technology environment and program changes are fundamental for mitigating the potential risk of fraud or error based on the misuse or improper change in the systems of the Group, thus ensuring the integrity of the financial information and accounting records.

 

The Group has an information technology structure, which comprises more than one technology environment with different processes and segregated controls; furthermore, it is currently in a continuous digital transformation process and changes at the structural, functional and third-party support level, a situation that leads to an increase in the risks associated with information security and cybersecurity, which may eventually affect the operational continuity of the Group companies and/or their reputation.

With the participation of specialists in systems audit, we evaluated and tested the design and operational effectiveness of information technology the general controls. Although the purpose of our audit is not to express an opinion on the effectiveness of the Information Technology (IT) controls, we reviewed the Group’s framework of governance of IT and the key controls on the management of access to programs and data, the development of and changes in programs, the IT operations and we evaluated the mechanisms implemented by the Group in response to possible cybersecurity events as well as segregation of duties, including compensating controls, when necessary.

 

The IT environment and the controls established by management, combined with the testing of key controls, including compensating controls, which we have applied and the substantive testing we perform, provide us with a reasonable basis for placing reliance on the integrity and reliability of the information generated for the preparation of the Group’s consolidated financial statements. Furthermore, we have validated the existence of mechanisms for the mitigation of technology risks and cyber-attacks as well as preventive measures in place to ensure the continuous operation of its security and access controls, personnel awareness-raising campaigns in matters of security, identity and access management, among others, all of which contribute to the mitigation of cybersecurity risks.

 

 

3

 

 

Key Audit Matter (KAM)  How our audit addressed the key audit matter

Additionally, during 2020, a substantial part of the Group’s team has carried out its activities remotely, generating the need to adapt processes and technology infrastructure to maintain continuity of operations.

 

The lack of a suitable general technology control environment and its dependent controls could trigger incorrect processing of critical information used for the preparation of the consolidated financial statements.

 

 
Key Audit Matter (KAM)  How our audit addressed the key audit matter
Provision for credit losses on loan portfolio (Notes  3 f; 3 i; 7 and 34.1 to the consolidated financial statements

The amount recognized as provision for credit losses on loan portfolio is S/10,435.6 million at December 31, 2020.

 

Provisions for the expected credit losses are measured at each reporting date using a three-stage model of expected credit losses based on the deterioration of the credit quality of the instrument from inception.

 

Measurement of the expected credit loss is based on the probability of default (PD), the loss-given default (LGD), and the exposure at default (EAD), updated at the reporting date and considering the expected macroeconomic effects. For determination of the allowance for loan losses, management has developed specific methodologies including several assumptions and judgments, among which are, the financial situation of the counterparty, the estimated recoverable amounts, and the recoverable amounts of guarantees and adverse effects due to changes in the political and economic environments.

 

The expected credit loss model reflects the present value of all events of decline in the value resulting from events of default (i) during the first twelve months or (ii) during the expected life of the financial instrument based on its significant increase of credit risk. The expected credit loss considers multiple scenarios based on reasonable and supportable forecasts.

 

We obtained an understanding of the process implemented by the Group in its analysis of the qualitative and quantitative disclosures required under IFRS 9; relying on the assistance of our specialists, we also performed audit procedures related to compliance with the requirements of such a standard.

 

Our work on the evaluation of the allowance for loan losses has focused on the evaluation and testing of the design and operational effectiveness of the key controls over the data inputs, assumptions and calculation of the allowance for loan losses. These key controls included, among others: i) the integrity of the data base and the auxiliary systems; ii) models and assumptions adopted by management to determine the value of the portfolio of recoverable loans; iii) changes in significant increase of credit risk; iv) the follow up and valuation of the guarantees; v) the validation and approval of the model and the results of provisions calculation by management; and vi) preparation and disclosure in Notes to the consolidated financial statements. Additionally, we tested information technology controls over the data extraction and calculation of the allowance.

 

We focused our audit on the following aspects, among others:

 

•       Review of the accounting policies and methodological framework implemented by the Group for adequacy with IFRS9;

 

4

 

 

Key Audit Matter (KAM)  How our audit addressed the key audit matter

The use of different techniques and assumptions of the model could result in significantly different provisions. Furthermore, credit risk management is complex and depends on the database being reliable and complete.

 

Additionally, Management has reviewed its internal credit risk methodological models, in order to respond to the uncertainty regarding COVID-19, carrying out certain procedures, such as: (i) conducting customer surveys to assign them a granular risk level in line with actual observed data that complements the assumptions used; (ii) LGD estimates were updated with assumptions, recovery costs and payments from clients in arrears, to see the impact on recoveries, which were affected by delays in lawsuits and deterioration of guarantees; and, (iii) the macroeconomic projections were updated, collecting a better expectation for 2021 under the context of COVID-19, as well as the weights of the scenarios for 2020.

 

As a result, this was an area of focus in our audit.

•      Evaluation of the reasonableness of the models and principal assumptions used for the calculation of the expected credit losses;

•      Evaluation of whether the data used to estimate the provision are complete and accurate; and

•      Review and independent re-performance of the calculation based on a sample of allowance for credit losses at December 31, 2020.

 

Regarding the updates made by Management to respond to the uncertainty of COVID-19, we carried out:

•      General understanding of updates in the models and main assumptions used, as well as in the review of the new controls implemented.

•      Review of the reasonableness of the main assumptions and judgments associated with the determination of the parameters and phases of the calculation.

•      Review of the accuracy and integrity of the data used.

 

We consider that the criteria and assumptions adopted by management in implementing IFRS 9 for determining the allowance for loan losses are reasonable and consistent with the disclosures included in the consolidated financial statements. This criteria and assumptions were considered in the relevant context of the consolidated financial statements. 

 

5

 

 

Key Audit Matter (KAM)  How our audit addressed the key audit matter
Valuation of the mathematical reserves for annuities (Notes 3 e;16 and 34.8 to the consolidated financial statements)

The amount recognized as mathematical reserves for annuities is S/6,806.1 million at December 31, 2020.

 

The valuation of the Group’s mathematical reserves depends on some key subjective assumptions regarding future events. The valuation of the liabilities generated by insurance contracts is made based on the actuarial assumptions and data used in the calculation.

 

Some of the key actuarial economic assumptions used in the valuation of these reserves are critical and include, among others, the discount rate, the life expectancy of the population and the future expenses to be incurred to maintain the existing policies.

 

Minor changes in each of these key assumptions could result in significant impacts in the valuation of the obligations for those insurance contracts and in the respective impacts reflected in the consolidated statement of income.

 

Considering the above, this accounting estimate was a critical matter in our audit.

 

We obtained an understanding and tested key controls in the processes of determining mathematical reserves and the related processes, to analyze the actuarial and economic assumptions, as well as the data used in the calculations. We identified that the key controls related to the determination of the assumptions and the methodology of the calculation, were designed, implemented and operate effectively.

 

We held meetings with financial, treasury and actuarial management in order to obtain an understanding of the judgments and criteria used to determine the key actuarial economic assumptions used in the calculation of the mathematical life insurance reserves.

 

We have reviewed the adequacy of the actuarial and economic assumptions as a whole. With the involvement of actuarial specialists, we evaluated the reasonableness and consistency of the actuarial assumptions in an unbiased manner, including questioning management’s rationale on major criteria and judgments used; as a result, we consider that they are reasonable. Our evaluation included references to independent comparative data.

 

Based on the results of our audit procedures, we consider that the assumptions applied and criteria used to determine the estimates used by Group’s management, in determining the amounts recognized as mathematical life insurance reserves, are reasonable in the context of the consolidated financial statements.

6

 

 

 

Responsibilities of management and those charged with Corporate Governance for the consolidated financial statements

 

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, the matters related to the going concern and using the going concern basis of accounting, unless management either intends to liquidate the Group or cease operations, or has no realistic alternative but to do so.

 

Those charged with Corporate Governance of Credicorp Ltd. and its subsidiaries are responsible for overseeing the Group’s financial reporting process.

 

 

Auditor’s responsibilities for the audit of the consolidated financial statements

 

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

 

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

 

Identified and assessed the risks of material misstatement of the consolidated financial statements, whether due to fraud or error; and designed and performed audit procedures responsive to those risks, and obtained audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtained an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Credicorp Ltd. and its subsidiaries’ internal control.

Evaluated the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

Concluded on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, nothing has come to our attention regarding the existence of material uncertainty related to events or conditions that may cast significant doubt on the ability of Credicorp Ltd. and its subsidiaries to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Credicorp Ltd. and its subsidiaries to cease to continue as a going concern.

Evaluated the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

7

 

 

Obtained sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We were responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

 

We communicated with those charged with Corporate Governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identified during our audit.

 

We also provided those charged with Corporate Governance with a statement that we have complied with relevant ethical requirements regarding independence, and we have communicated to them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, including the respective safeguards.

 

From the matters communicated with those charged with Corporate Governance, we determined those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We have described these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

 

 

 

Lima, February 25, 2021

 

Gaveglio Aparicio y Asociados 

 

Countersigned by

 

/s/ Carlos González Gonzáles(partner)

Carlos González Gonzáles

Peruvian Public Accountant

Registration No. 50403

 

8

 

 

CREDICORP LTD. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 

AS OF DECEMBER 31, 2020 AND 2019

 

   Note   2020   2019 
        S/(000)   S/(000) 
Assets               
                
Cash and due from banks:               
Non-interest-bearing        8,176,612    6,177,356 
Interest-bearing        28,576,382    19,809,406 
    4    36,752,994    25,986,762 
                
Cash collateral, reverse repurchase agreements and securities borrowing   5(a)    2,394,302    4,288,524 
                
Investments:               
At fair value through profit or loss   6(a)    6,467,471    3,850,762 
                
At fair value through other comprehensive income        42,746,061    24,614,050 
At fair value through other comprehensive income pledged as collateral        997,828    1,588,673 
    6(b)    43,743,889    26,202,723 
                
Amortized cost        2,196,220    1,907,738 
Amortized cost pledged as collateral        2,766,162    1,569,308 
    6(c)    4,962,382    3,477,046 
                
Loans, net:   7           
Loans, net of unearned income        137,659,885    115,609,679 
Allowance for loan losses        (9,898,760)   (5,123,962)
         127,761,125    110,485,717 
                
Financial assets designated at fair value through profit or loss   8    823,270    620,544 
Premiums and other policies receivable   9(a)   937,223    838,731 
Accounts receivable from reinsurers and coinsurers   9(b)   919,419    791,704 
Property, furniture and equipment, net   10    1,374,875    1,428,173 
Due from customers on acceptances        455,343    535,222 
Intangible assets and goodwill, net   11    2,639,297    2,532,087 
Right-of-use assets, net   12(a)   702,928    821,840 
Deferred tax assets, net   19(c)   1,693,655    520,848 
Other assets   13    5,777,990    5,478,657 
Total assets       237,406,163   187,859,340 
                
Liabilities               
                
Deposits and obligations:   14           
Non-interest-bearing        47,623,119    28,316,170 
Interest-bearing        94,742,383    83,689,215 
         142,365,502    112,005,385 
                
Payables from repurchase agreements and securities lending   5(b)    27,923,617    7,678,016 
Due to banks and correspondents   15    5,978,257    8,841,732 
Banker’s acceptances outstanding        455,343    535,222 
Accounts payable to reinsurers   9(b)    338,446    216,734 
Lease liabilities   12(b)    750,578    830,153 
Financial liabilities at fair value through profit or loss   3(f)(v)    561,602    493,700 
Technical reserves for insurance claims and premiums   16    11,675,076    9,950,233 
Bonds and notes issued   17    16,319,407    14,946,363 
Deferred tax liabilities, net   19(c)    105,529    134,204 
Other liabilities   13    5,487,159    5,481,288 
Total liabilities        211,960,516    161,113,030 
                
Equity, net   18           
Equity attributable to Credicorp´s equity holders:               
Capital stock        1,318,993    1,318,993 
Treasury stock        (208,433)   (207,839)
Capital surplus        192,625    226,037 
Reserves        21,429,635    19,437,645 
Other reserves        1,865,898    1,088,189 
Retained earnings (losses)        347,152    4,374,935 
         24,945,870    26,237,960 
                
Non-controlling interest        499,777    508,350 
Total equity, net        25,445,647    26,746,310 
                
Total liabilities and net equity        237,406,163    187,859,340 

 

The accompanying notes are an integral part of these consolidated financial statement.

 

9

 

 

CREDICORP LTD. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018

 

   Note   2020   2019   2018 
         S/(000)    S/(000)    S/(000) 
Interest and similar income   22    11,547,648    12,381,664    11,522,634 
Interest and similar expenses   22    (2,976,306)   (3,289,913)   (3,033,529)
Net interest, similar income and expenses        8,571,342    9,091,751    8,489,105 
                     
Provision for credit losses on loan portfolio   7(c)    (6,080,289)   (2,100,091)   (1,814,898)
Recoveries of written-off loans        159,781    254,155    283,190 

Provision for credit losses on loan portfolio, net of recoveries

        (5,920,508)   (1,845,936)   (1,531,708)
                     

Net interest, similar income and expenses, after provision for credit losses on loan portfolio

        2,650,834    7,245,815    6,957,397 
                     
Other income                    
Commissions and fees   23    2,912,778    3,232,781    3,126,857 
Net gain on foreign exchange transactions        622,783    748,382    737,954 
Net gain on securities   24    523,082    546,814    242,829 
Net gain on derivatives held for trading        40,789    6,043    13,262 
Net gain from exchange differences        19,804    19,520    16,022 
Others   29    286,981    344,229    273,882 
Total other income        4,406,217    4,897,769    4,410,806 
                     
Insurance underwriting result                    
Net premiums earned   25    2,428,060    2,394,243    2,061,481 
Net claims incurred for life, general and health insurance contracts   26    (1,708,113)   (1,531,418)   (1,212,198)
Acquisition cost        (361,814)   (365,848)   (380,310)
Total insurance underwriting result        358,133    496,977    468,973 
                     
Other expenses                    
Salaries and employee benefits   27    (3,312,954)   (3,411,023)   (3,219,875)
Administrative expenses   28    (2,386,108)   (2,361,117)   (2,317,829)
Depreciation and amortization   10 and 11(a)    (497,910)   (455,033)   (429,122)
Impairment loss on goodwill   11(b)    (63,978)       (38,189)
Depreciation for right-of-use assets   12(a)    (172,005)   (169,406)    
Others   29    (758,068)   (268,469)   (239,947)
Total other expenses        (7,191,023)   (6,665,048)   (6,244,962)

 

10

 

 

CONSOLIDATED STATEMENT OF INCOME (CONTINUED)

 

   Note   2020   2019   2018 
         S/(000)    S/(000)    S/(000) 
Profit before income tax        224,161    5,975,513    5,592,214 
Income tax   19(b)    109,977    (1,623,182)   (1,520,909)
Net profit       334,138   4,352,331   4,071,305 
                     
Attributable to:                    
Credicorp’s equity holders        346,894    4,265,304    3,983,865 
Non-controlling interest        (12,756)   87,027    87,440 
        334,138    4,352,331    4,071,305 
                     
Net basic and dilutive earnings per share attributable to Credicorp’s equity holders (in Soles):                    
                     
Basic   30    4.37    53.66    50.13 
Diluted   30    4.36    53.53    49.99 

 

The accompanying notes are an integral part of these consolidated financial statement.

 

11

 

 

CREDICORP LTD. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018

 

       2020   2019   2018 
         S/(000)    S/(000)    S/(000) 
Net profit for the year        334,138    4,352,331    4,071,305 
Other comprehensive income:                    
To be reclassified to profit or loss in subsequent periods:                    
                     
Net gain (loss) on investments at fair value through other comprehensive income   18(d)    714,362    1,064,859    (642,505)
Income tax   18(d)    (11,717)   (22,259)   11,831 
         702,645    1,042,600    (630,674)
                     
Net movement on cash flow hedges   18(d)    (16,402)   (37,851)   41,241 
Income tax   18(d)    3,933    10,290    (10,942)
         (12,469)   (27,561)   30,299 
                     
Other reserves   18(d)    (263,820)   (666,556)    
Income tax   18(d)    26,846         
         (236,974)   (666,556)    
                     
Exchange differences on translation of foreign operations   18(d)    258,271    (58,323)   45,655 
                     
Net movement in hedges of net investments in foreign businesses   18(d)    (1,219)        
         257,052    (58,323)   45,655 
                     
Total        710,254    290,160    (554,720)
                     
Not to be reclassified to profit or loss in subsequent periods:                    
                     
Net gain in equity instruments designated at fair value through other comprehensive income   18(d)    73,270    91,512    20,971 
Income tax   18(d)    3,414    5,999    (168)
         76,684    97,511    20,803 
                     
Total        76,684    97,511    20,803 
                     
Total other comprehensive income   18(d)   786,938   387,671   (533,917)
                     
Total comprehensive income for the year, net of income tax        1,121,076    4,740,002    3,537,388 
                     
Attributable to:                    
Credicorp’s equity holders        1,124,603    4,645,040    3,455,682 
Non-controlling interest        (3,527)   94,962    81,706 
         1,121,076    4,740,002    3,537,388 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

12

 

 

CREDICORP LTD. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF CHANGES IN NET EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018

 

   Attributable to Credicorp’s equity holders.         
                       Other reserves                 
       Treasury  stock           Instruments
that will
not be reclassified to income
   Instruments that will be reclassified to the
consolidated statement of income
                 
   Capital stock   Shares of the Group   Share-based payment   Capital surplus   Reserves  

Investments in equity instruments

  

Investments in debt instruments

   Cash flow hedge reserve   Insurance reserves   Foreign currency translation reserve   Retained earnings   Total   Non-controlling interest  

Total net equity

 
   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000) 
Balances as of January 1, 2018 - Restated   1,318,993    (204,398)   (4,539)   271,948    14,647,709    431,711    853,747    (32,781)   –-    (16,041)   4,298,578    21,564,927    497,136    22,062,063 
Changes in equity in 2018 -                                                                      
Net profit for the year                                           3,983,865    3,983,865    87,440    4,071,305 
Other comprehensive income, Note 18(d)                       20,840    (624,277)   29,620        45,634        (528,183)   (5,734)   (533,917)
Total comprehensive income                       20,840    (624,277)   29,620        45,634    3,983,865    3,455,682    81,706    3,537,388 

Transfer of retained earnings to reserves, Note 18(c)

                   2,933,617                        (2,933,617)            
Dividend distribution, Note 18(e)                                           (1,130,427)   (1,130,427)       (1,130,427)

Dividends paid to interest non-controlling of subsidiaries

                                                   (45,134)   (45,134)
Acquisition of non-controlling interest                                           (70,046)   (70,046)   (104,426)   (174,472)
Purchase of treasury stock, Note 18(b)           (1,869)   (93,544)                               (95,413)       (95,413)
Share-based payment transactions           2,767    67,790    17,230                            87,787        87,787 
Others       45                                    26,688    26,733    (2,449)   24,284 
Balances as of December 31, 2018   1,318,993    (204,353)   (3,641)   246,194    17,598,556    452,551    229,470    (3,161)       29,593    4,175,041    23,839,243    426,833    24,266,076 
                                                                       
Changes in equity in 2019 -                                                                      
Net profit for the year                                           4,265,304    4,265,304    87,027    4,352,331 
Other comprehensive income, Note 18(d)                       97,514    1,026,518    (26,943)   (658,491)   (58,862)       379,736    7,935    387,671 
Total comprehensive income                       97,514    1,026,518    (26,943)   (658,491)   (58,862)   4,265,304    4,645,040    94,962    4,740,002 

Transfer of retained earnings to reserves, Note 18(c)

                   1,858,811                        (1,858,811)            
Dividend distribution, Note 18(e)                                           (1,595,229)   (1,595,229)       (1,595,229)

Dividends paid to interest non-controlling of subsidiaries

                                                   (52,971)   (52,971)
Additional dividends                   (31,268)                       (606,824)   (638,092)       (638,092)
Purchase of treasury stock, Note 18(b)           (1,814)   (101,411)                               (103,225)       (103,225)
Share-based payment transactions           2,004    81,254    11,546                            94,804        94,804 
Acquisition of subsidiaries, Note 2(a)                                                   74,392    74,392 
Others       (35)                                   (4,546)   (4,581)   (34,866)   (39,447)
Balances as of December 31, 2019   1,318,993    (204,388)   (3,451)   226,037    19,437,645    550,065    1,255,988    (30,104)   (658,491)   (29,269)   4,374,935    26,237,960    508,350    26,746,310 

 

13

 

 

CONSOLIDATED STATEMENT OF CHANGES IN NET EQUITY (CONTINUED)

 

   Attributable to Credicorp’s equity holders.         
                       Other reserves                 
        Treasury  stock             Instruments that will not be reclassified to income                     
   Capital stock   Shares of the Group   Share-based payment   Capital surplus   Reserves  

Investments in equity instruments

  

Investments

in debt instruments

   Cash flow hedge reserve   Insurance reserves   Foreign currency translation reserve   Retained earnings   Total   Non-controlling interest  

Total net

equity

 
   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000)   S/(000) 
Balances as of December 31, 2019   1,318,993    (204,388)   (3,451)   226,037    19,437,645    550,065    1,255,988    (30,104)   (658,491)   (29,269)   4,374,935    26,237,960    508,350    26,746,310 
Changes in equity in 2020 -                                                                      
Net profit for the year                                           346,894    346,894    (12,756)   334,138 
Other comprehensive income, Note 18(d)                       76,849    688,831    (12,217)   (234,107)   258,353        777,709    9,229    786,938 
Total comprehensive income                       76,849    688,831    (12,217)   (234,107)   258,353    346,894    1,124,603    (3,527)   1,121,076 

Transfer of retained earnings to reserves, Note 18(c)

                   1,977,091                        (1,977,091)            
Dividend distribution, Note 18(e)                                           (2,392,844)   (2,392,844)       (2,392,844)

Dividends paid to interest non-controlling of subsidiaries

                                                   (32,273)   (32,273)
Additional dividends                                                        
Purchase of treasury stock, Note 18(b)           (3,418)   (148,543)                               (151,961)       (151,961)
Sale of treasury stocks, Note 18(b)       62                                        62        62 
Share-based payment transactions           2,762    115,131    14,899                            132,792        132,792 
Others                                           (4,742)   (4,742)   27,227    22,485 
Balances as of December 31, 2020   1,318,993    (204,326)   (4,107)   192,625    21,429,635    626,914    1,944,819    (42,321)   (892,598)   229,084    347,152    24,945,870    499,777    25,445,647 

 

The accompanying notes are an integral part of these consolidated financial statement.

 

14

 

 

CREDICORP LTD. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018

 

   Note   2020   2019   2018 
         S/000    S/000    S/000 
CASH AND CASH EQUIVALENTS FROM OPERATING   ACTIVITIES                    
Net profit for the year        334,138    4,352,331    4,071,305 
                     
Adjustment to reconcile net profit to net cash arising from operating activities:                    
Provision for credit losses on loan portfolio   7(c)    6,080,289    2,100,091    1,814,898 
Impact of fair value of portfolio with change in effective rate        326,691         
Depreciation and amortization   10 and 11(a)    497,910    455,033    429,122 
Depreciation of right-of-use assets   12(a)    172,005    160,406     
Depreciation of investment properties   13(e)    7,018    6,727    7,405 
Deferred (income) tax expense   19(b)    (1,147,311)   (52,435)   91,101 
Adjustment of technical reserves   25(a)    758,274    761,970    713,433 
Net gain on securities   24    (523,082)   (546,814)   (242,829)
Impairment loss on goodwill   11(b)    63,978        38,189 
Provision for sundry risks   13(f)    140,897    27,272    42,236 
(Gain) loss on financial assets designated at fair value through profit and loss   25(a)    (115,627)   (93,664)   53,935 
Net gain of trading derivatives        (40,789)   (6,043)   (13,262)
Net Income from sale of property, furniture and equipment   29    (8,523)   (16,869)   (54,952)
(Gain) loss net from sale of seized and recovered assets   29    (728)   9,617    3,411 
Expense for share-based payment transactions   27    103,632    120,062    106,865 
Net gain from sale of written-off portfolio        (35,638)   (106,835)   (60,663)
Intangible losses due to withdrawals and dismissed projects   29    40,342    22,492     
Others        33,827    (19,840)   (16,022)
Net changes in assets and liabilities                    
Net (increase) decrease in assets:                    
Loans        (20,593,548)   (6,767,721)   (10,236,155)
Investments at fair value through profit or loss        (2,197,109)   (206,534)   530,918 
Investments at fair value through other comprehensive income        (15,904,097)   771,680    (837,699)
Cash collateral, reverse repurchase agreements and securities borrowings        2,137,262    (265,157)   3,604,105 
Sale of written off portfolio        36,921    193,770    60,663 
Other assets        (335,229)   (1,142,133)   (1,078,163)

 

15

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

 

                 
   Note   2020   2019   2018 
         S/000    S/000    S/000 
Net increase (decrease) in liabilities                    
Deposits and obligations        25,856,151    7,457,393    5,583,328 
Due to Banks and correspondents        (3,143,279)   426,411    267,383 
Payables from repurchase agreements and securities lending        20,200,747    (1,714,532)   (4,069,121)
Bonds and notes issued        (96,199)   670,877    (1,264,573)
Short-term and low-value lease payments        (74,016)   (63,047)    
Other liabilities        1,274,759    1,567,333    1,310,271 
Income tax paid        (1,162,843)   (1,168,130)   (1,106,700)
Net cash flow from operating activities        12,686,823    6,933,711    (251,571)
                     
NET CASH FLOWS FROM INVESTING ACTIVITIES                    
Revenue from sale of property, furniture and equipment        22,956    35,355    95,063 
Revenue from sale of investment property        78    38,969    25,552 
Revenue from sales and reimbursement of investment to amortized cost        1,600,519    3,256,332    4,083,902 
Purchase of property, furniture and equipment   10    (98,120)   (134,776)   (181,459)
Purchase of investment property   13(e)    (26,533)   (33,321)   (49,519)
Purchase of intangible assets   11(a)    (535,241)   (371,957)   (419,789)
Purchase of investment at amortized cost        (2,837,015)   (1,688,443)   (3,613,093)
 Acquisition of subsidiaries, net of cash received   2(a)        (375,952)    
Net cash flows from investing activities        (1,873,356)   726,207    (59,343)
                     
NET CASH FLOWS FROM FINANCING ACTIVITIES                    
Dividends paid   18(e)    (2,392,844)   (1,595,229)   (1,130,427)
Dividends paid to non-controlling interest of subsidiaries        (32,273)   (52,971)   (45,134)
Additional dividends   18(e)        (638,092)    
Principal payments of leasing contracts        (163,392)   (147,841)    
Interest payments of leasing contracts        (32,295)   (37,438)    
Subordinated bonds        684,243    (977,009)    
Purchase of treasury stock   18(b)    (151,899)   (103,225)   (95,413)
Acquisition of non-controlling interest                (174,472)
Net cash flows from financing activities        (2,088,460)   (3,551,805)   (1,445,446)

 

16

 

   

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

 

   Note   2020   2019   2018 
         S/000    S/000    S/000 
Net increase (decrease) of cash and cash equivalents  before effect of changes in exchange rate        8,725,007    4,108,113    (1,756,360)
                     
Effect of changes in exchange rate of cash and cash equivalents        2,034,718    (294,874)   704,966 
Cash and cash equivalents at the beginning of the period        25,974,042    22,160,803    23,212,197 
                     
Cash and cash equivalents at the end of the period        36,733,767    25,974,042    22,160,803 
                     
Additional information from cash flows                    
Interest received        11,161,316    12,349,495    11,469,209 
Interest paid        (2,959,525)   (3,193,536)   (3,034,140)
                     
Transactions that do not represent cash flow                    
Recognition of lease operations        (118,912)   852,800     
                     
Reclassification from investments at amortized cost to fair value with changes in equity            241,656     

 

17

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

 

Reconciliation of liabilities arising from financing activities:

 

      

Changes that generate

cash flows

   Changes that do not generate cash flows       
2020 

As of January

1, 2020

  

New

issues

  

Amortization

of principal

  

Exchange

difference

  

Changes in

fair value

   Discontinuing of hedge   Others  

As of December

31, 2020

 
    S/000    S/000    S/000    S/000    S/000    S/000    S/000    S/000 
Subordinated bonds:                                        
Amortized cost   4,387,743    3,222,663    (2,538,420)   396,089            (86,752)   5,381,323 
    4,387,743    3,222,663    (2,538,420)   396,089            (86,752)   5,381,323 

 

       

Changes that generate

cash flows

   Changes that do not generate cash flows       
2019 

As of January

1, 2019

  

New

issues

  

Amortization

of principal

  

Exchange

difference

  

Changes in

fair value

   Discontinuing of hedge   Others  

As of December

31, 2019

 
    S/000    S/000    S/000    S/000    S/000    S/000    S/000    S/000 
Subordinated bonds:                                        
Amortized cost   5,424,401        (977,009)   (69,875)   421        9,805    4,387,743 
    5,424,401        (977,009)   (69,875)   421        9,805    4,387,743 

 

       

Changes that generate

cash flows

   Changes that do not generate cash flows       
2018 

As of January

1, 2018

  

New

issues

  

Amortization

of principal

  

Exchange

difference

  

Changes in

fair value

   Discontinuing of hedge (*)   Others  

As of December

31, 2018

 
    S/000    S/000    S/000    S/000    S/000    S/000    S/000    S/000 
Subordinated bonds:   2,257,516            183,791    164    2,951,813    31,117    5,424,401 
Amortized cost   2,989,873            17,210    (55,270)   (2,951,813)        
    5,247,389            201,001    (55,106)       31,117    5,424,401 
                                         
Fair value hedge   (34,290)       (9,245)   (293)   31,185        12,643     

 

(*) During the first quarter of 2018, the Group discontinued the fair value hedge of certain liability bonds that were classified to fair value; as a result, these bonds were reclassified as financial liabilities at amortized cost.

 

The accompanying notes are an integral part of these consolidated financial statement.

 

18

 

 

CREDICORP LTD. AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020 AND 2019

 

1OPERATIONS

 

Credicorp Ltd. (hereinafter “Credicorp”) is a limited liability company incorporated in Bermuda in 1995 to act as a holding company and according to Bermuda’s economic substance regulation, Credicorp Ltd. as an independent legal entity, is considered a “Pure Equity Holding Entity” (PEHE). Credicorp’s activity is to maintain equity interests and receive passive income such as dividends, capital gains and other income from investments in securities.

 

In order to keep Credicorp’s structure and organization fully aligned with the new legislation on economic substance approved by the Government of Bermuda on January 11, 2019, as of October 29, 2020, the decisions of the Credicorp Board of Directors will be limited to issues related to Credicorp’s strategy, objectives and goals, main action plans and policies, risk control and management, annual budgets, business plans and control of their implementation, supervision of the main expenses, investments, acquisitions and disposals, among other “passive” decisions related to Credicorp. The authority to make decisions applicable to Credicorp’s subsidiaries, such as the adoption of relevant strategic or management decisions, the assumption of expenses for the benefit of its affiliates, the coordination of group activities, and the granting of credit facilities in favor of its affiliates, it has been transferred to Grupo Crédito SA, a subsidiary of Credicorp.

 

Credicorp, through its banking and non-banking subsidiaries and its associate Entidad Prestadora de Salud, offers a wide range of financial, insurance and health services and products, mainly throughout Peru and in other countries (see Note 3 (b)). Its main subsidiary is Banco de Credito del Perú (hereinafter “BCP” or the “Bank”), a multiple bank incorporated in Peru.

 

Credicorp’s legal address is Clarendon House 2 Church Street Hamilton, Bermuda; likewise, the main offices from where Credicorp’s businesses are managed are located at Calle Centenario N ° 156, La Molina, Lima, Peru.

 

At a Credicorp Board of Directors meeting, held on December 19, 2019, the Corporate Policy for the Prevention of Corruption and Bribery was approved. This document specifies that neither Credicorp nor any of its subsidiaries can make contributions or deliver any benefit to political organizations or their members, under any modality, directly or indirectly. Management confirms that during 2020, none of these contributions have been made.

 

The consolidated financial statements presented correspond to the financial statement of Credicorp and subsidiaries (hereinafter “the Group”). The consolidated financial statements as of December 31, 2019 and for the year then ended were approved by the Board of Directors on February 27, 2020 and presented to the General Shareholders’ Meeting on June 5, 2020. The consolidated financial statements as of December 31, 2020 and for the year ended on that date were approved and authorized for issuance by the Board of Directors and Management on February 25, 2021, and will be presented for final approval in the General Shareholders’ Meeting, which will be held within the deadlines established by law; in Management’s opinion, these will be approved without modifications.

 

Credicorp is listed on the Lima and New York Stock Exchanges.

 

19

 

2SIGNIFICANT TRANSACTIONS

 

a)Main acquisitions, incorporations and mergers

 

i)Acquisitions during the year 2019

 

Banco Compartir S.A.-

 

On June 28, 2019, Credicorp, through its Subsidiary Credicorp Holding Colombia S.A.S., signed an agreement with the majority shareholders of Banco Compartir S.A. (hereinafter “Bancompartir”) to acquire 74.49 percent of its share capital. Subsequently, as part of the initial agreement, in July 2019, Credicorp Holding Colombia S.A.S. signed agreements with minority shareholders to additionally acquire 2.97 percent of the share capital of Bancompartir.

 

Bancompartir is a financial institution incorporated in Colombia to operate as banking stablishment, with the objective of carrying out all the businesses, operations, acts and contracts authorized by law and by the Superintendency of Banks Colombia (SFC from spanish acronym, banking regulator of Colombia).

 

The acquisition of Bancompartir was approved by the Superintendency of Banks Colombia Insurance through document N°2019120112-000-000, dated in November 12, 2019.

 

Credicorp Holding Colombia S.A.S. paid a total of COP265,251.7 million (equivalent to S/255.7 million) for the acquisition of 77.46 percent of the share capital of Bancompartir, effective December 1, 2019.

 

Ultraserfinco S.A. and Subsidiaries –

 

On November 1, 2019, Credicorp through its Subsidiaries Credicorp Holding Colombia S.A.S. and Credicorp Capital Fiduciaria S.A., acquired 84.20 percent and 15.80 percent, respectively, of the capital stock of Ultraserfinco S.A. (a company incorporated in Colombia in 1991 and oriented to provide services related to the purchase and sale of securities), for approximately COP118,251 million (equivalent to S/116.8 million) and COP22,312 million (equivalent to S/22.1 million), respectively.

 

The acquisition of Ultraserfinco includes its subsidiaries Ultra Holdings Group Inc.; Ultralat Group Inc.; Ultralat Capital Market Inc. and Ultralat Investment Advisor; which have as economic goal to administer investment funds and carry out stock operations in the country in which they operate.

 

The transaction was approved by the Superintendencia Financiera of Securities and Insurance through document N° 2019052313-000-000 dated October 22, 2019, the effective date of the acquisition was in November 1, 2019.

 

Multicaja Prepago S.A. and Tenpo SpA –

 

On March 27, 2019, Credicorp through its subsidiary Krealo SpA (an entity incorporated in Chile on January 2019), suscribed an agreement with Multicaja S.A. in order to acquire the 100.0 percent of the equity of Multicaja Prepago S.A. for approximately US$6.1 million equivalent to S/19.6 million, and Tenpo SpA for approximately US$12.5 million, equivalent to S/41.1 million.

 

Multicaja Prepago S.A., is a chilean company oriented exclusively to the issuance of non-bank payment cards with provision of funds and other necessary activities, which are authorized by the Comisión para el Mercado Financiero- CMF (before “Superintendencia de Bancos e Instituciones Financieras”, the Chilean Banking Supervisor- SBIF from spanish acronym).

 

20

 

 

The acquisition of Multicaja Prepago was approved by the SBIF through the document N° 218999 on May 28, 2019.

 

Tenpo SpA, is a Chilean company oriented to develop information systems and data processing; as well as the development of activities related to the commercialization or distribution of digital and computer products and services. The acquisition of this entity does not required the approval of the Chilean Banking Supervisor.

 

The acquisition of these entities was effective in July 1, 2019.

 

Compañía Incubadora de Soluciones Móviles S.A.C. -

 

On January 2019, Credicorp through its subsidiary Grupo Crédito S.A. (hereinafter “Grupo Crédito”) acquired the 100.00 percent of the capital stock of Compañía Incubadora de Soluciones Móviles S.A. (hereinafter “Culqi”), an entity incorporated in Peru, oriented to the development and operation of a platform online payment methods for approximately US$4.0 million (equivalent to S/13.3 million).

 

21

 

 

At the date of acquisition, the book value and fair value of the identified assets and liabilities of the entities purchased were the following:

 

   Book value  Fair value adjustments  Fair value recognized on acquisition  Total fair value 
   Bancompartir  Ultraserfinco and Subsidiaries  Multicaja  Tenpo  Culqi  Bancompartir  Ultraserfinco and Subsidiaries  Multicaja  Tenpo  Culqi  Bancompartir  Ultraserfinco and Subsidiaries  Multicaja  Tenpo  Culqi  recognized on acquisition 
   S/(000)  S/(000)  S/(000)  S/(000)  S/(000)  S/(000)  S/(000)  S/(000)  S/(000)  S/(000)  S/(000)  S/(000)  S/(000)  S/(000)  S/(000)  S/(000) 
Assets                                                                 
Cash   30,985   55,160   3,633   1,938   1,016                  30,985   55,160   3,633   1,938   1,016   92,732 
Investments   153,188   24,739                           153,188   24,739            177,927 
Loans, net   706,621               (54,765)              651,856               651,856 
Right-of-use assets, net   6,578   5,206                           6,578   5,206            11,784 

Property, furniture and equipment, net, Note 10(a)

   5,969   3,385   34   112   32   374   688            6,343   4,073   34   112   32   10,594 
                                                                  
Intangible, Note 11                                                                 
Software and licenses   60,450            2         2,647   4,640   8,322   60,450      2,647   4,640   8,324   76,061 
Brand “Culqi”                              1,164               1,164   1,164 
Brand “Recarga”                           2,790               2,790      2,790 
Client relationships                     13,376      2,536   2,550      13,376      2,536   2,550   18,462 
PayPal Contract                           7,504               7,504      7,504 
Fund manager contract                     4,298               4,298            4,298 
Anti-competition contract                  5,454   7,291            5,454   7,291            12,745 
Deferred tax assets                  18,242            541   18,242            541   18,783 
Other assets   58,557   17,784   17   1,204   1,100               (400)  58,557   17,784   17   1,204   700   78,262 
                                                                  
Liabilities                                                                 
Deposits and obligations   794,893                              794,893               794,893 
Due to banks and correspondents   50,659                              50,659               50,659 
Lease liabilities   6,874   5,680                           6,874   5,680            12,554 
Deferred tax liabilities   139               1,895   7,924   715   4,717   3,550   2,034   7,924   715   4,717   3,550   18,940 
Other liabilities   16,101   24,041   192   142   955                  16,101   24,041   192   142   955   41,431 
                                                                  
Total net assets identified at fair value   153,682   76,553   3,492   3,112   1,195   (32,590)  17,729   1,932   12,753   8,627   121,092   94,282   5,424   15,865   9,822   246,485 
                                                                  
Non-controlling interest                                           (56,689)              (56,689)
                                                                  
Goodwill arising on acquisition                                           188,271   44,628   14,182   25,260   3,518   275,859 
                                                                  
Total purchase consideration                                           252,674   138,910   19,606   41,125   13,340   465,655 

 

22

 

 

All purchases were recorded using the purchase method, as required by the IFRS 3 “Business combinations”, applicable on the date of the transaction. Assets and liabilities were recorded at their estimated market values ​​at the acquisition dates, including intangible assets identified not recorded in the financial statements of each entity.

 

The acquisition costs incurred by Bancompartir and Ultraserfinco and Subsidiaries amounted to approximately COP 2,040.2 million equivalent to S/2.0 million, acquisition costs incurred by Multicaja and Tenpo amounted to CLP 50.6 million equivalent to approximately S/0.2 million and the acquisition costs of Culqi amounted to S/0.1 million. Also, these costs were recorded in the “Administrative expenses” section of the consolidated statement of income.

 

The Group chose to measure the uncontrolled interests held in Bancompartir at fair value, which were estimated considering the consideration paid.

 

The fair values ​​of the intangible assets identified at the acquisition date were determined using the income approach, based on the present value of earnings attributable to the asset or costs avoided as a result of being the owner of the asset. Under this approach, the fair value of intangible assets is determined through the future cash flow methodology discounted using the rate of return that considers the relative risk of getting cash flows and the value of money over time.

 

The following methods, based on the income approach, were used by the Management of Credicorp, to estimate the fair values ​​of the intangible assets identified at the acquisition date.

 

For the valuation of the intangible acquired by the anti-competition contract, the Management used the “With-or-without” method, which estimates the fair value of intangible assets comparing with the cash flows generated by the entity, including the intangible asset against cash flows generated by the company excluding said intangible asset.

 

For the software valuation was applied the method “Replacement cost to new”, which estimates the costs that should be incurred to acquire or build an asset with similar characteristics, capacity and functionalities.

 

The “Relief from Royalties” method was applied for brand valuation, which estimates the cash flows that the company saves for the payment of royalties that it would make if it did not count with a brand of its own.

 

For the valuation of the intangible asset of the Client relationship was used the method of “Multi-Period Excess Earnings Method (MEEM)”, which estimates the residual cash flow of the intangible asset after discounting returns for all assets that contribute to the flow.

 

For the valuation of the intangible asset of the fund manager contracts was used the method of “Multi-Period Excess Earnings Method (MEEM)”, which estimates the residual cash flow of the intangible asset after discounting returns for all assets that contribute to the flow.

 

For the valuation of the intangible asset of the PayPal contract was used the method of “Multi-Period Excess Earnings Method (MEEM)”, which estimates the residual cash flow of the intangible asset after discounting returns for all assets that contribute to the flow.

 

In Management’s opinion, those methods are generally accepted for the valuation of intangible assets identified in business combination processes.

 

23

 

 

From the effective date of acquisition (December 1, 2019) until December 31, 2019, Bancompartir contribution’s in interest and similar income amounted to approximately S/16.5 million. If the combination had taken place at the beginning of the year, the similar interests and income of the Group would have amounted to approximately S/198.7 million (an increase of S/182.2 million). The income of the other acquired companies is inmaterial for the consolidated financial statements of the Group. Also, for the year 2019, the profit (loss) before taxes of acquired companies are immaterial for consolidated financial statements of the Group.

ii)Merger by absorption between Credicorp Capital Colombia S.A. and Ultraserfinco S.A. –

 

At the General Shareholders’ Meeting - Extraordinary Meeting held on January 13, 2020, the shareholders of Credicorp Capital Colombia S.A. approved the legal merger of Ultraserfinco S.A. This operation was authorized by the Superintendency of Colombian Bank through Resolution N°0421 of April 24, 2020. Also, on June 27, 2020, Credicorp Capital Colombia S.A. (absorbing entity) acquired all the assets, liabilities, rights and obligations of Ultraserfinco S.A. (absorbed entity).

 

This transaction has not generated a significant impact on the Group’s consolidated financial statements.

 

iii)Merger by absorption between Banco Compartir S.A. and Edyficar S.A.S. –

 

At the General Shareholders’ Meeting - Extraordinary Meeting held on August 03, 2020, the shareholders of Banco Compartir S.A. approved the legal merger of Edyficar S.A.S. This operation was authorized by the Superintendency of Colombian Bank through Resolution N°756 of August 26, 2020. Also, October 30,2020, Banco Compartir S.A. (absorbing entity) acquired all the assets, liabilities, rights and obligations of Edyficar S.A.S. (absorbed entity). Likewise, both entities agreed that, from the date of the merger, the legal name of the new merged entity will be “Mibanco - Banco de la Microempresa de Colombia S.A.”.

 

This transaction has not generated a significant impact on the Group’s consolidated financial statements.

 

b)The outbreak of the new coronavirus (hereinafter “COVID-19”).

 

The COVID-19 outbreak, which was first reported in Wuhan, China, in late year 2019 forced governments globally to take important measures to mitigate the spread of the disease, such as the closure of international borders, severe mobilization restrictions and quarantines. As a result, the Global Gross Domestic Product (GDP; and PBI, by its initials in Spanish) contracted severely in 2020 and the economies in which Credicorp operates (mainly Peru, Chile, Colombia, Bolivia and Panama) were severely affected.

 

The main measures taken by the governments of the countries in which Credicorp operates consisted of emergency declarations, mobilization restrictions, quarantines and border closures, which have later been modified to selective quarantines in most cases. During the second semester of 2020, the economies of these countries began their reopening processes in phases or stages, but due to the increase in cases that have occurred at the end of 2020, restrictive movement measures have been imposed by risk areas that extend until the date of issuance of this report.

 

The economies of the countries in which the Group mainly operates have shown signs of recovery and vaccinations began on December 24, 2020 in Chile, January 2021 in Panama and Bolivia, on February 9, 2021 in Peru and February 17, 2021 in Colombia.

 

24

 

 

Panama

 

i)Government measures to counteract negative effects of the pandemic -

 

The government adopted fiscal and macro-financial measures such as spending on social and health programs aimed at supporting SMEs and implemented tax relief measures. The Superintendency of Banks of Panama (SBP) allowed banks to use accumulated dynamic provisioning to absorb the impact of credit losses, allowed banks to undertake voluntary loan restructurings with distressed borrowers, and requested banks not to charge interest on unpaid interest.

 

ii)Effects of the pandemic on the economy-

 

In May 2020, at the worst moment of the pandemic, GDP fell 31.0 percent “compared to the previous year” (hereinafter, “y/y”) due to the importance of the services sector, which represents more than 75.0 percent GDP, and its dependence on external demand. Its recovery has been taking place at a slower pace than its peers, with a fall in GDP of 17.0 percent y/y in November (latest data available).

 

In November, Standard & Poor’s lowered its credit rating to BBB with a stable outlook, while Moody’s, in October, changed its credit rating outlook to negative (Baa1). Fitch, in February 2020, also changed the outlook to negative (BBB).

 

Bolivia

 

i)Government measures to counteract negative effects of the pandemic -

 

The Bolivian government announced fiscal and monetary measures such as payments for the unemployed and families with children, coverage of basic services, loans to companies to cover the payment of wages, a microcredit support program, a bonus against hunger, the enactment of a tax on Large Fortunes Law and the Refund of the Value Added Tax (VAT). The Central Bank injected liquidity to the local market and; in relation to measures that affect the financial system, the renewal of the deferral of the payment of bank loans and interest was approved until July 2021 (clients have not been paying capital or interest since March 2020). On the other hand, banks and financial companies must pay an additional 25.0 percent tax on profits if the ROE (Retorn on Equity) exceeds 6.0. Likewise, in December 2020, the capitalization of 100.0 percent of the net profits obtained by banks and financial entities was approved, with the aim of strengthening the financial system and expanding credit.

 

ii)Effects of the pandemic on the economy-

 

The economy sank 26.6 percent y/y in April, the largest recorded contraction of the Global Index of Economic Activity (IGAE, by its acronym in Spanish) in recent times. The recovery began in the second quarter of 2020 with the rise in commodity prices and some normalization in gas-related activities. The 2020 is estimated to have closed with a GDP of (7.8) percent.

 

In September, Fitch and Moody’s lowered Bolivia’s long-term foreign currency rating from B + to B due to deteriorating growth prospects and the country’s public finances amid acute political tensions.

 

25

 

Colombia

 

i)Government measures to counteract negative effects of the pandemic -

 

The Colombian government gradually implemented a series of measures such as salary subsidies, deferral of the payment of business income tax, and social security payments. In addition, a credit program for companies equivalent to 8.0 points per capita of GDP was launched. On the other hand, the Central Bank has injected about 1.4 percent of GDP to provide liquidity in the local market and cut the benchmark rate by 250 basis points to 1.75 percent, a new low. In relation to the financial system, grace periods and credit restructuring were given for natural and legal people.

 

ii)Effects of the pandemic on the economy -

 

In April, the recession reached its lowest point with a contraction of 20.1 percent y/y according to the Economic Activity Index (IMACO, by its acronym in Spanish) and from there the recovery began and closed the year 2020 with a contraction of the GDP of 6.8 percent.

 

Colombia faces the possible loss of investment grade. Fitch downgraded the long-term foreign currency rating from BBB to BBB- with a negative outlook in April. S&P also downgraded the outlook to negative in March with a BBB- rating when the pandemic began. Finally, in December, Moody’s also changed the outlook from stable to negative, ratifying the rating at Baa2. The decision was based on a strong deterioration of multiple debt indicators during 2020, although they expect a fiscal consolidation from 2022 as a result of the new tax reform that will be discussed in the first half of 2021.

 

Chile

 

i)Government measures to counteract negative effects of the pandemic -

 

The Chilean government announced three fiscal stimulus packages that represent 12.0 percent of GDP, with measures mainly focused on protecting jobs and income for low- and middle-income families, as well as SMEs. The Ministry of Finance also announced an expansion of the Fund of Guarantee for Small businesses (FOGAPE, by its acronym in Spanish) to temporarily include medium and large companies. The Central Bank of Chile (BCCh, by its initials in Spanish) reduced its interest rate in 125 basis points accumulated to 0.5 percent and adopted unconventional measures such as the purchase of bank and government bonds, as well as the introduction of a new financing program for banks conditional to increased credit. Additionally, two withdrawals of 10.0 percent of the individual pension fund accounts were approved.

 

ii)Effects of the pandemic on the economy -

 

The economic impact of the pandemic is unprecedented in Chile. The economy hit its lowest point in May with a contraction of 15.5 percent y/y and has since recovered. At the end of 2020 the GDP closed at (5.9) percent. Commerce and industry continue to lead the gradual recovery, but the services sector and construction remain weak.

 

On October 15, Fitch downgraded Chile’s long-term foreign currency rating from A to A- in response primarily to a marked deterioration in fiscal accounts.

 

Peru

 

i)Government measures to counteract negative effects of the pandemic -

 

In response to the major sanitary and economic shock from COVID-19, the Ministry of Finance, the Central Bank and Congress announced and implemented an ample package of measures to mitigate and stimulate the economy for the equivalent of around 20.0 percent of GDP. The ability to implement measures of this magnitude stems from prudent macroeconomic policies that have been implemented for decades.

26

 

 

The measures enacted include grace periods and rescheduling of credits to individuals and legal entities, tax relief, public spending, access to private savings (pension fund accounts and severance indemnity deposits), and government-backed liquidity programs.

 

In particular, the government supported the business sector through two government-backed programs:

 

- “Reactiva Perú” is a liquidity program, created by the National Government through Legislative Decree N°1455, and modified by Legislative Decree N°1457 and Supreme Decree N°124-2020-EF, it aims to give a quick and effective response to the liquidity needs that companies have to face due to the impact of COVID-19. The program seeks to ensure continuity in the credit chain, granting guarantees to micro, small, medium and large companies so that they can access working capital loans, and thus can meet their short-term obligations with its workers and suppliers of goods and services. This program initially had resources of S/30 billion and later, through Legislative Decree N°1485, the amount was increased by an additional S/30 billion reaching the amount of S/60 billion equivalents to 8.0 percent of GDP.

 

The amount of the credit in soles disbursed and the individual guarantee depended on the sales volume of each company. The maximum amount of guaranteed credits to be granted responded to the three months of average monthly sales in 2019, according to the Tax Administration of Peru (SUNAT, by its acronym in Spanish). Likewise, in the case of credits intended for microenterprises, an alternative to the sales level, the amount equivalent to two months average debt of the year 2019 can also be used, up to a maximum of S/40.0 thousand. The level of guarantee coverage of the Peruvian Government for these loans is 98.0 percent for loans disbursed up to S/90.0 thousand and varies between 95.0 percent and 80.0 percent for loans greater than S/90.0 thousand and up to S/10.0 million.

 

The loans disbursed from “Reactiva Perú” program have maximum terms of up to thirty-six months, with a grace period of up to twelve months. Likewise, financial entities undertake to offer these credits at record low rates, since the Central Reserve Bank of Peru (BCRP, by its initials in Spanish) granted said funds through repurchase credit agreement with the Guarantee of the National Government represented in securities, which may be assigned through auctions or direct operations, they remunerate an effective annual rate of 0.5 percent and include a grace period of twelve months without payment of interest or principal.

 

By end December 2020 the liquidated repurchase agreement operations with state guarantee from the Central Bank stood at S/50,729 million.

 

-  The Enterprise Support Fund (FAE, by its acronym in Spanish) program enables banks and microfinance entities to provide Small and Micro businesses loans for up to S/4.0 billion with government guarantee coverage levels between 90.0 percent and 98.0 percent. This amount represents about 9.0 percent of the loan portfolio for SMEs (Pymes, by its Spanish initials) systemwide. Other Funds which have also been created are FAE funds for Agriculture and Tourism for S/2.0 billion and S/1.5 billion, respectively. These funds follow similar structures to the original FAE but are focused on specific sectors.

 

Finally, the Central Bank lowered its reference rate in 200 basis points reaching 0.25 percent, a historic minimum, and has provided liquidity for six and twelve months through credit agreements since the beginning of March. BCRP has also implemented measures to mitigate exchange rate volatility. Additionally, the Superintendency of Banking, Insurance and AFP (SBS) authorized credit extensions for up to six months with no effect on clients’ credit ratings.

 

27

 

 

ii)Effects of the pandemic on the economy -

 

Economic activity has continued to show signs of recovery, at a better rate than initially expected, after registering a 29.8 percent drop in GDP in the second quarter, at the end of 2020 the GDP contracted 11.1 percent. This recovery was supported by a more favorable external environment, mainly due to the appreciation of the price of copper, and an environment where available local economic indicators also accompanied the recovery.

 

The Government made international issues at historically low rates for a total of US$7,000.0 million in the year, to finance the significant fiscal deficit incurred during 2020.

 

However, in December 2020, the risk rating agency Fitch revised the outlook for Peru’s long-term credit rating in foreign currency from Stable to Negative, but maintained the rating at BBB+.

 

The notes to the consolidated financial statements that show some impact due to COVID 19 are as follows: Note 5, Note 6, Note 7, Note 9, Note 12, Note 14, Note 16, Note 22, Note 23, Note 24, Note 26, Note 29 and Note 34.

 

The consolidated financial statements reasonable reflect the best available information at the time of preparation, including the uncertainty and the impact on significant assumptions and estimations, that are disclosed in the main notes to the consolidated financial statements. Those accounting estimates, in the opinion of Management, are reasonable in the circumstances.

 

28

 

 

3SIGNIFICANT ACCOUNTING POLICIES

 

The significant accounting policies applied in the preparation of Credicorp’s consolidated financial statements are set out below:

 

a)Basis of presentation, use of estimates and changes in accounting policies -

 

The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

 

The consolidated financial statements as of December 31, 2020 and 2019, have been prepared following the historical cost criteria, except for investments at fair value through profit or loss, investments at fair value through other comprehensive income, financial assets designated at fair value through profit or loss, derivative financial instruments, and financial liabilities at fair value through profit or loss; which have been measured at fair value.

 

The consolidated financial statements are presented in Soles (S/), which is the functional currency of Credicorp Ltd and subsidiaries, see paragraph (c) below, and values are rounded to thousands of soles, except when otherwise indicated.

 

The preparation of the consolidated financial statements in accordance with IFRS requires Management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of significant events in notes to the consolidated financial statements.

 

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the current circumstances. The final results could differ from said estimates; however, the Management expects that the variations, if any, will not have a material impact on the consolidated financial statements.

 

The most significant estimates included in the accompanying consolidated financial statements are related to the calculation of the allowance of the expected credit loss on loan portfolio, the valuation of investments, the technical reserves for insurance claims and premiums, the impairment of goodwill , the expected credit loss for investments at fair value through other comprehensive income and investments at amortized cost, the valuation of share-based payment plans and the valuation of derivative financial instruments.

 

Furthermore, other estimates exist, such as the estimated useful life of intangible assets, property, furniture and equipment and the deferred income tax assets and liabilities. The accounting criteria used for said estimates are described below.

 

The Group has adopted the following standards and modifications for first time for its annual period that starts on January 1, 2020, as described below:

 

(i)Amendments to IAS 1 and IAS 8 - Definition of materiality.

 

The amendments to these standards provide a new definition of “materiality”, as that information whose omission by mistake or obstruction is reasonably expected to influence the decision-making of the primary users of financial statements. The amendments clarify that materiality depends on the nature or magnitude of information, individually or in aggregate with other information, in the context of the financial statements.

 

These amendments have no impact on the consolidated financial statements and are not expected to have future impacts for the Group.

 

29

 

 

(ii)Amendments to IFRS 3 - Business Definition -

 

The amendments to this standard provide a new definition of business that requires an acquisition to include at least one input and a substantive process that together significantly contribute to the ability to create products. The definition of the term “products” is modified to focus on goods and services provided to customers, generating investment income and other income, and excludes returns in the form of lower costs, savings and other economic benefits.

 

These amendments have no impact on the consolidated financial statements and are not expected to have future impacts for the Group.

 

(iii)Amendments to IFRS 7, IFRS 9 and IAS 39 - Reference rate reform -

 

The amendments made to IFRS 7 Financial Instruments: Disclosures, IFRS 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and Measurement provide certain exceptions in relation to the benchmark interest rate reforms.

 

Exceptions are related to hedge accounting and have the effect that the amendments should not generally cause the termination of hedge accounting. However, any ineffectiveness of the hedge will continue to be recorded in the consolidated income statement.

 

These modifications have no impact on the consolidated financial statements and are not expected to have future significant impacts for the Group.

 

(iv)Modifications to the Conceptual Framework of Financial Reporting -

 

The revised conceptual framework includes some new concepts and definitions, as well as criteria for the recognition of assets and liabilities, and clarifies some other concepts. In particular, the IASB has issued a revised Conceptual Framework to be used for standard setting decisions with immediate effect. The key changes include:

 

Increasing the importance of administration in the objective of financial information.

Restore prudence as a component of neutrality.

Define a reporting entity, which can be a legal entity, or a part of an entity.

Review the definitions of an asset and a liability.

Eliminate the probability threshold for recognition and add guidelines on derecognition.

Add guides on different measurement bases; and

Establish that profit or loss is the main performance indicator and that, in principle, income and expenses in other comprehensive income should be recycled when this improves the relevance or faithful representation of the financial statements.

 

No changes will be made to any of the current accounting standards. However, entities that rely on the Framework to determine their accounting policies for transactions, events, or conditions that are not otherwise addressed under accounting standards must apply the revised Framework as of January 1, 2020. These entities must consider whether its accounting policies are still appropriate under the revised Framework.

 

These modifications have no impact on the consolidated financial statements and are not expected to have future impacts for the Group.

 

(v)Amendment to IFRS 16 “Leases” - Covid-19 related to rentals

 

This amendment was issued on May 28, 2020, is applicable for annual periods beginning on June 1, 2020 and provides an exemption in relation to the accounting treatment of modification to lease contracts under IFRS16, to lessees who obtain modifications to lease contracts in the context of Covid-19 (grace periods and extension of lease payments dates).

 

30

 

 

The adoption of the amendment did not have a significant effect on the consolidated financial statements.

 

The Group have applied the following standards and modifications for first time for its annual report that have started on January 1, 2019:

 

(i)IFRS 16 “Leases” -

 

On January 2016, the IASB issued the IFRS 16, ‘Leases’ to replace the current standards related to the treatment of leases (IAS 17, ‘Leases’ and IFRIC 4, ‘Determining whether an arrangement contains a lease” and other related interpretations, which are valid until December 31, 2018).

 

According with IFRS 16, a contract is, or contains, a lease if the contract transfers the right to control the use of an identified asset for a period of time in exchange for a consideration.

 

IFRS 16 mainly affect the accounting treatment for lessees, and will result in the recognition of almost all lease contracts in the statement of financial position, since the standard eliminates the distinction between finance and operating leases.

 

Pursuant to the new standard, is required the recognition of an asset (right-of-use of the leased asset) and of a financial liability because of the lease payments. The only exemptions are for short term and low value leases, both could be recorded in a straight line as an expense in the consolidated statement of income.

 

The consolidated statement of income also is affected, since the total expense is normally higher in the initial years of the lease contract and lower in the final years. Furthermore, the operating costs are replaced with interest and depreciation, therefore key metrics such as earnings before interest, taxes, depreciation and amortization (EBITDA) will change.

 

The principal and interest payments of the lease liabilities are classified in the consolidated statement of cash flows within the financing activities.

 

The accounting treatment for lessors continues with a similar model to IAS 17; therefore, the lessors will continue to perform a classification test to distinguish between financial and operating leases.

 

The new requirements of the IFRS 16 were applied by adjusting our consolidated statement of financial position as of January 1, 2019, date of initial application, without restating the financial information of the comparative period, in accordance to what is allowed by the transition provisions of the aforementioned standard. On the date of the initial application, the Group has considered the following aspects:

 

The use of a single discount rate in a lease portfolio with reasonably similar characteristics.

Choose not to apply the recognition and measurement requirements established by the IFRS 16 to: (i) leases with a remaining lease term of less than 12 months as of January 1, 2019, and (ii) leases in which the underlying asset is of low value. In these cases, payments will be recognized as an expense in a straight line over the term of the lease.

The exclusion of the initial direct costs for the measurement of the asset by right of use.

For the contracts concluded before the transition date, the Group relied on its assessment carried out applying IAS 17 and IFRIC 4; that is, not to reevaluate again if a contract is, or contains, an operating lease.

 

In that regard, as of January 1, 2019, the Group has recorded right-of-use assets for approximately S/855.5 million, lease liabilities for approximately S/852.8 million and deferred charges for prepayments for approximately S/2.7 million. There was no net impact on the retained earnings.

 

31

 

 

(ii)Prepayment features with negative compensation- amendments to IFRS 9 “Financial instruments” –

 

The narrow-scope amendments made to IFRS 9 Financial Instruments in October 2017 enable entities to measure certain pre-payable financial assets with negative compensation at amortized cost. These assets, which include some loan and debt securities, would otherwise have to be measured at fair value through profit or loss.

 

To qualify for amortized cost measurement, the negative compensation must be ‘reasonable compensation for early termination of the contract’ and the asset must be held within a ‘held to collect’ business model.

 

(iii)Long-term Interests in Associates and Joint Ventures – Amendments to IAS 28 “Investments in Associates and Join Ventures” –

 

The amendments clarify the accounting record of long-term interests in an associate or joint venture, which in substance form part of the net investment in the associate or joint venture, but to which equity accounting is not applied. Entities must record for such interests under

 

IFRS 9 Financial Instruments before applying the loss allocation and impairment requirements in IAS 28.

 

(iv)Plan Amendment, Curtailment or Settlement – Amendments to IAS 19 “Employee Benefits” –

 

The amendments to IAS 19 clarify the accounting for defined benefit plan amendments, curtailments and settlements. They confirm that entities must:

 

Calculate the current service cost and net interest for the remainder of the reporting period after a plan amendment, curtailment or settlement by using the updated assumptions from the date of the change.

Any reduction in a surplus should be recognized immediately in profit or loss either as part of past service cost, or as a gain or loss on settlement. In other words, a reduction in a surplus must be recognized in profit or loss even if that surplus was not previously recognized because of the impact of the asset ceiling.

Separately recognize any changes in the asset ceiling through other comprehensive income.

 

(v)IFRIC 23 “Uncertainty over income tax treatments” -

 

The interpretation explains how to recognize, and measure deferred and current income tax assets and liabilities when there is uncertainty over a tax treatment. In particular, it discusses:

 

How to determine the appropriate obligation or right, and that each uncertain tax treatment should be considered separately or together as a group, depending on which approach better predicts the resolution of the uncertainty.

That the entity should assume a tax authority will examine the uncertain tax treatments and have full knowledge of all related information, that is, that detection risk should be ignored.