UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 2020-F
SECURITIES EXCHANGE ACT OF 1934 OR x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20082010
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report ______________
For the transition period from to
Commission file number 1-14014
| CREDICORP LTD. |
(Exact name of registrant as specified in its charter) |
| BERMUDA |
| (Jurisdiction of incorporation or organization) |
| Of our subsidiary |
| Banco de Crédito del Perú: |
| Calle Centenario 156 |
| La Molina |
| Lima 12, Perú |
| (Address of principal executive offices) |
| Alvaro Correa |
| Chief Financial Officer |
| Credicorp Ltd |
| Banco de Crédito del Perú: |
| Calle Centenario 156 |
| La Molina |
| Lima 12, Perú |
| Phone (+511) 313 2140 |
| Facsimile (+511) 313 2121 |
| (Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person) |
Securities registered or to be registered pursuant to Section 12(b) of the Act.
| Title of each class | Name of each exchange on which registered |
| Common Shares, par value $5.00 per share | New York Stock Exchange |
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Common Shares, par value $5.00 per share 94,382,317
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes x No ¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x | Non-accelerated filer ¨ |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ¨ | International Financial Reporting Standards as issued | Other ¨ |
by the International Accounting Standards Board x |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ¨ Item 18 x¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
| TABLE OF CONTENTS | |||
| PRESENTATION OF FINANCIAL INFORMATION | 1 | ||
| CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS | 2 | ||
| PART I | |||
| ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 3 | |
| ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE | 3 | |
| ITEM 3. | KEY INFORMATION | 3 | |
| ITEM 4. | INFORMATION ON THE COMPANY | 12 | |
| ITEM 4A. | UNRESOLVED STAFF COMMENTS | ||
| ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS | ||
| ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | ||
| ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | ||
| ITEM 8. | FINANCIAL INFORMATION | ||
| ITEM 9. | THE OFFER AND LISTING | ||
| ITEM 10. | ADDITIONAL INFORMATION | ||
| ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | ||
| ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | ||
| ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | ||
| ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | ||
| ITEM 15. | CONTROLS AND PROCEDURES | ||
| ITEM 15T. | CONTROLS AND PROCEDURES | 116 | |
| ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT | ||
| ITEM 16B. | CODE OF ETHICS | ||
| ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES | ||
| ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES | ||
| ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | ||
| ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT | ||
| ITEM 16G. | CORPORATE GOVERNANCE | ||
| ITEM 17. | FINANCIAL STATEMENTS | ||
| ITEM 18. | FINANCIAL STATEMENTS | ||
| ITEM 19. | EXHIBITS | ||
| 122 | |||
i
PRESENTATION OF FINANCIAL INFORMATION
Unless otherwise specified or the context otherwise requires, references in this Form 20-F (also referred to as the Annual Report), to “$,” “US$,” “Dollars,” “foreign currency” or “U.S. Dollars,”Dollars” are to United States Dollars, and references to “S/.”,” “Nuevo Sol” or “Nuevos Soles” are to Peruvian Nuevos Soles and references to “foreign currency” are to U.S. Dollars.Soles. Each Nuevo Sol is divided into 100 céntimos (cents).
Credicorp Ltd. is a Bermuda limited liability company (and is referred to in this Annual reportReport as Credicorp, we, or us, and means either Credicorp as a separate entity or as an entity together with our consolidated subsidiaries, as the context may require). We maintainsmaintain our financial books and records in U.S. Dollars and present our financial statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). IFRS differ in certain respects from United States Generally Accepted Accounting Principles (U.S. GAAP).
We operate primarily through our four operating segments: banking (including commercial and investment banking), insurance, pension funds, and brokerage and other. See information about operating segments in “Item 4.-Information on the Company: (A) History and Development of the Company, and (B) Business Overview”.
Our four principal operating subsidiaries are Banco de Crédito del Perú (which, together with its consolidated subsidiaries, is referred to as BCP), Atlantic Security Bank held through Atlantic Security Holding Corporation (which, together with its consolidated subsidiaries isare referred to as ASHC)ASB and ASHC, respectively), El Pacífico-Peruano Suiza Compañía de Seguros y Reaseguros (which, together with its consolidated subsidiaries, is referred to as Pacífico Peruano Suiza or PPS) and Grupo Crédito S.A. (which together with its consolidated subsidiaries is referred to as Grupo Crédito).Prima AFP. BCP’s activities include commercial banking, investment banking and retail banking. As of and for the year ended December 31, 2008,2010, BCP accounted for 75.1% of our total revenues, 87.3%84.7% of our total assets, 117.9%79.1% of our net income and 80.6%71.6% of our net equity. Unless otherwise specified, the individual financial information for BCP, ASHC, PPS and Grupo CréditoPrima AFP included in this Annual Report has been derived from the audited consolidated financial statements of each such entity. See “Item 3. Key Information—(A) Selected Financial Data” and “Item 4. Information on the Company—(A) History and Development of the Company.” We refer to BCP, ASB, PPS and Prima AFP as our main operating subsidiaries, and we refer to Grupo Crédito S.A. (Grupo Crédito) and ASHC as our two main holding subsidiaries.
“Item 3. Key Information—(A) Selected Financial Data” contains key information related to our performance. This information was obtained mainly from our consolidated financial statements as of December 31, 2004, 2005, 2006, 2007, 2008, 2009 and 2008.2010.
Our management’s criteria on foreign currency translation, for the purpose of preparing the Credicorp Consolidated Financial Statements, is described in “Item 5. Operating and Financial Review and Prospects—(A) Operating Results—(1) Critical Accounting Policies—Foreign Currency Translation.”
Some of our subsidiaries maintain their operations and balances in NuevoNuevos Soles. As a result, this Annual Report contains certain Nuevo Sol amounts translated into U.S. Dollars which is solely for the convenience of the reader. You should not construe any of these translations as representations that the Nuevo Sol amounts actually represent such equivalent U.S. Dollar amounts or could be converted into U.S. Dollars at the rate indicated as of the dates mentioned herein, or at all. Unless otherwise indicated, these U.S. Dollar amounts have been translated from Nuevos Soles at an exchange rate of S/.3.140.2.809 = US$1.00, which is the December 31, 20082010 exchange rate set by the Peruvian Superintendencia de Banca, Seguros y AFP (the Superintendency of Banks, Insurance and Pension Funds, or the SBS). The average of the bid and offered free market exchange rates published by the SBS for June 25, 2009April 20, 2011 was S/.3.024..2.818 per US$1.00. Translating amounts expressed in Nuevos Soles on a specified date (at the prevailing exchange rate on that date) may result in the presentation of U.S. Dollar amounts that are different from the U.S. Dollar amounts that would have been obtained by translating Nuevos Soles on another specified date (at the prevailing exchange rate on that different specified date). See also “Item 3. Key Information—(A) Selected Financial Data—Exchange Rates” for information regarding the average rates of exchange between the Nuevo Sol and the U.S. Dollar for the periods specified therein. The Federal Reserve Bank of New York does not publish a noon buying rate for Nuevos Soles. Our Bolivian subsidiary operates in Bolivianos, a currency that has been maintained stable over the recent years. It’s Financial Statements are also represented in U.S Dollars.
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CAUTIONARY STATEMENT WITH RESPECT TO
Certain statements contained in this Annual Report are not historical facts, including, without limitation, certain statements made in the sections entitled “Item 3. Key Information,” “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk,” which are forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934 (or the Exchange Act). These forward-looking statements are based on our management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in the forward-looking statements. Therefore, actual results, performance or events may be materially different from those in the forward-looking statements due to, without limitation:
general economic conditions, including in particular economic conditions in Peru;
performance of financial markets, including emerging markets;
the frequency and severity of insured loss events;
interest rate levels;
currency exchange rates, including the Nuevo Sol/U.S. Dollar exchange rate;
increasing levels of competition in Peru and other emerging markets;
changes in laws and regulations;
changes in the policies of central banks and/or foreign governments; and
general competitive factors, in each case on a global, regional and/or national basis.
See“Item “Item 3. Key Information—(D) Risk Factors,” and “Item 5. Operating and Financial Review and Prospects.”
We are not under any obligation to, and we expressly disclaimsdisclaim any such obligation to, update or alter our forward-looking statements, whether as a result of new information, future events or otherwise.
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PART I
ITEM 1. | IDENTITY OF DIRECTORS, |
Not applicable.applicable.
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
ITEM 3. | KEY INFORMATION |
Selected Financial Data |
The following table presents a summary of our consolidated financial information at the dates and for the periods indicated. This selected financial data is presented in U.S. Dollars. You should read this information in conjunction with, and qualify this information in its entirety by reference to, the Credicorp Consolidated Financial Statements, which are also presented in U.S. Dollars.
The summary of our consolidated financial data as of, and for the years ended, December 31, 2004, 2005, 2006, 2007, 2008, 2009 and 20082010 is derived from the Credicorp Consolidated Financial Statements audited by Medina, Zaldívar, Paredes & Asociados S.C.R.L, member of Ernst & Young Global, independent registered public accountants.
The report of Medina, Zaldívar, Paredes & Asociados S.C.R.L on the Credicorp Consolidated Financial Statements as of December 31, 20072009 and 20082010 and for the years ended December 31, 2006, 20072008, 2009 and 20082010 appears elsewhere in this Annual Report.
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SELECTED FINANCIAL DATA
Year ended December 31, | Year ended December 31, | |||||||||||||||||||||||||||||||||||||||
2004 | 2005 | 2006 | 2007 | 2008 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||||
(U.S. Dollars in thousands, except percentages, ratios, and per common share data) | (U.S. Dollars in thousands, except percentages, ratios, and per common share data) | |||||||||||||||||||||||||||||||||||||||
| INCOME STATEMENT DATA: | ||||||||||||||||||||||||||||||||||||||||
| IFRS: | ||||||||||||||||||||||||||||||||||||||||
| Interest income | US$ | 542,842 | US$ | 612,432 | US$ | 782,002 | US$ | 1,065,974 | US$ | 1,400,334 | US$ | 782,002 | US$ | 1,065,339 | US$ | 1,382,844 | US$ | 1,312,925 | US$ | 1,471,708 | ||||||||||||||||||||
| Interest expense | (160,298 | ) | (173,159 | ) | (283,478 | ) | (432,000 | ) | (577,411 | ) | (283,478 | ) | (431,365 | ) | (561,617 | ) | (420,564 | ) | (414,121 | ) | ||||||||||||||||||||
| Net Interest income | 382,544 | 439,273 | 498,524 | 633,974 | 822,923 | 498,524 | 633,974 | 821,227 | 892,361 | 1,057,587 | ||||||||||||||||||||||||||||||
| Provision for loan losses (1) | (16,131 | ) | 6,356 | 4,243 | (28,439 | ) | (48,760 | ) | 4,243 | (28,439 | ) | (48,760 | ) | (163,392 | ) | (174,682 | ) | |||||||||||||||||||||||
| Net interest income after provision for loan losses | 366,413 | 445,629 | 502,767 | 605,535 | 774,163 | 502,767 | 605,535 | 772,467 | 728,969 | 882,905 | ||||||||||||||||||||||||||||||
| Fees and commissions from banking services | 201,474 | 206,163 | 243,778 | 324,761 | 394,247 | 243,778 | 324,761 | 394,247 | 436,819 | 524,895 | ||||||||||||||||||||||||||||||
| Net gains (loss) from sales of securities | 10,135 | 8,965 | 27,281 | 46,376 | 51,936 | 27,281 | 46,376 | 51,936 | 120,932 | 80,326 | ||||||||||||||||||||||||||||||
| Net gains on foreign exchange transactions | 24,165 | 29,286 | 41,638 | 61,778 | 108,709 | 41,638 | 61,778 | 108,709 | 87,944 | 104,169 | ||||||||||||||||||||||||||||||
| Net premiums earned | 192,672 | 218,955 | 251,261 | 297,272 | 393,903 | 251,261 | 297,272 | 393,903 | 424,682 | 480,293 | ||||||||||||||||||||||||||||||
| Other income | 8,105 | 21,571 | 26,197 | 90,022 | 37,672 | 26,197 | 90,022 | 37,672 | 74,936 | 95,145 | ||||||||||||||||||||||||||||||
| Claims on insurance activities | (154,325 | ) | (175,500 | ) | (186,522 | ) | (238,600 | ) | (341,910 | ) | (186,522 | ) | (238,600 | ) | (341,910 | ) | (286,458 | ) | (315,572 | ) | ||||||||||||||||||||
| Operating expenses | (459,928 | ) | (477,073 | ) | (585,058 | ) | (747,089 | ) | (922,299 | ) | (585,058 | ) | (747,089 | ) | (920,603 | ) | (957,110 | ) | (1,085,885 | ) | ||||||||||||||||||||
| Merger costs | (3,742 | ) | 0 | (5,706 | ) | 0 | 0 | (5,706 | ) | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
| Income before translation result and income tax | 184,969 | 277,996 | 315,636 | 440,055 | 496,421 | 315,636 | 440,055 | 496,421 | 630,714 | 766,276 | ||||||||||||||||||||||||||||||
| Translation result | 2,040 | (9,597 | ) | 15,216 | 34,627 | (17,650 | ) | 15,216 | 34,627 | (17,650 | ) | 12,222 | ) | 24,120 | ||||||||||||||||||||||||||
| Income tax | (45,497 | ) | (73,546 | ) | (83,587 | ) | (102,287 | ) | (109,508 | ) | (83,587 | ) | (102,287 | ) | (109,508 | ) | (138,500 | ) | (187,081 | ) ) | ||||||||||||||||||||
| Net income | 141,512 | 194,853 | 247,265 | 372,395 | 369,263 | 247,265 | 372,395 | 369,263 | 504,436 | 603,315 | ||||||||||||||||||||||||||||||
Attributable to: | ||||||||||||||||||||||||||||||||||||||||
| Net income attributable to Credicorp’s equity holders | 130,747 | 181,885 | 230,013 | 350,735 | 357,756 | 230,013 | 350,735 | 357,756 | 469,785 | 571,302 | ||||||||||||||||||||||||||||||
| Minority interest | 10,765 | 12,968 | 17,252 | 21,660 | 11,507 | 17,252 | 21,660 | 11,507 | 34,651 | 32,013 | ||||||||||||||||||||||||||||||
| Number of shares as adjusted to reflect changes in capital | 79,761,475 | 79,761,475 | 79,761,475 | 79,534,485 | 79,440,484 | |||||||||||||||||||||||||||||||||||
| Net income per common share attributable to Credicorp´s equity holders (2) | 1.64 | 2.28 | 2.88 | 4.40 | 4.49 | 2.88 | 4.40 | 4.49 | 5.90 | 7.19 | ||||||||||||||||||||||||||||||
| Diluted net income per share | 2.88 | 4.40 | 4.49 | 5.90 | 7.17 | |||||||||||||||||||||||||||||||||||
| Cash dividends declared per common share | 0.80 | 1.10 | 1.30 | 1.50 | 1.50 | 1.30 | 1.50 | 1.50 | 1.70 | 1.95 | ||||||||||||||||||||||||||||||
| BALANCE SHEET DATA: | ||||||||||||||||||||||||||||||||||||||||
| IFRS: | ||||||||||||||||||||||||||||||||||||||||
| Total assets | 9,087,560 | 11,036,075 | 12,881,529 | 17,705,898 | 20,821,069 | 12,881,529 | 17,705,898 | 20,821,069 | 22,013,632 | 28,413,180 | ||||||||||||||||||||||||||||||
| Total loans (3) | 4,559,018 | 4,972,975 | 5,877,361 | 8,183,845 | 10,456,284 | 5,877,361 | 8,183,845 | 10,456,284 | 11,505,319 | 14,278,064 | ||||||||||||||||||||||||||||||
| Reserves for loan losses (1) | (271,873 | ) | (218,636 | ) | (210,586 | ) | (229,700 | ) | (248,063 | ) | (210,586 | ) | (229,700 | ) | (248,063 | ) | (376,049 | ) | (448,597 | ) | ||||||||||||||||||||
| Total deposits | 6,270,972 | 7,067,754 | 8,799,134 | 11,299,671 | 13,877,028 | 8,799,134 | 11,299,671 | 13,877,028 | 14,032,179 | 18,017,714 | ||||||||||||||||||||||||||||||
| Equity attributable to Credicorp’s equity holders | 1,065,197 | 1,190,440 | 1,396,822 | 1,676,009 | 1,689,172 | 1,396,822 | 1,676,009 | 1,689,172 | 2,316,856 | 2,873,749 | ||||||||||||||||||||||||||||||
| Minority interest | 85,253 | 101,515 | 136,946 | 139,264 | 106,933 | 136,946 | 139,264 | 106,933 | 186,496 | 56,502 | ||||||||||||||||||||||||||||||
| Net Equity | 1,150,450 | 1,291,955 | 1,533,768 | 1,815,273 | 1,796,105 | 1,533,768 | 1,815,273 | 1,796,105 | 2,503,352 | 2,930,251 | ||||||||||||||||||||||||||||||
| SELECTED RATIOS | ||||||||||||||||||||||||||||||||||||||||
| IFRS: | ||||||||||||||||||||||||||||||||||||||||
| Net interest margin (4) | 4.85 | % | 4.90 | % | 4.64 | % | 4.50 | % | 4.47 | % | ||||||||||||||||||||||||||||||
| Return on average total assets (5) | 1.50 | % | 1.81 | % | 1.92 | % | 2.29 | % | 1.86 | % | ||||||||||||||||||||||||||||||
| Return on average equity attributable to Credicorp’s equity holders (6) | 13.55 | % | 16.39 | % | 18.44 | % | 22.67 | % | 20.21 | % | ||||||||||||||||||||||||||||||
| Operating expenses as a percentage of net interest and non-interest income (7) | 49.18 | % | 46.25 | % | 50.26 | % | 50.62 | % | 40.23 | % | ||||||||||||||||||||||||||||||
4
| Year ended December 31, | ||||||||||||||||
| 2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||
(U.S. Dollars in thousands, except percentages, ratios, and per common share data) | ||||||||||||||||
| SELECTED RATIOS | ||||||||||||||||
| IFRS: | ||||||||||||||||
| Net interest margin (4) | 4.64% | 4.50% | 4.46% | 4.70% | 4.61% | |||||||||||
| Return on average total assets (5) | 1.92% | 2.29% | 1.86% | 2.19% | 2.27% | |||||||||||
| Return on average equity attributable to Credicorp’s equity holders (6) | 18.44% | 22.67% | 20.21% | 23.72% | 21.25% | |||||||||||
| Operating expenses as a percentage of net interest and non-interest income (7) | 50.26% | 50.62% | 40.27% | 46.18% | 45.75% | |||||||||||
| Operating expenses as a percentage of average assets | 4.89% | 4.88% | 4.78% | 4.47% | 4.31% | |||||||||||
| Equity attributable to Credicorp’s equity holders as a percentage of period end total assets | 10.84% | 9.47% | 8.11% | 10.52% | 10.11% | |||||||||||
| Regulatory capital as a percentage of risk weighted assets (8) | 11.98% | 12.80% | 12.33% | 14.32% | 12.51% | |||||||||||
| Total past-due loan amounts as a percentage of total loans (9) | 1.31% | 0.75% | 0.79% | 1.60% | 1.47% | |||||||||||
| Reserves for loan losses as a percentage of total loans | 3.24% | 2.58% | 2.15% | 3.08% | 2.91% | |||||||||||
| Reserves for loan losses as a percentage of total loans and other contingent credits (10) | 2.59% | 2.17% | 1.84% | 2.53% | 2.39% | |||||||||||
| Reserves for loan losses as a percentage of total past-due loans (11) | 247.85% | 343.68% | 270.72% | 191.99% | 198.04% | |||||||||||
| Reserves for loan losses as a percentage of substandard loans (12) | 78.24% | 100.45% | 112.26% | 99.45% | 103.80% | |||||||||||
Year ended December 31, | ||||||||||||||||||||
2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||
(U.S. Dollars in thousands, except percentages, ratios, and per common share data) | ||||||||||||||||||||
| Operating expenses as a percentage of average assets | 5.28 | % | 4.74 | % | 4.89 | % | 4.88 | % | 4.79 | % | ||||||||||
| Equity attributable to Credicorp’s equity holders as a percentage of period end total assets | 11.72 | % | 10.79 | % | 10.84 | % | 9.47 | % | 8.11 | % | ||||||||||
| Regulatory capital as a percentage of risk weighted assets (8) | 14.04 | % | 13.10 | % | 11.98 | % | 12.80 | % | 12.33 | % | ||||||||||
| Total past-due loan amounts as a percentage of total loans (9) | 3.49 | % | 1.93 | % | 1.31 | % | 0.75 | % | 0.79 | % | ||||||||||
| Reserves for loan losses as a percentage of total loans | 5.96 | % | 3.97 | % | 3.24 | % | 2.58 | % | 2.15 | % | ||||||||||
| Reserves for loan losses as a percentage of total loans and other contingent credits (10) | 4.99 | % | 3.19 | % | 2.59 | % | 2.17 | % | 1.84 | % | ||||||||||
| Reserves for loan losses as a percentage of total past-due loans (11) | 170.93 | % | 206.22 | % | 247.85 | % | 343.68 | % | 270.72 | % | ||||||||||
| Reserves for loan losses as a percentage of substandard loans (12) | 54.11 | % | 65.42 | % | 78.24 | % | 100.45 | % | 112.26 | % | ||||||||||
| (1) | Provision for loan losses and reserve for loan losses include provisions and reserves with respect to total loans and contingent credits, net of write-off recoveries. |
| (2) | We have 100 million authorized common shares. As of December 31, |
| (3) | Net of unearned interest, but prior to reserve for loan losses. In addition to loans outstanding, we had contingent loans of US$ |
| (4) | Net interest income as a percentage of average interest-earning assets, computed as the average of period-beginning and period-ending balances on a monthly basis. |
| (5) | Net income as a percentage of average total assets, computed as the average of period-beginning and period-ending balances. |
| (6) | Net income as a percentage of average equity attributable to our equity holders, computed as the average of period-beginning and period-ending balances, and calculated on a monthly basis. |
| (7) | Sum of the salaries and employee’s benefits, administrative expenses, depreciation and amortization, as a percentage of the sum of net interest income and non-interest income, less net gains from sales of securities and other income. |
| (8) | Regulatory capital calculated in accordance with guidelines by the Basel Committee on Banking Regulations and Supervisory Practices of International Settlements (or the BIS I Accord) as adopted by the SBS. See “Item 5. Operating and Financial Review and Prospects—(B) Liquidity and Capital Resources—Regulatory Capital and Capital Adequacy Ratios.” |
| (9) | Depending on the type of loan, BCP considers loans past due for corporate, large business and medium business loans after 15 days; for small and micro business loans after 30 days; and for consumer, mortgage and leasing loans after 90 |
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| (10) | Other contingent credits primarily consist of guarantees, stand-by letters and letters of credit. See Note 19 to the Credicorp Consolidated Financial Statements. |
| (11) | Reserves for loan and contingent credit losses, as a percentage of all past-due loans, with no reduction for collateral securing such loans. Reserves for loan and contingent credit losses include reserves with respect to total loans and other credits. |
| (12) | Reserves for loan and contingent credit losses as a percentage of loans classified in categories C, D or E. See “Item 4. Information on the Company—(B) Business Overview—(12) Selected Statistical Information—(iii) Loan Portfolio—Classification of Loan Portfolio.” |
Exchange Rates
The following table sets forth the high and low month-end rates and the average and end-of-period rates for the sale of Nuevos Soles for U.S. Dollars for the periods indicated.
| Year ended December 31, | High (1) | Low (1) | Average (2) | Period-end (3) | ||||||||
| (Nominal Nuevos Soles per U.S. Dollar) | ||||||||||||
| 2006 | 3.455 | 3.195 | 3.274 | 3.195 | ||||||||
| 2007 | 3.197 | 2.998 | 3.125 | 2.998 | ||||||||
| 2008 | 3.135 | 2.751 | 2.939 | 3.135 | ||||||||
| 2009 | 3.258 | 2.853 | 3.010 | 2.889 | ||||||||
| 2010 | 2.858 | 2.788 | 2.826 | 2.808 | ||||||||
| Year ended December 31, | High (1) | Low (1) | Average (2) | Period-end (3) | ||||||||||||
| (Nominal Nuevos Soles per U.S. Dollar) | ||||||||||||||||
| 2004 | 3.500 | 3.283 | 3.410 | 3.283 | ||||||||||||
| 2005 | 3.440 | 3.249 | 3.295 | 3.420 | ||||||||||||
| 2006 | 3.455 | 3.195 | 3.274 | 3.195 | ||||||||||||
| 2007 | 3.197 | 2.998 | 3.125 | 2.998 | ||||||||||||
| 2008 | 3.135 | 2.751 | 2.939 | 3.135 | ||||||||||||
Source: Bloomberg
| (1) | Highest and lowest of the 12 month-end exchange rates for each year based on the offered rate. |
| (2) | Average of month-end exchange rates based on the offered rate. |
| (3) | End-of-period exchange rates based on the offered rate. |
The following table sets forth the high and low rates for the sale of Nuevos Soles for U.S. Dollars for the indicated months.
| High (1) | Low (1) | |||||
| (Nominal Nuevos Soles per U.S. Dollar) | ||||||
| 2010 | ||||||
| December | 2.828 | 2.800 | ||||
| 2011 | ||||||
| January | 2.806 | 2.771 | ||||
| February | 2.788 | 2.767 | ||||
| March | 2.815 | 2.767 | ||||
| April (through April 20) | 2.823 | 2.799 | ||||
Source: Bloomberg
High (1) | Low (1) | |||||||
| (Nominal Nuevos Soles per U.S. Dollar) | ||||||||
| 2008 | ||||||||
| December | 3.142 | 3.081 | ||||||
| 2009 | ||||||||
| January | 3.187 | 3.131 | ||||||
| February | 3.251 | 3.202 | ||||||
| March | 3.259 | 3.107 | ||||||
| April | 3.145 | 2.981 | ||||||
| May | 3.051 | 2.950 | ||||||
| June (through June 25) | 3.024 | 2.967 | ||||||
| (1) | Highest and lowest of the daily closing exchange rates for each month based on the offered rate. |
The average of the bid and offered free market exchange rates published by the SBS for June 25, 2009April 20, 2011 was S/.3.024..2.818 per US$1.00.
| (B) | Capitalization and Indebtedness |
Not applicable.
| (C) | Reasons for the Offer and Use of Proceeds |
Not applicable.
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| (D) | Risk Factors |
Our businesses are affected by many external and other factors in the markets in which we operate. Different risk factors can impact our businesses, and theour ability to effectively operate and our businesses and business strategies. You should consider the risk factors carefully and read them in conjunction with all the information in this document.
Our geographic location exposes us to risk related to Peruvian political and economic conditions.
Most of BCP’s, PPS’s and Prima AFP’s operations and customers are located in Peru. In addition, although ASHC is based outside of Peru, most of its customers are located in Peru. Accordingly, our results of operations and financial conditions will be dependent on the level of economic activity in Peru. Changes in economic or other policies of the Peruvian government, (whichwhich has exercised and continues to exercise a substantial influence over many aspects of the private sector)sector, could affect our results of operations and financial condition. Similarly, other political or economic developments in Peru, including government-induced effects on inflation, devaluation and economic growth could affect our operations and financial condition.
For several decades, Peru had a history of political instability that has included military coups and a succession of regimes with differing policies and programs. Past governments have frequently intervened in the nation’s economy and social structure. Among other actions, past governments have imposed controls on prices, exchange rates, local and foreign investment, and international trade. Past governments have also restricted the ability of companies to dismiss employees, expropriated private sector assets and prohibited the payment of profits to foreign investors.
During the 1980s and the early 1990s, the Sendero Luminoso (Shining Path) and the Movimiento Revolucionario Tupac Amaru (MRTA) terrorist organizations were particularly active in Peru. Although the Shining Path and MRTA were almost de-activated in the 1990s, any resumption of activities by these or other terrorist organizations may adversely affect our operations.
In July 1990, Alberto Fujimori was elected President and implemented a broad-based reform of Peru’s political system and economic and social conditions. The reform was aimed at stabilizing the economy, restructuring the national government (by reducing bureaucracy), privatizing state-owned companies, promoting private investment, eradicating corruption and bribery in the judicial system, developing and strengthening free markets, institutionalizing democratic representation, and enacting programs for the strengthening ofdesigned to strengthen basic services related to education, health, housing and infrastructure. After taking office for his third term in July 2000, under extreme protest, President Fujimori was forced to call for general elections duewhen corruption in his government was exposed to the outbreak of corruption scandals.public. Fujimori later resigned in favor of a transitory government.
human rights in connection with government-linked death squads. In 2001, Alejandro Toledo became President, ending two years of political turmoil. President Toledo retained, for the most part, the economic policies of the previous government. He focused on promoting private investment, eliminating tax exemptions, and reducing underemployment and unemployment. President Toledo also implemented fiscal austerity programs, among other proposals, in order to stimulate the economy. Despite Peru’s moderate economic growth, the Toledo administration faced public unrest spurred by the high rates of unemployment, underemployment and poverty.
In the elections held in April 2006, no presidential candidate received the required 50% or more of the votes. As a result, a second round election between the top two presidential candidates, Ollanta Humala Tasso from the Partido Unión por el Peru, or the UPP, and Alan García Pérez of the Partido Alianza Popular Revolucionaria, or APRA, was held on June 4, 2006. Although Alan García Pérez, was elected, he has no majority in Congress. President Garcíawho had previously served as President of Peru from 1985 to 1990, a period which was marked by a severe economic crisis. He is following conservative economic policieselected and has indicated a desire to avoid the mistakes of his past government.currently serves as President. The García administration has followed economic policies similar to those of the Toledo administration, which included achieving sustained economic growth, increasing exports of Peruvian goods, reducing unemployment, underemployment and poverty, reforming the tax system, fostering private investment and increasing public investment in education, public health and other social programs, while reducing overall public spending.
The Peruvian government’s economic policies during the last decade have provided the appropriate fundamentals to support the positive performance ofby the Peruvian economy. As a result, the international financial crisis hasdid not impactedimpact Peru as severely as other countries. In addition,2009 the current government has also implemented a US$3 billion anti-crisis program leading to alleviatea strong economic reactivation in 2010 when the effects of the crisis.Peruvian economy achieved an 8.8% annual growth in GDP. However, while the economic policies of recent Peruvian governments have been relatively stable, we cannot assure you that future governments might adopt different economic policies that are less favorable for the economy.
Presidential elections were held in Peru on April, 10, 2011. Under the Peruvian constitution, if no candidate receives the majority of votes in a presidential election, the two candidates with the most votes will maintain favorableface a run-off, second round election to determine the winner. In accordance with official figures, Ollanta Humala received 31.7% of valid votes, followed by Keiko Fujimori (23.6%), Pedro Pablo Kuczynski (18.5%), Alejandro Toledo (15.6%), Luis Castañeda (9.8%) and other candidates (0.8%). Because no candidate obtained more than 50% of valid votes, a second round election will be held on June 5, 2011, between Ollanta Humala and Keiko Fujimori (the daughter of former president Alberto Fujimori).
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Neither Mr. Humala nor Ms. Fujimori is from the APRA, the political party of the current president Alan Garcia, and we do not know what economic policies.
policies either candidate would pursue if elected. The new president may pursue economic policies that would ultimately be harmful to Peruvian economic growth or to our economic and political relationships with other countries. The economic policies of the new president may have a material adverse effect on our financial condition or results of operations. Foreign exchange fluctuations and exchange controls may adversely affect our financial condition and results of operations.
Even though the functional currency of our financial statements is U.S. Dollars and our dividends are paid in U.S. Dollars, BCP, PPS and PPS,Prima AFP for local statutory purposes, prepare their financial statements and pay dividends in Nuevos Soles. The Peruvian government does not currently impose restrictions on a company’s ability to transfer U.S. Dollars from Peru to other countries, to convert Peruvian currency into U.S. Dollars or to pay dividends abroad. Nevertheless, Peru has hadimplemented restrictive exchange controls in the past,its history, and there can be no assurance that the Peruvian government will continuemight in the future consider it necessary to permitimplement restrictions on such transfers, payments or conversions without any restrictions. conversions. See “Item 10. Additional Information—(D) Exchange Controls.” In addition, depreciation of the Nuevo Sol against the U.S. Dollar would decrease the U.S. Dollar value of any dividends BCP, PPS and PPSPrima AFP pay us, which would have a negative impact on our ability to pay dividends to shareholders.
Also, a significant group of BCP’s borrowers and PPS’s insureds generate Nuevo Sol revenues from their own clients. Devaluation of the Nuevo Sol against the U.S. Dollar could negatively impact BCP’s and PPS’s clientsclients’ ability to repay loans or make premium payments. Despite any devaluation, and absent any change in foreign exchange regulations, BCP and PPS would be expected to continue to repay U.S. Dollar-denominated deposits and U.S. Dollar-denominated insurance benefits in U.S. Dollars. Therefore, any significant devaluation of the Nuevo Sol against the U.S. Dollar could have a material adverse effect on our results of operations and financial condition.
It may be difficult to serve process on or enforce judgments against us or our principals residing outside of the United States.
A significant majority of our directors and officers live outside the United States (principally in Peru). All or most of our assets and those of our principals are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon us or our principals to bring forth a civil suit under the United States securities laws in United States courts. We have been advised by our Peruvian counsel that liability under the United States federal securities laws may not be enforceable in original actions in Peruvian courts. Also, judgments of United States courts obtained in actions under the United States federal securities laws may not be enforceable. Similarly, BermudianBermudan counsel advised us that courts in Bermuda may not enforce judgments obtained in other jurisdictions, or entertain actions in Bermuda, including judgments predicated upon civil liability provisions of the United States federal securities law, against us or our directors or officers under the securities laws of those jurisdictions.
In addition, our bye-laws contain a broad waiver by shareholders of any claim or right of action, both individually and on our behalf, against any of our officers or directors. This waiver limits the rights of shareholders to assert claims against our officers and directors for any action taken by an officer or director. It also limits the rights of shareholders to assert claims against officers or any directors for the failure of an officer or director to take any action in the performance of his or her duties, except with respect to any matter involving any willful negligence, willful default, fraud or dishonesty on the part of the officer or director.
Our ability to pay dividends to shareholders and to pay corporate expenses may be adversely affected by the ability of our subsidiaries to pay dividends to us.
As a holding company, our ability to make dividend payments, if any, and to pay corporate expenses will depend upon the receipt of dividends and other distributions from our operating subsidiaries. Our principal operating subsidiaries are BCP, PPS, ASHCASB and Grupo Crédito.Prima AFP. If our subsidiaries do not have funds available, or are otherwise restricted from paying us dividends, we may be limited in our ability to pay dividends to shareholders. Currently, there are no restrictions on the ability of BCP, ASHC, PPS or Grupo Crédito to pay dividends abroad. In addition, our right to participate in the distribution of assets of any subsidiary, upon any subsidiary’s liquidation or reorganization (and thus the ability of holders of our securities to benefit indirectly from such distribution), is subject to the prior claims of creditors of that subsidiary, except where we are considered aan unsubordinated creditor of the subsidiary. Accordingly, our securities will effectively be subordinated to all existing and future liabilities of our subsidiaries, and holders of our securities should look only to our assets for payments.
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A deterioration in the quality of our loan portfolio may adversely affect our results of operations.
Given that a significant percentage of our revenues are related to banking activities, a deterioration of loan quality may have an adverse impact on our financial condition and results of operations. On the one hand, loan portfolio risk associated with lending to certain economic sectors or clients in certain market segments can be mitigated through adequate diversification policies. On the other hand, our pursuit of opportunities in which we can charge higher interest rates, thereby increasing revenues, may reduce diversification of theour loan portfolio and expose us to greater credit risk. We believe that significant opportunities exist in middle market, and consumer lending and microfinance in Peru. We also believe that we can, on average, charge higher interest rates on such loans as compared with interest charged on loans in our core corporate banking business, made primarily to clients that operate in industrial and commercial economic sectors.
Accordingly, our strategy includes a greater emphasis on middle market, and consumer loans and microfinance, as well as continued growth of our loan portfolio in general. An increase in theour portfolio’s exposure to these areas could be accompanied by greater credit risk. TheSuch a greater credit risk iswould not only due tobe affected by the speed and magnitude of the increase, but also toby the shift to lending to the middle market and consumerthese sectors, which have higher risk profiles compared with loans to large corporate customers. Given the changing composition of our loan portfolio, historical loss experience may not be indicative of future loan loss experience.
Because we are subject to banking regulation and supervision in Peru, Bolivia, the Cayman Islands, Panama and the United States of America and Panama, changes to the regulatory framework in any of these countries or changes in tax laws could adversely affect our business.
We are mainly subject to extensive supervision and regulation through the SBS’s consolidated supervision regulations, which overseeregulate all of our subsidiaries and offices including those located outside Peru. The SBS and the Banco Central de Reserva, or the Central Bank, supervise and regulate BCP’s operations. Peru’s constitution and the SBS’s statutory charter grant the SBS the authority to oversee and control banks and other financial institutions. The SBS and the Central Bank have general administrative responsibilities over BCP, including designation of capitalization and reserve requirements. In past years, the Central Bank has, on numerous occasions, changed the deposit reserve requirements applicable to Peruvian commercial banks as well as the rate of interest paid on deposit reserves and the amount of deposit reserves on which no interest is payable by the Central Bank. Such changes in the supervision and regulation of BCP may adversely affect our results of operations and financial condition. See “Item 4. Information on the Company—(B) Business Overview—(11) Supervision and Regulation—(ii) BCP.” Furthermore, changes in regulation related to consumer protection may also affect our business.
On February 15, 2011, the Peruvian government enacted Law 29663, which partially modifies the country’s income tax regime by subjecting to taxation in Peru capital gains derived from an indirect transfer of shares and expanding the type of income that will qualify as Peruvian-source income. Under the new law, any transfer of shares of a company not domiciled in Peru will be subject to Peruvian income tax if, at any point during the 12 months prior to the transfer, the market value of the shares of a Peruvian domiciled company that is directly or indirectly owned by the non-Peruvian domiciled company represents 50% or more of the market value of the shares representing the equity capital of the non-Peruvian domiciled company. This change became effective on February 16, 2011.
At the same time, two new obligations were imposed on Peruvian domiciled companies: (i) each Peruvian domiciled company is now required to report to the Peruvian Tax Administration (SUNAT) transfers of its own shares or transfers of the shares of the non-Peruvian domiciled company that is the owner of its shares, and (ii) each Peruvian domiciled company is now responsible for the income tax not paid by a non-Peruvian domiciled transferor that is directly or indirectly linked to the domiciled company (whether by means of control, management or equity participation) in connection with the transfer of the domiciled company’s shares. The effectiveness of the obligations mentioned in (i) and (ii) above is subject to additional enactments by the Peruvian government. Credicorp does not believe that the rules adopted by the Peruvian government to implement this new law will have a material impact on the company, its subsidiaries or its shareholders, but until final rules are enacted we cannot assure you that the new law will not have a material adverse effect on the company, its subsidiaries or its shareholders.
We are also regulated by the United States Federal Reserve System, which shares its regulatory responsibility with the State of Florida Department of Banking and Finance - Office of Financial Regulation.Regulation, with respect to BCP’s Miami agency, and by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority, Inc. (FINRA), with respect to Credicorp Securities, a U.S. broker dealer. Similarly, we are regulated by other governmental entities in other jurisdictions. In the Cayman Islands, we are subject to the supervision and regulation of the Cayman Islands Monetary Authority, or CIMA, while in Bolivia, we are subject to the supervision of the Financial System Supervisory Authority (or FSSA or ASFI in Spanish) that has assumed all regulatory functions held previously be the Superintendency of Banks and Financial Entities and regulations established by the Central BankSuperintendency of Bolivia.Pensions, Securities and Insurance. In Panama, we are subject to the supervision of the Superintendency of Banks and the regulatory framework set forth in the Decree Law 9 of February 25, 1998. Changes in the supervision and regulation of our subsidiaries in other countries may adversely affect our results of operations and financial condition.
Our banking operations in Bolivia expose us to risk related to Bolivian political and economic conditions.
Banco de Crédito de Bolivia, or BCB, is BCP’s commercial bank in Bolivia. Most of BCB’s operations and customers are located in Bolivia. Accordingly, our results of operations and financial conditions depend on the level of economic activity in Bolivia. While Bolivia’s macroeconomic indicators have generally been positive over the last several years, including a steady growth rate and increasingly international reserves, inflation has increased, primarily due to rising international food prices. At the same time, the country of Bolivia continues to experience a volatile political environment and a reduction in private investment activity We expect to face some increased costs as a result of inflation, exchange rate revaluation and also relevant some regulatory changes that could impact our earnings. In this environment, the key is to control costs and expenses, increase efficiency and maintain a prudent and proactive risk management. Any material negative effect on BCB’s operations or financial results could have a material adverse effect on Credicorp’s own results of operations.
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Changes to insurance regulations in Peru may impact the ability of our insurance subsidiary to underwrite and price risk effectively, and may adversely affect our operating performance and financial condition.
Our insurance business is carried out by our subsidiary PPS. The insurance business is subject to regulation by the SBS. Insurance regulationregulations in Peru is an area of constantfrequently change. New legislation or regulations may adversely affect PPS’s ability to underwrite and price risks accurately, which in turn would affect underwriting results and business profitability. PPS is unable to predict whether and to what extent new laws and regulations that would affect its business will be adopted in the future. PPS is also unable to predict the timing of any such adoption and whatthe effects any new laws or regulations would have on its operations, profitability and financial condition.
The Group also assumes reinsurance risk in the normal course of business for non-life insurance contracts when applicable. Premiums and claims on assumed reinsurance are recognized as revenue or expenses in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business.
Our operating performance and financial condition depend on PPS’s ability to underwrite and set premium rates accurately for a full spectrum of risks. PPS must generate sufficient premiums to offset losses, loss adjustment expenses and underwriting expenses so it may earn a profit. to be profitable.
To price premium rates accurately, PPS must:
collect and analyze a substantial volume of data;
develop, test and apply appropriate rating formulae;
closely monitor changes in trends in a timely fashion; and
project both severity and frequency with reasonable accuracy.
If PPS fails to assess accurately the risks that it assumes or does not accurately estimate its retention, it may fail to establish adequate premium rates. Failure to establish adequate premium rates could reduce income and have a materially adverse effect on its operating results or financial condition. Moreover, there is inherent uncertainty in the process of establishing property and casualty loss reserves. Reserves are estimates based on actuarial and statistical projections at a given point in time of what PPS ultimately expects to pay out on claims and the cost of adjusting those claims, based on the facts and circumstances then known. Factors affecting these projections include, among others, changes in medical costs, repair costs and regulation. Any negative effect on PPS could have a material adverse effect on our results of operations and financial condition.
Regulatory changes to the private pension fund system in Peru could impact our earnings and adversely affect our operating performance.
Prima AFP manages our Pension Fund Administration business. In Peru, private pension fund managers are closely regulated by the SBS. Under the current regulatory framework, we collect commissions based on the salary of each subscriber to our pension funds. This commission-based system could be modified or eliminated by regulations that require pension fund managers to charge fees based on the balance of funds under their control. Any regulations requiring us to use a different methodology to calculate fees could negatively impact our performance.
We are facing increased competition that may impede our growth.
BCP has experienced increased competition, including increased pressure on margins. This is primarily a result of the presence of the following:
Highly liquid commercial banks in the market;
Local and foreign investment banks with substantial capital, technology, and marketing resources; and
Local pension funds that lend to BCP’s corporate customers through participation in those customers’ securities issues.
Larger Peruvian companies have gained access to new sources of capital through local and international capital markets, and BCP’s existing and new competitors have increasingly made inroads into the higher margin, middle market and retail banking sectors. Such increased competition, with entrants who may have greater access to capital at lower costs, has affected BCP’s loan growth as well as reduced the average interest rates that BCP can charge its customers.
10
Competitors may also appropriate greater resources to, and be more successful in, the development of technologically advanced products and services that may compete directly with BCP’s products and services. Such competition would adversely affect the acceptance of BCP’s products and/or lead to adverse changes in the spending and saving habits of BCP’s customer base. If competing entities are successful in developing products and services that are more effective or less costly than the products and services developed by BCP, BCP’s products and services may be unable to compete successfully. BCP may not be able to maintain its market share if it is not able to match its competitors’ loan pricing or keep pace with their development of new products and services. Even if BCP’s products and services prove to be more effective than those developed by other entities, such other entities may be more successful in marketing their products and services than BCP because of their greater financial resources, higher sales and marketing capacity andor other similar factors. BCP may not be able to maintain its market share if it is not able to match its competitors’ loan pricing or keep pace with their development of new products and services. Any negative impact on BCP could have a materially adverse effect on our results of operations and financial condition.
Fluctuation and volatility of capital markets and interest rates may decrease our net income.
We may suffer losses related to the investments by BCP, ASCH, PPS, Grupo Crédito and other subsidiaries in fixed income and equity securities, and to their respective positions in currency markets, because of changes in market prices, defaults, fluctuations in market interest rates or exchange rates or other reasons. A downturn in the capital markets may result in a decline in the value of our positions and lead us to register net losses due to the decline in the value of these positions. Additionally,losses. In addition, a downturn in the capital markets could also lead to volatile prices and negative net revenues from trading positions, caused by volatility in prices in the financial markets, even in the absence of a general economic downturn.
Fluctuations in market interest rates, or changes in the relative structure between short-term interest rates and long-term interest rates, could cause a decrease in interest rates charged on interest-earning assets, relative to interest rates paid on interest-bearing liabilities. Such an occurrence could adversely affect our financial condition by causing a decrease in net interest income.
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| ITEM 4. | INFORMATION ON THE COMPANY |
| (A) | History and Development of the Company |
We are a limited liability company that was incorporated in Bermuda on October 20, 1995 to act as a holding company, coordinate the policy and administration of our subsidiaries, and engage in investing activities. Our principal activity is to coordinate and manage the business plans of our subsidiaries in an effort to implement universal banking services and develop our insurance business, focusing on Peru and Bolivia along with limited investments in other countries of the region. We conduct our financial services business exclusively through our subsidiaries. Our registered address is Clarendon House, 2 Church Street, Bermuda. The management and administrative office (i.e., principal place of business) in Peru of our subsidiary, Banco de Crédito del Perú, is located at Calle Centenario 156, La Molina, Lima 12, Peru, and the phone number is 51-1-313-2000.
We are the largest financial services holding company in Peru and are closely identified with our principal subsidiary, BCP, the country’s largest bank and the leading supplier of integrated financial services in Peru.
We are engaged principally in commercial banking (including trade finance, corporate financecommercial and leasing services)investment banking), insurance (including commercial property, transportation and marine hull, automobile, life, health and underwriting insurance), pension funds (including private pension fund underwriting insurance)management services), and investment bankingbrokerage and other (including brokerage, trust, custody and securitization services, asset management and proprietary trading and investment). As of December 31, 2008,2010, our total assets were US$20.828.4 billion and our net equity was US$1.82.9 billion. Our net income attributable to our equity holders in 20072009 and 20082010 was US$350.7469.8 million and US$357.8571.3 million, respectively. See “Item 3. Key Information—(A) Selected Financial Data” and “Item 5. Operating and Financial Review and Prospects.”
For management purposes, the Group is organized into four operating segments based on products and services. According to IFRS, an operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses; whose operating results are regularly reviewed by the entity’s chief who makes decisions about resources allocation for the segment and assesses its performance; and for which discrete financial information is available. We conduct our financial services business through our operating segments as follows:
Banking: principally handling loans, credit facilities, deposits and current accounts, and providing investment banking services, including corporate finance, both for corporate and institutional customers. Banking also includes handling deposits consumer loans and credit cards facilities for individual customers.
Insurance: including commercial property, transportation and marine hull, automobile, life, health and pension fund underwriting insurance.
Pension funds: providing private pension fund management services to contributors.
Brokerage and others: including the structuring and placement of primary market issues and the execution and trading of secondary market transactions. This segment also includes offers of local securitization structuring to corporate entities, management of mutual funds and other services.
The following table gives certain financial information about us by principal business segments as of and for the year ended December 31, 20082010 (See Note 26 to the Credicorp Consolidated Financial Statements):
| As of and for the Year ended December 31, 2010 | ||||||||||||
Total Revenues | Operating Income | Total Assets | ||||||||||
| (U.S. Dollars in millions) | ||||||||||||
| Banking | US$ | 2,042 | US$ | 1,037 | US$ | 25,597 | ||||||
| Insurance | 578 | 232 | 1,716 | |||||||||
| Pension fund | 87 | 0 | 258 | |||||||||
| Brokerage and others | 50 | (47 | ) | 482 | ||||||||
| Credicorp | US$ | 2,757 | US$ | 1,222 | US$ | 28,413 | ||||||
| Asset Under Management | - | - | US$ | 16,212 | ||||||||
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As of and for the Year ended December 31, 2008 | ||||||||||||
Total Revenues | Operating Income | Total Assets | ||||||||||
| (U.S. Dollars in millions) | ||||||||||||
| Commercial Banking | US$ | 1,797 | US$ | 804 | US$ | 19,168 | ||||||
| Insurance | 469 | 118 | 1,231 | |||||||||
| Pension Fund Administration | 71 | 0 | 224 | |||||||||
| Investment Banking and others | 50 | (47 | ) | 198 | ||||||||
| Credicorp | US$ | 2,387 | US$ | 875 | US$ | 20,821 | ||||||
We conduct our commercial banking and investment banking activities primarily through BCP, the largest (in terms of total assets, loans, deposits, net equity and net income) full-service Peruvian commercial bank, and ASHC, a diversified financial services company.ASB private banking and asset management firm. We conduct our pension fund business through Prima AFP and our insurance activities through PPS, which is the second largest Peruvian insurance company in terms of premiums, fees and net income. You should note that the term “Peruvian commercial bank,” “Peruvian insurance company” and other similar terms used in this Annual Report do not include the assets, results or operations of any foreign parent company or foreign subsidiary of such Peruvian company.
We were formed in 1995 for the purpose of acquiring, through an exchange offer, the common shares of BCP, ASHC and PPS. Pursuant to this exchange offer, in October 1995 we acquired 90.1% of BCP, 98.2% of ASHC and 75.8% of PPS. We acquired the remaining 1.8% outstanding shares of ASHC in March 1996, pursuant to another exchange offer. See “Item 4. Information on the Company—(C) Organizational Structure.”
In December 1995, we purchased 99.99% of Inversiones Crédito (whose name has changed to Grupo de Crédito), a non-financial entity with assets of US$335.9376.9 million as of December 2008. Grupo de Crédito’s main subsidiary is Prima AFP.2009.
In August 1997, we acquired 39.5% of BCB from BCP for US$9.2 million. In July 1998, we acquired 94.86% of Banco de La Paz, a Bolivian bank with US$52.1 million in assets, which we subsequently merged with BCB in January 1999. During this time, we also increased our beneficial ownership in BCB to 55.79%, which left BCP with ownership of the remaining 44.21%. In November 2001, however, BCP bought back 55.53% of our interest in BCB for US$31.5 million. As of December 31, 2008,2010, BCB operated 6366 branches and 181176 ATMs located throughout Bolivia. BCB’s results have been consolidated in the BCP financial statements since the date of its acquisition by BCP in November 1993.
In 1997, we acquired Banco Tequendama, a Colombian banking enterprise. In 2002, we sold Banco Tequendama’s Venezuelan branches. In March 2005, we then sold Banco Tequendama to a Colombian bank. While this sale was publicly announced in October 2004 and became effective on January 1, 2005, it was not completed until March 2005 after all required approvals were obtained from the Colombian authorities. We did not record any significant gain or loss as a result of this transaction.
In March 2002, we made a tender offer for outstanding BCP shares for S/.1.80 per share, approximately equal to the book value of such shares, disbursing directly and through our subsidiary PPS an amount of approximately US$35.3 million. As a result of the tender offer, our equity stake in BCP increased from 90.6% to 97.0% (including shares held by PPS).
In December 2002, BCP acquired Banco Santander Central Hispano-Perú, or BSCH-Perú, (BSCH-Perú) for US$50.0 million. Since that date, BSCH-Perú has been included in BCP’s consolidated financial statements. On December 31, 2002, BSCH-Perú had total assets of US$975.2 million, total loans of US$719.4 million and deposits of US$659.0 million. BSCH-Perú was merged into BCP on February 28, 2003.
In March 2003, BCP added to its 55% stake by acquiring for US$17.0 million the remaining 45% of the equity shares of Solución Financiera de Crédito del Perú S.A. (or Solució(Solución) from Banco de Crédito e Inversiones de Chile (or BCI)(BCI) and other foreign shareholders. As a result, Solución once again became a BCP wholly-owned subsidiary. In March 2004, substantially all of Solución’s assets and liabilities were absorbed into BCP’s Peruvian banking operations. Solución’s net income in 2003 was US$7.6 million, and it had, as of February 28, 2004, a loan portfolio of US$88.4 million, with a 3.0% past-due ratio.
In 2003, BCP converted Banco de Crédito Overseas Limited or BCOL,(BCOL), its offshore bank in the Bahamas, into a vehicle to conduct investments and sold it to ASHC. ASHC then consolidated BCOL into its operations during 2004. In accordance with our policy regarding holdings of equity interests in non-financial companies, we then caused certain long-term equity interests that were previously held by BCOL to be transferred to BCP and then in turn transferred to Grupo Crédito. In April 2004, PPS sold substantially all of its holdings of our equity shares to ASHC (s(eeSee “Item 7. Major Shareholders and Related Party Transactions—(A) Major Shareholders”).
In March 2004, PPS acquired 100% of Novasalud Perú S.A. – Entidad Prestadora de Salud or Novasalud EPS, which is one of three private health insurance providers in Peru,(Novasalud EPS) for US$6.5 million. PPS then merged Novasalud EPS with Pacífico S.A. Entidad Prestadora de Salud (or Pací(Pacífico Salud), a subsidiary of PPS.
In 1997, we acquired Banco Tequendama, a Colombian banking enterprise. In 2002, we sold Banco Tequendama’s Venezuelan branches. In March 2005, we then sold Banco Tequendama to a Colombian bank. While this sale was publicly announced in October 2004 and became effective on January 1, 2005, it was not completed until March 2005 after all required approvals were obtained from the Colombian authorities. We did not record any significant gain as a result of this transaction.
In February 2005, we were authorized by Peruvian regulatory authorities to establish Prima AFP, of which Grupo Crédito is the main shareholder. Prima AFP started operations in August 2005.
In August 2006, Prima AFP acquired Unión Vida AFP, which is a pension fund operating in the Peruvian market. Prima AFP’s acquisition of Unión Vida AFP, which was formerly held by Grupo Santander Perú S.A., was a strategic move toward consolidation as part of its efforts to gain a leading position in the pension fund market. This acquisition enabled Prima AFP to position itself as the second ranking company in terms of market share terms (affiliates(defined as the amount of affiliates and assets under corporate management), with the second highest returns and the lowest commission for affiliates (who invest a portion of their salary each month). The merger between Prima AFP and Unión Vida AFP was consummated in December 2006.
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In 2006, Prima AFP incurred significant merger expenses relative to its size, reaching the end of the year with losses of US$20.7 million. However, Prima AFP had a net income of US$11.225.5 million during 2008,2010, with 1,045,4101,124,457 affiliates and US$9,765 million of funds under management of US$4,865 million.its management.
In November 2006, we bought PPS’s remaining 1.02% of BCP shares, generating goodwill, with respectvalued at approximately US$7.2 million, from to the minority interest acquired we acquired (0.25%) of approximately US$7.2 million..
In October 2009, BCP acquired from the Cooperative for Assistance and Relief Everywhere Inc. (CARE) – Perú, all the shares that this entity owned of Empresa Financiera Edyficar S.A. (Edyficar), representing 77.12% of Edyficar’s capital stock. In accordance with Peruvian legal requirements in effect at the time, BCP made a public offering to Edyficar’s minority shareholders to acquire the remaining 22.66% of the company’s stock. The total purchase price for the acquisition was US$96.1 million, including related direct acquisition costs. As of December 31, 2010 BCP owned 99.79% of Edyficar.
In October 2010 the Credicorp group acquired American Life Insurance Company (ALICO)’s 20.1% and 38% stakes in PPS and Pacifico Vida, respectively. Pacifico Vida's shares were acquired through Credicorp Ltd. and its subsidiary, Grupo Credito, acquired PPS's shares. Consequently, at the conclusion of this transaction, Credicorp and its subsidiary Grupo Credito held 97.26% of Pacifico Seguros, and jointly controlled 100% of Pacifico Vida. The total investment amounted to approximately US$174 million, making it the largest transaction ever completed in the Peruvian insurance market. The acquisition will permit the Credicorp group to realize synergies in its decision making process and through the integration of all its insurance business lines. The closer proximity between companies will also allow PPS to improve its value proposition to customers, who seek integral insurance solutions. On April 28, 2011, Credicorp transferred its 38% stake in Pacifico Vida to PPS. As a result of that transfer, PPS now directly owns 100% of the shares of Pacifico Vida. This transfer will have no effect on Credicorp’s consolidated financial statements.
In November 2010, Credicorp's Board of Directors approved the transfer of 84.9% of BCP´s total shares to Grupo Crédito S.A. (its Peruvian wholly owned subsidiary) through a capital contribution, in order to facilitate Credicorp's future investments in Peru without modifying the controlling structure of BCP. The transaction was authorized by the Peruvian Superintendency of Banking, Insurance and Private Pension Fund Administrators. Under the new structure, Credicorp directly holds 12.7% of BCP's total shares and, in conjunction with its subsidiary Grupo Crédito, continues to control the same 97.6% of such shares without modifying the internal governance structure. Before this change in ownership structure, dividends to Credicorp from its Peruvian subsidiaries, such as BCP, were remitted abroad and had to be remitted back to Peru when capital for new investments in the country were required. With the new structure, Grupo Crédito, which acts as the local holding for some of Credicorp's investments in Peru (Prima AFP, PPS and others), will manage Credicorp's future Peruvian investments, and directly transfer the dividends to Credicorp when it is required to do so under Credicorp's dividend policy. This modified organizational structure will not affect the way Credicorp and BCP manage their day-to-day operations, and Credicorp’s dividend policy has not changed as a result of this transaction
The following tables show our organization and the organization of our principal subsidiaries as of December 31, 20082010 and their relative percentage contribution to our total assets, total revenues, net income and net equity at the same date (see “—(C) Organizational Structure”):
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As of and for the Year ended December 31, 2008 (1) | As of and for the Year ended December 31, 2010 (1) | ||||||||||||||||||||||||
| Total Assets | Total Revenue | Net Income (Loss) | Net Equity | Total Assets | Total Revenue | Net Income (Loss) | Net Equity | ||||||||||||||||||
| Banco de Crédito del Perú | 87.3 | % | 75.1 | % | 117.9 | % | 80.6 | % | 88.9% | 69.8% | 87.7% | 70.8% | |||||||||||||
| Atlantic Security Holding Corporation | 4.9 | % | 1.1 | % | -14.1 | % | 5.5 | % | 3.5% | 5.5% | 6.8% | 8.5% | |||||||||||||
| El Pacífico-Peruano Suiza Compañía de Seguros y Reaseguros (2) | 5.9 | % | 20.4 | % | -5.9 | % | 4.3 | % | 6.0% | 21.2% | 12.8% | 11.5% | |||||||||||||
| Grupo Crédito (3) | 1.5 | % | 3.4 | % | 5.2 | % | 13.9 | % | |||||||||||||||||
| Prima AFP | 0.9% | 3.1% | 4.6% | 6.5% | |||||||||||||||||||||
| Others | 0.4 | % | 0.0 | % | -3.1 | % | -4.3 | % | 0.6% | 0.3% | -11.9% | 2.7% | |||||||||||||
| (1) | Percentages determined based on the Credicorp Consolidated Financial Statements. |
| (2) | Includes PPS and Pacífico Vida. |
| (3) |
| Includes Credicorp Ltd., CCR Inc., Credicorp Securities Inc. and others. |
The following tables show the organization of BCP and its principal subsidiaries as of December 31, 2008:2010
As of and for the Year ended December 31, 2010 (2) | |||||||||
Total Assets | Total Revenue | Net Income (Loss) | Net Equity | ||||||
| Banco de Crédito del Perú | 92.2% | 88.4% | 84.6% | 79.0% | |||||
| Banco de Crédito de Bolivia | 4.4% | 4.2% | 4.2% | 4.8% | |||||
| Empresa Financiera Edyficar S.A. | 1.8% | 5.0% | 3.9% | 2.6% | |||||
| Solución Empresa Administradora Hipotecaria S.A. | 0.3% | 0.2% | 0.7% | 0.5% | |||||
| Credifondo S.A. | 0.1% | 1.6% | 4.6% | 1.3% | |||||
| Credibolsa Sociedad Agente de Bolsa S.A. | 0.1% | 0.3% | 0.8% | 0.8% | |||||
| Others (3) | 1.0% | 0.2% | 1.2% | 10.9% | |||||
As of and for the Year ended December 31, 2008 (3) | ||||||||||||||||
Total Assets | Total Revenue | Net Income (Loss) | Net Equity | |||||||||||||
| Banco de Crédito del Perú | 93.0 | % | 89.9 | % | 85.5 | % | 84.3 | % | ||||||||
| Banco de Crédito de Bolivia | 5.0 | % | 6.6 | % | 10.1 | % | 8.1 | % | ||||||||
| Crédito Leasing S.A. | 1.3 | % | 1.5 | % | 0.2 | % | 1.7 | % | ||||||||
| Financiera de Crédito Solución | 0.2 | % | 0.2 | % | 0.0 | % | 0.6 | % | ||||||||
| Credifondo S.A. | 0.1 | % | 1.2 | % | 2.0 | % | 1.9 | % | ||||||||
| Credibolsa Sociedad Agente de Bolsa S.A. | 0.1 | % | 0.4 | % | 0.9 | % | 0.9 | % | ||||||||
| Others (4) | 0.3 | % | 0.2 | % | 1.3 | % | 2.5 | % | ||||||||
| (1) |
| (2) |
| Percentages determined based on BCP’s consolidated financial statements as of and for the year ended December 31, |
| Includes Creditítulos S.A., Inmobiliaria BCP and others. |
| (B) | Business Overview |
(1) Introduction – Review of 2010
General
We conduct our business operations through four different operating segments: Banking (which includes BCP, ASHC, BCB, Edyficar, and other minor financial subsidiaries), Insurance (which includes Pacífico Peruano Suiza and its subsidiaries), Pension funds (which includes Prima AFP), and Brokerage and other (which include principally Credifondo, Credibolsa, and others).
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Our total assets grew to US$20.828.4 billion as of December 31, 2008,2010, a 17.6%29.1% increase from the US$17.722.0 billion in assets we held as of December 31, 2007, as2009. Our increase in total assets was a result of strong growth (22.9%) in deposits that supported the expansion of our loan business.growth. Loans grew by 24.2% in 2010 (compared to 9.9% in 2009, 27.8% in 2008 (compared toand 39.2% in 2007, 18.2% in 2006)2007), following the progressexpansion of the Peruvian economy, (whichwhich had a GDP growth rate of 9.8%8.8% in 2008). As part2010. Our past-due and under legal collection loan ratio decreased to 1.44% by the end of our provision policy, provision for loan losses net of recoveries increased by 71.5% to US$48.8 million2010 (compared to US$28.4 million in 2007). Our past-due loansa ratio of 1.60% at the end of 2009 and 0.79% at the end of 2008 was consistent with that of 2007 (0.75%) and2008). We had a coverage ratio of 270.7%198.0% (i.e., reserves for loans as a percentage of past-due loans). Finally,, and our return on average net equity decreased slightly yet remained at a profitable level of 20.2%to 22.2% in 20082010 (compared to 22.7%23.7% in 2007)2009).
Banking segment
BCP
The main drivers behind BCP’s performance were: (i) solid
| · | the 20.3% growth in its net interest income after provision for loan losses, which reflects the 14.9% expansion of interest income on loans and the moderate increase of 1.0% in interest expenses due to the adequate control and asset & liability management; |
| · | the 13.8% increase in other income mainly as a result of higher banking services commissions (+25.5%) and net gain on foreign exchange transactions (+17.2%), which offset the contraction of 49.5% in net gain on sales of securities that in 2009 was extraordinarily high due to the purchase-sale of sovereign and global bonds; and |
| · | the significant rise in translation gains from US$7.6 million in 2009 to US$23.3 million in 2010. |
Performance in net interest income resulting from significant loan portfolio expansion across all segments and products, (ii) a considerablethese areas enabled BCP to offset the company’s 6.5% increase in non-financial income derived fromprovisions and 14.3% increase in operating expenses. The higher operating expenses were a result of BCP’s salary, employee benefits and, to a lesser degree, administrative expenses. These higher operating expenses were exacerbated by the raise2.8% appreciation of fees and commissionsthe Nuevo Sol against the U.S. dollar over the year, as well as higher gains on foreign exchange transactions and on salesa significant portion of securities and (iii) expansion of its network with an appropriate expenditure control.BCP’s operating expenses are denominated in local currency.
The average daily balances of BCP’s corporate and middle marketwholesale banking loans grew significantly, by 40.6%27.7% in 2010 as a result of the revival of previously postponed corporate investment plans and 30.2%, respectively, from 2007. This growth was driven by expanding domestic demand along with dynamic business at all levels (sector, industry, region and segments).the rising level of corporate inventories in Peru. As a result, BCP continued to lead the Peruvian financial system with a market share of 48.1%46.5% for the corporate segment and 37.1%34.1% for the middle market.market (higher than the 46.0% and 33.3% market shares obtained in 2009, respectively).
BCP’s retail banking portfolio continued its successupward trend and grew 42.9%23.2% in 2008, reaching an average daily balance of US$3,390.2010. In terms of growth and yields, BCP’s consumerSME loans were theits best performing product, reaching 72% growthgrowing by 30.1% (measured in average daily balances) to a total volume of US$618 million,2.2 billion, followed by loans to small companiesmortgages which grew 54%21.6% to US$1,127 million. Credit cards1.9 billion. Consumer loans grew 36%, reaching16.9% to US$384972 million, while mortgage creditscredit cards expanded 27%15.0%, totaling US$1,260580 million.
On the liabilities side, BCP’s deposits reached US$14,235 million17.1 billion on December 31, 20082010 (a 27.3%18.0% increase from the previous year). This increase in deposits not only continues to reinforce BCP’s funding structure as deposits account for 84.2%71.1% of all funding sources, but it also serves to strengthenmaintain BCP’s status as an industry leader with a market share (which is 38.5%)of 34.4%. Time deposits continued to be BCP’s largest deposit type, totaling US$5.7 billion as of December 31, 2010. Demand deposits, experienced the fastest growth at 36.7%,BCP’s second-largest deposit type, reached US$5.3 billion. Savings deposits totaled US$4.2 billion while time and savings deposits grew 25.9% and 24.7%, respectively. Severance Accounts, or CTS, expanded a moderate 16% due to increased market competition and customer sensitivity to interest earned on such deposits. Furthermore, in 2008, BCP, through a special vehicle, CCR Inc. (which was consolidated into Credicorp), issued (i)totaled US$300 million of securitized structured bonds, which were deposited in its Panamanian branch, and (ii) US$410 million of syndicated senior loan facility.1.3 billion.
BCP’s bonds gained greater relevance within the funding structure. In 2010, BCP completed a successful issue of senior unsecured bonds for US$800 million with a term of 10 years at a rate of 5.375%, The issuance, which was oversubscribed, represented the first benchmark size issue in the history of BCP with ratings of Baa2 (Moodys) and BBB (Fitch rating). As of December 31, 2010, BCP’s bonds totaled US$1,974 million (60.6% higher than the level registered in 2009).
BCP hasmaintains conservative provisioning and long-term risk management policies, keeping itspolicies. Its coverage ratio above the average ratioincreased from 192.3% in the Peruvian banking system. In 2008, however, this ratio decreased from the previous year (351.8% as compared2009 to 271.9%).198.3% in 2010. Total cumulative provisions reached US$223.2414.8 million as of December 31, 2010, which is 6.3%17.4% higher fromthan provisions in the previous year.
In 2008,2010, BCP focusedcontinued to focus its strategy on strengthening its customer service, which is related to its goal of providing improvedquality and widespread customer access to the financial system and thereby increasing itsthe company’s penetration into the market. In following its network expansion plan, BCP opened 57 additional branches (58.3% more than 2007) byfocused on cost-efficient channels, opening ATMs and Agente BCP locations, which grew 16.4% and 25.4%, respectively. By the end of 2008, further strengthening its market position.2010, BCP also opened 142 new ATMs in 2008 (forhad a total of 890 ATMs), while its1,159 ATMs and 3,513 Agente BCP grew significantly by adding 630 agents (for a total of 1,851 agentslocations, which are BCP representatives located in retail establishments, such as of December 2008).grocery and drug stores. As a result of itsthis strategy, BCP’s average number of transactions in 20082010 increased 22.1%16.4% from 20072009 and its transactional business was therefore able to originategenerate higher income forfrom fees and commissions.
Overall, BCP’s results exceeded forecastsmet our expectations and contributed to our achievements and increased profitability.remained profitable as the Peruvian economy expanded rapidly in 2010 after showing only mild growth in 2009.
BCB
In 2008,2010, Banco de Crédito de Bolivia or BCP Bolivia, obtained(BCB) had a net profitincome of US$44.515.8 million, whicha 45% decline from its 2009 net income of US$28.7 million. This reduction was 64.5% higher than its 2007 results of US$27 million. BCP Bolivia’s 2008 results were due in partprimarily attributable to the strong performancecontraction of high return business segments, such as consolidated markets (businesses larger thaninterest income, reductions in some fees and a 29% decline in translation gain, which resulted from a flat exchange rate throughout most of 2010. There were also some other constraints, including the small business segment but that do not qualifyrestriction of foreign investments (50% of equity), limiting lending rates for loans from the wholesale segment) which grew 77.2%,productive sector and the small business segment which expanded its loan portfolio by 42.7%. The performanceincrease in these segments resulted in increased diversification growth in BCP Bolivia’s retail banking portfolio.deposit rates for individual persons.
Although BCP Bolivia increased itsBCB made a positive contribution to our results in 2008,2010, the country of Bolivia still experiencescontinues to experience a volatile political environment and shows evidence of significant stagnationan increasing inflation rate and a reduction in private investment activity.
Edyficar
The consolidation of Edyficar’s results into BCP’s financial statements resulted in a total contribution of US$22.1 million in 2010. As of December 31, 2010, Edyficar registered total assets of US$465.9 million which consisted of US$336.2 million from the company’s net loan portfolio, its main asset. Total liabilities increased to US$413.5 million, which included US$235.2 million from banking activities. Net shareholders’ equity reached US$52.4 million at the end of 2010.
Edyficar focuses on SME lending and, together with BCP, it held a 19.6% market share in terms of loans at the end of 2010 (compared to a market share of 15.6% held by its closest competitor). As of December 31, 2010, its client base registered 286, 000 clients, a base 34.3% larger than in 2009. The average amount of an Edyficar loan in 2010 was S/.3,502 (approximately US$1,247). Edyficar registered a PDL ratio of 4.0% at the end of 2010, a reflection if its portfolio quality. Edyficar reached a return on average equity of 47.1% and an efficiency ratio of 56.0%.
The acquisition of Edyficar was part of BCP’s strategy to capture most of the SME segment’s growth, which is expected to expand significantly over the next several years. BCP intends to support Edyficar’s growth and development by improving its funding cost and structure and providing the capital and technology that Edyficar needs.
ASHC
For the second consecutive year ASHC has achieved record profits. A high quality risk portfolio and diversified investment strategies resulted in higher earnings. The company’s net earnings for 2010 amounted to US$73.4 million, compared to US$54.1 million reported for 2009. As a result, the contribution of ASHC to Credicorp, net of dividends received, amounted to US$48.5 million, a significant improvement over the US$29.7 million reported in 2009.
ASHC’s total assets contracted by 10%, resulting in total assets ofwere US$1,454.2 million at year-end 2008 (as compared to US$1,615.7 million at year-end 2007). Also, third party assets under management decreased 26.8% from US$2,241.8 million at year-end 2007 to US$1,639.3 million at year-end 2008, and deposits dropped 8.1% to US$1,283.61,400.8 million as of December 31, 2008. Nevertheless,2010, a decrease of 5% from 2009. This decrease in total assets was primarily a result of use of funds to cover withdrawals from customers to invest directly in securities and products that are managed by ASHC.
Finally, at the end of 2010, assets under ASHC’s loanmanagement totaled US$3,177 million, compared to US$2,177 million in 2009. This growth was primarily a result of increases in our customers’ global positions and the market value of our portfolio expanded 54.8% during 2008 with a 0.0% NPL ratio.that followed the larger recovery in global financial markets.
Insurance segment
PPS
In 2009, although ASHC will not modify its low-risk proprietary investment strategy, we expect an increase in ASHC’s financial margin as a direct consequence of widening credit spreads. We expect ASHC’s asset management business to take advantage of the fact that, in spite of the market conditions of 2008, it still achieved adequate returns for its customers. ASHC aims to improve its 2008 results in order to continue to give us a positive contribution.
PPS’s underwriting result in 20072010, which reflects the company’s core business performance for the year, was US$93.4 million, increasing 17% compared to 35%2009. This improved result followed a reduction in 2008. Additionally, PPS’s premiumsthe overall claims rate, which decreased from 65.2% in 2009 to 63.6% in 2010, and was the retail business increased as a percentageproduct of total premiums, rising from 38% in 2006 to 47% in 2008.improvements that PPS implemented over the last several years through underwriting management and operating controls.
In 2009,2011, PPS will continue to focus on its retail business by developing simple products tothat introduce customersnew segments to the advantagesbenefits of insurance.insurance and by expanding its presence in national provinces. There is enormous growth potential growth in Peru’s insurance industrymarket, given the industry’s weak market penetration. Efficiency and risk management will continue to be mainkey indicators in measuring PPS’s performance. Efficiently utilizing the BCP network is an essential component of PPS’s growth strategy for 20092011 since capitalizing on synergies between the insurance business and the distribution channels of the banking business may lead PPS to greater penetration in the insurance industry.market.
Pension fund segment
Prima AFP
During 2010, the progress of the Peruvian pension funds experienced a difficult year in 2008. The international financial crisis caused a combined negative yield of 20.4%economy generated good results for the three typesPrivate Pension System (SPP), achieving growth in new affiliates, number of contributors, value of assets under management and collections during the year. These favorable economic conditions, together with the reduced uncertainty in financial markets lifted by the global recovery, led to an increase in the value of funds managed by AFPs. Nevertheless, under SPP’s management, which reached US$31.0 billion as of December 2010 and represented a 29.7% year-over-year increase.
Prima AFP was able to continue to strengthen its position in the market by adjusting its processes and organization to provide high-quality services and timely and transparent information to its clients. As a result, the contribution we received from Prima AFP in 20082010 reached US$11.225.5 million, as compared to US$3.020.8 million in 2007.2009.
Funds under management at Prima AFP assets under management decreased 24.1%increased 33.3% from US$6.47.3 billion at year-end 2007in 2009 to US$4.99.7 billion as of December 31, 2008.2010. By year-end 2008,2010, Prima AFP’s market share of total funds under management reached 30.6%was 31.4%, slightly lower than 31.4% at year-end 2007, rankingrepresenting a year-over-year increase and making Prima AFP as the second largest pension fund management company in the sector.
Peru.Prima AFP’s revenues from commissions in 20082010 reached US$70.785.2 million, an 8.1% increase of 23.1% from 2007, as2009. This improvement in performance was a result of a stable and improved portfolio of contributing membersmembers. Revenues in 2010, unlike those in 2009, included 12 rather than 13 contribution periods because the Peruvian government exempted affiliates from deductions on additional salaries that was supported by a growinghad to be paid in July and December under Peruvian labor market. These revenues, however, were partially offset bylaw.
To improve its operating results, Prima AFP will continue to focus on increasing efficiency and reducing costs. Emphasis will also be placed on improving Prima AFP’s long-term stability through better risk management, one of the increasecompany’s highest priorities
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Brokerage and others
The majority of 15.8%our brokerage activities are conducted through BCP, ASHC and Credicorp Securities Inc., which is one of our wholly-owned subsidiaries. Credicorp Securities is a U.S. registered broker-dealer with its offices in operating expenses.Miami. BCP offers clients a wide range of brokerage products and services, including mutual funds and custody services through its branch network in Lima and, on a more limited basis, throughout the rest of Peru. In addition, we also distribute such products through ASHC.
In 2009, Prima AFP plans to maximize its contribution to us by focusing on strengthening its affiliate base, preserving its existing client portfolio through providing pension2010 our brokerage activities represented 1.8% of the total consolidated income and investment counseling, and controlling operating expenses.1.7% of total consolidated assets.
Consolidated Contributions
The following table sets forth the contribution to the consolidated net income attributable to our equity holders by each of our principal subsidiaries:
| 2006 | 2007 | 2008 | Variation 2008/2007 | |||||||||||||
| (U.S. Dollars in millions, except percentages) | ||||||||||||||||
| BCP (1) | 238.9 | 322.5 | 410.9 | 27 | % | |||||||||||
| ASCH | 15.4 | 20.5 | (50.4 | ) | -345 | % | ||||||||||
| PPS | 14.5 | 9.4 | (15.9 | ) | -269 | % | ||||||||||
| Grupo Crédito (2) | (38.8 | ) | (1.7 | ) | 13.2 | 876 | % | |||||||||
| Total | 230.0 | 350.7 | 357.8 | 2 | % | |||||||||||
| 2008 | 2009 | 2010 | Variation 2010/2009 | ||||||
| (U.S. Dollars in millions, except percentages) | |||||||||
| BCP (1) | 410.9 | 388.5 | 464.4 | 20% | |||||
| ASCH | (50.4) | 29.7 | 48.8 | 64% | |||||
| PPS | (15.9) | 37.4 | 47.5 | 27% | |||||
| PRIMA AFP and others (2) | 13.2 | 14.2 | 10.6 | -25% | |||||
| Total | 357.8 | 469.8 | 571.3 | 22% | |||||
| (1) | Includes Banco de Crédito de Bolivia, which contributed US$15.8 million in 2010, US$30.3 million in 2009 and US$42.9 million in |
| (2) | Includes Prima AFP (which recorded a net income of US$25.5 million in 2010, US$20.8 million in 2009 and US$11.2 million in |
(2) Strategy
Credicorp was established to create a financial group that would benefit from the synergies among the group’s companies and would become a leader within each business market in which the companies operate. In moving steadily toward achieving these strategic goals, we have become a leading financial group. However, we do not operate in a static environment and 2008 hasthe last three years have demonstrated how quickly and dramatically the world can change. Peru’s economic growth slowed significantly in 2009 as a result of the international recession and we took steps toward improving our long-term sustainability and positioned our companies for growth as Peru’s needs evolve. In 2010 Peru’s economy returned to the dynamism it showed in the pre-crisis period and we continued, and completed in many cases, the implementation of various initiatives that were designed to ensure the sustainability of Credicorp’s business segments.
The Peruvian market offers one of the greatest growth opportunities in South America. In the banking, insurance and pension fund industries, market penetration by service providers remains low. Accordingly, our business plans incorporate strategies that will enable us to reach underserved segments of the Peruvian population and achieve higher returns on our capital. As our businesses expand, it becomes increasingly important for us to maximize efficiencies and control risk. Our greatest challengestrength in these areas is to adapt to these changes without losing focusthe cornerstone of our goals. strategy to achieve healthy, sustained and profitable growth.
The financial crisis that peaked in 2008 and its effect on economies throughout the world will continue in 2009. Although its effect on us was not significant compared to other companies, the crisis has led us to more closely scrutinizegrowth strategies we have adopted for each of our companies contain a focus on retail markets. Using our collective resources, we are developing information systems that can collect commercial sales information and provide us with the strategic decisions that shapedata we need to process scoring models by segment. This will enhance our business.ability to assess and control risk.
Outlook for 2011
We expect that the favorable economic conditions in Peru that characterized 2010 will remain in 2011. Throughout the year, we will continue to take a development-oriented approach, preparing for changes in the Peruvian market, which is expected to have high growth rates in the upcoming years. Given the low levels of penetration in Peru’s banking and insurance markets, our subsidiaries will be well positioned to expand. Our high equity, sound levels of technical and professional expertise, and strong relationships built on the trust of our customers, are all signals indicating a positive outlook for the Company.
(3) Credicorp Operating GroupsSegments
Banking
The majority of our commercial banking business is carried out through BCP, which is our largest subsidiary and the oldest bank in Peru. A portion of our commercial banking business is also carried out by ASHC,ASB, which principally serves Peruvian private banking customers through offices in Panama. We conduct commercial banking activities in Bolivia through BCB, a full service commercial bank with US$754 million in deposits, US$941.7 million in assets and US$458.9 million in net loans, as of December 31, 2008. As of such date, BCB was the thirdfourth largest Bolivian bank in terms of loans and deposits, with 13.1%12.1% and 13.3%13.4% market share, respectively.
Our commercial banking business is organized into wholesale banking activities, which are carried out by BCP’s Wholesale Banking Group andwholesale banking group (which includes the corporate banking operations of ASHC)ASB), and retail banking activities, which are carried out by BCP’s Retail Banking Group. We performretail banking group. To increase our leasing operations either directly throughvisibility and raise our market share in the retail banking industry, BCP or through Crédito Leasing S.A. (or Credileasing),bought Edyficar, which is a subsidiary of BCP that will be absorbed by BCP on July 1, 2009.scaled, high-growth and highly profitable microfinance business. Edyficar has a solid risk management strategy and a proven track record in both loan portfolio growth and social impact. The company provides financial services for low-income micro-entrepreneurs and unbanked communities.
We apply uniform credit policies and approval and review procedures, which are based on conservative criteria adopted by BCP, to all of BCP’s subsidiaries. Our general manager is in charge of setting the general credit policies for our different business areas. These policies are set within the guidelines established by Peruvian financial sector laws and SBS regulations (See “—(11)(See “(11) Supervision and Regulation—(ii) BCP”) and the guidelines set forth by our Board of Directors.
Our deposit-taking operations are principally managed by BCP’s Retail Banking Groupretail banking group and ASHC’s Private Banking Group. private banking group. See “(12) “(12) Selected Statistical Information—(iv) Deposits.”
Insurance
We conduct our insurance operations exclusively through PPS and its subsidiaries, which provide a broad range of insurance products. PPS focuses on three business areas, general insurance through Pacífico Seguros, life and pension insurance through Pacífico Vida, and health care insurance through Pacífico Salud EPS. PPS, like other major Peruvian insurance companies, sells its products both directly and through independent brokers and agents. Directly written policies tend to be for large commercial clients, as well as for life and health insurance lines.
Pension funds, brokerage and others
The majority of our trading and brokerage activities are conducted through BCP, ASB and Credicorp Securities Inc. (also referred to as Credicorp Securities), which is one of our wholly-owned subsidiaries. Credicorp Securities is a U.S. registered broker-dealer with its offices in Miami. Our asset management business is carried out by BCP in Peru, through its subsidiary Credifondo, by ASHC and by Prima AFP, the pension fund administrator.
We offer Brokerage and other services through BCP and ASB. BCP offers clients a wide range of such products and services, such as brokerage, mutual funds and custody services through its branch network in Lima and, on a more limited basis, throughout the rest of Peru. In addition, we also distribute such products through ASB.
In the last few years, we have consolidated an important line of business, asset management, for our customers. As of December 31, 2010 our assets under management totaled US$15.7 billion, an increase of 41.7% from 2009, which was mainly due to the market recovery after a drastic drop in the market values of securities caused by the international financial crisis. The majority of our asset management business is performed through our subsidiary, Prima AFP whose funds under management (private pension funds) totaled US$9,765 million at the end of 2010.
Mutual funds represent another important contributor to our asset management business, carried out through BCP’s mutual funds subsidiary, Credifondo Sociedad Administradora de Fondos Mutuos (or Credifondo). Credifondo leads the Peruvian market with a share of 42.4% of the total assets currently under management. Finally, BCP’s affiliate, Atlantic Security Bank, offers the international mutual funds and financial advisory services to BCP’s private banking customers.
We established a corporate supervision project entitled “Asset Management” due to the size of these businesses, the importance of the commissions they generate and, above all, the fiduciary responsibility they entail. The main objectives of the project are to establish homogeneous risk control and investment policies based on best international practices. The Asset Management business has four main components:
Portfolio Management: We seek to consolidate the good performance of our portfolios and funds through strict risk control and an appropriate level of diversification. To achieve this, we focus on improving three key aspects: investment policies, investment processes and management metrics.
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Financial Management: We focus on providing quality financial advisory services, building customer loyalty, and encouraging customers to invest in a diverse combination of securities according to their risk profile. Our objective is to improve the standards of the advisory services that our commercial bank offers and to distinguish between the levels of advisory services provided to different sectors.
Brokerage: We attempt to provide a timely and high quality service, offering competitive execution costs, channeling a greater proportion of the assets traded by our companies to profitable investments and identifying opportunities for joint action (resulting in better prices), in addition to improving controls aimed at avoiding possible conflicts of interest.
Risk Analysis: We seek to identify, quantify, regulate and, ultimately, minimize the risks associated with operations, credit, market, liquidity, legal contingencies, conflict of interests and other risks. Another objective of our risk analysis is setting corporate investment limits, creating a portfolio investments risk manual, and ensuring strict compliance with risk control rules.
(4) BCP and Subsidiaries
(i) General
BCP’s activities include commercial banking, investment banking and retail banking. As of December 31, 2008,2010, the consolidated operations of BCP ranked first among Peruvian banks in terms of total assets of US$18.5 billion,(US$25.3 billion), total loans of US$10.2 billion,(US$13.9 billion), deposits of US$14.2 billion(US$17.1 billion) and net equity of US$1.4 billion.(US$2.0 billion). At the end of 2008,2010, BCP’s loans, on an unconsolidated basis, represented approximately 31.6% and the deposits represented approximately 38.5%33.6% of the total Peruvian banking system respectively.
(higher than the 33.4% registered at the end of 2009) and BCP’s deposits represented approximately 36.3% of the total Peruvian banking system (above the 34.2% reported at the end of 2009).
As of December 31, 2008,2010, BCP had the largest branch network of any commercial bank in Peru with 330329 branches. BCP also operates an agency in Miami and a branch in Panama. In addition, as of December 31, 2010, Edyficar had 101 offices through which it serves its clients.
As of and for the year ended December 31, 2008,2010, BCP accounted for 80.8%69.8% of our total revenues, 87.3%assets, 87.7% of total assets, 107.1% ofour net income and 78.9%70.8% of our net equity. BCP’s operations are supervised and regulated by the SBS and the Central Bank.
| Client Segmentation | ||||
| Group | Sales (US$MM) | |||
| Micro-business | Up to | |||
| Small Business | From | |||
| Middle market | From | |||
| Corporate | Higher than | |||
The grouping was a result of an analysis which addressed factors beyond the simple size and volume of activity for each client, such as clients’ affiliation with other companies or groups, the degree of follow-up required, and their credit ratings.
Subsidiaries
BCP’s corporate structure consists of a group of local subsidiaries offering specialized financial services, which complement BCP’s commercial banking activities. In addition to its local subsidiaries, BCP has an agency in Miami, and a branch in Panama and a subsidiary in Bolivia and an affiliate bank, Atlantic Security Bank, in the Cayman Islands.Bolivia.
BCP and its principal subsidiaries as of December 31, 20082010 are as follows:
Banco de Crédito de Bolivia, or BCB, is BCP’s commercial bank in Bolivia. BCP owns 95.92% of BCB and we hold the remaining interest. Currently, BCB is the fourth largest bank in Bolivia in terms of deposits and loans market share and has a network of 66 offices located throughout Bolivia. BCB owns one of Bolivia’s largest brokerage houses, Credibolsa S.A. Agente de Bolsa, and this subsidiary owns Credifondo SAFI Bolivia, a mutual fund administrator company. BCP targets middle- and small-sized clients and offers a broad range of corporate, personal banking and leasing products. BCB’s results are consolidated in BCP’s financial statements. |
Empresa Financiera Edyficar S.A. was acquired in October 2009 and is 99.78% owned by BCP. It is engaged in micro finance in Peru.
Credibolsa Sociedad Agente de Bolsa, or Credibolsa, was established in June 1991 and is 100% owned by BCP. It is engaged in portfolio advisory and brokerage activities in the Lima Stock Exchange.
Credifondo Sociedad Administradora de Fondos Mutuos, or Credifondo, is a mutual fund management company that was established in 1994. Credifondo is 100% owned by BCP.
Creditítulos S.A., or Creditítulos was established in 1997 and is 100% owned by BCP. Creditítulos serves as an asset securitization entity.
Inmobiliaria BCP is the real estate subsidiary of BCP. It manages and promotes the sale of real estate that has been foreclosed or received in payment by BCP. Inmobiliaria BCP is 100% owned by BCP.
Solución Empresa Administradora Hipotecaria S.A. was established in 1979 under the name Solución Financiera de Crédito del Perú S.A. and is 100% owned by BCP. Its business includes mortgage lending, consumer lending and SME financing. In the company’s shareholders meeting on November 19, 2009, Solución Financiera de Crédito del Perú S.A.’s shareholders decided to change the company from a finance company to a mortgage administrator company and to change the company’s name to Solución Empresa Administradora Hipotecaria S.A. These changes were necessary because, according to Peruvian Law, no person is allowed to be the owner of two financial institutions of the same type. As a result, the company will primarily engage in the administration of mortgage portfolios. These changes were approved by the SBS through resolution SBS 47-2010 on May 21, 2010.
(ii) Wholesale Banking Group
BCP’s Wholesalewholesale banking group (Wholesale Banking Group,Group), which competes with local and foreign banks, has traditionally represented the majority of BCP’s loans. BCP’s traditional relationships provide its Wholesale Banking Group with a competitive advantage.
The Wholesale Banking Group is divided into the following areas:
Corporate Banking, which provides loans and other credit services to companies with annual revenues in excess of US$50 million;
Middle Market Banking, which serves mid-sized companies;
Institutional Banking, which focuses principally on serving profit and non-profit organizations, state-owned companies and other major institutions;
International Banking and leasing, which manages BCP’s relationship with financial institutions locally and abroad, trade products, international operations services and financial leasing products;
Corporate Finance, which provides underwriting and financial advisory services to corporate and middle market clients; and
Business Services, which develops transactional services.
Net interest income from the wholesale banking sector reached US$141138 million in 2010 (compared to US$146 million in 2009). The results of 2009 reflected the higher interest rates associated with the risk to lend to customers during the financial crisis; however substantial economic activity in 2010 promoted competition and drove the market to charge lower interest rates in comparison to 2009 and resulted in a growth which resulted from the increase in business volume and compensated for the reduction in lending rates. Income from financial services accounted for 46% of the total income generated by the wholesale banking sector.our income.
Corporate Banking
Client Profile: The Corporate Banking Area is focused on serving large-sized companies that have an annual turnover of over US$3050 million, audited financial statements and dominant market positions in their particular products or brands. Even if they do not meet the above criteria, BCP may classify other firms in this category if they belong to very large economic groups from industries that are important to the country’s economy.
Products: The Corporate Banking Area offers a broad range of products and tailors its product offerings to meet each client’s unique requirements. In general, this Areaarea is expected to offer high-value-added products and services, particularly cash management services, at competitive prices.
The majority the Corporate Banking Area’s financing is provided to fund sales, international trade and inventories. In general, the Corporate Banking Area grants short-term financing. However, it can provide longer term financing for companies in need of financing capital expenditures and fixed assets, among other purposes. The Area also offers term financing (in all cases backed by real guarantees), financial leasing, factoring, and domestic collections and nationwide fund transfers.
Additionally, Corporate Banking clients can obtain investment banking, advisory and financing services through the Corporate Finance Area, which operates as part of the Wholesale Banking Group and also serves major middle market clients.
Guarantees received by this area consist of (i) receivables in the case of sales financing, (ii) warrants or pledges on inventory in the case of inventory financing and (iii) real guarantees, in the case of financing for fixed asset acquisitions and improvements to their infrastructure.
There is a limited growth prospect in this business due to high market penetration (46.5%) and competition from capital markets in loans.
Middle Market Banking
BCP’s Middle Market Banking Area generally serves the same industries and offers the same products as its Corporate Banking Area. Its focus, however, is on providing its customers with working capital loans which are primarily secured by accounts receivables. This is accomplished by arranging financing for medium- and long-term investment programs, including leasing services offered through our leasing unit. BCP has a middle market client portfolio of approximately 5,400 companies.
Revolving credit lines to finance inventories and sales, as well as stand-by letters of credit and international trade financing;
Financing for short-term requirements such as current account credits and temporary account advances (overdrafts); and
Financing for medium and long-term requirements using intermediation resources (term deposits) and various types of financial leasing financing.
BCP has identified several opportunities to engage middle market companies, particularly in Peru’s agriculture,manufacturing, wholesale, retail, fishing and construction industries, where special emphasis has been placed and specific task areas have been created to attend to the needs of these economic groups. BCP has a middle market client portfolio of approximately 7,000 companies, including 1,118 economic groups. Generally, these clients are not listed on the stock exchange but, in some cases, are capable of issuing financial obligations or commercial papers. Their financial information is reliable and audited. These companies are typically family-controlled but professionally managed.
Since 2009, the middle market banking area revised its customer segmentation policies. The area now includes established (but growing) companies that will eventually become part of our corporate segment, traditional mid-size companies and a group of growing small cap companies. In selecting which small companies are best suited for service by our middle market banking area, we consider a mix of different characteristics; such as annual revenues, financial leverage, overall debt and product penetration and complexity. BCP’s middle market customers are distributed among nine regional managers nationwide and have annual revenues that vary from US$1.5 million to US$50 million.
Since 2009, the middle market banking area made significant progress toward implementing its strategic goals by:
Creating hubs to meet the needs of its customers more efficiently
BCP opening a a customer redistribution hub in Lima, where a new business area was created;
Streamlining its lending process to provide middle market customers with prompt service;
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Introducing new electronic financial products to make its services more accessible to customers;
Incorporating sophisticated technical tools that assist it in analyzing risk-based pricing and profitability; and
Focusing on risk based financial services revenues, which include structured loans, project financing and syndicated transactions, are designed to accommodate specific clients’ needs. Through these products, BCP has been an active lender and financial advisor to Peru’s mining, technology and energy sectors. In addition to its regular sourcesaccount for 50% of funds, BCP is an intermediary of Corporación Financiera de Desarrollo (Development Finance Corporation, or COFIDE, a second-floor bank fully ownedthe total income generated by the Peruvian government). In several medium-term credit lines for project financings in certain sectors, BCP is also an intermediary of international financial institutions such as Corporación Andina de Fomento (Andean Development Corporation, or CAF), the International Finance Corporation (or IFC) and the Inter-American Development Bank.middle market banking area.
Because of their size, middle market companies in Peru generally do not have access to the local or international capital markets or to credit from foreign banks. In addition, we believe that middle market companies have benefited significantly from the overall economic improvements in Peru over the past few years. Loan quality problems have been addressed through procedures and organizational changes that have focused on improving the loan approval and credit-risk assessment processes.
Institutional Banking
BCP’s Institutional Banking Area serves for-profit and non-profit organizations, whether public or private, which includes approximately 1,000 stateincluding 800 clients in Lima and local government300 clients in provinces. In Lima, a specialized team in wholesale banking serves governmental entities, educational institutions, religious organizations, international bodies, educational institutionsnon-governmental organizations, and non-governmental organizations. Specialized teams in bothmicrofinance institutions. In provinces, a specialized remote wholesale banking team partners with BCP’s Wholesale Banking and Retail Banking groupsretail banking area to serve these clients.
The annual average deposit amount in BCP’s Institutional Banking Area (Lima and Provinces) reached US$2.0 billion in 2010. The Institutional Banking Area is strategically important due to the business potentialbecause of its clients (which demand diverse products and services) and the opportunities its clients present for generating income from fees and cross-selling opportunities. BCP’s institutional banking clients are principally users of transactional products and require consultancy for investment management. BCP’s strategy in this Areaarea is focused on building customer loyalty by offering customized services at relatively competitive rates and providing outstanding service quality. The institutional banking clients mainly require remote office banking, collections and automated payroll payment services.
International Banking
This area of BCP’s International Banking Area is focused primarilybusiness jointly the company’s international banking activities and recently (since June 2010) assumed the supervision of all leasing activities of the Bank.
The international banking unit focuses on providing short-term credit for international trade, which is funded with internal resources or with credit lines from foreign banks and institutions. Medium-term lines of credit funded by international commercial banks and other countries’ governmental institutions are also provided to clients. In addition, this areaunit earns fees by confirming guarantees issued by international banks and other fees as a result of the international payment business. The International Banking Areainternational banking unit also promotes international trade activities with its local clients by structuring trade products and services, establishing conferences and assessing the customer incustomers through a wide range of trade products.
Since September 2008 the International Banking Areainternational banking unit has also been supervising the trade Back Office Unitback office unit (International Operations). BCP maintains business relations with correspondent banks, development banks, multilateral and export credit agencies in countries around the world. At present, BCP manages credit lines for foreign trade transactions, working capital and medium- and long-term investment projects.
The current international market volatility has leftduring 2009 affected Peruvian trade volume, which fell 30% compared to volume in 2008. Volume of trade managed by BCP withwas similarly affected and its fee income dropped 12.1%. Although trade volume declined, BCP’s trade market share increased from 36.5% to 41.5% due to a large amount of liquidity in U.S. Dollars. BCP has been active borrowing short-term fundsshift in the international markets, and until August 2008,usage of trade tools from “open account” to “guarantees”, where BCP participated in securitization programs for medium- and long-term.is a recognized leader.
According to the Superintendencia Nacional de Administracion Tributaria, or SUNAT,Aduanas (SUNAT), in 20082010 Peruvian exports increased 12.2%31.2% to US$31.235.1 billion from(compared to US$27.826.7 billion in 2007.2009). This result was principally due to increaseda growth in commodities exports of commodities (gold, silvercopper, zinc and iron) and of manufactured goods (metalmecanic and agribusiness)lead). During the same year (based on BCP’s internal report), BCP’s exports volume increased 2.8%42.9% to US$11.116.6 billion from(compared to US$10.811.6 billion in 2007,2009), which amounted to 35.6%47.3% of total Peruvian exports.
Total Peruvian imports were US$29.9 billion in 2008,2010, increasing 45.9%37.0% from US$20.521.8 billion in 2007,2009, which was primarily due to a higher demand for capital goods (industry, construction and transportation), raw materials for industry, and consumer goods. BCP’s import letters of credit, collections and transfers amounted to US$6.19.4 billion in 2008,2010, increasing 44.1 % from US$4.36.5 billion in 2007.2009, which amounted to 31.5% of total Peruvian imports.
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BCP has a direct presence abroad through its agency in Miami and its branch in Panama. It has access to a wide network of foreign correspondent banks and can offer several internationally competitive products to its customers.
BCP has correspondent banking relationships and uncommitted credit lines with more than 80 banks for foreign trade operations, financing of working capital and medium- and long-term investment projects. During 2008,At the same time BCP intensively used its funding credit lines with correspondent banks duehas been approaching the banking market to an intensive growth in its trade portfolio.fund medium-term needs through the usage of syndicate loans structured by different international banks.
In line with trade trends, China has become the second largest trade partner for Peru. In light of China’s growing influence, BCP has visited several banks and corporations in China to explore possible alternatives to intermediate trade flows, assess to Peruvian exporters and importers and Chinese investment in Peru through direct investment and trade development. In order to support this business, during 2010 BCP signed several memoranda of understanding with China’s most important financial institutions and opened an RMB account with a Chinese financial institution.
During 2010, Peru had a very active leasing market. BCP, has consolidated the leasing activities developed by the bank. BCP ended 2009 with US$2 billion outstanding in this product area and 35.6% of the market share in Peru. Leasing as a way of financing became a more important tool for Peruvian companies over the course of the last year, growing from US$5.6 billion on December 31, 2009 to US$6.4 billion on December 31, 2010. BCP ended 2010 with a larger market share, 38.8%, reaching US$2.5 billion outstanding.
The leasing business growth we experienced in 2010 was a product of increased investment activity in the energy, mining, communications and transport industries. As the Peruvian economy has expanded the appetite of private investors for these kinds of investments has made leasing attractive because it carries tax benefits superior to those available through traditional sources. Other activities like car sales and machinery are also contributing to the growth of this product.
Corporate Finance
BCP’s Corporate Finance Area is a leading advisor to corporate, middle market and institutional clients in Peru. Our Corporate Finance team composed of over 25 executives based in Peru is the largest team of its kind in the marketplace. BCP’s Corporate Finance Area provides a wide range of underwritinginvestment banking and financialcorporate finance advisory services, toincluding structured financings, capital raisings, initial public offerings, mergers and acquisitions and corporate clients and middle market businesses and has a leading position in the local market. The Corporate Finance Area was incorporated into BCP’s Wholesale Banking Group in 1996 in order to enhance its effectiveness as the demands of Peru’s larger corporations moved away from loan-based operations toward capital markets-based operations.restructurings. In 2008,2010, the Corporate Finance Area focused on investment banking andparticipated in over US$2,500 million of structured transactions, which involved financing and grew alongside the expanding Peruvian economy and, particularly,through both the local capital markets. Asmarket and the banking system. BCP’s Corporate Finance team is ranked first in the 2010 local debt capital market league tables having placed over US$500 million in debt instruments, which accounts for 44% of the local debt capital markets primary offers-. The main projects in 2010 included:
A leasing arrangement of US$310 million for EnerSur to finance its combined cycle add-on project for ChilcaUno power generation plant. This was the largest leasing transaction that has been structured and paid by a result,local bank;
The arrangement and placement of Transportadora de Gas del Perú and Pluspetrol Lote- 56’s corporate bonds for US$150 million and US$130 million respectively. Funds from this placement were used to finance the Camisea Project expansion.
Medium term loan arrangements of US$35 million and US$50 million for Concesionaria Vial del Perú and Autopista del Norte to finance Peruvian roads concessions.
Medium term loan arrangement of US$70 million for Consorcio Transmantaro to finance the construction of Chilca-La Planicie-Zapallal transmission line and the reinforcement of Mantaro-Socabaya transmission line.
A syndicated term loan of US$190 million for SN Power Perú to refinance financial liabilities and partially finance the equity for Project Cheves, a 168 MW hydroelectric power plant.
Advisory and valuation services for Credicorp during the acquisition of ALICO’s shares of Pacifico Peruano Suiza and Pacifico Vida.
A syndicated term loan of US$200 million for Gold Fields La Cima.
During 2010, the Corporate Finance Area generated income exceedingin excess of US$8.419.0 million from structuring, counselingadvisory and placing commissions.issuance fees.
Business Services
Services managed by the Business Services Areathis unit include collections (automated trade bill collection and electronic factoring), automated payments (direct credits to personnel and supplierssuppliers’ accounts and money transfers), electronic office banking and cash management through checking accounts with special features.
During 2008,2010, transactional services continued to contributebe an important contributor to BCP’sour earnings. The monthly average of the number of current accounts increased by 16.3%7.9% and fee revenuesrevenue increased by 14.3%10.2% compared to those of 2007.2009. This improvement is mainly the result of the dynamism experiencedgrowth in the small business sector (also referred to as SME). CollectionSME segment. Main collection services such as billsalso increased: letters and companies’ collections generated commissions that increased 12.2%rose 12.6% and 35.4%24.8%, respectively, over the 2007 collections. This improvement is explained, in part, by BCP’sfrom 2009. Our strategic decision to offer value to itsour clients through the implementation of a more efficient service mechanism explained part of information related to these services. Thethis improvement. In addition, the higher demand by clients for the remote banking service Telecredito also generated 30.1% more transactions than 2007. Likewise, other commissions generated by remittances abroad grew 11.4% from those“Telecredito” generated, in 2007, andterms of number of transactions, a growth of 14.5% compared to 2009. Tax collections also grew 13.5%. Likewise, the transaction volume generated by electronic factoring increased 19%79.9% in 2008. Finally, the electronic service for invoice financing, recently introduced in the market, grew by 63.9% in volume from 2007.2010.
(iii) Retail Banking Group
According to BCP’s internal reports, by the end of 2010, retail banking-related loans continued to grow and thereby maintained their 37% sharerepresented 40% of BCP’s total loans. Retailloans, while retail banking-related deposits also grew, increasing their share from 46% to 48%accounted for 52% of BCP’s total deposits. IncomeRetail income from fees grew 18% between 2007 and 2008, reaching US$200 million by year end 2008.constituted 62% of BCP’s total income from fees.
Between 2006 and 2007, the Retail Banking Group’s loan volumes increased by 48%45%, reaching US$2,898 million. During 2008, loans grew again by 27%28%, a growth of US$795 million, toreaching US$3,694 million. Throughout 2009, loan balances grew by US$657 million reaching US$4,351 million. In 2010 loan balances reached US$5,322 million, growing almost US$1,000 million. This growth can be attributed towas a result of strong consumer lending, which includes installment loans and credit cards, home mortgages and small and micro business loans and home mortgages.loans. With respect to deposits, BCP’s Retail Banking Groupretail banking-related deposits has also shown constant growth,growth. Deposits grew by growing 30% (US$1,406 million)29% between 2006 and 2007, and US$1,0611,052 million in 2008, forUS$691 million during 2009 and US$1,247 million in 2010, reaching a total of US$7,181 million.9,066 million by the end of the year.
With the segmentation of its retail client base, BCP is able to focus on cross-selling its products and improving per-client profitability. The Retail Banking Group has undertaken several projects to improve one-on-one marketing techniques and tools for the sale of its products to all market segments. BCP’s management expects the retail banking business to becontinue being one of the principal growth areas for BCP’s lending activities.
BCP’s retail banking serves individuals and small-sized companies with annual sales levels of up to US$1.56.7 million. BCP’s objective is to establish profitable long-term relationships with its broad client base, using segmentation strategies that satisfy the specific needs of each client type.type of client. BCP’s retail distribution strategy changed at the beginning of 2007, when BCP started using the branch network as the center for all transactional and commercial activities. BCP now has a commercial division, in charge of allmost direct sales forces and the branches, which in turn are organized on a geographic level. Each branch is responsible for servicing and selling products to three customers groups: exclusive banking,affluent, small business banking and consumer banking.consumer. In addition, each branch manager is responsible for coordinatingoverseeing the different channels offered within the branch, such as account managers, customer service representatives and tellers. Telemarketing, mid size business banking and real estate developer financing are not managed directly by local branches because of the specialty level and high growth potential associated with these products.
Affluent Banking
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Small Business Banking
BCP’s small business segment now accounts for 265,000359,000 clients. Customers are divided into three groups with different business models, services levels, and products access. The first group is top-end small business banking, which serves approximately 9,00010,000 clients and haswith annual sales between US$300,0000.5 and US$1.56.7 million. The next group of 130,000248,000 small business clients has annual sales betweenup to US$10,0000.5 million and US$300,000. Thehas debt, and the third group of approximately 126,000100,000 clients consists of very small business customers haswho have only deposit product needs.products.
According to BCP’s internal reports, the Small Business Banking loan portfolio grew from US$6791,006 million in 2006 to US$1,037 million in 2007 and to US$1,345 million in 2008.2008 and then to US$1,546 million in 2009. By the end of 2010 the loan portfolio was US$1,984 million. In terms of deposits, this group increased deposits from US$913 million in 2006 to US$1,1971,027 million in 2007 and to US$1,5621,463 million in 2008.
2008 and then to US$1,637 million by 2009. In 2010 deposits grew to US$1,860 million.Edyficar also serves the microfinance segment, and as of December 31, 2010, it registered 285,781 clients with a total loan portfolio equivalent to US$356 million, which represented an increase of 43% compared to the level registered at the end of 2009. As of December 31, 2010, Edyficar had a client market share of 7.32%, making it fourth in terms of market share within the microfinance segment. The aggregate market share of Edyficar and BCP in the microfinance segment totaled 15.69% at the end of 2010, and combined, they have the highest market share in the microfinance segment.
Consumer Banking
Consumer banking is in charge of developing strategies for the retail customers not included in exclusiveaffluent banking or small business banking. Its customer base is approximately 2.53 million medium to low income individuals. Consumer banking focuses its attention on customers who receive their payroll through BCP (which represents slightly more than 720,0000.9 million clients). Its strategies vary from basic acquisition of new accounts for wage-earners with special terms regarding fees and interest rates, to more sophisticated, aggressive cross-sell and retention programs that expand benefits to non-banking products (i.e.(i.e., access to discounted products). and access to payroll advances. BCP has continued excelling in expanding its debit card as a form of payment, maintaining more than half of the market share in withdrawals and payments with debit cards, which is a year-to-year increase of 400,000471,000 cards. BCP concluded 20082010 with more than 2.73.2 million cards.
Mortgage Lending
As of December 31, 2008,2010, BCP was the largest mortgage lender in Peru with a market share of 35.8%34.45% of total mortgage loans in the Peruvian banking system. This was largely the result of BCP’s extensive marketing campaigns and its improvements in the quality of procedures for extending credit and establishing guarantees.
BCP expects the mortgage lending business to continue to grow because of (i) low levels of penetration in the financial market, (ii) increasing demand for housing, (iii) the availability of funds for the Peruvian government’s MiVivienda low-income housing program and (iv) the current economic outlook for controlled inflation and economic growth in Peru.of:
| · | low levels of penetration in the financial market, |
| · | increasing demand for housing, |
| · | the availability of funds for the Peruvian government’s MiVivienda low-income housing program and |
| · | the current economic outlook for controlled inflation and economic growth in Peru. |
BCP had US$1,3301,905 million ofin outstanding mortgage loans as of December 31, 20082010 (as compared to US$1,1321,571 million at year-endin 2009, US$1,330 million in 2008, US$1,105 million in 2007 and US$868 million atfor year-end 2006).
All programs of mortgage financing are available to customers with minimum monthly income of US$400. The MiVivienda program, a program supported by government resources, placed a limit of US$35,00060,000 on the value of the house to be purchased. BCP will finance up to 90% of the appraised value of a property where monthly mortgage payments do not exceed 30% of the client’s stable net income. The maximum maturity of the mortgage loans BCP offers is 25 years, in U.S. Dollars, and 2025 years, in local currency. Within the mortgage lending business, BCP offers variable, fixed and Libor-basedLIBOR-based interest rates on home mortgage loans denominated in both U.S. Dollars and Nuevos Soles. However, BCP’s mortgage portfolio is predominantly variablefixed rate and U.S. Dollar-denominated.
In May 2006, the original MiVivienda program was terminated. However, local banks (with government’s approval) launched a similar project, known as MiVivienda2, to which proprietary funds contribute. In addition, in March 2007, BCP created a new program financed by the government called Mi Hogar, which targeted personspeople with a lower income profile. The conditions of the new program are almost identical to those of the first MiVivienda program, except that financing is in local currency. In June 2009, the MiVivienda administration decided to re-launch its new MiVivienda program with the objective of financing mortgages between US$17,000 and US$60,000 with government funds. Simultaneously, they re-launched their product, Techo Propio, to finance mortgages between US$7,000 and US$17,000. In both cases, the programs are intended to develop social housing in the country. In 2010, nearly 12,000 MiVivienda credits were sold, 35% of which were sold through BCP.
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Consumer Lending (Credit Cards and Installment Loans)
Consumer lending, credit cards and installment loans have grown significantly as improving economic conditions have led to increased consumer spending. BCP expects the strong demand for these products to continue. In addition to interest income, BCP derives fee income from customer application and maintenance, retailer transactions, and merchant processing, finance and penalty charges on credit cards.
Peru’s economic growth has had a huge impact on the consumer credit market, which grew by a total of 30% during 20072008, 7% during 2009 and 2008.15% between 2009 and 2010. The outstanding balance wasis US$1,0951,607 million, at year-end 2008:consisting of US$405590 million forin credit card loans and US$6891,050 million in installment loans. BCP’s market share in consumer lending has consistently increased duringsince 2007, 2008 and 2009 from 17.9% to 19.2% to 20.6%. In 2010 market share was 20.7%. This 37% growth in consumer lending was achieved while maintaining a low 3.2% ratio of delinquent accounts below 4% (over 30 days).
In the credit card business, BCP continued to apply segmented strategies. BCP continues to offer value to its high-end customers through partnerships with the airline LAN and with Primax, a chain of gas stations. These programs, coupled with BCP’s own travel program, enabled it to reach record levels, both in point generation and point usage (exchanges). To catch the attention of the lower income segment, BCP worked on streamlining its risk assessment, and card delivery process.process and generate partnerships with other retailers.
BCP is also the largest shareholder of VISANET in Peru, holding approximately 40%35.53% of its total shares. The number of VISANET electronic payment terminals grew to approximately 50,000 at year-end 2008,68,362 in 2010, as compared to 41,000 at year-end 2007, 28,000 at year-end 2006 and 18,000 at year-end 2005.28,816 in 2006.
(iv) Capital MarketsAsset Management Group
In addition to BCP’s wholesale and retail banking operations, BCP operates a capital markets group, which currently is the largest capital markets and brokerage distribution system in Peru. The principal activities of the Capital Markets Group include currency transactions (both for clients and on a proprietary basis) as well as treasury, custody and trust, investment advisory services, and general research activities.
BCP’s products are distributed through its subsidiaries and branches. BCP’s close relationship and coordination with its subsidiaries has established BCP as the market leader in the capital markets business.
Credibolsa is BCP’s brokerage subsidiary through which BCP offers a wide variety of variable and fixed-income products and services. Credibolsa’s activities include the structuring and placement of primary market issues and the execution and trading of secondary market transactions.
Creditítulos is BCP’s asset securitization subsidiary through which BCP offers local securitization structuring to corporate entities.
Credifondo is BCP’s fund management subsidiary, which offers investment fund products and services. Fund types offered by Credifondo include short/long term, U.S. Dollar and local currency and fixed/variable income and real estate funds.
Trading and Brokerage Services
In 2008, the effects of2010, markets recovered strongly after the international financial crisis hit the Peruvian stock market.crisis. The Lima Stock Exchange’s general index, or IGBVL, fell 60% and total trading fell to US$4,963 million (a dropExchange General Index (IGBVL) experienced an increase of almost 48%)69.8%. Fixed Income and Report Operations over the IGBVL reached US$2,668 million, 13% lower than the average volume of 2007.
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Treasury, Foreign Exchange and Proprietary Trading
BCP’s treasury and foreign exchange groups are active participants in money market and foreign exchange trading. These groups manage BCP’s foreign exchange positions and reserves and are also involved in analyzing liquidity and other asset/liability matters. The trading desk plays an important role in short-term money markets in Nuevos Soles and in foreign currencies. It has also been active in the auctions of certificates of deposit by Peru’s central bank as well as in financings through certificates of deposit, interbank transactions and guaranteed negotiable notes, among other instruments.
Since 2007, BCP has adhered to the best international cash management practices. BCP created the Assets and Liabilities Management Service (or ALM) which is responsible for managing its balance sheet under the Asset and Liabilities Committee (or ALCO) oversight. ALM is responsible for managing BCP’s balance sheet and for accepting reasonable interest rate and liquidity risks through management of the short- and long-term transfer rates. In 2008, BCP’s active ALM business management created revenues of US$27.6 million.
BCP’s proprietary trading consists of trading and short-term investments in securities, which includes instruments from various countries. These short-term investments are primarily made to facilitate its treasury management and corporate finance efforts. This has become an increasingly important part of BCP’s business, as BCP seeks returns on excess liquidity pending improved lending conditions. During 2008, the investments were mainly oriented to Nuevo Soles-denominated instruments such as BCRP certificates of deposits and government bonds.
Asset Management
Credifondo S.A., Sociedad Administradora de Fondos, Mutuos de Inversión en Valores, or Credifondo, provides advice to and operates mutual funds in Peru. It is the largest mutual fund manager in Peru based upon data from the Peruvian securities market authority, the Comisión Nacional Supervisora de Empresas y Valores or CONASEV.(CONASEV). As of December 31, 2008,2010, total Peruvian funds in the mutual funds system amounted to US$2.85.59 billion, decreasing 34.9%increasing 15.0% from US$4.34.86 billion in 2007.2009.
According to CONASEV, as of December 31, 2008,2010, Credifondo managed ten separate funds, with a total of 98,49792,626 participants (38.8%(33.1% of total participants) compared to 114,340 (41.6% of total participants)102,211 in 2007.2009. Among the securities in which the different funds specialize are: equities, U.S. Dollar-denominated bonds, Nuevo Sol-denominated bonds U.S. Dollar-denominated short-term securities and U.S. Dollar-denominated real estateshort-term securities. As of December 31, 2008,2010, Credifondo’s total managed funds under management amounted to US$1,2742,370 million, decreasingincreasing from US$1,9561,929 million – 22.9% – as of December 31, 2007.2009. Because these funds are subject to certain volatility, there can be no assurance as to their future performance. As a result, we do not guarantee any return on these investments.
As of December 31, 2008, our2010, the Bolivian fund administrator managed a total of US$109.9102.6 million of third-party funds (US$70.9 million in 2007).
According to BCP’s internal reports, BCP holds US$18.026.5 billion in securities for over 61,105 domestic and foreign clients.securities. BCP provides custody services that include the physical keeping of securities and the payment of dividends and interest. In addition, BCP acts as paying agent for securities of which it does not keep custody. BCP is one of the few banks in Peru qualified to serve as a foreign custodian for U.S. mutual funds. Trust services include (i) escrow, (ii) administration and representation services, (iii) supervision of transactions completed for its clients and (iv) transfer settlement and payment services for local securities issues. include:
| · | escrow, |
| · | administration and representation services, |
| · | supervision of transactions completed for its clients and |
| · | transfer settlement and payment services for local securities issues. |
These services allow BCP to adequately represent its clients’ activities in the local and international securities markets.
La Fiduciaria S.A., or Fiduciaria, is an associated entity and the first specialized trust services company in Peru. We hold a 45% interest in Fiduciaria. In its eighth year of existence, Fiduciaria has managed trusts for a majority of the institutions in the national financial system, putting itself at the forefront of fiduciary services in Peru. Fiduciaria’s operations encompass sectors including energy, communications, mining, tourism, fishing, education and construction. Fiduciaria ended 20082010 with 153231 outstanding operations.
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(v) Lending Policies and Procedures
BCP’s uniform credit policies and approval and review procedures are based upon conservative criteria and are uniformly applied to all of its subsidiaries. These policies are in accordance with the guidelines established by Peruvian financial sector laws and SBS regulations. (See “—(11) Supervision and Regulation—(ii) BCP,” and the guidelines set forth by our board of directors.)
BCP’s credit approval process is based primarily on an evaluation of the borrower’s repayment capacity and on commercial and banking references. BCP determines a corporate borrower’s repayment capacity by analyzing the historical and projected financial condition of the company and of the industry in which it operates. Other important factors that BCP analyzes include the company’s current management, banking references, past experiences in similar transactions, and collateral to be provided.
For the evaluation of BCP’s corporate borrowers, credit officers prepare a risk assessment report, which analyzes the client’s ability to repay its obligations, determines the probability of default of the client using an internal risk rating model, and defines the maximum credit exposure that the BCP wants to hold with the company.
For BCP’s individual and small business borrowers, it evaluates credits based on the client’s capacity for repayment, a documented set of policies (regarding the client’s financial track record among other issues), and in most cases, credit scores, which assign loan-loss probabilities that relate to expected returns of each market segment. Approximately two-thirds80% of BCP’s credit card, consumer, mortgage, and consumersmall business loan application decisions are made by automatic systems. The complement and all mortgage and small business loans are currently madeis decided by credit officers reporting to a centralized unit. In analyzing credit risk, the Retail Banking Group assesses the client’s financial track record and other aspects in order to determine its ability to repay debt. In addition, in every case a loan approval is subject to a number of credit scoring models, which assign loan-loss probabilities that relate to expected returns of each market sector.
Success in the small business and personal lending areas depends largely on BCP’s ability to obtain reliable credit information about prospective borrowers. BCP, together with several partners, formed a credit research company called Infocorp in November 1995.1995 (currently managed by Equifax). In addition, the SBS has expanded its credit exposure database service to cover all businesses or individuals with any amount borrowed from a Peruvian financial institution. This database includes information on the loan risk category in which the borrowers are classified: “Normal,” “Potential Problem,” “Deficient,“Substandard,” “Doubtful” and “Loss.”
BCP has a strictly enforced policy with respect to the lending authority of its loan officers. It also has procedures to ensure that these limits are adhered to before a loan is disbursed. Under BCP’s credit approval process, the lending authority for middle market, small business, and personal loans is centralized into a specialized credit risk analysis area, whose officers have been granted lending limits. To ensure that loan officers and credit analysis officers are complying with their lending authority, the credit department and BCP’s internal auditors regularly examine credit approvals, in addition to the controls built into the loan approval workflow systems.
The following table briefly summarizes BCP’s policy on lending limits for loan officers and credit risk analysis officers. Requests for credit facilities in excess of the limits set forth below are reviewed by BCP’s general manager, executive committee or, if the amount of the proposed facility is sufficiently large, board of directors.
In US$ thousands | Risk without collateral or with only personal collateral or guarantee | Risk with preferred guarantees (1) | ||||||
| Board of Directors | Regulatory limit | Regulatory limit | ||||||
| Executive Committee | US$ | 145,000 | US$ | 145,000 | ||||
| General Manager | US$ | 15,000 | US$ | 30,000 | ||||
| Credit Group Manager | US$ | 7,500 | US$ | 15,000 | ||||
| Credit Risk Manager | US$ | 4,000 | US$ | 8,000 | ||||
| Credit Risk Chiefs | US$ | 1,000 | US$ | 3,000 | ||||
| Retail Credit Risk Manager | US$ | 500 | US$ | 500 | ||||
| In US$ thousands | Risk without collateral or with only personal collateral or guarantee | Risk with preferred guarantees (1) | ||||
| Board of Directors | Regulatory limit | Regulatory limit | ||||
| Executive Committee | US$ 197,414 | US$ 197,414 | ||||
| General Manager | US$ 60,000 | US$ 60,000 | ||||
| Credit Group Manager | US$ 13,500 | US$ 27,000 | ||||
| Credit Risk Manager | US$ 4,500 | US$ 14,400 | ||||
| Credit Risk Chiefs | US$ 1,800 | US$ 5,400 | ||||
| Retail Credit Risk Manager | US$ 1,200 | US$ 2,000 |
| (1) | Preferred guarantees include deposits in cash, stand-by letters, securities and other liquid assets with market price, mortgages, non-real estate property guarantees and assets generated by leasing operations. The limit for the Executive Committee is 10% of the Regulatory Capital of BCP as of December 2010, which equaled US$1,974,142 thousand. |
BCP believes that an important factor in maintaining the quality of its loan portfolio is the selection and training of its loan and risk officers. BCP requires loan officers to have degrees in economics, accounting or business administration from competitive local or foreign universities. In addition, the training program consists of a six-month rotation through all of the business-related areas of BCP and the credit risk analysis area. After the training period is over, trainees are assigned as assistants to loan officers for a period of at least one year before they can be promoted to loan officers. Loan officers also receive additional training throughout their careers at BCP. Laterally-hired officers are generally required to have previously held positions as loan officers.
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In general, BCP is a secured lender. As of December 31, 2008,2010, approximately US$4.87.4 billion of theour loan portfolio and contingent credits were secured by collateral, which represents 41.7%45.4% of the total loan portfolio based upon BCP’sour unconsolidated figures, (43.8% as of December 31, 2007compared to 47.9% in 2009 and 43.83% as of December 31, 2006).41.7% in 2008. Liquid collateral is a small portion of the total collateral. In general, if BCP requires collateral for the extension of credit, it requires collateral valued at between 10% and 50% above the facilities granted. The appraisal of illiquid collateral, in particular real estate assets, machinery and equipment, is performed by independent experts when required for specific reasons.
The existence of collateral does not affect the loan classification process according to regulations in effect as of December 1998. Pursuant to Peruvian banking law, secured loans, or the portion thereof covered by collateral, classified in Class “B,” “C,” or “D” risk categories have a lower loan loss provision requirement for Peruvian accounting purposes. If a borrower is classified as substandard or below, then BCP’s entire credit exposure to that borrower is so classified.
BCP conducts unannounced internal audits on the financial statements, consistent with local banking regulation of the different jurisdictions in which it operates.
(vi) Deposits
Deposits are principally managed by BCP’s Retail Banking Group.retail banking group. The main objective of BCP’s Retail Banking Group operations has historically been to develop a diversified and stable deposit base in order to provide a low-cost source of funding. This deposit base has traditionally been one of BCP’s greatest strengths. BCP has historically relied on the more traditional, stable, low cost deposit sources, which it considers to be its core deposits: time, demand deposits, savings and CTS deposits. CTS deposits, or Severance Indemnity Deposits, are funded by companies in the name of their employees. CTS deposits amount to one month’s salary per year and may be withdrawn by the employee only upon termination of employment or upon transfer to another bank, subject to certain exceptions. Exceptions include disposing of 50%40% of the CTS deposit at any timemade in May 2010 and disposing30% of up to 80% at once for home purchase.CTS deposit made in November 2010. For the year 2009 and 2010 and as part2011, employees may dispose 70% of the Government program to minimize the impactexcess of the international crisis, individuals may dispose 100% of their CTS deposits.six gross monthly remunerations.
As of December 31, 2008,2010, deposits represented 84.2%70.9% of BCP’s total source funding. BCP’s extensive branch network facilitates access to this type of stable and low-cost funding. BCP’s corporate clients are also an important source of funding for BCP. As of December 31, 2008, BCP’s Wholesale Banking Group accounted for approximately 51% of total deposits. Of all deposits from BCP’s Wholesale Banking Group, 61.8% were Nuevo Sol-denominated and the balance (38.2%) were foreign currency-denominated (almost entirely in U.S. Dollars).
(vii) Support Areas
BCP’s commercial banking operations are supported by its Market Risk Area,risk area, which evaluates and helps administer credit relationships, establishes credit policies and monitors credit risk. See “—(4) BCP and Subsidiaries—(v) Lending Policies and Procedures.”
BCP’s Planningplanning and Finance Areafinance area is in charge of planning, accounting and investor relations functions and is also responsible for analyzing the economic, business and competitive environment in order to provide the information necessary to support senior management’s decision-making.
In addition to the above, BCP’s Administration Groupadministration group is generally responsible for information technology, quality control,institutional and public relations, human resources, the legal department, security, maintenance and supplies.
Information Technology
BCP is a technology leader in the Peruvian banking sector. All of BCP’s Retail Banking Groupretail banking group services and a substantial portion of BCP’s corporate banking services are fully computerized. All of BCP’s points of service, including branches, ATMs and POS terminals, are linked to BCP’s data processing center, which permits BCP to monitor and analyze service while allowing most transactions to be executed on a real-time, online basis.
BCP considers its technology platform to be one of its main competitive strengths and has continued to invest in this area to maintain its competitive position in the banking sector. Therefore, BCP’s investments in IT have provided the computing power, storage capacity, bandwidth and other IT services to the best of their class.
During 2008,2010 BCP’s expenses on systems totaled US$136.2 million (US$117.0 million corresponded to recurrent expenses and US$19.2 million to projects), higher than the expenses registered in 2009 of US$120.7 million, and above the US$97.9 million of which US$79.2 million were recurring expenses and US$18.7 million were allocated to specific projects. These totals were higher than those of 2007, which were US$78.7 million, US$61.9 million and US$16.8 million, respectively.2008. BCP’s investments totaled US$51.9 million in 2010, above the US$50.9 million recorded in 2009 but below the US$60.9 million of which US$16.6 million were for tactical projects, US$27.5 million for core processes, and US$16.8 million for subsistence projects. Again, these amounts higher were than those reported for 2007 (US$35.1 million,2008. The total investment was related to large projects for a total of US$13.8 million, US$13.428.4 million and US$7.9 million, respectively).
Marketing
BCP continually works to protect and strengthen the BCP brand. BCP has a proactive attitude towards competition and focusingis focused on change and innovation, it seeks to promoteinnovation. The company promotes its products and services by constantly improving them. In this manner, BCP aims to meetgrow and be a leader in every retail market needs with the ultimate purpose of creatingby offering the highest possible value for its clients and shareholders. In 2008,2010, BCP continued its strategy which was based on two fronts:generating value.
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Another key element for BCP to create value is innovation. BCP has launched several innovative products, including new service products for very wealthy customers and new benefits for customers whose wages are paid atdirectly into their BCP accounts,accounts. BCP also innovates by transforming the way it operates throughout the organization, achieving internally, leaner and the development of the Línea Múltiple de Negocios (Multiple Business Line) that allows its customersmore efficient processes and externally, an enhanced experience for our customers. During 2009 and 2010 leaner processes were implemented by making adjustments to meet their financial needs with a comprehensive, easy-to-use product.branch layouts, tellers, ATM cash management and mortgage lending.
Quality in Service: Quality in service is a permanent goal for BCP. BCP has progressed in this area by implementing a new regulationand the company aims to proactively meet or exceed regulations promulgated under the Consumer Protection Law, which includedLaw. BPC has made significant investments towardin improving service and keeping customers informed about BCP’sits products and services.services, with a special focus on reducing the sources of claims.
Operations
Achieving greater operational efficiency is an essential part of BCP’s growth strategy, and BCP has also implemented longer working hoursis committed to improving efficiency by streamlining its processes. One of the main initiatives the company advanced in its branches.2009 and in 2010 was “Lean Project”, which aimed at increasing the satisfaction of BCP’s clients by enhancing business-origination processes based on the “Lean” methodology.
After two years, 14 processes were successfully analyzed. Some of the most relevant general results included the following:
| · | Increase in productivity of between 32% and 147%, |
| · | Reduction of times from the client’s perspective (waiting time, credit application processing time, among few others) of between 29% and 65%, and |
| · | Reduction of waiting times by 68%. |
(viii) Anti-Money Laundering Policies
As part of our enterprise wide compliance program, BCP and all the companies under our group have adopted corporate policies and procedures for “know your customer,” “know your market,” “know your correspondent bank” and “know your employee” as an integral part of our anti-money laundering program. TheseAll employees corporation-wide are required to follow these policies and procedures are required to be followedwhich have been endorsed by allthe Board of BCP’s employeesDirectors, the Chief Executive Officer and ultimately are the responsibility of its board of directors, chief executive officer andCorporate Compliance Officer.
Credicorp’s corporate compliance officer.
The Financial Intelligence Unit is the governmentgovernmental entity responsible for receiving, analyzing and disseminating suspicious transaction reports filed by obligated entities. It was created under Law 27693 in April of 2002, as amended by Laws 28009 and 28306, and incorporated under Law 29038 in June 2007 as a specialized unit of the SBS. The Financial Intelligence Unit is autonomous, both functionally and technically.
One of the main banking regulations, Law 838-2008, requires that all financial institutions supervised by the SBS have an anti-money laundering and terrorist financing compliance program that includes adequate policies, monitoring of client operations, evaluation of red flags, registration of all cash operations and a training program for all staff.
(ix) Employees
As of December 31, 2008,2010, BCP had 15,96916,148 employees (including 1,693 employees from Edyficar) compared to 12,66716,748 employees as of December 31, 20072009 and 10,76915,969 employees as of December 31, 2006. All employees of banks in Peru are given the option of belonging to an employee union. These employee unions are collectively represented by the Federación de Empleados Bancarios (Federation of Banking Employees or FEB).2008.
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(5) Atlantic Security Holding Corporation
ASHC is a holding corporation that engages in private banking, asset management and proprietary investment and trade finance. ASCHinvestment. ASHC was incorporated in December 1981 in the Cayman Islands and principally serves Peruvian-based customers through bankingAtlantic Security Bank (ASB), a wholly-owned subsidiary. ASB is a Cayman Islands licensed bank with offices in Panama.
Panama through which ASHC conducts all commercial business. ASHC’s balance sheet is virtually identical to ASB’s, with the exception of approximately 14.6 million Credicorp shares directly held by ASHC.
Third-party Asset management is an important activity for ASB. Total assets under management reached US$3,177.7 million as of December 31, 2010, compared to US$2,177.0 million as of December 31, 2009. These assets cover the range from direct unsolicited securities to ASB managed mutual funds.
ASB also maintains a sizable loan portfolio. Total loans outstanding were US$470.4 million and US$525.5 million for 2010 and 2009, respectively. Between 85% and 95% of these loans were guaranteed by client’s deposits or investments. For the year-ended 2010, for example, only US$18.2 million were unsecured loans. This high level of securitization is reflected in ASB’s low level of non-performing loans, consistently much less than 1% of total loan portfolio. The overwhelming majority of ASB’s loans are granted to Peruvian nationals and companies, while those that are not are directed exclusively to Latin American borrowers.
ASB’s overall investment strategy, and general profile of its investment portfolio and specific investment decisions are reviewed on a weekly basis by an investment committee. Its strategic decisions and general investment profile are also assessed on a monthly basis by an Asset-Liability Committee, or ALCO, which is composed of members of its senior management. ASHC’s board of directors reviews and approves country risk exposure limits on a monthly basis. Its credit risk by counterparty, including direct and indirect risk, is evaluated on a consolidated basis including direct and indirect risk,covers all activities that generate credit exposure such as interbank placements, commercial loans commitments, guarantees received, and trading securities purchasedinvestment. Market, Liquidity and Operational risks are monitored by ASB’s Risk Management Unit, which in turn reports to and is supervised by a Corporate Risk Committee, an Asset-Liability Committee and the secondary market.
Board of Directors.
(6) Pacífico Peruano Suiza
We conduct our insurance activities through PacíficoPacifico Peruano Suiza (PPS) and its subsidiaries, El PacíficoPacifico Vida and PacíficoPacifico Salud, which together make up Pacífico Grupo Asegurador, which providesPacifico Insurance Group (PPS), providing a broad range of insurance products in the property and casualty, life and health businesses.
In 2008,2010, the sixeight most significant business lines together constituted 79.3%collectively generated 81.9% of total premiums written by PPS. These sixbusiness lines areconsisted of health, automobile, life and pension fund underwriting life annuities and commercial property damage (including fire, earthquake and allied lines and limited liability risks), automobile, health, life and pension fund underwriting and life annuities.. PPS is the second leading Peruvian insurance company, including private health companies, with a market share of 34.2%30.9% based on netdirect premiums earned and fees in 2008.2010.
In 2008, we were attributed2010, PPS contributed a consolidated net loss from PPSgain of US$15.947.4 million as compared to a net gain of US$9.437.4 million in 2007.2009. PPS’s total premiums increased 26%23.5% to US$587.6751.9 million during 2010 from US$608.8 million in 2008 from US$467.2 million in 2007,2009, and net premiumspremiums earned, net of reinsured premiums and of technical reserves (as defined below in “―(ii) Claims and Reserves”), were US$405.7496.0 million in 2008,2010, increasing 32%12.9% compared to 2007.2009.
PPS’s net underwriting results decreasedresult increased from a gain of US$15.579.9 million in 20072009 to a lossgain of US$7.793.4 million in 2008.2010. This rise in PPS’s underwriting result is mainly explained byprimarily due to the increasedecrease of net claims paid as a percentage of net premiums written from 77.7% during 200765.2% in 2009 to 84.3% during 2008.63.6% in 2010.
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PPS’s business in property and casualty and private health is highly concentrated, with a client base of over 24,00030,000 companies and over 310,000611,000 individuals in the property and casualty and health insurance programs, including individuals affiliated with group health insurance programs through the companies by which they are employed. As of December 2008, PPS’s2010, revenues from policies written for itsPPS’s three largest and 20 largest customers represented 6.5%7.8% and 19.3%27.7% of total premiums in its property and casualty and health insurance business,businesses, respectively. PPS’s property insurance lines are sold through agents and brokers, while life insurance is sold by its own sales force. The ten10 largest brokers in the property and casualty as well as in the private health segment accounted for approximately 41.2%43.9% of total premiums as of December 31, 2008 (40.3%2010 (compared to 43.5% as of December 31, 2007)2009).
El Pacífico Vida (or Pací(Pacífico Vida), is PPS’s life insurance subsidiary, is 38%-owned by ALICO, a subsidiary of AIG.subsidiary. In 2008,2010, Pacífico Vida hadreached total premiums of US$180.4277 million, a 31.8%46% increase from total premiums of US$136.9189 million in 2007.2009.
Pacifico Vida reported a 24.4% market share based on direct premiums earned in 2010. During 2010 Pacifico Vida’s total direct premiums amounted to US$276.6 million, a 46.5% increase from the figure recorded in 2009 (US$188.9 million). This increase is primarily a result of higher premiums reported in Individual Annuity (128.1%), Disability and Survivor (42.8%) and Credit Life (40.8%) lines. PPS’s performance in these areas was consistent with the improved performance of the life insurance market overall.
Individual Life premiums increased in 16.8% compared to the prior year, exceeding the 8.8% market rise. This result was mainly due to the sale of our Premium Life Max and Pacifico Ahorro Vida products, our improved quality of sales service and the steady development of our distribution channels, which includes our main channel, the agencies, and our Bancassurance, Brokers, Sponsors and Part Time channels. As a result, we had 37.8% market share, leading the segment.
In Group Life business, the premiums closed 11% above prior year, mainly in SCTR (+20% above 2009) and Vida Ley (+13.3%) lines. This growth was primarily the result of microeconomic gains experienced across the country, the higher number of formal businesses and the solid development of the mining and construction industry.
The Individual Annuity line increased in 128.1% compared to the prior year 2009. This improvement was mainly due to a recently approved Early Retirement Regime, which began to quote in March 2010.
With respect to the Disability and Survivor business, our premiums closed 42.8% above the prior year’s premium while the overall market increased 30.5%. We now lead in this segment with a market share of 30.7%. This growth is primarily a result of higher insurance rates (1.06% in 2010 vs. 0.87% in 2009).
Finally, the Credit Life line, which also involves credit cards and mortgage loans, increased its premiums by 40.7% from the end of 2009 to the end of 2010. PPS now has the highest market share in this area with a 27% share. PPS’s strong performance is a product of its partnership with Banco de Crédito (BCP), which allows PPS to access the largest bancassurance channels in Peru.
Pacífico Vida’s market share was 27.6% in 2008, versus 25.8% in 2007. Its individual life and personal injury businesses increased by 31.7%, reaching a market share of 32.8%. This increase was mainly due to its development of new products, improvement of productivity and growth of its sales force. Pacífico Vida’s life annuity business expanded 13.7% in total premiums and increased its market share from 19.2% to 19.9%. Its pension fund underwriting business grew 33% with respect to the same period in 2007. Likewise, Group Life and Credit Life increased due to business with BCP such as credit cards and mortgage loans. In 2008, total premiums on Group Life, Group Life Ley and SCTR (limited workers compensation) increased by 28.6%. Credit Life, the most dynamic product, reached an increase of 102% over that of 2007 and represented 11.2% of total direct premiums (compared to 7.3% in 2007). Pacífico Vida generated financial earnings of US$14.533.9 million in 2008.
2010.
Pacífico Salud reported total revenue of US$119.6146.4 million and net lossgain of US$4.46.4 million in 20082010 mainly due mainly to an increase in claims.written premiums. The net loss ratio increaseddecreased to 88.7%78.8% in 20082010 from 80.1%84.6% in 2007.2009.
(i) Underwriting, Clients and Reinsurance |
Underwriting decisions for substantially all of PPS’s insurance (property and casualty) risks are made through its central underwriting office. PPS’s own risk management staff inspects most medium and medium-to-large commercial risks prior to their underwriting, whereas third party surveyors are employed to inspect smaller risks. Underwriting standards are approved by its boardthe Board of directorsDirectors on a yearly basis.
PPS utilizes reinsurancetransfers risks to reinsurers to limit its maximum aggregate losses and minimize exposure on large risks. Reinsurance is placed with reinsurance companies based on evaluation of the financial capacity of the reinsurer, terms of coverage and price. PPS’s principal reinsurers in 20072010 were, among others, Lloyd’s, New Hampshire Insurance Co.Amlin, Catlin, China Re, Endurance, Everest Re, Flagstone Re, GIC, Hannover Re, Mapfre Re, MS Frontier, Munich Re, Odyssey Re, Omega, Partner Re, Paris Re, QBE Reinsurance Corp., Münchener Ruck, Zurich Insurance Ireland Ltd., Hannover Ruck, Brit Insurance Ltd., Zurich Ins. Co.,QBE Europe, R+V, Reaseguradora Patria, Scor, Sirius International, Swiss Reinsurance Co. Ltd., Berkley Insurance Co.Re, Validus Re, White Mountain and Everest Reinsurance.XL Re. Premiums ceded to reinsurers represented 18.9%16.7% in 2008.2010. PPS acts as a reinsurer on a very limited basis, providing its excess reinsurance capacity to other Peruvian insurers whothat are unable to satisfy their reinsurance requirements.
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(ii) Claims and Reserves |
Net claims paid by PPS as a percentage of net premiums written (i.e.(i.e., the net loss ratio) reached 84.3%63.6% in 2008, up2010, improving from 77.7%65.2% in 2007.2009.
The net loss ratio, in the property and casualty segment, which represented 50.5%13.5% of PPS’s premiums in 2008 (51.3%2010 (16.7% in 2007)2009), increaseddecreased to 87.2%50.5% in 20082010 from 80.2%53.1% in 2007,2009, mainly due to the lowimproved performance of fireautomobile, limited liability risk, personal accidents and allied lines as well as the technicaltheft lines. The net loss ratio from the fire and allied lines,automobile line, which represented 20.1%9.1% of property and casualty premiums in 2008 (22.3%2010 (11.5% in 2007), increased2009) decreased from 81.4%52.3% in 20072009 to 105.1%41.2% in 2008.2010. The net loss ratio from the limited liability line, which represented 0.04% of property and casualty premiums in 2010 (0.5% in 2009) decreased from 54.0% in 2009 to 35.1% in 2010. The net loss ratio of the technical lines,personal accidents line, which was 8.1%1.0% of property and casualty premiums in 2008 (9.4%2010 (1.3% in 2007),2009) decreased from 140.4%52.5% in 20072009 to 126.7%38.5% in 2008.2010.
The net loss ratio in the life insurance lines increased from 70%64.4% in 20072009 to 74%66.6% in 2008,2010, due to the low performance of disabilityincrease in claims in the Ordinary, Credit and survivor (pension fund) and of individual annuity.
Personal Accident lines.
The net loss ratio in the health insurance lines increaseddecreased from 82.3%84.6% in 20072009 to 90.2%78.8% in 20082010 and represented 19.8%15.3% of PPS’s premiums in 2008 (19.5%2010 (17.4% in 2007)2009).
PPS is required to establish (i) claims reserves within respect toof pending claims in its property-casualty business, (ii) reserves for future benefit obligations under its in-force life and accident insurance policies, and (iii) unearned premium reserves within respect toof that portion of premiums written that is allocable to the unexpired portion of the related policy periods (which are also collectively referred to as technical reserves)(collectively, “Technical Reserves”).
PPS establishes claims reserves with respect to claims when reported, as well as for incurred but not reported (or IBNR)(IBNR) claims. Such reserves are reflected as liabilities in PPS’s financial statements.
PPS records as liabilities in its financial statements actuarially determined reserves calculated to meet its obligations under its life and accident policies and its pension fund underwriting business. These reserves are determined using mortality tables, morbidity assumptions, interest rates and methods of calculation in accordance with international practices.
Pursuant to SBS regulations, PPS establishes pre-event reserves for catastrophic risks with respect to earthquake coverage. See “—(11) Supervision and Regulation—(v) PPS—Reserve Requirements.” In accordance with IFRS principles, the pre-event reserves and income charges for catastrophic reserves are not considered in ourCredicorp’s consolidated financial statements.
(iii) Investment Portfolio
PPS´ investment division is constituted by investment professionals focused on managing risks at a rate of return that meets the needs of our portfolios. The investment team includes CFA charter holders, MBAs, US educated professionals, and economists, among others.
PPS’s investment strategy also considers an appropriate match of currencies related to its assets and liabilities. A significant portion of PPS’s premiums is denominated in U.S. Dollars and most of the company’s assets are also invested in this currency.
As of December 31, 2008,2010, the book value of PPS’s portfolio (which includes PacíficoPacifico Seguros Pacífico–PPS-, Pacifico Vida –EPV- and Pacífico Salud)Pacifico Salud –EPS-) was US$822.31,269.3 million, which included US$40.2102.6 million in equity securities and US$728.11,166.6 million in bonds. In addition,The company’s real estate investmentsinvestments’ gross book value reached US$31.833.3 million. The
Pacifico Seguros had a book value of Pacífico SegurosUS$216.5 million in 2008 was US$131.2 million and was invested mainly in2010 which included investments of equity, short-term debt instruments and equity, while Pacíficoreal state. Pacifico Vida’s book value was close to US$683.61,022.8 million and was mainly invested inconsisted of investment grade long-term debt instruments. PacíficoAlso, Pacifico Salud on the other hand, had a small portfolio with a book value of US$7.430.0 million and was mainly invested in short-term debt instruments.
As part of its improvement process, PPS changedPPS’s has been adjusting its investment policy in order to employapply the best international risk management practices and tools. PPSPPS’s also incorporated the recommendations of Solvencia II and Basel II, with a view to developing a better match of terms and currencies with itsthe company’s liabilities, especially in connection with obligations vis-à-vis PPS’s insured customers.
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PPS reported a financial consolidated income in 20082010 of US$70.492.2 million, as compared to US$76.875.7 million in 2007.2009. This outcome is explained by the growth of Pacifico Vida’s business lines (especially the life insurance business’s fixed incomebusiness) and time deposit investments as well as by an impairment made in both the life andPacifico Seguros property and casualty businesses.
Pacifico Seguros was able to generate US$13.0 million in financial income from its fixed income portfolio, which was 9.4% higher than the forecast for 2010. Revenue in this portfolio was higher than forecast because the company applied a “barbell strategy” (investing in longer and shorter term maturities, as opposed to intermediate maturity obligations) and shifted its allocation of corporate and sovereign bonds that were held in local currency. The barbell strategy generated a higher return and provided Pacifico Seguros with enough liquidity to cover its obligations. The appreciation of the Nuevo Sol also improved our results in 2010. In contrast, the company´s real estate investments are made primarily to meet its solvency equity ratio and to provide reserves for claims. PPS manages its investments under two distinct portfolios. The firstwere 14.3% below our forecast, resulting in a 6.3% annual decline in rental fees.
Pacifico Vida’s portfolio is designed to matchprimarily composed of fixed income securities (94.8% of the liabilities of property, automobileportfolio), and health lines, and the secondit is focused on investment grade bonds. The portfolio is designed to match the liabilities of lifewell diversified and annuities lines. Each portfolio is managed under the authority of its own committee, which reviews portfolio strategies on a monthly basis. PPS invests in foreign markets, emphasizing investments in the U.S. and European sovereign debt, and has adopted strict policies related to investment decisions. PPS’s investment strategies and policies are reviewed and approved by its board of directors.it follows an asset-liability management strategy.
(7) Grupo Crédito/Prima AFP
In 2008,2010, the pension fund market was stable, with less competition for transfers being less severe.and increased focus on new affiliations. Prima AFP maintained its leading market position due to a strongerstrong value proposal aimed at providing quality information and service to its members.
Strong productivity by Prima AFP’s sales management helped Prima AFP preserve a high quality portfolio and reachobtain growth of its monthly insurable remuneration (or RAM) growth goals,, which is the basis of the its revenues. The sales management’s strong productivity also contributed to Prima AFP maintaining a robust market share.
With regard to contributions collection, Prima AFP maintained the largest market share (32.7%(32.3% as of December 2008)2010). This figure was slightly lower than the previous year, as market turbulence reduced voluntary contributions.
In the commercial field, Prima AFP strengthenedfocused on recruiting new affiliates, reducing transfer volumes and maintaining its position by increasing the number of contributors and improving its core source of revenues.affiliate portfolio. Pursuant to in-house estimates based on revenues and taking into account the 1.5%1.75% administration fee, Prima AFP’s basis remuneration for revenues increased in 2008.2010. This increase allowed Prima AFP once again to garner the highest monthly insurable remuneration (RAM) market share of the market (32.3%(31.6%).
thorough analysis of investment alternatives, (ii) the excellent performance of the Peruvian economy and (iii) our investments abroad, particularly in Latin America. Given that pension funds are long-term investments, it is best to observe their returns over a long period. Over the last 60 months, Prima AFP’s rate ofannual return in the last 24 months placed it in the first and second positions for funds two and three, respectively, and in third positionwas 15.34% for fund one.2 (Funds 1 and 3 do not have yet 5 years of existence, their return for the period 2006 – 2010 was 7.29% and 16.47%, respectively). In terms of risk-adjusted returns, Prima AFP ranked first for fund two, which is in line with its objective of managing the lowest-risk investments.
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(8) Competition
(i) Banking
The Peruvian banking sector is currently composed of 1615 commercial banking institutions. As of December 31, 2008,2010, BCP (excluding foreign branches) ranked first among all Peruvian banks in terms of assets, deposits and loans with a market share of 36.0%37.4% of assets, 37.3%36.3% of deposits and 34.0%33.6% of loans.
Major Peruvian Banks as of December 31, 2008 | Assets | Deposits | Loans | |||||||||
| BCP | 36.0 | % | 37.3 | % | 34.0 | % | ||||||
| BBVA Banco Continental | 22.7 | % | 21.4 | % | 23.5 | % | ||||||
| Scotiabank Perú | 16.6 | % | 17.7 | % | 16.2 | % | ||||||
| Interbank | 9.9 | % | 10.1 | % | 10.2 | % | ||||||
| Banco Interamericano de Finanzas | 2.8 | % | 3.1 | % | 3.0 | % | ||||||
| Major Peruvian Banks as of December 31, 2010 | Assets | Deposits | Loans | ||||
| BCP | 37.4% | 34.2% | 33.6% | ||||
| BBVA Banco Continental | 21.0% | 22.2% | 24.6% | ||||
| Scotiabank Perú | 15.4% | 14.6% | 14.1% | ||||
| Interbank | 10.8% | 10.3% | 11.3% | ||||
| Banco Interamericano de Finanzas | 2.6% | 3.0% | 2.9% |
Source: SBS
We believe that the Peruvian banking industry will continue to be a competitive environment within a generalized excessgenerally comfortable liquidity situation. This increased competition may in the future affect our loan growth and reduce the average interest rates that we may charge our customers, as well as reduce our fee income.
In its core corporate lending and trade finance businesses, ASHC principally competes with larger international institutions. ASHC attributes its ability to compete effectively with larger lending institutions to its (i) aggressive marketing efforts, (ii) ability as a smaller, more flexible institution to make decisions quickly and respond rapidly to customer needs, (iii) association with BCP and (iv) superior knowledge of the region, particularly the Peruvian market.
(ii) Capital Markets
In BCP’s Wholesale Banking Group,wholesale banking group, its Corporate Banking Areacorporate banking area has experienced increased competition and pressure on margins over the last few years. This is primarily the result of new entrants into the market, including foreign and privatized commercial banks, as well as local and foreign investment banks and non-bank credit providers, such as pension fund administrators (or AFPs) and mutual fund companies.
In addition, Peruvian companies have gained access to new sources of capital through the local and international capital markets. In recent years, the AFPsAFPs’ funds under management and mutual funds-managedfund assets have increased at rates over those experienced by the banking system. The private pension fund assets reached US$15.931.1 billion as of December 31, 2008, contracting2010, increasing by 22.1%29.6% since December 31, 20072009 (when funds totaled US$20.424.0 billion), due to the effect of the international financial crisis on the Peruvian stock market and pension fund system. Total mutual funds reached US$2.85.6 billion in 2008,2010, a 35.8% decrease15.0% increase from US$4.34.9 billion in 2007, which was also due to the crisis.2009.
(iii) Other Financial Institutions |
Other institutions in the Peruvian financial system tend to specialize in a given market sector. These institutions include finance companies, municipal and rural savings and credit associations, municipal public credit associations and savings and credit cooperatives. They mainly issue retail loans to small and micro-businesses and consumer and mortgage loans to individuals. These markets have shown substantial increases in recent years. BCP is facing strong competition from these credit providers, primarily with respect to (i) micro-business loans, where such providers lent US$1.63.7 billion as of December 31, 2008, or 47.2%2010 (56.3% higher than the US$2.4 billion lent in 2009), representing 48.0% of the total in the financial system (compared to 54.7% in 2009); and (ii) consumer loans, where such providers lent US$623.9 million, or 10.6%1.4 billion in 2010 (22.2% higher than US$1.1 billion in 2009), representing 60.9% of the total in the financial system. system (compared to 16.3% in 2009).
BCP also faces strong competition in its credit card operations from credit cards issued by retail stores.
(iv) Insurance
The Peruvian insurance market is highly concentrated. Four companies command 83.6% of the market share in premiums, and the first two have a combined market share of 63.7%. PPS is the second largest insurance company in Peru with a 28.6% market share. Peruvian insurance companies compete principally on the basis of price, as well as on the basis of namebrand recognition, customer service and product features. PPS believes that its competitive pricing, solid image, and quality of customer service are significant aspects of its overall competitiveness. In addition, PPS believes that its long relationship with AIG has provided PPS with competitive advantages through access to AIG’s expertise in underwriting, claims management and other business areas. While increased foreign entry into the Peruvian insurance market may put additional pressure on premium rates, particularly for commercial coverage, PPS believes that in the long-term foreign competition will increase the quality and strength of the industry. PPS believes that its size and its extensive experience in the Peruvian insurance market provide it with a competitive advantage over foreign competitors.
However, competition in the Peruvian insurance industry has increased substantially since the industry was deregulated in 1991, with particularly strong competition in the area of large commercial policies, for which rates and coverage typically are negotiated individually. The loss by PPS to competitors of even a small number of major customers or brokers could have a material impact on PPS’s premium levels and market share.
(9) Peruvian Government and Economy
While we are incorporated in Bermuda, substantially all of BCP’s and PPS’s operations and customers are located in Peru. Although ASHC is based outside of Peru, a substantial number of its customers are also located in Peru. Accordingly, our results of operations and financial condition could be affected by changes in economic or other policies of the Peruvian government, which has exercised and continues to exercise a substantial influence over many aspects of the private sector. Also, our results of operations and financial condition may be affected by other political or economic developments in Peru, such as a devaluation of the Nuevo Sol relative to the U.S. Dollar or the imposition of exchange controls by the Peruvian government. See “Item 10. Additional Information—(D) Exchange Controls.” Our results of operations and financial condition are dependent on the level of economic activity in Peru.
(i) Peruvian Government
During the past several decades, Peru has had a history of political instability that has included military coups d’état and different governmental regimes, which in the past have frequently intervened in the nation’s economy and social structure. See “Item 3. Key Information—(D) Risk Factors.” In 1987, the administration of President Alan García attempted to nationalize the banking system. Facing an attempt by the state to control BCP, the majority shareholders of BCP at that time sold a controlling interest in BCP to its employees, which prevented the government from gaining control of BCP. See “—(C) Organizational Structure.”
In the past, Peru experienced significant levels of terrorist activity, which escalated in the late 1980s and early 1990s. See “Item 3. Key Information—(D) Risk Factors.” Upon being elected to office in 1990, President Alberto Fujimori’s government made substantial progress in suppressing Shining Path and MRTA terrorist activity, including the arrest of the leader and second level of leadership in each terrorist group, as well as approximately 2,000 others.group.
Between 1990 and 2000, President Fujimori implemented a broad-based reform of Peru’s political system, economy and social conditions. See “Item 3. Key Information—(D) Risk Factors.” President Fujimori resigned in 2000 in favor of a transitory government due to an outbreak of corruption scandals. President Toledo then assumed the presidency in 2001 after two yearsa period of political turmoil, facing high unemployment and underemployment, an economic recession and social need. In 2006, current president Alan García was elected for a five year-term. Peru is currently holding elections to determine who will succeed President García.
Despite the economic strides achieved betweensince 1990, and 2000, poverty remains a persistent problem in Peru, with more than halfalmost 40% of the population living below the poverty line, which the World Bank defines as monthly income of less than US$60 per capita, adjusted to reflect differences in purchasing power. A significant number of Peruvians live on an income of less than US$30 per capita per month.
Until the global crisis, Peru hashad experienced continuous economic growth since the second half of 2001. President Toledo retained, for the most part, the economic policies of the previous government, focusing on achieving sustained economic growth by: increasing exports, reducing unemployment, reforming the tax system (primarily by increasing the tax base and improving tax collection), fostering private investment by promoting concessions, maintaining low inflation and the floating exchange rate, improving oversight, transparency guidelines and requirements in regulated sectors of the economy, improving the efficiency of the public sector, and maintaining open trade policies.
President Toledo transferred the presidency to Alan García Pérez on July 28, 2006, following Mr. García’s victory in the run-off of the presidential elections held on June 4, 2006. Even though Mr. Garcíaa´s government has sent positive signals to the international financial markets and has substantiallymostly retained the economic policies of the previous government.government, 2009 showed a severe slowdown, due to the impact of the global crisis, which translated to a decrease in the GDP growth rate to 0.9% from 10.0% in the previous year. However, in 2010 the economy experienced a strong recovery and GDP growth rate was 8.8%.
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Presidential elections were held in Peru on April 10, 2011. Under the Peruvian constitution, if no candidate receives the majority of votes in the election, the two candidates with the most votes will face a run-off, second round election to determine the winner. In accordance with official figures, Ollanta Humala received 31.7% of valid votes, followed by Keiko Fujimori (23.6%), Pedro Pablo Kuczynski (18.5%), Alejandro Toledo (15.6%), Luis Castañeda (9.8%) and other candidates (0.8%). Because no candidate obtained more than 50% of valid votes, a second round election will be held on June 5, 2011, between Ollanta Humala and Keiko Fujimori.
| (ii) | Peruvian Economy |
At the beginning of the 1990s, President Fujimori liberalized price and wage controls in the private sector, eliminated all restrictions on capital flows, instituted emergency taxes to reduce the fiscal deficit and liberalized interest rates. Furthermore, his government established an agenda to institute a wide-ranging privatization plan and re-establish relations with the international financial community. President Toledo, and now President García, continued these market-oriented policies but, facing some populist initiatives from Congress and social pressures from unions and regional movements, they have passed some interventionist measures.
In the late 1980s and early 1990s, the Peruvian economy was very volatile. Since 1999, the Peruvian economy has grown continuously.every year. Between 2001 and 2008, each year Peru’s economic growth has beenwas higher than in the previous year, with a 5.9% annual average. For this year, several risks of a different nature may have influence on growth (i.e.,2009, the global financial crisis a severe worsening in Latin American economic conditions and the swine flu),adversely influenced growth, but even inwithin a global comparison, it is expected that Peru will bewas among the countries with higher growth.the highest GDP-growth rates: 0.9% in a year when global production decreased 1.1%.
In 2008,2009, despite the impressive growth of public investment (+25.9% after 42.8% in 2008), the main driver forof growth wascame from foreign markets, since domestic demand sincedecreased as a consequence of a severe drop in inventories. However, growth dynamics in the foreign sector was driven not by a growth in exports, lost dynamismbut due to an almost 20% decrease in a context of deteriorated global market. Although investment was a key factor on growth, with public investment growing almost 50%, its contribution to total growth was only 17%, which was lower than the contribution of private consumption and of private investment. For 2009, the importance of public expenditure is not its ability to replace private expenditure, but its role to generate positive expectations on private consumers and investors.imports.
The decision ofby the United States in August 2002 to renew and expand tax benefits through the ATPDEA for certain Latin American export products was very beneficial tobenefited the manufacturing sector because of its inclusion of Peruvian textiles. In May 2004, negotiations over a free trade agreement began to be negotiated with the United States, together with Colombia and Ecuador.Ecuador began. During 2007, the Free Trade Agreement (FTA) with the United States was signed and the trade deal was put into effect on February 1, 2009, concluding a long process of trade negotiations and goodwill. The FTA makesmade permanent the special access to the U.S. market currently enjoyed under the Andean Trade Promotion and Drug Eradication Act. The current trade between these countries is about US$11 billion annually (18.5% of total trade). The FTA is expected to encourage higher export growth and diversification, as well as accelerate reforms that will further enhance the investment climate in Peru, which is already benefiting from foreign direct investment at historic highs. During the 2008 APEC Summit, important progress was made towards the FTAtoward reaching a trade agreement with China, which has been recently ratified.China. According to the Ministry of Foreign Trade and Tourism, the other Asian countries with which Peru is negotiating free trade agreements in progress are Japan Thailand and South Korea.
Korea, whose negotiations may be closed by mid 2011.
It has taken almost two decades of continued implementation of sound economic policies and a strong political commitment to generate a notablenoticeable improvement in Peru’s economic condition. Peru’s strong macroeconomic performance was underpinned by wide-ranging structural reforms to improve the functioning of markets, foster private sector participation, and modernize the role of the state. In the early 1990s, Peru was one of the first emerging countries to undertake a simultaneous trade and capital account liberalization, accompanied by a flexible exchange rate regime and a deep reform of the financial system. Among several important transformations aimed at enhancing external competitiveness and investor confidence, Peru modernized the civil service and reformed the labor market. Peru’s authorities remain committed to prudent financial policies to preserve the macroeconomic stability and a further deepening of structural reforms to sustain growth and entrench poverty reduction.
Peru’s trade surplus in 20082010 was US$3.16.8 billion, which wasremaining well below its 2006 record (US$9 billion), but surpassing the 2009 surplus (US$5.9 billion). InPeru’s trade surplus was the last quarterresult of 2008 Peru had its first trade deficit sincea sizeable rise in exports, though imports also grew as the first quarter of 2002. This decline was caused by a steepdomestic economy expanded. Exports in 2010 increased 31.9%, while imports increased 37.1%. The increase in imports (45.1%) due toexports was based mostly on higher commodity prices and to a construction boom that has stimulated capital goods imports, specifically for pipelines. Exports grew only 13.1% as a consequencecommodities. Higher demand drove the growth of the international crisis. Traditional products reported a slowdown in its trend, increasing only 10.9%, in a context of reduction in prices mainly during the second half of the year. On the other hand, no traditional products grew 19.7%.imports.
Peru has had a history of high and persistent current account deficits. In 2006, however, Peru had a record surplus of US$2.9 billion, which is equivalent to 3.1% of its GDP. This amount decreased in 2007, with a surplus of US$1.21.4 billion (1.1%(1.3% of GDP) and became a deficit again in 2008 (US$4.2 million,4.7 billion, or 3.3%3.7% of GDP), turning back to a small surplus in 2009 following the decrease in imports (due to a lower domestic demand) and in investment income (due to lower prices of exported commodities and profits for non-resident companies). In 2010, Peru again recorded a deficit, this time in the amount of US$2.3 billion (1.5% of GDP).
Peru’s financial account had a surplus of US$0.7 billion in 2006, due mainly to repayment of external debt made by the public sector. This account grew substantively in 2007 and reached US$8.3 billion due mainly to higher foreign direct investment and long-term loans. The decrease in 2008 was concentrated in the last quarter due mainly to the behavior of foreign direct investment.
The flow of foreign direct investment, or FDI, into Peru was US$3.5 billion in 2006 and US$5.3 billion in 2007. Despite the US$4.0 billion in 2008 FDI, the result was not necessarily bad news as during the last quarter of 2008, Peruvian companies increased their participation in other Latin American companies, which resulted in a US$1 billion net outflow. In 2009, the financial account was about one fifth of previous years (US$1.7 billion), but it was enough to reverse the current account deficit. Lower inflows were consequence of outflows in the first half of the year given global uncertainty, but they recovered in the third and specially fourth quarter when investors adjusted their risk appetite and reassessed risks in emerging countries, which demonstrated to have solid foundations during the crisis. In 2010, emerging markets with solid fundamentals fared well (except in the fourth quarter, when activities in Ireland and negative expectations about Portugal weighed down the overall performance of emerging markets), Peru’s reserves grew by US$11 billion, increasing the nation’s reserves by one third.
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The inflation rate in Peru, as measured by the Lima consumer price index, has fallen from 7,650.0% in 1990 to 1.1% in 2006. However, despite the Peruvian Central Bank’s 2% inflation goal, with a +/-1% range, inflation was 3.9% in 2007, and 6.7% in 2008, due to higher international commodity prices (with Peru being a net importer of fuel and food)., and 0.3% in 2009. The Central Bank breached the inflation bands for three-years-in-a-row (last year on the downside) through 2009. However, in 2010 both total inflation and core inflation were 2.1%, consistent with the Central Bank’s objectives.
The average bank market exchange rate for Nuevos Soles in Peru was S/.3.14.2.89 per US$1.00 on December 31, 2008, a 4.7% depreciation after a 6.5% average2009, an 8.0% appreciation during 2006 and 2007.over the end-of-year levels in 2008. The Nuevo Sol was getting strongerweakened during the first halfmonths of the year2009 because of an attractive interest rate differential that stimulated a short-run dollar inflow.“flight to quality” trend, which favored positions in dollars. This excess of dollarstrend reversed in the market was countered by the Central Bank buying dollars in market. While the Central Bank issued deposit receipts to “sterilize” the amount of its interventions to avoid speculations, the Central Bank generated a 120% reserves rate for non-resident deposits in Nuevos Soles. This measure was effective and, together with higher worries about emerging markets in the second half of 2008,2010, when the exchange rate increased from S/.2.69 per dollar on April 3dropped to S/.3.14 per dollar.2.81 at the end of the year.
The appreciation rate might have been even stronger but for the high levels of economic uncertainty in Europe, since by mid October the exchange rate was under S/.2.78.
The sound policy framework put in place in recent years and the build up ofincrease in international reserves have contributed to significantly reduce Peru’s economic vulnerabilities and poverty (even though poverty still affects almost 40% of the population) and enhance its business environment. Peru’s strong fiscal surpluses in recent years, the recent moderate deficit due to countercyclical policies notwithstanding, have also supported a significant reduction in public debt and improved maturity structure. In the current uncertain global outlook, these are important fiscal buffers. A sound monetary policy, well-established in a framework that targets inflation, has also been instrumental in helping to maintain macroeconomic stability and reduce dollarization. Structural reforms have reduced Peru’s fiscal and financial vulnerabilities. Free trade agreements and the search of new markets to open new trade destinations, lower informality, and improvement in the business climate have helped improve Peru’s long-term growth prospects, which are reflected in a higher investment and a higher potential growth.
These achievements have placed Peru in a strong position to face the expectedany future deterioration in external conditions.conditions, should that be the case. Building on Peru’s strong fundamentals, including a resilient financial system, several measures have been appropriately implemented by the authorities that will help to limit spillovers, preserve adequate liquidity conditions in the domestic markets, and bolster domestic confidence. As a result, orderly liquidity conditions in theThe Peruvian financial system have been preserved, but recent data show some increasehas proven to be strong, despite the impact of the global financial crisis. Credit, which averaged a 31.5% growth in deposit2007 and 2008, lost momentum, closing 2009 with only a 9.0% growth. The economic recovery in Peru has increased demand for credit, dollarization, althoughwhich, in the long term it has decreased to 57.5% in 2008 from 80.5% in 2001.2010, grew 22.2% among banks and 31.9% among other financial institutions.
Peruvian authorities have been implementing reforms to further strengthen its financial system. Large official reserves—currently over US$3044 billion, equivalent to 1318 months of imports—and strong financial soundness indicators, along with the banks’ limited financial reliance on external funding, have helped preserve the system’s stability. Peruvian authorities have recently introduced prudential measures, including more restrictive rules for consumer credit and new dynamic provisioning made effective last December, and strengthened banks’ minimum capital requirements as Basel II is gradually implemented.
| (10) | The Peruvian Financial System |
As our activities are conducted primarily through banking and insurance subsidiaries operating in Peru, a summary of the Peruvian financial system is set forth below.
| (i) | General |
On December 31, 2008,2010, the Peruvian financial system consisted of the following principal participants: the Central Bank, the SBS, 1315 banking institutions (not including Banco de la Nación, a Peruvian state-owned bank), fourten finance companies, and fivetwo leasing companies. In addition, Peru has various mutual mortgage associations, municipal and rural savings and credit associations, municipal public credit associations and savings and credit cooperatives.cooperatives, which totaled 33 entities as of December 31, 2010.
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The present text of Law 26702 was passed in December 1996. Law 26702 regulates Peruvian financial and insurance companies. In general, it provides for tighter loan loss reserve standards, brings asset risk weighting in line with Basel Committee on Banking Regulations and Supervisory Practices of International Settlements (or the Basel Accord) guidelines, broadens supervision of financial institutions by the SBS to include holding companies, and includes specific treatment of a series of recently developed products in the capital markets and derivatives areas. The primary law governing the Peruvian financial system before the enactment of Law 26702 was Legislative Decree 637, passed in 1991 and amended by Legislative Decree 770, which substantially reformed the Peruvian financial system and modified regulations initially issued in 1930.
| (ii) | Central Bank |
The Central Reserve Bank (or the Central Bank) was established in 1922. Pursuant to the Peruvian Constitution, its primary role is to ensure the stability of the Peruvian monetary system. The Central Bank regulates Peru’s money supply, administers international reserves, issues currency, determines Peru’s balance of payments and other monetary accounts, and furnishes information regarding the country’s financial situation. It also represents the government of Peru before the IMF and the Latin American Reserve Fund (a financial institution whose purpose is to provide balance of payments assistance to its member countries by granting credits or guaranteeing loans to third parties).
The highest decision-making authority within the Central Bank is its seven-member board of directors. Each director serves a five-year term. Of the seven directors, four are selected by the executive branch and three are selected by the Congress. The Chairman of the Central Bank is one of the executive branch nominees but must be approved by Peru’s Congress.
The Central Bank’s board of directors develops and oversees monetary policy, establishes reserve requirements for entities within the financial system, and approves guidelines for the management of international reserves. All entities within the financial system are required to comply with the decisions of the Central Bank.
| (iii) | SBS (Peruvian Bank Superintendency) |
The SBS, whose authority and activities are discussed in “—(11) Supervision and Regulation,” is the regulatory authority in charge of implementing and enforcing Law 26702 and, more generally, supervising and regulating all financial, insurance and pension fund institutions in Peru.
In June 2008, Law 1028 and 1052 were approved modifying Law 26702 with the following objectives: (i) to strengthen and to increase competitiveness, (ii) to implement Basel II and (iii) to adapt the current regulatory framework to the Agreement of Commercial Promotion, APC, signed between Peru and the United States.
The main amendments defined in Law 1028 were aimed to promote the development of Peruvian capital market by extending the range of financial services that could be offered by microfinance institutions (i.e., non-banks) without requiring SBS permission.authorization.
Law 1028 also modified the framework in which the Peruvian financial system is to be harmonized with the new international standards established by the Basel II Accord (which aims to minimize the issues regarding regulatory arbitrage). Starting inSince July 2009, Peruvian financial institutions will apply the standardized method to calculate their capital requirement related to credit, market and operational risk. Also, from July 2009, the SBS will startstarted receiving applications to use Internal Models Methods for any of these three risks. Meanwhile, if an institution requires lower capital using its internal models than by using the current approach, it will have to maintain between 80% and 95% of the higher amount during the first years.
Law 1052 aims to include and synchronize Law 26702 and the APC’s framework, particularly regarding insurance services. The amendments allow offering cross-border services and have simplified the process for international institutions to enter into the Peruvian market by establishing subsidiaries.
| (iv) | Financial System Institutions |
Under Peruvian law, financial system institutions are classified as banks, financing companies, other non-banking institutions, specialized companies and investment banks. BCP is classified as a bank.
Banks
A bank is defined by Law 26702 as an enterprise whose principal business consists of (i) receiving money from the public, whether by deposits or by any other form of contract, and (ii) using such money (together with the bank’s own capital and funds obtained from other sources) to grant loans or discount documents, or in operations that are subject to market risks.
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Banks are permitted to carry out various types of financial operations, including the following: (i) receiving demand deposits, time deposits, savings deposits and deposits in trust; (ii) granting direct loans; (iii) discounting or advancing funds against bills of exchange, promissory notes and other credit instruments; (iv) granting mortgage loans and accepting bills of exchange in connection with the mortgage loans; (v) granting conditional and unconditional guaranties; (vi) issuing, confirming, receiving and discounting letters of credit; (vii) acquiring and discounting certificates of deposit, warehouse receipts, bills of exchange and invoices of commercial transactions; (viii) performing credit operations with local and foreign banks, as well as making deposits in those institutions; (ix) issuing and placing local currency and foreign currency bonds, as well as promissory notes and negotiable certificates of deposits; (x) issuing certificates in foreign currency and entering into foreign exchange transactions; (xi) purchasing banks and non-Peruvian institutions which conduct financial intermediation or securities exchange transactions in order to maintain an international presence; (xii) purchasing, holding and selling gold and silver as well as stocks and bonds listed on one of the Peruvian stock exchanges and issued by companies incorporated in Peru; (xiii) acting as financial agent for investments in Peru for external parties; (xiv) purchasing, holding and selling instruments evidencing public debt, whether internal or external, as well as obligations of the Central Bank; (xv) making collections, payments and transfers of funds; (xvi) receiving securities and other assets in trust and leasing safety deposit boxes; and (xvii) issuing and administering credit cards and accepting and performing trust functions.
In addition, banks may carry out financial leasing operations by forming separate departments or subsidiaries. Banks may also promote and direct operations in foreign commerce, underwrite initial public offerings, and provide financial advisory services apart from the administration of their clients’ investment portfolios. By forming a separate department within the bank, universal banks may also act as trustees in trust agreements.
Law 26702 authorizes banks to operate, through their subsidiaries, warehouse companies, securities brokerage companies, and leasing companies, and to establish and administer mutual funds.
Branches of foreign banks enjoy the same rights and are subject to the same obligations as branches of Peruvian banks. Multinational banks, with operations in various countries, may perform the same activities as Peruvian banks, although their foreign activities are not subject to Peruvian regulations. To carry out banking operations in the local market, multinational banks must maintain a certain portion of their capital in Peru, in at least the minimum amount that is required of Peruvian banks.
Finance Companies
Under Law 26702, finance companies are authorized to carry out the same operations as banks, with the exception of (i) issuing loans as overdrafts in checking accounts and (ii) participating in certain derivative operations. These operations (iii) starting securitization operations and (iv) establishing subsidiaries in certain specialized fields, such as bonded warehouses, currency transportation and custody, among others.can be carried out by finance companies only if they fulfill the requirements stated by the Peruvian Bank Superintendency.
Other Financial Institutions
The Peruvian financial system has a number of less significant entities which may provide credit, accept deposits or otherwise act as financial intermediaries on a limited basis. Leasing companies specialize in financial leasing operations where goods are leased over the term of the contract and in which one party has the option of purchasing the goods at a predetermined price. Savings and loans associations or cooperatives may accept certain types of savings deposits and provide other similar financial services.
Peru also has numerous mutual housing associations, municipal savings and credit associations, savings and credit cooperatives and municipal credit bureaus. The impact of these institutions on the financial system in Peru has not been significant.
Insurance Companies
Since the Peruvian insurance industry was deregulated in 1991, insurance companies have been authorized to conduct all types of operations and to enter into all forms of agreements that are needed to offer risk coverage to customers. Insurance companies may also invest in financial and non-financial assets, although they are subject to the regulations on investments and reserves established in Law 26702 and the regulations issued by the SBS.
Law 26702 is the principal law governing insurance companies in Peru. The SBS is charged with the supervision and regulation of all insurance companies. The formation of an insurance company requires prior authorization of the SBS.
The insurance industry has experienced consolidation in recent years with the number of companies decreasing from 19 in 1991 to 1314 in 2008.2010.
| (11) | Supervision and Regulation |
| (i) | Credicorp |
Currently there are no applicable regulations under Bermuda lawlaws that are likely to materially impact our operations as they are currently structured. Under Bermuda law, there is no regulation applicable to us, as a holding company that would require that we separate the operations of our subsidiaries incorporated and existing outside Bermuda. Since our activities will be conducted primarily through our subsidiaries in Peru, the Cayman Islands and Bolivia, a summary of Peruvian banking and insurance regulations and Cayman Islands banking regulations is set forth below.
Our common shares are listed on the New York Stock Exchange (NYSE). We are therefore subject to regulation by the NYSE and the Securities and Exchange Commission (SEC) as a “foreign private issuer.” We also must comply with the Sarbanes-Oxley Act of 2002.
We are, along with BCP, subject to certain requirements set forth in Peruvian Law 26702 (“Peruvian Banking Law” or “Law 26702”) as well as certain SBS regulations,banking statutes issued by the Peruvian banking regulator, Superintendencia de Banca y Seguros y AFP (SBS), including SBS Resolution No.0446-2000, which wasNo. 11823-2010, enacted in June 2000September 2010 and which approved the “Regulation of the Consolidated Supervision of Financial and Mixed Conglomerates.” These regulations affect BCP and us primarily in the areas of reporting, and risk control guidelines, limitations, ratios and capital requirements.
| (ii) | BCP |
Overview
BCP’s operations are regulated by Peruvian law. The regulations for the operationsoperation of the Peruvian financial sector are stated in Law 26702. The SBS periodically issues resolutions that cause Law 26702 to be implemented and enforced. developed. See “—(10) The Peruvian Financial System.” The SBS, under the direction of the Superintendency of Banks and Insurance Companies, supervises and regulates entities that Law 26702 classifies as financial institutions. These entities include commercial banks, finance companies, small business finance companies, savings and loan corporations, financial services companies such as trust companies and investment banks, and insurance companies. Financial institutions must seek the SBS’s authorization before beginning new operations.
BCP’s operations are supervised and regulated by the SBS and the Central Bank. Those who violate Law 26702 and its underlying regulations are subject to administrative sanctions and criminal penalties. Additionally, the SBS and the Central Bank have the authority to issue fines to financial institutions and their directors and officers if they violate the laws or regulations of Peru, or their own institutions’ bye-laws.
CONASEV is the Peruvian government institution in charge of (i) promoting the securities markets,market, (ii) making sure fair competition takes place in the securities markets, (iii) supervising the management of businesses that trade in the securities markets and (iv) regulating their activities and accounting practices. BCP must inform CONASEV of significant events that affect its business and is required to provide financial statements to it and the Lima Stock Exchange each quarter. BCP is also regulated by CONASEV through Credibolsa, which is BCP’s wholly-owned brokerage house, and Credifondo, which is BCP’s wholly-owned mutual fund administration company. CONASEV examines Credibolsa and Credifondo on a regular basis.
Under Peruvian law, banks may conduct brokerage operations and administer mutual funds but must do so through subsidiaries. However, bank employees may market the financial products of the bank’s brokerage and mutual fund subsidiaries. Banks are prohibited from issuing insurance policies, but are not prohibited from distributing insurance policies issued by insurance companies.
Authority of the SBS
Peru’s Constitution and Law 26702 (which contains the statutory charter of the SBS) grant the SBS the authority to oversee and control banks and financial institutions (with the exception of brokerage firms)firms, which are regulated by CONASEV – Comisión Nacional Supervisora de Empresas y Valores), insurance and reinsurance companies, companies that receive deposits from the general public, pension funds private administrators (“AFPs”) and other similar entities as defined by the law. The SBS is also responsible for supervising the Central Bank to ensure that it abides by its statutory charter and bye-laws. Law 27328, enacted in July 2000, transferred to the SBS the supervision and regulation of the private AFPs which had been previously supervised and regulated by a specialized superintendency.
The SBS is grantedhas administrative, financial and operating autonomy. Its objectives include protecting the public interest, ensuring the financial stability of the institutions over which it has authority and punishing violators of its regulations. Its responsibilities include: (i) reviewing and approving, with the assistance of the Central Bank, the establishment and organization of subsidiaries of the institutions it regulates; (ii) overseeing mergers, dissolutions and reorganization of banks, financial institutions and insurance companies; (iii) supervising financial, insurance and related companies from which information on an individual or consolidated basis is required, through changes in ownership and management control (this supervision also applies to non-bank holding companies, such as us); (iv) reviewing the bye-laws and amendments of bye-laws of these companies; (v) issuing criteria governing the transfer of bank shares, when permitted by law, for valuation of assets and liabilities and for minimum capital requirements; and (vi) controlling the Central de Riesgos (Bank Risk Assessment Center), to which all banks are legally required to provide information regarding all businesses and individuals with whom they deal without regard to the amount of credit risk (the information provided is made available to all banks to allow them to monitor individual borrowers’ overall exposure to Peru’s banks). In addition to them, the SBS is also responsible for stating the criteria relating to the existence of financial or mixed conglomerates in Peru and their supervising.
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As a consequence of it, despite its supervising to BCP, we are also supervised by the SBS also supervises Credicorp Ltd. on the basis that we are a financial conglomerate conducting the majority of our operations in Peru.
Management of Operational Risk
SBS ResolutionResolutions No. 006-2002 and 37-2008 established guidelines for operational risk management, which includes a broad range of risks. Resolution No. 006-2002risks and defines operational risks as those dealing with the possibility of suffering financial losses due to deficiencies in internal procedures, information technology or personnel, or the occurrence of adverse external events. It also establishes responsibilities for developing policies and procedures to identify, measure, control and report such risks. Banks are required to adequately manage risks involved in the performance and continuity of their operations and services. This is required so that banks willservices in order to minimize their possible financial losses and reputation damage due to inadequate or non-existent policies or procedures that are inadequate or do not exist.procedures.
We intend to be guided by the risk control standards of international financial institutions that are noted for their leadership in this field. Our overall objective is to implement an efficient and permanent monitoring system to control operational risks, while the actual management of risk control procedures is conducted by the areas that carry out critical activities.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to make certain certifications regarding our internal controls over financial reporting as of December 31, 2008.2010. We have developed internal methods to evaluate how effective our internal controls are over our financial reporting. In addition, we are implementing computer programs that will allow us to continuously monitor, assess and document our internal controls. During 2008, we evaluated our internal controls over financial reporting and obtained the attestation of our independent auditors. See “Item 15. Controls and Procedures.”
Capital Adequacy Requirements
| First Year | Second Year | Third Year | |||||
| Basic IRB and Internal Models of Credit Risk | 95% | 90% | 80% | ||||
| Advanced Models of Credit Risk and/or Operational Risk | 90% | 80% | — |
Prior to June 2009, the supervisioncapital requirements were based upon the guidelines established by the first Basel Accord (Basel I). Financial institutions were required to limit risk-weighted assets to 11 times their regulatory capital (“patrimonio efectivo”), which is equivalent to a minimum capital ratio of market risks require banks to establish internal policies and procedures to monitor these risks, as well as market9.09% of risk-weighted assets. Risk-weighted assets were calculated based upon five risk exposure limits. These regulations define market risks ascategories depending on the probable loss derived from exposure to various classesperceived risk of commodities, securities, foreign exchange, derivative operations or commercial assets that banks may hold and that that could be registered or not in their balance sheets.each asset class.
Implementation date | Regulatory capital (% of total weighted assets) | Total risk-weighted assets | ||
July 1st, 2009 | 9.5% | 10.5 times the regulatory capital needed to cover market risks; plus 10.5 times regulatory capital needed to cover operational risks; plus Total amount of credit risk-weighted assets. | ||
July 1st, 2010 | 9.8% | 10.2 times the regulatory capital needed to cover market risks; plus 10.2 times the regulatory capital needed to cover operational risks; plus Total amount of credit risk-weighted assets. | ||
July 1st, 2011 | 10% | 10 times the regulatory capital needed to cover market risks; plus 10 times the regulatory capital needed to cover operational risks; plus Total amount of credit risk-weighted assets. |
There is also an SBS initiative to introduce additional capital requirements inspired by Pillar 2 of Basel 2 and Basel 3. In particular, the SBS published a preliminary version of the additional requirements, which are mainly related to systemic risk, capital pro-cyclicality, interest rate risk in banking books and credit concentration risk. As of February 2011, the SBS was soliciting the banking industry’s views about these proposed regulations.
Basic Capital: Basic Capital or Tier 1 capital is comprised of: (i) paid-in-capital (which includes common stock and perpetual non-cumulative preferred stock), legal reserves, supplementary capital premiums, voluntary reserves distributable only with prior SBS approval, and retained earnings with capitalization agreements (earnings that the shareholders or the Board of Directors, as the case may be, have committed to capitalize as common stock); (ii) other elements that have characteristics of permanence and loss absorption that are in accordancecompliance with regulations enacted by the SBS; and (iii) unrealized gains in Subsidiaries. Items deducted from Tier 1 capital include: (i) current and past years’ unrealized losses; (ii) deficits of loan loss provisions; (iii) goodwill resulting from corporate reorganizations or acquisitions; and (iv) half of the amount referred to in “Deductions” below. Absent any Tier 2 capital, 100% of the amount referred to in “Deductions” below must be deducted from Tier 1 capital. The elements referred to in item (ii) above should not exceed 17.65% of the amount resulting from adding components (i) and (iii) of Tier 1 capital net of the deductions in (i), (ii) and (iii) in this paragraph.
Supplementary Capital: Supplementary capital is comprised of the sum of certain elements from Tier 2 capital and Tier 3 capital. Tier 2 capital elements include: (i) voluntary reserves that may be reduced without prior consent from the SBS; (ii) the eligible portion of redeemable subordinated debt and of any other components that have characteristics of debt and equity as provided by the SBS; (iii) for banks using the Standardized Approach Method (SAM), the generic loan loss provision up to 1.25% of credit risk-weighted assets; or, alternatively, for banks using the Internal Ratings-Based Method (IRB), the generic loan loss provision up to 0.6% of total credit risk-weighted assets (pursuant to article 189 of the Law); and (iv) half of the amount referred to in “Deductions” below. Tier 3 capital is comprised of redeemable subordinated debt that is incurred with the following procedure:exclusive purpose of covering market risk, as referred to in Article 233 of the Law.
Deductions: The following are deducted from Tier 1 and Tier 2 capital: (i) all investments in shares and subordinated debt issued by other local or foreign financial institutions and insurance companies; (ii) all investments in shares and subordinated debt issued by an affiliate with which the bank consolidates its financial statements, including its holding company and such subsidiaries referred to in Articles 34 and 224 of the Law; (iii) the amount in which an investment in shares issued by a company with which the bank does not consolidate its financial statements and which is not part of the bank’s negotiable portfolio, exceeds 15% of the bank’s regulatory capital; (iv) the aggregate amount of all investments in shares issued by companies with which the bank does not consolidate its financial statements and which are not part of the bank’s negotiable portfolio, exceeds 60% of the regulatory capital; (v) when applicable, the amount resulting from the formula prescribed in Article 189 of the Law. For the purposes herein, “regulatory capital” excludes the amounts referred to in (iii), (iv) and (iv) of |
As of December 31, 2010, BCP’s regulatory capital was 12.84% of unconsolidated risk-weighted assets, which is equivalent to having risk-weighted assets that are 7.79 times the amount of regulatory capital.
Legal Reserve Requirements
Pursuant to Article 67 of Law 26702, all banks must create amaintain legal reserve.reserves. Each year a bank must allocate 10% of its net income to its legal reservereserves until its legal reserve isreserves are equal to 35% of its paid-in capital stock. Any subsequent increasesincrease in paid-in capital will implyrequires a corresponding increase in the required levelamount of the legal reserves to be funded as described above.reserves. As of December 31, 2008,2010, BCP’s consolidated legal reserve wasreserves were S/.546.5.895.2 million (US$174318.7 million), equivalent to 36.2%35.0% of BCP’s paid-in capital as of such date. Paid-in capital increased by S/.329.5 million during 2010 due to the capitalization of 2009.
Provisions for Loan Losses
Provisions for Country Risk
SBS Resolution No. 505-2002 requires the establishment of provisions for exposure to country risk, which is defined as includingincludes sovereign risk, transfer risk and expropriation or nationalization risk that may affect operations with companies or individuals in foreign countries. The SBS has also established guidelines for the procedures and responsibilities for the management of country risk. We estimate and record our allowance for country risk according to the criteria set out in IAS 39. See Note 3(f)(ii) and 3(i) to the Credicorp Consolidated Financial Statements.
Central Bank Reserve Requirements
Under Law 26702, banks and finance companiesfinancial institutions are required to maintain a legal reserve requirements for certain obligations. The changes in the reserve requirement regulations were made in the second half of 2010 in accordance with the monetary policy adopted by the Central Bank.
The Central Bank may require additionalrequires financial instructions to maintain marginal reserve requirements for obligations for local and marginal reserves.foreign currency obligations. The exact level and method of calculation of the reserve requirement is setestablished by the Central Bank. In calculating the required legalThe reserve the following, pursuantrequirements in Peru apply to regulations issued by the SBS, are obligations:obligations such as demand and time deposits, savings accounts, securities, certain bonds and funds administered by the bank. TheAdditionally, the Central Bank requires reserves on amounts due to foreign banks and other foreign financial companies, which wereinstitutions. Furthermore, as of January 2011, obligations of foreign subsidiaries and affiliates are also subject to the reserve requirement. Funding from the public sector directed to the microfinance sector and foreign credits with periods of 2 years or more are not previously considered obligations. Thesubject to the regulation, excludes funding fromamong other central banks, governments or multilateral lending agencies.exemptions.
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The Central Bank establishes a remuneration rate on the marginal reserves, those that exceed the minimum legal requirement of 9%, only if such reserves are deposited in foreignthe Central Bank’s current account. Foreign currency are subject to an additionalcannot be used as reserve requirement that was 35% until December 2008 when it was reduced to 30%. There is no additional reserverequirements for obligationsliabilities in local currency. The legal reserve (6%) and the additional reserve must be calculated in Nuevos Soles for obligations in localdomestic currency, and in U.S. Dollars for obligations in foreign currency.vice versa. The Central Bank oversees compliance with the reserve requirements.
The Central Bank also establishes thereference interest rate payable on the reserves that exceed the legal 6% requirement. The interest rate is expected to be periodically revised by the Central Bank in accordance with its monetary policy objectives. Once a month the board of directors of the Central Bank approves and announces the Monetary Program through a press release. The reference interest rate was increased over the yearin 2008 reaching a maximum level of 6.5% since September. As a result of the international crisis and to lessen its effects,. During 2009 the Central Bank hasstarted to loosen its monetary policy stance as a response to the deceleration of private spending and the deterioration of the economy. The Central Bank reduced the reference interest rate from 6.50% to 1.25% during 2009that year. In May 2010 the Central Bank changed the direction of its monetary policy to 6.25%a more restrictive position in February, to 6% in March, to 5% in April, to 4% in Maylight of the rapid growth of domestic demand and to 3% in June.the potential for dangerous levels of inflation. Since then, there have been consecutive increases of the reference interest rate, which is currently 3.25%.
In the past few years, the Central Bank has on numerous occasions changed the deposit reserve requirementsrequirement applicable to Peruvian commercial banks, the ratefinancial institutions as part of interest paid on deposit reserves, andits monetary policy. The regulations that were put in place in 2010 have increased the amount of deposit reserves on which no interest must be paid byrequired to S/1,779 million and US$198 million in local and foreign currency respectively. This new environment has led to an increase in the Central Bank.funding cost of the bank. Changes in the supervision andreserve requirement regulation of BCP, such as changes in deposit reserve requirements or in the amount of interest payable on deposit reserve requirements, may adversely affect ourthe bank´s business, financial condition and results of operations.
Lending Activities
Law 26702 sets the maximum amountsamount of credit that eacha financial institution may extend to a single borrower. Under Law 26702, aA single borrower includes an individual or an economic group. An economic group constituting a single or common risk according to Law 26702, includes a person, such person’s close relatives and the companies in which such person or close relatives have significant share ownership or decision-making capability. According to current regulations, shareholders who own or control directly or indirectly at least one-tenth of a company’s shares are considered significant shareholders. Significant decision-making capability is deemed to be present when, among other factors, a person or group can exercise material and continuous influence upon the decisions of a company, when a person or company holds seats on the board of directors or has principal officers in another company, or when it can be assumed that one company or person is the beneficial recipient of credit facilities granted to another company.
The limits forlimit on credit that may be extended to one borrower vary according to the type of borrower and the collateral received. The limit applicable to credit for any Peruvian borrower is 10% of the bank’s regulatory capital, applied to both unconsolidated and consolidated records, which may be increased to up to 30% if the loan is collateralized in a manner acceptable under Law 26702. If a financial institution exceeds these limits, the SBS may impose a fine on the institution. As of December 31, 2008,2010, the 10.0% credit limit per borrower of BCP, unconsolidated, was S/.410.0US$197.4 million (US$130.7 million) for unsecured loans, and the 30.0% limit amounted to S/.1,231.2was US$592.2 million (US$392.2 million) for secured loans.
Related Party Transactions
Law 26702 regulates and limits transactions with related parties and affiliates of financial institutions. In 1997, the SBS and CONASEV have also enacted regulations with precise definitions ofthat define indirect ownership, related parties and economic groups, which serve as the basis for determining limits onto limit transactions with related parties and affiliates. These regulations also provide the basis for the subsequent development of specific standards for the supervision of financial and mixed conglomerates formed by financial institutions.
The total amount of loans to directors, employees or close relatives of any such persons may not exceed 7% of a bank’s paid-in capital in the aggregate.regulatory capital. All loans made to any single related party borrower may not exceed 0.35% of paid-insuch regulatory capital (i.e.(i.e., 5% of the overall 7% limit).
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Ownership Restrictions
Law 26702 establishes certain restrictions on the ownership of a bank’s shares. Banks must have at least two unrelated shareholders at all times. Restrictions are placed on the ownership of shares of any bank by persons that have committed certain crimes, as well as by public officials who have supervisory powers over banks or who are majority shareholders of an enterprise of a similar nature. All transfers of shares in a bank must be reported afterby the factbank to the SBS byafter the bank.transfer. Transfers involving the acquisition by any individual or corporation, whether directly or indirectly, of more than 10% of a bank’s capital stock must receiverequire prior authorization from the SBS. The SBS may deny authorization to such transfer of shares if the purchasers (or their shareholders in the case of juridical persons) are legally disabled, have engaged in illegal activity in the area of banking, finance, insurance or reinsurance, or if objections are raised on the basis of the purchaser’s moral fitness or economic solvency. The decision of the SBS on this matter is final, and cannot be overturned inby the courts. If a transfer is made without obtaining the prior approval of the SBS, the purchaser may be fined an amount equivalent to the value of the securities transferred. In addition, the purchaser will beis required to sell the securities within 30 days, or the fine will double, and the purchaser is disqualified from exercising its voting rights at shareholders’ meetings. Foreign investors receive the same treatment as Peruvian nationals and are subject to the limitations described above.
Finally, under Peruvian law, individuals or corporations that acquire more than 3% of a bank’s shares or 1% in a period of 12 months are subjectrequired to anyprovide information requirement thatto the SBS may need.upon request.
Risk Rating
Law 26702 and SBS Resolution No. 672 require that all financial companies be rated by at least two risk rating companies on a semi-annual basis (updated in(in March and September), in addition to the SBS’s own assessment. Criteria to be considered in the rating include risk management and control procedures, loan quality, financial strength, profitability, liquidity and financial efficiency. Five risk categories are assigned, from “A” (lowest risk) to “E” (highest risk), allowing for sub-categories within each letter.category. As of December 2008,September 2009, BCP was assigned the “A+” risk category by its two rating agencies, Equilibrium Clasificadora de Riesgo and Apoyo and Associates International.
Deposit Fund
Law 26702 provides for mandatory deposit insurance to protect all types ofthe deposits of financial institutions by establishing the Fondo de Seguro de Depósitos (Deposit Insurance Fund or the Fund) for individuals, associations, not-for-profit companies, and demand deposits of non-financial companies. Financial institutions must pay an annual premium calculated on the basis of the type of deposits accepted by the entity and the risk classification of such entity, made by the SBS and at least two independent risk-rating agencies. The annual premiums beginpremium begins at 0.45%0.65% of total funds on deposit under the coverage of the Fund if BCP is classified in the lowest risk category, and increaseincreases to 1.45% applicable to banks in the highest risk category. BCP is currently classified in the lowest risk category. The maximum amount (defined on a monthly basis) that a customer is entitled to recover from the Fund is S/.82,664.84,710 until the endas of August 2009.December 31, 2010.
Intervention by the SBS
Pursuant to Law 26702, as amended by Law 27102, the SBS has the powerauthority to seize the operations and assets of a bank. These laws provide for three levels of interventionaction by the SBS: a supervisory regime, an intervention regime and the liquidation of the bank. Any of these actions may be taken if certain events occur, including if the bank: (i) interrupts payments on its liabilities, (ii) repeatedly fails to comply with the instructionsregulations of the SBS or the Central Bank, (iii) repeatedly violates the law or the provisions of the bank’s bye-laws, (iv) repeatedly manages its operations in an unauthorized or unsound manner or (v) has its regulatory capital fall or be reduced by more than 50%. Rather
During the intervention regime, rather than seizing the operations and assets of a bank, the SBS may adopt other measures, including (i) placing additional requirements on a commercialthe bank, (ii) ordering it to increase its capital stock or divest certain or all of its assets, or (iii) imposing a special supervision regime during which BCP must adhere to a financial restructuring plan.
The SBS intervention ruleregime stops a bank’s operations and may last for a maximum of 45 days, which may be extended for a second period of up toan additional 45 additional days. During this time, the SBS may institute measures such as: (i) canceling losses by reducing reserves, capital and subordinated debt, (ii) segregating certain assets and liabilities for transfer to another financial institution and (iii) merging the intervened bank with anotheran acquiring institution according to the program established by Urgent Decree No. 108-2000, enacted in November 2000. After the intervention, the SBS will proceedliquidate the bank unless it is merged with an acquiring institution, as described in (iii) above.
Regulation from the United States Federal Reserve Bank and from the State of Florida Department of Banking and Finance
Banco de Credito del Peru, Miami Agency (“BCP Miami Agency”) is licensed to liquidate operate as an International Agency in the State of Florida and was authorized to transact business by the Comptroller of Florida on September 3, 2002. The Office of Financial Regulation of the State of Florida shares regulatory responsibility with the Federal Reserve Bank of Atlanta.
Regulation from the Superintendency of Banks in Panama
BCP except ifPanama is a branch of BCP that is registered in the preceding option (iii) was applied.Republic of Panama. It began operating in June 2002 under an International License issued by the Panamanian Superintendence of Banks, in accordance with Law Decree No. 9 of February 26, 1998, as amended. BCP Panama is subject to an inspection every two (2) years made by auditors and inspectors of the Panamanian Superintendence of Banks, to determine, among other things, its compliance with the Decree Law No. 2 and No. 42 Law on the Prevention of Money Laundering.
| (iii) |
General
Atlantic Security Bank (or ASB)(ASB), a subsidiary of ASHC, is a Cayman Islands bank with a branch in Panama. ASB is regulated by the regulatory authorities of the Cayman Islands while its Panama branch is regulated by the banking authorities of Panama. The supervision of ASB by Cayman Islands and Panamanian regulatory authorities is less extensive than the supervision and regulation of U.S. banks by U.S. banking authorities. In particular, ASB does not have a lender of last resort and its deposits are not guaranteed by any government agency.
ASB is registered as an exemptedexempt company and is licensed in the Cayman Islands pursuant to the Banks and Trust Companies Law (2003 Revision) (also referred to as the Cayman Banking Law).Law. ASB holds an unrestricted Category B Banking and Trust License, as well as a Mutual Fund Administrator License. As a holder of a Category B License, ASB may not take deposits from any person residing in the Cayman Islands other than another licensee, an exemptedexempt company or an ordinary non-resident company which is not carrying on business in the Cayman Islands.
ASB also may not invest in any asset which represents a claim on any person residing in the Cayman Islands, except a claim resulting from: (i) a loan to an exemptedexempt or an ordinary non-resident company not carrying on business in the Cayman Islands; (ii) a loan by way of mortgage to a member of its staff or to a person possessing or being deemed to possess Caymanian status under the immigration law, for the purchase or construction of a residence in the Cayman Islands to be owner-occupied; (iii) a transaction with another licensee or (iv) the purchase of bonds or other securities issued by the government of the Cayman Islands, a body incorporated by statute, or a company in which the government is the sole or majority beneficial owner. In addition, ASB may not, without the written approval of the Cayman Islands Monetary Authority (also referred to as the Authority)(the “Authority”), carry on any business in the Cayman Islands other than for whichpermitted by the Category B License has been obtained.License.
There are no specified ratio or liquidity requirements under the Cayman Banking Law, but the Authority expects observance of prudent banking practices. As a matter of general practice, the ratio of liabilities to capital and surplus should not exceed 40-to-1 and the ratio of risk-weighted assets to capital and surplus should not exceed 8.33-to-1 (12%(approximately 12%). There is a statutory minimum net worth requirement of US$480,000, but in the normal course of events, the Authority will requiregenerally requires a bank or trust company to maintain a higher paid-in capital appropriate to its business. It is the practice of theThe Authority to requirerequires compliance with the guidelines promulgated by the Basel Accord on Banking Regulations and Supervisory Practices although, in special circumstances, different gearing and/or capital risk asset ratios may be negotiated. Compliance with the Cayman Banking Law is monitored by the Authority.
Continuing Requirements
Under the law of the Cayman Islands, ASB is subject to the following continuing requirements: (i) to ensureremain in good standing under the Cayman Islands Companies Law, including the filing of annual and other returns and the payment of annual fees; (ii) to file with the Registrar of Companies particulars of any change in the information or documents required to be supplied to himprovided and to pay annual fees; (iii) to file quarterlycertain prescribed forms with the Authority certain prescribed forms;on a quarterly basis; (iv) to file with the Authority audited accounts within three months of each financial year (in the case of a locally incorporated bank which is not part of a substantial international banking group, current practice is also to request a senior officer or board member to discussdiscusses these accounts each year personally at a meeting with the Authority) and (v) to file an annual questionnaire.
ASB is required by the Cayman Banking Law to have at least two directors. Additionally, ASB must receive prior approval from the Authority (i) for any proposed change in the directors or senior officers, though in exceptional cases a waiver can be obtained enabling changes to be reported after the event or even annually in the case of a branch of a substantial international bank; (ii) for the issue, transfer or other disposal of shares (it is rare for a waiver to be granted with respect to shares except in the case of a branch of a substantial international bank and where the shares are widely held and publicly traded); (iii) for any significant change in the business plan filed on the filing of the original license application or (iv) to open a subsidiary, branch, agency or representative office outside the Cayman Islands. Finally, ASB must obtain the prior approval of the Authority to change its name and must also notify the Authority of any change in the principal office and authorized agentsagent in the Cayman Islands.
| (iv) | BCB |
Until February 2009,March 2010, the Bolivian banking system operated under the Ley de Bancos y Entidades Financieras (the Law of Banks and Financial Entities) No. 1488, enacted on April 14, 1993, andwhich was modified by Law 2297,3076 of DecemberJune 20, 2001,2005, which granted supervisory powers to the Superintendency of Banks and Financial Entities. Additionally, itEntities (now referred to as the Financial System Supervisory Authority (Autoridad de Supervisión del Sistema Financiero), pursuant to Supreme Decree 29894). In addition, the law established that Banco Central de Bolivia (the Central Bank of Bolivia) regulatedwould regulate financial intermediation and deposit-gatheringdeposit activities, determineddetermine monetary and foreign exchange policies,policy, and establishedestablish reserve requirements on deposits and capital adequacy, guidelines thatwhich banks and financial companies were required to follow. Also, the SuperintendenciaAutoridad de Pensiones, Valores y SegurosSupervisión del Sistema Financiero (the Superintendency of Pensions, Securities and Insurance)Financial System Supervisory Authority) supervised brokerage activities and mutual fundsfund management that werewas conducted through BCB’s subsidiaries Credibolsa S.A. and Credifondo S.A., respectively. These subsidiaries operated under the Ley del Mercado de Valores (the Securities Markets Law) No. 1834, enacted on March 31, 1998.
49
The new constitution of Bolivia, which was approved by referendum onin February 2009, established that the Bolivian financial system is to be regulated as follows:
| · | The Central Bank of Bolivia is responsible for maintaining the stability of the internal monetary value and has authority to regulate monetary policy, control foreign exchange policies, regulate the payment system, authorize the issuance of money and administrate international reserves in coordination with the Economic Policy stated by the Public Sector. |
| · | All financial entities (banks, mutual funds, securities, insurance and others) are regulated by the Financial System Supervisory Authority (or FSSA). The FSSA (or ASFI in Spanish) has assumed all regulatory functions held previously be the Superintendency of Banks and Financial Entities and the Superintendency of Pensions, Securities and Insurance. |
| (v) | PPS |
Overview
PPS’s operations are regulated by Law 26702 and the SBS. Peruvian insurance companies must regularly submit regular reports to the SBS regarding their operations. In addition, the SBS conducts on-sight reviews of the performance of insurance companies at least on an annual basis. The SBS conducts these reviews primarily to review a company’s compliance with solvency margin and reserve requirements, investment requirements and rules governing the recognition of premium income. If the SBS determines that a company is unable to meet the solvency margin or technical reserve requirements, or is unable to pay claims as they come due, it may either liquidate the company or permit it to merge with another insurance company.
Under Peruvian law, insurance companies may engage in certain credit risk operations, such as guarantees, bonds and trusteeships, but are prohibited from offering other banking services, operating mutual funds or offering portfolio management services. In addition, insurance companies may not conduct brokerage operations for third parties.
Peruvian insurance companies are also prohibited from having an ownership interest in other insurance or reinsurance companies of the same class or in private pension funds.
Establishment of an Insurance Company
Insurance companies must seek the authorization ofbe authorized by the SBS before commencingto commence operations. Peruvian law establishes certain minimum capital requirements for insurance and reinsurance companies. These requirementscompanies, which must be met throughsatisfied by cash investments in the company. The statutory amounts are expressed in constant value.
Solvency Requirements
Pursuant to Law 26702, the SBS regulates the solvency margin of Peruvian insurance companies. The solvency margin is based upon calculations that take into account the amount of premiums written and losses incurred during a specified period prior to the date on whichof the calculation is made.calculation.
Insurance companies must also maintain solvency equity, which must be the greater of (i) the solvency margin and (ii) the minimum capital requirement, as established by law. The required amount of solvency equity is recalculated at least quarterly. If thean insurance company has outstanding credit risk operations, part of the solvency equity shouldmust be set aside for theirits coverage.
Legal Reserve Requirements
Peruvian law also requires that all insurance companies establish a legal guarantee reserve for policyholders by setting aside 10% of income before taxes until the reserve reaches at least 35% of paid-in capital.
Reserve Requirements
Pursuant to Law 26702 and regulations issued by the SBS, Peruvian insurance companies must establish technical reserves. See “—(6) Pacífico Peruano Suiza—(ii) Claims and Reserves.” Law 26702 also requires insurance companies to create a reserve for IBNR claims, which are reflected as a liability, net of recoveries and reinsurance, in the Credicorp Consolidated Financial Statements. Reserves for IBNR claims are estimated by using generally accepted actuarial reserving methods. See Note 3(e) to the Credicorp Consolidated Financial Statements. Finally, PPS is required by the SBS to establish pre-event reserves for risk of catastrophes, which, in accordance with IFRS principles, are not considered in our financial statements. See “—(6) Pacífico Peruano Suiza—(ii) Claims and Reserves.”
50
Investment Requirements
Pursuant to Law 26702, the total amount of an insurance company’s solvency equity and technical reserves must be permanently supported by diversified assets, which may not be pledged or otherwise encumbered. The investment regulations further state that deposits in and bonds of one financial institution together cannot exceed 10% of the total of an insurer’s solvency equity and technical reserves combined. In general, no more than 20% of an insurance company’s combined solvency equity and technical reserves combined may be invested in instruments (including stocks and bonds) issued by a company or group of companies. In addition, in order for an insurance company to invest in non-Peruvian securities, the securities must be rated by an internationally recognized credit rating company and the asset class must be authorized by Peruvian SBS regulations. Securities owned by insurance companies must be registered in the Public Registry of Securities of Peru or the comparable registry of their respective country.
Related Party Transactions
Law 26702 generally provides that insurance companies may not extend credit to or guarantee the obligations of employees or members of the board of directors, except for uniquecertain home mortgage loans to employees.
Ownership Restrictions
Law 26702 sets forth the same types of restrictions regarding the ownership and transfer of insurance company shares as it does regarding the ownership and transfer of shares in banks. See “—(11) Supervision and Regulation—(ii) BCP—Overview.”
(vi) Prima AFP
Prima AFP’s operations are regulated in Peru by the Consolidated Sole Text of the Private System for the Administration of Funds Act, approved by Supreme Decree No. 054-97-EF. Operations are controlled and supervised by the SBS. In addition, AFPs are under the supervision of the CONASEV. AFPs must submit reports to the SBS, members and beneficiaries in general, with regard to the administration of retirement funds and any information linked to the AFP’s operations.
Under Peruvian legislation, AFPs can only have one type of business activity, that is, they can only offer services linked to the administration of pension funds under the category of Individual Capital Accounts. Also, AFPs must pay benefits provided by Law and administer retirement, disability, death benefit and funeral expense risks. AFPs must submit audited financial information, in accordance with SBS regulations. There are certain limitations on the ownership and transfer of AFP shares
SBS authorization is required for an AFP to begin operations. Peruvian law establishes a minimum capital requirement, paid in cash by the shareholders.
SBS establishes general investment limits:
| · | The total amount invested in instruments issued or guaranteed by the Peruvian State cannot exceed 30% of the fund value. |
| · | The total amount invested on instruments issued or guaranteed by BCRP cannot exceed 30% of the fund value. |
| · | The total amount jointly invested under the two aforementioned points cannot exceed 40% of the fund value. |
| · | The total amount invested in instruments issued by the Government, financial institutions, and non-financial institutions whose commercial activities are mostly abroad, cannot exceed 30% of the fund value. |
In addition, the Central Bank can set maximum operating percentages and/or sub-limits to the aforementioned investment limits.
SBS requires a guaranteed minimum profitability for the administered funds. Part of the guarantee is the Encaje Legal, an obligatory reserve, which must be created with AFP funds. The amount will depend on the type of instruments that make up the fund. In addition, Peruvian law establishes that companies must set up a legal reserve equivalent to 10% of net profits, until the reserve is at least 20% of the capital.
| (12) | Selected Statistical Information |
In the following tables, we have set forth certain selected statistical information and ratios regarding our business for the periods indicated. You should read the selected statistical information in conjunction with the information included in “Item 5. Operating and Financial Review and Prospects—(A) Operating Results” and the Credicorp Consolidated Financial Statements (and the notes that accompany the financial statements). The statistical information and discussion and analysis given below for the years 2004, 2005, 2006, 2007, 2008, 2009 and 20082010 reflect our consolidated financial position as well as that of our subsidiaries, as of December 31, 2004, 2005, 2006, 2007, 2008, 2009 and 20082010 and our results of operations for 2004, 2005, 2006, 2007, 2008, 2009 and 2008.2010.
51
| (i) | Average Balance Sheets and Income from Interest-Earning Assets |
The tables below set forth selected statistical information based on our average balance sheets prepared on a consolidated basis. Except as otherwise indicated, we have classified average balances by currency (Nuevos Soles or foreign currency (primarily U.S. Dollars)) rather than by the domestic or international nature of the balance. In addition, except where noted, the average balances are based on the quarterly ending balances in each year. Any of these quarter-end balances that were denominated in Nuevos Soles have been converted into U.S. Dollars using the applicable SBS exchange rate as of the date of such balance. We have in certain cases restated nominal average interest rates as real average interest rates using the formula described below. Our management believes that adjusting average balances and average interest rates for inflation in this manner provides more meaningful information for investors than unadjusted average balances and rates, and does not believe that the stated averages present trends materially differ from those that would be presented by daily averages.
Year ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
2006 | 2007 | 2008 | ||||||||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest Earned | Real Avg. Rate | Nominal Avg. Rate | Average Balance | Interest Earned | Real Avg. Rate | Nominal Avg. Rate | Average Balance | Interest Earned | Real Avg. Rate | Nominal Avg. Rate | |||||||||||||||||||||||||||||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||
| ASSETS: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Deposits in Central Bank | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles | US$ | 13,346 | US$ | 157 | 0.16 | % | 1.18 | % | US$ | 16,559 | US$ | 339 | 1.00 | % | 2.05 | % | US$ | 221,485 | US$ | 10,055 | 3.46 | % | 4.54 | % | ||||||||||||||||||||||||
| Foreign Currency | 1,763,854 | 56,813 | 3.22 | 3.22 | 1,422,395 | 46,582 | 3.27 | 3.27 | 1,737,797 | 27,859 | 1.60 | 1.60 | ||||||||||||||||||||||||||||||||||||
| Total | 1,777,200 | 56,970 | 3.20 | 3.21 | 1,438,954 | 46,921 | 3.25 | 3.26 | 1,959,282 | 37,914 | 1.81 | 1.94 | ||||||||||||||||||||||||||||||||||||
| Deposits in other banks | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 43,684 | 1,762 | 2.99 | 4.03 | 30,337 | 1,224 | 2.99 | 4.04 | 68,990 | 2,821 | 3.05 | 4.09 | ||||||||||||||||||||||||||||||||||||
| Foreign Currency | 711,694 | 35,154 | 4.94 | 4.94 | 1,002,633 | 57,672 | 5.75 | 5.75 | 778,822 | 30,396 | 3.90 | 3.90 | ||||||||||||||||||||||||||||||||||||
| Total | 755,378 | 36,916 | 4.83 | 4.89 | 1,032,970 | 58,896 | 5.67 | 5.70 | 847,812 | 33,217 | 3.83 | 3.92 | ||||||||||||||||||||||||||||||||||||
| Investment securities | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 985,054 | 49,916 | 4.02 | 5.07 | 2,110,943 | 138,028 | 5.47 | 6.54 | 2,453,796 | 192,987 | 6.78 | 7.86 | ||||||||||||||||||||||||||||||||||||
| Foreign Currency | 1,589,978 | 85,789 | 5.40 | 5.40 | 2,131,911 | 93,734 | 4.40 | 4.40 | 3,355,232 | 110,865 | 3.30 | 3.30 | ||||||||||||||||||||||||||||||||||||
| Total | 2,575,032 | 135,705 | 4.87 | 5.27 | 4,242,854 | 231,762 | 4.93 | 5.46 | 5,809,028 | 303,852 | 4.77 | 5.23 | ||||||||||||||||||||||||||||||||||||
| Total loans (1) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 1,307,784 | 178,469 | 12.51 | 13.65 | 1,942,261 | 262,402 | 12.37 | 13.51 | 2,987,721 | 400,395 | 12.27 | 13.40 | ||||||||||||||||||||||||||||||||||||
| Foreign Currency | 4,104,477 | 359,202 | 8.75 | 8.75 | 5,101,392 | 439,070 | 8.61 | 8.61 | 6,533,987 | 563,546 | 8.62 | 8.62 | ||||||||||||||||||||||||||||||||||||
| Total | 5,412,261 | 537,671 | 9.66 | 9.93 | 7,043,653 | 701,472 | 9.65 | 9.96 | 9,521,708 | 963,941 | 9.77 | 10.12 | ||||||||||||||||||||||||||||||||||||
| Total dividend-earning assets | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 119,106 | 6,171 | 4.13 | 5.18 | 215,100 | 6,004 | 1.76 | 2.79 | 174,356 | 6,672 | 2.79 | 3.83 | ||||||||||||||||||||||||||||||||||||
| Foreign Currency | 109,129 | 2,970 | 2.72 | 2.72 | 118,334 | 3,079 | 2.60 | 2.60 | 107,567 | 5,542 | 5.15 | 5.15 | ||||||||||||||||||||||||||||||||||||
| Total | 228,235 | 9,141 | 3.46 | 4.01 | 333,434 | 9,083 | 2.06 | 2.72 | 281,923 | 12,214 | 3.69 | 4.33 | ||||||||||||||||||||||||||||||||||||
| Total interest-earning assets | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 2,468,974 | 236,475 | 8.48 | 9.58 | 4,315,200 | 407,997 | 8.36 | 9.45 | 5,906,348 | 612,930 | 9.27 | 10.38 | ||||||||||||||||||||||||||||||||||||
| Foreign Currency | 8,279,132 | 539,928 | 6.52 | 6.62 | 9,776,665 | 640,137 | 6.55 | 6.55 | 12,513,405 | 738,208 | 5.90 | 5.90 | ||||||||||||||||||||||||||||||||||||
| Total | 10,748,106 | 776,403 | 6.97 | 7.22 | 14,091,865 | 1,048,134 | 7.10 | 7.44 | 18,419,753 | 1,351,138 | 6.98 | 7.34 | ||||||||||||||||||||||||||||||||||||
| Noninterest-earning assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cash and due from banks | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 168,332 | 250,118 | 308,321 | |||||||||||||||||||||||||||||||||||||||||||||
| Foreign Currency | 200,523 | 255,715 | 259,761 | |||||||||||||||||||||||||||||||||||||||||||||
| Total | 368,855 | 505,833 | 568,082 | |||||||||||||||||||||||||||||||||||||||||||||
| Reserves for loan losses | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles | (33,859 | ) | (37,601 | ) | (68,072 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Foreign Currency | (167,337 | ) | (154,917 | ) | (156,850 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Total | (201,196 | ) | (192,518 | ) | (224,922 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Premises and equipment | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 165,610 | 182,308 | 269,221 | |||||||||||||||||||||||||||||||||||||||||||||
| Foreign Currency | 79,281 | 73,948 | 26,805 | |||||||||||||||||||||||||||||||||||||||||||||
| Total | 244,891 | 256,256 | 296,026 | |||||||||||||||||||||||||||||||||||||||||||||
| Other non-interest-earning assets and gain from derivatives instruments and other interest income | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 84,716 | 1,629 | 334,653 | 2,066 | 527,364 | 1,193 | ||||||||||||||||||||||||||||||||||||||||||
| Foreign Currency | 412,659 | 3,971 | 561,477 | 15,774 | 747,978 | 48,003 | ||||||||||||||||||||||||||||||||||||||||||
| Total | 497,375 | 5,600 | 896,130 | 17,840 | 1,275,342 | 49,196 | ||||||||||||||||||||||||||||||||||||||||||
| Total non-interest-earning assets | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 384,799 | 1,629 | 729,478 | 2,066 | 1,036,834 | 1,193 | ||||||||||||||||||||||||||||||||||||||||||
| Foreign Currency | 525,126 | 3,971 | 736,223 | 15,774 | 877,694 | 48,003 | ||||||||||||||||||||||||||||||||||||||||||
| Total | 909,925 | 5,600 | 1,465,701 | 17,840 | 1,914,528 | 49,196 | ||||||||||||||||||||||||||||||||||||||||||
| Total average assets | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 2,853,773 | 238,104 | 7.26 | 8.34 | 5,044,678 | 410,063 | 7.05 | 8.13 | 6,943,182 | 614,123 | 7.76 | 8.84 | ||||||||||||||||||||||||||||||||||||
| Foreign Currency | 8,804,258 | 543,899 | 6.18 | 6.18 | 10,512,888 | 655,911 | 6.24 | 6.24 | 13,391,099 | 786,211 | 5.87 | 5.87 | ||||||||||||||||||||||||||||||||||||
| Total | 11,658,031 | 782,003 | 6.44 | 6.71 | 15,557,566 | 1,065,974 | 6.50 | 6.85 | 20,334,281 | 1,400,334 | 6.51 | 6.89 | ||||||||||||||||||||||||||||||||||||
Average Balance Sheets
Assets, Interest PaidEarned and Average Interest Rates
Year ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
2006 | 2007 | 2008 | ||||||||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest Paid | Real Avg. Rate | Nominal Avg. Rate | Average Balance | Interest Paid | Real Avg. Rate | Nominal Avg. Rate | Average Balance | Interest Paid | Real Avg. Rate | Nominal Avg. Rate | |||||||||||||||||||||||||||||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||
| LIABILITIES | ||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Demand deposits | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles (1) | US$ | 776,964 | US$ | 8,631 | 0.10 | % | 1.11 | % | US$ | 1,120,416 | US$ | 12,761 | 0.10 | % | 1.14 | % | US$ | 1,685,905 | US$ | 22,986 | 0.29 | % | 1.36 | % | ||||||||||||||||||||||||
| Foreign Currency (1) | 1,512,284 | 16,150 | 1.07 | 1.07 | 2,206,983 | 12,362 | 0.56 | 0.56 | 2,603,193 | 15,099 | 0.58 | 0.58 | ||||||||||||||||||||||||||||||||||||
| Total | 2,289,248 | 24,781 | 0.74 | 1.08 | 3,327,399 | 25,123 | 0.40 | 0.76 | 4,289,098 | 38,085 | 0.47 | 0.89 | ||||||||||||||||||||||||||||||||||||
| Savings deposits | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles (1) | 518,859 | 4,917 | -0.06 | 0.95 | 711,641 | 8,550 | 0.16 | 1.20 | 1,143,032 | 13,511 | 0.11 | 1.18 | ||||||||||||||||||||||||||||||||||||
| Foreign Currency (1) | 1,238,890 | 7,919 | 0.64 | 0.64 | 1,396,318 | 11,319 | 0.81 | 0.81 | 1,560,084 | 13,654 | 0.88 | 0.88 | ||||||||||||||||||||||||||||||||||||
| Total | 1,757,749 | 12,836 | 0.43 | 0.73 | 2,107,959 | 19,869 | 0.59 | 0.94 | 2,703,116 | 27,165 | 0.55 | 1.00 | ||||||||||||||||||||||||||||||||||||
| Time deposits | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles (1) | 709,208 | 36,221 | 4.05 | 5.11 | 1,440,081 | 82,746 | 4.66 | 5.75 | 2,659,712 | 156,137 | 4.75 | 5.87 | ||||||||||||||||||||||||||||||||||||
| Foreign Currency (1) | 3,068,947 | 124,344 | 4.05 | 4.05 | 3,613,304 | 180,741 | 5.00 | 5.00 | 3,640,246 | 154,719 | 4.25 | 4.25 | ||||||||||||||||||||||||||||||||||||
| Total | 3,778,155 | 160,565 | 4.05 | 4.25 | 5,053,385 | 263,487 | 4.90 | 5.21 | 6,299,958 | 310,856 | 4.46 | 4.93 | ||||||||||||||||||||||||||||||||||||
| Due to banks and correspondents | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 249,212 | 5,574 | 1.21 | 2.24 | 153,258 | 6,033 | 2.87 | 3.94 | 190,227 | 8,763 | 3.50 | 4.61 | ||||||||||||||||||||||||||||||||||||
| Foreign Currency | 865,365 | 31,334 | 3.62 | 3.62 | 1,411,710 | 77,037 | 5.46 | 5.46 | 2,341,164 | 96,055 | 4.10 | 4.10 | ||||||||||||||||||||||||||||||||||||
| Total | 1,114,577 | 36,908 | 3.08 | 3.31 | 1,564,968 | 83,070 | 5.20 | 5.31 | 2,531,391 | 104,818 | 4.06 | 4.14 | ||||||||||||||||||||||||||||||||||||
| Bonds | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 153,178 | 11,041 | 6.13 | 7.21 | 201,787 | 12,954 | 5.33 | 6.42 | 468,265 | 30,864 | 5.47 | 6.59 | ||||||||||||||||||||||||||||||||||||
| Foreign Currency | 292,984 | 14,242 | 4.86 | 4.86 | 341,643 | 20,638 | 6.04 | 6.04 | 294,716 | 20,892 | 7.09 | 7.09 | ||||||||||||||||||||||||||||||||||||
| Total | 446,162 | 25,283 | 5.30 | 5.67 | 543,430 | 33,592 | 5.78 | 6.18 | 762,981 | 51,756 | 6.09 | 6.78 | ||||||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 2,407,421 | 66,384 | 1.73 | 2.76 | 3,627,183 | 123,044 | 2.33 | 3.39 | 6,147,141 | 232,261 | 2.68 | 3.78 | ||||||||||||||||||||||||||||||||||||
| Foreign Currency | 6,978,470 | 193,989 | 2.78 | 2.78 | 8,969,958 | 302,097 | 3.37 | 3.37 | 10,439,403 | 300,419 | 2.88 | 2.88 | ||||||||||||||||||||||||||||||||||||
| Total | 9,385,891 | 260,373 | 2.51 | 2.77 | 12,597,141 | 425,141 | 3.07 | 3.37 | 16,586,544 | 532,680 | 2.81 | 3.21 | ||||||||||||||||||||||||||||||||||||
| Non-interest-bearing liabilities and net equity: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Other liabilities and loss from derivatives instruments and other interest expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 56,016 | 9,296 | 157,062 | 2,687 | 489,502 | 20,850 | ||||||||||||||||||||||||||||||||||||||||||
| Foreign Currency | 862,715 | 13,809 | 1,123,751 | 4,172 | 1,363,623 | 23,881 | ||||||||||||||||||||||||||||||||||||||||||
| Total | 918,731 | 23,105 | 1,280,813 | 6,859 | 1,853,125 | 44,731 | ||||||||||||||||||||||||||||||||||||||||||
| Equity attributable to Credicorp equity holders | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles | ||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign Currency | 1,247,195 | 1,547,283 | 1,770,400 | |||||||||||||||||||||||||||||||||||||||||||||
| Total | 1,247,195 | 1,547,283 | 1,770,400 | |||||||||||||||||||||||||||||||||||||||||||||
| Minority Interest | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles | ||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign Currency | 106,214 | 132,329 | 124,212 | |||||||||||||||||||||||||||||||||||||||||||||
| Total | 106,214 | 132,329 | 124,212 | |||||||||||||||||||||||||||||||||||||||||||||
| Total non-interest-bearing liabilities and equity | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 56,016 | 9,296 | 157,062 | 2,687 | 489,502 | 20,850 | ||||||||||||||||||||||||||||||||||||||||||
| Foreign Currency | 2,216,124 | 13,809 | 2,803,363 | 4,172 | 3,258,235 | 23,881 | ||||||||||||||||||||||||||||||||||||||||||
| Total | 2,272,140 | 23,105 | 2,960,425 | 6,859 | 3,747,737 | 44,731 | ||||||||||||||||||||||||||||||||||||||||||
| Total average liabilities and equity | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 2,463,437 | 75,680 | 2.04 | 3.07 | 3,784,245 | 125,731 | 2.26 | 3.32 | 6,636,643 | 253,111 | 2.72 | 3.81 | ||||||||||||||||||||||||||||||||||||
| Foreign Currency | 9,194,594 | 207,798 | 2.26 | 2.26 | 11,773,321 | 306,269 | 2.60 | 2.60 | 13,697,638 | 324,300 | 2.37 | 2.37 | ||||||||||||||||||||||||||||||||||||
| Total | 11,658,031 | 283,478 | 2.21 | 2.43 | 15,557,566 | 432,000 | 2.52 | 2.78 | 20,334,281 | 577,411 | 2.48 | 2.84 | ||||||||||||||||||||||||||||||||||||
| Year ended December 31, | ||||||||||||||||||||||||||||||||||||
| 2008 | 2009 | 2010 | ||||||||||||||||||||||||||||||||||
| ASSETS: | Average Balance | Interest Earned | Nominal Avg. Rate | Average Balance | Interest Earned | Nominal Avg. Rate | Average Balance | Interest Earned | Nominal Avg. Rate | |||||||||||||||||||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||||||||||||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||||||||||||||||||
| Deposits in Central Bank | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles | US$ | 221,485 | US$ | 10,055 | 4.54 | % | US$ | 64,870 | US$ | 1,425 | 2.20 | % | US$ | 1,056,389 | US$ | 25,351 | 2.40 | % | ||||||||||||||||||
| Foreign Currency | 1,737,797 | 27,859 | 1.60 | 2,099,395 | 3,446 | 0.16 | 2,147,576 | 3,319 | 0.15 | |||||||||||||||||||||||||||
| Total | 1,959,282 | 37,914 | 1.94 | 2,164,265 | 4,871 | 0.23 | 3,203,965 | 28,670 | 0.89 | |||||||||||||||||||||||||||
| Deposits in other banks | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 68,990 | 2,821 | 4.09 | 111,006 | 5,733 | 5.16 | 54,525 | 1,135 | 2.08 | |||||||||||||||||||||||||||
| Foreign Currency | 778,822 | 34,531 | 4.43 | 920,030 | 5,314 | 0.58 | 855,555 | 2,532 | 0.30 | |||||||||||||||||||||||||||
| Total | 847,812 | 37,352 | 4.41 | 1,031,036 | 11,047 | 1.07 | 910,080 | 3,667 | 0.40 | |||||||||||||||||||||||||||
| Investment securities | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 2,453,796 | 187,156 | 7.63 | 1,536,677 | 38,313 | 2.49 | 2,212,177 | 64,732 | 2.93 | |||||||||||||||||||||||||||
| Foreign Currency | 3,355,232 | 110,865 | 3.30 | 3,288,724 | 148,316 | 4.51 | 3,277,308 | 132,063 | 4.03 | |||||||||||||||||||||||||||
| Total | 5,809,028 | 298,021 | 5.13 | 4,825,401 | 186,629 | 3.87 | 5,489,485 | 196,795 | 3.58 | |||||||||||||||||||||||||||
| Total loans (1) | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 2,987,721 | 400,394 | 13.40 | 3,893,475 | 537,357 | 13.80 | 4,957,672 | 698,995 | 14.10 | |||||||||||||||||||||||||||
| Foreign Currency | 6,533,987 | 563,546 | 8.62 | 6,810,072 | 524,689 | 7.70 | 7,965,572 | 519,733 | 6.52 | |||||||||||||||||||||||||||
| Total | 9,521,708 | 963,940 | 10.12 | 10,703,547 | 1,062,046 | 9.92 | 12,923,244 | 1,218,728 | 9.43 | |||||||||||||||||||||||||||
| Total dividend-earning assets | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 174,356 | 6,672 | 3.83 | 160,185 | 2,057 | 1.28 | 228,216 | 6,809 | 2.98 | |||||||||||||||||||||||||||
| Foreign Currency | 107,567 | 5,517 | 5.13 | 114,074 | 7,658 | 6.71 | 208,061 | 4,805 | 2.31 | |||||||||||||||||||||||||||
| Total | 281,923 | 12,189 | 4.32 | 274,259 | 9,715 | 3.54 | 436,277 | 11,614 | 2.66 | |||||||||||||||||||||||||||
| Total interest-earning assets | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 5,906,348 | 607,098 | 10.28 | 5,766,213 | 584,885 | 10.14 | 8,508,979 | 797,022 | 9.37 | |||||||||||||||||||||||||||
| Foreign Currency | 12,513,405 | 742,318 | 5.93 | 13,232,295 | 689,423 | 5.21 | 14,454,072 | 662,452 | 4.58 | |||||||||||||||||||||||||||
| Total | 18,419,753 | 1,349,416 | 7.33 | 18,998,508 | 1,274,308 | 6.71 | 22,963,051 | 1,459,474 | 6.36 | |||||||||||||||||||||||||||
Noninterest-earning assets: | ||||||||||||||||||||||||||||||||||||
| Cash and due from banks | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 308,321 | 327,127 | 362,846 | |||||||||||||||||||||||||||||||||
| Foreign Currency | 259,761 | 275,276 | 317,649 | |||||||||||||||||||||||||||||||||
| Total | 568,082 | 602,403 | 680,495 | |||||||||||||||||||||||||||||||||
| Reserves for loan losses | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles | (68,072 | ) | (133,303 | ) | (211,053 | ) | ||||||||||||||||||||||||||||||
| Foreign Currency | (156,850 | ) | (156,364 | ) | (184,307 | ) | ||||||||||||||||||||||||||||||
| Total | (224,922 | ) | (289,667 | ) | (395,360 | ) | ||||||||||||||||||||||||||||||
| Premises and equipment | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 269,221 | 303,170 | 338,446 | |||||||||||||||||||||||||||||||||
| Foreign Currency | 26,805 | 19,242 | 15,518 | |||||||||||||||||||||||||||||||||
| Total | 296,026 | 322,412 | 353,964 | |||||||||||||||||||||||||||||||||
| Other non-interest-earning assets and gain from derivatives instruments and other interest income | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 527,364 | 1,193 | 820,740 | 12,728 | 1,068,836 | 3,532 | ||||||||||||||||||||||||||||||
| Foreign Currency | 747,978 | 32,235 | 814,175 | 25,889 | 698,261 | 8,702 | ||||||||||||||||||||||||||||||
| Total | 1,275,342 | 33,428 | 1,634,915 | 38,617 | 1,767,097 | 12,234 | ||||||||||||||||||||||||||||||
| Total non-interest-earning assets | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 1,036,834 | 1,193 | 1,317,734 | 12,728 | 1,559,075 | 3,532 | ||||||||||||||||||||||||||||||
| Foreign Currency | 877,694 | 32,235 | 952,329 | 25,889 | 847,121 | 8,702 | ||||||||||||||||||||||||||||||
| Total | 1,914,528 | 33,428 | 2,270,063 | 38,617 | 2,406,196 | 12,234 | ||||||||||||||||||||||||||||||
| Total average assets | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 6,943,182 | 608,291 | 8.76 | 7,083,947 | 597,613 | 8.44 | 10,068,054 | 800,554 | 7.95 | |||||||||||||||||||||||||||
| Foreign Currency | 13,391,099 | 774,553 | 5.78 | 14,184,624 | 715,312 | 5.04 | 15,301,193 | 671,154 | 4.39 | |||||||||||||||||||||||||||
| Total | 20,334,281 | 1,382,844 | 6.80 | 21,268,571 | 1,312,925 | 6.17 | 25,369,247 | 1,471,708 | 5.80 | |||||||||||||||||||||||||||
| 2007/2006 | 2008/2007 | |||||||||||||||||||||||
| Increase/(Decrease) due to changes in: | Increase/(Decrease) due to changes in: | |||||||||||||||||||||||
| Volume | Rate | Net Change | Volume | Rate | Net Change | |||||||||||||||||||
| (U.S. Dollars in thousands) | ||||||||||||||||||||||||
| Interest Income: | ||||||||||||||||||||||||
| Interest-earning deposits in Central Bank | ||||||||||||||||||||||||
| Nuevos Soles | 38 | 144 | 182 | 4,194 | 5,522 | 9,716 | ||||||||||||||||||
| Foreign Currency | (10,998 | ) | 767 | (10,231 | ) | 10,329 | (29,052 | ) | (18,723 | ) | ||||||||||||||
| Total | (10,960 | ) | 911 | (10,049 | ) | 14,523 | (23,530 | ) | (9,007 | ) | ||||||||||||||
| Deposits in other banks | ||||||||||||||||||||||||
| Nuevos Soles | (538 | ) | - | (538 | ) | 1,560 | 37 | 1,597 | ||||||||||||||||
| Foreign Currency | 14,371 | 8,147 | 22,518 | (12,873 | ) | (14,403 | ) | (27,276 | ) | |||||||||||||||
| Total | 13,833 | 8,147 | 21,980 | (11,313 | ) | (14,366 | ) | (25,679 | ) | |||||||||||||||
| Investment securities | ||||||||||||||||||||||||
| Nuevos Soles | 57,053 | 31,059 | 88,112 | 22,418 | 32,541 | 54,959 | ||||||||||||||||||
| Foreign Currency | 29,241 | (21,296 | ) | 7,945 | 53,786 | (36,655 | ) | 17,131 | ||||||||||||||||
| Total | 86,294 | 9,763 | 96,057 | 76,204 | (4,114 | ) | 72,090 | |||||||||||||||||
Total loans(1) | ||||||||||||||||||||||||
| Nuevos Soles | 86,585 | (2,652 | ) | 83,933 | 141,243 | (3,250 | ) | 137,993 | ||||||||||||||||
| Foreign Currency | 87,245 | (7,377 | ) | 79,868 | 123,302 | 1,174 | 124,476 | |||||||||||||||||
| Total | 173,830 | (10,029 | ) | 163,801 | 264,545 | (2,076 | ) | 262,469 | ||||||||||||||||
| Total dividend-earning assets | ||||||||||||||||||||||||
| Nuevos Soles | 4,974 | (5,141 | ) | (167 | ) | (1,137 | ) | 1,805 | 668 | |||||||||||||||
| Foreign Currency | 251 | (142 | ) | 109 | (280 | ) | 2,743 | 2,463 | ||||||||||||||||
| Total | 5,225 | (5,283 | ) | (58 | ) | (1,417 | ) | 4,548 | 3,131 | |||||||||||||||
| Total interest-earning assets | ||||||||||||||||||||||||
| Nuevos Soles | 176,829 | (5,307 | ) | 171,522 | 150,441 | 54,492 | 204,933 | |||||||||||||||||
| Foreign Currency | 97,662 | 2,547 | 100,209 | 179,191 | (81,120 | ) | 98,071 | |||||||||||||||||
| Total | 274,491 | (2,760 | ) | 271,731 | 329,632 | (26,628 | ) | 303,004 | ||||||||||||||||
| Interest Expense: | ||||||||||||||||||||||||
| Demand deposits | ||||||||||||||||||||||||
| Nuevos Soles | 3,815 | 315 | 4,130 | 6,441 | 3,784 | 10,225 | ||||||||||||||||||
| Foreign Currency | 7,419 | (11,207 | ) | (3,788 | ) | 2,219 | 518 | 2,737 | ||||||||||||||||
| Total | 11,234 | (10,892 | ) | 342 | 8,660 | 4,302 | 12,962 | |||||||||||||||||
| Savings deposits | ||||||||||||||||||||||||
| Nuevos Soles | 1,827 | 1,806 | 3,633 | 5,183 | (222 | ) | 4,961 | |||||||||||||||||
| Foreign Currency | 1,006 | 2,394 | 3,400 | 1,328 | 1,007 | 2,335 | ||||||||||||||||||
| Total | 2,833 | 4,200 | 7,033 | 6,511 | 785 | 7,296 | ||||||||||||||||||
| Time deposits | ||||||||||||||||||||||||
| Nuevos Soles | 37,327 | 9,198 | 46,525 | 70,079 | 3,312 | 73,391 | ||||||||||||||||||
| Foreign Currency | 22,056 | 34,341 | 56,397 | 1,348 | (27,370 | ) | (26,022 | ) | ||||||||||||||||
| Total | 59,383 | 43,539 | 102,922 | 71,427 | (24,058 | ) | 47,369 |
| Due to banks and correspondents and issued bonds | ||||||||||||||||||||||||
| Nuevos Soles | (2,146 | ) | 2,605 | 459 | 1,455 | 1,275 | 2,730 | |||||||||||||||||
| Foreign Currency | 19,783 | 25,920 | 45,703 | 50,720 | (31,702 | ) | 19,018 | |||||||||||||||||
| Total | 17,637 | 28,525 | 46,162 | 52,175 | (30,427 | ) | 21,748 | |||||||||||||||||
| Bonds | ||||||||||||||||||||||||
| Nuevos Soles | 3,504 | (1,591 | ) | 1,913 | 17,107 | 803 | 17,910 | |||||||||||||||||
| Foreign Currency | 2,365 | 4,031 | 6,396 | (2,835 | ) | 3,089 | 254 | |||||||||||||||||
| Total | 5,869 | 2,440 | 8,309 | 14,272 | 3,892 | 18,164 | ||||||||||||||||||
| Total interest-bearing liabilities | ||||||||||||||||||||||||
| Nuevos Soles | 33,635 | 23,025 | 56,660 | 85,484 | 23,733 | 109,217 | ||||||||||||||||||
| Foreign Currency | 55,360 | 52,748 | 108,108 | 49,489 | (51,167 | ) | (1,678 | ) | ||||||||||||||||
| Total | 88,995 | 75,773 | 164,768 | 134,973 | (27,434 | ) | 107,539 |
| (1) | Figures for total loans include past-due loans, but do not include accrued but unpaid interest on such past-due loans in the year in which such loans became past due. Accrued interest is included. |
53
Average Balance Sheets
Liabilities, Interest Paid and Average Interest Rates
| Year ended December 31, | ||||||||||||||||||||||||||||||||||||
| 2007 | 2008 | 2009 | ||||||||||||||||||||||||||||||||||
| LIABILITIES | Average Balance | Interest Paid | Nominal Avg. Rate | Average Balance | Interest Paid | Nominal Avg. Rate | Average Balance | Interest Paid | Nominal Avg. Rate | |||||||||||||||||||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||
| Demand deposits | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles (1) | US$ | 1,685,905 | US$ | 22,986 | 1.36 | % | US$ | 1,723,108 | US$ | 15,378 | 0.89 | % | US$ | 2,251,493 | US$ | 9,147 | 0.41 | % | ||||||||||||||||||
| Foreign Currency (1) | 2,603,193 | 15,099 | 0.58 | 2,685,555 | 6,036 | 0.22 | 3,018,053 | 4,510 | 0.15 | |||||||||||||||||||||||||||
| Total | 4,289,098 | 38,085 | 0.89 | 4,408,663 | 21,414 | 0.49 | 5,269,546 | 13,657 | 0.26 | |||||||||||||||||||||||||||
| Savings deposits | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles (1) | 1,143,032 | 13,511 | 1.18 | 1,283,529 | 8,610 | 0.67 | 1,719,869 | 4,092 | 0.67 | |||||||||||||||||||||||||||
| Foreign Currency (1) | 1,560,084 | 13,654 | 0.88 | 1,952,183 | 9,899 | 0.51 | 2,104,084 | 4,733 | 0.24 | |||||||||||||||||||||||||||
| Total | 2,703,116 | 27,165 | 1.00 | 3,235,712 | 18,509 | 0.57 | 3,823,953 | 8,826 | 0.23 | |||||||||||||||||||||||||||
| Time deposits | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles (1) | 2,659,712 | 156,137 | 5.87 | 1,988,784 | 86,312 | 4.34 | 2,875,041 | 69,261 | 2.41 | |||||||||||||||||||||||||||
| Foreign Currency (1) | 3,640,246 | 154,719 | 4.25 | 4,191,628 | 119,806 | 2.86 | 3,980,385 | 84,654 | 2.13 | |||||||||||||||||||||||||||
| Total | 6,299,958 | 310,856 | 4.93 | 6,180,412 | 206,118 | 3.34 | 6,855,426 | 153,916 | 2.25 | |||||||||||||||||||||||||||
| Due to banks and correspondents | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 190,227 | 8,763 | 4.61 | 201,718 | 4,851 | 2.40 | 201,360 | 11,973 | 5.95 | |||||||||||||||||||||||||||
| Foreign Currency | 1,366,553 | 57,729 | 4.22 | 849,004 | 22,477 | 2.65 | 1,630,662 | 31,559 | 1.94 | |||||||||||||||||||||||||||
| Total | 1,556,780 | 66,492 | 4.27 | 1,050,722 | 27,328 | 2.60 | 1,832,022 | 43,532 | 2.38 | |||||||||||||||||||||||||||
| Bonds | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 468,265 | 30,864 | 6.59 | 528,565 | 35,133 | 6.65 | 576,907 | 34,451 | 5.97 | |||||||||||||||||||||||||||
| Foreign Currency | 1,269,327 | 59,219 | 4.67 | 1,572,566 | 56,186 | 3.57 | 1,994,668 | 89,860 | 4.51 | |||||||||||||||||||||||||||
| Total | 1,737,592 | 90,083 | 5.18 | 2,101,131 | 91,319 | 4.35 | 2,571,575 | 124,311 | 4.83 | |||||||||||||||||||||||||||
| Total interest-bearing liabilities | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 6,147,141 | 232,261 | 3.78 | 5,725,704 | 150,284 | 2.62 | 7,624,670 | 128,925 | 1.69 | |||||||||||||||||||||||||||
| Foreign Currency | 10,439,403 | 300,419 | 2.88 | 11,250,936 | 214,404 | 1.91 | 12,727,852 | 215,317 | 1.69 | |||||||||||||||||||||||||||
| Total | 16,586,544 | 532,680 | 3.21 | 16,976,640 | 364,688 | 2.15 | 20,352,522 | 344,242 | 1.69 | |||||||||||||||||||||||||||
| Non-interest-bearing liabilities and net equity: | ||||||||||||||||||||||||||||||||||||
| Other liabilities and loss from derivatives instruments and other interest expenses | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 489,502 | 20,850 | 676,295 | (11,177 | ) | 761,986 | 1,859 | ) | ||||||||||||||||||||||||||||
| Foreign Currency | 1,363,623 | 8,087 | 1,489,528 | 67,053 | 1,401,822 | 68,020 | ||||||||||||||||||||||||||||||
| Total | 1,853,125 | 28,937 | 2,165,823 | 55,876 | 2,163,808 | 69,879 | ||||||||||||||||||||||||||||||
| Equity attributable to Credicorp equity holders | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles | ||||||||||||||||||||||||||||||||||||
| Foreign Currency | 1,770,400 | 1,980,856 | 2,688,367 | |||||||||||||||||||||||||||||||||
| Total | 1,770,400 | 1,980,856 | 2,688,367 | |||||||||||||||||||||||||||||||||
| Minority Interest | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles | ||||||||||||||||||||||||||||||||||||
| Foreign Currency | 124,212 | 145,252 | 164,550 | |||||||||||||||||||||||||||||||||
| Total | 124,212 | 145,252 | 164,550 | |||||||||||||||||||||||||||||||||
| Total non-interest-bearing liabilities and equity | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 489,502 | 20,850 | 676,295 | (11,177 | ) | 761,986 | 1,859 | |||||||||||||||||||||||||||||
| Foreign Currency | 3,258,235 | 8,087 | 3,615,636 | 67,053 | 4,254,739 | 68,020 | ||||||||||||||||||||||||||||||
| Total | 3,747,737 | 28,937 | 4,291,931 | 55,876 | 5,016,725 | 69,879 | ||||||||||||||||||||||||||||||
| Total average liabilities and equity | ||||||||||||||||||||||||||||||||||||
| Nuevos Soles | 6,636,643 | 253,111 | 3.81 | 6,401,999 | 139,107 | 2.17 | 8,386,656 | 130,784 | 1.56 | |||||||||||||||||||||||||||
| Foreign Currency | 13,697,638 | 308,506 | 2.25 | 14,866,572 | 281,457 | 1.89 | 16,982,591 | 283,337 | 1.67 | |||||||||||||||||||||||||||
| Total | 20,334,281 | 561,617 | 2.76 | 21,268,571 | 420,564 | 1.98 | 25,369,247 | 414,121 | 1.63 | |||||||||||||||||||||||||||
| (1) | Includes the amount paid - for the deposit insurance fund. |
54
Changes in Net Interest Income and Expense: Volume and Rate Analysis
| 2009/2008 | 2010/2009 | ||||||||||||
| Increase/(Decrease) due to changes in: | Increase/(Decrease) due to changes in: | ||||||||||||
| Volume | Rate | Net Change | Volume | Rate | Net Change | ||||||||
| (U.S. Dollars in thousands) | |||||||||||||
| Interest Income: | |||||||||||||
| Interest-earning deposits in Central Bank | |||||||||||||
| Nuevos Soles | (7,110) | (1,520) | (8,630) | 21,781 | 2,145 | 23,926 | |||||||
| Foreign Currency | 5,797 | (30,210) | (24,413) | 79 | (206) | (127) | |||||||
| Total | (1,313) | (31,730) | (33,043) | 21,860 | 1,939 | 23,799 | |||||||
| Deposits in other banks | |||||||||||||
| Nuevos Soles | 1,718 | 1,194 | 2,912 | (2,917) | (1,681) | (4,598) | |||||||
| Foreign Currency | 6,261 | (35,478) | (29,217) | (372) | (2,410) | (2,782) | |||||||
| Total | 7,979 | (34,284) | (26,305) | (3,289) | (4,091) | (7,380) | |||||||
| Investment securities | |||||||||||||
| Nuevos Soles | (69,951) | (78,892) | (148,843) | 16,842 | 9,577 | 26,419 | |||||||
| Foreign Currency | (2,198) | 39,649 | 37,451 | (515) | (15,738) | (16,253) | |||||||
| Total | (72,149) | (39,243) | (111,392) | 16,327 | (6,161) | 10,166 | |||||||
Total loans(1) | |||||||||||||
| Nuevos Soles | 121,383 | 15,580 | 136,963 | 146,875 | 14,763 | 161,638 | |||||||
| Foreign Currency | 23,812 | (62,669) | (38,857) | 89,027 | (93,983) | (4,956) | |||||||
| Total | 145,195 | (47,089) | 98,106 | 235,902 | (79,220) | 156,682 | |||||||
| Total dividend-earning assets | |||||||||||||
| Nuevos Soles | (542) | (4,073) | (4,615) | 874 | 3,878) | 4,752 | |||||||
| Foreign Currency | 334 | 1,807 | 2,141 | 6,310 | (9,163) | (2,853) | |||||||
| Total | (208) | (2,266) | (2,474) | 7,184 | (5,285) | 1,899 | |||||||
| Total interest-earning assets | |||||||||||||
| Nuevos Soles | (14,404) | (7,809) | (22,213) | 278,207 | (66,070) | 212,137 | |||||||
| Foreign Currency | 42,646 | (95,541) | (52,895) | 63,656 | (90,627) | (26,971) | |||||||
| Total | 28,242 | (103,350) | (75,108) | 341,863 | (156,697) | 185,166 | |||||||
| Interest Expense: | |||||||||||||
| Demand deposits | |||||||||||||
| Nuevos Soles | 508 | (8,116) | (7,608) | 4,716 | (10,946) | (6,230) | |||||||
| Foreign Currency | 477 | (9,540) | (9,063) | 747 | (2,273) | (1,526) | |||||||
| Total | 985 | (17,656) | (16,671) | 5,463 | (13,219) | (7,756) | |||||||
| Savings deposits | |||||||||||||
| Nuevos Soles | 1,660 | (6,561) | (4,901) | 2,927 | (7,445) | (4,518) | |||||||
| Foreign Currency | 3,432 | (7,187) | (3,755) | 770 | (5,936) | (5,166) | |||||||
| Total | 5,092 | (13,748) | (8,656) | 3,697 | (13,381) | (9,684) | |||||||
| Time deposits | |||||||||||||
| Nuevos Soles | (39,387) | (30,438) | (69,825) | 38,464 | (55,515) | (17,051) | |||||||
| Foreign Currency | 23,435 | (58,349) | (34,914) | (6,038) | (29,113) | (35,151) | |||||||
| Total | (15,952) | (88,787) | (104,739) | 32,426 | (84,628) | (52,202) | |||||||
| Due to banks and correspondents and issued bonds | |||||||||||||
| Nuevos Soles | 529 | (4,441) | (3,912) | (9) | 7,131 | 7,122 | |||||||
| Foreign Currency | (21,863) | (13,389) | (35,252) | 20,694 | (11,612) | 9,082 | |||||||
| Total | (21,334) | (17,830) | (39,164) | 20,685 | (4,481) | 16,204 | |||||||
| Bonds | |||||||||||||
| Nuevos Soles | 3,974 | 295 | 4,269 | 3,213 | (3,895) | (682) | |||||||
| Foreign Currency | 14,147 | (17,180) | (3,033) | 15,081 | 18,593) | 33,674 | |||||||
| Total | 18,121 | (16,885) | 1,236 | 18,294 | 14,698 | 32,992 | |||||||
| Total interest-bearing liabilities | |||||||||||||
| Nuevos Soles | (15,924) | (66,053) | (81,977) | 49,842 | (71,202) | (21,360) | |||||||
| Foreign Currency | 23,354 | (109,369) | (86,015) | 28,145 | (27,232) | 913 | |||||||
| Total | 7,430 | (175,422) | (167,992) | 77,987 | (98,434) | (20,447) | |||||||
| (1) | Figures for total loans include past-due loans, but do not include accrued but unpaid interest on such past-due loans in the year in which such loans became past due. Accrued interest is included. |
55
Interest-Earning Assets, Net Interest Margin and Yield Spread
The following table shows for each of the periods indicated, by currency, the levels of average interest-earning assets, net interest income, gross yield, net interest margin and yield spread, all on a nominal basis:
| Year ended December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||
| Average interest-earning assets | ||||||||||||
| Nuevos Soles | 5,906,348 | 5,766,213 | 8,508,979 | |||||||||
| Foreign Currency | 12,513,405 | 13,232,295 | 14,454,072 | |||||||||
| Total | 18,419,753 | 18,998,508 | 22,963,051 | |||||||||
| Net interest income | ||||||||||||
| Nuevos Soles | 374,837 | 434,601 | 668,097 | |||||||||
| Foreign Currency | 441,899 | 475,019 | 447,135 | |||||||||
| Total | 816,736 | 909,620 | 1,155,232 | |||||||||
| Gross yield (1) | ||||||||||||
| Nuevos Soles | 10.28 | % | 10.14 | % | 9.37 | % | ||||||
| Foreign Currency | 5.93 | % | 5.21 | % | 4.58 | % | ||||||
| Weighted-average rate | 7.33 | % | 6.71 | % | 6.36 | % | ||||||
| Net interest margin (2) | ||||||||||||
| Nuevos Soles | 6.35 | % | 7.54 | % | 7.85 | % | ||||||
| Foreign Currency | 3.53 | % | 3.59 | % | 3.09 | % | ||||||
| Weighted-average rate | 4.43 | % | 4.79 | % | 4.86 | % | ||||||
| Yield spread (3) | ||||||||||||
| Nuevos Soles | 6.50 | % | 7.52 | % | 7.68 | % | ||||||
| Foreign Currency | 3.05 | % | 3.30 | % | 2.89 | % | ||||||
| Weighted-average rate | 4.11 | % | 4.56 | % | 4.66 | % | ||||||
| Year ended December 31, | ||||||||||||
| 2006 | 2007 | 2008 | ||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||
| Average interest-earning assets | ||||||||||||
| Nuevos Soles | 2,468,974 | 4,315,200 | 5,906,348 | |||||||||
| Foreign Currency | 8,279,132 | 9,776,665 | 12,513,405 | |||||||||
| Total | 10,748,106 | 14,091,865 | 18,419,753 | |||||||||
| Net interest income | ||||||||||||
| Nuevos Soles | 170,091 | 284,953 | 380,669 | |||||||||
| Foreign Currency | 345,939 | 338,040 | 437,789 | |||||||||
| Total | 516,030 | 622,993 | 818,458 | |||||||||
| Gross yield (1) | ||||||||||||
| Nuevos Soles | 9.58 | % | 9.45 | % | 10.38 | % | ||||||
| Foreign Currency | 6.52 | % | 6.55 | % | 5.90 | % | ||||||
| Weighted-average rate | 7.22 | % | 7.44 | % | 7.34 | % | ||||||
| Net interest margin (2) | ||||||||||||
| Nuevos Soles | 6.89 | % | 6.60 | % | 6.45 | % | ||||||
| Foreign Currency | 4.18 | % | 3.46 | % | 3.50 | % | ||||||
| Weighted-average rate | 4.80 | % | 4.42 | % | 4.44 | % | ||||||
| Yield spread (3) | ||||||||||||
| Nuevos Soles | 6.82 | % | 6.06 | % | 6.60 | % | ||||||
| Foreign Currency | 3.74 | % | 3.18 | % | 3.02 | % | ||||||
| Weighted-average rate | 4.45 | % | 4.06 | % | 4.12 | % | ||||||
| (1) | Gross yield is interest income divided by average interest-earning assets. |
| (2) | Net interest margin represents net interest income divided by average interest-earning assets. |
| (3) | Yield spread, on a nominal basis, represents the difference between gross yield on average interest-earning assets and average cost of interest-bearing liabilities. |
56
Interest-Earning Deposits With Other Banks
The following table shows the short-term funds deposited with other banks. These deposits broken downare denominated by currency as of the dates indicated. Deposits held in countries other than Peru are denominated in several currencies; however, the substantial majority of these deposits are denominated in U.S. Dollars. These currencies were converted to U.S. Dollars using the applicable SBS exchange rate as of the date of relevant balance.
dates indicated.
| Year ended December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
| (U.S. Dollars in thousands) | ||||||||||||
| Nuevo Sol-denominated: | ||||||||||||
| Peruvian Central Bank | US$ | - | US$ | 56,753 | US$ | 3,649,809 | ||||||
| Commercial banks | 36,184 | 43,982 | 82,970 | |||||||||
| Total Nuevo Sol-denominated | US$ | 36,184 | US$ | 100,735 | US$ | 3,732,779 | ||||||
| Foreign Currency-denominated: | ||||||||||||
| Peruvian Central Bank (U.S. Dollars) | US$ | 1,601,574 | US$ | 2,033,290 | US$ | 2,094,251 | ||||||
| U.S. Dollars, other | 1,030,665 | 763,631 | 1,131,102 | |||||||||
| Other | 40,332 | 516 | 346 | |||||||||
| Total Foreign Currency-denominated | US$ | 2,672,571 | US$ | 2,797,437 | US$ | 3,225,669 | ||||||
| Total | US$ | 2,708,755 | US$ | 2,898,172 | US$ | 6,958,478 | ||||||
| Year ended December 31, | ||||||||||||
| 2006 | 2007 | 2008 | ||||||||||
| (U.S. Dollars in thousands) | ||||||||||||
| Nuevo Sol-denominated: | ||||||||||||
| Peruvian Central Bank | US$ | 37,547 | US$ | - | US$ | 1,601,574 | ||||||
| Commercial banks | 55,819 | 41,826 | 36,184 | |||||||||
| Total Nuevo Sol-denominated | US$ | 93,366 | US$ | 41,826 | US$ | 1,637,758 | ||||||
| Foreign Currency-denominated: | ||||||||||||
| Peruvian Central Bank (U.S. Dollars) | US$ | 1,105,921 | US$ | 1,000,000 | US$ | - | ||||||
| U.S. Dollars, other | 739,028 | 1,360,649 | 1,030,665 | |||||||||
| Other | 55,506 | 50,472 | 40,332 | |||||||||
| Total Foreign Currency-denominated | US$ | 1,900,455 | US$ | 2,411,121 | US$ | 1,070,997 | ||||||
| Total | US$ | 1,993,821 | US$ | 2,452,947 | US$ | 2,708,755 | ||||||
| (ii) | Investment Portfolio |
The following table shows the fair value of our trading and available-for-sale investment securities designated by type of security at the dates indicated (see Note 5 to the Credicorp Consolidated Financial Statements):
| On December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
| (U.S. Dollars in thousands) | ||||||||||||
| Nuevo Sol-denominated: | ||||||||||||
| Peruvian government bonds | US$ | 244,037 | US$ | 170,811 | US$ | 275,685 | ||||||
| Equity securities | 119,481 | 199,410 | 230,921 | |||||||||
| Bonds | 115,232 | 150,917 | 210,392 | |||||||||
| Peruvian Central Bank certif. notes | 1,138,214 | 1,548,715 | 363,850 | |||||||||
| Other investments | 117,766 | 149,591 | 158,241 | |||||||||
| Total Nuevo Sol-denominated | 1,734,730 | 2,219,444 | 1,239,089 | |||||||||
| Foreign Currency-denominated: | ||||||||||||
| Equity securities | US$ | 93,208 | US$ | 131,327 | US$ | 299,245 | ||||||
| Bonds | 1,030,151 | 1,634,708 | 1,640,380 | |||||||||
| Investment in Peruvian Government Bonds | 562,438 | 669,056 | 299,666 | |||||||||
| Peruvian Central Bank certif. notes | 1,070,728 | - | - | |||||||||
| Other investment | 452,347 | 443,493 | 353,615 | |||||||||
| Total Foreign Currency-denominated | US$ | 3,208,872 | US$ | 2,878,584 | US$ | 2,592,906 | ||||||
| Total securities holdings: | US$ | 4,943,602 | US$ | 5,098,028 | US$ | 3,831,995 | ||||||
| On December 31, | ||||||||||||
| 2006 | 2007 | 2008 | ||||||||||
| (U.S. Dollars in Thousands) | ||||||||||||
| Nuevo Sol-denominated: | ||||||||||||
| Peruvian government bonds | US$ | 156,890 | US$ | 274,391 | US$ | 244,037 | ||||||
| Equity securities | 148,333 | 227,751 | 120,966 | |||||||||
| Bonds | 74,010 | 110,916 | 115,232 | |||||||||
| Peruvian Central Bank certif. notes | 1,277,613 | 2,407,005 | 1,138,214 | |||||||||
| Other investments | 264,112 | 132,788 | 117,642 | |||||||||
| Total Nuevo Sol-denominated | 1,920,958 | 3,152,851 | 1,736,091 | |||||||||
| Foreign Currency-denominated: | ||||||||||||
| Equity securities | US$ | 102,543 | US$ | 118,313 | US$ | 96,820 | ||||||
| Bonds | 1,114,211 | 1,198,073 | 1,032,482 | |||||||||
| Investment in Peruvian Government Bonds | 268,235 | 362,603 | 563,014 | |||||||||
| Peruvian Central Bank certif. notes | - | - | 1,070,728 | |||||||||
| Other investment | 61,634 | 406,262 | 452,444 | |||||||||
| Total Foreign Currency-denominated | US$ | 1,546,623 | US$ | 2,085,251 | US$ | 3,215,488 | ||||||
| Total securities holdings: | US$ | 3,467,581 | US$ | 5,238,102 | US$ | 4,951,579 | ||||||
The allowance for decline in value of marketable securities is debited from the value of each individual security.
57
The weighted-average yield on our Nuevo Sol-denominated interest-earning investment securities was 5.1%7.6% in 2006, 6.5%2008, 2.5% in 20072009 and 7.9%1.9% in 2008.2010. The weighted-average yield on our foreign currency-denominated portfolio was 5.4% in 2006, 4.4% 2007 and 3.3% in 2008.2008, 4.5% in 2009 and 4.0% in 2010. The total weighted-average yield of our investment securities was 5.3%5.1% in 2006, 5.4%2008, 3.9% in 20072009 and 5.2%3.6% in 2008.2010.
The weighted-average yield on our Nuevo Sol-denominated dividend-earning assets was 5.2% in 2006, 2.8% in 2007 and 3.8% in 2008.2008, 1.3% in 2009 and 3.0% in 2010. The weighted-average yield on our foreign currency-denominated portfolio was 2.7%5.1% in 2006, 2.6%2008, 6.7% in 20072009 and 5.2%2.3% in 2008.2010. The total weighted-average yield of our dividend-earning assets was 4.0%4.3% in 2006,2008, 3.5% in 2009 and 2.7% in 2007 and 4.3% in 2008.2010.
The following table shows the maturities of our trading and available-for-sale investment securities designated by type of security on December 31, 2008:2010:
Within 1 year | After 1 year but within 3 years | Maturing After 3 years but within 5 years | Maturing After 5 years but within 10 years | After 10 years | Total | |||||||||||||||||||
| (U.S. Dollars in thousands) | ||||||||||||||||||||||||
Nuevo Sol-denominated: (1) | ||||||||||||||||||||||||
| Peruvian government bonds | US$ | 68,038 | US$ | 4,879 | US$ | 19,828 | US$ | 56,648 | US$ | 126,2925 | US$ | 275,685 | ||||||||||||
| Equity securities (1) | 230,921 | - | - | - | - | 230,921 | ||||||||||||||||||
| Bonds and debentures | 16,950 | 31,882 | 36,043 | 64,171 | 61,346 | 210,392 | ||||||||||||||||||
| Peruvian Central Bank certif. notes | 363,850 | - | - | - | - | 363,850 | ||||||||||||||||||
| Other investments | 124,894 | 2,674 | 7,489 | 4,320 | 18,864 | 158,241 | ||||||||||||||||||
| Total Nuevo Sol-denominated | US$ | 804,653 | US$ | 39,435 | US$ | 63,360 | US$ | 125,139 | US$ | 206,502 | US$ | 1,239,089 | ||||||||||||
Foreign Currency-denominated: (1) | ||||||||||||||||||||||||
| Peruvian government bonds | 23,358 | 10,609 | 15,047 | 52,286 | 198,366 | 299,666 | ||||||||||||||||||
| Equity securities (1) | 299,245 | - | - | - | - | 299,245 | ||||||||||||||||||
| Bonds | 179,070 | 416,881 | 350,060 | 305,339 | 389,030 | 1,640,380 | ||||||||||||||||||
| Peruvian Central Bank certif. notes | - | - | - | - | - | - | ||||||||||||||||||
| Other investments | 247,616 | 4,684 | 11,757 | 33,658 | 55,900 | 353,615 | ||||||||||||||||||
| Total Foreign Currency-denominated | US$ | 749,289 | US$ | 432,174 | US$ | 376,864 | US$ | 391,283 | US$ | 643,296 | US$ | 2,592,906 | ||||||||||||
| Total securities holdings: | US$ | 1,553,942 | US$ | 471,606 | US$ | 440,224 | US$ | 516,422 | US$ | 849,798 | US$ | 3,831,995 | ||||||||||||
| Weighted-average yield | 3.10 | % | ||||||||||||||||||||||
Within 1 year | After 1 year but within 3 years | Maturing after 3 years but within 5 years | Maturing after 5 years but within 10 years | After 10 years | Total | |||||||||||||||||||
| (U.S. Dollars in thousands) | ||||||||||||||||||||||||
Nuevo Sol-denominated: (1) | ||||||||||||||||||||||||
| Peruvian government bonds | US$ | 2,007 | US$ | 43,077 | US$ | 4,130 | US$ | 96,939 | US$ | 97,884 | US$ | 244,037 | ||||||||||||
| Equity securities (1) | 120,966 | - | - | - | - | 120,966 | ||||||||||||||||||
| Bonds and debentures | 13,487 | 15,025 | 7,764 | 20,305 | 58,651 | 115,232 | ||||||||||||||||||
| Peruvian Central Bank certif. notes | 1,127,130 | 11,084 | - | - | - | 1,138,214 | ||||||||||||||||||
| Other investments | 88,010 | 5,039 | 2,332 | 15,512 | 6,749 | 117,642 | ||||||||||||||||||
| Total Nuevo Sol-denominated | US$ | 1,351,600 | US$ | 74,225 | US$ | 14,226 | US$ | 132,756 | US$ | 163,284 | US$ | 1,736,091 | ||||||||||||
Foreign Currency-denominated: (1) | ||||||||||||||||||||||||
| Peruvian government bonds | 9,868 | - | 102,838 | 304,620 | 145,688 | 563,014 | ||||||||||||||||||
| Equity securities | 96,820 | - | - | - | - | 96,820 | ||||||||||||||||||
| Bonds | 259,746 | 198,970 | 139,705 | 139,336 | 294,725 | 1,032,482 | ||||||||||||||||||
| Peruvian Central Bank certif. notes | 1,070,728 | - | - | - | - | 1,070,728 | ||||||||||||||||||
| Other investments | 434,714 | 6,787 | 2,109 | 5,272 | 3,562 | 452,444 | ||||||||||||||||||
| Total Foreign Currency-denominated | US$ | 1,871,876 | US$ | 205,757 | US$ | 244,652 | US$ | 449,228 | US$ | 443,975 | US$ | 3,215,488 | ||||||||||||
| Total securities holdings: | US$ | 3,223,476 | US$ | 279,982 | US$ | 258,878 | US$ | 581,984 | US$ | 607,259 | US$ | 4,951,579 | ||||||||||||
| Weighted-average yield | 4.66 | % | ||||||||||||||||||||||
| (1) | Equity securities in our account are categorized as maturing within one year. |
For equity investments (shares), our management has consideredconsiders the following criteria in determiningto determine whether a loss is temporary:
The length of time and the extent to which fair value has been below cost;
The severity of the impairment;
The cause of the impairment and the financial condition and near-term prospects of the issuer; and
Activity in the market of the issuer which may indicate adverse credit conditions.
For debt investments (fixed maturity), our management has consideredconsiders the following criteria in determiningto determine whether a loss is temporary:
Management assesses the probability that the company will receive all amounts due (principal and interest) under the contract of the security. It considers a number of factors in identifying a credit-impaired security, including: (i) the nature of the security and the underlying collateral, (ii) the amount of subordination or credit enhancement supporting the security, (iii) the published credit rating and (iv) other analyses of the probable cash flows from the security. If recovery of all amounts due is not likely, management may determine that credit impairment exists and record unrealized losses in our consolidated income statement. The unrealized loss recorded in income represents the security’s decline in fair value, which includes the decline due to forecasted cash flow shortfalls as well as widening market spread.
For securities with unrealized losses not identified as a credit impairment, management determines whether it is desirable to hold the security for a period of time to allow for a potential recovery in the security’s amortized cost. Management estimates a security’s forecasted recovery period using current estimates of volatility in market interest rates (including liquidity and risk premiums). Management considers a number of factors to determine whether to hold an investment, including (i) a quantitative estimate of the expected recovery period (which may extend to maturity), (ii) the severity of the impairment and (iii) its strategy with respect to the security or portfolio. If management determines it is not desirable to hold the security for a sufficient period of time to allow for a potential recovery in the security’s amortized cost, we record the unrealized loss in our consolidated income statement.
| (iii) | Loan Portfolio |
Loans by Type of Loan
The following table shows our loans by type of loan, at the dates indicated:
| On December 31, | On December 31, | |||||||||||||||||||||||||||||||||||||||
| 2004 | 2005 | 2006 | 2007 | 2008 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||||
| (U.S. Dollars in thousands) | (U.S. Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||
| Loans | US$ | 3,507,831 | US$ | 3,865,643 | US$ | 4,662,730 | US$ | 6,520,116 | US$ | 8,179,453 | US$ | 4,662,730 | US$ | 6,520,116 | US$ | 8,179,453 | US$ | 8,986,884 | US$ | 11,142,038 | ||||||||||||||||||||
| Leasing transactions | 424,902 | 564,575 | 675,804 | 1,118,301 | 1,792,827 | 675,804 | 1,118,301 | 1,792,827 | 1,997,562 | 2,359,236 | ||||||||||||||||||||||||||||||
| Discounted notes | 183,519 | 213,232 | 256,534 | 325,047 | 368,648 | 256,534 | 325,047 | 368,648 | 349,126 | 477,709 | ||||||||||||||||||||||||||||||
| Factoring | 58,116 | 87,757 | 89,171 | 109,928 | 124,537 | 89,171 | 109,928 | 124,537 | 163,443 | 250,974 | ||||||||||||||||||||||||||||||
| Advances and overdrafts | 48,506 | 49,283 | 84,262 | 127,486 | 102,687 | 84,262 | 127,486 | 102,687 | 47,147 | 104,495 | ||||||||||||||||||||||||||||||
| Refinanced loans | 243,892 | 175,211 | 126,006 | 88,451 | 55,179 | 126,006 | 88,451 | 55,179 | 59,459 | 76,707 | ||||||||||||||||||||||||||||||
| Past-due loans | 159,057 | 95,769 | 76,770 | 61,488 | 82,867 | 76,770 | 61,488 | 82,867 | 184,567 | 209,908 | ||||||||||||||||||||||||||||||
| Unearned interest | (66,805 | ) | (78,495 | ) | (93,916 | ) | (166,972 | ) | (249,914 | ) | (93,916 | ) | (166,972 | ) | (249,914 | ) | (282,869 | ) | (343,003 | ) | ||||||||||||||||||||
| Total loans: | US$ | 4,559,018 | US$ | 4,972,975 | US$ | 5,877,361 | US$ | 8,183,845 | US$ | 10,456,284 | US$ | 5,877,361 | US$ | 8,183,845 | US$ | 10,456,284 | US$ | 11,505,319 | US$ | 14,278,064 | ||||||||||||||||||||
| Total past-due loans amounts | (159,057 | ) | (95,769 | ) | (76,770 | ) | (61,488 | ) | (82,867 | ) | (76,770 | ) | (61,488 | ) | (82,867 | ) | (184,567 | ) | (209,908 | ) | ||||||||||||||||||||
| Total performing loans | US$ | 4,399,961 | US$ | 4,877,206 | US$ | 5,800,591 | US$ | 8,122,357 | US$ | 10,373,417 | US$ | 5,800,591 | US$ | 8,122,357 | US$ | 10,373,417 | US$ | 11,320,752 | US$ | 14,068,156 | ||||||||||||||||||||
The categorization of the loan portfolio ascategories set forth in the table above isare based on theSBS regulations, of the SBS, which we have appliedapply to loans generated by BCP and ASHC. Pursuant to theSBS guidelines, of the SBS, we categorize loans as follows:
Loans: Basic term loans documented by promissory notes and other extensions of credit, such as mortgage loans, credit cards and other consumer loans in various forms, including trade finance loans to importers and exporters on specialized terms adapted to the needs of the international trade transaction. |
Leasing Transactions: Transactions that involve our acquisition of an asset and the leasing of that asset to a client.
Discounted Notes: Loans discounted at the outset (the client signs a promissory note or other evidence of indebtedness for the principal amount payable at a future date). Discounted loans also include discounting of drafts, where we make a loan supported by a draft signed by one party and discounted by another party, with recourse to both parties. |
Factoring: The sale of title to a company’s accounts receivables to a bank (or financial company). The receivables are sold without recourse, and the bank cannot recover from the seller in the event that the accounts are uncollectible. Under factoring loans, the seller receives funds from the bank prior to the average maturity date based on the invoice amount of the receivable, less cash discounts and allowances for estimated claims and returns, among other items.
Advances and Overdrafts: Extensions of credit to clients by way of an overdraft facility in the client’s checking account. This category also includes secured short-term advances.
Refinanced Loans: Loans that were refinanced because the client was unable to pay at maturity. A loan is categorized as a refinanced loan when a debtor is experiencing payment problems, unless the debtor is current on all interest payments and pays down at least 20% of the principal amount of the original loan. We have distinguished a sub-group titled “Restructured Loans,” which is defined as loans extended under the bankruptcy protection procedures established in the Equity Restructuring Law.
Past-Due Loans: Includes overdue loans. See “—Past-Due Loan Portfolio” for further detail.
Loans by Economic Activity
The following table shows our total loan portfolio composition, net of unearned interest, based on the borrower’s principal economic activity:
| At December 31, | ||||||||||||||||||||||||
| 2006 | 2007 | 2008 | ||||||||||||||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||||||||||||||
| Amount | % Total | Amount | % Total | Amount | % Total | |||||||||||||||||||
| Economic Activity | ||||||||||||||||||||||||
| Manufacturing | US$ | 1,624,765 | 27.64 | % | US$ | 2,204,481 | 26.94 | % | US$ | 2,535,326 | 24.25 | % | ||||||||||||
| Consumer Loans (1) | 1,729,682 | 29.43 | 2,480,916 | 30.31 | 3,146,698 | 30.09 | ||||||||||||||||||
| Commerce | 686,291 | 11.68 | 884,253 | 10.80 | 1,344,921 | 12.86 | ||||||||||||||||||
| Realty Business and Leasing Services | 236,445 | 4.02 | 387,180 | 4.73 | 488,202 | 4.67 | ||||||||||||||||||
| Mining | 303,238 | 5.16 | 463,577 | 5.66 | 675,460 | 6.46 | ||||||||||||||||||
| Communication, Storage and Transportation | 255,730 | 4.35 | 394,986 | 4.83 | 515,412 | 4.93 | ||||||||||||||||||
| Electricity, Gas and Water | 256,541 | 4.36 | 341,718 | 4.18 | 546,014 | 5.22 | ||||||||||||||||||
| Agriculture | 150,020 | 2.55 | 179,509 | 2.19 | 228,623 | 2.19 | ||||||||||||||||||
| Fishing | 152,538 | 2.60 | 134,235 | 1.64 | 77,060 | 0.74 | ||||||||||||||||||
| Financial Services | 163,946 | 2.79 | 219,850 | 2.69 | 439,234 | 4.20 | ||||||||||||||||||
| Education, Health and Other Services | 75,376 | 1.28 | 106,423 | 1.30 | 128,527 | 1.23 | ||||||||||||||||||
| Construction | 74,482 | 1.27 | 201,298 | 2.46 | 229,667 | 2.20 | ||||||||||||||||||
| Others (2) | 262,223 | 4.46 | 352,391 | 4.31 | 351,054 | 3.36 | ||||||||||||||||||
| Sub total | 5,971,277 | 101.59 | 8,350,817 | 102.04 | 10,706,198 | 102.40 | ||||||||||||||||||
| Unearned interest | (93,916 | ) | (1.59 | ) | (166,972 | ) | (2.04 | ) | US$ | 2,535,326 | 24.25 | % | ||||||||||||
| Total | US$ | 5,877,361 | 100.00 | % | US$ | 8,183,845 | 100.00 | % | 3,146,698 | 30.09 | ||||||||||||||
| At December 31, | ||||||||||||||||||||||||
| 2004 | 2005 | 2006 | ||||||||||||||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||||||||||||||
| Amount | % Total | Amount | % Total | Amount | % Total | |||||||||||||||||||
| Economic Activity | ||||||||||||||||||||||||
| Manufacturing | US$ | 1,376,874 | 30.20 | % | US$ | 1,430,559 | 28.77 | % | US$ | 1,624,765 | 27.64 | % | ||||||||||||
| Consumer Loans (1) | 1,187,378 | 26.04 | 1,364,910 | 27.45 | 1,729,682 | 29.43 | ||||||||||||||||||
| Commerce | 523,574 | 11.48 | 625,908 | 12.59 | 686,291 | 11.68 | ||||||||||||||||||
| Realty Business and Leasing Services | 224,745 | 4.93 | 216,095 | 4.35 | 236,445 | 4.02 | ||||||||||||||||||
| Mining | 194,022 | 4.26 | 223,156 | 4.49 | 303,238 | 5.16 | ||||||||||||||||||
| Communication, Storage and Transportation | 181,018 | 3.97 | 210,002 | 4.22 | 255,730 | 4.35 | ||||||||||||||||||
| Electricity, Gas and Water | 248,571 | 5.45 | 192,096 | 3.86 | 256,541 | 4.36 | ||||||||||||||||||
| Agriculture | 160,167 | 3.51 | 153,410 | 3.08 | 150,020 | 2.55 | ||||||||||||||||||
| Fishing | 68,604 | 1.50 | 117,104 | 2.35 | 152,538 | 2.60 | ||||||||||||||||||
| Financial Services | 90,042 | 1.98 | 105,484 | 2.12 | 163,946 | 2.79 | ||||||||||||||||||
| Education, Health and Other Services | 62,341 | 1.37 | 69,468 | 1.40 | 75,376 | 1.28 | ||||||||||||||||||
| Construction | 72,879 | 1.60 | 68,217 | 1.37 | 74,482 | 1.27 | ||||||||||||||||||
| Others (2) | 235,608 | 5.17 | 275,061 | 5.53 | 262,223 | 4.46 | ||||||||||||||||||
| Sub total | 4,625,823 | 101.46 | 5,051,470 | 101.58 | 5,971,277 | 101.59 | ||||||||||||||||||
| Unearned interest | (66,805 | ) | -1.46 | (78,495 | ) | -1.58 | (93,916 | ) | -1.59 | |||||||||||||||
| Total | US$ | 4,559,018 | 100.00 | % | US$ | 4,972,975 | 100.00 | % | US$ | 5,877,361 | 100.00 | % | ||||||||||||
| (1) | Includes credit card and mortgage loans, other consumer loans and small business. |
| (2) | Includes personal banking and small business loans and other sectors. |
| At December 31, | ||||||||||||||||
| 2009 | 2010 | |||||||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||||||
| Amount | % Total | Amount | % Total | |||||||||||||
| Economic Activity | ||||||||||||||||
| Manufacturing | US$ | 2,557,847 | 22.23 | % | US$ | 3,003,465 | 21.04 | % | ||||||||
| Consumer Loans (1) | 3,963,449 | 34.45 | 4,759,207 | 33.33 | ||||||||||||
| Commerce | 1,330,023 | 11.56 | 1,931,441 | 13.53 | ||||||||||||
| Realty Business and Leasing Services | 489,614 | 4.26 | 712,330 | 4.99 | ||||||||||||
| Mining | 692,579 | 6.02 | 893,145 | 6.26 | ||||||||||||
| Communication, Storage and Transportation | 559,025 | 4.86 | 720,749 | 5.05 | ||||||||||||
| Electricity, Gas and Water | 782,289 | 6.80 | 969,437 | 6.79 | ||||||||||||
| Agriculture | 271,912 | 2.36 | 293,685 | 2.06 | ||||||||||||
| Fishing | 121,162 | 1.05 | 134,811 | 0.94 | ||||||||||||
| Financial Services | 175,071 | 1.52 | 252,869 | 1.77 | ||||||||||||
| Education, Health and Other Services | 156,496 | 1.36 | 177,206 | 1.24 | ||||||||||||
| Construction | 175,508 | 1.53 | 132,517 | 0.93 | ||||||||||||
| Others (2) | 513,213 | 4.46 | 640,205 | 4.48 | ||||||||||||
| Sub total | 11,788,188 | 102.46 | 14,621,067 | 102.40 | ||||||||||||
| Unearned interest | (282,869 | ) | (2.46 | ) | (343,003 | ) | (2.40 | ) | ||||||||
| Total | US$ | 11,505,319 | 100.00 | % | US$ | 14,278,064 | 100.00 | % | ||||||||
| At December 31, | ||||||||||||||||
| 2007 | 2008 | |||||||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||||||
| Amount | % Total | Amount | % Total | |||||||||||||
| Economic Activity | ||||||||||||||||
| Manufacturing | US$ | 2,204,481 | 26.94 | % | US$ | 2,535,326 | 24.25 | % | ||||||||
| Consumer Loans (1) | 2,480,916 | 30.31 | 3,146,698 | 30.09 | ||||||||||||
| Commerce | 884,253 | 10.80 | 1,344,921 | 12.86 | ||||||||||||
| Realty Business and Leasing Services | 387,180 | 4.73 | 488,202 | 4.67 | ||||||||||||
| Mining | 463,577 | 5.66 | 675,460 | 6.46 | ||||||||||||
| Communication, Storage and Transportation | 394,986 | 4.83 | 515,412 | 4.93 | ||||||||||||
| Electricity, Gas and Water | 341,718 | 4.18 | 546,014 | 5.22 | ||||||||||||
| Agriculture | 179,509 | 2.19 | 228,623 | 2.19 | ||||||||||||
| Fishing | 134,235 | 1.64 | 77,060 | 0.74 | ||||||||||||
| Financial Services | 219,850 | 2.69 | 439,234 | 4.20 | ||||||||||||
| Education, Health and Other Services | 106,423 | 1.30 | 128,527 | 1.23 | ||||||||||||
| Construction | 201,298 | 2.46 | 229,667 | 2.20 | ||||||||||||
| Others (2) | 352,391 | 4.31 | 351,054 | 3.36 | ||||||||||||
| Sub total | 8,350,817 | 102.04 | 10,706,198 | 102.40 | ||||||||||||
| Unearned interest | (166,972 | ) | -2.04 | (249,914 | ) | -2.40 | ||||||||||
| Total | US$ | 8,183,845 | 100.00 | % | US$ | 10,456,284 | 100.00 | % | ||||||||
| (1) | Includes credit card and mortgage loans, other consumer loans and small business. |
| (2) | Includes personal banking and small business loans and other sectors. |
As of December 31, 2008, 68.5%2010, 69.0% of the loan portfolio was concentrated in Lima, and 93.10%94.60% was concentrated in Peru. An additional 4.4%Peru, and 4.1% of the loan portfolio was concentrated in Bolivia.
Concentrations of Loan Portfolio and Lending Limits
BCP’s loans to a single borrower are subject to lending limits imposed by Law 26702. See “—(11) Supervision and Regulation—(ii) BCP—Lending Activities.” The lending limits of Law 26702 depend on the nature of the borrower involved and the type of collateral received. The sum of BCP’s loans to and deposits in either another Peruvian universal bank or Peruvian financial institution, plus any guarantees of third party performance received by BCP from such institution, may not exceed 30% of BCP’s regulatory capital (as defined by the SBS). The sum of BCP’s loans to and deposits in non-Peruvian financial institutions, plus any guarantees of third party performance received by BCP from such institutions, are limited to 5%, 10% or 30% of BCP’s regulatory capital, depending upon the governmentallevel of government supervision to whichof the institution is subject and upon whether itthe institution is recognized by the Central Bank as an international bank of prime credit quality. The limits on lending to non-Peruvian financial institutions increaseincreases to 50% of BCP’s regulatory capital if the amount by which such loans exceed the 5%, 10% or 30% limits is backed by certain letters of credit.
BCP’s loans to directors and employees and their relatives have a global limit of 7% of capital stock and reserves and an individual limit of 5% of such global limit.
Loans to non-Peruvian individuals or companies that are not financial institutions have a limit of 5% of BCP’s regulatory capital. However, this limit increases to 10% if the additional 5% is guaranteed by a mortgage or certain publicly-traded securities. The limit rises to 30% if the additional amount is guaranteed by certain banks or by cash deposits in BCP. Lending on an unsecured basis to individuals or companies residing in Peru that are not financial institutions is limited to 10% of BCP’s regulatory capital. This limit rises to 15% if the additional 5% is guaranteed by a mortgage, certain securities, equipment or other collateral, and to 20% if the additional amount is either backed by certain debt instruments guaranteed by other local banks or a foreign bank determined by the Central Bank to be of prime credit quality, or by other highly liquid securities at market value. Finally, theThe single borrower lending limit for loans backed by a cash deposit at BCP or by debt obligations of the Central Bank is 30% of BCP’s regulatory capital.
61
With an unconsolidated regulatory capital of S/.4,092.0.5,517.3 million (US$1,303.21,964.1 million) on December 31, 2008,2010, BCP’s legal lending limits varyvaried from S/.409.2.551.7 million (US$130.3196.4 million) to S/.2,046.0.2,758.7 million (US$651.6982.1 million). Our consolidated lending limits, based on its regulatory capital on a consolidated basis of US$1,604.72,391.3 million on December 31, 2008, range2010, ranged from US$80.2239.1 million to US$802.41,195.7 million. As of December 31, 2008,2010, BCP was in compliance with Law 26702 lending limits.
As of December 31, 2008,2009, we complied with the applicable legal lending limits in each of the jurisdictions in which we operate. These limits are calculated quarterly based onupon our consolidated equity plus reserves for impaired loans not specifically identified at quarter-end. We have also set internal lending limits, which are more restrictive than those imposed by law. A limited number of exceptions to our internal limits have been authorized by our board of directors from time to time, based on the credit quality of the borrower, the term of the loan, and the amount and quality of collateral that we have taken.provided. We may, in appropriate and limited circumstances, increase or choose to exceed this limit inthese internal limits as long as our credit exposure does not exceed the future.legal lending limits.
We may experience an adverse impact on our financial condition and results of operations if (i) customers to which we have as significant credit exposure are not able to meetsatisfy their obligations to us, and any related collateral is not sufficient to cover these obligations, or (ii) a reclassification of one or more of these loans or other contingent credits results in an increase in provisions for loan losses.
Loan Portfolio Denomination
The following table presents our Nuevo Sol and foreign currency-denominated loan portfolio at the dates indicated:
| At December 31, | |||||||||||||||||||||||||
| 2004 | 2005 | 2006 | |||||||||||||||||||||||
| (U.S. Dollars in thousands, except percentages) | |||||||||||||||||||||||||
| Total loan portfolio: | |||||||||||||||||||||||||
| Nuevo Sol-denominated | US$ | 662,058 | 14.52 | % | US$ | 1,032,481 | 20.76 | % | US$ | 1,503,306 | 25.58 | % | |||||||||||||
| Foreign Currency-denominated | 3,896,960 | 85.48 | % | 3,940,494 | 79.24 | % | 4,374,055 | 74.42 | % | ||||||||||||||||
| Total loans (1) | US$ | 4,559,018 | 100.00 | % | US$ | 4,972,975 | 100.00 | % | US$ | 5,877,361 | 100.00 | % | |||||||||||||
| At December 31, | ||||||||||||||||||||||||
| 2006 | 2007 | 2008 | ||||||||||||||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||||||||||||||
| Total loan portfolio: | ||||||||||||||||||||||||
| Nuevo Sol-denominated | US$ | 1,503,306 | 25.58 | % | US$ | 2,461,787 | 30.08 | % | US$ | 3,351,720 | 32.05 | % | ||||||||||||
| Foreign Currency-denominated | 4,374,055 | 74.42 | % | 5,722,058 | 69.92 | % | 7,104,564 | 67.95 | % | |||||||||||||||
| Total loans (1) | US$ | 5,877,361 | 100.00 | % | US$ | 8,183,845 | 100.00 | % | US$ | 10,456,284 | 100.00 | % | ||||||||||||
| At December 31, | ||||||||||||||||
| 2009 | 2010 | |||||||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||||||
| Total loan portfolio: | ||||||||||||||||
| Nuevo Sol-denominated | US$ | 4,385,965 | 38.12 | % | US$ | 5,415,352 | 37.93 | % | ||||||||
| Foreign Currency-denominated | 7,119,354 | 61.88 | % | 8,862,712 | 62.07 | % | ||||||||||
| Total loans (1) | US$ | 11,505,319 | 100.00 | % | US$ | 14,278,064 | 100.00 | % | ||||||||
| At December 31, | ||||||||||||||||
| 2007 | 2008 | |||||||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||||||
| Total loan portfolio: | ||||||||||||||||
| Nuevo Sol-denominated | US$ | 2,461,787 | 30.08 | % | US$ | 3,351,720 | 32.05 | % | ||||||||
| Foreign Currency-denominated | 5,722,058 | 69.92 | % | 7,104,564 | 67.95 | % | ||||||||||
| Total loans (1) | US$ | 8,183,845 | 100.00 | % | US$ | 10,456,284 | 100.00 | % | ||||||||
| (1) | Net of unearned interest. |
62
Maturity Composition of the Performing Loan Portfolio
The following table sets forth an analysis of our performing loan portfolio on December 31, 2008,2010, by type and by time remaining to maturity. Loans are stated before deduction of the reserves for loan losses.
Maturing | Maturing | |||||||||||||||||||||||||||||||||||||||||||||||
Amount at December 31, 2008 | Within 3 months | After 3 months but within 12 months | After 1 year but within 3 years | After 3 years but within 5 years | After 5 years | Amount at December 31, 2010 | Within 3 months | After 3 months but within 12 months | After 1 year but within 3 years | After 3 years but within 5 years | After 5 years | |||||||||||||||||||||||||||||||||||||
(U.S. Dollars in thousands, except percentages) | (U.S. Dollars in thousands, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Loans | US$ | 8,179,453 | US$ | 2,774,294 | US$ | 1,905,676 | US$ | 1,120,693 | US$ | 812,141 | US$ | 1,566,649 | US$ | 1,142,038 | US$ | 2,439,107 | US$ | 2,208,225 | US$ | 2,953,865 | US$ | 1,420,528 | US$ | 2,120,313 | ||||||||||||||||||||||||
| Leasing transactions | 1,792,827 | 334,072 | 680,704 | 515,639 | 211,646 | 50,766 | 2,359,236 | 352,520 | 935,698 | 439,543 | 375,186 | 256,289 | ||||||||||||||||||||||||||||||||||||
| Discounted notes | 368,648 | 354,263 | 14,294 | 91 | - | - | 477,709 | 448,105 | 29,552 | 52 | - | - | ||||||||||||||||||||||||||||||||||||
| Refinanced loans | 55,179 | 5,623 | 11,047 | 12,398 | 9,588 | 16,523 | 76,707 | 28,013 | 16,543 | 10,661 | 10,046 | 11,444 | ||||||||||||||||||||||||||||||||||||
| Factoring | 124,537 | 124,300 | 237 | - | - | - | 250,974 | 241,738 | 8,590 | 645 | - | 1 | ||||||||||||||||||||||||||||||||||||
| Advances and overdrafts | 102,687 | 102,687 | - | - | - | - | 104,495 | 104,495 | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Total . | US$ | 10,623,331 | US$ | 3,695,239 | US$ | 2,611,958 | US$ | 1,648,821 | US$ | 1,033,375 | US$ | 1,633,938 | ||||||||||||||||||||||||||||||||||||
| Total | US$ | 14,411,159 | US$ | 3,613,978 | US$ | 3,198,608 | US$ | 3,404,766 | US$ | 1,805,760 | US$ | 2,388,047 | ||||||||||||||||||||||||||||||||||||
| % of total performing loan portfolio | 100.00 | % | 34.78 | % | 24.59 | % | 15.52 | % | 9.73 | % | 15.38 | % | 100.00 | % | 25.08 | % | 22.20 | % | 23.63 | % | 12.53 | % | 16.57 | % | ||||||||||||||||||||||||
Interest Rate Sensitivity of the Loan Portfolio
The following table sets forth the interest rate sensitivity of our loan portfolio on December 31, 2008,2010, by currency and by the time remaining to maturity over one year:
Amount at December 31, 2008 | Maturing after 1 year | |||||||
| (U.S. Dollars in thousands) | ||||||||
| Variable Rate | ||||||||
| Nuevo Sol-denominated | US$ | 429,827 | US$ | 410,012 | ||||
| Foreign Currency-denominated | 929,362 | 524,076 | ||||||
| Total | 1,359,189 | 934,088 | ||||||
Fixed Rate (2) | ||||||||
| Nuevo Sol-denominated | 2,943,070 | 793,303 | ||||||
| Foreign Currency-denominated | 6,154,025 | 2,480,484 | ||||||
| Total | 9,097,095 | 3,273,787 | ||||||
| Total (1) | US$ | 10,456,284 | US$ | 4,207,875 | ||||
Amount at December 31, 2010 | Maturing After 1 year | |||||||
| (U.S. Dollars in thousands) | ||||||||
| Variable Rate | ||||||||
| Nuevo Sol-denominated | US$ | 276,641 | US$ | 262,550 | ||||
| Foreign Currency-denominated | 2,270,333 | 1,574,250 | ||||||
| Total | 2,546,974 | 1,836,801 | ||||||
Fixed Rate (2) | ||||||||
| Nuevo Sol-denominated | 5,138,711 | 2,873,311 | ||||||
| Foreign Currency-denominated | 6,592,379 | 2,932,499 | ||||||
| Total | 11,731,090 | 5,805,810 | ||||||
| Total (1) | US$ | 14,278,064 | US$ | 7,642,611 | ||||
| (1) | Net of unearned interest. |
| (2) | Most of the financial products with fixed rates can be switched to variable rates according to market conditions as specified on the contracts with clients. |
Classification of the Loan Portfolio
We classify BCP’s loan portfolio (which includes the loan portfolio of BCB) and ASHC’s loan portfolio in accordance with SBS regulations.internal practices. According to SBS Resolution No. 808-2003, banks must classifythese criteria, all loans and other credits are classified into one of four categories based upon the purpose of the loan. These categories are commercial, micro-business, consumer and residential mortgage. Commercial loans are generally those that finance the production and sale of goods and services, including commercial leases, as well as credit card debt on cards held by business entities. Micro-business loans, which are exclusively targeted for the production and sale of goods and services, are made to individuals or companies with no more than S/.300,000 in total loans received from the financial system (excluding mortgage loans). Consumer loans are generally loans granted to individuals, including credit card transactions, overdrafts on personal demand deposit accounts, leases, and financing goods or services not related to a business activity. Residential mortgage loans are all loans to individuals for the purchase, construction, remodeling, subdivision or improvement of the individual’s own home, in each case backed by a mortgage. Mortgage loans made to directors and employees of a company are also considered residential mortgage loans. Mortgage-backed loans are considered commercial loans. The classification of the loan determines the amount the bank is required to reserve should the borrower fail to make payments as they become due.
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Regulations promulgated by the SBS also require Peruvian banks to classify all loans into one of five other categories depending upon each loan’s degree of risk of nonpayment. We review our loan portfolio on a continuing basis, while the SBS reviews our portfolio as it deems necessary or prudent. In compliance with SBS guidelines, we classify our loans based upon risk of nonpayment by assessing the following factors: (i) the payment history of the particular loans, (ii) the history of our dealings with the borrower, (iii) the borrower’s management, (iv) the borrower’s operating history, (v) the borrower’s repayment capability, (vi) the borrower’s availability of funds, (vii) the status of any collateral or guarantee, (viii) the borrower’s financial statements, (iv) the general risk of the sector in which the borrower operates, (x) the borrower’s risk classification made by other financial institutions and (xi) other relevant factors. The classification of the loan determines the amount of the required loan loss provision.
The following table sets forth a breakdown of theour loan portfolio by class as of December 31 of each ofat the last five years:date indicated.
| At December 31, | ||||||||||||||||||||
| 2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||
| (U.S. Dollars in thousands) | ||||||||||||||||||||
| Commercial loans | US$ | 4,390,547 | US$ | 6,055,206 | US$ | 7,808,671 | US$ | 8,283,790 | US$ | 10,417,764 | ||||||||||
| Consumer loans | 506,184 | 874,804 | 1,162,399 | 1,467,793 | 1,715,207 | |||||||||||||||
| Residential mortgage loans | 980,630 | 1,253,835 | 1,485,214 | 1,753,736 | 2,145,093 | |||||||||||||||
| Total performing loans (1) | US$ | 5,877,361 | US$ | 8,183,845 | US$ | 10,456,284 | US$ | 11,505,319 | US$ | 14,278,064 | ||||||||||
| At December 31, | ||||||||||||||||||||
| 2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||
| (U.S. Dollars in thousands) | ||||||||||||||||||||
| Commercial loans | US$ | 3,625,678 | US$ | 3,771,488 | US$ | 4,390,547 | US$ | 6,055,206 | US$ | 7,808,671 | ||||||||||
| Consumer loans | 283,410 | 356,595 | 506,184 | 874,804 | 1,162,399 | |||||||||||||||
| Residential mortgage loans | 649,930 | 844,892 | 980,630 | 1,253,835 | 1,485,214 | |||||||||||||||
| Total performing loans (1) | US$ | 4,559,018 | US$ | 4,972,975 | US$ | 5,877,361 | US$ | 8,183,845 | US$ | 10,456,284 | ||||||||||
| (1) | Net of unearned interest. |
We employ a range of policies and practices to mitigate credit risk. Our most traditional practice is taking security for fundsfund advances. We implement guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are mortgages over residential properties, liens over business assets (such as premises, inventory and accounts receivable), and liens over financial instruments (such as debt securities and equities).
We determine whatthe appropriate collateral we willto hold as security for financial assets (other than loans) according to the nature of the instrument. Debt securities, treasury and other eligible bills are generally unsecured, with the exception of asset-backed securities and other similar instruments, which are secured by portfolios of financial instruments.
Our management monitors the market value of collateral, requests additional collateral in accordance with the underlying agreement, and monitors the market value of the additional collateral obtained during its review of the adequacy of the allowance for impairment losses. Our policy is to dispose of repossessed properties in an orderly manner. We use the proceeds to reduce or repay the outstanding claim. In general, we do not use repossessed properties for our own business.
We classify our loan portfolio into one of five risk categories, depending upon the degree of risk of non-payment of each debtor. These categories are: (i) normal, (ii) potential problems, (iii) substandard, (iv) doubtful and (v) loss, andloss. The categories have the following characteristics:
Normal (Class A): Debtors ofwith commercial loans that fall intoin this category have complied on a timely basis with their obligations and atunder the loan. At the time of evaluation, do not present anythere is no reason forto doubt with respectthe debtor’s ability to repayment ofrepay interest and principal on the agreed dates. Theredates, and there is no reason to believe that the status will change before the next evaluation. Before we place a loan in Class A, we must have a clear understanding of the use of the funds and the origin of the cash flows to be used by the debtor to repay the loan. Consumer loans warrantare categorized as Class A classification ifwhen payments are current or up to eight days past due. Residential mortgage loans warrantare categorized as Class A classification ifwhen payments are current or up to 30 days past due.
Potential problems (Class B): Debtors ofwith commercial loans included in this category evaluation demonstrate certain deficiencies at the time of evaluation, which, if not corrected in a timely manner, imply risks regarding the recovery of the loan. Common characteristics of loans or credits in this category include: (i) delays in loan payments which are promptly covered, (ii) a general lack of information required to analyze the credit, (iii) out-of-date financial information, (iv) temporary economic or financial imbalances on the part of the debtor which could affect its ability to repay the loan, (v) market conditions that could affect the economic sector in which the debtor is active, (vi) material overdue debts or pending judicial collection actions initiated by other financial institutions, (v) noncompliance with originally contracted conditions, (vi) conflicts of interest within the client, (vii) labor problems, (viii) unfavorable credit history, (ix) noncompliance with its own internal policies regarding concentration of suppliers or customers, and (x) low inventory turnover ratios or large inventories that are subject to competitive challenges or technological obsolescence.active. Consumer loans are categorized as Class B ifwhen payments are between nine and 30 days late.past due. Residential mortgage loans becomeare categorized as Class B when payments are between 31 and 90 days late.past due.
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Substandard (Class C): Debtors ofwith commercial loans included in this category demonstrate serious financial weakness. They often do not have sufficient operating results or available income insufficient to cover their financial obligations, on agreed-upon terms, with noand do not have reasonable short-term prospects for strengthening their financial capacity. Debtors demonstrating the same deficiencies that warrant classification as Class B warrant classification aswill warrant Class C classification if those deficiencies are such that if they are not corrected in the near term, they could impede the recovery of principal and interest on the loan on the originally agreed-upon terms. In addition, commercialCommercial loans are classified in this category when payments are between 61 and 120 days late. Ifpast due. Consumer loans are categorized as Class C when payments on a consumer loan are between 31 and 60 days late, such loans are classified as Class C.past due. Residential mortgage loans are classifiedcategorized as Class C when payments are between 91 and 120 days late.past due.
Doubtful (Class D): Debtors ofwith commercial loans included in this category showdemonstrate characteristics that make it doubtful the recovery of the loan. Althoughthat the loan will be recovered. Although recovery is doubtful, if there is a reasonable possibility that in the near future the creditworthiness of the debtor might improve in the near future, it is appropriate to categorize the loan as Class D. These loans are distinguished from Class E loans by the requirement that the debtor remain in operation, generate cash flow, and make payments on the loan, even if the payments are at a rate less than thatthose required by the contract. In addition, commercial loans are classified in this category when payments are between 121 and 365 days late. ConsumerCommercial loans are categorized as Class D if payments are between 121 and 365 days past due. Consumer loans are categorized as Class D when payments are between 61 and 120 days late.past due. Residential mortgage loans are categorized as Class D when payments are between 121 and 365 days late.past due.
Loss credits (Class E): Commercial loans or credits fall into this categoryare categorized as Class E if theythe loans are considered unrecoverable or for any other reason theythe loans should not appear on our books as an asset based on the originally contracted terms. In addition, commercial loans are classified in this category when payments are more than 365 days late. ConsumerCommercial loans are categorized as Class E if payments are more than 120 days late. Residential mortgage loans are Class E when payments are more than 365 days late.past due. Consumer loans are categorized as Class E when payments are more than 120 days past due. Residential mortgage loans are categorized as Class E when payments are more than 365 days past due.
We continually review our loan portfolio on a continuing basis in order to assess the completion and accuracy of our grades.the grades awarded.
All loans considered impaired (the ones(those classified as substandard, doubtful andor loss) are analyzed by our management, which addressesmanagement. Management will address the impairment in two areas—areas, individually assessed allowances and collectively assessed allowances—allowances, as follows:
Individually Assessed Allowance
We determine the appropriate allowances appropriate for each individually significant loan or advance on an individual basis. In determining the allowance, amounts, we consider items such as (i) the sustainability of the counterparty’sparty’s business plan, (ii) its ability to improve performance once a financial difficulty has arisen, (iii) projected receipts and the expected dividend payout should bankruptcy ensue, (iv) the availability of other financial support and the realizablepotential realized value of collateral, and (v) the timing of the expected cash flows. Impairment losses are evaluated at each reporting date, unless unforeseen circumstances require more careful attention.
Collectively Assessed Allowance
We assess allowances collectively for (i) losses on loans and advances that are not individually significant (including consumer and residential mortgages) and (ii) individually significant loans and advances where there is not yet objective evidence of individual impairment (included in classes(the Class A and B)B loans). We evaluate allowances on each reporting date. Eachdate, and each portfolio receives a separate review.
Our collective assessment takes into account ofan impairment that is likely to be present in the portfolio even though there is not yetno objective evidence of the impairment in an individual assessment. We estimate impairment losses by considering the following information: (i) historical losses on the portfolio, (ii) current economic conditions, (iii) the approximate delay between the time a loss is likely to have beenbe incurred and the time it will be identified as requiring an individually assessed impairment allowance and (iv) expected receipts and recoveries once impaired.the impairment occurs. Local management is responsible for deciding the appropriate length of this period,time, which can extend for as long as one year. The impairment allowance is then reviewed by credit management to ensure alignmentit aligns with our overall policy.
We assess financial guarantees and letterletters of credit as well as provision made, in similar manners as forthe same way we assess loans.
When the borrower is located in countriesa country where there is an increased risk of difficulties indifficulty servicing external debt, we assess the political and economic situation, and an additional country risk provision is provided.
When we determine that a loan is uncollectible, it is written off against the related provision for loan impairment. We write off these loans after all the necessary procedures have beenare completed and the amount of the loss has beenis determined. Subsequent recoveries of amounts previously written off decrease the amount of the provision for loan impairment in our consolidated income statements.
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The following table shows our direct loan portfolio at the dates indicated:
| At December 31, | ||||||||||||||||||||||||
| 2004 | 2005 | 2006 | ||||||||||||||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||||||||||||||
| Level of Risk | ||||||||||||||||||||||||
| Classification | Amount | % Total | Amount | % Total | Amount | % Total | ||||||||||||||||||
| A: Normal | US$ | 3,719,973 | 81.6 | % | US$ | 4,273,719 | 85.9 | % | US$ | 5,296,653 | 90.1 | % | ||||||||||||
| B: Potential Problems | US$ | 336,619 | 7.4 | % | US$ | 397,387 | 8.0 | % | US$ | 337,497 | 5.7 | % | ||||||||||||
| C: Substandard | US$ | 195,062 | 4.3 | % | US$ | 82,858 | 1.7 | % | US$ | 62,192 | 1.1 | % | ||||||||||||
| D: Doubtful | US$ | 184,206 | 4.0 | % | US$ | 146,898 | 3.0 | % | US$ | 122,215 | 2.1 | % | ||||||||||||
| E: Loss | US$ | 123,158 | 2.7 | % | US$ | 72,113 | 1.4 | % | US$ | 58,804 | 1.0 | % | ||||||||||||
| Total (1) | US$ | 4,559,018 | 100.0 | % | US$ | 4,972,975 | 100.0 | % | US$ | 5,877,361 | 100.0 | % | ||||||||||||
| C+D+E | US$ | 502,426 | 11.0 | % | US$ | 301,869 | 6.1 | % | US$ | 243,211 | 4.2 | % | ||||||||||||
| At December 31, | ||||||||||||||||
| 2007 | 2008 | |||||||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||||||
| Level of Risk | ||||||||||||||||
| Classification | Amount | % Total | Amount | % Total | ||||||||||||
| A: Normal | US$ | 7,602,347 | 92.9 | % | US$ | 9,991,559 | 95.5 | % | ||||||||
| B: Potential Problems | US$ | 371,119 | 4.5 | % | US$ | 264,890 | 2.5 | % | ||||||||
| C: Substandard | US$ | 71,340 | 0.9 | % | US$ | 70,268 | 0.7 | % | ||||||||
| D: Doubtful | US$ | 88,540 | 1.1 | % | US$ | 79,394 | 0.8 | % | ||||||||
| E: Loss | US$ | 50,499 | 0.6 | % | US$ | 50,173 | 0.5 | % | ||||||||
| Total (1) | US$ | 8,183,845 | 100.0 | % | US$ | 10,456,284 | 100.0 | % | ||||||||
| C+D+E | US$ | 210,379 | 2.6 | % | US$ | 199,835 | 2.0 | % | ||||||||
| At December 31, | ||||||||||||||||||||||||
| 2006 | 2007 | 2008 | ||||||||||||||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||||||||||||||
| Level of Risk | ||||||||||||||||||||||||
| Classification | Amount | % Total | Amount | % Total | Amount | % Total | ||||||||||||||||||
| A: Normal | US$ | 5,296,653 | 90.1 | % | US$ | 7,602,347 | 92.9 | % | US$ | 9,991,559 | 95.5 | % | ||||||||||||
| B: Potential Problems | US$ | 337,497 | 5.7 | % | US$ | 371,119 | 4.5 | % | US$ | 264,890 | 2.5 | % | ||||||||||||
| C: Substandard | US$ | 62,192 | 1.1 | % | US$ | 71,340 | 0.9 | % | US$ | 70,268 | 0.7 | % | ||||||||||||
| D: Doubtful | US$ | 122,215 | 2.1 | % | US$ | 88,540 | 1.1 | % | US$ | 79,394 | 0.8 | % | ||||||||||||
| E: Loss | US$ | 58,804 | 1.0 | % | US$ | 50,499 | 0.6 | % | US$ | 50,173 | 0.5 | % | ||||||||||||
| Total (1) | US$ | 5,877,361 | 100.0 | % | US$ | 8,183,845 | 100.0 | % | US$ | 10,456,284 | 100.0 | % | ||||||||||||
| C+D+E | US$ | 243,211 | 4.2 | % | US$ | 210,379 | 2.6 | % | US$ | 199,835 | 2.0 | % | ||||||||||||
| At December 31, | ||||||||||||||||
| 2009 | 2010 | |||||||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||||||
| Level of Risk | ||||||||||||||||
| Classification | Amount | % Total | Amount | % Total | ||||||||||||
| A: Normal | US$ | 10,717,658 | 93.2 | % | US$ | 13,564,435 | 95.0 | % | ||||||||
| B: Potential Problems | US$ | 431,356 | 3.7 | % | US$ | 313,148 | 2.2 | % | ||||||||
| C: Substandard | US$ | 115,629 | 1.0 | % | US$ | 128,445 | 0.9 | % | ||||||||
| D: Doubtful | US$ | 139,389 | 1.2 | % | US$ | 121,342 | 0.8 | % | ||||||||
| E: Loss | US$ | 101,287 | 0.9 | % | US$ | 150,691 | 1.1 | % | ||||||||
| Total (1) | US$ | 11,505,319 | 100.0 | % | US$ | 14,278,064 | 100.0 | % | ||||||||
| C+D+E | US$ | 356,305 | 3.1 | % | US$ | 400,481 | 2.8 | % | ||||||||
| (1) | Net of unearned interest – The unearned interest from impaired classifications (C+D+E) amounts approximately to US$317,000 in 2006, US$201,000 in 2007, US$250,000 in 2008, US$44,000 in 2009 and US$159,000 in 2010. |
All of our Class E loans and substantially all of our Class D loans are past due. Class C loans, although generally not past due, have demonstrated credit deterioration such that management has serious doubts as to the ability of the borrower to comply with the present loan repayment terms. The majority of our Class C loans are to companies in the Peruvian manufacturing sector and, to a lesser extent, the agricultural sector. Our manufacturing sector loans are primarily secured by warrants and liens on goods or by mortgages, whereasand our agricultural loans tend to be secured by trade bills and marketable securities. The Class C loans reflect the financial weakness of the individual borrower rather than any trend in the Peruvian manufacturing or agricultural industries in general.
Classification of the Loan Portfolio Based on the Borrower’s Payment Performance
We consider loans to be past due depending on their type. In accordance with SBS Resolution N°11356- 2008, BCP considers loans past due for corporate, large business and medium business loans after 15 days; for small and micro business loans after 30 days; and for consumer, mortgage and leasing loans and loans to micro-businesses after 90 days. BeginningOn January 1, 2001, the SBS issued accounting rules requiringthat require Peruvian banks to consider overdrafts past due after 30 days. ASHC considers past due all overdue loans past due, except for consumer loans, which are considered past due when the scheduled principal and/or interest payments are overdue for more than 90 days. BCB considers loans past due after 30 days. For IFRS 7 disclosure requirements on past-due loans, see Note 29.1 to the Credicorp Consolidated Financial Statements.
Interest income is suspended when the collection of loans becomesis doubtful, such as when overdue by more than 90 days. Also, whenWhen a borrower or securities’securities issuer defaults if earlier than 90 days, the income is excluded from interest income until it is received. Uncollected income on these loans is reversedapplied against income. When management determines that the debtor’s financial condition has improved, we reestablishcontinue recording of interest on an accrual basis. Therefore, we do not accrue interest on past-due loans. Instead,loans, but interest on past-due loans is recognized only when and to the extent received.
Over the past five years, we have recognized interest income on these loans of US$6.2 million in 2004, US$5.5 million in 2005, US$4.8 million in 2006, US$3.6 million in 2007, and US$5.2 million in 2008.2008, US$7.2 million in 2009 and US$14.2 million in 2010. With the exception of discounted notes and overdrafts, accrued but unpaid interest is reversed for past-due loans.
The following table sets forth the repayment status of our loan portfolio as of December 31 of each of the last five years:date indicated.
| At December 31, | ||||||||||||||||||||
| 2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||||||||||
| Current | US$ | 5,800,591 | US$ | 8,122,357 | US$ | 10,373,417 | US$ | 11,320,752 | US$ | 14,068,156 | ||||||||||
| Past due: | ||||||||||||||||||||
| Overdue 16 - 119 days | 20,655 | 20,825 | 34,955 | 70,602 | 68,601 | |||||||||||||||
| Overdue 120 days or more | 56,115 | 40,663 | 47,912 | 113,965 | 141,307 | |||||||||||||||
| Subtotal | US$ | 76,770 | US$ | 61,488 | US$ | 82,867 | US$ | 184,567 | US$ | 209,908 | ||||||||||
| Total loans | US$ | 5,877,361 | US$ | 8,183,845 | US$ | 10,456,284 | US$ | 11,505,319 | US$ | 14,278,064 | ||||||||||
| Past-due loan amounts as % of total loans | 1.31 | % | 0.75 | % | 0.79 | % | 1.60 | % | 1.47 | % | ||||||||||
| At December 31, | ||||||||||||||||||||
| 2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||||||||||
| Current | US$ | 4,399,961 | US$ | 4,877,206 | US$ | 5,800,591 | US$ | 8,122,357 | US$ | 10,373,417 | ||||||||||
| Past due: | ||||||||||||||||||||
| Overdue 16 - 119 days | 11,572 | 10,860 | 20,655 | 20,825 | 34,955 | |||||||||||||||
| Overdue 120 days or more | 147,485 | 84,909 | 56,115 | 40,663 | 47,912 | |||||||||||||||
| Subtotal | US$ | 159,057 | US$ | 95,769 | US$ | 76,770 | US$ | 61,488 | US$ | 82,867 | ||||||||||
| Total loans | US$ | 4,559,018 | US$ | 4,972,975 | US$ | 5,877,361 | US$ | 8,183,845 | US$ | 10,456,284 | ||||||||||
| Past-due loan amounts as % of total loans | 3.49 | % | 1.93 | % | 1.31 | % | 0.75 | % | 0.79 | % | ||||||||||
With respect to consumer, mortgage and leasing loans, BCP (in accordance with SBS regulations) only recognizes payments as past-due installments if the loan is less than 90 days past due. The entire amount of thesethe loans will beis considered past due if any amount is past due more than 90 days. For IFRS 7 disclosure requirements on past-due loans, see Note 29.1 to the Credicorp Consolidated Financial Statements.
Past-Due Loan Portfolio
The following table analyzes our past-due loan portfolio by the type of loan at the dates indicated:indicated.
| At December 31, | At December 31, | |||||||||||||||||||||||||||||||||||||||
| 2004 | 2005 | 2006 | 2007 | 2008 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||||
| (U.S. Dollars in thousands) | (U.S. Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||
| Past-due loan amounts: | ||||||||||||||||||||||||||||||||||||||||
| Loans | US$ | 85,467 | US$ | 63,889 | US$ | 57,345 | US$ | 48,088 | US$ | 65,947 | US$ | 57,345 | US$ | 48,088 | US$ | 65,947 | US$ | 153,112 | US$ | 183,058 | ||||||||||||||||||||
| Discounted notes | 776 | 1,124 | 596 | 636 | 1,242 | 596 | 636 | 1,242 | 2,151 | 2,906 | ||||||||||||||||||||||||||||||
| Advances and overdrafts in demand deposits | 4,157 | 3,412 | 1,844 | 3,974 | 2,112 | 1,844 | 3,974 | 2,112 | 4,015 | 3,717 | ||||||||||||||||||||||||||||||
| Leasing transactions | 9,387 | 6,412 | 5,237 | 2,110 | 3,468 | 5,237 | 2,110 | 3,468 | 9,653 | 1,443 | ||||||||||||||||||||||||||||||
| Refinanced loans | 59,270 | 20,932 | 11,748 | 6,680 | 10,098 | 11,748 | 6,680 | 10,098 | 15,636 | 18,784 | ||||||||||||||||||||||||||||||
| Total past-due portfolio | US$ | 159,057 | US$ | 95,769 | US$ | 76,770 | US$ | 61,488 | US$ | 82,867 | US$ | 76,770 | US$ | 61,488 | US$ | 82,867 | US$ | 184,567 | US$ | 209,908 | ||||||||||||||||||||
| Less: Reserves for loanlosses (1) | US$ | 271,873 | US$ | 218,636 | US$ | 210,586 | US$ | 229,700 | US$ | 248,063 | ||||||||||||||||||||||||||||||
| Less: Reserves for loan losses (1) | US$ | 210,586 | US$ | 229,700 | US$ | 248,063 | US$ | 376,049 | US$ | 448,597 | ||||||||||||||||||||||||||||||
| Total past-due portfolio net of reserves | US$ | (112,816 | ) | US$ | (122,867 | ) | US$ | (133,816 | ) | US$ | (168,212 | ) | US$ | (165,196 | ) | US$ | (133,816 | ) | US$ | (168,212 | ) | US$ | (165,196 | ) | US$ | (191,482 | ) | US$ | (238,689 | ) | ||||||||||
| (1) |
We recognize interest on past-due loans and loans in legal collection when thesethe loans are collected. The interest income that would have been recorded for these credits in accordance with the terms of the original contract amount is approximately US$17.038.5 million and US$18.727.9 million as of December 31, 20082010 and 2007,2009, respectively.
Loan Loss Reserves
The following table shows the changes in our reserves for loan losses and movements at the dates indicated:indicated.
| Year ended December 31, | ||||||||||||||||||||
| 2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||
| (U.S. Dollars in thousands) | ||||||||||||||||||||
| Reserves for loan losses at the beginning of the year | US$ | 218,636 | US$ | 210,586 | US$ | 229,700 | US$ | 248,063 | US$ | 376,049 | ||||||||||
| Additional provisions (reversals) | (4,243 | ) | 28,439 | 48,760 | 163,392 | 174,682 | ||||||||||||||
| Acquisitions and transfers | - | - | - | 20,905 | - | |||||||||||||||
| Recoveries of write-offs | 44,284 | 34,084 | 31,279 | 23,928 | 34,605 | |||||||||||||||
| Write-offs | (49,859 | ) | (47,266 | ) | (59,308 | ) | (87,927 | ) | (142,736 | ) | ||||||||||
| Monetary correction and other | 1,768 | 3,857 | (2,368 | ) | 7,688 | ) | 5,997 | |||||||||||||
| Total reserves for loan losses at the end of the year | US$ | 210,586 | US$ | 229,700 | US$ | 248,063 | US$ | 376,049 | US$ | 448,597 | ||||||||||
| Year ended December 31, | ||||||||||||||||||||
| 2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||
| (U.S. Dollars in thousands) | ||||||||||||||||||||
| Reserves for loan losses at the beginning of the year | US$ | 326,677 | US$ | 271,873 | US$ | 218,636 | US$ | 210,586 | US$ | 229,700 | ||||||||||
| Additional provisions (reversals) | 16,131 | (6,356 | ) | (4,243 | ) | 28,439 | 48,760 | |||||||||||||
| Acquisitions and transfers | - | (9,024 | ) | - | - | - | ||||||||||||||
| Recoveries of write-offs | 32,287 | 35,032 | 44,284 | 34,084 | 31,279 | |||||||||||||||
| Write-offs | (105,267 | ) | (71,405 | ) | (49,859 | ) | (47,266 | ) | (59,308 | ) | ||||||||||
| Monetary correction and other | 2,045 | (1,484 | ) | 1,768 | 3,857 | (2,368 | ) | |||||||||||||
| Total reserves for loan losses at the end of the year | US$ | 271,873 | US$ | 218,636 | US$ | 210,586 | US$ | 229,700 | US$ | 248,063 | ||||||||||
For a discussion of the risk elements in the loan portfolio and the factors considered in determining the amount of specific reserves, Seesee “— “—Classification of the Loan Portfolio.” Also, as required by IFRS 7, the balance of the reserve for loan losses for the years 2006, 20072008, 2009 and 20082010 are included in Note 6(d) to the Credicorp Consolidated Financial Statements.
Our reserves for loan losses, as of December 31, 2008 include2010, included US$224.3415.7 million of reserves for credit losses and US$23.732.9 million of reserves for indirect or contingent credit losses (US$211.3354.4 million and US$18.421.7 million as of December 31, 2007,2009, respectively). Our reserves for indirect credit losses are included in the “Other liabilities” caption of our consolidated balance sheet (sheet. seeSee Notes 6(d) and 11(a) to the Credicorp Consolidated Financial Statements).Statements.
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The charge-off process is performed with prior approval of our board of directors and the SBS. Potential charge-offs are considered by the board of directors and the SBS which is considered on a case-by-case basis.
We sell certainsome of our fully provisioned past-due loans to wholly-owned subsidiaries (Soluciónes en Procesamiento) for a nominal amount with the same effect as if the loans had been charged off. Accordingly, we believe that our past-due loan amounts are not materially different from what they would be if we were permitted to charge-off loans prior to demonstrating the absolute non-collectability of the loan. In addition, BCP also sells employees’ mortgagesmortgage loans to its subsidiary Financiera de Crédito Solución.
Allocation of Loan Loss Reserves
The following table sets forth the amounts of our reserves for loan losses attributable to commercial, consumer and residential mortgage loans at the dates indicated (see also Note 6(d) to the Credicorp Consolidated Financial Statements):
| At December 31, | ||||||||||||||||||||
| 2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||
| (U.S. Dollars in thousands) | ||||||||||||||||||||
| Commercial loans | US$ | 236,419 | US$ | 195,699 | US$ | 183,374 | US$ | 184,584 | US$ | 153,608 | ||||||||||
| Consumer loans | 14,079 | 14,409 | 17,959 | 30,662 | 72,087 | |||||||||||||||
| Residential mortgage loans | 21,375 | 8,528 | 9,253 | 14,454 | 22,368 | |||||||||||||||
| Total reserves | US$ | 271,873 | US$ | 218,636 | US$ | 210,586 | US$ | 229,700 | US$ | 248,063 | ||||||||||
| At December 31, | ||||||||||||||||||||
| 2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||
| (U.S. Dollars in thousands) | ||||||||||||||||||||
| Commercial loans | US$ | 183,374 | US$ | 184,584 | US$ | 161,170 | US$ | 243,796 | US$ | 289,564 | ||||||||||
| Consumer loans | 17,959 | 30,662 | 56,061 | 90,782 | 106,709 | |||||||||||||||
| Residential mortgage loans | 9,253 | 14,454 | 30,832 | 41,471 | 52,324 | |||||||||||||||
| Total reserves | US$ | 210,586 | US$ | 229,700 | US$ | 248,063 | US$ | 376,049 | US$ | 448,597 | ||||||||||
| (iv) | Deposits |
The following table presents the components of our deposit base at the dates indicated:
| At December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
| (U.S. Dollars in thousands) | ||||||||||||
| Demand deposits: | ||||||||||||
| Nuevo Sol-denominated | US$ | 1,735,869 | US$ | 1,944,404 | US$ | 2,330,559 | ||||||
| Foreign Currency-denominated | 3,136,408 | 2,612,342 | 3,500,833 | |||||||||
| Total | US$ | 4,872,277 | US$ | 4,556,746 | US$ | 5,831,392 | ||||||
| Savings deposits: | ||||||||||||
| Nuevo Sol-denominated | US$ | 1,193,639 | US$ | 1,505,994 | US$ | 2,050,136 | ||||||
| Foreign Currency-denominated | 1,775,100 | 2,033,671 | 2,194,614 | |||||||||
| Total | US$ | 2,968,739 | US$ | 3,539,665 | US$ | 4,244,750 | ||||||
| Time deposits: | ||||||||||||
| Nuevo Sol-denominated | US$ | 1,768,893 | US$ | 1,662,941 | US$ | 3,230,374 | ||||||
| Foreign Currency-denominated | 3,087,219 | 3,088,920 | 3,234,395 | |||||||||
| Total | US$ | 4,856,112 | US$ | 4,751,861 | US$ | 6,464,769 | ||||||
| Foreign Currency Bank Certificates | ||||||||||||
| Foreign Currency-denominated | US$ | 140,013 | US$ | 114,401 | US$ | 163,681 | ||||||
| Severance Indemnity Deposits (CTS): | ||||||||||||
| Nuevo Sol-denominated | US$ | 229,716 | US$ | 256,761 | US$ | 421,240 | ||||||
| Foreign Currency-denominated | 810,171 | 812,745 | 891,882 | |||||||||
| Total | US$ | 1,039,887 | US$ | 1,069,506 | US$ | 1,313,122 | ||||||
| Total deposits: | ||||||||||||
| Nuevo Sol-denominated | US$ | 4,928,117 | US$ | 5,370,100 | US$ | 8,032,309 | ||||||
| Foreign Currency-denominated | 8,948,911 | 8,662,079 | 9,985,406 | |||||||||
| Total | US$ | 13,877,028 | US$ | 14,032,179 | US$ | 18,017,714 | ||||||
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| At December 31, | ||||||||||||
| 2006 | 2007 | 2008 | ||||||||||
| (U.S. Dollars in thousands) | ||||||||||||
| Demand deposits: | ||||||||||||
| Nuevo Sol-denominated | US$ | 996,246 | US$ | 1,457,155 | US$ | 1,735,869 | ||||||
| Foreign Currency-denominated | 1,796,187 | 2,507,346 | 3,136,408 | |||||||||
| Total | US$ | 2,792,433 | US$ | 3,964,501 | US$ | 4,872,277 | ||||||
| Savings deposits: | ||||||||||||
| Nuevo Sol-denominated | US$ | 610,292 | US$ | 877,205 | US$ | 1,193,639 | ||||||
| Foreign Currency-denominated | 1,341,686 | 1,503,699 | 1,775,100 | |||||||||
| Total | US$ | 1,951,978 | US$ | 2,380,904 | US$ | 2,968,739 | ||||||
| Time deposits: | ||||||||||||
| Nuevo Sol-denominated | US$ | 862,901 | US$ | 1,391,008 | US$ | 1,768,893 | ||||||
| Foreign Currency-denominated | 2,355,256 | 2,576,856 | 3,087,219 | |||||||||
| Total | US$ | 3,218,157 | US$ | 3,967,864 | US$ | 4,856,112 | ||||||
| Foreign Currency Bank Certificates | ||||||||||||
| Foreign Currency-denominated | US$ | 61,539 | US$ | 90,119 | US$ | 140,013 | ||||||
| Severance Indemnity Deposits (CTS): | ||||||||||||
| Nuevo Sol-denominated | US$ | 103,282 | US$ | 149,308 | US$ | 229,716 | ||||||
| Foreign Currency-denominated | 671,745 | 746,975 | 810,171 | |||||||||
| Total | US$ | 775,027 | US$ | 896,283 | US$ | 1,039,887 | ||||||
| Total deposits: | ||||||||||||
| Nuevo Sol-denominated | US$ | 2,572,721 | US$ | 3,874,676 | US$ | 4,928,117 | ||||||
| Foreign Currency-denominated | 6,226,413 | 7,424,995 | 8,948,911 | |||||||||
| Total | US$ | 8,799,134 | US$ | 11,299,671 | US$ | 13,877,028 | ||||||
The following table sets forth information regarding the maturity of our time deposits in denominations of US$100,000 or more on December 31, 2008:2010:
At December 31, 2010 | ||||
(U.S. Dollars in thousands) | ||||
| Certificates of deposit: | ||||
| Maturing within 30 days | US$ | |||
| Maturing after 30 but within 60 days | ||||
| Maturing after 60 but within 90 days | ||||
| Maturing after 90 but within 180 days | ||||
| Maturing after 180 but within 360 days | ||||
| Maturing after 360 days | ||||
| Total certificates of deposits | US$ | |||
| Time deposits: | ||||
| Maturing within 30 days | US$ | |||
| Maturing after 30 but within 60 days | ||||
| Maturing after 60 but within 90 days | ||||
| Maturing after 90 but within 180 days | ||||
| Maturing after 180 but within 360 days | ||||
| Maturing after 360 days | ||||
| Total time deposits | ||||
| Total | US$ | |||
| (v) | Return on Equity and Assets |
| At December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
| Return on assets (1) | 1.86 | % | 2.19 | % | 2.27 | % | ||||||
| Return on equity (2) | 22.31 | % | 24.07 | % | 22.01 | % | ||||||
| Dividend payout ratio (3) | 33.44 | % | 28.81 | % | 27.12 | % | ||||||
| Equity to assets ratio (4) | 9.32 | % | 10.00 | % | 11.25 | % | ||||||
| Shareholders’ equity to assets ratio (5) | 8.71 | % | 9.31 | % | 10.60 | % | ||||||
| At December 31, | ||||||||||||
| 2006 | 2007 | 2008 | ||||||||||
| Return on assets (1) | 1.92 | % | 2.29 | % | 1.86 | % | ||||||
| Return on equity (2) | 18.47 | % | 22.87 | % | 22.31 | % | ||||||
| Dividend payout ratio (3) | 45.08 | % | 34.11 | % | 33.44 | % | ||||||
| Equity to assets ratio (4) | 11.61 | % | 10.80 | % | 9.32 | % | ||||||
| Shareholders’ equity to assets ratio (5) | 10.70 | % | 9.95 | % | 8.71 | % | ||||||
| (1) | Net income attributable to our equity holders as a percentage of average total assets, computed as the average of period beginning and period ending balances. |
| (2) | Net income attributable to our equity holders as a percentage of average net equity attributable to our equity holders, computed as the average of monthly balances. |
| (3) | Dividends declared per share divided by net income attributable to our equity holders per share. |
| (4) | Average equity attributable to our equity holders divided by average total assets, both averages computed as the average of month-ending balances. |
| (5) | Average equity attributable to our equity shareholders divided by average total assets, both averages computed as the average of month-ending balances. |
| (vi) | Short-Term Borrowing |
Our short-term borrowings,borrowing, other than deposits, amounted to US$360.8601.5 million and US$878.2673.2 million and US$601.5351.8 million as of December 31, 2006, 20072008, 2009 and 2008,2010, respectively. Our average balances of borrowed amounts decreased in 2008 due to receiving smaller promotional credit lines. As of December 31, 2006, 20072008, 2009 and 2008,2010, no BCRP-Repo transactions exist in the outstanding balance.
The following table sets forth our short-term borrowings:borrowing:
| At December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||
| Year-end balance | US$ | 601,464 | US$ | 673,234 | US$ | 351,816 | ||||||
| Average balance | 935,460 | 641,177 | 808,548 | |||||||||
| Maximum quarter-end balance | 1,197,637 | 1,141,131 | 1,202,594 | |||||||||
| Weighted-average nominal year-end interest rate | 4.47 | % | 2.83 | % | 1.43 | % | ||||||
| Weighted-average nominal interest rate | 4.22 | % | 3.40 | % | 1.14 | % | ||||||
| At December 31, | ||||||||||||
| 2006 | 2007 | 2008 | ||||||||||
| (U.S. Dollars in thousands) | ||||||||||||
| Year-end balance | 360,801 | 878,183 | 601,464 | |||||||||
| Average balance | 479,657 | 742,310 | 935,460 | |||||||||
| Maximum quarter-end balance | 792,609 | 1,105,704 | 1,197,637 | |||||||||
| Weighted-average nominal year-end interest rate | 5.00 | % | 4.70 | % | 4.47 | % | ||||||
| Weighted-average nominal interest rate | 4.81 | % | 4.72 | % | 4.22 | % | ||||||
| (C) | Organizational Structure |
Historically, there has been substantial overlap among the shareholders of BCP, ASHC and PPS. However, duePPS have overlapped. Due to reasons related to the regulatory, political and economic environment in Peru, however, they have been managed independently from one another. We were formed in 1995 by the management of BCP of a potential exchange offer for the purpose of acquiring through an exchange offer, the common shares of BCP, ASHC and PPS. In anthe exchange offer in October 1995, we acquired 90.1% of BCP (391,973,951 shares), 98.2% of ASHC (39,346,169 shares), and 75.8% of PPS (5,537,474 shares) in exchange for 60,815,152 of our common shares at a ratio of 0.10401, 0.33708 and 1.2249 of our common shares per common share of BCP, ASHC and PPS, respectively. Our common shares commenced trading on the New York Stock Exchange immediately upon consummation of the exchange offer, with a closing price on that day of US$11.61 (adjusted to reflect stock dividends through May 1999).
On March 19, 1996, pursuant to an exchange offer, we acquired the remaining 1.8% of the outstanding shares of ASHC (702,674 shares) in exchange for 237,859 of our common shares at a ratio of 0.33708 of our common shares per common share of ASHC. This acquisition was completed pursuant to an exchange offer with the same terms as the October 1995 exchange offer (see above). The closing price of our common shares on the New York Stock Exchange on the date that exchange offer was completed was US$10.98 (adjusted to reflect stock dividends). See “Item 9. The Offer and Listing—(A) Offer and Listing Details—Price History of Credicorp’s Stock” and “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Dividend Policy.”
Our management consists of certain principal executive officers of BCP, ASHC and PPS. It believes that a unified financial group with a coordinated strategy is best able to take advantage of growth in the Peruvian economy and deregulation of the financial services sector as well as to achieve synergies from cross-selling financial services and products (e.g., through BCP’s extensive branch network). Through our subsidiaries, we are the largest Peruvian provider of financial services in Peru.
BCP began operations in 1889 as Banco Italiano and later changed its name to Banco de Crédito del Perú in 1941. BCP has been the largest commercial bank in Peru since the 1920s. Members of the Romero family have been shareholders of BCP since 1918 and became the controlling shareholders in 1979. Mr. Dionisio Romero Seminario, who was our former Chairman of the Board of Directors and Chief Executive Officer, was a member of the Board of Directors of BCP from 1966 to 1987, becoming BCP’s Chairman in 1979. In response to former President Alan García’s 1987 attempt to nationalize the Peruvian banking industry in 1987, the majority shareholders of BCP, including Mr. Romero S., sold a controlling interest in BCP and transferred management to its employees. ThisThe sale successfully prevented the government from gaining control of BCP. Upon the election of Alberto Fujimori as President of Peru in 1990 and the introduction of market reforms, the Romero family reestablished its shareholdingholdings in BCP, and Mr. Romero S. and several former key managers of BCP returned to BCP. See “—(9) Peruvian Government and Economy—(i) Peruvian Government.” Members of the Romero family exchanged their BCP shares in the October 1995 exchange offer, and nowas of February 14, 2011 hold 15.85%15.0% of our common shares. As of December 31, 2008, we hold 97.41% of BCP’s total shares. See “Item 7. Major Shareholders and Related Party Transactions—(A) Major Shareholders.”
ASHC was incorporated in the Cayman Islands in December 1981 as a wholly-owned subsidiary of BCP, under the name Crédito del Perú Holding Corporation or BCP International. It became the first Peruvian bank to establish an offshore banking presence to serve its Peruvian customers. In 1983, BCP distributed theits shares of BCP International to the BCP’sits shareholders as dividends to protect its privately held status in the event that BCP was nationalized. BCP International established its first physical presence offshore (previously having been operated through BCP’s corporate offices) by opening an office in Panama in 1984, and opening an agency in Miami in 1986. Also inIn 1986, BCP International changed its name to ASCH. As a result of the attempted expropriation by the government in 1987, ASHC’s operations and management were made independent of BCP. In 2002, ASHC closed its Miami agency at the same time that BCP opened its Miami agency. Also, Credicorp Securities was established in Miami as our wholly-owned subsidiary and began operating in early 2003 serviced by former ASHC personnel.
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We own 75.97%75.98% of PPS whichdirectly and 21.28% through our subsidiary Grupo Credito. PPS was formed in 1992 as a result of athe merger between El Pacífico Compañía de Seguros y Reaseguros S.A. and Compañía de Seguros y Reaseguros Peruano-Suiza S.A. PPS is the second largest Peruvian insurance company in terms of premiumspremium sold and health fees. PPS’s major subsidiaries areinclude Pacífico Vida, which specializes in life and pension fund insurance, and Pacífico Salud, which provides health insurance as an alternative to public social security.
We own 100% of Grupo Crédito S.A., which is the principal shareholder in Prima AFP. We also hold equity shares in Peruvian electric utilities and other non-financial companies.
BCB (formerly Banco Popular S.A., Bolivia) is another one of our subsidiaries. BCB wasa subsidiary that we acquired by BCP for US$6.2 million in November 1993. Since we transferred to BCP a 55.79% stake in November 2001, we have directly held 2.7% of BCB’s equity while holding the rest through BCP. In December 2002, BCP acquired BSCH-Perú, which was merged into BCP on February 28, 2003.
Solución was spun off into two companies. The first company retained only cash and equity. The second company became a wholly-owned subsidiary of BCP in March 2003 as a result of BCP acquiringBCP’s acquisition of the remaining 45% of Solución’s equity interests. That companySolución was then merged into BCP’s Peruvian banking operations in March 2004.
On August 24, 2006, through our subsidiary Prima AFP, we acquired from Grupo Santander Perú S.A. 99.97% of the capital stock of AFP Unión Vida S.A., a pension fund management company that operates in Peru.Peru, from Grupo Santander Perú S.A. We also made a tender offer to the minority shareholders in order to acquire the remaining 0.03% of the capital stock. The total purchase price amounted towas approximately US$141.5 million.At the September 6, 2006 general shareholder’s meeting of Prima AFP, the merger with AFP Unión Vida S.A. was approved, with an effective date of December 1, 2006.
In October 2009, through our subsidiary BCP, we acquired Empresa Financiera Edyficar S.A., a financial entity specialized in micro lending. As of December 31, 2009 we held 99.79% of the capital stock of Edyficar.
In November 2010, Credicorp's Board of Directors approved the transfer of 84.9% of BCP’s total shares to Grupo Crédito S.A. (its Peruvian wholly owned subsidiary) through a capital contribution, in order to facilitate Credicorp's future investments in Perú without modifying the controlling structure of BCP. Under the new structure, Credicorp directly holds 12.7% of BCP's total shares and, in conjunction with its subsidiary Grupo Crédito, continues to control the same 97.6% of such shares.
| (D) | Property, Plants and Equipment |
On December 31, 2008,2010, we had 435535 branches, representative and similar offices, of which 330329 were branch offices of BCP in Peru. Our principal properties include the headquarters of BCP, at Calle Centenario 156, La Molina, Lima 12, Perú, and the headquarters of PPS at Juan de Arona 830, Lima, Perú. We lease approximately 319 of these properties and own the rest. There are no material encumbrances on any of our properties.
| ITEM 4A. | UNRESOLVED STAFF COMMENTS |
Not applicable.
ITEM 5. |
OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
Operating Results |
| (1) | Critical Accounting Policies |
Foreign currency translation
| · | Monetary assets and liabilities are |
| · | Non-monetary accounts are |
| · | Income and expenses, except for those related to non-monetary assets which are |
All resulting translationconversion differences are recognized in ourthe consolidated income statement.
Income and Expense Recognitionexpense recognition from Banking Activitiesbanking activities
Interest income includes coupons earned on fixed income investment and trading securities and the accrued discount and premium on financial instruments. We recognize dividendsDividends are recognized as income when they are declared.
Insurance activities
Insurance contracts are those contracts where the Group (the insurer) has accepted significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. This definition also includes reinsurance contracts that the Group holds. As a general guideline, the Group determines whether it has significant insurance risk by comparing benefits paid with benefits payable if the insured event did not occur. Insurance contracts can also transfer financial risk.
72
Reinsurance Premiums
Ceded reinsurance arrangements do not relieve the Group from its obligations to a policyholder.
The Group also assumes reinsurance risk in the normal course of business for non-life insurance contracts when applicable. Premiums and claims on assumed reinsurance are recognized as revenue or expenses in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business.
Reinsurance liabilities represent balances due to reinsurance companies. Amounts payable are estimated in a manner consistent with the related reinsurance contract
Financial Instruments: Initial Recognitionrecognition and Subsequent Measurementsubsequent measurement:
The classification of financial instruments at initial recognition depends on the purpose and the Management intention for which the financial instruments were acquired and their characteristics. We measure allAll financial instruments are measured initially at their fair value plus any directly attributable incremental cost of acquisition or issue, except in the case of financial assets and financial liabilities notrecorded at fair value through profit or loss.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date, for example the date that the Group commits to purchase or sell the asset. Derivatives are recognized on a trade date basis.
| (i) | Financial assets and financial liabilities at fair value through profit or loss |
Financial assets at fair value through profit or loss any directly attributable incremental cost of acquisition or issue.
Financial assets are classified as held for trading if it isthey are acquired or incurred principally for the purpose of selling or repurchasing in the near term, or if it is partand are presented in the caption “Trading securities” of a portfoliothe consolidated statements of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. We also categorize derivatives as held for trading unless they are designated as hedging instruments. Financial assets and financial liabilities are designatedposition.
Management may only designate an instrument at fair value through profit or loss upon initial recognition when the following criteria are met:
| · |
| · |
| · |
Dividend income is recorded when the collection right to the payment has been established.
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| (ii) | Loans and receivables |
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than (i) those that the entity intend to sell immediately or in the short term, (ii) those that the entity upon initial recognition designates as available for sale, or (iii) those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration.deterioration..
After initial measurement, loans and receivables are subsequently measured at amortized cost using the effective interest rate method, less any allowance for impairment. We calculate amortizedAmortized cost is calculated by consideringtaking into account any discount or premium on acquisition and fees and costs that are an integral part of the effective interest rate. We recognize impairment lossesThe effective interest rate amortization is recognized in the consolidated statements of income statement in the caption “Interest and dividend income”. Losses from impairment are recognized in the consolidated income statement in the caption “Provision for loan losses, net of recoveries.”losses”.
| (iii) | Available-for-sale financial investments |
After initial measurement, we subsequently measurerecognition, available-for-sale financial investments are measured at fair value. We recognizevalue with unrealized gains andor losses directly in equityrecognized as other comprehensive income in the caption “Other reserves” on the consolidated balance sheets,available-for-sale reserve, net of its corresponding deferred tax and minority interest. When an available-for-sale financialnon-controlling interest, until the investment is disposed of,derecognized, at which time the cumulative gain or loss previously recognized in equity is recognized in the consolidated statements of income statement in the caption “Net gain on sale of securities” using, or determined to be impaired, at which time the average cost basis. We recognize interestimpaired amount is recognized in the consolidated income statement in the caption “Impairment loss on available–for–sale investments” and removed from the available-for-sale reserve.
Interest and dividends earned are recognized in the consolidated statements of income statement in the caption “Interest and dividend income.” We report interestincome”. Interest earned is reported as interest income using the effective interest rate and we recognize dividends earned are recognized when right to collection has beenrights are established.
Estimated fair values are based primarily on quoted prices or, if quoted market prices are not available, discounted expected cash flows using market rates commensurate with the credit quality and maturity of the investment.
| (iv) | Other financial liabilities |
After initial measurement, we subsequently measure other financial liabilities are subsequently measured at amortized cost using the effective interest rate method. We calculate amortizedAmortized cost by taking into accountincludes any issuance discount or premium and costs that are an integral part of the effective interest rate.rate..
De-recognition of financial assets and financial liabilities
Financial Assets and Financial Liabilitiesassets:
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Financial liabilities:
Offsetting financial instruments:
Financial assets and liabilities are offset and the net amount is reported in the consolidated statements of financial position when there is a legally enforceable right to offset the recognized amounts and management has the intention to settle on a net basis, or realize the assets and settle the liability simultaneously.
Impairment of Financial Assetsfinancial assets:
We assess at each date of the consolidated balance sheet datestatements of financial position whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that hashave occurred after the initial recognition of the asset (an incurred loss event) and thatsuch loss event (or events)event(s) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include (i) indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, (ii) the probability that they will enter bankruptcy proceedingsgo bankrupt or anotherother legal financial reorganization process and (iii) where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. The criteriaCriteria used for each category of financial assets are as described below:follows:
| (i) | Loans and receivables |
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset carrying amount and the present value of estimated future cash flows.flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the consolidated statements of income.income statement. Interest income, if applicable, is accrued on the reduced carrying amount based on the original effective interest rate of the asset. A loan,Loans, together with itsthe associated allowanc, isallowance, are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to us.the Group. If in aany subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If in the future a future write-off is later recovered, the recovery is recognized in the consolidated statements of income statement, as a credit to the caption “Provision for loan losses, net of recoveries.”losses”.
The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.
For a collective evaluation impairment, financial assets are grouped considering ourthe Group’s internal credit grading system, which considers credit risk characteristics such asfor example: asset type, industry, geographical location, collateral type, past-due status and past-due status.other relevant factors.
| (ii) | Available-for-sale financial investments |
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In the case of equity investments, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. “Significant” is evaluated against the original cost of the investment and “prolonged” against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any previously recognized impairment loss) is removed from the investments available-for-sale reserve of the consolidated statement of changes in equity and recognized in the consolidated statements of income.income statement. Impairment losses on equity investments are not reversed through the consolidated statements of income;income statement; increases in their fair value after impairment are recognized directly in equity.the consolidated statements of comprehensive income.
In the case of debt instruments, we assess impairment is assessed based on the same criteria as financial assets carried at amortized cost (loans and receivables). We assess futureHowever, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated income statement. Future interest income is based on the reduced carrying amount and it is accrued using the interest rate used to discount the future cash flows for the purpose of measuring the impairment loss. We record interestInterest income is recorded as part of the “Interest and dividend income” inportion of the consolidated statements of income.income statement. If in a subsequent year, the fair value of a debt instrument increases and the increase can beis objectively related to an event occurring after the impairment loss was recognized in the consolidated statements of income we reversestatement, the impairment loss will be reversed through the consolidated statements of income.income statement.
| (iii) | Renegotiated loans |
Goodwill:
Goodwill represents the excess of the acquisition cost of a subsidiary over the fair value of the net identifiable assets of the acquired subsidiary at the date of acquisition. We test goodwillGoodwill is tested annually for impairment to assess whether the carrying amount is fully recoverable. We recognize anAn impairment loss is recognized if the carrying amount exceeds the recoverable amount. Goodwill is allocated to cash-generating units for impairment testing purposes.
Impairment of Non-Financial Assetsnon-financial assets:
For non-financial assets, excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, we estimate the recoverable amount. We reverse aamount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. Ifrecognized; if that is the case, we increasethe reversal is limited so that the carrying amount of the asset toneither exceeds its recoverable amount. amount, nor exceeds the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the income statement.
Impairment losses relating to goodwill cannot be reversed for subsequent increases in its recoverable amount in future periods.
Financial guarantees:
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Any increase in the liability relating to be applied to taxablea financial guarantee is included in the consolidated statement of income. The fee received is recognized in the consolidated statement of income in the yearscaption “Banking services”.
Provisions:
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow or resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in which temporary differences are expected to be recovered or eliminated. The measurement of deferred assets and deferred liabilities reflects the tax consequences that arise from the manner in which we and our subsidiaries expect, at the consolidated balance sheet date,income statement net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the specific risks of the liability. Where discounting is used, the increase in the provision due to recover or settle the carrying amountpassage of such assets and liabilities.time is recognized as a finance cost
Contingencies:
Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed in notes, unless the probability of an outflow of resources is remote.
Share-based payment transactions
| (i) | Cash-settled transactions |
The SARs fair value is expensed over the period up to the vesting date, with recognition of executiona corresponding liability. The liability is rerecorded to fair value at each reporting date up to and including the market price. settlement date, with changes in fair value are recognized in the consolidated income statement under the caption “Salaries and employee benefits”. When the price or terms of the SARs are modified, any additional expense is also recorded in the consolidated income statement. See Note 18 to the Credicorp Consolidated Financial Statements.
| (ii) | Equity-settled transactions |
As explain in note 18(b) to the Consolidated Financial Statements, as of April 2009, a new supplementary remuneration plan was implemented to replace the SARs plan.
The cost of this equity-settled plan is recognized, together with a corresponding increase in equity, over the period in which the service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“the vesting date”). The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest.
The expense is recorded in the consolidated income statement under the caption “Salaries and employees benefits”. When the terms of an equity-settled award are modified, the minimum expense recognized under the “Salaries and employees benefits” caption in each yearthe consolidated income statement is the estimated marketexpense as if the terms had not been modified. An additional expense is recognized for any modification which increases the total fair value of the rights that can be exercised byshare-based payment arrangement, or is otherwise beneficial to the beneficiariesemployee as measured at the consolidated balance sheet date. When we changedate of modification.
The dilutive effect of outstanding stock awards is reflected as a share dilution in the price or the termscomputation of the SARs, we record the additional compensation expense for an amount equal to the difference between the new exercise price and the market price of the underlying shares.diluted earnings per share.
Derivative Financial Instrumentsfinancial instruments:
Trading:
77
Derivative financial instruments are initially recognize derivative financial instrumentsrecognized in the consolidated balance sheetstatements of financial position at cost and theysubsequently are subsequently re-measured at their fair value. We estimate fairFair values are estimated based on the market exchange and interest rates. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. We record gainsGain and losses for changes in their fair value are recorded in the consolidated statements of income.income statement.
Hedge:
Also, at the inception of the hedge relationship, a formal assessment is undertaken to ensure the hedging instrument is expected to be highly effective in offsetting the designated risk in the hedged item. Hedges are formally assessed at each reporting date. We regard aA hedge is regarded as highly effective if the changes in fair value or cash flows attributable to the hedged risk during the period for which the hedge is designated is expected to offset in a range between 80%80 percent and 125%.125 percent.
| (i) | Cash flow hedges |
The effective portion of the gain or loss on the hedging instrument is recognized directly in equityas other comprehensive income in the caption “Other reserves”cash flow hedge reserve, while any ineffective portion is recognized immediately in the consolidated balance sheet. We recognizeincome statement as finance costs.
Amounts recognized as other comprehensive income are transferred to the ineffective portion ofconsolidated income statement when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognized or when a forecast sale occurs.
If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss onpreviously recognized in the cash flow hedge reserve are transferred to the consolidated income statement. If the hedging instrument in the consolidated statements of income in the captions “Interest and dividend income”expires or “Interest expense,”is sold, terminated or exercised without replacement or rollover, or if its designation as appropriate. When the hedged cash flow affects the consolidated statements of income, thea hedge is revoked, any cumulative gain or loss on the hedging instrument is recycledpreviously recognized in the corresponding incomecash flow hedge reserve remains in the cash flow hedge reserve until the forecast transaction or expense line of the consolidated statements of income.firm commitment affects profit or loss
| (ii) | Fair value hedges |
For fair value hedges relating to consolidated items carried at amortized cost, the adjustment to carrying value is amortized through the consolidated income statement over the remaining maturity term. Effective interest rate amortization may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.
If the hedged item is derecognized, the unamortized fair value is recognized immediately in the consolidated income statement.
When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in the consolidated income statement
Embedded Derivatives: Certain derivativesderivates:
Derivatives embedded in other financial instrumentshost contracts are treatedaccounted for as separate derivatives whenand recorded at fair value if their economic characteristics and risks are not closely related to those of the primary contracthost contracts, and the primary contract ishost contracts are not carriedheld for trading or designated at fair value through profit or loss. We measure these embedded derivatives at fair value with changes in fair value recognized in the consolidated statements of income, unless we choose to designate the hybrid contracts at fair value through profit and loss.
Fiduciary activities, management of funds and pension funds:
The Group provides custody, trustee, investment management and advisory services to third parties that result in the holding of assets designated at fair value” on their behalf. These assets and income arising thereon are excluded from these consolidated financial statements, as they are not assets of the Group.
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Commissions generated for these activities are included in the caption “Other income” of the consolidated balance sheets.income statements.
| (2) | Historical Discussion and Analysis |
The Group monitors the results of its operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Regarding the Group’s segments, total revenues from banking segment amounted to 74% or more of the Group’s total revenue in 2010, 2009, and 2008; therefore, the following historical discussion and analysis is presented principally for banking segment, except when otherwise indicated, and is based upon information contained in our Consolidated Financial Statements and should be read in conjunction therewith. The discussion in this section regarding interest rates is based on nominal interest rates.
The financial information and discussion and analysis presented below for 2006, 20072008, 2009 and 20082010 reflect the financial position and results of operations for 2006, 20072008, 2009 and 20082010 of our subsidiaries. See “Item 3. Key Information—(A) Selected Financial Data.”
On December 31, 2008,2010, approximately 64.4%55.4% of our deposits and 68%62.4% of our loans were U.S. Dollar-denominated. Despite these high proportions, U.S. Dollar-denominated deposits and loans have decreased from the previous year (65.7% and 69.5%, respectively)(57.9% in 2009) due to a reduction in the rate of inflation. Nevertheless, we expect the majority of our deposits and loans to continue to be denominated in U.S. Dollars.
Results of Operations for the Three Years Ended December 31, 20082010
The following table sets forth, for the years 2006, 20072008, 2009 and 2008,2010, the principal components of our net income:
| Year ended December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
| (U.S. Dollars in thousands) | ||||||||||||
| Interest income | US$ | 1,382,844 | US$ | 1,312,925 | US$ | 1,471,708 | ||||||
| Interest expense | (561,617 | ) | (420,564 | ) | (414,121 | ) | ||||||
| Net interest income | US$ | 821,227 | US$ | 892,361 | US$ | 1,057,587 | ||||||
| Provision for loan losses | (48,760 | ) | (163,392 | ) | (174,682 | ) | ||||||
| Net interest income after Provision | US$ | 772,467 | US$ | 728,969 | US$ | 882,905 | ||||||
| Noninterest income | 592,564 | 720,631 | 804,535 | |||||||||
| Insurance premiums earned net of claims on insurance activities | 51,993 | 138,224 | 164,721 | |||||||||
| Other expenses | (920,603 | ) | (957,110 | ) | (1,085,885 | ) | ||||||
| Income before translation result and income tax | US$ | 496,421 | US$ | 630,714 | US$ | 766,276 | ||||||
| Translation result (loss) gain | US$ | ( 17,650 | ) | US$ | 12,222 | ) | US$ | 24,120 | ||||
| Income tax | (109,508 | ) | (138,500 | ) | (187,081 | ) | ||||||
| Net income | US$ | 369,263 | US$ | 504,436 | US$ | 603,315 | ||||||
| Net income attributable to: | ||||||||||||
| Equity holders | 357,756 | 469,785 | 571,302 | |||||||||
| Minority interests | 11,507 | 34,651 | 32,013 | |||||||||
| Net income | US$ | 369,263 | US$ | 504,436 | US$ | 603,315 | ||||||
| Year ended December 31, | ||||||||||||
| 2006 | 2007 | 2008 | ||||||||||
| (U.S. Dollars in thousands) | ||||||||||||
| Interest income | US$ | 782,002 | US$ | 1,065,974 | US$ | 1,400,334 | ||||||
| Interest expense | (283,478 | ) | (432,000 | ) | (577,411 | ) | ||||||
| Net interest income | US$ | 498,524 | US$ | 633,974 | US$ | 822,923 | ||||||
| Provision for loan losses | 4,243 | (28,439 | ) | (48,760 | ) | |||||||
| Net interest income after Provision | US$ | 502,767 | US$ | 605,535 | US$ | 774,163 | ||||||
| Noninterest income | 338,894 | 522,937 | 592,564 | |||||||||
| Insurance premiums earned net of claims on insurance activities | 64,739 | 58,672 | 51,993 | |||||||||
| Other expenses | (585,058 | ) | (747,089 | ) | (922,299 | ) | ||||||
| Merger costs | (5,706 | ) | - | - | ||||||||
| Income before translation result and income tax | US$ | 315,636 | US$ | 440,055 | US$ | 496,421 | ||||||
| Translation result (loss) gain | US$ | 15,216 | US$ | 34,627 | US$ | (17,650 | ) | |||||
| Income tax | (83,587 | ) | (102,287 | ) | (109,508 | ) | ||||||
| Net income | US$ | 247,265 | US$ | 372,395 | US$ | 369,263 | ||||||
| Net income attributable to: | ||||||||||||
| Equity holders | 230,013 | 350,735 | 357,756 | |||||||||
| Minority interests | 17,252 | 21,660 | 11,507 | |||||||||
| Net income | US$ | 247,265 | US$ | 372,395 | US$ | 369,263 | ||||||
Net income attributable to our equity holders increased from US$350.7 million in 2007 to US$357.8 million in 2008. Our net income decreased2008 to US$469.8 million in 2009, which represented an increase of 31.3% from 20072008 to 2008 due to2009, despite the charges of US$181.6 million, which included (i) US$60.4 million to impair a deteriorated investment portfolio caused by declining stock prices, (ii) US$36.4 million for a provision by ASHC for potential losses and contingencies related to an ASHC-managed fund that had been invested with Bernard L. Madoff Investment Securities LLC, or Madoff Securities, on behalf of its clients, (iii) US$67.1 million of expense to hedge SARs Program and (iv) US$17.7 million from an exchange loss caused by the depreciation of the Nuevo Sol against the U.S. Dollar.recorded during 2009.
On the other hand, other expensesnon interest income increased 23.5%11.6% in 20082010 to US$922.3804.5 million, principally as a resultprimarily due to an increase in fees and commissions income from banking services of (i) a net loss on financial assets and liabilities designated at fair value through profitUS$158.1 million, or loss in the amount of US$67.1 million, (ii) provisions related to Bernard L. Madoff Investments Securities LLC in the amount of US$36.4 million, (iii) impairment losses on available for sale investments of US$60.4 million and (iv) higher Administrative, general and tax expenses of US$62.3 million, all of which was20.1%, net of a decrease in salaries and stock appreciation rightsnet gains from sales of securities of US$6.140.6 million andor 33.6%. Non interest income increased 21.6% in 2009 to US$37.7 million, respectively.720.6 million.
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Net Interest Income
Net interest income represents the difference between interest income on interest-earning assets and the interest paid on interest-bearing liabilities. The following table sets forth the components of net interest income:
| Year ended December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
| (U.S. Dollars in thousands) | ||||||||||||
| Interest income: | ||||||||||||
| Loans | US$ | 963,940 | US$ | 1,062,046 | US$ | 1,218,728 | ||||||
| Deposits in banks | 37,352 | 11,047 | 3,667 | |||||||||
| Deposits in Central Bank | 37,914 | 4,871 | 28,670 | |||||||||
| Investment securities and others | 298,021 | 186,629 | 196,795 | |||||||||
| Dividends | 12,189 | 9,715 | 11,615 | |||||||||
| Gain from derivatives instruments and other interest income | 33,428 | 38,617 | 12,233 | |||||||||
| Total interest income | US$ | 1,382,844 | US$ | 1,312,925 | US$ | 1,471,708 | ||||||
| Interest expense: | ||||||||||||
| Saving deposits | US$ | 27,165 | US$ | 18,509 | US$ | 8,826 | ||||||
| Time deposits | 310,856 | 206,118 | 153,916 | |||||||||
| Issued bonds | 90,083 | 91,319 | 124,311 | |||||||||
| Borrowing from other financial institutions and others | 66,491 | 27,328 | 43,532 | |||||||||
| Demand deposits | 38,085 | 21,414 | 13,657 | |||||||||
| Loss from derivatives instruments and other interest expenses | 28,937 | 55,876 | 69,879 | |||||||||
| Total interest expense | US$ | 561,617 | US$ | 420,564 | US$ | 414,120 | ||||||
| Net interest income | US$ | 821,227 | US$ | 892,361 | US$ | 1,057,588 | ||||||
| Year ended December 31, | ||||||||||||
| 2006 | 2007 | 2008 | ||||||||||
| (U.S. Dollars in thousands) | ||||||||||||
| Interest income: | ||||||||||||
| Loans | US$ | 537,670 | US$ | 701,471 | US$ | 963,940 | ||||||
| Deposits in banks | 36,916 | 58,896 | 33,217 | |||||||||
| Deposits in Central Bank | 56,970 | 46,921 | 37,914 | |||||||||
| Investment securities and others | 135,705 | 231,763 | 303,853 | |||||||||
| Dividends | 9,141 | 9,083 | 12,214 | |||||||||
| Gain from derivatives instruments and other interest income | 5,600 | 17,840 | 49,196 | |||||||||
| Total interest income | US$ | 782,002 | US$ | 1,065,974 | US$ | 1,400,334 | ||||||
| Interest expense: | ||||||||||||
| Saving deposits | US$ | 12,836 | US$ | 19,869 | US$ | 27,165 | ||||||
| Time deposits | 160,565 | 263,487 | 310,856 | |||||||||
| Issued bonds | 25,283 | 33,592 | 51,756 | |||||||||
| Borrowing from other financial institutions and others | 36,908 | 83,070 | 104,818 | |||||||||
| Demand deposits | 24,781 | 25,123 | 38,085 | |||||||||
| Loss from derivatives instruments and other interest expenses | 23,105 | 6,859 | 44,731 | |||||||||
| Total interest expense | US$ | 283,478 | US$ | 432,000 | US$ | 577,411 | ||||||
| Net interest income | US$ | 498,524 | US$ | 633,974 | US$ | 822,923 | ||||||
Our net interest income increased 29.8%18.5% in 20082010 compared to 2007,2009, and increased 27.2%8.7% in 20072009 compared to 2006.2008.
Interest Income: Interest income increased 31.4%12.1% in 20082010 compared to 2007,2009, after increasing 36.3%decreasing 5.1% in 20072009 compared to 2006.2008. The increase in 20082010 was principallyprimarily due to higher average volume in loans and investments available for sale. Loandeposits in the Central Bank. The increase in loans and deposits in the Central Bank was mainly relatedprimarily due to retaila lower volume average throughout the year and corporate banking growth, whilelower rates. The decrease in 2009 was primarily due to lower average volume in investments securities increaseand others and loans. The decrease in investments securities was primarily due to gains related to BCRP certificates of deposit.a lower volume average throughout the year and lower rates.
Our average nominal interest rates earned on loans increaseddecreased to 10.1%9.4% in 2008 from 10.0% in 2007 and2010 from 9.9% in 2006.2009 and from 10.1% in 2008. The average nominal interest rate for foreign currency-denominated loans decreased from 8.8%7.7% in 20062009 and 2009 to 8.6%6.5% in 2007 and 2008.2010, due to a fall in interest rates in the international market. Interest rates for Nuevo Sol-denominated loans decreased from 13.7%13.4% in 20062008. to 13.5%13.8% in 20072009 and further to 13.4%14.1% in 2008.2010, which represented minor fluctuations in interest rates in Nuevo Sol for loans.
The average balance of our foreign currency-denominated loan portfolio increased 28.1%17.0% to US$6,534.07,965.6 million in 2008 from2010, as compared to US$5,101.46,810.1 million in 2007, which2009. In 2009, the average balance of our foreign currency-denominated loan portfolio increased 4.2% over the US$6,533.9 million average balance recorded in turn increased 24.3% from US$4,104.5 million in 2006.2008. The average balance of our Nuevo Sol-denominated loan portfolio increased 48.5%30.3% from US$1,307.8 million in 2006 to US$1,942.3 million in 2007, and by 53.8% to US$2,987.7 million in 2008. Our excess liquidity has continued through 2008. During2008 to US$3,983.5 million in 2009, and by 27.3% to US$4,957.7 million in 2010. The average balance increase from 2009 to 2010 was due to the recovery of the Peruvian economy and Peruvian financial system after the international crisis.
In 2009, the lower expansion of the average balance as compared to the growth rate registered in 2010 was explained by the effects of the international crisis on the Peruvian economy which grew 0.9% in 2009 whereas in 2010 the rate ascended to 8.8%. On the other hand, the significant increase in 2008 was related primarily to the growth in the Peruvian economy (GDP growth rate of 9.8%) during that year (prior to the international crisis). In addition, in 2008 an increasing proportion of loans went to commerce, mortgage, manufacturing and financial intermediation sectors presenting higher risk, but these sectors also yielded higher margins. See “Item 4. Information on the Company—(B) Business Overview—(12) Selected Statistical Information.”
Interest Expense:Interest expense increaseddecreased in 20082010 by 33.7%1.53% as compared to 2007,2009 and by 52.4%25.1% in 20072009 as compared to 2006. Higher2008. The decrease in interest expense in 2008 and 2007during 2010 was principally due to increasesthe lower interest rate in foreign currency and in Nuevos Soles (net of the volumeincrease in interest expense of deposits and variable market rates on deposits. issue bonds) that BCP received as a result of issuing US$800 million in senior notes.
Average nominal interest rates paid on foreign currency-denominated deposits increaseddecreased from 2.6% in 2006 to 2.8% in 2007, and decreased to 2.3%2.4% in 2008 attracting higher volumes of deposits.to 1.5% in 2009, and to 1.0% in 2010. Average nominal interest paid on Nuevo Sol-denominated deposits increaseddecreased from 2.5% in 2006 to 3.2% in 2007, and further to 3.5% in 2008.2008 to 2.2% in 2009, and to 1.2% in 2010. This rate increase was a commercial decision to raisedecrease followed the market trend of interest rates during the end of year campaigns. observed in 2010. See “Item 4. Information on the Company—(B) Business Overview—(8) Competition” and “—(12) Selected Statistical Information.”
Our average foreign currency-denominated deposits increased 8.1%3.1% to US$9,102.5 million in 2010 from US$8,829.4 million in 2009, and increased 13.1% from US$7,803.5 million in 2008 from US$7,216.6 million in 2007, which in turn increased 24.0% from US$5,820.2 million in 2006.2008. Our average Nuevo Sol-denominated deposits increased 67.7%37.1% in 20082010 to US$6,846.4 million from US$4,995.4 million in 2009, and decreased 9.0% from US$5,488.6 million from US$3,272.1 million in 2007, which in turn increased 63.2% from US$2,005.0 million in 2006. 2008. See “Item 4. Information on the Company—(B) Business Overview—(12) Selected Statistical Information.”
Net Interest Margin:Our net interest margin (net interest income divided by average interest-earning assets) stayed at 4.4%was 4.9% in 20082010 and did not change significantly compared to 2007, which decreased from 4.8%2009 and 2008, when the margin stayed in 20064.7% as in 20072009 returns declined on interest-earning assets (mainly securities and Nuevo Sol-denominated loans) while funding costs remained relatively unchanged. See “Item 4. Information on the Company—(B) Business Overview—(12) Selected Statistical Information.”
Provision for Loan Losses
We classify all of our loans and other credits by risk category. We establish our loan loss reserves based on criteria established by IAS 39 (see “Item 4. Information on the Company—(B) Business Overview—(12) Selected Statistical Information—(iii) Loan Portfolio—Classification of the Loan Portfolio”). We do not anticipate that the expansion of our loan portfolio or the consolidationdevelopment of the activities of our subsidiaries will necessitaterequire a change in our reserve policy.
The following table sets forth the changes in our reserve for loan losses:
| Year ended December 31 | ||||||||||||||||||||
| 2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||
| (U.S. Dollars in thousands) | ||||||||||||||||||||
| Reserves for loan losses at the beginning of the year | US$ | 218,636 | US$ | 210,586 | US$ | 229,700 | US$ | 248,063 | US$ | 376,049 | ||||||||||
| Additional provisions (reversals) | (4,243 | ) | 28,439 | 48,760 | 163,392 | 174,682 | ||||||||||||||
| Acquisition of Edyficar | - | - | - | 20,905 | - | |||||||||||||||
| Recoveries of write-offs | 44,284 | 34,084 | 31,279 | 23,928 | 34,605 | |||||||||||||||
| Write-offs | (49,859 | ) | (47,266 | ) | (59,308 | ) | (87,927 | ) | (142,736) | |||||||||||
| Monetary correction and other | 1,768 | 3,857 | (2,368 | ) | 7,688 | ) | 5,997 | |||||||||||||
| Reserves for loan losses at the End of the year | US$ | 210,586 | US$ | 229,700 | US$ | 248,063 | US$ | 376,049 | US$ | 448,597 | ||||||||||
| Year ended December 31 | ||||||||||||||||||||
| 2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||
| (U.S. Dollars in thousands) | ||||||||||||||||||||
| Reserves for loan losses at the beginning of the year | US$ | 326,677 | US$ | 271,873 | US$ | 218,636 | US$ | 210,586 | US$ | 229,700 | ||||||||||
| Additional provisions (reversals) | 16,131 | (6,356 | ) | (4,243 | ) | 28,439 | 48,760 | |||||||||||||
| Acquisitions and sales | - | (9,024 | ) | - | - | - | ||||||||||||||
| Recoveries of write-offs | 32,287 | 35,032 | 44,284 | 34,084 | 31,279 | |||||||||||||||
| Write-offs | (105,267 | ) | (71,405 | ) | (49,859 | ) | (47,266 | ) | (60,224 | ) | ||||||||||
| Monetary correction and other | 2,045 | (1,484 | ) | 1,768 | 3,857 | (1,452 | ) | |||||||||||||
| Reserves for loan losses at the end of the year | US$ | 271,873 | US$ | 218,636 | US$ | 210,586 | US$ | 229,700 | US$ | 248,063 | ||||||||||
We recorded a US$48.8174.7 million of loan loss provision in 2008,2010 and a US$28.4163.4 million provision in 2007.2009. Total write-offs amounted to US$60.2142.7 million in 20082010 and US$47.387.9 million in 2007.2009. Total recoveries of write-offs reached US$31.334.6 million in 20082010 and US$34.123.9 million in 2007, decreasing 8.2%2009, increasing 44.6% in 2007.2010. Provision expense in 20082010 included US$7.53.6 million required by BCB (compared to US$3.55.6 million in 2007)2009). Provisions made in 2008 were mainly related to consumer loans. Balance of recoveriesRecoveries of previously charged-off accounts in 20082010 amounted to US$31.334.6 million (compared to US$34.123.9 million in 2007)2009). The middle market and small business sectors continued to require a majority of the provisions made during 2008 and 2007. Provisions net of recoveries for middle market and small businesses were US$29.1 million in 2008 and US$13.4 million in 2007 (see also Note 6 to the Consolidated Financial Statements).
Total reserves, which amounted to US$248.1448.6 million in 2008,2010, include the allowance for direct and indirect credits of approximately US$224.3415.7 million and US$23.732.9 million, respectively.
Non-Interest Income
The following table reflects the components of our non-interest income:
| Year ended December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
| (U.S. Dollars in thousands) | ||||||||||||
| Fees and commissions from banking services | US$ | 394,247 | US$ | 436,819 | US$ | 524,895 | ||||||
| Net gains from sales of securities | 51,936 | 120,932 | 80,326 | |||||||||
| Net gains on foreign exchange transactions | 108,709 | 87,944 | 104,169 | |||||||||
| Other income | 37,672 | 74,936 | 95,145 | |||||||||
| Total non-interest income | US$ | 592,564 | US$ | 720,631 | US$ | 804,535 | ||||||
81
| Year ended December 31, | ||||||||||||
| 2006 | 2007 | 2008 | ||||||||||
| (U.S. Dollars in thousands) | ||||||||||||
| Fees and commissions from banking services | US$ | 243,778 | US$ | 324,761 | US$ | 394,247 | ||||||
| Net gains from sales of securities | 27,281 | 46,376 | 51,936 | |||||||||
| Net gains on foreign exchange transactions | 41,638 | 61,778 | 108,709 | |||||||||
| Other income | 26,197 | 90,022 | 37,672 | |||||||||
| Total non-interest income | US$ | 338,894 | US$ | 522,937 | US$ | 592,564 | ||||||
Our non-interest income, without including net premiums earned, increased 13.3%11.6% to US$804.5 million in 2010 as compared to US$720.6 million in 2009, and increased 21.6% as compared to US$592.6 million in 2008 from US$522.9 million in 2007, which in turn increased 54.3% from US$338.9 million in 2006.2008. The revenue increase in 20082010 was principallyprimarily due to an increase in fees and commissions from banking services, net of a decrease in netgains on foreign exchange transactions, and other gains.from sales of securities.
Fees and commissions income from banking services increased 21.4%20.2% to US$524.9 million in 2010 from US$436.8 million in 2009, following a 10.8% increase in 2009 from US$394.2 million in 2008 from US$324.8 million in 2007, following a 33.2% increase in 2007 from US$243.8 million in 2006.2008. The increase in fees and commissions income from banking services in 20082010 was principallyprimarily due to growthan increase in account maintenance, funds administrationbanking transfers commissions, credit/debit card services and commissions for collection,fund management fees, while the increase in 20072009 was primarily due to growth in account maintenance, money transfers and funds administration commissions for collections, and thean increase in 2006 was due to growthtransfer and collections fees, increased commissions from credit/debit card services, increased in credit card fees funds transfer feesfrom trust services and collections.improved property leasing service.
Net gains from sales of securities increased 12.0%decreased 33.6% to US$80.3 million in 2010 as compared to US$120.9 million in 2009, following an increase from US$51.9 million in 2008, from US$46.4 million in 2007, followingwhich represented an increase from US$27.3 millionof 132.8%. The decrease in 2006.2010 was primarily due to the increased volatility observed in capital markets, which caused the depreciation of stock prices in our investment portfolio. The increase in 20082009 was principallyprimarily due to gains from market value fluctuation on salesthe increased volatility observed in capital markets, which caused the appreciation of investments.stock prices in our investment portfolio.
Net gains on foreign exchange transactions increased 75.9%18.5% to US$104.1 million in 2010 as compared to US$87.9 million in 2009, following a decrease of 19.1% from US$108.7 million in 2008 from US$61.8 million in 2007, which in turn increased 48.4% from US$41.6 million in 2006.2008. Net gains from foreign exchange transactions are not attributable to proprietary trading on our part. Higher gains in 2008 and 20072010 compared to 2009 were principallyprimarily due to an increasethe lower transaction volumes that resulted primarily from the decreased volatility in trading volume. This increase is caused by the constant growth of Peruvian economy and strengthened Nuevo Sol, as well as an effect of increasing the quantity of branches and Internet transactions.foreign exchange market.
Other income decreased 58.2%increased 27.0% to US$37.795.1 million in 20082010 as compared to US$75.0 million in 2009, after increasing 98.9% from US$90.037.6 million in 2007, after increasing 243.6% from US$26.2 million in 2006.2008. Other income principally consists of valuation of assets and liabilities designated at fair value, sales of seized assets, leasing income, recoveries of other accounts receivable and other assets and other income. The decreaseincrease in other income in 20082010 was principallyprimarily due to a proprietary position in indexed certificates issued by Citigroup and Calyon to mitigate the loss resulting fromvolatility in operating expenses caused by stock appreciation rights granted to our executives. The indexed certificates are in the difference between costform of warrants issued by Citigroup and estimated market value of theCalyon and are settled exclusively in cash. These instruments do not qualify for hedge accounting. Gains on these indexed certificates indexed to the performance of Credicorp Ltd. (BAP) shares in connection with the SARs program, which was included inare reported as other expenses and amounted to approximately US$67.1 million. Conversely, the difference produced a gain of US$65.1 million as of December 31, 2007 that was registered within other income. income while losses are reported under operating expenses. See Note 7(b) to the Credicorp Consolidated Financial Statements.
Insurance Premiums and Claims on Insurance Activities
The following table reflects the premiums earned and claims incurred in connection with our insurance activities:
| Year ended December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
| (U.S. Dollars in thousands) | ||||||||||||
| Net premiums earned | US$ | 393,903 | US$ | 424,682 | US$ | 480,293 | ||||||
| Net claims incurred | (101,890 | ) | (59,248 | ) | (54,914 | ) | ||||||
| Increase in costs for future benefits for life and health policies | (240,020 | ) | (227,210 | ) | (260,658 | ) | ||||||
| Total net premiums and claims | US$ | 51,993 | US$ | 138,224 | US$ | 164,721 | ||||||
| Year ended December 31, | ||||||||||||
| 2006 | 2007 | 2008 | ||||||||||
| (U.S. Dollars in thousands) | ||||||||||||
| Net premiums earned | US$ | 251,261 | US$ | 297,272 | US$ | 393,903 | ||||||
| Net claims incurred | (46,587 | ) | (67,689 | ) | (101,890 | ) | ||||||
| Increase in costs for future benefits for life and health policies | (139,935 | ) | (170,911 | ) | (240,020 | ) | ||||||
| Total net premiums and claims | US$ | 64,739 | US$ | 58,672 | US$ | 51,993 | ||||||
2009. Gross premiums (including premium transfer and reserve adjustments) increased 26%23.5% to US$587.6751.9 million in 20082010 from US$467.2608.8 million in 2007. 2009.
Premiums for general insurance lines, which accounted for 50.5%44.4% of total premiums, increased 23.5%11.6% in 2008,2010, mainly due to automobilesautomobile premiums, which represented 22%24% of general insurance premiums in 2008 (15.3%2010 (24% in 2007)2009) and which increased 80%13.1% from 2007.2009. Other property and casualty premiums, which represented 56.8% (64.2%53% (53% in 2007)2009), increased 9.2%11.8% from 2007,2009; and medical assistance which represented 16.4% (17.1%20% (20% in 2007)2009), increased 18.5%11.8% from 2007. It is important2009. We note a decrease (-2.9% compared to mention the increase of2009) in premiums from the mandatory automobile line, SOAT, which represented 4.5% (3.4%3% (4% in 2007) and increased 62.2% from 2007.2009) of total premiums.
In the Life Insurance lines, total direct premiums increased 31.8% from 2007,46.5% in 2010 as compared to 2009, with a market share of 24.4%. This growth is in line with the life insurance industry average growth. All lines of business increased as compared to 2009. This 46.5% increase in total direct premiums was mainly due to a better performance in the lifeIndividual Annuity (128.1%), Disability and Survivor (42.8%) and Credit Life (40.8%) lines. Individual Life products increased premiums in 16.8% with as compared to 2009, and represented 20.3% of total premiums. Group Life increased 11.0% as compared to 2009 and represented 13.9% of total premiums.
82
Total direct premiums increased 5.9% in 2009 as compared to 2008, mainly due to a better performance in all lines of business except Annuities and Pension. Life products, which represented 23.7%26% of life insurancetotal premiums (23.7%(23.3% in 2007)2008), closed 15.8% above 2008. Group Life products increased premiums in 11% from 2008, and whichrepresented 18% of total premiums. Credit Life increased 31.3% from 2007.14.7% as compared to 2008 and represented 12% of total premiums. The pension fund products, which represented 19.8%17% of life insurance premiums (19.6%(19.8% in 2007), increased by 33%2008) decreased 9.9% from 2007. In addition, credit life increased by 102% from 2007.2008. Finally, the annuities line of business decreased 0.3% as compared to 2008.
Health insurance lines (19.8%(19.5% of total premiums in 2008)2010) increased by 27.4%16.9% from 2007,2009, primarily due to an 16.5% increase in Regular insurance premiums, representing 88.5% of health insurance premiums (88.8% in 2009).
Health insurance lines (20.6% of total premiums in 2009) increased in 2009 by 7.6% from 2008, mainly due to a 28.2%an 8.2% increase in regular insurance premiums, which represented 88.2%representing 88.8% of health insurance premiums (87.7%during 2009 (88.2% in 2007)2008).
During 2008,2010, net claims on insurance activities increased by 43.3%10.2% to US$341.9315.6 million from US$238.6286.5 million in 2007,2009, mainly as a consequence of the business growth and the increasedecrease in the net loss ratio on property and casualty,P&C, health and life insurance businesses.
During 2009, net claims on insurance activities decreased by 19.4% to US$286.5 million from US$341.9 million in 2008, mainly as a consequence of the decrease in the net loss ratio on P&C, health and life businesses.
Other Expenses
The following table reflects the components of our other expenses:expenses:
| Year ended December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
| (U.S. Dollars in thousands) | ||||||||||||
| Salaries and employee benefits | US$ | 365,201 | US$ | 467,116 | US$ | 568,004 | ||||||
| General and administrative | 269,291 | 312,256 | 341,123 | |||||||||
| Depreciation and amortization | 57,369 | 71,099 | 82,289 | |||||||||
| Other | 228,742 | 106,639 | 94,469 | |||||||||
| Total other expenses and merger costs | US$ | 920,603 | US$ | 957,110 | US$ | 1,085,885 | ||||||
| Year ended December 31, | ||||||||||||
| 2006 | 2007 | 2008 | ||||||||||
(U.S. Dollars in thousands) | ||||||||||||
| Salaries and employee benefits | US$ | 303,332 | US$ | 409,037 | US$ | 365,201 | ||||||
| General and administrative | 172,304 | 206,966 | 269,291 | |||||||||
| Depreciation and amortization | 50,317 | 51,013 | 57,369 | |||||||||
| Provision for assets seized | 6,387 | 3,057 | 1,067 | |||||||||
| Other | 52,718 | �� | 77,016 | 229,371 | ||||||||
| Merger costs | 5,706 | - | - | |||||||||
| Total other expenses and merger costs | US$ | 590,764 | US$ | 747,089 | US$ | 922,299 | ||||||
Personnel expenses decreased 10.7%increased 21.6% in 2008 from 2007,2010 as compared to 2009, after a 34.8% increase27.9% decrease in 2007 from 2006.2009 as compared to 2008. The number of our personnel increased to 19,89619,641 employees in 20082010 from 16,16020,148 in 2007,2009, and increased from 15,00219,896 in 2006.2008. Considering only BCP, the number of personnel increaseddecreased to 15,96916,148 employees in 20082010 from 12,66716,748 in 2007,2009, and increased from 10,76915,969 in 2006.2008. The decreaseincrease in other expenses during 2010 was due to significant increases in personnel expenses during 2008 was principally(salaries and employee benefits), and due to decreasesincrease in salariesdepreciation and amortization expenses, principally for the acquisition of assets. The higher compensation expenses in 2010 was mainly due to compensation and benefits associated with Edyficar (we recorded only three months of such expenses in 2009). It was also caused by higher cost derived from managerial retention programs (stock options and stock appreciation rights (see Note 18 toawards) and the Credicorp Consolidated Financial Statements). Certain salaries are based on local currency, and therefore a devaluation ofexchange rate variation (compensation expense was originally recorded in Nuevo Soles results in a lower amount when translated into U.S. Dollars.Soles).
Our general and administrative expenses (which include taxes other than income taxes) increased 30.1%9.2% in 20082010 compared to 2007,2009, after increasing 20.1%16.0% compared to 2006. Higher expenses in 2007 were principally the result of increases in systems, marketing and transportation, as part of the bank’s efforts to broaden its network.2008. Higher expenses were also incurred in 2008 from increases2010 due to the base effect caused by the Edyficar acquisition (three months in marketing2009 only) and to the higher tax expenses for ad campaigns and customer loyalty-building programs, system expenses such as licenses and projects, and transportation expenses.commissions paid by BCP agents.
Other expenses increased 197.8%decreased 14.5% to US$229.491.2 million in 2008,2010, after an increasea decrease of 46.1%53.2% in 2007,2009, compared to 2006. Other expenses increased during 2008 principally due to commissions in insurance (US$39.4 million in 2008 compared to US$29.1 million in 2007) and provision for diverse risks (US$37.5 million in 2008 compared to US$8.1 million in 2007), which primarily included a provision related to Bernard L. Madoff Investments Securities LLC of US$36.4 million and a provision for devaluation of financial assets (specifically, in the indexed certificates issued by Citigroup).
Translation Result
The translation result reflects exposure to devaluation of net monetary positions in Nuevo Soles. We recognized a US$24.1 million translation gain in 2010, a US$12.2 million translation gain in 2009, and a US$17.7 million translation loss in 2008, a US$34.6 million translation gain in 2007 and a US$15.2 million translation gain in 2006.2008. In 2008, translation losses were mainlyprimarily due to lossesgains recorded from exposure to the Nuevo Sol which weakened against the U.S. Dollar.
Income Taxes
We are not subject to income taxes or taxes on capital gains, capital transfers or equity or estatesestate duty under Bermuda law; however, certainlaw. However, some of our subsidiaries are subject to income tax and taxes on dividends paid to us, depending on the legislation applicable toof the jurisdictions in which they generate income.
Our Peruvian subsidiaries, including BCP, are subject to corporate taxation on income under the Peruvian tax law. The statutory income tax rate payable in Peru since 2004 is 30% of taxable income, which includes the result of exposure to inflation. An additional 4.1% withholding tax is applied on dividends, which we register as income tax based on the liquid amount received from BCP and PPS.
Peruvian tax legislation is applicable to legal entities established in Peru, and on an individual (not consolidated) basis. Our non-Peruvian subsidiaries are not subject to taxation in Peru and their assets are not included in the calculation of the Peruvian extraordinary tax on net assets.
ASHC is not subject to taxation in Panama since its operations are undertaken offshore. The Cayman Islands currently have no income, corporation or capital gains tax and no estate, duty, inheritance or gift tax. Prior to 1995, there was no corporate income tax in Bolivia. Although there is corporate income tax in Bolivia, due to BCB’s ability to offset taxes paid other than income taxes from any income tax liability, no Bolivian income taxes have been payable.
Tax expense paid by the subsidiaries increased to US$109.5184.1 million in 20082010 from US$102.3138.5 million in 2007,2009, which increased from US$83.6109.5 million in 2006.2008. Income tax growth in these periods reflects increases in our taxable income. Since 1994, we have paid the Peruvian income tax at the statutory rate. The effective tax rates in 2006, 20072008, 2009 and 20082010 were 25.26%22.87%, 21.55%21.54%, and 22.87%23.67%, respectively.
| (3) | Financial Condition |
Total Assets
As of December 31, 2010, Credicorp had total assets of US$28.4 billion, increasing 29.1% compared to total assets of US$22.0 billion as of December 31, 2009. In 2010, cash and due from banks increased 123.7% due to higher amounts maintained with Peru’s central bank, the Banco Central de la Reserva del Perú (the BCRP or the Central Bank) (US$4.2 million). Investments decreased 24.6% due to a reduction in BCRP certificates of deposit and an increase in loans, net of provisions, which rose 24.3% due to corporate banking growth.
As of December 31, 2008, we had total assets of US$20.8 billion, increasing 17.6% compared to total assets of US$17.7 billion as of December 31, 2007, as a result of the net effect of cash and due from (i) banks increasing 22.5% due to higher amounts maintained with BCRP in US$0.4 million, (ii) investments decreasing 5.4% due to market volatility and (iii) loans, net of provisions, increasing 28.4% due to corporate banking growth. From December 31, 2007 through December 31, 2008, the Peruvian financial system grew 33.1% in terms of deposits and 37.0% in terms of total loans, comparing balances translated to U.S. Dollars, while GDP grew 7.6%. The ratio of financial intermediation, as measured by the sum of currency in circulation, bank deposits and other bank obligations to the public, divided by GDP, was 22.6% in 2006, which decreased to 21.7% in 2007 and increased to 27.7% in 2008 (which is the highest peak since the early 1970s).
Our total deposits with the Central Bank increased fromto US$1,798.56,308.0 million as of December 31, 2007 to2010 from US$1,953.02,107.6 million as of December 31, 2008.2009. Our securities holdings (which include marketable securities and investments) decreased 5.4%24.6% to US$4,995.23,883.8 million onas of December 31, 20082010 from US$5,279.65,150.4 million onas of December 31, 2007.2009. The securities portfolio decrease in 20082010 was principallyprimarily due to fewerlower investments in Central BankBCRP certificates and corporate, leasing and subordinated bonds.of deposits, which were replaced by time deposits in BCRP that explain the significant increase aforementioned.
Total Liabilities
As of December 31, 2008,2010, we had total liabilities of US$19.025.5 billion, a 19.7%30.6% increase from total liabilities of US$15.919.5 billion as of December 31, 2007.2009. As of December 31, 2008,2010, we had total deposits of US$13,950.418,068.1 million, a 22.9%28.3% increase from total deposits of US$11,350.714,085.1 million on December 31, 2007. We believe that our extensive branch network and reputation in the Peruvian market have allowed us to compete effectively, attracting higher volumes in saving deposits and severance deposits in 2008.2009.
We have structured our funding strategy around maintaining a diversified deposit base. During 2008, demand deposits grew by 41.9% and time deposits by 22.4%, while saving deposits increased by 24.7%. As of December 31, 2008, we,2010, through BCP unconsolidated, we had 42.2%41.5% of total savings deposits in the Peruvian banking system, 45.3%40.7% of demand deposits and 36.5%36.3% of total deposits, the highest of any Peruvian bank in all three categories.categories, according to the SBS. An important characteristic of our deposit base is that, as of December 31, 2008,2010, it included 51.9%55.9% of the entire Peruvian banking system’s CTS deposits, decreasingincreasing from 53.0%50.7% as of December 31, 2007.2009, and higher to 51.9% as of December 31, 2008, according to SBS statistics. (CTS deposits, or Severance Indemnity Deposits (Compensación por Tiempo de Servicios), are funded by companies in the name of their employees. CTS deposits amount to one month’s salary per year and may be withdrawn by the employee only upon termination of employment or upon transfer to another bank, subject to certain exceptions.) We believe that we have traditionally attracted a high percentage of the savings and CTS deposit market because of our reputation as a sound institution, an extensive branch network and the quality of our service. The decrease is due to the fact that new financial institutions have taken a small market share from BCP for this type of deposit. Our core deposits (i.e., savings, CTS and demand deposits) accounted for 64.0% of our total deposits as of December 31, 2008.
| (B) | Liquidity and Capital Resources |
Regulatory Capital and Capital Adequacy Ratios
| As of December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||
| Capital stock | US$ | 539,498 | US$ | 528,011 | US$ | 516,837 | ||||||
| Legal and other reserves | 770,216 | 1,053,494 | 1,385,098 | |||||||||
| Capital stock, reserves and retained earnings of minority interest | 45,894 | 104,052 | 34,352 | |||||||||
| Accepted provisions for loan losses | 104,635 | 114,104 | 167,329 | |||||||||
| Subordinated debt | 278,688 | 683,222 | 696,233 | |||||||||
| Total | 1,738,931 | 2,482,883 | 2,799,849 | |||||||||
| Less: investment in multilateral organizations, banks and insurance companies and goodwill | (134,216 | ) | (261,749 | ) | (408,525 | ) | ||||||
| Total Regulatory Capital (1) | 1,604,715 | 2,221,134 | 2,391,324 | |||||||||
| Financial Entities Capital Ratio | ||||||||||||
| Regulatory Capital attributable to Financial Entities (1) | 1,520,318 | 2,033,401 | 2,157,864 | |||||||||
| Risk-Weighted Assets From Financial Entities (3) | 12,335,063 | 14,200,280 | 17,248,656 | |||||||||
| Capital Ratio for Financial Entities (1) / (3) | 12.33 | % | 14.32 | % | 12.51 | % | ||||||
| Minimum Regulatory Capital Required (MRCR)(2) | ||||||||||||
| MRCR for Financial Entities (3) | 1,122,464 | 1,266,502 | 1,616,368 | |||||||||
| MRCR for Insurance Entities (3) | 137,766 | 149,808 | 184,330 | |||||||||
| MRCR for Other Entities (3) | 80,921 | 144,494 | 75,787 | |||||||||
| Total Minimum Regulatory Capital Required | US$ | 1,341,151 | US$ | 1,560,804 | US$ | 1,560,804 | ||||||
| Regulatory capital as percentage of Minimum Regulatory Capital Required | 119.65 | % | 142.31 | % | 127.44 | % | ||||||
| As of December 31, | ||||||||||||
| 2006 | 2007 | 2008 | ||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||
| Capital stock | 539,498 | 539,498 | 539,498 | |||||||||
| Legal and other reserves | 479,902 | 587,218 | 770,216 | |||||||||
| Capital stock, reserves and retained earnings of minority interest | 37,281 | 38,929 | 45,894 | |||||||||
| Accepted provisions for loan losses | 58,562 | 82,261 | 104,635 | |||||||||
| Subordinated debt | 140,086 | 294,648 | 278,688 | |||||||||
| Total | 1,255,329 | 1,542,554 | 1,738,931 | |||||||||
| Less: investment in multilateral organizations, banks and insurance companies and goodwill | (118,917 | ) | (122,387 | ) | (134,216 | ) | ||||||
| Total Regulatory Capital (1) | 1,136,412 | 1,420,167 | 1,604,715 | |||||||||
| Financial Entities Capital Ratio Regulatory Capital attributable to Financial Entities (1) | 871,377 | 1,320,068 | 1,520,318 | |||||||||
| Risk-Weighted Assets From Financial Entities (3) | 7,273,023 | 10,313,188 | 12,335,063 | |||||||||
| Capital Ratio for Financial Entities (1) / (3) | 11.98 | % | 12.80 | % | 12.33 | % | ||||||
| Minimum Regulatory Capital Required (MRCR)(2) | ||||||||||||
| MRCR for Financial Entities (3) | 690,045 | 890,643 | 1,122,464 | |||||||||
| MRCR for Insurance Entities (3) | 100,477 | 112,261 | 137,766 | |||||||||
| MRCR for Other Entities (3) | 60,437 | 66,849 | 80,921 | |||||||||
| Total Minimum Regulatory Capital Required | 850,959 | 1,069,753 | 1,341,151 | |||||||||
| Regulatory capital as percentage of Minimum Regulatory Capital Required | 133.54 | % | 132.76 | % | 119.65 | % | ||||||
| (1) | Total Regulatory Capital and Financial Entities Regulatory Capital is prepared under the guidelines of the BIS I Accord (by the Basel Committee) as adopted by the SBS. |
| (2) | The Minimum Regulatory Capital Required, or MRCR, is prepared under the guidelines of the BIS I Accord (by the Basel Committee) as adopted by the SBS, and must not exceed from the Total Regulatory Capital calculated. The consolidated MRCR is calculated by the addition of the MRCR of each one of the entities. |
| (3) | Peruvian financial entities (BCP, Credileasing and Solución) have a MRCR of |
Liquidity Risk
We manage our assets and liabilities to ensure that we have sufficient liquidity to meet our present and future financial obligations and to be able to take advantage of appropriate business opportunities as they arise. Liquidity risk represents the potential for loss as a result of limitations on our ability to adjust future cash flows to meet the needs of depositors and borrowers and to fund operations on a timely and cost-effective basis. Financial obligations arise from withdrawals of deposits, repayment on maturity of purchased funds, extensions of loans or other forms of credit, and working capital needs.
The growth of our deposit base over the past years has enabled us to significantly increase our lending activity. BCP is subject to SBS Resolution No. 472-2001, enacted in June 2001, which made its market risk area responsible for liquidity management, and by which minimum liquidity ratios were established. The ratio of liquid assets as a percentage of short-term liabilities, as strictly defined by the SBS, must exceed 8% for Nuevos Soles-based transactions, and 20% for foreign exchange-based transactions. BCP’s average daily ratios during the month of December 20082010 were 33.96%64.40% and 59.55%36.80% for Nuevos Soles and foreign exchange-based transactions, respectively, demonstrating our continuing excess liquidity. We have never defaulted on any of our debt or been forced to reschedule any of our obligations. Even during the early 1980s, when the government of Peru and many Peruvian companies and banks were forced to restructure their debt as a result of the Latin American debt crisis and government restrictions, BCP and PPS complied with all of their payment obligations.
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The capability of replacing interest-bearing deposits at their maturity is a key factor in determining liquidity requirements, as well as the exposure to interest and exchange rate risks. Our principal source of funding is customer deposits with BCP’s Retail Banking Groupretail banking group and ASHC’s Private Banking Group,private banking group, and premiums and amounts earned on invested assets at PPS. We believe that funds from our deposit-taking operations generally will continue to meet our liquidity needs for the foreseeable future.
BCP’s Retail Banking Groupretail banking group has developed a diversified and stable deposit base and its Private Banking Groupprivate banking group has developed a stable deposit base that, in each case, provides us with a low-cost source of funding. This deposit base has traditionally been one of our greatest strengths. The deposit gathering strategy has focused on products considered as BCP’s core deposits: demand deposits, savings, time deposits and CTS deposits. Other sources of funds and liquidity, which are mostly short- and long-term borrowings from correspondent banks and other financial institutions, issued bonds, and subordinated debt, are of a considerably lower significance compared to our core deposits. See Notes 12 and 13 to the Credicorp Consolidated Financial Statements.
The following table presents our core deposits, other deposits and other sources of funds:
| At December 31, | ||||||||||||
| 2008 | 2009 | 2009 | ||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||
| Core Deposits: | ||||||||||||
| Demand deposits | US$ | 4,872,277 | US$ | 4,556,746 | US$ | 5,381,392 | ||||||
| Savings deposits | 2,968,739 | 3,539,665 | 4,244,665 | |||||||||
| Severance indemnity deposits | 1,039,887 | 1,069,506 | 1,313,122 | |||||||||
| Total core deposits | US$ | 8,880,903 | US$ | 9,165,917 | US$ | 11,389,265 | ||||||
| Other Deposits: | ||||||||||||
| Time deposits | 4,856,112 | 4,751,861 | 6,464,769 | |||||||||
| Bank certificates | 140,013 | 120,932 | 163,680 | |||||||||
| Total deposits | US$ | 13,877,028 | US$ | 14,038,710 | US$ | 18,017,713 | ||||||
| Due to banks and correspondents | US$ | 1,165,878 | US$ | 1,162,319 | US$ | 2,236,390 | ||||||
| Issued bonds | 1,928,106 | 2,369,483 | 2,975,667 | |||||||||
| Total sources of funds | US$ | 16,971,012 | US$ | 17,570,512 | US$ | 23,229,770 | ||||||
| Core deposits as a percent of total deposits | 64.0 | % | 65.3 | % | 63.2 | % | ||||||
| Core deposits as a percent of total sources of liquid funds | 52.3 | % | 52.2 | % | 49.0 | % | ||||||
| At December 31, | ||||||||||||
| 2006 | 2007 | 2008 | ||||||||||
| (U.S. Dollars in thousands) | ||||||||||||
| Core Deposits: | ||||||||||||
| Demand deposits | US$ | 2,792,433 | US$ | 3,964,501 | US$ | 4,872,277 | ||||||
| Savings deposits | 1,951,978 | 2,380,904 | 2,968,739 | |||||||||
| Severance indemnity deposits | 775,027 | 896,283 | 1,039,887 | |||||||||
| Total core deposits | US$ | 5,519,438 | US$ | 7,241,688 | US$ | 8,880,902 | ||||||
| Other Deposits: | ||||||||||||
| Time deposits | 3,218,157 | 3,967,864 | 4,856,112 | |||||||||
| Bank certificates | 61,539 | 90,119 | 140,013 | |||||||||
| Total deposits | US$ | 8,799,134 | US$ | 11,299,671 | US$ | 13,877,028 | ||||||
| Due to banks and correspondents | US$ | 936,534 | US$ | 2,314,418 | US$ | 2,316,594 | ||||||
| Issued bonds | 508,493 | 694,982 | 777,390 | |||||||||
| Total sources of funds | US$ | 10,244,161 | US$ | 14,309,071 | US$ | 16,971,012 | ||||||
| Core deposits as a percent of total deposits | 62.7 | % | 64.1 | % | 64.0 | % | ||||||
| Core deposits as a percent of total sources of liquid funds | 53.9 | % | 50.6 | % | 52.3 | % | ||||||
BCP is required to keep deposits with the Central Bank as legal reserves, determined as a percentage of the deposits and other liabilities owed to its clients. The requirement is currently approximately 6.0%9.0% of Nuevos Sol-denominatedSole-denominated deposits and U.S. Dollar-denominated deposits, and an additional reserve requirement of 30% for the U.S. Dollar-denominated deposits. See “Item 4. Information on the Company—(B) Business Overview—(11) Supervision and Regulation—(ii) BCP—Central Bank Reserve Requirements.” Legal reserves are meant to ensure the availability of liquid funds to cover withdrawals of deposits. Additionally, we have significant investments of excess liquid funds in short-term Central Bank certificates of deposits.
The following table presents our deposits at the Central Bank and our investments in Central Bank certificates:
| At December 31, | ||||||||||||
| 2007 | 2008 | 2009 | ||||||||||
| (U.S. Dollars in thousands, except percentages) | ||||||||||||
| Funds at Central Bank | ||||||||||||
| Deposits | US$ | 1,952,952 | US$ | 2,107,635 | US$ | 6,307,977 | ||||||
| Certificates of deposits | 1,914,707 | 1,548,715 | 363,850 | |||||||||
| BCRP-Repo Transactions | 294,235 | 0 | 0 | |||||||||
| Total funds at Central Bank | US$ | 4,161,894 | US$ | 3,656,350 | US$ | 6,671,827 | ||||||
| Total funds at Central Bank of Perú as a percent of total deposits | 30.0 | % | 26.0 | % | 37.0 | % | ||||||
| At December 31, | ||||||||||||
| 2006 | 2007 | 2008 | ||||||||||
| (U.S. Dollars in thousands) | ||||||||||||
| Funds at Central Bank | ||||||||||||
| Deposits | US$ | 1,405,853 | US$ | 1,798,581 | US$ | 1,952,952 | ||||||
| Certificates of deposits | US$ | 1,110,002 | US$ | 2,164,188 | US$ | 1,914,707 | ||||||
| BCRP-Repo Transactions | US$ | 167,611 | US$ | 242,817 | US$ | 294,235 | ||||||
| Total funds at Central Bank | US$ | 2,683,466 | US$ | 4,205,586 | US$ | 4,161,894 | ||||||
| Total funds at Central Bank of Perú as a percent of total deposits | 30.5 | % | 37.2 | % | 30.0 | % | ||||||
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BCP at times has accessed Peru’s short-term interbank deposit market, although it is generally a lender in this market. The Central Bank’s discount window, which makes short-term loans to banks at premium rates, is also available as a short-term funding source, but has been used infrequently by BCP. ASHC also has the ability to borrow from correspondent banks on an overnight basis at rates tied to the federal funds rate as well as funding lines from international financial institutions.
On December 31, 2008,2010, we had uncommitted credit lines with various banks, including long-term facilities that are mainly used for project financing, of which no significant amount was drawn down. The long-term facilities includeWe have also received long term funding from COFIDE,Cofide (Corporación Financiera de Desarrollo S.A., a Peruvian government-owned development bank), Corporación Andina de Fomento (or CAF), syndicated loans, and other international lenders. The transactions relating to these credit lines include import and export transactions and average annual rates (including Libor) vary from 3.11%0.02% to 7.77%12.0%. As of December 31, 2008,2009, we maintain US$1,150.73,559.1 million in such credit lines, secured by the collection of BCP (including its foreign branches) future inflows from electronic messages sent through the Society for Worldwide Interbank Financial Telecommunications (SWIFT) network and utilized within the network to instruct correspondent banks to make a payment of a certain amount to a beneficiary that is not a financial institution. These funds have maturities of up to seven years. See Note Notes 13(a) and (b) to the Credicorp Consolidated Financial Statements. As of December 31, 2008,2010 borrowed funds due to banks and correspondents amounted to US$2,330.72,244.5 million (includesas compared to US$1,150.71,167.4 million in 2009 and US$1,180.0 million respectively) as compared to US$2,323.7 million in 2007 (includes US$870 million and US$1,453 million, respectively) and US$941.6 million in 2006 (US$571 million and US$371 million, respectively).2008.
In addition, mortgage loans may be funded by mortgage funding notes and, since 2001, mortgage bonds that are sold by BCP in the market. Mortgage funding notes are instruments sold by BCP with payment terms that are matched to the related mortgage loans, thereby reducing BCP’s exposure to interest rate fluctuations and inflation. Mortgage bonds are mainly U.S. Dollar-denominated and have been issued with ten-year terms, with collateral established by real estate acquired through funded home mortgage loans. As of December 31, 2008,2010, BCP had US$15.35.0 million of outstanding mortgage bonds and notes (US$20.710.5 million in 20072009 and US$23.615.3 million in 2006)2008). A source of funds specific to leasing operations are leasing bonds issued by lease financing companies, the terms of which are specified in the Peruvian leasing regulations. As of December 31, 2008,2010, BCP had US$217.9134.4 million of outstanding leasing bonds (US$167.3188.3 million in 20072009 and US$178.0217.9 million in 2006)2008). These bonds have maturities of up to teneight years and bear higher interest than 360-day time deposits (6.87%(6.81% versus 5.50%4.23%). See Note 15 to the Credicorp Consolidated Financial Statements for a detailed breakdown of our issued bonds.
The following table presents our issued bonds:
| Years ended December 31, | Years ended December 31, | |||||||||||||||||||||||
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | |||||||||||||||||||
| (U.S. Dollars in millions) | (U.S. Dollars in millions) | |||||||||||||||||||||||
| Issued bonds | ||||||||||||||||||||||||
| Corporate bonds | US$ | 47.2 | US$ | 50.1 | US$ | 130.6 | US$ | 130.6 | US$ | 192.3 | US$ | 800.0 | ||||||||||||
| Leasing bonds | 0.0 | 39.6 | 228.4 | 228.4 | 0.0 | 0.0 | ||||||||||||||||||
| Subordinated bonds | 0.0 | 5.0 | 0.0 | 0.0 | 113.8 | - | ||||||||||||||||||
| Subordinated debt | 120.0 | 161.3 | 0.0 | 0.0 | 250.0 | 17.1 | ||||||||||||||||||
| Total issuance | US$ | 167.2 | US$ | 256.0 | US$ | 359.0 | US$ | 359.0 | US$ | 556.1 | US$ | 817.1 | ||||||||||||
In November 2006 and October 2007, BCP, through its Panama branch, issued on the international market subordinated negotiable certificates notes in anthe aggregate amount of US$120.0 million due 2021 and US$161.3 million due 2022. These notes accrue at a fixed annual interest rate of 6.95% and 7.17%, respectively, for the first 10 years with interest payments every six months. After the first 10 years, the interest rate will change to a variable interest rate of Libor plus 2.79% and as established by the market interest rate of the Peruvian government-issued sovereign bonds maturing in 2037 plus 150 basis points, respectively, with quarterly and semi-annual payments. At the end of the first 10 years, the Bank may redeem 100% of the debt without penalty. These subordinated debt certificates include certain financial and operating covenants. In our management’s opinion, BCP is not in violation of any of these covenants as of the date of the consolidated balance sheet date.
In November 2009, BCP through its Panama branch issued Junior Subordinated Notes for US$250.0 million in the international market with principal maturity on 2069. This debt accrues a fixed annual interest rate of 9.75 percent, for the first 10 years, with semiannual payments. After the first ten (10) years, in November 2019, interest rate will become variable, Libor 3 months plus 816.7 basis points, with quarterly payments; at that date and on any interest payment date, BCP can redeem 100 percent of the notes, without penalties and after fulfilling certain requirements. Interest payments are non-cumulative such that, if an interest payment is not made in full or cancelled as set forth due to BCP’s rights to cancel interest payments, a mandatory prohibition established by SBS, or if it is determined that BCP is in non-compliance with applicable minimum regulatory capital, then the unpaid interest will not accrue or be due and payable at any time and shall not constitute an acceleration event. In those cases, BCP will not, and will not cause its majority owned subsidiaries to declare, pay or distribute a dividend for a period of time established since the interest payments are not cancelled. This debt does not have collateral and qualifies as Tier 1 capital for SBS regulations.
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BCP Emisiones Latam 1 S.A., a subsidiary of Credicorp, issued corporate bonds (Series A) for 2.7 million “Chilean Unidades de Fomento - UF”. Credicorp and BCP Emisiones Latam 1 S.A. can redeem 100 percent of the bonds only if the legal reserve funds legislation and tax law, related to income tax and value added tax, change in Peru, Panama or Chile. This debt, subject to foreign exchange risk, has been hedged through CCS; as a result, these bonds were economically converted to US Dollars.
In September 2010, BCP through its Panama branch issued senior bonds for US$800.0 million in the international market with principal maturity on 2020. This debt accrues at a fixed annual interest rate of 5.38% with semiannual interest payments.
Among the policies that we follow to ensure sufficient liquidity are the active management of interest rates and the active monitoring of market trends, in order to identify and provide for changes in the supply of deposits or the demand for loans.
The principal sources of funds for PPS’s insurance operations are premiums and amounts earned on invested assets. The major uses of these funds are the payment of policyholder claims, benefits and related expenses, reinsurance costs, commissions and other operating costs. In general, PPS’s insurance operations generate substantial cash flow because most premiums are received in advance of the time when claim payments are required. Positive operating cash flows, along with that portion of the investment portfolio that is held in cash and highly liquid securities, historically have met the liquidity requirements of PPS’s insurance operations.operations..
| (C) | Research and Development, Patents and Licenses, Etc. |
Not applicable.
| (D) | Trend Information |
We expect that 20092011 will continue theshow a positive economic trend; however, the international environment still suggests some increase in uncertainty. In particular, we expect that financial income will increase, mainly as a result of prioritizing retail operations with individuals and small companies, as well as improving strategies followed in 2008.2009 and 2010. In addition, credit risk is expected to remain low despite planned positive loan evolution and higher provision.provision due to higher volume of loan portfolio. Furthermore, we plan to invest mainly in systems in order to improve our bank’sBCP’s network to serve clients and optimize processes.See “Item 4. Information
Other important factors to consider are the pressure on the Company—(B) Business Overview—(1) Introduction – Review of 2008consumer protection regulation and “—(2) Strategy.”elections in local, regional and central government authorities, which could impact our business in Peru.
In Bolivia, we expect that BCB will maintain its profitability, although the political and economic environment, which involves a high level of uncertainty, is an important factor in this expectation.
We expect that in 2009,2011, ASHC will maintain its low-risk investment strategy and will reverse its negative financial results of 2008.overall good performance as that achieved in 2010. We expect continued growth of the assets under management, given the high quality service we offer.
In our insurance business, we expect to raise the profitability of each retail product branch, especiallysold in the retail business.branches. The insurance business continues to grow althoughand is supported by the industrycontinued decrease in loss ratio experienced a significant increase in casualties which affected different insurancethe industry. However, as with our banking business, there is pressure on consumer protection regulation and led to continuing weak results. PPS has completed the re-composition of its risk portfolio, favoringelections in local, regional and central government authorities could impact our business in Peru.
Please see “Item 3. Key Information—(D) Risk Factors” and the retail business of property and casualty insurance which offers more retention, diversification and predictability of risk, thereby allowing better retention levels and leading to improved performance in 2009.cautionary statement regarding forward looking information.
| (E) | Off-Balance Sheet Arrangements |
We record various contractual obligations as liabilities in our financial statements. We do not recognize other contractual arrangements, such as contingent credits contracts, as liabilities in our financial statements. These other contractual arrangements are required to be registered in off-balance sheet accounts. We enter into these off-balance sheet arrangements in the ordinary course of business in order to provide support to our clients and hedge some risks in our balance sheet and use guarantees, letters of credit, derivatives and swaps.
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The following table reflects our off-balance sheet arrangements as of December 31, 2006, 20072008, 2009 and 2008:2010:
| Year ended December 31, | Year ended December 31, | |||||||||||||||||||||||
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | |||||||||||||||||||
| (U.S. Dollars in thousands) | (U.S. Dollars in thousands) | |||||||||||||||||||||||
| Contingent Credits | ||||||||||||||||||||||||
| Guarantees and stand by letters | US$ | 1,204,500 | US$ | 1,133,476 | US$ | 1,506,506 | US$ | 1,506,506 | US$ | 2,108,761 | US$ | 2,718,200 | ||||||||||||
| Import and export letters of credit | 250,876 | 431,049 | 249,396 | 249,396 | 419,374 | 417,011 | ||||||||||||||||||
| Sub Total | 1,455,376 | 1,564,525 | 1,755,902 | 1,755,902 | 2,528,135 | 3,135,211 | ||||||||||||||||||
| Responsibilities under credit line agreements | 814,746 | 1,082,115 | 1,234,964 | 1,234,964 | 1,557,674 | 2,449,807 | ||||||||||||||||||
| Financial derivative contracts (notional amount), net | (30,970 | ) | (331,117 | ) | 627,600 | |||||||||||||||||||
| Forward and options, net | 627,600 | (54,011 | (856,619 | ) | ||||||||||||||||||||
| Swap contracts (notional amount) | 543,041 | 1,446,813 | 2,670,332 | 2,670,332 | 3,156,013 | 2,583,409 | ||||||||||||||||||
| Total | US$ | 2,782,193 | US$ | 3,762,336 | US$ | 6,288,798 | US$ | 6,288,798 | US$ | 7,187,811 | US$ | 7,311,808 | ||||||||||||
In the normal course of its business, our banking subsidiaries are party to transactions with off-balance sheet risk. These transactions expose them to additional credit risk in addition to therisks than those amounts recognized in the consolidated balance sheets.
Credit risk for off-balance sheet financial instruments is defined as the possibility of sustaining a loss because any other party to a financial instrument fails to perform in accordance with the terms of the contract. The exposures to losses are represented by the contractual amount specified in the related contracts. We apply the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments (see note Note 6(a) to the Credicorp Consolidated Financial Statement)Statements), including the requirement to obtain collateral when necessary. The collateral held varies, but may include deposits in financial institutions, securities or other assets. Many of the contingent transactions are expected to expire without any performance being required. Therefore the total committed amounts do not necessarily represent future cash requirements.
These agreements are entered into to satisfy client requirements and are recognized in the consolidated financial statements at their fair value. As of December 31, 2008,2010, the forward contracts net position is an overselloverbuy of U.S. Dollars of approximately US$627.6960.2 million (overbuy of approximately US$331.178.4 million as of December 31, 2007)2009).
Interest rate and currency swaps are derivatives contracts, where counterparties exchange variable interest rates for fixed interest rates or different currencies, respectively, in the terms and conditions established at the contract inception. The risk arises each time the projected level of the variable rate during the term of the contract is higher than the swap rate, as well as from non-compliance with contractual terms by one of the parties. As of December 31, 2008,2010, the notional amount of open interest rate and currency swap contracts was approximately US$2,353.32,217.1 million (approximately US$1,396.42,597.1 million as of December 31, 2007)2009).
Cross-currency swap derivative contracts involve the exchange of interest payments based on two different currency principal balances and referenced interest rates. They generally also include the exchange of principal amounts at the start and/or end of the contract. As of December 31, 2008,2010, the notional amount of cross-currency swap contracts were approximately US$317.0252.9 million (approximately US$50.4558.9 million as of December 31, 2007)2009).
As of December 31, 2008,2010, the fair values of the asset and liability forward-exchange contracts and interest rate and cross-currency swaps amounted approximately to US$79.384.9 million and US$256.8136.7 million, respectively (approximately US$45.897.3 million and US$69.7167.8 million as of December 31, 2007)2009) and are included under the caption “Other assets and other liabilities” of the consolidated balance sheets, respectively. See Note 11(b) to the Credicorp Consolidated Financial Statements.
Responsibilities under credit lines agreements include credit lines and other consumer loans facilities (credit card) and are cancelable upon notification to the client.
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| (F) | Tabular Disclosure of Contractual Obligations |
| Payments due by period | ||||||||||||||||||||
Total at December 31, 2008 | Less than 1 year | 1–3 years | 3–5 years | More than 5 years | ||||||||||||||||
| (U.S. Dollars in thousands) | ||||||||||||||||||||
| Borrowed funds | US$ | 2,167,647 | US$ | 583,859 | US$ | 813,937 | US$ | 362,374 | US$ | 407,477 | ||||||||||
| Promotional credit lines | 109,730 | 66,615 | 5,643 | 6,468 | 31,004 | |||||||||||||||
| Interbank funds | 39,217 | 39,217 | 0 | 0 | 0 | |||||||||||||||
| Time deposits | 4,856,112 | 4,617,287 | 147,008 | 51,876 | 39,941 | |||||||||||||||
| Operating lease obligations | 119,971 | 20,638 | 30,619 | 24,669 | 44,045 | |||||||||||||||
| Total | US$ | 7,292,677 | US$ | 5,327,616 | US$ | 997,207 | US$ | 445,387 | US$ | 522,467 | ||||||||||
| Payments due by period | ||||||||||||||||||||
Total at December 31, 2010 | Less than 1 year | 1–3 years | 3–5 years | More than 5 years | ||||||||||||||||
| (U.S. Dollars in thousands) | ||||||||||||||||||||
| Borrowed funds | US$ | 1,957,166 | US$ | 1,240,312 | US$ | 693,506 | US$ | 17,859 | US$ | 5,489 | ||||||||||
| Promotional credit lines | 145,984 | 39,927 | 22,445 | 23,568 | 60,044 | |||||||||||||||
| Interbank funds | 133,240 | 133,240 | ||||||||||||||||||
| Time deposits | 6,464,769 | 6,178,130 | 244,425 | 42,214 | - | |||||||||||||||
| Operating lease obligations | 64,224 | 14,113 | 19,517 | 13,653 | 16,941 | |||||||||||||||
| Total | US$ | 8,765,383 | US$ | 7,605,722 | US$ | 979,893 | US$ | 97,294 | US$ | 82,474 | ||||||||||
Borrowed funds include US$1,150.7 million secured by the collection of BCP’s (including itsincludes two syndicated loans and various bilateral loans, primarily with foreign branches) future inflows from electronic messages sent through the Society for Worldwide Interbank Financial Telecommunications network and utilized within the network to instruct correspondent banks to make a payment of a certain amount to a beneficiary that is not a financial institution.institutions.
Loans obtained include the obligation to comply with certain covenants which, in our management’s opinion, are being fulfilledcomplied with at the consolidated balance sheet dates.
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| ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
| (A) | Directors and Senior Management |
Board of Directors
The following table sets forth our current directors:
| Name | Position | Years served as a Director(1) | ||
| Dionisio Romero Paoletti | Chairman | |||
| Raimundo Morales | Vice Chairman | |||
| Fernando Fort | Director | |||
| Reynaldo Llosa | Director | |||
| Juan Carlos Verme | Director |
| Luis Enrique Yarur | Director | |||
| Felipe Ortiz de Zevallos | Director | |||
| Germán Suárez | Director |
| (1) | Of Credicorp, our subsidiaries and their predecessors as of December 31, |
Dionisio Romero Paoletti is the Chairman of the Board of Directors.Directors and Chief Executive Officer. He is an economist from Brown University with a Master’s degree in Business Administration from Stanford University. Mr. Romero P. has served as a board member of Banco de Crédito since 2003 and was appointed Vice Chairman in 2008. Mr. Romero P. has also been the Chairman of Grupo Romero’s companies and has been Vice Chairman of the Board of Inversiones Centenario and Director of Cementos Pacasmayo since March 2005. Mr. Romero P. was appointed as Chairman of our Board and of the Board of Banco de Crédito in March 2009. He is the son of Mr. Dionisio Romero Seminario.
Raimundo Morales has been the Vice Chairman of the Board of Directors since April 2008. Prior to being elected to the Board of Directors, he served as our Chief Operating Officer and General Manager of BCP, having joined BCP in 1980. Previously, Mr. Morales held various positions during his ten years at Wells Fargo Bank in its San Francisco, São Paulo, Caracas, Miami and Buenos Aires offices. His last position was Vice President for the Southern Region of Wells Fargo. From 1980 to 1987, Mr. Morales was Executive Vice President in charge of BCP’s Wholesale Banking Group.wholesale banking group. From 1987 to 1990, he was the General Manager of ASB in Miami. He rejoined BCP as the General Manager in 1990. Mr. Morales received his Master’s degree in Finance from the Wharton School of Business in the United States.
Fernando Fort is a lawyer and partner at the law firm of Fort Bertorini Godoy Pollari & Carcelen Abogados S.A. Mr. Fort served as a director of Banco de Crédito del Perú from 1979 to 1987 and from March 1990 to the present. Since March 2009, he has served on our Board of Directors and on the board of directors of ASB, BCB and BCP’s subsidiaries. Mr. Fort also serves as a director on the Board of Inversiones Centenario and the boards of various other companies.Edelnor S.A.A.
Reynaldo Llosa is a business manager and since August 1995 has been a director on our Boardboard of Directorsdirectors and on the boards of ASB, BCB, Pacifico Peruano Suiza and BCP’s subsidiaries. He has also been a director of BCP from 1980 to October 1987 and from March 1990 to the present. Mr. Llosa is the Main Partnermain partner and General Managergeneral manager of F.N. Jones S.R. Ltda. and serves as Chairman of the board at Edelnor S.A.A and as a director on the boardsboard member of various other companies.Edegel S.A.A.
Juan Carlos Verme is a businessman and has served on the Board of Directors since August 1995. He has served on the board directors of BCP since March 1990 and is also on the board of directors of ASB BCB and BCP’s subsidiaries.BCB. Mr. Verme is Chairman of Inversiones Centenario and he also serves as a director onmember of the boardsBoard of various other companies.some BCP’s subsidiaries (Creditítulos S.A., Credifondo S.A.C., and Solución Financiera de Crédito del Perú S.A. He is a director of the Asamblea General de Asociados del Patronato del Museo de Arte de Lima.Lima (the General Assembly of Patron Members of the Lima Art Museum).
Luis Enrique Yarur is a businessman with an undergraduate degree in law and graduate degrees in economics and management. He has served on the Board of Directors since October 2002 as well as the board of directors of BCP since February 1995. Mr. Yarur is Chairman of the Board of Empresas Juan Yarur S. A. C., Banco de Crédito e Inversiones of Chile, BCI Seguros Generales S.A, BCI Seguros de Vida S.A., Chairman of Empresas Jordan S.A. and memberVice-Chairman of the boards of various other Chilean companies.Empresas Lourdes S.A. He is Vice-President of the Asociación de Bancos e Instituciones Financieras A. G., a member of the International Advisory Board IESE, España and director of the Bolsa de Comercio de Santiago.
Felipe Ortiz de Zevallos is an industrial engineer with a Master’s degree in Management Science from Rochester University and a degree in Management from Harvard Business School. Mr. Ortiz de Zevallos has served on the Board of Directors since March 2005. He also serves as a director on the boards of various other companies, among which areBCP, Grupo Apoyo (where he is the Chairman), Compañía de Minas Buenaventura S.A., Sociedad Minera el Brocal S.A.A., AC Capitales SAFI, HTA Perú SAC, and Universia.AC Pública. From September 2006 until March 2009, Felipe Ortiz de Zevallos was Peru’s Ambassador to the United States. Until he was appointed asPrior to becoming Peru’s Ambassador to the United States, Mr. Zevallos served as the President of Universidad del Pacífico in Lima (elected for the period 2004-2009).
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Germán Suárez is an economist with a Master’s degree in Economics from Columbia University. Mr. Suárez was elected to the Board of Directors in March 2005. Mr. Suárez was President and Chairman of the Board of Banco Central de Reserva del Perú from 1992 to 2001, and serves as a director on the boards of various other companies, includingBCP and Compañía de Minas Buenaventura S.A.
Dawna L. Ferguson is ourCredicorp’s Secretary, and Fernando PalaoMario Ferrari is our Assistantthe Deputy General Secretary. Our Resident Representative in Bermuda is Nicholas G. Trollope.
Executive Officers
Pursuant to ourCredicorp’s bye-laws, the Board of Directors has the power to delegate its power over day-to-day management to one or more directors, officers, employees or agents. The following table sets forth information concerning our principal executive officers.
| Name | Position | Years an Officer(1) | ||||
| Dionisio Romero | Chief Executive Officer | 2 | ||||
| Walter Bayly | 18 | |||||
| Alvaro Correa | Chief Financial | 14 | ||||
| David Saettone | 13 |
| (1) | Of Credicorp, our subsidiaries and their predecessors as of December 31, |
Walter Bayly was named our Chief Operating Officer and is the General Manager of Credicorp and BCP, in October 2007, effectivepositions he has held since April 2008. Since April 2004,Previously, he was our Chief Financial and Accounting Officer and the Executive Vice President of Planning and Finance of BCP. Previously, Mr. BaylyBCP and prior to that time he held various other management positions within BCP, which included managing the Wholesale Banking Group as well as other areas of BCP. Mr. Bayly joined BCP in 1993, after three years at Casa Bolsa México where he was Partner and Managing Director in Corporate Finance. Prior to that, for ten years he was with Citibank in Lima, New York, México, and Caracas for a period of ten years, where he worked primarily in the corporate finance and loan syndication groups. Mr. Bayly received a Bachelor’s degree in Business Administration from Universidad del Pacífico in Lima, Peru, and a Master’s degree in Management from Arthur D. Little Management in Cambridge, Massachusetts.
Alvaro Correa has been ouris the Chief Financial and Accounting Officer since October 2007 and the Executive Vice President of Planning and Finance of BCP, positions he has held since April 2008. He also oversees Credicorp’s international subsidiaries and branches. Mr. Correa is an industrial engineer from the Pontificia Universidad Católica del Perú. He also holds a Master’s degree in Business Administration from Harvard Business School. Mr Correa also has Series 7 and Series 24 certifications in the United States. In 1997, he joined BCP as Retail Risk Manager, later serving later as IT Solution Manager under the Systems and Organization Division. From 2006 to 2008, Mr. Correa then served as General Manager of ASB, Credicorp Securities and BCP’s Miami agency for the last three years.agency. He currently is Chairman and CEO of Solucion-EAH and Director of Edyficar and Prima AFP.
David Saettone is our Senior Vice PresidentChief Insurance Officer and the Chief Executive Officer of PPS. Mr. Saettone graduated with honors (BAH) from Queen’s University at Kingston, Canada. He has a Master of Economics and Finance (MA) from Princeton University. Mr. Saettone has been certified as a Chartered Insurer and Associate by the Chartered Insurance Institute (ACII), UK; a Chartered Property Casualty Underwriter (CPCU) by the Institute for CPCU, in the United States; Chartered Life Underwriter (CLU) by the American College, in the United States; Associate in Risk Management (ARM, Associate in Underwriting (AU), Associate in Reinsurance (ARe), Associate in Marine Insurance Management (AMIM), Associate in Claims (AIC) and Associate in Insurance Accounting & Finance (AIAF) from the Insurance Institute of America, in the United States. He obtained a Certificate in Information Technology for Insurance Professionals (CITIP) from the Chartered Insurance Institute and the British Computer Society of the United Kingdom. Mr. Saettone has worked as General Manager of PPS. He is an economist withBanco de Credito de Bolivia, Head of the Cabinet of Advisors of the Ministry of Economy and Finance, Manager of Corporate Finance at BCP and General Manager of Credibolsa SAB S.A., a Master’s degreesubsidiary of BCP. In academia, Mr. Saettone was a professor of International Economics and Ph.D fromCapital Markets at the University of Lima and taught Probability and Statistics at the Woodrow Wilson School of Public Administration of Princeton University. He was director of Cofide (Corporación Financiera de Desarrollo S.A., a Peruvian government-owned development bank) and the Fondo Consolidado de Reservas (Consolidated Reserves Fund). Mr. Saettone is currently General Manager of BCB and ChiefPacifico Insurance, Chairman of the Gabinete de Asesores y Unidad de Coordinación de Préstamos SectorialesBoard of the EconomyPacifico Salud, Director of Pacifico Vida and Finance Office, Perú. Mr. Saettone was also ManagerDirector of the BCP’s Corporate Finance Area.Financiera Edyficar.
(B) | Compensation |
The aggregate amount of compensation we paid to all directors and executive officers (including our executive officers listed above and four additional executive officers of BCP) for 20082010 was US$42.533.2 million. We do not disclose to our shareholders or otherwise make available to the public information as to the compensation of its individual directors or executive officers.
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As indicated in noteNote 3(w) to the Credicorp Consolidated Financial Statements, we haveCredicorp has granted stock appreciation rights (SARs) to certain key executives and employees who have at least one year service to usCredicorp or any of our subsidiaries. At the grant date and in each one of the subsequent three years, the granted SARs may be exercised up to 25% of all SARs granted in the plan. The SARs expire after eight years. The number of outstanding SARs as of December 31, 2010 and their corresponding exercise prices are as follows:
| Year Granted | Number of Outstanding SARs granted | Exercise price in US$ | ||||
| 2003 | 36,500 | 6.47 | ||||
| 2004 | 87,500 | 9.29 | ||||
| 2005 | 107,500 | 14.30 | ||||
| 2006 | 171,300 | 23.62 | ||||
| 2007 | 168,310 | 23.62 | ||||
| 2008 | 206,589 | 23.62 |
| Year | Number of outstanding SARs granted | Exercise price in US$ | ||||||
| 2000 | 509,000 | 8.50 | ||||||
| 2001 | 555,000 | 5.30 | ||||||
| 2002 | 558,750 | 6.98 | ||||||
| 2003 | 562,500 | 8.17 | ||||||
| 2004 | 570,000 | 10.99 | ||||||
| 2005 | 585,000 | 16.00 | ||||||
| 2006 | 621,000 | 25.32 | ||||||
| 2007 | 689,500 | 48.50 | ||||||
| 2008 | 665,500 | 72.04 | ||||||
The liabilities recorded for this plan, including the above-mentioned income tax, are included in the consolidated balance sheet caption “Other liabilities – Payroll taxes, salaries and other personnel expenses.” See Note 11(a) to the Credicorp Consolidated Financial Statements. The expenses are recorded in the consolidated income statement caption “Personnel expenses.” In 2006, 2007 and 2008, SARs prices were modified and informed to our executives and employees.
During 2006, 20072008, 2009 and 2008, we2010, Credicorp signed several contracts with Citigroup and Calyon Financial by which it acquired certificates linked to the yield of our shares shares. See Note 7(b) to the Credicorp Consolidated Financial Statements.
The following table sets forth the movement of the SARs for the periods indicated:
| 2008 | 2007 | 2010 | 2009 | ||||||||||||||||||||||||||||||||||
Outstanding SARs | Vested SARs | Outstanding SARs | Vested SARs | Outstanding SARs | Vested SARs | Outstanding SARs | Vested SARs | ||||||||||||||||||||||||||||||
| Number | Number | Amount | Number | Number | Amount | Number | Number | Amount | Number | Number | Amount | ||||||||||||||||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | ||||||||||||||||||||||||||||||||||
Balance as of January 1st | 2,134,650 | 1,537,119 | 89,602 | 1,858,350 | 1,301,928 | 38,761 | |||||||||||||||||||||||||||||||
| Balance as of January 1 | 1,147,463 | 1,038,276 | 60,488 | 2,215,225 | 1,617,818 | 42,987 | |||||||||||||||||||||||||||||||
| SAR´s modification | - | - | - | (451,143) | (451,143) | - | |||||||||||||||||||||||||||||||
| Granted and vested | 665,500 | 576,874 | 9,498 | 689,500 | 647,610 | 22,248 | - | 88,683 | 8,451 | - | 366,845 | 19,333 | |||||||||||||||||||||||||
| Exercised | (496,175 | ) | (496,175 | ) | (19,734 | ) | (410,700 | ) | (410,700 | ) | (18,801 | ) | (349,260) | (349,260) | (28,272) | (495,244) | (495,244) | (17,761) | |||||||||||||||||||
| Decrease | (88,750 | ) | - | - | (2,500 | ) | (1,719 | ) | (88 | ) | (3,048) | - | - | (121,375) | - | - | |||||||||||||||||||||
| Increase in the option fair value | - | - | (36,379 | ) | - | - | 47,482 | - | - | 36,322 | - | - | 15,929 | ||||||||||||||||||||||||
| Balance as of December 31 | 2,215,225 | 1,617,818 | 42,987 | 2,134,650 | 1,537,119 | 89,602 | 795,155 | 777,699 | 76,989 | 1,147,463 | 1,038,276 | 60,488 | |||||||||||||||||||||||||
The following table sets forth the number of SARs vested and the price of such SARs for the periods indicated:
Year of Insurance | Number of outstanding SARs as of December 31, 2010 | Number of Vested SARs as of December 31 | Exercise price | ||||||||||||
| 2010 | 2009 | 2010 | 2009 | ||||||||||||
| 2002 | - | - | 52,500 | 5.28 | 5.98 | ||||||||||
| 2003 | 36,500 | 36,500 | 96,900 | 6.47 | 7.17 | ||||||||||
| 2004 | 87,500 | 87,500 | 118,750 | 9.29 | 9.99 | ||||||||||
| 2005 | 107,500 | 107,500 | 155,000 | 14.30 | 15.00 | ||||||||||
| 2006 | 171,300 | 171,300 | 226,250 | 23.62 | 24.32 | ||||||||||
| 2007 | 168,310 | 168,310 | 214,831 | 23.62 | 24.32 | ||||||||||
| 2008 | 224,045 | 206,589 | 174,045 | 23.62 | 24.32 | ||||||||||
| 795,155 | 777,699 | 1,038,276 | |||||||||||||
Year of Issuance | Number of outstanding SARs as of December 31, 2008 | Number of vested SARs as of December 31 | Exercise price | |||||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||||||
| US$ | US$ | |||||||||||||||||||
| 2000 | - | - | 49,750 | 8.00 | 8.50 | |||||||||||||||
| 2001 | 60,000 | 60,000 | 73,000 | 4.80 | 5.30 | |||||||||||||||
| 2002 | 60,000 | 60,000 | 92,500 | 6.48 | 6.98 | |||||||||||||||
| 2003 | 134,900 | 134,900 | 151,900 | 7.67 | 8.17 | |||||||||||||||
| 2004 | 185,950 | 185,950 | 237,700 | 10.49 | 10.99 | |||||||||||||||
| 2005 | 241,700 | 241,700 | 349,813 | 15.50 | 16.00 | |||||||||||||||
| 2006 | 362,800 | 327,784 | 310,800 | 24.82 | 25.32 | |||||||||||||||
| 2007 | 513,125 | 320,859 | 271,656 | 48.00 | 48.50 | |||||||||||||||
| 2008 | 656,750 | 286,625 | - | 72.04 | - | |||||||||||||||
| Total | 2,215,225 | 1,617,818 | 1,537,119 | |||||||||||||||||
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Since 2009, Credicorp had a new plan to certain key employees. Under this new plan (stock awards), Credicorp grants its own shares to the plan beneficiaries. Shares granted will be vestedvest up to 33.3% percent of all granted shares. We also determined that SARs granted until December 2008 undershares in each one of the prior SARs program (as explained above) will remain in force, with certain modifications, until those SARs expire.subsequent three years to the grant date (April of each year).
The movement of Stock Awards for the years ended December 31, 2010 and 2009 is as follows:
Shares Granted | Shares Vested | Expense | Deferred Expense | |||||||||||||
| US$(000) | US$(000) | |||||||||||||||
| Granted in 2009 | 227,000 | - | - | 11,487 | ||||||||||||
| Vested in 2009 | - | 104,042 | 5,850 | (5,850 | ) | |||||||||||
| Balance as of December 31, 2009 | 227,000 | 104,042 | 5,850 | 5,637 | ||||||||||||
| Granted in 2010 | 169,658 | - | - | 15,002 | ||||||||||||
| Vested in 2010 (2009) | - | 81,972 | 3,563 | (3,563 | ) | |||||||||||
| Vested in 2010 (2010) | - | 77,760 | 7,639 | (7,639 | ) | |||||||||||
| Balance as of December 31, 2010 | 396,658 | 263,774 | 17,052 | 9,437 | ||||||||||||
The fair value of stock awards granted is estimated at the grant date using a binomial pricing model with similar key assumptions as those used for the valuation of SARs, taking into account the terms and conditions upon which the shares were granted. Credicorp assumes the payment of the related income tax on behalf of its employees, which corresponds to 30 percent of the benefit, however, capital gain taxes are assumed by employees. Credicorp estimates said income tax over the basis of the fair value of the shares granted at the grant date.
Board Practices |
Pursuant to ourCredicorp’s bye-laws, the number of directors required quorum for business to constitutetake place during a quorum isBoard meeting shall be a majority of the directors.Directors of the Company. The Board has the power to appoint any person as Director to fill a vacancy on the Board for the remainder of the period as a result of the death, disability, disqualification or resignation of any Director. A quorum must exist throughout any meeting of directors. A director can appoint another director to actresolution in writing signed by all Directors shall be as his representativevalid as if had been passed at a meeting of the Board of Directors. The Board of Directors may act by the unanimous written consent of all directors.
duly called and constituted
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| Employees |
On December 31,, 2008, we 2010, Credicorp had 15,478 full time19,641 employees,, distributed as set forth in the following table:table:
| At December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
| (Full-time employees) | ||||||||||||
| BCP | 11,654 | 16,748 | 16,148 | |||||||||
| PPS | 2,306 | 2,567 | 2,611 | |||||||||
| ASHC | 73 | 74 | 73 | |||||||||
| Prima AFP | 1,015 | 750 | 800 | |||||||||
| Others | 430 | 9 | 9 | |||||||||
| Total Credicorp | 15,478 | 20,148 | 19,641 | |||||||||
At December 31, | ||||||||||||
| 2006 | 2007 | 2008 | ||||||||||
| (Full-time employees) | ||||||||||||
| BCP | 8,243 | 9,593 | 11,654 | |||||||||
| PPS | 1,159 | 1,665 | 2,306 | |||||||||
| ASHC | 61 | 65 | 73 | |||||||||
| Prima AFP | 1,729 | 1,464 | 1,015 | |||||||||
| Others | 340 | 350 | 430 | |||||||||
| Total Credicorp | 11,532 | 13,137 | 15,478 | |||||||||
All bank employees in Peru are given the option of belonging to an employee union. These employee unions are collectively represented by the Federación de Empleados Bancarios (the Federation of Banking Employees or FEB). In order to negotiate a collective agreement on behalf of its members, FEB must have as members over 50% of all Peruvian banking employees. Because the representation of banking employees members of FEB declined to below 50%, the most recent collective bargaining agreement, which expired on June 30, 1995, was not renewed.
BCP was granted permission by the Peruvian Ministry of Labor to cancel the registration of BCP’s union in 1996 due to limited participation. As of December 31, 2008,2009, no BCP employees belonged to a union. The last strike by union employees occurred in 1991 and did not interfere with BCP’s operations.
Share Ownership |
As of February 13, 2009,14, 2011, the Romero family (as then represented by Mr. Dionisio Romero Seminario) owned 14.9614.16 million (15.85%(15.00%) of our common shares, andshares. While Mr. Luis Enrique Yarur owned approximately 1.629does not individually own in excess of 1% of Credicorp's shares, he is a controlling shareholder of Banco de Chile e Inversiones (BCI), which owns 1.68 million (1.73%( 1.77%) of ourCredicorp’s common shares. None of our other directors or executive officers beneficially own more than 1% of our common shares. See“Item “Item 7. Major Shareholders and Related Party Transactions—(A) Major Shareholders.” Other members of the Board of Directors that own our common shares are Mr. Raimundo Morales, Mr. Fernando Fort, Mr. Reynaldo Llosa, Mr. Juan Carlos Verme, Mr. Felipe Ortiz de Zevallos and Mr. Germán Suárez. Each of these directors own less than 1% of our total outstanding common shares.
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
Major Shareholders |
As of December 31, 2008, we2010, Credicorp had issued 94,382,317 common shares, of which 14,620,845 were held by ASHC. Under Bermuda law, ASHC has the right to vote the common shares it owns. In order to restructure long term holdings, substantially all of our common shares held by BCP and PPS were transferred to ASHC in April 2004.
The table below provides details about the percentage of our common shares Credicorp’s common shares owned by holders of 5% 5% or more of our total common shares,common shares, as of February 13, 200914, 2011.
| Owner | Common Shares | Percent of Class(1) | ||||
| Atlantic Security Holding Corporation (2) | 14,620,845 | 15.49% | ||||
| Romero family (3) | 14,156,115 | 15.00% |
(1) As a percentage of issued and outstanding shares (including shares held by ASHC).
(2) As of February 14, 2011, Atlantic Security Bank (a subsidiary of ASHC) held 3,757,393 shares of Credicorp on behalf of clients as part of the Private Banking Services that ASB provides, and which shares are purchased or sold based on client instruction. Clients can decide at any time to exercise their voting power in any Shareholders’ Meeting. ASB does not have the power to dispose of these shares. Because the shares are held by ASB on behalf of clients, which have the power to vote the shares, ASHC disclaims beneficial ownership of the shares.
(3) Includes common shares directly or indirectly owned by Dionisio Romero Paoletti and his family or companies owned or controlled by him. Mr. Romero P. is the Chairman of the Board.
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| Owner | Common Shares | Percent of Class (1) | ||||||
| Romero family (2) | 14,958,465 | 15.85 | % | |||||
| Atlantic Security Holding Corporation | 14,620,845 | 15.49 | % | |||||
| Prima AFP | 6,272,873 | 6.65 | % | |||||
| AFP Integra | 5,646,824 | 5.98 | % | |||||
Approximately 19.87%15.68% of ourCredicorp’s total issued and outstanding common shares are currently held in 3,0052,819 individual accounts with Cavali, a Peruvian securities clearing company.
As of April 30, 2008,February 14, 2011, 79,761,472 of our common shares of Credicorp (excluding the 14,620,845 shares held by ASHC) were outstanding, of which approximately 62.71%67.34% were held in the United States. There were approximately 56151 registered holders of ourCredicorp’s common shares in the United States. Because certainmany of these common shares were held by brokers or other nominees, and due tobecause of the impracticability of obtaining accurate residence information for all beneficial shareholders, the number of holders of record or registered holders ofin the United States is not a representative figure of the number of beneficial holders or of the residence of beneficial holders. We are notCredicorp is neither directly ornor indirectly controlled by another corporation or by any foreign government.
| (B) | Related Party Transactions |
| (i) | Credicorp |
Under Bermuda law, we areCredicorp is not subject to any restrictions on transactions with affiliates, other than such restrictions as are applicable to Bermuda companies generally. OurCredicorp’s bye-laws provide that a director may not vote with respect to any contract or proposed contract or arrangement in which that director has an interest or a conflict of interest. We haveCredicorp has not engaged in any transactions with related parties except through our subsidiaries.
The following table shows ourCredicorp’s main transactions with related companies as of December 31, 2006, 20072008, 2009 and 2008.2010.
| Related companies | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
(U.S. Dollars in thousands) | ||||||||||||
| Direct loans | US$ | 143,855 | US$ | 214,182 | US$ | 265,566 | ||||||
| Investments available-for-sale | 63,782 | 92,747 | 120,486 | |||||||||
| Deposits | 34,669 | 82,051 | 101,979 | |||||||||
| Contingent credits | 23,574 | 20,122 | 26,994 | |||||||||
| Interest income related to loans | 2,889 | 4,896 | 7,002 | |||||||||
| Interest expense related to deposits | 2,669 | 1,680 | 1,707 | |||||||||
| Derivatives at fair value | 4,179 | (283 | ) | (1,335 | ) | |||||||
| Other income | US$ | 2,533 | US$ | 1,196 | US$ | 2,327 | ||||||
| Related companies | ||||||||||||
| 2006 | 2007 | 2008 | ||||||||||
| US$(000) | US$(000) | US$(000) | ||||||||||
| Direct loans | 70,636 | 94,102 | 143,855 | |||||||||
| Investments available-for-sale | 62,125 | 90,396 | 63,782 | |||||||||
| Deposits | 25,074 | 31,689 | 34,669 | |||||||||
| Contingent credits | 13,925 | 14,026 | 23,574 | |||||||||
| Interest income related to loans | 2,097 | 2,288 | 2,889 | |||||||||
| Interest expense related to deposits | 1,505 | 2,009 | 2,669 | |||||||||
| Trading securities | - | 1,673 | 1 | |||||||||
| Derivatives at fair value | 179 | 386 | 4,179 | |||||||||
| Other income | 953 | 1,192 | 2,533 | |||||||||
As of December 31, 2006, 20072008, 2009 and 2008, our2010, Credicorp’s directors, officers and employees had been involved, directly and indirectly, in credit transactions with certain subsidiaries, as permitted by Peruvian Law No. 26702. This law regulates and limits certain transactions with employees, directors and officers of banks and insurance companies in Peru. As of December 31, 2006, 20072008, 2009 and 2008, our2010, direct loans to employees, directors and key management of Credicorp amounted to US$59.5116.3 million, US$85.1133.3 million and US$116.3140.0 million, respectively. These loans have been granted in the ordinary course of business and on market terms as allowed by regulations promulgated under Section 402 of Sarbanes-Oxley. Therefore, no privileged conditions have been granted on any type of loans to directors and executive officers. These loans are paid monthly and earn interest at rates that are similar to market rates for comparable loans.
| 2008 | 2009 | 2010 | ||||||||||
(U.S. Dollars in thousands) | ||||||||||||
| Stock appreciation rights | 6,211 | 4,717 | 19,418 | |||||||||
| Salaries | 5,625 | 4,720 | 5,893 | |||||||||
| Director compensation | 1,303 | 1,698 | 2,090 | |||||||||
| Other | 1,863 | 1,415 | 5,825 | |||||||||
| Total | 15,002 | 12,550 | 33,226 | |||||||||
| 2006 | 2007 | 2008 | ||||||||||
| US$(000) | US$(000) | US$(000) | ||||||||||
| Stock appreciation rights | 23,206 | 27,113 | 27,362 | |||||||||
| Salaries | 4,824 | 5,535 | 5,625 | |||||||||
| Director compensation | 1,173 | 1,162 | 1,303 | |||||||||
| Other | 6,962 | 12,947 | 8,209 | |||||||||
| Total | 36,165 | 46,757 | 42,499 | |||||||||
Our key executives’ compensation comprises all the payments received by them, including the taxes that we assumed.
Interests of Experts and Counsel |
Not applicable.
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ITEM 8. | FINANCIAL INFORMATION |
Consolidated Statements and Other Financial Information |
Consolidated Financial Statements
See “Item 18. Financial Statements.”
Legal Proceedings
We, along with our subsidiaries, are involved in certain legal proceedings incidental tothat arise in the normal conductcourse of our businesses.conducting business. We do not believe that any potential liabilities resultingthat may result from such proceedings would have a material adverse effect on our financial condition or results of operation,operations, or thaton the financial condition or results of operations of any of our subsidiaries.
Neither we, nor any of our subsidiaries, are not involved in any government investigations.investigation.
Dividend Policy
Pursuant to Bermuda law,, we may declare and pay dividends from time to time so long as after the payment of the dividends, (i) dividends: (i) we are able to pay our liabilities as they become due, and (ii) (ii) the realizable value of our assets wouldis not be less than the aggregate value of our liabilities, and issued share capital, and share premium accounts. There can be no assurance thataccounts. We cannot make any assurances as to the amount of any dividends or as to whether any dividends will be paid or as to the amount of dividends, if any, to be paid, at all, although we currently intend to declare and pay dividends annually, and our board Board of directors Directors currently expects to authorize the payment of an annual dividend to the shareholders of no less than 25% 25% of our consolidated net profits. profits. However,, our payment of dividends is subject to Bermuda law and to the discretion of our board Board of directors. Directors. The Board’s decision will depend upon (i) on (i) general business conditions,, (ii) (ii) our financial performance,, (iii) (iii) the availability of dividends from our subsidiaries and any restrictions on their payment,, and (iv) (iv) other factors that the Board may deem relevant.
relevant.
We will rely almost exclusively on dividends from our subsidiaries for the payment of our corporate expenses and for the distribution of dividends to holders of our common shares and for our corporate expenses. shares. Subject to certain reserve and capital adequacy requirements under applicable banking and insurance regulations,, we are able to cause our subsidiaries to declare dividends. dividends. To the extent our subsidiar iessubsidiaries do not have funds available or are otherwise restricted from paying us dividends,, our ability to pay dividends on our common shares will be adversely affected. affected. Currently,, there are no restrictions on the ability of Grupo Credito, BCP,, ASHC,, PPS,, and PV or any of our other subsidiaries to pay dividends abroad. abroad. In addition,, Grupo Credito, BCP,PPS and PPSPV intend to declare and pay dividends in Nuevos Soles,, while we intend to declare and pay dividends in U.S. Dollars. U.S. Dollars. If the value of the Nuevo Sol falls relative to the U.S. U.S. Dollar between the date of declaration and the date of payment of dividends,, the value of the dividends we pay would be adversely affected.affected. See “Item 3. 3. Key Information—(A) Information—(A) Selected Financial Data—Data—Exchange Rates.Rates.”
The following table shows cash and stock dividends that we paid in the periods indicated:indicated:
| Year ended December 31, | Number of Shares Entitled to Dividends | Cash Dividends Per Share | Stock Dividends Per Share | |||||||
| 2000 | 94,382,317 | US$ | 0.10 | 0.00 | ||||||
| 2001 | 94,382,317 | US$ | 0.10 | 0.00 | ||||||
| 2002 | 94,382,317 | US$ | 0.40 | 0.00 | ||||||
| 2003 | 94,382,317 | US$ | 0.30 | 0.00 | ||||||
| 2004 | 94,382,317 | US$ | 0.40 | 0.00 | ||||||
| 2005 | 94,382,317 | US$ | 0.80 | 0.00 | ||||||
| 2006 | 94,382,317 | US$ | 1.10 | 0.00 | ||||||
| 2007 | 94,382,317 | US$ | 1.30 | 0.00 | ||||||
| 2008 | 94,382,317 | US$ | 1.50 | 0.00 | ||||||
| 2009 | 94,382,317 | US$ | 1.70 | 0.00 | ||||||
| 2010 | 94,382,317 | US$ | 1.95 | 0.00 | ||||||
Year ended December 31, | Number of Shares Entitled to Dividends | Cash Dividends Per Share | Stock Dividends Per Share | |||||||||
| 1999 | 94,382,317 | US$ | 0.20 | 0.00 | ||||||||
| 2000 | 94,382,317 | US$ | 0.10 | 0.00 | ||||||||
| 2001 | 94,382,317 | US$ | 0.10 | 0.00 | ||||||||
| 2002 | 94,382,317 | US$ | 0.40 | 0.00 | ||||||||
| 2003 | 94,382,317 | US$ | 0.30 | 0.00 | ||||||||
| 2004 | 94,382,317 | US$ | 0.40 | 0.00 | ||||||||
| 2005 | 94,382,317 | US$ | 0.80 | 0.00 | ||||||||
| 2006 | 94,382,317 | US$ | 1.10 | 0.00 | ||||||||
| 2007 | 94,382,317 | US$ | 1.30 | 0.00 | ||||||||
| 2008 | 94,382,317 | US$ | 1.50 | 0.00 | ||||||||
On February 27, 2009,23, 2011, our boardBoard of directorsDirectors declared a cash dividend of US$1.501.95 per common share held at the close of business on April 20, 2009.19, 2011. This dividend was distributed on May 13, 2009 and approved at the Annual General Shareholders’ Meeting held on March 31, 2009.2011.
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| THE OFFER AND LISTING |
| (A) | Offer and Listing Details |
Price History of Credicorp’s Stock
Our common shares have been traded on the New York Stock Exchange since October 25, 1995 under the symbol BAP. Our common shares also tradedtrade on the Lima Stock Exchange. They are quoted in U.S. Dollars on both the New York Stock Exchange and the Lima Stock Exchange. The table below sets forth, for the periods indicated, the reported high and low closing prices and average daily trading volume for our common shares on the New York Stock Exchange.
| High | Low | Average Daily Volume | |||||||||
| 2006 | US$ | 45.42 | US$ | 21.88 | 176,388 | ||||||
| 2007 | US$ | 76.81 | US$ | 38.04 | 279,602 | ||||||
| 2008 | US$ | 86.19 | US$ | 30.23 | 399,661 | ||||||
| 2009 | US$ | 78.35 | US$ | 32.91 | 359,807 | ||||||
| 2010 | US$ | 127.52 | US$ | 70.46 | 253,573 | ||||||
| 2009 | |||||||||||
| First quarter | US$ | 53.02 | US$ | 34.58 | 503,904 | ||||||
| Second quarter | US$ | 61.52 | US$ | 45.83 | 408,861 | ||||||
| Third quarter | US$ | 76.26 | US$ | 54.81 | 264,382 | ||||||
| Fourth quarter | US$ | 78.35 | US$ | 66.70 | 269,604 | ||||||
| 2010 | |||||||||||
| First quarter | US$ | 86.48 | US$ | 70.46 | 205,535 | ||||||
| Second quarter | US$ | 97.56 | US$ | 78.39 | 251,731 | ||||||
| Third quarter | US$ | 117.30 | US$ | 90.24 | 296,577 | ||||||
| Fourth quarter | US$ | 127.52 | US$ | 115.60 | 258,169 | ||||||
| 2011 | |||||||||||
| First quarter | US$ | 119.77 | US$ | 97.17 | 106,917 | ||||||
| Second quarter (through April 20) | US$ | 105.57 | US$ | 92.82 | 201,537 | ||||||
Source : Bloomberg
High | Low | Average Daily Volume | ||||||||||
| 2004 | US$ | 15.87 | US$ | 12.00 | 22,184 | |||||||
| 2005 | US$ | 28.81 | US$ | 14.41 | 82,338 | |||||||
| 2006 | US$ | 45.42 | US$ | 21.88 | 176,388 | |||||||
| 2007 | US$ | 76.81 | US$ | 38.04 | 279,602 | |||||||
| 2008 | US$ | 86.19 | US$ | 30.23 | 399,661 | |||||||
| 2007 | ||||||||||||
| First quarter | US$ | 51.68 | US$ | 38.80 | 283,922 | |||||||
| Second quarter | US$ | 61.95 | US$ | 47.92 | 277,383 | |||||||
| Third quarter | US$ | 66.39 | US$ | 55.50 | 303,425 | |||||||
| Fourth quarter | US$ | 76.81 | US$ | 65.14 | 244,437 | |||||||
| 2008 | ||||||||||||
| First quarter | US$ | 80.25 | US$ | 69.99 | 366,249 | |||||||
| Second quarter | US$ | 86.19 | US$ | 75.01 | 340,571 | |||||||
| Third quarter | US$ | 81.33 | US$ | 55.64 | 421,241 | |||||||
| Fourth quarter | US$ | 60.68 | US$ | 30.23 | 469,019 | |||||||
| 2009 | ||||||||||||
| First quarter | US$ | 53.02 | US$ | 34.58 | 503,904 | |||||||
| Second quarter (through June 26) | US$ | 62.73 | US$ | 47.66 | 415,646 | |||||||
The table below sets forth,, for the periods indicated,, the reported high and low closing prices and average daily trading volume for our common shares on the Lima Stock Exchange.
High | Low | Average Daily Volume | ||||||||||
| (U.S. Dollars) | ||||||||||||
| 2004 | 15.70 | 12.08 | 21,564 | |||||||||
| 2005 | 28.99 | 14.33 | 15,744 | |||||||||
| 2006 | 45.58 | 38.27 | 16,950 | |||||||||
| 2007 | 76.48 | 38.24 | 22,553 | |||||||||
| 2008 | 86.00 | 31.01 | 15,386 | |||||||||
| 2007 | ||||||||||||
| First quarter | 51.68 | 39.00 | 14,553 | |||||||||
| Second quarter | 61.80 | 47.93 | 42,703 | |||||||||
| Third quarter | 65.99 | 54.91 | 19,282 | |||||||||
| Fourth quarter | 76.48 | 65.20 | 18,934 | |||||||||
| 2008 | ||||||||||||
| First quarter | 80.12 | 70.00 | 10,460 | |||||||||
| Second quarter | 84.80 | 73.54 | 12,763 | |||||||||
| Third quarter | 81.50 | 56.20 | 17,033 | |||||||||
| Fourth quarter | 60.40 | 31.01 | 20,598 | |||||||||
| 2009 | ||||||||||||
| First quarter | 53.10 | 34.90 | 16,530 | |||||||||
| Second quarter (through June 26) | 62.80 | 47.63 | 12,704 | |||||||||
Exchange.
| High | Low | Average Daily Volume | |||||||
| (U.S. Dollars) | |||||||||
| 2006 | 45.58 | 38.27 | 16,950 | ||||||
| 2007 | 76.48 | 38.24 | 22,553 | ||||||
| 2008 | 86.00 | 31.01 | 15,386 | ||||||
| 2009 | 77.95 | 33.21 | 11,713 | ||||||
| 2010 | 127.4 | 70.86 | 6,114 | ||||||
| 2009 | |||||||||
| First quarter | 53.10 | 34.90 | 16,530 | ||||||
| Second quarter | 61.59 | 45.75 | 12,652 | ||||||
| Third quarter | 75.71 | 54.54 | 7,704 | ||||||
| Fourth quarter | 77.95 | 67.41 | 10,599 | ||||||
| 2010 | |||||||||
| First quarter | 86.60 | 70.86 | 10,624 | ||||||
| Second quarter | 97.25 | 78.50 | 5,097 | ||||||
| Third quarter | 116.95 | 90.00 | 5,128 | ||||||
| Fourth quarter | 127.40 | 115.19 | 3,590 | ||||||
| 2011 | |||||||||
| First quarter | 121.15 | 97.19 | 7,721 | ||||||
| Second quarter (through April 20) | 105.30 | 90.40 | 13,185 | ||||||
Source: Bloomberg
The table below sets forth, for the indicated months, the reported high and low closing prices for our common shares on the New York Stock Exchange.
| High | Low | |||||
| (U.S. Dollars) | ||||||
| 2010 | ||||||
| October | 124.66 | 113.23 | ||||
| November | 124.90 | 114.61 | ||||
| December | 127.14 | 118.74 | ||||
| 2011 | ||||||
| January | 119.77 | 104.26 | ||||
| February | 108.11 | 97.17 | ||||
| March | 109.21 | 100.62 | ||||
| April (through April 20) | 105.57 | 90.82 | ||||
High | Low | |||||||
| (U.S. Dollars) | ||||||||
| 2008 | ||||||||
| December | 49.96 | 39.70 | ||||||
| 2009 | ||||||||
| January | 53.02 | 41.30 | ||||||
| February | 40.89 | 36.51 | ||||||
| March | 47.53 | 34.58 | ||||||
| April | 52.99 | 47.66 | ||||||
| May | 60.22 | 50.03 | ||||||
| June (through June 26) | 62.73 | 57.40 | ||||||
Source: Bloomberg
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The table below sets forth,, for the indicated months,, the reported high and low closing prices for our common shares on the Lima Stock Exchange.Exchange.
| High | Low | |||||
| (U.S. Dollars) | ||||||
| 2010 | ||||||
| October | 124.01 | 112.83 | ||||
| November | 124.79 | 113.72 | ||||
| December | 127.30 | 118.50 | ||||
| 2011 | ||||||
| January | 121.15 | 104.20 | ||||
| February | 108.60 | 97.19 | ||||
| March | 109.00 | 101.04 | ||||
| April (through April 20) | 105.30 | 90.40 | ||||
High | Low | |||||||
| (U.S. Dollars) | ||||||||
| 2008 | ||||||||
| December | 50.19 | 39.25 | ||||||
| 2009 | ||||||||
| January | 53.10 | 41.50 | ||||||
| February | 40.50 | 36.30 | ||||||
| March | 47.37 | 34.90 | ||||||
| April | 53.40 | 47.63 | ||||||
| May | 59.69 | 50.20 | ||||||
| June (through June 26) | 62.80 | 56.40 | ||||||
Source: Bloomberg
On June 26, 2009,April 20 2011, the last sale price of our common shares on the New York Stock Exchange was US$58.7990.82 per share. On June 26, 2009,April 20, 2011, the closing price of our common shares on the Lima Stock Exchange was US$58.39.
90.40.
| (B) | Plan of Distribution |
Not applicable.
| (C) | Markets |
The Lima Stock Exchange
| Trading |
As of December 2008,2010, there were 257254 companies listed on the Bolsa de Valores de Lima (Lima Stock Exchange). The Lima Stock Exchange is Peru’s only securities exchange and was established in 1970. Trading on the Lima Stock Exchange is primarily done on an electronic trading system that became operational in August 1995.system. Trading hours are Monday through Friday as follows: 9:8:00 a.m.-9:a.m.-8:30 a.m. (pre-market ordering); 9:8:30 a.m.-1:30a.m.-3:00 p.m. (trading); and 1:30 p.m.-2:3:00 p.m.-3:10 p.m. (after market sales). Equity securities may also be traded in an open outcry auction floor session, which was the exclusive method of trading equity securities prior to the introduction of electronic trading. Nearly 100% of all transactions on the Lima Stock Exchange currently take place on the electronic system.
Transactions during both the open outcry and the electronic sessions are executed through brokerage firms and stock brokers on behalf of their clients. Brokers submit their orders in strict accordance with written instructions, following the chronological order of the receipt.in which they were received. The orders specify the type of security ordered or offered as well as the amounts and the price of the sale or purchase. In general, share prices are permitted to increase or decrease up to 15% for Peruvian companies, and up to 30% for foreign companies, within a single trading day.
The Peruvian stock market capitalization increased, in U.S. Dollar terms, by 25.0% in 2004, 80.0% in 2005, 65.8% in 2006, and 80.3% in 2007. It decreased by 47.1% in 2008 as a result of the global economic crisis. It rebounded in 2009, growing by 87.5%, and during 2010, it again performed well, growing by 56.2%.
Traded volume in 2010 was higher than the figure reported during 2009, however, it is considerably lower than the 2007 and decreased 47.12%figure. The accumulated total for 2010 was US$6,700 million, with 88.9% relating to cash trading in 2008. Volume in the Peruvian market is highly concentrated, with the ten most actively traded companies representing approximately 50.7% of total traded value of equity securities during 2007. Total traded volume was US$2.5 billionand 11.1% to cash trading in 2004, which increased to US$3.6 billion in 2005, US$6.3 billion in 2006, and to US$12.4 billion in 2007, and decreased to US$5.1 billion in 2008. Average daily traded volume was US$9.9 million in 2004, which increased to US$14.5 million in 2005, US$25.1 million in 2006, and US$49.6 million in 2007, and decreased to US$19.8 million in 2008.fixed-income securities.
The Indice General de la Bolsa de Valores de Lima (the General Index of the Lima Stock Exchange or IGBVL) increased, in terms of U.S. Dollars, 60.5% in 2004,dollar terms, 24.6% in 2005, 186.9% in 2006, and 45.6% in 2007, and2007. It decreased 61.5% in 2008.2008, but increased 101.0% in 2009 and 69.7% in 2010.
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Market Regulation |
The Securities Market Law (Legislative Decree 861) addresses matters such as transparency and disclosure, takeovers and corporate actions, capital market instruments and operations, the securities markets and broker-dealers, and risk rating agencies. CONASEV, a publicgovernmental entity reporting to Peru’s Ministry of Economy and Finance, was given additional responsibilities relating to the supervision, regulation, and development of the securities market, while a self-regulatory status was established for the Lima Stock Exchange and its member firms.firms were given the status of self-regulatory organizations. Additionally, a unified system of guarantees and capital requirements was established for the Lima Stock Exchange and its member firms.
CONASEV is governed by a nine-member board appointed by the government. CONASEV has broad regulatory powers. These powers include the supervision of (i) all companies incorporated in Peru, (ii) Peruvian branches or agencies of foreign corporations, (iii) the process of admission of members to the Lima Stock Exchange, (iv) the authorizationstudying, promoting, and making rules for the creation of exchangessecurities market, supervising its participants, and (v) the approval ofapproving the registration of public offerings of securities.
CONASEV supervises the securities markets and the dissemination of information to investors. It also (i) governs the operations of the Public Registry of Securities and Brokers, (ii) regulates mutual funds and their management companies, (iii) monitors compliance with accounting regulations by companies under its supervision as well as the accuracy of financial statements and (iv) registers and supervises auditors providingwho provide accounting services to those companies under CONASEV’s supervision.
On August 22, 1995, CONASEV approved regulations governing the public offering of securities in Peru by entities organized outside of Peru and, for the first time, authorized foreign companies to be listed on the Lima Stock Exchange. On October 25, 1995, we became the first non-Peruvian company to list our shares on the Lima Stock Exchange. See “Item 4. Information on the Company—(B) Business Overview—(11) Supervision and Regulation.”
Pursuant to the Securities Market Law, a guarantee fund must be maintained by the Lima Stock Exchange andmust maintain a guarantee fund that is funded by its member firms. The actual contributions to be made by the 2123 member firms of the Lima Stock Exchange are based on volume traded over the exchange. At present, the fund has approximately S/.25.34 million (US$8.7912.1 million), which exceeds the target set by the regulations based on the exchange’s total traded volume.. In addition to the guarantee fund managed by the Lima Stock Exchange, each member firm is required to maintain a guarantee for operations carried on outside the exchange in favor of CONASEV. The manner in which suchSuch guarantees are generally established is through stand-by letters of credit issued by local banks.
Selling Shareholders |
Not applicable.
| Dilution |
Not applicable.
Expenses of the issue |
Not applicable.
ITEM 10. | ADDITIONAL INFORMATION |
Share Capital |
Not applicable.
Memorandum and Articles of Association |
“Item 10. Additional Information—Memorandum and Articles of Incorporation” from our Annual Report on Form 20-F dated June 27, 2003 is incorporated herein by reference.
At our Annual General Shareholders’ Meeting held on March 31, 2005, we adopted an amendment to our bye-laws was adopted whereby ourthat increased the number of our directors was increased from six to eight. In addition, the classification of directors and the staggering of their terms waswe also removed and replacedprovisions that established a classified board structure with staggered terms, adopting instead fixed three-year terms to be served until the end of the Annual General Shareholders’ Meeting for the year in which their respective terms expire. The main reasons for these amendments were to give more stability to our administration and to give AFPs, whose ownership of our common shares has steadily increased (see “Item 7. Major Shareholders and Related Party Transactions—(A) Major Shareholders”), direct representation on our board of directors. Directors were elected to the two newly created directorships to represent the pension funds.
three-year period expires.
Material Contracts |
As of the date hereof, we have not, nor have our subsidiaries, entered into any material contracts.
Exchange Controls |
We have been designated as a non-resident for Bermuda exchange control purposes, and therefore, there are no restrictions on our ability to transfer non-Bermuda funds in and out of Bermuda or to pay dividends to United States residents who are holders of our common shares.
We rely almost exclusively on dividends from Grupo Credito, BCP, ASHC, PPS, and our other subsidiaries for the payment of dividends to holders of our common shares. To the extent our subsidiaries are restricted by law from paying us dividends, our ability to pay dividends on our common shares will be adversely affected.
In addition, we present our financial statements and pay dividends in U.S. Dollars. BCP and PPS prepare their financial statements and pay dividends in Nuevos Soles. The Peruvian currency has been devalued numerous times during the past two decades. If the value of the Nuevo Sol fallswere to fall relative to the U.S. Dollar between the date of declaration and the date of payment of dividends, the value of the dividends we receive from our subsidiaries would be adversely affected. On an overall basis, the Peruvian currency has appreciated against the US. Dollar during the last decade.
Although substantially all of the customers of BCP, ASHC and PPS are located in Peru, as of December 31, 2008,2010, approximately 66%61.1% of BCP’s loan portfolio, 100% of ASHC’s loan portfolio, and 84.0%84.3% of PPS’s premiums were denominated in U.S. Dollars. Most of the borrowers or insureds of these three companycompanies use Nuevo Soles. Therefore, a devaluation of the Nuevo Sol would therefore have the effect of increasingeffectively increase the cost to the borrower inof repaying its loans orand the cost to the insured inof making its premium payments. As a result, a devaluation could lead to increasedmore nonperforming loans or unpaid premiums for BCP, ASHC and PPS.
Since March 1991, there have been no exchange rate controls in Peru and all foreign exchange transactions are based on free market exchange rates. Additionally, during the last two decades, the Peruvian currency has experienced a significant number of large devaluations. Peru has consequently adopted and operated under various exchange rate control practices and exchange rate determination policies, ranging from strict control over exchange rates to market determination of rates. Current Peruvian regulations on foreign investment allow the foreign holders of equity shares of Peruvian companies to receive and repatriate 100% of the cash dividends distributed by the company. These investors are allowed to purchase foreign exchange at free market exchange rates through any member of the Peruvian banking system.
| Taxation |
At the present time, there is no Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty, or inheritance tax payable that we must pay or our shareholders must pay with respect to their shares. We have obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain, or appreciation or any tax in the nature of an estate duty or inheritance tax, such tax shall not, until March 28, 2016, be applicable to us or to any of our operations or to our shares, debentures, or other obligations. This assurance, however, does not cover any tax applicable to persons ordinarily resident in Bermuda or to any taxes that we must pay with respect to real property that we own or lease in Bermuda.
As an exempted company, we are liable to pay in Bermuda an annual government fee based upon our authorized share capital and the premium on our issued common shares, which amounted to approximately US$18,670 in 2010.
On February 15, 2011, the approximate equivalentPeruvian government enacted Law 29663, which partially modifies the country’s income tax regime by subjecting to taxation in Peru capital gains derived from an indirect transfer of US$17,830shares and expanding the type of income that will qualify as Peruvian-source income. Under the new law, any transfer of shares of a company not domiciled in 2008.Peru will be subject to Peruvian income tax if, at any point during the 12 months prior to the transfer, the market value of the shares of a Peruvian domiciled company that is directly or indirectly owned by the non-Peruvian domiciled company represents 50% or more of the market value of the shares representing the equity capital of the non-Peruvian domiciled company. This change became effective on February 16, 2011.
At the same time, two new obligations were imposed on Peruvian domiciled companies:
| (1) | Each Peruvian domiciled company is now required to report to the Peruvian Tax Administration (SUNAT) transfers of its own shares or transfers of the shares of the non-Peruvian domiciled company that is the owner of its shares, and |
| (2) | Each Peruvian domiciled company is now responsible for the income tax not paid by a non-Peruvian domiciled transferor that is directly or indirectly linked to the domiciled company (whether by means of control, management or equity participation) in connection with the transfer of the domiciled company’s shares. |
| Dividends and Paying Agents |
Not applicable.
| (G) | Statement by Experts |
Not applicable.
Documents on Display |
The documents referred to in this Annual Report are available for inspection at our registered office.
Subsidiary Information |
Not applicable.
| ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We also seek to raise ourits interest margins by obtaining above-average market margins, net of allowances, through lending to commercial and retail borrowers with a range of credit products. TheseSuch exposures involve not just on-balance sheet loans and advances; we also enter into guarantees and other commitments such as letters of credit and performance.
105
We also trade in financial instruments takingwhere we take positions in traded and over-the-counter instruments, including derivatives, in order to take advantage of short-term market movements in equities, bonds, currencycurrencies and interest rates.
In this sense, risk is inherent in our activities but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to our continuing profitability and each individual within our companyGroup is accountable for the risk exposures relating to his or her responsibilities. We are exposed to operating risk, credit risk, liquidity risk and market risk. Market risk, isthe latter being subdivided into trading and non-trading risks.
Risk Management Structure
Our board of directors and the board of directorsboards of each of our subsidiariessubsidiary are ultimately responsible for identifying and controlling risks. However,risks; however, there are separate independent bodies in the major subsidiaries (BCP, PPS, ASB, Edyficar and ASHC)Prima AFP) responsible for managing and monitoring risks, as further explained below:bellow:
Board of Directors:The board of directors of each major subsidiary is responsible for the overall risk management approach and responsible for the approval of the policies and strategies currently in place. They provideThe Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, risk related to the use of derivative financial instruments and non-derivative financial instruments.
Risk Management Committee: The risk management committeeRisk Management Committee of each major subsidiary is responsible for the strategy used for mitigating risks as well as setting forth the overall principles, policies and limits for the different types of risks. They arerisks; it is also responsible for monitoring fundamental risk issues and managesfor managing and monitorsmonitoring the relevant risk decisions.
Risk Management Department: The risk management departmentRisk Management Department of each major subsidiary is responsible for developing, implementing and improving, on a continuous basis, ourthe Group’s risk management infrastructure by adopting and incorporating global best practices and following established policies.
Internal Audit: Risk management processes throughout our organizationthe Group are monitored by the internal audit function, which examines both the adequacy of the procedures and our compliance with such procedures. Internal Auditthem. The internal audit division discusses the results of all assessments with our management, and reports its findings and recommendations to our audit committeeCredicorp’s Audit Committee and boardBoard of directors.Directors.
Treasury and Foreign Exchange Departments:Our treasury departmentTreasury Department is responsible for managing ourthe Group’s assets and liabilities and the overall financial structure. It is also primarily responsible for our management ofmanaging funding and liquidity risks, as well asrisks; in addition to managing investment, forward and spot portfolios, assumingportfolios. The Treasury Department also monitors the related liquidity, interest rate and exchange rate risks, according to the policies and limits currently in effect.risks.
Risk Measurement and Reporting Systems
Our risks are measured using a method which reflects both the expected losslosses, which are those losses likely to arise in normal circumstances, and unexpected losses, which are an estimate of the ultimate actual lossestimated based on statistical models. The models make use of probabilities derived from historical experience, adjusted to reflect the economic environment. We also run worseexamine worst case scenarios that wouldmight arise if extreme and unlikely events do, in the event of an occurrence of an unlikely and extreme event.fact, occur.
Monitoring and controlling risks are primarily performed based on limits that we establish. These limits reflect our business strategy, andthe market environment as well asand the level of risk that we are willing to accept. In addition, we monitor and measure our overall risk bearing capacity in relationrelative to our aggregate risk exposure across all risk types and activities.
Information compiled from all of our subsidiaries is examined and processed in order to analyze, control and identify early risks.risks early. This information is presented and explained to our boardthe Board of directors, risk management committee,Directors, the Risk Management Committee, and all relevant members of our other relevant members.the Group. The report includes aggregate credit exposure, credit metric forecasts, hold limit exceptions, ValueVaR (Value at Risk (or VaR)Risk), liquidity ratios and risk profile changes. Our seniorSenior management periodically assesses the fair value of the investments and the appropriateness of the allowance for credit losses.
Risk Mitigation
As part of our overall risk management, we use derivatives and other instruments to manage exposures resulting from changes in interest rates, foreign currencies, equity risk and credit risk.
The risk profile is assessed before entering into hedge transactions, which are authorized by the appropriate level of seniority within our organization.the Group. The effectiveness of hedges is assessed by our risk management departmentthe Risk Management Department (based on economic considerations rather than the IFRS hedge accounting regulations). Each month we monitor theThe effectiveness of all the hedge relationships by the unit.is monitored monthly. In situations of ineffectiveness, we will enter into a new hedge relationship to mitigate risk on a continuous basis.
106
We actively use collateral to reduce our credit risks.
Excessive Risk Concentration
Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or have similar economic, political or other conditions. Concentrations indicate the relative sensitivity of ourthe Group’s performance to developments affecting a particular industry or geographical location.
In order to avoid excessive concentrations of risk, ourCredicorp’s policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly.
Market Risk
We take on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest rates, currency, commodities and equity products,products; all of which are exposed to general and specific market movements and changes in the level of price volatility of prices such as interest rates, credit spreads, foreign exchange rates and equity prices. Due to the nature of ourthe Group’s current activities, commodity price risk is not applicable.
We separate exposureexposures to market risk into two groups: (i) those that which arisesarise from value fluctuation of trading portfolios due to movements of market rates or prices (i.e., trading book)(Trading Book) and (ii) those that which arisesarise from changes in the structural positions of non-trading portfolios due to movements of the interest rates, prices and foreign exchange ratios (i.e., ALM(ALM Book).
Trading portfolios include those liquid positions arising from market-making transactions where we act as principal with clients or with the market. Non-trading portfolios consist of relatively illiquid positions, mainly banking assets and liabilities (deposits and loans) and nontradingnon-trading investments (available-for-sale).
Trading Book
The trading book is made up of liquid investment instruments. The trading book is characterized byfor having liquid positions in equities, bonds, foreign currencies and derivatives. Some limits have been set in order to control and monitor the risks undertaken. These risks arise from the size of the positions and/or from the volatility of the risk factors embedded in each financial instrument. Regular reports are prepared for our risk management committeesthe Risk Management Committees and top management. The major measurement technique used to measure and control market risk is VaR.
We apply VaR to our trading portfolios to estimate the market risk of positions held and the maximum losses that are expected, based upon a number of assumptions offor various changes in market conditions. Our risk management committee setsThe Risk Management Committee set limits on the level of risk that may be accepted and reviews such levels daily.accepted.
VaR is a statistically-based estimate of the potential loss on the current portfolio from adverse market movements. It expresses the “maximum” amount that wethe Group might lose, but only to a certain level of confidence (99%)(99 percent). As a result, thereThere is therefore a specified statistical probability (1%)(1 percent) that actual loss could be greater than the VaR estimate. The VaR model assumes a certain “holding period” until positions can be closed (1 day - 10 days). The time horizon used to calculate VaR is one day. However,day; however, the one-day VaRVAR is increasedamplified to a 10-day time frame and calculated by multiplying the one-day VaR by the square root of 10, the results of which are presented in the tables below.10. The assessment of past movements has been based on historical one-year data. We applyThe Group applies these historical changes in rates directly to ourits current positions (a method known as historical simulation).
The use of this approach does not prevent losses outside of these limits in the event of more significant market movements.
This adjustment will be exact only if the changes in the Portfolio in the following days have a normal distribution identical and independent; otherwise, the VAR to 10 days will be an approximation.
As of December 31, 20072010 and 2008,2009, our VaR by type of asset was as follows:
| 2010 | 2009 | |||||
| US$(000) | US$(000) | |||||
| Equity securities | 126 | 2 | ||||
| Fixed income | 2,494 | 1,142 | ||||
| Swaps | 1,109 | 580 | ||||
| Forwards | 2,938 | 1,961 | ||||
| Consolidated VaR by type of asset | 4,397 | 2,269 |
| 2008 | 2007 | |||||||
| US$(000) | US$(000) | |||||||
| Equity securities | 55 | 5,211 | ||||||
| Mutual funds | 1,034 | - | ||||||
| Fixed income | 1,116 | 567 | ||||||
| Derivatives | - | 626 | ||||||
| Consolidated VaR by type of asset | 1,604 | 5,261 | ||||||
As of December 31, 20072010 and 2008,2009, our VaR by risk type is as follows:
| 2008 | 2007 | |||||||
| US$(000) | US$(000) | |||||||
| Foreign exchange risk | 579 | 133 | ||||||
| Interest rate risk | 1,063 | 514 | ||||||
| Equity risk | 850 | 4,879 | ||||||
| Consolidated VaR by risk type | 1,604 | 5,261 | ||||||
| 2010 | 2009 | |||||
| US$(000) | US$(000) | |||||
| Foreign exchange risk | 1,767 | 985 | ||||
| Interest rate risk | 3,593 | 1,802 | ||||
| Equity risk | 126 | 2 | ||||
| Consolidated VaR by risk type | 4,397 | 2,269 |
ALM Book
The management of the risks associated with long-term and structural positions is called “AssetAsset and Liability Management”, or ALM.Management (ALM). Non-trading portfolios which comprise the ALM Book are exposed to different sensitivities that can bring about a deterioration in the value of the Group’s assets comparedrelative to its liabilities and therefore a reduction of itshence can reduce the Group’s net worth.
Interest Risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair valuevalues of financial instruments. Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. We take on exposureThe Group is exposed to the effects of fluctuations in the prevailing levels of marketboth fair value interest rates on both our fair valuerate risk and cash flow risks.interest rate risk. Interest margins may increase as a result of such changes but may also decrease in the event that unexpected movements arise. Our board of directorsThe Board sets limits on the level of mismatch of interest rate re-pricing that may be undertaken, which is monitored daily by our treasury department.the Treasury Department.
Re-pricing Gap
Gap analysis comprisesconsists of aggregating re-pricing timeframes into buckets and checking if each bucket nets to zero. Different bucketing schemes mightmay be used. An interest rate gap is simply a positive or negative net re-pricing timeframe for one of the buckets.
108
The table below summarizes our exposure to interest rate risks. It includes our financial instruments at carrying amounts, categorized by the earlier of contractual re-pricing or maturity dates:
| As of December 31, 2010 | |||||||||||||||||
Up to 1 month | 1 to 3 months | 3 to 12 months | 1 to 5 years | More than 5 years | Non-interest bearing | Total | |||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||
| Assets | |||||||||||||||||
| Cash and due from banks | 5,606,278 | 1,325,201 | 26,999 | - | - | 1,624,377 | 8,582,855 | ||||||||||
| Investments | 535,658 | 274,790 | 256,872 | 860,605 | 1,088,441 | 867,450 | 3,883,816 | ||||||||||
| Loans | 1,903,439 | 3,931,178 | 2,594,608 | 3,753,193 | 1,777,237 | - | 13,959,655 | ||||||||||
| Assets designated at fair value through profit and loss | - | 40 | 1,443 | 2,999 | 6,047 | 168,526 | 179,055 | ||||||||||
| Premiums and other policies receivables | - | - | - | - | - | 129,136 | 129,136 | ||||||||||
| Accounts receivable from re-insurers and co-insurers | - | - | - | - | - | 160,249 | 160,249 | ||||||||||
| Other assets | - | - | - | - | - | 1,518,414 | 1,518,414 | ||||||||||
| Total assets | 8,045,375 | 5,531,209 | 2,879,922 | 4,616,797 | 2,871,725 | 4,468,152 | 28,413,180 | ||||||||||
| Liabilities | |||||||||||||||||
| Deposits and obligations | 6,366,203 | 4,150,629 | 2,629,260 | 518,882 | 42,574 | 4,360,570 | 18,068,118 | ||||||||||
| Due to banks and correspondents | 512,259 | 510,293 | 960,721 | 118,361 | 110,220 | 32,592 | 2,244,446 | ||||||||||
| Liabilities designated at fair value through profit or loss | - | - | - | - | - | 60,775 | 60,775 | ||||||||||
| Technical, insurance claims reserves and reserves for unearned premiums | 51,258 | 31,035 | 139,700 | 188,801 | 432,951 | 352,578 | 1,196,323 | ||||||||||
| Bonds and subordinated notes issued | 846,300 | 39,086 | 138,369 | 422,571 | 1,529,341 | 26,031 | 3,001,698 | ||||||||||
| Other liabilities | - | - | - | - | - | 911,569 | 911,569 | ||||||||||
| Equity | - | - | - | - | - | 2,930,251 | 2,930,251 | ||||||||||
| Total liabilities and equity | 7,776,020 | 4,731,043 | 3,868,050 | 1,248,615 | 2,115,086 | 8,674,366 | 28,413,180 | ||||||||||
| Off-Balance sheet items | |||||||||||||||||
| Derivatives assets | 1,714,934 | 1,263,398 | 957,222 | 712,778 | 88,737 | - | 4,737,069 | ||||||||||
| Derivatives liabilities | 796,919 | 1,247,468 | 1,111,120 | 1,335,431 | 246,131 | - | 4,737,069 | ||||||||||
| 918,015 | 15,930 | (153,898 | ) | (622,653 | ) | (157,394 | ) | - | - | ||||||||
| Marginal gap | 1,187,370 | 816,096 | (1,142,026) | 2,745,529 | 599,245 | (4,206,214 | ) | - | |||||||||
| Accumulated gap | 1,187,370 | 2,003,466 | 861,440 | 3,606,969 | 4,206,214 | - | - | ||||||||||
As of December 31, 2008 | ||||||||||||||||||||||||||||
Up to 1 month | 1 to 3 months | 3 to 12 months | 1 to 5 years | More than 5 years | Non-interest bearing | Total | ||||||||||||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||
| Cash and due from banks | 2,455,413 | 196,588 | 46,536 | 10,218 | - | 1,057,416 | 3,766,171 | |||||||||||||||||||||
| Investments | 818,153 | 1,208,593 | 989,125 | 543,549 | 1,141,155 | 294,577 | 4,995,152 | |||||||||||||||||||||
| Loans | 2,038,457 | 2,412,234 | 2,274,854 | 2,992,480 | 604,016 | - | 10,322,041 | |||||||||||||||||||||
| Assets designated at fair value through profit and loss | - | - | - | - | - | 129,631 | 129,631 | |||||||||||||||||||||
| Premiums and other policies receivables | - | - | - | - | - | 111,561 | 111,561 | |||||||||||||||||||||
| Accounts receivable from re-insurers and co-insurers | - | - | - | - | - | 165,144 | 165,144 | |||||||||||||||||||||
| Other assets | - | - | - | - | - | 1,331,369 | 1,331,369 | |||||||||||||||||||||
| Total assets | 5,312,023 | 3,817,415 | 3,310,515 | 3,546,247 | 1,745,171 | 3,089,698 | 20,821,069 | |||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||
| Deposits and obligations | 4,114,430 | 3,268,610 | 2,991,905 | 321,984 | 39,979 | 3,213,529 | 13,950,437 | |||||||||||||||||||||
| Due to banks and correspondents | 178,539 | 745,155 | 197,935 | 11,705 | 32,544 | 14,113 | 1,179,991 | |||||||||||||||||||||
| Liabilities designated at fair value through profit or loss | - | - | - | - | - | 55,841 | 55,841 | |||||||||||||||||||||
| Technical, insurance claims reserves and reserves for unearned premiums | 31,254 | 19,357 | 86,935 | 148,437 | 331,697 | 350,090 | 967,770 | |||||||||||||||||||||
| Borrowed funds | 1,008,997 | 2,474 | 11,762 | 81,871 | 45,612 | - | 1,150,716 | |||||||||||||||||||||
| Bonds and subordinated notes issued | 817 | - | 63,208 | 284,577 | 428,788 | 7,840 | 785,230 | |||||||||||||||||||||
| Other liabilities | - | - | - | - | - | 934,979 | 934,979 | |||||||||||||||||||||
| Equity | - | - | - | - | - | 1,796,105 | 1,796,105 | |||||||||||||||||||||
| Total liabilities and equity | 5,334,037 | 4,035,596 | 3,351,745 | 848,574 | 878,620 | 6,372,497 | 20,821,069 | |||||||||||||||||||||
| Off-Balance sheet items | ||||||||||||||||||||||||||||
| Derivatives assets | 2,444,863 | 1,267,306 | 577,445 | 458,944 | 286,646 | - | 5,035,204 | |||||||||||||||||||||
| Derivatives liabilities | 1,582,377 | 770,950 | 816,213 | 1,438,652 | 427,012 | - | 5,035,204 | |||||||||||||||||||||
| 862,486 | 496,356 | (238,768 | ) | (979,708 | ) | (140,366 | ) | - | - | |||||||||||||||||||
| Marginal gap | 840,472 | 278,175 | (279,998 | ) | 1,717,965 | 726,185 | (3,282,799 | ) | - | |||||||||||||||||||
| Accumulated gap | 840,472 | 1,118,647 | 838,649 | 2,556,614 | 3,282,799 | - | - | |||||||||||||||||||||
| As of December 31, 2009 | |||||||||||||||||
Up to 1 month | 1 to 3 months | 3 to 12 months | 1 to 5 years | More than 5 years | Non-interest bearing | Total | |||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||
| Assets | |||||||||||||||||
| Cash and due from banks | 2,745,587 | 70,616 | 81,969 | - | - | 938,486 | 3,836,658 | ||||||||||
| Investments | 468,952 | 956,305 | 956,692 | 1,188,886 | 879,810 | 699,735 | 5,150,380 | ||||||||||
| Loans | 1,739,632 | 3,144,271 | 2,142,219 | 3,176,243 | 1,028,915 | - | 11,231,280 | ||||||||||
| Assets designated at fair value through profit and loss | - | 258 | 310 | 1,657 | 3,565 | 129,880 | 135,670 | ||||||||||
| Premiums and other policies receivables | - | - | - | - | - | 121,338 | 121,338 | ||||||||||
| Accounts receivable from re-insurers and co-insurers | - | - | - | - | - | 137,098 | 137,098 | ||||||||||
| Other assets | - | - | - | - | - | 1,415,683 | 1,401,208 | ||||||||||
| Total assets | 4,954,171 | 4,171,450 | 3,181,190 | 4,366,786 | 1,912,290 | 3,427,745 | 22,013,632 | ||||||||||
| Liabilities | |||||||||||||||||
| Deposits and obligations | 4,025,133 | 3,716,882 | 2,705,235 | 311,252 | 28,601 | 3,297,995 | 14,085,098 | ||||||||||
| Due to banks and correspondents | 310,694 | 633,874 | 10,208 | 128,643 | 57,835 | 26,184 | 1,167,438 | ||||||||||
| Accounts payable to re-insurers and co-insurers | - | - | - | - | - | 48,009 | 48,009 | ||||||||||
| Technical, insurance claims reserves and reserves for unearned premiums | 39,932 | 24,949 | 112,373 | 164,216 | 367,552 | 309,769 | 1,018,791 | ||||||||||
| Bonds and subordinated notes issued | 959,341 | 21,583 | 91,742 | 541,980 | 755,036 | 13,291 | 2,382,973 | ||||||||||
| Other liabilities | - | - | - | - | - | 807,971 | 807,971 | ||||||||||
| Equity | - | - | - | - | - | 2,503,352 | 2,503,352 | ||||||||||
| Total liabilities and equity | 5,335,100 | 4,397,288 | 2,919,558 | 1,146,091 | 1,209,024 | 7,006,571 | 22,013,632 | ||||||||||
| Off-Balance sheet items | |||||||||||||||||
| Derivatives assets | 1,906,470 | 1,433,785 | 888,658 | 1,049,519 | 61,732 | - | 5,340,164 | ||||||||||
| Derivatives liabilities | 871,557 | 1,127,635 | 1,111,646 | 1,859,281 | 370,045 | - | 5,340,164 | ||||||||||
| 1,034,913 | 306,150 | (222,988 | ) | (809,762 | ) | (308,313 | ) | - | - | ||||||||
| Marginal gap | 653,984 | 80,312 | 38,644 | 2,410,933 | 394,953 | (3,578,826 | ) | - | |||||||||
| Accumulated gap | 653,984 | 734,296 | 772,940 | 3,183,873 | 3,578,826 | - | - | ||||||||||
| As of December 31, 2007 | ||||||||||||||||||||||||||||
Up to 1 month | 1 to 3 months | 3 to 12 months | 1 to 5 years | More than 5 years | Non-interest bearing | Total | ||||||||||||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||
| Cash and due from banks | 2,331,637 | 31,074 | 48,172 | 42,045 | 19 | 620,918 | 3,073,865 | |||||||||||||||||||||
| Investments | 567,613 | 680,272 | 1,974,368 | 837,269 | 842,317 | 377,797 | 5,279,636 | |||||||||||||||||||||
| Loans | 2,078,657 | 2,294,056 | 1,499,311 | 2,051,629 | 115,847 | - | 8,039,500 | |||||||||||||||||||||
| Assets designated at fair value through profit and loss | - | - | 50,561 | - | - | 162,592 | 213,153 | |||||||||||||||||||||
| Premiums and other policies receivables | - | - | - | - | - | 85,495 | 85,495 | |||||||||||||||||||||
| Accounts receivable from re-insurers and co-insurers | - | - | - | - | - | 116,141 | 116,141 | |||||||||||||||||||||
| Other assets | - | - | - | - | - | 898,108 | 898,108 | |||||||||||||||||||||
| Total assets | 4,977,907 | 3,005,402 | 3,572,412 | 2,930,943 | 958,183 | 2,261,051 | 17,705,898 | |||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||
| Deposits and obligations | 3,358,599 | 3,089,841 | 1,709,965 | 263,913 | 2,088 | 2,926,308 | 11,350,714 | |||||||||||||||||||||
| Financial liabilities designated at fair value through profit and loss | - | - | 50,561 | - | - | - | 50,561 | |||||||||||||||||||||
| Due to banks and correspondents | 484,560 | 437,345 | 303,506 | 198,357 | 21,296 | 8,197 | 1,453,261 | |||||||||||||||||||||
| Accounts payable to re-insurers and co-insurers | - | - | - | - | - | 21,914 | 21,914 | |||||||||||||||||||||
| Technical, insurance claims reserves and reserves for unearned premiums | 1,626 | 4,878 | 14,634 | 95,017 | 305,039 | 394,333 | 815,527 | |||||||||||||||||||||
| Borrowed funds | - | 870,404 | - | - | - | - | 870,404 | |||||||||||||||||||||
| Bonds and subordinated notes issued | 101,521 | 34,520 | 54,546 | 176,924 | 328,147 | 6,640 | 702,298 | |||||||||||||||||||||
| Other liabilities | - | - | 8,275 | - | - | 617,671 | 625,946 | |||||||||||||||||||||
| Equity | - | - | - | - | - | 1,815,273 | 1,815,273 | |||||||||||||||||||||
| Total liabilities and equity | 3,946,306 | 4,436,988 | 2,141,487 | 734,211 | 656,570 | 5,790,336 | 17,705,898 | |||||||||||||||||||||
| Off-Balance sheet items | ||||||||||||||||||||||||||||
| Derivatives assets | 1,746,686 | 724,850 | 719,635 | 349,552 | 116,269 | - | 3,656,992 | |||||||||||||||||||||
| Derivatives liabilities | 967,415 | 617,771 | 801,599 | 806,626 | 463,581 | - | 3,656,992 | |||||||||||||||||||||
| 779,271 | 107,079 | (81,964 | ) | (457,074 | ) | (347,312 | ) | - | - | |||||||||||||||||||
| Marginal gap | 1,810,872 | (1,324,507 | ) | 1,348,961 | 1,739,658 | (45,699 | ) | (3,529,285 | ) | - | ||||||||||||||||||
| Accumulated gap | 1,810,872 | 486,365 | 1,835,326 | 3,574,984 | 3,529,285 | - | - | |||||||||||||||||||||
Sensitivity to Changes in Interest Rates
The following table presents the sensitivity of our consolidated income statement and consolidated statement of comprehensive income (before tax and non-controlling interest) to a reasonable possible change in interest rates, with all other variables held constant, of our consolidated income statement and consolidated statements of change in equity, before income tax and minority interest.constant.
The sensitivity of the consolidated income statement isreflects the effect of the assumed changes in interest rates on the net interest income for one year before income tax and minoritynon-controlling interest, based on the floating rate of non-trading financial assets and financial liabilities held at December 31, 20072010 and 2008,2009, including the effect of derivatives instruments. The sensitivity of equityconsolidated comprehensive income is calculated by revaluing, at various interest rates, our fixed rate available-for-sale financial assets before income tax and minority interest, includingnon-controlling interest. The analysis includes the effect of any associated hedges and derivativesderivative instruments designated as cash flow hedges, as of December 31, 20072010 and 2008 for the effects of the assumed changes in interest rates:2009:
| As of December 31, 2010 | |||||||||||
| Currency | Changes in basis points | Sensitivity of net income | Sensitivity of comprehensive income | ||||||||
| US$(000) | US$(000) | ||||||||||
| U.S. Dollar | +/- | 50 | +/- | 8,607 | -/+ | 57,293 | |||||
| U.S. Dollar | +/- | 75 | +/- | 12,911 | -/+ | 85,940 | |||||
| U.S. Dollar | +/- | 100 | +/- | 17,215 | -/+ | 114,587 | |||||
| U.S. Dollar | +/- | 150 | +/- | 25,822 | -/+ | 171,880 | |||||
| Peruvian Currency | +/- | 50 | -/+ | 1,658 | -/+ | 32,541 | |||||
| Peruvian Currency | +/- | 75 | -/+ | 2,487 | -/+ | 48,812 | |||||
| Peruvian Currency | +/- | 100 | -/+ | 3,317 | -/+ | 65,083 | |||||
| Peruvian Currency | +/- | 150 | -/+ | 4,917 | -/+ | 97,624 | |||||
110
| As of December 31, 2008 | ||||||||||||
| Currency | Changes in basis points | Sensitivity of net income | Sensitivity of Equity | |||||||||
| US$(000) | US$(000) | |||||||||||
| U.S. Dollar | +/- | 50 | +/- | 6,842 | -/+ | 16,709 | ||||||
| U.S. Dollar | +/- | 100 | +/- | 13,684 | -/+ | 33,417 | ||||||
| U.S. Dollar | +/- | 200 | +/- | 27,368 | -/+ | 66,834 | ||||||
| U.S. Dollar | +/- | 300 | +/- | 41,052 | -/+ | 100,251 | ||||||
| Peruvian Currency | +/- | 50 | -/+ | 12,227 | -/+ | 16,791 | ||||||
| Peruvian Currency | +/- | 100 | -/+ | 24,454 | -/+ | 33,581 | ||||||
| Peruvian Currency | +/- | 200 | -/+ | 48,908 | -/+ | 67,162 | ||||||
| Peruvian Currency | +/- | 300 | -/+ | 73,362 | -/+ | 100,743 | ||||||
The interest rate sensitivities set out in the table above are illustrative only and are based on simplified scenarios. The figures represent the effect of the pro-forma movements in the net interest income based on the projected yield curve scenarios and our current interest rate risk profile. This effect, however, does not incorporate actions that would be taken by our management to mitigate the impact of this interest rate risk. In addition, we seek proactively to change the interest rate risk profile to minimize losses and optimize net revenues.
The projections above also assume that interest rate of all maturities move by the same amount and, therefore, do not reflect the potential impact on net interest income of some rates changing while others remain unchanged. The projections make other simplifying assumptions too,as well, including an assumption that all positions run to maturity.
below:
| Market price sensitivity | Changes in market prices | As of December 31, 2010 | ||||||
| % | US$(000) | |||||||
| Equity securities | +/- | 10 | +/- | 54,052 | ||||
| Equity securities | +/- | 25 | +/- | 135,129 | ||||
| Equity securities | +/- | 30 | +/- | 162,155 | ||||
| Mutual funds | +/- | 10 | +/- | 7,714 | ||||
| Mutual funds | +/- | 25 | +/- | 19,285 | ||||
| Mutual funds | +/- | 30 | +/- | 23,142 | ||||
| Market price sensitivity | Changes in market prices | As of December 31, 2008 | ||||||
| % | US$(000) | |||||||
| Equity securities | ± | 10 | ± | 21,762 | ||||
| Equity securities | ± | 30 | ± | 65,285 | ||||
| Equity securities | ± | 50 | ± | 108,809 | ||||
| Mutual funds | ± | 10 | ± | 13,132 | ||||
| Mutual funds | ± | 20 | ± | 26,264 | ||||
| Mutual funds | ± | 30 | ± | 39,397 | ||||
Foreign Exchange Risk
| 2010 | U.S. Dollars | Peruvian currency | Other currencies | Total | ||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||
| Monetary assets - | ||||||||||||||||
| Cash and due from banks | 3,594,405 | 4,747,802 | 240,648 | 8,582,855 | ||||||||||||
| Trading securities | 59,020 | 56,548 | - | 115,568 | ||||||||||||
| Available-for-sale investments | 2,162,738 | 1,223,339 | 382,171 | 3,768,248 | ||||||||||||
| Loans, net | 8,356,316 | 5,260,816 | 342,523 | 13,959,655 | ||||||||||||
| Financial assets designated to fair value through profit and loss | 179,055 | - | - | 179,055 | ||||||||||||
| Other assets | 422,890 | 530,516 | 14,382 | 967,788 | ||||||||||||
| 14,774,424 | 11,819,021 | 979,724 | 27,573,169 | |||||||||||||
| Monetary liabilities - | ||||||||||||||||
| Deposits and obligations | (9,385,298 | ) | (8,051,953 | ) | (630,867 | ) | (18,068,118 | ) | ||||||||
| Due to bank and correspondents and borrowed funds | (1,970,971 | ) | (273,366 | ) | (109 | ) | (2,244,446 | ) | ||||||||
| Technical reserves, insurance claims reserves and reserves for unearned premiums | (892,998 | ) | (303,325 | ) | - | (1,196,323) | ||||||||||
| Bonds and subordinated notes issued | (2,327,172 | ) | (550,014 | ) | (124,512 | ) | (3,001,698 | ) | ||||||||
| Other liabilities | (530,611 | ) | (375,394 | ) | (66,339 | ) | (972,344 | ) | ||||||||
| (15,107,050 | ) | (9,554,052 | ) | (821,827 | ) | (25,482,929 | ) | |||||||||
| (332,626) | 2,264,969 | 157,897 | 2,090,240 | |||||||||||||
| Forwards position, net | 956,279 | (951,426 | ) | (4,853 | ) | - | ||||||||||
| Currency swaps position, net | (222,854 | ) | 222,854 | - | - | |||||||||||
| Cross-currency swaps position, net and interest rate swaps position, net | (252,912) | 129,050 | 123,862 | - | ||||||||||||
| Options | 25,561 | (25,561) | - | - | ||||||||||||
| Net monetary position | 173,448 | 1,639,886 | 276,906 | 2,090,240 | ||||||||||||
| 2008 | U.S. Dollars | Peruvian currency | Other currencies | Total | ||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||
| Monetary assets - | ||||||||||||||||
| Cash and due from banks | 3,156,279 | 495,550 | 114,342 | 3,766,171 | ||||||||||||
| Trading securities | 23,220 | 11,523 | 1,341 | 36,084 | ||||||||||||
| Available-for-sale investments | 2,897,658 | 1,736,160 | 325,250 | 4,959,068 | ||||||||||||
| Loans, net | 6,930,125 | 3,298,579 | 93,337 | 10,322,041 | ||||||||||||
| Financial assets designated to fair value through profit and loss | 129,631 | - | - | 129,631 | ||||||||||||
| Other assets | 594,107 | 255,476 | 12,383 | 861,966 | ||||||||||||
| 13,731,020 | 5,797,288 | 546,653 | 20,074,961 | |||||||||||||
| Monetary liabilities - | ||||||||||||||||
| Deposits and obligations | (8,614,042 | ) | (4,963,932 | ) | (372,463 | ) | (13,950,437 | ) | ||||||||
| Due to bank and correspondents and borrowed funds | (2,189,114 | ) | (140,155 | ) | (1,438 | ) | (2,330,707 | ) | ||||||||
| Financial liabilities designated at fair value through profits and loss | - | - | - | - | ||||||||||||
| Bonds and subordinated notes issued | (311,860 | ) | (473,370 | ) | - | (785,230 | ) | |||||||||
| Other liabilities | (1,425,817 | ) | (508,063 | ) | (24,710 | ) | (1,958,590 | ) | ||||||||
| (12,540,833 | ) | (6,085,520 | ) | (398,611 | ) | (19,024,964 | ) | |||||||||
| 1,190,187 | (288,232 | ) | 148,042 | 1,049,997 | ||||||||||||
| Forwards position, net | (627,600 | ) | 591,628 | 35,972 | - | |||||||||||
| Currency swaps position, net | 31,458 | (31,458 | ) | - | - | |||||||||||
| Cross-currency swaps position, net and interest rate swaps position, net | (277,347 | ) | 277,347 | - | - | |||||||||||
| Net monetary position | 316,698 | 549,285 | 184,014 | 1,049,997 | ||||||||||||
| 2009 | U.S. Dollars | Peruvian currency | Other currencies | Total | ||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||
| Monetary assets - | ||||||||||||||||
| Cash and due from banks | 3,094,366 | 501,769 | 240,523 | 3,836,658 | ||||||||||||
| Trading securities | 13,982 | 8,920 | 47,872 | 70,774 | ||||||||||||
| Available-for-sale investments | 2,354,804 | 2,034,768 | 690,034 | 5,079,606 | ||||||||||||
| Loans, net | 6,755,563 | 4,285,076 | 190,641 | 11,231,280 | ||||||||||||
| Financial assets designated to fair value through profit and loss | 135,670 | - | - | 135,670 | ||||||||||||
| Other assets | 369,995 | 549,982 | 22,977 | 942,954 | ||||||||||||
| 12,724,380 | 7,380,515 | 1,192,047 | 21,296,942 | |||||||||||||
| Monetary liabilities - | ||||||||||||||||
| Deposits and obligations | (8,156,869 | ) | (5,392,050 | ) | (536,179 | ) | (14,085,098) | |||||||||
| Due to bank and correspondents and borrowed funds | (1,037,742 | ) | (128,800 | ) | (896 | ) | (1,167,438) | |||||||||
| Technical reserves, insurance claims reserves and reserves for unearned premiums | (744,393) | (274,398) | — | (1,018,791) | ||||||||||||
| Bonds and subordinated notes issued | (1,701,319 | ) | (569,469 | ) | (112,185 | ) | (2,382,973 | |||||||||
| Other liabilities | (441,954 | ) | (363,884 | ) | (50,142 | ) | (855,980) | |||||||||
| (12,082,277 | ) | (6,728,601 | ) | (699,402 | ) | (19,510,280 | ||||||||||
| 642,103 | 651,914 | 492,645 | 1,786,662 | |||||||||||||
| Forwards position, net | 265,114 | (198,637 | ) | (66,477 | ) | - | ||||||||||
| Currency swaps position, net | (142,015 | ) | 183,598 | (41,583 | ) | - | ||||||||||
| Cross-currency swaps position, net and interest rate swaps position, net | 77,768 | 129,049 | (206,817 | ) | - | |||||||||||
| Options | (3,711 | ) | 3,711 | - | - | |||||||||||
| Net monetary position | 839,259 | 769,635 | 177,768 | 1,786,662 | ||||||||||||
| 2007 | U.S. Dollars | Peruvian currency | Other currencies | Total | ||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||
| Monetary assets - | ||||||||||||||||
| Cash and due from banks | 2,644,858 | 311,828 | 117,179 | 3,073,865 | ||||||||||||
| Trading securities | 38,647 | 11,463 | 885 | 50,995 | ||||||||||||
| Available-for-sale investments | 1,934,672 | 3,129,351 | 164,618 | 5,228,641 | ||||||||||||
| Loans, net | 5,555,864 | 2,450,297 | 33,339 | 8,039,500 | ||||||||||||
| Financial assets designated to fair value through profit and loss | 213,153 | - | - | 213,153 | ||||||||||||
| Other assets | 261,102 | 299,695 | 9,745 | 570,542 | ||||||||||||
| 10,648,296 | 6,202,634 | 325,766 | 17,176,696 | |||||||||||||
| Monetary liabilities - | ||||||||||||||||
| Deposits and obligations | (7,173,362 | ) | (3,892,138 | ) | (285,214 | ) | (11,350,714 | ) | ||||||||
| Due to bank and correspondents and borrowed funds | (2,071,882 | ) | (248,362 | ) | (3,421 | ) | (2,323,665 | ) | ||||||||
| Financial liabilities designated at fair value through profits and loss | (50,561 | ) | - | - | (50,561 | ) | ||||||||||
| Bonds and subordinated notes issued | (329,567 | ) | (372,731 | ) | - | (702,298 | ) | |||||||||
| Other liabilities | (1,040,178 | ) | (434,353 | ) | 11,144 | (1,463,387 | ) | |||||||||
| (10,665,550 | ) | (4,947,584 | ) | (277,491 | ) | (15,890,625 | ) | |||||||||
| (17,254 | ) | 1,255,050 | 48,275 | 1,286,071 | ||||||||||||
| Forwards position, net | 331,117 | (273,971 | ) | (57,146 | ) | - | ||||||||||
| Currency swaps position, net | 7,227 | (7,227 | ) | - | - | |||||||||||
| Cross-currency swaps position, net and interest rate swaps position, net | (50,420 | ) | 50,420 | - | - | |||||||||||
| Net monetary position | 270,670 | 1,024,272 | (8,871 | ) | 1,286,071 | |||||||||||
We manage foreign exchange risk by monitoring and controlling the position values due to changes in exchange rates. We measure ourits performance in U.S. Dollars,Dollar, so if the net foreign exchange position (e.g.,(e.g. Peruvian currency) is an asset, any depreciation of the U.S. Dollar with respect to this currency would affect positively our consolidated balance sheet positively.statements of financial position. The current position in a foreign currency comprises exchange rate-linked assets and liabilities in that currency. An institution’s open position in individual currencies comprises assets, liabilities and off-balance sheet items denominated in the respective foreign currency for which the institution itself bears the risk. Anyrisk; any appreciation/depreciation of the foreign exchange would affect the consolidated income statement.
The table below shows the sensitivity analysis of the Peruvian currency,Currency, the currency to which we had significant exposure as of December 31, 20072010 and 20082009 on our non-trading monetary assets and liabilities and our forecastforecasted cash flows. The analysis calculates the effect of a reasonably possible movement of the currency rate against the U.S. Dollar, with all other variables held constant on the consolidated income statement, before income tax. A negative amount in the table reflects a potential net reduction in our consolidated income statement, while a positive amount reflects a net potential increase:
| Sensitivity Analysis | Change in Currency Rates | 2010 | 2009 | |||||||||
| % | US$(000) | US$(000) | ||||||||||
| Devaluation - | ||||||||||||
| Peruvian Currency | 5 | (86,310 | ) | (40,507 | ) | |||||||
| Peruvian Currency | 10 | (182,210 | ) | (85,515 | ) | |||||||
| Revaluation - | ||||||||||||
| Peruvian Currency | 5 | 78,090 | 36,649 | |||||||||
| Peruvian Currency | 10 | 149,081 | 69,967 | |||||||||
| Sensitivity Analysis | Change in Currency Rates | 2008 | ||||||
| % | US$(000) | |||||||
| Devaluation - | ||||||||
| Peruvian Currency | 5 | (28,910 | ) | |||||
| Peruvian Currency | 10 | (61,032 | ) | |||||
| Revaluation - | ||||||||
| Peruvian Currency | 5 | 26,156 | ||||||
| Peruvian Currency | 10 | 49,935 | ||||||
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
Not applicable.
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PART II
ITEM 13. | DEFAULTS, |
Material Defaults |
We,, along with our subsidiaries,, have never defaulted on any of our debt or have been forced to reschedule any of our obligations.obligations.
Dividend Arrearages and Delinquencies |
| ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
None.
ITEM 15. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures |
Our management, with the participation of and under the supervision of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2008.2010. Based on this evaluation, our management, principal executive officer, and principal financial officer have concluded that our disclosure controls and procedures are effective in ensuring that information that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in U.S. Securities and Exchange Commission (SEC) rules and forms.
Our Board of Directors and management are responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, the IASB.
Our internal control over financial reporting includes those policies and procedures that:
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; |
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements, and our receipts and expenditures are being made only in accordance with authorizations of our management in accordance with IFRS; and |
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 20082009 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, (“COSO”),or COSO, in Internal Control-Integrated Framework. Based on this assessment, our management believesconcluded that, as of December 31, 2008,2010, our internal control over financial reporting was effective. Our management also found no material weaknesses in our internal control over financial reporting and therefore no corrective actions were taken.
The effectiveness of our internal control over financial reporting as of December 31, 20082010 has been audited by Medina, Zaldívar, Paredes & Asociados (member firm of Ernst & Young Global), our independent registered public accounting firm, as stated in their report included herein, and it has expressed an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2008.2010.
Attestation Report of the Registered Public Accounting Firm |
To the Shareholders and Board of Directors of Credicorp Ltd.
We have audited Credicorp Ltd. and Subsidiaries'sSubsidiaries’ (hereinafter “Credicorp”) internal control over financial reporting as of December 31, 2008,2010, based on criteria established in Internal Control- Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Credicorp's ManagementCredicorp’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on Credicorp'sthe Credicorp’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changechanges in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Credicorp maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008,2010, based on the COSO criteria.
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We also have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States of America), the 2010 consolidated balance sheetsfinancial statements of Credicorp Ltd and its Subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2008 and notes thereto; and our report dated June 25, 2009, expressesApril 27, 2011, expressed an unqualified opinion thereon.
Lima, Peru,
April 27, 2011
| /S/ MEDINA, ZALDÍVAR, PAREDES & ASOCIADOS | ||
 | ||
| Countersigned by: | ||
 | ||
| /S/ CRISTIAN EMMERICH |
Cristian Emmerich
C.P.C.C. Register Nº19-289
Changes in Internal Control over Financial Reporting |
During the period covered by this Annual Report, no changes were made to our internal controlscontrol over financial reporting that have materially affected, or are likely to materially affect, internal controlscontrol over financial reporting.
| ITEM 15T. | CONTROLS AND PROCEDURES |
Not applicable.
| ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT |
In its session held on March 31, 2009, our boardBoard of directorsDirectors elected Germán Suárez and Reynaldo Llosa and Benedicto Cigüeñas as members of the Audit Committee. The Board elected Mr. Reynaldo Llosa as the Chairman, Mr. Suárez as the Audit Committee Financial Expert, as that term is defined in the instructions to Item 16A of Form 20-F, and Mr. Benedicto Cigüeñas, Director of BCP as a non-memberan advisor. OurLater on in its session held on October 27, 2010 our Board of Directors appointed Mr. Raimundo Morales as a new member of the Audit Committee.
Our board of directors also determined that Mr. Llosa, Mr. Suárez isand Mr. Morales are “independent” as defined in Rule 10A-3 under the Exchange Act and in Section 303A.02 of The NYSE Listed Company Manual. Mr. Suárez, our Audit Committee Financial Expert is an economist, and received his Masters degree in economics from Columbia University. Mr. Suárez became a director on March 31, 2005. Mr. Suárez was President and Chairman of the Board of Banco Central de Reserva del Perú from 1992 to 2001, and serves as director on the board of directors of various other companies, among which areis Compañía de Minas Buenaventura S.A. and Refinería La Pampilla.
ITEM 16B. | CODE OF ETHICS |
We have adopted a code of ethics (Código de Etica) that is applicable to our boardBoard of directors,Directors, including our chief executive officer, chief financial and accounting officer, and our other principal executive officers, as well as to all other employees. In addition, we have adopted a code of ethics for professionals with financial responsibility (Código de Etica Para Profesionales con Responsibilidad Financiera) applicable to employees with financial management responsibilities. Our code of ethics and code of ethics for professionals with financial responsibility are available on the corporate governance section of itsour web site at http://www.credicorpnet.com.
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The following table sets forth for each of the years indicated the fees paid to our independent auditor, Medina, Zaldívar, Paredes & Asociados, membersmember of Ernst & Young Global, for the audit of our financial statements for the years ended December 31, 2006, 20072008, 2009, and 2008,2010, respectively. The Audit Committee recommends the appointment of the independent auditor every fiscal year, and the auditorwhich is appointeddone at the Annual General Shareholders’ Meeting.
At our Annual General Shareholder’sShareholders’ Meeting held on March 31, 2009,2011, Medina, Zaldívar, Paredes y Asociados members of Ernst & Young Global, were designatedwas reelected as our external auditorsauditor for a five-year period that begins in the financial year 2009.2011. This designation was made in accordance with the proposal and recommendation of the Audit Committee and authorization by the Board of Directors. The Board has delegatedalso designated the duty of approving the auditor’s fees to the Audit Committee. The designation of our external auditors was made pursuant to an open tender in which KPMG, Deloitte, PricewaterhouseCoopers and Ernst & Young participated.
Years ended December 31, | ||||||||||||
| 2006 | 2007 | 2008 | ||||||||||
| (U.S. Dollars in thousands) | ||||||||||||
| Audit | US$ | 1,779 | US$ | 2,264 | US$ | 2,005 | ||||||
| Audit – Related | 61 | - | - | |||||||||
| Tax | 15 | 28 | 31 | |||||||||
| All Other | 29 | 32 | 203 | |||||||||
| Total | US$ | 1,884 | US$ | 2,323 | US$ | 2,239 | ||||||
| Years ended December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
| (U.S. Dollars in thousands) | ||||||||||||
| Audit | US$ | 2,005 | US$ | 2,436 | US$ | 2,554 | ||||||
| Audit – Related | - | - | 356 | |||||||||
| Tax | 31 | 69 | 201 | |||||||||
| All Other | 203 | 287 | 712 | |||||||||
| Total | US$ | 2,239 | US$ | 2,792 | US$ | 3,823 | ||||||
Audit Fees correspond to audit services performed (i) in the review of ourreviewing Credicorp’s consolidated financial statements and its subsidiaries, (ii) to establishestablishing the procedures that the independent auditor needs to perform in order to form an opinion about ourCredicorp’s consolidated financial statements, and (iii) to complycomplying with the statutory requirements applicable to ourCredicorp’s subsidiaries. Audit fees also include expenses related to the audit work in connection towith reviews of interim financial information.information and comfort letter issued. All fees were approved by the Audit Committee.
Audit-Related Fees relate to services that are similar to the execution of an audit or a review of ourCredicorp’s financial statements and which are traditionally performed by the independent auditor. Such audit-related services includeinclude: assistance in the understanding of new accounting and financial rules established by regulatory entities,entities; audit related procedures on accounting matters previously agreed with our management,matters; due diligence; and special audit reviews of internal control procedures. Thereprocedures, certain training courses and permitted advisory services related with IT systems. All fees were no audit-related fees during 2008.approved by the Audit Committee.
Tax Fees relate to tax services which include all services performed by ourCredicorp’s independent auditor’s tax personnel, except those services specifically related to the review and preparation of ourCredicorp’s financial statements. These services consistedstatements, and consisting principally of tax compliance and advisory services approved by ourthe Audit Committee.
All Other Feesinclude mainly included expenses related to derivative operations and consultancy in 2009, and training courses prepareddiagnosis and identification of improvements of operational controls in the Bank's revenue cycle processes in 2010. The increase in operational controls-related expenses accounts for the major increase in the fees during 2010, and will continue during 2011. All fees were approved by the independent auditors for the accounting and risk department of BCP.Audit Committee.
Audit Committee Pre-Approval Policies and Procedures
Our Audit Committeeaudit committee must approve all of the services the independent auditors provide as part of its responsibility in supervising their work. There are two types of approvals. The Audit Committee grants a “general approval” in advance to a list of services that the independent auditor may provide without further approval required by the Audit Committee. A general approval is valid for 12 months from the date of approval unless the Audit Committee determines a different period of validity should apply. The Audit Committee is regularly informed about the services provided through the general approval process. The Audit Committee also grants “specific approval” for services that do not have general approval on a case-by-case basis. All of the services that do not have general approval need specific approval from the Audit Committee before any agreement is signed with the independent auditor to provide such services. Any service that exceeds approved costs or budgets will need specific approval from the Audit Committee. The Audit Committee has set a limit on tax fees and all other fees, which cannot be greater than 35 percent of total auditor’s fees during a fiscal year. The Audit Committee may change this limit based upon our corporate needs and the complexity of the service provided by the independent auditor. When considering granting any type of approval, the Audit Committee considers whether the requested services are consistent with the SEC’s rules regarding the independence of the independent auditors.
Our Audit Committeeaudit committee supervises the execution of the independent audit services as necessary. It approves, when necessary, any modification in the terms, conditions, fees, and extent of the audit services. The Audit Committee may give a general approval for other audit services where the independent auditor is in the best position to provide those services. Such services typically include: audit services required by regulations, financial audits for our subsidiaries or affiliates, and services associated with the presentation of documents to the SEC or other documents published in relation to the trading of our shares.
The Audit Committee may award a general approval to audit-related services if its members consider that these services do not negatively affect the integrity of the independent auditor and are consistent with the rules of the SEC.
Following the rules promulgated by the SEC, our Audit Committeeaudit committee requires that all tax services provided by the independent auditors be subject to its approval. The Audit Committee may grant a specific approval to other services provided by the independent auditor so long as they do not impair the integrity of the independent auditor and are allowed by rules issued by the SEC concerning auditor independence.
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ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
Not applicable.
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
During 2008, we did not make any purchase of Credicorp shares for2010 our own portfolio. Our affiliates, Prima AFP, Atlantic Security Bank, Credifondo, and Credibolsa did make purchases in open-market transactions on behalf of our clients as part of their core businesses. Furthermore, the following purchases were made to cover the 2010’s supplementary senior management remuneration plan, as explain in notes 3(w)(ii) and 18(b) of the financial statements.
| Period | (a) Total Number of Shares (or Units) Purchased (1) | (b) Average Price Paid per Share (or Units) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares ( or Units) that May Yet Be Purchased Under the Plans or Programs |
| March 2009 | 227,000 | US$50.61 | ||
| March 2010 | 171,022 | US$85.94 |
| ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
Not applicable.
ITEM 16G. | CORPORATE GOVERNANCE |
| (A) | New York Stock Exchange – Corporate Governance |
The NYSE’s corporate governance rules, codified in Section 303A of the NYSE’s Listed Company Manual, apply, with certain limited exceptions, in full to companies listing common equity securities. Among the corporate governance issues addressed by Section 303A are the following:following:
Director independence;
The role of non-management directors;directors;
Nominating/corporate governance committee;committee;
Compensation committees;
Audit committees;
Disclosure of corporate governance guidelines, including those in relation to (i) director qualification standards, (ii) director responsibilities, (iii) director access to management and, as necessary and appropriate, independent advisors, (iv) director compensation, (v) director orientation and continuing education, (vi) management succession and (vii) annual performance evaluation of the boardBoard of directors;Directors;
Code of business conduct and ethics for directors, officers and employees addressing, at a minimum, (i) conflicts of interest, (ii) corporate opportunities, (iii) confidentiality, (iv) fair dealing, (v) protection and proper use of company assets, (v) compliance with laws, rules and regulations (including insider trading laws) and (vi) encouraging the reporting of any illegal or unethical behavior;behavior;
118
Disclosure by foreign private issuers of differences between their corporate governance practices and those of U.S. domestic companies under NYSE’s listing standards;standards;
Certification of compliance with the NYSE’s corporate governance standards and disclosure of violations of Section 303A; and
NYSE actions resulting from violations of the NYSE’s listing standards.
| (B) | Bermuda Law – Corporate Governance |
We are a company incorporated under the laws of Bermuda and are subject to Bermuda laws related to corporate governance. Under Bermuda law, there are no requirements with respect to the independence of our Boardboard of Directors,directors, meetings of non-management directors, the establishment and composition of certain committees or the adoption and disclosure of corporate governance guidelines or codes of business conduct and ethics. Certain Bermuda common law and statutory provisions, however, relate to duties and obligations of a company and its directors that are similar to some of the duties and obligations arising from the provisions of Section 303A.
| (1) | Fiduciary Duties and Duties of Skill and Care Under Bermuda Law |
Under section 97(1) of the Companies Act 1981 of Bermuda, as amended (the “Companies Act”)(also referred to as the Companies Act), every director and officer of a company must act honestly and in good faith with a view to the best interests of the company (often referred to as a “fiduciary duty”) and must exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances (often referred to as a “duty of skill and care”).
Fiduciary Duty
Under the common law, the fiduciary duty of directors has four aspects which may be briefly summarized as follows:
A duty to act honestly and in good faith. A director has a duty to act honestly and in good faith in what he considers are the best interests of the company and not for any collateral purpose. The courts allow the director wide discretion in determining this, interfering only if no reasonable director could have believed that a course of action was in the best interests of the company. However, a director acting honestly, but not in the best interests of the company, is in breach of such duty.
A duty to exercise powers for a proper purpose. Directors must act within the powers set out in the company’s memorandum of association and bye-laws and exercise their powers in the company’s interests and for the purposes for which those powers were conferred. Even if the directors are acting in good faith in the interests of the company as a whole, they must still use their powers for the purposes for which they were intended. For example, in general directors are not allowed to exercise their powers in such a way as to prevent a majority of the members from exercising their rights.
A duty to avoid conflicts of interest. A director must not put himself in a position where there is an actual or potential conflict between a personal interest and his duty to the company. However, a director may enter into a contract where a conflict of interest might arise if the bye-laws allow it or the company gives its approval in a general meeting. Our bye-laws do not prohibit a director from entering into a contract where a conflict of interest may arise, but they do prohibit a director from voting inwith respect ofto any contract or proposed contract or arrangement in which such director is interested or with which such director has a conflict of interest. In addition, section 97(4) of the Companies Act requires our directors and officers to disclose at the first opportunity any interest in a material contract, proposed material contract or person that is a party to a material contract or proposed material contract with us or any of our subsidiaries.
A duty not to appropriate, divert or personally profit from corporate opportunities. Unless the bye-laws specifically provide otherwise, a director’s fiduciary position precludes him from appropriating, diverting or taking a personal profit from any opportunities that result from the directorship. Our bye-laws do provide an exception to this rule. They provide that any director, any director’s firm or partner, or any company with whomwhich any director is associated may act for us in a professional capacity, and suchcapacity. Such director, such director’s firm, or partner or such company shallwill be entitled to remunerationcompensation for professional services as if suchthe director were not a member of our board of directors. However, such director, provided that a director, a director’s firm, or partner or such company shallmay not act as our auditor.
Duty of Skill and Care
Degree of Skill. A director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of like knowledge and experience.
119
A director is not expected to exercise a level of skill he does not have. The level of skill required of a director is subjective, in that the director is not expected, merely by virtue of the office, to possess any particular skills. Performance must be judged by the way the director applies any skills which he actually has. However, directors ought to acquire and maintain a sufficient knowledge and understanding of the company’s business to enable them to properly discharge their duties as directors.
Attention to the Business. A director must diligently attend to the affairs of the company. In the performance of this duty, a director must at a minimum display the reasonable care an ordinary person would be expected to take in the same circumstances on his own behalf. Mere errors of judgment have been held not to breach the duty of skill and care. A director, as such, is not bound to give continuous attention to the affairs of the company, as his or her duties are of an intermittent nature.
Reliance on Others. A director is not liable for the acts of co-directors or other company officers solely by virtue of the position. A director is entitled to rely on his co-directors or company officers as well as subordinates who are expressly put in charge of attending to the detail of management, provided such reliance is honest and reasonable (although a director cannot absolve himself entirely of responsibility by delegation to others). As a general rule, before delegating responsibility to others, the directors in question should satisfy themselves that the delegates have the requisite skills to discharge the functions delegated to them. In addition, the directors must ensure that there is set up an adequate system of monitoring such delegates (e.g.(e.g., managers). The directors must, on a regular basis, ensure that their delegates have fulfilled their obligations. The directors should require a regular flow of information from the delegates to ensure that they are carrying out their duties satisfactorily. In addition, section 97(5A) of the Companies Act provides that a director shall not have breached the fiduciary duty or duty of skill and care required by section 97(1) if he relies in good faith upon financial statements of the company represented to him by another director or officer of the company or a report of an attorney, accountant, engineer, appraiser or other person whose profession lends credibility to a statement made by him.
| (2) | Other Statutory Duties and Obligations |
The Companies Act imposes certain specific duties and obligations on companies and directors, both directly and indirectly, including duties and obligations with respect to (i) loans to directors and related persons, (ii) limits on indemnities for directors and officers and (iii) the keeping of proper books of account.
Loans to Directors and Related Persons
It is not lawful for a company to make a loan or to enter into a guarantee or provide security in connection with a loan to a director or certain persons related to a director without the consent of the members of the company holding in the aggregate not less than 90% of the total voting rights of all the members having the right to vote at any meeting of the members of the company, except in certain specific circumstances.
Limits on Indemnity for Directors
Section 98 of the Companies Act provides generally that a Bermuda company may indemnify its directors, officers and auditors against any liability which, by virtue of any rule of law, would otherwise be imposed on them inwith respect ofto any negligence, default, breach of duty or breach of trust, excepttrust. However, this rule does not apply in cases where such liability arises from fraud or dishonesty of which such director, officer or auditor may be guilty in relation to the company or any of its subsidiaries. Any provision, whether contained in the bye-laws of a company or in any contract or arrangement between the company and one of its directors which would exempt such director from, or indemnify him against, any liability that would otherwise attach to him inwith respect ofto his fraud or dishonesty in relation to the company will be void. Section 98 further provides that a Bermuda company may indemnify its directors, officers and auditors against any liability incurred by them in defending any proceedings, whether civil or criminal, in which judgment is awarded in their favor or in which they are acquitted or granted relief by the Supreme Court of Bermuda pursuant to section 281 of the Companies Act. In the event that an allegation of fraud or dishonesty is made out, the director is obliged to disgorge any money provided for his defense.
Books of Account
It is the duty of the directors to cause to be kept proper books of account with respect to all sums of money received and expended by the company and the matters inwith respect ofto which the receipts and expenditures take place, all sales and purchases by the company, and the assets and liabilities of the company.
| (C) | Peruvian Law – Corporate Governance |
Although we are a holding company whose principal subsidiaries (BCP(Grupo Credito, BCP, PPS and PPS)PV) are incorporated under and subject to the laws of Peru, we are registered in Peru as a foreign issuer and are consequently only subject to Peruvian regulations applicable to foreign issuers. There are no corporate governance provisions under Peruvian law applicable to us that are similar to the provisions of Section 303A.
PART III
| ITEM 17. | FINANCIAL STATEMENTS |
Not applicable.
ITEM 18. | FINANCIAL STATEMENTS |
Credicorp Consolidated Financial Statements and the report of the independent public accounting firm in connection therewith are filed as part of this Annual Report on Form 20-F, as noted below:
| Page | ||
| Report of | F-3 | |
| Consolidated | ||
| Consolidated statements of | F-5 | |
| Consolidated | F-6 | |
| Consolidated | F-8 | |
| Consolidated | F-9 | |
| Notes to consolidated financial statements | F-12 |
All supplementary schedules relating to the registrant are omitted because they are not required or because the required information, where material, is contained in the consolidated financial statements or notes thereto.
Credicorp Ltd. and Subsidiaries
Consolidated financial statements as of December 31, 20082010 and 20072009 together with the Report of Independent Registered Public Accounting Firm
121
Credicorp Ltd. and Subsidiaries Consolidated financial statements as of December 31, 2010 and 2009 together with the Report of Independent Registered Public Accounting Firm |
Credicorp Ltd. and Subsidiaries
Consolidated financial statements as of December 31, 2010 and 2009
Content
| Report of Independent Registered Public Accounting Firm | F-3 | |
| Consolidated financial statements | ||
| Consolidated | F-5 | |
| Consolidated statements of income | F-6 | |
| Consolidated statements of comprehensive income | F-8 | |
| Consolidated statements of changes in equity | F-9 | |
| Consolidated statements of cash flows | | F-10 |
| Notes to the consolidated financial statements | | F-12 |
F-2
Report of Independent Registered Public Accounting Firm
To the shareholdersShareholders and Board of Directors of Credicorp Ltd.
We have audited the accompanying consolidated balance sheets of Credicorp Ltd. and Subsidiaries as of December 31, 20082010 and 2007,2009, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008.2010. These consolidated financial statements are the responsibility of the Company’sCredicorp’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. Our audits includeAn audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Credicorp Ltd. and Subsidiariessubsidiaries at December 31, 20082010 and 2007,2009 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 20082010, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
 |   | |
Inscrita en la partida 11396556 del Registro de Personas Jurídicas de Lima y Callao | Miembro de Ernst & Young Global |
F-3
Report of Independent Registered Public Accounting Firm (continued)
We also have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States of America), the effectiveness of Credicorp Ltd and subsidiaries’Credicorp’s internal control over financial reporting as of December 31, 2008,2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 25, 2009,April 27, 2011, expressed an unqualified opinion thereon.thereon.
Lima, Peru,
April 27, 2011
|
| Cristian Emmerich |
| C.P.C.C. Register Nº19-289 |
 |
F-4
Credicorp Ltd. and Subsidiaries
Consolidated balance sheetsstatements of financial position
As of December 31, 20082010 and 20072009
| Note | 2008 | 2007 | Note | 2010 | 2009 | |||||||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||||||||
| Assets | ||||||||||||||||||||||
| Cash and due from banks: | 4 | 4 | ||||||||||||||||||||
| Non-interest bearing | 1,057,416 | 620,918 | 1,624,377 | 938,486 | ||||||||||||||||||
| Interest bearing | 2,708,755 | 2,452,947 | 6,958,478 | 2,898,172 | ||||||||||||||||||
| 3,766,171 | 3,073,865 | |||||||||||||||||||||
| 8,582,855 | 3,836,658 | |||||||||||||||||||||
| Investments: | ||||||||||||||||||||||
| Trading securities | 36,084 | 50,995 | 115,568 | 70,774 | ||||||||||||||||||
| Investments available-for-sale | 5 | 4,959,068 | 5,228,641 | 5 | 3,768,248 | 5,079,606 | ||||||||||||||||
| 4,995,152 | 5,279,636 | |||||||||||||||||||||
| 3,883,816 | 5,150,380 | |||||||||||||||||||||
| Loans, net: | 6 | 6 | ||||||||||||||||||||
| Loans, net of unearned income | 10,546,378 | 8,250,819 | 14,375,358 | 11,585,635 | ||||||||||||||||||
| Allowance for loan losses | (224,337 | ) | (211,319 | ) | (415,703 | ) | (354,355 | ) | ||||||||||||||
| 10,322,041 | 8,039,500 | 13,959,655 | 11,231,280 | |||||||||||||||||||
| Financial assets designated at fair value through profit or loss | 7 | 129,631 | 213,153 | 7 | 179,055 | 135,670 | ||||||||||||||||
| Premiums and other policies receivable | 8 | 111,561 | 85,495 | 8(a) | 129,136 | 121,338 | ||||||||||||||||
| Accounts receivable from reinsurers and coinsurers | 8 | 165,144 | 116,141 | 8(b) | 160,249 | 137,098 | ||||||||||||||||
| Property, furniture and equipment, net | 9 | 329,458 | 274,935 | 9 | 372,913 | 338,535 | ||||||||||||||||
| Due from customers on acceptances | 232,580 | 35,901 | 70,331 | 96,423 | ||||||||||||||||||
| Seized assets, net | 11,454 | 19,615 | 11,336 | 11,233 | ||||||||||||||||||
| Intangible assets and goodwill, net | 10 | 246,957 | 227,272 | 10(a) and (b) | 372,625 | 341,951 | ||||||||||||||||
| Other assets | 11 | 510,920 | 340,385 | 11 | 691,209 | 613,066 | ||||||||||||||||
| Total assets | 20,821,069 | 17,705,898 | 28,413,180 | 22,013,632 | ||||||||||||||||||
| Note | 2010 | 2009 | ||||||||
| US$(000) | US$(000) | |||||||||
| Liabilities and equity | ||||||||||
| Deposits and obligations: | 12 | |||||||||
| Non-interest bearing | 4,360,570 | 3,297,995 | ||||||||
| Interest bearing | 13,707,548 | 10,787,103 | ||||||||
| 18,068,118 | 14,085,098 | |||||||||
| Due to banks and correspondents | 13 | 2,244,446 | 1,167,438 | |||||||
| Bankers’ acceptances outstanding | 70,331 | 96,423 | ||||||||
| Accounts payable to reinsurers and coinsurers | 8(b) | 60,775 | 48,009 | |||||||
| Technical reserves, insurance claims reserves and reserves for unearned premiums | 14 | 1,196,323 | 1,018,791 | |||||||
| Bonds and notes issued | 15 | 3,001,698 | 2,382,973 | |||||||
| Other liabilities | 11 | 841,238 | 711,548 | |||||||
| Total liabilities | 25,482,929 | 19,510,280 | ||||||||
| Equity | 16 | |||||||||
| Capital and reserves attributable to Credicorp’s equity holders: | ||||||||||
| Capital stock | 471,912 | 471,912 | ||||||||
| Treasury stock | (74,712 | ) | (74,242 | ) | ||||||
| Capital surplus | 119,637 | 130,341 | ||||||||
| Reserves | 1,398,323 | 1,059,344 | ||||||||
| Other reserves | 366,721 | 237,446 | ||||||||
| Retained earnings | 591,868 | 492,055 | ||||||||
| 2,873,749 | 2,316,856 | |||||||||
| Non-controlling interest | 56,502 | 186,496 | ||||||||
| Total equity | 2,930,251 | 2,503,352 | ||||||||
| Total liabilities and equity | 28,413,180 | 22,013,632 | ||||||||
| Note | 2008 | 2007 | ||||||||||
| US$(000) | US$(000) | |||||||||||
| Liabilities and equity | ||||||||||||
| Deposits and obligations: | 12 | |||||||||||
| Non-interest bearing | 3,213,529 | 2,926,308 | ||||||||||
| Interest bearing | 10,736,908 | 8,424,406 | ||||||||||
| 13,950,437 | 11,350,714 | |||||||||||
| Financial liabilities designated at fair value through profit or loss | 7 | - | 50,561 | |||||||||
| Due to banks and correspondents | 13(a) | 1,179,991 | 1,453,261 | |||||||||
| Bankers’ acceptances outstanding | 232,580 | 35,901 | ||||||||||
| Accounts payable to reinsurers and coinsurers | 8 | 55,841 | 33,963 | |||||||||
| Technical reserves, insurance claims reserves and reserves for unearned premiums | 14 | 967,770 | 803,478 | |||||||||
| Borrowed funds | 13(b) | 1,150,716 | 870,404 | |||||||||
| Bonds and subordinated notes issued | 15 | 785,230 | 702,298 | |||||||||
| Other liabilities | 11 | 702,399 | 590,045 | |||||||||
| Total liabilities | 19,024,964 | 15,890,625 | ||||||||||
| Equity | 16 | |||||||||||
| Capital and reserves attributable to Credicorp’s equity holders: | ||||||||||||
| Capital stock | 471,912 | 471,912 | ||||||||||
| Treasury stock | (73,107 | ) | (73,107 | ) | ||||||||
| Capital surplus | 140,693 | 140,693 | ||||||||||
| Reserves | 815,387 | 587,218 | ||||||||||
| Other reserves | (45,393 | ) | 179,550 | |||||||||
| Retained earnings | 379,680 | 369,743 | ||||||||||
| 1,689,172 | 1,676,009 | |||||||||||
| Minority interest | 106,933 | 139,264 | ||||||||||
| Total equity | 1,796,105 | 1,815,273 | ||||||||||
| Total liabilities and equity | 20,821,069 | 17,705,898 | ||||||||||
The accompanying notes are an integral part of these consolidated balance sheets.financial statements.
F-5
Credicorp Ltd. and Subsidiaries
Consolidated statements of income
For the years ended December 31, 2008, 20072010, 2009 and 20062008
| Note | 2010 | 2009 | 2008 | |||||||||||
| US$(000) | US$(000) | US$(000) | ||||||||||||
| Interest and dividend income | 20 | 1,471,708 | 1,312,925 | 1,382,844 | ||||||||||
| Interest expense | 20 | (414,121 | ) | (420,564 | ) | (561,617 | ) | |||||||
| Net interest and dividend income | 1,057,587 | 892,361 | 821,227 | |||||||||||
| Provision for loan losses, net of recoveries | 6(d) | (174,682 | ) | (163,392 | ) | (48,760 | ) | |||||||
| Net interest and dividend income after provision for loan losses | 882,905 | 728,969 | 772,467 | |||||||||||
| Other income | ||||||||||||||
| Banking services commissions | 21 | 524,895 | 436,819 | 394,247 | ||||||||||
| Net gain on foreign exchange transactions | 104,169 | 87,944 | 108,709 | |||||||||||
| Net gain on sale of securities | 80,326 | 120,932 | 51,936 | |||||||||||
| Net gain on financial assets and liabilities designated at fair value through profit or loss | 7 | 64,477 | 42,792 | - | ||||||||||
| Other | 24 | 30,668 | 32,144 | 37,672 | ||||||||||
| Total other income | 804,535 | 720,631 | 592,564 | |||||||||||
| Insurance premiums and claims | ||||||||||||||
| Net premiums earned | 22 | 480,293 | 424,682 | 393,903 | ||||||||||
| Net claims incurred for life, property, casualty and health insurance contracts | 23 | (315,572 | ) | (286,458 | ) | (341,910 | ) | |||||||
| Total premiums earned less claims | 164,721 | 138,224 | 51,993 | |||||||||||
| Other expenses | ||||||||||||||
| Salaries and employees benefits | (568,004 | ) | (467,116 | ) | (365,201 | ) | ||||||||
| Administrative expenses | (341,123 | ) | (312,256 | ) | (269,291 | ) | ||||||||
| Net loss on financial assets and liabilities designated at fair value through profit or loss | - | - | (65,364 | ) | ||||||||||
| Depreciation and amortization | 9(a) and 10(a) | (82,289 | ) | (71,099 | ) | (57,369 | ) | |||||||
| Impairment loss on available-for-sale investments | 5(c) | (3,250 | ) | (9,825 | ) | (60,435 | ) | |||||||
| Other | 24 | (91,219 | ) | (96,814 | ) | (102,943 | ) | |||||||
| Total other expenses | (1,085,885 | ) | (957,110 | ) | (920,603 | ) | ||||||||
| Income before translation result and income tax | 766,276 | 630,714 | 496,421 | |||||||||||
| Translation result | 24,120 | 12,222 | (17,650 | ) | ||||||||||
| Income tax | 17(b) | (187,081 | ) | (138,500 | ) | (109,508 | ) | |||||||
| Net income | 603,315 | 504,436 | 369,263 | |||||||||||
| Note | 2008 | 2007 | 2006 | |||||||||||||
| US$(000) | US$(000) | US$(000) | ||||||||||||||
| Interest and dividend income | 20 | 1,400,334 | 1,065,974 | 782,002 | ||||||||||||
| Interest expense | 20 | (577,411 | ) | (432,000 | ) | (283,478 | ) | |||||||||
| Net interest and dividend income | 822,923 | 633,974 | 498,524 | |||||||||||||
| Provision for loan losses, net of recoveries | 6(d) | (48,760 | ) | (28,439 | ) | 4,243 | ||||||||||
| Net interest and dividend income after provision for loan losses | 774,163 | 605,535 | 502,767 | |||||||||||||
| Other income | ||||||||||||||||
| Banking services commissions | 21 | 394,247 | 324,761 | 243,778 | ||||||||||||
| Net gain on foreign exchange transactions | 108,709 | 61,778 | 41,638 | |||||||||||||
| Net gain on sale of securities | 51,936 | 46,376 | 27,281 | |||||||||||||
| Net gain on financial assets and liabilities designated at fair value through profit or loss | 7(b) | - | 65,088 | 3,521 | ||||||||||||
| Other | 24 | 37,672 | 24,934 | 22,676 | ||||||||||||
| Total other income | 592,564 | 522,937 | 338,894 | |||||||||||||
| Insurance premiums and claims | ||||||||||||||||
| Net premiums earned | 22 | 393,903 | 297,272 | 251,261 | ||||||||||||
| Net claims incurred for life, property and casualty and health insurance contracts | 23 | (341,910 | ) | (238,600 | ) | (186,522 | ) | |||||||||
| Total premiums earned less claims | 51,993 | 58,672 | 64,739 | |||||||||||||
F-6
Consolidated statements of income(continued)
| Note | 2010 | 2009 | 2008 | |||||||||||
| US$(000) | US$(000) | US$(000) | ||||||||||||
| Attributable to: | ||||||||||||||
| Equity holders of Credicorp Ltd. | 571,302 | 469,785 | 357,756 | |||||||||||
| Non-controlling interest | 32,013 | 34,651 | 11,507 | |||||||||||
| 603,315 | 504,436 | 369,263 | ||||||||||||
| Earnings per share for net income attributable to equity holders of Credicorp Ltd. (in United States dollars): | ||||||||||||||
| Basic | 25 | 7.19 | 5.90 | 4.49 | ||||||||||
| Diluted | 25 | 7.17 | 5.90 | 4.49 | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Credicorp Ltd. and Subsidiaries
Consolidated statements of comprehensive income
For the years ended December 31, 2010, 2009 and 2008
| Note | 2008 | 2007 | 2006 | |||||||||||||
| US$(000) | US$(000) | US$(000) | ||||||||||||||
| Other expenses | ||||||||||||||||
| Salaries and employees benefits | (365,201 | ) | (409,037 | ) | (303,332 | ) | ||||||||||
| Administrative expenses | (269,291 | ) | (206,966 | ) | (172,304 | ) | ||||||||||
| Net loss on financial assets and liabilities designated at fair value through profit or loss | 7(b) | (67,060 | ) | - | - | |||||||||||
| Depreciation and amortization | 9(a) and 10(a) | (57,369 | ) | (51,013 | ) | (50,317 | ) | |||||||||
| Provision for seized assets | (1,067 | ) | (3,057 | ) | (6,387 | ) | ||||||||||
| Merger expenses | - | - | (5,706 | ) | ||||||||||||
| Impairment loss on available-for-sale investments | 5(c) | (60,435 | ) | (5,017 | ) | - | ||||||||||
| Other | 24 | (101,876 | ) | (71,999 | ) | (52,718 | ) | |||||||||
| Total other expenses | (922,299 | ) | (747,089 | ) | (590,764 | ) | ||||||||||
| Income before translation result and income tax | 496,421 | 440,055 | 315,636 | |||||||||||||
| Translation result | (17,650 | ) | 34,627 | 15,216 | ||||||||||||
| Income tax | 17(b) | (109,508 | ) | (102,287 | ) | (83,587 | ) | |||||||||
| Net income | 369,263 | 372,395 | 247,265 | |||||||||||||
| Attributable to: | ||||||||||||||||
| Equityholders of Credicorp Ltd. | 357,756 | 350,735 | 230,013 | |||||||||||||
| Minority interest | 11,507 | 21,660 | 17,252 | |||||||||||||
| 369,263 | 372,395 | 247,265 | ||||||||||||||
| Basic and diluted earnings per share for net income attributable to equity holders of Credicorp Ltd. (in United States dollars) | 25 | 4.49 | 4.40 | 2.88 | ||||||||||||
| Note | 2010 | 2009 | 2008 | |||||||||||
| US$(000) | US$(000) | US$(000) | ||||||||||||
| Net income | 603,315 | 504,436 | 369,263 | |||||||||||
| Other comprehensive income | ||||||||||||||
| Net gain (loss) on investments available–for-sale | 16(d) | 225,261 | 268,550 | (198,646 | ) | |||||||||
| Net movement of cash flow hedge | 16(d) | (7,319 | ) | 66,024 | (81,293 | ) | ||||||||
| Income tax | 16(d) | (66,010 | ) | (5,841 | ) | 21,516 | ||||||||
| Other comprehensive income for the year, net of income tax | 151,932 | 328,733 | (258,423 | ) | ||||||||||
| Total comprehensive income for the year, net of income tax | 755,247 | 833,169 | 110,840 | |||||||||||
| Attributable to: | ||||||||||||||
| Equity holders of Credicorp Ltd. | 700,577 | 752,624 | 132,813 | |||||||||||
| Non-controlling interest | 54,670 | 80,545 | (21,973 | ) | ||||||||||
| 755,247 | 833,169 | 110,840 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated statements of changes in equity
For the years ended December 31, 2008, 20072010, 2009 and 20062008
Attributable to Credicorp´s equity holders | ||||||||||||||||||||||||||||||||||||||||
Number of shares issued, note 25 | Capital stock | Treasury stock | Capital surplus | Reserves | Other reserves | Retained earnings | Total | Minority interest | Total net equity | |||||||||||||||||||||||||||||||
(In thousands of units) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||||||||||||||||||||
Balances as of January 1st, 2006 | 94,382 | 471,912 | (73,107 | ) | 140,693 | 269,527 | 83,302 | 298,113 | 1,190,440 | 101,515 | 1,291,955 | |||||||||||||||||||||||||||||
| Changes in equity for 2006 - | ||||||||||||||||||||||||||||||||||||||||
| Net unrealized gain from investments available-for-sale, note 5(c) and 16(c) | - | - | - | - | - | 69,411 | - | 69,411 | 20,728 | 90,139 | ||||||||||||||||||||||||||||||
| Transfer of net realized gain from investments available-for-sale to the income statement, net of realized loss, note 5(c) and 16(c) | - | - | - | - | - | (6,620 | ) | - | (6,620 | ) | (379 | ) | (6,999 | ) | ||||||||||||||||||||||||||
| Net gain on cash flow hedge, note 16(c) | - | - | - | - | - | 1,316 | - | 1,316 | - | 1,316 | ||||||||||||||||||||||||||||||
| Income for the year recognized directly in equity | - | - | - | - | - | 64,107 | - | 64,107 | 20,349 | 84,456 | ||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | 230,013 | 230,013 | 17,252 | 247,265 | ||||||||||||||||||||||||||||||
| Total recognized income for the period | - | - | - | - | - | 64,107 | 230,013 | 294,120 | 37,601 | 331,721 | ||||||||||||||||||||||||||||||
| Transfer of retained earnings to reserves, note 16(c) | - | - | - | - | 210,375 | - | (210,375 | ) | - | - | - | |||||||||||||||||||||||||||||
| Cash dividends, note 16(d) | - | - | - | - | - | - | (87,738 | ) | (87,738 | ) | - | (87,738 | ) | |||||||||||||||||||||||||||
| Dividends of subsidiaries and other | - | - | - | - | - | - | - | - | (2,170 | ) | (2,170 | ) | ||||||||||||||||||||||||||||
| Balances as of December 31, 2006 carried forward | 94,382 | 471,912 | (73,107 | ) | 140,693 | 479,902 | 147,409 | 230,013 | 1,396,822 | 136,946 | 1,533,768 | |||||||||||||||||||||||||||||
| Changes in equity for 2007 - | ||||||||||||||||||||||||||||||||||||||||
| Net unrealized gain from investments available-for-sale, note 5(c) and 16(c) | - | - | - | - | - | 85,129 | - | 85,129 | (426 | ) | 84,703 | |||||||||||||||||||||||||||||
| Transfer of net realized gain from investments available-for-sale to the income statement, net of realized loss, note 5(c) and 16(c) | - | - | - | - | - | (12,617 | ) | - | (12,617 | ) | - | (12,617 | ) | |||||||||||||||||||||||||||
| Net loss on cash flow hedge, note 16(c) and 11(b)(ii) | - | - | - | - | - | (40,371 | ) | - | (40,371 | ) | - | (40,371 | ) | |||||||||||||||||||||||||||
| Income for the year recognized directly in equity | - | - | - | - | - | 32,141 | - | 32,141 | (426 | ) | 31,715 | |||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | 350,735 | 350,735 | 21,660 | 372,395 | ||||||||||||||||||||||||||||||
| Total recognized income for the period | - | - | - | - | - | 32,141 | 350,735 | 382,876 | 21,234 | 404,110 | ||||||||||||||||||||||||||||||
| Transfer of retained earnings to reserves, note 16(c) | - | - | - | - | 107,316 | - | (107,316 | ) | - | - | - | |||||||||||||||||||||||||||||
| Cash dividends, note 16(d) | - | - | - | - | - | - | (103,690 | ) | (103,690 | ) | - | (103,690 | ) | |||||||||||||||||||||||||||
| Dividends of subsidiaries and other | - | - | - | - | - | - | 1 | 1 | (18,916 | ) | (18,915 | ) | ||||||||||||||||||||||||||||
| Balances as of December 31, 2007 carried forward | 94,382 | 471,912 | (73,107 | ) | 140,693 | 587,218 | 179,550 | 369,743 | 1,676,009 | 139,264 | 1,815,273 | |||||||||||||||||||||||||||||
| Changes in equity for 2008- | ||||||||||||||||||||||||||||||||||||||||
| Net unrealized loss from investments available-for-sale, note 5(c) and 16(c) | - | - | - | - | - | (164,302 | ) | - | (164,302 | ) | (32,876 | ) | (197,178 | ) | ||||||||||||||||||||||||||
| Transfer of net realized gain from investments available-for-sale to the income statement, net of realized loss and impairment, note 5(c) and 16(c) | - | - | - | - | - | 20,048 | - | 20,048 | - | 20,048 | ||||||||||||||||||||||||||||||
| Net loss on cash flow hedge, note 16(c) and 11(b)(ii) | - | - | - | - | - | (80,689 | ) | - | (80,689 | ) | (604 | ) | (81,293 | ) | ||||||||||||||||||||||||||
| Net loss for the year recognized directly in equity | - | - | - | - | - | (224,943 | ) | - | (224,943 | ) | (33,480 | ) | (258,423 | ) | ||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | 357,756 | 357,756 | 11,507 | 369,263 | ||||||||||||||||||||||||||||||
| Total recognized income for the period | - | - | - | - | - | (224,943 | ) | 357,756 | 132,813 | (21,973 | ) | 110,840 | ||||||||||||||||||||||||||||
| Transfers of retained earnings to reserves, note 16(c) | - | - | - | - | 228,169 | - | (228,169 | ) | - | - | - | |||||||||||||||||||||||||||||
| Cash dividends, note 16(d) | - | - | - | - | - | - | (119,648 | ) | (119,648 | ) | - | (119,648 | ) | |||||||||||||||||||||||||||
| Dividends of subsidiaries and other | - | - | - | - | - | - | (2 | ) | (2 | ) | (10,358 | ) | (10,360 | ) | ||||||||||||||||||||||||||
| Balances as of December 31, 2008 | 94,382 | 471,912 | (73,107 | ) | 140,693 | 815,387 | (45,393 | ) | 379,680 | 1,689,172 | 106,933 | 1,796,105 | ||||||||||||||||||||||||||||
| Attributable to Credicorp´s equity holders | ||||||||||||||||||||||||||||||||||||||||||||
Number of shares issued, notes 16(a) and 25 | Capital stock | Treasury stock | Capital surplus | Reserves | Available-for- sale investments reserve | Cash flow hedge reserve | Retained earnings | Total | Non-controlling interest | Total net equity | ||||||||||||||||||||||||||||||||||
(In thousands of units) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | ||||||||||||||||||||||||||||||||||
| Balances as of January 1, 2008 | 94,382 | 471,912 | (73,107 | ) | 140,693 | 587,218 | 216,983 | (37,433 | ) | 369,743 | 1,676,009 | 139,264 | 1,815,273 | |||||||||||||||||||||||||||||||
| Changes in equity for 2008 - | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | 357,756 | 357,756 | 11,507 | 369,263 | |||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | (144,254 | ) | (80,689 | ) | - | (224,943 | ) | (33,480 | ) | (258,423 | ) | ||||||||||||||||||||||||||||
| Total comprehensive income | - | - | - | - | - | (144,254 | ) | (80,689 | ) | 357,756 | 132,813 | (21,973 | ) | 110,840 | ||||||||||||||||||||||||||||||
| Transfers of retained earnings to reserves, note 16(c) | - | - | - | - | 228,169 | - | - | (228,169 | ) | - | - | - | ||||||||||||||||||||||||||||||||
| Cash dividends, note 16(e) | - | - | - | - | - | - | - | (119,648 | ) | (119,648 | ) | - | (119,648 | ) | ||||||||||||||||||||||||||||||
| Dividends of subsidiaries and other | - | - | - | - | - | - | - | (2 | ) | (2 | ) | (10,358 | ) | (10,360 | ) | |||||||||||||||||||||||||||||
| Balances as of December 31, 2008 | 94,382 | 471,912 | (73,107 | ) | 140,693 | 815,387 | 72,729 | (118,122 | ) | 379,680 | 1,689,172 | 106,933 | 1,796,105 | |||||||||||||||||||||||||||||||
| Changes in equity for 2009 - | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | 469,785 | 469,785 | 34,651 | 504,436 | |||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | 216,248 | 66,591 | - | 282,839 | 45,894 | 328,733 | |||||||||||||||||||||||||||||||||
| Total comprehensive income | - | - | - | - | - | 216,248 | 66,591 | 469,785 | 752,624 | 80,545 | 833,169 | |||||||||||||||||||||||||||||||||
| Transfer of retained earnings to reserves, note 16(c) | - | - | - | - | 238,107 | - | - | (238,107 | ) | - | - | - | ||||||||||||||||||||||||||||||||
| Cash dividends, note 16(e) | - | - | - | - | - | - | - | (119,303 | ) | (119,303 | ) | - | (119,303 | ) | ||||||||||||||||||||||||||||||
| Purchase of treasury stock | - | - | (1,135 | ) | (10,352 | ) | - | - | - | - | (11,487 | ) | - | (11,487 | ) | |||||||||||||||||||||||||||||
| Share-based payments transactions, note 18(b) | - | - | - | - | 5,850 | - | - | - | 5,850 | - | 5,850 | |||||||||||||||||||||||||||||||||
| Dividends of subsidiaries and other | - | - | - | - | - | - | - | - | - | (982 | ) | (982 | ) | |||||||||||||||||||||||||||||||
| Balances as of December 31, 2009 | 94,382 | 471,912 | (74,242 | ) | 130,341 | 1,059,344 | 288,977 | (51,531 | ) | 492,055 | 2,316,856 | 186,496 | 2,503,352 | |||||||||||||||||||||||||||||||
| Changes in equity for 2010 | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | 571,302 | 571,302 | 32,013 | 603,315 | |||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | 134,770 | (5,495 | ) | - | 129,275 | 22,657 | 151,932 | ||||||||||||||||||||||||||||||||
| Total comprehensive income | - | - | - | - | - | 134,770 | (5,495 | ) | 571,302 | 700,577 | 54,670 | 755,247 | ||||||||||||||||||||||||||||||||
| Purchase of non-controlling interest, note 2(a) | - | - | - | - | - | - | - | (4,289 | ) | (4,289 | ) | (180,682 | ) | (184,971 | ) | |||||||||||||||||||||||||||||
| Transfer of retained earnings to reserves, note 16(c) | - | - | - | - | 331,605 | - | - | (331,605 | ) | - | - | - | ||||||||||||||||||||||||||||||||
| Cash dividends, note 16(e) | - | - | - | - | - | - | - | (135,595 | ) | (135,595 | ) | - | (135,595 | ) | ||||||||||||||||||||||||||||||
| Purchase of treasury stock | - | - | (848 | ) | (14,154 | ) | - | - | - | - | (15,002 | ) | - | (15,002 | ) | |||||||||||||||||||||||||||||
| Share-based payments transactions, note 18(b) | - | - | 378 | 3,450 | 7,374 | - | - | - | 11,202 | - | 11,202 | |||||||||||||||||||||||||||||||||
| Dividends of subsidiaries and other | - | - | - | - | - | - | - | - | - | (3,982 | ) | (3,982 | ) | |||||||||||||||||||||||||||||||
| Balances as of December 31, 2010 | 94,382 | 471,912 | (74,712 | ) | 119,637 | 1,398,323 | 423,747 | (57,026 | ) | 591,868 | 2,873,749 | 56,502 | 2,930,251 | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Credicorp Ltd. and Subsidiaries
Consolidated statements of cash flows
For the years ended December 2008, 20072010, 2009 and 20062008
| 2010 | 2009 | 2008 | ||||||||||
| US$(000) | US$(000) | US$(000) | ||||||||||
| Cash flows from operating activities | ||||||||||||
| Net income | 603,315 | 504,436 | 369,263 | |||||||||
| Add (deduct) | ||||||||||||
| Provision for loan losses | 174,682 | 163,392 | 48,760 | |||||||||
| Depreciation and amortization | 82,289 | 71,099 | 57,369 | |||||||||
| Provision for seized assets | - | 64 | 1,067 | |||||||||
| Provision for sundry risks | 8,440 | 14,425 | 37,549 | |||||||||
| Deferred income tax | (16,333 | ) | (8,552 | ) | (4,394 | ) | ||||||
| Net gain on sales of securities available-for-sale | (80,326 | ) | (120,932 | ) | (51,936 | ) | ||||||
| Impairment loss on available-for-sale investments | 3,250 | 9,825 | 60,435 | |||||||||
| Net (gain) loss on financial assets and liabilities designated at fair value through profit and loss | (64,477 | ) | (42,792 | ) | 65,364 | |||||||
| (Loss) gain on sales of property, furniture and equipment | 357 | (388 | ) | (979 | ) | |||||||
| Translation result | (24,120 | ) | (12,222 | ) | 17,650 | |||||||
| Loss (gain) for shared-based compensation plan | 73,527 | 56,338 | (27,402 | ) | ||||||||
| (Sale) purchase of trading securities, net | (43,048 | ) | (34,690 | ) | 14,911 | |||||||
| Net changes in assets and liabilities: | ||||||||||||
| Increase in loans | (2,943,128 | ) | (944,021 | ) | (2,339,675 | ) | ||||||
| Decrease(increase) in other assets | 35,250 | (6,289 | ) | (463,273 | ) | |||||||
| Increase in deposits and obligations | 4,074,938 | 133,199 | 2,614,020 | |||||||||
| Increase (decrease) in due to banks and correspondents | 1,082,383 | (151,781 | ) | (274,714 | ) | |||||||
| Increase (decrease) in other liabilities | 263,147 | (126,552 | ) | 328,204 | ||||||||
| Net cash (used in) provided by operating activities | 3,230,146 | (495,441 | ) | 452,219 | ||||||||
| Cash flows from investing activities | ||||||||||||
| Acquisition of subsidiary net of cash received, note 2(b) | - | (92,329 | ) | - | ||||||||
| Net sale (purchase) of investments available-for-sale | 1,393,345 | 284,371 | 125,416 | |||||||||
| Purchase of property, furniture and equipment | (80,184 | ) | (45,051 | ) | (91,353 | ) | ||||||
| Sales of property, furniture and equipment | 265 | 2,745 | 1,775 | |||||||||
| Purchase of non-controlling interest | (184,971 | ) | - | - | ||||||||
| Net cash provided by (used in) investing activities | 1,128,455 | 149,736 | 35,838 | |||||||||
| 2008 | 2007 | 2006 | ||||||||||
| US$(000) | US$(000) | US$(000) | ||||||||||
| Cash flows from operating activities | ||||||||||||
| Net income | 369,263 | 372,395 | 247,265 | |||||||||
| Add (deduct) | ||||||||||||
| Provision (recoveries) for loan losses | 48,760 | 28,439 | (4,243 | ) | ||||||||
| Depreciation and amortization | 57,369 | 51,013 | 50,317 | |||||||||
| Provision for seized assets | 1,067 | 3,057 | 6,387 | |||||||||
| Provision for sundry risks, note 24 | 37,549 | 8,096 | 6,461 | |||||||||
| Deferred income tax, note 17(b) | (4,394 | ) | (14,921 | ) | (4,786 | ) | ||||||
| Net gain on sales of securities available-for-sale | (51,936 | ) | (46,376 | ) | (27,281 | ) | ||||||
| Impairment loss on available-for-sale investments | 60,435 | 5,017 | - | |||||||||
| Net loss (gain) on financial assets and liabilities designated at fair value through profit and loss | 67,060 | (65,088 | ) | (3,521 | ) | |||||||
| Gain on sales of property, furniture and equipment | (979 | ) | (42 | ) | (169 | ) | ||||||
| Translation result | 17,650 | (34,627 | ) | (15,216 | ) | |||||||
| Purchase (sale) of trading securities, net | 14,911 | (5,859 | ) | 15,649 | ||||||||
| Net changes in assets and liabilities: | ||||||||||||
| Increase in loans | (2,339,675 | ) | (2,172,418 | ) | (871,970 | ) | ||||||
| Increase in other assets | (463,273 | ) | (404,175 | ) | (100,570 | ) | ||||||
| Increase in deposits and obligations | 2,614,020 | 2,269,568 | 1,632,960 | |||||||||
| (Decrease) increase in due to banks and correspondents | (274,714 | ) | 875,447 | (455,381 | ) | |||||||
| Increase in other liabilities | 299,106 | 470,963 | 114,717 | |||||||||
| Net cash provided by operating activities | 452,219 | 1,340,489 | 590,619 | |||||||||
| Cash flows from investing activities | ||||||||||||
| Acquisition of subsidiaries net of cash received, note 2 | - | - | (140,085 | ) | ||||||||
| Net sale (purchase) of investments available-for-sale | 125,416 | (1,541,621 | ) | (433,702 | ) | |||||||
| Purchase of property, furniture and equipment | (91,353 | ) | (53,901 | ) | (43,973 | ) | ||||||
| Sales of property, furniture and equipment | 1,775 | 951 | 7,546 | |||||||||
| Net cash provided (used in) investing activities | 35,838 | (1,594,571 | ) | (610,214 | ) | |||||||
Consolidated statements of cash flow (continued)
| 2008 | 2007 | 2006 | 2010 | 2009 | 2008 | |||||||||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||||||||
| Cash flows from financing activities | ||||||||||||||||||||||||
| Issuance of bonds and subordinated debt | 257,509 | 256,014 | 167,247 | |||||||||||||||||||||
| Redemption of bonds and subordinated debt | (190,402 | ) | (75,728 | ) | (91,925 | ) | ||||||||||||||||||
| Increase in borrowed funds | 300,000 | 499,792 | 90,612 | |||||||||||||||||||||
| Payments of borrowed funds | (19,688 | ) | - | - | ||||||||||||||||||||
| Issuance of bonds and notes | 1,449,323 | 570,900 | 557,509 | |||||||||||||||||||||
| Redemption and payments of bonds and notes | (858,890 | ) | (114,891 | ) | (210,090 | ) | ||||||||||||||||||
| Acquisition of Credicorp’s shares | (15,002 | ) | (11,487 | ) | - | |||||||||||||||||||
| Cash dividends | (119,648 | ) | (103,690 | ) | (87,738 | ) | (135,595 | ) | (119,303 | ) | (119,648 | ) | ||||||||||||
| Net cash provided by financing activities | 227,771 | 576,388 | 78,196 | 439,836 | 325,219 | 227,771 | ||||||||||||||||||
| Translation (loss) gain on cash and cash equivalents | (23,522 | ) | 18,029 | 14,114 | ||||||||||||||||||||
| Net increase in cash and cash equivalents | 692,306 | 340,335 | 72,715 | 4,798,437 | (20,486 | ) | 715,828 | |||||||||||||||||
| Translation gain (loss) on cash and cash equivalents | (52,240 | ) | 90,973 | (23,522 | ) | |||||||||||||||||||
| Cash and cash equivalents at the beginning of the year | 3,073,865 | 2,733,530 | 2,660,815 | 3,836,658 | 3,766,171 | 3,073,865 | ||||||||||||||||||
| Cash and cash equivalents at the end of the year | 3,766,171 | 3,073,865 | 2,733,530 | 8,582,855 | 3,836,658 | 3,766,171 | ||||||||||||||||||
| Supplementary cash flows information: | ||||||||||||||||||||||||
| Cash paid during the year for - | ||||||||||||||||||||||||
| Interest | 549,655 | 415,157 | 265,838 | 401,156 | 444,398 | 533,861 | ||||||||||||||||||
| Income tax | 124,754 | 86,754 | 96,284 | 172,481 | 142,516 | 124,754 | ||||||||||||||||||
| Cash received during the year for - | ||||||||||||||||||||||||
| Interest | 1,378,633 | 1,106,972 | 810,266 | 1,462,520 | 1,315,704 | 1,361,143 | ||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Credicorp Ltd. and Subsidiaries
Notes to the consolidated financial statements
As of December 31, 20082010 and 20072009
| 1. | Operations |
Credicorp Ltd. (hereinafter “Credicorp” or “the Group”) is a limited liability company incorporated in Bermuda in 1995 to act as a holding company and to coordinate the policies and administration of its subsidiaries. It is also engaged in investing activities.
Credicorp Ltd., through its banking and non-banking subsidiaries, provides a wide range of financial services and products throughout Peru and in certain international markets.other countries (Bolivia and Panama). Its major subsidiary is Banco de Crédito del Perú (hereinafter “BCP” or the “Bank”), a Peruvian universal bank. Credicorp’s address is Clarendon House 2 Church Street Hamilton, Bermuda; likewise, administration offices of its representative in Peru are located in Calle Centenario Nº156, La Molina, Lima, Peru.
Credicorp is listed in Lima and New York stock exchanges.
The consolidated financial statements as of and for the year ended December 31, 20072009 were approved in the General Shareholders’ Meeting datedmeeting held on March 28, 2008.26, 2010. The accompanying consolidated financial statements as of and for the year ended December 31, 2008,2010, were approved by the Board of Directors Meeting of February 27, 200922, 2011 and by the General Shareholders’ Meeting of March, 31 2009,2011 without modifications.
| 2. |
| (a) | Non-controlling interest of Subsidiaries |
During October 2010, Credicorp throughreached an agreement with American Life Insurance Company (hereinafter “ALICO”) to acquire its 20.10 percent and 38.00 percent stakes in El Pacifico Peruano – Suiza Compañía de Seguros y Reaseguros (PPS) and Pacifico Vida Compañía de Seguros (PPV), respectively. Credicorp Ltd. acquired PPV's shares and its subsidiary, Prima AFP,Grupo Credito S.A., acquired for approximately US$141.5 million AFP Unión VidaPPS’s shares. An additional 1.18 percent of non-controlling interest was acquired by Grupo Crédito S.A. (a private pension fund management company operatingfrom other shareholders. In April 2011, Credicorp transferred its shares in Peru) from Grupo Santander Perú S.A.PPV to PPS; this transfer has no effect on Credicorp’s consolidated financial statements.
The acquisition was approved, with effective date December 1, 2006.recorded following IFRS 3 (revised) “Business Combinations” and IAS 27 (amendments) “Consolidated and Separate Financial Statements”, see note 3(b).
Notes to the consolidated financial statements(continued)
| (b) | Empresa Financiera Edyficar S.A. |
During October and November 2009, Credicorp, through its subsidiary BCP, acquired 99.79 percent of the capital stock of Empresa Financiera Edyficar S.A. (a Peruvian financial entity, serving micro and small size entrepreneurs, hereinafter “Edyficar”) for approximately US$96.1 million in cash.
The acquisition of AFP Unión Vida S.A.Edyficar was recorded using the purchase method, as required by IFRS 3, “Business Combinations”., applicable at the date of the transaction. Assets and liabilities were recorded at their estimated marketfair values at the acquisition date, including the identified intangible assets acquired.unrecorded in Edyficar balance sheet. Book value and fair valuesvalue of the identified assets and liabilities at their acquisition date were as follows:
Book value of the entity acquired | Fair value recognition | Fair value of the entity acquired | ||||||||||
| US$(000) | US$(000) | US$(000) | ||||||||||
| Assets - | ||||||||||||
| Cash and cash equivalents | 1,428 | - | 1,428 | |||||||||
| Restricted mutual fund | 32,265 | - | 32,265 | |||||||||
| Client relationships, note 10(a) | - | 88,378 | 88,378 | |||||||||
| Other Intangibles | 3,424 | 9,603 | 13,027 | |||||||||
| Property, furniture and equipment | 2,060 | - | 2,060 | |||||||||
| Goodwill | - | 49,047 | 49,047 | |||||||||
| Other assets | 5,605 | - | 5,605 | |||||||||
| Liabilities - | ||||||||||||
| Trade accounts payable | 4,688 | - | 4,688 | |||||||||
| Other accounts payable | 5,352 | - | 5,352 | |||||||||
| Other liabilities | 7,433 | 32,824 | 40,257 | |||||||||
| Net acquired assets | 27,309 | 114,204 | 141,513 | |||||||||
Book value | Fair value adjustments | Fair value of the acquired entity | ||||||||||
| US$(000) | US$(000) | US$(000) | ||||||||||
| Assets | ||||||||||||
| Cash and due from banks | 3,810 | - | 3,810 | |||||||||
| Loans, net | 218,218 | (10,295 | ) | 207,923 | ||||||||
| Client relationships | - | 6,574 | 6,574 | |||||||||
| Fixed assets, net, note 9(a) | 8,255 | - | 8,255 | |||||||||
| Brand name | - | 13,159 | 13,159 | |||||||||
| Goodwill, note 10(b) | - | 50,696 | 50,696 | |||||||||
| Other assets | 11,802 | 3,263 | 15,065 | |||||||||
| Liabilities | ||||||||||||
| Obligations | 38,590 | - | 38,590 | |||||||||
| Due to banks | 138,257 | - | 138,257 | |||||||||
| Deferred income tax liability | - | 6,611 | 6,611 | |||||||||
| Other liabilities | 25,054 | 831 | 25,885 | |||||||||
| Net acquired assets | 40,184 | 55,955 | 96,139 | |||||||||
| 3. | Significant accounting policies |
Significant accounting principles used in the preparation of Credicorp’s consolidated financial statements are set out below and were consistently applied to all of the years presented, unless otherwise stated.presented.
| (a) | Basis of presentation and use of estimates |
The consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The consolidated financial statements were prepared on a historical cost basis, except for trading securities, available-for-sale investments, derivative financial instruments, the share based compensationshare-based payment and financial assets and financial liabilities designated at fair value through profit or loss, which were measured at fair value. The consolidated financial statements are presented in United States dollarDollars (US$), and all values are rounded to the nearest US$ thousand,thousands, except when otherwise indicated.
The preparation of the consolidated financial statements in conformity 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.
F-13
Notes to the consolidated financial statements(continued)
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. Actual results could differ from those estimates. The most significant estimates comprised in the accompanying consolidated financial statements are related to the computation of the allowance for loan losses, the measurement of financial instruments, the technical reserves for claims and premiums, the provision for seized assets, the estimated useful life of property, furniture and equipment, the estimated useful life of intangible assets and goodwill, the valuation of derivatives.derivative financial instruments and the deferred tax assets and liabilities. The accounting criteria used for each of these items are described in this note.
The accounting policies adopted are consistent with those of the previous year, except that the Group has adopted those new IFRS and revised IAS mandatory for years beginning on or after January 1, 2008.2010. The adoption of the new and revised standards did not have a significant effect on the accompanying consolidated financial statements; therefore, it has not been necessary to amend the comparative figures. In summary:
| - | IFRS 2 Share-based Payment – Group Cash-settled Share-based Payment Transactions - The IASB also issued an amendment to IFRS 2 in June 2009 on the accounting for group cash-settled share-based payment transactions. This amendment is effective for financial years beginning on or after January 1, 2010. This amendment also supersedes IFRIC 8 and IFRIC 11. |
| - | IFRS 3 (revised) “Business Combinations” effective modifications for periods beginning on or after July 1, 2009. Changes in IFRS 3 (revised) affect the valuation of non-controlling interest, the accounting for transactions costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. |
| - | IAS 27 (amendment) “Consolidated and Separate Financial Statements” - effective for periods beginning on or after July 1, 2009. Changes in ownership interests of a subsidiary (that do not result in loss of control) will be accounted for as an equity transaction and will have no impact on goodwill nor will it give rise to a gain or loss. Losses incurred by the subsidiary will be allocated between the controlling and non-controlling interests (previously referred to as ‘Minority interest‘) even if the losses exceed the non-controlling equity investment in the subsidiary. Upon loss of control of a subsidiary, any retained interest will be remeasured to fair value and this will impact the gain or loss recognized on disposal. |
F-14
Notes to the consolidated financial statements(continued)
| - | IAS 39 “Financial Instruments: Recognition and |
| - | IFRIC |
| - | ||
| IFRSs |
In 2009 and 2010, the IASB issued its annual amendments to International Financial Reporting Standards (IFRSs) and the related Bases for Conclusions and Guidance. The amendments primarily remove inconsistencies and clarify wording.
| (b) | Consolidation - |
Subsidiaries are all entities (including special purpose entities) in which the Group has the power to govern their financial and operating policies. This situation is generally evidenced by controlling more than one half of the voting rights.
Subsidiaries are fully consolidated from the date on which effective control is transferred to the Group and are no longer consolidated from the date control ceases. The consolidated financial statements include the assets, liabilities, income and expenses of Credicorp and its Subsidiaries. Transactions between the Group’s entities, including balances, gains or losses are eliminated.
Assets in custody or managed by the Group, such as investment funds and private pension funds (AFP funds), are not part of the Group’s consolidated financial statement of the Group,statements, note 3(z).
Net equity and net income attributable to the minoritynon-controlling interest are shown separately onis presented in the consolidated balance sheetsstatements of financial position. Income attributable to the non-controlling interest is presented separately in the consolidated income statements and the consolidated statements of income, respectively.comprehensive income.
F-15
Notes to the consolidated financial statements(continued)
Acquisitions of non-controlling interest prior to January 1, 2010, were accounted for using the parent entity extension method, whereby, the difference between the consideration and the book value of the share of the net assets acquired were recognized in goodwill.
Associates -
An associate is an entity over which the Group has significant influence but not control. Investments in these entities represent shareholding between 20 and 50 percent of the voting rights; and are recognized initially at cost and then are accounted for by the “equity method”. The Group does not have significant investments in associates; therefore, they are included in the caption “Other assets” in the consolidated balance sheets;statements of financial position; gains resulting from the use of the equity method of accounting are included in the caption “Other income” of the consolidated income statement.
Notes to the consolidated financial statements(continued)
As of December 31, 20082010 and 2007,2009, the following entities comprise the Group (individual financial statements data is presented in accordance with IFRS and before eliminations for consolidation purposes, except for the elimination of Credicorp´s treasury stock and its related dividends):
| Entity | Percentage of participation (direct and indirect) | Assets | Liabilities | Equity | Net income (loss) | Percentage of participation (direct and indirect) | Assets | Liabilities | Equity | Net income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| % | % | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | % | % | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Banco de Crédito del Perú and Subsidiaries (i) | 97.41 | 97.33 | 18,514,133 | 15,171,338 | 17,112,683 | 14,038,774 | 1,401,450 | 1,132,564 | 423,529 | 331,652 | 97.60 | 97.41 | 25,376,947 | 19,563,309 | 23,383,760 | 17,886,706 | 1,993,187 | 1,676,603 | 476,316 | 397,378 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Atlantic Security Holding Corporation and Subsidiaries (ii) | 100.00 | 100.00 | 1,453,915 | 1,738,697 | 1,360,471 | 1,401,237 | 93,444 | 337,460 | (50,395 | ) | 20,537 | 100.00 | 100.00 | 1,400,479 | 1,483,811 | 1,162,691 | 1,269,175 | 237,788 | 214,636 | 48,801 | 29,716 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| El Pacífico Peruano-Suiza Compañía de Seguros y Reaseguros and Subsidiaries (iii) | 75.74 | 75.74 | 1,307,547 | 1,197,943 | 1,155,405 | 932,765 | 152,142 | 265,178 | (20,994 | ) | 21,979 | 97.26 | 75.98 | 1,781,952 | 1,496,709 | 1,366,883 | 1,190,799 | 415,069 | 305,910 | 54,552 | 49,192 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Grupo Crédito S.A. and Subsidiaries (iv) | 100.00 | 100.00 | 335,854 | 389,577 | 101,748 | 125,089 | 234,106 | 264,488 | 18,271 | 7,662 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CCR Inc. (v) | 99.99 | 99.99 | 1,152,336 | 879,997 | 1,247,465 | 917,655 | (95,129 | ) | (37,658 | ) | 138 | (4 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Credicorp Securities Inc. (vi) | 99.99 | 99.99 | 2,851 | 2,047 | 470 | 215 | 2,381 | 1,832 | 549 | 347 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Prima AFP S.A. (iv) | 99.99 | 99.99 | 276,140 | 253,140 | 92,437 | 87,912 | 183,703 | 165,228 | 25,506 | 20,796 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Grupo Crédito S.A. and Subsidiaries (v) | 99.99 | 99.99 | 37,590 | 123,809 | 21,404 | 71,855 | 16,186 | 51,954 | (2,424 | ) | 5,497 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CCR Inc. (vi) | 99.99 | 99.99 | 962,028 | 1,089,659 | 1,028,393 | 1,152,537 | (66,365 | ) | (62,878 | ) | (2,765 | ) | (1,289 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Credicorp Securities Inc. (vii) | 99.99 | 99.99 | 4,048 | 4,639 | 597 | 402 | 3,451 | 4,237 | 1,998 | 1,867 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BCP Emisiones Latam 1 S.A. (viii) | 100.00 | 100.00 | 126,855 | 115,127 | 126,191 | 114,356 | 664 | 771 | 109 | (329 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (i) | Banco de Crédito del Perú (BCP) is a universal bank incorporated in Peru in 1889. Its activities are supervised by the Superintendence of Banking, Insurance and AFP (the Peruvian banking, insurance and AFP authority, hereafter |
| (ii) | Atlantic Security Holding Corporation (ASHC) is incorporated in the Cayman Islands; its main activity is to invest in capital stock. Its most significant subsidiary is Atlantic Security Bank (ASB), which is incorporated in the Cayman Islands, |
| (iii) | El Pacífico Peruano-Suiza Compañía de Seguros y Reaseguros (PPS) is incorporated in Peru, it provides property, casualty, life, health and personal insurance. Its main subsidiaries are El Pacífico Vida Compañía de Seguros y Reaseguros S.A. and Pacífico S.A. Entidad Prestadora de Salud (EPS) |
| (iv) | Prima AFP is a private pension fund administrator incorporated in Peru, whose activities are supervised by the SBS. |
| Grupo Crédito S.A. is incorporated in Peru, its main activity is to invest in listed and not listed securities in |
| CCR Inc., is a special purposes entity incorporated in The Bahamas in 2001, |
| Credicorp Securities Inc., is incorporated in the United States of America and began operations on January, 2003; it provides securities brokerage services, mainly to retail customers in Latin America. |
| (viii) | BCP Emisiones Latam 1 S.A., is a special purposes entity incorporated in Chile in 2009, through which the Group issued corporate bonds, see note 15(a)(i). |
Notes to the consolidated financial statements (continued)
| (c) | Foreign currency translation - |
The Group considershas determined that its functional and presentation currency is the United States Dollar (U.S. Dollar or US$), because it reflects the economic substance of the underlying events and circumstances relevant to the Group;Group, insofar as its main operations and/or transactions in the different countries where the Group operates;operates such as: loans granted, financing obtained, sale of insurance premiums, interest income and expense, and that an important percentage of wages and purchasespurchases; are established and settled in U.S. Dollars.
Financial statements of each of Credicorp’s subsidiaries are measured using the currency of the country in which each entity operates and are translated into U.S. Dollars (functional and presentation currency) as follows:
| - | Monetary assets and liabilities are translated at the free market exchange rate at the date of the consolidated |
| - | Non-monetary accounts are translated at the free market exchange rate prevailing at the transaction date. |
| - | Income and expenses, except for those related to non-monetary assets which are translated at the free market exchange rate prevailing at the transaction date, are translated monthly at the average monthly exchange rate. |
All resulting translation differences are recognized in the consolidated income statement.
| (d) | Income and expense recognition from banking activities - |
Interest income and expense for all interest-bearing financial instruments, including those related to financial instruments classified as held for trading or designated at fair value through profit or loss, are recognized within “Interest and dividend income” and “Interest expense” in the consolidated income statement using the effective interest rate, which is the rate that discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability.
Interest income is suspended when collection of loans become doubtful, i.e. when loans are overdue more than 90 days or when the borrower or securities’ issuer defaults, if earlier than 90 days; such income is excluded from interest income until collected. Uncollected income on such loans is reversed against income.provisioned. When Management determines that the debtor’s financial condition has improved, the recording of interest thereon is reestablished on an accrual basis.
Interest income includes coupons earned on fixed income investment and trading securities and the accrued discount and premium on financial instruments. Dividends are recognized as income when they are declared.
Notes to the consolidated financial statements (continued)
Fees and commission income are recognized on an accrual basis when earned. Contingent credit fees for loans that are likely to be drawn down and other credit related fees are deferred (together with any direct incremental costs) and recognized as an adjustment to the effective interest rate on the loan.
All other revenues and expenses are recognized on an accrual basis.
| (e) | Insurance activities - |
Accounting policies for insurance activities
For the adoption of IFRS4 “Insurance contracts”, Management concluded that USGAAP used as of December 31st 2004 was the relevant framework to be used, as permitted by IFRS 4.
Product classification:
Insurance contracts are those contracts when the Group (the insurer) has accepted significant insurance risk from another party (the policyholders)policyholder) by agreeing to compensate the policyholderspolicyholder if a specified uncertain future event (the insured event) adversely affects the policyholders.policyholder. This definition also includes reinsurance contracts that the Group holds. As a general guideline, the Group determines whether it has significant insurance risk by comparing benefits paid with benefits payable if the insured event did not occur. Insurance contracts can also transfer financial risk.
Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expire. Investment contracts can however be reclassified as
Life insurance contracts after inception ifoffered by the Group include retirement, disability, survival fixed pensions, traditional life and unit linked insurance risk becomes significant.contracts. The non-life insurance contracts mainly include motor, household, commercial and healthcare.
Reinsurance:
The Group cedes insurance risk in the normal course of businessthe operations for all of its businesses. Reinsurance assets represent balances due from reinsurance companies. Reinsurance ceded is placed on both a proportional and non–proportional basis.
Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims and ceded premiums associated with the reinsurer’s policies and are in accordance with the related reinsurance contract.
Reinsurance assets are reviewed for impairment at each reporting date or more frequently when an indication of impairment arises during the reporting year. Impairment occurs when there is objective evidence as a result of an event that occurred after initial recognition of the reinsurance asset that the Group may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measureable impact on the amounts that the Group will receive from the reinsurer. The impairment loss is recorded in the consolidated income statement.
Ceded reinsurance arrangements do not relieve the Group from its obligations to policyholders.a policyholder.
The Group also assumes reinsurance risk in the normal course of business for non-life insurance contracts when applicable. Premiums and claims on assumed reinsurance are recognized as revenue or expenses in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business.
Notes to the consolidated financial statements (continued)
Reinsurance liabilities represent balances due to reinsurance companies. Amounts payable are estimated in a manner consistent with the related reinsurance contract.
Premiums and claims are presented on a gross basis for both ceded and assumed reinsurance.
reinsurance, see notes 22 and 23. Reinsurance assets or liabilities are derecognized when the contractual rights are extinguished or expire or when the contract is transferred to another party.
Reinsurance contracts that do not transfer significant insurance risk are accountednot material to the insurance segment.
Insurance receivables
Insurance receivables are recognized when due and measured on initial recognition at the fair value of the consideration received or receivable. Subsequent to initial recognition, insurance receivables are measured at amortized cost. As of December 31, 2010 and 2009 the carrying value of the insurance receivables is similar to its fair value due to its short term. The carrying value of insurance receivables is reviewed for directly throughimpairment whenever events or circumstances indicate that the carrying amount may not be recoverable, with the impairment loss recorded in the consolidated income statement. Insurance receivables are derecognized when the derecognition criteria for financial assets, as described in Note 3(g), has been met.
“Unit- Linked” assets
“Unit- Linked” assets represent financial instruments held for purposes of funding a group of life insurance contracts and for which investment gains and losses accrue directly to the policyholders who bear the investment risk. Each account has specific objectives, and the financial assets are carried at fair value. The balance sheet. Theseof each account is legally segregated and is not subject to claims that arise out of any other business of the Group. The liabilities for these accounts are depositequal to the account assets, or financial liabilitiesnet of the commission that are recognized based on the consideration paid or received less any explicit identified premiums or fees to be retained byGroup charges for the reinsured. Investment income onManagement of these contracts is accounted for using the effective interest rate method when accrued.contracts.
Deferred acquisition costs (DAC):
Those direct costs that vary with and indirect costs incurred during the financial period arising from the writing or renewing ofare related to traditional life and unit linked insurance contracts are deferred to the extent that these costs are recoverable out of future premiums. Alldeferred; all other acquisition costs are recognized as an expense when incurred. The acquisition costs comprise primarily agent commissions related to the underwriting and policy issuance costs.
F-20
Notes to the consolidated financial statements(continued)
Subsequent to initial recognition, these costs are amortized on a straight line basis based on the termaveraged expiration period of expected future premiums, which typically varies between 5 and 11 years for life insurance contracts and is normally 1 year for non-lifethe related insurance contracts. Amortization is recorded in the consolidated income statement.
An impairment review is performed at each reporting date or more frequently when an indication of impairment arises. When the recoverable amounts is less than the carrying value an impairment loss is recognized in the consolidated income statement. DAC is also considered in the liability adequacy test for each reporting period.
Reinsurance commissions:
Commissions receivable on outwards reinsurance contracts are deferred and amortized on a straight line basis over the term of the expected premiums payable.coverage of the insurance contracts.
Insurance contract liabilities:
| (i) | Life insurance contracts liabilities |
Life insurance liabilities are recognized when contracts are entered intointo.
The liabilities of retirement, disability and premiumssurvival fixed pensions are charged. These liabilities are measured by using the net premium method. The liability is determined as the sum of the discounted value of expected future pensions to be paid during a defined or non defined period, computed upon the basis of mortality tables and discount interest rates. Traditional life and unit linked insurance contract liabilities are determined as the sum of the discounted value of expected future benefits, claims handling, and policy administration expenses, policyholder options and guarantees and investment income, from assets backing such liabilities, which are directly related to the contract, less the discounted value of the expected theoretical premiums that would be required to meet the future cash outflowsoutflows.
The liabilities of retirement, disability and survival fixed pensions and traditional life insurance contracts are based on the valuation assumptions used. The liability is either based on current assumptions or calculated using the assumptions established at the time the contract was issued, in which case a marginissued. Current assumptions are used to update the interest accrued for risk and adverse deviation is generally included. A separate reserve for longevity may be established and included in the measurement of the liability. unit linked insurance contracts.
Furthermore, the liability for life insurance contracts comprises the provision for unearned premiums and unexpired risks, as well as for claims outstanding, which includes an estimate of the incurred but non-reported claims that have not yet been reported to the Group.Group (hereinafter “IBNR”). IBNR reserves as of December 31, 2010 and 2009, were determined on the basis of the Chain Ladder methodology (a generally accepted actuarial method), whereby the weighted average of past claim development is projected into the future; the projection is based on the ratios of cumulative past claims. Adjustments to the liabilities at each reporting date are recorded in the consolidated income statement. Profits originated from margins of adverse deviations on run-off contracts, are recognized in the consolidated income statement over the life of the contract, whereas losses are fully recognized in the consolidated income statement during the first year of run-off. The liability is derecognized when the contract expires, is discharged or is cancelled.
At each reporting date, an assessment is made of whether the recognized life insurance liabilities are adequate, net of related DAC, by using an existing liability adequacy test as laid out under IFRS 4. As of December 31, 2010 and 2009, Management determined that the liabilities were adequate and; therefore, it has not recorded any additional life insurance liability.
F-21
Notes to the consolidated financial statements(continued)
| (ii) | Non-life insurance contract liabilities (which comprises general insurance and healthcare) |
Non-life insurance contract liabilities are recognized when contracts are entered into and premiums are charged.into. These liabilities are known as the outstanding claims provision, which are based on the estimated ultimate cost of all claims incurred but not settled at the date of the consolidated balance sheet date,statements of financial position, whether reported or not, together with related claims handling costs and reduction for the expected value of salvage and other recoveries. Delays can be experienced in the notification and settlement of certain types of claims, therefore the ultimate cost of these cannot be known with certainty at the date of the consolidated balance sheet date. Incurred but non-reported claims (hereafter “IBNR”)statements of financial position. IBNR are estimated and included in the provision (liabilities). IBNR reserves as of December 31, 20082010 and 2007,2009, were determined on the basis of the Bornhuetter - Ferguson methodology – BF (a generally accepted actuarial method), which considers a statistical analysis of the recorded loss history, the use of projection methods and, when appropriate, qualitative factors that reflect present conditions or trends that could affect historical data. No provision for equalization or catastrophe reserves is recognized. The liabilities are derecognized when the contract expires, is discharged or is cancelled.
The provision for unearned premiums represents premiums received for risks that have not yet expired. Generally the reserve is released over the term of the contract and is recognized as premium income.
At each reporting date the Group reviews its unexpired risk and aan existing liability adequacy test is performed as laid out under IFRS 4 to determine whether there is any overall excess of expected claims and DAC over unearned premiums. This calculation uses current estimates of future contractual cash flows after taking account of the investment return expected to arise on assets relating to the relevant nonlife insurance technical provisions. If these estimates show that the carrying amount of the unearned premiums (less related deferred acquisition costs) is inadequate, the deficiency is recognized in the consolidated income statement by setting up a provision for liability adequacy. As of December 31, 2010 and 2009, Management determined that the liabilities were adequate; therefore, it has not recorded any additional non life insurance liabilities.
Income recognition:
| (i) | Gross premiums |
Life insurance contracts
Gross recurring premiums on life contracts are recognized as revenue when payable by thedue from policyholder. For single premium business revenue is recognized on the date on which the policy is effective.
Non-life insurance contracts
Gross generalnon-life insurance writtendirect and assumed premiums comprise the total premiums receivable for the whole period of cover provided by contracts entered into during the accounting periodwritten and are recognized onat the date oncontract inception as a receivable. At the same time, it is recorded a reserve for unearned premiums which the policy incepts. Premiums include any adjustments arising in the accounting periodrepresents premiums for premiums receivable in respect of business written in prior accounting periods.
risks that have not yet expired. Unearned premiums are those proportions of premiums written in a year that relate to periods of risk after the consolidated balance sheet date. Unearned premiums are calculated on a daily pro rata basis. The proportion attributable to subsequent periods is deferred as a provision for unearned premiums.
| Fees and commission income |
management services, surrenders and other contract fees. These fees are recognized as revenue overin the period in which the related services are performed. If the fees are for services provided in future periods then they are deferred and recognized over those future periods.consolidated income statement when due.
Benefits, claims and expenses recognition:
| (i) | Gross benefits and claims |
Gross benefits and claims for life insurance contracts include the cost of all claims arising during the year including internal and external claims handling costs that are directly related to the processing and settlement of claims. Death, claimssurvival and surrendersdisability claims are recorded on the basis of notifications received. Maturities and annuityPension payments are recorded when due.
General insurance and health claims includes all claims occurring during the year, whether reported or not, related internal and external claims handling costs that are directly related to the processing and settlement of claims, a reduction for the value of salvage and other recoveries, and any adjustments to claims outstanding from previous years.
F-22
Notes to the consolidated financial statements(continued)
| (ii) | Reinsurance premiums |
Comprise the total premiums payable for the whole coverage provided by contracts entered in the period and are recognized on the date on which the policy incepts. Unearned reinsurance premiums are deferred over the term of the underlying insurance contract.
| Reinsurance claims |
Reinsurance claims are recognized when the related gross insurance claim is recognized according to the terms of the relevant contract.
| (f) | Financial Instruments: Initial recognition and subsequent measurement - |
The Group classifies its financial instruments in one of the categories defined by IAS 39: financial assets and financial liabilities at fair value through profit or loss; loans and receivables; available-for-sale financial investments and other financial liabilities. Management definesThe Group determines the classification of its financial instruments at initial recognition.
The classification of financial instruments at initial recognition depends on the purpose and the Management intention for which the financial instruments were acquired and their characteristics. All financial instruments are measured initially at their fair value plus any directly attributable incremental cost of acquisition or issue, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date, for example the date that the Group commits to purchase or sell the asset. Derivatives are recognized on a trade date basis.
| (i) | Financial assets and financial liabilities at fair value through profit or loss: |
Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term, and are presented in the caption “Trading securities” of the consolidated statements of financial liabilities are designatedposition.
Management may only designate an instrument at fair value through profit or loss upon initial recognition when the following criteria are met:
| - |
| - |
F-23
Notes to the consolidated financial statements(continued)
| - |
Changes in fair value of designated financial assets through profit or loss are recorded in the consolidated income statement caption “Net gain on financial assets and liabilities designated at fair value through profit and loss”. Interest earned or incurred is accrued in the consolidated income statement in the captions “Interest and dividend income” or “Interest expense”, respectively, according to the terms of the contract. Dividend income is recorded when the collection right to the payment has been established.
| (ii) | Loans and receivables: |
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: those that the entity intend to sell immediately or in the short term, those that the entity upon initial recognition designates as available for sale; or those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration.
F-24
Notes to the consolidated financial statements(continued)
After initial measurement loans and receivables are subsequently measured at amortized cost using the effective interest rate method, less any allowance for impairment. Amortized cost is calculated consideringby taking into account any discount or premium on acquisition and fees and costs that are an integral part of the effective interest rate. Impairment lossesThe effective interest rate amortization is recognized in the consolidated income statement in the caption “Interest and dividend income”. Losses from impairment are recognized in the consolidated income statement in the caption “Provision for loan losses”.
Direct loans are recorded when disbursement of funds to the clients are made. Indirect (off-balance sheet) loans are recorded when documents supporting such facilities are issued. Likewise, Credicorp considers as refinanced or restructured those loans that change their payment schedules due to difficulties in the debtor’s ability to repay the loan.
An allowance for loan losses is established if there is objective evidence that the Group will not be able to collect all amounts due according to the original contractual terms of the loan.loans. The allowance for loan losses is established based in the internal risk classification and considering any guarantees and collaterals received, note 3(i) and 29.1.
| (iii) | Available-for-sale financial investments: |
Available-for-sale financial investments are those whichnon-derivative financial assets that are designated as suchavailable-for-sale (to be held for an indefinite period, which may be sold in response to liquidity needs or changes in the interest rates, exchange rates or equity price); or doare not qualify to be classified as designated(a) financial assets and financial liabilities at fair value through profit or loss, (b) held-to-maturity or (c) loans orand receivables.
After initial measurement,recognition, available-for-sale financial investments are subsequently measured at fair value. Unrealizedvalue with unrealized gains andor losses are recognized directlyas other comprehensive income in equity in “Other reserves”,the available-for-sale reserve, net of its corresponding deferred tax and minority interest. When an available-for-sale financialnon-controlling interest, until the investment is disposed of,derecognized, at which time the cumulative gain or loss previously recognized in equity is recognized in the consolidated income statement in the caption “Net gain on salessale of securities” considering, or determined to be impaired, at which time the average cost basis. impaired amount is recognized in the consolidated income statement in the caption “Impairment loss on available–for–sale investments” and removed from the available-for-sale reserve.
Interest and dividends
earned are recognized in the consolidated income statement in the caption “Interest and dividend income”. Interest earned is reported as interest income using the effective interest rate and dividends earned are recognized when collection rights are established.
Estimated fair values are based primarily on quoted prices or, if quoted market prices are not available, discounted expected cash flows using market rates commensurate with the credit quality and maturity of the investment.
F-25
Notes to the consolidated financial statements(continued)
When the Group is unable to sell these financial assets due to inactive markets and Management’s intent to sell them in the consolidated income statementforeseeable future which changes significantly, the Group may elect, only in rare circumstances, to reclassify these financial assets. Reclassification to loans and removed fromreceivables is permitted when the equity caption “Other reserves”.financial asset meets the definition of loans and receivables and Management has the intent and ability to hold these assets for the foreseeable future or until maturity. The reclassification to held to maturity category is permitted only when the entity has the ability and intent to hold the financial asset until maturity.
As of December, 31, 2010 and 2009, the Group did not reclassify any of its available-for- sale financial investments.
| (iv) | Other financial liabilities: |
After initial measurement, other financial liabilities are subsequently measured at amortized cost using the effective interest rate method. Amortized cost is calculated by taking into accountincludes any issuance discount or premium and costs that are an integral part of the effective interest rate.
| (g) | Derecognition of financial assets and financial liabilities |
Financial assets:
A financial asset (or, where applicable a part of a financial asset or a part of a group of similar financial assets) is derecognized when: (i) the rights to receive cash flows from the asset have expired; or (ii) the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and (iii) either the Group has transferred substantially all the risks and rewards of the asset, or the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
Financial liabilities:
A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and theany resulting difference in the respective carrying amountsamount is recognized as profit or loss.
| (h) | Offsetting financial instruments - |
Financial assets and liabilities are offset and the net amount is reported in the consolidated balance sheetstatements of financial position when there is a legally enforceable right to offset the recognized amounts and Management has the intention to settle on a net basis, or realize the assets and settle the liability simultaneously.
Notes to the consolidated financial statements(continued)
| (i) | Impairment of financial assets - |
The Group assesses at each date of the consolidated balance sheet datestatements of financial position whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that hashave occurred after the initial recognition of the asset (an incurred loss event) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will go bankrupt or other legal financial reorganization process and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. The criteriaCriteria used for each category of financial assets isare as follows:
| (i) | Loans and receivables: |
For loans and receivables that are carried at amortized cost, the Group first assesses whether objective evidence of impairment exists for financial assets that are individually significant, or collectively, for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset carrying amount and the present value of estimated future cash flows.flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the consolidated statement of income.income statement. Interest income, if applicable, is accrued on the reduced carrying amount based on the original effective interest rate of the asset. A loan,Loans, together with itsthe associated allowance, isare written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Group. If in aany subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If in the future a future write-off is later recovered, the recovery is recognized in the consolidated income statements,statement, as a credit to the caption “Provision for loan losses”.
Notes to the consolidated financial statements(continued)
The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.
For a collective evaluation impairment, financial assets are grouped considering the Group’s internal credit grading system, which considers credit risk characteristics; i.e.characteristics for example: asset type, industry, geographical location, collateral type and past-due status.status and other relevant factors.
Future cash flows from a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with similar credit risk characteristics to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the years on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exists. The methodology and assumptions used are reviewed regularly to reduce any differences between loss estimates and actual loss experience.
| (ii) | Available-for-sale financial investments: |
For available-for-sale financial investments, the Group assesses at each date of the consolidated balance sheet datestatements of financial position whether there is objective evidence that an investment or a group of investments is impaired.
In the case of equity investments, objective evidence would include a significant or prolonged decline in its fair value below cost. “Significant” is to be evaluated against the original cost of the investment and “prolonged” against the period in which the fair value of the investmenthas been below its original cost. Where there is evidence of impairment, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any previously recognized impairment loss) is removed from investments available-for-sale reserve of the consolidated statements of changes in equity and recognized in the consolidated income statement. Impairment losses on equity investments are not reversed through the consolidated income statement; increases in their fair value after impairment are recognized directly in equity.the consolidated statements of comprehensive income.
F-28
Notes to the consolidated financial statements(continued)
In the case of debt instruments, impairment is assessed based on the same criteria as financial assets carried at amortized cost (loans and receivables). However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated income statement. Future interest income is based on the reduced carrying amount and is accrued using the interest rate used to discount the future cash flows for the purpose of measuring the impairment loss. Interest income is recorded as part of “Interest and dividend income”. of the consolidated income statement. If in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the consolidated income statement, the impairment loss is reversed through the consolidated income statement.
| (iii) | Renegotiated loans: |
| (j) | Leases - |
The determination of whether an arrangement is, or contains, a lease is based in the substance of the arrangement at inception date: whether fulfillment of the arrangement is dependent on the use of a specific asset or assets on the arrangement conveys a right to use the asset.
Operating leases:
Leases in which a significant portion of the risks and benefits of the asset are hold by the lessor are classified as operating leases. Under this concept the Group has mainly leases used as BCP’s branches.
When an operating lease is terminated before the lease period has expired, any penalty payment to the lessor is recognized as an expense in the period in which termination takes place.
Finance leases:
Finance leases are recognized as granted loans at the present value of the lease collections. The difference between the gross receivable amount and the present value of the loan is recognized as unearned interest. Lease income is recognized over the term of the lease agreement using the effective interest method, which reflects a constant periodic rate of return.
F-29
Notes to the consolidated financial statements(continued)
| (k) | Property, furniture and equipment - |
Land is not depreciated. Depreciation of other assets in this caption is calculated using the straight-line method over their estimated useful lives,life, as follows:
| Years | ||||
| Buildings and other construction | 33 | |||
| Installations | 10 | |||
| Furniture and fixtures | 10 | |||
| Vehicles and equipment | 5 | |||
| Computer hardware | 4 | |||
An item of property, furniture and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognized.
Asset’s residual value, useful life and the selected depreciation method are periodically reviewed to ensure that they are consistent with actualcurrent economic benefits and life expectations.
| (l) | Seized assets - |
Seized assets are recorded at the lower of cost or estimated market value, which is obtained from valuations made by independent appraisals. Reductions in book values are recorded in the consolidated statements of income.income statements.
| (m) | Intangible assets - |
Comprise internal developed and acquired software licenses used by the Group. Acquired software licenses are measured on initial recognition at cost. These intangible assets are amortized using the straight-line method over their estimated useful life (between 3 and 5 years).
F-30
Notes to the consolidated financial statements(continued)
Intangible assets identified as a consequence of the acquisition of Edyficar and Prima AFP, Unión Vida, note 2, “client10 (“Client relationships” and “Brand name”) and other intangible assets, are recognized on the consolidated balance sheetstatements of financial position at their fair values determined on the acquisition date and are amortized using the straight line method over their estimated useful life; 20 years for “client relationships”as follows:
| Years | ||||
| Client relationships – Prima AFP | 20 | |||
| Client relationships – Edyficar | 10 | |||
| Brand name – Edyficar | 20 | |||
| Rights of use | 5 | |||
| Other | 5 | |||
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and 5 years for other identified intangible assets.the carrying amount of the asset and are recognized in the consolidated income statement when the asset is derecognized.
| (n) | Goodwill - |
Goodwill represents the excess of the acquisition cost of a subsidiary over the fair value of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is tested annually for impairment to assess whether the carrying amount is fully recoverable. An impairment loss is recognized if the carrying amount exceeds the recoverable amount. Goodwill is allocated to cash-generating units for impairment testing purposes. See also paragraph (o) below.
| (o) | Impairment of non-financial assets - |
The Group assesses at each reporting date or more frequently if events or changes in circumstances indicate that the carrying value may be impaired, whether there is an indication that aof non-financial assetassets may be impaired. If any such indication exists, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s (CGU) fair value less costs to sell and its value in use. Goodwill is tested annually for impairment. Where the carrying amount of an asset (or cash-generating unit) exceeds its recoverable amount, the asset (or cash-generating unit) is considered impaired and is written down to its recoverable amount.
For non-financial assets, excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized; ifthe reversal is limited so that is the case, the carrying amount of the asset is increased todoes not exceed its recoverable amount. amount, nor exceeds the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the income statement.
Impairment losses relating to goodwill cannot be reversed for subsequent increases in its recoverable amount in future periods.
| (p) | Due from customers on acceptances |
Due from customers on acceptances corresponds to accounts receivable from customers for import and export transactions, whose obligations have been accepted by the banks.Group. The obligations that must be assumed by the Group for such transactions are recorded as liabilities.
F-31
Notes to the consolidated financial statements(continued)
| (q) | Financial guarantees - |
In the ordinary course of business, the Group grants financial guarantees, such as letters of credit, guarantees and acceptances. Financial guarantees are initially recognized at fair value (which is equivalent at that moment to the fee received) as “Other liabilities” in the consolidated statements of financial statements at fair value, in “Other liabilities”, being the premium received.position. Subsequent to initial recognition, the Group’s liability under each guarantee is measured atas the higher of the amortized premiumfee and the best estimate of expenditure required to settle any financial obligation arising as a result of the financial guarantee.
Any increase in the liability relating to a financial guarantee is included in the consolidated statement of income. The premiumfee received is recognized in the consolidated statement of income in the caption “Banking services commissions” on a straight line basis over the life of the granted financial guarantee.
| (r) | Defined contribution pension plan - |
The Group only operates a defined contribution pension plan. The contribution payable to a defined contribution pension plan is in proportion to the services rendered to the Group by the employees and; it is recorded as an expense in the caption “Salaries and employees benefits” of the consolidated income statement. Unpaid contributions are recorded as a liability.
| (s) | Provisions - |
Provisions for legal claims are recognized when the Group has a present (legal)obligation (legal or constructive obligationconstructive) as a result of a past events,event, it is probable that an outflow ofor resources embodying economic benefits will be required to settle the obligation;obligation and a reliable estimate can be made of the amount has been reliably estimated.of the obligation. The amount recordedexpense relating to any provision is presented in the consolidated income statement net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the specific risks of the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a provision is equal to the present value of future payments expected to be needed to settle the obligation.
| (t) | Contingencies - |
Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed in notes, unless the possibilityprobability of an outflow of resources is remote.
| (u) | Income tax |
Income tax and workers’ profit sharing areis computed based on individual financial statements of Credicorp and each one of its Subsidiaries.
F-32
Notes to the consolidated financial statements(continued)
Deferred income tax and deferred workers’ profit sharing reflect the effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and the amounts determined for tax purposes. Deferred assets and liabilities are measured using the tax rates expected to be applied to taxable income in the years in which temporary differences are expected to be recovered or eliminated. The measurement of deferred assets and deferred liabilities reflects the tax consequences that arise from the manner in which Credicorp and its Subsidiaries expect, at the date of the consolidated balance sheet date,statements of financial position, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are recognized regardless of when the timing differences are likely to reverse. Deferred tax assets are recognized when it is more likely than not, that future taxable profit will be available against which the temporary difference can be utilized. At the date of the consolidated balance sheet date,statements of financial position, Credicorp and its Subsidiaries assess unrecognized deferred assets and the carrying amount of recognized deferred assets.
Credicorp and its Subsidiaries determine the deferred income tax considering the tax rate applicable to its undistributed earnings; any additional tax on dividends distribution is recorded on the date a liability is recognized.
| (v) | Earnings per share - |
Basic and diluted earnings per share areis calculated by dividing the net profit for the year attributable to Credicorp’s equity holders by the weighted average number of ordinary shares outstanding during the year, excluding the average number of ordinary shares purchased and held as treasury stock.
Diluted earnings per share is calculated by dividing the net profit attributable to Credicorp’s equity holders by the weighted average number of ordinary shares outstanding during the year, excluding the average number of ordinary shares purchased and held as treasury stock. Forstock, plus the years ending December 31, 2008, 2007 and 2006 Credicorp has no financial instruments withweighted average number of ordinary shares that would be issued on the conversion of all the dilutive effects. Therefore, basic and diluted earnings per share are the same for all years presented.
potential ordinary shares into ordinary shares.| (w) |
| (i) | Cash-settled transactions |
Notes to the consolidated financial statements(continued)
The recorded expenseSARs fair value is expensed over the period up to the vesting date, with recognition of a corresponding liability. The liability is remeasured to fair value at each reporting date up to and including the settlement date, with changes in each year is the estimated marketfair value of the rights that can be exercised by the beneficiaries atrecognized in the consolidated balance sheets date.income statement caption “Salaries and employee benefits”. When Credicorp changes the price or the terms of the SARs theare modified, any additional compensation expense is recorded for an amount equalin the consolidated income statement.
| (ii) | Equity-settled transactions |
As explain in note 18(b), since April 2009, a new supplementary remuneration plan was implemented to replace the SARs plan (see (i) above).
The cost of this equity-settled plan is recognized, together with a corresponding increase in equity, over the period in which the service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the difference between award (‘the new exercise pricevesting date”). The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the market priceGroup’s best estimate of the underlying shares.number of equity instruments that will ultimately vest.
The expense is recorded in the consolidated income statement caption “Salaries and employees benefits” of the consolidated income statement. When the terms of an equity-settled award are modified, the minimum expense recognized in consolidated income statement “Salaries and employees benefits” is the expense as if the terms had not been modified. An additional expense is recognized for any modification which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.
The dilutive effect of outstanding stock awards is reflected as a share dilution in the computation of diluted earnings per share, see note 3(v).
| (x) | Derivative financial instruments - |
Part of transactions with derivatives while providing effective economic hedges under Group’s risk management positions, do not qualify for hedge accounting under the specific rules of IAS 39 and are, therefore, treated as trading derivatives.
Derivative financial instruments are initially recognized in the consolidated balance sheetstatements of financial position at cost and subsequently are re-measured at their fair value. Fair values are estimated based on the market exchange and interest rates. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. Gain and losses for changes in their fair value are recorded in the consolidated income statement.
The Group uses derivative instruments to manage exposures to interest rate and foreign currency. In order to manage particular risks, the Group applies hedge accounting for transactions which meet the specified criteria.
At inception of the hedge relationship, the Group formally documents the relationship between the hedged item and the hedging instrument, including the nature of the risk, the objective and strategy for undertaking the hedge and the method that will be used to assess the effectiveness of the hedging relationship.
F-34
Notes to the consolidated financial statements(continued)
Also, at the inception of the hedge relationship, a formal assessment is undertaken to ensure the hedging instrument is expected to be highly effective in offsetting the designated risk in the hedged item. Hedges are formally assessed at each reporting date. A hedge is regarded as highly effective if the changechanges in fair value or cash flows attributable to the hedged risk during the period for which the hedge is designated is expected to offset in a range between 80 percent and 125 percent.
| (i) | Cash flow hedges |
The effective portion of the gain or loss on the hedging instrument is initially recognized directly as other comprehensive income in equity in “Other reserves”. Thethe cash flow hedge reserve, while any ineffective portion of the gain or loss on the hedging instrument is recognized immediately in the consolidated income statement in the captions “Interest and dividend income” or “Interest expense”, as appropriate. When the hedged cash flow affectsfinance costs.
Amounts recognized as other comprehensive income are transferred to the consolidated income statement when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognized or when a forecast sale occurs.
If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss on the hedging instrument is recycled in the corresponding income or expense line of the consolidated income statement.
| (ii) | Fair value hedges |
The change in the fair value of an interest rate hedging derivative is recognized in the consolidated income statement in finance costs. The change in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the carrying value of the hedged item and is also recognized in the consolidated income statement in finance costs.
For fair value hedges relating to consolidated items carried at amortized cost, the adjustment to carrying value is amortized through the consolidated income statement over the remaining maturity term. Effective interest rate amortization may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.
If the hedged item is derecognized, the unamortized fair value is recognized immediately in the consolidated income statement.
When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in the consolidated income statement.
F-35
Notes to the consolidated financial statements(continued)
| (iii) | Embedded derivates: |
Derivatives embedded in other financial instrumentshost contracts are treatedaccounted for as separate derivatives whenand recorded at fair value if their economic characteristics and risks are not closely related to those of the host contractcontracts, and the host contract iscontracts are not carriedheld for trading or designated at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognized in the consolidated income statement, unless the Group chooses to designate the hybrid contracts at fair value through profit and loss.
The Group has certificates indexed to the price of Credicorp Ltd. share priceshares that will be settled in cash, and credit linked notes obtainedinvestments indexed to provide financial instruments in the same basis to its clients.certain life insurance contracts liabilities, denominated “Unit Linked”. These instruments have been classified at inception by the Group as “financial instrument“Financial instruments at fair value though profit or loss”, see 3(f)(i), and note 7.
| (y) | Segment reporting - |
The Group considersreports financial and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are a component of an entity for which separate financial information is available that is evaluated regularly by the entity’s Chief Operating Decision maker (“CODM”) in making decisions about how to allocate resources and is assessing performance. Generally, financial information is required to be reported on the same basis as a businessit is used internally for evaluating operating segment a group of assetsperformance and operations engaged in providing products or services that are subjectdeciding how to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subjectallocate resources to risks and return that are different from those of segments, operating in other economic environment, note 26.
| (z) | Fiduciary activities, management of funds and pension funds - |
The Group provides custody, trustee, investment management and advisory services to third parties that result in the holding of assets on their behalf. These assets and income arising thereon are excluded from these consolidated financial statements, as they are not assets of the Group, note 29.8.
Commissions generated for these activities are included in the caption “Other income” of the consolidated statements of income.income statements.
| (aa) | Sale and repurchase agreements - |
Securities sold subject to repurchase agreements (‘Repos’) are presented as pledged assets when the counterparty has the right to sell or repledge the collateral; the counterparty liability is included in the caption “Due to banks and correspondents” or “Deposits and obligations”, as appropriate, in the consolidated balance sheets.statements of financial position.
The difference between sale and repurchase price is considered as interest and is accrued over the life of the related agreement using the effective interest method.
| (ab) | Cash and cash equivalents - |
For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise balances of cash and non-restricted balances with central banks, overnight deposits, time deposits and amounts due from banks with original maturities of three months or less.
| (ac) | Reclassifications - |
When it is necessary, the comparative figures have been reclassified to conform to the current year presentation. The mainCertain transactions were reclassified in the current year presentation; in Management’s opinion those reclassifications are not significant to the reportconsolidated financial statement as of December 31, 20072010 and for the two years ended December 31, 2007 are the following:2009.
| (ad) | Recently issued International Financial Reporting Standards but not yet effective - |
The Group decided not to early adopt the following standards and interpretations that were issued but not effective as December 31, 2008:2010:
F-36
Notes to the consolidated financial statements(continued)
| - | IAS |
| - |
| - |
| - | IFRS 9 “Financial Instruments “, the IASB issued this IFRS as the first step in its project to replace IAS 39 “Financial Instruments: Recognition and Measurement”. IFRS 9 introduces new requirements for classifying and measuring financial instruments that must be applied starting on January 1, 2013, with early adoption permitted. The IASB intends to expand IFRS 9 during 2011 to add new requirements for derecognition of financial instruments, impairment, and hedge accounting. |
| - | IFRIC |
| - |
The Group does not expect significant implicationsis in process of assessing the impact, if any, that the application of these standards or interpretations inmay have on its consolidated financial statements once adopted.statements.
| 4. | Cash and due from banks |
| (a) | This item is made up as follows: |
| 2008 | 2007 | 2010 | 2009 | |||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||
| Cash and clearing | 625,954 | 548,298 | 771,297 | 679,694 | ||||||||||||
| Deposits in Peruvian Central Bank - BCRP | 1,952,952 | 1,798,581 | 6,307,977 | 2,107,635 | ||||||||||||
| Deposits in banks | 1,184,729 | 720,992 | 1,496,561 | 1,047,830 | ||||||||||||
| 3,763,635 | 3,067,871 | 8,575,835 | 3,835,159 | |||||||||||||
| Accrued interest | 2,536 | 5,994 | 7,020 | 1,499 | ||||||||||||
| Total | 3,766,171 | 3,073,865 | 8,582,855 | 3,836,658 | ||||||||||||
Notes to the consolidated financial statements(continued)
| (b) | As of December 31, |
The legal reserve funds maintained with BCRP are not interest-bearing, except for the part of the mandatory reserve in U.S. Dollars and in nuevos soles that exceeds the minimum legal reserve.reserve (as of December 31, 2009, only excesses in U.S Dollars of mandatory reserves were interest-bearing). As of December 31, 2008, this2010, the excess amounts to approximately US$1,601.6 million and bears interest in U.S. Dollars amounts to US$1,953.9 million and bear interest at an annual average interest rate of 0.16 percent, while the excess in nuevos soles amounts to S/.660.6 million, equivalent to US$235.2 million and bear interest at an annual average interest rate of 1.2 percent (US$1,790.8 million and 0.14 percent, respectively, as of December 31, 2009).
In October 2010, the BCRP implemented new financial instruments in order to increase its effectiveness in monetary control. Therefore, since that date, the BCRP Certificates of deposit (CDBCRP) were replaced by fix term deposits (DPBCRP, for its Spanish acronym) that can only be acquired by bank entities established in Peru.
The CDBCRP are presented in the caption “Investments available-for-sale”, see note 5 (f), until their maturity date, while the DPBCRP are presented as ”Cash and due from banks”. As of December 31, 2010, the DPBCRP are denominated in nuevos soles for an equivalent of US$3,649.8 million and bears an average annual interest rate of 0.4 percent (approximately US$1,222.5 million and 3.5 percent, respectively as of December 31, 2007).3.06 percent.
Notes to the consolidated financial statements(continued)
| 5. | Investments available-for-sale |
| (a) | This item is made up as follows: |
| 2010 | 2009 | |||||||||||||||||||||||||||||||
| Unrealized gross amount | Unrealized gross amount | |||||||||||||||||||||||||||||||
Amortized Cost | Gains | Losses (b) | Estimated fair value | Amortized cost | Gains | Losses (b) | Estimated fair value | |||||||||||||||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||||||||||||||
| Fixed maturity - | ||||||||||||||||||||||||||||||||
| Corporate, leasing and subordinated bonds (d) | 1,589,722 | 64,047 | (14,288 | ) | 1,639,481 | 1,440,006 | 54,932 | (9,302 | ) | 1,485,636 | ||||||||||||||||||||||
| Government’s treasury bonds (e) | 596,992 | 70,656 | (1,158 | ) | 666,490 | 904,424 | 103,787 | (438 | ) | 1,007,773 | ||||||||||||||||||||||
| BCRP certificates of deposit (f) | 363,829 | 21 | - | 363,850 | 1,545,343 | 386 | (24 | ) | 1,545,705 | |||||||||||||||||||||||
| Restricted mutual funds (g) | 56,869 | 39,060 | - | 95,929 | 53,104 | 18,976 | - | 72,080 | ||||||||||||||||||||||||
| Central Bank of Bolivia certificates of deposit (h) | 86,528 | 6 | (7 | ) | 86,527 | 111,102 | 793 | - | 111,895 | |||||||||||||||||||||||
| Participation in RAL’s funds (i) | 80,195 | - | - | 80,195 | 83,898 | - | - | 83,898 | ||||||||||||||||||||||||
| Participations in mutual funds | 68,030 | 9,385 | (276 | ) | 77,139 | 167,052 | 7,726 | (240 | ) | 174,538 | ||||||||||||||||||||||
| Bonds of international financial entities | 59,910 | 3,328 | (86 | ) | 63,152 | 66,267 | 2,811 | - | 69,078 | |||||||||||||||||||||||
| Collateralized mortgage obligations (CMO) (j) | 47,871 | 287 | (4 | ) | 48,154 | 67,810 | 15 | (5,092 | ) | 62,733 | ||||||||||||||||||||||
| Negotiable certificates of deposit | 24,126 | 1,021 | - | 25,147 | 24,126 | 2,337 | - | 26,463 | ||||||||||||||||||||||||
| US Government – Agencies and Sponsored Enterprises (k) | 14,409 | 717 | (1 | ) | 15,125 | 16,824 | 540 | - | 17,364 | |||||||||||||||||||||||
| Hedge funds | 7,681 | 2,247 | - | 9,928 | 10,811 | 3,691 | - | 14,502 | ||||||||||||||||||||||||
| Other | 17,966 | 471 | (120 | ) | 18,317 | 24,933 | 674 | (9 | ) | 25,598 | ||||||||||||||||||||||
| 3,014,128 | 191,246 | (15,940 | ) | 3,189,434 | 4,515,700 | 196,668 | (15,105 | ) | 4,697,263 | |||||||||||||||||||||||
| Shares - | ||||||||||||||||||||||||||||||||
| Listed securities (l) | 108,340 | 421,453 | (452 | ) | 529,341 | 106,071 | 185,412 | (1,304 | ) | 290,179 | ||||||||||||||||||||||
| Not-listed securities | 10,676 | 783 | (285 | ) | 11,174 | 35,464 | 5,284 | (194 | ) | 40,554 | ||||||||||||||||||||||
| 119,016 | 422,236 | (737 | ) | 540,515 | 141,535 | 190,696 | (1,498 | ) | 330,733 | |||||||||||||||||||||||
| 3,133,144 | 613,482 | (16,677 | ) | 3,729,949 | 4,657,235 | 387,364 | (16,603 | ) | 5,027,996 | |||||||||||||||||||||||
| Accrued interest | 38,299 | 51,610 | ||||||||||||||||||||||||||||||
| Total | 3,768,248 | 5,079,606 | ||||||||||||||||||||||||||||||
2008 | 2007 | |||||||||||||||||||||||||||||||
Unrealized gross amount | Unrealized gross amount | |||||||||||||||||||||||||||||||
Amortized cost | Gains | Losses (b) | Estimated fair value | Amortized cost | Gains | Losses (b) | Estimated fair value | |||||||||||||||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||||||||||||||
| Fixed maturity - | ||||||||||||||||||||||||||||||||
| BCRP certificates of deposit (d) | 2,209,460 | 2,939 | (3,457 | ) | 2,208,942 | 2,410,062 | 224 | (3,281 | ) | 2,407,005 | ||||||||||||||||||||||
| Corporate, leasing and subordinated bonds (e) | 950,322 | 16,015 | (58,109 | ) | 908,228 | 945,794 | 17,028 | (8,380 | ) | 954,442 | ||||||||||||||||||||||
| Government’s treasury bonds (f) | 833,729 | 57,678 | (10,231 | ) | 881,176 | 670,717 | 59,316 | (403 | ) | 729,630 | ||||||||||||||||||||||
| Central Bank of Bolivia certificates of deposit (g) | 217,516 | 115 | (81 | ) | 217,550 | 121,706 | 38 | (96 | ) | 121,648 | ||||||||||||||||||||||
| Participations in mutual funds | 97,234 | 2,189 | (2,479 | ) | 96,944 | 145,182 | 3,652 | - | 148,834 | |||||||||||||||||||||||
| Collateralized mortgage obligations (CMO) (h) | 96,256 | 46 | (22,375 | ) | 73,927 | 106,245 | 597 | (1,092 | ) | 105,750 | ||||||||||||||||||||||
| US Government – Agencies and Sponsored Enterprises (i) | 41,000 | 3,718 | (67 | ) | 44,651 | 86,337 | 2,337 | (427 | ) | 88,247 | ||||||||||||||||||||||
| Restricted mutual funds (j) | 49,775 | 1,887 | - | 51,662 | 47,347 | 18,255 | - | 65,602 | ||||||||||||||||||||||||
| Participation in RAL’s funds (k) | 73,268 | - | - | 73,268 | 56,641 | - | - | 56,641 | ||||||||||||||||||||||||
| Negotiable certificates of deposit | 41,628 | 1,003 | (76 | ) | 42,555 | 53,236 | 1,850 | (1 | ) | 55,085 | ||||||||||||||||||||||
| Hedge funds | 31,742 | 2,920 | (284 | ) | 34,378 | 41,129 | 8,557 | (113 | ) | 49,573 | ||||||||||||||||||||||
| Corporación Andina de Fomento and Corporación Financiera de Desarrollo bonds | 34,799 | 116 | (587 | ) | 34,328 | 45,136 | 143 | - | 45,279 | |||||||||||||||||||||||
| Commercial papers | 11,203 | 3 | (96 | ) | 11,110 | 15,585 | 27 | (9 | ) | 15,603 | ||||||||||||||||||||||
| Other | 20,104 | 2 | (674 | ) | 19,432 | 21,860 | 1,348 | (21 | ) | 23,187 | ||||||||||||||||||||||
| 4,708,036 | 88,631 | (98,516 | ) | 4,698,151 | 4,766,977 | 113,372 | (13,823 | ) | 4,866,526 | |||||||||||||||||||||||
| Shares - | ||||||||||||||||||||||||||||||||
| Listed securities (l) | 106,521 | 109,032 | (5,936 | ) | 209,617 | 107,332 | 167,578 | (1,701 | ) | 273,209 | ||||||||||||||||||||||
| Not-listed securities | 6,242 | 1,761 | (3 | ) | 8,000 | 19,568 | 28,343 | (3 | ) | 47,908 | ||||||||||||||||||||||
| 112,763 | 110,793 | (5,939 | ) | 217,617 | 126,900 | 195,921 | (1,704 | ) | 321,117 | |||||||||||||||||||||||
| 4,820,799 | 199,424 | (104,455 | ) | 4,915,768 | 4,893,877 | 309,293 | (15,527 | ) | 5,187,643 | |||||||||||||||||||||||
| Accrued interest | 43,300 | 40,998 | ||||||||||||||||||||||||||||||
| Total | 4,959,068 | 5,228,641 | ||||||||||||||||||||||||||||||
Notes to the consolidated financial statements(continued)
| (b) | Credicorp’s Management has determined that the unrealized losses as of December 31, |
| (c) | For the year ended December 31, |
The movement of “Other“Available-for-sale investments reserves” in consolidated equity includes mainly the net change in the realized and unrealized gains and losses,, net of deferred taxes,income tax and the recorded impairment. This captionnon-controlling interest is as follows:presented in note 16(c).
| 2008 | 2007 | 2006 | ||||||||||
| US$(000) | US$(000) | US$(000) | ||||||||||
| Unrealized gains (loss), net of taxes and minority interest, note 16(c) | (164,302 | ) | 85,129 | 69,411 | ||||||||
| Realized gains, net of taxes and minority interest, note 16(c) | 35,684 | 17,634 | 6,620 | |||||||||
| Impairment on investments, net of taxes and minority interest note 16(c) | (55,732 | ) | (5,017 | ) | - | |||||||
| (d) |
| As of December 31, |
In April 2010, the Bank participated in an exchange program offered by the Peruvian Government by which the Bank exchanged 7.500 percent euro denominated Global Bonds due 2014 (“The 2014 Bonds”) for cash and new bonds 8.375 percent US$-Denominated Global Bonds due 2033, “The 2033 Bonds”. The Bank received €90.4 million in cash and US$323.1 million in 2033 Bonds. The Bank recorded the unrealized gain amounting to US$31.8 million as a realized gain in the caption “Net gain on sale of securities” of the consolidated statement of income.
Additionally, at the exchange date, the Bank terminated the related cross currency swaps (“CCS”) amounting to US$318.3 million that were part of its fair value hedge strategy, generating a loss amounting to approximately US$15.7 million, which is presented in the caption “Loss from hedging derivatives instruments” of the consolidated income statement, see note 20.
Notes to the consolidated financial statements (continued)
| (f) | BCRP certificates of deposit are issued at discount, acquired in public auctions and negotiated in the Peruvian secondary market. As of December 31, 2010, the balance of BCRP certificates of deposit is comprised by US$48.9 million of certificates settled in U.S. Dollars, and S/.884.8 million of certificates settled in nuevos soles, equivalent to US$315.0 million; their annual effective interest rates range between 3.03 and 3.09 percent for certificates settled in U.S. Dollars, and between 3.01 and 3.45 percent for certificates settled in nuevos soles and their maturities are between January and June 2011. |
As of December 31, 2007,2009, the Group had Repo transactionsbalance comprised S/.4,467.1 million, equivalent to US$1,545.7 million, corresponding to certificates settled in U.S. Dollars with its clients using Peruvian Government bonds and Colombian Government bonds for approximately US$38.9 million and US$59.3 million, respectively. Such transactions had maturities between October 2008 and December 2008 and accrued interest atnuevos soles; their annual effective interest rates thatranged between 1.13 y 1.39 percent and their maturities were between 5.35January and 6.00 percent, respectively.July 2010.
During 2010, at their maturity date, BCRP certificates of deposit in nuevos soles were replaced by BCRP fixed term deposits (DPBCRP), see note 4.
| (g) |
| Restricted mutual funds comprise participation quotas |
| (h) | As of December 31, 2010 and 2009, certificates of deposits issued by the Central Bank of Bolivia are mainly denominated in Bolivianos, had maturities between January and December 2011 and between January and December 2010, respectively, and are discounted at annual effective rates that range between 0.11 and 0.81 percent and between 1.50 and 11.77 percent, respectively. |
As of December 31, 2009, the Group entered into Repo transactions in Bolivianos with its clients for an equivalent of US$35.0 million using these securities. At that date, these transactions earned interest at market rates in Bolivia and with maturities in February 2010. The related liability is presented in the caption “Deposits and obligations”, see note 12.
| The participation quotas in the Fund |
| (j) | Collaterized mortgage obligations correspond to senior tranches and have maturities between January 2011 and January 2047 (between May 2033 and January 2047 as of December 31, 2009) and accrues interest at |
F-41
Notes to the consolidated financial statements(continued)
| (k) | Corresponds to debt instruments issued by US Government – Agencies and |
| (l) | As of December 31, |
| (m) | As of December 31, 2010 and 2009, the Group maintains interest rate swaps (“IRS”), which were designated as fair value hedges of fix bonds denominated in U.S. Dollars issued by the Peruvian Government, corporate and international financial entities, for a notional amount of US$54.6 million (US$55.0 million as of December 31, 2009), see note 11 (b); through the IRS these bonds were economically converted to variable rate. The IRS have maturities between July 2015 and June 2019. |
In addition to the CCS explained in paragraph (e), as of December 31, 2009, the Group maintained forward exchange contracts which were designated as cash flow hedge for a notional amount of US$71.2 million, related to bonds issued by the Colombian Government denominated in Pesos Colombianos, which matured on March 1, 2010; see note 11(b).
| As of December 31, 2010, the Group entered into Repo transactions over corporate and government bonds for approximately US$250.0 million, with maturity in June 2012; the related liability is presented in the caption “Deposits and obligations”, see note 12. |
| (o) | Amortized cost and estimated fair value of investments available-for-sale classified by contractual maturity are as follows: |
| 2010 | 2009 | |||||||||||||||
Amortized cost | Fair value | Amortized cost | Fair value | |||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||
| Up to 3 months | 499,506 | 551,049 | 1,419,936 | 1,451,352 | ||||||||||||
| From 3 months to 1 year | 358,952 | 360,334 | 919,290 | 922,408 | ||||||||||||
| From 1 to 3 years | 459,529 | 471,609 | 505,941 | 524,139 | ||||||||||||
| From 3 to 5 years | 425,033 | 440,222 | 677,097 | 722,548 | ||||||||||||
| Over 5 years | 1,271,108 | 1,366,220 | 993,436 | 1,076,816 | ||||||||||||
| Without maturity (shares) | 119,016 | 540,515 | 141,535 | 330,733 | ||||||||||||
| Total | 3,133,144 | 3,729,949 | 4,657,235 | 5,027,996 | ||||||||||||
Notes to the consolidated financial statements (continued)
| 2008 | 2007 | |||||||||||||||
Amortized cost | Fair value | Amortized cost | Fair value | |||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||
| Up to 3 months | 2,021,269 | 2,023,679 | 798,053 | 828,839 | ||||||||||||
| From 3 months to 1 year | 950,458 | 946,369 | 1,961,129 | 1,959,497 | ||||||||||||
| From 1 to 3 years | 285,044 | 279,982 | 922,822 | 925,330 | ||||||||||||
| From 3 to 5 years | 262,872 | 258,878 | 170,413 | 175,532 | ||||||||||||
| Over 5 years | 1,188,393 | 1,189,243 | 914,560 | 977,328 | ||||||||||||
| Without maturity (shares) | 112,763 | 217,617 | 126,900 | 321,117 | ||||||||||||
| Total | 4,820,799 | 4,915,768 | 4,893,877 | 5,187,643 | ||||||||||||
| 6. | Loans, net |
| (a) | This item is made up as follows: |
| 2008 | 2007 | 2010 | 2009 | |||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||
| Direct loans - | ||||||||||||||||
| Loans | 7,324,485 | 5,842,934 | 9,836,155 | 7,927,451 | ||||||||||||
| Leasing receivables | 1,792,827 | 1,118,301 | 2,359,236 | 1,997,562 | ||||||||||||
| Credit card receivables | 854,968 | 677,182 | 1,305,883 | 1,059,433 | ||||||||||||
| Discounted notes | 368,648 | 325,047 | 477,709 | 349,126 | ||||||||||||
| Factoring receivables | 250,974 | 163,443 | ||||||||||||||
| Advances and overdrafts | 102,687 | 127,486 | 104,495 | 47,147 | ||||||||||||
| Factoring receivables | 124,537 | 109,928 | ||||||||||||||
| Refinanced and restructured loans | 55,179 | 88,451 | 76,707 | 59,459 | ||||||||||||
| Past due and under legal collection loans | 82,867 | 61,488 | 209,908 | 184,567 | ||||||||||||
| 10,706,198 | 8,350,817 | 14,621,067 | 11,788,188 | |||||||||||||
| Add (less) - | ||||||||||||||||
| Accrued interest | 90,094 | 66,974 | 97,294 | 80,316 | ||||||||||||
| Unearned interest | (249,914 | ) | (166,972 | ) | (343,003 | ) | (282,869 | ) | ||||||||
| Allowance for loan losses (d) | (224,337 | ) | (211,319 | ) | (415,703 | ) | (354,355 | ) | ||||||||
| Total direct loans, net | 10,322,041 | 8,039,500 | 13,959,655 | 11,231,280 | ||||||||||||
| Indirect loans, note 19(a) | 1,755,902 | 1,564,525 | 3,135,211 | 2,528,135 | ||||||||||||
| (b) | Loans by class are as follows: |
| 2008 | 2007 | 2010 | 2009 | |||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||
| Commercial loans | 8,058,585 | 6,222,178 | 10,760,767 | 8,566,659 | ||||||||||||
| Residential mortgage loans | 1,485,214 | 1,253,835 | 2,145,093 | 1,753,736 | ||||||||||||
| Consumer loans | 1,162,399 | 874,804 | 1,715,207 | 1,467,793 | ||||||||||||
| Total | 10,706,198 | 8,350,817 | 14,621,067 | 11,788,188 | ||||||||||||
| (c) | Interest rates on loans are set considering the rates prevailing in the markets where the Group’s subsidiaries operate. |
Notes to the consolidated financial statements(continued)
| (d) | The movement in the allowance for loan losses (direct and indirect loans) is shown below: |
| 2010 | ||||||||||||||||
Commercial loans | Residential mortgage loans | Consumer loans | Total | |||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||
| Beginning balances | 243,796 | 41,471 | 90,782 | 376,049 | ||||||||||||
| Provision | 87,125 | 8,398 | 79,159 | 174,682 | ||||||||||||
| Recoveries of written-off loans | 19,867 | 2,517 | 12,221 | 34,605 | ||||||||||||
| Loan portfolio written-off | (63,128 | ) | (853 | ) | (78,755 | ) | (142,736 | ) | ||||||||
| Translation result | 1,904 | 791 | 3,302 | 5,997 | ||||||||||||
| Ending balances (*) | 289,564 | 52,324 | 106,709 | 448,597 | ||||||||||||
| 2008 | 2009 | |||||||||||||||||||||||||||||||
Commercial loans | Residential mortgage loans | Consumer loans | Total | Commercial loans | Residential mortgage loans | Consumer loans | Total | |||||||||||||||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||||||||||||||
| Beginning balances | 184,584 | 14,454 | 30,662 | 229,700 | 161,170 | 30,832 | 56,061 | 248,063 | ||||||||||||||||||||||||
| Provision (recoveries) | (10,667 | ) | 16,024 | 43,403 | 48,760 | |||||||||||||||||||||||||||
| Provision | 79,551 | 9,781 | 74,060 | 163,392 | ||||||||||||||||||||||||||||
| Recoveries of written-off loans | 19,956 | 808 | 10,515 | 31,279 | 12,984 | 939 | 10,005 | 23,928 | ||||||||||||||||||||||||
| Acquisition of Edyficar, note 2 | 19,443 | 106 | 1,356 | 20,905 | ||||||||||||||||||||||||||||
| Loan portfolio written-off | (31,595 | ) | (291 | ) | (27,422 | ) | (59,308 | ) | (32,364 | ) | (958 | ) | (54,605 | ) | (87,927 | ) | ||||||||||||||||
| Translation result | (1,108 | ) | (163 | ) | (1,097 | ) | (2,368 | ) | 3,012 | 771 | 3,905 | 7,688 | ||||||||||||||||||||
| Ending balances (*) | 161,170 | 30,832 | 56,061 | 248,063 | 243,796 | 41,471 | 90,782 | 376,049 | ||||||||||||||||||||||||
| 2008 | ||||||||||||||||
Commercial loans | Residential mortgage loans | Consumer loans | Total | |||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||
| Beginning balances | 184,584 | 14,454 | 30,662 | 229,700 | ||||||||||||
| Provision (recoveries) | (10,667 | ) | 16,024 | 43,403 | 48,760 | |||||||||||
| Recoveries of written-off loans | 19,956 | 808 | 10,515 | 31,279 | ||||||||||||
| Loan portfolio written-off | (31,595 | ) | (291 | ) | (27,422 | ) | (59,308 | ) | ||||||||
| Translation result | (1,108 | ) | (163 | ) | (1,097 | ) | (2,368 | ) | ||||||||
| Ending balances (*) | 161,170 | 30,832 | 56,061 | 248,063 | ||||||||||||
| 2007 | ||||||||||||||||
Commercial loans | Residential mortgage loans | Consumer loans | Total | |||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||
| Beginning balances | 183,374 | 9,253 | 17,959 | 210,586 | ||||||||||||
| Provision (recoveries) | (5,591 | ) | 4,884 | 29,146 | 28,439 | |||||||||||
| Recoveries of written-off loans | 26,016 | 2,587 | 5,481 | 34,084 | ||||||||||||
| Loan portfolio written-off | (22,079 | ) | (2,395 | ) | (22,792 | ) | (47,266 | ) | ||||||||
| Translation result | 2,864 | 125 | 868 | 3,857 | ||||||||||||
| Ending balances (*) | 184,584 | 14,454 | 30,662 | 229,700 | ||||||||||||
| 2006 | ||||||||||||||||
Commercial loans | Residential mortgage loans | Consumer loans | Total | |||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||
| Beginning balances | 196,059 | 8,528 | 14,049 | 218,636 | ||||||||||||
| Provision (recoveries) | (19,118 | ) | 1,202 | 13,673 | (4,243 | ) | ||||||||||
| Recoveries of written-off loans | 31,546 | 1,064 | 11,674 | 44,284 | ||||||||||||
| Loan portfolio written-off | (25,971 | ) | (2,447 | ) | (21,441 | ) | (49,859 | ) | ||||||||
| Translation result | 858 | 906 | 4 | 1,768 | ||||||||||||
| Ending balances (*) | 183,374 | 9,253 | 17,959 | 210,586 | ||||||||||||
| (*) | The movement in the allowance for loan losses includes the allowance for direct and indirect loans for approximately US$ |
F-44
Notes to the consolidated financial statements(continued)
In Management’s opinion, the allowance for loan losses recorded as of December 31, 20082010 and 20072009 and 20062008 has been established in accordance with IAS 39 and is sufficient to cover theprobable losses on the loan portfolio, note 3(i).portfolio.
| (e) | Part of the loan portfolio is collateralized with guarantees received from clients, which mainly consist of mortgages, trust assignments, financial instruments and industrial and mercantile pledges. |
| (f) | Interest on past due for more than 90 days and under legal collection loans are recognized when collected. Interest income that would have been recorded for these loans in accordance with their original contract terms and have not been recognise as income amounts to approximately US$38.5, US$27.9 and US$17.0 as of December 31, 2010, 2009 and 2008, respectively. |
| (g) | As of December 31, |
| 2008 | 2007 | |||||||
| US$(000) | US$(000) | |||||||
| Outstanding loans - | ||||||||
| Up to 1 year | 6,307,197 | 4,980,021 | ||||||
| From 1 to 3 years | 1,648,821 | 1,443,070 | ||||||
| From 3 to 5 years | 1,033,375 | 666,670 | ||||||
| Over 5 years | 1,633,938 | 1,199,568 | ||||||
| Past due loans - | ||||||||
| Up to 4 months | 34,955 | 20,825 | ||||||
| Over 4 months | 22,569 | 20,122 | ||||||
| Under legal collection loans | 25,343 | 20,541 | ||||||
| Total | 10,706,198 | 8,350,817 | ||||||
| 2010 | 2009 | |||||||
| US$(000) | US$(000) | |||||||
| Outstanding loans - | ||||||||
| Up to 1 year | 6,812,586 | 6,269,810 | ||||||
| From 1 to 3 years | 3,404,766 | 2,077,950 | ||||||
| From 3 to 5 years | 1,805,760 | 1,218,240 | ||||||
| Over 5 years | 2,388,047 | 2,037,621 | ||||||
| Past due loans - | ||||||||
| Up to 4 months | 68,601 | 70,602 | ||||||
| Over 4 months | 64,158 | 64,105 | ||||||
| Under legal collection | 77,149 | 49,860 | ||||||
| Total | 14,621,067 | 11,788,188 | ||||||
| 7. | Financial assets |
| (a) | This item is made up as follows: |
Assets | Liabilities | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||
| Citigroup indexed certificates (b) | 129,631 | 162,592 | - | - | ||||||||||||
| Credit linked notes (c) | - | 50,561 | - | 50,561 | ||||||||||||
| 129,631 | 213,153 | - | 50,561 | |||||||||||||
| 2010 | 2009 | |||||||
| US$(000) | US$(000) | |||||||
| Indexed certificates (b) | 139,554 | 115,007 | ||||||
| Unit Linked financial assets (c) | 39,501 | 20,663 | ||||||
| 179,055 | 135,670 | |||||||
| (b) | In connection with the liabilities that result from Credicorp´s stock appreciation rights (SARs), (note 18), BCP signed several contracts with Citigroup Global Markets Holdings Inc., Citigroup Capital Limited, |
F-45
Notes to the performance of Credicorp Ltd. (BAP) shares, in the form of “warrants”, issued by Citigroup, which are equivalent to the same number of shares of Credicorp Ltd. Theseconsolidated financial statements(continued)
The certificates are cash settled and, at their maturity, they pay an amount equal to the final settlement price minus the strike price (US$ 0.0000001) plus the accrued dividends, less the annual fee multiplied by the number of warrants underlying the certificate. The final settlement price is equivalent to the daily volume-weighted average of the per share price for BAP shares on each business day, on which Citigroup or any of its affiliates effects any transactions with respect to BAP shares in order to unwind its position established and maintained to hedge its price and market risk with respect to the issued certificates.
| (c) | The Group issues unit linked life insurance contracts whereby the policyholder bears the investment risk on the assets held in the unit linked funds as the policy benefits are directly linked to the value of the assets in the fund. The Group’s exposure to market risk on this business is limited to the extent that income arising from asset management charges is based on the value of assets in the fund. For the year 2010, the gain resulting from the difference between cost and estimated market value for these financial assets amounted to approximately US$6.4 million (US$5.5 million for the year 2009) and is presented in the caption “Net gain on financial assets and liabilities designated at fair value through profit or loss” of the consolidated statement of income, according to the accounting principles described in note 3(x). The offsetting of this effect is included in gross premiums which are part of the caption “Net premiums earned” of the consolidated statement of income in note 22. |
Notes to the consolidated financial statements(continued)
| 8. | Receivable and payable accounts from insurance contracts |
| (a) |
| 2008 | 2007 | |||||||
| US$(000) | US$(000) | |||||||
| Assets- | ||||||||
| Premiums and other policies receivable (b) | 111,561 | 85,495 | ||||||
| Accounts receivable from reinsurers and coinsurers (c) | 165,144 | 116,141 | ||||||
| Total | 276,705 | 201,636 | ||||||
| Liabilities- | ||||||||
| Accounts payable to reinsurers and coinsurers (c) | 55,841 | 33,963 | ||||||
| (b) |
| 2008 | 2007 | |||||||
| US$(000) | US$(000) | |||||||
| General insurance | 81,489 | 73,524 | ||||||
| Life insurance | 5,982 | 4,857 | ||||||
| Health insurance | 24,090 | 7,114 | ||||||
| 111,561 | 85,495 | |||||||
| 2008 | 2007 | |||||||
| US$(000) | US$(000) | |||||||
| Non past due accounts receivable | 89,371 | 71,830 | ||||||
| Past due accounts receivable | ||||||||
| Up to 30 days | 14,375 | 6,793 | ||||||
| From 31 to 60 days | 6,309 | 2,016 | ||||||
| From 61 to 90 days | 1,197 | 1,748 | ||||||
| More than 90 days | 309 | 3,108 | ||||||
| 111,561 | 85,495 | |||||||
| The movements of |
| Accounts receivable: |
| 2008 | 2007 | 2010 | 2009 | |||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||
| Beginning balances | 116,141 | 35,181 | 137,098 | 165,144 | ||||||||||||
| Reported claims of premiums ceded | 64,787 | 86,458 | ||||||||||||||
| Premiums ceded unearned during the year | 1,054 | (14,538 | ) | |||||||||||||
| Reported claims of premiums ceded, note 23 | 31,618 | 51,895 | ||||||||||||||
| Premiums ceded unearned during the year, note 22(**) | 32,421 | (15,381 | ) | |||||||||||||
| Premiums assumed | 22,664 | 15,811 | 22,882 | 8,304 | ||||||||||||
| Settled claims of premiums ceded | 14,885 | 14,213 | ||||||||||||||
| Settled claims of premiums ceded by facultative contracts | 18,895 | 18,713 | ||||||||||||||
| Collections and other | (54,387 | ) | (20,984 | ) | (82,665 | ) | (91,577 | ) | ||||||||
| Ending balances | 165,144 | 116,141 | 160,249 | 137,098 | ||||||||||||
Accounts receivable as of December 31, 20082010 and 2007,2009, include US$32.0 million49.0 and US$30.916.6 million, respectively, which correspond to the unearned portion of the ceded premiums to the reinsurers.
Accounts payable:
| 2008 | 2007 | 2010 | 2009 | |||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||
| Beginning balances | 33,963 | 25,134 | 48,009 | 55,841 | ||||||||||||
| Premiums ceded to reinsurers by facultative contracts | 84,301 | 53,180 | 94,416 | 72,925 | ||||||||||||
| Coinsurance granted | 2,531 | 8,153 | 11,774 | 12,171 | ||||||||||||
| Payments and other | (64,954 | ) | (52,504 | ) | (93,424 | ) | (92,928 | ) | ||||||||
| Ending balances | 55,841 | 33,963 | 60,775 | 48,009 | ||||||||||||
Accounts payable to reinsurers are primarily related to the proportional facultative contracts (on an individual basis) for ceded premiums, automatic non-proportional contracts (excess of loss) and reinstallation premiums. For facultative contracts the Group transfers to the reinsurers a percentage or an amount of an insurance contract or individual risk, based on the premium and the covered period. The net movement of the accounts payable of non proportionedautomatic contracts (excess(mainly excess of loss) as well as installationreinstallation premiums of the years 20082010 and 20072009 are included in the concept “Payments and other” for US$26.433.3 million and U$16.330.9 million, respectively.respectively,
see note 22.
Notes to the consolidated financial statements(continued)
| 9. | Property, furniture and equipment, net |
| (a) | The movement of property, furniture and equipment and accumulated depreciation, for the years ended December 31, |
| Land | Buildings and other construction | Installations | Furniture and fixtures | Computer hardware | Vehicles and equipment | Work in progress | 2008 | 2007 | Land | Buildings and other construction | Installations | Furniture and fixtures | Computer hardware | Vehicles and equipment | Work in progress | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of January 1st | 37,289 | 263,241 | 99,624 | 73,537 | 197,132 | 20,637 | 17,023 | 708,483 | 659,334 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of January 1 | 40,290 | 294,673 | 117,601 | 89,010 | 234,860 | 28,741 | 24,714 | 829,889 | 784,993 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Additions | 1,285 | 3,289 | 7,884 | 8,800 | 33,717 | 8,946 | 27,432 | 91,353 | 53,901 | 2,366 | 697 | 1,829 | 8,280 | 12,237 | 9,295 | 45,480 | 80,184 | 45,051 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transfer | - | 11,959 | 3,737 | - | - | - | (15,696 | ) | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of Edyficar, note 2(b) | - | - | - | - | - | - | - | - | 11,806 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transfers | - | - | 9,529 | 1,532 | 1,935 | 2,001 | (14,997 | ) | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales and other | (207 | ) | (664 | ) | (487 | ) | (1,238 | ) | (11,737 | ) | (517 | ) | 7 | (14,843 | ) | (4,752 | ) | - | (515 | ) | (909 | ) | (1,236 | ) | (3,814 | ) | (785 | ) | - | (7,259 | ) | (11,961 | ) | |||||||||||||||||||||||||||||||||||||||
| Balance as of December 31 | 38,367 | 277,825 | 110,758 | 81,099 | 219,112 | 29,066 | 28,766 | 784,993 | 708,483 | 42,656 | 294,855 | 128,050 | 97,586 | 245,218 | 39,252 | 55,197 | 902,814 | 829,889 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated depreciation - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of January 1st | - | 140,046 | 63,813 | 58,429 | 163,581 | 7,679 | - | 433,548 | 403,856 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of January 1 | - | 153,372 | 76,893 | 64,080 | 186,136 | 10,873 | - | 491,354 | 455,535 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation for the year | - | 6,568 | 6,707 | 3,308 | 17,095 | 2,356 | - | 36,034 | 33,535 | - | 7,834 | 7,755 | 4,140 | 21,873 | 3,250 | - | 44,852 | 41,872 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of Edyficar, note 2(b) | - | - | - | - | - | - | - | - | 3,551 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales and other | - | (664 | ) | (404 | ) | (1,222 | ) | (11,278 | ) | (479 | ) | - | (14,047 | ) | (3,843 | ) | - | (424 | ) | (814 | ) | (1,073 | ) | (3,652 | ) | (342 | ) | - | (6,305 | ) | (9,604 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31 | - | 145,950 | 70,116 | 60,515 | 169,398 | 9,556 | - | 455,535 | 433,548 | - | 160,782 | 83,834 | 67,147 | 204,357 | 13,781 | - | 529,901 | 491,354 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net book value | 38,367 | 131,875 | 40,642 | 20,584 | 49,714 | 19,510 | 28,766 | 329,458 | 274,935 | 42,656 | 134,073 | 44,216 | 30,439 | 40,861 | 25,471 | 55,197 | 372,913 | 338,535 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (b) | Banks, financial institutions and insurance entities operating in Peru are not allowed to pledge their fixed assets. |
| (c) | As of December 31, |
| (d) | Management periodically reviews the residual value, useful life and method of depreciation of the Group’s property, furniture and equipment to ensure that they are consistent with their actual economic benefits and life expectations. In Management’s opinion, as of December 31, |
Notes to the consolidated financial statements(continued)
| 10. | Intangibles assets and goodwill, net |
| (a) | Intangibles |
The movement of finite useful lives intangible assets for the years ended December 31, 20082010 and 20072009 is as follows:
| Description | Client Relationships (note 2) | Software | Developments | Other | 2008 | 2007 | Client relationships | Rights of use | Brand name | Software and developments | Other | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | ||||||||||||||||||||||||||||||||||||||||
| Cost - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of January 1st | 88,378 | 48,187 | 41,421 | 9,251 | 187,237 | 172,025 | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of January 1 | 94,952 | - | 13,159 | 158,903 | 30,064 | 297,078 | 224,062 | |||||||||||||||||||||||||||||||||||||||||||||
| Additions | - | 21,404 | 14,297 | 3,560 | 39,261 | 30,404 | - | 20,000 | - | 18,107 | 30,237 | 68,344 | 52,675 | |||||||||||||||||||||||||||||||||||||||
| Retirements | - | (431 | ) | (792 | ) | (1,213 | ) | (2,436 | ) | (15,192 | ) | |||||||||||||||||||||||||||||||||||||||||
| Acquisition of Edyficar, note 2(b) | - | - | - | - | - | - | 22,684 | |||||||||||||||||||||||||||||||||||||||||||||
| Transfers | - | - | - | 27,971 | (27,971 | ) | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Disposals and other | - | - | - | (2,207 | ) | - | (2,207 | ) | (2,343 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31 | 88,378 | 69,160 | 54,926 | 11,598 | 224,062 | 187,237 | 94,952 | 20,000 | 13,159 | 202,774 | 32,330 | 363,215 | 297,078 | |||||||||||||||||||||||||||||||||||||||
| Accumulated amortization - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of January 1st | 5,017 | 19,933 | 16,542 | 6,060 | 47,552 | 45,220 | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of January 1 | 13,959 | - | 105 | 73,586 | 8,911 | 96,561 | 67,719 | |||||||||||||||||||||||||||||||||||||||||||||
| Amortization of the year | 4,419 | 9,980 | 5,627 | 1,309 | 21,335 | 17,478 | 5,136 | - | 710 | 30,427 | 1,164 | 37,437 | 29,227 | |||||||||||||||||||||||||||||||||||||||
| Retirements | - | (430 | ) | (708 | ) | (30 | ) | (1,168 | ) | (15,146 | ) | |||||||||||||||||||||||||||||||||||||||||
| Acquisition of Edyficar, note 2(b) | - | - | - | - | - | - | 1,072 | |||||||||||||||||||||||||||||||||||||||||||||
| Disposals and other | - | - | - | (1,974 | ) | - | (1,974 | ) | (1,457 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31 | 9,436 | 29,483 | 21,461 | 7,339 | 67,719 | 47,552 | 19,095 | - | 815 | 102,039 | 10,075 | 132,024 | 96,561 | |||||||||||||||||||||||||||||||||||||||
| Net book value | 78,942 | 39,677 | 33,465 | 4,259 | 156,343 | 139,685 | 75,857 | 20,000 | 12,344 | 100,735 | 22,255 | 231,191 | 200,517 | |||||||||||||||||||||||||||||||||||||||
