ABBREVIATIONS
| Abbreviations | Meaning |
| AFP | Administradora de Fondo de Pensiones or Private Pension Funds Administrators |
| AI | Artificial Inteligence |
| ALCO | Asset and Liabilities Committee |
| ALM | Asset and Liabilities Management |
| AML | Anti-Money Laundering |
| AMV | Autorregulador del Mercado de Valores de Colombia or Colombia’s Stock Market Self-regulator |
| ANPDP | Autoridad Nacional de Protección de Datos Personales del Peru or National Authority for the Protection of Personal Data of Peru |
| APS | Autoridad de Fiscalización y Control de Pensiones y Seguros de Bolivia or Supervision and Control Authority for Pensions and Insurance of Bolivia |
| ARRC | Alternative Reference Rates Committee |
| ASB | Atlantic Security Bank, currently ASB Bank Corp. |
| ASBANC | Asociación de Bancos del Peru or Association of Banks of Peru |
| ASFI | Autoridad Supervisora del Sistema Financiero or Financial System Supervisory Authority – Bolivia |
| ASHC | Atlantic Security Holding Corporation |
| ASOMIF | Asociación de Instituciones de Microfinanzas del Peru or Association of Microfinance Institutions of Peru |
| ATM | Automated Teller Machine (cash machine) |
| Bancompartir | Banco Compartir S.A., now Mibanco Colombia |
| BCB | Banco Central de Bolivia or Bolivian Central Bank |
| BCCh | Banco Central de Chile or Chilean Central Bank |
| BCM | Business Continuity Management |
| BCP Bolivia | Banco de Crédito de Bolivia S.A. |
| BCP Consolidated | BCP Consolidated includes BCP Stand-alone, Mibanco and Solución Empresa Administradora Hipotecaria |
| BCP Miami | Banco de Crédito del Peru, Miami Agency |
| BCP Panama | Banco de Crédito del Peru, Panama Branch |
| BCP Stand-alone | Banco de Crédito del Peru including BCP Panama (Panama Branch) and BCP Miami (Miami Agency), but excluding subsidiaries |
| BCRP | Banco Central de Reserva del Peru or Peruvian Central Bank |
| BLMIS | Bernard L. Madoff Investment Securities LLC. |
| BOB | Bolivianos – Bolivian Currency |
| Bps | Basis Points |
| BVL | Bolsa de Valores de Lima or Lima Stock Exchange |
| CAS | Contrato Administrativo de Servicios or Administrative Contracting of Services |
| CCSI | Credicorp Capital Securities Inc. |
| CEO | Chief Executive Officer |
| CET1 | Common Equity Tier I |
| CGU | Cash-Generating Unit |
| CID | Corporate and International Division |
| CIMA | Cayman Islands Monetary Authority |
| CINO | Chief Innovation Officer |
| CLP | Chilean Peso – Chilean Currency |
| CMF | Comisión para el Mercado Financiero or Financial Markets Commission of Chile |
| CODM | Chief Operating Decision Maker |
| CoE | Center Of Excellence |
| COFIDE | Corporación Financiera de Desarrollo S.A. or Peruvian Government-Owned Development Bank |
| CONFIEP | Confederación Nacional de Instituciones Empresariales Privadas or National Confederation of Private Business Institutions in Peru |
| COO | Chief Operating Officer |
| Consolidated Supervision of Financial and Mixed Conglomerates Regulation | SBS Resolution No. 11823-2010, Reglamento para la Supervisión Consolidada de los Conglomerados Financieros y Mixtos |
| COOPACS | Cooperativa de Ahorro y Créditos de Peru or Savings and Loans Associations of Peru |
| COP | Colombian Peso – Colombian Currency |
| COSO | Committee of Sponsoring Organizations of the Treadway Commission |
| CPS | Comisión de Protección Social or Social Protection Committee of Peru |
| CSF | Cybersecurity Framework |
| Credicorp Capital | Credicorp Capital Ltd., formerly Credicorp Investments Ltd. |
| Credicorp Capital Bolsa | Credicorp Capital Sociedad Agente de Bolsa S.A., formerly Credibolsa SAB S.A. |
| Credicorp Capital Chile | Credicorp Capital Chile S.A., operating subsidiary of Credicorp Capital Holding Chile |
| Credicorp Capital Colombia | Credicorp Capital Colombia S.A., formerly Correval S.A. |
| Credicorp Capital Fondos | Credicorp Capital Sociedad Administradora de Fondos S.A., formerly Credifondo SAFI S.A. |
| Credicorp Capital Holding Chile | Credicorp Capital Holding Chile S.A., holding subsidiary of Credicorp Capital Ltd. |
| Credicorp Capital Holding Colombia | Credicorp Capital Holding Colombia S.A.S., holding subsidiary of Credicorp Capital Ltd. |
| Credicorp Holding Colombia | Credicorp Holding Colombia S.A.S., holding subsidiary of Credicorp Ltd., which holds Credicorp Capital Colombia S.A.S. and Mibanco – Banco de la Microempresa de Colombia S.A. |
| Credicorp Capital Holding Peru | Credicorp Capital Holding Peru S.A., holding subsidiary of Credicorp Capital Ltd. |
| Credicorp Capital LLC | Subsidiary of Credicorp Capital USA, resulting from the merger of Ultralat Capital Market Inc. and Credicorp Capital Securities Inc. |
| Credicorp Capital Peru | Credicorp Capital Peru S.A.A., operating subsidiary of Credicorp Capital Holding Peru, and formerly BCP Capital S.A.A. |
| Credicorp Capital Servicios Financieros | Credicorp Capital Servicios Financieros S.A., formerly BCP Capital Financial Services S.A. |
| Credicorp Capital Titulizadora | Credicorp Capital Sociedad Titulizadora S.A., formerly Credititulos S.A. |
| CRS | Common Reporting Standards |
| CTF | Counter-Terrorism Financing |
| Culqi | Compañia Incubadora de Soluciones Moviles S.A. |
| DANE | Departamento Administrativo Nacional de Estadísticas or Colombian National Statistics Bureau |
| D&S | Disability and Survivorship |
| Deposit Insurance Fund | Fondo de Seguro de Depósitos or Deposit Insurance Fund of Peru |
| DIAN | Dirección de Impuestos y Aduanas Nacionales de Colombia or Taxes and National Customs Authority of Colombia |
| DTA | Deferred Tax Assets |
| Edpymes | Empresas de Crédito or Small and Micro Firm Development Institution, formerly Empresas de Desarrollo de Pequeña y Microempresa (Legislative Decree No. 1531) |
| Edyficar | Empresa Financiera Edyficar S.A. – Peru |
| EIR | Effective Interest Rate |
| Encumbra | Empresa Financiera Edyficar S.A.S. – Colombia |
| EPS | Entidad Prestadora de Salud or Health Care Facility |
| ENPS | Employee Net Promoter Score |
| ES Act | Economic Substance Act 2018 (as amended) of Bermuda |
| EY | Ernst & Young LLP |
| FAE | Fondo de Apoyo Empresarial del Peru or Business Support Fund of Peru |
| FAE-Mype | Fondo de Apoyo Empresarial a la Mype del Peru or SME Business Support Fund of Peru |
| FATCA | Foreign Account Tax Compliance Act |
| FCA | Financial Conduct Authority – United Kingdom |
| FED | Board of Governors of the U.S. Federal Reserve System |
| FFIEC | Federal Financial Institutions Examination Council |
| FIBA | Financial and International Business Association, formerly Florida International Bankers Association |
| FINRA | Financial Industry Regulatory Authority – US |
| Fintech | Financial Technology |
| FMV | Fair market value |
| Fondemi | Fondo de Desarrollo de la Microempresa del Peru or SMEs Development Fund of Peru |
| GAAP | Generally Accepted Accounting Principles |
| GDP | Gross Domestic Product |
| GMV | Gross Merchant Volume |
| Grupo Pacífico | Pacífico Compañía de Seguros y Reaseguros S.A. and consolidated subsidiaries |
| IASB | International Accounting Standards Board |
| IBA | ICE Benchmark Administration Limited |
| IBNR | Incurred but not reported |
| ICBSA | Inversiones Credicorp Bolivia S.A. |
| INDECOPI | Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual del Peru or National Institute for the Defense of Competition and the Protection of Intellectual Property |
| IFRS | International Financial Reporting Standards |
| IGA | Intergovernmental Agreements |
| IIA | Institute of Internal Auditors |
| IMF | International Monetary Fund |
| IMO | Innovation Management Office |
| INE | Instituto Nacional de Estadística or National Statistics Institute of Chile |
| INEI | Instituto Nacional de Estadística e Informática or Peruvian National institute of Statistic and Informatics |
| IPO | Initial Public Offering |
| IRS | Internal Revenue Service |
| ISACA | Information Systems Audit and Control Association |
| IT | Information Technology |
| IUs | Innovation Units |
| KRI | Key Risk Indicators |
| LCR | Liquidity Coverage Ratio |
| LGD | Loss Given Default |
| LIBOR | London Interbank Offered Rate |
| LoB | Lines of Business |
| LTV | Loan to Value |
| MEF | Ministry of Economy and Finance of Peru |
| Merger Control Law | Law No. 31112, Ley que establece el control previo de operaciones de concentración empresarial |
| Mibanco | Mibanco, Banco de la Microempresa S.A. |
| Mibanco Colombia | Mibanco, Banco de la Microempresa de Colombia S.A. |
| MMD | Middle-Market Banking Division |
| Mype | Micro y Pequeña Empresa or Micro and Small Enterprise |
| NIM | Net Interest Margin |
| NIST | National Institute of Standards and Technology |
| NPS | Net Promoter Score |
| NYSE | New York Stock Exchange |
| OECD | Organization for Economic Cooperation and Development |
| P&C | Property and Casualty |
| Pacífico Seguros | Pacífico Compañía de Seguros y Reaseguros S.A. |
| PEN | Peruvian Sol (S/) – Peruvian Currency |
| Peruvian Banking and Insurance Law | Law No. 26702, Ley General del Sistema Financiero y del Sistema de Seguros y Orgánica de la Superintendencia de Banca y Seguros |
| PPS | Peruvian Private Pension System |
| RBG | Retail Banking Group |
| ROAA | Return on Average Assets |
| ROAE | Return on Average Equity |
| ROE | Return on Equity |
| RWAs | Risk-Weighted Asset |
| S&P | Standard and Poor’s |
| SBP | Superintendencia de Bancos de Panama or Superintendency of Banks of Panama |
| SBS | Superintendencia de Banca, Seguros y Administradoras Privadas de Fondos de Pensiones or Superintendence of Banks, Insurance and Pension Funds – Peru |
| SCTR | Seguro Complementario de Trabajo de Riesgo or Complementary Work Risk Insurance |
| SEAH | Solución Empresa Administradora Hipotecaria S.A. |
| SEC | U.S. Securities and Exchange Commission |
| SFC | Superintendencia Financiera de Colombia or Financial Superintendence of Colombia |
| SME | Small and Medium Enterprise |
| SME – Business | SME-Business Credicorp Segment |
| SME – Pyme | SME-Pyme Credicorp Segment |
| SMV | Superintendencia del Mercado de Valores or Superintendence of the Securities Market – Peru |
| SOFR | Secured Overnight Financing Rate |
| SUNAT | Superintendencia Nacional de Aduanas y de Administración Tributaria or Superintendence of Tax Administration – Peru |
| SUSALUD | Superintendencia Nacional de Salud del Peru or National Health Superintendence of Peru |
| Soles | Peruvian currency (S/ - PEN) |
| Tenpo | Tenpo SpA (formerly Krealo SpA) |
| Tyba | Credicorp Capital Negocios Digitales S.A.S. |
| U.S. Dollar | United States currency (also $, US$, Dollars or U.S. Dollars) |
| USA | United States of America (USA, U.S.A., US or U.S.) |
| USDBOB | Currency exchange rate between the U.S. Dollar and the Bolivian Boliviano |
| USDPEN | Currency exchange rate between the U.S. Dollar and the Peruvian Sol |
| Usury Law Regulation | Peruvian Law No. 31143, Ley que protege de la usura a los consumidores de los servicios financieros |
| VaR | Value at Risk |
| VAT | Value-added tax |
| Wally | Wally POS S.A.C. |
| WBG | Wholesale Banking Group |
| WHO | World Health Organization |
| WTI | West Texas Intermediate |
PRESENTATION OF FINANCIAL INFORMATION
Credicorp Ltd. is a Bermuda exempted company (and is referred to in this Annual Report as Credicorp, the Company, the Group, we, or us, each of which means either Credicorp Ltd. as a separate entity or as an entity together with our consolidated subsidiaries, as the context may require). We maintain our financial books and records in Peruvian Soles 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 Generally Accepted Accounting Principles (GAAP) in the United States.
We operate primarily through our four lines of business (LoBs): Universal Banking, Microfinance, Insurance & Pensions, and Investment Management & Advisory. Additionally, we complement the operations of our LoBs through our innovation portfolio which is managed by the Innovation Committee at a corporate level. For more information about our innovation portfolio and strategy, please review “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (1) Credicorp Overview – Our Innovation Strategy”.
Our eight main operating subsidiaries are:
| • | Within Universal Banking: (i) Banco de Crédito del Peru S.A. (BCP Stand-alone), a Peruvian financial institution; and (ii) Banco de Crédito de Bolivia S.A. (BCP Bolivia) a commercial bank that operates in Bolivia and that we hold through Inversiones Credicorp Bolivia S.A. (ICBSA); |
| • | Within Microfinance: (iii) Mibanco, Banco de la Microempresa S.A. (Mibanco), a Peruvian banking entity oriented toward the micro and small business sector; and (iv) Mibanco – Banco de la Microempresa de Colombia S.A. (Mibanco Colombia), which resulted from the merger between Banco Compartir S.A. (Bancompartir) and Edyficar S.A.S. (Encumbra), which we hold through Credicorp Holding Colombia S.A.S.; |
| • | Within Insurance and Pensions: (v) Pacífico Compañía de Seguros y Reaseguros S.A. (Pacífico Seguros and, together with its consolidated subsidiaries, Grupo Pacífico), an entity that contracts and manages all types of general risk and life insurance, reinsurance and property investment and financial operations; and (vi) Prima AFP, a private pension fund; and |
| • | Finally, within Investment Management and Advisory: (vii) Credicorp Capital Ltd. (together with its subsidiaries) was formed in 2012, and (viii) ASB Bank Corp., resulted from the merger between ASB Bank Corp. and Atlantic Security Bank, which we hold through Atlantic Security Holding Corporation (ASHC). |
For information about these LoBs, see “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (2) Lines of Business (LoBs)”.
As of and for the year ended December 31, 2023, BCP Stand-alone represented 75.8% of our total assets and 77.0% of our equity attributable to Credicorp’s equity holders (that is, its shareholders). Unless otherwise specified, the financial information for BCP Stand-alone, BCP Bolivia, Mibanco, Mibanco Colombia, ASB Bank Corp., Grupo Pacífico, Prima AFP and Credicorp Capital included in this Annual Report is presented in accordance with IFRS and before eliminations for consolidation purposes. See “ITEM 3. KEY INFORMATION – 3.A Selected Financial Data” and “ITEM 4. INFORMATION ON THE COMPANY – 4.A History and Development of the Company”. We refer to BCP Stand-alone, BCP Bolivia, Mibanco, Mibanco Colombia, Grupo Pacífico, Prima AFP, Credicorp Capital and ASB as our main operating subsidiaries.
“ITEM 3. KEY INFORMATION – 3.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, 2021, 2022 and 2023.
Unless otherwise specified or the context otherwise requires, references in this Annual Report to “S/”, “Sol”, “local currency” or “Soles” are to Peruvian Soles (each Sol is divided into 100 centimos (cents)), and references to “$”, “US$,” “Dollars”, “US Dollars” or “U.S. Dollars” are to United States Dollars. In addition, references to USDPEN are the currency exchange rate between the U.S. Dollar and the Peruvian Sol.
Some of our subsidiaries, namely Atlantic Security Holding and five of its subsidiaries (Atlantic Security International Financial Services Inc (ASIF), ASB Bank Corp., Atlantic Private Equity Investment Advisor, Atlantic Security Private Equity General Partner and Credicorp Capital Cayman GP), Credicorp Capital USA Inc. (with its subsidiaries Credicorp Capital Advisors LLC. and Credicorp Capital LLC.) and Credicorp Capital Asset Management Administradora General de Fondos maintain their operations and balances in US Dollars and other currencies. As a result, in certain instances throughout this Annual Report, we have translated US Dollars and other currencies to Soles. You should not construe any of these translations as representations that the US Dollar amounts actually represent such equivalent Sol amounts or that such US Dollar amounts could be converted into Soles at the rate indicated, as of the dates mentioned herein, or at all. Unless otherwise indicated, these Sol amounts have been translated from US Dollar amounts at an exchange rate of S/3.709= US$1.00, which is the December 31, 2023 exchange rate set by the Peruvian Superintendence of Banks, Insurance and Pension Funds (Superintendencia de Banca, Seguros y Administradoras Privadas de Fondos de Pensiones or SBS by its Spanish initials), S/3.814 and S/3.987 per dollar as of December 31, 2022 and 2021, respectively. Converting US Dollars to Soles on a specified date (at the prevailing exchange rate on that date) may result in the presentation of Sol amounts that are different from the Sol amounts that would result by converting the same amount of US Dollars on a different specified date (at the prevailing exchange rate on such date). Our Bolivian subsidiary operates in Bolivianos (BOB). For consolidation purposes, our Bolivian subsidiary’s financial statements are also presented in Soles. Likewise, our Panamanian subsidiaries (BCP Panama and ASB) present financial statements in Balboas (PAB). Our Colombian and Chilean subsidiaries operate in Colombian Pesos (COP) and Chilean Pesos (CLP), respectively, and their financial statements are also converted into Soles for consolidation purposes.
Our management’s criteria for translating foreign currency, for the purpose of preparing Credicorp’s consolidated financial statements, are described in “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A Operating Results – (3) Material Accounting Policies – 3.3 Functional, presentation and foreign currency transactions”.
CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report are not historical facts, including, without limitation, certain statements made in the sections titled “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 RISK MANAGEMENT”, which are forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act). You can find many of these statements by looking for words such as “believes”, “expects”, “anticipates”, “estimates”, “intends”, “plans”, “goal”, “seek”, “project”, “strategy”, “future”, “likely”, “should”, “will”, “would”, “may”, or other similar expressions referring to future periods.
Forward-looking statements are based only 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, the following factors:
| a) | Economic conditions and regulatory framework in Peru and markets in which we operate; |
| b) | The occurrence of natural disasters or political or social instability in Peru and markets in which we operate; |
| c) | The adequacy of the dividends that our subsidiaries are able to pay to us, which may affect our ability to pay dividends to shareholders and corporate expenses; |
| d) | Performance of, and volatility in, financial markets, including in Latin America and other emerging markets; |
| e) | The frequency, severity, and types of insured loss events; |
| f) | Fluctuations in interest rate and liquidity levels; |
| g) | Foreign currency exchange rates, including the Sol/US Dollar exchange rate; |
| h) | Deterioration in the quality of our loan portfolio; |
| i) | Increasing levels of competition in Peru and markets in which we operate; |
| j) | Developments and changes in laws and regulations affecting the financial sector and adoption of new international guidelines; |
| k) | Changes in the policies of central banks and/or foreign governments; |
| l) | Effectiveness of our risk management policies and of our operational and security systems; |
| m) | Emerging cybersecurity and environmental risks; |
| n) | Losses associated with counterparty exposures; |
| o) | Public health crises beyond our control; |
| p) | Changes in Bermuda laws and regulations applicable to so-called non-resident entities; and |
| q) | International geopolitical tensions and conflict. |
See “ITEM 3. KEY INFORMATION - 3.D Risk Factors” and “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS” for additional information and other such factors.
Any forward-looking statement made by us in this Annual Report is based only on information currently available to us and is made only as of the date on which it is made, and you are cautioned not to place any undue reliance on any such statement. We are not under any obligation to, and we expressly disclaim any obligation to, update or alter any forward-looking statements contained in this Annual Report, whether as a result of new information, future events or otherwise.
| ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
| ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
| 3. A | 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 Soles. You should read this information in conjunction with and qualify this information in its entirety by reference to, the consolidated financial statements, which are also presented in Soles.
The summary of our consolidated financial data as of and for the years ended December 31, 2021 and 2022 (restated), is derived from the consolidated financial statements audited by Gaveglio, Aparicio y Asociados S.C.R.L, a member firm of PricewaterhouseCoopers International Limited; and the summary of our consolidated financial data as of December 2023, and for the year ended, is derived from the consolidated financial statements audited by Tanaka, Valdivia y Asociados S.C.R.L member firm of Ernst & Young Global, both independent registered public accountants.
The consolidated financial statements as of and for the year ended on December 31, 2022, including their opening balance as of January 1, 2022, which are presented for comparative purposes, have been restated due to the initial implementation of IFRS 17, Insurance Contracts. For further detail please refer to note 3b on the 2023 Audited Financial Statements.
The report of Gaveglio, Aparicio y Asociados S.C.R.L on the consolidated financial statements as of and for the year ended on December 31, 2021 and 2022 (restated) and the report of Tanaka, Valdivia y Asociados S.C.R.L on the consolidated financial statements as of and for the year ended December 31, 2023 appear elsewhere in this Annual Report.
SELECTED FINANCIAL DATA
| | | As of and for the year ended December 31, | |
| | | 2021 | | | | 2022(*) |
| | | 2023 | | | | 2023 | |
| | | (In thousands of Soles, except percentages, ratios, and per common share data) | | | In thousands of US Dollars (1) | |
| INCOME STATEMENT DATA: | | | | | | | | | | | | | | | |
| IFRS: | | | | | | | | | | | | | | | |
| Interest and similar income | | | 11,850,406 | | | | 15,011,282 | | | | 18,798,495 | | | | 5,034,412 | |
| Interest and similar expenses | | | (2,490,802 | ) | | | (3,919,664 | ) | | | (5,860,523 | ) | | | (1,569,503 | ) |
| Net Interest, similar income and expenses | | | 9,359,604 | | | | 11,091,618 | | | | 12,937,972 | | | | 3,464,909 | |
| Provision for credit losses on loan portfolio | | | (1,558,951 | ) | | | (2,158,555 | ) | | | (3,957,143 | ) | | | (1,059,760 | ) |
| Recoveries of written-off loans | | | 346,728 | | | | 347,017 | | | | 334,798 | | | | 89,662 | |
| Provision for credit losses on loan portfolio, net of recoveries | | | (1,212,223 | ) | | | (1,811,538 | ) | | | (3,622,345 | ) | | | (970,098 | ) |
| Net interest, similar income and expenses, after provision for credit losses on loan portfolio | | | 8,147,381 | | | | 9,280,080 | | | | 9,315,627 | | | | 2,494,811 | |
| Commissions and fees | | | 3,493,734 | | | | 3,642,857 | | | | 3,804,459 | | | | 1,018,870 | |
| Net gain on foreign exchange transactions | | | 922,917 | | | | 1,084,151 | | | | 886,126 | | | | 237,313 | |
| Net gain on securities | | | 28,650 | | | | 5,468 | | | | 425,144 | | | | 113,858 | |
| Net gain on derivatives held for trading | | | 221,064 | | | | 65,187 | | | | 53,665 | | | | 14,372 | |
| Net result from exchange differences | | | (3,215 | ) | | | 387 | | | | 45,778 | | | | 12,260 | |
| Other income | | | 266,567 | | | | 268,046 | | | | 440,653 | | | | 118,011 | |
| Total non-interest income | | | 4,929,717 | | | | 5,066,096 | | | | 5,655,825 | | | | 1,514,684 | |
| Insurance service result | | | - | | | | 1,302,347 | | | | 1,602,421 | | | | 429,143 | |
| Underwriting result | | | - | | | | (460,899 | ) | | | (391,321 | ) | | | (104,799 | ) |
| Net premiums earned | | | 2,671,530 | | | | - | | | | - | | | | - | |
| Net claims incurred for life, general and health insurance contracts | | | (2,341,917 | ) | | | - | | | | - | | | | - | |
| Acquisition cost | | | (333,334 | ) | | | - | | | | - | | | | - | |
Total other expenses (2) | | | (7,740,561 | ) | | | (8,317,013 | ) | | | (9,334,223 | ) | | | (2,499,792 | ) |
| Profit before income tax | | | 5,332,816 | | | | 6,870,611 | | | | 6,848,329 | | | | 1,834,047 | |
| Income tax | | | (1,660,987 | ) | | | (2,110,501 | ) | | | (1,888,451 | ) | | | (505,745 | ) |
| Net profit | | | 3,671,829 | | | | 4,760,110 | | | | 4,959,878 | | | | 1,328,302 | |
| Attributable to: | | | | | | | | | | | | | | | | |
| Credicorp’s equity holders | | | 3,584,582 | | | | 4,647,818 | | | | 4,865,540 | | | | 1,303,037 | |
| Non-controlling interest | | | 87,247 | | | | 112,292 | | | | 94,338 | | | | 25,265 | |
Number of shares as adjusted to reflect changes in capital (3) | | | 79,531,948 | | | | 79,533,094 | | | | 79,496,221 | | | | - | |
Net basic earnings per common share attributable to Credicorp’s equity holders (4) | | | 45.09 | | | | 58.26 | | | | 61.22 | | | | 16.40 | |
Net dilutive earnings per common share attributable to Credicorp’s equity holders (4) | | | 44.99 | | | | 58.13 | | | | 61.08 | | | | 16.36 | |
Cash dividends declared per common share Soles (5) | | | 15.00 | | | | 25.00 | | | | - | | | | - | |
(*) Balances corresponding to 2022 have been restated according to IFRS 17. For further detail please refer to note 3b on the 2023 Audited Financial Statements.
| | | As of and for the year ended December 31, | |
| | | 2021 | | | | 2022 ( | *) | | | 2023 | | | | 2023 | |
| | | (In thousands of Soles, except percentages, ratios, and per common share data) | | | In thousands of US Dollars (1) | |
| STATEMENT OF FINANCIAL POSITION DATA: | | | | | | | | | | | | | | | |
| IFRS: | | | | | | | | | | | | | | | |
| Total assets | | | 244,846,740 | | | | 235,414,157 | | | | 238,840,188 | | | | 64,394,766 | |
Total loans (6) | | | 147,597,412 | | | | 148,626,374 | | | | 144,976,051 | | | | 39,087,638 | |
| Allowance for loan losses | | | (8,477,308 | ) | | | (7,872,402 | ) | | | (8,277,916 | ) | | | (2,231,846 | ) |
Total deposits (7) | | | 149,596,545 | | | | 147,020,787 | | | | 147,704,994 | | | | 39,823,401 | |
| Equity attributable to Credicorp’s equity holders | | | 26,496,767 | | | | 29,003,644 | | | | 32,460,004 | | | | 8,751,686 | |
| Non-controlling interest | | | 540,672 | | | | 591,569 | | | | 647,061 | | | | 174,457 | |
| Total equity | | | 27,037,439 | | | | 29,595,213 | | | | 33,107,065 | | | | 8,926,143 | |
| | | | | | | | | | | | | | | | | |
(*) Balances corresponding to 2022 have been restated according to IFRS 17. For further detail please refer to note 3b on the 2023 Audited Financial Statements.
| | | As of and for the year ended December 31, | |
| | | 2021 | | | | 2022 ( | *) | | | 2023 | |
| | | | | | | | | | | | |
| SELECTED RATIOS | | | | | | | | | | | |
| IFRS: | | | | | | | | | | | |
Net interest margin (NIM) (8) | | | 4.12 | % | | | 5.09 | % | | | 6.01 | % |
Return on average total assets (ROAA) (9) | | | 1.49 | % | | | 1.97 | % | | | 2.01 | % |
Return on average equity (ROAE) (10) | | | 13.94 | % | | | 16.81 | % | | | 15.83 | % |
Operating efficiency (11) | | | 44.95 | % | | | 47.50 | % | | | 46.08 | % |
Operating expenses as a percentage of average assets (12) | | | 3.12 | % | | | 3.27 | % | | | 3.64 | % |
| Equity attributable to Credicorp’s equity holders as a percentage of period end total assets | | | 10.82 | % | | | 12.32 | % | | | 13.59 | % |
Regulatory capital as a percentage of risk weighted assets – BIS ratio (13) | | | 16.71 | % | | | 19.31 | % | | | 18.59 | % |
Total internal overdue loan amounts as a percentage of total loans (14) | | | 3.77 | % | | | 4.00 | % | | | 4.23 | % |
| Allowance for direct loan losses as a percentage of total loans | | | 5.74 | % | | | 5.30 | % | | | 5.71 | % |
Allowance for loan losses as a percentage of total loans and other off-balance-sheet items (15) | | | 4.97 | % | | | 4.64 | % | | | 5.02 | % |
Allowance for direct loan losses as a percentage of total internal overdue loans (16) | | | 152.40 | % | | | 132.54 | % | | | 135.12 | % |
Allowance for direct loan losses as a percentage of impaired loans (17) | | | 75.13 | % | | | 73.79 | % | | | 75.82 | % |
Dividend payout ratio (18) | | | 33.27 | % | | | 42.78 | % | | | - | |
Equity to assets ratio (19) | | | 10.21 | % | | | 10.46 | % | | | 12.92 | % |
Shareholders’ equity to assets ratio (20) | | | 10.41 | % | | | 10.24 | % | | | 13.18 | % |
(*) Balances corresponding to 2022 have been restated according to IFRS 17. For further detail please refer to note 3b on the 2023 Audited Financial Statements.
Note: Total internal overdue loans include overdue and under legal collection loans.
| (1) | Translated for convenience only from Sol amounts to US Dollar amounts using exchange rates of S/3.709 = US$1.00, which is the December 31, 2023 exchange rate set by the SBS, for statement of financial position data and of S/3.734 = US$1.00, which is the average exchange rate on a monthly basis in 2023, for income statement data (for consistency with the annual amounts being translated). |
| (2) | Total other expenses include salaries and employee benefits, administrative expenses, depreciation and amortization, depreciation for right-of-use assets, impairment loss on goodwill and others. |
| (3) | The number of shares consists of capital stock (see Note 16(a) to the consolidated financial statements) less treasury stock (see Note 16 (b) to the consolidated financial statements). |
| (4) | Basic earnings per share is 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 (see Note 26 to the consolidated financial statements). Dilutive earnings per share is calculated by dividing by the weighted average number of ordinary shares outstanding during the year, including the average number of ordinary shares purchased and held as treasury stock. |
| (5) | Dividends declared per share based on net profit attained for the financial years 2021 and 2022 were declared in Soles and paid in US Dollars on June 10, 2022, and June 09, 2023, respectively, using the weighted exchange rate registered by the SBS for the transactions at the close of business on June 08, 2022, and June 07, 2023, respectively. As of the date of this Annual Report, no dividends have been declared in 2024. |
| (6) | “Total loans” refers to direct loans, internal overdue loans and under legal collection loans and accrued interest. See Note 7 to the consolidated financial statements. |
| (7) | Total deposits exclude interest payable. See Note 13 to the consolidated financial statements. |
| (8) | Net interest similar income and expenses as a percentage of average interest-earning assets, computed as the average of period-beginning and period-ending balances. |
| (9) | Net profit attributable to Credicorp’s equity holders as a percentage of average total assets, computed as the average of period-beginning and period-ending balances. |
| (10) | Net profit attributable to Credicorp’s equity holders as a percentage of average equity attributable to our equity holders, computed as the average of period-beginning and period-ending balances. |
| (11) | Sum of salaries and employee benefits, administrative expenses, depreciation and amortization, acquisition cost and association in participation, all as percentage of the sum of net interest income, commissions and fees, net gain from exchange differences, net gain in associates, net premiums earned, net gain on foreign exchange transactions and net result on derivatives held for trading. Acquisition cost includes net fees, underwriting expenses and underwriting income. |
| (12) | Sum of salaries and employee benefits, administrative expenses, depreciation and amortization and acquisition cost, all as percentage of average total assets. |
| (13) | Regulatory capital calculated in accordance with guidelines established by the Basel Committee on Banking Regulations and Supervisory Practices of International Settlements (Basel Committee Accord) as adopted by the SBS. See “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.B Liquidity and Capital Resources - (1) Capital Adequacy Requirements for Credicorp.” |
| (14) | Depending on the type of loan, BCP Stand-alone and Mibanco consider corporate, large business and medium business loans to be internal overdue loans for after 15 days; and overdrafts, small and micro business to be internal overdue loans after 30 days. For consumer, mortgage and leasing loans the past-due installments are considered internal overdue after 30 to 90 days and after 90 days, the outstanding balance of the loan is considered internal overdue. ASB considers internal overdue loans all overdue loans when the scheduled principal and/or interest payments are overdue for more than 30 days. BCP Bolivia considers loans as internal overdue after 30 days. |
| (15) | Other off-balance-sheet items primarily consist of guarantees and stand-by letters, performance bonds, and import and export letters of credit. See Note 18 to the consolidated financial statements. |
| (16) | Allowance for direct loan losses, as a percentage of all internal overdue loans without accounting for collateral securing such loans. |
| (17) | Allowance for direct loan losses as a percentage of direct loans classified as impaired debt. See “ITEM 4. INFORMATION ON THE COMPANY - 4.B Business Overview – (7) Selected Statistical Information – 7.3 Loan Portfolio – 7.3.7 Classification of the Loan Portfolio”. |
| (18) | Dividends declared based on net profit attained for the financial years 2021 and 2022 divided by net profit attributable to our equity holders of the year 2021 and 2022, respectively. Dividends for 2023 results have not been declared yet. |
| (19) | Average equity attributable to our equity divided by average total assets, both averages computed as the average of month-ending balances. |
| (20) | Average equity attributable to our equity shareholders divided by average total assets, both averages computed as the average of month-ending balances. |
| 3. B | Capitalization and Indebtedness |
Not applicable.
| 3. C | Reasons for the Offer and Use of Proceeds |
Not applicable.
Our businesses are affected by many internal and external factors in the markets in which we operate. Different risk factors can impact our businesses, our ability to operate effectively and our business strategies. You should consider the risk factors carefully and read them in conjunction with all the information in this document. You should note that these risk factors described below are not the only risks to consider. Rather, these are the risks that we currently consider material. There may be additional risks that we consider immaterial or of which we are unaware, and any of these risks could have similar effects to those set forth below.
Credicorp is exposed to the following macroeconomic, legal and regulatory, industry and market, business performance, operational and environmental and social and governance risks:
| • | Our geographic location exposes us to Peruvian political, social and economic conditions. |
| • | Our banking and capital market operations in neighboring countries expose us to political and economic conditions in those countries. |
| • | Economic and market conditions in other countries may affect the Peruvian economy and the market price of Peruvian securities. |
| • | Geopolitical tensions and conflicts, including the conflict between Russia and Ukraine, and between Israel and Palestine, could have economic effects that negatively impact the Peruvian economy. |
| • | Regulatory changes and the adoption of new international guidelines to sectors in which we operate could impact our earnings and adversely affect our operating performance. |
| • | Credicorp, as a Bermuda exempted company, may be adversely affected by any change in Bermuda law or regulation. |
| • | It may be difficult to serve process on or enforce judgments against us or our principals residing outside of the United States or to assert claims against our officers or Directors. |
| • | We operate in a competitive environment that may limit our potential to grow, put pressure on our margins and reduce our profitability. |
| • | Our business and results of operations could be negatively impacted by a public health crises beyond our control. |
| • | Our financial statements, particularly our interest-earning assets and interest-bearing liabilities, could be exposed to fluctuations in interest rates, foreign currency exchange rates and exchange controls, which may adversely affect our financial condition and results of operations. |
| • | Our liquidity, business activities and profitability may be adversely affected by an inability to access the debt capital markets or to sell assets during periods of market-wide or firm-specific liquidity constraints. |
| • | The Group relies significantly on its deposits for funding. |
| • | Our investments measured at fair value through profit or loss and fair value through other comprehensive income expose us to market price volatility, liquidity declines and fluctuations in foreign currency exchange rates, which may result in losses that could adversely affect our business, financial condition and operating results. In addition, our investments measured at amortized cost may expose us to market price volatility and liquidity shortcomings if sales of those investments become required for liquidity purposes. |
| • | A deterioration in the quality of our loan portfolio may adversely affect our results of operations. |
| • | Errors or inaccuracies in risk models can generate adverse economic impacts. |
| • | Accurate underwriting and setting of premiums are important risk management tools for primary insurance companies, including Grupo Pacífico, and the estimates underlying our underwriting and premiums may be inaccurate. |
| • | While reinsurance is an important tool in risk management of any primary insurance company that enables risk diversification that in turn helps to reduce losses, we face the possibility that the reinsurance companies will be unable to honor their contractual obligations. |
| • | Risks not contemplated in our insurance policies may affect our results of operations. |
| • | Acquisitions and strategic partnerships may not perform as expected, which could have an adverse effect on our business, financial condition, and results of operations. |
| • | Credicorp’s increasing investments in digital transformation and disruptive initiatives may fail to achieve the ambitions, efficiencies and other performance improvements that we are pursuing. |
| • | 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. |
| • | A failure in, or breach of, our operational or security systems, fraud by employees or outsiders, other operational errors, or the failure of our system of internal controls to discover and rectify such matters could temporarily interrupt our businesses, increasing our costs and causing losses. |
| • | Our anti-money laundering and counter-terrorist financing measures might not prevent third parties from using us as a conduit for such activities, which could damage our reputation or expose us to fines, sanctions or legal enforcement, any of which could have a material adverse effect on our business, financial condition, and results of operations. |
| • | Natural disasters in Peru could disrupt our businesses and adversely affect our results of operations and financial condition. |
| • | We may incur financial losses and damages to our reputation from environmental, social and governance (ESG) risks. In recent years, these risks have been recognized as increasingly relevant since they can affect the creation of long-term value for stakeholders of the Company. |
Our geographic location exposes us to risks related to Peruvian political, social and economic conditions.
Most operations of BCP Stand-alone, Grupo Pacífico, Prima AFP, and a significant part of Credicorp Capital’s and Mibanco operations are located in Peru. In addition, while ASB Bank Corp. is based in Panama rather than in Peru, most of its customers are located in Peru. Therefore, our results primarily depend on economic activity in Peru. Changes in economic conditions, both international and domestic, government policies and social uncertainty can alter the financial health and regular development of our businesses. These changes may include, but are not limited to, high inflation, currency depreciation, currency exchange controls, caps on interest rates, confiscation of private property and financial regulation, among others. Similarly, terrorist activity, political and social unrest and corruption scandals can adversely impact our operations, as well as natural disasters.
Peru experienced one of its worst social and political crises in decades after a failed coup on December 7, 2022, by former president Pedro Castillo, triggered and exacerbated massive protests. On the day of a debate by Peru’s Congress on a third motion to impeach Castillo, he announced in a message to the Nation the temporary dissolution of Peru’s Congress, new elections for a Congress with the power to reform Peru’s constitution and the restructuring of Peru’s justice system. The police and armed forces released a joint statement saying that any act contrary to the established constitutional order was a violation of the constitution and that they would not abide by it. Within hours of his speech, Peru’s Congress voted to remove Castillo from office due to moral incapacity and he was arrested on charges of rebellion and conspiracy. In turn, Vice President Dina Boluarte was sworn in as Peru’s first female president and has indicated that she plans to govern until July 2026, which when Castillo’s term would have ended.
Since Boluarte took office, social unrest has exacerbated and erupted, mainly in southern regions of Peru which represent around 15% of Peru’s GDP, where Castillo had more support. Protesters demanded the release from jail of former president Castillo and the holding of new general elections. Protests were violent and resulted in supply chain disruptions due to road blockages, and some regional airports suspended operations temporarily as infrastructure was damaged. Additionally, some mining operations were also disrupted as they faced road blockages and lack of supplies. Furthermore, the protest negatively affected the tourism, hospitality, transportation, construction, and retail sectors.
These protests ended in February 2023. According to the Ombudsman’s office of Peru, the conflict linked to the political crisis caused at least 60 deaths as a result of clashes between civilians, police and military. Since then, other attempts of social protest have not gained much traction. However, there is no assurance as to when our country could face similar social unrest.
In the context of social unrest, on December 12, 2022, an initial bill was approved by Congress to hold early elections in April 2024. Thereafter, political parties asked for a reconsideration of the bill in which the date for the elections was prompted earlier to October 2023. On January 29, 2023, the revisited bill did not obtain the necessary superior majority (87 of 130 votes), which voided the initially approved initiative. Two months later, on March 2023, the executive branch presented another bill for early elections in December 2023, which was again rejected. On June 15, 2023, president Boluarte indicated to press that early elections in 2024 were a ‘closed topic’ and that her government would remain until July 2026, which is the initial date in which Castillo’s term would have ended.
In addition, as with Mr. Castillo’s presidency, president Boluarte has faced challenges in aligning certain initiatives with, and obtaining support from, the Peruvian Congress, which is highly fragmented, as no political party has a clear majority and at least 10 political parties hold minority representations. President Boluarte assumed the presidency with no parliamentary bench as she was expelled from the political party Peru Libre at the beginning of 2021 for not sharing the same ideology. Although it is expected that a majority opposition from the Peruvian Congress against certain policies that may be proposed by the new President will continue, there is a risk of unpredictable policymaking.
Further, should the new President or any official of her administration become involved in corruption investigations or other scandals, popular support for her government and policies may be adversely affected and result in additional disruption to Peru’s political landscape. According to March 2024 Ipsos survey, Ms. Boluarte has a very low approval rate of just 9%. There can be no assurance that future developments in or affecting the Peruvian political landscape, including economic, social or political instability in Peru, will not materially and adversely affect our business, financial condition or results of operations.
It is important to recall that the general elections of 2021 resulted in an environment of political and social polarization, as Pedro Castillo, a leader of a teachers’ union and of indigenous heritage, was elected president in a very narrow (only 44,263 votes of difference) second round win against the right-wing candidate Keiko Fujimori, who is the daughter of ex-president Alberto Fujimori.
Among some risks faced by the actual government are the further weakening of institutions, corruption scandals and lack of technical expertise, and remote risks, although lower than under Castillo’s presidency, include governmental intentions to impose greater state control over the economy and potential changes to Peru’s current constitution (which was enacted in 1993). For a new constitution to replace the current one through a constituent assembly, a constitutional reform proposal would need to be approved by Peru’s Congress, either through an absolute majority (87 votes) in two consecutive legislatures or simple a majority (66 votes) ratified in a referendum.
Social and political instability in Peru is not new. The country has experienced various instances of instability ranging from domestic terrorism (during the 1980s) to military coups and a succession of regimes. Although the risk of renewed domestic terrorism is not expected, any violence derived from the drug trade or illegal mining or a resumption of large-scale terrorist activities could hurt our operations. Additionally, some regimes during the 1970s and 1980s heavily intervened in the economy in pursuit of various economic policies and priorities, including expropriation, nationalization and new taxation policies. These interventions altered the country’s economic environment, financial system and agricultural sector, among other components.
There have also been several political disputes between the government and the opposition in recent decades. Since 2001, more than ten different political organizations have nominated candidates for President in each of the five election processes, showing low approval rating for all candidates (usually around 20%–30% approval ratings or less). Between August 2016 and February 2024, Peru has had 6 presidents, 3 congresses and 16 prime ministers.
Additionally, high levels of poverty and inequality in Peru have been a contributing factor to social conflict. Between 2004 and 2019 (pre pandemic) according to INEI, Peru’s poverty rate decreased from almost 60% of the population to 20%. In 2020, due to the economic shock resulting from the COVID-19 pandemic, the poverty rate increased to 30%, erasing nearly all gains from the last decade and even though it fell to 25.9% in 2021, it rose again in 2022 to 27.5%, remaining above pre pandemic levels. In 2023, the poverty rate increased for a second consecutive year due to weak economic conditions, according to the government technical organization National Center for Strategic Planning (or CEPLAN for its acronym).
There can be no assurance that Peru will not continue facing political, economic or social problems in the future or that these problems will not adversely affect our business, financial condition and results of operations. There is always the possibility that a political fraction could promote policies to respond to social unrest with a speech that includes or promotes, among other things, expropriation, nationalization, suspension of the enforcement of creditors’ rights and new taxation policies. As such, our financial condition and results of operations may also be adversely affected by changes in Peru’s political climate to the extent that such changes affect the nation’s economic policies, growth, stability, outlook or regulatory environment. Another source of risk is political and social unrest in areas where mining and oil and gas operations take place. In recent years, Peru has experienced protests against mining projects in several regions around the country.
Mining is an important part of the Peruvian economy. According to INEI, the mining and hydrocarbons sector represented 14.4% of GDP (mining 12.2% and hydrocarbons 2.2%) in 2023. The country’s exports are highly concentrated in the mining industry; in 2023, free on board (FOB) exports of metallic mining represented 65.9% of total exports (copper represents around half of mining exports), with tax revenues from the sector representing 7% of total fiscal revenues in 2023.
On several occasions, local communities have opposed these operations and accused them of polluting the environment, specifically rivers, hurting agricultural and other traditional economic activities, as well as complained of not receiving the benefits in terms of growth and wealth generated by the mining projects. For example, in 2021, politicized social unrest in Apurimac surrounded the Las Bambas mining project, which produced approximately 11% of Peru’s total copper production in 2022. Las Bambas’ majority owner, MMG, stated that if the routes to the mine continued to be blocked by different politicized members of communities surrounding the mine and routes to the mine, they would not be able to operate. In April 2022, Las Bambas shut down for 51 days, after protesters from two communities entered the mine and settled inside. The recent social protests of late 2022 and early 2023 have also affected Las Bambas’ operations as road blockages prevented the arrival of key inputs. In another example, on January 12, 2023, Minsur announced the temporary suspension of operations in its San Rafael tin mine, in Peru’s Puno region, as a measure of solidarity with the families of people who died in recent protests in the region. On February 6, 2023, Buenaventura temporarily suspended operations at its Julcani silver mine after protesters entered and destroyed part of the mine’s facilities.
These and other delays or cancellations of mining projects could reduce Peruvian economic growth and business confidence, thereby hurting the financial system both directly (many mining projects are at least partially financed by local financial institutions) and indirectly (overall economic activity could decelerate). Any such effect on the financial system could have a material adverse effect on our business and result of operations.
More recently, violence and crime have become the main concern of Peruvians, according to an October 2023 Ipsos survey, above corruption, unemployment and inflation. In Lima, the capital of Peru, one in three people over the age of 15 has been the victim of a crime in the last year, the highest point in almost seven years. The increase in citizen insecurity not only has a negative impact on victims of crime, but also on households and companies, which are forced to allocate part of their income to prevention measures. Due to the security crisis, the government in September 2023, declared two districts of Metropolitan Lima in a state of emergency to provide for security and social peace. This emergency state ended in January 2024, although the government could adopt this policy again in the future if they deemed it necessary.
Mining was also affected by crime. In December 2023, nine workers were killed and others gravely injured in an attack where men armed with explosives raided and took hostages at a mine belonging to Poderosa, one of Peru’s top gold producers. The government blamed illegal miners and criminal groups.
Altogether, this reduces efficiency in the economy and reduces aggregate productivity. The persistence of these problems represents a source of risk to the economy and, hence, our businesses.
After social unrest erupted in December 2022, Standard & Poor’s (S&P) changed the outlook for Peru’s long-term debt in foreign currency from stable to negative (though kept the credit rating at BBB) due to the challenging relationship between the executive and legislative branches, which limited the government’s ability to timely implement policies. S&P reaffirmed its BBB rating with negative outlook in February 2024. In January 2023, Moody’s changed Peru’s credit rating outlook from stable to negative (though kept the credit rating at Baa1) due to the intensification of social and political risks which threatened, over the next few years, a deterioration of institutional cohesion, governability, policy effectiveness and economic strength through successive governments. Months later, in October 2023, Fitch affirmed the sovereign rating (BBB) and outlook (negative), one year after changing the outlook to negative. The agency stated that the negative outlook reflected continued high level of political uncertainty in Peru and further deterioration of governance that have undermined private investment and are weighing on economic growth prospects.
Our banking and capital market operations in neighboring countries expose us to risk related to political and economic conditions in those countries.
ICBSA, Credicorp Capital Holding Colombia, Credicorp Capital Holding Chile and ASB Bank Corp. expose us to risks related to Bolivian, Colombian, Chilean and Panamanian political and economic conditions, respectively. These economies suffered unprecedented GDP contractions in 2020 due to the COVID-19 pandemic and have experienced an uneven recovery as a result of different policy responses and economic structures. The negative effect of the pandemic on poverty and inequality, combined with inflation rates (driven by high energy and food prices) not seen in these countries in decades, inflamed an already complex social environment characterized by elevated levels of inequality and dissatisfaction with authorities. According to data from the World Bank, Colombia is the second most unequal country in the region, as measured by the Gini index. In general, the higher the Gini index, which measures the rate of social inequality, of a country, the more unequal it is. Brazil has the highest Gini index in the region; Panama has the third highest.
In recent years, neighboring countries in Latin America in which we have banking and capital market operations have experienced widespread social unrest, and several left-wing leaders have been chosen as presidents. For example, in October 2019, Chile experienced massive and violent demonstrations that forced Sebastian Piñera’s government to sign off on a referendum on a new constitution. In late 2021, Gabriel Boric, a 36-year-old left-wing leader, was elected as Chile’s president for a four-year term. After voters rejected the text for a new constitution in September 2022, Chile’s congress approved a new constitutional process, which was again rejected in December 2023. The next presidential elections will take place in November 2025. In 2021, the proposal of an unpopular tax reform triggered its most serious public unrest in recent memory of Colombia. Gustavo Petro, also a left-wing candidate and former member of guerrilla group M-19, won the 2022 general election, making history as the first left-wing president to be elected in the country. He was also elected for a four-year term. His ability to carry out reforms was undermined by corruption scandals, as well as the loss of political majority in Congress. The next presidential elections will be held in May 2026. In 2022, rising living costs sparked large social protests in Panama. More than a year later, in October 2023, massive social protests erupted again after Congress fast-tracked the approval of the renegotiated concession contract between the government and Minera Cobre Panama. Social unrest lasted more than a month until the Supreme Court ruled the contract unconstitutional, a decision celebrated by the population. The next presidential election will be held in May 2024. In Bolivia, Luis Arce, from the left-wing, was elected president for a five-year term in 2020. Between late 2022 and January 2023, protests took place in Santa Cruz, which represents a larger proportion of Bolivia’s GDP than any other Bolivian city. In October 2023, the political party MAS (Movimiento al Socialismo) expelled Luis Arce from the party and prevented him from running in the 2025 national elections.
This political environment has had a general negative effect on economic activity and businesses in countries in which we have operations. Given these developments, we cannot provide any assurance that Peru will not experience any residual effects from events in neighboring countries, such as the possibility of the base of protesters in Peru extending to the middle class, which may have a materially adverse effect on our business and result of operations. Significant changes to Bolivian, Colombian, Chilean and Panamanian political and economic conditions could have an adverse effect on our business, financial condition, and results of operations.
Bolivia
In 2023 most of the economic activity indicators surpassed their pre-pandemic levels. However, some specific events affected the trend of GDP growth observed since 2021, accelerating the slowdown of the economic activity in the country. Initial estimates suggest that GDP growth for 2023 was around 2%. Furthermore, the decline in the prices of key commodities and the reduction in Bolivia’s primary sector’s productive capacity, especially the gas sector, affected the level of exports to the extent that it is estimated that the trade balance will reflect a deficit for 2023, equivalent to 0.5% of GDP.
Bolivia has a fixed exchange rate regime with an official rate of USDBOB 6.96. Since February 2023, the demand for dollars increased which caused the Central Bank to take different measures including the direct sale of dollars to the public by the Central Bank and the reduction of cash reserve requirements of USD-denominated deposits. In addition, to increase the availability of dollars, the monetary authority exchanged around 90% of its holdings of Special Drawing Rights (SDR) with the International Monetary Fund, equivalent to US$400 million, and, with the enactment of Law 1503, which enabled the Central Bank to sell up to 50% of gold reserves, it monetized approximately 17 tons of the gold reserves, resulting in an additional influx of US$1.05 billion. The government also negotiated new external loans with multilateral and bilateral entities, for an aggregate amount of approximately US$1.5 billion. Despite the policies enacted by the Central Bank, banks still needed to establish different types of limits for cash withdrawals in USD and to increase the fees charged for foreign transfers from 2% in February to around 11% in December. Locally, an informal parallel market has surfaced for the sale and purchase of dollars, with the exchange rate oscillating between 8.0 to 8.5 bolivianos per dollar (above to the official price 6.96 BOB/US$). Finally, International Reserves (INR’s) as of December 31st, 2023, were US$1.7 billion, 55% less than as of the end of 2022. In November 2023, S&P cut Bolivia’s sovereign rating from B- to CCC+ with a negative outlook. Fitch followed suit and, in February 2024, lowered the rating by two notches to CCC.
In April 2023, the ASFI intervened Banco Fassil, the third largest bank in Bolivia, due to severe liquidity issues and serious indications of management deficiencies.
For 2024, the government projects GDP to grow at a rate of 3.7%, driven by internal consumption and economic policies that promote macroeconomic stability, and has ruled out a devaluation of the official exchange rate. It should be noted that in April 2024 the World Bank estimated GDP growth in 2024 to stand at 1.4%. In addition, it projects that dollar liquidity will stabilize in 2024 due to higher cash flows from public industries, new external credits and the reduction of imports. Finally, the government expects a fiscal deficit in 2024 of 7.8% of GDP and a stable level of inflation (3.6% by the end of the year). However, the continued possibility of political conflicts and social unrest remains a risk factor that may affect the economic outlook for 2024.
Additionally, the lending quotas and caps on interest rates that were established in the Bolivian Financial Services Law (Ley de Servicios Financieros, No. 393), which was enacted in 2013, and the mandatory deferrals and refinancings schemes instituted in 2020 and 2021 to mitigate the impacts of the COVID-19 pandemic, continued to negatively impact interest margins on banks.
Colombia
According to the Colombian National Statistics Bureau (DANE), the Colombian economy exhibited a GDP growth of just 0.6% in 2023, the lowest (excluding the pandemic) recorded in 25 years. Amidst a generalized downside revision of the previously presented 2023 GDP data, the Colombian economy narrowly avoided a technical recession. On the spending side, the domestic demand declined 3.8% last year, driven by a plummet in investment (-25%) due to elevated inflation, restrictive financial conditions and persistent regulatory uncertainty.
In this context of domestic demand contraction, challenges remain. First, inflation has remained elevated (7.7% year-over-year as of February 2024), reducing consumers’ real income, while the higher corporate taxes resulting from the 2021 and 2022 tax bills and higher political uncertainty cause both private consumption and investment to remain sluggish. In addition, we believe it is not a coincidence that the worst instance of domestic demand since 1999 has occurred amid the highest policy rate since that year. In fact, the ex-ante real rate is currently the highest since data has been available (October 2003). Hence, a significant reduction in interest rates seems to be a necessary condition for an economic recovery, but uncertainty on the monetary policy front remains high amid upside risks to inflation from the El Niño phenomenon and the need to increase fuel prices. Undoubtedly, fiscal accounts remain a factor of never-ending concern; while they were better than expected in 2023, the government is targeting a sharp increase in primary spending of 1.8% of GDP in 2024, and the fiscal income projection heavily relies upon uncertain income sources (namely, legal tax dispute and tax management efficiencies-related revenues for a combined 1.7% of GDP). Accordingly, the Autonomous Committee of the Fiscal Rule has warned that the fiscal rule —the mechanism that establishes a permanent constraint on fiscal policy through a limit on the structural deficit relative to GDP— could be breached in 2024 should spending cuts are not undertaken. That said, the Minister of Finance, Ricardo Bonilla, has reaffirmed the government’s commitment to fiscal rule, suggesting spending cuts if necessary. Finally, we consider that political noise has decreased during the last year as no major government reforms have yet been approved, while the outcome of the October 2023 regional election meant a move of the political pendulum to the center/center-right. However, regulatory uncertainty is set to remain high in 2024 amid the discussion of controversial reforms (i.e., pensions, labor, healthcare) and proposals to change the regulatory schemes of important sectors like energy.
In June 2023 Moody’s affirmed the Government of Colombia’s long-term local and foreign currency issuer rating at Baa2 and noted the that “the stable outlook incorporates Moody’s expectations that institutional arrangements will continue to play a stabilizing role, assuring that policy directives remain within the confines defined by the existing policy settings, particularly on the fiscal front.” Moreover, in December 2023 Fitch affirmed Colombia’s long-term foreign currency issuer rating at BB+ with stable outlook. Fitch noted that “the ratings are constrained by continued fiscal challenges that weigh on prospects for consolidation needed to ensure stable debt/GDP, a particularly high interest burden, high commodity dependence, and structurally large current account deficit.” Lastly, on January 2024, S&P affirmed the foreign currency issuer rating at BB+ but revised the outlook from stable to negative amid subdued economic growth.
Chile
According to the Central Bank of Chile (BCCh), the Chilean economy barely grew 0.2% year-over-year in 2023. The authority has stated that the economy has behaved according to expectations, but with heterogeneous performance among economic sectors. On the demand side, household consumption has recently been showing an incipient recovery, while investment, beyond recent ups and downs, has continued to be sluggish amid weak construction linked to the housing and real estate segment.
According to the Chilean National Statistics Bureau (INE), inflation stood at 3.9% in December 2023. The figure showed a substantial decline compared to a year ago when it stood at 12.8%. As a result, price adjustments have continued to recede amid the resolution of macroeconomic imbalances, including the closing of the output gap, the normalization of aggregate demand after an unsustainable trend between 2021 and 2022 and the fading of cost-related shocks observed in the past few years.
The BCCh has continued with the normalization process of the policy rate, which has accumulated a reduction of 400 basis points between July 2023 and February 2024. Going forward, and according to the most recent monetary policy report, the reference rate is expected to stand between 4% and 6% by year-end, well below the peak of 11.25% seen in the first half of 2023. The reduction in domestic imbalances, the lower inflation and the ongoing monetary policy easing cycle should allow GDP to grow around 2.5% in 2024.
Regarding the fiscal accounts, the latest Public Finances Report showed that in 2023, the fiscal deficit would stand at 2.4% of GDP, while gross debt is forecasted at 39.8% of GDP. In our view, the sustainability of the public finances in the mid-term is one of the most relevant risk factors to consider. Recently, S&P revised Chile’s outlook from stable to negative on weaker political consensus. According to the credit agency, political wrangling has slowed the approval of meaningful policies to boost economic growth and rebuild fiscal resilience. The firm said fiscal accounts are expected to consolidate, but the fiscal profile is vulnerable to shocks, given still moderately low buffers. The negative outlook captures weakening political consensus on critical parameters of Chile’s political and economic agenda, which will weigh on Chile’s capacity to grow and potentially undermine its credit quality over time. Finally, we consider that political noise and uncertainty have significantly decreased after the rejection of the second constitutional plebiscite in December 2023 and the high probability of no new constitutional processes during the remainder of the current administration. In any case, the developments around the pension and tax reforms discussion are factors worth monitoring.
Panama
In 2023, economic activity unexpectedly increased with annual GDP growth of 7.3%. Large infrastructure and investment projects, such as the Panama’s third metro line, a fourth bridge over the canal and the Gatún power plant, boosted growth. On a sector-by-sector basis, construction, commerce, transport, and mining contributed the most to Panama’s economic growth. Additionally, Panama was negatively affected by the weather phenomenon “El Niño”, which caused the worst drought in 70 years and disrupted activities in the Panama Canal. The number of ships that transit the canal decreased 7.4% in 2023 compared to the same period last year, although the authority managed to increase toll revenues by 10%.
Panama’s GDP growth after the 2020 pandemic shock, which caused an unprecedented contraction of 17.7%, has been among the highest in the world. In 2021 and 2022, GDP rebounded 15.8% and 10.8%, respectively. The global economic recovery, big infrastructure projects and copper production from Minera Cobre Panama drove this substantial post-COVID economic recovery.
However, negative events in 2023 are expected to affect the outlook for the coming years. In October, the Congress fast-tracked the approval of the renegotiated concession contract between the government and Minera Panama, a local subsidiary of the Canadian company First Quantum Minerals. This approval caused massive protests – the worst in at least three decades - and road blockages that resulted in shortages of basic goods as large portions of the country were shutdown. The population claimed that the contract was unconstitutional, abusive and harmful to the environment.
It is worth noting that in mid-2022 Panama also experienced massive social unrest, similar to the 2023 episode, sparked by rising living costs (especially higher gasoline prices). The Panamanians claimed, at the time, that high inequality and a greater public perception of corruption in the political arena were the reasons behind their complaints.
On November 3, 2023, to diminish social unrest, President Laurentino Cortizo signed into law an indefinite moratorium on new mining concessions and the prohibition of renewing existing concessions. Despite that decision, protests continued. Days later, on November 28, 2023, Panama’s Supreme Court ruled the contract unconstitutional, to which the population reacted positively. Accordingly, the government ordered a definitive closure of First Quantum’s copper mine. According to the Minister of Industry and Commerce, the orderly process of the closure of a mine of this magnitude could take between seven to eight years.
The importance of the mine to the country was undeniable. Cobre Panamá was the largest private investment project in the country’s history with an amount equivalent to 10% of GDP. It began operations in 2019 and reached maximum capacity in 2021. With a production of 350 thousand tons of copper in 2022 it was among the top 15 copper producing mines in the world. Additionally, according to the National Institute of Statistics and Census (INEC for its acronym), it generated around US$2.8 billion (3.7% of GDP) through copper exports and was an important source of fiscal revenues.
In an already challenging fiscal environment, the closure of the Cobre Panama mine and the moratorium of new mining concessions triggered movements from the main three credit rating agencies in the last quarter of 2023. In September, before these events, Fitch affirmed the BBB- rating but changed the outlook from stable to negative due to persistent fiscal pressures and uncertain prospects for consolidation. The agency added that the government’s expected royalties from the renegotiated concession mining contract appeared increasingly doubtful. In October, Moody’s followed suit and reduced its rating to Baa3 (and changed the outlook to stable). The downgrade reflected the agency’s view about Panama’s lack of effective policy response to structural fiscal challenges that have been rising over time. Moody’s also considered that in a social-political context characterized by heightened tensions Panama’s credit profile will continue to be undermined by persistent pressures. And, in November, S&P revised the outlook to negative (and affirmed the BBB rating) to reflect the risk of a downgrade resulting from the potential fallout of the recent events on investor confidence, private investment and economic growth prospects.
Finally, in March 2024, Fitch downgraded Panama’s credit rating by one notch to BB+ with stable outlook, stripping the country from its investment grade status achieved in 2010. The agency stated that the move reflects fiscal and governance challenges that have been aggravated by the events surrounding closure of Minera Cobre Panama. As such, Moody’s places Panama’s credit rating at the lowest possible rating for a security to be considered investment grade while S&P’s rating is one notch above investment grade.
Panama’s public debt, as a percentage of GDP, peaked at year-end 2020 at 65.0% of GDP, fell to 60.1% at year-end 2021, to 57.9% of GDP at year-end 2022 and reached 55.2% of GDP at the end of 2023. Although public debt has fallen since 2020, the 2023 level still represents an increase of 10 percentage points from the year-end since 2019 rate of 44.5% of GDP.
On the positive side, in October, Panama was removed from the (Financial Action Task Force) grey list, a movement considered key by the International Monetary Fund to preserve Panama’s position as a regional financial center. However, the country is still on the European Union list of non-cooperative jurisdictions for tax purposes.
Finally, the May 2024 presidential elections will add an additional source of uncertainty to the country.
Economic and market conditions in other countries may affect the Peruvian economy and the market price of Peruvian securities.
Peru is a small, open economy highly integrated with the rest of the world and is affected by movements in the external environment (growth of main trade partners, changes in commodity prices and movements in external rates and global financial markets). As such, any major deterioration of the international economy can have materially adverse effects on the Peruvian economy and markets, as well as in our businesses and operational results. According to the Economist Intelligence Unit (EIU), there is a moderate risk that global inflation will re-accelerate in 2024, driven by firm global demand and an upswing in key commodity prices due to supply shortages. That could push central banks to keep tightening well into the year, raising interest rates to levels that would be likely to lead to a much more significant slump in consumer and investment demand.
In 2023, the United States and several large, advanced economies showed a greater than expected resilience and avoided falling into one of the most anticipated recessions by markets. A strong labor market kept consumption spending robust and caused Central Banks to continue raising their monetary policy rates, especially during the first half of the year. In China, although GDP surpassed the government’s target with a 5.2% economic growth, the year was characterized by a confidence and property market crisis which demanded fiscal support.
Inflation continued to moderate in 2023, with overall measures slowing down in most countries. In the United States, for instance, by December 2023, CPI inflation had slowed to 3.3% from its peak of 9.0% in June 2022. Core inflation, which excludes food and energy, stood at 3.9% in December 2023, lowest since April. In the year, inflation slowed due to lower commodity prices (energy and food), reduced pressure on supply chains, restrictive monetary policy and reduction in prices of non-durable and durable goods. However, recent inflation reports have surprised negatively. In January 2024, inflation slowed less than expected, to 3.1% year-over-year in the case of total CPI, and core CPI remained at 3.9% year-over-year as services inflation is stickier than expected. As such, market expectations of the Federal Reserve’s first rate cut, based on fed funds futures, have been pushed back from March to June, and now expect four rate cuts of 25 basis points compared to seven cuts at the end of 2023.
Disinflation and steady growth are expected to continue, which according to the IMF makes the likelihood of a hard landing lower. They forecasted (January 2024 Economic Outlook report) global growth of 3.1% in 2024 and 3.2% in 2025 but commented that the average growth rate of 2024-2025 is below the historical (2000–19) average of 3.8%, with elevated central bank policy rates to fight inflation, a withdrawal of fiscal support amid high debt weighing on economic activity, and low underlying productivity growth.
Even though the outlook looks less gloomy and at the moment risks look more balanced, there are still relevant downside risks to the global economy. According to the IMF’s January World Economic Outlook, these include: i) new commodity price spikes from geopolitical shocks––including continued attacks in the Red Sea–– and supply disruptions or more persistent underlying inflation could prolong tight monetary conditions; ii) deepening property sector woes in China or elsewhere; and iii) a disruptive turn to tax hikes and spending cuts could result in disappointing growth.
An additional source of risk are the presidential elections of the United States (November 5, 2024). Joe Biden, the incumbent, and Donald Trump, former president, are set to face off in the first presidential rematch since 1956, according to CNN.
If a global recession materializes it could affect Peru’s economic growth mainly through i) lower commodity prices and ii) lower external demand. The country’s exports are highly concentrated in the mining industry, where copper and gold exports’ share of total exports was around 50% in 2023. In addition, an important source of fiscal revenue comes from mining (7.1% in 2023). Therefore, Peruvian trade responds significantly to fluctuations in metal prices, especially copper. In 2023, Peru’s trade surplus increased to a record of US$17.4 billion from US$10.3 billion in 2022, due to a drop of 10.8% in imports, an increase of 1.5% in exports and positive terms of trade. The average copper price for 2023 was US$3.85 per pound, 4% lower than the average of US$3.99 per pound in 2022, while oil prices fell 18% over the same period (to US$77.6 per barrel). In addition to changes in prices, Peru is also vulnerable to fluctuations in foreign demand, especially from China and the United States, Peru’s main trading partners. The European Union is also an important buyer of Peruvian goods, especially of non-traditional ones. As such, lower than expected growth from these countries would pose risks to Peru’s economic growth as such may impact exports and foreign direct investment.
For further detail please refer to “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A Operating Results – (2) Political and Macroeconomic Environment.”
Likewise, a reduction of growth in Latin America can also impact the Peruvian economy and our business, especially regarding Chile, Colombia, Bolivia and Panama, where we have operations, as well as Brazil and Mexico, which have a broad impact throughout the region because of their size.
Furthermore, financial conditions in global markets also affect the Peruvian economy, affecting interest rates for local corporate bonds and influencing the exchange rate. Monetary policy tightening in developed economies, particularly by the Federal Reserve in the United States, could adversely affect economic activity in Peru because it strengthens the US Dollar and increases interest rates, thereby reducing access to funding for some local businesses. Also, because the Peruvian economy has a portion of loans denominated in US Dollars (23.3% of loans to the private sector and 34.1% of deposits as of December 2023), which is referred to as financial dollarization, potential financial balance sheet position effects should be considered because a higher exchange rate could increase debt burdens for individuals and businesses that have taken loans in dollars but earn their income in local currency.
Geopolitical tensions and conflict, including the conflicts between Russia and Ukraine, and between Israel and Palestine, could have economic effects that negatively impact the Peruvian economy.
We are subject to geopolitical risks, including economic sanctions, acts or threats of international or domestic terrorism, actions taken by governments in response, state-sponsored cyberattacks or campaigns, civil unrest and/or military conflicts, which could adversely affect business and economic conditions abroad and in the markets in which we operate. For example, geopolitical tensions intensified as Russia invaded Ukraine on February 24, 2022, and NATO backed Ukraine with various forms of support short of direct intervention. The war between these two countries and its effect on supply caused commodity prices to spike during the first half of 2022, especially for commodities for which Russia and Ukraine had an important share of global production like crude oil, natural gas, wheat, and fertilizers. The conflict triggered a commodity rally, with the price of West Texas Intermediate (WTI), a crude oil benchmark used as a reference price in the United States, reaching almost US$124 per barrel (its highest level since 2008), while the prices of natural gas, wheat, copper, aluminum and palladium reached historic highs. These price increases exacerbated the inflation shock that the world was already experiencing.
The war is not over yet, as the Russian invasion enters its third year, and actions are still being taken and/or considered against Russia. These measures could have global repercussions and remain an important risk in 2024. For instance, since December 2023, there is a new restriction that applies to European Union exporters and contractually prohibits re-exportation to Russia and re-exportation for use in Russia of a limited number of goods when selling, supplying, transferring or exporting to a third country, with the exception of partner countries. This measure adds to the massive and unprecedented sanctions against Russia. As of February 2024, Ukraine and Russia are still exchanging air attacks. Any escalation of the conflict may exacerbate economic issues already arising from it. According to the European Commission, since the end of 2022, there have been in place price caps from the European Union on Russian petroleum products (such as diesel and fuel oil) to limit their revenues and hamper Russia’s ability to wage war in Ukraine.
A scenario where the war escalates and these prices increase significantly, as in the first half of 2022, would inflict a negative shock on real disposable income and make agricultural products and basic products more expensive, along with higher transportation costs due to higher oil prices. Emerging economies with high levels of poverty remain particularly vulnerable to this shock which could fuel new waves of social unrest.
In addition, the escalation of this conflict may have an adverse impact on the economy of Peru, where we conduct most of our business, despite Russia and Ukraine representing approximately 3.2% of global GDP (as adjusted for purchasing power parity). In the worst case, it could renew inflationary pressures globally and cause central banks to keep their restrictive monetary policy stance for a prolonged period.
Additionally, the Israel-Hamas armed conflict that erupted in October 2023 has developed into a humanitarian crisis in the Gaza strip and has caused widespread global protests calling for cease fire. Much of the western countries, such as the United States, United Kingdom and Germany have supported Israel, while the Islamic world has condemned Israel’s response. In response to the support offered by the United States to Israel, according to the Pentagon, Iranian-backed militants have launched 61 attacks on bases and facilities housing United States personnel in Iraq and Syria since October 17, 2023. Further, in February 2024, the Yemen Houthi movement attacked civilian commercial ships in the Red Sea, which they argued were tied to Israel. As such, an escalation of this armed conflict to other countries in the middle east, where large oil producers are located, could increase energy prices, representing an important risk to inflation and financial markets.
Another geopolitical risk is related to tensions in the relationship between China and United States. Throughout 2018 and 2019, there was a trade dispute between both countries that included the imposition of tariffs on both U.S. and Chinese products on several occasions, denouncements regarding currency manipulation and actions filed with the World Trade Organization, among others, which negatively affected global demand and commodity prices. In 2023, political tensions escalated after the United States shot down a suspected Chinese surveillance balloon and U.S. Representative Nancy Pelosi, the former speaker of the House, visited Taiwan, which China claims as part of its territory. In 2024, an electoral year in the United States, a change to a Democrat-led administration could renew the trade dispute with negative repercussions on the global economy.
China and Taiwan tensions have surged at the beginning of 2024, as the former has intensified patrols around a group of islands controlled by the latter. The move comes in the aftermath of the death of two Chinese fishermen who drowned during a pursuit by Taiwan’s coast guard. The importance of Taiwan in the world’s electronic market (phones, electric cars, and others) is high as Taiwan Semiconductor Manufacturing Company ranks among the most prominent names in the semiconductor global industry. An increase in tensions between both countries could renew price pressures in the semiconductor market, with negative effects on inflation, like the ones observed in 2022.
Legal and Regulatory Risks
Regulatory changes and the adoption of new international guidelines to sectors in which we operate could adversely affect our earnings and our operating performance.
Because we are subject to regulation and supervision in Peru, Bolivia, Colombia, Chile, Cayman Islands, the United States of America, Panama, Bermuda, Spain, changes to the regulatory framework in any of these countries or changes in tax laws could adversely affect our business.
Financial Services Activities
We are, most directly, subject to extensive supervision and regulation through the Peruvian Banking and Insurance Law and the Peruvian Consolidated Supervision of Financial and Mixed Conglomerates Regulation.
The SBS and the BCRP supervise and regulate BCP Stand-alone and Mibanco’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, including private pension funds and insurance companies. The SBS and the BCRP have general administrative responsibilities over BCP Stand-alone and Mibanco, including setting their capital and reserve requirements. In past years, the BCRP 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 BCRP. Such changes in the supervision and regulation of BCP Stand-alone and Mibanco may adversely affect our results of operations and financial condition. See “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (6) Supervision and Regulation – 6.2 Subsidiaries – 6.2.1 Peru” for additional information regarding the regulation of BCP Stand-alone and Mibanco by the SBS and the BCRP.
Furthermore, changes in regulation related to consumer protection made by these agencies may also affect our business. In March 2021, a new interest rate ceiling law was approved under the Peruvian Usury Law. This law grants the BCRP the power to set maximum and minimum interest rates, on a semi- annual basis, to regulate the market for consumer loans, small consumer loans, small and medium enterprises (SMEs) loans and credit card loans. Additionally, the Peruvian Usury Law states that if a debtor is late in payment, only default interest will be charged. The collection of penalties or other commissions or expenses from debtors, as well as the capitalization of interest, is prohibited. The Peruvian Usury Law also establishes that (i) the commissions and expenses applicable to consumer loans, small consumer loans, small and medium enterprises loans and credit card loans must imply the provision of an additional and/or complementary service to the transaction entered into by the clients; (ii) the financial institution must justify the transfer of the cost to the client; and (iii) the value of the service must be supported by a technical, economic and legal report, which must be submitted to the SBS.
The Superintendence of the Securities Market of Peru (Superintendencia del Mercado de Valores or SMV by its Spanish initials) also supervises certain of our subsidiaries, such as BCP Consolidated, Credicorp Capital Sociedad Agente de Bolsa (Credicorp Capital Bolsa), Credicorp Capital Sociedad Administradora de Fondos (Credicorp Capital Fondos), Credicorp Capital Peru S.A.A. (Credicorp Capital Peru) and Credicorp Capital Sociedad Titulizadora S.A. (Credicorp Capital Titulizadora). Additionally, some of our subsidiaries are under the supervision of the Peruvian Financial Intelligence Unit (Unidad de Inteligencia Financiera del Peru or UIF-Peru by its Spanish initials), and all of our subsidiaries that operate in Peru must comply with the provisions regulated by the Peruvian Consumer Protection Authority (Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual or INDECOPI by its Spanish initials) and the Peruvian Data Privacy Authority (Autoridad Nacional de Protección de Datos Personales or ANPDP by its Spanish initials).
We are also regulated by other governmental entities in other jurisdictions. In Colombia, we are subject to supervision and regulation through the Unit of Financial Regulation (Unidad de Proyección Normativa y Estudios de Regulación Financiera or URF by its Spanish initials), the Financial Superintendence of Colombia (Superintendencia Financiera de Colombia or SFC by its Spanish initials) and the Colombian Stock Market Self Regulator (Autorregulador del Mercado de Valores de Colombia or AMV by its Spanish initials). In Chile, we are subject to supervision and regulation through the Financial Markets Commission of Chile (Comisión para el Mercado Financiero or CMF by its Spanish initials). See “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (6) Supervision and Regulation – 6.2 Subsidiaries – 6.2.4. Colombia and 6.2.5 Chile”.
In Bolivia, we are subject to the supervision of the Bolivian Financial Authority (Autoridad de Supervisión del Sistema Financiero or ASFI by its Spanish initials) and of the Bolivian Pensions and Insurance Authority (Autoridad de Fiscalización y Control de Pensiones y Seguros or APS by its Spanish initials).
BCP Miami is regulated, supervised and examined by the Florida Office of Financial Regulation (OFR) and by the Board of Governors of the U.S. Federal Reserve System (FED). Our direct and indirect nonbanking subsidiaries doing business in the United States are also subject to the authority of relevant U.S. financial regulatory agencies depending on their U.S. activities.
Further, Credicorp Capital LLC., our U.S. broker-dealer, is regulated, supervised and examined by the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority, Inc. (FINRA). Additionally, Credicorp Capital Advisors LLC., our U.S. financial advisor, is also regulated by the SEC.
In the Cayman Islands, we are subject to the regulation of the Cayman Islands Companies Law for ASHC. Effective August 2, 2021, Atlantic Security Bank (Cayman Islands) and ASB Bank Corp. (Panama) merged, with the latter being the surviving entity. ASB Bank Corp. is supervised by its principal regulators, the Superintendence of Banks of Panama (Superintendencia de Bancos de Panama or SBP by its Spanish initials) and, with respect to activities relating to its securities investment business, the Superintendency of the Securities Market of the Republic of Panama (Superintendencia del Mercado de Valores de Panama or Panama SMV by its Spanish initials).
Changes in the supervision and regulation of our subsidiaries in other countries may adversely affect our results of operations and financial condition.
For details on income tax review by the tax authorities on the jurisdictions in which we operate, please refer to Note 19(a) and (d) of the consolidated financial statements. Also, for further information refer to “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (6) Supervision and Regulation – 6.2 Subsidiaries”.
Insurance
Our Property and Casualty (P&C) and Life insurance business is carried out by Pacífico Seguros, which is part of Grupo Pacífico. The insurance business is subject to regulation by the SBS. New legislation or regulations may adversely affect Grupo Pacífico’s ability to underwrite and price risks accurately, which in turn would affect underwriting results and business profitability. Grupo Pacífico is unable to predict whether and to what extent new laws and regulations that may affect its business will be adopted in the future.
While Grupo Pacífico is unable to predict with any certainty the timing of the passage or adoption of any new laws or regulations, or the effects those laws or regulations may have on its operations, profitability and financial condition in future years, we expect Peru to adopt new legislation in the coming years that will change the regulation of insurance companies. The legislation may be similar to the measure enacted by the European Union through Solvency II, a regulatory capital framework that seeks to further reduce the insolvency risk faced by insurance companies in the European Union by improving the regulation regarding the amount of capital that insurance companies there must hold.
The Peruvian regulator has been working on the implementation of the risk-based capital model, which seeks to guarantee that insurance companies maintain the necessary capital to face the risks inherent to their activity in the face of possible stress scenarios (similar to Solvency II). It is expected that this model will come into force before the year 2028. In the first quantitative exercise that was carried out, the results for the company showed that Pacífico Seguros had capital in excess of what would be required.
Pension fund
In recent years, the Peruvian government has approved various reforms to the pension system, affecting the funds under management and, as a result, our business operations and results:
In 2012, the Peruvian government passed a law to reform the Peruvian Private Pension System (PPS), which attempted to expand coverage for affiliates, encourage market competition, and decrease administration fees in the PPS.
In 2016, Peru’s congress approved a reform that allows affiliates to withdraw up to 95.5% of their pension funds when they reach the retirement age (65 years) and unemployment early retirement age (50 and 55 years for women and men, respectively).
In 2019, to reinforce this reform and cushion the level of early withdrawals, the government approved new strict restrictions for this retirement alternative for those affiliates who qualify for early retirement. Although this can help to mitigate the risk that a massive number of affiliates request early withdrawals and so reduce the impact of early retirement on funds under management, the risk of retirement of funds remains.
In March and April 2020, in response to the COVID-19 crisis, the Peruvian government and Congress took measures to provide liquidity to affiliates by allowing them to draw down their funds. Later, Congress approved other three withdrawals in November 2020, May 2021, and May 2022, respectively. These measures had an impact on funds under management and on income in the AFPs’ system. In the case of Prima, total fund withdrawals amounted to S/25.4 billion.
In August 2021, Congress approved and published a law that reduced the age for men to access early retirement from 55 to 50.
In January 2023, the government approved and published Law No. 31670, which sets a new option for retirement based on a minimum pension and creates incentives to increase voluntary contributions. In June 2023, the SBS modified the methodology to calculate the legal reserve requirement. The new methodology assigns a fixed percentage (based on the level of risk of each fund) of the assets under management of each fund as the legal reserve requirement.
See “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (6) Supervision and Regulation – 6.2 Subsidiaries – 6.2.1 Peru”.
Taxation
Changes in U.S. laws or regulations applicable to our business, such as the U.S. Foreign Account Tax Compliance Act (FATCA), the National Defense Authorization Act (NDAA) and the Anti-Money Laundering Act of 2020 (AMLA 2020) regulations, as well as other international regulations such as the Organization for Economic Co-operation and Development’s (OECD’s) Common Reporting Standards (CRS), may have an adverse effect on our financial and operational performance by significantly increasing our compliance obligations.
For a discussion of Peruvian, Chilean, and Colombian tax regulation, see “ITEM 10. ADDITIONAL INFORMATION – 10.E Taxation”.
Credicorp, as a Bermuda tax-exempted company, may be adversely affected by any change in Bermuda law or regulation.
Pursuant to the Economic Substance Act 2018 (as amended) of Bermuda (the “ES Act”), which came into force on January 1, 2019, a registered entity, other than an entity which is resident for tax purposes in certain jurisdictions outside Bermuda (that is, a non-resident entity), that carries on as a business with any one or more of the “relevant activities” referred to in the ES Act is considered to be in the scope of economic substance requirements to ensure that the entity is engaged in real economic activity in Bermuda and must comply with those requirements. The ES Act may require in-scope Bermuda-registered entities that are engaged in such “relevant activities” to be directed and managed in Bermuda, have an adequate level of qualified employees in Bermuda, incur an adequate level of annual expenditures in Bermuda, maintain physical offices and premises in Bermuda or perform core income-generating activities in Bermuda. “Relevant activities” under the ES Act include the following: banking, insurance, fund management, financing, leasing, headquarters, shipping, distribution and service center, intellectual property and holding entities. Based on the current guidance issued pursuant to the ES Act, which was revised at the beginning of 2023, the Bermuda Registrar of Companies will consider “relevant activities” to be carried on as a business by an entity and so view that entity as within the scope of the ES Act, whether or not the entity earns any gross revenue in respect of such activity during the relevant financial period.
Both Credicorp Ltd. and Credicorp Capital Ltd. are Bermuda tax-exempted companies, so the ES Act applies to them. Both companies are also considered “pure equity holding”, entities under the ES Act. All entities subject to the ES Act that undertake “relevant activities”, including all “pure equity holding” entities, must file annually with the Registrar of Companies an Economic Substance Declaration (the “ESD”), providing information in relation to the previous financial year (relevant financial period). The ESD will require the disclosure of certain key information applicable to an analysis of economic substance requirements. Pure equity holding entities are currently subject to reduced economic substance requirements, including the requirement to have adequate people for holding and managing equity participations, and adequate premises in Bermuda. An entity conducting the relevant activity of having a headquarters in Bermuda which generates gross revenue is required to satisfy the requirements under the ES Act in respect of that activity for that relevant financial period. However, an entity that earns no gross revenue in respect of such activity in any relevant financial period will not be required to satisfy the requirements under the ES Act in respect of that activity for that relevant financial period.
The Registrar of Companies is responsible for monitoring and enforcing the economic substance regime. The ES Act provides for civil penalties, subject to rights of appeal, of up to US$250,000 for non-compliance with the applicable economic substance requirements. If, after the applicable civil penalties have been exhausted, an entity continues to fail to comply, the Registrar of Companies may apply for a petition to the Supreme Court of Bermuda for an order for such terms as it thinks fit. This may include an order to strike the entity off the Register of Companies. The ES Act also criminalized knowingly providing false declaration information to the Registrar of Companies, which is punishable by penalties of up to US$10,000, imprisonment for two years or both.
Other offshore jurisdictions released similar legislation that affects some of our offshore entities (including ASHC in the Cayman Islands). This other legislation imposes similar requirements and penalties.
Further, on December 27, 2023, Bermuda enacted the Corporate Income Tax Act 2023 (the “CIT Act”). Bermuda constituent entities of multi-national groups are subject to tax under the CIT Act. A multi-national group is defined under the CIT Act as a group with entities in more than one jurisdiction with consolidated revenues of at least EUR750 million for two of the four previous fiscal years. If Bermuda constituent entities of a multi-national group are subject to tax under the CIT Act, such tax is charged at a rate of 15% of the net taxable income for each fiscal year. The net taxable income is determined by adding taxable income and subtracting taxable losses. Taxable income is equivalent to the financial accounting net income determined for the fiscal year, removing, among other items, dividends or other distributions received or accrued (with the exception of short-term portfolio shareholding and ownership interest in an investment entity that meets certain specific criteria). Taxation under the CIT Act will not begin until tax years starting on or after January 1, 2025. In addition, the CIT Act provides transition rules including, going forward, carryforward tax losses incurred in the five fiscal years preceding the effective date or increases in the tax basis of assets and liabilities. The CIT Act also provides relief from double taxation a via foreign tax credit based on the adjusted amount of foreign taxes accrued by the group. [We do not expect the CIT Act to have a material adverse effect on our results of operations going forward but will continue to assess as additional clarification becomes available].
It may be difficult to serve process on or enforce judgments against us or our principals residing outside of the United States or to assert claims against our officers or Directors.
A significant majority of our Directors and officers live outside the United States (principally in Peru). Most of our assets and those of our principal subsidiaries 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 initiate a civil suit under the United States securities laws in United States courts. We have also been advised by our Peruvian counsel that judgments or decisions obtained under the United States federal securities laws may not be recognized and enforceable in Peru unless certain requirements under Peruvian law for so-called exequatur proceedings, including as to jurisdiction, due process and consistency with Peruvian law, are deemed to have been satisfied. Similarly, our Bermuda counsel have advised us that courts in Bermuda may not enforce judgments obtained in other jurisdictions, or entertain actions in Bermuda, against us or our Directors or officers under the securities laws of those jurisdictions. In addition, judgments of United States courts obtained in actions under the United States federal securities laws may not be enforceable in other non-U.S. jurisdictions in which we or our principals operate or have assets.
In addition, our Bye-laws contain a broad waiver by our 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 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 willful negligence, willful default, fraud or dishonesty on the part of the officer or Director. As a result, it may be more difficult for our minority shareholders to assert claims against us or our Directors and officers, as compared to the shareholders of a U.S. company.
Industry and Market Risks
We operate in a competitive environment that may limit our potential to grow and may put pressure on our margins and reduce our profitability.
BCP Stand-alone and Mibanco have experienced increased competition, including increased pressure on margins. This is primarily a result of the following:
| • | Highly liquid foreign-owned commercial banks and microfinance institutions in the market; |
| • | Local and foreign financial services, wealth management and capital markets institutions, with substantial capital, technology and marketing resources; and |
| • | Local pension funds that lend to BCP Stand-alone’s corporate customers through securities issuances. |
Larger Peruvian companies have gained access to new sources of capital through local and international capital markets, and BCP Stand-alone’s existing and new competitors, including non-banking institutions such as fintech companies, have increasingly made inroads into the higher margin, middle market and retail banking sectors. Such increased competition has affected BCP Stand-alone’s loan growth as well as reduced the average interest rates that BCP Stand-alone can charge its customers.
Competitors may also dedicate greater resources to, and be more successful in, the development of technologically advanced products and services that may compete directly with BCP Stand-alone’s and Mibanco’s products and services. Such competition could adversely affect the acceptance of BCP Stand-alone’s and Mibanco’s products and/or lead to adverse changes in the spending and saving habits of BCP Stand-alone’s and Mibanco’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 Stand-alone and Mibanco, BCP Stand-alone’s and Mibanco’s products and services may be unable to compete successfully. BCP Stand-alone and Mibanco may not be able to maintain their respective market shares if they are not able to match their competitors’ loan pricing or keep pace with their development of new products and services. Even if BCP Stand-alone’s and Mibanco’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 Stand-alone and Mibanco because of their greater financial resources, higher sales and marketing capacity or other similar factors.
We also face increasing competition from non-banking competitors in markets for some of our products and services. These non-banking competitors, including fintech and startup companies and other technology companies, have emerged in recent years as digitalization has played a larger role, and these competitors may adversely affect our results of operations. Some of these competitors operate under different or reduced levels of regulation in comparison to the regular banking supervision that applies to BCP Stand-alone and Mibanco. Therefore, these non-banking competitors are not subject to the same specific solvency or liquidity requirements as banks.
As a result of Peru’s stable economic growth, some international banks and microfinance institutions have sought and obtained authorization to open representative offices in Peru. With the increased competition, more individuals will have access to credit, and the percentage of the population using banking services will likely climb. This also will eventually put downward pressure on interest rates. Any negative impact on BCP Stand-alone and Mibanco resulting from increased competition could have a material adverse effect on our results of operations and financial condition. For further detail about the competitive market in our LoBs, see “ITEM 4. INFORMATION ON THE COMPANY – 4.B. Business Overview – (5) Competition”.
Our business and results of operations could be negatively impacted by a pandemic virus outbreak or other public health crises beyond our control.
In March 2020, the World Health Organization (WHO) declared the COVID-19 outbreak a pandemic. This extremely rare event, the likes of which had not been seen in over 100 years, forced governments around the world to take important measures to mitigate the contagion, such as the closure of international borders, severe mobilization restrictions and lockdowns. As a result, global gross domestic product (GDP) contracted sharply in 2020 (lowest since the Great Depression of 1929), and the economies in which Credicorp operates (mainly Peru, Bolivia, Colombia, Chile and Panama) were severely affected by two factors: (i) the effect on the global economy (such as the economic growth of our main trade partners like China and the United States, as well as lower commodity prices, mainly metals and oil), during the first half of 2020 (at the worst of the crisis, WTI oil and copper prices has fallen around approximately 80% and copper 25%, respectively); and (ii) the local effect of government measures to stop the COVID-19 outbreak, such as quarantines, forced economic shutdowns and populist initiatives. In 2020, GDP fell 10.9% in Peru, 6.1% in Chile, 7.2% in Colombia, 8.7% in Bolivia and 17.7% in Panama.
Major disruptions for exchange rates and global capital flows were triggered by the pandemic. The value of emerging markets currencies against the US dollar, including those from Latin America, dropped substantially. The Brazilian Real (BRL), Mexican Peso (MXN), Colombian Peso (COP) and Chilean Peso (CLP) all reached historic highs (lower value) at the beginning of the pandemic. In 2022, COP and CLP, depreciated to new highs against the US dollar due to idiosyncratic problems. In October 2021, the Peruvian Sol weakened to its highest level against the US dollar due to the political instability caused by Castillo’s government.
To mitigate the negative effects of the pandemic on health and economic outcomes, governments around the globe took drastic fiscal measures that consisted of additional spending or forgone revenue, including direct transfers and tax relief measures, and provided liquidity support, through loans and government guarantees (like the “Reactiva Program” in Peru). Central banks delivered massive monetary stimuli by reducing policy rates to the zero lower bound in most developed and emerging economies and announcing quantitative easing programs to purchase sovereign and corporate bonds. Furthermore, in Chile and Peru, early withdrawals from pension funds were approved as a source of relief for households.
These measures, however, came with a cost. Lower economic growth and higher spending weakened debt metrics significantly and caused credit rating agencies (CRAs) to issue many sovereign downgrades. According to Kramer (2021), between January 2020 and March 2021, three CRAs issued a total of 99 sovereign rating downgrades on 48 countries, affecting 35% of their rated sovereign portfolio1. In the Latin American region, for instance, coupled with political instability, between 2020 and 2022, Chile’s sovereign credit rating was downgraded by one notch by Fitch and S&P to A- and A, respectively; Colombia lost its investment grade rating from Fitch and S&P; Peru and Panama suffered downgrades from the three agencies and are now two and one notch above investment grade (lowest possible rating for a security to be considered investment grade), respectively, when we consider the lowest rating of the three CRAs.
1 Tran, Y., Vu, H., Klusak, P., Kramer, M. & Hoang, T. (2021, July). Sovereign credit ratings during the COVID-19 pandemic. Bennett Institute for Public Policy, University of Cambridge, England.
Additionally, large fiscal stimulus programs and expansive monetary policies worldwide were also behind the worst inflation shock in four decades experienced post COVID-19.
A different pandemic outbreak (whether like COVID-19 or of a more deadly pathogen), would bring risks to the global economy and to Peru’s economy and our operations. A new pandemic could again deteriorate fiscal metrics and reduce economic outcomes. Hence, it would put new downward pressure on credit ratings. Actions taken by governmental authorities and other third parties in response to this risk may negatively impact our business, results of operations and financial condition. In general, some of the main economic indicators affected due to a pandemic include exchange rates, interest rates, credit spreads, commodity prices, GDP and sovereign government debt.
Another pandemic outbreak or other international public health crisis may adversely affect the credit risk of Credicorp’s loan portfolio. Resulting temporary closures, mobility restrictions, increases in unemployment rates and insufficient liquidity could negatively affect our business volume and the portfolio quality of our credit and investment portfolios.
Additionally, our insurance business may be adversely affected due to the possible increase in the level of claims, mainly in the life and health segments.
Regarding our pension fund business, possible government measures or pension reforms may lead to higher demand for early redemptions from clients, which could impact our revenues through a reduction in the management fees.
Prolonged economic stress and market disruptions may generate pressure on our liquidity management and lead to increased volatility in financial markets, such as disruption in fixed and equity income global markets (resulting in the fall of stock prices, including the price of Credicorp). Moreover, the increase in liquidity risk may result in limited and/or costly access to financing sources, an inability to access capital markets, an increase in draws of outstanding credit lines and a change in the expected level of cash inflow as consequences of large-scale changes to loan interest rates or other terms.
In terms of non-financial risks, the contagion of a disease may affect our ability to continue operating. Additionally, the possibility of lockdowns may cause some of our suppliers to stop providing us with services for business continuity.
Our financial statements, particularly our interest-earning assets and interest-bearing liabilities, could be exposed to fluctuations in interest rates, foreign currency exchange rates and exchange controls, which may adversely affect our financial condition and results of operations.
The interest income we earn on our interest-earning assets and the interest expense we pay on our interest-bearing liabilities could be affected by changes in domestic and international market interest rates, which are sensitive to many factors beyond our control, including monetary policies and domestic and international economic and political conditions.
We have implemented several policies to manage our interest rate risk exposure and seek proactively to update our interest rate risk profile to minimize losses and optimize net revenues; however, sudden and/or significant volatility in market interest rates could have a material adverse effect on our financial condition and results of operations. For further information, see “ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT – Sensitivity to Changes in Interest Rates.”
Since January 1, 2014, the functional currency of our financial statements has been the Sol; however, the Group’s subsidiaries generate revenues in Soles, US Dollars, Bolivian Bolivianos, Colombian Pesos and Chilean Pesos. As a consequence, the fluctuation of our functional currency against other currencies, or any exchange controls implemented in the countries in which we operate, could have an adverse impact on our financial condition and results of operations.
Except in specific circumstances, the Peruvian government generally does not impose restrictions on companies’ ability to transfer Soles, US Dollars or other currencies from Peru to other countries, or to convert Peruvian currency into other currencies. Nevertheless, Peru has implemented restrictive exchange controls in its history, and the Peruvian government might, in the future, consider it necessary to implement restrictions on such transfers, payments or conversions. For further information, see “ITEM 10. ADDITIONAL INFORMATION – 10.D Exchange Controls”.
We also face foreign exchange risk on credit that we extend through our banking business, which is primarily conducted through BCP Stand-alone. To address this risk, BCP Stand-alone identifies borrowers that may not meet their debt obligations due to currency mismatches by performing sensitivity analyses of the credit ratings of companies and the debt-service capacities of individuals. Then, we classify borrowers according to their level of foreign exchange credit risk exposure. We monitor these clients, and, on an ongoing basis, we revise our risk policies for underwriting loans and managing our portfolio of foreign currency-denominated loans. However, these policies may not sufficiently address our foreign exchange risk, resulting in adverse effects on our financial condition and results of operations.
We have taken steps to manage the gap between our foreign currency-denominated assets and liabilities in several ways, including closely matching their volumes and maturities. Nevertheless, a sudden and significant depreciation of the Sol could have a material adverse effect on our financial condition and results of operations. For further information, see “ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT – Foreign Currency Exchange Rate Risk”.
Liquidity risks are inherent in our business activities.
Liquidity risk is the risk of being unable to meet funding obligations as they come due, to capitalize on growth opportunities as they arise or to pay dividends without incurring unacceptable losses, costs or risks. This risk is inherent in any retail and commercial banking business and can be heightened by a number of factors, such as over-reliance on a particular source of funding, changes in credit ratings or market-wide phenomena such as market dislocation. The Group’s liquidity arises primarily from customer deposits, principal and interest payments on loans and investment securities, net cash flow from operating activities and other sources. We must maintain sufficient funds to respond to the needs of depositors and borrowers.
Our liquidity, business activities and profitability may be adversely affected by an inability to access the debt capital markets or to sell assets during periods of market-wide or firm-specific liquidity constraints.
Our ability to borrow on a secured or unsecured basis, and the cost of doing so, can be affected by increases in interest rates or credit spreads, a downturn in the geographic markets in which our loans are concentrated, the availability of credit, regulatory requirements relating to liquidity or the market perceptions of risk relating to us, certain of our counterparties or the banking sector or the financial services sector as a whole, including our perceived or actual creditworthiness, as well as other factors that may be outside our control. An inability to obtain financing in the unsecured long-term or short-term debt capital markets, or to access the secured lending markets, could have a substantial adverse effect on our liquidity. In challenging credit markets, our funding costs may increase, or we may be unable to raise funds to support or expand our businesses, adversely affecting our results of operations.
If we are unable to raise needed funds in the capital markets (including through offerings of equity, regulatory capital securities and other debt), we may need to liquidate unencumbered assets to meet our liabilities. In a time of reduced liquidity, we may be unable to sell some of our assets, or we may need to sell assets at depressed prices, which in either case could adversely affect our results of operations and financial condition.
The Group relies significantly on its deposits for funding.
The Group benefits from short-term funding sources, including primarily demand deposits, securities lending and time deposits. The Group’s ability to generate deposits depends on its reputation, customer service and competitive pricing. Our access to deposits may also be affected by the liquidity needs of our depositors, particularly in an inflationary environment where they may be compelled to withdraw deposits in order to cover rising expenses. As a part of our liquidity management, we must ensure we can respond effectively to potential volatility in our customers’ deposit balances.
Although we have been able to replace maturing or withdrawn deposits and advances historically as necessary, we might not be able to replace such funds in the future, especially if a large number of our depositors, or depositors with high deposit balances, sought to empty their accounts in a short period of time. We could encounter difficulty facing a significant deposit outflow, which could negatively affect our profitability or reputation. In circumstances in which our ability to generate needed liquidity is impaired, we may need access to non-core funding, such as borrowings from the BCRP, and other emergency sources. While we maintain access to these non-core funding sources, some sources are dependent on the availability of collateral and the counterparty’s willingness and ability to lend. Any long-term decline in deposit funding would adversely affect our liquidity, and we may not be able to manage the risk of deposit volatility effectively.
Our investments measured at fair value through profit or loss and fair value through other comprehensive income expose us to market price volatility, liquidity declines and fluctuations in foreign currency exchange rates, which may result in losses that could adversely affect our business, financial condition and operating results. In addition, our investments measured at amortized cost may expose us to market price volatility and liquidity shortcomings if sales of those investments become required for liquidity purposes.
Price, liquidity and foreign exchange risks are inherent in the Group’s securities. Our investments at fair value through profit or loss may lead to gains or losses when sold or marked to market. Our investments at fair value through other comprehensive income may require us to record unrealized gains or losses through other comprehensive income when those investments are marked to market and in realized gains or losses when sold. Both types of investments measured at fair value may fluctuate from period to period due to numerous factors that are beyond our control, such as foreign currency exchange rates, interest rate levels, counterparty credit, risks and general market volatility. Losses from trading activities and realized or unrealized losses could have an adverse effect on our business, financial condition and operating results.
Our investments measured at amortized cost may lead to gains or losses when sold due to liquidity requirements. These gains or losses occur due to numerous factors that are beyond our control, including interest rate levels, counterparties’ credit risk and general market volatility.
Business Performance Risks
A deterioration in the quality of our loan portfolio may adversely affect our results of operations.
Given that a significant percentage of our income is related to lending activities, a significant deterioration of loan quality would have a material adverse effect on our business, financial condition and results of operations. We are subject to concentration default risks in our loan portfolio. Problems with one or more of our largest borrowers may adversely affect our financial condition and results of operations. While loan portfolio risk associated with lending to certain economic sectors or clients in certain market segments can be mitigated through adequate diversification, our pursuit of opportunities in which we can charge higher interest rates, and thereby increase revenue, may have an impact on the profile of loan portfolio and risk exposure.
In addition, loan concentration in commercial sectors is particularly salient in Peru, and any significant deterioration in such sectors may have a material adverse effect on our business, financial condition and results of operations. For additional detail on the composition of our loan portfolio, see “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (7) Selected Statistical Information – 7.3 Loan portfolio and – 7.3.3 Concentrations of loan portfolio and lending limits”. Our current strategy includes increasing our exposure to market segments with heightened credit risk, including middle-market and consumer segments, such as unsecured small companies, and consumer loans and consumer mortgages, which have higher risk profiles compared to loans to large corporate customers. Given the changing composition of our loan portfolio and the possible adverse changes in the environment in which we operate, our future results may differ significantly from our past results.
Finally, the Group relies heavily on the use of models all throughout the credit management process (prospecting, admission, portfolio monitoring and collection). This requires a comprehensive governance framework seeking excellent standards in the construction and monitoring of these models. Those standards are updated and improved upon, from time to time, to mitigate the impact that severe or unexpected changes in the macro and micro economic environment could have on the risk quality of our portfolio, especially in the consumer and SME segments.
Errors or inaccuracies in risk models can have an adverse economic impact on our business, financial condition and results of operations.
Model risk is defined as the possibility of incurring in economic losses due to bad decisions that are made based on erroneous or imprecise models. Deficiencies at the model level may be generated by problems with data quality, methodologies, implementations and/or uses. This risk is relevant because Credicorp uses models in processes related to credit acceptance, portfolio follow-up, provisions, pricing, internal calculations of economic capital and other aspects.
Accurate underwriting and setting of premiums are important risk management tools for primary insurance companies, including Grupo Pacífico, but the estimates underlying our underwriting and premiums may be inaccurate.
Grupo Pacífico’s operating performance and financial condition depend on its ability to underwrite and set premium rates accurately across a full spectrum of risks. In order to be profitable, Grupo Pacífico must generate sufficient premiums to offset losses, loss adjustment expenses and underwriting expenses.
To price premium rates accurately, Grupo Pacífico must:
| | • | Collect and analyze a substantial volume of data; |
| | • | Provide sufficient resources to its technical units; |
| | • | Develop, test and apply appropriate rating formula; |
| | • | Closely monitor changes in trends in a timely fashion; and |
| | • | Predict both severity and frequency with reasonable accuracy. |
If Grupo Pacífico fails to accurately assess 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 material adverse effect on our operating results or financial condition. Moreover, there is inherent uncertainty in the process of establishing life insurance reserves and P&C loss reserves. Reserves are estimates based on actuarial and statistical projections at a given point in time of what Grupo Pacífico ultimately expects to pay out on claims and of the related costs of adjusting those claims, based on the facts and circumstances then known. Factors affecting these projections include, among others: (i) in the case of life insurance reserves, changes in mortality or longevity rates, interest rates, persistency rates and regulation; and (ii) in the case of P&C loss reserves, morbidity, changes in medical costs, repair costs and regulation. Any negative effect of inaccurate estimates or projections on Grupo Pacífico could have a material adverse effect on its results of operations and financial condition.
While reinsurance is an important risk management tool of any primary insurance company that enables risk diversification that in turn helps to reduce losses, we face the possibility that the reinsured amount will be insufficient to fully cover incurred losses or that the reinsurance companies will be unable to honor their contractual obligations.
Credicorp assumes reinsurance risk in the normal course of business for our 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, considering the product classification of the reinsured business.
In the case of a catastrophic event that exceeds the confidence levels used for the purchase of reinsurance, which are based on models and practices according to the best market standards we face the risk that the reinsured amount will be insufficient to fully cover incurred losses. In such case there will be a negative impact on our equity. Additionally, while Credicorp’s internal requirements with respect to reinsurer counterparty credit risk, as set by Grupo Pacífico’s risk management unit and approved by the Risk Committee, are more stringent than local regulatory requirements and include diversified placement of reinsurance, a failure by one or more of our counterparty reinsurance companies to honor their contractual obligations could have a material adverse effect on our financial condition and results of operations.
Risks not contemplated in our insurance policies may affect our results of operations.
Insurance amounts are calculated through statistical analysis and then maintained to cover risks related to our operations, including, among others, internal and external fraud, computer crime, professional liability for services we provide, director’s and officer’s liability and general liability against general claims involving bodily injuries and property damage. However, the terms and conditions of the insurance policies we have may not cover losses we incur in connection with a specific event or incident or may cover only part of the losses we may incur. The insurance policies of Credicorp and its subsidiaries are contracted with Grupo Pacífico. Grupo Pacífico reinsures the policies in the cases it deems appropriate due to the materiality of the risk.
Acquisitions and strategic partnerships may not perform as expected, which could have an adverse effect on our business, financial condition and results of operations.
Acquisitions and strategic partnerships, including those made in our Investment Management and Advisory, Insurance and Microfinance businesses, may not perform as expected since our assessment could be based on assumptions with respect to operations, profitability and other matters that may subsequently prove to be incorrect. Future acquisitions, investments and strategic partnerships may not produce the anticipated synergies or perform in accordance with our expectations, which could have an adverse effect on our business, financial condition, and results of operation.
For example, in 2023, the Group recorded a gross impairment loss totaling S/71.9 million (S/64.1 million attributable to Credicorp and S/7.8 million from minority interest), equivalent to US$19.3 million or 75,199 million Colombian Pesos (COP), for its investment in Mibanco Colombia (formerly Bancompartir), as a result of its assessment of the recoverable amount. In this assessment, the fair value of Mibanco Colombia was estimated to be 438,259 million COP (equivalent to US$113.2 million or S/419.4 million), which was less than its book value of 513,458 million COP (equivalent to US$132.5 million or S/491.3 million). For further detail, please see Note 10(b) (Intangible Assets and Goodwill) to the consolidated financial statements.
Credicorp’s increasing investments in digital transformation and disruptive initiatives may fail to achieve the ambitions, efficiencies and other performance improvements that it is pursuing.
As part of its transformation strategy, Credicorp is increasing investments in developing digital capabilities such as IT, data analytics and cybersecurity. The Company is attracting digital talent, evolving its agile culture to maximize client experience and strengthening its self-disruptive mindset. Moreover, Credicorp is increasing its investments in innovation and disruptive initiatives. The Company may fail to achieve ambitions related to acquisition of clients, income generation, efficiency and other performance improvements described in “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (1) Credicorp Overview”.
Credicorp continues to invest in its technology and digital capabilities across its franchises, including digital platforms and cloud-based solutions. Credicorp has also been pursuing productivity and operational performance improvements through the evolution of its diverse business models. For example, in microfinance, Mibanco has leveraged data and analytics to develop centralized credit assessment capabilities and generate loan offers to current clients and has leveraged alternative channels, such as mobile banking, call centers and home banking, among others, to increase loan disbursements. In addition, Credicorp has been making other investments in new ventures within its LoBs, such as our Yape mobile application, and through its corporate venture capital center Krealo, which is investing in startup fintech, such as Tenpo SpA (Tenpo), Credicorp Capital Negocios Digitales S.A.S. (Tyba), Compañia Incubadora de Soluciones Moviles S.A. (Culqi) and Wally POS S.A.C. (Wally), among others. For additional detail about Credicorp Innovation strategy and our investment in disruptive initiatives, please see ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (1) Credicorp Overview – Our Innovation Strategy.
If Credicorp fails to adequately invest in its digital and innovation strategy, our ability to compete or to provide superior customer experience could be adversely affected. There is no guarantee, however, that these or other initiatives at Credicorp will achieve the ambitions, efficiencies, profitability or other performance improvements that the Company is pursuing or that they will have any benefits at all.
Furthermore, Credicorp’s digital investments involve execution complexity and could result in additional losses, charges or other negative financial impacts. For example, Credicorp may not be able to achieve its objectives related to monetization of disruptive initiatives.
Credicorp’s digital investment and other initiatives may continue to evolve as its business strategies, the market environment and regulatory expectations change, which could make the initiatives more costly and more challenging to implement and limit their effectiveness. Moreover, Credicorp’s ability to achieve expected returns on its investments and costs savings depends partially on factors that it cannot control, including, among others, interest rates; inflation; customer, client and competitor actions; and ongoing regulatory changes.
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 Stand-alone, BCP Bolivia, Mibanco, Mibanco Colombia, Grupo Pacífico, ASB Bank Corp., Prima AFP and Credicorp Capital. Subject to certain minimum liquidity, reserve and capital adequacy requirements under applicable regulations, we are able to cause our subsidiaries to declare dividends. 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, apart from the minimum capital requirements, there are no restrictions on the ability of BCP Stand-alone, BCP Bolivia, Mibanco, Mibanco Colombia, Grupo Pacífico, ASB Bank Corp., Prima AFP or Credicorp Capital 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 (with the holders of our securities able to benefit indirectly from such distribution), is subject to the prior claims of creditors of that subsidiary, except where we are considered an 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.
Since our main Peruvian subsidiaries pay dividends considering the accumulated results shown in the financial statements prepared under local GAAP applicable to financial entities, there could be differences between local GAAP and IFRS. The main difference between these is with respect to the application of IFRS 9 regarding both the methodology used to determine the provision for credit losses in loan portfolio and the determination of financial income for loans. For 2023, the application of IFRS 9 resulted in provision reversal for credit losses in the loan portfolio being S/39.7 million lower than under local GAAP and income tax being S/11.7 million higher than under local GAAP. The effects of these differences, net of income tax, resulted in net profit being S/28.0 million higher under IFRS than under local GAAP.
Finally, the value of any dividend paid by our operating subsidiaries that declare dividends in a currency different from Credicorp’s dividends (such as ASB Bank Corp., BCP Bolivia, Credicorp Capital Holding Chile and Credicorp Capital Holding Colombia) is subject to the impact of the exchange rate of the dividend’s currency against Credicorp’s functional currency. This foreign currency exchange could have a negative impact on our ability to pay dividends to shareholders. For further details about Credicorp’s Dividend Policy refer to “ITEM 8. FINANCIAL INFORMATION – 8.A Consolidated Statements and Other Financial Information – (3) Dividend Policy”.
A failure in, or breach of, our operational or security systems, fraud by our employees or outsiders, other operational errors of our system of internal controls to discover and rectify such matters could temporarily interrupt our businesses, increase our costs and cause losses.
The risk of the occurrence of, or a material adverse effect caused by, security breaches remain present due to the constant adoption of new technologies and the interoperability between them, the use of digital profiles and processes, as well as the transfer of data among remote workers, cloud servers and office workers, given the transition to a more permanent hybrid workforce. Similarly, the exposure to malicious external actors or insiders (i.e., security breaches) or operational errors affecting the confidentiality, availability and integrity of our main information assets (data bases, servers, software digital information associated with processes, among others) could result in significant losses of customer data and/or other types of confidential information, losses of revenue and customers, reputational harm and legal risks, any of which could directly affect our business and operations. In addition, the increased use of information technology (IT) and other IT resources can increase technological risks due to failures or problems in the management of technological tools and operational risks due to deficiencies or failures in processes or resources.
We also rely on third-party service providers that store, transmit and process part of our confidential information and that of our clients, which constitutes supply chain risk. In addition, in recent years, there has been an increase in the number and sophistication of cyberattacks not only against financial institutions but also their providers worldwide.
Our anti-money laundering and counter-terrorist financing measures might not prevent third parties from using us as a conduit for such activities, which could damage our reputation or expose us to fines, sanctions or legal enforcement, any of which could have a material adverse effect on our business, financial condition and results of operations.
As financial institutions, our subsidiaries must comply with significant anti-money laundering and counter-terrorist financing laws and regulations, as well as applicable international standards and recommendations such as those provided by the FATF and local directives. In line with these requirements, our group has developed a comprehensive risk-based approach strategy to implement an Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) Program that seeks to prevent third parties from channeling illicit funds through Credicorp. At Credicorp, our financial institutions have continued to face many of the AML/CTF risks such as fines, commercial sanctions or legal enforcement.
In Peru, the SBS published the Anti-Money Laundering and Anti-Financing of Terrorism (AML/AFT) Risk Management Regulation in 2015 (SBS Resolution No. 2660-2015 and subsequent amendments), which includes provisions that extend the duties and functions of the Compliance Officer, clarify the obligation of companies to carry out customer classification under strict terms, establish enhanced due diligence for high risk customers and set out the guidelines for transferring funds, as well as many other specific requirements for daily transactions. These guidelines result in higher operational costs due to the significant investment in technology required to comply with the strict terms of the regulation.
Environmental, Social and Governance Risks
Natural disasters in Peru could disrupt our businesses and affect our results of operations and financial condition.
In Peru, we are exposed to risks of natural disasters that in some cases may be exacerbated by climate change, such as floods, mudslides and droughts. We are also exposed to disasters unrelated to climate change, such as earthquakes. Earthquakes in Peru are common occurrences as the country is located in a seismic zone: the interface between the Nazca and South American tectonic plates. Peru has been adversely affected by earthquakes in the past, including a 7.9 magnitude earthquake that struck the central coast of Peru in 2007. The country is also vulnerable to the El Niño Phenomenon (El Niño), an oceanic and atmospheric phenomenon that causes a warming of temperatures in the Pacific Ocean and provokes heavy rains off the coast of Peru that may result in floods and mudslides in the north and central Andean regions. Due to its very strong intensity, the 1997- 1998 El Niño destroyed crops and infrastructure equivalent to 2.2% of Peru’s GDP. In early 2017, El Niño adversely affected agricultural production, transportation services, tourism and commercial activity; caused widespread damage to infrastructure; displaced many people; and resulted in a deceleration of growth from 4.0% in 2016 to 2.5% in 2017. According to Peru’s fiscal council - autonomous entity created with the aim of contributing to the analysis and, technical and independent discussion of fiscal policy - El Niño caused US$6.2 billion in damages (equivalent to 2.9% of Peru’s GDP) in affected regions in the first half of 2017 through damages to bridges, roadways, housing and educational services, among others.
Since the beginning of 2023, heavy rains have intensified in many areas on the North Coast of the country due to unusual warming of temperatures in the Pacific Ocean and the wake of cyclone Yaku. This caused river overflow risk, mudslides, floods, and lack of food and water in some towns. In addition, in March 2023, Peru’s local climate events specialist, the National Service of Meteorology and Hydrology of Peru (Servicio Nacional de Meteorología e Hidrología del Peru or SENAMHI by its Spanish initials) and The National Study of the El Niño Phenomenon (Estudio Nacional del Fenómeno El Niño or ENFEN by its Spanish initials), determined a state of “El Niño Costero alert” because they expected El Niño conditions (warmer than normal superficial sea temperatures) to continue developing at least until July 2023.
This weather phenomenon heavily affected the anchovy capture, the agricultural and primary manufacturing sectors and the textile production for the domestic market. These sectors had their worst performance in more than two decades in 2023. In the case of the fishing sector, the first anchovy capture season in the north central zone was canceled by the Ministry of Production. Additionally, the expectation that Coastal El Niño would continue until the first quarter of 2024 could have led to greater caution in private consumption and investment decisions that were already affected by an environment of still-high food price inflation, the political context and the normalization process after the post-pandemic rebound.
We cannot assure that another destructive “El Niño” will not occur in the future and negatively affect Peru’s GDP as well as the financial situation of some of Credicorp’s clients and the quality of our loan portfolio. In fact, we expect that “El Niño” will continue to affect our country from time to time.
Additionally, similar natural disasters, or other types of disasters, could impair our operational capacity. Our business continuity plans include emergency response, disaster recovery, operations continuity, crisis management, data protection and recovery and critical systems redundancy. Although we test our business continuity plans annually, these plans may prove to be ineffective, which could have a material adverse effect on our ability to carry out our businesses, especially if an incident or disaster affects computer-based data systems or damages customer or other data. In addition, if a significant number of our employees were affected by a natural disaster, our ability to conduct business could be impaired. Our subsidiary Grupo Pacífico is further exposed to risks associated with natural disasters due to the policies that it underwrites. To protect Grupo Pacífico’s solvency and liquidity, our insurance business historically has reinsured substantial portions of its earthquake-related risks through automatic quota share and excess of loss reinsurance; however, there can be no assurance that a major catastrophe would not have a material adverse impact on our results of operations or financial condition or that our reinsurance policies would not be an effective hedge against our exposure to risks resulting from natural disasters due to insufficient coverage.
We may incur financial losses and damages to our reputation from ESG risks, which recently have been recognized as increasingly relevant because they can affect business continuity and the creation of long-term value for our stakeholders.
In recent years, ESG risks have been recognized as increasingly relevant because they can affect business continuity and the creation of long-term value for our stakeholders. Environmental risks, for example, may affect our businesses, particularly within our banking, asset management and insurance subsidiaries. The market increasingly demands a proactive approach to issues affecting the environment from companies like ours, and thus a perception of lack of environmental responsibility could damage our reputation. Moreover, we operate in a region susceptible to climate-related challenges. These environmental issues have the potential have an adverse impact on our clients, affecting their payment capabilities and business continuity, likewise affecting our own operation. Among these environmental issues, climate change is particularly important to Credicorp, potentially exposing us to physical and transition risks, which may impact other traditional risks, such as credit, operational, reputational and others.
Social issues related to managing employees, customers and communities’ relationships may affect our business mainly through a talent or capabilities deficit, high training costs, compliance failures, operational inefficiencies and reputational risks. Finally, corporate governance issues may affect our business mainly through reputational risk, if we are perceived by stakeholders as a company that has any controversy related to transparency, Board structure and remuneration or stakeholder governance.
| ITEM 4. | INFORMATION ON THE COMPANY |
| 4. A | History and development of the Company |
Credicorp Ltd. (New York Stock Exchange (NYSE) and Lima Stock Exchange (Bolsa de Valores de Lima or BVL by its Spanish initials) trading code: BAP) is a tax-exempted company that was formed in Bermuda on August 17, 1995, pursuant to the Bermuda Companies Act 1981 in order to act as a holding company for, and to coordinate the policy and administration of our subsidiaries, which include BCP Stand-alone, BCP Bolivia, Mibanco, Mibanco Colombia, Grupo Pacífico, Prima AFP, Credicorp Capital and ASB Bank Corp. We currently hold, directly and indirectly, 97.74% of BCP, 99.96% of BCP Bolivia, 95.99% of Mibanco, 85.58% of Mibanco Colombia, 98.86% of Grupo Pacífico, 100.00% of Prima AFP, 100.00% of Credicorp Capital and 100.00% of ASHC (as well as 100.00% of ASB Bank Corp. through ASHC). See “ITEM 4. INFORMATION ON THE COMPANY – 4.C Organizational Structure”. In Bermuda, Credicorp operates under the Bermuda Companies Act 1981 (as to date amended).
Our principal activity is to coordinate and manage the business plans of our subsidiaries to develop our Universal Banking, Microfinance, Insurance and Pension, and Investment Management and Advisory businesses at Perú, Colombia, Chile, Bolivia, Panama and EEUU. Though we primarily focus on the aforementioned countries, we also make limited investments in other countries in the same region. Our registered address in Bermuda is at Clarendon House, 2 Church Street, Bermuda, the address of our website is https://www.grupocredicorp.com/ (the website, and the information on such website, are not incorporated in this Form 20-F). The management and administrative office (which is the same as the principal place of business) of our principal subsidiary, Banco de Credito del Peru, is located at Calle Centenario 156, La Molina, Lima 12, Peru, and its phone number is +51-1-313-2000.
The SEC maintains a website that contains reports of the issuers that file electronically with the SEC. Our electronic filings with the SEC are available to the public from the SEC’s website at http://www.sec.gov. (Trading Code – BAP).
As of December 31, 2023, our total assets were S/238.8 billion and our equity attributable to Credicorp’s equity holders was S/33.1 billion. Our net profit attributable to Credicorp’s equity holders in 2021, 2022 and 2023 was S/3,584.6 million, S/4,647.8 million and S/4,865.5 million, respectively. See “ITEM 3. KEY INFORMATION – 3.A Selected Financial Data” and “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS”.
On December 20, 2017, Credicorp’s Board of Directors resolved to organize Credicorp’s subsidiaries in four LoBs: Universal Banking; Microfinance; Insurance and Pensions; and Investment Management and Advisory. These changes took effect on April 1, 2018. During the same year, the Corporate Venture Capital Arm of the group was formed, developing Krealo in March 2018.
Universal Banking
On April 18, 2018, Credicorp Ltd., through its subsidiaries Grupo Crédito S.A. and BCP Stand-alone, acquired 3.23% and 0.06%, respectively, of the share capital of Mibanco from minority shareholders for approximately S/129.0 million and S/2.4 million, respectively. Additionally, on May 22 and 23, 2018, BCP Stand-alone acquired 1.22% and 0.05%, respectively, of the share capital of Mibanco from minority shareholders for approximately S/47.3 million and S/1.9 million, respectively. These acquisitions of non-controlling interest were recorded as equity transactions. Through these acquisitions, Credicorp Ltd. increased its interest in the share capital of Mibanco from 93.18% to 97.74%.
On May 7, 2018, Credicorp Ltd. sold to its subsidiary Grupo Crédito S.A. 220,113,636 shares of BCP Stand-alone owned by Credicorp Ltd., which represented 2.77% of BCP Stand-alone’s share capital. The amount paid per share was S/6.61. Following this sale, Credicorp, in conjunction with its subsidiary Grupo Credito, continued to own 97.7% of the shares of BCP Stand-alone.
In July 2022, Grupo Crédito S.A. established Yape Market S.A.C, a company focused on the promotion and management of sales and placement of products and services through electronic means. Grupo Crédito S.A. currently owns a 99.99% stake in Yape Market S.A.C.
Joinnus was acquired in March 2023. It is a subsidiary of Yape Market S.A.C, currently owns a 99.93% stake. The company is a digital platform for selling tickets to online events and shows.
Microfinance
On June 28, 2019, Credicorp Ltd., through its subsidiary Credicorp Holding Colombia S.A.S., reached an agreement with the majority shareholders of Banco Compartir S.A. (Bancompartir) to acquire a majority stake in Bancompartir, which provides microfinance and SME financing solutions to micro entrepreneurs and was one of the top four microfinance banks in Colombia. On December 2, 2019, Credicorp Ltd. announced that after obtaining the necessary regulatory approvals, it completed the acquisition of 77.46% of the capital stock of Bancompartir for approximately US$76.0 million, as part of Credicorp Ltd.’s strategy of expanding its microfinance business in Latin America.
On October 30, 2020, Credicorp Ltd. confirmed the merger of Bancompartir and Edyficar S.A.S. (Encumbra), to be integrated under the name Mibanco – Banco de la Microempresa de Colombia S.A. (Mibanco Colombia). The merged entity had a consolidated loan portfolio of more than US$270 million as of December 31, 2020. Its operating model focuses on achieving financial inclusion and social development serving and accompanying small and micro entrepreneurs in line with the business strategy proposed by Credicorp.
Insurance and Pensions
In 2015, Grupo Pacífico signed an agreement with Banmedica to participate as equal partners in the health insurance and medical services business. Grupo Pacífico transferred the majority control of the Pacífico Seguros corporate health insurance business and medical services to Banmedica. In 2018, UnitedHealth Group, one of the world’s largest healthcare companies, acquired Banmedica, becoming Pacífico’s new partner in Peru. Consequently, the Pacífico Seguros’ corporate health insurance business and medical services are no longer consolidated with Grupo Pacífico for accounting purposes and are reported as an investment in associates.
Investment Management and Advisory
During 2012, Credicorp initiated the creation of a regional investment banking platform. During the same year, the firm acquired a 51.0% stake in Correval S.A. Comisionista de Bolsa in Colombia and 60.6% of IM Trust S.A. Corredores de Bolsa in Chile. In 2013, Credicorp Capital Peru was created and included Credicorp Capital Bolsa, Credicorp Capital Titulizadora, Credicorp Capital Fondos and BCP Stand-alone’s investment banking activities. On September 30, 2016, Credicorp Capital Peru concluded the acquisition of the remaining stake in Correval S.A. Comisionista de Bolsa in Colombia and IM Trust S.A. Corredores de Bolsa in Chile. As a result of these acquisitions, Credicorp Capital became the owner of 100% of both companies. During these years Credicorp wanted to consolidate the brand name of Credicorp Capital on the whole region, so the group decided to name Correval S.A. Comisionista de Bolsa in Colombia as Credicorp Capital Colombia and IM Trust S.A. Corredores de Bolsa in Chile as Credicorp Capital Chile.
On February 12, 2019, Credicorp Ltd., through its subsidiary Credicorp Holding Colombia S.A.S., reached an agreement with the shareholders of Ultraserfinco S.A. Comisionista de Bolsa, a financial services company in Colombia, to acquire a 100% stake in Ultraserfinco S.A. Comisionista de Bolsa and its subsidiaries, which include 100% of Ultra Holding Group Inc., which in turn holds 100% of Ultralat Group Inc. (including 100% of Ultralat Investment Advisor and 100% of Ultralat Capital Market, LLC. (UCM)), for approximately US$43.0 million. On November 1, 2019, after obtaining the necessary regulatory approvals, the acquisition of 100% of the capital stock of Ultraserfinco S.A. Comisionista de Bolsa was completed through Credicorp Holding Colombia S.A.S. and Credicorp Capital Fiduciaria S.A. Ultraserfinco S.A. Comisionista de Bolsa had several subsidiaries including Ultralat, a company regulated by the SEC. On February 1, 2021, we finalized a merger between CCSI and UCM, which resulted in Credicorp Capital LLC.
On August 2, 2021, we finalized the merger by absorption between Atlantic Security Bank (Cayman Islands) and ASB Bank Corp. (Panama), with the latter being the surviving entity. ASB Bank Corp. is a financial institution incorporated under the laws of Panama, with an International Banking License and a securities brokerage license, issued by the SBP and the Panama SMV, respectively.
On March 15, 2022, Credicorp incorporated CC Asset Management Mexico S.A. de C.V., an unregulated legal entity (specifically, a variable capital corporation) in Mexico. This entity will distribute mutual funds and investment funds through private offerings. The company was constituted as a subsidiary of Credicorp Capital Ltd.
Corporate Venture Capital – Krealo
Credicorp LoBs are complemented by Krealo, Credicorp’s venture capital investment arm. Krealo identifies and invests in opportunities that complement Credicorp’s business lines.
In January 2019, Grupo Crédito S.A. incorporated Tenpo S.P.A. (formerly Krealo S.P.A.) in Chile with the purpose of constituting investments in companies, real estate and movable capital. Tenpo S.P.A. (formerly Krealo S.P.A.) acquired 100% of Tenpo Technologies S.P.A. (formerly Tenpo S.P.A.), a company dedicated to the commercialization of services, digital products, information technology and telecommunications, and 100% of Tenpo Prepago S.A. (formerly Multicaja Prepago S.A.), a company dedicated to the issuance and operation of prepaid cards.
In January 2019, Grupo Crédito S.A. acquired 91.36% of Compañía Incubadora de Soluciones Móviles S.A. (“Culqi”). Currently, Grupo Crédito S.A. directly and indirectly owns 100% of Culqi. Culqi was created in December 2013 and is mainly engaged in the development and operation of an online payment technology platform for digital businesses.
We acquired Wally POS S.A.C. in January 2022 with the purpose of facilitating the management of client businesses through electronic tools and software that allows for the control of key aspects such as electronic invoicing, inventory control, and reports.
We acquired Sami Shop S.A.C in June 2022, which is a company that offers e-commerce platforms to small, medium and large companies.
Both companies, Wally and Sami Shop, were initially acquired by Grupo Credito S.A. In December 2022, the two companies were transferred to Krealo Management S.A.
Krealo Management S.A. was incorporated in September 2022 with the purpose of being a Peruvian holding company. Krealo Management S.A. currently owns 99.99% of Wally POS S.A.C., 99.99% of Sami Shop S.A.C. and 59.96% of Monokera S.A.S.
In November 2022, Krealo Ltd. was created in Bermuda as a wholly owned subsidiary of Credicorp. Krealo Ltd.’s purpose is to be a holding company.
In December 2022, Krealo Management acquired a 59.96% stake in Monokera S.A.S, a company that offers e-commerce platforms for selling insurance products.
Monokera Agencia LTDA. was created in March 2023, its objective is to offer insurance, and promote insurance contracts and renewals, on behalf of one or various insurance companies. It allows us to develop the commission-based business model that Monokera SAS has implemented with some channels. 99.9999% of the shares belong to Monokera SAS and 0.0001% to MKRA S.A.S.
MKRA S.A.S. was created in February 2023, with the purpose of establishing Monokera Agencia LTDA. together with Monokera SAS, since two companies were required to form a limited company. 100% of its capital belongs to Monokera S.A.S. It currently has no employees, and its legal representation is exercised by the same Legal Representative of Monokera S.A.S.
Other support companies
In June 2021, Grupo Crédito S.A. established Ventive Servicios De Consultoría España, S.L with the purpose of providing specialized digital capabilities services to the Credicorp Group.
Subsequent Events
On December 21, 2023, the Board of Directors appointed Cesar Ríos Briceño as Chief Risk Officer (CRO) of Credicorp and BCP and Alejandro Pérez-Reyes Zarak as Chief Financial Officer (CFO) of Credicorp and BCP. In addition, André Rezende, Chief Technology Officer (CTO) will now report to the Chief Executive Officer. To facilitate a smooth transition, the management shift commenced on March 1, 2024, and the new appointments will officially take effect on July 1, 2024. Additionally, Michelle Labarthe Wiese, joins Credicorp as Chief Strategy Officer (CSO), a newly created position that will oversee the Sustainability, Strategy & Corporate Development, and M&A functions, effective January 2, 2024.
Credicorp is the financial services holding company with the longest continuous operations in Peru with over 130 years of experience in the financial sector. We are organized into four LoBs: (1) Universal Banking, and (2) Insurance and Pensions, which mainly serves the overall Peruvian market, together with (3) Microfinance, (4) Investment Management and Advisory, which has a strong presence in Latin America; and its Corporate Venture Capital, Krealo
Throughout its history, Credicorp has worked to leverage its franchises and has evolved towards a focus on customer-centricity, innovation, and growth, and has consolidated into a group with more than 37,000 employees and operations mainly in six countries: Peru, Bolivia, Colombia, Chile, Panama and USA. We have a purpose, vision and values oriented towards the goal of creating value for our stakeholders and the societies of countries where we operate.
Our Purpose
Contribute to improving lives by driving the changes that our countries need.
Our Vision
Be a sustainable financial business leader in Latin America, guided by a great purpose, future-oriented and focused on generating superior value for our employees, customers, shareholders, and the countries we operate in.
Our Values
| • | Respect: We have an open-door culture that respects and values people, their beliefs and decisions, always promoting a participatory, collaborative and horizontal work environment. |
| • | Fairness: We act in a fair and equitable manner in the treatment and recognition of people, seeking equal rights, responsibilities and opportunities for all. |
| • | Honesty: We promote transparency and seek to act consistent with what we believe and say; this is the only way we will continue to build relationships of trust. |
| • | Sustainability: Because people are at the center of everything we do, we carefully serve their needs, seeking to guarantee social, economic and environmental well-being, for the present and for the future. |
Our North Stars
Sustainability Strategy
Sustainability Governance
Credicorp’s sustainability governance gives visibility to the sustainability strategy at various levels of the organization, ensures the integration of sustainability into our business management and its alignment with the business strategy, allows for coordinated efforts between corporate and subsidiary teams, generates accountability for results, prioritization of initiatives and setting ambitious goals, and moves us forward on our path to becoming a sustainable financial services leader in the region. There is oversight of the sustainability program at all levels, from the board level through to the teams responsible for implementation. Each subsidiary replicates a governance structure similar to that existing at the corporate level but adapted to its own internal arrangements.
Sustainability Governance Structure
| Forum / Team | | Description | |
| Board | | Setting and modifying the Corporate Sustainability Strategy (pillars and ambitions) and setting and modifying policies directly related to sustainability and corporate governance. | |
| Sustainability Committee of the Board of Directors | | Direction of the sustainability strategy and visibility of the results | |
| Sustainability SteerCo | | Visibility, prioritization, and focus of the strategy and program | |
| Sustainability Sponsor | | Corporate-level program oversight | |
| Corporate Sustainability Office | | Ensures execution of strategy, coordinating efforts at the corporate level. It has grown and redesigned its structure to optimally support program implementation given its level of maturity, including the incorporation of environmental profiles. | |
For further information about the Sustainability Committee, please see “ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES – 6.C Board Practices”.
Our sustainability strategy draws from our purpose of contributing to improving lives by driving the changes our countries need. It is from this purpose that our vision springs of being a sustainable financial services leader in Latin America that is future-oriented and focused on creating superior value for our employees, clients, shareholders, and the countries we operate in. With great responsibility, we have taken up our role as a change agent in society, promoting the sustainable development agenda through our core businesses and forming partnerships that strengthen our impact. The progress made over the past three years is proof of this work.
As a result of our strategy implementation, we present Group and subsidiary 2023 achievements on the Social, Environmental and Governance fronts.
Social:
On the social front, in our last sustainability report we present our progress on the goals of increasing responsible financial inclusion that is complemented by comprehensive financial education, helping small businesses grow, and generating opportunities and products for women. Our social impact also manifests in our community engagement and through our relationship with suppliers along our value chain, in line with our vision of supporting their journey to greater sustainability.
Financial inclusion lies at the heart of our social strategy. Yape has proven to be an exceptional tool to promote financial inclusion, providing access to financial services for the first time to more than 1.7 million2 people in Peru, in turn generating usage frequency and more transactions. Today, Yape also operates in Bolivia, where it has over 1 million users. We are proud to announce that BCP also financially included 2.4 million3 people through savings accounts.
For its part, Mibanco banked more than 63,000 individuals and individuals with a business through micro-loans, 55.9% of whom are women. Women’s financial inclusion is vital to progressing equity efforts in Peru, so we have strengthened our value proposition for them by creating Mundo Mujer; now, we focus not just on providing access to credit but also on delivering financial education, savings products, and other services. We also continue to work toward opening up access to insurance by creating Seguros para todos, our insurance-for-all strategy that protects more than 2.3 million people with our inclusive, low-cost, and more accessible products.
Environmental:
On the environmental front, we published our first TCFD report and rolled out our corporate environmental strategy to deliver on our ambition to be local leaders in supporting the transition to an environmentally sustainable economy.
Through BCP, we reached more than US$585 million in green-labeled loans. We also made significant progress in measuring the carbon footprint of our credit and investment portfolios, generating more information and knowledge for the responsible management of our portfolios.
On the risk management front, we deepened our approach to sustainability from both environmental and social perspectives. Finally, in our sustainability report we show the progress regarding our direct carbon footprint.
It is also clear that the environmental and social fronts are closely linked. In 2023, Peru suffered the effects of Cyclone Yaku and the threat of the El Niño phenomenon, leaving thousands of people in the affected areas vulnerable and affecting the normal functioning of the economy. BCP, Pacífico Seguros, and Mibanco joined forces for a campaign (Con la camiseta bien puesta) that has delivered awareness and prevention training programs at community fairs in the affected regions and reached more than 6,000 people to date. Our companies also rolled various measures—from education and prevention efforts to financing solutions and benefits for affected clients—supporting people to more easily navigate this challenging situation.
| | 2 | Cumulative total from 2020 to 2023. It includes people who made at least three average monthly transactions in the last three months. |
| | 3 | Cumulative total from 2020 to 2023. It includes people who made at least three average monthly transactions in the last three months. |
Governance
On the governance front, through a new nomination, we continued strengthening the competencies and widening the diversity of our board. Always striving for continuous improvement, we undertook an external evaluation of our board and its committees. Our progress to date has resulted in a positive perception of our structures, composition, and functioning, aligned with good practices in the market. The recommendations of this analysis will enable us to strengthen our governance further.
Credicorp’s Innovation Strategy
Our digital strategy is a fundamental element needed to execute our purpose, follow our values, and advance towards the future guided by our north star values. With an overarching group strategy, we enhance our digital and transformation processes to capture opportunities efficiently, expand our total addressable market and strengthen our operational drivers.
Our journey began in 2015, when BCP Stand-alone decided focus on customer satisfaction while pursuing greater efficiency. Soon after, Grupo Pacífico, Mibanco, Prima AFP and Credicorp Capital followed the same path. Each of our LoBs has created an innovation lab, which is a crucial for our LoBs’ cultural and digital transformation.
Throughout all these years, we have been seeking to innovate by constantly challenging, transforming, and disrupting ourselves. We aim to anticipate and adapt to the increasingly fast changing megatrends that could impact our customers, capture digital opportunities, and generate long-term profitability. For this, we have been seeking to strive for developing digital capabilities such as:
a) Having a self-disruptive mindset,
b) Strengthening an agile and user experience culture,
c) Capturing digital talent, and;
d) Developing solid tech capabilities.
While leveraging our competitive strengths:
a) Diversified and independent LoBs,
b) Strong brand and extensive network of long-term client relationships,
c) Sound management with resilient track record, and;
d) Solid balance sheet and risk discipline.
During 2022, we implemented our corporate innovation system at Credicorp Ltd. level. This system is focused on disruptive initiatives; that is, those that (i) are aimed at achieving new revenue streams through new business models, (ii) may compete with our own traditional businesses, and (iii) may require building new and critical capabilities, either operational, digital, or technological. The system is steered by the Chief Innovation Officer (CINO), with the support of the Innovation Management Office (IMO). The CINO and the IMO oversee (i) the definition of an innovation strategy at a corporate level, (ii) the management of the disruptive initiative portfolio, (iii) the development of the necessary innovation enablers; and (iv) the execution of activities and transversal projects to foster and improve innovation efforts. We periodically review potential disruptive initiatives so that we can manage them within funds, financial limits, and metrics structured as a portfolio. The CINO steers this process, which is performed along with the Finance Department and validated by the Innovation Committee.
The system and its governance reflect an entrepreneurial and decentralized innovation model. Major decisions around strategy and portfolio management are made by a central Innovation Committee, while the sourcing and development of initiatives are executed by decentralized Innovation Units (IUs), which operate within or next to our LoBs. Thanks to this arrangement, we believe that we benefit from, on one hand, a central decision body that ensures alignment of innovation to our corporate goals and enables a fast decision process on the most complex issues; and, on the other, from being close to our customers, leveraging information already managed by our LoBs, and fostering rapid change and adoption in the overall organization.
The Innovation Committee, which is the system’s central body, is composed by Credicorp’s CEO, COO, and CINO as voting members, while Credicorp’s CFO and Krealo’s CEO participate regularly. This committee works closely with, and makes recommendations to, the Board of Directors, which holds the power over material decisions involving innovation, and over key venture graduations (e.g., spin-offs, spin-ins, write-offs, others). The Innovation Committee interacts with other forums through a variety of coordinated approaches. For instance, the Valuation Committee, which defines the methodologies and parameters for the valuation of ventures, is chaired by the CFO. We also have an Innovation Table, chaired by the CINO, which serves as an open discussion and coordination space for the IUs’ leaders. The following picture summarizes the main participants in our innovation system:
The IUs perform different roles depending on their various capabilities and on the LoBs’ needs. Some of the parties that hold these roles include: (i) innovation labs, which focus on inside-out innovation and operate mainly from ideation to the product-market-fit stage; (ii) Krealo, our corporate venture capital arm, which brings outside-in innovation, primarily through the acquisition of or minority investments in ventures with some proven market fit; (iii) a growth accelerator unit that scales ideas with potential after product market fit has been established; and (iv) some specific ventures that are key to our strategy, which we call “speedboats”. These speedboats sit close to our LoBs in order to take advantage of digital and data assets. At the same time, they hold sufficient governance independence, which allows them to take decisions faster and track performance accordingly with the nature and risk of the innovation under development. For further information see “ITEM 4. INFORMATION ON THE COMPANY – 4.A History and development of the Company”.
Our innovation system covers strategic and enabling elements. The strategic elements aim to include innovation domains and ambition, allocation of resources, performance management, and governance. These are necessary to provide guidance to the IUs and add structure to the system. The enabling elements seek to include components such as talent, culture, organization, or IT functions. For instance, our AI (Artificial Intelligence) program is an example of how we promote transversal projects that enable better coordination and maximize value creation. We also work hand in hand with our ESG strategy team to seek disruptive business models that are aligned with our sustainability pillars.
The innovation domains reflect markets, verticals, and/or trends in which there might be opportunities to disrupt, given our corporate strategy and priorities, our internal capabilities, and market and digital developments. Thus, they tell the IUs where to look for new initiatives. We organize these domains in three horizons to help structure, prioritize, and make disciplined capital allocation decisions. In horizon 1, we group the domains that are closer to our core businesses and geographies and, thus, are spaces we should mainly strengthen. In horizon 2, we include adjacent markets or niches in which we have identified an opportunity to enter or to reinforce our presence. Finally, in horizon 3, we explore trends with heavy technological and/or digital components that might completely transform the way we operate.
To achieve our innovation ambition, we set financial limits that track our investment in the disruptive portfolio (including the impact to ROE). These limits ensure that our profitability and financial health remain in line with our corporate goals. They also allow us to allocate funds to the horizons and innovation stages appropriately. The Innovation Committee provides the priorities for capital allocation, but the LoBs commit the specific funds, in accordance with our entrepreneurial and decentralized innovation system.
Finally, for performance management, we have a set of metrics that help us monitor disruptive portfolio performance and make timely decisions. These metrics assess four portfolio dimensions: (i) fund activity, which measures the size and efficiency with which we use resources (time and money) and kill initiatives with little potential; (ii) strategic performance, which reflects, for instance, diversification, incremental revenues and clients, or scaling-up speed; (iii) financial performance, which measures the actual and expected cost and return of our portfolio; and (iv) portfolio confidence, which shows the risk of our portfolio based on the completion of OKRs by innovation stage, which in turn help us fund only those initiatives with the greatest potential.
Corporate Venture Capital – Krealo
As part of our innovation efforts at the holding level, in 2018, Credicorp set up Krealo, an initiative that has evolved from our open innovation arm to Credicorp’s Corporate Venture Capital, bringing innovation from the outside-in. Krealo focuses on external innovation by investing in opportunities that complement current and future LoBs. Krealo works independently from other LoBs, with a similar flexibility to venture capital funds, coupled with the control, network and scalability of Credicorp.
Krealo’s purpose is to identify, screen, and invest in opportunities by building and/or acquiring new features. Krealo currently manages nine ventures across Peru, Chile, Colombia and Mexico. These ventures include a Neobank, a digital broker, an offline and online payments company, a point-of-sale (POS) software-as-a-service (SAAS), an ecommerce platform provider for businesses, an insurance technology platform, an Open Banking platform, and an Open Finance platform that automatizes workflows and digital wallets.
Krealo seeks to create both financial and strategic value for (i) Credicorp and (ii) the ventures:
| (i) | Regarding Credicorp, Krealo creates strategic value by: |
| a. | Boosting Credicorp’s current businesses: As an example, Tyba, through its 100% digital onboarding, allows its users to invest in funds in amounts less than US$25, therefore expanding the total addressable market in the Wealth Management business of Credicorp. |
| b. | Creating new businesses for Credicorp: Tenpo, our Neobank in Chile, has become Credicorp’s first step into Chilean retail banking through its product offering. With approximately 2,500,000 registered downloads and more than 2,300,000 clients since July 2019, Tenpo is democratizing financial services in Chile. |
| (ii) | Regarding the ventures, Krealo creates strategic value by: |
| a. | Providing independence to the ventures while still providing constant support in areas of expertise including growth, IT, data, and cybersecurity, among others. |
| b. | Acting as a long-term strategic partner, willing to support ventures with capital and expertise throughout their development. |
| c. | Offering flexible deal structures with the aim of generating financial and strategic value. |
| d. | Helping ventures grow faster by offering partnerships with LoBs, regulatory and financial expertise, relationships with industry leaders and the financial ecosystem, and the opportunity to leverage in Credicorp’s distribution channel (both by selling their products through Credicorp channels and selling Credicorp products through the ventures channels). |
Krealo seeks to become one of the most relevant actors in the Andean Venture Capital ecosystem by continuing to invest in fintech or startups with financial services angles.
Going forward, our strategic focus is to scale our business and increase user engagement. We strive to reduce our customer acquisition costs by leveraging organic channels, as well as partnerships with Credicorp’s companies and other market leaders. Furthermore, we are developing more products within our ventures to improve the stickiness of our solutions, generate cross-selling opportunities and keep our customers within our ecosystem with wider options according to their needs.
“The Best Place for The Best Talent”
To meet our transformation and growth objectives successfully, we seek to attract and retain the best talent, all while managing their potential, development and succession with a comprehensive value proposition that strikes a balance between human and business perspectives. Our talent strategy paralleled our business innovation strategy, which is detailed in the previous section, including by focusing on developing and attracting talent with technological and digital capacities while accelerating initiatives for gender equity.
We know that this is a competitive environment for talent and are committed to evolving our model to offer, current and potential employees, opportunities that focus on their personal development, flexibility and wellbeing, including attractive compensation and a hybrid approach for many employees. Our hybrid/remote work from home approach is generating new opportunities and modalities for us by facilitating borderless hiring.
Risk Rating
In March 2023, Fitch Ratings affirmed Credicorp Ltd.’s risk ratings at ‘BBB’ with a negative outlook. In June 2023, S&P Global Ratings confirmed the credit rating of Credicorp Ltd. at ‘BBB’ and the outlook as negative. In 2022 Fitch Ratings and S&P Global Ratings changed the outlook for some Peruvian financial entities, including BCP Stand-alone and Mibanco, in accordance with the review to the Peruvian long-term sovereign rating, from stable to negative. Despite the change in Credicorp risk rating, we believe that Credicorp has a prudent balance sheet and efficient funding management.
Credicorp’s LoBs’ Contributions
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 Chief Operating Decision Maker (CODM), who makes decisions about resources allocated for the segment and assesses its performance, and for which discrete financial information is available.
The following tables provide certain financial information about our LoBs as of and for the years ended December 31, 2023, and 2022:
| | | As of and for the year ended December 31, 2023 | |
| | | External income (1) | | | Net interest, similar income and expenses | | | Non-interest income, net (2) | | | Total assets | |
| | | (Soles in millions, except percentages) | |
| | | Amount | | | % Total | | | Amount | | | % Total | | | Amount | | | % Total | | | Amount | | | % Total | |
| Universal Banking | | | | | | | | | | | | | | | | | | | | | | | | |
| BCP Stand-alone | | | 16,987 | | |
| 66.2 | | |
| 9,927 | | |
| 76.7 | | |
| 4,511 | | |
| 65.7 | | |
| 178,834 | | |
| 74.9 | |
| BCP Bolivia | | | 920 | | | | 3.6 | | | | 163 | | | | 1.3 | | | | 211 | | | | 3.1 | | | | 13,465 | | | | 5.6 | |
| Insurance and Pension funds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 0 | |
| Grupo Pacífico | | | 2,233 | | | | 8.7 | | | | 285 | | | | 2.2 | | | | 951 | | | | 13.8 | | | | 15,865 | | | | 6.6 | |
| Prima AFP | | | 395 | | | | 1.5 | | | | 4 | | | | 0 | | | | 388 | | | | 5.7 | | | | 741 | | | | 0.3 | |
| Microfinance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 0 | |
| Mibanco | | | 3,238 | | | | 12.6 | | | | 2,160 | | | | 16.7 | | | | 161 | | | | 2.3 | | | | 16,898 | | | | 7.1 | |
| Mibanco Colombia | | | 489 | | | | 1.9 | | | | 255 | | | | 2 | | | | 46 | | | | 0.7 | | | | 2,113 | | | | 0.9 | |
| Investment Management and Advisory | | | 1,026 | | | | 4 | | | | 114 | | | | 0.9 | | | | 591 | | | | 8.6 | | | | 10,144 | | | | 4.2 | |
| Other segments | | | 377 | | | | 1.5 | | | | 30 | | | | 0.2 | | | | 8 | | | | 0.1 | | | | 4,274 | | | | 1.8 | |
| Eliminations | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (3,494 | ) | | | (1.4 | ) |
| Total consolidated | | | 25,665 | | | | 100 | | | | 12,938 | | | | 100 | | | | 6,867 | | | | 100 | | | | 238,840 | | | | 100 | |
| (1) | Corresponds to total interest and similar income, non-interest income (includes income and expenses on commissions) and technical insurance result. |
| (2) | Corresponds to total non-interest income (include income and expenses for commissions) and technical insurance result. |
| | | As of and for the year ended December 31, 2022 (*) | |
| | | External income (1) | | | Net interest, similar income and expenses | | | Non-interest income,net (2) | | | Total assets | |
| | | (Soles in millions, except percentages) | |
| | | Amount | | | % Total | | | Amount | | | % Total | | | Amount | | | % Total | | | Amount | | | % Total | |
| Universal Banking | | | | | | | | | | | | | | | | | | | | | | | | |
| BCP Stand-alone | | | 13,510 | | |
| 64.6 | | |
| 7,828 | | |
| 70.6 | | |
| 3,139 | | |
| 53.1 | | |
| 177,907 | | |
| 75.6 | |
| BCP Bolivia | | | 865 | | | | 4.1 | | | | 325 | | | | 2.9 | | | | 167 | | | | 2.8 | | | | 12,698 | | | | 5.4 | |
| Insurance and Pension funds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Grupo Pacífico | | | 1,689 | | | | 8.1 | | | | 301 | | | | 2.7 | | | | 758 | | | | 12.8 | | | | 14,565 | | | | 6.2 | |
| Prima AFP | | | 354 | | | | 1.7 | | | | 0 | | | | 0 | | | | 354 | | | | 6 | | | | 735 | | | | 0.3 | |
| Microfinance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Mibanco | | | 2,750 | | | | 13.1 | | | | 2,139 | | | | 19.3 | | | | 31 | | | | 0.5 | | | | 17,226 | | | | 7.3 | |
| Mibanco Colombia | | | 375 | | | | 1.8 | | | | 236 | | | | 2.1 | | | | 45 | | | | 0.8 | | | | 1,530 | | | | 0.6 | |
| Investment Management and Advisory | | | 923 | | | | 4.4 | | | | 98 | | | | 0.9 | | | | 666 | | | | 11.3 | | | | 14,051 | | | | 6 | |
| Other segments | | | 453 | | | | 2.2 | | | | 165 | | | | 1.5 | | | | 748 | | | | 12.7 | | | | 3,476 | | | | 1.5 | |
| Eliminations | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (6,774 | ) | | | (2.9 | ) |
| Total consolidated | | | 20,919 | | | | 100 | | | | 11,092 | | | | 100 | | | | 5,908 | | | | 100 | | | | 235,414 | | | | 100 | |
(*) Balances corresponding to 2022 have been restated according to IFRS 17. For further detail please refer to note 3b on the 2023 Audited Financial Statements.
| (1) | Corresponds to total interest and similar income, non-interest income (includes income and expenses on commissions) and technical insurance result. |
| (2) | Corresponds to total non-interest income (include income and expenses for commissions) and technical insurance result. |
The following table sets forth the contribution to the consolidated net profit attributable to our equity holders by each of LoBs and main subsidiaries:
| | | As of and for the year ended December 31, | | | | |
| | | 2021 | | | 2022 (*)
| | | 2023 | |
| | | | | | | | | | | | | | | | | | | |
| | | Amount | | | % Total | | | Amount | | | % Total | | | Amount | | | % Total | |
| Universal Banking | | | | | | | | | | | | | | | | | | | | |
| BCP Stand-alone | | | 3,312 | | | | 92.4 | | | | 4,161 | | | | 89.5 | | | | 4,281 | | | | 88.0 | |
| BCP Bolivia | | | 72 | | | | 2.0 | | | | 68 | | | | 1.5 | | | | 83 | | | | 1.7 | |
| Insurance and Pension | | | | | | | | | | | | | | | | | | | | | | | | |
| Grupo Pacífico | | | (129 | ) | | | (3.6 | ) | | | 461 | | | | 9.9 | | | | 801 | | | | 16.5 | |
| Prima AFP | | | 146 | | | | 4.1 | | | | 110 | | | | 2.4 | | | | 150 | | | | 3.1 | |
| Microfinance | | | | | | | | | | | | | | | | | | | | | | | | |
| Mibanco | | | 260 | | | | 7.3 | | | | 415 | | | | 8.9 | | | | 199 | | | | 4.1 | |
| Mibanco Colombia | | | 37 | | | | 1.0 | | | | 11 | | | | 0.2 | | | | (64 | ) | | | (1.3 | ) |
| Investment Management and Advisory | | | 164 | | | | 4.6 | | | | 107 | | | | 2.3 | | | | 173 | | | | 3.6 | |
Other segments and eliminations (1) | | | (277 | ) | | | (7.8 | ) | | | (686 | ) | | | (14.7 | ) | | | (758 | ) | | | (15.6 | ) |
| Total | | | 3,585 | | | | 100.0 | | | | 4,647 | | | | 100.0 | | | | 4,865 | | | | 100.0 | |
(*) Balances corresponding to 2022 have been restated according to IFRS 17. For further detail please refer to note 3b on the 2023 Audited Financial Statements.
(1) As of December 31, 2023, 2022 and 2021, it includes Credicorp Ltd., Grupo Crédito S.A. and ASHC which mainly includes expenses and others.
The following table shows our LoBs and main subsidiaries’ respective percentage contributions to our total equity attributable to Credicorp’s equity holders:
| | | As of and for the year ended December 31, | |
| | | 2021 | | | 2022 (*) | | | 2023 | |
| | | (Soles in millions, except percentages) | |
| | | Amount | | | % Total | | | Amount | | | % Total | | | Amount | | | % Total | |
| Universal Banking | | | | | | | | | | | | | | | | | | | | |
| BCP Stand-alone | | | 18,300 | | | | 69.1 | | | | 20,394 | | | | 70.4 | | | | 22,084 | | | | 68.0 | |
| BCP Bolivia | | | 835 | | | | 3.1 | | | | 860 | | | | 3.0 | | | | 889 | | | | 2.7 | |
| Insurance and Pension | | | | | | | | | | | | | | | | | | | | | | | | |
| Grupo Pacífico | | | 2,279 | | | | 8.6 | | | | 2,397 | | | | 8.3 | | | | 3,087 | | | | 9.5 | |
| Prima AFP | | | 575 | | | | 2.2 | | | | 497 | | | | 1.7 | | | | 500 | | | | 1.5 | |
| Microfinance | | | | | | | | | | | | | | | | | | | | | | | | |
| Mibanco | | | 2,363 | | | | 8.9 | | | | 2,781 | | | | 9.6 | | | | 2,996 | | | | 9.2 | |
| Mibanco Colombia | | | 234 | | | | 0.9 | | | | 241 | | | | 0.8 | | | | 265 | | | | 0.8 | |
Investment Management and Advisory (1) | | | 2,990 | | | | 11.3 | | | | 2,477 | | | | 8.5 | | | | 1,917 | | | | 5.9 | |
Other segments and eliminations (2) | | | (1,079 | ) | | | (4.1 | ) | | | (643 | ) | | | (2.2 | ) | | | 722 | | | | 2.4 | |
| Total | | | 26,497 | | | | 100.0 | | | | 29,004 | | | | 100.0 | | | | 32,460 | | | | 100.0 | |
(*) Balances corresponding to 2022 have been restated according to IFRS 17. For further detail please refer to note 3b on the 2023 Audited Financial Statements.
| (1) | Investment Management and Advisory mainly includes Credicorp Capital Ltd and subsidiaries and ASB Bank Corp. |
| (2) | Includes Grupo Crédito S.A.., Inversiones Credicorp Bolivia, BCP, SEAH and others. |
For a description of the principal markets in which we compete, please refer to “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (2) Lines of Business (LoBs), – (5) Competition, and – (6) Supervision and Regulation” and Note 27 to Credicorp’s consolidated financial statements. For a breakdown of total income and operating income by geographic market for each of the last three fiscal years, as well as other historical information about our LoBs, please refer to Note 27 to Credicorp’s consolidated financial statements.
(2)
Lines of Business (LoBs)
Our Universal Banking LoB, which focuses on lending and investment, is organized into (i) retail banking activities, including our Individuals, SME-Business, SME-Pyme (small and micro firm) segments, which are carried out by BCP Stand-alone’s Retail Banking Group (RBG); (ii) wholesale banking activities, including our corporate and middle-market banking business segments, which are carried out by BCP Stand-alone’s Wholesale Banking Group (WBG); (iii) treasury activities, including asset and liabilities management (ALM); sales and trading; and foreign exchange and derivatives distribution, which are carried out by BCP Stand-alone’s Treasury function; and (iv) wholesale and retail banking activities in Bolivia, which are carried out by BCP Bolivia.
The majority of our banking business is carried out through BCP Stand-alone, the leading bank in Peru by loans and deposits with close to 29% market share in loans and 32% market share in deposits according to the SBS. We conduct banking activities in Bolivia through BCP Bolivia, a full-service commercial bank.
2.1.1 BCP Stand-alone
| (I) | BCP Stand-alone’s Overview |
BCP Stand-alone has one agency in Miami and one branch in Panama. See “ITEM 4. INFORMATION ON THE COMPANY – 4.C Organizational Structure – (1) Credicorp – (i) BCP.” BCP Stand-alone’s operations are supervised and regulated by the SBS, SMV and the BCRP in Peru, by the Office of Financial Regulation of the State of Florida Department of Financial Services and the FED in the United States, and by the SBP in Panama. As of and for the year ending on December 31, 2023, BCP Stand-alone represented 75.8% of our total assets, and 77.0% of our equity attributable to Credicorp’s equity holders.
BCP Stand-alone’s purpose and values
BCP Stand-alone’s purpose is “Transforming plans into reality”. We aim to support our clients by seeking to always being with them while encouraging and transforming their dreams and plans into reality. We hope to simultaneously contribute towards building Peru’s story of development and progress and deepening our connection to communities in order to generate value for all stakeholders and ensure long-term sustainability.
We believe our values are key elements to fulfilling our purpose and shaping our culture. We call it our “WOW Culture” because it helps us to provide the best Customer Experience with a team committed to achieving our customers’ goals and dreams. Our values guide our employees and shareholders to work towards our purpose and reflect the role we want in Peruvian society. Our values are:
| • | Risk-conscious and righteous |
BCP Stand-alone Strategy
Our Strategy is geared towards delivering an extraordinary and efficient experience to remain competitive while investing in long-term sustainable growth. As such, we aim to be #1 in Customer Experience and to be the most efficient bank in the region.
Experience:
We are focusing heavily on digital coverage and high transactionality, facilitating banking needs anytime, anywhere.
Efficiency
We are focusing on solid income from margins and other income, expanding market share, launching new products, digitizing services, and generating new transactional income.
This strategy is delivered to the market through our business units, each having a distinct strategic approach.
| • | For Individuals, we developed a different strategy for each subsegment: from the Affluent where we have a value proposition based on personalized digital and physical comprehensive service, to a more digital cost-efficient and transactional value proposition for the mass market. |
| • | For SMEs, we have two objectives: To develop a digital solution and credit capabilities to serve smaller customers in a profitable way and to further develop risk-free income. |
| • | For Wholesale, we have several objectives: Defending our core business, expanding our services beyond banking, ensuring end-to-end digitization, and identifying ESG opportunities aligned with our Purpose. Through BCP Stand-alone’s strategy we aim to: (i) be number one in customer experience and (ii) have the best efficiency ratio in Latin America. |
We work to develop key internal capabilities, known as our enablers, that will help us to stay on course towards our ambitions. Our enablers are:
| • | IT: We seek to bring value to the market by increasing the amount, quality, and speed in our tech releases. |
| • | Data and Analytics: We seek to capture and exploit data in the most effective and intelligent manner. |
| • | Cybersecurity: We are focusing our efforts on the most effective strategies to reduce our exposure to cybersecurity risk. |
We believe that our enablers, leveraged by our talent and an agile mindset culture, will allow us to achieve our key objectives.
IT
To excel in Customer Experience, we need to have outstanding channel uptime and deliver new functionalities to market in record time; and to do this efficiently, we need modern technologies and a re-utilization of components.
Today 100% of our customer facing apps/websites are Cloud based and we have developed 500+ reusable APIs. Results have been impressive in all 3 target dimensions: we have 90% less service incidents with a world class uptime of 99.8%, we release 6 times the amount of features and have reduced transaction unit cost by 80%.
Data and Analytics
BCP has unparalleled data assets in the Peruvian market. As such, we have coupled our vast data pool with significant investments in Advanced Analytics which are deriving huge benefits, from personalizing solutions (over 50% of digital sales come from leads) to underwriting (credit files on +77% of the Economic Active Population), or award-wining pricing (as recognized by FICO, a leading analytics software company), among others.
Cybersecurity
We reduced our risk ratios and cybernetic vulnerability by strengthening our technological tools and processes as well as educating our employees and clients about such risks.
For further detail, see “ITEM 16K. CYBERSECURITY”.
To support these capabilities, we rely on a highly skilled and talented team (one that has been recruited, trained, upskilled) that operates on a well-established Agile delivery model. To continue satisfactory development of our enablers, we rely on our talent and an agile culture mindset.
Therefore, we are attracting, upskilling, and retaining diverse tech talent. We recruit and hire specialized data, analytics and IT professionals from Credicorp’s international hubs in different countries on various continents. We offer our tech talent the opportunity to develop leading edge capabilities in an environment in which we aim to lead in technology.
We believe BCP Stand-alone has an agile organization scheme which was consolidated by 1) implementing an agile management model to promote the alignment, prioritization, and accountability of our initiatives; 2) developing high performance agile teams that focus on initiatives that improve time to market, productivity and quality in our squads, which are our agile, autonomous and multidisciplinary teams that work within our Tribes and Centers of Excellence (CoEs); and 3) strengthening our chapters, which are highly specialized people that compose our CoEs, by raising the quality level of the service they offer to our squads. Tribes and CoEs are how we refer to our agile organizations dedicated to the creation and evolution of our highly specialized and strategic capabilities.
Where we stand today
We have undergone a considerable transformation over the last 5 years. In our perspective, our strategy has resulted in a larger, more digital, efficient, transactional, and sustainable bank in the long run. We have made significant strides in solidifying our Strategy; this has resulted in an improvement of our NPS (from 37 in 2022 to 45 in 2023) and significant progress in reducing our cost-to-income ratio by ~8%.
In general, our transformation results are leading us towards a more digitized, loyal and profitable customer profile – with more products, more use of digital channels and resulting in us being more profitable. Over the past 5 years, we have seen growth in several areas:
| • | Our customer base by 1.8: From 8.4 million in 2019 to 15.3 million in 2023. |
| • | Our Asset size by 1.3: From S/140.8 billion in 2019 to S/180.9 billion in 2023. |
| • | Our digital monetary transactions by 20.9x: From 181.6 million in 2019 to 3,794 million in 2023 (accumulated). |
| • | Our Total transactions by 8.5x: From 2,608 million in 2019 to 22,079 million in 2023 (accumulated). |
These large gains on most metrics reinforce (i) our capacity for growth, (ii) our successful digital strategy, (iii) the growing customers’ preference for our digital services and (iv) customer’s trust.
Our Strategy execution is not only resulting in a better experience and more efficient value proposition for our customers. Sustainability is a key pillar of our strategic approach, focused on generating a positive impact in society aligned with our purpose and our business. Since 2020, we banked included 4.1 million Peruvians, educated over 1.1 million individuals, trained over 270,000 microbusiness owners via “Contigo Emprendedor” (with the help of 2,747 employee volunteers), among other achievements.
As we keep on evolving, we stay committed to our purpose to transform plans into reality, with a clear and sustainable strategy, centered on maximizing customer and employee experience and improving the efficiency of our operations, within a sustainable framework. We embrace taking calculated and prudent risks, proving time and again that we can adapt and thrive in an ever-changing landscape.
| (II) | BCP Stand-alone’s Business Segments |
| | (II.I) | Retail Banking Group (RBG) |
As of December 31, 2023, Retail Banking-related loans represented 54.6% of BCP Stand-alone’s total loans, while retail banking-related deposits represented 66.3% of BCP Stand-alone’s total deposits.
The following table shows the client segmentation for RBG. This segmentation was a result of an analysis that addressed multiple factors such as the size and volume of activity for each client, the clients’ affiliation with other companies or groups and their credit ratings.
| Client Segmentation |
| Business | Segment | Group | Client Income/Sales/Total debt |
Retail Banking Group (RBG) | Individuals | Enalta | Individual monthly income at least S/20,000; or more than US$200,000 in asset under management (not including severance indemnity deposits) in each month for the previous 6 months |
Affluent | Individual monthly income from S/5,000 to S/20,000 in each month for the previous 6 months |
Consumer | Focus on medium- and low-income individuals (less than S/5,000 of individual monthly income) |
SME | Business | Annual sales from S/5.6 million to S/33 million; or total debt from S/1.2 million to S/10 million |
| Pyme | Annual sales up to S/5.6 million; or total debt up to S/1.2 million |
Individuals’ business segments within RBG are:
Enalta
Enalta services include investment advisory, securities-based lending, financial planning, and day-to-day banking services such as loans and cash accounts. In addition to regular branches, Enalta clients have access to eight exclusive branches (seven in Lima and one in Arequipa), where they are able to make financial transactions in a secure, private space, as well as experience personalized advice of investment, insurance and loan experts who offer exclusive, invitation-only products. The services mentioned are not only available for the client itself, but also for their household, which allows for additional financial relationships. The Enalta segment has close to 50,000 clients.
Affluent
Customers in RBG’s Affluent segment receive a differentiated value proposition that includes dedicated remote customer service, such as specialized account managers, preferential service by tellers at branches, an exclusive call center number, and preferential interest rates on loans. Approximately 80% of these clients are serviced through specialized remote account managers responsible for improving per-client profitability and achieving long-term relationships through personalized service, cross-selling, and share-of-wallet strategies. We believe we offer greater personalized services than other banks in Peru, with more products and therefore a stronger value proposition. The Affluent segment has approximately 310,500 clients, of which 273,000 are served by 311 relationship managers.
Consumer Banking
Our Consumer Banking segment is in charge of developing strategies for the retail customers who are not included in affluent banking or small business banking. Its customer base consists of approximately 12.8 million (only considers clients with at least one product) medium-to-low-income individuals. Consumer Banking focuses on customers who receive their payroll through BCP Stand-alone (which represents around 1.4 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 may include non-banking benefits (such as access to discounts on non-banking products) and access to payroll advances.
The main products offered to individuals are:
Mortgage
According to the SBS and the Association of Banks of Peru (Asociación de Bancos del Peru or ASBANC by its Spanish initials), as of December 31, 2023, BCP Stand-alone was the largest mortgage lender in Peru, with a market share of 33.1%.
One of the product lines in BCP Stand-alone’s mortgage lending to low-income customer is loans funded by the credit program of the Peruvian Housing Development Bank (Fondo MiVivienda). The Fondo MiVivienda credit program provides government-funded loans with down payment aid for the purchase of properties valued up to S/343,900. This program seeks to cover the deficit in housing for lower-income population segments.
According to the Fondo MiVivienda, during the year 2023, BCP Stand-alone made over 3,160 MiVivienda loans, representing the largest number of MiVivienda loans in the financial system. In addition, as of December 31, 2023, BCP Stand-alone had a MiVivienda market share of 39.1% according to SBS and the Association of Banks of Peru (Asociación de Bancos del Peru or ASBANC by its Spanish initials).
Mortgage loans are associated with low losses because of their low LTV, as they are backed by the home equity guarantee. These loans have the added benefit of generating opportunities for cross selling other banking products.
Credit Card & Consumer Loans
BCP Stand-alone’s current credit card balances increased from S/4,961 million as of December 31, 2022, to S/6,151 million as of December 31, 2023, due to the implementation of an intensive portfolio management strategy. The balances as of December 31, 2023, represent the highest year-end historically. Average active credit card holders increased 18.5% with respect to 2022 and average gross payment volume increased 16% compared to 2022. As a consequence, our credit card market share in Peru increased 144 basis points (bps) from December 31, 2022, to December 31, 2023, according to the SBS and the Association of Banks of Peru (Asociación de Bancos del Peru or ASBANC by its Spanish initials).
At BCP Stand-alone, we are focused on improving the purchasing experience of our cardholders. In 2023 we launched Google Pay with our VISA debit and credit cards, promoted contactless payments and carried out a recurring educational campaign to educate our customers on how to pay quickly, easily and securely.
During 2023, consumer loans showed a reduction of 30% compared to 2022, driven by an increase in late payments within the system that led us to limit our offerings to customers. We exercised caution in regard to our credit policies and managing provisions by skips by providing aid to 17,985 clients. In terms of sales, this left us at an average of S/546 million disbursed compared to S/780 million disbursed in 2022, consequently, efforts have been made to enhance conversion with high-quality clients, through analytical tools to identify sales opportunities within sound credit profiles. This strategy aimed to improve our offerings, resulting in sales rebounding above 500 million after challenging months.
Consumer loans without collateral balances decreased from S/8,308 million in 2022 to S/7,630 million in 2023 (representing 8% drop), and digital sales accounted for 90% of total loans sold in 2023.
The SME segments within RBG are:
SME-Pyme
The SME-Pyme segment served approximately 2.0 million clients as of December 31, 2023. The SME-Pyme credit portfolio totaled S/18,497 million as of December 31, 2023 (compared to S/19,250 million as of December 31, 2022), with the decrease due mainly to the repayment of Reactiva Peru loans that had been issued by the Peruvian government during the COVID-19 pandemic and the small credit portfolio of clients that migrated from Consumer Banking. Additionally, our SME-Pyme segment had a market share of 19.2% in Peru as of December 2023, according to the SBS. In 2023, we continued to serve our clients while digitizing our processes and systems. Finally, in the second year using NPS as a new customer satisfaction methodology, SME-Pyme showed clear advances. In the portfolio without a relationship manager, there was an improvement from 11 to 24 year-over-year, and in the portfolio of clients assigned to a relationship manager there was an improvement from 30 to 56 year-over-year.
SME-Business
The SME-Business segment served approximately 12,537 clients as of December 31, 2023.
In 2023, SME-Business experienced a reduction in loans and an increased deposit, which decreased 13% and increased 0.2%, respectively, from December 31, 2023, to December 31, 2022, mainly driven by lower Reactiva Peru loans. Excluding the effects of the Reactiva Peru Program, SME-Business’s loans balance increased by 6.9% over the same period.
According to the SBS and ASBANC, BCP Stand-alone closed November 2023 with 34.93% in loan market share in Peru, keeping BCP Stand-alone in first place in market share.
Furthermore, according to our internal customer satisfaction survey led by Ipsos Peru, 74% of our SME-Business clients indicated that they were satisfied or highly satisfied with BCP Stand-alone products and services in 2023.
Distribution Channels
Digital channels
| • | Mobile Banking: In 2023, more than 590.1 million monetary transactions were channeled through mobile banking at BCP Stand-alone, which represented a growth of 30.3% compared to the number of such transactions in 2022. We believe this growth was driven by client migration to digital channels. |
| • | Internet Banking: Transactions through Internet banking at BCP were at a total of 36.7 million monetary transactions in 2023, which represents a fall of 18.5% compared to the number of monetary transactions registered in 2022. |
| • | Yape: Yape registered higher growth in monetary transactions than any of our other channels from 2022 to 2023, reporting an expansion of 163.9% in monetary transactions from 1,200.2 million in 2022 to 3,167.2 million in 2023. |
For more details about Yape, please see “Retail Banking Innovations”.
Self-service channels
| ◾ | ATMs: In 2023, BCP Stand-alone’s ATM monetary transactions increased 2.2% from 2022 levels. BCP Stand-alone increased its ATM pool by 141 from the end of 2022 to close 2023 at 2,424 units. |
| ◾ | Kioskos BCP: Kioskos BCP are digital self-service platforms at which customers can open savings accounts and/or pick up debit cards. Approximately 5.7 million transactions were conducted through Kioskos BCP in 2023, which represented a 26% increase from 2022. |
Physical channels
| ◾ | BCP Agentes: BCP Agentes are legally separated points of contact at allied SMEs with which we contract to enable our clients to carry out certain transactions. BCP Agentes continue to constitute a highly effective channel for providing services to our clients given their wide availability in Peru. At the end of 2023, BCP Stand-alone had 10,683 BCP Agentes, which reflected an increase of 1,092 BCP Agentes compared to the end of 2022. BCP Agentes conducted 452.0 million monetary transactions in 2023, which represents an increase of 9.8% compared to 2022. |
| ◾ | Branches: At the end of 2023, BCP Stand-alone had 323 branches, which represented a reduction of 36 branches compared to the end of 2022. This decline was attributable to an increase in client digitalization levels related to the COVID-19 pandemic, which led us to optimize our network. |
Retail Banking Innovations
Yape
In Peru, we offer Yape, an app used to make money transfers and payments through a cell phone. Yape users can send or receive money transfers to their bank accounts linked to their cell phone number and/or a unique QR code, make cell phone credit recharges (Mobile Top-Ups), pay for basic services, request credit and view promotions in addition to other functions.
We intend to make Yape into Peruvians’ go-to app. To achieve this, Yape has three main goals. The first goal is to become the main payment network in Peru, competing with cash. To accomplish this, Yape focuses on small-amount payments that are otherwise made in cash. Yape’s second goal is to seek to provide solutions for Yape users’ financial needs. Yape’s third goal is to be present in its users’ day-to-day lives.
Yape serves as Credicorp’s primary tool for advancing financial inclusion in Peru, catering to nearly two-thirds of the Peruvians who previously lacked access to traditional banking services. To fulfill this mission, we have developed a fully digital enrollment journey, enabling Peruvians from all regions of the country to seamlessly access the array of services Yape offers. In early 2023, we further enhanced and streamlined the process to provide our customers with an even simpler and more efficient experience.
The combination of Yape’s user-friendly interface, the widespread adoption of smartphones, Credicorp’s commitment to fostering financial inclusion, and Yape’s prominent position within Peru’s payment ecosystem all contributed towards solidifying Yape as the flagship vehicle for advancing financial inclusion within our group. Yapecard, which is a digital account enrolled directly from Yape, was launched in May 2020. Peruvian citizens 18 years of age or older can register with an ID and use Yape without previously owning a BCP Stand-alone bank account (subject to meeting the bank’s compliance criteria). Yape has also carried out financial education campaigns in seven regions of Peru, allowing us to reach more than 50,000 Peruvians.
As of December 2023, Yape had more than 14 million users, 378 million monthly average transactions, S/137 billion transferred annually, and more than 2.7 million small businesses affiliated. More than 76% (a 10% increase compared to 2022) of Yape clients use Yape regularly for an average of 35 transactions per month (a 76% increase compared to 2021). The average monthly number of new Yape users grew from 290,000 in 2022 to 350,000 in 2023. At the end of December 2023; 68% of our stock has a BCP account, 29% has a completely digital BCP account as well and the remaining 3%, is affiliated through their accounts of Other Financial Institutions. We are interoperable with the largest banks in the country since March 2023 and from September 2023 with the rest of the financial institutions. We have achieved excellent levels of Stability and Recommendation reaching 80% of Net Promoter Score.
In late 2021, Yape started its monetization process by launching features that solve users’ day-to-day needs with two main objectives at the core of its design: i) simplicity (always keeping the users’ journey and interface simple and easy) and ii) value (all features adding tangible value to the users and the organization). To achieve these main objectives, during 2023, Yape grew its Mobile Top-Ups business, which was launched in late 2021 to allow users to buy cell phone credit from the Yape app, and achieved more than 18.6 million transactions in December 2023, which is nearly double the 9.9 million transactions in December 2022.
Yape QR business payments, a feature launched in July 2021, has experienced remarkable growth in just a short period of time. In December 2023, the Yape QR business payments service recorded S/365 million in Gross Payment Volume (GPV) and 11.2 million transactions, reflecting significant growth from December 2022, which saw GPV of S/102.8 million and 2.7 million transactions. We believe that both features have achieved initial success in being integrated into a growing share of Yape users’ day-to-day lives.
Additionally, Yape’s Checkout feature, introduced as part of our commitment to enhancing payment options, has empowered online merchants to seamlessly receive payments from Yape users. In December 2023, the Yape Checkout feature contributed to a substantial increase in transaction volumes, processing more than S/61.1 million in Gross Merchant Volume (GMV), marking a substantial growth compared to the previous year with a GMV of only S/6.0 million.
Yape Promos represents our initial foray into business sectors previously unexplored by us within the financial landscape. Unlike traditional payment processing, Yape Promos is closely aligned with the retail sector, functioning as a dynamic marketplace exclusively dedicated to promotions. Within this marketplace, Yape users gain access to exclusive offers and discounts from a diverse range of third-party businesses, including restaurants, convenience stores, entertainment venues, cinemas, and more. Since its inception, Yape Promos has quickly gained prominence as a go-to destination for users seeking deals and rewards. In December 2023, Yape Promos facilitated nearly a million transactions, accentuating the growing engagement of our users with the platform. We believe that Yape Promos has successfully bridged the gap between financial services and retail, providing our users with a unique and rewarding experience.
Yape’s Microloan service has been a cornerstone of our goal to empowering users with accessible financial solutions. Initially, Yape offered single-installment microloans, providing users with quick access to small-scale credit. Building upon this foundation, in 2023, we introduced a significant enhancement by launching multi-installment microloans, further expanding our range of credit options. With this expansion, we introduced higher ticket and more term options, allowing users to access more flexible and convenient credit solutions to better suit their needs. As of December 2023, Yape’s Microloans recorded 101.4 thousand transactions, reflecting the growing acceptance and utilization of this service. We are dedicated to continuously evolving and refining our financial offerings to best serve our users.
To provide customers with more value options and connect them with the financial world, and to consolidate Yape as a Super App, the following functionalities were launched in 2023: Service Payments (January 23), Mandatory Car Accident Insurance (February 23), Forex Exchange (August 23), Ticketing (September 23), Gaming (September 23), Remittances (October 23), Loans with multiple installments (October 23), Yape Tienda (October 23). In December 2023, more than 7.8 million Yape clients used one or more of these new features. This development and release of new features reflects our aim of simplifying the lives of Yaperos.
| (II.II) | Wholesale Banking Group (WBG) |
As of December 31, 2023, wholesale banking loans represented 45.4% of BCP Stand-alone’s total loans, while wholesale banking deposits represented 33.7% of BCP Stand-alone’s total deposits. WBG competes with local and foreign banks in Peru. WBG’s average daily balances amounted to S/52,954 million in 2023 (a 6.2% decrease from 2022), compared to average daily balances of S/56,470 million in 2022 (a 6.8% increase from 2021). It also maintained its leadership in the Peruvian Wholesale Banking market with a 37.0% market share in loans, according to the SBS and ASBANC. It has also established longstanding client relationships with major industrial and commercial groups in Peru. The WBG provides its customers with cash management solutions, short- and medium-term loans in local and foreign currencies, foreign trade-related financing, and lease and project financing.
The following table shows the client segmentation of BCP Stand-alone’s WBG segments. This segmentation was a result of an analysis, which addressed multiple factors such as the size and volume of activity for each client, the clients’ affiliation with other companies or groups and their credit ratings.
| Client Segmentation |
| Business | Group | Client Income/Sales/Total debt |
WBG (1) | Corporate | Annual sales higher than $100 million |
(Approximately S/371 million) |
Middle-Market | Annual sales from $10 million to $100 million (Approximately S/37 million to S/371 million) |
(1) Converted into Soles at the exchange rate of S/3.709 per US Dollar, December 31, 2023, as provided by the SBS.
WBG is divided into the following divisions and support areas:
Corporate and International Division (CID)
The CID served 2,980 clients as of December 31, 2023. The CID provides financing for capital expenditures and investments, sales, international trade, and inventories. It offers medium- and long-term financing, financial leases, and project financing.
| 1. | Corporate banking subdivision, which provides loans and other credit and financial services. This subdivision focuses on serving large companies in Peru, which we consider to be those with annual sales of over US$100 million, corporate governance, audited financial statements, and dominant market positions in their particular brands or product areas. Even if clients do not meet any of these criteria, the CID may provide services to firms under this category if they belong to a large economic group of an important industry to Peru’s economy. |
| 2. | Leasing subdivision, focuses on providing clients with financial leasing products to acquire and renew their assets, expand plants, production lines, among others, without distracting your working capital. |
Through the CID, BCP Stand-alone assists its corporate clients with financial services, cash management solutions, and short- and medium-term financing. BCP Stand-alone’s corporate banking loans, measured in average daily balances and including Reactiva program loans was S/29,992 million in 2021, to S/33,387 million in 2022 and S/31,888 million as of December 2023.
BCP Stand-alone has a leading position in the Peruvian banking system with 37.7% of the market share for corporate banking loans, according to the SBS and ASBANC, despite the intense competition of foreign banks that may offer lower rates to the market since they finance their operations at lower costs from their headquarters jurisdictions.
International Banking
International banking and Trade Finance subdivision, which manages relationships with financial institutions (locally and abroad) and provides trade products and international operational services.
BCP Stand-alone’s Correspondent Banking Unit focuses on obtaining and providing short-term funding for international trade, as well as medium-term lines of credit funded by international commercial banks and other countries’ governmental institutions. This unit also earns fees by confirming letters of credit and guarantees issued by international banks and by providing other international payment and trade finance services. The unit also provides funding to some other Latin American banks which send their international trade and guarantee flows to Peru through BCP Stand-alone. BCP Stand-alone’s Correspondent Banking Unit also promotes international trade activities with its local clients by structuring trade products and services, organizing and sponsoring conferences, and advising customers through a wide range of trade products.
Middle-Market Banking Division (MMD)
The MMD served 6,752 clients as of December 31, 2023. Regarding MMD, we note the following:
| (i) | The MMD serves mid-sized companies, organizations, and institutions. MMD considers a mix of different characteristics in identifying potential clients, such as annual revenues, financial leverage, overall debt, product penetration, and complexity. The MMD clients’ annual revenues generally range between US$10 million to US$100 million and are serviced nationwide by 12 BCP Stand-alone regional managers and multiple industry-focused service teams. |
| (ii) | MMD focuses principally on serving for-profit and non-profit organizations, state-owned companies, and other significant institutions. |
| (iii) | Furthermore, the Institutional Banking Unit, which operates within the MMD, serves 1,522 clients throughout Peru. In Lima, a specialized MMD team serves governmental entities, educational institutions, religious organizations, international bodies, non-governmental organizations, civil associations, and regulated entities, such as microfinance institutions, insurance companies, pension funds, and other private funds. BCP Stand-alone has also deployed specialized MMD teams in the largest provinces in Peru. In the smaller provinces in Peru, MMD is supported by the Retail Banking Division team in attending to our customers’ needs. |
| (iv) | Additionally, we also have BCP Xplore, the first exclusive banking for startups and fintech companies in Peru. It was created this year to serve this segment of clients, offering them specialized advice on their needs, specific products and services and help to scale up through strategic alliances and synergies with companies of the Credicorp Group such as Krealo, Yape, among others. As of December 2023, we have 180 clients in the segment and the loan portfolio was S/266 million soles. |
| (v) | The cash management and transactional services subdivision, which operates within the MMD, develops products and services to support clients’ daily cash management activities, collections payments, and investments, among others. |
The MMD loan portfolio was S/22,900 million as of December 2021, S/23,083 million as of December 2022, and S/21,065 million as of December 2023. By December 31, 2023, BCP Stand-alone had a market share of 36.2% in the Peruvian middle-market segment, according to the SBS and ASBANC.
The products offered to middle-market clients are similar to those offered to corporate banking clients. The major types of products are:
| (1) | Revolving credit lines to finance working capital needs and international trade financing. |
| (2) | Standby letters of credit and bond guarantees. |
| (3) | Structured long-term and medium-term financing, through loans or financial leasing; and |
| (4) | Cash management, transactional products, and electronic banking. |
WBG Transformation
As part of WBG’s transformation process, we created Tribes that, through the use of the agile methodology, allow us to better understand customer pain points and create new products that help us solve them. These Tribes are:
| (1) | Tribe of Business Credit Products: Giving their business clients efficient financial solutions through an outstanding and unique experience that satisfies their main needs. |
| (2) | Tribe of Transactional Products for Businesses: Giving their business clients integral solutions that simplify their cash management processes and generate customer loyalty. |
| (3) | Tribe of Digital Platforms for Businesses: Giving their business clients an outstanding and unique digital experience to become their ‘top of mind’ choice. |
We believe that our talent, with the support of enablers, has allowed us to develop initiatives to improve the customer experience through more efficient processes and services. In the WBG we aim to address our clients’ preferences by improving business profitability, preserving risk quality, and enhancing our digital platforms. Our strategy has been focused on the following points:
| • | Collections process enhancement: Due to greater competition in the non-lending business, we have implemented projects focused on digitalizing our clients’ collections journey, providing them with an improved customer experience and maintaining our leadership position in the Peruvian collection market. During 2023, we deployed campaigns to attract new users and worked closely with Yape to enable its application as an additional channel for our Wholesale Banking clients to collect payments from their customers. |
| • | A unique and powerful digital platform offering: Update of our online banking platform for companies named Office Banking, aiming to deliver the best digital platform in the local financial market that allows us to accompany our clients in all their journeys, offering a digital end to end solution with 24/7 accessibility to our product and services portfolio. |
| • | Operational stability improvement: We aim to ensure the security and availability of our platforms. |
| • | Financial ecosystems and Open API development: We focus on creating an interconnected services network that allows users to satisfy multiple needs through a single integrated digital experience. |
Profitability Management
We elaborated on the pricing advisory analysis for lending and non-lending products offered to our clients, with the aim to recommend prices based on a 360 view of our clients. In addition, we established monthly management Pricing Committees to help sales teams to implement these pricing recommendations, and to monitor revenues resulting from these actions.
We also focused on pricing digitalization to improve customer experience and convenience. Thus, we worked together with Wholesale Tribes to implement a pricing feature on our digital platform for one of our financing products, allowing some of our clients to self-disburse loans at a predefined price, without requiring further manual intervention by relationship managers.
Sustainable Finance
WBG is committed to the sustainability objectives of Credicorp and BCP stand-alone, which intends to create a more sustainable and inclusive market. In 2023, WBG offered Sustainable Financing alternatives to clients, such as green shot medium-term loans and eco-factoring credit lines, (working capital credit lines to finance the accounts payable of clients, and its suppliers, that accomplish with certain transition or eligibility criteria). Green loans were granted with a use of proceeds approach, according to Green Loan Principles and other relevant international criteria, empowering our clients to finance projects within categories included in the Green Taxonomy of BCP (for example, renewable energy, clean transportation, green building, sustainable agriculture, and sustainable water resource management). BCP has labeled 59 green loans, considering medium-term loans and revolving credit lines, for sustainable development projects and initiatives and conducted ESG financing training for the commercial team of the WBG.
(II.III) Treasury
BCP Stand-alone’s Treasury function is divided into four primary units: (1) the ALM Group, (2) the Sales and Trading Unit, (3) the Foreign Exchange and Derivatives Distribution Unit, and (4) the Treasury Tribe.
ALM Group
The ALM Group is responsible for managing BCP Stand-alone’s statement of financial position and for taking reasonable interest rate and liquidity risks under the oversight of our Asset and Liabilities Committee (ALCO). The ALM Group is also responsible for managing the investment portfolio, Liquidity Coverage Ratio (LCR) and Capital requirements. In addition, the ALM Group participates in money and debt capital markets, oversees reserve requirements, and manages BCP Stand-alone’s liquidity. The ALM Group has been active in auctions held by the BCRP for certificates of deposit as well as in financing its funding needs, interbank transactions, guaranteed negotiable notes, and other instruments.
ALM Group also maintains corporate responsibilities in Credicorp, aiming to optimize liquidity from a global Credicorp perspective, use corporate capabilities to support subsidiaries in their debt management, manage Credicorp’s foreign exchange risk, as well as its exposures and credit lines with a holistic approach, and ensure optimal capital levels.
Sales and Trading Unit
BCP Stand-alone’s Sales and Trading Unit manages both foreign exchange and interest rate risk exposure and investments for market making and market timing purposes. The managed risk originates mainly from client liquidity transactions and from open market timing positions. Market risk exposures and limits are independently defined by the Market Risk Unit and closely monitored by the Treasury Risk Unit. Additionally, an Investor Sales team within the Sales and Trading Unit actively reaches out to institutional investors, providing direct access to market maker prices and liquidity. The Sales and Trading Unit includes both a Foreign Exchange Desk and an Interest Rates Desk that manages risk as follows:
| • | Foreign Exchange: The Foreign Exchange Desk provides liquidity for spot and forward transactions for its clients and other market makers in US Dollar-Peruvian Soles (USDPEN), other Latin-American currencies, and G-10 currencies. The Foreign Exchange Trading Desk also manages the foreign exchange volatility book for USDPEN. Additionally, the desk participates in foreign exchange transactions related to different instruments designed by the BCRP to smooth out any currency volatility. |
| • | Interest Rates (IR): The Interest Rates Desk manages the investments and risk originating from both fixed-income and swap transactions from clients and market timing strategies. BCP Stand-alone’s fixed-income portfolio consists mainly of government bonds (both in local and hard currency) from Latin-American countries and US Treasuries. The Interest Rates Desk is one of the main liquidity providers in the Peruvian government bond market, where it is a leading participant of the Market Maker Program of the Ministry of Economy and Finance of Peru (MEF). |
Foreign Exchange and Derivatives Distribution Unit
BCP Stand-alone’s Foreign Exchange and Derivatives Distribution Unit helps companies with their foreign exchange needs (spot and hedging) through its Distribution Desk. The broad portfolio of foreign exchange products provided to its client base has allowed the Foreign Exchange and Derivatives Distribution Unit to position itself as a benchmark in the foreign exchange business in the Peruvian market.
Structuring and Client Derivative Solutions Unit
BCP’s Structuring and Client Derivative Solutions Unit is formed by two teams:
| • | The Structuring Team is in charge of developing solutions for clients, often involving derivatives, and providing insight and better comprehension of these products to BCP’s commercial teams. |
| • | The Client Derivative Solutions Team plays a role similar to the Foreign Exchange and Derivatives Distribution Unit but focuses more specifically on derivatives. It interacts with our customers in order to provide what they demand via a better understanding of their needs and transmitting these to the Structuring Team if the solution is not already available. Another of its aims is to increase the awareness of structured solutions and derivatives within the bank and clients. |
Treasury Tribe
The Treasury Tribe is responsible for providing technological support to the different units that make up the Treasury function through the enabling of platforms and technological tools; as well as, through the implementation of different initiatives that allow business scalability. The Tribe is made up of six squads — five for the development of initiatives related to products (Exchange, Foreign Exchange & Derivatives, Investments & Funding, Liquidity and ALM) and one for shared requirements across those products.
| (III) | BCP Stand-alone’s lending policies and procedures |
BCP Stand-alone has adopted a risk appetite framework, objective metrics and thresholds to periodically monitor the Bank’s evolving risk profile. The framework was approved by the Bank’s Board of Directors and is managed and monitored by the Risk Management Division within BCP Stand-alone’s Central Risk Management Group. The adoption of a risk appetite framework reflects BCP Stand-alone’s commitment to aligning its forward-looking business strategy with the Group’s risk vision.
BCP Stand-alone’s uniform credit policies and approval and review procedures are based upon conservative criteria. These policies are administered in accordance with guidelines established by the Peruvian financial sector laws and SBS regulations. For further information, see “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (6) Supervision and Regulation”.
BCP Stand-alone’s credit approval process is based primarily on an evaluation of each borrower’s repayment capacity and commercial and historical credit behavior. BCP Stand-alone 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 factors that BCP Stand-alone analyzes include the company’s current management and the quality of any collateral to be provided. In addition, BCP Stand-alone’s credit officers analyze the corporate client’s ability to repay obligations, estimate the probability of default of the client using an internal risk rating model, and define the maximum credit exposure that BCP Stand-alone wants to hold with the client.
The process of standardized risk model building and monitoring based on new sources of information and innovative statistical techniques was crucial to the Group transformation to endure decisions in the credit process, such as admission, monitoring, and recovery. In particular, more complex models with enriched data allow for the inclusion of lesser-known customers into the BCP Stand-alone portfolio and the more precise estimation of income and sales, which otherwise would have been done by physical means. These models are continuously monitored in order to assess their accuracy and are revised if necessary. Given the complex macroeconomic context of 2023, marked by significant inflation and a general rise in bank reserves within the financial system, the calibration frequency of models in the personal and SME segments increased.
BCP stand-alone evaluates admission and portfolio management processes through scoring and rating models, whose default probabilities are used for credit evaluation. These admission models, along with the guidelines (policies) for granting credit (which include, among other issues, the client’s financial history, payment capacity and the degree of knowledge of the client), are defined by the units of risks according to the guidelines approved by the different risk committees of the Group companies. Most sophisticated decisions about loan applications are made by loan officers who use various credit tools for their evaluations. During 2023, the changes in risk management have focused on 3 blocks: i) adjustment in the Default Probability cut-off points of the segments with the highest risk, ii) more granular monitoring of our early risk models and indicators, and iii) improvement of our income estimators for loan granting.
BCP’s Credit Risk Department completed its third year operating in an agile framework, in which tribes and squads follow an agile operating model that allows them to plan, prioritize and focus on initiatives that directly contribute to established objectives as well as providing flexibility and agility in order to create value for our clients.
Under the agile framework, tribes and squads consist of diverse team members such as risk specialists, data scientists and risk policy implementation members among others that previously worked separately and more remotely in distinct units. Operating under cross-functional squads has created a better understanding and alignment of goals in a timely schedule, through increased and improved communication and collaboration. Squads achieve a faster and more effective exchange of data, information, and knowledge. Consequently, BCP’s Retail Risk Division has used this framework to enhance the bank’s abilities to more precisely and timely identify and assess the specific segments and subsegments that may require adjustments in credit policies and processes in order to be optimally managed.
Our performance in the small business and personal lending areas depend largely on BCP Stand-alone’s ability to obtain reliable credit and client information about prospective borrowers. BCP Stand-alone has a large body of transactional information that is used in credit risk models. Also, the SBS has an extensive credit bureau, which has expanded its credit exposure database service to cover businesses and individuals that have borrowed any amounts from Peruvian financial institutions.
BCP Stand-alone periodically reviews the payment behavior of its diverse portfolios and segments with a deep level of granularity as part of its monitoring process. These assessments allow for the early identification, evaluation, and management of changes in credit quality, which leads to a timely evaluation and calibration of the expected loss models. In order to ensure the appropriate levels of accuracy and performance of our admission and behavior models, we keep developing methodological improvements, that include the expansion of our universe of data and variables, as well as the introduction of adjustments for economic trends or volatility (e.g., inflation).
BCP Stand-alone has a strictly enforced policy that limits 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 Stand-alone’s credit approval process, the lending authority for WBG is centralized into a specialized credit risk analysis division. This division is operated by officers and committees that have specific lending limits set by clients and economic groups. Likewise, for RBG, there is another specialized credit risk analysis division that also operates with lending limits by product portfolio. In addition to the controls built into the loan approval workflow systems, the credit risk management divisions and internal auditors regularly review credit approvals to ensure compliance with lending policies.
For the WBG, in accordance with international standards, BCP Stand-alone has established lending authority limits based on risk rating (probability of default) and particular guarantees of the borrower. Requests for credit facilities in excess of the limits set for credit officers are reviewed by the Credits Committee, Executive Committee or, if the amount requested is sufficiently large, by BCP Stand-alone’s Board of Directors. In addition, BCP Stand-alone has concentration limits in the loan portfolio by industry, which is based on its target risk appetite and market share.
BCP Stand-alone believes that an important factor to maintain the quality of its loan portfolio is the selection and training of its loan and risk officers. BCP Stand-alone requires loan officers to have degrees in economics, accounting, business administration or related fields from competitive local or foreign universities. In addition, training for new loan officers begins with a three-month program that covers all aspects of banking and finance. Subsequently, loan officers receive training in specific matters throughout their careers at BCP Stand-alone. Laterally hired officers are generally required to have prior experience as loan officers.
BCP Stand-alone operates in substantial part as a secured lender. As of December 31, 2023, approximately S/59.7 billion of its loan portfolio and off-balance-sheet exposure was secured by collateral, which represents 43.1% of its total loan portfolio excluding overseas branch office BCP Panama and overseas agency BCP Miami, as compared to 41.1% in 2022 and 44.0% in 2021. The decrease since 2020 was driven in large part by the repayment of loans guaranteed under the Reactiva Peru Program (which provides coverage of between 80% and 95% of principal value). Excluding loans guaranteed under the Reactive Peru Program, 42.1% of the portfolio was secured by collateral in 2023 as compared to 38.6% in 2022.
Liquid collateral is a small portion of BCP Stand-alone’s total collateral. BCP Stand-alone requires collateral for the extension of credit depending on the risk profile and the business segment of the client, among other factors. When BCP Stand-alone requires collateral, it is usually valued at between 110% and 150% of the principal amount of the credit facility granted. The appraisal of illiquid collateral, in particular real estate assets, machinery and equipment, is performed by independent experts. BCP Stand-alone’s internal audit division conducts selected revisions and analyses on borrowers’ financial statements, consistent with the local banking regulations of the jurisdictions in which it operates.
In BCP Stand-alone’s credit monitoring unit, we continue to improve the anticipation of credit deterioration for Wholesale Banking and Business Banking customers. In addition to reactive alerts, in 2022 we added anticipatory alerts to our process, which notifies us about the possible deterioration of clients that could occur in the next six to nine months. This model uses transactional flows (cash flows in current accounts, both in and out) as input.
Additionally, we have a sectorial taxonomy for risk management in case of unexpected events. This map is prepared by segmenting the portfolio by economic activities and identifying the risks for each sector. Since 2022 we added sustainable activities to this taxonomy, focusing on the environment. In relation to rescheduled loans and loans under the Reactiva program, we continue to perform quarterly portfolio monitoring for different risk variables in order to identify the level of portfolio risk. These variables include rating, type of credit according to SBS, classification, credit exchange risk, and unique risk, among others. Likewise, we carry out an individual follow-up on a quarterly basis according to the alerts of each client.
BCP Bolivia’s activities include wholesale banking and retail banking. As of December 31, 2023, BCP Bolivia had total assets of S/13,500.9 million, which include total loans of S/9,401.8 million, customer deposits of S/11,482.1 million, and shareholders’ equity of S/888.6 million. BCP Bolivia’s ROAE in 2023 was 9.5%.
As of December 31, 2023, BCP Bolivia’s loans represented approximately 8.8% and its deposits 9.0% of total loans and total deposits in the Bolivian banking system, respectively, according to ASFI.
The following table shows the BCP Bolivia’s client segmentation. This segmentation is a result of an analysis which addresses multiple factors such as the size (by income, sales, and/or debt) and volume of activity for each client, the clients’ affiliation with other companies or groups, and their credit ratings.
Client Segmentation (1) |
| Business | Group | Income/Sales/Total Debt |
| Wholesale Banking | Large companies (2) | Annual sales higher than approximately S/60 million |
Medium companies (3) | Annual sales from approximately S/4 million to S/60 million |
Retail Banking (5) | Small business (5) | Annual sales from approximately S/0.1 million to S/4 million |
Micro business (5) | Annual sales of at least approximately S/0.1 million |
Consumer (6) | Payroll workers and self-employed workers |
Mortgage Banking (7) | Payroll workers, independent professionals, and business owners |
| (1) | Converted into Soles at the exchange rate of S/3.709 per U.S. Dollar, December 31, 2023 - SBS. |
| (2) | Loans to Large companies account for 38% of BCP Bolivia’s total loans. This segment accounts for approximately 317 customers. |
| (3) | Loans to Medium companies account for 14% of BCP Bolivia‘s total loans. This segment accounts for approximately 559 customers. |
| (4) | At the end of 2023, retail banking loans accounted for 49% of total loans of BCP Bolivia, while retail banking deposits accounted for 29% of BCP Bolivia’s total deposits. |
| (5) | Small and Micro business banking accounts for 10% of total loans of BCP Bolivia, small business banking serves approximately 7,756 clients while Micro Business serves approximately 14,905 business clients. |
| (6) | Consumer banking accounts for 10% of total loans of BCP. Its customer base consists of approximately 58,917 Payroll and self-employed workers. Our strategies are based on cross-selling and retention programs that expand benefits to non-banking products. |
| (7) | This segment serves 9,315 customers, representing 29% of BCP’s total loans |
Our purpose is “To Give Opportunities”. We aim to make our stakeholders’ dreams possible, encouraging and generating opportunities that allow them to build their future, while contributing to the development and growth of the country.
At BCP Bolivia, we have key objectives that guide our journey: (i) managing the most profitable loan portfolio among peers, (ii) being number one in customer experience, (iii) being number one in digital solutions, and (iv) being the main payment network in Bolivia. To meet these objectives, we work with two enablers: (i) data and analytics, and (ii) talent.
In order to become the main payment network in Bolivia, BCP Bolivia launched Soli in 2016, now known as Yape. Yape is our mobile wallet, with which we seek to develop digital ecosystems, promote digital transformation, and lead the world of payments in Bolivia. Today, with Yape, users can pay their utilities’ bills, add credit to their smartphones, make all sorts of payments, and receive money from any bank account or another Yape account. We want to eradicate cash and become an integral part of Bolivians’ daily life with a tool that provides in our opinion the best payment experience; easy, fast, and free.
Distribution Channels
Digital channels
| • | Yape: As part of our commitment to increasing access to banking products and services, BCP Bolivia fosters the development of an ecosystem for digital payments with the mobile app Yape (formerly branded as Soli), launched in 2016, which at the end of 2023 had 1.3 million users. In 2023, transactions via Yape represented 40% of BCP Bolivia’s total monetary transactions (up from 17% in 2022). |
| • | Mobile banking: Monetary transactions executed through mobile banking represented 23% of BCP Bolivia’s total monetary transactions in 2023 (down from 25% in 2022). |
Self-service channels
| • | ATMs: BCP Bolivia had 315 units on December 31, 2023, which accounted for 12% of its total monetary transaction volume in 2023 (down from 20% in 2022). |
Physical channels
| • | BCP Bolivia reduced 5 BCP Agentes in 2023, bringing the total number of BCP Agentes to 1,350 as of December 31, 2023. Monetary transactions through BCP Agentes represented 13% of BCP Bolivia’s total monetary transactions in 2023 (up from 17% in 2022). |
| • | Branches: BCP Bolivia reported a total of 46 branches at the end of 2023 (45 in 2022). Monetary transactions in BCP Bolivia’s branches continued to decline in 2023 and represented only 2% of BCP Bolivia’s total monetary transactions in 2023 (down from 4% in 2022). |
(I) Microfinance Overview
The Microfinance LoB is focused on offering commercial banking activities and specialized financial services to small and micro business clients in Peru and Colombia through Mibanco. Mibanco Colombia was created in October 2020 after a reverse merger between Edyficar S.A.S. (whose commercial name was Encumbra) and Bancompartir (the surviving entity). The Mibanco franchise has a loan portfolio of S/15,006.1 million and approximately 2.2 million clients, representing around 8.0% of Credicorp’s total assets and 10.0% of the equity attributable to Credicorp’s equity holders. As of December 31, 2023, Mibanco Peru represented around 88.4% of the total loans of the Microfinance LoB.
For further information see “ITEM 4. INFORMATION ON THE COMPANY – 4.A History and development of the Company”.
Mibanco’s Purpose
Mibanco’s purpose is to transform lives and accompany our clients as they write their success stories. By doing so, we expand financial inclusion in the markets in which we operate. Microfinance is a social business, and its success depends on the social development of our clients, employees, and communities.
Transformation Strategy
Mibanco’s transformation strategy is focused on migrating its traditional business model, which is intensive in people and offices, to a multichannel hybrid model supported by data and analytics. The hybrid model, implemented without compromising Mibanco’s differentiated focus on the customer, has resulted in increased efficiencies, allowing Mibanco to strengthen relationships with its clients, while also expanding its potential reach.
This model is anchored by the high-touch relationship that Mibanco strives to retain with its clients and is based on three main capabilities:
| • | Centralized intelligence for risk assessment |
| • | Alternative distribution channels |
| • | Commercial execution by our relationship managers |
This new approach will be enabled by a combination of four key areas developed by the best talent:
We are deploying Mibanco’s transformation strategy, which has enabled us to consolidate our hybrid model. We believe this has allowed Mibanco to achieve profitability, albeit weak, in a challenging year for this industry in Peru and Colombia, due to the macroeconomic conditions described above. We are strengthening risk management to resume growth and profitability while we build more diversified and resilient business models in the medium term. Our centralized intelligence allowed us to adjust commercial guidelines and mitigate the impact of portfolio deterioration. We closed the year with new capacities to implement more preventive models and conduct more granular follow-up on the portfolio’s behavior. Additionally, we believe the experience for our clients improved, as demonstrated by increases in our client NPS (Net Promoter Score) by 6 percentage points in 2023. We believe we are now better prepared to achieve growth in 2024.
In Peru alone, there are almost 4 million unbanked entrepreneurs across the country, which we are best positioned to reach based on our countrywide and digital network. We believe there is a comparable market opportunity in Colombia, where has a microfinance sector of similar size to Mibanco Peru’s loan portfolio but an economy with approximately 1.4 times the GDP of Peru’s. We believe there is an opportunity to replicate, through the “Mibanco Way”, the improvements that we are already seeing in Peru in terms of productivity, cost of risk and efficiency.
The following table shows how Mibanco segments its clients. This segmentation is based on an analysis that considers multiple factors, such as business size and client income, sales, and/or total debt, among others, as well as the client’s affiliation with other companies or groups and their credit ratings.
Client Segmentation (1) |
| Group | Income/Sales/Total debt |
SME – medium (2) | Annual sales up to S/20 million |
| Total debt higher than S/300,000, without issued debt in the capital markets |
SME – small (3) | Total debt from S/20,000 to S/300,000 |
Microbusiness (4) | Total debt up to S/20,000 |
Consumer (5) | Focus on debt unrelated to business |
Mortgage (6) | Focus on individuals for the acquisition and construction of homes and granting mortgages |
| | (1) | As of December 31, 2023, Mibanco had 843,896 registered clients. All portfolio percentages and customer counts in this table and the associated notes are as of December 31, 2023, unless otherwise disclosed. |
| | (2) | Mibanco’s SME – medium segment focuses on financing production, trade, or service activities for companies that (1) have total debt in the last 6 months higher than S/300,000, (2) annual sales up to S/20 million in the last 2 consecutive years, and (3) have not participated in the capital markets. This segment represents 4% of Mibanco’s total loans and 3,842 of its clients. |
| | (3) | Mibanco’s SME – small segment focuses on financing production, trade, or service activities for companies that have total debt between S/20,000 and S/300,000 in the last 6 months (without including mortgage loans). This segment represents 69% of Mibanco’s total loans and 228,987 of its clients. |
| | (4) | Mibanco’s microbusiness segment focuses on financing production, trade, or service activities for companies that have total debt up to S/20,000 in the last 6 months (without including mortgage loans). Microbusiness loans represent 20% of Mibanco’s total loans and 515,454 of its clients. |
| | (5) | Mibanco’s consumer segment focuses on financing individuals to cover payments of goods and services or expenses unrelated to business. Consumer loans represent 3% of Mibanco’s total loans and 93,741 of its clients. |
| | (6) | Mibanco’s mortgage segment focuses on financing individuals’ acquisition, construction, renovation, remodeling, expansion, improvement, and subdivision of homes. Mortgage loans represent 4% of Mibanco’s total loans and 5,227 of its clients. Mibanco’s mortgage segment has a policy of limiting LTV to up to 90%. |
Distribution Channels
Digital channels
| • | Mibanco Mobile App: In 2023, 13.5 million transactions were processed through Mibanco’s Mobile App, which represented an increase of 25% compared to the 2022 total. Additionally, 184,072 loans were requested through the app in 2023 (S/537.9 million in disbursements in 2023). |
| • | Mibanco Web: Mibanco’s web page processed 0.8 million transactions in 2023, which represented a decrease of 39% compared to 2022. Additionally, 10,379 loans were requested through the web in 2023, for which Mibanco had disbursed S/22.7 million in 2023. |
| • | Yape: Since June 2020, Mibanco’s clients have been able to create a Yape account with their bank account. As of 2023, 199,765 Yape users have a Mibanco bank account linked to their Yape account. |
| • | Yevo: Yevo, our digital community for entrepreneurs, had 442,381 users at the end of 2023, and offers these affiliates tools to boost their business, financial services, and education. |
Physical channels
| • | Agentes Kasnet: As part of the services offered to its clients, Mibanco has an agreement with Agentes Kasnet, a network of Multibank correspondents in Peru. At the end of 2023, 14,843 Agentes Kasnet were available for Mibanco clients. |
| • | Branches: At the end of 2023, Mibanco had 294 branches; 256 were own branches while 36 belonged to Banco de la Nacion, a Peruvian state-owned bank that offers services to Mibanco clients under a special agreement. |
The following table shows how Mibanco Colombia segments its clients. This segmentation is based on an analysis that considers multiple factors, such as business size, client income, assets and/or total debt, among others, as well as the client’s affiliation with other companies or groups and their credit ratings.
| Client Segmentation |
| Group | Income/Sales/Total debt (1) |
Commercial (2) | Debt not categorized as micro, consumer, or mortgage. |
Micro (3) | Total debt up to 120 statutory minimum wages (equivalent to S/133,214). |
Consumer (4) | Focus on debt unrelated to business. |
Mortgage (5) | Focus on individuals for acquisition, construction of homeownership and granted with mortgages. |
| | (1) | Converted into Soles at the exchange rate of S/. 0.000957 per Colombian Peso as of December 31, 2023. As of December 31, 2023, Mibanco had 152,982 registered clients. All portfolio percentages and customer count in the table and the associated notes are as of December 31, 2023, unless otherwise disclosed. |
| | (2) | Mibanco’s commercial segment focuses on all credits other than Micro, Consumer and Mortgage. Commercial loans represent 24.9% of Mibanco’s total loans and 7,620 of its clients. |
| | (3) | Mibanco’s microbusiness segment focuses on financing production, trade, or service activities for companies that have total debt up to 120 statutory minimum wages (approximately S/133 thousand) and workers up to 10. Microbusiness loans represent 72.4% of Mibanco’s total loans and 143,731 of its clients. |
| | (4) | Mibanco’s consumer segment focuses on financing individuals to cover payments of goods and services or expenses unrelated to business. Consumer loans represent 0.1% of Mibanco’s total loans and 456 of its clients. |
| | (5) | Mibanco’s mortgage segment focuses on financing individuals’ acquisition, construction, renovation, remodeling, expansion, improvement, and subdivision of homes. Mortgage loans represent 2.6% of Mibanco’s total loans and 1,175 of its clients. |
| | (I) | Grupo Pacífico Overview |
We conduct our insurance business exclusively through Grupo Pacífico, which operates in Peru and Bolivia and is the second-largest Peruvian insurance company by written premiums in 2023, according to the SBS and Peru’s National Health Superintendence (Superintendencia Nacional de Salud or SUSALUD by its Spanish Initials). Grupo Pacífico provides a broad range of insurance products focusing on three business areas: P&C, life insurance business and corporate health insurance and medical services. Grupo Pacífico, like other major Peruvian insurance companies, sells its products both directly (through its own sales force) and through independent brokers, bancassurance and sponsors.
For further information see “ITEM 4. INFORMATION ON THE COMPANY – 4.A History and Development of the Company”.
Purpose: Protect People’s Happiness
Grupo Pacífico’s purpose is to protect people’s happiness. Looking forward, we will sustain growth by offering new and inclusive products that meet our country’s needs at different stages of people’s lives, protecting more Peruvians’ peace of mind and well-being.
In order to fulfill our purpose, we need it to be at the core of north starts and strategy. This has let us define three which are: being the best in growth, offering the best experience, and having the best efficiency ratio in the local market.
Our North Stars:
| o | To boost sales and enhance customer protection, we aim to develop new products, establish additional distribution channels, and leverage our Credicorp channels. Our strategy involves fostering growth through inclusive products distributed via extensive capillary networks. |
| o | To reach the highest NPS within the market by surprising our customers with an extraordinary journey and by putting them at the center of everything we do. Additionally, we strive for an accelerated digital transformation, ensuring extraordinary experiences while preserving the sensitivity of human interaction. |
| o | To keep leading the market in efficiency so that we can offer the best protection to our customers and value to all our stakeholders. |
These north stars are propelled by the development of key internal enablers:
Enablers:
| • | Tech Talent: Our talent mix has evolved to support the strategic capabilities needed to achieve our goals. In 2023 our tech capabilities for key enablers such as Pricing, Data Analytics and IT Talent represented 20% of our workforce. |
| o | Pricing: granular risk selection and price personalization for growth and retention. |
| o | Data Analytics: data-driven business powered by analytics with robust governance and tech platforms. |
| o | IT Talent: modular and digital cloud architecture, allowing integration via Application Programming Interfaces (APIs), with built-in cybersecurity. |
Strategic Axes:
Digitalization
The demand for both digital sales and client servicing has markedly increased due to the COVID-19 pandemic and has become a part of our client’s basic needs. Therefore, we keep seeking to be at the forefront of this development. In 2023, Pacífico experienced a 17% rise in digital premiums compared to 2022.
We also seek to automate our processes. By the end of 2023, we kept scaling our self-service claim process for our retail home insurance product, a claim process that is supported by artificial intelligence software, and we started to pilot the use of this technology in the auto claim process.
Customer Centric
On the axis of customer-centric services, we keep growing our app, Mi Espacio Pacífico, where we have achieved an increase of 40% in digital customers, compared to 2022. In addition, our chatbot channel, Vera, has resolved over 736 thousand customer requests in 2023.
During 2023, we keep delivering a great experience to our customers. This is reflected by reaching our goal of having the best experience in the sector through the Net Promoter Score indicator (NPS). This year, we have 35.9, plus 19.8 points, compared to 2019, when we started to track this result under the current methodology.
This methodology consists of asking the client for a brand recommendation, such as “How likely would you recommend Pacífico to your friends or family?” and offer you an 11-point scale, from 0 to 10. Those who score from 0 to 6 are detractors, 7 and 8 are neutral, and 9 and 10 are promoters. The NPS is calculated as the difference between the percentage of promoters and the percentage of detractors.
Credicorp Channels
Both our digitalization and customer experience are supported by the development of our digital customer-centric services and taking advantage of the reach provided by Credicorp channels. During 2023, we have increased our premiums through Credicorp channels by 7% compared to 2022. Furthermore, we keep expanding our digital products and some examples are “Retiro Protegido” available in ATMs, “Tu Plata Segura” at Mibanco, “Yapeate” your SOAT insurance, and new inclusive products such as “Onco Mujer” linked as a benefit to “Crédito Mujer” loans for women.
Distribution Channels
Digital channels
| • | Mi Espacio Pacífico App: In 2023, 487 thousand clients used Grupo Pacífico’s app, compared to 345 thousand in 2022. |
| • | Pacífico Web: In 2023, over 11.1 million visits were made to Grupo Pacífico’s website, compared with the 8.1 million reported in 2022. |
Physical channels
| • | Branches: At the end of 2023, Grupo Pacífico had 6 branches, the same number as last year 2022 (compared to 26 branches in 2021). The company has continued providing its clients with the services they need. Grupo Pacífico implemented a specialized call center with 14 executives and 2 supervisors, all working on-site, in order to continue providing its clients with the services they need. |
(II) Risk Rating
Grupo Pacífico managed to reaffirm the solidity and solvency of the company, maintaining its international credit ratings despite the Peruvian context. AM Best affirmed Grupo Pacífico’s long-term issuer credit rating at “A-” with a stable outlook in December 2023, Fitch affirmed Grupo Pacífico’s credit rating at “BBB+” with a stable outlook in May 2023 and Moody’s affirmed Grupo Pacífico’s credit rating at “Baa2” with a stable outlook in October 2023.
(I) Prima AFP Overview
Credicorp conducts its pension business through Prima AFP, the second largest player in the private pension system in Peru based on the amount of assets under management according to the SBS. Prima AFP manages individual capitalization accounts and provides its affiliates with retirement, disability, survival and burial benefits. For this purpose, Prima AFP collects mandatory and voluntary contributions from its affiliates and invests the funds in local and global markets. The funds that Prima AFP holds in custody for its affiliates are non-attachable and are autonomous assets, which are not affected by Prima AFP’s financial results. Prima AFP offers four types of funds, which differ by the level of risk. The investment and risk management policies are defined by internal committees and supervised by the SBS and the SMV.
For further information see “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (5) Competition – 5.3 Insurance & Pensions – 5.3.2 Prima AFP” and “Item 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (6) Supervision and regulation – 6.2. Subsidiaries – 6.2.1 Peru”.
Prima AFP’s strategy is focused in three objectives: (i) offering the best experience to our clients, (ii) providing the best investment returns of the private pension system and (iii) maximizing productivity and efficiency.
In 2023, Prima AFP pursued the following strategic projects:
| • | Transformation of several units to optimize customer experience. |
| • | Redesign of the investment process and team structure to maximize returns. |
| • | Cloud migration to optimize costs, provide flexibility and scalability and improve time to market. |
| • | Continue the implementation of our cybersecurity plan. |
In 2023, proposals to reform the Peruvian Pension System were under constant debate; but none was approved by the government. In this regard, Credicorp released a proposal to reform the Peruvian Pension System to make it more flexible, open to more competitors and more inclusive, as well as to align fee structures with client funds’ returns. The full proposal may be accessed at the following link pensionescredicorp.com.
Distribution Channels
Digital channels
| • | Prima AFP’s App: In 2023, more than 4 million sessions were initiated in Prima AFP’s mobile app, compared to 5 million in 2022. This decrease is primarily due to more interactions driven by fund withdrawals by affiliates in 2022. |
| • | Prima AFP’s Web: In 2023, more than 1 million sessions were initiated through Prima AFP’s web page, which is similar to 2022. |
Physical channels
| • | Branches: Prima has 5 offices nationwide. |
2.4 Investment Management and Advisory
Credicorp Capital carries out its Investment Management and Advisory operations through Credicorp Capital Peru, Credicorp Capital Colombia, Credicorp Capital Chile, Credicorp Capital US, CC Asset Management Mexico, and ASB Bank Corp. With operations in 6 countries, we are consolidating our leadership position through four main business units: Asset Management, Wealth Management, Capital Markets, and Trust Services.
Our Purpose
“We build trust-based relationships to promote well-being today, leading to a sustainable and inclusive tomorrow.”
Building trust-based relationships is the essence of our contribution to our customers. Trust is the cornerstone upon which we build relationships across generations, manage investments that fulfill dreams, and provide financial solutions that enhance business and wealth strategies.
We aim to foster and share our customers’ deepest desire: Their well-being. We truly believe that behind a simple investment or a complex financial solution, there is always a goal, a project, or a dream aiming for the individual, family, and/or business well-being of those we have the privilege to advise. Contributing to this goal is the driving force behind everything we do.
None of the above is possible without a sustainable and inclusive future. Thus, we want to contribute today, along with our customers and talented team, to the creation of that sustainable and inclusive tomorrow. We do this through our responsible and sustainable investment proposals; our contribution to accessibility, simplicity, and financial advice, and a transparent, equitable, and respectful approach to building long-term relationships.
Our Principles
| 1. | We put customers at the center: Our decisions are customer-oriented, whether they have a direct or indirect impact on our customers’ experience with us and on our long-term relationship with them, regardless of the area to which we belong. |
| 2. | We move with agility and innovation: We work in an agile and flexible manner, with a sense of urgency in decision-making. We challenge ourselves to propose innovative solutions in response to the changing demands of the environment and the growing requirements of our customers in a timely and effective manner. |
| 3. | We take ownership: We promote ownership, empowerment, and accountability as the drivers of our culture. These are represented in or initiative to take on commitments, delegate effectively, and take responsibility for the results. |
| 4. | We collaborate across borders: We are a great team, working together without any country or role constraints to serve customers and create value, which are common goals for everyone in the company. |
| 5. | We make a conscious impact: All our actions are carried with an awareness of their impact in creating value for the company, our people, society, and the planet. |
Our Strategy
In 2023 we reorganized our business to achieve more stable, scalable revenue growth and sustainable profitability levels. Given the changes in the context and global industry trends in recent years, we redefined our strategy to concentrate on efficiently growing core profitable and scalable business.
Our North Stars
Our current strategy is focused on: (i) Restructuring our business portfolio focusing on less volatile and scalable businesses such as Wealth and Asset Management, complemented by transactional capabilities in Capital Markets. We will focus on those businesses that account for over 85% of the company’s contribution margin and for consistent growth in the past years, (ii) Continuing to develop operational and technological capabilities as key enablers for efficient and scalable growth, (iii) Implementing a new governance approach with a rigorous performance management plan and an empowerment and accountability culture in favor of a simplified decision-making process, maintaining our North Stars and recalculating the route when necessary, (iv) Leveraging our experience and learned lessons in the past three integration processes to explore and capitalize on new inorganic growth opportunities, and (v) Last, but not least, we will continue to implement ESG practices as a cross-cutting axis of our strategic fronts that add to the initiatives we have underway.
A challenging business environment requires us to adapt and transform to generate profitable, sustainable, and focused growth. Our medium-term strategy will focus on recurring and scalable businesses, operational and technological enhancements, seizing inorganic growth opportunities, and incorporating sustainable investment practices and ESG focus.
Our Business Units
Asset Management
Through our regional platform, our Asset Management business unit offers a wide array of products, including mutual funds, alternative funds, and portfolio management, as well as structured products investing in fixed income, equities, and alternative assets. We offer these products to a broad base of customers, including those in our retail, private, and high-net-worth, corporate, and institutional segments.
Additionally, we act as an exclusive distributor of third-party traditional and alternative funds in Latin America, representing global Asset Managers under exclusivity agreements. Also, we provide advisory services in the selection and monitoring of Third-Party Funds for Wealth Management customers.
Our Asset Management business is divided into 4 teams: Investments, Alternative Investments, Institutional Distribution, and Investment Products. Management builds on a matrix, with regional team leaders and country leaders in Chile, Colombia, and Peru, where our teams are based. The local presence of our team, coupled with an extensive network of local and regional contacts, enables us to have a profound understanding of the dynamics of the Latin American market.
| • | Investments: We manage mutual funds and mandates in fixed income, equity and mixed income assets in Chile, Colombia, and Peru, as well as offshore funds based in Cayman and Luxembourg for international clients. |
| • | Alternative investments: We offer alternative investments in real estate assets, private debt and infrastructure. |
| • | Institutional Distribution: Our Institutional Distribution team is responsible for doing business and engaging with institutional and wholesale investors in Chile, Colombia, Peru, Panama, and Mexico through global public and private market solutions. |
| • | Investment Products: Our investment products team provides services in the selection of Third-Party Funds, design of structured products and support for funds based abroad. The regional coverage reaches Wealth Management clients and institutional and Retail investors. |
Wealth Management
In our Wealth Management business, our approach entails advisory and wealth management, coupled with an array of investment options and financial services in accordance with our customers’ objectives and specific requirements, safeguarding their wealth and adeptly managing it for a seamless transfer to future generations.
Our Wealth Management structure is organized as a matrix, by business and by country, with the purpose of achieving a strategic vision by regional business, but ensuring the incorporation of the local perspective, to give customers the solution that best suits their needs.
Our services are aimed at customers with more than US$1 million available to invest. The five main services we offer include: Investment Advisory, Credit Solutions, Wealth Planning, Financial Planning, and Multi Family Office service, provided through Vicctus Multi Family Office, for customers with liquid assets above US$10 million.
Capital Markets
Our Capital Markets business unit has an active role in secondary markets, particularly in equity and fixed-income products, as well as in currencies and derivative instruments. We offer brokerage and custody services for securities to institutional, corporate, and individual customers in Chile, Colombia, Peru, Panama, and the United States. We provide advisory and information services, equipping our customers with decision-making tools such as market analysis and stock advisory.
Our participation in the placement of equity and debt instruments is also relevant (primary market) for corporate issuances in local markets. We also manage arbitrage, directional, and relative value strategies for proprietary position trading in Chile, Colombia, Peru, and ASB.
The services we offer within Capital Markets include local and international over-the-counter intermediation for Fixed Income, Equity, foreign currency, ETF and derivatives, product distribution such as funds, structured notes, among others, primary placement of public and private securities: issuance of securities for entities that need financing. In addition, in some markets we carry out cash management, fund distribution, basic custody and leverage activities with collateralized securities.
Distribution Channels
Digital channels
| • | Credicorp Capital Digital: Channels developed by our innovation lab focused on enhancing the digital experience for our clients. Allows consolidated viewing of all on-shore and off-shore investments for Wealth Management clients in Peru; enables information consultation and transactional operations for Cash Management products for corporate clients in Colombia; allows corporate clients in Peru to view their mutual funds portfolio, download statements, and perform transactions; and allows clients of fiduciary business products in Colombia to consult information regarding trusts. |
| • | Tyba by Credicorp Capital: Our online application that operates as a digital broker in Colombia and Peru, allowing clients to manage their personal finances, making investments according to their own risk profile and tailored to their own investment plans. It provides a simple and secure means for clients to access investment products in a digital platform, allowing investments with a minimum amount. |
| • | CC Invest: Online web and mobile app investment platform that allows our clients in Peru, Colombia and Chile to invest in globally diversified portfolios in the most simple and efficient way. By opening an investment account online, clients can start investing with a minimum amount, supported by a specialized digital advisor. |
| • | Credicorp Capital E-Trading WEB: Platform through which the client can trade stocks in a more transparent and straightforward manner than the traditional method, operating independently and directly in the Order Books of the Stock Market, capturing the best opportunities. With the E-Trading Portal, clients gain a more comprehensive view of the stock market and can identify the best available prices. |
Physical Channels and Telephone
| • | Offices: Credicorp Capital’s clients can be served through its 13 regional offices, which are distributed across Peru, Colombia, and Chile, and also have points of contact in Mexico, the United States, and Panama. Additionally, BCP clients can access some of Credicorp Capital’s investment products through its network of agencies across Peru. |
| • | Call center: Through a specialized team, we serve and advise our Capital Market clients in the intermediation of fixed-income and variable-income securities in Peru, Colombia, and Chile. |
(3) Corporate compliance and ethics
Our Compliance and Ethics management system is a key component in Credicorp’s sustainability framework. We seek to meet the needs both our businesses and stakeholders through: (i) ensuring the clarity of the terms and conditions of financial products and services, (ii) providing a framework and monitoring it to ensure a good work environment and equal opportunities for all employees and (iii) ensuring responsibility and integrity through all our businesses.
Credicorp and all its subsidiaries, using a comprehensive approach based on international best practices and our principles and ethical values, have established 11 corporate compliance and ethics programs that cover local and international regulations and mitigate conduct risks by encouraging ethical behavior to protect the reputation of the company. These programs are the following:
| • | Anti-money laundering and countering the financing of terrorism (AML/CFT) |
| • | Tax transparency (FATCA & CRS) |
| • | Personal data protection |
| • | Occupational safety and health |
The programs listed above are overseen by the Chief Compliance and Ethics Officer who has full autonomy to carry out functions and duties independently and reports directly to our Board of Directors through the Sustainability Committee, providing regular and consolidated reports about the performance of the compliance and ethics programs at all our subsidiaries. Each subsidiary has a Compliance and Ethics Officer, who works with a specialized team and reports to the head office.
Anti-money laundering and Countering the financing of terrorism (AML/CFT)
The purpose of the AML & CFT Program at Credicorp is to design and implement policies and measures designed to prevent, detect and report all suspicious activity related to money laundering and terrorist financing. We believe these policies and measures are essential to protect the integrity and stability of the local and international markets in which we conduct our financial investments and also contribute to the stability of the society and the global financial system.
The AML and CFT Program focuses on managing policies procedures and controls to mitigate all risks related to cash flow and unusual transactions that try to conceal the origin of money obtained from illicit activities, such as drug or people trafficking, corruption, illegal mining, embezzlement, gambling and others, by converting it into a legitimate source.
In 2023, we focused our efforts in improving our onboarding controls related to the proper identification of high-risk clients, beneficial owners, the optimization of internal alerts and designing new controls for emerging risks, among others.
In this increasingly dynamic context, we have adapted our customer experience and services to all our stakeholders with effective policies, guidelines, high ethical standards in financial transactions and robust AML/CFT controls, to meet the new demands that are defined by an intensive use of technology as a preferred form of connection. We are strongly committed to continuing using innovative technologies to keep up with new business models that present additional challenges to traditional KYC (Know Your Customer) strategies as the key point for AML/CFT.
At Credicorp we have designed an AML/CFT program based on KRIs (Key Risk Indicators), aiming for sound governance and culture; searching for efficiencies; and identifying automation opportunities using technology, analytics, artificial intelligence and agile practices. We continue directing our efforts to minimize risks, meet our clients’ needs and develop fast and efficient processes that help us achieve our key business goals.
In 2024, we will continue to align to international standards and best practices to ensure that AML/CFT Compliance is contributing to the protection and integrity of our businesses.
Financial stability
Our Financial Stability Program supports our compliance with the applicable regulations derived from the U.S. Dodd-Frank, Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the European Market Infrastructure Regulation (EMIR) and the European Bank Recovery and Resolution Directive. During 2023, we focused on carrying out actions for the exchange of information with counterparts regarding the regulations that make up the Financial Stability Program. We also took actions to comply with the requirements of the Initial Margin Rules of the Financial Market Infrastructure Act, which require financial counterparties and large non-financial counterparties with a volume of non-centrally cleared derivatives (AANA) above certain phase-in thresholds to exchange bilateral initial margin from the applicable compliance date.
Tax Transparency
The Tax Transparency Program implemented at Credicorp oversees the compliance of two international regulations: FATCA (Foreign Account Tax Compliance Act) and CRS (Common Reporting Standard). Both are the global standards for the automatic exchange of financial information between participant jurisdictions and were designed to contribute to the global effort against tax evasion and to increase the collection through exchange of financial information.
During 2023, Credicorp’s financial institutions in Peru, Bolivia, Chile, Colombia, Panama, the Cayman Islands and Luxemburg provided more than 72 FATCA and CRS returns to tax authorities in eight countries, according to the international FATCA & CRS agreements subscribed for each jurisdiction.
For 2024, our main activities will remain to: (i) search for technological and analytics tools to manage consistent and up-to-date information of our clients and counterparts, as well as conduct training, monitoring and due diligence regulatory activities; (ii) comply with the submission of the annual FATCA & CRS regulatory reports to the tax authorities of the participant jurisdictions on the date and (iii) submit all required certifications and conduct internal audits to in connection with the continuous application of a risk-based approach and the international best practices, such as the recommendations of the OECD in the “Guide on Promoting and Assessing Compliance by Financial Institutions” and other well-known international standards.
Regulatory compliance
At Credicorp and its subsidiaries, we are committed to complying with the laws and following external legal mandates set forth by regulatory entities, such as the SBS or the relevant regulators. We seek to ensure the implementation of all the regulatory frameworks applicable to each of the companies, using methodologies with a comprehensive approach based on risk and international best practices to reduce risks that would arise from regulatory noncompliance, like sanctions and reputational risks. We keep working to implement our regulatory obligations while remaining committed to the success of our clients, employees, and other stakeholders.
Additionally, every year we prepare a compliance assessment plan, development and enhancement, considering all regulations implemented for continuity. Finally, we strive to build a regulatory compliance culture and provide our employees training to assist them in understanding their role in upholding a regulatory compliance culture.
Ethics and integrity
Our Ethics and integrity program manages the Corporate Code of Ethics (“the Code”) and complementary conduct policies to provide guidelines for employees to avoid misconduct and provide tools to properly manage potential conflict of interest scenarios. The Code is approved by the Board of Directors annually and is the conduct reference for our directors and employees, who must comply with it.
To manage potential conflict of interests, directors and employees must submit relevant information periodically, including their activities outside of our business. We also have policies to address operations between Credicorp’s related parties, whereby relevant transactions are disclosed to the Sustainability Committee and to other stakeholders.
We are also responsible for the management of our complaints system called Alerta GenÉTICA. We continuously foster awareness through communication campaigns, training and encouraging stakeholders to use the hotline. In 2023 we launched a campaign to raise the substantiation rate. The campaign included tutorials on how to provide a comprehensive report and to conduct an effective follow-up.
In 2023, we continued the development of our human rights program as we finished the risk evaluation on this matter and initiated the definition of the principles and guidelines on the responsible use of artificial intelligence.
Anti-corruption
At Credicorp and its subsidiaries, we are aligned with the United Nations SDGs, adopting a zero-tolerance attitude towards corruption and applying policies to promote a fair and equitable environment to encourage changes in society and value relationships based on integrity.
In this sense, we are respectful of the regulations aimed at strengthening prevention and investigation mechanisms that contribute to the fight against corruption, such as Law 30424 in Peru with its regulations and amendments, the U.S. Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act. At Credicorp, there is no tolerance for corruption.
Credicorp’s Corporate Policy to Prevent Corruption and Bribery provides guidelines to all Credicorp subsidiaries to engage in transparent relationships with their stakeholders, minimize related risks and comply with local and international regulations. This policy has been implemented through the development of a prevention model in each of Credicorp’s subsidiaries, focusing on four fronts:
As part of the efforts of the Corporate Anti-Corruption Program, which is a Credicorp unit, BCP Stand-alone, Mibanco Peru and Pacífico Seguros have obtained the ISO 37001 - Anti-Bribery Management System certification.
BCP Stand-alone also holds the Anti-Bribery Certification “Empresarios por la Integridad” in Peru, which uses a process based on third-party audits to demonstrate compliance with anti-bribery requirements at an entity-wide level.
Market abuse prevention
Through Credicorp’s Market Abuse Prevention program, guidelines and controls are established to prevent insider trading and market manipulation.
In 2023, we implemented guidelines and alerts to mitigate risks of insider trading and market manipulation in our Investment Banking business. Furthermore, we updated our Suitability guidelines as a result of a risk assessment and standardized our main processes at a corporate level.
Personal data protection
At Credicorp, we aim to protect and ensure the privacy of our users’ personal information. We strive for absolute confidentiality and adhere to the highest security standards in accordance with the Personal Information Protection Law No. 29733 and the related regulation, approved by Supreme Decree, No. 003-2013-JUS (the “Personal Data Protection Statutes”).
Our companies, as so-called personal data bank owners, must comply with these rules’ guiding principles for the protection of personal data. Also, as personal data bank owners, we are required to secure the consent of the personal data owners to process and transfer their personal data, considering the provisions of the Personal Data Protection Statutes, which are part of Credicorp’s internal compliance policy.
We provide for the exercise of protected rights that may be exercised by the personal data owner. To this end, we must make available channels, procedures and information within the timeframes established under the Personal Data Protection Statutes and the rules.
Consequently, our corporate personal data protection policy has the following goals:
| a) | Establishing general guidelines for the processing and transfer of personal data of stakeholders such as employees, users, customers and suppliers of all our companies. |
| b) | Ensuring that our companies comply with the Personal Data Protection Statutes. |
| c) | Advising all employees of our companies of the impact of non-compliance with the applicable standards of personal data protection. |
During 2023, we focused our efforts on the following initiatives: (i) consent—process personal data only by free, previous, informed, express and unmistakable consent; (ii) attention to protected rights; (iii) personal data protection mindset—striving to prevent reputational harm, ensure legal compliance and avoid the risk of fines and penalties through training and communicating to our employees and (iv) aligning our Corporate Policy and adopting the necessary measures to ensure that the personnel in charge know and apply it.
Occupational safety and health
Credicorp has an Occupational Health and Safety Program, the purpose of which is to maintain safe and healthy environments for all employees, suppliers, visitors, and customers to prevent work accidents and occupational diseases.
In 2023, Credicorp made the application and execution of medical examinations of its employees to update the epidemiologic profile of the organization its the main objective of occupational health surveillance, with the result being the ability to eventually develop programs focused on chronic diseases and on work.
With respect to occupational risk prevention, Credicorp also continued to work on the improvement of its procedures seeking to identify conditions that resembled higher risk to the safety and health of its employees, performing inspections in the work environment nationally and training their employees to identify unsafe conditions and acts in their workplace.
Market conduct
Credicorp’s market conduct program is aimed at promoting good business practices with customers, mitigating the risk of marketing and design of products that do not meet the needs of clients, ensuring information transparency, giving clarity of the terms and conditions of financial products and services and properly managing claims for customers. These actions allow us to encourage ethical behavior to protect the reputation of the company and achieve sustainable relationships with our customers.
During 2023, improvements were made to our responsible sales alert model, which aims to reduce bad sales practices. We deployed new monitoring related to verifying compliance with the conditions offered, correct the collection of commissions and fees, and enhance the transparency of information with the customer. These and other actions have allowed us to improve the result of the strategic indicator of Clarity and Transparency towards customers in the conditions of products and services compared to last year.
Antitrust
During 2023 we continued the implementation of the Antitrust Compliance Program that started at the end of 2021. In April 2023 we updated our Antitrust risk identification matrix, where we identified the main processes with exposure to antitrust risks. Thus, we have focused on monitoring, providing training and elaborating guidelines and protocols in Antitrust for the teams involved in those processes. In addition, we carry out preventive compliance monitoring on our financial products and services.
INDECOPI, as regulator of the Antitrust Law, issued Guidelines on Antitrust Compliance Programs in 2020. BCP adopted this standard to implement the program. To date, we have implemented actions in 7 of the 8 elements considered in this model: (i) tone from the top, (ii) designation of a compliance officer, (iii) risk management, (iv) controls and protocols, (v) training, (vi) monitoring and (vii) a whistleblower system. The eighth element of the model, related to internal auditing, will be implemented in 2024.
In 2023, our internal audit unit focused on creating a permanent risk-based framework to evaluate the effectiveness and efficiency of Credicorp’s risk management, control, and governance processes. The internal audit function’s objectives are improving and protecting the corporation’s value through an agile and timely independent assessment as well as data-based advising and risk analysis. For this purpose, our internal audit unit formulated the Annual Audit Plan using a risk-based audit methodology, which is aligned with the rules of The Institute of Internal Auditors Global (the “IIA”) and approved by the SBS.
This year, we continue with our purpose, mission and vision:
| • | Purpose: To protect Credicorp’s sustainability. |
| • | Mission: To ensure and advise continuously and dynamically on strategic issues and key risks, through the intensive use of technology, data, innovation, anticipation, and motivated talent. |
| • | Vision: To be a leader in the audit practice at a global level, oriented to our purpose. |
We will pursue our purpose, mission and vision through the development of actions and plans based on four pillars:
| 4. | Management Optimization |
The Quality Assurance Management, whose role is independent of the audit and consulting functions, has executed annual Internal Quality Assessments since 2011, in compliance with IIA Standard 1311, the result of which was “General Compliance” in the application of the Quality Assurance and Improvement Program. This level of compliance, the highest according to the governing body’s methodology, demonstrates that the Internal Audit function complies with the International Standards for the Professional Practice of Internal Auditing and Code of Ethics issued by the IIA.
The Audit Satisfaction Index (ISA), which collects the opinion of our audited clients after each job, achieved a result of 4.58 out of 5.00, above the goal of 4.10, which shows the perceived value of the work of Internal Audit by Credicorp Ltd., its subsidiaries, and affiliates.
Additionally, in 2022 we adopted the Ambition Model developed by the Netherlands Institute of Internal Auditors. In 2023 we were in the implementation phase to achieve the level and objectives proposed in its key activities: services and role of the internal audit function, professional practices, performance and responsibility management, people management, organizational relations and governance.
The Credicorp Corporate Auditor was member of the Board of IIA Global, the highest governing body of the institution, until July 2023, when his mandate ended. He was then elected to the Professional Certifications Board, whose role is to govern, defend and promote IIA Global certification programs. Likewise, the Auditor of Grupo Pacífico was president of the Information Systems Audit and Control Association (ISACA) of Lima until October 2023, and as of November he began serving as vice president of the same association. Furthermore, the Auditor of Credicorp’s Microfinance segment continues to serve as a member of the board of directors of the Institute of Internal Auditors of Peru.
Consistent with recommended industry practices, Credicorp continued to apply the Cybersecurity Assessment Tool (CAT) of the FFIEC, OWASP – Mobile & Application Security Standard, Cloud Security Alliance’s (CSA), NIST CSF, Critical Security Controls (CIS) and MITRE ATT&CK Framework. In addition, Credicorp implemented a centralized methodology to apply data analytics, began to apply a decentralized data analytics model following best practices and promoted the use of Agile audit methodology guidelines.
Data analytics methodologies were deployed and integrated with assurance evaluations in the Credicorp Internal Audit units. Subsequently, the process of decentralization of these tools to specialized audit teams continued. This implies democratizing access and use of these tools, with the aim of encouraging internal audit units to have the ability to exploit and use them as long as they comply with the guidelines of the Data & Analytics area. In this context, the Data & Analytics unit not only develops digital or analytical solutions, but also socializes them so that the different audit units can carry out simple and specific analyzes according to their ad hoc needs. This ensures that Data, Data Governance and Advanced Analytics standards are met in each process and in the information used by said units. During 2023, we believe we achieved important advances in four main action fronts of data analytics: (i) the construction of cognitive solutions allowing the information from physical or telephone contracts to be interpreted and analyzed automatically to identify suspicious transactions or transactions with a greater probability of mistake, which should be audited (we developed four cognitive solutions by the end of 2023); (ii) the automation of audit processes, allowing us to optimize our review; (iii) the digitization of audit evidence, reducing the time spent conducting our review; and (iv) the carrying out of continuous audits of our key processes. At the end of 2023, there were 106 automated metrics with the objective of timely alerting the business about deviations or new emerging risks. The results of these metrics are shared with the business units, which evaluate the risks involved and implement solutions when needed.
In addition, to reinforce the skills of the audit team, 553 hours of training were provided to promote the use of Data & Analytics, and the Virtual Audit Classroom was created, which has courses on ad-hoc digital tools for the audit team. Finally, we participated in the Hackathon competition, organized by the Latin American Committee for Internal Audit and Risk Assessment, which belongs to FELABAN, receiving an award for 3rd place with the project regarding the automatic review of financial documents using artificial intelligence and cognitive tools.
The Model Risk Audit Management uses, besides the traditional methodology, a method to audit models called “Special Model Audit”. The purpose of this shift is to cover the review needs caused by the increase in the number and complexity of models developed and to more quickly identify the deficiencies that may exist in the different processes associated with the life cycle of the models. With the application of this method in projects, we have achieved important advances in our methodology to audit Model Risk Management; increased the model review coverage and monitored first and second line controls related to the development, calibration, implementation and monitoring of models.
In 2023, we provided 17,645 hours of training to our internal auditors, with an average of 72 hours per auditor (above the 40 hours per auditor recommended by international practices), in topics related to new cybersecurity frameworks (such as those promulgated by the IIA, NIST or the FFIEC), internal quality assessment, data analytics, risk management, programming language, anti-money laundering, validation of models and other topics of financial and operational audit.
As of December 31, 2023, there are 51 financial institutions, and four state-owned banks (Banco de la Nación, COFIDE, Banco Agropecuario (Agrobanco) and Fondo MiVivienda), in the Peruvian universal banking sector.
| | | Private Financial System as of December 31, 2023 | |
| | | Number of entities | | | Assets (Soles in thousands) | | | Deposits (Soles in thousands) | | | Loans (Soles in thousands) | |
Banking Sector (1) | | | 17 | | | | 512,217,828 | | | | 335,250,934 | | | | 350,864,837 | |
Financial firms (2) | | | 9 | | | | 17,413,655 | | | | 8,565,495 | | | | 14,785,436 | |
Municipal savings banks (3) | | | 12 | | | | 42,082,081 | | | | 30,849,485 | | | | 35,973,062 | |
Rural savings banks (4) | | | 5 | | | | 1,726,647 | | | | 1,166,083 | | | | 1,398,820 | |
Edpymes (5) | | | 6 | | | | 3,216,316 | | | | - | | | | 2,782,429 | |
Total (6) | | | 49 | | | | 576,656,527 | | | | 375,831,996 | | | | 405,804,584 | |
Source: SBS
(1) “Banca Multiple” under SBS definition and terminology
(2) “Empresas Financieras” under SBS definition and terminology
(3) “Cajas Municipales” under SBS definition and terminology
(4) “Cajas Rurales” under SBS definition and terminology
(5) “Empresas de Crédito” under SBS definition and terminology. Until Apr-23 it denominated EDPYME.
(6) The total Private Financial entities does not include savings and loans associations (COOPACS), because the information for COOPACS is not yet publicly available from the SBS.
(i) Banking Sector
The Banking Sector includes universal banks, offering financial services to retail and wholesale clients, among others. The following table sets forth the percentages, by assets, deposits, and loans, represented by the major Peruvian banking institutions.
| | | As % of total Private Financial System | | | As % of Banking Sector | |
| as of December 31, 2023 | | Assets | | | Deposits | | | Loans | | | Assets | | | Deposits | | | Loans | |
| BCP Stand-alone | | | 31.13 | % | | | 32.03 | % | | | 29.20 | % | | | 35.05 | % | | | 35.90 | % | | | 33.78 | % |
| BBVA Banco Continental | | | 18.10 | % | | | 18.54 | % | | | 18.44 | % | | | 20.38 | % | | | 20.78 | % | | | 21.33 | % |
| Scotiabank Peru | | | 12.21 | % | | | 10.71 | % | | | 12.94 | % | | | 13.75 | % | | | 12.00 | % | | | 14.97 | % |
| Interbank | | | 11.83 | % | | | 12.07 | % | | | 11.53 | % | | | 13.32 | % | | | 13.52 | % | | | 13.34 | % |
| Banco Interamericano de Finanzas | | | 3.66 | % | | | 3.74 | % | | | 3.47 | % | | | 4.12 | % | | | 4.20 | % | | | 4.01 | % |
| Mibanco | | | 2.88 | % | | | 2.58 | % | | | 3.24 | % | | | 3.24 | % | | | 2.90 | % | | | 3.75 | % |
Source: SBS
As of December 31, 2023, BCP Stand-alone ranked first among all Peruvian multiple banks by assets, deposits, and loans, according to the SBS.
As of December 31, 2023, the principal Peruvian non-state financial institutions reported total loan balances of S/252,543 million in local currency and of US$26,509 million in foreign currency (in comparison to S/258,836 million and US$25,629 million as of December 31, 2022, respectively). These figures represented a contraction in local currency loan balances of 2.4% and an expansion in foreign currency loan balances of 3.4% from December 31, 2022 (compared to contraction of 0.1% and an expansion of 12.3%, respectively, from December 31, 2021, to December 31, 2022). As a result, the dollarization of loans reached 28.0% as of December 31, 2023 (compared to 27.4% as of December 31, 2022, and 26.0% as of December 31, 2021).
As of December 31, 2023, Peru’s total amount of multiple banking deposits were S/335,251 million, and the multiple banking dollarization rate for deposits was 39.1% (compared to 40.6% as of December 31, 2022, and 43.0% as of December 31, 2021). It should be noted that, as part of its plan to decrease the dollarization level of loans in the Peruvian financial system and reduce the risks of currency depreciation associated with borrowing in US Dollars, the BRCP established a de-dollarization program beginning in January 2015. For further information, see “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (6) Supervision and Regulation – 6.2 Subsidiaries – 6.2.1 Peru – (i) Peruvian Regulators”.
Peruvian banks’ capital ratio (regulatory capital divided by RWAs) was 16.47% as of December 31, 2023, which was above the 10.0% temporal legal minimum that became effective in July 2011 and represented an increase of 1.98 percentage points from the capital ratio reported as of December 31, 2022 (14.45%). As of 2022, the ratio decreased by 47 basis points from a ratio of 14.92% as of December 31, 2021.
Peru’s loan portfolio quality indicators generally improved in 2023. As of December 31, 2023, the internal overdue ratio reached 4.31%, 36 bps above than the ratio reported as of December 31, 2022 (3.95%). As of 2022, the ratio had increased 18 basis points compared to December 31, 2021 (3.77%). Also, the internal overdue, refinanced, and re-structured loans over total loans ratio was 6.43% as of December 31, 2023, 70 basis points higher than the 5.73% ratio reported at year-end 2022. Similarly, the coverage ratio of Peru’s internal overdue loan portfolio was 144.64% as of December 31, 2023 (compared to 148.46% as of December 31, 2022, and 155.54% as of December 31, 2021).
The liquidity of the Peruvian banking system remained at moderately high levels. As of December 31, 2023, the local currency liquidity ratio and the foreign currency liquidity ratio were 30.54% and 44.12%, respectively (compared to 26.96% and 48.01% in 2022, and to 33.64% and 51.35% in 2021, respectively). The decrease in the local currency liquidity ratio is consistent with bank customers drawing down their deposits as the economy reactivated after the COVID-19 pandemic. These liquidity ratio levels were well above the minimums required by SBS regulations, which was 8% for local currency and 20% for foreign currency as of December 31, 2023.
(ii) Other financial institutions
BCP Stand-alone also faces strong competition from credit providers other than banking institutions, primarily with respect to consumer loans and SME-Pyme loans. SME- Pyme loan providers from non-bank financial institutions lent S/33.22 billion to borrowers in 2023, compared to S/31.16 billion in 2022, according to the SBS. In 2023, overall SME-Pyme loans to customers of non-bank financial institutions represented 55.82% of the total loans in the Peruvian financial system (compared to 53.30 % in 2022).
Consumer loan providers from other financial institutions lent S/16.4 billion to borrowers in 2023, compared to S/15.8 billion in 2022, according to the SBS. In 2023, overall loans to consumers of other financial institutions represented 16.6% of total loans in the financial system (compared to 18.8% in 2022).
(iii) Recent Competitive Developments
In recent years, several foreign companies have shown interest in entering the Peruvian universal banking market, while financial companies already in Peru have taken steps to expand operations and develop new businesses. In addition, non-traditional players, such as fintech and startup companies, began to operate in the financial sector in recent years. These new strong competitors may adversely affect our results, as they provide similar products and services. In particular, the following authorizations and applications from and to the SBS may be significant to our competitive environment in Peru:
| (1) | In February 2021, the RappiBank digital platform was launched through an alliance between Interbank and Rappi. The platform offers digital financial services such as digital savings accounts, debit cards and credit cards. |
| (2) | In March 2021, Peruvian congress approved the Usury Law Regulation, which protects consumers of financial services from usury. This law establishes caps on the interest rates charged by the financial institutions, which must be within the limit proposed by the BCRP. Likewise, the rule also prohibits the capitalization of interest and the collection of a penalty or other commission or expense in the event of non-compliance or delay in the payment of the loan. |
| (3) | In April 2021, through Law No. 31171, dependent workers were allowed to withdraw their severance indemnity deposits in order to cover the economic needs caused by the COVID-19 pandemic. A single withdrawal was allowed and had to be made before December 31, 2021. The withdrawal could be up to 100% of their accumulated severance indemnity deposits on the date of withdrawal. |
| (4) | In June 2021, Law No. 31112, Ley que establece el control previo de operaciones de concentración empresarial (the Merger Control Law), a law regarding pre-merger control for certain business transactions, entered in force. The Merger Control Law established that any transaction that involves a change of control or causes ownerships to cross certain thresholds set by such law and can result in action in concert, must have the authorization of INDECOPI to be consummated. The Merger Control Law also vested in INDECOPI the pre-merger control of transactions within the scope of the regulation and supervision of the SBS and/or SMV, without prejudice to pre-merger control of a prudential nature and financial stability within the responsibility of the SBS and/or SMV. |
| (5) | In September 2021, the SBS authorized the organization of a banking company under the corporate name Banco BCI Peru. It will operate as a subsidiary of the Chilean banking company BCI, which had already been authorized to carry out its international expansion in Peru in September 2019. |
| (6) | Since 2021, along with our traditional competitors, new technology-driven entities such as fintech and startup companies, showed greater interest in the financial sector, in line with higher digitization under the COVID-19 context. We highlight specific strategic alliances between these and current financial institutions competitors such as: (i) BBVA: Kontigo, (ii) Banco Interamericano de Finanzas: Microwd, and (iii) Interbank: RappiBank and Kambista. |
| (7) | During 2022, more international technology-driven entities such as fintech and startup companies entered in Peru such as Payflow (Spain), Zulu (Colombia), Tapi (Argentina), or Trii (Colombia) among others. With an increasing digital population, the Peruvian market is becoming more attractive to international players. |
| (8) | In May 2022, through Law No. 31480, dependent workers were again allowed to withdraw their severance indemnity deposits in order to cover the economic needs caused by the COVID-19 pandemic. A single withdrawal was allowed and had to be made before December 31, 2023. The withdrawal could be up to 100% of their accumulated severance indemnity deposits on the date of withdrawal. |
| (9) | In July 2022, SBS Resolution N. 504-2021, Reglamento para la Gestión de la Seguridad de la Información y la Ciberseguridad, which contains new requirements regarding multifactor authentication and digital procurement criteria, entered in force. |
| (10) | In September 2023, Rappicard ceased operations. Financial products developed in alliance with Interbank under the Rappibank brand ended their operation in Peru by mutual agreement between the parties. |
According to The Economist Intelligence Unit, Peru and Colombia are among the countries that have presented the best results in addressing financial inclusion in terms of factors such as regulation, infrastructure, consumer protection and financial stability. We are aware that a large portion of microbusiness owners in both countries are currently unbanked, which constitutes an opportunity to contribute to these economies while growing our businesses.
5.2.1 Peruvian microfinance system
As of December 31, 2023, the Peruvian microfinance system is mainly regulated by the SBS and is comprised of entities that vary in size, client segments, and ambit of geographic action: one bank, which is Mibanco; nine financial firms, twelve municipal savings banks, five rural savings banks and six development entities for small and microbusinesses (Edpymes). The Peruvian microfinance system also includes 279 savings and loan associations (Cooperativa de Ahorro y Créditos or COOPACS by its Spanish initials), which have small portfolios and target specific geographic areas.
As of December 31, 2023, the Peruvian microfinance system (excluding COOPACS) represented around 65% of the total entities regulated by the Peruvian financial system, with microfinance loans totaling approximately S/68.1 billion (16% of Peruvian Financial System). As of December 31, 2023, according to the SBS, microfinance customers represented 58% of borrowers in the regulated Peruvian financial system.
| | | Peruvian Microfinance System as of December 2023 | |
| | | Number of entities | | | Assets (Soles in thousands) | | | Loans (Soles in thousands) | | | Deposits (Soles in thousands) | |
| Multiple banking | | | 1 | | | | 16,584,041 | | | | 13,165,073 | | | | 9,707,675 | |
| Financial firms | | | 9 | | | | 17,413,655 | | | | 14,785,436 | | | | 8,565,495 | |
| Municipal savings banks | | | 12 | | | | 42,082,081 | | | | 35,973,062 | | | | 30,849,485 | |
| Rural savings banks | | | 5 | | | | 1,726,647 | | | | 1,398,820 | | | | 1,166,083 | |
| Edpymes | | | 6 | | | | 3,216,316 | | | | 2,782,429 | | | | - | |
Savings and loan associations (COOPACS) (1) | | | 279 | | | | N/A | | | | N/A | | | | N/A | |
| Total | | | 312 | | | | 81,022,740 | | | | 68,104,820 | | | | 50,288,737 | |
(1) In 2019, SBS began overseeing COOPACS but there is still no financial information available.
Source: SBS
According to the SBS, as of December 31, 2023, Mibanco led the Peruvian market for loans in the micro and small business segments regulated by SBS, with shares of 19.0% and 20.3% respectively (compared to 23.0% and 21.8%, respectively, as of December 31, 2022 and 26.6% and 20.5%, respectively, as of December 31, 2021).
Municipal savings banks are important players in the microfinance system in Peru. In 2023, 12 municipal savings banks were operating and represented 53% of the total loans at year-end. The business model used by municipal savings associations is similar to the traditional relational model used by Mibanco, which conducts an on-site cash flow assessment of the customer. The municipal savings associations operate in municipal government ambits, and as such, their ability to innovate and modify products and processes is limited by the existence of multiple layers of approval.
In 2023, the macroeconomic context was adverse due to social protests in the south of the country and climatic events in the north. These factors contributed to a recessive environment and high inflation, which affected loan growth and client payment capacity. In this context, Mibanco prioritized healthy growth through prudent risk management and worked to maintain portfolio quality, in accordance with our appetite for risk, and its internal overdue loan coverage ratio was 120.2% in IFRS as of December 31, 2023. In Peruvian GAAP, as of December 31, 2023, Mibanco’s internal overdue loan coverage ratio was 131.1% and the average for municipal savings banks was 141.5%. Mibanco’s global capital ratio was 14.7% at year-end 2023, which exceeded the 13.9% global capital ratio reported by municipal savings banks at year-end 2023. Furthermore, in 2023, the ROE for Mibanco was 9.6%, which exceeded the 3.4% ROE collectively reported by the municipal savings banks system.
Recent competitive developments
The most relevant news and developments in the Peruvian microfinance sector from 2021 to 2023 were:
| (1) | In March 2021, by means of Ministerial Resolution No. 119-2021-EF/15, the entities of the Peruvian financial system were authorized to grant guaranteed credits obtained for a single time under the Reactiva Peru Program, with a new grace period of 6 to 12 months, which allows rescheduling in 24 months or, in exceptional cases, in 36 months. |
| (2) | In March 2021, the Peruvian congress approved the Usury Law Regulation, which protects consumers of financial services from usury. This law establishes caps on the interest rates charged by the financial institutions, which must be within the limit proposed by the BCRP. Likewise, the law also prohibits the capitalization of interest and the collection of a penalty or other commission or expense in the event of non-compliance or delay in the payment of the loan. |
| (3) | In April 2021, through Law No. 31171, dependent workers were allowed to withdraw their severance indemnity deposits in order to cover the economic needs caused by the COVID-19 pandemic. A single withdrawal was allowed and had to be made before December 31, 2021. The withdrawal could be up to 100% of their accumulated severance indemnity deposits on the date of withdrawal. |
| (4) | In April 2022, through Multiple Resolution (Oficio Múltiple) No. 05830-2022 SBS, the minimum requirementof 100% in the Liquidity Coverage Ratio in local and foreign currency, which had been temporarilysuspended due to the State of Emergency declared by Supreme Decree No. 044-2020-PCM as a result of the COVID-19 pandemic, was reinstated. |
| (5) | In May 2022, through Law No. 31480, dependent workers were again allowed to withdraw their severance indemnity deposits in order to cover the economic needs caused by the COVID-19 pandemic. A single withdrawal was allowed and had to be made before December 31, 2023. The withdrawal could be up to 100% of their accumulated severance indemnity deposits on the date of withdrawal. |
| (6) | In July 2022, through Resolution No. 01087-2022, the SBS created the Savings and Loan Associations Deposit Insurance Fund to start collecting insurance premiums from savings and loan associations in Peru. This insurance will provide coverage after 24 months of contribution (July 2024) up to a maximum of S/5,000 for savings and loan associations with total assets less than 32,200 Tax Units (Unidades Impositivas Tributarias or UITs by their Spanish initials) (S/148.2 million) and up to a maximum of S/10,000 for savings and loan associations with total assets higher than 32,200 Tax Units (S/148.2 million) for each contributor. |
| (7) | In July 2022, through Resolution No. 02192-2022, the SBS approved the dispositions for the application of policies, procedures, and monitoring of maximum interest rates for consumer loans and small and microenterprise of the Usury Law Regulation (Law No. 31143). |
| (8) | In August 2022, the global capital limit changed from 8.0% to 8.5%, after the previous relaxation of operating limits in the Banking Law (Urgent Decree No. 037-2021) associated with the Equity Strengthening Program for Institutions Specialized in Microfinance was terminated by Urgent Decree No. 003-2022. |
| (9) | In December 2022, through Ministerial Resolution No. 277-2022-EF/15, the guidelines and conditions of financial instruments of the CRECER Fund for factoring companies not included in the scope of the Banking Law No. 26702 were approved. CRECER was created in September 2018, through Decree Law No. 1399, for financing, granting guarantees and other financial products, necessary to promote the development of micro, small and medium-sized companies, as well as export companies. |
| (10) | In December 2022, through Urgent Decree No. 026-2022, an extension until June of 2023 was approved for the reprogramming of loans guaranteed under the Reactiva and FAE-Texco programs, which are Business Support Fund programs for the textile and clothing sector, mainly to mitigate the impact of the economic and social crisis. |
| (11) | In December 2022, through Legal Decree (Decreto de Ley) No. 31658, a program was created to drive SME business development, MYPE – Impulso MyPeru. The objective of this effort is to provide SME loans backed by guarantees from the National Government; these loans are also issued with a bonus for good payers. In December, and after 12 tenders, more than S/4.500 million were granted to bidding entities from the financial system (ESF) and to Savings and Loan Cooperatives (COOPAC). The average interest rate for MyPeru loans stands at 13%, which is far below the average of 30% for SME loans offered by the financial system. As of November 24th, S/1.876 million had been disbursed to 82,797 SME beneficiaries, 65% of which were microbusinesses and the remaining 35%, small businesses. |
| (12) | In August 2023, SBS intervened in Caja Raiz due to a significant deterioration in its solvency. Rural savings associations and cooperatives were the most affected by the pandemic, subsequent recession, and adverse economic environment in 2023, given that a large tranche of their portfolio is comprised of microbusinesses and small companies. |
| (13) | In 2023, SBS dissolved more than 27 cooperatives for diverse reasons, including loss of share capital; failure to submit financial statements; work stoppage at main offices; among others. Since 2019 (when SBS took over as the supervisory entity for COOPACS or Savings and Loan Cooperatives), SBS has closed 137 cooperatives due to inactivity (84%) and total loss of share capital and reserves (22%). |
| | 5.2.2 | Colombian microfinance system |
The Colombian microfinance system is regulated by the SFC. As of December 2023, Colombian microfinance institutions represented around 23% of the total entities regulated by the Colombian financial system, with microfinance loans totaling approximately 20.5 billion Colombian Pesos. Mibanco Colombia, which belongs to the Multiple Banking sector, was ranked fourth in the microfinance system with a market share of 14% of loans in this segment according to the SFC. Microfinance institutions reported a presence in 1,103 municipalities (98% of total municipalities in the country) and 52% of the microentrepreneurs were women, according to the Association of Microfinance Institutions of Colombia (or Asomicrofinanzas by its Spanish initials).
| | | Colombian Financial System in December 2023 | |
| | | Number of entities | | | Assets (Pesos in millions) | | | Deposits (Pesos in millions) | | | Loans (Pesos in millions) | | | Microfinance Loans (Pesos in millions) | |
| Multiple banking | | | 29 | | | | 959,797,233 | | | | 626,806,747 | | | | 655,074,366 | | | | 17,895,527 | |
| Financial corporations | | | 5 | | | | 30,729,442 | | | | 8,574,670 | | | | 3,532 | | | | 0 | |
| Finance company | | | 13 | | | | 16,825,263 | | | | 9,292,870 | | | | 14,241,456 | | | | 284,125 | |
| Financial cooperatives | | | 5 | | | | 4,914,852 | | | | 3,040,763 | | | | 4,335,210 | | | | 379,126 | |
| Microfinance institutions | | | 17 | | | | N/A | | | | N/A | | | | N/A | | | | 1,931,339 | |
| Total | | | 69 | | | | 1,012,266,790 | | | | 647,715,049 | | | | 673,654,564 | | | | 20,490,117 | |
Source: SFC and Asomicrofinanzas
Recent competitive developments
The most relevant new developments in the Colombian microfinance sector were:
| (1) | In June 2021, the first bond issue with a gender focus in the Colombian market was launched by Bancamia S.A. The issue had a value of US$54 million and was intended to fund the granting of loans to 50,000 women in vulnerable situations. |
| (2) | In March 2023, via decree (decreto) 455, new lending modalities were created and interest rates on these products must be certified by the Financial Superintendence of Colombia. The new modalities were popular loans for rural production (crédito popular productivo rural); popular loan for urban production (crédito popular productivo urbano); rural production loan (crédito productivo rural); urban production loan (crédito productivo urbano); and higher-ticket production loan (crédito productivo de mayor monto). Differentiated certifications were implemented for current interest, which led rates on Microloan disbursements to drop significantly. |
| (3) | In December 2023, via decree (decreto) 2120, the program “CREO, un crédito para conocernos” was created to benefit the agricultural and non-agriculture sector of the popular economy by offering access to low-ticket loans that require no co-signers or collateral; tenures are up to 24 months. The government is betting on La Economía Popular to drive the country’s economy by promoting financial inclusion with the support of Bancoldex and the Fondo Nacional de Garantías. |
The Peruvian insurance market, which includes P&C, life, and corporate health insurance market, is comprised of 17 active companies, of which 8 are dedicated to P&C and lifelines, 6 are dedicated exclusively to P&C and 3 are dedicated exclusively to life. According to the SBS and SUSALUD, as of December 31, 2023, four companies (Rimac, Grupo Pacífico, La Positiva and Mapfre) represented a combined 82.1% market share in terms of written premiums, and the leading two companies had a combined market share of 57.3%, both according to the SBS.
In 2023, Grupo Pacífico was the second-largest insurance company in Peru in terms of written premiums, with a consolidated market share of 26.8% (compared to 26.5% in 2022), according to the SBS and SUSALUD. Grupo Pacífico had a 9.2% written premium increase from 2022 to 2023, which was higher than the Peruvian average growth of 8.0%, which we believe is due to its efficient management. As a result, Grupo Pacífico remains the largest insurance company in the life and health insurance markets with 27.5% and 43.1% of market share, respectively, according to the SBS and SUSALUD. The following table lists the Peruvian market share of each of the top six insurers by annual written premiums in 2023:
Market Share by Annual Written Premiums (1) | 2021 | 2022 | 2023 |
1. Rimac | 30.9% | 30.7% | 30.5% |
| 2. Grupo Pacífico | 26.7% | 26.5% | 26.8% |
3. Mapfre | 11.6% | 12.9% | 12.9% |
4. La Positiva | 11.7% | 11.1% | 11.9% |
5. Interseguro | 6.2% | 5.6% | 4.9% |
6. Cardiff | 2.4% | 2.8% | 2.8% |
| Annual Written Premiums (Soles in millions) | 20,417 | 21,703 | 23,437 |
Source: SBS + SUSALUD
(1) P&C + Life + Corporate Health Insurance Businesses
We believe Grupo Pacífico has a relatively well-diversified product portfolio, with a composition comparable to that of the overall Peruvian insurance industry. In contrast to the Latin-American region, Peru maintains a low insurance penetration level: as of December 31, 2023, the region has an insurance penetration level of 3.5%, while Peru’s was 2.2% in 2023, according to the SBS and BCRP.
In 2023, the Peruvian insurance market registered an increase of 8.0% in terms of total direct premiums (S/23,437 million compared to S/21,703 million in 2022) due to general risks, particular annuities and D&S businesses. This result was higher than the gross domestic product (GDP), which contracted 0.6%, after negative production was reported mainly in the fishing and construction sectors. The increase in direct premiums comes from the life segment, for which production increased 8.0% from 2022 to 2023, and to P&C segment, for which production increased 8.2% from 2022 to 2023.
Life and P&C insurance market
In 2023, total written premiums in the Peruvian life and P&C insurance sectors increased 8.1% compared to 2022, higher than the 5.9% increase from 2021 to 2022 (after an important increase of 26.2% from 2020 to 2021). Written premiums in the Peruvian life and P&C insurance market totaled S/20,266 million in 2023, higher than S/18,746 million registered in 2022. Total written premiums in the Peruvian life insurance business increased 8.0% from 2022 to 2023, and those in the Peruvian P&C business grew 8.2% from 2022 to 2023, according to the SBS. For comparison, in the same year, Peru’s GDP decreased by 0.6%, according to the BCRP.
According to the SBS, in 2023, Grupo Pacífico’s written premiums in Peru’s consolidated life and P&C businesses were 24.2% of the Peruvian market, compared to 23.7% in 2022. Grupo Pacífico’s written premiums in 2023 were the second largest of any company in Peru’s consolidated life and P&C insurance market.
Life insurance market
In 2023, written premiums in Peru’s life insurance market totaled S/10,523.8 million, which represents an increase of 8.0% from 2022, according to the SBS. This was mainly attributable to Group life (which increased 18.9% from 2022), Credit Life (which increased 13.8% from 2022), and to D&S (which increased 12.9% from 2022).
According to the SBS, in 2023, Grupo Pacífico had the largest market share in the Peruvian life insurance market by written premiums (27.5%), which was higher than its market share of 26.1% in 2022. In 2023, Grupo Pacífico’s written premiums increased 13.8% from 2022, higher than Peru’s average growth of 8.0%. The increase in Grupo Pacífico’s written premiums was primarily attributable to D&S, which increased 29.3% from 2022 due to an increase in premium collections under the SISCO VI regime (a public bidding process as a result of which the insurance companies that will collectively manage the risks of disability, survival and burial of AFP members for the period 2023 are selected) as a result of larger portion of and better rates under SISCO VI versus SISCO V; individual life which increased 11.8% from 2022 due to higher sales in single premiums; group life, which increased 13.0% from 2022 due to Complementary Work Risk Insurance (Seguro Complementario de Trabajo de Riesgo or SCTR by its Spanish initials) and statutory life product sales growth; and to credit life, which increased 7.6% from 2022, driven by an increase in sales of Bancassurance through BCP and Banco de la Nación.
P&C insurance market
In 2023, the written premiums of Peru’s P&C insurance market totaled S/9,742.1 million, which represents an increase of 8.2% from 2022, according to the SBS. This result was primarily attributable to commercial lines due to earthquake insurance premiums (which increased 16.5% from 2022), fire insurance and allied lines (which increased 15.1% from 2022), premiums for theft insurance for credit cards (which increased 20.5% from 2022), and all risks contractors (which increased 28.5% from 2022); automobile premiums (which increased 4.2% from 2022), medical assistance premiums (which increased 3.5% from 2022).
According to the SBS, Grupo Pacífico had the second largest market share in Peru’s P&C sector (20.7% in 2023, which is lower than its 21.1% market share in 2022). Grupo Pacífico’s written premiums increased 6.1% from 2022, which is lower than Peru’s average growth rate of 8.2%. The increase in Grupo Pacífico’s written premiums was mainly driven by commercial lines premiums (which increased 9.1% from 2022), due to earthquake insurance premiums, marine hull insurance, and theft insurance for credit cards; automobile premiums (which increased 5.4% from 2022), through higher premium subscriptions in the corporate channel; and Personal Accidents (which increased 12.2% from 2022) due to higher sales through bancassurance channel.
Corporate Health Insurance and Medical Services market
According to SUSALUD, in 2023, written premiums in Peru’s health insurance market totaled S/3,171.4 million, which represented an increase of 7.3% compared to the previous year. Based on figures from SUSALUD, Grupo Pacífico had Peru’s largest market share in the health insurance market in 2023 (43.1%, compared to 44.2% in 2022).
As of December 31, 2023, there are four companies in the PPS, including Prima AFP.
According to the SBS, as of December 31, 2023, funds under management in the PPS reached S/122.8 billion, of which Prima AFP managed S/36.9 billion. This represented a market share of 30.0%, similar to 2022 (30.1%) and 2021 (30.1%).
As of December 31, 2023, the PPS reached 9.3 million affiliates, of which 2.3 million were Prima AFP’s customers, representing a market share of 25.2%. Collections in the PPS in 2023 reached S/14.8 billion, of which S/4.0 billion was collected by Prima AFP, representing a market share of 27.3%.
As discussed below under “PPS Reforms,” the Peruvian government began a process of reforming the PPS in 2012 through the passage of the PPS Reform Law. This reform contemplated a tender process to be held every 24 months, in which the AFP that offers the lowest management fee wins the tender. As a result, new workers who enter the PPS become members of the tender holder and remain in it for at least 24 months.
The following table shows the PPS tender processes held to date and their respective winners:
| No. | Date Held | Period | Winner |
| - | September 2012 | October 2012 – May 2013 | Prima AFP |
1st | December 2012 | June 2013 – May 2015 | AFP Habitat |
2nd | December 2014 | June 2015 – May 2017 | AFP Habitat |
3rd | December 2016 | June 2017 – May 2019 | Prima AFP |
4th | December 2018 | June 2019 – May 2021 | AFP Integra |
5th | December 2020 | June 2021 - May 2023 | AFP Integra |
6th | December 2022 | June 2023 - May 2025 | AFP Integra |
5.4 Investment Management and Advisory
Asset Management
In Peru, we compete in the mutual funds market (where we maintain leadership with a 32% market share), investment funds, and mandates with Fund Management Companies belonging to the main financial groups operating in the country (such as BBVA Fondos, Interfondos, Scotia Fondos), and non-banking Fund Management Companies with local and regional operations (such as Compass, Fondos Sura, Larrain Vial). This includes managing funds and mandates investing in traditional, alternative, and structured products.
In Colombia, we compete in the collective investment funds market (where we maintain leadership with a 28% market share), private equity funds, and investment trusts that primarily invest in traditional and alternative assets with local stockbrokers and fiduciaries, such as Alianza, Valores Bancolombia, Corredores Davivienda, and BTG. Regarding voluntary pension funds, we compete with major mandatory pension funds and some fiduciaries; notable competitors include Protección, Porvenir, Colfondos, Skandia, and Alianza.
In Chile, we compete in the mutual funds market, investment funds (public and private), and third-party portfolio management with non-banking General Fund Managers (AGF) with regional operations and a focus on Latin America, such as Larrain Vial, Compass, BTG, and Moneda.
In Offshore Funds, we also compete with Global Asset Managers that have Latin American fixed or variable income funds and are regulated UCITS funds.
Wealth Management
In Wealth Management, while the team is consolidated in Peru, we seek to capitalize on the growth opportunity in Colombia and Chile. In this business, we compete in a regional market led by global banks and financial institutions, especially in the ultra-high-net-worth segment.
Capital Markets
Through the Capital Market, we operate in the Securities Brokers and Intermediaries sector, which comprises establishments primarily engaged in the buying, selling, and brokerage of securities (secondary market), as well as the placement of securities issuances (primary market)
In capital markets, our brokerage house in Peru reaffirmed its leadership, holding the largest market share in equities (26% of traded value) and in fixed income (51% of traded volume), excluding the volumes outside of the stock market, according to the BVL. Similarly, our brokerage company in Colombia held the second largest market share among brokers in equities (16% of traded value) and the largest in fixed income (22% of traded volume) according to the Colombian Stock Exchange. In Chile, we held the eighth largest market share in equities (5%) and the third largest in fixed income proprietary accounts (12%), in terms of traded volume, according to the Santiago Stock Exchange.
Trust Services
In Peru, we have a strong leadership position in fiduciary and custody services to retail and institutional customers, but further growth is limited by market size. On the other hand, we have a relatively low market share in fiduciary services in Colombia (less than 5% measured by number of trust deeds), according to the Association of Fiduciaries of Colombia (Asociación de Fiduciarias de Colombia), which also presents us with an opportunity for growth.
(6) Supervision and regulation
Credicorp Ltd. is a tax-exempted company located in Bermuda. Credicorp maintains a presence and conducts its activities in Peru, Cayman Islands, Bolivia, Colombia, Chile, Mexico, Spain, Panama, the United States, and Luxembourg through its different LoBs and subsidiaries.
Other than as described under “ITEM 3. KEY INFORMATION – 3. D Risk Factors –9 Credicorp, as a Bermuda tax-exempted company, may be adversely affected by any change in Bermuda law or regulation,” there are no applicable regulations under Bermuda law that are likely to materially impact our operations as they are currently structured. Under Bermuda law, there is no regulation applicable to Credicorp as a holding company that would require that we separate the operations of our subsidiaries incorporated and existing outside Bermuda.
Our common shares are listed on the NYSE. We are therefore subject to regulation by the NYSE and the SEC as a “foreign private issuer”. We also must comply with the Sarbanes-Oxley Act of 2002.
We are subject to certain requirements set forth by the Peruvian Banking and Insurance Law, as well by certain banking resolutions issued by the SBS, including the Peruvian Consolidated Supervision of Financial and Mixed Conglomerates Regulation. These regulations affect us primarily in the areas of reporting, risk control guidelines, limitations, ratios, and capital requirements.
Since our common shares are listed on the BVL in addition to the NYSE, we are subject to certain reporting requirements to the SMV and the BVL. See “Item 9. The Offer and Listing – 9.C Markets – (2) Market Regulation”. The SMV issued SMV Resolution 016-2019-SMV/01 - “Guidelines for the qualification of Independent Directors”, which are not binding rules; but recommendations to the issuers listed on the BVL and under SMV supervision.
(i) Capital Adequacy Requirements
On September 29, 2010, the SBS issued SBS Resolution No. 11823-2010, which established the methodologies for calculating the regulatory capital and capital requirements for financial and mixed conglomerates. Article 4 of SBS Resolution 11823-2010 identifies two categories of consolidated groups: (i) the financial system consolidated group and (ii) the insurance system consolidated group. A combined group of companies formed by these two categories of entities is called a financial group. Each of the financial system consolidated group, the insurance system consolidated group and the financial group is required to hold regulatory capital that is greater than or equal to the capital requirements applicable to each respective group.
The capital requirements applicable to the financial group are the sum of the capital requirements applicable to the financial system consolidated group and the insurance system consolidated group. The capital requirements applicable to the financial system consolidated group and to the insurance system consolidated group are the sum of the capital requirements applicable to each of the companies that belong to each respective group. For unsupervised companies, regulatory capital is required to be the greater of: (i) 10% of third-party assets or (ii) the ratio of third-party assets over total assets multiplied by the sum of paid-in-capital, legal reserves, supplementary capital premiums, voluntary reserves distributable only with prior SBS approval and retained earnings with capitalization agreements net of current and past years’ losses.
Article 6 of SBS Resolution 11823-2010 provides that regulatory capital of the consolidated groups comprises the sum of basic capital and supplementary capital and is calculated as follows:
| • | 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 (that is, earnings that the shareholders or the Board of Directors, as the case may be, have committed to capitalize as common stock); and |
| (ii) | other elements that have characteristics of permanence and loss absorption that are in compliance with regulations enacted by the SBS. |
Items deducted from Tier 1 capital include:
| (a) | current and past years’ losses; |
| (b) | deficits of loan loss provisions; |
| (c) | goodwill resulting from corporate reorganizations or acquisitions; and |
| (d) | 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 from clause (i) of Basic Capital or Tier 1 capital, net of the deductions in (a), (b) and (c) in the list above.
| • | Supplementary Capital: Supplementary capital comprises the sum of Tier 2 and Tier 3 capital. Tier 2 capital elements include: |
| (a) | paid-in-capital, legal reserves, supplementary capital premiums, and voluntary reserves that may be reduced without prior consent from the SBS; |
| (b) | the eligible portion of the consolidated redeemable subordinated debt and of any other components that have characteristics of debt and equity as provided by the SBS; |
| (c) | for banks using the SBS standardized approach method, the generic loan loss provision up to 1.25% of total credit Risk Weighted Assets (RWAs); or, alternatively, for banks using the internal ratings-based (IRB) method, the generic loan loss provision up to 0.6% of total credit RWAs (pursuant to Article 189 of Law No. 26702); and |
| (d) | half of the amount referred to in “Deductions” below. Tier 3 capital comprises consolidated redeemable subordinated debt that is incurred with the sole purpose of covering market risk. |
| • | Deductions: The following elements are deducted from Tier 1 and Tier 2 capital: |
| (a) | for the financial system consolidated group, all investments in shares and subordinated debt issued by other local or foreign financial institutions and insurance companies; for the insurance system consolidated group, all investments in shares and subordinated debt issued by other local or foreign insurance companies; |
| (b) | all investments in shares and subordinated debt issued by entities that are part of the holding but do not belong to any of the consolidated groups; |
| (c) | for the financial system group, (i) the amount by which an investment in shares issued by a real sector company which is neither part of the holding nor part of the negotiable portfolio exceeds 15% of the financial system consolidated group’s regulatory capital; and (ii) the amount by which the aggregate amount of all investments in shares issued by real sector companies which are not part of the Conglomerate and which are not part of the financial system consolidated group’s negotiable portfolio exceeds 60% of the regulatory capital. |
Article 7 of SBS Resolution No. 11823-2010 provides that the following limits apply when calculating regulatory capital: (i) the aggregate amount of supplementary capital must not exceed the aggregate amount of basic capital; (ii) the amount of redeemable Tier 2 subordinated instruments must be limited to 50% of the amount resulting from the sum of Tier 1 elements in “Basic Capital” above; and (iii) the amount of Tier 3 capital must be limited to 250% of the sum of Tier 1 elements.
Article 10 of SBS Resolution No. 11823-2010 provides that regulatory capital of the financial group is comprised of the sum of basic capital and supplementary capital and is calculated as follows:
| • | Basic Capital: Basic Capital or Tier 1 capital comprises: |
| (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 (that is, earnings that the shareholders or the Board of Directors, as the case may be, have committed to capitalize as common stock); and |
| (ii) | other elements that have characteristics of permanence and loss absorption that are in compliance with regulations enacted by the SBS. |
| • | Items deducted from Tier 1 capital include: |
| (i) | current and past years’ 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. |
| • | Supplementary Capital: Supplementary capital is comprised of the sum of Tier 2 and Tier 3 capital. Tier 2 capital elements include: |
| (i) | paid-in-capital, legal reserves, supplementary capital premiums, and voluntary reserves that may be reduced without prior consent from the SBS; |
| (ii) | the eligible portion of the consolidated redeemable subordinated debt and of any other components that have characteristics of debt and equity as provided by the SBS; |
| (iii) | the generic loan loss provision included in the supplementary capital of the financial consolidated group; and |
| (iv) | half of the amount referred to in “Deductions” below. |
Tier 3 capital comprises consolidated redeemable subordinated debt computed in the consolidated groups.
| • | Deductions: The following elements 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 entities that are part of the conglomerate but do not belong to any of the consolidated groups; and |
| (iii) | all investments in shares issued by real sector companies that are not part of the conglomerate and the negotiable portfolio, computed as deductions in the financial system consolidated group. |
For further information, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5. B Liquidity and Capital Resources – (1) Capital Adequacy and Solvency Management – (1.1) Credicorp”.
Regulatory capital from January 2024.
On September 14, 2023, the SBS issued SBS Resolution No. 03004-2023, revising the methodologies for calculating the regulatory capital and capital requirements for financial and mixed conglomerates. Changes were made to the conglomerate regulation to reflect the regulatory capital changes implemented in the Peruvian financial system in 2023, according to the legislative decree No. 1531. The new regulatory capital framework defines three capital requirements: CET1, Tier 1 Capital and Total Regulatory Capital for the financial system consolidated group and the financial group.
Financial System Consolidated Group
Article 5-A of SBS Resolution No. 03004-2023 sets forth the capital requirements for the financial system consolidated group. The CET1 Capital requirement will be equal to or greater than the sum of 45% of the financial system consolidated group capital requirement, including 100% of combined buffers. The Tier 1 Capital requirement will be equal to or greater than the sum of 60% of the financial system consolidated group capital requirement, including 100% of combined buffers. The total capital requirement will be equal or greater than the sum of 100% of the financial system consolidated group capital requirement, including 100% of combined buffers. Combined buffers are the sum of the conservation buffer, the economic cycle buffer and concentration risk buffer.
Article 6-B of SBS Resolution No. 03004-2023 states that the capital requirement for companies within the financial system consolidated group should incorporate:
| (a) | For supervised companies with capital requirements subject to risk assumed in operations: the sum of credit risk capital requirements, market risk capital requirements and operational risk capital requirements; and |
| (b) | For unsupervised companies, the greater of: (i) 10% of third-party assets or (ii) the ratio of third-party assets over total assets multiplied by the sum of paid-in-capital, legal reserves, supplementary capital premiums, voluntary reserves distributable only with prior SBS approval, and retained earnings with capitalization agreements net of current and past years’ losses. |
Article 5-B of SBS Resolution No. 03004-2023 states that the financial system consolidated group regulatory capital is composed of CET1 Capital, Additional Tier 1 Capital and Tier 2 Capital.
CET 1 Capital:
| (a) | Common shares and other capital instruments, as long as they have been paid and comply with the conditions indicated by the SBS; |
| (b) | Issue premium of common shares and other capital instruments indicated in subparagraph (a); |
| (c) | Earnings from prior years and from the year in progress of Credicorp’s financial system consolidated group companies that comply with the SBS’s accounting regulations as designated by the SBS; |
| (d) | Unrealized gains attributable to available for sale investments that meet the conditions designated by the SBS; |
| (e) | Legal reserves and optional reserves; |
| (f) | Donations that meet the conditions designated by the SBS; |
| (g) | Regulatory adjustments that include the following deductions: |
| (i) | Financial system consolidated group losses from prior years and from the current year as designated by the SBS; |
| (ii) | Unrealized losses attributable to available for sale investments as designated by the SBS |
| (iii) | Shortfalls in provisions determined by the SBS; |
| (iv) | Goodwill resulting from reorganizations or acquisitions; |
| (v) | Intangible assets, other than those indicated in item (iv); |
| (vi) | Deferred income tax assets originated due to carryover losses; |
| (vii) | Deferred income tax assets, net of deferred income tax liabilities, originated due to temporary differences that exceed the threshold established by the SBS; |
| (viii) | Direct or indirect holding of instruments of capital included in the computation of CET 1 Capital, which have been issued by the company itself and that are kept in treasury, and instruments owned by the company and included in the computation of CET 1 Capital for which there is a present or contingent obligation to acquire them by virtue of contractual obligations; |
| (ix) | Investments in equity instruments included in the computation of CET 1 Capital, issued by companies in Peru or abroad that do not belong to the financial system consolidated group; |
| (x) | For companies using internal models to calculate capital requirements for credit risk, the difference between expected loss and total provisions for credit risk, when this difference is positive; |
| (xi) | Additional Tier 1 Capital deductions that exceed the Additional Tier 1 Capital additions; and |
| (xii) | The portion of the difference between regulatory capital and capital requirements that come from elements of CET 1 Capital that do not correspond to controlling interests as calculated according to SBS methodology. |
Additional Tier 1 Capital:
| (a) | Equity instruments and subordinated debt that meet the conditions of Additional Tier 1 Capital as determined by the SBS; |
| (b) | Share premium of capital instruments indicated in item (a); |
| (c) | Regulatory adjustments that include the following deductions from Additional Tier 1 Capital: |
| (i) | Direct or indirect holding of instruments of capital and/or subordinated debt included in the computation of Additional Tier 1 Capital, which have been issued by the company itself and that are kept in the treasury, and instruments owned by the company and included in the computation of Additional Tier 1 Capital for which there is a present or contingent obligation to acquire them by virtue of contractual obligations; |
| (ii) | Investments in equity and/or subordinated debt instruments included in the computation of Additional Tier 1 Capital issued by companies in Peru or abroad that do not belong to the financial system consolidated group; |
| (iii) | Tier 2 Capital deductions that exceed the Tier 2 Capital additions; and |
| (iv) | The portion of the difference between regulatory capital and capital requirement that comes from elements of Additional Tier 1 Capital that do not correspond to controlling interest as calculated according to SBS methodology. |
Tier 2 Capital:
| | (a) | Equity instruments and subordinated debt that meet the conditions of Tier 2 Capital as determined by the SBS; |
| (b) | Share premium of capital instruments indicated in item (a); |
| (c) | For companies within the financial system consolidated group subject to capital requirements for credit risk, the generic loan loss provision up to 1.25% of credit RWAs; or, alternatively, for banks using the internal ratings-based (IRB) method, the generic loan loss provision up to 0.6% of total credit RWAs; |
| (d) | Regulatory adjustments that include the following Tier 2 net worth deductions: |
| (i) | Direct or indirect holding of instruments of capital and/or subordinated debt included in the computation of Regulatory Tier 2 Capital, which have been issued by the company itself and that are kept in the treasury, and instruments owned by the company and included in the computation of Tier 2 Capital for which there is a present or contingent obligation to acquire them by virtue of contractual obligations; |
| (ii) | Investments in equity and/or subordinated debt instruments included in the computation of Tier 2 Capital issued by companies in Peru or abroad that do not belong to the financial system consolidated group; and |
| (iii) | The portion of the difference between regulatory capital and capital requirement that comes from elements of Tier 2 Capital that do not correspond to controlling interest as calculated according to SBS methodology. |
Article 6-A of SBS Resolution No. 03004-2023 sets forth the following limits within regulatory capital:
| (a) | Additional Tier 1 Capital must not exceed one-third of CET 1 Capital. The excess above said limit can be included in certain companies as Regulatory Tier 2 Capital. |
| (b) | Regulatory Tier 2 Capital should not be greater than two-thirds of the Regulatory Tier 1 Capital. The excess over said limit is not in the computation of total regulatory capital. |
Insurance System Consolidated Group
Article 7-A of SBS Resolution No. 03004-2023 sets forth the capital requirements for the insurance system consolidated group, which will be equal or greater than the sum of 100% of the insurance system consolidated group capital requirement.
Article 8-B of SBS Resolution No. 03004-2023 states that the capital requirement for companies within the insurance system consolidated group should incorporate:
| a) | For supervised companies with capital requirements subject to risk assumed in operation: the sum of capital requirements associated with solvency, guarantee fund, credit risk and additional risks; |
| b) | For unsupervised companies, the greater of: (i) 10% of third-party assets or (ii) the ratio of third-party assets over total assets multiplied by the sum of paid-in-capital, legal reserves, supplementary capital premiums, voluntary reserves distributable only with prior SBS approval and retained earnings with capitalization agreements net of current and past years’ losses. |
Article 7-B of SBS Resolution No. 03004-2023 states that the insurance system consolidated group regulatory capital is composed of:
| (a) | Common stock and perpetual non-cumulative preferred stock; |
| (b) | Supplementary capital premiums; |
| (c) | Legal reserves and voluntary reserves; |
| (d) | Retained earnings with capitalization agreements (that is, earnings that the shareholders or the Board of Directors, as the case may be, have committed to capitalize as common stock); |
| (e) | Donations that meet the conditions designated by the SBS; |
| (f) | Equity instruments and subordinated debt that meet the conditions designated by the SBS; |
| (g) | Regulatory adjustments that include the following deductions: |
| (i) | Losses from prior years and from the current year; |
| (ii) | Unrealized losses in available for sale investments, as determined by the SBS; |
| (iii) | Shortfalls in provisions determined by the SBS; |
| (vi) | Investments in equity or subordinated debt instruments, issued by companies that do not form part of the insurance system consolidated group, in Peru or abroad; |
| (vii) | Additional Tier 1 Capital deductions that exceed the Additional Tier 1 Capital additions; |
| (viii) | The portion of the difference between regulatory capital and the capital requirement that comes from capital or subordinated debt elements that do not correspond to controlling interest, as calculated according to the SBS methodology; and |
| (ix) | Unrealized losses due to variations in the mathematical reserve following movements in interest rates, as determined by the SBS. |
Financial Group
Article 9 of SBS Resolution No. 03004-2023 sets forth the capital requirements for the financial group. The CET 1 Capital requirement will be equal to or greater than the sum of 45% of the financial group capital requirement plus 100% of combined buffers. The Tier 1 Capital requirement will be equal to or greater than the sum of 60% of the financial system consolidated group capital requirement plus 100% of combined buffers. The total capital requirement will be equal to or greater than the sum of 100% of the financial system consolidated group capital requirement plus 100% of combined buffers. Combined buffers are the sum of the conservation buffer, the economic cycle buffer and concentration risk buffer.
Article 11 of SBS Resolution No. 03004-2023 states that the capital requirement for companies within the financial group should incorporate the sum of capital requirements for financial system consolidated group and the capital requirements for insurance system consolidated group.
Article 10 of SBS Resolution No. 03004-2023 states that the financial system consolidated group regulatory capital is composed of CET 1 Capital, Additional Tier 1 Capital and Tier 2 Capital.
CET 1 Capital:
| (a) | Common shares and other capital instruments, as long as they have been paid and comply with the conditions indicated by the SBS; |
| (b) | Issue premium of common shares and other capital instruments indicated in subparagraph (a); |
| (c) | Earnings from prior years and from the year in progress of Credicorp’s financial system consolidated group companies that comply with the SBS’s accounting regulations as designated by the SBS; |
| (d) | Unrealized gains attributable to available for sale investments that meet the conditions designated by the SBS; |
| (e) | Legal reserves and optional reserves; |
| (f) | Donations that meet the conditions designated by the SBS; |
| (g) | Regulatory adjustments that include the following deductions: |
| (i) | Financial group losses from prior years and from the current year as designated by the SBS; |
| (ii) | Unrealized losses attributable to available for sale investments as designated by the SBS |
| (iii) | Shortfalls in provisions determined by the SBS; |
| (iv) | Goodwill resulting from reorganizations or acquisitions; |
| (v) | Intangible assets, other than those indicated in item (iv); |
| (vi) | Deferred income tax assets originated due to carryover losses; |
| (vii) | Deferred income tax assets, net of deferred income tax liabilities, originated due to temporary differences that exceed the threshold established by the SBS; |
| (viii) | Direct or indirect holding of instruments of capital included in the computation of CET 1 Capital, which have been issued by the company itself and that are kept in treasury, and instruments owned by the company and included in the computation of CET 1 Capital for which there is a present or contingent obligation to acquire them by virtue of contractual obligations; |
| (ix) | Investments in equity instruments included in the computation of CET 1 Capital, issued by companies in Peru or abroad that do not belong to the financial group; |
| (x) | For companies using internal models to calculate capital requirements for credit risk, the difference between expected loss and total provisions for credit risk, when this difference is positive; |
| (xi) | Additional Tier 1 Capital deductions that exceed the Additional Tier 1 Capital additions; and |
| (xii) | The portion of the difference between regulatory capital and capital requirements that come from elements of CET 1 Capital that do not correspond to controlling interest, as calculated according to SBS methodology. |
Additional Tier 1 Capital:
| (a) | Equity instruments and subordinated debt that meet the conditions of Additional Tier 1 Capital as determined by the SBS; |
| (b) | Share premium of capital instruments indicated in item (a); |
| (c) | Regulatory adjustments that include the following deductions from Additional Tier 1 Capital: |
| (i) | Direct or indirect holding of instruments of capital and/or subordinated debt included in the computation of Additional Tier 1 Capital, which have been issued by the company itself and that are kept in the treasury, and instruments owned by the company and included in the computation of Additional Tier 1 Capital for which there is a present or contingent obligation to acquire them by virtue of contractual obligations; |
| (ii) | Investments in equity instruments included in the computation of CET 1 Capital, issued by companies in Peru or abroad that do not belong to the financial group; |
| (iii) | Tier 2 Capital deductions that exceed the Tier 2 Capital additions; and |
| (iv) | The portion of the difference between regulatory capital and capital requirement that comes from elements of Additional Tier 1 Capital that do not correspond to controlling interest, as calculated according to SBS methodology. |
Tier 2 Capital:
| (a) | Equity instruments and subordinated debt that meet the conditions of Tier 2 Capital as indicated by the SBS; |
| (b) | Share premium of capital instruments indicated in item (a); |
| (c) | For companies within the financial system consolidated group subject to capital requirements for credit risk, the generic loan loss provision up to 1.25% of credit RWAs; or, alternatively, for banks using the internal ratings-based (IRB) method, the generic loan loss provision up to 0.6% of total credit RWAs; |
| (d) | Regulatory adjustments that include the following Tier 2 net worth deductions: |
| (i) | Direct or indirect holding of instruments of capital and/or subordinated debt included in the computation of Regulatory Tier 2 Capital, which have been issued by the company itself and that are kept in the treasury, and instruments owned by the company and included in the computation of Tier 2 Capital for which there is a present or contingent obligation to acquire them by virtue of contractual obligations; |
| (ii) | Investments in equity instruments included in the computation of CET 1 Capital, issued by companies in Peru or abroad that do not belong to the financial system consolidated group; and |
| (iii) | The portion of the difference between regulatory capital and capital requirement that comes from elements of Tier 2 Capital that do not correspond to controlling interest, as calculated according to SBS methodology. |
(ii) Other Regulations
The Dodd-Frank Act imposes obligations on swap dealers in respect of swap transactions, including trading relationship documentation and disclosure obligations.
EMIR is a European Union regulation aimed at reducing systemic counterparty risk by increasing transparency of both parties in over-the-counter transactions.
Credicorp complies with these Dodd-Frank Act and EMIR requirements through implementation of ISDA Protocols, addressing management of existing relationships and compliance with counterparty requirements.
6.2.1 Peru
Credicorp’s main subsidiaries, BCP Stand-alone, Mibanco, Grupo Pacífico, Prima AFP, and Credicorp Capital Peru, are located in Peru and they offer banking and financial services. Furthermore, they are regulated by Peruvian laws and supervised by Peruvian Financial Regulators.
In Peru financial institutions, insurance companies and pension funds are regulated by Peruvian Banking and Insurance Law. In general, it provides for loan loss reserve standards, brings asset risk weighting in line with Basel Committee on Banking Regulations and Supervisory Practices of International Settlements (Basel Committee) guidelines, empowers the SBS to supervise financial holding companies, and includes specific treatment of a series of recently developed products in the capital markets and derivatives areas.
The Peruvian Central Bank (BCRP)
The BCRP’s primary role is to ensure the stability of the Peruvian monetary system. The BCRP regulates Peru’s money supply, administers international reserves, issues currency, targets inflation ranges and determines Peru’s balance of payments and other monetary accounts. The BCRP’s Board of Directors develops and oversees monetary policy, establishes reserves requirements for entities within the financial system and approves guidelines for the management of international reserves. All entities within the Peruvian financial system are required to comply with the decisions of the BCRP.
The highest decision-making authority within the BCRP 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 Peru’s congress. The Chairman of the BCRP is one of the executive branch nominees but must be approved by Peru’s congress.
The BCRP’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 BCRP.
The article 84 of Chapter 5 of the 1993 Constitution establishes that the BCRP is a legal person of public rights and has autonomy within the framework of its Organic Law. BCRP’s primary role is to ensure the stability of the Peruvian monetary system. According to Article 2 of its Organic Law, the BCRP functions are to regulate Peru’s money supply, manage international reserves, issue bills and coins, and report on national finances. The BCRP’s Board of Directors develops and oversees monetary policy, establishes reserves requirements for entities within the financial system, approves guidelines for the management of international reserves and approves the arrangement of loans that strengthen the balance of payments. All entities within the Peruvian financial system are required to comply with the decisions of the BCRP.
The monetary policy of the BCRP has been conducted under an inflation-targeting scheme since January 2002. The BCRP seeks to anchor inflation expectations through the announcement of an inflation target range of 1% to 3% and makes monetary policy decisions by using a reference rate for the interbank market interest rate. Depending on economic conditions, the BCRP changes its reference interest rate preventively to keep inflation and its expectations in the target range. Once a month, the Board of Directors approves and announces the monetary program through a policy statement which includes a brief description of the recent macroeconomic evolution, the decision about the reference interest rate and rationale behind said decision, as well as interest rates for BCRP operations with the financial system.
The BCRP’s recent rate-cut cycle has reduced the monetary policy interest rate from 7.75% (historical high) to 6.00% in April 2024. The cycle began with a 25 bps cut in September 2023, followed by 5 consecutive cuts of 25 bps each, and another 25 bps cut in April after a pause in March. This occurs after 7 consecutive months where the BCRP kept the policy rate stable at 7.75%.
Before relaxing its monetary policy stance, the BCRP had increased its reference rate from 0.25% in July 2021 to 7.75% in January 2023, as did most Central Banks given the global inflation shock.
The following table summarizes the reference interest rate changes from August 2021 to March 2024:
Changes in BCRP’s reference interest rate (August 2021 – March 2024) |
| Date Held | Rate |
| August 2021 | 0.50% |
| September 2021 | 1.00% |
| October 2021 | 1.50% |
| November 2021 | 2.00% |
| December 2021 | 2.50% |
| January 2022 | 3.00% |
| February 2022 | 3.50% |
| March 2022 | 4.00% |
| April 2022 | 4.50% |
| May 2022 | 5.00% |
| June 2022 | 5.50% |
| July 2022 | 6.00% |
| August 2022 | 6.50% |
| September 2022 | 6.75% |
| October 2022 | 7.00% |
| November 2022 | 7.25% |
| December 2022 | 7.50% |
| January 2023 | 7.75% |
| September 2023 | 7.50% |
| October 2023 | 7.25% |
| November 2023 | 7.00% |
| December 2023 | 6.75% |
| January 2024 | 6.50% |
| February 2024 | 6.25% |
| April 2024 | 6.00% |
Additionally, the BCRP is also responsible for managing the liquidity in the financial system so that the interbank rate stays close to the reference rate. Policy instruments include (i) market instruments, (ii) discount window instruments and (iii) reserve requirements.
To remove liquidity from the financial system
BCRP Deposit Certificates (BCRP CD): BCRP CDs are used to regulate the liquidity of the financial system through the sterilization of banks’ surplus liquidity. They are issued through an auction mechanism for terms of between one month and three years. In January 2024, the aggregate value of outstanding BCRP CDs was S/36.9 billion.
BCRP Adjustable Deposit Certificates (BCRP CDRs): In addition to sterilizing banks’ surplus liquidity, BCRP CDRs target the reduction of depreciation pressures on the USDPEN exchange rate as the certificate is readjusted subject to the variation in the exchange rate between the issue date and maturity date. The aggregate outstanding value of BCRP CDRs declined from S/7.8 billion in February 2021 to zero in October 2022. As of January 2024, the aggregate value of outstanding BCRP CDRs was S/295 millions.
BCRP Deposit Certificates payable in US Dollars (BCRP CDLDs): BCRP CDLDs were created in 2010 to address downward pressures on the exchange rate related to banks’ forward contracts. Through BCRP CDLDs, the BCRP issues a deposit certificate denominated in Soles but for which payment on the issue date and maturity date is done in US Dollars. This is equivalent to a temporary purchase of dollars in the spot market sterilized by issuing BCRP CDs. This instrument has been used only twice–first at the end of 2010 and beginning of 2011 and second in 2017. Since March 2018, there are no BCRP CDLDs outstanding.
BCRP Deposit Certificates at variable rate (BCRP CDVs): The yield of BCRP CDVs is subject to adjustment based on the reference interest rate or the overnight interbank index, as determined by the BCRP. BCRP CDVs are used to sterilize liquidity in an environment of high uncertainty about future interest rates that reduces BCRP CD demand. Because of the current macroeconomic scenario of high inflation and high interest rates, the instrument has been used intensively since August 2021. Since June 2023, there are no BCRP CDVs outstanding.
BCRP Term-deposits (BCRP DPs): BCRP DPs were created in 2010 in a context of significant short-term capital inflows to remove liquidity from the system when it replaced the issuance of BCRP CDs with terms of one month or less with BCRP DPs. In February 2024, the aggregate value of outstanding BCRP DPs was S/9.1 billion.
To inject liquidity into the financial system
Reverse-repo: Through reverse repurchase agreements (repos), the BCRP can buy from financial system entities, with the commitment that those entities repurchase on an agreed date, all the CDs issued by the BCRP, treasury notes and treasury bonds issued in Soles. This is done through an auction mechanism and the regular terms of these transactions are between one business day and one week. Since 2008, reverse-repo transactions in US Dollars have been authorized as a way to inject liquidity in US Dollars. In April 2020, pension funds were authorized to participate in these transactions in the case of securities issued by the Republic of Peru that are registered in CAVALI. In January 2024, the value of outstanding reverse-repos was S/7.9 billion, which is 28% less than in December 2023.
Credit-repo transactions: In April 2009, the BCRP was authorized to purchase credit portfolios temporarily represented in securities. In May 2020, the Peruvian government, through Legislative Decree No. 1508, created a program for the guarantee of credit portfolios of financial entities to provide liquidity support. The size of the program was S/7 billion and could be expanded up to an additional 20%. Under this framework, in May 2021, through Circular No. 011-2021-BCRP, the BCRP created credit-repo transactions with a government guarantee for liquidity support. The value of outstanding credit-repo transactions in January 2024 was S/6.3 billion.
Government-backed credit repo transactions: Government-backed credit repo transactions were established under the Reactiva Peru Program framework in April 2020. In these transactions, the entities involved (banks and other financial companies) sell to BCRP securities representatives of credits guaranteed by the Peruvian government, receive Soles and, at the same time, agree to repurchase those securities at a future date. The BCRP determines the rate it will charge for the funds and the allocation variable is the maximum interest rate that entities are willing to charge for these guaranteed credits. The BCRP adjudicates the auctioned funds starting with the bids that have the lowest rate. In this way, it encourages lower credit rates that are ultimately determined through market mechanisms. The outstanding value of government-backed credit Repo transactions reached a peak of S/50.7 billion in December 2020 and has decreased since then to S/4.5 billion in January 2024.
Repo-transactions conditioned on credit portfolio rescheduling: From June 2020 to October 2021, repo transactions conditioned on credit portfolio rescheduling were established to incentivize financial entities to reduce their loan interest rates. Under this program, the entities sell securities (reverse-repo, foreign exchange swaps and credit-repo) or foreign currency to the BCRP, receive domestic currency and are obliged, at the same time, to repurchase those securities or foreign currency at a future date, against the payment of Soles. The terms of these transactions ranged from 6 to 48 months and were completed only if the financial entities rescheduled their clients’ loan portfolios or loans bought from other financial entities in an amount at least of the size the repo transaction. In addition, the BCRP set conditions that included a requirement to set the interest rate applicable to rescheduled credits at a minimum discount of 200 bps to the original interest rate. The effects of these transactions were reflected in better conditions for debtors in the financial system and aimed at a faster recovery from the COVID-19 pandemic’s negative shock to the local economy.
Repo-transactions conditioned on long-term credit expansion: Repo transactions conditioned on long-term credit expansion were established in April 2021 and concluded in December 2021, with the objective of improving the monetary policy transmission channel and continue strengthening the expansion of credit to the private sector. This program worked in a similar way to the repo transactions conditioned on credit portfolio rescheduling mentioned above, but the completion of these transactions occurred only if financial institutions increased their outstanding amount of corporate loans or mortgages in domestic currencies with terms of at least three years compared to January 1, 2021, levels.
Currency repos: Since March 2007, the BCRP has been allowed to use currency repos to inject liquidity in soles against US Dollar delivery. Through these transactions, the BCRP temporarily purchases dollars from financial institutions that commit to repurchase them at a future date. Since April 2011, this instrument has also been used to inject liquidity in Dollars. Aggregate outstanding currency repos in January 2024 totaled S/187 million. To accelerate the de-dollarization process, in December 2014, the BCRP established two new types of currency repos: (1) Repo – Expansion, which would provide liquidity in local currency to financial institutions for an amount up to 20% of such institution’s Total Liabilities Subject to Reserve Requirements (TOSE by its Spanish Initials) in US Dollars, and under no circumstance could the median reserve requirement decrease below 25%; and (2) Repo – Substitution, which would provide local currency to financial institutions at spot foreign exchange prices to finance the re-denomination of their loans in US Dollars. The outstanding amount of both instruments has been zero since 2019.
Interest rate swaps: Interest rate swaps were launched to empower the transmission of monetary policy and incentivize the expansion of long-term credit. The BCRP can carry out these transactions via auction or direct placements with terms between 3 and 7 years. Through these derivatives, the BCRP assumes the commitment to pay a variable interest rate in exchange for the financial entity’s commitment to pay a fixed interest rate. Thus, the BCRP provides the financial system entities a hedging instrument for future interest rates hikes, which then incentivizes them to make long term loans. The aggregate outstanding amount of these transactions has been zero since September 2023.
Reduce FX volatility
Buy-sell US$ in the spot market: The BCRP intervenes in the exchange rate market at its discretion to reduce PEN volatility. These interventions are sterilized by other monetary operations to keep the interbank interest rate around the reference level. In 2022, the BCRP sold US$1.2 billion in the spot market, equivalent to 10% of 2021 net sales, with the intervention concentrated in the second half of 2022. In 2023, the monetary authority barely intervened in the spot market selling US$81 million, while in 2024, as of February 16, it has sold US$223 million.
FX swaps: Foreign exchange swaps were initiated in 2014 to reduce exchange rate volatility generated by pressures in the derivatives market. With an FX swap sell, the BCRP provides exposure to the exchange rate by committing to pay a fixed rate in foreign currency plus the exchange rate variation, in exchange for receiving an interest rate in domestic currency that can be variable or fixed. With this transaction, the parties typically exchange only net payments rather than the full nominal amounts. As of January 2024, the BCRP’s stock of FX swaps sell has increased to S/50.0 billion, compared to S/45.2 billion at the end of 2023 and S/38.1 billion at the end of 2022.
| (ii) | Discount window instruments |
Credit for monetary regulation (rediscounts): Rediscounts have the purpose of covering temporary liquidity imbalances of financial institutions. The financial entity that requests the use of this facility has to provide collateral (BCRP CDs, Treasury notes, Treasury bonds, CDR BCRP, private sector bonds with at least credit rating AA, among others).
Direct reverse-repo: Similar to the reverse-repos and currency-repos explained above, through direct reverse-repos, the BCRP can provide liquidity that financial entities demand directly, instead of through an auction, and accept a greater range of collateral.
Purchase of Treasury bonds in domestic currency: Initially, in November 2022, when they started buying treasury bonds, the objective was to reduce its volatility caused by uncertainty in global financial markets and the sales by pension funds due to the withdrawal of pension fund accounts approved by Peru’s congress. Now, it is also used as a mechanism to inject liquidity. According to the December 2023 BCRP inflation report, the amount of net sovereign bonds purchases as of December 21 was S/4.5 billion, below the legal limit of 5% of the monetary base of the previous year (S/4.7 billion).
Overnight deposits: Overnight domestic and foreign currency deposits (deposits repaid the next business day) of financial entities were established in 1998 and are used to remove the excess liquidity at the end of the day. The daily average of overnight deposits by financial institutions in 2023 was S/532 million in domestic currency and US$1,720 million.
| (iii) | Reserve requirements |
Under Law No. 26702, banks and financial institutions are required to maintain legal reserve requirements for certain obligations. The BCRP establishes the reserve requirements that financial entities are required to meet in Peru as a percentage of their obligations in foreign and domestic currency such as demand and time deposits, savings accounts, securities, certain bonds, and funds administered by banks. Additionally, the BCRP requires reserves on amounts due to foreign banks and other foreign financial institutions. Since January 2011, obligations of foreign subsidiaries and affiliates also have been subject to the reserve requirement.
In August 2021, through Circular No. 024-2021, the BCRP decided to: (i) establish a marginal reserve rate of 25% of the average obligations during a base period, which corresponds to July 2021; (ii) establish a minimum media reserve requirement rate of 4%, which rose to 4.25% in October 2021 and to 4.50% in November 2021; and (iii) increase the minimum level of current account deposits that entities subject to reserve requirements must keep at the BCRP as reserve funds from 0.75% to 1.00% in October 2021.
Additionally, the BCRP increased the minimum legal reserve requirement rate to 4.50% in November 2021, to 4.75% in December 2021 and to 5.00% in January 2022. Later, further gradual increases were to 5.25% in February 2022, 5.50% in March 2022, 5.75% in April 2022 and 6.0% in May 2022, with the objective of complementing the reference interest rate hiking cycle and have a better control of liquidity.
The reserve requirement is the larger amount between: (i) the rate that results from a marginal reserve rate of 25% over the increase of TOSE with respect to July 2021 and (ii) the rate that results from applying the minimum legal reserve rate of 6.0% from May 2022. Banks can have excess funds which the BCRP remunerates. By December 2023, the average effective reserve requirement ratio for domestic currency was 6.1% (2022: 6.2%, 2021: 5.1%).
Regarding reserve requirements in foreign currency, according to the BCRP, in a context of partial dollarization, this tool has constituted an important support for financial system liquidity as its rate is higher than the one in domestic currency, due to the greater liquidity risk implied by intermediation in foreign currency. Since July 2018, the marginal rate has been 35%. Furthermore, to reduce credit dollarization, the BCRP imposes additional US dollar reserve requirements on financial institutions based on limits to the credit balance in US dollars for total credit, as well as mortgage and vehicle loans. This was suspended between April 2020 and April 2021. Additionally, in June 2023 the reserve rate for obligations with terms less than two years with foreign financial entities was increased from 9% to 35% starting July 2023, while the additional reserve requirements corresponding to the evolution of total loans in foreign currency were updated. Thus, by December 2023, the average effective reserve requirement ratio for foreign currency was 35.7% (2022: 34.7%, 2021: 34.5%).
The Superintendence of Banks, Insurance and Pension Funds (SBS)
The SBS is the regulatory authority in charge of supervising and regulating all financial, insurance and pension fund institutions in Peru. Peru’s constitution and Peruvian Banking and Insurance Law, which contains the statutory charter of the SBS, grant the SBS the authority to oversee and control banks and financial institutions (apart from brokerage firms, which are regulated by the SMV), insurance and reinsurance companies, companies that receive deposits from the general public, AFPs and those that carry out activities linked or complementary to the corporate purpose of said companies mentioned in the Peruvian Banking and Insurance Law. The SBS is also responsible for supervising the BCRP to ensure that it abides by its statutory charter and Byelaws.
The SBS has 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 BCRP, the establishment and organization of subsidiaries of the institutions it regulates; (ii) overseeing mergers, dissolutions and reorganizations 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 holding companies that are not banks, such as Credicorp); (iv) reviewing the byelaws and amendments to byelaws 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; (vi) controlling the bank’s 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), and (vii) overseeing compliance with the maximum interest rates set by the BCRP. The SBS is also responsible for setting criteria for the establishment of financial or mixed conglomerates in Peru and for supervising these entities. As a result, in addition to its supervision of BCP Stand-alone, Mibanco, Grupo Pacífico and Prima AFP, the SBS also supervises Credicorp Ltd. because Credicorp Ltd. is a financial conglomerate conducting most of its operations in Peru.
The Superintendence of the Securities Market (SMV)
The SMV is the Peruvian government institution in charge of: (i) promoting the securities markets, (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 such businesses’ activities and accounting practices. The SMV enjoys functional, administrative, economic, technical, and budgetary autonomy relative to other branches of the Peruvian government. Financial institutions such as banks, insurance companies, pension funds and brokerage firms must inform the SMV of significant events that affect their business and are required to provide financial statements to both the SMV and the BVL each quarter. Those institutions are also regulated by the SMV when they conduct operations in the local Peruvian securities market.
Peruvian Consumer Protection Authority (INDECOPI)
INDECOPI regulates the protection of the consumer’s rights in the Peruvian Consumer Protection Code. INDECOPI has the authority to issue fines to financial institutions if they violate the laws and regulations regarding protection of the consumer rights.
Peruvian Data Privacy Authority (ANPDP)
The ANPDP regulates the protection of personal data in Peru. The primary governing regulation for the ANPDP is Peruvian Data Privacy Law. ANPDP has the authority to issue fines to financial institutions that violate the laws and regulations regarding personal data protection.
| (ii) | Supervised Institutions |
Under Peruvian law, financial institutions are classified as universal banks, insurance companies, pension funds, finance companies and other financial institutions such as small business finance companies, savings and loan corporations, financial services companies, investment banks, mutual housing associations, municipal savings and credit associations and savings and credit cooperatives.
Financial institutions must obtain the SBS’s authorization before beginning operations. BCP Stand-alone and Mibanco are each classified as a universal bank, Grupo Pacífico is classified as an insurance company and Prima AFP is classified as a pension fund company.
Universal Banks
A universal bank, or bank, is defined by Peruvian Banking and Insurance Law 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.
Banks are permitted to carry out various types of financial operations, including the following:
| • | receiving demand deposits, time deposits, savings deposits, and deposits in trust; |
| • | discounting or advancing funds against bills of exchange, promissory notes, and other credit instruments; |
| • | granting mortgage loans and accepting bills of exchange in connection with the mortgage loans; |
| • | granting conditional and unconditional guarantees; |
| • | issuing, confirming, receiving, and discounting letters of credit; |
| • | acquiring and discounting certificates of deposit, warehouse receipts, bills of exchange and invoices of commercial transactions; |
| • | performing credit operations with local and foreign banks, as well as making deposits in those institutions; |
| • | issuing and placing local currency and foreign currency bonds, as well as promissory notes and negotiable certificates of deposits; |
| • | issuing certificates in foreign currency and entering into foreign exchange transactions; |
| • | purchasing banks and non-Peruvian institutions that conduct financial intermediation or securities exchange transactions in order to maintain an international presence; |
| • | 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; |
| • | acting as financial agent for investments in Peru for external parties; |
| • | purchasing, holding, and selling instruments evidencing public debt, whether internal or external, as well as obligations of the BCRP; |
| • | making collections, payments, and transfers of funds; |
| • | receiving securities and other assets in trust and leasing safety deposit boxes; and |
| • | 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, a bank may also act as a trustee for trust agreements.
Under Peruvian law, universal banks may conduct brokerage operations and administer mutual funds but must do so through subsidiaries. However, universal 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.
Peruvian branches of foreign banks enjoy the same rights and are subject to the same obligations as Peruvian universal banks. Multinational banks, with operations in various countries, may perform the same activities as universal Peruvian banks, although their foreign activities are not subject to Peruvian regulations. To carry out banking operations in local Peruvian markets, multinational banks must maintain capital in Peru of at least the minimum amount that is required for Peruvian banks. For more information about banks’ capital requirements, please see “ITEM 4. INFORMATION ON THE COMPANY – (6) Supervision and regulation – (i) Peruvian Commercial Banks Regulation - BCP Stand-alone and Mibanco – Capital adequacy requirements and ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.B Liquidity and Capital Resources”.
Those universal banks that violate the Peruvian Banking and Insurance Law and its underlying regulations may be subject to administrative sanctions and criminal penalties. Additionally, the SBS and the BCRP 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’ byelaws.
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 in order to maintain liquidity and capital requirements to pay their clients when claims occur.
Peru’s Law No. 26702 and Law No. 29946, Ley del Contrato de Seguro (the “Peruvian Insurance Contract Law”), which are discussed below, are the main laws governing insurance companies and insurance in Peru. The SBS is the government agency charged with the supervision and regulation of all insurance companies. The incorporation of an insurance company requires prior authorization from the SBS. Also, the SMV supervises and regulates insurance companies through Peru’s Law No. 26126 and its amendments.
On May 27, 2013, Insurance Law No. 29946 became effective. Law No. 29946 governs all insurance contracts, except for those that are expressly governed by other regulations. It substantially changes how insurance policies are offered by insurance companies, regulates the information provided by the insured, and includes changes to termination and arbitration clauses included in insurance contracts. Law No. 29946 also provides a list of terms and conditions that cannot be included in any insurance contract and ensures that any changes in the contract can only be made if 45 days’ notice is given to the policyholder prior to renewal of the policy. Other measures include restrictions on the duration and renewal of contracts, consumer protection rules, and regulations governing how to address non-payment of premium installments required under insurance contracts.
In September 2013, the SBS established a tender process for the exclusive right to manage a collective insurance policy for D&S and burial expenses of the PPS as part of its reform.
Peruvian insurance companies must submit regular reports to the SBS concerning their operations. In addition, the SBS conducts on-site reviews on an annual basis, primarily to evaluate compliance with solvency margin, reserve and 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 become 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 by an SBS resolution (SBS Resolution No. 3930-2017) from having an ownership interest in other insurance or reinsurance companies of the same class unless such risks are offset by insurance companies acting as subsidiaries and that risk is withdrawn from the principal insurance company’s activities. This resolution also prohibits Peruvian insurance companies from having an ownership interest in private pension funds.
Peruvian law establishes certain minimum capital requirements for insurance and reinsurance companies, which must be satisfied by cash investments in the company.
Pension Funds
The operations of pension funds in Peru are regulated by the Unified Text of the Private System for the Administration of Fund Act, approved by Supreme Decree No. 054-97-EF, and modified by Law No. 29903, which has been in force in Peru since August 2013.
Under Peruvian legislation, AFPs must have only one business activity: managing pension funds through individual capitalization accounts, sourced by mandatory and/ or voluntary contributions. AFPs must also provide benefits for retirement, disability, and survivorship and finance funeral expenses.
Finance companies
Under Peruvian Banking and Insurance Law, finance companies are authorized to carry out the same operations as banks, except for (i) issuing loans as overdrafts in checking accounts and (ii) participating in derivative operations. These operations can be carried out by finance companies only if they fulfill the requirements stated by the SBS.
Other financial institutions
The Peruvian financial system has a number of less significant entities that may provide credit, accept deposits or otherwise act as financial intermediaries on a limited basis. Leasing companies may 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. Over the past seven years, the entry of new participants, including foreign banks and non-bank financial institutions, has increased the level of competition in Peru.
| (iii) | Peruvian Commercial Banks Regulation - BCP Stand-alone and Mibanco |
Management of operational risk requirements
SBS Resolution No. 37-2008, Reglamento de la Gestión Integral de Riesgos (Risk Management Regulation), which had set forth the guidelines for enterprise risk management, was replaced by SBS Resolution No. 272- 2017, Reglamento de Gobierno Corporativo y de la Gestión Integral de Riesgos (the “Corporate Governance and Risk Management Regulation”), which introduced the following guidelines regarding risk management:
| | a. | Risk management must consider the macroeconomic environment that affects the markets in which the company operates; |
| b. | New types of risk were incorporated in the regulation: (a) money laundering and terrorist financing risk, defined as the possibility of the company being used for money laundering and terrorist financing purposes; and (b) reinsurance risk, defined as the possibility of losses caused by the insufficiency of reinsurance coverage contracted by the assigning insurance company; and, |
| c. | Liquidity risk may be understood as the possibility of losses due to anticipated or forced sale of assets at unusual discounts for the company to meet its obligations, as well as not being able to close open positions or cover positions in sufficient quantity. Before this modification, liquidity was understood as the possibility of losses caused by the failure to comply with the financing requirements and the application of funds arising from the mismatches of cash flows requirements. |
In addition, the Corporate Governance and Risk Management Regulation provides that companies must incorporate a centralized unit or units specialized in specific risk management. Under the previous regulation, this was optional. The SBS may require companies to create specialized risk units if considered necessary. Under the previous regulation, if the company did not have a specialized risk unit, it was understood that these functions had been assigned to the CEO. With the new regulation, this provision has been eliminated.
Companies must submit their annual risk reports to the SBS within 90 days from the end of each year.
Credicorp, following these SBS requirements, as well as the guidelines issued by the Basel Committee and the advice of international consultants, has appointed a specialized team responsible for operational risk management across our organization. This team reports regularly to our risk committee, top managers, and the Board of Directors.
In evaluating operational risks and potential consequences, we mainly assess risks related to critical processes, critical suppliers, critical information assets, technological components, new products and significant changes to our services and channels. To support the operational risk management process, we have developed a Business Continuity Management (BCM) discipline, which involves the implementation of continuity plans for critical business processes, incident management, and training and testing. In addition, our methodology and data processing team has developed procedures to register, collect, analyze, and report operational risk losses using advanced models for operational risk capital allocation. We also have monitoring and reporting procedures that are designed to monitor KRIs and other performance metrics.
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 training our operational units to mitigate risks directly.
Pursuant to Section 404 of the U.S. Sarbanes-Oxley Act of 2002, we are required to make certain certifications regarding our internal controls over financial reporting. We have developed internal methods to identify and evaluate risk and controls over our critical processes to determinate how effective internal controls are over financial reporting using the Committee of Sponsoring Organizations of the Treadway Commission (COSO) 2013 Internal Control Framework.
Capital adequacy requirements
Capital adequacy requirements applicable to our banking subsidiaries are set forth in Peru’s Law No. 26702. This law frames the adequacy process towards Basel III, which is a comprehensive set of reform measures and guidelines to strengthen the regulation, supervision and risk management of the banking sector. Capital adequacy requirements are also included in Peruvian GAAP guidelines. Financial institutions are required to hold regulatory capital that is greater than or equal to the sum of (i) 10% of credit RWAs and (ii) 10 times the amount required to cover market and operational risks.
Since July 2009, Peruvian financial institutions generally have applied a standardized approach to calculate their capital requirement related to credit, market, and operational risk. As an alternative to the standardized approach, financial institutions may request authorization from the SBS to use internal models for calculating the reserve amount associated with any of these three risks. If the amount of an institution’s reserve requirements would be higher using the standard model than it would be using the authorized Internal Models Method, then the institution will have to maintain between 80% and 95% of the standard amount during a phase-in period. Even after the phase-in period, institutions using an Internal Models Method are subject to regulatory capital floors.
On July 20, 2011, the SBS issued SBS Resolution No. 8425-2011, which established the methodologies and the implementation schedule of additional capital requirements consistent with certain aspects of Basel III. The additional capital requirements include requirements to cover concentration, excessive interest rate risk in the banking book and systemically important risk. Additionally, pro-cyclical capital requirements were established. These additional requirements were fully implemented in July 2016.
SBS Resolution No. 8548-2012, adopted in 2012, modified the regulatory capital requirements for credit RWAs in SBS Resolution No. 14354-2009 and established a schedule for implementing the modifications.
On February 24, 2016, the SBS issued Resolution 975-2016 (the “Subordinated Debt Regulation”), which aims to improve the quality of banks’ total regulatory capital and align Peruvian regulation towards Basel III by modifying:
| • | The characteristics that subordinated debt must meet to be considered in the calculation of total regulatory capital; and |
| • | The calculation of RWAs. |
Under the Subordinated Debt Regulation, subordinated debt issued prior to the regulation that did not meet the requirements should be recognized as total regulatory capital, according to the following:
| • | Tier 1 subordinated debt: as of January 2017, and for 10 years following, Tier 1 subordinated debt is subject to a 10% discount. However, the amount not included in the computation of Tier 1 Regulatory Capital may be computed as a Tier 2 instrument if it has a residual maturity equal to or greater than 15 years. |
| • | In November 2019, BCP Stand-alone redeemed the total amount of its Tier 1 subordinated debt issuance (issued in 2009) totaling US$250 million. Thus, as of December 2019, neither Tier 1 nor Tier 2 of BCP’s regulatory capital was comprised of non-compliant Tier 1 subordinated debt. |
| • | Tier 2 subordinated debt: during the five years prior to maturity, the principal balance will be discounted by 20%. In the year prior to its maturity, the Tier 2 subordinated debt will not be considered in the calculation of Tier 2 Capital. This treatment did not change compared to previous regulations. As a result, Tier 2 subordinated debt issued previous to the rule was grandfathered. |
In addition, the Subordinated Debt Regulation also included changes to the calculation of RWAs of the following accounting items:
| • | Intangibles (excluding goodwill); |
| • | Deferred tax assets (DTAs) that are originated by operating losses; and |
| • | DTAs that are associated with temporary differences and that exceed the threshold of 10% of the “adjusted total capital”. In each case, DTAs are to be net of deferred income tax liabilities. |
These assets will experience a gradual increase in their risk weights (until they reach a maximum of 1,000% in 2026) to replicate the deductions established by Basel III. The RWAs calculated based on these risk weights will be used exclusively for calculating the Basel III ratios.
SBS Resolution No. 4280-2018, adopted in October 2018, modified the risk weight applied to intangibles (excluding goodwill) to speed up the increase in this risk weight towards 100%, with the purpose of closing the regulatory gap with Basel III guidelines, which require intangibles to be fully deducted from core capital measurements.
In March 2020, as the scale of the global COVID-19-induced economic shock became apparent, the SBS passed Resolution 1264-2020, which suspended the countercyclical capital requirements for the banking system, unlocking a significant capital buffer for local banks that was built during the last several years to prevent a credit contraction.
As some of the restrictions and consequences due to COVID-19 continued in early 2021, Presidential Urgent Decree No. 037-2021 was approved in March 2021. The minimum global capital ratio, which is the minimum requirement mandated by the regulator, was temporarily reduced from 10% to 8%. This gave an additional buffer to financial institutions until the economic outlook started presenting stronger signs of improvement. A similar decree ordered the minimum global capital ratio to be lifted back to 10% in March 2022.
In December 2021, the SBS issued Resolution 3718-2021, modifying cyclical provisions from Resolution 11356-2008 and, as an extension, the activation of the countercyclical capital buffer. Among the main changes were decreasing the threshold for the activation of the countercyclical rule from 5% to 4% for the average of annualized percentage change in GDP for the last 30 months and the minimum rates for the cyclical provision component. The countercyclical capital buffer cannot be activated before January 1, 2024.
Additionally, in December 2021, the SBS adopted Resolution 3921-2021, which adds capital rules regarding the domestic systemically important capital requirement, which is a requirement similar to the D-SIB under Basel III where an additional requirement is calculated based on the relative size of the bank within the local financial system. This additional requirement affects both BCP Stand-alone and Mibanco by increasing Credicorp’s regulatory capital requirement. The changes have a transition phase of two years, with 75% of the additional requirements taking effect in December 2022 and the full requirement to become effective in December 2023.
The same decree also extended the temporary reduction of the minimum global capital ratio and contemplated whether to raise it again to 8.5% beginning September 2022, 9.0% beginning March 2023, 9.5% beginning September 2023 and finally back to 10% in March 2024.
In March 2022, Legislative Decree 1531 was passed by the Government, revising the regulatory capital definition rules in Banking Law 26702. Changes were aimed at better compliance with the standards established by Basel III. The new regulatory capital framework defines three minimum requirement limits: CET1 Capital at 4.5%, Tier 1 Capital at 6.0% and total regulatory capital at 10%.
Among other changes, Legislative Decree 1531 changed the definition of regulatory capital to the following:
CET 1 Capital:
| | (a) | Common shares and other capital instruments, as long as they have been paid and comply with the conditions indicated by the SBS; |
| (b) | Issue premium of common shares and other capital instruments indicated in subparagraph (a); |
| (c) | Earnings from prior years and from the year in progress, in accordance with the provisions of the SBS; |
| (d) | Unrealized gains, as designated by the SBS; |
| (e) | Legal reserves and optional reserves; |
| (f) | Donations that meet the conditions designated by the SBS; |
| (g) | Other elements defined by the SBS by means of a general rule; and |
| (h) | Regulatory adjustments that include the following deductions: |
| (i) | Losses from prior years and from the current year; |
| (ii) | Unrealized losses, as allowed by the SBS; |
| (iii) | Shortfalls in provisions determined by the SBS; |
| (iv) | Goodwill resulting from reorganizations or acquisitions; |
| (v) | Intangible assets, other than those indicated in item (iv); |
| (vi) | Deferred income tax assets originated due to carryover losses; |
| (vii) | Deferred income tax assets, net of deferred income tax liabilities, originated due to temporary differences that exceed the threshold established by the SBS; |
| (viii) | Investments in equity instruments included in the computation of CET 1 Capital issued by companies in the financial or insurance system, in Peru or abroad; and |
| (ix) | Others defined in Legislative Decree 1531. |
Additional Tier 1 Capital:
| | (a) | Common shares and other capital instruments, as long as they have been paid, and subordinated debt that meet the conditions indicated by the SBS (with subordinated debt instruments required to comply with the provisions of article 233 of Legislative Decree 1531); |
| (b) | Issue premium of common shares and other capital instruments indicated in subparagraph (a); |
| (c) | Other elements defined by the Superintendency by means of a general rule; and |
| (d) | Regulatory adjustments that include the following deductions from Additional Tier 1 Capital: |
| (i) | Direct or indirect holding of instruments of capital and/or subordinated debt included in the computation of Additional Tier 1 Capital, which have been issued by the company itself and that are kept in the treasury, and instruments owned by the company and included in the computation of Additional Tier 1 Capital for which there is a present or contingent obligation to acquire them by virtue of contractual obligations; |
| (ii) | Investments in equity and/or subordinated debt instruments included in the computation of Additional Tier 1 Capital issued by companies in the financial or insurance system, in Peru or abroad. |
| (iii) | Equity instruments and subordinated debt eligible for Additional Tier 1 Capital, issued by companies with which a company consolidates financial statements, including certain holding companies and subsidiaries, in accordance with rules established by the SBS; |
| (iv) | The amount of the items that must be deducted from Tier 2 effective equity that exceed the limit of such effective level 2 assets; and |
| (v) | Other deductions determined by the SBS through a general regulation. |
Regulatory Tier 2 Capital, which includes the following elements:
| | (a) | Common shares and other capital instruments, as long as they have been paid, and subordinated debt not included in the Regulatory Tier 1 Capital, which meet the conditions indicated by the SBS (with subordinated debt instruments required to comply with the provisions of article 233 of Legislative Decree 1531); |
| (b) | Issue premium of common shares and other capital instruments indicated in subparagraph (a); |
| (c) | For banks using the SBS standardized approach method, the generic loan loss provision up to 1.25% of credit RWAs; or, alternatively, for banks using the internal ratings-based (IRB) method, the generic loan loss provision up to 0.6% of total credit RWAs (pursuant to Article 189 of Law No. 26702); |
| (d) | Other elements defined by the SBS by means of a general rule; and |
| (e) | Regulatory adjustments that include the following Tier 2 net worth deductions: |
| (i) | Direct or indirect holding of instruments of capital and/or subordinated debt included in the computation of Regulatory Tier 2 Capital, which have been issued by the company itself and that are kept in the treasury, including instruments owned by the company and included in the computation of Tier 2 Capital for which there is a present or contingent obligation to acquire them by virtue of contractual obligations; |
| (ii) | Investments in equity and/or debt instruments included in the computation of Regulatory Tier 2 Capital, issued by companies in the financial or insurance system, in Peru or abroad; |
| (iii) | Equity instruments and subordinated debt included in the computation of Regulatory Tier 2 Capital, issued by companies with which a company consolidates financial statements (including holding companies), and subsidiaries (including certain holding companies and subsidiaries), in accordance with rules established by the SBS; and |
| (iv) | Other deductions determined by the SBS through a general regulation. |
Legislative Decree 1531 also provides that the following limits apply when calculating regulatory capital:
1. Additional Tier 1 Capital must not exceed one-third of CET 1 Capital. The excess above said limit may include certain holding companies as Regulatory Tier 2 Capital.
2. Regulatory Tier 2 Capital should not be greater than two-thirds of the Regulatory Tier 1 Capital. The excess over said limit is not included in the computation of total regulatory capital.
In December 2022, the pending resolutions referred to in the amendments to the Banking Law 26702 – established by Legislative Decree 1531 on March 2022 – were published (SBS N°03950-2022, SBS N°03951-2022, No. 03952-2022, No. 03953-2022, No. 03954-2022, and No. 03955-2022). Below we highlight the main changes defined in this set of resolutions:
| • | SBS Resolution No. 03952-2022 ordered the minimum total regulatory capital ratio to be gradually raised back to 10% from 8% under the following schedule: in September 2022 to 8.5%, in March 2023 to 9%, in September 2023 to 9.5% and in March 2024 to 10%. |
| • | SBS Resolution No. 03954-2022 defined capital requirement buffers: conservation buffer, domestic systemically importance buffer and countercyclical buffer. |
| o | The conservation buffer was first introduced in local regulation. This buffer requires maintaining an additional capital of 2.5% of RWAs and it should be covered by CET 1 Capital. This requirement will have a transition phase of four years through December 2026. |
| o | Domestic systemically important capital requirement and countercyclical capital requirements (when activated) should be covered with CET 1 Capital. |
| • | SBS Resolution No. 03953-2022 defined additional capital requirements. These requirements were maintained from previous regulation and should be covered with Regulatory Tier 2 Capital. |
| • | SBS Resolution No. 03950-2022 defined the new subordinated debt regulation. No material changes were introduced compared to the previous regulation (SBS Resolution No. 975-2016). |
In June 2023, the SBS published Resolution 02192-2023, which modified the schedule of solvency requirements established by Resolution 3952-2022 and proposed the new following schedule4:
| • | Minimum Common Equity Tier 1 (CET 1): in January 2023 to 3.825%, in April 2023 to 4.05%, in March 2024 to 4.275% and in September 2024 to 4.5%. |
| • | Minimum Tier 1 Capital: in January 2023 to 5.1%, in April 2023 to 5.4%, in March 2024 to 5.7% and in September 2024 to 6%. |
| • | Minimum Regulatory Capital: in January 2023 to 8.5%, in April 2023 to 9%, in March 2024 to 9.5% and in September 2024 to 10%. |
| • | Minimum Regulatory Capital: in January 2023 to 8.5%, in April 2023 to 9%, in March 2024 to 9.5% and in September 2024 to 10%. |
Surveillance, intervention and liquidation
The bankruptcy of financial institutions in Peru is regulated by the Peruvian Banking and Insurance Law and the rules and regulations enacted thereunder, including SBS Resolution No. 0455-99, Reglamento de los Regímenes Especiales de la Liquidación de las Empresas del Sistema Financiero y del Sistema de Seguros (the Banking Intervention and Liquidation Regulations).
Pursuant to the Peruvian Banking and Insurance Law, the SBS has the authority to seize the operations and assets of a bank. Under such regulations, prior to being liquidated and dissolved, banks undergo two separate and distinct stages: (i) a surveillance period (régimen de vigilancia) and (ii) an intervention period (intervención).The SBS will submit a bank to a surveillance or intervention regime if certain events occur, such as if the bank: (i) interrupts payments on its liabilities, (ii) repeatedly fails to comply with the regulations of the SBS or the BCRP, (iii) repeatedly violates the law or the provisions of the bank’s bylaws, (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%.
The SBS may initiate surveillance of a financial institution when the financial institution breaches certain material obligations or the overall financial stability of the institution becomes at risk. Surveillance could last for a period of up to 45 days, which may be renewable once for the same period of time. Within seven business days from the date on which the surveillance is commenced by the SBS against a financial institution, the institution must propose a recovery plan that, if approved by the SBS, should be expected to bring the financial institution to financial stability.
4 These requirements do not consider the conservation buffer, domestic systemically important buffer, countercyclical buffer, or additional capital requirements detailed in resolutions No. 03954-2022 and No. 03953-2022.
To the extent that a financial institution subject to surveillance by the SBS breaches the recovery plan approved by the SBS or otherwise becomes subject to intervention, the SBS must issue a public resolution stating that such financial institution has been intervened by the SBS.
Upon the publication of the SBS intervention resolution, the financial institution is subject to an automatic stay, protecting the assets of the intervened company, which is no longer allowed to operate and the SBS is granted the ability to administer and dispose of part or all of the assets and liabilities of such company. Hence, the following actions are temporarily suspended: (i) collection of debts (judicially or administratively); (ii) execution of any judicial order; (iii) creation of liens; and (iv) making payments, advances or offsetting debts (though the statute regulates some specific cases where offsetting is admitted during the stay).
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 the 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 the bank must adhere to a financial restructuring plan.
The SBS intervention regime stops a bank’s operations for up to 45 days, which may be extended once for an additional 45-day period of time. 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 an acquiring institution according to the program established by Presidential Urgent Decree No. 108-2000. After the intervention, the financial institution typically undergoes liquidation and is dissolved unless it is merged with an acquiring institution, as described in clause (iii) above.
Once the dissolution of the financial institution is declared by a resolution issued by the SBS, the settlement process begins, and all payments are made in accordance with the payments priority provided in the Peruvian Banking and Insurance Law: (a) wages and social benefits of the bank’s employees, (b) return of saving deposits (the portion not covered by the Deposit Insurance Fund), (c) tax obligations and (d) the rest of the obligations under general rules of payment.
Liens created against bank’s assets survive the dissolution, but the following rules apply:
| 1. | Each encumbered asset is sold separately; |
| 2. | The proceeds of the sales are deposited separately from the rest of the bank’s assets to preferentially pay the secured obligations; |
| 3. | If the wages and social benefits of the bank’s employees are fully paid with the rest of the company’s assets, the proceeds described in clause (2) above are used to pay the secured obligations; otherwise, they are used to complete such payments, reducing pro-rata the amount available for payment of secured obligations; |
| 4. | If the secured obligations are fully paid and there is an excess from the proceeds described in clause (2) above, the balance is added to the rest of the bank’s assets; and |
| 5. | If the secured obligations are not fully paid, the unpaid balance is treated as an unsecured obligation and may be collected, if possible, against the rest of the bank’s assets. |
Legal reserve requirements
In accordance with Peruvian regulation (article 67 of Law No. 26702), a reserve of up to at least 35% of paid-in capital of the Group’s subsidiaries operating in Peru is required to be established through annual transfers of at least 10% of their net profit.
Lending activities requirements
Law No. 26702 sets the maximum amount of credit that a financial institution may extend to a single borrower, whether the borrower is an individual or an economic group. SBS Resolution No. 5780-2015 establishes that an “economic group” is one that has a single or common risk exposure and includes a person, such person’s close relatives and the companies in which such person or his or her close relatives have significant share ownership or decision-making capability. Significant decision-making capability is deemed to be present when, among other factors, a person or group can exercise material and continuous influence over 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 beneficiary of credit facilities granted to another company.
The limit on credit that may be extended to any single borrower varies according to the type of borrower and the collateral received. The credit limit for any Peruvian borrower is 10% of a 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 No. 26702. If a financial institution exceeds these limits, the SBS may impose a fine on the institution. As of December 31, 2021, 2022 and 2023, the 10.0% unconsolidated credit limit per borrower of BCP Stand-alone for unsecured loans was S/2,277.2 million, S/2,336.4 million and S/2,679.3 million, respectively. As of December 31, 2021, 2022 and 2023, the 30.0% credit limit for secured loans was S/6,831.6 million, S/7,009.3 million and S/8,037.8 million, respectively.
Effective since April 2021, the BCRP, pursuant to article 52 of its Organic Law, established caps on interest rates that could be charged by commercial banks and other financial institutions for SME and personal loans. In the case of Banco de Crédito del Peru, the application of these caps only had a marginal impact on consumer loans.
In addition, according to SBS Resolution No. 6941-2008, as amended, banks and other financial entities must adopt a system to manage the risk of over-indebtedness that (a) allows the mitigation of such risk before and after making the loan, (b) permits permanent monitoring of the portfolio to identify over-indebted borrowers and (c) includes the periodic evaluation of the control mechanisms being used and corrective actions or required improvements, as the case may be.
Interest rates caps
On March 18, 2021, the Usury Law Regulation was enacted. It establishes, among other provisions, that the BCRP has the power to set caps on active interest rates of the financial system for consumer credits, low amount consumer credits (less than 2 Tax Units) and credits to micro and small enterprises (Micro y Pequeña Empresas or Mype by their Spanish initials). Through Circular No. 0008-2021-BCRP of April 2021, the BCRP determined that this interest rate cap is equivalent to twice the average interest rate for consumer loans in the financial system.
The interest rate cap will be calculated semi-annually based on the interest rates of consumption loans in the financial system between two and seven months prior to its validity. For the period between November 2022 and April 2023, the annual interest rate cap stood at 87.91% in domestic currency and 68.27% in foreign currency.
Portfolio classification requirement
In order to comply with the SBS regulation, we have a loan portfolio classified in accordance with SBS Resolution No. 11356-2008, which became effective as of July 1, 2010. For this reason, a bank’s portfolio is classified into eight different categories: corporate, large companies, medium-sized companies, small companies, micro-companies. Commercial, consumer revolving, non-renewable consumer and residential mortgage loans.
Related party transactions requirements
The Peruvian Banking and Insurance Law regulates transactions between financial institutions and related parties or affiliates. The SBS and the SMV have also enacted regulations that define indirect ownership, related parties and economic groups to limit transactions with related parties and affiliates. These regulations also provide 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 regulatory capital. All loans made to any single director or employee borrower, considering his or her close relatives, may not exceed 0.35% of regulatory capital (that is, 5% of the overall 7% limit).
Pursuant to the Peruvian Banking and Insurance Law, the aggregate amount of loans to related party borrowers considered to be part of an economic group (as defined above) may not exceed 30% of a bank’s regulatory capital. For purposes of this test, related party borrowers include (i) any person holding, directly or indirectly, 4% or more of a bank’s shares, (ii) directors, (iii) certain principal executive officers of a bank, and (iv) people affiliated with the administrators of the bank. Loans to individual related party borrowers are also subject to the limits on lending to a single borrower described under “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (6) Supervision and Regulation – 6.2 Subsidiaries – 6.2.1 Peru”. All loans to related parties must be made on terms no more favorable than the best terms that BCP Stand-alone or Mibanco offers to the public.
Ownership restrictions
The Peruvian Banking and Insurance Law establishes certain restrictions on the ownership of a bank’s shares. Banks must have a minimum of two shareholders. Among other restrictions, those convicted of drug trafficking, money laundering, terrorism, or other felonies, and those who are directors, employees or advisors of public entities that regulate and supervise the activities of banks, are subject to ownership limitations. All transfers of shares in a bank must be recorded at the SBS. Transfers involving the acquisition by any individual or corporation, whether directly or indirectly, of more than 10% of a bank’s capital stock require prior authorization from the SBS. The SBS may deny authorization to such transfer of shares if the purchasers (or their shareholders, directors, or employees, in the case of juridical persons) are legally disabled or 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, among other reasons. The decision of the SBS on such matters is final and cannot be overturned by the courts. If a transfer is made without obtaining the prior approval of the SBS, the purchaser shall be fined with an amount equivalent to the value of the transferred shares and is obligated to sell the shares within 30 days, or the fine is doubled. In addition, the purchaser is not allowed to exercise its voting rights at the shareholders’ meetings. Foreign investors receive the same treatment as Peruvian nationals under the limitations described above.
Additionally, the Merger Control Law, which entered into force on June 14, 2021, provides that any transaction that causes ownerships to cross the threshold set by such law and can result in action in concert, must have the authorization of INDECOPI. According to the Merger Control Law, the prior concentration control operations of economic agents included in the scope of the regulation and supervision of the SBS and/or SMV is carried out by INDECOPI, without prejudice to prior control of a prudential nature and financial stability that corresponds to the SBS and/or SMV. The merger transaction proceeds if there is due authorization from INDECOPI and from the SBS and/or the SMV accordingly. In the case of merger transactions operations that include companies in the financial system that take deposits from the public or insurance companies, that show relevant and imminent risks or compromise the stability of the aforementioned companies or the systems that they integrate, only the prior control of the SBS is required in its area of competence, given the reserved nature of said situation, which must be determined by the SBS.
Finally, under the Peruvian Banking and Insurance Law, individuals or corporations that acquire, directly or indirectly, 1% of the capital stock of a bank in a period of 12 months, or acquire a 3% or more share participation, have the obligation to provide the information that the SBS may require to identify such individuals’ or corporations’ main economic activities and asset structure.
Risk rating requirements
Law No. 26702 and SBS Resolutions No. 672 and 18400-2010 require that all financial companies be rated by at least two risk rating companies on a semi-annual basis, in addition to the SBS’s 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 category. In September 2023, the Moody’s Local PE Clasificadora de Riesgos S.A. and Apoyo y Asociados Internacionales S.A.C. rating agencies, affirmed their respective “A+” risk rating for BCP Stand-alone. In September 2023, both rating agencies affirmed their “A” risk rating for Mibanco. As of December 2023, BCP Stand-alone and Mibanco maintained the risk rating of “A+” and “A”, respectively, with both rating agencies.
Deposit insurance fund
The Peruvian Banking and Insurance Law provides for mandatory deposit insurance to protect the deposits of financial institutions by establishing the Deposit Insurance Fund for individuals, associations, not-forprofit companies, and demand deposits of non-financial companies. Financial institutions must pay an annual premium calculated and based on the type of deposits accepted by the entity and the risk classification of such entity, as rated by the SBS and at least two independent risk-rating agencies. The annual premium, as, begins at 0.45% of total funds on deposit and increases to 1.45%, which is applicable to banks in the highest risk category. BCP Stand-alone and Mibanco are currently classified in the lowest risk category and pay the 0.45% set by SBS Resolution No. 0657-99.
The maximum amount that a customer is entitled to recover from the Deposit Insurance Fund is S/122,420.00 for the period starting from March 2024 until May 2024.
| (iv) | Peruvian Insurance Companies Regulation - Grupo Pacífico |
Solvency requirements
Under Law No. 26702, the SBS regulates the solvency margin of Peruvian insurance companies. The solvency margin calculations consider the amount of premiums written and losses incurred during a specified period prior to the date of the calculation.
Insurance companies must also maintain solvency equity, which must be greater than (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 an insurance company has outstanding credit risk operations, part of the solvency equity must be set aside for its coverage.
Legal reserve requirements
Peruvian law also requires that all insurance companies establish a legally guaranteed reserve for policyholders by setting aside 10% of income before taxes until the reserve reaches at least 35% of paid-in capital.
Technical reserve requirements
Under Law No. 26702 and regulations issued by the SBS, Peruvian insurance companies must establish technical reserves. Law No. 26702 also requires insurance companies to create a reserve for incurred but not reported (IBNR) claims that are reflected as a liability in their consolidated financial statements. Reserves for IBNR claims are estimated by using generally accepted actuarial reserving methods. See Note 3(e) to our consolidated financial statements. Finally, Grupo Pacífico is required by the SBS to establish pre-event reserves for the risk of catastrophes, which, in accordance with IFRS principles, are not considered in our financial statements. See “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A Operating results – (6) Lines of Business (LoBs) – 6.3 Insurance & Pensions – (i) Grupo Pacífico”.
According to a new regulation regarding actuarial management, SBS Resolution No. 3863-2016, the actuarial function must (i) ensure the use of real and adequate parameters in both pricing and technical reserves calculation and (ii) guarantee the consistency of the results obtained. Likewise, based on the sufficiency evaluation analysis, actuarial management must propose changes in the methodologies applied in the calculation of technical or additional reserves.
Investment requirements
Under Law No. 26702 and SBS Resolution No. 1041-2016, 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 a single financial institution together cannot exceed 7% of the total of an insurer’s solvency equity and technical reserves combined. In general, no more than 15% of an insurance company’s combined solvency equity and technical reserves may be invested in instruments (including stocks and bonds) issued by a company or group of companies. In order for an insurance company to invest in non-Peruvian securities, the securities must be rated investment grade by an internationally recognized credit rating agency 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 requirements
Law No. 26702 provides that insurance companies may not extend credit to or guarantee the obligations of employees or members of the Board of Directors, except for certain home mortgage loans to employees.
Ownership restrictions
Law No. 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 “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business overview – (6) Supervision and Regulation – 6.2 Subsidiaries – 6.2.1. Peru”.
| (v) | Peruvian Pension Fund Regulation – Prima AFP |
Minimum capital requirements
SBS authorization is required for an AFP to begin operations. Peruvian law requires a minimum capital requirement, paid in cash by shareholders. There are certain limitations on the ownership and transfer of AFP shares. Additionally, Peruvian law requires that companies maintain a legal reserve funded with 10% of their net profit until the reserve reaches the equivalent of 20% of their share capital.
Investment limits
The SBS has set investment limits, which restrict investments in certain asset classes, economic groups, and issuers. In addition, some of these limits differ according to the fund’s risk profile. The general limits are:
| • | The total amount invested in instruments issued or guaranteed by the Peruvian State cannot exceed 30% of the fund value; |
| • | The total amount invested in instruments issued or guaranteed by the BCRP cannot exceed 30% of the fund value; |
| • | The total amount invested in instruments issued or guaranteed by the Peruvian State and the BCRP overall cannot exceed 40% of the fund value; and |
| • | The total amount invested in instruments issued by governments, financial institutions, and non-financial institutions whose commercial activities are mostly abroad cannot exceed 50% of the fund value. |
The SBS requires that AFPs ensure a minimum yield. Part of the guarantee is the obligatory reserve requirement, which is paid with resources belonging to the AFPs. The amount depends on the assets in the portfolio, but it is approximately 1% of the AFP’s funds under management.5
PPS Reforms
PPS Reform and changes of the PPS between 2012 and 2017
Since 2012, the Private Pension System has undergone several reforms and changes by the Peruvian government and its regulators. The most relevant changes from 2012 to 2017 included the following:
| ◾ | In 2012, a tender process held every 24 months was incorporated, in which the AFP that offers the lowest management fee wins the tender. As a result, new workers who enter the PPS become members of the tender holder and remain in it for at least 24 months. |
| ◾ | In 2014, new local and foreign investment regulations made the PPS registration process for new investment securities more flexible, allowing AFPs to make non-complex investments and use derivatives instruments under certain restrictions without authorization from the SBS. |
| ◾ | In 2015, SBS Resolution No. 5540-2015 was published to regulate the new Fund Type Zero, which is mandatory for participants from the age of 65 and up who opt for a statutory retirement pension. The Fund Type Zero became effective on April 1, 2016, and invests only in national currency short-term instruments and debt securities. |
| ◾ | In April 2016, Peruvian Law No. 30425 (further modified by Law No. 30478) was passed and came into force in Peru. Among the most relevant changes, the law allows affiliates to: (i) withdraw up to 95.5% of their pension funds when they reach the age of 65 (retirement age); (ii) use up to 25% of their pension funds as the down payment or amortization of a mortgage loan used to buy a first house; and (iii) in the case of affiliates with a terminal illness, withdraw up to 50% of their pension funds. The new law also extended the Special Regime of Early Retirement until December 31, 2018, for affiliates who had been unemployed for at least 12 months. The Regime applies to men and women who are at least 55 and 50 years old, respectively, and pensioners who choose the retirement program. |
5Since 2024, the net reserve fund profitability will be calculated by multiplying the total equity quotas for each fund by the following percentage: Fund 0 (0.70%), Fund 1 (0.85%), Fund 2 (1.00%) and Fund 3 (1.15%)
| o | In 2017, BCRP raised the foreign investment limit to 46% for pension funds to encourage AFPs to diversify their investments. |
For further detail please refer to Credicorp’s previous 2019 20-F document, see “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (9) Supervision and Regulation – 9.5 Prima AFP”.
Changes to PPS in 2018
Between February and September 2018, the BCRP raised the foreign investment limit for pension funds by 0.5 percentage points per month until it reached the 50% limit set by the SBS.
In 2018, the withdrawals of funds in Prima AFP totaled approximately S/2,992 million.
Changes to PPS in 2019
On April 3, 2019, Peru’s congress permanently approved the Special Regime of Early Retirement for affiliates with a minimum age of 55 years old for men and 50 years old for women, who are unemployed for at least 12 consecutive months and prove an income of less than S/29,400 (7 UIT), to receive independent employment (4th category) income during their unemployment period. These modifications were promulgated by Peruvian Law No. 30939.
Peru’s congress also approved new criteria to apply for Ordinary Early Retirement. Ordinary Early Retirement is available to affiliates with a minimum age of 55 years old for men and 50 years old for women, who have a pension fund that allows them to access a pension of at least 40% of the average income received during the last 120 months. These modifications were promulgated by Peruvian Law No. 30939. In 2019, the withdrawals of funds in Prima AFP totaled approximately S/2,797 million.
Changes to PPS in 2020
In 2020, the Peruvian government and congress took measures to provide liquidity to affiliates by allowing them to draw down their funds. These measures had an impact on funds under management and on income at the AFP in 2020 and 2021.
Changes to PPS in 2021
On May 7, 2021, Law No. 31192 was published, which authorized affiliates of the Private Pension Fund Administration System to withdraw up to S/17,200 from their funds.
On August 6, 2021, Law No. 31332 was published, which reduced the age to access early retirement for men from 55 to 50.
Changes to PPS in 2022
On May 20, 2022, Law No. 31478 was published, which authorized affiliates of the Private Pension Fund Administration System to withdraw up to S/18,400 from their funds.
Changes to PPS in 2023
On January 13, 2023, Law No. 31670 was published, which established a new option for retirement based on a minimum pension and created incentives to increase voluntary contributions. This new voluntary pension modality allows the affiliate to set a target pension for their retirement, which must be higher than the basic consumer basket, determined by the Peruvian National Institute of Statistics and Information (INEI).
On February 16, 2023, Law No. 31690 was published to allow employers to restructure the debt generated by not making their employee’s pension contributions.
On June 23, 2023, Resolution No. 02186-SBS was published, which modified the methodology to calculate the legal reserve requirement. The new methodology multiplies the assets under management of each type of fund by a fixed factor (based on the level of risk of each fund) to calculate the amounts of legal reserve requirement. The fixed factor for Fund 0 is 0.70%, for Fund 1 is 0.85%, for Fund 2 is 1.00% and for Fund 3 is 1.15%.
On October 6, 2023, Law No. 31888 was published, similar to Law No. 31690, but applicable to public entities.
For further information about the measures taken by the government, see “ITEM 3. KEY INFORMATION – 3.D Risk Factors – Regulatory changes and adoption of new international guidelines to sectors in which we operate could impact our earnings and adversely affect our operating performance” and “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A Operating results – (2) Political and Macroeconomic Environment”.
Peruvian Investment Management & Advisory Regulation - Credicorp Capital Peru
Credicorp Capital Peru is the main shareholder of Credicorp Capital Sociedad Agente de Bolsa S.A., Credicorp Capital Sociedad Titulizadora S.A., and Credicorp Capital S.A. Sociedad Administradora de Fondos.
These entities are supervised directly by the SMV. The SMV is a specialized technical body attached to the MEF, aimed to ensure the protection of investors and the efficiency and transparency of the markets, as well as the diffusion of the information required for such purposes. The SMV enjoys functional, administrative, economic, technical, and budgetary autonomy.
Peru’s Securities Market Law (Legislative Decree No. 861), as amended, governs the public offering and trading of securities listed on the SMV and the BVL. The BVL, as the only stock exchange in Peru, also provides internal regulations that form part of the regulations and administrative rulings that govern the offering and trading of securities.
6.2.2 Cayman Islands
Cayman Islands Regulation - Atlantic Security Holding Corporation (ASHC)
ASHC is an entity regulated under the Cayman Islands Companies Law, duly supervised by the Cayman Island Monetary Authority (CIMA). Under the law of the Cayman Islands, ASHC is subject to the following continuing requirements: (i) to remain 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 any change in the information or documents required to be provided and to pay annual fees with the Registrar of Companies; (iii) to file certain prescribed forms with CIMA on a quarterly basis; (iv) to file audited accounts with CIMA 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, a senior officer or board member discusses these accounts each year at a meeting with CIMA); and (v) to file an annual questionnaire.
6.2.3 Bolivia – BCP Bolivia, Inversiones Credicorp Bolivia S.A., Credifondo Sociedad Administradora de Fondos de Inversión S.A, Credibolsa S.A. Agencia de Bolsa
Bolivian Regulators
Pursuant to Supreme Decree No. 29894, in May 2009, the ASFI was vested with the authority to regulate the Bolivian banking system. The ASFI also supervises brokerage and mutual fund management activities that Credicorp Ltd. conducts through BCP Bolivia’s affiliates, Credibolsa and Credifondo. These affiliates operate under Securities Markets Law No. 1834, enacted on March 31, 1998. Additionally, the Central Bank of Bolivia (Banco Central de Bolivia or BCB by its Spanish initials) regulates financial intermediation and deposit activities, determines monetary and foreign exchange policy, and establishes reserve requirements on deposits.
Regulation of Bolivian Financial Institutions
Until November 2013, the Bolivian banking system operated under the Law of Banks and Financial Entities (Law No. 1488), enacted on April 14, 1993, and later modified by Law No. 3076 on June 20, 2005. On August 21, 2013, the Bolivian government enacted a new Banking Law (Law No. 393), which became effective on November 21, 2013. This new law envisions a more active role of government in the financial services industry and emphasizes the social objective of financial services.
On December 10, 2010, through the enactment in Bolivia of Law No. 065 (Ley de Pensiones), the supervision of all insurance activities in Bolivia was transferred from the ASFI to the APS (Autoridad de Fiscalización y Control de Pensiones y Seguros). Our life and P&C insurance affiliates in Bolivia, which operate under the commercial name Crediseguro, are thus regulated, and supervised by the APS.
In 2012, the Bolivian government imposed an additional income tax of 12.5% on earnings before taxes, which applied to all financial institutions with a ratio of earnings before taxes to equity in excess of 13%. The additional income tax rate was subsequently increased to 22% in December 2015 and to 25% in March 2017, and was made applicable to all financial institutions with a ratio of earnings before taxes to equity in excess of 6%. Starting in 2021, the additional income tax applies also to Crediseguro, Credibolsa and Credifondo.
In 2013, Supreme Decree No. 1842 set interest rate caps for social housing loans ranging from 5.5% to 6.5%, and for loans to productive sectors (agriculture, tourism, manufacturing, etc.). The Decree established loan quotas pursuant to which, by December 31, 2018 and afterwards, at least 60% of the loan portfolio of all universal banks must be comprised of loans to productive sectors and social housing loans, with a sublimit that establishes that loans to productive sectors must represent at least 25% of the portfolio.
Further to Law No. 393, in 2014, the Bolivian government, through Supreme Decrees No. 2136 and No. 2137, instructed banks in Bolivia to contribute 6% of that year’s total profits for the creation of a guarantee fund – to be administered by the banks - intended to provide guarantees of up to 50% of the amount financed of productive sector and social housing loans. From 2015 to 2019, and again since 2021, the government instructed banks to contribute 6% of those years’ profits to replenish either the existing guarantee funds or to make contributions to a newly created seed capital fund administered by the government-owned development bank.
In response to the COVID-19 pandemic, on April 1, 2020, the Bolivian government enacted Law No. 1294, which established the automatic deferral of all loan installments (capital, interest and other charges) payable to financial institutions for the duration of Bolivian Coronavirus Pandemic Emergency Declaration. These deferred installments would start to be collected after the final installment established on the original payment schedule. Supreme Decree No. 4206 established an initial deferral period from March 2020 to May 2020, which was subsequently extended to August 2020 through Supreme Decree No. 4248, and then to December 2020 through Law No. 1319.
On December 2, 2020, the Bolivian government issued Supreme Decree No. 4409, establishing that the capital portion of the installments that had been deferred in 2020 would not accrue interest until their cancellation. Supreme Decree No. 4409 also established that once the deferral period had concluded, upon request of the borrowers that had their installments deferred, banks must refinance and/or reschedule their loans, based on the borrowers’ economic situation and payment capacity. The refinanced and/or rescheduled loans have the benefit of a six-month grace period during which no interest or capital payments are required from the borrower. The collection of the amount of interest accrued but not collected during the aforementioned grace period would be made pro rata during the new term of the loan.
On December 28, 2020, the Bolivian government enacted Law No.1356, eliminating the tax-exemption for capital gains generated in the Bolivian Stock Exchange and introducing an additional income tax of 25% applicable to all brokerage houses, mutual fund administrators and insurance companies with a ratio of earnings before taxes to equity in excess of 6%.
In accordance with Bolivian regulation, a reserve of up to at least 50% of paid-in capital of the Group’s subsidiaries operating in Bolivia is required to be established through annual transfers of at least 10% of their net profit.
6.2.4 Colombia
Colombian Regulation – Credicorp Holding Colombia, Mibanco Colombia & Credicorp Capital Colombia
Credicorp Holding Colombia S.A.S. is the main shareholder of Credicorp Capital Colombia S.A., Credicorp Capital Fiduciaria S.A., Credicorp Capital Servicios S.A.S., Credicorp Negocios Digitales S.A.S., Credicorp Capital Corporación Financiera S.A. and Mibanco Colombia S.A.
The SFC is an entity whose main function is to oversee Colombia’s financial sectors. Although it has an important role in monitoring and surveillance, it also has certain regulatory powers that permit it to issue regulations through regulatory circular letters, laws and decrees. Separately, the AMV supervises and regulates the conduct of securities intermediaries, as well as the certification of those who carry out such activities. The AMV is a private entity and is the product of a self-regulatory scheme established after the termination of Law No. 964 of 2005.
The regulation of the financial sector and the securities market in Colombia is directed by Colombia’s congress, which issues laws, and the Colombian Ministry of Finance’s URF, which issues decrees. Also, the Taxes and National Customs Authority (Dirección de Impuestos y Aduanas Nacionales or DIAN by its Spanish initials) oversees the regulation related to FATCA and CRS.
The Superintendence of Industry and Commerce is the national authority for the protection of fair competition, personal data and legal metrology. The Superintendence of Industry and Commerce also protects the rights of consumers and administers the National System of Industrial Property, through the exercise of its administrative and jurisdictional functions.
Finally, the Colombian Ministry of Commerce, Industry and Tourism’s Superintendence of Corporations (Superintendencia de Sociedades) is a regulatory agency that oversees commercial corporations that are not under the supervision of other Superintendencies.
6.2.5 Chile
Chilean Regulation – Credicorp Capital Chile
Credicorp Capital Holding Chile S.A. is the main shareholder of Credicorp Capital Chile S.A., Credicorp Capital Asesoría Financiera SpA., Credicorp Capital Administradora de Inversiones S.A., Credicorp Capital Corredores de Bolsa SpA, Credicorp Capital Asset Management Administradora de Fondos S.A., and IM Trust International S.A.
The CMF is responsible for the supervision of entities in the securities market, insurance, banks, financial institutions, and other financial entities. The CMF regulates Credicorp Capital Chile through the Chilean stock exchange market. The CMF ensures that supervised institutions comply with laws, regulations, statutes, and other provisions governing the functioning of these markets. The CMF also authorizes companies to manage mutual and investment funds (known as Mutual Fund Administrators and General Fund Management or AFM and AGF, respectively, by their Spanish initials) and supervises such companies and their managed funds by monitoring their legal, financial, and accounting information to ensure compliance with applicable laws and regulations.
Chilean regulators have established several laws, regulations, and rules to address the various sectors of the stock market. One of those laws is the Chilean Securities Market Law, which governs the functioning of the Chilean market, its corporations, management of third-party funds (investment funds, mutual funds, pension funds and others), and deposit and custody of securities.
6.2.6 Panama
International Bank Regulation – BCP Panama
BCP Panama operates as a branch of BCP Stand-alone, having been officially registered in the Republic of Panama in 2002 under an international license issued by the Panamanian Superintendency of Banks (the “SBP”) in accordance with Law Decree No. 9 of February 26, 1998, as amended.
Under this regulatory framework, BCP Panama is subject to periodic inspections conducted by auditors and inspectors from the SBP. These evaluations aim to assess various aspects of BCP Panama’s operations, with a particular focus on its adherence to Panamanian banking laws. Notably, this includes compliance with Law Decrees No. 2 of February 22, 2008, and No. 23 of April 27, 2015, which pertain to the prevention of money laundering, terrorism financing, and the financing of proliferation of weapons of mass destruction.
ASB Bank Corp.
ASB Bank Corp., a subsidiary of ASHC, is regulated by the SBP and registered in 2020 under an international banking license issued by the SBP, in accordance with Law Decree No. 9 of February 26, 1998, as amended.
As a holder of this license, ASB Bank Corp. can manage banking operations carried out outside of Panamanian territory from an office located in Panama. Likewise, it grants the right to exercise any other activity authorized by the SBP. ASB Bank Corp. may not take deposits from any person residing in the Republic of Panama.
ASB Bank Corp. is also regulated and holds a securities broker license issued by the Panama SMV that enables the entity to act as securities broker, manager, and custodian. It is required to comply with regulations pertaining to corporate governance; minimum working capital and liquidity requirements to meet obligations with customers and vendors; adequate accounting practices and recordkeeping; provision of regulatory reports; adherence to confidentiality standards, code of ethics and the prevention of conflicts of interest; and adequate anti-money laundering and terrorism finance laundering controls, policies and programs, among others.
ASB Bank Corp. must receive prior approval from the SBP and the Panama SMV for: (i) any proposed changes in the Board of Directors or senior officers; (ii) the issuance, transfer or other disposal of shares (it is uncommon for a waiver to be granted with respect to share-related matters, except in the case of a branch of a substantial international bank or where the shares are widely held and publicly traded); (iii) any significant change in the business plan filed on the original licenses applications; or (iv) to open a subsidiary, branch, agency or representative office outside the Republic of Panama.
6.2.7 United States
International Bank Regulation – BCP Miami Agency
The BCP Miami Agency is licensed to operate as an international bank agency in the State of Florida and was authorized to transact business by the Comptroller of Florida on September 3, 2002. The BCP Miami Agency is regulated, supervised, and examined by the Office of Financial Regulation of the State of Florida Department of Financial Services and by the FED through the Federal Reserve Bank of Atlanta. Our direct and indirect nonbanking subsidiaries doing business in the United States also are subject to the authority of relevant U.S. financial regulatory agencies depending on their U.S. activities.
Investment Management and Advisory – Credicorp Capital LLC.
Credicorp Capital LLC. is a broker-dealer registered with FINRA and the SEC. Credicorp Capital LLC. is owned by Credicorp Capital Limited, which is wholly owned by Credicorp Ltd. Headquartered in Brickell, Florida, Credicorp Capital LLC. provides brokerage services through a clearing agreement with Pershing, LLC. As of November 30, 2021, there were eight registered principals at Credicorp Capital LLC., all of whom hold the Series 7 and Series 24 licenses. At the trading desk, all registered representatives maintain their Series 7 and Series 63 licenses.
Credicorp Capital LLC. has an affiliated SEC investment adviser (CRD No. 290081), Credicorp Capital Advisors LLC. They share the same Board of Directors and ownership.
(7)
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 – 5.A Operating Results” and the consolidated financial statements (and the notes that accompany the consolidated financial statements). The statistical information and discussion and analysis given below for the years 2021 through 2023 reflect our consolidated financial position as well as that of our subsidiaries, as of December 31, 2021, 2022 and 2023 and our results of operations for the years then ended.
7.1 Average statements of financial position. Income from interest-earning assets and interest paid on interest-bearing liabilities
The tables below set forth selected statistical information based on our average statements of financial position prepared on a consolidated basis. Except as otherwise indicated, we have classified average balances by currency (Soles or foreign currency, primarily US Dollars) rather than by the domestic or international nature of the balance. For the years 2021, 2022 and 2023, the average balances are computed as the average of period-beginning and period-ending balances on a monthly basis. Any of these month-end balances that were denominated in US Dollars have been converted into Soles using the applicable SBS exchange rate as of the date of such balance. Our management believes that the stated averages are representative of our operations, and that it would be too costly to produce daily averages using daily book balances in IFRS but does not believe that the stated averages present trends in a materially different manner from those that would be presented by daily averages.
Average Statements of Financial Position
Assets, Interest Earned and Average Interest Rates (1)
| | | As of and for the year ended December 31, | |
| | | 2021 | | | 2022 (*) | | | 2023 | |
| ASSETS: | | Average | | | Interest | | | Nominal | | | Average | | | Interest | | | Nominal | | | Average | | | Interest | | | Nominal | |
| | | Balance | | | Earned | | | Avg. Rate | | | Balance | | | Earned | | | Avg. Rate | | | Balance | | | Earned | | | Avg. Rate | |
| | | (in thousands of Soles, except percentages) | |
| Interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Deposits in BCRP | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Soles | | | 5,210,865 | | | | 31,505 | | | | 0.60 | % | | | 1,846,079 | | | | 54,425 | | | | 2.95 | % | | | 1,421,992 | | | | 48,886 | | | | 3.44 | % |
| Foreign Currency | | | 21,370,530 | | | | 2,293 | | | | 0.01 | | | | 23,012,886 | | | | 319,395 | | | | 1.39 | | | | 22,622,596 | | | | 916,482 | | | | 4.05 | |
| Total | | | 26,581,395 | | | | 33,798 | | | | 0.13 | | | | 24,858,965 | | | | 373,820 | | | | 1.50 | | | | 24,044,588 | | | | 965,368 | | | | 4.01 | |
| Deposits in other Banks | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Soles | | | 407,357 | | | | 1,642 | | | | 0.40 | | | | 466,371 | | | | 24,340 | | | | 5.22 | | | | 353,701 | | | | 21,002 | | | | 5.94 | |
| Foreign Currency | | | 9,010,149 | | | | 14,197 | | | | 0.16 | | | | 6,081,790 | | | | 69,227 | | | | 1.14 | | | | 5,045,544 | | | | 146,841 | | | | 2.91 | |
| Total | | | 9,417,506 | | | | 15,839 | | | | 0.17 | | | | 6,548,161 | | | | 93,567 | | | | 1.43 | | | | 5,399,245 | | | | 167,843 | | | | 3.11 | |
| Investment securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Soles | | | 34,968,222 | | | | 1,089,913 | | | | 3.12 | | | | 29,425,119 | | | | 1,513,647 | | | | 5.14 | | | | 32,531,003 | | | | 1,860,597 | | | | 5.72 | |
| Foreign Currency | | | 19,931,263 | | | | 436,880 | | | | 2.19 | | | | 18,016,806 | | | | 502,570 | | | | 2.79 | | | | 17,485,250 | | | | 628,730 | | | | 3.6 | |
| Total | | | 54,899,485 | | | | 1,526,793 | | | | 2.78 | | | | 47,441,925 | | | | 2,016,217 | | | | 4.24 | | | | 50,016,253 | | | | 2,489,327 | | | | 4.98 | |
Total loans (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Soles | | | 94,750,905 | | | | 7,789,085 | | | | 8.22 | | | | 98,249,290 | | | | 9,751,575 | | | | 9.93 | | | | 93,973,071 | | | | 11,384,353 | | | | 12.11 | |
| Foreign Currency | | | 47,791,467 | | | | 2,381,595 | | | | 4.98 | | | | 50,142,223 | | | | 2,667,706 | | | | 5.32 | | | | 50,999,969 | | | | 3,660,511 | | | | 7.18 | |
| Total | | | 142,542,372 | | | | 10,170,680 | | | | 7.14 | | | | 148,391,513 | | | | 12,419,281 | | | | 8.37 | | | | 144,973,040 | | | | 15,044,864 | | | | 10.38 | |
| Total dividend-earning assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Soles | | | 358,451 | | | | 23,794 | | | | 6.64 | | | | 319,684 | | | | 14,864 | | | | 4.65 | | | | 290,967 | | | | 24,038 | | | | 8.26 | |
| Foreign Currency | | | 110,104 | | | | 16,843 | | | | 15.30 | | | | 64,491 | | | | 14,362 | | | | 22.27 | | | | 82,558 | | | | 22,042 | | | | 26.7 | |
| Total | | | 468,555 | | | | 40,637 | | | | 8.67 | | | | 384,175 | | | | 29,226 | | | | 7.61 | | | | 373,525 | | | | 46,080 | | | | 12.34 | |
| Total interest-earning assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Soles | | | 135,695,800 | | | | 8,935,939 | | | | 6.59 | | | | 130,306,543 | | | | 11,358,851 | | | | 8.72 | | | | 128,570,734 | | | | 13,338,876 | | | | 10.37 | |
| Foreign Currency | | | 98,213,513 | | | | 2,851,808 | | | | 2.90 | | | | 97,318,196 | | | | 3,573,260 | | | | 3.67 | | | | 96,235,917 | | | | 5,374,606 | | | | 5.58 | |
| Total | | | 233,909,313 | | | | 11,787,747 | | | | 5.04 | | | | 227,624,739 | | | | 14,932,111 | | | | 6.56 | | | | 224,806,651 | | | | 18,713,482 | | | | 8.32 | |
| Noninterest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and due from banks | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Soles | | | 2,941,680 | | | | | | | | | | | | 2,963,365 | | | | | | | | | | | | 2,793,182 | | | | | | | | | |
| Foreign Currency | | | 2,824,559 | | | | | | | | | | | | 2,637,554 | | | | | | | | | | | | 2,495,997 | | | | | | | | | |
| Total | | | 5,766,239 | | | | | | | | | | | | 5,600,919 | | | | | | | | | | | | 5,289,179 | | | | | | | | | |
| Allowance for direct loan losses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Soles | | | (7,487,480 | ) | | | | | | | | | | | (6,468,723 | ) | | | | | | | | | | | (6,407,643 | ) | | | | | | | | |
| Foreign Currency | | | (1,767,750 | ) | | | | | | | | | | | (1,658,855 | ) | | | | | | | | | | | (1,636,324 | ) | | | | | | | | |
| Total | | | (9,255,230 | ) | | | | | | | | | | | (8,127,578 | ) | | | | | | | | | | | (8,043,967 | ) | | | | | | | | |
| Premises and equipment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Soles | | | 1,094,085 | | | | | | | | | | | | 920,802 | | | | | | | | | | | | 803,396 | | | | | | | | | |
| Foreign Currency | | | 929,155 | | | | | | | | | | | | 977,511 | | | | | | | | | | | | 1,048,397 | | | | | | | | | |
| Total | | | 2,023,240 | | | | | | | | | | | | 1,898,313 | | | | | | | | | | | | 1,851,793 | | | | | | | | | |
| Other non-interest-earning assets, derivatives and other interest income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Soles | | | 8,198,900 | | | | 50,773 | | | | | | | | 5,455,677 | | | | 51,859 | | | | | | | | 7,375,972 | | | | 26,837 | | | | | |
| Foreign Currency | | | 6,286,945 | | | | 11,886 | | | | | | | | 6,410,135 | | | | 27,311 | | | | | | | | 5,110,201 | | | | 58,176 | | | | | |
| Total | | | 14,485,845 | | | | 62,659 | | | | | | | | 11,865,812 | | | | 79,170 | | | | | | | | 12,486,173 | | | | 85,013 | | | | | |
| Total non-interest-earning assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Soles | | | 4,747,185 | | | | 50,773 | | | | | | | | 2,871,121 | | | | 51,859 | | | | | | | | 4,564,907 | | | | 26,837 | | | | | |
| Foreign Currency | | | 8,272,909 | | | | 11,886 | | | | | | | | 8,366,345 | | | | 27,311 | | | | | | | | 7,018,271 | | | | 58,176 | | | | | |
| Total | | | 13,020,094 | | | | 62,659 | | | | | | | | 11,237,466 | | | | 79,170 | | | | | | | | 11,583,178 | | | | 85,013 | | | | | |
| Total average assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Soles | | | 140,442,985 | | | | 8,986,712 | | | | 6.40 | | | | 133,177,664 | | | | 11,410,710 | | | | 8.57 | | | | 133,135,641 | | | | 13,365,713 | | | | 10.04 | |
| Foreign Currency | | | 106,486,422 | | | | 2,863,694 | | | | 2.69 | | | | 105,684,541 | | | | 3,600,571 | | | | 3.41 | | | | 103,254,188 | | | | 5,432,782 | | | | 5.26 | |
| Total | | | 246,929,407 | | | | 11,850,406 | | | | 4.80 | | | | 238,862,205 | | | | 15,011,281 | | | | 6.28 | | | | 236,389,829 | | | | 18,798,495 | | | | 7.95 | |
(*) Balances corresponding to 2022 have been restated according to IFRS 17. For further detail please refer to note 3b on the 2023 Audited Financial Statements.
| (1) | Figures for total loans include internal overdue loans. Accrued interest is included. |
Average Statements of Financial Position
Liabilities and Equity, Interest Paid and Average Interest Rates (1)
| | | As of and for the year ended December 31, | |
| | | 2021 | | | 2022 (*) | | | 2023 | |
| LIABILITIES | | Average | | | Interest | | | Nominal | | | Average | | | Interest | | | Nominal | | | Average | | | Interest | | | Nominal | |
| | Balance | | | Paid | | | Avg. Rate | | | Balance | | | Paid | | | Avg. Rate | | | Balance | | | Paid | | | Avg. Rate | |
| | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Savings deposits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Soles (1) | | | 30,138,029 | | | | 173,193 | | | | 0.57 | % | | | 30,055,712 | | | | 157,252 | | | | 0.52 | % | | | 28,590,670 | | | | 134,799 | | | | 0.47 | % |
Foreign Currency (1) | | | 22,670,476 | | | | 93,930 | | | | 0.41 | | | | 25,110,372 | | | | 101,432 | | | | 0.4 | | | | 22,367,744 | | | | 98,511 | | | | 0.44 | |
| Total | | | 52,808,505 | | | | 267,123 | | | | 0.51 | | | | 55,166,084 | | | | 258,684 | | | | 0.47 | | | | 50,958,414 | | | | 233,310 | | | | 0.46 | |
| Time deposits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Soles (1) | | | 17,277,160 | | | | 328,679 | | | | 1.9 | | | | 19,364,597 | | | | 966,149 | | | | 4.99 | | | | 24,473,231 | | | | 1,786,436 | | | | 7.3 | |
Foreign Currency (1) | | | 19,857,929 | | | | 355,248 | | | | 1.79 | | | | 21,103,285 | | | | 510,093 | | | | 2.42 | | | | 24,922,780 | | | | 1,118,189 | | | | 4.49 | |
| Total | | | 37,135,089 | | | | 683,927 | | | | 1.84 | | | | 40,467,882 | | | | 1,476,242 | | | | 3.65 | | | | 49,396,011 | | | | 2,904,625 | | | | 5.88 | |
| Due to banks and correspondents | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Soles | | | 4,230,960 | | | | 228,427 | | | | 5.4 | | | | 5,169,521 | | | | 389,057 | | | | 7.53 | | | | 5,283,963 | | | | 394,481 | | | | 7.47 | |
| Foreign Currency | | | 2,460,979 | | | | 44,438 | | | | 1.81 | | | | 2,547,427 | | | | 95,132 | | | | 3.73 | | | | 5,026,762 | | | | 301,493 | | | | 6 | |
| Total | | | 6,691,939 | | | | 272,865 | | | | 4.08 | | | | 7,716,948 | | | | 484,189 | | | | 6.27 | | | | 10,310,725 | | | | 695,974 | | | | 6.75 | |
| Bonds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Soles | | | 3,468,936 | | | | 177,481 | | | | 5.12 | | | | 3,265,683 | | | | 169,023 | | | | 5.18 | | | | 3,157,402 | | | | 174,486 | | | | 5.53 | |
| Foreign Currency | | | 13,662,502 | | | | 659,496 | | | | 4.83 | | | | 13,384,236 | | | | 559,195 | | | | 4.18 | | | | 11,824,668 | | | | 459,813 | | | | 3.89 | |
| Total | | | 17,131,438 | | | | 836,977 | | | | 4.89 | | | | 16,649,919 | | | | 728,218 | | | | 4.37 | | | | 14,982,070 | | | | 634,299 | | | | 4.23 | |
| Payables from repurchase agreements | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Soles | | | 22,800,403 | | | | 155,808 | | | | 0.68 | | | | 15,931,118 | | | | 192,581 | | | | 1.21 | | | | 10,145,022 | | | | 440,515 | | | | 4.34 | |
| Foreign Currency | | | 2,312,115 | | | | 28,384 | | | | 1.23 | | | | 1,678,249 | | | | 6,308 | | | | 0.38 | | | | 1,999,157 | | | | 22,176 | | | | 1.11 | |
| Total | | | 25,112,518 | | | | 184,192 | | | | 0.73 | | | | 17,609,367 | | | | 198,889 | | | | 1.13 | | | | 12,144,179 | | | | 462,691 | | | | 3.81 | |
| Total interest-bearing liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Soles | | | 77,915,488 | | | | 1,063,588 | | | | 1.37 | | | | 73,786,631 | | | | 1,874,062 | | | | 2.54 | | | | 71,650,288 | | | | 2,930,717 | | | | 4.09 | |
| Foreign Currency | | | 60,964,001 | | | | 1,181,496 | | | | 1.94 | | | | 63,823,569 | | | | 1,272,160 | | | | 1.99 | | | | 66,141,111 | | | | 2,000,181 | | | | 3.02 | |
| Total | | | 138,879,489 | | | | 2,245,084 | | | | 1.62 | | | | 137,610,200 | | | | 3,146,222 | | | | 2.29 | | | | 137,791,399 | | | | 4,930,899 | | | | 3.58 | |
| Other liabilities and equity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Demand deposits (2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Soles (1) | | | 27,352,388 | | | | 66,943 | | | | 0.24 | | | | 23,109,185 | | | | 111,883 | | | | 0.48 | | | | 21,326,565 | | | | 140,673 | | | | 0.66 | |
Foreign Currency (1) | | | 32,632,889 | | | | 61,222 | | | | 0.19 | | | | 29,992,532 | | | | 71,692 | | | | 0.24 | | | | 24,807,373 | | | | 100,142 | | | | 0.4 | |
| Total | | | 59,985,277 | | | | 128,165 | | | | 0.21 | | | | 53,101,717 | | | | 183,575 | | | | 0.35 | | | | 46,133,938 | | | | 240,815 | | | | 0.52 | |
| Other liabilities, derivatives and other interest expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Soles | | | 10,607,850 | | | | 26,107 | | | | | | | | 10,804,007 | | | | 24,468 | | | | | | | | 11,704,076 | | | | 337,278 | | | | | |
| Foreign Currency | | | 11,740,807 | | | | 91,446 | | | | | | | | 9,704,750 | | | | 138,922 | | | | | | | | 9,593,175 | | | | 351,531 | | | | | |
| Total | | | 22,348,657 | | | | 117,553 | | | | | | | | 20,508,757 | | | | 163,390 | | | | | | | | 21,297,251 | | | | 688,809 | | | | | |
| Equity attributable to Credicorp equity holders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Soles | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency | | | 25,207,194 | | | | | | | | | | | | 27,084,549 | | | | | | | | | | | | 30,548,712 | | | | | | | | | |
| Total | | | 25,207,194 | | | | | | | | | | | | 27,084,549 | | | | | | | | | | | | 30,548,712 | | | | | | | | | |
| Non-controlling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Soles | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency | | | 508,790 | | | | | | | | | | | | 557,017 | | | | | | | | | | | | 618,529 | | | | | | | | | |
| Total | | | 508,790 | | | | | | | | | | | | 557,017 | | | | | | | | | | | | 618,529 | | | | | | | | | |
| Total non-interest-bearing liabilities and equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Soles | | | 37,960,238 | | | | 93,050 | | | | | | | | 33,913,192 | | | | 136,351 | | | | | | | | 33,030,641 | | | | 477,951 | | | | | |
| Foreign Currency | | | 70,089,680 | | | | 152,668 | | | | | | | | 67,338,848 | | | | 210,614 | | | | | | | | 65,567,789 | | | | 451,673 | | | | | |
| Total | | | 108,049,918 | | | | 245,718 | | | | | | | | 101,252,040 | | | | 346,965 | | | | | | | | 98,598,430 | | | | 929,624 | | | | | |
| Total average liabilities and equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Soles | | | 115,875,726 | | | | 1,156,638 | | | | 1 | | | | 107,699,823 | | | | 2,010,413 | | | | 1.87 | | | | 104,680,929 | | | | 3,408,668 | | | | 3.26 | |
| Foreign Currency | | | 131,053,681 | | | | 1,334,164 | | | | 1.02 | | | | 131,162,417 | | | | 1,482,774 | | | | 1.13 | | | | 131,708,900 | | | | 2,451,854 | | | | 1.86 | |
| Total | | | 246,929,407 | | | | 2,490,802 | | | | 1.01 | | | | 238,862,240 | | | | 3,493,187 | | | | 1.46 | | | | 236,389,829 | | | | 5,860,523 | | | | 2.48 | |
(*) Balances corresponding to 2022 have been restated according to IFRS 17. For further detail please refer to note 3b on the 2023 Audited Financial Statements.
| (1) | Interest and average rate paid include the amount paid for the applicable deposit insurance fund. |
| (2) | We typically do not pay interest for demand deposits; however, in exceptional circumstances the Group pays interest on certain demand deposits of corporate clients that hold balances exceeding certain amounts. See “7.4 Deposits” for the amounts of non-interest-bearing demand deposits and interest-bearing demand deposits as of December 31, 2021, 2022 and 2023. Interest paid on demand deposits is not considered material. |
7.1.1 Changes in net interest, similar income, and expense: volume and rate analysis
The table below sets forth the net effect on annual variation in interest income and interest expense of increases and decreases due to changes in volume and rate. Volume and rate variations have been calculated based on variations in average balances over the period and changes in average rates on interest-earning assets and interest-bearing liabilities from one period to the other. The net changes in “Interest and similar income” and “Interest and similar expense” attributable to both changes in functional currency (Sol) and changes in foreign currency also are presented in the table:
| | | 2023/2022 (*) | |
| | | Increase/(Decrease) due to changes in: | |
| | | Volume | | | Rate | | | Net Change | |
| | | (in thousands of Soles) | |
Interest and similar income (1): | | | | | | | | | | |
| Interest-earning deposits in BCRP | | | | | | | | | | |
| Soles | | | (13,541 | ) | | | 8,002 | | | | (5,539 | ) |
| Foreign Currency | | | (10,614 | ) | | | 607,701 | | | | 597,087 | |
| Total | | | (24,155 | ) | | | 615,703 | | | | 591,548 | |
| Deposits in other banks | | | | | | | | | | | | |
| Soles | | | (6,285 | ) | | | 2,947 | | | | (3,338 | ) |
| Foreign Currency | | | (20,977 | ) | | | 98,591 | | | | 77,614 | |
| Total | | | (27,262 | ) | | | 101,538 | | | | 74,276 | |
| Investment securities | | | | | | | | | | | | |
| Soles | | | 168,704 | | | | 178,246 | | | | 346,950 | |
| Foreign Currency | | | (16,971 | ) | | | 143,131 | | | | 126,160 | |
| Total | | | 151,733 | | | | 321,377 | | | | 473,110 | |
Total loans (2) | | | | | | | | | | | | |
| Soles | | | (471,236 | ) | | | 2,104,014 | | | | 1,632,778 | |
| Foreign Currency | | | 53,599 | | | | 939,206 | | | | 992,805 | |
| Total | | | (417,637 | ) | | | 3,043,220 | | | | 2,625,583 | |
| Total dividend-earning assets | | | | | | | | | | | | |
| Soles | | | (1,854 | ) | | | 11,028 | | | | 9,174 | |
| Foreign Currency | | | 4,424 | | | | 3,256 | | | | 7,680 | |
| Total | | | 2,570 | | | | 14,284 | | | | 16,854 | |
| Total interest-earning assets | | | | | | | | | | | | |
| Soles | | | (165,698 | ) | | | 2,145,723 | | | | 1,980,025 | |
| Foreign Currency | | | (50,091 | ) | | | 1,851,437 | | | | 1,801,346 | |
| Total | | | (215,789 | ) | | | 3,997,160 | | | | 3,781,371 | |
| Interest and similar expense: | | | | | | | | | | | | |
| Demand deposits | | | | | | | | | | | | |
| Soles | | | (10,194 | ) | | | 38,984 | | | | 28,790 | |
| Foreign Currency | | | (16,663 | ) | | | 45,113 | | | | 28,450 | |
| Total | | | (26,857 | ) | | | 84,097 | | | | 57,240 | |
| Savings deposits | | | | | | | | | | | | |
| Soles | | | (7,286 | ) | | | (15,167 | ) | | | (22,453 | ) |
| Foreign Currency | | | (11,579 | ) | | | 8,657 | | | | (2,922 | ) |
| Total | | | (18,865 | ) | | | (6,510 | ) | | | (25,375 | ) |
| Time deposits | | | | | | | | | | | | |
| Soles | | | 313,895 | | | | 506,392 | | | | 820,287 | |
| Foreign Currency | | | 131,844 | | | | 476,252 | | | | 608,096 | |
| Total | | | 445,739 | | | | 982,644 | | | | 1,428,383 | |
| Due to banks and correspondents and issued bonds | | | | | | | | | | | | |
| Soles | | | 8,578 | | | | (3,154 | ) | | | 5,424 | |
| Foreign Currency | | | 120,647 | | | | 85,714 | | | | 206,361 | |
| Total | | | 129,225 | | | | 82,560 | | | | 211,785 | |
| Bonds | | | | | | | | | | | | |
| Soles | | | (5,794 | ) | | | 11,257 | | | | 5,463 | |
| Foreign Currency | | | (62,902 | ) | | | (36,480 | ) | | | (99,382 | ) |
| Total | | | (68,696 | ) | | | (25,223 | ) | | | (93,919 | ) |
| Payables from repurchase agreements | | | | | | | | | | | | |
| Soles | | | (160,594 | ) | | | 408,528 | | | | 247,934 | |
| Foreign Currency | | | 2,383 | | | | 13,485 | | | | 15,868 | |
| Total | | | (158,211 | ) | | | 422,013 | | | | 263,802 | |
| Total interest-bearing liabilities | | | | | | | | | | | | |
| Soles | | | (70,821 | ) | | | 1,127,477 | | | | 1,056,656 | |
| Foreign Currency | | | 58,140 | | | | 669,881 | | | | 728,021 | |
| Total | | | (12,681 | ) | | | 1,797,358 | | | | 1,784,677 | |
(*) Balances corresponding to 2022 have been restated according to IFRS 17. For further detail please refer to note 3b on the 2023 Audited Financial Statements.
(1) Annual changes due to interest earned or spent are reflected in the volume and rate indicated. Which is calculated as follows:
- Volume: The variation in volume from one year to the next, multiplied by the average rate yield.
- Rate: The average volume from one year to the next, multiplied by the rate yield variance
- Net change: The sum of the volume and the calculated rate.
(2) Figures for total loans include internal overdue loans. Accrued interest is included.
7.1.2 Average interest-earning assets, net interest margin (NIM), and yield spread
The following table shows, for each of the periods indicated, the levels of average interest-earning assets, net interest income, gross yield, NIM and yield spread by currency, all on a nominal basis:
| | | 2021 | | | | 2022 ( | *) | | | 2023 | |
| | | (in thousands of Soles, except percentages) | |
Average interest-earning assets (1) | | | | | | | | | | | |
| Soles | | | 135,695,800 | | | | 130,306,543 | | | | 128,570,734 | |
| Foreign Currency | | | 98,213,513 | | | | 97,318,196 | | | | 96,235,917 | |
| Total | | | 233,909,313 | | | | 227,624,739 | | | | 224,806,651 | |
| Net interest income from interest-earning assets | | | | | | | | | | | | |
| Soles | | | 7,872,351 | | | | 9,484,789 | | | | 10,408,159 | |
| Foreign Currency | | | 1,670,312 | | | | 2,301,100 | | | | 3,374,425 | |
Total (2) | | | 9,542,663 | | | | 11,785,889 | | | | 13,782,584 | |
Gross yield (3) | | | | | | | | | | | | |
| Soles | | | 6.59 | % | | | 8.72 | % | | | 10.37 | % |
| Foreign Currency | | | 2.90 | % | | | 3.67 | % | | | 5.58 | % |
| Weighted-average rate | | | 5.04 | % | | | 6.56 | % | | | 8.32 | % |
NIM (4) | | | | | | | | | | | | |
| Soles | | | 5.80 | % | | | 7.28 | % | | | 8.10 | % |
| Foreign Currency | | | 1.70 | % | | | 2.36 | % | | | 3.51 | % |
| Weighted-average rate | | | 4.08 | % | | | 5.18 | % | | | 6.13 | % |
Yield spread (5) | | | | | | | | | | | | |
| Soles | | | 5.22 | % | | | 6.18 | % | | | 6.28 | % |
| Foreign Currency | | | 0.97 | % | | | 1.68 | % | | | 2.56 | % |
| Weighted-average rate | | | 3.42 | % | | | 4.27 | % | | | 4.75 | % |
(*) Balances corresponding to 2022 have been restated according to IFRS 17. For further detail please refer to note 3b on the 2023 Audited Financial Statements.
| | (1) | Monthly average balances. |
| (2) | Net interest income includes the interest earned on total interest-earning assets and interest paid on total interest-bearing liabilities, as shown in section “7.1 Average statements of financial position and income from interest-earning assets”. |
| (3) | Gross yield is interest income divided by average interest-earning assets. |
| (4) | NIM represents “Net interest income from interest-earning assets” divided by “Average interest-earning assets”, both computed on a monthly basis. |
| (5) | Yield spread on a nominal basis, represents the difference between gross yield on average interest-earning assets and average cost of interest-bearing liabilities. |
7.1.3 Interest-earning deposits with other banks
The following table shows the short-term funds deposited with other banks. These deposits are denominated by currency as of the dates indicated. Deposits held in countries other than Peru are denominated in several currencies; however, the majority of these deposits are denominated in US Dollars. All currencies were converted to Soles using the applicable SBS exchange rate as of the dates indicated.
| | | Year ended December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (in thousands of Soles) | |
| Sol-denominated: | | | | | | | | | |
| BCRP | | | 2,500,242 | | | | 717,206 | | | | 1,263,461 | |
| Commercial banks | | | 280,009 | | | | 504,155 | | | | 139,083 | |
| Total Sol-denominated | | | 2,780,251 | | | | 1,221,361 | | | | 1,402,544 | |
| Foreign Currency-denominated: | | | | | | | | | | | | |
| BCRP (US Dollars) | | | 22,679,713 | | | | 22,945,184 | | | | 21,434,215 | |
| Commercial banks (US Dollars) | | | 6,700,668 | | | | 2,470,951 | | | | 2,824,558 | |
| Commercial banks (other currencies) | | | 234,776 | | | | 259,720 | | | | 317,260 | |
| Total Foreign Currency-denominated | | | 29,615,157 | | | | 25,675,855 | | | | 24,576,033 | |
| Total | | | 32,395,408 | | | | 26,897,216 | | | | 25,978,577 | |
As of December 31, 2021, 2022 and 2023, the Group classified its investments in one of the categories defined by IFRS 9 based on the business model for managing the financial assets and the characteristics of the contractual cash flows of the investment.
For information about how we classify and measure investments, refer to Note 3(g) (Financial instruments: Initial recognition and subsequent measurement) to the consolidated financial statements.
The following table shows, for 2021, 2022 and 2023, the fair value of our investments at fair value through profit or loss, investments at fair value through other comprehensive income and the amortized cost of our investments at amortized cost under IFRS 9, in each case, without accrued interest and broken down by type of security at the dates indicated.
| | | Year ended December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (in thousands of Soles) | |
| Sol-denominated: | | | | | | | | | |
| Government treasury bonds | | | 14,610,773 | | | | 15,307,031 | | | | 17,334,217 | |
| Certificates of deposit BCRP | | | 8,337,432 | | | | 7,019,479 | | | | 10,935,253 | |
| Corporate bonds | | | 5,235,958 | | | | 4,297,784 | | | | 4,685,719 | |
| Securitization instruments | | | 398,089 | | | | 384,891 | | | | 402,921 | |
| Negotiable Certificates of Deposit | | | 6,755 | | | | 5,951 | | | | - | |
| Subordinated bonds | | | 121,442 | | | | 108,830 | | | | 111,536 | |
| Equity securities | | | 358,450 | | | | 319,686 | | | | 290,975 | |
| Restricted mutual funds | | | 365,774 | | | | 350,805 | | | | - | |
| Other investments of debt | | | 165,391 | | | | 73,424 | | | | 73,986 | |
| Other investments of equity | | | 144,886 | | | | 197,921 | | | | 337,861 | |
| Total Sol-denominated | | | 29,744,950 | | | | 28,065,802 | | | | 34,172,468 | |
| Foreign currency- denominated: | | | | | | | | | | | | |
| Government treasury bonds | | | 3,325,653 | | | | 3,560,187 | | | | 3,999,661 | |
| Certificates of deposit BCRP | | | 1,111,142 | | | | - | | | | 192,666 | |
| Corporate bonds | | | 10,072,583 | | | | 9,028,802 | | | | 9,166,657 | |
| Securitization instruments | | | 324,868 | | | | 327,900 | | | | 280,198 | |
| Negotiable Certificates of Deposit | | | 627,106 | | | | 579,807 | | | | 517,973 | |
| Subordinated bonds | | | 295,182 | | | | 384,994 | | | | 227,512 | |
| Equity securities | | | 110,105 | | | | 64,489 | | | | 82,550 | |
| Participation in RAL Funds | | | 323,139 | | | | 167,781 | | | | 145,414 | |
| Restricted mutual funds | | | 180 | | | | 512 | | | | 334,162 | |
| Other investments of equity | | | 2,243,315 | | | | 2,297,427 | | | | 1,997,585 | |
| Other investments of debt | | | 195,636 | | | | 336,166 | | | | 398,313 | |
| Total foreign currency- denominated | | | 18,628,909 | | | | 16,748,065 | | | | 17,342,691 | |
Total securities holdings (1) | | | 48,373,859 | | | | 44,813,867 | | | | 51,515,159 | |
| (1) | Excludes accrued interest, which amounts to S/578.7 million, S/617.4 million and S/700.4 million as of December 31, 2021, 2022 and 2023, respectively. Also excludes provision for credit losses on investment at amortized cost. |
The expected loss provision for marketable securities is debited individually to each security.
The weighted-average yield on our Sol-denominated interest-earning investment securities was 3.1% in 2021, 5.1% in 2022 and 5.7% in 2023. The weighted-average yield on our foreign currency-denominated portfolio was 2.2% in 2021, 2.8% in 2022 and 3.6% in 2023. The total weighted-average yield of our investment securities was 2.8% in 2021, 4.2% in 2022, and 5.0% in 2023.
The weighted-average yield on our Sol-denominated dividend-earning assets was 6.6% in 2021, 4.7% in 2022, and 8.3% in 2023. The weighted-average yield on our foreign currency-denominated portfolio was 15.3% in 2021, 22.3% in 2022 and 26.7% in 2023. The total weighted-average yield of our dividend-earning assets was 8.7% in 2021, 7.6% in 2022, 7.6% and 12.3% in 2023.
As of December 31, 2023, the investments at fair value through other comprehensive income and investments at amortized cost pledged as collateral amounted to S/6,534.0 million. The following tables show the weighted average yield separate by maturity of investments at fair value through other comprehensive income and at amortized cost in each case, without accrued interest as of December 31, 2023:
Investments at fair value with changes in other comprehensive income:
| | | Without maturity | | | Within 1 year | | | Weighted average yield (1) | | | After 1 year but within
3 years | | | Weighted average yield (1) | | | Maturing after 3 years but within 5 years | | | Weighted average yield (1) | | | Maturing after 5 years but
within 10 years | | | Weighted average yield (1) | | | After 10 years | | | Weighted average yield (1) | | | Total | |
| | | (in thousands of Soles) | |
| Sol-denominated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Government treasury bonds | | | - | | | | 206,555 | | | | 1.25 | % | | | 956,091 | | | | 5.59 | % | | | 1,851,431 | | | | 5.79 | % | | | 2,728,480 | | | | 6.33 | % | | | 2,126,342 | | | | 5.94 | % | | | 7,868,899 | |
| Certificates of deposit BCRP | | | - | | | | 10,935,253 | | | | 6.19 | % | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 10,935,253 | |
| Corporate bonds | | | - | | | | 470,434 | | | | 7.09 | % | | | 661,368 | | | | 6.66 | % | | | 1,076,906 | | | | 7.19 | % | | | 1,358,997 | | | | 6.60 | % | | | 1,106,758 | | | | 7.68 | % | | | 4,674,463 | |
| Securitization instruments | | | - | | | | - | | | | - | | | | 2,218 | | | | 7.33 | % | | | 13,546 | | | | 6.35 | % | | | 79,334 | | | | 10.16 | % | | | 307,824 | | | | 7.01 | % | | | 402,922 | |
| Negotiable Certificates of Deposit | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Subordinated bonds | | | - | | | | - | | | | - | | | | 57,041 | | | | 5.29 | % | | | 7,069 | | | | 9.42 | % | | | 47,426 | | | | 6.93 | % | | | - | | | | - | | | | 111,536 | |
| Other investments of debt | | | - | | | | 27,789 | | | | 8.25 | % | | | - | | | | - | | | | 38,092 | | | | 0.15 | % | | | - | | | | - | | | | 8,105 | | | | 1.76 | % | | | 73,986 | |
| Equity securities | | | 289,938 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 289,938 | |
| Total Sol-denominated | | | 289,938 | | | | 11,640,031 | | | | | | | | 1,676,718 | | | | | | | | 2,987,044 | | | | | | | | 4,214,237 | | | | | | | | 3,549,029 | | | | | | | | 24,356,997 | |
| Foreign Currency-denominated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Government treasury bonds | | | - | | | | 620,523 | | | | 4.95 | % | | | 1,306,241 | | | | 4.65 | % | | | 170,618 | | | | 5.01 | % | | | 250,318 | | | | 5.57 | % | | | 148,277 | | | | 5.33 | % | | | 2,495,977 | |
| Corporate bonds | | | - | | | | 380,971 | | | | 7.52 | % | | | 2,162,184 | | | | 5.28 | % | | | 2,132,956 | | | | 5.53 | % | | | 1,577,491 | | | | 6.15 | % | | | 2,248,763 | | | | 5.71 | % | | | 8,502,365 | |
| Securitization instruments | | | - | | | | - | | | | - | | | | 494 | | | | 5.92 | % | | | 7,088 | | | | 6.60 | % | | | 42,820 | | | | 6.42 | % | | | 224,561 | | | | 10.22 | % | | | 274,963 | |
| Negotiable Certificates of Deposit | | | - | | | | 82,895 | | | | 3.96 | % | | | 225,092 | | | | 3.53 | % | | | 72,255 | | | | 4.05 | % | | | 33,939 | | | | 3.91 | % | | | 48,455 | | | | 2.54 | % | | | 462,636 | |
| Subordinated bonds | | | - | | | | 92,199 | | | | 5.71 | % | | | 31,086 | | | | 6.51 | % | | | 8,095 | | | | 5.32 | % | | | 18,740 | | | | 4.67 | % | | | 16,162 | | | | 5.51 | % | | | 166,282 | |
| Other investments of debt | | | - | | | | 259,024 | | | | 4.18 | % | | | 7,328 | | | | 8.18 | % | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 266,352 | |
| Equity securities | | | 44,864 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 44,864 | |
| Total Foreign Currency-denominated | | | 44,864 | | | | 1,435,612 | | | | | | | | 3,732,425 | | | | | | | | 2,391,012 | | | | | | | | 1,923,308 | | | | | | | | 2,686,218 | | | | | | | | 12,213,439 | |
| Total securities holdings: | | | 334,802 | | | | 13,075,643 | | | | | | | | 5,409,143 | | | | | | | | 5,378,056 | | | | | | | | 6,137,545 | | | | | | | | 6,235,247 | | | | | | | | 36,570,436 | |
| (1) | Rates have been presented on a non-taxable equivalent basis. |
Investments at amortized cost:
| | | Without maturity | | | Within 1 year | | | Weighted average yield (1) | | | After 1 year but within 3 years | | | Weighted average yield (1) | | | Maturing after
3 years but within 5 years | | | Weighted average yield (1) | | | Maturing after 5 years but within 10 years | | | Weighted average yield (1) | | | After 10 years | | | Weighted average yield (1) | | | Total | |
| | | (in thousands of Soles) | |
| Sol-denominated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Government treasury bonds | | | - | | | | 1,085,214 | | | | 5.62 | % | | | 415,416 | | | | 5.59 | % | | | 1,193,767 | | | | 5.79 | % | | | 3,642,725 | | | | 6.29 | % | | | 2,986,848 | | | | 6.76 | % | | | 9,323,970 | |
| Total Sol-denominated | | | - | | | | 1,085,214 | | | | 5.62 | % | | | 415,416 | | | | 5.59 | % | | | 1,193,767 | | | | 5.79 | % | | | 3,642,725 | | | | 6.29 | % | | | 2,986,848 | | | | 6.76 | % | | | 9,323,970 | |
| Foreign Currency-denominated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Government treasury bonds | | | - | | | | 71,459 | | | | 11.0 | % | | | 18,025 | | | | 6.25 | % | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 89,484 | |
| Corporate bonds | | | - | | | | 175,150 | | | | 6.3 | % | | | 272,095 | | | | 6.01 | % | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 447,245 | |
| Subordinated bonds | | | - | | | | 9,882 | | | | 7.1 | % | | | 19,766 | | | | 6.96 | % | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 29,648 | |
| Negotiable certificates of deposit | | | - | | | | 55,336 | | | | 3.0 | % | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 55,336 | |
| Other investments of debt | | | - | | | | 14,962 | | | | 7.6 | % | | | 7,755 | | | | 7.25 | % | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 22,717 | |
| Total Foreign Currency-denominated | | | - | | | | 326,789 | | | | | | | | 317,641 | | | | | | | | - | | | | | | | | - | | | | | | | | - | | | | | | | | 644,430 | |
| Total securities holdings: | | | - | | | | 1,412,003 | | | | | | | | 733,057 | | | | | | | | 1,193,767 | | | | | | | | 3,642,725 | | | | | | | | 2,986,848 | | | | | | | | 9,968,400 | |
| (1) | Rates have been presented on a non-taxable equivalent basis. |
The maturities of our investment securities classified as fair value through other comprehensive income, as of December 31, 2023, are described in “ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT”.
As of December 31, 2021, 2022 and 2023, the Group had in investments at fair value with changes in other comprehensive income 83,494, 70,253 and 111,613 certificates of deposit of the BCRP, respectively, which are instruments issued at discount through public auction, negotiated in the Peruvian secondary market and payable in soles.
Pursuant to the criteria described below, our management has determined that the unrealized losses of our investments at fair value through other comprehensive income, as of December 31, 2021, 2022 and 2023, amounting to S/999.0 million, S/2,011.4 million and S/922.7 million, respectively, were temporary, and we intend to hold each investment for a sufficient period of time to allow for a potential recovery in fair value. This holding period will last until the earlier of the investment’s recovery or maturity.
As of December 31, 2021, 2022 and 2023, for debt instruments measured at amortized cost or fair value through other comprehensive income, the management establishes a three-stage expected credit loss model, based on whether there has been a significant increase in the credit risk of the financial asset since its initial recognition. These three stages determine the amount of expected credit loss (ECL) to be recognized at each reporting date.
The ECL is an estimate that considers multiple forward-looking macro-economic scenarios that result in more timely recognition of credit losses.
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.
Except where otherwise specified, references to loans in this section 7.3 are to our direct loans. Our direct loans are distinct from our indirect loans (which are discussed in Note 18(a) of our consolidated financial statements) and our due from customers on banker’s acceptances (which are discussed in Note 3(r) of our consolidated financial statements).
7.3.1 Loans by type of loan
The following table shows our loans by type of loan, at the dates indicated:
| | | As of December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (in thousands of Soles) | |
Loans (1) | | | 126,247,209 | | | | 125,790,501 | | | | 122,282,426 | |
| Leasing receivables | | | 6,446,450 | | | | 6,174,850 | | | | 5,735,973 | |
| Discounted notes | | | 2,718,321 | | | | 2,982,291 | | | | 3,170,887 | |
| Factoring receivables | | | 3,572,697 | | | | 3,976,898 | | | | 3,431,323 | |
| Advances and overdrafts in current account | | | 69,238 | | | | 219,932 | | | | 321,962 | |
| Refinanced loans | | | 1,800,465 | | | | 2,100,018 | | | | 2,407,516 | |
| Total performing loans | | | 140,854,380 | | | | 141,244,490 | | | | 137,350,087 | |
| Internal overdue loans | | | 5,562,439 | | | | 5,945,779 | | | | 6,133,167 | |
| Accrued interest | | | 1,180,593 | | | | 1,436,105 | | | | 1,492,797 | |
Total loans (2) | | | 147,597,412 | | | | 148,626,374 | | | | 144,976,051 | |
| | (1) | The credit card loans balance amounts to S/5,626.0 million, S/6,187.9 million and S/7,112.3 million for the years 2021, 2022 and 2023, respectively. |
| (2) | Due to current loans, we had off-balance-sheet items that amounted to S/22,914.3 million, S/20,928.1 million, and S/20,051.6 million, as of December 31, 2021, 2022 and 2023 respectively. See Note 18 to the consolidated financial statements. |
The loan portfolio categories set forth in the table above are based on internal classifications, which apply to loans generated by BCP Stand-alone, SEAH, Mibanco, BCP Bolivia, Mibanco Colombia and ASB. 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 receivables: Transactions that involve our acquisition of an asset and the financial 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 receivables: The sale of title of a company’s account 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. For 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 in current account: 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 the debtor is experiencing payment problems and asks for a new payment schedule that will allow the debtor to comply with the installments. This policy is based on internal models and past experience as well as IFRS. |
| • | Internal overdue loans: Includes overdue loans and under legal collection loans. See “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (7) Selected statistical information – 7.3 Loan Portfolio – 7.3.9 Internal overdue Loan Portfolio” for further detail. |
7.3.2 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:
| | | As of December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (in thousands of Soles, except percentages) | |
| | | | |
| | | Amount | | | % Total | | | Amount | | | % Total | | | Amount | | | % Total | |
| Economic Activity | | | | | | | | | | | | | | | | | | |
| Mortgage Loans | | | 21,831,460 | | | | 14.79 | | | | 23,235,575 | | | | 15.63 | | | | 22,519,807 | | | | 15.53 | |
| Commerce | | | 28,675,217 | | | | 19.43 | | | | 27,514,281 | | | | 18.51 | | | | 27,459,996 | | | | 18.94 | |
| Manufacturing | | | 23,450,465 | | | | 15.89 | | | | 23,692,696 | | | | 15.94 | | | | 22,473,754 | | | | 15.50 | |
| Consumer Loans | | | 16,014,227 | | | | 10.85 | | | | 19,913,501 | | | | 13.40 | | | | 17,797,051 | | | | 12.28 | |
| Realty Business and Leasing Services | | | 12,019,162 | | | | 8.14 | | | | 10,509,631 | | | | 7.07 | | | | 10,366,792 | | | | 7.15 | |
| Communication, Storage and Transportation | | | 7,717,777 | | | | 5.23 | | | | 6,790,684 | | | | 4.57 | | | | 6,689,075 | | | | 4.61 | |
| Community Services | | | 8,014,016 | | | | 5.43 | | | | 6,773,948 | | | | 4.56 | | | | 6,584,992 | | | | 4.54 | |
| Agriculture | | | 4,864,701 | | | | 3.30 | | | | 5,041,284 | | | | 3.39 | | | | 5,173,903 | | | | 3.57 | |
| Construction | | | 4,099,452 | | | | 2.78 | | | | 3,778,676 | | | | 2.54 | | | | 3,719,611 | | | | 2.57 | |
| Electricity, Gas and Water | | | 4,637,316 | | | | 3.14 | | | | 4,965,556 | | | | 3.34 | | | | 4,935,557 | | | | 3.40 | |
| Mining | | | 4,774,821 | | | | 3.24 | | | | 4,027,209 | | | | 2.71 | | | | 4,076,503 | | | | 2.81 | |
| Hotels and Restaurants | | | 3,039,811 | | | | 2.06 | | | | 2,867,916 | | | | 1.93 | | | | 2,866,999 | | | | 1.98 | |
| Financial Services | | | 1,395,138 | | | | 0.95 | | | | 4,343,651 | | | | 2.92 | | | | 4,393,267 | | | | 3.03 | |
| Education, Health and Other Services | | | 1,962,405 | | | | 1.33 | | | | 1,715,239 | | | | 1.15 | | | | 1,742,035 | | | | 1.20 | |
| Fishing | | | 640,932 | | | | 0.43 | | | | 597,439 | | | | 0.40 | | | | 607,047 | | | | 0.42 | |
| Others | | | 3,279,919 | | | | 2.22 | | | | 1,422,983 | | | | 0.97 | | | | 2,076,865 | | | | 1.44 | |
| Sub total | | | 146,416,819 | | | | 99.21 | % | | | 147,190,269 | | | | 99.03 | % | | | 143,483,254 | | | | 98.97 | % |
| Accrued interest | | | 1,180,593 | | | | 0.79 | % | | | 1,436,105 | | | | 0.97 | % | | | 1,492,797 | | | | 1.03 | % |
| Total | | | 147,597,412 | | | | 100 | | | | 148,626,374 | | | | 100 | | | | 144,976,051 | | | | 100.00 | % |
As of December 31, 2023, 93.05% and 6.49% of the loan portfolio was concentrated in Peru and Bolivia, respectively, which represent, separately, more than 56.48% and 3.94% of total assets of the Group, respectively. As of December 31, 2022, 91.32% and 6.23% of the loan portfolio was concentrated in Peru and Bolivia, respectively.
7.3.3 Concentrations of loan portfolio and lending limits
As of December 31, 2023, loans and other off-balance-sheet exposure to our 20 largest customers (considered as economic groups) equaled S/19,879.3 million and represented 13.71% of our total loan portfolio. See “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview (6) Supervision and Regulation – 6.2 Subsidiaries – 6.2.1 Peru” for the definition of “economic group”. Our total loans and other off-balance-sheet exposure outstanding to each of these customers ranged from S/587.1 million to S/1,645.8 million, including 11 customers with over S/811.6 million. Total loans and other off-balance-sheet exposure outstanding to our 15 largest customers were ranked in the following risk categories as of December 31, 2023: Class A (normal)—99.87%; Class B (potential problems)—0.13%; Class C (substandard)—0.00%; Class D (doubtful)—0.00% percent; and Class E (loss)—0.00%. For further information, see “– 7.3 Loan Portfolio – 7.3.7 Classification of the Loan Portfolio”.
BCP Stand-alone’s loans to a single borrower are subject to lending limits imposed by Law No. 26702. See “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (6) Supervision and Regulation – 6.2 Subsidiaries – 6.2.1 Peru”. The lending limits depend on the nature of the borrower involved and the type of collateral received. The sum of BCP Stand-alone’s loans and deposits in either another Peruvian universal bank or Peruvian financial institution, plus any guarantees of third-party performance received by BCP Stand-alone from such institution, may not exceed 30% of BCP Stand-alone’s regulatory capital (as defined by the SBS). The sum of BCP Stand-alone’s loans and deposits in non-Peruvian financial institutions, plus any guarantees of third-party performance received by BCP Stand-alone from such institutions, are limited to 5%, 10% or 30% of BCP Stand-alone’s regulatory capital, depending upon the level of government supervision of the institution and whether the institution is recognized by the BCRP as an international bank of prime credit quality. The limits on lending to non-Peruvian financial institutions increase to 50% of BCP Stand-alone’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 Stand-alone’s loans to Directors and employees and their relatives have an aggregate limit of 7% of regulatory capital 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 Stand-alone’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 Stand-alone. Lending on an unsecured basis to individuals or companies residing in Peru that are not financial institutions is limited to 10% of BCP Stand-alone’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 BCRP to be of prime credit quality, or by other highly liquid securities at market value. The single-borrower lending limit for loans backed by a cash deposit at BCP Stand-alone or by debt obligations of the BCRP is 30% of BCP Stand-alone’s regulatory capital.
Considering the regulatory capital of BCP Stand-alone, which amounted to S/26,792.8 million on December 31, 2023, BCP Stand-alone’s legal lending limits varied from S/1,339.6 million to S/13,396.4 million. The Group’s consolidated lending limits, based on our regulatory capital on a consolidated basis of S/23,364.4 million on December 31, 2022, ranged from S/2,336.4 million to S/11,682.2 million. As of December 31, 2023, BCP Stand-alone was in compliance with the lending limits of Law No. 26702.
As of December 31, 2023, we complied with the applicable legal lending limits in each of the jurisdictions in which we operate. These limits are calculated quarterly based upon 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 based on the credit quality of the borrower, the term of the loan, and the amount and quality of collateral provided. We may, in appropriate and limited circumstances, increase or choose to exceed these internal limits as long as our credit exposure does not exceed the legal lending limits.
We may experience an adverse impact on our financial condition and results of operations if (i) customers to which we have significant credit exposure are not able to satisfy 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 off-balance sheet exposure results in an increase in provisions for loan losses.
7.3.4 Loan portfolio denomination
The following table presents our Sol and foreign currency-denominated loan portfolio at the dates indicated:
| | | As of December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (in thousands of Soles, except percentages) | |
| Total loan portfolio: | | | | | | | | | | | | | | | | | | |
| Sol-denominated | | | 97,825,661 | | | | 66.28 | % | | | 96,869,077 | | | | 65.18 | % | | | 93,045,426 | | | | 64.18 | % |
| Foreign Currency-denominated | | | 49,771,751 | | | | 33.72 | % | | | 51,757,297 | | | | 34.82 | % | | | 51,930,625 | | | | 35.82 | % |
Total loans (1) | | | 147,597,412 | | | | 100.00 | % | | | 148,626,374 | | | | 100.00 | % | | | 144,976,051 | | | | 100.00 | % |
| (1) | Includes accrued interest. |
7.3.5 Maturity composition of the performing loan portfolio
The following table sets forth an analysis of our performing loan portfolio on December 31, 2023, by type and by time remaining to maturity. Loans are stated before deduction of the allowance for loan losses.
| | | Maturing | |
| | | Amount at December 31, 2023 | | | Within 12 months | | | After 1 year but within 5 years | | | After 5 years but within 15 years | | | After 15 years | |
| | | (in thousands of Soles, except percentages) | |
| Loans | | | 115,170,158 | | | | 51,410,708 | | | | 34,569,432 | | | | 27,126,219 | | | | 2,063,799 | |
| Credit Cards | | | 7,112,268 | | | | 5,804,189 | | | | 1,308,079 | | | | - | | | | - | |
| Leasing receivables | | | 5,735,973 | | | | 2,560,512 | | | | 3,042,836 | | | | 132,625 | | | | - | |
| Discounted notes | | | 3,170,887 | | | | 2,910,554 | | | | 1,197 | | | | 259,136 | | | | - | |
| Factoring receivables | | | 3,431,323 | | | | 3,431,323 | | | | - | | | | - | | | | - | |
| Refinanced and restructured loans | | | 2,407,516 | | | | 626,496 | | | | 1,236,498 | | | | 477,390 | | | | 67,132 | |
| Advances and overdrafts in current account | | | 321,962 | | | | 321,962 | | | | - | | | | - | | | | - | |
| Total | | | 137,350,087 | | | | 67,065,744 | | | | 40,158,042 | | | | 27,995,370 | | | | 2,130,931 | |
| Internal overdue loans | | | 6,133,167 | | | | | | | | | | | | | | | | | |
| Accrued interest | | | 1,492,797 | | | | | | | | | | | | | | | | | |
| Total Loans | | | 144,976,051 | | | | | | | | | | | | | | | | | |
| % of total performing loan portfolio | | | 100.00 | % | | | 48.83 | % | | | 29.24 | % | | | 20.38 | % | | | 1.55 | % |
7.3.6 Loan portfolio by interest rate type
The following table sets forth the breakdown of our loan portfolio as of December 31, 2023 by interest rate type, currency, and remaining maturity:
| | Amount at | | | Maturing | |
| | | December 31, 2023 | | | After 1 year | |
| | | (in thousands of Soles) | |
| Variable Rate | | | | | | |
| Sol-denominated | | | 51,770 | | | | 40,013 | |
| Loans | | | 51,092 | | | | 39,421 | |
| Refinanced loans | | | 678 | | | | 592 | |
| Foreign Currency-denominated | | | 4,953,019 | | | | 3,299,423 | |
| Loans | | | 4,871,756 | | | | 3,231,642 | |
| Refinanced loans | | | 4,567 | | | | 3,843 | |
| Internal overdue loans and under legal collection loans | | | 76,696 | | | | 63,938 | |
| Total | | | 5,004,789 | | | | 3,339,436 | |
| Fixed Rate | | | | | | | | |
| Sol-denominated | | | 92,643,937 | | | | 47,464,642 | |
| Loans | | | 74,651,069 | | | | 40,157,146 | |
| Leasing receivables | | | 3,331,069 | | | | 1,210,111 | |
| Credit cards | | | 4,700,810 | | | | 1,015,440 | |
| Discounted notes | | | 1,854,581 | | | | - | |
| Factoring receivables | | | 1,380,210 | | | | - | |
| Advances and overdrafts in current account | | | 124,398 | | | | - | |
| Refinanced loans | | | 1,634,461 | | | | 1,277,430 | |
| Internal overdue loans and under legal collection loans | | | 4,967,339 | | | | 3,804,515 | |
| Foreign Currency-denominated | | | 45,834,528 | | | | 19,480,458 | |
| Loans | | | 35,596,241 | | | | 15,697,538 | |
| Leasing receivables | | | 3,781,199 | | | | 1,946,290 | |
| Credit cards | | | 1,035,163 | | | | 277,908 | |
| Factoring receivables | | | 1,576,742 | | | | 2,420 | |
| Discounted notes | | | 1,790,677 | | | | - | |
| Advances and overdrafts in current account | | | 197,564 | | | | 2,072 | |
| Refinanced loans | | | 767,810 | | | | 508,880 | |
| Internal overdue loans and under legal collection loans | | | 1,089,132 | | | | 1,045,350 | |
| Total | | | 138,478,465 | | | | 66,945,100 | |
| Sub total | | | 143,483,254 | | | | 70,284,536 | |
| Accrued interest | | | 1,492,797 | | | | | |
| Total loans | | | 144,976,051 | | | | | |
7.3.7 Classification of the loan portfolio
We classify Credicorp’s loan portfolio in accordance with internal practices (based in SBS criteria). According to these criteria, all loans and other credits are classified into one of four categories based upon the purpose of the loan. These categories are:
| | (1) | Commercial loans, which generally finance the production and sale of goods and services, including commercial leases, as well as credit card debt on cards held by business entities. |
| (2) | Microbusiness 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). |
| (3) | Consumer loans, which are generally granted to individuals, including credit card transactions, overdrafts on personal demand deposit accounts, leases, and financing goods or services that are not related to a business activity. |
| (4) | Residential mortgage loans, which are all the loans granted to individuals for the purchase, construction, remodeling, subdivision or improvement of the individual’s 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 generally are considered commercial loans. |
The following table sets forth our loan portfolio by class at the dates indicated:
| | | As of December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (In thousands of Soles) | |
| Commercial loans | | | 87,006,950 | | | | 81,668,901 | | | | 76,820,401 | |
| Residential mortgage loans | | | 21,831,460 | | | | 23,235,574 | | | | 24,176,919 | |
| Micro-business loans | | | 21,582,601 | | | | 22,372,293 | | | | 22,425,750 | |
| Consumer loans | | | 15,995,808 | | | | 19,913,501 | | | | 20,060,184 | |
| Total | | | 146,416,819 | | | | 147,190,269 | | | | 143,483,254 | |
| Accrued interest | | | 1,180,593 | | | | 1,436,105 | | | | 1,492,797 | |
| Total loans | | | 147,597,412 | | | | 148,626,374 | | | | 144,976,051 | |
We employ a range of policies and practices to mitigate credit risk. Our usual practice is to take security for fund 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).
Long-term financing and lending to corporate entities are generally secured, while revolving individual credit facilities are generally unsecured. In order to minimize credit loss, we seek additional collateral as soon as impairment indicators become apparent.
We determine the appropriate collateral to 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, except for 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 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 review our loan portfolio on a continuing basis, and we classify our loans based upon credit risk 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 collateral or guarantees, (viii) the borrower’s financial statements, (ix) 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.
In accordance with IFRS7, we classify our loan portfolio, according to its credit risk quality, in one of the three following levels:
| • | Loans neither past due nor impaired: this level comprises those direct loans which are zero days past due and which are not in default. |
| • | Past due but not impaired loans: this level comprises those direct loans for which debtors have failed to make a payment on the contractually agreed due date but are not in default. |
| • | Impaired loans: this level comprises all the direct loans in default. |
We continually review our loan portfolio to assess the completeness and accuracy of our loan classifications.
We assess financial guarantees and letters of credit in the same way we assess loans.
When a borrower is in a country where there is an increased risk of difficulty servicing external debt, we assess the political and economic conditions in that country and factor additional country risk into our assessment.
When we determine that a loan is uncollectible, it is written off against the provision for loan impairment. We write off these loans after all necessary procedures have been completed and the amount of the loss is determined. Subsequent recoveries of amounts previously written off decrease the amount of the provision for loan impairment in our consolidated income statements.
The following tables show our direct loan portfolio without accrued interest at the dates indicated:
| | | As of December 31, 2023 | | | | |
| | | (in thousands of Soles, except percentages) | | | | |
Level of Risk | | Stage 1 | | | Stage 2 | | | Stage 3 | | | Total | | | | |
Classification | | Amount | | | Amount | | | Amount | | | Amount | | | % Total | |
Neither past due nor impaired | | | 114,266,020 | | | | 13,720,340 | | | | - | | | | 127,986,360 | | | | 89.2 | |
Past due but not impaired | | | 2,023,488 | | | | 2,555,260 | | | | - | | | | 4,578,748 | | | | 3.2 | |
Impaired debt | | | - | | | | - | | | | 10,918,146 | | | | 10,918,146 | | | | 7.6 | |
Total (1) | | | 116,289,508 | | | | 16,275,600 | | | | 10,918,146 | | | | 143,483,254 | | | | 100.0 | |
| | | As of December 31, 2022 | |
| | | (in thousands of Soles, except percentages) | |
| Level of Risk | | Stage 1 | | | Stage 2 | | | Stage 3 | | | Total | | | | |
| Classification | | Amount | | | Amount | | | Amount | | | Amount | | | % Total | |
| Neither past due nor impaired | | | 113,364,093 | | | | 19,078,232 | | | | - | | | | 132,442,325 | | | | 90.0 | |
| Past due but not impaired | | | 1,673,074 | | | | 2,406,229 | | | | - | | | | 4,079,303 | | | | 2.8 | |
| Impaired debt | | | - | | | | - | | | | 10,668,641 | | | | 10,668,641 | | | | 7.2 | |
Total (1) | | | 115,037,167 | | | | 21,484,461 | | | | 10,668,641 | | | | 147,190,269 | | | | 100.0 | |
| | | As of December 31, 2021 | |
| | | (in thousands of Soles, except percentages) | |
| Level of Risk | | Stage 1 | | | Stage 2 | | | Stage 3 | | | Total | | | | |
| Classification | | Amount | | | Amount | | | Amount | | | Amount | | | % Total | |
| Neither past due nor impaired | | | 110,764,795 | | | | 21,522,072 | | | | - | | | | 132,286,867 | | | | 90.3 | |
| Past due but not impaired | | | 1,037,432 | | | | 1,809,327 | | | | - | | | | 2,846,759 | | | | 1.9 | |
| Impaired debt | | | - | | | | - | | | | 11,283,193 | | | | 11,283,193 | | | | 7.7 | |
Total (1) | | | 111,802,227 | | | | 23,331,399 | | | | 11,283,193 | | | | 146,416,819 | | | | 100 | |
7.3.8 Classification of the loan portfolio based on the borrower’s payment performance
We classify a loan as internal overdue according to three criteria: (i) the number of days past-due based on the contractually agreed due date; (ii) the banking subsidiary; and (iii) the type of loan. In that sense:
| • | BCP Stand-alone, SEAH and Mibanco consider loans as internal overdue: (i) after 15 days for corporate, large business and medium business loans; (ii) after 30 days for small and micro business loans and (iii) after 30 days for overdrafts. In the case of consumer, mortgage and leasing loans, the past-due installments are considered overdue after 30 to 90 days; after 90 days, the outstanding balance of the loan is considered overdue. |
| • | Mibanco Colombia considers loans as internal overdue: (i) after 90 days for commercial loans; (ii) after 60 days for micro business loans; (iii) after 60 days for consumer loans and (iv) after 30 days for mortgage loans. |
| • | ASB considers loans as internal overdue when they are 1 or more days past due. |
| • | BCP Bolivia considers loans as internal overdue when they have 30 or more days past due. |
Furthermore, with regards to refinanced loans, Credicorp’s policy categorizes a loan as “refinanced” when a debtor is experiencing payment problems and asks for a new payment schedule that will allow the debtor to comply with the installments. This policy is based on internal models and experience as well as IFRS.
Finally, non-performing loans are composed of internal overdue, refinanced, and restructured loans. For further detail on non-performing loans, see Note 30.1(c) to the consolidated financial statements.
| | | | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (in thousands of Soles, except percentages) | |
Current | | | 140,854,380 | | | | 141,244,490 | | | | 137,350,087 | |
Internal overdue loans: | | | | | | | | | | | | |
Overdue up to 90 days | | | 1,353,655 | | | | 1,264,336 | | | | 1,459,603 | |
Overdue 90 days or more | | | 4,208,784 | | | | 4,681,343 | | | | 4,673,564 | |
Subtotal internal overdue | | | 5,562,439 | | | | 5,945,779 | | | | 6,133,167 | |
Total | | | 146,416,819 | | | | 147,190,269 | | | | 143,483,254 | |
Accrued interest | | | 1,180,593 | | | | 1,436,105 | | | | 1,492,797 | |
Total direct loans | | | 147,597,412 | | | | 148,626,374 | | | | 144,976,051 | |
Internal overdue loans amount as % of total loans (1) | | | 3.8 | % | | | 4.0 | % | | | 4.2 | % |
| | (1) | Includes overdue loans (overdue loans and under legal collection loans). |
For IFRS 7 disclosure requirements on past-due loans, see Note 30.1 to the consolidated financial statements.
7.3.9 Internal overdue loan portfolio
The following table analyzes our internal overdue loans portfolio by the type of loan at the dates indicated:
| | | As of December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (in thousands of Soles) | |
| Internal overdue loan amounts: | | | | | | | | | |
| Loans | | | 4,866,319 | | | | 5,013,193 | | | | 5,036,429 | |
| Discounted notes | | | 22,309 | | | | 34,338 | | | | 33,925 | |
| Advances and overdrafts in demand deposits | | | 53,827 | | | | 69,524 | | | | 166,803 | |
| Leasing transactions | | | 207,817 | | | | 209,015 | | | | 143,003 | |
| Refinanced and restructured loans | | | 412,167 | | | | 619,709 | | | | 753,007 | |
| Total internal overdue loans | | | 5,562,439 | | | | 5,945,779 | | | | 6,133,167 | |
Less: Allowance for loan losses (1) | | | (9,071,011 | ) | | | (8,530,986 | ) | | | (8,645,945 | ) |
| Total internal overdue loans portfolio net of allowance | | | (3,508,572 | ) | | | (2,585,207 | ) | | | (2,512,778 | ) |
(1) Includes allowance for direct and indirect credits (see section “(7) Selected Statistical Information – 7.3.11 Allowance for loan losses”).
7.3.10 Total Non-performing loans
Non-performing loans include internal overdue loans (S/6,133.2 million as of December 31, 2023), as well as current refinanced and restructured loans (S/2,407.5 million as of December 31, 2023). Therefore, non-performing loans amounted to S/8,540.7 million. As of December 31, 2023, our delinquency ratio (internal overdue-loan ratio) was 4.23% and our non-performing loan ratio (including internal overdue and refinanced and restructured loans) was 5.89%. As of December 31, 2022, our delinquency ratio was 4.00% and our non-performing loan ratio was 5.41%. See “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A Operating Results – (5) Financial Position – 5.1 Total Assets – Portfolio quality”. For the ratio of non-performing loans to total loans and the ratio of allowance for loan losses to non-performing loans (which we refer to as coverage of non-performing loans) as of December 31, 2021, 2022 and 2023, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A Operating Results – (4) Historical Discussion and Analysis – 4.2 Financial performance.”
7.3.11 Allowance for loan losses
The following tables show the changes in our allowance for loan losses during the periods indicated. The first table corresponds to years 2021, 2022 and 2023 under IFRS 9 methodology:
| | | Year ended December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (In thousands of Soles) | |
| Allowance for loan losses at the beginning of the year | | | 10,435,623 | | | | 9,071,011 | | | | 8,530,986 | |
| Credit loss of the period: | | | | | | | | | | | | |
| New loans and liquidation, net | | | (919,447 | ) | | | (541,836 | ) | | | (817,292 | ) |
| Changes in PD, LGDs, EADs | | | 2,478,398 | | | | 2,700,391 | | | | 4,774,435 | |
| Write-offs and forgiven | | | (3,066,382 | ) | | | (2,575,258 | ) | | | (3,461,262 | ) |
| Sale of loan portfolio | | | (40,833 | ) | | | (10,340 | ) | | | (343,646 | ) |
Exchange difference and others (1) | | | 183,652 | | | | (112,982 | ) | | | (37,276 | ) |
| Total allowance for loan losses at the end of the year | | | 9,071,011 | | | | 8,530,986 | | | | 8,645,945 | |
(1) Corresponds to the effect of fluctuation in the exchange rate for foreign currency loans. Considering that the functional currency is the Peruvian Sol, and that the main impact of foreign currency is the US Dollar; the effects presented in this account are primarily driven by changes in the Sol/US Dollar exchange rate.
For a discussion of the risk elements in the loan portfolio and the factors considered in determining the amount of specific reserves, see “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – 7.3.7 Classification of the Loan Portfolio” and “– 7.3.8 Classification of the loan portfolio based on the borrower’s payment performance”. The balance of the allowance for loan losses as of December 31, 2021, 2022 and 2023 are included in Note 7(c) to the consolidated financial statements.
As of December 31, 2023, the allowance for loan losses was S/8,645.9 million which meant an increase of 1.35% compared to S/8,531.0 million in 2022. The allowance for loan losses, as of December 31, 2023, included S/8,277.9 million for direct loans losses and S/368.0 million for indirect loan losses or off-balance-sheet exposure losses as compared to S/7,872.4 million and S/658.6 million, respectively, in 2022. The allowance for indirect loans is included in the “Other liabilities” caption of or consolidated statement of financial position. See Notes 7(c) and 12(a) to the consolidated financial statements. For the ratio of the allowance for loan losses to total loans as of December 31, 2021, 2022 and 2023, see “ITEM 3. KEY INFORMATION – 3.A Selected Financial Data.”
The write-off process is performed with prior approval of our board of Directors and the SBS. Potential write-offs are considered by the board of Directors on a case-by-case basis. Provision for credit losses on loan portfolio, net of recoveries, increased to S/3,622.3 million in 2023 from S/1,811.5 million in 2022. The increase is primarily explained by a deterioration in payment capacity among clients in retail segments at BCP Stand-Alone and Mibanco. Additionally, our estimates for key macroeconomic variables such as inflation, interest rates and GDP growth were revised downwards due to the economic environment experienced in 2023.
7.3.12 Allocation of allowance for loan losses
The following table sets forth the amounts of our allowance for loan losses attributable to commercial, microbusiness, consumer, and residential mortgage loans at the dates indicated (see also Note 7(c) to the consolidated financial statements):
| | | As of December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| Allowance for loan losses for: | | (in thousands of Soles) | |
| Commercial loans | | | 3,991,453 | | | | 3,912,043 | | | | 3,583,222 | |
| Microbusiness | | | 2,208,049 | | | | 1,970,027 | | | | 2,067,488 | |
| Consumer loans | | | 1,896,776 | | | | 1,680,768 | | | | 2,034,614 | |
| Residential mortgage loans | | | 974,733 | | | | 968,148 | | | | 960,621 | |
| Total | | | 9,071,011 | | | | 8,530,986 | | | | 8,645,945 | |
Credicorp’s total allowance for loan losses increased by 1.3% from December 31, 2022, to December 31, 2023. This was mainly driven by the deterioration of the macroeconomic view (both observed and projected), which had a higher impact on consumer and microbusiness loans at BCP Stand-alone, and by efforts to penetrate higher yield and riskier segments mainly on microbusiness loans at BCP Stand-alone. The aforementioned was partially offset by (i) the flow of write-offs made throughout the year, which mainly impacted consumer loans at BCP Stand-alone and microbusiness and consumer loans at both BCP Stand-alone and Mibanco, and (ii) to a lesser extent, the decrease of the USD/PEN exchange rate.
The main methodological calibrations made at internal credit risk models are see “ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT – 11.4 Managed Risk - a) Credit Risk – Measurement of expected credit losses”.
7.3.13 Credit Ratios
The following table sets forth our ratio of allowance for loan losses to total loans outstanding and, for both total loans and each type of loan, net write-offs to average loans outstanding, as well as the components of these ratios, at and for the years ended December 31, 2021, 2022 and 2023.
| | | Year ended December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (in thousands of Soles, except percentages) | |
| Allowance for credit losses to total loans outstanding | | | 6.44 | % | | | 6.04 | % | | | 6.29 | % |
| Allowance for credit losses | | | (9,071,011 | ) | | | (8,530,986 | ) | | | (8,645,945 | ) |
| Total loans outstanding | | | 140,854,380 | | | | 141,244,490 | | | | 137,350,087 | |
| Total net write-offs during the period to average loans outstanding | | | 2.2 | % | | | 1.7 | % | | | 2.4 | % |
| Total net charge-offs during the period | | | (2,929,332 | ) | | | (2,432,154 | ) | | | (3,324,667 | ) |
| Average loans outstanding | | | 136,243,721 | | | | 141,061,602 | | | | 137,241,513 | |
| Net write-offs during the period to average loans outstanding | | | | | | | | | | | | |
| Loans: | | | | | | | | | | | | |
| Average amount outstanding | | | 134,294,308 | | | | 139,107,526 | | | | 135,064,506 | |
| Net charge-offs during the period | | | (1,936,114 | ) | | | (1,749,392 | ) | | | (2,387,523 | ) |
| Ratio of net charge-off/average amount outstanding | | | 1.4 | % | | | 1.3 | % | | | 1.8 | % |
| Credit cards: | | | | | | | | | | | | |
| Average amount outstanding | | | 5,140,892 | | | | 5,746,531 | | | | 6,426,866 | |
| Net charge-offs during the period | | | (498,625 | ) | | | (208,423 | ) | | | (548,932 | ) |
| Ratio of net charge-off/average amount outstanding | | | 9.7 | % | | | 3.6 | % | | | 8.5 | % |
| Leasing receivables: | | | | | | | | | | | | |
| Average amount outstanding | | | 6,010,948 | | | | 6,254,236 | | | | 5,896,141 | |
| Net charge-offs during the period | | | - | | | | - | | | | - | |
| Ratio of net charge-off/average amount outstanding | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % |
| Discounted notes: | | | | | | | | | | | | |
| Average amount outstanding | | | 1,999,481 | | | | 2,589,806 | | | | 2,660,493 | |
| Net charge-offs during the period | | | - | | | | - | | | | - | |
| Ratio of net charge-off/average amount outstanding | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % |
| Factoring receivables: | | | | | | | | | | | | |
| Average amount outstanding | | | 2,623,819 | | | | 3,624,665 | | | | 3,184,821 | |
| Net charge-offs during the period | | | - | | | | - | | | | - | |
| Ratio of net charge-off/average amount outstanding | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % |
| Advances and overdrafts in current account: | | | | | | | | | | | | |
| Average amount outstanding | | | 147,567 | | | | 163,025 | | | | 253,353 | |
| Net charge-offs during the period | | | - | | | | - | | | | - | |
| Ratio of net charge-off/average amount outstanding | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % |
| Refinanced loans: | | | | | | | | | | | | |
| Average amount outstanding | | | 1,949,413 | | | | 1,954,076 | | | | 2,177,007 | |
| Net charge-offs during the period | | | (494,593 | ) | | | (474,339 | ) | | | (388,212 | ) |
| Ratio of net charge-off/average amount outstanding | | | 25.4 | % | | | 24.3 | % | | | 17.8 | % |
The ratio of allowance for loan losses to total loans outstanding increased from 6.04% in 2022 to 6.29% in 2023, which was mainly driven by:
| 1. | The increase of the allowance for credit losses, which was mainly driven by: (i) the impairment of BCP’s consumer loan portfolio, which was reflected in the migrations to stage 3, and which was generated, among other things, by greater client leverage within a macroeconomic context of high inflation, (ii) the migration to stage 3 of loans to small and micro businesses from Mibanco Peru, and (iii) the record of the expected impact of the El Niño Phenomenon on provisions. The previous effects were partially offset, among other things, by the payments, recoveries and improvement in the credit profile of specific companies of BCP’s Wholesale Banking, and, in addition, by the write-offs of BCP and Mibanco Peru. |
| 2. | Decrease of the total loans outstanding, which was mainly driven by: (i) the amortization of Reactiva Peru loans within BCP’s commercial credit portfolio, (ii) to a lesser extent, the fall in the PEN/USD exchange rate. The previous effects were partially offset, among other things, by the disbursements of general loans from BCP and loans to small and micro businesses from Mibanco Peru. |
The aforementioned was partially offset by higher charge-offs during the year, mainly at Consumer and Credit Card Segments due to a deterioration in payment capacity among these clients. For more information about Credicorp’s Portfolio quality, please see “5.A Operating results – (5) Financial Position – 5.1 Total Assets”.
The following table presents the components of our deposit base at the dates indicated:
| | | As of December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (in thousands of Soles) | |
| Demand deposits: | | | | | | | | | |
| Sol-denominated | | | 23,765,622 | | | | 21,756,004 | | | | 22,398,875 | |
| Foreign currency-denominated | | | 34,864,039 | | | | 26,711,244 | | | | 25,830,448 | |
| Total | | | 58,629,661 | | | | 48,467,248 | | | | 48,229,323 | |
| Savings deposits: | | | | | | | | | | | | |
| Sol-denominated | | | 32,409,764 | | | | 30,331,360 | | | | 30,280,631 | |
| Foreign currency-denominated | | | 24,535,498 | | | | 24,437,685 | | | | 22,095,182 | |
| Total | | | 56,945,262 | | | | 54,769,045 | | | | 52,375,813 | |
| Time deposits: | | | | | | | | | | | | |
| Sol-denominated | | | 12,607,182 | | | | 18,267,699 | | | | 19,265,835 | |
Foreign currency-denominated (1) | | | 15,316,621 | | | | 19,210,570 | | | | 22,024,176 | |
| Total | | | 27,923,803 | | | | 37,478,269 | | | | 41,290,011 | |
| Severance indemnity deposits | | | | | | | | | | | | |
| Sol-denominated | | | 2,733,699 | | | | 2,669,127 | | | | 2,295,879 | |
| Foreign currency-denominated | | | 1,283,366 | | | | 1,155,502 | | | | 889,724 | |
| Total | | | 4,017,065 | | | | 3,824,629 | | | | 3,185,603 | |
| Bank certificates | | | | | | | | | | | | |
| Sol-denominated | | | 497,103 | | | | 541,980 | | | | 504,020 | |
| Foreign currency-denominated | | | 830,587 | | | | 876,760 | | | | 690,633 | |
| Total | | | 1,327,690 | | | | 1,418,740 | | | | 1,194,653 | |
| Total deposits: | | | | | | | | | | | | |
| Sol-denominated | | | 72,013,370 | | | | 73,566,170 | | | | 74,745,240 | |
| Foreign currency-denominated | | | 76,830,111 | | | | 72,391,761 | | | | 71,530,163 | |
| Total deposits and obligations without interest payable | | | 148,843,481 | | | | 145,957,931 | | | | 146,275,403 | |
(1) The presentation of certificates of deposits that were identified as negotiable were modified from term deposits to bonds in 2021.
Our total deposits and obligations without interest payable increased 0.2% from December 31, 2022, to December 31, 2023, which is attributable to an increase in the level of time deposits, mainly at BCP Stand-alone.
The following table presents the non-interest-bearing demand deposits and the interest-bearing demand deposits at the dates indicated:
| | | As of December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (in thousands of Soles) | |
| Sol-denominated: | | | | | | | | | |
| Non-interest-bearing demand deposits | | | 21,084,666 | | | | 19,707,991 | | | | 19,825,177 | |
| Interest-bearing demand deposits | | | 2,680,956 | | | | 2,048,013 | | | | 2,573,698 | |
| Total | | | 23,765,622 | | | | 21,756,004 | | | | 22,398,875 | |
| Foreign currency-denominated: | | | | | | | | | | | | |
| Non-interest-bearing demand deposits | | | 30,766,541 | | | | 23,638,160 | | | | 22,409,322 | |
| Interest-bearing demand deposits | | | 4,097,498 | | | | 3,073,084 | | | | 3,421,126 | |
| Total | | | 34,864,039 | | | | 26,711,244 | | | | 25,830,448 | |
Deposits are generally insured to mitigate depositor losses in the event of financial institution bankruptcy. The insured value of any deposit will vary depending on the country where the bank is located. As of December 31, 2023, deposits in Peru are insured by the Deposit Insurance Fund up to a maximum of S/123,810 (US$33,381) per depositor; in Colombia they are insured by the “Financial Institutions Guarantee Fund” (Fogafín) up to a maximum of S/47,850 (US$12,901) per depositor; in Bolivia they are insured by the Saver Protection Fund (FPAH) up to a maximum of S/48,790 (US$13,155) per depositor; in Panama deposits are not insured. In Peru, the insurance coverage supports nominal deposits, under any modality, of natural and private non-profit legal persons, as well as demand deposits of other legal persons. Said amount includes all insured deposits that a depositor has in the same financial institution. As of December 31, 2021, 2022 and 2023 the total insured deposits of the Group, which were estimated with the methodologies and assumptions used for regulatory requirements, totaled S/51,330.3 million, S/53,555.5 million and S/52,688.7 million, respectively. As of December 31, 2021, 2022 and 2023, the total uninsured deposits, without considering interest, totaled S/97,513.2 million, S/92,402.4 million and S/93,586.7 million, respectively.
Below are the Group’s aggregate estimated uninsured time deposits as of December 31, 2021, 2022, and 2023:
| | | As of December 31, | |
| | |
| 2021 | | | | 2022 | | | | 2023 | |
| | | (in thousands of Soles) | |
| Time deposits: | | | | | | | | | | |
| Maturing within 60 days | | | 11,929,905 | | | | 13,682,607 | | | | 17,551,941 | |
| Maturing after 61 but within 90 days | | | 1,442,319 | | | | 2,453,651 | | | | 3,268,967 | |
| Maturing after 91 but within 180 days | | | 3,293,932 | | | | 4,434,455 | | | | 3,924,564 | |
| Maturing after 181 but within 360 days | | | 3,233,596 | | | | 5,466,573 | | | | 4,723,712 | |
| Maturing after 361 days | | | 5,514,827 | | | | 6,861,927 | | | | 5,517,415 | |
| Total time deposits | | | 25,414,579 | | | | 32,899,213 | | | | 34,986,599 | |
4. C Organizational structure
(1) Credicorp
The following tables show our organizational structure and the organization of our main subsidiaries as of December 31, 2023, indicating in each case its country of incorporation and ownership interest in the identified entities:
| | (1) | Grupo Crédito holds 100% of Tenpo under its control, which is the Fintech group of companies. |
| (2) | Grupo Credito holds 33.66% of Pacífico Compañía De Seguros y Reaseguros S.A. |
| (3) | Credicorp Capital Holding Peru S.A. holds 85.35% of Credicorp Capital Peru S.A.A., and Credicorp Capital Ltd holds an additional 12.84% of Credicorp Capital Peru S.A.A. |
| (4) | Grupo Crédito S.A. participates in 14.26% of Credicorp Capital Holding Colombia S.A.S. |
| (5) | Inversiones Credicorp Bolivia S.A. holds 51.95%. |
| (6) | Inversiones Credicorp Bolivia S.A. holds 51.87%. |
| (7) | Grupo Credito holds 4.99% of Mibanco Banco de la Microempresa S.A. |
4. D Property, plants, and equipment
As of December 31, 2023, we owned 281 properties (265 in Peru, 12 in Bolivia and 4 in Colombia) and leased 662 properties (470 in Peru, 57 in Bolivia ,129 in Colombia, 3 in Chile, 1 in Panama and 2 in United States), which we use for the operation of our branch network and our business. We own the buildings where our headquarters are located in Lima, Peru and La Paz, Bolivia. As of December 31, 2023, we had 663 bank branches, of which 323 were BCP Stand-alone branches, 46 were BCP Bolivia branches and 294 were Mibanco branches in Peru.
There are no significant encumbrances on any of our properties, and both our owned and leased properties have multi-risk property insurance. The respective policy is renewed annually and covers our properties against the risks of fire, natural disasters, and socio-political risks among others.
During the year 2023, the principal disbursement was related mainly to the purchase of furniture and fixtures, for the conditioning and remodeling of its various agencies and administrative offices. For more details on the balance of properties, plants and equipment in progress, see Note 9 to the consolidated financial statements.
| ITEM 4A. | UNRESOLVED STAFF COMMENTS |
None.
| ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
(1) Management Discussion and Analysis
IFRS 17 replaces IFRS 4 Insurance Contracts for annual periods beginning on or after January 1, 2023. The Group has restated the 2022 information applying the transitional provisions of IFRS 17. As a result of the initial application of IFRS 17, the Group has restated its consolidated financial statements as of January 1, 2022, mainly recognizing a decrease in equity of S/210.8 million and as of December 31, 2022, an increase in equity of S/15.5 million and net income of S/14.7 million. Additionally, IFRS 17 requires that the net balances of insurance and reinsurance contract portfolios be presented as assets or liabilities, as appropriate, in the consolidated statement of financial position. In this sense, the amounts related to these accounts differ from what was previously presented under IFRS 4 as of December 31, 2022, and January 1, 2022 (transition date). For further detail please refer to Note 3b in the 2023 Audited Financial Statements.
Changes in the Methodology to Calculate Financial Indicators and their Reformulation:
Under IFRS 4, the numerator of the Net Interest Margin was comprised of the difference between Interest Income and Interest Expenses, and the denominator was comprised of average Interest Earning Assets.
Under IFRS 17, the numerator of the Net Interest Margin is comprised of the difference between Interest Income and Interest Expenses excluding “Financial Expense associated with the insurance and reinsurance activity, net.” given that this particular kind of interest expense is not associated with a source of funding. The denominator is comprised of average Interest Earning Assets.
Under IFRS 4, the numerator of the Funding Cost is comprised of the balance of the “Interest Expenses” account, and the denominator is comprised of average Funding balance.
Under IFRS 17, the Funding Cost is comprised of the balance of the “Interest Expenses” account excluding “Financial expense associated with insurance and reinsurance activity, net.” given that this particular type of expense is not associated with a source of funding. The denominator is comprised of the average Funding balance.
Under IFRS 4, the numerator of the Efficiency Ratio is comprised of the total of the “Salaries and Employee Benefits”, “Administrative Expenses”, “Depreciation and Amortization”, “Expenses for Participation in Association”, and the “Acquisition Cost” accounts. Collectively, these accounts constitute “Operating Expenses.” The denominator of the Efficiency Ratio is comprised of “Interest Income, net”, “Fee income, net”, “Net gain on FX transactions”, “Gain on Investments in Associates”, “Gain on derivatives”, “Net gain on Exchange Differences”, and the “Net Earned Premiums” account. Collectively, these accounts constitute “Operating Income.”
Under IFRS 17, the numerator of the Efficiency Ratio is comprised of “Salaries and Employee Benefits”, “Administrative Expenses”, “Depreciation and Amortization”, and “Expenses for Participation in Association”. The numerator now excludes “Acquisition Cost” as it no longer exists in the Profit and Loss Statement. Collectively, these accounts now constitute “Operating Expenses.” The denominator of the Efficiency Ratio is comprised of “Interest Income, net”, “Fee income, net”, “Net gain on FX transactions”, “Gain on Investments in Associates”, “Gain on derivatives”, “Net gain on Exchange Differences”, and the “Insurance Underwriting Result” account. Collectively, these accounts now constitute “Operating Income”.
It is important to note that the result of replacing the “Net Earned Premiums” account with the “Insurance Underwriting Result” in the denominator of the Efficiency Ratio is in fact very significant (upward). The aforementioned is due to the fact that the balance of Insurance Technical Results is usually materially lower than the balance of “Net Earned Premiums”, as “Insurance Technical Results” have embedded the impact of charges for Incurred Claims.
a) General Economic Conditions
In 2023, the global economy surprised positively despite the emergence of new challenges such as the regional banking problems in the United States and Europe and the war between Israel and Hamas that added to the war between Russia and Ukraine (ongoing since the beginning of 2022). The main developed economies, the United States and the Eurozone, avoided falling into one of the most anticipated recessions by market consensus and showed significant resilience to the increase in monetary policy rates to levels not seen in more than two decades. Furthermore, within emerging economies, China avoided a larger impact of the real estate crisis and managed to exceed the government’s growth goal. In Peru, however, GDP fell 0.6%, its worst contraction in the period between 1991 and 2023. Several shocks explained this negative performance. Among the most important shocks, the social conflicts of the beginning of the year and El Niño Costero reduced GDP growth by 2 percentage points, according to the BCRP.
Inflation measured using the Consumer Price Index of Metropolitan Lima (CPI), closed 2023 at 3.2% YoY, slightly exceeding the upper bound of the BCRP’s target range of 1% to 3%. The core CPI (excludes energy and food prices) ended the year at 2.9% YoY, within the monetary authority target range after two consecutive years above it. Due to the sustained reduction of inflation and inflation expectations during the year, the BCRP cut rates, as did most Latam countries. The BCRP reduced its monetary policy rate from a peak of 7.75% (between January and August 2023) to 6.00% in April 2024.
b) Credicorp 2023 Financial Performance
In 2023, Credicorp generated S/4,865.5 million of net profit attributable to its equity holders, with net basic earnings of S/61.0 per common share attributable to its equity holders, as compared with S/4,647.8 million of net profit attributable to its equity holders, with net basic earnings of S/58.3 per common share attributable to its equity holders in 2022. This translates to a return on average assets (ROAA) of 2.01% and a return on average equity (ROAE) of 15.83% in 2023, up from 1.97% and down from 16.81% in 2022, respectively.
As of December 31, 2023, total loans totaled S/144,976.1 million, representing a decrease of 2.5% compared to S/148,626.4 million as of December 31, 2022. This drop was due to amortizations of Reactiva loans and lower disbursements in Wholesale Banking, partially offset by the growth in structural loans across all segments in Retail Banking and by a significant uptick in lending in the second quarter of the year at Mibanco. Total deposits without interest payable were S/146,275.4 million as of December 31, 2023, representing an increase of S/317.4 million from S/145,957.9 million as of December 31, 2022. This rise was mainly driven by a 9.2% increase in Time Deposits, from S/38,897.0 million as of December 31, 2022, to S/42,484.7 as of December 31, 2023. This migration into Time Deposits and away from Demand and Savings Deposits was because of the high-interest rate environment. The decrease in Saving Deposits was attributable to a normalization in liquidity levels.
In 2023, net interest income was S/12,938.0 million, up from S/11,091.6 million in 2022, representing an increase of 16.6%. This evolution was driven by an uptick in interest income, which reflected growth in retail loans, partially offset by a decrease in wholesale banking loans. On the funding side, interest expense increased primarily due to growth in the balance of term deposits which carried higher interest rates. These dynamics maintained a relatively stable yield on Interest Earning Assets despite a decrease in local interest rates, while the funding cost declined due to a faster repricing of term deposits. In this context, NIM was 6.01% in 2023 (considering the average of the beginning of period and end of period balances), 92 bps above the figure reported in 2022.
The provisions for credit losses on the loan portfolio, net of recoveries, totaled S/3,622.3 million for 2023, representing an increase of 100.0% compared to S/1,811.5 million for 2022. This change was mainly driven by a deterioration in payment capacity among clients from older vintages in Consumer and Credit Cards, a deterioration of old loans concentrated in higher-risk segments in SME-Pyme and a drop in the payment capacity of overindebted clients at Mibanco. Moreover, the last quarter of 2023 includes an additional charge for provisions set aside for “El Niño” Phenomenon. Thus, the cost of risk in 2023 was 2.50% as compared to 1.22% in 2022. Additionally, the expansion registered by the non-performing loan portfolio led to a subsequent decrease in the coverage ratio for the non-performing loan portfolio, which was 97.0% in 2023, as compared to 97.9% in 2022.
In 2023, other income totaled S/5,655.8 million, representing a 11.6% increase compared to S/5,066.1 million in 2022. This was attributable to Net Gain on Securities and Net Fee Income driven by trading strategies mainly at Credicorp Capital and higher volume of fees at BCP Bolivia, respectively. Net Gain on Securities grew S/407.1 million from S/(99.0) million to S/308.1 million while Net Fee Income grew S/161.6 million, or 4.4%, from S/3,642.9 million to S/3,804.5 million.
Credicorp’s underwriting result was S/1,211.1 million in 2023, representing an increase of S/369.7 million, compared to S/841.4 million in 2022. This variation was driven mainly by an increase in income from insurance services, primarily in Life Business and Crediseguros, and secondarily by a less favorable reinsurance result. These dynamics were partially offset by an uptick in expenses for insurance services, mainly in P & C due to growth in claims expenses.
The efficiency ratio in 2023 improved by 142 bps to 46.1% (as compared to 47.5% in 2022), which was due to an increase in income, primarily in net interest income.
c) LoBs Highlights
Universal Banking ROAE BCP Stand-alone: 20.6% BCP Bolivia: 9.5% |
| • | BCP Stand-alone net interest income was S/9,818.1 million in 2023, up by S/1,774.9 million, or 22.1%, compared to 2022. |
| • | BCP Stand-alone cost of risk was 2.20% in 2023, up 121 bps from 2022. |
| • | BCP Stand-alone other income was S/4,511.2 million in 2023, down by S/17.9 million, or 0.4%, from 2022. |
| • | BCP Stand-alone efficiency ratio was 38.8% for 2023, down by 197 bps compared to 40.8% in 2022. |
| • | BCP Stand-alone CET1 ratio was 13.20% in 2023, compared to 12.59% in 2022. |
Microfinance ROAE Mibanco: 7.1% Mibanco Colombia: -19.7% |
| • | Mibanco net interest income was S/2,160.5 million in 2023, up 1.0% compared to the S/2,139.1 total for 2022. |
| • | Mibanco cost of risk was 6.20% in 2023, up 272 bps from 3.48% in 2022. |
| • | Mibanco non-interest income in 2023 was S/161.4 million, up 27.0% from S/126.9 million in 2022 |
| • | Mibanco efficiency ratio was 52.7% for 2023, up by 140 bps compared to 51.3% for 2022. |
| • | Mibanco CET1 ratio was 18.37% in 2023, compared to 16..46% in 2022. |
Insurance and Pension Funds ROAE Grupo Pacífico: 29.4% Prima AFP: 30.0% |
| • | Grupo Pacífico’s income for insurance service was S/3,407.9 million in 2023, up 10.6% from S/3,081.8 million in 2022. |
| • | Grupo Pacífico’s expenses for insurance service were S/2,255.4 million in 2023, up 1.2% from S/2,229.7 million in 2022. |
| • | Grupo Pacífico insurance underwriting result was S/726,182 million in 2023, compared to S/391,204 million in 2022. |
| • | Prima AFP income from commission was S/351.0 million in 2023, down 6.1% from S/373.7 million in 2022. |
Investment Management & Advisory ROAE Credicorp Capital: 6.3% Atlantic Security Bank: 16.7% |
| • | Credicorp Capital net income was S/28.6 million, down 46.5% from S/53.5 million reported in 2022. |
| • | ASB Bank Corp.’s net income was S/132.8 million, up by 154.4% from S/52.2 million reported in 2022. |
| • | Total assets under management in the Asset management business were S/72,728 million as of December 31, 2023, up from S/68,124 million as of December 31, 2022. |
| • | Total assets under management in the Wealth Management business was S/62,592 million in 2023, compared to S/58,037 million in 2022. |
(2) Political and Macroeconomic Environment
Although Credicorp Ltd. is incorporated in Bermuda, the Group, through BCP Stand-alone, has been present in the Peruvian financial sector for over 130 years. It is important to note that most of the operations and customers of BCP Stand-alone, Prima AFP, Mibanco, and a significant part of Credicorp Capital’s and Grupo Pacífico’s operations and customers are located in Peru. In addition, although ASHC is based outside of Peru, a substantial number of its customers are also located in Peru. Therefore, our results of operations and financial health could be affected by political and economic changes or policies in Peru.
For further details, see “ITEM 3. KEY INFORMATION – 3.D Risk Factors – Our geographic location exposes us to risk related to Peruvian political, social and economic conditions”.
Political Environment
Historically, Peru has experienced political instability, including domestic terrorism, military coups, and a succession of regimes that featured heavy government intervention. In 1995, when Credicorp was established, President Alberto Fujimori was re-elected, despite the administration being accused of authoritarian behavior, which included dissolving Peru’s congress in 1992 and crafting a new constitution in 1993. In 2000, Fujimori was ousted and succeeded by a transitional government led by Valentin Paniagua, who called for elections to be held in April 2001.
The presidents who have been elected since 2001 include Alejandro Toledo, from 2001 to 2006; Alan Garcia, from 2006 to 2011; Ollanta Humala from 2011 to 2016; and Pedro Pablo Kuczynski, whose term began in 2016 and was set to end in 2021. Since early 2017, Peruvian prosecutors have been investigating former and current local officials for allegedly accepting bribes from Odebrecht, a Brazilian construction company implicated in the Lava Jato investigation. In the midst of this investigation, in December 2017, Peru’s congress proposed a motion to remove the president; however, the motion failed to gain the required 87 votes for approval. In March 2018, the congress presented a second motion to remove the president. On March 21, 2018, President Kuczynski resigned amid political turmoil. His resignation was accepted on March 22, and on March 23, 2018, Martin Vizcarra, Kuczynski’s former vice-president, took office as President for a term ending on July 28, 2021.
Under President Vizcarra’s term, political turmoil continued. On December 9, 2018, a nationwide referendum was held to address the following issues: (i) ban re-election of members of Peru’s congress, (ii) reforms regarding financing for political parties, (iii) a reform of the judiciary system, and (iv) return to the bicameral parliamentary system. All the reforms, other than the bicameral parliament, were approved. Moreover, President Vizcarra dissolved the congress on September 30, 2019, after it delivered two votes of no-confidence to two different cabinets during the same presidential term and called for parliamentary elections on January 26, 2020. Hours after Vizcarra’s decision, the congress responded by approving his suspension of presidential functions, and the vice president, Mercedes Araoz, was sworn in as President. On January 15, 2020, the Constitutional Court ruled (by 4 votes to 3) that the dissolution of Peru’s congress was constitutional. The parliamentary elections of January 2020 delivered a new congress with a plan to carry out its functions until July 2021. After a first presidential vacancy motion failed in September 2020, in November 2020, the congress presented a second presidential vacancy motion based on corruption allegations against Vizcarra in his term as a Regional Governor from 2011 to 2014. The motion succeeded, with 105 votes cast in favor. On November 10, 2020, Manuel Merino, president of Peru’s congress, assumed control of the government. This political move generated riots across the country, mainly in Lima and particularly among the young adult population. On November 15, 2020, President Merino resigned, amid extremely high political turmoil and uncertainty that had not been seen in Peru in 20 years. Peru’s congress elected a new Directive Board led by Francisco Sagasti, and on November 16, 2020, Sagasti assumed the presidency for a term set to end on July 28, 2021.
In 2021, the political environment worsened after Pedro Castillo, of the far-left party Peru Libre, won the presidential elections with 50.13% of the votes on the second round against Keiko Fujimori, daughter of the former president Alberto Fujimori. It was the third consecutive loss for the presidential candidate Fujimori. These results brought about an important fragmentation of Peru’s congress, with 10 political parties becoming part of the congress’s composition. This fragmentation of political forces was noted by all major rating agencies. According to Fitch Ratings report of December 2022, severe tensions between the president and congress had produced a gridlock and hampered government effectiveness. Also, risk perception and political and regulatory uncertainty in Peru increased following continuous messages from the executive promoting greater state control of the economy, changes towards a new system of universal pension plans, the expropriation of various mining and hydrocarbon operations, and a new constituent assembly. As a result of this risky and uncertain environment, in the second quarter of 2021, short-term capital outflows reached an all-time peak of 13.2% of GDP. Additionally, in September 2021, the credit rating agency Moody’s reduced Peru’s foreign-currency long-term debt credit rating to Baa1 from A3 and changed the country’s outlook level from negative to stable. In October 2021, the rating agency Standard and Poor’s kept Peru’s credit rating at A- but lowered the outlook to negative from stable.
Between July 2021 and December 2022, Castillo appointed 5 prime ministers and named more than 70 other governmental ministers. At the end of year 2022 and the beginning of 2023, Peru experienced one of its worst social and political crises in decades after a failed coup attempt on December 7, 2022, by former president Pedro Castillo, triggered and exacerbated massive protests. On the day of a debate by Peru’s congress on a third motion to impeach Castillo, in a message to the Nation, Castillo announced the temporary dissolution of Peru’s congress, the execution of new elections for a congress with constituent powers, and the restructuring of the justice system. The police and armed forces released a joint statement saying they respected the constitutional order and key members of Castillo’s government spoke out in rejection of the coup. The same day Peru’s congress voted to remove him from office due to moral incapacity, and Castillo was arrested under charges of rebellion and conspiracy and is currently in jail. In turn, Vice President Dina Boluarte was sworn in as Peru’s first female president.
Since Boluarte took office, social unrest exacerbated and erupted, mainly in the southern regions of Peru, where Castillo had an important base and followers. Protests were violent; at least sixty people died between civilians, police and military during social demonstrations, there were several road blockages and various regional airports had to suspend operations temporarily as infrastructure was damaged. As such, they negatively affected the tourism, hospitality, transportation, construction and retail sectors. Some mining operations were also disrupted as they faced road blockages and lack of supplies These protests ended in February 2023, and since then other attempts of social protest have not gained much traction. However, there is no assurance as to when our country could face similar social unrest.
Boluarte initially appointed a cabinet, led by former state prosecutor Pedro Angulo, whose members were widely regarded as technocratic but with limited political capacity. On December 21, 2022, Boluarte reshuffled her cabinet and promoted the country’s Defense Minister, Alberto Otarola, to Prime Minister. Mr. Otarola is a lawyer from Ancash with prior public policy experience as Minister of Defense during the presidency of Ollanta Humala. Alex Contreras, an orthodox economist with more than 15 years of public policy experience, was ratified as the new head of the MEF.
More recently, in February 2024, President Boluarte announced changes to her Ministerial cabinet. She replaced four ministers (Economy and Finance, Energy and Mines, Environment and Defense). Jorge Arista was sworn in as a replacement for Alex Contreras in the Ministry of Economy and Finance. Arista began his career in the public sector in 1990 when he was the National Director of Public Budget at the Ministry of Economy and Finance. Since then, Arista has held various key roles in public administration; he served as Deputy Minister of Finance under the government of Alan García, was regional president of Amazonas (his native region) between 2011-2014, Minister of Agriculture and Irrigation during the government of Pedro Pablo Kuczynski and Minister of Economy and Finance during the short-lived presidency (5 days) by Manuel Merino. In the Ministry of Energy and Mines, Rómulo Mucho, who replaced Oscar Vera, served as Deputy Minister of Mines (2005-2006) during the government of Alejandro Toledo. During this period, he facilitated, mediated, and negotiated socio-environmental conflicts involving companies such as Tintaya, Majaz, Las Bambas, and Yanacocha.
Days later, on March 5, 2024, Prime Minister, Alberto Otárola, resigned over allegations of influence-peddling. Gustavo Adrianzén, was sworn in as his replacement; he is specialized in human rights and most recently served as Peru’s ambassador to the Organization of American States.
On April 1, 2024, President Dina Boularte reshuffled her cabinet again, just days before the new prime minister, Adrianzen, heads to Congress to request a vote of confidence in the cabinet. Boularte appointed 6 new ministers: Sergio Gonzáles as Minister of Production, Walter Ortiz as minister of the Interior, Morgan Quero as minister of Education, Elizabeth Galdo as Minister of Foreign Trade and Tourism, Jennifer Contreras as Minister of Agrarian Development and Irrigation, and Angela Hernandez as Minister of Women and Vulnerable Populations. On April 3, 2024 the renewed Cabinet obtained the confidence vote from Congress.
On March 6, 2024, the Peruvian Congress approved, by more than the required two thirds, a majority proposal to introduce a 60-seat senate to the current unicameral setup of the legislative branch. It also approved allowance of consecutive legislative reelection. According to Moody’s, the constitutional overhaul aims to curve the excessive power Congress has and the reform will introduce new checks and balances.
Macroeconomic Environment
The adoption of market-oriented macroeconomic policies since the early 1990s, and two decades of strong macroeconomic fundamental outlook for Peru’s economy along with credit rating improvements (reached investment grade in 2008) allowed the country to grow at an average annual rate of 4.9% from 2001 to 2019, according to data from the BCRP. Between 2001 and 2013, the Peruvian economy, on average, outperformed the global economy primarily due to favorable metal prices and financial conditions. Nonetheless, since 2014, the Peruvian economy has been affected by several economic shocks such as the decline in metal prices, the contraction of public investment, the El Niño Phenomenon of 2017 and 2023, the Lava-Jato corruption investigations, the COVID-19 pandemic, higher inflation due to global factors, and political turmoil. As such, the average annual growth rate for the Peruvian economy from 2014 through 2019, before the global COVID-19 pandemic, stood at 3.1% and remained among the highest of the Latin American region economies. After the pandemic shock of 2020, the economy rebounded 13.4% in 2021 and grew 2.7% in 2022. In 2023, affected by multiple shocks (social protests of the beginning of the year and weather events as the cyclone Yaku and “Coastal El Niño”), GDP fell 0.6%, its worst performance since 1990 (-5.0%), excluding the pandemic.
Peruvian economic policy has been based on three main pillars: trade policy, fiscal policy and monetary policy. Peru has maintained an open trade policy for more than two decades. Some examples of Peru’s open trade policy include free trade agreements with the United States in effect since 2009, with China since 2011, with the European Union since 2013, and with Chile, Colombia and Mexico in the Pacific Alliance. In addition, after the withdrawal of the United States from the TPP, the remaining Pacific Rim countries, including Peru, entered into the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership in 2018.
Peruvian policymakers have kept a conservative and prudent approach to fiscal policy and government spending, and Peru’s fiscal policy has evolved since 1999 to promote sound macroeconomic fundamentals. Peru’s public debt-to-GDP ratio fell from 51.5% in 1999 to 26.6% in 2019 (pre-pandemic) as the government cut spending and privatized most state-run enterprises. Peru’s fiscal position also benefited from the accumulation of surpluses in various years in the period from 2004 to 2013, which helped Peru face the pandemic in 2020 and 2021. After the COVID-19 shock which lead the fiscal deficit to increase to 8.9% of GDP, the fiscal deficit fell to 2.5% of GDP in 2021 and to 1.6% of GDP in 2022. In 2023, It increased to 2.8% of GDP explained, to a greater extent, by the fall in fiscal revenues from 22.1% of GDP to 19.8% of GDP. The ratio of public debt to GDP stood at 32.9% in 2023, one of the lowest in emerging markets.
In 1999, the government approved the Law of Responsibility and Fiscal Transparency (Law No. 27245), which included a set of macroeconomic fiscal rules that gradually evolved in the years leading up to 2019. In 2016, the legislative decree No 1276 included as main rules: (a) the fiscal deficit must not exceed 1% of GDP; (b) public debt cannot exceed 30% of GDP (established by Law No. 30999 in 2013). In exceptional cases of financial volatility, and only if other fiscal rules are met, a temporal deviation of 4 percentage points of GDP is allowed; (c) the real growth rate of non-financial spending by the government is limited by long-run real GDP growth of the economy (+/- 1 %). Compliance with this rule assumes mutual compliance with the two prior fiscal rules; and (d) current spending by the government, excluding for maintenance, cannot exceed the long-run real GDP growth of the economy (-1%). Amid the COVID-19 pandemic, fiscal rules were suspended exceptionally for the years 2020 and 2021, by Legislative Decree No.1457, published on April 12, 2020. In 2021, by Urgency Decree N° 079-2021, the rules for 2022 were established: (i) a cap of 3.7% of GDP for the fiscal deficit and (ii) a limit of 38.0% of GDP for the public debt. In April 2022, a bill setting the fiscal rules for the following years was approved by congress. This bill included the following as its main rules: (i) the fiscal deficit should not exceed 2.4% of GDP in 2023, 2.0% of GDP in 2024, 1.5% of GDP in 2025 and 1.0% of GDP starting 2026 onward; and (ii) public debt should not be higher than 38.0% of GDP, and in a maximum timeframe of 10 years, public debt should be below 30.0% of GDP. Hence, the fiscal debt ceiling was surpassed in 2023 due to the contraction of GDP, and the fiscal council warned that the failure to comply with the fiscal deficit rule could generate a problem of credibility regarding fiscal policy, an essential element to attract private investment and promote macroeconomic stability.
On the topic of Peru’s monetary policy, the BCRP obtained its constitutional independence in 1992 and officially presides over a reserve banking system. The BCRP Board of Governors is composed by 7 members; the executive and legislative branch choose three each, and the president is designated by the executive power and ratified by the Congress permanent commission. The actual president, Julio Velarde, has held this position since October 2006. Regarding the inflation targeting scheme adopted by the BCRP in 2002, the BCRP established an inflation target of 2.5% (+/- 1%). In 2007, the target was reduced to 2.0% (+/- 1%), among the lowest in Latin America, reflecting the BCRP’s commitment to price stability. The BCRP has foreign reserves that, at the end of 2023, totaled US$71.0 billion (approximately 27% of Peru’s GDP), among the highest levels worldwide. As of December 31, 2024, net foreign reserves totaled at US$71.0 billion. The BCRP also has other mechanisms to provide liquidity to Peru’s domestic financial system. In coordination with the SBS, the BCRP also sets regulations for the financial system, including pension funds. The SBS is the entity in charge of regulating all financial institutions, insurance companies and pension funds administrators.
Regarding the exchange rate, the BCRP abandoned its exchange rate peg (also known as a fixed exchange rate) in August 1990 and moved to a so-called dirty floating exchange rate regime (also known as a managed float). Since its inception, the dirty floating exchange rate regime has been subject to intervention by the central bank to smooth out exchange rate volatility. One key motivation to intervene in this manner in the FX market is Peru’s high degree of financial dollarization, although it has been on a clearly decreasing path. The loans financial dollarization (loans denominated in US dollars as a percentage of total loans) has decreased from 80.5% in December 2000 to 43.9% in December 2010 and to 23.3% in December 2023. BCRP’s current dirty floating exchange rate regime pursues a discretionary type of intervention, based on daily assessments of FX market conditions.
For further information, see “Item 4.B Business Overview – (6) Supervision and Regulation – 6.2 Subsidiaries – 6.2.1 Peru”.
Macroeconomic Results
In 2020, the global economy was shocked by the COVID-19 pandemic, which led to historical economic contraction, amid the effects of quarantines implemented to mitigate contagion. Lower revenues and higher spending significantly weakened fiscal accounts, resulting in higher fiscal deficits as percentages of GDP not seen in decades. This plus a complex political environment resulted in credit rating downgrades. In that context, in 2020, the Peruvian economy contracted 10.9%. In December 2020, Fitch revised Peru’s sovereign credit rating outlook in long-term foreign currency from Stable to Negative while affirming its BBB+ rating. According to Fitch, Peru has a negative outlook due to a weakened government balance sheet and a deterioration of policy predictability, as congressional populist measures were adopted. Fitch’s reasoning was that the weakening of political cohesiveness and other political institutions since 2016 had undermined the government’s capacity to adopt wide-ranging fiscal, political, and productivity-enhancing economic reforms.
In 2021, despite a highly fragmented political environment that resulted in weak business expectations, the Peruvian economy rebounded 13.4%, showing strong resilience helped by the reopening of the economy, the government public credit guaranteed program “Reactiva Peru”, an acceptable vaccination process and historically high terms of trade as commodity prices rallied (such as the average price of copper increasing 51% compared to 2020). Other factors that contributed to the rebound were: (i) the disposal of savings from pension funds accounts and (ii) expansionary monetary (BCRP cut its policy rate to a minimum of 0,25%) and fiscal policies. In the last quarter of 2021, Peru’s GDP recovered to pre-pandemic levels.
In 2022, the economy slowed down to 2.7%, as private investment fell, business confidence remained low and policy stimulus was withdrawn. However, private consumption remained strong, especially in the first half of 2022, driven by the release of pent-up demand, the recovery of employment and availability from savings in AFPs and Severance Indemnity deposits. In the second half of 2022, the rebound in consumption after the acute effects of the COVID-19 pandemic faded and was limited almost entirely to inbound tourism from abroad.
In 2023, GDP fell 0.6%, the worst performance of the Peruvian economy since 1990 (-5.0%), excluding the pandemic. Several factors explained this contraction. Among the most important, social conflicts and the El Niño Costero weather phenomenon reduced GDP growth by almost two percentage points, according to the BCRP. In addition to these factors, the Peruvian economy was also affected by: (i) inflation that remained high (especially the food component) despite the recent slowdown, (ii) real wages that remained below pre-pandemic levels, (iii) real interest rates at two-decade highs due to the Central Bank’s effort to control inflation, (iv) political uncertainty, and (v) absence of new large projects for private investment. Domestic demand fell 1.7% due to the drop of 7.2% in private investment (lack of large new projects after the entry into production of Quellaveco mine, which meant an investment of US$5.5 billion) and private consumption that grew just 0.1%, its worst record since 1999, excluding the pandemic.
Inflation became a global issue, as almost every country in the world grappled with soaring prices in 2022. In 2023, inflation fell faster than expected in most regions due to the unwinding of supply-side issues, falling oil and agricultural prices and restrictive monetary policies. In Peru, the weakness of domestic demand also had a role in reducing inflation; measured using the consumer price index (CPI), inflation fell from a peak of 8.8% (highest in 26 years) in June 2022 to 3.2% in December 2023 due to the reversal of supply shocks in the agricultural sector of the beginning of the year, normalization of global supply chains and lower commodity prices (2023 average; wheat: -28%, corn: -18%; soy: -8% and crude oil: WTI -17%). Core inflation (excludes food and energy) closed the year 2023 at 2.9% YoY after reaching a peak of 5.9% in May 2023, returning to the BCRP target range of between 1% - 3% after two consecutive years of surpassing it, among one of the first countries where core inflation returned to target.
In 2022, to avoid the de-anchoring of inflation expectations and to return inflation to its target range, the BCRP adopted an aggressive hiking rate cycle, as did most developed and emerging countries. The BCRP increased its monetary policy rate from 0.25% in July 2021 to 7.75% (historical high) in January 2023. Between February and August, the BCRP opted to keep the rate stable at 7.75%. In September, the rate cut cycle began with a reduction of 25 basis points to 7.50%, a movement that was followed by five consecutive monthly cuts to 6.25% in February 2024. Thus, as of February 16, the cumulative cuts total 150 basis points. According to the BCRP monetary policy statements, the decision of cutting its rate does not imply, necessarily, a successive cycle of interest rate reductions. Hence, future policy rate adjustments will be conditioned to new incoming information regarding inflation and its determinants.
Regarding the members of the BCRP Board of Directors, in October 2021, Peru’s newly elected government and congress ratified Julio Velarde as the BCRP’s president (a position that he has held since 2006) and elected three of the six directors on the Board to join Velarde: the economists Roxana Barrantes, José Távara and Germán Alarco. Congress appointed the other three directors: Carlos Oliva (ex-Minister of Finance), Diego Macera and Marylin Choy. The Board of the BCRP is made up of 7 members: 1 president of the Board of directors and 6 directors. The executive branch appoints the chairman of the board and three directors, while the congress appoints another three directors and ratifies the BCRP’s president.
In Peru, the current account balance improved from a deficit of 4.0% of GDP at the end of 2022 to a surplus of 0.6% of GDP in 2023, the best result in 16 years excluding the pandemic. This reduction responded, mainly, to the increase in the trade balance surplus from US$10.3 billion in 2022 to US$ 17.4 billion in 2023, a historical high. Imports fell 11.0% due to domestic demand weakness and lower food commodity prices, while exports rose 1.5%. Additionally, the lowest current account deficit was explained by the fall of freight costs, lower profits of the companies with foreign direct investment and higher flows of remittances from abroad. Additionally, terms of trade grew 5.3% YoY in 2023, due to a decrease of 6.8% of import prices (lower oil and food prices), larger than the decrease of 1.9% of export prices (minerals and hydrocarbons). In December 2023, the terms of trade index stood at 115.1, just 3% below the all-time high reached in June 2021.
According to BCRP, the exchange rate closed the year 2023 at USDPEN 3.71, an appreciation of 2.7% with respect to the end of 2022. In October, the exchange rate weakened towards USDPEN 3.88, close to the highest level of the year of USDPEN 3.90 reached in January, due to the increase in the US 10-year treasury yield to its highest since 2007. In the Latin-American region, the Colombian Peso, the Mexican peso, and the Brazilian real appreciated 20.1%, 12.8% and 9.5%, respectively, while the Chilean Peso depreciated 3.6% on behalf of the aggressive monetary easing cycle. The foregoing occurred in a year when the global dollar (DXY index) weakened 0.5% (year average) due to the expectation of the end of the Federal Reserve’s rate hike cycle.
The Exchange rate is still far from its historical high of USDPEN 4.14 reached in October 2021 amid the political instability caused by Pedro Castillo’s government.
In this context, in 2023, the BCRP sold US$81 million in the spot market, much less than the US$1.2 billion sold in 2022, and the record of US$11.6 billion sold in 2021. Outstanding FX swaps increased from PEN 38,100 million in 2022 to S/45,176 million. International reserves closed the year 2023 at US$71.0 billion, approximately 27% of GDP, one of the world’s highest percentages, compared to US$71.9 billion in 2022.
At the beginning of 2024, depreciation pressures towards emerging market currencies revived after hawkish comments from the FED pushed back market expectations of rate cuts. The market has reduced the number of 25 basis points rate cuts expected for this year from 7 in December 2023 to 4 in February 2024. As a result, Latin-American currencies have weakened, including the USDPEN that depreciated 3.1% between December 2023 and February 16, 2024. Accordingly, between February 2 and February 16, the BCRP has actively intervened in the spot market. It has sold USD every day except for two and has accumulated USD sales of US$223 million.
With respect to the fiscal accounts, post-COVID Peru did a remarkable effort to return the deficit to acceptable levels, decreasing its deficit from 8.9% of GDP in 2020 to 2.5% in 2021 and to 1.7% in 2022, among the lowest ratios in the region. However, in 2023, the fiscal deficit rose to 2.8% of GDP due to lower revenues. As a percentage of GDP, current fiscal revenues fell from 22.1% in December 2022 to 19.8% one year later, while non-financial spending fell from 22.0% to 20.9% in the same period. We believe solid fiscal performance within the framework of responsibility and sustainability is one of Peru’s strongest fiscal fundamentals. This strategy supports the low public debt-to-GDP ratios that the Peruvian economy has exhibited over the last years, also among the lowest ratios in the region (32.9% of GDP in 2023). However, in 2023, the fiscal deficit rule of 2.4% of GDP was breached, and the fiscal council warned that the failure to comply with the rule could generate a problem of credibility regarding fiscal policy, an essential element to attract private investment and promote macroeconomic stability.
In January 2023, Moody’s changed Peru’s credit rating outlook from stable to negative (kept the rating at Baa1) due to the intensification of social and political risks which threatened, over the next few years, a deterioration in institutional cohesion, governability, policy effectiveness and economic strength through successive governments. Months later, in October 2023, Fitch affirmed the sovereign rating (BBB) and outlook (negative). The movement came one year after changing the outlook to negative. The agency stated that the negative outlook reflected continued high level of political uncertainties in Peru and further deterioration in governance that have undermined private investment and are weighing on economic growth prospects. In February 2024, S&P reaffirmed its BBB rating with negative outlook. Hence, the three credit rating agencies assign a negative outlook on Peru’s rating. And, S&P and Fitch have the rating two-steps above investment grade.
| Macroeconomic Indicators for Peru | 2020 | 2021 | 2022 | 2023 |
| GDP (Millions of US Dollars) | 205,933 | 226,140 | 245,209 | 268,027 |
| Real GDP (% change) | (10.9) | 13.4 | 2.7 | (0.6) |
| Inflation | 2.0 | 6.4 | 8.5 | 3.2 |
Reference Rate | 0.25 | 2.50 | 7.50 | 6.75 |
Fiscal Balance (% GDP) | (8.9) | (2.5) | (1.7) | (2.8) |
Public Debt (% GDP) | 34.6 | 35.9 | 33.8 | 32.9 |
Financial System Loans (% change) | 12.9 | 7.0 | 3.1 | (0.8) |
Current Account Balance (% GDP) | 1.1 | (2.2) | (4.0) | 0.6 |
Exchange rate, end of period | 3.62 | 3.99 | 3.81 | 3.71 |
Exchange rate, (% change) | 9.4 | 10.2 | (4.5) | (2.7) |
In 2021, the Ministry of Finance successfully issued global bonds in March and October/November, denominated in USD and Euros. In March 2021, the Public Treasury issued the following USD-denominated bonds: (i) US$1.75 billion through the reopening of the 2031 bond and (ii) US$1.25 billion in bonds maturing in 2041 and US$1 billion in bonds maturing in 2051. It also issued EUR 825 million in a 2033 bond. Between October and November 2021, the Public Treasury issued USD-denominated bonds with a reopening in 2051 for US$750 million and two new sustainable bond references maturing in 2034 for US$2.25 billion and in 2072 for US$1 billion; in addition, it issued a new social bond reference maturing in 2036 for EUR 1 billion. In total, the Public Treasury issued US$8 billion and EUR 1.85 billion in global bonds. The March issuance, at a competitive cost, was intended to finance the financial requirements set forth in the Public Sector Budget Law for Fiscal Year 2021, a bill passed in late 2020 by Peru’s congress in order to address the budgetary needs of the country. The October/November issuances were intended to finance the country’s fiscal needs for 2022.
In 2022, the Ministry of Finance did not issue bonds in international markets.
In 2023, the Public Treasury returned to the international markets with a successful bond issuance in local currency, something not seen since 2019. In June, the government issued S/9,185 million (equivalent to approximately US$2,500 million) of its first sustainable bond in soles with a 10-year maturity (2033). The issuance of this new bond, which constitutes a new 10-year reference, was characterized by a large demand (around S/. 20,000 million at its best) that pushed rates lower (7.35%) below the initial offering (7.70%). According to the Minister of Economy and Finance, Alex Contreras, with this debt issuance investors recognize the strength and resilience of the Peruvian economy, its solid macroeconomic fundamentals, and the responsible management of its fiscal accounts. It was the largest operation in local currency, so far that year, in Latin America.
| Macroeconomic Indicators 2023 | Bolivia | Colombia | Chile | Panama |
| Real GDP (% change) | 2.2 | 0.6 | -0.2 | 7.3 |
| Inflation | 2.1 | 9.3 | 3.9 | 1.9 |
| Reference Rate | N.A. | 13.00 | 8.25 | N.A. |
| Public Debt (as % GDP) | 83.5 | 64.1 | 36.0 | 55.2 |
| Exchange rate, end of period | 6.96 | 3,875 | 881 | N.A. |
| Exchange rate, (% change) | 0.0 | (20.1) | 3.6 | N.A. |
N.A. – Not Applicable
In Bolivia, GDP slowed down to around 2.0% in 2023, according to local estimates, in a context of persistent fiscal imbalances, limited access to external financing, continued decline in international reserves and greater exchange rate uncertainty. Moreover, since February 2023, the country faced an increasing demand for dollars which demanded the adoption of several measures from the Central Bank such as: direct sale of dollars to the public, reduction of cash reserve requirements of USD denominated deposits, exchange of around 90% of its holdings of Special Drawing Rights (SDR) with the International Monetary Fund and monetization of gold reserves. The government also negotiated new loans with multilateral and bilateral entities. Despite these measures, Banks were forced to establish different types of limits for cash withdrawals and to increase fees charged for foreign transfers. As such, the exchange rate in the parallel market stands above the official one (USDBOB 6.96) by around 20% - 30% as of February 2024. International reserves, as of December 2023, were US$1.7 billion, 55% less than at the end of 2022. Additionally, a trade deficit of around 1.0% of GDP resulted from lower commodity prices (energy and agricultural) and lower gas production. Inflation, as well as in most parts of the world, slowed from 3.1% at the end of 2022 to 2.1% in 2023. Fiscal imbalances persisted, with a deficit around 7% of GDP and public debt above 80% of GDP at year-end 2023. In this challenging economic and political environment, in June 2023, Moody’s reaffirmed its rating at Caa1 but changed the outlook to negative; this movement came after cutting its rating in March 2023 from B2 to Caa1. In November 2023, S&P cut Bolivia’s credit rating by one notch, to CCC+ with negative outlook. Lastly, Fitch followed suit and, in February 2024, lowered the rating by two notches to CCC.
Colombia’s GDP slowed to 0.6% in 2023 after growing at one of the highest rates in 2022 (7.3%) as domestic demand registered its worst contraction since the national financial crisis of 1999 (excluding the pandemic). Private consumption continued to adjust after two previous years of unsustainable growth, private investment fell sharply and public spending barely grew amid budget under-execution by the Central Government. High inflation (9.3% YoY in December 2023) reduced consumers real income, while higher corporate taxes resulting from the 2021 and 2022 tax bills plus higher political uncertainty have weighed on private consumption and investment. The monetary policy stance remained restrictive as the Central Bank continued raising its rate from 12% at the end of December 2022 to 13.25% in April 2023; in the following months, they kept the rate stable until December when they decided to reduce its rate by 25 basis points to 13%, later than other Latam Central Banks. Regarding fiscal accounts, although the fiscal deficit was better than expected in 2023 (-4.2% of GDP), worries remain concerning the elevated levels of public debt (64% of GDP). Moody’s and Fitch, in 2023, made no changes to their sovereign credit rating nor to its stable outlook; only Standard and Poor’s made a move in February 2023 by changing the outlook to negative amid subdued economic growth. Fitch and S&P assign Colombia a speculative grade rating. Finally, the exchange rate closed 2023 with an appreciation of 20.1% (end of period) after significantly weakening in 2022 when it reached a historic high.
In Chile, the economy fell 0.2% in 2023, according to preliminary estimates. The performance of the Chilean economy has been related to a slowdown in household consumption and sluggish investment amid weak construction linked to the housing and real estate segment. Inflation stood at 3.9% YoY in December 2023, below 12.8% YoY a year ago; price adjustments have continued to recede amid the resolution of macroeconomic imbalances, the reduction of its current account deficit, the closing of the output gap, the normalization of aggregate demand after an unsustainable trend between 2021 and 2022, and the fading of cost-related shocks observed in the past few years. Regarding the fiscal accounts, the latest Public Finances Report showed that in 2023, the fiscal deficit would stand at 2.3% of GDP, while gross debt was forecasted at 38.2% of GDP. Finally, political noise and uncertainty have dropped after the rejection of the second constitutional plebiscite in December 2023 and the high probability of no new constitutional processes during the remainder of the current administration. In any case, the developments around the pension and tax reforms discussion are factors worth monitoring.
In 2023, Panama’s economic activity surprised to the upside with annual GDP growth of 7.3%. Large infrastructure and investment projects boosted growth. This happened even though Panama suffered its worst drought in 70 years due to “El Niño” weather phenomenon which disrupted activities in the Panama Canal. Looking forward, negative events, in addition to the massive social protests of 2022 and 2023 (largest in at least three decades), are expected to affect the outlook for the coming years. On November 28, Panama’s Supreme Court ruled the renegotiated contract between the government and Minera Panama unconstitutional, which meant the closure of the First Quantum’s copper mine. The importance of the mine to the country was undeniable: it was the largest private investment project in the country’s history with an amount equivalent to 10% of GDP, it was among the top 15 copper producing mines in the world and it generated around US$2.8 billion (3.7% of GDP) through copper exports. Additionally, at the beginning of November, Panamanian president Laurentino Cortizo signed into law an indefinite moratorium on new mining concessions and the prohibition of renewing existing concessions. As such, in an already challenging fiscal environment (public debt as a percentage of GDP: 55% in 2023), these events triggered movements from the main three credit rating agencies in the last quarter of 2023 and first quarter of 2024. In March, Fitch stripped Panama’s from its investment grade credit rating by lowering its rating from BBB- to BB+ with stable outlook. Moody’s placed Panama’s credit rating at the lowest possible scale for a security to be considered investment grade, with S&P one notch above it.
For further information, see “ITEM 3. KEY INFORMATION – 3.D Risk Factors – “Economic and market conditions in other countries may affect the Peruvian economy and the market price of Peruvian securities” and “Our business and results of operations could be negatively impacted by the pandemic virus (include COVID-19) outbreak or other public health crises beyond our control.
(3) Material accounting policies
3.1 Basis of presentation, use of estimates and changes in accounting policies
The accompanying consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB. For further details, refer to Notes to the consolidated financial statements, “3. Material Accounting Policies, a) Basis of presentation, use of estimates and changes in accounting policies”.
3.2 Consolidation
The consolidated financial statements comprise the financial statements of Credicorp and its controlled subsidiaries for all the years presented. Control is achieved when Credicorp is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. For further details refer to Notes to the consolidated financial statements, “3. Material Accounting Policies, c) Basis of Consolidation.”
3.3 Functional, presentation and foreign currency transactions
Functional and presentation currency
Credicorp and its Subsidiaries operating in Peru consider the Peruvian Sol to be their functional and presentation currency since it reflects the nature of the economic events and relevant circumstances for most of the Group’s entities, taking into account their major transactions and/operations. These include: loans granted, financing obtained, sale of insurance premiums, interests and similar income, interest and similar expenses, as well as a significant percentage of their purchases. These transactions and/or operations are agreed to and settled in Soles.
Transactions and balances in foreign currency
Foreign currency transactions are those entered into in a currency other than the functional currency. These transactions are initially recorded by the Group’s entities at the exchange rates of their functional currencies at the transaction dates. For further detail refer to Notes to the consolidated financial statements, “3. Material Accounting Policies, d) Functional, presentation and foreign currency transactions”.
3.4 Recognition of income and expenses from banking activities
Effective interest rate method:
Interest income is recorded using the effective interest rate (EIR) method for all financial instruments measured at amortized cost and at fair value through other comprehensive income. Interest expenses corresponding to the liabilities measured at amortized cost are also recorded using the EIR.
The EIR is the rate that discounts future cash flows that are estimated to be paid or received during the life of the instrument or a shorter period, if appropriate, to the gross carrying amount of the financial asset or financial liability. The EIR (and, therefore, the amortized cost of the financial asset or liability) is calculated by taking into account any discount, premium and transaction costs that are an integral part of the EIR of the financial instrument, without including the expected credit loss.
Interest income and expenses:
The Group calculates interest income by applying the EIR to the gross carrying amount of those financial assets that are not impaired.
When a financial asset becomes impaired and, therefore, is considered in Stage 3 (as set out in Note 3(j) to the consolidated financial statements), the Group calculates interest income by applying the EIR to the carrying amount of the asset, net of its provision for credit loss. If the criteria for the recognition of the financial asset in Stage 3 are no longer met, the Group recalculates interest income in gross terms.
Interest income and expenses accrued from all financial instruments that generate interest, including those related to financial instruments carried at fair value through profit or loss, are recorded under the heading “Interest and similar income” and “interest and similar expenses” of the consolidated statement of income.
Dividends
Dividends are recorded as income when they are declared.
Commissions and fees
Income from commissions (which are not an integral part of the TIE) and fees are recognized as they are earned. Commissions and fees include, among others, the commission charged for the banking service in general such as account maintenance, shipping, transfers, loan syndication fees and fees for contingent credits.
Income from commissions and fees is recognized at an amount that reflects the consideration to which the Group expects to be entitled in exchange for providing the services. Performance obligations, as well as the timing of their satisfaction, are identified and determined at the time of contract. The Group’s revenue contracts do not include multiple performance obligations.
When the Group provides a service to its clients, the consideration is invoiced and generally collected immediately after the provision of a service at a given time or at the end of the contract period for a service provided over time.
The Group has generally concluded that it is the principal in its revenue arrangements because it normally controls the services before transferring them to the client.
Non-interest income and expenses
All non-interest income and expenses are recorded in the period in which the performance obligation is satisfied or the expense has ocurred.
3.5 Insurance activities
Due the adoption of IFRS 17, the accounting policy related to insurance activity has changed applying for annual periods beginning on January 1, 2023, and the 2022 restated information.
For further details refer to Notes to the consolidated financial statements, “3. Material Accounting Policies, f) Insurance activities”.
3.6 Financial Instruments: Initial recognition and subsequent measurement
The Group classified financial assets in one of the categories defined by IFRS 9: financial assets at fair value through profit or loss, at fair value through other comprehensive income and at amortized cost, based on:
| ◾ | The business model for managing the financial assets and |
| ◾ | The characteristics of the contractual cash flows of the financial asset. |
The business model explains how the financial assets are managed to generate cash flows and does not depend on Management’s intention regarding to an individual instrument. Financial assets can be managed for the purpose of: (i) obtaining contractual cash flows; (ii) obtaining contractual cash flows and sale; or iii) others. In order to evaluate a business model, the Group considers the risks affecting the performance of the business model and the manner in which the performance of the business model is evaluated and reported to Management. If the cash flows are carried out in a manner other than what is expected by the Group, the classification of the remaining financial assets in this business model is not modified.
When the financial asset is held in business models i) or ii), it requires the application of the “Solely Payments of Principal and Interest” (SPPI) test. This test evaluates the cash flows generated by a financial instrument in order to verify if the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest. In order to conform to this concept, the cash flows must solely include the consideration of the time value of money and the credit risk. If the contractual terms introduce risk exposure or cash flow volatility, such as the exposure to changes in the prices of capital instruments or the prices of raw materials, the financial asset is classified at fair value through profit or loss. Hybrid contracts must be evaluated as a whole, including all the integrated characteristics. The accounting of a hybrid contract that contains an embedded derivative is carried out jointly; in other words, the entire instrument is measured at fair value through profit or loss.
The reclassification of financial assets will take place when the business model that manages the financial assets is changed. We expect this type of change to be rare. These changes are determined by approval of the Group’s management as a result of external or internal changes, which must be significant for the Group’s operations and demonstrable to third parties. Financial liabilities are never reclassified. When the Group changes its business model for the management of financial assets, it will reclassify all affected financial assets prospectively from the reclassification date. The Group will not restate previously recognized gains, losses or interest (including gains or losses due to impairment of value).
For further detail refer to Notes to the consolidated financial statements, “3. Material Accounting Policies, g) Financial instruments: Initial recognition and subsequent measurement”.
3.7 De-recognition of financial assets and financial liabilities
3.7.1 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) Credicorp 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 either Credicorp has transferred substantially all the risks and rewards of the asset, or Credicorp has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its right to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognize the transferred asset to the extent of the Group’s continuing involvement.
In that case, the Group also recognizes the associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of (i) the original carrying amount of the asset, and (ii) the maximum amount of consideration that the Group could be required to repay.
3.7.2 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 exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability. The difference between the carrying amount of the original financial liability and the consideration paid is recognized in the consolidated statements of income.
3.8 Offsetting financial instruments
Financial assets and liabilities made 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.
73.9 Impairment of financial assets
The Group applies a three-stage approach to measure the provision for credit loss, using an impairment model based on the expected credit losses as established in IFRS 9, for the following categories:
| • | Financial assets at amortized cost, |
| • | Debt instruments classified as investments at fair value through other comprehensive income, and |
| • | Indirect loans that are presented in off-balance accounts. |
Financial assets classified or designated at fair value through profit or loss and the equity instruments designated at fair value through other comprehensive income are not subject to an impairment evaluation.
Financial assets migrate through three stages according to the change in the credit risk from the initial recognition.
For further details, refer to Note 3(j) (Material Accounting Policies: Impairment of financial assets)” to the consolidated financial statements.
3.10 Business combination
Business combinations are accounted for using the acquisition method in accordance with IFRS 3 “Business Combination”, regardless of whether they are equity instruments or other acquired assets.
The acquisition cost is the sum of the consideration paid for the acquisition measured at fair value at the acquisition date and the amount of the share in the non-controlling interest acquired. For each business combination, the Group decides whether to measure the non-controlling interest in the acquire at fair value or at the proportional share in of identifiable net assets of the acquiree. Acquisition-related costs are recognized as expenses and are included as “Administrative expenses” in the consolidated statement of income.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for its own classification and denomination according to the contractual terms, economic circumstances and prevailing conditions at the date of acquisition. This includes the separation of embedded derivative contracts signed by the acquire.
Any contingency transferred by the acquirer is recognized at fair value at the acquisition date. The contingency classified as an asset or liability that is a financial instrument and is within the scope of IFRS 9 “Financial instruments” is measured at fair value with changes recognized in the consolidated statement of income or consolidated statement of comprehensive income. If the contingency is not within the scope of IFRS 9, it is measured in accordance with the applicable IFRS. A contingency that is classified as equity should not be measured again, and its subsequent settlement is accounted for within equity.
The acquisition of a non-controlling interest is recorded directly in net equity, and any difference between the amount paid and the acquired net assets is recorded as an equity transaction. Accordingly, the Group recognizes no additional goodwill after the acquisition of the non-controlling interest, nor does it recognize any profit or loss from the disposal of the non-controlling interest.
If there is a contractual obligation to acquire the shares of the non-controlling interest through a put option, the Group will initially recognize a liability at fair value through profit or loss equivalent to the market value of the non-controlling interest against the account “Reserves and others” in equity. After its initial recognition, the liability is measured at fair value, and changes are recorded in the income statement until the option is exercised. If the option expires without being exercised, the liability is derecognized by adjusting net equity.
Equity attributable to the non-controlling interest is shown separately in the consolidated statement of financial position. Profit attributable to the non-controlling interest is shown separately in the consolidated statement of income and consolidated statement of comprehensive income.
If a business combination is achieved in stages, the acquisition date and the value of the previous participation of the acquirer is measured again at a fair value at the date of acquisition. The gains or losses arising from such remedy are recognized in profit or loss. Likewise, in accordance with IFRS 3, from the date of acquisition of a company that isn’t under common control, the acquirer has a subsequent 12-month period to be able to adjust the initial recognition of goodwill.
Combinations of entities under common control
because it corresponds to a business combination in which all the entities or businesses that are combined are controlled, ultimately, by the same party or parties, before and after the business combination. In these transactions, the Group recognizes the assets acquired under the interest unification method, whereby the assets and liabilities of the combined companies are reflected at their book values and no goodwill is recognized as a result of the combination.
3.11 Goodwill
Goodwill is the excess of the aggregate of the consideration transferred over the fair value recognized for the acquisition of the net value of the identifiable net assets acquired and liabilities assumed. If the fair value of the net assets acquired exceeds the aggregate consideration transferred, then the gain is recognized in the consolidated statement of income.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units (CGUs) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to these units.
Where goodwill has been allocated to a CGU and part of the operation within that unit is disposed of, the goodwill and the assets disposed of are included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed of in these circumstances is measured based on the relative values of the disposed operation and the portion of the CGU retained.
Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. Where the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.
3.12 Impairment of non-financial assets
The Group assesses at each reporting date, whether there is an indicator that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of the value of the asset or the CGU less costs to sell and its value in use, and is determined for each individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets.
When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions, if any, are considered. If this type of transaction cannot be identified, an appropriate valuation model is used. These calculations are verified against valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.
For non-financial assets, excluding goodwill, an assessment is made at each reporting date of whether there is an indication that previously recognized impairment losses may no longer exist or may have decreased. If such an indication exists, the Group estimates the recoverable amount. 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.
The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed 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 consolidated statement of income.
3.13 Derivative financial instruments and hedge accounting
Credicorp negotiates derivative financial instruments in order to satisfy clients’ needs. Credicorp may also take positions with the expectation of profiting from favorable movements in prices, rates or indexes. Credicorp also uses derivative instruments to manage exposures to interest rates and foreign currency. In order to manage particular risks, Credicorp applies hedge accounting for transactions which meet the specified criteria. For further details about the accounting policies used for Derivative financial instruments, refer to “Note 3(u) (Material Accounting Policies: Derivative financial instruments and hedge accounting)” to the consolidated financial statements.
3.14 Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
- In the principal market for the asset or liability, or
- In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Group. Additionally, the fair value of a liability reflects its non-performance risk.
When available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
If there is no quoted price in an active market, then the Group uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs.
The chosen valuation technique incorporates all of the factors that market participants would consider in pricing a transaction.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level of input used that is significant to the fair value measurement as a whole:
- Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
- Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
- Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognized at fair value in the consolidated financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization at the end of each reporting period.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics, and risks of the asset or liability and the level of the fair value hierarchy as explained above.
3.15 Segment reporting
The Group reports 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 CODM in making decisions about how to allocate resources and in assessing performance. Generally, financial information is required to be reported on the same basis as it is used internally for evaluating operating segments’ performance and deciding how to allocate resources to segments.
3.16 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 the consolidated financial statements, as they are not assets of the Group.
Commissions generated for these activities are included as “Commissions and fees” in the consolidated statement of income.
3.17 Cash and cash equivalents
For the purpose of the consolidated statements of cash flows, 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, excluding restricted balances.
Cash collateral pledged as a part of repurchase agreements are presented as “Cash collateral, reverse repurchase agreement and securities borrowings” in the consolidated statement of financial position.
Cash collateral pledged as a part of derivative financial instrument and others are presented in “Other assets” in the consolidated statement of financial position.
3.18 Repurchase and reverse repurchase agreements and securities lending and borrowing
Securities sold under repurchase agreements at a specified future date are not derecognized from the consolidated statement of financial position as the Group retains substantially all of the risks and rewards of ownership. The cash received is recorded as an asset in “Cash and due from banks”, and the corresponding obligation to return it is recognized too, including accrued interest, as a liability in “Payables from repurchase agreements and securities lending”, reflecting the transaction’s economic substance as a loan to the Group. The difference between the sale and repurchase price was treated as interest expense and accrued over the life of the agreement using the effective interest rate and was recognized in “Interest and similar expenses” in the consolidated statement of income.
As part of this transaction the Group grants assets as collateral. When the counterparty receives securities and has the right to sell or re-pledge, the Group reclassifies those securities in “Investments at fair value through other comprehensive income pledged as collateral” or “Amortized cost investments pledged as collateral”, as appropriate, in the consolidated statement of financial position. When the counterparty receives cash as collateral that will be restricted until the maturity of the contract, the Group reclassifies the cash in “Cash collateral, reverse repurchase agreements and securities borrowings” in the consolidated statement of financial position, which includes accrued interest that is calculated according to the effective interest rate method.
Likewise, when the counterparty receives a loan portfolio, the Group maintains these loans in “Loan portfolio, net” in the statement of financial position, whose control is kept in off-balance sheet accounts.
On the other hand, securities purchased under reverse repurchase agreements on a specified future date are not recognized in the consolidated statement of financial position. Cash granted is recorded as an outgoing asset in “Cash and due from banks” account, and the corresponding right to charge it, including accrued interest, is recorded in “Cash collateral, reverse repurchase agreements and securities borrowing”, reflecting the transaction’s economic substance as a loan granted by the Group. The difference between the purchase and resale price is recorded in “Interest and similar income” in the consolidated statement of income and is accrued over the life of the agreement using the effective interest rate method.
If securities purchased under reverse repurchase agreements are subsequently sold to third parties, the obligation to return the securities is recorded as a short sale in the consolidated statement of financial position as “Financial liabilities at fair value through profit or loss” and measured at fair value, with any gains or losses included in the consolidated statement of income as “Net gain on securities”.
Securities lending and borrowing transactions are usually collateralized by securities. The transfer of the securities to counterparties is only reflected in the consolidated statement of financial position if the risks and rewards of ownership are also transferred.
(4) Historical Discussion and Analysis
Credicorp monitors the results of its operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Regarding Credicorp’s LoBs, total external income from the universal banking LoB amounted to 68.7% and 69.8% of Credicorp’s total external income (which corresponds to total interest and similar income, including income and expenses on commissions and net premiums earned from insurance activities) in 2022 and 2023, respectively. Therefore, the following historical discussion and analysis is presented principally for the universal banking LoB, 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 the discussion and analysis presented below for 2021, 2022 and 2023 reflects the financial position and results of operations of our subsidiaries. For further details, see “ITEM 3. KEY INFORMATION – 3.A Selected Financial Data”.
4.1 Consolidated contributions
See “Item 4.B Business Overview – (1) Credicorp Overview” for the contribution to the consolidated net profit attributable to our equity holders by each of our principal LoBs and subsidiaries, as well as for the percentage contribution to Credicorp total assets, total revenues, net profit, and equity attributable to Credicorp’s equity holders.
4.2 Financial performance
In 2023, we recorded a net profit, after non-controlling interest, of S/4,865.4 million (compared to S/4,647.8 million in 2022. This represented an increase of 4.7% as compared to the results in 2022. The increase was attributable to higher net income in Universal Banking and Insurance and Pensions, which stemmed from higher interest rates and growth of structural loans (for Universal Banking) and favorable results in Insurance Underwriting Results (for Insurance and Pensions). In 2023, an increase of 9.8% in operating expenses at Credicorp was driven by the disruptive initiatives at the Credicorp level. These expenses were attributable to investments in personnel and in developing functionalities through initiatives such as Yape, Tenpo, Culqi, and Tyba, among others. These investments aim to strengthen our leadership in the long term. Expenses at the core businesses increased in IT-related expenses for (i) an uptick in cloud use given ongoing increases in client digitalization; (ii) investments to improve digital capacities and an improvement in cybersecurity; and (iii) measures to attract more specialized digital talent. In 2023, ROAE was 15.8% (compared to 16.8% in 2022), and ROAA was 2.0% (compared to 2.0% in 2022).
The main factors behind Credicorp’s results were:
| • | The decline in total loans was 2.5% in year-end balances and 2.4% in average-daily balances. This drop was fueled by amortizations of Reactiva loans and by a reduction in loan disbursements in Wholesale Banking, partially offset by the growth in structural loans across all segments in Retail Banking, particularly SME-Pyme. Mibanco also contributed to this increase. |
| • | The cost of risk increased by 128 bps from 2022 to 2.50% in 2023. This higher cost of risk was driven primarily by (i) a deterioration in payment capacity among clients from older vintages in Consumer and Credit Cards, (ii) a deterioration of old loans concentrated in higher-risk segments in SME-Pyme and (iii) a drop in the payment capacity of overindebted clients at Mibanco. Moreover, the last quarter of 2023 includes an additional charge for provisions set aside for “El Niño” Phenomenon. See also “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A Operating Results – (5) Financial Position – 5.1 Total Assets – Portfolio quality”. |
| • | Interest income, which is the most important component of income, rose 25.2% in 2023. This growth was driven mainly by the uptick in structural Retail Banking loans, partially offset by a decrease in Wholesale Banking loans. Additionally, an increase in the balance of investments also contributed to growth in interest income, although to a lesser extent. Interest expenses rose 49.5%, driven primarily by growth in the balance of time deposits, which carried high interest rates. In this context, Net Interest Income (NII) rose 16.6% from 2022 to 2023. At the end of 2023, Net Interest Margin (NIM) was 6.01%, which reflects growth of 92 bps from to the end of 2022. Additionally, due to the increase in the cost of risk, Risk Adjusted Net Interest Margin increased at a slower pace, from 4.29% in 2022 to 4.38% in 2023 (+9 bps). |
| • | Other income increased by 11.6% as compared to 2022. This was driven primarily by (i) an increase in Net Gain on Securities (S/407.1 million of increase) as a result of trading strategies and (ii) an increase in fee income (4.4%) driven by BCP Bolivia international transfers fee strategy. |
| • | Total insurance underwriting results (income from insurance services, less expenses from insurance services and reinsurance results) rose 43.9% compared to 2022. This variation was driven mainly by an increase in income from insurance services (+10.5%), primarily in Life Business and Crediseguros, and secondarily by a less favorable reinsurance result. These dynamics were partially offset by an uptick in expenses for insurance services (+0.8%), mainly in P & C due to growth in claims expenses. |
| • | Operating Expenses increased 9.8% compared to 2022, mainly due to (i) expenses related to disruptive initiatives and (ii) IT-related expenses at the core businesses. |
| • | The efficiency ratio decreased by 142 bps, to 46.1% (compared to 47.5% in 2022), primarily due to an expansion in net interest income. |
For further detail about 2022 and 2021 evolution, please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A. Operating results – (4) Historical Discussion and Analysis.”
Main ratios
| | | As of and for the year ended on December 31, | | |
| |
| | | 2021 | | | | 2022 ( | *) | | | 2023 | | | | 2023 – 2022 | |
| ROAE (1) | | | 13.94 | % | | | 16.81 | % | | | 15.83 | % | | | (98 | ) |
| ROAA (2) | | | 1.49 | % | | | 1.97 | % | | | 2.01 | % | | | 4 | |
| NIM (3) | | | 4.12 | % | | | 5.09 | % | | | 6.01 | % | | | 92 | |
| Funding cost (4) | | | 1.29 | % | | | 1.83 | % | | | 2.91 | % | | | 108 | |
| Cost of risk (5) | | | 0.82 | % | | | 1.22 | % | | | 2.50 | % | | | 128 | |
| Loan to deposit (6) | | | 98.66 | % | | | 101.09 | % | | | 98.15 | % | | | (294 | ) |
| Internal overdue ratio (7) | | | 3.77 | % | | | 4.00 | % | | | 4.23 | % | | | 23 | |
| Non-performing loan ratio (8) | | | 4.99 | % | | | 5.41 | % | | | 5.89 | % | | | 48 | |
| Coverage of Internal overdue loans (9) | | | 152.40 | % | | | 132.54 | % | | | 135.12 | % | | | 258 | |
| Coverage on Non-performing loans (10) | | | 115.14 | % | | | 97.93 | % | | | 97.02 | % | | | (91 | ) |
| Operating efficiency (11) | | | 44.95 | % | | | 47.50 | % | | | 46.08 | % | | | (142 | ) |
(*) Balances corresponding to 2022 have been restated according to IFRS 17. For further detail please refer to note 3b on the 2023 Audited Financial Statements.
(1) Net profit attributable to Credicorp / Average** equity before non-controlling interest.
(2) Net profit attributable to Credicorp / Average** assets.
(3) Net Interest Income / Average** interest earning assets.
(4) Interest expense / Average** total funding.
(5) Provisions for loan losses, net of recoveries / Total loans.
(6) Total loans, net of unearned income / Total deposits and obligations.
(7) Internal overdue loans / Total loans. For the definition of Internal overdue loans see “ITEM 3. KEY INFORMATION – 3. A Selected financial data, Note (14).”
(8) Non-performing loans / Total loans. Non-performing loans = Internal Overdue Loans + Refinanced Loans + Restructured Loans
(9) Allowance for loan losses / Internal overdue loans.
(10) Allowance for loan losses / Non-performing loans.
(11) (Salaries and employee benefits + Administrative expenses + Depreciation and amortization + Acquisition cost + Association in participation) / (Net interest income + Commissions and fees + Net gain from exchange differences + Net gain in associates + Net premiums earned + Net gain on foreign exchange transactions + Net loss(gains) on financial assets designated at fair value through profit or loss + Net gain on derivatives held for trading + Net loss from exchange differences). Acquisition cost includes net fees, underwriting expenses, and underwriting income.
(**) Averages are determined as the average of period-beginning and period-ending balances.
4.3 Results of operations for the three years ending on December 31, 2021, 2022 and 2023
The following table sets forth, for the years 2021, 2022 and 2023, the principal components of our net profit:
| | | As of and for the year ended on December 31, | |
| | | 2021 | | | | 2022 (*) |
| | | 2023 | |
| |
| | | (in thousands of Soles) | |
| Interest and similar income | | | 11,850,406 | | | | 15,011,282 | | | | 18,798,495 | |
| Interest and similar expenses | | | (2,490,802 | ) | | | (3,919,664 | ) | | | (5,860,523 | ) |
| Net interest, similar income and expenses | | | 9,359,604 | | | | 11,091,618 | | | | 12,937,972 | |
| Provision for credit losses on loan portfolio | | | (1,558,951 | ) | | | (2,158,555 | ) | | | (3,957,143 | ) |
| Recoveries of written-off loans | | | 346,728 | | | | 347,017 | | | | 334,798 | |
| Provision for credit losses on loan portfolio, net of recoveries | | | (1,212,223 | ) | | | (1,811,538 | ) | | | (3,622,345 | ) |
| Net interest, similar income and expenses, after provision for credit losses on loan portfolio | | | 8,147,381 | | | | 9,280,080 | | | | 9,315,627 | |
| Total non-interest income | | | 4,929,717 | | | | 5,066,096 | | | | 5,655,825 | |
| Total technical result of insurance | | | (3,721 | ) | | | 841,448 | | | | 1,211,100 | |
| Total other expenses | | | (7,740,561 | ) | | | (8,317,013 | ) | | | (9,334,223 | ) |
| Profit before income tax | | | 5,332,816 | | | | 6,870,611 | | | | 6,848,329 | |
| Income tax | | | (1,660,987 | ) | | | (2,110,501 | ) | | | (1,888,451 | ) |
| Net profit | | | 3,671,829 | | | | 4,760,110 | | | | 4,959,878 | |
| Net profit attributable to: | | | | | | | | | | | | |
| Credicorp’s equity holders | | | 3,584,582 | | | | 4,647,818 | | | | 4,865,540 | |
| Non-controlling interest | | | 87,247 | | | | 112,292 | | | | 94,338 | |
(*) Balances corresponding to 2022 have been restated according to IFRS 17. For further detail please refer to note 3b on the 2023 Audited Financial Statements.
Net income attributable to our shareholders for 2023 reflected an increase of 4.7% compared to 2022. This result was mainly due to higher net interest, income and similar expenses which increased by 16.6% compared to 2022 due to the increase of market rates. This increase is offset by the 83.3% increase in the provision for credit losses in the loan portfolio compared to 2022 due to the deterioration of BCP’s consumer loan portfolio, which was reflected in the migrations to stage 3 and which was generated, among other things, by greater client leverage within a macroeconomic context of high inflation, the migration to stage 3 of loans to small and micro businesses of Mibanco Perú, and the record of the expected impact of the El Niño Phenomenon on provisions.
For further detail about 2022 and 2021 evolution, please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A. Operating results – (4) Historical Discussion and Analysis.”
4.3.1 Net Interest, similar income, and expenses
The following table sets forth the components of net interest, similar income, and expenses:
| | | As of and for the year ended on December 31, | |
| | | 2021 | | | | 2022 (*) |
| | | 2023 | |
| | | (in Thousands of Soles) | |
| Interest and similar income | | | | | | | | | | | |
| Interest on loans | | | 10,170,680 | | | | 12,419,281 | | | | 15,044,864 | |
| Interest on investments at fair value through other comprehensive income | | | 1,152,542 | | | | 1,595,570 | | | | 1,984,408 | |
| Interest on due from banks | | | 49,637 | | | | 467,387 | | | | 1,133,211 | |
| Interest on investments at amortized cost | | | 323,689 | | | | 382,097 | | | | 456,543 | |
| Interest on investments at fair value through profit or loss | | | 50,562 | | | | 38,550 | | | | 48,376 | |
| Dividends received | | | 40,637 | | | | 29,226 | | | | 46,080 | |
| Other interest and similar income | | | 62,659 | | | | 79,171 | | | | 85,013 | |
| Total Interest and similar income | | | 11,850,406 | | | | 15,011,282 | | | | 18,798,495 | |
| | | | | | | | | | | | | |
| Interest and similar expense | | | | | | | | | | | | |
| Interest on deposits and obligations | | | (865,474 | ) | | | (1,688,245 | ) | | | (3,141,307 | ) |
| Interest on due to banks and correspondents | | | (435,426 | ) | | | (683,078 | ) | | | (1,158,665 | ) |
| Interest on bonds and notes issued | | | (836,977 | ) | | | (728,218 | ) | | | (634,299 | ) |
| Financial expenses of insurance activities | | | - | | | | (426,477 | ) | | | (466,814 | ) |
| Deposit Insurance Fund | | | (213,741 | ) | | | (230,255 | ) | | | (237,441 | ) |
| Interest on lease liabilities | | | (27,374 | ) | | | (25,054 | ) | | | (25,574 | ) |
| Other interest and similar expense | | | (111,810 | ) | | | (138,337 | ) | | | (196,423 | ) |
| Total Interest and similar expense | | | (2,490,802 | ) | | | (3,919,664 | ) | | | (5,860,523 | ) |
| Net interest income | | | 9,359,604 | | | | 11,091,618 | | | | 12,937,972 | |
(*) Balances corresponding to 2022 have been restated according to IFRS 17. For further detail please refer to note 3b on the 2023 Audited Financial Statements.
Net interest income grew by 16.6%, from 2022 to 2023, mainly due to an increase in Interest Income. This evolution was fueled by growth in structural Retail Banking loans, that compensated for a decrease in Wholesale Banking loans. For further detail about 2022 and 2021 evolution, please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A. Operating Results – (4) Historical Discussion and Analysis – 4.3.1 Net Interest, similar income, and expenses.”
Interest and similar income grew by 25.2% in 2023, as compared to 2022. The increase in 2023 was mainly driven by an increase in income from loans, which reflected an uptick in Retail Banking loans within the loan mix.
The average balance of our foreign currency denominated loan portfolio increased by 1.7% to S/51.0 billion in 2023, as compared to S/50.1 billion in 2022.
The average balance of the Sol-denominated loan portfolio decreased by 4.4% to S/94.0 billion in 2023, compared to S/98.2 billion in 2022.
The average nominal interest rates earned on loans increased 10.4% in 2023. The average nominal interest rate for foreign currency-denominated loans increased to 7.2% in 2023. Average nominal interest rates for Sol-denominated loans increased to 12.1% in 2023.
Interest and similar expenses increased by 49.5% in 2023 compared to the level registered in 2022. In 2021, interest expense registered an uptick of 40.2% compared to 2021. The 2023 increase in interest expenses was attributable to an increase in the balance of term deposits which carried high interest rates.
Average interest-bearing foreign currency denominated deposits increased in 2023 by 2.3% to S/47,290.5 million from S/46.213.7 million in 2022. Our average interest-bearing Sol-denominated deposits increased by 7.4% in 2023 to S/53,063.9 million from S/49,420.3 million in 2022.
Average nominal interest rates paid on foreign currency-denominated deposits was 0.7%, 0.9%, and 1.8% in 2021, 2022, and 2023, respectively. Average nominal interest paid on Sol-denominated deposits was 0.8% in 2021 to 1.7% in 2022 and increased to 2.8% in 2023. NIM (net interest income divided by monthly average interest-earning assets) was 6.13% in 2023, 5.18% in 2022 and 4.08% in 2021.
For further detail about 2022 and 2021 evolution, please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A. Operating results – (4) Historical Discussion and Analysis.”
For more detail, see “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (7) Selected Statistical Information”. For further detail about 2022 and 2021 evolution, please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A. Operating Results – (4) Historical Discussion and Analysis – 4.2 Financial performance – 4.3.1 Net Interest, similar income, and expenses.”
| | 4.3.2 | Provisions for Loan Losses |
The following tables set forth the changes in our allowance for loan losses:
| | | As of and for the year ended on December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (in thousands of Soles) | |
| Provision for credit losses on loan portfolio | | | (1,558,951 | ) | | | (2,158,555 | ) | | | (3,957,143 | ) |
| Recoveries of written-off loans | | | 346,728 | | | | 347,017 | | | | 334,798 | |
| Provision for credit losses on loan portfolio, net of recoveries | | | (1,212,223 | ) | | | (1,811,538 | ) | | | (3,622,345 | ) |
Provisions for credit losses on loan portfolios, net of recoveries, increased by 100.0% in 2023 to S/3,622.3 million as compared to S/1,811.5 million in 2022. The expansion reflects higher provisions established across Credicorp’s banking businesses, particularly for BCP Stand-alone and Mibanco. This increase was primarily driven by:
| • | Retail Banking: particularly in the Consumer and Credit Cards segments, mainly due to a deterioration in payment capacity among clients from older vintages; and SME-Pyme, due to an uptick in the deterioration of old loans concentrated in higher-risk segments with lower tickets (< S/90,000). |
| • | Mibanco: mainly driven by a deterioration in the payment capacity of overindebted clients. |
Total recoveries of written-off loans reached S/334.8 million in 2023, as compared to S/347.0 million in 2022.
For further detail about 2022 and 2021 evolution, please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A. Operating results – (4) Historical Discussion and Analysis.”
The following table reflects the components of our other income:
| | | As of and for the year ended on December 31, | |
| | | 2021 | | | | 2022 ( | *) | | | 2023 | |
| | | (in thousands of Soles) | |
| Commissions and fees | | | 3,493,734 | | | | 3,642,857 | | | | 3,804,459 | |
| Net gain on foreign exchange transactions | | | 922,917 | | | | 1,084,151 | | | | 886,126 | |
| Net gains on securities | | | 28,650 | | | | 5,468 | | | | 425,144 | |
| Net gains on derivatives held for trading | | | 221,064 | | | | 65,187 | | | | 53,665 | |
| Net gain from exchange difference | | | (3,215 | ) | | | 387 | | | | 45,778 | |
| Other | | | 266,567 | | | | 268,046 | | | | 440,653 | |
| Total other income | | | 4,929,717 | | | | 5,066,096 | | | | 5,655,825 | |
(*) Balances corresponding to 2022 have been restated according to IFRS 17. For further detail please refer to note 3b on the 2023 Audited Financial Statements.
Other income increased by 11.6% to S/5,655.8 million in 2023 compared to S/5,066.1 million in 2022. This growth was primarily driven by higher net gain on securities driven by specific trading strategies and commissions and fees.
Commissions and fees increased by 4.4% to S/3,804.5 million as compared to S/3,642.9 million in 2022.The expansion in commissions and fees from 2023 to 2022 was primarily driven by the international fee transfer strategy at BCP Bolivia.
For further detail about 2022 and 2021 evolution, please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A. Operating Results – (4) Historical Discussion and Analysis.”
| | 4.3.4 | Technical result of insurance |
The following table reflects the result of insurance and reinsurance service under IFRS 17:
| | | As of and for year ended December 31, | |
| | | | 2022 (*) |
| | | 2023 | |
| | | (in thousands of Soles) | |
| Insurance service result | | | 1,302,347 | | | | 1,602,421 | |
| Underwriting result | | | (460,899 | ) | | | (391,321 | ) |
| Total technical result of insurance | | | 841,448 | | | | 1,211,100 | |
(*) Balances corresponding to 2022 have been restated according to IFRS 17. For further detail please refer to note 3b on the 2023 Audited Financial Statements.
For further details, please see note 22 to the consolidated financial statements.
The following table reflects the components of our expenses:
| | | As of and for the year ended on December 31, | |
| | | 2021 | | | | 2022 ( | *) | | | 2023 | |
| | | (in thousands of Soles) | |
| Salaries and employee benefits | | | (3,668,476 | ) | | | (3,902,161 | ) | | | (4,265,453 | ) |
| Administrative expenses | | | (2,953,717 | ) | | | (3,414,065 | ) | | | (3,803,203 | ) |
| Depreciation and amortization | | | (521,967 | ) | | | (485,207 | ) | | | (511,174 | ) |
| Impairment loss on goodwill | | | - | | | | - | | | | (71,959 | ) |
| Depreciation for right-of-use assets | | | (161,287 | ) | | | (151,282 | ) | | | (147,833 | ) |
| Others | | | (435,114 | ) | | | (364,298 | ) | | | (534,601 | ) |
| Total other expenses | | | (7,740,561 | ) | | | (8,317,013 | ) | | | (9,334,223 | ) |
(*) Balances corresponding to 2022 have been restated according to IFRS 17. For further detail please refer to note 3b on the 2023 Audited Financial Statements.
Salaries and employee benefits increased by 9.31% to S/4,265.4 million in 2023 as compared to S/3,902.1 million in 2022.
Administrative, general and tax expenses increased by 11.40% to S/3,803.2 million in 2023 as compared to S/3,414.0 million in 2022. The increase from 2022 to 2023 was attributable to higher investments and expenses related to digital transformation, software improvements, expenses for transactions and fidelity programs, and disruptive initiatives.
For further detail about 2022 and 2021, please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A. Operating Results – (4) Historical Discussion and Analysis – 4.2 Financial performance – 4.3.5 Other Expenses”.
The exchange difference reflects exposure to appreciation/depreciation of net monetary positions in foreign currencies, principally US Dollars, in 2021, 2022 and 2023, to Peruvian Soles. We recorded a net loss from exchange difference of S/3.2 million, net gain from exchange difference of S/0.4 million and S/45.8 million, in 2021, 2022 and 2023 respectively.
Credicorp manages foreign exchange risk by monitoring and controlling the position values due to changes in exchange rates. We measure our performance in Soles (since 2014, when we changed our functional currency from US Dollars) such that if the net foreign exchange position (mainly US Dollar) is an asset, any depreciation of Soles with respect to the relevant foreign currency would positively affect Credicorp’s consolidated 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; any appreciation/depreciation of the foreign exchange would affect the consolidated statements of income.
As of December 31, 2021, 2022 and 2023, Credicorp’s net foreign exchange balance is the sum of its positive open non-Soles positions (net long position) less the sum of its negative open non-Soles positions (net short position). For further details, see “ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT – (13) Foreign Currency Exchange Rate Risk”.
At present, Credicorp is not subject to income tax, wealth tax, capital gains tax or property tax in Bermuda. However, on December 27, 2023, Bermuda enacted the CIT Act. Corporate income tax is chargeable under the CIT Act beginning on January 1, 2025 with a statutory income tax rate of 15% on its net taxable income for each fiscal year. The net taxable income is determined by adding the taxable income and subtracting the taxable losses. The taxable income is equivalent to the financial accounting net income determined for the fiscal year, removing, among other items, dividends or other distributions received or accrued (with the exception of short-term portfolio shareholding and ownership interest in an investment entity that meets certain specific criteria). The new law allows corporations to carry forward tax losses incurred in the five fiscal years preceding the effective date and allows for an elective increase in the tax basis of assets and liabilities.
Additionally, some of our subsidiaries are subject to income tax and taxes on dividends paid to us, depending on the legislation of the jurisdictions in which they generate income.
Peru
Our Peruvian subsidiaries, including BCP Stand-alone, are subject to corporate taxation on income under Peruvian Tax Law. At December 31, 2021, 2022, and 2023, the Peruvian statutory income tax rate was 29.5% on taxable profit after calculating the workers’ profit sharing, which is determined using a 5.0% rate.
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, except if these entities have income from Peruvian source that is subject to Peruvian withholding tax.
The SUNAT has the right to review and, if necessary, amend the annual income tax returns filed by Peruvian subsidiaries up to four years after their filing date. As of December 31, 2023, income tax returns of the major subsidiaries open for examination by the tax authorities are as follows:
| - | | Banco de Crédito del Peru S.A. | 2016, 2017, 2020 to 2023 |
| - | | Mibanco, Banco de la Microempresa S.A. | 2018, 2021 to 2023 |
| - | | Pacífico Compañía de Seguros y Reaseguros S.A. | 2018 to 2023 |
| - | | Credicorp Capital Servicios Financieros S.A. | 2018 to 2023 |
| - | | Credicorp Capital Peru S.A.A. | 2018 to 2023 |
| - | | Credicorp Capital Holding Peru S.A.A. | 2018 to 2023 |
| - | | Grupo Crédito | 2018 to 2023 |
The SUNAT is currently auditing the 2018 and 2020 income tax nonresident payments return of Grupo Crédito. Also, the 2019 corporate income tax return and 2021 income tax nonresident payments return of Banco de Crédito del Perú and the 2021 corporate income tax return of Mibanco, Banco de la Microempresa S.A. respectively. No material issues have been raised in connection with neither of these audits.
Bolivia
The corporate income tax rate in Bolivia is 25.0 percent as of December 31, 2021, 2022, and 2023. Bolivian financial entities are subject to an additional rate to the extent that the ROE exceeds 6.0 percent; in that case, they must consider an additional rate of 25.0 percent, which would bring the rate to 50.0 percent. As of 2021, the aforementioned additional rate is also applicable to brokerage firms, mutual fund management companies and insurance companies.
The Bolivian Tax Authority has the right to review and, if applicable, make a new determination for the income tax of the subsidiaries to Credicorp located in Bolivia, upon presentation of their Income Tax declaration. The annual income tax declarations of Banco de Crédito de Bolivia S.A., which are pending examination by the Bolivian tax authority, correspond to fiscal years 2015 to 2023.
Chile
In the case of Chile, the tax legislation changed in 2020, establishing two new regimes currently in force: the general regime and the Pro-Pyme regime, the latter applicable to smaller companies. Credicorp Capital Holding Chile, as well as all its subsidiaries, are taxed under the general regime, whose corporate income tax rate for domiciled legal entities remains at 27.0 percent as of December 31, 2021, 2022, and 2023.
Individuals or legal entities not domiciled in Chile will be subject to an additional tax at rates between 4.0 percent and 35.0 percent, depending on the nature of the income.
The Chilean Tax Authority has the power to review and, if applicable and if necessary, amend the annual income tax returns filed by the Chilean subsidiaries up to three years after their filing date and make a new determination for the income tax. The Chilean Tax Authority is currently auditing the 2021 and 2022 corporate income tax returns of Credicorp Capital Corredores de Bolsa and the 2021 corporate tax return of Credicorp Capital Asesorias Financieras. No material issues have been raised in connection with either of these audits.
Colombia
In Colombia, according to Law No.2277 of 2021 issued on December 13, 2022, the general income tax rate for the year 2023 is 35.0 percent and for financial institutions an additional 5.0 percent is added for the taxable years 2023 to 2027, totaling a general income tax rate of 40.0 percent (for the taxable year 2022 3.0 percentage points were added to the general tax rate, totaling an income tax rate of 38.0 percent).
The additional rate of 5.0 percent will be applicable only to financial institutions that in the corresponding taxable year have a taxable income equal to or greater than 120,000 Unidad de Valor Tributario (“UVT”), which as of December 31, 2023 and 2022 is equivalent to a total of S/4.4 million and S/3.6 million respectively. In this sense, Credicorp Capital Colombia, Credicorp Capital Fiduciaria and Mibanco Colombia must pay income tax taking into account the above.
Additionally, in case of receiving occasional profits, listed and established by the National Government in the Tax Statute and which are not subject to income tax, a differential rate of 10.0 percent must be applied on the net profit and the associated expenses respectively.
In fiscal year 2021, the Colombian Tax Reform Law repealed, as from fiscal year 2022, the rule that allowed taking 100.0 percent of the industry and commerce tax as a tax discount of the income tax, notices and boards. Therefore, in fiscal year 2023 only 50.0 percent of the industry and commerce tax, signs and boards may be taken as tax discount.
The deadlines for the finality of the income and complementary tax return for the taxable periods 2022 and 2023 are established as follows:
Increase in net income tax compared to
the previous year | Closed Tax Return |
| 35% | 6 months |
| 25% | 12 months |
The Colombian Tax Authorities have the power to review and, if applicable, make a new determination for the income tax of the subsidiaries to Credicorp located in Colombia, upon presentation of their Income Tax declarations. Additionally, in the case of Colombia, a period of 6 years was established for the taxpayers obliged to apply Transfer Prices or taxpayers who report tax losses. The Colombian annual income tax declarations pending examination by the overseas tax authorities are the following:
| - | | Mibanco Colombia S.A.S. | 2019 to 2023 |
| - | | Credicorp Capital Colombia S.A. | 2017 to 2023 |
Since tax regulations are subject to interpretation by the different Tax Authorities where Credicorp’s subsidiaries are located, it is not possible to determine at the present date whether any significant additional liabilities may arise from any eventual tax examinations of the Credicorp’s subsidiaries. Any resulting unpaid taxes, tax penalties or interest that may arise will be recognized as expenses in the year in which they are determined. However, Management of Credicorp and its Subsidiaries and their legal counsel consider that any additional tax assessments would not have a significant impact on the consolidated financial statements as of December 31, 2021, 2022 and 2023.
The following table shows changes to the principal assets of Credicorp from 2021 through 2023:
| | | As of and for the year ended on December 31, | | | | |
| | | 2021 | | | | 2022( | *) | | | 2023 | | | | 2023-2022 | |
| | | (in millions of Soles) | | | % Change | |
| Cash and due from banks | | | 39,321 | | | | 34,184 | | | | 33,931 | | | | (0.7 | ) |
| Cash collateral, reverse repurchase agreements and securities borrowings | | | 1,767 | | | | 1,102 | | | | 1,411 | | | | 28.0 | |
| Investments: | | | | | | | | | | | | | | | | |
| At fair value through profit or loss | | | 5,929 | | | | 4,199 | | | | 4,983 | | | | 18.7 | |
| At fair value through other comprehensive income | | | 34,758 | | | | 30,786 | | | | 37,044 | | | | 20.3 | |
| Amortized cost | | | 8,266 | | | | 10,446 | | | | 10,189 | | | | (2.5 | ) |
| Net loans | | | 139,120 | | | | 140,754 | | | | 136,698 | | | | (2.9 | ) |
| Other assets (1) | | | 15,686 | | | | 13,943 | | | | 14,584 | | | | 4.6 | |
| Total assets | | | 244,847 | | | | 235,414 | | | | 238,840 | | | | 1.5 | |
(*) Balances corresponding to 2022 have been restated according to IFRS 17. For further detail please refer to note 3b on the 2023 Audited Financial Statements.
(1) Includes financial assets designated at fair value through profit and loss, insurance and reinsurance contract liability, property, furniture and equipment, due from customers on acceptances, intangible assets and goodwill, and other assets. Also include the payment in favor of Latam Airlines Group S.A. Sucursal Peru for US$169.7 million (equivalent in soles to S/629.5 million) on account of the Latam Pass Miles that the Bank has been crediting to its customers for the use of their credit and debit cards, and other BCP Latam Pass financial products. Customers can use these miles directly with Latam to exchange tickets, goods or services offered by them.
As of December 31, 2023, Credicorp had total assets of S/238.8 billion, an increase of 1.5% as compared to the total assets of S/235.4 billion in 2022.
As of December 31, 2023, our total loans, which correspond to direct loans, including accrued interest and excluding unearned interest, were S/145.0 billion, which represented 60.7% of total assets. Loans, net of allowance for loan losses, totaled S/136.7 billion in 2023, representing a drop of 2.9% from 2022. As of December 31, 2022, total loans totaled S/148.6 billion, representing 63.1% of total assets. Loans, including an allowance for loan losses, totaled S/140.8 billion in 2022.
Our total deposits with the BCRP decreased to S/23,673.8 million as of December 31, 2023, from S/24,160.7 million as of December 31, 2022. As of December 31, 2023, 2022 and 2021, our securities holdings include investments at fair value through profit or loss, investments at fair value through other comprehensive income and amortized cost investments, which amount to S/52,215.5 million and S/45,431.2 million, respectively.
Total year-end balances | | 2021 | | | 2022
| | | | 2023
| | | 2023 - 2022 | | | 2023 -% | | | 2022 -% | |
| | (in millions of Soles) | | | % Change | | | Local Currency (1) | | | Foreign Currency (2) | | | Local Currency (1) | | | Foreign Currency (2) | |
BCP Stand-alone (2) | | | 122,752 | | | | 123,708 | | | | 119,425 | | | | (3.5 | ) | | | 67.3 | | | | 32.7 | | | | 68.4 | | | | 31.6 | |
| Mibanco | | | 13,513 | | | | 14,089 | | | | 13,269 | | | | (5.8 | ) | | | 99.9 | | | | 0.1 | | | | 99.1 | | | | 0.1 | |
| Bolivia | | | 9,597 | | | | 9,254 | | | | 9,402 | | | | 1.6 | | | | 0.0 | | | | 100.0 | | | | 0.0 | | | | 100.0 | |
| ASB Bank Corp. | | | 2,652 | | | | 2,446 | | | | 2,150 | | | | (12.1 | ) | | | 0.0 | | | | 100.0 | | | | 0.0 | | | | 100.0 | |
Others (3) | | | (917 | ) | | | (871 | ) | | | 730 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
| Total loans | | | 147,597 | | | | 148,626 | | | | 144,976 | | | | (2.5 | ) | | | 64.2 | | | | 35.2 | | | | 65.2 | | | | 27.9 | |
| (1) | Peruvian Sol is considered local currency. |
| (2) | Includes mainly US dollar currency and other foreign currencies (BOB, COP, and CLP). |
| (3) | Includes BCP Panama and BCP Miami, does not include the loan by BCP to Credicorp for the sale of Banco de Credito e Inversiones de Chile shares. |
| (4) | Includes other banking and elimination for consolidation. |
The decrease of 2.5% of Credicorp’s total loans from 2022 to 2023 was a result of amortizations of Reactiva loans and a reduction in loan disbursements in Wholesale Banking due partially to macroeconomic impacts. The aforementioned was partially offset by the growth in structural loans across all segments in Retail Banking, particularly SME-Pyme. Mibanco also contributed to this increase, due to a significant uptick in lending in the second quarter of 2023.
In 2023 the growth in structural loans was primarily attributable to the increase in the structural loan portfolio of BCP Stand-alone, whose loan book grew by 3.8% in average daily balances in line with the following dynamics:
| • | Retail Banking: average daily balances grew S/5,434.2 million, or 10.1%, from 2022 to 2023. This increase was driven by growth in the following sectors: SME-Pyme (which increased S/1,711.5 million or 13.7%), Mortgages (which increased S/1,141.6 million or 5.9%), Credit Cards (which increased S/1,128.9 million or 24.5%), Consumer (which increased S/753.2 million or 6.3%) and SME-Business (which increased S/699.1 million or 13.1%). |
| • | Average daily balances in Wholesale Banking, which includes the Middle Market and Corporate Banking segments, dropped 2.6% and 2.1%, respectively, from 2022 to 2023. |
Growth in the structural loan portfolio was also due to the increase in Mibanco’s structural loan balances of 8.4% in average daily balances compared to 2022, which increase was primarily associated with a significant uptick in lending in the second quarter of 2023. However, total loans decreased 0.3% in 2023.
BCP Bolivia’s loan portfolio increased S/169.6 million, or 1.9%, from 2022 to 2023, mainly because of the volatility of the exchange rate for the Bolivianos against the Soles.
Lastly, ASB Bank Corp. has decreased its loan portfolio registering a decline of S/238.6 million, or 11.6%, from 2022 to 2023, in terms of average daily balances. It is important to note that ASB Bank Corp.’s main business is in the asset and wealth management industry.
The following table shows the composition of Credicorp’s loan portfolio for loans issued in local currency in year-end balances:
Local currency year-end balances | | 2021 | | | 2022 | | | 2023 | | | | 2023 - 2022 | |
| | (In millions of Soles) | | | % Change | |
| BCP Stand-alone | | | 86,298 | | | | 84,601 | | | | 80,376 | | | | (5.0 | ) |
| Mibanco | | | 13,480 | | | | 14,068 | | | | 13,252 | | | | (5.8 | ) |
The following table shows the composition of Credicorp’s loan portfolio in foreign currency in year-end balances:
Foreign currency year-end balances | | 2021 | | | 2022 | | | 2023 | | | | 2023 – 2022 | |
| | (In millions of US Dollars) | | | % Change | |
| BCP Stand-alone | | | 9,143 | | | | 10,253 | | | | 10,528 | | | | 2.7 | |
| Mibanco | | | 8 | | | | 5 | | | | 5 | | | | 0.0 | |
| BCP Bolivia | | | 2,407 | | | | 2,322 | | | | 2,535 | | | | 9.2 | |
| ASB Bank Corp. | | | 658 | | | | 641 | | | | 580 | | | | (9.5 | ) |
The following table shows the composition of Credicorp’s loan portfolio, measured in average daily balances.
| | | As of and for the year ended on December 31, | | | | |
| | | 2021 | | | 2022 | | | 2023 | | | | 2023 – 2022 | |
| | | (in millions of Soles) | | | % Change | |
| BCP Stand-alone | | | 116,547 | | | | 120,364 | | | | 116,582 | | | | (3.1 | %) |
| Wholesale Banking | | | 53,923 | | | | 56,441 | | | | 53,338 | | | | (5.5 | %) |
| Corporate | | | 30,129 | | | | 32,648 | | | | 31,625 | | | | (3.1 | %) |
| Middle-Market | | | 23,795 | | | | 23,793 | | | | 21,713 | | | | (8.7 | %) |
| Retail Banking | | | 62,623 | | | | 63,923 | | | | 63,244 | | | | (1.1 | %) |
| SME-Business | | | 10,989 | | | | 9,135 | | | | 7,441 | | | | (18.5 | %) |
| SME-Pyme | | | 19,638 | | | | 18,705 | | | | 16,696 | | | | (10.7 | %) |
| Mortgage | | | 18,042 | | | | 19,484 | | | | 20,626 | | | | 5.9 | % |
| Consumer | | | 10,082 | | | | 12,000 | | | | 12,753 | | | | 6.3 | % |
| Credit card | | | 3,871 | | | | 4,599 | | | | 5,728 | | | | 24.6 | % |
| Mibanco | | | 13,095 | | | | 14,075 | | | | 14,029 | | | | (0.3 | %) |
| Mibanco Colombia | | | 995 | | | | 1,142 | | | | 1,454 | | | | 27.3 | % |
| BCP Bolivia | | | 8,951 | | | | 8,813 | | | | 8,982 | | | | 1.9 | % |
| ASB Bank Corp. | | | 2,339 | | | | 2,056 | | | | 1,818 | | | | (11.6 | %) |
| Total loans | | | 141,926 | | | | 146,449 | | | | 142,864 | | | | (2.5 | %) |
In terms of portfolio quality, our internal overdue ratio (which includes loans under legal collection) was 4.23% at the end of 2023, 23 bps higher than the 4.00% ratio recorded at the end of 2022. The reported increase over the last year reflects the higher pace of growth in internal overdue loans balances compared to the growth of the total portfolio, as the Government Program Portfolio (which includes Reactiva Peru, FAE and Impulso MyPeru loans) grace periods expired. The non-performing loan ratio increased by 48 bps from 5.41% in 2022 to 5.89% in 2023. This was mainly due to growth of overdue and refinanced loans, which was primarily attributable to a deterioration in old vintages. As of December 31, 2023, the Government Program (GP) Portfolio represented 2% of Credicorp’s total portfolio (in comparison to 6% as of December 31, 2022). It is important to highlight that a large part of the GP Portfolio is backed by state guarantees, whose recovery processes for loans over 90 days past due are currently underway with the relevant regulatory entities.
The non-performing loan ratio for Credicorp’s structural portfolio, which excludes the GP Portfolio, increased by 68 bps from 4.95% in 2022 to 5.63% in 2023.
An analysis of the structural non-performing loan ratio by business segment shows that:
| • | SME-Pyme: An improvement of 74 basis points was registered, situating its structural non-performing loan ratio at 14.38% compared to 15.12% in 2022. This improvement was driven by an increase in loan volumes despite non-performing loan balances being affected by higher deterioration in vintages prior to adjustments in credit guidelines. |
| • | Consumer and Credit Cards: The non-performing loan ratio in the Consumer and Credit Card sectors increased from 4.78% and 3.36% in 2022 to 6.43% and 5.38% in 2023, respectively. Growth in non-performing loans was concentrated in tranches for loans that have been overdue for more than 120 days. |
| • | Mortgage: In 2023, the ratio stood at 3.78% versus 3.45% in 2022. The increase in the Mortgage segment non-performing loan ratio was attributable to the growth in refinance loans that had benefitted from loan reprogramming during the pandemic. |
| • | Wholesale Banking: The structural non-performing loan ratio increased 31 bps due to growth in overdue loans and an uptick in refinancing throughout the year for specific clients in 2023 (3.04% for the structural non-performing loan ratio in 2023 and 2.73% in 2022). As of December 2023, the non-performing loan portfolio was mainly composed of overdue loans and refinanced loans for specific clients from the real estate and tourism sectors, both of which were severely impacted by the pandemic. |
| • | Mibanco: Increase in delinquency was concentrated mainly among clients with high ticket loans and those who continued to be affected by social conflicts or climate anomalies, in a recessive economic environment. The structural non-performing loan ratio increased by 233 bps, from 4.96% in 2022 to 7.29% in 2023. |
| • | BCP Bolivia: The non-performing loan ratio increased by 31 bps, from 2.77% in 2022 to 3.08% in 2023, due to higher overdue and refinanced loans. |
It is important to keep in mind that traditional delinquency ratios such as internal overdue loan and non-performing loan ratios continue to be distorted by the presence of loans with real estate collateral (commercial and residential properties). This means that a significant portion of loans that are more than 150 days past due cannot be written off (despite the fact that provisions have been set aside) without initiating a judicial process to liquidate the collateral, which may take several years to conclude.
The Structural Coverage ratio of non-performing loans decreased from 112.2% in 2022 to 102.4% at the end of 2023. This decrease was mainly driven by an increase in i) Consumer and Credit Cards non-performing loans portfolio due to payment capacity of clients affected by the recessive economic environment throughout the year ii) SME-Pyme non-performing loans portfolio due to higher deterioration of old vintages, where delinquency was concentrated in clients with smaller tickets and higher risk and iii) Wholesale Banking non-performing loans portfolio due to higher overdue and refinanced loans of specific clients in the real estate and tourism sectors. It should be noted that the allowance for loan losses at Wholesale Banking has not grown at the same pace as these overdue and refinanced loans because we have liquid guarantees. Therefore, despite the increase in non-performing loans in Wholesale Banking, the provisions for credit losses in this segment have not grown as quickly as non-performing loans.
For further detail about 2022 and 2021 evolution please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A. Operating results – (5) Financial Position.”
| | As of and for the year ended on December 31, | | |
| |
| | | 2021 | | | | 2022(*) |
| | | 2023 | | | | 2023 – 2022 | |
| | | (In millions of Soles) | | | % Change | |
| Time deposits | | | 27,924 | | | | 37,478 | | | | 41,290 | | | | 10.2 | |
| Demand deposits | | | 58,630 | | | | 48,467 | | | | 48,229 | | | | (0.5 | ) |
| Saving deposits | | | 56,945 | | | | 54,769 | | | | 52,376 | | | | (4.4 | ) |
| Severance indemnity deposits | | | 4,017 | | | | 3,825 | | | | 3,186 | | | | (16.7 | ) |
| Bank’s negotiable certificates | | | 1,328 | | | | 1,419 | | | | 1,195 | | | | (15.8 | ) |
| Interest payable | | | 753 | | | | 1,063 | | | | 1,429 | | | | 34.5 | |
| Total deposits | | | 149,597 | | | | 147,021 | | | | 147,705 | | | | 0.5 | |
| | | | | | | | | | | | | | | | | |
| Payables from repurchase agreements and security lending | | | 22,014 | | | | 12,967 | | | | 10,168 | | | | (21.6 | ) |
| Due to banks and correspondents | | | 7,213 | | | | 8,937 | | | | 12,279 | | | | 37.4 | |
| Bonds and notes issued | | | 17,823 | | | | 17,007 | | | | 14,595 | | | | (14.2 | ) |
Other liabilities (1) | | | 21,163 | | | | 19,887 | | | | 20,986 | | | | 5.5 | |
| Total liabilities | | | 217,810 | | | | 205,819 | | | | 205,733 | | | | - | |
| (*) | Balances corresponding to 2022 have been restated according to IFRS 17. For further detail please refer to note 3b on the 2023 Audited Financial Statements. |
| (1) | As of December 31, 2023, and 2022 includes banker’s acceptances outstanding, lease liabilities, financial liabilities at fair value through profit or loss, insurance contract liability, deferred tax liabilities, net, and other liabilities. As of December 31, 2021 includes banker’s acceptances outstanding, lease liabilities, financial liabilities at fair value through profit or loss, technical reserves for insurance claims and premiums, deferred tax liabilities, net, and other liabilities. |
As of December 31, 2023, we had total liabilities of S/205.7 billion, a 0.04% decrease from S/205.8 billion as of December 31, 2022.
As of December 31, 2023, total deposits were S/147.7 billion, a 0.5% increase from S/147.0 billion on December 31, 2022. The increase in 2023 was primarily due to an increase in the Time Deposit balance (+9.2%), which was driven primarily by Wholesale and Retail clients at BCP, who transferred funds to high-yield deposits in FC. This dynamic also fueled, albeit to a lesser extent, fund migration at Mibanco and BCP Bolivia as clients sought out higher interest. This increase in time deposits was partially offset by a decrease in demand and savings deposits, which was mainly associated with fund migration from low-cost deposits to time deposits in a context of higher interest rates for both local currency and foreign currency.
According to the SBS, as of December 31, 2023, Credicorp accounted for 41.9% of total savings deposits, 41.3% of total demand deposits, 23.7% of total time deposits, and 34.6% of total deposits in the Peruvian banking system, the highest of any Peruvian bank in all these types of deposits. In addition, as of December 31, 2023, we were in possession of 34.2% of the entire Peruvian banking system’s severance indemnity deposits. In our opinion, we have traditionally attracted a high percentage of the savings, demand, and time deposits market because of our reputation as a sound institution, our extensive branch network, and the quality of our service.
As of December 31, 2023, our total due to banks and correspondents was S/12.2 billion, representing a 37.4% increase from S/8.9 billion as of December 31, 2022.
As of December 31, 2023, our total bonds and notes issued were S/14.6 billion, a 14.2% decrease from S/17.0 billion as of December 31, 2022. The decrease in 2023 was attributable to bonds issued in BCP Stand-alone that matured during the year.
As of December 31, 2023, our payables from repurchase agreements and security lending were S/10.2 billion, a 21.6% decrease from S/13.0 billion as of December 31, 2022. During 2023, BCRP instruments decreased, primarily in BCP Stand-alone and to a lesser extent in Mibanco, driven by a lower appetite for repo financing from BCRP and the expiration of the remanent balance of repos that funded the Government Program loans.
For further detail about 2022 and 2021 evolution please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A. Operating results – (5) Financial Position.”
At the end of 2023, Credicorp’s total funding was S/184.7 billion, which represents a 0.6% decrease as compared to S/185.9 billion at the end of 2022.
Credicorp’s funding structure shows an increase in total deposits throughout 2023, due to an uptick in time deposits which was driven by higher interest rates. At the end of 2023, deposits accounted for a 79.9% share of total funding, as compared to 79.1% at the end of 2022.
The increase in deposits was mainly associated with an increase in time deposits, which increased by 9.2% as compared to 2022. The shares of savings deposits and non-interest-bearing demand deposits decreased within the deposits mix (64.1% at the end of 2023, as compared to 66.7% in 2022). Both types of deposits are considered low-cost alternatives within the deposits mix.
With respect to other funding sources, our analysis shows a decrease in 2023 in the volume of BCRP instruments, which represented 4.0% of total funding as of December 31, 2023 (compared to 6.1% of total funding on December 31, 2022). This decrease was a result of a decline in repo financing from BCRP as well as by the expiration of repos associated to Government Program loans.
For further detail about 2022 and 2021 evolution please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A. Operating results – (5) Financial Position.”
| | | As of and for the year ended on December 31, | | | | |
| | | 2021 | | | | 2022 ( | *) | | | 2023 | | | | 2023 – 2022 | |
| | | in millions of Soles | | | % Change | |
| Capital stock | | | 1,319 | | | | 1,319 | | | | 1,319 | | | | - | |
| Treasury stock | | | (208 | ) | | | (208 | ) | | | (208 | ) | | | - | |
| Capital surplus | | | 229 | | | | 231 | | | | 228 | | | | (1.3 | ) |
| Reserves and others | | | 21,601 | | | | 23,384 | | | | 26,549 | | | | 13.5 | |
| Retained earnings | | | 3,556 | | | | 4,277 | | | | 4,572 | | | | 6.9 | |
| Equity before non-controlling interest | | | 26,497 | | | | 29,003 | | | | 32,460 | | | | 11.9 | |
| Non-controlling interest | | | 540 | | | | 592 | | | | 647 | | | | 9.5 | |
| Total equity | | | 27,037 | | | | 29,595 | | | | 33,107 | | | | 11.9 | |
(*) Balances corresponding to 2022 have been restated according to IFRS 17. For further detail please refer to note 3b on the 2023 Audited Financial Statements.
As of December 31, 2023, we had total equity of S/33.1 billion, which represented an 11.9% increase from S/29.6 billion as of December 31, 2022.
For further detail about 2022 and 2021 evolution please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A. Operating results – (5) Financial Position – 5.3 Equity.”
During 2021, 2022 and 2023, we had 94,382,317 issued shares each at US$5.00 par value.
As provided in Note 16 to our consolidated financial statements, on December 31, 2023, 14,886,096 of our issued shares were treasury stock. The term “treasury stock,” as used in this Annual Report and our consolidated financial statements, follows the IFRS definition of treasury stock, which includes (i) shares acquired and held by subsidiaries and members of the consolidated group and (ii) shares sold, issued or cancelled in connection with employee share option plans, employee share purchase plans and all other share-based payments arrangements. The term “treasury stock” is not related to the term “treasury shares” as used under the Companies Act 1981 of Bermuda, which defines “treasury shares” (in Section 42B of such Act) as shares that (i) were (or are treated as having been) acquired directly by the company that issued the shares and have not been cancelled and (ii) have been continuously held by the company since they were acquired. Credicorp is not allowed to hold “treasury shares” as such term is used under Bermuda Law. Under Bermuda law, a company cannot (i) exercise any rights with respect to treasury shares, including any right to attend and vote at meetings or (ii) pay dividends with respect to treasury shares.
For further detail about 2022 and 2021 evolution please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A. Operating results – (5) Financial Position.”
We present below the following table presents our treasury stock as of December 31, 2023:
| | | As of and for the year ended on December 31, | |
| | | Shares of the Group | | | | | | Shared-based payment (1) | | | Total Treasury stock | |
| | | Soles in thousands | | | Units | | | Soles in thousands | | | Units | | | Soles in thousands | | | Units | |
| Atlantic Security Holding Corporation | | | 204,326 | | | | 14,620,846 | | | | - | | | | - | | | | 204,326 | | | | 14,620,846 | |
| BCP | | | - | | | | - | | | | 1,526 | | | | 109,185 | | | | 1,526 | | | | 109,185 | |
| Atlantic Security International Financial Services | | | - | | | | | | | | 549 | | | | 39,309 | | | | 549 | | | | 39,309 | |
| Grupo Crédito | | | - | | | | - | | | | 513 | | | | 36,698 | | | | 513 | | | | 36,698 | |
| Pacífico Seguros | | | - | | | | - | | | | 278 | | | | 19,912 | | | | 278 | | | | 19,912 | |
| MiBanco | | | - | | | | - | | | | 197 | | | | 14,128 | | | | 197 | | | | 14,128 | |
| Credicorp Capital Servicios Financieros | | | - | | | | - | | | | 185 | | | | 13,267 | | | | 185 | | | | 13,267 | |
| ASB Bank Corp | | | - | | | | - | | | | 168 | | | | 12,041 | | | | 168 | | | | 12,041 | |
| Other minors | | | - | | | | - | | | | 291 | | | | 20,710 | | | | 291 | | | | 20,710 | |
| Total | | | 204,326 | | | | 14,620,846 | | | | 3,707 | | | | 265,250 | | | | 208,033 | | | | 14,886,096 | |
(1) Correspond to mainly to the treasury shares that were granted to employees and Senior Management, and to a lesser extent to the shares acquired for coverage purposes for the new complementary retention program. These stocks are not vested at December 31, 2023. For further detail refer to Note 16 to the consolidated financial statements and ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS – 7. A Major Shareholders.
At meetings held on April 27, 2023, April 28, 2022 and February 25, 2021, the Board of Directors decided to transfer S/2,593.6 million, S/2,354.9 million and S/347.0 million, respectively, from “Retained earnings” to “Reserves”.
During 2023 and 2022, Credicorp paid cash dividends, net of the effect of treasury stock, of approximately US$540.4 million and US$318.5 million, respectively (equivalent to approximately S/1,994.0 million and S/1,196.4 million, respectively). During the years 2023 and 2022, cash dividend payouts per share totaled US$6.8, US$4.0, respectively (equivalent to S/25.0 and S/15.0, respectively). In accordance with current Peruvian legislation, there is no restriction for overseas remittance of dividends or the repatriation of foreign investment. At December 31, 2023 and 2022 dividends paid by our Peruvian subsidiaries to Credicorp were subject to a 5.0% withholding tax.
For further detail about 2022 and 2021 evolution please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A. Operating results – (5) Financial Position.”
5.4 Off-Balance Sheet Arrangements
We record various contractual obligations as liabilities in our consolidated financial statements. We do not recognize other contractual arrangements, such as off-balance-sheet exposures, as liabilities in our consolidated 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 to provide support to our clients and to hedge risks in our statement of financial position, including through use of guarantees, letters of credit, derivatives and swaps.
The following table reflects our off-balance sheet arrangements as of December 31, 2021, 2022 and 2023:
| | | As of December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (in thousands of Soles) | |
| Off-balance-sheet exposure | | | | | | | | | |
| Guarantees and stand-by letters | | | 20,455,238 | | | | 18,244,865 | | | | 17,737,645 | |
| Import and export letters of credit | | | 2,459,105 | | | | 2,683,190 | | | | 2,313,970 | |
| Sub Total | | | 22,914,343 | | | | 20,928,055 | | | | 20,051,615 | |
| | | | | | | | | | | | | |
Responsibilities under credit line agreements (*) | | | 88,382,322 | | | | 86,597,041 | | | | 87,091,701 | |
| | | | | | | | | | | | | |
| Derivatives (notional amount) | | | | | | | | | | | | |
| Forwards | | | 28,618,406 | | | | 34,224,865 | | | | 32,261,233 | |
| Currency swaps | | | 15,935,149 | | | | 16,000,208 | | | | 12,895,649 | |
| Options | | | 576,398 | | | | 362,324 | | | | 501,189 | |
| Interest rate swaps | | | 27,634,201 | | | | 11,760,821 | | | | 18,250,519 | |
| Cross currency swaps | | | 806,290 | | | | 1,421,297 | | | | 1,800,463 | |
| Futures | | | 72,165 | | | | 48,819 | | | | 40,428 | |
| Sub Total | | | 73,642,609 | | | | 63,818,334 | | | | 65,749,481 | |
| | | | | | | | | | | | | |
| Total | | | 184,939,274 | | | | 171,343,430 | | | | 172,892,797 | |
(*) Lines of credit include consumer loans and other consumer loan facilities (credit card receivables) granted to customers and are cancelable upon related notice to the customer.
In the normal course of business, our banking subsidiaries are parties to transactions with off-balance-sheet risk. These transactions expose them to additional credit risks relative to amounts recognized in the consolidated statements of financial position.
Credit risk for off-balance sheet financial instruments is defined as the possibility of sustaining a loss as a result of any other party to a financial instrument failing 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 18(a) of the consolidated financial statements), including the requirement to obtain collateral when necessary. The type and amount of collateral held varies, but may include deposits in financial institutions, securities or other assets. Many contingent transactions are expected to expire without any performance being required. Therefore, the total committed amounts do not necessarily represent future cash requirements.
Credicorp has currency-forwards derivatives. Currency-forwards are commitments to buy or sell currency at a future date at a contracted price. Risk arises from the possibility that the counterparty to the transaction will not perform as agreed and from the changes in the prices of the underlying currencies. As of December 31, 2023, and 2022, the nominal amounts for forward currency purchase and sale agreements, which in general have maturities of less than one year, were approximately S/32,206.8 million and S/34,224.9 million, respectively.
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, 2023, and 2022, the forward contracts’ net position was US Dollars of approximately S/5,627,143 million and S/2,796.2 million, respectively.
Credicorp’s swap contracts include interest rate and currency swap contracts, as well as cross-currency swap contracts. Interest rate and currency swap contracts 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’s 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, 2023, the notional amount of open interest rate and currency swap contracts was approximately S/31,146.2 million, compared to approximately S/27,761.0 million as of December 31, 2022, see Note 12(c) to the consolidated financial statements.
Cross-currency swap 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 end of the contract. As of December 31, 2023, the notional amount of cross-currency swap contracts was approximately S/1,800.5 million compared to approximately S/1,421.3 million as of December 31, 2022; see Note 12(c) to the consolidated financial statements.
As of December 31, 2023, the fair values of the asset and liability forward-exchange contracts, options, futures and interest rate and cross-currency swaps amounted to approximately S/987.7 million and S/892.0 million, respectively (compared to approximately S/1,478.7 million and S/1,345.7 million as of December 31, 2022) and are included under the “Other assets and other liabilities” section of the consolidated statements of financial position, respectively, see Note 12(c) to the consolidated financial statements.
| (6) | Lines of Business (LoBs) |
Asset Structure
At the end of 2023, BCP Stand-alone’s total assets amounted to S/180.9 billion, which represents a 0.2% increase compared to S/180.6 billion in 2022 (and S/187.6 billion in 2021). The increase in total assets in 2023 was mainly driven by an increase in investments, particularly in Fair value through other comprehensive income investments. This growth was partially offset by the decrease of the loan portfolio, which decreased by 3.5% in 2023 to S/119.4 billion, compared to S/123.7 billion in 2022 (and S/122.8 billion in 2021).
In 2023, BCP Stand-alone’s total loans fell 3.1%, in average daily balances, mainly driven by amortizations of Reactiva loans and a reduction in loan disbursements in Wholesale Banking, partially offset by the growth in structural loans across all segments in Retail Banking. Structural loans, in average daily balances, increased 3.8% from 2022 to 2023.
For further analysis of our asset structure, please see “Item 5.A Operating results – (5) Financial position – 5.1 Total Assets – Loan evolution”.
Portfolio Quality
The internal overdue loan ratio at BCP Stand-alone increased to 4.17% in 2023, compared to 3.93% in 2022 (which represented an increase from 3.67% in 2021). This was mainly driven by the SME segments, due specifically to the clients from segments with higher risk profiles and commensurately higher margins. For further analysis of the ratio per business segment, see “Item 5.A Operating results – (5) Financial position – 5.1 Total Assets – Portfolio quality” (bullets one to six).
BCP Stand-alone’s provisions for credit losses on loan portfolio, net of recoveries increased by 113.3%, with respect to 2022 (compared to the 55.6% increase in 2022 with respect to 2021) attributable to (i) a deterioration in payment capacity among clients from older vintages, which impacted the Consumer and Credit Card segments; and (ii) a deterioration of old loans concentrated in higher-risk segments in SME-Pyme. In this context, BCP Stand-alone’s cost of risk situated at 2.20% in 2023 (in comparison to 1.00% in 2022), after presenting historic lows in 2021.
Funding Structure
At the end of 2023, BCP Stand-alone’s total funding decreased by 0.8% (from S/152.0 billion in 2022 to S/150.7 billion in 2023), driven primarily by a decline in BCRP instruments, which decreased by 32.1%, fueled by a decline in repo financing from BCRP as well as by the expiration of repos associated to Government Program loans.
Total deposits rose to S/122.4 billion (as compared to S/120.6 billion in 2022, which represented an increase from S/1.8 billion). The increase was mainly driven by time deposits, which increased 16.0%.
Financial Ratios
BCP Stand-alone’s net earnings contribution to Credicorp totaled S/4,280.8 million in 2023, which represented an increase of 2.9% with regard to the S/4,160.8 million reported in 2022. This evolution was the result of a higher net interest income, bolstered by high interest rates and an increase in structural loans measured in average daily balances.
BCP Stand-alone’s ROAE contribution to Credicorp was 20.6% in 2023 (compared to 22.0% in 2022). The higher contribution in 2023 reflects an increase in net interest income, bolstered by high interest rates and an increase in structural loans measured in average daily balances.
NIM stood at 5.70% in 2023, representing an increase of 113 bps with regard to a 2022 NIM of 4.57%. This rise was in line with high market interest rates and an uptick in structural loans.
In 2023, the efficiency ratio at BCP Stand-alone stood at 38.8% (versus 40.8% in 2022). This was a result of growth in Net Interest Income. Nonetheless, Administrative and General Expenses grew due to IT expenses related to (i) an uptick in cloud use given ongoing increases in client digitalization; (ii) investments to improve digital capacities and an improvement in cybersecurity; and (iii) measures to attract more specialized digital talent.
For further detail about 2022 and 2021 evolution please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A. Operating results – (6) Lines of Business (LoBs).”
Asset Structure
By the end of 2023, BCP Bolivia’s total assets amounted to S/13.5 billion, which represents a 6.3% increase compared to S/12.7 billion in 2022. The increase in Bolivia’s loan portfolio was approximately 2.0%. At the same time, temporary and permanent investments decreased by 1.0%. Adjusting for variations in the Peruvian Sol to the Boliviano exchange rate, in 2023 total assets would have increased by 9.4%, the loan portfolio would have increased by 5.0%, and temporary and permanent investments would have increased by 1.9%.
For further analysis of our asset structure, please see “Item 5.A Operating results – (5) Financial position – 5.1 Total Assets – Loan evolution”.
Portfolio Quality
The past-due ratio has increased from 2.59% in 2022 to 2.64% in 2023.
Funding Structure
By the end of 2023, BCP Bolivia increased its total liabilities by 6.5%, in comparison to the 8.7% decrease in 2022. This includes an increase in total customer deposits of 3.6%. Adjusting for variations in the Peruvian Sol to Boliviano exchange rate, total liabilities would have increased by 9.7% and total deposits would have increased by 6.6%.
Net profit
BCP Bolivia’s net profit amounted to S/83.1 million in 2023, which represents a 22.1% increase compared to S/68.0 million in 2022. Adjusting for variations in the Peruvian Sol to Boliviano exchange rate, the increase would have been 25.7%.
For further detail about 2022 and 2021 evolution please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A. Operating results – (6) Lines of Business (LoBs).”
Asset Structure
Total assets at Mibanco were S/16.9 billion as of December 31, 2023, compared to S/17.2 billion as of December 31, 2022. The 1.9% decrease in total assets in 2023 reflects decline in the loan portfolio as a consequence of economic slowdown, partially offset by an increase in short-term investments to make excess liquidity more profitable.
On December 31, 2023, Mibanco’s loans totaled S/13.3 billion, which represents 5.8% decrease compared to 2022. This decrease was driven by structural loans, the majority of which were concentrated in the Microbusiness segment, which registered a 16.5% decrease in its loan level in 2023 and then a decrease in the small business segment of 2.3% in 2023. The small business and micro business segments represented a slightly lower share of total loans in 2023, with shares of 69.2% and 20.2% respectively (as compared to 66.8% and 22.8% in 2022). Finally, Mibanco’s loan portfolio represented 78.2% of total interest-earning assets in 2023 (as compared to 80.9% in 2022).
Cash and investments increased by 11.1% in 2023. This growth was attributable to a year-over-year increase in liquid assets to address outflows from retail time deposits.
Portfolio Quality
Our loan portfolio quality dropped in 2023. This evolution reflected the impact of: i) social conflicts, climatic phenomenon, recession and inflation had on the economy and the consequent deterioration in our clients’ payment and ii) the application of more conservative lending guidelines. In this context, Mibanco’s cost of risk stood at 6.2% at the end of 2023 (compared to 3.5% at the end of 2022). The uptick in the cost of risk was driven primarily by an uptick in the volume of loans in more advanced stages of delinquency, more write-offs, staging rules for high-risk loans, and anticipation of the effects of a moderate El Niño Phenomenon. The coverage ratio for total loans stood at 7.6% in 2023 (compare to 7.1% in 2022).
Funding Structure
On December 31, 2023, total liabilities at Mibanco amounted to S/13.9 billion, which represent a decrease of 3.8% as compared to S/14.4 billion at the end of 2022 driven by the decrease of portfolio. In 2023, Mibanco’s funding strategy reflected an increase in retail time deposits and new bond issuances to offset the decrease in due to banks and thus improve the cost of funds.
In 2023, deposits continued to represent the largest source of funding, accounting for 71.9% of average total liabilities, as compared to 64.5% in 2022. The significant growth in retail time deposits was driven by higher market rates. The growth in bonds, for which in 2023 the average balance was S/611.2 million (up 10.6% from S/552.7 million in 2022), was driven by new issuances of certificated deposits due to higher funding requirements. The drop of 21.6% in Due to Banks and correspondents was driven by prepayment of debt with the BCP while the drop of 41.4% in other liabilities was driven by the payment of government backed Reactiva loans and the corresponding debt with the BCRP. This new funding structure and higher market rates led our funding costs to rise to 7.2% by the end of 2023, as compared to 5.6% at the end of 2022.
In this context, Mibanco took advantage of more stable funding, particularly retail time deposits and certificates of deposit to cover its funding needs as they provide lower rates in a context of rising market rates.
Financial ratios
Net earnings at Mibanco totaled S/203.8 million in 2023, as compared to S/424.9 million in net earnings in 2022. Net earnings attributable to Credicorp totaled S/199 in 2023, as compared to S/415.5 million in 2022.
Mibanco’s ROAE contribution to Credicorp was 7.1% in 2023, compared to its contributions of 16.5% in 2022. The decrease in Mibanco’s ROAE contribution reflects (i) an increase in net provisions for loan losses, in line with higher delinquencies caused by a recessive environment and high inflation that affected the ability to pay of clients and (ii) higher operating expenses, due to the execution of strategic initiatives and higher professional expenses to improve financial performance. The aforementioned decrease was partially offset by (i) an increase in net interest income driven by higher market rates partially offset by lower structural loan volumes and higher cost of funds in line with a recessive and high inflation background and (ii) an increase in non-interest income driven by release of tax provisions for prescribed periods.
NIM was situated at 13.6% in 2023 which represents an increase of 42 bps as compared to NIM in 2022 (13.2% in 2022). The increase in NIM was fueled by higher interest rates in loan portfolio and investments, better mix of structural loans which was partially offset by a decrease in the loan portfolio and an increase in interest expenses due to higher market interest rates.
In 2023, Mibanco’s efficiency ratio was 52.7%, which shows an improving trend in recent years, despite a slight increase compared to 2022 (51.3%). This result was primarily attributable to a slower growth in net interest income than operating expenses due to the execution of strategic initiatives and higher professional expenses to improve financial performance.
6.2.2 Mibanco Colombia
At Mibanco Colombia, the loan portfolio totaled $1,780.2 billion Colombian Pesos at year-end, which represents an increase of 16% year-over-year. The year’s growth was sustained by an increase in the ticket size, which grew from 7.7 in 2022 to 10.3 in 2023. The microcredit segment continues to represent the largest proportion of the loan portfolio, accounting for 72.4% of total gross loans as of December 2023.
The growth in interest income and other non-financial income was in line with the increase in gross loan amounts. Interest income grew by 37.4%, while non-financial income increased by 4.7% year-over-year.
Our funding cost increased by 233 basis points (bps) from 2022 to 2023, primarily due to a rise in the reference rate. The reference rate increased by 100 bps because of inflationary pressures in Colombia. As of December 31, 2023, the reference rate was 13%, with an average of 13.25%. Our financial expense increased by 100.5% year-over-year.
The market posed a significant challenge throughout 2023, represented by a 30-day non-performing loan ratio of 5.9% at the end of 2023, 222 bps higher than at year-end 2022. Consequently, Mibanco’s cost of risk was 7.8% at year-end 2023.
Finally, inflation at the end of 2022 in Colombia was 13.1%. Given the indexation of expenses in the Colombian market, this represents an increase by at least 13% in operating expenses for 2023. Mibanco began an efficiency program that marked a significant reduction in the headcount, merger of offices and prioritization of expenses. Despite this, the efficiency ratio closed at 93% with an increase in spending of 25.7%.
For further detail about 2022 and 2021 evolution please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A. Operating results – (6) Lines of Business (LoBs).”
Net Profits
Under the new IFRS 17 standard, Grupo Pacífico’s net profit before non-controlling interest was S/810.4 million in 2023, S/344.0 million higher than the S/466.4 million reported in 2022. This higher net profit was mainly associated with:
| • | An increase in net profit for the Life insurance business, which totaled S/639.7 million in 2023, S/330.8 million higher than the S/308.9 million reported in 2022. This increase was primarily due to (i) growth in the level of direct premiums due to higher sales, (ii) a decrease in net claims as a consequence of a drop in excess mortality for COVID-19, and (iii) higher net financial income. |
| • | An increase in net profit for Corporate health insurance and medical services (only 50% of these business profits correspond to Grupo Pacífico, given its partnership with Banmedica), which totaled S/102.4 million in 2023, 39.8% higher than the S/74.5 million reported in 2022. |
| • | An increase in net profit for the Crediseguro business, which represented S/13.5 million in 2023, 15.4% higher than the S/11.7 million reported in 2022. |
These results were partially offset by:
| • | A decrease in net profit for the P&C insurance business, which totaled S/53.5 million in 2023, 22.8% lower than the S/69.3 million reported in 2022. This decrease is attributable to an increase in claims as a result of higher case frequency in P&C risks and Cars (due to the impacts of Cyclone Yaku and a higher frequency of cases), which was partially offset by an increase in written premiums. |
Grupo Pacífico’s net profit contribution to Credicorp was S/803.4 million in 2023, S/343.1 million higher than the S/460.3 million reported in 2022.
Financial Ratios
Grupo Pacífico’s ROAE was 29.5% in 2023, higher than its ROAE 20.9% in 2022. This was explained by (i) higher underwriting results in the Life business due to an increase in gross written premiums and lower mortality compared to the year 2022 impacted by the Pandemic, and (ii) higher net financial income due to the positive effect of better portfolio reinvestment rates, thanks to high credit quality and professional investment management. These effects were attenuated by higher general expenses due to increased personnel and third-party service expenses, and higher claims in the P&C business attributable to growth in claims through the P&C risks and Cars Lines due to an uptick in claims frequency.
| As of and for the year ended December 31, | |
ROAE (1) | | 2022 (2) | | | 2023 | |
| Grupo Pacífico | | | 20.90 | % | | | 29.50 | % |
Grupo Pacífico (3) | | | 23.20 | % | | | 32.10 | % |
(1) Annualized and average are determined as the average of period beginning and period ending. Includes 50% of corporate health insurance and medical services business results due to the agreement with Banmedica. The figures do not include eliminations for Credicorp’s consolidation purposes.
(2) Restated on IFRS 17.
(3) Exclude unrealized gains or losses.
P&C Insurance Business
Under the new IFRS 17 standard, Grupo Pacífico’s P&C insurance business achieved a net profit of S/53.5 million in 2023, which was 22.8% lower than the S/69.3 million reported in 2022. This decrease is attributable to (i) lower total underwriting results due to higher insurance services expenses, (ii) higher attributable expenses, and (iii) higher Medical Assistance insurance deduction and other income. This was partially offset by higher financial net income and higher exchange differences.
The 2023 underwriting results decreased 18.7% from 2022 restated, which decrease was mainly attributable to an increase in claims and higher attributable expenses, partially offset by an increase in premiums and a lower reinsurance result.
The insurance revenue increased in 1.2%, due to written premiums that totaled S/1,991.0 million in 2023, which represented an increase of 17.6% compared to 2022 and reflected growth across all lines. This increase is attributable to (i) Personal lines, due to an increase in policy issuances for the credit card product through digital sales and Personal Accidents (ii) Commercial Lines, due to the volume of policy renewals in Fire, Marine Hull and Construction Risks; (iii) Cars, due to an increase in renewals in the Brokers and Digital Sales channels; and (ii) Medical Assistance, due to growth in premium renewals for comprehensive health and oncological products. The aforementioned increase was lower than market growth (+8.3%). However, Pacífico maintained its second place in the P&C business with a 20.4% market share as of December 31, 2023 (versus 20.8% at the end of 2022), according to the SBS.
The insurance service expenses increased by 16.6%, mainly to higher claims in 14.4% in 2023, which increase was attributable to growth in claims (i) in P&C Risks Line as a result of the impact of Cyclone Yaku in Fire, Construction, and Home insurance risks, and credit card protection line was impacted by an uptick in unrecognized internet purchases (ii) in the Cars business unit due to the increase in the frequency of accidents. In addition, the attributable expenses showed an increase of 20.9% in 2023, explained by higher personnel expenses, third-party services, and amortization expenses.
Net financial income showed an increase over the previous year (+43.3%), as a result of higher interest on investments due to professional management of our investment portfolio; higher translation results are explained by a regularization of the monetary position required by the standard as a result of the change in IFRS17.
Net Profit and Selected Ratios for Grupo Pacífico’s - P&C business
| | | As of and for the year ended December 31, | | | | | | | |
| | | 2022 | | | 2023 | | | | 2023 - 2022 | |
| | | (in thousands of Soles) | | | Change (S/) | | | Change (%) | |
| Insurance revenue | | | 1,625,635 | | | | 1,645,467 | | | | 19,833 | | | | 1.20 | % |
| Insurance service expenses | | | (994,140 | ) | | | (1,158,972 | ) | | | (164,832 | ) | | | 16.60 | % |
| Insurance Service Result | | | 631,495 | | | | 486,496 | | | | (144,999 | ) | | | (23.00 | %) |
| Reinsurance Result | | | (429,560 | ) | | | (322,308 | ) | | | 107,251 | | | | (25.00 | %) |
| Total insurance underwriting result | | | 201,935 | | | | 164,187 | | | | (37,748 | ) | | | (18.70 | %) |
| Net Financial Income | | | 38,803 | | | | 55,589 | | | | 16,786 | | | | 43.30 | % |
| Net Insurance financial result | | | (55 | ) | | | (695 | ) | | | (640 | ) | | | 1167.10 | % |
| Non attributable expenses | | | (113,064 | ) | | | (105,874 | ) | | | 7,190 | | | | 6.40 | % |
| Other Income/Expenses | | | (4,279 | ) | | | (10,652 | ) | | | (6,373 | ) | | | 148.90 | % |
| Translations results | | | (17,456 | ) | | | 5,095 | | | | 22,551 | | | | (129.20 | %) |
| Medical Assistance insurance deduction | | | (36,566 | ) | | | (53,097 | ) | | | (16,530 | ) | | | 45.20 | % |
| Income tax | | | 0 | | | | (1,052 | ) | | | (1,052 | ) | | | | |
| Net income | | | 69,318 | | | | 53,502 | | | | (15,816 | ) | | | (22.80 | %) |
Life Insurance Business
Under the new IFRS 17 standard, Grupo Pacífico’s life insurance business’s net profit was S/639.7 million in 2023, compared to S/308.9 million reported in 2022. This increase was mainly attributable to (i) an important growth in insurance revenue, (ii) a significant decrease in insurance service expenses and (iii) higher net financial income. These increases were attenuated by higher expenses, in addition to lower other income and translation results.
Grupo Pacífico’s life insurance business reported an uptick in the insurance revenue due to written premiums that ended in S/1,836.1 million in 2023, which represented an increase of 27.2% compared to 2022. This result is explained by D&S, which benefitted from positive movements in both prices and the size of the tranche awarded under SISCO VI in comparison to the conditions obtained under SISCO V, (ii) Annuities, due to higher sales of individual products, (iii) Credit Life which was mainly fueled by an uptick in premiums through BCP and the Banco de la Nacion due to rate adjustments and growth in volumes, (iv) Group Life, by SCTR and Vida Ley products for higher renewal premiums in corporate accounts. All these effects contributed to maintaining Grupo Pacífico’s top position in the market in terms of written premiums, according to the SBS.
In 2023, Insurance service expenses decreased by 11.2%, mainly to which was influenced by the lower levels of claims in Group Life, D&S and Credit Life versus periods affected by COVID-19. This was mitigated by higher attributable expenses.
Net Financial income grew by 12.3% in 2023 compared to 2022 as a result of optimal investment management in terms of profitability and control, due to higher dividends on investments, favorable effect of value fluctuations and lower impairment loss.
Net Profit and Selected Ratios for Grupo Pacífico’s- Life business (1)
| | | As of and for the year ended December 31, | | | | | | | |
| | | 2022 |
|
| 2023 |
|
| 2023 -2022 | |
| | | (in thousands of Soles) | | | Change (S/) | | | Change (%) | |
| Insurance revenue | | | 1,375,894 | | | | 1,647,101 | | | | 271.2 | | | | 19.70 | % |
| Insurance service expenses | | | (1,211,961 | ) | | | (1,076,250 | ) | | | 135,711 | | | | (11.20 | %) |
| Insurance Service Result | | | 163,933 | | | | 570,851 | | | | 406,918 | | | | 248.20 | % |
| Reinsurance Result | | | (27,066 | ) | | | (82,998 | ) | | | (55,931 | ) | | | 206.60 | % |
| Total insurance underwriting result | | | 136,866 | | | | 487,853 | | | | 350,987 | | | | 256.40 | % |
| Financial result of insurance activity (VFA) | | | (24,898 | ) | | | 877 | | | | 25,775 | | | | 103.50 | % |
| Net Financial Income | | | 672,671 | | | | 755,267 | | | | 82,597 | | | | 12.30 | % |
| Financial expenses of the insurance service | | | (426,422 | ) | | | (466,119 | ) | | | (39,697 | ) | | | 9.30 | % |
| Non attributable expenses | | | (80,126 | ) | | | (101,847 | ) | | | (21,721 | ) | | | 27.10 | % |
| Other Income/Expenses | | | 740 | | | | (23,280 | ) | | | (24,021 | ) | | | (3245 | %) |
| Translations results | | | 30,060 | | | | 10,864 | | | | (19,196 | ) | | | (63.90 | %) |
| Income tax | | | 0 | | | | (23,932 | ) | | | (23,932 | ) | | | N/A | |
| Net income | | | 308,891 | | | | 639,683 | | | | 330,791 | | | | 107 | % |
| (1) | Financial statements without consolidation adjustments. |
Corporate Health and Medical Services Insurance Business
Corporate health insurance and medical services achieved a net profit of S/204.8 million in 2023, which was 37.4% higher than the S/149.1 million reported in 2022. This increase in net profit can be attributed to a higher net profit in corporate health insurance, as a result of a higher renewal premiums, and an increase in medical services income, which was mainly attributable to health clinics and specialized clinics (S/118.4 million in 2023 versus S/109.5 million in 2022) as a result of an increase in the demand for services.
Net Profit and Selected Ratios for Grupo Pacífico’s Corporate Health Insurance & Medical Services (1)
| | | As of and for the year ended December 31, | | | | | | | |
| | | 2022 | | | 2023 | | | 2023 - 2022 | |
| | | (in thousands of Soles) | | | | S/ | | | % | |
| Insurance revenue | | | 1,257,302 | | | | 1,313,640 | | | | 56,338 | | | | 4.50 | % |
| Insurance service expenses | | | (1,119,260 | ) | | | (1,124,371 | ) | | | (5,111 | ) | | | 0.50 | % |
| Insurance Service Result | | | 138,041 | | | | 189,270 | | | | 51,229 | | | | 37.10 | % |
| Reinsurance Result | | | (17,755 | ) | | | (16,658 | ) | | | 1,097 | | | | (6.20 | %) |
| Total insurance underwriting result | | | 120,287 | | | | 172,611 | | | | 52,324 | | | | 43.50 | % |
| Financial income from the insurance service | | | 9,030 | | | | 16,562 | | | | 7,532 | | | | 83.40 | % |
| Non attributable expenses | | | (64,797 | ) | | | (52,843 | ) | | | 11,954 | | | | (18.40 | %) |
| Other Income/Expenses | | | 1,178 | | | | (2,686 | ) | | | (3,864 | ) | | | (328 | %) |
| Translations results | | | (3,410 | ) | | | (2,423 | ) | | | 987 | | | | (28.90 | %) |
| Income tax | | | (22,706 | ) | | | (44,855 | ) | | | (22,149 | ) | | | 97.50 | % |
| Net profit Corporate health insurance | | | 39,582 | | | | 86,367 | | | | 46,785 | | | | 125.80 | % |
| Medical Services | | | 109,470 | | | | 118,449 | | | | 8,979 | | | | 8.20 | % |
| Net profit | | | 149,052 | | | | 204,816 | | | | 55,764 | | | | 37.40 | % |
| (1) | Financial statements without consolidation adjustments. |
Underwriting, Actuarial and Reinsurance
Underwriting guidelines for substantially all the risks associated with the P&C and corporate health insurance businesses are developed by profit centers in collaboration with the actuarial staff. Grupo Pacífico’s P&C insurance business unit has an engineering staff that ensures that most medium and medium-to-large commercial properties are insured for risks prior to underwriting, while third-party surveyors are employed to inspect smaller and/or lower-risk properties. Pricing and underwriting guidelines, rates, and approval thresholds for these risks, are periodically reviewed by the staff, reported to the Risk and Pricing Committees, and continuously monitored to ensure that they are within competitive market conditions and profitability targets.
Grupo Pacífico’s P&C insurance business transfers risks to reinsurers in order to limit maximum aggregate potential losses and minimize exposures to large individual risks. Reinsurance companies are chosen based on the evaluation of the credit quality of the reinsurer, financial rating, terms of coverage, and price. The P&C insurance business acts as a reinsurer on a very limited basis, providing excess facultative reinsurance capacity to other Peruvian insurers that are unable to satisfy their reinsurance requirements and/or the interests of Peruvian clients in the Latin American region.
Historically, Grupo Pacífico’s P&C insurance business has obtained reinsurance for a substantial portion of its earthquake-related (and other catastrophic risks) insurance portfolio through quota share and excess of loss reinsurance treaties. The insurance business has property catastrophe reinsurance coverage that covers its probable maximum loss under local regulatory requirements. However, there is no guarantee that a major catastrophe would not have a material adverse impact on Grupo Pacífico’s financial condition and/or its operations.
In 2023, Grupo Pacífico’s total ceded reinsurance premiums totaled approximately US$262.9 million, of which approximately 92% were ceded to carriers with A- and above ratings.
Grupo Pacífico’s life insurance business holds excess of loss reinsurance contracts for its Individual Life, Personal Accident, Group Life and Credit Life products; in the case of the Disability and Survivorship risk (D&S), the company has a quota share reinsurance contract. Workers’ compensation (SCTR) and the Annuity business do not have a proportional reinsurance contract. Catastrophic reinsurance contracts cover all of Pacífico’s Life line of business (Individual Life, Personal Accident, Group Life, Credit Life, SCTR and D&S), except for the annuity line. Life premiums ceded to reinsurers represented around 12% of the life insurance businesses’ written premiums in 2023.
Investment Portfolio
Grupo Pacífico’s investments are primarily made to meet its solvency equity ratio and provide reserves for its claims. Investments are managed by product within the P&C and life insurance businesses and are designed to contain sufficient assets to match the company’s liabilities. Grupo Pacífico has adopted strict policies related to investment decisions that are reviewed and approved by Grupo Pacífico’s Board of Directors on a monthly basis. Grupo Pacífico invests in local and international markets, emphasizing investments in Peru, the United States, and Latin America.
As of December 31, 2023, the value of Pacífico’s investment portfolio was S/14,427 million, which included mainly S/12,455 million in fixed-income instruments, S/633 million in investment properties, S/625 million in equity securities, and S/714 million in alternative investments. This diversified portfolio follows an asset-liability management strategy focused on cash flow, duration, and currency matching of assets (portfolio) and liabilities (reserves), as well as on supporting Pacífico’s capital structure. Pacífico’s financial income increased by 14% in 2023 to S/810.9 million from S/711.5 million in 2022.
For further detail about 2022 and 2021 evolution please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A. Operating results – (6) Lines of Business (LoBs).”
As of December 31, 2023, the number of affiliates in Prima AFP was 2.3 million, similar to 2022 (2.3 million) and 2021 (2.3 million).
Prima AFP’s funds under management reached S/36.9 billion, which was 15.7% higher than the S/31.8 billion in 2022 and 8.2%. In 2023, nominal annual yields were 8.4%, 16.4%, 10.3%, and 5.0% for Funds 0, 1, 2, and 3, respectively. Since 2006, Prima AFP’s nominal annualized yields were 6.3%, 6.7%, and 5.6% for Funds 1, 2, and 3 respectively.
Prima AFP’s revenues were S/351.0 million in 2023, which was lower than the S/373.7 million in 2022 mainly due to a reduction to 0% of the flow portion of the mixed commission (this portion charge on the wages and is scheduled to end on February 2023), leaving only the part of the mixed commission that is charged on the balance of funds (AUM).
Operating expenses reached S/181.3 million in 2023, which is S/9.4 million lower than it was in 2022 due to a fee paid to the landlord for an early termination of the tenancy agreement of Chinchon in the first quarter of 2022, in addition to lower expenses in consulting, trading, and IT.
Prima AFP’s net profit was S/149.5 million in 2023, S/40 million higher than in 2022 mainly due to higher net reserve fund profitability from the recovery of yields of Funds 0, 1, 2, and 3.
In 2023, Prima AFP’s ROAE increased to 30.0% compared to 20.4% in 2022.
The following table summarizes the administration fees charged by the AFPs’ for PPS in 2023:
| AFP | | Remuneration scheme | | | Balance commission scheme | |
| | Monthly fee on salary | | | Annual fee on funds | |
| Prima AFP | | | 1.60 | % | | | 1.25 | % |
| AFP Integra | | | 1.55 | % | | | 0.78 | % |
| Profuturo AFP | | | 1.69 | % | | | 1.20 | % |
| AFP Habitat | | | 1.47 | % | | | 1.25 | % |
As of December 31, 2023, Prima AFP had S/740.7 million in assets (compared to S/735.0 million and S/839.8 million as of December 31, 2022, and December 31, 2021, respectively), S/240.7 million in liabilities (compared to S/238.2 million and S/265.2 million as of December 31, 2022 and December 31, 2021, respectively), and shareholders’ equity of S/500.1 million (compared to S/496.8 million and S/574.6 million as of December 31, 2022 and December 31, 2021, respectively).
For further detail about 2022 and 2021 evolution, please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A. Operating results – (6) Lines of Business (LoBs).”
| | 6.4 | Investment Management and Advisory |
As mentioned before, in 2023 we reorganized our business to achieve more stable, scalable revenue growth and sustainable profitability levels. We redefined our strategy to concentrate on efficiently growing core profitable and scalable business, focusing on less volatile and scalable businesses such as Wealth and Asset Management, complemented by transactional capabilities in Capital Markets.
We aimed to consistently achieve net profit, profitability, and efficiency metrics over time. In 2023, we took a significant step forward despite facing various obstacles, which we were able to overcome thanks to timely responsiveness and effective management throughout the year.
By the end of 2023, our Investment Management and Advisory Line of Business (LoB) recorded a net profit attributable to Credicorp of S/173.4 million, a 62.7% increase compared to S/106.6 million achieved in 2022. Businesses with lower volatility and scaling potential continued to gain traction in certain client segments, while we seized market opportunities to capitalize on the upside in our more volatile businesses. Overall, our businesses generated revenues that exceeded those of 2022 by 14%, while expenses increased by 5%, resulting in improvements in efficiency and profitability ratios.
In our Asset Management business, total assets under management (AUM), including institutional, corporate, and retail clients, exceeded S/72.7 billion in 2023, a 7% increase compared to S/68.1 billion registered in the previous year. The increase was mainly driven by our investments business in traditional and alternative assets.
Investments in traditional assets reached S/28.1 billion in AUM, a 20% increase compared to S/23.4 billion in 2022. The increase was mainly due to the growth in the Mutual Funds market in Peru (where we maintain leadership with a 32% market share) and in the Collective Investment Funds market in Colombia (where we maintain leadership with a 28% market share).
Investments in alternative assets reached S/7.4 billion in AUM, a growth of 34% compared to S/5.5 billion in the previous year. This growth was attributed to focusing on expanding the practice of alternative assets, including Private Debt, Real Estate, and Infrastructure in Peru, Colombia and Chile.
Investment products reached S/7.7 billion in AUMs; a 3.1% decrease compared to S/8.0 billion in the previous year due to reduced demand for such products among Private Banking clients.
Third-party funds distribution exhibited limited dynamism at a regional level, affected by the reduced investment capacity and liquidity of institutional clients. In this business, AUMs reached S/29.6 billion, 6% lower than the previous year.
Investment products reached S/7.7 billion in AUM, a 3.1% decrease compared to S/8.0 billion in the previous year due to reduced demand among Private Banking clients.
Overall, total revenues in the Asset Management business reached S/199.0 million, similar to the S/199.8 million recorded in 2022.
Asset Management Assets under Management by asset class
| | | As of and for the year ended on December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (in millions of Soles) | |
| Traditional Investments | | | 27,584 | | | | 23,369 | | | | 28,065 | |
| Alternative Investments | | | 5,211 | | | | 5,510 | | | | 7,394 | |
| Institutional Distribution | | | 54,246 | | | | 31,281 | | | | 29,552 | |
| Investment Products | | | 8,999 | | | | 7,965 | | | | 7,716 | |
| Total assets under management | | | 96,040 | | | | 68,124 | | | | 72,728 | |
In our Capital Markets sales business, total revenues reached S/172.6 million, a 2% increase compared to S/169.9 million in 2022. Revenues from individuals decreased 6% compared to those in 2022, and those from institutional clients decreased 18% as traded volumes remained lower than expected throughout the year. Nevertheless, revenues from corporate clients in Colombia and Chile grew 16% compared to 2022, boosted by FX transactions capitalizing on the volatility of the exchange markets.
Capital Markets Securities Portfolio
| | | As of and for the year ended on December 31, | |
| Traded volume | | 2021 | | | 2022 | | | 2023 | |
| | | (in millions of Soles) | |
Equity securities – Peru 1 | | | 10,485 | | | | 5,845 | | | | 2,967 | |
Fixed income – Peru 1 | | | 58,321 | | | | 55,059 | | | | 2,057 | |
Equity securities – Colombia 2 | | | 10,521 | | | | 8,415 | | | | 3,819 | |
Fixed income – Colombia 2 | | | 141,427 | | | | 122,116 | | | | 152,368 | |
Equity securities – Chile 3 | | | 18,969 | | | | 17,677 | | | | 13,123 | |
Fixed income – Chile 3 | | | 35,485 | | | | 58,715 | | | | 71,358 | |
(1) Peru: BVL information. Fixed income data also includes information from Datatec platform. Does not include repo operations.
(2) Colombia: Colombia Stock Exchange information. Fixed income data also includes Banco de la República’s information. Does not include repo operations.
(3) Chile: Santiago Stock Exchange information. Fixed income data includes financial intermediation operations. Equity securities include operations with investment fund shares and foreign stock. Does not include repo operations.
On the other hand, revenues in the management of proprietary trading positions, including long and short positioning strategies, together with hedging strategies with derivatives instruments, were higher than expected, exceeding those achieved in 2022 by more than 47%.
In our Wealth Management business, total assets under management (AUM) reached S/62.6 billion, an 8% growth compared to S/58.0 billion in 2022. By the end of 2023 revenues reached S/365.8 million, a 11% increase compared to S/331.0 million in 2022.
In Peru, revenues reached S/300.3 million, an 11% growth compared to S/265.6 million in the previous year. This was aligned with an 8% increase in AUMs, reaching S/41.2 billion in 2023. Revenues were boosted by margin income from deposits, as funds migrated to our offshore platform remained on balance pending more profitable investment opportunities.
On the other hand, in Colombia revenues reached S/27.3 million, similar to the S/27.7 million recorded in 2022. In Chile, revenues reached S/23.8 million, decreasing by 2% compared to S/24.7 million in 2022.
Wealth Management Assets under Management
| | | As of and for the year ended on December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (in millions of Soles) | |
Assets under management – Peru (1) | | | 43,698 | | | | 38,238 | | | | 41,167 | |
| Assets under management – Colombia | | | 8,487 | | | | 7,024 | | | | 9,013 | |
| Assets under management – Chile | | | 11,256 | | | | 11,597 | | | | 11,080 | |
Assets under management – US (2) | | | 896 | | | | 1,178 | | | | 1,331 | |
Total assets under management (3) | | | 64,337 | | | | 58,037 | | | | 62,592 | |
| | | | | | | | | | | | | |
Total Customers (4) | | | 5,911 | | | | 4,770 | | | | 4,809 | |
(1) Includes assets under management booked in ASB Bank Corp and BCP Wealth Management business.
(2) Includes AUMs only from US persons. AUMs from Peruvian, Colombian and Chilean customers are included in the corresponding country.
(3) Includes Asset Management products for S/18,540, S/16,647 and S/16,241 million as of 2021, 2022 and 2023, respectively.
(4) Estimated. Includes customers with net worth over US$1 million. Figures include the effect of annual customer re-segmentation.
Our Trust Services Business, which mainly includes income from custody of securities in Peru and administration of trusts in Peru and Colombia, had a positive year in 2023 with a growth of 4% as compared to 2022.
For further detail about 2022 and 2021 evolution please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A. Operating results – (6) Lines of Business (LoBs).”
| 5. B | Liquidity and Capital Resources |
| | (1) | Capital Adequacy and Solvency Management |
Our solvency buffers, measured by either regulatory or internal capital ratios, are deemed appropriate in order to comply with both current and expected capital requirements and to support our business growth in the coming years. In a similar fashion, our working capital and other liquidity measures are deemed sufficient for current and projected business and regulatory requirements.
The following table shows regulatory capital and capital adequacy requirements applicable to the financial group under IFRS rules, as of December 31, 2021, 2022, and 2023:
Regulatory Capital and Capital Adequacy Ratios
| | | As of and for the year ended on December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| Capital stock | | | 1,319 | | | | 1,319 | | | | 1,319 | |
| Treasury stocks | | | (208 | ) | | | (208 | ) | | | (208 | ) |
| Capital surplus | | | 229 | | | | 232 | | | | 228 | |
Legal and other capital reserves (1) | | | 21,364 | | | | 23,703 | | | | 26,253 | |
Minority interest (2) | | | 420 | | | | 471 | | | | 206 | |
Loan loss reserves (3) | | | 2,001 | | | | 2,129 | | | | 1,969 | |
| Perpetual subordinated debt | | | 0 | | | | 0 | | | | 0 | |
| Subordinated debt | | | 6,125 | | | | 5,771 | | | | 5,720 | |
| Investments in equity and subordinated debt of financial and insurance companies | | | (713 | ) | | | (889 | ) | | | (1,235 | ) |
| Goodwill | | | (797 | ) | | | (772 | ) | | | (798 | ) |
Deduction for subordinated debt limit (50% of Tier I excluding deductions) (4) | | | 0 | | | | 0 | | | | 0 | |
Deduction for Tier I limit (50% of regulatory capital) (4) | | | 0 | | | | 0 | | | | 0 | |
| Total, Regulatory Capital (A) | | | 29,742 | | | | 31,755 | | | | 33,454 | |
| | | | | | | | | | | | | |
Tier I (5) | | | 15,352 | | | | 16,955 | | | | 17,877 | |
Tier II (6) + Tier III (7) | | | 14,389 | | | | 14,799 | | | | 15,577 | |
| | | | | | | | | | | | | |
| Financial Consolidated Group (FCG) Regulatory Capital Requirements | | | 18,530 | | | | 22,506 | | | | 24,780 | |
| Insurance Consolidated Group (ICG) Capital Requirements | | | 1,431 | | | | 1,563 | | | | 1,594 | |
FCG Capital Requirements related to operations with ICG (8) | | | (513 | ) | | | (471 | ) | | | (653 | ) |
ICG Capital Requirements related to operations with FCG (9) | | | 0 | | | | 0 | | | | 0 | |
| Total Regulatory Capital Requirements (B) | | | 19,447 | | | | 23,598 | | | | 25,721 | |
| Regulatory Capital Ratio (A) / (B) | | | 1.53 | | | | 1.35 | | | | 1.30 | |
Required Regulatory Capital Ratio (10) | | | 1.00 | | | | 1.00 | | | | 1.00 | |
(1) Legal and other capital reserves include restricted capital reserves (PEN 13,465 million) and optional capital reserves (PEN 5,972 million).
(2) Minority interest includes Tier 1 (PEN 000 million)
(3) Up to 1.25% of total RWAs of Banco de Credito del Peru, Solucion Empresa Administradora Hipotecaria, Mibanco and Atlantic Security Bank.
(4) Tier 2 + Tier 3 cannot be more than 50% of total regulatory capital.
(5) Tier 1 = capital + restricted capital reserves + Tier 1 minority interest - goodwill - (0.5 x investment in equity and subordinated debt of financial and insurance companies) + perpetual subordinated debt.
(6) Tier 2 = subordinated debt + Tier 2 minority interest tier + loan loss reserves - (0.5 x investment in equity and subordinated debt of financial and insurance companies).
(7) Tier 3 = Subordinated debt covering market risk only.
(8) Includes regulatory capital requirements of the financial consolidated group.
(9) Includes regulatory capital requirements of the insurance consolidated group.
(10) Regulatory Capital / Total Regulatory Capital Requirements (legal minimum = 1.00).
| | 1.2 | BCP Stand-alone and Mibanco |
BCP Stand-alone and Mibanco actively manage their capital resources, in order to comply with both solvency regulatory requirements and their own internal limits.
Internal Common Equity Tier 1 (CET 1)
In November 2013, BCP Stand-alone’ s Board of Directors decided to track the Basel III ratio known as CET 1. CET 1 comprises:
| • | paid-in-capital (which includes common stock and perpetual non-cumulative preferred stock); |
| • | legal and other capital reserves; |
| • | unrealized profits (losses); |
| • | deficits of loan loss provisions; |
| • | net deferred taxes that rely on future profitability; |
| • | goodwill resulting from corporate reorganizations or acquisitions; and |
| • | 100% of the amount referred to in “deductions” above. |
CET1 Internal Targets
During the first quarter of 2023, BCP’s and Grupo Credito’s Risk Committees approved keeping the CET 1 ratio limits for BCP Stand-alone and Mibanco Peru, targeting them at 11% and 15%, respectively. These limits are part of their risk appetite framework. Both the BCP Stand-alone’s and Mibanco Peru CET 1 ratios are calculated based on their understanding of the Basel III requirements adopted by Peruvian regulation. Beginning January 21, 2022, the Risk Committee has monitored the CET 1 with IFRS balances, rather than local ones.
The following table present regulatory capital information for BCP Stand-alone as of December 31, 2021 and 2022:
BCP Stand-alone Regulatory Capital and Capital Adequacy Ratios (in millions of Soles)
| | | As of and for the year ended on December 31, | |
| | | 2021 | | | 2022 | |
| Capital stock | | | 11,317 | | | | 12,176 | |
| Legal and other capital reserves | | | 6,708 | | | | 6,760 | |
| Accumulated earnings with capitalization agreement | | | - | | | | - | |
Loan loss reserves (1) | | | 1,735 | | | | 1,838 | |
| Perpetual subordinated debt | | | - | | | | - | |
| Subordinated debt | | | 5,397 | | | | 5,149 | |
| Unrealized gain (loss) | | | - | | | | - | |
| Investment in subsidiaries and others, net of unrealized profit and net income | | | (2,264 | ) | | | (2,437 | ) |
| Investment in subsidiaries and others | | | (2,436 | ) | | | (2,844 | ) |
| Unrealized profit and net profit in subsidiaries | | | 172 | | | | 408 | |
| Goodwill | | | (122 | ) | | | (122 | ) |
| Total regulatory capital | | | 22,772 | | | | 23,364 | |
| | | | | | | | | |
Tier 1 (2) | | | 15,143 | | | | 16,219 | |
Tier 2 (3) + Tier 3 (4) | | | 7,629 | | | | 7,145 | |
| | | | | | | | | |
| Total RWAs | | | 152,376 | | | | 161,939 | |
| Credit RWAs | | | 137,707 | | | | 145,968 | |
Market RWAs (5) | | | 2,409 | | | | 1,560 | |
| Operational RWAs | | | 12,260 | | | | 14,411 | |
| | | | | | | | | |
| Capital ratios | | | | | | | | |
Tier 1 ratio (6) | | | 9.94 | % | | | 10.02 | % |
CET1 ratio IFRS (7) | | | 11.92 | % | | | 12.59 | % |
BIS ratio (8) | | | 14.94 | % | | | 14.43 | % |
| RWAs / Regulatory capital | | | 6.69 | | | | 6.93 | |
(1) Up to 1.25% of total RWAs.
(2) Tier 1 = Capital + Legal and other capital reserves + Accumulated earnings with capitalization agreement + (0.5 x Unrealized profit and net profit in subsidiaries) – Goodwill – (0.5 x Investment in subsidiaries) + Perpetual subordinated debt (maximum amount that can be included is 17.65% of Capital + Reserves + Accumulated earnings with capitalization agreement + Unrealized profit and net profit in subsidiaries – Goodwill).
(3) Tier 2 = Subordinated debt + Loan loss reserves + (0.5 x Unrealized profit and net profit in subsidiaries) – (0.5 x Investment in subsidiaries).
(4) Tier 3 = Subordinated debt covering market risk only. Tier 3 has existed since 1Q10.
(5) It includes capital requirement to cover price and rate risk.
(6) Tier 1 / RWAs
(7) CET1 = Capital + Reserves – 100% of applicable deductions (investment in subsidiaries, goodwill, intangibles, and net deferred taxes that rely on future profitability) + retained earnings + unrealized gains. It is calculated under IFRS balance sheets.
(8) Regulatory Capital / RWAs (legal minimum = 10% since July 2011).
For transparency purposes and to demonstrate the calculation of the CET1 ratio, Credicorp periodically discloses BCP Stand-alone and Mibanco’s adjusted total RWAs. The following table presents regulatory capital information for BCP Stand-alone, calculated according to the Legislative Decree 1531 approach, which became effective in January 2023 and aims to ensure a closer alignment with the guidelines established by Basel III.
The following table present regulatory capital information for BCP Stand-alone as of December 31, 2023:
| | | As of and for the year ended on December 31, 2023 | |
| Capital stock | | | 12,973 | |
| Legal and other capital reserves | | | 6,591 | |
| Earnings from prior years and from the year in progress | | | 5,384 | |
Loan loss reserves (1) | | | 1,696 | |
| Perpetual subordinated debt | | | - | |
| Subordinated debt | | | 5,007 | |
| Unrealized gain (loss) | | | (669 | ) |
| Investment in subsidiaries and others, net of unrealized profit and net income | | | (2,773 | ) |
| Intangible assets | | | (1,294 | ) |
| Goodwill | | | (122 | ) |
| | | | | |
| Total Regulatory Capital | | | 26,793 | |
CET 1 (2) | | | 20,090 | |
Regulatory Tier 1 Capital (3) | | | 20,090 | |
Regulatory Tier 2 Capital (4) | | | 6,703 | |
| | | | | |
| Total RWAs | | | 153,473 | |
| Market RWAs | | | 2,680 | |
| Credit RWAs | | | 134,427 | |
| Operational RWAs | | | 16,366 | |
| | | | | |
| Capital ratios | | | | |
| CET1 ratio | | | 13.09 | % |
| Tier 1 ratio | | | 13.09 | % |
| Total, Regulatory capital ratio | | | 17.46 | % |
| CET1 IFRS 9 | | | 13.20 | % |
| RWAs / Regulatory capital | | | 5.73 | |
(1) Up to 1.25% of total RWAs.
(2) CET1 = Capital + Reserves + Earnings from prior years and from the year in progress + Unrealized gain (loss) – deductions as designated by the SBS (investments in subsidiaries, goodwill, intangible assets).
(3) Regulatory Tier 1 Capital = CET 1 + Perpetual subordinated debt (Tier1) as designated by the SBS
(4) Regulatory Tier 2 Capital = Subordinated debt + Loan loss reserves (tier 2) as designated by the SBS
Prior to the regulatory changes in 2023, the BCP Stand-alone Total Regulatory capital ratios were 14.94% of its RWAs for the year 2021 and 14.43% of its RWAs for the year 2022.
At the end of December 2021, December 2022, and December 2023, BCP’s Stand-alone CET1 under IFRS were 11.92%, 12.59%, and 13.20% of its RWAs, respectively.
The following table presents regulatory capital information for Mibanco as of December 31, 2021 and 2022:
Mibanco - Regulatory Capital and Capital Adequacy Ratios (in millions of Soles)
| | | As of and for the year ended on December 31, | |
| | | 2021 | | | 2022 | |
| Total regulatory capital | | | 2,305 | | | | 2,328 | |
Tier (1) | | | 1,962 | | | | 1,963 | |
Tier 2 (2) | | | 343 | | | | 365 | |
| Total RWAs | | | 14,056 | | | | 15,850 | |
| Credit RWAs | | | 12,018 | | | | 14,346 | |
Market RWAs (3) | | | 149 | | | | 97 | |
| Operational RWAs | | | 1,889 | | | | 1,408 | |
| | | | | | | | | |
| Capital ratios | | | | | | | | |
Tier 1 ratio (4) | | | 13.96 | % | | | 12.38 | % |
CET1 ratio IFRS (5) | | | 15.24 | % | | | 16.46 | % |
BIS ratio (6) | | | 16.40 | % | | | 14.69 | % |
| RWAs / Regulatory capital | | | 6.10 | | | | 6.81 | |
| (1) | Tier 1 = Capital + Legal and other capital reserves + Accumulated earnings with capitalization agreement + (0.5 x Unrealized profit and net profit in subsidiaries) - Goodwill - (0.5 x Investment in subsidiaries) + Perpetual subordinated debt (maximum amount that can be included is 17.65% of Capital + Reserves + Accumulated earnings with capitalization agreement + Unrealized profit and net profit in subsidiaries – Goodwill |
| (2) | Tier 2 = Subordinated debt + Loan loss reserves + (0.5 x Unrealized profit and net profit in subsidiaries) - (0.5 x Investment in subsidiaries). |
| (3) | It includes capital requirement to cover price and rate risk. |
| (5) | CET1 = Capital + Reserves – 100% of applicable deductions (investment in subsidiaries, goodwill, intangibles and net deferred taxes that rely on future profitability) + retained earnings + unrealized gains. |
| (6) | Regulatory Capital / RWAs (legal minimum = 10% since July 2011) |
The following table presents regulatory capital information for Mibanco, calculated according to the Legislative Decree 1531 approach, which became effective in January 2023 and aims to ensure a closer alignment with the guidelines established by Basel III.
| Mibanco Regulatory Capital and Capital Adequacy Ratios (in millions of Soles) | |
| | | As of and for the year ended on December 31, 2023 | |
Capital stock | | | 1,840,606 | |
| Legal and other capital reserves | | | 308,056 | |
| Earnings from prior years and from the year in progress | | | 717,919 | |
Loan loss reserves (1) | | | 157,368 | |
| Perpetual subordinated debt | | | - | |
| Subordinated debt | | | 173,000 | |
Unrealized gain (loss) | | | (1,695 | ) |
| Investment in subsidiaries and others, net of unrealized profit and net income | | | (282 | ) |
Intangible assets | | | (156,884 | ) |
| Goodwill | | | (139,180 | ) |
| | | | | |
Total Regulatory Capital | | | 2,898,907 | |
CET 1 (2) | | | 2,568,539 | |
Regulatory Tier 1 Capital (3) | | | 2,568,539 | |
Regulatory Tier 2 Capital (4) | | | 330,368 | |
| | | | | |
| Total RWAs | | | 14,096,867 | |
| Market RWAs | | | 220,327 | |
| Credit RWAs | | | 12,349,400 | |
| Operational RWAs | | | 1,527,140 | |
| | | | | |
| Capital ratios | | | | |
CET1 ratio | | | 18.22 | % |
| Tier 1 ratio | | | 18.22 | % |
Total Regulatory capital ratio | | | 20.56 | % |
CET1 IFRS (5) | | | 18.37 | % |
| RWAs / Regulatory capital | | | 5.44 | |
(1) Up to 1.25% of total RWAs.
(2) CET1 = Capital + Reserves + Earnings from prior years and from the year in progress + Unrealized gain (loss) – deductions as designated by the SBS (investments in subsidiaries, goodwill, intangible assets).
(3) Regulatory Tier 1 Capital = CET 1 + Perpetual subordinated debt (Tier1) as designated by the SBS
(4) Regulatory Tier 2 Capital = Subordinated debt + Loan loss reserves (tier 2) as designated by the SBS
(5) CET1 = Capital + Reserves – 100% of applicable deductions (investment in subsidiaries, goodwill, intangibles, and net deferred taxes that rely on future profitability) + retained earnings + unrealized gains. It is calculated under IFRS balance sheets.
As of December 31, 2023, Mibanco Peru’s regulatory capital with the new regulation was 20.56% of its unconsolidated RWAs. As of December 31, 2022, and December 31, 2021, Mibanco’s regulatory capital was 14.69% and 16.40% of its unconsolidated RWAs, respectively.
At the end of December 2023, December 2022, and December 2021, Mibanco’s CET1 under IFRS were 18.37%, 16.46%, and 15.24% of its RWAs, respectively.
Grupo Pacífico’s solvency indicators, given the equity requirements of the insurance business, have allowed Grupo Pacífico to satisfy its obligations to its policyholders and thus have an adequate level of financial leverage.
The following table shows the regulatory capital adequacy requirements applicable to Grupo Pacífico, as of December 31, 2021, 2022 and 2023:
Grupo Pacífico Regulatory Ratios
| | | As of and for the year ended on December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (in thousands of Soles) | |
| (A) Capital Adequacy | | | 1,683,534 | | | | 1,700,171 | | | | 1,796,778 | |
| (B) Regulatory Capital Requirement | | | 1,430,566 | | | | 1,562,893 | | | | 1,593,590 | |
| (B.1) Solvency I Required capital | | | 1,059,693 | | | | 1,157,327 | | | | 1,085,780 | |
| (B.2) Security Fund | | | 370,329 | | | | 404,534 | | | | 506,848 | |
| (B.3) Credit risk | | | - | | | | 0 | | | | 0 | |
| (B.4) Other Capital Requirement | | | 544 | | | | 1,032 | | | | 962 | |
| (C) Leverage | | | 1,063,610 | | | | 976,304 | | | | 1,063,351 | |
| Surplus 1 = (A) - (B) | | | 252,968 | | | | 137,279 | | | | 203,188 | |
| Ratio (A)/(B) | | | 1.18 | | | | 1.09 | | | | 1.13 | |
| Surplus 1 = (A) - (C) | | | 619,924 | | | | 723,867 | | | | 733,427 | |
| Ratio (A)/(C) | | | 1.58 | | | | 1.74 | | | | 1.69 | |
| | (2) | Cash flows and Capital Expenditures |
The following table shows net cash from operating, investing and financing activities, for the periods indicated:
| | | As of and for the year ended on December 31, | |
| | | 2021 | | | | 2022 ( | *) | | | 2023 | |
| | | (In thousands of Soles) | |
| Net cash flow from operating activities | | | 3,972,994 | | | | (1,151,422 | ) | | | 4,079,719 | |
| Net cash flows from investing activities | | | (3,727,711 | ) | | | (1,094,965 | ) | | | (1,255,064 | ) |
| Net cash flows from financing activities | | | (465,296 | ) | | | (1,600,815 | ) | | | (2,264,352 | ) |
| Net increase (decrease) of cash and cash equivalents before effect of changes in exchange rate | | | (220,013 | ) | | | (3,847,202 | ) | | | 560,303 | |
| Effect of changes in exchange rate of cash and cash equivalents | | | 2,779,791 | | | | (1,325,381 | ) | | | (760,651 | ) |
| Cash and cash equivalents at the beginning of the period | | | 36,733,767 | | | | 39,293,545 | | | | 34,120,962 | |
| Cash and cash equivalents at the end of the period | | | 39,293,545 | | | | 34,120,962 | | | | 33,920,614 | |
(*) Balances corresponding to 2022 have been restated according to IFRS 17. For further detail please refer to note 3b on the 2023 Audited Financial Statements.
Operating Activities
Net cash flow from operating activities increased S/5,231 million from 2022 to 2023, mainly due to a lower reduction in payables from repurchase agreements and securities lending in line with the increased in accounts payable with the BCRP, lower requirement of cash in loans, as a result of a reduction in loans associated with government programs, increase in deposits and obligations (time deposits, mainly in BCP and Mibanco Peru) and increased amounts due to banks and correspondents, mainly with Bank of America. This was partially offset by increase in investments at fair value through other comprehensive income and investments at fair value through profit or loss in line with higher investments in government instruments. As well as, reduction of bonds and notes issued, mainly, in BCP.
Net cash flow from operating activities decreased S/5,124 million from 2021 to 2022, which was primarily attributable to an increase in investments at fair value through other comprehensive income, a decrease in payables from repurchase agreements associated with government programs and securities lending and a decrease in deposits and obligations. This was partially offset by reduced loan activity resulting from a reduction in loans associated with government programs, decreased investments at fair value through profit or loss and increased amounts due to banks and correspondents and other liabilities.
Investing Activities
Variations in net cash flow from investing activities were mainly due to higher purchases of property, furniture and equipment and intangible assets.
In 2023, 2022 and 2021 intangible assets consumed cash of S/828 million, S/704 million and S/532 million, respectively, mainly driven by digital transformation efforts and disruptive initiatives.
Financing Activities
Net cash flows used in financing activities were S/2,264.4 million in 2023, which represented S/663.5 million more used in financing activities than in 2022. This increase was mainly due to dividends paid increasing from S/1,196.4 million in 2022 to S/1,994.0 million in 2023, which in turn resulted from increased net profits.
In 2022, net cash flows used in financing activities were S/1,600.8 million, which represented S/1,135.5 million more used in financing activities than in 2021. This increase was mainly due to dividends paid increasing from S/398.8 million in 2021 to S/1,196.4 million in 2022, which in turn resulted from increased net profits as the COVID-19 pandemic crisis waned.
For further detail about 2022 and 2021 evolution please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A. Operating results – (6) Lines of Business (LoBs).”
For further detail about 2022 and 2021 evolution please refer to Credicorp’s previous 2022 20-F document, see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.B. Liquidity and Caital Resources – (2) Cash flows and Capital Expenditures.”
We manage our assets and liabilities to ensure that we have sufficient liquidity to meet our present and future financial obligations and 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 years has enabled us to significantly increase our lending activity. BCP Stand-alone and Mibanco are subject to SBS Resolution No. 9075-2012, enacted in December 2012, which set responsibilities for liquidity management within the different committees and risk units, and established minimum liquidity ratios. According to best market practices, we believe that the liquidity coverage ratio, or LCR, provides more relevant information than the liquidity ratio shown in previous years. The LCR must exceed 100% for both soles-based transactions and foreign exchange-based transactions. The aggregate daily ratios of BCP and Mibanco in December 2023 was 162.7% and 172.8% for soles and foreign exchange transactions, respectively, demonstrating a robust level of 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 Stand-alone and Grupo Pacífico complied with all of their payment obligations.
The LCR’s information with respect to BCP and Mibanco has been aggregated for December 2021, 2022 and 2023:
Liquidity Coverage Ratio Local Currency
| | 2021 | | | 2022 | | | 2023 | |
| | | in thousands of Soles | | | in thousands of Soles | | | in thousands of Soles | |
Total High Liquidity Assets (HQLA) (1) | | | 21,553,570 | | | | 18,128,746 | | | | 23,178,510 | |
Cash Inflows (2) | | | 4,034,222 | | | | 5,542,165 | | | | 5,419,692 | |
Cash Outflows (3) | | | 12,737,480 | | | | 16,217,850 | | | | 17,577,626 | |
| Total Net Cash Outflows | | | 12,850,312 | | | | 7,453,061 | | | | 11,020,576 | |
| LCR% | | | 200.9 | % | | | 146.0 | % | | | 162.7 | % |
1) High Quality Liquidity Assets: Correspond to inventories, in some cases weighted by a discount factor, of assets that remain liquid in the market even in periods of stress, that can easily be converted into cash and that are classified as low risk.
2) Inflows: Total potential cash inflows for a 30-day horizon, calculated for a standard stress scenario as defined by SBS.
3) Outflows: Total potential cash outflows for a 30-day horizon, calculated for a standard stress scenario as defined by SBS.
Liquidity Coverage Ratio Foreign Currency
| | 2021 | | | 2022 | | | 2023 | |
| | | in thousands of Soles | | | in thousands of Soles | | | in thousands of Soles | |
Total High Liquidity Assets (HQLA) (1) | | | 21,239,155 | | | | 20,689,248 | | | | 19,394,117 | |
Cash Inflows (2) | | | 4,324,388 | | | | 4,998,517 | | | | 5,696,268 | |
Cash Outflows (3) | | | 10,051,554 | | | | 12,917,847 | | | | 14,517,454 | |
| Total Net Cash Outflows | | | 15,511,988 | | | | 12,769,918 | | | | 10,572,931 | |
| LCR% | | | 254.30 | % | | | 198.90 | %
| | | 172.80 | % |
1) High Quality Liquidity Assets: Correspond to inventories, in some cases weighted by a discount factor, of assets that remain liquid in the market even in periods of stress, that can easily be converted into cash and that are classified as low risk.
2) Inflows: Total potential cash inflows for a 30-day horizon, calculated for a standard stress scenario as defined by SBS.
3) Outflows: Total potential cash outflows for a 30-day horizon, calculated for a standard stress scenario as defined by SBS.
In January 2024, the Regulation for Liquidity Risk Management was updated by SBS Resolution No. 3296-2022 in order to incorporate the guidelines of the latest BCBS document (Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools). The new aggregate daily ratios, calculated with the new methodology SBS, of BCP and Mibanco in December 2023 were 157.6% and 140.1% for soles and foreign exchange transactions, respectively, demonstrating a robust level of liquidity.
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. RBG, as well as BCP Stand-alone’s private banking group, have developed a diversified and 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 to be BCP Stand-alone’s core deposits: demand deposits, savings, time deposits, and severance indemnity 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 notes issued, are of a considerably lower significance compared to our core deposits.
Corporate policies have been implemented by the Group for liquidity risk management. These policies are consistent with the appropriate characteristics of each operating segment, where each of the Group companies operates. The Risk Committee establishes limits and autonomy models to determine the adequate liquidity indicators to be managed.
During 2023, the Group continuously assessed and monitored the sufficiency of its liquid assets in order to cover or mitigate contingencies that could stress the funding requirements of the Group’s companies.
Universal banking and Microfinance
Liquidity risk exposure is based on indicators such as the Internal Liquidity Coverage Ratio (ILCR) which measures the amount of liquid assets available to meet needs that would result from cash outflows within a given stress scenario for a period of 30 days, and the Internal Net Stable Funding Ratio, which is intended to ensure that long-term assets are financed with a minimum number of stable liabilities within a prolonged liquidity crisis scenario (funding crisis); the latter indicator functions as a minimum compliance mechanism that supplements the ILCR. The core limits of these indicators are 100% and any excess is presented to the Credicorp Treasury and ALM Risk Committee, Credicorp Risk Committee and ALM Committee of the respective subsidiary. Furthermore, Credicorp has internal appetite risk limits that are monitored and reported to the Credicorp Treasury and ALM Risk Committee.
Insurance
Liquidity risk management follows a particular approach reflecting the nature of the business. For annually renewable businesses, the focus of liquidity is the quick availability of resources in the event of a systemic event (for example, an earthquake). For this purpose, there are minimum investment indicators in place relating to local cash/time deposits and foreign fixed-income instruments of high quality and liquidity.
For long-term insurance businesses, given the nature of the products offered and the contractual relationship with customers, the liquidity risk is not material. Rather, the focus is on maintaining a sufficient flow of assets and matching their maturities with the maturities of obligations (for example, through the mathematical reserve). For this purpose, there are indicators that measure the asset/liability sufficiency and adequacy, as well as calculations of economic capital subject to interest rate risk.
Pension funds
Liquidity risk management is differentiated between the fund administrator and the funds being managed. Liquidity risk management regarding the fund administrator is focused on meeting periodic operating expense needs, which are supported by the collection of commissions. The fund administrator does not record unexpected outflows of liquidity because its main financial obligations are payroll payments, taxes, reserve requirements and other accounts payable to suppliers. Liquidity risk in the funds managed (pension funds) is focused on meeting liquidity requirements due to scheduled pension payments, funds transfers to other AFPs, withdrawals of voluntary contributions, or anything else deemed necessary to be included in estimations. For this purpose, the Company holds highly liquid assets as part of the managed portfolios to meet these cash requirements.
Investment banking
Liquidity risk principally affects the security brokerage. In managing this risk, limits on the use of liquidity have been implemented to promote matching maturities by dealing desk. Follow-up liquidity assessments are performed on a daily basis for a short-term horizon covering imminent settlements. If short-term unmatched maturities are observed, repurchase agreements are used. On the other hand, structural risk is not significant given the low levels of debt, which are monitored regularly using financial planning tools.
Funding Sources
The following table presents the components of our funding sources without interest payable at the dates indicated:
| | | As of December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (in thousands of Soles, except percentages) | |
| Core Deposits: | | | | | | | | | |
| Demand deposits | | | 58,629,661 | | | | 48,467,248 | | | | 48,229,323 | |
| Savings deposits | | | 56,945,262 | | | | 54,769,045 | | | | 52,375,813 | |
| Severance indemnity deposits | | | 4,017,065 | | | | 3,824,629 | | | | 3,185,603 | |
| Total core deposits | | | 119,591,988 | | | | 107,060,922 | | | | 103,790,739 | |
| | | | | | | | | | | | | |
| Other Deposits: | | | | | | | | | | | | |
| Time deposits | | | 27,923,803 | | | | 37,478,269 | | | | 41,290,011 | |
| Bank certificates | | | 1,327,690 | | | | 1,418,740 | | | | 1,194,653 | |
| Total deposits | | | 148,843,481 | | | | 145,957,931 | | | | 146,275,403 | |
| | | | | | | | | | | | | |
| Payables from repurchase agreements and security lending | | | 22,013,866 | | | | 12,966,725 | | | | 10,168,427 | |
| | | | | | | | | | | | | |
| Due to banks and correspondents | | | 7,111,461 | | | | 8,801,911 | | | | 12,076,567 | |
| | | | | | | | | | | | | |
| Bonds and notes issued | | | 17,688,735 | | | | 16,851,889 | | | | 14,373,760 | |
| | | | | | | | | | | | | |
| Total sources of funds | | | 195,657,543 | | | | 184,578,456 | | | | 182,894,157 | |
| Core deposits as a percentage of total deposits | | | 80.3 | % | | | 73.4 | % | | | 71.0 | % |
| Core deposits as a percentage of total sources of liquid funds | | | 61.1 | % | | | 58.0 | % | | | 56.7 | % |
BCP Stand-alone is required to keep deposits with the BCRP as legal reserves. The amount of required deposits in the BCRP is determined as a percentage of the deposits and other liabilities owed by BCP Stand-alone to its clients. The current requirement is approximately 6.01% of BCP Stand-alone’s Soles-denominated deposits and approximately 34.87% of BCP Stand-alone’s US Dollar-denominated deposits as of December 31, 2023. For further detail, see “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview - (6) Supervision and Regulation – 6.2 Subsidiaries – 6.2.1 Peru.”
The following table presents our deposits at the BCRP and our investments in the BCRP’s certificates of deposit at the dates indicated:
| | | As of December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (in thousands of Soles, except percentages) | |
| Funds at the BCRP | | | | | | | | | |
| Deposits | | | 25,359,565 | | | | 24,160,723 | | | | 23,673,777 | |
| Certificates of deposit | | | 9,448,574 | | | | 7,019,479 | | | | 11,127,919 | |
| Total funds at the BCRP | | | 34,808,139 | | | | 31,180,202 | | | | 34,801,696 | |
Total funds at BCRP as a percentage of total deposits (*) | | | 23.4 | % | | | 21.2 | % | | | 23.6 | % |
(*) Total deposits exclude interest payable.
As of December 31, 2023, we had uncommitted credit lines, including long-term facilities that are mainly used for project financing, of which no significant amount was drawn down. We have also received long term funding from COFIDE and other international lenders. These funding sources have average annual rates (including Libor) ranging from 2.23% to 9.33% in soles and from 0.45% to 17.64% in foreign currency. As of December 31, 2023, we maintained S/11,752.2 million in due to banks and correspondents, secured by the collection of BCP Stand-alone’s (including its foreign branches) instructing correspondent banks to make a payment of a certain amount to a beneficiary that is not an FI. For further details, see Notes 14(a), (b) and (c) to the consolidated financial statements. As of December 31, 2021, 2022 and 2023, borrowed funds due to banks and correspondents, including payable interests, amounted to S/7,212.9 million, S/8,937.4 million and S/12,278.7 million, respectively.
In addition, another source of funds arises out of issuing bonds and notes. The following table presents our principal issued bonds from 2021 to 2023:
| | | Years ended December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (in millions of Soles) | |
| Issued bonds | | | | | | | | | |
| Senior notes | | | 173 | | | | 114 | | | | 79 | |
| Corporate bonds | | | - | | | | 87 | | | | - | |
| Subordinated bonds | | | 2,134 | | | | - | | | | 251 | |
| Total issuance | | | 2,307 | | | | 201 | | | | 330 | |
On September 19, 2023, the Bank issued Senior Notes for approximately ¥3,000.0 million equivalent to S/79.0 million, with a fixed rate of 0.97 percent, whose maturity on November 19, 2025.
Additionally, Pacífico Seguros issued US$60.0 million (equivalent to S/185.5 million) of corporate bonds due in May 2033 with a fixed annual interest rate of 8.00%. Banco de Crédito Bolivia issued Bs 137.2 million (equivalent S/65.6 million) of corporate bonds due in February 2033 with a fixed annual interest rate of 5.85%.
| 5. | C Research and Development, Patents and Licenses, Etc. |
The following list sets forth the most important trends, uncertainties and events that are reasonably likely to have a material effect on our revenues, income from continuing operations, profitability, liquidity, or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition. Some of these trends, uncertainties and events are beyond our ability to influence.
For further information about these and other key risks and uncertainties for the Group, please see “ITEM 3. KEY INFORMATION – 3.D Risk Factors.”
Macroeconomic and Socio-Political Context
Timely and complete achievement of our strategic targets and aspirations may be adversely affected by reduced revenue-generating capacities of some of our core businesses if macroeconomic and socio-political risks crystallize. Although there has been an improvement in economic perspectives and de-escalation of social and political tensions, some risks remain present. These risks include but are not limited to slow economic and domestic demand growth in Peru, new episodes of socio-political instability that result in violent and disruptive protests and unfavorable weather conditions.
We expect a rebound in Peru’s GDP of around 3.0% in 2024. The drivers that support this rebound are: (i) absence of negative shocks registered in 2023 (El Niño, social protests, among others), (ii) favorable copper prices (around USD/pound 3.85) despite slower economic growth in United States and China, (iii) an improvement in purchasing power of consumers amid a decrease in inflation, (iv) a reduction in BCRP’s reference rate, and (v) a gradual transition of the economic cycle from a contraction phase to a recovery. Recent estimates suggest that inflation will close 2024 around 2% in a context of a negative output gap. In this context, BCRP’s reference would close the year between 4.5% and 5.0%.
For further information regarding GDP expectations from the countries where Credicorp operates, see “ITEM 4. INFORMATION ON THE COMPANY”.
Although episodes of social unrest as seen January and February 2023 are still a risk, the political environment appears to be more stable. Currently, risks of holding general elections prior to 2026 appear to be low.
On March 5, 2024, Alberto Otarola, Peru’s former Prime Minister, resigned after being involved in an influence-peddling scandal. Gustavo Adrianzen, Peru’s representative at Organization of American States (OAS) and former Justice minister in 2015, assumed the position, and no other changes have been made to the cabinet so far. However, there were prior changes to the ministers of Finance, Energy and Mining, and Environment, before the resignation of the Prime Minister.
On March 6, 2024, the Peruvian Congress approved, by more than the required two thirds, majority a proposal to introduce a 60-seat senate to the current unicameral setup of the legislative branch. It also approved allowance of consecutive legislative reelection.
On April 1, 2024, the ministers of Production, Foreign Trade and Tourism, Agriculture and Irrigation, Home Affairs, Education, and Women and Vulnerable Populations were changed due to political reasons. Thus, the Cabinet led by Prime Minister Gustavo Adrianzen was reshuffled one day before attending Congress for a confidence vote. On April 3, 2024, the renewed Cabinet obtained the confidence vote from Congress.
For further information about political tension, social unrest and protest, please see “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.A Operating results – Political environment”.
In February 2024, ENFEN, the multi-sectoral committee that studies the El Niño phenomenon in Peru, made downward revisions to the probability assigned to a strong El Niño event during this summer. According to their estimates, a weak intensity El Niño was expected for February and, from March onwards, ENFEN assigns a higher probability to a scenario without El Niño. It is worth noting that a reversal of the sea surface temperature anomaly away from El Niño and towards La Niña could result in positive marginal effects for GDP growth.
For further information about these and other key risks and uncertainties for the Group, please see “ITEM 3. KEY INFORMATION – 3.D Risk Factors.”
The evolution of the aforementioned factors may impact Credicorp’s results and operations in the following ways:
| • | Loans: Lending activity is expected to accelerate compared to 2023 due to better economic perspectives, driven mainly by Retail Banking at BCP and slightly dragged down by Reactiva amortizations. |
| • | NIM: We expect to see resilience in our NIM given the ongoing shift of our loan book towards a higher-yielding mix coupled with favorable dynamics in our funding structure. |
| • | Portfolio quality and cost of risk: We expect the cost of risk of Credicorp’s loan portfolio to maintain similar levels. This reflects the shift of our loan portfolio mix towards retail, which should translate to higher provisions and cost of risk than in the past. |
| • | Operating efficiency: In 2024, we will continue to invest significantly in digital transformation and disruptive initiatives to bolster our long-term competitive position. |
In a medium-term perspective, we review our strategic initiatives on a constant basis, and are well prepared to implement tactic moves to rapidly adapt accordingly to navigate our changing environment:
| • | We are conscious that we have a responsibility to positively impact the communities in which we operate. We are committed to collaborating to create a more sustainable and inclusive economy, to improving the financial health of the population and to empowering our customers and employees to thrive. In order to accomplish this commitment, we will continue to advance in our three strategic priorities. The priorities are (i) integrating sustainability in our strategy, (ii) accelerating digital transformation and Innovation, and (iii) securing the best Talent. |
| • | Universal Banking: Maintaining our clients’ experience remains our priority. |
| o | At BCP Stand-alone, as we grow alongside the economy in the segments where we are already present, our most relevant avenues for new growth will be: (i) financial inclusion, to expand the size of the market, and (ii) new business development. We will continue to focus on client experience and optimizing operating efficiency by leveraging data analytics to continue evolving our segmentation, understanding of clients’ behavior, and evolving an integral value proposition for each segment. |
| o | At Yape, we will continue to focus on growth and monetization, and reach break-even during 2024. We will be launching more functionalities and increasing engagement with clients to advance our aspiration to become a superapp for Peruvians. |
| • | Microfinance: We seek to consolidate our presence at the base of the pyramid as it continues to accompany client growth. |
| o | At Mibanco Peru, we will continue to evolve our hybrid model by leveraging technological and analytical capabilities to strengthen our relationships with clients. Our centralized intelligence allowed us to agilely adjust commercial guidelines and mitigate the impact of portfolio deterioration. We closed the year with lessons learned and new capacities to implement more preventive models and conduct more granular follow-up on the portfolio’s behavior. We are now better prepared to reactivate our growth in 2024. Additionally, we aim to diversify our business through increased transactional and fee-based activities. |
| o | At Mibanco Colombia, we are reviewing our strategy to recover profitability and are adjusting our short-term plans for growth. Nonetheless, we continue to believe that the Colombian market represents significant potential for medium and long-term growth. |
| o | At Pacífico, we will continue to penetrate the Peruvian market by accelerating efforts to create products that can be distributed efficiently through Credicorp’s ecosystems, while improving customer experience. |
| o | At Prima AFP, we will maintain our collaboration towards reforming the regulatory framework and create awareness programs. The objective is to evolve towards an inclusive and sustainable pension system and put the affiliate at the center of our decisions. |
| • | At Investment Management and Advisory, our focus will remain on developing businesses that provide stable income streams to drive profitable and sustainable growth. |
| 5.E | Critical accounting estimates |
The audited annual consolidated financial statements have been prepared according to International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB).
The preparation of the consolidated financial statements in accordance with IFRS requires that management make estimates and assumptions that affect the reported figures of assets, liabilities, income, and expenses and disclose significant events in the notes to the consolidated financial statements.
Our estimates and assumptions are continually evaluated and are based on historical experience and other factors, including the reasonable expectation of future events that are believed to be reasonable under current circumstances. The final results could differ from these estimates; however, management expects that the variations, if any, will not have a significant effect on the consolidated financial statements.
The most significant estimates and assumptions included in the consolidated financial statements are related to:
| (1) | the calculation of the allowance of the expected credit loss on the loan portfolio, and |
| (2) | the estimation of the liability for life insurance contracts under the general measurement model. |
Other estimates include the valuation of investments, intangible, impairment of goodwill, credit loss for investments at fair value through other comprehensive income and investments at amortized cost, the valuation of derivative financial instruments and deferred income tax.
We believe that our judgments, estimates and assumptions are appropriate under the circumstances and that our audited annual consolidated financial statements fairly present, in all material respects, the financial positions of Credicorp as of December 31, 2022, and 2023 and the results of our operations and cash flows for the years ended December 31, 2021, 2022 and 2023, in accordance with IFRS.
For more information about our critical accounting estimates and judgments, see: “Note 3 Material accounting policies, a) Basis of presentation, use of estimates and changes in accounting policies” to the consolidated financial statements; “Note 30.1 Credit Risk” and “Note 30.2 Market Risk” for a discussion of risk and sensitivity of certain items; “ITEM 3. KEY INFORMATION – 3.D Risk Factors” of this Annual Report on Form 20-F; and “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS” of this Form 20-F for more information.
| ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
| 6. A | Directors and Senior Management |
The following table sets forth information about the Directors of Credicorp Ltd. at the end of 2023:
| Name | Position | | Years served as a Director (1) | Birth Date |
| Luis Enrique Romero Belismelis | Chairman | | 14 | 09/01/1961 |
| Jose Raimundo Morales Dasso | Vice Chairman | | 15 | 11/09/1946 |
| Patricia Lizarraga Guthertz | Director | | 6 | 07/14/1966 |
| Pedro Rubio Feijóo | Director | | 5 | 09/14/1955 |
| Antonio Abruña Puyol | Director | | 3 | 04/08/1954 |
| Alexandre Gouvêa | Director | | 3 | 12/02/1959 |
| Maria Teresa Aranzabal Harreguy | Director | | 3 | 02/22/1963 |
| Leslie Pierce Diez Canseco | Director | | 3 | 12/31/1948 |
| Nuria Aliño Pérez | Director | | 0 | 02/03/1971 |
(1) In Credicorp or BCP Stand-alone as of December 31, 2023.
Luis Enrique Romero Belismelis
Mr. Romero has served as the Chairman of the Board and Executive Chairman of Credicorp Ltd. since June 9, 2020, and has been a Director since March 31, 2017.
Through his role on the boards of various subsidiaries, Mr. Romero has gained broad insight into the Group’s businesses.
He has also served as the Chairman of the Board of Banco de Crédito del Peru since April 5, 2021 and has served as a Director since March 31, 2009.
He has been a member and the Chairman of the Board of Grupo Crédito S.A. since October 29, 2020, as well as a Director of Pacífico Compañía de Seguros y Reaseguros, Credicorp Peru S.A.C., Mibanco - Banco de la Microempresa S.A., Pacífico S.A. Entidad Prestadora de Salud and Atlantic Security Holding Corporation.
Mr. Romero has ample experience gained by serving as the Head of Finance and the General Manager for different companies in the consumer and services sector related to Grupo Romero. Currently, Mr. Romero is a director of the Peruvian listed companies Inversiones Centenario S.A.A., and Alicorp S.A.A., and is also a director of various private companies, which are part of Grupo Romero.
Mr. Romero holds a bachelor’s degree in economics from Boston University (United States).
Jose Raimundo Morales Dasso
Mr. Morales has served as the Vice Chairman of the Boards of Directors of Credicorp Ltd. and Banco de Crédito del Peru since March 28, 2008, and March 31, 2009, respectively. He is also a director of Grupo Crédito S.A., Pacífico Compañía de Seguros y Reaseguros, Solución Empresa Administradora Hipotecaria S.A. and Atlantic Security Holding Corporation.
He joined Banco de Crédito del Peru in 1980 and held many different management positions, such as Executive Vice President of Wholesale Banking and Credit Risk Management, as well as CEO from 1990 to 2008. Additionally, he served as Chairman of the Board of Directors and CEO of Atlantic Security Bank (now ASB Bank Corp., a subsidiary of Credicorp). Mr. Morales led Credicorp’s initial public offering of shares on the New York Stock Exchange (NYSE) in October 1995.
He also has experience at a range of different organizations, including the Peruvian Bank Association (ASBANC), Peruvian Association of AFP, and of National Confederation of Private Business Institutions of Peru (CONFIEP), of which he served as Vice-Chairman. Prior to joining Credicorp, Mr. Morales worked for 10 years at Wells Fargo Bank in its offices in San Francisco and Miami (United States), São Paulo (Brazil), Caracas (Venezuela), and Buenos Aires (Argentina). The last position he held at Wells Fargo was as Regional Vice President.
He also serves as a member of the boards of directors of Peruvian listed companies Fosfatos del Pacífico S.A., and Cementos Pacasmayo S.A.A., as well as of Salmueras Sudamericanas S.A., private company which is part of Pacasmayo Group.
Mr. Morales has a bachelor’s degree in economics and administration from the Universidad del Pacífico (Peru) and holds an MBA from Wharton Graduate School of Finance of the University of Pennsylvania (United States).
Patricia Lizarraga Guthertz - Independent Director
Ms. Lizárraga has been a member of the Boards of Directors of Credicorp Ltd. and Banco de Crédito del Peru since March 31 and March 22, 2017, respectively. She has also served as a Member of the Board of Directors of Grupo Crédito S.A. since October 29, 2020. Since June 2020, she has been serving as the Chairwoman of Credicorp’s Audit Committee.
Ms. Lizárraga is an experienced Wall Street executive with over 25 years of experience of working in international mergers & acquisitions, capital markets, private equity and valuation practice with Allen & Company, Donaldson Lufkin & Jenrette, and Citigroup. In 2007, she became the founder and CEO of Hypatia Capital Group, and more recently has become a founder and major shareholder of family group Del Ande Alimentos.
Ms. Lizárraga’s board experience includes serving as both President of the Board and Chair of the Audit Committee of non-profit organizations, in addition to serving on the board of private companies. She has served as the President of the Privatization Committee of Toll Roads of Peru. She is also a member of the John Hancock Fund Complex Board of Directors.
Ms. Lizárraga received her Bachelor of Arts degree from Yale University (United States) and her MBA from Harvard Business School (United States).
Pedro Rubio Feijóo
Mr. Rubio has been serving as a Director of Credicorp and Grupo Crédito S.A. since March 27 and March 31, 2023, respectively. He currently serves as a Board member at Banco de Crédito del Peru, Prima AFP, Credicorp Capital Ltd., Credicorp Capital Holding Peru S.A., ASB Bank Corp., Banco de Crédito de Bolivia, and Inversiones Credicorp Bolivia S.A. Currently, he serves as a Chairman of the Risk Committee of Credicorp and Grupo Crédito S.A.
Mr. Rubio is a Peruvian executive who brings 40 years of experience with Credicorp banking businesses, both domestically and internationally. Through his role on the boards of various subsidiaries, Mr. Rubio has gained broad insight into the Group’s businesses.
He began his career at Banco de Crédito del Peru in 1983 as a commercial executive, then went on to hold increasingly senior roles including Head of the International Business Department, CEO of Banco Tequendama, in Bogotá (Colombia) and Head of the Corporate and Business Banking Division. Until March 2018, he acted as Senior Vice President of Wholesale Banking at Banco de Crédito del Peru and reported directly to the CEO.
Mr. Rubio has a degree in Industrial Engineering from North Carolina State University (United States).
Antonio Abruña Puyol – Independent Director
Mr. Abruña has been a member of the Boards of Directors of Credicorp Ltd. and Grupo Crédito S.A. since June 5 and October 29, 2020, respectively. He has also been a member of the Board of Directors of Banco de Crédito del Peru since March 31, 2021.
Mr. Abruña is a Spanish-Peruvian attorney-at-law and one of Peru’s leading legal scholars, with decades of extensive experience as a legal scholar and administrator of academic institutions. Mr. Abruña has served as Rector of the Universidad de Piura (Peru) since 2018. He previously served as Rector of the university from 2003 to 2012, where he has had a long and successful career. He participated in the creation of the Faculty of Law, for which he is a professor, and has additionally served as dean. He has held other academic and administrative positions and participated in various projects of the university.
Mr. Abruña was part of the Special Commission appointed by the Peruvian government to designate the seven members of the National Justice Council. He was the representative in Peru of the lstituto per la Cooperazione Universitaria (ICU) (Italy). He is currently serving as the director of Universia Peru.
Mr. Abruña has a law degree from the Universidad Complutense de Madrid (Spain) and a doctorate in Law from the Universidad de Navarra (Spain).
Alexandre Gouvêa – Independent Director
Mr. Gouvêa has been a member of the Boards of Directors of Credicorp Ltd. and Banco de Crédito del Peru since June 5 and June 24, 2020, respectively. He has also been a Director of Grupo Credito S.A. since October 29, 2020. Since February 2023, he also sits on the board of Monokera, an Insurtech company recently acquired in Colombia by Credicorp’s Corporate Venture Capital Krealo. Currently, he is Chairman of the Compensation and Nominations Committee of Credicorp and Grupo Crédito S.A.
Mr. Gouvêa has 30 years of international experience at McKinsey & Co. He specializes in providing advice to financial services clients. Mr. Gouvêa is an expert in retail banking and insurance (including its technological transition and digital transformation). He has provided financial services in Latin America and built the Organizations Practice and the Recovery and Transformation Unit of McKinsey & Co. He was also previously a director of McKinsey & Co. Mr. Gouvea served as a member of the board of directors of leading publicly listed Brazilian retailers, Lojas Renner between 2019 and January 2023. He also spent over 8 years on the board of a nonprofit, Habitat for Humanity international.
Mr. Gouvêa has a degree in Mechanical Engineering from Universidade Federal do Rio de Janeiro (Brazil) and has an MBA from UCLA’s Anderson School of Management (United States).
Maria Teresa (Maite) Aranzabal Harreguy - Independent Director
Ms. Aranzábal has been a member of the Boards of Directors of Credicorp and Banco de Crédito del Peru since June 5 and June 24, 2020, respectively. She has also been a Director of Grupo Crédito S.A. since October 29, 2020. Currently, she is Chairwoman of the Sustainability Committee of Credicorp and Grupo Credito S.A.
Ms. Aranzábal is a highly accomplished Spanish executive with relevant experience from serving on the boards of public and private companies as well as non-profit organizations. She has decades of experience in advising leading global public and private companies as well as entrepreneur and in senior executive roles with responsibilities for strategy, business development and transformation, customer experience and international expansion. Throughout her international career, she has worked across a variety of sectors, spanning retail banking, retail, fashion, consumer goods and real estate.
She began her career at McKinsey & Co. in Spain and Argentina, where she consulted with clients in various industries, including retail banking. She then joined Grupo Cortefiel, a family-owned retailer, where she successfully led business development, strategy, and international growth. She also collaborated with Advent lnternational, a private equity firm, as retail expert, and was later in charge of the turnaround of KA lnternational.
Ms. Aranzábal currently leads Alir Consulting and Trade, her own consulting company, which specializes in retail and real estate. She is also an independent advisor to the Board of Directors of the Hijos de Rivera Corporation and Chair of the Nomination and Compensation Committee. She is Vice President of the Board of Trustees of the Novia Salcedo Foundation and professor at IE Business School.
Ms. Aranzábal has a degree in business administration from ICADE (Spain), and an MBA from The Wharton School of the University of Pennsylvania (United States).
Leslie Pierce Diez Canseco
Mr. Pierce has been a member of the Board of Directors of Credicorp Ltd. and Grupo Crédito S.A. since October 16 and October 29, 2020, respectively. He has been serving as a Member of the Board of Directors of Banco de Crédito del Peru since March 31, 2021, and of Atlantic Security Holding Corporation since April 30, 2021.
Mr. Pierce has served in executive leadership positions, primarily of Peruvian companies, for almost 40 years. He served as CEO of Alicorp S.A.A., Peru’s largest consumer goods company with operations throughout Latin America, from 1991 to 2011. Prior to that, Mr. Pierce served as a Vice Minister of Commerce in the Ministry of Economy and Finance of Peru from 1983 to 1984.
Mr. Pierce currently serves as a director in a number of private businesses, including Compañía Latinoamericana de Radiodifusion S.A., Cerámica Lima S.A., Transber S.A.C, lnka Crops. S.A, Empresa Siderúrgica del Peru S.A.A., HV Contratistas S.A., Redondos S.A., Inversiones Agrícolas Caña Brava, Maquinarias S.A., Corporacion Primax S.A., Canvia and Negocios Industriales Real Nirsa S.A. (Ecuador). He also participates in philanthropic organizations such as Vida Peru, Banco de Alimentos del Peru and Crea+.
Mr. Pierce holds a bachelor’s degree in economics from Pontificia Universidad Católica de Peru (Peru) and a post-graduate degree in economics from Pontificia Universidad Católica de Chile (Chile).
Nuria Aliño Pérez – Independent Director
Ms. Aliño has been a Director of Credicorp and Grupo Crédito S.A. since March 27 and March 31, 2023, respectively.
She is an accomplished Spanish corporate and investment banking professional with over 25 years of experience in developed and developing markets with roles spanning corporate finance, private equity/venture capital, impact investing, fintech transactions and digital strategy.
Since 2016, she has held positions with the World Bank Group’s International Finance Corporation (IFC) as Head of Partnerships and Innovations, Digital Finance Services and currently as Open Banking & Digital Transformation Specialist, providing guidance on the digital transformation strategies to financial institutions in the emerging markets.
Prior to her work with the IFC, she spent three years as advisor to the General Manager of IADB Invest (Interamerican Development Bank). Ms. Aliño spent over 15 years with BBVA in corporate and investment banking where she concluded her tenure as Chief Investment Officer – Industrial Holding Group.
Ms. Aliño serves as Board member and Chair of the Sustainability Committee at Soltec, a global developer of integral solutions for sustainable solar energy listed in the Spanish stock market since 2019. She is an Independent Director of Unicaja Banco. Ms. Aliño has held additional advisory board roles for tech companies and private equity and venture capital firms in Latin America and Europe.
Since 2019, Ms. Aliño has been a faculty member of teaching programs in the United States and Spain for digital transformation of microfinance institutions, financial inclusion, and financial service disruption for programs in those countries.
Ms. Aliño holds a Master of Sciences in Law and a Bachelor of Economics and Business Administration from Universidad Pontificia Comillas – ICADE (Spain).
Corporate Secretary
Conyers Corporate Services (Bermuda) Limited serves as Credicorp’s Corporate Secretary. Mr. Guillermo Morales Valentin is Credicorp’s Deputy Secretary.
Credicorp believes that a unified financial group with a coordinated strategy is best able to take advantage of growth in the Peruvian economy and achieve synergies from cross-selling financial services and products (such as through BCP’s extensive branch network). Pursuant to Credicorp’s Bye-laws, the Board of Directors has the power to delegate its authority to oversee the day-to-day management of the company to one or more Directors or officers.
The following table sets forth the name, position(s), and principal Credicorp entities for each member of our senior management:
Position(s) (1) | Name | Entity(ies) |
| | | |
| Executive Chairman | Luis Enrique Romero B. | Credicorp |
| | | |
| Chief Executive Officer | Gianfranco Ferrari | Credicorp |
| | | |
| Chief Risk Officer | Reynaldo Llosa | Credicorp, BCP Stand-alone |
| | | |
| Chief Financial Officer | Cesar Rios | Credicorp, BCP Stand-alone |
| | | |
| Chief Operating Officer | Alejandro Perez-Reyes | Credicorp |
| | | |
| Chief Innovation Officer | Francesca Raffo | Credicorp, BCP Stand-alone |
| | | |
| Head of Universal Banking (Credicorp), CEO (BCP Stand-alone) | Diego Cavero | Credicorp, BCP Stand-alone |
| | | |
| Head of Microfinance (Credicorp), CEO (Mibanco) | Javier Ichazo | Credicorp, Mibanco |
| | | |
| Head of Insurance & Pensions (Credicorp), CEO (Grupo Pacífico) | Cesar Rivera | Credicorp, Grupo Pacífico |
| | | |
| Head of Investment Management and Advisory (Credicorp), CEO (Credicorp Capital) | Eduardo Montero | Credicorp, Credicorp Capital |
| | | |
| Chief Corporate Audit Officer | Jose Esposito | Credicorp, BCP Stand-alone |
| | | |
| Chief Compliance and Ethics Officer | Barbara Falero | Credicorp, BCP Stand-alone |
| | | |
| Head of Legal | Guillermo Morales | Credicorp |
| | | |
| Head of Talent Management | Ursula Alvarez | Credicorp |
| | | |
| Head of Corporate Affairs | Enrique Pasquel | Credicorp |
1.At Credicorp or in any subsidiary as of April 23, 2024.
Gianfranco Ferrari
Mr. Ferrari was born in 1965. Mr. Ferrari was appointed as CEO of Credicorp Ltd. in January 2022. Previously, he held the position of Deputy CEO and Head of Universal Banking of Credicorp Ltd. and was the CEO of Banco de Credito del Peru from April 2018. He has worked at Credicorp Ltd. since 1995.
Mr. Ferrari’s extensive and diverse experience includes strategic roles as Head of Corporate Banking & Corporate Finance, Head of Retail Banking & Wealth Management at Banco de Credito del Peru, and CEO of BCP Bolivia from 2005 to 2008. He led the acquisition of Edyficar in 2009 and Mibanco in 2014. In 2015, he began leading our Digital Transformation Strategy. He is also member of the Board of BCP Stand-alone, BCP Bolivia and Prima AFP.
Mr. Ferrari holds a degree in Business Administration from Universidad del Pacífico (Peru) and has an MBA from Kellogg Graduate School of Management, Northwestern University (United States).
Reynaldo Llosa
Mr. Llosa was born in 1961. Mr. Llosa is the Chief Risk Officer of Credicorp Ltd. and Banco de Credito del Peru since January 2012. Previously, Mr. Llosa held various positions at BCP Stand-alone as Head of Risk, Head of Middle-Market Banking, and Head of Corporate Banking. Currently, he is member of the Board at Mibanco and Banco de Credito de Bolivia.
Mr. Llosa holds a bachelor’s degree in business administration from St. Mary’s University in San Antonio, Texas, USA and an MBA with specialization in Finance from Kellogg Graduate School of Management, Northwestern University (United States).
Cesar Rios
Mr. Rios was born in 1967. Mr. Rios has served as the CFO of Credicorp Ltd. and Banco de Credito del Peru since April 2018. He has worked at Credicorp since 1993, when he joined as a Corporate Finance associate. In 1997, he was appointed as the CFO and COO of Banco Capital in Salvador, following Credicorp’s acquisition. In 2003, Mr. Rios re-joined BCP Stand-alone, where he worked in strategic roles such as Head of Credit and Operating Risk in the Risk Management Unit, Head of Collections for Retail Banking, and Head of Corporate Strategy, which includes corporate strategy, internal consulting, mergers and acquisitions, and business incubation. In 2013, he became Head of Financial Planning and Control at BCP.
Currently, Mr. Rios is a board member of several of Credicorp’s subsidiaries, including Mibanco, Solución Empresa Administradora Hipotecaria, among others.
Mr. Rios holds a bachelor’s degree in engineering from Pontificia Universidad Católica (Peru); a master’s degree from ESAN Escuela de Administración de Negocios para Graduados (Peru); and an MBA from the Massachusetts Institute of Technology’s Sloan Fellows Program (United States).
Alejandro Perez-Reyes
Mr. Perez Reyes was born in 1976. Mr. Pérez Reyes is the Chief Operating Officer of Credicorp, where he oversees M&A, Internal Consulting, ESG and HR, as well as Krealo, the Corporate Venture Capital company of Credicorp. Prior to his current position he worked at Credicorp Capital, where he was Head of Asset Management for six years and then COO and Country Head of Credicorp Capital Peru until December 2021. He has worked at Credicorp since 1999, where he has also been Chief Investment Manager of Prima AFP, a Pension Fund where he managed US$10 billion in assets, Head of Financial Derivatives and Structured Products of Banco de Crédito and Investment Manager of Credifondo SAF.
Mr. Perez Reyes has a bachelor’s degree in economics from the University of Lima (Peru), and an MBA from Harvard Business School (United States).
Francesca Raffo
Ms. Raffo was born in 1969. Ms. Raffo was appointed Credicorp’s Chief Innovation Officer in February 2022 and has also been Retail Banking Deputy CEO at BCP since June 2020.
Ms. Raffo’s successful career at BCP spans 26 years and includes heading BCP’s transformation, managing the Satisfied Customers Division, creating BCP’s first Innovation Center and leading the Marketing Services. Ms. Raffo joined BCP in 1994 as a member of the Process Reengineering pioneer team and subsequently led various strategic projects within Retail Banking. Currently, Ms. Raffo is a board member of Credicorp’s subsidiaries: Yape Market S.A.C., Mibanco – Banco de la Microempresa de Colombia S.A. and Banco de Crédito de Bolivia S.A.
Ms. Raffo holds a bachelor’s degree in business administration and an MBA in Management Information Systems, both from The American University in Washington D.C. (United States).
Diego Cavero
Mr. Cavero was born in 1968. Mr. Cavero is Head of Universal Banking for Credicorp Ltd., which includes Banco de Crédito del Peru and Banco de Crédito de Bolivia, as well as CEO of Banco de Crédito del Peru since January 2022. Previously he was Deputy CEO at BCP focusing on Wholesale Banking. He was named Wholesale Banking Managing Director since March 2018. In the year 2013, Mr. Cavero led the creation of the Efficiency Division and the implementation of the Efficiency Program at BCP, a model that was applied in other units of the Group. Mr. Cavero also oversaw the launching of BCP’s representation offices in Chile and Colombia. Prior to this, he was CEO of BCP Bolivia from 2008 to 2012.
Mr. Cavero is currently Chairman of the Board of Directors of Yape Market S.A.C. and a member of the Board of Directors of Inversiones 2020, Inversiones Credicorp Bolivia S.A., among others. He started working at Credicorp Ltd. in 1994.
Mr. Cavero earned a degree in Business Administration at Universidad de Lima (Peru) and holds an MBA from University of Texas (United States).
Javier Ichazo
Mr. Ichazo was born in 1969. Mr. Ichazo is the CEO of Mibanco and Head of Microfinance of Credicorp. He began his career at Banco de Credito del Peru in 1996 and held different positions in various regions of Peru. In addition to his extensive knowledge in banking and finance, Mr. Ichazo brings his experience serving as Business Manager at Banco de Credito del Peru from 2004 to 2017.
Mr. Ichazo is the Vice Chairman of the Board of Mibanco Colombia, and Vice Chairman of the Board of ASOMIF (Association of Microfinance Institutions of Peru).
Mr. Ichazo and Administration from the University of Piura (Peru) and holds an MBA from the School of Management of the University of Piura (Peru).
Cesar Rivera
Mr. Rivera was born in 1964. Mr. Rivera has been the CEO of Pacífico Seguros since January 2020. With over 30 years of experience in the Pensions and Insurance sector, he has also held the positions of CEO at Santander Life Insurance Company in Peru, Deputy CEO at American Life Insurance Company in Argentina, and CEO at Pacífico Vida Life Insurance Company in Peru.
He served as a professor of the Business and Economy Faculty at the Universidad de Piura and was a member of the Board of Directors at the Iberoamerican Foundation for Occupational Health and Safety (FISO by its Spanish initials). Currently, he is a member of the Boards of Directors of Prima AFP, Mibanco SA and Crediseguro Personas and Crediseguro Generales in Bolivia and Head of Insurance & Pension at Credicorp.
Mr. Rivera has a degree in Industrial Engineering from the Universidad de Piura and an MBA from ESAN. He also holds a Diploma in Corporate Finance from the Universidad del Pacífico (Peru) and an International Certificate in Company Direction, issued by the Institute of Directors in United Kingdom. He has studied different programs in management and technical areas, such as the Management Program at Wharton School University of Pennsylvania (United States), and the Life Insurance Program at the Swiss Insurance Training Centre in Zurich (Switzerland).
Eduardo Montero
Mr. Montero was born in 1971. Mr. Montero is the Head of the Investment Management and Advisory business line of Credicorp Ltd. and CEO of Credicorp Capital Ltd. since January 2019. He has been working at Credicorp since 1994. His broad experience in the organization includes different areas such as Corporate Finance, Business Solutions, as well as Personal Banking and Wealth Management at Banco de Credito del Peru. He also held the position of CEO at Atlantic Security Bank, BCP Miami and Credicorp Capital Securities (USA).
Mr. Montero holds a bachelor’s degree in economics from Lehigh University (United States), and an MBA from the Wharton School of Business at the University of Pennsylvania (United States).
Jose Esposito
Mr. Esposito was born in 1964. Mr. Esposito has been the Chief Corporate Audit Officer of Credicorp Ltd. since January 2010.
He is member of the Board of Directors of the Institute of Internal Auditors Global, and formerly Chairman of the Financial Services Guidance Committee Board of IIA Global. Mr. Esposito has also served as Chairman of the Committee of Internal Auditors of the Latin American Federation of Banks (FELABAN) and Chairman of the Committee of Internal Auditors of ASBANC. Currently, he is a lecturer in the Master of Finance program at the Universidad del Pacífico and Director of the specialization in Integral Risk Management.
Since 1996, Mr. Esposito has worked for various Credicorp Ltd. His last position prior to leading the Audit Division at Credicorp Ltd. was at Pacífico Peruano Suiza Companía de Seguros y Reaseguros S.A., where he was CFO and the Controller’s Officer. He was also Vice Chairman of the Board of Directors of Pacífico Salud EPS S.A., Vice Chairman and Director of the Board of the Lima Stock Exchange, Director of Cavali ICLV S.A. and Chairman of the Board and General Manager of Credibolsa SAB S.A.
Mr. Esposito holds a bachelor’s degree in economics from Universidad del Pacífico, Lima (Peru); and a master’s degree in economics from the University of Wisconsin – Milwaukee, (United States). He also held the designation of Certified Internal Auditor (CIA) and Risk Management Assurance (CRMA) by the Institute of Internal Auditors Global (IIA); Risk and Information Systems Control (CRISC) by ISACA; and Anti-Money Laundering Certified Associate (AML/CA) from the Florida International Bankers Association and Florida International University (United States).
Barbara Falero
Ms. Falero was born in 1972. Ms. Falero has been the Chief Compliance and Ethics Officer at Credicorp Ltd. and Banco de Credito del Peru since February 2008 and reports directly to Credicorp Ltd.’s Board. Before her arrival at Peru, Ms. Falero was the Compliance Officer and Vice President of BCP Miami Agency. Prior to that, she worked as a regulator for the Federal Reserve Bank of Atlanta for six years in supervision and regulation of international banks.
Ms. Falero has been the President of the Committee of Compliance Officers of ASBANC and during a three-year period, was a Member of the Advisory Committee of the Florida International Bankers Association (FIBA). Ms. Falero has also held various other positions including as the Community Reinvestment Officer at BAC Florida Bank in Miami, Florida.
Ms. Falero holds a bachelor’s degree in finance from Florida International University, (United States) and an MBA from St. Thomas University in Miami, Florida (United States).
Guillermo Morales
Mr. Morales was born in 1966. Mr. Morales is the Head of Legal at Credicorp Ltd. since April 1, 2018. He was the Head of the Legal Division of Banco de Crédito del Peru from January 1, 2010, to January 31, 2022. Previously, he was the Manager of the Legal Advisory Area at BCP from September 2007 to December 2009, Legal Manager of Grupo Santander Peru S.A. from January 2003 to July 2007, and Legal Manager of Banco Santander Central Hispano Peru from April 2000 to December 2002. He has been a director of Edelnor S.A.A., Red Eléctrica del Sur (Redesur), and Universia Peru S.A.
Mr. Morales is a lawyer from the Pontificia Universidad Católica del Peru and has a Master of Laws (LL.M.) from the University of Texas at Austin (USA).
Ursula Alvarez
Ms. Álvarez was born in 1976. Ms. Álvarez is the Talent Management Manager of Credicorp since April 1, 2018. She started her career in the group working at Banco de Crédito del Peru in 2006 as the Head of Selection in Human Development and Management.
She holds a bachelor’s degree in psychology from the University of Lima (Peru) and has a postgraduate degree in Development from the University of Los Andes in Bogotá (Colombia).
Enrique Pasquel
Mr. Pasquel was born in 1979. Mr. Pasquel has served as the Head of Corporate Affairs at Credicorp Ltd. since April 2018 and Head of Corporate Affairs of BCP since 2017. Previously, between 2011 and 2017, he worked at El Comercio newspaper, where he held the positions of Deputy Opinion Editor, Politics Editor, and Deputy Editor in Chief. Before his journalism career, he was an attorney in INDECOPI, the Peruvian antitrust agency, where he served as Commissioner of the Bureaucratic Barriers Commission and Technical Secretary of the Competition Chamber.
Mr. Pasquel holds a law degree from Pontificia Universidad Católica del Peru, (Peru), and a Master of Laws (LL.M.) from Yale Law School (United States).
The following section contains the compensations of the members of Credicorp Ltd.’s Board of Directors and senior management for 2021, 2022, and 2023:
| | |
As of December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (in thousands of Soles) | |
| | | | | | | | | | |
Director’s compensation (1) | | | 6,862 | | | | 7,850 | | | | 7,387 | |
Senior Management Compensation (2) | | | | | | | | | | | | |
| i) Remuneration | | | 45,164 | | | | 40,201 | | | | 49,573 | |
ii) Stock awards (3) | | | 10,351 | | | | 28,450 | | | | 21,444 | |
| Total | | | 62,377 | | | | 76,501 | | | | 78,404 | |
(1) This item includes the amounts received from Credicorp Ltd. and from its subsidiaries by the nine Directors of Credicorp Ltd. as exclusive compensation for their role as Directors serving in the Board of Directors, in the Audit Committee, in Compensation and Nomination Committee, in Sustainability Committee and in Risk Committee of Credicorp Ltd., and in the Board of Directors and in the Executive Committee of Credicorp Ltd.’s subsidiaries. The members of the Board of Directors are listed in ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES - 6.A Directors and Senior Management - (1) Board of Directors.
(2) The members of senior management according to ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES - 6. A Directors and Senior Management.
(3) This item includes the related income taxes assumed by the Group. The amounts correspond to the expenses accrued in the period for the services rendered.
Credicorp and its subsidiaries do not set aside or accrue funds to provide pension, retirement, or similar benefits for the directors and other members in management.
For further details about the compensation of Directors and Senior Management, see “ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES – 6.C Board Practices”.
Board of Directors Compensation
We are not required to disclose our directors’ compensation in our home country. Moreover, we do not disclose to our shareholders, or otherwise make available our directors’ compensation to the public, information as to the compensation on an individual basis of any member of Credicorp Ltd.’s Board or of our senior management.
Board Remuneration
The remuneration of the Directors of Credicorp Ltd. and its subsidiaries is approved at their respective Annual General Meetings (AGM).
The total compensation of the Members of Credicorp Ltd.’s Board of Directors is composed of a gross annual remuneration of US$50,000 to each Director, as approved beginning June 5, 2020; gross annual remuneration of US$40,000 to each Director who serves in the Audit Committee; and up to US$1,500 per attended session to each Director who participates in one or more of the Board Committees other than the Audit Committee.
Additionally, the Directors of Credicorp Ltd. who also serve as Directors of its subsidiaries might receive a remuneration from such subsidiary. Those who participate in the Board of Directors of BCP Stan-alone, the main subsidiary of Credicorp Ltd., receive a gross annual remuneration of US$130,000 each and US$1,500 for each session attended by each Director serving on its Executive Committee.
Directors received no other compensation or benefits in their capacities as directors of Credicorp Ltd. in 2023. Neither Credicorp Ltd. nor any of its subsidiaries has any type of agreement with Credicorp Ltd.’s Directors providing for benefits upon termination of their term as Directors.
Senior Management Compensation
Our senior management’s compensation comprises a fixed salary and a variable compensation:
The fixed salary is that assured for under the law of the country where Credicorp operates. It is based on the position’s value and the degree of responsibility, has no variable component and is never linked to results achieved.
Variable compensation is comprised of:
| (i) | Short-term incentive that encourages senior management to achieve Credicorp’s annual goals by meeting individual and organizational objectives. This incentive payment is triggered when Credicorp’s minimum net profit is delivered, calculated as a proportion of that total target met, and on the individual’s results against their particular objectives related to indicators such as profitability, efficiency, customer experience, transformation and sustainability (ESG) indicators, which vary by subsidiary and are aligned with the company’s business strategy and/or the overall Credicorp strategy. |
| (ii) | Long-term incentive aims to align the interests of executives with those of the shareholders so that they all share Credicorp’s successes and risks and to foster long-term value creation for the organization and its stakeholders. It has two components: |
| • | Retention (stock award): The aim is to retain executives by delivering an amount of restricted BAP shares which are vested over three years, with 1/3 released each year |
| • | Value generation: The aim is to guide executives’ performance toward creating long-term value for Credicorp by linking payment to the fulfillment of long-term strategic indicators |
Retention Stock Awards to Senior Management and Employees
As a part of the long-term incentive program with retention purpose, Credicorp grants common shares in March of each year to members of its senior management and to employees to align its interests with those of the organization. These granted shares are vested over the three subsequent years, with up to 33.3% of the granted shares vesting per year. Credicorp assumes the payment of the related income-tax on behalf of its employees, which depends on the country of residence and the annual compensation of the employee. These stock awards are obtained through repurchases in the market.
We present below the treasury stock granted to both Credicorp’s senior management and employees during the years 2021, 2022, and 2023, and granted but unvested shares as of December 31, 2021, 2022, and 2023.
| | | Year ended December 31, | | | As of December 31, | |
| | | 2021 | | | 2022 | | | 2023 | | | 2021 | | | 2022 | | | 2023 | |
| | | Granted shares in units | | | Granted but unvested shares in units | |
| Senior Management | | | 15,142 | | | | 32,715 | | | | 35,445 | | | | 48,488 | | | | 55,078 | | | | 62,302 | |
| Employees | | | 73,365 | | | | 83,911 | | | | 83,359 | | | | 181,035 | | | | 173,299 | | | | 202,948 | |
| Total | | | 88,507 | | | | 116,626 | | | | 118,804 | | | | 229,523 | | | | 228,377 | | | | 265,250 | |
Board Structure
Credicorp’s management is the responsibility of its Board of Directors, which, pursuant to Credicorp’s Bye-laws, is composed of nine members. As of April 24, 2024, five Directors are independent. Directors may be, but are not required to be, shareholders. Directors are elected, and their remuneration is determined, at the Annual General Meeting of Shareholders. Directors hold office for three-year terms. Current Directors were elected at the Annual General Meeting of Shareholders held on March 27, 2023, and will hold office until the Annual General Meeting of Shareholders in 2026. The Board of Directors has the power to appoint any person as a Director to fill a vacancy as a result of the death, disability, disqualification, or resignation of any Director for the remainder of such Director’s term. Pursuant to Credicorp’s Bye-laws, the required quorum for business to take place during a Board meeting is a simple majority of the Directors. A resolution in writing signed by all directors will be valid as if it had been passed at a Board meeting duly called and constituted. For further details, see “ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES – 6.A Directors and Senior Management”.
Board Decision-making
For the purposes of complying with the Bermuda Government’s Economic Substance regulations, the Board of Directors decided to limit its decisions to matters pertaining to the strategy, objectives, and goals of the Company, as well as main action plans and policies, risk control and management, annual budgets, business plans and control of their implementation, supervision of main expenses, investments, and acquisitions and dispositions, among other decisions of a “passive” nature related to the Company, beginning in October 29, 2020.
Following these changes, the Board of Directors of Grupo Crédito S.A., a subsidiary of Credicorp, has the authority to make “active” decisions pertaining to Credicorp’s subsidiaries, such as making relevant strategic or management decisions, incurring expenditures on behalf of affiliates, coordinating group activities, and providing credit facilities to its affiliates.
Board Committee Structure
The Boards of Directors (and Board Committees) of Credicorp and Grupo Crédito S.A. are composed of the same individuals and the management structure in both companies has been standardized. Credicorp’s and Grupo Crédito S.A.’s Boards of Directors, acting on the recommendation of the Compensation and Nominations Committee, decide on the appointment, ratification, or removal of committee members. Directors who are members of committees are appointed to an initial term of up to three-years and maintain such appointments only while being a member of the Board. Regarding Board Committees, the Board of Directors of each of Credicorp and Grupo Crédito S.A. designates a chairperson among its members and approves the respective charters.
On February 5, 2020, the Board of Directors agreed to simplify the structure of its committees, reducing the number of committees from seven to four. As a result, the Executive Committee and the Investment Committee were eliminated, and the Compensation Committee and the Nominating Committee were integrated.
On June 3, 2020, the Board of Directors approved new criteria to define which Directors are categorized as independent. International references for best practice were utilized to improve and broaden the independence criteria. The new scope can be found in Credicorp’s Corporate Governance Policy, which is available on Credicorp’s web page.
For the purposes of complying with the Bermuda Government’s Economic Substance regulations, Credicorp’s Board of Directors decided to limit its decisions to “passive” matters related to the Company, beginning on October 29, 2020. For further details, see “ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES – 6.C Board Decision-Making”.
On December 17, 2020, the Board of Directors of Credicorp approved an initiative to broaden the scope of the Corporate Governance Committee, which was renamed to “Sustainability Committee” to reflect its goal to lead and supervise Credicorp’s Sustainability program. For further information, see “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (1) Credicorp Overview – Our ESG Approach”.
Credicorp’s Board of Directors has established the following Committees:
| | (1) | The Audit Committee was created on October 31, 2002. |
| (2) | The Corporate Governance Committee was created on June 23, 2010. On December 17, 2020, it expanded its functions and was renamed as the Sustainability Committee. |
| (3) | The Compensation and Nominations Committee was formed on June 5, 2020, as a result of the integration of the Compensation Committee (created on January 25, 2012) and the Nominations Committee (created on March 28, 2012). |
| (4) | The Risk Committee was created on March 28, 2012. |
The Audit Committee membership is composed of three Directors from Credicorp’s Board. The Committee must include at least one member who is a financial expert and at least one member should be a woman. The Chairman of the Board of Directors cannot be a member of the Committee. All members of the Committee must be independent, according to the definition of independence set forth by Rule 10A-3 under the Securities Exchange Act of 1934 (the “Exchange Act”). In order to be considered independent, an Audit Committee member must not (i) accept from Credicorp or any of its subsidiaries, directly or indirectly, any consulting, advisory or other compensatory fee, other than the compensation paid to him or her in his/her capacity as a Director with the exception of retirement plans that meet the conditions established by the SEC; nor (ii) be an affiliated person of Credicorp or its subsidiaries (that is, they must not own or control, directly or indirectly, more than 10% of the Company’s voting shares and they must not be an executive officer of Credicorp, according to Rule 10A-3 under the Exchange Act and the U.S. SEC).
The Committee has the purpose of carrying out the supervision, monitoring, and independent review of:
| | • | The processes for submission of the financial and accounting information of Credicorp and subsidiaries; |
| • | The internal control procedures of Credicorp and subsidiaries; specifically, the financial reporting internal control system; |
| • | The audits conducted on the financial statements of Credicorp and subsidiaries; |
| • | The completeness of the financial statements of Credicorp and subsidiaries; |
| • | The procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls and auditing matters, through Credicorp’s Complaint System; and |
| • | The appointment of the independent auditor and the internal auditor of the Credicorp and subsidiaries. |
The Audit Committee safeguards the interests of investors and oversees compliance with the rules of the SEC and other regulatory entities.
The Audit Committee should act as supervisor over Credicorp’s financial information system, helping to ensure that:
| • | Management implements an adequate internal control system; in particular, the financial reporting internal control systems; |
| • | Appropriate procedures to assess the Credicorp and subsidiaries’ internal control system objectively and regulatory and |
| • | External auditors, through their own assessment, review the accounting and financial policies applied in the preparation of Credicorp and subsidiaries’ financial statements. |
Furthermore, the Committee must facilitate communication among the external auditors, general managements of Credicorp and subsidiaries, the Internal Audit Division of BCP, in charge of the internal audit duties of Credicorp, hereinafter, the “Internal Audit Division”, and the Board of Directors of Credicorp.
There are currently three members on the Audit Committee: Ms. Patricia Lizarraga Guthertz (financial expert, independent, Chairwoman since June 9, 2020, and Member since April 26, 2017), Ms. Maria Teresa Aranzabal Harreguy (independent, member of the Audit Committee since June 9, 2020) and Ms. Nuria Aliño Pérez (independent, member of the Audit Committee since April 27, 2023). Ms. Aliño was appointed to replace Mr. Irzio Pinasco Menchelli, who served in the Committee from June 2020 to April 2023. During 2023, Credicorp’s Audit Committee held thirteen meetings.
The Board of Directors has also assigned the Audit Committee the responsibility of overseeing the audit committees at all Credicorp’s subsidiaries, to the extent permitted by local regulations. According to SBS regulations, Credicorp’s Audit Committee functions as the statutory audit committee for BCP, SEAH, Mibanco Peru, Pacífico Seguros, Pacífico Salud and Prima AFP. Credicorp Capital Colombia, Credicorp Holding Colombia, Credicorp Capital Chile, ASB Bank Corp., Mibanco Colombia, BCP Bolivia and ICBSA are bound by special audit committee requirements set by local regulators. Nevertheless, the Audit Committee receives and oversees periodic information from the Corporate Chief Audit Executive and/or the unit’s chief auditors for all relevant Credicorp’s subsidiaries, including Credicorp Capital Colombia, Credicorp Holding Colombia, Credicorp Capital Chile, ASB Bank Corp., Mibanco Colombia, BCP Bolivia and ICBSA. Therefore, in practice, Credicorp’s Audit Committee oversees all of its relevant subsidiaries’ systems of internal control. For further information, please refer to “Item 16G. A The New York Stock Exchange – Corporate Governance”.
| (2) | Sustainability Committee |
On December 17, 2020, the Board of Directors renamed the Corporate Governance Committee as the Sustainability Committee. Credicorp’s Sustainability Committee is comprised of five Directors from Credicorp. At least two members should be independent: one of them chairs the Committee, and one should be a woman.
The current members of the Sustainability Committee include Ms. María Teresa Aranzábal (Chairwoman, independent), Mr. Antonio Abruña (independent), Ms. Patricia Lizárraga (independent director), and Mr. Leslie Pierce (non-independent), and Mr. Pedro Rubio (non-independent). In 2023, Credicorp’s Sustainability Committee held four meetings.
The Sustainability Committee is responsible, among other functions, for (i) reviewing Credicorp’s Sustainability and ESG strategy and initiatives and following up on its most relevant activities, including the Sustainability program; (ii) proposing to the Board of Directors and ensure the execution of good practices and sustainability and corporate governance policies to be implemented throughout the Company; (iii) supervising the development of the strategic initiatives of the Corporate Compliance and Ethics Division, including assessing performance of said Division as well as reviewing its Strategic Plan and objectives, annual work plan and periodic reports, and changes in policies; (iv) supervising the operation of the complaints system; (v) ensuring the adequate attention to conflicts of interest or ethics of Directors and senior executives, as well as transparency in relationships with related parties; and (vi) proposing to the Board of Directors the independence criteria of the Directors and the members of the Audit Committee and reviewing them periodically to ensure their validity over time.
| (3) | Compensation and Nominations Committee |
Until June 5, 2020, Credicorp’s Board of Directors had separate committees for Compensation and Nominations. These committees were subsequently combined to form the Compensation and Nominations Committee. Credicorp’s Compensation and Nominations Committee consists of five Directors from Credicorp. At least two members should be independent, one of them chairs the Committee, and one should be a woman.
The current members of the Compensation Committee include Mr. Alexandre Gouvêa (Chairman, independent), Mr. Luis Enrique Romero Belismelis (non-independent), Mr. Jose Raimundo Morales (non-independent), Mr. Antonio Abruña (independent) and Ms. María Teresa Aranzábal (independent). The Compensation and Nominations Committee held ten meetings in 2023.
Credicorp does not have a fully independent Compensation and Nominations Committee. When the Committee was created, the Board of Directors determined that the most important criterion to select Directors to serve on the Committee was deep knowledge of the organization and its people, which, coupled with the leadership and continuity provided by senior management, ensures that the organization functions efficiently. The Board of Directors believes that each individual on the Committee makes quality, independent judgments in the best interests of Credicorp with regard to all relevant issues and that the committee’s structure currently represents the best possible configuration to ensure that goals are met.
The Compensation and Nominations Committee is responsible for (i) selecting and recommending to the Board of Directors the candidates to be proposed to the General Meeting of Shareholders of Credicorp, as well as to fill any vacancies; (ii) evaluating candidates for the Board of Directors to determine if they meet Credicorp’s independence criteria; (iii) proposing to the Board of Directors of Credicorp, for submission to the General Meeting of Shareholders, the attendance fees and remuneration levels of the members of the Boards of Directors and Committees of Credicorp; and (iv) defining the general guidelines of the Compensation Policy that must be implemented in Credicorp.
Credicorp’s Risk Committee’s consists of five Directors from Credicorp or its subsidiaries. At least one member must be independent, and one should be a woman.
The current members of the Risk Committee include Mr. Pedro Rubio (Chairman, non-independent), Mr. Luis Enrique Romero Belismelis (Chairman of the Board of Directors, non-independent), Mr. Alexandre Gouvêa (independent), Ms. Nuria Aliño (independent), and Mr. Jose Raimundo Morales (non-independent). The Risk Committee held one meeting on December 6, 2023.
The Risk Committee’s duties are: (i) acknowledging and informing Credicorp’s Board of Directors the level of compliance with the risk appetite and the level of exposure assumed by the Group; (ii) acknowledging the relevant improvements in the comprehensive risk management of the Group; and (iii) proposing the Board the risk appetite and risk tolerance acceptable for Credicorp.
As of December 31, 2023, Credicorp had 37,074 employees (including full-time and part-time employees), as set forth in the following table:
| As of December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| Universal Banking | | | | | | | | | |
BCP Stand-alone (1) | | | 17,435 | | | | 17,744 | | | | 17,895 | |
Inversiones Credicorp Bolivia (ICBSA) (2) | | | 1,632 | | | | 1,763 | | | | 1,803 | |
| Microfinance | | | | | | | | | | | | |
| Mibanco | | | 9,878 | | | | 9,725 | | | | 9,842 | |
Mibanco Colombia (3) | | | 2,357 | | | | 2,665 | | | | 2,296 | |
| Insurance and Pensions | | | | | | | | | | | | |
Grupo Pacífico (4) | | | 2,562 | | | | 2,444 | | | | 2,601 | |
| Prima AFP | | | 610 | | | | 572 | | | | 569 | |
| Investment Management and Advisory | | | | | | | | | | | | |
| ASB Bank Corp. | | | 139 | | | | 152 | | | | 145 | |
Credicorp Capital Ltd. (5) | | | 1,652 | | | | 1,787 | | | | 1,784 | |
| Others | | | | | | | | | | | | |
Grupo Crédito S.A.(6) | | | 93 | | | | 116 | | | | 139 | |
| Total Credicorp | | | 36,358 | | | | 36,968 | | | | 37,074 | |
| (1) | BCP Stand-alone includes employees from BCP Miami and BCP Panama. |
| (2) | ICBSA includes BCP Bolivia, Credibolsa, Credifondo, Crediseguro Seguros Personales and Crediseguro Seguros Generales. |
| (3) | Mibanco Colombia is a result of the merger of Encumbra and Bancompartir. 2019 figures only include Encumbra employees. |
| (4) | Does not include the employees of the acquired private hospitals. Pacífico corporate health insurance employees are not included since 2015. |
| (5) | Includes Credicorp Capital Colombia, Credicorp Capital Chile, Credicorp Capital Securities, Credicorp Capital USA and Credicorp Capital Peru. |
| (6) | Started operations in April 2018. Previously called Credicorp Peru.. |
All bank employees in Peru have the option of belonging to an employee union. The last strike of employees of BCP Stand-alone occurred in 1991 and did not interfere with our operations. In July 2013, we were informed of the establishment of the BCP Stand-alone independent employee union, which represented 0.17% of the BCP Stand-alone’s employees at that time. Today, the employee union represents 0.7% of the total employees of BCP Stand-alone. The relationship with this union has been cordial with agreements reached in April 2016, an arbitration award and collective bargaining agreement valid from August 2016 to December 2018, a collective bargaining agreement that ran from January 2019 to December 2020, and a last collective bargaining agreement signed in 2023 valid from January 2021 to December 2022. We are currently negotiating with the union an agreement for period 2023 – 2024.
Board of Directors
The following persons were beneficial owners of the listed numbers of common shares of Credicorp Ltd. (as the term “beneficial owner” is defined in Form 20-F) as of December 31, 2023.
| Director | | Share Ownership (1) | | | Percentage | |
| Luis Enrique Romero Belismelis | | | 11,551,019 | (2) | | | 12.24 | % |
| Jose Raimundo Morales Dasso | | | - | | | | - | |
| Patricia Lizarraga Guthertz | | | - | | | | - | |
| Pedro Rubio Feijóo | | | - | | | | - | |
| Antonio Abruña Puyol | | | - | | | | - | |
| Alexandre Gouvêa | | | - | | | | - | |
| Maria Teresa Aranzabal Harreguy | | | - | | | | - | |
| Leslie Pierce Diez Canseco | | | - | | | | - | |
| Nuria Aliño Pérez | | | - | | | | - | |
(1) These figures represent only those directors who have more than 1% of Credicorp’s shares.
(2) Includes beneficially owned shares of the Romero family (Mr. Luis Enrique Romero B. and their family or companies owned or controlled by them).
Common shares held by our Directors and our senior management do not have voting rights different from shares held by our other shareholders. As of December 31, 2023, there are no stock options granted by Credicorp to acquire any of Credicorp’s outstanding common shares.
Senior Management
Excluding Mr. Luis Enrique Romero Belismelis, our Executive Chairman, whose share ownership is set forth above, as of December 31, 2023, the members of our senior management, as defined in “ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES” own 188,412 Credicorp shares, which represents 0.20% of our total outstanding shares. While each member of our senior management owns Credicorp shares, none (other than our Executive Chairman) owns more than 1% of our total outstanding shares.
Employees
As of December 31, 2023, Credicorp’s employees, excluding members of our senior management, own 399,712 Credicorp shares (granted by Credicorp as part of Credicorp’s long-term compensation program for its key employees and purchased by Credicorp’s employees), which represents 0.42% of our total outstanding shares.
| 6.F | Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation |
Not applicable.
| ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
As of December 31, 2023, Credicorp had issued 94,382,317 common shares, of which 14,620,846 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 Stand-alone and Grupo Pacífico were transferred to ASHC in April 2004. The table below provides details about the percentage of Credicorp’s common shares owned by holders of 5% or more of our total common shares, as of February 9, 2024.
| Owner | | Common Shares | | | Percent of Class (1) | |
Atlantic Security Holding Corporation | | | 14,620,846 | | | | 15.49 | % |
Romero family (2) | | | 11,551,019 | | | | 12.24 | % |
| Dodge & Cox | | | 5,530,980 | | | | 5.90 | % |
| (1) | As a percentage of all issued and outstanding shares (including shares held by ASHC). |
| (2) | It includes common shares directly or indirectly owned by Luis Enrique Romero Belismelis and his family or companies owned or controlled by them. Mr. Romero B. is the Chairman of the Board. |
Voting rights of major shareholders are not different from voting rights of other shareholders. Each share has right to one vote, including the shares owned by Atlantic Security Holding Corporation.
Approximately 9.65% of Credicorp’s total issued and outstanding common shares are currently held in 4,437 individual accounts with Cavalli, a Peruvian security clearing company.
As of December 31, 2023, Credicorp had 79,496,221 floating common shares (excluding the 14,620,846 shares held by ASHC and 265,250 shares held by Credicorp’s subsidiaries that correspond to Credicorp’s long-term compensation program for its key employees). For more details regarding our treasury stock see Note 16 (b) to our consolidated financial statements. Approximately 89.69% of the 94,382,317 Credicorp’s issued common shares were held in the United States. There were approximately fifty registered holders of Credicorp’s common shares in the United States. Because many of these common shares were held by brokers or other nominees, and because of the impracticability of obtaining accurate residence information for all beneficial shareholders, the number of registered holders in the United States is not a representative figure of the beneficial holders or of the residence of beneficial holders. Credicorp is neither directly nor indirectly controlled by another corporation or by any foreign government.
| 7.B | Related Party Transactions |
Under Bermuda law, Credicorp is not subject to any restrictions on transactions with affiliates, other than such restrictions as are applicable to Bermuda companies generally. Credicorp’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. Credicorp has not engaged in any transactions with related parties except through our subsidiaries.
Credicorp’s consolidated financial statements as of December 31, 2021, 2022 and 2023 include transactions with related parties, including (i) related companies such as associates or others, (ii) its Board of Directors, (iii) its senior management, (iv) close members of the families of its Directors or members of its senior management and (v) enterprises that are controlled by these individuals or entities through majority shareholding or their role as chairman or principal executive officer in those companies.
Transactions between the Credicorp companies and those related to Credicorp that exceed US$1 million must have the approval either of the Board of Directors involved or of the body to which this Board has delegated the responsibility. The Finance Areas of each company are responsible of identifying these operations and escalating them to the Board of Directors.
Transactions between Credicorp companies and between Credicorp companies and their employees (without being limited to banking, financial, securities brokerage, investment, other financial services, payments of tariffs and regulatory contributions) that are made in the normal course of its operations, at market prices and values, or in substantially the same terms, including yields, interest rates and collateral, as compared to those prevailing at the same time with third parties, and that do not imply a higher collectability risk and do not present any additional unfavorable terms for Credicorp, are expressly exempted from this requirement. These transactions are considered pre-approved by Credicorp’s Board of Directors and may be reported to the Sustainability Committee in order to ensure good practices and detect potential conflicts of interest. For the daily approval of these transactions, the current policies and regulations of each Credicorp company will be followed.
The following table shows Credicorp subsidiaries’ main transactions with related companies as of and for the years ended December 31, 2021, 2022 and 2023.
| | | Year ended December 31, (2) | |
| | | 2021 | | | 2022 | | | 2023 | |
| Statement of financial position | | (in thousands of soles) | |
| Direct loans | | | 1,888,433 | | | | 1,804,837 | | | | 2,063,739 | |
Investments (1) | | | 920,852 | | | | 800,021 | | | | 806,700 | |
| Deposits | | | (970,072 | ) | | | (1,138,115 | ) | | | (713,503 | ) |
| Derivatives at fair value | | | 30,026 | | | | 336,867 | | | | 516,292 | |
| | | | | | | | | | | | | |
| Statement of income - | | | | | | | | | | | | |
| Interest income related to loans – income | | | 39,355 | | | | 38,896 | | | | 31,892 | |
| Interest expense related to deposits – expense | | | (15,999 | ) | | | (24,143 | ) | | | (30,914 | ) |
| Non-interest income | | | 9,967 | | | | 13,232 | | | | 9,452 | |
| | | | | | | | | | | | | |
| Contingent risks and commitments | | | | | | | | | | | | |
| Total performance bonds, and stand-by letters of credit | | | 503,880 | | | | 433,639 | | | | 584,463 | |
| (1) | In 2023, the balance includes mainly S/166.8 million of corporate bonds, S/146.5 million of Alicorp S.A.A. shares; S/135.9 million of Inversiones Centenario shares and S/120.5 million of corporate bonds issued by Corporación Primax. The increase in the balance corresponds mainly to the fluctuation that positively affected the investments in corporate bonds of Alicorp S.A. and Corporación Primax. In 2022, the balance mainly consists of S/158.1 million of corporate bonds, S/157.0 million of shares of Alicorp S.A.A., S/155.3 million of corporate bonds issued by Cementos Pacasmayo S.A. and S/126.8 million of shares of Inversiones Centenario. |
| (2) | Excludes transactions with subsidiaries. |
Credicorp subsidiaries’ entered into these transactions with related parties in the ordinary course of business and in accordance with normal market terms, including interest rate and collateral, which were available to other customers for comparable transactions at that time, and they did not involve more than the normal risk of collectability or present other unfavorable features. Outstanding loan balances at year-end were guaranteed by the related party. The Peruvian financial system law prohibits us from giving more favorable conditions to related parties. On December 31, 2023, direct loans to related companies were secured by collateral, which had maturities between January 2024 and August 2030, at an annual soles average interest rate of 7.70 percent and at an annual foreign currency average interest rate of 6.04 percent (as of December 31, 2022, maturities between January 2023 and June 2029, at an annual soles average interest rate of 6.86 percent and at an annual foreign currency average interest rate of 4.59 percent). As of December 31, 2023, we recorded an S/15.2 million allowance for loan losses for doubtful debt in connection with loans to related parties. As of December 31, 2022, this provision amounted to S/8.5 million. The amount of this provision is adjusted on a continuous basis and based on the financial position of each related party and the market in which it operates.
As of December 31, 2023, the related company that had the largest debt balance of direct loans with Credicorp was in the cement sector with a total balance of S/428.9 million. This balance included short-term financing. Interest rates of the operations ranged from 5.82% to 9.44% in soles. As of December 31, 2022, the related company that had the largest debt balance of direct loans with Credicorp was in the cement sector with a total balance of S/300.5 million. This balance included short-term financing. Interest rates of the operations ranged from 5.82% to 8.93% in soles. As of December 31, 2021, the related company that had the largest debt balance of direct loans with Credicorp was in the cement sector with a total balance of S/450.8 million. This balance included short-term financing. Interest rates of the operations ranged from 1.55% to 2.62% in soles and 1.80% in dollars.
As of December 31, 2021, 2022 and 2023, Credicorp’s Directors, officers and employees had been involved, directly and indirectly, in credit transactions with certain subsidiaries of the Group, as permitted by Peruvian Banking and Insurance Law No. 26702, which regulates and limits certain transactions with employees, Directors and officers of a bank and insurance company. On December 31, 2021, 2022 and 2023, direct loans to employees, Directors, senior management, and their family members amounted to S/1.1 billion, S/1.2 billion and S/1.4 billion, 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 the Sarbanes-Oxley Act. 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.
In 2023, Credicorp and subsidiaries made payments totaling approximately US$36 million to the following related suppliers: Hermes Transportes Blindados, AI Inversiones Palo Alto II SAC, Grupo Falabella Peru and subsidiaries, ENEL Distribución Peru SAA, and Grupo Centenario and subsidiaries. This information is being disclosed in accordance with our Corporate Policy on Related Parties, which came into effect in December 2019.
Subsidiaries Transactions
The following table shows Credicorp’s main transactions with subsidiaries companies as of and for the years ended December 31, 2021, 2022 and 2023 which does not consider related party transactions.
| | | As of December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| Statement of financial position | | | | | (in thousands of soles) | |
Direct loans / receivables (1) | | | 3,104,188 | | | | 3,067,625 | | | | 1,132,893 | |
| Investments | | | 115,642 | | | | 163,200 | | | | 199,503 | |
Funds / Deposits (2) | | | (2,917,660 | ) | | | (1,359,011 | ) | | | (1,824,745 | ) |
Derivatives at fair value receivable / payable (*) | | | 20,392 | | | | 17,190 | | | | 8,841 | |
| Statement of income - | | | | | | | | | | | | |
Interest income related to loans – income (**) | | | 58,270 | | | | 118,627 | | | | 126,457 | |
Interest expense related to deposits – expense (**) | | | (1,499 | ) | | | (12,972 | ) | | | (42,032 | ) |
Non-interest income (**) | | | 76,645 | | | | 79,743 | | | | 119,813 | |
| Off-balance sheet | | | | | | | | | | | | |
| Total performance bonds, and stand-by letters of credit | | | 331,920 | | | | 440,577 | | | | 450,799 | |
(1) The loans granted by these companies are recognized as receivable by the group companies that received the placement. These transactions are eliminated from the Statement of Financial Position.
(2) Funds available from various group companies are received by these subsidiaries as deposits. These operations are eliminated in the Statement of Financial Position.
(*) Accounts receivable for derivatives held by group companies will be accounts payable for the subsidiaries with which the derivative is agreed and vice versa. These transactions are eliminated from the Statement of Financial Position.
(**) Income recognized by group companies will be an expense for the subsidiaries with which the transaction was agreed. These transactions are eliminated from the statement of income.
(***) The table does not consider related party transactions.
The main direct loans and receivables between subsidiaries of the group are:
| Grant the Loan | Receive the Loan | | At December 2023 (in thousands of Soles) | |
| Sol-denominated: | | | | |
| BCP Stand-alone | Mi Banco - Banco de Microempresa | | | 550,863 | |
| BCP Stand-alone | SEAH | | | 32,620 | |
| BCP Stand-alone | Credicorp Ltd. | | | 30,000 | |
| BCP Stand-alone | Cia. Incubadora de Soluciones Moviles S.A.C. (Culqi) | | | 10,004 | |
| BCP Stand-alone | Credicorp Capital SAFI | | | 2,920 | |
| BCP Stand-alone | Credicorp Capital SAB | | | 500 | |
| BCP Stand-alone | Credicorp Capital Servicios Financieros S.A. | | | 317 | |
| BCP Stand-alone | Pacífico Compañía de Seguros y Reaseguros S. A. | | | 138 | |
| Others | | | | 15,016 | |
| Total Sol-denominated | | | | 642,378 | |
| Foreign Currency-denominated: | | | | |
| BCP Stand-alone | Mi Banco - Banco de Microempresa | | | 374,076 | |
| BCP Stand-alone | Credicorp Capital Chile S.A. | | | 18,948 | |
| BCP Stand-alone | Credicorp Capital SAB | | | 23,392 | |
| ASB Bank Corp | Credicorp Capital Chile S.A. | | | 12,785 | |
| BCP Stand-alone | Credicorp Capital SAFI | | | 11,718 | |
| BCP Stand-alone | Credicorp Capital Servicios Financieros S.A. | | | 10,210 | |
| ASB Bank Corp | Atlantic Security Holding Corp | | | 3,709 | |
| Others | | | | 35,677 | |
| Total Foreign Currency-denominated | | | 490,515 | |
| Total | | | 1,132,893 | |
Main loans granted between group companies in soles amount to S/627.4 million with an average rate of 7.9% and with maturity between January 2024 and May 2025; in dollars amount to S/474.5 million with an average rate of 7.3% and with maturity between January 2024 and July 2024.
| 7.C | Interests of Experts and Counsel |
Not applicable.
| ITEM 8. | FINANCIAL INFORMATION |
| 8. A | Consolidated Statements and Other Financial Information |
Our annual consolidated financial statements, audited by two independent registered public accounting firms and accompanied by an audit report, are included beginning on page F-1 of this Annual Report.
We, along with our subsidiaries, are involved in certain legal proceedings that arise in the normal course of conducting business. We do not believe that any liabilities that may result from such proceedings would have a material adverse effect on our financial condition or results of operations, or on the financial condition or results of operations of any of our subsidiaries.
The following is a description of material litigation in which we or our subsidiaries are engaged in as of the date of this Annual Report, or that has had, in the recent past, significant effects on the Company’s financial position or profitability.
Madoff Trustee Litigation and Fairfield Litigation
In September 2011, the Trustee for the liquidation of Bernard L. Madoff Investment Securities LLC. (“BLMIS”) and the substantively consolidated estate of Bernard L. Madoff (the “Madoff Trustee”) filed a complaint (the “Madoff Complaint”) against Credicorp’s subsidiary, ASB (now ASB Bank Corp.), in the U.S. Total for the Southern District of New York (the “Bankruptcy Court”). The Madoff Complaint sought recovery of approximately US$120.0 million in principal amount, which the Complaint alleged was equal to the amount of redemptions between the end of 2004 and the beginning of 2005 of ASB-managed Atlantic U.S. Blue Chip Fund assets invested in Fairfield Sentry Limited (“Fairfield Sentry”), together with fees, costs, interest, and expenses. The Madoff Complaint sought the recovery of these redemptions from ASB Bank Corp. as “subsequent transfers” or “avoided transfers” from BLMIS to Fairfield Sentry, which Fairfield Sentry in turn subsequently transferred to ASB Bank Corp. The Madoff Trustee also filed similar “claw back” actions against numerous other alleged “subsequent transferees” that invested in Fairfield Sentry and its sister entities, which, in turn, invested in and redeemed funds from BLMIS.
In April 2012, Fairfield Sentry (in liquidation) and its representative, Kenneth Krys (the “Fairfield Liquidator”), filed a complaint (the “Fairfield Complaint”) against ASB (now ASB Bank Corp.) in the Bankruptcy Court (the “Fairfield v. ASB Adversary Proceeding”). The Fairfield Complaint sought to recover US$115.2 million in principal amount from ASB Bank Corp., representing the amount of ASB Bank Corp.’s redemptions of certain investments in Fairfield Sentry, together with fees, costs, interest, and expenses. These were essentially the same funds that the Madoff Trustee sought to recover in the Madoff Trustee litigation as described above. After the Fairfield Complaint was filed, the Bankruptcy Court procedurally consolidated the Fairfield v. ASB Adversary Proceeding with other adversary actions brought by the Fairfield Liquidator against former investors in Fairfield Sentry.
On January 30, 2024, (i) the Madoff Trustee and ASB Bank Corp. entered into a release and settlement agreement (the “Madoff Settlement”) and (ii) the Fairfield Liquidator and ASB Bank Corp. simultaneously entered into a release and settlement agreement (the “Fairfield Settlement”), which settlements, without admission of liability, have resolved all disputes related to the Madoff Complaint and the Fairfield Complaint among ASB Bank Corp., the Madoff Trustee and the Fairfield Liquidator. Under the terms of the settlements, after approval of the Madoff Settlement by the Bankruptcy Court, among other things, ASB Bank Corp. would pay the Madoff Trustee the amount of US$42,750,000.00 (the “Settlement Amount”) (for which ASB Bank Corp. and its affiliates were already fully provisioned), and the Madoff Trustee and the Fairfield Liquidator would dismiss the Madoff Complaint and the Fairfield Complaint, as applicable, with prejudice and without costs to either party. On March 18, 2024, the Bankruptcy Court approved the Madoff Settlement. On April 3, 2024, ASB Bank Corp. paid the Madoff Trustee the Settlement Amount. On April 5, 2024, the Madoff Trustee dismissed the Madoff Complaint with prejudice and without costs to either party. On April 8, 2024, the Fairfield Liquidator dismissed the Fairfield Complaint with prejudice and without costs to either party. The full and final dismissal of the Fairfield Complaint is pending confirmation by the Second Circuit Court of Appeals of the dismissal with prejudice of the previously pending appeal by the Fairfield Liquidator.
| (2) | Government Investigations |
In 2019, the former Chairman and the current Vice Chairman of the Board of Directors of Credicorp, in their respective capacities as Chairman of the Board and as a Director of BCP Stand-alone, were summoned as witnesses by Peruvian prosecutors, along with 26 other Peruvian business leaders, to testify in connection with a judicial investigation that is being carried out regarding contributions made to the electoral campaign of a political party in the 2011 Peruvian presidential elections. The former Chairman informed prosecutors that in 2010 and 2011, Credicorp made donations totaling US$3.65 million to the political party Fuerza 2011 (in total amounts of US$1.7 million in 2010 and US$1.95 million in 2011). These contributions were made in coordination with the General Manager of Credicorp at that time. While the amount of these contributions exceeded the limits then permitted under Peruvian electoral law, the law in place at that time imposed no sanction against contributors but only against the recipients of the campaign contribution.
The former Chairman also informed prosecutors that in 2016, three subsidiaries of Credicorp (BCP Stand-alone, Mibanco and Grupo Pacífico) made donations totaling S/711,000 (approximately US$200,000) to the political party Peruanos Por el Kambio. These contributions were made in compliance with both Peruvian electoral law and Credicorp’s own political contributions guidelines, adopted in 2015.
The Peruvian SMV has initiated a sanctioning process against Credicorp, for failing to disclose to the market, in due course, the political campaign contributions in the years 2011 and 2016. The SMV also has initiated a sanctioning process against three subsidiaries of Credicorp (BCP Stand-alone, Mibanco and Grupo Pacífico), for failing to disclose to the market, in due course, the political campaign contributions made in connection with the 2016 presidential elections. The SMV notified Credicorp, BCP Stand-alone, Mibanco and Grupo Pacífico with first instance resolutions on these proceedings. The resolutions imposed pecuniary sanctions (fines) on Credicorp and the three subsidiaries as a result of these sanctioning processes. Credicorp, BCP Stand-alone, Mibanco and Grupo Pacífico appealed the resolutions. After expiration of the term to resolve the appeals, Credicorp and its three subsidiaries asserted their right to negative administrative silence and to resort to the Judiciary. Notwithstanding Credicorp and its three subsidiaries proceeded to pay the fines imposed by the SMV, in compliance with Peruvian Law. To date the matter is subject to the decision of the Judiciary.
Credicorp believes that neither the political campaign contributions nor the related SMV sanctioning processes pose a significant risk of material liability to the Company or will have a material effect on the Company´s business and financial position since the fines imposed by the SMV have already been paid.
On November 11, 2021, Credicorp disclosed that its incoming CEO, Mr. Gianfranco Ferrari de las Casas, informed the Company of a Prosecutor’s Decision issued by the Corporate Supraprovincial Prosecutor’s Office Specialized in Officer Corruption Offenses Special Team – Fourth Court Division (Fiscalía Supraprovincial Corporativa Especializada en Delitos de Corrupción de Funcionarios Equipo Especial – Cuarto Despacho). Through such notice, Mr. Ferrari was informed that he has been included in the preparatory investigation carried out against Mr. Yehude Simon M. and an additional sixty-five (65) individuals on the grounds of, in his particular case, alleged primary complicity in the alleged crime against the public administration, aggravated collusion, incompatible negotiation or improper use of position and criminal organization detrimental to the Peruvian State, in connection with the financial advisory services provided by BCP Stand-alone to the Olmos Project. To date Mr. Ferrari is still included in the preparatory investigation. Mr. Ferrari has already filed certain legal defenses in order to be excluded from the investigation.
Credicorp has reviewed the performance of the officers of Banco de Crédito del Peru in relation to the financial advisory services provided by the bank in connection with the Olmos Project and believes that the facts under investigation do not give rise to any liability of Banco de Credito del Peru or its officers. Credicorp bases this view on the qualified opinion of external consultants specialized in the matter. Therefore, Credicorp believes that the opening of the aforementioned preparatory investigation will not have any impact on the normal operation of the Company, nor will it affect the dedication and performance of its officers in undertaking their regular duties.
Under Bermuda law, a dividend may only be declared and paid if (i) the Company is able to pay its liabilities as they become due, and (ii) the realizable value of its assets is not less than the aggregate value of its liabilities, issued share capital and share premium accounts.
Each year, the Company intends to declare and pay dividends in cash of at least 25% of the Company’s consolidated net profits based on the last audited financial accounts. The Board of Directors shall take into consideration the following when deciding whether to distribute dividends:
| • | There being dividends from the Company’s subsidiaries; |
| • | That the declaration and payment of dividends shall not cause the Company to breach any applicable laws or adversely impact on the equity growth requirements of the Company or its subsidiaries; |
| • | The financial performance of the Company; |
| • | The overall business and the economic-financial conditions affecting the Company; and |
| • | Any other factors that the Board may deem relevant. |
The Board of Directors may in its sole discretion declare and pay a dividend below 25%, if any of the aforementioned conditions fail to be met. Subject to the foregoing, it is expected that dividend payments are to be made once a year within 90 calendar days of the meeting held by the Board to approve the dividend declaration and payment. No interim dividends are to be paid. This policy has been in force since 2016 and it will continue to be applicable until amended or rescinded by the Board of Directors. For further details about the risk associated with our ability to pay dividends, please refer to “ITEM 3. KEY INFORMATION – 3.D Risk Factors – 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.”
Furthermore, the Board of Directors of the Company, in its session held on December 23, 2021, resolved that, subject to the provisions of Credicorp’s Dividend Policy, the Board of Directors expects that Credicorp will declare dividends, if any, each year in the month of April or thereafter once the Company’s subsidiaries have agreed on the declaration and date of payment of any dividends in their respective shareholder and board meetings. This decision was made in accordance with Credicorp’s Dividend Policy.
The following table shows the cash and stock dividends that we paid based on the results of our operations in the periods indicated:
| Year ended December 31, | | Number of Shares Entitled to Dividends | | | Cash Dividends Per Share | | | Stock Dividends Per Share | |
| 2001 | | | 94,382,317 | | | US$ | | | | 0.10 | | | | 0 | |
| 2002 | | | 94,382,317 | | | US$ | | | | 0.40 | | | | 0 | |
| 2003 | | | 94,382,317 | | | US$ | | | | 0.30 | | | | 0 | |
| 2004 | | | 94,382,317 | | | US$ | | | | 0.40 | | | | 0 | |
| 2005 | | | 94,382,317 | | | US$ | | | | 0.80 | | | | 0 | |
| 2006 | | | 94,382,317 | | | US$ | | | | 1.10 | | | | 0 | |
| 2007 | | | 94,382,317 | | | US$ | | | | 1.30 | | | | 0 | |
| 2008 | | | 94,382,317 | | | US$ | | | | 1.50 | | | | 0 | |
| 2009 | | | 94,382,317 | | | US$ | | | | 1.70 | | | | 0 | |
| 2010 | | | 94,382,317 | | | US$ | | | | 1.95 | | | | 0 | |
| 2011 | | | 94,382,317 | | | US$ | | | | 2.3 | | | | 0 | |
| 2012 | | | 94,382,317 | | | US$ | | | | 2.60 | | | | 0 | |
| 2013 | | | 94,382,317 | | | US$ | | | | 1.90 | | | | 0 | |
| 2014 | | | 94,382,317 | | | US$ | | | | 2.1873 | | | | 0 | |
| 2015 | | | 94,382,317 | | | US$ | | | | 2.3160 | | | | 0 | |
| 2016 | | | 94,382,317 | | | S/ | | | | 12.2865 | | | | 0 | |
| 2016 | | | 94,382,317 | | | S/ | | | | 15.7000 | | | | 0 | |
| 2017 | | | 94,382,317 | | | S/ | | | | 14.1726 | | | | 0 | |
| 2018 | | | 94,382,317 | | | S/ | | | | 20.0000 | | | | 0 | |
| 2018 | | | 94,382,317 | | | S/ | | | | 8.0000 | | | | 0 | |
2019(1) | | | 94,382,317 | | | S/ | | | | 30.0000 | | | | 0 | |
2020(2) | | | 94,382,317 | | | S/ | | | | 5.0000 | | | | 0 | |
2021(3) | | | 94,382,317 | | | S/ | | | | 15.0000 | | | | 0 | |
2022(4) | | | 94,382,317 | | | S/ | | | | 25.0000 | | | | 0 | |
2023(5) | | | 94,382,317 | | | S/ | | | | - | | | | 0 | |
| (1) | At a meeting held on February 27, 2020, the Board of Directors declared a cash dividend of S/30.0000 per common share. The cash dividend was paid in US Dollars using the weighted exchange rate registered by the SBS for the transactions at the close of business on May 6, 2020. The US Dollar dividend amount was rounded up to four decimals. The aforementioned cash dividend was paid on May 8, 2020, to those shareholders that were registered as shareholders of Credicorp as of the close of business on April 13, 2020. |
| (2) | At a meeting held on February 25, 2021, the Board of Directors discussed the probability of approving a distribution of dividends for the results obtained in 2020. Due to the uncertainty in the health and economic expectations of Peru and the countries in which we operate, this decision was defined in the following directories agreed during 2021, taking into account the evolution of the pandemic and its possible impact on the solvency, liquidity and profitability of Credicorp. At a meeting held on August 26, 2021, the Board of Directors declared a cash dividend of S/5.0000 per common share. The cash dividend was paid in U.S. Dollars using the weighted exchange rate registered by the SBS for the transactions at the close of business on October 5, 2021. The U.S. Dollar dividend amount was rounded up to four decimals. The aforementioned cash dividend was paid on October 7, 2021, to those shareholders that were registered as shareholders of Credicorp as of the close of business on September 15, 2021. |
| (3) | In a meeting held on April 28, 2022, the Board of Directors of Credicorp Ltd. declared a cash dividend of S/15.0000 per share. The cash dividend was paid in US dollars using the weighted exchange rate recorded by the SBS for transactions at the close of business on June 8, 2022. The dividend amount in US dollars was rounded to four decimal places. The aforementioned cash dividend was paid on June 10, 2022, to those shareholders who were registered as shareholders of Credicorp at the close of operations on May 20, 2022. |
| (4) | In a meeting held on April 27, 2023, the Board of Directors of Credicorp Ltd. declared a cash dividend of S/25.0000 per share. The cash dividend was paid in US dollars using the weighted exchange rate recorded by the SBS for transactions at the close of business on June 7, 2023. The dividend amount in US dollars was rounded to four decimal places. The aforementioned cash dividend was paid on June 9, 2023, to those shareholders who were registered as shareholders of Credicorp at the close of operations on May 19, 2023. |
| (5) | Cash dividends for the result of 2023 have not been declared yet. |
There have not been any significant changes since the date of our consolidated financial statements.
| ITEM 9. | THE OFFER AND LISTING |
| 9. A | Offer and Listing Details |
Our common shares have been traded on the NYSE since October 25, 1995. Our common shares also trade on the BVL. They are quoted in US Dollars and trade under the symbol BAP on both exchanges.
As of December 31, 2023, Credicorp issued 94,382,317 registered common shares with a nominal par value of US$5.00 per share. Under Credicorp’s Bye-laws, any holder of such shares is entitled to one vote per share, such dividends as the Board of Directors may from time to time declare and the surplus assets of Credicorp in the event of a winding-up or dissolution. Credicorp’s shareholders do not have preemptive purchase rights under the Company’s Bye laws.
Not applicable.
The BVL is the principal non-U.S. trading market for our common shares.
As of December 2023, there were 233 companies listed on the BVL, which is Peru’s only securities exchange and was established in 1970. Trading on the BVL is primarily done on an electronic trading system, though trading may also occur in an open outcry auction floor session. Trading hours occur from Monday through Friday as follows:
| From the second Sunday of March through the first Sunday of November of each year: | Pre-Opening | 07:30 | - | 08:20 |
| Opening session: | 08:20 | - | 08:30 |
| Trading I: | 08:30 | - | 14:22 |
| Trading II | 14:22 | - | 14:52 |
| Closing session: | 14:52 | - | 15:00 |
| Closing Price publication | 15:00 | - | 15:02 |
| Trading at closing price: | 15:02 | - | 15:10 |
| Post-Closing | 15:10 | - | 15:30 |
| From the first Sunday of November through the second Sunday of March of each year: | Pre-Opening | 07:30 | - | 09:00 |
| Opening session: | 09:00 | - | 09:30 |
| Trading I: | 09:30 | - | 15:22 |
| Trading II | 15:22 | - | 15:52 |
| Closing session: | 15:52 | - | 16:00 |
| Closing Price publication | 16:00 | - | 16:02 |
| Trading at closing price: | 16:02 | - | 16:10 |
| Post-Closing | 16:10 | - | 16:30 |
Transactions during both the open trading and the electronic sessions are executed through brokerage firms and stockbrokers on behalf of their clients. Brokers submit their orders in strict accordance with written instructions, following the chronological order in which they were received. The orders specify the type of security ordered or offered as well as the amounts and price of the sale or purchase. In general, share prices are allowed to increase or decrease up to 15% for Peruvian companies, and up to 30% for foreign companies, within a single trading day.
In the first quarter of 2020, in the midst of the COVID-19 pandemic when governments around the world were adopting lockdowns to mitigate the spread of the virus, the BVL General Index fell 30.8% as risk aversion and uncertainty were affecting global financial markets. The BVL is driven largely by movements in the equity markets of the United States and by commodity prices; and during the same period, the S&P 500 index in the US fell 20.2% and copper prices fell 22.2%. The BVL Index reached its lowest price of 13,539 points on April 3, 2020. After that, financial markets began to recover, supported by unprecedented monetary and fiscal stimuli deployed by governments around the world as well as by the development of COVID-19 vaccines. Between its low on April 2020 and mid-February 2021, the BVL index rose 71%, in line with the recovery of the price of copper that increased from US$2.10 per pound on March 23, 2020 to US$4.29 per pound on February 25, 2021. In February 2021, new restrictive measures were taken by various governments around the world as a new COVID-19 variant appeared. In Peru, additionally, the first round of the presidential elections took place on April 11, 2021, with Pedro Castillo, left-wing candidate, and Keiko Fujimori, right-wing candidate, advancing to a second round. In the second round on June 6, 2021, Castillo was elected president. As a result, the BVL behaved more independently compared to other financial markets (such as the S&P 500 and copper prices) and fell 33% from its peak in February to its bottom in August 2021. At that point, it started to recover and ended 2021 at 21,111 points, representing an increase of 1.4% compared to year-end 2020.
2022 was a tough year for financial markets. The war between Russia and Ukraine, the global inflationary shock, the COVID-19 zero tolerance stance of China and the simultaneous hiking cycle adopted by most Central Banks in the world drove market sentiment. Peru was immersed in constant political uncertainty. In the first quarter of 2022, the BVL index benefited from the commodity price rally that drove copper to a record of USD/lb. 4.84. In the second quarter of 2022, the BVL index fell 26%, in line with the S&P 500, as the FED started hiking rates in March 2022. In the second half of 2022, the BVL index gradually recovered as copper prices stabilized and rebounded late in the year when the Chinese authorities announced the end of their restrictive stance against the spread of COVID-19. The BVL index ended 2022 at 21,330 points, a rise of just 1.04% compared to the end of 2021. In this context, emerging markets were also affected by the significant appreciation of the US dollar, especially during the first three quarters of 2022, when it reached its highest value in two decades.
The year 2023 turned out to be very good for global equity markets, especially for the US, as the economy avoided falling into one of the most anticipated recessions by markets. The S&P 500 index rallied 24% while the Nasdaq rose 43% driven by the tech stock rally as artificial intelligence technologies emerged. The main catalyst of the equity rally was the shift in FED policy from interest rate hikes until July to rate cuts expectations in 2024. Dovish comments from FED chairman, Jerome Powell, during its December 2023 monetary policy meeting gave the market more reasons to continue rallying. In Peru, the BVL index fluctuated between 21,100 and 23,800 points throughout the year, in line with copper price movements, especially between 2Q23 and November where it moved in the 3.50 – 4.00 dollars per pound range. In 1Q23 copper’s price increase of more than 10% in January to above 4.20 dollars per pound was not reflected in the same magnitude in the BVL index as the country was grappling with one of the worst social crises in decades and weather shocks struck (cyclone Yaku and “El Niño” phenomenon). In December, the BVL index rallied 18% between the 7th up to year-end closing at 25,960 points, a historical high, as the dovish FED shift favored risk assets and weakened the US dollar.
The total amount traded on the BVL was US$2.2 billion in 2023, below the levels of the last four years (US$3.7 billion in 2022, US$5.7 billion in 2021, US$5.8 billion in 2020 and US$5.5 billion in 2019). These figures are still far from the record level obtained in 2007, in which trading volume reached US$12.4 billion. The Peruvian stock market capitalization amounted to US$177.7 billion in 2023 compared to US$141.7 billion in 2022, US$148.5 billion in 2021, US$165.5 billion in 2020 and US$162.0 billion in 2019.
Peruvian Securities Market Law (Legislative Decree No. 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. The SMV, which is a governmental entity attached to the MEF, was given additional responsibilities relating to the supervision, regulation, and development of the securities market, while the BVL and its member firms were given the status of self-regulatory organizations. Additionally, a unified system of guarantees and capital requirements was established for the BVL and its member firms.
The SMV is governed by a five-member board, which includes the Securities Market Superintendent, who presides over the board, and four directors appointed by the executive branch: one proposed by the MEF, one proposed by BCRP, one by SBS and one Independent Director. The SMV has broad regulatory powers, which include studying, promoting, and establishing rules for the securities market; supervising its participants; and approving the registration of public offerings of securities.
On August 22, 1995, the SMV 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 BVL. On October 25, 1995, we became the first non-Peruvian company to list our shares on the BVL. For further details, see “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (6) Supervision and Regulation – 6.2 Subsidiaries – 6.2.1 Peru”.
Pursuant to the Peruvian Securities Market Law, the BVL must maintain a guarantee fund that is funded by its member firms. The actual contributions to be made by the 24 member firms of the BVL are based on volume traded over the exchange. In addition to the guarantee fund managed by the BVL, each member firm is required to maintain a guarantee for operations carried out outside the exchange in favor of SMV. Such guarantees are generally established through bank guarantees issued by local banks.
Not applicable.
Not applicable.
Not applicable.
| ITEM 10. | ADDITIONAL INFORMATION |
Not applicable.
| 10.B | Memorandum of Association and Bye-laws |
The registration number of Credicorp with the Registrar of Companies in Bermuda is EC21045.
The following sections set forth certain information concerning Credicorp’s Board of Directors and its share capital, and a summary of certain significant provisions of Credicorp’s Memorandum of Association and Bye-laws and Bermuda corporate law. This description does not purport to be complete and is qualified by reference to Credicorp’s Memorandum of Association and Bye-laws and to applicable corporate law. For further information on Credicorp’s current Bye-laws, as amended in 2020, see Exhibit 1.1 to this Annual Report.
| (1) | Credicorp Ltd.’s Objects |
The objects under which Credicorp is formed and incorporated are located in Item 6 of its Memorandum of Association and are:
| (1) | To act and perform all the functions of a holding company in all of its branches and to coordinate the policy and administration of any subsidiary company or companies wherever incorporated or carrying on business or of any group of companies of which Credicorp or any subsidiary company is a member, or which are in any manner controlled directly or indirectly by Credicorp; |
| (2) | To carry on the business of an investment company and for that purpose to acquire and hold, whether in the name of Credicorp or in that of any nominee, shares, stocks, debentures, debenture stock, bonds, notes, obligations, and securities issued or guaranteed by any company however incorporated or carrying on business; and |
| (3) | Certain other standard objects of Bermuda exempted companies as set out in the Second Schedule to the Bermuda Companies Act 1981. |
Credicorp’s business falls within the scope of its objects under its Memorandum of Association.
Credicorp’s business is managed and conducted by the Board of Directors, which is fixed by Credicorp’s Bye-laws at nine Directors. For additional information regarding the membership and operation of Credicorp’s Board of Directors, see “ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES – 6. A Directors and Senior Management” and “– 6. C Board Practices”.
Each Director holds office for a period (the “Election Period”) commencing at the annual general meeting in which the Director was elected and ending at the annual general meeting in the third successive year of his election or until his successor is elected or appointed subject to his office being vacated.
There are no age limit requirements regarding retirement or non-retirement of Directors. Holding shares is not a requirement in order to be appointed as a Director of the Company.
The office of Director shall be vacated if the Director: (i) is removed from office pursuant to Credicorp’s Bye-laws or is prohibited from being a Director by law; (ii) is or becomes bankrupt or makes any arrangement or composition with his creditors generally; (iii) is or becomes of unsound mind or dies; or (iv) resigns his or her office by notice in writing to the Company. At any general meeting, the shareholders may authorize the Board to fill for the remainder of the Election Period any vacancy in their numbers left unfilled at the general meeting. Shareholders in general meeting or the Board shall have the power to appoint any person as a Director to fill a vacancy on the Board for the remainder of the Election Period occurring as a result of the death, disability, disqualification, or resignation of any Director.
A Director may not vote in respect of any contract or proposed contract or arrangement in which such Director is interested or in respect of which such Director has a conflict of interest.
Directors’ remuneration is determined by Credicorp’s shareholders in general meetings. Directors living outside Lima may also be paid all travel, hotel, and other expenses properly incurred in attending meetings of the Board of Directors, meetings of any committee appointed by the Board of Directors, general meetings of the Company, or any meetings in connection with the business of the Company or their duties as Directors generally.
Any Director, or any Director’s firm, partner, or any company with whom any Director is associated, may act in a professional capacity for Credicorp, and such Director or such Director’s firm, partner or such company may be entitled to remuneration for professional services as if such Director were not a Director, provided that a Director or Director’s firm, partner or such company is not authorized to act as auditor of the Company.
The Board of Directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled share capital, or any part thereof. The Board of Directors may also issue debentures, debenture stock, and other securities whether outright or as security for any debt, liability, or obligation of the Company or any third party.
Credicorp’s Memorandum of Association and Bye-laws provide for its share capital to be a single class of common shares, with a par value of $5.00 per share, subject to any resolution of the shareholders to the contrary. To date, Credicorp has issued 94,382,317 common shares with a par value of US$5.00 per share, each fully paid.
Under Credicorp’s Bye-laws, any holder of Credicorp’s common shares is entitled to one vote per share, such dividends as the Board of Directors may from time to time declare, and the surplus assets of Credicorp in the event of winding-up or dissolution whether voluntary or involuntary or for the purpose of a reorganization or otherwise, or upon any distribution of share capital. Unclaimed dividends do not earn interest. Dividends unclaimed for three years after they are declared revert back to the Company, and shareholders do not have any rights to such dividends. For more information regarding Credicorp’s dividend policy and applicable Bermuda law, refer to “ITEM 8. FINANCIAL INFORMATION – 8. A Consolidated Statements and Other Financial Information (3) Dividend Policy”.
Credicorp can, from time to time, purchase its own shares in accordance with Section 42A of the Companies Act 1981 of Bermuda. Section 42A of the Companies Act 1981 of Bermuda provides that a company cannot purchase its shares if there are reasonable grounds for believing that the company is, or after the purchase would be, unable to pay its liabilities as they become due. Shares purchased under Section 42A are treated as cancelled, and the amount of the company’s issued capital, but not its authorized share capital, is diminished by the nominal value of the cancelled shares.
Under Section 46 of the Companies Act 1981 of Bermuda, where permitted under its memorandum of association and Bye-laws, shareholders of a Bermuda company may resolve in a general meeting to reduce the company’s share capital. No company shall reduce the amount of its share capital unless: (i) it publishes a notice in an appointed newspaper not more than 30 and not less than 15 days before the date on which the reduction in share capital is to become effective, stating (a) the amount of share capital as last determined by the company; (b) the amount by which the share capital is to be reduced; and (c) the date on which the reduction will become effective; and (ii) on the date the reduction is to be effected, there are no reasonable grounds for believing that the company is, or after the reduction would be, unable to pay its liabilities as they become due. Subject to the foregoing, the Company may reduce its share capital in any way, including by (i) extinguishing or reducing the liability on any of its shares in respect of capital not paid up; (ii) with or without extinguishing or reducing liability on any of its shares, cancelling any paid up capital that is lost or unrepresented by available assets; or (iii) with or without extinguishing or reducing liability of any of its shares, and with or without reducing the number of such shares, paying off any paid-up capital that is in excess of the requirements of the Company. Subject to Credicorp’s Bye-laws, when share capital is to be reduced by cancellation of part of a class of shares, the shares to be cancelled must be selected (i) by lot, in such manner as the Directors determine; (ii) as nearly as may be in proportion to the number of shares of the class registered in the name of each shareholder; or (iii) in such other manner as the Directors, with the consent of the majority of shareholders of the share class to be cancelled, determine. When shares are to be cancelled to reduce the Company’s share capital, the shares shall be acquired at the lowest price at which the shares are obtainable, in the opinion of the Directors, but not exceeding an amount, if any, stated in the Bye-laws. Credicorp’s Bye-laws do not state any amount or price at which shares are to be cancelled when undertaking a share capital reduction of this kind. There are no conditions in our Memorandum of Association or Bye-laws governing changes in our share capital that are more stringent than those required under Bermuda law.
The rights of Credicorp’s shareholders can be changed by amendment of Credicorp’s Bye-laws. Amendments, rescissions, or alterations to Credicorp’s Bye-laws generally require approval by a resolution of its Board of Directors and a resolution of the shareholders passed by a majority of the votes cast in accordance with the provisions of the Bye-laws. Amending Bye-laws 4.11 and 4.23 of Credicorp’s Bye-laws, regarding the number of Directors, tenure, election process and filling of vacancies, among other matters, requires affirmative votes of at least two-thirds of the total issued voting shares of the Company. Bye-law amendments may be made at the annual general meeting or at a special general meeting.
Credicorp’s annual general meeting is held each year to consider and adopt resolutions, to receive the report of the auditors and the consolidated financial statements for the last fiscal year, to elect Directors, to consider fees payable to Directors, to appoint auditors and to consider other matters properly brought before the meeting. At least fourteen days’ notice of an annual general meeting shall be given to each shareholder. Notice of an annual general meeting will state the date, place, and time at which the meeting is to be held, that the election of Directors will take place at the meeting, and as far as practicable, the other business to be conducted at the meeting. At least ten days’ notice of a special general meeting shall be given to each shareholder. Notice of a special general meeting will state the date, time, place, and the general nature of the business to be considered at the meeting. Subject to the provisions of the Bermuda Companies Act 1981 and Credicorp’s Bye-laws, any question proposed for the consideration of the shareholders at any general meeting will be decided by the affirmative votes of a majority of the votes cast in accordance with the provisions of Credicorp’s Bye-laws. In the case of a tie, the resolution fails.
Subject to compliance with applicable laws, there are no limitations on the rights to own our securities, or on the rights of non-resident or foreign shareholders to hold or exercise voting rights on those securities, which are imposed by the Companies Act 1981 of Bermuda or by the Memorandum of Association or Bye-laws of Credicorp.
There is no provision of the Company’s Memorandum of Association or Bye-laws that would delay, defer, or prevent a change in control of the Company, which would operate only with respect to a merger, acquisition or corporate restructuring involving the Company (or any of its subsidiaries).
Assuming Credicorp remains listed on an appointed stock exchange, there are no Bye-laws provisions or provisions of Bermuda law governing the ownership threshold above which ownership of Credicorp shares must be disclosed. Under Peruvian law, any individual or legal entity who acquires, directly or indirectly, 1% or more of the share capital of a company operating in the financial and insurance systems (or that is engaged in activities that are either associated with or complementary to the purpose of such companies) in a 12-month period, or who obtains a shareholder stake of 3% or more, must provide the SBS with the information that the SBS requests to identify the shareholder’s main economic activities and, the structure of its assets, their financial information, among others. In addition, the acquisition of shares of a company operating in the financial or insurance system exceeding 10% of the company’s share capital (or resulting, when aggregated with previous holdings, in the holding of 10% of the company’s share capital) by a single individual or entity, whether directly or indirectly, require prior authorization from the SBS. In order to acquire more than 10% of the share capital of a legal person domiciled in Peru that holds shares in a financial or insurance company, prior authorization from the SBS is required. If the shareholder is a legal person that is not domiciled in Peru, such as Credicorp, the SBS must be informed if there is a modification in the composition of the shareholders in proportions that exceed 10%, including the names of such shareholders.
Under Peruvian securities market regulation, any issuer with shares registered on a centralized exchange, such as Credicorp, must present to the SMV a list of its shareholders who hold more than 0.5% of its capital stock and update the list within the first 15 calendar days of the following month in which a change occurs. The issuer must also update the Securities Market Public Register with information on shareholders holding 4% or more of their share capital following any change.
Under the U.S. Securities Exchange Act of 1934, as amended, holders of more than 5% of our shares are generally required to report their holdings to the SEC on Schedule 13D or Schedule 13G, as applicable. This is an obligation of the shareholders, not of Credicorp Ltd. as the issuer of the shares.
As of the date hereof, we have not, nor have our subsidiaries, entered into any material contracts in the immediately preceding two years other than those contracts entered into in the ordinary course of our business.
We rely almost exclusively on dividends from Grupo Crédito S.A., BCP Stand-alone, BCP Bolivia, ASHC, Grupo Pacífico, Credicorp Capital, and our other subsidiaries for the payment of dividends to holders of our common shares. To the extent that our subsidiaries are legally restricted from paying us dividends, our ability to pay dividends on our common shares will be adversely affected.
Although substantially all of the clients of BCP Stand-alone, ASB, and Grupo Pacífico are located in Peru, as of December 31, 2023, approximately 32.7% of BCP Stand-alone’s loan portfolio, 93.2% of ASB Bank Corp’s loan portfolio, and 42.7% of Grupo Pacífico’s insurance contract liability were denominated in US Dollars.
Since March 1991, there have been no exchange rate controls in Peru, and all foreign exchange transactions are based on market exchange rates. The Peruvian constitution establishes equal treatment between national and foreign investment in Article 63, and Legislative Decree No. 662 allows 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 market exchange rates through any member of the Peruvian banking system.
One circumstance that could lead to depreciation is a decline in Peruvian foreign reserves to inadequate levels. Although the current level of Peru’s foreign reserves (US$71.0 billion or 27% of GDP as of December 31, 2023) compares favorably with those of other Latin American countries, there can be no assurance that Peru will be able to maintain adequate foreign reserves levels to meet its foreign currency-denominated obligations. See “Item 3. Key Information – 3.D Risk Factors – Macroeconomic Risks”.
We have been designated as a non-resident for Bermuda exchange control purposes under the Bermuda Exchange Control Act 1972 and associated regulations and are able to conduct our day-to-day operations free of Bermuda exchange control formalities. We are able to pay dividends, distribute capital, and open and maintain bank accounts in any foreign currency without reference to the Bermuda Monetary Authority.
The disclosures in the following sections describe certain material implications to shareholders under the tax laws of Bermuda, Peru, Chile, Colombia, and the United States, but are not intended to provide legal advice to investors. Investors should consult with their own tax advisers in these and other jurisdictions. For details on income tax review by the tax authorities in on the jurisdictions in which we operate, please refer to Note 19 (a) and (d) to the consolidated financial statements.
Credicorp’s dividends are paid without withholding tax at the source.
On December 27, 2023, the CIT Act was enacted, introducing a 15% corporate income tax (CIT) applicable to Bermuda Constituent Entities (BCE) that are part of multinational enterprise (MNE) groups with annual revenue of €750M or more. The Act is expected to be effective for fiscal years beginning on or after 1 January 2025.
According to the CIT Act, among other things, foreign tax credits will be available for foreign taxes allocated to the BCE and will not exceed at 15%.
Notwithstanding the above, there will not be income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty, or inheritance tax that must be paid or that the shareholders must pay with respect to their shares for fiscal year 20246. An exempted company is liable to pay in Bermuda an annual government fee based on the authorized share capital and the premium on the issued common shares, which amounted to approximately US$19,605 (Bermuda annual government fee for 2023).
6 Currently, an analyzes is being conducted to determine the potential impact of the new Corporate Income Tax to the revenues of the Company. However, considering that the Company is qualified as Pure holding entity and it is not engaged on business activities within Bermuda, it is estimated-based on the preliminary evaluation of the recently enacted legislation- that the new tax will not have a material impact over the revenues of the Company.
On February 15, 2011, the Peruvian government enacted Law No. 29663, which was subsequently amended on July 21, 2011, by Law No. 29757. This law partially modifies the country’s income tax regime by (i) subjecting to taxation in Peru capital gains derived from an indirect transfer of shares issued by a domiciled entity and (ii) introducing more types of income that will qualify as Peruvian source income. Under the law, an indirect transfer of shares issued by a domiciled entity occurs, and is subject to the Peruvian Income Tax (at a 5% or 30% rate) when the shares of a non-domiciled entity, which in turn owns (directly or indirectly through other entities) shares issued by a domiciled entity, are transferred, provided that both of the following conditions are met:
| (1) | During the 12 months prior to the transfer, the fair market value (FMV) of the shares of the domiciled entity owned by the non-domiciled entity equals 50% or more of the FMV of the shares of the non-domiciled entity. There is a rebuttable presumption that this condition is met if the non-domiciled entity is a resident in a tax haven; and |
| (2) | During any given 12-month period, shares representing 10% or more of the non-domiciled entity’s share capital are transferred. |
The Legislative Decree No. 1424 (published on September 13, 2018) established an additional rule according to which if the “total amount” of the domiciled entity’s shares indirectly transferred is equal to or exceeds 40,000 Peruvian Tax Units (approximately US$54 million), an indirect transfer of Peruvian shares would always be deemed to be triggered, regardless of whether either of conditions (1) or (2) above is met. This new rule based on the sales price is in force as of January 1, 2019, jointly with the general rule referred above.
On April 21, 2020, Supreme Decree No. 085-2020-EF established that, for purposes of determining the FMV of the non-domiciled shares and the Peruvian entities, the following methods must be followed:
• Higher listed value: In the case of shares listed on the Stock Exchange, the market value will be the highest listed value.
•Discounted cash flow (DCF): In the case of shares that are not listed on the Stock Exchange, the market value will be the discounted cash flow value where the entity evidences a predictable horizon of future cash flows or has elements such as licenses, authorizations or intangibles that allow the existence of such cash flows to be anticipated. If the Company has several business units, a projection must be made for each business unit.
The DCF methodology of the Company will be applied if there is no expectation of debt linked to the economic activity or business unit of the Company; otherwise, the DCF methodology of the shareholder will apply.
For the development of the projection, the following will be considered:
(1) The cash flow period should be at least 10 years. If the Company has a shorter duration, the balance of the duration will be considered.
(2) If the Company’s cash flow is applied, the discount rate is the weighted average cost of capital, which must consider the opportunity cost of capital and the cost of debt. If the shareholder’s cash flow is applied, the opportunity cost of capital must be considered as the discount rate, which includes the minimum profitability expected by the shareholder at market value.
(3) Continuity value, when the Company is expected to receive income for an unspecified period of time or the residual value, as applicable.
In case the domiciled entity directly or indirectly owns shares of another or other domiciled entities and/or non-domiciled entities, the market value of such shares must include the market value of these other companies.
For the determination of the discounted cash flow value to be credited, the taxpayer must have a technical report containing at least the following information: (i) an executive summary; (ii) an analysis of the sector in which the Company operates; (iii) an analysis of the Company; (iv) valuation; and (v) annexes that accredit the results obtained.
| • | Equity Participation Value (EPV): If the methods described above are not complied with, the EPV is calculated on the basis of the last audited balance sheet of the issuing Company closed within 90 days prior to the disposal. This is applicable in the case of entities that are under the supervision of the SMV, or entities authorized to perform the same functions in other jurisdictions. If, within 90 days prior to the sale, a reduction in the share capital of the non-resident entity is made, the balance sheet of the non-resident entity will be the one corresponding before the reduction. |
| • | Residual Method: If the previous methods are not applicable, the EPV will be one of the following: |
| 1. | The EPV shall be the result of dividing the equity value of the entity based on the last balance sheet closed within 90 days prior to the disposal, in accordance with the accounting standards officialized or approved by the competent body of the country, increased by the average monthly active market rate in local currency (TAMN), and by the number of shares issued, provided the following conditions are met: |
| • | The entity’s shares are not listed on a stock exchange or in any centralized trading mechanism, and; |
| • | The entity is not under the control and supervision of an entity that is entitled to perform the same functions as the SMV under its country of residence. |
| 2. | The EPV will be the appraised value established within the six months prior to the date of the transfer. |
The tax rate will apply according to the following table:
| Tax rate applicable for direct and indirect transfer |
| 5% | If the transfer of shares is realized through the Lima Stock Exchange by a non-domiciled subject. |
| 30% | If the transfer of shares is not realized through the BVL by a non-domiciled subject, even if the shares are listed in the Lima Stock Exchange. |
In addition, the following obligations were imposed on domiciled entities that have “economic relationships” (defined below) with non-domiciled sellers:
| • | Reporting to the SUNAT the direct or indirect transfer of its shares, and; |
| • | To the extent that shares of a domiciled company are being directly or indirectly transferred by a non-domiciled seller, the domiciled company is jointly liable for the income tax that is not paid by the non-domiciled seller when such seller and the Peruvian domiciled company are deemed to be economically related for Peruvian Income Tax purposes for any period of time, within 12 months prior to the transfer. However, the joint income tax liability does not apply when the purchaser or acquirer of the transferred shares is a domiciled individual or entity. |
According to Supreme Decree No. 275-2013-EF, enacted on November 7, 2013, which defined the concept of “economic relationships”, a domiciled entity is considered to be economically related to a non-domiciled seller, if, in any given time within the 12-month period prior to the transfer, at least one of the following conditions is met:
| o | The non-domiciled seller owns more than 10% of the equity of the domiciled entity, directly or through a third party; |
| o | 10% or more of the equity of each of the domiciled entity and the non-domiciled seller is owned by common shareholders; |
| o | The domiciled entity and the non-domiciled seller have one or more common Directors, managers, or administrators, with authority over financial, operative, and commercial agreements; |
| o | The domiciled entity and the non-domiciled seller prepare joint consolidated financial statements; or |
| o | The non-domiciled seller has a dominant influence on the decisions of the administrative areas of the domiciled entity, or vice-versa. |
The Chilean Statutory Corporate Income Tax rate applicable to resident legal entities is 27% under the semi-integrated regime which is mandatory to big companies or companies that belong to big corporate groups. Dividends received by foreign individuals or any type of entity not resident or domiciled in Chile are subject to a 35% dividend withholding tax. This tax applies at the moment of the effective remittance of the dividend and the corporate income tax can be used as a credit. In the case of non-treaty country resident shareholders, the corporate tax credit is limited to 65% of the corporate income tax associated with such dividend (the 65% limit works as an obligation for the shareholder to “reimburse” 35% of the credit). Therefore, in this case, the total tax burden for foreign taxpayers will be 44.45%. Nonetheless, the “65% limit” does not apply to those investors domiciled or resident in a country with which Chile has a Double Taxation Treaty in force, which may use 100% of the corporate tax paid by the Chilean company as credit against the dividend withholding tax (effective rate of 35%). Additionally, Chilean entities are subject to the Income Tax semi-integrated system.
The Colombian general corporate income tax rate of 35% remains unchanged (for 2022 and the following years). In addition, a temporary surtax will be applied to financial institutions whose taxable income equal to or exceeds approximately US$1.3 million. Credicorp Capital Colombia, Credicorp Capital Fiduciaria, and Mibanco Colombia, are now subject to the surtax rate of 5 percentage points, applicable from 2022 until 2027. Therefore, the combined income tax rate for financial institutions in Colombia is 40% for 2023 onwards. In addition, from 2023 Colombia has implemented its own version of a minimum domestic tax. Under such minimum domestic tax, the current tax reported in the income tax return (with some adjustments) cannot be less than 15% of the accounting profit (with some adjustments). Deferred tax is not considered for these purposes.
Without prejudice of the provisions established in tax treaties, distribution of dividends to non-residents will now be subject to a 20% dividend tax (previously 10%). If the corresponding profits were not taxed at the level of the distributing company, the corporate income tax rate would be applied over the dividends (35% general rate; however, for financial institutions, this rate could be 40% from 2023 to 2027), and after that, the 20% dividend tax is applied. Foreign portfolio investment is also subject to the 20% withholding tax. However, in the case of previously untaxed corporate profits, instead of applying the general income tax rate, the recapture tax would be a withholding tax of 25%. Corporate profits earned up to December 31, 2016, are not subject to the 20% withholding tax on dividends, even though the distribution occurs from and after January 1, 2017.
In the case of dividends distributed to Colombian companies, besides the recapture tax, if applicable, they are subject to the 10% withholding tax rate (previously at 7.5%). In any case, the tax paid by the Colombian company over the dividends can be transferred to its foreign investors, to be used against the 20% dividend tax in the distribution to such foreign investor. Therefore, they are entitled to use it as a tax credit against their own taxes when they receive dividends. The 10% withholding tax may not apply in serval circumstances, including when the dividend distribution is made within a registered group of companies or when there is a registered control situation. Finally, under recent court decisions the dividend distributions within Colombian companies may be subject to the industry and commerce tax (ICA) at a rate of approximately 1%. There is a discussion on whether the ICA may also be applicable to distributions to non-resident shareholders, which should be evaluated in each case.
| | 10.5 | Material U.S. Federal Income Tax Consequences |
This section describes certain material U.S. federal income tax consequences of the purchase, ownership and disposition of our common shares held by U.S. Shareholders (as defined below) that hold our common shares as capital assets for U.S. federal income tax purposes (generally, property held for investment). This summary is based on the U.S. Internal Revenue Code of 1986, as amended (the Code), applicable regulations of the U.S. Department of the Treasury promulgated thereunder (the Treasury Regulations), Internal Revenue Service (IRS) rulings and decisions, and judicial decisions thereon and existing interpretations thereof, all as in effect on the date of this Annual Report. These authorities may be subject to different interpretations or changes, possibly with retroactive effect, so as to result in U.S. federal income tax consequences different from those summarized below.
We have not sought any ruling from the IRS in respect of the statements made and the conclusions reached in this discussion, and there can be no assurance that the IRS will agree with such statements and conclusions, or that the IRS will not challenge any of the positions taken by us and that such challenge, if any, will not be sustained. A different treatment from that described below could adversely affect the tax consequences of the ownership and disposition of our common shares as set forth in this summary.
This summary does not purport to deal with all aspects of U.S. federal income taxation that may be relevant to a particular holder in light of such holder’s circumstances. In particular, this summary does not address all of the tax consequences that may apply to members of a special class of holders subject to special rules, including:
| (1) | dealers in securities or currencies; |
| (2) | persons subject to special tax accounting rules under Section 451(b) of the Code; |
| (3) | regulated investment companies; |
| (4) | real estate investment companies; |
| (5) | traders in securities that elect to use a mark-to-market method of accounting for securities holdings; |
| (6) | tax-exempt organizations; |
| (7) | banks, insurance companies, or any other financial institution; |
| (8) | persons that actually or constructively own 10% or more, by vote or value, of our common shares; |
| (9) | persons subject to alternative minimum tax; |
| (10) | persons that hold our common shares as part of a straddle or a hedging, conversion, or other integrated transaction for U.S. federal income tax purposes; |
| (11) | persons that purchase or sell common shares as part of a wash sale for U.S. federal income tax purposes; |
| (12) | partnerships or other pass-through entities (including grantor trusts) and investors therein; or |
| (13) | persons whose functional currency is not the US Dollar. |
If a partnership (including any entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of common shares, the U.S. federal income tax treatment of a partner in that partnership generally will depend on the status of the partner and the activities of the partnership. Partners of a partnership holding common shares should consult with their own tax advisors regarding the U.S. federal income tax consequences to them.
Prospective investors of our common shares should consult with their own tax advisors regarding the U.S. federal, state, local, and non-U.S. and other tax consequences of owning and disposing of the common shares in their particular circumstances.
This summary applies to U.S. Shareholders. As used in this section 10.5, a “U.S. Shareholder” means a beneficial owner of our common shares who or that is, for U.S. federal income tax purposes, any of the following:
| • | an individual who is a citizen or resident of the United States, |
| • | a corporation, or other entity taxable as a corporation, created or organized under the laws of the United States, any state thereof or the District of Columbia, |
| • | an estate whose income is subject to U.S. federal income tax regardless of its source, or |
| • | a trust if a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons (as defined in the Code and Treasury Regulations) are authorized to control all substantial decisions of the trust. |
Taxation of Dividends
Subject to the discussion of the “passive foreign investment company” rules below, the gross amount of any distributions of cash or property with respect to our common shares generally will be treated as dividends for U.S. federal income tax purposes to the extent paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated first as a return of capital that is applied against and reduces the U.S. Shareholder’s adjusted tax basis in the common shares, but not below zero, and thereafter as capital gain realized on the sale or other disposition of the common shares. Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to U.S. Shareholders as dividends. The amount of any distribution paid in a foreign currency will be equal to the U.S. dollar value of such currency, translated at the spot rate of exchange on the date such distribution is received, regardless of whether the payment is in fact converted into U.S. dollars at that time.
Any dividends that a U.S. Shareholder receives will be includable in such holder’s gross income as ordinary income on the day such holder actually or constructively receives them. Such dividends will not be eligible for the dividends-received deduction generally allowed to certain corporate U.S. Shareholders. Dividends paid by us generally will be non-U.S. source income for purposes of the U.S. “foreign tax credit” rules. The rules governing U.S. foreign tax credits are complex and involve the application of rules that depend on the particular circumstances of each U.S. Shareholder. Therefore, each U.S. Shareholder should consult with his, her or its own tax advisor with respect to the availability of U.S. foreign tax credits in such U.S. Shareholder’s particular circumstances. Please note that, in January 2022, the U.S. Department of the Treasury published new Treasury Regulations that significantly modified the requirements that a foreign tax must satisfy to be claimed as a credit. It is important to note, however, that most of the requirements provided by such Treasury Regulations have been temporarily suspended. Each U.S. Shareholder is encouraged reevaluate with his, her or its own tax advisors whether foreign income taxes would be creditable for U.S. federal income tax purposes in light of the recent changes.
Subject to certain limitations, including certain limitations based on taxable income and filing status, and subject to certain minimum holding period requirements, dividends paid to non-corporate U.S. Shareholders, including individuals, may be eligible for a reduced rate of taxation if we are deemed to be a “qualified foreign corporation” for U.S. federal income tax purposes. A qualified foreign corporation includes a non-U.S. corporation if (1) its stock is readily tradable on an established securities market in the United States or (2) it is eligible for the benefits of a comprehensive income tax treaty with the United States that meets certain requirements. However, a corporation is not a qualified foreign corporation if it is a “passive foreign investment company” (as discussed below) for the taxable year in which the dividend is paid or the preceding taxable year. The common shares are traded on the NYSE, which is an established securities market in the United States. However, the United States does not have a comprehensive income tax treaty with either Bermuda or Peru. Each U.S. Shareholder should consult with his, her or its own tax advisor regarding the treatment of dividends and such holder’s eligibility for a reduced rate of taxation on dividends.
Taxation of Capital Gains
Subject to the discussion of the “passive foreign investment company” rules below, a U.S. Shareholder generally will recognize gain or loss on the sale or exchange of common shares equal to the difference between the amount realized on the sale or exchange and the U.S. Shareholder’s adjusted tax basis in the common shares. Any gain or loss will be classified as a capital gain or loss, and it will be treated as a long-term capital gain or loss if the common shares were held for more than one year. Gain or loss, if any, recognized by a U.S. Shareholder generally will be treated as U.S.-source gain or loss for purposes of calculating the U.S. foreign tax credit limitation. Therefore, U.S. Shareholders may not be able to use any U.S. foreign tax credit arising from Peruvian tax imposed on the sale or exchange of common shares, unless the credit can be applied (subject to applicable limitations) against tax due on other non-U.S. source income. A U.S. Shareholder’s adjusted tax basis in its common shares generally is equal to its purchase price for such shares, adjusted according to U.S. federal income tax principles. Any long-term capital gain recognized by non-corporate U.S. Shareholders generally will be subject to tax at reduced rates. The deductibility of capital losses is subject to limitations. Each U.S. Shareholder should consult with his, her or its own tax advisor regarding the taxation of capital gains and deductibility of capital losses in light of their particular facts and circumstances.
Passive Foreign Investment Company (PFIC)
A non-U.S. corporation will be classified as a passive foreign investment company (PFIC) for U.S. federal income tax purposes if either:
| • | 75% or more of its gross income for the taxable year is passive income; or |
| • | on a quarterly average for the taxable year by value (or by adjusted basis, if it is not a publicly traded corporation and it is a so-called controlled foreign corporation (as the definition of that term is modified under the PFIC rules) or it so elects), 50% or more of its assets produce or are held for the production of passive income. |
For the purposes of this test, such non-U.S. corporation will be treated as owning its proportionate share of the assets and earning its proportionate share of the income of any other corporation in which it owns, directly or indirectly, 25% or more (by value) of the stock.
We have not determined whether we have previously been a PFIC for any year, or whether we are currently, or will be a PFIC in future years. Furthermore, because this determination is made on an annual basis, no assurance can be given that we will not be classified as a PFIC in future taxable years. If we are classified as a PFIC for U.S. federal income tax purposes, a U.S. Shareholder that does not make an election to treat us as a “qualified electing fund” and did not make a “mark-to-market” election, each as described below, will be subject to the following U.S. federal income tax consequences:
| 1. | “Excess distributions” we make to a U.S. Shareholder will be taxed in a special way. “Excess distributions” are amounts received by a U.S. Shareholder with respect to our common shares in any taxable year that exceed 125% of the average distributions received by the U.S. Shareholder from us in the shorter of either of the three previous years or the U.S. Shareholder’s holding period for such common shares before the current taxable year. Excess distributions must be allocated ratably to each day that a U.S. Shareholder has held our common shares. A U.S. Shareholder must include amounts allocated to the current taxable year and to any non-PFIC years in his or her gross income as ordinary income for that year. A U.S. Shareholder must pay U.S. federal income tax on amounts allocated to each prior taxable PFIC year at the highest marginal tax rate in effect for that year on ordinary income and the tax is subject to an interest charge at the rate applicable to deficiencies for U.S. federal income tax. |
| 2. | The entire amount of gain that is realized by a U.S. Shareholder upon the sale or other disposition of our common shares will also be considered an excess distribution and will be subject to U.S. federal income tax as described above. |
| 3. | A U.S. Shareholder’s adjusted tax basis in shares that were acquired from a U.S. decedent would not receive a step-up to fair market value (FMV) as of the date of the decedent’s death but instead would be equal to the decedent’s adjusted tax basis, if lower than such value. |
The special PFIC rules do not apply to a U.S. Shareholder if the U.S. Shareholder makes an election to treat us as a “qualified electing fund” in the first taxable year in which the U.S. Shareholder owns our common shares and if we comply with certain reporting requirements. Instead, a shareholder of a qualified electing fund is required for each taxable year to include in income a pro rata share of the ordinary earnings of the qualified electing fund as ordinary income and a pro rata share of the net capital gain of the qualified electing fund as long-term capital gain, subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge. The election generally is made on a shareholder-by-shareholder basis and may be revoked only with the consent of the IRS. A U.S. Shareholder makes the election by attaching a completed IRS Form 8621, which includes the PFIC annual information statement, to a timely filed U.S. federal income tax return. Even if an election is not made, a U.S. Shareholder generally must file a completed IRS Form 8621 in each year that we are a PFIC. U.S. Shareholders should be aware that, for each taxable year, if any, that we are a PFIC, we can provide no assurances that we will satisfy the record keeping requirements of a PFIC, or that we will make available to U.S. Shareholders the information such U.S. Shareholders require to make a “qualified electing fund” election with respect to us.
A U.S. Shareholder who owns PFIC shares that are publicly traded could elect to mark the shares to market annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the FMV of the PFIC shares and the U.S. Shareholder’s adjusted tax basis in the PFIC shares. If such a mark-to-market election is made, then the rules set forth above would not apply for periods covered by the election. Assuming that we are trading on the NYSE, our common shares are expected to be treated as publicly traded for purposes of the mark-to-market election and, therefore, such election should be able to be made if we are classified as a PFIC. A mark-to-market election is, however, subject to complex and specific rules and requirements, and U.S. Shareholders are strongly urged to consult with their tax advisors concerning this election if we are classified as a PFIC.
U.S. Shareholders are urged to consult with their tax advisors regarding the adverse tax consequences of owning our common shares if we are, or become, a PFIC, and the possibility of making certain elections designed to lessen those adverse consequences.
Medicare Tax on Net Investment Income
A U.S. Shareholder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, is subject to a 3.8% net investment income tax (NIIT or the Medicare tax) on the lesser of (i) such holder’s “net investment income” (or “undistributed net investment income” in the case of an estate or trust) for the relevant taxable year and (ii) the excess of such holder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals is between $125,000 and $250,000, depending on the individual’s circumstances and tax filing status). A U.S. Shareholder’s net investment income generally includes its dividend income and its net capital gains from the disposition of our common shares unless such dividends or net capital gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). A U.S. Shareholder that is an individual, estate or trust is urged to consult with his, her or its own tax advisor regarding the applicability of the Medicare tax in respect of its investment in our common shares.
Information with Respect to Foreign Financial Assets
Certain U.S. Shareholders of “specified foreign financial assets” with an aggregate value in excess of $50,000 on the last day of the taxable year, or in excess of $75,000 at any point during the taxable year, generally are required to file information reports with respect to such assets with their U.S. federal income tax returns. Depending on your circumstances, higher threshold amounts may apply. The term “specified foreign financial assets” includes any financial accounts maintained by non-U.S. financial institutions, as well as any of the following, but only if they are held for investment and not held in accounts maintained by financial institutions: (i) stocks and securities issued by a non-U.S. entity and not held in an account maintained by a financial institution, (ii) financial instruments and contracts that have non-U.S. issuers or counterparties, and (iii) interests in non-U.S. entities. Our common shares may be treated as specified foreign financial assets. Therefore, the holders of our shares may be subject to this information reporting regime. Failure to file information reports may subject holders to penalties. The holders of our shares should consult with their own tax advisors regarding their obligation to file information reports with respect to the common shares.
Backup Withholding and Information Reporting
Dividends paid, if any, on our common shares to a U.S. Shareholder may be subject to information reporting and may also be subject to U.S. backup withholding tax (currently at a rate of 24%), unless a U.S. Shareholder either furnishes its taxpayer identification number or otherwise establishes an exemption. In addition, information reporting generally will apply to payments of proceeds from the sale, exchange, redemption, or other disposition of our common shares by a paying agent, including a broker, within the United States to a U.S. Shareholder. A paying agent within the United States will be required to impose backup withholding on any payments of the proceeds from the sale, exchange, redemption, or other disposition of the common shares within the United States to a U.S. Shareholder, provided such U.S. Shareholder fails to furnish his, her, or its correct taxpayer identification number or otherwise fails to establish an exemption or comply with such backup withholding requirements. Backup withholding is not an additional tax and may be refunded (or credited against the U.S. Shareholder’s U.S. federal income tax liability, if any), provided certain required information is furnished to the IRS. The information reporting requirements may apply regardless of whether withholding is required.
Foreign Account Tax Compliance Act (FATCA)
Sections 1471 through 1474 of the Code (commonly known as the Foreign Account Tax Compliance Act, or FATCA) generally impose a 30% U.S. federal withholding tax on certain payments to certain non-U.S. financial institutions that fail to comply with certain information reporting, account identification, withholding, certification, and other FATCA-related requirements in respect of their direct and indirect U.S. shareholders and/or U.S. accountholders, under certain circumstances. To avoid becoming subject to FATCA withholding, we may be required to report information to the Bermuda government or the IRS regarding our U.S. Shareholders. Each U.S. Shareholder should consult with his, her or its own tax advisor to obtain a more detailed explanation of FATCA and to learn how FATCA might affect that U.S. Shareholder in his, her or its particular circumstances.
As of January 2023, Peru has tax treaties with the following jurisdictions: Brazil, Canada, Chile, Japan, Mexico, Portugal, South Korea, Switzerland, and the member countries of the Andean Pact (Bolivia, Colombia, and Ecuador). Peru does not have a tax treaty with Bermuda, and the United States does not have a comprehensive income tax treaty with Bermuda or Peru.
| 10. F | Dividends and Paying Agents |
Not applicable.
| 10. G | Statement by Experts |
Not applicable.
| 10. H | Documents on Display |
As a foreign private issuer, we are subject to the information reporting requirements of the Exchange Act. As such we must file or furnish reports and other information to the SEC, which typically may be inspected at the public reference facilities of the SEC, at 100 F Street, N.E., Washington, D.C. 20549. The public reference room is open to the public on Wednesdays, from 10 a.m. to 3:30 p.m. Members of the public who have questions about the information available from the public reference room should contact the Commission’s Office of FOIA Services by email at oiapa@sec.gov, or by telephone at 202-551-7900.
In addition, the SEC maintains a website at which the documents concerning the Group that have been filed or furnished electronically may be inspected. These documents can be obtained in electronic form at http://www.sec.gov, as well as from certain commercial document retrieval services. Neither information contained on the SEC’s website nor information gathered from commercial document retrieval services forms part of this Form 20-F.
| 10. I | Subsidiary Information |
Not applicable.
| ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT |
The following section describes the risks to which Credicorp is exposed and the management tools used to measure and control them. Due to its financial activities, including lending, borrowing, trading and investing, the Group faces risks which could incur potential losses if adverse changes occur.
The Group’s principal activity consists of receiving deposits from customers, mainly at fixed rates and for different periods, and investing these funds in high-quality assets, using financial instruments (such as derivatives) to cover potential risk factors and to take advantage of market movements on securities, bonds, currencies and interest rates. Additionally, the Group places these deposits with legal entities and individuals, considering the financial costs and expected profitability.
We also seek to raise margins by lending to commercial and retail customers through a range of financial products. These activities involve not only on-balance sheet loans and advances but also off-balance sheet facilities and other commitments, such as letters of credit and performance bonds.
Given the Group’s activities, it has a framework for risk appetite, a cornerstone of its risk management. The risk management processes involve continuous identification, measurement, treatment, and monitoring of potential risks. The Group is exposed, principally, to credit, non-financial risks, market risk, liquidity risk, model risk and insurance technical risk.
11.1 Risk Management Governance
In order to carry out adequate risk management, Credicorp has established a structure of government with different levels of oversight.
Governance Structure
The highest level of hierarchy in risk governance in Credicorp Ltd. and Grupo Credito S.A. is the Board of Directors:
| • | Credicorp’s Board of Directors is responsible for the approval of the levels of risk appetite that Credicorp Ltd. is prepared to assume. The Board of Directors also acknowledges the Group’s level of compliance with the risk appetite and level of risk exposure, as well as the relevant improvements in the risk management approaches of the Group. |
| • | Grupo Credito S.A.’s Board of Directors is responsible for the overall risk management approach and the approval of the levels of risk appetite that Grupo Credito S.A. and its subsidiaries are prepared to assume. Furthermore, it approves the guidelines and policies for comprehensive risk management. The Board also establishes an organizational culture that emphasizes the importance of risk management, oversees the internal control system and ensures compliance to the risk appetite. |
| • | The Board of Directors of each subsidiary is responsible for aligning the risk management approach established by Credicorp’s Board of Directors with the particular context. To that end, each Board establishes a framework for risk appetite, policies and guidelines. |
The second level of oversight of risk governance of Credicorp Ltd. and Grupo Credito S.A. is the Risk Committee:
| • | The Credicorp Risk Committee, representing Credicorp’s Board of Directors, proposes risk appetite levels for Credicorp Ltd. Furthermore, it considers the level of compliance to the risk appetite and level of risk exposure, as well as the relevant improvements, when assessing the Group’s comprehensive risk management. |
| • | The Grupo Credito Risk Committee, representing Grupo Credito’s Board of Directors (including risk management of Credicorp subsidiaries), defines the strategies used for the adequate management of the different types of risks and the supervision of risk appetite. In addition, the committee establishes principles, policies and guidelines. |
For more information about The Board of Directors, The Risk Committees and its functions, please refer to the following section: ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES – 6.C Board Practices.
The Grupo Credito Risk Committee (including risk management of Credicorp subsidiaries) is supported by the following committees, which report periodically on all relevant changes or issues relating to the risks being managed:
| a) | Corporate Credit Risk Committees |
The Corporate Credit Risk Committees (retail and wholesale) are responsible for reviewing the level of the credit risk appetite, limits of exposure and implementation of corrective measures in case of deviations. In addition, the committees propose credit risk management guidelines within the framework of governance and organization for the comprehensive management of credit risks. Furthermore, the committees propose the approval of any changes to the credit risk management functions and report important findings to the Risk Committee.
| b) | Corporate Methodological Operational Risk Committee |
The Corporate Methodological Operational Risk Committee is responsible for monitoring the operational risk indicators of each of the Group’s companies and the progress of the implementation of operational risk and business continuity methodologies. Additionally, the committee shares best practices relevant to major challenges faced by the Group’s companies.
| c) | Corporate Structural, Negotiation and Liquidity Market Risk Committee |
The Corporate Structural, Negotiation and Liquidity Market Risk Committee is responsible for analyzing and proposing objectives, guidelines, and policies for the Market and Liquidity risk management of the Group’s companies. Furthermore, the committee is responsible for monitoring indicators and appetite limits for Credicorp and each of the Group’s companies, as well as the implementation of corrective measures in case of deviations. Additionally, the Committee is responsible for the integration of a corporate model within the Group.
| d) | Corporate Model Risk Committee |
The Corporate Model Risk Committee is responsible for analyzing and proposing corrective actions in case of deviations from the model risk appetite limits. Furthermore, the committee proposes the creation and/or modification of the model risk management governance structure. It also monitors the data and analytics strategy of the Group and the health status of its model portfolio. Additionally, it is responsible for informing the Risk Committee about exposures related to model risk, involving variations in the risk profile.
11.2 Risk Management Structure
In order to carry out appropriate risk management, Credicorp maintains a management structure according to its needs and based on the risks to which it is exposed.
Credicorp Risk Management Structure
Chief Risk Officer (CRO)
The CRO is responsible for implementing policies, procedures, methodologies, and actions to identify, measure, monitor, mitigate, report and control the different types of risks to which the Group is exposed. The CRO also participates in the creation of the strategic plans of the business units to ensure compliance with the risk appetite metrics approved by the Board of Directors.
Likewise, the CRO is responsible for the level of compliance with the risk appetite and the level of exposure assumed by Grupo Crédito S.A. and other Credicorp subsidiaries. Also, the CRO reports the relevant improvements in the comprehensive risk management of Grupo Crédito S.A. and other Credicorp subsidiaries. In addition, the CRO proposes to the Credicorp Risk Committee the risk appetite levels for Credicorp Ltd.
All issues regarding Credicorp’s corporate risk management are under the responsibility of Credicorp’s CRO, who is also the CRO of Credicorp Ltd. and Grupo Crédito S.A. To ensure effective fulfillment of this responsibility, it was decided that those three positions should be held by the same person. Credicorp’s CRO reports to the CEO but has full independence regarding risk decisions, which are discussed in Credicorp’s Risk Committee.
The Central Risk Management units with corporate risk functions are the following:
| a. | Wholesale Banking Risk Division |
This Division is responsible for proposing credit policies and criteria for evaluating and managing credit risks assumed by lending to wholesale clients. It evaluates and approves loan proposals and recommends approval to higher authorities for those that exceed its autonomy. These policies and criteria are established based on policies set by the Board of Directors and in accordance with applicable laws and regulations. In addition, it measures the evolution of the risk faced by wholesale clients, identifies possible signs of deterioration in their payment capacity, and takes actions to mitigate or resolve them.
| b. | Retail Banking Risk Division |
The Retail Banking Risk Division is responsible for managing the risk profile of the retail portfolio and promoting retail credit risk specific guidelines that are consistent with the overall guidelines and risk policies set by the Board of Directors. Additionally, it participates in defining the products and campaigns aligned with these policies, as well as in the design, optimization and integration of credit assessment tools and income estimation for credit management.
| c. | Risk Management Division |
The Risk Management Division is responsible for ensuring that risk management directives and policies comply with those established by the Board of Directors. In addition, it is responsible for supervising the process of risk management, coordinating with the Group’s companies involved in the process, and promoting standard risk management aligned with best practices. It also has the task of informing the Board of Directors of global exposure to risks, by type of risk, as well as the specific exposure of each of the Group’s companies.
| d. | Non-Financial Risks Division |
The Non-Financial Risks Division is responsible for defining a non-financial risks strategy aligned with the objectives and risk appetite set by the Board. This strategy seeks to strengthen the management process, generate synergies, optimize resources, and achieve better results among the units responsible for managing non-financial risks. Additionally, in order to achieve its objectives, the Division promotes corporate risk culture, develops risk skills and tools, defines non-financial risk indicators and generates and keeps track of strategic projects and initiatives.
The Non-Financial Risks Division is composed of the following areas: Operational Risk Management, Cybersecurity; and Corporate Security and Cyber Crime Management.
| e. | Corporate Risk Management Division |
The Corporate Risk Management Division’s scope covers the risk management of Credicorp’s subsidiaries (not including BCP Stand-alone) and is responsible for managing day-to-day risk under the risk appetite framework approved by our senior management; ensuring that corporate policies and guidelines are applied uniformly between the subsidiaries. This Division also proposes strategic initiatives for better risk management, proposes criteria and methodologies to facilitate the process of risk management and submits risk management reports to the Corporate CRO and the Corporate Risk Committees.
To manage the risks to which it is exposed, Credicorp uses different guidelines. This allows Credicorp to maintain adequate risk levels to generate value for the organization and investors.
Risk Appetite
The Board of Directors annually approves the risk appetite framework defining the maximum level of risk that the organization is willing to tolerate, as it seeks to attain its strategic and financial objectives. In order to ensure consistency with the Group’s corporate risk vision, the Board of Directors, through the corporate Risk Committee, reviews and approves the risk appetite of each subsidiary, considering its business model. This risk appetite framework is based on “core” and “specific” metrics:
| • | Core metrics: are intended to preserve the organization’s strategic pillars, defined as solvency, liquidity, profit and growth, income stability, balance sheet structure and cybersecurity risk. |
| • | Specific metrics: are intended to monitor on a qualitative and quantitative basis the various risks to which every company of the Group is exposed and establish a tolerance threshold of each of those risks, so that the risk profile set by the Board of Directors is preserved and any risk concentration is anticipated on a more granular basis. |
Risk appetite is measured based on the following guidelines:
| (1) | A risk appetite statement establishes general principles and the qualitative declarations that complement the risk strategy. |
| (2) | A metric scorecard is used to define the levels of risk exposure in the different strategic pillars. |
| (3) | Risk limits allow control over the risk-taking process within the tolerance threshold established by the Board. Limits also provide accountability for the risk-taking process and define guidelines regarding the target risk profile. |
| (4) | A governance scheme seeks to guarantee compliance with the framework through different roles and responsibilities assigned to the units involved. |
The risk appetite is integrated in the processes of strategic and capital guidelines, as well as in the definition of the budget exercise, facilitating the strategic decision-making process of the organization.
Credicorp’s governance and risk management seek to adequately manage the risks to which we are exposed as an organization.
The Group is exposed to credit risk, which is the probability of suffering losses caused by debtors or counterparties failing to comply with payment obligations whether on or off the balance sheet.
Credit risk is the most important risk affecting the Group’s business due to relevance of the Universal Banking and Microfinance LoB and its exposure to this type of risk; therefore, Management carefully manages its exposure to credit risk. Credit risk exposures arise principally from lending activities that lead to direct loans, though they also result from investment activities. There is also credit risk in off-balance sheet financial instruments, such as contingent credits (indirect loans), which expose Credicorp to risks similar to direct loans. Likewise, credit risk can also arise from derivative financial instruments as counterparty risk in those derivatives currently show positive fair values.
Credit risk levels are defined based on risk exposure limits, which are frequently monitored. Risk exposure limits are established in relation to one borrower or group of borrowers, geography, and industry segments. Furthermore, the risk limits by product, industry sector and geographical area are approved by the Risk Committee.
| a. | Credit Risk Measurement |
All exposures to credit risk (direct or indirect) are mitigated by the Group’s control processes and policies. Exposure to credit risk is managed through regular analysis of the ability of debtors and potential debtors to meet interest and principal repayment obligations and changes in the credit limits as appropriate.
As part of managing credit risk, provisions for impairment of its portfolio are assigned as of the date of the statement of financial position.
Provisions for loan losses
In accordance with the IFRS 9 standard, all the financial assets classified or designated as an amortized cost, debt instruments classified as investments at fair value through other comprehensive income, and indirect loans presented in off-balance accounts are subject to an impairment evaluation.
Measurement of expected credit losses
Measurement of expected credit losses is mainly based on three parameters: probability of default (PD), loss given default (LGD), and exposure at default (EAD), discounted at the reporting date using the effective interest rate. The estimates, pursuant to IFRS 9 parameters, consider not only past due information, but also all relevant credit information, including actual conditions and expected macroeconomic effects in three scenarios (base, optimistic and pessimistic).
The definitions of the three parameters are as follows:
| • | Probability of Default (PD): This is a measurement assigned internally to customers and is designed to estimate their probability of default within a specific time horizon. This measurement is obtained through three main components: (i) the observed credit risk of the portfolio, (ii) the macroeconomic conditions of the main countries where Credicorp operates, and (iii) the individual credit risk of each loan, which is measured through scoring and rating tools. The definition of default in IFRS 9 is consistent with the one used for internal credit risk management purposes, as follows: |
| | 1. | In the case of retail products, clients are in default if (i) at a specific moment, they are 60 or more days past due, except for mortgages, for which we allow 120 days; or (ii) if they have operations in one of the following situations: refinanced, restructured, pre-judicial, judicial or write off. |
| | 2. | In wholesale banking, clients are in default if (i) they pass to Wholesale Collections; (ii) they have an internal classification of deficient with recurrence, doubtful or loss; (iii) they have operations in refinanced, pre-judicial, judicial or write off; or (iv) they have significant qualitative signs of impairment. For clients in default with significant exposure, the Risk Management Division makes a specific analysis for each one of them to determine the expected credit loss, considering the following criteria (among others): (i) the knowledge of the specific situation of the client, (ii) the collaterals and guarantees, (iii) the available financial information, (iv) the actual condition and perspective of the sector in which the client operates. |
| • | Loss Given Default (LGD): This is a measurement that estimates the severity of the loss that would be incurred at the time of the default. It is based on the difference between the contractual cash flows owed and those that the lender would expect to receive, even after the liquidation of the guarantees (for example: deposits or the equivalent, commodity warrants, immovable properties, ships, machinery and equipment). LGD also considers all the costs incurred during the recovery process. |
It is important to mention that when the Group writes off a position, it adjusts the LGD to 100% to add the allowance necessary to reach the required level, in accordance with our internal policy of write-offs, in which Credicorp’s subsidiaries do not have reasonable expectations of recovering the financial asset in its entirety or a portion thereof.
| • | Exposure at Default (EAD): This is a measurement that estimates the exposure at the time that the customer goes into default, considering changes in future exposure, for example, in the case of prepayments and/or greater utilization of unused lines. |
Provisions for credit losses are measured on each reporting date following a three-stage model of expected credit losses based on the degree of a financial asset’s credit impairment:
| (1) | Stage 1: For financial assets with credit risk that has not increased significantly since their initial recognition, a reserve is recognized for losses equivalent to the credit losses expected to occur from defaults in the following 12 months. |
| (2) | Stage 2: For financial assets that have presented a significant increase in credit risk since their initial recognition, but are not considered impaired, a reserve is recognized for losses equivalent to the credit losses expected to occur during the remaining life of the asset. |
The definition of “significant increase in credit risk” used on the reporting date compared with the origination date considers the following criteria:
| • | Whether an account has been more than 30 days in arrears. |
| • | Absolute and relative risk thresholds have been assigned by portfolio and risk level, which depend on the credit risk of the subject instrument on the reporting date and the origination date. For example, less risky PD assets have a broad threshold to move in without migrating to stage 2, in comparison to risky PD assets for which a small increase in PD can force them to migrate to stage 2. |
| • | Whether follow-up systems, alerts and monitoring of risk portfolios are integrated, as established by the current risk policy in the Wholesale and Retail Banking segments. |
| • | Alignment criteria are applied to clients that have more than 20% of their position in stage 2. All the rest of their assets in stage 1 get automatically classified as stage 2. |
| (3) | Stage 3: For financial assets classified as defaults, with objective evidence of impairment on the reporting date, a provision for these assets reflects the expected credit losses during the residual life of the assets. Alignment criteria are also applied at this stage. |
The fundamental difference in the measurement of expected credit losses between stage 1 and stage 2 is the PD horizon. The estimates for stage 1 use a 12-month time horizon, while the estimates for stage 2 calculate the expected credit loss based on the remaining life of the asset and consider the effect of the significant increase in credit risk. Finally, estimates for stage 3 are based on a “best estimate” approach, according to the collection process of each asset.
For portfolios that are not material, the Group extrapolates the expected credit loss ratio of portfolios with comparable characteristics.
In 2023, the main methodological calibrations made to the group’s internal credit risk models were as follows:
| • | PD models: according to our internal governance scheme, we continued following up on the performance of PD models and implementing the necessary calibrations to maintain an appropriate measurement of our loan portfolio’s credit risk. In this sense, in the first half of 2023, a new version of the PD FWL parameter was implemented for the estimation of expected credit loss of the SME portfolio, in which the GDP variable was added to better capture the impact of macroeconomics conditions. |
| • | LGD models: according to our internal governance scheme, we continued following up on the performance of LGD models and implementing the necessary calibrations to maintain an appropriate measurement of our loan portfolio’s credit risk. In this sense, in the fourth quarter of 2023, a new version of the LGD parameter was implemented for the estimation of the expected credit loss of the Mortgages portfolio, which allowed the Government’s coverage of the MiVivienda program loans to be recognized in a more precise way. |
| • | On an extraordinary basis, the expected impact of the El Niño phenomenon on the credit risk of the Group’s loan portfolio was measured, focusing the analysis on the geographic areas with the greatest potential impact, and the additional provisions associated with this event were recorded. |
The macroeconomic projections were updated as explained in the following paragraphs.
The Group’s expected credit losses are a weighted estimate of three macroeconomic scenarios: (base, optimistic and pessimistic), which are based on macroeconomic projections provided by the internal team of economic research and approved by senior management. These projections are made for the main countries in which Credicorp operates. In each scenario, the Group considers a wide variety of prospective information as economic inputs, including the growth of the GDP, the inflation rate and the exchange rate.
The macroeconomic scenarios consider the fact that Peru is a small and open economy, dependent on the international environment; with about 60.0% of GDP growth volatility explained by external factors. These external factors include Peru’s terms of trade, growth of Peru’s main trade partners, and external interest rates. Information on each of these factors is collected to project each scenario for the next three years.
The aforementioned variables are then incorporated into economic models for the Peruvian economy along with local variables (fiscal and monetary). Two types of models can be distinguished: (i) the structural forecasting model, and (ii) the financial programming model. The first is a stochastic dynamic general equilibrium model constructed with expectations. The second is constructed based on the main identities of national accounts according to the financial programming methodology designed by the International Monetary Fund (IMF) and a set of econometric models.
Through this process, projections of GDP growth, inflation, exchange rate and other macroeconomic variables were obtained for the years 2024 and 2025. As of December 31, 2023, we expected GDP to grow around 2.0 percent in 2024 (2023: -0.6 percent). The recovery of economic activity will be explained, among other reasons, by:
| • | A copper price that is still favorable. |
| • | Inflation will continue to slow down, favoring the purchasing power of households. |
| • | Investment projects that begin or continue their execution. |
| • | Better results in the Agriculture and Fishing sectors. |
The Peruvian Government, in a statement dated December 29, 2023, indicated that the Coastal Niño is expected to continue until April 2024. However, for the period of January-March 2024 it revised downwards the probabilities of an event of moderate magnitude to 37 percent (previous: 54 percent) and of strong magnitude to 12 percent (previous 22 percent). On the contrary, the probabilities of a weak magnitude event increased to 33 percent (previous: 20 percent) and neutral (No Niño) to 18 percent (previous: 3 percent). By 2025, the Peruvian economy would grow around 3.0 percent due to the recovery of domestic demand.
For 2024, probabilities of 50 percent, 40 percent and 10 percent were considered for the baseline, optimistic and pessimistic scenarios, respectively, taking into account the probability of the occurrence of the El Niño phenomenon, the recovery of the economic cycle and the impacts of external factors on the Peruvian economy. For 2025, we return to the probabilities of 50 percent, 25 percent and 25 percent for the baseline, optimistic and pessimistic scenarios, respectively.
The probabilities assigned to each scenario and projection year are validated by fan chart analysis, which uses a probability function to identify and analyze:
| • | The central tendency of the projections. |
| • | The dispersion that is expected around this value. |
| • | The values that are higher or lower than the central value that are more or less probable. |
The following table provides a comparison of the reported expected credit loss for Credicorp’s loan portfolio and the expected credit loss under the three scenarios:
| At December 31,2023 | Optimistic Scenario | Base Case Scenario | Pessimistic Scenario | Reported ECL under IFRS 9 |
| (in thousands of Soles) |
| Total Loans | 8,617,203 | 8,654,612 | 8,712,061 | 8,645,945 |
For further information about the IFRS 9 measurement of the expected credit loss, see Note 3(j) to the consolidated financial statements.
For historical data regarding our loan loss reserves, see “ITEM 4. INFORMATION ON THE COMPANY – 4.B Business Overview – (7) Selected Statistical Information – 7.3 Loan Portfolio – 7.3.12 Allocation of Loan Loss Reserves”.
ESG Risks Management
Credicorp manages ESG topics by focusing on the incorporation of factors to mitigate risks, preserve value and generate value from its loan books and investment portfolios.
When the upgrade of the ESG Risk Management Framework was incorporated, the scope was defined to include Wholesale Banking and Asset Managers. In 2023 the ecosystems of the mortgage and vehicle agile teams were incorporated, and the eligibility criteria aligned to the Environmental Taxonomy for the green labeling of their products was defined. Best practices were used for the integration of ESG factors in each of the business units.
Below are the 2023 achievements related to the scope of the ESG Risk Team from the different fronts:
Environmental Taxonomy
| • | The Environmental Taxonomy for BCP Peru and BCP Bolivia was updated. |
| • | In 2023 the formalized Sustainable Operations Committee was integrated into the management in BCP Peru and BCP Bolivia, labeling in BCP Peru 59 operations as green for US$585MM and in BCP Bolivia 27 operations as green for US$37 MM. |
Appetite
| • | For BCP Peru and BCP Bolivia the corporate exclusion list (related to thermal coal, war weapons, tobacco, money laundering, human rights and others in which the Bank does not wish to participate) was implemented in Wholesale Banking through questionnaires for clients validated by Credit and Banking Officers and for SME through questionnaires for capex operations. |
| • | For asset managers, Prima, Pacífico, Credicorp Capital and BCP Treasury, a centralized process for screening of conduct-based and related exclusions (child labor, forced labor, human trafficking, corruption, bribery and fraud) was defined. Also, for asset managers progress was made with the monitoring of sectoral exclusions in the prioritized portfolios. |
Organization, Governance and Culture
| • | The Corporate Conduct Based Exclusions Committee was created and started validating that the impacted portfolios complied with the Corporate Exclusion Policy. |
| • | Impacted policies related to Excluded activities in the subsidiaries were updated. |
| • | Teams of BCP Peru and Bolivia were trained by an expert consultant firm on the impact of ESG risks in the management of ESG Credit Policy questionnaires. |
| • | Some asset managers were trained in the identification of climate-related risks. |
Identification, Evaluation and Treatment
In the subsidiaries the analysis framework was strengthened by updated questionnaires and evaluation tools, guarantee evaluation questionnaires and credit and investment policy. These were done to assess the social, government and environmental risks, which include physical and transition risks.
| • | For BCP Peru and BCP Bolivia, the ESG questionnaire deployment was carried out to determine the level of ESG risk management in the prioritized portfolio, where the result of the risk management level can be low, medium or high risk. |
| • | For asset managers, there was progress in the implementation of responsible investment policies, with notable progress in the exclusions and the evaluation of issuers. Methodologies developed in-house as well as adopted ones were implemented to evaluate the different types of assets. |
Reporting
| • | Credicorp’s first corporate TCFD report was published, which includes an ESG Risk Management section. |
The Non-Financial Risks Division is composed of the following units: (i) Non-Financial Risk CoE, (ii) Non-Financial Risk Tribe, and (iii) Corporate Security and Cybercrime Operations Center.
Non-Financial Risk CoE - Operational Risk
Operational risk is the possibility of the occurrence of losses arising from inadequate processes, human error, failure of IT, relations with third parties or external events. Operational risks are tied to internal fraud, external fraud, labor relations, job security, relations with customers, business products and practices, damages to material assets, business and systems interruption, and failures in process execution, delivery, and management of processes. Operational risks exclude strategic and reputational risks (with the exception of companies under Colombian regulations, under which reputational risk is included in operational risk). Operational risks can lead to financial losses and have legal or regulatory consequences.
In order to develop an efficient risk culture, the Group records operational risks and their respective process controls. The Risk Map, which is a document that lists all the risks that could affect the organization and their characteristics, permits monitoring, prioritization and proposed treatment of the risks. The Group also carries out an active cybersecurity and fraud prevention management program, which is aligned with the best international practices.
Moreover, the business continuity management system enables the establishing, implementing, operating, monitoring, reviewing, maintaining, and improving of business continuity based on best practices and regulatory requirements. The Group implements recovery strategies for the resources that support important products and services, which are periodically tested to measure the effectiveness of such strategies. Information security management is carried out through a systematic process, which is documented and known by the entire organization, pursuant to best practices and regulatory requirements. The Group designs and develops the guidelines described in the policies and procedures to have strategies for the availability, confidentiality, and integrity of the information of assets of the organization. To manage operational risk, cybersecurity, fraud prevention and business continuity, corporate guidelines are used, and methodologies and best practices are shared among the Group’s companies.
Finally, in the event of the materialization of operational risks, the Group maintains a diverse portfolio with non-financial risk transfer options, mainly through its contracted insurance policies. These policies cover losses arising from fraud, civil and professional liability, cyber risks, and damage to physical assets, among other things. The coverage needs of key areas and new emerging risks are constantly being analyzed, leading to modifications to the existing policies and the incorporation of new insurances, taking into account the Group’s risk appetite and the expected and unexpected levels of our losses. This practice allows us to optimize the Group’s insured risk profile.
Cybersecurity
See “ITEM 16K. CYBERSECURITY”.
Corporate Security and Cyber Crime
As part of non-financial risk management, the Corporate Security & Cybercrime Area is responsible for detecting and responding to fraud incidents, as well as for the preparation, response, and mitigation of physical security risks and Disaster Risk Management (DRM). These tasks are carried out by specialized teams in investigations, cybercrime, forensic computing, internal fraud risk assessment, physical and electronic security, disaster risk management and strategic intelligence activities, with their members being experts in Crisis Management with respect to their respective specialties. These capabilities are aimed at safeguarding the security of our employees, customers, suppliers and assets, as well as strengthening our resilience and rapid response capacity.
For this purpose, the designed strategy includes the use of technological tools in video surveillance and digital video intelligence, and advanced models for analyzing risk profiles, among other areas. Additionally, we believe we have retained highly specialized and trained people in each of these respective areas, allowing for the proper use of artificial intelligence, electronics, advanced analytics and cyber forensics, as well as the achievement of high standards of efficiency and effectiveness in management.
Finally, we contribute to the security of the Financial System by reporting incidents through a local service, developed at the Association of Banks of Peru (ASBANC). Furthermore, we exchange knowledge and best practices at the LATAM level in the Security Experts Committee of the Latin American Federation of Banks (FELABAN).
c) Market and Liquidity Risk
Market Risk
The Group is exposed to market risk, 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; all of which are exposed to general and specific market movements and changes in the level of volatility of prices such as interest rates, credit spreads, foreign exchange rates and equity prices. Due to the nature of the Group’s current activities, commodity price risk has not been approved; thus, this type of instrument is not traded.
1. Market Risk Measurements
The Group separates exposures to market risk into two groups: (i) risks arising from value fluctuation of trading portfolios recognized at fair value through profit or loss, due to movements of market rates or prices (Trading Book) and (ii) risks arising from changes in the structural positions of non-trading portfolios, due to movements of the interest rates, prices and foreign exchange ratios (Banking Book). Most of the structural portfolios are recorded at amortized cost and at fair value with changes in other comprehensive income.
The risks that trading portfolios (Trading book) face are managed through Value at Risk (VaR) historical simulation techniques, while non-trading portfolios (Banking Book) are monitored using rate sensitivity metrics, which are a part of ALM.
Trading Book
The trading book is characterized by liquid positions in stocks, bonds, foreign currencies and derivatives, arising from transactions in which the Group acts as counterparty with the customers or with the market. This portfolio includes investments and derivatives classified by Management as held for trading.
Value at Risk (VaR)
Based on a number of assumptions about changes in market conditions, we apply VaR to our trading portfolios to estimate the market risk of our positions and our maximum losses.
Daily calculation of VaR is a statistically-based estimate of the potential loss on our current portfolio caused by adverse market movements.
VaR expresses the “maximum” amount the Group might lose, but only to a certain level of confidence (99%). There is therefore a specified statistical probability (1%) that actual loss could be greater than the VaR estimate.
The time period used to calculate VaR is one day. However, because the VaR model assumes a ten-day “holding period” within which positions can be closed, the one-day VaR is amplified to a ten-day time frame and calculated by multiplying the one-day VaR by the square root of 10. This adjustment is exact only if the changes in the portfolio in the following days have a normal distribution identical and independent; otherwise, the 10-day VaR is an approximation.
VaR limits and assumptions are based on the risk appetite and trading strategy of each subsidiary. The assessment of past movements is based on historical one-year data and 129 market risk factors, which are comprised as follows: 45 market curves, 43 stock prices, 37 mutual funds values and 4 volatility series. The Group applies these historical changes into rates to its current positions (a method known as historical simulation). Management believes that the market risk factors incorporated into its VaR model are adequate to measure the market risk to which the Group’s trading book is exposed.
The use of this approach does not prevent losses outside of these limits in the event of more significant market movements. Losses exceeding the VaR figure should occur, on average under normal market conditions, not more than once every hundred days. VaR limits have been established to control and keep track of our risks taken. These risks arise from the size of our positions and/or the volatility of the risk factors embedded in each financial instrument. Regular reports are prepared for the Treasury and ALM Risk Committee, our risk management committees and our senior officers.
VaR results are used to generate economic capital estimates by market risk, which are periodically monitored and are part of the overall risk appetite of each subsidiary. Furthermore, Credicorp has internal appetite risk limits for the trading book which are monitored and reported to the Credicorp Market Risk Committee. In VaR calculations, the foreign exchange effect is not included, and as such the calculation is measured assuming a constant exchange rate. For further information, see “ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT – (13) Foreign Currency Exchange Rate Risk”.
During 2023, Credicorp’s VaR decreased due to lower interest rate risk given the lower exposure in Fixed Income. The VaR remains contained within the limits of the risk appetite established by the Group’s Risk Management and its subsidiaries.
As of December 31, 2021, 2022 and 2023, our VaR by risk type were as follows:
| | | 2021 | | | 2022 | | | 2023 | |
| | | in thousands of Soles | |
Interest rate risk | | | 35,721 | | | | 74,343 | | | | 29,399 | |
Price risk | | | 4,637 | | | | 5,219 | | | | 5,291 | |
Volatility risk | | | 2,662 | | | | 2,032 | | | | 20 | |
Diversification effect | | | (4,916 | ) | | | (7,347 | ) | | | (5,850 | ) |
Consolidated VaR by risk type (1) | | | 38,104 | | | | 74,247 | | | | 28,860 | |
| (1) | Amplified to the holding period, adjusted by a 10-days period of liquidation. |
Only financial instruments from the trading book were considered in the VaR calculation.
On the other hand, the instruments recorded as fair values through profit or loss, which are not part of the selling business model are considered as part of the sensitivity analysis of rates and market prices in the next section (11.11). See the chart of sensitivity of earnings at risk, net economic value and price sensitivity.
The information disclosed in these charts addresses the VaR calculation for the entire consolidated Group. However, minimum, maximum and average VaR calculations are estimated only for BCP Stand-alone’s trading book. The reason for this is that, although there is a daily VaR calculation for all subsidiaries with trading book positions, the entire Group is consolidated once a month in order to calculate a VaR for reporting purposes and to monitor the economic capital limit. Therefore, since there is not a sufficient sample for the Group, minimum, maximum and average VaR are calculated only for the BCP Stand-alone subsidiary. Nonetheless, the Company believes it is relevant information considering that BCP Stand-alone’s trading risk is close to the total trading risk of the Group’s portfolio.
For the years ending on December 31, 2021, 2022 and 2023, the BCP Stand-alone’s VaR statistics were as follows:
| | | 2021 | | | 2022 | | | 2023 | |
| | | in thousands of Soles | |
Average daily | | | 22,839 | | | | 22,096 | | | | 23,157 | |
Highest | | | 46,435 | | | | 37,025 | | | | 32,435 | |
Lowest | | | 12,045 | | | | 11,506 | | | | 16,463 | |
Backtesting
Backtesting is performed on the trading book to verify the predictive power of the VaR calculations. Backtesting compares results of the positions considered for the calculation of VaR and the calculation of the VaR from the previous day. Backtesting exceptions occur when real losses exceed the estimated VaR for the previous day. In order for a backtesting analysis to be considered valid, it should be based on a minimum of 252 observations. Every month, backtesting exceptions are analyzed and reports are prepared to explain the results. These reports are presented to the Treasury and ALM Risk Committee and our Senior Officers. Backtesting is estimated only for BCP Stand-alone’s trading book, since it should be based on a minimum of 252 observations and the Group’s VaR is consolidated only once a month for reporting purposes and to monitor the Group’s economic capital limit.
VaR Backtesting – VaR (1-Day, 99% in millions of Soles) – 2023:
The backtesting analysis uses the Kupiec “proportion of failures” test to determine if the number of exceptions is statistically different from the one expected by the VaR confidence level. Since the test uses the last 252 observations and a 99% VaR confidence level, the model will indicate an underestimation of the probability of large losses from the sixth exception, unless a fitting factor is applied to the VaR to correct the model underestimation.
During 2023, BCP Stand-alone did not record any backtesting exceptions. According to the selected test, we believe that the VaR model is statistically correct.
Stress test
A stress test is used to calculate the maximum loss that the Group incurs in light of daily shocks to the market risk factors from March 18, 2008, until the effective date of the stress test. The maximum loss is considered the outcome for the stress test.
The methodology for the stress test assumes a certain “holding period” until positions can be closed (1 - 10 days). The time period used to calculate the losses is one day; however, the final figures are amplified to a 10-day time period, and the final calculation is determined by multiplying the one-day losses times by the square root of 10. This adjustment will be exact only if the changes in the portfolio in the following days follow a normal distribution that is identical and independent; otherwise, the worst loss of the ten-day period will be an approximation.
The results of our stress test as of December 31, 2021, 2022, 2023, by risk type, were as follows:
| | | 2021 | | | 2022 | | | 2023 | |
| | | in thousands of Soles | |
| Interest rate risk | | | 143,047 | | | | 86,079 | | | | 86,438 | |
| Price risk | | | 28,964 | | | | 15,550 | | | | 6,558 | |
Volatility risk (1) | | | 5,356 | | | | 6,006 | | | | 38 | |
| Diversification effect | | | (36,829 | ) | | | (5,134 | ) | | | (6,569 | ) |
| Consolidated VaR by risk type | | | 140,538 | | | | 102,500 | | | | 86,465 | |
| (1) | Volatility risk is the potential loss that result from fluctuations in option implied volatilities |
Given the possibility of any scenario of local or international uncertainty, continuous evaluations of stress test scenarios were carried out in order to anticipate potential losses for the Group and generate action plans to mitigate losses. Additionally, we reviewed the current models and methodologies carried out to ensure that volatility was included in the market risk indicators and valuations of the instruments.
Banking Book
The management of risks associated with long-term and structural positions is called ALM. Non-trading portfolios, which comprise the banking book, are exposed to different sensitivities that can deteriorate the value of the Group’s assets relative to its liabilities and hence can reduce the Group’s net worth. Management of the Banking Book includes management of interest rates and the analysis of the repricing GAP.
Interest Rate Risk
The ALM-related interest rate risk arises from eventual changes in interest rates that may adversely affect the expected gains (risk gains) or market value of financial assets and liabilities reported on the statement of financial position (net economic value). The Group assumes the exposure to the interest rate risk that may affect their fair value as well as the cash flow risk of future assets and liabilities.
The Risk Committee sets the guidelines regarding the level of unmatched repricing of interest rates that can be tolerated, which is periodically monitored by our ALCO monthly.
Corporate policies include guidelines for the management of the Group’s exposure to the interest rate risk. These guidelines are implemented considering the features of each segment of business in which the Group entities operate.
In this regard, Group companies that are exposed to the interest rate risk are those in which earnings are based on interest, such as credits, investments and technical reserves. Interest rate risk management at BCP Stand-alone, BCP Bolivia, Mibanco, ASB, Grupo Pacífico and Mibanco Colombia is carried out by performing a repricing gap analysis, sensitivity analysis of the financial margin (EAR) and sensitivity analysis of the net economic value (EVE). These calculations consider different rate shocks in stress scenarios.
Repricing Gap- Analysis
Repricing gap analysis identifies the term structure of interest rate mismatches within the Group’s balance and out of balance assets and liabilities. Different time bucket schemes may be used in the report. Through this analysis, Management can identify the time period in which interest rate variations may have potential impacts.
The tables below provide information about our financial instruments that are sensitive to interest rates, including deposits, bonds and other obligations, and summarize our exposure to interest rate risks as of December 31, 2021, 2022 and 2023. It includes the Group’s financial instruments at carrying amounts, categorized into columns based on the earlier of their contractual repricing date and maturity/call date. The products are distributed according to their contractual behavior or distribution assumptions (for those without contractual maturity). In addition, some credit products prepayment assumptions are considered.
| | | As of December 31, 2021 | |
| | | Up to 1 | | | 1 to 3 | | | 3 to 12 | | | 1 to 5 | | | More than 5 | | | Non-interest | | | Total | |
| | | month | | | months | | | months | | | years | | | years | | | bearing | | | | |
| | | in thousands of Soles | |
| Assets | | | | | | | | | | | | | | | | | | | | | |
| Cash, due from banks, receivables from reverse repurchase agreements and security borrowing | | | 21,200,113 | | | | 835,072 | | | | 2,164,640 | | | | 8,430,195 | | | | 180,678 | | | | 8,276,990 | | | | 41,087,688 | |
| Investments | | | 7,712,405 | | | | 1,134,280 | | | | 3,825,114 | | | | 11,313,394 | | | | 18,660,101 | | | | 378,708 | | | | 43,024,002 | |
| Loans, net | | | 16,062,211 | | | | 18,690,355 | | | | 38,761,519 | | | | 48,659,533 | | | | 17,619,885 | | | | (673,399 | ) | | | 139,120,104 | |
| Financial assets designated at fair value through profit and loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | 974,664 | | | | 974,664 | |
| Premiums and other policies receivables | | | 882,182 | | | | 24,565 | | | | 9,162 | | | | 5,194 | | | | - | | | | - | | | | 921,103 | |
| Reinsurance and insurance contract assets | | | 1,138 | | | | 315,184 | | | | 876,680 | | | | 3,985 | | | | 1,392 | | | | - | | | | 1,198,379 | |
Other assets (1) | | | 299,648 | | | | 49,697 | | | | 171,495 | | | | - | | | | 62,519 | | | | 1,832,448 | | | | 2,415,807 | |
| Total assets | | | 46,157,697 | | | | 21,049,153 | | | | 45,808,610 | | | | 68,412,301 | | | | 36,524,575 | | | | 10,789,411 | | | | 228,741,747 | |
| Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Deposits and obligations | | | 38,932,350 | | | | 13,763,617 | | | | 21,336,061 | | | | 65,231,646 | | | | 8,349,313 | | | | 2,727,875 | | | | 150,340,862 | |
| Payables from repurchase agreements, security lending, due to banks and correspondents | | | 2,414,504 | | | | 2,423,081 | | | | 9,915,571 | | | | 11,713,052 | | | | 2,724,155 | | | | 36,449 | | | | 29,226,812 | |
| Financial Liabilities designated at fair value through profit or loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | 325,571 | | | | 325,571 | |
| Accounts payable to reinsurers and coinsurers | | | 98,755 | | | | 286,473 | | | | 55,296 | | | | 23,301 | | | | - | | | | - | | | | 463,825 | |
| Insurance and reinsurance contract liability | | | 312,617 | | | | 873,375 | | | | 1,468,165 | | | | 3,387,967 | | | | 6,151,093 | | | | 341,294 | | | | 12,534,511 | |
| Bonds and notes issued | | | 70 | | | | 122,746 | | | | 553,109 | | | | 15,935,158 | | | | 399,728 | | | | 68,018 | | | | 17,078,829 | |
Other liabilities (1) | | | 135,776 | | | | 23,896 | | | | 2,735 | | | | 57,390 | | | | - | | | | 4,163,736 | | | | 4,383,533 | |
| Equity | | | - | | | | - | | | | - | | | | - | | | | - | | | | 27,037,439 | | | | 27,037,439 | |
| Total liabilities and equity | | | 41,894,072 | | | | 17,493,188 | | | | 33,330,937 | | | | 96,348,514 | | | | 17,624,289 | | | | 34,700,382 | | | | 241,391,382 | |
| Off-Balance sheet items | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivatives assets | | | 221,370 | | | | 700,009 | | | | 167,250 | | | | 486,430 | | | | - | | | | - | | | | 1,575,059 | |
| Derivatives liabilities | | | 43,164 | | | | 222,228 | | | | 223,146 | | | | 1,001,554 | | | | - | | | | - | | | | 1,490,092 | |
| Total Off-Balance Sheet items | | | 178,206 | | | | 477,781 | | | | (55,896 | ) | | | (515,124 | ) | | | - | | | | - | | | | 84,967 | |
| Marginal gap | | | 4,441,831 | | | | 4,033,746 | | | | 12,421,777 | | | | (28,451,337 | ) | | | 18,900,286 | | | | (23,910,971 | ) | | | (12,564,668 | ) |
| Accumulated gap | | | 4,441,831 | | | | 8,475,577 | | | | 20,897,354 | | | | (7,553,983 | ) | | | 11,346,303 | | | | (12,564,668 | ) | | | - | |
| (1) | Other assets and other liabilities only include financial accounts. |
| | As of December 31, 2022 | |
| | Up to 1 | | | 1 to 3 | | | 3 to 12 | | | 1 to 5 | | | More than 5 | | | Non-interest | | | Total | |
| | month | | | months | | | Months | | | years | | | years | | | bearing | | | | |
| | in thousands of Soles | |
| Assets | | | | | | | | | | | | | | | | | | | | | |
| Cash, due from banks, receivables from reverse repurchase agreements and security borrowing | | | 15,413,219 | | | | 1,339,844 | | | | 2,635,747 | | | | 8,875,620 | | | | 184,437 | | | | 6,836,829 | | | | 35,285,696 | |
| Investments | | | 6,177,458 | | | | 2,548,155 | | | | 3,088,999 | | | | 10,793,965 | | | | 18,286,282 | | | | 337,031 | | | | 41,231,890 | |
| Loans, net | | | 18,513,077 | | | | 20,548,048 | | | | 38,917,974 | | | | 46,932,699 | | | | 15,367,868 | | | | 474,306 | | | | 140,753,972 | |
| Financial assets designated at fair value through profit and loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | 768,801 | | | | 768,801 | |
| Reinsurance and insurance contract assets | | | 62,001 | | | | 124,001 | | | | 558,006 | | | | - | | | | - | | | | - | | | | 744,008 | |
| Other assets | | | 66,225 | | | | - | | | | - | | | | - | | | | - | | | | 2,531,629 | | | | 2,597,854 | |
| Total assets | | | 40,231,980 | | | | 24,560,048 | | | | 45,200,726 | | | | 66,602,284 | | | | 33,838,587 | | | | 10,948,596 | | | | 221,382,221 | |
| Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Deposits and obligations | | | 36,293,889 | | | | 13,244,363 | | | | 24,789,328 | | | | 61,459,266 | | | | 8,201,016 | | | | 3,032,925 | | | | 147,020,787 | |
| Payables from repurchase agreements, security lending, due to banks and correspondents | | | 2,919,374 | | | | 2,193,017 | | | | 5,582,701 | | | | 7,368,172 | | | | 3,160,922 | | | | 679,950 | | | | 21,904,136 | |
| Financial Liabilities designated at fair value through profit or loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | 191,010 | | | | 191,010 | |
| Insurance and reinsurance contract liability | | | 198,602 | | | | 279,488 | | | | 515,873 | | | | 1,526,519 | | | | 7,329,609 | | | | 1,303,917 | | | | 11,154,008 | |
| Bonds and notes issued | | | 48,301 | | | | 73,546 | | | | 3,186,038 | | | | 13,330,687 | | | | 357,352 | | | | 11,270 | | | | 17,007,194 | |
| Other liabilities | | | 540,778 | | | | 72,584 | | | | 2,854 | | | | - | | | | - | | | | 4,072,451 | | | | 4,688,667 | |
| Equity | | | - | | | | - | | | | - | | | | - | | | | - | | | | 29,595,213 | | | | 29,595,213 | |
| Total liabilities and equity | | | 40,000,944 | | | | 15,862,998 | | | | 34,076,794 | | | | 83,684,644 | | | | 19,048,899 | | | | 38,886,736 | | | | 231,561,015 | |
| Off-Balance sheet items | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivatives assets | | | 171,485 | | | | 830,415 | | | | 450,835 | | | | 931,208 | | | | - | | | | - | | | | 2,383,943 | |
| Derivatives liabilities | | | 149,938 | | | | 46,232 | | | | 165,610 | | | | 1,844,839 | | | | 95,350 | | | | - | | | | 2,301,969 | |
| Total Off-Balance Sheet items | | | 21,547 | | | | 784,183 | | | | 285,225 | | | | (913,631 | ) | | | (95,350 | ) | | | - | | | | 81,974 | |
| Marginal gap | | | 252,583 | | | | 9,481,233 | | | | 11,409,157 | | | | (17,995,991 | ) | | | 14,694,338 | | | | (27,938,140 | ) | | | (10,096,820 | ) |
| Accumulated gap | | | 252,583 | | | | 9,733,816 | | | | 21,142,973 | | | | 3,146,982 | | | | 17,841,320 | | | | (10,096,820 | ) | | | - | |
| (1) | Other assets and other liabilities only include financial accounts. |
| | | As of December 31, 2023 | |
| | | Up to 1 | | | 1 to 3 | | | 3 to 12 | | | 1 to 5 | | | More than 5 | | | Non-interest | | | Total | |
| | | month | | | months | | | Months | | | years | | | years | | | bearing | | | | |
| | | in thousands of Soles | |
| Assets | | | | | | | | | | | | | | | | | | | | | |
| Cash, due from banks, receivables from reverse repurchase agreements and security borrowing | | | 13,900,784 | | | | 1,707,822 | | | | 3,050,481 | | | | 8,674,709 | | | | 273,214 | | | | 7,734,585 | | | | 35,341,595 | |
| Investments | | | 1,331,553 | | | | 4,489,604 | | | | 9,475,564 | | | | 12,827,007 | | | | 18,773,061 | | | | 336,078 | | | | 47,232,867 | |
| Loans, net | | | 19,650,760 | | | | 16,975,402 | | | | 38,874,328 | | | | 46,963,496 | | | | 14,420,760 | | | | (186,611 | ) | | | 136,698,135 | |
| Financial assets designated at fair value through profit and loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | 810,932 | | | | 810,932 | |
| Reinsurance and insurance contract assets | | | 872,046 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 872,046 | |
Other assets (1) | | | 143,214 | | | | 7,053 | | | | 31,753 | | | | - | | | | - | | | | 2,381,135 | | | | 2,563,155 | |
| Total assets | | | 35,898,357 | | | | 23,179,881 | | | | 51,432,126 | | | | 68,465,212 | | | | 33,467,035 | | | | 11,076,119 | | | | 223,518,730 | |
| Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Deposits and obligations | | | 40,740,255 | | | | 16,793,946 | | | | 22,762,047 | | | | 57,611,088 | | | | 8,418,281 | | | | 1,379,377 | | | | 147,704,994 | |
| Payables from repurchase agreements, security lending, due to banks and correspondents | | | 5,987,961 | | | | 6,344,769 | | | | 3,477,433 | | | | 3,238,356 | | | | 3,026,066 | | | | 372,523 | | | | 22,447,108 | |
| Financial Liabilities designated at fair value through profit or loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | 641,915 | | | | 641,915 | |
| Insurance and reinsurance contract liability | | | 116,515 | | | | 178,525 | | | | 496,768 | | | | 1,862,006 | | | | 6,822,694 | | | | 2,841,625 | | | | 12,318,133 | |
| Bonds and notes issued | | | 81,635 | | | | 94,831 | | | | 5,711,424 | | | | 7,944,189 | | | | 603,511 | | | | 159,195 | | | | 14,594,785 | |
Other liabilities (1) | | | 497,682 | | | | - | | | | 2,046 | | | | - | | | | - | | | | 4,546,082 | | | | 5,045,810 | |
| Equity | | | - | | | | - | | | | - | | | | - | | | | - | | | | 33,107,065 | | | | 33,107,065 | |
| Total liabilities and equity | | | 47,424,048 | | | | 23,412,071 | | | | 32,449,718 | | | | 70,655,639 | | | | 18,870,552 | | | | 43,047,782 | | | | 235,859,810 | |
| Off-Balance sheet items | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivatives assets | | | 72,943 | | | | - | | | | 676,380 | | | | - | | | | - | | | | - | | | | 749,323 | |
| Derivatives liabilities | | | 630,109 | | | | 401,730 | | | | 54,849 | | | | 1,936,331 | | | | - | | | | - | | | | 3,023,019 | |
| Total Off-Balance Sheet items | | | (557,166 | ) | | | (401,730 | ) | | | 621,531 | | | | (1,936,331 | ) | | | - | | | | - | | | | (2,273,696 | ) |
| Marginal gap | | | (12,082,857 | ) | | | (633,920 | ) | | | 19,603,939 | | | | (4,126,758 | ) | | | 14,596,483 | | | | (31,971,663 | ) | | | (14,614,776 | ) |
| Accumulated gap | | | (12,082,857 | ) | | | (12,716,777 | ) | | | 6,887,162 | | | | 2,760,404 | | | | 17,356,887 | | | | (14,614,776 | ) | | | - | |
| (1) | Other assets and other liabilities only include financial accounts. |
Investments and derivatives classified by our management as held for trading are not considered in our repricing gap analysis because these instruments are included in the trading book. Instead of repricing gap analysis, we use VaR methodology to assess risk arising from these instruments. Other assets and other liabilities include only financial accounts.
Sensitivity to Changes in Interest Rates
The sensitivity analysis of a reasonable possible change in interest rates on the ALM book comprises an assessment of the sensibility of the financial margin, which seeks to measure the potential changes in interest accruals over a period of time due to the expected parallel movement of the interest rate curves, as well as the sensitivity of the net economic value, which is a long-term metric measured as the difference between the economic value of net assets and liabilities before and after a variation in interest rates.
The sensitivity of the financial margin is the effect of the assumed changes in interest rates on the net interest income before income tax for one year and is based on non-trading financial assets and financial liabilities held on December 31, 2021, 2022 and 2023, including the effect of derivative instruments. The sensitivity of net economic value is calculated by reassessing the financial assets and liabilities that comprise the banking book, including the effect of any associated hedge and derivative instruments designated as a cash flow hedge. In managing interest rate risk, no distinction is made by accounting category of the investments comprising the banking book, including instruments classified as fair value through other comprehensive income and amortized cost investments.
The tables below summarize our exposure to interest rate changes as of December 31, 2021, 2022 and 2023:
| | | As of December 31, 2021 | |
| Currency | | Interest rates changes in | | | Sensitivity of | | | Sensitivity of | |
| | basis points | | | net profit | | | economic value | |
| | | | | | in thousands of Soles | |
Soles | | | +/- | | | | 50 | | | | +/- | | | | 45,487 | | | | -/ | + | | | 340,772 | |
Soles | | | +/- | | | | 75 | | | | +/- | | | | 68,231 | | | | -/ | + | | | 511,158 | |
Soles | | | +/- | | | | 100 | | | | +/- | | | | 90,975 | | | | -/ | + | | | 681,544 | |
Soles | | | +/- | | | | 150 | | | | +/- | | | | 136,462 | | | | -/ | + | | | 1,022,316 | |
US Dollar | | | +/- | | | | 50 | | | | +/- | | | | 115,376 | | | | +/- | | | | 413,488 | |
US Dollar | | | +/- | | | | 75 | | | | +/- | | | | 173,064 | | | | +/- | | | | 620,232 | |
US Dollar | | | +/- | | | | 100 | | | | +/- | | | | 230,752 | | | | +/- | | | | 826,976 | |
US Dollar | | | +/- | | | | 150 | | | | +/- | | | | 346,128 | | | | +/- | | | | 1,240,463 | |
| | | As of December 31, 2022 | |
| Currency | | Interest rates changes in | | | Sensitivity of | | | Sensitivity of | |
| | basis points | | | net profit | | | economic value | |
| | | | | | in thousands of Soles | |
Soles | | | +/- | | | | 50 | | | | +/- | | | | 39,920 | | | | -/ | + | | | 345,530 | |
Soles | | | +/- | | | | 75 | | | | +/- | | | | 59,880 | | | | -/ | + | | | 518,295 | |
Soles | | | +/- | | | | 100 | | | | +/- | | | | 79,840 | | | | -/ | + | | | 691,060 | |
Soles | | | +/- | | | | 150 | | | | +/- | | | | 119,760 | | | | -/ | + | | | 1,036,590 | |
| US Dollar | | | +/- | | | | 50 | | | | +/- | | | | 103,546 | | | | +/- | | | | 306,792 | |
| US Dollar | | | +/- | | | | 75 | | | | +/- | | | | 155,319 | | | | +/- | | | | 460,188 | |
| US Dollar | | | +/- | | | | 100 | | | | +/- | | | | 207,092 | | | | +/- | | | | 613,584 | |
| US Dollar | | | +/- | | | | 150 | | | | +/- | | | | 310,638 | | | | +/- | | | | 920,375 | |
| | | As of December 31, 2023 | |
| Currency | | Interest rates changes in | | | Sensitivity of | | | Sensitivity of | |
| | basis points | | | net profit | | | economic value | |
| | | | | | in thousands of Soles | |
Soles | | | +/- | | | | 50 | | | | +/- | | | | 15,052 | | | | -/ | + | | | 511,851 | |
Soles | | | +/- | | | | 75 | | | | +/- | | | | 22,578 | | | | -/ | + | | | 767,776 | |
Soles | | | +/- | | | | 100 | | | | +/- | | | | 30,104 | | | | -/ | + | | | 1,023,702 | |
Soles | | | +/- | | | | 150 | | | | +/- | | | | 45,156 | | | | -/ | + | | | 1,535,553 | |
| US Dollar | | | +/- | | | | 50 | | | | +/- | | | | 48,060 | | | | +/- | | | | 119,342 | |
| US Dollar | | | +/- | | | | 75 | | | | +/- | | | | 72,090 | | | | +/- | | | | 179,013 | |
| US Dollar | | | +/- | | | | 100 | | | | +/- | | | | 96,120 | | | | +/- | | | | 238,684 | |
| US Dollar | | | +/- | | | | 150 | | | | +/- | | | | 144,180 | | | | +/- | | | | 358,026 | |
The interest rate sensitivities set out in the tables above are illustrative only and are based on simplified scenarios. These figures represent the effect of the preform movements in the net interest income based on the projected yield curve scenarios and the Group’s current interest rate risk profile. This effect, however, does not incorporate actions that would be taken by Management to mitigate the impact of this interest rate risk. In addition, the Group proactively seeks 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.
As of December 31, 2021, 2022 and 2023, investments in equity securities and funds that are non-trading, recorded at fair value through other comprehensive income and at fair value through profit or loss, respectively, are not considered as comprising investment securities for interest rate sensitivity calculation purposes; however, 10%, 25% and 30% changes in market prices are conducted to these price-sensitivity securities.
The market price sensitivity tests as of December 31, 2021, 2022 and 2023 are presented below:
| | | | | 2021 | | | 2022 | | | 2023 | |
Equity at fair value through other comprehensive income | | Changes in market prices % | | | in thousands of Soles | |
| Equity securities | | | +/- 10 | | | | 37,783 | | | | 32,649 | | | | 33,480 | |
| Equity securities | | | +/- 25 | | | | 94,457 | | | | 81,621 | | | | 83,700 | |
| Equity securities | | | +/- 30 | | | | 113,348 | | | | 97,946 | | | | 100,440 | |
| | | | | 2021 | | | 2022 | | | 2023 | |
Funds at fair value through profit or loss | | Changes in market prices % | | | in thousands of Soles | |
| Mutual funds | | | +/- 10 | | | | 157,130 | | | | 157,932 | | | | 108,747 | |
| Mutual funds | | | +/- 25 | | | | 392,825 | | | | 394,831 | | | | 271,867 | |
| Mutual funds | | | +/- 30 | | | | 471,390 | | | | 473,797 | | | | 326,241 | |
| Restricted mutual funds | | | +/- 10 | | | | 36,595 | | | | 35,132 | | | | 33,416 | |
| Restricted mutual funds | | | +/- 25 | | | | 91,489 | | | | 87,829 | | | | 83,541 | |
| Restricted mutual funds | | | +/- 30 | | | | 109,786 | | | | 105,395 | | | | 100,249 | |
| Fund of Liquid Assets Requirement (RAL) | | | +/- 10 | | | | 32,314 | | | | 16,778 | | | | 14,541 | |
| Fund of Liquid Assets Requirement (RAL) | | | +/- 25 | | | | 80,785 | | | | 41,945 | | | | 36,354 | |
| Fund of Liquid Assets Requirement (RAL) | | | +/- 30 | | | | 96,942 | | | | 50,334 | | | | 43,624 | |
| Investment Funds | | | +/- 10 | | | | 49,837 | | | | 86,053 | | | | 118,071 | |
| Investment Funds | | | +/- 25 | | | | 124,591 | | | | 215,133 | | | | 295,178 | |
| Investment Funds | | | +/- 30 | | | | 149,510 | | | | 258,160 | | | | 354,214 | |
| Hedge Funds | | | +/- 10 | | | | 17,682 | | | | 28 | | | | 29 | |
| Hedge Funds | | | +/- 25 | | | | 44,204 | | | | 70 | | | | 73 | |
| Hedge Funds | | | +/- 30 | | | | 53,045 | | | | 84 | | | | 87 | |
| Exchange Traded Funds | | | +/- 10 | | | | 10,531 | | | | 2,504 | | | | 2,958 | |
| Exchange Traded Funds | | | +/- 25 | | | | 26,326 | | | | 6,261 | | | | 7,396 | |
| Exchange Traded Funds | | | +/- 30 | | | | 31,592 | | | | 7,513 | | | | 8,875 | |
Foreign Currency Exchange Rate Risk
The Group is exposed to fluctuations in foreign currency exchange rates, which impact net open monetary positions and equity positions in a different currency than the group’s functional currency.
The Group’s monetary position is made up of the net open position of monetary assets, monetary liabilities and off-balance sheet items expressed in foreign currency for which the entity itself assumes the risk, as well as the equity position generated by the investment in the Group’s subsidiaries whose functional currency is different from soles. In the first case, any appreciation/depreciation of the foreign currency would affect the consolidated income statement, on the contrary; in the case of the equity position, any appreciation/depreciation of the foreign currency will be recognized in other comprehensive income.
The Group manages foreign currency exchange risk, which affects the income statement, by monitoring and controlling currency positions exposed to movements in exchange rates. The market risk units of each subsidiary establish limits for said positions, which are approved by their own committees, and monitor and follow up the limits considering their foreign exchange trading positions, their most structural foreign exchange positions, as well as their sensitivities. Additionally, there is a monetary position limit at the Credicorp level, which is monitored and reported to the Group’s Risk Committee.
On the other hand, the Group manages foreign currency exchange risk whose fluctuation is recognized in other comprehensive income, monitoring and controlling equity positions and their sensitivities, which are reported to the Group’s Risk Committee.
Net foreign exchange gains/losses recognized in the consolidated statement of income are disclosed in the following items:
• Net gain on foreign exchange transactions
• Net gain on derivatives held for trading
• Exchange difference result
Transactions in foreign currency are made at free market exchange rates of the countries where Credicorp’s subsidiaries are established. As of December 31, 2021, 2022, and 2023, the net open monetary position with effect on results and the equity position of the group was as follows:
| 2021 | | U.S. Dollar | | | Other currencies | |
| | | in thousands of Soles | |
| | | | | | | |
Total monetary assets | | | 79,005,337 | | | | 503,809 | |
| Total monetary liabilities | | | (81,716,408 | ) | | | (415,951 | ) |
| | | | (2,711,071 | ) | | | 87,858 | |
| Total position in currency derivatives | | | 2,142,654 | | | | (55,696 | ) |
Hedging a foreign investment (*) | | | 912,337 | | | | - | |
| Total monetary position with effect on income | | | 343,920 | | | | 32,162 | |
| Total monetary position with effect on equity | | | 1,021,603 | | | | 1,864,335 | |
| Net monetary position | | | 1,365,523 | | | | 1,896,497 | |
| 2022 | | U.S. Dollar | | | Other currencies | |
| | | in thousands of Soles | |
| | | | | | | | | |
Total monetary assets | | | 77,853,626 | | | | 364,108 | |
| Total monetary liabilities | | | (79,016,765 | ) | | | (217,568 | ) |
| | | | (1,163,139 | ) | | | 146,540 | |
| Total position in currency derivatives | | | 353,166 | | | | (127,382 | ) |
Hedging a foreign investment (*) | | | 872,750 | | | | - | |
| Total monetary position with effect on income | | | 62,777 | | | | 19,158 | |
| Total monetary position with effect on equity | | | 785,030 | | | | 1,872,697 | |
| Net monetary position | | | 847,807 | | | | 1,891,855 | |
| 2023 | | U.S. Dollar | | | Other currencies | |
| | | in thousands of Soles | |
| | | | | | | | | |
Total monetary assets | | | 77,387,709 | | | | 495,553 | |
| Total monetary liabilities | | | (79,779,686 | ) | | | (102,500 | ) |
| | | | (2,391,977 | ) | | | 393,053 | |
| Total position in currency derivatives | | | 2,622,188 | | | | (369,458 | ) |
Hedging a foreign investment (*) | | | - | | | | - | |
| Total monetary position with effect on income | | | 230,211 | | | | 23,595 | |
| Total monetary position with effect on equity | | | 904,434 | | | | 2,204,984 | |
| Net monetary position | | | 1,134,645 | | | | 2,228,579 | |
(*) In December 2023, the accounting coverage for net investment abroad was revoked, where part of our liability position in US dollars related to the balance of the “bonds and notes issued” item, see note 15 (a)(iii), was designated to cover our ongoing investment in Atlantic Security Holding Corporation.
As of December 31, 2021, 2022 and 2023, the monetary position with effect on equity in other currencies is mainly made up of the equity of subsidiaries in Bolivian pesos for S/928.6 million, S/954.7 million and S/860.3 million, respectively; in Colombian Pesos for S/638.6 million, S/566.7 million and S/961.9 million, respectively and in Chilean Pesos for S/304.4 million, S/348.0 million and S/380.9 million, respectively.
The following tables show the sensitivity analysis of the main currencies to which the Group is exposed and which affect the consolidated income statement and other comprehensive income as of December 31, 2021, 2022 and 2023.
The analysis determines the effect of a reasonably possible variation of the exchange rate against the Sol for each of the currencies independently, considering all other variables constant. A negative amount shows a potential net reduction in the consolidated income statement and other comprehensive income, while a positive amount reflects a potential increase.
The following is a sensitivity analysis of the foreign exchange position with an effect on the consolidated statement of income, with the U.S. dollar as the main currency of exposure. This analysis is shown as of December 31, 2021, 2022 and 2023:
| Currency rate sensibility | | Change in Currency Rates | | | 2021 | | | 2022 | | | 2023 | |
| | | % | | | in thousands of Soles | |
| Depreciation | | | | | | | | | | | | |
| Sol in relation to US Dollar | | | 5 | | | | 16,377 | | | | 2,989 | | | | 10,962 | |
| Sol in relation to US Dollar | | | 10 | | | | 31,265 | | | | 5,707 | | | | 20,928 | |
| Appreciation | | | | | | | | | | | | | | | | |
| Sol in relation to US Dollar | | | 5 | | | | (18,101 | ) | | | (3,304 | ) | | | (12,116 | ) |
| Sol in relation to US Dollar | | | 10 | | | | (38,213 | ) | | | (6,975 | ) | | | (25,579 | ) |
The following is the sensitivity analysis of the foreign exchange position with effect in other comprehensive income, with the U.S. dollar, the Bolivian Peso, the Colombian Peso and the Chilean Peso being the main currencies of exposure. This analysis is shown as of December 31, 2021, 2022 and 2023:
| Currency rate sensibility | | Change in Currency Rates | | | 2021 | | | 2022 | | | 2023 | |
| | | % | | | in thousands of Soles | |
| Depreciation | | | | | | | | | | | | |
| Sol in relation to US Dollar | | | 5 | | | | 48,648 | | | | 37,382 | | | | 43,377 | |
| Sol in relation to US Dollar | | | 10 | | | | 92,873 | | | | 71,366 | | | | 82,812 | |
| Appreciation | | | | | | | | | | | | | | | | |
| Sol in relation to US Dollar | | | 5 | | | | (53,769 | ) | | | (41,317 | ) | | | (47,944 | ) |
| Sol in relation to US Dollar | | | 10 | | | | (113,511 | ) | | | (87,226 | ) | | | (101,214 | ) |
| Currency rate sensibility | | Change in Currency Rates | | | 2021 | | | 2022 | | | 2023 | |
| | | % | | | in thousands of Soles | |
| Depreciation | | | | | | | | | | | | |
| Sol in relation to Boliviano | | | 5 | | | | 44,220 | | | | 45,462 | | | | 40,969 | |
| Sol in relation to Boliviano | | | 10 | | | | 84,421 | | | | 86,791 | | | | 78,214 | |
| Appreciation | | | | | | | | | | | | | | | | |
| Sol in relation to Boliviano | | | 5 | | | | (48,875 | ) | | | (50,247 | ) | | | (45,282 | ) |
| Sol in relation to Boliviano | | | 10 | | | | (103,181 | ) | | | (106,078 | ) | | | (95,595 | ) |
| Currency rate sensibility | | Change in
Currency Rates | | | 2021 | | | 2022 | | | 2023 | |
| | | % | | | in thousands of Soles | |
| Depreciation | | | | | | | | | | | | |
| Sol in relation to Colombian Peso | | | 5 | | | | 29,933 | | | | 26,984 | | | | 45,804 | |
| Sol in relation to Colombian Peso | | | 10 | | | | 57,145 | | | | 51,515 | | | | 87,444 | |
| Appreciation | | | | | | | | | | | | | | | | |
| Sol in relation to Colombian Peso | | | 5 | | | | (33,084 | ) | | | (29,825 | ) | | | (50,626 | ) |
| Sol in relation to Colombian Peso | | | 10 | | | | (69,844 | ) | | | (62,963 | ) | | | (106,876 | ) |
| Currency rate sensibility | | Change in Currency Rates | | | 2021 | | | 2022 | | | 2023 | |
| | | % | | | in thousands of Soles | |
| Depreciation | | | | | | | | | | | | |
| Sol in relation to Chilean Peso | | | 5 | | | | 14,494 | | | | 16,571 | | | | 18,136 | |
| Sol in relation to Chilean Peso | | | 10 | | | | 27,671 | | | | 31,636 | | | | 34,624 | |
| Appreciation | | | | | | | | | | | | | | | | |
| Sol in relation to Chilean Peso | | | 5 | | | | (16,020 | ) | | | (18,316 | ) | | | (20,046 | ) |
| Sol in relation to Chilean Peso | | | 10 | | | | (33,820 | ) | | | (38,667 | ) | | | (42,318 | ) |
Liquidity Risk
Liquidity risk is the risk that the Group is unable to meet its short-term payment obligations associated with its financial liabilities when they are due and to replace funds when they are withdrawn. In this sense, a company that is facing a liquidity crisis would be failing to comply with the obligations to pay depositors and with commitments to lend or satisfy other operational cash needs.
For further information about liquidity risk management, please refer to ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – 5.B Liquidity and Capital Resources - (3) Liquidity Risk
Model risk is defined as the probability of loss resulting from decisions (credit, market, among others) based on the use of poorly designed and/or poorly implemented models. The main sources of this risk are deficiencies in data, errors in the model (from design to implementation) or wrongful use of the model.
The Group uses models for different purposes, such as credit admission, capital calculation, monitoring behavior of payment, determination of loan reserves, market risk and liquidity. Model risk management is structured around a set of processes known as the life cycle of the model. The phases of the life cycle of the model in the Group are: identification, planning, development, internal validation, approval, implementation and use, and monitoring and control.
Management of model risk is proportional to the importance of each model. To this end, a tiered approach is used to synthesize the level of importance of a model, from which the level of model management is then determined.
e) Risk in Insurance Activity and Operational Risk
Both our operational risk, which measures the probability of loss of the business operations, and our insurance activity risk, which measures the real cost of claims and benefit payments and the timing thereof, are important for the Group’s risk management. How we identify, evaluate, measure, treat and control operational risk and insurance activity risk is defined and explained in the following notes to our audited consolidated financial statements: 30.5 Operational risk and 30.9 Risk of the insurance activity.
The main risk faced by the Group related to insurance contracts is that the real cost of claims and payments, or the opportunity cost of claims and payments, may differ from what was expected. The magnitude of this risk is influenced by the frequency of claims, the severity of claims, the real benefits paid and the development of long-term claims. Therefore, the Group seeks to ensure that sufficient reserves are available to cover these obligations. The Group constantly monitors the adequacy of its technical reserves by taking appropriate measures against possible adverse results. It also contracts with independent, recognized actuarial services firms to conduct periodic reviews regarding the sufficiency of reserves for the companies that make up the Insurance & Pensions LoB.
| ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
Not applicable.
| ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
Neither we, nor any of our subsidiaries, have ever defaulted on any of our debt or have ever been forced to reschedule any of our obligations.
| 13. B | Dividend Arrearages and Delinquencies |
None of our dividends are in arrears, and there has not been any other material delinquency not cured within 30 days relating to any class of preferred stock of our significant subsidiaries. Credicorp Ltd. does not have any preferred stock outstanding.
| ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
There has not been any modification to the rights of security holders.
| ITEM 15. | CONTROLS AND PROCEDURES |
| 15. A | 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, 2023. 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 SEC rules and forms.
| 15. B | Management’s Annual Report on Internal Control over Financial Reporting |
Our Board of Directors and management are responsible for establishing and maintaining adequate internal control over financial reporting. Our framework for 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 IASB.
Our framework for internal control over financial reporting includes 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 and 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 inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Also, projections about the effectiveness of our internal controls are subject to the risk that controls may become inadequate due to changes in conditions or deterioration in compliance with policies or procedure.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023, based on the framework set forth by the COSO in Internal Control-Integrated Framework. Based on this assessment, our management identified no material weakness in our internal control over financial reporting and believed that, as of December 31, 2023, our internal control over financial reporting was effective, which means that each of the relevant components and seventeen principles are present and functioning and the five components operate together in an integrated manner, as required by COSO.
The effectiveness of the entity’s internal control over financial reporting as of December 31, 2023, has been audited by Tanaka, Valdivia y Asociados SCRL located in Lima, Peru with PCAOB ID 1315, an independent registered public accounting firm, member of Ernst & Young Global (EY) which report is included on page F-2 of this annual report.
| 15. C | Attestation Report of Independent Registered Public Accounting Firm |
To the Shareholders and Board of Directors of Credicorp Ltd.
Opinion on Internal Control Over Financial Reporting
We have audited Credicorp Ltd. and subsidiaries internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)(the COSO criteria). In our opinion, Credicorp Ltd. and subsidiaries (the “Company”) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position as of December 31, 2023, the related consolidated statements of income, other comprehensive income, changes in equity and cash flows for year then ended, and the related notes (collectively referred to as the “consolidated financial statements”), and our report dated April 24, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’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 the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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 changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/S/ Tanaka, Valdivia & Asociados S. Civil de R.L.
A member practice of Ernst & Young Global Limited
Lima, Peru
April 24, 2024
| 15.D | Changes in Internal Control over Financial Reporting |
During the period covered by this Annual Report, no changes were made to our internal control over financial reporting that have materially affected, or are likely to materially affect, our internal control over financial reporting.
| ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT |
At the Annual General Meeting of Shareholders held on March 27, 2023, shareholders elected the members of the Board of Directors of Credicorp as discussed in “ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES – 6. A Directors and Senior Management”. Furthermore, our Board of Directors, at its meeting held on April 27, 2023, appointed the following members to the Audit Committee: Ms. Patricia Lizarraga Guthertz (independent, chairwoman of the Audit Committee since June 2020), Ms. Maria Teresa Aranzabal Harreguy (independent, member of the Audit Committee) and Ms. Nuria Aliño Pérez (independent, member of the Audit Committee since April 27, 2023). Mr. Jose Raimundo Morales Dasso, former Chairman of the Audit Committee, has been appointed as Advisor of the Audit Committee.
Ms. Lizarraga, Ms. Aranzabal and Ms. Aliño are “independent” as defined in Rule 10A-3 under the Exchange Act and in Section 303A.02 of the NYSE Listed Company Manual.
Ms. Lizarraga, our Audit Committee Financial Expert as determined by the Board of Directors, is Director of BCP Stand-alone and Credicorp Ltd. Ms. Lizarraga is an experienced Wall Street executive with over 25 years of experience working in international mergers and acquisitions, capital markets, private equity, and valuation experience. She is the founder and CEO of Hypatia Capital Group and a major shareholder of the family group Grupo del Ande. Ms. Lizarraga’s Board experience includes serving as both President of the Board and Chairman of the Audit Committee of non-profit organizations, as well as serving on the board of a private company. She served as President of the Privatization Committee of Toll Roads of Peru. Ms. Lizarraga received her Bachelor of Arts degree from Yale University and her MBA from Harvard Business School.
We have adopted a code of ethics (Código de Ética) that applies to our Board of Directors and to our CEO, our chief financial officer, and our other principal executive officers, as well as to all of our other employees. In addition, we have adopted a code of ethics for professionals with financial responsibility (Código de Ética Para Profesionales con Responsabilidad Financiera) that applies 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 our web site at https://grupocredicorp.com/ or at https://credicorp.gcs-web.com/corporate-governance/corporate-governance-documents (in English).
| ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee must approve all the services that the independent external auditor provides as part of its responsibility to supervise the internal auditor’s work. The Audit Committee provides two types of approvals as set forth below:
| | (1) | The Audit Committee grants a “general approval” in advance for services that the independent external auditor may provide. After a general approval is given, further approval from the Audit Committee is required. A general approval is valid for 12 months from the date of approval unless the Audit Committee determines a different period shall apply. The Audit Committee is regularly informed of the services provided through the general approval process. |
| (2) | The Audit Committee also grants “specific approval” on a case-by-case basis for services that do not obtain general approval. All the services that are not granted general approval need specific approval from the Audit Committee before any agreement is signed with the independent external 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 all tax and other fees, which cannot be greater than 35% 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 external 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 external auditor. |
As necessary, the Audit Committee supervises the execution of services provided by the independent external auditor. It approves, when necessary, any modification to 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 external 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 connection with the trading of our shares.
The Audit Committee may grant a general approval to audit-related services if the committee believes that these services will not negatively affect the integrity of the independent external auditor and are consistent with SEC rules.
Consistent with SEC rules, the Audit Committee requires that all tax services provided by the independent external auditor be subject to its approval. The Audit Committee may grant a specific approval for other services provided by the independent external auditor as long as they do not impair the independence of the independent external auditor and are permissible under SEC rules.
The Audit Committee, at its meeting held on April 26, 2022, decided to initiate a selection process to select the external auditor of Credicorp for fiscal years 2023 to 2027. The process had two stages: the first stage involved inviting the four most prestigious international audit firms to present their work plans, methodology and preliminary teams of professionals, followed by the second stage where the two best firms from the first stage presented their detailed audit strategy, work team, scope of the audit and costs in greater detail. The firms KPMG International Limited, Deloitte, PricewaterhouseCoopers and Ernst & Young LLP (EY) were invited to the first stage, held on June 20, 2022. The second stage was held at the Committee session on August 23, 2022. Based on the presentations, working documents, consultations and comparative analyses, the Audit Committee decided at its meeting held on September 27, 2022, to select Tanaka, Valdivia y Asociados SCRL, a member firm of Ernst & Young Global (EY) as Credicorp’s external auditor for fiscal years 2023 to 2027, subject to the firm’s performance, which will be evaluated at the end of each year during its appointment and the recommendation to the Board of Directors for its appointment.
At the Annual General Meeting of Shareholders held on March 27, 2023, the shareholders of Credicorp approved the designation of Tanaka, Valdivia y Asociados SCRL a member of EY Global, to act as independent external auditors of Credicorp and subsidiaries for the fiscal year 2023 and authorized our Board of Directors to delegate the approval of the independent external auditor’s annual fees to its Audit Committee.
The following table sets forth the agreed fees for our independent external auditors, Gaveglio, Aparicio y Asociados S.C.R.L. for 2021 and 2022 and Tanaka, Valdivia y Asociados S.C.R.L. for 2023 in connection with the audit of our financial statements, assurance and related services, tax compliance, tax advisory and tax planning services and other services.
| | | Year-end December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | (in thousands of Soles) | |
| Audit | | | 23,775 | | | | 25,177 | | | | 18,423 | |
| Audit Related Fees | | | 849 | | | | 581 | | | | 705 | |
| Tax | | | 663 | | | | 724 | | | | 2,261 | |
| All Other | | | 244 | | | | 62 | | | | 618 | |
| Total | | | 25,531 | | | | 26,544 | | | | 22,007 | |
Audit Fees
Audit and audit related fees correspond to audit services performed (i) reviewing the consolidated financial statements of Credicorp and its subsidiaries, (ii) establishing the procedures that the independent auditor needs to perform in order to form an opinion about Credicorp’s consolidated financial statements, and (iii) complying with the statutory requirements applicable to Credicorp’s subsidiaries. Audit fees also include the audit work in connection with reviews of interim financial information. During 2023 and 2022, the Audit Committee approved all fees and there were no services approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
The agreed audit and audit related fees for Gaveglio, Aparicio y Asociados S.C.R.L. amounted to S/25.7 million in 2022 and for Tanaka, Valdivia y Asociados S.C.R.L. decreased to S/19.1 million in 2023.
Audit-Related Fees
Audit-related fees correspond to the total fees billed by Gaveglio, Aparicio y Asociados S.C.R.L. and Tanaka, Valdivia y Asociados S.C.R.L. for services related to the performance of the audit or review of Credicorp’s financial statements and are not reported under “audit fees”. This line item includes services such as attestation reports for our subsidiaries as required by statute or regulations. As of December 31, 2021, 2022 and 2023 correspond mainly to the BCP offering memorandum.
Tax Fees
Tax fees relate to tax services which include all services performed by Credicorp’s independent auditor’s tax personnel, except those services specifically related to the review and preparation of Credicorp’s financial statements, and which principally consist of tax compliance and advisory services approved by the Audit Committee.
The agreed tax fees for Gaveglio, Aparicio y Asociados S.C.R.L. and Tanaka, Valdivia y Asociados S.C.R.L. amount to S/0.7 million for 2022 and S/2.3 million for 2023 respectively. The increase in tax fees in 2023 with respect to 2022 was mainly due to fees from Grupo Crédito, Prima AFP, Pacífico, BCP for increased tax advisory and consulting services.
Tax services and other services rendered during 2023 by Tanaka, Valdivia & Asociados Sociedad Civil de Responsabilidad Limitada and related companies correspond mostly to services that were rendered in previous years and that have not been included in the figures presented in 2022 and 2021, since in those years only fees for services rendered by Gaveglio, Aparicio y Asociados Sociedad Civil de Responsabilidad Limitada were included.
All Other Fees
In 2023, other fees were mainly related to fees for migration services and financial due diligence. In 2022, the other fees were mainly related to the Purchase Price Allocation review for business combination to Tenpo. In 2021, the other fees were mainly related to the review of accounting hedges to Credicorp Ltd, advice on economic substance to CCR Inc. and review of the design and operational effectiveness of the controls of Credicorp Capital S.A. Corredores de Bolsa.
Audit fees corresponding to “Taxes” and “All other” paid in 2021, 2022, and 2023 were subject to the 35% limit described under “Audit Committee Pre-Approval Policies and Procedures” above.
All other fees agreed for Tanaka, Valdivia y Asociados S.C.R.L. amounted to S/0.6 million for 2023. All other fees agreed for Gaveglio, Aparicio y Asociados S.C.R.L. amounted to S/0.062 million for 2022 and S/0.2 million for 2021.
| 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 2023,
purchases of our common shares were made in open market operations on behalf of our clients.
In addition, we and our affiliated purchasers repurchased common shares for our 2023 long-term retention plan for certain employees, as explained in Note 16 to the consolidated financial statements. The following table sets forth, for each month in 2023 in which such repurchases occurred, the total number of shares purchased, and the average price paid per share. None of the repurchased shares were purchased as part of publicly announced plans or programs.
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs |
| March 2023 | 163,067 | US$137.82 | - | - |
| (1) Shares repurchased in open-market transactions. |
In March 2023 163,067 shares were repurchased in open market operations at an average price paid per share of US$137.82. None of the repurchased shares were acquired as part of publicly announced plans or programs.
| ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
As previously disclosed in our current report, Credicorp’s Board of Directors in accordance with the proposal of the Audit Committee, approved on February 23, 2023, the appointment of Tanaka, Valdivia y Asociados SCRL, a member firm of Ernst & Young Global (EY), as our independent auditor, to replace Gaveglio, Aparicio y Asociados S.C.R.L., a member firm of PricewaterhouseCoopers International Limited, who acted as our independent auditor for the fiscal years ended from 2015 to 2022.
On September 27, 2022 the Audit Committee agreed to recommend Tanaka, Valdivia y Asociados SCRL as the independent auditor for a period of five years starting on January 1, 2023 and ending on December 31, 2027. The Board of Directors’ continued support of Tanaka, Valdivia y Asociados SCRL as our independent auditor during this term is subject to satisfactory performance by the firm, which will be evaluated at the end of each year during its appointment. The selection process included affiliates of KPMG International Limited, Deloitte, PricewaterhouseCoopers and Ernst & Young LLP (EY).
Gaveglio, Aparicio y Asociados S.C.R.L.’s reports on the financial statements of Credicorp Ltd. and its subsidiaries for the periods ended as of December 31, 2021 and December 31, 2022 (restated due to the initial implementation of IFRS 17) did not contain any adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. Additionally, in connection with the audit of the financial statements of Credicorp Ltd. and its subsidiaries for the periods ended December 31, 2021 and December 31, 2022 (restated due to the initial implementation of IFRS 17), there were no disagreements as defined in Item 16F(a)(1)(iv) of Form 20-F and the related instructions with Gaveglio, Aparicio y Asociados S.C.R.L. on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Gaveglio, Aparicio y Asociados S.C.R.L., would have caused them to make reference in connection with their reports to the subject matter of the disagreements.
There were no reportable events, as defined in Item 16F(a)(1)(v) of Form 20-F, in connection with the Gaveglio, Aparicio y Asociados S.C.R.L. audit of the financial statements of Credicorp Ltd. and its subsidiaries for the fiscal periods ended December 31, 2021 and December 31, 2022 (restated due to the initial implementation of IFRS 17).
We have provided Gaveglio, Aparicio y Asociados S.C.R.L. with a copy of the disclosures made in this Item 16F, and we have requested that Gaveglio, Aparicio y Asociados S.C.R.L. furnish us with a letter addressed to the SEC stating whether it agrees with the above statements. A copy of this letter is included herewith as Exhibit 16.1.
| ITEM 16G. | CORPORATE GOVERNANCE |
| 16 G.A | The 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 exceptions for foreign private issuers like Credicorp, in full to companies listing common equity securities on the exchange. The chart below provides a brief description of the significant differences between our corporate governance practices and those followed by U.S. companies under NYSE listing standards:
| | Section of NYSE Listed Company Manual | | NYSE Corporate Governance Rules for US Domestic Issuers | | | Credicorp Corporate Governance Practices | |
| | 303A.01 | | A majority of the members of the Board of Directors must be “Independent Directors”, as defined by the NYSE. | | | Credicorp is not required under Bermuda law to maintain a Board of Directors with a majority being Independent Directors. As of December 31, 2023, five Directors out of nine are independent. | |
| | 303A.02 | | A Director cannot be “independent” unless the Board of Directors affirmatively determines that the Director has no material relationship with the listed company. In affirmatively determining the independence of any Director who will serve on the compensation committee of the listed company’s Board of Directors, the Board of Directors must consider all factors specifically relevant to determining whether a Director has a relationship with the listed company that is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to: | | | Credicorp has adopted an “independence” standard that is different from the standard established by the NYSE. Credicorp’s independence standard incorporates the SEC’s minimum independence requirements applicable to Directors serving on audit committees. The definition of independence is included in Credicorp’s Corporate Governance Policy. There is no similar requirement under Bermuda law.
Under our definition, a Director shall be deemed to be independent if he/she meets each of the following conditions: | |
| | Section of NYSE Listed Company Manual | | NYSE Corporate Governance Rules for US Domestic Issuers | | | Credicorp Corporate Governance Practices | |
| | | | (i) the source of compensation of such Director, including any consulting, advisory or other compensatory fee paid by the listed company to such Director
(ii) whether such Director is affiliated with the listed company, a subsidiary of the listed company or an affiliate of a subsidiary of the listed company In addition, a Director is not independent if the Director:
(iii) is, or has been within the last three years, an employee of the listed company, or an immediate family member is, or has been within the last three years, an executive officer of the listed company
(iv) has received, or has an immediate family member who has received, during any twelve-month period within the last three years, more than US$120,000 in direct compensation from the listed company, other than Director and committee fees and pension or other forms of deferred compensation for prior service.
(v) (a) is a current partner or employee of a firm that is the listed company’s internal or external auditor; (b) has an immediate family member who is a current partner of such a firm; (c) has an immediate family member who is a current employee of such a firm and personally works on the listed company’s audit; or (d) was, or an immediate family member was, within the last three years a partner or employee of such a firm and personally worked on the listed company’s audit within that time | | | (i) Not being or having been, in the last three years, a Related Director or employee of Credicorp and/or subsidiaries.
(ii) Not being or having been, in the last three years, a Director or employee of a company holding ≥5% interest in Credicorp. This criterion shall not apply to Directors with an independent status in Credicorp and/or subsidiaries.
(iii) Not being a shareholder with >1% interest in Credicorp, not being entitled to exercise voting rights in excess of such percentage nor have preferential voting rights nor have any agreement or agreements allowing such shareholder to exercise the rights to purchase Credicorp shares in excess of such percentage.
(iv) Not being a Director or a member of the Senior Management of a company in which any Related Director or member of the Senior Management of Credicorp is a member of the Board of Directors. Such restriction shall not apply when cross Directorship is with respect to Credicorp subsidiaries.
(v) Not being or having been a member of the Senior Management of a company in which any Related Director or member of the Senior Management of Credicorp is or has been a member of the Compensation Committee (or equivalent) of the Board of Directors in the last three years.
(vi) Not being a shareholder with >5% interest, partner, Director, or member of the Senior Management of a third-party company which makes or has made business or contractual transactions for >1% of the annual revenue of Credicorp or >5% of the third-party company, or >5% of the annual income of the proposed Director in the last three fiscal years. | |
| | Section of NYSE Listed Company Manual | | NYSE Corporate Governance Rules for US Domestic Issuers | | | Credicorp Corporate Governance Practices | |
| | | | (vi) is, or has been with the last three years, employed as an executive officer of another company where any of the listed company’s present executive officers at the same time serves or served on that company’s compensation committee
(vii) is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, the listed company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of US$1 million, or 2% of such other company’s consolidated gross revenues. | | | (vii) Not having received, and any Relatives not having received, from Credicorp and/or subsidiaries any compensation >$120,000 over a period of 12 months during the last three years, excluding Directors’ fees and revenue from investments in financial instruments (bonds, shares, term deposits, among others) of Credicorp and/or subsidiaries.
(viii) Not being or having been an employee or partner of the auditing firm of Credicorp and/or subsidiaries in the last three years.
(ix) Not being a Relative of shareholders with ≥5% interest in Credicorp, or of members of the Board of Directors or the Senior Management of Credicorp.
(x) Not acting as an Independent Director in >5 Boards of Directors of companies entered in the Securities Market Public Registry (RMPV), excluding Boards of Directors of Credicorp and/or subsidiaries.
(xi) Not being or having been an Independent Director for over 10 continuous or alternate years during the last 15 years with Credicorp and/or subsidiaries.
(xii) The Board of Directors shall be entitled to determine the Independence of a Director in situations calling for interpretation or which have not been contemplated in this document.
Definitions Senior Management: is made up of the following roles: | |
| | Section of NYSE Listed Company Manual | | NYSE Corporate Governance Rules for US Domestic Issuers | | | Credicorp Corporate Governance Practices | |
| | | | | | | (i) Executive Chairman
(ii) Chief Executive Officer
(iii) Chief Operating Officer
(iv) Managers in charge of the four Business Units (Universal Banking, Microfinance, Insurance and Retirement, and Investment Management and Advisory)
(v) Managers with the following Corporate Roles:
• Chief Financial Officer • Chief Risk Officer • Chief Corporate Audit Officer • Chief Compliance and Ethics Officer • Head of Legal • Head of Talent Management • Head of Corporate Affairs Related Director: the Credicorp Director who is not considered independent.
Relative: a person having an up to second-degree blood or affinity relation, including common law or similar affective relationships.
Corporate Role: it is the function of corporate scope that implies direct or shared responsibility with the management of the business units. | |
| | 303A.03 | | Non-management Directors of a listed company must meet at regularly scheduled executive sessions without management. | | | Credicorp is not required by Bermuda law to hold regular meetings of the board of Directors at which only independent Directors are present. | |
| | 303A.04 | | Listed companies must have a nominating/corporate governance committee composed entirely of Independent Directors, with a written charter that addresses specific minimum requirements. | | | Credicorp has established a Compensation and Nominations Committee and a Sustainability Committee (former Corporate Governance Committee). The minimum requirements and procedures to be followed by each committee are set forth in Credicorp’s Corporate Governance Policy. Credicorp has adopted a charter for the Sustainability Committee and for the Compensation and Nominations Committee.
Although these committees are not required by law to be composed entirely of independent Directors (as defined by the NYSE), under Credicorp’s current Corporate Governance Policy: | |
| | Section of NYSE Listed Company Manual | | NYSE Corporate Governance Rules for US Domestic Issuers | | | Credicorp Corporate Governance Practices | |
| | | | | | | − the Compensation and Nominations Committee (current name after being known under the name “Compensations Committee” before it merged with the “Nominations Committee” in June 2020) shall consist of no less than three Directors, at least two of them must be independent and one should be a woman. It will be chaired by one of the independent Directors, and
− the Sustainability Committee must be composed of at least three Directors of Credicorp, at least two of whom must be independent (as determined by Credicorp) and one should be a woman. Additionally, the Board of Directors may incorporate as a member one or more Directors of subsidiaries of the Corporation. The chairman of the Board may not be part of the committee. There is no similar requirement under Bermuda law. | |
| | 303A.05 | | Listed companies must have a compensation committee composed entirely of independent Directors, who satisfy the additional independence requirements specific to compensation committee membership set forth in Section 303A.02, with a written charter that addresses specific minimum requirements. | | | Under Bermuda law, compensation of executive officers does not need to be determined by an independent committee. However, Credicorp has established a Compensation and Nominations Committee that reviews and approves the compensation and benefits for Credicorp’s executive officers and other key executives of Credicorp. Credicorp’s Board of Directors has adopted a Compensation and Nominations Committee charter. | |
| | 303A.06 | | Listed companies must have an audit committee that satisfies the requirements of Rule 10A-3 under the Exchange Act. | | | Credicorp has an Audit Committee that satisfies the requirements of Rule 10A-3 under the Exchange Act. There is no similar requirement under Bermuda law. | |
| | 303A.07 | | Listed companies must have an audit committee with at least three members, and all members of the committee must satisfy the “independence” requirements set forth in Section 303A.02 of the NYSE Listed Company Manual (described above). The audit committee must also have a written charter that addresses specific minimum requirements, and listed companies must have an internal audit function. | | | Credicorp has formed an Audit Committee responsible for advising the Board regarding the selection of independent auditors and evaluating Credicorp’s internal controls. Credicorp’s Audit Committee has three members, and the members satisfy the independence requirements of Rule 10A-3 under the Exchange Act as a foreign private issuer. The Committee shall have at least one member who is considered a financial expert. Credicorp’s Board of Directors has adopted an Audit Committee charter. There is no similar requirement under Bermuda law. | |
| | Section of NYSE
Listed Company Manual | | NYSE Corporate Governance Rules for US Domestic Issuers | | | Credicorp Corporate Governance Practices | |
| | 303A.08 | | Shareholders must be given the opportunity to vote on equity-compensation plans and material revisions thereto, with limited exemptions set forth in the NYSE rules. | | | Under Bermuda law, Credicorp is not required to obtain shareholder consent prior to adopting share compensation plans. | |
| | 303A.09 | | Listed companies must adopt and disclose corporate governance guidelines addressing specific minimum requirements: director qualification standards, director responsibilities, director access to management and, as necessary and appropriate, independent advisors, director compensation, director orientation and continuing education, management succession, and annual performance evaluation of the board. Also, listed companies must make the corporate governance guidelines available on or through their website. | | | Credicorp has adopted a set of corporate governance guidelines. Credicorp has policies that regulate the criteria for the selection of directors as well as independence qualification standards, director’s responsibilities and duties, the director’s right to access, as necessary and appropriate, to independent advisors, director orientation and continuing education, management succession, and annual performance evaluation of the board. | |
| | 303A.10 | | Listed companies must adopt and disclose a code of business conduct and ethics for Directors, officers and employees and promptly disclose any waivers of the code for Directors or executive officers. Each code of business conduct and ethics must require that any waiver of the code may be made only by the Board of Directors or a Board committee and must contain compliance standard and procedures to facilitate the effective operation of the code, including action against violations of the code. Each listed company may determine its own policies, but all listed companies should address the following topics: conflicts of interest, corporate opportunities, confidentiality, fair dealing, protection and proper use of listed company assets, compliance with laws, rules and regulations (including insider trading laws), and encouraging the reporting of any illegal or unethical behavior. | | | Credicorp has adopted and published on the Company’s website (https://credicorp.gcs-web.com/) a Code of Ethics for Directors, officers and employees and has adopted a Code of Ethics for professionals with financial responsibility. In accordance with our corporate policies, all Directors, executives, employees and suppliers must comply with the laws, regulations and government requirements applicable to business conducted both in Peru and in other jurisdictions where the Corporation operates, acting with honesty and integrity as described in Credicorp’s Corporate Compliance Manual, Credicorp’s Code of Ethics, Credicorp’s Corporate Ethics and Conduct Policy, the Anti-Money Laundering and Financing of Terrorism Manual, and other internal documents related to compliance. | |
| | Section of NYSE Listed Company Manual | | NYSE Corporate Governance Rules for US Domestic Issuers | | | Credicorp Corporate Governance Practices | |
| | 303A.12 | | Each listed company must submit an executed written affirmation annually to the NYSE. Each listed company CEO must (i) certify to the NYSE each year that he or she is not aware of any violation by the listed company of NYSE corporate governance listing standards, qualifying the certification to the extent necessary and (ii) promptly notify the NYSE in writing after any executive officer of the listed company becomes aware of any non-compliance with any applicable provisions of Section 303A.
In addition, each listed company must submit an interim Written Affirmation as and when required by the interim Written Affirmation form specified by the NYSE. | | | As a NYSE-listed company, Credicorp must submit an executed written affirmation annually to the NYSE, and its CEO must promptly notify the NYSE in writing after any executive officer of Credicorp becomes aware of any non-compliance with any applicable provisions of Section 303A. There is no similar requirement under Bermuda law. | |
| | 303A.14 | | Each listed company must adopt and comply with a written recovery policy providing that it will recover reasonably promptly the amount of erroneously awarded incentive-based compensation in the event that it is required to prepare an accounting restatement due to the material noncompliance with any financial reporting requirement under the securities laws. | | | In accordance with Rule 10D-1 of the Securities Exchange Act of 1934, as amended, and Section 303A.14 of the NYSE Listed Company Manual, the Board of Directors of Credicorp approved a Clawback Policy, which is effective as of December 1, 2023.
Under the Clawback Policy, in the event of an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under the U.S. securities laws, the Company is required to recover from executive officers of the Company and its subsidiaries incentive compensation paid to executive officers in any form that the executive officers would not have been entitled to receive based on the restated amounts. | |
| | Section of NYSE Listed Company Manual | | NYSE Corporate Governance Rules for US Domestic Issuers | | | Credicorp Corporate Governance Practices | |
| | 314.00 | | A company’s audit committee or another independent body of the board of directors, shall conduct a reasonable prior review and oversight of all related party transactions for potential conflicts of interest and will prohibit such a transaction if it determines it to be inconsistent with the interests of the company and its shareholders. | | | Under Bermuda law, Credicorp is not subject to any restrictions on transactions with affiliates, other than such restrictions as are applicable to Bermuda companies generally. Credicorp’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. Credicorp has not engaged in any transactions with related parties except through its subsidiaries.
Transactions between the Credicorp companies and those related to Credicorp that exceed US$1 million must have the approval of the Board of Directors involved or the body to which this Board has delegated the responsibility.
Transactions between Credicorp companies and between Credicorp companies and their employees conducted under the normal course of its operations, at market prices and values, or in substantially similar terms to those with third parties, and that do not imply a higher collectability risk and do not present any additional unfavorable terms for Credicorp, are exempted from this requirement. These transactions are considered pre-approved by Credicorp’s Board of Directors and may be reported to the Sustainability Committee in order to ensure good practices and detect potential conflicts of interest. | |
| 16G.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 statutory requirements with respect to the independence of a Board of 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 of the NYSE’s Listed Company Manual.
(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 (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 applicable to Bermuda companies, the fiduciary duty of Directors has four aspects which may be briefly summarized as follows:
| a) | 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. |
| b) | 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. |
| c) | 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 with respect to 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. |
| d) | 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 which any Director is associated may act for us in a professional capacity. Such Director, firm, partner, or company will be entitled to compensation for professional services as if the Director were not a member of our Board of Directors. However, such Director, firm, partner, or company may not act as our auditor. |
Duty of Skill and Care
Under the common law, applicable to Bermuda companies, the duty of skill and care has three aspects which may be briefly summarized as follows:
| e) | 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. 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. |
| f) | 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. |
| g) | 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., 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 with respect to any negligence, default, breach of duty or breach of trust. 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 with respect to 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 proven, the Director is obligated 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 with respect to which the receipts and expenditures take place, all sales and purchases by the company, and the assets and liabilities of the company.
| 16G.C | Peruvian Law – Corporate Governance |
Although we are a holding company whose principal subsidiaries (Grupo Crédito S.A., BCP Stand-alone, and Grupo Pacífico) are incorporated under and subject to the laws of Peru, initially we were registered in Peru as a foreign issuer and were consequently only subject to Peruvian regulations applicable to foreign issuers. Due to a regulatory amendment enacted in December 2017, now our stock is considered as a valor nacional (or national security), which has resulted in changes to our reporting requirements for the SMV. Currently, there are no corporate governance provisions under Peruvian law applicable to us that are similar to the provisions of Section 303A of the NYSE’s Listed Company Manual.
| ITEM 16H. | MINE SAFETY DISCLOSURE |
Not applicable.
| ITEM 16I. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION |
Not applicable.
Risk Management and Strategy
The effective integration of cybersecurity processes into risk management is a strategic imperative for financial institutions in an increasingly digital and threatening environment. For Credicorp, this integration is not only a matter of regulatory compliance, but also an essential measure to protect assets, reputation and client trust. By proactively addressing cybersecurity challenges, organizations within the group strengthen their resilience and maintain a strong competitive position in the marketplace. Integrating cybersecurity processes into risk management involves a synergy among the identification, assessment, mitigation and monitoring of operational, fraud and cybersecurity risks. This requires a holistic approach that encompasses people, policies, procedures, technologies and a risk management-oriented organizational culture.
We have previously experienced cybersecurity incidents, from time to time. These incidents have not materially affected our business strategy, results of operations or financial condition. We are not currently aware of any cybersecurity incidents that would have a material effect on our business strategy, results of operations or financial condition.
We aim to enable our business strategy by creating a cyber-resilient organization that protects our products and services and honors the trust our customers have given us. Our organization operates under a three-lines-of-defense model. The first line of defense is responsible for managing risks on a daily basis, including designing and implementing controls to mitigate risks. The second line of defense is responsible for developing the strategy, governance, and cybersecurity program, as well as challenging and providing oversight to the first line of defense. The third line of defense operates with independence and evaluates the processes and functions of both the first and second lines of defense.
We have adopted the National Institute of Standards and Technology (NIST) Cybersecurity Framework (CSF) as the basis for our cyber framework and established our cybersecurity program to address evolving threats, dedicating significant resources to implement and maintain processes and controls to manage cybersecurity risk within our appetite. With the use of other frameworks as Cibersecurity Assesment Tool from FFIEC, OWASP Mobile & Application Security Standard, MITRE ATT&CK, among other, we have developed our “Robust Cybersecurity Framework” which is being deployed in our main subsidiaries.
We believe we have implemented robust governance, with clear roles and responsibilities, committees, policies and procedures to ensure appropriate prevention, detection and response to incidents as well as continuous improvement of the program. Cybersecurity risk is overseen by the Board’s Risk Committee. Our Appetite Dashboard (Tablero de Apetito) incorporates a set of cybersecurity risk appetite metrics, which are monitored on a monthly basis. Any deviation from our appetite is reported to the Risk Committee, including action plans to resolve said deviation. In addition, periodic updates regarding our cybersecurity program and any cybersecurity incident or threat are also reported to the Risk Committee, the Audit Committee or the Board, as required. These reports are consolidated by our CISO team, include the contributions of first- and second-line teams from the individual companies as required, and are delivered to the Board and relevant committees by our CISO. By taking a proactive and collaborative approach, and by staying abreast of industry best practices and regulatory requirements, the Board, the Risk Committee and the Audit Committee play a key role in protecting the organization’s assets and reputation in an increasingly challenging cybersecurity environment.
Given the new SEC rules regarding the disclosure of material cybersecurity incidents, our Risk Committee has approved and put in place criteria to determine the materiality of cybersecurity incidents. Such criteria include financial, business continuity, reputational and legal impacts, as well as an additional detailed review by a committee formed by our Chief Financial Officer (CFO), Chief Risk Officer (CRO) and Corporate Legal Counsel.
Governance
In terms of personnel, our Chief Information Security Officer (the “CISO”) is the main leader of the cybersecurity team at the corporate level and the CISO’s responsibilities include defining a comprehensive cybersecurity strategy aligned with the business and regulatory objectives affecting any of Credicorp’s subsidiaries; providing guidance and advice to senior management on cybersecurity, risk and compliance issues; coordinating responses and decision making with respect to major security crises; and acting as a focal point for communication with internal and external stakeholders, including regulators and government agencies to ensure compliance with regulations and other relevant standards, such as the preparation of periodic reports and audits. She has more than 20 years of professional experience in financial services, most of them in technology and information security areas acting as first, second and third line of defense positions in Latin America. Credicorp has a team of more than 500 internal cybersecurity and IT security professionals and also works with external cybersecurity service providers for specific endeavors. They are responsible for protecting technology infrastructure, sensitive data and business operations against cyber threats.
We have established a crisis management structure and a cross-functional crisis management team, with defined protocols for different scenarios and periodic table-top exercises to ensure that an up-to-date and adequate response is readily available for any potential future incident.
In addition, our employees have a role to play in protecting Credicorp from cybersecurity threats and therefore receive periodic mandatory training on cybersecurity-related topics, including phishing exercises.
The hiring of specialized cybersecurity consultants and auditors is part of our risk management strategy and follows a rigorous evaluation process. They work closely with our internal team in different areas of our program, such as executing penetration tests, managing table-top exercises or evaluating our cybersecurity maturity level.
Monitoring and identifying risks related to external providers represent a critical part of our cybersecurity strategy. Given the interconnectedness and reliance on external services, robust mechanisms are implemented to assess and mitigate risks associated with third-party service providers.
| ITEM 17. | FINANCIAL STATEMENTS |
See Item 18.
| 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 Independent Registered Public Accounting Firm |
|
| | |
| Consolidated financial statements |
|
| | |
| Consolidated statements of financial position | F-6
|
| Consolidated statements of income | F-7-F-8
|
| Consolidated statements of comprehensive income | F-9
|
| Consolidated statements of changes in equity | F-10-F-11
|
| Consolidated statements of cash flows | F-12-F-15
|
| Notes to consolidated financial statements | F-16-F-176
|
| Bye-laws of Credicorp Ltd. incorporated herein by reference to Exhibit 1.1 to Credicorp’s Annual Report on Form 20-F dated April 28, 2021 |
| | |
| Memorandum of Association of Credicorp Ltd. incorporated herein by reference to Exhibit 1.2 to Credicorp’s Annual Report on Form 20-F dated May 29, 2020 |
| | |
| Description of Securities incorporated herein by reference to Exhibit 2.1 to Credicorp’s Annual Report on Form 20-F dated April 28, 2021 |
| | |
| 2.2 | Indenture among Credicorp Ltd., as issuer, The Bank of New York Mellon, as Trustee, Paying Agent and Registrar, (undertaking to furnish upon request) |
| | |
| List of Subsidiaries incorporated herein by reference to Exhibit 8 to Credicorp’s Annual Report on Form 20-F dated April 28, 2021 |
| | |
| Certification by the Chief Executive Officer Pursuant to Section 302 of the U.S. Sarbanes-Oxley Act of 2002 |
| | |
| Certification by the Chief Financial Officer Pursuant to Section 302 of the U.S. Sarbanes-Oxley Act of 2002 |
| | |
| Certification by the Chief Executive Officer Pursuant to Section 906 of the U.S. Sarbanes-Oxley Act of 2002 |
| | |
| Certification by the Chief Financial Officer Pursuant to Section 906 of the U.S. Sarbanes-Oxley Act of 2002 |
| | |
| Letter from Gaveglio, Aparicio y Asociados S.C.R.L. to the Securities and Exchange Commission, dated April 18, 2024 |
| | |
| Credicorp LTD. Clawback Policy. Adopted on October 26, 2023 |
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf
CREDICORP LTD.
| By: | /S/ CESAR RIOS |
| Name: | Cesar Rios |
| Tittle: | Chief Financial Officer |
Dated: April 24, 2024
