-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BQtaBnJyAsxxRaSCDdZsdLyUxFEocAB0WAOct0vcz41X93IcsqE7P/d9o1ZHx10i 2oFCyDp7BtrBcZMCa67wVg== 0001144204-08-027365.txt : 20080509 0001144204-08-027365.hdr.sgml : 20080509 20080509164043 ACCESSION NUMBER: 0001144204-08-027365 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 20080507 FILED AS OF DATE: 20080509 DATE AS OF CHANGE: 20080509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CREDICORP LTD CENTRAL INDEX KEY: 0001001290 STANDARD INDUSTRIAL CLASSIFICATION: COMMERCIAL BANKS, NEC [6029] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14014 FILM NUMBER: 08818990 BUSINESS ADDRESS: STREET 1: CALLE CENTENARIO N 158 LA MOLINA, 3RD FL STREET 2: DIV FINANZAS, INVESTOR RELATIONS AREA CITY: LIMA 12 PERU STATE: R5 ZIP: 00000 BUSINESS PHONE: 5113135140 MAIL ADDRESS: STREET 1: CALLE CENTENARIO N 158 LA MOLINA, 3RD FL STREET 2: DIV FINANZAS, INVESTOR RELATIONS AREA CITY: LIMA 12 PERU STATE: R5 ZIP: 999999999 6-K 1 v112987_6-k.htm

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 6-K
 
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
 
For the month of May 2008
 


CREDICORP LTD.
(Exact name of registrant as specified in its charter)
 
Clarendon House
Church Street
Hamilton HM 11 Bermuda
(Address of principal executive office)
 
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.  
 
Form 20-F x  Form 40-F o
 
 Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. 
 
Yes o  No x
 

 
       
  
       
 
CREDICORP Ltd. Reports First Quarter 2008 Earnings
 
Lima, Peru, May 7, 2008 - Credicorp (NYSE:BAP) announced today its unaudited results for the first quarter of 2008. These results are reported on a consolidated basis in accordance with IFRS in nominal U.S. Dollars.
 
HIGHLIGHTS
 
  
·
  
Following a period of strong currency volatility and BCR intervention, Credicorp reported an extraordinary increase of its net income of 89% QoQ and 125% YoY, totaling unprecedented net earnings for the quarter of US$ 178 million.
 
·
 
Such unexpectedly high income includes a significant currency translation gain of US$ 68.7 million which resulted from the accelerated appreciation of the local currency vs. the US Dollar during this 1Q08 combined with a controlled management of Credicorp’s Soles/Dollar positions geared to take advantage of such currency volatility.
 
·
 
Even excluding such translation gain, Credicorp’s results show 43% QoQ earnings growth to US$ 109 million, reflecting the continuing strong growth and income generation of Credicorp’s core businesses.
 
·
 
Loan growth reported by its banking business continued strong, though somewhat inflated by the revaluation of its Soles denominated loans (32% of the loan book), revealing an 8.1% QoQ loan portfolio growth.
 
·
 
Interest income followed this trend with a robust 9.9% QoQ growth.
 
·
 
NIM however, drops slightly from 5.2% to 5.1% and reflects herewith a continued stronger growth of our corporate -thus tighter in margins- dollar loan portfolio on the back of strong investment activity; higher funding costs after the BCR’s intervention to control inflation and currency volatility; and a significantly increased investment portfolio which is very attractive given the tax advantages it generates, but contributes only with tighter nominal margins to NIM calculation.
 
·
 
Non financial income grows a strong 24.6% QoQ, though it includes also a significant extraordinary income from the sale of the group’s VISA shares of close to US$ 13 million on an after tax basis. Still, fee income grows a robust 12.4% QoQ and 34% YoY, revealing the increasing transactional income generation.
 
·
 
Loan portfolio quality continues strong, reaching a PDL/Loans ratio of only 0.8%. Net provisioning increased however 62.7% QoQ to US$ 16.1 million as a result of a change towards a more conservative provisioning policy for our retail portfolio.
 
·
 
BCP’s consolidated numbers reflect a very healthy and dynamic banking environment with core revenues up 7.3% QoQ and 37.8% for the year. Such improved income combined with less than projected operating expenses and the important positive translation effect mentioned above, led to a completely extraordinary 92.3% QoQ higher net income for BCP for 1Q08 which reached US$ 165.8 million, and translates into a contribution to Credicorp of US$ 161.4 million for this 1Q08.
 
·
 
BCP Bolivia, which is consolidated in BCP, continues its consistent growth and reports a contribution 4% higher QoQ and 118% higher YoY, reaching US$ 10.5 million for 1Q08.
 
·
 
ASHC remains a stable and growing business in line with the increasing wealth in the country and reports a contribution improvement of 14% QoQ at US$ 5.7 million.
 
·
 
PPS, though still troubled by its property and casualty business, reports this quarter recovered contribution to Credicorp of US$ 2.34 million, helped by its financial management which generated also an important translation gain.
 
·
 
Finally, Prima AFP reports a significantly higher contribution of US$ 9 million following expected improved business results, but also an extraordinary income from the treatment of deferred tax liabilities which led to the recognition of US$ 2.3 million earnings from previous periods in this 1Q08.
 
 
 
     
 
 
 
 
 

 
  
 

 I. Credicorp Ltd.

Overview

Following a period of strong currency volatility (8.41% revaluation of the Sol) and BCR intervention (interest rate and reserve requirement changes), Credicorp reported an extraordinary increase of its net income of 89% QoQ and 125% YoY, totaling unprecedented net earnings for the quarter of US$ 178 million, and resulting in an improved ROAE of 40% for the quarter.

Such unexpectedly high income includes a significant currency translation gain of US$ 68.7 million which resulted from the accelerated appreciation of the local currency vs. the US Dollar during this 1Q08. Such currency fluctuation generated a gain through the impact on the net Soles position on our books (i.e. appreciation of the Soles loan book which represents 32% of the portfolio, and investment portfolio vs. soles denominated liabilities). However, a significant portion of such gain was also generated by the management of such positions at BCP and the different subsidiaries, where our US Dollar position was intentionally diminished in light of the US Dollar devaluation expectations, generating additional translation gains in our IFRS US Dollar accounting. Thus, significantly different results were reported in local currency accounting, where the devaluation of the dollar generated a loss instead. In both cases, the calculated management of the currency position either increased gains or minimized losses. Nevertheless, we should keep in mind the volatile source and nature of these gains, which can be equally reverted with changing market conditions given such a highly volatile moment.

Thus, when excluding such translation gain, Credicorp’s results show 43% QoQ earnings growth, with earnings after minorities for the quarter of US$ 109.3 million, a number closer to our optimistic projections, and thus reflecting the continuing strong growth and income generation of Credicorp’s businesses. However, such 1Q08 income also includes an additional one-off gain generated by the VISA shares IPO which resulted in a bottom line after tax addition of around US$ 13 million.

Aside from these one-off’s, Credicorp’s core banking business reported a strong performance, with total loan growth this last quarter reaching 8.1% QoQ. Though slightly overstated by the revaluation of the Soles loan portfolio, loan growth was fueled, not only by the already expected strong retail segment, but also a continuing strong investment activity which led to high quarterly growth of the corporate US Dollar loan book.



 
Credicorp Ltd.
 
Quarter
 
Change %
 
US$ thousands
 
1Q08
 
4Q07
 
1Q07
 
1Q08/1Q07
 
1Q08/4Q07
 
Net interest income
   
192,090
   
174,756
   
138,859
   
38.3
%
 
9.9
%
Total provisions, net of recoveries
   
(16,148
)
 
(9,926
)
 
(4,418
)
 
265.5
%
 
62.7
%
Non financial income
   
152,048
   
122,043
   
111,194
   
36.7
%
 
24.6
%
Insurance premiums and claims
   
12,298
   
12,222
   
17,363
   
-29.2
%
 
0.6
%
Operating expenses
   
(185,532
)
 
(193,327
)
 
(149,810
)
 
23.8
%
 
-4.0
%
Net income before working profit sharing & IT
   
154,757
   
105,768
   
113,188
   
36.7
%
 
46.3
%
Worker's profit sharing and income taxes
   
(38,726
)
 
(24,606
)
 
(27,924
)
 
38.7
%
 
57.4
%
Net income before minority interest &translation result
   
116,031
   
81,163
   
85,264
   
36.1
%
 
43.0
%
Minority interest
   
(6,728
)
 
(4,590
)
 
(7,897
)
 
-14.8
%
 
46.6
%
Net income before translation result
   
109,303
   
76,573
   
77,368
   
41.3
%
 
42.7
%
Translation results
   
68,695
   
17,442
   
1,645
   
4075.4
%
 
293.8
%
Net income attributed to Credicorp
   
177,998
   
94,016
   
79,013
   
125.3
%
 
89.3
%
Net income/share (US$)
   
2.23
   
1.18
   
0.99
   
125.3
%
 
89.3
%
Total loans
   
8,919,841
   
8,250,819
   
6,239,870
   
42.9
%
 
8.1
%
Deposits and Obligations
   
12,929,288
   
11,401,275
   
9,336,519
   
38.5
%
 
13.4
%
Net Shareholders' Equity
   
1,850,680
   
1,676,009
   
1,420,716
   
30.3
%
 
10.4
%
Net interest margin
   
5.1
%
 
5.2
%
 
5.2
%
       
Efficiency ratio
   
40.2
%
 
46.2
%
 
42.5
%
       
Return on average shareholders' equity
   
40.4
%
 
22.9
%
 
23.5
%
       
PDL/Total loans
   
0.8
%
 
0.7
%
 
1.2
%
       
Coverage ratio of PDLs
   
310.0
%
 
343.7
%
 
251.4
%
       
Employees
   
17,348
   
16,160
   
14,757
             

NII followed this robust loan growth and reached 9.9% QoQ despite the persistent competition and pressure on rates.

Net interest margin however, drops slightly from 5.2% to 5.1% and reflects herewith (1) a continued stronger growth of our corporate -thus tighter in margins- dollar loan portfolio on the back of strong investment activity, (2) higher funding costs after the BCR’s intervention to control inflation and currency volatility, and (3) a significantly increased investment portfolio of BCR CD’s which became very attractive given their tax advantages, but contributed only tighter nominal margins to this calculation. These developments had an impact not only on our loan book mix, but on our interest earning assets mix, which have developed differently than projected but according to the market opportunities, leading to the extraordinary earnings results reported.
 
Non Financial income reported 24.6% QoQ growth. However, this number includes the above mentioned significant gain in the sale of Credicorp’s VISA shares (within the Visa IPO) of about US$ 18 million before tax. Nevertheless, a strong fee income growth of 12.4% QoQ reveals further increases in bank transactional activity and fee expansion at the pension fund business.

Though the insurance business reports a good quarterly net premiums growth of 9%, claims in the property and casualty sector remain high this quarter due to the “El Niño” weather phenomenon, which though mild, is however affecting the northern areas of the country with torrential rains. Thus, operating income remained flat and was mainly generated by the more profitable life and health insurance businesses. Furthermore, a timely financial management of its currency positions also contributed some additional currency translation gains helping the overall bottom line and contribution to Credicorp.

On the cost side, total operating costs were down by 4% QoQ resulting in an improved efficiency ratio of 40.2% vs. 46.2% the previous quarter, contrary to expectations. Such development is a reflection of the seasonality in costs, since in 4Q07 these had a significant year-end related increase and thus set a high comparison base for this quarter. Furthermore, projected expense levels for this quarter were not reached due to an expansion process which is not as linear as were projections; and despite the negative (inflating) effect of Soles denominated costs in our US Dollar accounting following the significant revaluation of the Sol. Thus, the YoY growth of 23.8% appears moderate in light of the expansion being experienced by the loan book and income sides of the equation. Having said this, we would like to point out that the expansion plans do continue full speed ahead and are a core part of Credicorp’s business strategy.
 
2


Another positive development is the continuing strength of portfolio quality, which remains healthy with a PDL/Loans ratio of only 0.8% this 1Q08. Total provisions net of recoveries of US$ 16.1 million (up 62.7%) however, reveal an increase in provisions at BCP in line with loan growth and with a more conservative provisioning policy for our retail portfolio, increasing the internal minimum provisioning requirements in line with a more sophisticated risk assessment methodology. This decision was taken based on a conservative prudent approach and does not follow any deterioration of portfolio quality indicators, which to date remain very healthy.

These developments resulted in improved ratios for the quarter, with ROAE climbing to 40.4% from 22.9% the previous quarter.

Credicorp - the Sum of its Parts

Going through a period of significant volatility can impact results in many different ways. Therefore, we are very pleased to have managed the strong currency volatility of the 1Q08 in favor of Credicorp’s results. It took a series of timely financial decisions regarding our currency positions and investments in the different subsidiaries that led to the strong financial gains related to the currency translation. However, these are the result of the high currency and interest rates volatility and can quickly change according to market conditions.

In fact, BCP reported extraordinarily high income contribution this 1Q08 of US$ 161.4 million, which included an approximate US$ 57 million translation gain, though revealing at the same time significant core business expansion even excluding such translation income and other one-off contributions, confirming this way its expanding earnings generation capacity.
Such income reflected an obviously one time high 57% ROAE for the quarter.
 
(US$ Thousands)
 
1Q08
 
4Q07
 
1Q07
 
1Q08/1Q07
 
1Q08/4Q07
 
1Q08
 
1Q07
 
1Q08/1Q07
 
Banco de Crédito BCP(1)
   
161,353
   
83,869
   
70,649
   
128
%
 
92
%
 
161,353
   
70,649
   
128
%
BCB
   
10,476
   
10,065
   
4,804
   
118
%
 
4
%
 
10,476
   
4,804
   
118
%
Atlantic
   
5,673
   
4,988
   
4,969
   
14
%
 
14
%
 
5,673
   
4,969
   
14
%
PPS
   
2,342
   
645
   
6,616
   
-65
%
 
263
%
 
2,342
   
6,616
   
-65
%
Grupo Crédito (2)
   
9,807
   
3,242
   
1,202
   
716
%
 
202
%
 
9,807
   
1,202
   
716
%
Prima
   
9,015
   
2,307
   
178
   
4972
%
 
291
%
 
9,015
   
178
   
4972
%
Others
   
792
   
935
   
1,024
   
-23
%
 
-15
%
 
792
   
1,024
   
-23
%
Credicorp and Others (3)
   
(1,178
)
 
1,272
   
(4,422
)
 
-73
%
 
-193
%
 
(1,178
)
 
(4,422
)
 
-73
%
Credicorp Ltd.
   
(1,724
)
 
787
   
(4,678
)
 
-63
%
 
-319
%
 
(1,724
)
 
(4,678
)
 
-63
%
Otras
   
546
   
485
   
256
   
1.13
   
13
%
 
546
   
256
   
113
%
Net income attributable to Credicorp
   
177,998
   
94,016
   
79,013
   
125
%
 
89
%
 
177,998
   
79,013
   
125
%
 
(1) Includes Banco de Crédito de Bolivia.
(2) Includes Grupo Crédito, Servicorp and Prima AFP
(3) Includes taxes on BCP's and PPS's dividends, and other expenses at the holding company level.

BCP Bolivia, which is consolidated within BCP, reported a contribution of US$ 10.5 million for 1Q08, maintaining its high level despite a significant stagnation of investment activity in the country, which will eventually generate a notorious slowdown.
 
3


ASHC reports a contribution improvement of 14% QoQ reaching US$ 5.7 million for the 1Q08. ASHC’s business is constantly expanding as a result also of the increasing wealth generation in the country, and represents a stable, no-risk investment, for which its ROEA of 16.2% is more than satisfactory.

As explained before, though the insurance business reports a good quarterly net premiums growth of 9%, claims in the property and casualty sector remain high this quarter due to the mild Niño affecting the northern areas of the country with torrential rains. Thus, with the Life and Health businesses doing very well and offering good returns, turning the P&C business into a profitable operation continues being PPS’s main focus, though it is proving to be troublesome. Following this objective, significant efforts are being made to develop the more massive and better predictable retail business and limit exposure to the wholesale insurance P&C business, as well as to improve the financial investment management to achieve better returns overall. This process will take more time than expected. Nevertheless, such positive financial management results which benefited also from translation gains, contributed to improve PPS’s bottom line results despite the casualties of the P&C sector, leading to a US$ 2.34 million contribution to Credicorp, which represented a ROAE of about 11.2%.

Finally, Prima’s business results were better than expected with total quarterly earnings of US$ 9 million. This improved results followed a change in treatments of deferred tax liabilities which had been generating overstated deferred liabilities and consequently understated income, leading to US$ 2.3 million income recognition from periods prior to December 2007, in this 1Q08. Thus, this totally unexpected high earnings contribution to Credicorp represented a ROAE of over 27%, which is certainly not sustainable at such high level given the one-off income recognition from previous periods. Nevertheless, Prima’s business results are better than expected following the cost reduction efforts of last year and business plan. Prima has established a dominant position in the market, capturing important market shares (31.4% of AuM, 33.7% of collections and 47.2% of voluntary contributions to the funds).

II. Banco de Crédito - BCP Consolidated

Overview 1Q08

The earnings evolution seen at Credicorp stems mainly from BCP’s performance which reveals extraordinary and historically unprecedented net earnings for the 1Q08 of US$ 165.8 million. This earnings number includes US$ 57 million of translation gains which resulted, as explained before when discussing Credicorp, from the high currency volatility and careful management of BCP’s US Dollar/Soles positions when reporting under IFRS US Dollar accounting. It is therefore important to keep the volatile source and nature of this income in mind. Excluding this extraordinary income, net earnings for 1Q08 was US$ 108.5 million, still a very strong 53% earnings growth QoQ.

Another boost to BCP earnings results for the quarter was the sale of Visa Inc. shares, which generated additional pre-tax extraordinary income of US$ 17.8 million on a consolidated basis with BCP Bolivia.

4

 
Core Earnings
 
Core Revenues
 
Quarter
 
Change
 
US$ 000
 
1Q08
 
4Q07
 
1Q07
 
1Q08/1Q07
 
1Q08/4Q07
 
Net interest and dividend income
   
172,611
   
155,565
   
123,289
   
40.0
%
 
11.0
%
Fee income, net
   
79,747
   
76,708
   
62,470
   
27.7
%
 
4.0
%
Net gain on foreign exchange transactions
   
19,971
   
21,497
   
11,937
   
67.3
%
 
-7.1
%
Core Revenues
   
272,329
   
253,770
   
197,696
   
37.8
%
 
7.3
%

Nevertheless, BCP’s business performance, excluding such significant extraordinary and non recurrent income remains as strong as in the previous quarters. In fact, net interest income increased 11% QoQ following a robust loan book growth of 7.5% when looking at quarter end book balances. Fee income also followed the trend of previous quarters showing a 4% quarterly growth, compensating a drop in FX-transaction and resulting in Core Earnings growth of 7.3%. While on the cost side, operating costs dropped 8.9% despite the inflating effect of our Soles costs due to the revaluation in US Dollar accounting for two reasons: (1) the seasonality reflected by the year-end related expense hike of the last 4Q07 which set a high comparison base, and (2) the evolution of BCP’s expansion costs, which are in reality not as linear as projections. Furthermore, such strong income generation also allowed for 53% higher provisions as our provisioning policy was revised and higher provisioning levels set for our growing retail business.

Looking at total loan growth measured by the average daily balances for the quarter (and including the effect of the local currency revaluation which inflates US Dollar results slightly for our local currency book which amounts to 32% of our portfolio) reached a strong 9.8% QoQ growth. But even excluding the revaluation effect, such growth would still be strong at about 8% for the quarter. Contrary to expectations, however, the strongest growing sector contributing to such high 9.8% quarterly loan growth was again this 1Q08 the corporate business fueled by the impressively strong longer term investment activity. Such corporate business reported a 12.2% QoQ loan growth in average balances (approx. 10.5% clean of the revaluation effect), while the retail sector, our typically most dynamic sector reached 11.1% QoQ growth (or 8.5% clean of revaluation effect), with SME, consumer and credit card loans maintaining their strong growth in that order.
 
But net interest income growth was a result not only of such loan portfolio evolution, but also a very strong increase in the volume of BCP’s investment portfolio, which was up by 45.9% QoQ. Such growth was to an important extent a result of the revaluation in our US Dollar reporting of our mainly Soles denominated investment portfolio, though aslo fueled by the strong inflow of US Dollar into the system lured by the large speculative earnings opportunities offered by investments in Soles through the revaluation of the Soles and interest rate differentials generated by the BCR’s monetary policy. The soles liquidity generated this way in the local financial system was again captured by BCR CD’s, resulting in very attractive investment for financial institutions given their tax shelter. This evolution and revaluation generated a recomposition of our interest earning assets with investment with lower nominal returns (though higher real returns through tax advantages) reporting a greater expansion than our loan portfolio. This impacted our net interest margin (NIM), as did as well our stronger growth of our corporate and less profitable portfolio vis-à-vis our retail book. The result was a contraction of NIM from 5.2% in 4Q07 to 5.1% in 1Q08. Furthermore, the evolution of the funding side contributed to the contraction in NIM, since interest rates on deposits in general increased and the higher reserve requirements and lower remuneration of these impacted our funding cost.

Though slightly higher as of the end of the 1Q08, PDL/ total loans continues at an extremely healthy level of 0.79%, showing no identifiable real signs of any deterioration. Coverage remains strong at 313.2% (though down from 351%).
 
5

 
Banco de Crédito and Subsidiaries
 
Quarter 
 
Change 
 
US$ 000
 
1Q08
 
4Q07
 
1Q07
 
1Q08/1Q07
 
1Q08/4Q07
 
Net Financial income
   
172,611
   
155,565
   
123,289
   
40.0
%
 
11.0
%
Total provisions, net of recoveries
   
(16,951
)
 
(11,089
)
 
(5,859
)
 
189.3
%
 
52.9
%
Non financial income
   
124,563
   
103,458
   
86,255
   
44.4
%
 
20.4
%
Operating expenses
   
(138,335
)
 
(151,867
)
 
(108,218
)
 
27.8
%
 
-8.9
%
Net income before Workers' profit sharing and IT
   
141,888
   
96,068
   
95,467
   
48.6
%
 
47.7
%
Worker's profit sharing and income taxes
   
(33,365
)
 
(25,123
)
 
(24,121
)
 
38.3
%
 
32.8
%
Net income before translation result
   
108,523
   
70,945
   
71,346
   
52.1
%
 
53.0
%
Tranlation results
   
57,249
   
15,253
   
1,310
   
4270.2
%
 
275.3
%
Net income
   
165,773
   
86,198
   
72,657
   
128.2
%
 
92.3
%
Net income/ share (US$)
   
0.129
   
0.067
   
0.057
   
128.1
%
 
92.4
%
Total loans
   
8,837,689
   
8,224,613
   
6,182,300
   
43.0
%
 
7.5
%
Deposits and obligations
   
12,938,927
   
11,249,104
   
8,842,654
   
46.3
%
 
15.0
%
Shareholders equity
   
1,195,587
   
1,132,564
   
881,485
   
35.6
%
 
5.6
%
Net financial margin
   
5.1
%
 
5.2
%
 
5.2
%
       
Efficiency ratio
   
47.5
%
 
56.9
%
 
49.8
%
       
Return on average equity
   
57.0
%
 
31.7
%
 
31.5
%
       
PDL/ Total loans
   
0.8
%
 
0.7
%
 
1.2
%
       
Coverage ratio of PDLs
   
313.2
%
 
351.8
%
 
252.1
%
       
Branches
   
277
   
273
   
245
         
ATMs
   
778
   
748
   
691
         
Employees
   
13,540
   
12,667
   
10,934
           

Net provisions increased 53% to US$ 16.9 million in 1Q08. This is the result of higher gross provisions due to a more conservative provisioning policy implemented this year, increasing the provision requirements for the retail business. Thus, gross provisions reached US$ 25.9 million, while recoveries were still strong at US$ 8.9 million. The latter includes the recoveries related to a very old problem loan which was finally settled.

The 4.0% fee income growth stems from higher account maintenance fees, transactional fees, credit card fees and operational charges. Though higher fee income was reported, a drop in the average number of monthly transactions from 33.3 million to 32.3 million QoQ is explained by the seasonal all-year high recorded every 4Q of the year due to the holiday season.

FX-transactions gains were 7.1% lower QoQ, mainly because of the high transactional level of the year end in 2007 which set a high base of comparison and despite the currency fluctuation this 1Q08.

Gains on the sale of securities, on the other hand, reported a jump from US$2.7 million in 4Q07 to US$22.7 million. The Visa Inc. IPO explains completely this jump since it resulted in gains for BCP and BCP Bolivia, which reached US$17.9 million.

On the cost side, operating costs dropped 8.9% despite the inflating effect of our Soles denominated costs due to the revaluation in US Dollar accounting for two reasons: (1) the seasonality reflected by the year-end related expense hike of the last 4Q07 which set a high comparison base, and (2) the evolution of BCP’s expansion costs, which are in reality not as linear as projections. Thus, personnel costs and administrative costs dropped 6.1% and 18.1% respectively in the 1Q08, despite, as said before, the revaluation effect of the soles denominated costs.
 
Finally, as indicated at the beginning, translation results were significantly higher this quarter given the strong revaluation of the Nuevo Sol vis-a-vis the US Dollar which went from S/.2.996 in December 2007 to S/.2.744 by the end of March 2008, i.e. a devaluation of the US Dollar of 8.41%. Furthermore, such devaluation expectations fueled by the monetary policy of the BCR which increased the Soles interest rates and the speculative trade opportunities generated by this evolution, which also attracted significant foreign capital, led to a change in BCP’s decisions related to its US Dollar / Soles positions. Thus, BCP intentionally reduced its US Dollar position significantly, generating an even large gain in US Dollar NIIF accounting.
 
Month
 
US$ Averag. net asset position
 
Nuevos Soles Averag. net asset
 
Exchange rate
 
Monthly devaluation
 
Calculated translation
 
Translation registered on P&L
 
Jan-08
   
245,207
   
529,751
   
2.934
   
-2.1
%
 
11,194
   
8,145
 
Feb-08
   
187,982
   
625,179
   
2.886
   
-1.6
%
 
10,398
   
11,055
 
Mar-08
   
137,347
   
725,057
   
2.744
   
-4.9
%
 
37,521
   
38,049
 
           
Translation 1Q08  
 
59,114
   
57,249
 

As a consequence of all the above, quarterly ratios for BCP are extremely good at: 47.5% efficiency ratio explained by the lower operating costs reported while income increased, 0.8% PDL/Total loans reflecting excellent portfolio quality with a 313.2% coverage ratio, and an unusual ROAE of 57.0% which includes the translation gains.
6


II.1 Interest Earning Assets

Market evolution leads to a change in interest earning assets mix with BCP’s investment portfolio driving growth.
 
Interest Earning Assets
 
Quarter
 
Change
 
US$ 000
 
1Q08
 
4Q07
 
1Q07
 
1Q08/1Q07
 
1Q08/4Q07
 
BCRP and Other Banks
   
2,077,660
   
2,255,572
   
1,828,663
   
13.6
%
 
-7.9
%
Interbank funds
   
1,469
   
5,000
   
4,542
   
-67.7
%
 
-70.6
%
Trading Securities
   
38,538
   
102,316
   
54,505
   
-29.3
%
 
-62.3
%
Available For Sale Securities
   
3,449,781
   
2,364,084
   
1,641,157
   
110.2
%
 
45.9
%
Current Loans, net
   
8,767,674
   
8,164,334
   
6,109,064
   
43.5
%
 
7.4
%
Total interest earning assets
   
14,335,123
   
12,891,306
   
9,637,930
   
48.7
%
 
11.2
%
 
Growth of IEA this first quarter of 2008 reflects an unexpected market evolution resulting from the combination of the BCR monetary policy to control inflation through an increase of the Soles reference rates, the weakness of the US Dollar, the speculative strong inflow of funds into the Peruvian financial system to benefit from such market opportunity and the intervention of the Central Bank in the FX market to control the fall of the US Dollar exchange rate. The result of these forces result in large soles deposits in the system which excess after loan growth was channeled to CB CD’s which provide a very attractive after tax yield (given their tax shelter). Thus, BCP experienced a strong asset expansion of 11.2% as a result of this evolution, but also to a large extent as a result of the revaluation in US Dollar reporting of its already large Soles denominated investment portfolio. Thus, the significant increase of its investment portfolio of over US$1.1 billion, while its net loan growth for the quarter reached about US$600 million resulted in a charge of its interest earnings asset mix.
 
 
Loan Portfolio

Loan portfolio continues its expanding trend reaching total net loans of US$ 8,768 million as of the end of the March 2008, revealing a 7.4% QoQ and 43.5% YoY growth. Measured by average daily balances for each quarter, which give a better reflection of reality, similar growth rates are reported reaching 9.8% QoQ and 45.2% YoY. This growth numbers, however, do conceal the revaluation impact on the local currency portfolio, which represents a significant 32% of total loan portfolio. We have calculated an approximate “clean” growth number to estimate the potential distortion generated by such currency fluctuations and reached an approximate 8% QoQ growth of average daily balances for the total portfolio, still a robust quarterly growth.

What is however an unexpected evolution, is the continuation of a very strong investment activity in the corporate market which has turned this sector in the fastest growing for the second consecutive quarter, reaching 12.2% QoQ growth (measuring average balances). The growth within the corporate sector reveals some interesting features: US Dollar loans grew stronger than Soles denominated loans which actually stagnated during this first quarter, a relatively logical evolution given the currency and interest rates development. Further, longer term loans grew significantly more than short term loans, giving again a clear indication of the investment activity in the back of this growth. Though this is certainly good news, given the large volumes involved (US$ 3.2 billion portfolio) in the corporate sector, it impacts our loan mix contrary to our expectations and designed strategy to grow the retail segment more, and thus our strategy to protect our NIM. On the other hand, we are certainly reinforcing our dominant position in this market which allows BCP to capture and/or participate in almost every important investment and has resulted in a further consolidation of its market dominance despite the presence of aggressive international players.

7


 

 
The Middle Market portfolio (US$ 1,8 billion), though last in the growth ranking after the corporate and retail sectors, still reached good quarterly growth numbers at 7.1% QoQ growth.
 

Though the corporate sector outperformed all other again this 1Q08, the retail sector continues being the strong performer on a consistent way. Thus, its portfolio reached US$ 3.1 billion in average monthly balances, reporting consistently outstanding quarterly growth of 11.1% this quarter vs. 12.9% the previous quarter. Star performers within the retail segment continue being Consumer loans and SME lending, which reported 14.4% and 14.2% QoQ growth respectively, while Credit Card loans increased by 11.9% QoQ. Mortgages reported the lowest growth rates within the retail segment, but were still extremely good at 7% QoQ growth.
 
8

 
 
 
Given the distortion generated by the currency fluctuations and the fact that BCP’s loan portfolio is in both currencies but reported in US Dollars, it is helpful to look at the evolution of the different loan portfolios by currency to see the real growth in each portfolio. The following chart intends to shed some light over such loan growth analysis…
 
   
Domestic Currency Loans
 
Foreign Currency Loans
 
   
(Nuevos Soles million)
 
(US$ million)
 
   
1Q07
 
4Q07
 
1Q08
 
YoY
 
QoQ
 
1Q07
 
4Q07
 
1Q08
 
YoY
 
QoQ
 
Corporate
   
2,059.2
   
2,506.5
   
2,783.7
   
35.2
%
 
11.1
%
 
1,383.4
   
2,002.7
   
2,208.8
   
59.7
%
 
10.3
%
Middle Market
   
694.4
   
861.4
   
946.6
   
36.3
%
 
9.9
%
 
1,158.4
   
1,439.5
   
1,518.1
   
31.0
%
 
5.5
%
Retail
   
2,218.7
   
3,555.6
   
4,015.6
   
81.0
%
 
12.9
%
 
1,310.3
   
1,610.6
   
1,697.7
   
29.6
%
 
5.4
%
SME
   
935.0
   
1,270.9
   
1,393.8
   
49.1
%
 
9.7
%
 
304.9
   
476.7
   
539.2
   
76.9
%
 
13.1
%
Mortgages
   
320.5
   
735.5
   
891.9
   
178.3
%
 
21.3
%
 
792.7
   
866.5
   
876.7
   
10.6
%
 
1.2
%
Consumer
   
310.4
   
722.3
   
836.7
   
169.5
%
 
15.8
%
 
169.9
   
212.6
   
225.1
   
32.5
%
 
5.9
%
Credit Cards
   
652.8
   
826.9
   
893.3
   
36.8
%
 
8.0
%
 
42.8
   
54.8
   
56.8
   
32.8
%
 
3.7
%
                                                                                            
Consolidated total
   
4,993.0
   
6,950.2
   
7,764.2
   
55.5
%
 
11.7
%
 
4,441.9
   
5,625.5
   
5,997.1
   
35.0
%
 
6.6
%
 
* Includes work out unit, other banking and BCP Bolivia
*Average daily balances for the quarter

… revealing the following:
 
·
The corporate sector grows a strong 10.3% its USD portfolio which represents 60% of its total portfolio. The reported 11.1% growth of its Soles portfolio hides minimal growth in the 1Q08, and a very strong growth of its Soles portfolio within the 4Q07, which when comparing averages led to such number.
·
The middle market segment, which has 82% of its portfolio in USD, reports a moderate 5.5% growth of its loan book, which is in line with projections.
·
The retail segment in turn, has half its portfolio in each currency and shows a stronger growth in its Soles loan book of 12.9%, while its USD loan book grows at a more moderate 5.4%.

9


Market Share

BCP’s market share continues leading the market despite the strong competition, characterized by the incursion of new foreign players and the already stronghold position it has. Thus, BCP’s market share of loans placed reached 31.9% as of March 2008, showing a slight decrease in comparison to December 2007 (32.2%). However, there was an increase of 0.4 percentage points in comparison to the second best competitor.

Furthermore, market shares for the corporate and middle market sectors continue revealing BCP’s solid positioning, reaching 48% and 35%, respectively, as of February 2008. These reflect a minor growth in the corporate market and a stable position in the middle market compared to the previous quarter.

Market shares in the retail market had mixed results during this quarter. Consumer loans were down by 0.2% reaching 17.1%, while Credit Cards and SME decreased 0.2% pps and 0.3% pps, respectively, reaching 18.7% and 18.5%. However, mortgages increased 0.4% pps to 40.1% consolidating its strong position.

Dollarization

The de-dollarization process of BCP’s assets this 1Q08 continued with respect to the previous quarter. Thus, in 1Q08 Nuevos Soles conformed 32.5% of total loan portfolio, which represent a slight increase of 0.5% with respect to 4Q07. In addition, the system continues experiencing further de-dollarization of its loans and deposits, reaching a high 41% of loans in Nuevos Soles and 59% in US Dollar as of March 2008. The de-dollarization process is more intense in deposits specially because the local currency appreciation during this quarter. Thus, the share of deposits in nuevos soles was 51% (vs. 39% for Mar. 2007).
 
II.2 Deposits and Mutual Funds

Deposits grew 15% QoQ and 46% YoY, remaining as main funding source to support the strong loan growth
 
Deposits and Obligations
 
Quarter ended
 
Change
 
US$ (000)
 
1Q08
 
4Q07
 
1Q07
 
1Q08/1Q07
 
1Q08/4Q07
 
Non-interest bearing deposits
   
2,965,756
   
2,729,860
   
2,194,439
   
35.1
%
 
8.6
%
Demand deposits
   
761,123
   
926,817
   
604,445
   
25.9
%
 
-17.9
%
Saving deposits
   
2,749,983
   
2,381,012
   
1,966,838
   
39.8
%
 
15.5
%
Time deposits
   
5,543,993
   
4,268,233
   
3,293,110
   
68.4
%
 
29.9
%
Severance indemnity deposits (CTS)
   
859,630
   
896,283
   
747,065
   
15.1
%
 
-4.1
%
Interest payable
   
58,442
   
46,899
   
36,759
   
59.0
%
 
24.6
%
Total customer deposits
   
12,938,927
   
11,249,104
   
8,842,655
   
46.3
%
 
15.0
%
Mutual funds in Perú
   
2,088,039
   
1,955,547
   
1,432,924
   
45.7
%
 
6.8
%
Mutual funds in Bolivia
   
83,890
   
70,919
   
60,201
   
39.3
%
 
18.3
%
Total customer funds
   
12,938,927
   
11,249,104
   
8,842,655
   
46.3
%
 
15.0
%
 
The evolution in deposits, especially Nuevos Soles deposits, reflects as well the market environment and significant inflow of capital into the local financial system lured by the speculative opportunity offered by higher Soles rates and US Dollar weakness. This explains the Soles denominated deposits aslo contributed to the high reported deposits growth figures, reaching an overall high 15% deposits’ growth for the quarter.
 
10


While saving deposits continue expanding at a good rate, demand and CTS deposits, which drop in volumes, reflect the tighter competition for deposits in the market and growing sensitivity of our clients to interest rates earned on their funds. Nevertheless, deposits continue being the prime source of low cost funding since 57% of deposits are either low cost or interest free deposits. The retail segment is also of significant importance since 45% of deposits are generated by BCP’s retail clients.
 
 
Market Share

Despite the strong competition for deposits, BCP increased further its market share of deposits to 39.6% by the end of this 1Q08 from 38.8% as of December 2007.

BCP’s leadership is evident in all deposits, being our CTS market share the strongest with 52%, way above our next competitor with 19.6%. In demand deposits BCP holds 48.4% in local currency and 39.7% in US Dollars, while savings deposits reached 36.2% y 42.5% respectively. Finally, in time deposits BCP’s market share reached 25.6% y 39.6% in local and foreign currency.

Through Credifondo, BCP maintains its leadership in the mutual funds’ business with a total of US$ 2,088 million administered funds, up 6.8% QoQ and 45.7% YoY. This represents a market share of 43.7% for the end of March 2008. This increase in market share is noteworthy since it has become a more competitive and sophisticated market.

Another important evolution is the accelerated de-dollarization of deposits, with US Dollar deposits dropping to 61% of the total portfolio, fueled by dollar weakness and higher rates of the Nuevo Sol.

11


II.3 Net Interest Income

Despite an 11.0% QoQ net interest income growth, the re-composition of interest earning assets and loan portfolio impacted negatively on NIM, dropping to 5.07% for 1Q08.
 
Net interest income
 
Quarter
 
Change
 
US$ 000
 
1Q08
 
4Q07
 
1Q07
 
1Q08/1Q07
 
1Q08/4Q07
 
Interest income
   
296,660
   
272,204
   
195,388
   
51.8
%
 
9.0
%
Interest on loans
   
213,932
   
201,414
   
148,943
   
43.6
%
 
6.2
%
Interest and dividends on investments
   
1
   
139
   
8
   
-87.5
%
 
100
 
Interest on deposits with banks
   
16,924
   
17,901
   
16,250
   
4.1
%
 
-5.5
%
Interest on trading securities
   
54,527
   
47,069
   
28,545
   
91.0
%
 
15.8
%
Other interest income
   
11,276
   
5,681
   
1,642
   
586.7
%
 
98.5
%
Interest expense
   
124,049
   
116,640
   
72,099
   
72.1
%
 
6.4
%
Interest on deposits
   
90,233
   
83,039
   
54,694
   
65.0
%
 
8.7
%
Interest on borrowed funds
   
15,545
   
14,670
   
5,632
   
176.0
%
 
6.0
%
Interest on bonds and subordinated notes
   
11,480
   
11,782
   
7,853
   
46.2
%
 
-2.6
%
Other interest expense
   
6,791
   
7,149
   
3,920
   
73.2
%
 
-5.0
%
Net interest income
   
172,611
   
155,564
   
123,289
   
40.0
%
 
11.0
%
Average interest earning assets
   
13,613,215
   
12,031,956
   
9,444,029
   
44.1
%
 
13.1
%
Net interest margin*
   
5.07
%
 
5.17
%
 
5.22
%
           
 
Interest income increased by a very significant 9% QoQ, as a result of not only the strong loan portfolio growth which generated 6.2% more interest income, but also the significantly larger investment portfolio leading to a 15.8% higher interest income for the quarter. This, combined with a lower interest expense expansion of 6.4% resulted in a total and impressive 11% net interest income quarterly growth.

This is no doubt the result of an unexpected market evolution, since the speculative inflow of large amounts of funds looking to benefit from higher Soles interest rates and the US Dollar weakness together with the revaluation effect on existing assets resulted in the change in BCP's interest earning assets mix that made possible this interest income growth. Excess liquidity was channeled to CBCD’s, which despite carrying a low nominal yield, are extremely attractive on an after tax yield basis given the tax shelter they provide. However, with BCP’s investment portfolio with a lower nominal yield growing significantly more in US Dollar terms (up 45.9%) than its loan portfolio (up 7.4%), and at the same time, its loan portfolio mix also growing more in the corporate sector than in the retail sector as seen before, a drop in a net interest margin (NIM) was unavoidable.
 
Quarterly growth of interest earning assets
 
Balance as of
 
 
 
Change
 
US$ 000
 
Mar 08
 
Dec 07
 
Sept 07
 
Mar 07
 
´Dec 06
 
Mar 08/
Mar 07
 
Mar 08/
Dec 07
 
BCRP and Other Banks
   
2,077,660
   
2,255,572
   
1,740,636
   
1,828,663
   
2,031,936
   
13.6
%
 
-7.9
%
Interbank funds
   
1,469
   
5,000
   
1,000
   
4,542
   
25,079
   
-67.7
%
 
-70.6
%
Trading Securities
   
38,538
   
102,316
   
49,465
   
54,505
   
37,475
   
-29.30
%
 
-62.3
%
Available For Sale Securities
   
3,449,781
   
2,364,084
   
1,998,309
   
1,641,157
   
1,359,847
   
110.2
%
 
45.9
%
Current Loans, net
   
8,767,674
   
8,164,334
   
7,383,196
   
6,109,064
   
5,795,790
   
43.5
%
 
7.4
%
Total interest earning assets
   
14,335,123
   
12,891,306
   
9,637,930
   
9,637,930
   
9,250,127
   
48.7
%
 
11.2
%
Total average interest earning assets
   
13,613,215
   
12,031,956
   
10,970,685
   
9,444,029
   
8,854,003
             
 
Furthermore, interest rates increases and the impact of the higher reserve requirements on funding costs contributed also to such drop. As a result, NIM fell from 5.17% in 4Q07 to 5.07% in 1Q08.

12


 
 
II.4 Loan provisions

Provisions grow following more conservative provisioning policies for the retail portfolio. Portfolio quality ratios remain at excellent levels.
 
Provisión for loan losses
 
Quarter ended
 
Change
 
US$ 000
 
1Q08
 
4Q07
 
1Q07
 
1Q08/1Q07
 
1Q08/4Q07
 
Provisions
   
(25,867
)
 
(19,089
)
 
(12,371
)
 
109.1
%
 
35.5
%
Loan loss recoveries
   
8,915
   
8,000
   
6,511
   
36.9
%
 
11.4
%
Total provisions, net of recoveries
   
(16,951
)
 
(11,089
)
 
(5,859
)
 
189.3
%
 
52.9
%
Total loans
   
8,837,689
   
8,224,613
   
6,182,300
   
43.0
%
 
7.5
%
Reserve for loan losses (RLL)
   
219,295
   
212,060
   
184,627
   
18.8
%
 
3.4
%
Bcp's Charge-Off amount
   
9,281
   
12,034
   
10,507
   
-11.7
%
 
-22.9
%
Past due loans (PDL)
   
70,015
   
60,279
   
73,237
   
-4.4
%
 
16.2
%
PDL/Total loans
   
0.79
%
 
0.73
%
 
1.18
%
           
Coverage
   
313.21
%
 
351.80
%
 
252.10
%
           
 
Gross provisions reached US$ 25.9 million in 1Q08, 35.5% higher QoQ, reflecting not only the increase in the loan book, but also a change in provisioning policy for our retail portfolio, raising the minimum provisions for each of the retail products to levels calculated applying a more sophisticated risk assessment methodology.

Recoveries, on the other hand increased also a strong 11.4% due to the sale of a large and old troubled loan. This transaction represented income from recovery of US$ 1.7 million.

Past due loans in absolute terms reflect an increase of US$ 10 million, though such relatively small movements compared to the loan portfolio size are not unusual and are not an indicator of any portfolio quality deterioration. Thus, PDL/total loans ratio of 0.79% continues being an excellent ratio, as is the 313% coverage ratio for 1Q08.
 
13

 

II.5 Non Financial Income

During 1Q08, non financial income was boosted by the extraordinary income generated for financial institutions members of Visa by the Visa IPO.
 
Non financial income
 
Quarter
 
Change
 
US$ 000
 
1Q08
 
4Q07
 
1Q07
 
1Q08/1Q07
 
1Q08/4Q07
 
Fee income
   
79,747
   
76,708
   
62,470
   
27.7
%
 
4.0
%
Net gain on foreign exchange transactions
   
19,971
   
21,497
   
11,937
   
67.3
%
 
-7.1
%
Net gain on sales of securities
   
22,655
   
2,661
   
9,210
   
146.0
%
 
751.4
%
Other income
   
2,190
   
2,592
   
2,638
   
-17.0
%
 
-15.5
%
Total non financial income
   
124,563
   
103,458
   
86,255
   
44.4
%
 
20.4
%

Fee income growth of 4% QoQ comes from increased income from account maintenance fees, credit card fees, transactional fees and charges.
Net gain in FX transactions dropped 7.1% QoQ after having had a significantly higher FX gain in the 4Q07 due to the strong year end activity.

Net gain in the sale of securities reflects an extraordinary jump from US$2.7 million to US$22.7 million this quarter. This responds to the sale of the Visa shares through the IPO of Visa Inc. which resulted in income of US$17.9 million in 1Q08 and thus accounts for most of the income increase.

Even though commissions for banking transactions grow, the average number of monthly transactions drops from 33.3 million to 32.3 million, reflecting a drop of 2.9% QoQ. This is a normal seasonal evolution with transaction volume always peeking during the 4Q of every year.

14


 
   
Quarter 
 
Change 
 
N° of Transactions per Channel
 
Average 1Q08
 
Average 4Q07
 
Average 1Q07
 
1Q08/
1Q07
 
1Q08/
4Q07
 
 
 
 
 
 
 
 
 
 
 
 
 
Teller
   
9,091,066
   
9,371,270
   
8,310,053
   
9.4
%
 
-3.0
%
ATMS ViaBCP
   
5373782
   
5,540,733
   
4,191,183
   
28.2
%
 
-3.0
%
Balance Inquiries
   
2,249,668
   
2,468,491
   
2,022,884
   
11.2
%
 
-8.9
%
Telephone Banking
   
1,108,666
   
1,203,838
   
943,356
   
17.5
%
 
-7.9
%
Internet Banking ViaBCP
   
7,448,052
   
7,284,113
   
5,891,783
   
26.4
%
 
2.3
%
Agente BCP
   
1,248,203
   
1,092,778
   
497,603
   
150.8
%
 
14.2
%
Telecrédito
   
2,884,387
   
3,374,932
   
2,532,613
   
13.9
%
 
-14.5
%
Direct Debit
   
341,265
   
346,710
   
281,029
   
21.4
%
 
-1.6
%
P.O.S.
   
2,466,764
   
2,489,588
   
1,983,368
   
24.4
%
 
-0.9
%
Other ATM network
   
173,343
   
168,839
   
139,280
   
24.5
%
 
2.7
%
Total transactions
   
32,385,197
   
33,341,293
   
26,793,154
   
20.9
%
 
-2.9
%
 
From the chart above, the evolution of the number of transactions done through the “Agente BCP” is truly noteworthy, reflecting its significance; as well as the evolution of electronic channels vis-à-vis the traditional teller transactions.

 
 
Quarter
 
Change
 
 
   
Mar-08
   
Dec-07
   
Sep-07
   
Mar-07
   
Dec-06
   
Mar. 08/
Dec. 07
   
Mar. 08/
Mar. 07
 
Branches
   
277
   
273
   
254
   
245
   
237
   
1
%
 
13
%
ATMs
   
778
   
748
   
724
   
691
   
655
   
4
%
 
13
%
Agentes BCP
   
1,358
   
1,221
   
1,017
   
703
   
551
   
11
%
 
93
%
Total
   
2,413
   
2,242
   
1,995
   
1,639
   
1,443
   
8
%
 
47
%
 
II.6 Operating Costs and Efficiency

The efficiency ratio improved this 1Q08 to 47.5%, with operating expenses dropping 8.9% QoQ after the high year end related cost increase reported in 4Q07 and despite the negative impact of the revaluation of Soles denominated costs.
 
Operating expenses
 
Quarter
 
Change
 
US$ 000
 
1Q08
 
4Q07
 
1Q07
 
1Q08/1Q07
 
1Q08/4Q07
 
Salaries and employees benefits
   
70,553
   
75,147
   
51,302
   
37.5
%
 
-6.1
%
Administrative, general and tax expenses
   
48,520
   
59,234
   
37,755
   
28.5
%
 
-18.1
%
Depreciation and amortizacion
   
10,364
   
10,000
   
9,423
   
10.0
%
 
3.6
%
Other expenses
   
8,898
   
7,485
   
9,738
   
-8.6
%
 
18.9
%
Total operating expenses
   
138,335
   
151,867
   
108,218
   
27.8
%
 
-8.9
%
Efficiency Ratio
   
47.53
%
 
56.89
%
 
49.81
%
       
 
Though fixed Soles denominated salaries expense increased approximately 19% this quarter as the number of employees increased to 13,540 from 12,667 by the end of last year driven by the network expansion plans, on a comparative base with the previous quarter, a drop of 6.1% is reported due to the high comparison base set by the seasonally higher year end costs (related to performance compensation) and the unusual provisions for the retirement of a few members of senior management in the 4Q07. The differential between quarters in personnel expenses was in fact stronger than reported since the revaluation effect of the Soles works exacerbating in dollar terms the increased nominal soles payroll. This is more evident in a YoY comparison where a 37.5% growth is observed, which is certainly exacerbated by the Soles revaluation. Nevertheless, despite the 19% nominal payroll increase, this was below expectations and explained by a non linear progression in expenses related to the network expansion, which resulted in less expense growth for the beginning of the year than projected.
 
15


Administrative expenses on the other side, also reported a significant drop of 18.1% from the previous quarter. Once again, the year end strong increases in expenses in 4Q07, in all sectors such as marketing, systems support, consultancy jobs and transportation, set a high expense level for last quarter, and given the normalized level of expenses and also the mentioned non linear distribution of such, helps explains the drop reported. In fact marketing expenses dropped 58.7% QoQ and systems support expenses were down 24.4%. We would however like to point out, that the network expansion plan and systems support investments are going full speed ahead and will result in expense increases along the year.

Such administrative expense expansion is thus better reflected by the yearly growth reported of a total of 28.5%.
 
Administrative expenses
 
Quarter
 
Change
 
US$ 000
 
1Q08
 
% 
 
4Q07
 
 
1Q07
 
 
1Q08/1Q07
 
1Q08/4Q07
 
Marketing
   
5,032
   
10
%
 
12,180
   
21
%
 
3,785
   
10
%
 
32.9
%
 
-58.7
%
Systems
   
6,892
   
14
%
 
9,121
   
15
%
 
6,967
   
18
%
 
-1.1
%
 
-24.4
%
Transportation
   
4,458
   
9
%
 
4,864
   
8
%
 
3,528
   
9
%
 
26.4
%
 
-8.3
%
Maintenance
   
2,444
   
5
%
 
2,319
   
4
%
 
1,605
   
4
%
 
52.3
%
 
5.4
%
Communications
   
2,497
   
5
%
 
2,217
   
4
%
 
1,938
   
5
%
 
28.9
%
 
12.6
%
Consulting
   
2,207
   
5
%
 
3,174
   
5
%
 
1,747
   
5
%
 
26.3
%
 
-30.5
%
Other expenses
   
14,195
   
29
%
 
16,483
   
28
%
 
10,057
   
27
%
 
41.2
%
 
-13.9
%
Porperty taxes and others
   
5,487
   
11
%
 
4,897
   
8
%
 
4,097
   
11
%
 
33.9
%
 
12.0
%
Other subsidiaries and eliminations, net
   
5,308
   
11
%
 
3,979
   
7
%
 
4,031
   
11
%
 
31.7
%
 
33.4
%
Total administrative expenses
   
48,520
   
100
%
 
59,234
   
100
%
 
37,755
   
100
%
 
28.5
%
 
-18.1
%
 
Other expenses increased 18.9% QoQ and are explained by the volatility experienced by our own stock during 1Q08 which was reflected in the coverage levels and provisions related to the Stock Appreciation Rights program.

Thus, a drop in operating costs (excluding others) of 10.4%, while operating income improved 7.3% resulted in a significant recovery of BCP’s efficiency ratio from 56.9% in 4Q07 to 47.5% this 1Q08.
 
II.7 Shareholders’ Equity and Regulatory Capital
 
Shareholders' equity
 
Quarter
 
Change
 
US$ 000
 
1Q08
 
4Q07
 
1Q07
 
1Q08/1Q07
 
1Q08/4Q07
 
Capital stock
   
364,706
   
364,706
   
364,706
   
0.0
%
 
0.0
%
Reserves
   
388,062
   
282,189
   
282,189
   
37.5
%
 
37.5
%
Unrealized Gains and Losses
   
90,285
   
57,771
   
65,449
   
37.9
%
 
56.3
%
Retained Earnings
   
186,761
   
96,245
   
96,484
   
93.6
%
 
94.0
%
Income for the year
   
165,772
   
331,652
   
72,657
   
128.2
%
 
-50.0
%
Total shareholders' equity
   
1,195,587
   
1,132,564
   
881,485
   
35.6
%
 
5.6
%
Return on average equity (ROAE)
   
56.96
%
 
31.67
%
 
31.50
%
       
 
Total shareholders’ equity reached US$ 1,195 million as of March 2008, i.e. up 5.6% QoQ. ROAE however, reached un unprecedented level of 56.96% boosted by the impact of the sudden and strong revaluation of the local currency throughout the results of the bank, leading to the extremely high translation gain of over US$ 57 million..
 
16


 
At the end of March 2008, the capital adequacy ratio for BCP unconsolidated reached 13.8% (7.3 times), higher than 11.8% (8.4 times) for 4Q07. Therefore, this indicator outperforms the one established by the system (9.1%) and our more conservative internal ratio of 11.5%.  

The improved BIS ratio responds to the capitalization of retained earnings for US$ 106 million and the reduction of capital requirements as the risk adjusted capital improved as a result of the reduction of BCP’s US Dollar position and consequent reduction of exposure and risk to currency fluctuations.

On the other hand, Tier I reached US$ 951.9 million. Risk adjusted assets include a significantly reduced US$ 97.9 million market risk, which requires US$ 8.9 million of equity. Total regulatory capital includes US$ 307 million subordinated debt.  In addition, US$ 80.8 million of capitalized earnings are included in the present period.
 
Regulatory Capital and Capital Adequacy Ratios
 
Quarter ended
 
Change
 
US$ 000
 
1Q08
 
4Q07
 
1Q07
 
1Q08/1Q07
 
1Q08/4Q07
 
Capital Stock, net
   
468,851
   
429,415
   
404,187
   
16.0
%
 
9.2
%
Legal and Other capital reserves
   
484,105
   
346,418
   
326,066
   
48.5
%
 
39.7
%
Generic Contingency loss reserves
   
91,469
   
85,005
   
61,130
   
49.6
%
 
7.6
%
Subordinated Debt
   
307,422
   
294,648
   
137,610
   
123.4
%
 
4.3
%
Net income capitalized
   
80,816
   
74,019
   
-
   
-
   
9.2
%
Total
   
1,432,663
   
1,229,505
   
928,993
   
54.2
%
 
16.5
%
Less: Investment in multilateral organization and banks
   
(158,279
)
 
(175,762
)
 
(136,336
)
 
16.1
%
 
-9.9
%
Total regulatory capital
   
1,274,385
   
1,053,743
   
792,657
   
60.8
%
 
20.9
%
Risk-weighted assets (Credit risk)
   
9,168,514
   
8,603,291
   
6,218,204
   
47.4
%
 
6.6
%
Market Risk
   
8,893
   
26,714
   
43,093
   
-79.4
%
 
-66.7
%
Capital Ratios:
   
   
   
   
   
   
         
Regulatory capital as a percentage of risk-weighted assets
   
13.75
%
 
11.84
%
 
11.84
%
         
Ratio of risk-weihted assets to regularoy capital
   
7.27
   
8.44
   
8.44
           

17


III. Banco de Crédito de Bolivia

Bolivian Financial System

Bolivian Financial System reached US$ 4,719 million in deposits as of March 2008, 32% higher than the US$ 3,585 million registered in the previous year. Total loan volume reached US$ 3,258.2 as of March 2008, +16.6% YoY. In addition, PDL ratio of the loan portfolio reached 5.7% as of March 2008 vs. 5.6% as of December 2007 and 8.8% as of March 2007; while the coverage ratio was 112.2%.

The politically uncertain scenario presented by the country today has resulted in very low levels of investments, which might eventually lead to a downturn in the economy.

Results

In 1Q08, BCP Bolivia reached a net income of US$ 10.4 million, showing a growth of 7.4% QoQ and 116.7% YoY, mainly as a result of increased interest income (11% QoQ and 39.1% YoY), and higher non financial income (24.6% QoQ and 49.8% YoY).

Higher net interest income was a result of higher volumes of loans and investments and higher interest rates on loans. Non financial income increased mainly as a result of higher profits from the sale of securities (694.7% QoQ and 3,220.8% YoY). It is important to mention that this growth was led by the sale of VISA’s shares during March, which represented US$ 1.9 million boosting significantly the gains on sales of securities in the first quarter 2008.

Excluding the extraordinary gains from the sale of this investment, BCB’s net income would have been US$8.5 million for the 1Q08.  

A conservative credit risk management strategy led to a PDL ratio of 1.7% (1.7% in 4Q07 and 3.6% in 1Q07) and a coverage ratio of 227.8% (240.1% in 4Q07 and 161.1% in 1Q07). BCP Bolivia’s ROAE was 56.1%, 37.3% higher than December 2007. Thus, these figures show that BCP Bolivia had one of the best loan quality ratios within the Bolivian banking system, which reported ratios of 5.7% and 109.6%, respectively.
 
Assets and liabilities

As of march 2008, total loans reached US$ 467.6 million, 0.8% higher than US$ 463.8 million as of December 2007 and 20.3% greater YoY. The smaller quarterly growth is the result of the reduction in economic activity, due to political uncertainty in the country. The political evolution and the low economic activity generated an uncertain situation and discourages businessmen from carrying out greater investments. This has been translated into the stagnation of the Bolivian economy, and therefore in a smaller growth of our loan portfolio QoQ.

During 1Q08, Retail Banking revealed the highest growth (8.4% TaT and 25.5% AaA), which has an important impact in BCB’s results, given that it represents 46.4% of BCB’s loan portfolio and generates greater margins, while Corporate and Middle Market Banking represents 48.4%. Both segments represent 94.8% of total loans.

Within the Retail Banking segment, Personal loans and SME grew 9.2% and 8.2%, respectively. Both segments represented 28.4% of total retail loans and showed the greatest QoQ growth. In addition, the mortgage segment, which represented 52.8% of total retail portfolio, grew 0.9% TaT and 6.1% AaA.
 
18


In terms of liabilities, BCP Bolivia showed an increase in deposits of 5.6% QoQ and 28.3% YoY. Demand deposits grew 7.3% QoQ and 27.2% YoY, saving deposits, 5.5% QoQ and 45.6% YoY, and time deposits increased 4.1% QoQ and 12.6% YoY.

Shareholders’ equity decreased 10.9% QoQ due to dividends distribution. Nevertheless, this reduction was compensated by net income of the quarter. The net shareholders’ equity grew 21.1% YoY.

Finally, BCP Bolivia holds market shares of 14.0% and 14.6% of loans and deposits, respectively, which represent the third place in the Bolivian Banking System.
 
Banco de Crédito de Bolivia
 
Quarter
 
Change %
 
US$ millon
 
1Q08
 
4Q07