F-1/A 1 d672861df1a.htm F-1/A F-1/A
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As filed with the Securities and Exchange Commission on July 15, 2019.

Registration No. 333-232554

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Pre-Effective Amendment No. 1

to

Form F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Intercorp Financial Services Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

Republic of Panama   6029   Not applicable

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

 

 

Intercorp Financial Services Inc.

Torre Interbank, Av. Carlos Villarán 140

La Victoria

Lima 13, Peru

(51) (1) 615-9011

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Corporation Service Company

1180 Avenue of the Americas, Suite 210

New York, NY 10036

(212) 299-5600

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies of all communications, including communications sent to agent for service, should be sent to:

 

Antonia E. Stolper, Esq.

Shearman & Sterling LLP

599 Lexington Avenue

New York, New York 10022

(212) 848-5009

 

Juan Francisco Méndez, Esq.

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

(212) 455-2579

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by a check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933. Emerging growth company  ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Proposed

Maximum

Aggregate

Offering Price (2)

 

Amount of

registration fee (3)

Common Shares(1)

  U.S.$491,150,000   U.S.$59,528

 

 

(1)

Includes common shares that the underwriters have the option to purchase, if any, and common shares that are to be offered outside the United States but that may be resold from time to time in the United States in transactions requiring registration under the Securities Act. Offers and sales of common shares outside the United States are being made pursuant to Regulation S and are not covered by the Registration Statement

(2)

Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act.

(3)

U.S.$58,958 previously paid.

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This prospectus is not an offer to sell, nor does it seek an offer to buy, these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED JULY 15, 2019

PRELIMINARY    PROSPECTUS

9,000,000 Shares

 

 

LOGO

Common Stock

 

 

This is a public offering of 9,000,000 shares of Intercorp Financial Services, Inc. (“IFS”). We, along with our subsidiary Banco Internacional del Peru S.A.A. – Interbank, will be offering a total of 3,568,754 common shares, of which 1,150,000 shares will be newly issued and 2,418,754 are treasury shares. Our parent Intercorp Peru Ltd. (“Intercorp Peru”) will be offering 2,431,246 common shares and NWI Emerging Market Fixed Income Master Fund Ltd. (“EMFI”), an unaffiliated third party, will be offering 3,000,000 common shares. The sale of our shares by Interbank will be treated as a sale by us of treasury shares. We will not receive any of the proceeds from the sale of the common shares by Intercorp Peru or EMFI.

We have granted the underwriters an option for a period of 30 days to purchase up to an aggregate of 1,350,000 additional newly issued common shares.

Our common shares are listed on the Lima Stock Exchange (Bolsa de Valores de Lima) under the symbol “IFS”. On July 12, 2019, the last reported sales price of IFS common shares on the Lima Stock Exchange was U.S.$48.00 per share. The initial public offering price of our common shares in the offering is expected to be between US$44.00 and US$50.00 per share. We have applied to have the common shares listed on the New York Stock Exchange under the symbol “IFS.”

In addition to this offering, Intercorp Peru is offering an additional 100,000 shares on a best efforts basis through the Lima Stock Exchange. See “Underwriting.”

 

 

Investing in the common shares involves risks. See “Risk Factors” beginning on page 31.

 

 

 

    

Price to Public

    

Underwriting
Commissions(1)

    

Proceeds to

Company(2)

    

Proceeds to
the Selling
Shareholders(3)

 

Per Share

   U.S.$                U.S.$                U.S.$                U.S.$            

Total

   U.S.$                U.S.$                U.S.$                U.S.$            

 

  (1)

See “Underwriting” for a description of all compensation payable to the underwriters.

  (2)

Represents proceeds to us and to one of our subsidiaries from the sale of our shares in the offering.

  (3)

Excludes the proceeds to Intercorp from the sale of 100,000 common shares on a best efforts basis.

Delivery of the common shares will be made on or about                 , 2019.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This offering has not and will not be registered in the Republic of Peru. The information contained in this prospectus has not been and will not be approved or disapproved by the Peruvian Securities Commission (Superintendencia del Mercado de Valores, or “SMV”) or the Lima Stock Exchange. Therefore, the common shares will not be offered to the general public in Peru. Notwithstanding the foregoing, pursuant to Peruvian law the sale of the outstanding common shares is deemed a secondary offering, which will be executed through an offer-for-sale process in the Lima Stock Exchange. The secondary offering is exempt from registration in Peru and will be directed exclusively to institutional investors. The terms and conditions of the secondary offering will be set forth in an offering notice (aviso de oferta) to be published in the Lima Stock Exchange bulletin. The final price in the offer-for-sale process will be the price per share of this offering. See “Underwriting.”

Neither this offering nor the common shares have been or will be registered in the Republic of Panama and therefore are not and will not be subject to the Panamanian laws applicable to public offerings in Panama. The information contained in this prospectus has not been and will not be approved or disapproved by the Panamanian Superintendency of the Securities Market (Superintendencia del Mercado de Valores, or “Panamanian SMV”). The common shares may not be sold in Panama except in compliance with the securities laws of Panama.

 

 

Global Coordinators and Joint Bookrunners

 

BofA Merrill Lynch   J.P. Morgan

Joint Bookrunner

Itaú BBA

Structuring Agent

Inteligo SAB

 

 

The date of this prospectus is                 , 2019.


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We are responsible for the information contained in this prospectus. We have not authorized anyone to give you any other information and we take no responsibility for any other information that others may give you.

 

 

TABLE OF CONTENTS

 

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

     ii  

SUMMARY

     1  

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING INFORMATION

     22  

THE OFFERING

     29  

RISK FACTORS

     31  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     59  

EXCHANGE RATES

     61  

USE OF PROCEEDS

     62  

CAPITALIZATION

     63  

SELECTED CONSOLIDATED FINANCIAL INFORMATION

     64  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

     71  

SELECTED STATISTICAL INFORMATION

     139  

INDUSTRY

     160  

BUSINESS

     181  

RISK MANAGEMENT

     238  

REGULATION AND SUPERVISION OF THE BANKING AND INSURANCE SECTOR IN PERU AND THE BAHAMIAN FINANCIAL REGULATORY FRAMEWORK

     257  

MANAGEMENT

     274  

PRINCIPAL SHAREHOLDERS

     288  

RELATED PARTY TRANSACTIONS

     289  

DESCRIPTION OF COMMON SHARES

     294  

MARKET INFORMATION

     297  

DIVIDENDS AND DIVIDEND POLICY

     300  

TAXATION

     302  

UNDERWRITING

     311  

EXPENSES OF THE OFFERING

     322  

VALIDITY OF SECURITIES

     323  

EXPERTS

     324  

WHERE YOU CAN FIND MORE INFORMATION

     325  

ENFORCEABILITY OF CIVIL LIABILITIES

     326  

CONSOLIDATED FINANCIAL STATEMENTS

     F-1  

 

 

This prospectus has been prepared on the basis that any offer of common shares in any Member State of the European Economic Area will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of common shares. Accordingly, any person making or intending to make an offer in that Member State of the European Economic Area of common shares which are the subject of the offering contemplated in this prospectus, may only do so in circumstances in which no obligation arises for us or the underwriters to publish a prospectus pursuant to Article 3 of the Prospectus Directive in relation to such offer. Neither we nor the underwriters have authorized, nor do they authorize, the making of any offer of common shares in circumstances in which an obligation arises for us or the underwriters to publish a prospectus for such offer. The expression “Prospectus Directive” means Directive 2003/71/EC (as amended), and includes any relevant implementing measure in each Member State.

The distribution of this prospectus and the offering and sale of common shares in certain jurisdictions may be restricted by law. Persons who receive this prospectus must inform themselves about and observe any such restrictions. This prospectus does not constitute an offer of, or an invitation to purchase, any of the common shares in any jurisdiction in which such offer or invitation would be unlawful.

 

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Certain Definitions

All references to “we”, “us”, “our company”, and “IFS” in this prospectus are to Intercorp Financial Services Inc., a corporation (sociedad anónima) organized under the laws of the Republic of Panama (“Panama”).

In this prospectus, we refer to our principal subsidiaries as follows: (i) in our banking segment: Banco Internacional del Perú, S.A.A.—Interbank, an open-stock corporation (sociedad anónima abierta) organized under the laws of Peru, as “Interbank”; (ii) in our insurance segment: Interseguro Compañía de Seguros, S.A., a corporation (sociedad anónima) organized under the laws of Peru, as “Interseguro”; and (iii) in our wealth management segment: Inteligo Group Corp., a corporation (sociedad anónima) organized under the laws of Panama, as “Inteligo”, Inteligo Bank Ltd., a corporation organized under the laws of The Bahamas, as “Inteligo Bank”, Inteligo Sociedad Agente de Bolsa S.A., a corporation (sociedad anónima) organized under the laws of Peru, as “Inteligo SAB” and Interfondos S.A. Sociedad Administradora de Fondos, a corporation organized under the laws of Peru, as “Interfondos SAFM” or “Interfondos”.

In this prospectus, we also refer to our parent company, Intercorp Perú Ltd. (“Intercorp Peru” or “Intercorp”), a holding company for a group of companies operating mainly in Peru under the name “Intercorp”. Intercorp Peru’s main subsidiaries include our company and Intercorp Retail Inc. (“Intercorp Retail”). Intercorp Retail acts as a holding company for the retail and real estate operations of Intercorp Peru in Peru. Through its subsidiary InRetail Peru Corp whose shares are listed on the Lima Stock Exchange under the symbol “INRETAILC1,” Intercorp Retail has controlling stakes in (i) Supermercados Peruanos S.A. (“Supermercados Peruanos”), a supermarket chain, primarily operating under the: “Plaza Vea,” “Vivanda” and “MASS” brands, (ii) InRetail Pharma S.A., consisting of a chain of pharmacies operating under the “Inkafarma” and “MiFarma” brands with a distribution and marketing business as well as manufacturing some pharmaceutical products and (iii) InRetail Real Estate Corp., an owner, developer and operator of shopping malls under the “Real Plaza” brand. Intercorp Retail also controls directly (a) Tiendas Peruanas S.A., a department store chain operating under the “Oechsle” brand that started operations in 2009, (ii) Financiera Oh! S.A., a consumer finance company that started operations in 2010, and (iii) Homecenters Peruanos S.A. (“Homecenters Peruanos”), a home improvement company operating under the “Promart” brand. Our parent company Intercorp Peru also controls the following companies involved in the private education and healthcare businesses under the following brands: “Innova Schools,” “Zegel IPAE,” “UTP” “IDAT” and “Aviva”.

Financial Statements

Our audited annual consolidated financial statements as of December 31, 2018 and 2017 and as of January 1, 2017 and for each of the three years ended December 31, 2018, 2017 and 2016 included in this prospectus have been prepared in soles and in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and audited by Paredes, Burga & Asociados Sociedad Civil de Responsabilidad Limitada, a member firm of Ernst & Young Global Limited.

Our unaudited interim condensed consolidated financial statements as of March 31 2019 and for the three months ended March 31, 2019 and March 31, 2018 included in this prospectus have been prepared in soles and in accordance with International Accounting Standard (“IAS”) 34 “Interim Financial Reporting”.

The accounting principles used in the preparation of our unaudited interim condensed consolidated financial statements are the same as those used in the preparation of our audited annual consolidated financial statements. For new accounting pronouncements effective January 1, 2019, see Note 2(c) to our unaudited interim condensed consolidated financial statements. In addition, our unaudited interim condensed consolidated financial statements do not include all the information and disclosures required in our audited consolidated financial statements and accordingly should be read in conjunction with them.

 

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For regulatory purposes, including regulations of the Banco Central de Reserva del Perú (the “Central Reserve Bank of Peru”) and regulations and the reporting requirements of the SMV, our Peruvian subsidiaries, Interbank and Interseguro, also prepare in Spanish and make available to shareholders statutory financial statements as prescribed by the Peruvian Superintendency of Banks, Insurance and Private Pension Fund Administrators (Superintendencia de Banca, Seguros y AFPs, or “SBS”), hereinafter “SBS GAAP”.

We have included in this prospectus certain information reported by the SBS for the Peruvian banking and insurance sectors as a whole as well as for individual financial institutions in Peru, including Interbank and Interseguro, which report to the SBS in SBS GAAP. The information under SBS GAAP has been presented for comparative market purposes. All statements in this prospectus regarding our relative market position and financial performance vis-à-vis the financial services and insurance sectors in Peru are based, out of necessity, on information obtained from the SBS and the SMV. With respect to comparative banking information we typically compare ourselves against certain peer banks or against the system as a whole. With respect to comparative insurance information we typically compare ourselves against the industry as a whole. Statements in this prospectus regarding our relative market position and financial performance, however, do not include information relating to Inteligo as Inteligo is not regulated by and does not report to the SBS or the SMV.

Certain comparative financial information related to our compound annual growth rate (“CAGR”) included in this prospectus has been prepared based on information reported pursuant to SBS GAAP, except for Inteligo. Compound Annual Growth Rate (“CAGR”) is calculated by (i) dividing the value of a variable on year X (ending value) by the value of this same variable on year Y (beginning value), then (ii) raising this to an exponent of one divided by (X-Y) and (iii) subtracting one from the result. In addition, our Peruvian subsidiaries pay dividends to us on the basis of the SBS GAAP financial statements as further described in this prospectus. See “Dividends and Dividend Policy” and “Risk Factors—We are a holding company and all of our operations are conducted through our subsidiaries. Our ability to pay dividends to you will depend on the ability of our subsidiaries to pay dividends and make other distributions to us.”

IFRS differs in certain significant respects from SBS GAAP. Consequently, information presented in this prospectus in accordance with SBS GAAP or based on information from the SBS or SMV may not be comparable with our financial information prepared in accordance with IFRS. Unless otherwise indicated, all financial information provided in this prospectus has been prepared in accordance with IFRS.

Comparability of 2018 audited consolidated financial statements to prior years and financial statements restatement

As a result of the adoption of IFRS 9 beginning January 1, 2018, our audited consolidated financial statements for 2018 and related ratios are not comparable to prior years. See Note 4.7 to our audited annual consolidated financial statements.

In 2018, the SBS published new Peruvian mortality and morbidity tables to be used in mathematical reserve calculations of pensions. These tables gather updated information and show the recent changes in the life expectancy in Peru. We decided to use these new tables for our pension reserve calculation, as they show the recent changes in mortality rates and life expectancy. According to IAS 8, this change in mortality and morbidity tables represents a change in our accounting estimate regarding pension reserve calculation whose effects have been recognized prospectively, affecting the results of the year and not prior periods. See Note 4.6 to our audited annual consolidated financial statements.

Until December 31, 2017, our subsidiary Interseguro recognized in its income statements the effect of the change in the value of liabilities coming from retirement, disability and survivor’s pensions, caused by the variation in the market interest rates used to discount these liabilities. During 2018, Interseguro voluntarily modified its accounting policy in order to show the effect of the change in market interest rates in the statements of other comprehensive income, providing more accurate and relevant information. The resulting impact was

 

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retrospectively recorded, restating unrealized results, net and retained earnings of our consolidated statements of financial position as of December 31, 2017, 2016, 2015 and 2014 and for the years then ended included in this prospectus. Restated line items due to the voluntary change in accounting policy for 2015 and 2014 have not been audited. See Note 4.2.1(i) to our audited annual consolidated financial statements and “Management’s Discussion and Analysis of Results of Operations and Financial Condition” for a discussion of the impact of this change. In addition, minor reclassifications for comparative purposes were made for the periods presented. See Note 4.4(a.i) to our audited annual consolidated financial statements.

Additionally, our acquisition of Seguros Sura in November 2017 affected the comparability of the financial information for our subsidiary Interseguro for 2018 to prior years.

Currency Translation

The term “sol” and the symbol “S/” refer to the legal currency of Peru, and the term “U.S. dollar” and the symbol “U.S.$” refer to the legal currency of the United States.

We have translated some of the soles amounts contained in this prospectus into U.S. dollars for convenience purposes only. Unless otherwise indicated or the context otherwise requires, the rate used to translate soles amounts to U.S. dollars as of March 31, 2019 and as of December 31, 2018 was S/3.318 = U.S.$1.00, which was the exchange rate reported for March 31, 2019 by the SBS. The Federal Reserve Bank of New York does not report a noon buying rate for soles. The U.S. dollar equivalent information presented in this prospectus is provided solely for convenience of investors and should not be construed as implying that the soles or other currency amounts represent, or could have been or could be converted into, U.S. dollars at such rates or at any other rate. See “Exchange Rates” for information regarding historical exchange rates of soles to U.S. dollars.

Effect of Rounding

Certain figures included in this prospectus and in our consolidated financial statements have been rounded for ease of presentation. Percentage figures included in this prospectus have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this prospectus may vary from those obtained by performing the same calculations using the figures in our consolidated financial statements. Certain numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them due to rounding.

Market and Industry Data

In this prospectus, unless otherwise indicated, all macroeconomic data relating to Peru is based on information published by the SBS, the Central Reserve Bank of Peru, the Peruvian Ministry of the Economy and Finance (Ministerio de Economía y Finanzas, or “MEF”), and the Peruvian National Institute of Statistics and Information Processing (Instituto Nacional de Estadística e Informática, or “INEI”). References in this prospectus to “GDP” refer to real gross domestic product, except for GDP per capita and penetration ratios of loan products.

References in this prospectus to “peer countries” in Latin America refer to Brazil, Chile, Colombia and Mexico. Certain information about peer countries in Latin America have been derived from the Economist Intelligence Unit (“EIU”), the Chilean Superintendency of Banks and Financial Institutions (Superintendencia de Bancos e Instituciones Financieras, or “SBIF”), the Central Bank of Brazil (Banco Central do Brasil), the Colombian Financial Superintendency (Superintendencia Financiera de Colombia), and the Mexican Commission for Banking and Securities (Comisión Nacional Bancaria y de Valores). References in this prospectus to the “four largest banks in Peru” or the “four largest Peruvian banks” refer to Banco de Crédito del Perú (“BCP”), BBVA Continental, Interbank and Scotiabank Perú S.A.A.

 

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Unless otherwise indicated, statistical information in this prospectus relating to our Peruvian subsidiaries Interbank and Interseguro, regarding market share, ranking, and other measures, as well as information on other Peruvian financial institutions and the Peruvian financial system generally, has been derived from reports and information published by the SBS, the SMV, the Central Reserve Bank of Peru, the Association of Peruvian Banks (Asociación de Bancos del Perú, or “ASBANC”), Swiss Re Sigma’s report “World Insurance in 2017: solid, but mature life markets weigh on growth” (“Swiss Re Sigma 2017 Report”) or from other publicly available sources and industry publications.

Socioeconomic levels are determined based on the data collected by INEI in their national annual survey Encuesta Nacional de Hogares (“ENAHO”). INEI assigns a score to each household based on their ranking on the following four factors: (i) characteristics of the household living space, (ii) level of living space overcrowding, (iii) level of education of household head and (iv) ownership of durable goods/properties; and then groups them in five socioeconomic segments (A, B, C, D, E).

Other market share information and other statistical information and quantitative statements in this prospectus regarding our market position relative to our competitors, except where otherwise indicated, is not based on published statistical data or information obtained from independent third parties. Rather, such information and statements reflect management estimates based upon our internal records and surveys, statistics published by providers of industry data, information published by our competitors, and information published by trade and business organizations and associations and other sources within the industry in which we operate. We have not independently verified any data produced by third parties or industry or general publications, although we believe such data and publications are reliable. In addition, while we believe our internal data and surveys to be reliable, such data and surveys have not been verified by any independent sources.

Loan Portfolio Data

Unless otherwise indicated, references in this prospectus to performing loans refer to loans in compliance with their original contractual obligations. References to past-due loans refer to overdue loans defined as follows: commercial loans are considered past-due once amortization payments are 15 days overdue; loans to micro-businesses are considered past-due once amortization payments are 30 days overdue; and in the case of consumer, mortgage and leasing loans, the amortization portion of a coupon is considered past-due once 30 days overdue and the total amount of the loan is considered past-due once an amortization payment is 90 days overdue. For IFRS 7 and IFRS 9 disclosure purposes, the entire loan balance is considered past due when debtors have failed to make a payment when contractually due. Past-due loans do not include refinanced and restructured loans. References to total gross loans include total loans outstanding, including past-due loans, refinanced loans and restructured loans, and references to total net loans refer to gross loans plus accrued interest less allowances for loan losses and deferred interest.

Certain Financial Definitions and Conventions

We present return on assets, or “ROA”, return on equity or “ROE”, net interest margin or “NIM”, risk adjusted net interest margin or “risk adjusted NIM”, cost of risk and efficiency ratio in this prospectus. We define our ROA as net profit for the period divided by average total assets; our ROE as net profit for the period divided by average shareholders’ equity; NIM as (x) net interest and similar income divided by average interest earning assets; risk adjusted NIM as net interest margin after impairment loss on loans, net of recoveries; Cost of risk is defined as impairment loss on loans, net of recoveries divided by average gross loans; and Efficiency ratio as the division of (x) salaries and employee benefits plus administrative expenses plus depreciation and amortization by (y) net interest and similar income plus other income, plus net premiums earned.

We present average balances and nominal average interest rates in this prospectus. Except as otherwise indicated, average balances are based on quarterly balances. Nominal average interest rates have been calculated by dividing interest earned on assets or paid on liabilities by the corresponding average balances on such assets or liabilities.

 

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We present ROA, ROE, and NIM as of March 31, 2019 and March 31, 2018 on an annualized basis. ROA as of March 31, 2019 and March 31, 2018 is calculated as net profit for the three months ended March 31 of each respective year multiplied by four and divided by average total assets. ROE as of March 31, 2019 and March 31, 2018 is calculated as net profit for the three months ended March 31 of each respective year multiplied by four and divided by average shareholders’ equity. Annualized NIM as of March 31, 2019 and March 31, 2018 is calculated as gross financial margin for the period multiplied by four and divided by average of interest earning assets.

Non-GAAP Financial Measures

In this prospectus, we present adjusted net profit, adjusted ROE and adjusted ROA, which are non-GAAP financial measures. A non-IFRS financial measure does not have a standardized meaning prescribed by IFRS. A non-GAAP financial measure is generally defined as a numerical measure of an issuer’s historical or future financial performance, financial position or cash flows that: (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with IFRS in the statement of income, balance sheet or statement of cash flows (or equivalent statements) of the issuer; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented.

For the year ended December 31, 2018, we define adjusted net profit as net (loss) / profit for the year plus the effect on our insurance technical reserves of the adoption of new mortality tables published by the SBS through Resolution No. 886-2018 in March, 2018. The Resolution adopts the new Peruvian mortality and morbidity tables to be used in mathematical reserve calculations of pensions. These tables gather updated information and show the recent changes in the life expectancy in Peru. As international actuarial and accounting standards, mortality tables need to be updated on a regular basis with information reflecting the reality of the insured, beginning June 1, 2018, we decided to use these new tables for Interseguro’s pension reserve calculation. See Note 15(e) to the audited annual consolidated financial statements. As a result we had a negative impact of S/144.8 million due to the aggregate effect recorded in technical reserves on insurance policies issued prior to the date of adoption of the new mortality tables. We believe that the adoption of further changes to the mortality tables within the next two years is not reasonably likely to occur. We believe that by excluding this effect, supplemental information is provided for our management and investors to analyze our core operating performance on a consistent basis from period to period. The technical reserves calculation is recorded on the income statement in the caption “total net premiums, earned.” See Note 23 to our audited annual consolidated financial statements.

For the three months ended March 31, 2019, in our segment information, we define adjusted net profit as net profit of the banking segment excluding the gain on the sale of Interfondos to Inteligo of S/32.4 million after taxes, which is eliminated upon consolidation. See “Management’s discussion and Analysis of Results of Operations and Financial Condition—Results of Operations for the Three Months Ended March 31, 2019 Compared to the Three Months Ended March 31, 2018.”

Additionally, we define for our banking segment: (i) adjusted ROE as adjusted net profit for the three months ended March 31, 2019, divided by average shareholders’ equity, and (ii) adjusted ROA as adjusted net profit for the three months ended March 31, 2019, divided by average total assets. See “Selected Consolidated Financial Information—Non-GAAP Financial Measures.”

 

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We define adjusted ROE as adjusted net profit for the period divided by average shareholders’ equity, and adjusted ROA as adjusted net profit for the period divided by average total assets. Also, we present adjusted net profit, adjusted ROE and adjusted ROA for segment information. See “Selected Consolidated Financial Information—Non-GAAP Financial Measures.”

There may be limits in the usefulness of these measures to investors. As a result, we encourage readers to consider the consolidated financial statements and other financial information contained in this prospectus in their entirety, and not to rely on any single financial measure.

 

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SUMMARY

This summary highlights selected information about us and should be read as an introduction to the more detailed information included in this prospectus. You should carefully read this prospectus in its entirety before investing in our common shares, including “Presentation of Financial and Other Information,” “Risk Factors,” “Selected Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our unaudited interim condensed consolidated financial statements and our audited annual consolidated financial statements and related notes. Unless otherwise indicated, all financial information provided in this section has been prepared in accordance with IFRS except for certain information such as CAGR and other comparative market information which is presented under SBS GAAP. We have included in this summary and elsewhere in this prospectus certain information reported by the SBS for the Peruvian banking and insurance sectors as a whole as well as for individual financial institutions in Peru, including Interbank and Interseguro, which report to the SBS and the SMV in SBS GAAP. The information under SBS GAAP has been presented for comparative market purposes only.

Overview

IFS is a leading provider of banking, insurance and wealth management services for retail customers and commercial clients in Peru. Our purpose is to empower all Peruvians to achieve financial well-being, and as such, we have built an integrated financial services platform in the fast-growing, underpenetrated and profitable Peruvian financial system. We have invested in building a leading and scalable digital platform (mobile and online), which is rapidly being adopted by existing and new customers. Our digital platform is complemented by one of the largest distribution networks in the country which includes financial stores, ATMs, correspondent agents, dedicated sales forces, financial advisors, and call centers. Together our digital platform and distribution network provide our more than three million customers and a potential market of more than 30 million Peruvians and 9 million businesses with access to our products and services and a distinctive and convenient customer experience.

We manage our business in three segments, banking, insurance and wealth management, that complement each other and represent diversified sources of revenue. Our banking segment operates through our subsidiary Interbank, which is the second largest provider of consumer loans in Peru, according to the SBS. Interbank provides a full range of retail banking and commercial banking products, and services to individuals, large companies, and small and medium enterprises. Our insurance segment operates through our subsidiary Interseguro, which is the leading provider of annuities in Peru by premiums and one of the leading life insurance companies in the country according to the SBS. Interseguro provides a wide range of retirement, savings, life, unemployment and other insurance products mainly to retail customers. Our wealth management segment operates through our subsidiaries Inteligo Bank, Inteligo SAB and Interfondos, which together provide wealth management, private banking, financing, brokerage, advisory and other investment services mainly to high net worth individuals.

Our key strategic priority is to achieve digital excellence for our customers by providing them with a world-class, flexible and secure digital platform. We believe our digital transformation is vital to our continued growth and profitability, and for this reason we have been investing in developing the capabilities necessary to offer digital products and services to our customers. In March 2019, more than 975,000 retail customers used our digital platform compared to more than 450,000 in December 2016 and more than 380,000 retail customers no longer utilize physical channels other than ATMs in March 2019. We are aiming to allow our customers to have a 100% digital relationship with us in an efficient and secure manner. We have also streamlined our physical presence and reduced the number of branches by approximately 9% since 2016, focusing on educating our customers in the use of our digital platform. To accompany this transformation we are in the process of redesigning our physical presence in order to better serve the evolving needs of our customers. We have



 

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substantially increased migration of low-value-added transactions to more efficient digital channels, and we have increased sales of products to existing customers, as well as increased new customer acquisition of which a growing number are being acquired digitally or “born-digital.” This process of digital customer acquisition and sales has been accelerating, for example, in March 2019, 17% of new retail clients were acquired digitally compared to 3% in March 2018, and more than 37% of sales of new products to retail customers were performed digitally compared to 28% in March 2018.

We aim to be the company that best knows the needs of Peruvians. Our advanced analytics and CRM capabilities are being enriched with new sources of data and new tools that technology offers, such as cloud, real-time decision, machine learning and artificial intelligence. We believe that a deep knowledge of our current and potential customers allows us to offer them the best solutions for their financial needs across our banking, insurance and wealth management segments. Through this deep knowledge we have also been able to enhance our risk models, helping us to propel growth and continue to improve our profitability.

The following table shows the evolution of our reported net profit, dividends, ROE and ROA and our adjusted net profit, ROE and ROA, from 2016 through 2018 and for the three months ended March 31, 2019 and 2018:

 

    

For the three months ended
March 31, (unaudited)

   

For the years ended December 31,

 
    

2019

    

2019

   

2018

   

2018

    

2018

   

2017

   

2016

 
    

(U.S.$
in millions) (3)

    

(S/ in millions)

   

(U.S.$
in millions) (3)

    

(S/ in millions)

 

Net profit

     106.3        352.7       290.0       328.9        1,091.4       1,033.5       950.2  

Adjusted net profit (1)

     —          N/A       N/A       372.6        1,236.2       N/A       N/A  

Dividends declared for the year (2)

     —          —         —         —          654.5       510.7       475.8  

ROE (4)

     —          19.0     19.1     —          16.6     19.3     19.9

Adjusted ROE (1)

     —          N/A       N/A       —          18.6     N/A       N/A  

ROA (4)

     —          2.2     1.9     —          1.8     2.0     1.9

Adjusted ROA (1)

     —          N/A       N/A       —          2.0     N/A       N/A  

 

(1)

Net profit, ROA and ROE for the year ended December 31, 2018, excluding S/144.8 million, which is the aggregate effect recorded in our insurance segment’s technical reserves due to a change in accounting estimates driven by the publication by the SBS of new mortality tables. Net profit was not adjusted for 2017 and 2016. See Note 4.4 (d) and 4.6 to our audited annual consolidated financial statements. Adjusted net profit, adjusted ROA and adjusted ROE are non-GAAP accounting measures and should not be considered in isolation or as a substitute for net profit, ROA or ROE, or other performance measures. See “Presentation of financial and other information—Non-GAAP financial measures” and “Selected Consolidated Financial Information—Non-GAAP financial measures”.

(2)

Dividends are declared and paid in U.S. dollars. Dividends declared for fiscal years 2018, 2017 and 2016 were paid in 2019, 2018 and 2017 and amounted to U.S.$197.2 million, U.S.$157.7 million and U.S.$146.5 million, respectively. See “Dividends and Dividend Policy.”

(3)

Amounts stated in U.S. dollars as of and for the three months ended March 31, 2019 and as of and for the year ended December 31, 2018 have been translated from soles at the exchange rate of S/3.318 = U.S.$1.00. See “Exchange Rates”.

(4)

Annualized for each interim period.

As of March 31, 2019, we had total assets of S/65.8 billion (approximately U.S.$19.8 billion), total gross loans of S/34.7 billion (approximately U.S.$10.5 billion), total deposits of S/34.8 billion (approximately U.S.$10.5 billion) and shareholders’ equity of S/7.7 billion (approximately U.S.$2.3 billion).



 

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We operate the following three business segments:

 

   

Banking: Interbank is the second largest provider of consumer loans in Peru with a 22.6% market share in terms of total gross consumer loans outstanding as of March 31, 2019, according to the SBS. Interbank is the largest provider of credit card loans with a 26.3% market share and the largest provider (among non-government owned banks) of payroll deduction loans to public sector employees with a 23.5% market share as of March 31, 2019, according to the SBS. Additionally, it is the fourth largest bank in Peru in terms of retail mortgages and commercial lending, as well as total deposits and total assets. Interbank has built one of the most convenient and extensive retail banking distribution platforms in Peru including, online banking, mobile applications, a total of 264 financial stores, more than 1,900 ATMs and more than 2,500 correspondent agents, as of March 31, 2019.

As of and for the three months ended March 31, 2019, Interbank represented 74.9% of our total assets and 85.0% of our net profit. As of and for the year ended December 31, 2018, Interbank represented 74.4% of our total assets, 92.6% of our net profit and 81.8% of our adjusted net profit. For the 2018 fiscal year, Interbank declared a dividend of S/467.0 million (or approximately U.S.$140.8 million) of which S/463.8 million (or approximately U.S.$139.8 million) were paid to IFS, and represents 66.0% of total dividends received by IFS.

With a significant focus on the emerging middle class, Interbank has a higher percentage of retail loans, which account for 54.0% and 53.2% of its total loan portfolio, compared to the banking system’s average of 35.7% and 35.1%, as of March 31, 2019 and December 31, 2018, respectively. This contributes to a higher risk-adjusted net-interest margin than the banking system’s average.

Interbank’s CAGR in loans, deposits and obligations, and net profit between 2014 and 2018 was 10.5%, 10.3%, and 9.0%, respectively. For 2018, Interbank’s net profit was S/1,010.9 million and ROE was 20.2% and for the three months ended March 31, 2019 its net profit was S/299.7 million and annualized ROE was 22.1%.

 

   

Insurance: Interseguro is the leading provider of annuities (excluding private annuities) in Peru, with a 30.2% market share as measured by total premiums collected during 2018 and a 32.3% market share as measured by total premiums collected in the three months ended March 31, 2019, according to the SBS, and is one of the leading life insurance companies in Peru. In addition, Interseguro offers private annuities, individual life insurance, disability and survivorship insurance, as well as low premium retail insurance products, including credit life, mandatory traffic accident insurance (“SOAT”) and credit card protection insurance, through a comprehensive multi-channel distribution platform which includes Interseguro’s sales force. Interseguro also distributes through Interbank and retailers. According to the SBS, for 2018, Interseguro was the largest insurance company measured by reserves, driven both by organic growth and the acquisition of Seguros Sura in November 2017 which both improved its ROE and doubled its asset size.

As of and for the three months ended March 31, 2019 Interseguro represented 19.7% of our total assets and 8.2% of our net profit and as of and for the year ended December 31, 2018, Interseguro represented 19.7% of our total assets, negative 5.6% of our net profit and 6.7% of our adjusted net profit. For the 2018 fiscal year, Interseguro declared a dividend of S/138.0 million (or U.S.$41.6 million), which represents 19.6% of total dividends received by IFS.

Interseguro’s CAGR in gross premiums plus collections was 8.3% between 2014 and 2018. For 2018, Interseguro’s net loss was S/61.5 million and its adjusted net profit was S/83.3 million, while



 

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its ROE was negative 7.6% and its adjusted ROE was 9.4%. For the three months ended March 31, 2019 Interseguro’s net profit was S/28.9 million and annualized ROE was 12.8%.

 

   

Wealth management: Inteligo is a provider of wealth management services, which includes banking, financing, brokerage and investing activities for high net worth individuals through three operating subsidiaries, Inteligo Bank, Inteligo SAB (brokerage) and Interfondos (mutual funds). As of and for the three months ended March 31, 2019, Inteligo represented 5.7% of our total assets and 22.2% of our net profit and as of and for the year ended December 31, 2018, Inteligo represented 6.0% of our total assets, 18.1% of our net profit and 16.0% of our adjusted net profit. For the 2018 fiscal year, Inteligo Bank declared a dividend of U.S.$40.0 million (or S/132.7 million), of which S/99.5 million (or U.S.$30.0 million) were paid to IFS and represents 14.4% of total dividends received by IFS.

Inteligo’s CAGR in assets under management was 11.8% between 2014 and 2018. In addition, for the year ended December 31, 2018, Inteligo’s net profit was S/197.5 million and ROE was 25.7% and for the three months ended March 31, 2019, Inteligo’s net profit was S/78.3 million and annualized ROE was 38.1%.

The following tables provide certain financial and other information about our three business segments for the periods indicated.

 

    

As of and for the three months ended March 31, 2019

 
    

Assets

   

Equity

   

Net Profit/(Loss)

 
    

(S/ in
millions)

   

%

   

(S/ in
millions)

    

%

   

(S/ in
millions)

   

%

 

Banking (1)

     49,231.1       74.9     5,380.3        69.6     299.7       85.0

Insurance

     12,967.5       19.7     1,028.6        13.3     28.9       8.2

Wealth management

     3,754.2       5.7     830.3        10.7     78.3       22.2

Holding and eliminations (2)

     (196.7     (0.3 )%      487.6        6.3     (54.2     (15.4 )% 
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total

     65,756.2       100.0 %      7,726.8        100.0 %      352.7       100.0 % 
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

(1)

Equity and Net Profit figures include the S/32.4 million gain on the sale of Interfondos to Inteligo, net of taxes. This gain was eliminated in the consolidated financial statements.

(2)

Holding and eliminations corresponds to expenses of IFS and elimination of intercompany transactions. See Note 20 to our unaudited interim condensed consolidated financial statements.

 

    

As of and for the year ended December 31, 2018

   

 

 
    

Assets

   

Equity

   

Net Profit/(Loss)

   

Adjusted Net
Profit (Loss) (1)

 
    

(S/ in
millions)

   

%

   

(S/ in
millions)

    

%

   

(S/ in
millions)

   

%

   

(S/ in
millions)

   

%

 

Banking

     47,440.4       74.4     5,454.0        76.9     1,010.9       92.6     1,010.9       81.8

Insurance

     12,572.4       19.7     777.1        11.0     (61.5     (5.6 )%      83.3       6.7

Wealth management

     3,808.9       6.0     812.8        11.5     197.5       18.1     197.5       16.0

Holding and eliminations (2)

     (77.3     (0.1 )%      44.7        0.6     (55.6     (5.1 )%      (55.6     (4.5 )% 
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     63,744.4       100.0     7,088.5        100.0     1,091.4       100.0     1,236.2       100
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Adjusted net profit for the year ended December 31, 2018, is calculated excluding S/144.8 million, which is the aggregate effect recorded in our insurance segment’s technical reserves due to a change in accounting estimates driven by the publication by the SBS of new mortality tables. Net profit was not adjusted in 2017



 

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  and 2016. See Note 4.4 (d) and 4.6 to our audited annual consolidated financial statements. Adjusted net profit is a non-GAAP financial measure and should not be considered in isolation or as a substitute for net profit, or other performance measures. See “Presentation of financial and other information—Non-GAAP financial measures” and “Selected Consolidated Financial Information—Non-GAAP Financial Measures.”
(2)

Holding and eliminations corresponds to expenses of IFS and elimination of intercompany transactions. See Note 29 to our audited annual consolidated financial statements.

The following table provides relevant information about dividends declared by each of our subsidiaries:

 

                               SBS GAAP                                         IFRS  
    

Banking (Interbank)

   

Insurance (Interseguro)

   

Wealth Management
(Inteligo) (3)

 
    

For the years ended December 31,

 
    

2018

   

2017

   

2016

   

2018

   

2017

   

2016

   

2018

   

2017

   

2016

 
     (S/ in millions)     (U.S.$ in millions)  

Net profit for the period (1)

     1,040.1       902.0       875.1       361.1       103.7       85.8       56.2       58.1       51.0  

Dividends declared (2)

     467.0       405.9       393.7       138.0       100.0       42.5       40.0       46.5       40.5  

Payout ratio

     44.9     45.0     45.0     38.2     96.4     49.5     71.2     80.0     79.4

 

(1)

For Interbank and Interseguro, this information is calculated using SBS GAAP. This table is presented in this manner because our Peruvian subsidiaries pay dividends to us on the basis of SBS GAAP and Inteligo pays dividends to us on the basis of IFRS. In all cases, the information is derived from stand-alone information from each entity.

(2)

Represents dividends for the fiscal year which are declared and paid in the following year.

(3)

Wealth Management includes Inteligo Bank, Interfondos and Inteligo SAB. Wealth Management dividends were declared/paid by Inteligo Bank only.

The following tables provide certain financial and other information about our consolidated business.

 

   

As of and for the

three months ended
March 31, (unaudited)

   

As of and for the year ended December 31,

 
   

2019

   

2019

   

2018

   

2018

   

2018

   

2017

(restated) (1)

   

2016

(restated) (1)

   

2015

(restated) (1)

   

2014

(restated) (1)

 
   

(U.S.$
in millions)

(2)(3)

   

(S/ in

millions) (3)

   

(U.S.$

in millions) 

(2)(3)

    (S/ in millions) (3)  

Balance Sheet and Income Statement Items

         

Total assets

    19,818.0       65,756.2       60,635.0       19,211.7       63,744.4       60,394.5       51,719.4       50,000.9       40,365.2  

Total gross loans

    10,463.8       34,719.0       29,780.2       10,263.8       34,055.2       29,174.7       27,907.5       26,757.7       23,197.1  

Total deposits and obligations

    10,485.2       34,790.0       31,220.4       10,151.3       33,682.0       32,607.6       30,097.9       28,487.7       23,381.4  

Total equity, net

    2,328.7       7,726.8       6,412.4       2,136.4       7,088.5       5,836.9       4,998.3       4,460.9       4,302.3  

Net profit (attributable to IFS’ shareholders)

    105.7       350.6       288.2       326.8       1,084.3       1,027.4       944.6       1,013.7       891.5  

Other Information

         

Adjusted net profit (attributable to IFS’ shareholders) (4)

    N/A       N/A       N/A       370.4       1,229.1       N/A       N/A       N/A       N/A  


 

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As of and for the

three months ended
March 31, (unaudited)

   

As of and for the year ended December  31,

 
   

2019

   

2018

   

  2018  

   

2017

(restated) (1)

   

2016

(restated) (1)

 

Profitability Ratios

                          

Net interest margin (5)(6)

    5.4     5.3     5.4     5.3     5.4

Risk adjusted NIM (6)(7)

    4.2     4.1     4.3     3.7     3.8

Efficiency ratio (8)

    33.7     34.0     35.6     36.8     38.0

ROA (6)

    2.2     1.9     1.8     2.0     1.9

Adjusted ROA (4)(6)

    N/A       N/A       2.0     N/A       N/A  

ROE (6)

    19.0     19.1     16.6     19.3     19.9

Adjusted ROE (4)(6)

    N/A       N/A       18.6                 N/A                   N/A  

 

   

As of and for the

three months ended
March 31, (unaudited)

   

As of and for the year ended December  31,

 
   

2019

   

2018

   

  2018  

   

2017

(restated) (1)

   

2016

(restated) (1)

 

Asset Quality and Capitalization

                          

Past-due-loans as a % of total gross loans (9)

    2.5     2.6     2.5     2.7     2.5

Cost of risk (6)(10)

    2.2     2.3     2.1     2.9     2.9

Core equity tier 1 ratio of Interbank (11)

    10.2     10.2     10.6                 10.1                   9.4

 

   

As of and for the
three months ended
March 31,

   

As of and for the year ended December 31,

 
   

2019

   

2018

   

2018

   

2017

   

2016

   

2015

   

2014

 

Distribution Network and Customers

             

Financial stores

    264       272       270       273       289       283       284  

ATMs

    1,953       1,994       1,973       2,052       2,159       2,297       2,324  

Correspondent agents (12)

    2,513       2,514       2,506       2,505       2,935       3,001       3,238  

Number of digital customers (13)

    975,269       667,506       882,437       620,448       454,194       296,184       234,224  

Percentage of digital users (13)(14)

    56     43     53     40     30     —         —    

 

(1)

Our consolidated financial information for 2017, 2016, 2015 and 2014 was restated as a result of a voluntary change in accounting policy regarding our method of accounting the variation in market interest rates on insurance contract liabilities. See Note 4.2.1(i) to our audited annual consolidated financial statements. The financial information presented for 2014 and 2015 was restated after issuance of the financial statements for those years due to a voluntary change in accounting policy with a negative impact of S/57.6 million for 2014 and S/218.1 million for 2015 in the line Total net premiums earned minus claims and benefits in the consolidated income statement.

(2)

Amounts stated in U.S. dollars as of and for the three months ended March 31, 2019 and as of and for the year ended December 31, 2018 have been translated from soles at the exchange rate of S/3.318 = U.S.$1.00. See “Exchange Rates”.

(3)

Except for percentages and ratios and distribution and customer data.

(4)

Adjusted net profit, adjusted ROA and adjusted ROE for the year ended December 31, 2018, are calculated excluding the effect of S/144.8 million due to a change in accounting estimates driven by the publication by the SBS of new mortality tables. Net profit was not adjusted for 2017 and 2016. See Notes 4.4 (d) and 4.6 to our audited annual consolidated financial statements. Adjusted net profit, adjusted ROE and adjusted ROA are non-GAAP financial measures and should not be considered in isolation or as a substitute for net profit, ROE or ROA, or other performance measures. See “Presentation of financial and other information—Non-GAAP financial measures” and “Selected Consolidated Financial Information—Non-GAAP Financial Measures.”

(5)

Net interest margin is defined as (x) net interest and similar income divided by (y) average interest-earning assets. See “Selected Statistical Information.”

(6)

Annualized for each interim period.

(7)

Risk adjusted net interest margin is defined as net interest margin after impairment loss on loans, net of recoveries.

(8)

Efficiency ratio is calculated by dividing (x) salaries and employee benefits plus administrative expenses plus depreciation and amortization by (y) net interest and similar income plus other income plus net premiums earned.

(9)

At end of period. See “Presentation of financial and other information—Loan Portfolio Data.”

(10)

Cost of risk is defined as impairment loss on loans, net of recoveries divided by average gross loans. Cost of risk includes an S/81.0 million recovery of provisions related to the construction sector at Interbank for 2018.

(11)

Calculated for Interbank only pursuant to SBS regulations.

(12)

ASBANC estimates, for 2014-2017 and Company estimates for 2018.

(13)

In the month of December for each full year and in the month of March for each interim period.

(14)

Percentage of digital users over total clients that interact with Interbank.



 

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Market Opportunity

We believe that the ongoing growth of the Peruvian economy, the expanding middle class, the growth of private wealth creation in Peru, the low penetration of financial services and the well-capitalized and profitable Peruvian financial system offer significant opportunities for our continued growth. Moreover, new technological developments are opening up new opportunities for growth, enabling us to efficiently acquire and serve more clients, while providing distinctive and convenient customer service and greater access and inclusion to financial services to previously underserved Peruvians.

High growth economy with strong macroeconomic fundamentals

According to the EIU, Peru’s average GDP growth rate was 3.2% between 2014 and 2018, which is higher than the growth rate of each of the peer countries in Latin America during the same period (Colombia at 2.8%, Mexico at 2.6%, Chile at 2.2%, and Brazil at negative 0.8%). Additionally, Peru’s average inflation rate was 2.9% between 2014 and 2018, which was lower than the inflation rates of each of the peer countries in Latin America during the same period (Brazil at 6.2%, Colombia at 4.6%, Mexico at 4.1% and Chile at 3.5%). The Peruvian government’s prudent management of the economy, conservative fiscal policy, coupled with the Central Reserve Bank of Peru’s cautious management of inflation and international reserves have contributed to economic development, increased internal consumption and strong macroeconomic fundamentals, including low levels of public debt, low inflation, low fiscal deficit and high levels of international reserves. Peru’s strong track record of macroeconomic policy credibility, consistency and ability to adapt to changes has helped it to achieve investment grade ratings of A3 by Moody’s Investor Service (“Moody’s”), BBB+ by Standard & Poor’s Rating Services (“S&P”) and BBB+ by Fitch Ratings Ltd. (“Fitch”) as of December 31, 2018. In its most recent forecast as of March 2019, the Central Reserve Bank of Peru has estimated real GDP growth for Peru of 4.0% for both 2019 and 2020, in line with 2018 growth.

Expansion of the middle class and affluent population

The core of our customer base is Peru’s growing middle class and affluent population. According to INEI, the poverty rate in Peru has declined to 20.5% in 2018, from 30.8% in 2010, and GDP per capita in U.S. dollars has grown from U.S.$5,051 in 2010 to U.S.$6,907 in 2018, according to EIU. Peru has a total population of 32.2 million, and according to the Asociación Peruana de Empresas de Investigación de Mercados (APEIM), Peru’s middle and upper socioeconomic segments (segments A, B and C) have significantly expanded and, as of 2017, represented 50% of the population compared to 42% in 2010. We believe that the increase in the number of people belonging to the middle class and affluent population creates a greater need for financial services, particularly for increasingly sophisticated banking, insurance and wealth management products. The expansion of these segments of the population drives growth and profitability across our business. Additionally, based on macroeconomic trends, we expect the number of high net worth individuals in Peru and the size of their investable assets to continue to grow and further increase the market for wealth management services.

Low financial services penetration

We believe that growth potential in Peru’s financial services sector continues to be significant. Despite sustained recent growth of 8.8% CAGR in total gross loans between 2014 and 2018, banking penetration in Peru, measured as the ratio of loans-to-GDP, was 36.6% as of December 31, 2018, according to the SBS and the Central Reserve Bank of Peru, below the average ratio of 51.2% for the group of peer countries in Latin America according to the EIU, the SBIF, the Central Bank of Brazil, the Colombian Financial Superintendency, and the Mexican Commission for Banking and Securities. In addition, it was less than half of the 93.0% ratio for Chile. We believe that penetration potential is even more significant in retail banking. Total retail loans including credit cards per inhabitant in Peru, is well below its peer countries in Latin America. As of December 31, 2018, the



 

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estimated total number of debit and credit cards per inhabitant in Peru was 0.9 as compared to 2.3 cards per inhabitant for Chile, according to the SBS and the SBIF, respectively. The ratio of retail loans-to-GDP in Peru was 13.0%, while the penetration of retail loans in Chile was 39.6% and the average for the group of peer countries in Latin America was 26.3%, as of December 31, 2018. Furthermore, as of December 31, 2018, there were approximately 0.2 million mortgages outstanding in Peru for a population of approximately 32.2 million, compared to approximately 1.6 million mortgages outstanding in Chile for a population of approximately 18.2 million. Similarly, insurance penetration in Peru, measured as the ratio of premiums-to-GDP as of December 31, 2017, is estimated to be 1.6%, which is lower than the average ratio of 3.5% for the group of peer countries in Latin America, and less than half the ratio of 4.9% for Chile, according to the Swiss Re Sigma 2017 Report.

Healthy, well-capitalized and profitable financial system

As a result of sound regulation and prudent management, the Peruvian financial system is healthy, well-capitalized and profitable, according to figures published by the SBS. Gross loans in Peru (measured in soles) have grown at a CAGR of 8.8% between December 31, 2014 and December 31, 2018, and 8.5% between March 31, 2018 and March 31, 2019, while the banking system’s asset quality has remained strong with a ratio of past-due loans as a percentage of total gross loans of 3.0% and a ratio of impairment allowance for loans as a percentage of past-due loans of 153.0% as of March 31, 2019, according to the SBS. Capitalization of the Peruvian banking system has consistently been well above regulatory requirements in the last five years with a total capital ratio of the banking system of 15.3% as of March 31, 2019, according to the SBS, as compared to a minimum requirement established by the SBS of 10.0% plus a 2.3% additional capital requirement. Interbank’s capitalization ratio was 16.4% and Interseguro’s regulatory solvency ratio was 130.4%, according to the SBS as of March 31, 2019. Furthermore, the banking and insurance industries in Peru remain profitable, with an 18.3% annualized ROE for the banking system and a 19.7% annualized ROE for the insurance industry for the three months ended March 31, 2019, according to the SBS.

Development of new technologies and distribution channels

There are many technological trends currently impacting the financial services industry worldwide. For example, the penetration of cell phones, Internet and the 4G mobile network, the ability to process large quantities of data through big data, cloud and machine learning, and the opportunity to utilize robotics and artificial intelligence. As a result, many large banks have started digital transformations with large increases in their level of technological investments and are working on developing their product offerings.

Due to improved technology, banks are now able to offer a better value proposition to their customers that include better solutions with features tailored to the customer’s needs, contextual banking (whereby the customer is offered a connected banking experience, including tailored product offerings), enhanced 24 hour customer support and access and faster approval and response times, all at a lower per capita cost. Additionally, banks are now able to reach a broader base of customers both in terms of income levels and geographic locations and will be able to gradually offer them more products and services and make them a part of the banked segment of the Peruvian population, which constitutes a very important growth opportunity in the country.

Competitive Strengths

We have established a premier financial group with leading market positions in each of our primary business segments. We believe that our market share, focus on targeted and profitable segments, scale and highly recognized and trusted brands, combined with adoption of innovative technologies and increasing integration across our business segments, strongly position us to capitalize on the future expansion of the Peruvian economy.



 

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Leading financial services provider focused on retail customers and highly attractive businesses

We target retail customers and growing and profitable businesses in Peru. We have highly recognized and trusted brands in each of our segments, Interbank in banking, Interseguro in insurance and Inteligo in wealth management. Within our banking segment, Interbank focuses primarily on retail banking, where we believe we are able to obtain higher profitability, with 54.0% of its loan portfolio constituting retail loans, compared to 35.7% for the Peruvian banking system, as of March 31, 2019, according to the SBS. Interbank is the second largest provider of consumer loans among banks in Peru, with a 22.6% market share as measured by gross consumer loans as of March 31, 2019, compared with 24.7% for BCP, 17.1% for Scotiabank and 11.6% for BBVA. Interbank is also the largest provider of credit card loans among banks in Peru, with a 26.3% market share by credit card loans, and the largest privately owned bank provider of payroll deduction loans to public sector employees, with a 23.5% market share by payroll deduction loans, in each case as of March 31, 2019.

We believe that our focus on the retail market has allowed Interbank to obtain a higher ROE than the banking system on average. This higher ROE is driven by a balanced consumer loan portfolio where two of our most profitable products are credit cards and payroll deduction loans. Interbank has one of the highest net interest margins when compared to the three largest banks in Peru, due to its higher weighting in retail banking and credit cards when compared to its peers. Low delinquency rates on our payroll deduction loans reduce the overall credit risk exposure of our consumer loans portfolio. For the three months ended March 31, 2019, Interbank’s NIM was 135 basis points higher than the average for the three largest Peruvian banks and for the three months ended March 31, 2019, Interbank’s risk adjusted NIM was 69 basis points higher than the average for the three largest Peruvian banks, according to the SBS. Under IFRS, Interbank’s net interest margin for the three months ended March 31, 2019 was 5.5%.

Our commercial banking business serves a range of clients spanning large corporates, mid-corporates and SMEs. We are focusing on increasing our market share in mid-corporates and SMEs while maintaining our large corporate business with a profit-oriented approach. This market provides an additional growth opportunity given our 8.4% market share for mid-corporates and 4.0% market share for small businesses as of March 31, 2019, according to the SBS. Moreover, our overall commercial loan portfolio provides us with a lower risk component that balances our total loan portfolio.

We believe that Interseguro provides us with a fast-growing and profitable business. In our insurance segment, Interseguro is the leading provider of annuities in Peru, with a market share of total annuities (excluding private annuities) of 32.3% as measured by premiums collected for the three months ended March 31, 2019, according to the SBS. We focus on the middle class and affluent population in Peru, a segment we believe is substantially underpenetrated in insurance services. During April 2016, the Peruvian Congress enacted a law that allowed retirees to withdraw up to 95.5% of their accumulated capital in cash in their mandatory pension account upon retirement, resulting in a significant reduction of retirement annuities sold by Peruvian insurance companies, including Interseguro. In this context, in order to keep its position as a leading provider in annuities, in 2016, Interseguro launched its private annuities product which allows retirees to receive a fixed income either for life or a fixed period. As of the date of this prospectus, most of the customers of private annuities and their funds originate from retirees who choose to buy a product from an insurance company rather than from a private pension fund. Interseguro is also a leading provider of life insurance with the acquisition of Seguros Sura and we believe this market provides an additional opportunity for growth.

Within our wealth management segment, Inteligo is well positioned to capture an increasing share of the growing number of wealthy individuals, resulting from economic growth and wealth creation in Peru. Inteligo’s CAGR in assets under management was 11.8% between December 31, 2014 and December 31, 2018. We believe that Inteligo’s position as a provider of tailored wealth management services as well as its ability to provide its customers with both local and international investment products will help increase its share of wallet among high net worth individuals, while delivering high levels of growth and profitability.



 

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Track record of sustained growth supported by our strong market share and high profitability

Our strong track record of growth is supported by our increased market share, improvements in efficiency, and high profitability across our business segments. At Interbank, we have gained significant market share over the years. Our market share in total gross loans has increased from 9.4% in 2007, to 11.3% in 2014, and to 12.0% in 2018, while our market share in total deposits has grown from 9.3% in 2007, to 11.6% in 2014, and to 12.8% in 2018. We are focused primarily on retail banking because we believe that it presents significant growth opportunities and higher profitability. In retail banking, Interbank’s outstanding retail loans, including consumer and mortgage loans, achieved a 17.3% growth between March 2018 and March 2019, higher than the 10.9% registered for the Peruvian banking system, according to the SBS. Our market share was 26.3% in credit card loans in March 2019, the largest in the market. In the same period, Interbank has held a strong position across retail products, with market shares of 17.0% and 18.7% of total retail loans in 2014 and March 2019, respectively, according to the SBS. With respect to mortgage loans, Interbank’s market share increased from 12.7% in 2014 to 14.4% in March 2019, according to the SBS. Interbank’s increasing market shares have been accompanied by high profitability, with ROE averaging 23.5% compared to 19.8% for the Peruvian banking system, from 2014 to 2018. The commercial banking division at Interbank has also grown faster than the Peruvian banking system. Interbank’s outstanding commercial loans achieved a 16.1% growth between March 2018 and March 2019, higher than the 5.1% and 7.2% registered for BCP and the Peruvian banking system, respectively according to the SBS.

Interseguro is a leading and growing insurance company in Peru, which achieved a CAGR of 8.3% in premiums, compared to the Peruvian insurance industry’s 6.1%, between December 31, 2014 and December 31, 2018, according to the SBS. Furthermore, in the same period Interseguro’s positioning in the industry increased, with market shares in annuities by premiums (excluding private annuities) of 22.7% in 2007, 24.6% in 2014 and 32.3% in March 2019. Interseguro’s assets increased at a CAGR of 27.2% compared to 10.1% for the insurance industry between 2014 and 2018. Between 2014 and 2018, Interseguro’s ROE averaged 30.0% compared to 15.8% for the insurance industry, both according to the SBS. Interseguro’s recent results have been driven in large part by the acquisition of Seguros Sura. Interseguro’s ROE was 22.1% for the three months ended March 31, 2019, according to the SBS.

Inteligo’s assets under management grew at a CAGR of 11.8% between 2014 and 2018. Similarly, net profit grew at a CAGR of 7.4% between December 31, 2014 and December 31, 2018, supported by strong fees on assets under management. Inteligo’s ROE averaged 26.5% for the three-year period ended December 31, 2018. Inteligo’s ROE was 38.1% for the three months ended March 31, 2019.

Digital suite of products and services with rapidly increasing levels of adoption

IFS is striving to reshape the banking space in Peru, creating a new digital experience driven by convenience and simplicity. Although we believe physical channels are still necessary in an underpenetrated financial system like Peru’s, our digital platform has substantially increased our customers’ interactions with Interbank and provided us with new business opportunities to build on consumer loyalty and cross-sell services, as well as accelerate new customer acquisition and inclusion of previously underserved segments of the population, including individuals, entrepreneurs and micro-businesses. We have a wide offering of digital products and services for existing and new clients, enabling them to get what they want, when they want it, and how they want it.

We believe our digital platform provides us with a competitive advantage as evidenced by our increased market share and improvement in net promoter score (“NPS”). As of March 31, 2019, 95% of total functionalities at Interbank, which include day-to-day transactions, new products and self-service features, are available digitally. Our digital users have reached 56% of total retail customers who interact with the bank in



 

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March 2019, and our 100% digital customers have reached 22% of total retail customers in March 2019 compared to the 10% reached in 2016. Our digital transformation allows our customers to interact more frequently with us. As a result, our customers’ monthly interactions through our digital platform have increased substantially, from 10 million in March 2017 to 18 million in March 2019, while interactions in branches remained stable at 2 million in the same periods. Our penetration of digital sales and self-service transactions increased to 31% of total retail sales and self-service interactions in March 2019, from 21% in March 2018.

Furthermore, digital customer acquisition, or clients that were ‘born digital’, reached approximately 11,500 in March 2019, or 17% of new individual clients, compared to approximately 1,600 in March 2018, or 3% of new individual clients. Similarly, we are continuously improving our digital capabilities for SME and corporate clients, enhancing our value-added proposition and tools to foster our commercial customers’ growth. For example, we have streamlined our account opening process for businesses from fifteen days to a digital thirty-minute process. This innovation has driven growth in new customer acquisition for small companies through our digital platform, accounting for 38% of our total new small business accounts in March 2019 compared to 0% in March 2018.

Supported by our digital platform, we have also increased the cross-selling of products, which we define as the number of products owned by a customer. The cross-selling ratio is calculated as the sum of the number of products owned by any given group of customers divided by the number of customers in such group. The number of products owned by our digital customers has increased 49% from March 2018 to March 2019, which resulted in a higher cross-selling ratio for digital customers, from 1.84 products per digital customer in March 2018 to 1.92 products per digital customer in March 2019. By comparison, the number of products owned by our total customers increased by 15%, with a growth in the cross-selling ratio for total customers from 1.61 products per customer in March 2018 to 1.66 products per customer in March 2019. Accordingly, the cross-selling ratio for digital customers was 1.15 times greater than the cross-selling ratio for total customers in March 2019.

Further, the total number of products sold increased 33%, from approximately 332,000 in March 2018 to approximately 440,000 in March 2019. Products sold digitally more than tripled, from approximately 35,000 to approximately 113,000, representing 26% of total sales in March 2019, compared to 10% in March 2018; compared to an increase of 10% for products sold through non-digital channels, which represented 74% of our total sales in March 2019, compared to 90% in March 2018. Per specific product, in March 2019, approximately 25,000 saving accounts were opened digitally, which represented 24% of total savings accounts opened, compared to approximately 2,000 saving accounts opened digitally in March 2018, or 3% of total savings accounts opened. Similarly, approximately 2,000 extra cash loans were sold digitally in March 2019, or 15% of total sales of such product, compared to approximately 1,000 extra cash loans sold digitally in March 2018, which represented 7% of total sales. Credit card line increases also grew due to our focus on our digital platform. In March 2019, approximately 38,000 credit card line increases were performed digitally, representing 68% of total credit card line increases, higher than approximately 11,000 credit card line increases performed digitally in March 2018, or 35% of total credit card line increases. Digital sale of credit cards grew from approximately 200 credit cards sold in March 2018, to approximately 25,000 in March 2019, increasing its share in the total number of credit cards sold from 1% to 8% in the corresponding period.

As part of our digital transformation, we have introduced new technologies and processes which enable us to improve time-to-market of new solutions. We have also made significant changes in the way we work. We are currently working with more than 80 teams using an agile framework on a number of projects, ranging from applications, digital products, new functionalities, and we are currently exploring different solutions targeting new customer segments and piloting new initiatives. For example, we have an innovation lab called “LaBentana”, which focuses on continuous innovation and development of new ideas and pilot initiatives, using design thinking methodologies developed together with the consulting firm IDEO.



 

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Convenient and innovative nationwide omni-channel distribution network with a distinctive customer-oriented approach

We believe that our convenient and innovative nationwide retail distribution network together with a dedicated sales force and financial advisors, allow us to better reach our customers, and this combination has differentiated us from our competitors. Interbank has one of the most convenient and extensive retail banking distribution networks in Peru and is currently present in almost all of Peru’s regions. Our focus on digital transformation allows to help our customers to interact with us in an easier and more efficient way, and allows customers to migrate from the use of physical infrastructure to digital platforms. For instance, we have shifted monetary transactions operated through our branches to digital channels. Total monetary transactions have been increasing at a CAGR of 5.6% from 2015 to 2018 driven by monetary transactions through our mobile and internet banking which have increased at a 62.1% CAGR for the corresponding period, even though monetary transactions through our financial stores have been decreasing at a CAGR of 3.9% from 2015 to 2018. We believe this optimization of our distribution footprint has enabled us to reach our clients more efficiently, allowing them to perform transactions when and how they want to, at lower marginal costs for Interbank. This has also allowed us to improve our NPS for digital clients, which was 42 as of March 31, 2019, 16 points higher than NPS for traditional clients.

Interbank has built a convenient omni-channel distribution network in Peru, serving over three million customers. As of March 31, 2019, Interbank had 264 financial stores and operated the third-largest ATM network in Peru with more than 1,953 ATMs, which includes the largest out-of-branch ATM network (under our Global Net brand). Interbank has the largest number of financial stores inside supermarkets in Peru, which are open seven days a week from 9:00 a.m. to 9:00 p.m. Moreover, with the intention of providing underserved customers with more convenient services, Interbank operates a network of correspondent agents, called Interbank Agentes. The correspondent agent concept consists of providing third-party commercial establishments with low-cost electronic terminals which allow Interbank’s customers to perform basic cash-based operations such as cash withdrawals, credit card and bill payments, and deposits at a lower marginal cost to Interbank relative to transactions performed in our financial stores. As of March 31, 2019, Interbank had over 2,500 correspondent agents.

Since 2013 and in line with our strategy, we have implemented a profitability model for financial stores and ATMs which ranks them according to certain profitability metrics relevant to each distribution channel. This has allowed us to identify the less profitable units in order to close them and to prioritize new openings in more strategic locations with higher demand for value-added financial services. As a result, the number of financial stores, which peaked at 290 in 2016, has decreased to 264 as of March 31, 2019, while productivity of financial stores, measured as the volume of retail deposits per branch, has increased. This drove retail deposits per branch to grow from approximately S/32 million per branch as of December 2014 to approximately S/55 million per branch as of March 2019. Additionally, the number of monetary transactions per branch has increased from approximately 39,000 monetary transactions per branch in December 2014 to approximately 50,000 monetary transactions per branch in March 2019. Similarly, the number of ATMs has decreased to 1,953 in March 2019 from 2,297 in 2015, while monetary transactions kept growing year over year in this channel. Furthermore, the number of Interbank and Interseguro sales agents has decreased from 897 in 2016 to 803 in March 2019, while call center agents decreased from 390 to 353 in the same period.

Interseguro offers and sells its annuities and individual life insurance products through its own dedicated sales force to ensure the delivery of high-quality service and advice to customers. Interseguro’s specialized sales force is trained to provide a differentiated service for various customer types. As of March 31, 2019, Interseguro employed 117 agents exclusively dedicated to selling annuities and 273 agents to selling other insurance products. In addition to its own sales force, Interseguro leverages on the retail distribution capabilities of Interbank and those of Intercorp and of Intercorp Retail to offer simple low-cost premium insurance products, such as credit life insurance, mandatory traffic accident insurance (“SOAT”), card protection, loan protection, extended warranty and accident insurance.



 

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Inteligo has developed a proprietary financial advisory model that has been a key pillar in sustaining its growth. The model takes into account the financial objectives of its customers and emphasizes risk analysis and continuous monitoring with portfolio rebalancing. Along with this, Inteligo has been able to successfully serve its customer base in order to deliver tailored products and advice.

Prudent risk management resulting in high asset quality, strong liquidity and high investment returns

Risk management has been and will continue to be a primary focus of our operations and at the center of our culture. Our experienced risk management teams focus on monitoring and managing risks across all business areas, including credit, market, liquidity and operational risks, among others. We believe our risk management expertise has allowed us to achieve strong asset quality and high investment returns. Our prudent management has allowed us to build up sufficient capital to allow us to grow strategically, invest in opportunities and pay dividends to our shareholders.

Interbank’s underwriting procedures are based on strong analytics and proprietary models. Additionally Interbank’s investments in technology and improvements in its ability to process and apply data have enriched our risk models and enhanced their accuracy and predictiveness. These models, which have increased eight times in number since 2017, along with the risk management skills of its experienced risk management team, provide Interbank with a competitive advantage. Interbank’s credit risk policies are approved by its risk committee and board of directors. Despite Interbank’s concentration in retail loans, which tend to have higher levels of delinquency, Interbank’s past-due loans as a percentage of total gross loans ratio as of March 31, 2019 was 2.6%, lower than the 3.1% average of the three largest banks in Peru. As of March 31, 2019, Interbank’s past-due loans coverage ratio was 177.0%, which compares favorably with the average for the Peruvian banking system of 153.0%, according to the SBS.

Interbank’s capitalization ratio, which is calculated as Interbank’s regulatory capital divided by its risk-weighted assets, was the highest compared to the other three largest banks. Additionally as of March 31, 2019, Interbank’s capitalization ratio stood at 16.4% as compared to 15.3% for the Peruvian banking system, according to the SBS. The minimum capitalization ratio required by Peruvian banking regulations is 10.0% plus an additional capital requirement which depends on certain levels of loan concentration in each institution. For Interbank, this additional capital requirement amounts to 1.7% as of March 31, 2019, compared to 2.3% for the Peruvian banking system. Interbank’s core equity tier 1 ratio was 10.2% as of March 31, 2019.

Interseguro’s investment team and its investment management approach have achieved a 6.9% investment return for the three months ended March 31, 2019, compared to the Peruvian insurance industry’s 7.3%, according to the SBS, while maintaining prudent levels of risk and following the SBS risk guidelines.

Inteligo’s lending services are offered through Inteligo Bank to complement its wealth management business. The decision to make loans to wealth management customers only results in Inteligo’s loan portfolio being fully collateralized by its customers’ assets and which to date have had no delinquencies. Regarding the management of capital, Inteligo Bank’s capitalization ratio, which is calculated as Inteligo Bank’s regulatory capital divided by its risk-weighted assets, was 26.9% as of March 31, 2019, above the minimum capitalization ratio required by the Central Bank of Bahamas of 8.0%.

Increasingly integrated business platform with synergy potential supported by a strong parent group

Since the introduction of our insurance and wealth management operations alongside our banking operations, we have strived to share and leverage key resources and capabilities across all three segments, which has resulted in enhanced revenues.



 

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Our banking operations remain our core competency that binds together all our operations, while our insurance and wealth management operations are expected to continue supporting our growth. We believe that our continuous efforts to better integrate our three segments, combined with our focus on digital transformation, our existing distribution channels, experience and knowledge of our customer base and the Peruvian market, is a significant competitive advantage.

Furthermore, our parent company, Intercorp Peru, is one of Peru’s largest economic conglomerates, with activities spanning financial services, retail, education and real estate, among others. In 2018, Intercorp Peru’s businesses represented approximately 3.3% of Peru’s GDP, while generating U.S.$7,529.7 million in revenues. We believe that being part of this group gives us a competitive edge, because of the group’s deep knowledge of the Peruvian consumer, extensive focus and know-how in the Peruvian retail market, highly visible in-country presence and rapid decision-making capabilities. Intercorp provides significant synergy and cross-selling opportunities for IFS. For example, starting in 2018, we, jointly with Intercorp Peru, launched an effort to strengthen our presence and commercial efforts in seven of Peru’s main regions: Arequipa, Cusco, Trujillo, Chiclayo, Ica, Huancayo and Piura, by leveraging on Intercorp’s already established network.

Diversified funding base with strength in retail deposits

IFS has a competitive funding structure. We have access to diverse sources of funding, including deposits and debt securities placed in local and international capital markets. The majority of our funding comes from low cost customer deposits, which demonstrate our customers’ trust in our franchise and enables us to achieve attractive lending spreads. At Interbank, as of March 31, 2019, 78% of our total funding base was comprised of deposits. Interbank’s deposit base is broad and fragmented, such that we are not dependent on a certain type of customer, which provides Interbank with an average cost of funding of 3.0% for the three months ended March 31, 2019 and 2.5% for the corresponding period of 2018.

Interbank has been a significant player in the Peruvian banking industry with a market share of demand, savings, and term deposits of 12.8%, 15.0%, and 11.1%, respectively, as of March 31, 2019, according to SBS. Moreover, our strategic focus on retail has allowed Interbank to gain market share in retail deposits over the years reaching 13.2% as of March 31, 2019 compared to 12.1% as of December 31, 2014, providing us with a healthy funding base.

Interbank’s strong asset quality and capital and liquidity position have resulted in two of the highest local ratings levels possible, which have allowed it to secure local funding through local short-term and long-term debt market issuances.

Experienced management team with proven ability to foster a merit-based culture and a highly motivated work force

We believe that the strength of our senior and middle management team has enhanced and will continue to be a key driver of our successful business model. We benefit from an experienced, diverse and talented management team. Most of the members of our senior management have held management positions with other major financial institutions in the United States, Latin America and Europe.

We are focused on attracting, developing and retaining highly qualified personnel and believe that a merit-based culture that emphasizes teamwork enables us to maintain a motivated workforce that delivers high-quality service. Interbank is the only Peruvian company that has been chosen by the Peruvian Great Place to Work Institute as one of the 20 best places to work in Peru for the past 17 consecutive years and one of the top 20 places to work in Latin America in the past nine years. In the most recent rankings, Interbank was selected number two best company to work for in Peru in the large size category (2018), number three in Latin America



 

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(2019), number two for women in Peru (2019) and number three for millennials in Peru (2018). Similarly, Interseguro is the only Peruvian insurance company that has been chosen as one of the top ten best places to work in Peru (medium-size category) by the Peruvian Great Place to Work Institute for the past eight consecutive years. Additionally, Inteligo SAB has been ranked among the top 15 companies in its category (companies with 30 to 250 employees) in Peru since it started participating in the Great Place to Work Institute survey in 2011, and is currently the only Peruvian brokerage house included in the ranking. Inteligo Bank’s branch in Panama began participating in the Great Place to Work Institute survey in 2014 and since 2015 has been ranked among the top 10 companies in its category (companies with 30 to 250 employees) in Panama.

Strategy

Our purpose is to empower all Peruvians to achieve financial well-being. Our aim is to become the top-of-mind partner for Peruvians, individuals and enterprises, when they think about both day-to-day financial needs and medium-term goals and dreams. To achieve this goal and to continue being a fast growing and profitable company, we have defined our key strategic priorities as follows:

Become the foremost financial services company in the heart and mind of Peruvians by putting them at the center of our ecosystem

We aim to become the preferred option for our individual and commercial customers helping them to achieve financial well-being and growth by deeply knowing and anticipating their needs, by building trust and providing transparency in our relationship with them, and by delivering a superior experience which is simple, mobile, agile and suited to that particular customer. We have highly recognized and trusted brands in each of our segments, Interbank in banking, Interseguro in insurance and Inteligo in wealth management.

We help our individual customers throughout their journeys with a personalized approach based on customer segment, which includes Joven, Preferente, Emprendedor, Premium and Select within Interbank and Certia and Private within Inteligo. The customer journey begins with new client acquisition and on-boarding, continues with customer development and loyalty, and finally, we focus on maintaining our customer base through retention and our win-back efforts. We have been implementing a number of initiatives aimed at improving the complete customer relationship. As of March 31, 2019, in retail banking, NPS increased to 33, compared to 11 as of March 31, 2018. In commercial banking, as of March 31, 2019, NPS remained stable at 32 compared to March 31, 2018.

We are continuously improving our value proposition for different customer segments including improvements to basic products such as accounts, payments and financing; introducing new special digital features, such as the loyalty program Interbank Benefit, the budget tool Smart, the digital savings account Piggybank, and the customer relationship program Interbank Cares. We are also developing additional ecosystems such as a financial health platform for customers and other tailored experiences. Towards this end, we use design thinking methodologies, learned through the consulting firm IDEO, that have been deployed in a number of projects.

Additionally, we are creating a payment ecosystem that seeks to create a strong bond with our customers, by focusing on four pillars: (i) increasing current person to business (“P2B”) offline business by extending merchant coverage, improving customer experience and banking the unbanked, (ii) increasing current P2B online business by optimizing adoption and fostering usage, (iii) improving the convenience of person to person (“P2P”) payments for customers by developing a better experience, and (iv) eliminating cash by banking the unbanked through pre-paid cards and through our open APIs that allow partners to access our account opening and basic financial-transaction services. Our goal is to develop an ecosystem which creates loyalty from customers and allows us to fulfill their financial needs digitally.



 

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Within commercial banking our priority is also growth with a strong focus on profitability. We aim to provide the best self-service credit experience for commercial clients, by digitally providing them with the information and features necessary to manage their financial needs, and by offering the easiest and most transparent means of managing their cash flow and payments. For this purpose, we are in the process of implementing a new internet banking platform that will deliver most of these features.

For commercial banking we have three client groups based on volume of sales and employ different strategies accordingly. For large corporates we focus our efforts on generation of fees from cash management and corporate finance; for medium-sized companies we focus on growth, productivity and cash management; and for small companies we focus on sustainable growth and productivity with a strong support from analytics and collections. For small businesses, we now can open a Cuenta Negocios account within 30 minutes and have seen the number of new clients opening this account digitally, increasing from no accounts for 2017 to more than 9,700 accounts as of March 2019 since its introduction in August 2018. Moreover, we are testing an application which provides an alternative way of financing based on digital tools and information.

Be the company with the deepest knowledge of Peruvians providing personalized and real-time solutions

Our advanced analytics and CRM capabilities are being enriched with new sources of data and new tools that technology offers, such as cloud, real-time decision, machine learning and artificial intelligence. We aim to have the deepest understanding of Peruvians, both individuals and companies, as we believe that a deep knowledge of our current and potential customers’ characteristics and adapting to their behavior is important to better serve them, and to offer them the best solutions for their needs and risk profile.

Investments in technology represent the pillar of this strategic initiative, and we are working on a variety of areas to achieve this goal, including data and infrastructure, advanced analytics for marketing, and risk profiling and pricing models, as well as improving our CRM capabilities, including contextual marketing. With the support of our team of data scientists, we centrally design and distribute most of our sales campaigns, and have substantially improved our campaign effectiveness and are currently employing real-time decision making on certain campaigns. This combination of investments has helped make us more dynamic, and to be able to approach customers in real time.

These efforts also include different actions undertaken to have a better understanding of the self-employed segment of the population, which constitute a significant opportunity for financial services given the current low penetration levels. We are working on alternative risk profile models for new customer acquisition using new sources and non-traditional sources of data.

Our analytics vision is to have a fully deployed online customer management system which relies on real-time data, cloud processing, automated and reusable variables, real-time decision and actions, and an integrated infrastructure to support these new processes.

Attract and retain customers with a superior experience, which seamlessly integrates our physical and digital platform

We want to deliver a seamless and superior experience to our customers that integrates our physical and digital platforms. We believe this combination will allow us to more effectively serve our customers, enabling them to get what they want, when they want it, and how they want it.

At Interbank, we have developed the digital capabilities to perform more than 95% of all the functionalities a customer needs within Interbank as of March 31, 2019. These include transactions, sale of new products, and self-service features. The percentage of transactions performed off branches has continued to



 

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increase, reaching 95% as of March 31, 2019. Digital sales and other self-service interactions have significantly increased during the last 12 months reaching 31% in March 2019, from 21% in March 2018. This represents a growth of 72% in the volume of digital sales and self-service interactions.

Through our physical channels we continue to focus on providing a superior customer experience and are improving productivity and efficiency through new paperless and digital processes, tools and more advanced analytics. Additionally, we continue to invest in educating our customers to encourage the use of digital and other channels. Deposits, withdrawals, payments of bills and credit cards are being redirected to other more cost-efficient channels.

Furthermore, we are currently redesigning our physical distribution platform to better suit the new digitally-influenced customer needs. Our idea is to focus more on high value-added activities, which include advisory and complex product sales, and less on transactions and simple product sales. For this purpose, we are in the process of redesigning our branch formats and distribution presence, including branches, correspondent agents, contact center and ATMs.

In digital, we are focusing our efforts on expanding the products and self-service interactions, continuing to foster the adoption of digital channels by our customers, adding new features, such as chat robots for employees and customers, and ensuring that interactions with our customers are safe and secure.

At Interseguro, we are expanding our product offering through our digital platform, which started with the launch of the online sale of SOAT in 2016, and continued with the sale of new digital products, such as travel insurance and car insurance. In 2018, premiums sold through digital channels accounted for 1.5% of gross premiums and for the three months ended March 31, 2019 accounted for 2.7% of gross premiums. At Inteligo, we introduced Certia, which focuses on onshore wealth management, and launched a digital platform that allows on-boarding, financial planning, advisory and execution services to our customers.

Create and scale-up new businesses by targeting new customers, segments and businesses

We seek to accelerate growth in the underpenetrated Peruvian market. For this purpose, we carry out thorough research through our lab LaBentana, alongside consumers, to identify areas for improvement and develop a variety of new initiatives to address pain points and make our offering more seamless. This allows us to target new customer segments, aiming to develop new revenue sources and accelerate our digital transformation.

Examples of these initiatives include the piloting of a digital payments solution for users and merchants. It targets cash payments at points of sale and cash peer-to-peer transfers, which account for the majority of total transactions. It offers in store payments through QR codes, online mobile top-ups and peer-to-peer transfers using only the mobile phone number.

Another initiative aims at finding alternative methods to provide access to loans to small and micro enterprises. Through a fully digital experience, which makes it cost-efficient and scalable, it allows small entrepreneurs to request and, if approved, get a loan disbursed in maximum of four hours. Once these initiatives have scaled up, we integrate them into our operations and digital platform, as have been the cases for the Piggybank and the expedited opening of accounts for small businesses through Cuenta Negocios.

Focus on efficiency and productivity

We will continue to focus on our digital transformation to enhance efficiency through the automation of internal processes and use of technology. Our goal is to be more efficient while utilizing fewer resources in our



 

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customer interactions by focusing our efforts on four main areas: (i) becoming paperless, (ii) implementing more independent robot usage which includes artificial intelligence features, (iii) digitalizing end-to-end customer processes and (iv) eliminating low value-added activities.

During 2017 and 2018, we focused on reducing paper-based processes mainly targeting intensive back-office processes and branch processes. During 2018, we implemented our first 38 robotic process automations at Interbank with the aim of improving customer and operational processing times (in particular for low value-added processes) and reducing operational errors. Our target is to implement more than 100 robotic process automations during 2019 at Interbank.

Our focus on profitability has helped us to improve our efficiency ratio from 38.0% in 2016 to 35.6% in 2018, and 33.7% in the three months ended March 31, 2019 with initiatives spanning from branch and ATM rationalization to increases of sales productivity. We will continue to pursue such initiatives which are bolstered by new digital features and processes.

Provide a scalable platform that our customers can trust with world-class technology

A scalable, flexible, stable and secure technological platform is key to achieve our purpose. We believe that we have deployed the key initial investments necessary to scale our platform and are committed to continue improving by maintaining our current levels of investment.

The first phase of investments from 2015 to 2017 consisted of (i) new mobile and internet banking platforms for retail customers, (ii) a new internet banking platform for commercial customers, (iii) investment in data, (iv) significant investment in our core infrastructure and applications to guarantee the stability and operational efficiency needed to support increasing transactional volumes coming from our digital strategy, including the outsourcing of our data centers, and (v) cybersecurity to safeguard our operations and our customers. See “Business—Information Technology Unit” for further information.

Beginning in 2018, in the second phase we have been increasing our efforts on advanced analytics development, including big data, machine-learning, cloud and real time decisions, by working together with world-class partners to build capabilities to serve our customers throughout the life cycle digitally and to explore new business opportunities. We have bolstered our investments in cybersecurity as we believe it is fundamental to provide a secure platform to be able to continue with our digital transformation.

We have moved from working with 17 agile teams in 2017 to more than 80 in 2018, allowing us to substantially decrease time-to-market, being 14 times faster, and to develop more innovative ideas. We also have an internal innovation lab working with design thinking methodologies implemented together with the consulting firm IDEO to further accelerate the development of new ideas using new technologies.

Our ongoing focus is based on four main areas of work: (i) development of a new digital platform based on open technologies and APIs, (ii) focus on the high performance and stability of our technological platforms, including cloud services, (iii) new processes for continuous delivery of new developments, and (iv) focus on cybersecurity.

Be a great place to work with a unique culture and strong sense of achievement for new talent

We believe that a motivated workforce leads to high-quality customer service, which leads to satisfied customers and better results. Our commitment to fostering a motivated workforce and performance-based culture is demonstrated by being ranked among the top Peruvian and Latin American companies in all our core segments by the Great Place to Work Institute and recently also in the specific rankings for women and millennials.



 

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In the past years, we have been focusing on changing the way we work to agile methodologies, developing digital and analytical capabilities and changing the mindset of our talent. For this purpose, we have introduced a series of initiatives such as Demo Days, Expo Analytics, Interbank Hackathon, Innovaton, Interbank Datathon, as well as our Innovation Day at the Intercorp Peru level. We have also created training programs including the Agile Academy, Tribk, and the Interbank Tek program.

Interbank, Interseguro and Inteligo will continue their efforts to attract, develop and retain highly qualified personnel and to maintain a performance-based culture that emphasizes teamwork to keep a motivated workforce that delivers high-quality service and strong results.

Recent Developments

The following information has been derived from management accounts, is preliminary in nature, does not reflect the complete results of the six months ended June 30, 2019 and is subject to change, including as a result of any normal period-end adjustments. These estimated results are presented under IFRS, in nominal Peruvian soles for our subsidiaries Interbank, Interseguro and Inteligo. Our independent auditors have not audited, reviewed, compiled or applied agreed-upon procedures with respect to the preliminary information and, accordingly, they do not express an opinion or any other form of assurance with respect thereto. There can be no assurance that the final information for this period will not differ from this preliminary information, and any such differences could be material.

IFS

We currently expect, based on preliminary analysis, that on a consolidated basis, our results of the quarter ended June 30, 2019 will be generally consistent with our reported results for the quarter ended March 31, 2019.

Interbank

Interbank’s gross loans amounted to approximately S/33.9 billion as of June 30, 2019, which represented an approximately 12% increase compared to June 30, 2018, albeit at a slower pace compared to the 17% year-over-year increase in gross loans as of March 31, 2019.

Interbank’s deposits were approximately S/33.1 billion as of June 30, 2019, which represented an increase of approximately 14% compared to June 30, 2018, and an acceleration of growth compared to the 12% increase reported as of March 31, 2019 compared to March 31, 2018. The faster growth in total deposits compared to gross loans supported an improvement in the loans-to-deposits ratio, from 104% as of June 30, 2018 to approximately 102% as of June 30, 2019.

Interbank’s total capital ratio was 16.1% as of June 30, 2019, compared to 16.7% as of June 30, 2018. Additionally, core equity tier 1 ratio was 10.6% as of June 30, 2019, compared to 10.3% as of June 30, 2018. These ratios were calculated pursuant to SBS regulations. See information regarding total capital ratio and core equity tier 1 ratio in “Summary Consolidated Financial and Operating Information”, “Regulation and Supervision—Banking Regulation and Supervision—Capital Adequacy Requirements Basel II” and “Management’s Discussion and Analysis of Results of Operations and Financial Condition—Liquidity and Capital Resources.”

Interseguro

Interseguro’s total net premiums earned minus claims and benefits increased approximately 42% in the six months ended June 30, 2019 compared to the corresponding period of 2018. When excluding the negative effect of S/144.8 million due to a change in accounting estimates recorded in June 2018, driven by the publication by the SBS of new mortality tables, net premiums earned minus claims and benefits increased approximately 28% between the comparable periods.



 

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Inteligo

Inteligo’s assets under management (AUM) reached approximately S/18.5 billion as of June 30, 2019, an increase of approximately 9% compared to the June 30, 2018. This was mainly explained by a double-digit growth in AUM at Inteligo Bank in addition to a slight increase of AUM at Interfondos.

Risks and Challenges

Our ability to leverage our strengths and successfully pursue the strategies described above is subject to a high degree of risk. See “Risk Factors” and the other information included in this prospectus for a discussion of factors you should consider before deciding to invest in our common shares. Such risks include, but are not limited to, the following:

 

   

We are a holding company, and all of our operations are conducted by our subsidiaries. Our ability to pay dividends to you will depend on the ability of our subsidiaries to pay dividends to us.

 

   

Economic, social and political developments in Peru, including political instability, corruption investigations, inflation and unemployment, could have a material adverse effect on our results of operations and financial condition.

 

   

Weather related events can cause material losses. Peru is affected by El Niño, an oceanic and atmospheric phenomenon that causes a warming of the temperature in the Pacific Ocean. The effects of this phenomenon include flooding and the destruction of fish populations and agriculture, which can have a negative impact on Peru’s economy and the banking system.

 

   

A devaluation of the sol could have a material adverse effect on our financial condition and results of operations.

 

   

Changes in accounting standards and capital requirements could affect our business and results of operations and our ability to distribute dividends.

 

   

Our subsidiaries are subject to extensive supervision and regulation. Changes in existing regulations or the implementation of future regulations may adversely affect our business and results of operations.

 

   

Interest rate changes could have a material adverse effect on our financial condition and results of operations.

 

   

Currency mismatches between deposits and loans could cause losses.

 

   

The investment activities of our subsidiaries are subject to factors beyond their control and losses from their exposures, including concentration of exposure to Peruvian sovereign debt, could result in a material adverse effect on our financial condition and results of operations.

 

   

Our subsidiaries face intense competition from other banking, insurance, financial institutions and new online fintech entrants, and, if they are unable to compete successfully, our business and results of operations could be materially and adversely affected.

 

   

We may not succeed in keeping up with changes in technology or our digital products may not be adopted in the way or at the rate we expect.

 

   

Cybersecurity attacks and similar technology and security risks.

 

   

We could sustain losses if our asset quality declines.

 

   

Anti-money-laundering, sanctions, corruption and other similar compliance risks could cause losses and damage our reputation.



 

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Actual mortality and morbidity rates and other factors may differ from those assumed in the calculation of technical reserves and may have a material adverse effect on Interseguro’s financial condition and results of operations.

 

   

The operations of our subsidiaries require the maintenance of banking, insurance and other licenses and any non-compliance with applicable license and operating obligations could have an adverse effect on our business, financial condition and results of operation.

 

   

We may not be able to continue to grow the size and market share of our subsidiaries in the future at the same rates as their historical rates of growth.

Corporate Information

Our principal executive offices are located at Av. Carlos Villarán 140, 5th Floor, Urbanización Santa Catalina, La Victoria, Lima 13, Peru. Our telephone number is +(511) 615-9011. Our website address (the contents of which are not part of, and are not incorporated into, this prospectus) is www.ifs.com.pe.



 

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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING INFORMATION

The following table sets forth our summary consolidated financial information. The consolidated income statements data for the years ended December 31, 2018, 2017 and 2016 and the consolidated statements of financial position data as of December 31, 2018 and 2017 are derived from our audited annual consolidated financial statements and related notes included elsewhere in this prospectus. Our consolidated financial information for 2014 and 2015 is derived from our audited consolidated financial statements for those years restated for the change in accounting policy as described under “Presentation of Financial and Other Information—Comparability of 2018 audited consolidated financial statements to prior years and financial statements restatement.” All years presented have been prepared in accordance with IFRS as issued by the IASB. The consolidated income statements data for the three months ended March 31, 2019 and March 31, 2018 and the consolidated statements of financial position data as of March 31, 2019 are derived from our unaudited interim condensed consolidated financial statements and related notes included elsewhere in this prospectus. Interim data may not be representative of full year results.

Until December 31, 2017, our subsidiary Interseguro recognized in its income statements the effect of the change in the value of liabilities coming from retirement, disability and survivor’s pensions, caused by the variation in the market interest rates used to discount these liabilities. During 2018, Interseguro voluntarily modified its accounting policy in order to show the effect of the change in market interest rates in the statements of other comprehensive income, providing more accurate and relevant information. The resulting impact was retrospectively recorded restating unrealized results, net and retained earnings of our consolidated statements of financial position as of December 31, 2017, 2016, 2015 and 2014 and for the years then ended. For more information about the change in our insurance accounting policy, see Note 4.2.1(i) of our audited annual consolidated financial statements. In addition, minor reclassifications for comparative purposes were made for the periods presented. See Note 4.4(a.i) to our audited annual consolidated financial statements.

As a result of the adoption of IFRS 9 beginning January 1, 2018, our audited consolidated financial statements for 2018 and related ratios are not comparable to prior years.

On January 1, 2019, we adopted for the first time IFRS 16 “Leases” which established that at the commencement date of a lease, a lessee will recognize a liability to reflect lease payments and the asset that represents the right-of-use of the underlying leased asset during the lease term will be recorded. Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset. As permitted by the transitional provisions of IFRS 16, we elected to apply the modified retrospective approach and we have not restated comparative figures. See Note 2(c) to our unaudited interim condensed consolidated financial statements.

The results included below are not necessarily indicative of our future performance and should not be construed as such. The summary financial and operating information presented below should be read in conjunction with “Presentation of Financial and Other Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited annual consolidated financial statements and related notes included elsewhere in this prospectus.



 

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Consolidated Income Statements

 

   

For the three months ended
March 31, (unaudited)

   

For the years ended December 31,

 
   

2019

   

2019

   

2018

   

2018

   

2018

   

2017

(Restated)

   

2016

(Restated)

   

2015(1)

(Restated)

   

2014(1)

(Restated)

 
   

(U.S.$ in

millions) (2)(3)

    (S/ in millions) (2)    

(U.S.$ in

millions) (2)(3)

    (S/ in millions) (2)  

Interest and similar income

    351.6       1,166.7       1,036.3       1,302.4       4,321.3       3,809.0       3,704.8       3,342.7       2,828.7  

Interest and similar expenses

    (101.2     (335.8     (266.9     (352.8     (1,170.6     (1,119.9     (1,081.9     (921.7     (788.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest and similar income

    250.4       831.0       769.4       949.6       3,150.7       2,689.1       2,623.0       2,421.0       2,039.8  

Impairment loss on loans, net of recoveries

    (56.2     (186.4     (172.9     (198.9     (660.1     (827.9     (783.6     (645.8     (425.5

Recovery (loss) due to impairment of financial investments

    0.6       1.9       2.3       3.9       13.1       (20.8     (28.3     (78.3     (20.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest and similar income after impairment loss

    194.8       646.4       598.8       754.6       2,503.7       1,840.4       1,811.0       1,696.9       1,594.1  

Other income

                 

Fee income from financial services, net

    67.2       223.0       216.6       263.5       874.4       849.2       809.5       770.6       668.8  

Net gain on foreign exchange transactions

    12.4       41.3       40.9       68.8       228.2       201.8       264.2       521.2       216.8  

Net gain on sale of financial investments

    9.0       29.9       25.3       4.3       14.2       184.8       103.3       134.9       128.1  

Net gain (loss) on financial assets at fair value through profit or loss

    11.2       37.1       13.2       3.6       12.0       18.4       (47.9     (111.8     22.3  

Net gain on investment property

    3.6       11.9       3.2       25.7       85.3       25.4       23.1       43.5       98.9  

Other

    5.6       18.7       14.4       20.8       69.0       87.4       64.1       75.3       55.7  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

    109.1       361.9       313.5       386.7       1,283.1       1,367.2       1,216.3       1,433.6       1,190.7  

Insurance premiums and claims

                 

Premiums assumed

    52.9       175.5       167.0       229.7       762.1       533.6       730.6       905.0       680.5  

Adjustment of technical reserves

    (22.1     (73.3     (42.6     (95.5     (316.8     (240.2     (404.9     (628.7     (572.7

Premiums ceded to reinsurers

    (1.3     (4.2     (28.1     (35.2     (116.7     (34.1     (138.3     (129.9     (4.9

Net claims and benefits incurred for life insurance contracts and others

    (51.8     (172.0     (175.1     (221.8     (736.0     (412.3     (318.2     (258.9     (181.1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net premiums earned minus claims and benefits

    (22.3     (74.1     (78.9     (122.8     (407.5     (152.9     (130.8     (112.6     (78.1

Other expenses

                 

Salaries and employee benefits

    (58.9     (195.4     (182.4     (227.8     (755.9     (714.6     (711.3     (692.5     (647.4

Administrative expenses

    (53.3     (176.7     (180.4     (233.7     (775.3     (730.6     (688.9     (700.7     (627.7

Depreciation and amortization

    (19.0     (62.9     (37.6     (49.6     (164.7     (145.2     (130.1     (111.1     (105.4

Other

    (14.1     (46.7     (43.4     (42.8     (141.6     (120.3     (102.1     (115.4     (87.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses

    (145.2     (481.7     (443.9     (553.8     (1,837.5     (1,710.6     (1,632.4     (1,619.6     (1,467.7

Income before translation result and income tax

    136.4       452.5       389.5       464.7       1,541.9       1,344.1       1,264.0       1,398.4       1,239.0  

Translation result

    3.0       10.1       6.0       (10.5     (35.0     15.9       20.1       (25.1     (25.0

Income tax

    (33.1     (109.9     (105.5     (125.2     (415.5     (326.5     (333.9     (352.6     (309.1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit for the period

    106.3       352.7       290.0       328.9       1,091.4       1,033.5       950.2       1,020.7       904.9  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Attributable to:

                 

IFS’ shareholders

    105.7       350.6       288.2       326.8       1,084.3       1,027.4       944.6       1,013.7       891.5  

Non-controlling interest

    0.7       2.2       1.8       2.1       7.1       6.1       5.6       7.0       13.4  

Earnings per share

    0.955       3.167       2.628       2.911       9.818       9.625       8.715       9.295       8.149  

Weighted Average number of shares outstanding

    —         110.7       109.7       —         110.4       106.7       108.4       109.1       109.4  


 

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Consolidated Statements of Financial Position

 

   

As of March 31, (unaudited)

   

As of December 31,

 
   

2019

   

2019

   

2018

   

2018

   

2018

   

2017

(Restated)

   

2016

(Restated)

   

2015

(Restated)

   

2014

(Restated)

 
    (U.S.$ in
millions) (2)(3)
    (S/ in millions) (2)     (U.S.$ in
millions) (2)(3)
    (S/ in millions) (2)  

Assets

                 

Cash and due from banks

    2,911.6       9,660.6       9,616.6       2,525.7       8,380.4       11,204.8       11,761.8       12,431.8       6,358.5  

Inter-bank funds

    21.1       70.0       179.1       149.2       495.0       403.5       5.0       245.0       310.0  

Financial investments

    5,380.6       17,852.8       18,050.0       5,313.2       17,629.4       16,924.1       10,209.8       8,651.9       8,409.0  

Loans, net of unearned interest

    10,554.2       35,019.0       30,021.7       10,345.3       34,325.7       29,406.3       28,192.6       27,035.8       23,436.9  

Impairment allowance for loans

    (420.8     (1,396.2     (1,258.1     (411.3     (1,364.8     (1,202.1     (1,166.8     (1,041.6     (819.7

Investment property

    298.3       989.6       943.5       297.3       986.5       1,118.6       745.2       713.3       652.9  

Property, furniture and equipment, net (4)

    285.9       948.5       597.5       187.6       622.5       612.6       589.8       579.2       577.2  

Intangibles and goodwill, net

    285.4       946.8       903.0       287.7       954.5       921.6       267.4       199.4       145.8  

Other assets (5)

    501.8       1,665.2       1,581.7       516.9       1,715.0       1,005.0       1,114.4       1,186.1       1,294.6  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    19,818.0       65,756.2       60,635.0       19,211.7       63,744.4       60,394.5       51,719.4       50,000.9       40,365.2  

Liabilities and equity

                 

Deposits and obligations

    10,485.2       34,790.0       31,220.4       10,151.3       33,682.0       32,607.6       30,097.9       28,487.7       23,381.4  

Inter-bank funds

    32.1       106.5       129.5       —         —         30.0       332.3       —         —    

Due to banks and correspondents

    1,123.0       3,726.1       4,141.4       1,294.0       4,293.4       4,407.4       5,328.6       6,191.7       3,140.9  

Bonds, notes and other obligations

    2,008.2       6,663.2       6,240.2       1,958.0       6,496.8       5,602.4       4,769.4       4,925.4       4,565.3  

Insurance contract liabilities

    3,136.6       10,407.2       10,536.9       3,104.4       10,300.5       10,514.5       5,010.5       4,477.1       3,743.0  

Other liabilities (4)(6)

    704.1       2,336.4       1,954.2       567.6       1,883.4       1,395.7       1,182.4       1,458.0       1,232.3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    17,489.3       58,029.4       54,222.6       17,075.3       56,655.9       54,557.6       46,721.0       45,539.9       36,062.9  

Equity, net

                 

Equity attributable to IFS’ shareholders

    2,316.7       7,686.8       6,377.7       2,124.2       7,048.1       5,800.5       4,879.1       4,345.6       4,191.0  

Non-controlling interest

    12.0       40.0       34.7       12.2       40.4       36.4       119.2       115.4       111.2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity, net

    2,328.7       7,726.8       6,412.4       2,136.4       7,088.5       5,836.9       4,998.3       4,460.9       4,302.3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity net

    19,818.0       65,756.2       60,635.0       19,211.7       63,744.4       60,394.5       51,719.4       50,000.9       40,365.2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


 

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Table of Contents

Selected Ratios and Operational Data

 

   

As of and for the three
months ended
March 31, (unaudited)

   

As of and for the year ended

December 31,

 
   

2019

   

2018

   

2018

   

2017

   

2016

 

Performance Ratios

         

Net interest margin (7)(8)

    5.4     5.3     5.4     5.3     5.4

Efficiency ratio (9)

    33.7     34.0     35.6     36.8     38.0

ROA (8)(10)

    2.2     1.9     1.8     2.0     1.9

Adjusted ROA (11)

                2.0     —         —    

ROE (8)

    19.0     19.1     16.6     19.3     19.9

Adjusted ROE (12)

                18.6     —         —    

Risk adjusted NIM (8)(13)

    4.2     4.1     4.3     3.7     3.8

Cost of risk (8)(14)

    2.2     2.3     2.1     2.9     2.9

Capital and Balance Sheet Structure

         

Average total equity as a percentage of average total assets

    11.4     10.1     10.7     10.1     9.5

Total loans, net as a percentage of total deposits

    96.6     92.1     97.9     86.5     89.8

Core equity tier 1 ratio (15)

    10.2     10.2     10.6     10.1     9.4

Capitalization ratio of Interbank (16)

    16.4     17.5     15.8     16.1     15.9

Solvency ratio of Interseguro (17)

    130.4     143.4     137.9     134.9     145.5

Capitalization ratio of Inteligo Bank (18)

    26.9     28.3     25.5     32.6     24.5

Credit Quality

         

Past-due loans as a percentage of total gross loans (at end of period)

    2.5     2.6     2.5     2.7     2.5

Provision expense as a percentage of total gross loans

    2.2     2.3     2.1     2.9     2.9

Other Data

         

Assets under management of Inteligo

    17,769.0       16,210.7       17,592.7       16,229.9       15,398.3  

Inteligo deposits

    2,533.1       2,152.5       2,608.7       2,253.3       3,226.1  

Dividends declared/paid (19)

                654.5       510.7       475.8  

Declared/paid dividends per share (20)

                5.8       4.5       4.2  

Exchange rate (S/ per U.S.$1.00 at end of period)

    3.318       3.227       3.373       3.241       3.356  

Financial stores

    264       272       270       273       289  

ATMs

    1,953       1,994       1,973       2,052       2,159  

Correspondent agents (21)

    2,513       2,514       2,506       2,505       2,935  

Number of digital clients (22)

    975,269       667,506       882,437       620,448       454,194  

Percentage of digital users (22)(23)

    56     43     53     40     30

 

(1)

Our financial information for 2017, 2016, 2015 and 2014 was restated as a result of a voluntary change in accounting policy regarding our method of accounting the variation in market interest rates on insurance contract liabilities. See Note 4.2.1(i) to our audited annual consolidated financial statements. The financial information presented for 2014 and 2015 were restated after issuance of the financial statements for those years due to a voluntary change in accounting policy with a negative impact of S/57.6 million for 2014 and S/218.1 million for 2015 in the line Total net premiums earned minus claims and benefits in the consolidated income statement. See “Management Discussion and Analysis of Results of Operations and Financial Condition—Change in Accounting Policy.

(2)

Except for percentages and ratios, and operational data.

(3)

Amounts stated in U.S. dollars as of and for the three months ended March 31, 2019 and as of and for the year ended December 31, 2018 have been translated from soles at the exchange rate of S/3.318 = U.S.$1.00. See “Exchange Rates”.

(4)

Due to the adoption of IFRS 16 we have recorded a S/341.7 million, increase in the caption “Property, furniture and equipment (Right-of-use assets)” and recorded simultaneously, an increase for the same amount, in the caption “Accounts payable, provisions and other liabilities (Lease liabilities)”. See Note 2 (c) to our unaudited interim condensed consolidated financial statements.



 

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Table of Contents
(5)

“Other assets” is defined as due from customers on acceptances, accounts receivable and other assets, net and deferred income tax assets, net.

(6)

“Other liabilities” is defined as due from customers on acceptances, accounts payable, provisions and other liabilities and deferred income tax liabilities, net.

(7)

“Net interest margin” is defined as (x) net interest and similar income divided by (y) average interest-earning assets. See “Selected Statistical Information”.

(8)

Annualized for each interim period.

(9)

“Efficiency ratio” is calculated by dividing (x) salaries and employee benefits plus administrative expenses plus depreciation and amortization by (y) net interest and similar income plus other income, plus net premiums earned.

(10)

ROA is calculated as net profit as a percentage of average assets, computed as the simple average of the quarterly balances from December of the previous year to the date as of calculation.

(11)

Adjusted ROA for 2018, is calculated as adjusted net profit as a percentage of average assets, computed as the simple average of the quarterly balances from December of the previous year to the date as of calculation. Adjusted net profit excludes S/144.8 million, which is the aggregate effect recorded in technical reserves due to a change in accounting estimates driven by the publication by the SBS of new mortality tables. Net profit was not adjusted for 2017 and 2016. See Note 4.4 (d) and 4.6 to our audited annual consolidated financial statements. Adjusted net profit and Adjusted ROA are non-GAAP financial measures and should not be considered in isolation or as a substitute for net profit or ROA, or other performance measures. See “Presentation of financial and other information—Non-GAAP financial measures” and “Selected Consolidated Financial Information—Non-GAAP Financial Measures”.

(12)

Adjusted ROE for 2018 is calculated as adjusted net profit as a percentage of average shareholders’ equity, computed as the simple average of the quarterly balances from December of the previous year to the date as of calculation. Adjusted net profit excludes S/144.8 million, which is the aggregate effect recorded in technical reserves due to a change in accounting estimates driven by the publication by the SBS of new mortality tables. Net profit was not adjusted for 2017 and 2016. See Note 4.4 (d) and 4.6 to our audited annual consolidated financial statements. Adjusted ROE is a non-GAAP financial measures and should not be considered in isolation or as a substitute for Net Profit or ROE, or other performance measures. See “Presentation of financial and other information—Non-GAAP financial measures” and “Selected Consolidated Financial Information—Non-GAAP financial measures.”

(13)

Risk adjusted net interest margin is defined as net interest margin after impairment loss on loans, net of recoveries.

(14)

Cost of risk is defined as impairment loss on loans, net of recoveries divided by average gross loans. Cost of risk includes an S/81.0 million recovery of provisions related to the construction sector at Interbank for 2018.

(15)

Calculated for Interbank only under SBS GAAP.

(16)

Regulatory capital for Interbank is calculated in accordance with the guidelines of the Basel II Accord, as adopted by the SBS and is based on information from Interbank’s financial statements prepared under SBS GAAP. See “Regulation and Supervision—Banking Regulation and Supervision—Capital Adequacy Requirements Basel II”.

(17)

Solvency ratio for Interseguro is calculated in accordance with SBS guidelines and is based on information from Interseguro’s financial statements prepared under SBS GAAP. See “Regulation and Supervision—Insurance Regulation and Supervision—Solvency Requirements and Regulatory Capital”.

(18)

Capitalization Ratio for Inteligo Bank is calculated in accordance with the guidelines promulgated by the Central Bank of The Bahamas.

(19)

Dividends declared for fiscal years 2018, 2017 and 2016 were paid in 2019, 2018 and 2017 and amounted to U.S.$197.2 million, U.S.$157.7 million and U.S.$ 146.5 million, respectively. See “Dividends and Dividend Policy”.

(20)

Corresponds to dividends declared divided by outstanding shares for each period reported. Dividends per share amounted to U.S.$1.75, U.S.$1.40 and U.S.$ 1.30 for years 2018, 2017 and 2016. See “Dividends and Dividend Policy”.

(21)

ASBANC estimates, for 2014-2017 and company estimates for 2018.

(22)

In the month of December for each full year and in the month of March for each interim period.

(23)

Percentage of digital users over total clients that interact with Interbank.



 

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Table of Contents

Non-GAAP Financial Measures

In this prospectus, we use adjusted net profit, adjusted ROE and adjusted ROA. These measures are not calculated in accordance with IFRS and we collectively refer to these as non-GAAP financial measures. For more information see “Presentation of Financial and other information – Non-GAAP Financial Measures”.

The following table reflects the reconciliation of adjusted net profit, adjusted ROE and adjusted ROA for our banking segment as of and for the three month period ended March 31, 2019:

 

   

As of March 31, 2019

 
    Net
profit
    Adjustment
(2)
    Adjusted
Net
Profit
    Average
total
assets
    ROA     Adjusted
ROA
    Average
total
equity
    ROE     Adjusted
average
total
equity
    Adjusted
ROE
 

Banking

    299.7       (32.4     267.3       48,335.7       2.5     2.2     5,417.1       22.1     5,384.7       19.8

Insurance

    28.9       —         28.9       12,770.0       0.9     0.9     902.8       12.8     902.8       12.8

Wealth Management

    78.3       —         78.3       3,781.6       8.3     8.3     821.6       38.1     821.6       38.1

Holding and eliminations

    (54.2     32.4       (21.8     (137.0     —         —         266.1         298.5    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    352.7       —         352.7       64,750.3       2.2     2.2     7,407.6       19.0     7,407.6       19.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Adjusted net profit of the banking segment, for the three months ended March 31, 2019, is calculated excluding the gain on the sale of Interfondos S/32.4 million after taxes which is eliminated upon consolidation. Adjusted net profit is a non-GAAP financial measure and should not be considered in isolation or as a substitute for net profit, or other performance measures. See “Presentation of financial and other information—Non-GAAP financial measures.”

The following tables reflect the reconciliation of adjusted net profit, adjusted ROE and adjusted ROA on a consolidated basis and also for our insurance segment as of and for the year ended December 31, 2018.

 

     For the year ended  
    

2018

 
     (S/ in millions)  

Net profit (A)

     1,091.4  

Adjustment of new mortality tables in Total net premiums earned minus claims and benefits (B)

     144.8  
  

 

 

 

Adjusted net profit (C) = (A) + (B)

     1,236.2  

Average total equity (D)

     6,558.8  

ROE (A) / (D)

     16.6

Adjusted average total equity (E)

     6,645.6  

Adjusted ROE (C) / (E)

     18.6

Average total assets (F)

     61,072.6  

ROA (A) / (F)

     1.8

Adjusted ROA (C) / (F)

     2.0


 

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Table of Contents
   

As of December 31, 2018

 
    Net
profit
    Adjustment
(1)
    Adjusted
Net
Profit
    Average
total
assets
    ROA     Adjusted
ROA
    Average
total
equity
    ROE     Adjusted
average
total
equity
    Adjusted
ROE
 

Banking

    1,010.9       —         1,010.9       45,515.7       2.2     2.2     4,994.3       20.2     4,994.3       20.2

Insurance

    (61.5     144.8       83.3       12,388.1       (0.5 )%      0.7     803.7       (7.6 )%      890.5       9.4

Wealth Management

    197.5       —         197.5       3,314.3       6.0     6.0     768.0       25.7     768.0       25.7

Holding and eliminations

    (55.6     —         (55.6     (145.5         (7.3       (7.3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    1,091.4       144.8       1,236.2       61,072.6       1.8 %      2.0 %      6,558.8       16.6 %      6,645.6       18.6 % 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Change in accounting estimates recorded in Total net premiums-earned minus claims and benefits driven by the publication by the SBS of new mortality’ tables. See Note 4.4 (d) to our audited annual consolidated financial statements and “Presentation of financial and other information – Non-GAAP financial measures”.



 

28


Table of Contents

THE OFFERING

The following is a brief summary of the terms of this offering and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. For a more complete description of our common shares, see “Description of Common Shares” in this prospectus.

 

Issuer

Intercorp Financial Services Inc.

 

Securities Offered

9,000,000 common shares

 

Sellers

IFS and Interbank are offering 3,568,754 common shares (consisting of treasury shares and newly issued shares), Intercorp Peru is offering 2,531,246 common shares and EMFI is offering 3,000,000 common shares.

 

Offering Price

We expect that the offering price for the offering will be between US$44.00 and US$50.00 per share.

 

Option to Purchase Additional Common Shares

We are granting the underwriters an option, exercisable within 30 days from the date of this prospectus, to purchase up to an aggregate of 1,350,000 additional common shares, at the public offering price listed on the cover page of this prospectus.

 

Use of Proceeds

We estimate that the net proceeds to us, (including the shares being sold by Interbank), will be approximately U.S.$            , or approximately U.S.$             if the underwriters exercise their option to purchase additional common shares in full from us, to Intercorp Peru will be approximately U.S.$             (excluding the additional 100,000 shares offered on a best efforts basis through the Lima Stock Exchange), and to EMFI will be approximately U.S.$            . We will not receive any proceeds from the sale of shares by Intercorp Peru and EMFI.

 

  We and Interbank expect to each use any net proceeds from the sale of shares by us and Interbank for general corporate purposes. In particular, Interbank expects to use the proceeds to strengthen its capital position and increase business activity, and IFS expects to use the proceeds to invest in strengthening its digital and analytical capabilities across its platform by developing a common data infrastructure and new digital products and services.

 

Lock-up

We, the selling shareholders, and certain of our directors and officers, collectively owning 72.4% of our common shares as of July 2, 2019 (after giving effect to the offering assuming no exercise of the option), have agreed, subject to limited exceptions, not to sell any of our common shares for a period of 180 days (and in the case of EMFI for a period of 90 days) after the date of this prospectus without the prior approval of the representatives of the underwriters. See “Underwriting”.


 

29


Table of Contents

Shares Outstanding Immediately Prior to and Following the Offering

Immediately following the offering assuming no exercise of the underwriters’ option to purchase additional shares, we will have 114,260,864 common shares issued and outstanding. If the underwriters’ option is exercised in full, we will have 115,610,864 common shares issued and outstanding.

 

Offering and Sale of the Secondary Common Shares under Peruvian Law

Under Peruvian law, the sale of the currently outstanding common shares, including the treasury shares of IFS and the shares owned by Interbank, are deemed to be a secondary sale. As such, the underwriting for the 7,850,000 outstanding secondary common shares will be effectuated by the underwriters placing orders into an offer-for-sale process in the Lima Stock Exchange. An additional 100,000 secondary common shares owned by Intercorp Peru are expected to be offered in the offer-for-sale process but on a best efforts basis only and will not be part of this underwritten offering. See “Underwriting.”

 

Dividends and Dividend Policy

We are a holding company and, as such, our ability to pay dividends is subject to the ability of our subsidiaries to pay dividends to us. See “Dividends and Dividend Policy” for further information on our dividend policy.

 

Listing

Our common shares are listed on the Lima Stock Exchange under the symbol “IFS”. We have applied to list our common shares on the New York Stock Exchange under the symbol “IFS”.

 

Taxation

For a discussion of the material Peruvian, U.S. federal and Panamanian income tax consequences relating to an investment in our common shares, see “Taxation”.

 

Risk Factors

Investing in our common shares involves risks. See “Risk Factors” beginning on page 31 and the other information included in this prospectus for a discussion of factors you should consider before deciding to invest in our common shares.


 

30


Table of Contents

RISK FACTORS

An investment in our common shares involves a high degree of risk. In addition to the other information contained in this prospectus, you should carefully consider the following risk factors before purchasing our common shares. If any of the possible events described below occurs, our businesses, financial condition, results of operations or prospects could be materially and adversely affected. As a result, the market prices of our common shares could decline and you could lose all or part of your investment. The risks and uncertainties below are those known to us and that we currently believe may materially affect us and our common shares. We may face additional risks and uncertainties not currently known to us or which as of the date of this prospectus we might not consider significant, which may also adversely affect our businesses.

Risks Relating to Our Businesses

We are a holding company and all of our operations are conducted through our subsidiaries. Our ability to pay dividends to you will depend on the ability of our subsidiaries to pay dividends and make other distributions to us.

As a holding company, all of our operations are conducted through our subsidiaries. Accordingly, our ability to pay dividends to you will depend upon our receipt of dividends and other distributions from our subsidiaries.

There are various regulatory restrictions in Peru and other jurisdictions that may limit our subsidiaries’ ability to pay dividends or make other payments to us, such as their obligations to maintain minimum regulatory capital and minimum liquidity. In addition, our Peruvian subsidiaries pay dividends to us on the basis of the SBS GAAP financial statements, which differ from IFRS. For example, whereas Interseguro had a net loss of S/7.8 million under IFRS in 2018, it had a net profit of S/361.1 million under SBS GAAP and paid to us a related dividend of S/138.0 million in 2018. There is no assurance that the differences in accounting treatment will not render the opposite result, namely that lower or no dividends would be payable to us by any of our Peruvian subsidiaries under SBS GAAP than what it would appear to be able to pay under IFRS, or that dividends will continue to be payable under SBS GAAP in the future.

Furthermore, our subsidiaries may incur indebtedness or enter into other arrangements containing terms that may restrict or prohibit the payment of dividends, the making of other distributions, or the making of loans to us. We cannot assure you that the agreements governing the future indebtedness of our subsidiaries will permit them to provide us with sufficient dividends, distributions or the making of loans to fund dividend payments.

To the extent our subsidiaries do not have funds available or are otherwise restricted from paying dividends to us, our ability to pay dividends to our shareholders will be adversely affected.

As a holding company, our right to receive any distribution of assets of our subsidiaries will be effectively subordinated to the rights of our subsidiaries’ creditors, and you may have limited recourse against our subsidiaries’ assets in case of our liquidation.

As a holding company, our right to receive any distribution of assets of our subsidiaries upon any subsidiary’s liquidation or reorganization or otherwise will be subject to the prior claims of creditors of that subsidiary, except to the extent that any claims by us as a creditor of such subsidiary may be recognized as such. Accordingly, holders of our common shares will have rights that will effectively be subordinated to all existing and future indebtedness of our subsidiaries, and, in the event of any claim against us, our shareholders may have recourse only against our assets, and not those of our subsidiaries, for payments. The only significant assets that we currently hold are our equity interests in our subsidiaries.

 

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Table of Contents

Our subsidiaries are subject to extensive regulation and supervision, and changes in existing regulations or the implementation of future regulations may have a material adverse effect on our financial condition and results of operations.

Interbank and Interseguro are subject to extensive regulation and supervision by the SBS. The SBS also oversees all of Interbank’s and Interseguro’s subsidiaries and their operations as well as Interbank’s branch in Panama. Interbank is also subject to regulation and oversight by the Central Reserve Bank of Peru, which, together with the SBS, has general administrative responsibilities over banks and other financial institutions, including the authority to set loan loss provisions, limits on fees, regulatory capital requirements and other minimum capital adequacy and reserve requirements. In addition, banks are required to provide the SBS, on a periodic basis, with all information necessary to allow for its evaluation of the bank’s financial performance. Similarly, insurance companies are required to periodically provide the SBS, with all information necessary for the SBS to evaluate the company’s management, measure systems, solvency, profitability and liquidity.

Similarly, Inteligo’s subsidiaries are regulated by governmental entities in several jurisdictions, such as The Bahamas, Panama and Peru. Inteligo Bank is subject to the regulation and supervision of the Central Bank of The Bahamas, and its branch is subject to regulation by the Superintendency of Banks of Panama (Superintendencia de Bancos de Panamá), while Inteligo SAB is subject to the regulation and supervision of the SMV in Peru. Also, Interbank and Interseguro are subject to the regulations of the SMV. In addition, Interbank, Interseguro, Inteligo Bank and Inteligo SAB are subject to other regulations, such as the U.S. Foreign Account Tax Compliance Act (FATCA), which could increase compliance costs and, in case of non-compliance could result in liability, additional costs or sanctions imposed by the U.S. Internal Revenue Service.

Changes in the regulation and supervision of Interbank, Interseguro and Inteligo could have a material adverse effect on our financial condition and results of operations. For example, the SBS and the Central Reserve Bank of Peru regulate, and have in the past changed, capital structure and deposit reserve requirements, interest paid on deposit reserves, the amount of deposit reserves for which no interest is payable, rules regarding provisions for loan losses and legal lending limits applicable to Peruvian commercial banks. In addition, Interbank could be subject to limits on the commissions charged to clients. Furthermore, Interbank could be required to increase its level of provisions in response to pro-cyclical provisioning requirements that could be activated by regulators under certain favorable macroeconomic conditions.

Since annuities began to be offered by insurance companies in 1993, the SBS has implemented major changes affecting reserve requirements for insurance companies, such as Interseguro. For example, recent changes by the SBS to mortality tables used for calculating reserves for new annuities in March 2018 resulted in a higher reserve requirement, which in turn could adversely affect Interseguro’s results of operations, or could result in lowered implied interest rates on Interseguro’s annuities. For further information, see Notes 4.6(a) and 4.6(b) to our audited annual consolidated financial statements. New legislation or regulations applicable to the insurance industry may adversely affect Interseguro’s ability to underwrite and price risks accurately as well as affect its revenues and net income. For example, whereas retirees formerly had to choose between remaining with their pension fund or choosing an annuity, since 2016 a law has allowed retirees to withdraw 95.5% of their capital accumulated in cash upon retirement, which has resulted in a significant reduction of annuities sold by Peruvian insurance companies, including Interseguro. In addition, the SBS may change the types of and limits on eligible investments, which could force Interseguro to liquidate current investments on less favorable terms than if they were held to maturity and restrict Interseguro from making investments that its management deems to be beneficial.

The Bahamas has enacted the Commercial Entities (Substance Requirements) Act, 2018 which requires substantial economic presence in The Bahamas for certain Bahamian entities that conduct relevant activities. A relevant activity includes the business of banking as conducted by Inteligo Bank. However Inteligo Bank intends to seek exemption from this legislation as it considers itself to be tax resident in another jurisdiction, Panama, despite being a licensed bank in The Bahamas. As a tax resident in Panama, Inteligo Bank would be exempt from

 

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the requirements of the Commercial Entities (Substance Requirements) Act, 2018 if it fulfills certain disclosure and governance requirements of the applicable legislation. If Inteligo Bank is not considered to be tax resident in Panama, or does not fulfill the requirements of the applicable legislation, it will have to enhance its economic and business presence in The Bahamas in order to comply with the Commercial Entities (Substance Requirements) Act, 2018.

Changes in existing regulations or the implementation of future regulations may also restrict our existing operations, limit the expansion of our business and require extensive system and operating changes that may be difficult or costly to implement.

We cannot predict whether and to what extent new laws and regulations, or changes to existing laws and regulations, affecting our subsidiaries’ business will be adopted in the future, the timing of any such adoption and what effect such events would have on our financial condition and results of operations.

The operations of our subsidiaries require the maintenance of banking, insurance and other licenses and any non-compliance with applicable license and operating obligations could have a material adverse effect on our business, financial condition and results of operations.

All banks and insurance companies established in Peru require certain authorizations issued by the SBS in order to operate in Peru. In addition, all brokerage firms operating in Peru require certain authorizations issued by the SMV in order to operate in Peru. In The Bahamas and Panama, all banks require a license to operate. Governmental authorities, such as the SBS or the Central Reserve Bank of Peru, the Central Bank of The Bahamas, or the Superintendency of Banks of Panama, have general administrative responsibilities over banks and other financial institutions, including authority to set loan loss provisions, limits on fees, regulatory capital requirements and other minimum capital adequacy and reserve requirements. In addition, banks are generally required to provide the relevant banking supervisory agency, on a periodic basis, with all information that is necessary to allow for its evaluation of a bank’s financial performance. Insurance companies are regulated and supervised by the SBS which has the ability, among other things, to set reserve requirements for insurance companies. Similarly, the SMV has general administrative responsibilities over brokerage firms, including the authority to set minimum capital requirements.

Our subsidiaries currently have the required licenses in order to conduct their operations in their corresponding jurisdictions for all of their operations. Although we believe our subsidiaries are currently in compliance with their respective existing material license and reporting obligations, there is no assurance that our subsidiaries will be able to maintain the necessary licenses in the future. We cannot assure you that future changes to existing laws and regulations, or stricter interpretation or enforcement of existing laws and regulations, will not impair our ability to comply with such laws and regulations and thus with the terms of our licenses.

The loss of a license, a breach of the terms of a license by any of our subsidiaries or the failure to obtain any further required licenses in the future could have a material adverse effect on our business, financial condition and results of operations. If any of our subsidiaries loses its licenses or is required to seek additional licenses, then such subsidiary will be unable to perform its operations as it is currently authorized.

Under certain circumstances, the SBS, the SMV, the Superintendency of Banks of Panama or the Central Bank of The Bahamas, as applicable, may intervene in our subsidiaries’ operations in order to prevent, control and reduce the effects of a failure of our operations.

Under the Peruvian Banking and Insurance Law and the regulations thereunder, the SBS may intervene in Interbank’s and Interseguro’s operations upon the occurrence of any of the following events:

 

   

Interbank or Interseguro suspends payment of its obligations or is unable to pay its obligations as they come due;

 

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Interbank or Interseguro breaches any of their respective commitments to the SBS under a surveillance regime imposed by the SBS;

 

   

Interbank’s regulatory capital is less than 50% of the minimum regulatory capital required under the Peruvian Banking and Insurance Law;

 

   

Interbank or Interseguro experiences a deficit or reduction of more than 50% of its regulatory capital during the preceding 12-month period; or

 

   

Interseguro experiences a deficit or reduction of the regulatory capital of more than 50% of its solvency equity.

In the event of an intervention, the SBS has the power to institute measures, such as limiting the decisions that could be taken at a shareholders’ meeting, suspending our normal activities and segregating certain of Interbank’s or Interseguro’s assets and liabilities for transfer to third parties, among others. Furthermore, the SBS has the power under the Peruvian Banking and Insurance Law to declare the wind-up or liquidation of any bank or insurance company if an intervention extends for longer than 45 days, which period may be extended for another 45 days at the sole discretion of the SBS, and/or upon the occurrence of a wind-up or liquidation pursuant to the Peruvian General Corporations Law (Ley General de Sociedades).

Under Peruvian capital markets law and the regulations thereunder, the SMV may revoke the license of Inteligo SAB and/or Interfondos, among others, upon the occurrence of (i) significant irregularities that put the companies at risk to carry out their operations as permitted by law or (ii) significant violations of the law, statutes and regulations promulgated by the SMV.

Under Bahamian banking regulations, the Central Bank of The Bahamas may intervene in Inteligo Bank’s operations under the occurrence of any of the following events:

 

   

Inteligo Bank carries on its business in a manner detrimental to the public interest or the interests of its depositors or other creditors; or

 

   

it contravenes the provisions of Bahamian banking law or any other law, order or regulation made thereunder, or any term or condition subject to which its license was issued, either in The Bahamas or elsewhere.

Under Law Decree 9 of 1998, as amended, the Superintendency of Banks of Panama may seize administrative and operating control of the branch of Inteligo Bank in Panama, based on any of the following grounds:

 

   

upon a reasoned request of Inteligo Bank itself;

 

   

if Inteligo Bank cannot continue operations without endangering the interests of the depositors;

 

   

as a consequence of the evaluation of the report submitted by an appointed advisor;

 

   

non-compliance with the corrective measures ordered by the Superintendency of Banks of Panama;

 

   

if Inteligo Bank carries out its operations in an illegal, negligent or fraudulent manner;

 

   

if Inteligo Bank has suspended payment on its obligations; or

 

   

if the Superintendency of Banks of Panama confirms that the capital adequacy, solvency or liquidity of Inteligo Bank has deteriorated so as to require action by the Superintendency of Banks of Panama.

 

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The adoption of new international banking and insurance guidelines may cause our subsidiaries to require additional capital and could cause their cost of funds to increase, which could have a material adverse effect on our financial condition and results of operations.

In December 2009, the Basel Committee announced its intention to issue a new framework (“Basel III”), related to the regulation, supervision and risk management of the banking industry. Among the changes adopted by Basel III were raising the quality, consistency and transparency of the capital base; enhancing risk coverage; reducing pro-cyclicality and promoting countercyclical buffers; and addressing systemic risk and interconnectedness.

In July 2011, the SBS issued SBS Resolution No. 8425-2011, establishing the final methodologies in the calculation and the implementation schedule of the additional capital requirements to be implemented in Peru, which, although not completely consistent with Basel III, includes requirements to cover concentration, interest rate and systemic risk, as well as certain pro-cyclical capital requirements. These additional requirements were fully implemented in July 2016. As of the date of this prospectus, we are fully compliant with these additional capital requirements.

In February 2016, the SBS issued Resolution No. 975-2016, which aims to improve the quality of the total regulatory capital and align Peruvian regulations towards Basel III. This resolution changed the conditions that subordinated debt must meet in order to be considered in the calculation of additional capital and the calculation methodology applicable to risk-weighted assets. This resolution is applicable to subordinated debt incurred or created from the date of its approval. However, as established in this regulation, subordinated debt incurred or created prior to its approval (and which does not meet the requirements of this new regulation) will still be considered in the calculation of regulatory capital, subject to certain rules specified therein.

Interbank expects to continue to be in compliance with these additional capital requirements; however, Interbank’s assumptions with respect to compliance may turn out to be incorrect, and, consequently, have a material adverse effect on its financial condition and results of operations. In addition, the complete adoption of the new Basel III framework may have a material adverse effect on Interbank’s financial condition and results of operations.

With respect to Interseguro, Solvency II, a new regulatory framework for the European insurance industry implemented in early 2016, is under consideration by international regulatory bodies, which could result in the SBS raising solvency ratio requirements for insurance companies in Peru in the future.

With respect to Inteligo Bank, The Bahamas currently adheres to Basel I, and has effectively implemented Pillar I and Pillar II of the Basel II framework. The Pillar I framework focuses on the capital adequacy ratio requirements and Pillar II focuses on the ICAAP (the guidelines in relation to the ICAAP were released in August 2016). The Central Bank of The Bahamas has rolled out the capital component of the Basel III framework. In 2018, the Central Bank of The Bahamas published two discussion papers focused on Minimum Disclosures (Pillar III of the Basel II framework) and the Net Stable Funding Ratio and the Liquidity Coverage Ratio (main components of Basel III). It should be noted that the Basel III implementation timeline with respect to these ratios extends to 2020.

We cannot assess the compliance with, or the completion, or the implementation of, the above-mentioned requirements and the impact of any such requirements in the future on our financial condition or results of operations.

Our controlling shareholder, Intercorp Peru, is subject to capital requirements imposed by the SBS, and Intercorp Peru’s failure to comply with these requirements could have a material adverse effect on our financial condition and results of operations.

The SBS has established minimum capital requirements for financial services holding companies on a fully consolidated basis, which the SBS evaluates on an annual basis. As a result of its direct and indirect equity

 

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interest in Interbank and Interseguro, our controlling shareholder, Intercorp Peru, is subject to these minimum capital requirements. Intercorp Peru owns other businesses in addition to ours, and financial information relating to both our business and those other businesses is used to determine compliance with the minimum capital requirements.

According to Peruvian regulations, the subsidiaries directly and indirectly owned by Intercorp Peru qualify as a mixed conglomerate. Pursuant to Peruvian regulations, Intercorp Peru must maintain a higher regulatory capital requirement than the regulatory capital requirements for its groups.

If Intercorp Peru fails to comply with these requirements, the SBS may request Intercorp Peru to take certain corrective actions to ensure compliance. If Intercorp Peru fails to take such actions, the SBS could suspend or revoke Interbank’s and Interseguro’s licenses to operate in Peru, which would have a material adverse effect on our financial condition and results of operations.

Our subsidiaries face intense competition from other banking, insurance and financial institutions, and from other players including providers of emerging financial technologies and failure to compete successfully could have a material adverse effect on our financial condition and results of operations.

The banking market in Peru is highly competitive. Interbank has experienced strong competition from local and foreign banks, including new entrants attracted by Peru’s low banking penetration, as well as from department stores that offer credit cards, from emerging financial technology companies that offer digital banking and other services both on a regulated and unregulated basis, and from the local and international capital markets that lend to commercial customers. Competition may reduce the average interest rates that Interbank can charge its customers, increase the average rates Interbank must pay on its deposits, and may negatively affect its loan growth and place pressure on margins. Some of Interbank’s competitors may have access to greater resources and be more successful in the development of products and services that compete directly with Interbank’s products and services. If Interbank’s competitors are successful in developing products and services that are more effective or less expensive than the products and services offered by it, Interbank may be unable to compete successfully. Even if Interbank’s products and services prove to be more effective than those developed by other competitors, such other competitors may be more successful in marketing their products and services because of their greater financial resources or marketing strategies, among other factors. Interbank may not be able to grow or maintain its market share if it is not able to match its competitors’ pricing or keep pace with their development of new products, services and technological innovation/developments.

The Peruvian insurance market, particularly the annuity and life insurance sectors, is also highly competitive. Interseguro’s principal competitors are large insurance companies that may have greater resources and offer a wider range of products. These insurance companies may have better access to independent brokers who sell insurance to customers. In addition, Interseguro may also face competition from private pension funds (AFPs), which could in the future be allowed to offer annuities. Moreover, under the private pension system, upon retirement, retirees have the option of choosing to remain with their pension fund, choose an annuity or, since 2016, withdraw 95.5% of their capital accumulated in cash, which potentially reduces demand for Interseguro’s annuities. Any adverse impact on Interseguro resulting from increased competition, as well as a reform of the private pension system, could have a material adverse effect on our financial condition and results of operations.

Similarly, if Inteligo Bank’s competitors are successful in developing products and services that are more effective or less expensive than the products and services offered by Inteligo Bank, it may be unable to compete successfully. Even if Inteligo Bank’s products and services prove to be more effective than those developed by other competitors, such other competitors may be more successful in marketing their products and services because of their greater financial resources or marketing strategies, and other factors. Competitors may also dedicate greater resources to, and be more successful in, the development of products and services that may compete directly with Inteligo Bank’s products and services. Inteligo Bank competes in a global market for

 

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wealth management services, including wealth management divisions of global banks. Such competition would adversely affect the acceptance of Inteligo Bank’s products and/or lead to adverse changes in the investing habits of Inteligo Bank’s customer base. Inteligo Bank may not be able to grow or maintain its market share if it is not able to keep pace with its competitors’ development of new products and services. Any adverse impact on Inteligo Bank resulting from increased competition could have a material adverse effect on our financial condition and results of operations.

Our failure to effectively anticipate or adapt to emerging technologies or changes in customer behavior could have a material adverse effect on our financial conditions and results of operations.

Our failure to effectively anticipate or adapt to emerging technologies or changes in customer behavior, including among younger customers, could delay or prevent our access to new digital-based markets. Furthermore, the widespread adoption of new technologies, including payment systems, could require substantial expenditures to modify or adapt our existing products and services as we continue to grow our digital capabilities. Our customers may choose to conduct business or offer products on alternative or emerging platforms. Such new technologies could negatively impact our investments in bank premises, equipment and personnel for our branch network, or if we do not properly anticipate trends, render our existing investments in our digital platform moot. If we fail to adapt to changes in technologies or changes in customer behavior, it may have an adverse impact on Interbank resulting from increased competition, which could have a material adverse effect on our financial condition and results of operations.

The banking and insurance markets are exposed to macroeconomic shocks that may negatively impact household income and, consequently, could have a material adverse effect on our financial condition and results of operations.

Interbank’s strategy is to focus on the retail and commercial banking sectors and to grow and gain market share profitably. As a result, Interbank’s loan portfolio will become increasingly vulnerable to macroeconomic shocks that could negatively impact the household income of Interbank’s customers and result in increased loan losses. Furthermore, because the penetration of bank lending products in the Peruvian retail sector has been historically low, there is no basis on which to evaluate how the retail sector will perform in the event of an economic crisis, such as a recession or a significant devaluation of the sol, and Interbank’s historical loan loss experience may not be indicative of the performance of its loan portfolio in the future. In addition, our commercial clients could be negatively affected by global and local macroeconomic trends. For example in past years, our provisions for loan losses, in particular related to credit cards granted to certain vulnerable sectors of the Peruvian economy, have significantly increased during slowdowns of the Peruvian economy. Additionally, in part due to the de-dollarization policy sponsored by the Peruvian government there is a mismatch between our dollar denominated deposits and sol denominated loans. See “Management’s Discussion and Analysis of Results of Operations and Financial Condition—Depreciation and Appreciation of the Sol”.

In the event of a macroeconomic shock, the value of Interseguro’s investments may also suffer losses, including in its investment property. In addition, the amount of savings available to potential annuity holders may be negatively impacted by unemployment or a decline in wages. A macroeconomic shock may also negatively impact wealth generation in Peru and, in turn, impact the demand for our wealth management services.

Our loans, our deposits and our profits have all experienced substantial growth, benefitting from growth in the Peruvian economy. We may not be able to continue our historically strong growth.

We have experienced significant growth over the last ten years and our loans, our deposits and our profits have all experienced substantial growth. We may not be able to continue to grow strongly or at all in the future due to factors beyond our control, in particular considering the slowdown of the Peruvian economy, which could have a material adverse effect on our financial condition and results of operations.

 

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We could sustain losses if Interbank’s asset quality declines.

Our earnings are significantly affected by Interbank’s ability to properly originate, underwrite and service loans. We could sustain losses if Interbank incorrectly assesses the creditworthiness of its borrowers or fails to detect or respond to deterioration in asset quality in a timely manner. Problems with asset quality could cause our net interest and similar income to decrease and our provisions for loan losses to increase, which could adversely affect our financial condition and results of operations.

Reduced diversification in Interbank’s loan portfolio could have a material adverse effect on 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 policies, Interbank’s pursuit of opportunities in which it can charge higher interest rates may reduce diversification of the loan portfolio and expose Interbank to greater credit risk. Reduced diversification could expose Interbank to greater risks in the event of a decline in asset quality. In addition, given the relatively small size of the Peruvian economy, Interbank’s lending diversification is by necessity lower than that of banks with operations in larger economies. Moreover, certain concentrations of borrowers’ commercial sectors may be unavoidable in Peru—principally the natural resources, fishing, agriculture and mining sectors—and deteriorations in such sectors could have a material adverse effect on Interbank’s deposits, loan performance and other businesses.

Furthermore, as of March 31, 2019 and December 31, 2018, retail banking loans accounted for approximately 54.0% and 53.2% of Interbank’s loan portfolio, respectively. Higher than average exposure to retail banking could be accompanied by greater credit risk due to higher risk profiles compared, particularly, to loans to large corporate customers. Given the significant recent growth of Interbank’s loan portfolio, historical loss experience may not be indicative of future doubtful loan experience.

The allowances of Interbank for impairment losses may not be adequate to cover the future losses to its loan portfolio or other assets, which could have a material adverse effect on our financial condition and results of operations.

Interbank records allowances for impairment losses on loans and other assets. The amount of allowances recorded is based on Interbank’s current assessment of and expectations concerning various factors affecting the quality of its loan portfolio. These factors include, among other things, Interbank’s borrowers’ financial condition, repayment abilities and repayment intentions, the realizable value of any collateral, the prospects for support from any guarantor, Peru’s economy, government macroeconomic policies, interest rates and the legal and regulatory environment. Many of these factors are beyond Interbank’s control. In addition, as these factors evolve, the models Interbank uses to determine the appropriate level of allowance for impairment losses on loans and other assets require recalibration, which can lead to increased allowances. For example, allowances for impairment losses on loans have significantly increased mainly as a result of the slowdown of the Peruvian economy. If Interbank’s assessment of and expectations concerning the above-mentioned factors differ from actual developments, or if the quality of its loan portfolio deteriorates or the future actual losses exceed its estimates, Interbank’s allowance for impairment losses may not be adequate to cover actual losses and it may need to make additional allowances for impairment losses, which could have a material adverse effect on our financial condition and results of operations.

Our financial results may be negatively affected by changes to IFRS accounting standards.

We report our results and financial position in accordance with IFRS as issued by the IASB. Changes to IFRS thereof may cause our future reported results and financial position to differ from current expectations, or historical results to differ from those previously reported due to the adoption of new accounting standards on a retrospective basis. We monitor potential accounting changes and, when possible, we determine their potential

 

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impact and disclose significant future changes in our financial statements that we expect as a result of those changes. Currently, there are a number of issued but not yet effective IFRS changes, as well as potential IFRS changes, some of which are expected to impact our reported results and financial position in the future. For further information, see Notes 4.2 and 4.5 to our audited annual consolidated financial statements and Note 2 (c) to our unaudited interim condensed consolidated financial statements.

In particular, IFRS 9 “Financial Instruments,” which went into effect on January 1, 2018, introduced the concept of expected credit loss, whereas the previous model (IAS 39) was based on incurred loss. Retrospective application is required, but comparative information is not compulsory except for hedging accounting requirements which are generally prospectively applied. The impact of the first adoption of IFRS 9 expected credit loss model for IFS and its subsidiaries amounted to an impact of S/43.9 million and S/57.3 million recorded in the captions unrealized results, net and retained earnings, respectively, as of January 1, 2018. For further information on IFRS 9, see Note 4.7 to our audited annual consolidated financial statements.

Also, IFRS 17 “Insurance Contracts”, which will go in to effect on January 1, 2021, provides a comprehensive accounting model for all types of insurance contracts that provides a more consistent framework for insurers, covering all relevant aspects as recognition, measurement, presentation and disclosures, whereas the requirements in IFRS 4 are largely based on grandfathering local accounting policies. For further information on IFRS 17, see Note 4.5 to our audited annual consolidated financial statements.

IFRS 16 “Leases” which became effective on January 1, 2019, established that at the commencement date of a lease, a lessee will recognize a liability to reflect lease payments and the asset that represents the right-of-use of the underlying leased asset during the lease term will be recorded. Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset. As permitted by the transitional provisions of IFRS 16, we elected to apply the modified retrospective approach and we have not restated comparative figures. Under this method, we recognized lease liabilities for an amount equivalent to the present value of future payments agreed as of January 1, 2019. The effect of the adoption of IFRS 16 as of January 1, 2019 amounted to S/341.7 million, increasing the caption “Property, furniture and equipment (Right-of-use assets)” and simultaneously, for the same amount, the caption “Accounts payable, provisions and other liabilities (Lease liabilities)”. The adoption of IFRS 16 had no impact on the consolidated statements of changes in equity as of January 1, 2019. For the three months ended March 31, 2019, we have recorded S/0.8 million as interest expense on the lease liabilities and S/19.4 million as depreciation expense on a right-of-use asset, which were recorded in captions “interest and similar expense” and “depreciation and amortization”, respectively, of the unaudited interim condensed consolidated statements of income. For further information on IFRS 16, see Note 2 (c) to our unaudited interim condensed consolidated financial statements.

For further information about developments in financial accounting and reporting standards, see Note 4.7 to our audited annual consolidated financial statements.

Our financial results may be negatively affected by investment losses.

The investment activities of our subsidiaries are subject to factors beyond their control, and losses from their exposures could result in a material adverse effect on our financial condition and results of operations.

As part of its treasury operations, Interbank trades various financial instruments and other assets, including debt, equity, fixed income, currency and related derivatives, as both agent and principal, and derives a proportion of its non-financial income from trading profits. Interbank has established position limits for sol and foreign currency-denominated securities in accordance with its overall risk management policy and with the SBS requirements. However, Interbank is exposed to numerous factors that are beyond its control, including overall market trading activity, interest rate levels, the credit risk of its counterparties and general market volatility. In addition, a significant part of Interbank’s trading is related to customer transactions, and Interbank could be

 

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exposed to a number of risks related to the movement of market prices in the underlying instruments, including the risk of unfavorable market price movements relative to its long or short positions, a decline in the market liquidity of the related instruments, volatility in market prices, interest rates or foreign currency exchange rates relating to these positions, and the risk that the instruments with which Interbank chooses to hedge certain positions do not track the fair value of those positions. If Interbank incurs any losses from these exposures, it could reduce Interbank’s trading profits or cause it to suffer losses from trading activities, either of which could have a material adverse effect on our financial condition and results of operations.

Inteligo Bank is exposed to similar investment and trading risks as Interbank.

Interseguro is exposed to the risk of a decrease in the value of its investments due to volatility in market conditions, real estate prices, equity values and interest rates, among other factors, many of which are beyond Interseguro’s control. In addition, as a holder of a large portfolio of debt investments and fixed income securities, Interseguro is exposed to the risk that the issuers of its fixed income securities may default.

Furthermore, in all of our segments, our investments may be subject to impairment, due to mark-to-market which could cause volatility in our financial condition and results of operations.

Interest rate changes could have a material adverse effect on our financial condition and results of operations.

Interbank’s and Inteligo’s financial condition and results of operations depend to a large extent on their financial margin, which in turn depends on their ability to charge interest on interest-earning assets, such as loans to customers, that is higher than the interest they pay on interest-bearing liabilities, such as deposits. Market interest rates are sensitive to many factors beyond their control, including the interest rate policies of the Central Reserve Bank of Peru and the U.S. Federal Reserve. It is unclear whether interest rates on U.S. dollars will continue to rise in the future. Increases in market interest rates in Peru could require Interbank to increase the interest rates it pays on deposits. If Interbank or Inteligo were unable to implement commensurate and timely increases in interest rates on loans they originate, their margins would decline. In addition, Interbank’s primary sources of funds are retail deposits with no specific or contractual maturity, and a substantial portion of the loans it originates have a longer term. The difference in maturities between deposits and loans could magnify the effect of any interest rate mismatch, as well as pose a liquidity risk if Interbank were not able to obtain funding as its liabilities mature.

Interseguro faces interest rate risk as a result of the potential variation in interest rates when it reinvests debt instruments to cover its obligations. Interseguro may reinvest when the term of its investments differs from that of its obligations. Interseguro tries to match the cash flows of its obligations with the maturities of its portfolio, but the shortage of instruments with the appropriate maturity profile may result in mismatches with its obligations and, as a result, expose it to interest rate risk.

Interseguro is exposed to the impact of changes in interest rates on other comprehensive income.

Before the second quarter of 2018, Interseguro estimated its technical reserves within the income statement under IFRS by using a discount rate that reflected the interest rate performance of the debt instruments in its portfolio, adjusted for credit risk, and the company’s asset-liability mismatch. As a consequence, Interseguro’s results of operations under IFRS were affected by the volatility in the interest rate.

However, starting in the second quarter of 2018, Interseguro estimates its technical reserves under IFRS on the basis of an updated discount risk-free rate obtained by a matching adjustment methodology. See Note 4.4(d) to our audited annual consolidated financial statements. The volatility of this interest rate is reflected in Interseguro’s balance sheet, under other comprehensive income which could have a material adverse effect on our balance sheet. See Note 11(a) to our audited annual consolidated financial statements.

 

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Interbank may not be able to obtain the funding required to support growth and implement its strategy.

Interbank’s strategy to grow its loan portfolio will require it to continue to have an active funding strategy. Interbank’s access to funding will depend on many factors, including factors beyond our control, such as any credit crunch or other conditions in global capital markets and investors’ perceptions of the risks of investing in Peru and emerging markets generally. The 2008 and 2009 global financial and economic crisis, the debt crisis in Europe and general market volatility, for example, had a negative impact on the liquidity of global financial markets. In the case of similar events, any equity or debt financing, if available at all, may be on terms that are not favorable to Interbank. If access to funding is limited, Interbank may not be able to implement its strategy, which could have a material adverse effect on our financial condition and results of operations.

A reduction in our subsidiaries’ credit ratings could increase their cost of borrowing funds and make their ability to raise new funds and renew maturing debt more difficult.

Our subsidiaries’ credit ratings are an important component of their respective liquidity profile. Among other factors, Interbank’s credit ratings are based on its financial strength, the credit quality and concentrations in its loan portfolio, the level and volatility of its earnings, its capital adequacy, the quality of management, the liquidity of its balance sheet, the availability of a significant base of core retail and commercial deposits and its ability to access a broad array of funding sources. In addition, our subsidiaries’ lenders may be sensitive to the risk of a ratings downgrade, which could increase the cost of refinancing their existing obligations, raising funds in the capital markets and borrowing funds from private lenders, and could in turn have a material adverse effect on our financial condition and results of operations.

The significant share ownership of our controlling shareholder may conflict with your interests and may have an adverse effect on the future market price of our shares.

Prior to this offering, our controlling shareholder, Intercorp Peru, owned, directly and indirectly, approximately 74.3% of our outstanding common shares. Following this offering, we expect that Intercorp Peru will own, directly and indirectly, approximately 70.6% of our outstanding common shares assuming no exercise of the underwriters’ option to purchase additional shares and excluding the sale of the 100,000 additional shares offered on a best efforts basis through the Lima Stock Exchange. Actions by Intercorp Peru with respect to the disposition of our common shares that it beneficially owns or the perception that such actions will occur, may negatively affect the trading prices of our common shares.

In addition, Intercorp Peru will continue to be able to elect a majority of the members of our board of directors and thus determine our business strategies, as well as determine the outcome of actions that require shareholder approval, including the approval of mergers and other extraordinary transactions and the payment of dividends. The controlling shareholder of Intercorp Peru may have interests that differ from yours and may take actions that may be adverse to your interests. The concentration of ownership may also delay, prevent or deter a change in control of our company, could deprive our shareholders of an opportunity to receive a premium for their common shares as part of a sale of our company and might ultimately affect the market price of our common shares.

In addition, we and our subsidiaries engage in numerous related party transactions with companies controlled by Intercorp Peru as well as other affiliated companies. Although Peruvian, Panamanian and Bahamian law regulate the amount of credit exposure our subsidiaries are permitted to have with our related parties, conflicts of interest may arise in the future. See “Related Party Transactions.”

Actual mortality and morbidity rates and other factors may differ from those assumed in the calculation of technical reserves and may have a material adverse effect on Interseguro’s financial condition and results of operations.

Actual mortality and morbidity rates may differ from those assumed in the initial calculation of annuity reserves at the time of the issuance of the policy and their periodic adjustments. If Interseguro’s assumptions

 

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differ materially from actual mortality and morbidity rates, Interseguro could be required to make payments under its annuities for a longer period of time than originally estimated, and existing reserves could fall short of actual payments. Significant shortfalls could have a material adverse effect on our financial condition and results of operations.

Before the second quarter of 2018, Interseguro used the mortality tables approved by the Chilean Superintendency of Securities and Insurance (Superintendencia de Valores y Seguros) and the Chilean Superintendency of Pensions (Superintendencia de Pensiones) which incorporated more up-to-date mortality information than the ones prescribed by the SBS before the approval of Resolution No. 886-2018 by the SBS on March 2018.

Starting the second quarter of 2018, Interseguro adopted new mortality tables approved by the SBS, which showed recent changes in Peruvian life expectancy and longer estimated lives for the calculation of the annuities reserves. As a result, Interseguro had an adjustment of S/144.8 million in technical reserves during the second quarter of 2018. Future changes in mortality tables could have a material adverse effect on our financial condition and results of operations.

Interseguro’s failure to underwrite and price insurance premiums accurately for the products it offers would have a material adverse effect on its financial condition and results of operations.

Interseguro’s financial condition and results of operations depend on its ability to underwrite insurance policies and set premium rates accurately. Interseguro must generate sufficient premiums to offset claim losses and cover operating and underwriting expenses to make a profit. In order to price insurance policies accurately, Interseguro must collect and analyze a substantial volume of data, develop, test and apply appropriate rating formulae, closely monitor changes in trends in a timely fashion and project both severity and frequency of loss with reasonable accuracy. If Interseguro fails to assess accurately the risks that it assumes or does not reinsure an appropriate level of risk, it may fail to establish adequate premium rates, which could reduce income and have a material adverse effect on its financial condition and results of operations.

Interbank’s and Interseguro’s reliance on Peruvian sovereign and global bonds in their respective investment portfolios leaves us vulnerable to a default on such debt.

A substantial portion of our investment portfolio consists of Peruvian sovereign and global bonds and Central Reserve Bank of Peru certificates of deposit, which represented 38.8% and 39.2% of our investment portfolio (before accrued interest) as of March 31, 2019 and December 31, 2018, respectively. A default on Peruvian sovereign debt could have a material adverse effect on our financial condition and results of operations.

Interseguro may suffer losses in its investment portfolio because of risks associated with its real estate investments.

Interseguro’s investment portfolio includes real estate investments located solely in Peru. As of March 31, 2019, Interseguro’s investments in real estate projects totaled S/989.6 million, which represented 8.5% of Interseguro’s total investment portfolio. As of December 31, 2018, Interseguro’s investments in real estate projects totaled S/986.5 million, which represented 8.8% of Interseguro’s total investment portfolio. Real estate investments are relatively illiquid, and Interseguro’s ability to vary its portfolio of properties in response to changes in economic and other conditions is limited. If Interseguro wants or needs to sell a property, it may not be able to do so in the desired time period or on favorable terms, which could have a material adverse effect on our financial condition and results of operations.

Furthermore, Interseguro is exposed to risk in respect of its real estate investments that are under development, including delays in receiving zoning permits, construction delays, changes in regulation or lack of demand.

 

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Interseguro also faces credit risks with respect to its real estate investments. Interseguro generally invests in land in order to develop commercial real estate projects. For these projects, Interseguro enters into long-term leases with anchor stores (typically 25 to 30 years) and medium-term leases with smaller stores in shopping malls (typically two to five years). In the case of long- and medium-term leases, Interseguro’s tenants may experience a downturn in their businesses, which could weaken their financial condition and result in the tenants’ inability to make lease payments to Interseguro in a timely manner or at all.

Interseguro’s investment properties are carried at fair value, which could result in the value of such investment properties declining if market conditions deteriorate. As a result, we could suffer an adverse impact on our financial condition and results of operations.

Tax exemptions applicable to a substantial portion of Interseguro’s investment earnings could be changed in the future.

Interseguro pays no income tax, primarily because its investment earnings in respect of its life insurance technical reserves are entirely exempt from income tax. Future changes in tax laws or regulations limiting or eliminating the current tax exemption could have an adverse effect on our financial condition and results of operations.

We and our subsidiaries are dependent on key personnel.

Our development, operation and growth have depended significantly upon the efforts and experience of our and our subsidiaries’ board of directors, senior management and key personnel. Most of the members of our senior management have held management positions with other major financial institutions in the United States, Latin America and Europe. Although we currently expect that our and our subsidiaries’ board of directors and other senior managers will continue in their positions, the loss of their services, or our inability to attract and retain qualified personnel to replace them, could have a material adverse effect on our financial condition and results of operations.

Interruption, mismanagement or failure in our subsidiaries’ information technology systems may adversely affect their operations.

As financial and insurance institutions, our success depends on the efficient and uninterrupted operation of our subsidiaries’ computer and communications hardware systems and our applications, including systems and applications that support the operation of Interbank’s financial stores, ATMs, Interbank Agente (correspondent agents), mobile applications and website, as well as the infrastructure components that support our operations (communication devices, networking, etc.). Our subsidiaries’ computer and communications systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications failure, sabotage, computer viruses, cyber-attacks, physical or electronic break-ins and similar events or disruptions. Any of these events could cause system interruptions, delays and losses of critical data and could prevent our subsidiaries from operating at optimal levels or at all.

Any failure, interruption or breach in security of our subsidiaries’ information systems could result in failures or interruptions in their risk management, general ledger, deposit servicing, loan organization and/or other important operations, as applicable. Although our subsidiaries have developed back-up systems and a disaster recovery center, and may continue some of their operations in case of emergency, if their information systems fail, even for a short period of time, then they may be unable to serve some or all of their customers’ needs on a timely basis. Likewise, a temporary shutdown of our subsidiaries’ information systems could result in additional costs for information retrieval and verification. In addition, failure to update and develop our subsidiaries’ existing information systems as effectively as their competitors may result in a loss of the competitive advantages that each subsidiary believes its information systems provide. Furthermore, our subsidiaries may not have adequate insurance coverage or insurance limits to be compensated for losses from a major interruption.

 

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If our subsidiaries experience a data security breach and confidential customer information is disclosed to or accessed by third parties, their customers could be adversely affected. The collection of data and processing of transactions require our subsidiaries to receive and store a large amount of personally identifiable data. This type of data is subject to legislation and regulation in various jurisdictions, including Peru. Data security breaches suffered by well-known companies and institutions have attracted a substantial amount of media attention, prompting U.S. state and federal legislative proposals addressing data privacy and security. Our Peruvian subsidiaries are subject to requirements to protect the personally identifiable information that they process in connection with their services. Our Peruvian subsidiaries may become exposed to potential liabilities with respect to the data that they collect, manage and process, and may incur legal costs if their information security policies and procedures are not effective or if they are required to defend their methods of collection, processing and storage of personal data. Security breaches, lawsuits or adverse publicity relating to our subsidiaries’ methods of handling personal data could have a material adverse effect on their business, financial condition and results of operations due to the costs and negative market reaction relating to such developments.

In addition, our current strategy involves significant investments to expand and develop our IT, applications and systems in order to unify and simplify them, and increase the volume of transactions and operations performed online by our personnel and clients. We have also contracted with a third-party provider to ensure the stability and security of our systems and IT infrastructure and to also bear the risk of the failure of that third party. However, there can be no assurance that such strategy or its implementation will be successful, or whether it will result in failures, shutdowns or damage to our business and operations.

The occurrence of any failures or interruptions in our subsidiaries’ IT systems, or the failure of our subsidiaries to adequately address them if they do occur, as well as data security breaches incurred by our subsidiaries, could have a material adverse effect on our reputation, financial condition and results of operations, including as a result of facing significant fines, customer notice obligations or costly litigation, maintaining or upgrading their IT systems, or performing other IT services on a timely basis.

Cyber-security events could negatively affect our reputation or results of operations and may result in litigation.

Information security risks have generally increased in recent years as a result of the proliferation of new technologies and the increased sophistication and activities of cyber-attacks as well as increased connections of equipment and systems to the internet. Recently, data security breaches suffered by well-known companies and institutions have attracted a substantial amount of media attention, prompting U.S. state and federal legislative proposals addressing data privacy and security. We depend on a variety of internet-based data processing applications, communication, and information exchange platforms and networks as part of our operations and our digital strategy. Although we are in the process of assessing and improving the effectiveness and security of our systems, we cannot assure you that all of our systems are free from vulnerability or in line with the security standards of companies operating in more developed markets. In the event of a cyber-attack, we could have our business operations disrupted, experience losses and incur response costs, and could be subject to litigation and damage to our reputation. A cyber-attack could have a material adverse effect on our business, financial condition and results of operations. For further information on our cybersecurity protections, see “Business – Information Technology Unit.”

Our subsidiaries are susceptible to fraud, unauthorized transactions and operational errors.

Our subsidiaries are susceptible to, among other things, fraud or bad faith by employees or outsiders, unauthorized transactions by employees and other operational errors (including clerical or record keeping errors and errors resulting from faulty computer or telecommunications systems). Given a high volume of transactions that may occur at a financial institution, errors could be repeated or compounded before they are discovered and remedied. In addition, a number of transactions are not fully automated, which may further increase the risk that human error or employee tampering will result in losses that may be difficult to detect quickly or at all.

 

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While our subsidiaries maintain a system of internal controls designed to monitor and control operational risk, losses from the failure of their system of internal controls to discover and rectify such risks could have a material adverse effect on our reputation, our financial condition and results of operations.

Our existing insurance coverage may be insufficient and future coverage may be difficult or expensive to obtain.

Although we believe that our insurance policies provide adequate coverage for the risks inherent in our businesses, these insurance policies typically exclude certain risks and are subject to certain thresholds and limits. We cannot assure you that our properties, equipment, inventories and other assets will not suffer damage due to unforeseen events or that the proceeds available from our insurance policies will be sufficient to protect us from all possible loss or damage resulting from such events. Our subsidiaries renew our insurance policies on an annual basis. The cost of coverage may increase to an extent that we may choose to reduce our policy limits or agree to certain exclusions from our coverage. Among other factors, adverse political developments, security concerns and natural disasters may materially adversely affect available insurance coverage and result in increased premiums for available coverage and additional exclusions from coverage. As a result, our insurance coverage may prove to be inadequate for events that may cause significant disruption to our operations, which could have a material adverse effect on our financial condition and results of operations.

Our employees could join labor unions and we could be subject to organized labor actions, including work stoppages that could have a material adverse effect on our business.

Even though the employees of our subsidiaries are not unionized and have not entered into any collective bargaining agreement, nothing prevents them from doing so in the future. Conflicts with our employees and organized labor actions such as work disruptions or stoppages or requirements to increase employee salaries and/or benefits as a result of future collective bargaining agreements, governmental regulations or policies or otherwise could cause us to suffer a material adverse effect on our financial condition and results of operations.

Our trademarks and trade names may be misappropriated or challenged by others.

We own the material trademark and trade name rights used in connection with our brands and businesses and the marketing and sale of their respective products and services. We believe our brand names and related intellectual property are important to our continued success. We attempt to protect our trademarks and trade names by exercising our rights under applicable trademark and copyright laws. Any infringement of our intellectual property rights would likely result in a commitment of our time and resources to protect these rights through litigation or otherwise, which could be expensive and time-consuming. If we were to fail to protect our intellectual property rights for any reason, it could have a material adverse effect on our financial condition and results of operations.

Any failure to comply with anti-corruption, anti-bribery, anti-money laundering, anti-terrorist financing and antitrust laws and regulations could damage our reputation or expose us to penalties.

We are subject to anti-corruption, anti-bribery, anti-money laundering, anti-terrorist financing, antitrust and other international laws and regulations and are required to comply with the applicable laws and regulations of Peru and certain other jurisdictions. In addition, we are subject to economic sanctions regulations that restrict our dealings with certain sanctioned countries, individuals and entities. The Peruvian regulatory regime related to anti-bribery and anti-corruption legislation is still developing and could be less stringent than anti-bribery and anti-corruption legislation which has been implemented in other jurisdictions. We believe our subsidiaries are in compliance with the applicable anti-money laundering and counter-terrorist financing laws and regulations and have adopted policies and procedures, including a “know-your-client” client identification program, and enhanced their due diligence procedures, internal controls, quality assurance and anticorruption program. Our

 

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compliance program is based upon the applicable Peruvian, Panamanian and Bahamian laws and best international practices. In addition, we perform due diligence on financial institutions to ensure that they have the same standard on anti-money laundering policies and procedures. Although these measures mitigate money laundering and terrorist financing risks, these risks are not fully eliminated. Therefore, when subsidiaries identify suspicious activities, such activities are reported to the authorities as well as risks included in an internal “black list” to block future transactions and protect us against reputational risk. However, these measures, procedures and compliance may not be completely effective in preventing third parties from using any of our subsidiaries (and our correspondent banks) as a conduit for money laundering (including illegal cash operations) or terrorist financing without our (and our correspondent banks’ and reinsurance institutions’) knowledge. If any of our subsidiaries were to be associated with money laundering (including illegal cash operations) or terrorist financing, their reputation could suffer and/or they could become subject to fines, sanctions or legal enforcement, including being added to any “blacklists” that would prohibit certain parties from engaging in transactions with us, which could have a material adverse effect on our business, financial condition and results of operations. Additionally, we are the correspondent bank for certain global banks, and our failure to comply with anti-corruption, anti-bribery, anti-money laundering, anti-terrorist financing and antitrust laws and regulations could also affect our relationship with these global banks.

Our subsidiaries have not been subject to fines or other penalties, and we have not suffered business or other reputational impact, as a result of alleged money laundering activities in the past. However, there can be no assurance that our internal policies and procedures will be sufficient to prevent or detect all inappropriate practices, fraud or violations of law by our affiliates, employees, directors, officers, partners, agents and service providers or that any such persons will not take actions in violation of our policies and procedures. We may in the future discover instances in which we have failed to comply with applicable laws and regulations or internal controls. If any of our employees, contractors, agents, officers or other persons with whom we conduct business engage in fraudulent, corrupt or other improper or unethical business practices or otherwise violate applicable laws, regulations or our own internal compliance systems, we could become subject to one or more enforcement actions by Peruvian or foreign authorities (including the U.S. Department of Justice) or otherwise be found to be in violation of such laws, which may result in penalties, fines and sanctions and in turn adversely affect our reputation, business, financial condition and results of operations.

We are subject to litigation and other legal, administrative and regulatory proceedings.

We are regularly party to litigation and other legal proceedings relating to claims resulting from our operations in the normal course of business. Even though we do not have any material litigation, the interpretation and enforcement of certain provisions of our existing or any additional agreements may result in disputes among us and our customers or third-parties. Litigation is subject to inherent uncertainties, and unfavorable rulings may occur. We cannot assure you that the legal, administrative and regulatory proceedings in which we are involved will not materially and adversely affect our ability to conduct our business in the manner that we expect or otherwise adversely affect our results of operations and financial position should an unfavorable ruling occur.

Legal restrictions on our clients may reduce the demand for our services.

We may be materially affected not only by regulations applicable to us, but also by regulations and changes in enforcement practices applicable to our clients. Our business could be affected by, among other things, existing and proposed tax legislation, antitrust and competition policies, corporate governance initiatives, consumer protection laws, data use regulation and other governmental regulation and policies, and changes in the interpretation or enforcement of existing laws and rules, that affect our clients’ businesses and the financial markets. For example, a focus on tax compliance and changes in enforcement practices could lead to asset outflows from our private banking businesses, including at our subsidiary Inteligo.

 

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Risks Relating to Peru

Economic, social and political developments in Peru, including political instability, inflation and unemployment, could have a material adverse effect on our businesses.

Substantially all of the operations and customers of our subsidiaries are located in Peru. Accordingly, our financial condition and results of operations will be dependent on the level of economic activity in Peru. Our financial condition and results of operations could be affected by changes in economic and other policies of the Peruvian government (which has exercised and continues to exercise substantial influence over many aspects of the private sector) and by other economic and political developments in Peru, including devaluation, currency exchange controls, inflation, economic downturns, corruption scandals, social unrest and terrorism.

In the past, Peru has experienced political instability that has included a succession of regimes with differing economic policies and programs. At present, Peru is a stable democracy having completed a peaceful transition from the administration of President Ollanta Humala to President Pedro Pablo Kuczynski, who took office in July 2016 and to President Martin Vizcarra after President Kuczynski’s resignation. Previous governments have imposed controls on prices, exchange rates, local and foreign investment and international trade, restricted the ability of companies to dismiss employees, expropriated private sector assets and prohibited the remittance of profits to foreign investors. We cannot be certain whether the Peruvian government will continue to pursue business-friendly and open-market economic policies that stimulate economic growth and social stability.

During the 1980s and the early 1990s, Peru experienced severe terrorist activity targeted against, among others, the government and the private sector. Despite the suppression of terrorist activity, a resurgence of terrorism in Peru may occur, which could disrupt the economy of Peru and our business. In addition, Peru has, from time to time, experienced social and political turmoil, including riots, nationwide protests, strikes and street demonstrations.

During the past 18 years, Peru has experienced a period of relative economic and political stability as compared to the period between 1980 and 2000. Peru’s GDP growth rates, low inflation, and external surplus reflect, in part, the strength of Peru’s economic fundamentals. However, a deterioration of the global economy or a sharp decrease in commodity prices may adversely affect Peru’s economy. In addition, an economic contraction or weak economic growth in Peru’s trading partners may have an adverse effect on Peru’s economy. Despite Peru’s ongoing economic growth and stabilization, the social and political tensions and high levels of poverty and unemployment continue. There can be no assurance that Peru will not face political, economic or social problems in the future or that these problems will not adversely affect our business, financial condition and results of operations. Future government policies to preempt or respond to social unrest could include, among other things, expropriation, nationalization, suspension of the enforcement of creditors’ rights and new taxation policies.

Furthermore, some of the measures proposed by the current administration may generate political and social opposition, which may in turn prevent the government from adopting such measures as proposed. Political parties opposed to the current administration retained a majority of the seats in the Peruvian Congress in the recent elections, which has required the current administration to seek political support from such opposition parties for its economic proposals.

The resignation of former President Kuczynski and the political landscape in Peru could materially and adversely affect us.

On March 22, 2018, President Pedro Pablo Kuczynski presented his resignation, in response to allegations of corruption for vote-buying in connection with the impeachment proceedings against him. On March 23, Congress accepted his resignation and his first vice president, Martín Vizcarra, was sworn in as acting

 

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president. President Vizcarra may not remain in office for the remainder of the presidential term, which ends in July 2021. If President Vizcarra and the current second vice president both resign, the president of Congress would become acting president and Congress would call for new elections, which may include both new presidential and congressional elections. The political instability caused by these events could affect macroeconomic conditions in the country, including currency volatility, as well as have a material adverse effect on our business, prospects, financial condition, results of operations or cash flows.

When the term of President Martín Vizcarra began, political opposition held the majority of the seats in the Peruvian Congress and prevented the new administration from adopting measures it originally proposed. President Martín Vizcarra sought the support of the public and presented four proposals to reform the Constitution through a popular referendum. On December 9, 2018, three out of the four proposals were approved with more than 80% of the popular vote; the remaining proposal was rejected by 80% of the public after the President requested that the public reflect it as the proposal had been altered by the Peruvian Congress. Currently, President Martín Vizcarra has popular approval of the Peruvian public and minor opposition by other political parties. There can be no assurance that this support will continue. Moreover, should President Martín Vizcarra or any official of his administration become involved in corruption practices or scandals, this may affect popular support and alter the political landscape. The foregoing political uncertainty and presidential decisions could further increase interest rate and currency volatility, as well as adversely and materially affect the Peruvian economy and thus could have a material adverse effect on our financial condition and results of operations

Our board of directors is comprised of prominent business persons in Peru, several of whom have also held high level government positions in prior administrations. In Peru, it is common for public officials to be the subject of investigation by the Congress, the Public Ministry or the Judiciary branch. These investigations may be reported by the press and as a result the company’s name might be referenced therein which may result in negative publicity for the company.

Fluctuations in the value of the sol could have a material adverse effect on our financial condition and results of operations.

As the Peruvian banking system is highly dollarized, with 31.7% of outstanding loans and 39.6% of deposits denominated in U.S. dollars as of March 31, 2019, and 31.5% of outstanding loans and 39.5% of deposits denominated in U.S. dollars as of December 31, 2018, devaluation of the sol against the U.S. dollar could have a negative impact on the ability of Interbank’s clients to repay loans and make premium payments. Within our insurance segment, a similar adverse effect could occur on Interseguro’s local debt holdings denominated in foreign currency. Despite any devaluation, and absent any change in foreign exchange regulations, Interbank and Interseguro would be required to continue to repay dollar-denominated deposits in U.S. dollars. In addition, while we seek to manage the gap between Interbank’s and Interseguro’s foreign currency-denominated assets and liabilities, by matching, for example, the volumes and maturities of Interbank’s sol-denominated loans against Interbank’s sol-denominated deposits, we may not be successful in doing so. Therefore, any significant devaluation of the sol against the U.S. dollar could have a material adverse effect on our financial condition and results of operations. In addition, a devaluation of the sol against the U.S. dollar would decrease the dollar value of any dividends paid to us by our subsidiaries, and, as a result, our ability to pay dividends could be materially and adversely affected. An appreciation of the sol could also have an adverse impact on our results of operations as reported in soles, as Inteligo’s operations are denominated in U.S. dollars but our reporting currency is in soles.

Potential exchange controls implemented by the Peruvian government could adversely affect our ability to pay dividends and have a material adverse effect on our financial condition and results of operations.

Since 1991, the Peruvian economy has undergone a major transformation from a highly protected and regulated system to a free market economy. During this period, protectionist and interventionist laws and policies have been dismantled gradually to create a liberal economy dominated by the private sector. Exchange controls

 

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and restrictions on remittances of profits, dividends and royalties have ceased. Prior to 1991, Peru exercised control over the foreign exchange markets by imposing multiple exchange rates and placing restrictions on the possession and use of foreign currencies. The Peruvian economy has responded to this transformation by growing at a compound average annual rate of 9.7% during the period from 1994 to 2013, which growth rate has slowed down in recent years. Currently, foreign exchange rates are determined by market conditions, with regular open-market operations by the Central Reserve Bank of Peru in the foreign exchange market to reduce volatility in the value of Peru’s currency against the U.S. dollar.

Any dividends paid to us by Interbank, Interseguro and Inteligo SAB will be paid in soles. Peruvian law does not impose any restrictions on the ability of companies having operations in Peru to transfer foreign currencies from Peru to other countries, except for restrictions applicable to companies that have been convicted or have admitted to and/or acknowledged committing crimes against the Peruvian public administration or money laundering or equivalent crimes, as set forth in Urgency Decree No. 003-2017 (Urgency Decree to Ensure Continuity of Public Utility Investment Projects and Safeguard Compensation to the State in Cases of Corruption), which restricts the transfer of both local and foreign currency abroad. Except for the restrictions set forth in such Urgency Decree, companies having operations in Peru may freely transfer foreign currency from Peru to other countries. If the Peruvian government were to implement restrictive exchange rate controls in the future, we might be obligated to seek an authorization from the Peruvian government to make dividend payments. We cannot assure you that such an authorization would be obtained. Any such exchange rate restrictions or the failure to obtain such an authorization could materially and adversely affect our ability to pay our shareholders.

Increased inflation in Peru could have an adverse effect on the Peruvian long-term credit market as well as the Peruvian economy generally and, therefore, on our financial condition and results of operations.

In the past, Peru has suffered through periods of high and hyper-inflation, which has materially undermined the Peruvian economy and the government’s ability to create conditions that support economic growth. In response to increased inflation, the Central Reserve Bank of Peru, which sets the Peruvian basic interest rate, may increase or decrease the basic interest rate in an attempt to control inflation or foster economic growth. Increases in the base interest rate could adversely affect our results of operations, increasing the cost of certain funding. Additionally, a return to a high inflation environment would also undermine Peru’s foreign competitiveness, with negative effects on the level of economic activity and employment, while increasing our operating costs and adversely impacting our operating margins.

The stability of the Peruvian financial system depends on public confidence in Peruvian banking and financial institutions.

Financial institutions, including Interbank and Interseguro, depend on public confidence in the Peruvian financial system. In the event of adverse developments affecting Peru’s economic, political or social conditions or if a bank faces liquidity problems, the general public may withdraw deposits and savings from the troubled bank or from banks generally, thereby precipitating a liquidity crisis, as occurred in Peru in the late 1990s.

If depositors withdraw significant holdings from banks generally, including Interbank, there will be a substantial adverse impact on the manner in which financial institutions, including Interbank and Interseguro, conduct their business, on their ability to operate as financial intermediaries and on their financial condition, which could have a material adverse effect on our financial condition and results of operations.

The Peruvian economy could be adversely affected by economic developments in regional or global markets.

Financial and securities markets in Peru are influenced by economic and market conditions in regional or global markets. Although economic conditions vary from country to country, investors’ perceptions of the events occurring in one country may adversely affect cash flows and securities from issuers in other countries,

 

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including Peru. For example, the Peruvian economy was adversely affected by the political and economic events that occurred in several emerging economies in the 1990s, including in Mexico in 1994, which impacted the fair value of securities issued by companies from markets throughout Latin America. The crisis in the Asian markets beginning in 1997 also negatively affected markets throughout Latin America. Similar adverse consequences resulted from the economic crisis in Russia in 1998, the Brazilian devaluation in 1999 and the Argentine crisis in 2001. In addition, Peru’s economy continues to be affected by events in the economies of its major regional partners and in developed economies that are trading partners or that affect the global economy.

The 2008 and 2009 global financial and economic crisis, principally driven by the subprime mortgage market in the United States, substantially affected the international financial system, including Peru’s securities market and economy. Additionally, the debt crisis in Europe, which began with the financial crises in Greece, Spain, Italy and Portugal, reduced the confidence of foreign investors, which caused volatility in the securities markets and affected the ability of companies to obtain financing globally. Doubts about the pace of global growth, particularly in the United States, contributed to already weak international growth in 2011, 2012 and 2013. More recently Brexit has contributed to increased volatility and uncertainty in a number of financial markets. In addition, the crisis affecting emerging markets that began in the second quarter of 2018 as a result of the rise in interest rates by the U.S. Federal Reserve and the trade war between the United States and China, among other factors, could have an impact on the Peruvian economy. Any interruption to the recovery of the developed economies, the continued effects of the global crisis in 2008 and 2009, a worsening or resurgence of the debt crisis in Europe, impacts due to Brexit or a new economic and/or financial crisis, or a combination of the above, could affect the Peruvian economy, and, consequently, materially adversely affect our business. In particular, the Peruvian economy has recently suffered the effects of lower commodity prices in the international markets, a decrease in export volumes, a decrease in foreign direct investment inflows and, as a result, a decline in foreign reserves and an increase in its current account deficit. Our business is particularly sensitive to economic and market conditions which affect products of various export industries, including textile, fishing, and agriculture. In addition, we are active in the real estate sector, which can also be highly sensitive to macroeconomic developments. Although we have relatively little exposure to the mining sector, a decline in commodity prices could negatively affect the Peruvian economy as a whole. Any increase in the number of delinquencies or defaults would result in higher levels of non-performing assets and provisions for loan losses, which could have a material adverse effect on our financial condition and results of operations.

Additionally, adverse developments in regional or global markets or an increase in the perceived risks associated with investing in emerging markets in the future could adversely affect the Peruvian economy and, as a result, adversely affect our businesses.

A decline in the prices of certain commodities in the international markets could have a material adverse effect on our financial condition and results of operations.

In 2018, traditional exports, in particular mineral products, fishing products, agricultural products and petroleum and its derivatives, represented 72.6% of Peru’s total exports, according to the Central Reserve Bank of Peru figures. A decline in commodity prices in the international markets, especially traditional minerals which represented 58.9% of exports by value in 2018, may have an adverse impact on government finances, which could affect both investor confidence and the sustainability of government expenditure and social programs. Thus, a decline in commodity prices could, ultimately, affect the political environment in Peru, especially as regional and local governments are particularly reliant on tax revenue from mining concerns. By potentially affecting private sector demand and investor confidence, lower commodity prices could also affect the banking and insurance sector, leading to, for example, lower credit demand, deteriorating asset quality and currency devaluation. A decline in commodity prices could also materially affect the finances of some of our clients that rely on revenue from natural resources.

 

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The market volatility generated by distortions in the international financial markets may affect the Peruvian capital markets and the Peruvian banking system.

The global financial and economic crisis of 2008 and 2009 adversely affected and increased the volatility of the performance of the Lima Stock Exchange. In recent years, the Lima Stock Exchange has experienced increased participation from local and international retail investors that react rapidly to the effects from international markets. The general index of the Lima Stock Exchange increased by 58.1% in 2016, increased by 28.3% in 2017 and decreased by 3.1% in the 2018. The volatility in the international markets may adversely affect the Peruvian capital markets and could therefore impact our ability to raise funds from local capital markets at a level necessary to fund our operations.

The Peruvian banking system has not experienced any significant liquidity problems as a result of the recent international liquidity environment, primarily because the major source of funds for local banks, including Interbank, is represented by the deposit base. Future market volatility, however, may affect the Peruvian banking system, including Interbank, and such volatility could have a material adverse effect on our financial condition and results of operations.

The operations of Interbank, Interseguro, Interfondos and Inteligo SAB could be adversely affected by an earthquake or other natural disasters.

Peru is affected by El Niño, an oceanic and atmospheric phenomenon that causes a warming of temperatures in the Pacific Ocean, resulting in heavy rains off the coast of Peru and various other effects in other parts of the world. The effects of El Niño, which typically occurs every two to seven years, include flooding and the destruction of fish populations and agriculture, and it accordingly can have a negative impact on Peru’s economy. For example, in early 2017, El Niño adversely affected agricultural production, transportation services, tourism and commercial activity, caused widespread damage to infrastructure and displaced people and resulted in a 1.5% drop in GDP growth in 2017 relative to 2016 figures. The Peruvian government estimated that El Niño caused U.S.$2.8 billion in damages in affected regions in the first half of 2017. In particular, El Niño has affected and could in the future affect our loan activity and asset quality, as loan agreements typically allow borrowers to extend payments for a certain amount of time due to El Niño and it could ultimately affect their payment capacity when the extensions run out.

Peru is also located in an area that experiences seismic activity and occasionally is affected by earthquakes. For example, in 2007, an earthquake with a magnitude of 7.9 on the Richter scale struck the central coast of Peru, severely damaging the region south of Lima. Although Interbank’s, Interseguro’s and Inteligo’s headquarters and financial stores in Peru have not been materially affected by an earthquake, a major earthquake could damage the infrastructure necessary to their operations.

Although we have insured against damage caused by an earthquake and other natural disasters, accidents and other similar events (including coverage for losses due to resulting business interruption), the occurrence of an earthquake in particular and any other natural disasters in general could adversely affect our results of operations and financial condition and we may be subject to further requirements from the SBS in order to provide temporary measures for the victims of the natural disasters, such as re-scheduling their credit payments. Further, any natural disaster will increase the probability of Interseguro having to pay the corresponding indemnification to customers under insurance policies that Interseguro sold, which would negatively affect its operating margins.

Corruption and ongoing high profile corruption investigations may hinder the growth of the Peruvian economy and have a negative impact on our business and operations.

Peruvian authorities are currently conducting several high profile corruption investigations relating to the activities of certain Brazilian companies and their Peruvian partners in the construction and infrastructure

 

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sectors, which have resulted in suspension or delay of important infrastructure projects, which were otherwise operational and permitted. In 2018, Peru suffered the worst institutional crisis since 2000 due, among others, to the resignation of former President Pedro Pablo Kuczynski, several corruption scandals involving prominent members of the judicial system and the public ministry who are now facing prosecution, and the fragmentation of the most prominent political party in Congress. We expect that, due to the cooperation agreement signed between the Peruvian government and Odebrecht S.A. in 2019, additional investigations and/or corruption scandals may arise. We cannot predict how these or future corruption scandals or investigations may affect the Peruvian economy, hinder the growth of the Peruvian economy and indirectly have a material adverse effect on our business, financial condition and results of operations.

Changes in tax laws may increase our tax liabilities and, as a result, have a material and adverse effect on us.

The Peruvian government regularly implements changes to its tax regulations and interpretations. Potential changes may include modifications in the taxable events, the taxable bases or the tax rates, or the enactment of temporary taxes that, in some cases, could become permanent taxes. These changes could, if enacted, indirectly affect us. The Peruvian government has recently introduced several changes related, among others, to thin capitalization rules and the general anti-avoidance rule, or GAAR, which may have an impact on our taxable base. We are currently unable to estimate the impact that such reforms may have on our business. The effects of any tax reform that could be proposed in the future and any other changes that could result from the enactment of additional reform or changes in interpretation have not been, and cannot be, quantified. Any changes to the Peruvian tax regime may increase our and our subsidiaries’ tax liabilities or overall compliance costs, which could have a material adverse impact on our business, financial condition and results of operations.

Risks Relating to the Common Shares and the Offering

There may be a lack of liquidity and market for our common shares.

Prior to this offering, there has not been a public market for our common shares in the United States. We have applied to list our common shares on the New York Stock Exchange. We cannot predict whether an active liquid public trading market for our common shares in the United States will develop or be sustained. Active, liquid trading markets generally result in lower price volatility and respond more efficiently to orders from investors to purchase or sell securities. Liquidity of a securities’ market is often a function of the volume of the underlying shares that are publicly-held by unrelated parties. Our common shares are listed on the Lima Stock Exchange, which is generally a less liquid trading market than the New York Stock Exchange.

In addition, investing in securities traded in emerging market countries, such as Peru, frequently involves a greater degree of risk when compared to investments in securities of issuers located in international securities markets with more stable economic conditions and are generally considered being more speculative in nature.

These factors may affect your ability to sell our common shares at your desired price and time, which could have a material adverse effect on the price of our common shares. In the event an active and liquid market for our common shares does not develop or is not maintained, the market price of our common shares that could be negatively impacted.

The price of our common shares may be volatile.

The trading price of our common shares following this offering may fluctuate substantially and may be higher or lower than the price you pay, depending on many factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose part or all of your

 

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investment in our common shares. The factors that could cause fluctuations include, but are not limited to, the following:

 

   

overall price and volume fluctuations affecting the stock exchanges on which our common shares are listed;

 

   

significant volatility in the market price and trading volume of banking or insurance company securities generally, which are not necessarily related to the operating performance of these companies;

 

   

actual or anticipated changes in our earnings, fluctuations in our operating results or the failure to meet the expectations of financial market analysts and investors;

 

   

risks relating to the global economy and the economies of the United States, Peru and the other countries in which we operate;

 

   

investors’ perceptions of the banking and insurance industries in general and our company in particular;

 

   

potential differences between our actual financial condition and results of operations and those expected by investors;

 

   

additions or departures of key management personnel;

 

   

announcements by us or our competitors of significant acquisitions, divestitures, strategic partnerships, joint ventures or capital commitments;

 

   

increase in interest rates in Peru and the United States;

 

   

reputational issues;

 

   

the operating and stock performance of comparable companies;

 

   

general economic conditions and trends;

 

   

catastrophic events;

 

   

changes in accounting standards, policies, guidance, interpretation or principles;

 

   

regulatory changes;

 

   

loss of external funding sources; or

 

   

sales of large blocks of our stock or sales by insiders.

We may raise additional capital in the future through the issuance of equity securities, which may result in dilution of the interests of our shareholders.

We may need to raise additional capital and may opt for obtaining such capital through the public or private placement of common shares or securities convertible into our common shares. Our articles of incorporation do not provide for preemptive rights for our shareholders in the event of a public or private equity raise, or financing through the issuance of securities convertible into our common shares, such additional funds may dilute the percentage interests of investors in our common shares.

 

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Sales of additional common shares, including by us, the selling shareholders, our controlling shareholder, or our directors and officers, following expiration or early release of certain lock-up agreements, could cause the price of our common shares to decline.

Sales of additional common shares, including by us, the selling shareholders, our controlling shareholder, or our directors and officers, following expiration or early release of certain lock-up agreements, could cause the price of our common shares to decline. Sales of substantial amounts of our common shares in the public market, or the availability of such shares for sale, by us, the selling shareholders, our controlling shareholder, or our directors and officers, could adversely affect the price of our common shares. In connection with the offering of our common shares, we, the selling shareholders, and certain of our directors and officers, have entered into lock-up agreements for a period of 180 days (and in the case of EMFI for a period of 90 days) following the date of this prospectus. These lock-up agreements are subject to certain exceptions and described under “Underwriting—No Sales of Similar Securities”. Upon the expiration of such lock-up agreements, we, the selling shareholders, our controlling shareholder and our directors and officers, will be free to sell additional common shares subject to complying with applicable securities laws.

You may have fewer and less well defined rights than shareholders of a company organized in other jurisdictions, such as the United States.

We are a sociedad anónima (corporation) organized under the laws of Panama. Our corporate affairs are governed by our organizational documents and the laws of Panama. Under such documents and laws, our shareholders, and therefore holders of our common shares, may have fewer or less well defined rights than they might have as shareholders of a corporation incorporated in other jurisdictions, such as in the United States.

You may have difficulty enforcing judgments against us, our officers and directors.

Substantially all of our directors, officers and certain of the experts named herein reside outside the United States, and all or substantial portions of our assets are located outside the United States. As a result, it may not be possible for you to effect service of process within the United States upon such persons or upon us, including with respect to matters arising under the federal securities laws of the United States, or to enforce against such persons or against us judgments of courts of the United States predicated upon the civil liability provisions of the federal securities laws of the United States.

We have been advised by our Peruvian counsel that any final and conclusive judgment for a fixed and final sum obtained against us in any foreign court having jurisdiction in respect of any suit, action or proceeding against us for the enforcement of any of the obligations assumed under this prospectus would, upon request, will be deemed valid and enforceable in Peru through an exequatur judiciary proceeding (which does not involve the reopening of the case), provided that (a) there is in effect a treaty between the country where said foreign court sits and Peru regarding the recognition and enforcement of foreign judgments or, (b) in the absence of such a treaty, the original judgment is ratified by the Peruvian courts under such exequatur proceeding, subject to the provisions of the Peruvian Civil Code and the Peruvian Civil Procedure Code, provided, further, that the following conditions and requirements are met: (i) the foreign judgment does not resolve matters under the exclusive jurisdiction of Peruvian courts, (ii) such foreign court had jurisdiction under its own private international conflicts of law rules and under general principles of international procedural jurisdiction, (iii) the defendant was served in accordance with the laws of the place where such proceeding took place, was granted a reasonable opportunity to appear before such foreign court and was guaranteed due process rights, (iv) the foreign judgment has the status of res judicata in the jurisdiction of the court rendering such judgment, (v) there is no pending litigation in Peru between the same parties for the same dispute, which shall have been initiated before the commencement of the proceeding that concluded with the foreign judgment, (vi) the foreign judgment is not incompatible with another judgment that fulfills the requirements of recognition and enforceability established by Peruvian law unless such foreign judgment was rendered first, (vii) the foreign judgment is not contrary to public order (orden público) or good morals (buenas costumbres), (viii) it is not proven that such

 

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foreign court denies enforcement of Peruvian judgments or engages in a review of the merits thereof, (ix) the judgment has been (a) duly apostilled by the competent jurisdiction of the issuing court, in case of jurisdictions that are parties to the Hague Apostille Convention, or (b) certified by Peruvian consular authorities, in case of jurisdictions that are not parties to the Hague Apostille Convention, and is accompanied by a certified and officially translated copy of such judgment into Spanish, and (x) the applicable court taxes and filing fees have been paid.

We have been advised by our Panamanian counsel that there is uncertainty as to the enforceability in original actions in Panamanian courts of liabilities predicated solely on the U.S. federal securities laws and as to the enforceability in Panamanian courts of judgments of U.S. courts obtained in actions predicated upon the civil liability provisions of the federal securities laws of the United States. There is no existing treaty between the United States and Panama for the reciprocal enforcement of foreign judgments of courts outside Panama, including without limitation, judgments of U.S. courts. Panamanian courts, however, have enforced judgments rendered in the United States based on legal principles of reciprocity and comity. We have been advised by our Panamanian counsel that judgments rendered by foreign courts may only be recognized and enforced by the courts of Panama in the event that the Supreme Court of Panama validates such judgment by the issuance of a writ of exequatur. Subject to a writ of exequatur, any final judgment rendered by any U.S. court will be recognized, conclusive and enforceable in the courts of Panama without reconsideration of the merits, provided that: (i) such foreign court grants reciprocity to the enforcement of judgments of the courts of Panama; (ii) the party against which the judgment was rendered was personally served (service by mail not being sufficient) in such action within such foreign jurisdiction; (iii) the judgment arises out of a personal action against the defendant; (iv) the obligation in respect of which the judgment was rendered is lawful in Panama and does not contradict the public policy of Panama; (v) the judgment is properly authenticated by diplomatic or consular officers of Panama or pursuant to the 1961 Hague Convention on the Legalization of Documents; and (vi) a copy of the final judgment is translated into Spanish by a licensed translator in Panama. We have no reason to believe that any of our obligations relating to the shares would be contrary to Panamanian law.

In addition, our articles of incorporation contain a general indemnification provision for our officers and directors for any loss, change or payment arising out of any claim or right of action, both individually and on our behalf, against any of them. Directors and officers and their successors and their property will be compensated for and kept safe, during the time devoted to the Company in relation to any of the affairs thereof, from any action, costs, charges, losses, damages and expenses which any of them may incur or sustain by reason of any act or omission done in the performance of their duties, and none of them will be liable for the acts, neglect or omissions of others, even if his signature or action has been provided as internal or external requirement. The indemnity provision does not cover any damage or loss resulting from malice or inexcusable negligence on the part of any of our officers or directors.

Judgments of Peruvian courts with respect to our common shares will be payable only in soles.

If proceedings are brought in the courts of Peru seeking to enforce our obligations in respect of our common shares, we will not be required to discharge our obligations in a currency other than soles. Under Peruvian exchange control limitations, an obligation in Peru to pay amounts denominated in a currency other than soles may be satisfied in Peruvian currency only at the exchange rate, as determined by the Central Reserve Bank of Peru, in effect on the date the judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then prevailing exchange rate may not afford non-Peruvian investors with full compensation for any claim arising out of or related to our obligations under our common shares.

Peru has different corporate disclosure and accounting standards than those you may be familiar with in the United States.

Financial reporting and securities disclosure requirements in Peru differ in certain significant respects from those required in the United States. There are also material differences among IFRS, SBS GAAP and U.S.

 

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GAAP. Accordingly, the information about us available to you will not be the same as the information available to holders of shares issued by a U.S. company. Furthermore, we recently adopted IFRS 9 and, as a result, some of our financial data may not be easily comparable from period to period.

In addition, the Peruvian Securities Market Law, which governs open or publicly listed companies, such as us, imposes disclosure requirements that are more limited than those in the U.S. in certain important respects. Although Peruvian law imposes restrictions on insider trading and price manipulation, applicable Peruvian laws are different from those in the United States, and the Peruvian securities markets are not as highly regulated and supervised as the U.S. securities markets.

We could be considered a passive foreign investment company for U.S. federal income tax purposes, which could result in adverse U.S. tax consequences for U.S. investors.

Based on our current expectations regarding the value and nature of our assets, the sources and nature of our income, relevant market and shareholder data and our current business plans, we believe that we will not be treated as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes with respect to our 2018 and current taxable year, and we do not anticipate becoming a PFIC in the future. Characterization as a PFIC could result in adverse U.S. tax consequences to you if you are a U.S. investor. Certain elections may be available to mitigate the consequences if we are treated as a PFIC for U.S. federal income tax purposes. See “Taxation—United States Federal Income Tax Considerations—Passive Foreign Investment Companies” included elsewhere in this prospectus.

One or more of our subsidiaries could be classified as a PFIC for U.S. federal income tax purposes.

As discussed in more detail in “Taxation—United States Federal Income Tax Considerations,” U.S. investors face unique U.S. tax issues from indirectly owning interests in a PFIC that may result in adverse U.S. tax consequences to them. See “Taxation—United States Federal Income Tax Considerations—Passive Foreign Investment Companies” included elsewhere in this prospectus.

If we are unable to implement and maintain effective internal control over financial reporting in the future, our results of operations and the price of our common shares could be adversely affected.

We are not currently required to comply with Section 404 of the U.S. Sarbanes-Oxley Act of 2002 and, therefore, we have not made a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Section 404 of the U.S. Sarbanes-Oxley Act of 2002 will require us to document and test the effectiveness of our internal control over financial reporting in accordance with an established internal control framework and to report on our conclusion as to the effectiveness of our internal controls. It will also require an independent registered public accounting firm to test our internal control over financial reporting and to report on and attest to the effectiveness of our internal control over financial reporting. Any delays or difficulty in satisfying our requirements could adversely affect our future results of operations and the price of our common shares. Moreover, it may cost us more than we expect to comply with these control-and procedure-related requirements. Failure to comply with Section 404 could potentially subject us to sanctions or investigations by the SEC, the New York Stock Exchange or other regulatory authorities.

Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we are unable to conclude that we have effective internal control over financial reporting, or if our independent registered public accounting firm is unable to provide us with an unqualified opinion regarding the effectiveness of our internal control over financial reporting as of December 31, 2020 and in subsequent years as required by Section 404, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our common shares.

 

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Our status as a foreign private issuer allows us to follow alternate standards to the corporate governance standards of the NYSE, which may limit the protections afforded to investors.

We are a “foreign private issuer” within the meaning of the New York Stock Exchange (“NYSE”) corporate governance standards. Under NYSE rules, a foreign private issuer may elect to comply with the practices of its home country and not comply with certain corporate governance requirements applicable to U.S. companies with securities listed on the exchange. We currently follow certain Panamanian and most Peruvian practices concerning corporate governance and intend to continue to do so. Accordingly, holders of our common shares will not have the same protections afforded to shareholders of companies that are subject to all of the NYSE corporate governance requirements.

For example, the New York Stock Exchange listing standards provide that the board of directors of a U.S. listed company must have a majority of independent directors at the time the company ceases to be a “controlled company”. The listing standards for the NYSE also require that U.S. listed companies, at the time they cease to be “controlled companies,” have a nominating/corporate governance committee and a compensation committee (in addition to an audit committee). Each of these committees must consist solely of independent directors and must have a written charter that addresses certain matters specified in the listing standards. Under both Panamanian and Peruvian law, companies may, but are not required to, form special governance committees, which may be composed partially or entirely of non-independent directors. In addition, NYSE rules require the independent non-executive directors of U.S. listed companies to meet on a regular basis without management being present. There is no similar requirement under Peruvian and Panamanian law.

The NYSE’s listing standards also require U.S. listed companies to adopt and disclose corporate governance guidelines. In December 2013, the SMV published the new Code of Good Governance for Peruvian Companies. Although we have implemented most of these measures, those principles are not mandatory and therefore we are not legally required to comply with the corporate governance guidelines, but are required to disclose whether or not we are in compliance. We are fully compliant with Panamanian corporate law and are part of the Index of Good Corporate Governance (Índice de Buen Gobierno Corporativo) maintained by the Lima Stock Exchange.

If securities or industry analysts do not actively follow our business, or if they publish unfavorable research about our business, the price and trading volume of our common shares could decline.

The trading market for our common shares will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. If analysts do not cover our company, the trading price for our common shares may be negatively impacted. If one or more of the analysts who covers us downgrades our common shares or publishes unfavorable research about our business, the price of our common shares would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our common shares could decrease, which could cause the price and trading volume of our common shares to decline.

Future offerings of debt or preferred securities may limit our operating and financial flexibility and may materially adversely affect the market price of, and dilute the value of, the common shares.

If we decide to issue debt or preferred securities in the future or otherwise incur indebtedness, it is possible that these debt or preferred securities or indebtedness will be governed by an indenture or credit agreement or other instrument containing covenants restricting our operating flexibility and limiting our ability to make distributions to holders of the common shares. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges, including with respect to distributions, more favorable than those of the common shares and may result in dilution to holders of the common shares. Because our decision to issue securities in any future offering or otherwise incur indebtedness will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of

 

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our future offerings or financings, any of which could materially reduce the market price of the common shares and dilute the value of the common shares.

Peruvian corporations, including our subsidiaries, may be jointly and severally liable for any unpaid Peruvian capital gains tax related to the transfer of the common shares.

Peruvian corporations, including our subsidiaries, may be jointly and severally liable for any unpaid Peruvian capital gains tax related to the transfer of shares issued by their foreign holding company. Capital gains resulting from the offering are tax exempted as described in “Taxation.”

In accordance with Peruvian income tax laws and regulations, in the case of the direct or indirect transfer by a non-Peruvian resident of shares issued by a Peruvian corporation, the Peruvian corporation whose shares were directly or indirectly transacted will be jointly liable with the non-Peruvian transferor for any unpaid capital gain tax obligations (plus accrued interest and penalties) arising from such sale/purchase, if during any of the twelve months preceding the transaction, inter alia, (i) the non-Peruvian transferor held an indirect or direct interest of more than 10% in the equity of the Peruvian corporation that issued the shares being directly or indirectly transferred, or (ii) the non-Peruvian transferor and the Peruvian corporation that issued the shares being transferred consolidate financial statements. If such a transfer were to occur and the resulting Peruvian capital gains tax were not paid by the transferor, it could have a material adverse effect on our business, financial condition or results of operations.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements. All statements other than statements of historical facts included in this prospectus regarding our business, financial condition, results of operations and certain of our plans, objectives, assumptions, projections, expectations or beliefs and statements regarding other future events or prospects are forward-looking statements. These statements include, without limitation, those concerning: our strategy and our ability to achieve it; our preliminary second quarter recent developments; expectations regarding sales, profitability and growth; our possible or assumed future results of operations; capital expenditures and investment plans; adequacy of capital; and financing plans. In addition, this prospectus includes forward-looking statements relating to our potential exposure to various types of market risks, such as macroeconomic risk, Peru specific risks, foreign exchange rate risk, interest rate risks and other risks related to our financial performance. The words “aim,” “may,” “will,” “expect,” “is expected to,” “anticipate,” “believe,” “future,” “continue,” “help,” “estimate,” “plan,” “schedule,” “intend,” “should,” “would be,” “seeks,” “estimates,” “shall,” or the negative or other variations thereof, as well as other similar expressions regarding matters that are not historical facts, are or may indicate forward–looking statements.

We have based these forward-looking statements on our management’s current views with respect to future events and financial performance. These views reflect the best judgment of our management but involve a number of risks and uncertainties which could cause actual results to differ materially from those predicted in our forward–looking statements and from past results, performance or achievements. Although we believe that the estimates reflected in the forward-looking statements are reasonable, such estimates may prove to be incorrect. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, among other things:

 

   

our holding company structure;

 

   

economic, business and political developments in Peru and globally;

 

   

changes in Peruvian, Panamanian and Bahamian and other foreign laws and regulations, including the adoption of new capital requirements for banks or insurance companies;

 

   

increased competition in the Peruvian financial services and insurance markets;

 

   

increased inflation;

 

   

exchange rate instability and government measures to control foreign exchange rates;

 

   

developments affecting the purchasing power of middle income consumers or consumer spending generally;

 

   

increases in interest rates;

 

   

downturns in the capital markets and changes in capital markets in general that affect policies or attitudes towards lending to Peru or Peruvian companies or securities issued by Peruvian companies;

 

   

our ability to keep up with technological changes;

 

   

the inability to obtain the capital we need for further expansion of our businesses;

 

   

the inability to attract and retain key personnel;

 

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changes in tax laws;

 

   

severe weather, natural disasters and adverse climate changes;

 

   

changes in regional or global markets;

 

   

dependence on sovereign debt in our investment portfolios;

 

   

credit and other risks of lending, such as increases in defaults of borrowers;

 

   

increased costs of funding or our inability to obtain additional debt or equity financing on attractive terms or at all;

 

   

a deterioration in the quality of our assets;

 

   

allowances for impairment losses may be inadequate;

 

   

changes to accounting standards;

 

   

changes in actuarial assumptions upon which our annuity business is based;

 

   

failure to adequately price insurance premiums;

 

   

decreases in the spread between investment yields and implied interest rates in annuities;

 

   

dependence on information technology (“IT”) systems and cybersecurity risks; and

 

   

other risks and uncertainties described in “Risk Factors”.

We urge you to read the sections of this prospectus entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business” for a more complete discussion of the factors that could affect our future performance and the industries in which we operate. Additionally, new risks and uncertainties can emerge from time to time, and it is not possible for us to predict all future risks and uncertainties, nor can we assess their potential impact. Accordingly, you should not place undue reliance on forward-looking statements as a prediction of actual results.

All forward-looking statements included in this prospectus are based on information available to us on the date of this prospectus. We undertake no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by applicable law. All other written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this prospectus.

 

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EXCHANGE RATES

The Peruvian sol is freely traded in the exchange market. Current Peruvian regulations on foreign investment allow foreign equity holders of Peruvian companies to receive and repatriate 100% of the cash dividends distributed by these companies. Non-Peruvian equity holders are allowed to purchase foreign currency at free market currency rates through any member of the Peruvian banking system and transfer such foreign currency outside Peru without restriction. Peruvian law in the past, however, has imposed restrictions on the conversion of Peruvian currency and the transfer of funds abroad, and we cannot assure you that Peruvian law will continue to permit such payments, transfers, conversions or remittances without restrictions. In addition, under Panamanian law, there are currently no exchange control restrictions imposed on payments made in U.S. dollars. There can be no assurance, however, that Peruvian and Panamanian laws will continue to permit such payments, transfers, conversions or remittances without restrictions.

The following tables set forth the high, low, average and period-end exchange rates for the periods indicated, expressed in sol per U.S. dollar. Exchange rates are derived from the selling rate exchange rates reported by the SBS for sol per U.S. dollar. The Federal Reserve Bank of New York does not report a noon buying rate for sol.

 

    

sol per U.S.$

 
    

High

    

Low

    

Average (1)

    

Period-End

 

Year ended December 31,

           

2014

     2.988        2.761        2.839        2.986  

2015

     3.411        2.982        3.185        3.411  

2016

     3.537        3.249        3.375        3.356  

2017

     3.392        3.231        3.262        3.241  

2018

     3.384        3.207        3.286        3.373  

 

(1)

Represents the average of exchange rates on each day of each month during the periods indicated.

 

    

sol per U.S.$

 
    

High

    

Low

    

Average (1)

    

Period-End

 

Month Ended

           

January 2019

     3.373        3.317        3.345        3.334  

February 2019

     3.340        3.303        3.321        3.303  

March 2019

     3.318        3.291        3.305        3.318  

April 2019

     3.331        3.291        3.304        3.309  

May 2019

     3.369        3.302        3.332        3.369  

June 2019

     3.372        3.287        3.326        3.287  

 

(1)

Represents the average of the daily exchange rates during each day of the respective month indicated.

 

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USE OF PROCEEDS

We will not receive any of the net proceeds from the sale of our common shares by the selling shareholders. We expect that the net proceeds from the sale of our common shares by us and Interbank will be used by each of us and Interbank for general corporate purposes. In particular, Interbank expects to use the proceeds to strengthen its capital position and increase business activity, and IFS expects to use the proceeds to invest in strengthening its digital and analytical capabilities across its platform by developing a common data infrastructure and new digital products and services.

 

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CAPITALIZATION

The following table sets forth our total consolidated capitalization as of March 31, 2019, derived from our unaudited interim condensed consolidated financial statements prepared in accordance with IAS 34 as adjusted for the sale of our common shares by Interbank and us, based on the midpoint of the estimated price range. We will not receive any proceeds from the sale of our common shares by the selling shareholders.

This table should be read in conjunction with, and is qualified in its entirety by reference to, “Presentation of Financial and Other Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Selected Statistical Information,” our unaudited interim condensed consolidated financial statements and our audited annual consolidated financial statements and the related notes included elsewhere in this prospectus.

 

     As of March 31, 2019 (unaudited)  
    

Actual

   

As Adjusted

 
    

(U.S.$ in
millions) (1)

   

(S/in
millions)

   

(U.S.$ in
millions) (1)

   

(S/in
millions)

 

Indebtedness:

        

Long-term indebtedness (2)

     2,593.0       8,603.4       2,593.0       8,603.4  

Shareholders’ equity:

        

Capital stock (4)

     290.4       963.4       301.5       1,000.5  

Treasury stock (5)

     (62.7     (208.2     (0.0     (0.0

Capital surplus (4)

     80.8       268.1       122.6       406.7  

Reserves

     1,416.5       4,700.0       1,416.5       4,700.0  

Retained earnings (5)

     469.0       1,556.2       518.1       1,719.0  

Unrealized results, net

     122.7       407.2       122.7       407.2  

Equity attributable to our shareholders

     2,316.7       7,686.8       2,481.5       8,233.5  

Non-controlling interest

     12.0       40.0       12.0       40.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     2,328.7       7,726.8       2,493.5       8,273.9  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total capitalization (3)

     4,921.7       16,330.2       5,086.5       16,877.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Calculated based on an exchange rate of S/3.318 to U.S.$1.00 as of March 31, 2019.

(2)

Calculated as “due to banks and correspondents”, “bonds, notes and other obligations” plus “lease liabilities” excluding the current portion of long-term debt, which totaled S/2,116.1 million (approximately U.S.$637.8 million) as of March 31, 2019.

(3)

Total capitalization is defined as long-term indebtedness and total equity.

(4)

As Adjusted amounts were calculated based on proceeds from 1,150,000 new common shares that will be issued by us considering the midpoint of the estimated price range (U.S.$47 per share), with gross proceeds amounting to U.S.$54.1 million. Net proceeds are estimated to amount to U.S.$53.0 million or S/175.8 million, out of which S/37.1 million were recorded as capital stock increase and the remaining S/138.7 million as an increase of capital surplus. As Adjusted amounts do not consider the option to purchase additional common shares granted to the underwriters.

(5)

As Adjusted amounts were calculated based on proceeds from 2,418,754 treasury shares that will be sold by Interbank and us considering the midpoint of the estimated price range (U.S.$47 per share), with gross proceeds amounting to U.S.$113.7 million. Net proceeds are estimated to amount to U.S.$111.4 million or S/371.0 million, out of which S/208.2 were recorded as a decrease in treasury stock and the remaining S/162.8 as an increase of retained earnings. As adjusted amounts do not consider common shares that will be sold by the selling shareholders.

 

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SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following table sets forth our summary consolidated financial information. The consolidated income statements data for the years ended December 31, 2018, 2017 and 2016 and the consolidated statements of financial position data as of December 31, 2018 and 2017, are derived from our audited annual consolidated financial statements and related notes included elsewhere in this prospectus. Our consolidated financial information for 2014 and 2015 is derived from our audited consolidated financial statements for those years restated for the change in accounting policy as described under “Presentation of Financial and Other Information—Comparability of 2018 audited consolidated financial statements to prior years and financial statements restatement. All years presented have been prepared in accordance with IFRS as issued by the IASB.

The consolidated income statements data for the three months ended March 31, 2019 and March 31, 2018 and the consolidated statements of financial position data as of March 31, 2019, are derived from our unaudited interim condensed consolidated financial statements and related notes included elsewhere in this prospectus. Interim data may not be representative of full year results.

As a result of the adoption of IFRS 9 beginning January 1, 2018, our audited consolidated financial statements for 2018 and related ratios are not comparable to prior years.

On January 1, 2019, we adopted for the first time IFRS 16 “Leases” which established that at the commencement date of a lease, a lessee will recognize a liability to reflect lease payments and the asset that represents the right-of-use of the underlying leased asset during the lease term will be recorded. Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset. As permitted by the transitional provisions of IFRS 16, we elected to apply the modified retrospective approach and we have not restated comparative figures. See Note 2(c) to our unaudited interim condensed consolidated financial statements.

Until December 31, 2017, our subsidiary Interseguro recognized in its income statements the effect of the change in the value of liabilities coming from retirement, disability and survivor’s pensions, caused by the variation in the market interest rates used to discount these liabilities. During 2018, Interseguro voluntarily modified its accounting policy in order to show the effect of the change in market interest rates in the statements of other comprehensive income, providing more accurate and relevant information. The resulting impact was retrospectively recorded restating unrealized results, net and retained earnings of our consolidated statements of financial position as of December 31, 2017, 2016, 2015 and 2014 and for the years then ended. For more information about the change in our insurance accounting policy, see Note 4.2.1(i) of our audited annual consolidated financial statements. In addition, minor reclassifications for comparative purposes were made for the periods presented. See Note 4.4(a.i) to our audited annual consolidated financial statements.

The results included below are not necessarily indicative of our future performance and should not be construed as such. The summary financial and operating information presented below should be read in conjunction with “Presentation of Financial and Other Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited annual consolidated financial statements and related notes included elsewhere in this prospectus.

 

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Consolidated Income Statements

 

   

For the three months ended
March 31, (unaudited)

   

For the years ended December 31,

 
   

2019

   

2019

   

2018

   

2018

   

2018

   

2017

(Restated)

   

2016

(Restated)

   

2015(1)

(Restated)

   

2014(1)

(Restated)

 
   

(U.S.$ in

millions) (2)(3)

    (S/ in millions) (2)    

(U.S.$ in

millions) (2)(3)

    (S/ in millions) (2)  

Interest and similar income

    351.6       1,166.7       1,036.3       1,302.4       4,321.3       3,809.0       3,704.8       3,342.7       2,828.7  

Interest and similar expenses

    (101.2     (335.8     (266.9     (352.8     (1,170.6     (1,119.9     (1,081.9     (921.7     (788.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest and similar income

    250.4       831.0       769.4       949.6       3,150.7       2,689.1       2,623.0       2,421.0       2,039.8  

Impairment loss on loans, net of recoveries

    (56.2     (186.4     (172.9     (198.9     (660.1     (827.9     (783.6     (645.8     (425.5

Recovery (loss) due to impairment of financial investments

    0.6       1.9       2.3       3.9       13.1       (20.8     (28.3     (78.3     (20.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest and similar income after impairment loss

    194.8       646.4       598.8       754.6       2,503.7       1,840.4       1,811.0       1,696.9       1,594.1  

Other income

                 

Fee income from financial services, net

    67.2       223.0       216.6       263.5       874.4       849.2       809.5       770.6       668.8  

Net gain on foreign exchange transactions

    12.4       41.3       40.9       68.8       228.2       201.8       264.2       521.2       216.8  

Net gain on sale of financial investments

    9.0       29.9       25.3       4.3       14.2       184.8       103.3       134.9       128.1  

Net gain (loss) on financial assets at fair value through profit or loss

    11.2       37.1       13.2       3.6       12.0       18.4       (47.9     (111.8     22.3  

Net gain on investment property

    3.6       11.9       3.2       25.7       85.3       25.4       23.1       43.5       98.9  

Other

    5.6       18.7       14.4       20.8       69.0       87.4       64.1       75.3       55.7  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

    109.1       361.9       313.5       386.7       1,283.1       1,367.2       1,216.3       1,433.6       1,190.7  

Insurance premiums and claims

                 

Premiums assumed

    52.9       175.5       167.0       229.7       762.1       533.6       730.6       905.0       680.5  

Adjustment of technical reserves

    (22.1     (73.3     (42.6     (95.5     (316.8     (240.2     (404.9     (628.7     (572.7

Premiums ceded to reinsurers

    (1.3     (4.2     (28.1     (35.2     (116.7     (34.1     (138.3     (129.9     (4.9

Net claims and benefits incurred for life insurance contracts and others

    (51.8     (172.0     (175.1     (221.8     (736.0     (412.3     (318.2     (258.9     (181.1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net premiums earned minus claims and benefits

    (22.3     (74.1     (78.9     (122.8     (407.5     (152.9     (130.8     (112.6     (78.1

Other expenses

                 

Salaries and employee benefits

    (58.9     (195.4     (182.4     (227.8     (755.9     (714.6     (711.3     (692.5     (647.4

Administrative expenses

    (53.3     (176.7     (180.4     (233.7     (775.3     (730.6     (688.9     (700.7     (627.7

Depreciation and amortization

    (19.0     (62.9     (37.6     (49.6     (164.7     (145.2     (130.1     (111.1     (105.4

Other

    (14.1     (46.7     (43.4     (42.8     (141.6     (120.3     (102.1     (115.4     (87.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses

    (145.2     (481.7     (443.9     (553.8     (1,837.5     (1,710.6     (1,632.4     (1,619.6     (1,467.7

Income before translation result and income tax

    136.4       452.5       389.5       464.7       1,541.9       1,344.1       1,264.0       1,398.4       1,239.0  

Translation result

    3.0       10.1       6.0       (10.5     (35.0     15.9       20.1       (25.1     (25.0

Income tax

    (33.1     (109.9     (105.5     (125.2     (415.5     (326.5     (333.9     (352.6     (309.1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit for the period

    106.3       352.7       290.0       328.9       1,091.4       1,033.5       950.2       1,020.7       904.9  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Attributable to:

                 

IFS’ shareholders

    105.7       350.6       288.2       326.8       1,084.3       1,027.4       944.6       1,013.7       891.5  

Non-controlling interest

    0.7       2.2       1.8       2.1       7.1       6.1       5.6       7.0       13.4  

Earnings per share

    0.955       3.167       2.628       2.911       9.818       9.625       8.715       9.295       8.149  

Weighted Average number of shares outstanding

    —         110.7       109.7       —         110.4       106.7       108.4       109.1       109.4  

 

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Consolidated Statements of Financial Position

 

   

As of March 31, (unaudited)

   

As of December 31,

 
   

2019

   

2019

   

2018

   

2018

   

2018

   

2017

(Restated)

   

2016

(Restated)

   

2015

(Restated)

   

2014

(Restated)

 
    (U.S.$ in
millions) (2)(3)
    (S/ in millions) (2)     (U.S.$ in
millions) (2)(3)
    (S/ in millions) (2)  

Assets

                 

Cash and due from banks

    2,911.6       9,660.6       9,616.6       2,525.7       8,380.4       11,204.8       11,761.8       12,431.8       6,358.5  

Inter-bank funds

    21.1       70.0       179.1       149.2       495.0       403.5       5.0       245.0       310.0  

Financial investments

    5,380.6       17,852.8       18,050.0       5,313.2       17,629.4       16,924.1       10,209.8       8,651.9       8,409.0  

Loans, net of unearned interest

    10,554.2       35,019.0       30,021.7       10,345.3       34,325.7       29,406.3       28,192.6       27,035.8       23,436.9  

Impairment allowance for loans

    (420.8     (1,396.2     (1,258.1     (411.3     (1,364.8     (1,202.1     (1,166.8     (1,041.6     (819.7

Investment property

    298.3       989.6       943.5       297.3       986.5       1,118.6       745.2       713.3       652.9  

Property, furniture and equipment, net (4)

    285.9       948.5       597.5       187.6       622.5       612.6       589.8       579.2       577.2  

Intangibles and goodwill, net

    285.4       946.8       903.0       287.7       954.5       921.6       267.4       199.4       145.8  

Other assets (5)

    501.8       1,665.2       1,581.7       516.9       1,715.0       1,005.0       1,114.4       1,186.1       1,294.6  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    19,818.0       65,756.2       60,635.0       19,211.7       63,744.4       60,394.5       51,719.4       50,000.9       40,365.2  

Liabilities and equity

                 

Deposits and obligations

    10,485.2       34,790.0       31,220.4       10,151.3       33,682.0       32,607.6       30,097.9       28,487.7       23,381.4  

Inter-bank funds

    32.1       106.5       129.5       —         —         30.0       332.3       —         —    

Due to banks and correspondents

    1,123.0       3,726.1       4,141.4       1,294.0       4,293.4       4,407.4       5,328.6       6,191.7       3,140.9  

Bonds, notes and other obligations

    2,008.2       6,663.2       6,240.2       1,958.0       6,496.8       5,602.4       4,769.4       4,925.4       4,565.3  

Insurance contract liabilities

    3,136.6       10,407.2       10,536.9       3,104.4       10,300.5       10,514.5       5,010.5       4,477.1       3,743.0  

Other liabilities (4)(6)

    704.1       2,336.4       1,954.2       567.6       1,883.4       1,395.7       1,182.4       1,458.0       1,232.3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    17,489.3       58,029.4       54,222.6       17,075.3       56,655.9       54,557.6       46,721.0       45,539.9       36,062.9  

Equity, net

                 

Equity attributable to IFS’ shareholders

    2,316.7       7,686.8       6,377.7       2,124.2       7,048.1       5,800.5       4,879.1       4,345.6       4,191.0  

Non-controlling interest

    12.0       40.0       34.7       12.2       40.4       36.4       119.2       115.4       111.2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity, net

    2,328.7       7,726.8       6,412.4       2,136.4       7,088.5       5,836.9       4,998.3       4,460.9       4,302.3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity net

    19,818.0       65,756.2       60,635.0       19,211.7       63,744.4       60,394.5       51,719.4       50,000.9       40,365.2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Selected Ratios and Operational Data

 

   

As of and for the three
months ended
March 31, (unaudited)

   

As of and for the year ended

December 31,

 
   

2019

   

2018

   

2018

   

2017

   

2016

 

Performance Ratios

         

Net interest margin (7)(8)

    5.4     5.3     5.4     5.3     5.4

Efficiency ratio (9)

    33.7     34.0     35.6     36.8     38.0

ROA (8)(10)

    2.2     1.9     1.8     2.0     1.9

Adjusted ROA (11)

                2.0     —         —    

ROE (8)

    19.0     19.1     16.6     19.3     19.9

Adjusted ROE (12)

                18.6     —         —    

Risk adjusted NIM (8)(13)

    4.2     4.1     4.3     3.7     3.8

Cost of risk (8)(14)

    2.2     2.3     2.1     2.9     2.9

Capital and Balance Sheet Structure

         

Average total equity as a percentage of average total assets

    11.4     10.1     10.7     10.1     9.5

Total loans, net as a percentage of total deposits

    96.6     92.1     97.9     86.5     89.8

Core equity tier 1 ratio (15)

    10.2     10.2     10.6     10.1     9.4

Capitalization ratio of Interbank (16)

    16.4     17.5     15.8     16.1     15.9

Solvency ratio of Interseguro (17)

    130.4     143.4     137.9     134.9     145.5

Capitalization ratio of Inteligo Bank (18)

    26.9     28.3     25.5     32.6     24.5

Credit Quality

         

Past-due loans as a percentage of total gross loans (at end of period)

    2.5     2.6     2.5     2.7     2.5

Provision expense as a percentage of total gross loans

    2.2     2.3     2.1     2.9     2.9

Other Data

         

Assets under management of Inteligo

    17,769.0       16,210.7       17,592.7       16,229.9       15,398.3  

Inteligo deposits

    2,533.1       2,152.5       2,608.7       2,253.3       3,226.1  

Dividends declared/paid (19)

                654.5       510.7       475.8  

Declared/paid dividends per share (20)

                5.8       4.5       4.2  

Exchange rate (S/ per U.S.$1.00 at end of period)

    3.318       3.227       3.373       3.241       3.356  

Financial stores

    264       272       270       273       289  

ATMs

    1,953       1,994       1,973       2,052       2,159  

Correspondent agents (21)

    2,513       2,514       2,506       2,505       2,935  

Number of digital clients (22)

    975,269       667,506       882,437       620,448       454,194  

Percentage of digital users (22)(23)

    56     43     53     40     30

 

(1)

Our financial information for 2017, 2016, 2015 and 2014 was restated as a result of a voluntary change in accounting policy regarding our method of accounting the variation in market interest rates on insurance contract liabilities. See Note 4.2.1(i) to our audited annual consolidated financial statements. The financial information presented for 2014 and 2015 were restated after issuance of the financial statements for those years due to a voluntary change in accounting policy with a negative impact of S/57.6 million for 2014 and S/218.1 million for 2015 in the line Total net premiums earned minus claims and benefits in the consolidated income statement. See “Management Discussion and Analysis of Results of Operations and Financial Condition—Change in Accounting Policy.

(2)

Except for percentages and ratios, and operational data.

(3)

Amounts stated in U.S. dollars as of and for the three months ended March 31, 2019 and as of and for the year ended December 31, 2018 have been translated from soles at the exchange rate of S/3.318 = U.S.$1.00. See “Exchange Rates”.

(4)

Due to the adoption of IFRS 16 we have recorded a S/341.7 million, increase in the caption “Property, furniture and equipment (Right-of-use assets)” and recorded simultaneously, an increase for the same amount, in the caption “Accounts payable, provisions and other liabilities (Lease liabilities)”. See Note 2 (c) to our unaudited interim condensed consolidated financial statements.

(5)

“Other assets” is defined as due from customers on acceptances, accounts receivable and other assets, net and deferred income tax assets, net.

 

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(6)

“Other liabilities” is defined as due from customers on acceptances, accounts payable, provisions and other liabilities and deferred income tax liabilities, net.

(7)

“Net interest margin” is defined as (x) net interest and similar income divided by (y) average interest-earning assets. See “Selected Statistical Information”.

(8)

Annualized for each interim period.

(9)

“Efficiency ratio” is calculated by dividing (x) salaries and employee benefits plus administrative expenses plus depreciation and amortization by (y) net interest and similar income plus other income, plus net premiums earned.

(10)

ROA is calculated as net profit as a percentage of average assets, computed as the simple average of the quarterly balances from December of the previous year to the date as of calculation.

(11)

Adjusted ROA for 2018, is calculated as adjusted net profit as a percentage of average assets, computed as the simple average of the quarterly balances from December of the previous year to the date as of calculation. Adjusted net profit excludes S/144.8 million, which is the aggregate effect recorded in technical reserves due to a change in accounting estimates driven by the publication by the SBS of new mortality tables. Net profit was not adjusted for 2017 and 2016. See Note 4.4 (d) and 4.6 to our audited annual consolidated financial statements. Adjusted net profit and Adjusted ROA are non-GAAP financial measures and should not be considered in isolation or as a substitute for net profit or ROA, or other performance measures. See “Presentation of financial and other information—Non-GAAP financial measures” and “Selected Consolidated Financial Information—Non-GAAP Financial Measures”.

(12)

Adjusted ROE for 2018 is calculated as adjusted net profit as a percentage of average shareholders’ equity, computed as the simple average of the quarterly balances from December of the previous year to the date as of calculation. Adjusted net profit excludes S/144.8 million, which is the aggregate effect recorded in technical reserves due to a change in accounting estimates driven by the publication by the SBS of new mortality tables. Net profit was not adjusted for 2017 and 2016. See Note 4.4 (d) and 4.6 to our audited annual consolidated financial statements. Adjusted ROE is a non-GAAP financial measures and should not be considered in isolation or as a substitute for Net Profit or ROE, or other performance measures. See “Presentation of financial and other information—Non-GAAP financial measures” and “Selected Consolidated Financial Information—Non-GAAP financial measures.”

(13)

Risk adjusted net interest margin is defined as net interest margin after impairment loss on loans, net of recoveries.

(14)

Cost of risk is defined as impairment loss on loans, net of recoveries divided by average gross loans. Cost of risk includes an S/81.0 million recovery of provisions related to the construction sector at Interbank for 2018.

(15)

Calculated for Interbank only under SBS GAAP.

(16)

Regulatory capital for Interbank is calculated in accordance with the guidelines of the Basel II Accord, as adopted by the SBS and is based on information from Interbank’s financial statements prepared under SBS GAAP. See “Regulation and Supervision—Banking Regulation and Supervision—Capital Adequacy Requirements Basel II”.

(17)

Solvency ratio for Interseguro is calculated in accordance with SBS guidelines and is based on information from Interseguro’s financial statements prepared under SBS GAAP. See “Regulation and Supervision—Insurance Regulation and Supervision—Solvency Requirements and Regulatory Capital”.

(18)

Capitalization Ratio for Inteligo Bank is calculated in accordance with the guidelines promulgated by the Central Bank of The Bahamas.

(19)

Dividends declared for fiscal years 2018, 2017 and 2016 were paid in 2019, 2018 and 2017 and amounted to U.S.$197.2 million, U.S.$157.7 million and U.S.$ 146.5 million, respectively. See “Dividends and Dividend Policy”.

(20)

Corresponds to dividends declared divided by outstanding shares for each period reported. Dividends per share amounted to U.S.$1.75, U.S.$1.40 and U.S.$ 1.30 for years 2018, 2017 and 2016. See “Dividends and Dividend Policy”.

(21)

ASBANC estimates, for 2014-2017 and company estimates for 2018.

(22)

In the month of December for each full year and in the month of March for each interim period.

(23)

Percentage of digital users over total clients that interact with Interbank.

 

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Non-GAAP Financial Measures

In this prospectus, we use adjusted net profit, adjusted ROE and adjusted ROA. These measures are not calculated in accordance with IFRS and we collectively refer to these as non-GAAP financial measures. For more information see “Presentation of Financial and other information – Non-GAAP Financial Measures”.

The following table reflects the reconciliation of adjusted net profit, adjusted ROE and adjusted ROA for our banking segment as of and for the three month period ended March 31, 2019:

 

   

As of March 31, 2019

 
    Net
profit
    Adjustment
(2)
    Adjusted
Net
Profit
    Average
total
assets
    ROA     Adjusted
ROA
    Average
total
equity
    ROE     Adjusted
average
total
equity
    Adjusted
ROE
 

Banking

    299.7       (32.4     267.3       48,335.7       2.5     2.2     5,417.1       22.1     5,384.7       19.8

Insurance

    28.9       —         28.9       12,770.0       0.9     0.9     902.8       12.8     902.8       12.8

Wealth Management

    78.3       —         78.3       3,781.6       8.3     8.3     821.6       38.1     821.6       38.1

Holding and eliminations

    (54.2     32.4       (21.8     (137.0     —         —         266.1       —         298.5       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    352.7       —         352.7       64,750.3       2.2     2.2     7,407.6       19.0     7,407.6       19.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Adjusted net profit of the banking segment, for the three months ended March 31, 2019, is calculated excluding the gain on the sale of Interfondos S/32.4 million after taxes which is eliminated upon consolidation. Adjusted net profit is a non-GAAP financial measure and should not be considered in isolation or as a substitute for net profit, or other performance measures. See “Presentation of financial and other information—Non-GAAP financial measures.”

The following tables reflect the reconciliation of adjusted net profit, adjusted ROE and adjusted ROA on a consolidated basis and also for our insurance segment as of and for the year ended December 31, 2018.

 

     For the year ended  
    

2018

 
     (S/ in millions)  

Net profit (A)

     1,091.4  

Adjustment of new mortality tables in Total net premiums earned minus claims and benefits (B)

     144.8  
  

 

 

 

Adjusted net profit (C) = (A) + (B)

     1,236.2  

Average total equity (D)

     6,558.8  

ROE (A) / (D)

     16.6

Adjusted average total equity (E)

     6,645.6  

Adjusted ROE (C) / (E)

     18.6

Average total assets (F)

     61,072.6  

ROA (A) / (F)

     1.8

Adjusted ROA (C) / (F)

     2.0

 

   

As of December 31, 2018

 
    Net
profit
    Adjustment
(1)
    Adjusted
Net
Profit
    Average
total
assets
    ROA     Adjusted
ROA
    Average
total
equity
    ROE     Adjusted
average
total
equity
    Adjusted
ROE
 

Banking

    1,010.9       —         1,010.9       45,515.7       2.2     2.2     4,994.3       20.2     4,994.3       20.2

Insurance

    (61.5     144.8       83.3       12,388.1       (0.5 )%      0.7     803.7       (7.6 )%      890.5       9.4

Wealth Management

    197.5       —         197.5       3,314.3       6.0     6.0     768.0       25.7     768.0       25.7

Holding and eliminations

    (55.6     —         (55.6     (145.5         (7.3       (7.3