Good day, ladies and gentlemen. And welcome to the Credicorp Ltd First Quarter 2013 Earnings Release Conference Call. My name is Richard and I will be your coordinator for today. At this time, all participants are in a listen only mode. Following the prepared remarks, there will be a question-and-answer session. (Operator Instructions) I would now like to turn the presentation over to Mr. Walter Bayly, Chief Operating Officer of Credicorp. Please proceed sir.

Thank you. Good morning and welcome to Credicorp’s first quarter earnings results conference call for 2013. I will be covering for Alvaro Correa who is out traveling and I understand that we are having some issues regarding the communication, so I hope you will excuse us if you are unable to hear me properly. The first quarter of the year typically shows slower growth when compared to the disbursements at the end of every year generated by the good commercial activity and the company's holiday season and beginning of the summer in our country. Nevertheless, we are pleased to be able to show we are starting the year with still good growth and very good operating results in our core businesses. However, an issue that has been in our minds and has been the topic of multiple discussions as our economy in market gradually detached from the US dollar; we happened to manage the impact on our results of any volatility in the US dollar Sol exchange rate. Therefore, the discussion of our first quarter results adversely impact in most of its analysis. Prior to neutralize in order to be able to evaluate real business trends and results. All-in-all, we feel this was a very good quarter in terms of business trends, evolution and achievements. However, our earnings results were negatively affected by the FX mostly and present a challenge for us to reach our projected bottomline growth. Notwithstanding, our strategies regarding our future expansion remain unchanged. In fact as we will see in the following chart, portfolio growth continued at reasonable rates, margin on the lending business expanded, portfolio quality showed the change in the mix and remained sound and in line with expected performance and cost decreased from the prior quarter, but will most likely continue at a…

(Operator Instructions) Our first question in the line comes from Carlos Macedo from Goldman Sachs.

A couple of questions, first obviously I know you are focusing on the core business but the translation gains and losses do affect the bottom line quite significantly. This happened over the last three quarters. Is there anything that you can give us more color without a look at this line specifically? It was only 1.5% weakening of the (inaudible) that created this translation gains. Is there a sensitivity here, is there something that you can manage to maybe reduce the sensitivity so that we can see the solid results that you generate go through to the bottom line and reduce the static. The second question if you will allow me is on asset quality aside from the NPLs which went up provision expenses went down as you said and the coverage ratio declined quite materially in the quarter its still high coverage ratio, I just wanted to know if this is a level there's a 173% as a level they are comfortable working with and what should we expect with respect to the coverage ratio going forward. Thanks.

Okay, thank you very much, good question. The issue of foreign exchange let me go one a little deeper. There are three pieces of our P&L which are affected by translation, the most obvious one and the one we really highlight a lot is the pure translation line that appears before the income tax. But there are two other aspects that also affect us very negatively. One is that a portion of our sole possession is through open floors, which affect the margins and that is an impact in this quarter which is not insignificant. I think this quarter numbers that has affected [varies] closer to $15 million and the third element where it affects our P&L is the income tax, because even though it’s measured in dollars 25% of our equity is denominated in dollars where you look in to the local currency, we do have a dollar position. That dollar position generated an income in our local currency P&L which is the one used for tax collections. So our effective tax rate in the dollar P&L is negatively affected. So there are three sides which affect the evaluation. What can we do about it? The obvious solution is clearly to increase the coverage so their loan dollar position is now 25% but to the extreme 100% of equity. Could you we do that? Yes. What are cost? Two sides; one is clearly, we would be investing, we would have more dollar assets which yield than a local currency asset. Taken to the extreme, if we were to invest excess cash in fed funds, we would get practically zero. If we are to invest those excess cash in local currency, we would get something very close to 3%, 3.5%. So those are negative carry in buying long dollar position.…

Yes, sir thanks for all. So just a follow up on the first one then, the Sol is a remarkably stable currency and then there is no big swings in terms of the direction or the magnitude of the swings on a quarterly basis. If by any chance something like that starts happening, do you feel you have the tools to protect the capital of the bank in such a situation?

Clearly yes, and the simple tool is just to buy dollars; that is relative ease and efficient, the magnitudes are relatively large related to the amount of flows in the domestic market, so it’s not anything we could do in one day; that is something we could do in two weeks. Having said that, let's not forget that our Central Bank has also changed the manner in which that intervenes in the foreign exchange market and traditionally our Central Bank was very aggressive intervening, but smoothing out – when the driver was to smooth out the volatility in the exchange rate. They have changed in the December last year and now their policy is to allow volatility. They want to create the volatility within the economic agents so that people do not exclusively go for the currency with a lower coupon or rather the currency to have the overall perfection that makes sense. They are trying to get companies that do not have a dollar flow to stop borrowing dollars by creating volatility in the foreign exchange market and they are being successful. So yes we can expect more volatility that we have seen in the past two to three years. So that traditional comment that the Peruvian currency is the most stable; it’s probably going to slowly disappear and we will have the volatility not similar to that of our neighboring economies.

(Operator Instructions) Our next question online comes from Thiago Batista from Itaú BBA. Please go ahead. Thiago Batista - Itaú BBA: I have two questions. The first one is a follow-up on the asset quality. You already adopted some measures to reduce divestible loans on the SME segment, could you give some additional color on these measures and when do you expect this to affect the (inaudible) quality segment and talking about the overall retail ratio, overall after launch what is your expectation for the volume of this ratio during the year? And my second question is about Edyficar; it calls for an outstanding loan growth in the Edyficar segment, could you give some color to us about your strategy in this segment?

Okay. On the SME, the initial actions or initiatives we have undertaken are relatively blunt and simple which is to reduce the cutoff and increase prices in the low end. That is the most obvious response and if you will the one that does require a more thorough and profound analysis which we are still in the process of doing. Numbers have just appeared and it takes about 10 to 15 days to really process the detailed data in order to have a better sense of which segment of the portfolio is the one that is showing the weakness. So we have done some initial moves which are the obvious as I mentioned reducing the cut off and increases prices of certain segments and I think we will be able to give you further on a little bit more color as to what happens here and which segment of this one that has been affected. As I mentioned we know it is in the revolving side of the portfolio; that portfolio of SME is comprised of current loans and ought to grow for six months to I think 24 months in total loans and a credit cars and a revolving kind of portfolio and that is the one that has been deteriorating. So at this stage, we are doing the simple things and we need to do the more detailed fine tuning analysis in order to produce more fine tuned measures as well. Regarding the types of loan ratio, we have to be very clear that that ratio will continue to deteriorate. As the growth happens in the retail sector which has a higher passive loan than the wholesale, the change in product mix by itself will show that the overall portfolio will have high factor loans. I don’t have the number in front of me that I can give you as a guidance for the end of the year, but one should expect a gradual deterioration of the loan as the portfolio mix changes. Regarding Edyficar; Edyficar has a very clear strategy which have not changed in the past, just required, I think 2.5 or 3 years, which is capturing the customers at the entry level of microfinance. They have a very good model that basically works; work exclusively with customers, they very, very share customers and put the new entrants in the system. They’ve got at good financing model and a very labor intensive monitoring process that is proving to be very successful. We still some room for growth, though frankly I do not think that the long-term growth numbers are the ones that we have seeing in the past. Most likely, the growth in that sector would slightly start to come down over the next two to three years.

Thank you. (Operator Instructions) Our next question on the line comes from Jose Barria from Bank of America. Please go ahead.

Just two questions, one is a follow-up on a translation impact on your results. So absent, I guess looking at what happened in the first quarter and seen there had been a little bit more depreciation in the Soles in the beginning of the second quarter. I understand you are saying, do you expect this maybe to change in the second half. Wondering if your target of 25% ROE that you have given in the past is still achievable in the absence of these translation gains or maybe event translation losses for the year? That would be the first one. And the second is, with regards to your strategy on Prima. And if you could elaborate a little bit further about what things you could see, I am looking here at the chart you presented with market shares and it looks like there is already a high concentration in this space. And I am wondering if there is any limit here that would sort of prevent further consolidation that could -- can be maybe drive more efficiencies in that business and if you expect fees to come down as well there? Thank you.

Sure. Our return on average equity would be effective. We are absolutely convinced that the 20% is totally completely achievable and we will reach to 20% this year. I have no doubt about that in my mind. This has not been a good quarter. We do not expect to have 1.5% devaluation every quarter. We have already seen the currency rebound slightly, hopefully that will remain for the rest of the month and hopefully we think that there will be further revaluation of the currency between now and year end. So yes, that would be very effective. We believe that the 20 plus return on equity for Credicorp is achievable and that we will achieve it this year. Regarding Prima, clearly there is no further room for consolidation and even the breakup of [Risonte] was something that were required by the superintendence in order to avoid further consolidation. From now on we are looking into two directions, one is clearly is there anyway we can become a little bit more efficient and second we will just have to the old fashion way which is at a time earn more customers and flowing gradually increase market share. There will be a certain level of commercial dynamics, certain number of customers from Risonte will find themselves in an AFB that maybe is not choice, so there will be some opportunity there and we will obviously be there to capture that, but at the end of the day I think the our recovery, our leadership is something that will happen on a day to day basis on a long term basis. I don't think clearly that on move on for consolidation, could fee reduce, could there will be a further reduction in fees, very, very marginal, yes, but a very marginal nothing that will necessarily change the dynamics of the market.

And just I may one other is more with regards to your new sub but I guess Credicorp capital. Looking at the contribution, I mean it is, I mean throw in the quarter already, what can you give us in terms of guidance for this business, what do you expect the contribution from this business, it should be on a several recurring basis after you can complete the consolidation of all the businesses that you are putting together?

Sure. It's been difficult to see very clearly in our numbers because Correval is still underneath BCP where IM Trust and BCP Capital already sisters of BCP if you will, they will (inaudible) and we are in the process of making the transition of Correval from BCP to Credicorp Capital and we are still about 100% consolidating the properties because we've got the minority shareholders. We expect (inaudible) to be much more clear before year end, but basically leaving all that on the site, this is the business that's roughly should generate approximately $30 million to $40 million every year and we expect good growth rates there. That's capital intensive and we think that we are building a platform that will allow us a lot of synergies from the business side.

Our next question on line comes from Tito Labarta from Deutsche Bank.

Couple of questions. I just wanted to get some more color on your outlook for net interest margin, even though the margin on loan continues to increase, we did see some elements in the quarter sort of impacting margins with increase in Central Bank securities, also saw time deposit rise a lot in the quarter. So if we look at sort of the group level, how should we think about margins for the rest of the year, can the continued growth in retail increase margin going forward or should some of these other elements put some pressure on the margin? And then just the second question on fee income, we saw good growth in the banking fees which was around 7% for the quarter but at the group level fees fell around 4%. So if you can just give some more color on what led to the decrease in fees in the quarter?

Sure. On the net interest margin, really there are two dynamics there. One is related to the net interest margin on the loan portfolio and there we don't see any downward pressure that is material. Furthermore because of the product mix we expect that our net interest margin on the loan portfolio will expand. We are being much more careful in pricing the increased risk so we are increasing prices. This is partially to offset increases in delinquencies but also the fact that some fees are being eliminated. And we are somehow recovering our margins, our result fees that are being eliminated. We are incorporating them into the margin. As to fee income, I don't have a good answer to be very frank. The dynamics of the bank are very clear. Fee income for the bank is in good shape, I understand it’s been growing. Even though that we do have very substantial and serious pressure from our regulators and we are in the middle of intense debate as to how is the fee income going to evolve over time, but I really don't have a good answer to that question Tito, I'm very sorry.

Okay, no problem. I will follow up with that later, but just to follow up on the margin question. So you are saying loan margins will expand but just given some of the elements you saw in the quarter with the higher Central Bank security and increasing time deposits, should we expect the overall NIM to also expand or do you think there could be some other pressures aside from loan margins impacting margin for the rest of the year?

The overall NIM is a complicated one because it depends on the Central Bank policies. The Central Bank continues to aggressively buy dollars as they have been doing. They have to retire those dollars, those local currency, which they – disburse better dollars they have to return the local currency and they buy or issue the Central Bank CDs. So to the extent that they continue to do that, our overall NIM will be under pressure because of the low yielding portion of our portfolio. To the extent that the Central Bank does not continue to buy dollars aggressively that Fed requires initial CDs, that portfolio would shrink and you know we have seen in the quarter that portfolio go down by 10% which is a lot. So that can very tough one to produce and careful in doing that. And having said that, since we expect the currency to have a certain reevaluation again, I do not expect the Central Bank to lessen its activities issuing CDs. So I would imagine a portfolio of Central Bank CDs will remain same at least and thus the overall NIM could remain under pressure, but again the overall NIM is a consequence it’s nothing we can really manage. What we manage is the NIM on the loan portfolio.

Our next question online comes from Boris Molina from Santander.

I have a couple of question, one related to our local asset quality and economy, in your prepared remarks you also mentioned several times that you monitor on the credit card basis, and I just wanted to see if you, if there is a regulatory or fee or other pressures that leading you to reconsider your strategy on the card portfolio, or whether this is more related to the overall potential risk in the economy. I don't know if you are concerned about the slow down in the first quarter GDP particular in the construction center is this something that leads you to remain cautious in terms of asset quality and your card business? And my second question is related to the consolidated group capital data that you published. This is very well comment and very useful. However, don't see a tier one calculation like the one you do for the capital ratio when you are talking about BCP, so we made our own calculation and we not sure if you are doing right calculation or not, but could you tell us what is the tier one ratio on the consolidated group from this data that you had published?

Okay. Asset quality and fees, yes, there is intense regulatory involvement in the credit card business. There are certain portions of more than credit card consumer finance that the regulator is requiring more capital, particularly any consumer finance that extends over five years is requiring a lot more capital. Thus we are increasing prices on those pieces of the consumer portfolio and basically they are being priced out of the market if you will. Those parts are disappearing because they become extremely expensive because of the amount of capital that the regulatory agencies are requiring against it. So yes, we expect a slower growth and the consumer portfolio and there is intense pressure on the regulatory side as well on the fee income or the credit card, and we are in the middle of a very intense debate with the regulator as to the fees of the credit cards and it’s not looking very good. We are having a lot of confrontation which are very unfortunate with the regulators and that could seriously impact the growth of that portfolio, because if all the fees that the regulator wishes to eliminate, doing it become eliminated, we will have to dramatically increase prices and a lot people will be priced out of the market. So that is something that we have to watch very carefully in the next quarter or the next couple of months. So we have all seen credit card portfolios grow a lot less this quarter because of the initial impact of regulatory changes and the extent of those are yet to be seen. So there is a good question here. Regarding GDP yes we have seen a slow down in GDP, it has not yet affected any quality of our assets. We are all being very careful because…

(Operator Instructions) our next question online comes from Mariel Santiago from HSBC.

Most of my questions have been answered, but I just have another additional one on the expenses. How should we think about operating expenses growth going forward this year and at which level of efficiency do you feel comfortable.

There are several angles to that question. One is clearly that we have set ourselves an aggressive growth in our infrastructure, clearly with the assumption that the growth in the economy will be in the 6% to 7% and that has been in the past the financial system would grow at 15% to 18% running. That is the base case scenario that we are still working and as I mentioned in the prior question at this stage we are being very vigilant of the numbers that are coming, the macro numbers that are coming and at this stage we are still reluctant to shift our base scenario for a slower growth which is relatively easy to do. So sticking to our base scenario what we have is that it would be relatively easy for us to go down to the 47% to 48% cost of income ratio if we just stop doing the investments that we are doing. We have done so in the past and you see the cost to income ratio rather quickly adjusted and it tailed downward. The fact is that we are in the process of still expanding our infrastructure branches, ATMs, sales persons, etcetera, etcetera and those are investments that do require a certain period of time to reach maturity. Branches on average need about two years to reach breakeven and to the extent that we continue to open new branches they have a negative impact on our cost to income ratio. So our base case scenario continues to be that we will be in the 50% to 51% cost to income ratio which is not one that I feel comfortable as a fairly straight cost to income ratio but it's one that we have to live with if we are going to continue with this expansion process.

Okay, thank you and how many branches, can you remind me how many branches you are targeting for this year and how much of those have been opened?

About a 100 for the year and we have opened I think about 30. The exact number is 38.

38? That’s great. Thank you.

At this time, there are no questions in the queue. (Operator Instructions). This concludes the question-and-answer session of today’s call. I will now turn the call back over to Walter Bayly, Chief Operating Officer of Credicorp for closing remarks. Sir, please proceed with closing remarks.

Thank you all very much for joining us and I apologize for the quality of the communication. I was barely able to hear all your question. I hope I have answered most of them and we will definitely follow up or the ones I was unable to answer. But in summary, we're of course very uncomfortable with the way the exchange rate has affected our bottom line results. In retrospect we could have been more aggressive in managing that, but we continue to have a view more of a fundamental point of view with managing our foreign exchange position and capital coverage less over trading view and more of a long term secular view. It is very difficult to hit all the peaks and valleys. Hopefully the trend that we have anticipated is the one that will prevail, that is a slow recovery of the foreign exchange rate to levels not similar to what we had at the beginning of the year and at this point.

Thank you for your participating in today’s conference. This concludes the presentation. You may now disconnect. Good day.