[Operator Instructions]. I’d now like to turn the conference over to Mr. Fernando Dasso. Sir, please go ahead.

Good morning, and welcome to Credicorp’s conference call on our earnings results for our first quarter of 2016. Before we review Credicorp’s performance in the first quarter, I would like to take a few minutes to review the Peruvian macroeconomic environment, which is more optimistic than the scenario we discussed in our last conference call. Over the last 9 to 12 months, we have lived with uncertainty regarding the potential negative effect of three clouds, as we call them. Which were, first, a negative international environment due to a potential rapid increase in the Fed’s interest rate, a drop in commodity prices, and a strong slowdown in China. Second, a severe El Nino phenomenon, which has the potential to generate significant problems, mainly in our banking business. And, third, the uncertainty and volatility due to the presidential elections in Peru. Those three clouds have started to dissipate. First, the Fed has taken a more dovish posture, commodity prices have somewhat stabilized, and emerging market currencies have appreciated. Second, El Nino phenomenon was moderate and generated no material impact. And, third, the outcome of the first round in the Peruvian presidential elections eliminated the uncertainty and volatility that we experienced prior to March. After a first round, business and consumer confidence has recovered. The second-round presidential elections will be held on June 5 between two pro-market-oriented candidates Mrs. Keiko Fujimori and Mr. Pedro Pablo Kuczynski. In this context, we have reviewed our estimates for the most important macroeconomic indicators, which you can see in the table on this page. The new estimates reflect the fact that the local market is more optimistic. This is evident in the business and consumer confidence indexes, which should materialize in a more dynamic economic environment for the different business segments in which we operate. Finally…

Thank you. At this time, we will open the floor for your questions. [Operator Instructions] And our first question will come from Philip Finch from UBS.

Good morning, Fernando. Thank you for the presentation. I’ve got a couple of questions, please. First, regarding your local currency loans deposit ratio, which still remains elevated. In your opinion, what needs to happen for this to peak and come down, and when are you looking for this ratio to peak? Is it soon or is it going to remain elevated for a while? And the second question is regarding your asset quality. It’s sort of mixed-picture in the first quarter. Your NPLs – overdue ratios were going up, but clearly cost of risk is coming down. Going forward, what are you expecting in terms of trends, especially in terms of costs of risk? You’ve been guiding previously for 2.1% to 2.2%. Q1 was well below that. What should we assume, going forward? Thank you, Fernando.

Hello, Philip. There are two questions. First, the one regarding local currency loan to deposit ratios – what we feel is, as you know, we need a more [indiscernible] a stabilization of the exchange rate to begin unwinding this process of the loan to deposit ratio. As you know, in combined terms, we are doing fine. We are around 100%. But, yes, the one in soles is higher than we would like. Fortunately, the exchange rate has begun to stabilize. It reached 3.52, like 30 days ago, and now it is around 3.33. So, it is stabilizing and it will probably continue to stabilize, depending on what happens with the Fed especially, and the rate in the States – and the reference rate in the States. We have now begun to see some deposits coming from dollars into soles, especially one from institutional entities and some of the large investors, which get better results in our currency than in dollars. So, that should begin unwinding, but very gradually, actually. So, we plan to – I mean, go downwards; but gradually during the last – during the next quarters. In terms of asset quality, yes, the cost of risk – we – our target is around 200% to 220%. And, yes, we are a little below that, which is good. We continue to think that we will be in the range of 2 to 2.2. But you have to take into consideration that, as we have discussed many times before, we are now focusing on better risk of our portfolio, and we’ve taken already important decisions in terms of what we will doing in the consumer and SME segments, and we are – continue developing our tools in all the risk area. Not only models of admission and behavioral scores, but also in the collections phase of it. So, those results are beginning to show, and that’s what you see in the cost of risk. The NPLs has another explanation, and we have already talked about that. And the main explanation is that we have still those – an important array of loans, especially in mortgage and in the SME segments, that have collateral in real estate. And to go and try to collect that collateral, you have to go through the judiciary process, and that takes a while. And that can take 3 to 4 years. So, we continue to accumulate some of that debt, which is mainly already charged off, but it is still in our books. Regarding that, we would like you to consider focusing more on the short term – the 60% to 100% delinquency – to 150% delinquency ratios.

Thank you, Fernando. Very helpful.

Thank you, Philip.

Thank you. Our next question comes from Thiago Batista from Itau BBA.

Thanks for the opportunity. I have two questions, the first one about the efficiency ratio. You posted, or Credicorp posted, a very strong performance in cost control this quarter. My question is, how much more efficiency ratio could improve. [Indiscernible] see this ratio around 40% level in the [next] year? And my second question is just a follow-up of your comment on the capital. You’ve said that you believe that the bank will achieve the 10% core capital in the end of the year. How much are you assuming in terms of loan growth in this calculation?

I didn’t get your – the first ratio that you want to talk about. I know that you want to understand how it improved, but I need to get the ratio.

It’s the efficiency ratio, that achieved 42%, I think.

Okay. Great. I got it. I got it. I got it. In terms of the efficiency ratio, as you know, Credicorp is around 42% neighborhood. BCP, which is an important cost for that ratio, is around the 41% neighborhood as a target. However, this first quarter we’ve reached the 39% neighborhood. What we feel is that we have already gone a long way in terms of that ratio. We – as you know, 3 years ago we were around low 50s. And, yes, in BCP we are around 39%. That should be a great ratio if we reach that ratio at the end of the year. However, we feel that we will be more close to, say, 41%, 40%. Which will, net Credicorp, be around 42%; maybe a little less than that, but not much less than that. There are still growth projects in this area, especially not the low-hanging fruit projects but more important projects, especially in terms of IT, some automations, and things that we need to still work with. So, yes, we can go a little lower, but not a lot. Then in terms of capital – and another thing here. We need to work a little bit more with the subsidiaries in terms of efficiency. There is some room for improvement there; not on BCP. In terms of capital, we have to refer now to the BCP stand-alone Company. Yes, we were around 9.3%, 9.4% before declaring our dividends. After declaring our dividends, we went down to 8.8%. And now, what will happen till the end of the year? First, as you know, we will end up with a transaction related to BCP Bolivia. We will sell BCP Bolivia from BCP Peru on to a Credicorp subsidiary, which is Grupo Credito. First is a holding company in Bolivia and then Grupo Credito, which is an internal arrangement, really. But that will bring BCP’s cost – common equity Tier 1 ratio up to 9.3%. And then we feel that we can reach, very easily, that – very confidently, that 10% at the end of the year for the ratio. This was internal sources, because our ROAE at the BCP level continues to be around 24% and we are growing our loan book by, say, 13%, 14%. So, that should happen during this last 8 months of the year.

Okay. Perfect. Thanks for the answers.

Thank you.

Thank you. Our next question comes from Carlos Rivera from Citi.

Hi, good morning, everyone. Thanks for taking questions, Fernando. My first question is related about your general thoughts of the implications of these better outlook for Peru. You mentioned that macroeconomic indicators are looking back now. And if I remember correctly, in the past you had guided for loan growth around 13% to 15% as a safe pace under a 3% GDP growth. So, is there any upside now that things are looking better for 2016 and 2017? And what would be the implications for that, in terms of your loan growth strategy – maybe being a little bit more confident; a high-risk appetite for retail loans? That’s my first question. And my second question is regarding Mibanco, where we see a significant increase in the net income contribution to the Group. I believe you had mentioned the guidance for the ROAE in the low 20s in the past, by 2017 and 2018; but this quarter we are already at 22.5%. So, is the turnaround happening faster there? Are you being a little bit more optimistic now? That would be my second question. Thank you very much.

Thank you, Carlos. First, regarding a better outlook, you probably know better that things are developing better than we thought, here in Peru. And I would say that the – especially in terms of investment. I mean, investment, especially private, which is more productive than public investment, was in a way contained, waiting for good news. And what we have been gathering from our clients and from people in general from the business community is that that investment will begin to flow. We are not talking right now of the great infrastructure or the great mining project that should probably come. But mainly from projects that people and companies have – buying a new asset; developing a new line of production – those type of projects that should be coming into the economy pretty soon. What is our outlook in regards to that? We continue to think that – we thought that loan growth could be around, say, 12%, 14%. It will be in the higher part of that range, maybe 14%; maybe even 15%. We still need to see who is the president, although the two candidates are very good. We still need to see who wins the election, for companies to – I mean, continue investing; for employment to continue improving; for – and for welfare to begin coming back into families and the economy in general. Then in terms of risk appetite, as you know, for many years we’ve been trying to expand really what we do in terms of risk. We’ve learned our lessons. We feel pretty comfortable of where we are. We still need to develop all our risk platform in terms of what I mentioned in the – my prior answer. Meaning, all our models; what we need to do in collections. But, yes,…

Okay. Thank you very much.

Thank you.

Thank you. Our next question comes from Ernesto Gabilondo from Bank of America Merrill Lynch.

Hi, good morning [indiscernible] Thanks for taking questions. My first question is related to the net interest margin. I’m aware that the quarter was affected by the expansion in low-credit-margin segments such as wholesale and mortgages; secondly, by the lower interest rates by improving the risk profile; and lastly, by increasing the cost of funding. So, my question is, what to expect for the trends in net interest margin, considering very – considering better lending dynamics in high-margin segments such as Mibanco and SME-Business for the second half of the year; but also, an upward trend in cost of funding rates. I believe it will be interesting to contrast the overall trends in the cost of funding, but now with a limited currency mismatch and a more stable BCRP funding. Thanks. And then I will elaborate on my second question.

Thank you. What will happen to net interest margin? What I can say is that, yes, there is some – there has been some pressure on margins. And basically because the loan portfolios of the different institutions in the market were – they were growing slowly than before. And, yes, there was more competition for the good clients. What we did is what all the other competitors did, which is very good in terms of what happens to the health of the financial system. But what we feel now is that if the portfolio is beginning to grow faster, there could be some easing of this competitive process, and we would be able to re-price faster the asset side – the loan side of our balance sheet. That on the loan side of our balance sheet. Then, on cost of funds, as you know, first we can talk about soles. I mean, soles – the reference rate went up already 100 basis points, from 3.25% to 4.25%. That happened during the last 8 months. Fortunately, it seems that our exchange rate is stabilizing a little bit, and we’ve seen the central – the local central bank during the last two meetings maintained that rate flat. And we think that it will probably stay flat for a while, especially if there is no pressure on the exchange rate, which is happening now. Then, what will happen to the dollar rate? You probably know better than we. But what we feel is that it will be a very gradual increase, if it happens at all this year. We’ve seen today the number of payrolls, and it’s still very weak. So, for us, we will have less pressure on cost of funding in both currencies over the coming months.

Okay. Great. Thank you. Another couple of questions. On my second question, it’s more related to the potential downgrade of Peru to frontier market. I believe the final decision will happen at the end of the month. So, can you provide us some color on what to expect on this regard? And finally, your presidential elections are also around the corner. I think it will be interesting if you can highlight or share with us some of the best candidate initiatives to promote infrastructure projects or specific reforms. I don’t know if you have analyzed the potential benefits that could be translated into GDP growth. We have seen that you have increased your GDP growth to 3.7% from 3.2% previously; but how much of the GDP improvement is considering infrastructure projects or reforms? Thank you.

Two questions. First, the one on MSCI. What we know – as you know, MSCI requires three companies to be above their limit, to have the country as part of the emerging world. There are definitely two companies that – I mean, two companies that have – that are above those limits, which are Credicorp and Buenaventura. And there is this third company, Southern Copper, that is definitely above those limits. But there was a question in regards of, should it be part of Peru or should it be part of the U.S. index? What we gather is that this company has already sent a letter to MSCI, telling them that they want to remain part of the Peruvian index. And what we know is that, during May, the MSCI will define if Southern Copper stays as part of the index. And then comes the second question, which will be answered in June, which is if Peru will be still part of the emerging index – the emerging countries index, or if it becomes part of the frontier index. We feel – I mean, when we talk to people that understand what is going on, they tell us that the odds are becoming better and better, especially because during the last, say, 60 days, there has been a much better feeling towards emerging economies, not only Peru; and because [indiscernible] things are developing better politically and economically in Peru. But we don’t have the answer. We will have to wait for another 40 days. Then, presidential elections. What we know from the plans of each candidates are – is that they already have very comprehensive programs in terms of reforms that need to be made, and in terms of a package of projects that they want to implement during their…

Thanks, Fernando. Much appreciated.

Thank you.

Thank you. Our next question comes from Jason Mollin from Scotiabank.

Hello, everyone. I have two questions. My first is related to your net foreign currency position. Can you tell us what that was at the end of the quarter, and how – for Credicorp, and how your – if you believe that that could change over time, or if you’re going to maintain that position? And my second question is related to your funding costs. Particularly, you show very good detail on the average costs based on your funding structure. Can you talk a little bit about the cost of the BCRP instruments? We’ve seen the average cost go up, but can you compare that to the marginal cost, what we’re seeing now?

Hello, Jason. Two questions. First is, what will happen towards our net foreign currency position. It has – decisions have already been taken in regards to that. As you know, for many months now, beginning at the middle of 2013 until February this year, we had a depreciation – a constant depreciation of our currency. And that’s why we wanted to have that foreign currency position. That’s, as we call it, structural foreign currency position, which was around $200 million. We took advantage of that. But then, now we feel that things are stabilizing in terms of currency exchange rates, and now we have decided that we won’t have that in the coming months. We have decided that we will actually continue to take positions – foreign exchange positions in dollars, but should be not only having a stable one, but rather looking at what should be the position day by day, with our treasury traders actually working with it very actively. Second, regarding to funding costs and BCRP – as you know, those reports from the central bank are in reality long-term 2, 3, 4 years. They continue to be there. What is happening now to the rates of the central bank? The central bank continues to provide [indiscernible] soles. We have, as you know, ample liquidity in dollars, which we exchange for the soles. Those rates are still very attractive, and we are taking them. We don’t see any important change in this rate. The central bank is very aware that we need the soles and that the economy needs the financial system to continue providing that liquidity in soles for it to continue advancing. So, we are, as usual, working very constructively with the central bank in these terms, and seeing no special change coming in the coming months.

Thank you very much.

Sure.

Thank you. Our next question comes from Jordan Hymowitz from Philadelphia Financial.

Hey guys, thanks for taking my question. You mentioned in the release that there were some accelerated recoveries in the quarter. Can you disclose how much those were?

Extraordinary – can you repeat? Recoveries.

In page 21 it says, “recoveries of BCP stand-alone were accelerated.” Can you say how much those recoveries were?

Thank you Jordan. As you know, we have talked to you in the last conference calls that we have been upgrading and really improving our collections department; our collections people. And, yes, we have had some special recoveries during this quarter. Nothing really dramatic, but we feel that we should continue beefing up those people – that team – and should continue having these recoveries. But nothing special at the BCP level. However, in Mibanco, which is a subsidiary we’ve been talking about during this call, there has been – there have been some special recoveries, yes. Because some of their clients are – have begun improving their balance sheets, and we have been able to take advantage of that reverse, some provisions, and take advantage of that. Nothing really dramatic; maybe just the pace of business.

Okay. And then you also said the cost of risk would be between 2% and 2.2% going forward. So, would it be fair to say that your provision this time of 450 million – compound 453 million is probably about 10% higher or closer to 500 million going forward, for our models? 500,000? 500 million.

I don’t want to talk about exact numbers. What I would say, as we usually say as guidance, is that we will be between 2% and and 2.2%.

Okay. Thank you very much.

Thank you Jordan.

Thank you. Our next question comes from Carlos Gomez from HSBC.

Thank you. Two questions. And the first one refers to your subsidiary in the U.S., Atlantic Security. It had a loss this quarter. We wondered if you could give us some more details about what exactly happened and what’s the reason for it. The second refers to your capital position. You are confident you will reach the 10% level by the end of the year. We don’t doubt that. What is the plan beyond that? Do you want to go to a higher level, like 11%, 12%, like we see at European institutions? Or would you immediately start thinking about increasing dividends, or perhaps acquisitions? Thank you.

Thank you, Carlos. In terms of Atlantic Security Bank, what we have in Atlantic is, as you know, we center there all our private banking effort with our clients. And as you know, we have a group of deposits and some loans also. But loans are only half of the deposits we have. So, we have some excess liquidity in a way, and what we with that liquidity is, we have portfolio of securities – a very balanced portfolio, and actually very low-risk portfolio of securities, of around $800 million. What we do with that portfolio is, we give the management of it to different entities – the ones you probably know already, the JPMorgans, and the Wellingtons, and these kind of entities. And, as you also know, January and February were really very challenging months in terms of the market, and we made some losses in those months. However, what I can tell you is that March was a better month, and I can tell you that April has been also good in terms of Atlantic. So, yes, it was a dip that we had that – during that quarter. We feel that Atlantic should reach levels of – the levels it had in the past, in terms of net income.

Okay. So, if I may – sorry, if I may clarify there. So, we can certify that this is – let’s call it a trading loss, or the loss in the valuation of your securities. It is not expenses. It is not provision. It is not bad loans.

No, it’s not bad loans. It is really the portfolio we have in securities.

Thank you.

Yes. Then, in terms terms of our capital position, we plan to reach that 10% at the end of the year. What we have decided beyond that is that we want to reach 10% at the dip of the year, which is after dividends. So, we will go a little further up and we’ll probably reach around 10.3%, 10.4%, to be around 10% in March. And then we’ll probably stay in that – in those level. We don’t feel that we will reach the 11% or 12% levels that European banks have.

Okay. Thank you very much.

Thank you Carlos.

Thank you. Our next question comes from Anibel Valdes from Barclays Capital.

Just have a technical question on the FX currency swaps – on the currency swaps. So, in the event that you see a normalization in the funding in soles, let’s say – that people start turning their savings in dollars into soles, so liquidity starts to normalize, how easily would be for you guys to undo the currency swaps with the central bank? Are they pretty flexible about it? Are there any penalties? How would that work? So – because I would assume that you would like to use the funding – you would use – like to use a cheaper deposit than these currency swaps. Thank you.

Thank you, Anibel. What I can tell you is that this process of unwinding of this situation will be a very gradual one. So, what we think will happen is that these swaps from the central bank will begin to expire, and we will let them expire. We don’t think that we will go to them and try to unwind them before expiration, because deposits in our local currency will come, but they won’t come from one day to the other. They will come really gradually. And that gradual process will let us unwind the other process side by side. So, we see something very smooth happening rather than abrupt.

Okay. Thank you. But the – I would just want to confirm that there would not be any penalties, and your sense is that the central bank would be flexible about it. Right?

Yes they are – as you know, they are pretty aware of what is happening in the whole financial system. And that same situation we have is what other competitors have, and they are pretty close to us, and they will also want this process of unwind to go very smoothly and slowly and gradually. Yes.

All right. Excellent. Thank you so much.

Thank you.

Our next question comes from Joswilb Vega from Integra.

Good morning and thank you for taking my question. I would like to know about the use of the corporate loans. I mean, those loans are growing at 20% while private investment is negative or flat and GDP, excluding primary sector, is around 3%. So, what are financing these loans, and how concentrated are them?

Excuse me – can you repeat your question, because it wasn’t clear?

Yes. No. I mean, what I would like to know is the use of the corporate loans what is what are financing these the use of the loan because they are growing at 20% the economy is growing at 3% I mean.

Yes. Two things. First is that last year, as you know, there was a de-dollarization process of loans, especially corporate loans. And what happened really is that some of these large companies had been borrowing from banks abroad in currency – in dollars. And what they wanted is to turn those dollars into soles. So, they had to come to local institutions. And as you know, in the corporate segment we have a very strong position, around 45%. So, many of those loans from banks abroad came into local banks, and a large proportion of them came into BCP. So, we had a special growth compared to the actual one we should have. That happened. And now that’s probably most of the way done. And this year, I don’t think that we’ll grow the same 20% as we did last year – 18%, 20%. It will be less than that. Then, if you ask me, where are those loans going – having 45% of the market – I will have to tell you that they go into many diversified segments. Mining; manufacturing; commerce – you name it, we have clients in every industry in this country. We have really no concentration in loans or in any specific client. We actually direct those loans everywhere. And definitely, with the experience we have, we know – we’ve been working with these clients and know these corporate clients for many years.

Thank you. And it is probable that the de-dollarization process that you mentioned is going to finish soon. Do you think that increasing private investment at the end of the year – of the next year – is going to offset this process, and we can expect that corporate loans should be growing at these rates?

What I feel is that it really depends more on the exchange rate rather than on an increase in investment, or in foreign investment. It will depend on the exchange rate. What these – what the treasurers of these company do is, they actually try to see which currency should they be, all the time. And if the currency remains stable, my feeling is that they will tend to continue in the way they are now, in soles in the loan portfolios – in their borrowings. But we’ll see. But then you had another question, which is what happens if foreign investments or large investments come to a country faster? What we do, actually, with those investments is, most of those investments, the large projects come with their own financing. However, we continue we work with them, especially in the working capital and necessities rather than in the big chance of financing they bring. Because sometimes they are even too large for us. So, we don’t see any special change happening in the proportion of loans, both local and foreign currency loans, in this particular segment.

Thank you.

Thank you.

Thank you. At this time…

Yes. I have – thank you all for your questions. They were very interesting and let us explain what is happening in further detail I would like to just finish with some final remarks, very summarized. What I can say is that the macro is doing okay, especially locally. We don’t know exactly what’s going to happen abroad, but locally there are some very important signs of improvement in the sentiment and in what should happen in the next 5 years. What we will do this year is – at the BCP level, is really stick to the basics; to the business as usual. Continue working in risk, which is a top priority in our agenda – in all the fronts of risk, as we have already talked about. We will continue working in efficiency at the BCP level. There are still some room – there is still some room for improvement, for automation in IT, and in some other specific parts of the Company. And why you know not grow faster. That will definitely depend on our risk appetite and on what – on how the economy continue to develops. Then Mibanco – as we talked, we are still under the sterilization process after the merger. There are still things to be done in terms of that particular project. But, yes, growth has begun to show, and it should continue showing if we continue to understand risk and continue to feel confident with the risk levels that we take. In terms of Credicorp Capital, our investment bank in Chile, Peru and Colombia, we feel that the markets in these particular three Andean countries are doing better. We see that the pipeline of projects and that the pipeline of possibilities is improving, and we should definitely try to take advantage of that. Then, if we talk about Prima and Pacifico Vida, our pension fund – well, yes, there has been a change in the law – on the pension funds law. We will – we are trying to rapidly adjust to that and take advantage of that as a Credicorp entity, because many of our clients now, instead of getting a pension when they become 65, will get, if they want, the whole amount of what they saved. And we will definitely participate in that event of liquidity, with all the tools and with all the companies that we have around them. Bolivia continues surprising us with better results than budget. We should continue – we’ll try to continue growing in that trend. In the overall view, I would say that we feel more optimistic than we felt 3 months ago. And we should, as said, continue sticking to our basics in our financial business. Thank you all, and until next conference call in 3 months.

Thank you, ladies and gentlemen. This concludes today’s teleconference. You may now disconnect.