Welcome to the Second Quarter 2016 Credicorp Conference Call. [Operator Instructions] I'd now like to turn the conference over to Mr. Fernando Dasso, Chief Financial Officer for Credicorp. Sir you may begin.

Thank you. I'm sorry for the release we have in our - because of the lines. I will begin in Page 2 again. Good morning, and welcome to Credicorp's conference call on our earnings results for the second quarter of 2016. Before we review Credicorp's performance in the second quarter, I would like to take a few minutes to review the Peruvian macroeconomic environment. After a close run off, Mr. Pedro Pablo Kuczynski was elected President on June 5 over the next five-years period. The main economic proposal that aimed to achieve GDP growth of around 5% a year are the following; First, unlocking the main infrastructure projects. Second, rate base. Third, reducing the informal economy. Fourth, introducing tax changes such as the reduction of the VAT from 18% to 17% in 2017 and a special tax regime or SME enterprises among others. However it's important to know that PPK holds a minority of PPK Congress and political negotiation will be key to determining the whole action that will actually be implemented. In this context, we still remain cautious and maintain our GDP growth estimate and for 2016 at 3.7% and 4.2% for 2017. And with regard to inflation, our estimated shares we will close 2016 are around 3% below our previous estimate of 2.5%. We expect the central bank to maintain its policy rate of 4.5% in the coming months. We have also revised our yearend exchange rate forecast from $2.50 ranges between $3.38 or $3.43 for the end of 2016. In sum, the [indiscernible] but we still need to wait to see which all the measures are actually implemented. Next page please. Credicorp reported net income of solid $874 million on the second quarter of 2016, which was centered on ROE and ROA of 20.4% and 2.2% respectively.…

Thank you. At this time we will open the floor for you questions. [Operator Instructions] We'll now have our first question coming from Carlos Macedo from Goldman Sachs.

Thanks, good morning gentlemen. A couple of questions, first question on the outlook for asset quality as you said it's been a week going in the macro sense and that's hurting asset quality across the board. Just wanted to get a sense from you what you expect your cost of risk to be through the end of the year given that it's still relatively low or was relatively low the beginning of this year and if you have any views for how much that can improve next year if growth does resume. Second question turning to capital, you mentioned that your capital now -- your capital now is common equity Tier 1 at 10.2 which is much better than where you were few years back, the 7.2 two years ago, and you were guiding for something around that level. Removing this to be help is removing Mibanco something you would consider around, given the same the magnitude of the impact that you can have in your capital and if that's the case what kind of capital would you like to operate at what level because it's even with, a slightly lower profitability, the low loan growth indicates you're probably going to accumulate more capital going forward? Thanks.

Thank you, Carlos. On your first question regarding cost of risk what we have, meantime in the market for the last year, is that we will be around probably from 2 to 2.2. Last quarter was particularly low as 1.98 and we continue to foresee that we will remain in that race 2 to 2.2 for this year and for the next, that’s really our target. Then in terms of capital yes, we have reached the level that we wanted before the end of the year, this is not yet official but we've been talking with the executive committee and here in the board that probably the level will be around 10% in our low points. Meaning our low point we showed in March when we declared dividends and at that point we probably we reached 10% and then continuing building capital through the year until next March. We don't feel that Mibanco will have a particular influence in area of capital. They are producing very healthy returns, so that will be a probably in the future.

Okay. But so you do not consider the possibility of doing to Mibanco where you did to the bank in Bolivia right, just putting it under the group and balance that are the BCP umbrella and then releasing capital the 50 in that way?

Well, in addition to Mibanco we will keep the Mibanco as a subsidiary BCP, and that’s not only because you want it because there are some regulatory issues around it. And BCP has to be the owner of the Mibanco because our banking business has to be one business improve.

Okay, got it, perfect. Thank you so much.

Our next question comes from Gian Costa from Itaú UBH.

Hi, good morning, everyone. Thank you for the opportunity have two questions. The first is on the loan to deposit ratio, we saw that it continue increasing quarter-over-quarter, could you come into fixed back loan to deposit ratio to continue increasing in the coming quarters and also in your view about the continuation of the defending Central bank. And my second question is about the asset quality regarding back to loans we saw that, past few loans sold are increasing in this quarter mainly in the credit cards, consumer loans and also mid-size companies. Could you comment if the asset quality this segments is expected to continue to increase going forward and also about your risk appetite for those segments thinking about loan growth in the coming quarters, and also in 2017? Thank you.

Thank you, Gian. First, on your loan to deposit ratio question, what I can tell you absolutely in the July periods a lot of companies and reaffirming the need to change in their view towards what’s going to happen with the exchange rate. For the first month, many months, and in July-June, and that’s you have the figures. We’ve seen return of this ratio. We reached I am now talking a little bit more about PCP, but that’s the main subsidiary has reached 160% in one reached 160% in June, and now in July, it's around 150% because the thing is changing a little bit on the expectation for the exchange rate is to stay low in the coming months. So we feel that that trend could continue during this third quarter. Then on your asset quality question, yes, we are very much focused on what’s happening in consumer and credit cost. We’ve been taking already many decisions in terms of admission, in terms of collection, in terms of what we are doing with this whole segment underwriting these loans. And we feel that for this year we will begin to recover in terms of those figures, but especially next year we expect better recovery. Note that this will also depend on what happens to the macro. We feel that now the sentiment, not only a sentiment of companies, but of peoples towards macro is much better than it was, and that should reflects in the growth of the economy and in the health, really financial health of these companies and individuals.

Okay. Perfect, very clear. Thank you.

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

Hi, good morning, and thanks for taking my questions. On my first question, what can we expect in terms of loan growth considering that you’re performing at strict lending asset quality. Secondly, regarding your loan portfolio mix, what do you expect the macro will help you to enter into resale products with higher margins, and when you see the investments and infrastructure projects taking place and lastly, can you elaborate on how do you expect to get to our recurring ROE of 20% in this year? Thank you.

I didn’t get your second question. I got the one on loan growth and recurring ROE. I didn’t get your second question, can you repeat it?

The second question is about the loan portfolio mix. I just wanted to know that, given that Peru has a strong macro, I was just wondering when do you expect to get into retail products with higher margins and when do you see the investments and infrastructure projects taking place?

Okay, thank you. First on loan growth, we’ve been discussion about loan growth on what happens to the macro. Our guess now is that we will probably reach this year around 6% in loan growth. We were used to higher ratios of loan growth but since it's first half of the year, we’ve had around only 0% of flat growth. We feel we can pick up into the second half. Not only because of the macro but because of the second season is there and the first probably reach around 6% loan growth. Then in terms of portfolio mix, we feel that because of mainly two reasons. First, the corporations will begin investing before the individuals begins to grow. We feel that with this plan to increase in last projects, to improve the last projects, to corporate, we'll see on the business sentiment that is improving as well. We will see growth in that particular corporate segment before and then we will see that coming into individuals when that is to get through the economy. So first wholesale and then maybe retail will follow. This is one return, the other is that we've been very strict in the additions we’ve taken in terms of underwriting to reimburse to small companies. To improve the risk and that will also show in the coming months. Then in terms of ROE we still give you the guidance of 20% that’s what we have in our expectations so we will still plan to have around 20% ROE as the guidance.

Can you elaborate more on what are the rationale behind getting this ROE of 20% I don’t know probably maintaining the cost under control or improving the net interest margin in the second half. Just a little bit of color on that.

We feel in the case of VCP the yield should improve a little bit if we begin to grow again in terms of the loans then we expect to have the expenses control as they are now. We feel that delinquencies should stay flat so that will probably give us a pick-up in terms of VCP all the subsidiaries are better they are doing fine, as you can see our insurance business is doing fine, our pension fund business continues to being above 30% ROE levels and we see pretty good capital investment banking doing much better so we feel that we can reach the 20% that we’re talking about.

Okay. Thank you very much.

Thank you. Our next question comes from [indiscernible] from Morgan Stanley.

Hi, good morning everyone. Could you provide a little bit more color on NIM performance. You mentioned big picture today saying effective margin this quarter from the cost slowdown in growth and stronger competition. Could you give us a bit more sense on what stronger competition means, are you see loan prices come down, what was the impact of this during the quarter to what extent the contraction in NIM was also a mix issue either between your different businesses as you reported in the past you actually had good disclosure of NIM by VCP standalone BCP Bolivia said that - I just not see this quarter and the funding cost is this temporary is this going to remain the rest of the year. And what is the outlook for the second half are we going to continue to see sort of like 10, 20 bps quarter-on-quarter decline as we’ve seen over the last two quarters, should we stabilize at this level overall how do you see this evolving. Thank you

Think you [indiscernible]. What I can tell you in terms of performance is that when any and especially for VCP now when the loan book is not growing you see more competition coming from other institutions because they are also not growing, the system is really not growing fast for the last six months. So what’s whey we have more competition on prices. We feel it is the book being to – our books begin to work in we will see less competition, there will be more room for improvement in their institution and that will bring a relief in terms of pricing and competition and let us at least improve a little bit or NIMs or margins. We see that interest expense will not grow due to what is happening in the rates, in our local rates which represents a continuing at 425 for many months especially since inflation is coming down now and you see the fed rate should be around or gradually increasing in the near future. So we’re seeing an important change in that sense. We also have to tell you that in June we had a special bet on derivatives that we did that didn’t worked because of many reasons especially the Brexit which went the way around we were looking forward to so that won’t affect us this quarter. We have already covered that position at least 80% of the position. So we will have that particular negative effect on our NIM and we feels that we can improve our NIM in this coming quarters.

All right. Thank you very much.

Thank you. Our next question comes from Tito Labarta from Deutsche Bank.

Hi good morning, Fernando thanks for the call. A question in terms of the loan growth you said you can grow loans around 6% this year. I understand the first half was a bit challenging because you had the elections but at 6% the economy should grow about more than 3.5% this year with inflation around 3% so you are barely growing in line with normal GDP growth which seems a bit low, I understand some of the uncertainties as you mentioned you had in the first half and the competition but it seems like you give the economy picking in the second half of the second half you could probably grow a bit faster and also in order to get to the 20% ROE you would need to see a bit of improvement both on growth and margins given you expect asset quality to be stable. I just wanted to understand how you feel about that 6% growth and how fast maybe you can recover if it doesn’t happen the second half is do you expect faster growth in 2017, just wanted to understand a little bit more the growth dynamics but it does seem a little bit low given the economy is actually doing pretty well and it should be a pick up in the second half. Thanks.

Thank you, Tito. There is a particular thing that is happening with the economy. Yes we’re at around 2.5% by maybe the primary sector especially mining account for more than half of that. In reality the other parts of the economy which the most important for us in terms of deliver, in terms of business investment is not growing as fast as we would like it to. We’ve got these important mining projects - coming into play during the last year and now reaching full production that will be leading economy or lading the growth. We feel while the secondary part of the economy manufacturing, construction, services, commerce to begin picking up that should happen this quarter is favorable to foster that growth. If that happens we will probably not be growing by the same total at the growth or the number of growth of GDP as you mentioned but should we need to have a multiple of that. Say I don’t know next year if the economy picks up and reaches around 4% we should probably grow by around 8% to 10% in our loan book and that will definitely change the whole scenario in terms of competition, in terms of NIMs, and in terms of the health of our clients, financial health of our clients.

Okay. That’s helpful. So you think it will take some time for that growth to trickle down into your other segment but even next year you said GDP growth of 4% and loans growing 8% and the 4% is real, is the 8% to 10% also real growth because that would still seem a bit low and nominal growth would be closer to around 7%.

I prefer to keep this moderate tone and see what really happen with the economy and we will know continuing looking for opportunities this coming months but we still have that question market where the finance should pick up or not.

Okay. Thank you.

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

Hi good morning everyone. Thanks Fernando for the presentation. My first question is regarding asset quality, just wanted to dig a little bit deeper on the trends for SMEP in the loan book, I mean we continue to see an increase there in the NPL ratio and also in the cost of risk so when do you see these picking. And my second question will be regarding your investment in BTI, you reduced 50% of your investment there so what’s the outlook for this investment going forward? Thank you very much.

Thank you Carlos, first in terms of BCI, as you know we had around 4% of the shares of the bank, now we running up 2%, we plan to continue covering that holding for the future. There is no decision being made on that other than what I'm telling you. Then in terms of asset quality, if you want to [indiscernible] we've been looking at this very closely and what we need to look at in terms of fee makings yearly delinquencies. When you see yearly delinquencies because we have important stock of old loans that have in provision 100% provision, but which you need to go to on our judicial process to know together for closure and to be able to bring those loans out of our books because of our regulation. And that’s why you see these lines coming up, unless you have a chart there, but you see that line at around NPR ratio at around 37%. If we will be able to bring those old loans which are 100% provision from out our books that number will be around 3%. We are continually talking to our regulators we able to do this, but that's being regulated improved. So we still need to account for in our loan books.

Okay. I understand that.

But if you see the early delinquencies this is in Page 28 of the report, you see the June numbers, because these are very seasonal business, you see that in June 2014 because 3.3% and in June 2015 it was 3% and now in June of this year we have 91%. So the business is healthy. It's doing fine, but in that stock as I mentioned.

Okay. If I understand correctly the increase in the cost of risk is basically seasonal and you see the level at which is now which is around 6.2% of the normal level for these business, is this correct?

Now that's proven to be the number, yes.

Okay. All right. Thank you very much.

Thank you. Our next question comes from Alonso Aramburu from BCG.

Hi, good morning. Thank you for the call Fernando. I wanted to ask you about expenses, when we look at expenses at DCP they grew almost 18% a year-over-year. And it seems like your systems expenditures are growing faster and that around 25% that's much process than on the Credicorp level which is closer to 3%, 4%. Just wondering if you just a one off from this quarter or these are level of expenses that we should see growing these process of BCP going forward?

Okay, thank you, Alonso. What I can tell you as we are being very keen on concerning expenses. The first quarter of the year is usually when expenses and now people hardly bringing [indiscernible] but we are still very, very keen on controlling expenses. If you see and you follow the efficiency ratio, which really not only a matter of expenses income and with this other income do initial session and I know happen in with income. We will continue to be very keen of attorney expenses. We are now been focusing more on what happen in to the network, as you can imagine channels as Internet, a smaller ranking are going very fast. So we are looking at what should we do with the branches, should we be go in this, should we go to branches, should we be reducing the type of branches, there is room for improvement there as well, and also in the systems and infrastructure. But we will continue to be very strict on expenses and try to be a efficient as possible.

Okay. Thank you and may be a follow-up on that, you mentioned branches, I saw that this quarter you closed more than 100 hand disc, is that a change in strategy that you think the hand disk -- will you stop growing in that distribution network or how you think about that?

Well we will -- 510 days is not such an important number. We continue to all the time look for better hand disc than others and some don't work, some do work. So that’s not really a change in our strategy. The low income base of the population is very used now to working with a hand disc and to be able to work bank people put you on the hand disc, so there is no change in that particular strategy.

Great. And one more question, regarding the insurance business there has been an assessment I guess of the property and casualty business for the past couple of years. I am just wondering if you're still considering strategic options for that business or is that a business that we will definitely stay inside of Credicorp in its current form.

I will let Alvaro Correa, the general manager of Pacifico to talk about it.

Hi, Alonso. Basically what we are doing with Pacifico is to continue incurring the business and all the lines really. The partnership was many guys working very well in the sales business. For the property and casualty, again there is efficiency we need to get a better level of efficiencies and we're doing that. We're working a lot on that. With regards to your question, there is no change on what we're doing. We're basically focused on improving EBITDA and continuing having this company and this group of companies within Credicorp efficient on timing.

Okay. Thank you, Alvaro.

Thank you. Our next question comes from Domingos Falavina from JPMorgan.

Hello and thank you very much for the opportunity. My question is I understand you see about 6% loan book growth and margin re-improving in the second half. My question is what should that do to NII in your view? We basically saw about 90% growth year-on-year in the first Q decelerating for about six now, do you believe in year-on-year few high single digits for NII growth this year or should we imagine something closer to loan book growth?

NII will definitely follow loan growth. However, I have to tell you that we have been trying to move it to really sell that or focus on the best plan in this segment, because of risk returns, future risk returns. So they’ll have some impact on the NII, but we've done really to getting better resource in terms of provisions, which will definitely improve the whole line -- that whole line. So yes NII should follow ACP loan growth.

Very clear. Second question also if I may, on the credit card NPI when provision expense, do you expect similar trends to continue or what’s your view on that?

When we talk to our risk people, they tell us and this is I am going to talk now about retail banking. In wholesale banking we see not a particular program. We will continue growing with the same -- very safe rates in terms of provisions and cost of risk. And when we talk about retail, what our expert sellers tell us is that we will have this year few euro improvements, but not that an important improvement. We still have something to just need to go to our books. We definitely think that most of the decisions and measures that we took in the last 18 months we'll be willing to show in our books in terms of better delinquency ratios.

Understood. Thank you very much.

Thank you. Now to finish we will let our COO Walter Bayly with his final remarks.

Good morning to all of you and first thank you for joining us consistently as we are signing this conference call. If we go in the past two conference calls we have been always mentioning that we continue -- we have been seeing a couple of plans in our Q2. The two most important were related to one, the elections we were having in this country and second, the possibility that we will have a relatively strong or very strong El Niño. Those two plans as we used to call them are now behind us, but they have taken their toll. Economic agents be their corporations, individuals or even the government have been relatively unable or unwilling to continue to invest because of their uncertainties in front of us. We did not have El Niño and fortunately the elections turned out with the right way but nevertheless again this level of uncertainty has taken the total of the economy. The slowdown in the domestic demand has been a lot stronger than what we had anticipated and even though the economy has grown before that is basically the consequence of a couple of very large couple of projects that started commercial protection, domestic demand has been relatively slow and that is again in the short run the driver, not only of loan growth but of the credit quality of our portfolio. Throughout dispute we have been very cautious and closely monitoring our own portfolio with absolute deteriorations in the consumer side of the portfolio, slightly in mortgages much more visible in loans and credit cards. The lack of growth in our lower risk appetite has taken its tool of the markets, as all of us focus on the lower risk segments and competition has been very strong in those particular segments.…

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect.