Excuse me, everyone. We now have our speaker in conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of today's presentation, we will open up for questions. [Operator Instructions] It is now my pleasure to turn the conference over to Credicorp's Chief Financial Officer, Fernando Dasso. Mr. Dasso, you may begin.

Good morning, and welcome to Credicorp's conference call on our earnings results for our third quarter of 2017. Before we review Credicorp's performance in this third quarter, I would like to take a few minutes to review the Peruvian macro environment. Charts 1 and 2 shows that the economic activity and investment already shows signals of recovery, such as, first, in September the construction sector expanded 8.9% year-over-year; second, the October public investment grew around 30% year-over-year in real terms; third, our estimates suggest private investment increased around 4% year-over-year in the third quarter of 2017 and left behind 14 consecutive quarters of contraction; mining investment grew 23% year-over-year in the same quarter. We believe the external environment is more favorable than the scenario of three-months ago given that copper price currently exceeds USD 3.10 per pound, which implies an increase of approximately 26% year-to-date and almost 45% year-over-year. Additionally, the growth perspectives of our main trading partners have improved, which is reflected in the IMF's recent upward revisions of GDP growth forecast for 2018 for China, the U.S.A, the Eurozone and Latin America. Finally, financial conditions remain favorable as the increase in external rate has been moderate. We revised our real GDP growth forecast for 2018 from between 3% to 3.5% to 4% to 4.5% based on the possibility that public investment may expand at two-digit rates and copper price is expected to remain around current levels. There could even be more upsides to this estimate if a major mining project such as Quellaveco or Tia Maria begins execution. In contrast, downside risks emerge if the government's execution of reconstruction efforts after El Nino falls below expectations. In Chart 3, you can appreciate that our estimates for 2017 and 2018 indicate that inflation will close at around 2%, which…

Thank you. [Operator Instructions] Our first question comes from Thiago Batista from Itaú BBVA. Mr. Batista your line is open. Our next question comes from Carlos Macedo from Goldman Sachs.

Thanks, good morning gentlemen. I have a couple of questions. First, I want to talk a little about growth. Obviously, in the quarter loan growth was strong in the SME book and Mibanco and all that. Typically, that is - those are early signs of recovery in the economy. I was wondering if you would comment a little about that. As a follow up to that, when do you expect the turnaround in the mining sector and other infrastructure sectors that should help GDP growth? When do they get to the consumer, where growth has been pretty weak? Second question, until then how much longer you think you can keep expense growth as low as it has been? It's been very low. Obviously, your efficiency ratios have improved as a result. Is this something that you can keep on or once - at least until loan growth comes back and then you start expanding that again as you take advantage of those opportunities? Or how should we think about expense growth over the next 12 to 18 months? Thanks.

Thank you, Carlos. First, on your question on growth, yes, on the macro side we're - I think that we've already touched our low point, because we already see not only signs, but a reality of numbers doing much better than they did some months ago. So, experts are telling us that we'll probably grow this year by only 2.8% in terms of GDP, but next year it will probably be around 4%. And that will really be helpful, especially because in terms of domestic demand, which this year has been pretty flat, I would say between 1% and - 0% and 1%, next year we'll probably pick up and reach around say 3% to 4%. And that's very important in terms especially for loan growth. So, yes, this year our loan growth will probably stay at around 3% to 4% and next year we feel that it should pick up a bit, as we have already been saying, and reach maybe 7%, which will be really good. Of course, this will be coupled with the things you were mentioning. On the one side, this infrastructure projects have been beginning to unleash in many ways, not only reconstruction projects after the El Nino, but mainly our infrastructure projects that were already under construction and have been advancing a little bit. And that should continue. On the other hand, we see now important interest in mining again. As you remember probably, we are a very low-cost producer in terms of copper, zinc, even gold, and some of our metals we produce as a country. So, now we are beginning to see more interest not only in the projects that are I would say brownfields, meaning Toromocho and these type of projects are already under place and will probably continue growing with…

Okay, thanks. Just one follow-up then. So, overall expense growth should be relatively low, say, between 0% and 3% to inflation over the next 18 months. Would that be a fair statement?

That will be a fair statement. We feel that inflation has already - I mean inflation has already reached that 2% level, which is the midpoint of the Central Bank, and it should probably stay where it is for a while, especially if the sol continues to be strong against the dollar. So, we won't import inflation. And, yes, we will probably grow by that same - in that same area in terms of costs.

Great, thank you.

Our next question comes from Tito Labarta from Deutsche Bank.

Hi, good morning Fernando, thanks for the call. My question - two questions also, first one in terms of your provisioning level. We did see a nice improvement there in the cost of risk, although NPLs did pick up a little bit and we did see some deterioration in a few segments, although I assume that maybe because of the lack of growth, because you mentioned vintages were looking better. So, I just want to get a sense of how should we think about the cost of risk through next year. Can it remain at these levels? Is it going to go back up a bit closer to the 2% that we've seen in the past? And how that's going to be tied to the outlook for asset quality? And my second question, you recently announced an additional dividend of PEN 1.5 billion. How should we think about your recurring payout? Is this just a one-time thing? What should be the dividend payout on an annual basis going forward? Thank you.

Thank you, Tito. On your first question, as you know, this year has had some one-offs in terms of provisions. One has been all the problem we had as a country - I mean with construction companies on the first quarter and also the Nino phenomenon. So, we had to really make some more provisions in that first quarter accounting for what could happen in terms of those two factors. But if you see the underlying trend in our provisions, it has been coming down and down steadily during the last quarters. As we have talked many times in the past, we have really invested our best effort and people trying to deal with risk, especially retail banking risk. And we feel that we have now reached a level in which we understand risk. You're never 100% of where you would like to be. But we feel that we understand it or we are able to put a price to that risk and we can continue moving with more certainty. So, we will continue doing that. I think - and in our second quarter call, Walter mentioned that we will begin growing a little faster, especially in retail segments. And that has been happening, as you seen in our numbers. And that will continue happening. We are really moving a little forward, then analyzing the results. If they come okay, we go a little further down. So, we will probably continue in that trend, understanding what is happening, especially with retail risk. And in that sense, cost of risk, which has now reached really a very low point, 1.59% for the quarter, should probably pick up a little bit. However, I don't think that next year we will see a 2% figure. It will be probably less than that. It will probably be around 1.7% and 1.8%, which is a very healthy figure according to our view. Then in terms of your second question and the additional dividend, as you know, we've been especially building our capital levels in BCP and the other subsidiaries. We feel that we have already reached the level which we want. We have also mentioned that we have - above that level we have some cushioning at the Credicorp level, because we are the holding company and Peru is always a volatile country, so we have some cushioning there that could let us endure a difficult moment or even acquire any target if there is a good possibility. But in excess of that, we will pay dividend. That has been the decision of our board - our recent decision of our board and that is what we are doing. This is a one-off special dividend that we will pay this month. And in the future if we have excess resources above the levels of capital that we want, we will probably do the same.

Alright, thanks Fernando, that is helpful. Maybe just a follow-up then on the capital. At the commercial bank the core Tier 1 is 11.9%, but you mentioned you also have excess capital at the holding company. So, with this dividend payment, what will that do for the core Tier 1 at the commercial bank? And what's that I guess minimum level that we should look at? I mean is it at holding level? Was that at the bank? How should we think about it in terms of understanding what the payout will be?

With this special dividend, nothing will really happen at the commercial bank level. We already have the resources that we'll repay at the holding company level. What we - what the board of directors have reached as a decision is that in terms of common equity Tier 1, our low point will be every March when we declare dividends and that low point should be 10.5% at the least. Okay? So, we will be - after we declare the dividends in March it will be 10.5% and then we'll continue building capital through the year. Then our high point will be February. This February we'll probably reach - I don't know - around 12.2% and then go back to 10.5%. And that should probably be the pace in the coming years.

And sorry, just one more follow-up then. So, does that mean the payouts on a consistent basis - I haven't run the numbers completely, but could it be above - consistently above 50% given where you are today? Is that reasonable to assume?

That's - I mean if we're talking about the commercial bank, it will probably be more than 50%. It was 49% last year and this year it will be probably more than that. If you analyze the numbers, you will get that same conclusion. And then at the Credicorp level, yes, it will probably be more than 50% as well.

Alright, perfect. Very helpful. Thank you, Fernando.

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

Hi good morning Fernando and thanks for taking my call. A couple of questions from my side, the first one is on NII. We have seen modest growth in the environment of low loan growth. But given your expectations of a recovery in the domestic demand and an increased exposure in higher margin segments, how do you see NII growth and NIM next year? And my second question is on your effective tax rate. We noticed it was quite low in the quarter. So, what can we expect for the last quarter and next year? Thank you.

Thank you, Ernesto. First, on your net interest income and NIM questions. What we feel is that NIM should probably stay in the same neighborhood where it is right now and it has already been in that same neighborhood for some quarters. It should probably stay where it is. And we have different effects here really. On the one hand, we are growing faster in our retail portfolio, which has wider margins, as you know. We have also been growing faster in terms of soles loans, which also have wider margin and that helps. But then we feel some - see some subdued demand, especially on the corporate, especially the large corporate - the large corporates and margins are in a way being more challenged in that particular segment. So, we have different really factors affecting NIM there. However, we feel that net interest income will probably grow at the same pace as the loan growth and net interest income - margin should probably stay where it is. Then on effective tax rate, I don't have the details here. Yes, I do have it. I was - as you know, we have one one-time item this quarter, which is that we sold BCI, the shares - the left - the shares that we had from BCI. And that was a transaction that wasn't - that didn't have to pay taxes. So that really helped on our tax rate. But that's one-time.

So, how can we see the effective tax rate in next year?

It will probably be around the same area where it was in the quarters before. This is a special quarter.

Okay. Thank you very much.

Thank you, Ernesto.

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

Yes, hi. Thanks for the opportunity to ask a question. Fernando, talking about loan growth, you mentioned an acceleration in domestic demand and real GDP and loan growth maybe to a 7%. That's a nominal I guess number. I mean that's obviously a big improvement from where we are. But what are the risks to the upside and downside, how would you frame looking at your specific loan segments? And what could drive that number to be higher than 7% and what could hold that back looking out into 2018 is my first question? Thank you.

Okay Jason, I would say that on the risk that you mentioned, on the upper side, I think that as metal prices continue coming up we will see more demand from companies coming for those projects and that should really help. But that's something we really don't control. On the other hand, we feel that the execution process of all these infrastructure projects and reconstruction projects is still a clue and we would like to be surprised by the level of execution of these projects, because it's really challenging. The central government really had to deal with local and regional governments and that's going to be difficult, because there are many interests, there are many people really involved in this process and that we would really like to be surprised on the upside there as well. Because that really - what happens with those projects is that they create lots of employment, so you see that - those resources really trickling down into the economy and really helping not only on the wholesale side of our loan book, but also on the retail side of our loan book. So that is really what could happen on - as a good risk. On the downside, again if metal prices come down, that won't really be helpful and that will really depend on what happens in the world, especially in China, which is our main trading partner, our main importer of especially copper and zinc. That is really something we don't control. And then on the other hand locally, I think that there continues to be quarreling between the government and the Congress that won't really help internally. They seem to be having - get - I think that they've got a way of dealing with what really needs to happen internally. But we don't know. In reality, we would really like to see the administration and Congress working together on bringing Peru out of these problems that we have with El Niño and really fostering the future.

Can you follow-up - second question, just on loan market share competition? What the environment - you've been highlighting the, let's call it, heightened competition in the corporate market. We've seen you decreasing your market share in corporates for sure. Is that - I mean how is that going? What should we expect going forward? Even in the consumer side, we see you losing share and a slight loss - I guess this is through August - in mortgages. Can you talk about the competitive environment and the strategic objectives? I mean it seems like you're willing to give up share for profitability? Thank you.

When the loan book doesn't grow - and it was - that has happened during the last, I don't know, 18 months already. There is more competition. Our margins tend to be challenged. That is what is really happening, especially on the top part of corporates, as I mentioned. I mean, we've been competing, as usual. We've been really into the market. But sometimes there are more aggressive competitors and we have to deal with that. We feel that if loan growth resumes or improves, that will really change - that trend will really change and we will have a more open market and more possibility to continue growing on a healthier stance. That is really what we are looking forward to.

Thank you.

Thank you, Jason.

Thank you. Our next question comes from Jorg Friedemann with Citigroup.

So, I like to touch base here in the results of the subsidiaries. I will start with Prima. So, despite increasing funds under management, we saw a 24% net income contraction quarter-over-quarter. I like to know if this is fully associated with the reduction of the monthly remuneration following the third tender that you want to manage resources of new affiliates, and if that is the case, if you could disclose how much of the current affiliates are already adopting the mixed fee scheme as of now? And my second question goes with regards to Mibanco. Results were quite strong with an ROAE level of 30%. Just wondering how much you feel that this is sustainable given that I saw a slight decline in expenses, also a decline in provisions despite a pick-up of NPLs there. So, if you could give us a little bit more color about the sustainable levels of profitability of Mibanco, it would be helpful. Thank you.

Thank you, Jorg. First, on Prima, you are right. As you know, we had to compete in that auction. This was in December last year and we began with this new process in June. So, we had to bring down our rate and that is really what's happening in terms of our P&L. However, I have to tell you that the results already have - have been already very interesting in terms of the new clients that we're bringing into Prima. We’re bringing around 35,000 new clients a month, which is a really impressive figure. And we'll try to continue in that trend. So, in those terms the results in Prima are very good. Then if we talk about Mibanco, yes, we were surprised - positively surprised by the good results of Mibanco. But I have to tell you, as we have been saying many times, that Mibanco really has a world-class model, business model. And in reality, during the prior years we were really preparing both Edyficar and Mibanco for the merger. Then came the merger. And as you can imagine, the merger, the part of the accounting and IT parts are really easy. Then you have to merge cultures and that took a longer time. But now we feel that Mibanco really has a competitive advantage. They have the size. They have the right business model. And that's - and we will continue pushing in that direction. So, you should expect - continue to expect good results in terms of Mibanco. I don't know if a 30% ROAE is really our - the level, but you will definitely see levels above 20% ROAE.

Just a quick follow-up there. Because I saw an interesting trend that occurred both in Mibanco and in Credicorp at the holding level with coverage of NPLs reducing a little bit. Not sure how much you track those levels of coverage. Credicorp right now is running 115% compared to 125% back in 2015. So, how comfortable are you right now with those levels and if you could maybe go even below those levels going forward? Thank you.

What I have to tell you is that we would really like to be more in the 120%. But as you can imagine, at the end of this year there will be a change in terms of the provisions, because we will need to adapt to the IFRS 9 accounting rule. So, we will therefore need to make some more provisions in that sense. We are preparing for that. It will be an important figure, but that figure will probably lead us to reach those levels that I was mentioning, the 120% neighborhood.

But those provisions are going to be booked against equity or they will pass through the P&L?

They will be booked against equity.

That’s perfect. Thank you very much for the clarification Fernando.

Thank you.

Thank you. Our next question comes from Domingos Falavina with JP Morgan.

Thank you, Fernando for also for taking the question. Actually, I have two questions too. The first one is we saw a bit of an increase in new NLP formation. It went from about 350, 360 in the previous quarter to something around 450. So, I just wanted to understand if there was one new bad loan or something specific that justifies that? And my second question is actually on the dividends. I noticed you announced about 1.5 billion and just want to make sure I understand, is that going be a share divided by 94 million shares or by 80 million shares? And if it is by 94 million, I understand that like 14 million shares - the dividend on 14 million shares will go back to the holding company. Does that make sense? Why do you keep those shares? I guess I don't really understand why you want to announce a payout and then the shareholders' equity doesn't really decrease in the same level. A lot of that goes back into the equity.

Domingos, first on the NPL formation. There is not a surprise, nothing really important happening. We have already told the market many times that in terms of that number, the particularity that we have in Peru is that - when loans have a collateral, a real estate collateral, even if you have provisioned those loans by 100% - and that happens really after 160 [ph] days I feel, but then you want to foreclose those loans, you need to go through a judiciary process. And that judiciary process can take, I don't know, 4, 5 years. And while that happens, you cannot charge off those loans from your books. They continue to be in your books. So, they continue to accumulate in that NPL figure. And will continue happening - that will continue happening. We will continue having those loans. If you really want to assess what is happening with our loan book, you should really be looking especially at early delinquency and cost of risk, because those are more leading indicators of what is happening in our loan book. The old loans and the old NPLs will continue to accumulate there. Those loans, most of those have already been provisioned 100%. And because of local regulations we cannot charge them off from our books. That's on your first question. Then on the second question, yes, we will pay those special dividends to all our shareholders, to all those share, to the 94 million shares. Of course, part of it stays in the shares that are owned by one of our subsidiaries. Those are founding shares. They were really part of the exchange that took place 25 years ago between the old BCP - Atlantic Security Bank and Pacifico Insurance Company and they have stayed there and they will probably continue to stay there because they are in a way treasury stock. But we call them founding shares of that first exchange - the original exchange that took place in 1995.

So, let me just if I may - just if I understand. So, on the first part of your answer, if you have more bad loans or a 100% provision or collateralize I should say, the coverage ratio should go down because you're not going to provision, because you have access to the collateral, but the denominator will grow. So that can explain some of the coverage decrease?

Yes, yes, I agree with you.

Perfect. And on the second one, when you say about 60% payout, you mean on all the share - like basically net earnings times 60% being paid out, but in effect only 40% or 45% are actually going out. The other 15% are going back. So, like adjusted payout should be, what, 45% we should work with?

That's a good question. Let me do the numbers and I will get back to you.

Okay. Because that will continue to bump your equity, right, and will be a headwind to ROEs if you don't grow fast?

It's only 15 out of 94 million. So, it's not 15 - well, it's a little - yes, a little more percent.

Yes, exactly.

Another thing to say is that, it goes from 60% to 45%. That is in proportion. So that's why I want to do the numbers.

Okay, super clear. But that's the number you're talking about? You're talking on a base of 94, not exactly the - 60% of the net income will not go back?

Yes.

Okay, understood. Thank you.

Thank you, Domingos.

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

Hello, good morning. I would like to ask you about your tax rate. You indicated that it will be around the same levels. Could you give us the number? I mean what percentage rate do you expect to pay in the coming two years given where the tax rate inflation is today? And also, a clarification on the sale of BCI shares. You made a gain of PEN 281 million? Did you pay any taxes on that gain at this point or you already paid when you transferred from the bank to the holding company? Thank you.

Thank you, Carlos. On your - first, on your second question, we had already paid the taxes when we transferred those shares from BCP into Credicorp some years ago. So, we didn't pay any extra tax. Then on the tax rate, as you know, our income tax rate in Peru is 29.5%. We feel that the rate in the coming few years should be between I would say 26% and that figure depending - it really depends on the businesses we engage into. Because, for example, we acquire papers from the local governments, sovereign papers and they are not subject to taxes. And also, we have on the other side transactions that are subject to taxes. It really depends on how we - the businesses we take. But it should really not vary much, it should probably stay around 27% to 28%.

So again, between 26% and 27% or between 27% and 29%?

I would say to give you a range between 26% and 29.5%. But in the end, we will probably hover around 27% and 28%.

Okay, thank you very much.

Thank you, Carlos.

Thank you. Our next question comes from Joswilb Vega with Integra.

Hi, good morning. Thank you for taking my questions. Should we expect more asset sales in coming quarter just like BCI or [indiscernible]?

As you know, we have some assets that we were really - that we have at the Credicorp level and those assets were basically BCI and some shares we've had in [indiscernible] and you already know that we sold those shares at the beginning of this quarter. That's public already. And we still have some other shares from Alicorp and Centenario. What our board has made a suggestion is that in that cushion, as we like to call it, we should really have very - what is the word? - investments that are easy to liquidate, investments that are not that correlated to the Peruvian economy. So, we will have to make decisions in terms of those shares. We don't know exactly when we'll sell those in the near future, but we will probably have to do that at some point in the coming future.

Okay, thank you.

[Operator Instructions] At this time, I'm showing no further questions. I would like now to turn the conference over to Credicorp's Chief Operating Officer, Mr. Walter Bayly.

Good morning to all of you and thank you for joining us in this call, as well as for your questions. Clearly, the overriding variable that explains our results this quarter was the very low growth at the loan portfolio, particularly at BCP. Clearly, it is disappointing. But we have been able, utilizing levers of risk management and cost control, to be able to counter that very subdued and disappointing growth. Fernando explained in a lot of detail the expectations we have that - well, the reality is that we have already had a turnaround and the point of inflection has already passed. So, I do have good expectations that we will have a decent year-end Christmas campaign, particularly on the retail side. We have seen mortgage numbers move aggressively, a lot of demand for mortgages and small businesses. So, probably a good year-end Christmas campaign is something that is very much on the cards. Now, we have been very busy utilizing this year of, as I mentioned, very subdued growth and are extremely focused on our transformation and our digital initiatives, all of course aimed at improving our customer experience. So, we are very focused on this. This will include - this will require some expenses going forward, but hopefully those expenses will be countered. We will have top line growth and we will be able to maintain very good efficiency levels. In summary I would say that our short and medium-term strategies are in place, are extremely focused on serving our customers and generating shareholder value and we will just pursue those strategies aggressively and be able to wait for better moments of growth in the economy. Regarding shareholder value, the extraordinary dividend is a logical conclusion to having a good solid level of capitalization at the banks,…

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