Good morning, everyone. I would like to welcome all of you to Credicorp Ltd. First Quarter 2019 Conference Call. We now have our speakers 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 the floor for questions. At that time, instructions will be given as to the procedure to follow, if you would like to ask a question. With us today is Mr. Gianfranco Ferrari, Deputy Chief Executive Officer; Mr. Alvaro Correa, Deputy Chief Executive Officer; Mr. César Ríos, Chief Financial Officer; Mr. Reynaldo Llosa, Chief Risk Officer; and Ms. Francesca Raffo, Head of Transformation at BCP. Now it is my pleasure to turn the conference over to Credicorp's Chief Financial Officer, Mr. César Ríos. Mr. Ríos, you may begin. César Ríos: Thank you. Good morning, and welcome to Credicorp's conference call on our earnings results for the first quarter of 2019. Before we review Credicorp's performance in the first quarter of 2019, I would like to highlight some important matters that characterize the scenario in which we have operated in the last few months as tailwinds for our businesses. First, mining investment has continued to expand at double-digit rates in 2019. This is attributable to projects such as Qullaveco and Mina Justa, among others. Second, trade talks between the U.S. and China have improved since late 2018. Moreover, the price of copper stands at around $2.9 per pound, which represents an increase of 7.5% year-to-date. Third, local assets were favored by inflows to emerging markets during the first quarter of the year. It is important to remark that in Peru, non-resident sovereign bond holdings increased S/ 10.1 billion during the first quarter, a historical peak in quarterly flows. A headwind for our businesses. First,…

Thank you, César. Good morning. I would like to go to BCP's Transformation strategies slide. Our Transformation began in 2014 when we realized we ranked fourth among the four major banks in Peru in terms of customer experience. That same year, we celebrated our 125th anniversary and started to think about what we needed to do to remain leaders for another 125 years. Those were the keys for what were then two major initiatives. The digital transformation looking to provide a distinctive customer experience through digital solution, and a cultural transformation aiming to define our purpose, our aspirations and the organizational changes required to fulfill this. We initially progressed in each of them independently, defining our purpose, aspirations, cultural principles on the one hand and creating our innovation center and launching our first digital solution from the other. Early 2017, we merged both initiatives into one big transformation, as we realized we needed both to operate in sync to live a cultural -- to live our cultural principles and to provide digital solutions to our customers in order to fulfill our purpose, transform plans into reality. In fact, as our digital transformation successfully progressed with great results with on-boarding and sales, we realized we needed to incorporate additional work streams into our transformation program, such as customer experience journeys, data, IT and risk. In 2018, we designed and communicated to the whole organization our 2021 north stars that we explained in detail in our next slide. We established our two north stars for 2021 as being the number one bank in customer experience in Peru and having the best efficiency ratio in the region. To describe how they look like in more complete terms, we have set six key results. We have challenged ourselves also significantly to define them, and…

Thank you, sir. [Operator Instructions] We'll take our first question from Jorg Friedemann with Citibank.

Thank you very much for the opportunity. So my first question is related to asset quality and coverage. I understand that you have observed an improvement in asset quality for the Mibanco portfolio as well as other retail products. But SME Business in large corporates continue volatile with coverage achieving the lowest level ever, below nowadays of 110%. So how do you see the progression of asset quality going forward? And how comfortable you are with coverage, you know, at this point? I know that you do not manage coverage. This is a resultespecially taken into consideration IFRS 9. But just wondering, if you think that this could come down to -- at some point something around 100% or even below? Thank you. César Ríos: Well, the quality of our corporate loans are specifically stable. We don't foresee any important changes in the quality of our assets in that portfolio. The coverage, as you mentioned, basically a result of our strict provisioning, and maybe you can see some deterioration in the coverage we see actually. However, we don't see it below 100%. We would see zealous stability in the future months and future quarters and we don't foresee having it below 100%.

Perfect. And a follow-up here. Taking into consideration that expectation, would it be reasonable to assume that cost of risk would continue to progress towards the upper range of your guidance? Right now, you are slightly ahead the midpoint of the guidance. But I know taking that into consideration that coverage should not come down substantially from the point it is. It would make sense to converge to the upper range of the cost of risk guidance? César Ríos: Well, we see it within the guidance range. I mean stable at 1.4 probably in the next quarter, and you have to remember that our corporate portfolio basically it's very well covered with that collateral, and basically we've got real estate behind that. So I mean that -- even 100% coverage considering the amount of collateral behind those loans, it's basically adequate in terms of coverage expected loss. So I mean we don't see the need to have additional provisions for that specific portfolio. Ferrari?

Yes. This is Gianfranco Ferrari. Complementing on what Reynaldo just said, you have to bear in mind that we manage our portfolio based on the risk-adjusted NIM rather than cost of risk by itself. And as was stated in one of the slides, the cost of risk -- sorry, the risk-adjusted NIM is improving, and we foresee a slight improvement in the upcoming months within the range we provided.

That's perfect. Thank you very much for the clarification. And my second question would come related to loan growth. You just mentioned that the activity has been a bit slower than expected, below potential. You even reduced the estimates for the reference rate you're in. So looking into the loan growth so far, not only you are well below the guidance for the year, but you are still losing market share. How do you reconcile the improvements that you mentioned in your presentation in terms of customer satisfaction? And I know this is lower growth versus the market. And how do you see this evolving throughout the year for you to be able to reach your guidance? Thank you very much. César Ríos: Maybe it's a twofold answer. If you go into the retail portfolio, retail portfolio is growing at a stable pace. And in general terms, we're not losing market share. And that's very related to the customer satisfaction impact Francesca mentioned before. Regarding the wholesale portfolio, specifically the corporate portfolio, the first quarter has been poor in terms of growth basically because by the end of last quarter, there were -- the growth was very high, and there has been a lot of activity in both local and international capital markets by the major corporate. That has impacted our balance sheet. We don't foresee that happening in the remaining quarters of the year. And we are still -- we still believe that we will be within the guidance by year-end.

Perfect. But just a brief follow-up, for that to happen, you’d have to be able to likely even surpass market growth on a sequential basis for the next three quarters. So given the effect on the wholesale and the continue improvement in customer satisfaction, you believe that this is feasible, correct? César Ríos: That's correct.

Perfect. Thank you very much.

We'll take our next question from Domingos Falavina with JPMorgan.

Thank you, everyone for the opportunity. My question is just with regards to the sale of a loan book. You mentioned, you had a sale of nonperforming loan book, but you didn't mention the size. If you could just provide some more color. If you did, I'm sorry I missed it, but how much did you sell in nonperforming loan? And how did that impact your NPL ratio? César Ríos: The sale of non-performing loans are written out from our book. I mean, those are basically loans that are fully provisioned, and that has a minor impact on our ratios as well.

Sorry. But like last year, I think you mentioned S/ 177 million in sales. This year, I didn't get the number. César Ríos: No. I didn't mention it. I would say it's not significant in terms of the impact on the overall ratios.

Okay. And if I may ask a second one, on the gains that you mentioned also on mark-to-market of securities that helped net interest income, how large were those? César Ríos: Excuse me. Could you repeat the question?

Yeah. You had some gains on the sale in mark-to-market of securities, which helped your line net interest income. So how relevant was that like a one-off? How big?

I think what's in line with the general gains are the forward markets registered in the first quarter. Please let me -- allow me to review the figures, but I think it's not that material. On securities, in the page 12, we have S/ 23.6 million year-over-year as an explanation of the change year-over-year.

Okay, perfect. A delta of 23. Thank you very much.

[Operator Instructions] Our next question comes from Ernesto Gabilondo with Bank of America.

Hi, good morning. And thanks for taking questions. My question is a follow-up on loan growth and competition. Excluding the mining sector and the impact on Las Bambas, the underlying growth continues to be strong in Peru, but the loan portfolio continues to be at single-digit growth. So is there a level of GDP where we can start to think about loans growing slightly above double digit? Do you think this is the reason? Or do you think the tough competition environment is making loan growth to remain at these levels? Can you elaborate on who are the main competitors that are offering lower interest rates at Mibanco and the Retail Banking? And if you continue to see strong competition in wholesale loans? Thank you.

Let me start. This is Gianfranco Ferrari. Let me start by the two last questions. Regarding the Mibanco competitors, even though Mibanco is the largest player in the SME business, that's in terms of the whole country. However, if you go -- if you drill down the competition, very fragmented, and we've seen each region, there's strong regional competitors within the region. (Technical Difficulty) Sorry. I believe the line went out. So I was telling you that at the Mibanco, at the SME-Business, there were specific issues. Regional competitors are being more aggressive, and they have a relevant position within the region. To us, we had an issue in terms of our pricing strategy at the current level, which we already resolved. On the wholesale business, specifically on corporate, competition is very harsh. It's a highly concentrated market. We're basically three performers and various banks competing there. But again, the competition and spreads are tightening. That's regarding your last two questions. Regarding your first question, we don't foresee double digits or growth for the whole portfolio or the whole loan book in Peru. The correlation between the loan growth and GDP growth has been in the past higher than today. And obviously, as the banking penetration increases, the elasticity should go down.

Thank you. César Ríos: I need to complement that. The correlation that we found is usually 1.4, 1.5 nominal GDP in this range.

Okay. Perfect. Thank you. Just a second question related to the M&A activity. We have seen small acquisitions happening in the Latin American regions, such as Ultraserfinco in Colombia and Krealo in Chile. So I just want to hear your thoughts on why are you expanding into new regions and increasing your dividend payout ratio? So are you finding difficulties to maintain the same growth in Peru? A – Alvaro Correa: Yes. This is Alvaro Correa. A general comment would be that it is difficult, as you mentioned, to find additional targets in Peru. And we are -- we have very stringent limits by the regulator, and I don't know if you know but yesterday, it was approved by law that will prevent from openly go after additional targets on the financial sector and any sector as a matter of fact. So there are limits in Peru. And we are very disciplined on what to do elsewhere as you mentioned two recent acquisitions. They are small, but they allow us to get into markets and learn about those markets and see if there are other opportunities to grow there.

Perfect, thank you very much.

We'll take our next question from Andres Soto with Santander. Q – Andres Soto: Good morning. My question is related to your digital -- to your investment in digital transformation. Your guidance implies a deterioration in efficiency throughout this year versus 1Q. In the last call, you explained some of the traditional costs is related to digital transformation. I'm wondering how much flexibility you have in this planned expenditure, specifically if NII happens you remain weak this year, will you prioritize your ROE target or your investment in digital transformation? Thank you. A – Gianfranco Ferrari: So before giving back the -- a fuller answer to Francesca, I would like to highlight that we have a clear seasonality in our expenses. So the guidance for the year doesn't have any strict correlation with the first quarter results. César Ríos: Regarding your last question, which is relevant from a strategic standpoint, we will always skew our long term rather than short term, so digital over ROE -- over short term-ROE for sure. Q – Andres Soto: That’s very clear. Thank you very much.

Our next question comes from Jason Mollin with Scotiabank.

Hi. Thank you. Looking at your current guidance, you now see as you mentioned the outlook for a lower BCRP reference rate now at 2.75% year-end versus the 3.25% earlier in the year. Can you update us on the sensitivity of Credicorp's net interest margin to a 50 basis point change in the policy rate? And more specifically, if you can comment on the sensitivity of NIM at BCP and at Mibanco. Thank you. César Ríos: BCP is more sensible to variations in the marginal rate due to the strong low-cost deposit base. But in the short-term, the effect is very moderate because we realize this profitability to the repricing of the loans. So, for this year, the impact of lowering 50 basis points in the reference rate is minor. But if the trend continues, we will be potentially more significant in the 2020. In the case of Mibanco, due to the funding structure of Mibanco, actually lower reference rate does impact negatively because they fund probably 70% of the portfolio at market rates and the pass-through to the loan book is delayed over the time. In average, at Credicorp, the net effect is negative but to have a lower reference rate but minor during the year due to the repricing process throughout the year.

Thank you. Maybe a second question related to this and related to some of the questions on economic growth, and you spoke about the headwinds for GDP growth in Peru and a downside bias to the current economic growth forecast. Does this mean that we should think about management seeing a downside risk for earnings in your guidance for this year at this point? César Ríos: At this point, we are maintaining the guidance as stated in page 21 adjusting only the reference rate as we mentioned previously.

Okay. So, if -- I mean, right now, the GDP growth is still at your -- is still based -- your guidance is based on this GDP growth of 3.7%? César Ríos: Yes. Probably one issue to consider is that when we established the business plans last year, we were considering a GDP growth of 3.7% while other significant players in the market and the Central Bank were establishing a reference -- a GDP growth of around 4%. So, we have some cushion there.

That's helpful. Thank you.

We'll take our next question from Alonso García with Credit Suisse. Alonso García: Good morning. Thank you for taking my question. So last year, beside the usual seasonality of expenses in the last part of the year, the expenses related to Transformation strategy were also very heavily skewed towards 4Q 2018. So, could you please share with us how much of expenses relate to that strategy were already executed in 1Q 2019? And how should we expect the rest of expenses to be distributed during the remainder of the year? Thank you. César Ríos: Usually, we have, as we mentioned before, a strong seasonality. And as you correctly stated, the transformation has even a higher seasonality due to the way that the consultancy, billing, and IT expenses are billed to the end of the year. Alonso García: But do you have a sense on how much you have invested already this year? And how should we expect the remainder to be distributed during the other three quarters?

In terms of how much we invested, regarding César's comment on seasonality, we were around -- 15% of our annual budget has already been spent, especially in IT. And we have not changed our plans yet in terms of expenditure. We plan to achieve our targets and move on developing our capability. César Ríos: As a whole, considering expenses and investment in transformation, the total disbursement this year should be around 60% higher than the previous year, not all the impact in P&L due to the composition of investments. 60% in total, cash disbursement with a significant proportion of investments. Alonso García: Okay, perfect. Thank you. And finally, regarding some -- I just wanted to check any regulation for liquidity in Peru in terms of LCR and then net sales funding ratio? I mean what is in place currently in the country? Or what is the timeline for those regulations to apply? And how comfortable you feel with your compliance of these metrics? Thanks. César Ríos: Could you repeat, please? I couldn't really understand. Alonso García: Sure. Regarding the liquidity regulation in Peru, LCR net stable funding ratio, what is in place currently in Peru? Or what is the time line for these regulations to be implemented? And how comfortable you feel with these ratios currently? Thank you.

This is Reynaldo Llosa. We manage our liquidity with internal – our internal models, which are more rigid and strict than regulatory ratios. And as of today, I mean, we are fully compliant with 100% regulatory regulations. I would see no impact in terms of how we manage liquidity today in our bank. Alonso García: Perfect. Thank you. César Ríos: In our internal methodology includes systematic analysis in classic ratios, well above the regulatory. Alonso García: Perfect. Thank you very much.

[Operator Instructions] We'll take our next question from Miguel Tola with CAPIA.

Good morning, everyone. And thanks for taking my question. My question is really – well, I have two questions related to AFP Prima. The first one counts for the asset-based fees based on the litigation won by Integra. Are you going to change the mix that is right now 0.18 by the flow and 1.25 for the balance? And just to get – on the counting of the assets under management model? And the second one, counts for the other income and expenses figures in the income statement, about the increase of 290%. Can you tell us a little bit more about that income? Thank you.

Regarding to the first question, I think forward-looking business strategies, I'll take it internally. We don't – we wouldn't disclose this to publically. The second question other income 290% growth. The second question, please?

Oh, the second question counts for the other income and expenses increase from year-over-year. That's about like 290%. César Ríos: Yeah. This is related to the profitability of the reserves that AFP Prima has as a percentage of the total portfolio managed. It's around 0.8%. The first quarter was a profitable quarter, and we registered in the books the net effect of that.

Okay. César Ríos: The fourth quarter of 2018 was not favorable in terms of market returns. For this reason, we registered a loss of S/ 6 million in this account.

Okay. Thanks.

There are no additional questions at this time. I would now like to turn the conference back to Mr. Alvaro Correa, Deputy CEO, for closing remarks.

Excuse me, I see Carlos Gomez – have to make a question here.

We'll now take our next question from Carlos Gomez with Credicorp.

Thank you very much for taking my question at last minute. I just wanted to ask about the Credit Card business. It's growing much faster than the system as a whole. Should we be concerned about the rate of growth? Do you feel that the industry is healthy? There has been some problems in this industry in the past. Do you think it is – given they are giving the cards properly. Today or are you concern anyway? And the same thing I would ask about the Mortgage business? Thank you. César Ríos: Yeah. Sure. The Credit Card business, the level of penetration of the Credit Card business in Peru is we do believe is still – it has a lot of potential of upside potential. We do – we've been – with our strategies based on risk-adjusted returns, as Mr. Reynaldo Llosa was mentioning before, our businesses have been very good over the past quarters. We are within risk appetite, and that's the reason why we've been more aggressive recently. On top of that, we've started maybe three months ago to sell credit cards through the digital channels. As of today, over 10% of the total credit cards are sold through digital channels. Therefore, we see – and that has a positive impact not only on customer satisfaction but also in distribution costs. And that enables us to start different segments of the market.

What was the question about mortgages?

Certainly. Asset quality.

Yeah. Basically, the reason is the same reason. At one point in time – so the bulk of the Mortgage business is related to housing, financing to real estate financing. At some point in time, due to the construction problems that we have as a country maybe a couple of years ago, we were much more conservative at that point in time. What we've seen over the last few quarters is that the market has picked up again. And we are financing much more of those projects. Therefore, our portfolio has been growing, and as a matter of fact, we've gained -- even though we're the leaders by far in that market. We've gained market share over the last year. And we expected something similar for 2019. Q – Carlos Gomez: Thank you very much.

Thank you. There are no additional questions at this time. I would now like to turn the conference back to Mr. Alvaro Correa, Deputy CEO, for closing remarks.

Thank you. Let me please do a summary of what we consider the most relevant messages for our shareholders. We continue to be positive about growth. Although there is correlation with GDP growth as has been mentioned. And that's because we expect favorable trends in private investment going forward, especially on the mining sector. But we also foresee a slow activity on the public side as long as the political environment continues to be surrounded by corruption probes. And -- but we expect 2019 to be a decisive year for that last matter. With regards to, the four business units, a general comment is that we have seen stable growth in the top line for all units and segments on a year-to-year basis. And improvement in efficiency ratios with the exception of Mibanco, which is as has been mentioned, investing in building capabilities for future growth. We've also seen improvement, overall, in the cost of risk of the different subsidiaries. All in all, we're happy to be running a very healthy business here. In universal banking, at BCP, as we mentioned, the quarter was marked by a drop in -- on corporate loans. But that's due to year-end seasonality basically. But there's a very positive trend for all segments on a longer-term perspective. And we've seen, as we mentioned, improvement in portfolio quality and cost of risk, both in the retail business and in the wholesale business. At BCP Bolivia, there's a positive evolution as well on loan growth. The cost of risk is going down. And -- but we see some pressures on the cost of funding. In micro finance, at Mibanco, we will continue to see loan growth, but we will also continue to see margins under pressure, due to increasing competition. The good news in Mibanco is…