Unassociated Document
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 6-K
 
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
 
For the month of August 2007
 
 

CREDICORP LTD.
(Exact name of registrant as specified in its charter)
 
 
Clarendon House
Church Street
Hamilton HM 11 Bermuda
(Address of principal executive office)
 
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.  
 
Form 20-F x Form 40-F o
 
 Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. 
 
Yes o No x
 
 
 
  
 
CREDICORP Ltd. Reports Second Quarter 2008 Earnings
 
Lima, Peru, August 6, 2008 - Credicorp (NYSE:BAP) announced today its unaudited results for the second quarter of 2008. These results are reported on a consolidated basis in accordance with IFRS in nominal U.S. Dollars.
 
HIGHLIGHTS
 
•      The continuing strong currency volatility impacted once again Credicorp’s results, though this time a currency translation loss was reported as the USD/Soles exchange rate bounced back, leading to a bottom line net income of US$ 73.7 million.
•      Focusing on recurrent income and thus excluding such translation gains or losses, Credicorp’s results show an extraordinary 23.7% QoQ earnings growth to US$ 135.2 million vs. US$ 109 million the previous quarter, reflecting the continuing strong growth and income generation of Credicorp’s core businesses.
•      Such unexpectedly high income volatility is a direct result of the unusually high currency fluctuation experienced locally during this first semester, and the net currency exposure held at each point in time and which is an intrinsic part of our business in a dual currency financial market. Thus, a significant currency translation loss of US$ 61.5 million was reported this 2Q08 while a gain of US$ 68.7 million was reported in 1Q08.
•      Loan growth reported by the banking business continued strong, revealing a 4.3% QoQ net loan portfolio growth. In fact, retail and SME loan growth is still very strong at 11.4% QoQ growth for the local currency portfolio and 3 % for the USD portfolio.
•      Interest income was even stronger with a robust 13.4% QoQ growth, led not only by higher interest income from loans, but also strong dividend income.
•      NIM improves 30 b.p. as the result of higher interest and dividend income at Credicorp’s subsidiaries other than BCP, since NIM at BCP remains flat.
•      Non financial income shows a QoQ drop mainly related to less gain on the sale of securities which last quarter included large proceeds of the sale of Visa shares. In fact, fee income remained strong and 53% higher FX-transactions’ gains were reached given the strong FX-activity as a result of the high currency exchange volatility.
•      Loan portfolio quality improved further reaching a PDL/Loans ratio of only 0.75%. Net provisioning also dropped 43% QoQ to US$ 9.2 million given the high coverage ratios and 2.7% QoQ drop in the absolute volume of past due loans.
•      BCP’s consolidated numbers reflect a very healthy and dynamic banking environment with core revenues up 12% QoQ and 38.1% for the year. Such improved income combined with controlled operating expenses, led to an excellent operating performance with net income, before the currency translation effect reaching US$ 127.9 million, 17.8% higher from the US$ 108.5 million reported in1Q08.
•      BCP Bolivia, which is consolidated in BCP, continues its consistent growth and reports a strong, though slightly lower contribution of US$ 10 million for 2Q08, 4% lower QoQ and 84% higher YoY.
•      ASHC remains a stable business and reports also a strong, though 8% lower contribution this quarter of US$ 5.2 million.
•      PPS, remains troubled by its property and casualty business, which added to higher reserves at its Life and Health businesses and also an important translation loss resulted in a significant loss contribution for this 2Q08 of US$ -7.2 million.
•      Finally, Prima AFP reports growth of its business and good though lower operating results, but also a translation effect which after having boosted results for 1Q08, led to a loss for 2Q08 of US$ 0.95 million.
•      Credicorp’s performance is however better reflected by 1H08 results, since the currency translation effects are netted out and neutralized in the course of the semester, leaving the pure commercial results: 58% higher income contribution from BCP, 100% higher income generation at BCP Bolivia, 16% higher income at ASHC, US$ 8 million income contribution from Prima (vs. US$ 1.7 million loss in 1H07), i.e.: earnings generation growth in all businesses except its insurance business which remains today the only problem to solve. This led to the outstanding total net income of US$ 251.6 million for the first half of the year and 28.3% ROAE.
 
 

I. Credicorp Ltd.

Overview
 
The continuing strong currency volatility experienced in the second quarter impacted once again Credicorp results, though this time a currency translation loss was reported as the USD/Soles exchange rate bounced back, leading to a bottom line net income of US$ 73.7 million compared to US$ 178 million reported for the 1Q08.
 
Such unexpectedly high income volatility is a direct result of two things: (1) the unusually high currency fluctuation experienced in the local market during this first semester, fueled by the US Dollar weakness in the international markets and some speculative activity based on the strengthening of the local currency, and (2) the natural currency exposure through net balance sheet positions either in Soles or Dollars which is an intrinsic part of our business in a dual currency financial market. Thus, as a result of these two factors, a significant currency translation loss of US$ 61.5 million was reported this 2Q08 while a gain of US$ 68.7 million was reported in 1Q08. Significantly different (basically opposite) results were reported in local currency accounting, where the currency movements generate the contrary effect each time. Therefore, it is very important to understand, that given the dual currency financial market in which we operate, the calculated management of the currency positions is crucial for our business and the decisions are aimed at either increasing gains or minimizing losses, following a consensus view of the currency exchange rate for the future. Nevertheless, we should keep in mind the volatile source and nature of these gains/losses, which can be equally reverted with changing market conditions given the highly uncertain markets.
 
Therefore, excluding such currency translation gains or losses and focusing on recurrent income, Credicorp’s results show a strong 23.7% QoQ earnings growth to US$ 135.2 million vs. US$ 109 million the previous quarter, reflecting the continuing strong growth and income generation of Credicorp’s core businesses. The following chart isolates such translation results, which reflect an environment with an appreciation trend for the local currency generating gains in US Dollar accounting, and which have only become extremely volatile this year as speculation drove the exchange rate and we took a view on the long term appreciation of the Nuevos Soles.


Credicorp’s excellent core business performance is better appreciated when looking at our accumulated 6 month results, which reflect results clean of the translation impact as they became almost fully neutralized throughout the semester. Thus, net income for 1H08 reached an outstanding US$ 251.7 million, reflecting a 51% higher income from the previous year and a ROAE of 28.3%, outperforming all expectations.

2


Continuing with this approach and excluding such currency translation distortions, Credicorp’s core banking business reported a strong performance, with total loan balances reaching 4.1% QoQ growth. Though slightly understated this time by the devaluation of the Soles loan portfolio, loan growth was fueled mainly by the strong retail segment, while a slowdown of local investment activity led to a flat corporate loan book.

Credicorp Ltd.
  
Quarter
  
Change %
  
US$ thousands
  
2Q08
  
1Q08
  
2Q07
  
2Q08/2Q07
  
2Q08/1Q08
  
Net Interest income
    
216,986
   
191,267
   
159,305
   
36.2
%
  
13.4
%
Total provisions, net of recoveries
    
(9,235
)
  
(16,191
)
  
(6,090
)
  
51.6
%
  
-43.0
%
Non financial income
    
139,967
   
152,144
   
108,026
   
29.6
%
  
-8.0
%
Insurance premiums and claims
    
2,926
   
12,298
   
19,278
   
-84.8
%
  
-76.2
%
Operating expenses
    
(191,582
)
  
(184,159
)
  
(159,886
)
  
19.8
%
  
4.0
%
Net income before workers' profit sharing, minority interest and I.T.
    
159,062
   
155,359
   
120,633
   
31.9
%
  
2.4
%
Worker's profit sharing and income taxes
    
(23,711
)
  
(39,329
)
  
(28,633
)
  
-17.2
%
  
-39.7
%
Minority Interest
    
(175
)
  
(6,728
)
  
(6,324
)
  
-97.2
%
  
-97.4
%
Net income attributed to BAP before translation result
    
135,176
   
109,303
   
85,676
   
57.8
%
  
23.7
%
Translation results
    
(61,510
)
  
68,695
   
1,728
   
-3660.0
%
  
-189.5
%
Net income attributed to Credicorp
    
73,666
   
177,998
   
87,403
   
-15.7
%
  
-58.6
%
Net income/share (US$)
    
0.92
   
2.23
   
1.10
   
-15.7
%
  
-58.6
%
Total loans
    
9,288,774
   
8,919,841
   
7,031,734
   
32.1
%
  
4.1
%
Deposits and Obligations
    
12,956,438
   
12,929,288
   
10,152,601
   
27.6
%
  
0.2
%
Net Shareholders' Equity
    
1,791,066
   
1,850,680
   
1,535,154
   
16.7
%
  
-3.2
%
Net interest margin* (old methodology)
    
5.4
%
  
5.1
%
  
5.5
%
        
Net interest margin** (new methodology)
    
4.8
%
  
4.5
%
  
4.9
%
        
Efficiency ratio
    
37.3
%
  
40.3
%
  
42.2
%
        
Return on average shareholders' equity
    
16.2
%
  
40.4
%
  
26.0
%
        
PDL/Total loans
    
0.7
%
  
0.8
%
  
1.0
%
        
Coverage ratio of PDLs
    
316.3
%
  
310.0
%
  
284.4
%
        
Employees
    
18,169
   
17,275
                 
*
The old methodology for the calculation of NIM considered only 70% of the investments available for sale as part of interest earning assets.
**
The new methodology for the calculation of NIM considers 100% of the investments available for sale as interest earning assests.

NII outperformed this robust loan growth and reached 13.4% QoQ expansion despite the persistent competition and pressure on rates and supported by our expanding interest earning assets through larger investments (incl. Central Bank CD’s and bank deposits).
 
Net interest margin also improves 30 b.p. which stems from a solid though flat net interest margin at BCP, and stronger interest income from other investments at Credicorp. This improvement is reflected by Credicorp’s NIM reaching 5.4% from 5.1% based on the calculation approach used up to date. However, for transparency reasons, we have standardized our NIM calculation methodology, which used to ponder a percentage of interest earnings assets available for sale into the formula, whereas it seemed to be a standard procedure to include ALL interest earning assets into this calculation, which is what we have adopted as of this quarter. Thus the equivalent calculations of NIM result in 4.8% for 2Q08 vs. 4.5% for 1Q08 and 4.9% for 2Q07.
 
Non Financial income reported an 8% QoQ drop mainly because the previous 1Q08 included relatively large extraordinary one-off gains realized through the sale of Credicorp’s VISA shareholding and also poor results in securities trading. In fact, fee income remained fairly strong though flat, while net gains on FX-transactions was up 53% QoQ given the strong FX-transactional activity fueled by the high volatility of the currency markets.
 
Though the insurance business reports a good quarterly net premiums growth of 9%, claims in the property and casualty sector continued too high this quarter due to the weather alterations which led to extremely strong torrential rains affecting the northern areas of the country, resulting in 56% higher claims. Life and Health businesses also reported higher provisioning for different though mainly conservative reasons, which led to lower results in the Life business and a loss for the quarter in the Health business. Thus, the insurance business operating income dropped 76%, leading to negative bottom line results.
 
3
 

On the cost side, total operating costs were up by a moderate 4% QoQ resulting in an improved efficiency ratio of 37.3% vs. 40.2% the previous quarter and 46.2% at 2007 year end. Such development is a reflection of a good cost control policy and some seasonality in costs. Having said this, we would like to point out that the expansion plans do continue full speed ahead and are a core part of Credicorp’s business strategy, and their impact on costs will be more noticeable in the second half of the year.
 
Another positive development is the continuing strength of portfolio quality, which remains healthy with a PDL/Loans ratio improving further to 0.75% from 0.8% last 1Q08. Total provisions net of recoveries also lowered to US$ 9.2 million from US$ 16.1 million last quarter, following a drop in the absolute volumes of past due loans and high coverage levels reached. Despite this, we still follow today a more conservative provisioning policy for our retail portfolio, increasing the internal minimum provisioning requirements in line with a more sophisticated risk assessment methodology.
 
These developments resulted in a somewhat distorted ROAE ratio for the quarter as in the previous quarter: 16.18% for 2Q08, 40.4% for 1Q08 and 22.9% for 4Q07. Adjusting this ROAE excluding the translation impact on income, the numbers would show a more stable evolution: 29.7% for 2Q08, 24.8% for 1Q08 and 23.2% for 2Q07. More importantly, ROAE for the 1H08 reaches this way 28.3%.

Credicorp – the Sum of its Parts
 
As we have experienced, going through a period of significant volatility can impact results in many different ways. The management of this volatility requires a series of timely financial decisions regarding our currency positions and investments in the different subsidiaries, and is an integral part of our business. Therefore, we are very pleased to see our real performance show once such impact has been fully neutralized, as has happened by the end of the 2Q08.
 
In fact, BCP reported a significantly depressed income contribution this 2Q08 of US$ 75.98 million, which included an approximate US$ 49.85 million translation loss, though revealing at the same time excellent core business expansion when excluding such translation loss, and confirming this way its expanding earnings generation capacity. This becomes clear when looking at BCP’s 1H08 superb contributions to Credicorp’s earnings of US$ 237.3 million, which reflects real business results given that the currency translation effect gets almost totally neutralized in the 2Q08. These earnings for the 1H08 represent a boost of ROAE to 42.15%, a truly extraordinary number.
 
(US$ Thousands)
  
2Q08
  
1Q08
  
2Q07
  
2Q08/2Q07
  
2Q08/1Q08
  
Jun 08
  
Jun 07
  
Jun 08/
Jun 07
  
Banco de Crédito BCP(1)
    
75,981
   
161,353
   
79,794
   
-5
%
  
-53
%
  
237,334
   
150,443
   
58
%
BCB
    
10,031
   
10,476
   
5,453
   
84
%
  
-4
%
  
20,507
   
10,258
   
100
%
Atlantic
    
5,195
   
5,673
   
4,366
   
19
%
  
-8
%
  
10,868
   
9,335
   
16
%
PPS
    
(7,214
)
  
2,342
   
5,134
   
-241
%
  
-408
%
  
(4,872
)
  
11,750
   
-141
%
Grupo Crédito (2)
    
882
   
9,807
   
(585
)
  
-251
%
  
-91
%
  
10,689
   
617
   
1632
%
Prima
    
(954
)
  
9,015
   
(1,264
)
  
-24
%
  
-111
%
  
8,061
   
(1,086
)
  
-842
%
Others
    
1,836
   
792
   
679
   
171
%
  
132
%
  
2,628
   
1,703
   
54
%
Credicorp and Others (3)
    
(1,178
)
  
(1,178
)
  
(1,307
)
  
-10
%
  
0
%
  
(2,355
)
  
(5,729
)
  
-59
%
Credicorp Ltd.
   
(1,723
)
  
(1,724
)
  
(1,765
)
  
-2
%
  
0
%
  
(3,446
)
  
(6,443
)
  
-47
%
Otras
    
545
   
546
   
458
   
0.19
   
0
%
  
1,091
   
714
   
53
%
Net income attributable to Credicorp
    
73,666
   
177,998
   
87,402
   
-16
%
  
-59
%
  
251,663
   
166,416
   
51
%
(1)
Includes Banco de Crédito de Bolivia.
(2)
Includes Grupo Crédito, Servicorp and Prima AFP
(3)
Includes taxes on BCP's and PPS's dividends, and other expenses at the holding company level.

BCP Bolivia, which is consolidated within BCP, reported a contribution of US$ 10 million for 2Q08, maintaining its high level despite a significant stagnation of investment activity in the country, which should eventually generate a notorious slowdown, reaching this way a total of US$ 20.5 million contribution for the 1H08.
 
4


ASHC reports a contribution drop of 8% QoQ reaching US$ 5.2 million for the 2Q08, but on a cumulative basis reports a 16% stronger earnings contribution of US$ 10.9 million for the period. Despite this 2Q08 blip, ASHC’s business is constantly expanding as a result also of the increasing wealth generation in the country, and represents a stable, no-risk investment.
 
As explained before, though the insurance business reports a good quarterly net premiums growth of 9%, claims in the property and casualty sector continued growing this quarter due to the weather alterations affecting the northern areas of the country with torrential rains. Further, the Life and Health businesses had strong increases in reserves, which added to the translations effects resulted in lower income at the Life business and a loss at the Health business. The combined impact of all these events led to the poor results and loss contribution to Credicorp of US$ -7.2 million for the quarter. This resulted in a US$ -4.9 million loss contribution for the 1H08. Thus, turning the P&C business into a profitable operation continues being PPS’s main focus, though it is proving to be troublesome. Following this objective, significant efforts are being made to develop the more massive and better predictable retail business and limit exposure to the wholesale insurance P&C business, as well as to improve the financial investment management to achieve better returns overall. This process will take more time than expected.
 
Finally, Prima’s business results were in line with expectations showing good operating profits, but the currency translation effect which improved Prima’s results in 1Q08, depressed its results this 2Q08 leading to a bottom line loss of US$ -0.95 million. Again, the dual currency market, the FX-volatility of the first half of 2008 and our US Dollar reporting generates such translation gains / losses. Net of these, 1H08 results for Prima reflect its performance more accurately, with a US$ 8 million earnings contribution to Credicorp for this 1H08. Prima’s business results are in fact better than expected following the cost reduction efforts of last year and business plan. Prima has established a dominant position in the market, capturing important market shares (31.4% of AuM, 33.7% of collections and 47.2% of voluntary contributions to the funds).
 
5


II. Banco de Crédito – BCP Consolidated

Summary 2Q08
 
Consolidated results for BCP this 2Q08 revealed an extraordinarily strong 17.8% QoQ growth of BCP’s net profits before the currency translations effect in 2Q08 reaching US$127.9 million, compared to US$108.5 million in 1Q08, continuing this way its expansion in assets and earnings generation.
 
However, as explained in the Credicorp section, the strong currency volatility experienced in the last 2 quarters impacted all our businesses’ reported results given our dual currency economy and resulting net currency positions. Thus, while in the first quarter a significant currency translation gain (+US$ 57.2 million) generated by the appreciation of the local currency boosted total net earnings reported in US Dollar IFRS accounting to US$ 165.8 million, this 2Q08 an equally strong currency translation loss (-US$ 49.8 million) was recorded depressing total reported net earnings to US$ 78 million for the quarter.
 
The excellent business performance of BCP is better revealed by its 1H08 results, since the translation effect is netted out within the semester given the fluctuation of the exchange rate (total currency translation impact for 1H08 of only +US$ 7.4 million). Thus, total net earnings for the first half of the year reached a superb US$ 243.8 million and BCP’s ROAE reached 42.15%, surpassing all expectations.
 
The continuing growth of BCP’s business is confirmed by the further expansion of total loans (measured as average daily balances for the quarter) which grew 3.3% QoQ. However, this reflects a slow down in loan growth from the 7.8% growth in 1Q08. Nevertheless, this growth differential also includes the impact of the currency fluctuation, which in the 1Q08 inflated loan growth numbers through the revaluation of the Soles and the conversion of the Soles loan portfolio into US Dollars, while in the 2Q08 the contrary effect occurred. It is noteworthy, that this 2Q08, and contrary to the prior quarter, the corporate loan portfolio remained basically unchanged, showing merely a shift from Soles to US Dollar borrowings, whereas the retail segment recovers its growth leading position and grew 6.2% QoQ, with Consumer, SME, mortgages and credit card also showing strong growth in that order.
 
The overdue/loans ratio remained at a very healthy 0.74%, and did not show any signs of deterioration in any business segment. Past due loans coverage remains at a robust 318.7%, up from last quarter’s 313.2%.
 
Net provisions fell 39.4% to a net total of US$10.3 million in 2Q08. This change resulted from reversions of gross provisions for Corporate and Middle Market Banking, which compensated stronger provisions in the Retail Banking segment, in particular consumer loans. Stronger Retail segment provisions are not related to a decline in portfolio quality, but rather respond to more conservative policies for that business segment. Likewise, provisions for country risk were also reversed in 2Q08, so gross provisions reached US$16.2 million, while recoveries reached US$6.0 million.
 
Core Earnings
 
Core Revenues
  
Quarter
  
Change
 
US$ 000
  
2Q08
  
1Q08
  
2Q07
  
2Q08/2Q07
  
2Q08/1Q08
  
Net interest and dividend income
    
188,359
    
172,611
    
141,146
    
33.4
%
  
9.1
%
Fee income, net
    
85,228
    
79,747
    
66,986
    
27.2
%
  
6.9
%
Net gain on foreign exchange transactions
    
31,389
    
19,971
    
12,778
    
145.7
%
  
57.2
%
Core Revenues
    
304,976
    
272,329
    
220,909
    
38.1
%
  
12.0
%
 
6


Core revenue generation was robust reaching 12% QoQ. Growth of 2Q08 net interest and dividend income is the main contributor to this and is the result not only from an increased loan portfolio, mainly retail, which resulted in a 7.0% rise in interest income, but also of larger interest from investments, despite their smaller volume in 2Q08 and dividend income. This growth combined with smaller growth of interest expenditure (up by only 5.7%), helped by earnings in rate and currency coverage operations, resulted in an overall excellent growth of net revenues from interests of 9.1% QoQ. 
 
Another element of core earnings, Fee income, continued on its rising trend and grew 6.9% QoQ mainly due to greater earnings from commissions for mortgages, SMEs, personal loans as well as fees on collections and payments. In addition, the volume of transactions, measured as a monthly average increased 9.0% during this quarter, from 32.4 million in 1Q08 to 35.3 million in 2Q08.
 
Finally, as a result of strong exchange rate volatility in the first half of this year, net earnings from exchange rate operations also increased significantly by 57.2% QoQ, due to the higher volume of monthly average transactions in 2Q08 as the network expanded and the dollar’s volatility increased against the Nuevo Sol, resulting in higher earnings from wider purchase/sale spreads. Altogether, these components resulted in a 12% QoQ total growth of revenues from operations.  
 
Earnings from sales of securities dropped a significant 83.6% during this quarter, from US$22.7 million to US$3.7 million in 2Q08, as a consequence of including windfall earnings from the sale of Visa Intl. shares in 1Q08, the basis for comparison. In addition, volatility in the local and international capital markets was reflected in lower earnings from the sale of securities and higher provisions related to price volatility of securities. This led to a 1.8% QoQ drop in total non-financial revenues.

Banco de Crédito and Subsidiaries
  
Quarter
  
Change
 
US$ 000
  
2Q08
  
1Q08
  
2Q07
  
2Q08/2Q07
  
2Q08/1Q08
  
Net interest and dividend income
    
188,359
   
172,611
   
141,146
   
33.4
%
  
9.1
%
Total provisions, net of recoveries
    
(10,280
)
  
(16,951
)
  
(6,885
)
  
49.3
%
  
-39.4
%
Non-financial income
    
122,347
   
124,563
   
88,827
   
37.7
%
  
-1.8
%
Operating expenses
    
(145,695
)
  
(138,335
)
  
(116,527
)
  
25.0
%
  
5.3
%
Net incomes before profit sharing and income tax
    
154,730
   
141,888
   
106,561
   
45.2
%
  
9.1
%
Worker's profit sharing and income taxes
    
(26,841
)
  
(33,365
)
  
(25,470
)
  
5.4
%
  
-19.6
%
Net income before translation results
    
127,889
   
108,523
   
81,091
   
57.7
%
  
17.8
%
Tranlation results
    
(49,850
)
  
57,249
   
970
   
-5239.2
%
  
-187.1
%
Net income
    
78,041
   
165,772
   
82,062
   
-4.9
%
  
-52.9
%
Net income/share (US$)
    
0.052
   
0.129
   
0.064
   
-19.0
%
  
-59.9
%
Total loans
    
9,197,916
   
8,837,689
   
6,989,841
   
31.6
%
  
4.1
%
Deposits and obligations
    
13,251,408
   
12,938,927
   
9,459,008
   
40.1
%
  
2.4
%
Shareholders equity
    
1,254,162
   
1,195,587
   
964,164
   
30.1
%
  
4.9
%
Net interest margin* (old methodology)
    
5.1
%
  
5.1
%
  
5.5
%
            
Net interest margin** (new methodology)
    
4.7
%
  
4.7
%
  
5.1
%
            
Efficiency ratio
    
43.8
%
  
47.5
%
  
49.3
%
            
Return on average equity
    
25.5
%
  
57.0
%
  
35.6
%
            
PDL/Total loans
    
0.7
%
  
0.8
%
  
1.0
%
            
Coverage ratio of PDLs
    
318.7
%
  
313.2
%
  
286.8
%
            
BIS ratio
    
13.5
%
  
13.8
%
  
10.7
%
            
Branches
    
285
   
277
   
249
             
ATMs
    
801
   
778
   
699
             
Agentes BCP
    
1,552
   
1,358
   
837
             
*
The old methodology for the calculation of NIM considered only 70% of the investments available for sale as part of interest earning assets.
**
The new methodology for the calculation of NIM considers 100% of the investments available for sale as interest earning assests.

Operating expenses grew 5.3% QoQ, mainly driven by rising personnel and overhead expenditures, which grew 1.9% and 4.4% QoQ, respectively. Both components are intimately related to the cost of an expanding BCP network, not reflected yet as initially planned in the first half this year. Twelve offices have opened to June, to a 285 total, while an additional 63 should open in the second half of 2008.
 
7


Thus, operating results show a significant improvement reaching a net result, including profit sharing and taxes but before currency translation effects 17.8% higher QoQ, of US$ 127.9 million vs. US$ 108.5 million in 1Q08.
 
However, as mentioned above, results from currency translation which impacts BCP's net Nuevos Soles position, resulted in a loss in 2Q08 as the local currency devalued, reversing the gains reported in 1Q08 as the currency revalued in that period. Results from translation in 1Q08 revealed a US$.57.2 million profit, while 2Q08 ended in a US$49.9 million loss.
 
As a consequence of the above results, BCP’s quarterly indicators included an excellent 43.8% efficiency index following larger revenues from operations, excellent portfolio quality with 0.75% delinquencies and 318.7% coverage ratio, and great profitability with 25.5% ROAE, including translation effects. When excluding such effect, BCP’s ROAE for the last periods reaches 41.8% for 2Q08, 37.3% for 1Q08 and 35.15% for 2Q07, which is a better reflection of the improving profitability of BCP’s operations.

II.1 Interest Earning Assets

As a consequence of regulations increasing legal reserves, liquid deposits at BCR rose 24.7%, contributing to the change in composition of interest earning assets in favor of lower yielding assets.

Interest Earning Assets
  
Quarter
 
Change
  
US$ 000
  
2Q08
  
1Q08
  
2Q07
  
2Q08/2Q07
  
2Q08/1Q08
  
BCRP and Other Banks
    
2,589,828
   
2,077,661
   
1,804,401
    
43.5
%
  
24.7
%
Interbank funds
    
1,620
   
1,468
   
17,133
   
-90.5
%
  
10.3
%
Trading Securities
    
55,240
   
38,538
   
53,569
   
3.1
%
  
43.3
%
Available For Sale Securities
    
4,747,724
   
4,928,259
   
2,858,817
   
66.1
%
  
-3.7
%
Current Loans, net
    
9,129,652
   
8,767,674
   
6,923,441
   
31.9
%
  
4.1
%
Total interest earning assets
    
16,524,064
   
15,813,601
   
11,657,361
   
41.7
%
  
4.5
%
 
Interest earning assets grew 4.5% QoQ mainly as a result of larger current account deposits in BCRP following the increase in bank’s reserve requirements implemented in April and May. This regulation was one of a series of monetary adjustments implemented during the 1H of the year in order to control inflation and resulted in a 24.7% increase in low yielding bank deposits.
 
Nevertheless, outstanding loans also showed a great dynamism during the quarter, increasing 4.1%. In addition, there was also a slight reduction in CB CD’s from the previous quarters, as reserve requirements absorbed liquidity. Finally, there was a remarkable increase in trading securities despite the high volatility of capital markets.
 
As a result of these movements, a re-composition of IEA in relation to June 2007 worked against our NIM, with our highest yielding assets, loans, dropping its share from 60% to 55% of total IEA. This was initially generated by the increased position in CB CD’s (other IEA) which despite the decrease showed during the 2Q, remained at a high level, because of its attractive after tax yield (given their tax shelter), and was further supported by the increase in bank deposits following the reserve requirements rise.
 
8



Loan portfolio
 
The bank’s loan portfolio this quarter continued to grow and reached a total US$ 9.130 million total balance as of June 2008, or 4.1% QoQ and 39.1% YoY growth. Likewise, a study of average daily loans’ growth reveals a 3.3% QoQ and 37.1% YoY growth.
 
As in the previous quarter, attention must be paid to the impact of the exchange rate which, contrary to 1Q08, depreciated significantly. The dollar’s revaluation depressed the reported growth of soles-denominated loans, which account already for 39% of the total portfolio measured by average outstanding balances for the quarter. Thus, reported figures in US Dollars underscore the strength of the Bank’s growth.
 
In 2Q08, even including this currency exchange impact on growth numbers, Retail Banking showed the greatest strength by recording a total US$ 3,298 million daily balance and 6.2% QoQ and 49.5% YoY growth, continuing on the consistent expansion trend of recent years. Within Retail Banking, the Consumer segment stands out, after 14% QoQ and 79.2% YoY growth, followed by the SME segment, which expanded 6.1% QoQ and 64.8% YoY. Home and credit card loans grew 3.9% and 2.8% QoQ, and 30.2% and 43.6% YoY, respectively.
 

9


 
   
 
Middle Market Banking also performed strongly this quarter growing at 5.7% QoQ, while annually it expanded 29.6%.
 

Corporate Banking, on the other hand, performed less strongly than in the previous quarter, reaching US$ 3,174.7 million which represent a slight reduction of -0.3% QoQ. This variation was a consequence of the normalization of portfolio growth after having had unusually high growing periods in a segment where BCP’s has already the highest market share, and a decision to be rigorous in transferring higher funding costs. Consequently, given the strong pressure on rates which characterize this 2Q, we became less competitive.
 
Furthermore, higher growth in the US$ denominated loan book continued during the quarter, because a market perception of a weaker dollar prevails, despite the reversion that took place in this period, especially in June, and completely offset the drop in the corporate local currency loan book.

 
10



Given the distortion generated by the currency fluctuations and the fact that BCP’s loan portfolio is in both currencies but reports in US Dollars, it is helpful to look at the evolution of the different loan portfolios by currency to see the real growth in each portfolio. The following chart intends to shed some light over such loan growth analysis…
 
   
Domestic Currency Loans
  
Foreign Currency Loans
  
   
(Nuevos Soles million)
  
(US$ million)
  
   
2Q07
 
1Q08
 
2Q08
 
YoY
 
QoQ
 
2Q07
 
1Q08
 
2Q08
 
YoY
 
QoQ
 
Corporate
    
2,121.2
    
2,783.7
    
2,363.4
    
11.4
%
  
-15.1
%
  
1,598.0
    
2,208.8
    
2,355.3
    
47.4
%
  
6.6
%
Middle Market
    
782.1
    
980.3
    
1,100.1
    
40.7
%
  
12.2
%
  
1,272.5
    
1,518.1
    
1,587.2
    
24.7
%
  
4.6
%
Retail
    
2,624.5
    
4,015.6
    
4,474.9
    
70.5
%
  
11.4
%
  
1,378.4
    
1,697.7
    
1,747.7
    
26.8
%
  
2.9
%
SME
    
1,026.8
    
1,393.8
    
1,532.5
    
49.2
%
  
10.0
%
  
338.0
    
539.2
    
559.6
    
65.5
%
  
3.8
%
Mortgages
    
440.9
    
891.9
    
1,036.6
    
135.1
%
  
16.2
%
  
810.2
    
876.7
    
876.6
    
8.2
%
  
0.0
%
Consumer
    
465.2
    
836.7
    
983.5
    
111.4
%
  
17.5
%
  
183.3
    
225.1
    
250.8
    
36.8
%
  
11.4
%
Credit Cards
    
691.5
    
893.3
    
922.3
    
33.4
%
  
3.3
%
  
46.8
    
56.8
    
60.8
    
29.7
%
  
7.0
%
                                                               
Consolidated total loans*
    
5,555.1
    
7,797.9
    
7,962.5
    
43.3
%
  
2.1
%
  
4,826.9
    
5,997.1
    
6,250.7
    
29.5
%
  
4.2
%

*
Includes work out unit, other banking and BCP Bolivia
 
 
•
The corporate segment grew 6.6% in foreign currency, accounting for 74% of loans for that segment. The 15.1% QoQ drop of the Nuevos Soles-denominated portfolio results from reduced demand for this currency caused by dollar volatility during this quarter and greater demand for dollars. The combined impact on the corporate loan book resulted in a basically flat performance.
 
•
The Middle Market segment, which has 81% of its portfolio in foreign currency loans, grew a moderate 4.6% in this currency, but sustained a strong 12.2% growth in local currency as well, in line with projections.
 
•
The Retail portfolio has approximately 50/50 split between the two currencies, and showed a very strong 11.4% quarterly growth of soles-denominated loans, while dollar loans grew by only 2.9%.

Market Share
 
BCP’s market share of loan remains strong despite strong competition characterized by the arrival of new international financial organizations and the already strong bank positioning. Thus, BCP accomplished a 31.5% share to June 2008, slightly below its 32.2% share in December 2007. The drop is accounted for by a rising position of the 3rd and 4th competitors from December 2007 to June 2008.
 
Furthermore, market shares for the corporate and middle market sectors continue revealing BCP’s solid positioning, reaching 46% and 34%, respectively, as of May 2008. These reflect, however, a minor growth in both segments, as a consequence of the strong competition.
 
Market shares in the retail market had mixed results during this quarter. Consumer loans were up by 0.8% reaching 17.9%, while Credit Cards and SME decreased 0.1% and 0.7%, respectively, reaching 18.6% and 17.8%. However, mortgages increased 0.1% to 40.2% consolidating its strong position.

Dollarization
 
The de-dollarization of BCP’s assets continued this 2Q08. The Nuevos Soles component of the total portfolio reached 32.8%, a small 0.3% increase since December 2007. The de-dollarization in the financial system also continued, and reached 41% in domestic currency and 59% in foreign currency last quarter.
 
11


II.2 Deposits and Mutual Funds

Deposits grew 2.4% QoQ and 40.1% YoY and remain as the main funding source to sustain loan growth. In addition, BCP’s mutual funds grew 10.9% QoQ.

Deposits and Obligations
  
Quarter ended
  
Change
  
US$ (000)
  
2Q08
  
1Q08
  
2Q07
  
2Q08/2Q07
  
2Q08/1Q08
  
Non-interest bearing deposits
    
2,905,401
   
2,965,756
   
2,316,573
   
25.4
%
  
-2.0
%
Demand deposits
    
966,662
   
761,123
   
1,220,352
   
-20.8
%
  
27.0
%
Saving deposits
    
2,603,344
   
2,749,983
   
2,040,264
   
27.6
%
  
-5.3
%
Time deposits
    
5,740,312
   
5,543,993
   
3,012,079
   
90.6
%
  
3.5
%
Severance indemnity deposits (CTS)
    
969,594
   
859,630
   
836,817
   
15.9
%
  
12.8
%
Interest payable
   
66,095
   
58,442
   
32,923
   
100.8
%
  
13.1
%
Total customer deposits
    
13,251,408
   
12,938,927
   
9,459,008
   
40.1
%
  
2.4
%
Mutual funds in Perú
    
2,315,170
   
2,088,039
   
1,776,232
   
30.3
%
  
10.9
%
Mutual funds in Bolivia
    
88,702
   
83,890
   
64,817
   
36.8
%
  
5.7
%
Total customer funds
    
15,655,279
   
15,110,857
   
11,300,057
   
38.5
%
  
3.6
%

After an unusual evolution of deposits in 1Q08, in particular for deposits in Nuevos Soles which reflected the significant flow of short term capitals to the financial system; in 2Q08 deposits returned to their normal evolution pattern and grew 2.4% QoQ. Although this is the main source of funds for loans, BCP increased its liabilities abroad by 24.8% QoQ. The increase in June 2008 corresponds mainly to funds granted to BCP from correspondent credit lines with local and foreign financial institutions and short-term funds in order to cover liquidity needs.
 
Savings deposits continued to shrink, while demand deposits, CTS accounts and time deposits grew, as a result of sharper market competition to raise funds and the customer’s greater sensitivity to interest earned by their deposits. Such growth occurs in a highly volatile capital market where funds continue to migrate towards such passive products. Nonetheless, deposits remain a low-cost source of funds as 57% of such deposits earned low or no interest. In addition, the retail segment is a clearly important source of funds, given that approximately 46% of deposits are originated in this segment.

 
12


Market Share
 
Despite strong competition for the public’s deposits, BCP increased its deposits share to 39.7% in June 2008, larger than its 38.8% share to December 2007.
 
BCP’s leadership is clear for all types of deposits, with its share in CTS deposits as the strongest, at 52.1% and well above our closest competitor’s, whose share reaches 19.8%. Demand deposits reach 46.6% in domestic currency and 39.9% in foreign currency while savings deposits reached 37.3% and 42.4% shares, respectively. Finally, time deposits’ shares in domestic and foreign currency were 24.3% and 43.4%, respectively.
 
Through its Credifondo subsidiary, BCP remains the leader in the mutual funds business, presently managing a US$ 2,315 million fund, with a 10.9% QoQ growth. This resulted in a 44.6% market share to June 2008, higher than last March’s 43.7%. Such increase is noteworthy given growth of this industry and increasingly customized funds that cater to investors’ goals and profiling. In April, BCP brought to market three new mutual funds in domestic currency for the conservative, balanced and moderate investor profiles.
 
The currency mix of BCP consolidated deposits reached 51% in foreign currency and 49% in domestic currency, driven by a volatile dollar and, partly, by the migration of the CTS accounts to the domestic currency.

II.3 Net Interest Income

As a result of 9.1% QoQ higher revenue from interest and despite increased legal reserves and the subsequent increase in BCRP liquidity, Net Interest Margin maintained its strong level and remained basically flat in 2Q08.

Net interest income
  
Quarter
  
Change
  
US$ 000
  
2Q08
  
1Q08
  
2Q07
  
2Q08/2Q07
  
2Q08/1Q08
  
Interest income
    
319,420
   
296,660
   
220,180
   
45.1
%
  
7.7
%
Interest on loans
    
228,892
   
213,932
   
164,101
   
39.5
%
  
7.0
%
Interest and dividends on investments
    
4,323
   
1
   
3,082
   
40.3
%
  
100
  
Interest on deposits with banks
    
15,170
   
16,924
   
15,497
   
-2.1
%
  
-10.4
%
Interest on investment securities
    
61,253
   
54,527
   
32,531
   
88.3
%
  
12.3
%
Other interest income
    
9,781
   
11,276
   
4,970
   
96.8
%
  
-13.3
%
Interest expense
    
131,061
   
124,049
   
79,035
   
65.8
%
  
5.7
%
Interest on deposits
   
98,104
   
90,233
   
57,927
   
69.4
%
  
8.7
%
Interest on borrowed funds
    
16,782
   
15,545
   
11,220
   
49.6
%
  
8.0
%
Interest on bonds and subordinated notes
    
13,378
   
11,480
   
8,165
   
63.8
%
  
16.5
%
Other interest expense
    
2,797
   
6,792
   
1,722
   
62.4
%
  
-58.8
%
Net interest income
    
188,359
   
172,611
   
141,146
   
33.4
%
  
9.1
%
Average interest earning assets
    
16,168,832
   
14,859,043
   
10,999,323
   
47.0
%
  
8.8
%
Net interest margin* (old methodology)
    
5.12
%
  
5.07
%
  
5.52
%
        
Net interest margin(1)** (new methodology)
    
4.66
%
  
4.65
%
  
5.13
%
            
*
The old methodology for the calculation of NIM considered only 70% of the investments available for sale as part of interest earning assets.
**
The new methodology for the calculation of NIM considers 100% of the investments available for sale as interest earning assests.
(1)Annualized
 
Interest Income grew 7.7% in 2Q08 as a consequence not only of growing loans which resulted in a 7.0% increase in interest, but also due to 12.3% higher interest from investments in securities, despite a smaller investments volume in 2Q08. Combined with more slowly (5.7%) growing expenditures for interests, thanks to earnings on rate and currency hedging operations, net revenues from interests grew 9.1% QoQ.
 
13
 
 
This evolution reveals better lending margins. In fact, loans (average balances) grow 3.3% this quarter, while interest income from loans grows 7% reflecting the stronger loan portfolio growth of the higher yielding retail sector, whereas interest expense grows only 5.7%, which reflects the less sensitivity of our liabilities to increasing interest rates. This would logically lead to improving NIM. However, the rise of legal reserves drove growth of liquid deposits at BCRP to a high 24%, and these earn low nominal rates and have a negative impact on NIM. Therefore, the significantly higher levels of low interest earning deposits (which provide a return of approximately 3% both in domestic and foreign currencies) inflated our average interest earning assets balance with low yielding assets and led to a basically flat NIM.

Furthermore, for transparency reasons, this quarter we have standardized our NIM calculation methodology, which used to exclude a percentage of interest earnings assets available for sale from the formula, whereas it seemed to be a standard procedure in the markets to include ALL interest earning assets into this calculation, which is what we have adopted as of this quarter.

Thus, with net interest income growing 9.1% QoQ, while average interest earning assets expanded 8.8% QoQ, the resulting NIM showed an improvement to 5.12% for 2Q08 from 5.07% the previous quarter, based on the calculation approach used up to date. However the equivalent calculations of Net Interest Margin under the new standardized methodology gives only a slight rise from 4.65% in 1Q08 to 4.66% in 2Q08.


II.4 Loan provisions
 
Though provisions in the consumer segment increased in line with the new policies, global Gross provisions fell in 2Q08 as such stronger provisions were attenuated by reversions in the wholesale portfolio and country risk. Furthermore, portfolio quality indicators continued improving.

14
 
 
Provisión for loan losses
  
Quarter ended
  
Change
  
US$ 000
  
2Q08
  
1Q08
  
2Q07
  
2Q08/2Q07
  
2Q08/1Q08
  
Provisions
    
(16,230
)
  
(25,867
)
  
(13,308
)  
22.0
%
  
-37.3
%
Loan loss recoveries
    
5,951
   
8,915
   
6,423
   
-7.3
%
  
-33.3
%
Total provisions, net of recoveries
    
(10,280
)
  
(16,951
)
  
(6,885
)
  
49.3
%
  
-39.4
%
Total loans
    
9,197,916
   
8,837,689
   
6,989,841
   
31.6
%
  
4.1
%
Reserve for loan losses (RLL)
    
217,569
   
219,295
   
190,413
   
14.3
%
  
-0.8
%
Bcp's Charge-Off amount
    
10,513
   
9,281
   
9,896
   
6.2
%
  
13.3
%
Past due loans (PDL)
    
68,264
   
70,015
   
66,400
   
2.8
%
  
-2.5
%
PDL/Total loans
    
0.74
%
  
0.79
%
  
0.95
%
            
Coverage
    
318.72
%
  
313.21
%
  
286.77
%
            

Gross provisions reached US$ 16.2 million in 2Q08, 37.3% lower QoQ, reflecting a reduction of total past due loans, which dropped from US$ 70 million to US$ 68 million by June 20008, and reserves for loan losses, which were also down from US$219.3 million in March 2008 to US$217.6 million. These reductions took place in both Wholesale and Retail Banking. Consequently, BCP’s past due ratio dropped again and reached only 0.74% while the coverage ratio improved further to 318.7% in 2Q08.

Despite continued excellent portfolio quality numbers, the application of a more sophisticated risk evaluation methodology resulted in improved provisioning policies for the retail segment, leading to increased provisioning levels for each segment within this sector. However, on the other hand, country risk provisioning reversals follow improved country performances and were effected this quarter.

In addition, recoveries dropped 33.3% because of reduced revenues from recovery of written off portfolio from previous years as a smaller downgraded portfolio stock is left.


II.5 Non Financial Income

Fee and FX income continued expanding at excellent rates, though in 2Q08, smaller revenues from securities sales (which included the sale of VISA shares in 1Q08) impacted total non financial revenues and resulted in a 1.8% QoQ total drop.

15
 
 
Non financial income
  
Quarter
  
Change
  
US$ 000
  
2Q08
  
1Q08
  
2Q07
  
2Q08/2Q07
  
2Q08/1Q08
  
Fee income
    
85,228
   
79,747
   
66,986
   
27.2
%
  
6.9
%
Net gain on foreign exchange transactions
    
31,389
   
19,971
   
12,778
   
145.7
%
  
57.2
%
Net gain on sales of securities
    
3,721
   
22,655
   
7,586
   
-50.9
%
  
-83.6
%
Other income
    
2,008
   
2,190
   
1,479
   
35.8
%
  
-8.3
%
Total non financial income
    
122,347
   
124,563
   
88,827
   
37.7
%
  
-1.8
%

Growth of 6.9% in fee income resulted mainly from larger revenues from commissions for mortgages, SMEs, personal loans and collections & payment commissions. In addition, the quarter’s monthly average transactions that generate fees grew from 32.4 million transactions to 35.3 million in 2Q08 or a 9.0% QoQ change.

Net gains on FX operations grew also a very strong 57.2%, following a higher volume of average monthly transactions in 2Q08, resulting from a growing network, and greater dollar/sol volatility which also allowed for larger purchase/sale spreads.

Net gain on sale of securities dropped sharply from US$22.7 million in 1Q08 to US$3.7 million in 2Q08. This is accounted for by the fact that 1Q08 included earnings from the sale of Visa Intl. stock, which resulted in a windfall earning amounting to US$17.9 million. In addition, lower earnings were made from the sale of securities, while valuation fluctuations resulted in larger QoQ losses given the unstable markets.
 
 
Quarter
  
Change %
  
N° de Transactions per channel  
Average 2Q08
  
Average 1Q08
  
Average 2Q07
  
2Q08/
2Q07
  
2Q08/
1Q08
  
Teller
    
9,732,229
    
9,091,066
    
8,541,465
    
13.9
%
  
7.1
%
ATMs Via BCP
    
5,940,702
    
5,376,097
    
4,745,857
    
25.2
%
  
10.5
%
Balance Inquiries
    
2,435,836
    
2,249,668
    
2,150,016
    
13.3
%
  
8.3
%
Telephone Banking
    
1,168,087
    
1,126,113
    
976,654
    
19.6
%
  
3.7
%
Internet Banking Via BCP
    
8,235,199
    
7,448,052
    
6,441,179
    
27.9
%
  
10.6
%
Agente BCP
    
1,561,047
    
1,248,203
    
656,986
    
137.6
%
  
25.1
%
Telecrédito
    
3,134,627
    
2,884,387
    
2,816,308
    
11.3
%
  
8.7
%
Direct Debit
    
345,684
    
341,265
    
283,255
    
22.0
%
  
1.3
%
Points of Sale P.O.S.
    
2,568,932
    
2,466,764
    
2,079,573
    
23.5
%
  
4.1
%
Other ATMs network
    
186,203
    
173,343
    
153,375
    
21.4
%
  
7.4
%
Total transactions
    
35,308,545
    
32,404,959
    
28,844,668
    
22.4
%
  
9.0
%

The above chart shows the higher monthly average figures for this quarter, particularly at BCP Agent, which is rapidly taking a significant position in business generation. Likewise, electronic channels evolved significantly, compared to the conventional teller channel.
 
   
Balance as of
  
Change
  
   
Jun-08
  
Mar-08
  
Jun-07
  
Jun. 08 / Jun. 07
  
Jun. 08/ Mar. 08
  
Branches
    
285
   
277
   
249
   
14.5
%
  
2.9
%
ATMs
    
801
   
778
   
699
   
14.6
%
  
3.0
%
Agentes BCP
    
1,552
   
1,358
   
837
   
85.4
%
  
14.3
%
Total
   
2,638
   
2,413
   
1,785
   
47.8
%
  
9.3
%

II.6 Operating Costs and Efficiency
 
BCP’s efficiency ratio improved in 2Q08 and reached 43.78%, after 12.0% growth in revenues from operations and only 3.2% QoQ higher operating expenditures (excluding “other expenditures”)

16
 
 
Operating expenses
  
Quarter
  
Change
 
US$ 000
  
2Q08
  
1Q08
  
2Q07
  
2Q08/2Q07
  
2Q08/1Q08
  
Salaries and employees benefits
    
71,871
   
70,553
   
56,865
   
26.4
%
  
1.9
%
Administrative, general and tax expenses
    
50,669
   
48,520
   
42,631
   
18.9
%
  
4.4
%
Depreciation and amortizacion
    
10,978
   
10,364
   
9,396
   
16.8
%
  
5.9
%
Other expenses
    
12,177
   
8,898
   
7,635
   
59.5
%
  
36.9
%
Total operating expenses
    
145,695
   
138,336
   
116,527
   
25.0
%
  
5.3
%
Efficiency Ratio
    
43.78
%
  
47.53
%
  
49.29
%
        

Salaries and employee benefits grew 1.9% resulting from a larger number of workers, mainly to provide for the larger network. In addition, QoQ growth includes the impact of the Dollar revaluation vis-à-vis the local currency in 2Q08. Consequently, increases in personnel expenditures (Soles denominated) are partly attenuated by translation to US Dollar IFRS accounting.

Overhead expenditures rose 4.4% QoQ, mainly as a result of larger marketing (advertising and marketing campaigns), expenses, as well as expenditure on consultants and advisors, maintenance and transportation. Again, these increases were partly mitigated by smaller spending on software, systems and IT. It is worthwhile mentioning that the network expansion plan and investment in IT support are evolving vigorously and will result in larger expenditures on such items in the second half.

Detailed administrative expenses and the corresponding quarterly changes appear below:

Administrative Expenses
  
Quarter
  
Change
  
US$ (000)
 
2Q08
 
%
  
1Q08
  
%
  
2Q07
  
%
  
2Q08/2Q07
  
2Q08/1Q08
  
Marketing
    
6,683
    
13
%
  
5,032
    
10
%
  
6,985
    
16
%
  
-4.3
%
  
32.8
%
Transportation
    
4,834
    
10
%
  
4,458
    
9
%
  
4,008
    
9
%
  
20.6
%
  
8.4
%
Systems
    
3,506
    
7
%
  
6,892
    
14
%
  
3,926
    
9
%
  
-10.7
%
  
-49.1
%
Maintenance
    
2,660
    
5
%
  
2,444
    
5
%
  
1,880
    
4
%
  
41.5
%
  
8.9
%
Consulting
    
2,485
    
5
%
  
2,207
    
5
%
  
2,525
    
6
%
  
-1.6
%
  
12.6
%
Communications
    
2,372
    
5
%
  
2,497
    
5
%
  
1,996
    
5
%
  
18.9
%
  
-5.0
%
Other expenses
    
14,682
    
29
%
  
14,195
    
29
%
  
12,337
    
29
%
  
19.0
%
  
3.4
%
Property taxes and others
    
4,876
    
10
%
  
5,487
    
11
%
  
4,512
    
11
%
  
8.0
%
  
-11.1
%
Other subsidiaries and eliminations, net
    
8,572
    
17
%
  
5,308
    
11
%
  
4,461
    
10
%
  
92.1
%
  
61.5
%
Total Administrative Expenses
    
50,669
    
100
%
  
48,520
    
100
%
  
42,631
    
100
%
  
18.9
%
  
4.4
%

“Other expenditures” increased 36.9% QoQ. This change is mainly accounted for by an increase in provisions related to the Stock Appreciation Rights program, resulting from the appreciation of the Credicorp share value in 2Q08. The stock appreciation was largely offset by a hedging transaction linked to the SAR program, though some reserves are required since the hedge is not perfect .

Thus, the moderate growth in operating costs (excluding others) of 3.2%, while operating income improved 12% resulted in a significant recovery of BCP’s efficiency ratio from 56.9% in 4Q07 to 47.5% in 1Q08, and 43.8% this 2Q08.

17
 
 
II.7 Shareholder's Equity and Regulatory Capital

Shareholders' equity
 
Quarter
  
Change
  
US$ 000
  
2Q08
  
1Q08
  
2Q07
  
2Q08/
2Q07
  
2Q08/
1Q08
  
Capital stock
    
439,474
   
364,706
   
364,706
   
20.5
%
  
20.5
%
Reserves
    
388,062
   
388,062
   
282,189
   
37.5
%
  
0.0
%
Unrealized Gains and Losses
    
70,819
   
90,285
   
66,066
   
7.2
%
  
-21.6
%
Retained Earnings
    
111,994
   
186,761
   
96,484
   
16.1
%
  
-40.0
%
Income for the year
    
243,814
   
165,772
   
154,719
   
57.6
%
  
47.1
%
Total shareholders' equity
    
1,254,162
   
1,195,587
   
964,164
   
30.1
%
  
4.9
%
Return on average equity (ROAE)
    
25.49
%
  
56.96
%
  
35.57
%
        

Net equity reached US$ 1.2 billion as of June 2008, or a 4.9% QoQ growth. Also, in 2Q08 ROAE was 25.49%, lower than the 56.96% figure for 1Q08. This wide changes are the consequence of the unusual translation effects in 2Q08, compared to 1Q08.

As of June 2008, the capital adequacy ratio for non consolidated BCP reached 13.5% (7.4 times), slightly below 1Q08’s 13.8% (7.3 multiple). Consequently, this indicator exceeds the system’s (9.1%) and our own even more conservative ceiling (11.5%).

A larger amount of earnings was retained in 2Q08 for capitalization with a view at further strengthening the Bank’s equity. Retained earnings reached US$134 million as of June 2008, reflecting an increase of 66.9% from last March08. In addition, it is worthwhile underscoring the lower market risk equity requirement resulting from smaller foreign currency exposure under the present circumstances and the appreciation of the local currency, which has reduced both exposure to and risk from foreign currency value fluctuations.
 
In addition, Tier I reached US$ 997.2 million. Risk weighted assets include US$ 38.3 million market risk, requiring a US$ 3.5 million equity. Total regulatory capital includes US$ 292 million of subordinated debt.
 
Regulatory Capital and Capital Adequacy Ratios
  
Quarter ended
  
Change
  
               
Jun-08/
  
Jun-08/
  
US$ (000)
  
Jun-08
  
Mar-08
  
Jun-07
  
Jun-07
  
Mar-08
  
Capital Stock, net
    
508,526
    
468,851
    
406,101
    
25.2
%
  
8.5
%
Legal and Other capital reserves
    
447,870
    
484,105
    
327,610
    
36.7
%
  
-7.5
%
Net income capitalized
    
134,862
    
80,816
    
-
    
-
    
66.9
%
Investment in Subsidiaries and others
    
171,869
    
152,839
    
143,135
    
20.1
%
  
12.5
%
Goodwill
    
8,098
    
5,440
    
5,815
    
39.2
%
  
48.9
%
Generic Contingency loss reserves
    
95,643
    
91,469
    
69,425
    
37.8
%
  
4.6
%
Subordinated Debt
    
292,164
    
307,422
    
138,982
    
110.2
%
  
-5.0
%
Total Regulatory Capital
    
1,299,099
    
1,274,385
    
793,169
    
63.8
%
  
1.9
%
                                 
Tier 1 (1)
    
997,226
    
951,913
    
656,328
    
51.9
%
  
4.8
%
Tier 2 (2)
    
301,873
    
322,472
    
136,840
    
120.6
%
  
-6.4
%
                                 
Risk-weighted assets (Credit risk)
    
9,598,381
    
9,168,514
    
7,063,276
    
35.9
%
  
4.7
%
Market Risk
    
3,480
    
8,893
    
29,430
    
-88.2
%
  
-60.9
%
Capital Ratios
                                
Regulatory Capital as a percentage of risk-weighted assets
    
13.48
%
  
13.75
%
  
10.74
%
            
Ratio of risk-weighted assets to Regulatory Assets
    
7.42
    
7.27
    
9.31
              
 
(1)  Tier 1 = Capital + Reserves + Net income capitalized - Goodwill - (0.5 x Investment in Subsidiaries)
(2)  Tier 2 = Subordinated Debt + Generic Contingency loss reserves - (0.5 x Investment in Subsidiaries)

18
 

 
III. Banco de Crédito de Bolivia
 
Bolivian Financial System
 
Total loans of the Bolivian banking system increased from US$ 3,183 million in December 2007 to US$ 3,448 million in June 2008, an increase of 8.3%. Loan quality of the banking system has maintained the improved performance registered during 2007. In 2007, PDL of the banking system reached a level of 5.6%, in March 2008 5.7% and in June 2008 it dropped to 5.2%. In addition, the coverage ratio of the banking system attained a level of 110.7% in June 2008 vs. 109.6% in last March.

With respect to the deposit side of the banking system, it increased from US$ 4,124 million in December 2007 to US$ 4,982 million in June 2008, an increase of 20.8%, which was mainly a response to the attractive inflation adjusted deposits implemented, which are in turn invested in also inflation adjusted deposits at the Central Bank. This growth was distributed in demand deposits, which grew 21.2%, saving deposits with 35.2% and time deposits with 9.5%.

BCP Bolivia - Results
 
In 2Q08, BCP Bolivia reached a net income of US$ 10.1 million, a slight decrease of 3.0% QoQ and a strong growth of 85.2% YoY, mainly as a result of higher net interest income (5.8% QoQ and 37.5% YoY) and higher non financial income.
 
The higher growth of NII is the result of higher average loan balances and interest rates, and at the same time, higher returns of the proprietary investment portfolio. Non financial income decreased in 2Q08 mainly because in 1Q08 the sale of VISA shares for approximately US$ 1.9 million boosted this income, so the base for comparison purposes was higher.

The conservative strategy on credit risk management has allowed BCP Bolivia to reach a past due loan ratio of 1.9% (1.7 % in 1Q08 and 2.7% in 2Q07) and coverage of 206.1% (227.8% in 1Q08 and 184.3% in 2Q07). ROAE of our Bolivian subsidiary was 51.5%, lower than 56.1% in March 2008. However, these ratios reveal a better performance than the Bolivian Financial System, which reported a 5.2% in PDL and 110.7% as coverage.

Assets and liabilities
 
Total loans as of June 2008 reached US$472.1 million, 1.0% higher than US$ 467.6 million corresponding to March 2008 and 10.3% higher YoY. The lower quarterly loan growth is the result of slower economic activity, as a consequence of political instability that reduces the possibility of higher investments. Thus, the economic deceleration is also reflected on the performance of the loan portfolio.

In 2Q08, The Retail Banking registered an increase of 6.3% QoQ and 25.4% YoY, which has an important impact on BCP Bolivia’s results, mainly because this segment represents 48.7% of the total loan portfolio and it is the segment with the highest margins within the Bank, whereas Corporate Banking and Middle Market Banking represent 46.2% of the loan portfolio with lower returns when compared to the Retail sector.

In the Retail segment, products that showed higher quarterly growth rates were SME with 14.2% and Personal loans with 11.0%. Both represented 25.2% of the retail segment. Mortgages, which account for 50.7% of the total loan portfolio, showed a growth rate of 2.0% QoQ and 5.8% YoY.

On the deposit side, BCP Bolivia registered an increase of 9.6% QoQ and 35.5% YoY. During 2Q08, growth of savings deposits with 15.3% QoQ and 49.7% YoY stands out, followed by demand deposits with 8.8% QoQ and 53.4% YoY, and time deposits with 1.5% QoQ and 2.1% YoY.

19
 

 
Shareholders’ net equity, shows an increase of 15.3% with respect to last March mainly because of non realized gains (84.6% QoQ) and due to a 97.0% increase of net income during the first half of the year.

Finally, BCP Bolivia has a market share of 13.5% in loans and 14.4% in deposits, positioning it as the fourth bank in loans and third in deposits for the whole banking system. It has also continued consolidating its position in strategic products and services, including the low risk income of non financial earnings. In addition, the bank has implemented the business model of Agente BCP, a plan that has the objective of increasing market penetration in those segments still not attended by the financial system. As of June 2008, BCP Bolivia had 69 Agentes BCP.

Banco de Crédito de Bolivia
  
Quarter
  
Change
  
US$ million
  
2Q08
  
1Q08
  
2Q07
  
2Q08/2Q07
  
2Q08/1Q08
  
Total loans
    
472.1
    
467.6
    
428.0
    
10.3
%
  
1.0
%
Past due loans
    
9.1
    
7.9
    
11.5
    
-20.7
%
  
15.4
%
Loan loss reserves
    
-18.8
    
-18.1
    
-21.2
    
-11.4
%
  
3.8
%
Total Assets
    
905.9
    
845.0
    
710.8
    
27.5
%
  
7.2
%
Deposits
    
768.0
    
701.0
    
577.0
    
33.1
%
  
9.6
%
Shareholders net equity
    
87.4
   
75.8
   
68.1
   
28.3
%
  
15.3
%
Net income
    
10.1
    
10.4
    
5.5
    
85.2
%
  
-3.0
%
PDL / Total loans
    
1.9
%
  
1.7
%
  
2.7
%
            
Coverage ratio of PDLs
    
206.1
%
  
227.8
%
  
240.1
%
            
ROAE
    
51.5
%
  
56.1
%
  
29.9
%
            
Branches
    
63
    
61
    
58
              
ATMs
    
176
    
166
    
143
              
Employees
    
1535
    
1503
    
1224
              

20
 
 
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IV. Atlantic Security Holding Corporation

ASHC
  
Quarter
  
Change %
  
(US$ Million)
  
2Q 2008
  
1Q 2008
  
2Q 2007
  
2Q08 / 2Q07
  
2Q08 / 1Q08
  
Net interest income
    
6.3
    
5.7
    
4.8
    
31.8
    
10.2
  
Dividend income
    
22.1
    
0.0
    
0.1
    
18,537.4
    
45,758.1
  
Fees and commissions from services
    
2.1
    
2.1
    
2.3
    
-7.5
    
0.6
  
Net gains on foreign exchange transactions
    
0.0
    
0.6
    
0.0
    
41.5
    
-92.8
  
Core Revenues
    
30.6
    
8.5
    
7.3
    
322.4
    
259.0
  
Total provisions, net of recoveries
    
-1.7
    
-2.0
    
-0.8
    
-115.2
    
12.9
  
Net gains from sale of securities
    
0.0
    
0.7
    
-0.2
    
118.4
    
-94.6
  
Other income
    
0.2
    
0.5
    
0.2
    
-3.4
    
-59.5
  
Operating expenses
    
-2.1
    
-2.2
    
-2.1
    
-2.4
    
-4.5
  
Net income
    
27.1
    
5.7
    
4.4
    
521.3
    
378.1
  
Net income/share
    
0.5
    
0.1
    
0.1
    
521.3
    
378.1
  
Total loans
    
151.2
    
146.4
    
107.3
    
40.8
    
3.2
  
Total investments available for sale
    
748.1
    
824.3
    
885.6
    
-15.5
    
-9.2
  
Total asset
    
1,384.0
    
1,490.7
    
1,606.7
    
-13.9
    
-7.2
  
Total deposits
    
1,139.4
    
1,227.9
    
1,387.0
    
-17.9
    
-7.2
  
Shareholder's equity
    
198.2
    
208.5
    
201.8
    
-1.7
    
-4.9
  
Net interest margin
    
2.00
%
  
1.66
%
  
1.37
%
            
Efficiency ratio
    
6.7
%
  
22.0
%
  
29.0
%
            
Return on average equity
    
53.4
%
  
9.4
%
  
8.3
%
            
PDL / Total loans
    
0.00
   
0.00
   
0.00
             
Cover ratio
    
0.9
%
  
0.9
%
  
1.2
%
            
BIS ratio
    
15.85
%
  
14.93
%
  
13.90
%
            

During this second quarter 2008 Atlantic Security Holding Corporation (ASHC) reported a net income of USD 27.1 million, which includes the dividend from its significant position of Credicorp shares (BAP’s treasury stock), resulting in distorted growth rates. Excluding this income, ASHC’s performance reveals a QoQ net income drop of about 8% to US$ 5.1 million, which reflects still a solid performance.
 
Thus, total Core Revenues excluding the extraordinary dividend income which is recorded once a year would be about US$ 8.5 million, i.e. flat on a QoQ comparison, though 16% higher on YoY basis.
 
Net interest income presented increases of 31.82% YoY and 10.2% on QoQ basis. Given the declining interest rate environment, this increase in net interest income reflects a favorable situation for the bank, considering its current short term structure of deposits (which allows quick downwards re-pricing) and medium to long term structure of assets with higher interests locked-in. In addition to this active management of its cost of funds through periodical adjustments to interest rates paid on deposits, a reduction in the migration of customer deposits balances to managed investment products has contributed to widening this income.
 
As a result of this active management and re-pricing flexibility, net interest margin (NIM) presents an increase from 1.66% to 2.00% during this 2QT08.
 
Commissions and fee income from asset management business remain stable at US$ 2.1 million reporting a slight increase of 0.6% when compared with 1QT08. When compared with 2QT07, these are however 7.5% lower.
 
Net gains on foreign exchange transactions increased in more than 41.5% YoY (from US$ 32 thousand to US$ 46 thousand), though quarterly figures drop 92.8% compared to 1QT08. These gains rise from the appreciation of foreign currency positions, mainly Peruvian Nuevos Soles, maintained by the bank against the US Dollar.
 
Net provisions reported in 2QT08 of US$ 1.7 million were 12.9% lower when compared to those reported in 1QT08, notwithstanding, these are more than 100% higher when compared YoY. These higher reserves in the first 2 quarters of the year are the result of recognizing the adverse market effect on the Bank’s proprietary investment portfolio, triggered by the current financial markets turmoil, mainly in United States where our portfolio is highly concentrated. Even though we have preferred to create these reserves, the investment portfolio maintains a significant concentration of 63% on investment grade securities indicating a high credit quality exposure.

21
 
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Realized gains on securities were only US$ 39 thousands, down from USD 700 thousand in 1Q08, but do reflect an improvement from the figure reported a year ago, which was a loss of US$ 211 thousand.
 
Efficiency ratio presented an important reduction from 22.0% on 1QT08 to 6.7% in this 2QT08. This is mainly the impact of the dividend income from Credicorp Ltd. Thus, excluding this dividend income, the efficiency ratio would be 23.5%, which is slightly higher than the one reported in 1QT08, but less than the 29.0% reported a year ago.
 
Asset levels decreased by 7.2% on QoQ due to the usage of available cash for outgoing customers’ funds and a migration of customer’ deposits to structured investment products managed off–balance sheet, motivated by higher yields offerings.

Interest Earning Assets
 
Interest earning assets reached US$ 1.254 MM, as shown in the table below. This figure dropped 7.6% QoQ, while a YoY drop of 15.1% was observed. The variation from 1QT08 is caused by the decrease on available cash, used to meet outgoing funds from customer’s accounts and the reduction of investment portfolio values.
 
The share of investment-grade securities in the investment portfolio is 75%, emphasizing ASB’s prudent investment policy of concentrating its portfolio in high credit quality investments. Although the size of the portfolio presents a reducing trend, its composition remains on similar levels to those of 2Q 2007.

INTEREST EARNING ASSETS*
  
Quarter
 
% Change
  
(US$ Million)
  
2Q 2008
  
1Q 2008
  
2Q 2007
  
2Q08 / 2Q07
  
2Q08 / 1Q08
  
Due from banks
    
405
    
437
    
531
    
-23.7
%
  
-7.4
%
Loans
    
151
    
146
    
107
    
40.8
%
  
3.2
%
Investments
    
698
    
774
    
838
    
-16.7
%
  
-9.8
%
Total interest-earning assets
    
1,254
    
1,358
    
1,477
    
-15.1
%
  
-7.6
%
(*) Excludes investments in equities and mutual funds.
 
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22
 
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Asset Management Business

Our Asset Management Business includes third party managed funds, customers’ deposits, and investments such as proprietary mutual funds and securities custody. The total of these funds has increased by 4.2% QoQ and 13.2% YoY. The observed increase is a result of the successful migration of customer deposits to managed funds and structured investment products which have increased 36% YoY and 10.2 QoQ As we concluded in the previous quarter, the management of third party funds in off-balance sheet accounts continues to command most new business. 

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23
 
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V. Prima AFP

V1. Recent evolution of the private pension market
 
In the 2Q, the private pension market evolved in a stable environment, similar to the 1Q as far as commercial competition is regarded with a total 68,000 transfers and 60,000 new affiliates. The system now has a total 4.2 million members.
 
Volatility of international markets and its impact on local financial markets affected the behaviour of funds managed by the system which, together with a weaker local currency, resulted in a drop in US Dollar terms of the total managed portfolio to US$21.1 billion or 4.5% less than in the previous period.
 
Regarding the system’s financial results, it earned US$59.3 million this quarter, or 29% more than one year ago. These earnings are mainly accounted for by the wider base of contributions resulting from the lively local economy and more formal jobs. Likewise, the appreciation of the sol compared to a year ago contributed to the improvement.
 
After operating expenses totalling US$45.2 million, the system’s earnings from operations reached US$14.1million. After accounting for other revenues and expenses, legal reserves and provisions for taxes and participations, the pension plan management system’s net earnings reached US$11.1million.

Private Pension Fund System: Main Indicators
  
 
  
 
  
At the end of the period:
  
2Q08
 
1Q08
 
2Q07
 
Affiliates (thousand)
    
4,210
   
4,156
   
3,993
 
% Change (1)
    
1.3
%
  
1.3
%
  
1.4
%
Sales force
    
1,930
   
2,031
   
4,199
 
Asset under management (US$ mm)
    
21,285
   
22,279
   
19,334
 
% Change (1)
    
-4.5
%
  
9.4
%
  
15.3
%
Income (US$ mm)
    
59.3
    
68.0
   
45.9
  
Operating Expenses (US$ mm)
    
45.2
    
44.1
   
46.4
  
Operating income (US$ mm)
    
14.1
    
23.9
   
-0.6
  
Net Income (US$ mm)
    
11.1
    
15.7
   
19.5
  
Source: Conasev, SBS:
(1) Quarter Variation
In local Peruvian accounting, legal reserves are included in the income statement as opposed to the IFRS There is no infomation for results adjusted to international financial reporting standards for the Total System. The first and third quarter include double collection
 
V2. Prima AFP
 
PRIMA’s commercial activity in the second quarter remained stable compared to the first quarter. Although the sales force was slightly smaller, productivity increased in terms of recruitment of new and transfer members. However, because PRIMA’s sales force was smaller than our competitors’ the net effect of transfers among AFP companies was a loss of four thousand members during the period under review.
 
Nonetheless, during the second quarter PRIMA succeeded in getting the largest contributions and market share for voluntary contributions in May1, for a total of close to 49% of all voluntary contributions to the system.
 
On the investment front, the volatile international financial markets through its impact on our local markets, affected returns from managed funds which are highly concentrated in local markets, leading to its deteriorated performance. To address this challenge, the company adopted a conservative portfolio approach looking for the best possible mix between local and foreign investments.
 
24
 
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PRIMA 2Q08
  
System 2Q08
  
Share 2Q08 %
  
PRIMA 1Q08
  
Share 1Q08 %
  
Affiliates (1)
    
1,035,703
    
4,209,831
   
24.6
%
  
1,029,814
   
24.8
%
New affiliations (2)
    
10,891
    
60,829
    
17.9
%
  
11,130
   
17.8
%
Fund under management US$ mm (1)
    
6,637
    
21,285
   
31.2
%
  
6,989
   
31.4
%
Collections US$ mm (3)
    
128
    
381
    
33.6
%
  
153
   
34.4
%
Voluntary Contributions US$ mm (4)
    
156
    
320
    
48.9
%
  
163
   
48.1
%
RAM US$ mm (5)
    
339
    
1,058
   
32.0
%
  
352
    
32.6
%
(1)
Source: Superintencia de Banca y Seguros
(2)
Accumulated to the Quarter
(3)
Accumulated to the Quarter. Include voluntary contributions
(4)
Stock level at the end of the period
(5)
Monthly remuneration retained, earnings base calculation estimated by PRIMA on average earning during the last 4 months excluding double collection effect, special collections and voluntary contributions fees.
 
Commercial results
 
PRIMA’s commercial activity in the second half continued in a relatively stable environment, as in the previous quarter.
 
Although new and transfer members this quarter was slightly lower than in the previous period, because of the smaller sales force, strong performance by the sales team translated into high recruitment among high average salary members, and ultimately total Monthly Insurance Compensation recruitment slightly above last quarter’s. Affiliations this quarter totalled 10,900 new members and 13,500 transfers, which offset the 17,500 clients lost. Moreover, the company attracted clients with larger funds, a feature directly related to their compensation level.
 
PRIMA funds under management totalled US$6,637 million or 31.2% of the entire system to June 2008, reflecting a stable share throughout this year.

Investments
 
Fluctuations in global markets impacted returns from investments in the period under review. However, it is worthwhile recalling that funds are managed with a long term view and seen from this standpoint, results are very favourable. In the last 24 months the company earned 28.24% yield in fund 1; 56.55% in fund 2, and 115.26% in fund 3, with all three funds ranked first in the market.
 
The following chart shows each fund’s share of the total portfolio under management to June 2008.

 
  
Jun-08
  
%
  
Mar-08
  
%
  
Fund 1
    
371
   
5.6
%
  
349
   
5.0
%
Fund 2
    
4,300
   
64.8
%
  
4,519
   
64.7
%
Fund 3
    
1,966
   
29.6
%
  
2,121
   
30.4
%
Total US$ mm
    
6,637
   
100.0
%
  
6,989
   
100.0
%
Source: Superintendencia de Banca y Seguros
 
According to the PF rules, the Central Reserve Bank of Peru raised the limit to foreign investment to 20%; while the Superintendencia de Banca Seguros listed new investment securities allowing more investment opportunities for the pension fund system.
 
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Financial results
 
Revenues:
 
PRIMA’s revenues in 2Q08 totalled US$15.9 million, above estimates and explained by a wider company revenue base that has increased revenues since the beginning of 2008. It is important to remember that, contrary to the 1Q08, in the 2Q08 Prima does not have the positive impact on revenues of the double collections related to the extraordinary Christmas “gratificaciones” (the company’s revenues are typically 60% to 70% higher in the months of January and August following the extraordinary additional month’s salary paid in accordance to Peruvian labour laws in July and December). Thus, discounting that effect, revenues in the 2Q08 are similar to those in the 1Q08, and compared to the 4Q07 (which does not have that extraordinary income either), 2Q08 revenues increased 10%.
 
Company revenues are related to the compensation of members who pay in monthly into the pension fund system, and according to estimates based on publicly available information about the pension administration companies’ revenues and management fees, in the second quarter PRIMA’s compensation revenue base was the system’s highest, while it retained a robust 32% market share.
 
Voluntary contributions grew slightly in 2Q08 quarter over quarter as a consequence of higher return rates. However the depreciation of the local currency reduced the dollar denominated balance. Still managing voluntary contributions has been a significant source of company revenues.

 
  
PRIMA Jun-08
  
Total System Jun-08
  
Prima % Share
  
Income (1)
    
5.08
    
18.69
    
27.2
%
Administrative Fees
    
1.5
%
  
n.a.
      
RAM estimated base (2)
    
339
    
1,058
    
32.0
%
PRIMA AFP estimates. In accordance to local public infomation, (CONASEV)
(1) Average income from the last four month, excluding special collections and voluntary contribution fees
(2) RAM: Monthly Accumulated Salary

Expenditures:
 
In the second quarter this year the company kept its focus on containing operating expenses despite some increases in administration personnel costs by US$ 0.5 million. It also deferred some sales expenses which generate expenses by US$ 1.4 million more than in the first quarter.
 
As a consequence of the above, the quarter’s operating expenses reached a significant US$3.6million, as expected, leading to a net income before translation results of US$ 1.5 million. It is worthwhile recalling these results include expenses related to the amortization of assets identified in the Purchase Price Allocation which, added to the amortization and depreciation for property and IT investments, result in a total US$2.2 million for D&A over the period under review.
 
Nonetheless, exchange rate volatility implied for this 2Q08 a strong depreciation of the local currency and losses to the company for exchange rate differences, compared to the gains reported in 1Q08 as the local currency appreciated in that period. Therefore, the loss generated this way reached US$ 2.4 million, which contrasted sharply with the US$ 4.6 million gain reported the previous quarter.
 
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PRIMA AFP: Main financial indicators (US$ thousand) (1)
          
 
  
2Q08
  
1Q08
  
Change %
  
Income
    
15,860
   
19,053
   
-17
%
Administrative and sale expenses
    
(10,066
)
  
(9,209
)
  
9
%
Depreciation and amortization
    
(2,185
)
  
(2,138
)
  
2
%
Net operating income
    
3,609
   
7,706
   
-53
%
Other income and expenses, net
    
(1,497
)
  
(828
)
  
81
%
Workers' protif sharing and Income tax
    
(612
)
  
(2,526
)
  
-76
%
Net income before translation results
    
1,500
   
4,352
   
-66
%
Translation results and deferred liabilities
    
(2,454
)
  
4,663
   
-153
%
Net income (losses)
    
(954
)
  
9,015
   
-111
%
Total Assets
    
246,129
   
254,311
   
-3
%
Total Liabilities
    
108,286
   
116,534
   
-7
%
Equity
    
137,843
   
137,777
   
0
%
(1) (IFRS)
              

As a result of this, net earnings before the currency translation impact, reveal a business performance after provisioning for taxes and profit sharing with closer results in the 2 quarters: US$ 1.5 million earnings for 2Q08 compared better to 1Q08 when considering that the US$ 4.35 million reported includes US$ 2.3 million from the extraordinary income recognition from previous periods as explained last quarter and also the additional seasonal income for 1Q08 explained before.
 
However, including this currency translation loss, the company’s net result was a US$0.9 million loss.
 
When looking at 1H08 however, the annual cumulative result was strong with profits reaching US$8.06 million, or 200% above budget.
 
As a final note, at the end of the second quarter, the company’s assets were worth US$246.1 million, liabilities totalled US$108.3 million and net equity was US$137.8 million.
 
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VI. EL PACIFICO PERUANO SUIZA AND SUBSIDIARIES
 
VI. 1 PACIFICO GROUP
 
VI. 1.a Second Quarter results
 
Premium production by Pacifico Insurance Group (PGA) including general property and casualty insurance (PPS), life insurance (PV) and health insurance (EPS)] reached US$ 149.2 million in 2Q08, or 8.5% higher than IQ08 and 27.1% above 2Q07. This significant growth in premium over 2Q07 resulted in larger reserves which grew from US$ 17.4 million to US$ 25.9 million.

   
Quarter
  
Change
  
US$ mm
   
2Q08
 
 
1Q08
 
 
2Q07
 
 
2Q08/1Q08
 
 
2Q08/2Q07
  
Total Gross Premiums
    
149.2
   
137.5
   
117.4
   
8.5
%
  
27.1
%
Retained Premiums
    
125.2
   
110.2
   
91.4
   
13.6
%
  
37.0
%
Reserve Adjustments
    
25.9
   
18.6
   
17.4
   
39.4
%
  
49.4
%
Net Premiums Earned
    
99.3
   
91.6
   
74.0
   
8.4
%
  
34.1
%
 
Compared to 1Q08, General P&C Insurance led growth with a larger 16.9% production; life insurance grew 1.8% while contributions to EPS dropped 0.7%.
 
As in 1Q08, growth in General P&C Insurance resulted principally from larger risk underwriting in the personal lines, which grew 22.5% over 1Q08 and 56.7% compared to 2Q07, in line with a portfolio restructuring policy to accomplish greater fragmentation and atomization of claims.
 
PPS’s 2Q08 negative -US$ 11.7 million technical result, which is a significant deterioration vs. a small loss in 1Q08 (US$ 0.5 million) and 2Q07’s US$ 7.9 million earnings, is mainly explained by severe claims in the General Insurance (Fire, Technical and Car Segments) because of heavy rains in the first half, since rainfall on the western Andean slopes in Peru’s north was 94%, 68% and 38% higher than the historical averages for February, March and April, respectively.
 
Medical care was also impacted by more frequent claims and rising health care cost following the revaluation of the local currency in which medical costs are denominated and inflationary pressures.
 
In addition, claimed Rents for Life Insurance under the annuities, mandatory life insurance and SCTR, also increased, and there was a significant rise in reserves for inflation, related products (VAC) which rose from 3.93% in December 2007 to 5.71% in June 2008, in yearly-adjusted terms.

Quarterly financial revenues totaled US$ 24.2 million, or US$ 6.0 million more than in 1Q08 and US$ 5.7 million above those in 2Q07, principally as a consequence of larger PV investments and earnings realized in the stock exchange on PPS trading portfolio.

General expenses rose 1.9 million over 2Q07 mainly as a consequence of a stronger commercial ride and larger PV sale force. However, seen against 1Q08 a 2.2 % drop was accomplished.

In addition, as a consequence of local currency (sol) depreciation in 2Q08, a US$ 6.5 million translation loss was experienced, resulting from the net active position in soles held by the 3 companies and which amount for S/.223 million. Translation results cumulative to June are accounted for by the Nuevo Sol appreciation from January to April. However, this effect is reverted by the strong local currency depreciation in May and June.

PGA’s net results after minority interests in 2Q08 reached -US$ 9.5 million, a significant deterioration from 1Q08 earnings of US$ 3.1 million and 2Q07, when they reached US$ 6.8 million, resulting principally from increased claims during the period under review and the above mentioned translation effects and despite a lower overhead to net premium ratio than fell from 24.0% to 19.8%, and also from the above mentioned increased financial revenues.
 
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To May 2008, Pacífico Insurance Group (PGA) grew 27.1% while the overall market expanded by 23.9%. Such significant growth led to larger market share that rose from 33.3% in May 2007 to 34.2% in May 2008.
 
US$ Thousand
  
Net Earnings*
  
Ajustment for 
Consolidation
and Minorities
  
Total
Contribution 
to BAP
  
Period
  
PPS
  
PV
  
EPS
  
PGA
  
2Q07
    
2,263
    
3,931
    
585
   
6,779
   
(1,645
)
  
5,134
 
3Q07
    
(6,615
)
  
2,108
    
598
   
(3,908
)
  
948
   
(2,960
)
4Q07
    
(3,266
)
  
3,351
    
768
   
853
   
(208
)
  
645
 
1Q08
    
(121
)
  
2,544
    
797
   
3,093
   
(750
)
  
2,343
 
2Q08
    
(7,657
)
  
692
    
(2,759
)
  
(9,525
)
  
2,311
   
(7,214
)
Var % 2Q08/1Q08
    
n.a
    
-73
%
  
-446
%
  
-408
%
  
n.a
    
-408
%
Var % 2Q08/2Q07
    
-438
%
  
-82
%
  
-572
%
  
-241
%
  
n.a
    
-241
%
 
VI.2 PACIFICO GENERAL P&C INSURANCE (PPS)

Premiums in 2Q08 totaled US$ 77.3 million, 16.9% higher than 1Q08 and 17.1% higher than in 2Q07. Compared to 2Q07, growth resulted principally in the Car, Fire and Healthcare Business lines.

To diversify the risk portfolio and reduce volatility in results, a strategy was pursued to increase sales to individuals; results were encouraging and increased the premium production compared to 1Q08 and 2Q07 in 22.5% and 56.7% respectively.

To June 2008, and compared with a year before, personal insurance line grew 48.7%, while market grew 30.5% principally in the Car and Mandatory Car Accident Insurance (SOAT) business lines which grew 98.9% and 93.1%, while market expanded 58.2% and 6.2% respectively.

To 2Q08, net claims totaled US$ 45.9 million at 105.2% net earned claims (SNG) compared to 81.4% SNG in 1Q08 and 66.1% in 2Q07. This increase resulted mainly from increased claims in fire, healthcare and automobile premiums, with Fire recording the most severe claims. In 2Q08, intense rainfalls and landslides led to significant losses in agriculture, infrastructure and transportation. The following chart and graph show the increase in Peru’s north rainfall compared to 2007 and historical averages for the months of February, March and April.
 
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Such adverse natural catastrophe has mainly impacted claims in fire and Technical Insurance, further hurting the company’s corporate portfolio, where Peru’s largest companies hold their property insurance.

It is worthwhile mentioning that higher Automobile claims result principally from larger production and increased theft of high market value vehicles, as well as heavy vehicle overturns caused by rain in northern Peru.
 
Average rain flow in the northern zone of the Pacific Basin (mm), 2006-2008
 
                   
Change
  
Month
  
Historical
Average
  
2006
  
2007
  
2008
  
2008/Average
  
2008/2007
  
Change with respect
to the previous
month
  
January     81.9     102.2     107.5     93.4    
 14.1
    
-13.1
    
150.7
  
February
    
145.2
   
221.4
   
35.0
   
282.0
   
94.2
    
705.1
    
202.0
  
March
    
176.8
   
264.7
   
239.7
   
298.6
   
68.9
    
24.6
    
5.9
 
April
   
124.9
   
102.7
   
126.6
   
172.4
   
38.0
    
36.2
    
-42.2
  
May
    
43.7
   
15.7
   
40.1
   
32.6
 P/  
-25.5
    
-18.9
    
-81.1
  
June
    
15.0
   
29.8
   
2.4
                 
Source: Chart N°41 - Technical report N°05 May 2008 -Instituto Nacional de Estadística e Informática (INEI)
 
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However, since June measures to reduce claims in this line of business became increasingly effective.

In addition, Healthcare Insurance claims which account 30.5% of net company claims grew significantly because of higher local and international healthcare cost and increased reserved resulting from greater expected claims from a portfolio that expanded 16% in the first half.

Technical Results in 2Q08 were de -US$ 9.4 million comparing to positive results in 1Q08 reaching US$ 1.1 million and US$ 4.7 million in 2Q07. This drop resulted principally from the higher claims, described above.

In view of higher claims, the company has introduced a correction plan focusing on three initiatives: i) to reduce exposure to corporate business by increasing reinsurance assignments; ii) correcting healthcare deviations by increasing rates and reducing the related medical costs; and iii) continue strategies underway to contain claims in the automobile business line.
 
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Overhead reached US$ 9.8 million in 2Q08, 2.6% higher than in 1Q08 but 2.2% lower than in 2Q07. Comparing overhead as a percent of premiums shows 2Q08 results reached 22.5% of net premium earnings, lower than in 1Q08 and 2Q07, when 25.2% and 30.5% ratios were earned, respectively. Cost reduction strategies are currently deployed to reduce expenditure.

It is worthwhile mentioning than in June the main property and terrorism reinsurance contracts were renewed for July 2008 to June 2009, under favorable cost conditions and lower retention levels, despite discouraging outcomes during the prior period resulting from last August’s earthquake and severe claims in fire and technical insurance lines during the prior quarter.

The local currency’s depreciation in 2Q08 resulted in a translation loss reaching US$ 2mm, compared to profits earned in 1Q08 for US$ 1.7mm.

Net result for the period reached -US$ 7.7 million, lower than 1Q08’s – US$122 thousand and 2Q07’s US$2.3 million.

PPS’s market share in general insurance to June 2008 reached 34.8%, similar to June 2007’s. Strongest growth business lines were vehicles and mandatory car insurance, at 98.9% and 93.1%, respectively.

VI.3 PACIFICO LIFE
 
Premiums produced during this quarter reached US$ 44.8 million, 1.8% higher than in 1Q08 and 48.4% above 2Q07. Compared to a year ago, strongest performers were annuities, pension funds, individual life and credit life. Slight growth compared to a year ago is accounted for by individual and credit life insurance products.

Pacífico Vida
(US$ thousand)

 
  
Total Premiums
  
Change %
  
Products 
  
2Q08
  
1Q08
  
2Q07
  
1Q08
  
2Q07
  
Individual life
    
10,379
    
9,668
    
7,739
    
7.4
%
  
34.1
%
Individual annuity
    
11,175
    
11,988
    
7,617
    
-6.8
%
  
46.7
%
Disability & survivor ( Pension)
    
8,430
    
8,914
    
5,013
    
-5.4
%
  
68.2
%
Credit Life
    
4,837
    
4,199
    
2,208
    
15.2
%
  
119.1
%
Personal accidents
    
2,308
    
2,130
    
1,724
    
8.4
%
  
33.9
%
Group life (Law)
    
2,225
    
2,312
    
1,614
    
-3.8
%
  
37.9
%
Group life
    
2,744
    
2,636
    
2,936
    
4.1
%
  
-6.5
%
Limited workers compensation
    
2,698
    
2,155
    
1,333
    
25.2
%
  
102.4
%
TOTAL
    
44,796
    
44,002
    
30,184
    
1.8
%
  
48.4
%
 
Higher inflation has impacted Pacifico Life’s inflation-pegged Nuevos Soles liabilities that to June totaled the equivalent of US$ 190 million out of a total portfolio of about US$600 million. Higher inflation triggers automatic adjustment of related liabilities by creating technical reserves, while the supporting likewise inflation-pegged assets will only be adjusted in the subsequent month pursuant to regulations in force. In June this year, the impact of the above reached approximately US$ 1.5 million.

Claims in 2Q08 reached US$22.4 million, i.e. US$2.2 million more than in 1Q08 and US$9.0 million more than in 2Q07 mainly as a result of pension and annuity products that expanded following increased affiliations and a larger portfolio, respectively.
 
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Technical results of –US$3.5 million were lower than in 1Q08 (-US$1.9 million) and in 2Q07 when technical results were zero, due mainly to more numerous claims as already mentioned and greater purchase and sales costs.

Overhead reached US$7.5 million in 2Q08 or 48.8% more than in 2Q07 but no change from the previous quarter. This is again accounted for by the strong marketing effort to significantly expand the sales and distribution network in the medium term.

Net Earnings after minority interest reached US$0.7 million in 2Q08 compared to US$2.5 million in 1Q08 and 2Q07’s US$3.9 million, a consequence of greater cost of the portfolio under management, a negative US$2.3 million translation resulting from depreciation of the local currency, and an inflation-driven regulatory mismatch in adjusting annuity-related assets and liabilities in local currency. The mismatch will be made up for through a book entry next quarter.

A stronger sales force and new product launches increased market share to 27.7% in June, more than three percent point above the June 2007 24.3% share.

VI.4 PACIFICO HEALTH (EPS)
 
Total members’ contributions in 2Q08 reached US$28.2 million, or 30.4% more than in 2Q07 but slightly below 1Q08’s (-0.7%) , driven principally by contributions to regular health plans.

Claims in 2Q08 reached US$ 25.4 million, compared to US$ 25.5 million in 1Q08 and US$ 17.7 million in 2Q07.

SNG in 2Q08 reached 89.8%, less than 1Q08’s 91.0%, but higher than 2Q07’s 81.5%, a result of a real term increase in health care and related services’ costs, the negative impact of the local currency’s appreciation vis-à-vis the US dollar (since reserves are booked and kept in Nuevos Soles) and larger actuary reserves.

Technical results for this quarter reached US$1.1 million, higher than in 1Q08 (US$0.9 million) but lower than in 2Q07 (US$3.0 million). This reduction is accounted for by higher claims reserves.

Overhead totaled US$ 2.5 million, 10.9% less than in 1Q08 and slightly higher than in 2Q07 (+0.4%).

Translation expenses for this quarter reached US$2.2 million, as a consequence of the local currency’s depreciation and the corresponding impact on soles-denominated transactions, and subsequent technical reserves.

Net quarterly results reached – US$2.8 million, lower than in 1Q08 (US$0.8 million) and in 2Q07 (US$0.6 million). The drop is explained mainly by larger reserves as mentioned above.

Finally, to May 2008, the company’s market share reached 53.3%, less than May 2007’s 54.1%.
 
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VII. ECONOMIC OUTLOOK
 
Economic Activity
 
Peru’s economy grew 7.3% in May, one of the slowest rates so far this year (only lower than in March). This was the result partially of bank holidays decided by government for the European Union, Latin American and Caribbean EULAC meeting and higher than normal temperatures that impacted products from the farming and, in particular, the fisheries industries. Peru’s economy has expanded 9.8% over the last twelve months, driven on the demand side, by lively private and government investment and by industries linked to domestic demand, including construction and non-primary manufacturing. Construction grew +19.6% from June 2007 to May 2008 supported by projects like the G-1 El Platanal Hydropower Station in Cañete, the Pampa Melchorita liquefaction Plant in Pisco, the Underground Central Bus Station in Paseo de la Republica, in Lima, the Venezuela and Universitaria avenues loop, also in Lima, and others. Meanwhile, the non-primary manufacturing industry advanced +10.6% during the same period driven by larger output of capital and intermediate goods, reflecting a stronger manufacturing industry output as a consequence of gradually sliding tariffs. On the contrary, primary manufacturing growth has slowed down (+7.1%), impacted by a slow oil and by-products processing industry and also slower fishmeal and canned fish processing. Growth prospects for the coming months are encouraging, supported by lively domestic demand, although a gradual slowdown may still occur in 2008, spurred by continuous increases in the Central Reserve Bank’s benchmark rate and steeper legal reserve requirements in both local currency and US dollars as it pushes active market rates up to discourage consumption and, thereby, reduce upward pressures on prices.

Gross Domestic Product and Internal Demand
(Annualized percentage variation)
 
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Source: INEI
 
External Sector

In the last twelve months to May, the trade balance surplus reached US$ 7.8 billion or US$ 535 million lower than the surplus by 2007-end. This smaller amount results from a yearly adjusted 53.5% growth of imports (mainly inputs for industry and consumer goods), in view of higher oil quotations and steeper food prices, including wheat, soy and corn. These more than offset a 30.7% growth of exports. From June 2007 to May 2008, exports reached US$ 31.3 billion, with non-traditional exports growing slightly less (27.5%) than conventional foreign sales (31.6% up). Inputs imports grew 59.5% while capital goods imports expanded 49.4%. Consumer good inputs moved more slowly (only 43.9%). After adjusting for price effects, imports grew at an annually-adjusted 30.1% (31.8% at 2007-closing), reflecting a still powerful domestic demand drive. Finally, notwithstanding changes in monetary policy and dollars sales by Peru’s Central Bank, foreign currency reserves continued to grow and, by June, had reached a new US$ 35.5 billion record (US$ 27.6 billion by year end 2007).
 
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Exports and Imports
(Annualized percentage variation)
 
Credit Corp Logo
 
Source: BCRP
 
Prices and Exchange rate
 
To June 2008, cumulative inflation in Metropolitan Lima for the twelve months to date reached 5.7%, well above the 2% ± 1% inflation target fixed by the Central Bank, and the highest since the inflation target mechanism was introduced in 2002. Continued prices increases in recent months are mostly a result of higher food prices. Excluding this consumer good groups, inflation would have totaled only 2.0%. Nevertheless, it is worth underscoring food price rises were not only due to external pressures, which did significantly impact products with a high foreign component, such as poultry, vegetable oils or wheat flour, but also were clear in produce from local agriculture, such as fruits and vegetables, and which is a consequence of the worst agricultural campaign since 2003-2004. Against this background, BCR has increased its benchmark rate four-fold already in the last 7 months, each time by 25 base points, while simultaneously trying to push market rates up by requiring higher legal reserves for domestic and foreign currency deposits. BCR has discouraged the mass inflow of short term capital (which spiked in the first quarter this year) by requiring a 120% marginal legal reserve rate on local currency-denominated deposits by non-residents, a seemingly effective measure. However, this step also led to certain exchange rate volatility in recent months as the foreign rate approached S/. 3.00, after which the Central Bank started selling US dollars, pushing the US currency down to about S/. 2.84. The exchange rate closed at S/. 2.965 in June, reflecting an annually-adjusted appreciation of 6.4% (10.0% to July 21). Although in recent weeks the BCR has stayed away from the foreign currency exchange market, interventions from July 2007 to July 2008 reached US$ 13.9 billion (US$ 10.3 billion at the end of 2007).
 
34
 
Credit Corp Logo
 
Consumer price index
(Annual percentage variation)
 
Exchange Rate and purchases US$ BCRP
(S/. per dollar and US$ MM)
     
Credit Corp Logo
  
Credit Corp Logo 
    
Source: INEI, BCR
 
Fiscal Aspects
 
The central government’s tax receipts in the first half this year, excluding back income tax revenue, grew 13.9% compared to a year ago, while growth in June reached 12.0%. Tax collection grew despite two tariff reductions since October and a lower excise tax on fuels, as livelier domestic demand continued to drive growth. Public investment jumped both at central and local and regional governments’ levels, which may result in a lower government surplus than in 2007 (3.1% of GDP) despite larger tax collection.

Fiscal Income of the Central Government
(Annualized, expressed in thousand of millions of Nuevos Soles)
 
Credit Corp Logo

Source: Sunat
 
35
 
Credit Corp Logo
 
Banking System
 
Central Bank data to March shows dollar denominated loans in banking companies grew 46.6% annually (40.7% at the end of 2007). Part of the increase however is a consequence of a stronger Nuevo sol in recent months. In Nuevos Soles, bank loans grew 26.4% while by end 2007 they had increased 30.9%. Meanwhile, consumer loans grew the fastest annually (55.6% in February and 47.3% at end 2007), although commercial loans also experienced some advance (from 32.2% to 32.6%). Home loans dropped from 16.3% in December to 13.9% in February.

Deposits continued to rise and grew 25.7% in soles since February last year (24.2% at the end of 2007). Greater growth was noticed in time deposits, up 30.1%, though demand deposits also moved quickly, or at 25.8% also above average. Savings deposits grew in February at an annual 14.4%.

The banking system’s de-dollarization has speeded up so far this year, in particular dollar denominated deposits that at the end of 2007 made up 59.3% of the total, but fell to 51.9% by February. This trend is accounted for by the patterns followed by term deposits where dollar denominated liabilities fell from 65.7% to 54.7%, although smaller demand dollar denominated deposits were also noticed (a fall from 48.3% to 45.6%) as well as in savings deposits (from 56.7% to 52.2%). Dollar denominated loans have dropped to 60.5% of the total, down from 61.8% at the end of 2007, in particular because of behavior in the micro companies segment, where dollarization fell from 23.6% to 20.9% and in home loans where dollar denominated loans slipped from 80.2% to 78.1%. Over the same period dollar denominated commercial loans increased slightly, from 72.8% to 73.2%.

Interest rates have been stable or rising slightly in recent months, in line with the Central Bank’s objective to gradually slow down the growth of credit and overheating the economy. Rates charged by banks in local currency (TAMN) closed March at 23.9%, compared to 22.3% at the end of 2007, while the corresponding rate in dollars remained relatively stable and reached 10.3% at the end of the third quarter, compared to 10.5% at the end of 2007. The borrowing rates in Nuevos soles (TIPMN) and in dollars (TIPEX) closed March at 3.3% and 2.6% respectively, slightly above the 3.3% and 2.5% at the end of 2006

Main Financial Indicators

   
2006
  
2007
  
2008
  
   
Year
  
IQ
  
IIQ
  
IIIQ
  
IVQ
  
Year
  
IQ
  
GDP (US$ MM)
   
93,377
   
24,223
   
27,930
   
27,024
   
30,042
   
109,219
   
30,304
 
Real GDP (var. %)
   
8.0
   
8.5
   
8.1
   
9.0
   
9.8
   
8.9
   
9.5
 
GDP per-cápita (US$)
   
3,294
   
3.507
   
4.032
   
3.889
   
4.311
   
3.935
   
4,335
  
Domestic demand (var. %)
   
10.4
   
11.2
   
10.5
   
13.1
   
11.3
   
11.5
   
11.0
  
Consumption (var. %)
   
6.6
   
8.3
   
8.1
   
8.0
   
8.9
   
8.3
   
8.3
  
Private Investment (var. %)
   
26.3
   
17.0
   
22.6
   
27.9
   
23.1
   
22.8
   
23.3
 
CPI (annual change, %)
   
1.1
   
0.3
   
1.6
   
2.8
   
3.9
   
3.9
   
5.6
 
Exchange rate, eop (S/. per US$)
   
3.20
   
3.18
   
3.17
   
3.09
   
3.00
   
3.00
   
2.75
 
Devaluation (annual change, %)
   
-6.8
   
-5.2
   
-2.8
   
-5.0
   
-6.1
   
-6.1
   
-13.8
 
Exchange rate, average (S/. per US$)
   
3.27
   
3.19
   
3.17
   
3.14
   
2.98
   
3.12
   
2.89
 
Non-Financial Public Sector (% of GDP)
   
2.1
   
4.9
   
8.0
   
2.1
   
-2.4
   
3.1
   
4.5
  
Central government current revenues (% of GDP
   
17.3
   
17.1
   
20.1
   
17.4
   
16.9
   
17.9
   
18.1
  
Tax Income (% of GDP)
   
14.9
   
14.7
   
17.3
   
14.9
   
14.4
   
15.4
   
15.4
  
Non Tax Income (% of GDP)
   
2.4
   
2.4
   
2.8
   
2.5
   
2.5
   
2.5
   
2.7
  
Current expenditures (% of GDP)
   
12.2
   
11.5
   
14.0
   
11.4
   
12.9
   
12.5
   
10.4
  
Capital expenditures (% of GDP)
   
2.0
   
0.7
   
1.3
   
2.2
   
4.1
   
2.2
   
1.1
 
Trade Balance (US$ MM)
   
8,853
   
1,539
   
2,245
   
2,300
   
2,273
   
8,356
   
1,473
  
Exports (US$ MM)
   
23,750
   
5,747
   
6,741
   
7,594
   
7,874
   
27,956
   
7,735
  
Imports (US$ MM)
   
14,897
   
4,208
   
4,497
   
5,294
   
5,601
   
19,599
   
6,261
 
Current Account Balance (US$ MM)
   
2,456
   
92
   
368
   
500
   
544
   
1,505
   
-655
  
Current Account Balance (% of GDP)
   
2.6
   
0.4
   
1.3
   
1.9
   
1.8
   
1.4
   
-2.2
 
 
36
 
Credit Corp Logo
 
Company Description:
 
Credicorp Ltd. (NYSE: BAP) is the leading financial services holding company in Peru. It primarily operates via its four principal Subsidiaries: Banco de Credito del Peru (BCP), Atlantic Security Holding Corporation (ASHC), El Pacífico-Peruano Suiza Compañía de Seguros y Reaseguros (PPS) and Grupo Credito. Credicorp is engaged principally in commercial banking (including trade finance, corporate finance and leasing services), insurance (including commercial property, transportation and marine hull, automobile, life, health and pension fund underwriting insurance) and investment banking (including brokerage services, asset management, trust, custody and securitization services, trading and investment). BCP is the Company's primary subsidiary.

Safe Harbor for forward-looking statements:
 
This material includes “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. All statement other than statements of historical information provided herein are forward-looking and may contain information about financial results, economic conditions, trends and known uncertainties.

The Company cautions readers that actual results could differ materially from those expected by the Company, depending on the outcome of certain factors, including, without limitation: (1) adverse changes in the Peruvian economy with respect to the rates of inflation, economic growth, currency devaluation, and other factors, (2) adverse changes in the Peruvian political situation, including, without limitation, the reversal of market-oriented reforms and economic recovery measures, or the failure of such measures and reforms to achieve their goals, and (3) adverse changes in the markets in which the Company operates, including increased competition, decreased demand for financial services, and other factors. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

The Company undertakes no obligation to release publicly the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof, including, without limitation, changes in the Company’s business strategy or planned capital expenditures, or to reflect the occurrence of unanticipated events.
 
37
 
Credit Corp Logo
 
CREDICORP LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In US$ thousands, IFRS)
 
 
As of
  
June 08/
  
June 08/
  
   
June 2008
  
March 2008
  
June 2007
  
June 07
  
March 08
  
                       
Assets
                                
Cash and due from banks
                                
Non-interest bearing
    
535,737
    
585,618
    
516,676
    
3.7
%
  
-8.5
%
Interest bearing
    
2,624,343
    
2,195,174
    
2,041,200
    
28.6
%
  
19.6
%
Total cash and due from banks
    
3,160,080
    
2,780,792
    
2,557,876
    
23.5
%
  
13.6
%
                                 
Marketable securities, net
    
55,240
    
41,538
    
53,569
    
3.1
%
  
33.0
%
                                 
Loans
    
9,288,774
    
8,919,841
    
7,031,734
    
32.1
%
  
4.1
%
Current
    
9,219,561
    
8,848,671
    
6,964,320
    
32.4
%
  
4.2
%
Past Due
    
69,213
    
71,169
    
67,414
    
2.7
%
  
-2.7
%
Less - Reserve for possible loan losses
    
(218,888
)
  
(220,617
)
  
(191,747
)
  
14.2
%
  
-0.8
%
Loans, net
    
9,069,886
    
8,699,223
    
6,839,987
    
32.6
%
  
4.3
%
                                 
                                 
Investments securities available for sale
    
6,514,536
    
6,802,999
    
4,686,444
    
39.0
%
  
-4.2
%
Reinsurance assets
    
130,113
    
112,457
    
65,831
    
97.6
%
  
15.7
%
Premiums and other policyholder receivables
    
108,444
    
94,406
    
85,780
    
26.4
%
  
14.9
%
Property, plant and equipment, net
    
292,498
    
275,206
    
256,822
    
13.9
%
  
6.3
%
Due from customers on acceptances
    
52,358
    
49,637
    
46,331
    
13.0
%
  
5.5
%
Other assets
    
1,096,926
    
1,089,004
    
726,776
    
50.9
%
  
0.7
%
                                 
Total Assets
    
20,480,080
    
19,945,264
    
15,319,416
    
33.7
%
  
2.7
%
                                 
                                 
Liabilities and shareholders' equity
                                
Deposits and Obligations
                                
Non-interest bearing
    
2,913,157
    
2,875,990
    
2,339,402
    
24.5
%
  
1.3
%
Interest bearing
    
10,043,281
    
10,053,298
    
7,813,199
    
28.5
%
  
-0.1
%
Total deposits and Obligations
    
12,956,438
    
12,929,288
    
10,152,601
    
27.6
%
  
0.2
%
                                 
Due to banks and correspondents
    
2,955,428
    
2,439,363
    
1,685,689
    
75.3
%
  
21.2
%
Acceptances outstanding
    
52,358
    
49,637
    
46,331
    
13.0
%
  
5.5
%
Reserves for property and casualty claims
    
777,218
    
742,774
    
578,754
    
34.3
%
  
4.6
%
Reserve for unearned premiums
    
142,549
    
127,285
    
112,086
    
27.2
%
  
12.0
%
Reinsurance payable
    
21,410
    
24,444
    
25,024
    
-14.4
%
  
-12.4
%
Bonds and subordinated debt
    
801,145
    
743,065
    
504,948
    
58.7
%
  
7.8
%
Other liabilities
    
851,884
    
899,350
    
548,719
    
55.2
%
  
-5.3
%
Minority interest
    
130,584
    
139,378
    
130,111
    
0.4
%
  
-6.3
%
Total liabilities
    
18,689,014
    
18,094,584
    
13,784,262
    
35.6
%
  
3.3
%
                                 
Net Shareholder's equity
    
1,791,066
    
1,850,680
    
1,535,154
    
16.7
%
  
-3.2
%
                                 
Total liabilities and net shareholder's equity
    
20,480,080
    
19,945,264
    
15,319,416
    
33.7
%
  
2.7
%
                                 
Contingent Credits
    
7,452,138
    
6,066,208
    
4,393,139
    
69.6
%
  
22.8
%

38
 
Credit Corp Logo

CREDICORP LTD. AND SUBSIDIARIES
QUARTERLY INCOME STATEMENT
(In US$ thousands, IFRS)
 
 
Quarter
  
Change
  
Six months ended
  
Change
  
   
2Q08
  
1Q08
  
2Q07
  
2Q08/
2Q07
  
2Q08/
1Q08
  
June 2008
  
June 2007
  
June 08/
June 07
  
                                   
Interest income and expense
                                                  
Interest and dividend income
    
352,539
    
325,264
    
248,976
    
41.6
%
  
8.4
%
  
677,803
    
469,823
    
44.3
%
Interest expense
    
(135,554
)
  
(133,997
)
  
(89,671
)
  
51.2
%
  
1.2
%
  
(269,551
)
  
(171,659
)
  
57.0
%
Net interest and dividend income
    
216,986
    
191,267
    
159,305
    
36.2
%
  
13.4
%
  
408,253
    
298,163
    
36.9
%
Provision for loan losses
    
(9,235
)
  
(16,191
)
  
(6,090
)
  
51.6
%
  
-43.0
%
  
(25,426
)
  
(10,508
)
  
142.0
%
Non financial income
                                                  
Fee income
    
96,842
    
99,706
    
76,100
    
27.3
%
  
-2.9
%
  
196,548
    
150,176
    
30.9
%
Net gain on foreign exchange transactions
    
31,435
    
20,606
    
12,796
    
145.7
%
  
52.6
%
  
52,041
    
24,751
    
110.3
%
Net gain on sales of securities
    
6,006
    
24,310
    
14,644
    
-59.0
%
  
-75.3
%
  
30,316
    
32,590
    
-7.0
%
Other
    
5,685
    
7,522
    
4,486
    
26.7
%
  
-24.4
%
  
13,207
    
11,703
    
12.8
%
Total non financial income, net
    
139,967
    
152,144
    
108,026
    
29.6
%
  
-8.0
%
  
292,111
    
219,220
    
33.3
%
Insurance premiums and claims
                                                  
Net premiums earned
    
96,345
    
88,390
    
71,657
    
34.5
%
  
9.0
%
  
184,734
    
141,647
    
30.4
%
Net claims incurred
    
(30,890
)
  
(19,854
)
  
(14,017
)
  
120.4
%
  
55.6
%
  
(50,745
)
  
(27,556
)
  
84.2
%
Increase in cost for life and health policies
    
(62,529
)
  
(56,237
)
  
(38,363
)
  
63.0
%
  
11.2
%
  
(118,766
)
  
(77,451
)
  
53.3
%
Total other operating income, net
    
2,926
    
12,298
    
19,278
    
-84.8
%
  
-76.2
%
  
15,224
    
36,641
    
-58.5
%
Operating expenses
                                                  
Salaries and employees benefits
    
(90,928
)
  
(88,504
)
  
(74,385
)
  
22.2
%
  
2.7
%
  
(179,431
)
  
(143,364
)
  
25.2
%
Administrative, general and tax expenses
    
(59,584
)
  
(58,913
)
  
(47,981
)
  
24.2
%
  
1.1
%
  
(118,497
)
  
(91,825
)
  
29.0
%
Depreciation and amortization
    
(14,371
)
  
(13,733
)
  
(12,488
)
  
15.1
%
  
4.6
%
  
(28,103
)
  
(24,952
)
  
12.6
%
Other
    
(26,699
)
  
(23,010
)
  
(25,031
)
  
6.7
%
  
16.0
%
  
(49,709
)
  
(49,555
)
  
0.3
%
Total operating expenses
    
(191,582
)
  
(184,159
)
  
(159,886
)
  
19.8
%
  
4.0
%
  
(375,741
)
  
(309,695
)
  
21.3
%
Net Income before workers' profit sharing, income taxes and minority interest
    
159,062
    
155,359
    
120,633
    
31.9
%
  
2.4
%
  
314,421
    
233,821
    
34.5
%
Workers’ profit sharing
    
(1,868
 )   
(5,417
 )   
(2,874
 )   
-35.0
 %   
-65.5
 %   
(7,284
 )   
(6,636
 )   
9.8
 % 
Income taxes
 
 
(21,843
)
 
(33,912
)
 
(25,759
)
 
-15.2
%
 
-35.6
%
 
(55,755
)
 
(49,921
)
 
11.7
%
Minority interest
 
 
(175
)
 
(6,728
)
 
(6,324
)
 
-97.2
%
 
-97.4
%
 
(6,903
)
 
(14,220
)
 
-51.5
%
Net income attributed to Credicorp before translation result
 
 
135,176
 
 
109,303
 
 
85,676
 
 
57.8
%
 
23.7
%
 
244,478
 
 
163,043
 
 
49.9
%
Translation result
 
 
(61,510
)
 
68,695
 
 
1,728
 
 
-3660.0
%
 
-189.5
%
 
7,185
 
 
3,373
 
 
113.0
%
Net income attributed to Credicorp
    
73,666
    
177,998
    
87,403
    
-15.7
%
  
-58.6
%
  
251,663
    
166,416
    
51.2
%
 
 
39
 
Credit Corp Logo
 
CREDICORP LTD. AND SUBSISIARIES
SELECTED FINANCIAL INDICATORS
 
   
Quarter
  
Year ended
  
   
2Q08
  
1Q08
  
2Q07
  
June 2008
  
June 2007
  
   
 
  
 
  
 
  
 
  
 
  
Profitability
                      
Net income per common share (US$ per share)(1)
    
0.92
    
2.23
    
1.10
    
3.16
    
2.09
  
Net interest margin on interest earning assets (2)* (old methodology)
    
5.37
%
  
5.07
%
  
5.46
%
  
5.25
%
  
5.48
%
Net interest margin on interest earning assets (2)** (new methodology)
    
4.78
%
  
4.53
%
  
4.91
%
  
4.69
%
  
4.93
%
Return on average total assets (2)(3)
    
1.46
%
  
3.78
%
  
2.83
%
  
1.29
%
  
1.29
%
Return on average shareholders' equity (2)(3)
    
16.18
%
  
40.38
%
  
25.96
%
  
28.30
%
  
22.80
%
No. of outstanding shares (millions)(4)
    
79.8
    
79.8
    
79.8
    
79.8
    
79.8
  
                                 
Quality of loan portfolio
                                
Past due loans as a percentage of total loans
    
0.75
%
  
0.80
%
  
0.96
%
  
0.75
%
  
0.96
%
Reserves for loan losses as a percentage of
                                
total past due loans
    
316.26
%
  
309.99
%
  
284.43
%
  
316.26
%
  
284.43
%
Reserves for loan losses as a percentage of
                                
total loans
    
2.36
%
  
3.42
%
  
2.73
%
  
2.36
%
  
2.73
%
                                 
Operating efficiency
                                
Oper. expense as a percent. of total income (5)
    
37.34
%
  
40.29
%
  
42.16
%
  
38.74
%
  
42.32
%
Oper. expense as a percent. of av. tot. assets(2)(3)(5)
    
3.26
%
  
3.42
%
  
4.36
%
  
3.34
%
  
4.04
%
                                 
Average balances (millions of US$) (3)
                                
Interest earning assets
    
18,151
    
16,905
    
12,976
    
17,408
    
12,106
  
Total Assets
    
20,213
    
18,826
    
12,370
    
19,519
    
12,882
  
Net equity
    
1,821
    
1,763
    
1,347
    
1,792
    
1,378
  
 
(1)
Based on Net Income attributed to BAP. Number of shares outstanding of 79.8 million in all periods.
(2)
Ratios are annualized.
(3)
Averages are determined as the average of period-beginning and period-ending balances.
(4)
Net of treasury shares. The total number of shares was of 94.38 million.
(5)
Total income includes net interest income, fee income, net gain on foreign exchange transactions and net premiums earned.
Operating expense does not include Other expenses.
(6)
For holding's financial institutions.
(7)
Risk-weighted assets include market risk.
*
The old methodology for the calculation of NIM considered only 70% of the investments available for sale as part of interest earning assets.
**
The new methodology for the calculation of NIM considers 100% of the investments available for sale as interest earning assests.
 
40
 
Credit Corp Logo
 
BANCO DE CREDITO DEL PERU AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In US$ thousands, IFRS)
 
   
As of
 
Change %
  
   
June 08
  
March 08
  
June 07
  
June 08/
June 07
  
June 08/
March 08
  
   
 
      
 
  
 
  
 
  
ASSETS
    
         
   
   
 
Cash and due from banks
    
3,093,121
    
2,640,741
    
2,301,566
    
34.4
%
  
17.1
%
Cash and BCRP
    
2,716,842
    
2,304,499
    
1,848,191
    
47.0
%
  
17.9
%
Deposits in other Banks
    
367,693
    
330,662
    
431,090
    
-14.7
%
  
11.2
%
Interbanks
    
1,620
    
1,468
    
17,133
    
-90.5
%
  
10.3
%
Accrued interest on cash and due from banks
    
6,967
    
4,111
    
5,151
    
35.2
%
  
69.5
%
                                 
Marketable securities, net
    
55,240
    
38,538
    
53,569
    
3.1
%
  
43.3
%
                                 
Loans
                                
Current
    
9,129,652
    
8,767,674
    
6,923,441
    
31.9
%
  
4.1
%
Past Due
    
68,264
    
70,015
    
66,400
    
2.8
%
  
-2.5
%
Less - Reserve for possible loan losses
    
(217,569
)
  
(219,295
)
  
(190,413
)
  
14.3
%
  
-0.8
%
Loans, net
    
8,980,347
    
8,618,394
    
6,799,427
    
32.1
%
  
4.2
%
                                 
Investment securities available for sale
    
4,747,724
    
4,928,259
    
2,858,817
    
66.1
%
  
-3.7
%
Property, plant and equipment, net
    
232,509
    
217,746
    
197,980
    
17.4
%
  
6.8
%
Due from customers acceptances
    
52,314
    
49,594
    
46,220
    
13.2
%
  
5.5
%
Other assets
    
811,984
    
806,106
    
465,636
    
74.4
%
  
0.7
%
                                 
Total Assets
    
17,973,240
    
17,299,378
    
12,723,215
    
41.3
%
  
3.9
%
                                 
LIABILITIES AND SHAREHOLDERS' EQUITY
                                
                                 
Deposits and obligations
    
13,251,408
    
12,938,927
    
9,459,008
    
40.1
%
  
2.4
%
Demand deposits
    
3,872,063
    
3,726,879
    
3,258,797
    
18.8
%
  
3.9
%
Saving deposits
    
2,603,344
    
2,749,983
    
2,026,729
    
28.5
%
  
-5.3
%
Time deposits
    
5,740,312
    
5,543,993
    
3,317,527
    
73.0
%
  
3.5
%
Severance indemnity deposits (CTS)
    
969,594
    
859,630
    
820,026
    
18.2
%
  
12.8
%
Interest payable
    
66,095
    
58,442
    
35,928
    
84.0
%
  
13.1
%
                                 
Due to banks and correspondents
    
1,920,428
    
1,538,238
    
1,301,216
    
47.6
%
  
24.8
%
Bonds and subordinated debt
    
832,648
    
768,783
    
537,217
    
55.0
%
  
8.3
%
Acceptances outstanding
    
52,314
    
49,594
    
46,220
    
13.2
%
  
5.5
%
Other liabilities
    
662,279
    
808,248
    
415,391
    
59.4
%
  
-18.1
%
                                 
Total liabilities
    
16,719,077
    
16,103,791
    
11,759,051
    
42.2
%
  
3.8
%
                                 
NET SHAREHOLDERS' EQUITY
    
1,254,162
    
1,195,587
    
964,164
    
30.1
%
  
4.9
%
Capital stock
    
439,474
    
364,706
    
364,706
    
20.5
%
  
20.5
%
Reserves
    
388,062
    
388,062
    
282,189
    
37.5
%
  
0.0
%
Unrealized Gains and Losses
    
70,819
    
90,285
    
66,066
    
7.2
%
  
-21.6
%
Retained Earnings
    
111,994
    
186,761
    
96,484
    
16.1
%
  
-40.0
%
Income for the year
    
243,814
    
165,772
    
154,719
    
57.6
%
  
47.1
%
                                 
TOTAL LIABILITIES and NET SHAREHOLDERS' EQUITY
    
17,973,240
    
17,299,378
    
12,723,215
    
41.3
%
  
3.9
%
                                 
CONTINGENT CREDITS
    
7,452,651
    
6,071,114
    
4,070,415
    
83.1
%
  
22.8
%
 
41
 
Credit Corp Logo
 
BANCO DE CREDITO DEL PERU AND SUBSIDIARIES
QUARTERLY INCOME STATEMENT
(In US$ thousands, IFRS)

   
Three months ended
  
Change
  
Six month ended
  
Change
  
   
2Q08
  
1Q08
  
2Q07
  
2Q08/
2Q07
  
2Q08/
1Q08
  
Jun 08
  
Jun 07
  
Jun 08/
Jun 07
  
                                   
Interest income and expense
                                                  
Interest and dividend income
    
319,420
    
296,660
    
220,180
    
45.1
%
  
7.7
%
  
616,080
    
415,568
    
48.3
%
Interest expense
    
(131,061
)
  
(124,049
)
  
(79,035
)
  
65.8
%
  
5.7
%
  
(255,109
)
  
(151,133
)
  
68.8
%
Net interest and dividend income
    
188,360
    
172,611
    
141,146
    
33.5
%
  
9.1
%
  
360,972
    
264,435
    
36.5
%
Provision for loan losses
    
(10,280
)
  
(16,951
)
  
(6,885
)
  
49.3
%
  
-39.4
%
  
(27,231
)
  
(12,744
)
  
113.7
%
Non financial income
                                                  
Banking services commissions
    
85,228
    
79,747
    
66,986
    
27.2
%
  
6.9
%
  
164,975
    
129,455
    
27.4
%
Net gain on foreign exchange transactions
    
31,389
    
19,971
    
12,778
    
145.7
%
  
57.2
%
  
51,360
    
24,715
    
107.8
%
Net gain on sales of securities
    
3,721
    
22,655
    
7,586
    
-50.9
%
  
-83.6
%
  
26,376
    
16,796
    
57.0
%
Other
    
2,008
    
2,190
    
1,479
    
35.8
%
  
-8.3
%
  
4,198
    
4,117
    
2.0
%
Total fees and income from services, net
    
122,347
    
124,563
    
88,827
    
37.7
%
  
-1.8
%
  
246,909
    
175,083
    
41.0
%
Operating expenses
                                                  
Salaries and employees benefits
    
(71,871
)
  
(70,553
)
  
(56,865
)
  
26.4
%
  
1.9
%
  
(142,424
)
  
(108,167
)
  
31.7
%
Administrative expenses
    
(50,669
)
  
(48,520
)
  
(42,631
)
  
18.9
%
  
4.4
%
  
(99,189
)
  
(80,386
)
  
23.4
%
Depreciation and amortization
    
(10,978
)
  
(10,364
)
  
(9,396
)
  
16.8
%
  
5.9
%
  
(21,342
)
  
(18,819
)
  
13.4
%
Other
    
(12,177
)
  
(8,898
)
  
(7,635
)
  
59.5
%
  
36.9
%
  
(21,076
)
  
(17,373
)
  
21.3
%
Total operating expenses
    
(145,695
)
  
(138,335
)
  
(116,527
)
  
25.0
%
  
5.3
%
  
(284,030
)
  
(224,744
)
  
26.4
%
Net income before workers profit sharing and income taxes
    
154,732
    
141,888
    
106,562
    
45.2
%
  
9.1
%
  
296,620
    
202,029
    
46.8
%
Workers’ profit sharing
    
(2,473
)
  
(5,073
)
  
(3,216
)
  
-23.1
%
  
-51.3
%
  
(7,546
)
  
(6,397
)
  
18.0
%
Income taxes
    
(24,368
)
  
(28,292
)
  
(22,254
)
  
9.5
%
  
-13.9
%
  
(52,660
)
  
(43,194
)
  
21.9
%
Net income before translation result
    
127,891
    
108,523
    
81,092
    
57.7
%
  
17.8
%
  
236,414
    
152,438
    
55.1
%
Translation result
    
(49,850
)
  
57,249
    
970
    
-5238.0
%
  
-187.1
%
  
7,400
    
2,280
    
224.5
%
Net income
    
78,041
    
165,772
    
82,062
    
-4.9
%
  
-52.9
%
  
243,814
    
154,719
    
57.6
%
 
42
 
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BANCO DE CREDITO DEL PERU AND SUBSIDIARIES
SELECTED FINANCIAL INDICATORS

   
Three months ended
  
Three months ended
  
   
2Q08
  
1Q08
  
2Q08
  
Jan-08
  
Jan-07
  
   
 
  
 
  
 
  
 
  
 
  
Profitability
                                
Net income per common share (US$ per share)(1)
    
0.052
    
0.129
    
0.064
    
0.162
    
0.120
  
Net interest margin on interest earning assets (2)* (old methodology)
    
5.12
%
  
5.07
%
  
5.52
%
  
5.12
%
  
5.34
%
Net interest margin on interest earning assets (2)** (new methodology)
    
4.66
%
  
4.65
%
  
5.13
%
  
4.68
%
  
4.98
%
Return on average total assets (2)(3)
    
1.77
%
  
4.08
%
  
2.72
%
  
3.06
%
  
2.77
%
Return on average shareholders' equity (2)(3)
    
25.49
%
  
56.96
%
  
35.57
%
  
42.15
%
  
33.45
%
No. of outstanding shares (millions)
    
1,508
    
1,287
    
1,287
    
1,508.29
    
1,286.53
  
Quality of loan portfolio
                                
Past due loans as a percentage of total loans
    
0.74
%
  
0.79
%
  
0.95
%
  
0.74
%
  
0.95
%
Reserves for loan losses as a percentage of
                                
total past due loans
    
318.72
%
  
313.21
%
  
286.77
%
  
318.72
%
  
286.77
%
Reserves for loan losses as a percentage of
                                
total loans
    
2.37
%
  
2.48
%
  
2.72
%
  
2.37
%
  
2.72
%
                                 
Operating efficiency
                                
Oper. expense as a percent. of total income (4)
    
43.78
%
  
47.53
%
  
49.29
%
  
45.55
%
  
49.54
%
Oper. expense as a percent. of av. tot. assets(2)(3)(4)
    
3.03
%
  
3.19
%
  
3.61
%
  
3.30
%
  
3.72
%
                                 
Capital adequacy
                                
Total Regulatory Capital (US$Mn)
    
1,299
    
1,274
    
793
    
1,299
    
793
  
'Risk-weighted assets (US$Mn)
    
9,637
    
9,266
    
7,387
    
9,637
    
7,387
  
Regulatory capital / risk-weighted assets (5)
    
13.48
%
  
13.75
%
  
10.74
%
  
13.48
%
  
10.74
%
                                 
Average balances (millions of US$) (3)
                                
Interest earning assets
    
16,169
    
14,859
    
10,999
    
15,414
    
10,611
  
Total Assets
    
17,636
    
16,235
    
12,063
    
15,918
    
11,162
  
Net equity
    
1,225
    
1,164
    
923
    
1,157
    
925
  
 
(1)
Shares outstanding of 1,287 million is used for all periods since shares have been issued only for capitalization of profits and inflation adjustment.
(2)
Ratios are annualized.
(3)
Averages are determined as the average of period-beginning and period-ending balances.
(4)
Total income includes net interest income, fee income and net gain on foreign exchange transactions.
Operating expense includes personnel expenses, administrative expenses and depreciation and amortization (5) Risk-weighted assets include market risk assets
*
The old methodology for the calculation of NIM considered only 70% of the investments available for sale as part of interest earning assets.
**
The new methodology for the calculation of NIM considers 100% of the investments available for sale as interest earning assests.
 
43
 
Credit Corp Logo
 
EL PACIFICO-PERUANO SUIZA AND SUBSIDIARIAS
Chart 8
(in Thousand dollars)
 
   
Balance to and for the period
 
Sis month ended
  
   
Of three months ending of
  
   
30-Jun-07
  
31-Mar-08
  
30-Jun-08
  
Jun-07
  
Jun-08
  
   
2Q08
  
1Q08
  
2Q07
  
 
  
 
  
Results
                                
                                 
Total premiums
    
149,246
    
137,491
    
117,407
    
221,871
    
286,737
  
Ceded premiums
    
24,021
    
27,294
    
26,021
    
47,540
    
51,315
  
Ajustment of reserves
    
25,936
    
18,606
    
17,366
    
28,260
    
44,542
  
Earned net premiums
    
99,289
    
91,591
    
74,020
    
146,070
    
190,880
  
Direct claims
    
109,334
    
97,066
    
61,099
    
117,998
    
206,400
  
Ceded claims
    
15,915
    
20,975
    
8,719
    
12,991
    
36,889
  
Net claims
    
93,419
    
76,091
    
52,379
    
105,007
    
169,511
  
Direct commissions
    
11,993
    
10,521
    
9,912
    
17,847
    
22,514
  
Commissions Received
    
2,499
    
2,443
    
1,743
    
3,555
    
4,942
  
Net commissions
    
9,494
    
8,078
    
8,168
    
14,292
    
17,572
  
Technical expenses
    
10,612
    
9,343
    
7,145
    
13,753
    
19,955
  
Technical results
    
2,553
    
2,457
    
1,557
    
3,668
    
5,010
  
Net technical expenses
    
8,059
    
6,886
    
5,588
    
10,085
    
14,946
  
Technical results
    
(11,684
)
  
535
    
7,885
    
16,686
    
(11,148
)
                                 
Financial Income
    
19,629
    
15,402
    
13,794
    
27,115
    
35,031
  
Gains on sale of Real State and Securities
    
4,336
    
2,507
    
4,604
    
12,805
    
6,843
  
Renting ( net of expenses)
    
744
    
728
    
664
    
1,278
    
1,473
  
(-) Financial expenses
    
540
    
425
    
572
    
1,001
    
965
  
Financial income , net
    
24,170
    
18,212
    
18,489
    
40,197
    
42,382
  
                                 
Salaries and benefits
    
10,427
    
11,186
    
9,409
    
18,927
    
21,613
  
Administrative expenses
    
9,224
    
8,913
    
8,341
    
16,317
    
18,137
  
Third party services
    
3,939
    
4,127
    
3,428
    
7,355
    
8,066
  
Sundry management expenses
    
1,913
    
1,802
    
1,509
    
3,071
    
3,714
  
Provisions
    
1,281
    
1,173
    
882
    
1,863
    
2,454
  
Taxes
    
1,096
    
1,163
    
995
    
1,730
    
2,259
  
Other expenses
    
996
    
648
    
1,527
    
2,298
    
1,644
  
General Expenses
    
19,651
    
20,099
    
17,749
    
35,245
    
39,751
  
                                 
Other income
    
(56
)
  
875
    
639
    
1,163
    
819
  
Translation results
    
(6,502
)
  
5,924
    
242
    
563
    
(578
)
Employee participation and income tax
    
(4,622
)
  
795
    
316
    
1,669
    
(3,827
)
                                 
Income before Minority Interest
    
(9,101
)
  
4,652
    
9,190
    
21,694
    
(4,449
)
Minority interest
    
424
    
1,559
    
2,411
    
6,180
    
1,983
  
                                 
Net income
    
(9,525
)
  
3,093
    
6,779
    
15,514
    
(6,432
)
                                 
Balance (end of period)
                                
                                 
Total Assets
    
1,280,650
    
1,257,642
    
1,044,462
    
1,044,462
    
1,280,650
  
Investment on Securities and Real State (1)
    
852,456
    
866,924
    
778,850
    
778,850
    
852,456
  
Technical Reserves
    
920,279
    
871,313
    
691,212
    
691,212
    
920,279
  
Net Equity
    
185,942
    
208,946
    
212,582
    
212,582
    
185,942
  
                                 
Ratios
                                
                                 
Ceded Premiums / Total Premiums
    
16.1
%
  
19.9
%
  
22.2
%
  
21.4
%
  
17.9
%
Direct claims / Total premiums
    
73.3
%
  
70.6
%
  
52.0
%
  
53.2
%
  
72.0
%
Net claims / Earned net premiums
    
94.1
%
  
83.1
%
  
70.8
%
  
71.9
%
  
88.8
%
Net commissions / Earnend net premiums
    
9.6
%
  
8.8
%
  
11.0
%
  
9.8
%
  
9.2
%
Commissions + technical expenses , net / Earnend net premiums
    
17.7
%
  
16.3
%
  
18.6
%
  
16.7
%
  
17.0
%
technical results / Earned net premiums
    
-11.8
%
  
0.6
%
  
10.7
%
  
11.4
%
  
-5.8
%
General Expenses / Earned net premiums
    
19.8
%
  
21.9
%
  
24.0
%
  
24.1
%
  
20.8
%
Netr incmoe / Total Premiums
    
-6.4
%
  
2.2
%
  
5.8
%
  
7.0
%
  
-2.2
%
Return on Equity (2)(3)
    
-17.9
%
  
6.1
%
  
13.7
%
  
15.1
%
  
-6.8
%
Return on Total Premiums
    
-6.4
%
  
2.2
%
  
5.8
%
  
7.0
%
  
-2.2
%
Net Equity / Total Assets
    
14.5
%
  
16.6
%
  
20.4
%
  
20.4
%
  
14.5
%
Increase in Technical Reserves
    
20.7
%
  
16.9
%
  
19.0
%
  
16.2
%
  
18.9
%
General Expenses / Assets (2)(3)
    
6.3
%
  
6.7
%
  
7.2
%
  
6.9
%
  
6.4
%
                                 
Comibined Ratio of PPS + PS (4)
    
128.6
%
  
115.6
%
  
109.0
%
  
108.3
%
  
122.4
%
Net Claims / Earned net premiums
    
99.2
%
  
85.5
%
  
72.2
%
  
73.0
%
  
92.6
%
General Expenses and Commissions / Earned net premiums
    
29.4
%
  
30.1
%
  
36.8
%
  
35.3
%
  
29.8
%
 
(1)
Real State Investment were excluded
(2)
Annualized
(3)
Average are determined as the average of period-beggining and period ending
(4)
Without consolidated adjustments
 
 
44
 
SIGNATURE
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Date: August 8, 2008

 
 
 
 
CREDICORP LTD.
 
 
 
 
 
 
 
By:  
/s/ Guillermo Castillo
 
Guillermo Castillo
Authorized Representative


 
FORWARD-LOOKING STATEMENTS


This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.