Executives: Cesar Rios – Chief Financial Officer Gianfranco Ferrari – Deputy Chief Executive Officer Reynaldo Llosa – Chief Risk Officer Walter Bayly – Chief Executive Officer Alvaro Correa – Deputy Chief Executive

Officer
Analysts: Ernesto Gabilondo – Bank of America Merrill Lynch Carlos Macedo – Goldman Sachs Jason Mollin – Scotiabank Carlos Rivera – Citi Marcelo Telles – Credit Suisse Domingos Falavina – JP

Morgan
Presentation:

Operator: [Call Starts Abruptly] Please be aware that each of your line will be in listen-only mode. At the conclusion of today’s presentation, we will open the floor for questions. At that time instructions will be given as to the procedure to follow if you would like to ask a question. With us today is Walter Bayly, Chief Executive Officer; Alvaro Correa, Deputy Chief Executive Officer; Gianfranco Ferrari, Deputy Chief Executive Officer; Reynaldo Llosa, Chief Risk Officer. And now it is my pleasure to turn the conference over to Credicorp's Chief Financial Officer, Cesar Rios.

Mr. Rios, you may begin.

Cesar Rios: Good morning and welcome to Credicorp's conference call on our earnings results for the first quarter of 2018. Before we review Credicorp's performance, I would like to take a few minutes to give you some background about the political environment in Peru. On March 21 former President, Pedro Pablo Kuczynski, presented his resignation.

On March 23rd, Martin Vizcarra took office as President until July 28, 2021 in a democratic process. We believe that the change in government does not imply a change in the economic model. Mr. Vizcarra has publicly stated that his government in economic terms will be focus mainly on first increasing tax revenues without changing income and value-added taxes, but reviewing tax extensions and increasing excise tax for a specific pro such as alcohol and tobacco. Second, reducing current expenditure.

Third, adjustment in El Nino reconstruction construction initiative to speed up project execution, moreover the government has announced that it will soon publish Law 24 0 0, which dictated civil preparations that companies involve in the Lava Jato case must be paid. And four promoting private investment, by reducing red tape. On May 02, the Congress granted a vote of confidence to the cabinet. Next page please to Slide number 2. Here I would like to discuss the international environment and evolution of the local economy in this context.

In chart number one, the figure showed a positive international environment, IMF forecast suggested that the global economy may expand at the highest rate in seven years. In chart number two, you can see that commodity prices has performed well in particular copper and zinc, which accounts for 36% of our exports. In chart number three, you can see that Peru’s GDP grow as well as the domestic demand have been improving slightly, however growth is still below our initial estimates for 2018. In chart number four, you can see that our trade balance also shows some improvement. Finally, the quota for the first anchovy fishing season of this year is the highest seen in the last seven years.

In this scenario, the fishing sector which effect in primary manufacturing and services will account for 0.4% points of the 3.5% real growth expected in GDP this year. Fishing exports are expected to grow for $1.5 billion to around $2 billion this year. Next page please. Let me comment on the evolution of the key interest rate that effect our businesses. First in the two charts at the top, we see the evolution of the three month LIBOR rate and the yield curve for the Peruvian sovereign bonds, these rates are important for our short and long-term funding respectively.

At the bottom of the page in chart number three, you can see that the Central Bank cut its reference rate were 100 basis points during 2017 and another 50 basis points in the first quarter of 2018. Finally, the orange line in the chart number four shows that loans expanded 7.6% year-over-year in the Peruvian financial system, while quarter end loan balances for Credicorp grew 8.8% year-over-year. Next slide please. Regarding to our lines of businesses, I would like to mention some important aspects. In the case of universal banking, first it has been faced pressure on margins due to aggressive competition in particular our corporate banking segment.

Second, the decision to improve the risk quality of our retail banking loan book has translated into risk adjusted pricing that put downward pressure on margins, but allow us to improve risk adjusted NIM. Third, we adopted the new requirements of IFRS9, which among other things set new guidance for measurement of allowances for loan losses. From January 1, 2018 onwards, we use our forward-looking expected loss model instead of the incurred loss models required under IAS 39, which represents an increase of S/320.7 million in the allowance for loan losses. All the aforementioned resulted in an increase of S/94.6 million in deferred income tax and a reduction of S/226.1 million in retained earnings. Fourth, we sold about S/177 million of non-performing loans under judiciary process that were provisioned and had real-estate collateral.

With regard to microfinance, Mibanco posted year-over-year improvement in several performance metrics such as loan growth, efficiency ratio and cost of risk, an important driver of such performance is the improvement in productivity of loan officers, which is in turn associated with a strategic project Cliente Soy that is focused on client segment and branch efficiency. In the case of insurance and pension funds, life insurance keeps posting good levers of profitability in particular after the pension fund reform hit our annuities business. It is recovering due to [indiscernible] that allows clients to personalize monthly coverage maturity initial date of disbursement and other key features of the products. Medical service continues improving its profitability. Profit in casualty faces challenges mostly in its car insurance business, which operates in a market that is contracting.

In terms of our pension fund management business, our subsidiary Prima AFP registers a level of new affiliates that is above our expectations due to the tender for new affiliates that we won in December 2016, which implied a reduction of fees. This shows their full effects throughout 2018. Furthermore due to changes in the accounting rule IFRS9, there is an impact related to the recognition to the P&L of the profitability generated with our safe requirement. Before that the profitability was booked against equity. In investment banking, we still face challenges in corporate finance and capital market due to market conditions particularly in Chile and Columbia.

Private banking offshore was negatively affected by the Amnesty for repatriation of capital, however, BCP captured around 80% of the total capital was repatriated at the country level. Now another page please, Slide number 5. Let’s review the most important figures and indicators that show Credicorp performance in the first quarter. Credicorp reported net income of S/1,038 million, which represented a 2.4% reduction quarter-over-quarter, but a 16.7% increase year-over-year. All this imply our return on average equity and average assets of 19.3% and 2.4% respectively.

Loan growth of 2.8% quarter-over-quarter and 7% year-over-year in average daily balances, which represents a recovery in loan growth considering the evolution posted through our 2017. Loan expansion quarter-over-quarter and year-over-year was due to better dynamics in retail banking and Mibanco, and an increase in Wholesale Banking market share although a lower rates; second, net provisions for loan losses decreased 15.9% quarter-over-quarter and 30.8% year-over-year, mainly as a result of improvement in risk quality achieved in SMEs, Mibanco and consumer financing business segments in the last three years. The aforementioned has been captured in the methodology of forward-looking expected loss required by IFRS9 as we will briefly explain later. Furthermore, the first quarter of 2017 posted a high level of provisions for loan losses due to the effect of El Nino phenomenon and Lava Jato case. As a result, the cost of risk decreased 28 basis points quarter over quarter and 84 basis points year-over-year.

Third, net interest income decreased quarter over quarter due to a contraction in interest income of loans, which was partially offset by the reduction in interest expenses. On a year-over-year basis, net interest income increased slightly due to loan growth of 7% in average daily balances. In this context net interest margin contracted 11 basis points quarter-over-quarter and 28 basis points year-over-year. This was mainly due to the significant reduction in wholesale banking spreads and our decision to improve risk quality of retail banking that we mentioned earlier. All of the aforementioned, together with the production cost of risk translated in an increase of 8 basis points quarter-over-quarter and 23 basis points year-over-year in the risk adjusted net interest margin.

Fourth, the efficiency ratio decreased 250 basis points quarter-over-quarter due to seasonality and operating expenses every four quarter, but increased 100 basis points year-over-year due to low growth in income generation. Finally in terms of capital ratios, our BCP standalone, BAS and Tier 1 ratios increased quarter-over-quarter after the annual general meeting of shareholders approved the capitalization of earnings as well as the increase in legal reserves in March 2018. In the other hand, the common equity Tier 1 ratio considered the most rigorous capital ratio, dropped to 11.22% due to the effect of the declaration of dividends in the last quarter. Slide 6 please, as you can see in the charts at the top left hand side, average daily loan balances expanded 3% quarter-over-quarter, this expansion was mainly driven by growth in wholesale banking loan book, both in corporate banking and middle market banking, which are segments with low margins and accounted for 68% of growth in loan volumes. It is awarded the year-over-year expansion of 7% in average daily balances, nevertheless market conditions represent a significant challenge in particular for wholesale banking.

Next page please, at the end of first quarter 2018, Credicorp finding a structure continues to reflect higher growth in deposits as a funding source, which have a positive impact in funding cost given that the expansion in deposits was mainly attributable to non-interest bearing demand deposits and saving deposits. Additionally, this funding source has replaced central bank instruments, which continued to decline in this quarter as they mature. In this context, Credicorp's funding cost contracted 9 basis points quarter-over-quarter and 7 basis points year-over-year. This reduction was primarily attributable to BCP standalone whose handing cost in local currency fell and offset the increase in funding cost in foreign currency. Finally, Credicorp's loan-to-deposit ratio decreased quarter-over-quarter and year-over-year to situate at 102.4% given the deposits expanded at a faster pace and total loans.

Slide 8 please, in terms of portfolio risk quality as you can see in the chart at the top of this page, coverage ratios of internal overview and nonperforming loans have increased quarter-over-quarter and year-over-year. The improvement in coverage ratio was mainly

due to: first, the one effect related to the adoption of IFRS9 requirements in January 1, 2018, which we explained earlier; second, the provision for loan losses net of recoveries made in the first quarter of 2018; third, the S/ 177 million of nonperforming loans. Moreover, as you can see in the chart at the bottom of this page, Credicorp's cost of risk at 1.48%. This level represents a contraction of 28 basis points quarter-over-quarter and 84 basis points year-over-year, which was due to the contraction quarter-over-quarter and year-over-year in provisions for loan losses. This was in turn achieved

due to: first, the enhancement of our risk adjustment pricing methodologies and risk rating model as well as some specific changes to credit policies in micro segments of our retail portfolio has led to significant improvements in risk quality of [indiscernible] all aforementioned has gradually showed at portfolio level.

In some cases, these measures imply that we reduce interest rates in order to improve risks and level of collateral; second, the improvement of risk quality in Mibanco loan book based on our improved risk-adjusted pricing, which we deployed with precise client segmentation. All aforementioned together with a slight and gradual recovery of several macroeconomic scenarios was also captured by the IFRS methodology. Next page please. With regard to net interest income, quarter-over-quarter analysis showed that it contracted 0.8% due to the reduction of 1.3% in interest income, which was in turn driven mainly by a decrease in interest income and loans and dividends on investment. The aforementioned was attenuated but a contraction of 2.6% in interest expenses, which reflect the reduction of funding cost as we explained earlier.

Although average daily loans balances expanded quarter-over-quarter, interest income on loans contracted because loan growth was mainly driven by wholesale banking, whose margin has been under pressure due to aggressive competition in corporate banking. In the year-over-year analysis, net interest income grew 1.8% due to an increase of 2.3% in interest income on loans, which offset expansion of 2.7% interest expenses. All of the aforementioned translated in a drop of 11 basis points quarter-over-quarter and 28 basis point year-over-year in net interest margin. However, a decrease in cost of risk allowed posting an improvement in risk-adjusted net interest margin on a quarter-over-quarter and year-over-year basis. Next page please, slide 10.

Credicorp's efficiency ratio decreased 250 basis points quarter-over-quarter, mainly due to the seasonality on the operating expenses every four quarters. This level usually represents the lowest level of each year on a quarterly basis. On year-over-year basis, the efficiency ratio increased 100 basis points and situated a 42.8%. This was due to lower growth in operating income than the operating expenses. The drop in operating income growth was due mainly to low expansion in net interest income while increasing operating expenses was the result of increasing salaries and employee benefits.

It is important to note that year-over-year reduction in Mibanco cost-to-income ratio was attributable to improvement in productivity of loan officer, which is in turn associated with the strategic project Cliente Soy that we explained earlier. I think that we can go to the guidance. As you can see for the full year 2018, we presented the guidance in the previous conference call. And now we are maintaining the guidance that continued facing challenges due to the competition and low economic growth, which we have compensated with the improvement in efficiency and risk management. With these comments, I would like to open the Q&A please.

Operator: Thank you. At this time, we will open the floor for questions. [Operator Instructions] Our first question comes from Ernesto Gabilondo with Bank of America Merrill Lynch.

Ernesto Gabilondo:

Gianfranco Ferrari:

Cesar Rios:

Ernesto Gabilondo:

Reynaldo Llosa:

Ernesto Gabilondo:

Operator: Thank you. Our next question comes from Carlos Macedo with Goldman Sachs.

Carlos Macedo:

Cesar Rios:

Carlos Macedo:

Cesar Rios:

Carlos Macedo:

Gianfranco Ferrari:

Carlos Macedo:

Gianfranco Ferrari:

Carlos Macedo:

Gianfranco Ferrari:

Carlos Macedo:

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

Jason Mollin:

Cesar Rios:

Jason Mollin:

Walter Bayly:

Jason Mollin:

Reynaldo Llosa:

Jason Mollin:

Gianfranco Ferrari:

Jason Mollin:

Gianfranco Ferrari:

Jason Mollin:
Unidentified

Company Representative:

Walter Bayly:

Jason Mollin:

Operator: Thank you. Our next question comes from Carlos Rivera with Citi.

Carlos Rivera:

Cesar Rios:

Carlos Rivera:

Walter Bayly:

Cesar Rios:

Carlos Rivera:

Walter Bayly:

Alvaro Correa:

Walter Bayly:

Alvaro Correa:

Walter Bayly:

Alvaro Correa:

Carlos Rivera:

Operator: Thank you.

Our next question comes from Marcelo Telles with Credit Suisse.

Marcelo Telles:

Gianfranco Ferrari:

Cesar Rios:

Marcelo Telles:

Gianfranco Ferrari:

Marcelo Telles:

Gianfranco Ferrari:

Marcelo Telles:

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

Domingos Falavina:

Cesar Rios:

Domingos Falavina:

Cesar Rios:

Domingos Falavina:

Cesar Rios:

Domingos Falavina:

Operator: Thank you. [Operator Instructions] At this time there are no further questions in the queue.

I would like to turn it over to Walter Bayly, CEO. Sir, go ahead.

Walter Bayly: Thank you. After a very disappointing growth for the country and for the financial system last year, it seems that this year both the country and the system again are poised for most robust growth. This of course in the back of a very positive international environment and a more stable political environment domestically.

This first quarter all of our businesses have performed well clearly with microfinance, particularly at Mibanco being the more – having the most outstanding results. Bright spots on the corporation again, microfinance, Mibanco and BCP risk and volumes. The weak spots of course the pressure on margins due to the intense competition of the domestic market, but as Gianfranco mentioned, we’re being very cautious and managing the risk, the NIM after risk. So we are focusing a lot in maintaining profitability of our businesses. The overall result for the quarter was a very healthy, 19.3 return on equity, which was not impacted as was mentioned by any non-recurring results.

We expect and hope that this sets the tone for the rest of the year, but particularly I think the topics that have been discussed the ones that will be a recurring throughout

the year: risk, volume and growth. Again, we’re very satisfied with this first quarter and hope that the remaining quarters of the year proves to be equally as good. With this we conclude the conference call and thank you all very much for attending this call and for your questions. Thank you and good bye.

Operator: Thank you.

Ladies and gentlemen, this concludes today’s teleconference. You may now disconnect.