Executives: Fernando Dasso - CFO Alvaro Correa - General Manager of Pacifico Vida Walter Bayly -

COO
Analysts: Carlos Macedo - Goldman Sachs Gian Costa - Itaú UBH Ernesto Gabilondo - Merrill Lynch Tito Labarta - Deutsche Bank Carlos Rivera - Citi Alonso Aramburu - BCG Domingos Falavina -

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

Fernando Dasso: Thank you.

I'm sorry for the release we have in our - because of the lines. I will begin in Page 2 again. Good morning, and welcome to Credicorp's conference call on our earnings results for the second quarter of 2016. Before we review Credicorp's performance in the second quarter, I would like to take a few minutes to review the Peruvian macroeconomic environment. After a close run off, Mr.

Pedro Pablo Kuczynski was elected President on June 5 over the next five-years period. The main economic proposal that aimed to achieve GDP growth of around 5% a year are the following; First, unlocking the main infrastructure projects. Second, rate base. Third, reducing the informal economy. Fourth, introducing tax changes such as the reduction of the VAT from 18% to 17% in 2017 and a special tax regime or SME enterprises among others.

However it's important to know that PPK holds a minority of PPK Congress and political negotiation will be key to determining the whole action that will actually be implemented. In this context, we still remain cautious and maintain our GDP growth estimate and for 2016 at 3.7% and 4.2% for 2017. And with regard to inflation, our estimated shares we will close 2016 are around 3% below our previous estimate of 2.5%. We expect the central bank to maintain its policy rate of 4.5% in the coming months. We have also revised our yearend exchange rate forecast from $2.50 ranges between $3.38 or $3.43 for the end of 2016.

In sum, the [indiscernible] but we still need to wait to see which all the measures are actually implemented. Next page please. Credicorp reported net income of solid $874 million on the second quarter of 2016, which was centered on ROE and ROA of 20.4% and 2.2% respectively. After incurring the translation loss of $42.7 million and a gain of $120.2 million from the sale of 50% of the Credicorp's investment in BCI where we show net recurring income of $769 million. This represented a reduction of 6.6% QoQ and an increase of 3.6% year-over-year, our recurring ROE and ROA of 18% and 1.9% respectively.

Credicorp results are weaker than those of the first quarter because they show the impact of that macroeconomic scenario in which our business are operated over the last two and half years, which are definitely more optimistic. We're definitely more optimistic about the coming years because we expect economic scenarios to improve and more importantly because we have been highly engaged in fine-tuning business models in almost every business sector. If you capture the potential that exists in the Peruvian market as soon as the economy full recovers it's phase of growth, particularly in terms of investment and in terms of [rate]. The second quarter we saw first quarter and loan balances were almost flat QoQ and expanded 9.8% year-over-year, after excluding the effects of the depreciation of the U.S. dollar QoQ and the depreciation year-over-year, loan growth showed 7.6% growth QoQ and 8.8% growth year-over-year.

Net provisions for loan losses increased 6.8% QoQ and 4.1% year-over-year. These were due to an increasing gross provision and a lower level of recoveries [indiscernible]. The full amount came mainly from the increasing pass due loans in the consumer credit card and mortgage segment. As a result, the cost of risk was traded at 2.11%. This was 13 Bps above the first quarter result, which was the lowest level recorded in the past three years.

Third, net interest income contracted 2.2% QoQ, that grew 2.6% year-over-year. The contraction this quarter for mainly generated by lower income on forwards and a decrease in divided income on investments. As a result, NIM contracted 14 Bps QoQ and 51 Bps year-over-year. The lower net interest income and the higher level of provisions put significant pressure on NIM after provisions, which fell 22 Bps QoQ 29 Bps year-over-year. Fourth, the efficiency ratio was situated about 43.9%, which represented an increase of 170 Bps QoQ but a reduction of 10 Bps year-over-year.

The higher ratio this quarter was in line with expectations due to seasonality of operating expenses, which are lowest in the first quarter of this year. Let's review all these financial figures in more detail. Next slide please. On this page, you can see the evolution of the loan book in average daily balances which is an important driver of our NIM and most importantly of our NIM of prepositions. Overall operating cost average daily loan balances expanded only on 5% QoQ and 10.4% year-over-year.

Each rate show that loan growth has slowed with previous quarter posted increases of because 1.7 QoQ on 14.3% year-over-year. The slowdown in loan growth reflects the seasonality of most important first, lower loan growth in wholesale banking, a segment that has led loan expansion and hold cost for last three years. This was due to the economic downturn and to the effects of the presidential elections, which led corporations to postpone decisions. The aforementioned was situated by much stronger competition for locals and local banks that are seeking our client with growth risk cohorts, which characterize the majority of clients in this sector. Second loan growth in SME-Pyme and Mibanco, which reflects our risk appetite and that holds to improve the portfolio rich quality.

This effect was further accelerated by the seasonality that characters these businesses which main financing campaign take place in second half of the year. Third, the increase in delinquency in the consumer and credit card segment which triggered an adjustment recognition and pricing models that have slowed loan growth for until March to a lesser extent, lower loan growth with the effect of 1.2% QoQ appreciation of the [indiscernible] on the portfolio denominated in U.S. dollars, which represented 38.4% of total loans at the end of June. The analysis by currency, which excludes the effect of the exchange rate shows that loan growth came mainly from our local currency loan book, which grew 2.7% QoQ and 22% year-over-year. These levels were lower than the 3.3% and 29% both in the previous quarter.

The foreign currency loan book recorded an increase of 2.8% QoQ after contracting for the last five quarters, constructed 9.5% year-over-year. In terms of business segment loan expansion continues to be led mainly by corporate banking, which puts downward pressure on our NIM with slight increase in the pace of loan growth posted by Mibanco is still growing. Next slide please. The legalization process continued and as you can see in the chart at the top as of June 2016 Credicorp reported that 38.6% of its loan book was denominated in reserves a level lower than the 39.7% posted last quarter and the 45% registered in the second quarter of 2015. BCP stand-alone recorded an even lower level of registration, which was 36% at the end of June below the 38% of last quarter and 43% in the second quarter of 2015.

Overall, as you can see in the chart on the bottom right hand side, the level of foreign exchange risk on growth rates has remained stable. Next page please. As you can see in the table, at the top of this page, net interest income contracted 2.2% QoQ due to a decline of 1.9% in interest income that was not offset by the drop in interest expenses. On the income side, fee rental interest income on the loans expanded was to offset the lower level of interest income from derivatives and the drop in dividend income from investment. At last year attributable to seasonal effect that are present every year in the first quarter.

The aforementioned and is expected increase in provisions for loan losses, resulted in a very different large reduction and inventory positions, that is shown in the chart at the bottom of the page. Definitely, [indiscernible] effect of the slowdown in loan growth, stronger competition at precious names, are high delinquency in the consumer operated segment. Next page. On this page you can see Creditcorp's funding structure on some important repeaters related to this. First the funding cost in the banking business continued to increase but at a slower rate.

This expansion is mainly due to an increase in the average cost of deposits, bonds and subordinated debts. Furthermore, sources with higher funding costs increased the participation in the funding structure and as such put up more pressure on the total funding costs. At the Creditcorp level, the funding costs dropped few basis points QoQ with lower expenses from the derivatives recorded in Creditcorp Company. Nevertheless, the year-over-year Creditcorp's funding cost with churn base due to growth of - in the funding cost of the banking business. Second, the low credit and mismatch between assets and liability which is approximately 7.9%.

Third, year-over-year loan to deposit ratio increased and reached for almost 102%. This was the result of the contraction of deposits which in turn is explained by a drop in deposits from [indiscernible] mainly foreign currency deposits. Next page please. In terms of portfolio quality, the cost of risk increased 13 basis QoQ and 4 basis year-over-year which was expected [indiscernible] a slower level in the past three years in the first quarter of 2016. Higher provisions for loan losses came mainly from consumer, credit card and mortgage segments and to a much smaller extent from BCP Bolivia.

Delinquency ratio deteriorated due to expansion in the [indiscernible] loans and non-performing loans and was mainly appreciated with consumer and credit card and mortgage. All this was exacerbated by almost in existent loan growth. You should also keep in mind that traditional delinquency ratios continue to inflate - due to high levels of real estate collateral that are particularly evident in [indiscernible]. The analysis of cost of credit card and delinquency ratios was and by business segment shows improvement in course of banking and SME business. Furthermore SMEP made - show good results as the throughout 2015 and the first quarter of this year.

With regard to a business segment that posted higher delinquency ratios and therefore higher cost of risk, it is important to mention that in the case of mortgage the increase in internal overdue and non-performing loans is related to higher delinquency in the foreign currency vintages of 2013. Nevertheless, we have seen a larger number of clients from this vintage taking advantage of the opportunity presented by the depreciation of Peso against the U.S. Dollars and have moved to converted mortgages to lower price stocks. In some cases this are fair terms by expending the internal of the loan so we can adapt to a new level of that service. That should give you more detailed evolution of delinquency ratios and cost of risk in credit cards on consumer segment.

Next page. The figures on this slide show the evolution of the delinquency ratios and cost of risk, in the credit card and consumer credit sense, both of which have posted our trends since the last quarter of 2015. This summarized an initial analysis shows that the main course of higher ratios in this regard either the duration and the economic environment which has been characterized by low economic growth for about three years. This scenario was even more evident in sectors such as manufacturing, construction, services and consumer. The long term of course at the time when we reveals at a rate increase in this levels.

In the case of credit cards we've made some decisions more than three years ago to set a new risk appetite, which further adds more of the negative impact of look forward are such the duration of our ratios began at the end of 2015 unlike the situation at our competitors who experienced downturn earlier. At the beginning of this year we began to apply strict measures in our risk recognition policies to prevent risk that flow outside of risk appetite. Additionally, we have made adjustments to ensure that the pricing models remain align with our risk policy. In terms of portfolio management, our tools have allowed us to adjust credit lines according to our new risk appetite in particular in the sub segments that have high exposure into leveraging banking business. We've released a risk as well as safety control and then gradual recovery in economic growth, job creation and these levels will allow us to recover the profitability in this sector.

Next page please. Non-financial income increased 18.2% QoQ and 22% year-over-year. This was mainly due primarily to gains on sales of securities, which were attributable to a sale of 50% of the investment we had in BCI. If we eliminate the effect of non-recurring income, the results shows an increase of 4.8% QoQ and 8% year-over-year due to an improvement in the evolution of fee income and gains on foreign exchange transactions, which increased 1.8% QoQ, and 10.2% year-over-year. Next page please.

The insurance underwriting result increased 13.3% QoQ due to a decrease in the acquisition cost in property and casualty and life insurance lines, while the net earned premiums and claims remain at levels very similar to those posted in the previous quarter. Year-over-year, the underwriting results increased 12% due to expansion in net earned premiums and the part of claims and acquisition cost offset much lower growth rate than net earned premiums. In this context, the combined ratio fell significantly to 88.8% and the loss ratio posted a very stable level of 57.6%. Next page please. In terms of operating efficiency, the efficiency ratio was situated at 44%, which represented an increase of 170 bps QoQ.

This was in line with the expectations due to a seasonality of operating expenses, which register their lowest levels every first quarter. Furthermore operating income posted a slight contraction trading by the deterioration of the efficiency ratios QoQ is partially diluting improvements year-over-year at the percent of reductions in this picture. Next page please. In terms of capital ratios at the end of June we've reached a low of 10.2% and common equity Tier 1 ratio of B2B, as a result of first high level of retained earnings which in turn and net income generated in the second quarter. Second, the positive effect of transferring BCP Bolivia to Credicorp's Bolivian Holding this transition has allowed to reduce the deductions in common equity Tier 1, our investment in subsidiaries and in particular financial institutions.

And third, a reduction of risk weighted assets due to low level of credit risk weighted assets which is generally affects a slowdown in loan growth. All this formation allowed us to achieve the yearend target of 10%, what we set for a common equity Tier 1 ratio. Next page please. In the chart of this page, you see the contribution of Credicorp to Credicorp portfolio our consumers. Overall Credicorp posted a 20.4% ROAE and recurring ROAE of 18% in the second quarter.

The effect of significant slowdown in loan growth which in turn is a result of the high level of uncertainty related to presidential elections that mark the first half of the year. It is important to note the higher contribution from Pacifico, Atlantic Security Bank and Credicorp Capital. A slight better performance of this subsidiaries have generated estimated the GDPs real contribution which is serious affected by the slowdown in loan growth. With this comment. I would like to open Q&A session.

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

Carlos Macedo: Thanks, good morning gentlemen. A couple of questions, first question on the outlook for asset quality as you said it's been a week going in the macro sense and that's hurting asset quality across the board.

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

Fernando Dasso: Thank you, Carlos. On your first question regarding cost of risk what we have, meantime in the market for the last year, is that we will be around probably from 2 to 2.2.

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

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

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

Carlos Macedo: Okay, got it, perfect. Thank you so much.

Operator: Our next question comes from Gian Costa from Itaú UBH.

Gian Costa: Hi, good morning, everyone. Thank you for the opportunity have two questions. The first is on the loan to deposit ratio, we saw that it continue increasing quarter-over-quarter, could you come into fixed back loan to deposit ratio to continue increasing in the coming quarters and also in your view about the continuation of the defending Central bank. And my second question is about the asset quality regarding back to loans we saw that, past few loans sold are increasing in this quarter mainly in the credit cards, consumer loans and also mid-size companies.

Could you comment if the asset quality this segments is expected to continue to increase going forward and also about your risk appetite for those segments thinking about loan growth in the coming quarters, and also in 2017? Thank you.

Fernando Dasso: Thank you, Gian. First, on your loan to deposit ratio question, what I can tell you absolutely in the July periods a lot of companies and reaffirming the need to change in their view towards what’s going to happen with the exchange rate. For the first month, many months, and in July-June, and that’s you have the figures. We’ve seen return of this ratio.

We reached I am now talking a little bit more about PCP, but that’s the main subsidiary has reached 160% in one reached 160% in June, and now in July, it's around 150% because the thing is changing a little bit on the expectation for the exchange rate is to stay low in the coming months. So we feel that that trend could continue during this third quarter. Then on your asset quality question, yes, we are very much focused on what’s happening in consumer and credit cost. We’ve been taking already many decisions in terms of admission, in terms of collection, in terms of what we are doing with this whole segment underwriting these loans. And we feel that for this year we will begin to recover in terms of those figures, but especially next year we expect better recovery.

Note that this will also depend on what happens to the macro. We feel that now the sentiment, not only a sentiment of companies, but of peoples towards macro is much better than it was, and that should reflects in the growth of the economy and in the health, really financial health of these companies and individuals.

Gian Costa: Okay. Perfect, very clear. Thank you.

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

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

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

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

Fernando Dasso: Okay, thank you. First on loan growth, we’ve been discussion about loan growth on what happens to the macro.

Our guess now is that we will probably reach this year around 6% in loan growth. We were used to higher ratios of loan growth but since it's first half of the year, we’ve had around only 0% of flat growth. We feel we can pick up into the second half. Not only because of the macro but because of the second season is there and the first probably reach around 6% loan growth. Then in terms of portfolio mix, we feel that because of mainly two reasons.

First, the corporations will begin investing before the individuals begins to grow. We feel that with this plan to increase in last projects, to improve the last projects, to corporate, we'll see on the business sentiment that is improving as well. We will see growth in that particular corporate segment before and then we will see that coming into individuals when that is to get through the economy. So first wholesale and then maybe retail will follow. This is one return, the other is that we've been very strict in the additions we’ve taken in terms of underwriting to reimburse to small companies.

To improve the risk and that will also show in the coming months. Then in terms of ROE we still give you the guidance of 20% that’s what we have in our expectations so we will still plan to have around 20% ROE as the guidance.

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

Fernando Dasso: We feel in the case of VCP the yield should improve a little bit if we begin to grow again in terms of the loans then we expect to have the expenses control as they are now.

We feel that delinquencies should stay flat so that will probably give us a pick-up in terms of VCP all the subsidiaries are better they are doing fine, as you can see our insurance business is doing fine, our pension fund business continues to being above 30% ROE levels and we see pretty good capital investment banking doing much better so we feel that we can reach the 20% that we’re talking about.

Ernesto Gabilondo: Okay. Thank you very much.

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

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

Thank you

Fernando Dasso: Think you [indiscernible]. What I can tell you in terms of performance is that when any and especially for VCP now when the loan book is not growing you see more competition coming from other institutions because they are also not growing, the system is really not growing fast for the last six months. So what’s whey we have more competition on prices. We feel it is the book being to – our books begin to work in we will see less competition, there will be more room for improvement in their institution and that will bring a relief in terms of pricing and competition and let us at least improve a little bit or NIMs or margins. We see that interest expense will not grow due to what is happening in the rates, in our local rates which represents a continuing at 425 for many months especially since inflation is coming down now and you see the fed rate should be around or gradually increasing in the near future.

So we’re seeing an important change in that sense. We also have to tell you that in June we had a special bet on derivatives that we did that didn’t worked because of many reasons especially the Brexit which went the way around we were looking forward to so that won’t affect us this quarter. We have already covered that position at least 80% of the position. So we will have that particular negative effect on our NIM and we feels that we can improve our NIM in this coming quarters.

Unidentified Analyst: All right.

Thank you very much.

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

Tito Labarta: Hi good morning, Fernando thanks for the call. A question in terms of the loan growth you said you can grow loans around 6% this year.

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

Fernando Dasso: Thank you, Tito. There is a particular thing that is happening with the economy.

Yes we’re at around 2.5% by maybe the primary sector especially mining account for more than half of that. In reality the other parts of the economy which the most important for us in terms of deliver, in terms of business investment is not growing as fast as we would like it to. We’ve got these important mining projects - coming into play during the last year and now reaching full production that will be leading economy or lading the growth. We feel while the secondary part of the economy manufacturing, construction, services, commerce to begin picking up that should happen this quarter is favorable to foster that growth. If that happens we will probably not be growing by the same total at the growth or the number of growth of GDP as you mentioned but should we need to have a multiple of that.

Say I don’t know next year if the economy picks up and reaches around 4% we should probably grow by around 8% to 10% in our loan book and that will definitely change the whole scenario in terms of competition, in terms of NIMs, and in terms of the health of our clients, financial health of our clients.

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

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

Tito Labarta: Okay. Thank you.

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

Carlos Rivera: Hi good morning everyone.

Thanks Fernando for the presentation. My first question is regarding asset quality, just wanted to dig a little bit deeper on the trends for SMEP in the loan book, I mean we continue to see an increase there in the NPL ratio and also in the cost of risk so when do you see these picking. And my second question will be regarding your investment in BTI, you reduced 50% of your investment there so what’s the outlook for this investment going forward? Thank you very much. Fernando Dasso : Thank you Carlos, first in terms of BCI, as you know we had around 4% of the shares of the bank, now we running up 2%, we plan to continue covering that holding for the future. There is no decision being made on that other than what I'm telling you.

Then in terms of asset quality, if you want to [indiscernible] we've been looking at this very closely and what we need to look at in terms of fee makings yearly delinquencies. When you see yearly delinquencies because we have important stock of old loans that have in provision 100% provision, but which you need to go to on our judicial process to know together for closure and to be able to bring those loans out of our books because of our regulation. And that’s why you see these lines coming up, unless you have a chart there, but you see that line at around NPR ratio at around 37%. If we will be able to bring those old loans which are 100% provision from out our books that number will be around 3%. We are continually talking to our regulators we able to do this, but that's being regulated improved.

So we still need to account for in our loan books.

Carlos Rivera: Okay. I understand that. Fernando Dasso : But if you see the early delinquencies this is in Page 28 of the report, you see the June numbers, because these are very seasonal business, you see that in June 2014 because 3.3% and in June 2015 it was 3% and now in June of this year we have 91%. So the business is healthy.

It's doing fine, but in that stock as I mentioned.

Carlos Rivera: Okay. If I understand correctly the increase in the cost of risk is basically seasonal and you see the level at which is now which is around 6.2% of the normal level for these business, is this correct?
Fernando Dasso : Now that's proven to be the number, yes.

Carlos Rivera: Okay. All right.

Thank you very much.

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

Alonso Aramburu: Hi, good morning. Thank you for the call Fernando.

I wanted to ask you about expenses, when we look at expenses at DCP they grew almost 18% a year-over-year. And it seems like your systems expenditures are growing faster and that around 25% that's much process than on the Credicorp level which is closer to 3%, 4%. Just wondering if you just a one off from this quarter or these are level of expenses that we should see growing these process of BCP going forward?
Fernando Dasso : Okay, thank you, Alonso. What I can tell you as we are being very keen on concerning expenses. The first quarter of the year is usually when expenses and now people hardly bringing [indiscernible] but we are still very, very keen on controlling expenses.

If you see and you follow the efficiency ratio, which really not only a matter of expenses income and with this other income do initial session and I know happen in with income. We will continue to be very keen of attorney expenses. We are now been focusing more on what happen in to the network, as you can imagine channels as Internet, a smaller ranking are going very fast. So we are looking at what should we do with the branches, should we be go in this, should we go to branches, should we be reducing the type of branches, there is room for improvement there as well, and also in the systems and infrastructure. But we will continue to be very strict on expenses and try to be a efficient as possible.

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

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

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

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

Alvaro Correa: Hi, Alonso.

Basically what we are doing with Pacifico is to continue incurring the business and all the lines really. The partnership was many guys working very well in the sales business. For the property and casualty, again there is efficiency we need to get a better level of efficiencies and we're doing that. We're working a lot on that. With regards to your question, there is no change on what we're doing.

We're basically focused on improving EBITDA and continuing having this company and this group of companies within Credicorp efficient on timing.

Alonso Aramburu: Okay. Thank you, Alvaro.

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

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

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

So yes NII should follow ACP loan growth.

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

Fernando Dasso: When we talk to our risk people, they tell us and this is I am going to talk now about retail banking. In wholesale banking we see not a particular program. We will continue growing with the same -- very safe rates in terms of provisions and cost of risk.

And when we talk about retail, what our expert sellers tell us is that we will have this year few euro improvements, but not that an important improvement. We still have something to just need to go to our books. We definitely think that most of the decisions and measures that we took in the last 18 months we'll be willing to show in our books in terms of better delinquency ratios.

Domingos Falavina: Understood. Thank you very much.

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

Walter Bayly: Good morning to all of you and first thank you for joining us consistently as we are signing this conference call. If we go in the past two conference calls we have been always mentioning that we continue -- we have been seeing a couple of plans in our Q2. The two most important were related to one, the elections we were having in this country and second, the possibility that we will have a relatively strong or very strong El Niño.

Those two plans as we used to call them are now behind us, but they have taken their toll. Economic agents be their corporations, individuals or even the government have been relatively unable or unwilling to continue to invest because of their uncertainties in front of us. We did not have El Niño and fortunately the elections turned out with the right way but nevertheless again this level of uncertainty has taken the total of the economy. The slowdown in the domestic demand has been a lot stronger than what we had anticipated and even though the economy has grown before that is basically the consequence of a couple of very large couple of projects that started commercial protection, domestic demand has been relatively slow and that is again in the short run the driver, not only of loan growth but of the credit quality of our portfolio. Throughout dispute we have been very cautious and closely monitoring our own portfolio with absolute deteriorations in the consumer side of the portfolio, slightly in mortgages much more visible in loans and credit cards.

The lack of growth in our lower risk appetite has taken its tool of the markets, as all of us focus on the lower risk segments and competition has been very strong in those particular segments. So that has been the main dynamic that we have seen in the first half of this year. We have managed to maintain very good control on efficiency and that has allowed us to somewhat counter the effects of a higher cost of risk and the lack of growth. We had very positive results in all of our subsidiaries and shared and have provided a very strong merger with the bank was already giving us in a relatively short period of time very good returns of equity. Credicorp Capital has dramatically improved its results.

Bolivia has been very solid. Atlantic has a good second quarter with relatively large with first quarter and always consistently giving us results. And as with all our subsidiaries have somewhat supported the relatively disappointing results at the back level. Looking forward the fundamental continues to be very solid. The country will grow that we had expected initially, it will be probably lower growth between three and four consistent over the next couple of years.

There is a very positive move that started to appear amongst the economic agents because of the way the election has turn around. We have the expectation of having a good year end in terms of growth of our portfolio and to see our quality of our portfolio start to deteriorated and hopefully may be margin improved as growth of that take effect. All our subsidiaries are well positioned. We're running our cost tightly and again we are ready to capture the growth whatever it happens in this economy and hopefully it will start to see towards year end. It has been the most -- this is somewhat disappointing so, have the years but again it was to be expected and again we are very satisfied and even with those challenging economic results continued to be acceptable.

Just to close again I want to thank you all for your continued support and joining us in this conference call and hopefully in the next conference call we will have more positive types of business so to tell. Again thank you very much and good bye.

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