3

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Thus, net contribution to Credicorp was up 19.5% for the year reaching US$ 464.4 million, which reflects a strong ROAE of 26.8% and ROAA of 2.1%.

Earnings contribution		Quarter												Change %								Year ended								Change %
US$ 000		4Q10				3Q10				4Q09				QoQ				YoY				Dec 10				Dec 09				Dec 10 / Dec 09
Banco de Crédito BCP(1)			99,129				135,216				104,518				-27	%			-5	%			464,360				388,501				20	%
BCB			3,445				3,442				9,521				0	%			-64	%			15,815				30,372				-48	%
Financiera Edyficar			4,420				5,313				1,112				-17	%			297	%			21,507				1,112				1834	%
Atlantic			11,711				10,603				14,856				10	%			-21	%			48,801				29,716				64	%
PPS			15,962				10,439				12,372				53	%			29	%			47,411				37,374				27	%
Grupo Crédito (2)			2,913				6,069				5,548				-52	%			-47	%			23,049				26,556				-13	%
Prima			8,006				5,696				4,224				41	%			90	%			25,505				20,798				23	%
Others			(5,093	)			373				1,324				-1465	%			-485	%			(2,456	)			5,758				-143	%
Credicorp and others (3)			(433	)			(6,101	)			(14,996	)			-93	%			-97	%			(12,319	)			(12,363	)			0	%
Credicorp Ltd.			(781	)			(5,844	)			(14,992	)			-87	%			-95	%			(12,123	)			(13,787	)			-12	%
Others			348				(257	)			(4	)			-235	%			-9132	%			(196	)			1,424				-114	%
Net income attributable to Credicorp			129,282				156,226				122,298				-17	%			6	%			571,302				469,784				22	%

(1) Includes Banco de Crédito de Bolivia and Edyficar.

(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 reported this 4Q flat earnings contribution of US$ 3.4 million which reflect the new level of income generation of Bolivia after all the intervention of the government that led to the reduction of margins and fees and despite a robust loan growth which again reached 6.0% QoQ. Overall, performance for the year 2010 revealed robust loan growth of 25.7%, but profitability has come down to a total contribution for the year of US$ 15.8 million down from US$ 30.4 million in 2009 and even higher contributions in the past. Nevertheless, ROAE remains at an acceptable 14.7%. 

Financiera Edyficar obtained positive results in 4Q10, which contributed to consolidating the company’s excellent performance throughout 2010. Net earnings in 4Q10 were US$ 4.5 million, which is lower than the figure reported in 3Q10 (-16.9%) due primarily to higher income tax provisions for 2010 realized in the 4Q and due to a slight loss on local currency exposure after the Nuevo Sol depreciated 1% against the US Dollar during 4Q10.  Nevertheless, business evolution was excellent with a loan portfolio up 42.6% for the year maintaining its PDL ratio low at 4.0%.

ASHC reported an increase in contribution of 10.4% reaching US$ 11.7 million for 4Q10. The QoQ increase is primarily attributable to higher margins in 4Q10, which were associated with a strategy to seek higher returns by reshuffling the investment portfolio. Aligned with this move, US$ 1.8 million in provisions were set aside this quarter in keeping with the bank’s conservative policy.  This result brought ASHC’s contribution to Credicorp to a record sum of US$ 48.8 million, an unprecedented figure for our asset management & private banking business.

Pacifico insurance group reported net income of US$ 16.5 million in 4Q10, similar to the figure of US$ 16.4 million recorded in 3Q10.  However, accumulated results in 2010 reported record net income of US$ 68.3 million, which tops 2009’s result of US$ 61.7 million by 10.8%. This increase is due primarily an improvement in the underwriting result. The underwriting result obtained in 2010 totaled US$ 93.4 million, which exceeds last year’s result by 16.9%. This significant growth is due to a lower loss ratio of 63.6% versus 65.2% in 2009, which is in turn attributable to a disciplined approach to underwriting and portfolio diversification. The expense side however, increased enough to offset the improvement in the loss ratio, though leaving enough room for the 10.8% expansion of net earnings referred to above.

 

4

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Finally, Prima AFP outperformed its previous results and reported US$ 8.0 million contribution for the 4Q, up 40.6%. This is the result of the reversal of some provisions for taxes & profit sharing and a slight increase in fee income. On a yearly basis, Prima also reports an extraordinary 22.6% increase in net income contribution reaching a total US$ 25.5 million, an outstanding result for a business that is still constraint by temporary regulatory measures. Furthermore, Prima has finally consolidated its leadership in the industry including its volumes of assets under management.

Credicorp Ltd.’s line includes the provisions for withholding taxes on dividends paid to Credicorp and eventually dividend & interest income from investments in some selected Peruvian stocks and bonds recorded during the period, which are today held at Credicorp Ltd. and previously booked at Grupo Crédito. However, the change in the holding structure with the relevance given to Grupo Credito as a local holding has reduced significantly the withholding taxes paid and therefore the provisions needed for these every Q, which explains the drop in the provisions reported at Credicorp Ltd. It is also worth mentioning, that the cost of executing the changes in holding structure summed approximately US$9 million (partly booked at Grupo Credito under others and partly at Credicorp Ltd.), but were more than compensated by the savings in withholding taxes the change generated for which provisions had been created and were now reversed.

As described above, all business segments are today aligned with Credicorp’s overall objectives and have become significant and profitable contributors to the growth targets set by Credicorp.

 

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II. Banco de Crédito – BCP - Consolidated

Summary 4Q10

BCP’s net income in 4Q10 totaled US$ 101.6 million. Although this result reflects a 26% drop QoQ, it in no way indicates that business is deteriorating given that the bank’s core earnings registered a 3.6% expansion during the same period.   

The bank’s core earning, in fact, reported significant growth and demonstrate that the upward trend seen earlier in the year remains in play. In this context, net interest and dividend income grew 5.1% QoQ while fee income remained at levels similar to those seen in the previous quarter. Net gain on FX transactions grew 9.7% this quarter.  

Core earnings		Quarter												Change %								Year to date								Change %
US$ 000		4Q10				3Q10				4Q09				QoQ				YoY				Dec. 10				Dec. 09				Dec. 10 / Dec. 09
Net interest and dividend income			254,533				242,274				211,233				5.1	%			20.5	%			944,634				798,217				18.3	%
Fee income, net			120,136				120,839				109,546				-0.6	%			9.7	%			461,775				368,067				25.5	%
Net gain on foreign exchange transactions			28,909				26,354				23,430				9.7	%			23.4	%			104,361				93,462				11.7	%
Core earnings			403,578				389,467				344,209				3.6	%			17.2	%			1,510,770				1,259,746				19.9	%

This evolution clearly indicates that the decline is associated with significantly lower extraordinary income from sales of securities which reached substantial levels in the previous two quarters; higher operating expenses related to seasonal effects, the impact of variable remuneration and incentive compensation provisions during a quarter marked by strong loan growth and continuous growth of the network; and the global recovery of the US dollar, reflected in the exchange rate, generating translation losses that contrast with the translation gains posted in the previous quarter.   

The aforementioned demonstrates that the banking business continues to experience the strong expansion reported in previous quarters. The year’s accumulated results leave no room for doubt that this expansive trend continues as BCP reported close to 24% growth in loans, 20% increase in net income of US$ 476.3 million and a 22.5% expansion in operating income.

Banco de Credito and Subsidiaries		Quarter												Change %								Year to date								Change %
US$ 000		4Q10				3Q10				4Q09				QoQ				YoY				Dec. 10				Dec. 09				Dec. 10 / Dec. 09
Net financial income			254,533				242,274				211,233				5.1	%			20.5	%			944,634				798,217				18.3	%
Total provisions for loan loasses			(48,531	)			(52,614	)			(44,933	)			-7.8	%			8.0	%			(175,773	)			(165,104	)			6.5	%
Non financial income			159,912				167,348				144,977				-4.4	%			10.3	%			634,642				577,945				9.8	%
Operating expenses			(214,813	)			(184,751	)			(197,956	)			16.3	%			8.5	%			(768,077	)			(692,423	)			10.9	%
Operating income (1)			151,101				172,257				113,321				-12.3	%			33.3	%			635,426				518,635				22.5	%
Core operating income (2)			151,101				162,620				113,321				-7.1	%			33.3	%			600,440				445,908				34.7	%
Non core operating income (3)			-				9,637				-				-100.0	%			-				34,986				72,727				-51.9	%
Translation results			(6,281	)			12,896				12,609				-148.7	%			-149.8	%			23,267				7,802				198.2	%
Worker's profit sharing and income taxes			(43,103	)			(46,382	)			(18,207	)			-7.1	%			136.7	%			(181,685	)			(127,884	)			42.1	%
Net income			101,567				138,620				107,398				-26.7	%			-5.4	%			476,317				397,378				19.9	%
Net income / share (US$)			0.040				0.054				0.042				-26.8	%			-5.5	%			0.186				0.155				19.8	%
Total loans			14,334,841				13,326,601				11,577,303				7.6	%			23.8	%			14,334,841				11,577,303				23.8	%
Deposits and obligations			17,069,817				15,642,366				14,465,809				9.1	%			18.0	%			17,069,817				14,465,809				18.0	%
Net shareholders´ equity			1,992,545				1,864,471				1,675,533				6.9	%			18.9	%			1,992,545				1,675,533				18.9	%
Net financial margin			4.5	%			4.8	%			5.0	%											4.8	%			4.9	%
Efficiency ratio			50.9	%			46.3	%			53.8	%											49.1	%			51.9	%
Return on average equity			21.1	%			31.3	%			26.6	%											26.8	%			26.6	%
PDL / Total loans			1.5	%			1.6	%			1.6	%											1.5	%			1.6	%
Coverage ratio of PDLs			198.5	%			193.3	%			192.3	%											198.5	%			192.3	%
BIS ratio			12.8	%			13.9	%			14.5	%											12.8	%			14.5	%
Branches			327				324				334												327				334
Agentes BCP			3,513				3,354				2,801												3,513				2,801
ATMs			1,159				1,109				996												1,159				996
Employees			16,148				15,650				16,748												16,148				16,748

(1) Income before translation results, workers' profit sharing and income taxes.

(2) Core operating income = Operating income - non core operating income.

(3) Includes non core operating income from net gains on sales of securities of US$ 43.406 million in 1Q09, US$ 29.321 milliom in 2Q09, US$ 25.349 million in 2Q10 and US$ 9.637 million in 3Q10.

If we look at the differences that explain the lower result this quarter in greater detail, the following points stand out:

i)    The lower income from sales of securities explains the decline of close to US$ 10 million;

 

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10

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Dollarization

FC portfolio’s participation in the total portfolio increased QoQ and YoY to total 61.8% at the end of 2010. This rise is closely tied to significant yearly expansion in the Wholesale Banking Portfolio, whose loans are mostly FC-denominated.

II.2 Deposits and Mutual Funds

Deposits grew 9.1% QoQ and 18.0% YoY and continue to be BCP’s primary funding source. Market recovery and our clients’ desire for higher yields generated a significant increase of 8.1% QoQ and 13.3% YoY in mutual funds.

Deposits and obligations		Quarter												Change %
US$ 000		4Q10				3Q10				4Q09				QoQ				YoY
Non-interest bearing deposits			4,203,023				3,918,653				3,261,009				7.3	%			28.9	%
Demand deposits			1,394,651				1,338,403				1,179,634				4.2	%			18.2	%
Saving deposits			4,244,940				3,953,997				3,539,917				7.4	%			19.9	%
Time deposits			5,872,455				5,267,355				5,361,410				11.5	%			9.5	%
Severance indemnity deposits (CTS)			1,313,122				1,127,933				1,069,267				16.4	%			22.8	%
Interest payable			41,627				36,026				54,572				15.5	%			-23.7	%
Total customer deposits			17,069,818				15,642,367				14,465,809				9.1	%			18.0	%
Mutual funds in Perú			2,369,634				2,164,067				2,042,159				9.5	%			16.0	%
Mutual funds in Bolivia			102,586				123,312				139,709				-16.8	%			-26.6	%
Total customer funds			19,542,038				17,929,746				16,647,677				9.0	%			17.4	%

If we look at deposit evolution by deposit type, growth in 4Q was led by time deposits (+11.5%) given that corporate clients in the Wholesale Banking segment maintained higher FC balances.  Additionally, an increase was reported in savings deposits (+7.4%) and CTS accounts (+16.4%) mainly from deposits captured by Retail Banking as a result of intensive campaigns. Demand deposits increased 4.2% QoQ, led by Middle-Market Banking clients.

Other funding sources at BCP that reported significant increase were due to banks and correspondents (+14.6% TaT), which is attributable to a syndicated loan that was taken out in the month of October to maintain the matching of assets and liabilities especially in the FC portfolio where there is a relative shortage due to BCRP’s legal reserves requirements and a higher level of deposit de-dollarization.

 

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BCP’s mutual funds reported significant 8.1% growth in the last quarter. This improvement is mainly attributable to growth in Credifondo’s funds under management (+9.5% QoQ), which is in turn due the positive evolution of international markets and the fact that the Peruvian economy remains dynamic. An additional factor in this success is linked to the constant sales campaigns undertaken by this segment.  Credifondo continues to be market leader in terms of the volume managed and the number of affiliates, which reported 42.4% and 33.1%, respectively.

Market Share in Deposits

At the end of December, BCP continued to lead the market for deposits with a 34.4% share, topping 3Q10's figure (34.1%) while outpacing the closest competitor by 14 percentage points. It is important to note the increase in the market share for FC deposits, which went from 35.6% in September to 37.4% at year-end. This last factor was due primarily to higher balances in FC time deposits in the Wholesale Banking segment.

Market share by type of deposit and currency
		Demand deposits				Saving deposits				Time deposits				Severance indemnity
LC			38.9	%			36.9	%			27.0	%			39.5	%
FC			42.4	%			40.5	%			32.5	%			55.5	%
LC: Local Currency
FC: Foreign Currency

BCP continues to hold a solid lead in all products in both LC and FC deposits. This quarter the highest increases in market shares for deposits were reported for FC time deposits (28.5% in 3Q10) and local currency CTS deposits (37.9% in 3Q10).

Dollarization

 

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II.3 Net Interest Income

NII grew 5.1% QoQ while the interest-earning assets portfolio expanded 11.7%, which caused NIM to drop from 4.8% to 4.5%.

Net interest income		Quarter												Change %								Year to date								Change %
US$ 000		4Q10				3Q10				4Q09				QoQ				YoY				Dec. 10				Dec. 09				Dec. 10 / Dec. 09
Interest income			368,460				345,937				301,319				6.5	%			22.3	%			1,331,867				1,204,914				10.5	%
Interest on loans			330,701				309,818				274,340				6.7	%			20.5	%			1,214,987				1,057,384				14.9	%
Interest and dividends on investments			59				33				43				78.8	%			37.2	%			3,591				3,131				14.7	%
Interest on deposits with banks			26,823				1,643				2,327				1532.6	%			1052.7	%			31,881				13,775				131.4	%
Interest on trading securities			12,431				21,035				22,008				-40.9	%			-43.5	%			72,815				109,723				-33.6	%
Other interest income			(1,554	)			13,408				2,601				-111.6	%			-159.7	%			8,593				20,901				-58.9	%
Interest expense			113,927				103,663				90,086				9.9	%			26.5	%			387,233				406,697				-4.8	%
Interest on deposits			40,152				36,706				49,258				9.4	%			-18.5	%			120,128				269,361				-55.4	%
Interest on borrowed funds			48,953				40,430				6,681				21.1	%			632.7	%			130,013				27,925				365.6	%
Interest on bonds and subordinated note			9,742				10,648				20,916				-8.5	%			-53.4	%			104,760				67,929				54.2	%
Other interest expense			15,081				15,879				13,231				-5.0	%			14.0	%			32,332				41,482				-22.1	%
Net interest income			254,533				242,274				211,233				5.1	%			20.5	%			944,634				798,217				18.3	%
Average interest earning assets			22,500,740				20,147,428				16,826,904				11.7	%			33.7	%			19,832,358				16,579,634				19.6	%
Net interest margin*			4.52	%			4.81	%			5.02	%											4.76	%			4.81	%
*Annualized

The quarterly evolution of NII shows 5.1% growth. This was attributable to a 6.7% increase in interest on loans due to the significant loan growth, which was however attenuated by the 9.9% increase QoQ in interest expenses as a result of higher interests on due to banks (+21.1% QoQ) and deposits (+9.4% QoQ). The latter is related to changes in the funding structure, particularly in terms of needs for funding in US dollars abroad, as well as higher interest expenses due to an increase in interest rates on time deposits and especially on FC time deposits given the fact that BCR’s aggressive policy on legal reserves has made this currency scarce.

Furthermore, the reduction in other interest income was related to derivatives for trading, which was the result of a scenario with devaluation of Nuevo Sol and higher swap rates in Nuevos Soles during 4Q10 in contrast to a scenario with appreciation of Nuevo Sol and lower swap rates in Nuevos Soles as such of 3Q10’s.

Accumulated results showed a significantly better evolution reporting an 18.3% increase of NII explained not only by a 10.5% rise in interest income but also by the 4.8% reduction of interest expenses. Interest income grew mainly as an effect of higher interest income on loans (+14.9%), which in turn was related to the loan expansion achieved in 2010 (+23.8%). On the expenses side, the contraction reported came mainly from the 55.4% reduction of interest expenses on deposits that off set the higher expenses in interest on borrowed funds and bonds. It is important to highlight that the decrease in interest on deposits was the result of lower average interest rate in 2010 in comparison with the average rate in 2009 (1.03% vs 1.82%), hence even when the volume of deposits grew 18% in 2010 most of this increase came from demand deposits and savings, which earn very low or null interests.

 

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i)  interest income not growing at the same pace of interest-earning assets due to the aforementioned re-composition of these assets in favor of lower yielding assets (the sum of investments, deposits in BCRP and other banks expanded +10.9%; while loans increased +7.8% and within loans, Wholesale Banking portfolio with its lower margins reported higher growth than the other segments); and

ii) interest expense increasing in this 4Q as a result of a change in the funding structure towards more expensive sources (with time deposits and borrowed funds growing faster), all of which made NII increase only 5.1% QoQ, while interest-earning assets grew 11.7%, causing a drop in NIM.

Loan NIM remained at levels similar to those seen in 3Q10, which is reflected in the fact that NIM levels for different products have remained relatively stable.

Despite this quarterly evolution, the accumulated results for the year show that NIM has been stable given that the different forces that act on it tended to cancel each other out. As such, the NIM at year-end reflected the same margin obtained last year of 4.8%.

Loan / Deposit Ratio

Another aspect that affects NIM’s evolution is our conservative policy to match assets and liabilities in terms of currency and maturities, which implies incurring an opportunity cost.  In this regard, even when the aggregated ratio of loan to deposits is 84.0%, there is significant growth in LC deposits while FC deposit levels grew little, which is reflected in the loan-to-deposit ratio that is currently 67.5% in LC and 98.9% in FC. This in turn translated into a need for FC funds to finance portfolio growth while maintaining adequate matching. To accomplish this, new issuances and loans are needed, which entail higher funding costs than deposits. At the same time, this scenario generates a surplus of LC deposits, which are invested in BCR instruments causing further downward pressure on NIM given that interest income on investment is low and the tax benefit that boosts the profitability of these instruments is not captured by NIM.  

 

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II.4 Past Due Portfolio and Provisions for Loan Losses

 

16

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N° de Transactions per channel		Quarter												Change %
		Average 4Q10				Average 3Q10				Average 4Q09				4Q10 / 3Q10				4Q10 / 4Q09
Teller			9,949,522				10,105,034				10,733,475				-1.5	%			-7.3	%
ATMs Via BCP			10,312,343				8,957,045				8,193,738				15.1	%			25.9	%
Balance Inquiries			3,468,512				2,931,377				2,593,456				18.3	%			33.7	%
Telephone Banking			1,752,561				1,592,501				1,641,981				10.1	%			6.7	%
Internet Banking Via BCP			12,815,523				11,458,877				10,466,538				11.8	%			22.4	%
Agente BCP			6,656,935				5,383,892				4,614,103				23.6	%			44.3	%
Telecrédito			5,397,323				4,725,407				4,424,750				14.2	%			22.0	%
Mobile banking			399,498				303,147				152,191				31.8	%			162.5	%
Direct Debit			450,729				417,399				401,154				8.0	%			12.4	%
Points of Sale P.O.S.			4,768,425				4,273,894				3,911,271				11.6	%			21.9	%
Other ATMs network			351,283				333,604				314,287				5.3	%			11.8	%
Total transactions			56,322,654				50,482,176				47,446,943				11.6	%			18.7	%

Source: BCP

BCP’s distribution channels (only in Peru) continue to grow. In 4Q10, the total number of points of contact grew 4.4%. This expansion was concentrated in growth in the number of BCP Agents, which continues to demonstrate the highest growth potential (+4.7% QoQ). Nevertheless, ATM growth remains high at 4.5% and new branch openings are once again on the rise. A YoY analysis shows that the total number of points of contact has increased by more than 800, which represents an expansion of 21%.

		Balance as of												Change %
		4Q10				3Q10				4Q09				QoQ				YoY
Branches			327				324				334				0.9	%			-2.1	%
ATMs			1,159				1,109				996				4.5	%			16.4	%
Agentes BCP			3,513				3,354				2,801				4.7	%			25.4	%
Total			4,999				4,787				4,131				4.4	%			21.0	%

Source: BCP

II.6 Operating Expenses and Efficiency

After three consecutive quarters of improvements, the increase in spending in 4Q10 led to an increase in the efficiency ratio, which rose to 50.9%. This level represents the highest point of the new range within which the efficiency ratio should move after implementing a series of measures.

Operating expenses		Quarter												Change %								Year to date								Change %
US$ 000		4Q10				3Q10				4Q09				QoQ				YoY				Dec. 10				Dec. 09				Dec. 10 / Dec. 09
Salaries and employees benefits			105,187				95,404				89,486				10.3	%			17.5	%			389,997				328,469				18.7	%
Administrative, general and tax expenses			81,579				67,549				79,622				20.8	%			2.5	%			282,779				266,363				6.2	%
Depreciation and amortizacion			18,796				17,392				16,153				8.1	%			16.4	%			69,448				58,709				18.3	%
Other expenses			9,251				4,406				12,695				110.0	%			-27.1	%			25,853				38,882				-33.5	%
Total operating expenses			214,813				184,751				197,956				16.3	%			8.5	%			768,077				692,423				10.9	%
Efficiency ratio			50.9	%			46.3	%			53.8	%											49.1	%			51.9	%

Operating expenses demonstrated a significant increase this quarter, expanding 16.3% QoQ due to the seasonal effects which in the past have shown growth of around 19% in the 4thQs when compared to the average expenses of the 3 first quarters. This strong increase is seen in salaries and employee benefits as well as administrative expenses and others.   

The increase in salaries and employee benefits is due in part to higher variable remuneration and incentive compensation programs, which correspond to strong portfolio growth this quarter as well as increases in salary levels due to market competitive pressures, all of which led to a quarterly expansion of 10.3%.

 

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Regulatory Capital and Capital Adequacy Ratios		Balance as of												Change %
US$ (000)		Dec 10				Sep 10				Dec 09				Dec 10 / Sep 10				Dec 10 / Dic 09
Capital Stock			910,551				917,739				771,034				-0.8	%			18.1	%
Legal and Other capital reserves			473,177				476,912				459,881				-0.8	%			2.9	%
Accumulated earnings with capitalization agreement			-				-				113,997				-				-100.0	%
Loan loss reserves (1)			180,292				167,661				148,355				7.5	%			21.5	%
Perpetual subordinated debt			250,000				250,000				250,000				0.0	%			0.0	%
Subordinated Debt			440,614				448,728				426,264				-1.8	%			3.4	%
Unrealized profit (loss)			-				-				-				-				-
Investment in subsidiaries and others, net of unrealized profit			(247,031	)			(232,388	)			(226,319	)			6.3	%			9.2	%
Goodwill			(43,461	)			(43,805	)			(54,933	)			-0.8	%			-20.9	%
Total Regulatory Capital			1,964,142				1,984,848				1,888,278				-1.0	%			4.0	%
Tier 1 (2)			1,558,944				1,560,999				1,449,953				-0.1	%			7.5	%
Tier 2 (3)  + Tier 3 (4)			405,197				423,850				438,325				-4.4	%			-7.6	%
Total risk-weighted assets			15,295,727				14,290,912				13,007,788				7.0	%			17.6	%
Market risk-weighted assets (5)			381,103				410,725				681,671				-7.2	%			-44.1	%
Credit risk-weighted assets			14,406,737				13,396,056				11,868,364				7.5	%			21.4	%
Operational risk-weighted assets (6)			507,887				484,132				457,752				4.9	%			11.0	%
Market risk capital requirement  (5)			37,348				40,251				64,759				-7.2	%			-42.3	%
Credit risk capital requirement			1,411,860				1,312,813				1,127,495				7.5	%			25.2	%
Operational risk capital requirement  (6)			49,773				47,445				43,486				4.9	%			14.5	%
Capital ratios
BIS ratio (7)			12.8	%			13.9	%			14.5	%
Risk-weighted assets (8) / Regulatory Capital			7.79				7.20				6.89

(1) Until June 2009,  loan loss reserves up to 1% of gross loans.   Since July 2009,  up to 1.25% of total risk-weighted assets.

(2) Tier 1 = Capital + Legal and other capital Reserves + Accumulated earnings with capitalization agreement + Unrealized profit in subsidiaries - Goodwill - (0.5 x Inverstment in Subsidiaries) + Perpetual subordinated debt (maximum amount that can be included is 17.65% of Capital + Legal and other capital Reserves + Accumulated earnings with capitalization agreement + Unrealized gains - Goodwill).

(3) Tier 2 = Subordinated debt + Loan loss reserves - (0.5 x Investment in subsidiaries).

(4) Tier 3 = Subordinated debt covering market risk only. Tier 3 exists since 1Q10.

(5) Since July 2009, it includes capital requirement to cover price and rate risk.

(6) Effective as of July 2009.

(7) Regulatory Capital / Risk-weighted assets (legal minimum = 9.8% since July 2010).

(8) Until June 2009,  Risk-weighted assets = Credit risk-weighted assets + Capital requirement to cover market risk * 11.    Since July 2009, Risk-weighted assets = Credit risk-weighted assets * 0.96 + Capital requirement to cover market risk * 10.5 + Capital requirement to cover operational risk * 10.5.

 

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III. Banco de Crédito de Bolivia 

Results

In 4Q10, BCP Bolivia obtained net income of US$ 3.4 million, which represents a slight 0.1% increase QoQ and a 63.9% contraction YoY. BCP Bolivia was able to sustain its level of income thanks to an increase in net interest income (9.6%) due to sustained growth in the loan portfolio and better interest rates which helped offset an increase in operating expenses (14.2% QoQ), which was mainly attributable to a US$ 1.2 million reclassification of loan provisions. The YOY decline in net income was due primarily to a contraction in net interest income (-27.1% YoY) and a drop in non-financial income (-12.8% YoY).

Net interest income has been affected by surplus liquidity; limitations on foreign investment (50% of net shareholder’s equity); restrictions on active rates for loans to the productive sector; and an increase in passive rates for individuals. Additionally, some fees have been eliminated (regulated by ASFI), which has blocked the banking system’s efforts to offset a drop in net interest income.  The Boliviano’s appreciation has increased the demand for dollar-denominated loans.

The bank’s prudent strategy for loan risk helped it achieve a past due ratio of 1.5% in 4Q10 (1.4% in 3Q10 and 1.8% in 4Q09) and a coverage ratio of 272.6% (304.5% in 3Q10 and 257.9% in 4Q09). These figures prove that BCP Bolivia is a top performer in the Bolivian banking system, which reported 2.2% and 220.8% respectively at the end of 4Q10 for the aforementioned ratios.  BCP Bolivia’s ROAE was 14.7%, which represents a 0.5% decline with regard to September 2010 and 36.5% in terms of December 2009’s figure.

Assets and Liabilities

BCP Bolivia’s loan balance at the end of December 2010 was US$ 605.2 million, 6.0% higher than the US$ 570.7 million reported in September 2010 and 25.7% above the level registered in December 2009. Loan growth in the fourth quarter of the year was attributable to two factors: i) the bank relaxed some of its loan guidelines due to good macroeconomic indicators and ii) BCP Bolivia currently boasts one of the lowest past due ratios in the banking system.   

This quarter, Retail Banking’s performance, was particularly noteworthy, reporting 9.1% growth QoQ and 28.1% YoY. This increase had a significant impact on the bank’s results given that Retail Banking loans represent 54.8% of the total portfolio (Wholesale Banking accounts for 42.2% and Special Accounts 3.0%) and generate the highest interest rates. The retail banking product that demonstrated the highest QoQ growth came mainly from the Pyme segment (17.2% QoQ), which represented 25.5% of the portfolio. The Home Mortgage segment accounted for 43.5% of total retail loans and reported 5.6% growth QoQ and 20.3% YoY.   

In terms of liabilities, BCP’s total deposits grew 11.3% QoQ and 4.7% YoY.  The QoQ increase is due primarily to 15.7% growth in demand deposits and a 13.7% increase in term deposits. The YoY increase, on the other hand, can be explained by the 27.5% increase in term deposits with regard to 2009’s figures.

Growth in term deposits is in keeping with the bank’s policy to match assets and liabilities as well as efforts to capture new deposits while rates in national currency are at an all-time low.    

Net shareholder’s equity increased 3.2% QoQ but fell 11.8% YoY due to lower earnings in 2010.  

 

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In 2010, Edyficar reported earnings of US$ 22.1 million, which represents a return on average equity, including goodwill, of 22.7% and 47.1% without including the same.

Another important aspect worth pointing out is the fact that the loan portfolio expanded 42.6%. This portfolio’s past due ratio was only 4.0% while the coverage ratio on overdue loans was 183.6%.

Finally, it is evident that Edyficar continues to contribute to BCP’s objectives in terms of loan levels, profitability and efforts to increase the use of banking services through increased penetration of the micro financing system.

 

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V. Atlantic Security Holding Corporation

Quarterly Results

ASHC		Quarter									Year to date						Change %
US$ million		4Q10			3Q10			4Q09			Dec 10			Dec 09			QoQ			YoY			Dec 10 / Dec 09
Net interest income		10.0			8.7			9.4			36.7			29.4			15.2	%		6.4	%		24.9	%
Dividend income		0.3			0.2			0.2			25.6			22.3			67.1	%		57.3	%		14.4	%
Fees and commissions from services		1.9			2.1			2.5			8.3			6.5			-10.8	%		-22.2	%		28.9	%
Net gains on foreign exchange transactions		0.0			0.0			-0.1			-0.3			-0.6			-153.3	%		78.9	%		-46.7	%
Total earnings		12.2			11.0			12.0			70.3			57.6			10.4	%		1.8	%		22.0	%
Net Provisions		-1.8			-1.5			-2.3			-3.3			-10.7			16.7	%		-24.3	%		-69.7	%
Net gains from sale of securities		3.4			3.1			4.1			13.8			7.3			12.6	%		-15.7	%		88.3	%
Other income		0.0			-0.1			5.5			0.2			7.6			51.1	%		-100.8	%		-96.8	%
Operating expenses		-2.1			-1.9			-2.2			-7.7			-7.8			-11.3	%		4.3	%		-1.7	%
Net income		11.7			10.6			17.1			73.4			54.1			10.6	%		-31.3	%		35.9	%
Net income / share		0.1			0.1			0.2			0.8			0.6			10.6	%		-31.3	%		35.9	%
Contribution to Credicorp		11.7			10.6			14.9			48.8			29.7			10.5	%		-21.4	%		64.2	%
Total loans		468.1			493.0			132.3			468.1			132.3			-5.0	%		254.0	%
Total investments available for sale		747.5			781.5			779.3			747.5			779.3			-4.4	%		-4.1	%
Total assets		1,400.8			1,527.2			1,483.6			1,400.8			1,483.6			-8.3	%		-5.6	%
Total deposits		1,116.8			1,249.8			1,220.6			1,116.8			1,220.6			-10.6	%		-8.5	%
Net shareholder's equity		265.8			261.2			239.8			265.8			239.8			1.8	%		10.9	%
Net interest margin		3.13	%		2.57	%		2.74	%		2.78	%		2.11	%
Efficiency ratio		13.6	%		13.6	%		10.3	%		9.1	%		10.8	%
Return on average equity		17.8	%		16.8	%		29.8	%		29.1	%		30.4	%
PDL / Total loans		0.00			0.00			0.00			0.00			0.00
Coverge ratio		0.2	%		0.2	%		0.8	%		0.2	%		0.8	%
BIS ratio		23.43	%		20.54	%		19.62	%		23.43	%		19.62	%

Atlantic Security Holding Corporation (ASHC) reported net income of US$ 11.7 million in 4Q10, which is 10.6% higher than the figure reported in 3Q10. In accumulated terms, net income in 2010 totaled US$ 73.4 million, representing a 35.9% increase YoY. ASCH's contribution to Credicorp totaled US$ 48.8 million, which represents a significant 64.2% improvement YoY.

The QoQ increase is primarily attributable to higher margins in 4Q10, which were associated with a strategy to seek higher returns by moving some investments to longer term positions and increasing investments in instruments without an investment grade. It is important to point out that US$ 1.8 million in provisions were set aside this quarter in keeping with the bank’s conservative policy.

The growth obtained in accumulated results is attributable to

i)

The increase in the financial margin and earnings for securities sales, which are attributable to the aforementioned strategy to invest in higher yield instruments as well as adequate management of portfolio segmentation, which helped increase the total return on productive assets and contributed to higher earnings for securities sales; and

 

ii)

The increase in fee income due to growth in AuM associated with Fondos ASB and direct third-party investments, which were in turn attributable to higher market values and efforts to capture new clients.

In terms of operating efficiency, the efficiency ratio this quarter remained at last quarter’s level- 13.6%. Nevertheless, the result for the whole of 2010 was 9.1%, which marks an improvement over 2009’s result (10.8%) and was due to higher earnings, lower reserves and reduced expenses.

ROAE reached 17.8%, which is higher than 3Q10’s figure (16.8%) but 12 percentage points below 4Q09’s result. The YoY result was due to lower unrealized earnings on the investment portfolio at the end of 4Q10.  In accumulated terms, ROAE in 2010 was 29.1%, which is lower than the 20.4% obtained in 2009. This was attributable primarily to an increase in average shareholder’s equity in 2010 due to higher earnings during the period as well as higher average unrealized earnings.

 

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Assets and Liabilities

Interest earning assets totaled US$ 1,288 million, as is evident in the table below. The 9.6% decline QoQ was due primarily to a 40.4% drop in Cash and Banks, which is in turn associated with clients’ decision to cancel deposits to invest some of their funds in the bank’s investment products.  A YoY comparison indicates a net decline of 6.5% due to loan amortization and securities sales, which were in turn used to complement cash requirements to cover deposit cancellation and client investments.

The most significant variation in the structure of interest earning assets was evident in the YoY result for Cash, Banks and Loans. This is primarily attributable to a move to transfer deposits held in BCP until 4Q09 to ASHC’s loan portfolio at the beginning of 2010.

Interest earning assets*		Quarter									Change %
US$ million		4Q10			3Q10			4Q09			QoQ				YoY
Due from banks			98			164			483			-40.4	%			-79.7	%
Loans			468			493			132			-5.0	%			254.0	%
Investments			722			767			763			-5.9	%			-5.3	%
Total interest-earning assets			1,288			1,424			1,377			-9.6	%			-6.5	%

(*) Excludes investments in equities and mutual funds.

A significant portion of the instruments are investment grade (70%), which reflects the bank’s prudent policy to concentrate portfolio investment in instruments with a good risk profile.

In obtain higher yields for its shareholders, ASCH has been using healthy strategies and implementing the necessary controls to successfully invest in higher yield instruments. The latter, as previously mentioned, hinges on investing in longer term instruments and instruments without an investment grade. It is important to emphasize that the increase in products without an investment grade has risen only 1 percentage point above 2009’s figure.

Customer deposits fell 10.6% QoQ and 8.5% YoY due to low reference levels post-crisis, which led customers to invest their deposits in ASHC’s investment products.

Shareholder’s equity only grew 1.8% QoQ but demonstrated a significant 10.9% increase YoY. This was due primarily to higher earnings during the period (US$ 73.4 million) and the dividends of US$49.9 million paid to Credicorp Ltd.

 

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Asset Administration

The deposits’ total and AuM include investments in proprietary mutual funds and financial instruments in custody. The total of these funds increased 0.6% QoQ and 26.7% YoY.

AuM increased 5.2% QoQ, continuing an upward trend but at a slower pace. A YoY comparison shows 46.5% growth, which is attributable to value recovery and renewed investor confidence in international securities markets. Both of these factors have led clients to invest in managed funds and increase their positions through direct purchases.

Deposits fell 10.6% QoQ and 8.5% YoY as clients moved to use funds from deposits to increase their off-balance AuM.

 

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VI. Prima AFP

Prima’s net income in 4Q10 totaled US$ 8.0 million, which represents a 40.6% increase QoQ. This improvement is due primarily to reversals in the tax and employee profit sharing account and a slight increase in fee income. Net accumulated income in 2010 was US$ 25.5 million, which represents an increase of 22.6% YoY.

Prima’s commercial management strategy continued to focus on new captures, particularly in the provinces, and concentrated on the mining, construction, agro-industry and commercial sectors. The volume of new captures in the fourth quarter rose 28% QoQ.

At the end of the fourth quarter of 2010, PRIMA’s funds under management represented 31.4% of the total managed by the private pension system. This figure indicates a QoQ improvement in market share.

PRIMA’s collections contribution level increased in 4Q10 to account for 33.35% of total collections contributions. Good profitability levels for managed funds led clients to increase their voluntary contributions and helped consolidate the company’s market position for this product.

Quarterly main indicators and market share		PRIMA 4Q10			System 4Q10			Part. 4Q10 %				PRIMA 3Q10			System 3Q10				Part. 3Q10 %
Affiliates			1,124,457			4,641,688			24.2	%			1,110,105			4,587,455				24.2	%
New affiliations (1)			17,450			67,853			25.7	%			13,592			56,112				24.2	%
Funds under management US$ million			9,765			31,077			31.4	%			8,911			28,836				30.9	%
Collections US$ million (1)			165			497			33.3	%			147			460				32.0	%
Voluntary contributions US$ million			122			268			45.5	%			101			233				43.4	%
RAM US$ million (2)			433			1,371			31.6	%			423			1,325				31.9	%

Source: Superintendencia de Banca, Seguros y AFP

(1)	Accumulated to the Quarter.

(2)	PRIMA AFP estimates: average of aggregated income during the last 4 months excluding special collections and voluntary contribution fees

Commercial Results

During 4Q10, significant growth was evident in the volume of new affiliations while the volume of transfers remained stable. Total captures in 4Q10 topped 19,800 people, including 17,450 new affiliations and approximately 2,350 transfers. This result is in line with the company’s commercial strategy. In terms of the previous quarter, new affiliations increased 28% and transfers rose 3%.  It is important to point out that the net results for affiliations and transfers (entry and exist) produced a positive impact on PRIMA’s balance and bolstered QoQ RAM results.  RAM continues to follow an upward trend, which has helped the company maintain market leadership with a 31.6% share.

At the end of the fourth quarter, Prima’s funds under management totaled US$ 9,765 million, which represents 31.4% of total funds under management in the system. This confirms Prima’s market leadership in terms of this indicator.

Investments

The profitability of Prima’s managed funds over the last 12 months (December 2010/December 2009) was 8.90%, 21.11% and 35.65% for funds 1, 2 and 3 respectively. With these results, PRIMA is market leader in profitability for funds 2 and 3 and second with regard to fund 1. Meanwhile the value of funds managed by PRIMA totaled US$ 9,765 million at the end of December, which represents close to 10% growth QoQ in the volume managed.

Annualized profitability over a five-year period (December 2010/December 2005) for Prima’s Fund 2 was 15.34% while the average profitability of the private pension system was 14.56%. It is important to point out that Prima was the system leader during this period.

 

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If we extend the period of analysis to include the time period ranging from the system’s start-up to present day (December 2010/December 1993), the funds managed by the AFP system achieved an annual nominal annualized yield of 14.41% and 9.33% in real terms.

The following table shows the structure of the fund managed by Prima in the fourth quarter of 2010:

Funds under management as of December 2010		Dec 10				Share %				Sep 10				Share %
Fund 1			713				7.3	%			699				7.8	%
Fund 2			6,364				65.2	%			5,889				66.1	%
Fund 3			2,688				27.5	%			2,323				26.1	%
Total US$ millon			9,765				100	%			8,911				100	%

Source: Superintendencia de Banca, Seguros y AFP

Financial Results

Income

During the fourth quarter of 2010, PRIMA earned fee income of US$ 21.9 million, which represents 0.4% growth QoQ. Accumulated income for the year totaled US$ 85.2 million, which indicates an increase of 8.1%. This improvement was due to the fact that our income base grew during the period and the national economy continued to strengthen. It is also necessary to point out that the income calculation in 2010 contains one contribution period less than in 2009, when the government implemented a measure to exonerate affiliates from obligatory contributions on the additional salary payments that Peruvian Law requires employers to make in July and December.

In terms of RAM volume, which indicates aggregate salaries of system affiliates and represents each company’s income base, Prima has maintained a solid market position with a RAM base of US$ 433 million at the end of December 2010.

Estimate of base to calculate earnings

US$ million		PRIMA - Dec 2010				System - Dec 2010				Share %
Income (1)			7.6				25.9				29.2	%
Administrative fees			1.75	%		n.a.				n.a.
RAM base (2)			433				1,371				31.6	%

PRIMA AFP estimates. In accordance to local public infomation,  (CONASEV)

(1) Average income from the last four months, excluding special collections and voluntary contribution fees

(2) RAM: average of aggregated income during the last 4 months excluding special collections and voluntary contributions fees.

Expenditures

Operating expenses in the fourth quarter rose 17.5% QoQ due to increases in the following:

i)       provisions for personnel expenses,

ii)      expenses for investment management and,

iii)     advertising and marketing  expenses, which were highest in the last quarter of the year.

All of the aforementioned affected operating income, which fell 14.6% QoQ. An accumulated comparison of administrative expenses and sales totaled US$ 38.5 million, which indicates an increase of 7.9% YoY. This was due primarily to an increase in charges for administrative personnel, fund investment and expenses for operating and system support.

 

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Expenses for depreciation and amortization totaled US$ 2.3 million in 4Q10, including intangible asset amortization (obtained following the merger with Union Vida) as well as depreciation and amortization of real estate, equipment and systems.

Finally, PRIMA’s net income in the fourth quarter was US$ 8.0 million, which represents a 40.6% increase QoQ. This improvement was associated primarily with reversals in the income tax and employee profit sharing account due to changes in IFRS accounting standards.  In annual terms, net earnings totaled US$ 25.5 million, which represents a 22.6% increase YoY.

At the end of December 2010, PRIMA reported an asset level of US$ 276.1 million. Shareholders’ equity reached US$ 183.7 million while assets totaled US$ 92.4 million.

The table below summarizes the financial results:

										Change %							Year ended					Change %
Main financial indicators (US$ thousand) (1)		4Q10		3Q10			4Q09			QoQ				YoY			Dec 10		Dec 09			Dec 10 / Dec 09
Income from commissions		21,909			21,812			19,904			0.4	%		10.1	%		85,158			78,791			8.1	%
Administrative and sale expenses		(11,181	)		(9,516	)		(10,181	)		17.5	%		9.8	%		(38,507	)		(35,678	)		7.9	%
Depreciation and amortization		(2,314	)		(2,443	)		(2,363	)		-5.3	%		-2.1	%		(9,689	)		(9,330	)		3.8	%
Operating income		8,414			9,853			7,360			-14.6	%		14.3	%		36,962			33,784			9.4	%
Other income and expenses, net		(505	)		(298	)		(906	)		69.6	%		-44.3	%		(2,168	)		(3,378	)		-35.8	%
Employee profit sharing and income tax		90			(3,771	)		(2,150	)		-102.4	%		-104.2	%		(8,912	)		(8,667	)		2.8	%
Net income before translation results		8,000			5,784			4,304			38.3	%		85.9	%		25,881			21,738			19.1	%
Translations results and deferred liabilities		8			(88	)		(82	)		-109.2	%		-110.0	%		(375	)		(942	)		-60.2	%
Net income		8,008			5,696			4,222			40.6	%		89.7	%		25,506			20,796			22.6	%
Total assets		276,139			260,186			249,771			6.1	%		10.6	%
Total liabilities		92,437			91,002			84,543			1.6	%		9.3	%
Net shareholders' equity		183,703			169,184			165,228			8.6	%		11.2	%

(1) IFRS

 

 

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VII.  El Pacífico Peruano Suiza and Subsidiaries

Grupo Pacifico

The Pacifico Insurance Group, which is comprised of property and casualty lines (PPS), life insurance (PV) and health insurance (EPS), reported net income of US$16.5 million in 4Q10, similar to the figure of US$ 16.4 million recorded in 3Q10.  The YoY evolution indicates that 4Q10’s results are 18.8% below the US$20.2 million registered in 4Q09 due to i) a decrease in the underwriting result in 4Q10 vs. 4Q09, and ii) the lower income tax provisions registered in 4Q09 as a result of a reversal made at the end of last year following a change in the treatment of FX related losses that corresponds to permanent investments in life insurance.

Accumulated results in 2010 reported record net income of US$ 68.3 million, which tops 2009’s result of US$61.7 million by 10.8%. This increase is due primarily an improvement in the underwriting result.

The underwriting result obtained in 4Q10 totaled US$ 24.3 million, which is similar to the US$ 24.2 million reported in 3Q10. In 4Q, premiums in the property and casualty, health and life segments increased significantly. Nevertheless, 4Q10’s result falls below 4Q09’s figure of US$ 29.0 million. This is mainly attributable to the evolution of the property and casualty business (PPS) this quarter, which was marked by a higher loss ratio of 54.8% compared to 35.6% in 4Q09 due to severity incurred during the last quarter of the year.

The underwriting result obtained in 2010 totaled US$ 93.4 million, which exceeds last year’s result by 16.9%. This significant growth is due to a lower loss ratio of 63.6% versus 65.2% in 2009, which is in turn attributable to a disciplined approach to underwriting and portfolio diversification.

The quarterly result reported earnings of US$ 24.4 million in financial income in comparison to US$ 25.3 million in 3Q10 and US$ 19.0 million in 4Q09.

General expenses totaled US$ 29.4 million, remaining stable with regard to 3Q10 but falling below the US$ 31.4 million reported in 4Q09. This is due primarily to

i)     a provisions reversal for legal fees paid to third parties and

ii)    a provisions release for uncollectible reinsurance reserves, both in the property and casualty segment (PPS).

In 2010, the ratio of general expenses over net earned premiums reached 21.5%, which is slightly higher than last year’s result of 20.8%.

Finally, Pacifico’s contribution to Credicorp benefitted this last 4Q of the acquisition of ALICO’s shares of the Pacifico group, especially since the profitable life insurance business contributes now almost 100% of its income to the group vs. about 50 % before the acquisition. Such contribution reached this 4Q US$ 16.0 million which exceeded 3Q10’s figure and topped the earnings of US$ 12.4 million reported in 4Q09.

US$ thousand		Net earnings																Total Contribution
Period		PPS				PV				EPS*				PGA				to BAP
4Q09			9,093				10,476				700				20,264				12,372
1Q10			5,789				7,759				1,495				15,043				8,492
2Q10			8,095				10,487				1,878				20,461				12,518
3Q10			7,599				6,962				1,825				16,386				10,439
4Q10			6,737				8,667				1,045				16,450				15,962
QoQ			-11.3	%			24.5	%			-42.7	%			0.4	%			52.9	%
YoY			-25.9	%			-17.3	%			49.4	%			-18.8	%			29.0	%

*Includes Médica, an additional company which offers medical assistance services.

 

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Pacífico General Insurance (PPS)

PPS’s net income in 2010 totaled US$ 28.2 million, which is improvement over the US$ 26.2 million obtained in 2009. This is attributable primarily to: i) a loss ratio of 50.5% in 2010 versus 53.1% in 2009, ii) 5.0% growth in net earned premiums and iii) higher financial income, which reported an increase of 8.5% YoY.

Net income in 4Q10 reached US$ 6.7 million versus US$ 7.6 million in 3Q10 and US$ 9.1 million in 4Q09. This is mainly attributable to higher net claims corresponding to severity incurred in the property and casualty line.

Technical Results by Business Unit

		4Q10												3Q10												4Q09
US$ million		Vehicle Insurance			Private Health Insurance			P&C			TOTAL PPS			Vehicle Insurance			Private Health Insurance			P&C			TOTAL PPS			Vehicle Insurance			Private Health Insurance			P&C			TOTAL PPS
Net earned premiums		22.3			16.0			16.1			54.3			20.8			16.0			14.3			51.1			20.4			15.0			17.0			52.4
Underwriting results		9.2			2.2			6.1			17.4			7.3			3.3			9.9			20.5			9.3			4.4			11.7			25.4
Loss ratio		37.7	%		77.2	%		56.4	%		54.8	%		42.5	%		70.8	%		16.1	%		44.0	%		31.3	%		62.2	%		17.4	%		35.6	%
Underwriting results / net earned premiums		41.1	%		13.7	%		37.9	%		32.1	%		35.1	%		20.6	%		69.1	%		40.1	%		45.7	%		29.3	%		68.7	%		48.5	%

·

Net earned premiums for Car Insurance totaled US$ 22.3 million in 4Q10, which indicates an increase with regard to the US$ 20.8 million in 3Q10 and US$ 20.4 million in 4Q09.

The net earned premium in the Car line was US$ 19.7 million in 4Q10; this indicates a QoQ increase that is primarily due to higher new car sales in the market as well as the consolidation of new commercial channels.

The Statutory Auto Liability line (SOAT) earned direct premiums in 4Q10 for a total of US$ 2.8 million, which falls below the result obtained in 3Q10 of US$ 3.3 million. This is due primarily to a seasonal component that leads to higher sales in the third quarter of the year.

·

During 4Q10, the Private Health Insurance line reported net earned premiums of US$ 16.0 million, which is similar to the result obtained in 3Q10 but 6% higher than that reported in 4Q09. The loss ratio of 77.2% exceeded the 70.8% reported in 3Q10 and the 62.2% obtained in 4Q09.  This is attributable to severity incurred internationally and in international health product lines.  Despite this quarterly increase, the loss ratio in 2010 was low: 70.7%. Additionally, in terms of market share, Pacifico Insurance is currently market leader in this segment.

The Property and Casualty line (P & C) obtained net earned premiums of US$ 16.1 million, which is slightly above the figure reported in 3Q10 and US$ 1 million lower than that registered in 4Q09. The YoY variation is attributable to an increase in the percentage of ceded premiums, which went from 60% in 4Q09 to 68% in 4Q10 due to an increase in direct premiums (15%), mainly  Fire  (+27%) and Technical Lines (+27%), which represent the highest volatility segments. The loss ratio increased from 17.4% in 4Q09 to 56.4% in 4Q10 due to a severe loss, which was adequately absorbed by the volume and quality of the property and casualty portfolio.

At the end of the period, business was stable. This was achieved by consistent use of efficient underwriting criteria over the past few years and the decision to retain risks that imply less volatility. Expert pricing and more extensive diversification were also key factors in this success.

PPS’s net financial income reached earnings of $6.4 million in 4Q10, registering an increase over the US$ 5.8 million obtained in 3Q10. This is attributable to higher dividends and interest income.

 

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In summary, the following aspects of PPS’s property and casualty segment stand out this quarter:

i)      net premium income totaled US$ 54.3 million while

ii)     total operating costs reached US$ 15.6 million. These results led to

iii)    a combined ratio this quarter of 96.7%, of which 54.8 points correspond to losses and loss adjustment expenses, 13.1 to business acquisition costs and the remaining 28.8 to general or administrative expenses.

Pacífico Vida (PV)

Pacifico Vida obtained earnings before minority interest of US$ 8.7 million in 4Q10, which is an improvement over 3Q10’s US$ 7.0 million.

The underwriting result obtained in 4Q10 of US$ 2.1 million is primarily attributable to:

i)        the increase in net earned premiums of US$ 38.1 million in 4Q10 versus US$ 35.9 million in 3Q10, which in turn led to an increase of consolidate underwriting reserves related to higher annuity life insurance sales,

ii)       lower net losses in the fourth quarter of the year, falling from US$ 25.2 million in 3Q10 to US$ 23.4 million in 4Q10 and

iii)      lower net underwriting expenses, which totaled US$ 1.5 million in 4Q10 versus US$ 2.3 million in 3Q10 due to reinsurance income.

Pacífico Vida

Products		Total Premiums						Change %
US$ million		4Q10		3Q10		4Q09		QoQ			YoY
Individual life		15.4		14.8		13.2		4.1	%		16.3	%
Individual annuity		36.0		29.0		9.9		24.3	%		264.0	%
Disability & survivor (Pension)		12.2		11.5		8.8		6.8	%		39.4	%
Credit Life		9.6		9.0		6.5		7.1	%		47.6	%
Personal accidents		3.1		3.0		2.8		2.2	%		9.6	%
Group life (Law)		2.5		2.4		2.1		0.4	%		17.4	%
Group life		3.0		2.8		3.1		10.3	%		-3.4	%
Limited workers compensation		3.6		3.5		2.8		1.3	%		24.9	%
TOTAL		85.4		75.9		49.3		12.5	%		73.1	%

Net financial expenses totaled US$17.8 million this quarter versus US$19.2 million in 3Q10. This decline is due to an inflation adjustment in VAC bonds (constant value – quarterly adjustment for deflation).

General expenses in 4Q10 increased 13% with regard to 3Q10 to reach US$9.9 million. This was due primarily to provisions and liquidations.

After deducting minority interest of US$ 3.3 million, net income in the life segment totaled US$ 5.4 million in 4Q10, which represents a 25% increase QoQ.

 

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Pacífico Salud (EPS)

During 4Q10, Pacífico Salud reported net earned premiums of US$ 39.7 million, which tops both the US$ 38.6 million obtained in 3Q10 and the US$ 34.0 million registered in 4Q09. This was attributable primarily to new affiliates. The overall loss ratio was 80.7% in 4Q10. This figure falls below the 84.5% reported in 4Q09 thanks to improvements in loss underwriting despite an increase in claims in the last quarter of 2010, which caused the ratio to increase with regard to 3Q10’s figure.

General expenses totaled US$ 4.2 million, registering an increase, attributable to higher advertising and publicity expenses as well as yearly bonus payments. Consequently, net earnings in 4Q10 totaled US$ 1.0 million, which falls below the US$ 1.8 million reported in 3Q10 but is nevertheless higher than the net earnings of US$ 0.7 million in 4Q09.

In summary, growth was significant in 2010. Net income during the period totaled US$ 6.2 million, which represents a substantial improvement over the US$ 2.6 million reported in 2009. This success is attributable to improvements in operating processes, adequate underwriting policies and effective expense control.

 

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VIII. Economic Outlook

Economic Activity

Economic growth in 4Q10 is estimated at 8.9%. This figure, although higher than initially expected, reflects a slower pace of growth. In this context, growth in 2010 was calculated at 9.0%.   This annual expansion was attributable to non-primary sectors- particularly construction (13.9%) and manufacturing (13.6%) - and was offset by a contraction in primary sectors, including fishing (-29.1%) and mining (-0.1%). External and public demand continued to lag but private demand was vigorous despite lower stimulus from public works and higher financing costs due to the liquidity restrictions implemented by the Central Bank (increase in reserve requirements). It is important to emphasize that this shows that the private sector’s position is solid, which is reflected in the indicators linked with investment (manufacturing and import of capital goods, construction), which continued to be dynamic throughout 4Q10.

Despite the fact that this is an elections year, the country’s risk indicators have remained stable. This indicates that the political scenario should have little impact on economic activity.  As such, and in line with growth in 2010, the Peruvian economy is expected to expand 7.0% in 2011. This forecast is based, as it has been for the past several years, on the evolution of private investment and productive sectors linked to demand such as construction and manufacturing.

External Sector

In 4Q10, the trade balance reported a surplus of approximately US$ 1,500 million, which is slightly higher than last quarter’s figure. This is due to an increase in the prices for the country’s primary exports (especially minerals), which was offset by growth in imports (close to 35% a year) due to the fact that internal demand remains dynamic.    It is important to mention that in real terms, exports have varied little as the international recovery has been slow.

 

The trade balance remained positive but higher mineral prices have allowed non-domiciled companies to increase their earnings remittances to company headquarters.  This, however, has increased the current account deficit. In this scenario, the external deficit in 2010 was estimated at 1.8% of GDP and this figure could rise in 2011 as investment picks up.  Nevertheless, investment flows, including direct foreign and portfolio-related investment, were more than sufficient to cover this deficit and led to an accumulation in international reserves. At the end of 2010, BCR’s net international reserves totaled US$ 44,105 million, which reflects an increase of US$ 10,970 million during 2010.

 

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Prices and Exchange Rate

At the end of 2010, annual inflation was situated at 2.1%, which is slightly above BCR’s target. This is due primarily to an increase in food prices during the first half of the year, which was attributable to supply factors. During the last four months of 2010, this trend was reversed and the food and beverage group reported an accumulated inflation of 2.5% during 2010.  This modest variation, nonetheless, was offset by higher inflation relative to fuel and electricity.  Despite this evolution, agents’ expectations remained stable in line with the evolution of core inflation, which was situated between 1.9% and 2.1% throughout the year (around the center of the inflation target).

In 2011, core inflation is expected to remain around 2.0% and overall inflation should situate close to the upper limit of the target range (1%-3%), driven by an increase in commodity prices.

At the end of 2010, the exchange rate demonstrated a depreciatory trend (the opposite of the situation reported during the first half of the year). This was due primarily to an increase in risk aversion attributable to growing uncertainty in the euro zone.  Despite this trend reversal, the Nuevo Sol was the most stable currency in Latin America in 201. This was due to BCR’s purchases, which totaled approximately US$ 9 billion in 2010. In this scenario, the exchange rate closed at 2.81 Nuevos Soles per US Dollar at the end of 2010. This represents an appreciation of 1.7% during 2010.

 

 

 

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Fiscal Sector

Total central government collections continued to demonstrate an upward trend in November. This was attributable to the good performance of internal demand and higher commodities prices in the last few months of the year. This led to higher tax collections for income tax and value-added tax. In this scenario, tax income reported annual growth of 22.2% in November, which is the highest figure recorded since May 2007. This was due primarily to higher value-added tax collections, which was in turn attributable to the fact that the economy was more dynamic in 2010 than 2009. Sunat believes that this favorable trend continued in December but annual growth was more than likely a bit lower due to higher comparative results in December 2009.

Due to an increase in non-financial public sector income, BCR has revised its estimate for the fiscal deficit. This figure is currently 0.9% of GDP (versus a previous estimate of 1.1% of GDP).   The Minister of Economy has said that a deficit close 1.0% will give the government room for fiscal maneuvering if the international context deteriorates.

 

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Banking System

In November, the private sector’s loan balance increased 2.3% MoM. This was attributable to loans in Nuevos Soles and in US Dollars, which grew 2.9% and 1.7% respectively.  In annual terms, loans grew 20.2% at a pace that increased from February 2010 on. The private sector’s loan dollarization coefficient, not including foreign branches, was 44.2% at the end of 2010 (similar to October). The Central Bank believes that this coefficient is on the decline, due primarily to the fact that the local currency has strengthened.

Finally a progressive increase has been observed in interest rates in Nuevos Soles, in line with increases in the Central Bank’s reference rate. The first rate to line up was TIPMN, which went from 1.81% in December to 1.89% in January. TAMN remained low during the last few months of 2010, reporting 18.81% and 18.78% in November and December respectively. Nevertheless, the evolution of active interest rates is differentiated as some rise (aligning with the Central Bank’s new position) while others, such as active rates for micro lending and mortgage loans, continue to fall.

Main Financial Indicators

		2008		2009										2010
		Year		IQ		2Q		3Q		4Q		Year		IQ		2Q		3Q
GDP (US$ million)		127,643		27,914		31,927		32,010		35,302		127,153		35,224		39,062		38,475
Real GDP (var. %)		9.8		1.9		-1.2		-0.6		3.4		0.9		6.2		10.2		9.7
GDP per-capita (US$)		4,532		3,888		4,407		4,379		4,786		4,365		4,733		5,202		5,078
Domestic demand (var. %)		12.1		-0.8		-5.8		-5.0		0.4		-2.9		8.4		14.2		15.1
Consumption (var. %)		8.7		4.1		1.6		1.0		2.8		2.4		5.4		5.8		6.2
Private Investment (var. %)		28.3		4.3		-16.0		-14.6		-5.9		-8.6		12.3		29.5		26.8
CPI (annual change, %)		6.7		4.8		3.1		1.2		0.3		0.3		0.8		1.6		2.4
Exchange rate, eop (S/. per US$)		3.14		3.16		3.01		2.88		2.89		2.89		2.84		2.84		2.79
Devaluation (annual change, %)		4.7		15.2		1.5		-3.1		-8.0		-8.0		-10.2		-5.6		-3.2
Exchange rate, average (S/. per US$)		2.92		3.18		3.02		2.96		2.89		3.01		2.84		2.84		2.81
Non-Financial Public Sector (% of GDP)		2.1		2.6		1.8		-3.2		-8.2		-1.9		3.0		1.9		-1.3
Central government current revenues (% of GDP)		18.2		16.5		16.7		15.3		15.2		15.9		18.2		17.9		16.6
Tax Income (% of GDP)		15.6		14.6		14.1		13.0		13.4		13.8		15.4		15.6		14.3
Non Tax Income (% of GDP)		2.6		1.9		2.6		2.2		1.8		2.1		2.7		2.3		2.2
Current expenditures (% of GDP)		12.4		11.8		10.7		14.8		13.5		12.7		11.3		10.3		13.3
Capital expenditures (% of GDP)		4.4		3.5		4.5		6.1		10.1		6.1		3.9		5.9		6.4
Trade Balance (US$ million)		3,090		513		1,335		1,838		2,188		5,873		1,574		1,548		1,442
Exports (US$ million)		31,529		5,396		6,161		7,169		8,159		26,885		7,908		8,157		9,262
Imports (US$ million)		28,439		4,883		4,827		5,330		5,971		21,011		6,334		6,609		7,820
Current Account Balance (US$ million)		-4,723		-391		106		264		267		247		-533		-354		-846
Current Account Balance (% of GDP)		-3.7		-1.4		0.3		0.8		0.8		0.2		-1.5		-0.9		-2.2

Source: BCR, INEI, estimated by BCP.

 

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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 statements 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.

 

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CREDICORP LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In US$  thousand, IFRS)

					As of						Change %
		Dec 10			Sep 10			Dec 09			QoQ				YoY
ASSETS
Cash and due from banks
Non-interest bearing			1,624,377			961,902			938,486			68.9	%		73.1	%
Interest bearing			6,958,478			2,906,126			2,898,172			139.4	%		140.1	%
Total cash and due from banks			8,582,856			3,868,028			3,836,658			121.9	%		123.7	%
Marketable securities, net			114,430			73,986			70,774			54.7	%		61.7	%
Loans			14,393,358			13,409,258			11,585,635			7.3	%		24.2	%
Current			14,183,610			13,195,983			11,401,113			7.5	%		24.4	%
Past due			209,748			213,275			184,523			-1.7	%		13.7	%
Less - net provisions for possible loan losses			(415,703	)		(411,736	)		(354,355	)		1.0	%		17.3	%
Loans, net			13,977,655			12,997,522			11,231,281			7.5	%		24.5	%
Investments securities available for sale			3,793,527			7,630,494			5,079,606			-50.3	%		-25.3	%
Reinsurance assets			160,249			145,945			137,098			9.8	%		16.9	%
Premiums and other policyholder receivables			129,136			122,643			121,338			5.3	%		6.4	%
Property, plant and equipment, net			373,318			359,687			338,535			3.8	%		10.3	%
Due from customers on acceptances			70,331			57,901			96,423			21.5	%		-27.1	%
Other assets			1,249,973			1,343,867			1,116,395			-7.0	%		12.0	%
Total assets			28,451,474			26,600,072			22,028,107			7.0	%		29.2	%
LIABILITIES AND NET SHAREHOLDERS¨ EQUITY
Deposits and Obligations
Non-interest bearing			4,360,556			4,062,688			3,297,995			7.3	%		32.2	%
Interest bearing			13,724,755			12,589,321			10,793,833			9.0	%		27.2	%
Total deposits and Obligations			18,085,310			16,652,009			14,091,828			8.6	%		28.3	%
Due to banks and correspondents			2,262,446			1,719,880			2,256,659			31.5	%		0.3	%
Acceptances outstanding			70,331			57,901			96,423			21.5	%		-27.1	%
Reserves for property and casualty claims			1,008,724			962,422			878,767			4.8	%		14.8	%
Reserve for unearned premiums			187,599			163,362			140,024			14.8	%		34.0	%
Reinsurance payable			60,775			65,112			48,009			-6.7	%		26.6	%
Bonds and subordinated debt			2,985,500			3,067,395			1,287,022			-2.7	%		132.0	%
Other liabilities			898,640			992,131			726,023			-9.4	%		23.8	%
Minority interest			53,789			230,546			186,496			-76.7	%		-71.2	%
Total liabilities			25,613,115			23,910,758			19,711,251			7.1	%		29.9	%
Capital stock			471,912			471,912			471,912			0.0	%		0.0	%
Treasury stock			(74,712	)		(74,712	)		(74,242	)		0.0	%		0.6	%
Capital surplus			119,637			119,637			130,341			0.0	%		-8.2	%
Reserves			1,385,098			1,385,098			1,059,344			0.0	%		30.8	%
Unrealized gains			341,844			327,666			237,446			4.3	%		44.0	%
Retained earnings			594,580			459,713			492,055			29.3	%		20.8	%
Net shareholders' equity			2,838,360			2,689,315			2,316,856			5.5	%		22.5	%
Total liabilities and net shareholders' equity			28,451,474			26,600,072			22,028,107			7.0	%		29.2	%
Contingent credits			9,257,732			9,222,042			2,528,135			0.4	%		266.2	%

 

 

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