Credicorp Ltd (BAP) 2005 Q1 法說會逐字稿

Good day everyone and welcome to the Credicorp LTD first quarter 2005 earnings release conference call. As a reminder, today's conference is being recorded. At this time, I'd likes to turn the conference over to Mr. Walter Bayly, Chief Financial Officer. Please go ahead, sir.

Thank you and good morning to all of you. Thank you for joining us at this, Credicorp's conference call for first quarter 2005. As usual, we will briefly review the results for the Peruvian economy and financial system and afterwards we will concentrate on Credicorp's number and as well as those of its major operating successors.

Page three. During the first three months of the year, the per Peruvian economy continued showing a good performance. The economy grew 6 % during the first two months and is expected to grow at that rate through the first quarter. The GDP continues a relatively high growth rate and began in the final -- that began in the final months of 2004. It is important to note the dynamics of sectors related to domestic demands like construction, retail and services. GDP's performance continued to be driven by higher activity in non-primary manufacturing namely textiles, metal mining, oil and natural gas, due to the international demand for exports which boosted their prices.

The first quarter of 2005, the consumer price index in Peru increased 0.5 %, higher than the 0.3 % in the preceding quarter. Inflation was 1.9 in the first twelve months prior to March 2005. Remaining in the bottom of the range of 1.5 to 3.5, targeted by the central bank for total 2005. In the current quarter, inflation suffered seasonal increases in educational costs and food prices but benefited from the lower exchange rate.

The Peruvian currency remains strong during the quarter, closing at 3.26 solid, per dollar. The appreciation of the domestic currency took place in spite of active central bank intervention in the foreign exchanges market with net purchases of roughly 1.1 billion during the quarter. During the first quarter, the fiscal accounts generated 1% of GDP's surplus according to official estimates. The surplus is higher than the 0.9 rate in the same period last year. The 2005 fiscal year target deficit was set also at 1.1 % of GDP.

As for the future, we are very optimistic. The economy has recovered during the last three years as a result of higher domestic consumption due to a higher demand, high commodity prices, as well as slight increase in private investment. We estimate that the gas production of the Camisea Project, the high commodity prices and the future U.S. trade agreement expected to be signed at the end of this year will contribute to stimulate the economy during the current and next year.

Page four, with respect to the Peru financial system, the development of the Peru capital market, the increased pressures in the retail segment of department stores, and smaller regional financial intermediaries has resulted in continued competition for the commercial banking system. In spite of this competition, total loans increased by $900 million since March last year. Mileage assets in private pension funds continued increasing and grew 5.3 % in the first quarter, reaching 8.2 billion as of March 2005. And now almost 22 % higher than in March 2004. The current stock of corporate bonds in the market as of February 2005 amounted to 2.1 billion, 200 million lower than in December of 2004.

Loan volumes in the banking system increased 9 % when compared with March 2004. Commercial loans have decreased 3 % with respect to March 2004, reaching 7.5 billion at the end of March 2005. On the other hand, retail loans have continued expanding, particularly in the consumer, small business and mortgage markets. Loans in these markets have grown 17 %, 29 % and 12 % respectively, since March 2 '04.

Loan volumes in the consumer is segment reached 1.5 billion. Micro businesses, 490 million and mortgages, 1.6 billion. Competition in retail banking has continued growing significantly due to the increased presence in these markets of department stores and smaller regional financial intermediaries, Cajas Municipales, as well as continued increased competition amongst commercial banks. Deposit volumes continued their mild positive trend during the first quarter 2005, total deposits reached 115.2 billion increasing 11 % with respect to the first quarter 2 '04. The quality of the banking system loan portfolio has improved when compared to the first quarter 2004.

Mainly as a result of a stable exchange rate and the growing economy driven by the increased domestic demand. Loan interest rates in spreads in dollars increased as a result of rises on international rates led by the federal Federal Reserve. Average loan rates [inaudible] are higher due to increased share in total loans of retail and small business loans, which have higher than average interest rates.

We will now review the results of Credicorp, page five. We are very satisfied with Credicorp's results for the first quarter which amounted to $43.6 million and well ahead of our own expectations. The improvement in this quarter's results with respect to the same quarter of last year was mainly explained by one, higher net interest income due to an increase in volumes of interest earning assets. This increase was done In spite of the reduction of 360 million in loans due to the incorporation of Bank of Boston's loan portfolio which was acquired in March 2005 and amounted to 360 million, did not have an impact on the full quarter since it was incorporated as of March. We also have slight increases in interest rates and lower loan loss provisions. All these improvements were partially compensated in an increase in the other expenses line.

Page six, the largest contribution to our full quarter results in the first quarter 2005. The improvement of PCP's numbers was mainly explained by lower loan loss provisions following a continued improvement in its loan portfolio, higher net interest income as a result of an increase in interest rates as well as higher volumes of interest earning assets. Additionally and when compared to the first quarter '04, nonfinancial has increased due to a rise in fee income at Atlantic Security Bank when compared to the first quarter '04 also improved its contribution to Credicorp, mainly as a result of an increase in fee income and gains in sale of securities.

Unrealized gains is a value in Atlantic's investment portfolio, had a 4 million reduction from 12 million to 8 million year-over-year. The contribution of Pacifico was 2.2 million lower than the 2.8 million posted for the same quarter a year ago. This was a consequence of lower volumes in the life business due to a loss of competitiveness due to a conservative approach in the management of its investment portfolio. Some extraordinary expenses related to an [inaudible] acquisition and a slight increase in claims mainly in the marine hull business.

With respect to our Bolivian subsidiary, its financial performance continued improving mainly as a result of a better quality of its loan portfolio. We are confident that all provisionary requirements have been made, BCB made -- contributed with 0.9 million during the first quarter 2005 which compares favorably with 0.4 million obtained during the first quarter of last year. The Credicorp and others line, which includes Inversiones Credito, contributed a net loss of 5.7 million due to several extraordinary factors.

One is a 2.5 million provision in Inversiones Credito related to long term investments in Generalima, it is a holding company which we have with Intesa which owns Etevensa, a power generator plant, and 4.5 million provision of taxes on dividends received from Peruvian subsidiaries which were totally charged during the quarter. It also includes $1.8 million revenue and interest earned from the sale of Banco Tequendama.

During the first quarter of 2004, Credicorp and other lines contributed to net loss of 2.1 million which included loan loss provisions on Tequendama's the portfolio and general expenses. Unmeasured before, the results obtained in the Credicorp and others line for the first quarter of '05 are all items which are nonrecurrent.

We will now receive BCP's numbers in the next page. BCP's contribution to Credicorp during the quarter reached 45.4 million, 68.6 % higher than the 26.9 million register in the first quarter of last year. The improvement in this quarter's number was mainly explained by a reduction in loan loss provisions, increasing net interest income and growth of other income. Net interest income grew 22 % year-over-year, mainly through the increase in volume of interest earning assets and the increase in rates. BCP spreads increased with respect to the first quarter of 2004 as a result of increase in retail loans, particularly mortgages, small business loans, consumer and credit cards.

Provisionary requirements declined from 9.9 million in the first quarter of last year to a contribution of 3.1 million during this quarter, in line with the continued improvement in the quality of BCP's Peruvian and Bolivian loan portfolio. It is important to note as explained in much further detail in the press releases, that in the periods prior to 2005 income from recoveries of previously charged-off loans, which were reported in the other non-interest income caption , have been reclassified to the provision for possible loan losses caption, with no effect in net income.

Other income, which includes fees and commissions, services, foreign exchange and other income grew 7 % from the first quarter through '04. This growth is explained mainly by higher fees in credit cards, increasing 21% and commission for small business credit, increasing 200 %. Additionally, net gains in foreign exchange transactions, which is mainly -- which includes mainly higher foreign exchange transactions made at the tellers, increased by 16 % when compared to the first quarter 2004. BCP's operating expenses, which includes merger costs, grew 4.7 % with respect to the first quarter a year ago, mainly due to an increase in personnel expenses. Personnel expenditures grew 16 % year-over-year and there were three factors that affected this. Number one is the revaluation of local currency with higher effect when converted into U.S. dollars.

Second, higher personnel costs related to viable compensation and profit-sharing schemes and third, higher salaries and slightly, number of personnel. In addition, administrative expenses decreased 1 % year-over-year as a result of a reduction in maintenance assistance, which is compensated by increase in advertising, insurance and security. During the quarter the efficiency ratio excluding, non-recurrent expenses and revenues amounted to 56.8, far below the 63.8 attained during the same quarter last year. Return on equity reached 23.7 % for Banco de [inaudible]. Even though BCP's efficiency ratio is still far from our long-term objective we are confident that the firm control on the -- on its expenditures will allow to obtain this objective in the near future.

Page eight, BCP's loan quality. The quality of BCP's loan portfolio continued improving during this quarter. The consolidated past due loan ratio, which includes the Bolivian loan portfolio, continued declining from 6 % to 3.4 % year-over-year. BCP's consolidated coverage ratio reached 177 %, higher than the 122 % obtained at the end of the first quarter last year. Both the Peruvian and Bolivian loan portfolios remained healthier than the banking systems average in each of these countries.

The Peru portfolio past due loan ratio of 2.7 % is lower than the system's 3.6 % and the coverage ratio of 205 % is higher than the average of the Peru banking system of 177 %. In the case of Bolivia, past due loan ratio was 10.4 lower than the 15.5 for the system and the coverage ratio currently at 102 % is higher than the system's 74 % ratio. As the Peru economy continues to grow and the Peru currency remains stable, we foresee a continuing improvement in the quality of the portfolio. In the case of Bolivia, we have built up the required reserves and do not anticipate any reservation in the existing portfolio. We expect stable provisionings in the following quarters.

We will now turn to at Atlantic's results on the next page. During the first quarter, the contribution of Atlantic Security Holdings to Credicorp amounted to 3.4 million compared to 2.9 million contributed during the same quarter last year. Its non-realized gains at the end of the quarter amounted to 8 million compared to 12 million gained a year earlier. Provisions for market risk, loans for market risk and loans reached 1.1 million during the first quarter 2005 compared to 1 million for the same quarter last year.

Since 2003, Atlantic Security's focus has concentrated of increasing its fee income related to wealth management business and maintaining a lower risk profile on its proprietary investments. As a result of it this strategy, funds under management have increased from 664 million in December 2 '03 to 720 million in March 2005, generating higher fees with lower risks. During the first quarter 2 '05, fees of funds under administration and brokerage services amount to do 1.5 million, 22 % higher than during the same quarter last year.

Non-interest income, which includes realized gains in the sales of securities, net gain of foreign exchange transactions and other income increased 52 % year-over-year. We are confident that as a result of its increased focus on the wealth management business and the maintenance of the counter risk profile of its investment portfolio, Atlantic will reduce the volume volatility of its income stream and will continue improving the profitability of its operations in the following quarters.

We will now turn to Pacifico in the the next page. During the quarter, the contribution of Pacifico to Credicorp amounted to 2.2 million compared to 2.8 million reached during the same quarter a year ago. During the first quarter of 2 '05, figures include the incorporation of Novasalud numbers. After the merger completed in August last year. Consolidated total premiums and health fees reached 83.9 million, increasing 21 % year-over-year, mainly as a result of an increase of 12.2 million in health insurance fees. During the same period, health insurance business grew 158 %, property and casualty, 4 % and life insurance 4 %, compensated by lower life and [inaudible].

Net earned which excludes the premiums paid to the insurance companies in the increase in reserves grew 32 %, mainly as a result of higher retention rates in property and casualty and a 158 % growth in the health insurance line. Reserves continued increasing by 18.2 million during the first quarter 2 '05. Growing at a 2.1 % rate compared to the first quarter last year. This growth is due to a continued development in the life insurance business. Net claims increased by 37 % during the first quarter '05. The net loss ratio, which compares net claims with net premiums, increased from 62 % to 73 %.

That includes a ratio was mainly explained by higher claims in the health insurance business which has an 81% ratio. During 2005, net claims were higher in engineering policies, marine hull, fire, pension fund insurance and dishonesty policies. As a result of an increase in net claims in the health insurance business, with respect to business volumes, the combined ratio in the property and casualty and health insurance business increased to 97.1 %. As for the future, we expect that the life insurance business will continue growing and increasing the contribution to our profitability.

Management has already taken the appropriate measures with a support of AIG, our partner, to ensure the competitive -- our competitiveness in this market. The property and casualty business will continue growing with the economy and experiences a reduction in commercial margins as a result of increased competition. Finally, we expect to consolidate our presence in the health insurance business with our recent purchase of Novasalud and improve our operating margins and profitability in this business.

Page 11, Credicorp's overview. In summary, we are very satisfied with Credicorp's results for the quarter which are ahead of our expectations. Banco Credito Bolivia has improved its result with lower provisionary requirements. Its loan portfolio has been cleaned up and its operations are have been -- are already restructured following BCP's business model. We believe our Bolivian operation is now prepared to increase its business volumes and its profitability. In the case of Atlantic, the current risk profile of its investment portfolio and its increased concentration in the wealth management business and brokerage business has started to pay off.

We are confident that this new strategy should allow Atlantic to increase the value added to its customers and have a more stable revenue growth. The purchase of [inaudible] us to consolidate its presence in the health insurance market and obtain operational efficiency, which will boost the profitability in this business. As for the future, we have a positive outlook with respect to Banco de Credito based on its lower provisionary requirements in its Peruvian and Bolivian loan portfolios.

The perspective growth in loan volumes, particularly in the retail banking segment, where it should be able to exploit more extensively and efficiently its extensive [inaudible] network and increase efficiency of its operations, as well as a positive outlook for the economy. All of these efforts should allow BCP to continue increasing its profitability in the following quarters. In summary, Credicorp's operating units are today prepared to sustain profitability growth. The portfolios are very adequately covered.

All the units have clearly defined objectives. Efficient levels continue to improve. We do not envision any extraordinary expenses in the near future. We are now positioned to take advantage of a stable economy with a -- take advantage of the adequate economies of scale that should give Credicorp a competitive advantage in the markets where it operates. Thank you very much and with this, we conclude the first portion of this conference. We are now ready to go into question and answer period. Thank you.

Thank you, Mr. Bayly. The question and answer session will be held electronically today. If you'd like to ask a question, please do so by pressing the star key followed by the digit 1 on your telephone keypad. If you are joining us today using a speaker phone, please make sure that your mute function is turned off to allow your signal to reach our equipment.

We will proceed in the order that you us and take as many questions as time permits. Once again, it is star 1 on your touch tone telephone. If you do have any questions. And we'll pause for just one moment to give everyone the opportunity to signal for questions. Again for the telephone audience, if you do have any phone questions, please press star 1 now. Mr. Bayly, there appears to be no phone questions. at this time, sir.

Well, thank you very much. I guess there being no questions is a result of a very satisfied audience. We have had indeed very good results for the quarter. We expect to maintain them during the rest of the year and again we thank you all very much for joining us in this conference call. Thank you very much and goodbye.

That does conclude our teleconference for today. We'd like to thank you all for your participation. You may now all disconnect.