Credicorp Ltd (BAP) 2011 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Credicorp Ltd First Quarter 2011 Earnings Release Conference Call.

My name is Keith and I'll be your coordinator for today.

At this time all participants are in a listen-only mode.

Following the prepared remarks, there will be a question-and-answer session.

(Operator Instructions).

As a reminder this conference is being recorded for replay purposes.

I would now like to turn the presentation -- excuse me, over to Mr.

Alvaro Correa, Chief Financial Officer of the Credicorp.

Please proceed, sir.

Thank you very much, Keith.

Good morning, everyone, and welcome to Credicorp first quarter conference call for 2011.

The results of this first quarter reflect the continuation of the excellent growth spree recorded in the country in the previous quarters.

We saw a recovered dynamism in the retail sector and a positive investment mood during the first three months of the year, which has seen today disturbed by the uncertainties we are living on the political front.

Consequently, core income generation was strong and in the essence of the volatility generated by nonrecurring items and year end seasonality the depressed fourth quarter results, we could report a significant increase in net earnings as we will see further on.

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This is slide number three.

The highlights of this first quarter of 2011 show a very solid business expansion.

As we will see in more detail, we saw a stronger net interest income as our loan group continues growing in the retail sector and the rise in the local reference rate that benefitted our yields on liquid assets, which ultimately led to an improvement in our NIM by 20 basis points.

Loan growth, measured by quarter end balances was moderate at around 2% and hides the real expansion as measured by average outstanding loans which reached 4.4% growth for the quarter.

As a result of this, BCP reported a 29% increase in its contribution to Credicorp as income generation improved 9% while provisions and OpEx dropped.

Furthermore, Credicorp's other subsidiaries also performed extremely well with the insurance business expanding 18% for the quarter, Atlantic Security Bank -- private banking business also contributing 10% more and Prima showing that as well a very good performance.

And as a final addition, $8.9 million of extraordinary net income was reported this first quarter after the sale of a share package related to a private equity investment held at Grupo Credit, the local holding company which boosted critical bottom line.

Credicorp's net income was therefore up 35% for the quarter, showing 24.7% return on equity, 2.4% return on assets, 1.56% past due loan ratio and an improved 40% efficiency ratio.

This is in fact a very strong performance as we will see in the next slide.

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The previously listed highlights are reflected in this chart with financial indicators and ratios that show the strong expansion in earnings generation.

Net interest income was up 10% and in addition, this higher income was accompanied by lower provisions, down 14% and lower claims in the insurance business, also down 7.6% as well as lower operating costs.

Therefore, operating and bottom line results increased sharply.

As you can see, core operating income is up 24.6% and total operating income up 31.8%.

This led to the reported substantial increase in net earnings which were up 35.4%, reaching an outstanding $175 million for the quarter, though including the $8.9 million in extraordinary income referred to before.

Consequently, the efficiency indicator improved to 40%, profitability ratios improved to the high levels reported and NIM up 22 basis points to 4.84%.

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BCP is again a strong driver of these results since the trends are the same.

Though it is also strongly supported by the good results of the other Credicorp businesses, as we will see further on.

Again, a strong 9% growth in net interest income, spurred by the expansion of the retail business as well as by the upward trend in local currency interest rates, which improved the yields on liquid investments.

This accompanied by 14.2% lower provisions and fairly flat non financial income and operating expenses led to the strong 29.1% increase net income reported this first quarter, 2011.

These are true core business results since no extraordinary gains were reported at BCP.

In the next pages we will see some more details on BCP's results.

Page six.

Loan growth measured by quarter end balances reflect the seasonal behavior across the end of the year with eight loans outstanding at year end followed by very strong new retail sales numbers for the first quarter, but at the same time, important repayment of short term year end and holiday season related debts.

In addition, also some larger corporate lending was repaid, contributing to the quarter end balances drop.

Therefore, loan balances at the end of the first quarter reveal only 1.5% loan book growth at BCP.

However, the charts you are seeing show average daily balances which will reflect robust growth in lending for the quarter of 4.4%.

The charts also reveal a different performance by currencies, which is as well a reflection of the behavior of the different segments.

In fact, and as mentioned before, the dollar loan balances dropped due mainly to certain cancellations of corporate loans lost on prices while the local currency book reflects the middle markets and retail sector's performance which continued their expansion.

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Looking at income generation, net interest income does increase by 9% for the quarter and 26.6% year-over-year.

This growth comes from higher interest income on loans, but also higher yields on liquid assets and some dividends income typical of the first quarter which led to a 7.9% increase in interest income, accompanied by a proportionately lower expansion of interest expenses of only 5.3%.

On interest expense, we should also remember that the increase in local currency rates affects only partially our funding costs.

That is through time deposits only, whereas it favors the yields on our large liquidity positions at the central bank.

The impact of these moves in income generation on NIM resulted on a 14 basis points improvement to 4.7% for the quarter.

NIM on loans, however, dropped eight basis points reflecting the increase in funding costs.

Since interest income on loans grew 3.4% whereas overall interest expense was up to a reported 5.3%, mainly for local currency borrowings and the slight increase in deposit rate.

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Past due loans increased 9% in absolute terms as a result of a delay by the superintendents of the approval process of the surcharge of loans, and to a lesser extent, reflecting the stronger incursion in the lower retail sectors.

So this increase is not substantial in relation to the total loan portfolio, given the loan -- the low expansion of the quarter end balances, the impact on past due loan ratio is somewhat overstated and reached 11 basis point increase.

Despite this, the level of provisions dropped from $48.5 million to $41.7 million since the quarter -- the fourth quarter and included extraordinary pro-cyclical provisions.

Overall, reserves for loan losses increased 4.5% and the coverage ratio remains high at about 190%.

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Non financial income was flat quarter over quarter as a modest increase in fee income and gains on foreign exchange transactions was this quarter offset by a small loss on the sales of securities.

It is however noteworthy that the core fee income related to banking service commissions at BCP did maintain the high levels of the third quarter and fourth quarter, despite some fee adjustments related to the consumer protection initiative and income from foreign exchange transactions was also sustained and even improved from the good volume reached in the fourth quarter.

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Operating expenses also expanded modestly and were up only 1.1% quarter-over-quarter.

after the year end seasonality that drove operating expenses up in the fourth quarter, administrative expenses came down to a normalized level in the first quarter of this year.

However, personnel expenses increased as a consequence of a change in regulations from the superintendant that requires that the profit sharing for employees to be included as of 2011 within the personnel expenses as opposed to include them in the tax line as before.

This almost flat result added to the improved income generation we have seen, led to a significant improvement of the efficiency ratio reported by BCP to 47.7% this first quarter.

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BCP Bolivia reported this first quarter 60% higher income, however this increase responds mainly to a tax provision reversal rather than any real change in business performance, which remains in fact fairly flat.

Loan growth was modest for the quarter at 1.3% and past due loans increased temporarily due to the collections being affected by the holiday season, mainly in the wholesale sector means to a deterioration of the past due loan ratios to 1.71% from 1.47%.

Edyficar, BCP's micro lending vehicle has in turn reported a very good business evolution with lending activity growing at a robust pace of 7.1% for this quarter, and a very strong 40.5% for the year, no doubt, the fastest growing business segment of Credicorp.

Furthermore, total contribution to BCP increased 32% for the quarter, leading to a 22.9% return on equity for BCP that is including the $51 million in goodwill.

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Turning now to Atlantic Securities.

Atlantic reported an increase in contribution of 10.5% reaching $13 million for the quarter.

The quarter-over-quarter increase is primarily attributable to less provisions and less operating expenses.

Furthermore, income shifted from interest income to fee income since deposits migrated to funds managed off balance sheet.

Despite this shift, total volumes of assets under management decreased due to market valuation of investments.

This clearly reflected in the graph at the bottom right this slide and it's also reflected in the slight drop in core revenues.

Despite this valuation related contraction of the business, return on equity remains on a high 27.4% for the quarter.

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Pacifico's business generated this quarter 4.4% more net earned premium, mainly through the expansion of the life business which contributed with a substantial 15% net premium increase.

This business performance and the low loss ratio which dropped to 60.5% from 64.4% the previous quarter resulted in an excellent underwriting result, which increased 15% for the quarter.

However, both the general expenses ratio and acquisition costs ratio increased from a total of 39.6% last quarter to 43.4% this first quarter, both are related to investments following the expansion strategy set for the insurance business for the year.

Consequently, Pacifico reported a slightly lower though still very strong contribution to Credicorp of $15.3 million this first quarter.

Most of which was generated at the life insurance subsidiary.

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Finally, Prima AFP outperformed its previous results again and reported an $8.1 million contribution for the quarter, up 1.1% and 36.1% increase for the year.

The strong performance responds to solid fee income which expanded 9.5% and lower operating expenses.

These were down 7.8% but also helped by a provision reversal.

Consequently, operating results were significantly better, showing a 37.2% increase to $11.5 million.

Nevertheless, this improvement is not fully reflected in the bottom line, which shows only a slight increase into the fact that in the previous quarter net earnings were boosted by a tax and profit sharing provision reversal.

Furthermore, from a commercial point of view, Prima has further improved its market position and increased its market share in every way it can be measured.

Consolidating this way its leadership in the private pension fund.

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The contributions chart reflects this explained evolution and makes evident the significant improvement achieved this quarter that is a 35% increase net income attributable to Credicorp.

Another important observation is that nowadays BCP makes up for around 73% of net income of Credicorp, a significant change from previous periods, representing an improvement in diversification of income generation and the result of the successful policies applied at the different subsidiaries to improve the results and performance.

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The market data on this slide reflects the recent volatility in our stocks valuation related to some extent to market moves and investment preferences, but to a significantly larger extent, to the political uncertainties we are going through due to the presidential elections.

To this subject, we cannot at this at this stage predict the outcome of reelection given the close results of the polls.

We are certainly pleased with the evolution of our business and the future growth prospects in a stable political environment.

But the impact of political changes -- of potential changes in the political and economic front are, at this point, difficult to assess.

Thank you for listening and I'd like to proceed now to our Q&A session.

(Operator Instructions).

And your first question is from the line of Daniel Abut with Citi.

Please proceed.

Good morning.

Alvaro, understanding as you put it very well at the end, it is very difficult to know what will the outcome will be of the elections.

You mentioned at the beginning of your remarks that you did not see in the first quarter any slowdown in loan demand or lending activity and we saw that reflected in the results and the growth on the average balances.

What have you seen since the close of the first quarter that you can share with us in terms of any slowdown, particularly in the investment side, or the Company side of the loan demand, because of the uncertainty that started to be generated as the first round got nearer?

And with the difficulty of predicting what will happen in the second round, what should we expect?

What are you working now as your core assumption for loan growth for the year as a whole after you posted this 23% year-on-year growth in the first quarter?

Good morning, Daniel, it's Walter.

Hi, Walter.

Yes, we have seen impacts of the volatility due to the political process that is currently taking place.

We have seen a substantial slow down, particularly on the mortgage side and under Pymes, on the small business.

Volumes -- monthly volumes have come down -- monthly volumes of new loans have come down by about 20%.

We have seen also a lot of volatility in the mutual fund business where volumes have come down substantially to one the valuation and second, people just regarding their money from the stock market.

Third, we have seen a lot of foreign currency volatility and that has impact on translation gains and losses on our balance sheet.

So yes, we expect that this volatility is not going to be good as we have always mentioned, it is possible for Credicorp and BCP to be successful in a country that is not running smoothly.

So we expect -- we hope that this volatility will end -- well, we know that this volatility will end in June -- the first week of June and we will just have to wait and see.

I

It is very difficult for us to predict.

You all have access to the same calls and information that we have.

So we just have to sit back and tight and it is a binary, I would say prediction.

If one scenario happens, growth, there will be a substantial slow down in investments and in consumption and that will take a while to pick up and if scenario B happens we expect a pick up in the economic activity to be almost immediate.

But I would add that regardless of who wins, what we are seeing now will definitely have an effect on total growth for the year, since we will have two or even three months of definitely slow down.

On the best case.

Yes.

So it is fair to say that the second quarter would be tough, because by the time you clear this volatility the quarter is basically over, even in scenario two is the one that emerges in the elections.

That is fair.

So traditionally the first quarter is a low point of the year, given the seasonality.

In this year, even in the positive outcome of the election, the low point of the year would be the second quarter?

Daniel let's hope that the second quarter would be the low end of the year.

We all hope.

What are you doing at least to be more defensive, preparing for a scenario that you cannot call -- how can you lower the risk as much as possible heading into this binary possible distribution of outcome as you so well illustrated Walter?

Clearly we cannot short the roof, by definition we have a roof.

So having said that, yes, we have built up substantial liquidity in both currencies.

We have just been prepared.

We have insured that the maturities of our short term international debt there's nothing pressing in the month to come, and we are reviewing our -- our credit portfolios in certain sectors of the economy, which could be subject to regulatory pressure.

So yes, we are doing everything that you can imagine, but again we cannot be short [proof].

Thank you, Walter.

Thank you Alvaro.

Welcome.

And your next question is from the line of Jose Barria with Bank of America.

Please proceed.

Hi, good morning and congratulations on the quarter.

I have a question with regards to NIM.

Do you expect that NIM might have peaked in this quarter or can we continue to see maybe an improvement going forward?

We see different forces playing in here with lower NIM on loans, higher reserve requirements but better mix and income from invested liquidity.

Just would like to get your thoughts on what the evolution of NIM should look like.

We will continue to see on the domestic currency funding, we'll continue to see an increase on the reference rate but at the same time, that implies that we could get higher rates on the central bank securities.

Therefore, that business will continue to be a good one for us and we'll help protect whatever pressure we have on NIMs on the competitive side.

We -- even though we see a slow down, competition is there, especially in the retail business and some middle market activity.

But NIM should have somehow be protected by this increasing in the reference rate related to somehow inflation risks on the country.

So answering the question, this is -- we don't think this is really the peak.

We could say that we could keep this NIM at this level in the coming months and quarters.

Okay, so it could maybe improve a little bit from here, or just maintain at this level?

Difficult to say, but at least maintain.

Okay, fair.

Thank you.

Your next question is from the line of Tito Labarta with Deutsche Bank.

Please proceed.

Hi, good morning Alvaro and Walter.

Couple questions, one, just following up on Jose's question.

In terms of your outlooks for interest rates, do you think just given the uncertainty you're seeing in the second quarter that the central bank may raise rates that are slower paced that you had -- I know it's difficult to predict, but just some -- any thoughts you a have on that.

And then a second question, in terms of provisions, you did see a decline in the quarter, given the counter-cyclical provisions ended, but just want to get a sense of how we should expect to see this going forward.

Is it kind of a sustainable level for the rest of the year or do you think it could come down more, if you can maybe just give some more color on it from provision levels and asset quality?

Thanks.

Sure as it relates -- Tito, as it relates to the central bank, we think that the central bank will be very firm in its -- in moving its rates to be ahead of inflation.

Having said that, we all realize that the economy has slowed down, so I would expect that the central bank continue its quarter of 35 basis points increase for the next two to three periods because of the slow down.

Otherwise we will be going for 50 basis points to increases most likely.

So I do not expect the central bank to become politically influence and not raise rates because we're in the middle of a political period.

They will continue doing what they have to do.

But again, the slowdown is helping there.

So they won't have to be as aggressive with respect to the [12] basis points for the next two to three periods, going forward.

As of provisions, we -- what we are seeing now is a more normalized level of provisions after the pro-cyclical catch up that we had to do by the end of last year.

We don't expect anything different in the second and third quarters, unless something happens in terms of the slowdown in the economy, which affects typically -- especially the Pymes, the SME's business more than others and that would definitely have an impact on provisions.

But so far, we don't see that and we see provisions being more or less at the level we have been in the first quarter.

Alright, thank you very much.

Your next question is from the line of Saul Martinez with JPMorgan.

Please proceed.

Guys, good morning and congratulations on a very strong set of results.

Follow-up really to Daniel's question, and I think you guys partly addressed it in some respects, but we get the question all the time and so I'm going to ask it to you and that's what -- what is your view on what Humala administration would mean for the banking system broadly speaking, not just in terms of what it might mean in terms of the economic growth activity in the shorter run, but just from a policy standpoint and from a regulatory standpoint, what do you -- what do you think it means for -- or it might mean for the banking system as a whole and I know it's a difficult and broad question, but I'd love to hear what your views are on that.

And secondly, assuming that there is no big structural change, you -- in terms of how you guys look at your return on equity this quarter, you did close to 25%.

Obviously there was a little bit of one offs in there, but is -- excluding that one off, is there anything in this quarterly result that you guys would say is really not sustainable because -- I mean you guys have very good core results -- very good insurance results, sounds like the NIMs can be maintained here.

Provisioning this is a more normalized level.

Expenses might increase but is -- how do you view what is sustainable return on equity is now -- is it still kind of a low 20% ROE or have you kind of recalibrated your thought process and maybe had a little bit more optimistic view of what a sustainable level of return on equity is.

Okay, couple of good questions.

There is nothing particularly dramatic that we see on the -- on Mr.

Humala's program related to the banking sector.

It mentions a lot of competition.

Of that the government banks will become more active but that is not a major concern to us but they speak about the Pymes and sector as a means.

Today a large portion of the Prima sector is being dealt with by banks owned by the government, not by the central government, but by the regional government, by the municipality, BCP has, in its 120 year history, competed against government banks and believe me, it's much nicer to compete with them than against some of our current competitors today.

So competition from government owned banks is not a major issue on our front.

And nothing else that we have seen in the program that is a major concern, undoubtedly we will have a lot of more regulatory pressure, but at the end of the day, as I mentioned before, we are a financial institution that has a direct correlation with the growth of the country.

We think that that is where there will be an initial loss of confidence and hopefully will be regained over a period of time but that slow down is where we -- our businesses will be seriously affected.

And that more than anything else.

The only caveat to that is that it is -- the private pension fund business could be seriously affected if they go ahead with what is stipulated with that government program.

It is not very clear where they will have to continue to end up because it has brought substantial negative reaction from the public.

But nevertheless it is clearly stated in the document that as a private pension fund the system will not continue to exist as it is today.

Regarding return on equity.

For the next quarter clearly we will have lower return on equity because of volatility on our foreign currency position because we have covered our capital buying some more dollars and that has the negative impact on our -- the interest rate we get on our liquidities in dollars, interest rates are lower.

We have seen slow down in the businesses.

So yes this quarter clearly we'll be shooting for the 20s or marginally above that.

But that is just a result of short term volatility.

Going forward we think that the fundamental of how BCP and all of Credicorp's business units are positioned very well to capture the growth that hopefully will continue to take place in this country.

Okay, that's very helpful.

Thanks a lot, Walter.

You're welcome.

Your next question is from the line of Fabio Zagatti with Barclays Capital.

Please proceed.

Hi good morning, gentlemen.

I'll go to Walter and then everyone else.

As a follow up to Saul's questions on the ROE, I recall that the tone during last quarter's call was quite conservative from your side on the outlook for the year.

It seems like since then the outlook has only deteriorated in the sense that now you have less visibility on the political front, and even knowing what the trends were in the first quarter and what it has been in the recent months, doesn't your ROE guidance of 20% to 25% seems now more likely to be 20% or maybe lower than that?

What has changed since you introduced this guidance in the previous quarter to the point where we are now?

Okay, sorry, maybe I didn't explain myself clearly.

When I was mentioning the 20%, I meant for the second quarter.

And then, going forward, that binary scenarios that is very difficult for me to tell you.

under one scenario we will be shooting for the 22%, 23% growth targets that we have mentioned as our long term objective with growth in the economy taking place this year at about 6% and under a more conservative scenario we would probably have not too dissimilar return on equity, maybe slightly lower because we would be growing less, but making less provisions.

We'd be probably doing less investments -- we would be having maybe a smaller business.

So very difficult to predict at this time.

When I meant a 20%, I specifically referred to the next quarter.

Going forward, I really want to leave my options open and see where the scenarios come and then I'll be more than glad to give you a little bit more guidance.

But at this stage, it's very difficult for me to play one scenario against the other where they can be so different.

Okay, thanks.

And if I may, I have a second question on the political front.

It seems that the social agenda should be a theme of both candidates running the -- for the elections.

[Although] and I clearly understand if you can do it in limited in the quarters to come, not to say -- years to come, how would you expect to rethink your strategy to attract this segment.

I understand that now you are more positioned on the corporate side.

How would you have to -- think about no other option so that you could also continue to capitalize and grow your overall business?

Frankly we have been quite focused in the past couple of maybe one or two years in increasing the size of the pie more than capturing market share from our competitors.

We have been very focused on how do we include into the banking sector the large [unpack] segments of the population.

And that is a fundamental drive that we think will continue going forward.

We think that is where growth will take place so in that respect we have no expectations to change that guidance or that strategic thrust.

Okay, thanks a lot.

Your next question is from the line of Carlos Macedo with Goldman Sachs.

Please proceed.

Good morning, gentlemen, congratulations for the results.

Stepping back from the political stance a little bit, I'd like to ask a couple questions related to the business.

First NPOs increased this quarter, obviously there's a seasonal effect with collections and what not.

I was -- however there is a more strategic trend with the purchase of the acquisition of Edyfica and the strong growth that we see in the consumer line.

I was wondering if you could talk a little about the tradeoff between the higher NIMs that come from this business and the NPOs and what do you expect going forward in terms of the contribution from each one.

And the second question relates a little bit to the outlook, we saw that you resumed expanding your business, opening five branches and a number of different ATMs.

I was wondering that, given the slowdown that we're seeing in Peru now for reasons outside of the elections, if those plans for expansion still remain, what can we expect in terms of a growth within Peru over the next 12 to 18 months.

With regards to the trade off on margins, vis-a-vis provisions, there's definitely a good opportunity there for us to continue growing in higher margin and higher risk segments, through Edyfica and through the bank.

We have said in the past that we will see overtime that our passive zone ratio would go up along those lines and that wouldn't have an impact on the net interest income after provisions.

That should go up at the same time.

With regards to opening new branches and ATMs, we think that we should continue with this strategy of opening more branches and growing in capillarity and the same with ATMs and Agentes.

One thing we have done wrong in the past is whenever we have had some noise, we stopped everything and at the end we paid off and it was more expensive for us and difficult to catch up with branch openings.

So we will continue this year with the new branches as you have mentioned and the same with 500 -- at least 500 ATMs and 1000 Agentes.

Just going back to the first question.

One of the things that you have given your low NPL ratios, they have a very strong coverage ratio.

Should we -- and that declined a little bit this quarter, should we expect the NPL coverage ratio to continue to decline as you move further into these businesses?

In other words, provision less than they require taken advantage that they are already very well provisioned for the business you have?

No, actually we want to keep that coverage at that level, around that level.

So you shouldn't see that ratio deteriorating.

Okay, so around 190%, where it is now.

Yes, yes.

Okay, thank you.

You have a follow-up from the line of Daniel Abut with Citi.

Please proceed.

Walter I was curious if you could elaborate a bit more on what you said that the Humala program for the pension fund will probably have an effect, a meaningful one in your subsidiary.

I understood, I could be wrong, that recently they took measures to prevent that under any circumstance including the Humala administration, you could have a repeat of what happened in Argentina where the pension funds were nationalized, i.e.

the government seizing both the assets and the flows.

If I understood that correctly, then what is it that Humala could do to the pension fund business that departs significantly from the current system of being privately managed?

Okay, the government program of Mr.

Humala calls, as you have well described, not talking -- not doing anything with the existing balances, but rather redirecting the contributions into the public system rather than to the private system.

Then -- so that's very clear in the program.

The executive branch today has proposed -- or is in the process of proposing to Congress a series of measures that aim at making it more difficult for changes in the system to be taken to congress in the future.

More difficult but not impossible.

And those proposals we have not seen in detail and those have not yet been approved by congress.

So hopefully they will get approved and they will be strong, but frankly I have not seen them yet and they have not yet gone through congress.

So what you are describing was there is a partial nationalization, that would nationalize the flows but not the current stocks?

That is correct.

That is what is described in the government programs.

Okay, thank you Walter.

You're welcome.

Your next question is from the line of Boris Molina with Santander.

Please proceed.

Yes, thank you very much and good morning to everybody.

Have additional question now that you guys have taken a look at their program, there is noise about potential changes to the constitution.

I know if you just give us a little bit of an overview of what were the -- what are the main issues that could be up for revision and what would be the process to kind of select the members of I would say probably say constitutional family that would be elected?

We've seen this movements in Venezuela and Bolivia and in Central America in the past and what tends to be initially a very harmless type of movement, this constitution assembly is sovereign and they can actually change whatever they want.

So is there any provision in the program to limit scope of the assembly, are they going to have the full constituent hour to rewrite the constitution from scratch and how should we think about this?

And the second question relates to something you mention you call about the movements on your equity related to a foreign currency translation and mark-to-market issues.

Is it possible for you guys to begin to provide some more detail of how this account is moving -- your book value for share decline because of this effect, despite the very strong recording net income and since you traditionally you are the only bank as far as (inaudible) has a functional currencies the dollar, your results obviously are already difficult compare to banks giving these decisions.

Are you planning to convert to the Nuevo sol as your functional currency?

At what point in time would you consider this as a viable option?

Okay, related -- as with regards to your first question, frankly I would rather if you consult a political consultant or a constitutional lawyer.

Frankly I can barely manage the bank and I feel I'm not quite the right person to be answering what are the current mechanisms if our constitution to change the law, they're quite detailed and I'm far from being an expert on that.

Wonderful.

I understand.

Yes, as of for -- as of the second question related to the translation and position in the currencies.

As you well mentioned, we have our currency is the dollar.

What we do when we see consistent appreciating trend on the sol, we take a long sol position, that has been the case for many months through the last year and the previous year as well.

But whenever we see that there could be a devaluation trend we tend to change that position.

That was the case especially during April where we bet less on the sol than in the previous months and we have to be very careful, especially this time around with the volatility of the exchange rate.

So we don't have too strong changes in the translation line in our results.

As of the long term plans for changing the functional currency, it will have to do with the structure of the balance sheet.

Since now we still have around 60% of the deposits and 60% of the loans in dollars, if that situation changes, let's say we were something closer to 30% or 40%, we should seriously consider changing the functional currency of the bank.

Okay, wonderful.

Thank you.

Your next question is form the line of Victor Galliano with HSBC.

Please proceed.

Hi, good morning.

Thank you.

Just a quick follow-up, most of my questions have been answered, but just looking at the expenses here, what should we assume in terms of a run rate on expenses here, especially looking at admin general expenses, which are running at about 10% year-on-year currently.

Should we expect that to continue going forward?

Are you in the current environment focused on maybe trying to squeeze costs a bit more, and obviously the other thing is -- the other impact is the inclusion of the profit sharing and personnel costs.

Can you strip that out of the first quarter number for us?

Tell us what that was?

Okay, okay.

The amount of that change -- that figure was around $8 million -- $8.2 million for the quarter.

Okay.

That's the size of this change in accounting.

And the first question was related to expenses.

We --

Yes, just --

Yes, we don't have -- we don't have any plans to stop our pace in new branches and the critical people in certain units.

So we will continue to see an increase in expenses that should be around 10% to 15%, depending on the exchange rate evolution for the year.

Because as you know, all of our personnel expenses and part of the general administrative expenses are in [sol] so the exchange rate definitely has an impact.

We'll continue to see that line to go on.

And maybe just a quick follow-up, do you have a target efficiency ratio you're aiming for end of 2011 or in the longer run?

Yes, for the bank we should be able to reach a 47.5% for this year.

Okay, so pretty close to where it was in the first quarter?

Yes, yes, yes.

We got it in the first quarter, we should be able to keep it.

Okay, thank you.

And there are no other questions at this time.

(Operator Instructions).

Gentlemen, it looks like we don't have any other questions.

If you want to proceed with the closing remarks, please go ahead.

Just well thanks again everyone for being here and we hope to be with you in three months.

Thank you very much.

Bye.

Thank you for participating in today's conference.

This concludes the presentation and you may now disconnect.

Have a great day.