Credicorp Ltd (BAP) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Credicorp's fourth-quarter 2011 earnings release conference call.

My name is Susan 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 over to Mr.

Alvaro Correa, Chief Financial Officer of Credicorp.

Please proceed, sir.

Thank you.

Good morning, everyone, and welcome to Credicorp's fourth quarter conference call for 2011.

Having closed the books of 2011 and -- we are pleased to see that a year which threatened to be a complicated one for our business has turned out to be a very good year for us showing strong growth, further consolidation of our businesses and a renewed confidence in the growth opportunities before us.

Strong business activity reported during the third quarter continued mainly in the middle market and consumer sectors and became the drivers of growth in the fourth quarter.

However, political noise around a major mining project generated some retraction in business confidence, which impacted only mildly the performance of the corporate portfolio.

In December, the Humala government underwent some changes that reinforced their commitment to the existing economic model and demonstrated some political will to handle the problem which will most likely lead to a positive outcome.

Nevertheless, the concerns that prevail nowadays within the business community are more related to the international economic environment and still unresolved financial problems in the developed world that could end up affecting the Peruvian economy.

Therefore, following the still dynamic business activities the results of Credicorp for the quarter show a robust loan book expansion and excellent net earnings growth as we will see in the next pages.

So move please to the next page, where I would like to show briefly some indicators of business confidence.

So economic activity in Peru remains sound with real GDP growth for 2011 above the Latin American average.

It certainly also shows a drop in the period of the presidential election a recovery thereafter, but a subsequent dip due to some diminished confidence because of the mining related setbacks and the European debt crisis.

The charge of the real GDP, electricity output and business confidence reflect these trends but do not capture yet a recovery in December.

Country risk and the exchange rate will maintain a stable and constant improvement that has put Peru again in the focus of growth in investment.

Next page.

Credicorp reported net income of $189.2 million for the quarter which is undoubtedly an excellent result.

Compared to the previous quarter, which was depressed by some circumstantial translation losses, it shows a 10.7% quarter over quarter net income growth.

However, the third quarter was quite strong from an operational standpoint, whereas operating income this fourth quarter dropped 13% as a consequence of the higher costs related to the network and overall expansion and an increased level of reserve.

Profitability was, however, strong at 23.4% return on equity and 2.5% return on asset.

Furthermore, NIM improved further reaching a sound 5.24% this fourth quarter.

Total loans grew 6.4% in this period and past due loan improved to 1.49%.

On the other hand, the efficiency ratio deteriorated given the concentration of costs in the fourth quarter.

Furthermore, the insurance business suffered mildly with a depressed underwriting result in this quarter.

On the accumulated results for 2011, however, all numbers look extremely good.

Net income was up by an impressive 24.2% for the year with operating income also showing a 17% decrease -- increase, sorry.

Return on equity was up to 23.5% and return on assets to 2.4%.

While NIM for the year also showed an improvement of 5 basis points.

Loan portfolio growth was a robust 21% for the year surpassing our own expectation and net provisions increased in a similar way.

Portfolio quality was sound showing a slight increase in the past due loan ratio of 3 basis points.

Premium income from the growing insurance business expanded 20% for the year.

However, underwriting results increased only 7.6%, due to higher casualties in the life business and revealing the structural cost problems in the health business that led to the reported vertical integration in that segment.

We will see this better explained in the next slide.

Next slide.

BCP's performance this fourth quarter was strong starting with a solid expansion in average daily balances of 3.9% and quarter-end balances of 5.9% as a result of the strong business activity of the retail sector, which in turn grew 9.8% quarter over quarter.

While the wholesale sector contracted slightly at 0.7% following some large corporate loan cancellations due to better international financing conditions.

In fact, business activity in the wholesale book remains strong.

The currency composition of the portfolio shows a further de-dollarization down to 58.3%, which is largely explained by a change in the composition of BCP's portfolio given the stronger growth of retail loans, which are basically in local currency.

The past due loan ratio for the quarter improved further by 3 basis points.

However, provisions expanded based on the loan book growth and on generic provision of $12.6 million set aside this quarter, which does not indicate a deterioration of portfolio quality and instead reflect the determination of additional provisions requirement based on IFRS, compliance internal modeling of reserves and management decision to move to a more conservative zone in the reasonable range defined by such model.

This is reflected in the peak in net provisions to total loan ratio of 1.7% for the quarter.

For the year, loan growth reached a strong 18% while net provisions increased a high 22.6% given the stronger growth of the retail group.

This retail growth also explains the slightly higher past due loan ratio, up only 7 basis points reflecting a different portfolio mix.

Next page please.

Looking at BCP's income generation, net interest income grows a robust 6.9% in the quarter as a result of the strong performance of the loan portfolio and better margin of the retail sector, while interest expense grew almost in line with this expansion.

Furthermore, given such strong growth in income, net interest margin improved and reached 5.3% in the quarter driven by the stronger retail loans growth and better margins.

A shift of liquid assets from cash positions in the central bank to higher yielding assets also contributed to this improvement.

In accumulated terms, a slight improvement in NIM became evident in 2011 recovering to 5% levels.

Non-financial income shows a robust expansion of 8.9% for the quarter driven by stronger gains from the sale of securities, which boosted an already strong fee income growth of 6% for the quarter.

For the year 2011, this line showed also a solid 11.6% growth.

Operating expenses did jump in the fourth quarter almost 14%.

As a result of concentrated year-end expenses and the re-initiation of our branch expansion, which will go into 2012, resulting in the deterioration of the efficiency ratio for the quarter.

For this same reason, operating expenses also experienced a high 19.7% annual growth.

However, the stronger income generation allowed for an improvement in the efficiency ratio from 50.9% to 49.4%, a drop of 150 basis points.

Next page please.

BCP Bolivia achieved noteworthy growth of 47% quarter-over-quarter in its contribution to Credicorp which totaled $8 million.

This excellent result was attributable to a sustained loan growth up 4.9% quarter over quarter which led to a 12.4% increase quarter over-quarter in net interest income.

The aforementioned coupled with the lower provision level led to a solid return on equity of 30.4% this quarter.

The year-over-year evolution was also favorable with 41% growth in BCP Bolivia's contribution to Credicorp and a return on equity of 22.1% versus 16.8% in 2010.

Finaciera Edyficar continues to grow at a strong pace and contributed $7.4 million in Credicorp.

This represented an increase in contribution of 24% quarter over quarter and 67% year over year.

Loan growth was very strong at 15% quarter over quarter, but no increase in delinquencies was reported.

This growth was achieved with a good profitability level with return on equity of 42% this quarter, which is equivalent to a return on equity of 24.7% if we consolidate figures and include goodwill stemming from the acquisition.

In annual terms, Edyficar also performed extremely well reporting loan growth of 42.3% and a 19% increase in this institution's contribution to Credicorp (inaudible).

Next page please.

BCP's consolidated numbers therefore reflect a good level of business activity in the fourth quarter and as described before, the higher provisions and also higher year-end operating costs resulted in [one] in 11% lower operating results for the quarter.

This was, however, reversed by the strong translation gains and after the third quarter's temporary peak in the US dollar exchange rate.

On accumulated terms for the year, a more stable performance is evident with net interest income growing 25%.

Provisions for the year growing at a slightly lower pace of 23%, a good 12% increase in non-financial income and an also strong operating expense growth of 20%, which is however at lower pace than income growth resulting in an improvement in the efficiency ratio.

The open soles position that BCP holds is a conscious management decision based on careful evaluation of FX trend and fundamentals, which requires active management and has proven to be a sound one given the strength of the Peruvian currency.

Therefore, it has generated $34 million in translation gains for the year which has helped offset the expansion costs and provision.

Therefore bottom line results for the quarter reveal a 14% net income expansion, which contributed the excellent 21% net income growth for the year.

This reflected a strong 29.4% return on equity for the quarter and a pretty stable return on equity of 27.6% for the year, numbers achieved with a high capitalization ratio of 14.5%.

Next page please.

Pacifico reported a weaker fourth quarter with a drop in net earned premiums of 1.9% which was particularly strong in the life business.

This coupled with increased costs and claims mainly in the life and the health sectors resulted in the drop in underwriting results of 17%.

Good financial income and a positive translation result compensated part in increased costs and reduced the drop in net contribution to Credicorp to 10% reaching $11.9 million this fourth quarter.

When looking at the result per business [line] it becomes obvious that the quarter-over-quarter drop was generated in the life business due to a couple of large claims related to accidental casualty.

But more importantly, the increasing costs in the health business, which is the reason behind the vertical integration strategy on which we reported extensively in the past.

As a consequence, the precision cost of medical subsidiaries required for such vertical integration generated an extraordinary expense of approximately $2 million affecting the underwriting result for the quarter.

On accumulated terms for 2011, however, results are more stable showing 19% net premium income, an underwriting result of $99 million, up a modest 8% for the year.

However, good financial result and a positive translation result could not compensate for the higher general expenses, which included the acquisition costs and led to a flat year-end result.

Nevertheless, total contributions to Credicorp was 38% higher for the year compared to 2010 reaching $65.6 million, an increase explained by the 100% consolidation of Pacifico Vida for the first time since it was acquired in October 2010.

Consequently, Pacifico reported lower return on equity of 10.1% for the quarter and 15.1% for the year.

Next page please.

Turning now to Atlantic.

Atlantic Security Bank reported a very good fourth quarter with net contribution to Credicorp of $9.2 million up 23.6% from the previous quarter.

This strong recovery in income starts at the core revenue with net income, net interest income up 70% for the quarter leading to core revenues expanding 41.8%.

This robust level of revenues did support higher provisions and operating expense allowing still for the strong bottom line growth reported in the quarter.

Accumulated numbers for 2011 show, however, a weaker result as ASB has been operated in the difficult and volatile international market of today with a low interest rate environment.

This is reflected in the top line with interest income dropping 16% in the year.

Therefore, this drop worked way down to the bottom line resulting in a similar 16% drop in net income and contribution to Credicorp, which nevertheless reached still a satisfactory $41 million fee.

Consequently, return on equity was 20.3% for the quarter and a sound 21.7% for the year, without doubt a still excellent return for the low-risk business of ASB.

Finally, next page please.

Finally Prima AFP.

Prima has maintained a high contribution level to Credicorp posting $8.9 million in the fourth quarter.

This represents an increase of close to 17% quarter over quarter, which was attributable to higher commissions income, some tax provision reversal and a positive translation result.

On accumulated terms net contributions to Credicorp for 2011 reached $32.4 million reflecting a very strong 27% increase versus 2010 number.

This strong performance result from the robust increase in commission as the client base continues to expand and was further supported by a good control of operating cost as well as small translation loss reported for the year.

This result reflect a recovery in return in equity to 23.2% for the quarter and 21.9% for the year.

It is important to mention that Prima has maintained market leadership in terms of RAM, collections and managed funds.

Next page please.

As a whole, Credicorp's results for the quarter were very strong.

The solid growth reported has been reflected in the bottom line results in all subsidiaries in this fourth quarter except for Pacifico, which suffered from accidental casualties and the increased costs related to its health business with its new vertical integration strategy.

In accumulated terms for the year 2011, results are impressive and certainly better than we expected.

It is important to emphasize that the strength of the Peruvian economy has maintained the strongest activity which has over-performed given the complicated environment in which we have operated this year.

This is fully reflected in the 24% expansion of net income, a truly excellent result.

Furthermore, and as stated before, we reinforced our belief that in the growing and developing market like the one in which we operate today, there are multiple opportunities that we need to explore.

We are certainly doing so as with our move to expand regionally in the investment banking front.

We announced acquisition of Correval in Colombia, is the first step in that direction.

I will stop here and open this call for questions and answers.

(Operator Instructions)

Carlos Macedo, Goldman Sachs.

I have a couple of questions on your results in the quarter.

They are very strong results, congratulations.

First, I would like to understand a little bit better the provisioning that you made in the quarter, the generic provision.

I understand that it's part of your model and it's being prudent.

You already had a pretty high level of coverage of your NPLs, 190%.

Now, you are up to 200%.

What should we expect from this line going forward.

Are the generic provisions something you are going make more frequently because of the increasing presence of consumer loans in your loan book?

What should we expect from this provision line as you push growth further in that specific segment?

And the second question is with respect to the translation gain that you reported in the quarter.

That was very significant.

It also affected the tax line.

I was wondering, what exactly is the risk of this open position you have in [nuevos] soles.

Is there a risk that if the currency all of a sudden devalues quickly, you were going to post -- could you post significant losses in this line?

Just so we know, so we can size what damage could be done there.

Thank you.

Good question about provision.

We have two provision forces playing here.

One is the one that is the provisions that the superintendants requires, those that the regulation requires.

That is pretty straightforward, is the formula for the different types of products that we have.

In addition -- and that sets the minimum we have to list out.

But in addition to that and a more sophisticated approach is to have internal models that basically assess the range of provisions that we need to set for the type of portfolio, the quality of the portfolio we have.

We follow that second approach very closely.

We run quarterly numbers and we modify that range accordingly and we make decisions whether to stay in the center of that range, move to the right, move to the left.

In this case we found out that with the regulatory provisioning, we are moving a little to the left that is to the less conservative side.

And we have decided recently to move a little bit to the right that is to a more conservative area of that range.

So -- and this is of course respecting international accounting standards, it is not just any provision we want to set.

It has to be set within those limits that I just explained.

As of -- and in fact the coverage that you mentioned that has come up.

Actually it's not that different from the one we had at the end of 2010.

So basically, what we are doing here is to keep a comfortable coverage level year over year.

So just a question.

This does not mean that you expect asset quality to deteriorate in the beginning of 2012, right?

It is just a generic provision to return to the coverage levels you had.

Exactly, that's exactly right.

Okay.

That's one thing.

And so the translation gain, you are right, I mean, this depends on the trend, on the moves of the local currencies.

This is an open soles position.

If the sol appreciate, we will get gains.

If it devaluates, we will get losses.

The way we manage this -- and this is managed very actively -- is following the views, we follow very closely the views and we change that position accordingly.

If we see that the currency will start devaluating in the longer term, we will definitely change this position and minimize it.

We are not that concerned about short-term move as we experienced in the third quarter since we will rather bet on a longer-term view of the local currency.

But you are right, it will change depending on the trend of the foreign exchange.

So, just so that I can get this, I am trying to look at 2012.

The direction probably is correct if you expect the sol to continue to appreciate.

The magnitude might have been a little bit strong this quarter.

Yes, that's right.

It is affected by short-term volatility, that's for sure.

Okay.

Thank you.

Jose Barria, Bank of America.

Two questions here actually.

The first one is with regards to cost, understanding that there is some seasonality in the fourth quarter.

There was a pretty big rise in costs as you are expanding your branch network.

Could you tell us a little bit about your branch network expansion plans for 2012 and how you see that impacting your cost and efficiency?

And then a second question, more on a broader basis with regards to the regulatory environment.

In the recent past, there has been some noise with regards to potential caps on rates and maybe regulation on the pension fund business.

I just want to get your update, if you see anything in the regulatory environment that is a concern or that you are monitoring that could be a risk in 2012?

Thank you.

We made a decision that proved not to be a very good one in fact in 2008 after the world crisis which was to basically stop any growth in branches.

We lost pace there and we realized that when we saw that the country continued to move forward and we expect for sure the country will continue to do so.

So, the decision now is to open branches, but definitely in a smarter way in a sense that we can talk about 80 or 100 more branches this year.

But they are not necessarily the same type of branch that we used to open in the past.

We are thinking about opening probably 20 or 30 or even a little more traditional branches.

But we are definitely experiencing and exploring smaller branches, second floor branches, segmenting branches by type of customers, setting branches within corporate customer premises and so on and so forth.

So we will do that and that will definitely affect especially this year the efficiency ratio a little.

But this is a longer-term investment.

So it will pay off eventually.

As of regulation, there were some talks about caps on interest rates, but definitely that's not the case right now.

I think the superintendants and some of the people that were talking about this no longer mention this and they even mentioned that this could be detrimental to banking penetration in the country.

So it's no longer a concern for us.

However, in terms of regulation on the pension fund industry, there is right now a committee, a commission that has been set in order to define improvement in the model.

We expect those outcomes or those decisions to come out by midyear.

But we don't know exactly what type of changes we will experience.

Okay.

I see, thank you.

And just following up on the efficiency question.

Can you be more specific or maybe provide a little bit more color in terms of what the impact on your efficiency ratio could be or maybe tell us some more about what the impact of expense growth should be coming from the branch expansion?

Do you have any guidance that you can share?

The efficiency ratio should stay more or less at the same level, probably 50 to 100 basis points up, that type of change.

It's not a major thing, it's not going to go up from 50% to 55% or so.

It's probably much, much lower than that.

Okay.

Fair enough.

Thank you very much.

Saul Martinez, JPMorgan.

I also have two questions.

I'll ask my first one then I'll let you respond and ask the second one if that's okay.

First a broader question on your ROEs.

The last couple of years you've been 23%, 23.5% this year.

You even mentioned, Alvaro, that the results were better than you expected.

As you look out forward, you're operating with more capital than you have historically.

The expenses are growing at the same time.

On the other side, you're growing your credit portfolio.

You're growing more in retail which is beneficial for NIMs.

As you look forward, how do you see that ROE evolution tracking?

Is 23%, 23.5% a sustainable number in your view when you look at the results going forward especially this year?

And then I have a follow-up.

Okay.

Yes, I think the level at which we operate right now is the one we will see in the short run, 23% is perfectly achievable.

You have to bear in mind that we are being able to protect even NIM under very competitive environment since the mix of the portfolio is changing, as you know.

And this is pretty much compensating additional expenses and it's compensated the additional capital that we are setting for growth.

So I would say that the level of ROE that we have now is going to continue.

Okay, that's helpful.

The second question is more specific and it's a follow-up on asset quality and provisioning.

The net provisions obviously were adversely impacted this quarter by the generic reserve you set.

But even if I exclude that provision went up a good amount, NPLs were flat but you had a higher level of charge-offs as well this quarter.

So if I look at new NPL formation, it did pick up somewhat.

As we look forward how should we think about the level of provisioning, not necessarily the level of reserving per se, but the level of absolute provisioning?

Third quarter net provisions were 1% of average -- 1.1% of average loans.

For the full year, I think it was 1.3%.

Is that a sustainable level or should we see some -- or should we see that naturally tracking upwards as you grow more in higher yielding consumer lending?

Higher yielding will represent -- probably you will have higher provisioning compared to assets but not necessarily compared to margins.

The thing that is growing is the higher margin business.

And what we have done this quarter, which is setting aside $12 million in additional provisioning, explains half of the provisions of the change in provisions from one quarter to the other.

The other half is explained by just portfolio growth.

As you have -- as we have explained in the past, we have to set a generic provision for every loan we grant.

So that's basically what is explaining half the growth.

The rest is just this voluntary one-time adjustment.

So, yes, you should explain -- you should expect more or less the same provisions to margins that you have seen this year.

Okay.

And the provision to top line basically, is what you are -- as a percentage of NII I guess is what you're saying.

Okay.

Thank you very much.

Tito Labarta, Deutsche Bank.

A couple of questions as well.

Just first, your loan growth had very good growth in the quarter and in the year and are growing above the system particularly in the retail segments.

I just want to get a color, more color in terms of what to expect for 2012.

Do you think you can continue to grow faster than the system and gain some market share there?

So what kind of growth would you expect for the total loan portfolio and as well as retail and then corporate?

And, then following that, in terms of your margin, you have been seeing some margin expansion as you move more into the retail segment.

Do you think this expansion can continue and to what degree, like how much more could your margin expand as you move into the retail segment?

Thank you.

As of the first question with regards to, if we will continue growing faster than the market, that would probably be the case in certain segments where we were not that active in the past.

As you know we have a strategy, a comprehensive strategy on the retail business that aims to handle different segments in different ways.

We will definitely maintain market shares in certain businesses that were traditional businesses for us like the mortgage business for instance or the corporate middle market segments.

But we were, in the past, not that active in the consumer, credit card and SME businesses.

And those are the ones that are our main target and where you should see a growth pace that would be faster, stronger than the market itself.

As of margins and sustainability or improvement of the margins, I think we will be very successful if we are able to keep the margin, the NIM at the 5% level area.

I don't expect honestly to see NIMs of 5.3%, 5.4% in the future.

I think we are very well with a 5% area NIM.

Pressures are there, competitive pressures are there and definitely we will see some pressure on the cost side as well.

Hence, competition, for funds are becoming more active here.

So this is more or less the level that you should expect in the forthcoming years.

All right, thanks, Alvaro.

Thank you.

Carlos Ferrero, Barclays Capital.

This is actually Fabio Zagatti.

Thanks, gentlemen, for taking these questions.

I have two.

As a follow-up on the sustainable ROEs, I just wondered if you could share your expectations on how would 2012 look like.

You mentioned that for Peru you're expecting GDP of 5% or 5.5% which is not bad at all even on a relative basis in the region.

The government has been very diligent and responsive, which does help in keeping operating conditions sound.

I think that the consensus implies in 22%, 23% ROE.

So I just wondered what are the risks that you see that these more benign scenario does not materialize?

And then I'll have a second question.

Okay.

As I mentioned the first -- in the first slide or introduction comment, the risk that we foresee right now are more related to what will happen in the world than to the political situation or the internal management of the economy.

As you know, we're very dependent on international markets and that will definitely have an impact on GDP growth for the country.

That 5.5% GDP growth that we have mentioned is assuming that there is not a major or a deepening of the crisis worldwide.

If something different happens, that will definitely be effected and with that growth in the portfolio and income generation capabilities.

But the number that we're managing right now is the same 5.5% that we mentioned in the slide.

And then my second question is on international expansion in Latin America.

Given the recent M&A activity in the region, how should we expect Credicorp to participate in all of this?

Where are you guys focusing the most to expand outside of Peru?

Thanks.

The international expansion strategy for us is focused on certain specific industries where we either have a competitive advantage or we need to move or take some protective moves.

Specifically the ones we have had under consideration recently are on the micro-lending industry where we see that Peru and Bolivia have a competitive advantage.

And the second one is related to my closing statement with regard to Correval and the regional expansion in the investment banking business.

We have announced in the past that this is part of our strategy to go to nearby countries where the markets are, in fact, in practice integrating as we have been seeing in Peru, Colombia and Chile.

The first step has been to reach this agreement with Correval and we are exploring opportunities to do something in Chile as well.

We are not right now considering other things.

Especially, we are definitely not considering a bigger acquisition like an universal bank in a neighboring country.

We are thinking more in terms of niches or specific segments (inaudible).

That's very good.

Thanks.

And just as a quick follow up.

Do you think that there is further room for consolidation in Peru or the sector is basically done already?

Difficult to say.

As you know, we already have a very large market share.

We are very strong in the country, 30-plus market share in loans, 35% in deposits.

Concentration is something that regulators are taking a look at and they would definitely not see with very good eye to go and buy another institution.

As of consolidation between smaller players to be, yes, we haven't seen anything in that sense recently.

Okay, fair enough.

Thanks.

[Maria Santiago], HSBC.

Thank you, my question has been answered.

Federico Rey, Raymond James.

I have a question regarding the insurance business.

I recall that in the previous conference call when you commented on the third quarter results, you mentioned something about the high or fierce competition in the market that was pressuring prices down.

And I also recall something related to the higher claims related to some companies.

I would like to understand if the current trend that we saw in this quarter are still valid or is there new reasons about the performance of the insurance business?

And I would like to understand if you believe that if the contribution of the insurance business is going to improve in the coming quarters or not.

With regards to the trend, I think that we -- the current trend is the same one that we mentioned in the past, with regards to the past with the claims ratio.

However, we are seeing that we are being able to improve a little bit on pricing and that will over time and probably by the first or second quarter of next year, bring the margins that we had before between premiums and the claims that we were having.

So we have seen a little bit of a positive development in the market in that regard, but we -- what we are seeing this quarter is the same trend that we were experiencing in the past.

Okay?

With regards to the contribution to Credicorp, we do believe that they'll improve a little bit next year and that is a little bit of to bring back up to the levels of ROE that we were getting before and that premiums will increase by 12% to 13% next year.

Okay.

Thank you very much.

[Luis Guzman, Santander].

I have two questions.

First I will start with the fee income.

Various countries have seen discussions regarding the setting -- regulators looking negative when they are increasing fee income.

Do you guys think we are seeing any risk of fee income and what's your situation for fee income for 2012?

Thank you, Luis.

Fee income -- yes, regulation and regulators have been talking about transparency here.

That's the word.

And we have moved forward even faster than regulation with transparency and simplification of the fee structure of the different products that we offer.

And in spite of that fee income has been growing and this is mainly related to the transactional activity in the country and through the bank that is growing quite fast.

So basically volume is compensated with -- for any reduction that we would have had in the fee income structure.

So, but that's going to be the trend and we will continue basically on transactional activity.

Okay, more or less slightly below the growth of the volume?

Yes, a little lower than the growth in volume.

Okay, okay.

And then my second question is if I look at the press release of Banco de Credito which was reported last week I see that the volume growth for the quarter was something like 2.9% quarter over quarter.

And now in Credicorp we see the level was much higher than that.

Can you please explain the differences between the two?

That's loan growth?

Sorry, loan growth for the quarter at the Banco de Credito, 2.9% versus Credicorp which was much higher than that.

What -- yes.

The explanation there is that you have to bear in mind that half of the portfolio, a little lower than that is domestic currency and dollar currency, right.

So whenever there is an appreciation of the currency and we report for BCP domestic currency, we see that the portfolio is not growing as fast.

Whereas on the other side on international or dollar reporting, it is growing faster since the same soles represent more dollars, right.

So that explains -- I mean you have to see and understand that the different reporting -- the three reportings are in different currency.

And it depends on the moves in the exchange rate.

I don't know if I was clear on this.

Yes.

Thank you very much.

(Operator Instructions).

Michael Hong, CQS.

My question is regarding the lending growth in the retail segment.

It was 10% quarter on quarter.

Just like to know if there was a particular reason for this, have you launched new products and is this something that you see as sustainable over the next couple of quarters?

Thank you.

There is just some seasonality here.

We have, by year end typically, the credit card business and the SME business are very active.

In fact, 30% plus of the sales on the SME business is typically concentrated in the three, four last months of the year.

And the Christmas campaigns and year-end expenses in credit cards also explain this particularly high growth.

Okay.

Thank you.

At this time, there are no questions.

I will now like to turn the call over to Mr.

Alvaro Correa for closing remarks.

Thank you.

Good morning.

This is Walter Bayly.

Just wanted to make a closing remark.

Just a reflection, going back we started the year with a very high level of economic activity and with a certain level of uncertainty regarding the outcome of the political process that took place this year.

We did have -- us and the market -- a view as to how that was going to end up unraveling.

We were all in this country or at least ourselves quite surprised at the outcome of the election.

And throughout this period, we did have a changing mood in the private sector as to whether to continue with investments, halt investments, start back again.

So we have gone through a rather complete cycle in a very short period of time.

Expectations have been moving quite rapidly.

We are very comforted by the final outcome of what is taking place in the political process in the country.

It has given us a high level of confidence that there will be continuity.

And throughout all this period we have managed to maintain performance that was beyond our expectations with the volatility involved and we have managed to produce very good year-end results with very high returns on equities which were, as I mentioned, slightly higher than what we had even projected ourselves.

Going forward we are quite satisfied with the fact that we have to view Credicorp as a portfolio of different businesses and initiatives.

And we have a -- what I think is a good balance of projects that are very much on a startup situation that are even generating negative results.

We continue to invest in new projects, new ideas, growth and we have other products or segments or businesses that are quite mature and have a lot less growth.

So growth is a challenge for us because of our relative position in this market.

And so far we have managed to find good initiatives, very close to our core businesses and very well measured to continue setting the basis for future growth going forward.

So we continue to be in a country that has very solid fundamentals from both on the macro economic, from the micro economic we don't have over-lending or over-leverage either in individuals or the companies.

Good public sector finances and the financial sector continues to be quite healthy.

So the fundamentals are here.

We think we can sustain the return on equities that Alvaro was mentioning.

And again, just wanted to thank you all for paying attention to our conference calls and for following us closely.

With this, I conclude my remarks.

And again thank you all very much.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a great day.