Credicorp Ltd (BAP) 2012 Q3 法說會逐字稿

Welcome to the Credicorp third-quarter 2012 earnings conference call.

My name is Sandra and I'll be your operator for today's call.

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

Later we will conduct a question-and-answer session.

I would now turn the call over to Mr. Alvaro Correa, Chief Financial Officer of Credicorp.

Mr. Correa, you may begin.

Thank you, Sandra.

Good morning and welcome to Credicorp's third quarter earnings results conference.

It has been for us reassuring to see businesses developing positively this third quarter.

In fact, significant growth was seen in all segment though accompanied by improved operating trends and excellent bottom line results.

As we indicated in the previous quarter, the strategies to increase bank penetration that are fueling this growth implies lowering the threshold for granting loans, a delicate process to which we are dedicating significant resources and time to carefully monitor and fine tune our models accordingly.

The accelerated growth in certain retail sectors and lack of behavior and credit history for lower income segments led to the previous second quarter to an increase in delinquencies in our credit card portfolio, something that generated some concerns and triggered all the corrections implemented that are now showing result.

This is undoubtedly a natural learning process we have to go through and by no means a (inaudible) half year a sign of a nearing end or a change in the growth trend Creditcorp has been showing for the last few years.

In fact, as we will see in the following chart, growth continues at robust rate as the economy maintains the dynamic and investments continue to flow.

Let's move on now to page 3. Creditcorp reported outstanding net earnings of $227.5 million in the quarter, a significant improvement from last quarter's $172 million, and also above the record earnings reported in the first quarter of $189 million.

Consequently return on equity recovered and was back up to 23.7% and return on asset at 2.5%.

Operating trends were excellent with a 5.5% portfolio expansion for the quarter which shows as well a 23.7% year-over-year growth and stable portfolio quality indicators with a noticeable recovery from the higher delinquencies for the second quarter in the credit card business allowing for lower provisions for the quarter.

NIM was also slightly better at 5.19% while other operating results were also favorable leading to the 15.4% quarter-over-quarter growth in operating income.

A slight deterioration in the efficiency ratio to 43.6% reveals that expenses remained relatively high as a consequence of the strong business expansion and transactional activity, but also as it includes the effect of the revaluation of the local currency when translating these costs into dollars and the consolidated expenses of the new subsidiaries in Columbia and Chile.

In addition, the revaluation trend of the local currency continues adding a very strong profit in the quarter through translation result.

We will see all this better explained in the following chart.

Next page.

At the end of the third quarter, gross loans at BCP totaled $19.7 billion, which represented again robust growth of 5.8% quarter over quarter, and 23% year over year.

A similar evolution was evident in the analysis of average daily balances reflected in this chart, which expanded 6.6% quarter over quarter and 19.7% year over year.

The significant increase in loans was once again mainly attributable to strong growth in the retail business where average daily balances increased 8.6% quarter over quarter and 35% for the year.

While wholesale grew 5.1% in the quarter and 8.7% year over year.

The most significant growth in the retail banking portfolio was seen in the SME segment with 10.5% quarter over quarter and 38.4% year over year, the mortgage portfolio which was up 6.9% in the quarter and 28.5% in the year and the consumer sector with 8.9% quarter over quarter and 38.9% year over year.

Though the credit card business showed a deterioration in its performance in Q2, the adjustments introduced to our models have reversed such trends while the appropriate charge-offs were incurred.

Consequently smaller or almost negligible deviations and better pricing are assuring the appropriate profitability for the business which is still expanding at 6% quarter over quarter and 35% year over year.

Edyficar's loan growth was also strong with an expansion of 11% quarter over quarter and 46.4% in the year.

We should point out though that growth numbers in the local currency dominant retail sector are somewhat boosted by the 2.7% revaluation of the Nuevo Sol when translating these numbers into dollars.

On the overall, however, the effect of the revaluation of the local currency is compensated by the evolution in different directions of the wholesale and retail portfolio leaving the overall growth numbers unaffected.

Page 5 please.

Portfolio quality remains sound as the trend in these charts show.

All delinquency ratios show an improvement compared to the last quarter.

The 90-day delinquency ratio is still at very low level with 1.15%, and the total delinquency ratio improved slightly despite continued growth in riskier retail sectors.

In fact, the mix continues trending in favor of the retail book which gained another 0.8% of the mix and reached already 49.2% of the total portfolio.

The ratios per segment show also a consistently good performance and reveal a correction in the credit card delinquencies since the appropriate charge-offs were incurred and the adjustments introduced to our credit model seem to have corrected the negative trend showed last quarter in the newer vintages.

However, it is important to point out that permanent improvements in portfolio quality will only be seen in a longer period of time.

The short-term figures may include temporary or seasonal factor.

This improved overall performance and good portfolio quality resulting in lower provision, which was down this third quarter to $94 million, a number that still reflects the move into those riskier segments.

Next page please.

Income generation was robust.

Net interest income increased an outstanding 7.9% quarter over quarter and 26.4% year over year.

This is due primarily to a significant 8.3% growth in interest on loans, which is in line with a considerable increase in total loans we saw before.

However, this strong growth in interest income was partially offset by higher funding cost related to an 18.8% increase in interest on borrowed fund mainly following the new issuance of debt secured by currency flows or remittances and other banking facilities.

Nevertheless, the increase in net interest income resulted in an expansion of 5 bps in the net interest margin on loans, which was situated at 8.12% at the end of the third quarter and a more significant 24 basis points expansion in the global NIM to 5.36%.

Non-financial income was also up 13.9% this quarter due to a very strong evolution of (inaudible) income.

Next page please.

On the cost front, however, operating expenses continued expanding at BCP and increased 11% quarter over quarter.

Fueled by the continued expansion of our net worth, investments in the development and improvement of our operational capabilities, especially on IT outsourcing, increased transactional activity and related volumes that generate variable cost but also as a result of the consolidation of this third quarter of IM Trust in Chile and Correval in Columbia into BCP and ultimately, in this third quarter the strength of the revaluation against the US dollar of our local currency in which most costs are paid.

The consequence of this evolution is seen in the deterioration of the efficiency ratio to 50.6% after over a year of holding our ratio below 50%.

Nevertheless, this strength should eventually revert.

The new cost from subsidiaries will be compensated by their income though the revaluation effect is in fact a trend persistent throughout last years that can distort the perception of cost control.

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BCP Bolivia's performance was good given the pressures in the Bolivian financial sector as the Bolivian government introduced higher income taxes for financial institutions.

The net contribution to Credicorp totaled $5.3 million, a minor reduction from $5.5 million in the previous quarter despite the tax pressure.

Organic growth was still sound at 4.4% for the quarter whereby the retail sector is also the strongest growing sector and the portfolio quality remains sound with a past-due-loan ratio of 1.4%.

Notwithstanding these pressures return on equity was still a good 17%.

Year-to-date numbers showed also a 17% higher contribution to Credicorp that reached $16.2 million.

Finaciera Edyficar, on the other hand, reported loan growth of 12.5% in the quarter to top $659 million.

This represented growth of 49.7% year over year that reflects continuous expansion with an increasing market share, but also incorporate the effect of translating the local currency portfolio into dollars.

This excellent growth also led to a contribution of $9.7 million in the quarter, which represent a 34.3% increase quarter over quarter although boosted by some translation gain and was accompanied by a persistently good portfolio quality as revealed by past-due-loan ratio 4.1%.

Return on equity including the goodwill paid was about 30%, a robust number.

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At Pacifico operations went well.

Net premium growth was strong, increasing 7% for the quarter contributing to better underwriting results for the insurance business, ex-medical insurance which improved significantly and were up 25% quarter over quarter and 54.6% year over year.

Technical results in the medical services, however, are still below expectation as the business still needs time to complete the implementation of the new strategy.

This was behind the 4.6% drop in technical results for the Group.

As a result, the contribution of Pacifico to Credicorp was negatively effected by the bottom line results of the medical services and dropped around $3 million to $20.6 million in the quarter.

Furthermore, the start up of the new medical insurance service business model and the extraordinary claims suffered by Pacifico at the beginning of the year also explained the 8.5% lower accumulated earnings year to date, a pressure that keeps Pacifico's return on equities still at a relatively low level of 13.7%.

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Atlantic Security Bank reported net income of $12.5 million in the third quarter, up 18% versus the second quarter.

The recovery is a reflection of improved market conditions, which allowed for better gain from the sale of securities.

Therefore, return on equity for the third quarter reached a sound 26.1% while Basel ratio remained high at 17.4%.

Atlantic Security Bank's asset management business continued expanding with its assets under administration including deposit reporting a market value of $5 billion.

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Prima AFP's net income totaled $9.5 million in the third quarter, which represents a drop of 17% from reported earnings in the second quarter.

This drop was due to the reserves and costs related to the preparation to adjust to the new regulatory system of auctions and regulatory changes related to deferred income accounting.

In fact, Prima's fee income increased 3.9% in the quarter to $32 million, a good performance within the traditional scenario of a dynamic Peruvian economy and Prima's successful efforts to capture new affiliates.

This scenario is, however, changing with the new regulations that impose an auctioning system to award new commerce to the private pension system to a single company.

It is worth mentioning that Prima won the first allocation under this new regulation ensuring the affiliation of all new commerce until the end of this year.

Notwithstanding this result reflects still an excellent return on equity of 25.9% though significantly lower than the 33.8% reported in Q2.

Furthermore, funds under management totaled $11.3 billion at the end of September, which represented 31.5% of the total funds under management in the private pension funds business.

With this result Prima AFP continues leading the market in terms of funds under management.

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This third quarter is with no doubt a very strong one for Credicorp.

Net income of $228 million for this quarter is by far the best ever reported by Credicorp and puts our numbers on track to meet market and management's expectation.

The business trends are positive and operating results strong.

However, translation gains of $33 million are exceptional and difficult to predict in the future.

The diversification achieved by Credicorp within the financial businesses has allowed the corporation to weather some setbacks in individual businesses while others surpass expectations leading to satisfactory consolidated result.

The investments underway in the insurance business and the investment banking business are yet to bring results while Prima will face challenge in time given the new regulatory framework.

The banking business has still a huge growth potential, especially for the new products that are being developed which will most likely compensate for increased competition in the traditional nature of banking segments and asset management.

The process to develop additional plans to grow our business in the future and the strategies to increase bank penetration, which are fueling this growth, imply higher risks which we are now monitoring closely and hopefully correctly.

Our experience of the previous quarter revealed the need to approach the lower income sectors with significantly higher caution and allowing for a more gradual learning process for the consumer in dealing with credit.

But the corrections to our scoring and approval model are underway.

And we saw signs of improvement reassuring us in our strategy and business approach.

I will stop here and open the sessions for Q&A.

Thank you for your time and interest.

(Operator Instructions).

Nicolas Chialva, Itau BBA.

I have a couple of questions regarding the asset quality.

The first of all is what percentage of the expected losses in BCP's loan portfolio though allowances for they'll cover after the -- in the close of the third quarter?

What percentage -- I mean, you just heard that we have accounted for compared to the expected losses.

That's around --

No, no.

Yes.

Sorry.

What I'm wondering is what percentage of the expected losses of the loan portfolio do allowances for bad debt cover?

I mean, by the end of last quarter in the conference call you stated that about 95% of expected losses were covered by allowances.

So I'm wondering whether now 100% of them or what percentage of expected losses are being covered?

Okay, sorry, I didn't understand your question.

It's roughly the same level, 90%-95% today.

Okay, thank you.

And I'm kind of concerned about the increasing refinance and restructured loans.

I mean the NPL ratio is stable.

But what do you attribute this increase in refinance of restructural loans to?

It is in line with the evolution of the business.

It is not that we have necessarily changed the policies.

It is just that in specific quarters we may have like some additional wholesale corporate or a middle market refinance.

Some of the year -- some of the SME business loans as well.

So it's kind of the volatile nature of these lines?

Yes, exactly.

It's not --

Okay, and -- sorry?

No, there's nothing special to be mentioned there.

Great.

And then my last question is regarding the credit card loan portfolio.

I mean I saw the outstanding performance of the quality of this portfolio, but I also notice that there was strong improvements in the quality during the first two months of the quarter and some deterioration in the last one.

So I'm wondering whether you expect further improvements on the quality of the credit card portfolio or more leveled past-due-loan ratio for this portfolio.

Yes, that's a good point.

I mean we have changes.

We see changes from one month to the other, improvements in the first and the second month of the quarter and then a slight deterioration on the third.

That's what I meant by being careful about this short-term improvement because the trend is not that clear yet.

There is definitely a change in trends but we have to continue looking at this portfolio.

It's too early to say that all what we have done or we're doing now is already improving the portfolio of the credit card business.

So we have to keep an eye on that and continue with this new measure.

Okay, thank you very much for taking my questions.

Nicolas.

Tito Labarta, Deutsche Bank.

A couple of questions.

Just first following up on sort of the allowances and how much you are covering the expected losses.

In the last quarter, you had done some additional provisions to try to cover that.

I assume I guess there weren't any this quarter or when do you think you'd be able to reach at 100% coverage of expected losses?

And then my second question is on expenses, which continue to grow at a high pace, which you said would likely happen, but just want to get a sense of when kind of that growth can slow down and when you can maybe start to see some improvements in efficiency either the next year or 2014?

Just kind of maybe get some more color on expense growth going forward.

Thanks.

Thank you, Tito.

With regards to allowances, it's very important to make that clear now.

We have this figure of expected losses that we calculated constantly.

However, provisions have to be made on incurred losses.

It's not possible to do provisions on expected loss.

The way we are managing this is we have to continue to assess the number and the level of coverage of what we consider expected losses and we have started telling the market what that ratio is.

We mentioned 95%; we wanted to get closer to 100%, but it will be a consequence of the coverage of the incurred losses, not necessarily something that we can just go and cover whatever is expected.

So we will continue to talk about this ratio, which is around 95% today, which is a comfortable level for us.

With regards to expenses, there are several factors.

I mentioned some of them and most important one, last year, we didn't -- in the last quarter, we didn't have IM Trust.

Now we do.

We didn't have all expenses from Correval.

Now we do.

The appreciation of 2.7% of the currency in the quarter where labor costs are all in solid and 60% or 70% of the general expenses are also in solid and they are told.

And in addition to that, there are definitely additional costs with regards to branch network expansion with the Agentes, the commission we paid to the Agentes for additional transactional activity.

So some of those costs are variable that they depend on the number of transactions.

We also have now the full amount of the outsourcing, which was not present fully in the previous quarter in the ITI service I mean.

So there are several factors that affect this quarter specifically.

Having said that though, there is a trend of additional expenses mainly related to network expansion.

This should stabilize I would say with regards to Correval, IM Trust, IT, etcetera in this fourth quarter of the year, but the increase related to expansion will continue.

So just a follow up on that then.

So do you think you could maybe see some more deterioration in the efficiency into next year or should that remain relatively stable and when can there maybe some improvements?

I think the next year will -- we should expect a stable efficiency ratio.

We don't see much improvement.

The plan is to continue expanding, opening branches.

We expect transaction and still grow 20%-25% next year.

So it's not going to be the year for major improvements in efficiency.

Okay, great, thanks.

And just one quick follow up on the allowances and provisions.

So what kind of provisioning level should we then expect?

Like the level we saw this quarter, around 1.9% of loans, is that kind of what we should expect going forward?

Yes, at that level, around that number is a good estimate.

Great, thank you.

Carlos Masedo, Goldman Sachs.

I have a couple of questions.

The first one is actually related to your margins and specifically your funding.

If you can give us some more color on how that's evolving, that it is putting some pressure on your margins overall.

And then what we've seen is that your loans are growing close to 20%.

Your deposits are growing at a slower pace.

And the fastest growing item in your deposit base is time deposits, which presumably have a higher cost.

Is this a trend that we should expect going forward given the strong level of loan growth that you've been exhibiting or is there something in course that would allow you to improve your funding mix, particularly as you expand your presence.

The second question is related more to regulation.

Across the region, there have been a number of initiatives to regulate certain businesses to consumers and here in Chile, Mexico, Peru on the payroll side and other business.

Could you just give us an update on how regulation is progressing in Peru if there is anything that we should be in the lookout for for the next 12 months?

Thank you.

Thank you, Carlos.

With regards to funding, we have been active in the markets.

We have had to go to the market to fund long-term portfolio in dollar especially.

That explains why funding costs have been coming up, especially this quarter with this new issue of securitized or flows.

However, what you have said about deposits growing at a slower pace than loan is a fact.

In this stage of the development of the Bank, if the financial system loans grow than deposits, I think that should stabilize at some point.

And I don't foresee that in the short run deposits will grow at the same pace.

We'll have to continue going to the market.

But an additional factor that we have to bear in mind here is that we go to the market as well because the reserve requirement of the central bank continues going up.

That's basically the only tool that the central bank has to put some additional -- to try to slow down the economy.

So a big part of the dollar deposits go to the central bank, around 35%, and in solid; it's not that low either, it's around 25% today.

So that puts additional pressure and makes us go into the market.

But yes, you should continue seeing loans growing faster than deposits in the next -- in the short run, I mean for the next two, three years.

And the fact that we go and take deposits, time deposits which as you said are more expensive than the main deposits, it's more related to the treasury business that we do.

We take time deposits and we invest those funds in central bank security.

So it's basically a treasury business that somehow distorts the pace or the level of growth in that line.

With regards to regulation, yes, there are a couple of things there.

One is related to fees.

There is a new regulation related to what we can charge for and what we can't and it's out there and it will be implemented next year.

It will definitely have an impact on fee income.

We are estimated around $15 million to $20 million of impact in that line for not being able to charge for certain consumer related fees.

The other regulation that's under consideration now is related to capital required.

We will probably have to require more capital for certain types of loans for certain -- for higher duration and for dollar denominated loans.

That's still in progress.

There is not a final rule there.

But we will definitely have -- see additional capital requirements there.

Okay, thank you.

Thank you so much.

Welcome.

Fabio Zagatti, Barclays Capital.

I have actually two follow-ups on asset quality.

Can you please elaborate on what has changed from the previous quarter in your assessment of the credit risk of the portfolio that would have led you to make a notable change in the tone in my view regarding the perceived risk for strategy in credit cards in 3Q?

Just to make sure or just to be clear, my question is -- I mean, could you share with us why you felt in the previous quarter that there were gaps to be fixed credit recognition processes.

And now only one quarter after that, you feel that in your credit recognition practices are much more robust than they were before.

I also noted that in the press release management acknowledges that this is a very complex process.

So I just wanted, to really understand what has changed in your view?

And then I'll have a second question.

Thank you.

It's difficult to mention just one factor.

I think that in the origination process, the fact that we have raised the bar, that we are requiring to hire monthly income, that we are being more demanding on certain conditions are helping.

But it is too soon to say that it definitely be that the cost or the -- the cost of this improvement in this quarter.

It's not only what we have done in the collection in the origination process, but also in the collection process.

We think that this quarter with additional resources deployed in collections, can have or could have had a better result or an impact in the past-due loan ratio for the credit card business.

But, again, it's too early to say.

Your comments on your report are fair, are good.

It's not necessarily a trend that has definitely changed.

It's a good sign, but we have to continue looking into this portfolio.

Thanks.

And in that sense, is it fair to say that the line of loan loss provisions should really bring more volatility to earnings depending on how management feels about all of those variables that you are constantly monitoring to judge whether or not you should strengthen provisions?

It's a line that is difficult to predict yet.

It may have some volatility.

And it will be definitely related to the behavior of the portfolio.

That's a fact.

Okay, thanks.

That's very informative.

And then my last question is on guidance for 2013.

I understand that the budget for next year may still be under discussion, still very preliminary.

But what can you share with us from a really top-down perspective?

I mean, what would you expect in terms of credit growth margins?

You touched on this when responding to Carlos' question.

But on asset quality you have already provided some sort of guidance.

How do you feel about 2013 in this stage?

We don't see a major change in what we have already being saying with regards to how much the financial sector grows related to growth in the economy.

The same for margins, the change in mix with the retail segment growing faster compensate traditional pressures that we feel in margins in the corporate and middle market sectors even in the retail business.

And perhaps you should continue to be with an upward trend since, again, the change in mix will continue.

That's what I can say.

What we're expecting for the economy next year is around 5.5% GDP growth and we expect the financial system growing again between 2.5, 3 times that number.

But no major changes in trends of any of these variable.

That's great, Alvaro.

Thank you.

Thank you, Fabio.

Saul Martinez, JPMorgan.

I have a question on capital.

When I speak to you guys, I often get the impression that one of the biggest issues that you have is how you allocate your capital and how you allocate excess capital and all the capital that you're generating.

I was a bit surprised and I realized that there are some changes in terms of how credit risk and I think operational or market risk were calculated.

But your tier I fell to, what, 9.7%, 110 basis points.

You're only about 120 basis points above your internal limit.

So I'm kind of curios if you -- how you feel about your capital position and whether you can continue to grow at a healthy click and make selective acquisitions without having to raise common equity?

Okay.

Thank you, Saul.

Besides the fact that we're growing very strongly and that put some pressure on the tier I and total capital, there was a change starting in July with regards to some weight in risk-weighted assets, right.

The factors changed.

And that it tells put some additional requirements on capital.

That's why that ratio helped this quarter, you can -- have noticed.

And I understand.

But given that and given that you do continue grow, you will continue to grow there.

And as you mentioned earlier in one of the questions, there will be -- you think there could be some new changes in capital requirements that require more capital for certain types of loans.

Are you concerned that you have sufficient capital to continue growing without having to raise more capital?

Yes, we're fine.

I mean, we're paying -- difficult to pay out for PCP is between 40% and 60%.

It's been closer to 60% -- I'm sorry, it's being closer to 40%, the pay out ratio, recently because of additional capital requirements.

Right.

But there is plenty of room for continued capitalization of earnings.

We're not yet that concerned.

And we don't have a number yet for new requirements of this new regulation I mentioned before.

It's not going to be probably to a level in which we would be concerned.

Okay.

And your return on -- and BCP, your return on equity is in the high 20% range currently, is that correct?

That's correct.

Okay, fair enough.

Okay, thanks a lot.

Appreciate it.

Thank you, Saul.

Boris Molina, Santander.

I would like to dwell a little more in the issue of capital.

And there are two issues I would like to run by you.

The first one is if you could explain a little bit what is the impact or what will be the impact of the additional capital requirement in your -- in the last press release for multi-concentration risk, et cetera.

It appears to be a significant capital requirement that does not affect your capital (inaudible) today.

So will it affect it in the future?

How it is going to evolve?

And the second question is related to the capital allocation within the Group.

If you look at the consolidated numbers of the Group, there seems to be plenty of capital sloshing around outside of the Bank in Peru.

You recently set up a holding company domestically in order to reinvest more capital in Peru.

So is there any possibility of shifting more capital towards one of your offshore units in order to enhance the capitalization of the Bank if that is the case.

It appears that the government is pushing strong for the dollar rise and improve the amount of assets that you have in local currency.

So will this additional pressures lead to some sort of reallocation of capital in the structure?

With regards to the additional market concentration capital in other related factors, we are already including that in our capital calculation.

As you may remember we mentioned that there is an adjustment period for additional capital that goes up to 2016 I believe.

However the Bank, the Board of the Bank has decided to do it fully by this year.

So we have probably frozen additional capital to what we're actually required to, but we'd rather begin with this -- with 100% compliance, okay.

So it's already there.

At the 100%?

Yes, a 100% of the additional requirement is already in our capital number.

Okay.

Okay.

With regards to capital allocation, we have been -- as you have said we have been generating additional capital, we have some cash in Grupo Credito, which is this domestic holding company that you mentioned.

But you have to bear in mind that we have made a couple of things recently.

One is the investments in the insurance, in the health insurance or health service providing industry or business, which is requiring around $150 million of capital.

And the acquisitions in Chile and Columbia for around $200 million.

So those two acquisitions or those two investments are taking most of that excess cash that we have already generate.

So there is allocation, as you have said, in different businesses from BCP, in the insurance business as well in the investment banking regional platform.

Wonderful.

If I may just another question, I always ask if you have any plans to change your functional currency to the local currency.

Obviously, the central bank is putting a lot of pressure in this capital requirement, and so requirement drive is going to continue in this trend.

So obviously your numbers have a lot of distortions because of the currency translation effect.

And obviously when you give this sort of description, you have to make a lot of clarifications.

When are you going to change the functional currency to a local currency?

That's a good question, when?

When the currency kicks, I know.

Actually when the business is clearly a solid business, the Bank is, I think, half way.

Now, the retail business is basically solid, growing much faster.

Very faster.

Expenses are getting into solid.

So it's going to eventually get there.

I would say in one or two years we should have a plan well set for this.

The insurance business is still very dollarized, but probably changing.

And maybe you can mention something.

We've already started the insurance business with all the new subsidiaries that we've been purchasing in the provider side of the business in the healthcare business.

They are all other income and other expenses are in solid.

So we are maintaining that in solid so that we don't start to add more translation charges one way or the other.

And so these new businesses which are in solid are already being in solid.

And then as Alvaro said, the same as the Bank we'll try to move the insurance businesses as they move along if they move along to the currencies.

The life insurance businesses, there's a lot of dollar, dollarized.

So we will have to make the changes there and also in the property and casualty businesses, especially for the corporate business is also significantly dollarized business.

In addition to that the Prima, the pension fund business is solid.

Edyficar is solid, and now we have Chilean pesos and Columbian pesos to consolidate.

So it's under the process.

Yes, okay, I understand.

Thank you.

Thank you, Boris.

(Operator Instructions).

[Louis Orbonis, MonteLago].

Do you see significant issue regarding the consecutive increases of the reserve rates requirements in Peru?

I mean, will it impact the Bank's margin or is BCP in a strong position to face this increase in the CapEx funding (inaudible) to interest rate?

It's always that's a continuous process.

I mean every time there is a change in reserve requirements, we have to re-price what we charge for loans.

We have to transfer that out to loans.

So, yes, the answer is we already considered that in the pricing part.

And do you see a lower pace in credit growth?

A lower growth base you mean in the future?

Yes, because the BCP -- sorry, the central bank obviously needs to pace, to reduce the pace of the growth, right?

Okay, that always has an impact.

But I would say it's mainly on the middle market, the corporate sector, not as much in the retail since the interest rates are far away from the level that the central bank manages.

Okay, thank you.

This concludes the question and answer session of today's call.

I will now turn the call back over to Mr. Alvaro Correa, Chief Financial Officer of Creditcorp for closing remarks.

Hi, this is Walter Bayly, just wanted to make a couple of closing remarks.

First of all, thank you all very much for continuously joining us on these calls.

There were three topics that I wanted to mention that came out of the questions and just wanted to give you some thoughts on those.

One is the issue of risk.

If we go to the beginning of the first quarter, somewhere around February, we did identify that there was a certain level of deterioration in our consumer credit card portfolio.

What we did at that stage was a very thorough review with the help of outside consultants of all our different practices.

And, yes, we identified some gaps as to compared to best practices.

Some of them -- and while we were doing that we clearly became more conservative in underwriting new risk.

Out of the review we have set up a project which is a medium-term project but that does allow for some quick fixes.

While all this is taking place, clearly as I have mentioned we have been more conservative in underwriting new businesses.

Going forward, what I really think is that we should not see major or any changes in the level of provision as we have seen in this quarter.

I would expect also to remain for two quarters.

I would be surprised if we deteriorate further, but I'd also be surprised if they improved dramatically.

We have taken some loans and it will take a while to digest them.

So I just wanted to make that absolutely very clear.

And we did identify the gaps; some of them are easily solved, some of them do take do take a while.

I don't expect any deterioration or improvement.

I mean deterioration or increase in the level of provisioning.

So I don't expect this to improve quite rapidly.

I would expect two more quarters around what we have seen in the last quarter.

The second comment also related to a question that was asked is regulation.

Yes, we are facing a lot of new regulation, our regulators are also -- I don't know the words, contaminated, but influence is the better word -- influenced by what is happening in the world and clearly they are following the same trend.

And regulation affects in several ways.

One is growth.

Clearly, the central bank and the Ministry of Finance have expressed their concerns about the pace at which loan growth is happening in this country.

And we see several things happening.

One, clearly more capital will be required toward certain type of loans.

That directionally we believe is appropriate, is correct.

More capital will be required for dollar mortgages; we think that it's a good idea.

More capital will be required for US dollar consumer finances; we think that's a good idea.

More capital will be required for medium term consumer finance.

That's a good idea.

The question is how do you face it and what will be the impact of that.

So we have no dispute as to that directionality of what has been done.

Clearly, the way to pace it is what we are all debating.

But it will affect growth.

And the central bank is also quite cautiously increasing reserve requirements.

All of this will affect growth.

And the other issue is fees.

We are under pressure by the regulator, by the superintendency, to simplify all our products and to make all our products and the cost related to them more easily understood by consumers.

Fortunately, we at BCP had taken this initiative for about a year, a year-and-a-half ago and the new sets of regulations though will have an impact, we think that they will not be dramatic and we think we can continue move forward growing our businesses in a profitable fashion.

And the last comment is about excess capital.

We have mentioned that one of the issues and challenges was how do we really redeploy the excess capital.

We are now in the process of really reviewing after three or four years of having said this, one, what is our true excess capital generation for the future, given that, one, we have made some acquisitions, we acquire AAG's minority position, we acquired Edyficar, we acquired the two investment banks and we have invested money in the health services side.

Second, we have more capital requirements going forward, and three, we are evaluating what are the medium term growth perspectives for this economy.

The combination of all of those will allow us probably or around the first quarter next year to give you all a little bit more light as to how all this adjust together and how -- and what level of excess capital we will be generating.

Clearly, we do have excess capital, not necessarily at the Bank, but at the other subsidiaries.

So I really see zero possibility of us not being able to capture growth because we don't have capital or having to go outside the Bank to raise it.

We do have the capital within the Credicorp more than enough to take care of our current and future growth needs.

The question is what level of excess will be generated going forward.

But we will be giving you all a little bit more light and color of that, probably around the first quarter next year.

So again, thank you very much; just wanted to make some closing comments on these three issues that have been repeatedly mentioned in some of the questions.

Thank you all very much for continuously joining us and we look forward for next quarter's year end conference call.

Thank you very much again.

Good bye.

Thank you.

Ladies and gentlemen, this concludes today's conference.

Thank you for participating.

You may now disconnect.