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Operator
(Operator Instructions). I'd now like to turn the conference over to Mr. Fernando Dasso. Sir, please go ahead.
Fernando Dasso - CFO
Good morning, and welcome to Credicorp's conference call on our earnings results for our first quarter of 2016.
Before we review Credicorp's performance in the first quarter, I would like to take a few minutes to review the Peruvian macroeconomic environment, which is more optimistic than the scenario we discussed in our last conference call.
Over the last 9 to 12 months, we have lived with uncertainty regarding the potential negative effect of three clouds, as we call them. Which were, first, a negative international environment due to a potential rapid increase in the Fed's interest rate, a drop in commodity prices, and a strong slowdown in China. Second, a severe El Nino phenomenon, which has the potential to generate significant problems, mainly in our banking business. And, third, the uncertainty and volatility due to the presidential elections in Peru.
Those three clouds have started to dissipate. First, the Fed has taken a more dovish posture, commodity prices have somewhat stabilized, and emerging market currencies have appreciated.
Second, El Nino phenomenon was moderate and generated no material impact.
And, third, the outcome of the first round in the Peruvian presidential elections eliminated the uncertainty and volatility that we experienced prior to March. After a first round, business and consumer confidence has recovered. The second-round presidential elections will be held on June 5 between two pro-market-oriented candidates -- Mrs. Keiko Fujimori and Mr. Pedro Pablo Kuczynski.
In this context, we have reviewed our estimates for the most important macroeconomic indicators, which you can see in the table on this page. The new estimates reflect the fact that the local market is more optimistic. This is evident in the business and consumer confidence indexes, which should materialize in a more dynamic economic environment for the different business segments in which we operate.
Finally, it is important to point out that in mid-April the IMF reduced its growth forecast for this year in the main Latin American economies -- Brazil, Mexico, Colombia and Chile. On the other hand, the IMF increased its growth forecast for 2016 in Peru, which was the only economy where an upgrade was made.
Credicorp reported net income of PEN795 million in the first quarter of this year, which represented an ROAE and an ROAA of 19.4% and 2.0% respectively. After extracting the translation loss of PEN26.7 million, the result shows net recurring income of PEN823.3 million. This represented growth of 7% quarter over quarter and 18.3% year over year, and recurring ROAE and ROAA of 20.2% and 2.1% respectively.
Although our results are satisfactory overall, they show the impact of the context we describe in the previous page, in which we decided to reduce the pace at which we were expanding our higher-margin loan book to focus on better risk quality and [defend] margin after provisions, and therefore profitability.
The main drivers of Credicorp's results were, first, quarter-end loan balances expanded 1.3% Q over Q and 12.1% year over year, as expected. After excluding the effect of the depreciation of the US dollar Q over Q and the appreciation year over year, loan growth turned into a rate of 2.3% Q over Q and 9.2% year over year.
Second, the reduction of 9.8% Q over Q and 9.7% year over year in net provisions for loan losses. This led to a cost of risk of 1.98%, which was 25 bps below fourth quarter's cost of risk and 48 bps below that of the first quarter of last year. In the first quarter of this year, cost of risk represents the lowest level we have seen since the first quarter of 2013, when it reached 1.75%.
Third, a slight contraction of 1.5% Q over Q in net interest income, but growth of 9% year over year, which was offset by the reduction in provisions for loan losses. This result was reflected in the contraction of 22 bps Q over Q and 40 bps year over year in NIM, while NIM after provisions dropped only 5 bps Q over Q and 3 bps year over year.
Fourth, the efficiency ratio continued showing the improvement in BCP stand-alone. As a result, Credicorp's efficiency ratio dropped 220 basis points Q over Q. Nevertheless, the ratio increased 40 basis points year over year because of some deterioration in the efficiency of other subsidiaries of Credicorp.
Let's review our main financial figures. On this page, you can see the evolution of the loan book in average daily balances, which is an important driven of our NIM and, most importantly, of our NIM after provisions. Overall Credicorp's average daily balances of loans expanded 1.7% Q over Q and 14.3% year over year.
Loan growth came mainly from our local currency loan book, that grew 3.3% Q over Q and 29.1% year over year, while the foreign currency loan book contracted 3.1% Q over Q and 12.7% year over year. The loan expansion was led mainly by low-margin business segments such as corporate banking and mortgage loans, which put downward pressure on our NIM.
In the case of the SME-Business loan book, the expansion is due to a positive impact of a re-segmentation process conducted in the first quarter of this year, which in net terms represented approximately an additional [PEN12,090] in loans. Therefore, the higher volume is not related to a higher level of debt in our clients.
Finally, Mibanco continued posting loan expansion after the construction [registered] since March 2014 until August 2015.
The [peculiarities] of the loan expansion that we reviewed in the previous page are reflected in the de-dollarization of Credicorp's loan book, which continued during this last quarter. As of March 2016, dollarization of Credicorp's loan book was 39.7% and that of BCP stand-alone was 36.8%. The latter was far below the 46.2% of the first quarter of 2015, and even lower than the 38.1% of the last quarter of 2015.
Overall, the loan books most exposed to foreign exchange risk have continued de-dollarizing. As you can see in the chart at the bottom on the right-hand side, the level of foreign exchange risk on credit risk has remained at the level it was in the fourth quarter of last year.
As we mentioned before, we have focused our risk management and commercial efforts over improving the quality of our risk in the portfolio. This decision implies, first, a reduction in margins of each business segment according to a lower level of risk of client, which in turn increases the downward pressure on NIM in a scenario of increasing funding costs.
Second, a slowdown in loan expansions, in particular in the business segments [which face] delinquency problems.
Third, a positive impact on cost of risk, which in turn helps minimize the decrease of NIM after provisions.
All the aforementioned explains the evolution of net interest income, as you can see in the table at the top of this page. Interest income has fallen slightly Q over Q but has expanded year over year. The reduction is mainly the effect of higher loan expansion in low-margin business segments, and a decrease in income from forwards, which was significant through all the previous years.
On the other hand, interest expenses continue going up, as we will explain in the next slide. In this context, our focus on risk quality is reflected in the lower cost of risk that allowed us to attenuate the decrease in NIM after provisions.
As you can see in the chart at the bottom of this page, NIM contracted 22 bps quarter over quarter and 40 bps year over year; but NIM after provisions only fell 5 bps Q over Q and 3 bps year over year. Hence, net interest income after provisions expanded 1.4% Q over Q and 16.4% year over year.
In this page you can see Credicorp's funding structure and some important indicators related to it. It is important to mention, first, funding costs, which continued increasing but at a slower pace. The increase is mainly explained by the higher average cost of central bank funding due to banks and deposits.
Second, the [local] currency mismatch between assets and liability, which is approximately 7.9%.
Third, the overall loan to deposit ratio continued decreasing and reached the level of 98.6%. Nevertheless, the analysis by currency of this ratio shows the slight increase expected in the local currency loan to deposit ratio after the seasonality of local currency deposits in the fourth quarter.
In terms of risk quality of our portfolio, the cost of risk fell to 1.98%, which was considerably lower than the 2.23% reported in the fourth quarter of last year; and better yet, the 2.46% reported in the first quarter of 2015. This was due to low growth in gross provisions and a higher level of reversals Mibanco, both of which were associated with an improvement in the quality of vintages, mainly at Mibanco, and in the SME-Business segment, as well as to improvements in the wholesale banking's portfolio.
The traditional ratios for portfolio quality revealed an increase due to the distortion generated by high levels of real estate collateral that we have explained in detail in previous calls. Therefore, the link between these ratios and the cost of risk has been broken, and thus the ratios do not reflect the improvement in the risk quality of the new vintages of some business segments in retail banking, such as SME-Business, SME-Pyme, and mortgage. Wholesale banking and BCP Bolivia's internal overdue ratios do show the real performance in terms of risk in each portfolio. As such, you can see that.
Wholesale banking internal overdue ratio fell 4 bps Q over Q, reaching 0.28%, due to a contraction in the internal overdue loan portfolio and growth in the loan book.
Second, BCP Bolivia reported deterioration in the internal overdue ratio which increased 21 bps Q over Q. This was attributable to the fact that growth in internal overdue loans was higher than that of loans. The former is explained mainly by the deterioration of the SME-Business and mortgage portfolios.
It's important to highlight that the adjusted NPL ratio, the most stringent delinquency ratio, shows a more stable level.
Let's review the risk performance of the rest of our business segments in the next pages. In the chart at the top, you can see the evolution of the SME-Business internal review and NPL ratios, which increased due to a deterioration of few clients that have a high level of debt.
Nevertheless, these clients have a high level of real estate collateral, as it is also the case of the total portfolio that (inaudible) registers approximately 73% of collateral as percentage of total loss. This factor allows keeping a relatively low cost of risk.
The chart at the bottom of the page shows the evolution of the risk quality of the SME-Business new clients. We have defined a strategy to continue expanding this business because of the profitability it generates. The chart show, first, the high participation in total loans, of low-risk loans, which was 54% on average in the first quarter of this year, a higher level than the 45% posted a year ago.
Second, medium-risk loans account for 32% of all loans in the first quarter of 2016, which is slightly lower than the 33% in the first quarter of 2015.
And, third, high-risk loans continue contracting and we'll keep that trend in line with our strategy. Overall, the level of delinquency ratios is well within our risk appetite; and most important, the business continues delivering good profitability.
As you know, in the case of SME-Pyme the early delinquency ratio is the most adequate to analyze the risk performance of new vintages. In this case, the year-over-year analysis is most adequate because of the seasonality that characterizes this business.
At the beginning of the second half of 2014, early delinquency started a year-over-year downward trend due to the adjustments made in the business model. The first quarter of this year, this ratio showed a slight increase of 3 bps year over year, which is nothing that concerns us. Furthermore, cost of risk decreased 96 bps year over year, which represents the minimum historic level reported in the last few years.
Finally, in the chart at the bottom of the page you can also see that we have managed to eliminate the risk that is not in line with our appetite, which represented approximately 40% of total loans in January 2013, using the current risk models. Currently, our admission risk do not accept that type of risk, as you can see since September 2015.
Mortgage continued to show an increase in delinquency ratio; however, still within the risk appetite. The year-over-year deterioration was mainly attributable to our Mivivienda loan portfolio. This trend has started to slow down. In terms of cost of risk, it fell 16 bps Q over Q after a reversal of provisions due to an operating error in the fourth quarter of last year.
The year-over-year evolution shows an increase of 18 bps in the cost of risk, which is due to, first, the slight deterioration in vintages of foreign currency mortgages, which was disbursed mainly in 2012 and 2013; and second, some clients that hold other Credicorp products experienced difficulties in their debt service capacities with our entities, and as such our provisioning took a hit according to incurred loss internal models.
In the case of credit cards, the chart at the top shows the early delinquency has increased for a second consecutive quarter, and this is the effect of the strong slowdown of internal demand and private consumption, and to an increase in unemployment.
The negative impact of the economy performance has been worse at our competitors. This has forced us (inaudible) higher [provisions] even when the clients are performing well with us, because of incurred loss internal models [with considerable deterioration] in our costs.
Nevertheless, our strategy, focused on better risk quality, has allowed us to keep delinquency under control, and most importantly, within our risk and profitability targets. As you can see in the chart at the bottom, at the end of March 80% of new vintages have low-risk ratings, a much higher level than the 65% at the end of March 2014.
On this page, we see the evolution of risk indicators for consumer loss. In the chart at the top, you can see that even when early delinquency and internal overdue ratios post relatively low levels of cost of risk, it is high and has increased. The macroeconomic factors that we explained for credit cards have also affected this business. This is definitely a business segment that we continue to focus on, and in the second quarter of this year we will implement new risk models for admission that should show better results in the coming months.
At Mibanco, you can see that the improvement in delinquency ratios continues. The internal overdue loan ratio fell 132 bps year over year. This was primarily due to a contraction in internal overdue loans, which was attributable to better risk quality in origination and to charge-offs.
As a result, the cost of risk also fell 109 bps Q over Q. This was due to the fact that virtually no growth was posted in gross provisions for loan losses and to an increase in reversals of provisions. Both of these aspects were attributable to an improvement in the risk quality of new vintages.
Non-financial income fell 3.3% Q over Q. This was made -- this was due mainly to, first, the drop in banking fee income, which is impacted by seasonality of the second half in each year, in which the transaction of business is more dynamic.
Second, the contraction of gains on foreign exchange transactions. This was due mainly to lower gains on foreign exchange transactions at BCP stand-alone, which was attributable to a decrease in volumes and to losses on currency trading. It is important to mention that gains on investments in subsidiaries which register results [of the agreement with] America, posted a slight increase year over year, although it contracted Q over Q.
The insurance underwriting result fell 11.5% Q over Q. This was due mainly to an increase in the acquisition cost in the property and casualty line, and in life insurance, due to a decrease in underwriting income after profit-sharing in the fourth quarter of last year. Nevertheless, net earned premiums increased this quarter in both the P&C and life lines, while the loss ratio for the P&C business dropped.
In the year-over-year analysis, the underwriting result increased 23.6%, which was due primarily to growth in the net earned premiums, mainly in the property and casualty business.
In terms of operating efficiency, the efficiency ratio improved 220 bps Q over Q due to a significant reduction in operating expenses that offset the slight decrease in operating income. The former reflects the lower level of administrative and general expenses in BCP stand-alone due to the seasonality that they have in every fourth quarter.
Year over year, the efficiency ratio grew 40 bps due to higher salaries and employee benefits, which reflect mainly the effect of business expansion on variable remunerations, and in a lesser extent the slight deterioration in the efficiency of some subsidiaries of Credicorp, with the exception of BCP stand-alone, Mibanco and BCP Bolivia. It is important to highlight the year-over-year evolution at BCP stand-alone, which shows an improvement in this ratio of 60 basis points, which was above our expectations.
In terms of capital ratio, the decrease of the common equity tier 1 ratio is due to a seasonality caused by the dividend announcement made in February, but income generation during the rest of the year will allow us to reach our target of 10% at the BCP stand-alone level by year-end.
Finally, in the chart of this page you can see a contribution of all subsidiaries as well as the ROAEs. Overall, Credicorp posted a 19.4% ROAE and a recurring ROAE of 20.2% in the first quarter of this year, which is in line with our target for the full year.
With these comments, I would like to open the Q&A session, please.
Operator
(Operator Instructions). Philip Finch, UBS.
Philip Finch - Analyst
Thank you for the presentation. I've got a couple of questions, please. First, regarding your local currency loans deposit ratio, which still remains elevated. In your opinion, what needs to happen for this to peak and come down, and when are you looking for this ratio to peak? Is it soon or is it going to remain elevated for a while?
And the second question is regarding your asset quality. It's sort of mixed-picture in the first quarter. Your NPLs -- overdue ratios were going up, but clearly cost of risk is coming down. Going forward, what are you expecting in terms of trends, especially in terms of costs of risk? You've been guiding previously for 2.1% to 2.2%. Q1 was well below that. What should we assume, going forward? Thank you, Fernando.
Fernando Dasso - CFO
Hello, Philip. There are two questions. First, the one regarding local currency loan to deposit ratios -- what we feel is, as you know, we need a more -- a stabilization of the exchange rate to begin unwinding this process of the loan to deposit ratio. As you know, in combined terms, we are doing fine. We are around 100%. But, yes, the one in soles is higher than we would like.
Fortunately, the exchange rate has begun to stabilize. It reached 3.52, like 30 days ago, and now it is around 3.33. So, it is stabilizing and it will probably continue to stabilize, depending on what happens with the Fed especially, and the rate in the States -- and the reference rate in the States.
We have now begun to see some deposits coming from dollars into soles, especially one from institutional entities and some of the large investors, which get better results in our currency than in dollars. So, that should begin unwinding, but very gradually, actually. So, we plan to -- I mean, go downwards; but gradually during the last -- during the next quarters.
In terms of asset quality, yes, the cost of risk -- we -- our target is around 200% to 220%. And, yes, we are a little below that, which is good. We continue to think that we will be in the range of 2 to 2.2. But you have to take into consideration that, as we have discussed many times before, we are now focusing on better risk of our portfolio, and we've taken already important decisions in terms of what we will doing in the consumer and SME segments, and we are -- continue developing our tools in all the risk area. Not only models of admission and behavioral scores, but also in the collections phase of it. So, those results are beginning to show, and that's what you see in the cost of risk.
The NPLs has another explanation, and we have already talked about that. And the main explanation is that we have still those -- an important array of loans, especially in mortgage and in the SME segments, that have collateral in real estate. And to go and try to collect that collateral, you have to go through the judiciary process, and that takes a while. And that can take 3 to 4 years.
So, we continue to accumulate some of that debt, which is mainly already charged off, but it is still in our books. Regarding that, we would like you to consider focusing more on the short term -- the 60% to 100% delinquency -- to 150% delinquency ratios.
Philip Finch - Analyst
Thank you, Fernando. Very helpful.
Operator
Thiago Batista, Itau BBA.
Thiago Batista - Analyst
Thanks for the opportunity. I have two questions, the first one about the efficiency ratio. You posted, or Credicorp posted, a very strong performance in cost control this quarter. My question is, how much more you think the ratio could improve. (Inaudible) going to see this ratio around 40% level in the end of the year?
And my second question is just a followup of your comment on the capital. You've said that you believe that the bank will achieve the 10% [core] capital in the end of the year. How much are you assuming in terms of loan growth in this calculation?
Fernando Dasso - CFO
I didn't get your -- the first ratio that you want to talk about. I know that you want to understand how it improved, but I need to get the ratio.
Thiago Batista - Analyst
It's the efficiency ratio, that achieved 42%, I think.
Fernando Dasso - CFO
Okay. Great. I got it. In terms of the efficiency ratio, as you know, Credicorp is around 42% neighborhood. BCP, which is an important cost for that ratio, is around the 41% neighborhood as a target. However, this first quarter we've reached the 39% neighborhood.
What we feel is that we have already gone a long way in terms of that ratio. We -- as you know, 3 years ago we were around low 50s. And, yes, in BCP we are around 39%. That should be a great ratio if we reach that ratio at the end of the year. However, we feel that we will be more close to, say, 41%, 40%. Which will, net Credicorp, be around 42%; maybe a little less than that, but not much less than that.
There are still [growth] projects in this area, especially not the low-hanging fruit projects but more important projects, especially in terms of IT, some automations, and things that we need to still work with. So, yes, we can go a little lower, but not a lot.
Then in terms of capital -- and another thing here. We need to work a little bit more with the subsidiaries in terms of efficiency. There is some room for improvement there; not on BCP.
In terms of capital, we have to refer now to the BCP stand-alone Company. Yes, we were around 9.3%, 9.4% before declaring our dividends. After declaring our dividends, we went down to 8.8%. And now, what will happen till the end of the year?
First, as you know, we will end up with a transaction related to BCP Bolivia. We will sell BCP Bolivia from BCP Peru on to a Credicorp subsidiary, which is Grupo Credito. First is a holding company in Bolivia and then Grupo Credito, which is an internal arrangement, really. But that will bring BCP's cost -- common equity tier 1 ratio up to 9.3%.
And then we feel that we can reach, very easily, that -- very confidently, that 10% at the end of the year for the ratio. This was internal sources, because our ROAE at the BCP level continues to be around 24% and we are growing our loan book by, say, 13%, 14%. So, that should happen during this last 8 months of the year.
Thiago Batista - Analyst
Okay. Perfect. Thanks for the answers.
Operator
Carlos Rivera, Citi.
Carlos Rivera - Analyst
Thanks for taking questions, Fernando. My first question is related about your general thoughts of the implications of these better outlook for Peru. You mentioned that macroeconomic indicators are looking back now. And if I remember correctly, in the past you had guided for loan growth around 13% to 15% as a safe pace under a 3% GDP growth.
So, is there any upside now that things are looking better for 2016 and 2017? And what would be the implications for that, in terms of your loan growth strategy -- maybe being a little bit more confident; a high-risk appetite for retail loans? That's my first question.
And my second question is regarding Mibanco, where we see a significant increase in the net income contribution to the Group. I believe you had mentioned the guidance for the ROAE in the low 20s in the past, by 2017 and 2018; but this quarter we are already at 22.5%. So, is the turnaround happening faster there? Are you being a little bit more optimistic now? That would be my second question. Thank you very much.
Fernando Dasso - CFO
Thank you, Carlos. First, regarding a better outlook, you probably know better that things are developing better than we thought, here in Peru. And I would say that the -- especially in terms of investment. I mean, investment, especially private, which is more productive than public investment, was in a way contained, waiting for good news.
And what we have been gathering from our clients and from people in general from the business community is that that investment will begin to flow. We are not talking right now of the great infrastructure or the great mining project that should probably come. But mainly from projects that people and companies have -- buying a new asset; developing a new line of production -- those type of projects that should be coming into the economy pretty soon.
What is our outlook in regards to that? We continue to think that -- we thought that loan growth could be around, say, 12%, 14%. It will be in the higher part of that range -- maybe 14%; maybe even 15%. We still need to see who is the president, although the two candidates are very good. We still need to see who wins the election, for companies to -- I mean, continue investing; for employment to continue improving; for -- and for welfare to begin coming back into families and the economy in general.
Then in terms of risk appetite, as you know, for many years we've been trying to expand really what we do in terms of risk. We've learned our lessons. We feel pretty comfortable of where we are. We still need to develop all our risk platform in terms of what I mentioned in the -- my prior answer. Meaning, all our models; what we need to do in collections.
But, yes, the American segments of the economy should continue coming up, as they did for many years, until the last 2 years maybe. So, if those parts of the economy -- those emerging segments -- continue to become part of the market economy, yes, we will definitely target them with a much better experience that we have now in the risk part of our business.
Then, Mibanco. As you know, Mibanco's merger and -- the former Mibanco and Edyficar's merger only took place in March last year, so it's only a year ago. Then Mibanco's portfolio began growing around September. And the campaign at the end of the year -- the campaign in -- sales campaign is the best campaign, and though, the results we're getting is what we are getting because of that campaign, we feel that, yes, we have begin to understand risk better; that we are beginning to grow in terms of loans.
And you see the ROAE. Yes, the ROAE is 22%. Our target is still around 20% for this year, and we'll see what happens in these coming months. But, yes, I can say with some optimism that Mibanco -- the new Mibanco begins to be a success story.
Carlos Rivera - Analyst
Okay. Thank you very much.
Operator
Ernesto Gabilondo, Bank of America Merrill Lynch.
Ernesto Gabilondo - Analyst
Thanks for taking questions. My first question is related to the net interest margin. I'm aware that the quarter was affected by the expansion in low-credit-margin segments such as wholesale and mortgages; secondly, by the lower interest rates by improving the risk profile; and lastly, by increasing the cost of funding.
So, my question is what to expect for the trends in net interest margin, considering very -- considering better lending dynamics in high-margin segments such as Mibanco and SME-Business for the second half of the year; but also, an upward trend in cost of funding rates. I believe it will be interesting to contrast the overall trends in the cost of funding, but now with a limited currency mismatch and a more stable BCRP funding. Thanks. And then I will elaborate on my second question.
Fernando Dasso - CFO
Thank you. What will happen to net interest margin? What I can say is that, yes, there is some -- there has been some pressure on margins. And basically because the loan portfolios of the different institutions in the market were -- they were growing slowly than before. And, yes, there was more competition for the good clients. What we did is what all the other competitors did, which is very good in terms of what happens to the health of the financial system.
But what we feel now is that if the portfolio is beginning to grow faster, there could be some easing of this competitive process, and we would be able to re-price faster the asset side -- the loan side of our balance sheet. That on the loan side of our balance sheet.
Then, on cost of funds, as you know, first we can talk about soles. I mean, soles -- the reference rate went up already 100 basis points, from 3.25% to 4.25%. That happened during the last 8 months. Fortunately, it seems that our exchange rate is stabilizing a little bit, and we've seen the central -- the local central bank during the last two meetings maintained that rate flat. And we think that it will probably stay flat for a while, especially if there is no pressure on the exchange rate, which is happening now.
Then, what will happen to the dollar rate? You probably know better than we. But what we feel is that it will be a very gradual increase, if it happens at all this year. We've seen today the number of payrolls, and it's still very weak. So, for us, we will have less pressure on cost of funding in both currencies over the coming months.
Ernesto Gabilondo - Analyst
Okay. Great. Thank you. Another couple of questions. On my second question, it's more related to the potential downgrade of Peru to frontier market. I believe the final decision will happen at the end of the month. So, can you provide us some color on what to expect on this regard?
And finally, your presidential elections are also around the corner. I think it will be interesting if you can highlight or share with us some of the best candidate initiatives to promote infrastructure projects or specific reforms. I don't know if you have analyzed the potential benefits that could be translated into GDP growth. We have seen that you have increased your GDP growth to 3.7% from 3.2% previously; but how much of the GDP improvement is considering infrastructure projects or reforms? Thank you.
Fernando Dasso - CFO
Two questions. First, the one on MSCI. What we know -- as you know, MSCI requires three companies to be above their limit, to have the country as part of the emerging world. There are definitely two companies that -- I mean, two companies that have -- that are above those limits, which are Credicorp and Buenaventura. And there is this third company, Southern Copper, that is definitely above those limits. But there was a question in regards of, should it be part of Peru or should it be part of the US index?
What we gather is that this company has already sent a letter to MSCI, telling them that they want to remain part of the Peruvian index. And what we know is that, during May, the MSCI will define if Southern Copper stays as part of the index.
And then comes the second question, which will be answered in June, which is if Peru will be still part of the emerging index -- the emerging countries index, or it will -- or if it becomes part of the frontier index.
We feel -- I mean, when we talk to people that understand what is going on, they tell us that the odds are becoming better and better, especially because during the last, say, 60 days, there has been a much better feeling towards emerging economies, not only Peru; and because (inaudible) things are developing better politically and economically in Peru. But we don't have the answer. We will have to wait for another 40 days.
Then, presidential elections. What we know from the plans of each candidates are -- is that they already have very comprehensive programs in terms of reforms that need to be made, and in terms of a package of projects that they want to implement during their first 100 days, which is very good. They are very focused. They are -- they will direct efforts very early in their mandates. So, we are really hopeful of -- on what could -- any of those could do.
Yes, Peru is under construction, I would say. So, we need all those infrastructure projects -- highways; ports; airports; you name it. So, they should be implemented fast, as well as the reforms that I mentioned before.
If you ask me if that is going to, in a way, influence the growth of this year, I don't think so. Because the change in the administration will only take place at the end of July and there is still -- and then, after that, you only have some months coming.
But what I can tell you is that the sentiment of the business community and of individuals in the streets now is that Peru will [grow] better. So, that is already, in a way, affecting positively what will happen in Peru. And that's why, not because of that -- only of that, but because of some especially mining projects that are coming into full production this year, that we feel that GDP growth should pick up and not be only 3.2%, but rather 3.7%.
Ernesto Gabilondo - Analyst
Thanks, Fernando. Much appreciated.
Operator
Jason Mollin, Scotiabank.
Jason Mollin - Analyst
I have two questions. My first is related to your net foreign currency position. Can you tell us what that was at the end of the quarter, and how -- for Credicorp, and how your -- if you believe that that could change over time, or if you're going to maintain that position?
And my second question is related to your funding costs. Particularly, you show very good detail on the average costs based on your funding structure. Can you talk a little bit about the cost of the BCRP instruments? We've seen the average cost go up, but can you compare that to the marginal cost, what we're seeing now?
Fernando Dasso - CFO
Hello, Jason. Two questions. First is, what will happen towards our net foreign currency position. It has -- decisions have already been taken in regards to that. As you know, for many months now, beginning at the middle of 2013 until February this year, we had a depreciation -- a constant depreciation of our currency. And that's why we wanted to have that foreign currency position. That's, as we call it, structural foreign currency position, which was around $200 million. We took advantage of that.
But then, now we feel that things are stabilizing in terms of currency exchange rates, and now we have decided that we won't have that in the coming months. We have decided that we will actually continue to take positions -- foreign exchange positions in dollars, but should be not only having a stable one, but rather looking at what should be the position day by day, with our treasury traders actually working with it very actively.
Second, regarding to funding costs and BCRP -- as you know, those reports from the central bank are in reality long-term -- 2, 3, 4 years. They continue to be there. What is happening now to the rates of the central bank? The central bank continues to provide (inaudible) [deflating] soles. We have, as you know, ample liquidity in dollars, which we exchange for the soles. Those rates are still very attractive, and we are taking them. We don't see any important change in this rate.
The central bank is very aware that we need the soles and that the economy needs the financial system to continue providing that liquidity in soles for it to continue advancing. So, we are, as usual, working very constructively with the central bank in these terms, and seeing no special change coming in the coming months.
Jason Mollin - Analyst
Thank you very much, Fernando.
Operator
Jordan Hymowitz, Philadelphia Financial.
Jordan Hymowitz - Analyst
Thanks for taking my question. You mentioned in the release that there were some accelerated recoveries in the quarter. Can you disclose how much those were?
Fernando Dasso - CFO
Extraordinary -- can you repeat? Recoveries?
Jordan Hymowitz - Analyst
In page 21 it says, "recoveries of BCP stand-alone were accelerated." Can you say how much those recoveries were?
Fernando Dasso - CFO
Well -- yes. Thank you, Jordan. As you know, we have talked to you in the last conference calls that we have been upgrading and really improving our collections department; our collections people. And, yes, we have had some special recoveries during this quarter. Nothing really dramatic; but we feel that we should continue beefing up those people -- that team -- and should continue having these recoveries. But nothing special at the BCP level.
However, in Mibanco, which is a subsidiary we've been talking about during this call, there has been -- there have been some special recoveries, yes. Because some of their clients are -- have been (inaudible) improving their balance sheets, and we have been able to take advantage of that reverse, some provisions, and take advantage of that. Nothing really dramatic; maybe just the pace of business.
Jordan Hymowitz - Analyst
Okay. And then you also said that cost of risk would be between 2% and 2.2% going forward. So, would it be fair to say that your provision this time of PEN450 million -- [compound of] PEN453 million is probably about 10% higher or closer to PEN500 million going forward, for our models? PEN500,000? PEN500 million.
Fernando Dasso - CFO
I don't want to talk about exact numbers. What I would say, as we usually say as guidance, is that we will be between 2% and 2.2%.
Jordan Hymowitz - Analyst
Okay. Thank you very much.
Operator
Carlos Gomez, HSBC.
Carlos Gomez - Analyst
Two questions. And the first one refers to your subsidiary in the US, Atlantic Security. It had a loss this quarter. We wondered if you could give us some more details about what exactly happened and what's the reason for it.
The second refers to your capital position. You are confident you will reach the 10% level by the end of the year. We don't doubt that. What is the plan beyond that? Do you want to go to a higher level, like 11%, 12%, like we see at European institutions? Or would you immediately start thinking about increasing dividends, or perhaps acquisitions? Thank you.
Fernando Dasso - CFO
Thank you, Carlos. In terms of Atlantic Security Bank, what we have in Atlantic is, as you know, we center there all our private banking effort with our clients. And as you know, we have a group of deposits and some loans also. But loans are only half of the deposits we have.
So, we have some excess liquidity in a way, and what we with that liquidity is, we have portfolio of securities -- a very balanced portfolio, and actually very low-risk portfolio of securities, of around $800 million.
What we do with that portfolio is, we give the management of it to different entities -- the ones you probably know already, the JPMorgans, and the Wellingtons, and these kind of entities. And, as you also know, January and February were really very challenging months in terms of the market, and we made some losses in those months.
Whatever -- however, what I can tell you is that March was a better month, and I can tell you that April has been also good in terms of Atlantic. So, yes, it was a dip that we had that -- during that quarter. We feel that Atlantic should reach levels of -- the levels it had in the past, in terms of net income.
Carlos Gomez - Analyst
Okay. So, if I may -- sorry, if I may clarify there. So, we can certify that this is -- let's call it a trading loss, or the loss in the valuation of your securities. It is not expenses. It is not provision. It is not bad loans.
Fernando Dasso - CFO
No, it's not bad loans. It is really the portfolio we have in securities.
Carlos Gomez - Analyst
Thank you.
Fernando Dasso - CFO
Yes. Then, in terms of our capital position, we plan to reach that 10% at the end of the year. What we have decided beyond that is that we want to reach 10% at the dip of the year, which is after dividends. So, we will go a little further up and we'll probably reach around 10.3%, 10.4%, to be around 10% in March. And then we'll probably stay in that -- in those level. We don't feel that we will reach the 11% or 12% levels that European banks have.
Carlos Gomez - Analyst
Thank you very much.
Operator
Anibel Valdes, Barclays.
Anibel Valdes - Analyst
Just have a technical question on the FX currency swaps -- on the currency swaps. So, in the event that you see a normalization in the funding in soles, let's say -- that people start turning their savings in dollars into soles, so liquidity starts to normalize, how easily would be for you guys to undo the currency swaps with the central bank? Are they pretty flexible about it? Are there any penalties? How would that work? So -- because I would assume that you would like to use the funding -- you would use -- like to use a cheaper deposit than these currency swaps. Thank you.
Fernando Dasso - CFO
Thank you, Anibel. What I can tell you is that this process of unwinding of this situation will be a very gradual one. So, what we think will happen is that these swaps from the central bank will begin to expire, and we will let them expire.
We don't think that we will go to them and try to unwind them before expiration, because deposits in our local currency will come, but they won't come from one day to the other. They will come really gradually. And that gradual process will let us unwind the other process side by side. So, we see something very smooth happening rather than abrupt.
Anibel Valdes - Analyst
Okay. Thank you. But the -- I would just want to confirm that there would not be any penalties, and your sense is that the central bank would be flexible about it. Right?
Fernando Dasso - CFO
Yes. They are -- as you know, they are pretty aware of what is happening in the whole financial system. And that same situation we have is what other competitors have, and they are pretty close to us, and they will also want this process of unwind to go very smoothly and slowly and gradually. Yes.
Anibel Valdes - Analyst
All right. Excellent. Thank you so much.
Operator
Joswilb Vega, Integra.
Joswilb Vega - Analyst
Thank you for taking my question. I would like to know about the use of the corporate loans. I mean, those loans are growing at 20% while private investment is negative or flat and GDP, excluding primary sector, is around 3%. So, what are financing these loans, and how concentrated are them?
Fernando Dasso - CFO
Excuse me. Can you repeat your question, because it wasn't clear?
Joswilb Vega - Analyst
Yes. No. I mean, what I would like to know is the use of the corporate loans. I mean, what I -- what is -- what are financing these loans? I mean, what is the use of the loans? Because they are growing at 20% but the economy is growing at 3%. I mean --
Fernando Dasso - CFO
Yes. Two things. First is that last year, as you know, there was a de-dollarization process of loans, especially corporate loans. And what happened really is that some of these large companies had been borrowing from banks abroad in currency -- in dollars. And what they wanted is to turn those dollars into soles. So, they had to come to local institutions.
And as you know, in the corporate segment we have a very strong position, around 45%. So, many of those loans from banks abroad came into local banks, and a large proportion of them came into BCP. So, we had a special growth compared to the actual one we should have. That happened. And now that's probably most of the way done. And this year, I don't think that we'll grow the same 20% as we did last year -- 18%, 20%. It will be less than that.
Then, if you ask me, where are those loans going -- having 45% of the market -- I will have to tell you that they go into many diversified segments. Mining; manufacturing; commerce -- you name it, we have clients in every industry in this country. We have really no concentration in loans or in any specific client. We actually direct those loans everywhere. And definitely, with the experience we have, we know -- we've been working with these clients and know these corporate clients for many years.
Joswilb Vega - Analyst
Thank you. And it is probable that the de-dollarization process that you mentioned is going to finish soon. Do you think that increasing private investment at the end of the year -- of the next year -- is going to offset this process, and we can expect that corporate loans should be growing at these rates?
Fernando Dasso - CFO
What I feel is that it really depends more on the exchange rate rather than on an increase in investment, or in foreign investment. It will depend on the exchange rate. What these -- what the treasurers of these company do is, they actually try to see which currency should they be, all the time. And if the currency remains stable, my feeling is that they will tend to continue in the way they are now, in soles in the loan portfolios -- in their borrowings. But we'll see.
But then you had another question, which is, what happens if [foreign] investments or large investments come to a country faster? What we do, actually, with those investments is, most of those investments, the large projects come with their own financing.
However, we work with them, especially in the working capital and necessities rather than in the big chance of financing they bring. Because sometimes they are even too large for us. So, we don't see any special change happening in the proportion of loans, both local and foreign currency loans, in this particular segment.
Joswilb Vega - Analyst
Okay. Thank you. Great.
Operator
Thank you. At this time --
Fernando Dasso - CFO
Yes. I have -- thank you all for your questions. They were very interesting and let us explain what is happening in further detail.
I would like to just finish with some final remarks, very summarized. What I can say is that the macro is doing okay, especially locally. We don't know exactly what's going to happen abroad, but locally there are some very important signs of improvement in the sentiment and in what should happen in the next 5 years.
What we will do this year is -- at the BCP level, is really stick to the basics; to the business as usual. Continue working in risk, which is a top priority in our agenda -- in all the fronts of risk, as we have already talked about.
We will continue working in efficiency at the BCP level. There are still some room -- there is still some room for improvement, for automation in IT, and in some other specific parts of the Company. And [why] (technical difficulty) not grow faster? That will definitely depend on our risk appetite and on what -- on how the economy continue to develops.
Then, Mibanco -- as we talked, we are still under the [sterilization] process after the merger. There are still things to be done in terms of that particular project. But, yes, growth has begun to show, and it should continue showing if we continue to understand risk and continue to feel confident with the risk levels that we take.
In terms of Credicorp Capital, our investment bank in Chile, Peru and Colombia, we feel that the markets in these particular three Andean countries are doing better. We see that the pipeline of projects and that the pipeline of possibilities is improving, and we should definitely try to take advantage of that.
Then, if we talk about Prima and Pacifico Vida, our pension fund -- well, yes, there has been a change in the law -- on the pension funds law. We will -- we are trying to rapidly adjust to that and take advantage of that as a Credicorp entity, because many of our clients now, instead of getting a pension when they become 65, will get, if they want, the whole amount of what they saved. And we will definitely participate in that event of liquidity, with all the tools and with all the companies that we have around them.
Bolivia continues surprising us with better results than budget. We should continue (inaudible) -- we'll try to continue growing in that trend.
In the overall view, I would say that we feel more optimistic than we felt 3 months ago. And we should, as said, continue sticking to our basics in our financial business.
Thank you all, and until next conference call in 3 months.
Operator
Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.