Credicorp Ltd (BAP) 2017 Q1 法說會逐字稿

Excuse me, everyone.

We now have our speakers in conference.

(Operator Instructions) With us today we have Reynaldo Llosa, Chief Risk Officer; Alvaro Correa, Chief Insurance Officer; and Fernando Dasso, Chief Financial Officer.

I would now like to turn the call over to Mr. Dasso.

Sir, you may begin.

Good morning, and welcome to Credicorp's conference call and our earnings results for the first quarter of 2017.

Before we analyze Credicorp's performance in the first quarter of this year, I would like to take a few minutes to review the Peruvian macro environment.

After GDP expanded 3% year-over-year and domestic demand grew by only 1 -- 0.1% year-over-year in the fourth quarter of last year, between January and April of 2017, the economy was struck by a stagnation of the major infrastructure projects and an unexpected El Niño phenomenon, which got an impact mainly in the Northern coast of Peru, which represents around 15% of national GDP.

We cut our GDP growth forecast for 2017 from 3.6% to 2.3%.

Domestic demand should grow once again below GDP, while private consumption should expand slightly below 1%.

We expect a more dynamic economy towards the fourth quarter and GDP growth around 4% in 2018, as public investment rebounds due to the reconstruction of damaged infrastructure.

Regarding economic policy, the Ministry of Finance aims to bolster public investment in the next years.

A bill has been sent to Congress in order to widen the fiscal deficit.

And the Central Bank would cut its rate 25 bps this month and a similar move in June 2017, or during the third quarter of this year, to stimulate domestic demand.

This year, we expect to reach a trade surplus above $4 billion, more than twice last years.

And the current account deficit should narrow to around 2% of GDP, which is its lowest level in 6 years.

The improvement in external accounts will respond to higher export volumes of copper and fishmeal, the increase in terms of trade as well as weak inputs amidst still slow domestic demand.

We revised our year-end exchange rate forecast for this year, which we expect to hover between PEN 3.27 and PEN 3.32 per U.S dollars, mainly due to the increasing strength of the external accounts.

Finally, the Peruvian economy maintains sound economics fundamentals that we expect should remain, such as high international reserves, low public debt, trade openness and private investment promotion.

Furthermore, despite 2017's setback, Peru should remain as one of the fastest growing economies in the region.

Next slide, please.

Let's quickly review the quarterly results.

Regarding our quarterly financial figures, in the first quarter of 2017, Credicorp reported net income of PEN 890 million, which represented a reduction of 0.6% Q-over-Q in net income by an increase of 11.8% year-over-year.

All this implied an ROAE and ROAA of 18.1% and 2.3%, respectively.

The first quarter's results show: first, loans posted a nominal contraction of 2.5% Q-over-Q due to a low economic growth and high competition.

The currency adjusted growth rate was situated at 1.2% in a context in which the sole appreciated 3.22% Q-over-Q, and the dollarization reached 41%.

In terms of average daily balances, loans only contracted 0.5% Q-over-Q because of prepayments made by clients towards the end of the quarter did not have the same impact on average daily loan balances as they did on quarter-end loan balance.

Second, net provisions for loan losses increased 18.6 -- 18 -- 16.8% Q-over-Q due mainly to non-recurring events, which we will discuss later.

In this context, the cost of risk rose to 2.32%.

Third, the slight contraction of average daily loan balances affected the interest income, which contracted 0.8% Q-over-Q.

However, net interest income expanded 4.7% year-over-year.

In this context, the net interest margin fell 8 basis points Q-over-Q, but recovered 19 basis points year-over-year.

All of the aforementioned, together with the increase in cost of risk, translated in a reaction of 29 bps Q-over-Q and 3 bps year-over-year, the net interest margin after provisions.

Fourth, the efficiency ratio improved 170 basis points quarter-over-quarter, although operating income contracted 1.6% quarter-over-quarter.

The cost of income ratio improved because operating expenses fell 5.5% Q-over-Q due to seasonal factors.

Finally, in terms of capital ratios at BCP Stand-alone, BIS and Tier 1 ratios increased to 16.73% and 11.76%, respectively.

This reflected the distribution of the net income attained in 2016 according to the decisions made at the Annual General Meeting of Shareholders.

On the other hand, the common equity Tier 1 ratio, considered the most rigorous capital ratio, dropped to 10.92%, accordingly.

Next slide, please.

On this slide, you can see the evolution of the loan book in average daily balances, which are an important driver of net interest income and NIM.

The Q-over-Q evolution of loans shows a slight contraction of 0.5% in the average daily balances of loans at Credicorp, while quarter-end loan balances decreased 2.5% Q-over-Q.

The main highlights in terms of Credicorp's loan book are: first, wholesale banking reported a Q-over-Q contraction in average daily balances due to cancellations of loans, primarily in corporate banking, which took place towards the end of the quarter and, as such, impacted more quarter-end balances than average daily balances; second, in retail banking at BCP Stand-alone, the 1.2% Q-over-Q drop was due to a contraction in loans in both local and foreign currency, which was mainly attributable to a seasonal effect of year-end campaigns as evidenced by year-over-year growth; third, Mibanco loans measured in average daily balances increased 1.9% Q-over-Q, which is remarkable, considering the low economic growth environment and seasonal effects every first quarter; fourth, no expansion at BCP Bolivia helped attenuate the impact of loan growth.

The aforementioned has led Credicorp's portfolio mix to post higher shares for segments with higher margins.

Next slide, please.

Analysis of the year-over-year evolution of dollarization shows that the foreign currency portfolio of Credicorp represented 41% of total loans at end of the first quarter.

This level was slightly above the 40% reported in the first quarter of last year.

High dollarization at Credicorp is mainly due to the increasing dollarization levels at BCP Stand-alone and, to a lesser extent, to loan expansion at BCP Bolivia, which loans are in Bolivianos and, as such, are considered foreign currency loans.

De-dollarization level at BCP Stand-alone increased from 36.8% in the first quarter of 2016 to 38.5% in the first quarter of this year.

However, this was a result of an increase in the level of dollarization in wholesale banking segment, which accounts for the majority of clients that generate income in U.S. dollars.

The rest of business segments posted a reduction in de-dollarization levels, particularly SME business and mortgage.

As shown in the chart below, these shifts do not imply an increase in foreign exchange risk and credit risk.

This has proved that growth in loans in U.S. dollar is attributable to clients that generate income in this currency.

Next slide, please.

In this chart, let's review the results of Credicorp's focus on risk quality in an environment marked by a decline in loans.

Provision for loan losses after recoveries grew 16.8% Q-over-Q and 18.4% year-over-year.

This increase in corporate is the effect of: first, PEN 31 million in provisions due to an increase in the risk perceived from construction companies; second, PEN 40 million at the loan portfolio level of BCP Stand-alone due to the El Niño phenomenon after preliminary impact analysis; and third, the PEN 35 million at loan portfolio level of Mibanco due to El Niño phenomenon after a preliminary impact analysis, as well.

The aforementioned, coupled with the 2.5% decrease in Q-over-Q internal loans led the cost of risk to increase 38 bps quarter-over-quarter and 34 bps year-over-year to situate at 2.32%.

The increase Q-over-Q is explained by: first, the effect of provisions related to construction companies and El Niño phenomenon, which led to the cost of risk to increase by 46 bps; second, the contraction in the loan book, which represented an increase of 6 bps in the cost of risk; and third, the slight improvement in the rest of our portfolio, which led the cost of risk to drop 14 bps.

Let's review the evolution of the cost of risk and delinquency ratios in some business segments in more detail.

Next slide, please.

As we can see in this slide, both the wholesale banking segment and Mibanco showed significant increases in the cost of risk.

This was, however, mainly due to a nonrecurring event.

The cost of risk in wholesale banking was situated at 1.28%, which represents an increase of 66 basis points Q-over-Q and 110 basis points year-over-year.

This growth was attributable to a provisions for the construction companies mentioned area and with a contraction of 4.11% Q-over-Q and 6.33% year-over-year in quarter-end balances of loans.

In the case of Mibanco, the cost of risk was situated at 5%, which represented an increase of 169 basis points Q-over-Q and 186 basis points year-over-year.

The higher cost of risk mainly reflected the provisions that were set aside to cover the El Niño phenomenon.

If we eliminate these effects from the analysis, the cost of risk would have been 3.43%, which represents an increase of only 80 bps Q-over-Q and 25 bps year-over-year.

Next slide, please.

As we mentioned in the report, starting in the first quarter of 2017, the methodology to calculate net interest income was adjusted to exclude net gains on derivatives from the net interest income.

For comparative purposes, segmented lines in the figure at the top of the page show the net interest margin and the net interest margin as a provisions as calculated with a new methodology.

The net interest margin contracted 8 bps quarter-over-quarter.

This was due to a decrease in net interest income, while average interest-earning assets posted slight growth.

The net interest margin after provisions decreased 29 bps, which was due primarily to higher growth in net provisions for loan losses, as we explained earlier.

If we look at the table at the bottom of the page, we see that Credicorp's net interest margin contracted Q-over-Q, mainly as a result of lower NIM in BCP Stand-alone and Mibanco, which was partially offset by income from interest and dividends on investments in -- at Credicorp Limited.

The year-over-year analysis, which excludes the seasonality effect, shows a significant recovery of 19 bps in net interest margin and a relatively stable net interest margin after provisions.

Next slide, please.

Another important aspect of Credicorp's financial figures is the funding structure and cost.

In terms of total funding, the chart at the top left-hand side shows a slight increase quarter-over-quarter due to higher levels of deposits, primarily time deposits and other liabilities, while BCRP instruments decreased.

Other liabilities are related to the declaration of dividends.

And BCRP instruments decreased mainly due to repos that expired.

As we can see in the table at the bottom of the page, Credicorp's funding cost remains stable Q-over-Q, in line with the funding cost at the banking subsidiaries given that the increase in the funding cost at BCP Bolivia and BCP Stand-alone was offset by an improvement posted by Mibanco and ASP.

In year-over-year terms, total funding contracted, which was due mainly to a decreasing deposit and to lower balances of BCRP instruments.

The contraction in average liabilities, coupled with higher interest expenses, led to an increase in the funding cost.

Next slide, please.

The insurance underwriting result increased 10% Q-over-Q due to lower net claims, which offset the increase in net earned premiums.

Lower net claims were mainly explained by life insurance -- by the life insurance business and, to a lesser extent, by the property and casualty business.

Nevertheless, this positive effect was attenuated by an increase in claims in the wholesale lines, particularly in the months of February and March.

The latter was a result of the El Niño phenomenon.

It is important to note that as of March 2017, the net claims associated with this phenomenon situated at PEN 19.5 million, which includes the activation of the catastrophic contract and the -- any translation cost.

On the analysis year-over-year, the underwriting result decreased 5.3% due to higher net claims, mainly in the months of February and March after damages from the El Niño phenomenon.

Next slide, please.

In terms of operating efficiency, Credicorp's efficiency ratio improved 170 bps Q-over-Q and 70 bps year-over-year.

Although operating income contracted 1.6% Q-over-Q, the cost to income ratio improved because operating expense fell 5.5% due to seasonality.

Year-over-year, operating income grew 6.0%, which offset the 4.3% increase in operating expenses considered in the efficiency ratio.

Furthermore, as we can see in the year-over-year analysis, which is not affected by seasonality, all of Credicorp's subsidiaries posted an improvement in their efficiency ratios.

Next slide, please.

In the chart on this page, you can see all of us -- all of our subsidiaries' contribution to Credicorp.

The results show the effects of low loan growth and aggressive competition on BCP Stand-alone and the impact of the two events that required a higher level of provisions.

To cope with this environment and to maintain Credicorp's profitability, we have to remain disciplined in terms of efficiency.

At the subsidiary level, it is important to note that relative stability of our subsidiaries, such as BCP Bolivia and Prima, and the improvement in Pacifico -- at Pacifico and Credicorp Capital.

With these comments, I would like to open the Q&A session, please.

(Operator Instructions) Our first question comes from Thiago Batista from Itaú BBA.

It's Thiago Batista of Itaú BBA.

First one about the provisions and the second one about loan growth.

On provisions, you mentioned...

Sorry, the line is not working well.

Maybe we should call again because I cannot really understand you.

Yes, sir, if you would dial back in, we'll wait for you to dial back in, sir, for the next question.

No, no.

It's not Thiago's line.

It's really...

Okay, I'll call again.

Thank you for holding while we reconnect our speakers.

(technical difficulty)

Thank you, again, for your patience in holding.

Please remain on the line while we reconnect our speakers.

Thank you for your patience in holding.

We now have our speakers back in conference.

At this time, Thiago, you may go ahead with your question.

Yes, not sure if it's better now, but my first question is about provisions -- my first question about provisions and the second one about the loan growth.

On provisions, you mentioned in the conference call and also in the press release that Credicorp did about PEN 75 million of provisions due to the effect of the El Niño.

I know that this is a preliminary numbers probably, but is it possible to say that this impact will be a kind of one-off or we could expect a further provisions in the coming quarters?

And if yes, the magnitude is similar or the magnitude of the provisions tend to decline in coming quarters.

And regarding the loan growth, I know that loan growth of the first Q was affected also by the El Niño.

But looking forward, how much the loan growth quality could expand in '17 and also in '18?

Do you have any indication of how much the loan growth could expand in the next 2 years?

I'll begin with the second question, and then I'll let Reynaldo Llosa with the first one, which deals with provisions.

In terms of loan growth, we feel that this year, loan would be -- loan growth will be subdued in a way.

We -- as you know, our business depends mainly on what happens to the Peruvian economy.

And the Peruvian economy is slower than previous years.

We feel that as a country, we will grow by around 2% to 2.5%.

And we feel that loan growth for the system should be around between 3% and 5% for this year.

So in real terms, the loan growth will be small.

We will definitely keep our market share.

These quarters, first and second, as you know, are still slower.

The government, in a way, is putting together a reconstruction program for all the damage that was caused in -- especially in the far North of Peru.

We feel that, that should let the economy pick up a bit in the third quarter and then definitely on the fourth and definitely next year.

But that will -- we are still waiting for that to happen and those infrastructure projects to get in the way.

And then on the other hand, we are beginning to see some improvement in business sentiment, especially related to mining projects.

As you know, mining prices have been coming up for the last, maybe, 12 months, and that's begin to show.

And we see some more likelihood that our clients should begin investing again in these projects.

And we are not only interested in the projects itself, but in all the system around these projects, while we go the ecosystem, all the suppliers to these projects, all the companies that are related to these projects that should pick up very gradually, hopefully, this year.

And I want to pass the phone to Reynaldo Llosa, our CRO.

Yes.

In terms of what our expectation for further provisions in the following quarters regarding the El Niño project, it is -- I mean, we definitely expect more provisions.

It is hard to, up to now, give you a number of what the extra provisions would be.

What we have done in the last 3 months is work an aggressive Skip Programme with those clients that were affected by the El Niño phenomenon.

We have a total exposure of PEN 3.5 billion in this area, out of which 34% is the SME market, 34% is mortgage loans and 26% is consumer markets.

There is also a 6% on the lower wholesale segment.

We have skip 1 -- as of April 30, we have skipped PEN 1.12 billion, basically concentrated on the SME market, which is usually an assessment of our clients we used to the take facilities when these kinds of phenomena occur.

And the other 41% is at consumer market.

What we will, do, from now on, this Skip Programme is for only 3 months.

That gives us enough time to go to our clients and see their actual needs of extra restructuring of their facilities.

And we will do that in the second quarter.

So probably, we'll able to have a more precise number of what the further provisions would be for the rest of the year after we finish this program of contacting the clients.

It is important to mention that 70% of the clients that have used the Skip facility have an RMS signed.

So we will work with them to try to have a precise idea of their actual situation and to see what extra help they might need.

So we are work designing -- we are in the process of designing a very straightforward restructuring facilities for those clients that might require it.

Our next question comes from Tito Labarta from Deutsche Bank.

I guess a couple of follow-up question on -- regarding El Niño and then a question on margins as well.

Related to El Niño, in the insurance business, we actually saw a decent results.

You mentioned some additional pains related to that.

But do you think that the insurance business is going to be impacted further from additional claims related to El Niño?

And then on the margin, we did see some -- a bit of margin pressure, I think, given the decline in loans.

As loan growth starts to pick up, do you think margins can begin to improve with that?

I just wanted you to maybe give a little bit more color on the outlook for margins going forward, particularly if you mentioned rates may come down how that could impact you as well.

Thank you, Tito.

I'll begin with the loan growth question and then I'll let Alvaro Correa talk about the insurance consequence -- the consequence of El Niño in our insurance business.

In terms of loan growth, as you can imagine, since it's pretty flat, we have more competition, especially in the wholesale segment.

And that competition has been -- sometimes become fierce, I would say.

We will continue dealing with that (inaudible) for many years.

However, if growth picks up a bit, we feel that that competition will, in a way, come down and that will definitely help the margins.

But then on the margins, there are also some factors that now we need to take into consideration, which are mainly that the reference rate is coming up in dollars, and the reference rate will probably come down in soles.

So we will need to go, as I said, very precisely what we should do in terms of margin.

In general, when rates come up, it helps because margins tend to widen.

But when rates come down, it's the opposite.

So we will have to go very -- and follow it very closely.

Tito, this is Alvaro.

Okay.

You have a follow-up question on Fernando's comment?

Yes, just on the margins.

So I wasn't clear.

So then does that mean you think there could be some -- a bit of further margin pressure?

Or does the increase in dollars offset the decline -- declining rates in soles, so margins can be somewhat flat-ish?

What we need to do is that we should try to keep our margins where they are, our NIM where it is.

And we feel very -- pretty comfortable that we will be able to do it, especially during the third and fourth quarters when loan growth picks up.

Yes, as far as the additional impact that El Niño could have on Pacifico, I -- we are expecting something between additional PEN 8 million to PEN 10 million at most, and that comes from different possibilities.

One is that the flow at which the claims come is continuing.

It has slowed down, but it's continuing and especially from the bank assurance policies, both from BCP as well as from Mibanco, that takes some time.

Then there are some claims related to business interruptions that are yet -- which are yet to be estimated.

And we're waiting for that and we're working on that.

So that basically is what we are seeing today.

I think that we should be able to finish with all this during May.

But the number should be between, as I said, PEN 8 million to PEN 10 million in addition to what we have already reported.

Great, that's helpful.

And may be a follow-up, I guess, on the insurance because we did see pretty decent results.

I think you said claims and life insurance were better.

So can you just give a little bit of color on the overall insurance business?

I mean, is life doing well?

Is that helping results?

Can you talk about kind of profitability and the outlook for that in insurance?

Well, fortunately, in this quarter, we have had some positive results on life -- credit life, that's one line.

The other one was related to the (inaudible) insurance, which came lower.

Then there is some seasonality on the health insurance.

The fourth quarter of every year is typically worse than the first quarter of each year.

And you can see on the year-to-year results.

So those and the automobile insurance as well had a better result this quarter than the previous one.

So basically, that compensated most of what we saw in the El Niño effect.

Our next question comes from Ernesto Gabilondo from Bank of America Merrill Lynch.

Three questions from my side.

The first one is a follow-up in provisions.

It's just to know where should we expect the cost of risk in the next quarters.

Secondly, clearly, we are seeing that the challenging macro has affected the wholesale and retail loan books.

So when can we expect that inflation point in terms of the macro on loan growth?

And what will be a strategy against competition?

Finally, in terms of fees, we saw a reduction in that line due to the seasonality that you usually experience in the first half of the year.

But what should be the growth for the year in this line?

Thank you, Ernesto.

In terms of cost of risk, as we have said in the past, we feel that we will keep within the range of 2% to 2.2%.

We are a little bit higher than that this quarter for these specific reasons, but you know, the El Niño phenomenon is already -- it took place between March 15 and April 5. But now, it's already finished.

So we feel that we will have more consequences than the ones we are already enduring.

That in terms of cost of risk.

Then in terms of the challenging macro, yes, we thought when this new administration came into office last year, we thought that this was going to change dramatically.

But unfortunately, it hasn't been that easy for this new administration to bring the country back into growth -- into high growth because of many reasons.

We feel that they are actually pulling their act together and especially this reconstruction program that is very, very comprehensive.

And we are very -- we trust that this program will take effect, as we mentioned, and that would definitely change the macro.

We feel, in terms of Credicorp, that retail segment will rebound faster than the wholesale because it's easier for it to rebound faster, and that will bring a good effect in terms of margins.

But again, this will be, as I said in the prior question, a very gradual improvement month by month.

And we still have to see what happens in the coming months.

Then I didn't get your last question.

You were talking about reduction.

In the fee income line.

Fee and cost?

Fee income, okay.

Yes, the fee income line -- I mean, the fee income line is always more resilient than the margin line, and that has proved to be the case during the last months.

However, it is not growing as it grew last year.

For example, I remember growth of 6%, 5% year-over-year last year and when we looked at it, now it's growing less.

My feeling is that it will improve with the growth of the bank -- the bank and all the other subsidiaries as a whole.

You should expect that it should be more resilient.

But again, there is competition, as I said, and we will need to cope with it.

Our next question comes from Carlos Macedo from Goldman Sachs.

Have a couple of questions.

One, I just want to follow up on the margins and the mix as you spoke before.

I mean, obviously, rates are going up in the U.S. Rates going down in Peru has an impact.

And then you mentioned that you're going to have to gauge that.

Is -- I think, in the past, you've spoken that loans in dollars tend to have lower margins than loans in soles and so that will contributed -- sorry?

I'm sorry, I really cannot listen.

The line is again having some problems.

This is the operator.

Carlos, if you will remain on the line, we'll reconnect our speakers again.

Thank you, sir.

(technical difficulty)

Thank you for your patience in holding.

We now have our speakers back in conference.

Carlos, could you please repeat your question?

Thank you for your patience in holding.

We now have our speakers back in conference.

Carlos, could you please repeat your question?

Sure.

Hopefully, you can hear me better now.

The question is about margins.

You went a little bit in and talked about how the changing rates in the U.S. improved could affect margins.

I wanted to ask about the change in mix in addition to that and understand how that can affect -- I mean, in the past, you talked about how loans and dollars have lower margins than loans in soles, and we saw a big change in mix the quarter if -- it was particularly on the corporate side if that had an impact.

And on top of that, I also understand if the Central Bank instrument was a big transition with that going down and time deposits going up, what the tradeoff was there and how that impacted your margin as well.

Second question, you touched upon this in a number of different responses already.

Just trying to get an understanding of what you think the impact of El Niño was not on provisions, but on your activities in the quarter.

So in terms of what a more recurring level for loan growth would be for fee revenue growth would be if El Niño hadn't come in and really hurt the activity,

Thank you, Carlos.

I will address your first question.

In terms of mix, as you know, yes, the margin in soles is always around 8.5%.

In dollars, it is around 2%.

So yes, there is a different margin in each currency.

What we've seen during the last months is really the growth in both -- in the loan book in both soles and dollar is pretty stable even for the system.

The last few years, we've seen for the system is that the growth for the last 12 months was around 5.6%, both in soles and dollars.

So our estimation is it will continue to be that way for this year.

We feel that as a system and the Central Bank thinks that as well.

We have reached a level in which we feel comfortable in terms of currency exchange rates.

Actually, right now, the system is around -- the loans -- the loan book for the system is around 28%, 29% in dollars and basically concentrated in the whole so -- segment.

So we feel that we will probably stay where we are and -- especially due that the exchange rate should probably stay where it is now.

It is around -- yesterday, it went up to PEN 3.28 and will probably stay around that area, PEN 3.30, PEN 3.40, which is a very stable currency.

So we'll probably stay where we are.

But on the other hand, as I said, we feel that retail will pick up faster than wholesale and that will bring wider margins for the coming months.

Then on the activity and consequence of El Niño in the economic activity, first, as I said, the catastrophic part of El Niño ended at the beginning of April, so now the country is really under reconstruction.

It will take a while.

But hopefully, this infrastructure program and the reconstruction activity will pick up, especially now the government is putting in place a whole program.

They have now someone in charge of it, someone that we know very well and it's probably -- it was the -- our manager of, what's the name, social responsibility affairs at BCP.

She has, yesterday, been nominated as the leader of this program with a range of minister.

She will be like a minister.

So they are putting of a very comprehensive program and they will -- definitely we feel, will be successful in this.

And this will bring new activity -- construction activity, not only for roads, highways, bridges, but also in terms of housing.

So that will definitely improve the whole activity.

Great.

Just a follow-up on those two questions.

First, could you talk about the change -- the shift in Central Bank instruments, the time deposit, whether that's something that did intentionally?

Or was it just a reaction of how your clients are behaving?

Is that something we should continue expect going forward?

And second, in general activity, I understand where you're coming from.

I was just wondering if you had any insight on the specific activity of your clients within the bank.

So in other words, can you expect the -- a recovery in activity now that the worse of El Niño is behind?

On the first question, as you know, we are worrying less in our loan book, so we don't need that much of these repos from the Central Bank.

So they are actually letting these repos expire.

And while they expire, we need less repos.

They are not replacing these repos.

As you know, in the peak, we had like around PEN 10.5 billion in repos.

Now we're around PEN 9.2 billion, and they will continue to come down.

As long as the loan book in soles doesn't go as fast, we won't need these repos again.

And on the other hand, liquidity in soles in this market is improving.

So that trend should continue very gradually in the coming months.

We will replace that funding with funding from the market in soles.

That is your first question.

And then the other was on...

The impact on the industry.

The impact on our clients, we -- as I've said, we see better sentiment now on our clients than we did some months ago.

However, growth in the loan book was, I said, will be very gradual, very gradual.

They need to continue to, actually invest.

What this country needs is basically investment.

And as you know, private investment has been coming down now from around 2, 3 years.

We need that investment to bottom out -- to bottom down and then pick up again.

That should -- the experts are telling us that, that should be happening in the coming months, but it will be very gradual, I have to repeat.

Complementing what has Fernando has said, we've seen a slight impact on our clients in the specific regions that were affected by the El Niño phenomenon.

Where we see as a specific situation on strategic segments, basically, on the commercial side.

So sales have dropped down.

I mean, there has been also an impact that will probably carry on to this quarter as well.

However, we expect them to recover starting the second semester.

And also regarding what Fernando was mentioning on the reconstruction program, that will definitely have an impact on those construction-related company.

Our next question comes from Diego Ciconi from Scotiabank.

Actually, most of them have been answered.

I just wanted to maybe get a sense of expenses.

You've been doing a very good job there.

And so how long do you expect this trend to continue?

And maybe what's your guidance for expense growth in 2017?

As you mentioned, we began with this efficiency program around 3 years ago and it was specially designed for BCP, our (inaudible) entity.

And yes, we were in the 50s -- that efficiency ratio was in the 50s for many years.

Now it's around 40%.

We feel that there are still some things to be done at the BCP level.

We will continue doing so.

But there are less.

As you can imagine, we have taken advantage of all the low-hanging fruits.

However, this is a ratio, and we still need to improve income.

We will continue dealing with expense, and there are still some margins and box of expense that we can deal with.

But we will be working more on the income part.

But then on the subsidiaries, there is still room.

Now we will begin with one of our subsidiaries working in terms of efficiency, with what -- the experience that we've achieved at BCP.

And then we'll continue with the others.

So we feel that there is still room.

Credicorp is at the 43% level and we hope to improve, say, in the coming 3 years, maybe 100 or 200 basis points.

(Operator Instructions) Our next question comes from Philip Finch of UBS.

A couple questions for me as well.

One is the -- referring to the additional provision for the construction companies.

Do you plan to make any more provisions for these companies?

And what is the current coverage ratio that you have?

And the second question is related to your capital position.

So I think it was on Slide 3, which shows the capital position of your bank has improved dramatically in the last year across the board notably in terms of common equity Tier 1 ratio.

Given loan growth is slowing or slow and the payout ratio only went up to 33% back in February, it looks like you're going to be building up a lot of capital in the next 12 months or so.

So do you think you're at risk of having too much capital?

And if you are, what are you planning to do with that excess capital?

Are you considering maybe a special dividend?

Thank you, Philip.

I'll address first the capital question and then I'll let Reynaldo then talk about the construction companies.

In terms of capital, first, if we go to Credicorp, we are -- as you know, we are very comfortable in terms of capital at the Credicorp level.

We are at around 30% above our regulatory necessities.

Then if we go to BCP, as you mentioned, our common equity Tier 1 ratio now is around -- and this is after declaring dividends, so this is a low point.

It is around 10.92%.

So very comfortable again after 3 years of building capital.

Now what we are doing is we are -- after our Brazilian experience of a country declining in its GDP by 3% at one year, 3.5% the second year, we are putting together -- we are running some scenarios -- some stress of scenarios, really stressful scenarios.

And we will decide, as an institution, whether we want to -- what scenarios that could happen and where do we want to end up if one of these scenarios happens.

Imagine what we are -- the result that we are getting is that if one of these scenarios happens, the common equity tier ratio could come down by 300 basis points, 200 basis points.

That's why we are decided -- deciding on our board.

We'll make a decision on that in the coming months.

Once we reach that decision, the capital above that is a capital that we'll need to decide if we should pay a dividend or keep looking for I mean, acquisitions, and that's where we are right now.

We feel very comfortable with our capital levels.

And as you mentioned, if we continue to bring high ROAEs, we should definitely decide if we will bring those at dividends.

And now you've seen that the dividend this year will be significantly higher than the one we paid last year.

And then after that, we will decide what else should we do in terms of growth acquisitions.

Just on that front, Fernando, you talked about deciding whether to pay a dividend or make an acquisition.

Just on the acquisition front, do you have anything in line at the moment?

We don't have anything in line.

But we, as you know, actively look for acquisitions.

When we have reached a fair decision is that the countries that we like are basically Peru where it's very hard to do anything else.

But Colombia and Chile, which are considerably growing and they are very sound in their economic numbers.

And then also, we -- I mean, we will always look for what happens in Bolivia and Ecuador.

Those are basically countries that we're looking at, but we're not looking at now something specifically.

Okay, my second question.

In terms of your question about the construction companies, we don't expect any further provisions for the construction companies.

We have to be, specifically on those companies directly affected by all these eruption (inaudible) in Peru going down slowly -- or a slower pace than in previous 2 years.

But we have an exposure of $1.1 billion -- PEN 1.1 billion, I mean, 90 -- 80% -- 98% of which are either performance bonus or advanced payment bonus.

So we don't have direct loans to these companies.

We are closely monitoring all the process in which they are involved.

So as of today, we don't expect any further provisions.

So out of that PEN 1.1 billion exposure, what is the coverage?

How much provisions have you set aside for that?

For those specific exposures, around 25%.

Our next question comes from Carlos Gomez of HSBC.

Two questions.

First, in terms of the El Niño and the (inaudible) you may incur.

Are you concerned about exposure to any financial institutions, in particular, if they (inaudible) the savings banks that operate in this region?

And second, can you comment on the current status of your long-term historic alliance with BCI?

Now that both Germans have resigned from the each other's board is now Chile, as you just mentioned, market that will be opened for competition, would you consider going there?

If we are concerned about our financial institutions, not that we have an exposure in our financial institutions that are concentrated in the far North, so we are not concerned, specifically, in terms of our balance sheet.

We are always concerned about the each time that these institutions and -- are have problems or even go bankrupt.

We have talked to experts and regulators, and nothing seems to be that harsh yet.

But we will still be looking closely to these institutions, especially the ones concentrated in the far North.

Then in terms of BCI, as you know, we sold half of our share -- the shares that we have in BCI.

We continue to have with them a very good relationship.

We talk to them all the time and we share good practices.

We are as -- I mean, friend -- very friendly institutions.

Other than that, that's really the case right now.

I don't know if you have further questions on that.

(Operator Instructions) Our next question comes from Alonso Aramburú from BTG.

Just a follow-up on the exposure to the construction sector.

Is that PEN 1.1 billion exposure just with the Brazilian companies?

Or you -- is that also including some of the local construction companies?

And second question, more in general terms, there's an interesting graph on terms of trade and private investment in the presentation.

Just what are you hearing from the mining companies in terms of investment this year or maybe plans for investment next year?

That has clearly been a driver in previous years for private investment.

Regarding the PEN 1.1 billion, it's only the Brazilian companies.

That doesn't include the rest of the portfolio.

As of December 31, it's PEN 4.5 billion to all the other companies.

In terms of trade, we see very -- we see more optimism, especially in the mining companies because partners have come up importantly during the -- in the last months.

And now we are beginning a very good campaign, especially the fishing campaign -- fish meal campaign . last years, the first campaign, which was around this period, May, June was a campaign of, I think, 1 million tons.

And this one is around 3 million tons.

So it could be -- it seems that there is -- there are resources in the see right now.

And the fishing companies are becoming very optimistic about this new campaign.

So in terms of trade production, fortunately, when prices of minerals came up, for example, our output of copper doubled between 2014 and 2017 because of all the mining projects that came in to production.

So it seems to us that we have a very good impact, especially in our trade balance and then on our current account balance.

Our current account deficit will only reach around 2.1% this year, which is -- which will be great, not only in terms of our balance of payments, but also in terms of fiscal revenues for the company.

Great.

Fernando, but are you hearing -- in general terms, are you hearing from the mining companies they are ready to start investing again?

Because if you look at private investment in Peru, it has been negative for a few quarters in a row mainly because of the mining companies.

I will let Reynaldo address that question.

I would say that the market today -- or the mining companies is a little more positive now than they were a year before, basically, because of two reasons: the recovery of the mining prices [and mineral] prices.

And also because, I mean, the environment for investment has improved quite a bit from last year.

There are some projects that still have social issues to sole.

However -- I mean, we foresee a slow recovery in terms of mining investments.

A key factor here is that (inaudible) project goes on.

I just heard today President Kuczynski mentioned that if copper prices keep the (inaudible) levels, they will probably make a decision in the first quarter of 2019.

(inaudible) around $5 million investment, $5 million.

Our next question comes from Steve Ocampo of Habitat.

Can you please give us some guidance of the other business?

For example, with the economy getting slower, how will that affect the business of Credicorp Capital?

Also with expectations of a high dollar interest rate, how will that affect the target return for Atlantic Security Bank?

And finally, with the lower commission starting in June, how will that affect the pension fund business?

Okay.

Well, first, in terms of Credicorp Capital, we really depend on the capital markets in the 3 countries, Chile, Peru and Colombia.

The summer -- our summer from January to March was slow in these countries, especially in Chile and Peru.

We feel -- when we see a pipeline of projects, we feel that it will pick up during this third and fourth quarters.

But again, we really depend on what happens in these markets.

If they do better, we'll definitely do better in terms of Credicorp Capital.

Then in terms of our Prima, or pension funds company, yes, we are preparing for this new period, but not only preparing in terms of what are we going to do commercially, but we are also preparing in terms of how are we going to do operationally.

And we are beginning with an efficiency program also at Prima to be able to cope with these new prices that we have offered and when we actually won this auction.

Then the other companies, it will depend on -- in many different things.

We have talked a little bit about Pacifico.

Pacifico is doing quite well this year.

And as you know, in September, we are going to merge our property and casualty with our life businesses.

There are some synergies that we will be able to attain because of this merger, not basically this year, but maybe in 2018.

And then the other businesses, ASB, will do -- I mean, basically, it will basically do well.

It's doing well this year.

Actually, it's income -- it's net income this year, it's been around PEN 40 million, and that year is flat during the first 3 months.

We'll see what happens with this repatriation law affecting Atlantic.

What else we have?

Bolivia, Bolivia is doing quite well.

The Bolivian economy is doing well, still growing and growing faster than Peru, actually.

And we'll see how Bolivia continues to do.

But they seem -- a figure that comes to my mind is that their loan book has grown by 17% during the last 12 months, which is pretty good for Bolivia.

And that's about it, yes.

Mibanco, we have talked about Mibanco thoroughly, and they will continue to do well.

We'll see what happens with El Niño, but if we disregard El Niño, Mibanco is growing faster than BCP.

It's loan book seems pretty safe.

We will continue to grow.

Well, sorry.

I just was going to ask if there will be probably like something -- or you have any guidance of ROAEs or something that we can use to model this (inaudible) for Credicorp.

ROAE, ROAE.

Yes.

As you know, the guidance that we have been giving the market recently is our around 18% for the ROAE of Credicorp.

However, I have to tell you that it will depend on the complete impact of El Niño affecting in our books.

But until now, it's 18%.

It's -- we really -- as I said in the beginning of this call, we really depend on -- especially on what happens to the Peruvian economy.

At this time, I am showing no further questions.

Thank you for joining us.

This concludes today's conference.

Yes.

Just as a closing remark, thank you for all your questions.

And we'll be talking to you in 3 months.

This concludes today's conference.

You may now disconnect.