Good morning, everyone. I would like to welcome all of you to Credicorp Ltd. Second Quarter 2019 Conference Call. We now have our speakers in conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of today’s presentation, we will open the floor for questions. At that time, instructions will be given as to the procedure to follow, if you would like to ask a question. With us today is Mr. Walter Bayly, Chief Executive Officer; Mr. Alvaro Correa, Deputy Chief Executive Officer; Mr. Gianfranco Ferrari , Deputy Chief Executive Officer, Mr. César Ríos, Chief Financial Officer and Mr. Reynaldo Llosa, Chief Risk Officer. Now it is my pleasure to turn the conference over to Credicorp's Chief Financial Officer, Mr. César Ríos. Mr. Ríos, you may begin. César Ríos: Thank you. Good morning, and welcome to Credicorp's conference call on our earnings results for the second quarter of 2019. Before we review Credicorp's performance I would like to highlight some important matters regarding recent events in the local and international economic environment. First President Vizcarra has proposed a bill to institute a constitutional reform to call for general elections in 2020 rather than waiting to 2021. We know that the bill proposed includes a decision in which President Vizcarra would not be able to run in the announced elections. This reform has still to be approved by Congress as such, this is still too soon to forecast outcomes. A number of the scenarios may play out and all of them are all set. In any scenario the decision process regarding this proposal will follow the guidelines established by the constitution, despite political noise the strong fundamentals of Peru remain. This fundamentals include microeconomics policies, trade offence and a market free economic model. We…

Thank you, sir. [Operator Instructions] Thank you. We will take our first question from Ernesto Gabilondo of Bank of America.

Hi, good morning, Walter, Cesar, Franco thanks for the opportunity. My first question is on your expectations for loan growth per segment. We have seen the economy has been impacted by the temporary suspension of Las Bambas. The every four year weak investments seasonality in regional and local governments. We have seen the strike in Arequipa. And in addition the political turmoil or celebrating presidential elections next year and the escalation of the global trade work. We believe somewhere or in some cases are temporary impact while the yesterday’s interest rate cut could help a little bit to improve the economic activity. However, we think there could be likely some delays in some construction and large infrastructure projects and some impacts related to the uncertainty of the global trade work. So, we have seen your downgrade radiation for loan growth, but how do you see loan growth per segment, should we expect wholesale loans to be modestly growing. And retail loans been able to maintain its double-digit base growth. Thank you. CésarRíos: Yes, this is César. I think we will see that the trends are going to continue, due to the mentioned that you have pointed out probably is going to be challenging to grow in the corporate segment, but the retail segments continue with a very good dynamics. And the adjustment that we foresee are as I mentioned during the presentation, adjustment in pricing in risk and probably the market is going to conduct something similar. So in terms of retail banking we foresee a good trend in the following months, but some challenges in the corporate segment.

This is Gianfranco, just to complement was what César just mentioned. Specifically in the retail segment, we have to bear in mind that actually the fourth quarter, the last part of the third quarter and the fourth quarter are very strong in the SME business, business formality we have seen over the last few years basically because of the year-end comparing. So, we are positive there. And on the consumer lending business, we are leveraging on digital tools and new channels in order to tackle new segments of the evolution. So, yes, we are positive in the SME and consumer landing and on the corporate we will see that the portfolio is going to be flat or really small growth due to what you mentioned in terms investment.

Thank you, César and Gianfranco. And my second question is on your transformational plan, we know these expenses were under control during the quarter below the 8% year-over-year you guidance. And we notice that despite you are revise in downward the GDP growth, loan growth means and expecting a higher cost of risk, you are maintaining unchanged your expectations for the efficiency ratio. So, I just want to know if you are delaying some of the transformational projects or should we expect OpEx to trend up in the next quarters. And can you share with us some of your advances in the digital transformation for example what are you doing in terms of QRs and biometrics and Fintech, I don’t know if CULQI, Bancompartir and Tyba will be the key businesses to follow? Thank you.

Yes. I’m going to talk about the digital transformation again and then I will talk about BCP transformation, we haven’t changed our plans, as I mentioned in the previous conference call, this is our long-term strategy and we are seeing that there is a lot of value, we are bringing a lot of value because of the transformation. We don’t foresee any deterioration in the cost to income ratio and the main reason is that despite that fact that we won’t stop any of our investment we are getting benefits of this information so far. We are already closing - we have already closed some branches due to the escalating Agile or [indiscernible], we are getting efficiencies there to. In terms of QR, actually this is our such a strategy on payment, the Yape which Gianfranco just mentioned start as a P2P application. Today it’s also a P2M application as of today, we may have anything between 8000 to 10,000 profitably QR already deployed. [indiscernible] VisaNet is also deployed its QR and our ambition is to have 150,000 QR codes by the end of the year. We are doing thorough analysis on Yape and the collateral benefits we are getting in terms of deposits, usage of debit cards are very positive, so we will continue investing specifically in Yape. Regarding Fintech, I would say it is a twofold strategy one is one that César mentioned that if Krealo either building or buying and in addition to that we BCP also have a strategy in terms of either both buying, partnering and/or testing new distribution models, risk models and things like that with...

Thank you very much.

Thank you. We will take our next question from Jason Mollin of Scotiabank.

Hello everyone. César thank you for the detailed presentation. I want to ask about BAP’s guidance for return on average equity this year and return on average equity on sustainable basis. To keep the ROE outlook of 17.5% to 18.5% for 2019 what is going to offset the changes in guidance, the lower loan growth, NIM and higher cost of risk. And today you also reiterate your sustainable ROE of 19% - reported 18% in the quarter BCP was an impressive 21.5, Mibanco at 20%, Pacifico 13.6%, Prima 33% that accounts for almost all the earnings. Can you talk about your confidence or BAPs confidence in this sustainable ROE outlook in particular with Peru’s 10-year local bond yield, now I think the five-year low, we reached I July a 4.3%. Maybe in the context to talk a little bit about how BAP management looks at the Group’s cost of equity today versus the past and in that comments on the strategic decision to use excess capital to invest in opportunities outside of Peru. So maybe putting that all together, I think the most important thing is understanding the views on the long-term ROE. CésarRíos: Okay. I’m trying to address, because there are several questions. If you see our result, we already have a significant results that are not contemplated in the mean nor in the efficiency ratios that are related to gains on sense of securities. We have booked at significant amounts in a P&L, but I will also like to mention that from the close to 2018 to June, we have increased our non-realized gains in around $800 million. So, we have had an impact in the balance sheet, we have increased the equity for this factor that temporarily has lowered our return on equity. Down the road, probably, these gains are not going to be as substantial. The other important factor that compels how to reaffirm our sustainable ROE is that these reserve fund that is starting to be deployed, have an impact of more than 100 basis points in the profitability so far. So, take into consideration these factors, I think we have confidence that the short-term ROE is achievable. And the sustainable ROE also when we deployed and start to get in a profitability with the excess funds.

Maybe talk about the cost of equity. Do you think that BAP’s cost of equity is lower today than it was? Do you think long-term rates will be low and therefore I mean, the premium that BAP is generating over what I would consider what I estimate the cost of equity is substantial. And I think over the long run, just a general comment would be perhaps returns need to come down if rates stay low for longer, maybe some comments there. CésarRíos: I think the cost of equity, we clearly see two different forces, the reference rates are lowering and these will tend to our low the cost of equity that probably due to the situation environment, the risk premium will increase somehow. As a result, we probably think that the cost of equity is going to remain relatively stable due to do different forces. And regarding a the impact of lower interest rates, we have conducted several analysis. Of course, our book are sensible. But while we transition for a more retail portfolio, the portfolio is less sensitive to the reference rates, the wholesale portfolios are very sensitive and translate interest rate very rapidly, the retail portfolios tend to be much more resilient.

Jason, hi this is Walter, the points you mentioned are very valid. And the question is what the cost of equity of Credicorp going forward? Don't take long- term decisions based on short-term cost of equity improvement. So the question which is a very valid one, which you are putting on the table is what we expect to be the long-term cost for Credicorp. Clearly, there is no clear answer for that. But I think it is premature based on movements in the markets in the past, month or even less than that, to take long-term decisions. I don't think the world has changed dramatically from one day to the other, because there are short-term movements in rates and it is not clear the scenarios going forward. So we will be cautious. We have not changed our long-term view, our long-term strategy, we continue to work on long-term decision based on the cost of equity that we have always determined around 11%, and until we see more permanent changes in the micro scenario both domestic and international, which at stage again I’m not sure we have enough perspective to get certain that they are long-term changes. We will not change. We do not have at this stage any indication that are sustainable return on equities both on the short or long-term are not reachable or obtainable and we continue to work on those fronts. I don’t know if we answered your question.

Yes. That is very helpful. Thank you.

You are welcome.

Thank you. We will take our next question from Andres Soto of Santander.

Good morning. And thank you for the presentation my question is related to capital deployment, you mentioned before that you are setting aside $500 million for future acquisitions. In the past you mentioned that microfinance in Columbia was our key target, we have seen the acquisition of Bancompartir and this is from that perspective this is small acquisition and so not clear to me going forward what is going to be the focus in terms of M&A, is it going to continue consolidating the microfinance industry in Columbia entering through a microfinance space in our countries or additional investments in the Fintech space?

Sure. Again this is Walter Bayly. I will start with your question. I think we have been extremely consistent in explaining to the market that one, inorganic growth is a complement to organic growth not the driver of the growth Credicorp. Number one, that it is the best practices in the world to have a continued presence in exercising the M&A matter of an organic growth to do series of complementary acquisitions. We have had a set up - a rigorous process through which we analyze and determine where we want to be, we have made some very important decisions, where we want to play and what we want to play, that is point number one. Point number two, the fund that was self funded that we have determined which currently is around $500 million is not exclusively for the use of M&A, it is a reserve fund which is therefore rainy day and potentially for inorganic acquisitions. It is not exclusively dedicated. So, if we decided not to pursue any inorganic growth that fund would not be zero. Third, yes we think that microfinance in Columbia is a good alternative for us for several reasons, one, we believe that we have a domestic model which can be exported. Second, as César mentioned in its presentation, we think that the macro conditions and regulatory conditions are both for the development of microfinance in Columbia and furthermore we see a fragmented market. We have been there for almost three years with an operation that we started from zero called Encumbra where we dedicated our time understand the market and how do we need to adjust our current model to the Colombian market, after three years of being there, we felt it was right for us to take the next step which we did and we acquired a more relevant position. It will take us a year or year half or two before we can take another step because we need to incorporate, but we have done merge with our existing operation over there and do the work that we need to do generally. So this is not a 100 meter race, this is more about firm. So we do not expect to do anything further in microfinance, Colombia for the time, I already mentioned. Again we are going to very disciplined in where we go, what we do. Number two, the $500 million are not exclusively dedicated to an organic growth. And number three, we will take some time to digests and incorporate what we have just acquire. I don’t know if I answered your questions.

That is very clear Walter and following up on the Bancompartir acquisition, the microfinance space in Colombia is basically dominated by - so those are not focused on profitability, Bancompartir itself delivered 7% ROE. Not sure what are you target there, how much you can believe you can improve this ROE and more specific question on the funding structure, I see that 25% of Bancompartir deposits are from [indiscernible] so the shareholders is when are you going to remain there, if not what is going to be the founding for this company.

The current status of the microfinance industry in Columbia is not similar to what we found in Peru several years back, where the market was basically and it has NGO which even though they do not have a for profit driven they are there are generate and be self-sustained. So there is a bit of a lack of understanding of what non-profit profit drive them. We have been in the market and we think that it is compatible to be a for profit organization, but very focused on driving and improving the quality and the - of growth of those customers. So we see zero conflict in us having a return on equity driven objective with competing with NGO. The longer-term equity we expect obliviously about the cost of equity for Credicorp for which we had a couple of conversation before that, but there are periods of time in which we need to adjust model et cetera. We think that this transaction will be accretive for shareholder. And about the funding, it is relatively small operation. They are self funded and we are there of course if more support is required, but if anything the capital strength and the perception of market, strength of Bancompartir has dramatically increased when you have a relevant shareholders likely recorded behind it. So we foresee those difficulties in achieving and obtaining the required funding going forward, not the similar situation to what we found when we acquired as we carry through.

Great, thank you for you -.

You are welcome.

Thank you. We will take our next question from Alonso Garcia of Credit Suisse.

Thank you. Good morning, everyone. I just wanted to ask to Mibanco the ROE in fiscal clearly down versus last year. I mean, understanding you have had some asset qualifications last year that might be affecting this year and if you are growing your base of employees. My question is when these pressures on profitability should subside, and what would be able to know sustainable ROE from Mibanco once this is left behind? I mean, also on Mibanco, if you could elaborate on the competitive environment in microfinance in Peru, and the level of investment in asset client in that payment it would be appreciated. Thank you.

Yes. This is Gianfranco. Regarding your first question, there are three forces in a microfinance, and microfinance industry and within Mibanco today. On the macro side, this competition has been harsher today than it was the year before. Basically, because of the whole business is not growing as fast as before. That has led to squeeze in margins for that is one part. The other part is that specifically for Mibanco is that as I mentioned before, we have hired close to 1000 people over the last 12 months. The idea here is that we already achieved productivity, we do foresee of the right productivity in terms of balancing our commercial productivity and collections productivity for each HRM. You have to bear mind that at Mibanco our RMs have this dual role of commercial part and the collection part also. So with the current model, we believe that we have already rich the relativity, the balance productivity that can be achieved. And obviously we are working in Mibanco in how to deploy new digital tools or digital mechanisms in order to further improve that productivity. And third, having said that, even though the cost to income as we ramp up has deteriorated this semester. If you compare the level of cost to income that Mibanco has compared to the main competitors in a microfinance industry, we are playing anything between 500 to 1000 basis points lower. So we do believe that we have a competitive advantage there. And the new areas we have hired over the last year normally our new RM gets the or achieve the right level after nine months. So, the new vintages of maybe this is not the correct word, but the new vintages of RM will start getting the benefits. I would say by the first quarter of next year. Sorry, and that will lead, should lead us to similar ROE that there have had for a couple of years ago at Mibanco. CésarRíos: Just only adding to that is increasing it has been significantly in the last, this year has been 1,200. And we are paying the salaries of these people and the productivity is going to be full flow next year.

Understood. Thank you. And just one final question, you already mentioned I know you discussed the amendment from however despite this some activity that we have over the past month. You completed accumulate capital at a nice pace. You have now each one of 89.8%. So my question is based on this level capital an extraordinary dividend is or could be potentially on the discussion that comes to you and to maintain capital at optimal levels.

As you will, Walter, as you mentioned yes it is potentially something we might do, we have not made a decision in August we have to be dated to the appropriate approval levels.

Thank you very much.

Thank you. We will take our next question from Gabriel Nobrega of Citibank.

Hi everyone and thank you for the opportunity to ask the questions. I actually have a question on credit quality, looking at your provisions we know that the increase segment more than 40% year-over-year. However you are resource were relatively flat on a quarterly basis. While I understand that part of this could be done to the increase right off a lot. Could you just share with us what you are seeing in terms of risk in your portfolio and this is, their end segment that is where you more and if also this is one of the main reasons why you were increasing your cost of guidance. Thank you.

Yes. It is Reynaldo quite a bit in the Asia Pacific quarter as compared to the first quarter of this year. Having said that, we don’t see any dramatic changes in the quality of our portfolio we have seen a specific deterioration in some of the specific portfolio specifically credit card and some part of the SME segments. And such this reflected in the probation estimate. Having said that and that our probation level is within our capital limit so I mean what we are doing is basically taking the adequate measures in terms of underwriting portfolio management and collections to change that potential in the quality of our portfolio. In terms of wholesale, it is quite stable we haven’t seen any big cases in this specific quarter.

Alright. That is very clear. Thank you.

Thank you. We will take our next question from Carlos Gomez of HSBC. Hello Carlos, your line is live.

Apologize that was mute. I have two brief questions the first one is what is your expectations for the loan growth Peru over the medium term of the next three to five years. And second since you are looking at M&A possibilities since your fund. Did you look at the transaction in Paraguay? Thank you.

This is Walter, Carlos. The answer to Paraguay is loan growth I think we have some guidance. CésarRíos: Yes. We usually said that in the medium term the expected growth is 1.5 times nominal GDP. So, if we have medium term real GDP between 3% and 4% I think is achievable and 2% inflation we are going to have around 89% growth and this is sustainable growth with the market. Probably we can do something little bit better increasing the penetration in low segment within new digital capabilities.

Okay and follow-up to Paraguay that would not be a market for you or that would not be a type of institution you would like to look at.

Carlos this is Walter again. We have never been very close to Paraguay. Our people in Bolivia who believe that there is a potential to do some trade transaction and that is far we will go at this stage, we do not know the country, we do not have customers. So we believe that that is not an intelligent way to go in a country which is just going by something. So if anything we want to know the country and we would do that for four Bolivian operation where they do have a certain amount of great relation and maybe several underlying - many year on the road to do something, but at this stage it is clearly not on the table.

Thank you very much.

You are welcome.

Thank you. We will take our next question from Yuri Fernandes of JPMorgan.

Tank you gentlemen. I have a question on fees, it was a bit light this quarter especially like the banking fees was growing around 3% year-over-year and you mentioned in the report that the negative it comes mostly on the season credit cards, accounts maintenance those kind of things. So my question is what is happening there like why are you seeing a decrease in conceptual durables products. Are you seeing a retail clients moving to another bank is setting like this or is there a explanation for the decrease on the seasonable product. Thank you.

Two issues, one is the micro environment doesn’t help it, there is a very high coloration in terms of - you have a reminder we have a lot of - we are very professional bank. A good bunch of our fees comes from the transaction of business that is one issues and the other issue is that clients are migrating to digital channel interacting more digitally. Normally those channels or recharge much less on those charges are not charge at all those channels and that is the reason why you are seeing a reduction in it. Obviously the cost to interact with those challenges much lower when they interact though these channel. So those are two main reasons why the fee income business has not grown that much.

Okay. So just a follow-up there is no decrease in the number of clients and can you provide a number for the year, I know you have the guidance of the - they were remaining flat for the year, but any call on how much banking fees can grow this year.

Not really but just to the first part of the question as a matter of fact, due to both the digital and the sales channels. Channels we have deployed over the last couple of years, we are seeing on the contrary on what we are gaining number of clients. Last year, the number of new we got into the band, was something that we have never seen before over a million clients.

Thank you very much.

Thank you. We will take our next question from [indiscernible].

Yes. Just one question on your NIM trajectory. I understand what you said about DCRP cutting rates by 125 basis points for the same time you have always hit about how your retail NIM - as you weigh your portfolio towards more of a retail loans as opposed to corporate, your NIM should expand. So I'm kind of wondering how I should quantify the various impacts, what is the impact from the decline of DCRP reference rate versus the shift to higher NIM loans and, how do you see NIM trajectory over not just this year, but over 2020s and possibly 2021? Thanks.

Okay. Probably two different questions. If we make on our various static sensitivity analysis, each 10 basis points of a reduction in interest rates impact the NIM in around Sol 20 million, this is assuming an instantaneous impact. But the most important forces that are already in place are the change in currency and the needs of the portfolio. So we think that we can counterbalance the negative effects of lower interest rates, with the change in portfolio and the change in currency composition.

Okay, can you elaborate on that a little bit, what does it mean changing currency and changing portfolio. Are you referring to change in portfolio are you referring to segments like retail versus corporate. CésarRíos: Probably going to see by yourself. In solace, we usually have higher margins as in dollars, and the long term trend of our portfolio has been a change from U.S. dollars to solace. And it has been driven for the second half as I'm going to mention that this is the change in the composition of the loan portfolio from a more corporate portfolio or more retail portfolio. The retail portfolio usually have not only a higher structural, a higher interest rates but are more resilient are less sensitive to short term movements in interest rates. When you have an adjustment on 25 basis points in the corporate portfolio, the next disbursement is going to have a reference that is 25 basis points lower. For a Credicorp is much more stable as more driven expansion of the risk of the client the segment the value offering. So in this movement from wholesale to retail I think we can improve the risk adjusted NIM overtime.

Well exactly. So here is my question, I guess when as your loan book, especially on the corporate side reprises downward from tomorrow, whatever basically, as a bigger floating rate loans. So your base is going to reset for the end of the year, most of your corporate loans and not all of them will be a reprise and then retail will probably take some times to reprise depending on you know the floating effects or whatever. But starting from January 1, 2020, because as I understand and you have been talking about us before that you are continuing to shift your focused towards retail funding, because corporate spreads are very low. So that is exactly my question in how you see assuming BCRP doesn’t do anything on the rate and rates were flat how do you see a revolution for 2020?

This is Gianfranco. I think what we have already provided guidance on both NIM and risk adjusted NIM and as you may see those are slightly below our previous guidance.

Right. But I’m asking for the next year, I’m understand the dynamics this year, I’m trying to understand [Multiple Speakers] I’m just trying to understand the dynamic the trajectory?

The dynamics are as what César mentioned. Since we are shifting our portfolio towards more retail portfolio and we have seen retail, the portfolio is more solid that the NIM should be higher. However, the cost of risk is going to be higher too, therefore what we state is that somehow a similar risk adjusted NIM as we are expecting for the rest of this year.

Okay. Thank you.

Thank you. At this time there are no additional questions in the queue. I would now like to turn the conference over to Mr. Walter Bayly, Chief Executive Officer for closing remarks.

Thank you very much for joining us in this conference call. Negative headwinds regarding domestic GDP growth expectations is definitely the most important factor affecting our current and short-term forward looking results. The obvious impact will be on one hand the lower than expected loan growth and on the other hand some deterioration of credit quality. We believe neither of the above answer the fundamental growth potential for Credicorp, but are likely to impact short-term results. Domestic political volatility have been around for quite a while and we believe it’s only impact is related to the already mentioned impact on lower GDP growth. With this overall context Credicorp quarterly results have been solid and our indication of what we see going forward. And on the fundamentals of Credicorp, namely strong franchises, strong capital essential, solid risk management and continued cost control and good fundamentals in the most of the countries in which we operate to continue to offer growth potential. Our agenda is full, we continue to be focused in improving the product and services we offer our customer in adapting our business model and corporate shifts and customer preference and technological advantage. In short, we have gone through short-term domestic and international volatility before, we believe we are prepared to weather the international and the domestic headwinds and we continue to focus and pursuing our medium objective to maintaining customer preference while generating value to our shareholders. Thank you very much for joining us in this conference call and we look forward to seeing you in three months time. Thank you and good bye.

Thank you, ladies and gentleman this concludes today's teleconference. You may now disconnect.