Credicorp's Management Discusses Q4 2013 Results - Earnings Call Transcript

Feb. 6.14 | About: Credicorp, Ltd. (BAP)

Credicorp Ltd. (NYSE:BAP)

Q4 2013 Results Earnings Call

February 6, 2014 9:30 AM ET

Executives

Fernando Dasso - Chief Financial Officer

Walter Bayly - General Manager

Alvaro Correa - Director, Insurance

Analysts

Thiago Batista - Itau

Carlos Macedo - Goldman Sachs

Tito Labarta - Deutsche Bank

Saúl Martinez - JPMorgan

Philip Finch - UBS

Jose Barria - Bank of America

Boris Molina - Santander

Amit Mehta - PIMCO

Carlos Lopez - HSBC

Jose Barria - Bank of America

Operator

Welcome to the Fourth Quarter 2013 Credicorp Earnings Conference Call. My name is Richard, and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later we will conduct a question-and-answer session.

I will now turn the call over to Mr. Fernando Dasso, Chief Financial Officer of Credicorp. Mr. Dasso, you may begin. Mr. Dasso, if your line is on mute, please unmute it. If you are on a speaker phone, please pick up your handset. Participants please standby while we reconnect the host. Ladies and gentlemen, please continue to standby, as we reconnect your host. Thank you for your patience. Ladies and gentlemen, please continue to standby, while we reconnect Mr. Dasso to the call.

Unidentified Participant

Please standby, as we try to reconnect your speaker. Thank you for your patience.

Fernando Dasso

Hello. Good morning. Hello. Is everybody in? Okay. I am sorry for the technical difficulty. Good morning. And welcome to Credicorp's fourth quarter and year end earnings results conference for 2013.

Operational trend and income generation for the fourth quarter, as well as for the year, the quarter was significantly better than reported number suggests. Income generation was strong for the year as a result of good portfolio growth and improved pricing to compensate for higher cost of risk combined with lower funding costs.

However, the year 2013 presented a series of events which driven our reporting on constant currency U.S. dollar and the financial environment generated substantial accounting and extraordinary losses related to, first, the nature of the dual currency financial system under transitional period in which we find ourselves combined with the unexpected currency volatility experienced in the first half of the year, second, the general market volatility, and third, some regulatory changes that affected some business sectors and resulted in extraordinary accounting adjustments, most of them in the fourth quarter.

Isolating only the most easily quantifiable losses were expenses generated by the loss event, we can identify a total of US$194.4 million that was deducted from the income generated in the year of which US$34.2 million affected this fourth quarter.

Furthermore, this reported income was already diminish by the conversions of around 80% of the income generation which is in U.S. dollar or 9.6% were expense of U.S. dollar, resulting in lower U.S. dollar denominated reported income amount, which is distorted the real growth and income generation perception.

If we were to report the same year in more constant currencies and focus on recurrent income generation excluding all accounting and extraordinary costs that affected this year.

Net interest income growth for the year would reach an approximate of 24.1%, our loan book growth about 70.3%. However, provisions, a real business related expense which did increase for the non-recurring expanded 20% and operating expenses which show a real and still high 20.4% expansion.

Despite this letter to IRS that need improvement, our adjusted numbers represent a significantly better performance that suggested better U.S. dollar denominated reported numbers. Hence recurring net income for the year would then be adjusted to US$738.3 million on ROAE to 76%. It is precisely for this reason that we have taken the decision which was recently announced to change our functional currency report as of 1st of January 2014 towards today business dominant currency than Nuevos Soles.

Therefore when reporting this year, we have to distinguish between the accounting results based on our reporting currency on 2013 and IFRS rules and the analysis for real business trends and results isolating currency related distortions and excluding extraordinary costs and accounting adjustment. In this presentation, we will focus on the first one to start, we subsequently proceed to try to help you see the real business trend and real income generation in order to better asses how the business would run and the future potential of our business.

Next page please. Reported IFRS U.S. dollar results show net income attributable to Credicorp after minority interest of US$151.6 million for the fourth quarter, 15.5% down on the previous quarter despite the stable currency within the period and due this time to extraordinary, in some cases, non recurrent losses or expenses and adjustments that accumulated on loan book in the fourth quarter.

Therefore responsible for this drop quarter-over-quarter were first, some one-off cost related to impairment in the valuation of IMTrust share, Social Security payment on remunerations paid in past years due to a regulatory dispute, on provisions for tax contingencies in Bolivia and others, which in aggregate amounted to US$28.8 million.

Second, the cost of approximately US$5.4 million due to rule changes that set requirements for additional reserves at Pacifico to cover future administrative expenses. Third, some adjustments of course for the year which were booked in a cumulative way in the fourth quarter, such as a Credit Value Adjustment of derivative for 2013 of US$7 million and our regulatory change that required an adjustment in accrual commissions that generated deduction in income of US$4 million for the year.

Fourth, the seasonal increase in administrative expenses, which tends to be between US $50 million and US$80 million in the last quarter. All of which affected operating income which dropped 14.8% for the quarter. As mentioned before, business trends were however positive with loans growing 2.6% for the quarter when looking at quarter end balances.

But 4.5% when looking at average daily balances reflecting solid growth for the quarter. Net interest income expanded also 3.2% for the quarter despite an extraordinary adjustment of derivative valuation throughout the year, which reached in aggregate US$ 7 million and was booked in the fourth quarter. Excluding this adjustment, real net interest income growth for the fourth quarter was 4.7%, in line with average volumes growth.

The good evolution of the business and improved pricing also led to higher NIM, which expanded a few basis points to 5.2% for the global NIM and 8.4% for the NIM on the loan book. The insurance business was affected by the loss of a profitable business related to pension fund insurance business, following the introduction of our regulatory auction in process of this insurance coverage.

In addition, we also had some extraordinary non-recurring adjustments that led to a drop in both lower premiums and down 7.7% and underwriting results down 22%. Consequently, ROAE dropped to 14.6% as we digested extraordinary cost and adjustments for the year. We chartered up to US$45.2 million plus the seasonal increase of expenses in this fourth quarter.

Next page please. Looking at BCP’s performance, as mentioned before, loan portfolio growth is well within expectations. Measuring growth in average daily balances, the Nuevos Soles portfolio which is mainly dominated approximately 80% by the retail business, expanded a robust 8.9% quarter-over-quarter. While the U.S. dollar portfolio expanded mere 12.6% for the quarter, resulting in 4.5% expansion over the dollar portfolio.

Even the stability of the currency for the quarter, the quarter-over-quarter numbers reflect three-year growth. However, year-over-year numbers do incorporate the currency combustion distortion and show only alone 11.6% portfolio growth for the year while growth of each portfolio separated by currency reveals much better growth as you will see further on, when we do an exercise to eliminate distortions.

Our wholesale portfolio continues the pricing with strong growth of 21.2% in local currency denominated borrowings while U.S. dollar denominated lending was less strong with an expansion of only 2.4% per quarter. This thus show continuation of a definitely stronger preference of local currency denominated borrowings after the volatility in the currency for the first half of the year.

On the retail front, a more cautious expansion is also evident, with the Soles book growing 4.8% and the dollar book showing a slight inflection of minus 12.9%. This expansion was led by mortgages, micro-lending and business loans, followed by consumer loans, and lastly SME and credit cards, being these last two segments, but ones that have slowed down the most, following the corrections in the score model.

Next page please. With regards to credit quality, we continue showing an evolution in line with an expected slight deterioration, resulting from what we have defined as our learning curve, and feel fairly confident about the corrections introduced in the new adjusted scoring models. In fact, we are seeing a slowdown in deterioration of the SME portfolio. Though a pickup in the credit card portfolio appeared as a regulatory change racing the minimum payment from credit card launch was introduced recently.

This is in line with expectations and has caused the overall PDL ratio to increase only 580 points, and situate at 2.3% this fourth quarter for all delinquencies, but only increased 1 basis points, up to a very still low 1.52% PDL for over 90 day delinquencies. In this context, provisions increased 5.4% but cost of risk remains unchanged at 2.2% of launch.

Next page please. Operating results at BCP hit the base of Credicorp. Even the sound growth in volume of loans outstanding throughout the quarter, net interest income expanded also 5.3% that was affected by accreted value adjustments in derivatives according to IFRS, that resulted in a cumulative correction for the year of US$7 million that affected net interest income in the fourth quarter.

Therefore reported net interest income for the fourth quarter shows only 3.6% quarter-over-quarter growth. Consequently NIM for loans improved only another 5 basis points to 8.4% and the global NIM expanded only another 10 basis points. Non-financial income that also affected by an extraordinary adjustment related to a regulatory change in the recognition of certain piece, introducing the accrual concept leading to a reversion of US$4 million in fees.

Nevertheless non-financial income expanded 6.9% quarter-over-quarter. Furthermore, operating expenses absorbed this fourth quarter a significant amount of non-recurring as indicated earlier. In addition to a seasonal increase in expenses, which was this year is still unavoidable.

Those nonrecurring expenses included some social security belated payment related to a compensation awarded in previous year due to a claim and dispute with SUNAT which is a Peruvian tax authority. Tax contingencies for Bolivia and others that sum up to US$8.9 million. These plus the seasonal expenses led to an increase of 18% in administrative expenses for the quarter, which were to a large extent compensated by lower personnel cost as we continued a tight control on headcount and provisions for 2013 where bonuses were reversed. Therefore operating expenses grew only 8.3% quarter-over-quarter.

Next page please. This chart briefly summarizes the results of the different subsidiaries under contributions to Credicorp. It is evident that the performance of most of them was affected by these extraordinary adjustments and costs. BCP’s contribution drops as we explained in the previous chart, more to the quarter and the year and delivered a 16.1% ROAE.

BCP Bolivia continues performing fine with sound portfolio growth that profitability remains impressed by regulatory changes and pressure, in spite, which it is still able to deliver drop from 2% ROAE. Edyficar continues being the crowned jewel. Our report and almost flat performance despite the large distortions on 100% Nuevos Soles business and still delivered at 1.6% ROE.

Pacifico Insurance had a difficult year from an operational point of view, exacerbated by the currency volatility and regulatory changes that affected the business and generated additional expenses and provisions. Its contribution to Credicorp was 40% down and its ROE had an extremely low 5.9%.

ASB, a pure U.S. dollar business is the only one to show its reported number, exceptional performance, growing 22% quarter-over-quarter, 5% year-over-year and delivering 25% ROE.

Despite concerns due to our regulatory changes introduced by the end of 2011, had the best performance before and expanded business and income 32% year-over-year with spectacular ROE of 31.4%.

And lastly, breakup capital on a year of consolidation and preparation for the business expansion and at the same time affected by rents in Chile by the elections. But some opinion are still negative, ROE minus 1.1%. All-in-all, we will need potential for growth and better ROE is significant.

Next Page, please. Moving now to an analysis of the year-end results, we will try in a next few slides to make clear the adjustments to show real trends and income generations of us. IFRS Soles denominated reporting for the year 2013 suggests good performance as net income drops 28.1% to U.S. $567 million, way below expectations for Credicorp. And ROE drops from 20.9% to 13.5%, also ROAE from 2.2% to 1.4% in 2013.

In addition, reported portfolio expansion also shows a significant drop in growth, down to 7.1% from very high growth of about 20% in previous years. Our components by credit quality deteriorations by 51 basis points to 2.24% and cost of goods increasing to 1.97% of total loans.

However, as we mentioned in our introduction, real operating trends are significantly better than suggested at our reported results. The year 2013 presented a few list of events, which generated substantial accounting and extraordinary losses related to first, the nature of the dual financial systems and the transitional period in which we find ourselves.

Second, our reporting on function of currency, meaning the U.S. dollar combined with an expected currency agility experienced in the first half of the year and third, the general market volatility and four, some regulatory changes that affected some business sectors and resulted in extraordinary accounting adjustments. Therefore, in the next chart, we will try to isolate those events and reach a recurrent net income and show real state -- real growth rates for our business.

Next page, please. As we have explained in detail in our press release, our extraordinary costs adjustments and charges occurred in this year that significantly affected our reported results.

First, the translation loss for the whole year that amounts to US$105 million and was originated from the solid denominated equity position. Second, the loss of $43.5 million in forward contracts also related to our local currency equity position.

Third, the loss of US$11.5 million in valuation of sovereign bond came in the portfolio due to moves in the rates for the U.S. dollar. Four, the cost of approximately US$5.4 million due to rule changes that set requirements for additional reserves at Pacifico to cover future administrative expenses, ULAE.

And fifth, other non-recurring expenses for that reached an aggregate amount of US$28.8 million related to payments to our tax and social security authorities for past years, tax contingencies in Bolivia, charge-off of system assets and impairment related to valuation of IM Trust shares, following market trends and IFRS accounting rules.

Adjusting Credicorp’s number for this non-recurrent cost, operating income would increase to US$1.64 million, leading to our recurrent net income of US$728.3 million. After adjusting for taxes on the income adjustments, which when conferred to recurrent net income of 2012, excluding only a translation gain minus the tax adjustments, we use 7.1% better operating income. And only marginally higher net earnings conferred to recurrent net earnings of 2012.

But this adjustment to recurrent net income incorporates only the extraordinary growth and expenses. And does not correct the distortion caused by the currency devaluation on more than 80% of the income, which is generated in Nuevo Sol.

So this leads to the next page. As we just said, income generations is significantly distorted given the high percentage of solid businesses with income generating in Soles, which are then converted to U.S. dollar at 9.6% more expensive dollar, providing real growth for this business.

Therefore, in order to better determine real growth rates and income generation capacity, we are showing income generation in the currency in which it is generated to less than net growth for each income source and focusing on the pure interest income excluding others.

As you can see in the chart, adjusted net interest income is excluding other income and other expense in local currency, rose 28.2% for the year while dollar denominated net interest income, which is only 2.6%. If we convert the Soles income to dollars, as in our accounting, growth for all income reaches only 14.2% for the year.

However, you can calculate our blended growth number using a simple weighted average principal. We see that real growth achieved total income generation was 24.1%, a significantly better result.

Certainly, total non-financial income shows a real expansion in constant currencies of 19.9%, while operating expenses which in fact were benefiting from the currency move in the reported number, shows a higher 20.4% real expansion for the year. This expansion includes the adjustments from non-recurring expenses from the previous page and we view real cost expansion, which is still high.

Next page, please. With regards to portfolio expansion, we saw reported numbers show a total of 11.6% portfolio growth. However, if we analyze each portfolio by currency and calculate growth numbers using our weighted average growth, we see the real growth of the different businesses is significantly better.

And the surprising element is the wholesale portfolio, which against all expectations given the slowdown of the economic environment turn out to be the fastest growing sector. Total loans grew 18.8% for the year with corporate sector leading growth with 25.4% expansion.

While the retail sector grows at a slower pace, but still shows (inaudible) never reaching at 16.1%. In the retail business, mortgages led growth with 20.5%, followed by consumer loans, SMEs, business loans and lastly credit costs. But as we mentioned before, the ground zero is difficult.

Whereas in its portfolio, 39% and maintaining the lowest delinquencies ratio for this type of business at 3.9% and the highest profitability. Overall, growth measured this way shows a portfolio expansion of 17.3% for the year.

Next page. Therefore, we would like to leave you with this core business numbers to think about real performance and income generation capacity of Credicorp, which are indicators of future potential.

Portfolio growth of 17.3%, net interest income expansions of 24.1%, non-financial income growth of 19.9%, recurrent net income growth of 0.7%, reaching US$738.3 million, recurrent ROE of 17.6%. The negative still embedded in this adjusted numbers being cost of risk of 2.2% of loans and cost expansions of 20.4%.

Therefore, our strategy, which focuses on bringing risk management to best practices and ambitious efficiency project, that is precisely close to weak side of our business. The objective is to bring ROE back to its 20s levels.

With these comments, I would like to close my presentation and open to Q&A. Thank you.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question on line comes from Thiago Batista from Itau. Please go ahead.

Thiago Batista - Itau

Yeah. Hi, guys. Good morning and thanks for opportunity. I have basically two questions. The first one regarding your non-recurring items during the 4Q, could you give us a little more color about why you did the impairment in IM Trust this quarter, what was the main trigger for this -- for this impairment is the first question?

And my second question is about asset quality. I know that we are at comments and that you are very comfortable, we saw the adjustments you did in the past. So it’s possible to expect that the PDL ratio of Credicorp will contract during this year. And specifically about the SME segment we saw in the chart you posted in release that the PDL ratio of SME put some small downtick in December against November figures. So my question is, it’s assumed to say that the peak in the PDL ratio of the SME segment is occurred in November or maybe we could see some additional deterioration going forward?

Walter Bayly

Sure, Thiago, hi. This is Walter. Maybe I will tackle the first part regarding the non-recurring items and leave to Fernando the second part of your question. The non-recurring items for this quarter indeed have been quite high. The most important one is the one you mentioned which is the impairment charge for IM Trust and there the reality is that we paid a price which was related to the margin and we have learned that the margin for mistakes. It was a difficult market situation. There are a lot of different alternative investments we could have done.

With that being mentioned what happened were two things. One is that the markets moved against us. IM Trust gained market share in all its domestic businesses, but the overall size of the market was relatively smaller. There was less business activity in the domestic capital markets in Chile. And while this was happening, of course there was also a devaluation of the Chilean peso so that in dollar terms which is what was recorded, the price which was recorded, is recorded at Credicorp the overall market became smaller.

So if one looks forward the exercise which we have to do to value on a yearly basis the impairment involves projecting forward the expected results of IM Trust and we see that those projections, originally projections will converge with the numbers that we project this year, I think three or four years down the road but there is a gap which will not be recovered and that fair share value of that is the impairment. So yes, we pay to the margin, we have very little room for error and error did occur, but markets played against this. The volumes were smaller than anticipated and of course the currency did not help.

There were a couple of other extraordinary items in the quarter, one related to is the Loot which is the local social security. There was a new interpretation by the regulatory authorities on how that charges should or should not be applicable to extraordinary bonus payments etcetera, etcetera. And yes, this affected several of our companies and we had to do a one-off adjustment which if I recall correctly throughout record amounts about $10 million.

And then last but not least, there were several accounting items related to our slowly incorporating all IFRS principles to some of our accounting. And those included items of about $10 million. Now in the past we have always had extraordinary items that affect our P&L, not in this magnitude but they will always counter by extraordinary items on the positive side, none of which we have had this year. So it is unfortunate I think, but it is not being bet that keeps us awake at night. The IM Trust is unfortunate one, but reality is what it is. And I would now pass on to Fernando to tackle the second portion of your questions.

Fernando Dasso

Hello, Thiago. As you can see the chart and the chart there 6, 9 for each different segment, we are very comfortable with the no work for lines as you can imagine and actually very positively impressed with what is happening in the consumer segment, although we have to admit that December is a very good month in terms of payments because people that earn wages, former workers and a double wage. So that helps not only in the consumer and the other segments but also in the SME segment because I mean these people have some times two different jobs, one is an independent and one is a dependent job, so that happens. And that’s probably what happened in the SME segment. There is actually as we say here more money in the street, so our customers are able to pay more.

So what I would say is that number in the SME is a good number, the line is getting down, but it is still very early to make conclusions. During the whole year 2013 we have engaged in picking a lot of measures in terms of applications scores, in terms of collections, in terms of policy for grade in the SME segment and we feel that they are beginning to realize good results, but this is still an early stage to tell you that we will go down in the near future. We will probably have to talk again in May and we hope to have better results.

There is another point important to talk about in the credit card portfolio. The thing is that like two months ago regulation made all the banks and institutions improve to shorten the period of payment for credit cards. We had large periods of payment and now with most -- depending on the cards that we shortened them by half. So actual installments for our clients have increased somehow and they are adjusting to that. And we will see what happens. We feel that this period line for credit cards could go up a little further and then it will come down when our clients adjust to the new rules. In reality, this measure taken by the SBS, our regulator is a very healthy measure in terms of the future of the market. We are actually -- I mean we’ve taken it and we are actually looking for great results in the long run.

Thiago Batista - Itau

Fair enough. Thanks for that.

Operator

Thank you. Our next question online comes from Mr. Carlos Macedo at Goldman Sachs. Please go ahead.

Carlos Macedo - Goldman Sachs

Hi, good morning, gentlemen. Thanks for the opportunity to ask questions. I have a couple of questions. One, Fernando, if you could give us some more color on your efficiency program and how that’s progressing, what’s staggering, we did see some benefit from it this quarter. What kind of impact you expect that to generate in the coming years and just some more color on that?

And the second you just mentioned regulation that’s changing credit cards, is there anything else in the pipeline that we should be thinking about looking forward to the next 12 months that you can see that’s in the process of approval that may affect your results? Thanks.

Walter Bayly

Carlos, this is Walter Bayly. I will tackle the first question regarding the efficiency, and thank you for your question because it gives me the opportunity to clarify this because I know there has been a lot of questions I and her team about it. Yes, we have embarked on a very thorough profound initiative to take our efficiency levels dramatically down. This is something we initiated in around September, probably October. Where we are now is that we have developed the methodology, we have about a complete front related to long-term changes, we have nine different fronts and a whole area of work related to short-term controls or tools to help management spend more intelligently.

We are in the process of looking at this very closely, each of the different teams is working and we expect everybody to come back to the table around May, June and only then we’ll have a very clear number as to what level of efficiency do we want to reach and when. Already in May, June when each of the different teams tackling the different initiatives, you will come back and again we will be able to consolidate all the information and give you guidelines as to how we will be able to do this and what timeframe and what levels of efficiency. So right now, it is still premature for us to give you a number or a timetable and we expect that to be able to give you that in May, June. So yes, we are working on it, it’s one of our key initiatives, but I don’t want to mention numbers before we are really prepared to do so.

Fernando Dasso

Carlos, I think in terms of the second question, as you know during the last three, four months the regulators have been very active in terms of new regulation in the pension funds system, in insurance, in banking, especially in terms of fees, regulating fees, number of fees and what you can charge or not, whatever. We don’t feel that they will be at this in the near future. As you know well this year still a normal year, next year is a pre-electoral year so we feel that they will be into the very less active in these terms.

Carlos Macedo - Goldman Sachs

Okay. Thank you, Fernando. Thank you, Walter.

Operator

Thank you. Our next question online comes from Mr. Tito Labarta from Deutsche Bank. Please go ahead.

Tito Labarta - Deutsche Bank

Hi, good morning, Fernando and Walter. Thanks for the call. My question in terms of your margin, I just want to get kind of how you expect to see that going forward. We saw very strong loan growth on a local currency side which we think helped the margin, but the growth was also driven more by the corporate side as opposed to SME. So, can you give a little bit of color and how these moving elements should impact the margins going forward with the strong loan growth in the local currency but driven more by the corporate as opposed to consumer and how do you see the loan growth evolving in these segments and how that’s going to impact your margins? Thanks.

Fernando Dasso

Thank you for questions. First of all, the country is planning to grow by say 5.5% next year. Things were a little rough in terms of expectations at the beginning of the last year. This year the environment looks better and we feel that the country is to continue growing better than last year. And the first thing you is the corporate and those companies beginning to be more active, that’s what we have seen in the last quarter and we are continuing to see this quarter.

So we feel that this could be a good year and what is happening really is that, our lending business is turning more toward solid and we are receiving more deposits in dollars. It is a very sharp trend but it is a trend and that, I mean, that will help if rates begin to go up and that’s really the case we are looking at. Margins will properly come up as well and that will be helpful for our institutions.

Tito Labarta - Deutsche Bank

Thanks. Maybe just give a little bit more color on that, as well as you are getting growing loan portfolio more in Soles but then deposits growing more in dollars which you would be worried about some mismatch from that prospective as well?

Fernando Dasso

As you probably know, our -- because of what happened during the last three, four years, we had a portfolio in which our loans in dollars represented like 56%, 58%, so that number is coming down and in Soles it was the opposite.

Deposits in Soles were on 54%, 55%, so the trends are the other way around now because of what’s going on with the currencies of other countries are also improved. So what we see is the balance will be more -- we actually need balanced with our assets and liabilities in the same currency. We were less balanced in the past.

Tito Labarta - Deutsche Bank

I see. Thanks. So just to be clear in terms of margin expectations and so even though you probably grow more on the corporate side given that it is more from the local currency than the U.S. dollars, overall you think that should lead the higher margins for this year?

Fernando Dasso

What we see is that if the corporates begin to grow, companies will begin to grow and then their employees will also begin to grow and earn more money, and that will also help the retail, but that will come further along the way.

Tito Labarta - Deutsche Bank

So would you expect the corporate to go faster than consumer this year or kind of you know maybe corporate go faster in the first half and then second half of the year you grow faster on the consumer side? I just want to get a sense of the loan growth in corporate versus retail as well.

Fernando Dasso

I feel that we have already -- the corporates are growing faster now and the retail customers will probably catch-up during the second semester of the year.

Tito Labarta - Deutsche Bank

All right. Thank you very much.

Operator

Thank you. Our next question on line comes from the Mr. Saúl Martinez from JPMorgan. Please go ahead.

Saúl Martinez - JPMorgan

Hi, guys. Good morning. Two questions, I am going to be blind with my first question and should you be in the insurance business, is this a good business, for as long as I’ve covered you guys, it’s been a turnaround, sorry, its been sort of a drag in on profitability and you guys, you brought in David Saettone a few years ago, he didn’t worked out in terms of turning around, now Alvaro is trying to turn it around? Does he seem to be getting better even notwithstanding the one-off issues, the results have been pretty poor, you are not, your ROEs at or below your cost-to-capital for a long time? Is this just a bad business? Is this a business that maybe you don’t do as well as the banking business? Should you be allocating capital to other businesses?

So I kind of want to get a sense of what your strategic vision is here and whether this is a flexible business, because it has been awhile, it feels like that it really hasn’t delivered in terms of result?

Secondly on your credit card, credit card asset quality, I get the change in regulation to make sense that MPLs would go up? Having said that, if I look at the industry numbers, MPLs went up, I think, 30 basis points and if I probably if you exclude your numbers from that, it went up less, Intercorp had no deterioration in the fourth quarter? Why is your MPL evolution in cards so much worse than your peers, especially considering that it has been awhile, well over year since you introduced your pricing adjustment to that business?

Walter Bayly

Sure. Thank you Saúl. This is Walter. Let me tackle the second question first, make a brief comment about the insurance. Unfortunately we have Alvaro Correa who will be able to give us a little bit more color regarding insurance.

As to the credit cards, the adjustments for the new regulation was passed at the beginning of the year and each bank and the latest you could it was by December. And most of the other financial institutions did it earlier in the year thus we were the latest and so we are the only one that did the adjustment this last quarter, most of our competitors did it in earlier quarters, we have until year end.

Intercorp which is the one that you mentioned did not have to do the adjustment because they -- my understanding is that they have been operating under the new guidelines for quite awhile.

Saúl Martinez - JPMorgan

Okay.

Walter Bayly

So I hope that answers the question.

Saúl Martinez - JPMorgan

Yeah.

Walter Bayly

Regarding the insurance, yes, regarding the insurance, yes, those are all fair questions, questions that we have debated amongst ourselves. But, again, as I mentioned, I will leave, Alvaro, to give you a little bit more color on where we are and we are intend to go forward. Alvaro?

Alvaro Correa

Hi, Saúl. Thank you for the question. Actually that was my first question before accepting the position. And I would say that after four months in that role, I still have a few answers waiting there. But basically what you see in this company and this business is that you have very different realities with (inaudible).

First of all, you have the property and casualty business, which is the poorest one where we have more complexities and difficulties to make it profitable. Then you have the health, P&C insurance business, which is getting better and better with all the adjustments and improvements of last year.

And then -- and the investment that’s within the business we are making into the medical services, which are made to be profitable, but we have already made all the improvements and adjustments. And this is the year to make it, put it on the positive side and start getting a better return equity base.

And finally, the life insurance business which is a very profitable one, we do it well. We have it very well linked to bank insurance to bank generated insurance, linked to loan side. And in addition to that, we have the annuities and all the other businesses that are performing quite well. Going back to the property and casualty, which is where we have the challenges. We’ve seen it. Again, we have different businesses.

So, the large companies or customers that have been a challenge for a while and now we have a different type of reinsurance there. We have this quota share contract that is basically transferring the risks to reinsurance or a big part of the risk, 55% today. And that has brought much more stability or less volatility to the P&L this last year.

However, businesses are smaller, because now we have less retained earnings with less casualties but all-in-all, it's a smaller business. And the return equity there, there is a question mark, because if you see what happens in the world, return equities for that business is not that very high. And therefore, we will after, I would say a year or so of understanding that business well and this new model works, we will have to make a decision whether a return equity of let's say 10%, 12% in that business is good enough for us, okay.

On the retail side, you have the car insurance. That has been a real headache last year. We have lost millions of dollars and that's a combination of things. This is the right methodology, which is very basic in the country. We don't use, still don't use scoring systems or modeling. And we have started and we have to develop that capability to make it more profitable or making pricing much better.

You have several other trends in the business. For instance, how to manage costs on the repair side? That has been also a complication last year, because expenses were getting higher and higher. And as you know, we cannot just break prices and have the results right there. We have wait to for a year for the renewal process of the whole portfolio.

So that business, we are very, very focused on improving that business, that car insurance business and we have deployed additional people and we are developing the models that I just mentioned. In addition to that another complication in this market is that you don't have bureaus. You don't have the records of the people, for instance of volumes and fractions I know.

So that business itself is specific focus for us. But in addition to that and I would say the third front in that business is the expense side. We have a net underwriting operating result that is -- or net underwriting result but it is well below the operating expenses of the company. So that's up sustainable in the long run.

We have to take that expense side very seriously and see how well we can do, how much we can reduce that, the structure that we have in the company to make it more profitable. So in summary, what I would say is that this year, we will take probably this year to make all those adjustments and see this as a business that we want to be in, what part of the business we want to keep and if there is a different decision, we will have to make a decision to partner with (inaudible) or we don’t know, there are options out there.

Saúl Martinez - JPMorgan

Okay, now that’s very helpful. Thank you for the very thorough answer, Alvaro. Just one quick follow-up then on insurance, the last of the Prima business, how much does it impact the life insurance bottom-line?

Alvaro Correa

It is about -- well this year -- this last year, the first nine months of the year where we had the business because we lost it starting October the 1st, was a very profitable one which doesn’t mean that, it has been that profitable in the past and won’t be that profitable in the future. Basically, the contribution has been around $5 million in the past, this last year was $12 billion and that would be what you see as we have lost there.

However, the rules of the game have changed. Now you have much lower premiums there and the companies that have won that business seems to be losing earnings basically. So we were not that wrong by losing that business as it works designed. We are really hoping that since the company started losing money in this business, in the new auction the rules would change a little and could be an opportunity for us to get back in.

Saúl Martinez - JPMorgan

Okay, that’s helpful. Thank you very much for your answers.

Operator

Thank you. Our next question online comes from Philip Finch from UBS. Please go ahead.

Philip Finch - UBS

Good morning, everyone. Thank you for taking my questions. I have got two please. First of all, in the past few quarters you’ve been slowing down your branch expansion program. So, can you give us an update on why we found in, in terms of how many branches we should expect you to open this year and each year going forward? And secondly, what is your ROE expectation, again in the past you’ve talked about achieving close to 20% ROEs. Is that something you think you can achieve this year? Thank you.

Walter Bayly

Sure, Philip, this is Walter. Regarding our branch expansions, we said in a couple of days I was reviewing with Gianfranco who runs our retail operation his mid-term expansion program. And yes, we will continue to expand probably a number which will be around 40 to 50 branches per year, probably closer to 40. Those numbers can change, not in the next year because there is a lag of about 18 months between decide and decided to open the branch than you actually do it. So probably the next 12 months are already played out.

And more on a longer-term basis, that is one of the issues that is going to be tackled through the efficiency whether the model of our branch, the footprints that we want to have is the right one to move on to change it or not. But to give you a simple answer probably our number are out 40 is one that you can feel comfortable around.

The second question was regarding return on equity, yes, 20 plus return on equity is a doable and achievable target for Credicorp and we are very, very focused on reaching those return on equities on this first quarter.

Philip Finch - UBS

So, I mean, you achieve that mid first quarter?

Walter Bayly

Yes, sir.

Philip Finch - UBS

Okay, thank you.

Alvaro Correa

Just to add a little bit on the branch question. What we’re looking at is that actually transactions in our branches are diminishing month by month. So our branches will be much more devoted to sales and service and less devoted to cash transactions and that’s already a case for -- it's been a case for the last 15 months and we probably continue to resolve. So it’s not only a matter of putting more branches but of really signing the branches because we are needing them more for sales and service rather than transactions.

Philip Finch - UBS

I got indeed. Thank you very much.

Operator

Okay. Our next question on line comes to [Mr. Fred Emery] from UBS. Please go ahead.

Unidentified Analyst

Good morning, everyone. Thank you for the call. A couple of questions on my side. The first one is a follow-up on, Tito, question on the margins. So I understand that corporate is going to grow a bit more in the first half of the year then maybe consumable catch-up, but we also have the impact on the currency. I wanted to hear from you net-net if the impact on the margin would be positive for this year. In other words, do we expect margin expansion for 2014, so that would be the first one?

And the second one is on one of the subsidiaries, Edyficar, which you mentioned was a great assets. We’ve seen an increase in MPLs at one of your main competitors in microfinance. And I wanted to hear from you your thoughts in terms of asset quality, whether we should be concerned about contingent and whether you expect these trends to continue to be very strong at Edyficar? Thank you.

Fernando Dasso

In terms of margins, there are really two businesses as you said. One is a wholesale business and we believe that margins will -- could improve a bit especially because rate, especially long-term rates will begin rollout. We don’t know what’s going to happen in this market because it’s really volatile but the trends are carrying assets they will go up. So margins will expand a bit. But that’s a very competitive business. Our margins are very small compare to retail.

In the retail segment, there is ample room for improvement. And last year we’ve been very much engaged in developing new tools to make our numbers and our pricing more transparent to ourselves and to our customers.

So we have these new pricing tools now in place in most of our businesses. We will really increase some of our prices, some of our rates in the SME segment and we plan to be much more intelligent in pulling our rates and also our fees in place next year and that will probably have a very good impact in terms of margins.

Walter Bayly

Regarding your questions on the credit quality of Edyficar vis-à-vis it’s competitors. The Edyficar and the micro segment business, which is still -- the bulk or not the bulk, but the largest share of its portfolio. They have a very successful model in which I would say 70% of Edyficar customers are not shared customers. Their customers are exclusively work with Edyficar on the lending side. So that’s gives them a very special position in the market which -- the market which has been contaminated because of over lending.

Most of the financial institutions have been very aggressive. The whole bunch of (inaudible), et cetera that has been very aggressive including Banco which is the name I understand you are alluding too.

Unidentified Analyst

Yeah.

Walter Bayly

So, yes, there was a bigger over lending fortunately it has not hit Edyficar because of the fact that I mentioned that the bulk of the customers are not shared customers. On the other side on the portfolio which is the larger, the company slightly above the microfinance which is the [FEMA]. It is not an important portion of Edyficar’s portfolio but it is growing but with the different business model and we think that it will not be effective.

Unidentified Analyst

That’s right. Very clear. If I may just ask you for a follow up on the 20% ROE that you just referred to, you were saying that you could reach this by the third quarter of this year. And maybe just summarize what would be main driver. Are you thinking that maybe the performance in ROE will be because of margins, because of lower provisions? What do you think is the biggest driver for this return?

Fernando Dasso

Sure. They only caveat I would say to my comment about the 20 % this quarter is that there are any currency disruptions.

Unidentified Analyst

Okay.

Fernando Dasso

But you may decide assuming that there will be no major currency disruptions. What will allow us to reach at 20 plus return on equity, just a fact that we will not have the all those unusual circumstances that have overshadowed our performance. We got again the devaluation, the impact of the fixed income, the accounting changes, et cetera, et cetera.

If you take all those from the performance of Credicorp the last year then even assuming the underperformance of Pacifico and we will have been under 20%. So what do we need to happen for that 20% return on equity to be obtain in the first quarter, one no major currency disruption and second elimination of non-recurring items, just the business itself will do it.

Unidentified Analyst

That’s great. Very clear. Thank you.

Walter Bayly

Welcome.

Operator

Thank you. Our next question comes from Mr. Jose Barria from Bank of America. Please go ahead.

Jose Barria - Bank of America

Thank you, gentlemen. Most of my questions have been answered. So I’ll just ask some very quick ones, mostly on follow-ups to previous questions. The first one is on loan growth, understanding that you’re seeing maybe a better economic growth this year but given that you had some problems in certain portfolio that you kind of rectify. What kind of loan growth can we expect in 2014, assuming no currency impacts?

The second question is with regards to your decision to change the reporting currency, obviously, it, given that there is a high degree of deodorization in the economy, it makes sense. But I wanted to understand what your thoughts are on changing the composition of your equity because you still have a large portion in dollars and there could be some translation, that’s still happening in the other direction, those will be it? Thank you.

Fernando Dasso

Okay. First one, in terms of loans, we actually, we -- what we’ve had in the past is the growth of loans which is approximately double the growth of inflation of the country or the GDP plus inflation. So if the GDP grows by say 5.5% on inflation, is plan to be plan to be around 2.5%, it will be 8%.

So we are planning to grow twice that, so it will be around 16%. That’s broadly what we are planning for the next year. And it will depend on the segment, some of them will grow faster and others, they are still measures to take to let them go faster in terms of risks.

And your second question was about…

Jose Barria - Bank of America

Currency?

Fernando Dasso

Currency, okay, we’ve change our currency because now like 70% of our income and costs are in Soles. So that’s really our functional currency. And now the dollars will give us volatility, the dollars in our balance sheet.

And we are planning to live with that, actually we are still trying to cover a little bit the net -- that were, I think, when you, never, but in the future we’ll have to learn to live with that because the economy will continue to grow into Soles and therefore our business will be in Soles on and on.

Walter Bayly

Let me expand on that a bit. Even today, we have always switch on functional currency but the bank has not changed. We still have a dollar portion of our portfolio and the local currency of the portfolio. Clearly, the trends are that the local currency will grow at a faster pace and thus this de-dollarization overall in our P&L and balance sheet will continue to happen but we will this year and the next couple of years continue to have a portion of our assets in denominated dollars.

The question is should we or should we not have a long dollar position and that there are two debates to counter arguments. One is do we have want to volatility on our P&L. If the answer is no, then the dollar position should be zero. But the counterargument to that is should there be a more drastic movement in the currency as you have a portion of your asset denominated in dollars and your capital is all in Soles then there is a potential for us to be undercapitalized because as expressed in local currency, you dollar portfolio will have more Soles.

So the counterargument if you are worried about your equity is that you should have your dollar position -- a composition of the equity which mirrors the dollar sold, the mix of your portfolio so there is no simple answer. So what we have done is probably a combination of both that we do want to have a portion of our equity invested in dollars because we do not want to be totally unprotected should there be some movements in the exchanges -- the exchange rate but on the other hand we want to minimize the volatility on our P&L. So somewhere in the middle as where we would be navigating.

Jose Barria - Bank of America

I see.

Walter Bayly

Did I explain myself?

Jose Barria - Bank of America

No. Yes absolutely. Just in terms of, for our purposes, so that we could try to quantify what the impact could be, what do you think is a sweet spot in terms of mix of soles versus dollar on your book value?

Walter Bayly

The number I have in mind is probably around having a long dollar position of about $400 million. What percentage would that be on the capital. Fernando, do you have a number in mind?

Fernando Dasso

The capital of Credicorp is for…

Jose Barria - Bank of America

A billion, yes.

Fernando Dasso

Yes, probably 30% or something.

Jose Barria - Bank of America

So I’m looking at 4 billion or 400, we are talking about 10%?

Fernando Dasso

10% yes.

Walter Bayly

Probably, call it, 3 like that because…

Fernando Dasso

10% to 15% probably the number.

Jose Barria - Bank of America

Got it. Okay and lastly Alvaro if you could -- just because I didn’t understand clearly your answer to Soles question on the impact of the loss of the Prima business on the insurance side. What did that represent in terms of net income for the Pacifico Group in the first nine months of 2013?

Alvaro Correa

It was around $12 million.

Jose Barria - Bank of America

$12 million.

Alvaro Correa

Yes, it was a very good year, lower cash and good income which will not be repeated primarily.

Jose Barria - Bank of America

So roughly around 4 million a quarter and in 2012, it was around the same level?

Alvaro Correa

Low.

Jose Barria - Bank of America

It was low okay.

Alvaro Correa

It was about $1 million and $1.5 million per quarter.

Jose Barria - Bank of America

Got it.

Alvaro Correa

Like this.

Jose Barria - Bank of America

Okay. Thank you very much.

Alvaro Correa

You are welcome.

Operator

Our next question on line comes from Boris Molina from Santander. Please go ahead.

Boris Molina - Santander

Yes. I was trying to piece together a little bit from your comments of what is going to affect your guidance for the year. So basically we are talking about the 16% loan growth but you gave some more details about the cost and provision expenses for the year. Do you see that in terms of other operating lines and how do we arrive to that 20%+ ROAE for the year if you can give more clarity, that would be great? Thank you.

Fernando Dasso

Okay good question. We talked already about loans and you ask about operating cost and provisions. What we feel is that given all the measures as we have taken already, those numbers will grow by about the same, I mean, in terms of costs, we are planning about maybe 14% to 15% and in terms of provisions, it will probably be the same growth of our loan portfolios.

Boris Molina - Santander

Okay. Thank you so much.

Operator

Our next question comes from Amit Mehta from PIMCO. Please go ahead.

Amit Mehta - PIMCO

Hi, some of my questions have been answered. But I guess I’ll just quickly wanted to focus on your MPA level and also kind of may be elaborate on the components of the cost of risk charge that you see going forward given the mix shift that you are seeing. And then also on the cost growth, I just won’t understand how much of your cost growth is flexible going forward. I appreciate you are in the process of doing your review at present but I just wanted to understand if we have a deceleration or reacceleration, how manageable is it for you to control your cost going forward because it does seem quite sticky historically.

Fernando Dasso

We are right now in the process of finalizing all our OpEx and all our personnel costs. As you have said, part of it is fixed but the first findings of our analysis is that there is ample room for improvement. Some of that improvement will be faster to make and the other part will need some automation. As Walter said these efficiency program because this is really a program, will not take six months. It will probably take some years and we are pulling together the pillars to make that strong and healthy program. There is some flexibility in our cost structure that if there is a downturn in the economy, we will probably need to bring to a table in terms of our results.

Amit Mehta - PIMCO

Is there going to be any additional one-off costs to implement this cost saving program ultimately?

Fernando Dasso

Nothing major. At least that we have foreseen right now. We will be able to give a little bit more detail as I mentioned later on but -- later in the year but at this stage, nothing that should stand out.

Amit Mehta - PIMCO

Okay. And then on the MPA and credit costs?

Fernando Dasso

What? The NPLs are the PLs.

Amit Mehta - PIMCO

Yes, non-performing -- I mean as you highlight in our summary slide, your cost of credit is 2.2 but you are saying that will grow I mean can you just give some color on where do you think that level will get to?

Fernando Dasso

We feel that, as I said in the hotel arena we are almost there. We have a very low risk portfolio and we plan to continue in that low-risk space. In the retail segment, as you probably already know we have been penetrating different less penetrated segments and there is less knowledge of how to deal with those people that was risky, that was a learning process and the product of that learning process was all the measures that we have taken last year.

We have learned a lot in terms of how these people behave, how these people pay. We’ve included those learning in our models. And we feel that we have much more robust models in terms of applications scores, behavior scores, ways of calculating the income of these people. So we feel much better. We have not won 100% of this battle but we feel much better than we were -- than we felt last year. So that’s really our plan to continue growing fast as you have seen the numbers and hopefully with less delinquencies.

Amit Mehta - PIMCO

And would you be going back into segments where you have been before and had a bad experience because now you are better prepared in terms of how to analyze the situation. So how should be we think about the low segment of SMEs that you have doubling in and kind of retreated from?

Fernando Dasso

Its very, very strange because for example in the lowest segment of SMEs, it is a difficult place and we have great portfolios, very healthy, still delinquencies, stable PDLs and they know their business then if you go a little further that’s where our opportunity and all sort of challenges and this is in terms both of Edyficar and BCP because that’s the arena where we are still learning how to deal with.

Then if you go further up, we’ve taken many measures in different segment and we feel that we can grow on a very healthy fashion in those segments both in terms of SMEs and in terms of consumer lending.

Amit Mehta - PIMCO

Okay. Thank you.

Operator

Our next question online comes from Mr. Carlos Lopez from HSBC. Please go ahead.

Carlos Lopez - HSBC

Hello, good morning. Two questions. If you go to page 27 offshore report on the capital section, you have a common equity Tier 1 now of 7.52%. I would like to know where you would like to take it and where you would have a Basel III figure that you would have today and where you want to be? And my second question refers to goodwill, could you update us where your goodwill now stands both for IM Trust and for Corredores and when will it be tested again, whether it’d be next year? Thank you.

Walter Bayly

In terms of the first question, we plan to bring our BIS ratio to higher 14. We are right now somehow over there. We have an internal limit which is around 13.5; we plan to have it around the 14. We also have this other ratio which we called common equity Tier 1, which is also Basel compliant. And that I don't remember exactly, but Basel states that you have to have it around 7, 7.5, we plan to reach around 10% at the end of the year '16.

Carlos Lopez - HSBC

10% by the end of the year '16.

Walter Bayly

Yes.

Carlos Lopez - HSBC

Okay. And would that -- that would be current Basel, I guess Basel II presumably.

Walter Bayly

That’s Basel compliant. That’s what we called the common equity Tier 1, the most straight of those ratios.

Carlos Lopez - HSBC

So that would incorporate all the new limitations of release of Basel III, should I understand that?

Walter Bayly

Correct, yes. We feel that our own rate later will be integrated, more compliant with Basel, that's why they are being in Peru. So we plan that our relation will be really Basel based in the next two, three years in terms of capital.

Carlos Lopez - HSBC

Okay. And again, I mean, if you want to do that, do that have any consequence in terms of dividends, we obviously have to retain more to get to 10%?

Walter Bayly

Yes, it is unlikely that we will grow our dividends. It depends on growth of our portfolio, but that's the case.

Carlos Lopez - HSBC

Okay. Thank you. And on the goodwill, sir?

Walter Bayly

Could you repeat your second question please?

Carlos Lopez - HSBC

Yes, what is the current level of goodwill especially for Corredores and for IM Trust and when will it be tested again?

Fernando Dasso

Yeah, every piece of goodwill that we have in our books has to be tested on a yearly basis according to the International Financial Reporting Standards. So we will do so again by the end of this year.

Carlos Lopez - HSBC

And the current balance.

Fernando Dasso

Good question. I don’t have it.

Walter Bayly

We'll get back to you.

Fernando Dasso

Yeah, I don't have it in my mind frankly.

Carlos Lopez - HSBC

Okay. Thank you. Have a good day.

Operator

Our last question online comes from Mr. Jose Barria from Bank of America. Please go ahead.

Jose Barria - Bank of America

Hi. Just a follow-up on the question of guidance on expenses, you said 14% to 15%. Should that be off of the reported operating expenses or the adjusted after you take out the non-recurring charges?

Walter Bayly

Without our recurring charges.

Jose Barria - Bank of America

I see, okay. That's it. Thank you.

Operator

This concludes the question-and-answer session of today's call. I will now turn the call back over to our COO, Walter Bayly for closing remarks.

Walter Bayly

Thank you all for joining us this call and for some very, very good questions. Last year was clearly disappointing year for Credicorp. Our performance was overshadowed by a series of one-off events. Clearly the movement in the exchange rate was by far the largest, will get us in several parts of our portfolio, just a simple line translation losses have been reduced about a $105 million. The margins were hit by about a $140 million, of which 45 were just the open position of foreign exchange, which is recorded in the margin, but the fact that our local currency portfolio are smaller in dollars, in dollar terms means that we had less margin than we have last year. So overall, the impact of the valuation is closer to $250 million.

If you recall in the first quarter we had when interest rate moved up, we had our fixed income portfolio which mark-to-market gave us $44 million in losses. Fortunately those ended up in $12 million because we were able to have some gains throughout the year, but that was a large one-off event that unfortunately we did not properly anticipate. And then we were hit by various extraordinary which have been already talked about, IM Trust, the account, the interpretations in the rulings with social security accounting etcetera, which come to about $35 million.

All-in-all, if you take income taxes into consideration, this was probably about $230 million in after-tax impact, which would have taken Credicorp’s earnings closer to the $800 million, which is a 19% return on equity. That is why I am so confident that we don't have to do anything extraordinary just having a stable foreign exchange environment and trying not to have those one-off events. Our wholesale bank exceeded its budget last year. Our retail bank even including the effects of the valuation and the margin made their budget and this includes the fact that they were able because of adequate increases in pricing that counter the effect of larger provisions in SMEs. So our wholesale and our retail bank did meet their budgets.

All-in-all, Credicorp, Prima and Atlantic were clearly the stars and we have a lot of work to do as was mentioned in Pacifico and in Credicorp Capital. Credicorp Capital we haven’t talked a lot about it more than the fact the impairment, but there is work-in-progress there. So where are we heading this year? We have three priorities which we have established particularly at the bank level. We want to work on the efficiency program which has been mentioned.

Our risk management initiatives continue to go in on and we're very focused on the [FEMA] sector which even though has not produced good results this year has continued -- has a tremendous potential going forward and we think that there is a lot of value that we can extract and a lot of growth that we can take through there. And clearly we have to focus on the two units that require a lot of work which are Pacifico and Credicorp Capital.

This year, Banco de Credito will celebrate its 125-year anniversary. We're very proud of that and we're going to be making some noise in the domestic market, re-launching our brand and really trying to reconnect with our customers. We think that all of our units in our corporation are very well-positioned to capture the growth, with very good, clear strategies of where we want to go and it's a matter of execution and having a more stable international environment.

Again, I thank you very much for your time and dedication to following the company and we look forward to meeting with you at the first quarter conference call this year. Thank you very much and good bye.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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