BAP

Credicorp Ltd. Form 6-K Summary

Business Context and Reporting Period

This Form 6-K, filed on March 5, 2018, reports the audited consolidated financial statements for Credicorp Ltd. and its subsidiaries for the fiscal year ended December 31, 2017. Credicorp is a Bermuda-based holding company operating primarily in Peru through its major subsidiary, Banco de Crédito del Perú (BCP), with significant operations in insurance (Pacífico Seguros), pension funds (Prima AFP), and investment banking across Latin America. The financial statements were approved by the Board of Directors on February 28, 2018, and are prepared in accordance with International Financial Reporting Standards (IFRS).

Key Financial Metrics (Year Ended Dec 31, 2017)

Material Changes vs. Prior Period

• Profitability Growth: Net profit attributable to equity holders increased by 16.4% to S/4,092 million, driven by higher net interest income and gains on the sale of securities.
• Asset Expansion: Total assets grew by 9.0% to S/170.5 billion, primarily due to an increase in loans (up 6.0% to S/96.0 billion net) and available-for-sale investments (up 30.7% to S/24.4 billion).
• Dividend Distribution: The company paid cash dividends of approximately S/980 million in 2017 and an interim dividend of S/1,252 million in November 2017, significantly higher than the S/653 million paid in 2016.
• Loan Loss Provisions: The provision for loan losses remained relatively stable at S/1,789 million, while the total allowance for loan losses increased to S/4,943 million to cover the growing portfolio.
• Investment Sales: Significant gains were realized from the sale of shares in Banco de Crédito e Inversiones de Chile (BCI Chile) and Enel Distribución Perú S.A.A. during the year.

Guidance, Outlook, Risks, and Unusual Items

• IFRS 9 Implementation: The Group is preparing for the mandatory adoption of IFRS 9 "Financial Instruments" effective January 1, 2018. Management estimates this will result in a reduction of retained earnings at initial application not exceeding 2.0% of net equity, primarily due to increased credit loss reserves under the new expected credit loss model.
• Key Audit Matters: Auditors highlighted the Information Technology environment, Allowance for Loan Losses, and Valuation of Mathematical Life Annuities Reserves as areas of significant focus due to the complexity and subjectivity of the estimates involved.
• Legal Contingencies (Madoff Litigation): The subsidiary Atlantic Security Bank (ASB) is involved in ongoing litigation regarding the Bernard L. Madoff Investment Securities LLC collapse. The Madoff Trustee seeks approximately US$120 million. A U.S. Bankruptcy Court previously rejected the Trustee's claims against foreign entities, but the Trustee has appealed to the Second Circuit Court of Appeals. Management believes ASB has valid defenses and intends to contest vigorously.
• Regulatory Capital: As of December 31, 2017, the Group's regulatory capital exceeded the minimum required by the Peruvian regulator (SBS) by approximately S/3,710 million.

Investor Verification Checklist

• IFRS 9 Impact: Verify the final quantified impact of IFRS 9 adoption on the Q1 2018 financial statements, specifically regarding the increase in loan loss provisions.
• Madoff Litigation Status: Monitor the progress of the appeal in the U.S. Second Circuit Court of Appeals regarding the Madoff Trustee's claims against Atlantic Security Bank.
• Loan Portfolio Quality: Review the breakdown of the loan portfolio by risk category (Normal, Potential Problems, Substandard, Doubtful, Loss) to assess the adequacy of the S/4.9 billion allowance.
• Dividend Sustainability: Assess the sustainability of the high dividend payout ratio (including the interim dividend) relative to the retained earnings and future capital requirements.
• Foreign Exchange Exposure: Evaluate the Group's net monetary position in U.S. Dollars (S/1.2 billion net long position as of Dec 31, 2017) and its sensitivity to Sol depreciation.