Credicorp - 20-F annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

¨REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE

SECURITIES EXCHANGE ACT OF 1934

OR

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

OR

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

OR

¨SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES

EXCHANGE ACT OF 1934

Date of event requiring this shell company report ______________

For the transition period from to

Commission file number 1-14014

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Securities registered or to be registered pursuant to Section 12(g) of the Act. None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.Common Shares, par value $5.00 per share 94,382,317

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 

YesxNo ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes¨No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YesxNo ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YesxNo ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 ¨Item 18x

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes¨No x

CONTENT

ABBREVIATIONS

PRESENTATION OF FINANCIAL INFORMATION

Unless otherwise specified or the context otherwise requires, references in this Form 20-F (also referred to as the Annual Report), to “$”, “US$,” “Dollars,” “foreign currency” or “U.S. Dollars” are to United States Dollars, and references to “S/.”, “Nuevo Sol” or “Nuevos Soles” are to Peruvian Nuevos Soles. Each Nuevo Sol is divided into 100 centimos (cents).

Credicorp Ltd. is a Bermuda limited liability company (and is referred to in this Annual Report as Credicorp, the Company, the Group, we, or us, and means either Credicorp as a separate entity or as an entity together with our consolidated subsidiaries, as the context may require). We maintain our financial books and records in U.S. Dollars and present our financial statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). IFRS differ in certain respects from United States Generally Accepted Accounting Principles (U.S. GAAP).

We operate primarily through our four operating segments: banking (mainly wholesale banking and retail banking), investment banking, insurance, and pension funds. See information about operating segments in “Item 4.-Information on the Company: (A) History and Development of the Company, and (B) Business Overview”.

Our five principal operating subsidiaries are: (i) Banco de Crédito del Perú (which, together with its consolidated subsidiaries, is referred to as BCP and includes wholesale and retail banking); (ii) Atlantic Security Bank, which we hold through Atlantic Security Holding Corporation (which, are referred to as ASB and ASHC, respectively); (iii) El Pacífico-Peruano Suiza Compañía de Seguros y Reaseguros (which together with its consolidated subsidiaries, is referred to as Grupo Pacífico); (iv) Prima AFP; and (v) Credicorp Capital (which eventually will consolidate the companies of our investment banking platform). As of and for the year ended December 31, 2013, BCP accounted for 86.0% of our total assets, 80.9% of our net income and 70.2% of our net equity. Unless otherwise specified, the individual financial information for BCP, ASB, Grupo Pacífico, Prima AFP and Credicorp Capital included in this Annual Report has been derived from the audited consolidated financial statements of each such entity. See “Item 3. Key Information—(A) Selected Financial Data” and “Item 4. Information on the Company—(A) History and Development of the Company.” We refer to BCP, ASB, Grupo Pacífico, Prima AFP and Credicorp Capital as our main operating subsidiaries, and we refer to Grupo Crédito and ASHC as our two main holding subsidiaries.

“Item 3. Key Information—(A) Selected Financial Data” contains key information related to our performance. This information was obtained mainly from our consolidated financial statements as of December 31, 2009, 2010, 2011, 2012 and 2013.

Our management’s criteria on foreign currency translation, for the purpose of preparing the Credicorp Consolidated Financial Statements, are described in “Item 5. Operating and Financial Review and Prospects—(A) Operating Results—(1) Critical Accounting Policies—Foreign Currency Translation.”

Some of our subsidiaries maintain their operations and balances in Nuevos Soles. As a result, this Annual Report contains certain Nuevo Sol amounts translated into U.S. Dollars which is solely for the convenience of the reader. You should not construe any of these translations as representations that the Nuevo Sol amounts actually represent such equivalent U.S. Dollar amounts or could be converted into U.S. Dollars at the rate indicated as of the dates mentioned herein, or at all. Unless otherwise indicated, these U.S. Dollar amounts have been translated from Nuevos Soles at an exchange rate of S/.2.795 = US$1.00, which is the December 31, 2013 exchange rate set by the Peruvian Superintendency of Banks, Insurance and Pension Funds (SBS by its Spanish initials). The average of the bid and offered free market exchange rates published by the SBS for April 22, 2014 was S/.2.782 per US$1.00. Translating amounts expressed in Nuevos Soles on a specified date (at the prevailing exchange rate on that date) may result in the presentation of U.S. Dollar amounts that are different from the U.S. Dollar amounts that would have been obtained by translating Nuevos Soles on another specified date (at the prevailing exchange rate on that different specified date). See also “Item 3. Key Information—(A) Selected Financial Data—Exchange Rates” for information regarding the average rates of exchange between the Nuevo Sol and the U.S. Dollar for the periods specified therein. The Federal Reserve Bank of New York does not publish a noon buying rate for Nuevos Soles. Our Bolivian subsidiary operates in Bolivianos, a currency that has been maintained stable over recent years. Our Bolivian subsidiary’s financial statements are also presented in U.S. Dollars. Our Colombian and Chilean subsidiaries, Credicorp Capital Colombia S.A. Sociedad Comisionista de Bolsa in Colombia (formerly Correval) and Inversiones IMT S.A. Corredores de Bolsa in Chile (formerly IM Trust), operate in Colombian Pesos and Chilean Pesos, respectively, and their financial statements are converted into U.S. Dollars for consolidation purposes.

CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS

Certain statements contained in this Annual Report are not historical facts, including, without limitation, certain statements made in the sections entitled “Item 3. Key Information”, “Item 4. Information on the Company”, “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk”, which are forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934 (or the Exchange Act). You can find many of these statements by looking for words such as “approximates”, “believes”, “expects”, “anticipates”, “estimates”, “intends”, “plans”, “would”, “may”, or other similar expressions. These forward-looking statements are based on our management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in the forward-looking statements. Therefore, actual results, performance or events may be materially different from those in the forward-looking statements due to, without limitation:

See “Item 3. Key Information—(D) Risk Factors” and “Item 5. Operating and Financial Review and Prospects”.

We are not under any obligation to, and we expressly disclaim any obligation to, update or alter any forward-looking statements contained in this Annual Report whether as a result of new information, future events or otherwise.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

3. A Selected Financial Data

The following table presents a summary of our consolidated financial information at the dates and for the periods indicated. This selected financial data is presented in U.S. Dollars. You should read this information in conjunction with, and qualify this information in its entirety by reference to, the Consolidated Financial Statements, which are also presented in U.S. Dollars.

The summary of our consolidated financial data as of, and for the years ended, December 31, 2009, 2010, 2011, 2012 and 2013 is derived from the Consolidated Financial Statements audited by Medina, Zaldívar, Paredes & Asociados S.C.R.L, member of Ernst & Young Global, independent registered public accountants.

The report of Medina, Zaldívar, Paredes & Asociados S.C.R.L on the Consolidated Financial Statements as of December 31, 2012 and 2013 and for the years ended December 31, 2011, 2012 and 2013 appears elsewhere in this Annual Report.

SELECTED FINANCIAL DATA

Exchange Rates

The following table sets forth the high and low month-end rates and the average and end-of-period rates for the sale of Nuevos Soles for U.S. Dollars for the periods indicated.

Source: Bloomberg

(1) Highest and lowest of the 12 month-end exchange rates for each year based on the offered rate.

(2) Average of month-end exchange rates based on the offered rate.

(3) End-of-period exchange rates based on the offered rate.

The following table sets forth the high and low rates for the sale of Nuevos Soles for U.S. Dollars for the indicated months.

Source: Bloomberg

(1) Highest and lowest of the daily closing exchange rates for each month based on the offered rate.

The average of the bid and offered free market exchange rates published by the SBS for April 22, 2014 was S/.2.782 per US$1.00.

3. B Capitalization and Indebtedness

Not applicable.

3. C Reasons for the Offer and Use of Proceeds

Not applicable.

3. D Risk Factors

Our businesses are affected by many external and other factors in the markets in which we operate. Different risk factors can impact our businesses, our ability to effectively operate and our business strategies. You should consider the risk factors carefully and read them in conjunction with all the information in this document. You should note that the risk factors described below are not the only risks to consider. Rather, these are the risks that we currently consider material. There may be additional risks that we consider immaterial or of which we are unaware, and any of these risks could have similar effects to those set forth below.

Our geographic location exposes us to risk related to Peruvian political, social and economic conditions.

Most of BCP’s, Grupo Pacífico’s and Prima AFP’s operations and customers are located in Peru. In addition, although ASB is based outside Peru, most of its customers are located in Peru. Accordingly, our results of operations and financial condition are dependent on the level of economic activity in Peru. Changes in economic or other policies of the Peruvian government, which has exercised and continues to exercise a substantial influence over many aspects of the private sector, could affect our results of operations and financial condition. Similarly, other political, economic and social developments in Peru, including government-influenced effects on inflation, currency devaluation and economic growth could affect our operations and financial condition.

For several decades, Peru had a history of political instability that has included military coups and a succession of regimes with differing policies and programs. During the last 17 years, however, Peru has experienced a period of relative political and economic stability, which has led to positive economic performance, including a GDP compounded annual growth rate of 6.3% for the last ten years (2004 to 2013). The government of Alberto Fujimori, who took office in July 1990, initiated a series of reforms aimed at: (i) stabilizing the economy, (ii) restructuring the national government (by reducing bureaucracy), (iii) privatizing state-owned companies, (iv) promoting private investment, (v) eradicating corruption and bribery in the judicial system, (vi) developing and strengthening free markets, (vii) institutionalizing democratic representation; and (viii) enacting programs designed to strengthen basic services related to education, health, housing and infrastructure. While serving his third term, President Fujimori was forced to call for general elections under extreme protest in July 2000 when corruption in his government was exposed to the public. Fujimori later resigned in favor of a transitory government. In April of 2009, following a 15-month trial in Lima, Fujimori was sentenced to 25 years in prison for violations of human rights in connection with government-linked death squads. The two administrations that followed the Fujimori administration, after the transitional government led by Valentin Paniagua (2000 - 2001), were the Toledo administration (2001 - 2006) and the García administration (2006 - 2011). Both governments followed similar economic policies, which focused on achieving sustained economic growth; increasing exports of Peruvian goods; reducing unemployment, underemployment and poverty; reforming the tax system; fostering private investment and increasing public investment in education, public health and other social programs, while reducing overall public spending.

Peru’s current president, Ollanta Humala from the Gana Perú political coalition, took office on July 28, 2011 for a five-year term through 2016, after winning a run-off election. President Humala has, since his inauguration, substantially maintained the moderate economic policies of former president Alan García, whose administration was characterized by business-friendly and open-market economic policies that sustained and fostered economic growth, while controlling the inflation rate at historically low levels. However, we cannot assure you that the current or any future administration will maintain business-friendly and open-market economic policies or policies that stimulate economic growth and social stability, in particular given President Humala’s left-leaning political history and statements made during his presidential campaigns in 2006 and 2011. Any changes in the Peruvian economy or the Peruvian government’s economic policies may have a negative effect on our business, financial condition and results of operations.

Peru also has a history of domestic terrorism and social unrest. The terrorist organizations that were particularly active in Peru during 1980s and the early 1990s were the Movimiento Revolucionario Tupac Amaru (MRTA) and the Sendero Luminoso (Shining Path). The leader of the Shining Path, Abimael Guzmán, was captured and imprisoned in 1992. In 2012, the most recent significant leader of this organization, Florindo Flores, commonly known as Artemio, was also captured. Nevertheless, terrorism, narcotrafficking and narco-terrorism remain key challenges for the Government. Remnants of the Shining Path rebel group have survived and the group is now split into two relatively independent factions; one in Peru’s Upper Huallaga Valley and one in the Apurimac and Ene River Valley (VRAE). These regions constitute the largest areas of coca cultivation and the main centers of “narco-terrorism” in Peru. Any resumption in terrorist activity by the MRTA, the Shining Path or other organizations may adversely affect our operations and financial condition.

In recent years, Peru has experienced social unrest in geographic areas that contribute to the country’s mining industry. Mining is an important sector of the Peruvian economy, representing approximately 55.1% of the country’s exports and 18% of its tax revenues; according to the Banco Central de Reserva del Perú (BCRP) or the Peruvian Central Bank. However, while recent governments have concentrated on increasing the revenues and profitability of the mining industry, there has been less focus on improving the social and economic conditions of local communities affected by the industry, which has increased political tension. The most recent manifestation of this tension can be seen in social conflict around Conga, a gold-copper project located in northern Peru. The project, which included investments of approximately US$4.5 billion, initially failed to launch because of social protests led by residents concerned about its potential impact on the local water supply. In December 2011, the Peruvian government declared a state of emergency in the area, which lasted for approximately 10 days, and afterwards requested a new environmental impact study from independent consultants. The results of the study were delivered on April 16, 2012, and the Peruvian government has established a series of new conditions to improve the project that the mining company would be required to accept to continue with the project. Nevertheless, even without this project, copper production in Peru could double between 2012 and 2017. Another copper mine project, Toromocho, began in the fourth quarter of 2013. Three other projects in Cerro Verde, Constancia, and Las Bambas are expected to begin operations within four years. Although copper prices have declined recently, the cost of these projects is expected to be below the median costs for mining projects in copper industry, so the planned mining projects may continue development despite the decline in prices. A possible cancellation of any major projects may have an impact on foreign investment decision and plans, which in turn could negatively affect Peru’s GDP and the growth of the Peruvian financial system.

Foreign exchange fluctuations and exchange controls may adversely affect our financial condition and results of operations.

Even though the functional currency of our financial statements was U.S. Dollars until December 31, 2013 and is the Nuevo Sol from January 1, 2014 onwards, Credicorp’s subsidiaries generate revenues in Nuevos Soles, U.S. Dollars, Bolivian Pesos, Colombian Pesos, and Chilean Pesos. The aforementioned exposed us to the fluctuation of Credicorp’s functional currency against the other currencies, which could have an impact on our results. For information on the change in the functional currency of Credicorp, see Item 5A. Operating Results - Change in Functional Currency for Financial Reporting.

The Peruvian government does not impose restrictions on a company’s ability to transfer Nuevos Soles, U.S. Dollars or other currencies from Peru to other countries, to convert Peruvian currency into other currencies. Nevertheless, Peru has implemented restrictive exchange controls in its history, and the Peruvian government might in the future consider it necessary to implement restrictions on such transfers, payments or conversions. See “Item 10. Additional Information—(D) Exchange Controls.”

Peru’s foreign reserves currently compare favorably with those of many other Latin American countries. However, a reduction in the level of foreign reserves will impact the country’s ability to meet its foreign currency-denominated obligations. A decline in Peruvian foreign reserves to inadequate levels, among other economic circumstances, could lead to currency devaluation or a volatility of short-term capital inflows. We have taken steps to manage the gap between our foreign currency-denominated assets and liabilities in several ways, including closely matching their volumes and maturities. Nevertheless, a sudden and significant devaluation of the Nuevo Sol could have a material adverse effect on our financial condition and results of operations. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Foreign Exchange Risk.”

Finally, BCP Bolivia, Credicorp Capital Colombia and IMTrust are also exposed to foreign exchange fluctuations. Any exchange controls that could be implemented in their countries may adversely affect their financial condition and results of operations. For information on the macroeconomic scenario in these countries, see the risk factor “Our banking and capital market operations in neighboring countries expose us to risk related to political and economic conditions”.

It may be difficult to serve process on or enforce judgments against us or our principals residing outside of the United States.

A significant majority of our directors and officers live outside the United States (principally in Peru). All or most of our assets and those of our principals are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon us or our principals to bring forth a civil suit under the United States securities laws in United States courts. We have been advised by our Peruvian counsel that liability under the United States federal securities laws may not be enforceable in original actions in Peruvian courts. Also, judgments of United States courts obtained in actions under the United States federal securities laws may not be enforceable. Similarly, Bermudan counsel advised us that courts in Bermuda may not enforce judgments obtained in other jurisdictions, or entertain actions in Bermuda, against us or our directors or officers under the securities laws of those jurisdictions.

In addition, our bye-laws contain a broad waiver by shareholders of any claim or right of action, both individually and on our behalf, against any of our officers or directors. This waiver limits the rights of shareholders to assert claims against our officers and directors for any action taken by an officer or director. It also limits the rights of shareholders to assert claims against officers for the failure of an officer or director to take any action in the performance of his or her duties, except with respect to any matter involving any willful negligence, willful default, fraud or dishonesty on the part of the officer or director.

Our ability to pay dividends to shareholders and to pay corporate expenses may be adversely affected by the ability of our subsidiaries to pay dividends to us.

As a holding company, our ability to make dividend payments, if any, and to pay corporate expenses will depend upon the receipt of dividends and other distributions from our operating subsidiaries. Our principal operating subsidiaries are BCP, Grupo Pacífico, ASB, Prima AFP and Credicorp Capital. If our subsidiaries do not have funds available, or are otherwise restricted from paying us dividends, we may be limited in our ability to pay dividends to shareholders. Currently, there are no restrictions on the ability of BCP, ASB, Grupo Pacífico, Prima AFP or Credicorp Capital to pay dividends abroad. In addition, our right to participate in the distribution of assets of any subsidiary, upon any subsidiary’s liquidation or reorganization (and thus the ability of holders of our securities to benefit indirectly from such distribution), is subject to the prior claims of creditors of that subsidiary, except where we are considered an unsubordinated creditor of the subsidiary. Accordingly, our securities will effectively be subordinated to all existing and future liabilities of our subsidiaries, and holders of our securities should look only to our assets for payments.

In addition, the value of any dividend paid by our operating subsidiaries that declare dividends in a currency different from Credicorp’s dividends (e.g. ASB, Banco de Crédito Bolivia, IM Trust, Credicorp Capital Colombia) is exposed to the impact of the depreciation of its dividend’s currency against Credicorp’s functional currency. This would have a negative impact on our ability to pay dividends to shareholders.

Changes to banking regulations may adversely affect our operating performance and financial condition.

Because we are subject to regulation and supervision in Peru, Bolivia, Colombia, Chile, the Cayman Islands, the United States of America, and Panama, changes to the regulatory framework in any of these countries or changes in tax laws could adversely affect our business.

We are mainly subject to extensive supervision and regulation through the SBS’s Banking and Insurance System Law (Ley General del Sistema Financiero y del Sistema de Seguros) and the Regulation of the Consolidated Supervision of Financial and Mixed Conglomerates (Reglamento para la Supervisión Consolidada de los Conglomerados Financieros y Mixtos).

The SBS and the Peruvian Central Bank, supervise and regulate BCP’s operations. Peru’s constitution and the SBS’s statutory charter grant the SBS the authority to oversee and control banks and other financial institutions including pension funds and insurance companies. The SBS and the Peruvian Central Bank have general administrative responsibilities over BCP, including designation of capitalization and reserve requirements. In past years, the Peruvian Central Bank has, on numerous occasions, changed the deposit reserve requirements applicable to Peruvian commercial banks as well as the rate of interest paid on deposit reserves and the amount of deposit reserves on which no interest is payable by the Peruvian Central Bank . Such changes in the supervision and regulation of BCP may adversely affect our results of operations and financial condition. See “Item 4. Information on the Company—(B) Business Overview—(12) Supervision and Regulation—(ii) BCP”. Furthermore, changes in regulation related to consumer protection may also affect our business.

Furthermore, the Superintendency of the Securities Market (Superintendencia del Mercado de Valores or SMV by its Spanish initials) also supervises some of our subsidiaries such as BCP, Credicorp Capital Bolsa and Credicorp Capital Fondos.

In Colombia, we are subject to supervision and regulation through the Superintendencia Financiera de Colombia and the Autorregulador del Mercado de Valores de Colombia. In Chile, we are subject to supervision and regulation through the Superintendencia de Valores y Seguros. See “Item 4. Information on the Company—(B) Business Overview—(12) Supervision and Regulation—(v) Investment Banking”.

We are also regulated by the United States Federal Reserve System, which shares its regulatory responsibility with the State of Florida Department of Banking and Finance - Office of Financial Regulation, with respect to BCP’s Miami agency, and by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority, Inc. (FINRA), with respect to Credicorp Capital Securities, a U.S. broker dealer.

Similarly, we are regulated by other governmental entities in other jurisdictions. In the Cayman Islands, we are subject to the supervision and regulation of the Cayman Islands Monetary Authority, or CIMA. In Bolivia, we are subject to the supervision of the Financial System Supervisory Authority (FSSA) that has assumed all regulatory functions held previously by the Superintendency of Banks and Financial Entities and the Superintendency of Pensions, Securities and Insurance.

Finally, in Panama, we are subject to the supervision of the Superintendency of Banks of Panama and the regulatory framework set forth in the Decree Law 9 of February 25, 1998. Changes in the supervision and regulation of our subsidiaries in other countries may adversely affect our results of operations and financial condition.

In mid-2011, politicians outside of Peru's governing coalition introduced a bill in Congress that, if enacted, would set a cap on interest rates charged by the country's financial institutions. However, the SBS recently indicated that such a cap should only be used as a last resort for lowering rates if the SBS does not succeed in getting Peru’s banks to voluntarily reduce interest rates in the next two to four years, the period in which several foreign banks are likely to establish or expand operations in Peru. Congress may nevertheless impose a cap, and an interest rate ceiling may adversely affect our Net Interest Margin (NIM) and consequently our operating performance.

On February 15, 2011, the Peruvian government enacted Law 29663. On July 21, 2011 Law 29663 was amended by Law 29757. This new law partially modifies the country’s income tax regime by subjecting to taxation in Peru capital gains derived from an indirect transfer of shares and expanding the type of income that will qualify as Peruvian-source income. Under the new law, any transfer of shares issued by a non-resident entity will be subject to taxation in Peru (30% or 5%) if at any point during the 12 prior months to such transfer:

At the same time, the following two new obligations were imposed on Peruvian domiciled companies, which have economic relationship with the non-Peruvian seller:

Supreme Decree N° 275-2013-EF enacted by the Peruvian Government on November 7, 2013, defined the concept of economic relationship for purposes of the indirect transfer of Peruvian shares. A Peruvian domiciled company is considered to be economically related to the non-Peruvian domiciled transferor, if, anytime during the 12-month period prior the transfer occurs, one of the following circumstances occur:

A deterioration in the quality of our loan portfolio may adversely affect our results of operations.

Given that a significant percentage of our income is related to lending activities, a significant deterioration of loan quality would have a material adverse effect on our business, financial condition and results of operations. We are subject to concentration default risks in our loan portfolio. Problems with one or more of our largest borrowers may adversely affect our financial condition and results of operations. While loan portfolio risk associated with lending to certain economic sectors or clients in certain market segments can be mitigated through adequate diversification, our pursuit of opportunities in which we can charge higher interest rates, and thereby increasing revenue, may reduce diversification of our loan portfolio and expose us to greater credit risk.

In addition, loan concentrations in commercial sectors are particularly salient in Peru and significant deteriorations in such sectors may have a material adverse effect on our business, financial condition and results of operations. Our current strategy includes increasing our exposure to market segments with heightened credit risk, including middle-market and consumer segments, such as unsecured small companies and consumer loans and consumer mortgages, which have higher risk profiles as compared to loans to large corporate customers. We follow this by using conservative credit assessments, risk-adjusted pricing methodologies and strong capital support. Given the changing composition of our loan portfolio and possible adverse changes in the environment in which we operate, our future results may differ significantly from our past results.

Our banking and capital market operations in neighboring countries expose us to risk related to political and economic conditions.

Most of the operations and customers of Banco de Crédito de Bolivia, BCP´s commercial bank in Bolivia, are located in that country. Accordingly, our results of operations and financial condition depend on Bolivia´s economic activity and political environment. Bolivia´s macroeconomic indicators have been generally positive over the last several years, including steady growth rates, positive fiscal balances, and increasing international reserves. Inflation for 2013 was 6.5%, above the Central Bank´s target of 4.8%, mainly due to higher food prices and high levels of liquidity in the economy. However, Bolivia continues to lag other countries in the region in terms of foreign direct investment (FDI) despite an increase in FDI in 2013. The political environment in Bolivia also continues to be unstable, as does its regulatory and legal framework. During 2014 we expect an increase in Bolivia’s consumer price index as result of increased government spending in connection with the presidential elections being held in October 2014. Also, the Bolivian government enacted new banking laws in August 2013, the full effect of which will start to be seen in 2014. The new banking laws, which include interest rate regulation and minimum lending requirements to specific economic sectors, could lead to instability in Bolivia’s financial system and adversely affect our results of operations.

Credicorp Capital Colombia and IMTrust expose us to risk related to Colombian and Chilean political and economic conditions, respectively.

Colombia’s macroeconomic indicators have been generally positive over the last several years. However, a decline in Colombian mineral exports has contributed to a deterioration of Colombia’s trade balance. In addition, Colombia recently has enacted deficit reduction measures, and the Colombian Central Bank has focused on strengthening its international reserves as a hedge against external economic pressures. Additionally, Colombia holds national elections in 2014, which may result in new regulations, taxes and spending priorities. Any adverse economic consequences arising from changes to Colombian policies or a decline in Colombian exports or production may have a material adverse effect on our revenue and results of operations.

In Chile, tax reforms supported by Chile’s President have been proposed to Congress. If enacted, the proposed reforms would increase tax revenue by 3.0% of GDP, which mostly will be used to finance higher government permanent spending (including the educational reform). The reforms include a proposed increase in corporate taxes from 20% to 25%, the elimination of Chile’s Fondo de Utilidad Tributaria (FUT by its Spanish initials, which is a tax incentive to reinvest corporate profits) and a reduction in personal income taxes. Any increases in taxes Chile imposes on IM Trust and any would adversely affect our results of operations.

Changes to insurance regulations in Peru may impact the ability of our insurance subsidiary to underwrite and price risk effectively, and may adversely affect our operating performance and financial condition.

Our insurance business is carried out by Pacífico Seguros and Pacífico Vida which together with Pacífico Salud are part of Grupo Pacífico. The insurance business is subject to regulation by the SBS. New legislation or regulations may adversely affect Grupo Pacífico’s ability to underwrite and price risks accurately, which in turn would affect underwriting results and business profitability. Grupo Pacífico is unable to predict whether and to what extent new laws and regulations that would affect its business will be adopted in the future. Grupo Pacífico is also unable to predict the timing of any such adoption and the effects any new laws or regulations would have on its operations, profitability and financial condition. However, we can expect new legislation in the spirit of Solvency II in the years to come.

The Group also assumes reinsurance risk in the normal course of business for non-life and life insurance contracts when applicable. Premiums and claims on assumed reinsurance are recognized as revenue or expenses in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business.

Our operating performance and financial condition depend on Grupo Pacífico’s ability to underwrite and set premium rates accurately across a full spectrum of risks. Grupo Pacífico must generate sufficient premiums to offset losses, loss adjustment expenses and underwriting expenses in order to be profitable.

To price premium rates accurately, Grupo Pacífico must:

If Grupo Pacífico fails to assess accurately the risks that it assumes or does not accurately estimate its retention, it may fail to establish adequate premium rates. Failure to establish adequate premium rates could reduce income and have a materially adverse effect on its operating results or financial condition. Moreover, there is inherent uncertainty in the process of establishing property and casualty loss reserves. Reserves are estimates based on actuarial and statistical projections at a given point in time of what Grupo Pacífico ultimately expects to pay out on claims and the cost of adjusting those claims, based on the facts and circumstances then known. Factors affecting these projections include, among others, changes in medical costs, repair costs and regulation. Any negative effect on Grupo Pacífico could have a material adverse effect on our results of operations and financial condition.

Our trading activities expose us to volatility in market prices, declines in market liquidity or fluctuations inforeign currency exchange rates, which may result in losses that could have a material adverse effect on our business, financial condition and results of operations.

As part of our treasury operations, we may suffer losses related to the investments by BCP, ASB, Grupo Pacífico and Credicorp Capital, which trade various financial instruments and other assets, including debt, equity, fixed income, currency and related derivatives as both agent and principal, and we derive a portion of our non-financial income from trading revenues. Our Market Risk and Asset & Liability Management Policies set position limits for Nuevo Sol- and foreign currency-denominated securities. However, we are exposed to numerous factors that are beyond our control, including overall market trading activity, interest rate levels, the credit risk of our counterparties and general market volatility. In addition, a significant portion of our trading activity is related to customer transactions and we may still be exposed to a number of risks related to the movement of market prices in the underlying instruments, including the risk of unfavorable market price movements relative to our long or short positions, a decline in the market liquidity of the related instruments, volatility in market prices, interest rates or foreign currency exchange rates relating to these positions and the risk that the instruments with which we hedge certain positions do not track the market value of those positions. If we incur any losses from these exposures, it would reduce our trading activity revenues or cause us to suffer losses from trading activities, either of which could have a material adverse effect on our business, financial condition and results of operations.

Natural disasters in Peru could disrupt our businesses and affect our results of operations and financial conditions

We are exposed to natural disasters in Peru, such as earthquakes and mudslides. Earthquakes in Peru are common occurrences as the country is located in a seismic zone: the interface between the Nazca and South American tectonic plates. Peru has been adversely affected by earthquakes in the past, including an 7.9 magnitude earthquake that struck the central coast of Peru in 2007.

A natural disaster of this nature or any other type of disaster could impair our operational capacity, our business continuity plans include emergency response, disaster recovery, operations continuity, crisis management, data protection and recovery, and critical systems redundancy. Although we test our business continuity plans annually; these plans may prove to be ineffective which could have a material adverse effect on our ability to carry out our businesses, especially if incidence disaster affects computer-based data systems or destroys customer or other data. In addition, if a significant number of our employees were affected by the natural disaster, our ability to conduct business could be impaired.

Our subsidiary Grupo Pacífico is further exposed to risks associated with natural disasters in Peru as an insurance business. To protect Grupo Pacífico’s solvency and liquidity, our insurance business historically has obtained reinsurance for a substantial portion of its earthquake-related risks through automatic excess loss treaties; however, there can be no assurance that a major catastrophe would not have a material adverse impact on our results of operations or financial condition or that our reinsurance policies will be an effective hedge against our exposure to risks resulting from natural disasters. Our current maximum catastrophic exposure, net of reinsurance is US$2 million dollars.

Regulatory changes to the private pension fund and banking system in Peru could impact our earnings and adversely affect our operating performance.

Prima AFP manages our Pension Fund Administration business. In Peru, private pension fund managers are closely regulated by the SBS. In 2012, the Peruvian Government adopted the Law to Reform the Private Pension System (SPP by its Spanish initials), looking for increased competition and efficiency and reducing administration costs. The law sets forth a new process by which individuals, which are called affiliates, may become beneficiaries affiliated with the SPP. Under the new law, auctions are held every 24 month to determine which company will have the exclusive right to manage the accounts of new SPP affiliates for a two year period and to conduct marketing campaigns for new SPP affiliates.

In December 2012, there was held the first tender to determine who would manage the accounts of new affiliates for a two year period. A new participant in the SPP won the tender, and started operations on June 1, 2013. Prior to the tender of affiliates, all four companies had the ability to conduct marketing campaigns and were able enroll new affiliates. In the second half of 2013, there was a decrease in the level of new accounts in the SPP, and an increase in accounts of the Public Pension System (ONP by its Spanish initials). Although this fact does not impact the results of the company, it may impact the long term growth and coverage of the SPP.

The Law to Reform the Private Pension System will be implemented in phases. See “Item 4. Information on the Company—(B) Business Overview—(12) Supervision and Regulation—(vii) Prima AFP”.

Recent legislation regarding the financial services industry may subject us to significant and extensive regulation, which may have an impact on our operations.

Government measures to regulate the financial industry, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) and the Foreign Account Tax Compliance Act (FATCA) of the United States are likely to increase our regulatory compliance burden and related costs. These and other regulatory developments are likely to impact Credicorp, and may require us to change certain aspects of our business practices and impose additional costs on us, ultimately having an impact on our operations. With respect to FATCA and Dodd Frank, Credicorp has hired outside consultants to help determine the impact that the implementation of these two laws will have on our institution. Based on our analysis to date, we do not expect the implementation of FATCA to have a material impact on our business given our limited number of U.S. accountholders. Also, we do not expect that the implementation of the Dodd-Frank Act, including the Volcker Rule and regulations related to swap transactions, will materially impact our business or cause us to incur material costs. However, until final implementations of the regulations under these new laws are issued, we cannot assure you of the extent of the impact these new laws will have on Credicorp.

We operate in a competitive banking environment that may limit our potential to grow, particularly in the medium term as more foreign banks establish or expand operations in Peru.

BCP has experienced increased competition, including increased pressure on margins. This is primarily a result of the presence of the following:

Larger Peruvian companies have gained access to new sources of capital through the local and international capital markets, and BCP’s existing and new competitors have increasingly made inroads into the higher margin, middle market and retail banking sectors. Such increased competition, with entrants who may have greater access to capital at lower costs, has affected BCP’s loan growth as well as reduced the average interest rates that BCP can charge its customers.

Competitors may also dedicate greater resources to, and be more successful in, the development of technologically advanced products and services that may compete directly with BCP’s products and services. Such competition would adversely affect the acceptance of BCP’s products and/or lead to adverse changes in the spending and saving habits of BCP’s customer base. If competing entities are successful in developing products and services that are more effective or less costly than the products and services developed by BCP, BCP’s products and services may be unable to compete successfully. BCP may not be able to maintain its market share if it is not able to match its competitors’ loan pricing or keep pace with their development of new products and services. Even if BCP’s products and services prove to be more effective than those developed by other entities, such other entities may be more successful in marketing their products and services than BCP because of their greater financial resources, higher sales and marketing capacity or other similar factors.

As a result of strong Peru’s economic growth, which has outpaced growth by nearby countries, several banks have sought and obtained authorization to open representative offices in Peru. Itaú Unibanco, Banco Latinoamericano de Comercio Exterior (Bladex), Morgan Stanley Bank, Bank of Tokyo and the Industrial and Commercial Bank of China are among those banks receiving authorization. With the increased competition, more individuals will have access to credit, and the percentage of the population using baking services will likely climb. This will eventually put downward pressure on interest rates. Any negative impact on BCP could have a materially adverse effect on our results of operations and financial condition.

Economic and market conditions in other countries may affect the Peruvian economy and the market price of Peruvian securities.

Economic conditions in other countries may impact Peru’s GDP growth. Peru’s exports are highly concentrated in the oil and mining industry. This industry represents almost 20% of Peru’s total income tax revenues, and gold and copper alone constitute around 42.2% of Peru’s total exports. Therefore, an economic downturn in Peru’s major importers of mining goods may adversely affect Peru’s economic growth.

According to our estimates, nearly one fifth of the expected growth in Peru’s economy over the next year depends on economic conditions in China, which generates considerable demand for basic metals mined in Peru. An economic slowdown in China over the next several years may adversely affect the growth of the Peruvian economy as a result of lower exports, lower levels of foreign investment and lower tax revenues. The aforementioned could affect the growth of our business as these reflect on Peruvian economy.

A failure in, or breach of, our operational or security systems could temporarily interrupt our businesses, increasing our costs and causing losses.

The Corporate Information Security Program Framework of Credicorp is based on the ISO 27001 international security standard and the code of practice ISO 27002.

Through this framework we have defined and implemented governance with specific roles on risk and control assessment, monitor and awareness programs, security initiatives, ensuring business objectives, corporative alignment and compliance to regulatory requirements of banking, credit card, insurance and pension funds industry in Peru, Bolivia, Chile, Colombia, Panama, Cayman Island and the United States of America.

Although we have a strong IT infrastructure and high-skilled professionals managing IT operations, our risk exposure could be significant; we are still vulnerable to failure of our operational systems. This could temporarily interrupt our business, increasing our costs and causing losses. Temporary interruptions or failures in hardware and software that support our business and customer’s transactions could result mainly in regulatory fines, penalties, and reputational loss.

Credicorp have not experienced any material losses related to cyber attacks or operational stability. Credicorp is continuously working and investing resources in maintaining and updating control processes in order to prepare and adapt frequent change in new technologies, the use of the Internet and telecommunications technologies to conduct financial transactions and also the increased sophistication and activities of organized crime, hackers and other external parties than can impact confidentiality, integrity, availability and privacy on transmission and storage of critical information.

Acquisitions and strategic partnerships may not perform as expected, which could have an adverse effect on our business, financial condition and results of operation.

Acquisitions and strategic partnerships, as those made in our investment banking and insurance businesses may not perform as expected since our assessment could be based on assumptions with respect to operations, profitability and other matters that may subsequently prove to be incorrect. Future acquisitions, investments and alliances may not produce the anticipated synergies or perform in accordance with our expectations, which could have an adverse effect on our business, financial condition and results of operation.

ITEM 4. INFORMATION ON THE COMPANY

4. A History and Development of the Company

We are a limited liability company that was incorporated in Bermuda on October 20, 1995 to act as a holding company, coordinate the policy and administration of our subsidiaries, and engage in investing activities. Our principal activity is to coordinate and manage the business plans of our subsidiaries in an effort to implement universal banking services and develop our insurance business, focusing on Peru, Bolivia, Colombia and Chile along with limited investments in other countries of the region. Our registered address is Clarendon House, 2 Church Street, Bermuda. The management and administrative office (i.e., principal place of business) in Peru of our subsidiary, Banco de Crédito del Perú, is located at Calle Centenario 156, La Molina, Lima 12, Peru, and the phone number is 51-1-313-2000.

As of December 31, 2013, our total assets were US$40.8 billion and our net equity was US$4.4 billion. Our net income attributable to our equity holders in 2011, 2012 and 2013 was US$709.3 million, US$788.8 million and US$567.1 million, respectively. See “Item 3. Key Information—(A) Selected Financial Data” and “Item 5. Operating and Financial Review and Prospects”.

We were formed in 1995 for the purpose of acquiring, through an exchange offer, the common shares of BCP, ASHC and Grupo Pacífico. We currently hold 97.7% of BCP, 98.5% of Grupo Pacífico and 100% of ASHC. See “Item 4. Information on the Company—(C) Organizational Structure”.

In February 2005, we were authorized by Peruvian regulatory authorities to establish Prima AFP, of which Grupo Crédito is the main shareholder. Prima AFP started operations in August 2005.

In August 2006, Prima AFP acquired Unión Vida AFP, which was a pension fund operating in the Peruvian market. Prima AFP’s acquisition of Unión Vida AFP, which was formerly held by Grupo Santander Perú S.A., was a strategic move toward consolidation as part of its efforts to gain a leading position in the pension fund market. As of the date of the acquisition, Prima AFP was the second largest pension fund company in terms of market share terms (defined as the amount of affiliates and assets under corporate management). The merger between Prima AFP and Unión Vida AFP was settled in December 2006.

In October 2009, BCP acquired from the Cooperative for Assistance and Relief Everywhere Inc. (CARE) – Perú, all the shares that this entity owned of Empresa Financiera Edyficar S.A. (Edyficar), representing 77.12% of Edyficar’s capital stock. In accordance with Peruvian legal requirements in effect at the time, BCP made a public offering to Edyficar’s minority shareholders to acquire the remaining 22.67% of the company’s stock. The total purchase price for the acquisition was US$96.1 million, including related direct acquisition costs. As of December 31, 2013 BCP owned 99.79% of Edyficar.

In October 2010, the Credicorp group acquired American Life Insurance Company (ALICO)’s 20.1% and 38% stakes in Pacífico Seguros and Pacífico Vida, respectively. Pacífico Vida’s shares were acquired through Credicorp Ltd. and its subsidiary, Grupo Crédito, acquired Pacífico Seguros´s shares. Consequently, at the conclusion of this transaction, Credicorp and its subsidiary Grupo Crédito held 97.68% of Pacífico Seguros, and jointly controlled 100% of Pacífico Vida. The total investment amounted to approximately US$174 million, making it the largest transaction ever completed in the Peruvian insurance market. We expect the acquisition to permit the Credicorp group to realize synergies in its decision making process and through the integration of all its insurance business lines. The closer proximity between companies will also allow Grupo Pacífico to improve its value proposition to customers, who seek integral insurance solutions. On April 28, 2011, Credicorp transferred its 24% stake in Pacífico Vida to Pacífico Seguros. As a result of that transfer, Pacífico Seguros now directly owns 86% of the shares of Pacífico Vida, and Credicorp owns the remaining 14%. This transfer did not affect Credicorp’s consolidated financial statements.

In November 2010, Credicorp’s Board of Directors approved the transfer of 84.9% of BCP’s total shares to Grupo Crédito S.A. (its Peruvian wholly owned subsidiary) through a capital contribution, in order to facilitate Credicorp’s future investments in Peru without modifying the controlling structure of BCP. Under the new structure, Credicorp directly holds 12.7% of BCP’s total shares and, in conjunction with its subsidiary Grupo Crédito, continues to control the same 97.7% of such shares without modifying the internal governance structure. Before this change in ownership structure, dividends to Credicorp from its Peruvian subsidiaries, such as BCP, were remitted abroad and had to be remitted back to Peru when capital for new investments in the country were required. With the new structure, Grupo Crédito, which acts as the local holding company for some of Credicorp’s investments in Peru (Prima AFP, Grupo Pacífico and others), will manage Credicorp’s future Peruvian investments, and directly transfer the dividends to Credicorp when it is required to do so under Credicorp’s dividend policy. This modified organizational structure will not affect the way Credicorp and BCP manage their day-to-day operations, and Credicorp’s dividend policy has not changed as a result of this transaction.

In the second half of 2011, Pacífico Salud invested approximately US$82.7 million to create its own private medical services network in Peru by acquiring majority shares to directly manage: (i) the El Golf, San Borja and Oncocare clinics in Lima, (ii) the Galeno clinic in Arequipa, (iii) Laboratorios ML, a clinical laboratory, and (iv) Doctor+, which is a house call/ambulance service. In 2012, Pacífico Salud invested US$38.6 million to increase its integrated insurance and health providing services by acquiring: (i) Clínica Belén S.A., (ii) Centro Odontológico Americano, (iii) Prosemedic S.A., (iv) Clínica Sánchez Ferrer S.A. and Inversiones Marsfe S.R.L., and (v) Bio Pap Service S.A.C. We believe that these acquisitions enable Pacífico Salud to directly benefit from this sector’s growth and to strategically defend against potential changes in the healthcare service supply chain, where vertical integration in the insurance business is becoming more frequent.

During 2012, Credicorp, as part of the strategic plan, initiated the creation of a regional investment banking platform. On April 27, 2012, Credicorp, through its subsidiary BCP, acquired a 51% stake in Credicorp Capital Colombia (formerly Correval S.A. Sociedad Comisionista de Bolsa), a brokerage entity established in Bogota, Colombia, for approximately US$72.3 million. In June 2013, BCP transferred its shares to Credicorp Capital Ltd., without affecting Credicorp’s consolidated financial statements and without recording any gain or loss. On July 31, 2012, Credicorp, through its subsidiary BCP, acquired 60.6% of IM Trust S.A. (IM Trust, Corredores de Bolsa), an investment banking entity established in Santiago, Chile, for approximately US$131.5 million, of which US$110.9 million was paid in cash consideration at the acquisitions date and US$20.6 million was paid in cash in July 2013. In November 2012, BCP transferred its shares to Credicorp Capital Ltd., without affecting Credicorp’s consolidated financial statements and without recording any gain or loss. For the investment banking operations in Peru, we created Credicorp Capital Perú S.A.A. (formerly BCP Capital), a company incorporated in Peru that was established in April 2012 through the split of an equity block of BCP. This split resulted in a reduction of BCP’s assets, liabilities and net equity in an amount of US$71.2 million, US$18.0 million and US$53.2 million, respectively. Assets transferred included Credicorp Capital Bolsa, Credicorp Capital Titulizadora, Credicorp Capital Fondos and BCP’s investment banking activities. The equity block split had no effect in Credicorp’s consolidated financial statements; no gains or losses arose from it.

In 2012, we established Credicorp Capital Ltd. in Bermuda to hold the Group’s investment banking activities in Chile, Colombia and Peru. As of December 31, 2013, Credicorp Capital held directly and indirectly 60.6% of IM Trust and 51.0% of Credicorp Capital Colombia. As of December 31, 2013, IM Trust’s assets, liabilities, equity and net income amounted to US$165.8 million, US$121.4 million, US$44.4 million and US$4.8 million, respectively (US$311.8 million, US$259.5 million, US$52.3 million and US$17.1 million, respectively, as of December 31, 2012); and Credicorp Capital Colombia’s assets, liabilities, equity and net income amounted to US$392.6 million, US$343.2 million, US$49.4 million and US$7.4 million, respectively (US$1,164.9 million, US$1,119.1 million, US$45.8 million and US$3.4 million, respectively, as of December 31, 2012).

At Credicorp’s shareholder meeting held on September 11, 2013, the Company agreed to increase Credicorp Capital Ltd’s share capital in the Company by US$3.9 million in exchange for 100% of the share value of Credicorp Capital Securities Inc., which Credicorp Ltd. controls. Credicorp Capital Securities Inc. is incorporated in the United States of America and provides securities brokerage services, mainly to retail customers in Latin America.

On March 20, 2014, Credicorp, through its subsidiary Empresa Financiera Edyficar S.A., acquired 60.68% stake of Mibanco, Banco de la Microempresa S.A., a local bank that specialized in the micro and small entities sector, for approximately S/. 504.8 million or US$179.5 million, in cash. On April 8, 2014, Grupo Crédito S.A. and Empresa Financiera Edyficar S.A., subsidiaries of Credicorp Ltd., acquired from the International Finance Corporation (IFC) and additional 6.5% of stake in Mibanco (5% Grupo Crédito S.A. and 1.5% Empresa FInanciera Edyficar S.A.). Furthermore, according to the Capital Markets Law, Credicorp’s subsidiaries will proceed to make a Public Tender Offer (Oferta Pública de Adquisición or OPA for its Spanish initials) to minority shareholders of Mibanco within the tenure and procedures stipulated in the Law. As of December 31, 2013, Mibanco’s assets, liabilities, equity and net income, published by SBS (audited) and prepared in accordance with accounting principles prescribed by the SBS for Peruvian financial entities, amounted to US$2,135.7 million, US$1,900.8 million, US$234.9 million and US$12.6 million, respectively.

4. B Business Overview

(1) Introduction – Review of 2013

1.1 General

We are the largest financial services holding company in Peru. For management purposes, the Group is organized into four operating segments based on our products and services. According to IFRS, an operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses; whose operating results are regularly reviewed by the entity’s chief who makes decisions about resources allocated for the segment and assesses its performance; and for which discrete financial information is available. We conduct our financial services business through our operating segments as follows:

The following table provides certain financial information about our principal business segments as of and for the year ended December 31, 2013 (See Note 28 to the Consolidated Financial Statements):

* Operating income includes the net interest income from banking activities; and in the case of Insurance, the amount of the net earned premiums, less insurance claims plus net interest income.

We conduct our wholesale banking, treasury, retail banking and wealth management activities primarily through BCP, the largest (in terms of total assets, loans, deposits, net equity and net income) full-service Peruvian commercial bank, and our ASB private banking and asset management firm. We conduct our pension fund business through Prima AFP (the second largest Peruvian pension fund in terms of funds under management, collections and monthly insurable remuneration (or RAM by its Spanish initials) and our insurance activities through Grupo Pacífico, which is the second largest Peruvian insurance company in terms of premiums, fees and net income. We conduct our investment banking business primarily through Credicorp Capital S.A.A. in Peru, Credicorp Capital Colombia S.A. in Colombia, and Inversiones IMT S.A. in Chile. It should be noted that the term “Peruvian commercial bank,” “Peruvian insurance company” and other similar terms used in this Annual Report do not include the assets, results or operations of any foreign parent company or foreign subsidiary of such Peruvian company.

In 2013, we recorded net income after minority interest of US$567.1 million (US$788.8 million in 2012 and US$709.3 million in 2011). The 2013 result reflected a decrease of 28.1% in our net income in comparison to 2012’s result, primarily as a consequence of the impact of the devaluation of local currency against the U.S. Dollar, losses due to market issues, and one-off expenses. These factors were equivalent to approximately US$203.2 million of losses that reduced our net income:

Our total assets amounted to US$30.7 billion in 2011, US$40.8 billion in 2012 and US$40.8 billion in 2013. The 0.1% increase in total assets in 2013 was primarily a result of the continued growth of our loan portfolio, which grew by 7.2% in 2013 (compared to a growth of 23.1% in 2012 and 21.3% in 2011), partially offsetting the 17.8% decrease in Investments available-for-sale (compared to a growth of 21.4% in 2012 and 57.0% in 2011). Our past-due loan ratio (which includes loans under legal collection) was 2.25% at the end of 2013 (compared to a ratio of 1.75% at the end of 2012 and 1.50% at the end of 2011). We had a coverage ratio (i.e., reserves for loans as a percentage of past-due loans) of 157.5% (compared to a ratio of 187.7% at the end of 2012 and 200.6% at the end of 2011), and our return on average net equity (ROAE) reached 13.1% in 2013 (compared to 20.6% in 2012 and 22.6% in 2011).

1.2 Banking segment

BCP

BCP’s year-end 2013 net income totaled US$464.3million, which resulted in a contribution to Credicorp of US$463.5 million. This earnings contribution was 30.2% lower than the 2012 contribution (US$663.7 million) and lower than the 2011 contribution of US$577.7 million. BCP’s financial performance in 2013 was affected by the volatility of the Nuevo Sol against the U.S. Dollar. The evolution of the exchange rate during this period was unlike any other in the last 20 years, as the devaluation of the Nuevo Sol reached 9.6% against the U.S. Dollar. As a result, BCP registered a ROAE of 16.0% in 2013.

There were factors that partially offset the good performance of BCP’s core business in 2013. These factors represented a total of US$181 million and were related to losses due to market issues and one-off expenses, including:

Performance in 2013 was primarily a result of:

Performance in these areas enabled BCP to offset the company’s 20.0% increase in provisions for loan losses and 8.5% increase in operating expenses. The increase in provisions is associated with the evolution of BCP’s Past-due-loans (PDL) portfolio for its SME and credit card segments. Retail banking segments have historically had higher levels of past-due loans and higher margins than other banking segments.

The increase in BCP’s operating expenses in 2013 was a result of BCP’s higher administrative expenses (+14.0%), which were in turn associated with system outsourcing and with expenses to expand BCP’s network of distribution channels to cover a significant increase in transactional activity and further banking penetration. There was also an increase in other expenses (+55.9%) related to payments to SUNAT and Essalud from previous periods and contingents in Bolivia.

The following table shows changes to the principal assets of BCP from 2011 through 2013:

BCP’s total assets decrease was a result of the 7.7% reduction in the value of BCP’s investments, which offset the 7.3% increase in BCP’s loans net of provisions that totaled US$21.5 billion at the end of 2013. Regarding to the composition of BCP’s loan portfolio as of December 31, 2013, the average daily balances in our retail banking business accounted for 51.0% (compared to 51.2% in 2012 and 46.9% at the end of 2011) and wholesale banking business accounted for 49.0% of BCP’s total portfolio (compared to 48.8% in 2012 and 53.1% at the end of 2011).

The average daily balances of BCP’s wholesale banking loans grew by 11.9% in 2013 (12.1% in 2012 and 8.1% in 2011), while the local currency (LC) denominated wholesale banking portfolio grew 64.9% and the foreign currency (FC) denominated portfolio grew 2.1%. The expansion in the LC portfolio reflects our corporate clients’ reactions to a devaluation of the Nuevo Sol against the U.S. Dollar and better loan conditions in LC due to a reduction in the reference rate and level reserve requirements, which allowed companies to migrate financing drawn in FC in years past (in some cases with foreign institutions) or to take on new financing in the local market and in Nuevos Soles. As a result, BCP continued to lead the Peruvian financial system with a market share of 43% for the corporate segment (46.7% in 2012 and 43.8% in 2011) and 34.5% for the middle market (35.4% in 2012 and 35.3% in 2011).

BCP’s retail banking portfolio grew 9.3% in 2013 (average daily balance), led by the SME segment, which reported growth of 11.9% in average daily balances (including Edyficar). This allowed BCP to continue to lead this segment with a market share of 24.6% at the end of 2013. Furthermore, the mortgage loan segment reported a 12.0% increase that was driven by a recovery in the real estate sector and BCP’s decision to focus on low income segments with products such as MiVivienda and Ahorro Local (described below). BCP continued to lead this segment with a market share of 33.1%. Finally, the consumer loan portfolio posted growth of 10.7% in average daily balances, which translated into a market share of 22.8%. The credit card portfolio remained stable, with 1.1% growth in 2013.

On the liabilities side, BCP’s deposits increase not only continues to reinforce BCP’s funding structure, as deposits account for 72.0% of all funding sources, but also serves to maintain BCP’s status as an industry leader with a market share of 31.5%. The expansion of deposits was due primarily to an increase in savings deposits (+4.5%) and Severance Indemnity Deposits (CTS by its Spanish initials, +7.7%), which was attributable to the campaigns held in these segments throughout the year. Time deposits were stable year-over-year and grew only 0.4%. Local currency deposits represented 49.5% of deposits at year-end, which falls below the 54.2% share reported for this line at the end of 2012. We attribute this reversal in the process of de-dollarization of deposits to the devaluation in the Nuevo Sol in 2013. The following table sets forth BCP’s total deposits from 2011 to 2013:

BCP’s issuance of bonds gained relevance within BCP’s funding structure (12.7% in 2013 compared to 11.2% in 2012). This was associated with the issuance of BCP’s international corporate bonds for US$350 million; a move to reopen BCP’s 2027 subordinated bond for US$170 million; and the exchange of BCP’s 2016 bonds, issued in 2011, for BCP’s 2023 bonds, which were recently issued in an operation that generated US$366.3 million. These operations helped the BCP’s asset and liability management and allowed it to take advantage of historically low rates in international capital markets. As of December 31, 2013, the aggregate outstanding principal amount of BCP’s bonds totaled US$4,034.4 million (11.9% higher than the level registered in 2012).

BCP maintains adequate provisioning and long-term risk management policies. Its coverage ratio decreased to 157.5% in 2013 from 188.6% in 2012, and 200.8% in 2011. Total cumulative provisions for the loan portfolio reached US$809.3 million as of December 31, 2013, which is 15.9% higher than provisions in the previous year.

In 2013, BCP continued expanding its channel network as part of its customer service focus. By providing quality and widespread customer access to BCP’s financial services, BCP sought to increase its penetration of the Peruvian market. In 2013, the BCP continued its plan to grow more cost-efficient alternatives such as Automated Teller Machines (ATMs) and Agentes BCP:

 * Agentes BCP are BCP representatives located in retail establishments, such as grocery and drug store

Overall, despite volatility in the exchange rate and financial markets, BCP’s operating performance in 2013 was solid and in line with the growth of Peruvian economy, which posted a 5.3% GDP growth in 2013 despite uncertainty about the global economy.

BCP Bolivia

BCP Bolivia’s year-end 2013 net income totaled US$16.9 million, a 17.7% decrease from its 2012 net income (US$20.6 million). The decrease from 2012 to 2013 was attributable to new taxes imposed such as tax on foreign currency transactions (selling). In 2012, net income was US$ 20.6 million, a 7.7% decrease from 2011 net income (US$22.3 million). The decrease was primarily due to a 363.4% increase in income tax expense enacted in 2012.

In 2013, 2012 and 2011 BCP Bolivia maintained its position as one of the leading banks in Bolivia. In 2013, BCP Bolivia reported a return on average assets of 1.1%, a PDL ratio of 1.3%, and a coverage ratio of PDL of 299.7%, compared to industry averages of 1.2%, 1.5% and 282.9%, respectively. In 2012, the bank outperformed industry averages in several key ratios, recording a return on average assets of 1.6%, a PDL ratio of 1.2% and a PDL coverage ratio of 301% compared to industry averages of 1.5%, 1.5% and 291.2%, respectively. In 2011, BCP Bolivia recorded a return on average assets of 1.7%, a PDL ratio of 1.2% and a PDL coverage ratio of 314%, compared to industry averages of 1.7%, 1.7% and 281.1%, respectively.

BCP Bolivia’s loan portfolio grew from US$758 million in December 2011 to US$901 million in December 2012 to US$1,073 million in 2013. Loan portfolio growth in 2012 and 2013 was driven primarily by a 25% and 27% increase in retail banking loans, respectively.

Although BCP Bolivia made a positive contribution to our results in each of the last three years, the bank´s earnings generation capacity is increasingly under pressure due to a more stringent regulatory environment and a significantly higher tax burden.

Edyficar

Edyficar focuses on SME lending and, it held a 7.7%, 5.8% and 4.7% market share in terms of loans at year-ended 2013, 2012 and 2011, respectively, which is in line with the increase of net loans. The following table shows changes to key line items of Edyficar’s Balance Sheet from 2011 through 2013:

The consolidation of Edyficar’s results into BCP’s financial statements resulted in a total contribution to BCP of US$35.4 million in 2013, compared to US$36.5 million in 2012 and US$26.2 million in 2011. Furthermore, Edyficar’s financial income was US$210.0 million in 2013, representing an increase of 38.2% compared to the US$151.9 million of financial income recorded in 2012. Edyficar’s financial income was US$111.5 million in 2011. Nevertheless, the income growth in 2013 was offset by higher operating expenses of US$110.3 million (US$86.4 million and US$64.7 million in 2012 and 2011, respectively) associated with the increase in personnel (4,051; 3,129 and 2,359 in 2013, 2012 and 2011, respectively) and the expansion of Edyficar’s branches (190, 162 and 123 in 2013, 2012 and 2011, respectively). The aforementioned results reflected in the following ratios:

*Including goodwill of US$50.7 million.

Also, as of December 31, 2013, Edyficar increased its client base of 522,056 clients, representing an increase of 20.5% compared to the client base reported in 2012. In 2012, Edyficar had a client base of 433,406 clients, which represented an increase of 21.7% compared to the 356,099 clients reported in 2011. The average amount of an Edyficar loan was S/.5,027 (approximately US$1,799) in 2013, S/.4,411 (approximately US$1,730) in 2012 and S/.3,837 (approximately US$1,423) in 2011.

The acquisition of Edyficar was part of BCP’s strategy to capture a significant portion of the growth of the Peruvian SME segment, which is expected to expand significantly over the next several years. BCP intends to support Edyficar’s growth and development by improving its funding cost and structure and providing necessary capital and technology.

Atlantic Security Bank (ASB)

In 2013, the global indexes improved in comparison to 2012 despite high volatility in the financial markets. During the same period, emerging markets were affected by more volatility on the external front and higher risk premiums due primarily to expectations regarding US monetary policy and a deceleration in the Chinese economy. Despite these trends in 2013, ASB achieved an increase in net income due to a strategic reallocation in its investment portfolio and an increase in the volume of interest earning assets. As a result, Credicorp received a contribution of US$50.7 million from ASB in 2013.

The following table shows changes to key line items of ASB’s Financial Income Statement from 2011 through 2013:

The increase in net interest and dividend income was primarily due to the ASB’s investment strategies, which included asset reallocation with the aim of increasing the financial margin and the volume of interest earning assets. ASB also benefited from lower funding cost, as a result of the low rates through the last two years. Short-term customer deposits, which have interest rates that reset frequently, allowed ASB to pay low rates on deposit accounts while earning higher interest income on assets engaged for middle and longer terms. On the other hand, ASB’s non-financial income includes income from fees, sale and market valuation of securities, and foreign exchange operations. The main non-financial income accounts, income from fees and sale and market valuation of securities totaled US$8.7 million (US$9.2 million in 2012 and US$11.5 million in 2011) and US$12.7 million (US$7.7 million in 2012 and US$6.9 million in 2011), respectively.

ASB’s total assets increased from 2011 to 2013 was mainly a result of significant growth on balance deposits (which exclude assets under management, AuMs), funds that ASB managed on behalf of its clients, which in turn is related to the positive performance of the Peruvian economy. The following table shows changes in ASB’s total assets from 2011 through 2013:

Finally, ASB’s AuMs decrease of 4.8% in 2013 is a result of market volatility and, among other reasons, the announcement of the tapering process by the FED in May and the government shutdown experienced in October 2013. However, in a year-over-year comparison, in a cost value, the AuMs increased +US$ 126.9 million, which was primarily a result of increases in the global positions of ASB’s customers.

1.3 Insurance segment

Grupo Pacífico

In 2013, Grupo Pacífico integrated by Pacífico Seguros Generales, Pacífico Vida and Pacífico EPS, reported net income, after deducting minority interests, of US$33.1 million (US$58.9 million in 2012 and US$57.1 million in 2011). The decline in the result in comparison to 2012’s figure was a consequence of: (i) the increase posted in the net loss ratio in Property and Casualty insurance (+5.9 bps) due to higher costs for claims processing in the automobile insurance line; (ii) the 11.3% increase in general expenses (US$ 194.5 million versus US$ 174.8 million in 2012) mainly due to growth in medical subsidiaries as well as higher expenses in the Property and Casualty business (growth in new channels and system development); and finally (iii) the translation effect that generated a variation of –206.8% (US$ -7.9 million against US$7.4 million in 2012). The contribution received from Grupo Pacífico was US$40 million in 2013 (US$66.4 million in 2012 and US$65.6 million in 2011). This contribution includes net income after minority interest and the participation of Grupo Crédito (Credicorp’s subsidiary) in the minority interest.

In terms of premium turnover, Pacifico Grupo Asegurador reported direct premiums of US$ 1,136 million and net earned premiums for US$ 807.5 million, which represent an increase of 11.4% and 11.5% respectively with regard to 2012. This growth in turnover was evident in three businesses: PPS (US$ 50.7) million, 12.1% growth), EPS (US$ 31.7 million 15.0% growth) and PVIDA (US$ 32.4 million 8.2% growth).

Performance in 2013 can be explained as follows:

Pacifico Seguros Generales reported a loss of – US$ 1.4 million, which contrasts with earnings of US$ 13.7 million in 2012. This result was due to an increase in the loss ratio in the automobile insurance line (66.9% in 2013 versus 50% in 2012) due to higher costs for claims processing in the market and the difficulty of increasing rates due to market competition in the automobile insurance business. A translation loss was also reported, which generated a –US$ 6.4 million variation in the result (US$ 2.7 million reported in 2012 versus –US$ 3.7 million in 2013). These effects were partially mitigated by an increase in financial income associated with real estate sales (Oeschle US$ 5.3 million and Curacao US$ 7.7 million) and the sale of a shares in Inversiones Centenario for US$ 8.2 million.

Pacífico Vida reported net earnings in 2013 of US$ 50.3 million versus US$ 59.6 million in 2012. This drop was due primarily to a translation loss, which generated a variation of –US$ 11.4 million (US$ 5.3 million reported in 2012 versus -US$ 6.1 million in 2013). The underwriting result in 2013 was -US$ 0.3 million versus US$ 1.5 million in 2012, which was due to an increase in claims (group life, annuities and credit life), higher commissions (credit life) and higher underwriting expenses that offset the increase in premiums in 2013 (8.2%). It is important to note that financial income increased 9.6% in 2013, which offset the 11.0% increase in general expenses. Net earnings before translation totaled US$ 56.3 million versus US$ 54.4 million last year.

Pacífico EPS reported net earnings totaled US$ 4.6 million in comparison to a loss of -US$ 4.3 million in 2012. This improved result is due to a decrease in the net loss ratio (82.6% versus 83.6% 2012), which was due to the application of adequate underwriting policies. These policies will remain in place in coming years to guarantee that loss ratios remain within adequate levels. It is also important to mention the growth of +14.7% in the net earned premium (+US$ 31.0 million), the -11.7% drop in general expenses (-US$ 2.9 million), and a positive translation result (+US$ 1.9 million). This effect was offset by an increase in income tax (US$ 2.9 million versus US$ 0.5 million in 2012).

Additionally, during 2013, Pacífico EPS continued its initiative (originally launched in 2011), to create the largest private medical services network in Peru by investing an additional US$30.0 million to acquire clinics specialized in providing health and wellness programs and other infrastructure and medical equipment. Clinics acquired by Pacífico EPS as a part of this initiative are grouped under the new umbrealla brand name SANNA. We believe that these acquisitions will enable Pacífico EPS to directly benefit from this sector’s growth and to strategically defend against potential changes in healthcare service supply chain, as where vertical integration in the insurance business is becoming more common.

We believe that there is substantial growth potential in Peru’s insurance market, given the industry’s low market penetration. Efficiency, risk management and capitalize on synergies between the insurance business and the distribution channels will continue to be key indicators in measuring Grupo Pacífico’s performance. These factors will lead Grupo Pacífico to increase penetration in the insurance market. Also, developing alternative sales channels, efficiently using BCP’s network, maintaining relationships and market share through traditional brokerage channels, and expanding services in underserved regions of Peru are essential components of Grupo Pacífico’s growth strategy for 2014.

Grupo Pacífico’s growth strategy for 2014 will focus on operating efficiency, risk management, capitalizing synergies between insurance businesses and Credicorp, optimizing distribution channels and expanding services in underserved regions of Peru.

1.4 Pension fund segment

Prima AFP

Due to the adoption of the Law to Reform the Private Pension System, there is now a new process by which individuals, which are called affiliates, may become beneficiaries affiliated with the SPP. Under the new law, tender are held every 24 month to determine which company will have the exclusive right to manage the accounts of new SPP affiliates for a two year period. In December 2012, a bidding process occurred for the exclusive right to market and to enroll new affiliates into the SPP. The process was open to the existing pension funds private administrators (AFPs by its Spanish initials) in the SPP and to any potential new AFPs to the SPP. A new AFP eventually won the process and, beginning on June 1, 2013, it has the exclusive right to market and enroll new affiliates for a period of two years. In 2013, the volume of new accounts into the SPP totaled 249,000, representing a decline of 32.0% with regard to 2012. This decline can be partially explained due to lower amount spent in marketing overall for new affiliates, since prior to the bidding process, the four existing AFPs heavily marketed for new affiliates and are now barred from doing so.

With respect to the SPP, in 2013 the contribution level was 45.0% in relation to the total number of affiliates. During 2013, the contributions to pension funds totaled US$2.8 billion, which represent a 10.6% increase year-over-year.

As of December 31, 2013, the value of funds under management by the SPP reached US$36.5 billion, and represents a 3.8% decrease compared to December 2012 (US$38.0 billion). Despite the growth of the Peruvian economy, issues such as the volatility of the international markets, the decline of the Lima Stock Exchange, and the devaluation of local currency affected funds under management. As of December 31, 2011, the SPP had US$ 30.4 billion in funds under management.

Prima AFP was able to strengthen its position in the market by adjusting its processes and organization to provide high-quality services and timely and transparent information to its clients. As a result, the contribution we received from Prima AFP in 2013 was US$50.8 million as compared to US$38.1 million in 2012. In 2011, Prima AFP’s contribution was US$32.4 million.

Funds under management at Prima AFP decreased from US$12.0 billion in 2012 to US$11.6 billion as of December 2013 (-3.2%). In 2011, this indicator reached US$9.5 billion. At year-end 2013, Prima AFP’s market share of total funds under management was 31.7%, slightly higher than the 31.5% market share at the end of 2012. The profitability of our funds in the last 12 months (December 2013 / December 2012) was 0.1%, -2.4% and -2.8% for Funds 1, 2 and 3, respectively. In this context, Prima AFP is ranked second in Fund 1 and third in Funds 2 and 3 with regard to profitability system-wide. Despite the growth of the Peruvian economy, issues such as the volatility of the international markets, the decline of the Lima Stock Exchange, and the devaluation of local currency affected funds under management.

Prima AFP’s revenues from commissions in 2013 totaled US$135.9 million, a 16.1% increase from 2012 when revenues from commissions totaled US$117.2 million. In 2011, revenues from commissions reached US$104.4 million. This improvement was a result of a stable and high-quality portfolio of contributing members.

To improve its operating results, Prima AFP will continue to focus on increasing efficiency and reducing costs. Emphasis will also be placed on improving Prima AFP’s long-term stability through improved risk management, which is one of the company’s highest priorities.

In 2013, a series of reforms to the SPP were implemented. These reforms are discussed in “Item 4. Information on the Company — (B) Business Overview— (12) Supervision and Regulation— (vii) Prima AFP”.

1.5 Investment banking segment

Credicorp’s regional investment banking platform is built mainly around three business units: asset management, sales & trading and corporate finance business. These business units are present in each of the countries through which we operate using several companies group under Credicorp Capital Perú, Credicorp Capital Colombia and Inversiones IMT (IM Trust - Chile).

The following chart shows the main subsidiaries of the investment banking platform as of December 31, 2013:

Credicorp Investments Ltd. was formed on August, 2012 in Bermuda. It is Credicorp’s 100% subsidiary. Later in 2013, Credicorp Investments changed his name to “Credicorp Capital Ltd”.

The following chart shows our future organizational structure of the main subsidiaries once the regional investment banking platform concludes its consolidation under Credicorp Capital Ltd. in line with Credicorp´s strategic plan to create a Regional Investment Bank:

Credicorp Capital Securities Inc. (CSI)

CSI is an introducing broker dealer incorporated under the laws of the State of Florida in the United States of America and provides access to the global securities markets by offering a wide spectrum of brokerage services. In 2013, the company changed its name from “Credicorp Securities Inc.” to “Credicorp Capital Securities Inc.” and 100% of the outstanding shares of the firm were transferred from Credicorp Ltd. to Credicorp Capital Ltd. with the approval of FINRA.

CSI began operations in March 2003 as an Introducing Broker Dealer (IBD) and Registered Investment Advisor (RIA). Since then CSI transferred the functions formerly performed under its RIA license to the Asset Management Division at BCP and is in the process of cancelling its RIA license.

The objectives of CSI are to (i) act as a broker to its affiliate’s brokerage activities and those of its customers and provide products; and, (ii) add new customers to the brokerage business. As an IBD, CSI can open custodial accounts on behalf of its customers with only one clearing broker. Pershing LLC, a subsidiary of The Bank of New York Mellon Corporation serves as CSI’s Clearing Broker.

CSI’s core business includes purchasing and selling stocks, fixed income and money market instruments. Its brokerage services involve corporate debt securities, U.S. Treasury bonds, equities, exchange-listed over-the-counter (OTC) securities, mutual funds (both domestic and international), and options (options represent only 0.08% of the business and correspond to vanilla options transactions). Mutual fund sales are not actively solicited.

CSI is approved to engage in trading for its own account in fixed income instruments. It is subject to a US$100,000 minimum net capital requirement and files a Focus Report on a monthly basis.

Credicorp Capital Perú (formerly BCP Capital Perú)

During 2013, BCP Capital changed its name to “Credicorp Capital Perú”. The name change is to be registered with the Corporate Public Registry in Peru. Credicorp Capital Perú is the holding company through which we conduct our investment banking business in Peru. It was established from a spin-off from BCP. The spin-off resulted in a reduction of BCP’s assets, liabilities and net equity in an amount of US$71.2 million, US$18.0 million and US$53.2 million, respectively. Assets transferred included the ownership of Credicorp Capital Sociedad Agente de Bolsa (formerly, Credibolsa Sociedad Agente de Bolsa), Credicorp Capital Sociedad Titulizadora. (formerly, Credititulos Sociedad Titulizadora), Credicorp Capital Sociedad Administradora de Fondos (formerly, Credifondo Sociedad Administradora de Fondos) and BCP’s investment banking activities, that created a new company named BCP Capital Financial Services, today Credicorp Capital Servicios Financieros. Through each of these companies, Credicorp Capital Perú is a market leader in the investment banking segment and it offers a wide range of products and services to corporate and retail clients.

Credicorp Capital Colombia (formerly, Correval)

In 2013, 100% of the outstanding shares of BCP Colombia (owner of 51% of Credicorp Capital Colombia) were transferred from BCP to Credicorp Capital Ltd., with the approval of the Colombian banking authority.

Credicorp Capital Colombia is a brokerage firm formed in 1987. Over the last 25 years it has been the leader in the brokerage market. The firm has a nationwide presence through its offices in Bogota, Medellin, Cali and Barranquilla. It also opened an office in Panama in early 2011.

The firm offers a wide array of products and services, including asset management (mutual and discretionary funds), sales and trading (foreign exchange, fixed income, stock, derivatives and hedging products, e-trading) and corporate finance (M&A and advisory, among others).

Inversiones IMT (IM Trust)

BCP Chile held a 60.6% stake in Inversiones IMT S.A (“IM Trust”). IM Trust is one of the leading financial corporations in Chile, with over 25 years of experience in the Chilean market. In early 2008, IM Trust expanded operations to Peru and Colombia.

The firm provides services in corporate finance (capital markets and M&A), sales & trading (equity, fixed income, and derivatives), and asset management (investment funds, mutual funds, advisory and mandates), servicing the retail, corporate, institutional and private segments.

Put and call options over non-controlling interest

Credicorp Capital Colombia (formerly, Correval) and IM Trust purchase and shareholders agreements, respectively, include put and call options to acquire the remaining non-controlling interests in such entities.

As of December 31, 2013, financial liabilities related to put options granted to non-controlling interest of Correval and IM Trust amounted to US$57.1 million and US$64.8 million, respectively, (US$59.2 million and US$62.6 million, respectively, as of December 31, 2012) and are included in the caption “Other liabilities” of the consolidated statements of financial position.

The formula used to calculate the amount of this commitment is fixed contractually and is based on the average net income over the last eight quarters and the average net equity over the last four quarters before the exercise date of each option, to which some multiples are then applied. The amount resulting from such formula is discounted using a market rate, which reflects the remaining periods and the credit risks related to each flow.

In the case of Credicorp Capital Colombia, the put options can be exercised by non-controlling interest holders for a period of three months after the second year (from April 27, 2014) and fourth year of acquisition (from April 27, 2016).

In the case of IM Trust, the put options can be exercised by non-controlling interest holders for a period of five days after the 48th, 51st and 54th month of acquisition (from July 1, 2016; from October 1, 2016 and from January 1, 2017, respectively).

Furthermore, Credicorp can exercise its call options for a period of three months from July 27, 2016, in the case of Credicorp Capital Colombia, and between the 20th and 24th business days of January 2017, in the case of IM Trust, if non-controlling interests holders do not exercise their put options by July 26, 2016, in the case of Credicorp Capital Colombia, and by the 5th business day of January 2017, in the case of IM Trust. The call options are valued using the same formula as the put options.

New agreements regarding the regional governance of Credicorp Capital were agreed in March 20, 2014, which applies since January 1, 2014. Part of this new agreement reflects changes in the put and call options, as to the alignment of the exercise dates, valuation multiples and the financials to which these are to be applied for both companies. The new agreed dates for the exercise of the put options are: i) between July 15, and July 23, 2016; (ii) between October 15, and October 23, 2016; and (iii) Between January 15, and January 23, 2017. In terms of the call option, this may be exercisable between January 24, and January 31, 2017. At the date of this report, the new financial liability is in process of review by Management.

1.6 Consolidated Contributions

The following table sets forth the contribution to the consolidated net income attributable to our equity holders by each of our principal subsidiaries:

(2) Strategy

Credicorp was established to create a financial group that would benefit from synergies among the group’s companies and would become a leader within each business market in which the companies operate to maximize our shareholders’ return on equity. To achieve these strategic goals, over the last several years, Credicorp has focused on consolidating its position as Peru's leading financial group and expanding its horizons abroad through its Latin American investment banking platform.

Credicorp’s strategic Pillars

To achieve sustainable growth while maximizing our shareholders’ capital return we focused on our long-term strategy, which is based on three pillars: i) efficiency, ii) risk management and iii) growth.

Efficiency

Credicorp initiated an efficiency initiative with two approaches, one tactical that is the Continuous Improvement Program and the Efficiency Program.

The Continuous Improvement Program is designed to improve efficiency throughout Credicorp by promoting consciousness in our management of expenses and investments. This approach is based on: i) productivity management; ii) the establishment of new mechanisms for approving, managing and reporting budget execution; and iii) process improvement. The Continous Improvement Program will be based on the Jaw concept; this means it will be focused on managing the gap between income growth and expenses growth, in an effort to achieve higher growth in income than in expenses.

The Efficiency Program is designed address five different strategic areas. The first is our product portfolio. Under the program, we will reduce the complexity of our product portfolio and manage each product based on productivity and client satisfaction. The second area is our service model. Uner the program, we will evaluate our footprint and formats, channel efficiency and multichannel strategy. The third strategic area comprises our organization and support functions. With respect to this area, we will evaluate how are we are organized, including the span of control, the decision network and the number of layers in our operating units. The fourth strategic area includes operations and IT. In this area we will define key processes and optimize our operational model. The fifth strategic area is culture. Through this strategic area, we eill seek to instill the concept of efficient growth as a core value in our organization’s culture.

Risk Management

This strategic pillar of Credicorp’s strategy is based on the corporate principles approved by the Corporate Governance Committee: involvement of executive management; independence of the risk functions; corporate governance, including risk appetite, corporate risk policies, and risk-adjusted performance measures; and sufficiency and quality of resources dedicated to the risk management role.

Credicorps is committed to apply best practices to assess, quantify and manage the different risks to which we are exposed to, such as credit, market, compliance and operational, reputational, and insurance underwriting risks. We are constantly fine-tuning our models for risk management and our stress-testing methodologies. Our strategy is based on implementing an advanced and fully integrated risk management approach to achieve sustainable growth and enhanced profitability.

In the area of credit risk management, we have implemented enhanced risk-adjusted pricing models and in-house credit models (origination, scoring, behavioral and collection models) that maximize the use of our proprietary information and Knowledge about the Peruvian system. These are essential sources of competitive advantage. We have also developed a risk monitoring process that provides a timely and comprehensive picture of risk exposures across risk types and from multiple business segments.

Growth

Our strategic consolidations in Peru aim to capture the potential that the Peruvian market offers as one of the strongest growth opportunities in South America. In the banking, insurance and pension fund industries, market penetration remains low. Accordingly, our business plans incorporate strategies that are designed to reach underserved segments of the Peruvian population and achieve higher returns on our capital.

In addition, our expansion abroad aims to capitalize on BCP’s in-depth knowledge of Peru’s business community and financial markets and its extensive experience in the Peruvian capital market. Regional integration, such as the MILA initiative (a Latin-American integrated market among Chile, Colombia and Peru), has opened up additional opportunities for us to further integrate our capital markets and investment banking operations. Regional integration has also enlarged business fields for companies, who like us, have an important presence in many of these markets. Consistent with our strategic efforts to expand and generate synergies amd generate synergies, we have partnered with two high-performing organizations, Correval in Colombia and IM Trust in Chile that have allowed Credicorp to create a regional business platform in the sales and trading, asset management and corporate finance businesses. Trough this strategic partnership, we intend to boost our cross-border businesses.

In the banking business, we will continue to implement our strategy to enter different segments of retail banking, with particular emphasis on the SME segment in particular. We will use risk and collections models that are calibrated and aligned with pricing models designed to achieve the profitability we seek. As mentioned above, on March 20, 2014, Credicorp through its subsidiary Edyficar acquired one of the leading SME institutions, Mibanco, as part of Credicorp’s strategy to continue growing this business segment. In the near term, we will be focused on the integrating SME services into Edyficar’s business operations.

In the insurance business, Credicorp sees significant growth potential in the insurance business, and to capture that potential we are taking a series of measures to recover profitability in the car insurance line through operating improvements and by setting risk-adjusted prices. In the Property and Casualty business, we are implementing an efficient reinsurance scheme and are strengthening our “bancassurance” products. We will also begin a stage of business consolidation in our healthcare services business to progressively increase the returns on the investments we make on this business.

In the pension fund business, the strategy of medium and long term is to maintain the attractiveness and profitability of the business by growing efficiently with a thorough risk management. The focus is on providing affiliates adequate profitability of their funds, advisory service and excellent level of information and service channels according to our clients’ needs. For the aforementioned, the management of pension funds will be strengthened with the incorporation of best international practices

In the investment banking platform, we will continue to consolidate Credicorp Capital’s regional position to capture the growth potential of our three main business lines (asset management, sales and trading, and corporate finance) in the capital markets of Chile, Colombia and Peru and the Latin American region in general.

(3) Credicorp Operating Segments

3.1 Banking

The majority of our banking business is carried out through BCP, which is our largest subsidiary, BCP that held 30.7% of the Peruvian market share in loans as of December 31, 2013. A portion of our banking business is also carried out by ASB, which principally serves Peruvian private banking customers through offices in Panama. We conduct banking activities in Bolivia through BCP Bolivia, a full service commercial bank which maintained a 10.9% market share of current loans and a 11.1% market share of total deposits as of December 2013. BCP Bolivia is fourth with respect to loan market share and fifth with respect to deposit market share in the Bolivian banking system.

Our banking business is organized into (i) wholesale banking activities, which are carried out by BCP’s Wholesale Banking Group, and (ii) retail banking activities, which are carried out by BCP’s Retail Banking Wealth Management Group (RB&WM).

To increase our visibility and raise our market share in the retail banking industry, BCP bought Edyficar, which is a scaled, high-growth and highly profitable microfinance business. Edyficar has a solid risk management strategy and a proven track record in both loan portfolio growth and social impact. Edyficar provides financial services for low-income micro-entrepreneurs and unbanked communities.

We apply uniform credit policies and approval and review procedures, which are based on conservative criteria adopted by BCP, to all of BCP’s subsidiaries. Our Chief Operating Officer (COO) is in charge of setting the general credit policies for our different business areas. These policies are set within the guidelines established by Peruvian financial sector laws and SBS regulations (See “(12) Supervision and Regulation—(ii) BCP”) and the guidelines set forth by our Board of Directors.

We also conduct our banking business through Atlantic Security Bank (ASB), which is a Cayman Islands licensed bank that engages in private banking, asset management and proprietary investment.

Our deposit-taking operations are principally managed by BCP’s RB&WM group and ASB’s private banking group. See “(13) Selected Statistical Information—(iv) Deposits.”

3.2 Insurance

We conduct our insurance operations exclusively through Grupo Pacífico and its subsidiaries, which provide a broad range of insurance products. Grupo Pacífico focuses on three business areas, property and casualty insurance through Pacífico Seguros Generales, life and pension insurance through Pacífico Vida, and health care insurance through Pacífico EPS. Grupo Pacífico, like other major Peruvian insurance companies, sells its products both directly and through independent brokers and agents. Directly written policies tend to be for large commercial clients, as well as for life and health insurance business lines.

3.3 Pension funds

Credicorp conducts all of its pension fund activities through its private pension fund administrator Prima AFP. During 2013, Credicorp through its subsidiary Prima AFP was able to strengthen its position in the market by adjusting its processes and organization to provide high-quality services, with timely and transparent information to its clients.

The year 2013 was marked by a series of events linked to the implementation of the SPP and a new competitive dynamic at the market level (a former competitor was sold, in equal parts, to two current competitors). The Law to Reform the Private Pension System establishes, among other changes, a new process for integrating new affiliates into the SPP. See “Item 4. Information on the Company— (B) Business Overview— (12) Supervision and Regulation— (vii) Prima AFP”.

3.4 Investment Banking

The integration of Latin American markets is a strategic focus for Credicorp. The creation of the MILA (by its Spanish initials), a Latin American integrated market -among Chile, Colombia and Peru, has opened up opportunities to further integrate asset management, brokerage and corporate finance cross-border operations which can offer benefits for companies that have a significant presence in these markets. Since the formation of the MILA, Credicorp’s investment banking business units grouped under Credicorp Capital have been very active. Credicorp Capital carries out its operation in the region through Credicorp Capital Perú, Credicorp Capital Colombia (formerly, Correval) and IM Trust, holding considerable market shares in the Peruvian, Colombian and Chilean markets, respectively, performing operations in three business lines: asset management, capital markets and corporate finance.

Asset Management

In terms of asset management, Credicorp Capital Perú posted a total of US$4,150 million in assets under management in 2013 (US$4,593 million in 2012), of which US$2,390 corresponded to mutual funds, representing 40.6% of the Peruavian market at the end of 2013. Credicorp Capital Colombia posted a total of US$1,821 million in assets under management (US$1,534 million in 2012), including mutual funds and investment funds managed, the former representing 23.9% of the Colombian market between brokerage firms at the end of 2013. Finally, as of December 31, 2013 IM Trust had a total of US$1,387 million in assets under management (US$894 million in 2012), including US$584 million in mutual funds and investment funds managed (US$460 million in 2012). With regards to assets under custody, Credicorp Capital posted a total of US$12,169 (US$ 13,477 million in 2012), of which Credicorp Capital Perú represented 78%, Credicorp Capital Colombia 12% and IM Trust 10%.

Sales & Trading

In 2013, Credicorp Capital Perú traded a total of US$1,328 million in equity securities and US$781 million in fixed income securities (US$2,073 million and US$511 million in 2012, respectively), which represented a market share of 16.3% and 45%, respectively. Credicorp Capital Colombia traded a total of US$10,284 million in equity securities and US$145,788 million in fixed income securities (US$9,505 million and US$139,748 million in 2012, respectively), which represented market shares of 19% and 23% (stock exchange) respectively. IM Trust traded a total of US$2,219 million in equity securities instruments and US$4,665 million in fixed income instruments (US$5,620 million and US$3,043 million in 2012, respectively), which represented market shares of 6% and 26.5% among boutiques, respectively.

Corporate Finance

In 2013, Credicorp Capital’s corporate finance business participated in the international issuance of instruments for a record amount of US$4,244 million. The primary transactions were:

(4) BCP and Subsidiaries

4.1 General

BCP’s activities include wholesale banking, retail banking and wealth management and treasury. As of December 31, 2013, the consolidated operations of BCP ranked first among Peruvian banks in terms of total assets (US$35.1 billion), total loans (US$21.5 billion), deposits (US$23.2 billion) and net equity (US$3.0 billion). At the end of 2013, BCP’s loans, on an unconsolidated basis, represented approximately 33.2% of total loans in the Peruvian banking system. BCP’s loans represented 34.1% and 33.0% of total loans in the Peruvian banking system at the end of 2012 and 2011, respectively. BCP’s deposits represented approximately 34.1% of total deposits in the Peruvian banking system (compared to 37.4% in 2012 and 33.8% in 2011).

As of December 31, 2013, BCP had the largest branch network of any commercial bank in Peru with 401 branches. BCP also operates an agency in Miami and a branch in Panama. In addition, as of December 31, 2013, BCP Bolivia and Edyficar had 46 and 190 branches, respectively, through which they serve their clients.

As of and for the year ended December 31, 2013, BCP accounted for 86.0% of our total assets, 80.9% of our net income and 70.2% of our net equity. BCP’s operations are supervised and regulated by the SBS and the Peruvian Central Bank .

BCP groups its client base according to the following criteria:

The grouping was a result of an analysis which addressed factors beyond the simple size and volume of activity for each client, such as clients’ affiliation with other companies or groups, the degree of follow-up required, and their credit ratings.

4.2 Subsidiaries

BCP’s corporate structure consists of a group of local subsidiaries offering specialized financial services, which complement BCP’s commercial banking activities. In addition to its local subsidiaries, BCP has an agency in Miami, a branch in Panama and a subsidiary in Bolivia.

BCP and its principal subsidiaries as of December 31, 2013 are as follows:

4.3 Business Lines

(i) Wholesale Banking Group (WBG)

BCP’s WBG competes with local and foreign banks. BCP’s traditional long term relationships with medium-sized and large corporate companies provide its WBG with a competitive advantage.

BCP’s WBG maintained a positive trend in loan placements, posting average portfolio levels of US$8,391 million in 2011 (a 20.2% year-over-year increase), US$9,225 million in 2012 (a 9.9% year-over-year increase) and US$10,194 million in 2013 (a 10.5% year-over-year increase). It also maintained its leadership in the wholesale banking market with a 39% market share in loans. BCP has established longstanding client relationships with virtually all of the major industrial and commercial groups in Peru. The WBG provides its customers with cash management solutions, short- and medium-term loans in local and foreign currencies, foreign trade-related financing and lease and project financing.

The WBG is divided into the following two divisions:

Net interest income from BCP’s WBG reached US$260 million in 2011, US$284 million in 2012 and US$321 million in 2013. Fee income was US$165.6 million in 2011, US$192.5 million in 2012 and US$210 million in 2013.

Corporate and International Division (CID)

BCP continues to meet the needs of its corporate clients, assisting them with financial services, cash management solutions and short and medium-term financing through the CID. As a result, BCP’s corporate banking loans grew from US$5,359 million in 2011 to US$5,624 million in 2012 and US$6,355 million in 2013. These increases, coupled with a very low PDL ratio (less than 0.1%), enabled the CID to obtain a net interest and fee income of US$247.6 million in 2013, which represents 46.7% of the total net income of the WBG. The CID obtained a net interest and fee income of US$ 217.3 million in 2012 and US$ 204.3 million in 2011.

The moderate pace of the CID’s growth is due to (i) intense competition from foreign banks, which finance their operations at lower costs due primarily to the fact that our monetary authority has high reserve requirements for foreign currency for local banks, and (ii) the availability of alternative financing through capital markets, especially in the international capital markets. Nevertheless, BCP has a leading position in the Peruvian banking system with the 46.7% of the market share for loans.

The CID offers a broad range of products and tailors its product offerings to meet each client’s unique requirements. In general, this division is expected to offer high-value-added products, advisory and financial services, particularly cash management solutions, at competitive prices.

The CID’s financing is provided to fund capital expenditures and investments, sales, international trade and inventories. To finance capital expenditures, the CID offers medium and long term financing, financial lease and project finance.

International Banking Unit

The International Banking Unit focuses on obtaining and providing short-term funding for international trade. Medium-term lines of credit funded by international commercial banks and other countries’ governmental institutions are also provided to clients. In addition, this unit earns fees by confirming guarantees issued by international banks and other fees as a result of the international payment business. The International Banking Unit also promotes international trade activities with its local clients by structuring trade products and services, organizing and sponsoring conferences and advising customers through a wide range of trade products.

Since September 2008, the International Banking Unit has also been supervising our trade back-office unit (International Operations). BCP maintains business relationship with correspondent banks, development banks, multilateral and export credit agencies in countries around the world. At present, BCP manages credit lines for foreign trade transactions, working capital and medium and long-term investment projects.

BCP’s import business volume amounted to US$12.4 billion in 2011, US$14.3 billion in 2012 and US$ 13.6 billion in 2013 which in 2013 represented 31.4% of total Peruvian imports. According to SUNAT, total Peruvian imports grew from US$37.9 billion in 2011 to US$41.9 billion in 2012 and US$43.4 billion in 2013. This trend was primarily due to higher demand for raw materials and capital goods.

BCP provides foreign trade financing for exports reaching a volume of US$19.3 billion in 2013, a figure that represented 46.4% of total Peruvian exports and our export volume increased from US$18.1 billion in 2012 and US$ 19.8 billion in 2011. According to SUNAT, total Peruvian exports remained approximately the same from US$46.2 billion in 2011 to US$46.2 billion in 2012 and decreased to US$41.6 billion in 2013.

BCP has access to a wide network of foreign correspondent banks and can offer several internationally competitive products to its customers. It has correspondent banking relationships and uncommitted credit lines with more than 100 banks for foreign trade operations and financing of working capital as well as medium and long-term investment projects. BCP also has a direct presence abroad through its agency in Miami and its branch in Panama.

Leasing / Leaseback is one of our most important and profitable products for which BCP specializes in providing financing to our clients in order to allow them to acquire assets and also support their investment projects. This product is primarily focused on our Corporate and Middle-market clients.

In 2013, our leasing stock portfolio reached the considerable figure of US$3 billion (a 10% year-over-year increase). Peru has a very active leasing market with a volume of US$7.7 billion in 2011 to US$9.1 billion in 2012 and US$8.1 billion in 2013. Following this trend, BCP has consolidated its leadership in the leasing business with a market share of 37.5% in 2011 to 39.2% in 2012 and 37.9 % in 2013.

Cash Management and Transactional Services Unit

Our Cash Management and Transactional Services Unit is in charge of developing transactional services that handle the exchange of information and money transfers among corporations, midsize companies, institutions and micro-business companies. This unit is responsible for both, the development and marketing of transactional (or “cash management”) services for our corporate and institutional clients. We offer more than 30 products aimed at strengthening ties with clients and assuring their loyalty. Our electronic channels allow us to reduce costs and increase fee income. Services managed by this unit include collections (automated trade bill collection), automated payments (loans to personnel and suppliers’ accounts, reverse factoring and money transfers), electronic office banking and electronic lending solutions, and cash management through checking accounts with special features.

In 2013, our transactional services accounted for 25.7% of BCP’s overall earnings. The monthly average number of checking accounts increased by 7% during two consecutive years and fee revenue of 2013 were consistent with the year 2012 (30.4% in 2012 and 6.6% in 2011), due to an increase in commissions from our checking accounts. Other sources of income, such as bills of exchange and collection services have increased by 4% and 10.8%, respectively, compared to 2012, due to performance across all market segments. Additionally, the acquisition of new clients, together with the number of established clients in our office banking service (Telecredito), has generated a growth of 10.6% in the number of transactions (compared to 14.9% in 2012). Tax collections grew 10.6% in 2013 (35.1% in 2012 and 12.3% in 2011). We continue to introduce electronic products that will eventually replace the conventional promissory notes. Likewise, the transaction volume generated by reverse factoring increased 21.1% in 2013, 9.7% in 2012 and 15.5% in 2011.

Middle-Market Division (MMD)

BCP’s MMD provides banking services targeted to medium-sized companies from various economic sectors. The products offered to middle-market clients are similar to those offered to corporate banking clients. The major types of products are:

BCP has identified several opportunities to engage middle-market companies, particularly in Peru’s manufacturing, wholesale, retail, fishing, agribusiness and construction industries. The MMD is organized with multiple teams focused on attending the needs of these economic groups. BCP has a middle-market client portfolio of approximately 7,206 companies, including 1,249 economic groups. Generally, these clients are not listed on any stock exchange; however in certain cases they have accessed capital markets either for bonds or commercial paper. These companies are typically family-controlled but professionally managed, and their financial information is audited.

Since 2009, the MMD has had policies in place in order to properly classify its customers into appropriate segments within the group. The division includes mature companies that will eventually become part of our corporate segment, traditional mid-size companies and a group of growing small cap companies.

The MMD has continued to make progress toward implementing its strategic goals by:

According to internal reports, net interest income and fee income from the MMD reached US$221.7 million in 2011, US$259.3 million in 2012 and US$282.8 million in 2013. This trend was consistent with the performance of the MMD loan portfolio, which reached US$3,032 million in 2011, US$3,601 million in 2012 and US$3,839 million in 2013. As of December 31, 2013 BCP had a market share of 34.8% in this segment.

We believe that middle-market companies have benefited from the overall economic improvements in Peru over the past few years. Loan quality problems have been addressed through procedures and organizational changes that have focused on improving the loan approval and credit-risk assessment processes.

Institutional Banking Unit

BCP’s Institutional Banking Unit, which operates within the MMD, serves 1,109 clients throughout Peru. In Lima, a specialized team in wholesale banking serves governmental entities, educational institutions, religious organizations, international bodies, non-governmental organizations, civil associations and regulated entities such as microfinance institutions, insurance companies, pension funds and private funds. In other provinces, a specialized remote team partners with BCP’s retail banking area to serve clients.

The annual average deposit amount in BCP’s Institutional Banking Unit (Lima and provinces) increased 6.4% reaching US$2.6 billion in 2013 (compared to 7% from the previous year). The Institutional Banking Unit is also important because its clients offer great potential for generating fee income and other cross-selling opportunities. BCP’s strategy in this unit is focused on building customer loyalty by offering customized services at competitive rates and providing outstanding service. Our institutional banking typically requires remote office banking, collections, automated payroll payment services and structured long-term and medium-term financing loans.

(ii) Retail Banking and Wealth Management (RB&WM) Group

At the end of 2013, RB&WM - related loans represented 48.4% of BCP’s total loans, while deposits accounted for 55.8% of BCP’s total deposits. Net income from RB&WM lending constituted 55.5% of BCP’s net income, while income from related fees constituted 61.9% of BCP’s total fee income.

In 2013, the RB&WM Group’s loan volumes increased to US$10,273 million from US$9,351 million in 2012 and US$7,093 million in 2011. This 10% growth in 2013 is a result of sound increases in all lending businesses, which include home mortgages, installment loans and credit cards, and small and micro business loans. With respect to deposits, RB&WM - related deposits have also shown consistent growth. Deposits increased 12% in 2013, and totaled US$14,887 million as of December 31, 2013. Deposits totaled US$13,342 million as of December 31, 2012 and US$10,443 million as of December 31, 2011.

With the segmentation of its retail client base, BCP is able to focus on cross-selling its products and improving per-client profitability. The RB&WM Group has undertaken several projects to improve one-on-one marketing techniques and tools for the sale of its products to all market segments. BCP’s management expects the RB&WM businesses to continue being one of the principal growth areas for BCP’s activities.

BCP’s RB&WM serves high net worth individuals and small-sized companies with annual sales levels of up to US$10 million. BCP’s objective is to establish profitable long-term relationships with its broad client base, using segmentation strategies that satisfy the specific needs of each type of client. BCP’s retail distribution strategy changed at the beginning of 2007, when BCP started using the branch network as the center for all transactional and commercial activities. BCP now has a commercial division, in charge of most direct sales forces and branches, which in turn are organized on a geographic level. Each branch is responsible for servicing and selling products to three customers groups: affluent, small business and consumer. In addition, each branch manager is responsible for overseeing the different channels offered within the branch, such as account managers, customer service representatives and tellers. Telemarketing, mid-size business banking and real estate developer financing are not managed directly by local branches because of the specialty level and high growth potential associated with these products.

Since 2008, BCP has made an unprecedented investment in infrastructure and human resources to support its “banking the unbanked” market penetration strategy in Peru. As a result, between 2011 and 2013, BCP experienced substantial growth in its various channels, including 1,796 new customer contact locations (44 branches, 606 ATMs and 1,146 Agentes BCP). Demonstrating its leadership in attracting new customers, BCP now services over 5.2 million clients with its network of 401 branch offices, 2,091 ATMs and 5,820 Agentes BCP (these figures do not include the customer contact locations under Edyficar’s management, which we account for separately).

Affluent Banking

BCP is constantly improving the value proposition it offers to affluent customers to increase their loyalty and ultimately their profitability. In May 2012, BCP created a new super affluent segment called BCP Enalta. This segment and the Private Banking segment operate under the Wealth Management Group.

Private Banking is a segment composed of customers that have over US$400,000 available for investment. Customers in private banking receive not only local but also global investment advice. Its value plan is composed of (i) high quality standards in client service by expert account managers, (ii) close and personalized service, (iii) special interest rates, and (iv) exclusive branches. Customers in this segment total approximately 2,600.

Customers served by the BCP Enalta segment must have monthly incomes in excess of US$9,000 or have at least US$200,000 available for investment. BCP Enalta customers have access to six exclusive branches in Lima, where they may perform financial transactions and obtain personalized advice from investment, insurance and loan experts based on their risk profiles and financial needs. BCP Enalta also offers customers: (i) access to exclusive products, (ii) specialized account managers and/or expert phone banking, (iii) preferential service by tellers at branches, and (iv) preferential interest rates on loans. BCP Enalta has approximately 13,800 customers. The Wealth Management Group generates 13% of the RB&WM Group’s net income, 9% of the RB&WM Group’s loan volume and 19% of its deposit volume.

Customers in BCP’s “mass affluent” segment must have a positive credit record and a monthly income of at least S/.5,000. They receive a differentiated value plan which includes: (i) access to innovative products, (ii) dedicated customer services channels such as specialized account managers and/or expert phone banking, (iii) preferential service by tellers at branches and (iv) preferential interest rates on loans. Approximately 108,000 of the mass affluent clients are serviced through specialized account managers responsible for improving per-client profitability and achieving long-term relationships through personalized service, cross-selling and share of wallet strategies. Account managers are also responsible for new customer acquisition. BCP has approximately 196,000 mass affluent customers. The mass affluent banking segment generates 15% of the RB&WM Group’s net profit while managing 3.8% of the RB&WM Group’s total customer base, 25% of its loan volume and 18% of its deposit volume.

Small Business Banking

BCP’s Small Business Banking Segment accounts for approximately 372,808 clients. Customers are divided into two groups with different business models, services levels, and product access. The first group is top-end small business banking, which serves approximately 10,800 clients with debts between US$0.25 million and US$1.8 million and/or annual sales between US$0.5 million and US$10 million. The next group serves approximately 362,008 small business clients, which have debts up to $0.25 million and/or annual sales up to US$0.5 million.

According to BCP’s internal reports, the Small Business Banking loan portfolio grew from US$2,744 million in 2011 to US$3,630 million in 2012, and by the end of 2013 the loan portfolio was US$3,921 million. In terms of deposits, this group increased deposits from US$2,003 million in 2011 to US$2,531 million in 2012 and US$2,574 million by the end of 2013.

Through Edyficar, BCP also serves the microfinance market, and as of December 31, 2013, it registered 522,056 clients with a total loan portfolio equivalent to US$936 million, which represented an increase of 25% compared to the level registered at the end of 2012. Comparing year end 2011 to 2012, loan balances also grew 48% from US$507 million to US$750 million. As of December 31, 2013, Edyficar had a client market share of 15%, making it first in terms of loans within the microfinance segment. The aggregate market share of Edyficar and BCP in the microfinance segment totaled 24.5% at the end of 2013, and combined, they have the highest market share in the microfinance segment (BCP’s micro-finance operations are part of the Small Business Segment).

Consumer Banking

Our Consumer Banking Area is in charge of developing strategies for the retail customers who are not included in affluent banking or small business banking. Its customer base consists of approximately 4.4 million medium to low income individuals. Consumer Banking focuses on customers who receive their payroll through BCP (which represent slightly more than 1.25 million clients). Its strategies vary from basic acquisition of new accounts for wage-earners with special terms regarding fees and interest rates, to more sophisticated, aggressive cross-sell and retention programs that expand benefits to non-banking products (i.e., access to discounted products) and access to payroll advances.

Mortgage Lending

As of December 31, 2013, BCP was the largest mortgage lender in Peru with a market share of 33.1% of total mortgage loans in the Peruvian banking system. This was largely the result of BCP’s extensive marketing campaigns and its improvements procedures for extending credit and establishing guarantees.

BCP expects the mortgage lending business to continue to grow because of:

BCP had US$3,489 million in outstanding mortgage loans as of December 31, 2013 (as compared to US$3,182 million at year-end 2012 and US$2,530 million at year-end 2011).

All of our mortgage-financing programs are available to customers with minimum monthly income of US$500. In the past, the Peruvian government sponsored a home ownership program known as the MiVivienda program, which provided assistance to purchasers of homes valued at up to US$60,000. Under the program, BCP financed up to 90% of the appraised value of a property (in either U.S. Dollars or in local currency) where monthly mortgage payments did not exceed 30% of the client’s stable net income. The maximum maturity of the mortgage loans BCP offered under the program was 25 years.

In May 2006, the original MiVivienda program was terminated. However, local banks (with government approval) launched a similar project, known as MiVivienda2, to which proprietary funds contribute. In addition, in March 2007, BCP created a new program financed by the government called Mi Hogar, which targeted people with a lower income profile. The conditions of the new program are almost identical to those of the first MiVivienda program, except that all financing is in local currency. In June 2009, the Peruvian government re-launched the MiVivienda program with the objective of financing mortgages between US$19,000 and US$95,000 using government funds (the government offers guarantees to the lending bank or financial institution through Corporación Financiera de Desarrollo S.A., COFIDE). Simultaneously, they re-launched their product, Techo Propio, to finance mortgages between US$7,000 and US$17,000. Both programs are intended to develop affordable housing in the country. In 2013, nearly 11,301 MiVivienda loans were sold and at the end of 2013, 38% of them were sold through BCP.

In 2011, BCP stopped offering variable and LIBOR-based home mortgages. BCP now only offers fixed interest rates on home mortgage loans denominated in both U.S. Dollars and Nuevos Soles. BCP’s mortgage portfolio is predominantly fixed rate and in Nuevos Soles.

As of December 31, 2013, mortgage loans in the Peruvian banking systems totaled approximately US$10,654 million, representing 15.7% of total loans in the Peruvian banking system and 5.3% of the Peruvian GDP. Comparatively, as of December 31, 2013, mortgage loans accounted for 17% of Credicorp’s total loan portfolio, with an average LTV (loan-to-value) of 61% and past-due-loan ratio of 1.59%. Through its subsidiary BCP, Credicorp has increased lending to lower socio-economic segments of the population in Peru through programs sponsored by the government (MiVivienda and Mi Hogar). Mortgage loans to this sector represent approximately 16% of Credicorp’s total mortgage loans and 2.72% of Credicorp’s total loans. The Company’s total portfolio also includes mortgage loans granted in Bolivia, which have an average LTV of 44.9% and represent 1.2% of Credicorp’s total loans.

The real estate market in Peru has been more active than the market in Bolivia in recent years, as a result of the shortage of housing in both countries and continued growth in GDP per capita. Along with this growth, Credicorp has experienced an increase in the volume of mortgage loans it grants per year. Mortgage loans are associated with low losses because of their low LTV, and they have the added benefit of generating opportunities for cross selling other banking products, which has had a positive impact on Credicorp’s results of operations.

Consumer Lending (Credit Cards and Installment Loans)

Consumer lending, credit cards and installment loans have grown significantly as improving economic conditions have led to increased consumer spending in Peru. BCP expects the strong demand for these products to continue. In addition to interest income, BCP derives income from customer application, maintenance, retailer transaction merchant processing, finance and credit card penalty fees.

Peru’s economic growth has had a major impact on the consumer credit market, which grew by a total of 22% in 2011, 15% in 2012 and 12% in 2013. The outstanding balance of consumer loans (monthly average) in Peru is slightly under US$11.9 billion, consisting of US$4.4 billion in credit card loans and US$7.5 billion in installment loans. BCP’s market share in consumer lending has consistently increased since 2010, growing from 19.6% to 22.3% by year-end 2013. This growth in consumer lending was achieved while maintaining a PDL ratio (for over 30 days) of 4.9%.

During 2011 and 2012, installment loans grew 27% and 23%, respectively. In 2013, these loans grew by another 20%. These results were due, in part, to a strategic change by BCP, which was designed to broaden its customer base.

In the credit card business, BCP continued to apply segmented strategies. BCP continues to offer value to its high-end customers through partnerships with the airline LAN and with Primax, a related chain of gas stations. These programs, coupled with BCP’s own travel program, enabled BCP to reach record levels, both in points that clients gained for using their credit cards and in points that clients spent to obtain products or services available under loyalty plans. To attract customers in the lower income segment, BCP is streamlining its risk assessment and card delivery processes and generating partnerships with other retailers.

In 2011, the RB&WM Group launched a new product called Movistar BCP MasterCard Credit Card, in partnership with Movistar, a global leader in the telecom business. The product is designed to strengthen BCP’s position in Peru’s low income market and it is the first MasterCard credit card offered by BCP. In addition, the Movistar BCP MasterCard Credit Card complements BCP’s existing AMEX and VISA products.

BCP has been improving its credit monitoring systems and optimizing its scoring models, which include, among others, behavior, payments and income forecasting. As a result, BCP achieved an increase of over US$297 million in outstanding balances from credit cards from 2011 to 2013 (monthly average). According to BCP’s internal records, the number of active credit cards has constantly increased from 510,000 in 2010 to 763,000 in 2011, 910,000 in 2012 and 984,000 in 2013.

In addition, BCP has developed sales capacities in alternative channels, such as sales through telephone contact centers, which now represent 40% of total credit card sales.

(iii) Treasury

Treasury, Foreign Exchange, Derivatives and Proprietary Trading

BCP’s Treasury and Foreign Exchange Groups are active participants in money market and foreign exchange trading. These groups manage BCP’s foreign exchange positions and reserves and are also involved in analyzing liquidity and other asset/liability matters. The trading desk plays an important role in money markets denominated in Nuevos Soles and in other currencies. It has also been active in the auctions of certificates of deposit by the Peruvian Central Bank as well as in financings through certificates of deposit, interbank transactions and guaranteed negotiable notes, among other instruments.

BCP’s derivative group helps companies, ranging from SME to large corporations, hedge their market risks. This group offers forwards, FX options, interest rate swaps, cross currency swaps as well as tailor-made derivatives for its clients. In addition to its local presence, the derivative group has a regional presence, serving clients in the Andean region. BCP’s derivative group is closely supervised by BCP’s treasury risk unit, which includes professionals trained in risk best practices in international markets. This allows BCP to minimize risk and provide competitive prices to its clients.

BCP adheres to international best practices in terms of cash management. In 2007, BCP created the Assets and Liabilities Management Service (or ALM) which is responsible for managing its balance sheet under the Asset and Liabilities Committee (or ALCO) oversight. ALM is responsible for managing BCP’s balance sheet and for accepting reasonable interest rate and liquidity risks through management of the short- and long-term transfer rates.

BCP’s proprietary trading consists of short-term investments in securities (corporates and governments), which includes instruments from various countries. BCP is one of the main liquidity providers in the government bond local market where it is part of the Market Maker Program of the Ministry of Economy of Peru.

Additionally, as of December 31, 2013, trading securities, investments available-for-sale and investments held-to-maturity totaled US$7,295 million, which represented 17.9% of Credicorp’s total assets. Approximately US$3,430 million were financial instruments rated in Peru, of which nearly 65.6% were instruments from the Peruvian Central Bank (the Peruvian Government’s current rating is BBB+ in both domestic and foreign currency, according to S&P and Fitch; and Baa2 according to Moody’s) and approximately 18.9% had local ratings equal to or above A-. Approximately US$3,864 million of Credicorp’s trading securities, investments available-for-sale and investments held-to-maturity were financial instruments rated abroad, of which 75.4% held international ratings equal to or above BBB-. Approximately 63.1% of Credicorp’s total trading securities, investments available-for-sale and investments held-to maturity were exposed to Peru country risk; and 13.4% are exposed to United States country risk.

4.4 Lending Policies and Procedures

The Bank has adopted a risk appetite framework and established objective metrics and thresholds to periodically monitor the Bank´s evolving risk profile. The framework was approved by the Board of Directors, and will be managed and monitored by the Risk Management Unit within the Bank’s Central Risk Management Group. The adoption of a risk appetite framework reflects the Bank´s commitment to aligning its forward-looking business strategy with its corporate risk vision.

BCP’s uniform credit policies and approval and review procedures are based upon conservative criteria and are uniformly applied to all of its subsidiaries. These policies are administered in accordance with guidelines established by the Peruvian financial sector laws and SBS regulations. (See “—(12) Supervision and Regulation—(ii) BCP,” and the guidelines set forth by our board of directors.)

BCP’s credit approval process is based primarily on an evaluation of each borrower’s repayment capacity and commercial and banking references. BCP determines a corporate borrower’s repayment capacity by analyzing the historical and projected financial condition of the company and of the industry in which it operates. Other important factors that BCP analyzes include the company’s current management, banking references, past experiences in similar transactions, and the quality of any collateral to be provided.

For the evaluation of BCP’s corporate borrowers, credit officers analyze the client’s ability to repay obligations, determine the probability of default of the client using an internal risk rating model, and define the maximum credit exposure that BCP wants to hold with the client.

BCP’s individual and small business borrowers are evaluated by considering the client’s repayment capacity, a documented set of policies (including, among other issues, the client’s financial track record), and, in most cases, credit scores, which assign loan-loss probabilities relative to the expected return of each market segment. In BCP, about 80% of credit-card and consumer-loan application decisions are made through automatic means. Mortgage and small business loan applications decisions are made by credit officers who use credit scores and profitability models as inputs for their evaluations and report to a centralized unit.

Our success in small business and personal lending areas depends largely on BCP’s ability to obtain reliable credit information about prospective borrowers. The SBS has an extensive credit bureau which has expanded its credit exposure database service to cover businesses and individuals that have borrowed any amounts from Peruvian financial institutions. This database includes risk classifications for each borrower: “Normal,” “Potential Problem,” “Substandard,” “Doubtful” and “Loss.”

BCP has a strictly enforced policy that limits the lending authority of its loan officers. It also has procedures to ensure that these limits are adhered to before a loan is disbursed. Under BCP’s credit approval process, the lending authority for middle market, small business, and personal loans is centralized into a specialized credit risk analysis area, which is operated by officers that have specific lending limits. In addition to the controls built into the loan approval workflow systems, the credit department and BCP’s internal auditors regularly examine credit approvals to ensure that loan officers and credit analysis officers are complying with lending policies.

The following table briefly summarizes BCP’s policy on lending limits for loan officers and credit risk analysis officers. Requests for credit facilities in excess of the limits set forth below are reviewed by BCP’s COO, executive committee or, if the amount of the proposed facility is sufficiently large, board of directors.

In addition, BCP has approved concentration limits by industry, based on its target market share and loan portfolio participation.

BCP believes that an important factor in maintaining the quality of its loan portfolio is the selection and training of its loan and risk officers. BCP requires loan officers to have degrees in economics, accounting or business administration from competitive local or foreign universities. In addition, training is based on a three-month “Bank Specialization Program”. Trainees in this program are taught all aspects of banking and finance. After the training program finishes, trainees are hired as loans officers and receive specialized training in credit risk. Loan officers also receive training in specific matters throughout their careers at BCP and also through a comprehensive training program called “Triple AAA”. Laterally-hired officers generally are required to have prior experience as loan officers.

BCP operates in substantial part as a secured lender. As of December 31, 2013, approximately US$12.7 billion of our loan portfolio and contingent credits were secured by collateral, which represents 51.4% of the total loan portfolio based upon our unconsolidated figures, as compared to 49.6% in 2012 and 48.9% in 2011. 

Liquid collateral is a small portion of BCP’s total collateral. In general, when BCP requires collateral for the extension of credit, it requires collateral valued at between 110% and 150% of the principal amount of the credit facility granted. The appraisal of illiquid collateral, in particular real estate assets, machinery and equipment, is performed by independent experts when required for specific reasons.

Pursuant to a Peruvian regulation (Article 222° under Law 26702) that became effective in December 1998, the existence of collateral does not affect the loan classification process. For Peruvian accounting purposes, secured loans (or the portion of any loans covered by collateral) that are classified in Class “B,” “C,” or “D” risk categories considered as substandard loans (See “Item 4. Information on the Company- (B) Business Overview - (13) Selected Statistical Information -(iii) Loan Portfolio - Classification of the Loan Portfolio”) have a lower loan loss provision requirement than similar unsecured loans. If a borrower is classified as substandard or below, then BCP’s entire credit exposure to that borrower is so classified.

BCP conducts unannounced internal audits on borrowers’ financial statements, consistent with the local banking regulations of the jurisdictions in which it operates.

4.5 Deposits

Deposits are principally managed by BCP’s Retail Banking Group. The main objective of BCP’s Retail Banking Group operations has historically been to develop a diversified and stable deposit base in order to provide a low-cost source of funding. This deposit base has traditionally been one of BCP’s greatest strengths. BCP has historically relied on the more traditional, stable, low cost deposit sources, which it considers to be its core deposits: demand deposits, savings and CTS deposits. CTS deposits, or Severance Indemnity Deposits, are funded by companies in the name of their employees. CTS deposits amount to one month’s salary per year and may be withdrawn by the employee upon termination of employment, subject to certain exceptions. Exceptions include disposing of 40% of the CTS deposit made in May 2010 and 30% of CTS deposit made in November 2010. Since the year 2011, employees have been able to dispose 70% of the excess of six gross monthly remunerations.

As of December 31, 2013, deposits represented 72.0% of BCP’s total source funding. BCP’s extensive branch network facilitates access to this source of stable and low-cost funding. BCP’s corporate clients are also an important source of funding for BCP.

4.6 Support Areas

BCP’s commercial banking operations are supported by its Risk Unit, which evaluates and helps administer credit relationships, establishes credit policies and monitors credit risk. See “—(4) BCP and Subsidiaries—(v) Lending Policies and Procedures.”

BCP’s Planning and Finance Unit is in charge of planning, accounting and investor relations functions and is also responsible for analyzing the economic, business and competitive environment in order to provide the information necessary to support senior management’s decision-making.

In addition to the above, BCP’s Administration Group is generally responsible for information technology, quality control, institutional and public relations, human resources, the legal department, security, maintenance and supplies.

Information Technology (IT)

BCP believes its technology platform as one of its main competitive strengths and continues to invest in this area to maintain its competitive position in the banking sector. During 2012, IT changed its operating model, which outsourced the administration and operation of the IT infrastructure, applications development and maintenance of some of these, to three companies, leaders in their field: IBM, Tata Consulting Services and Everis. As a result in 2013, IT delivered more projects/requirements (43% more than 2009), reduced time-to-market (41% less than 2009) and strengthened our contingency and business continuity plan.

BCP’s investments in IT totaled US$75.1 million in 2011, US$58.7 million in 2012 and US$71.3 in 2013. BCP’s expenses on IT totaled US$152 million in 2011, US$190.1 million in 2012 and US$200.6 million in 2013. The 6% increase in expenses in 2013 was primarily due to economies of scale gained in consumption of outsourced infrastructure. As we expected, the rate of IT expenses as a percent of revenue remained at 8.3% on average in the last three years.

Marketing

BCP continually works to protect and strengthen the BCP brand. BCP has a proactive attitude towards competition and is focused on change and innovation. The company promotes its products and services by constantly improving them. In this manner, BCP aims to grow and be a leader in every retail financial market by offering the highest possible value for its clients and shareholders. During 2013, BCP continued its strategy which was based on generating value.

BCP also continues to develop strategies to approach different retail customer groups through our customized outreach strategy known as Customer Relationship Management (CRM). This has enabled BCP to reach customers proactively and provide them with personalized offers and terms, in a timely manner while using cost effective channels and maximizing efficiency.

Another key element for BCP in creating value is innovation. BCP has launched several innovative products, including new service products for wealthy customers and new benefits for customers whose wages are paid directly into their BCP accounts. BCP is also constantly evaluating and improving its internal systems, operations and organizational structure in order to achieve leaner and more efficient processes which enhance the banking experience for our customers. Since 2009, BCP has streamlined processes by making adjustments to branch layouts, tellers, ATM cash management and mortgage lending practices. We have also implemented more standardized and sustainable commercial practices.

Quality service is a permanent goal for BCP and the company aims to proactively meet or exceed regulations promulgated under the Consumer Protection Law. BCP has made significant investments in improving service and keeping customers informed about its products and services, with a special focus on reducing claims.

4.7 Anti-Money Laundering Policies

Anti-Money Laundering

Peruvian law for the prevention of money laundering and terrorist financing (SBS Resolution N° 838-2008), established that companies must have a system that allows ensure and prevent products and/or services offered to public to be used for illegal purposes related to money laundering and/or terrorist financing, subject to warnings, fines, withdrawal of operating license and even imprisonment.

The prevention program is shaped by the policies and procedures established by the company in accordance with the law, regulations, additional rules and other relevant provisions and is applicable for all units or departments according to the functions they fulfill while also considering the company’s compliance manual and code of conduct.

Credicorp has developed an Anti-Money Laundering program complying with the applicable rules and regulations, the Financial Action Task Force (FATF) recommendations and resolutions issued by the UN. Also, Credicorp has mechanisms to prevent and monitoring tools that allow due diligence to ensure that products and services are not misused to conceal ill - gotten gains from illegal activities.

This program is focused mainly on the following:

Corporate Compliance System

The Anti-Money Laundering program is part of a Corporate Compliance System, which is applied to all companies within the group and has been developed under a comprehensive approach based on international best practices and the ethical principles and values of the corporation. This system consists of policies and procedures to properly manage compliance with applicable local and international standards. In order to ensure proper compliance with any new and changing laws and regulations, our efforts focus on the identification of such new or changed requirements affecting the business lines of the corporation, and sets internal deadlines such that implementation of relevant compliance processes occur in accordance with each new obligation.

In addition, the Corporate Compliance System has a risk-based approach, which focuses on reducing the level of exposure to fines or other penalties that can also negatively impact the reputation of the corporation.

Furthermore, there are specific compliance programs for those considered high impact standards for the organization, and which require a comprehensive focus to its proper implementation, among which we can highlight the following:

The Corporate Compliance System provides specialized courses and virtual training for employees, which are fundamental to the management of compliance and in order to consolidate the culture at the corporate level.

Additionally, included monitoring of compliance with policies and procedures governing the ethical line of employees of the corporation, in order to identify opportunities for improvement. Similarly, the system is permanently monitored by regulators, internal and external audits to verify compliance with procedures and to ensure alignment with regulatory requirements.

4.8 Employees

As of December 31, 2013, BCP had 22,657 employees (including 1,666 employees from BCP Bolivia and 4,051 employees from Edyficar) compared to 21,774 employees as of December 31,2012 and 18,588 employees as of December 31, 2011.

(5) Atlantic Security Bank (ASB)

ASB is a Cayman Islands licensed bank that engages in private banking, asset management and proprietary investment. It was incorporated in September 1984, in the Cayman Islands and principally serves Peruvian-based customers. ASB has an international licensee branch in Panama, through which it conducts all commercial business.

As of December 31, 2013, ASB had total assets of US$1,784.3 million and shareholders’ equity of US$200.3 million. As of December 31, 2012, ASB total assets and shareholders’ equity reached US$1,768.5 million and US$219.8 million, respectively (compared with US$1,523.5 million and US$189.2 million, respectively, as of December 31, 2011). ASB reported a net income of US$50.7 million in 2013, compared with US$48.4 million in 2012 and US$41.1 million in 2011.

ASB’s clients have traditionally provided a stable funding source, as many are long-time clients who roll-over deposits on a permanent basis. As of December 31, 2013, ASB had approximately 3,500 clients, 92% of whom were Peruvian. ASB deposits reached US$1,444.7 million in 2013 from US$1,396.8 million in 2012 and US$1,320.6 million in 2011.

ASB trades on its own account primarily by making medium-term investments in investment grade fixed-income securities and sovereign debt. Non-investment grade fixed-income securities represent a distant second in terms of portfolio allocation, while equity and hedge-fund positions, though present, are less relevant. As of December 31, 2013, ASB’s investment portfolio was US$858.2 million, compared to US$802.5 million in 2012 and US$811.6 million in 2011.

Third-party asset management is an important activity for ASB. Total AuMs reached US$3,771.8 million as of December 31, 2013, compared to US$3,961 million as of December 31, 2012 and US$3,193.6 million as of December 31, 2011. These assets comprise a range of unsolicited securities directly to ASB, in which case ASB acts as an intermediary in the management and custody of these investments and mutual funds.

ASB also maintains a sizable loan portfolio. Total loans was situated at US$786.3 million, US$801.1 million and US$606.1 million at year-ended 2013, 2012 and 2011, respectively. Between 95% and 97% of these loans were guaranteed by client’s deposits or investments. At the year-end 2013, for example, only US$21.2 million of this total represented unsecured loans. This level of collateralization is reflected in ASB’s level of non-performing loans, which is consistently less than 1% of its total loan portfolio. The majority of ASB’s loans are granted to Peruvian individuals and companies, while those that are not are otherwise directed exclusively to Latin American borrowers.

ASB’s overall investment strategy, the general profile of its investment portfolio and its specific investment decisions are reviewed on a weekly basis by an investment committee. Its credit risk by counterparty, including direct and indirect risk, is evaluated on a consolidated basis and covers all activities that generate credit exposure such as interbank placements, commercial loans and securities investment. Market, liquidity and operational risks are monitored by ASB’s Risk Management Unit, which in turn reports to and is supervised by a Corporate Risk Committee, an Asset-Liability Committee and the Board of Directors.

During 2013, ASB culminated its initial international credit risk rating process, achieving an investment grade credit rating "BBB- / A-3" with outlook “Stable” issued by Standard & Poor's, considering ASB a "strategically important" entity for Credicorp Group and its sister entity, Peru-based universal bank Banco de Crédito del Perú.

(6) Grupo Pacífico

We conduct our insurance activities through Pacífico Seguros Generales and its subsidiaries, Pacífico Vida and Pacífico EPS, which we collectively refer to as Grupo Pacífico. We provide a broad range of insurance products (including property and casualty, life and health). In 2013, the eight most significant business lines collectively generated 85.2 % of total premiums written by Grupo Pacífico as compared to 85% in 2012 and 72.7% in 2011 (see table below).

Grupo Pacífico is the second largest Peruvian insurance company, with a market share of 29% based on direct premiums earned in 2013. This market share calculation includes premiums from Pacífico Seguros Generales, Pacífico Vida and Pacífico EPS and represents our total market share in the insurance market and the healthcare sector.

Pacífico Seguros Generales total written premiums increased 11.8% in 2013 (from US$419.6 million in 2012 to US$469.3 million in 2013) and 10.8% in 2012 (from US$378.6 million in 2011 to US$419.6 million in 2012). Pacífico Seguros Generales total written premiums includes Medical Assistance and Personal Accident premiums for an amount of US$ 122.4 million and Property and Casualty premiums ascend to US$346.9 million in 2013 (US$104.6 million and US$315 million in 2012 and US$81.5 million and US$ 297.1 million in 2011, respectively)

In 2013, Pacífico Seguros Generales net income experienced a loss of US$1.4 million, compared to net profits of US$13.7 million in 2012 and US$14.2 million in 2011. This decrease was mainly attributable to a more competitive market in comparison to prior periods, which affected the loss ratio and the cost of business acquisition. The loss ratio increased from 56.1% in 2012 to 62.0% in 2013, primarily because adjustments in rates were not enough to cover the rising cost of care claims with respect to automobile insurance. In April 2013, the company took corrective measures in pricing and the underwriting process in order to improve the profitability of the business for 2014. Additionally, the result reflects an accounting loss of US$3.7 million due to the devaluation of the local currency. However, the Property and Casualty business lines increased underwriting results from US$16.2 million in 2012 to US$19.4 million in 2013, due to the reduction of exposure to severe losses by ceding 55% of the portfolio risk in a proportional reinsurance of the Fire and Allied Lines and Technical Lines, and after the application of more restrictive underwriting policies.

Grupo Pacífico’s insurance lines are sold through agents, brokers, sponsors, bancassurance and sales force. The 10 largest brokers in the property and casualty segments as well as in the private health segment accounted for approximately 46.0% of total written premiums as of December 31, 2013, compared to 45.5% as of December 31, 2012 and 44.1% as of December 31, 2011.

Pacífico Vida is Grupo Pacífico’s life insurance subsidiary. Pacífico Vida recorded a 9.1% increase of total written premiums in 2013 (US$428.4 million) compared to 2012, and a 21% increase in 2012 compared to 2011.

The change in total premiums during 2013 was primarily a result of higher premiums reported in Pacífico Vida’s credit life (37.7%), group life (12.5%), and individual life (11.5%) business lines. Pacífico Vida performance in these areas was consistent with the improved performance of the Peruvian life insurance market overall.

Pacífico Vida reported a 27.0% market share based on direct premiums earned to December 2013.

Credit Life written premiums, which involve credit cards and mortgage loans (through the obligatory credit life insurance that accompanies these type of credit products pursuant to corporate risk policies), increased by 32.0% in 2013 (compared to a 39.8% and 33.5% in 2012 and 2011, respectively). The strong gains from these premiums are attributable to Pacífico Vida’s partnership with Banco de Crédito. Currently, Pacífico Vida has the highest market share in the insurance industry with 30.9%, of the market in comparison to 29.6% in 2012 and 26.1% in 2011), with its market share in 2013 14% higher than its nearest competitor.

As a result of the tender process for the exclusive right to manage the collective insurance policy for disability, survivorship and burial expenses in Peru’s private pension system, Pacífico Vida did not issue and has not received income from disability, survivorship and burial expenses policies thorugh SPP since October 2013. This resulted in a 4.7% decrease in Pacífico Vida written premiums in 2013 (compared to a 37.9% and 25.2% increase in 2012 and 2011, respectively).

Group Life total written premiums increased by 12.5% in 2013 (compared to an increase of 22.5% and 13.6% in 2012 and 2011, respectively), mainly through increases in the premiums collected from Group Life and Complementary Work Risk Insurance (SCTR by its Spanish initials) that rose 31%. Employers in high-risk industries and employers whose personnel work over four years (Vida Ley) are required by law to purchase these types of insurance. This growth was primarily the result of macroeconomic gains experienced across the country, the higher number of formal businesses in Peru and the strong development of Peru’s mining and construction industries.

Individual Life’s written premiums increased 11.5% in 2013 (compared to an increase of 14.6% and 15.3% in 2012 and 2011, respectively), above the market growth (8.2%). This line represents 19.9% of the income. This result was mainly due to the development of our distribution channels, which include our main channel, our exclusive agencies and bancassurance, brokers and sponsors. Exclusive agencies are in 21 Peruvian cities, represents 86% of this line production. As a result, we had a 40% market share, leading this sector of the insurance industry.

Pacífico Vida’s annuity line achieved similar results to prior years (compared to an increase of 7.1% and 7.8% in 2012 and 2011, respectively). We currently have the fourth market share in this sector of the insurance industry with 18.1%.

Pacífico Vida generated a net income of US$50.0 million in 2011, US$59.6 million in 2012 and US$50.3 million in 2013.

Total written premiums in Health Insurance amounted to US$360.9 million during 2013. This line is classified into the following contracts: (i) Medical Assistance policies whose written premiums amounted to US$122.4 million and (ii) collective health policies whose written premiums amounted to US$238.5 million as described the paragraph below.

Pacífico Seguros’s Medical Assistance had total written premiums of US$122.4 million during 2013, a 17.3% increase in comparison with 2012. The improvement was mainly due to an increase in net earned premium also compared to 2012, as a result of acquiring more customers by completing the portfolio of health products.

Pacífico EPS reported total written premiums of US$238.5 million in 2013, a 13% increase in comparison with 2012. Nevertheless, the company registered a net loss of US$4.7 million in 2013. The company also registered a net loss of US$5.7 million in 2012, compared to the gain of US$2.8 million in 2011. The net loss in 2013 was mainly due to the Medical Subsidiaries Business, which registered a net loss of US$9.2 million compared to the net loss of US$1.4 million in 2012. On the other hand, Pacífico EPS’s Insurance Business (collective health policies) registered a net income of US$4.5 million, compared to the loss of US$4.3 million in 2012. The improvement in 2013 of the Insurance Business was due to: i) price adjustment in the majority of health plans made in 2012 and 2013, ii) focus on reduction of cost expansion that happened in previous years, and iii) a positive result of translation adjustment.

The 2013 consolidated revenues showed an increase of 24% in comparison to 2012 (US$140.3 million in 2013), driven by the growing demand of medical services by Peruvian families. Consolidated gross margin increased to $36.7 million at the end of 2013, an increase of 35% compared to $27.2 million at the end of 2012. This result is explained by a cost-saving strategy based on: 1) aligning doctor’s request of medicine/procedures to a standardized list accepted by insurance companies; 2) creating a centralized purchase unit; and 3) purchasing our own medical equipment, which allow us to a bigger margin on services while paying less in fees.

However, our operating income deteriorated to -$8.8 million at the end of 2013, compared to $2.1 million at the end of 2012 due to Pacífico’s strategy, which began a stage of consolidation. The efforts of the management team were focused on: 1) finishing initial expansion and baseline infrastructure projects with the goal of increasing patient safety; 2) beginning the standardization of IT systems as well as accounting procedures that could sustain a future consolidated operation of our healthcare facilities; 3) implementing baseline medical and healthcare risk management procedures that could prepare us to obtain accreditation by the Joint Commission accreditation; and 4) launching a nationwide marketing campaign of a new umbrealla brand of health clinics called SANNA. The Joint Commission (TJC) is a United States-based non-profit tax-exempt organization that accredits more than 20,000 health care organizations and programs in the United States. A majority of state governments recognize Joint Commission accreditation as a condition of licensure and the receipt of Medicaid reimbursement.

(i) Underwriting, Clients and Reinsurance

Underwriting guidelines for substantially all of Pacífico Seguros Generales property & casualty, and health insurance risks are elaborated by profit centers in conjunction with the actuarial staff. Pacífico Seguros Generales own engineering staff inspects most medium and medium-to-large commercial property risks prior to underwriting, whereas third party surveyors are employed to inspect smaller risks. Underwriting guidelines, rates and approval thresholds for these types of insurance are periodically reviewed by the profit centers with the actuarial staff, and informed to Pacífico Seguros Generales’ risk committee.

Pacífico Seguros Generales transfers risks to reinsurers in order to limit its maximum aggregate potential losses and minimize exposures on large individual risks. Reinsurance is placed with reinsurance companies based on the evaluation of the credit quality of the reinsurer, terms of coverage and price. Pacífico Seguros Generales’s main reinsurers in 2013 were, among others, Lloyd’s, Munich Re, Swiss Re, Hannover Re, Gen Re, Everest Re, and the AIG group. Pacífico Seguros Generales acts as a reinsurer on a very limited basis, providing excess facultative reinsurance capacity to other Peruvian insurers that are unable to satisfy their reinsurance requirements.

Pacífico Seguros Generales historically has obtained reinsurance for a substantial portion of its earthquake-related insurance portfolio through excess loss reinsurance treaties. In addition, in 2012 Pacífico Seguros Generales negotiated proportional reinsurance support for this portfolio, which it maintains as of 2013. Pacífico Seguros Generales has property catastrophe reinsurance coverage in place that covers its probable maximum loss under local regulatory requirements. However, there can be no assurance that a major catastrophe would not have a material adverse impact on Pacífico’s financial condition and/or its operations.

In respect of life insurance, underwriting decisions are made with the support of the subsidiary Pacífico Vida’s Subscription Management and its technical staff. Underwriting guidelines are approved by reinsurer’s policies if it is necessary. Pacífico Vida mainly holds excess of loss reinsurance contracts for Individual Life, Personal Accident, Group Life and Credit Life products; for the case of Work Compensation Risk Insurance holds a quota share contract. Catastrophic reinsurance contracts covers all company’s lines (Individual Life, Personnel Accident, Group Life, Credit Life, SCTR and Disability and Survivorship), except Individual Annuity Pacífico Vida’s reinsurers in 2013 were: Swiss Re, Hannover Re, Gen Re and Scor Vie. Premiums ceded to reinsurers represented 2.9% of gross premiums in 2013.

Total Premiums ceded to reinsurers represented 15.6% of gross group written premiums in 2013.

(ii) Claims and Reserves

Net claims paid by Grupo Pacífico as a percentage of net premiums written (i.e., the net loss ratio) in 2013 reached 66.7% an increase compared to the net loss ratio of 63.0% and 64.2% recorded in 2012 and 2011, respectively.

Pacífico Seguros Generales’s net loss ratio, which includes Medical Assistance and Personal Accidents lines, increased from 54.4% in 2011 to 56.1% in 2012 and 62.0% in 2013. This increase was mainly attributable to the increase in claims in automobile products insurance for an increase in cost claims attention, and ULAE.

The net loss ratio in the life insurance lines decreased from 64.9% in 2012 to 61.8% in 2013 (62.3% in 2011), primarily following the completion of the contract with Prima AFP occurred in October, which represented an important part of company’s loss. The net loss ratio in the health businesses also decreased from 83.6% in 2012 to 82.6% in 2013 (80.4% in 2011).

Grupo Pacífico is required to establish (i) claims reserves related to pending claims in its property-casualty business, (ii) reserves for future benefit obligations under its in-force life and accident insurance policies, and (iii) unearned premium reserves related to that portion of premiums written that is allocated to the unexpired portion of the related policy periods (collectively, “Technical Reserves”). Grupo Pacífico establishes claims reserves with regard to claims when reported, as well as for incurred but not reported (IBNR) claims. Such reserves are reflected as liabilities in Grupo Pacífico financial statements.

Grupo Pacífico records as liabilities in its financial statements actuarially determined reserves calculated to meet its obligations under its life and accident policies and its pension fund underwriting business. These reserves are determined using mortality tables, morbidity assumptions, interest rates and methods of calculation in accordance with international practices.

Pursuant to SBS regulations, Grupo Pacífico establishes pre-event reserves for catastrophic risks with respect to earthquake coverage. See “—(12) Supervision and Regulation—(v) Grupo Pacífico—Reserve Requirements”. In accordance with IFRS principles, the pre-event reserves and income charges for these catastrophic reserves are not considered in Credicorp’s consolidated financial statements.

Even though Grupo Pacífico maintains reserves to reduce its exposure, there is always some risk that claims might exceed Grupo Pacífico’s reserves. To address this issue we evaluate our reserves estimates on a periodic basis, by third party experts and by means of sensitivity analysis, IBNR´s sufficiency analysis and explanation of variations.

(iii) Investment Portfolio

Grupo Pacífico’s investments are made primarily to meet its solvency equity ratio and to provide reserves for its claims. Grupo Pacífico manages its investments under three distinct portfolios, designed to contain sufficient assets to match the liabilities of the group’s property and casualty (Pacífico Seguros Generales), life and annuities lines (Pacífico Vida), and health care lines (Pacífico EPS). Each portfolio is managed under the authority of its own committee, which reviews portfolio strategy on a monthly basis. Grupo Pacífico’s invests in local and international markets, emphasizing investments in Peru, the U.S. and Latin America. Grupo Pacífico’s has adopted strict policies related to investment decisions. Its investment strategies and policies are reviewed and approved by Grupo Pacífico’s Board of Directors. Senior management also takes a leading role in devising investment strategies.

Grupo Pacífico’s investment strategy also considers an appropriate match of currencies related to its assets and liabilities. Grupo Pacífico’s premiums are 52.2% denominated in U.S. Dollars and 48.2% in Nuevos Soles; most of the group’s assets are also invested in these currencies.

Grupo Pacífico is constantly monitors its investment policy in order to apply best international risk management practices and tools. Also, Grupo Pacífico has incorporated into its investment policy recommendations of Solvency II and Basel II, with a view to developing hedges against the group’s liabilities; especially in connection with obligations vis-à-vis Grupo Pacífico’s insured customers.

As of December 31, 2013, the market value of Grupo Pacífico’s investment portfolio (which includes Pacífico Seguros Generales, Pacífico Vida and Pacífico EPS) was US$1,701.2 million, which included mainly US$160.0 million in equity securities and US$1,541.2 million in fixed income instruments. Credicorp mantains investment properties amounted to US$ 49.5 million which are valued at this cost and the fair value of these properties amounts to US$ 140.6 million as of December 31, 2013. The portfolio is well diversified and it follows an asset-liability management strategy which is based on matching assets (portfolio) and liabilities (reserves): (i) cash flow and duration matching; (ii) currency matching.

Grupo Pacífico’s consolidated financial income increased 1% in 2013 (from US$ 121.3 million in 2012 to US$122.5 million in 2013) and 17% in 2012 (from US$ 103.4 million in 2011 to US$ 121.3 million in 2012). These amounts are the net result, do not consider transactions between entities that belong to Grupo Pacífico. The increase observed in 2013 is mainly attributed to the growth of Pacífico Vida’s business lines (especially the life insurance business) and Pacífico Seguros Generales’s property and casualty businesses.

Pacífico Seguros Generales’ portfolio had a market value of US$166.4 million at year-end 2013; which included equity investments, and fixed income instruments. Also, Pacífico Generales mantains investment properties amounted to US$11.4 million which are valued at its cost and the fair value of these properties amounts to US$ 140.6 million as of December 31, 2013.Pacífico Vida’s portfolio had a market value of US$1,530 million at year-end 2013; it mainly consisted of high grade long-term debt instruments. Pacífico EPS’ portfolio had a market value of US$4.8 million.

Pacífico Seguros Generales’ 2013 financial income grew to US$38.3 million, an increase of 13.0% compared to US$33.9 million in 2012; a year earlier in 2011 financial income was US$27.0 million. The performance reflected our strategy of maximizing capital appreciation. It was improved, mainly due to US$21.2 million in capital gains in equity and real estate.

Pacífico Vida’s 2013 financial income (before eliminations) grew to US$97.6 million, an increase of 10.0% compared to US$89.0 million in 2012; a year earlier in 2011 financial income was US$71.8 million. This increase was mainly due to (i) growth in the annuities business line, (ii) growth of US$10.3 million in capital gains in equity and bonds, (iii) increased rates in the fixed income markets, and (iv) growth of the Peruvian consumer price index, which had a positive effect of US$8.1 million on inflation adjusted bonds.

(7) Prima AFP

In 2012, the Peruvian Government published the Law to Reform the Private Pension System. The law sets forth a new process by which individuals, which are called affiliates, may become beneficiaries affiliated with the SPP. Under the new law, auctions are held every 24 month to determine which company will have the exclusive right to manage the accounts of new SPP affiliates for a two year period. A competitive bidding process took place in September 2012 to determine which company would manage the accounts during a transitional period from September 2012 through the end of January 2013 (subsequently extended to May 2013). Prima AFP won the September auction and managed the accounts of new affiliates during the transitional period.

In December 2012, there was held the first auction to determine who would manage the accounts for the first full two year period. A new participant in the system won the tender, but that participant did not have the operational capacity to manage new affiliate accounts as of February 1, 2013. As a result, Prima AFP continued managing the new accounts until May 31, 2013. The new participant started operations on June 1, 2013.

In fact, between October 2012 and May 2013, Prima AFP had the exclusive right to capture new affiliates. Over this eight-month period, the company’s commercial efforts increased its client base by 200 thousand new affiliates (140 thousand only in 2013). As a result, Prima AFP strengthened its position in the market and gained competitiveness. This has reinforced the company’s commitment to providing top-notch customer service while obtaining good results with its prudent approach to pension fund management.

In the commercial field, Prima AFP focused on recruiting new affiliates and maintaining its existing affiliate portfolio. When Prima AFP was awarded to the new affiliates in the fourth quarter of 2012 it reduced its commission fee applicable to all affiliates from 1.75% to 1.60%. With respect to the RAM indicator (Prima AFP’s basis remuneration for revenues), Prima AFP obtained an increase from 32.4% in 2012 to 34.4% in 2013.

Productivity by Prima AFP’s sales management helped Prima AFP preserve a quality portfolio and increase its RAM, which is the basis of its revenues.

In 2013, Prima AFP managed 1.5 million SPP affiliate accounts, an increase of 10.0% compared to the number of accounts Prima AFP managed in 2012. This represented 26.9% of market share. In 2012, Prima AFP managed accounts for 1.3 million affiliates.

Productivity also contributed to Prima AFP’s market share. With regard to the collection of contributions, Prima AFP increased its market share from 32.8% in 2012 to 34.3% in 2013.

Funds under management at Prima AFP decreased from US$12.0 billion in 2012 to US$11.6 billion as of December 2013 (-3.2%). In 2011, this indicator reached US$9.5 billion. By year-end 2013, Prima AFP’s market share of total funds under management was 31.7%, representing a year-over-year increase. The profitability of our funds in the last 12 months (December 2013/December 2012) was 0.1%, -2.4% and -2.8% for Funds 1, 2 and 3, respectively. The volatility of the international markets, the decline of the Lima Stock Exchange, and the devaluation of local currency affected funds under management.

Given that pension funds are long-term investments, it is best to observe their returns over a long period. If we analyze the period from Prima AFP’s creation to date (7 years, historic information available on the 3 funds Dec2013/Dec2006), nominal annual profitability has been 6.32%, 7.12% and 6.94% in funds 1, 2 and 3 respectively. These figures place the company first, second and third in the system.

Prima AFP registered total revenues of US$135.9 million (US$117.2 million in 2012 and US$104.4 million in 2011) and net income of US$50.8 million (US$38.2 million in 2012 and US$32.4 million in 2011), a 33.0% year-over-year increase. This was accomplished by expanding Prima AFP’s revenue base and controlling its operating expenses.

(8) Credicorp Capital

In 2013, Credicorp Capital’s income was affected by a deceleration in the growth of Latin America in general and Peru’s growth in particular as well as the drop in regional stock exchanges, which negatively affected equity instruments in the capital market and the asset management business in particular. Credicorp Capital’s net consolidated result at the end of the year posted a net loss of US$ 2.7 million. This figure incorporates an accounting charge for the lower valuation for the investment in IM Trust at the end of 2013, which was estimated at US$ 14.4 million.

During 2013, Credicorp Capital’s business management scheme changed from a country model, to a business segment model, which was centered around three main business segments: Asset management, Sales & Trading, and Corporate Finance. In terms of operational income, Asset Management represented over 41% of the business share, Sales & Trading represented approximately 36% and Corporate Finance represented approximately 16%, with the local fiduciaries and other businesses comprising 7% of operational income.

In 2013, Credicorp Capital with the assistance of its Corporate Finance and Capital Market teams, acted as joint lead manager in a significant number of transactions in the international bond market (144A / RegS) for a total of US$ 4,244 million. In the fourth quarter of 2013, Credicorp Capital’s most important transaction involved Andino Investment Holding (US$ 130 million).

At the end of 2013, Credicorp Capital held AuM for US$ 7.2 billion, of which 58% corresponded to Credicorp Capital Peru, 24% to Credicorp Capital Colombia and 18% to IM Trust. Additionally, Credicorp Capital reported assets under custody (AuC) for US$ 12.1 billion, 78% of which belonged to Credicorp Capital Peru, 12% to Credicorp Capital Colombia, and 10% to IM Trust.

(9) Competition

(i) Banking

Overview

In recent years, several foreign companies have showed interest in entering the Peruvian market while financial companies already in Peru have taken steps to expand operations and develop new business. In 2006, the Canadian bank with the largest international presence formed Scotiabank Peru pursuant to a merger between Banco Wiese Sudameris and Banco Sudamericano. In addition, in 2006, one of the largest financial organizations worldwide entered the Peruvian market for the first time by forming HSBC Bank Peru.

In 2007, a financial corporation with ten years of operating history received authorization to convert into a bank. That same year, Banco Santander re-joined the Peruvian banking segment and started operations in October. In 2008, two foreign-owned banks initiated operations in Peru: Banco Azteca and Deutsche Bank (Peru), a subsidiary of the German bank of the same name. In 2009, BCP acquired Financiera Edyficar; however, Edyficar continued to operate independently and maintained its own brand. In the same year, Banco del Trabajo, a subsidiary of Scotiabank, started operations as a finance corporation (Crediscotia Financiera).

In 2010 and 2011 no major commercial banks entered the Peruvian financial system. In 2012, Banco Cencosud from the Chilean group of the same name, in a joint enterprise with the Peruvian group Wong, started operations in the first half of the year. Later that year, GNB Sudameris Group, a Colombia-based entity, acquired HSBC Peru and renamed it Banco GNB Peru. Finally, in 2013 there was a merger between the rural savings and loan institution (CRAC by its Spanish initials), Nuestra Gente and the finance corporation Confianza. The entity resulting from the merger operates as a microfinance corporation by the name of Financiera Confianza.

While new entries into the Peruvian banking system over the last two years have not been as pronounced as entries in previous years, there is evidence that foreign-owned banks are taking steps to begin operations in the Peruvian market. For example, Itaú Unibanco, Banco Latinoamericano de Comercio Exterior (Bladex), Morgan Stanley Bank, Bank of Tokyo Mitsubishi and Sumitomo Mitsui Banking opened representative offices in Peru.

Changes to the Peruvian Financial System (2013)

According to the SBS, as of December 31, 2013, there were 64 financial institutions, including 16 commercial banks, 13 municipal and 9 rural savings and loan associations, 9 small-business development non-bank institutions, 12 financial companies, two leasing companies and three state-owned banks (not including the Peruvian Central Bank ): Banco de la Nación, COFIDE and Banco Agropecuario. In 2010, the opening of representative offices of four foreign banks (Banco Itaú, Banco Latinoamericano de Comercio Exterior – Bladex, Morgan Stanley Bank N.A., and Bank of Tokyo – Mitsubishi UFJ) was authorized by the SBS. Finally, in February 2014, the SBS authorized Industrial and Commercial Bank of China – ICBC Perú Bank to start operations in Peru.

 Source: SBS

As of December 31, 2013, BCP ranked first among all Peruvian banks in terms of assets, deposits and loans with a market share of 35.0% of assets, 34.5% of deposits and 33.5% of loans.

In 2013, the Peruvian banking system reported a balance of loans of S/.91,736 million and US$27,842 million. These figures represented an annual expansion of 21.5% and a decrease of 0.9%, respectively (15.3% and 15.7%, respectively, from December 31, 2011 to December 31, 2012). As a result, the dollarization of loans reached 45.9% at the end of 2013 (compared to 49.7% in 2012 and 51.0% in 2011). Nevertheless, as of December 31, 2013, the total amount of deposits was S/.170,320 million, which represented a dollarization rate of 47.4% (compared to 41.6% in 2012 and 47.3% in 2011).

Peru’s capital ratio (regulatory capital/risk-weighted assets) reached 13.6% as of December 2013, which was above the 10% legal minimum that became effective in July 2011. This represented an increase of 2.8% from the capital ratio reported at the end of December 2012 (14.1%). In 2012, the ratio increased 5.7% from the ratio of 13.4% in December 2011.

Peru’s loan portfolio quality indicators deteriorated in 2013. Past due loans over total loans reached 2.14%, 39 basis points more than the ratio reported as of December 31, 2012 (1.75%). At the end of 2012, the ratio had improved 28 basis points compared to December 31, 2011 (1.47%). Also, the past-due refinanced and re-structured loans over total loans was of 0.9% reported as of December 31, 2013, eight basis points lower than the figure reported in 2012 (1%). This figure remained unchanged at 1% in 2012, as compared to the ratio reported as of December 31, 2011. Similarly, the coverage ratio of Peru’s past-due loan portfolio was 188.06% as of December 31, 2013 (compared to 223.56% as of December 31, 2012 and 251.14% as of December 31, 2011).

Finally, the liquidity of the banking system remained at high and comfortable levels. The local currency liquidity ratio and foreign currency liquidity ratio closed 2013 at 30.83% and 56.08% (46.29% and 46.24% in 2012, 39.23% and 45.02% in 2011), respectively. These ratio levels were well above the minimums required by SBS regulations (8% in local currency and 20% in foreign currency).

(ii) Capital Markets

In BCP’s Wholesale Banking Group, its corporate banking area has experienced increased competition and pressure on margins over the last few years. This is primarily the result of new entrants into the market, including foreign and privatized commercial banks, as well as local and foreign investment banks and non-bank credit providers, such as pension fund administrators (or AFPs) and mutual fund companies.

In addition, Peruvian companies have gained access to new sources of capital through local and international capital markets. In recent years, AFPs’ funds under management and mutual fund assets have increased at rates over those experienced by the banking system. The private pension fund system in Peru reached US$36.9 billion as of December 31, 2013 (representing 3% decrease) from US$38 billion in 2012 and US$30.4 billion in 2011. Total mutual funds reached US$5.9 billion in 2013, US$7.0 billion in 2012 and US$5.1 billion in 2011. The decrease in 2013’s figure compared to 2012 was due to high volatility in financial markets, which was associated with (1) expectations that the FED would taper its monetary stimulus, (2) lower than expected growth in China, and (3) the local market, where the General Index of the Lima Stock Exchange drew back 23.6% in 2013.

(iii) Other Financial Institutions

Other institutions in the Peruvian financial system tend to specialize in a given market sector. These institutions include: 12 financial companies, 13 municipal savings and loans institutions, 9 rural savings and loans institutions and 9 small and microenterprise development agencies. They mainly issue retail loans to small and micro-businesses and consumer and mortgage loans to individuals. These markets have shown substantial increases in recent years.

BCP faced strong competition from these credit providers, primarily with respect to consumer loans and small and micro-business loans. Small and micro-business loan providers lent US$5.6 billion in 2013 (S/. 15.7 billion), compared to the US$5.7 billion (S/. 14.6 billion) lent in 2012 and US$4.7 billion (S/. 12.7 billion) lent in 2011. In 2013, small and micro-business loans of other financial institutions represented 50.9% of the total in the financial system (compared to 48.6% in 2012 and 48.6% in 2011). Consumer loan providers lent US$2.2 billion as of December 2013 (3.3% higher than 2012). In 2012, consumer loan providers lent US$2.1 billion (a 21.5% growth compared to the US$1.8 billion lent in 2011). In 2013, loans to consumers of other financial institutions represented 17.3% of total loans in the financial system (compared to 17.1% in 2012 and 17.3% in 2011).

BCP also faces strong competition from credit cards issued by retail stores.

(iv) Investment Banking

As mentioned above, Credicorp´s investment banking platform, Credicorp Capital, comprises Credicorp Capital Perú (including the investment banking division that was formerly in BCP), Credicorp Capital Colombia (formerly, Correval), IM Trust (Chile) and CSI. The business in Credicorp’s investment banking platform were consolidated under the brand Credicorp Capital in April 2013 to take advantage of growing opportunities in the MILA, a market which has a capitalization of US$549 billion as of December 31, 2013.

During 2013, Credicorp effectively transitioned the business model of its investment banking platform from one oriented to countries to another focused on business units, Credicorp capital is organized into four business units: asset management, capital markets, corporate finance and fiduciary business. The company also has a regional back office platform, strong commercial integration and independent treasury management.

In terms of operational income, asset management represented over 41% of Credicorp Capital’s business; capital markets represented approximately 36%; corporate finance represented approximately 16%; and local fiduciaries and other businesses collectively accounted for approximately 7% of operational income in 2013. In the MILA market, between 2008 and 2013, the business entities that were consolidated under Credicorp Capital together ranked first in corporate bond issuance and fixed income trading. In aggregate these business also ranked third in share trading and fifth in initial public offerings.

(v) Insurance

The Peruvian insurance market is highly concentrated. As of December 2013, four companies commanded 84.2% of the market share by premiums, and the leading two had a combined market share of 63.5%. Together, Pacífico Seguros Generales and Pacífico Vida constituted the second largest insurance company in Peru with a 28.8% market share. Peruvian insurance companies compete principally on the basis of price, as well as on the basis of brand recognition, customer service and product features. Grupo Pacífico’s insurance businesses believe that their competitive pricing, strong and positive image, and quality of customer service are significant aspects of their overall competitiveness. While increased foreign entry into the Peruvian insurance market may put additional pressure on premium rates, particularly for commercial coverage, Grupo Pacífico believes that in the long-term foreign competition will increase the quality and strength of the industry. Grupo Pacífico believes that its size and its extensive experience in the Peruvian insurance market provide it with a competitive advantage over foreign competitors.

However, competition in the Peruvian insurance industry has increased substantially since the industry was deregulated in 1991, with particularly strong competition in the area of large commercial policies, for which rates and coverage typically are negotiated individually. A loss by Grupo Pacífico to competitors of even a small number of major customers or brokers could have a material impact on Grupo Pacífico’s premium levels and market share.

(10) Peruvian Government and Economy

While we are incorporated in Bermuda, substantially all of BCP’s and Grupo Pacífico’s operations and customers are located in Peru. Although ASHC is based outside of Peru, a substantial number of its customers are also located in Peru. Accordingly, our results of operations and financial condition could be affected by changes in economic or other policies of the Peruvian government, which has exercised and continues to exercise substantial influence over many aspects of the private sector. Also, our results of operations and financial condition may be affected by other political or economic developments in Peru, such as a devaluation of the Nuevo Sol relative to the U.S. Dollar or the imposition of exchange controls by the Peruvian government. See “Item 10. Additional Information—(D) Exchange Controls.” Our results of operations and financial condition are dependent on the level of economic activity in Peru.

(i) Peruvian Government

During the past several decades, Peru has had a history of political instability that has included military coups and multiple governmental regimes, which in the past have frequently intervened in the nation’s economy and social structure. See “Item 3. Key Information—(D) Risk Factors”. In 1987, the administration of President Alan García attempted to nationalize the banking system. Facing an attempt by the state to control BCP, the majority shareholders of BCP at that time sold a controlling interest in BCP to its employees, which prevented the government from gaining control of BCP. See “—(C) Organizational Structure”.

Between 1990 and 2000, President Fujimori implemented a broad-based reform of Peru’s political system, economy and social conditions. See “Item 3. Key Information—(D) Risk Factors”. President Fujimori resigned in 2000 in favor of a transitory government after a series of corruption scandals. President Toledo then assumed the presidency in 2001 after a period of political turmoil, facing high unemployment and underemployment, an economic recession and social need. In 2006, Alan García was elected for a five year-term. The Toledo and Garcia administrations followed similar economic policies, which focused on promoting private investment to stimulate the economy.

At the conclusion of President Garcia’s term, the first round of presidential elections was initially held on April 10, 2011, and a second round of elections was held on June 5, 2011. The winner of the elections was Ollanta Humala, who defeated Keiko Fujimori. While President Humala’s initial proposals as a candidate were designed to radically change the economic model that his predecessor put in effect, his signing of a "road map", which promised to be moderate, was important. Among his first acts as president-elect were the ratification of the Peruvian Central Bank ’s president and the appointment of Luis Castilla, who served as Deputy Minister under the previous government, as Minister of Finance. Both of these appointees contributed a recovery in Peru’s investment climate, which had deteriorated during the presidential campaigns. However, the recovery was subsequently affected by perceived risks abroad, where the Eurozone was under economic pressure. Despite the uncertainty during the first half of 2011 (due to the radical changes proposed by Humala) and the global economic slowdown in the second half of 2011, the Peruvian economy closed 2011 with an economic growth of 6.9%. In 2013, concerns about monetary policy in U.S. and the health of the Chinese economy generated uncertainty in global emerging markets. During 2013, Peru grew 5.3%, mainly as a result of non-primary sectors highly linked with domestic demand, particularly construction and services, but exports were hit by global uncertainty and private investment showed a sharp moderation.

Despite the economic strides achieved since 1990 and the high rate at which the Peruvian economy has expanded in the last decade, poverty remains a persistent problem, with 30% of the population living below the poverty line, which the World Bank defines poverty as monthly income of less than US$60 per capita, adjusted to reflect differences in purchasing power. 6% of Peruvians live with an income of less than US$30 per month; while 25.8% of the population is poor (19.8% is poor but not extremely poor).

(ii) Peruvian Economy

During his second term (2006 - 2011), President Alan Garcia generally continued the market-oriented policies that started in the 1990s with President Fujimori’s structural reforms. Nevertheless, several interventionist measures were also adopted as a result of widespread populist initiatives passed by Congress and social pressures from unions and regional movements. In 2011, victory by Ollanta Humala in Peru’s presidential elections signaled a shift in the government’s political orientation, which had a negative impact on business confidence and Peru’s economic growth outlook. Although initial concerns about President Humala’s government have been mitigated in part by cabinet appointments and political arrangements designed to foster investor confidence and reaffirm the direction of Peru’s economy’s political risks still have an impact on Peruvian markets.

In addition to political reforms and the adoption of sound macroeconomic policies, a positive outlook of Peru’s economy among international investors allowed Peru to grow at an average of 5.7% in the last decade. Peru’s economy even experienced a positive growth rate during the global financial crisis in 2009. In that year, Peru was among the countries with the highest GDP-growth rates: 0.9% in a year when global production decreased 1.1%. In subsequent years, when international financial conditions improved, Peru continued outperforming the global economy, growing 6.9% in 2011 and 6.3% in 2012.

The Peruvian economy grew 5.3% in 2013, despite higher uncertainty about tapering in the U.S. and concerns about Chinese production. Private consumption was stable, but private investment showed little growth in the second half of 2013, after several years with double-digit growth.

During 2007, the United States signed the Free Trade Agreement (FTA) and the FTA took effect on February 1, 2009, concluding a long process of trade negotiations. The FTA made permanent the special access to the U.S. market previously enjoyed under the Andean Trade Promotion and Drug Eradication Act. The current trade between Peru and U.S. is around US$13 billion annually (15.7% of total trade). The FTA is expected to encourage higher export growth and diversification, as well as accelerate reforms that will further enhance the investment climate in Peru, which already benefits from high levels of foreign direct investment. In recent years, Peru also made progress toward reaching more trade agreements with important trade partners like China (a free trade agreement with China took effect in March 2010), which currently stands as the principal destination of Peruvian exports, Peru’s main exports to China are commodities and primary goods. In 2013, trade between China and Peru reached US$15.3 billion (18.5% of Peru’s total trade). Peru also concluded trade agreement negotiations with the European Union, Japan and Mexico. These agreements are expected to help boost growth in Peru’s export sector, which has been flat since 2008 compared to the growth in domestic demand. In addition, these trade agreements have improved the competitive position of Peruvian exporters relative to exporters in other global markets.

After seven years of surpluses, Peru had a trade deficit in 2013 (US$0.3 billion). This deficit was the result of lower prices and volumes for exported products (particularly mineral products, such as gold and copper) and a strong domestic demand, combined with higher prices for imports and food (soybean, corn, wheat). However, Credicorp expect a trade surplus in 2014 as a consequence of an important increase in copper production.

Peru has had a history of high and persistent current account deficits. Nevertheless, a process of gradual correction of external imbalances started in recent years. Between 2007 and 2010, Peru’s current account balance reached an average deficit of US$2.1 billion, which is equivalent to 1.3% of Peru’s GDP. In 2008, the deficit again reached high levels (US$5.3 billion, or 4.2% of GDP), but a small surplus was achieved in 2009 (0.2% of GDP) due to a decrease in imports and in investment income (during period of slow global economic growth). Between 2011 and 2013, Peru again recorded current account deficits, which first were linked to a process of capital accumulation, and after that, to lower terms of trade. These recent deficits (from close to 2.5% of GDP in 2011 to more than 5.0% of GDP in 2013) were not a particularly alarming because they were completely financed by Peru’s financial account, which derives more than 70% of its total inflows from long-term capital.

Peru’s financial account had an average surplus of US$9.6 billion between 2008 and 2013, resulting largely from higher foreign direct investment and long-term loans that accompanied improved investor sentiment about the Peruvian economy. Two notable exceptions to the sizeable surpluses Peru recorded during this period occurred in 2009 and in 2013. In 2009, Peru’s financial account surplus declined to US$1.5 billion, due to lower capital inflows and global economic uncertainty, mainly in the first half of the year. Still, surpluses during the second half of 2009 were sizeable enough to create a surplus for the year. Between 2010 and 2012, despite some volatility, growth in capital inflows gradually lead to the return of high financial account surpluses, as investors adjusted their risk appetites and became more comfortable with investments in emerging countries. In 2013, in an environment of financial uncertainty but continuous economic growth, Peru’s current account was again negative mainly due to a trade balance deficit and a decrease in exports as a result of lower prices of minerals.

Inflation in Peru, as measured by the Lima consumer price index, was 3.2% on average over the past five years. After reducing the Peruvian Central Bank's target of 2.5% to 2.0%, with a +/-1% range, inflation was above the target range in 2008, registering at 6.65%. The inflation rate during this period was influenced by higher international commodity prices. As of December 31, 2010 the inflation rate was 2.1%, compared to a 0.25% inflation rate at the end of 2009. Inflation in 2011 was 4.7%, significantly above the Peruvian Central Bank’s inflation range, driven by external supply shocks (higher commodity prices) as well as local supply shocks (less local food supply). In 2012, inflation was 2.65%, with a sharp correction, driven by a reduction in prices of imported food (especially grains) and oil, occurring in the last quarter of the year. Similarly, in 2013, inflation was 2.86%, and although inflation was above 3.0% for most of 2013, a sharp correction in the last quarter of the year offset the relatively high inflation rates we experienced in the previous three quarters. In 2012 and 2013, inflation was mainly generated by supply shocks, and demand shocks were less important.

The exchange rate in Peru has appreciated 18.8% in recent years, from S /.3.141 per US$1.00 on December 31, 2007 to S/.2.551 per US$ 1.00 on December 31, 2012. As of January 15, 2013, the exchange rate was S/.2.535 per US$1.00. However, the Peruvian Central Bank interventions in 2013 included buying more than US$4 billion between January and May 2013, raising the exchange rate to S/. 2.65 per US$ 1.00. A May 2013 speech by the FED’s president, Ben Bernanke, about a possible reduction of monetary stimulus generated a global wave of confidence in U.S. Dollar, leading to depreciation of emergent currencies, including the Nuevo Sol. After experiencing volatility as a result of tapering by the FED, which finally started in December, the exchange rate closed 2013 at S/.2.795 per US$ 1.00.

A sound policy framework put in place in recent years and an increase in Peru’s international reserves have improved the business environment and contributed to the reduction of economic vulnerabilities and poverty in Peru (even though poverty still affects over 25% of the population). Although, Peru recorded a fiscal deficit of 0.3% of GDP in 2010, Peru recorded fiscal surpluses in subsequent years (around 2.0% of GDP in 2011 and 2012, and 0.7% of GDP in 2013), which have supported a significant reduction in public debt and improved the maturity schedule of Peru’s overall debt profile. In an uncertain global economy, these are important fiscal buffers. A sound monetary policy that targets inflation has also been instrumental in helping Peru to maintain macroeconomic stability and reduce dollarization. Other structural reforms also have reduced Peru’s fiscal and financial vulnerabilities. Free trade agreements and demand for new trade markets, lower informality, and improvement in its business climate have helped Peru improve its long-term growth outlook, which is reflected in more investments in the Peruvian economy.

These achievements are believed to have strengthened Peru’s ability to weather economic pressures originating outside of Peru. Building on Peru’s strong fundamentals, including a resilient financial system, several measures have been implemented by the government that will help to, preserve adequate liquidity in the Peruvian domestic markets, and bolster domestic confidence. The Peruvian financial system has proven to be strong, despite the impact of the global financial crisis. Banking credit, which averaged 31.8% growth in 2007 and 2008, lost momentum, in 2009 with only a 9.5% growth. The economic recovery in Peru increased demand for banking credit, which grew approximately 12% - 18% each year between 2010 and 2013. Largely as a result of higher exchange-rate volatility, the Peruvian Central Bank gradually increased foreign currency credit reserve requirements over the course of 2013, while reducing the reserve requirements applicable to domestic currency. As a consequence, average requirements for foreign currency have increased to 44.2% from 41.7%, while those applicable to domestic currency decreased to 15.3% from 19.0% during 2013. Medium and marginal reserve requirements in January and February 2014 averaged 13%.

In periods of economic contraction, the Peruvian Central Bank may use its considerable foreign reserves, which have grown from 28.6% of GDP in December 2010 to approximately 31.5% of GDP in December 2013, and other mechanisms to provide liquidity to Peru’s domestic financial system. In May 2013, the Peruvian Central Bank sold US$4 billion, a similar amount to that bought in previous months, in an effort to provide liquidity to the Peruvian domestic market

The capital ratio of Peru’s banking system was 13.6% in December 2013, which indicates a solvent position.

Peru’s short term domestic economic outlook for the first quarter of 2014 appears favorable, despite lingering uncertainty about the global economy. The Peruvian economy grew 5.3% in 2013, reflecting lower dynamics in private investment but strong consumption. Mining production, focused in copper, is expected to be a source of economic growth in 2014. Meanwhile, inflation is expected to remain close to 2% (+/- 1%), consistent with the Peruvian Central Bank’s target range.

The main risks to the Peruvian economy appear to be external and largely related to the results of the biggest economies in the U.S. and China. Because of Peru’s current fiscal position, the amount of funds accumulated by the public sector (US$8.6 billion as of December 31, 2013), and the fact that the country is now rated investment grade (BBB+ according to S&P and Fitch; Baa2 according to Moody's), we believe that Peru is well positioned to address near-term threats to its economy. Peru’s medium-term prospects are considered to be favorable, provided that the country continues to follow prudent macroeconomic policies and deal with longstanding structural challenges.

(11) The Peruvian Financial System

As our activities are conducted primarily through banking and insurance subsidiaries operating in Peru, a summary of the Peruvian financial system is set forth below.

(i) General

On December 31, 2013, the Peruvian financial system consisted of the following principal participants: the Peruvian Central Bank, the SBS, 16 banking institutions (not including Banco de la Nación, a Peruvian state-owned bank), 11 finance companies, and 2 leasing companies. In addition, Peru has various mutual mortgage associations, municipal and rural savings and credit associations, municipal public credit associations and savings and credit cooperatives, which totaled 32 entities as of December 31, 2013.

Law 26702 regulates Peruvian financial and insurance companies. In general, it provides for loan loss reserve standards, brings asset risk weighting in line with Basel Committee on Banking Regulations and Supervisory Practices of International Settlements (or the Basel Accord) guidelines, broadens supervision of financial institutions by the SBS to include holding companies, and includes specific treatment of a series of recently developed products in the capital markets and derivatives areas.

(ii) The Peruvian Central Bank

The Peruvian Central Bank was established in 1922. Pursuant to the Peruvian Constitution, its primary role is to ensure the stability of the Peruvian monetary system. The Peruvian Central Bank regulates Peru’s money supply, administers international reserves, issues currency, determines Peru’s balance of payments and other monetary accounts, and furnishes information regarding the country’s financial situation. It also represents the government of Peru at the International Monetary Fund (IMF) and the Latin American Reserve Fund (a financial institution whose purpose is to provide balance of payments assistance to its member countries by granting credits or guaranteeing loans to third parties).

The highest decision-making authority within the Peruvian Central Bank is its seven-member board of directors. Each director serves a five-year term. Of the seven directors, four are selected by the executive branch and three are selected by the Congress. The Chairman of the Peruvian Central Bank is one of the executive branch nominees but must be approved by Peru’s Congress.

The Peruvian Central Bank’s board of directors develops and oversees monetary policy, establishes reserve requirements for entities within the financial system, and approves guidelines for the management of international reserves. All entities within the financial system are required to comply with the decisions of the Peruvian Central Bank.

(iii) The Superintendency of Banks, Insurance and Pension Funds (SBS)

The SBS, whose authority and activities are discussed in “—(12) Supervision and Regulation” is the regulatory authority in charge of implementing and enforcing Law 26702 and, more generally, supervising and regulating all financial, insurance and pension fund institutions in Peru.

In June 2008, Legislative Decree 1028 and 1052 were approved modifying Law 26702 with the following objectives: (i) to strengthen and to increase competitiveness, (ii) to implement Basel II and (iii) to adapt Peru’s existing regulatory framework to the FTA signed between Peru and the United States.

The main amendments defined in Law 1028 were designed to promote the development of Peruvian capital markets by extending the range of financial services that could be offered by microfinance institutions (i.e., non-banks) without requiring SBS authorization. Law 1028 also modified the framework in which the Peruvian financial system is to be harmonized with the international standards established by the Basel II Accord (which aims to minimize the issues regarding regulatory arbitrage). Since July 2009, Peruvian financial institutions generally have applied a standardized method to calculate their capital requirement related to credit, market and operational risk. As an alternative to the standardized method, financial institutions may request authorization from the SBS to use different models for calculating the reserve amount associated with any of these three risks. In July 2009, the SBS started receiving applications to use alternative models, referred to as Internal Models Methods. If the amount of an institution’s reserve requirements would be higher using the standard model than it would be using the approved Internal Models Method, then the institution will have to maintain between 80% and 95% of the standard amount during a phase in period, Even after the phase in period, institutions using an Internal Models Method will be subject to regulatory capital floors.

Law 1052 aims to include and synchronize Law 26702 and the FTA’s framework, particularly regarding insurance services. The amendments allow companies to offer cross-border services and have simplified the process for international institutions to enter into the Peruvian market by establishing subsidiaries.

(iv) Financial System Institutions

Under Peruvian law, financial institutions are classified as banks, financing companies, other non-banking institutions, specialized companies and investment banks. BCP is classified as a bank.

Banks

A bank is defined by Law 26702 as an enterprise whose principal business consists of (i) receiving money from the public, whether by deposits or by any other form of contract, and (ii) using such money (together with the bank’s own capital and funds obtained from other sources) to grant loans or discount documents, or in operations that are subject to market risks.

Banks are permitted to carry out various types of financial operations, including the following: (i) receiving demand deposits, time deposits, savings deposits and deposits in trust; (ii) granting direct loans; (iii) discounting or advancing funds against bills of exchange, promissory notes and other credit instruments; (iv) granting mortgage loans and accepting bills of exchange in connection with the mortgage loans; (v) granting conditional and unconditional guaranties; (vi) issuing, confirming, receiving and discounting letters of credit; (vii) acquiring and discounting certificates of deposit, warehouse receipts, bills of exchange and invoices of commercial transactions; (viii) performing credit operations with local and foreign banks, as well as making deposits in those institutions; (ix) issuing and placing local currency and foreign currency bonds, as well as promissory notes and negotiable certificates of deposits; (x) issuing certificates in foreign currency and entering into foreign exchange transactions; (xi) purchasing banks and non-Peruvian institutions which conduct financial intermediation or securities exchange transactions in order to maintain an international presence; (xii) purchasing, holding and selling gold and silver as well as stocks and bonds listed on one of the Peruvian stock exchanges and issued by companies incorporated in Peru; (xiii) acting as financial agent for investments in Peru for external parties; (xiv) purchasing, holding and selling instruments evidencing public debt, whether internal or external, as well as obligations of the Peruvian Central Bank ; (xv) making collections, payments and transfers of funds; (xvi) receiving securities and other assets in trust and leasing safety deposit boxes; and (xvii) issuing and administering credit cards and accepting and performing trust functions.

In addition, banks may carry out financial leasing operations by forming separate departments or subsidiaries. Banks may also promote and direct operations in foreign commerce, underwrite initial public offerings, and provide financial advisory services apart from the administration of their clients’ investment portfolios. By forming a separate department within the bank, a bank may also act a trustee for trust agreements.

Law 26702 authorizes banks to operate, through their subsidiaries, warehouse companies and securities brokerage companies Banks may also establish and administer mutual funds.

Peruvian branches of foreign banks enjoy the same rights and are subject to the same obligations as Peruvian banks. Multinational banks, with operations in various countries, may perform the same activities as Peruvian banks, although their foreign activities are not subject to Peruvian regulations. To carry out banking operations in local Peruvian markets, multinational banks must maintain a certain portion of their capital in Peru, in at least the minimum amount that is required for Peruvian banks.

Finance Companies

Under Law 26702, finance companies are authorized to carry out the same operations as banks, with the exception of (i) issuing loans as overdrafts in checking accounts and (ii) participating in derivative operations. These operations can be carried out by finance companies only if they fulfill the requirements stated by the SBS.

Other Financial Institutions

The Peruvian financial system has a number of less significant entities which may provide credit, accept deposits or otherwise act as financial intermediaries on a limited basis. Leasing companies specialize in financial leasing operations where goods are leased over the term of the contract and in which one party has the option of purchasing the goods at a predetermined price. Savings and loans associations or cooperatives may accept certain types of savings deposits and provide other similar financial services.

Peru also has numerous mutual housing associations, municipal savings and credit associations, savings and credit cooperatives and municipal credit bureaus. Over the past five years the entry of new participants, including foreign banks and non-bank financial institutions, has increased the level of competition in Peru.

Insurance Companies

Since the Peruvian insurance industry was deregulated in 1991, insurance companies have been authorized to conduct all types of operations and to enter into all forms of agreements that are needed to offer risk coverage to customers. Insurance companies may also invest in financial and non-financial assets, although they are subject to the regulations on investments and reserves established in Law 26702 and the regulations issued by the SBS.

Law 26702 is the principal law governing insurance companies in Peru. The SBS is charged with the supervision and regulation of all insurance companies. The formation of an insurance company requires prior authorization of the SBS.

The insurance industry has experienced consolidation in recent years with the number of companies decreasing from 19 in 1991 to 15 in 2013.

(12) Supervision and Regulation

(i) Credicorp

Currently, there are no applicable regulations under Bermuda law that are likely to materially impact our operations as they are currently structured. Under Bermuda law, there is no regulation applicable to us, as a holding company that would require that we separate the operations of our subsidiaries incorporated and existing outside Bermuda. Since our activities are conducted primarily through our subsidiaries in Peru, the Cayman Islands, Bolivia, Chile, Colombia and Panama, a summary of the main regulations governing our businesses is set forth below.

Our common shares are listed in the New York Stock Exchange (NYSE). We are therefore subject to regulation by the NYSE and the SEC as a “foreign private issuer”. We also must comply with the Sarbanes-Oxley Act of 2002.

We are, along with BCP, subject to certain requirements set forth in Peruvian Law 26702 (“Peruvian Banking Law” or “Law 26702”) as well as certain banking statutes issued by the Peruvian banking regulator, SBS, including SBS Resolution No. 11823-2010, enacted in September 2010 and which approved the “Regulation of the Consolidated Supervision of Financial and Mixed Conglomerates”. These regulations affect BCP and us primarily in the areas of reporting, risk control guidelines, limitations, ratios and capital requirements.

Since our common shares are listed on the Lima Stock Exchange in addition to the New York Stock Exchange, we are subject to certain reporting requirements to Superintendencia del Mercado de Valores, the Peruvian securities market regulator, and the Lima Stock Exchange. See “Item 9. The Offer and Listing—(C) Markets—The Lima Stock Exchange—(ii) Market Regulation”.

(ii) BCP

Overview

BCP’s operations are regulated by Peruvian law. The regulations governing operations in the Peruvian financial sector are stated in Law 26702. The SBS periodically issues resolutions under Law 26702. See “—(11) The Peruvian Financial System”. The SBS supervises and regulates entities that Law 26702 classifies as financial institutions. These entities include commercial banks, finance companies, small business finance companies, savings and loan corporations, financial services companies such as trust companies and investment banks, and insurance companies. Financial institutions must obtain the SBS’s authorization before beginning operations.

BCP’s operations are supervised and regulated by the SBS and the Peruvian Central Bank. Those who violate Law 26702 and its underlying regulations are subject to administrative sanctions and criminal penalties. Additionally, the SBS and the Peruvian Central Bank have the authority to issue fines to financial institutions and their directors and officers if they violate the laws or regulations of Peru, or their own institutions’ bye-laws.

The Superintendencia del Mercado de Valores (SMV), formerly known as CONASEV, is the Peruvian government institution in charge of (i) promoting the securities market, (ii) making sure fair competition takes place in the securities markets, (iii) supervising the management of businesses that trade in the securities markets and (iv) regulating their activities and accounting practices. BCP must inform SMV of significant events that affect its business and is required to provide financial statements to it and the Lima Stock Exchange each quarter. BCP is also regulated by SMV when it conducts operations in the local Peruvian securities market.

Under Peruvian law, banks may conduct brokerage operations and administer mutual funds but must do so through subsidiaries. However, bank employees may market the financial products of the bank’s brokerage and mutual fund subsidiaries. Banks are prohibited from issuing insurance policies, but are not prohibited from distributing insurance policies issued by insurance companies.

Authority of the SBS

Peru’s Constitution and Law 26702 (which contains the statutory charter of the SBS) grant the SBS the authority to oversee and control banks and financial institutions (with the exception of brokerage firms, which are regulated by SMV), insurance and reinsurance companies, companies that receive deposits from the general public, AFPs and other similar entities as defined by the Law 26702. The SBS is also responsible for supervising the Peruvian Central Bank to ensure that it abides by its statutory charter and bye-laws.

The SBS has administrative, financial and operating autonomy. Its objectives include protecting the public interest, ensuring the financial stability of the institutions over which it has authority and punishing violators of its regulations. Its responsibilities include: (i) reviewing and approving, with the assistance of the Peruvian Central Bank , the establishment and organization of subsidiaries of the institutions it regulates; (ii) overseeing mergers, dissolutions and reorganization of banks, financial institutions and insurance companies; (iii) supervising financial, insurance and related companies from which information on an individual or consolidated basis is required, through changes in ownership and management control (this supervision also applies to non-bank holding companies, such as us); (iv) reviewing the bye-laws and amendments of bye-laws of these companies; (v) issuing criteria governing the transfer of bank shares, when permitted by law, for valuation of assets and liabilities and for minimum capital requirements; and (vi) controlling the Bank’s Risk Assessment Center, to which all banks are legally required to provide information regarding all businesses and individuals with whom they deal without regard to the amount of credit risk (the information provided is made available to all banks to allow them to monitor individual borrowers’ overall exposure to Peru’s banks). The SBS is also responsible for setting criteria for the establishment of financial or mixed conglomerates in Peru and for supervising these entities. As a result, in addition to its supervision of BCP, the SBS also supervises Credicorp Ltd. because Credicorp Ltd. is a financial conglomerate conducting the majority of its operations in Peru.

Management of Operational Risk

SBS Resolutions No. 37-2008, which sets forth the guidelines for enterprise risk management (ERM), and 2116-2009 collectively established guidelines for operational risk management. Under these resolutions, operational risks management is defined broadly to include those resulting from the possibility of suffering financial losses due to inadequate or failed internal processes, people and systems, or from adverse external events. The resolutions also establish responsibilities for developing policies and procedures to identify, measure, control and report such risks. Banks are required to adequately manage risks involved in the performance and continuity of their operations and services in order to minimize possible financial losses and reputation damage due to inadequate or non-existent policies or procedures. Banks also are required to develop an information security model to guarantee physical and logical information integrity, confidentiality and availability.

Credicorp, following these SBS guidelines, as well as the guidelines issued by the Basel Committee on Banking Supervision, and the advice of international consultants, has appointed a specialized team responsible for operational risk management across our organization. This team reports regularly to our risk committee, top managers and Board of Directors.

In evaluating operational risks and potential consequences, we mainly assess risks related to critical processes, critical suppliers, critical information assets, technological components, new products and significant changes on our services, and channels. To support the operational risk management process we have developed a Business Continuity Management (BCM) discipline, which involves the implementation of continuity plans for critical business processes, incident management, and training and testing. In addition, our methodology and data processing team has developed procedures to register, collect, analyze and report operational risk losses, using advanced models for operational risk capital allocation. Lastly, we have monitoring and reporting procedures, designed to monitor Key Risk Indicators (KRI) and other performance metrics.

We intend to be guided by the risk control standards of international financial institutions that are noted for their leadership in this field. Our overall objective is to implement an efficient and permanent monitoring system to control operational risks, while training our operational units to mitigate risks directly.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to make certain certifications regarding our internal controls over financial reporting as of December 31, 2013. We have developed internal methods to identify and evaluate risk and controls over our critical processes to determinate how effective internal controls are over financial reporting.

Capital Adequacy Requirements for BCP

Capital adequacy requirements applicable to us are set forth in the Peruvian Banking Law, as amended (Law 26702). We are monitored and regulated by the SBS. Law 26702 was enacted in December 1996 and amended in June 2008 through Legislative Decree 1028. The amendment became effective in July 2009 and was aimed at adapting the Peruvian Banking Law to the capital guidelines and standards established by the second Basel Accord (Basel II). Capital adequacy requirements are also included in Peruvian GAAP accounting guidelines.

Basel II standards modified the methodology to measure credit, market and operational risks to allow the use of standardized and internal model-based methods. Basel II standards also allow Peruvian financial institutions to request authorization from the SBS to implement an internal ratings-based (IRB) methodology.

Financial institutions that receive approval from the SBS to use the IRB methodology are subject to regulatory capital floors. The amount of capital required may not be less than the percentage of capital required under an alternative methodology.

Prior to June 2009, the capital requirements were based upon the guidelines established by the first Basel Accord (Basel I). Financial institutions were required to limit risk-weighted assets to 11 times their regulatory capital, which is equivalent to a minimum capital ratio of 9.09% of risk-weighted assets. Risk-weighted assets (RWA) were calculated based upon five risk categories depending on the perceived risk of each asset class.

Pursuant to the Basel II guidelines, financial institutions are required to hold regulatory capital that is greater than or equal to the sum of (i) 10% of credit risk-weighted assets, and (ii) 10 times the amount required to cover market and operational risks. The new minimum capital requirements were implemented as follows:

In November 2010, the SBS released a consultative document, which established the proposed methodologies for calculating additional capital requirements consistent with Pilar 1 of Basel II and certain aspects of Basel III. Comments on this document were due February 18, 2011. On July 20, 2011, the SBS issued SBS Resolution 8425-2011, establishing the final methodologies and the implementation schedule of the aforementioned additional capital requirements. The new capital requirements, which are aimed at covering risks not contemplated in Pilar I of Basel II, include requirements to cover concentration, interest rate and systemic risk. Additionally, pro-cyclical capital requirements were also established. These new requirements will be implemented over a period of five years starting in July 2012.

The SBS has not approved rules adopting Basel III or implementing it in the Peruvian Financial System.

Article 184 of Law 26702, as amended by Legislative Decree 1028, provides that regulatory capital may be used to cover credit risk, market risk and operational risk. Regulatory capital is comprised of the sum of basic capital and supplementary capital, and is calculated as follows:

Items deducted from Tier 1 capital include:

The elements referred to in item (ii) above should not exceed 17.65% of the amount resulting from adding components (i) and (iii) of Tier 1 capital net of the deductions in (a), (b) and (c) in this paragraph.

For the purposes herein, “regulatory capital” excludes the amounts referred to in (iii), (iv) and (v) of this paragraph.

Article 185 of the Law 26702 also provides that the following limits apply when calculating regulatory capital:

SBS Resolution 8548-2012, adopted in 2012, modified the regulatory capital requirements for credit risk weighted assets in SBS Resolution 14354-2009 and established a schedule for implementing the modifications.

As of December 31, 2013, BCP’s regulatory capital was 14.46% of its unconsolidated risk-weighted assets, indicating that BCP had risk-weighted assets that were 6.92 times the amount of regulatory capital. As of December 31, 2012 and December 31, 2011, BCP’s regulatory capital was 14.72% and 14.53% of its unconsolidated risk-weighted assets, respectively.

In November 2013, BCP´s board of directors approved BCP’s tracking and recordation of a Basel III ratio known as Common Equity Tier 1. Common Equity Tier 1 is comprised of:

As of December 31, 2013, BCP´s Common Equity Tier 1 Ratio was approximately 7.52% of its unconsolidated risk-weighted assets, above the 7.00% limit that BCP set for itself. This limit will increase to 7.50% in December 2014, 8.00% in December 2015 and 8.50% in December 2016. BCP´s Basel III Common Equity Tier 1 Ratio is estimated based on BCP’s understanding, expectations and interpretation of the proposed Basel III requirements in Peru, anticipated Basel III modifications to its existing ratio calculation methodology and other regulatory guidance available in Peru.

The following table shows, regulatory capital and capital adequacy requirements from BCP (without subsidiaries) as of December 31, 2011, 2012 and 2013: