UNITED STATES SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, D.C. 20549

 

FORM 20-F/A

 

(Amendment No. 1)

 

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

SECURITIES EXCHANGE ACT OF 1934

OR

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

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

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

 

CREDICORP LTD.
(Exact name of registrant as specified in its
charter)
BERMUDA
(Jurisdiction of incorporation or organization)

 

Of our subsidiary
Banco de Crédito del Perú:
Calle Centenario 156
La Molina
Lima 12, Perú
(Address of principal executive offices)

 

Alvaro Correa
Chief Financial Officer
Credicorp Ltd
Banco de Crédito del Perú:
Calle Centenario 156
La Molina
Lima 12, Perú
Phone (+511) 313 2140
Facsimile (+511) 313 2121
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)

 

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

 

Title of each class   Name of each exchange on which registered
Common Shares, par value $5.00 per share   New York Stock Exchange

 

 
 

 

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.

Yes           x                  No       ¨

 

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.

Yes           x                  No       ¨

 

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).

Yes           x                  No       ¨

 

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

  Large accelerated filer  x Accelerated filer  ¨ Non-accelerated filer ¨  

 

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

U.S. GAAP ¨ International Financial Reporting Standards as issued Other ¨
  by the International Accounting Standards Board   x  

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 18  x

 

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

 

 

 

 
 

 

Explanatory Note

  

We are filing this Amendment No. 1 (“Form 20-F/A”) to our Annual Report on Form 20-F for the Fiscal Year Ended December 31, 2011, originally filed with the Securities and Exchange Commission (the “SEC”) on April 30, 2011 (the “Form 20-F”), to re-file our financial statements in Item 18 to include the signature of our independent auditor, Medina, Zaldívar, Paredes & Asociados, a member of Ernst & Young Global, in its Report of Independent Registered Public Accounting Firm that accompanies our Consolidated Financial Statements. This amendment does not contain any changes to data and footnotes in our Consolidated Financial Statements.

  

This Form 20-F/A is accompanied by currently dated certifications on Exhibits 12.3, 12.4, 13.3 and 13.4 by our Chief Executive Officer and Chief Financial Officer. Because this Form 20-F/A does not contain or amend any disclosure with respect to Item 15 of Form 20-F, paragraphs 4 and 5 of the certifications required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 have been omitted.

  

Except as expressly set forth in this Form 20-F/A, we are not amending any other part of the Form 20-F. This Form 20-F/A does not reflect events occurring after the filing of the Form 20-F or modify or update any related or other disclosures, including forward-looking statements, unless expressly noted otherwise. Accordingly, this Form 20-F /A should be read in conjunction with the Form 20-F.

 

 
 

 

ITEM 18.         FINANCIAL STATEMENTS

 

Credicorp Consolidated Financial Statements and the report of the independent public accounting firm in connection therewith are filed as part of this Annual Report on Form 20-F, as noted below:

 

    Page
Report of Independent Registered Public Accounting Firm   F-3
     
Consolidated financial statements    
     
Consolidated statements of financial position   F-5
Consolidated statements of income   F-6
Consolidated statements of comprehensive income   F-8
Consolidated statements of changes in equity   F-9
Consolidated statements of cash flows   F-10
Notes to consolidated financial statements   F-12

 

All supplementary schedules relating to the registrant are omitted because they are not required or because the required information, where material, is contained in the consolidated financial statements or notes thereto.

 

Credicorp Ltd. and Subsidiaries

 

Consolidated financial statements as of December 31, 2011 and 2010 together with the Report of Independent Registered Public Accounting Firm

 

1
 

 

Credicorp Ltd. and Subsidiaries

 

Consolidated financial statements as of December 31, 2011 and 2010 together with the Report of Independent Registered Public Accounting Firm

 

 
 

 

Credicorp Ltd. and Subsidiaries

 

Consolidated financial statements as of December 31, 2011 and 2010 together with the Report of Independent Registered Public Accounting Firm

 

Content

  

Report of Independent Registered Public Accounting Firm  F-3
   
Consolidated financial statements  
   
Consolidated statements of financial position F-5
Consolidated statements of income F-6
Consolidated statements of comprehensive income F-8
Consolidated statements of changes in equity F-9
Consolidated statements of cash flows F-10
Notes to the consolidated financial statements F-12

 

F-2
 

 

Report of Independent Registered Public Accounting Firm

 

To the shareholders and Board of Directors of Credicorp Ltd.

 

We have audited the accompanying consolidated statements of financial position of Credicorp Ltd. and Subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011. These consolidated financial statements are the responsibility of Credicorp’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Credicorp and subsidiaries at December 31, 2011 and 2010, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

F-3
 

 

Report of Independent Registered Public Accounting Firm (continued)

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States of America), Credicorp’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 24, 2012, expressed an unqualified opinion thereon.

 

Lima, Peru,

April 24, 2012

 

/S/ Medina, Zaldívar, Paredes & Asociados

 

Countersigned by:

 

 

/s/ Cristian Emmerich  
Cristian Emmerich  
C.P.C.C. Register Nº19-289  

 

F-4
 

 

Credicorp Ltd. and Subsidiaries

 

Consolidated statements of financial position

As of December 31, 2011 and 2010

 

   Note   2011    2010 
       US$(000)    US$(000) 
              
Assets             
Cash and due from banks:  4          
Non-interest bearing      1,094,568    1,624,377 
Interest bearing      4,408,294    6,920,038 
       5,502,862    8,544,415 
              
Investments:             
Trading securities      75,611    115,568 
Investments available-for-sale  5   5,915,601    3,768,248 
       5,991,212    3,883,816 
              
Loans, net:  6          
Loans, net of unearned income      17,441,941    14,375,358 
Allowance for loan losses      (519,708)   (415,703)
       16,922,233    13,959,655 
              
Financial assets designated at fair value through profit or loss  7   90,103    179,055 
Premiums and other policies receivable  8(a)   174,367    129,136 
Accounts receivable from reinsurers and coinsurers  8(b)   151,080    160,249 
Property, furniture and equipment, net  9   472,433    372,913 
Due from customers on acceptances      61,695    70,331 
Seized assets, net      10,842    11,336 
Intangible assets and goodwill, net  10(a) and 10(b)   453,422    372,625 
Other assets  11   902,544    707,626 
              
Total assets      30,732,793    28,391,157 
            
Liabilities and equity             
Deposits and obligations:  12          
Non-interest bearing      5,390,688    4,360,570 
Interest bearing      13,313,159    13,457,548 
       18,703,847    17,818,118 
              
Due to banks and correspondents  13   2,060,020    2,240,320 
Bankers’ acceptances outstanding      61,695    70,331 
Accounts payable to reinsurers and coinsurers  8(b)   75,366    60,775 
Technical reserves, insurance claims reserves and reserves for unearned premiums  14   1,378,298    1,196,323 
Bonds and notes issued  15   3,965,522    2,981,918 
Other liabilities  11   1,025,405    1,093,121 
Total liabilities      27,270,153    25,460,906 
              
Equity  16          
Capital and reserves attributable to Credicorp’s equity holders:             
Capital stock      471,912    471,912 
Treasury stock      (74,877)   (74,712)
Capital surplus      111,145    119,637 
Reserves      1,812,977    1,398,323 
Other reserves      340,168    366,721 
Retained earnings      734,474    591,868 
       3,395,799    2,873,749 
              
Non-controlling interest      66,841    56,502 
Total equity      3,462,640    2,930,251 
Total liabilities and equity      30,732,793    28,391,157 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-5
 

 

Credicorp Ltd. and Subsidiaries

 

Consolidated statements of income

For the years ended December 31, 2011, 2010 and 2009

 

   Note  2011   2010   2009 
      US$(000)   US$(000)   US$(000) 
                
Interest and dividend income  20   1,837,764    1,471,708    1,312,925 
Interest expense  20   (531,600)   (414,121)   (420,564)
Net interest and dividend income      1,306,164    1,057,587    892,361 
Provision for loan losses, net of recoveries  6(d)   (214,898)   (174,682)   (163,392)
Net interest and dividend income after provision for loan losses      1,091,266    882,905    728,969 
Other income                  
Banking services commissions  21   607,843    524,895    436,819 
Net gain on foreign exchange transactions      138,492    104,169    87,944 
Net gain on sale of securities      61,927    80,326    120,932 
Net gain on financial assets designated at fair value through profit or loss  7   -    64,477    42,792 
Other  24   30,374    30,668    32,144 
Total other income      838,636    804,535    720,631 
                   
Insurance premiums and claims                  
Net premiums earned  22   574,423    480,293    424,682 
Net claims incurred for life, property, casualty and health insurance contracts  23   (377,759)   (315,572)   (286,458)
Total premiums earned less claims      196,664    164,721    138,224 
                   
Other expenses                  
Salaries and employees benefits      (595,705)   (568,004)   (467,116)
Administrative expenses      (405,357)   (341,123)   (312,256)
Depreciation and amortization  9(a) and 10(a)   (93,882)   (82,289)   (71,099)
Impairment loss on available-for-sale investments  5(c)   (1,025)   (3,250)   (9,825)
Net loss on financial assets designated at fair value through profit or loss  7   (24,640)   -    - 
Other  24   (109,540)   (91,219)   (96,814)
Total other expenses      (1,230,149)   (1,085,885)   (957,110)
                   
Income before translation result and income tax      896,417    766,276    630,714 
                   
Translation result      37,881    24,120    12,222 
Income tax  17(b)   (210,508)   (187,081)   (138,500)
Net income      723,790    603,315    504,436 

 

F-6
 

 

Consolidated statements of income (continued)

 

   Note  2011   2010   2009 
      US$(000)   US$(000)   US$(000) 
                
Attributable to:                  
Equity holders of Credicorp Ltd.      709,272    571,302    469,785 
Non-controlling interest      14,518    32,013    34,651 
       723,790    603,315    504,436 
Earnings per share for net income attributable to equity holders of Credicorp Ltd. (in U.S. Dollars):                  
Basic  25   8.93    7.19    5.90 
Diluted  25   8.90    7.17    5.90 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-7
 

 

Credicorp Ltd. and Subsidiaries

 

Consolidated statements of comprehensive income

For the years ended December 31, 2011, 2010 and 2009

 

   Note  2011   2010   2009 
      US$(000)   US$(000)   US$(000) 
                
Net income      723,790    603,315    504,436 
Other comprehensive income                  
                   
Net (loss) gain on investments available–for-sale  16(d)   (53,168)   225,261    268,550 
Net movement of cash flow hedges  16(d)   168    (7,319)   66,024 
Income tax  16(d)   31,017    (66,010)   (5,841)
                   
Other comprehensive income for the year, net of income tax      (21,983)   151,932    328,733 
                   
Total comprehensive income for the year, net of income tax      701,807    755,247    833,169 
                   
Attributable to:                  
Equity holders of Credicorp Ltd.      682,719    700,577    752,624 
Non-controlling interest      19,088    54,670    80,545 
                   
       701,807    755,247    833,169 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-8
 

 

Credicorp Ltd. and Subsidiaries

 

Consolidated statements of changes in equity

For the years ended December 31, 2011, 2010 and 2009

 

   Attributable to Credicorp’s equity holders         
   Number of 
shares issued, 
notes 16(a) and
25
   Capital
stock
   Treasury
stock
   Capital
surplus
   Reserves  

Available-for-

sale investments

reserve

   Cash flow 
hedges reserve
   Retained
earnings
   Total   Non-controlling
interest
   Total
net equity
 
   (In thousands of units)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000) 
                                             
Balances as of January 1, 2009   94,382    471,912    (73,107)   140,693    815,387    72,729    (118,122)   379,680    1,689,172    106,933    1,796,105 
Changes in equity for 2009 -                                                       
Net income   -    -    -    -    -    -    -    469,785    469,785    34,651    504,436 
Other comprehensive income   -    -    -    -    -    216,248    66,591    -    282,839    45,894    328,733 
Total comprehensive income   -    -    -    -    -    216,248    66,591    469,785    752,624    80,545    833,169 
Transfer of retained earnings to reserves, Note 16(c)   -    -    -    -    238,107    -    -    (238,107)   -    -    - 
Cash dividends, Note 16(e)   -    -    -    -    -    -    -    (119,303)   (119,303)   -    (119,303)
Purchase of treasury stock   -    -    (1,135)   (10,352)   -    -    -    -    (11,487)   -    (11,487)
Share-based payments transactions, Note 18(b)   -    -    -    -    5,850    -    -    -    5,850    -    5,850 
Dividends of subsidiaries and other   -    -    -    -    -    -    -    -    -    (982)   (982)
Balances as of December 31, 2009   94,382    471,912    (74,242)   130,341    1,059,344    288,977    (51,531)   492,055    2,316,856    186,496    2,503,352 
Changes in equity for 2010 -                                                       
Net income   -    -    -    -    -    -    -    571,302    571,302    32,013    603,315 
Other comprehensive income   -    -    -    -    -    134,770    (5,495)   -    129,275    22,657    151,932 
Total comprehensive income   -    -    -    -    -    134,770    (5,495)   571,302    700,577    54,670    755,247 
Purchase of non-controlling interest, Note 2(b) and 3(b)   -    -    -    -    -    -    -    (4,289)   (4,289)   (180,682)   (184,971)
Transfer of retained earnings to reserves, Note 16(c)   -    -    -    -    331,605    -    -    (331,605)   -    -    - 
Cash dividends, Note 16(e)   -    -    -    -    -    -    -    (135,595)   (135,595)   -    (135,595)
Purchase of treasury stock, Note 18(b)   -    -    (848)   (14,154)   -    -    -    -    (15,002)   -    (15,002)
Share-based payments transactions, Note 18(b)   -    -    378    3,450    7,374    -    -    -    11,202    -    11,202 
Dividends of subsidiaries and other   -    -    -    -    -    -    -    -    -    (3,982)   (3,982)
Balances as of December 31, 2010   94,382    471,912    (74,712)   119,637    1,398,323    423,747    (57,026)   591,868    2,873,749    56,502    2,930,251 
Changes in equity for 2011 -                                                       
Net income   -    -    -    -    -    -    -    709,272    709,272    14,518    723,790 
Other comprehensive income   -    -    -    -    -    (28,405)   1,852    -    (26,553)   4,570    (21,983)
Total comprehensive income   -    -    -    -    -    (28,405)   1,852    709,272    682,719    19,088    701,807 
Purchase of non-controlling interest   -    -    -    -    -    -    -    (1,228)   (1,228)   (1,171)   (2,399)
Transfer of retained earnings to reserves, Note 16(c)   -    -    -    -    407,822    -    -    (407,822)   -    -    - 
Cash dividends, Note 16(e)   -    -    -    -    -    -    -    (155,535)   (155,535)   -    (155,535)
Purchase of treasury stock, Note 18(b)   -    -    (827)   (16,661)   -    -    -    -    (17,488)   -    (17,488)
Share-based payments transactions, Note 18(b)   -    -    662    8,169    6,832    -    -    -    15,663    -    15,663 
Dividends of subsidiaries and other   -    -    -    -    -    -    -    (2,081)   (2,081)   (7,578)   (9,659)
Balances as of December 31, 2011   94,382    471,912    (74,877)   111,145    1,812,977    395,342    (55,174)   734,474    3,395,799    66,841    3,462,640 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-9
 

 

Credicorp Ltd. and Subsidiaries

 

Consolidated statements of cash flows

For the years ended December 2011, 2010 and 2009

 

   2011   2010   2009 
   US$(000)   US$(000)   US$(000) 
             
Cash flows from operating activities               
Net income   723,790    603,315    504,436 
Add (deduct)               
Provision for loan losses   214,898    174,682    163,392 
Depreciation and amortization   93,882    82,289    71,099 
Provision for seized assets   -    -    64 
Provision for sundry risks   10,661    8,440    14,425 
Deferred income tax   (9,057)   (16,333)   (8,552)
Net gain on sales of securities   (61,927)   (80,326)   (120,932)
Impairment loss on available-for-sale investments   1,025    3,250    9,825 
Net (gain) loss on financial assets designated at fair value through profit and loss   24,640    (64,477)   (42,792)
Gain (loss) on sales of property, furniture and equipment   112    357    (388)
Translation result   (37,881)   (24,120)   (12,222)
Loss for shared-based compensation plan   7,014    73,527    56,338 
Purchase (sale) of trading securities, net   39,957    (43,048)   (34,690)
Net changes in assets and liabilities               
Increase in loans   (3,443,013)   (2,943,128)   (944,021)
(Increase) decrease in other assets   (187,916)   (3,190)   (6,289)
Increase in deposits and obligations   1,001,408    4,074,938    133,199 
(Decrease) increase in due to banks and correspondents   (174,949)   1,082,383    (151,781)
Increase (decrease) in other liabilities   91,822    263,147    (126,552)
Net cash provided by (used in) operating activities   (1,705,534)   3,191,706    (495,441)
                
Cash flows from investing activities               
Acquisition of subsidiary   (82,656)   -    (92,329)
Net (purchase) sale of investments available-for-sale   (2,468,326)   1,393,345    284,371 
Purchase of property, furniture and equipment   (100,819)   (80,184)   (45,051)
Sales of property, furniture and equipment   526    265    2,745 
Purchase of non-controlling interest   (2,399)   (184,971)   - 
Net cash provided by investing activities   (2,653,674)   1,128,455    149,736 

 

F-10
 

 

Consolidated statements of cash flows (continued) 

 

   2011   2010   2009 
   US$(000)   US$(000)   US$(000) 
             
Cash flows from financing activities               
Issuance of bonds and notes   1,841,332    1,449,323    570,900 
Redemption and payments of bonds and notes   (398,406)   (858,890)   (114,891)
Acquisition of Credicorp’s shares   (17,488)   (15,002)   (11,487)
Cash dividends   (155,535)   (135,595)   (119,303)
Net cash provided by financing activities   1,269,903    439,836    325,219 
                
Net (decrease) increase in cash and cash equivalents   (3,089,305)   4,759,997    (20,486)
                
Translation gain (loss) on cash and cash equivalents   47,752    (52,240)   90,973 
                
Cash and cash equivalents at the beginning of the year   8,544,415    3,836,658    3,766,171 
                
Cash and cash equivalents at the end of the year   5,502,862    8,544,415    3,836,658 
                
Supplementary cash flows information:               
Cash paid during the year for -               
Interest   504,278    401,156    444,398 
Income tax   254,564    172,481    142,516 
Cash received during the year for -               
Interest   1,816,992    1,462,520    1,315,704 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-11
 

 

Credicorp Ltd. and Subsidiaries

 

Notes to the consolidated financial statements

As of December 31, 2011 and 2010

 

1.Operations

 

Credicorp Ltd. (hereinafter “Credicorp” or “the Group”) is a limited liability company incorporated in Bermuda in 1995 to act as a holding company and to coordinate the policies and administration of its subsidiaries. It is also engaged in investing activities.

 

Credicorp Ltd., through its banking and non-banking subsidiaries, provides a wide range of financial services and products throughout Peru and in certain other countries (Bolivia and Panama). Its major subsidiary is Banco de Crédito del Perú (hereinafter “BCP” or the “Bank”), a Peruvian universal bank. Credicorp’s address is Claredon House 2 Church Street Hamilton, Bermuda; likewise, administration offices of its representative in Peru are located in Calle Centenario Nº156, La Molina, Lima, Peru.

 

Credicorp is listed in Lima and New York stock exchanges.

 

The consolidated financial statements as of and for the year ended December 31, 2010 were approved in the General Shareholders’ meeting held on March 31, 2011. The accompanying consolidated financial statements as of and for the year ended December 31, 2011, were approved by the Board of Directors Meeting of February 22, 2012 and by the General Shareholders’ Meeting of March, 30 2012 without modifications.

 

2.Acquisitions

 

(a)During 2011, Credicorp, through its Peruvian subsidiary Pacífico S.A. Entidad Prestadora de Salud (EPS), acquired the following Peruvian entities specialized in providing health services, health and wellness programs, primary and specialized ambulatory services, and comprehensive acute care services (hereinafter referred as “private hospitals”), for a total amount of approximately US$82.7 million:

 

Entity  Acquisition date  Activity  Percentage of
participation
   Amount 
       %   US$(000) 
               
Doctor + S.A.C.  July, 2011  Health services   100.00    1,790 
La Esperanza del Perú S.A.  August, 2011  Private hospital   70.00    17,606 
Análisis Clínicos ML S.R.L.  August, 2011  Laboratory   100.00    5,000 
Galeno I.E.M. S.A.C.  August, 2011  Private hospital   100.00    4,000 
Oncocare S.R.L.  November, 2011  Private hospital   80.00    4,040 
Sistemas de Administración Hospitalaria S.A.C.  December, 2011  Private hospital   97.32    37,000 
Servicios de Salud San Isidro  December, 2011  Private hospital   100.00    13,220 
Total              82,656 

 

F-12
 

 

Notes to the consolidated financial statements (continued)

 

The acquisitions of these entities were recorded using the acquisition method, as required by IFRS 3, “Business Combinations”, applicable at the date of the transaction. Assets and liabilities were recorded at their estimated fair values at the acquisition dates, including the identified intangible assets unrecorded in the statements of financial position of each entity. The non-controlling interest in the acquiree was measured at fair value. Acquisition cost incurred were expensed and included in the caption “Administrative expenses” of the consolidated statements of income. Book value and the total fair value of the identified assets and liabilities were as follows:

 

   Book
value
   Fair value
adjustments
   Fair value
recognized on
acquisition
 
   US$(000)   US$(000)   US$(000) 
             
Assets               
Accounts receivables, net   8,761    -    8,761 
Property, furniture and equipment, net, Note 9(a)   25,356    21,514    46,870 
Intangible               
Licenses, Note 10(a)   -    12,271    12,271 
Brand name, Note 10(a)   -    10,587    10,587 
Client relationships, Note 10(a)   -    3,116    3,116 
Other assets   3,212    -    3,212 
                
Liabilities               
Loans   7,177    -    7,177 
Accounts payable   24,447    (290)   24,157 
Deferred income tax liability   1,334    14,333    15,667 
                
Total identifiable net assets at fair value   4,371    33,445    37,816 
                
Non controlling interest measured at fair value   -    (700)   (700)
                
Goodwill arising on acquisition, Note 10(b)   -    45,540    45,540 
                
Purchase consideration   4,371    78,285    82,656 

 

Fair values of licenses, brand name and client relationship were estimated using the MEEM method (“Multi-period Excess Earnings Method”) based on discounted cash flows calculations of future benefits related to these intangible.

  

F-13
 

 

Notes to the consolidated financial statements (continued)

 

Considering the dates of acquisition, the initial accounting for the business combination is incomplete by the end of the reporting period. Therefore; certain amounts reported are provisional amounts. Credicorp during the measurement period, if necessary, will retrospectively adjust the provisional amounts recognized, including net assets or liabilities, at the acquisition dates to reflect new information obtained about facts and circumstances that existed as of the acquisition dates.

 

The measurement period ends as soon as Credicorp receives the information seeked about facts and circumstances as of the acquisition dates or learns that more information is not obtainable. However, the measurement period will not exceed one year from the acquisition dates.

 

(b)Non-controlling interest of Subsidiaries -

 

During October 2010, Credicorp reached an agreement with American Life Insurance Company (hereinafter “ALICO”) to acquire its 20.10 percent and 38.00 percent stakes in El Pacifico Peruano – Suiza Compañía de Seguros y Reaseguros (PPS) and Pacifico Vida Compañía de Seguros y Reaseguros S.A. (PPV), respectively. Credicorp acquired PPV's shares and its subsidiary, Grupo Crédito S.A., acquired PPS’s shares. An additional 1.18 percent of non-controlling interest was acquired by Grupo Crédito S.A. from minority shareholders.

 

The acquisition was recorded following IFRS 3 “Business Combinations” and IAS 27 (amendments) “Consolidated and Separate Financial Statements”, see Note 3(b). The total cash consideration paid was approximately US$174.0 million. The difference of US$3.3 million between the consideration paid and the carrying value of the interest acquired was recognized in “Retained earnings” within consolidated equity.

 

(c)Empresa Financiera Edyficar S.A. -

 

During October and November 2009, Credicorp, through its subsidiary BCP, acquired 99.79 percent of the capital stock of Empresa Financiera Edyficar S.A. (a Peruvian financial entity, serving micro and small size entrepreneurs, hereinafter “Edyficar”) for approximately US$96.1 million in cash.

  

F-14
 

 

Notes to the consolidated financial statements (continued)

 

The acquisition of Edyficar was recorded using the purchase method, as required by IFRS 3, “Business Combinations”, applicable at the date of the transaction. Book value and fair value of the identified assets and liabilities were as follows:

 

   Book
value
   Fair value
adjustments
   Fair value of the
acquired entity
 
   US$(000)   US$(000)   US$(000) 
             
Assets               
Cash and due from banks   3,810    -    3,810 
Loans, net   218,218    (10,295)   207,923 
Client relationships   -    6,574    6,574 
Fixed assets, net   8,255    -    8,255 
Brand name   -    13,159    13,159 
Goodwill, Note 10(b)   -    50,696    50,696 
Other assets   11,802    3,263    15,065 
                
Liabilities               
Obligations   38,590    -    38,590 
Due to banks   138,257    -    138,257 
Deferred income tax liability   -    6,611    6,611 
Other liabilities   25,054    831    25,885 
                
Net acquired assets   40,184    55,955    96,139 

 

3.Significant accounting policies

 

Significant accounting principles used in the preparation of Credicorp’s consolidated financial statements are set out below and were consistently applied to all of the years presented.

 

(a)Basis of presentation and use of estimates -

 

The consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The consolidated financial statements were prepared on a historical cost basis, except for trading securities, available-for-sale investments, derivative financial instruments, share-based payment and financial assets designated at fair value through profit or loss, which were measured at fair value. The consolidated financial statements are presented in United States Dollars (US$), and all values are rounded to the nearest US$ thousands, except when otherwise indicated.

 

The preparation of the consolidated financial statements in conformity with IFRS requires Management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of significant events in notes to the consolidated financial statements.

  

F-15
 

 

Notes to the consolidated financial statements (continued)

 

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the current circumstances. Actual results could differ from those estimates. The most significant estimates comprised in the accompanying consolidated financial statements are related to the computation of the allowance for loan losses, the measurement of financial instruments, the technical reserves for claims and premiums, the provision for seized assets, the estimated useful life of property, furniture and equipment, the estimated useful life of intangible assets and goodwill, the valuation of derivative financial instruments and the deferred tax assets and liabilities. The accounting criteria used for each of these items are described in this note.

 

The accounting policies adopted are consistent with those of the previous year, except that the Group has adopted those new IFRS and revised IAS mandatory for years beginning on or after January 1, 2011. The adoption of the following new and revised accounting standards did not have any significant impact on the consolidated financial position or performance of the Group:

 

-IAS 24 “Related Party Disclosures” (amendment), effective for periods beginning on or after January 1, 2011. The amendment simplifies the identification of related party relationships, particularly in relation to significant influence and joint control.

 

-IAS 32 “Financial Instruments: Presentation” – Classification of Rights Issues (amendment), effective for annual periods beginning on or after February 1, 2010. The IAS amends the definition of a financial liability in order to classify rights issues (and certain options or warrants) as equity instruments in cases where such rights are given pro rata to all of the existing owners of the same class of an entity’s non-derivative equity instruments, or to acquire a fixed number of the entity’s own equity instruments for a fixed amount in any currency.

 

-IFRIC 14 “Prepayments of a Minimum Funding Requirement” (amendment), effective for periods beginning on or after January 1, 2011. The IFRIC permits an entity to treat the prepayment of a minimum funding requirement as an asset.

 

-IFRIC 19 “Extinguishing Financial Liabilities with Equity Instruments”, effective for annual periods beginning on or after July 1, 2010. The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case this cannot be reliably measured, they are measured at the fair value of the liability extinguished. Any gain or loss is recognized immediately in profit or loss.

 

-Improvements to IFRSs (issued in May 2010). The IASB issued Improvements to IFRSs, an omnibus of amendments and improvements to its IFRS standards.

 

F-16
 

 

Notes to the consolidated financial statements (continued)

 

(b)Consolidation -

 

Subsidiaries -

 

Subsidiaries are all entities (including special purpose entities) in which the Group has the power to govern their financial and operating policies. This situation is generally evidenced by controlling more than one half of the voting rights.

 

Subsidiaries are fully consolidated from the date on which effective control is transferred to the Group and are no longer consolidated from the date control ceases. The consolidated financial statements include the assets, liabilities, income and expenses of Credicorp and its Subsidiaries. Transactions between the Group’s entities, including balances, gains or losses are eliminated.

 

Business combinations made after January 1, 2010 are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the noncontrolling interest in the acquiree at fair value. Acquisition costs incurred are expensed and included in the caption “Administrative expenses” of the consolidated statement of income.

 

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

 

Any contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognized either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity.

 

Business combinations prior to January 1, 2010, in comparison to the above-mentioned requirements, were accounted for using the purchase method. Transaction costs directly attributable to the acquisition formed part of the acquisition costs. The non-controlling interest (formerly known as minority interest) was measured at the proportionate share of the acquiree’s identifiable net assets.

 

Contingent consideration was recognized if, and only if, the Group had a present obligation, the economic outflow was more likely than not and a reliable estimate was determinable. Subsequent adjustments to the contingent consideration were recognized as part of goodwill.

 

Assets in custody or managed by the Group, such as investment funds and private pension funds (AFP funds), are not part of the Group’s consolidated financial statements, Note 3(z).

 

F-17
 

 

Notes to the consolidated financial statements (continued)

 

Net equity attributable to the non-controlling interest is presented in the consolidated statements of financial position. Income attributable to the non-controlling interest is presented separately in the consolidated income statements and the consolidated statements of comprehensive income.

 

Acquisitions of non-controlling interest prior to January 1, 2010, were accounted for using the parent entity extension method, whereby, the difference between the consideration and the book value of the share of the net assets acquired were recognized in goodwill.

 

Acquisitions of non-controlling interest starting January1, 2010, are recorded directly in equity; the difference between the amounts paid and the share of the net assets acquired is a debit or credit to equity. Therefore, no additional goodwill is recorded upon purchase of non-controlling interest nor a gain or loss is recognized upon disposal of a non-controlling interest.

 

Associates -

 

An associate is an entity over which the Group has significant influence but not control. Investments in these entities represent shareholding between 20 and 50 percent of the voting rights; and are recognized initially at cost and then are accounted for by the “equity method”. The Group does not have significant investments in associates; therefore, they are included in the caption “Other assets” in the consolidated statements of financial position; gains resulting from the use of the equity method of accounting are included in the caption “Other income” of the consolidated income statement.

 

F-18
 

 

Notes to the consolidated financial statements (continued)

 

As of December 31, 2011 and 2010, the following entities comprise the Group (individual financial statements data is presented in accordance with IFRS and before eliminations for consolidation purposes, except for the elimination of Credicorp’s treasury stock and its related dividends):

 

Entity  Percentage of participation (direct and
indirect)
   Assets   Liabilities   Equity   Net income (loss) 
   2011   2010   2011   2010   2011   2010   2011   2010   2011   2010 
   %   %   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000) 
                                         
Banco de Crédito del Perú and Subsidiaries (i)   97.65    97.60    26,976,489    25,376,947    24,633,735    23,383,760    2,342,754    1,993,187    577,711    476,316 
Atlantic Security Holding Corporation and Subsidiaries (ii)   100.00    100.00    1,586,083    1,400,479    1,363,444    1,162,691    222,639    237,788    42,454    48,801 
El Pacífico Peruano-Suiza Compañía de Seguros y Reaseguros and Subsidiaries (iii)   97.68    97.26    2,148,960    1,781,952    1,654,490    1,366,883    494,470    415,069    67,257    67,422 
Prima AFP S.A. (iv)   99.99    99.99    270,239    276,140    92,311    92,437    177,928    183,703    32,393    25,506 
Grupo Crédito S.A. (v)   99.99    99.99    101,029    37,590    76,121    21,404    24,908    16,186    6,988    (2,424)
CCR Inc. (vi)   99.99    99.99    760,772    962,028    820,580    1,028,393    (59,808)   (66,365)   (1,243)   (2,765)
Credicorp Securities Inc. (vii)   99.99    99.99    2,825    4,048    179    597    2,646    3,451    1,088    1,998 
BCP Emisiones Latam 1 S.A. (viii)   100.00    100.00    118,451    126,855    117,861    126,191    590    664    74    109 
Tarjeta Naranja Perú S.A.C. (ix)   76.00    -    8,277    -    803    -    7,474    -    (2,169)   - 

 

(i)Banco de Crédito del Perú (BCP) is a universal bank incorporated in Peru in 1889. Its activities are supervised by the Superintendence of Banking, Insurance and AFP (the Peruvian banking, insurance and AFP authority, hereafter “the SBS” for its Spanish acronym). During 2010, Credicorp transferred BCP shares representing approximately 84.9 percent of BCP capital stock to its fully owned subsidiary Grupo Crédito S.A. This transfer had no effect in the accompanying consolidated financial statements; no gains or losses arose from the transfer. During 2011, the Group, through Grupo Crédito S.A., acquired 0.0429 percent of BCP shares owned by non-controlling interest (during 2010, Credicorp acquired 0.19 percent of BCP shares owned by non-controlling interest). BCP and Subsidiaries hold as of December 31, 2011 and 2010, 95.92 percent of the capital stock of Banco de Crédito de Bolivia (BCB), a universal bank operating in Bolivia (Credicorp holds directly an additional 4.08 percent). As of December 31, 2011, BCB’s assets, liabilities, equity and net income amounted to US$1,195.5, US$1,083.9, US$111.6 and US$22.3 million, respectively (US$1,122.0, US$1,026.4, US$95.6 and US$15.8 million, respectively, as of December 31, 2010).

 

(ii)Atlantic Security Holding Corporation (ASHC) is incorporated in the Cayman Islands; its main activity is to invest in capital stock. Its most significant subsidiary is Atlantic Security Bank (ASB), which is incorporated in the Cayman Islands and operates through branches and offices in Grand Cayman and the Republic of Panama; its main activity is private and institutional banking services and trustee administration.

 

(iii)PPS is incorporated in Peru, it provides property, casualty, life, health and personal insurance. Its main subsidiaries are PPV and EPS. PPS and its subsidiaries activities are supervised by the SBS. During 2011, Credicorp transferred PPV shares representing approximately 24 percent of PPV capital stock to its subsidiary PPS. This transfer had no effect in the accompanying consolidated financial statements; no gains or losses arose from the transfer. During 2011, the Group, through Grupo Crédito S.A., acquired 0.079 percent of PPS shares owned by non-controlling interest. As explained in more detail in Note 2(a), during 2011, EPS acquired various Peruvian entities specialized in providing health care services.

 

(iv)Prima AFP S.A. is a private pension fund administrator incorporated in Peru, its activities are supervised by the SBS.

 

(v)Grupo Crédito S.A. is incorporated in Peru, its main activity is to invest in listed and not listed securities in Peru; it also holds part of the Group’s shares in BCP, Prima AFP S.A., PPS and BCP Emisiones Latam 1 S.A. Grupo Crédito S.A. balances are presented net of its investments in said entities.

 

(vi)CCR Inc., is a special purposes entity incorporated in The Bahamas in 2001, its main activity is to manage certain loans granted to BCP by foreign financial entities, see Note 15(a)(vi). These loans are collateralized by transactions performed by BCP. As of December 31, 2011 and 2010, the negative equity is generated by unrealized losses from cash flow hedges derivatives.

 

(vii)Credicorp Securities Inc., is incorporated in the United States of America and began operations on January, 2003; it provides securities brokerage services, mainly to retail customers in Latin America.

 

(viii)BCP Emisiones Latam 1 S.A., is a special purposes entity incorporated in Chile in 2009, through which the Group issued corporate bonds, see Note 15(a)(ii).

 

(ix)Tarjeta Naranja Perú S.A.C., was incorporated in Peru, in 2011. Its main activity is to promote the use of a credit card named “Tarjeta Naranja”.

 

F-19
 

 

Notes to the consolidated financial statements (continued)

 

(c)Foreign currency translation -

 

The Group has determined that its functional and presentation currency is the United States Dollar (U.S. Dollar or US$), because it reflects the economic substance of the underlying events and circumstances relevant to the Group, insofar as its main operations and/or transactions in the different countries where the Group operates such as: loans granted, financing obtained, sale of insurance premiums, interest income and expense, and that an important percentage of wages and purchases; are established and settled in U.S. Dollars.

 

Financial statements of each of Credicorp’s subsidiaries are measured using the currency of the country in which each entity operates and are translated into U.S. Dollars (functional and presentation currency) as follows:

 

-Monetary assets and liabilities are translated at the free market exchange rate at the date of the consolidated statements of financial position.

 

-Non-monetary accounts are translated at the free market exchange rate prevailing at the transaction date.

 

-Income and expenses, except for those related to non-monetary assets which are translated at the free market exchange rate prevailing at the transaction date, are translated monthly at the average monthly exchange rate.

 

All resulting translation differences are recognized in the consolidated statements of income.

 

(d)Income and expense recognition from banking activities -

Interest income and expense for all interest-bearing financial instruments, including those related to financial instruments classified as held for trading or designated at fair value through profit or loss, are recognized within “Interest and dividend income” and “Interest expense” in the consolidated statements of income using the effective interest rate method, which is the rate that discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability.

 

Interest income is suspended when collection of loans become doubtful, when loans are overdue more than 90 days or when the borrower or securities issuer defaults, if earlier than 90 days; such income is excluded from interest income until collected. Uncollected income on such loans is provisioned. When Management determines that the debtor’s financial condition has improved, the recording of interest thereon is reestablished on an accrual basis.

 

Interest income includes coupons earned on fixed income investment and trading securities and the accrued discount and premium on financial instruments. Dividends are recognized as income when they are declared.

 

F-20
 

 

Notes to the consolidated financial statements (continued)

 

Fees and commission income are recognized on an accrual basis. Contingent credit fees for loans that are likely to be drawn down and other credit related fees are deferred (together with any direct incremental costs) and recognized as an adjustment to the effective interest rate on the loan.

 

All other revenues and expenses are recognized on an accrual basis.

 

(e)Insurance activities -

 

Accounting policies for insurance activities

For the adoption of IFRS 4 “Insurance contracts”, Management concluded that USGAAP used as of December 31, 2004 was the relevant framework to be used, as permitted by IFRS 4.

 

Product classification:

 

Insurance contracts are those contracts when the Group (the insurer) has accepted significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. This definition also includes reinsurance contracts that the Group holds. As a general guideline, the Group determines whether it has significant insurance risk by comparing benefits paid with benefits payable if the insured event did not occur. Insurance contracts can also transfer financial risk.

 

Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expire.

 

Life insurance contracts offered by the Group include retirement, disability, survival fixed pensions, traditional life and unit linked insurance contracts. The non-life insurance contracts mainly include motor, household, commercial and healthcare.

 

Reinsurance:

 

The Group cedes insurance risk in the normal course of the operations for all of its businesses. Reinsurance assets represent balances due from reinsurance companies. Reinsurance ceded is placed on both a proportional and non–proportional basis.

 

Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims and ceded premiums associated with the reinsurer’s policies and are in accordance with the related reinsurance contract.

 

Reinsurance assets are reviewed for impairment at each reporting date or more frequently when an indication of impairment arises during the reporting year. Impairment occurs when there is objective evidence as a result of an event that occurred after initial recognition of the reinsurance asset that the Group may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measureable impact on the amounts that the Group will receive from the reinsurer. The impairment loss is recorded in the consolidated statements of income. 

 

F-21
 

 

Notes to the consolidated financial statements (continued)

 

Ceded reinsurance arrangements do not relieve the Group from its obligations to a policyholder.

 

The Group also assumes reinsurance risk in the normal course of business for non-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.

 

Reinsurance liabilities represent balances due to reinsurance companies. Amounts payable are estimated in a manner consistent with the related reinsurance contract.

 

Premiums and claims are presented on a gross basis for both ceded and assumed reinsurance, see notes 22 and 23. Reinsurance assets or liabilities are derecognized when the contractual rights are extinguished or expire or when the contract is transferred to another party. Reinsurance contracts that do not transfer significant insurance risk are not material to the insurance segment.

 

Insurance receivables

 

Insurance receivables are recognized when due and measured on initial recognition at the fair value of the consideration received or receivable. Subsequent to initial recognition, insurance receivables are measured at amortized cost. As of December 31, 2011 and 2010 the carrying value of the insurance receivables is similar to its fair value due to its short term. The carrying value of insurance receivables is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable, with the impairment loss recorded in the consolidated statements of income. Insurance receivables are derecognized when the derecognition criteria for financial assets, as described in Note 3(g), has been met.

 

“Unit- Linked” assets

 

“Unit- Linked” assets represent financial instruments held for purposes of funding a group of life insurance contracts and for which investment gains and losses accrue directly to the policyholders who bear the investment risk. Each account has specific objectives, and the financial assets are carried at fair value. The balance of each account is legally segregated and is not subject to claims that arise out of any other business of the Group. The liabilities for these accounts are equal to the account assets, net of the commission that the Group charges for the management of these contracts.

 

Deferred acquisition costs (DAC)

 

Those direct costs that vary with and are related to traditional life and unit linked insurance contracts are deferred; all other acquisition costs are recognized as an expense when incurred. The acquisition costs comprise primarily agent commissions related to the underwriting and policy issuance costs.

 

Subsequent to initial recognition, these costs are amortized on a straight line basis based on the averaged expiration period of the related insurance contracts. Amortization is recorded in the consolidated statements of income.

  

F-22
 

 

Notes to the consolidated financial statements (continued)

 

An impairment review is performed at each reporting date or more frequently when an indication of impairment arises. When the recoverable amounts is less than the carrying value an impairment loss is recognized in the consolidated statements of income. DAC is also considered in the liability adequacy test for each reporting period.

 

Reinsurance commissions

 

Commissions receivable on outwards reinsurance contracts are deferred and amortized on a straight line basis over the term of the expected coverage of the insurance contracts.

 

Insurance contract liabilities

 

(i)Life insurance contracts liabilities

 

Life insurance liabilities are recognized when contracts are entered into.

 

The liabilities of retirement, disability and survival fixed pensions are determined as the sum of the discounted value of expected future pensions to be paid during a defined or non defined period, computed upon the basis of mortality tables and discount interest rates. Traditional life and unit linked insurance contract liabilities are determined as the sum of the discounted value of expected future benefits, claims handling, administration expenses, policyholder options and guarantees and investment income, less the discounted value of the expected theoretical premiums that would be required to meet the future cash outflows.

 

The liabilities of retirement, disability and survival fixed pensions and traditional life insurance contracts are based on assumptions established at the time the contract was issued. Current assumptions are used to update the interest accrued for unit linked insurance contracts.

 

Furthermore, the liability for life insurance contracts comprises the provision for unearned premiums and unexpired risks, as well as for claims outstanding, which includes an estimate of the incurred but non-reported claims to the Group (hereinafter “IBNR”). IBNR reserves as of December 31, 2011 and 2010, were determined on the basis of the Chain Ladder methodology (a generally accepted actuarial method), whereby the weighted average of past claim development is projected into the future; the projection is based on the ratios of cumulative past claims. Adjustments to the liabilities at each reporting date are recorded in the consolidated statements of income. The liability is derecognized when the contract expires, is discharged or is cancelled.

 

At each reporting date, an assessment is made of whether the recognized life insurance liabilities are adequate, net of related DAC, by using an existing liability adequacy test as laid out under IFRS 4. As of December 31, 2011 and 2010, Management determined that the liabilities were adequate and; therefore, it has not recorded any additional life insurance liability.

 

F-23
 

 

Notes to the consolidated financial statements (continued)

 

(ii)Non-life insurance contract liabilities (which comprises general insurance and healthcare)

 

Non-life insurance contract liabilities are recognized when contracts are entered into.

 

These liabilities are known as the outstanding claims provision, which are based on the estimated ultimate cost of all claims incurred but not settled at the date of the consolidated statements of financial position, whether reported or not, together with related claims handling costs and reduction for the expected value of salvage and other recoveries. Delays can be experienced in the notification and settlement of certain types of claims, therefore the ultimate cost of these cannot be known with certainty at the date of the consolidated statements of financial position. IBNR are estimated and included in the provision (liabilities). IBNR reserves as of December 31, 2011 and 2010, were determined on the basis of the Bornhuetter - Ferguson methodology – BF (a generally accepted actuarial method), which considers a statistical analysis of the recorded loss history, the use of projection methods and, when appropriate, qualitative factors that reflect present conditions or trends that could affect historical data. No provision for equalization or catastrophe reserves is recognized. The liabilities are derecognized when the contract expires, is discharged or is cancelled.

 

The provision for unearned premiums represents premiums received for risks that have not yet expired. Generally the reserve is released over the term of the contract and is recognized as premium income.

 

At each reporting date the Group reviews its unexpired risk and an existing liability adequacy test as laid out under IFRS 4 to determine whether there is any overall excess of expected claims over unearned premiums. If these estimates show that the carrying amount of the unearned premiums is inadequate, the deficiency is recognized in the consolidated income statement by setting up a provision for liability adequacy. As of December 31, 2011 and 2010, Management determined that the liabilities were adequate; therefore, it has not recorded any additional non life insurance liabilities.

 

Income recognition

 

(i)Gross premiums


Life insurance contracts

 

Gross recurring premiums on life contracts are recognized as revenue when due from policyholder. For single premium business, revenue is recognized on the date on which the policy is effective.

 

Non-life insurance contracts

 

Gross non-life insurance direct and assumed premiums comprise the total premiums written and are recognized at the contract inception as a receivable. At the same time, it is recorded a reserve for unearned premiums which represents premiums for risks that have not yet expired. Unearned premiums are recognized into income over the contract period which is also the coverage and risk period.

 

F-24
 

 

Notes to the consolidated financial statements (continued)

 

(ii)Fees and commission income

 

Unit linked insurance contract policyholders are charged for policy administration services, investment management services, surrenders and other contract fees. These fees are recognized as revenue in the consolidated statements of income when due.

 

Benefits, claims and expenses recognition

 

(i)Gross benefits and claims

 

Gross benefits and claims for life insurance contracts include the cost of all claims arising during the year including internal and external claims handling costs that are directly related to the processing and settlement of claims. Death, survival and disability claims are recorded on the basis of notifications received. Pension payments are recorded when due.

 

General insurance and health claims includes all claims occurring during the year, whether reported or not, related internal and external claims handling costs that are directly related to the processing and settlement of claims, a reduction for the value of salvage and other recoveries, and any adjustments to claims outstanding from previous years.

 

(ii)Reinsurance premiums

 

Comprise the total premiums payable for the whole coverage provided by contracts entered in the period and are recognized on the date on which the policy incepts. Unearned reinsurance premiums are deferred over the term of the underlying insurance contract.

 

(iii)Reinsurance claims

 

Reinsurance claims are recognized when the related gross insurance claim is recognized according to the terms of the relevant contract.

 

(f)Financial Instruments: Initial recognition and subsequent measurement -

 

The Group classifies its financial instruments in one of the categories defined by IAS 39: financial assets and financial liabilities at fair value through profit or loss; loans and receivables; available-for-sale financial investments and other financial liabilities. The Group determines the classification of its financial instruments at initial recognition.

 

The classification of financial instruments at initial recognition depends on the purpose and the Management intention for which the financial instruments were acquired and their characteristics. All financial instruments are measured initially at their fair value plus any directly attributable incremental cost of acquisition or issue, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss.

 

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date, for example the date that the Group commits to purchase or sell the asset. Derivatives are recognized on a trade date basis.

  

F-25
 

 

Notes to the consolidated financial statements (continued)

 

(i)Financial assets at fair value through profit or loss

 

Financial assets at fair value through profit or loss includes financial assets held for trading and financial assets designated at fair value through profit or loss, which designation is upon initial recognition and in an instrument by instrument basis. Derivatives financial instrument are also categorized as held for trading unless they are designated as hedging instruments.

 

Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term, and are presented in the caption “Trading securities” of the consolidated statements of financial position.

 

Management may only designate an instrument at fair value through profit or loss upon initial recognition when the following criteria are met:

 

-the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring assets or liabilities or recognizing gains or losses on them on a different basis; or

 

-the assets and liabilities are part of a group of financial assets, financial liabilities or both which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or

 

-the financial instrument contains one or more embedded derivatives, which significantly modify the cash flows that otherwise would be required by the contract.

 

Changes in fair value of designated financial assets through profit or loss upon initial recognition are recorded in the consolidated income statement caption “Net gain on financial assets designated at fair value through profit and loss”. Interest earned is accrued in the consolidated income statement in the caption “Interest and dividend income”, according to the terms of the contract. Dividend income is recorded when the collection right has been established.

 

(ii)Loans and receivables

 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.

 

After initial measurement, loans and receivables are subsequently measured at amortized cost using the effective interest rate method, less any allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the effective interest rate. The effective interest rate amortization is recognized in the consolidated income statement in the caption “Interest and dividend income”. Losses from impairment are recognized in the consolidated statements of income in the caption “Provision for loan losses”.

 

Direct loans are recorded when disbursement of funds to the clients are made. Indirect (off-balance sheet) loans are recorded when documents supporting such facilities are issued. Likewise, Credicorp considers as refinanced or restructured those loans that change their payment schedules due to difficulties in the debtor’s ability to repay the loan.

  

F-26
 

 

Notes to the consolidated financial statements (continued)

 

An allowance for loan losses is established if there is objective evidence that the Group will not be able to collect all amounts due according to the original contractual terms of the loans. The allowance for loan losses is established based in an internal risk classification and considering any guarantees and collaterals received, Note 3(i) and 29.1.

 

(iii)Available-for-sale financial investments

 

Available-for-sale financial investments include equity investments and debt securities. Equity investments classified as available-for-sale are those that are neither classified as held for trading nor designated at a fair value through profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period of time and that may be sold in response to needs for liquidity or in response to changes in the market conditions.

 

After initial recognition, available-for-sale financial investments are measured at fair value with unrealized gains or losses recognized as other comprehensive income in the available-for-sale reserve, net of its corresponding deferred tax and non-controlling interest, until the investment is derecognized, at which time the cumulative gain or loss is recognized in the consolidated income statement in the caption “Net gain on sale of securities”, or determined to be impaired, at which time the impaired amount is recognized in the consolidated statements of income in the caption “Impairment loss on available–for–sale investments” and removed from the available-for-sale reserve.

 

Interest and dividends earned are recognized in the consolidated income statement in the caption “Interest and dividend income”. Interest earned is reported as interest income using the effective interest rate method and dividends earned are recognized when collection rights are established.

 

Estimated fair values are based primarily on quoted prices or, if quoted market prices are not available, discounted expected cash flows using market rates commensurate with the credit quality and maturity of the investment.

 

The Group evaluates whether the ability and intention to sell its available-for-sale financial assets in the near term is still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets and management’s intention to do so significantly changes in the foreseeable future, the Group may elect to reclassify these financial assets. Reclassification to loans and receivables is permitted when the financial assets meet the definition of loans and receivables and the Group has the intent and ability to hold these assets for the foreseeable future or until maturity.

 

Reclassification to the held-to-maturity category is permitted only when the Group has the ability and intention to hold the financial asset accordingly.

 

As of December, 31, 2011 and 2010, the Group did not reclassify any of its available-for- sale financial investments.

 

F-27
 

 

Notes to the consolidated financial statements (continued)

 

(iv)Other financial liabilities

 

After initial measurement other financial liabilities are subsequently measured at amortized cost using the effective interest rate method. Amortized cost includes any issuance discount or premium and directly attributable transaction costs that are an integral part of the effective interest rate.

 

(g)Derecognition of financial assets and financial liabilities -

 

Financial assets

 

A financial asset (or, where applicable a part of a financial asset or a part of a group of similar financial assets) is derecognized when: (i) the rights to receive cash flows from the asset have expired; or (ii) the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either the Group has transferred substantially all the risks and rewards of the asset, or the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

 

Financial liabilities

 

A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amount is recognized in the consolidated income statement

 

(h)Offsetting financial instruments -

 

Financial assets and liabilities are offset and the net amount is reported in the consolidated statements of financial position when there is a legally enforceable right to offset the recognized amounts and Management has the intention to settle on a net basis, or realize the assets and settle the liability simultaneously.

 

(i)Impairment of financial assets -

 

The Group assesses at each date of the consolidated statements of financial position whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will go bankrupt or other legal financial reorganization process and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Criteria used for each category of financial assets are as follows:

 

(i)Loans and receivables

 

For loans and receivables that are carried at amortized cost, the Group first assesses whether objective evidence of impairment exists for financial assets that are individually significant, or collectively, for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment.

 

F-28
 

 

Notes to the consolidated financial statements (continued)

 

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the consolidated income statement. Interest income, if applicable, is accrued on the reduced carrying amount based on the original effective interest rate of the asset. A loan, together with the associated allowance, is written off when classified as loss, is fully provisioned and there is real and verifiable evidence that the loan is irrecoverable and collection efforts concluded without success, impossibility of foreclosures or all collateral has been realized or has been transferred to the Group. If in any subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account.

 

If in the future a write-off loan is later recovered, the recovery is recognized in the consolidated statements of income, as a credit to the caption “Provision for loan losses”.

 

The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

 

For a collective evaluation impairment, financial assets are grouped considering the Group’s internal credit grading system, which considers credit risk characteristics; for example: asset type, industry, geographical location, collateral type and past-due status and other relevant factors.

  

F-29
 

 

Notes to the consolidated financial statements (continued)

 

Future cash flows from a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with similar credit risk characteristics to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the years on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exists. The methodology and assumptions used are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

 

(ii)Available-for-sale financial investments

 

For available-for-sale financial investments, the Group assesses at each date of the consolidated statements of financial position whether there is objective evidence that an investment or a group of investments is impaired.

 

In the case of equity investments, objective evidence would include a significant or prolonged decline in its fair value below cost. “Significant” is to be evaluated against the original cost of the investment and “prolonged” against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any previously recognized impairment loss) is removed from investments available-for-sale reserve of the consolidated statements of changes in equity and recognized in the consolidated income statement. Impairment losses on equity investments are not reversed through the consolidated income statement; increases in their fair value after impairment are recognized directly in the consolidated statements of comprehensive income.

 

In the case of debt instruments, impairment is assessed based on the same criteria as financial assets carried at amortized cost (loans and receivables). However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated statements of income. Future interest income is based on the reduced carrying amount and is accrued using the interest rate used to discount the future cash flows for the purpose of measuring the impairment loss. Interest income is recorded as part of “Interest and dividend income” of the consolidated income statement. If in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the consolidated income statement, the impairment loss is reversed through the consolidated statements of income.

 

F-30
 

 

Notes to the consolidated financial statements (continued)

 

(iii)Renegotiated loans

 

When a loan is modified, it is no longer considered as past due but it maintains its previous classification as impaired or not impaired. If the debtor complies with the new agreement during the following six months, and an analysis of its payment capacity supports a new improved risk classification, it is classified as not impaired. If subsequent to the loan modification the debtor fails to comply with the new agreement, it is considered as impaired and past due.

 

(j)Leases -

 

The determination of whether an arrangement is, or contains, a lease is based in the substance of the arrangement at inception date: whether fulfillment of the arrangement is dependent on the use of a specific asset or assets on the arrangement conveys a right to use the asset even if that right is not explicitly specified in an arrangement.

 

Operating leases -

 

Leases in which a significant portion of the risks and benefits of the asset are hold by the lessor are classified as operating leases. Under this concept the Group has mainly leases used as banking branches.

 

When an operating lease is terminated before the lease period has expired, any penalty payment to the lessor is recognized as an expense in the period in which termination takes place.

 

Finance leases -

 

Finance leases are recognized as granted loans at the present value of the future lease collections. The difference between the gross receivable amount and the present value of the loan is recognized as unearned interest. Lease income is recognized over the term of the lease agreement using the effective interest rate method, which reflects a constant periodic rate of return.

 

(k)Property, furniture and equipment -

 

Property, furniture and equipment are stated at historical acquisition cost less accumulated depreciation and impairment losses, if applicable. Historical acquisition costs include expenditures that are directly attributable to the acquired property, furniture or equipment. Maintenance and repair costs are charged to the consolidated income statement; significant renewals and improvements are capitalized when it is probable that future economic benefits, in excess of the originally assessed standard of performance, will flow from the use of the acquired property, furniture or equipment.

 

F-31
 

 

Notes to the consolidated financial statements (continued)

 

Land is not depreciated. Depreciation is calculated using the straight-line method over their estimated useful life, as follows:

 

  Years
   
Buildings and other construction 33
Installations 10
Furniture and fixtures 10
Vehicles and equipment 5
Computer hardware 4

 

An item of property, furniture and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated income statement.

 

Asset’s residual value, useful life and the selected depreciation method are periodically reviewed to ensure that they are consistent with current economic benefits and life expectations.

 

(l)Seized assets -

 

Seized assets are recorded at the lower of cost or estimated market value, which is obtained from valuations made by independent appraisals. Reductions in book values are recorded in the consolidated statements of income.

 

(m)Intangible assets -

 

Comprise internal developed and acquired software licenses used by the Group. Acquired software licenses are measured on initial recognition at cost. These intangible assets are amortized using the straight-line method over their estimated useful life (between 3 and 5 years).

 

Intangible assets identified as a consequence of the acquisition of subsidiaries and other intangible assets, are recognized on the consolidated statements of financial position at their fair values determined on the acquisition date and are amortized using the straight line method over their estimated useful life; as follows:

 

  Years
   
Client relationships – Prima AFP 20
Client relationships – Edyficar 10
Client relationships – Private hospitals 2, 3 y 14
Brand name – Edyficar 20
Brand name – Private hospitals 30
Licenses – Private hospitals 35
Rights of use 5
Other 5

 

F-32
 

 

Notes to the consolidated financial statements (continued)

 

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated statements of income when the asset is derecognized.

 

(n)Goodwill -

 

Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss.

 

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating unit’s (CGU) that are expected to benefit from the combination.

 

Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. Where the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.

 

(o)Impairment of non-financial assets -

 

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets.

 

When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.

 

For non-financial assets, excluding goodwill, an assessment is made at each reporting date whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized.

 

F-33
 

 

Notes to the consolidated financial statements (continued)

 

The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statements of income.

 

(p)Due from customers on acceptances -

 

Due from customers on acceptances corresponds to accounts receivable from customers for import and export transactions, whose obligations have been accepted by the Group. The obligations that must be assumed by the Group for such transactions are recorded as liabilities.

 

(q)Financial guarantees -

 

In the ordinary course of business, the Group issues financial guarantees, such as letters of credit, guarantees and acceptances. Financial guarantees are initially recognized at fair value (which is equivalent at that moment to the fee received) as “Other liabilities” in the consolidated statements of financial position. Subsequent to initial recognition, the Group’s liability under each guarantee is measured at the higher of the amount initially recognized less, when appropriate, cumulative amortization recognized in the consolidated income statement, and the best estimate of expenditure required to settle any financial obligation arising as a result of the financial guarantee.

 

Any increase in the liability relating to a financial guarantee is included in the consolidated statements of income. The fee received is recognized in the consolidated statement of income in the caption “Banking services commissions” on a straight line basis over the life of the granted financial guarantee.

 

(r)Defined contribution pension plan -

 

The Group only operates a defined contribution pension plan. The contribution payable to a defined contribution pension plan is in proportion to the services rendered to the Group by the employees and it is recorded as an expense in the caption “Salaries and employees benefits” of the consolidated income statement. Unpaid contributions are recorded as a liability.

 

(s)Provisions -

 

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow or resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the consolidated income statement net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the specific risks of the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.

 

F-34
 

 

Notes to the consolidated financial statements (continued)

 

(t)Contingencies -

 

Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed in notes, unless the probability of an outflow of resources is remote. Contingent assets are not recorded in the financial statements; they are disclosed if it is probable that an inflow of economic benefits will be realized.

 

(u)Income tax -

 

Income tax is computed based on individual financial statements of Credicorp and each one of its Subsidiaries.

 

Deferred income tax reflect the effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and the amounts determined for tax purposes. Deferred assets and liabilities are measured using the tax rates expected to be applied to taxable income in the years in which temporary differences are expected to be recovered or eliminated. The measurement of deferred assets and deferred liabilities reflects the tax consequences that arise from the manner in which Credicorp and its Subsidiaries expect, at the date of the consolidated statements of financial position, to recover or settle the carrying amount of its assets and liabilities.

 

Deferred tax assets and liabilities are recognized regardless of when the timing differences are likely to reverse. Deferred tax assets are recognized when it is more likely than not, that future taxable profit will be available against which the temporary difference can be utilized. At the date of the consolidated statements of financial position, Credicorp and its Subsidiaries assess unrecognized deferred assets and the carrying amount of recognized deferred assets.

 

Credicorp and its Subsidiaries determine the deferred income tax considering the tax rate applicable to its undistributed earnings; any additional tax on dividends distribution is recorded on the date a liability is recognized.

 

(v)Earnings per share -

 

Basic earnings per share is calculated by dividing the net profit for the year attributable to Credicorp’s equity holders by the weighted average number of ordinary shares outstanding during the year, excluding the average number of ordinary shares purchased and held as treasury stock.

 

Diluted earnings per share is calculated by dividing the net profit attributable to Credicorp’s equity holders by the weighted average number of ordinary shares outstanding during the year, excluding the average number of ordinary shares purchased and held as treasury stock, plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

 

F-35
 

 

Notes to the consolidated financial statements (continued)

 

(w)Share-based payment transactions -

 

(i)      Cash-settled transactions

 

As explained in Note 18(a), until 2008 the Group granted a supplementary remuneration plan to certain employees who had at least one year serving Credicorp or any of its Subsidiaries in the form of stock appreciation rights (SARs) over a certain number of Credicorp shares. SARs were granted at a fixed price and are exercisable at that price, allowing the employee to obtain a gain in cash (“cash-settled transaction”) arising from the difference between the fixed exercise price and the market price at the date the SARs are executed.

 

The SARs fair value is expensed over the period up to the vesting date, with recognition of a corresponding liability. The liability is remeasured to fair value at each reporting date up to and including the settlement date, with changes in fair value recognized in the consolidated income statement caption “Salaries and employee benefits”. When the price or terms of the SARs are modified, any additional expense is recorded in the consolidated statements of income.

 

(ii)      Equity-settled transactions

 

As explain in Note 18(b), since 2009, a new supplementary remuneration plan was implemented to replace the SARs plan (see (i) above).

 

The cost of this equity-settled plan is recognized, together with a corresponding increase in equity, over the period in which the service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘the vesting date”). The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest.

 

The expense is recorded in the consolidated income statements caption “Salaries and employees benefits”. When the terms of an equity-settled award are modified, the minimum expense recognized in the consolidated income statement “Salaries and employees benefits” caption is the expense as if the terms had not been modified. An additional expense is recognized for any modification which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.

 

The dilutive effect of outstanding stock awards is reflected as a share dilution in the computation of diluted earnings per share, see Note 3(v).

 

(x)Derivative financial instruments and hedge accounting -

 

Trading -

 

The Group negotiates derivative financial instruments in order to satisfy client’s needs. The Group may also take positions with the expectation of profiting from favorable movements in prices, rates or indexes.

 

F-36
 

 

Notes to the consolidated financial statements (continued)

 

Part of transactions with derivatives while providing effective economic hedges under Group’s risk management positions, do not qualify for hedge accounting under the specific rules of IAS 39 and are, therefore, treated as trading derivatives.

 

Derivative financial instruments are initially recognized in the consolidated statements of financial position at cost and subsequently are re-measured at their fair value. Fair values are estimated based on the market exchange and interest rates. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. Gain and losses for changes in their fair value are recorded in the consolidated statements of income.

 

Hedge -

 

The Group uses derivative instruments to manage exposures to interest rate and foreign currency. In order to manage particular risks, the Group applies hedge accounting for transactions which meet the specified criteria.

 

At inception of the hedge relationship, the Group formally documents the relationship between the hedged item and the hedging instrument, including the nature of the risk, the objective and strategy for undertaking the hedge and the method that will be used to assess the effectiveness of the hedging relationship.

 

Also, at the inception of the hedge relationship, a formal assessment is undertaken to ensure the hedging instrument is expected to be highly effective in offsetting the designated risk in the hedged item. Hedges are formally assessed at each reporting date. A hedge is regarded as highly effective if changes in fair value or cash flows attributable to the hedged risk during the period for which the hedge is designated is expected to offset in a range between 80 percent and 125 percent.

 

The accounting treatment is established according to the nature of the hedged item and compliance with the hedge criteria.

 

(i)Cash flow hedges

 

The effective portion of the gain or loss on the hedging instrument is recognized directly in other comprehensive income in the cash flow hedge reserve, while any ineffective portion is recognized immediately in the consolidated income statement.

 

Amounts recognized as other comprehensive income are transferred to the consolidated statements of income when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognized or when a forecast sale occurs.

 

F-37
 

 

Notes to the consolidated financial statements (continued)

 

If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously recognized in the cash flow hedges reserve are transferred to the consolidated income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognized in the cash flow hedge reserve remains in the cash flow hedges reserve until the forecast transaction or firm commitment affects profit or loss.

 

(ii)Fair value hedges

 

The change in the fair value of an interest rate hedging derivative is recognized in the consolidated statements of income in interest expense. The change in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the carrying value of the hedged item and is also recognized in the consolidated income statement.

 

For fair value hedges relating to consolidated items carried at amortized cost, the adjustment to carrying value is amortized through the consolidated statements of income over the remaining maturity term. Effective interest rate amortization may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.

 

If the hedged item is derecognized, the unamortized fair value is recognized immediately in the consolidated income statement.

 

If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longer meets the criteria for hedge accounting, the hedge relationship is terminated. For hedged items recorded at amortized cost, the difference between the carrying value of the hedged item on termination and the face value is amortized over the remaining term of the original hedge using the effective interest rate. If the hedged item is derecognized, the unamortized fair value adjustment is recognized immediately in the consolidated income statement.

 

(iii)Embedded derivates

 

Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts, and the host contracts are not held for trading or designated at fair value through profit or loss.

 

The Group has certificates indexed to the price of Credicorp Ltd. shares that will be settled in cash, and investments indexed to certain life insurance contracts liabilities, denominated “Unit Linked”. These instruments have been classified at inception by the Group as “Financial instruments at fair value though profit or loss”, see Note 3(f)(i), and Note 7.

 

F-38
 

 

Notes to the consolidated financial statements (continued)

 

(y)Segment reporting -

 

The Group reports financial and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are a component of an entity for which separate financial information is available that is evaluated regularly by the entity’s Chief Operating Decision Maker (“CODM”) in making decisions about how to allocate resources and in assessing performance. Generally, financial information is required to be reported on the same basis as it is used internally for evaluating operating segment performance and deciding how to allocate resources to segments, Note 26.

 

(z)Fiduciary activities, management of funds and pension funds -

 

The Group provides custody, trustee, investment management and advisory services to third parties that result in the holding of assets on their behalf. These assets and income arising thereon are excluded from these consolidated financial statements, as they are not assets of the Group, Note 29.8.

 

Commissions generated for these activities are included in the caption “Other income” of the consolidated statements of income.

 

(aa)Repurchase agreements -

 

Securities sold subject to repurchase agreements (‘Repos’) are presented as pledged assets when the counterparty has the right to sell or repledge the collateral; the counterparty liability is included in the caption “Other liabilities” in the consolidated statements of financial position.

 

The difference between sale and repurchase price is considered as interest and is accrued over the life of the related agreement using the effective interest rate method.

 

(ab)Cash and cash equivalents -

 

For the purpose of the consolidated statements of cash flows, cash and cash equivalents comprise balances of cash and non-restricted balances with central banks, overnight deposits, time deposits and amounts due from banks with original maturities of three months or less.

 

(ac)Reclassifications -

 

When it is necessary, comparative figures have been reclassified to conform to the current year presentation. Certain transactions were reclassified in the current year presentation; in Management’s opinion those reclassifications are not significant to the consolidated financial statement as of December 31, 2011 and 2010.

 

F-39
 

 

Notes to the consolidated financial statements (continued)

 

(ad)Recently issued International Financial Reporting Standards but not yet effective -

 

The Group decided not to early adopt the following standards and interpretations that were issued but not effective as of December 31, 2011:

 

-IAS 1 “Presentation of Items of Other Comprehensive Income — Amendments to IAS 1”. Effective for annual periods beginning on or after July 1, 2012. The amendments to IAS 1 change the grouping of items presented in Other Comprehensive Income (OCI). Items that could be reclassified (or recycled) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified.

 

-IAS 12 “Income Taxes (amendment) – Recovery of Underlying Assets”. Effective for annual periods beginning on or after January 1, 2012. The amendment clarified the determination of deferred tax on investment property measured at fair value. The amendment introduces a rebuttable presumption that deferred tax on investment property measured using the fair value model in IAS 40 should be determined on the basis that its carrying amount will be recovered through sale. Furthermore, it introduces the requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in IAS 16 always be measured on a sale basis of the asset.

 

-IAS 19 “Employee Benefits (amendment)”. Effective for annual periods beginning on or after January 1, 2013. The IASB has issued numerous amendments to IAS 19. These range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording.

 

-IAS 27 “Separate Financial Statements (as revised in 2011)”. Effective for annual periods beginning on or after January 1, 2013. As a consequence of the new IFRS 10 and IFRS 12, what remains of IAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. The Group does not present separate financial statements.

 

-IAS 28 “Investments in Associates and Joint Ventures (as revised in 2011)”. Effective for annual periods beginning on or after January 1, 2013. As a consequence of the new IFRS 11 and IFRS 12, IAS 28 has been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates.

 

-IFRS 7 “Financial Instruments: Disclosures”. Effective for periods beginning on or after July 1, 2011. The amendment requires additional disclosure about financial assets that have been transferred but not derecognized to enable the user of the financial statements to understand the relationship with those assets that have not been derecognized and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognized assets to enable the user to evaluate the nature of, and risks associated with, the entity’s continuing involvement in those derecognized assets.

 

-IFRS 9 “Financial Instruments: Classification and Measurement”. IFRS 9 as issued reflects the first phase of the IASBs work on the replacement of IAS 39 and applies to classification and measurement of financial assets as defined in IAS 39. The standard is effective for annual periods beginning on or after January 1, 2015. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the Group’s financial assets, but will potentially have no impact on classification and measurements of financial liabilities. In subsequent phases, the IASB will address hedge accounting and impairment of financial assets. The completion of this project is expected over the course of 2012.

 

F-40
 

 

Notes to the consolidated financial statements (continued)

 

-IFRS 10 “Consolidated Financial Statements”. Effective for annual periods beginning on or after January 1, 2013. IFRS 10 replaces the portion of IAS 27 “Consolidated and Separate Financial Statements” that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12 “Consolidation — Special Purpose Entities”. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in IAS 27.

 

-IFRS 11 “Joint Arrangements”. Effective for annual periods beginning on or after January 1, 2013. IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities — Non-monetary Contributions by Venturers. IFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method.

 

-IFRS 12 “Disclosure of Interests in Other Entities”. Effective for annual periods beginning on or after January 1, 2013. IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required.

 

-IFRS 13 “Fair Value Measurement”. Effective for annual periods beginning on or after January 1, 2013. IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted.

 

F-41
 

 

Notes to the consolidated financial statements (continued)

 

-Conceptual Framework for Financial Reporting – Objectives and Qualitative Characteristics. The IASB is currently in the process of updating its Conceptual Framework. The conceptual framework project is being conducted in phases and the current version was revised in 2010 (effective from September 28, 2010). The Conceptual Framework is not an IFRS statement. However, it is used when developing an accounting policy in the absence of a standard, and is applicable to all prepares of IFRS general purpose financial statements.

 

The Group is in process of assessing the impact, if any, that the application of these standards may have on its consolidated financial statements.

 

4.Cash and due from banks

 

This item is made up as follows:

 

   2011   2010 
   US$(000)   US$(000) 
         
Cash and clearing   926,008    771,297 
Deposits in Peruvian Central Bank – BCRP   3,784,514    6,307,977 
Deposits in banks   790,187    1,458,121 
    5,500,709    8,537,395 
           
Accrued interest   2,153    7,020 
           
Total   5,502,862    8,544,415 

 

As of December 31, 2011 and 2010, cash and due from banks includes approximately US$4,617.9 and US$3,282.7 million, respectively, mainly from BCP, which represent the legal reserve that Peruvian banks must maintain for its obligations with the public, and are within the limits established by prevailing Peruvian legislation at those dates.

 

The legal reserve funds maintained with BCRP are not interest-bearing, except for the part of the mandatory reserve in U.S. Dollars and in Nuevos Soles that exceeds the minimum legal reserve. As of December 31, 2011, the excess in U.S. Dollars amounts approximately to US$2,257.3 million and bear interest at an annual average interest rate of 0.18 percent (US$1,953.9 million and annual average interest rate of 0.16, respectively, as of December 31, 2010), while the excess in Nuevos Soles amounts approximately to S/.1,007.2 million, equivalent to US$373.6 million, and bear interest in Nuevos Soles at an annual average interest rate of 2.45 percent (S/.660.6 million equivalent to US$235.2 million and annual average interest rate of 1.2 percent, respectively, as of December 31, 2010).

 

F-42
 

 

Notes to the consolidated financial statements (continued)

 

Deposits in local and foreign banks correspond principally to balances in Nuevos Soles and U.S. Dollars. All deposits are unrestricted and earn interest at market rates. As of December 31, 2011 and 2010, Credicorp does not have significant deposits in any specific financial institution.

 

As of December 31, 2010, BCP had BCRP fixed term deposits (DPBCRP, for its Spanish acronym), denominated in Nuevos Soles for an amount equivalent to US$3,649.8 million, which earned interest at an average rate of 3.06 percent and were included in the consolidated statements of financial position caption “Cash and due from banks”. During 2011, these instruments were settled and replaced mainly by BCRP certificates of deposit (CDBCRP, for its Spanish acronym), which are included in the consolidated statements of financial position caption “Investments available for sale”, see Note 5(e).

 

F-43
 

 

Notes to the consolidated financial statements (continued)

 

5.Investments available-for-sale

 

(a)This item is made up as follows:

 

   2011   2010 
       Unrealized gross amount           Unrealized gross amount     
  

Amortized

cost

   Gains   Losses (b)   Estimated
fair value
  

Amortized

cost

   Gains   Losses (b)   Estimated
fair value
 
   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000) 
                                 
BCRP certificates of deposit (e)   2,061,020    65    (1,305)   2,059,780    363,829    21    -    363,850 
Corporate, leasing and subordinated bonds (f)   1,670,805    74,962    (16,439)   1,729,328    1,535,638    61,871    (13,921)   1,583,588 
Government’s treasury bonds (g)   768,304    79,480    (923)   846,861    573,611    69,736    (1,122)   642,225 
Assets back securities (h)   245,556    12,466    (733)   257,289    85,431    3,565    (523)   88,473 
Central Bank of Bolivia certificates of deposit (i)   110,727    226    (8)   110,945    86,528    6    (7)   86,527 
Restricted mutual funds (j)   61,642    26,677    -    88,319    56,869    39,060    -    95,929 
Participations in mutual funds   62,333    6,466    (91)   68,708    68,030    9,385    (276)   77,139 
Bonds of international financial entities   69,923    4,223    (78)   74,068    59,910    3,328    (86)   63,152 
Participation in RAL’s funds (k)   49,263    -    -    49,263    80,195    -    -    80,195 
Negotiable certificates of deposit   39,966    1,158    (5)   41,119    34,126    1,023    -    35,149 
Hedge funds   27,133    1,462    (738)   27,857    7,681    2,247    -    9,928 
Collateralized mortgage obligations (CMO) (l)   23,265    1,163    (77)   24,351    47,871    287    (4)   48,154 
US Government – Agencies and Sponsored Enterprises   17,161    1,469    (2)   18,628    14,409    717    (1)   15,125 
    5,207,098    209,817    (20,399)   5,396,516    3,014,128    191,246    (15,940)   3,189,434 
                                         
Listed securities (m)   116,193    361,525    (2,281)   475,437    108,340    421,453    (452)   529,341 
Not-listed securities   4,065    126    (212)   3,979    10,676    783    (285)   11,174 
    120,258    361,651    (2,493)   479,416    119,016    422,236    (737)   540,515 
                                         
    5,327,356    571,468    (22,892)   5,875,932    3,133,144    613,482    (16,677)   3,729,949 
                                         
Accrued interest                  39,669                   38,299 
                                         
Total                  5,915,601                   3,768,248 

 

(b)Credicorp’s Management has determined that the unrealized losses as of December 31, 2011 and 2010 are of temporary nature. Management intents and has the ability to hold each investment for a period of time sufficient to allow for an anticipated recovery in fair value, until the earlier of its anticipated recovery or maturity.

 

(c)For the year ended December 31, 2011, as a result of the impairment assessment of its investments available-for-sale, the Group recorded an impairment amounting to US$1.0 million (US$3.3 million as of December 31, 2010), which is presented in the caption “Impairment loss on available-for-sale investments” of the consolidated statements of income.

 

The movement of available-for-sale investments reserves, net of deferred income tax and non-controlling interest is presented in Note 16(c).

 

F-44
 

 

Notes to the consolidated financial statements (continued)

 

(d)As of December 31, 2011 and 2010, the maturities and the annual effective interest rates of the investments available for sale are as follows:

 

Investments available-for-sale  Maturity  Annual effective interest rates
   2011  2010  2011   2010
         S/.   US$   Other currencies   S/.   US$   Other currencies
         Min   Max   Min   Max   Min   Max   Min   Max   Min   Max   Min  Max
         %   %   %   %   %   %   %   %   %   %   %  %
                                               
BCRP certificates of deposit  Jan-2012 / Dec-2012  Jan-2011 / Jun-2011   4.10    4.26    -    -    -    -    3.01    3.45    3.03    3.09   -  -
Government’s treasury bonds  Jan-2012 / Nov-2050  Jan-2011 / Nov-2050   1.34    7.42    0.02    9.95    -    -    2.19    6.81    0.38    9.54   -  -
Corporate, leasing and subordinated bonds  Jan-2012 / Nov-2067  Jan-2011 / Nov-2067   2.19    9.48    0.20    47.10    3.29    8.80    1.56    9.48    0.13    17.35   2.40  4.60
Assets back securities  Jan-2012 / May-2033  Feb-2011 / Apr-2028   4.25    6.97    2.56    9.34    6.94    8.44    4.25    5.20    2.77    10.38   6.94  8.44
Central Bank of Bolivia certificates of deposit  Jan-2012 / Nov-2013  Jan-2011 / Dec-2011   -    -    -    -    0.00    2.80    -    -    -    -   0.00  0.81
Bonds of international financial entities  Feb-2012 / Aug-2018  Jan-2011 / Aug-2018   5.66    6.74    0.65    7.77    -    -    5.91    6.50    0.55    8.33   -  -
Negotiable certificates of deposit  Jan-2012 / Mar-2029  Jan-2011 / Mar-2029   4.40    5.13    0.97    3.00    1.50    1.50    -    -    3.14    8.28   0.40  1.00
Collateralized mortgage obligations (CMO)  Nov-2016 / Mar-2067  Jan-2011 / Jan-2047   -    -    4.71    11.19    -    -    -    -    2.76    11.85   -  -
US Government – Agencies and sponsored enterprises  Jul-2012 / Apr-2057  Jul-2011 / Aug-2038   -    -    0.61    5.93    -    -    -    -    1.61    5.86   -  -

 

(e)BCRP certificates of deposit are issued at discount, acquired in public auctions and negotiated in the Peruvian secondary market. As of December 31, 2011, the balance of BCRP certificates of deposit comprised US$2,059.8 million of certificates settled in Nuevos Soles (US$48.9 million and US$315.0 million of certificates settled in U.S. Dollars and in Nuevos Soles, respectively, as of December 31, 2010).

 

(f)As of December 31, 2011 and 2010, comprise mainly corporate bonds for US$1,688.0 million and US$1,561.8 million, respectively. The unrealized losses on these investments as of December 31, 2011, corresponded to 65 items of which the highest individual unrealized loss amounts to approximately US$ 1.8 million (57 items and US$1.1 million, respectively as of December 31, 2010).

 

(g)As of December 31, 2011, includes mainly debt instruments issued by the Peruvian Government in Nuevos Soles for an amount of US$423.8 million and in U.S. Dollars for an amount of US$210.8 million, the Colombian Government in U.S. Dollars for US$143.9 million, the U.S. Government in U.S Dollars for US$48.7 million, the Chilean Government in U.S. Dollars for US$3.6 million, and the Brazilian Government in U.S. Dollars for US$4.5 million (US$227.0 million and US$252.0 million, US$110.6 million, US$9.3 million and US$3.0 million issued by the Peruvian, Colombian, Chilean and Brazilian Goverments, respectively, as of December 31, 2010).

 

In April 2010, BCP participated in an exchange program offered by the Peruvian Government by which the Bank exchanged 7.500 percent euro denominated Global Bonds due 2014 for cash and new bonds 8.375 percent US$-Denominated Global Bonds due 2033. BCP received €90.4 million in cash and US$323.1 million in 2033 Bonds. BCP recorded the unrealized gain amounting to US$31.8 million as a realized gain in the caption “Net gain on sale of securities” of the consolidated statement of income.

 

Additionally, at the exchange date, BCP terminated the related cross currency swaps (“CCS”) amounting to US$318.3 million that were part of its fair value hedge strategy, generating a loss amounting to approximately US$15.7 million, which is presented in the caption “Loss from hedging derivatives instruments” of the consolidated income statement, see note 20.

 

(h)Assets back securities are secured by a specified pool of underlying assets and are mainly traded in the Peruvian over-the-counter market. Pools of underlying assets are made up of receivables with predictable future payments.

 

As of December 31, 2011 and 2010, the balance includes US$122.2 million and US$17.8 million, respectively of financial instruments issued by Hunt Oil Company (the originator). The underlying assets are future receivables from the sale of hydrocarbons extracted in Peru. The bonds have semi annual payments up to 2025.

 

(i)As of December 31, 2011 and 2010, certificates of deposits issued by the Central Bank of Bolivia are mainly denominated in Bolivianos.

 

F-45
 

 

Notes to the consolidated financial statements (continued)

 

(j)Restricted mutual funds comprise participation quotas in the private pension funds managed by the Group as required by Peruvian regulations. They have disposal restrictions and their profitability is the same as the one obtained by the private pension funds managed.

 

(k)The participation quotas in the funds "Requirement of Cash Assets" (RAL for its spanish acronym) are denominated in Bolivianos and U.S. Dollars. These funds amount approximately to US$27.4 million and US$21.8 million, respectively, (US$25.7 million and US$54.5 million, respectively, as of December 31, 2010). RAL’s funds comprise investments made by the Group in the Central Bank of Bolivia as collateral for deposits received from the public. Said fund has restrictions for its use and is required for all banks established in Bolivia.

 

(l)Collaterized mortgage obligations correspond to senior tranches.

 

(m)As of December 31, 2011, the unrealized gains on listed securities arises mainly from shares in Banco de Crédito e Inversiones de Chile (BCI Chile), Inversiones Centenario S.A.A., Alicorp S.A.A. and Edelnor S.A.A., which amounted to US$158.3, US$53.3, US$65.9 and US$41.9 million, respectively (US$212.5, US$57.5, US$67.7 and US$39.6 million, respectively, as of December 31, 2010).

 

(n)As of December 31, 2011 and 2010, the Group maintains interest rate swaps (IRS), which were designated as fair value hedges of fix bonds denominated in U.S. Dollars issued by the Peruvian Government, corporate and international financial entities, for a notional amount of US$54.0 million (US$54.6 million as of December 31, 2010), see Note 11(b); through the IRS these bonds were economically converted to variable rate.

 

(o)As of December 31, 2011, the Group entered into Repo transactions over corporate, international financial entities and government bonds for an estimated fair value of
US$223.2 million (US$279.0 million as of December 31, 2010); the related liability is presented in the caption “Other liabilities” of the consolidated statements of financial position,
see Note 11(a) and (e).

 

(p)Amortized cost and estimated fair value of investments available-for-sale classified by contractual maturity are as follows:

 

   2011   2010 
   Amortized
cost
   Fair
value
   Amortized
cost
   Fair
 value
 
   US$(000)   US$(000)   US$(000)   US$(000) 
Up to 3 months   964,274    964,035    290,788    293,489 
From 3 months to 1 year   1,485,774    1,486,204    358,852    360,235 
From 1 to 3 years   551,145    556,542    458,901    470,775 
From 3 to 5 years   427,541    436,876    423,471    437,843 
Over 5 years   1,577,993    1,718,712    1,269,341    1,363,901 
Without maturity   320,629    713,563    331,791    803,706 
                     
Total   5,327,356    5,875,932    3,133,144    3,729,949 

 

F-46
 

 

Notes to the consolidated financial statements (continued)

 

6.Loans, net

 

(a)This item is made up as follows:

 

   2011   2010 
   US$(000)   US$(000) 
Direct loans -          
Loans   11,986,080    9,836,155 
Leasing receivables   2,786,129    2,359,236 
Credit card receivables   1,807,717    1,305,883 
Discounted notes   552,233    477,709 
Factoring receivables   254,516    250,974 
Advances and overdrafts   25,130    104,495 
Refinanced and restructured loans   96,031    76,707 
Past due and under legal collection loans   259,050    209,908 
    17,766,886    14,621,067 
Add (less) -          
Accrued interest   121,563    97,294 
Unearned interest   (446,508)   (343,003)
Allowance for loan losses (d)(*)   (519,708)   (415,703)
           
Total direct loans, net   16,922,233    13,959,655 
           
Indirect loans, Note 19(a)   3,728,000    3,135,211 

 

(b)Loans by class are as follows:

 

   2011   2010 
   US$(000)   US$(000) 
           
Commercial loans   12,806,870    10,760,767 
Residential mortgage loans   2,725,145    2,145,093 
Consumer loans   2,234,871    1,715,207 
           
Total   17,766,886    14,621,067 

 

(c)Interest rates on loans are set considering the rates prevailing in the markets where the Group’s subsidiaries operate.

 

F-47
 

 

 

Notes to the consolidated financial statements (continued)

 

(d)The movement in the allowance for loan losses (direct and indirect loans) is shown below:

 

   2011 
   Commercial
loans
   Residential
mortgage loans
   Consumer
loans
   Total 
   US$(000)   US$(000)   US$(000)   US$(000) 
                 
Beginning balances   289,564    52,324    106,709    448,597 
Provision   105,544    10,626    98,728    214,898 
Recoveries of written-off loans   23,329    2,794    15,319    41,442 
Loan portfolio written-off   (64,905)   (1,265)   (89,239)   (155,409)
Translation result   3,890    950    3,818    8,658 
                     
Ending balances (*)   357,422    65,429    135,335    558,186 

 

   2010 
   Commercial
loans
   Residential
mortgage loans
   Consumer
loans
   Total 
   US$(000)   US$(000)   US$(000)   US$(000) 
                 
Beginning balances   243,796    41,471    90,782    376,049 
Provision   87,125    8,398    79,159    174,682 
Recoveries of written-off loans   19,867    2,517    12,221    34,605 
Loan portfolio written-off   (63,128)   (853)   (78,755)   (142,736)
Translation result   1,904    791    3,302    5,997 
                     
Ending balances (*)   289,564    52,324    106,709    448,597 

 

   2009 
   Commercial
loans
   Residential
mortgage loans
   Consumer
loans
   Total 
   US$(000)   US$(000)   US$(000)   US$(000) 
                 
Beginning balances   161,170    30,832    56,061    248,063 
Provision   79,551    9,781    74,060    163,392 
Recoveries of written-off loans   12,984    939    10,005    23,928 
Acquisition of Edyficar, Note 2   19,443    106    1,356    20,905 
Loan portfolio written-off   (32,364)   (958)   (54,605)   (87,927)
Translation result   3,012    771    3,905    7,688 
                     
Ending balances (*)   243,796    41,471    90,782    376,049 

 

(*)The movement in the allowance for loan losses includes the allowance for direct and indirect loans for approximately US$519.7 million and US$38.5 million, respectively, as of December 31, 2011 (approximately US$415.7 million and US$32.9 million; and US$354.4 million and US$21.7 million, as of December 31, 2010 and 2009, respectively). The allowance for indirect loan losses is included in the caption “Other liabilities” of the consolidated statements of financial position, Note 11(a).

 

F-48
 

 

Notes to the consolidated financial statements (continued)

 

In Management’s opinion, the allowance for loan losses recorded as of December 31, 2011, 2010 and 2009 has been established in accordance with IAS 39 and is sufficient to cover probable losses on the loan portfolio.

 

(e)Part of the loan portfolio is collateralized with guarantees received from clients, which mainly consist of mortgages, trust assignments, financial instruments and industrial and mercantile pledges.

 

(f)Interest on past due for more than 90 days and under legal collection loans are recognized when collected. Interest income that would have been recorded for these loans in accordance with their original contract terms and have not been recognize as income amounts to approximately US$49.8, US$38.5 and US$27.9 as of December 31, 2011, 2010 and 2009, respectively.

 

(g)As of December 31, 2011 and 2010, the direct gross loan portfolio classified by maturity, based on the remaining period to repayment date is as follows:

 

   2011   2010 
   US$(000)   US$(000) 
         
Outstanding loans -          
Up to 1 year   7,855,825    6,812,586 
From 1 to 3 years   3,753,857    3,404,766 
From 3 to 5 years   2,219,746    1,805,760 
Over 5 years   3,678,408    2,388,047 
           
Past due loans -          
Up to 4 months   91,653    68,601 
Over 4 months   95,769    64,158 
Under legal collection   71,628    77,149 
           
Total   17,766,886    14,621,067 

 

7.Financial assets designated at fair value through profit or loss

 

(a)This item is made up as follows:

 

   2011   2010 
   US$(000)   US$(000) 
         
Unit Linked financial assets (b)   49,816    39,501 
Indexed certificates (c)   40,287    139,554 
           
    90,103    179,055 

 

(b)The Group issues unit linked life insurance contracts whereby the policyholder bears the investment risk on the assets held in the unit linked funds as the policy benefits are directly linked to the value of the assets in the fund. The Group’s exposure to market risk is limited to the extent that income arising from asset management charges is based on the value of assets in the fund. For the year 2011, the loss resulting from the difference between cost and estimated market value for these financial assets amounted to approximately US$6.1 million (gain of US$6.4 million for the year 2010) and is presented in the caption “Net loss on financial assets designated at fair value through profit or loss” of the consolidated statements of income (“Net gain on financial assets designated at fair value through profit or loss for the year 2010”). The offsetting of this effect is included in gross premiums which are part of the caption “Net premiums earned” of the consolidated statements of income, see Note 22.

 

F-49
 

 

Notes to the consolidated financial statements (continued)

 

(c)In connection with the liabilities that result from Credicorp’s stock appreciation rights (SARs), (Note 18(a)), BCP signed several contracts with Citigroup Global Markets Holdings Inc., Citigroup Capital Limited, Citigroup Capital Market Inc. (collectively hereinafter “Citigroup”) and Credit Agricole Corporate and Investment Bank (hereinafter “Calyon”). These contracts consist of the purchase of certificates indexed to the performance of Credicorp Ltd. (BAP) shares, in the form of “warrants” issued by Citigroup and Calyon, with the same number of Credicorp Ltd. shares. These certificates are cash settled and their final settlement price is equivalent to the daily volume-weighted average of the per share price for BAP shares on each business day, on which Citigroup or any of its affiliates or Calyon effects any transactions with respect to BAP shares in order to unwind its position established and maintained to hedge its price and market risk with respect to the issued certificates.

 

The certificates have a maturity of 5 years but can be settled anytime before their maturity, partially or totally. As of December 31, 2011 and 2010, the Group had 355,914 and 1,152,414 certificates at a total cost of US$22.4 million and US$70.9 million, respectively (US$62.9 and US$61.5 per certificate on average, respectively). At those dates, the estimated market value amounted to US$40.3 and US$139.6 million, respectively (US$113.2 and US$121.1 per certificate on average, as of December 31, 2011 and 2010, respectively). For the year 2011, the net loss generated by the indexed certificates is comprised by the loss arising from their valuation, approximately US$49.1 million (gain of US$43.8 million for the year 2010), net of the gain resulting from their settlement , approximately to US$30.6 million (gain of US$14.3 million for the year 2010) and has been recorded in the caption “Net loss on financial assets designated at fair value through profit or loss” of the consolidated statements of income (“Net gain on financial assets designated at fair value through profit or loss” for the year 2010).

 

8.Receivable and payable accounts from insurance contracts

 

(a)As of December 31, 2011 and 2010, the caption “Premiums and other policies receivable” of the consolidated statements of financial position includes balances which primarily due in a current period, have no collaterals and present no material past due balances.

 

F-50
 

 

Notes to the consolidated financial statements (continued)

 

(b)The movements of the captions accounts receivable and payable to reinsurers and coinsurers are as follows:

 

Accounts receivable  2011   2010 
   US$(000)   US$(000) 
         
Beginning balances   160,249    137,098 
Reported claims of premiums ceded, Note 23   28,627    31,618 
Premiums ceded unearned during the year, Note 22(**)(ii)   9,091    32,421 
Premiums assumed   20,039    22,882 
Settled claims of premiums ceded by facultative contracts   26,345    18,895 
Collections and other   (93,271)   (82,665)
           
Ending balances   151,080    160,249 

 

Accounts receivable as of December 31, 2011 and 2010, include US$58.0 and US$49.0 million, respectively, which correspond to the unearned portion of the ceded premiums to the reinsurers.

 

Accounts payable  2011   2010 
   US$(000)   US$(000) 
         
Beginning balances   60,775    48,009 
Premiums ceded to reinsurers by facultative contracts, Note 22(**)(ii)   98,639    94,416 
Coinsurance granted   11,067    11,774 
Payments and other   (95,115)   (93,424)
           
Ending balances   75,366    60,775 

 

Accounts payable to reinsurers are primarily related to the proportional facultative contracts (on an individual basis) for ceded premiums, automatic non-proportional contracts (excess of loss) and reinstallation premiums. For facultative contracts the Group transfers to the reinsurers a percentage or an amount of an insurance contract or individual risk, based on the premium and the covered period. The net movement of the accounts payable of automatic contracts (mainly excess of loss) as well as reinstallation premiums of the years 2011 and 2010 are included in the concept “Premiums ceded to reinsurers, net” for US$40.3 million and U$33.3 million, respectively, see Note 22 (**)(i).

 

F-51
 

 

Notes to the consolidated financial statements (continued)

 

9.Property, furniture and equipment, net

 

(a)The movement of property, furniture and equipment and accumulated depreciation, for the years ended December 31, 2011 and 2010, is as follows:

 

   Land   Buildings  and other
construction
   Installations  

Furniture

and fixtures

   Computer
hardware
  

Vehicles

and equipment

  

Work

in progress

   2011   2010 
   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000) 
                                     
Cost -                                             
Balance as of January 1   42,656    294,855    128,050    97,586    245,218    39,252    55,197    902,814    829,889 
Additions   8,310    976    2,899    12,528    26,674    2,423    47,009    100,819    80,184 
Acquisition of private hospitals, Note 2(a)   27,037    15,019    2,339    1,093    320    5,006    -    50,814    - 
Transfers   7    62,517    7,639    1,676    7,836    3,087    (82,762)   -    - 
Sales, disposals and other   -    -    (575)   (1,487)   (108,539)   (281)   -    (110,882)   (7,259)
                                              
Balance as of December 31   78,010    373,367    140,352    111,396    171,509    49,487    19,444    943,565    902,814 
                                              
Accumulated depreciation -                                             
Balance as of January 1   -    160,782    83,834    67,147    204,357    13,781    -    529,901    491,354 
Depreciation for the year       8,382    8,220    5,039    22,198    4,189    -    48,028    44,852 
Acquisition of private hospitals, Note 2(a)   -    1,928    61    164    121    1,670    -    3,944    - 
Sales, disposals and other   -    -    (568)   (1,477)   (108,503)   (193)   -    (110,741)   (6,305)
                                              
Balance as of December 31   -    171,092    91,547    70,873    118,173    19,447    -    471,132    529,901 
                                              
Net book value   78,010    202,275    48,805    40,523    53,336    30,040    19,444    472,433    372,913 

 

(b)Banks, financial institutions and insurance entities operating in Peru are not allowed to pledge their fixed assets.

 

(c)As of December 31, 2011, Credicorp and its Subsidiaries have property available for sale for approximately US$23.0 million, net of its accumulated depreciation amounting to approximately US$10.4 million (US$23.5 and US$9.8 million, respectively, as of December 31, 2010).

 

(d)Management periodically reviews the residual value, useful life and method of depreciation of the Group’s property, furniture and equipment to ensure that they are consistent with their actual economic benefits and life expectations. In Management’s opinion, as of December 31, 2011 and 2010 there is no evidence of impairment of the Group’s property, furniture and equipment.

 

F-52
 

 

Notes to the consolidated financial statements (continued)

 

10.Intangibles assets and goodwill, net

 

(a)Intangibles –

 

The movement of finite useful lives intangible assets for the years ended December 31, 2011 and 2010 is as follows:

 

Description 

Client

relationships (i)

   Rights of use   Brand name (ii)   Licenses   Software and
developments
   Other   2011   2010 
   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000) 
                                 
Cost -                                        
Balance as of January 1   94,952    20,000    13,159    -    202,774    32,330    363,215    297,078 
Additions   -    -    -    -    19,829    35,482    55,311    68,344 
Acquisition of private hospitals, Note 2(a)   3,116    -    10,587    12,271    173    -    26,147    - 
Transfers   -    -    -    -    23,574    (23,574)   -    - 
Disposals and other   -    -    -    -    (1,235)   (375)   (1,610)   (2,207)
Balance as of December 31   98,068    20,000    23,746    12,271    245,115    43,863    443,063    363,215 
                                         
Accumulated amortization -                                        
Balance as of January 1   19,095    -    815    -    102,039    10,075    132,024    96,561 
Amortization of the year   5,144    1,333    791    -    37,715    871    45,854    37,437 
Disposals and other   -    -    -    -    (1,202)   (61)   (1,263)   (1,974)
Balance as of December 31   24,239    1,333    1,606    -    138,552    10,885    176,615    132,024 
                                         
Net book value   73,829    18,667    22,140    12,271    106,563    32,978    266,448    231,191 

 

During 2011, additions are related to the implementation and development of sundry IT projects, mainly “AIO” related to increase of the infrastructure, mainframe and licenses to support the increase in operations (during 2010, additions were related to IT projects "SAP" and "Sio Teller”).

 

F-53
 

 

Notes to the consolidated financial statements (continued)

 

(i)Client relationships -

 

This item is made up as follows:

 

   2011   2010 
   US$(000)   US$(000) 
Client relationships -          
Prima AFP – AFP Unión Vida   65,686    70,105 
Edyficar   5,099    5,752 
Private hospitals   3,044    - 
           
Book value, net   73,829    75,857 

 

(ii)Brand name -

 

This item is made up as follows:

 

   2011   2010 
   US$(000)   US$(000) 
Brand name -          
Edyficar   11,688    12,344 
Private hospitals   10,452    - 
           
Book value, net   22,140    12,344 

 

Management has assessed at each reporting date that there is no indication that client relationships, rights of use, brand name and software and developments may be impaired.

 

(b)Goodwill -

 

This item is made up as follows:

 

   2011   2010 
   US$(000)   US$(000) 
Goodwill -          
Edyficar, Note 2(c)   50,696    50,696 
Private hospitals, Note 2(a)   45,540    - 
Prima AFP   44,594    44,594 
Banco de Crédito del Perú   18,733    18,733 
El Pacífico Peruano – Suiza Compañía de Seguros y Reaseguros   13,007    13,007 
Atlantic Security Holding Corporation   10,660    10,660 
Corporación Novasalud Perú S.A. EPS   3,744    3,744 
           
Book value, net   186,974    141,434 

 

Management annually assesses goodwill to identify any impairment; assumptions used are consistent with previous years. As of December 31, 2011 and 2010, Management concluded that there is no impairment in the recorded goodwill.

 

F-54
 

 

Notes to the consolidated financial statements (continued)

 

11.Other assets and other liabilities

 

(a)These items are made up as follows:

 

   2011   2010 
   US$(000)   US$(000) 
         
Other assets          
Financial instruments          
Value added tax credit   231,012    183,295 
Accounts receivable   129,645    106,134 
Cash collateral on repurchase agreements and others (e)   90,065    38,440 
Derivatives receivable (b)   82,519    84,945 
Income tax prepayments, net   54,435    23,982 
Operations in process (c)   44,952    35,828 
    632,628    472,624 
Non-financial instruments          
Deferred income tax asset, Note 17(c)   114,470    112,914 
Prepaid expenses   72,393    64,917 
Deferred fees   47,629    43,318 
Investments in associates   13,428    10,701 
Other   21,996    3,152 
    269,916    235,002 
           
Total   902,544    707,626 
           
Other liabilities          
Financial instruments:          
Repurchase agreements, Note 5(o) and (e)   250,000    250,000 
Accounts payable   223,743    223,822 
Payroll, taxes, salaries and other personnel expenses   155,184    196,290 
Derivatives payable (b)   145,261    136,670 
Allowance for indirect loan losses, Note 6(d)   38,478    32,894 
Contributions   23,694    20,136 
Operations in process (c)   31,020    25,771 
           
    867,380    885,583 
Non-financial instruments          
Deferred income tax liability, Note 17(c)   127,960    168,777 
Provision for sundry risks (d)   29,009    19,425 
Other   1,056    19,336 
           
    158,025    207,538 
           
Total   1,025,405    1,093,121 

 

F-55
 

 

Notes to the consolidated financial statements (continued)

 

(b)The risk in derivative contracts arises from the possibility of the counterparty failing to comply with the terms and conditions agreed and that the reference rates at which the transactions took place changes.

 

The table below presents as of December 31, 2011 and 2010, the fair value of derivative financial instruments, recorded as an asset or a liability, together with their notional amounts and maturities. The notional amount, recorded gross, is the amount of a derivative’s underlying asset and is the basis upon which changes in the value of derivatives are measured, see Note 19(a).

 

      2011  2010  2011 and 2010
   Note  Assets   Liabilities   Notional
amount
   Maturity  Assets   Liabilities   Notional
amount
   Maturity  Hedged instrument
      US$(000)   US$(000)   US$(000)      US$(000)   US$(000)   US$(000)       
                                     
Derivatives held for trading (i) -                                          
Forward exchange contracts      21,135    28,672    3,473,264   Between January and December 2012   17,400    10,640    2,628,195   Between January 2011 and December 2012  -
Interest rate swaps      31,220    31,203    697,436   Between March 2012 and December 2022   29,807    32,307    699,800   Between August 2011 and August 2022  -
Currency swaps      18,093    9,587    312,975   Between January 2012 and September 2022   17,334    12,532    463,104   Between March 2011 and September 2022  -
Options      206    801    64,184   Between January and December 2012   549    309    103,616   Between January 2011 and May 2012  -
                                           
Derivatives held as hedges -                                          
Cash flow hedges (ii):                                          
Interest rate swaps (IRS)  13(a)(i)(*)   534    3,200    500,000   Between October 2012 and March 2014   -    -    -   -  Due to Banks
Interest rate swaps (IRS)  13(a)(i)(*)   -    -    -   -   -    2,159    136,667   March 2011  Due to banks
Interest rate swaps (IRS)  15(a)(vi)   -    62,601    687,673   Between January 2012 and June 2017   -    70,495    863,005   Between January 2011 and June 2017  Secured notes issued
Cross currency swaps (CCS)  15(a)(ii)   2,411    -    115,433   October 2014   11,842    -    123,862   October 2014  Bonds issued
Cross currency swaps (CCS)  15(a)(vii)   -    -    -   -   396    50    15,687   Between February and May 2011  Bonds issued
Cross currency swaps and interest rate swaps (CCS and IRS)  15(a)(i)   8,920    3,651    82,226   Between June 2012 and March 2015   7,617    5,029    113,362   Between April 2011 and March 2015  Bonds issued
                                           
Fair value hedges:                                          
Interest rate swaps (IRS)  5(n)   -    5,546    54,049   Between May 2012 and June 2019   -    3,149    54,560   Between May 2011 and June 2019  Investments available-for-sale
                                           
       82,519    145,261    5,987,240       84,945    136,670    5,201,858       

 

(i)Derivatives held for trading are principally negotiated to satisfy client’s needs. The Group may also take positions with the expectation of profiting from favorable movements in prices, rates or indexes. Also, this caption includes any derivatives which does not comply IAS 39 hedging accounting requirements.

 

(ii)The Group is exposed to variability in future interest cash flows on liabilities in foreign currency and/or which bear interest variable rates. The Group uses derivatives financial instruments as cash flow hedges to cover these risks.

 

F-56
 

 

Notes to the consolidated financial statements (continued)

 

A schedule indicating, as of December 31, 2011, the periods when the cash flow hedges are expected to occur and affect the consolidated statement of income, net of the deferred income tax is presented below:

 

   Up to 1 year   From 1 to 3 years   From 3 to 5 years   Over 5 years 
   US$(000)   US$(000)   US$(000)   US$(000) 
              
Cash outflows (liabilities)   (266,191)   (737,441)   (80,653)   (932)
                     
Consolidated statement of income   (19,274)   (35,763)   (10,042)   (524)

 

As of December 31, 2011, the accumulated balance of unrealized loss on cash flow hedges recorded as other comprehensive income in the caption “Cash flow hedges reserve”, results from the current hedges (unrealized loss for approximately US$65.6 million) and the terminated hedge in 2009 (unrealized gain for approximately US$10.4 million) which is being recognized over the maturity of the underlying financial instrument, see Note 15(a)(iv). Likewise, the transfer of net loss on cash flow hedges to the consolidated statements of income is presented in Note 16(c).

 

(c)Operations in process include deposits received, loans disbursed, loans collected, funds transferred and other similar types of transactions, which are made at the end of the month and not reclassified to their final consolidated statements of financial position account until the first days of the following month. These transactions do not affect the Group’s net consolidated income.

 

(d)The movement of the provision for sundry risks for the years ended December 31, 2011, 2010 and 2009 is as follows:

 

   2011   2010   2009 
   US$(000)   US$(000)   US$(000) 
             
Beginning balance   19,425    27,225    47,512 
Provision, Note 24   10,661    8,440    14,425 
Acquisition of private hospitals   4,044    -    - 
Decreases   (5,121)   (16,240)   (34,712)
                
Ending balance   29,009    19,425    27,225 

 

Due to the nature of its business, the Group has some pending legal claims for which it records a provision when, in Management’s and its legal advisor’s opinion, they will result in an additional liability and such amount can be reliably estimated. Regarding legal claims against the Group which have not been provided for, in Management’s and its legal advisor’s opinion, they will not have a material effect on the Group’s consolidated financial statements.

 

F-57
 

 

Notes to the consolidated financial statements (continued)

 

(e)As of December 31, 2011, it corresponds to restricted funds related to repurchase agreements (Note 5(o)) and derivative transactions amounting to US$82.8 million and US$7.3 million, respectively (as of December 31, 2010, it corresponds to restricted funds related to repurchase agreements, see Note 5(o)). Repurchase agreements mature on June 2012.

 

12.Deposits and obligations

 

(a)This item is made up as follows:

 

   2011   2010 
   US$(000)   US$(000) 
         
Demand deposits   6,614,487    5,581,392 
Saving deposits   5,096,509    4,244,750 
Time deposits (c)   5,039,541    6,464,769 
Severance indemnity deposits   1,757,124    1,313,122 
Bank’s negotiable certificates   136,338    163,681 
           
    18,643,999    17,767,714 
           
Interest payable   59,848    50,404 
           
Total   18,703,847    17,818,118 

 

The Group has established a policy to remunerate demand deposits and savings accounts according to an interest rate scale, based on the average balance maintained in those accounts; on the other hand, according to such policy, balances that are lower than a specified amount for each type of account, do not bear interest. Also, time deposits earn interest at market rates.

 

Interest rates are determined by the Group considering interest rates prevailing in the market in which each of the Group’s subsidiaries operates.

 

(b)The amounts of non-interest and interest bearing deposits and obligations are made up as follows:

 

   2011   2010 
   US$(000)   US$(000) 
Non-interest          
In Peru   4,645,607    3,745,788 
In other countries   745,081    614,782 
    5,390,688    4,360,570 
           
Interest bearing          
In Peru   12,363,772    12,386,046 
In other countries   889,539    1,021,098 
    13,253,311    13,407,144 
           
Total   18,643,999    17,767,714 

 

F-58
 

 

Notes to the consolidated financial statements (continued)

 

(c)Time deposits balance classified by maturity is as follows:

 

   2011   2010 
   US$(000)   US$(000) 
         
Up to 3 months   3,163,777    5,239,027 
From 3 months to 1 year   1,531,252    939,104 
From 1 to 3 years   293,393    244,426 
From 3 to 5 years   1,118    42,212 
More than 5 years   50,001    - 
           
Total   5,039,541    6,464,769 

 

As of December 31, 2011 and 2010, in Management’s opinion, the Group’s deposits and obligations are diversified with no significant concentrations.

 

As of December 31, 2011 and 2010, approximately US$6,233.4 million and US$4,925.8 million, respectively of the deposits and obligations balances, are covered by the Peruvian “Fondo de Seguro de Depósitos” (Deposit Insurance Fund). At those dates, the “Fondo de Seguro de Depósitos” covered up to US$33,984.1 and US$30,542.2, respectively.

 

13.Due to banks and correspondents

 

(a)This item is made up as follows:

 

   2011   2010 
   US$(000)   US$(000) 
         
International funds and others (i)   1,672,348    1,953,040 
Promotional credit lines (ii)   241,836    145,984 
Inter-bank funds   138,671    133,240 
    2,052,855    2,232,264 
           
Interest payable   7,165    8,056 
           
Total   2,060,020    2,240,320 

 

F-59
 

 

Notes to the consolidated financial statements (continued)

 

(i)This item is made up as follows:

 

   2011   2010 
   US$(000)   US$(000) 
         
Syndicated loans (*)   496,073    482,750 
Corporación Andina de Fomento - CAF   200,000    200,000 
China Development Shijiaz huang   148,875    - 
Wells Fargo & Co.   144,998    140,000 
Deutsche Bank AG   121,679    43,449 
Bank of America N.A.   95,645    165,000 
Citibank N.A.   94,968    95,000 
Toronto Dominion Bank   85,000    110,000 
Bank of New York   50,000    65,000 
Cobank   47,903    - 
Atlantic Private Placement Pool SPC   40,000    35,000 
Sumitomo Mitsui Banking Corp.   20,000    65,000 
Standard Chartered Bank   -    100,721 
Banco Latinoamericano de Comercio de Panama   -    100,000 
JP Morgan Chase Bank   -    75,000 
Mercantil Commercebank   -    64,000 
Commerzbank AG   -    63,000 
Other   127,207    149,120 
           
Total   1,672,348    1,953,040 

 

(*)As of December 31, 2011, the balance includes two syndicated loans obtained from foreign financial entities in March 2011 and October 2010