BBVA Continental-Preliminary Offering Circular PDF
BBVA Continental-Preliminary Offering Circular PDF
STRICTLY CONFIDENTIAL
The information contained in this preliminary offering circular is not complete and may be changed. The Bank may not sell these Notes until the offering circular is delivered in final form.
This preliminary offering circular is not an offer to sell these Notes and it is not soliciting an offer to buy these Notes in any jurisdiction where the offer or sale is not permitted.
US$
Subordinated Notes due 2029
BBVA Banco Continental, a bank organized and existing under the law of the Republic of Peru (the Bank or BBVA Continental), is offering US$
aggregate principal amount of the Banks subordinated notes due 2029 (the Notes). The Notes will mature on , 2029. The Notes will bear interest at a fixed rate
of % per year to, but excluding , 2024 (the Reset Date), payable semi-annually in arrears on and of each year beginning on , 2015. During the period
from and including the Reset Date to but excluding the date of maturity or earlier redemption date of the Notes, the Notes will bear interest on the principal amount
at a rate per year that will be equal to the sum of (i) Benchmark Reset Rate on the Reset Date and (b) basis points, payable on and of each year beginning
on the Reset Date.
Payments in respect of the Notes will be made without deduction of, withholding for or on account of, taxes imposed by the Republic of Peru (Peru)
and the United States, subject to certain exceptions. See Description of the NotesPayment of Additional Amounts.
With the prior approval of the Peruvian Superintendencia de Banca, Seguros y Administradoras Privadas de Fondos de Pensiones (the Superintendency
of Banks, Insurance and Private Pension Funds Administrators, or SBS) or any other then applicable Peruvian banking governmental authority, if then required,
the Bank may redeem the Notes, in whole or in part, on the Reset Date at a redemption price equal to 100% of the principal amount of the Notes being redeemed,
plus accrued and unpaid interest. With the prior approval of the SBS, or any other then-applicable Peruvian banking governmental authority, if then required, the Bank
may redeem the Notes, in whole, but not in part, following the occurrence of a tax event or regulatory event. In the case of redemption following a tax event, the Bank will
redeem the Notes at a redemption price equal to 100% of the aggregate principal amount of the Notes to be redeemed, plus any accrued and unpaid interest on the principal
amount of the Notes, up to, but not including, the date of redemption, plus additional amounts, if any. In the case of redemption following a regulatory event, the Bank will
redeem the Notes at a redemption price equal to the greater of 100% of the principal amount and the applicable make-whole amount, plus, in each case, any accrued and
unpaid interest on the principal amount of the Notes, up to, but not including, the date of redemption, plus additional amounts, if any. See Description of the Notes
Redemption Prior to Maturity.
The Notes will be the Banks unsecured subordinated obligations. In the event of the Banks liquidation or equivalent proceedings under Peruvian law,
the Notes will rank (i) junior in right of payment to all of the Banks existing and future senior obligations; (ii) pari passu in right of payment with all of the Banks
existing and future parity obligations; and (iii) senior in right of payment to all of the Banks existing and future junior obligations. See Banking Supervision and
RegulationIntervention by the SBS and Liquidation. The Notes will not be guaranteed by the Banks parent company or any of the Banks subsidiaries.
For a more detailed description of the Notes, see Description of the Notes beginning on page 143.
Application is expected to be made to list the Notes on the Official List of the Luxembourg Stock Exchange and to trade them on the Euro MTF market
of such exchange.
Investing in the Notes involves risks. See Risk Factors beginning on page 21.
Issue Price of Notes: %, plus accrued interest, if any, from and including , 2014
The Notes have not been and will not be registered under the United States Securities Act of 1933, as amended (the Securities Act), or under the
securities laws of any other jurisdiction. The Notes are being offered and sold only to investors that are either (1) qualified institutional buyers (QIBs) in reliance
on Rule 144A under the Securities Act or (2) non-U.S. Persons outside of the United States (within the meaning of Regulation S of the Securities Act). Prospective
purchasers are hereby notified that the sellers of the Notes may be relying on the exemptions from the provisions of Section 5 of the Securities Act provided by
Rule 144A. Each purchaser of Notes will be deemed, by its acceptance of such Notes, to have made certain representations and agreements intended to restrict
transfers of the Notes as described under Notice to Investors. No holder or beneficial owner of the Notes may transfer the Notes except to a transferee who can
make the same deemed representations and agreements as set forth in the Notice to Investors on behalf of itself and each account for which it is purchasing. Any
transfer in breach of the transfer restrictions set forth in Notice to Investors will be void ab initio, and will not operate to transfer any rights to the transferee.
Neither the Notes nor the offering circular have been nor will be registered with or approved by the Peruvian Superintendency of the Securities Markets
(Superintendencia del Mercado de Valores or SMV) or the Lima Stock Exchange (Bolsa de Valores de Lima or BVL). Accordingly, the Notes cannot be offered or
sold in Peru except in compliance with applicable Peruvian securities regulations.
Application has been made with all the Peruvian private pension funds currently existing, in order for them to analyze and qualify the Notes as eligible
investment according to the applicable regulations.
The Notes will be ready for delivery in book-entry form only through the facilities of The Depositary Trust Company for the accounts of its participants,
including Euroclear Bank S.A./N.V., as operator of the Euroclear System, and Clearstream Banking, socit anonyme, on or about , 2014.
Joint Bookrunners
BBVA
TABLE OF CONTENTS
WHERE YOU CAN FIND MORE INFORMATION ............ VI
MANAGEMENT .........................................................119
TAXATION ................................................................160
DIVIDENDS .................................................................38
CAPITALIZATION ........................................................78
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You should rely only on the information contained in this offering circular. No one has been authorized to
provide you with information that is different. This document may only be used where it is legal to sell these
securities. The information in this document may only be accurate on the date of this document.
Unless otherwise indicated or the context otherwise requires, all references in this offering circular to the
Bank, refer to BBVA Continental and its consolidated subsidiaries. References to BBVA Continental are
references to BBVA Continental only.
This offering is made in reliance upon an exemption from registration under the Securities Act for offers
and sales of securities that do not involve a public offering. By purchasing the Notes, you will be deemed to have
made the acknowledgements, representations and agreements described under Notice to Investors in this offering
circular. No offer is being made to sell the Notes in any jurisdiction except where such an offer or sale is permitted.
The Notes may not be transferred or resold except as permitted under the Securities Act and related regulations and
applicable state securities laws. You should understand that you will be required to bear the financial risks of your
investment for an indefinite period of time.
The distribution of this offering circular, or any part thereof, and the offering, sale and delivery of the Notes
in certain jurisdictions may be restricted by law. This offering circular may only be used for the purposes for which
it has been published. Any persons in possession of this offering circular are required to become familiar with and to
observe such restrictions. For a description of restrictions on offers, sales and deliveries of the Notes and on the
distribution of this offering circular, see Notice to Investors and Plan of Distribution.
This offering circular does not constitute an offer of, or an invitation by or on behalf of any entity, or any of
such entitys directors, officers and affiliates to subscribe for or purchase any securities in any jurisdiction to any
person to whom it is unlawful to make such an offer in such jurisdiction. Each purchaser of the Notes must comply
with all applicable laws and regulations in force in each jurisdiction in which it purchases, offers or sells such Notes
or possesses or distributes this offering circular and must obtain any consent, approval or permission required by it
for the purchase, offer or sale by it of such Notes under the laws and regulations in force in any jurisdiction to which
it is subject or in which it makes such purchases, offers or sales. Neither the delivery of this offering circular nor any
sale made hereunder shall under any circumstances imply that there has been no change in the Banks affairs, or the
affairs of the Banks subsidiaries, or that the information set forth in this offering circular is correct as of any date
subsequent to the date of this offering circular.
This offering circular has been prepared solely for use in connection with the proposed offering of the
Notes. Rights are reserved to reject any offer to purchase, in whole or in part, for any reason, or to sell less than all
of the Notes offered by this offering circular. BBVA Securities Inc. (BBVA), Merrill Lynch, Pierce, Fenner &
Smith Incorporated (BofA Merrill Lynch) and Goldman, Sachs & Co. (Goldman Sachs) will act as initial
purchasers with respect to the offering of the Notes. This offering circular is personal to you and does not constitute
an offer to any other person or to the public in general to subscribe for or otherwise acquire the Notes.
Distribution of this offering circular by you to any person other than those persons retained to advise you is
unauthorized, and any disclosure of any of the contents of this offering circular is prohibited.
You must (1) comply with all applicable laws and regulations in force in any jurisdiction in connection with
the possession or distribution of this offering circular and the purchase, offer or sale of the Notes, and (2) obtain
any required consent, approval or permission for the purchase, offer or sale by you of the Notes under the laws and
regulations applicable to you in force in any jurisdiction to which you are subject or in which you make such
purchases, offers or sales, and neither the Bank nor the initial purchasers or their agents have any responsibility therefor.
See Notice to Investors for information concerning certain transfer restrictions applicable to the Notes.
You acknowledge that:
you have been afforded an opportunity to request from us, and to review, all additional information
considered by you to be necessary to verify the accuracy of, or to supplement, the information
contained in this offering circular;
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you have not relied on any initial purchaser or its respective agents or any person affiliated with any
initial purchaser or its respective agents in connection with your investigation of the accuracy of such
information or your investment decision; and
no person has been authorized to give any information or to make any representation concerning the
Bank or the Notes other than those as set forth in this offering circular. If given or made, any such
other information or representation should not be relied upon as having been authorized by us, the
initial purchasers or their agents.
The Notes are not deposits of the Bank and are not insured by the United States Federal Deposit Insurance
Corporation or any other United States governmental agency or any Peruvian banking governmental agency.
In making an investment decision, you must rely on your own examination of the business of the
Bank and the terms of this offering, including the merits and risks involved. None of the Securities and
Exchange Commission (the SEC), any state securities commission , the SMV nor any other regulatory
authority has made any recommendation with respect to an investment in the Notes. Furthermore, these
authorities have not confirmed the accuracy or determined the adequacy of this offering circular. Any
representation to the contrary is a criminal offense. You should not construe the contents of this offering
circular as legal, business or tax advice. You should consult your own attorney, business advisor or tax
advisor.
This offering circular may only be used for the purpose for which it has been published. Neither the
initial purchasers nor any of their agents is making any representation or warranty as to the accuracy or
completeness of the information contained in this offering circular, and nothing contained in this offering
circular is, or shall be relied upon as, a promise or representation, whether as to the past or the future. Neither
the initial purchasers nor any of their agents has independently verified all of such information and assumes
no responsibility for the accuracy or completeness of the information contained in this offering circular.
__________________
See Risk Factors beginning on page 21 of this offering circular for a description of certain factors relating
to an investment in the Notes, including information about the business of the Bank. None of the Bank, the initial
purchasers nor any of their respective representatives is making any representation to you regarding the legality of an
investment by you under applicable investment or similar laws. You should consult with your own advisors as to
legal, tax, business, financial and related aspects of an investment in the Notes.
YOU ARE HEREBY INFORMED THAT THE DESCRIPTION SET FORTH HEREIN WITH
RESPECT TO U.S. FEDERAL TAX ISSUES WAS NOT INTENDED OR WRITTEN TO BE USED, AND
SUCH DESCRIPTION CANNOT BE USED, BY ANY TAXPAYER FOR THE PURPOSE OF
AVOIDING ANY PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER UNDER THE U.S.
INTERNAL REVENUE CODE. SUCH DESCRIPTION WAS WRITTEN TO SUPPORT THE
MARKETING OF THE NOTES. THIS DESCRIPTION IS LIMITED TO THE U.S. FEDERAL TAX ISSUES
DESCRIBED HEREIN. IT IS POSSIBLE THAT ADDITIONAL ISSUES MAY EXIST THAT COULD
AFFECT THE U.S. FEDERAL TAX TREATMENT OF THE NOTES, OR THE MATTERS THAT ARE
THE SUBJECT OF THE DESCRIPTION NOTED HEREIN, AND THIS DESCRIPTION DOES NOT
CONSIDER OR PROVIDE ANY CONCLUSIONS WITH RESPECT TO ANY SUCH ADDITIONAL ISSUES.
TAXPAYERS SHOULD SEEK ADVICE BASED ON THE TAXPAYERS PARTICULAR
CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
__________________
The Notes will be available initially only in book-entry form. The Notes that are offered and sold in the
United States to U.S. Persons who are QIBs in reliance upon Rule 144A will be represented by beneficial interests in
a global note in fully registered form without interest coupons (the Rule 144A Note). The Notes offered and sold
outside the United States to non-U.S. persons pursuant to Regulation S are expected to be represented by beneficial
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interests in a global note in fully registered form without interest coupons (the Regulation S Note, and together
with the Rule 144A Note, the Global Notes). The Global Notes will be deposited with a custodian for, and
registered in the name of a nominee of, The Depository Trust Company (DTC) for the accounts of its direct and
indirect participants, including Euroclear Bank S.A./N.V., as operator of the Euroclear System and Clearstream
International S.A. After the initial issuance of the Global Notes, certificated notes may be issued in registered
form in very limited circumstances.
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COMMUNICATED, FALLING WITHIN ARTICLE 49(2)(A) TO (D) OF THE ORDER (ALL SUCH
PERSONS TOGETHER BEING REFERRED TO AS RELEVANT PERSONS). THE NOTES ARE
ONLY AVAILABLE TO, AND ANY INVITATION, OFFER OR AGREEMENT TO SUBSCRIBE,
PURCHASE OR OTHERWISE ACQUIRE SUCH NOTES WILL BE ENGAGED IN ONLY WITH,
RELEVANT PERSONS. ANY PERSON WHO IS NOT A RELEVANT PERSON SHOULD NOT ACT
OR RELY ON THIS DOCUMENT OR ANY OF ITS CONTENTS.
WHERE YOU CAN FIND MORE INFORMATION
The following documents will be made available to the holders of the Notes, at the corporate trust office of
the Trustee at no cost: copies of the Indenture (as defined herein) as well as this offering circular, the Banks
incorporation documents and the annual audited consolidated financial statements of the Bank prepared in
conformity with generally accepted accounting principles prescribed for financial institutions subject to supervision
by the Superintendency of Banks, Insurance and Private Pension Fund Administrators, or SBS (Peruvian GAAP).
Information is also available at the office of the Luxembourg listing agent, so long as the Notes are listed on the
Luxembourg Stock Exchange and the rules thereof so require.
Application is expected to be made to admit the Notes to listing on the Official List of the Luxembourg
Stock Exchange and to trade them on the Euro MTF market of such exchange in accordance with its rules. This
offering circular forms, in all material respects, the listing circular for admission to the Luxembourg Stock Exchange.
The Luxembourg Stock Exchange will require certain undertakings in connection with the listing of Notes, including
the provision to it of certain financial information, so long as the Notes are listed on the Luxembourg Stock
Exchange and the rules thereof so require.
ENFORCEMENT OF JUDGMENTS
The Bank is a bank organized and existing under the laws of Peru. All of its directors and officers reside
outside the United States, and all or a significant portion of the assets of such persons may be, and substantially all of
its assets are, located outside the United States. As a result, it may not be possible to effect service of process upon
such persons or entities outside Peru or to enforce against them in the courts of jurisdictions other than Peru any
judgments obtained in such courts that are predicated upon the laws of such other jurisdictions.
Any final and conclusive judgment for a fixed and definitive sum obtained against the Bank in any foreign
court having jurisdiction in respect of any suit, action or proceeding against it for the enforcement of any of its
obligations in support of the Notes that are governed by New York law will, upon request, be deemed valid and
enforceable in Peru through an exequatur judicial proceeding without the local court reopening or re-examining the
case, reviewing the merits of the cause of action in respect to which such judgment was given or re-litigating the
merits adjudicated upon, provided that the following requirements are met:
(i)
the judgment does not resolve matters under the exclusive jurisdiction of Peruvian courts (and the
matters contemplated by this offering circular are not matters under the exclusive jurisdiction of
Peruvian courts);
(ii)
such court had jurisdiction under its own conflicts of law rules and under general principles of
international procedural jurisdiction;
(iii)
the Bank received service of process in accordance with the laws of the jurisdiction of the court
rendering such judgment, was granted a reasonable opportunity to appear before such foreign court,
and was guaranteed due process rights;
(iv)
the judgment has the status of res judicata as defined in the jurisdiction of the court rendering such
judgment;
(v)
no pending litigation in Peru between the same parties for the same issue was initiated before the
commencement of the proceeding that concluded with the foreign judgment;
-vi-
(vi)
the judgment is not incompatible with another judgment that fulfills the requirements of
recognition and enforceability established by Peruvian law unless such foreign judgment was
rendered first;
(vii)
(viii)
it is not proven that such foreign court denies enforcement of Peruvian judgments or engages in a
review of the merits thereof;
(ix)
such judgment has been (a) in the case of jurisdictions that are party to the 1961 Hague Convention
Abolishing the Requirements of Legislation of Foreign Public Documents (The Hague Apostille
Convention), duly apostilled by the competent authority of the jurisdiction of the issuing court, or
(b) in the case of jurisdictions that are not party to The Hague Apostille Convention, certified by
Peruvian consular authorities in the country in which it was issued; and in both cases, is
accompanied by a certified and officially translated copy of such judgment into Spanish;
(x)
there is in effect a treaty between the country where said foreign court sits and Peru regarding the
recognition and enforcement of foreign judgments. In the absence of such a treaty, the reciprocity
rule is applicable (such reciprocity being presumed), under which a judgment given by a foreign
competent court will be admissible in Peruvian courts and will be enforceable thereby, except if
according to such foreign law: (i) judgments issued by Peruvian courts are not admissible in the
courts of such foreign country or (ii) judgments issued by Peruvian courts are subject to reexamination of the merits thereof by the courts of such foreign country; and
(xi)
There is no reason to believe that any of the Banks obligations in support of the Notes, which are governed
by New York law, would be contrary to Peruvian public order and international treaties binding upon Peru or
generally accepted principles of international law. There is no existing treaty between the United States and Peru for
the reciprocal enforcement of foreign judgments.
In connection with the issuance of the Notes, the Bank will designate CT Corporation System as its agent
upon whom process may be served in connection with any proceedings in New York.
FORWARD-LOOKING STATEMENTS
This offering circular contains forward-looking statements. Examples of such forward-looking statements
include, but are not limited to, the following: (1) statements regarding the future results of operations and financial
condition of the Bank, (2) statements of plans, objectives or goals, including those related to the operations of the
Bank, and (3) statements of assumptions underlying such statements. Words such as believe, anticipate,
should, estimate, forecast, expect, may, intend and plan and similar expressions are intended to
identify forward-looking statements but are not the exclusive means of identifying such statements.
Forward-looking statements involve inherent risks and uncertainties, both general and specific, and there are
risks that the predictions, forecasts, projections and other forward-looking statements will not be achieved. The
Bank cautions investors that a number of important factors could cause actual results to differ materially from the
plans, objectives, expectations, estimates and intentions expressed or implied in such forward-looking statements.
These factors include the following:
changes in the preferences and financial condition of the Banks consumers, and competitive conditions
in the markets the Bank serves;
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changes in overall economic conditions in Peru, including exchange rates, interest rates or the rate of
inflation, and changes in political and business conditions in Peru;
governmental interventions resulting in changes in the Peruvian economy, taxes, tariffs or regulatory
environment;
the effect of changes in accounting principles, new legislation, intervention by regulatory authorities,
government directives or monetary or fiscal policy in Peru;
the effect of the implementation of any aspect of the Banks business strategy;
the Banks ability to develop and introduce new products and services;
the Banks ability to maintain existing business relationships and to create new relationships;
managements belief that pending legal and administrative proceedings will not have a materially
adverse effect on the Banks business, financial condition or results of operations.
Potential investors should read the sections of this offering circular entitled Risk Factors, Managements
Discussion and Analysis of Financial Condition and Results of Operations and The Bank for a more complete
discussion of the factors that could affect the future performance of the Bank and the markets in which the Bank
operates.
Should one or more of these factors or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, believed, estimated, expected or intended, as
described in this offering circular. The Bank does not have any intention to update these forward-looking
statements.
Moreover, no assurances can be given that any of the historical information, data, trends or practices
mentioned and described in this offering circular are indicative of future results or events.
-viii-
-ix-
For the convenience of the reader, this offering circular presents translations of certain Nuevo Sol amounts
into U.S. Dollars at specified rates, or the S/./$ exchange rate.
No representation is made that the Nuevo Sol or U.S. Dollar amounts in this offering circular could have
been or could be converted into U.S. Dollars or Nuevos Soles, as the case may be, at any particular rate or at all.
Unless otherwise indicated, the Bank has translated Nuevos Soles amounts into U.S. Dollars at an exchange rate of
S/.2.795 per US$1.00, based on the exchange rate reported by the SBS on June 30, 2014. See Exchange Rates and
Currency for information regarding rates of exchange between the Nuevo Sol and the U.S. Dollar for the periods
specified therein. For a discussion of the effects on the Bank of fluctuating exchange rates, see Managements
Discussion and Analysis of Financial Condition and Results of Operations. For a discussion of how the value of the
Nuevo Sol may affect the Banks business, financial condition and results of operations and the value of its
securities, read the section of this offering circular entitled Risk Factors.
Terms Relating to the Banks Loan Portfolio and Business
Total gross loans for 2013, 2012 and 2011 includes deferred interest on discounted notes, refinanced
loans, restructured loans and leasing receivables and excludes accrued interest and provision for loan losses.
Performing loans refers, for purposes of the Banks consolidated financial information, to loans that do
not include past due loans and legal collection loans, which are past due loans that are in the judiciary
collection process and, for purposes of the SBS, loans that do not include refinances and restructured loans.
Non-performing loans refers to past due loans plus legal collection loans.
Regulatory capital refers to the sum of tier 1 regulatory capital or basic capital and supplementary capital.
Basic capital or tier 1 capital refers to the tier 1 regulatory capital (patrimonio efectivo bsico o de Nivel 1)
of the Bank calculated in accordance with article 184(A) of the Peruvian Banking Law, as amended, restated,
supplemented or replaced from time to time.
Supplementary capital refers to the sum of tier 2 and tier 3 regulatory capital (patrimonio efectivo
suplementario), calculated in accordance with Article 184(B) of the Peruvian Banking Law, as amended,
restated, supplemented or replaced from time to time.
Other Definitions
Retail banking refers to the Banks line of business that serves individuals and small businesses with
annual sales under US$1.4 million.
Middle market banking refers to the Banks line of business that serves companies with annual sales of
US$1.4 million to US$75 million, institutional customers and government entities.
Corporate banking refers to the Banks line of business that serves large corporate groups with annual
sales equal to or greater than US$75 million and multinational corporations.
Rounding Adjustments
The Bank has made rounding adjustments to certain numbers included in the offering circular. As a result,
numerical figures presented as totals may not always be the arithmetic aggregations of their components, as
presented.
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1
2
Certain measurements of the Banks consolidated financial performance as of and for the years ended
December 31, 2013 and 2012 and as of and for the six months ended June 30, 2014 and 2013 are set forth in the
table below. Since 2010, the Bank has achieved consistent growth and profitability while maintaining healthy asset
quality ratios.
Consolidated Financial Indicators
As of and for the year ended
December 31, (6)
2013
(1)
2012
2.46%
28.61%
6.53%
42.22%
1.74%
2.71%
31.40%
7.00%
40.64%
1.21%
4.49%
4.44%
258.87%
366.93%
2014
2013
2.19%
25.53%
6.16%
42.33%
1.96%
2.37%
28.64%
6.52%
43.08%
1.62%
4.56%
4.56%
232.27%
282.23%
__________________
(1) Return on average assets was calculated as net profit for the period over average total assets. Average total assets were calculated as the
average of total assets at December 31, 2013 and 2012; December 31, 2012 and 2011; December 31, 2013 and June 30, 2014; and
December 31, 2012 and June 30, 2013, as applicable. Net profit for the six months ended June 30, 2014 and 2013 was annualized.
(2) Return on average shareholders equity was calculated as net profit for the period over average net equity. Average net equity was
calculated as the average of net equity at December 31, 2013; 2012 and December 31, 2012 and 2011; December 31, 2013 and June 30,
2014; and December 31, 2012 and June 30, 2013, as applicable. Net profit for the six months ended June 30, 2014 was annualized.
(3) Net interest margin was calculated as gross financial margin over average interest earnings assets (interbank funds, investments securities,
and loan portfolio, net). Average interest earning assets were calculated as the average of interest earning assets at December 31, 2013
and 2012; December 31, 2012 and 2011; December 31, 2013 and June 30, 2014; and December 31, 2012 and June 30, 2013, as applicable.
Gross financial margin for the six months ended June 30, 2014 and 2013 was annualized. Investments securities include available for sale,
held to maturity and at fair value through profit and loss investments.
(4) The efficiency ratio was calculated as administrative expenses plus depreciation and amortization expenses, over the sum of gross financial
margin and income and expenses from financial services.
(5) Allowance for loan losses includes reserves with respect to direct loans only. Non-performing loans include past-due loans and loans in
legal collection.
(6) Through Resolution SBS No. 7036-2012, dated September 19, 2012, the SBS modified the Accounting Manual for financial entities to
make a partial adoption of SBS accounting principles to IFRS, effective since 2013. One of the main changes is the presentation of the
financial statements; therefore, comparative figures and some ratios have been reclassified and modified.
Continental Bolsa, a wholly-owned subsidiary engaged in portfolio advisory and brokerage services
on the BVL;
Continental Titulizadora, a wholly-owned subsidiary which provides trustee services for asset
securitizations structured by BBVA Continental; and
IRCSA, a wholly-owned subsidiary which manages troubled assets and foreclosed property and
equipment.
The following chart presents the Banks corporate structure, including the Banks parent company and the
respective ownership interests in such entity, indicating subsidiaries and respective ownership interests as of the date
of this offering circular:
BBVA Group
BBVA Consumer
Finance
Breca
50.00%
50.00%
36.00%
Holding Continental
Comercializadora
Corporativa
92.24%
99.99%
7.76%
Others
0.01%
100.00%
IRCSA
100.00%
Continental Bolsa
100.00%
Continental
Titulizadora
100.00%
Continental Fondos
The following table depicts the Banks position in various categories and business lines:
As of June 30, 2014
Market
Share (%)
Rank
Market
Share (%)
Rank
Commercial loans
24.6
24.8
Consumer loans(1)
11.3
11.7
30.0
29.9
Total loans
23.3
23.4
Deposits(2)
21.3
21.3
Demand
25.4
23.9
Savings
24.3
23.7
Time
16.8
18.4
24.9
25.1
9.9
10.2
Shareholders equity
18.3
19.3
Net income
25.8
26.3
Branches
17.2
16.6
ATM locations
21.5
20.7
(1)
(1)
________________
(1) This information is based on performing loans.
(2) This information includes demand deposits, savings deposits, time deposits and other deposits.
Source: SBS and Asociacin de Bancos del Per (ASBANC)
infrastructure projects that have recently been concessioned start to be built. The Bank believes the set of measures
announced by the government to increase productivity and competitiveness will also favor potential output growth.
Product Innovation
The Bank employs sophisticated procedures to identify the needs of its customers and develops products
and services, including technological solutions, to address such needs. The Bank develops new business ideas, seeks
out new business opportunities and helps expand its complementary activities. As an example, regarding its
Premium segment, the Bank opened new branches and increased its portfolio with products such as structured
deposits and its new Seleccin Estratgica mutual fund. For its VIP segment, the Bank developed a management
model for clients in provinces, decentralizing services to service them in a simpler, quicker and more efficient way.
It reinforced its migration from a simple product commercial approach to multi-product management, aligning its
campaigns, reinforcing communication with clients and adapting its attention protocols. In its payroll workers
segment, the Bank continued with Mundo Sueldo, a highly regarded program. Additionally, it launched a new
platform for smartphones. For mortgage loans, the Bank improved its Hipotecario Flexible product with a scheme
that reduces the interest rate once the mortgage guarantee is formalized. For vehicle loans, the Bank strengthened an
alliance with Forum, a BBVA leading financial institution in Chile, to strengthen its competitive stance. It also
structured a plan called Consumer Finance that allows clients to finance vehicle loans at the point of sale. For
credit cards, the Bank created campaigns focused on giving its clients more advantages and a better banking
experience. Regarding transactional services, the Bank launched its Efectivo Mvil service, which enables retail
customers to withdraw cash from ATMs without a debit card, supported by mobile banking.
For its business clients, the Bank launched the management model Investment Banking for Companies and
Corporations (BIBEC), whose goal is to provide specialized investment banking advisory and value added
solutions for non-corporate clients thereby consolidating the distribution model for its treasury products in this client
segment. The Bank has complemented this with improvements in its operational processes to provide optimal
disbursement and cash management services in foreign trade operations. To increase transactional flows of its
business clients, the Bank focused on links among its transactional products and services.
Additionally, as part of its value proposition to Peruvian companies with a global presence, it continued its
International Synergies Plan, starting its IntraLatam Plan. Thanks to these plans, its overseas clients now have
an officer at their disposal before their arrival to Peru, who can help them address any need they have.
For small and medium-sized businesses, the Bank implemented a commercial strategy aimed at mediumsized SMEs, creating a tailored client approach, emphasizing its clients efforts and the importance of this segment,
synthesized in the phrase: I am not SME, I am an entrepreneur. This strategy was based on a specialized, more
focused customer attention. It also deployed Business Line, a specific phone channel for solving clients concerns.
Also, value proposition focused on offering products packages, such as Business Pack, which provides access to a
checking account, a business debit card and to its banking internet platform. The bank also strengthened its Multirisk Business Insurance product, aimed at safeguarding SMEs assets.
Strong Brand
The Bank believes the BBVA Continental brand is widely recognized and positively perceived by Peruvian
consumers. Recently, the Bank engaged in studies to enhance its image and brand positioning strategy with positive
results. For example, the Bank has arrangements with Gastn Acurio, a prominent Peruvian chef and media
personality, and the organizers of a well-known gastronomy event named Mistura, as well as other figures in
Peruvian gastronomy to promote the Banks brand through various media channels, including television and radio.
In 2012, the Bank organized a marketing event that included Gastn Acurio and Gianmarco Zignago, an
internationally-known Peruvian singer, as spokespersons to promote its products. In 2013, Pedro Surez-Vrtiz,
another Peruvian singer, was incorporated into the Banks image to promote its products. The Bank believes these
spokespeople also help reinforce the concept of communication with customers.
The Bank believes that the association of its brand with these figures and events has benefited the Banks
business by increasing the Banks brand recognition and consumer loyalty through its association with Peruvian
culture, respected Peruvian personalities and Peruvian gastronomy.
Another initiative to increase customer loyalty was the participation of BBVA Continental in the Annual
Conference of Executives, which is attended by Perus prominent business leaders. The Bank was the only bank
with a branch at the event. In addition, BBVA Continental was the first Peruvian bank to become an ambassador of
the brand Per as part of a strategy led by PromPer, the Committee for the Promotion of Peru for Export and
Tourism, to promote the country abroad. Through Fundacin BBVA Continental, the Bank also participates in
activities related to education, art and social welfare. With respect to education, the Banks foundation has continued
its reading program, Leer es estar adelante, which, from 2007 to 2013, has helped 87,620 children in eight regions
of the country improve their literacy. Additionally, as an initiative to support this program, BBVA Asset
Management launched Fondo BBVA Leer es estar adelante, the first mutual fund created in Peru to support a
social cause through the donation of funds.
In 2011, the Bank launched a rebranding campaign to renew its image, during which it changed its
marketing name to BBVA Continental. The change was accompanied by a new logo that was used in all of the
Banks advertising materials, reports, press releases, its website and external design of its ATMs.
In 2012 and 2013, the Bank maintained its focus on making banking easier for its customers. To
communicate that goal, it launched two large commercial campaigns aimed at further improving the positive
perceptions among its clients, and so reinforcing its positioning as a user friendly bank. The first campaign was
aimed at the SME segment. With the phrase I am not SME, I am an entrepreneur as its banner, the Bank set a
milestone in the communicational dimension by referring to the clients of this segment as entrepreneurs, thus
recognizing their efforts and achievements. This phrase was the beginning of a comprehensive nationwide campaign
intended to attract the attention of local entrepreneurs and the business community and allowing the Bank to position
itself as a strategic partner for the clients of this segment. As per the second campaign, the Bank, in partnership with
La Tarumba, a locally renowned circus company, launched a campaign aimed at promoting among its customers the
use of alternative banking channels (such as ATMs, Express agents, internet and mobile banking) instead of the
traditional bank branches.
The Bank believes these initiatives positively contributed to the Banks performance, allowing it to achieve
a high level of customer satisfaction and improved brand recognition.
Cross-selling Capabilities
In addition to selling banking products, the Bank is able to offer its customers additional products and
financial services through its subsidiaries or companies controlled by the Banks shareholders, increasing the Banks
attractiveness as a lender. For example, the Bank offers its customers investment advisory services through
Continental Bolsa, provides a broad set of investment products in association with Continental Fondos and
establishes and manages trusts to support the issue of securities through Continental Titulizadora. The Banks
customer-oriented strategy also focuses on meeting the insurance needs of the Banks customers through products
provided by its insurance company affiliate, Rimac Internacional Compaa de Seguros y Reaseguros (Rimac), a
Grupo Breca owned company. In addition to a basic level of insurance coverage that the Bank requires as part of its
loans, the Bank offers its customers a variety of life, medical and general protection insurance policies in relation to
their personal and business activities. The Bank has a competitive advantage because its subsidiaries are market
leaders in their respective areas and they are well-positioned to provide the Bank with cross-selling opportunities.
For its middle market and corporate customers, the Bank focuses not only on its sales activities but also on
building its relationships with them, by offering tailored services and solutions based on their financing
requirements and their asset and cash management needs. The Bank also offers its middle market and corporate
customers advisory services for brokerage activities, leveraging the Banks global expertise in this field.
Experienced Shareholders
The Bank benefits significantly from being part of Holding Continental and its shareholders BBVA Group
and Grupo Breca. BBVA Group includes one of the main financial groups in Spain and has a significant presence
throughout Latin America, with interests in banks, insurance companies and pension funds in Argentina, Chile,
Colombia, Mexico, Panama, Paraguay, Peru, Uruguay and Venezuela. The Bank benefits from being a part of
BBVA Group due to BBVA Groups focus on the Latin American region, strong management, emphasis on risk
management, technological know-how and strong credit ratings. In addition, Grupo Breca, a family-owned
enterprise, is one of the largest corporate conglomerates in Peru, with investments across most economic sectors,
including mining, banking, insurance, real estate, tourism and fishing; with several publicly-listed companies on the
BVL. Grupo Breca also has investments in Brazil and Chile.
The Banks relationships with BBVA Group and Grupo Breca allow the Bank to:
leverage BBVA Groups global presence to offer international solutions for the Banks customers
financial needs;
manage credit and market risks by adopting policies and applying the expertise developed by BBVA
Group;
access Grupo Brecas strong local knowledge of the Peruvian economy; and
benefit from being part of Grupo Breca due to its position as one of the most important economic
groups in Peru, with experienced and highly-skilled management.
The Bank has independent liquidity and capital management. All of BBVA Groups subsidiaries, including
BBVA Continental, obtain funds independently but in a coordinated manner depending on their business profiles
and funding needs. BBVA Group does not promote inter-company financing. None of the Groups subsidiaries
depend on BBVA Group or on each other for their funding needs.
General
The Banks strategy is to manage sustainable profitability by leveraging its leading position in the Peruvian
financial system and the cross-selling potential among its broad customer base.
In 2011, the Banks principal goal was to take advantage of the accelerated growth of its customer base
over the previous few years by achieving higher levels of cross-selling and expanding the Banks loan portfolio
through sustainable growth based on exceptional credit quality.
In the corporate and middle-market segments, the Banks principal goal was to increase revenues by
expanding its range of products, cross-selling and focusing on sophisticated services and fee-based products. The
Bank sought to promote fee-generating products in areas such as asset management, insurance brokerage, cash
management, payroll, supplier payments, cash collection, treasury and other services tailored to the needs of its
customers.
During 2012 and 2013, the Bank focused its attention on: (i) improving customer service, (ii) increasing its
transactional deposits, which are considered stable and cost effective, through its cash in (local and international
cash collection) and cash out (payment to suppliers and payroll) programs, (iii) attracting high value customers
both in the retail and corporate sectors and (iv) effectively managing a more demanding regulatory environment in
terms of commissions for retail customers.
In 2014, the Bank intends to continue focusing its strategy on satisfying a growing and increasingly
sophisticated market while maintaining its levels of efficiency, profitability and asset quality, thus consolidating
itself as a main player in the Peruvian financial system.
Increasing the Banks Interest Income through its Retail Banking Business
The Bank believes retail banking in Peru has significant growth potential. There is a relatively low
penetration rate of financial services that, in combination with the expected growth of the Peruvian economy and
continued growth in the higher socioeconomic levels of the population, will result in significant demand for the
Banks retail banking products. The Bank has significantly increased its exposure to the retail segment in recent
years and intends to continue increasing its offering of retail products and services. The Bank believes that
expanding into the retail segment while maintaining its strong credit risk standards will increase its profitability.
Increasing the Banks Net Interest Margin through Lower Funding Costs
The Bank intends to continue to accomplish these goals by reducing its funding costs through a larger and
well diversified deposit base and through selective market and bank offerings. The Bank, in line with its low-cost
deposit strategy, has increased its demand and saving deposits by 45.0%, through its extensive distribution network,
from December 31, 2011 to June 30, 2014. Along with this, through the joint effort of its retail, middle-market and
corporate banking teams, the Bank focused on the issue of collection and payment from existing business customers,
achieving, at the same time, the enrollment of new retail customers related to these businesses. At the same time, the
Bank has managed to access the Peruvian and international financial markets through a variety of debt offerings in
recent years.
to grow its fee-based revenues by developing new services and by strategically cross-selling these services to its
base of existing retail, middle-market and corporate banking customers.
For the Banks retail banking customers, it intends to increase revenues from new and existing fee-based
services such as credit cards, insurance brokerage, electronic banking, ATMs, general checking services, mutual
funds and securities brokerage services. For the Banks middle-market and corporate customers, it intends to
actively market new and existing fee-based services such as electronic banking, cash collection, payroll, supplier
payment, investment advisory and cash management services. In addition, the Bank focuses on offering foreign
exchange operations through its network.
During 2013 the regulatory authority prohibited the collection of certain fees under the Transparency
Law, which impacted the entire banking system. In this context, the Bank took steps to address this issue and
managed to reverse the effect by charging new fees. Although the main restrictions came into effect in 2013, in 2014
other prohibitions and caption fees started, which the Bank anticipated and created new fees to compensate this
effect.
Continue Developing the Banks Products and Services and Enhancing Customer Product Use and Customer
Service
The Bank believes that the increasing penetration of banking services to the private sector offers significant
opportunities to further expand the Banks business. The Bank has offered new products designed to meet the needs
of not only a growing economy, but consumers with more sophisticated consumption habits, such as: (i)
Mastercard Black, Visa Signature and Platinum credit cards, directed to the Banks customers from higher
socioeconomic levels; (ii) Mundo Sueldo, a service through which the Banks customers can receive their salaries
through a special account with the Bank; (iii) Hipotecario joven, designed to offer home loans to younger
borrowers; (iv) Risk Empresa, which provides hedging and risk management solutions for the market risks faced
by the Banks small and medium-sized business customers; (v) Continental Net Cash a product that utilizes
electronic banking to assist the cash management needs of the Banks business customers and (vi) China Comex,
becoming the first Peruvian bank to offer trade finance solutions oriented to the Chinese market.
The Bank believes it is well-positioned to capitalize on this growth, given the Banks sophisticated credit
analysis procedures and extensive distribution network, while maintaining the Banks risk profile, which provides
the Bank with the means to increase its customer base and cross-sell additional services. Moreover, the Bank
believes the growth in the Peruvian economy will be stronger in the Banks target market of retail and middle
market banking, where it has a leading presence.
10
The Bank is focused on remaining at the forefront of product innovation and continues to develop new
ways to reach and retain customers. During 2013, the Bank consolidated its coverage model to reach out to business
clients nationwide, emphasizing that the Banks management is oriented towards the provision of quality services
and serving in a permanent advisory role. In this regard, the Bank has achieved high levels of recognition by its
customers, by attaining high indexes of net recommendations (IRENE). Additionally, according to Ipsos Apoyo,
recent studies have shown an increase, from 65% in 2010 to 77% in 2013, of customers satisfied with the Banks
service, which the Bank believes is a result of its initiative to improve customer service.
The Bank also seeks to continue to improve the variety of consumer and corporate products to differentiate
itself from its competitors. The Bank continues its effort to identify the needs of its customers and tailor its products
and services to those needs, develop new business ideas, seek out new business opportunities and expand its
business activities.
To enhance customer product use, the Bank intends to continue to:
Utilize its extensive branch network, which the Bank considers its key distribution channel, to market
its products and services to its entire customer base. The Bank utilizes a personalized approach to
attract new customers by providing convenient and personalized banking services close to their homes
and workplaces.
Offer medium- and long-term credit, capitalizing on the increased demand for long-term credit that the
Bank believes will accompany the expected continued economic growth in Peru. The Bank intends to
use its strong liquidity and its capital base to offer a more readily available range of medium- and longterm credit products than its competitors.
Offer personalized service through a menu of products and personalized face-to-face advice to help
them select the banking services that best respond to their needs.
11
recommendation of the Banks services. The Bank believes it has made significant innovations in recent years
through the continuous improvements in its products offering and the means to reach its clients, through both
communications and banking channels. The Bank aims to apply strategies different from those traditionally
employed in the banking system with a view to thinking first in terms of customer satisfaction.
The Bank pursues a customer-driven business model, based on distribution networks that focus on the
banking needs of the customers and as a result, serve to build and enhance customer loyalty. The Bank strives to
enhance customer loyalty by offering the specialized services and expert knowledge of the Banks account officers
and managers. By utilizing detailed credit and other information concerning the Banks customers and their
activities, as well as information concerning the Banks products and services, the Banks personnel are able to
identify customers needs and offer them more suitable products and services.
Main Offices
The Banks main offices are located at Avenida Repblica de Panam 3055, San Isidro, Lima 27, Peru.
The Banks telephone number at that address is (51) (1) 211-1000.
12
THE OFFERING
The following is a brief summary of certain terms of the offering. Some of the terms and conditions described below are
subject to important limitations and exceptions. For a more complete description of the terms of the Notes, see
Description of the Notes in this offering circular.
Issuer.................................................................................. BBVA Continental.
Notes .................................................................................. U.S. $ aggregate principal amount of Subordinated Notes due
2029
Issue Price.......................................................................... % of the principal amount, plus accrued interest, if any,
from , 2014.
Issue Date ..........................................................................
, 2014.
, 2014.
Interest Payment Dates...................................................... Interest on the Notes will be payable semi-annually in arrears
on
and
of each year (each, an Interest Payment Date),
commencing on .
Reset Date..........................................................................
, 2024.
, 2029.
Interest ............................................................................... The Notes will bear interest on their principal amount from and
including the Issue Date, to but excluding, the Reset Date, at the
rate of % per year. During the period from and including the
Reset Date to, but excluding, the date of maturity or earlier
redemption date of the Notes, the Notes will bear interest on
their principal amount at a rate per year that will be equal to the
sum of (i) the Benchmark Reset Rate (as defined in
Description of the Notes), on the Reset Date and (b) basis
points.
Ranking and Outstanding Indebtedness ........................... The Notes will be direct, unsecured subordinated obligations of
BBVA Continental. In the event of BBVA Continentals
dissolution and liquidation or equivalent proceedings under
Peruvian law and regulations thereunder, the Notes will rank:
13
14
Regulatory Reasons........................................................... BBVA Continental may (with the prior approval of the SBS, or
any other then-applicable Peruvian Governmental Authority, if
then required) redeem the Notes, in whole, but not in part,
following the occurrence of a Tax Event or Regulatory Event.
In the case of redemption following a Tax Event, BBVA
Continental will redeem the Notes at a redemption price equal
to 100% of the aggregate principal amount of the Notes being
redeemed, plus any accrued and unpaid interest on the principal
amount of such Notes, up to, but not including, the date of
redemption, plus Additional Amounts, if any. In the case of
redemption following a Regulatory Event, BBVA Continental
will redeem the Notes at a redemption price equal to the MakeWhole Amount (as defined in Description of the Notes), plus
any accrued and unpaid interest on the principal amount of the
Notes, up to, but not including, the date of redemption, plus
Additional Amounts, if any. See Description of the
NotesRedemption Prior to MaturityRedemption upon Tax
Event or Regulatory Event.
Non- Payment of Principal and Interest and
There is no right of acceleration in the case of a default in any
Acceleration Event ........................................................ payment on the Notes (whether when due upon stated maturity,
upon redemption or otherwise) or the performance of any of
BBVA Continentals other obligations under the Indenture or
the Notes. However, if BBVA Continental fails to make
payment of principal or of interest or Additional Amounts, if
any, on the Notes (and, in the case of payment of interest or
Additional Amounts, such failure to pay continues for 30 days),
each holder of the Notes has the right to demand and collect
under the Indenture, and BBVA Continental will pay to the
holders of the Notes the applicable amount of such due and
payable principal, accrued interest and Additional Amounts, if
any, on the Notes.
Acceleration of any payments due under the Notes will occur
only upon the occurrence and continuation of an Acceleration
Event. If an Acceleration Event occurs and is continuing, the
rate at which interest will accrue on the Notes (to the extent the
Notes have not been used to absorb losses) during the
dissolution and liquidation or equivalent proceedings under
Peruvian Law will be limited to the legal interest rate for dollardenominated indebtedness determined by the Peruvian Central
Bank and notified to the trustee in writing.
Acceleration Event means that the SBS has entered a decree
or order for Intervention of BBVA Continental or for the
appointment of a custodian, conservator, receiver, liquidator,
assignee, trustee, sequestrator or other similar official in any
dissolution and liquidation or similar proceeding with respect to
BBVA Continental or all or substantially all of its property, in
each case pursuant to the Peruvian Banking Law; and such
decree or order has been communicated by the SBS to BBVA
Continental.
Loss Absorption ................................................................ Pursuant to the Peruvian Banking Law, as amended, and
15
No Established Trading Market ........................................ The Notes are a new issue of securities with no established
trading market. BBVA Continental cannot assure you that an
active or liquid trading market for the Notes will develop. If an
active or liquid trading market for the Notes does not develop,
16
17
(1)
2013
(U.S. Dollars
in thousands)
2012
2012
3,632,755
Interest expenses
(399,591)
900,142
2014(2)
2011
(U.S.
Dollars in
thousands)
Interest income
3,319,759
3,744,174
(1,116,858)
(994,403)
2,515,897
2,325,356
2014
2013
(Nuevos soles in
thousands)
(Current Peruvian GAAP)
3,097,670
656,665
1,836,036
1,776,181
(1,043,844)
(835,225)
(181,501)
(507,477)
(562,046)
2,700,330
2,262,445
475,164
1,328,559
1,214,135
(186,450)
(521,128)
(485,792)
(445,294)
(276,664)
(103,216)
(288,592)
(269,067)
713,692
1,994,769
1,839,564
2,255,036
1,985,781
371,948
1,039,967
945,068
237,922
664,993
633,778
677,144
631,999
125,265
350,240
313,756
177,246
495,403
436,964
71,253
199,224
237,760
(451,709)
(1,262,527)
(1,129,379)
(1,181,100)
(1,044,660)
(238,486)
(666,806)
(619,366)
(36,628)
(102,375)
(73,713)
(21,953)
(61,381)
(39,480)
(2,577)
(7,204)
(21,928)
(65,794)
(63,962)
(2,506)
(7,008)
(9,852)
637,946
1,783,059
1,685,286
1,685,286
1,509,158
305,521
854,236
827,886
(171,291)
(478,757)
(439,741)
(439,741)
(380,170)
(82,843)
(231,628)
(224,290)
466,655
1,304,302
1,245,545
1,245,545
1,128,988
222,678
622,608
603,596
Income taxes
Net profit for the period
18
(1)
(2)
(3)
(4)
(5)
Data expressed in U.S. Dollars for the year ended December 31, 2013 has been translated at the rate of S/. 2.795 per US$1.00, based on the
exchange rate reported by the SBS on December 31, 2013.
Data expressed in U.S. Dollars for the six months ended June 30, 2014 has been translated at the rate of S/. 2.796 per US$ 1.00, based on
the exchange rate reported by the SBS on June 30, 2014.
Provisions for loan losses include provisions with respect to total direct loans. Direct loans represent outstanding loans while indirect loans
include guarantees and standby letters of credit, import and export letters of credit and bank acceptances.
Administrative expenses include personnel, taxes and general expenses.
Represents the amount of income from financial services less expenses from financial services during a period.
Consolidated statements of
financial position
Cash and due from banks
Interbank funds
Investment at fair value through
profit or loss, available for sale
and held to maturity
Loan Portfolio, net (3)
Investments in associates
Property, furniture and
equipment, net
Other assets (4)
Total assets
Obligations to the public
Demand deposits
Saving deposits
Time deposits
Other Obligations
Deposits from financial system
companies
Interbank funds
Due to banks and other
financial obligations
Securities, bonds and
outstanding obligations
Other liabilities (5)
Total liabilities
Net equity
Total liabilities and net equity
As of June 30,
2014 (2)
2014
(U.S. Dollars (Nuevos soles
in thousands) in thousands)
(Current Peruvian GAAP)
3,785,410
10,584,006
4,661
13,032
1,461,417
13,683,480
992
4,084,660
38,245,327
2,774
2,886,773
31,770,125
2,462
2,886,773
31,770,570
2,461
2,587,154
28,922,025
2,231
1,255,591
14,462,737
809
3,510,632
40,437,813
2,261
292,669
550,378
818,010
1,538,306
685,044
1,672,935
685,044
1,670,569
603,600
1,351,085
297,013
553,096
830,447
1,546,458
20,228,421
13,051,844
4,371,951
3,335,718
5,327,681
16,494
56,538,437
36,479,904
12,219,603
9,323,333
14,890,868
46,100
49,690,775
31,956,803
9,237,771
8,005,309
14,652,278
61,445
49,689,202
32,054,519
9,237,771
8,005,259
14,535,134
276,355
42,242,407
30,185,437
8,888,960
7,115,244
13,999,076
182,157
20,359,317
13,269,248
4,680,775
3,620,690
4,951,242
16,541
56,924,649
37,100,818
13,087,447
10,123,450
13,843,672
46,249
336,179
220,799
939,620
617,134
764,991
234,964
764,991
234,964
307,034
125,515
570,175
124,477
1,594,208
348,038
4,322,902
12,082,512
10,956,815
7,156,782
4,770,203
4,196,397
11,733,126
2013 (1)
(U.S. Dollars
in thousands)
4,230,484
9,000
2013
As of December 31,
2012
2012
2011
546,854
1,528,456
1,548,865
3,800,033
1,449,576
18,478,578
1,749,843
20,228,421
51,647,626
4,890,811
56,538,437
45,462,438
4,228,337
49,690,775
45,460,865
4,228,337
49,689,202
1,985,859
1,163,296
458,937
1,283,188
38,537,344
3,705,063
42,242,407
18,619,234
1,740,083
20,359,317
52,059,378
4,865,271
56,924,649
_____________________
(1) Data expressed in U.S. Dollars for the year ended December 31, 2013 has been translated at the rate of S/. 2.795 per US$1.00, based on the
exchange rate reported by the SBS on December 31, 2013.
(2) Data expressed in U.S. Dollars for the period ended June 30, 2014 has been translated at the rate of S/. 2.796 per US$ 1.00, based on the
exchange rate reported by the SBS on June 30, 2014.
(3) Net of deferred interest on discounted notes and leasing receivables plus accrued interest from performing loans, and after deducting
allowance for loan losses.
(4) Represents the amount of trading derivatives, hedging derivatives, Receivables, Assets seized and recovered through legal actions, net,
current tax, deferred tax and other assets.
(5) Represents the amount of trading derivatives, hedging derivatives, payables, current tax, deferred tax and other liabilities.
19
2014
2013
2.46%
2.71%
2.71%
2.82%
2.19%
2.37%
28.61%
31.40%
31.40%
31.85%
25.53%
28.64%
6.53%
7.00%
8.13%
7.79%
6.16%
6.52%
42.22%
40.64%
34.97%
36.09%
42.33 %
43.08%
Capitalization
Shareholders equity as a percentage of total assets
Tangible common equity (7)
Tier 1 capital as a percentage of risk-weighted assets
Total regulatory capital as percentage of risk weighted assets
8.65%
8.51%
8.51%
8.77%
8.55%
8.03%
2,724,770
2,226,473
2,226,473
1,944,232
3,246,531
2,724,770
9.84%
9.82%
9.82%
9.12%
10.76%
10.69%
12.42%
12.43%
12.43%
12.46%
13.23%
13.23%
690,928
399,277
399,277
279,710
826,692
582,718
1.74%
1.21%
1.19%
0.92%
1.96%
1.62%
4.49%
4.44%
4.37%
4.10%
4.56%
4.56%
20
RISK FACTORS
Prospective purchasers of the Notes should carefully read this entire offering circular, and should
consider, among other things, risk factors with respect to Peruvian banks and other corporations not normally
associated with investments in other countries and other issuers, including those set forth below. In general,
investing in securities of issuers in emerging market countries, such as Peru, involves risks not typically associated
with investing in the securities of U.S. companies. Additional risks and uncertainties that the Bank does not know
about or that it currently considers are immaterial may also impair the Banks business operations. Any of the
following risks, if they actually occur, could materially and adversely affect the Banks business, results of
operations, prospects and financial condition. In that event, the market price of the Notes could decline, and the
prospective purchasers could lose all or part of their investment.
Risks Relating to the Banks Business
The retail banking market is exposed to macroeconomic changes that may negatively impact household
income and a downturn in the economy could result in increased loan losses.
One of the key elements of the Banks strategy is to focus on the retail banking sector and to grow its retail
loan portfolio. As a result, its loan portfolio will become increasingly vulnerable to macroeconomic changes, such
as a more pronounced growth deceleration in China and an economic recovery slower than expected in the U.S. and
Europe, which could negatively impact the household income of its retail customers and result in increased loan
losses. For example, the 2009 slowdown in Peru resulted in an increase in past due loans of the Banks customers.
Furthermore, because the penetration of bank lending products in the Peruvian retail sector, especially outside of the
capital Lima, has been historically low, there is little basis on which to evaluate how the retail sector will perform in
the event of an economic crisis, such as a recession or a significant devaluation. Consequently, historical loan loss
experience may not be indicative of the performance of the Banks loan portfolio in the future.
The corporate banking sector is exposed to macroeconomic changes that may be negatively affected by
current global economic conditions.
Part of the Banks strategy is to increase its focus in the corporate banking sector. This sector may be
negatively impacted by macroeconomic changes. For example, the 2009 global economic recession resulted in
lower commodity prices, which caused decreased export earnings and a slight deterioration in external and fiscal
accounts in Peru, generating at the same time a slower economic growth in 2009. Given its client base, the Banks
business is particularly sensitive to economic and market conditions which affect products of various export
industries, including textile, fishing and agriculture. In addition, the Bank is active in the real estate sector, which
can also be highly sensitive to macroeconomic developments. Any increase in the number of delinquencies or
defaults would result in higher levels of non-performing assets and provisions for loan losses, which would
adversely affect the Banks results of operations and financial condition.
As a provider of corporate financial services, the Banks business and earnings are affected by general
business and economic conditions. Accordingly, the Banks business earnings could be harmed in the event of a
slowdown in global economic activity. The Banks parent company, the BBVA Group, is a Spanish bank. The
BBVA Group has a 50% ownership stake in Holding Continental, the controlling shareholder of the Bank. A
moderate risk exists that macroeconomic and geopolitical conditions could cause an economic slowdown or
volatility in the capital markets. Adverse changes affecting the European economy and the Spanish economy more
specifically could adversely affect the BBVA Group. Such events could affect the perception of the Banks brand
among clients, which could, in turn, have an impact on its results of operations.
Intensifying competition may put pressure on margins and adversely affect the Banks business,
financial condition and results of operations.
The Bank faces significant competition from local and foreign banks in providing financial services to the
Peruvian retail and corporate banking sectors, which could put pressure on its margins. The Banks main
competitors are Banco de Crdito del Per S.A. (BCP), Scotiabank Per S.A.A., a subsidiary of Scotiabank
21
(Scotiabank), Banco Internacional del Per S.A.A. (Interbank), and Citibank del Per S.A., a subsidiary of
Citigroup (Citibank). The Bank has also experienced an increase in competition from non-banking financial
institutions. In addition, larger Peruvian companies have gained access to new sources of capital, through local and
international capital markets, and the Banks traditional and new competitors have increasingly made inroads into
the higher-margin middle-market and retail banking sectors.
This increased competition affects the Banks loan growth and reduces the average interest rates that the
Bank charges its customers. The Bank may not be able to maintain its market share if it is not able to match its
competitors loan pricing or keep pace with their development of new products and services.
In addition, competition is also likely to increase as a result of the entrance of new participants into the
banking sector, including foreign banks and non-bank financial institutions. The entry of new competitors into the
market over the past five years, such as Banco Falabella Per S.A., Banco Ripley Per S.A., Banco Azteca del Per
S.A., Deutsche Bank Per S.A., Banco Santander Per S.A., Banco Cencosud S.A, GNB Bank and Banco ICBC
could adversely affect the Banks market share.
Liquidity risks may adversely affect the Banks business.
Historically, one of the Banks principal sources of funds has been customer deposits. Since the Bank
relies heavily on deposits and other short-term liabilities for its funding, there can be no assurance that in the event
of a sudden or unexpected shortage of funds in the banking system or otherwise the Bank will be able to maintain its
levels of funding without adversely affecting its liquidity or increasing its cost of funding.
Despite recent improvements in the global economy, investors still experience substantial risk aversion and
sensitivity to negative developments. Since assets prices globally could still reflect speculative factors more than
fundamentals and market valuations could be in some cases stretched, markets may still be considered unstable, with
many investors buying U.S. Treasuries despite their relatively low yields. Should this situation continue, it could
lead to a deteriorating market for higher risk bonds. Therefore, funds that the Bank anticipates raising through such
channels may have to be raised in the short-term money market, reducing the Banks ability to diversify funding
sources and adversely affecting the lengthening of its funding profile. The increased reliance on shorter-term funds
may adversely impact the Banks liquidity profile, financial condition and results of operations. There can be no
assurance that the Bank will be successful in obtaining additional sources of funds on acceptable terms or at all.
The Bank may need additional capital in the future and given recent market volatility generated by
distortions in the international financial markets, which may impact the Peruvian capital markets and the
Peruvian banking system, the Bank may not be able to obtain such capital on acceptable terms, or at all.
In order for the Bank to grow, remain competitive, enter into new businesses and meet regulatory capital
adequacy requirements, it may require new capital in the future. Moreover, the Bank may need to raise additional
capital in the event of large losses in connection with any of its activities that result in a reduction of its
shareholders equity. The Banks ability to obtain additional capital in the future is subject to a variety of
uncertainties, including:
general market conditions for capital-raising activities by commercial banks and other financial
institutions;
the decrease in liquidity in the international markets, which could influence the behavior of local
investors, who react rapidly to international market trends;
the Banks future financial condition, results of operations and cash flows;
The Bank cannot assure that future market volatility will not affect the Peruvian banking system, including
the Bank. The Bank may not be able to obtain additional capital in a timely manner or on acceptable terms or at all.
If the Bank is unable to obtain additional capital, its business operations, financial condition and results of
operations could be materially and adversely affected.
A significant deterioration of the Banks loan quality may have an adverse impact on its business,
financial condition and results of operations.
A significant deterioration of loan quality may have an adverse impact on the Banks business, financial
condition and results of operations as it primarily engages in banking and lending activities. While loan portfolio
risk associated with lending to certain economic sectors or customers in certain market segments can be mitigated
through adequate diversification policies, the Banks pursuit of opportunities in which it can charge higher interest
rates may reduce diversification of the loan portfolio and expose it to greater credit risk.
The Bank believes that significant opportunities exist in middle-market and consumer lending in Peru and
that it can, on average, charge higher interest rates on such loans; therefore, the Banks strategy includes a greater
emphasis on retail loans. Although the Bank intends to combine this strategy with conservative credit assessments,
an increase in its exposure to the retail sector could raise credit risk due to the shift of lending to riskier middlemarket and consumer sectors which may adversely affect the credit quality of the Banks loan portfolio.
The amount of the Banks reported non-performing loans may increase in the future as a result of growth in
the Banks loan portfolio or factors beyond its control, such as the impact of macroeconomic trends, both locally and
globally, and political events affecting Peru. In addition, while the Bank believes its current loan loss provisions are
adequate to cover all loan losses in its loan portfolio, its current loan loss provisions may not be adequate to cover an
increase in the amount of non-performing loans or any future deterioration in the overall credit quality of its loan
portfolio. As a result, if the credit quality of the Banks loan portfolio deteriorates, it may be required to increase its
loan loss provisions, which may adversely affect it. Moreover, there is no precise method for predicting loan and
credit losses, and the Bank cannot assure that its loan loss provisions are or will be sufficient to cover actual losses.
If the Bank is unable to control or reduce the level of its non-performing or poor credit quality loans, its financial
condition and results of operations could be materially and adversely affected.
In addition, certain concentrations of lending to borrowers in certain commercial sectors are unavoidable in
Peru. Specifically, the natural resources and fishing sectors represent a substantial part of the Peruvian economy.
Deteriorations of any such sector could have an adverse effect on the Banks loan portfolio, deposits, loan
performance and other business.
Failure of the Banks credit risk management system to accurately assess credit risks could materially
and adversely affect its business operations and prospects.
As a commercial bank, one of the principal types of risks inherent in the Banks business is credit risk. An
important part of the Banks credit risk management system is to employ an internal credit rating system to assess
the particular risk profile of a client. As this process involves detailed analyses of the client or credit risk, taking
into account both quantitative and qualitative factors, it is subject to human error. In exercising their judgment, the
Banks employees may not always be able to assign an accurate credit rating to a client or credit risk, which may
result in the Banks exposure to higher credit risks than indicated by its risk rating system. As a result, failure to
effectively implement, consistently follow or continuously refine the Banks credit risk management system may
result in a higher risk exposure for the Bank, which could materially and adversely affect it.
The Banks operations are supervised and regulated by the SBS and the Central Bank, which may take
actions that could adversely affect its business, financial condition and results of operations.
The Banks operations are supervised and regulated by the SBS and the Central Bank. The Peruvian
Constitution and the Ley General del Sistema Financiero y del Sistema de Seguros y Orgnica de la
Superintendencia de Banca y Seguros (the Peruvian Banking Law) grant the SBS the authority to oversee and
control banks and other financial institutions. The SBS and the Central Bank have general administrative
23
responsibilities over the Bank, including authority to set loan loss provisions, capitalization, capital for credit,
market and operational risk, and deposit reserve requirements. Therefore, changes in bank supervision and
regulation may adversely affect the Banks business, financial condition and results of operations.
In addition, a breach of regulatory guidelines could expose the Bank to potential liabilities or sanctions,
including the loss of necessary licenses. Changes in these regulations may have a material effect on the Banks
business and operations. As some of the new banking laws and regulations issued from regulatory institutions have
only recently been adopted as discussed below, the manner in which those laws and regulations are applied to the
operations of financial institutions is still evolving. Laws or regulations might be adopted, enforced or interpreted in
a manner that could have an adverse effect on the Banks business, financial condition, cash flows and/or results of
operations. Moreover, any failure to adopt adequate responses to such changes in the regulatory framework may
have an adverse effect on the Banks business, financial condition, cash flows and/or results of operations.
Under certain circumstances, the SBS may intervene in the Banks operations to prevent, control and
reduce the effect of a failure, which may limit remedies otherwise available to the Banks creditors and extend
the duration of proceedings.
Under Peruvian banking laws and regulations, the SBS will intervene in the Banks operations
(Intervention, as defined below) upon the occurrence of any of the following events:
if the Bank breaches any of its commitments to the SBS under a surveillance regime imposed by the
SBS;
if the Banks regulatory capital is less than 50% of the minimum regulatory capital required under the
Peruvian Banking Law; and
if the Bank experiences a deficit or reduction of more than 50% of its regulatory capital during the
preceding 12-month period.
The SBS may intervene in the Banks business by adopting either a temporary surveillance regime
(Rgimen de Vigilancia) or a definitive intervention regime (Rgimen de Intervencin) depending on how
critical the situation is deemed to be by the SBS. The surveillance regime (Rgimen de Vigilancia) may halt the
Banks operations up to 45 days, which may be extended for a second period of up to 45 additional days, during
which time the SBS may institute measures such as canceling losses by reducing reserves, capital and subordinated
debt constituting tier I and non-redeemable tier II Regulatory Capital which qualify as hybrid instruments.
Pursuant to an Intervention (Rgimen de Intervencin), the SBS has the power to institute measures, such
as limiting the decisions that could be taken at a shareholders meeting, suspending the Banks normal activities and
segregating certain of its assets and liabilities for transfer to third parties, among others. Furthermore, the SBS has
the power under the Peruvian Banking Law to declare the wind-up or liquidation of any bank if an Intervention
extends longer than 45 days, which may be extended for another 45 days at the sole discretion of the SBS, and/or
upon the occurrence of a wind-up or liquidation pursuant to the Peruvian General Corporations Law (Ley General de
Sociedades).
A reduction in the Banks credit rating could increase its cost of borrowing funds and make its ability to
raise new funds, attract deposits and renew maturing debt more difficult.
The Banks credit ratings are an important component of its liquidity profile. Among other factors, the
Banks credit ratings are based on the financial strength, credit quality and concentrations in its loan portfolio, the
level and volatility of its earnings, its capital adequacy, the quality of management, the liquidity of its balance sheet,
the availability of a significant base of core retail and commercial deposits and its ability to access a broad array of
funding sources. The Banks lenders may be sensitive to the risk of a ratings downgrade. A downgrade in the Banks
24
credit ratings could increase the cost of refinancing its existing obligations, raising funds in the capital markets and
borrowing funds from private lenders.
The Bank engages in transactions with certain related parties that could result in conflicts of interest.
In accordance with the Peruvian Banking Law, related parties include directors, certain principal executive
officers and holders that own, directly or indirectly, more than 4% of the Banks shares, and companies controlled
(for purposes of the Peruvian Banking Law) by any of them. Under the Peruvian Banking Law, all loans to related
parties must be made on terms no more favorable than those offered to third parties. The SBS regulates and closely
monitors related party transactions and establishes a limit on them equivalent to 30.0% of a banks regulatory
capital. As of June 30, 2014, the Banks related party exposure due to total financing to related parties
equaled 1.91% of its regulatory capital. As of June 30, 2014, the Banks loans and other contingent credits to related
parties amounted to S/.118 million, and consisted entirely of outstanding loans classified as Class A (Normal).
The Bank believes it is in compliance with all related party transaction requirements imposed by the
Peruvian Banking Law and the SBS. Although the Bank intends to continue entering into transactions with related
parties on terms similar to those that would be offered by or to an unaffiliated third party, such financial transactions
create the potential for, or could result in, conflicts of interest.
No assurance can be given that transactions between the Bank and any of its subsidiaries or affiliates have
been or will be conducted on terms as favorable to the Bank as could be obtained from unaffiliated parties. The
Bank has entered into services agreements with its affiliates, and is likely to continue to engage in transactions with
BBVA and its subsidiaries or affiliates and one subsidiary of Breca that is considered to be the Banks affiliate under
Peruvian law, and no assurance can be given that these transactions will be on an arms length basis. In addition,
future conflicts of interest between the Bank and BBVA or any of BBVAs subsidiaries or affiliates may arise; these
conflicts are not required to be and may not be resolved in the Banks favor. See Related Party Transactions.
Peru has corporate disclosure and accounting standards different from those with which investors may
be familiar.
Securities disclosure requirements in Peru differ from those in the United States and elsewhere.
Accordingly, the information about the Bank available to investors may not be the same as the information available
to security holders of a U.S. company. The SBS requires financial entities operating in Peru to report financial
results according to Peruvian GAAP, which is outlined in the SBSs Accounting Manual for Financial Entities.
Peruvian GAAP differs in certain material respects from IFRS. Substantial differences between Peruvian GAAP
and IFRS include but are not limited to, among others, content and format of the financial statements.
The Financial Statements contained herein have been prepared in accordance with Peruvian GAAP and
may differ significantly from financial statements prepared in accordance with IFRS. The Bank has made no attempt
to identify or quantify the impact of the specific differences between Peruvian GAAP and IFRS and, accordingly,
cannot offer any assurances that all existing differences have been identified and that the differences described in
Annex A between Peruvian GAAP and IFRS are in fact the most significant differences. In addition, the Bank
cannot estimate the net effect that applying IFRS would have on its consolidated results of operations or
consolidated financial position or any component thereof. The effect of such differences may be, individually or in
the aggregate, material, and in particular, as a result of such differences, total shareholders equity might be
materially different if reported under IFRS. Differences in the presentation of the Financial Statements, as well as
differences in the information provided in the footnotes to the Financial Statements, have not been quantified in this
offering circular.
A devaluation of the Nuevo Sol may adversely affect the Banks business, financial condition and results
of operations.
As of June 30, 2014 and December 31, 2013, 46.1% and 47.5%, respectively, of the Banks loans to
customers were denominated in U.S. Dollars. If there were to be a devaluation of the Nuevo Sol, it would be more
difficult for the Banks customers with income denominated in Nuevos Soles to repay their Dollar-denominated
25
loans. Increased credit default on the part of the Banks customers would have a negative effect on its revenues.
Devaluation risk is a systemic risk in the Peruvian banking system. As of June 30, 2014 and December 31, 2013,
45.5% and 46.4%, respectively, of the total loans in the Peruvian banking system were denominated in U.S. Dollars,
according to the SBS.
Although the level of dollarization in the Peruvian economy has shown a declining trend, the practice still
remains common. As of June 30, 2014 and December 31, 2013, 45.5% and 45.8% respectively, of the Banks
deposits were denominated in U.S. Dollars and, according to the SBS, 48.0% and 47.6% respectively, of the
deposits in the Peruvian banking system were denominated in U.S. Dollars. The risk to the Bank and to the
Peruvian banking system of this dollarization of deposits generally derives from the banking systems potential
need for U.S. Dollars to honor deposits and the possibility of higher costs and unavailability of U.S. Dollars.
As of June 30, 2014, the Banks Dollar-denominated assets exceeded its Dollar-denominated liabilities.
However, there can be no assurance that this asset-liability position will be maintained or that an appreciation of the
Nuevo Sol will have a direct or indirect negative effect on the Bank, on its equity and/or on the quality of its assets.
The Central Bank maintains reserves to decrease the impact of these exchange rate fluctuations, which as of
June 30, 2014 amounted to US$64,581 million. The Central Bank has intervened in the currency market in an
attempt to smooth out its volatility. However, given the continued volatility in the global financial markets, the
Bank cannot provide any assurances that the exchange rate will not be subject to fluctuations that could adversely
affect its revenues.
The adoption of new international banking guidelines may have an adverse effect on the Banks
business, financial condition and results of operations.
In June 2004, the Basel Committee on Banking Supervision (the Basel Committee), consisting of the
central bank Governors of the Group of Ten Nations, published a report entitled International Convergence of
Capital Measurement and Capital Standards: A Revised Framework, which sets out a new capital adequacy
framework (the Basel II Framework). The Bank is in compliance with current Peruvian Banking Law capital
adequacy requirements which reflect the Basel II Framework and require a capital ratio of 10%.
After the 2008 financial crisis, the Basel Committee adopted new reforms to improve the strength of
financial institutions (the Basel III Framework). Under this new framework, the capital requirements under the
Basel II Framework were insufficient. The Basel III Framework has a greater focus on common equity and raises
concerns regarding both the quality and level of capital. These new guidelines also include additional capital buffers
such as a capital conservation buffer and a counter-cyclical buffer.
In July 2011, the SBS published a new resolution (SBS Resolution No. 8425-2011) that set out additional
capital requirements. The new requirements are focused on covering the economic cycle, concentration risk, market
concentration risk, interest rate risk and other risks. These requirements began to take effect in July 2012 with an
initial 40% new capital requirement, and will increase by 15% each year until reaching an additional capital
requirement of 100% in July 2016.
The Bank does not expect that the adoption of the Basel III Framework will have a material impact on its
operations. Specifically, the Bank does not expect these recent amendments to result in significant additional capital
requirements to allow the Bank to maintain its asset base or to increase its cost of funds. However, there can be no
assurance that implementation of current or additional regulations will not have an adverse effect on the Banks
financial condition and/or results of operations.
The Banks operations require the maintenance of its banking and other licenses and any
noncompliance with its license and reporting obligations could have an adverse effect on its business, financial
condition and results of operations.
All banking operations in Peru require licensing by the SBS. The Bank currently has the necessary licenses
to conduct all of its banking and other operations in Peru. Although the Bank believes it is currently in compliance
26
with its existing material license and reporting obligations to the SBS and other Peruvian banking governmental
authorities, there can be no assurance that the Bank will be able to maintain the necessary licenses in the future. The
loss of a license, a breach of the terms of the Banks licenses, or a failure to obtain any further required licenses in
the future could have an adverse effect on its business, financial condition and results of operations.
The Bank relies heavily on its information technology systems to conduct its business and a failure,
interruption in or breach of its information technology systems could have an adverse effect on its business,
financial condition and results of operations.
The Bank relies heavily on its information technology systems to conduct its business. Any failure,
interruption or breach in the security of these systems could result in failures or interruptions in its risk management,
general ledger, deposit servicing, loan organization and/or other important systems. If the Banks information
technology systems fail, even for a short period of time, it may be unable to serve some or all of its customers needs
on a timely basis and may lose business as a result. Likewise, a temporary shutdown of the Banks information
technology systems could result in additional costs required for information retrieval and verification. In addition,
failure to update and develop the Banks existing information technology systems may result in, among other things,
higher costs or a loss of competitive position and may have an adverse effect on its business, financial condition and
results of operation. There can be no assurance that such failures or interruptions will not occur or that the Bank
will adequately address them if they do occur. Accordingly, the occurrence of any failures or interruptions could
have an adverse effect on the Banks business, financial condition and results of operations.
The Banks interest-earning assets and the interest rates it pays on its interest-bearing liabilities could be
adversely affected by volatility in interest rates, which could have an adverse effect on its business, financial
condition and results of operations.
The interest rates the Bank earns on its interest-earning assets and the interest rates it pays on its interestbearing liabilities could be affected by changes in domestic and international market interest rates. An increase in
the general level of interest rates could result in an increase in interest expense relative to interest income, which
would reduce the Banks net interest income. Furthermore, an increase in interest rates may reduce the demand for
the Banks loans and its ability to originate loans. A decrease in the general level of interest rates may affect the
Bank through, among other things, increased pre-payments on its loan portfolio and increased competition for
deposits. Interest rates are highly sensitive to many factors beyond the Banks control, including monetary policies
and domestic and international economic and political conditions.
If the Bank is unable for any reason to re-price its assets and liabilities in an expedited or effective manner
or if interest rates rise as a result of economic or other reasons and its assets are not appropriately match-funded, its
interest income margins may be affected. While the Bank has implemented several policies to manage interest rate
risk exposure, there can be no assurance that such measures would be adequate to address any volatility in market
interest rates, which could have an adverse effect on its business, financial condition and results of operations.
The Banks trading activities expose it to volatility in market prices, declines in market liquidity or
fluctuations in foreign currency exchange rates, which may result in losses that could have an adverse effect on
its business, financial condition and results of operations.
As part of the Banks treasury operations, it trades various financial instruments and other assets, including
debt, equity, fixed income, currency and related derivatives as both agent and principal, and it derives a proportion
of its non-interest income from trading revenues. The Banks risk management unit and Asset and Liability
Management committee set position limits for Nuevo Sol- and foreign currency-denominated securities in
accordance with its overall risk management policy as well as the requirements of the SBS. In addition, a significant
portion of the Banks trading activity is related to customer transactions and it may be exposed to a number of risks
related to the movement of market prices in the underlying instruments, including the risk of unfavorable market
price movements relative to the Banks long or short positions, a decline in the market liquidity of the related
instruments, volatility in market prices, interest rates or foreign currency exchange rates relating to these positions
and the risk that the instruments with which the Bank hedges certain positions do not track the market value of those
positions. If the Bank incurs any losses from these exposures, a reduction in its trading activity revenues may result,
27
or the Bank may suffer losses from trading activities, either of which could have an adverse effect on its business,
financial condition and results of operations.
The Bank is susceptible to fraud by employees or outsiders, unauthorized transactions by employees and
other operational errors, and the failure of its system of internal controls to discover and rectify such matters
could have an adverse effect on its business, financial condition and results of operations.
As with other financial institutions, the Bank is susceptible to, among other things, fraud by employees or
outsiders, unauthorized transactions by employees and other operational errors (including clerical or record keeping
errors and errors resulting from faulty computer or telecommunications systems). Given a high volume of
transactions that may occur at a financial institution, errors could be repeated or compounded before they are
discovered and rectified. In addition, a number of the Banks banking transactions are not fully automated, which
may further increase the risk that human error or employee tampering will result in losses that may be difficult to
detect quickly or at all. While the Bank believes that it maintains a system of internal controls designed to monitor
and control operational risk, there can be no assurance that its system of internal controls will be effective. Losses
from the failure of the Banks system of internal controls to discover and rectify such matters could have an adverse
effect on its business, financial condition and results of operations.
A failure of the Banks anti-money laundering and anti-terrorist financing measures to prevent third
parties from using the Bank as a conduit for such activities could damage its reputation or expose it to fines,
sanctions or legal enforcement, which could have an adverse effect on its business, financial condition and
results of operations.
The Bank believes that it is in compliance with applicable anti-money laundering and anti-terrorist
financing laws and regulations and has adopted various policies and procedures, including internal controls and
know-your-customer procedures, aimed at preventing money laundering and terrorist financing. The Bank
believes that its anti-money laundering policies and procedures are based upon, and are in compliance in all material
respects with, the applicable provisions of Peruvian law. In addition, as the Bank also relies on its correspondent
banks having their own appropriate anti-money laundering and anti-terrorist financing procedures, it employs what it
believes are commercially reasonable procedures for monitoring its correspondent banks. However, such measures,
procedures and compliance may not be completely effective in preventing third parties from using the Bank (and its
correspondent banks) as a conduit for money laundering (including illegal cash operations) or terrorist financing
without its (and its correspondent banks) knowledge. If the Bank were to be associated with money laundering
(including illegal cash operations) or terrorist financing, its reputation could suffer and/or it could become subject to
fines, sanctions or legal enforcement (including being added to any blacklists that would prohibit certain parties
from engaging in transactions with it), which could have an adverse effect on its business, financial condition and
results of operations.
Risks Relating to Peru
Factors affecting the global economy could have negative effects on the Peruvian economy that would
adversely affect the Banks business, financial condition and results of operations.
Deterioration of global economy and growth prospects. A sharp deterioration of the growth rates for
the global economy could result in a decrease in commodity prices, decreased capital flows to
emerging economics, higher costs of funding and lower demand. The effect of such events on the
Banks customers and on the Bank cannot be predicted. The worsening of the current economic
situation could also lead to reduced economic activity among the Banks customers, which could have
a negative effect on its revenues. Factors such as unemployment, inflation levels and the availability
of credit could also have a material adverse effect on economic activity of the Banks customers and
therefore on its financial condition and operating results. The Banks ability to access the capital
markets may be restricted at a time when it would need financing, which could have an impact on its
flexibility to react to changing economic and business conditions.
28
Higher global risk aversion. As both the global economic crisis and global risk aversion eased
during 2010, risks relating to the Peruvian economy decreased. However, in 2011 and 2012,
uncertainty relating to the solvency of some European economies and the economic recovery in the
United States triggered a rebound in global risk aversion. In 2013, the prospects of a reduction in the
pace of asset purchases by the Federal Reserve and the possibility of a reversion of capital flows to
emerging markets were sources of uncertainty. Lately, the reduction in the rhythm of economic
growth in some emerging markets, including China, also triggered some concern. In this context, if
global risk aversion shows a protracted rise, it might have a negative effect on the exchange rate
(depreciation of the Peruvian Nuevo Sol), on financing conditions, on prices of some of Perus most
important commodities exports, and, on us.
Effects of global economic distress on the political situation in Peru. The extent to which the Peruvian
economy is impacted by the global financial crisis could affect the political situation in Peru. In
particular, global economic distress could lead to lower revenues for decentralized political entities
(regional and local governments) in the following years, in contrast with the significant revenues
during the period of the mining boom that occurred between 2006 and early 2008, and in turn, less
spending by these entities on social programs that benefit local populations. This may result in
decreased support to the central government, which could take the form of political unrest.
During 2008, there were several protests in Peru, most of them driven by decreases in financial
transfers by the central government to regional and local governments, with local governments
especially affected by decreased transfers. The Bank cannot assure you that such events will not have
an adverse effect on Peru or on the Banks business, financial condition or results of operations.
A slowdown in Peruvian economic activity could affect the Banks business, financial conditions, and
results of operations.
The large majority of the Banks operations is conducted in Peru and is dependent upon the performance of
the Peruvian economy. As a result, the Banks business, financial position and results of operations may be affected
by the general conditions of the Peruvian economy, general price instability and inflation, interest rates, regulation,
taxation, social instability, political unrest and other developments in or affecting Peru, over which it has no control.
The Banks banking and other businesses are significantly dependent upon its customers ability to make
payments on their loans and meet their obligations with it. Declining economic activity in the Peruvian economy,
the devaluation of the Nuevo Sol and increases in inflation or domestic interest rates may reduce the Banks
customers ability to repay loans when due or to meet their other debt service requirements, which would increase its
past-due loan portfolio and could materially reduce its net earnings and capital levels. In the past, Peru has
experienced periods of weak economic activity and deterioration in economic conditions. The Bank cannot assure
you that such conditions will not return or that such conditions will not have an adverse effect on its business,
financial condition or results of operations.
The Bank believes that, currently, the main risks that could potentially affect the Peruvian economy are an
exacerbation of the effects of El Nio weather phenomenon, a protracted fall in business confidence, an
unanticipated rise in the Federal Reserves monetary policy rates and a sharp slowdown in Chinas rate of economic
growth (due to financial vulnerabilities that are inducing more caution on authorities to deliver stimulus).
Concerning El Nio phenomenon, sea temperature levels have been recording anomalies consistent with the
development of this phenomenon since March 2014. While its effects for this and next year are currently expected
to be moderate, eventually it could reach a severe category, in which case it could inflict major effects over the
economy in 2015 (risk scenario). If this were the case, rising atmospheric temperatures will wreak havoc in several
crops, affecting agriculture production. Also, higher sea temperatures will drive away several marine species,
affecting fishing. Additionally, it will impact manufacture (through less food processing and lower demand for
textiles) and commerce (due to lower primary production, retail sales and infrastructure damages). On the
expenditure side, it will reflect on lower exports and private spending. Hence GDP will grow at a slower pace and
current account deficit will increase. This supply-side shock might also temporarily accelerate inflation (mainly
through higher food prices) and the Nuevo Sol could face depreciating pressures.
29
Another source of risk comes from a possible further deterioration in business confidence due to
uncertainty stemming out of negative surprises on GDP growth. The Banks baseline scenario assumes that business
confidence stabilizes in the optimistic range, driving up private investment in the coming quarters. In the case, it
falls further, to the pessimistic zone, private investment will suffer, dragging down job creation and hence private
consumption. In this case, domestic demand would decelerate and GDP growth rates would be lower, affecting
spending and the repaying capacity of Banks customers.
If the risks scenario comes from the management of monetary policy in the United States, the financial
channel would be more important: external and risk premium would increase, thus making finance more expensive;
capital inflows would be reduced; and there would be stronger pressure on the exchange rate (depreciation of the
local currency).
If the risk scenario comes from China, the trade channel will predominate, and there would be a fall in
foreign demand, mainly for traditional products for which China is the Banks main trading partner. In both cases,
the Bank would see international metal prices (copper and gold) plummet, which would extend the current account
deficit further, and reduce the levels of confidence and private spending. These events could exacerbate due to lower
domestic confidence levels, meaning the Bank would see a slowdown in private investment and economic activity in
general.
Another risk factor is the eventual reemergence of the sovereign debt and banking crises in Europe,
although it now has less probability. This could manifest through any moratoriums on sovereign debt payments in
Europe, the abandonment of the Eurozone monetary union by any of its members, failure to address higher interest
rates on sovereign debt of certain members, or the collapse of a major financial institution. In this scenario,
financial and liquidity tensions would rise significantly, likely leading to a severe credit squeeze and significantly
affecting the real economy of the Eurozone. It also would have significant repercussions in the rest of the world,
including Peru. The Bank cannot assure you that such events will not have an adverse effect on the Banks business,
financial condition or results of operations.
A fall in metal prices could affect the Banks business, financial condition and results of operation.
During the year ended December 31, 2013, metals represented more than 55% of Perus exports.
Therefore, the Peruvian economy is vulnerable to a material decrease in metal prices, especially considering
evidence showing that business cycles have been largely correlated with terms of trade. If this happens, private
investment and consumption, the fiscal balance, the current account, and the banking system (lower credit demand,
increasing non-performing loans because of domestic currency depreciation in a context of still high financial
dollarization) would be adversely affected.
Domestic currency depreciation could affect the Banks business, financial condition and results of
operation.
As of May 31, 2014, 44.1% of total loans and 47.8% of total deposits in the Peruvian Banking System were
denominated in U.S. Dollars, according to the SBS. Although the level of dollarization has decreased during the past
six years, it remains high. This generates a vulnerability to a sharp depreciation of the domestic currency because it
would worsen the balance sheet of households and firms whose earnings are denominated in domestic currency but
whose debts are denominated in foreign currency. Despite mitigating factors, such as the Central Banks
international reserves of U.S.$64.6 billion, or 32% of GDP, as of June 30, 2014, banking regulation that penalizes
credit risk due to foreign exchange mismatches and public debt de-dollarizing, domestic currency depreciation may
adversely affect the Peruvian economy and the Banks business, results of operation and financial condition.
30
Adverse changes in the credit rating of either the Bank or Peru could negatively affect the trading price
of the Notes and/or the Banks access to funding.
The long-term foreign currency debt of Peru is rated BBB+ by both S&P and Fitch, and A3 by Moodys.
The Banks current long-term foreign currency debt rating is BBB by S&P and BBB+ by Fitch. A rating may be
subject to revision or withdrawal at any time by the assigning rating organization.
Rating agencies have occasionally included in their rating analyses of certain banks a view that such banks
may be supported by the banks home government in times of illiquidity and/or insolvency. To the extent that such
has been included in the ratings analyses of the Bank, then its ratings (and thus the ratings on the Notes) may be
higher than would be the case if such view had not been considered. As a result, should the government not provide
such support in times of illiquidity and/or insolvency, then, the rating may have overstated the credit worthiness of
the bank. Such elevated rating may contribute to a banks ability to increase its debt beyond the amount it might
otherwise have obtained in the absence of such rating, including beyond the level that such bank can support
(particularly in times of financial disruption). Any adverse change in the credit rating of either the Bank or Peru
could negatively affect the trading price of the Notes and/or the Banks access to funding.
A default by the Peruvian government in making payments on its debt would likely have a significant
negative impact on the Peruvian banking system generally and thus may significantly affect the Banks financial
condition and/or results of operations.
As of June 30, 2014, the Bank held an aggregate principal amount of S/. 3,402.46 million of securities
issued by the Peruvian government and S/. 1,959.16 million were invested in negotiable and non-negotiable Central
Bank certificates of deposit and certificated notes. In addition to any direct losses that the Bank might incur, a
default by the Peruvian government in making payments on its debt would likely have a significant negative impact
on the Peruvian banking system generally and thus may significantly affect the Banks financial condition and/or
results of operations.
The stability of the Peruvian financial system depends on public confidence in Peruvian banking and
financial institutions.
Financial institutions, including us, depend on public confidence in the Peruvian financial system. In the
event of adverse developments affecting Perus economic, political or social conditions or if a bank faces liquidity
problems, the general public may withdraw deposits and savings from the troubled bank or from banks generally,
thereby precipitating a liquidity crisis, as occurred in Peru in the late 1990s. If depositors withdraw significant
holdings from banks generally, including us, there will be a substantial adverse impact on the manner in which
financial institutions, including us, conduct their business, on their ability to operate as financial intermediaries and
on their financial condition, which would adversely affect the Banks results of operations and financial condition.
An economic recession in Peru could adversely affect the Banks financial condition and results of
operations and the value of the Notes.
If Perus economy undergoes a recession, some segments of the Banks retail portfolio, particularly small
and medium businesses which are more vulnerable to economic cycles, could show higher default rates and may
adversely affect the Banks ability to fulfill its obligations under the Notes. In a scenario of economic recession and
higher default rates the Bank would expect less demand for loans from its clients, and it would restrict some of its
credit policies, particularly regarding small and medium businesses, hindering growth of its loan portfolio and
affecting its operating results. The Bank cannot assure you that a future recession will not have a negative effect on
its results of operations.
31
Inflation (and related Central Bank reserve requirements and policies with respect to dollarization)
could adversely affect the Banks business, financial condition and results of operations and the value of its
securities.
In Peru, the inflation rate is measured by the Peruvian Consumer Price Index, which is calculated by the
Instituto Nacional de Estadstica e Informtica (the National Institute of Statistics and Information Technology).
This index includes prices of a selected group of goods and services typically consumed by Peruvian families.
Between 2000 and 2007, average inflation in Peru was 2.2%. However, in the past, Peru has experienced high levels
of inflation, and in 2008 it reached 6.7%. The temporary rise in inflation at that time can be attributed to the effect
on domestic prices of the increase in international prices of raw materials such as cereals and oil. Since
December 31, 2008, inflation has decreased, reaching 3.5% as of June 30, 2014. The Central Banks primary goal is
to maintain a stable monetary environment. To conduct monetary policy, the Central Bank establishes a target
inflation rate for each fiscal year and announces this target rate to shape market expectations. For the period 20022006, the Central Banks target annual inflation rate was 2.5%, plus or minus 1.0%. Since 2007, the target annual
inflation rate changed to 2.0%, plus or minus 1.0%. By the end of 2014, the Bank cannot assure you that inflation
will be within this range.
There can be no assurance that inflation will remain in line with the expectations of the Banks
management or will not increase significantly over time. An increase of inflation levels in the future could increase
the Banks costs, and, if this is not accompanied by an increase in interest rates, its operating and net margins may
decrease, which may adversely affect its ability to fulfill its obligations under the Notes. Inflationary pressures may
also curtail the Banks ability to access foreign financial markets and may lead to further government intervention in
the economy, including the introduction of government policies that may adversely affect the overall performance of
the Peruvian economy. The Banks operating results and the value of its securities, including the Notes, may be
adversely affected by higher inflation.
The re-implementation of protectionist and interventionist laws by the Peruvian government, most
notably restrictive exchange rate policies, could have an adverse effect on the Banks business, financial
condition and results of operations.
Over the past 24 years, the Peruvian economy has undergone a major transformation from a highly
protected and regulated system to a free-market economy. Since 1991, protectionist and interventionist laws and
policies have been gradually dismantled to create a liberal economy dominated by private sector and market forces.
Exchange controls and restrictions on remittances of profits, dividends and royalties have disappeared. Prior
to 1991, Peru exercised control over the foreign exchange markets by imposing multiple exchange rates and placing
restrictions on the possession and use of foreign currencies. In 1991, then president Alberto Fujimori eliminated all
foreign exchange controls and unified exchange rates. Currently, foreign exchange rates are determined by market
conditions, with regular operations by the Central Bank in the foreign exchange market to reduce volatility in the
value of Perus currency against the U.S. Dollar.
Political and social developments in Peru, including those relating to the Humala administration, the
mining industry and/or terrorist activity, could have a material adverse effect on the Banks results of operations
and financial condition.
The election in 2011 of Ollanta Humala, a member of the Gana Per party, presents political and economic
uncertainties. Elections were held in Peru on April 10, 2011, with no presidential candidate receiving the
required 50 percent or more of the votes. As a result, a second round election between the top two presidential
candidates, Ollanta Humala from Gana Per, and Keiko Fujimori from Fuerza 2011, was held on June 5, 2011.
Ollanta Humala was elected, but he has no majority in Congress. As of July 28, 2011, Ollanta Humala officially
became the new head of the Peruvian government. Prior to his election, there were uncertainties concerning the
continuity of market friendly policies and concerns about increased state participation in the economy. However,
the appointment of cabinet ministers with government experience and professional background, as well as guidelines
followed by the government that do not imply major changes in Perus economic policy framework have dissipated
such concerns to a great extent. Any changes in the Peruvian economy or the economic policies followed by the
Peruvian government may adversely affect the Banks business, financial condition and results of operations.
32
In the past, Peru experienced significant levels of terrorist activity that reached its peak of violence against
the government and private sector in the late 1980s and early 1990s. These activities were attributed mainly to two
local terrorist groups, the Sendero Luminoso (the Shining Path), and Movimiento Revolucionario Tpac Amaru
(the MRTA). Although the Shining Path and the MRTA are still operating, they are no longer as powerful as they
were during the 1980s and early 1990s. Their members still operate, but only in certain targeted areas such as
remote mountainous and jungle areas in central and southern Peru, where military patrols have decreased due to
military spending cutbacks. The Bank cannot assure you that a resurgence of terrorism in Peru will not occur or
that, if there is such a resurgence, it will not have an adverse effect upon the economy and prospects of Peru.
The perception of higher risk in other countries, especially in emerging economies, may adversely affect
the Peruvian economy, the Banks business and the market price of Peruvian securities, including the Notes.
Emerging markets such as Peru are subject to greater risks than more-developed markets and financial
turmoil in any emerging market (or global markets generally) could disrupt business as well as cause the price of the
Notes to suffer. Moreover, financial turmoil in any emerging market country tends to adversely affect prices in
stock markets and prices for debt securities of all emerging market countries as investors move their money to more
stable, developed markets. An increase in the perceived risks associated with investing in emerging economies
could dampen capital flows to Peru and adversely affect the Peruvian economy, and the price of the Notes may be
subject to fluctuations that may not necessarily be related to economic conditions in Peru or the Banks financial
performance. There can be no assurance that investors with an interest in Peru will not be negatively affected by
events in other emerging markets or the global economy in general. Negative investor reaction to developments in
other countries or other emerging markets could adversely affect the market for securities issued by Latin American
companies and may cause foreign investors to withhold or withdraw capital from the region and generate
uncertainty about plans for further integration of the regions economies. Any of these events could materially
adversely affect Peru and securities issued by Peruvian companies such as us.
Border conflicts could have a negative impact on Peru.
On January 16, 2008, Peru instituted proceedings before the International Court of Justice in The Hague
(the ICJ) to obtain the definitive delimitation of the maritime border between Peru and Chile. Peru argued that, in
the absence of a treaty, the ICJ should determine such boundary in accordance with international law. Chile in turn
argued that the maritime boundary was established by agreements signed by Peru, Chile and Ecuador in 1952
and 1954. The ICJ issued a decision in January 2014, and established definite maritime limits. Neither side has
expressed opposition to the court ruling, and Peruvian Congress enacted Law 30223 on August 19, 2014, which
approved the new maritime limit between Peru and Chile in accordance with the ICJs decision. However, this does
not eliminate the possibility of any dispute arising during the implementation of the decision. In this case, any
escalation of a dispute between Peru and Chile could have a negative impact on trade between the two countries and
adversely affect Perus economy.
Risks Relating to the Notes
The Notes will be unsecured, subordinated obligations and will rank junior in right of payment to all of
the Banks existing and future Senior Obligations.
The Notes will be unsecured, subordinated obligations and will rank junior in right of payment to all of the
Banks existing and future Senior Obligations (as defined in Description of the NotesCertain Definitions). In the
event of the Banks dissolution and liquidation or equivalent proceeding under the Peruvian Banking Law and
regulations thereunder, the creditors of Senior Obligations will be entitled to receive payment in full of all
obligations due in respect of Senior Obligations (including interest after the commencement of any such proceeding
at the statutory rate fixed by the Peruvian Central Bank from time to time) before the holders of the Notes will be
entitled to receive any payment with respect to the Notes.
As a result of the subordination provisions described above, in the event of the Banks liquidation,
dissolution or similar proceeding under Peruvian Banking Law and regulations thereunder, holders of the Notes may
recover ratably less than the Banks creditors who are holders of Senior Obligations.
33
As of June 30, 2014, the Bank had outstanding, on a consolidated basis, an aggregate of S/. 49,847 million
(US$17,828 million) of Senior Obligations. The Bank may incur, and neither the indenture nor applicable laws
prohibit us from incurring, additional indebtedness, including Senior Obligations or subordinated obligations from
time to time.
The Notes may be used to absorb losses that the Bank incurs and, in certain limited instances, may be
converted to equity.
The Bank is issuing the Notes with the intention and purpose of increasing the amount of its regulatory
capital. To be eligible for treatment as regulatory capital, the Notes must satisfy a number of conditions. One such
condition relates to the availability of the Notes and the proceeds therefrom to absorb losses that the Bank incurs.
To that end, pursuant to the Peruvian Banking Law and regulations promulgated thereunder, the amount outstanding
under the Notes (including interest and principal, in that order) shall be used by the SBS, when applicable, to absorb
losses in the case of an Intervention by the SBS or liquidation of the bank by the SBS; provided that the following
have been exhausted to absorb losses in this order: current and retained earnings, donations, equity premium and the
Banks voluntary and legal reserves; common shares; preferred shares; and accrued but unpaid interest and
principal, in that order on junior subordinated debt constituting instrumentos hbridos (hybrid instruments) under the
Peruvian Reglamento de Deuda Subordinada Resolucin SBS No. 4727-2009, as amended, that qualify as Tier I and
Tier II Regulatory Capital (as applicable). See Description of the NotesLoss Absorption. If the Notes are used
for this purpose, the noteholders would lose all rights to the amounts absorbed.
In limited circumstances, during a dissolution and liquidation proceeding, with the consent of the SBS, the
creditors of the Bank representing at least 30% of its total liabilities may propose a rehabilitation plan which
contemplates the conversion into equity of the aggregate principal amount of the Notes that remains outstanding
after they have been used by the SBS to absorb losses that the Bank incurs. Any such rehabilitation plan could be
enforceable if, after acceptance by the SBS, it was approved by a majority of the creditors of the Bank.
Under applicable SBS regulations, the Banks obligations under the Notes can be accelerated only in
certain very limited circumstances, and investors remedies will accordingly be limited if the Bank does not
satisfy the Banks obligations under the Notes.
Under SBS regulations governing subordinated debt issued by Peruvian banks, payment of principal may
be accelerated only in specified instances involving the Banks intervention by the SBS, liquidation, dissolution or
similar proceeding under Peruvian Banking Law and regulations thereunder. There is no right of acceleration in the
case of a default in the performance of any of the Banks covenants, including a default in the payment of principal
or interest. See Description of the NotesLoss AbsorptionPeruvian Bankruptcy Considerations and
Acceleration Event.
The Bank may redeem the Notes in whole upon a Tax Event or Regulatory Event, which includes that if,
as result of a change in or amendment to the laws or regulations of Peru, it becomes obligated to pay additional
amounts in respect of the Notes in excess of those payable prior to the Tax Event or any Peruvian value added
taxes imposed in respect of payment of interest on the Notes.
If a Tax Event or Regulatory Event (each as defined in Description of the Notes) occurs, the Bank may,
with the prior approval of the SBS, or any other then applicable Peruvian banking governmental authority, if then
required, redeem the Notes in whole, but not in part, at a redemption price equal to 100% of the aggregate principal
amount of the outstanding Notes, plus any accrued and unpaid interest on the principal amount of the outstanding
Notes, up to, but not including, the date of redemption, plus any additional amounts.
A Tax Event would occur if there is any change in or amendment (including any announced prospective
change) to or interpretation of the laws or regulations of Peru and, as a result, the Bank becomes obligated to pay or
will be liable for additional amounts in respect of the Notes in excess of those payable prior to the Tax Event or any
Peruvian value added taxes imposed in respect of payments of interest on the Notes to the extent that such Peruvian
value added taxes cannot be offset against any other tax liabilities that may arise out of the Banks ordinary course
of business. A Regulatory Event would occur if there is any change in an amendment to or change in the application
34
or interpretation of the laws and regulations of Peru and, as a result, the Bank is no longer entitled to treat the full or
applicable portion of the Notes as Tier 2 Regulatory Capital.
In the event that the Notes are redeemed, investors may not be able to reinvest the redemption proceeds in
other securities with yields similar to those of the Notes redeemed.
See Description of the NotesRedemption Prior to MaturityRedemption upon Tax Event or Regulatory
Event.
When the remaining term to maturity of the Notes becomes less than five years, the Notes may no longer
qualify as regulatory capital in Peru.
Under current Peruvian banking regulations, redeemable subordinated debt, such as the Notes,
progressively ceases to qualify as regulatory capital when the remaining time to maturity on such debt becomes less
than five years. Accordingly, beginning on or about the tenth anniversary of the issuance of the Notes, the Bank
may redeem them, and consequently the inability of investors to earn returns on their investments in the Notes may
be terminated prior to their final maturity.
The rating of the Notes may be lowered or withdrawn depending on various factors, including the rating
agencies assessments of the Banks financial strength and Peruvian sovereign risk.
The rating of the Notes addresses the likelihood of payment of principal at their maturity. The rating also
addresses the timely payment of interest on each scheduled payment date. The rating of the Notes is not a
recommendation to purchase, hold or sell the Notes, and the rating does not comment on market price or suitability
for a particular investor. The Bank cannot assure you that the rating of the Notes will remain for any given period of
time or that the rating will not be lowered or withdrawn. A downgrade in or withdrawal of the rating of the Notes
will be an event of default under the indenture. An assigned rating may be raised or lowered as a result of, among
other reasons, changes in a rating agencys rating methodologies, the respective rating agencys assessment of the
Banks financial strength, as well as its assessment of Peruvian sovereign risk generally.
There is no existing market for the Notes and one may not develop in the future; thus, it may be difficult
to resell investors Notes.
The Bank expects to apply to admit the Notes for listing on the Official List of the Luxembourg Stock
Exchange and trading on the Euro MTF market, although no assurance can be given that such listing will be
accomplished. The Notes constitute a new issue of securities with no established trading market. In addition, in the
event there are changes in the listing requirements, the Bank may conclude that continued listing on the
Luxembourg Stock Exchange is unduly burdensome. See General Information. No assurance can be given as to (i)
the liquidity of any markets that may develop for the Notes, (ii) whether an active public market for the Notes will
develop, (iii) investors ability to sell their Notes (or beneficial interests therein) or (iv) the price at which you will
be able to sell their Notes. In addition, the Notes have not been registered under the Securities Act and will be
subject to transfer restrictions. See Notice to Investors.
The Bank does not intend to provide registration rights to holders of Notes and does not intend to file any
registration statement with the SEC in respect of the Notes. Future trading prices of the Notes will depend on many
factors including, among other things, prevailing interest rates, the Banks operating results, and the market for
similar securities. The initial purchasers have informed the Bank that they may make a market in the Notes.
However, the initial purchasers are not obligated to do so and any such market-making activity may be terminated at
any time without notice to you. In addition, such market-making activity will be subject to the limits of the
Securities Act. If an active public trading market for the Notes does not develop, the market price and liquidity of
the Notes may be adversely affected. See Plan of Distribution. In addition, trading or resale of the Notes (or
beneficial interests therein) may be negatively affected by other factors described in this offering circular arising
from this transaction or the market for securities of Peruvian issuers generally.
35
36
USE OF PROCEEDS
The Bank intends to use the net proceeds of the offering (net of commissions and estimated expenses),
estimated at US$ , for general corporate purposes.
37
DIVIDENDS
The Bank has one class of common shares outstanding. The relevant Peruvian regulations regarding the
distribution of dividends are as follows:
Pursuant to Article 71 of the Peruvian Banking Law, all earnings must be applied, in order of
preference, to the replenishment of the minimum capital stock referred to in Article 16 of the Peruvian
Banking Law (as updated quarterly by the SBS).
Pursuant to Article 72 of the Peruvian Banking Law, until the final balance and corresponding
dividend distribution is approved at a shareholders meeting, the Bank is not permitted to distribute
dividends from its year-end net profit or to grant any profit-sharing to its directors.
Pursuant to Article 355 of the Peruvian Banking Law, the Bank must file before the SBS a report
explaining the shareholders meeting resolutions regarding the distribution of dividends. The SBS can
suspend the payment of the dividends if it does not receive satisfactory explanations from the Bank in
connection with any observations the SBS may have had relating to resolutions for dividend
distributions.
Pursuant to Article 230 of the Peruvian General Corporations Law, dividends may be paid only from
recorded earnings or unrestricted reserves, as long as the net worth is not less than the paid-in capital.
In 2014, the Bank paid cash dividends in an aggregate amount of S/. 652 million (S/.0.23934823 per share),
with respect to distributable income of the prior year. These dividends were paid to shareholders on April 29, 2014.
On September 2, 2014, the Bank distributed a 19.15% stock dividend on its common shares.
In 2013, the Bank paid cash dividends in an aggregate amount of S/. 623 million (S/. 0.27970628 per
share), with respect to distributable income of the prior year. These dividends were paid to shareholders on April 20,
2013. On December 17, 2013, the Bank distributed a 22% stock dividend on its common shares.
In 2012, the Bank paid cash dividends in an aggregate amount of S/. 733.8 million (S/. 0.37743755 per
share), with respect to distributable income of the prior year. These dividends were paid to shareholders on April 20,
2012. On November 29, 2012, the Bank distributed a 15% stock dividend on its common shares.
Each payment or distribution of dividends was approved at the annual shareholders meeting at the
recommendation of the Banks board of directors.
38
Low
High
Average(1)
Period End
2.852
2.787
2.694
2.550
2.540
3.259
2.883
2.833
2.709
2.820
3.006
2.826
2.752
2.639
2.702
2.890
2.809
2.696
2.550
2.795
2.776
2.764
2.804
2.805
2.798
2.785
2.801
2.795
2.798
2.800
2.798
2.774
2.761
2.772
2.773
2.790
2.848
2.824
2.825
2.814
2.811
2.806
2.807
2.796
2.846
2.854
2.809
2.813
2.807
2.795
2.787
2.794
2.786
2.815
2.851
2.821
2.800
2.808
2.808
2.766
2.796
2.796
2.844
2.848
Calculated as the average of the month-end exchange rates for each year listed or the average of the daily exchange rates for each month
listed, as applicable.
Source: SBS
39
(1)
2013
(U.S. Dollars
in thousands)
2012
2012
2014(2)
2011
(U.S.
Dollars in
thousands)
2014
2013
(Nuevos soles in
thousands)
(Current Peruvian GAAP)
Interest income
1,299,733
3,632,755
3,319,759
3,744,174
3,097,670
656,665
1,836,036
Interest expenses
(399,591)
(1,116,858)
(994,403)
(1,043,844)
(835,225)
(181,501)
(507,477)
(562,046)
900,142
2,515,897
2,325,356
2,700,330
2,262,445
475,164
1,328,559
1,214,135
(186,450)
(521,128)
(485,792)
(445,294)
(276,664)
(103,216)
(288,592)
(269,067)
1,776,181
713,692
1,994,769
1,839,564
2,255,036
1,985,781
371,948
1,039,967
945,068
237,922
664,993
633,778
677,144
631,999
125,265
350,240
313,756
177,246
495,403
436,964
71,253
199,224
237,760
(451,709)
(1,262,527)
(1,129,379)
(1,181,100)
(1,044,660)
(238,486)
(666,806)
(619,366)
(36,628)
(102,375)
(73,713)
(21,953)
(61,381)
(39,480)
(2,577)
(7,204)
(21,928)
(65,794)
(63,962)
(2,506)
(7,008)
(9,852)
637,946
1,783,059
1,685,286
1,685,286
1,509,158
305,521
854,236
827,886
(171,291)
(478,757)
(439,741)
(439,741)
(380,170)
(82,843)
(231,628)
(224,290)
466,655
1,304,302
1,245,545
1,245,545
1,128,988
222,678
622,608
603,596
Income taxes
Net profit for the period
40
(1)
(2)
(3)
(4)
(5)
Data expressed in U.S. Dollars for the year ended December 31, 2013 has been translated at the rate of S/. 2.795 per US$1.00, based on the
exchange rate reported by the SBS on December 31, 2013.
Data expressed in U.S. Dollars for the six months ended June 30, 2014 has been translated at the rate of S/. 2.796 per US$ 1.00, based on
the exchange rate reported by the SBS on June 30, 2014.
Provisions for loan losses include provisions with respect to total direct loans. Direct loans represent outstanding loans while indirect loans
include guarantees and standby letters of credit, import and export letters of credit and bank acceptances.
Administrative expenses include personnel, taxes and general expenses.
Represents the amount of income from financial services less expenses from financial services during a period.
Consolidated statements of
financial position
Cash and due from banks
Interbank funds
Investment at fair value through
profit or loss, available for sale
and held to maturity
Loan Portfolio, net (3)
Investments in associates
Property, furniture and
equipment, net
Other assets (4)
Total assets
Obligations to the public
Demand deposits
Saving deposits
Time deposits
Other Obligations
Deposits from financial system
companies
Interbank funds
Due to banks and other
financial obligations
Securities, bonds and
outstanding obligations
Other liabilities (5)
Total liabilities
Net equity
Total liabilities and net equity
As of June 30,
2014 (2)
2014
(U.S. Dollars (Nuevos soles
in thousands) in thousands)
(Current Peruvian GAAP)
3,785,410
10,584,006
4,661
13,032
1,461,417
13,683,480
992
4,084,660
38,245,327
2,774
2,886,773
31,770,125
2,462
2,886,773
31,770,570
2,461
2,587,154
28,922,025
2,231
1,255,591
14,462,737
809
3,510,632
40,437,813
2,261
292,669
550,378
818,010
1,538,306
685,044
1,672,935
685,044
1,670,569
603,600
1,351,085
297,013
553,096
830,447
1,546,458
20,228,421
13,051,844
4,371,951
3,335,718
5,327,681
16,494
56,538,437
36,479,904
12,219,603
9,323,333
14,890,868
46,100
49,690,775
31,956,803
9,237,771
8,005,309
14,652,278
61,445
49,689,202
32,054,519
9,237,771
8,005,259
14,535,134
276,355
42,242,407
30,185,437
8,888,960
7,115,244
13,999,076
182,157
20,359,317
13,269,248
4,680,775
3,620,690
4,951,242
16,541
56,924,649
37,100,818
13,087,447
10,123,450
13,843,672
46,249
336,179
220,799
939,620
617,134
764,991
234,964
764,991
234,964
307,034
125,515
570,175
124,477
1,594,208
348,038
4,322,902
12,082,512
10,956,815
7,156,782
4,770,203
4,196,397
11,733,126
2013 (1)
(U.S. Dollars
in thousands)
4,230,484
9,000
2013
As of December 31,
2012
2012
2011
546,854
1,528,456
1,548,865
3,800,033
1,449,576
18,478,578
1,749,843
20,228,421
51,647,626
4,890,811
56,538,437
45,462,438
4,228,337
49,690,775
45,460,865
4,228,337
49,689,202
1,985,859
1,163,296
458,937
1,283,188
38,537,344
3,705,063
42,242,407
18,619,234
1,740,083
20,359,317
52,059,378
4,865,271
56,924,649
_____________________
(1) Data expressed in U.S. Dollars for the year ended December 31, 2013 has been translated at the rate of S/. 2.795 per US$1.00, based on the
exchange rate reported by the SBS on December 31, 2013.
(2) Data expressed in U.S. Dollars for the period ended June 30, 2014 has been translated at the rate of S/. 2.796 per US$ 1.00, based on the
exchange rate reported by the SBS on June 30, 2014.
(3) Net of deferred interest on discounted notes and leasing receivables plus accrued interest from performing loans, and after deducting
allowance for loan losses.
(4) Represents the amount of trading derivatives, hedging derivatives, Receivables, Assets seized and recovered through legal actions, net,
current tax, deferred tax and other assets.
(5) Represents the amount of trading derivatives, hedging derivatives, payables, current tax, deferred tax and other liabilities.
41
2014
2013
2.46%
2.71%
2.71%
2.82%
2.19%
2.37%
28.61%
31.40%
31.40%
31.85%
25.53%
28.64%
6.53%
7.00%
8.13%
7.79%
6.16%
6.52%
42.22%
40.64%
34.97%
36.09%
42.33 %
43.08%
Capitalization
Shareholders equity as a percentage of total assets
Tangible common equity (7)
Tier 1 capital as a percentage of risk-weighted assets
Total regulatory capital as percentage of risk weighted assets
8.65%
8.51%
8.51%
8.77%
8.55%
8.03%
2,724,770
2,226,473
2,226,473
1,944,232
3,246,531
2,724,770
9.84%
9.82%
9.82%
9.12%
10.76%
10.69%
12.42%
12.43%
12.43%
12.46%
13.23%
13.23%
690,928
399,277
399,277
279,710
826,692
582,718
1.74%
1.21%
1.19%
0.92%
1.96%
1.62%
4.49%
4.44%
4.37%
4.10%
4.56%
4.56%
42
3
4
43
supply-side factors that has affected the price of food and energy, and on the other, that the core component (that is
most closely linked to demand factors and represents almost two thirds of the total) has remained persistently
outside the target range for three years, in a context where the economy was expanding at a relatively rapid pace and
GDP was locating above its potential level.
As of June 30, 2014, the Central Bank held US$64.6 billion of international reserves, equivalent to 32% of
Perus GDP and more than 10 times Perus short-term external liabilities. Additionally, the Peruvian government
administers a stabilization fund amounting to US$9.1 billion (4.5% of Perus GDP) as of June 30, 2014. This fund
can be used for emergency spending purposes as declared by the Peruvian parliament.
Foreign credit risk agencies acknowledged Perus robust macroeconomic performance as well as its
capability to confront the external shock of 2008-2009 and elevated Peruvian sovereign debt classification to
investment grade in 2008 (Fitch and Standard & Poors) and 2009 (Moodys). This, together with the strength of
Perus fiscal accounts, sound levels of foreign currency liquidity and its growth prospects led Fitch and Standard &
Poors to upgrade Perus classification again, to BBB (for long-term foreign currency debt), in 2011 and, again
in 2013, to BBB+. In addition, Moodys upgraded Perus sovereign long-term debt to Baa2 in 2012, and has
recently upgraded Perus classification again, two notches, to A3, the second highest in the region, just below
Chiles debt classification and equal to that of Mexico.
In summary, the Peruvian economy has showed strong growth in recent years and an important resilience to
external shocks which is based on the preservation of macroeconomic equilibrium.
Critical Accounting Policies
In the preparation and presentation of the Financial Statements, the Banks management has complied with
the regulations established by the SBS and accounting principles for financial entities in force in Peru as of
December 31, 2011, 2012 and 2013. In the absence of rules promulgated by the SBS, IFRS, as approved by the
CNC, and the applicable pronouncements of the Standing Interpretations Committee in force as of December 31,
2011, 2012 and 2013, respectively, apply.
Certain of the accounting practices the Bank employs, which conform to Peruvian GAAP for financial
entities, may differ in certain significant respects from generally accepted accounting principles in other countries.
See Risk FactorsRisks Relating to the Banks Business Peru has corporate disclosure and accounting
standards different from those with which you may be familiar.
Significant accounting principles and practices used in the preparation of the Financial Statements are
described below. For further details on these accounting principles, see Note 2 to the Financial Statements.
Basis of Presentation and Use of Estimates
The Financial Statements have been derived from the Banks accounting records, which are maintained in
Nuevos Soles as of the date of the transactions, in accordance with Peruvian GAAP for financial entities.
The preparation of the Financial Statements requires the Banks management to make estimates and
assumptions to determine the balances of assets and liabilities, income and expenses and disclosure of material
contingencies in the notes of the Financial Statements. Actual results could differ from those estimates and the effect
of the change should be included in the determination of the net gain or loss in the year of the change, and future
periods if applicable. The most significant estimates related to the financial statements correspond to the
determination of the investments at fair value through profit and loss, available-for-sale investments and investments
in associates, provisions for loan losses and contingent loan portfolio, provisions for other accounts receivable,
provisions for seized assets, useful lives assigned to property, furniture and equipment, contingent liabilities,
deferred income taxes, and derivative financial instruments.
44
45
Type
The SBS has established quantitative criteria (sales and borrowing levels in the financial system) and
qualitative criteria to classify direct and indirect loan portfolio per type and category, as follows:
Type of Credit
Loan Purpose
Sales / Issues
Debt Obligations in
the Financial System
(not including
Mortgage Loans)
Multilateral development
banks
Sovereign
Public sector entities
Securities brokers and
intermediaries
Financial institutions
Corporate
Large business
1
2
3
Retail
Non Retail
Medium business
Small business
10
Microbusiness
11
Revolving consumer
12
Non-revolving consumer
13
Mortgage
Finance activities
related to production,
sales or distribution
and/or the supplying of
services
46
Total indebtedness in
the financial system is
greater than S/. 300
thousand in the last 6
months
Total indebtedness in
the financial system is
greater than S/. 20
thousand but no greater
than S/. 300 thousand in
the last 6 months
Total indebtedness in
the financial system is
no greater than S/. 20
thousand in the last 6
months
Individual with a total
indebtedness of less
than S/. 300 thousand
during 6 consecutive
months
Provisions for indirect loans are calculated after adjusting balances through the application of the following
credit conversion factors.
Conversion
factor
Indirect loans
(a) Confirmed irrevocable letters of credit of up to one year, when the issuing bank is
a first-class foreign financial system company.
20%
50%
(c) Issuance of guarantees, import letters of credit and stand-by letters not included in
paragraph "b)", and confirmations of letters of credit not included in paragraph
"a)" and bank acceptances.
100%
0%
100%
Debtors are classified and are provisioned for loan losses within the following categories: normal, with
potential problems, substandard, doubtful and loss.
The provision for loan losses includes the general and specific portions. The specific portion for
commercial loans is calculated based on percentages set by the SBS, which vary depending on the customers
classification and the type of guarantee received.
General provisions include those preventively constituted for debtors classified as normal in accordance
with the requirements of the SBS, as well as general voluntary provisions.
Mandatory general allowances are determined based on percentage rates that include a fixed component
and a variable component (pro-cyclical) and vary depending on the type of loan. The rule for determining the procyclical component is activated or deactivated upon communication of the SBS, which depends upon a periodical
measurement of annual percentage variations (in moving averages) in the actual Gross Domestic Product of Peru
(GDP) published by Banco Central de Reserva del Peru (BCRP).
Voluntary general provisions have been determined by the Bank based on the economic situation of
customers within the refinanced and restructured loan portfolio, prior experience and other factors that, in
Managements opinion, may result in possible losses in the loan portfolio. The amount of the voluntary general
provisions is reported to SBS.
The Management of Grupo Continental reviews and analyzes the non-retail loan portfolio (corporate, large
businesses and medium businesses) classifying and provisioning debtors according to their cash flows, global
indebtedness with creditor third parties and level of compliance with the payment of such debts. Retail loan portfolio
(small business, micro-business, revolving consumer, non-revolving consumer and mortgage loans) is classified and
provisioned in accordance with the delay in loan payments and takes into account the classification of the debtors by
other financial entities. Additionally, pursuant to SBS Resolution No. 041-2005, the Bank assesses the exposure to
credit exchange risk for loans in foreign currency.
47
The minimum percentages required for constituting loan portfolio provisions are as follows:
Normal category
Types of Loans
Fixed
Component
Procyclical
Component
Corporate loans
0.70%
0.40%
0.70%
0.30%
0.70%
0.45%
0.70%
0.30%
1.00%
0.30%
1.00%
0.50%
1.00%
0.50%
1.00%
1.50%
1.00%
1.00%
1.00%
0.25%
Mortgage loans
0.70%
0.40%
0.70%
0.30%
guarantees
No guarantee
Preferred
guarantee
Readily liquid
preferred
guarantees
5.00%
2.50%
1.25%
Substandard
25.00%
12.50%
6.25%
Doubtful
60.00%
30.00%
15.00%
Loss
100.00%
60.00%
30.00%
Risk category
Investments
The recording and valuation of investments were made according to SBS Resolution No. 10639-2008
Regulations for the Classification and Valuation of Investments by Financial Institutions. Through this resolution,
the SBS established the investment classification and valuation criteria under four categories: (i) investments at fair
value through profit and loss, (ii) available-for-sale investments, (iii) held-to maturity investments and (iv)
investments in subsidiaries and associates, eliminating the category of permanent investments. The criteria for initial
recognition and valuation for each of the above-mentioned categories are detailed below.
(i) Investments at Fair Value Through Profit and Loss. Investments classified as at fair value through profit
and loss are debt or equity securities that (a) were acquired principally for the purpose of selling in the near
future or (b) form part of a portfolio of identified financial instruments that are managed together and for
which there is evidence of a recent pattern of short-term profit-taking. These financial assets are recognized
on the trade date, when the Bank or its subsidiaries, as applicable, enter into contractual arrangements with
counterparties to purchase securities, and are normally derecognized when sold. These investments are
initially valued at fair value, with transaction costs recorded to the income statement. These investments are
subsequently remeasured at fair value, and all gains and losses from changes therein are recognized in the
48
consolidated statements of income. Financial income from these investments is recognized using the
effective interest rate method, calculated over the expected life of the investment. Dividends are recognized
in the income statement when the right to receive payment has been established.
(ii) Available-for-Sale Investments. Investments classified as available-for-sale investments are all
investment instruments that are not classified as investments at fair value through profit and loss, held-tomaturity investments or investments in subsidiaries and associates. Likewise, investment instruments will
be included in this category when explicitly required by the SBS. Available-for-sale investments are
initially valued at fair value. These investments are subsequently remeasured at fair value, and changes
therein are recognized in equity in the unrealized earnings account until the securities are either sold or
impaired. When available-for-sale securities are sold, cumulative gains or losses previously recognized in
equity are recognized in the income statement.
(iii) Held-to-Maturity Investments. Investments classified as held-to-maturity investments are debt
securities that the Bank intends and has the capability to hold until maturity. Held-to-maturity investments
are initially valued at fair value, and are subsequently remeasured at amortized cost using the effective
interest rate method, less any impairment losses. Likewise, these instruments shall have risk classifications
in accordance with the requirements set forth in Article 7 of SBS Resolution 10639-2008. In cases of
impairment, the carrying amount of the instrument shall be reduced and the loss amount shall be recognized
in the income statement. The cumulative loss is measured as the difference between the assets acquisition
cost (net of any principal repayments and amortization) and its current fair value, less any impairment loss
on that asset previously recognized in the income statement.
(iv) Investments in Subsidiaries and Associates. Investments classified as investments in subsidiaries and
associates are equity shares acquired in order to participate with and/or have significant influence over such
companies and institutions. This category includes the goodwill determined in the purchase of such
investment. Investments in subsidiaries and associates are initially valued at fair value, and are
subsequently remeasured applying the equity participation method, meaning that the carrying amount of the
investment will be increased or decreased by proportional recognition of the results of the invested
company obtained post-acquisition date for the relevant period.
Derivative Financial Instruments
In accordance with SBS Resolution No. 1737-2006 and its amendments, derivative financial instruments are
initially recognized on their trade date.
The measurement and initial recognition of derivative financial instruments are made at fair value. On a
monthly basis, the trading of derivative financial instruments are measured at fair value. The gain or loss in
valuation or settlement of trading derivative financial instruments is recorded in the statements of income. The
nominal value of derivative financial instruments is recorded in their respective committed or agreed currency in
off-balance sheet accounts.
A derivative financial instrument that seeks to ensure a financial hedge of a given risk is accounted for as for
hedging purposes if, in its negotiation, it is expected that changes in fair value or cash flows will be highly effective
in offsetting changes in fair value or cash flows of the hedged item attributable to the hedged risk from the
beginning, which should be documented in the negotiation of the derivative, and during the period of hedging. A
hedge is considered highly effective if it is expected that changes in fair value or cash flows of the hedged item and
derivative financial instrument are within a range of 80% to 125%.
If the SBS deems the documentation unsatisfactory or finds weaknesses in the methodologies used, it may
require the dissolution of the hedge and the recording of the derivative financial instrument as for trading
purposes.
49
For fair value hedges that qualify as such, the change in fair value of the hedging derivative is recognized in
the income statements. Changes in the fair value of the hedged item attributable to the hedged risk are recorded as
part of the balance of the hedged item and recorded in the statements of income.
If the hedging instrument expires, is sold, terminated or exercised, or at a time when the hedge no longer
meets the criteria for hedge accounting, the hedging relationship is ended prospectively and the balances recorded on
the balance sheet are transferred to the income statement within the term of the hedged item.
Assets Seized and Recovered Through Legal Actions
Assets seized and recovered through legal actions mainly consist of property, furniture and equipment
received as payment for doubtful loans. These assets are initially recorded at the lowest value assigned to them,
which may be the value determined by the court, arbitrator, recovery value, estimated market value or the value of
the unpaid amount of debt. Simultaneously with the determination of value, a provision equivalent to 20% of the
cost of such asset is recorded. If the asset is impaired by a percentage greater than 20%, then the required initial
provision may be recorded at an amount equivalent to the amount effectively impaired. For additional details
regarding the Banks accounting for assets seized and recovered through legal actions, see Note 2 to the 2013/2012
Financial Statements.
Provisions
Provisions are recognized only when the Bank has a present obligation (either legal or implicit) as a result
of a past event, it is probable that resources will be required to settle the obligation, and the amount of the obligation
can be reliably estimated. Provisions are reviewed periodically, and are adjusted to reflect the best estimate as of the
consolidated balance sheet date. When the effect of the time value of money is material, the amount recorded as a
provision is equal to the present value of future payments required to settle the obligation.
Deferred income taxes
A liability for deferred income taxes is recognized for all taxable temporary differences arising from
comparing the book values of assets and liabilities to their tax basis, regardless of when such temporary differences
are expected to be reversed. An asset for deferred income taxes is recognized for deductible temporary differences,
arising from comparing the book values of assets and liabilities to their tax basis, to the extent that it is probable that
the Bank will have future taxable income against which the deductible temporary differences can be applied, within
the established time-limit, in accordance with law. Assets and liabilities are measured at the income tax rate in effect
at the related balance sheet date expected to be applied to the taxable income in the year in which the liabilities are
settled or the assets are recovered.
Income tax is recognized as expense or income for the year or recorded in equity when the related
transaction affects an equity account.
Current Peruvian GAAP and Prior Peruvian GAAP
Through SBS Resolution No. 7036-2012, dated September 19, 2012, the SBS modified the Accounting
Manual for Financial Entities to make a partial adoption of SBS accounting principles to IFRS, effective as of 2013
(the Accounting Amendments). The main amendments relate to the presentation of financial information and, to a
lesser extent, to accounting policies. The Bank believes the application of the Accounting Amendments to affect
only the presentation of the financial statements with no impact on the amount of profit or loss or the shareholders
equity of the Bank.
Accounting Policies
With respect to accounting policies, as a result of the Accounting Amendments, Current Peruvian GAAP
now incorporates the Conceptual Framework of IFRS, including definitions of Materiality and Relative
importance, requires accrual of income in the periods of loan agreements, including indirect loan commissions and
requires recording and presentation of financial lease loans and discount operations for the disbursed amount.
50
Presentation of Information
In the statement of financial position, as a result of the Accounting Amendments, Current Peruvian GAAP
reclassifies assets from Other assets to more specific line items and liabilities arising from the clients collections
from obligations to the public to accounts payable, presents the provision for country risk net of related assets,
requires separate disclosure of Current taxes in the consolidated statement of financial position for both valueadded tax and income taxes, and includes Securities and bonds in the caption Due to bank and other financial
obligations.
In the statement of income, as a result of the Accounting Amendments, Current Peruvian GAAP requires a
Statement of comprehensive income that includes a statement of income and a statement of income and other
comprehensive income; reclassifies certain items of Gross financial margin to Gain/loss from financial
operations, requires that accrued interest from hedging certain financial liabilities be included in Gain from
hedging operations, reclassifies the reversal of provisions for indirect loans from Provisions for loan losses to
Provision for indirect loans, reclassifies the reversal of provisions for doubtful accounts from Other income and
expenses to Provisions for uncollectible accounts, and reclassifies other income and expenses.
In the statement of cash flows, as a result of the Accounting Amendments, Current Peruvian GAAP
requires that financial intermediation operations be included as operating activities and Cash and cash equivalents
reflect exchange rate variations.
Disclosure of Information
Under Current Peruvian GAAP, additional information is required on financial instruments and risk-related
matters in the notes to the consolidated financial statements and notes should be comparable to the extent practicable
against the prior years.
For a discussion of the principal differences between Current Peruvian GAAP and Prior Peruvian GAAP,
see Management Discussion and Analysis of Financial Condition and Results of OperationsCurrent Peruvian
GAAP and Prior Peruvian GAAP and Note 2(a) to the 2013/2012 Audited Financial Statements.
51
Reclassifications
The following tables set forth the effects of the Accounting Amendments on our statement of financial
position and statements of income as of and for the year ended December 31, 2012:
December 31,
2012
(Prior Peruvian
GAAP)
Reclassifications
December 31,
2012
(Current Peruvian
GAAP)
ASSETS
Cash and due from banks
Other assets
Trading derivatives
Hedging derivatives
Asset seized and recovered through legal actions, net
Current taxes
Receivables
12,641,377
1,295,971
-
(349)
(1,156,870)
490,434
158,878
15,958
480,254
8,248
12,641,028
139,101
490,434
158,878
15,958
480,254
8,248
LIABILITIES
Obligations to the public
Due to banks and other financial obligations
Securities, bonds and other obligations
Other liabilities
Trading derivatives
Payables
Provisions
32,054,519
7,156,782
3,800,033
1,449,576
-
(97,716)
3,800,033
(3,800,033)
(1,301,153)
375,293
556,349
463,336
31,956,803
10,956,815
148,423
375,293
556,349
463,336
In thousands of S/.
Finance income
Finance expenses
GROSS FINANCIAL MARGIN
Provisions for loan losses
Income and expenses from financial services
OPERATING MARGIN
Gain/loss from financial operations
Other income and expenses
Year ended
December 31,
2012
(Prior Peruvian
GAAP)
Reclassifications
Year ended
December 31,
2012
(Current Peruvian
GAAP)
3,744,174
(1,043,844)
(424,415)
49,441
3,319,759
(994,403)
2,700,330
(374,974)
2,325,356
(445,294)
(40,498)
(485,792)
677,144
(43,366)
633,778
2,932,180
(458,838)
436,964
21,874
(1,246,894)
1,685,286
(439,741)
Income tax
1,245,545
52
2,473,342
436,964
(1,225,020)
1,685,286
(439,741)
1,245,545
Results of Operations
Results of Operations for the Six Months Ended June 30, 2014 Compared to the Six Months Ended June 30,
2013 (Current Peruvian GAAP)
The following table shows the principal components of the Banks net profit for the six months ended June 30, 2013
and 2014.
For The Six Months Ended
June 30,
2014
2013
Percentage
Change
(%)
1.836,036
Interest expenses
(507,477)
1,328,559
(562,046)
3.4
(9.7)
1214,135
9.4
(269,067)
7.3
1,039,967
945,068
10.0
350,240
313,756
11.6
1,390,207
1258,824
10.4
199,224
237,760
(16.2)
1,589,431
1,496,584
6.2
(288,592)
1,776,181
(666,806)
(619,366)
7.7
922,625
877,218
5.2
(61,381)
(39,480)
55.5
Operating revenue
861,244
837,738
2.8
(7,008)
(9,852)
(28.9)
854,236
827,886
3.2
(231,628)
(224,290)
3.3
622,608
603.596
3.1
53
The following table sets forth the principal components of gross financial margin for the six months ended
June 30, 2014 and June 30, 2013:
For the Six Months Ended
June 30,
2014
2013
Percentage
Change
(%)
1,836,036
1,776,181
3.4
5,695
72,667
(92.2)
205
1,177
(82.6)
13,186
1,265
942.4
Available-for-sale investments
41,483
56,821
(27.0)
Held-to-maturity investments
17,211
14,530
18.5
1,744,163
1,610,309
8.3
11,160
16,299
(31.5)
2,933
3,113
(5.8)
Loans portfolio
Gain from hedging operations
Other financial income
Interest expenses
Obligations to the public
Interbank funds
Deposits from financial system companies and
international financial organizations
Due to banks and other financial obligations
Other
Gross financial margin
(507,477)
(562,046)
(9.7)
(202,434)
(293,479)
(31.0)
(11,396)
(3,111)
266.3
(9,484)
(10,136)
(6.4)
(282,220)
(254,231)
11.0
(1,943)
(1,089)
78.4
1,328,559
1,214,135
9.4
Interest Income
Interest income increased 3.4% to S/. 1,836,036 thousand for the six months ended June 30, 2014 compared
to S/.1,776,181 thousand for the six months ended June 30, 2013. This was mainly due to an increase of 8.3% in
interest from loans, which resulted from a volume increase of 16.5% of the loan portfolio which was partially offset
by a decrease in the average interest rate from 9.4% for the six months ended June 30, 2013 to 8.7% for the six
months ended June 30, 2014. The lower rate is due to a change in the product mix and by an increasingly
competitive environment. To this extent, regarding retail clients, mortgage loans increased in relation to the Banks
total loan portfolio. Within the business segment, the Bank granted loans to large and corporate clients, reflecting a
growing volume of loans but at lower rates.
The increase of interest from loans described above was partially offset by a decrease in interest from cash
and due from banks as a result of the decrease in the average interest rate, specifically in local currency due to a
significant reduction in the interest rate paid by the Central Bank for demand deposits and a lower compensation rate
paid by the Central Bank for legal reserves.
Interest Expenses
Interest expenses decreased 9.7% to S/. 507,477 thousand for the six months ended June 30, 2014 from S/.
562,046 thousand for the six months ended June 30, 2013. The main factor that explains this variation is the
decrease of 31.0% or S/. 91,045 thousand in interest on obligations to the public due to a lower average interest rate
54
-from 1.8% for the six months ended June 30, 2013 to 1.1% for the six months ended June 30, 2014- despite the
increase of 11.6% in obligations to the public to S/. 37,100,818 thousand as of June 30, 2014, compared to S/.
33,246,355 thousand as of June 30, 2013. The lower average interest rate reflects the growth of low cost deposits,
especially demand deposits, along with the greater weight of demand and savings deposits in the structure of
funding, in line with the Banks strategy.
Provisions for loan losses
Provisions for loan losses increased 7.3%, to S/. 288,592 thousand as of June 30, 2014, compared to S/.
269,067 thousand as of June 30, 2013, mainly due to: (i) an increase in the non-performing loans portfolio and
(ii) the reclassification of loans to certain clients that have non-performing loans with other financial entities.
Net Financial Margin
Net financial margin increased 10.0% to S/. 1,039,967 thousand for the six months ended June 30, 2014
from S/. 945,068 thousand for the six months ended June 30, 2013, as a result of the factors explained above.
Income and Expenses from Financial Services, net
Income and expenses from financial services, net increased 11.6% to S/. 350,240 thousand for the six
months ended June 30, 2014 from S/. 313,756 thousand for the six months ended June 30, 2013. The main factors
contributing to this trend were: (i) commissions from contingent operations due to letters of credit granted to Rutas
de Lima and Enersur, in addition to fees from loan structuring services from these transactions, (ii) commissions
from insurance services offered by the Bank, and (iii) higher fees collected on credit and debit card transactions due
to an increase in the use of alternative banking channels by retail customers, facilitated in part by the renovation of
self-servicing zones within the Banks branches.
For the Six Months Ended
June 30,
2014
2013
Percentage
Change
(%)
350,240
313,756
11.6
422,443
(72,203)
371,127
(57,371)
13.8
25.9
55
2013
Percentage
Change
(%)
199,224
3,642
77
99,144
0
698
81,109
14,554
237,760
278
5,493
37,927
35,668
523
146,431
11,440
(16.2)
1,210.1
(98.6)
161.4
(100.0)
33.5
(44.6)
27.2
Administrative Expenses
Administrative expenses increased 7.7% to S/. 666,806 thousand for the six months ended June 30, 2014
from S/. 619,366 thousand for the six months ended June 30, 2013.
The following table sets forth the components of administrative expenses for the six months ended June 30,
2014 and the six months ended June 30, 2013:
For the Six Months Ended
June 30,
2014
2013
Percentage
Change
(%)
(666,806)
(325,542)
(319,494)
(21,770)
(619,366)
(297,681)
(301,675)
(20,010)
7.7
9.4
5.9
8.8
Employees and Board of Directors expenses increased 9.4% to S/. 325,542 thousand for the six
months ended June 30, 2014 from S/. 297,681 thousand for six months ended June 30, 2013, mainly due to
an increase in salaries and personnel benefits as a consequence of an increase of 2.01% in the number of
Bank employees as a result of the expansion plan and the SMEs plan.
Administrative expenses increased 5.9% to S/. 319,494 thousand for the six months ended
June 30, 2014, from S/. 301,675 thousand for the six months ended June 30, 2013. This increase, to a great
extent, reflects the expansion plan, which contemplated 24 additional branches and higher expenses related
to: i) rental of space for new and remodeled branches, along with higher rental prices, ii) IT spending,
associated with software development for the Banks strategic projects, (iii) surveillance and transportation
of funds, and iv) services provided by third parties.
Valuation of assets and provisions
Expenses associated with valuation of assets and provisions increased 55.5% to S/. 61,381 thousand for the
six months ended June 30, 2014 from S/. 39,480 thousand for the six months ended June 30, 2013. This increase
was mainly due to: i) higher provisions for contingent operations, which varied from S/. 294 thousand for the six
months ended June 30, 2013 to S/. 11,774 thousand for the six months ended June 30, 2014, explained by the
increase of S/. 2,489,281 thousand, or 22.4%, in indirect loans between June 30, 2012 and June 30, 2014 and ii)
increase in provisions for recovery for assets seized and recovered through legal actions from S/. 1,318 thousand for
the six months ended June 30, 2013, to S/. 4,456 thousand for the six months ended June 30, 2014.
56
Results of Operations for the Year Ended December 31, 2013 Compared to the Year Ended December 31,
2012 (Current Peruvian GAAP)
The following table shows the principal components of the Banks net profit for the years ended December 31, 2013
and 2012.
For year Ended
December 31,
2013
2012
(Nuevos Soles in thousands)
Interest income
3,632,755
Interest expenses
(1,116,858)
2,515,897
(521,128)
633,778
4.9
2,659,762
2,473,342
7.5
495,403
436,964
13.4
3,155,165
2,910,306
8.4
(1,262,527)
(1,129,379)
11.8
1,892,638
1,780,927
(478,757)
7.3
664,993
1,783,059
Income tax
(485,792)
8.2
8.4
(7,204)
2,325,356
12.3
1,839,564
1,790,263
(994,403)
9.4
1,994,769
(102,375)
Operating revenue
3,319,759
Percentage
Change
(%)
1,304,302
(73,713)
1,707,214
(21,928)
1,685,286
(439,741)
1,245,545
6.3
38.9
4.9
(67.1)
5.8
8.9
4.7
57
Percentage
Change
2012
(%)
3,632,755
3,319,759
9.4
92,594
76,878
20.4
Interbank funds
1,814
1,400
29.6
5,610
2,843
97.3
Available-for-sale investments
112,931
145,066
(22.2)
Held-to-maturity investments
28,041
25,871
8.4
3,353,302
3,025,837
10.8
32,499
35,952
(9.6)
5,964
5,912
0.9
Loans portfolio
Gain from hedging operations
Other financial income
Interest expenses
Obligations to the public
Interbank funds
Deposits from financial system companies and
international financial organizations
Due to banks and other financial obligations
Other
Gross financial margin
(1,116,858)
(994,403)
12.3
(545,647)
(521,846)
4.6
(7,689)
(10,103)
(23.9)
(18,765)
(20,546)
(8.7)
(542,874)
(431,872)
25.7
(1,883)
(10,036)
(81.2)
2,515,897
2,325,356
8.2
Interest Income
Interest income increased 9.4% to S/. 3,632,755 thousand for the year ended December 31, 2013 compared
to S/. 3,319,759 thousand for the year ended December 31, 2012. The main driver was the increase of 10.8% in
interest from loans portfolio, which resulted from a volume increase of 20.4% of the loan portfolio partially offset
by a decrease in the average interest rate (calculated as the quotient of interest from loans for the year ended
December 31, 2013 divided by loan portfolio, net, as of December 31, 2013) from 9.5% for the year ended
December 31, 2012 to 8.8% for the year ended December 31, 2013. The average interest rate for loans decreased as
a result of the strong competitive environment and stronger growth in lending products such as mortgage and foreign
trade loans, which carry an average interest rate lower than that of other products (such as consumer loans and credit
cards) in which growth was more moderate. Additionally, growth in the loan portfolio was higher in loans to large
companies and corporations which typically bear a lower interest rate than retail loans, particularly in short term
loans. However, the net effect was positive and the two digit growth in volume offset the decline in interest rates.
58
Interest Expenses
Interest expenses increased 12.3% to S/. 1,116,858 thousand for the year ended December 31, 2013 from
S/. 994,403 thousand for year ended December 31, 2012. The rise in interest expenses resulted primarily from an
increase in interest due to banks and other financial obligations by S/. 111,002 thousand or 25.7%. This was
supported by a higher level of liabilities due to banks and other financial obligations, an increase of 10.3%, related
to the issuance of local and international bonds during 2013, and by an increase in the average interest rate
from 3.9% for the year ended December 31, 2012 to 4.5% for the year ended December 31, 2013. Despite higher
interest rates, the Bank believes that market conditions for securities issuances were optimal within the framework
of its funding plans and presented favorable funding options given the economic environment.
In addition, the interest on obligations to the public increased by 4.6%, or S/. 23,801 thousand for the year
ended December 31, 2013, mainly due to an increase of 14.2% in obligations to the public, particularly in demand
and savings deposits, partially offset by a decrease in the average interest rate from 1.6% for the year ended
December 31, 2012 to 1.5% for the year ended December 31, 2013. This decrease in the average interest rate was
due to a greater percentage of demand and savings deposits over total deposits in line with the Banks strategy
focused on low cost deposits and diversified and stable sources of funding.
Provisions for loan losses
Provisions increased 7.3%, to S/. 521,128 thousand for the year ended December 31, 2013, as compared to
S/. 485,792 thousand for the year ended December 31, 2012, due to (i) an increase in the Banks loan portfolio,
(ii) an increase in the non-performing loans portfolio, mainly in retail products, and (iii) the reclassification of loans
with certain clients that have non-performing loans with other financial entities.
Net Financial Margin
Net financial margin increased 8.4% to S/. 1,994,769 thousand for the year ended December 31, 2013 from
S/. 1,839,564 thousand for the year ended December 31, 2012, as a result of the factors explained above.
Income and Expenses from Financial Services, net
Income and expenses from financial services, net increased 4.9% to S/. 664,993 thousand for the year
ended December 31, 2013 from S/. 633,778 thousand for the year ended December 31, 2012. During 2013, income
from financial services was adversely impacted by the Transparency Law, a measure dictated by the SBS, which
established a set of fees allowed to be charged. To this extent, all banks had to adjust their fees accordingly, a
process that took a few months.
For the year Ended
December 31,
2013
2012
Percentage
Change
(%)
664,993
797,813
(132,820)
633,778
752,932
(119,154)
4.9
6.0
11.5
The most significant factors which contributed to the increase in income from financial services, net were:
i) commissions from contingent operations, explained by the growth of standby letters of credit, supported by the
expansion of the construction sector in 2013, ii) increase in commissions from credit cards, and iii) higher income
from fees associated with maintenance of accounts and insurance premiums.
59
Percentage
Change
2012
(%)
495,403
2,969
436,964
(1,239)
13.4
(339.6)
Available-for-sale investments
25,475
63,474
(59.9)
Trading derivatives
74,482
(43,173)
(272.5)
35,667
97,356
(63.4)
1,154
909
27.0
338,739
297,602
13.8
16,917
22,035
(23.2)
Administrative expenses increased 11.8% to S/. 1,262,527 thousand for the year ended December 31, 2013
from S/. 1,129,379 thousand for the year ended December 31, 2012.
The following table sets forth the components of administrative expenses for the year ended December 31,
2013 and December 31, 2012:
For year Ended
December 31,
2013
2012
Percentage
Change
(%)
(1,262,527)
(1,129,379)
11.8
(610,156)
(553,933)
10.1
Administrative expenses
(611,783)
(538,936)
13.5
(40,588)
(36,510)
11.2
60
Employees and Board of Directors expenses increased 10.1% to S/. 610,156 thousand for the year
ended December 31, 2013 from S/. 553,933 thousand for the year ended December 31, 2012, mainly due to
an increase in salaries and personnel benefits as a consequence of an increase of 5.17% in the number of
Bank employees as a result of the opening of new branches as part of the expansion plan.
Administrative expenses increased 13.5% to S/. 611,783 thousand for the year ended
December 31, 2013, from S/. 538,936 thousand for the year ended December 31, 2012. This increase
partially reflects the expansion plan, which included nine additional branches and higher expenses related
to: (i) IT spending, associated with software development for the Banks strategic projects, (ii) surveillance
and transportation of funds due to a new local regulation which required that the Bank should bear the
transportation costs of damaged bills to the Banco Central de Reserva (BCRP), and (iii) rental of space for
new branches and investment in the new layout of existing branches, with new servicing areas.
Other taxes and contributions increased 11.2% to S/. 40,588 thousand for the year ended
December 31, 2013 from S/. 36,510 thousand for the year ended December 31, 2012.
Valuation of assets and provisions
Expenses associated with valuation of assets and provisions increased 38.9% to S/. 102,375 thousand for
the year ended December 31, 2013 from S/. 73,713 thousand for the year ended December 31, 2012.
Among the main factors explaining this variation were: i) provisions for accounts receivable, which varied
from positive income of S/. 9,011 thousand for the year ended December 31, 2012 to an expense of S/. 2,152
thousand for the year ended December 31, 2013. This variation was due to higher provisions by the Bank, coupled
with lower recoveries achieved by IRCSA; and ii) recovery for assets seized and recovered through legal actions,
which varied from a positive income of S/. 7,090 thousand for the year ended December 31, 2012 to an expense of
S/. 9,553 thousand for the year ended December 31, 2013. In contrast to what happened in 2012, as of December 31,
2013 the Bank and IRCSA registered net provisions.
Profit before Income Tax
Profit before income tax increased 5.8% to S/. 1,783,059 thousand for the year ended December 31, 2013,
from S/. 1,685,286 thousand for the year ended December 31, 2012.
Income Tax
Income tax increased 8.9% to S/. 478,757 thousand for the year ended December 31, 2013 from S/. 439,741
thousand for the year ended December 31, 2012 primarily as a result of the increase in profit before income tax.
61
Results of Operations for the Year Ended December 31, 2012 Compared to the Year Ended December 31,
2011 (Prior Peruvian GAAP)
The following table shows the principal components of the Banks net income for the years ended December 31,
2012 and 2011.
For the year ended
December 31,
2012
2011
Percentage
Change
(%)
3,744,174
Interest expenses
(1,043,844)
2,700,330
(445,294)
3,097,670
(835,225)
2,262,445
(276,664)
20.9
25.0
19.4
61.0
2,255,036
1,985,781
13.6
677,144
631,999
7.1
2,932,180
2,617,780
12.0
Administrative expenses
(1,181,100)
(1,044,660)
13.1
(65,794)
(63,962)
2.9
1,685,286
Income tax
(439,741)
1,245,545
1,509,158
(380,170)
1,128,988
11.7
15.7
10.3
62
The following table sets forth the principal components of gross financial margin for the years ended
December 31, 2012 and 2011.
For the year ended
December 31,
2012
Percentage
Change
(%)
2011
(Nuevos Soles in
thousands)
Interest income
3,744,174
3,097,670
20.9
3,025,837
2,549,276
18.7
226,178
130,530
73.3
76,878
64,610
19.0
297,804
296,298
0.5
97,356
9,527
921.9
909
744
22.2
1,400
2,094
(33.1)
12,460
20,418
(39.0)
5,352
24,173
(77.9)
(1,043,844)
(835,225)
25.0
(542,392)
(432,210)
25.5
(259,624)
(175,601)
47.8
(38,391)
(33,068)
16.1
(136,295)
(85,809)
58.8
(43,174)
(81,323)
(46.9)
(10,103)
(8,044)
25.6
(202)
202
(10,036)
(14,665)
(31.6)
(3,627)
(12,549)
(71.1)
2,700,330
2,262,445
19.4
Interest Income
Interest income increased 20.9% to S/. 3,744,174 thousand for the year ended December 31, 2012
compared to S/. 3,097,670 thousand for the year ended December 31, 2011.
The increase in interest income was due to an increase of 17.3% in interest income (interest from loans,
interest from deposits in financial institutions, dividends and share profit from associates investments, interest and
63
commissions from interbank funds, adjustment for indexation and others) primarily resulting from the increase in
interest from loans, which resulted from an increase of 9.8% of the loan portfolio and an increase in the average
interest rate (calculated as the quotient of interest from loans for the year ended December 31, 2012 divided by loan
portfolio, net as of December 31, 2012) from 8.8% for the year ended December 31, 2011 to 9.5% for the year
ended December 31, 2012, representing a positive net effect of S/. 476,560 thousand. The average interest rate for
loans increased as a result of a greater concentration of products for business customers, such as commercial loans.
Non-interest income (changes in fair value, revenue, interest and gain on sales of investments in securities,
exchange difference from various transactions, gain from derivative instruments, net and gain from hedging
transactions) also had an increase of 42.4% primarily resulting from an increase of 73.3% in income from changes in
fair value, revenue, interests and gain on sales of investment in securities mainly due to a gain in the valuation and
sale of securities, mainly sovereign bonds denominate in Nuevos Soles due to variations in the swap rate in Nuevos
Soles and the sale of a loan portfolio. In addition, the gain from hedging transactions increased by S/. 87,829
thousand or 921.9%, due to new hedging transactions which generate income as a result of the positive valuation,
net of interest registered in margin, due to variations in the London Interbank Offered Rate, or LIBOR, especially
in long term transactions.
Interest Expenses
Interest expenses increased 25.0% to S/. 1,043,844 thousand for the year ended December 31, 2012 from
S/. 835,225 thousand for year ended December 31, 2011.
The increase in interest expense was due to an increase of 32.7% in interest expense (interest on deposits,
interest on obligations with financial institutions and international financial organizations, premium paid to the
Fondo de Seguro de Depsito, interest on securities and obligations outstanding, interests on such obligations on
interbank funds, adjustment for indexation and other), which resulted primarily from an increase in interest on
deposits of 25.5%, or S/. 110,182 thousand, mainly due to an increase of 7.6% in deposits and an increase in the
average interest rate on deposits (calculated as the quotient of interest on deposits for the year ended December 31,
2012 divided by total deposits as of December 31, 2012) from 1.4% for the year ended December 31, 2011 to 1.7%
for the year ended December 31, 2012, particularly in term deposits from commercial and corporate clients. The
interest rate for deposits reflected a general increase in the financial system due to market conditions and an increase
in the requirements for legal reserves. In addition, interest on obligations with financial institutions and
international financial organizations increased by S/. 84,023 thousand, or 47.8% due to an increase in obligations
with financial institutions and international organizations of 50.0%, partially offset by a decrease in the average
interest rate on such obligations from 3.7% for the year ended December 31, 2011 to 3.6% for the year ended
December 31, 2012.
Provisions for loan losses
Provisions increased 61.0%, to S/. 445,294 thousand for the year ended December 31, 2012, as compared
to S/. 276,664 thousand for the year ended December 31, 2011, due to (i) an increase in the Banks loan portfolio
and a change in the mix of products (higher growth in retail segments), (ii) an increase in the non-performing loans
portfolio and (iii) the reclassification of loans with certain clients that have non-performing loans with other
financial entities.
Net Financial Margin
Net financial margin increased 13.6% to S/. 2,255,036 thousand for the year ended December 31, 2012
from S/. 1,985,781 thousand for the year ended December 31, 2011, as a result of the factors explained above.
Income and Expenses from Financial Services, Net
Income and expenses from financial services, net, increased 7.1% to S/. 677,144 thousand for the year
ended December 31, 2012 from S/. 631,999 thousand for the year ended December 31, 2011.
The following table sets forth the components of income from financial services for the years ended
December 31, 2012 and 2011:
64
Percentage
Change
2011
(%)
677,144
651,999
7.1
169,968
151,160
12.4
507,176
480,839
5.5
The most significant factors which contributed to the increase in income from financial services, net, are
described below:
Commissions from contingent operations increased 12.4% to S/. 169,968 thousand for the year ended
December 31, 2012, from S/. 151,160 thousand for the year ended December 31, 2011. This increase was mainly
due to the continued growth of standby letters of credit associated with growth in the construction sector.
Other income from various financial services increased 5.5% to S/. 507,176 thousand for the year ended
December 31, 2012, from S/. 480,839 thousand for the year ended December 31, 2011, mainly as a result of the
increase in commissions from credit cards, maintenance of accounts and insurance premiums.
Administrative Expenses
Administrative expenses increased 13.1% to S/. 1,181,100 thousand for the year ended December 31, 2012
from S/. 1,044,660 thousand for the year ended December 31, 2011.
The following table sets forth the components of administrative expenses for the years ended December 31,
2012 and 2011:
For the year ended
December 31,
2012
Percentage
Change
2011
(%)
(1,181,100)
(1,044,600)
13.1
(553,934)
(507,131)
9.2
(553,932)
(471,824)
17.4
(73,234)
(65,705)
11.5
Employees and Board of Directors expenses increased 9.2% to S/. 553,934 thousand for the year ended
December 31, 2012 from S/. 507,131 thousand for the year ended December 31, 2011, mainly due to an increase in
salaries and personnel benefits as a consequence of an increase of 6.76% in the number of Bank employees as a
result of the opening of new branches.
Administrative expenses increased 17.4% to S/. 553,932 thousand for the year ended December 31, 2012,
from S/. 471,824 thousand for the year ended December 31, 2011. This increase was due to three main factors:
65
(i) renewed investment in branches and ATMs, which generated expenses related to rent, maintenance and general
services, (ii) expenses related to business expansion, including office supplies, transport of money, surveillance and
communication and (iii) advertising, including the implementation of new projects focused on quality and service to
specific segments of customers.
Depreciation and amortization increased 11.5%, to S/. 73,234 thousand for the year ended December 31,
2012, from S/. 65,705 thousand for the year ended December 31, 2011, mainly due to the increase in investments in
software and ATMs and the ordinary course depreciation relating to such assets.
Other Income and Expense
Other income and expense increased 2.9% to S/. 65,794 thousand for the year ended December 31, 2012
from S/. 63,962 thousand for the year ended December 31, 2011. This increase was mainly due to the following
factors:
For the year ended
December 31.
2012
Percentage
Change
(%)
2011
(65,794)
(63,962)
2.9
(29,050)
(37,543)
(22.6)
7,090
(10)
(51,094)
(44,323)
15.3
(7,762)
(2,601)
198.4
13,191
20,582
(35.9)
1,831
(67)
(2,832.8)
Provisions for contingent operations increased 15.3%, to S/. 51,094 thousand for the year ended
December 31, 2012 from S/. 44,323 thousand for the year ended December 31, 2011, mainly due to an increase in
contingent operations of 18.0% during 2012.
Profit before Income Tax
Profit before income tax increased 11.7% to S/. 1,685,286 thousand for the year ended December 31, 2012,
from S/. 1,509,158 thousand for the year ended December 31, 2011.
Income Tax
Income tax increased 15.7% to S/. 439,741 thousand for the year ended December 31, 2012 from
S/. 380,170 thousand for the year ended December 31, 2011 primarily as a result of the increase in income before
taxes.
66
Financial Position
Assets
The following table sets forth the Banks assets as well as the percentages each item represents of total
assets as of June 30, 2014 and December 31, 2013 and 2012.
As of
As of
As of
% of total
Balance
% of total
% of total
10,584,006
18.59
11,824,204
20.91
12,641,028
25.44
13,032
0.02
25,156
0.04
32,408
0.07
586,429
1.03
556,746
0.98
160,810
0.32
2,474,057
4.35
3,083,921
5.45
2,289,134
4.61
450,145
0.79
443,993
0.79
436,829
0.88
40,437,813
71.04
38,245,327
67.64
31,770,125
63.94
2,261
0.00
2,774
0.00
2,462
0.00
Investments in associates
Property, furniture and
equipment, net
830,447
1.46
818,010
1.45
685,044
1.38
Other assets
1,546,458
2.72
1,538,306
2.72
1,672,935
3.37
Total assets
56,924,649
100.00
56,538,437
100.00
49,690,775
100.00
Total Assets
The Bank had total assets of S/. 56,924,649 thousand as of June 30, 2014 compared to S/. 56,538,437
thousand as of December 31, 2013, representing an increase of 0.7% mainly due to the increase of loan portfolio,
net, partially offset by lower cash and due from banks, and available-for-sale investments.
The Bank had total assets of S/. 56,538,437 thousand as of December 31, 2013 compared to S/. 49,690,775
thousand as of December 31, 2012, representing an increase of 13.8%, mainly due to the increase of loan portfolio,
net, available-for-sale investments and investments at fair value through profit or loss.
Cash and due from Banks
Cash and due from banks consists of cash, deposits in the Central Bank (legal reserves), deposits in local
and foreign banks, clearing accounts, other deposits and accrued interest. The Bank had cash and due from banks of
S/. 10,584,006 thousand as of June 30, 2014, compared to S/. 11,824,204 thousand as of December 31, 2013,
representing a decrease of 10.5%, mainly due to a decrease in deposits with the Central Bank in compliance with
changes to the Central Banks legal reserve requirements and the reallocation of the Banks resources to other
interest-bearing asset categories.
The Bank had cash and due from banks of S/. 11,824,204 thousand as of December 31, 2013, 6.5% less
than the amount recorded for December 31, 2012, S/. 12,641,028 thousand. This is mainly explained by the decrease
in deposits with the Central Bank in compliance with new changes to the Central Banks legal reserve requirements
made in 2013.
67
Interbank Funds
The Bank had interbank fund assets of S/. 13,032 thousand as of June 30, 2014, compared to S/. 25,156
thousand as of December 31, 2013.
The Bank had interbank fund assets of S/. 25,156 thousand as of December 31, 2013, compared to S/.
32,408 thousand as of December 31, 2012.
Investments at Fair Value through Profit or Loss, Available-for-Sale and Held-to-Maturity, Net
Investments at fair value through profit or loss, available-for-sale and held-to-maturity, net, consist of
bonds, BCRP certificates of deposits, participation in mutual funds, commercial papers, other investments and
accrued interest, less allowance for impairment of investments. The Bank had investments in securities of S/.
3,510,631 thousand as of June 30, 2014, compared to S/. 4,084,660 thousand as of December 31, 2013, representing
a decrease of 14.1%. This decrease was mainly due to a reduction of S. 1,094,717 thousand in outstanding BCRP
certificates, or a 35.8% decrease partially offset by an increases of S/. 521,018 thousand in outstanding Peruvian
Sovereign Bonds.
The Bank had investments in securities of S/. 4,084,660 thousand as of December 31, 2013, compared to
S/. 2,886,773 thousand as of December 31, 2012, representing an increase of 41.5%. This growth is mainly
explained by an increase of S/. 903,023 thousand, or 45.8% in BCRP certificates of deposit.
The Bank had investments in securities of S/. 2,886,773 thousand as of December 31, 2012, compared to
S/. 2,587,154 thousand as of December 31, 2011, representing an increase of 11.6%. This was mainly the result of
an increase of S/. 549,855 thousand, or 38.7% in BCRP certificates of deposit.
Total Gross Direct Loans
As of June 30, 2014, the amount of total gross direct loans was S/. 42,107,124 thousand, compared to S/.
39,794,262 thousand as of December 31, 2013, representing an increase of 5.8%, primarily associated with
continued economic growth in the country.
Total gross direct loans as of December 31, 2013 was S/. 39,794,262 thousand, compared to S/. 33,020,737
thousand as of December 31, 2012, representing an increase of 20.5%, mainly due to the growth of the Banks
business and continued economic growth in the country.
Retail Loans
As of June 30, 2014, the Bank had performing retail loans of S/. 12,348,862 thousand compared to S/.
11,718,564 thousand as of December 31, 2013, representing an increase of 5.4%. This increase of S/. 630,298
thousand was mainly the result of an increase of S/. 560,523 thousand in mortgage loans.
As of December 31, 2013, the Bank had performing retail loans of S/. 11,718,564 thousand compared to S/.
10,423,253 thousand as of December 31, 2012, representing an increase of 12.4%. This increase of S/. 1,295,311
thousand was mainly the result of an increase of S/. 1,284,635 thousand in mortgage loans.
Retail loans have grown consistently over the past three years mainly due to the growth in the construction
and real estate sector. Moreover, mortgage loans are one of the Banks key products and its approval and
disbursement processes have improved significantly in recent years.
Commercial Loans
As of June 30, 2014, the Bank had performing commercial loans of S/. 28,320,238 thousand compared to
S/. 26,791,691 thousand as of December 31, 2013, representing an increase 5.7%. This increase of S/. 1,528,547
68
thousand was mainly due to an increase of S/. 936,182 thousand, or 6.3% in loans. Foreign trade financing also
grew, increasing S/. 442,957 thousand, or 11.4%.
As of December 31, 2013, the Bank had performing commercial loans of S/. 26,791,691 thousand
compared to S/. 21,755,712 thousand as of December 31, 2012, representing an increase of 23.1%. This increase of
S/. 5,035,979 thousand was mainly due to an increase of S/. 3,090,548 thousand, or 26.3%, in loans. Foreign trade
financing also contributed to the Banks growth, increasing S/. 1,242,647 thousand, or 19.1%.
Non-Performing Loans
Non-performing loans accounted for S/. 826,692 thousand as of June 30, 2014, higher than the S/. 690,928
thousand registered as of December 31, 2013. Nonetheless, the ratio of non-performing loans over total gross direct
loans was 1.96%, remaining below the average of the Peruvian banking industry, which was 2.36% according to the
SBS.
The amount of non-performing loans increased to S/. 690,928 thousand as of December 31, 2013 from S/.
399,277 thousand as of December 31, 2012. However, the amount of non-performing loans over total gross direct
loans was 1.74%, lower than the average of the Peruvian banking industry, which was 2.14% according to the SBS.
Provisions for Loan Losses
As of June 30, 2014, the Bank had a provision for loan losses of S/. 1,920,161 thousand, compared to S/.
1,788,607 thousand as of December 31, 2013, representing an increase of 7.4%. This increase was mainly due to an
increase of S/. 811,462 thousand in provisions due to the growth of the loan portfolio, partially offset by recoveries
and reversals of S/. 522,561 thousand.
The provision for loan losses as of December 31, 2013 was S/. 1,788,607 thousand, compared to S/.
1,465,086 thousand as of December 31, 2012, representing an increase of 22.1%. This increase was mainly the result
of an increase of S/. 1,099,461 thousand in provisions due to the increase in the loan portfolio, partially offset by
recoveries and reversals of S/. 577,576 thousand.
Investments in Associates
Investments in associates consist of the Banks participation in Telefnica Factoring Per S.A.C. The Bank
had investments in associates of S/. 2,261 thousand as of June 30, 2014, compared to S/. 2,774 thousand as of
December 31, 2013, representing a decrease of 18.5% and S/. 2,774 thousand as of December 31, 2013, compared to
S/. 2,462 thousand as of December 31, 2012, representing an increase of 12.7%.
Property, Furniture and Equipment, Net
The Bank had property, furniture and equipment, net of S/. 830,447 thousand as of June 30, 2014,
compared to S/. 810,010 thousand as of December 31, 2013, representing an increase of 1.5%. This increase was
mainly the result of increases of S/. 22,741 thousand in property and facilities and S/. 6,285 thousand in furniture
and equipment, partially offset by decreases of S/. 13,743 thousand in work in progress and S/. 2,314 thousand in
facilities and leasehold improvements.
The Bank had property, furniture and equipment, net of S/. 818,010 thousand as of December 31, 2013,
compared to S/. 685,044 thousand as of December 31, 2012, representing an increase of 19.4%. This increase was
mainly due to an increases of S/. 33,718 thousand in work in progress, S/. 33,317 thousand in furniture and
equipment, S/.29,569 thousand in facilities and leasehold improvements, S/. 20,288 thousand in land, S/. 20,026
thousand in property and facilities and S/. 750 thousand in vehicles. This was partially offset by a decrease of S/.
4,702 thousand in receivable and substituting units.
69
Other Assets
Other assets consist of trading derivatives, hedging derivatives, receivables, assets seized and recovered
through legal actions, net, current tax, deferred tax and other assets. The Bank had other assets of S/.1,546,458
thousand as of June 30, 2014, compared to S/. 1,538,306 thousand as of December 31, 2013, representing an
increase of 0.5%.
The Bank had other assets of S/. 1,538,306 thousand as of December 31, 2013, compared to S/. 1,672,935
thousand as of December 31, 2012, representing a decrease of 8.0%. This decrease was mainly the result of less
hedging derivatives by an amount of S/. 132,089 thousand, less current taxes by an amount of S/. 94,783 thousand,
partially offset by an increase of S/. 86,818 thousand in trading derivatives.
Liabilities
The following table sets forth the Banks liabilities as well as the percentages each item represents of total
liabilities as of June 30, 2014 and December 31, 2013 and 2012.
As of
June 30, 2014
Balance
As of
December 31, 2013
% of total
Balance
% of total
As of
December 31, 2012
Balance
% of total
37,100,818
65.18
36,479,904
64.52
31,956,803
64.31
Demand deposits
13,087,447
22.99
12,219,603
21.61
9,237,771
18.59
Saving deposits
10,123,450
17.78
9,323,333
16.49
8,005,309
16.11
Time deposits
13,843,672
24.32
14,890,868
26.34
14,652,278
29.49
46,249
0.08
46,100
0.08
61,445
0.12
1,594,208
2.80
939,620
1.66
764,991
1.54
348,038
0.61
617,134
1.09
234,964
0.47
11,733,126
20.61
12,082,512
21.37
10,956,815
22.05
Other liabilities
1,283,188
2.25
1,528,456
2.70
1,548,865
3.12
Total liabilities
52,059,378
91.45
51,647,626
91.35
45,462,438
91.49
4,865,271
8.55
4,890,811
8.65
4,228,337
8.51
56,924,649
100.00
56,538,437
100.00
49,690,775
100.00
Other obligation
Deposits from financial system
companies
Interbank funds
Due to banks and other financial
obligations
Total equity
Total liabilities and net equity
Total Liabilities
The Bank had total liabilities of S/. 52,059,378 thousand as of June 30, 2014, compared to S/. 51,647,626
thousand as of December 31, 2013, representing an increase of 0.8%, and total liabilities of S/. 51,647,626 thousand
as of December 31, 2013, compared to S/. 45,462,438 thousand as of December 31, 2012, representing an increase
of 13.6%.
70
71
The Bank had liabilities to banks and other financial obligations of S/. 11,733,126 thousand as of June 30,
2014, compared to S/. 12,082,512 thousand as of December 31, 2013, representing a decrease of 2.9%. This
performance was related to a reduction of S/. 504,051 thousand, or 8.5%, in liabilities to banks, to the extent that
other financial obligations increased S/. 154,665 thousand, or 2.5%. Regarding the decrease in liabilities to banks,
the reduction in liabilities to international financial institutions was the main component (with decreases of S/.
69,875 thousand with Bank of Montreal, S/. 69,875 thousand with Mercantil Commerce Bank and S/. 61,450
thousand with Standard Chartered, among others), accompanied by a decrease in liabilities to international financial
organizations (mainly a reduction of S/. 265,460 thousand with the International Development Bank).
The Bank had liabilities to banks and other financial obligations of S/. 12,082,512 thousand as of
December 31, 2013, compared to S/. 10,956,815 thousand as of December 31, 2012, representing an increase
of 10.3%. This was the result of an increase of S/. 2,383,885 thousand or 62.7% in other financial obligations,
mainly due to an increase of S/. 2,253,343 thousand in corporate bonds. This growth was partially offset by a
decrease in liabilities due to banks by an amount of S/. 1,258,188 thousand, or 17.6% explained by a decrease of S/.
812,231 thousand in obligations with foreign financial institutions due to a lower need of funding in U.S. dollars
associated with the de-dollarization of the balance sheet (decreases of S/. 308,834 thousand with Wells Fargo Bank,
S/. 204,000 with JP Morgan Bank, S/. 140,250 thousand with Sumitomo Bank and S/. 138,312 thousand with
Standard Chartered, among others) and the full repayment of obligations to two international financial organizations,
in the aggregate amount of S/. 420,750 thousand (S/. 255,000 thousand with Corporacin Andina de Fomento and
S/. 165,750 thousand with Banco Latinoamericano de Exportacin).
Other Liabilities
Other liabilities consist of accounts payable on trading and hedging derivatives, payables, current tax,
provisions, deferred tax and others. As of June 30, 2014, the Bank had other liabilities of S/. 1,283,188 thousand
compared to S/. 1,528,456 thousand as of December 31, 2013, representing a decrease of 16.0%, mainly explained
by decreases in accounts payable from trading and hedging derivatives and in other accounts payable (primarily
payments owed to suppliers). These decreases were partially offset by increases in provisions for liabilities and in
other liabilities (mainly transactions in process).
As of December 31, 2013, the Bank had other liabilities of S/. 1,528,456 thousand compared to S/.
1,548,865 thousand as of December 31, 2012, representing a decrease of 1.3%. This was the result of a decrease in
accounts payable (mainly payments owed to suppliers) and other liabilities (transactions in process) partially offset
by the increase in accounts payable from trading and hedging derivatives.
Total Equity
Total equity consists of capital stock, legal reserve, adjustments to equity and retained earnings. As of
June 30, 2014, the Banks net equity was S/. 4,865,271 thousand compared to S/.4,890,811 thousand as of
December 31, 2013, representing a decrease of 0.5%, explained by the distribution of dividends out of net profit
for 2013, partially compensated by the net profit generated in the first half of 2014.
As of December 31, 2013, the Banks net equity was S/. 4,890,811 thousand compared to S/. 4,228,337
thousand as of December 31, 2012, representing an increase of 15.7%. This increase was mainly due to the increase
of S/. 498,297 thousand in capital stock.
Off-Balance Sheet Arrangements
In the normal course of business, the Bank is a party to a number of off-balance sheet activities that have
credit, market and operational risk and are not reflected in its consolidated financial statements. These activities
include commitments to extend credit not otherwise accounted for as contingent loans, such as overdrafts and credit
card lines of credit, and long-term contractual obligations under operating leases or service contracts. The Bank
records its off-balance sheet arrangements under off-balance sheet accounts, as described in notes 14 and 15 to its
Financial Statements.
72
The Bank provides its customers with services related to the issuance of guarantees and performance bonds
and letters of credit and bank acceptances. The Banks letter of credit operations totaled S/. 843,817 thousand as of
June 30, 2014, S/. 956,961 thousand as of December 31, 2013 and S/. 762,944 thousand as of December 31, 2012.
The credit risk of both on- and off-balance sheet financial instruments varies based on many factors,
including the value of collateral held and other security arrangements. To mitigate credit risk, the Bank generally
determines the need for specific covenants, guarantees and collateral requirements on a case-by-case basis,
depending on the nature of the financial instrument and the customers creditworthiness. The Bank may also require
comfort letters and oral assurances. The amount and type of collateral held to reduce credit risk varies, but may
include real estate, machinery, equipment, inventory and accounts receivable, as well as cash on deposit, stocks,
bonds and other marketable securities that are generally held in the Banks possession or at another appropriate
custodian or depository. This collateral is valued and inspected on a regular basis to ensure both its existence and
adequacy. Additional collateral is required when appropriate.
Capital Adequacy
The Banks unconsolidated capital adequacy ratio as of June 30, 2014 was 13.23%, within regulatory
limits. The Bank believes this ratio is within international standards for financial institutions with investment grade
ratings.
As of
June 30, 2014
48,322
47,207
6,392
5.866
6,065
5.541
77
91
250
233
13.23%
12.42%
Effective limit
11.11%
11.06%
(*) The effective limit as of June 30, 2014 includes the 10% regulatory limit plus 1.11% of additional capital; this
additional capital rule was imposed by the SBS as of July 31, 2012.
Banking regulations on capital adequacy in Peru take into account the recommendations of the Basel
Committee. The SBS has already adopted a modified version of Basel II and has issued guidelines for gradually
requiring additional capital in line with Basel III guidelines. On July 1, 2012, the SBS required 40% of the
additional capital requirement, and it will continue to increase this percentage by 15% on each anniversary of such
date until reaching 100% on July 1, 2016. Based on the Banks own internal estimates, the Bank would already be in
full compliance with Basel III if it were to be fully implemented.
The Peruvian Banking Law provides that the Banks regulatory capital must be equal to or greater than
10.0% of the total risk-weighted assets since July 30, 2014. Risk-weighted assets are the sum of (i) 10 times the
regulatory capital allocated to cover market risk; (ii) 10 times the regulatory capital allocated to cover operational
risk; and (iii) the total amount of credit risk-weighted assets and indirect loans. Such computation must include all
balance sheet exposures or assets in local or foreign currency. As of June 30, 2014, the Banks ratio of regulatory
capital to total risk weighted assets was 13.23%. As of the present date, the total capital requirement for BBVA
Continental is 11.11% (10% minimum regulatory capital plus 1.11% of additional capital).
Regulatory Capital Requirement for Credit Risk
SBS Resolution N 14354 2009, which became effective on July 1, 2010, regulates capital requirements
for credit risk. The purpose of the regulatory capital requirements is to implement the Basel II Framework.
73
These regulations establish the methodology to be applied as well as the requirements that must be met by
financial institutions in performing the calculation of their regulatory capital requirement for credit risk using the
standardized method or the internal ratings-based (IRB) methodology.
The current regulations provided for a gradual implementation of the new scheme for calculating the
regulatory capital requirement, as described below:
Risk-weighted assets
Assets and contingent assets are appraised and assessed to determine their credit risk. The market and
operational risk requirements are determined by calculating the regulatory capital and later converting it into riskweighted assets.
SBS Resolution N 8548-2012, amended SBS Resolution N 14354 2009. The following are the most
relevant modifications:
Mortgages: Changes in the evaluation factors, which will depend on the term of the transaction, currency,
if it is the first property acquired and the Loan to Value ratio (LTV).
Non revolving consumer loans: Changes in the evaluation factors, which will depend on the type of loan
and its term.
Revolving consumer loans: Changes in the evaluation factors, which will depend on the term of the loan
and its revolving factor.
Increase in the adjustment factor as a consequence of the exposure to exchange rate risk from 2.5% to 8%.
It should be noted that the abovementioned amendments have an implementation schedule and specific
treatment for the transactions consummated in 2012 and 2013.
Credit risk
weighted assets
96%
96%
98%
100%
100%
100%
9.09%
9.50%
9.80%
10.00%
74
Market risk
weighted assets
96%
96%
98%
100%
100%
100%
Operating risk
weighted assets
40%
40%
50%
60%
80%
100%
He
Hrcc
Hc
Hfx
75
Segment
Weight
Exceptions
0% for multilateral development Banks included in the
list set out in Article 16 of SBS Resolution N 143542009.
As a function of
its External
Rating
Multilateral Bank
Non Retail
Financial System
Sovereign
Public Sector
Securities
Corporate
Large Business
Medium Sized
Business
Small Business
Micro Business
Retail
Revolving Consumer
Non Revolving
Consumer
100%
100%
100%
100%
100%
100%
100%
Risk weighted factor depends on: the term of the
loan and its revolving factor.
100% - 250%
100% - 250%
50% - 250%
Volatility
Exposure / Collateral
Exposure
Term Mismatch
Collateral Security
Foreign Currency
Collateral Security
Adjustment
Depending on the instrument, counterparty and term, adjustment
factors that fluctuate between 0.5% and 25% are applied
When exposure is subject to foreign Exchange credit risk and it is
indexed or denominated in foreign currency, an adjustment
of 2.5% shall be applied
Applying a penalty to security value when there is a mismatch in
the term of exposure and the security accepted for risk mitigation
(adjustment depends on the formula).
Applying a penalty security value when there are foreign currency
gaps between the risk exposure and the collateral security
accepted for mitigation; the adjustment factor is 8%
76
Percentage of Additional
Regulatory Capital
July-2012
40%
July-2013
55%
July-2014
70%
July-2015
85%
July-2016
100%
77
CAPITALIZATION
The following table sets forth the Banks unconsolidated regulatory capital as of June 30, 2014 and as
adjusted to give effect to the issuance of (US$ ) million of Notes offered hereby, which information has been
derived from the Interim Unaudited Financial Statements.
As of June 30, 2014
(unaudited)
As Adjusted for
the Offering
Actual
As Adjusted for
the Offering
(U.S. Dollars in
thousands)(1)
3,247
1,161
977
977
350
10
10
559
559
200
Less: Goodwill
(43)
(43)
(15)
Capital stock..
Legal and other capital reserves..
450
450
161
5,200
5,200
1,860
669
566
566
202
(43)
(43)
(15)
1,192
6,392
Total equity.
4,865
4,865
1,740
48,322
48,322
17,282
13.23%
Risk-weighted assets...
Capital ratio:
Regulatory capital as a percentage of risk-weighted assets (2) (3)
(1) For the convenience of the reader, these figures have been translated into U.S. Dollars at S/. 2.796 = US$ 1.00, the rate published
by the SBS for June 30, 2014. Such translation should not be construed as a representation that the Nuevo Sol amounts have been
converted into U.S. Dollars pursuant to the requirements of IFRS or generally accepted accounting principles in any other country.
(2) Regulatory capital as calculated in accordance with guidelines of the Basel Accord, as adopted by the SBS. This ratio is calculated
on an unconsolidated basis. There has been no material change in the Banks capital ratio since June 30, 2014.
(3) The SBS minimum regulatory capital requirements, expressed as a percentage of risk-weighted assets is 10% plus the additional
regulatory capital requirement, which was 1.11% as of June 30, 2014.
78
79
Assets
3,630,029
6,809,816
88,688
3,619
2.44%
0.05%
2,851,093
5,469,020
69,811
6,895
2.45%
0.13%
2,075,663
5,363,169
57,488
6,623
2.77%
0.12%
10,439,845
92,307
0.88%
8,320,113
76,706
0.92%
7,438,832
64,111
0.86%
111,347
451,336
1,663
438
1.49%
0.10%
82,335
470,034
1,180
387
1.43%
0.08%
113,591
441,498
2,091
499
1.84%
0.11%
562,683
2,101
0.37%
552,369
1,567
0.28%
555,089
2,590
0.47%
3,906,512
99,103
145,658
924
3.73%
0.93%
4,132,891
67,703
239,132
5,275
5.79%
7.79%
2,961,299
134,561
146,078
1,106
4.93%
0.82%
4,005,615
146,582
3.66%
4,200,594
244,407
5.82%
3,095,860
147,184
4.75%
18,520,695
17,396,833
1,988,066
1,363,625
10.73%
7.84%
15,559,141
16,025,555
1,777,477
1,246,495
11.42%
7.78%
13,778,162
13,884,009
1,502,820
1,044,459
10.91%
7.52%
35,917,528
3,351,691
9.33%
31,584,696
3,023,972
9.57%
27,662,171
2,547,279
9.21%
26,168,583
24,757,088
2,224,075
1,368,606
8.50%
5.53%
22,625,460
22,032,312
2,087,600
1,259,052
9.23%
5.71%
18,928,715
19,823,237
1,708,477
1,052,687
9.03%
5.31%
50,925,671
3,592,681
7.05%
44,657,772
3,346,652
7.49%
38,751,952
2,761,164
7.13%
80
Assets
1,270,550
713,201
0
0
1,070,616
567,671
0
0
902,420
476,338
0
0
1,983,751
1,638,287
1,378,758
-1,187,131
-470,143
0
0
-993,192
-384,167
0
0
-826,923
-350,394
0
0
-1,657,274
-1,377,359
-1,177,317
747,070
0
0
0
639,399
0
0
0
520,735
0
0
0
747,070
639,399
520,735
1,633,027
337,396
0
0
1,478,113
346,810
0
0
1,228,767
230,942
0
0
1,970,423
1,824,923
1,459,709
2,463,516
580,454
0
0
2,194,936
530,314
0
0
1,824,999
356,886
0
0
3,043,970
2,725,250
2,181,885
28,632,099
25,337,542
2,224,075
1,368,606
7.77%
5.40%
24,820,396
22,562,626
2,087,600
1,259,052
8.41%
5.58%
20,753,714
20,180,123
1,708,477
1,052,687
8.23%
5.22%
53,969,641
3,592,681
6.66%
47,383,022
3,346,652
7.06%
40,933,837
2,761,164
6.75%
________________
(1)
(2)
81
Liabilities
5,816,124
4,921,807
17,810
3,949
0.31%
0.08%
5,018,903
3,975,796
19,852
4,303
0.40%
0.11%
4,606,009
4,049,771
32,507
4,872
0.71%
0.12%
10,737,931
21,759
0.20%
8,994,699
24,155
0.27%
8,655,780
37,379
0.43%
5,246,748
3,417,801
41,467
8,387
0.79%
0.25%
4,492,919
3,040,618
42,762
11,660
0.95%
0.38%
3,525,886
3,034,914
32,015
13,076
0.91%
0.43%
8,664,549
49,854
0.58%
7,533,537
54,422
0.72%
6,560,800
45,091
0.69%
8,878,811
5,830,928
325,972
148,062
3.67%
2.54%
7,943,776
6,537,548
313,573
129,696
3.95%
1.98%
6,945,851
5,746,875
268,056
79,372
3.86%
1.38%
14,709,739
474,034
3.22%
14,481,324
443,269
3.06%
12,692,726
347,428
2.74%
2,315,904
11,098,624
129,854
439,771
5.61%
3.96%
2,206,870
8,661,151
116,301
303,369
5.27%
3.50%
1,484,500
6,811,331
72,981
192,457
4.92%
2.83%
13,414,528
569,625
4.25%
10,868,021
419,670
3.86%
8,295,831
265,438
3.20%
22,257,587
25,269,160
515,103
600,169
2.31%
2.38%
19,662,468
22,215,113
492,488
449,028
2.50%
2.02%
16,562,246
19,642,891
405,559
289,777
2.45%
1.48%
47,526,747
1,115,272
2.35%
41,877,581
941,516
2.25%
36,205,137
695,336
1.92%
82
Liabilities
1,691,305
372,864
0
0
1,430,487
309,500
0
0
1,101,366
336,924
0
0
2,064,169
1,739,987
1,438,290
4,367,011
11,714
0
0
3,756,233
9,221
0
0
3,285,384
5,026
0
0
4,378,725
3,765,454
3,290,410
6,058,316
384,578
0
0
5,186,720
318,721
0
0
4,386,750
341,950
0
0
6,442,894
5,505,441
4,728,700
28,315,903
25,653,738
515,103
600,169
1.82%
2.34%
24,849,188
22,533,834
492,488
449,028
1.98%
1.99%
20,948,996
19,984,841
405,559
289,777
1.94%
1.45%
53,969,641
1,115,272
2.07%
47,383,022
941,516
1.99%
40,933,837
695,336
1.70%
19,941,683
14,170,536
385,249
160,398
1.93%
1.13%
17,455,598
13,553,962
376,187
145,659
2.16%
1.07%
15,077,746
12,831,560
332,578
97,320
2.21%
0.76%
34,112,219
545,647
1.60%
31,009,560
521,846
1.68%
27,909,306
429,898
1.54%
26,168,583
24,757,088
1,708,972
768,437
6.53%
3.10%
22,625,460
22,032,312
1,595,112
810,024
7.05%
3.68%
18,928,715
19,823,237
1,302,918
762,910
6.88%
3.85%
50,925,671
2,477,409
4.86%
44,657,772
2,405,136
5.39%
38,751,952
2,065,828
5.33%
________________________
83
2012 / 2011
Net
Change
Increase (Decrease)
due to changes in
Rate
Volume
Rate
(Nuevos soles in thousands, except percentages)
Net
Change
19,031
713
19,744
(154)
(3,989)
(4,143)
18,877
(3,276)
15,601
18,987
133
19,120
(6,664)
139
(6,525)
12,323
272
12,595
433
(18)
415
50
69
119
483
51
534
(448)
23
(425)
(463)
(135)
(598)
(911)
(112)
(1,023)
(8,441)
293
(8,148)
(85,033)
(4,644)
(89,677)
(93,474)
(4,351)
(97,825)
67,789
(5,209)
62,580
25,265
9,378
34,643
93,054
4,169
97,223
Total loans
Nuevos Soles
Foreign Currency
Total
317,902
107,486
425,388
(107,313)
9,644
(97,669)
210,589
117,130
327,719
203,459
166,573
370,032
71,198
35,463
106,661
274,657
202,036
476,693
301,131
150,629
451,760
(164,656)
(41,075)
(205,731)
136,475
109,554
246,029
341,090
126,239
467,329
38,033
80,126
118,159
379,123
206,365
585,488
Interest expense
Demand deposits
Nuevos Soles
Foreign Currency
Total
2,441
759
3,200
(4,483)
(1,113)
(5,596)
(2,042)
(354)
(2,396)
1,633
(80)
1,553
(14,288)
(489)
(14,777)
(12,655)
(569)
(13,224)
Savings deposits
Nuevos Soles
Foreign Currency
Total
5,958
926
6,884
(7,253)
(4,199)
(11,452)
(1,295)
(3,273)
(4,568)
9,204
22
9,226
1,543
(1,438)
105
10,747
(1,416)
9,331
Time deposits
Nuevos Soles
Foreign Currency
Total
34,328
(17,943)
16,385
(21,929)
36,309
14,380
12,399
18,366
30,765
39,392
15,686
55,078
6,125
34,638
40,763
45,517
50,324
95,841
6,114
96,582
102,696
7,439
39,820
47,259
13,553
136,402
149,955
38,069
64,793
102,862
5,251
46,119
51,370
43,320
110,912
154,232
60,058
72,537
132,595
(37,443)
78,604
41,161
22,615
151,141
173,756
77,652
51,992
129,644
9,277
107,259
116,536
86,929
159,251
246,180
84
26,168,583
24,757,088
50,925,671
22,625,460
22,032,312
44,657,772
18,928,715
19,823,237
38,751,952
1,708,972
768,437
2,477,409
1,595,112
810,024
2,405,136
1,302,918
762,910
2,065,828
8.50%
5.53%
7.05%
9.23%
5.71%
7.49%
9.03%
5.31%
7.13%
6.53%
3.10%
4.86%
7.05%
3.68%
5.39%
6.88%
3.85%
5.33%
6.18%
3.15%
4.71%
6.72%
3.69%
5.25%
6.58%
3.84%
5.20%
85
2012
2011
384,025
4,629,120
4,629,120
979,380
Commercial Banks
113,736
177,512
177,512
99,773
497,761
4,806,632
4,806,632
1,079,153
8,532,294
5,703,032
5,703,032
5,591,350
Commercial Banks
Total foreign currencydenominated
688,960
341,372
341,719
362,895
Total
9,221,254
6,044,404
6,044,751
5,954,245
9,719,015
10,851,036
10,851,383
7,033,398
86
Investment Portfolio
The following table shows the value of the Banks fair value though profit and loss, available-for-sale and
held to maturity investment by type. In accordance with amendments introduced by the SBS through SBS
Resolution N 10639-2008 (in force until December 31, 2012, and revoked by SBS Resolution N 7033-2012,
effective as of January 1, 2013), profit and loss and available-for-sale investment are shown at fair value. Held to
maturity investments are shown at amortized cost using the effective interest method:
2013
As of December 31,
2012
(Nuevos soles in thousands)
2011
3,053,874
1,971,223
1,421,368
922,283
54,619
53,884
4,084,660
778,332
26,277
5,586
39,223
66,125
7
2,886,773
1,036,919
10,903
24,736
43,461
49,711
56
2,587,154
Includes stocks from fair value though profit and loss and available-for-sale portfolios.
The weighted-average yield on the Banks Nuevo Sol-denominated interest and dividend-earning
investment portfolio was 4.93% in 2011, 5.79% in 2012 and 3.73% in 2013. The weighted average yield on the
Banks foreign currency-denominated portfolio was 0.82% in 2011, 7.79% in 2012 and 0.93% in 2013. The total
weighted-average yield of the Banks portfolio was 4.75% in 2011, 5.82% in 2012 and 3.66% in 2013.
The following table shows the maturities of the Banks investment securities according to its due date and
by type as of December 31, 2013:
Within 1 year
S/.000
After 1
year but
within 5
years
S/.000
After 5 year
but
within 10
years
S/.000
After 10
years
S/.000
Without
maturity
S/.000
Total
S/.000
BCRP Certificates of
Deposits
Peruvian treasury bonds
Stock
Mutual funds
2,810,486
1,368
0
0
243,388
350,021
0
0
0
48,095
0
0
0
522,799
0
0
0
0
53,884
54,619
3,053,874
922,283
53,884
54,619
Total
2,834,348
570,915
48,095
522,799
108,503
4,084,660
87
Loan Portfolio
Loans by Type
The Bank records direct loans when a disbursement of funds is made to a client. The following table shows
the Banks direct loans by type:
As of December 31,
2013
2012
2012
2011
22,375,701
17,885,711
17,885,712
17,014,585
Mortgages
8,433,345
7,148,709
7,148,709
5,842,095
Leasing
4,202,111
4,066,926
4,585,583
4,601,173
Discounted notes
1,293,059
1,048,364
1,048,364
968,416
Credit cards
1,688,815
1,651,609
1,651,609
1,205,299
Factoring transactions
517,224
377,646
377,646
238,642
593,079
442,495
442,495
366,672
690,928
399,277
399,277
279,710
39,794,262
33,020,737
33,539,395
30,516,592
(690,928)
(399,277)
(399,277)
(279,710)
39,103,334
32,621,460
33,140,118
30,236,882
98.3%
98.8%
98.8%
99.1%
The classification of the loan portfolio as set forth in the table above is based upon the regulations of the
SBS. Pursuant to the guidelines of the SBS, loans are categorized as follows:
Loans, mortgage loans and credit cards
Loans and credit cards include basic term loans documented by promissory notes and other extensions of
credit, such as consumer loans in various forms and trade finance loans, among others.
Mortgage loans are loans for acquisition, construction, refurbishment, remodeling, expansion, improvement
and sub-division of an owners home backed by a duly constituted mortgage.
Leasing Transactions
Leasing transactions involve the Banks acquisition of an asset and the leasing of that asset to a client of the
Bank.
Discounted Notes
Discounted notes are loans discounted at origination. Discounted loans also include discounting of drafts,
where the Bank makes a loan supported by a draft signed by one party and discounted by another party, with
recourse to both parties.
88
89
2012
Amount
2012
Amount
2011
Amount
12,009,407
30%
10,632,738
32%
10,632,738
32%
8,786,449
29%
7,219,306
18%
5,529,589
17%
5,648,424
17%
5,577,385
18%
7,327,627
18%
5,877,536
18%
5,953,832
18%
5,190,967
17%
2,436,053
6%
2,105,357
6%
2,226,933
7%
2,115,384
7%
Real estate
2,812,902
7%
2,540,325
8%
2,605,520
8%
2,363,157
8%
Utilities
1,204,586
3%
1,049,974
3%
1,061,542
3%
857,404
3%
Construction
904,683
2%
764,371
2%
778,987
2%
966,620
3%
1,084,405
3%
1,041,856
3%
1,051,168
3%
860,912
3%
Mining
1,224,867
3%
598,128
2%
618,088
2%
883,776
3%
667,977
2%
664,544
2%
705,837
2%
627,120
2%
Financial intermediation
Other activities for
community services
580,000
1%
365,790
1%
367,210
1%
442,831
1%
554,466
1%
489,974
1%
501,845
1%
450,376
1%
656,371
2%
534,615
2%
535,259
2%
476,490
2%
Fishing
Public administration and
defense
275,805
1%
226,635
1%
233,414
1%
303,929
1%
223,619
1%
122,347
0%
122,617
0%
190,369
1%
300,224
1%
194,205
1%
203,319
1%
181,587
1%
Others
311,964
1%
282,753
1%
292,662
1%
241,836
1%
Manufacturing
Commerce
Transport, storage and
communications
Education
39,794,262
100%
33,020,737
90
100%
33,539,395
100%
30,516,592
100%
91
Loans by Currency
The following table presents the Banks Nuevo Sol and foreign currency-denominated loan portfolio at the
dates indicated.
As of December 31,
2012
2012
(Nuevos soles in thousands, except percentages)
Amount
Amount
%
Amount
2011
Amount
20,986,341
52.7%
16,567,901
50.2%
16,801,378
50.1%
15,129,020
49.6%
18,807,921
47.3%
16,452,836
49.8%
16,738,017
49.9%
15,387,572
50.4%
39,794,262
100.0%
33,020,737
100.0%
33,539,395
100.0%
30,516,592
100.0%
Loans by Maturity
The following table sets forth an analysis of the Banks performing loan portfolio as of December 31, 2013,
by type and by the time remaining to maturity.
Total
17,036,233
Up
1
3
to 1 month to 3 months to 6 months
1,679,052
3,090,280
2,182,386
6 to 12
months
2,197,719
1 to 5
years
6,958,851
More
than 5
years
927,945
Mortgages
8,433,344
38,775
80,158
99,627
247,908
2,056,022
5,910,854
Leasing
4,202,111
586,868
258,844
329,610
647,090
2,181,829
197,870
Credit cards
1,689,104
456,058
49,660
74,489
148,979
438,829
521,089
593,079
62,552
49,117
42,233
66,160
294,366
78,651
7,149,463
1,989,034
2,422,323
1,668,205
200,338
648,520
221,043
39,103,334
4,812,339
5,950,382
4,396,550
3,508,194 12,578,417
7,857,452
690,928
39,794,262
Corporate loans are made to debtors with annual sales levels greater than S/. 200 million in the last two
years according to their latest audited financial statements. This category also includes debtors such as
multilateral development banks, sovereigns, public sector entities, securities brokers and intermediaries
and companies and institutions in the financial system.
92
Large business loans include debtors with annual sales levels greater than S/. 20 million but less than
or equal to S/. 200 million in the last two years according to their latest financial statements. Also
included in this category are debtors that have issued debt instruments in the capital markets which
have not yet matured.
Medium business loans include debtors with total indebtedness greater than S/. 300 thousand in the last
six months and which do not have the requisite characteristics to be categorized as corporate debtors or
large business in the last six months.
Retail
Small business loans include credit for financing activities related to production, sales or distribution
and/or the supply of services. The total indebtedness in the financial system of debtors in this category
is greater than S/. 20 thousand but less than S/. 300 thousand in the last six months.
Microbusiness loans include credit for financing activities related to production, sales or distribution
and/or the supply of services. The total indebtedness in the financial system of debtors in this category
is no greater than S/. 20 thousand in the last six months.
Revolving consumer loans include revolving credit for payments for goods, services or costs unrelated
to business activity. This category includes debtors with a total indebtedness of less than S/. 300
thousand during six consecutive months.
Non-revolving consumer loans include non-revolving credit for payments for goods, services or costs
unrelated to business activity. This category includes debtors with a total indebtedness less than S/. 300
thousand during six consecutive months.
Mortgage loans include credit for the acquisition, construction, renovation, remodeling, expansion,
improvement and sub division of an owners home, backed by a mortgage.
Regulations promulgated by the SBS also require Peruvian banks to classify all debtors into one of
five categories (Normal, Potential Problem, Substandard, Doubtful and Loss) depending upon the degree
of risk of nonpayment. The Bank reviews its loan portfolio on a continuing basis, and the SBS reviews the portfolio
as it deems necessary or prudent. In classifying its loans based upon risk of nonpayment, the Bank, in compliance
with SBS guidelines, assesses the following factors: the payment history on the particular loans, the history of the
Banks dealings with the borrower, management, operating history, repayment capability and availability of funds of
the borrower, status of any collateral or guarantee, the borrowers financial statements, general risk of the sector in
which the borrower operates, the borrowers risk classification made by other financial institutions, and other
relevant factors. The classification of the debtor determines the amount of the required loan loss provision.
Peruvian banking regulations require banks to establish a provision for impairment of losses based on a
percentage that depends on the loans category in the banks loan and credit portfolio.
In general, allowance for loan losses depends of the following variables: debt, classification and
collaterals.
93
For debtors classified as Normal there are two components to determine the required provisions for
impairment of loan losses, known as the general provision. The first component of the provision for the
impairment of loan losses is a fixed rate while the second component is a variable rate and is required if the Peruvian
gross domestic product growth reaches a certain level established by the SBS. Both components are shown in the
following table:
Loans by category
First
Component
Second
Component
Second
Component (*)
0.70%
0.70%
1.00%
1.00%
1.00%
1.00%
1.00%
1.00%
0.70%
0.40%
0.45%
0.30%
0.50%
0.50%
1.50%
1.00%
0.25%
0.40%
0.30%
0.30%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.30%
SBS Resolution No. 11356-2008 requires a lower provision on the portion of the loan or credit that is
secured with permissible collateral. For the purpose of determining the amount of the required provision, collateral
is valued in accordance with SBS regulations, which require an appraisal of the collaterals expected market value.
Only assets classified as (i) preferred, (ii) readily liquid preferred or (iii) self-liquidating preferred are acceptable as
collateral. Such collateral must, in accordance with SBS regulations, (1) be relatively liquid, (2) have legally
documented ownership, (3) have no liens outstanding and (4) have constantly updated appraisals. Examples of
preferred or highly liquid preferred assets include, among others, cash deposits, real estate mortgages and pledges on
securities or on other goods. Self-liquidating preferred assets include solely cash deposits in local banks or stand-by
letters of credit from highly-rated foreign institutions.
The SBS requires the following specific provisions for all types of loans:
Risk Category
Table 1
5.00%
25.00%
60.00%
100.00%
94
Table 2
2.50%
12.50%
30.00%
60.00%
Table 3
1.25%
6.25%
15.00%
30.00%
One of the main changes introduced by SBS Resolution No. 11356-2008 is that since July 2010, the
provision for contingent credit operations has been calculated using credit conversion factors applied over the
nominal amount in the percentages provided below:
Conversion
Factor
20%
50%
c) Issuances of guarantees, import letters of credit and standby letters not included in
paragraph b) and confirmations of letters of credit not included in paragraph a) and bank
acceptances ....................................................................................................................................
100%
0%
100%
95
Class A: Normal
Class B: Potential
Problem
Class C: Substandard
Class D: Doubtful
Class E: Loss
Small businesses,
microenterprises,
revolving and nonrevolving consumer
Residential mortgage
loans
Up to 8 calendar days
past due in credit
obligations
Up to 30 calendar
days past due in
payment of credit
obligations
Between 9 and up to 30
calendar days past due
in payment of credit
obligations.
Between 31 and up to
60 calendar days past
due in payment of
credit obligations.
Between 31 and up to
60 calendar days past
due in payment of credit
obligations.
Between 61 and up to
120 calendar days
past due in payment
of credit obligations.
Between 61 and up to
120 calendar days past
due in payment of credit
obligations.
96
The following table shows the Banks loan portfolio risk classification:
As of December 31,
Current Peruvian GAAP
2013
Level or Risk Classification
2012
2012
(Nuevos soles in thousands, except percentages)
Amount
%
Amount
%
2011
Amount
A : Normal
37,416,947
94.1%
B : Potential problems
850,238
2.1%
810,700
2.5%
810,700
2.5%
580,981
1.9%
C : Substandard
519,002
1.3%
420,600
1.3%
420,600
1.3%
321,139
1.1%
D : Doubtful
480,760
1.2%
384,170
1.2%
384,170
1.2%
293,888
1.0%
E : Loss
495,999
1.2%
314,553
1.0%
314,553
1.0%
260,803
0.9%
C+D+E
39,762,946
1,495,761
100.0%
3.8%
31,060,118
32,990,141
1,119,323
94.1%
100.0%
3.4%
31,060,046
32,990,069
1,119,323
94.1%
100.0%
3.4%
Amount
28,488,684
95.1%
29,945,495
875,830
______
(1)
Overdrafts
Accrued interest on past-due loans is recognized only when and to the extent received. With the exception
of discounted notes and overdrafts, the recognition of accrued but unpaid interest on a loan is reversed when it
becomes past due.
97
100.0%
2.9%
The following table sets forth the repayment status of the Banks loan portfolio:
As of December 31,
Current Peruvian GAAP
2013
2012
2012
(Nuevos soles in thousands)
2011
Current
39,103,334
32,621,460
33,140,118
30,236,882
170,476
115,116
115,116
56,487
520,452
284,161
284,161
223,223
690,928
39,794,262
399,277
33,020,737
399,277
33,539,395
279,710
30,516,592
Past-due loans as a
percentage of total loans
1.74%
1.21%
1.19%
0.92%
2012
2012
(Nuevos soles in thousands)
2011
Loans
278,507
170,770
170,770
122,500
Mortgages
46,530
27,658
27,658
24,503
Leasing
61,545
36,790
36,790
29,051
Discounted notes
5,769
4,386
4,386
3,720
Credit cards
79,737
47,942
47,942
30,173
218,840
111,731
399,277
69,763
111,731
690,928
399,277
279,710
Reserves:
Specific reserves
Not specifically identified
reserves
748,477
537,846
537,846
434,844
1,040,130
927,240
926,723
815,090
1,788,607
1,465,086
1,464,569
1,249,934
(1,065,292)
(970,224)
(1,097,679)
(1,065,809)
98
2013
2012
2012
2011
1,465,086
1,249,934
1,249,934
1,049,352
Provision
1,099,461
944,540
944,023
763,613
(577,576)
(458,043)
(458,043)
(443,836)
(1,098)
(1,098)
(2,051)
(239,561)
(251,987)
(251,987)
(102,942)
41,197
(18,260)
(18,260)
(14,202)
Write-offs
Sale of portfolio
Foreign exchange difference and other
adjustments
Reserves loan losses at the end of the period
1,788,607
1,465,086
1,464,569
1,249,934
2012
2011
Commercial loans
1,213,381
959,517
959,000
819,223
Microbusiness loans
2,848
5,353
5,353
5,184
Consumer loans
400,940
358,718
358,718
299,648
171,438
141,498
141,498
125,879
Total
1,788,607
1,465,086
1,464,569
1,249,934
99
The following table presents the components of the Banks deposit base at the dates indicated:
As of December 31,
Current Peruvian GAAP
2013
2012
2012
(Nuevos Soles in thousands)
2011
Demand deposits
Nuevo Sol-denominated
6,201,161
5,321,427
5,321,427
4,969,175
Dollar-denominated
6,018,442
3,916,344
3,916,344
3,919,785
9,237,771
8,888,960
Total
12,219,603
9,237,771
Savings deposits
Nuevo Sol-denominated
5,634,767
5,088,307
5,088,307
3,924,801
Dollar-denominated
3,688,517
2,916,952
2,916,952
3,190,443
8,005,259
7,115,244
Total
9,323,284
8,005,259
Time deposits
Nuevo Sol-denominated
7,853,554
8,002,308
8,002,308
6,031,296
Dollar-denominated
6,948,088
6,532,826
6,532,826
7,967,780
14,535,134
13,999,076
Total
14,801,642
14,535,134
485,811
528,317
528,317
170,559
Dollar-denominated
453,809
236,674
236,674
136,475
764,991
307,034
Total
939,620
764,991
Other obligations
Nuevo Sol-denominated
74,040
131,228
228,940
163,712
Dollar-denominated
61,335
47,411
47,415
18,445
276,355
182,157
Total
135,375
178,639
20,249,333
19,071,587
19,169,299
15,259,543
Dollar-denominated
17,170,191
13,650,207
13,650,211
15,232,928
32,819,510
30,492,471
Total
37,419,524
32,721,794
100
2013 (4)
Return on average assets
(1)
(2)
(3)
(2)
(3)
(4)
(5)
As of December, 31
2012 (5)
2011
2.46%
2.71%
2.82%
28.61%
31.40%
31.85%
50%
50%
65%
8.65%
8.51%
8.77%
Return on average is the net profit for the period as a percentage of average total assets, calculated as the average of period-beginning and
period-ending balances.
Return on equity is the net profit for the period as a percentage of average net equity, calculated as the average of period-beginning and
period-ending balances.
Dividend payout ratio is the results of declared dividends divided by net profit.
Calculated under Current Peruvian GAAP.
Calculated under Prior Peruvian GAAP. The ratios are the same in both Current Peruvian GAAP and Prior Peruvian GAAP.
101
THE BANK
Organizational Structure
In May 1995, the Bank was purchased by Holding Continental, a company formed by BBVA Group and
Grupo Breca. In July 1998, the Peruvian government sold its remaining shares in the Bank, the equivalent
of 19.12% of the Banks total shares, in an initial public offering. Since 1995, Holding Continental has increased its
ownership stake in BBVA Continental, and currently holds 92.24% of the Banks outstanding capital stock.
The Banks corporate structure is comprised of a group of wholly-owned subsidiaries offering specialized
financial services that complement its commercial banking activities. These subsidiaries include:
Continental Bolsa, a wholly-owned subsidiary engaged in portfolio advisory and brokerage services
on the BVL;
Continental Titulizadora, a wholly-owned subsidiary which provides trustee services for asset
securitizations structured by BBVA Continental; and
IRCSA, a wholly-owned subsidiary which manages troubled assets and foreclosed property and
equipment.
The following chart sets forth the Banks ownership and corporate structure:
102
General
The Bank was founded in 1951 by a group of private individuals to provide financial services in Peru, and
initially was headquartered in the historic center of Lima. In 1964, Chase Manhattan Bank acquired 51.00% of the
Banks shares. In 1970, the Bank was nationalized by the Peruvian government, which became the majority
shareholder by taking control of the shares of Chase Manhattan Bank. In 1973, BBVA Continental acquired Banco
de Progreso. In July 1975, BBVA Continental was required by government mandate to acquire the shares of Banco
Nor-Peru, as a result of the latters financial difficulties.
In June 1980, the Bank moved to its current location in the district of San Isidro. In the early 1980s, the
Bank made several acquisitions of other Peruvian banks, including Banco de los Andes in 1981, Banco Comercial
del Peru in 1983, and Banco Amaznico (by government mandate) in 1986. In 1992, the Bank, along with several
other Peruvian banks, underwent a privatization process as an initiative of the administration of then-President
Alberto Fujimori. In May 1995, Holding Continental, formed by BBV and Grupo Breca, purchased 60.00% of the
Banks shares. In 1998, the logo BBV was added to BBVA Continental and the Bank formed the subsidiaries
Inmobiliaria Continental S.A. (now IRCSA) and Continental Titulizadora. In 1999, BBV acquired Argentaria and
became BBVA Continental. Since 1995, Holding Continental has increased its ownership stake in BBVA
Continental, and currently holds 92.24% of the Banks outstanding capital stock.
Ownership
BBVA Group
BBVA Group is one of the largest and oldest financial groups worldwide dating back to 1857. It includes
Spains second largest financial group and is among the 10 largest financial groups in Europe in terms of market
capitalization. BBVA Group has a wide shareholder base with no single shareholder holding more than 5% of its
shares. As of June 30, 2014, BBVA Group had offices in 30 countries, had 109,450 employees, 7,359 branches,
954,325 shareholders, total assets of 617,131 million and a market capitalization of 54,804 million.
Due to the increasingly competitive landscape in Europe in the mid-1990s, BBVA Group entered the Latin
American market, which it saw as an under-served region with significant growth potential. BBVA Group currently
has a significant presence in Latin America, with interests in banks and insurance companies in Argentina, Bolivia,
Brazil, Chile, Colombia, Mexico, Paraguay, Peru, Uruguay and Venezuela. As of June 30, 2014, 71% of the
employees, 56% of the branches, 116% of the net income and 35% of the assets of BBVA Group came from the
Americas, including operations in the United States, where in 2007 BBVA Group acquired Compass Bank.
In the first half of 2013, BBVA Group closed the sale of its interest in the pension fund business in
Colombia and Peru, and in the last quarter of 2013 closed the sale of Provida Chile and BBVA Panama, as these
businesses are not related to its core banking activity.
The Bank believes it benefits from its relationship with BBVA Group due to the BBVA Groups focus on
the Latin American region, strong management, emphasis on risk management, technological and other know-how
and strong credit ratings.
Breca
Breca is one of the largest corporate conglomerates in Peru, with investments across most economic
sectors, including banking, insurance and health, industrials, mining, tourism, real estate, fishing, agribusiness and
specialized services. Breca is a family-owned conglomerate, with several companies publicly listed on the BVL.
The Group also has investments in Brazil and Chile.
The Bank believes it benefits from the support of Breca due to its position as one of the most important
economic groups in Peru, with experienced, highly-skilled management and a strong solvency position. In addition,
103
the Bank is able to realize certain synergies with Breca, such as the Banks ability to offer its customers insurance
products such as life insurance, automobile insurance and property insurance that are provided through Brecas
insurance business, Rimac. Rimac also provides the health insurance for the Banks employees.
Lines of Business
The Bank operates as a universal bank offering a broad range of financial services to its customer base. In
recent years the Banks customer base has experienced a significant growth, reflecting improvements in the
Peruvian economy and the resulting expansion of financial services nationwide. The Banks customer base more
than quintupled in size between 2003 and June 30, 2014, increasing from approximately 720,000 customers as of
December 31, 2003 to approximately 3,783,000 customers as of June 30, 2014. The Bank continues to develop and
improve its products and services to meet the needs of its customers. The Banks main lines of business include the
following:
Retail banking, which serves individuals and small businesses with annual sales under US$1,400,000;
Middle market banking, which serves companies with annual sales of US$1,400,000 to US$75 million,
institutional customers and government entities;
Corporate banking, which serves large corporate groups with annual sales equal to or greater than
US$75 million and multinational corporations; and
Other financial services, which include the Banks treasury, asset management and brokerage services.
Retail Banking
The Banks retail banking business serves individuals and small businesses with annual sales under
US$1,400,000. The Bank considers its retail banking business one of its strategic priorities as it seeks to take
advantage of the increasing access to banking services that has occurred in Peru over the last five years. The Banks
nationwide distribution network supports its strong presence in the retail banking segment. The Banks strategy is to
expand its presence in the retail segment by offering innovative products and engaging in an aggressive marketing
effort to increase its cross-selling opportunities, with a special focus on being chosen by its customers as their
primary bank. This strategy focuses on attracting individuals and small businesses not only through the wide variety
of products the Bank offers, but also through a potential long-term relationship with the Bank as their bank of
choice. The Banks main products for its retail customers include the following:
Deposit products including different types of savings accounts, checking accounts and time deposits.
The Bank offers products that allow customers to maintain savings accounts in U.S. Dollars or Euros.
The Bank offers its customers a wide portfolio of products to meet their deposit needs, and is
constantly seeking new opportunities and designing new products oriented to the specific needs of its
customers. Examples of these initiatives are the products Cuenta Ganadora, a saving account with
special prices and discounts, and Mundo Sueldo, a payroll account which offers customers the ability
to receive their salary through an account that provides special benefits such as the ability to withdraw
money from any ATM (including ATMs from other banks) without an additional fee and discounts
from retail establishments and restaurants. In addition, the Bank launched structured deposits such as
DIVA, made up of a deposit, which guarantees 100% of the principal at maturity, and an option,
which allows the customer to obtain a variable interest.
Credit products including several types of mortgage, vehicle and consumer loans, loans to finance
postgraduate studies and Visa and MasterCard credit cards. The Bank has a solid position in mortgage
loans, offering customized products such as Prstamo Hipotecario Flexible (recently enhanced with
a scheme that reduces the interest rate once the mortgage is formalized), Nuevo Crdito Mi Vivienda
(designed to assist low-income individuals in purchasing their own homes and supported by funds
from the Peruvian government), Prstamo Hipotecario ConstruYO and Prstamo Hipotecario
Joven (a home loan program that facilitates lending to younger customers by crediting up to 60% of a
104
borrowers salary for purposes of calculating the debt-to-income ratio for credit approval purposes).
The Bank has also strengthened its presence in consumer finance products, especially in auto loans
through its strategic alliance with Forum.
Investment products include a broad portfolio of mutual funds and fixed income investments. The
Banks mutual funds are managed by its subsidiary Continental Fondos, through which the Bank also
offers fixed income investments. The Bank continuously innovates with its portfolio such as with its
new mutual fund Seleccin Estratgica, which is a fund of funds investing in securities from North
America, Europe and Asia, among other regions.
Other products and services designed to satisfy the transactional, insurance and cash management
needs of the Banks retail customers include debit cards, insurance products, remittance services,
national and international funds transfer services, letters of credit, payment of services and safetypay.
The Banks debit cards include its Visa and Visa VIP cards, which are linked to the customers bank
account and can be used to make purchases in locations that are part of the Visa network and to
withdraw cash from the Banks nationwide network of ATMs. The insurance products the Bank offers
include, among others, life insurance and credit and debit cards and fraud protection insurance,
provided through Rimac.
The Banks retail banking team also serves small businesses due to the overlap of customer needs. The
Bank offers its small business customers a range of products comparable to that offered to its middle market
customers.
Deposit products including savings accounts, checking accounts and time deposits. The Banks
Cuenta Corriente product (available in U.S. Dollars and Nuevos Soles) is a checking account geared
towards its business customers and can be used to make withdrawals, deposits, payments of salaries,
payments to third parties and transfer funds between the holders different accounts.
Credit products including loans to finance specific business needs such as working capital and the
purchases of commercial goods and services as part of the trade cycle as well as credit cards. Some of
the Banks commercial loans, such as its Prstamo Comercial product, are available in Nuevos Soles
or U.S. Dollars, since many of its customers have cash flows in foreign currencies. The Bank offers
several different types of Visa credit card options to its business customers, including its Tarjeta
Capital de Trabajo product, which has a revolving line of credit for the purpose of meeting working
capital needs. The Bank also offers other credit card products to assist its customers in managing
travel expenses incurred by their employees.
Transactional services including cash management, payroll, leasing and foreign trade services, are
available in an electronic format through the Banks Continental Net Cash platform. In addition to
the transactional services mentioned above, the Bank offers factoring services and payment to
suppliers services through e-mpresario, an internet portal created to facilitate interaction between the
Banks clients, whether they are buyers or sellers.
Cash management services involve the Banks collection of payments from third parties such as clients
on behalf of its customers. Through the Banks payroll services, it handles its customers payment of
the salaries and wages of their employees. Factoring services involve the purchase by the Bank of its
customers accounts receivable at a discount. Through the Banks leasing services, it leases a
105
particular asset such as machinery to its customer, who has the option to buy the asset at the end of the
lease period, and is able to realize a tax benefit through this arrangement. The Banks middle market
customers also have access to its foreign trade, treasury services and investment banking services,
which are described in further detail in the Corporate banking and Other financial services sections
below.
Other products and services designed to complement the Banks deposit and credit products and to
meet the specific needs of its middle market and small business customer base include debit cards,
insurance products and discount of bills. The Banks debit cards include its Visa card, which is linked
to the customers bank account, and can be used to make purchases in locations that are part of the
Visa network and to withdraw cash from ATMs. Pursuing a tailored client approach, the Bank started
offering packages of products, such as Business Pack, which provides access to a checking account,
a business debit card and to its banking internet platform. The Banks insurance products include
several different types of life insurance policies offered to its customers for the benefit of their
employees, and business insurance policies, which are offered through Rimac. For medium-sized
SMEs, the Bank strengthened its Multi-risk Business Insurance product, aimed at safeguarding its
assets.
Corporate Banking
The Banks corporate banking business serves large corporate groups with annual sales equal to or greater
than US$75 million and multinational corporations. The Banks corporate banking business consists of its corporate
banking, investment banking and trustee services. The Bank offers its corporate customers a wide range of
sophisticated financial products including syndicated loans, leasing, securitizations and structured notes.
The investment banking area of the Banks corporate banking business is responsible for providing
structuring, origination and financial advisory services to its corporate customers and to its middle market
customers, in addition to handling bilateral loans with other financial institutions.
The Banks subsidiary Continental Titulizadora was created to serve as the trustee in securitizations
structured by BBVA Continental, pursuant to Peruvian regulations requiring the trustee to be a single purpose legal
entity. Continental Titulizadora is also legally capable of serving as the trustee in securitizations structured by third
parties other than BBVA Continental and its affiliates, although to date it has not done so.
Treasury services. Through its Global Markets unit, the Bank provides treasury services that involve
the administration of the deposits of its middle market and corporate customers. In addition, the Bank
assists its customers with their liquidity management and foreign exchange operations, offer basic
derivatives products to assist them in hedging market risk and provide advisory services regarding the
state of the local and international markets.
Asset management services. The Bank offers its customers asset management services, primarily in
the form of financial advisory services for its business and institutional customers. These services
involve advising existing customers as to various long-term investment options that exist within the
local market, such as mutual funds, and investing the customers assets under their own accounts. In
addition, the Banks subsidiary Continental Fondos acts as a fund manager for eighteen mutual funds,
which is a separate business from the Banks asset management services. As of June 30, 2014 the
Bank had S/.4,144 million of assets under management. While the Bank at times advises its customers
to invest in those particular funds (and receives a commission to do so), its asset management services
are not limited to the funds managed by Continental Fondos.
106
Brokerage services. Through the Banks subsidiary Continental Bolsa, the Bank provides brokerage
services to customers by assisting them in purchasing or selling shares listed on the BVL. Continental
Bolsa also provides brokerage services relating to fixed income investments, as well as portfolio
advisory services. In addition, Continental Bolsa assists the Banks customers in trading securities on
foreign exchanges located in markets such as New York, London and Toronto through its relationship
with Lek Securities Corporation, an electronic order-execution and clearing firm that provides direct
access to equities, options and futures markets for institutional investors.
Finance Unit
The Banks Finance unit is responsible for issuances of its long-term and medium-term debt, as well as
coordinating securitizations and debt issuances in the local market at the direction of the Banks Asset and Liability
Management committee (ALCO). The Finance unit also oversees, among other responsibilities, the Banks
accounting procedures and the preparation and monitoring of the Banks budget and the budgets of its subsidiaries.
Distribution Channels
Points of Service
The Bank maintains a broad network throughout Peru and continues to increase its points of service to
better reach its customers. The Banks distribution channels include its branches, ATMs and express agents. In
addition to its regular branches that handle the greatest volume of its banking transactions, the Bank has a smaller
number of special branches that are intended for its business, corporate and institutional customers. As of June 30,
2014, the Bank had 361 total branches in Peru, with 335 branches providing retail services, 25 branches providing
business, corporate and institutional services and 1 branch providing wealth management services. The majority of
the Banks branches offer special account balance and flows modules and telephone modules that allow customers
to check the balances of their accounts and recent transaction activity electronically or over the phone, without the
assistance of an employee. As of June 30, 2014, the Bank had 444 balance and flow modules and 487 telephone
modules located in its branches throughout Peru.
107
As of June 30, 2014, out of the 1,583 ATMs the Bank has, 1,345 are only cash dispensers and the
remaining 238 are multifunction ATMs, which offer customers the possibility to perform more sophisticated
transactions such as withdrawals and deposits of cash. The Bank is also working on a project that will broaden the
operations that could be done through multifunction ATMs, such as credit card payments, bill payments and check
cashing and processing, among others.
The Banks ATMs are usually placed in high traffic areas, including gasoline stations, office buildings,
supermarkets, commercial centers and malls. As of June 30, 2014, the Bank had 1,583 of its own ATMs, of
which 776 were located in its branches, 152 were located in other companies, 105 were located in Farmacias
Peruanas S.A. locations and 550 ATMs were located in other locations. Through an agreement the Bank has with
Globalnet, the Banks customers also have access to the Globalnet network of ATMs, which is the largest ATM
network in Peru. As of June 30, 2014, there were 2,460 Globalnet ATMs located throughout Peru, according to
ASBANC.
The Bank has express agents located within small business with which it carries a relationship. The express
agents are authorized to perform transactions on the Banks behalf, and are a cost-effective way for the Bank to
provide greater access for its customers. In addition to the express agents, the Bank has express plus agents, who
provide the same services as express agents, but who have a dedicated on-site employee to attend to banking
transactions. As of June 30, 2014, the Bank had 2,731 express agents located throughout Peru (according to
ASBANC). These express agents include an agreement with Globokas Per S.A.C., a company that provides
network communication services, financial settlement platforms and express agents that allow clients to make
transactions as they would do in a regular branch, such as withdrawals, deposits, payment of services, among others.
This agreement allowed the Bank to place 1,865 express agents through Globokass network to facilitate the Banks
clients transactions. In addition, the Bank has an agreement with Western Union that allows the Banks clients to
make payment transfers to any of Western Unions 447 points of payment.
108
The table below sets forth the Banks market share in the following categories of the Peruvian banking
system on an unconsolidated basis as of June 30, 2014.
As of June 30, 2014
Market
Share
Rank
Total assets
21.08%
Performing loans
23.26%
Deposits
Shareholders
equity
Net income
21.31%
18.34%
25.80%
Source: SBS
Total Assets
As of June 30, 2014, the Bank was second in the Peruvian banking system in terms of total assets,
according to the SBS. Total assets include loan portfolio, cash and bank accounts, trading and term investments,
accounts receivable and other assets as each term is defined by the SBS. The following table sets forth the level of
assets for banks in Peru as of December 31, 2013, 2012 and 2011, and as of June 30, 2014
As of December 31,
2013
2012
As of June 30,
2011
2014
91,343
82,393
68,679
96,176
BBVA Continental
56,550
49,714
42,254
56,954
Scotiabank
40,951
31,564
29,837
41,827
Interbank
29,872
23,672
20,050
30,766
Others
42,601
36,815
32,235
44,482
261,317
224,158
Source: SBS
109
193,056
270,206
Performing Loans
As of June 30, 2014, the Bank was the second largest in the Peruvian banking system in terms of
performing loans, according to the SBS, with a market share of 23.3%. The following table sets forth the level of
performing loans for banks in Peru as of December 31, 2013, 2012 and 2011, and as of June 30, 2014
As of December 31,
2013
2012
As of June 30,
2011
2014
55,154
48,765
42,573
59,064
BBVA Continental
38,510
32,698
29,870
40,669
Scotiabank
25,079
20,384
18,755
26,821
Interbank
19,308
15,435
14,125
20,726
Others
26,321
22,917
19,883
27,580
164,371
140,199
125,206
174,861
Source: SBS
Deposits
As of June 30, 2014, the Bank was the second largest in the Peruvian banking system in terms of deposits,
according to the SBS, with a market share of 21.3%. The following figures include deposits from the public and
from financial institutions.
The following table sets forth the level of deposits for banks in Peru as of December 31, 2013, 2012
and 2011, and as of June 30, 2014.
As of December 31,
2013
2012
As of June 30,
2011
2014
59,856
54,467
44,605
63,351
BBVA Continental
37,365
32,661
30,374
38,681
Scotiabank
28,079
18,677
19,649
28,395
Interbank
20,227
14,601
13,113
20,181
Others
29,732
24,849
22,858
30,923
175,259
145,254
130,600
181,531
Source: SBS
110
Shareholders Equity
As of June 30, 2014, the Bank ranked third among commercial banks in Peru in terms of shareholders
equity, according to the SBS. The following table sets forth the level of shareholders equity for banks in Peru as of
December 31, 2013, 2012 and 2011, and as of June 30, 2014.
As of December 31,
2013
2012
As of June 30,
2011
2014
8,195
7,141
6,296
8,784
Scotiabank
5,059
4,629
4,043
5,106
BBVA Continental
4,891
4,228
3,705
4,865
Interbank
2,652
2,374
1,956
2,721
Others
4,601
3,948
3,469
5,056
25,397
22,320
19,468
26,532
Source: SBS
Net Income
For the year ended June 30, 2014, the Bank was the second largest in the Peruvian banking system in terms
of net income, according to the SBS. The following table sets forth net income for banks in Peru for the years ended
December 31, 2013, 2012 and 2011, and for the six months ended June 30, 2014 and 2013.
As of December 31,
2013
2012
As of June 30,
2011
2014
1,647
1,498
1,439
867
BBVA Continental
1,304
1,246
1,129
623
Scotiabank
855
823
788
385
Interbank
647
570
541
325
Others
514
483
435
212
4,968
4,620
4,332
2,413
Source: SBS
111
Risk Management
General
The Banks risk exposure consists of credit, liquidity, operational (including legal) and market risks. Credit
risk is defined as the potential loss caused by the partial or total failure of a counterparty or issuer to perform on an
obligation to us. Credit risk can affect the performance of both the loan portfolio and the investment portfolio.
Liquidity risk encompasses funding liquidity risk, which refers to the inability to renew liabilities or acquire new
ones at normal market conditions, and market liquidity risk, which refers to the inability to unwind or offset
positions due to a lack of market depth, thereby affecting the value of an asset. Operational risk is the potential loss
caused by failures or deficiencies in information systems, internal controls or errors while processing transactions.
Market risk is the potential loss due to adverse changes in market prices of financial instruments as a result of
movements in interest rates, foreign exchange rates and equity prices, and the adverse effect on the Banks
traditional banking activities of interest rate and foreign exchange rate fluctuations. The Bank considers risk
management an essential activity that requires continuous improvement and adjustment according to its operations.
The Peruvian financial authorities have formulated rigorous risk management regulations for the banking
sector. The SBS has issued a set of requirements regarding risk management practices for all banking institutions in
Peru. The regulations require that banks have adequate policies and procedures in place to manage credit, liquidity,
market and operational risk. Management processes must include sound measurement and monitoring methods, as
well as the establishment of risk limits. SBS regulations also require the establishment of risk committees and a risk
management unit. The Bank believes its risk management function and processes fully comply with the SBS
requirements.
The Banks risk management function is performed in a centralized area independent of the business units
that oversee credit exposure across all of the Banks market segments. Risk management is comprised of an integral
risk committee, an executive credit risk committee, a technical operational committee and a risk management unit.
The Banks risk management unit identifies and measures the quantifiable risk of all of the Banks operations, and
reports directly to the Banks CEO. The Banks integral risk committee decides on the strategies and policies related
to mitigating financial risks, including the setting of risk limits, which are approved by the Banks Board of
Directors. The Banks technical operational committee analyzes and evaluates proposed operations and serves as a
technical filter for the executive credit risk committee. The Banks executive credit risk committee analyzes,
evaluates, qualifies and determines the final decision of special individual operations according to the procedures
and policies established by the integral risk committee. The committee also analyzes catastrophic event scenarios
and conducts stress testing. The Banks integral risk committee meets monthly. The technical operational committee
and the Banks executive credit risk committee each meet at least weekly.
The Banks risk management function is fully integrated within BBVAs risk management structure and
the Bank applies BBVAs risk management policies. The Bank is subject to oversight by BBVAs risk management
unit in Spain, as certain transactions (for instance, operations involving country risk) must be approved by BBVA,
and the head of the Banks risk management area reports to both the Banks CEO and to BBVAs risk management
unit.
Credit Risk
Retail Lending
The authority to extend credit is delegated to the branch managers at each of the Banks branches. These
officers are authorized to approve credit within individual limits set according to the amount of credit and the type of
risk involved. Transactions over those limits have to be evaluated by the Banks risk management unit.
The Banks evaluation of credit risk is based on its highly-developed predictive tools, all of which are
calibrated based on the performance profile of the customer and on the Banks criteria and risk standards. The Bank
uses several tools to evaluate the credit risk represented by individuals, including its credit report tools Score
Reactivo and Score de Bur. Both of these programs analyze biographical data such as income, employment status,
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and household size and review the credit history of the individual with the Bank and with other financial institutions.
Score de Bur also analyzes the credit behavior of all of the individuals obligations in the Peruvian financial system
over the last 24 months, including the number of credit cards owned by the individual and the availability of credit
on these credit cards, among other factors. The resulting score determines the amount of credit the Bank will provide
that individual. In addition, the Bank contracts the services of an outside vendor to verify the work and home
address that the customer has provided in order to ensure the possibility of future collection of the loan.
The Banks credit evaluation procedures with respect to credit cards are based on a computerized credit
scoring system designed specifically for credit cards. There are two different processes of origination; the mass
process, which is carried out by the Banks risk management unit, and the individual process, which is carried out by
each of the Banks branches. Through the mass process the Banks risk management unit pre-approves credit cards
for a large number of clients that have passed previously-set filters. Through the individual process, the Bank
evaluates each new credit card application on an individual basis at the branch level. This evaluation can also be
done by the Banks risk management unit.
The Banks monitoring activities are an important part of its credit risk management procedures, through
which it can anticipate and reduce the risk of default. The Bank monitors its customers credit and payment behavior
on an ongoing basis by keeping track of their various credit products with the Bank and with other financial
institutions, and their payment patterns. The Bank also analyzes factors relating to type of product, year of
origination, marketing campaign, and geographic area, among others, to develop models that allow it to detect any
alert sign in a customers account. If this occurs, the Bank immediately takes steps such as contacting the
customer to discuss an alternate payment plan. In this way, the Bank actively applies preventative measures to avoid
a deterioration of its loan portfolio.
Corporate, Middle-Market and Small Business Lending
For the Banks business customers, account officers are responsible for preparing proposals regarding loan
applications. Each loan application is then classified according to its segment (corporate, middle-market or small
business).
A business customers credit evaluation process focuses primarily on the credit history and reputation of
the businesss owners and management, its production processes and facilities, its current and projected cash flows
and the security offered for the loans. With respect to loans intended to finance a particular project, the evaluation
focuses primarily on the experience of the borrower relating to such a type of project, the existence of a
technological alliance, market conditions and the projected financial condition of the borrower. The Bank assigns a
credit risk rating based on this analysis that helps identify the customers risk profile.
In the middle-market and small business segments, the credit business is divided into divisional sub-groups
representing broad geographical sectors. The divisions are made up of regional offices and territories. Each group
has groups of risk analysts.
The Bank uses a system similar to that used with its retail customers for evaluating the credit risk
represented by its small business, middle-market and corporate customers, in which it analyzes the customers
financial condition, credit history and qualitative information such as ownership structure. The Banks credit criteria
are based on industry studies that it prepares for key economic sectors. After passing the Banks initial filters, credits
for small business, middle-market and corporate customers are analyzed by the enterprise risk management area
using rating models.
The credit risk of the Banks large multinational corporate customers is handled at the BBVA level.
BBVAs risk management unit manages the entire relationship with those customers and coordinates lending and
other services with all of the regions/banks involved.
As with the Banks retail customers, the risk management unit monitors its business customers credit and
payment behavior on an ongoing basis by keeping track of the various credit products business customers have with
it and with other financial institutions as well as their payment patterns. If a customer appears to meet one of the
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high risk profiles that the Bank has identified, the Banks monitoring tool known as SALEM (Sistema de Alerta
Empresas) generates a series of alerts to its monitoring risk territory manager and to the monitoring segment risk
manager. At that stage, the Banks monitoring risk territory manager will reach out to the customer and if
appropriate, attempt to negotiate new terms for the credit, whether by refinancing the credit and obtaining additional
collateral or by arranging for other methods of payment to prevent future default.
Recovery
The Bank has a separate group within its risk management area that is responsible for the recovery of past
due credits through administrative processes and judicial proceedings. If a credit is less than 30 days overdue, the
Bank relies on its external call centers to contact the customer regarding repayment. If a credit is between 30-90
days overdue, the credit is transferred to a collection agency. For collection purposes, past due credits that remain
unpaid 90 days after the payment was due are considered defaulted credits. After 90 days, the Bank may initiate
legal proceedings, which can last an average of three years. The Bank has the highest past-due coverage in the
market, according to the SBS.
Liquidity Risk
Liquidity risk arises when an unusual increase in withdrawals of deposits creates the need to increase
funding positions at a high cost or liquidate asset positions in the short-term at significantly reduced prices. The
purpose of managing liquidity risk is to minimize the cost of funds through adequate coverage of liquidity needs that
arise in either the ordinary course of business or from unforeseen events.
The Banks Treasury unit is responsible for maintaining adequate short-term liquidity levels in Nuevos
Soles and U.S. Dollars. The Banks ALCO is responsible for maintaining adequate long-term liquidity levels in
Nuevos Soles and U.S. Dollars, delegating operational tasks to the Banks Finance unit. The Banks principal
sources of Nuevos Soles funding are customer deposits, which are highly concentrated in checking accounts (noninterest and interest-bearing), savings accounts, time deposits and repos from the Central Bank. The Banks
principal sources of U.S. Dollar funding are checking accounts (non-interest and interest-bearing), savings accounts,
time deposits and derivatives.
Liquidity risk is analyzed by time horizon (short-term), concentration of funding, liquidity performance
indicators and stress conditions and is monitored through a limit and alerts scheme for quantitative and qualitative
indicators whereby, if necessary, a contingency plan is implemented for immediate corrective actions.
Market Risk
The Banks exposure to market risk arises from trading and investment in financial instruments, with
interest rates, foreign exchange rates (principally the Nuevo Sol/U.S. Dollar exchange rate) and equity prices as the
main sources of market risks, and from traditional banking services such as deposit taking and lending where the
balance sheet is exposed to interest-rate risk and foreign-exchange risk.
Trading Position
Treasury and trading positions are evaluated on a daily basis for market risk using value-at-risk
methodology. In addition, daily information regarding risk versus limits, scenario analysis and stress tests is
produced.
The Banks risk management unit uses a parametric simulation model to calculate value-at-risk. Equally
weighted parametric simulation is used as the central measure, against which limits are compared. Parametric
simulation with exponentially weighted moving average is used as a complement to have more sensitivity of risk, as
this model responds faster to changes in volatility and correlation levels. The effect of portfolio diversification is
measured within each model.
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Historical data of market parameters such as interest rate curves, foreign exchange prices, volatilities and
stock indexes for the last year is available for value-at-risk calculations.
The information presented below corresponds to the Banks positions as of June 30, 2014. Daily value-atrisk is calculated with a 99% confidence level. Value-at-risk is calculated to represent the maximum loss at the
confidence level due to changes in market values of trading positions. The information below does not include
securities that are no longer traded, are held-to-maturity, or are highly illiquid or in workout. During the second
quarter of 2014, daily value-at-risk did not exceed S/. 12.7million. The daily consolidated value-at-risk limit is
S/. 22.17 million. Limits are reviewed periodically.
The following table displays the values of the daily Value-at Risk at June 30, 2014:
% of Limit as
As of
of June 30,
Limits
June 30, 2014
2014
(Nuevos Soles in thousands, except percentages)
Limits
Economic capital
VaR
Sublimits
VaR interest rate
VaR foreign exchange
280,431
22,170
157,361
12,440
56.1%
56.1%
18,845
5,543
12,325
1,025
65.4 %
18.5%
Stress testing is used to complement the value-at-risk methodology. Stress testing involves the creation of
scenarios based on infrequent or catastrophic events to evaluate contingencies, and is of particular importance in
periods of highly volatile or illiquid markets. The sensitivity analysis the Bank conducts shows the effect on
positions caused by predetermined changes in market variables (a 0.01% increase in interest rates).
In addition, the Bank has a stop-loss process that issues a warning if losses reach a certain level preset by
its board of directors. If a stop-loss warning is issued, the Market Risk Committee is convened to establish an action
plan.
Interest Rate Risk
The Bank manages interest rate risk following policy guidelines established by its ALCO and the limits set
for it at the corporate level.
As of June 30, 2014, the sensitivity of the Banks earnings to interest rate changes of 300 basis points in
local currency and 100 basis points in foreign currency was 1.54% of regulatory capital, according to the regulatory
model. As of the same date, a Monte Carlo analysis based on 105 cases with a 99% confidence interval resulted in a
ratio of economic capital to core capital of 8.2%, which is below the 25% limit set by the Bank.
Both metrics imply that the Banks changes in earnings and economic value are within the appropriate
range due to the Banks amount of regulatory capital and core capital, therefore the potential adverse effects of
interest rate volatility are under control. Values above 25.00% (in relation to economic capital / core capital) suggest
a scenario that would be potentially harmful to the Bank (e.g., could involve great earnings losses, decrease of
company value, and increase of risk), if interest rate volatility were to increase.
Operational Risk
Operational risk is risk that cannot be classified as credit risk or market risk. The Bank measures and
endeavors to control operational risk through its operational risk management unit.
The Banks operational risk management unit reports to a risk executive officer and is responsible for
establishing and implementing methodologies and procedures to identify, measure, evaluate and mitigate operational
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risk throughout the Bank. Because operational risk mitigation is a part of every process, the responsibility of its
management is assigned to each process owner or manager in the Bank, who in turn designates a member of his or
her staff as an operational risk manager or specialist. Each of these operational risk managers or specialists works as
a delegate of the operational risk management unit.
The Bank uses STORM (Support Tool for Operational Risk Management), TransVaR (Valor en Riesgo de
las Transacciones, or Transaction Value Risk) and SIRO (Sistema Integrado de Riesgo Operacional, or Integrated
Operational Risk System) tools to manage operational risk, each of which was developed in-house and is a
proprietary trademark. STORM is a qualitative management tool that identifies and evaluates operational risk factors
and helps the Bank to establish and prioritize mitigating measures. TransVaR is a collection of a key risk indicators
that are customized for each process and that provide information about the level and kind of operational risk
exposure in each process. SIRO is a database of historic losses suffered by the Bank as a consequence of operational
risk events that are classified by risk class and loss type, business unit and account, among other criteria.
Internal Audit
BBVA Continental has an internal audit unit which reports to the Board of Directors of the Bank. This unit
also serves the Banks subsidiaries, and consists of 28 professionals, specialized in treasury and capital markets,
information technology, pension funds, processes, accounting, credit risk and fraud prevention. The internal audit
units function is to perform permanent, independent and objective evaluations to ensure the effectiveness of the
internal control systems and risk management. This audit unit is a part of and received support from the global audit
team of BBVA.
The internal audit unit provides quarterly reports to the audit committee of the Board of Directors, detailing
the progress and the evaluation of the work performed, in accordance with the Annual Audit Plan. These reports
include an explanation of all Banks policies and procedures, the level of compliance of them, local regulations,
strategic plan, investment and growth plans as well as the results of the SBS reviews and the external and internal
auditor reviews. In addition, the internal audit unit prepares reports every four months for the SBS.
Information Technology
The Bank has two data center facilities. The primary site is located in Monterrey, Mexico, and the second
site is located in Lima, Peru. The general mainframe platform is maintained by BBVA, and each of BBVAs local
users, including the Bank, has its own platform specifications. The Banks Regional Center of Computer Operations
is located at the site in Monterrey, Mexico, which is owned by BBVA, and to which the Bank connects by two
international private networks supported by two different network providers with channel redundancies in each one.
The Bank also has a back-up computer facility that is also owned by BBVA, which is located in Mexico City,
Mexico, as a part of the Banks disaster recovery plan. In the event of a disaster, natural or otherwise, as a result of
which the Bank could not operate its technology infrastructure, the back-up computer facility is designed to act as a
surrogate technology backbone, providing all of its services to the branches and electronic banking systems
(including ATMs). The system is designed to allow the Bank to operate under as close to normal conditions as
possible during a disaster. Additionally, the Bank has established another site in Lima, Peru hosted by Telefonica del
Peru to serve as a back-up site for the Banks secondary site in the event of a disaster. This site has the ability to
conduct all essential operations to ensure the continued functioning of the Banks business.
The data center located in Lima, Peru is designed for servers supporting local applications and is integrated
with the two data centers in Mexico in the same private network. This site has been designed and constructed to
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comply with the latest international standards of the Up-time Institute (Certified Tier III by the Uptime Institute in
Design and Construction).
As part of the Banks disaster recovery plan, the back-up site with Telefonica del Peru located in Lima is an
alternative to the secondary data center operating in an active-active mode, and it allows the Bank to restart
operations in a maximum of one hour. Both sites are integrated with the two main data centers in Mexico.
All of the Banks points of service, including branches, ATMs and self-service modules, are linked to the
Banks center of computer operations, permitting it to monitor and analyze services while allowing most
transactions to be executed on a real time, online basis. The applications the Bank uses for accounting, foreign
exchange processing, risk management, retail banking, credit cards, ATMs and online banking have all been
developed by BBVA and are used in all of the Banks operations. Data back-up is performed on a daily basis, and
each of the Banks applications and services has its own specific back-up requirements. The back-up process is
automated to prevent errors.
The Banks technology operations and initiatives are managed by its technology and operations division,
which reports to the Banks CEO. The Bank employs over 250 full-time employees and retains the services of
certain specialized third-party providers that, together, develop, install, maintain and operate all of the Banks
information technology, including software applications, information management and security systems. To provide
better service to end users, the Bank has outsourced the help desk, monitoring and operations services and the
installation of hardware and software for its branches.
The Banks most critical operational data and software are stored on its mainframe system, access to which
is controlled by a series of authorized mechanisms and passwords, with strong information technology security and
privacy practices.
Due to the high incidence of internet fraud in Latin America and Peru, the Bank has taken serious
precautions to prevent security breaches and to protect its customers from internet and credit card fraud. The Banks
Internet transactions generate an SMS to customers cell phones with an online transaction password (OTP),
customers are prompted for this OTP as a second password for their transactions. The Bank has also adopted a series
of security measures relating to its ATMs and self-service modules, which are designed to prevent card cloning and
PIN retrieval. The Bank encourages its customers and employees to adopt common security best practices in their
use of the access to the Banks services. All of these measures are accompanied by an online transaction monitoring
system that generates alerts for abnormal usage of transactions.
Properties
The Bank is domiciled in Peru and owns its headquarters located at Avenida Repblica de Panam 3055,
San Isidro, Lima, Peru. As of June 30, 2014, the Bank had 361 branches. The Bank owns the real estate for certain
branches and leases real estate relating to the others from unaffiliated third parties.
Employees
The following table shows the Banks number of employees as of the dates indicated:
As of December 31,
117
As of June 30,
2013
2012
2011
2014
5,327
5,059
4,699
5,478
39
43
42
41
5,366
5,102
4,741
5,519
As of June 31, 2014, 6.1% of the Banks employees belonged to a union, which is known as the Centro
Federado de Empleados del BBVA Banco Continental. The Banks union contract is renewed annually. The Bank
believes its relations with the union are good. The Bank has not experienced a strike or work stoppage since 1990.
The remainder of the Banks employees are non-unionized.
Licenses and Permits
The Bank is authorized by the SBS to conduct banking activities as described in Supervision and
Regulation. Continental Bolsa, Continental Fondos and Continental Titulizadora are licensed by the SMV. IRCSA
is not required to have a license.
Legal Proceedings
The Bank is subject to various administrative and legal proceedings arising in the ordinary course of
business, none of which it believes will have a material adverse effect on its financial condition or results of
operations.
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MANAGEMENT
Board of Directors
The Banks Board of Directors has nine members and meets on a monthly basis. Four directors represent
the Grupo Breca, four represent the BBVA Group, and the ninth member is an independent director.
The Banks Board of Directors consists of:
Name
Alex Fort Brescia
Pedro Brescia Moreyra
Ignacio Lacasta Casado
Eduardo Torres Llosa Villacorta
Mario Brescia Moreyra
Fortunato Brescia Moreyra
Jos Antonio Colomer Guiu
Manuel Mndez del Ro
Jorge Donaire Meca*
____________________
Position
Chairman
First Vice Chairman
Second Vice Chairman
Member and CEO
Member of the Board of Directors
Member of the Board of Directors
Member of the Board of Directors
Member of the Board of Directors
Member of the Board of Directors
Alex Fort Brescia has been a member of the Board of Directors since 1995 and Chairman since June 2013. Mr.
Fort holds a masters degree in business administration, with experience serving as director on the boards of various
companies, including INTURSA, Corporacin Peruana de Productos Qumicos S.A. (CPPQ), Agrcola Hoja
Redonda S.A., Rimac, Holding Continental, Raura, Clnica Internacional S.A., Exsa, Inversiones Centenario S.A.A.,
Minsur, Soldexa and Sociedad de Comercio Exterior del Per.
Pedro Brescia Moreyra has been a member of the Board of Directors since May 1995 and First Vice Chairman
since June 2013. Mr. Brescia is a Business Manager, with experience serving as director on the boards of various
companies, including INTURSA, CPPQ, Agrcola Hoja Redonda S.A., Rimac, Holding Continental, Raura, Clnica
Internacional S.A., Exsa, Soldexa and Minsur.
Ignacio Lacasta Casado has been a member of the Board of Directors since March 2013. Mr. Lacasta has been
Corporate Business Manager for South America at BBVA since 2012. He also was Country Manager at BBVA
Chile until 2011. Mr. Lacasta is an economist and was the Chairman of the Board of Directors of BBVA Chile,
BBVA Seguros Chile and Forum Servicios Financieros.
Eduardo Torres Llosa Villacorta has been a member of the Board of Directors and Chief Executive Officer since
December 2007. Mr. Torres Llosa is an economist, with experience serving as director on the board of Continental
Fondos.
Mario Brescia Moreyra has been a member of the Board of Directors since March 2013. Mr. Brescia is an
Administrator with experience serving as a substitute member of the Board of Directors of BBVA Continental
since 1997. He is also director of various companies of Grupo Breca such as TASA, Rmac Seguros, Minsur and
Soldex. He is also a director of the Peruvian National Fishing Society.
Fortunato Brescia Moreyra has been a member of the Board of Directors since June 2013. Mr. Brescia holds a
degree in mining engineering. He is a member of the Management Committee of Grupo Breca and is director of
various companies such as Minsur, Compaa Minera Raura, Exsa, Soldex and Rmac Seguros.
Jos Antonio Colomer Guiu has been a member of the Board of Directors since January 2000. Mr. Colomer holds
a degree in business administration and marketing, with experience serving as director on the boards of various
companies, including Banco del Comercio S.A., BBVA Catalua, BBVA Barcelona, and BBVA Taragona.
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Manuel Mndez del Ro has been a member of the Board of Directors since May 2007. Mr. Mndez is a business
administrator, with experience serving as director on the boards of various companies of BBVA Group, Argentaria,
Santander Group, Caja Segovia and Swiss Life.
Jorge Donaire Meca has been an alternate member of the Board of Directors since 2007 and a member of the
Board of Directors since October 2011. Mr. Donaire has experience serving as director on the boards of various
companies, including Grupo BBVA del Peru, Grupo BBVA de Espaa, as well as Compaa Peruana de Medios de
Pago (VISANET) and Cmara Oficial de Comercio de Espaa en el Peru.
Executive Compensation
The aggregate amount of compensation paid by the Bank to its executive officers for the year ended
December 31, 2013 was 0.5% of the Banks gross income for that year. The aggregate amount of compensation
paid by the Bank to its directors for the same period was 0.03%.
Risk Management Committees
Position
Chief Executive Officer
Risk Manager
Operational Risk and Internal Control Manager
Corporate and Middle Market Banking Risk Manager
Retail and Small Market Banking Risk Manager
Business Development Manager
Position
Chief Executive Officer
Risk Manager
Retail and Middle-Market Banking Manager
Corporate and Investment Banking
Middle-Market Banking Manager
Corporate and Middle Market Banking Risk Manager
Audit Committee
The Banks audit committee is responsible for monitoring the Banks internal control system and reports to
the Banks Board of Directors on the execution of policies and internal procedures. The audit committee approves
and oversees the execution of the working plan of the Banks internal audit unit, and is also responsible for
evaluating the performance of the Banks external auditors.
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Position
Member
Member
Member
Position
Member
Member
Member
Position
Member
Member
Member
Compliance Committee
The Banks compliance committee reports to the Banks Board of Directors on the compliance or the
policies and internal procedures. The committee oversees the execution of the annual working plan of the Banks
compliance.
The members of the Banks compliance committee are:
Name
Alex Fort Brescia
Pedro Brescia Moreyra
Manuel Mndez del Ro
Position
Member
Member
Member
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Executive Officers
The Banks executive officers are the following:
Name
Eduardo Torres Llosa Villacorta
Gustavo Delgado Aparicio Labarthe
Javier Balbn Buckley
Gonzalo Camargo Crdenas
Luis Ignacio de la Luz Dvalos
Lorenzo Blesa Snchez*
Walter Borra Nez
Mara Guadalupe Prez Surez*
Enriqueta Gonzlez Pinedo
Karina Bruce Marticorena
Samuel Snchez Gamarra
Position
Chief Executive Officer
Retail and Middle-Market Banking Manager
Corporate and Investment Banking Manager
Business Development Manager
Chief Financial Officer
Risk Manager
Internal Audit Manager
System and Operations Manager
Legal Advisory Manager
Human Resources Manager
Corporate Development Manager
* Mara Guadalupe Prez Surez replaces Mirtha Zamudio Rodriguez since June 2014.
Eduardo Torres Llosa Villacorta has served as Chief Executive Officer since December 2007. Prior to that,
Mr. Torres Llosa held several management positions within the Bank, including Manager of Middle-Market
Banking. Mr. Torres Llosa was born February 2, 1968, and holds a degree in economics from Universidad del
Pacfico, an MBA from the Catholic University of Louvain and a diploma in finance from the University of
Pennsylvania.
Gustavo Delgado Aparicio Labarthe has served as Retail and Middle-Market Banking Manager since July 2013.
Prior to that, Mr. Delgado served as Corporate and Investment Banking Manager and held several management
positions. Mr. Delgado was born on April 15, 1973, and holds a degree in economics and business finance from
Brunel University in London. Furthermore he holds an MBA from Thunderbird School of Global Management and
Tecnolgico de Monterrey.
Javier Balbn Buckley has served as Corporate and Investment Banking since July 2013. Prior to that, Mr. Balbn
served as Retail and Middle-Market Banking Manager and held several management positions within the Bank,
including Manager of Commercial Development. Mr. Balbn was born December 26, 1972, and holds a degree in
economics from Universidad de Lima and an MBA from Universidad de Navarra.
Gonzalo Camargo Crdenas has served as Business Development Manager since July 2013. Prior to that, he held
several management positions in BBVA Group including Investment Manager in AFP Provida. Mr. Camargo holds
a degree in economics and a Masters degree in economics and finance.
Luis Ignacio de la Luz Dvalos has served as Chief Financial Officer since January 2008. Prior to that,
Mr. de la Luz served as the Corporate Director of Accounting for BBVA Bancomer S.A. in Mexico. Mr. de la Luz
was born June 24, 1971 and holds a degree in public accounting from Instituto Tecnolgico Autnomo de Mxico
and an International MBA from Universidad Adolfo Ibaez of Chile and Universidad de Deusto of Spain.
Lorenzo Blesa Snchez has served as Risk Manager since May 2013. Prior to that, he held several management
positions in BBVA Group. Mr. Blesa holds a degree in mathematics and a Masters degree in statistics and
econometrics.
Walter Borra Nez has served as Internal Audit Manager since January 2010. Prior to that, Mr. Borra held
several management positions within AFP Horizonte S.A., including Commercial Manager. Mr. Borra was born
March 5, 1966 and holds a degree in Naval Science and an MBA from Escuela Superior de Administracin de
Negocios.
Mara Guadalupe Prez Surez has served as Latam Production Director since 2012. Prior to that, Ms. Prez held
several management positions within CCR and Bancomer in Mxico. Ms. Prez was born May, 26, 1969 and holds a
degree in systems management from Universidad del Valle de Mxico.
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Enriqueta Gonzlez Pinedo has served as Legal Advisory Manager since April 2001. Prior to that, Ms. Gonzlez
served as the Deputy Superintendent of the Legal Department of the SBS and Legal Advisory Manager of the
COFIDE. Ms. Gonzlez was born January 7, 1957 and holds a law degree and a Masters degree in international law
and economics from Pontificia Universidad Catlica del Per.
Karina Bruce Marticorena has served as Human Resources Manager since October 2010. Prior to that, Ms. Bruce
served as Corporate Development Manager and Centralized Operations Manager. Ms. Bruce was born June 23,
1964 and holds a degree in Business Administration.
Samuel Snchez Gamarra was appointed as Corporate Development Manager on June 1, 2012. Previously,
Mr. Snchez served as Consumer Finance and Payments Director for four years. Prior to joining BBVA Continental,
Mr. Snchez served as VP of Consumer Products at Visa International. He also previously worked at Citigroup,
where he held various management positions. Mr. Snchez was born on July 28, 1973 and holds a degree in
Economics from Universidad de Lima and an MBA from Incae Business School.
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SHARE OWNERSHIP
As of June 30, 2014, the Banks issued capital consisted of 3,246,531,842 fully subscribed and paid
common shares. Holding Continental owns 92.24% of the Banks common shares and the remaining 7.76% is held
by other entities, including the pension funds administered by Prima AFP S.A., AFP Integra S.A. and Profuturo AFP
S.A. None of these other entities own more than 5.00% of the Banks common shares.
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As of December 31,
2014
2013
Assets
Cash and due from banks
Loan portfolio
Other assets
36,559
81,862
109,313
22,406
43,271
102,708
Liabilities
Obligations to the public
Due to bank and other financial obligations
Other liabilities
251,584
9,195
255,997
251,699
414,276
8,309,505
7,790,585
Contingent accounts
Contingent accounts
2014
2013
Interest income
Interest expenses
Other income (expenses), net
(5,885)
(38,584)
125
10
(6,444)
(73,120)
The following is a summary of direct and indirect loans extended to and other transactions with related
parties, as of December 31, 2013 and as of June 30, 2014:
As of June 30,
As of December 31,
2014
2013
81,862
43,271
13,980
6,988
106,648
246,453
251,584
98,262
396,642
251,699
The following is a summary of transactions with related parties, categorized by transaction type, as of and
for the years ended December 31, 2012 and 2011:
As of December 31,
2012
2011
(Nuevos Soles in thousands)
Related party transactions
Assets
Cash and due from banks
Loan portfolio
Other assets
Liabilities
Obligations to the public
Due to banks and correspondents
Other liabilities
Contingent and off-balance sheet accounts
Contingent accounts
Other off-balance sheet accounts
34,551
79
241,929
47,727
4,174
122,082
596,162
50,569
128,010
106,657
140,327
5,743,597
1,755,288
4,029,834
1,826,948
Income
Interest income
Interest expenses
Other income (expenses), net
21
(11,129)
(51,855)
126
52
(9,686)
(57,388)
The following is a summary of direct and indirect loans extended to and other transactions with related
parties, as of December 31, 2012 and 2011:
As of December 31,
2012
2011
(Nuevos Soles in thousands)
79
4,174
118,385
148,200
234,364
115,817
596,162
111,155
127,103
106,657
As of June 30, 2014, direct and indirect loans to related parties were S/.145.9 million, in the aggregate.
None of these loans are within the Banks twenty largest borrowing groups. These loans comprised
approximately 0.27% of the Banks total loan portfolio, of which 100% were classified as Class A (Normal) loans.
As of June 30, 2014, loans and other credits to the Banks employees were S/. 280,265,534.35.
As of December 31, 2013, direct and indirect loans to related parties were S/. 102.96 million, in the
aggregate. None of these loans are to the Banks twenty largest borrowing groups. These loans comprised
approximately 0.20% of the Banks total loan portfolio, of which 100% were classified as Class A (Normal) loans.
As of December 31, 2013, loans and other credits to the Banks employees were S/. 279.6 million.
On an unconsolidated basis and in accordance with the Peruvian Banking Law, the SBS regulates and
closely monitors loans to related parties and has established a limit on related party loans equivalent to 30% of a
banks regulatory capital. The Banks total related party loans on an unconsolidated basis were 1.36% of its
regulatory capital as of December 31, 2013 and 3.99% of its regulatory capital as of December 31, 2012. The Bank
intends to continue to enter into transactions with related parties on terms similar to those that would be offered by
or to an unaffiliated third party.
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The SBS has the power to impose administrative sanctions on financial institutions and all other supervised
entities and SBS directors and employees as a result of any violation of the Peruvian financial system rules.
Sanctions vary from monetary fines to license cancellation. The SBS may also sanction directors and other officers
of the supervised entities for breach of regulations under the supervision of the SBS.
The Peruvian Central Bank
Banks are also regulated in certain aspects by the Central Bank. The Central Bank is mainly responsible for
setting Perus monetary policy and, among other functions, manages Peruvian international reserves and gathers and
publishes data on its finances. The Central Bank is also the sole issuer of Peruvian currency.
Superintendencia del Mercado de Valores (SMV)
The SMV (formerly the Comisin Nacional Supervisora de Empresas y Valores) is the Peruvian securities
market regulatory authority, attached to the Ministerio de Economa y Finanzas (Ministry of Economy and Finance
or MEF). The main purpose of the SMV is promoting, overseeing and regulating the securities market,
supervising and controlling all individuals and entities that intervene in such market, controlling compliance with
the provisions of the Peruvian Securities Market Law and its regulations and sanctioning the breach thereof.
Banking Supervision and Regulation
Banking regulations on capital adequacy in Peru take into account the recommendations of the Basel
Committee. The SBS has adopted the principles and guidelines of Basel II. In addition, it is expected that, in
adopting the Basel III recommendations approved in September 2010, the SBS may increase the minimum
regulatory capital required for Peruvian banks. However, Basel III has not yet been implemented and the Bank
cannot provide any assurances whether or as to the extent to which the SBS will adopt it.
Implementation of Basel II Framework
To carry out the implementation of Basel II, the SBS approved a schedule of two (2) phases: a first
mandatory phase and a second voluntary phase. During the first phase, which started in 2008 and ended in
June 2009, the SBS performed quantitative impact studies and drafted the most important regulations. On June 22,
2008, President Garca issued Legislative Decree No. 1028, which contains certain amendments to the Peruvian
Banking Law, most of which were aimed to adapt it to the Basel II Framework.
To conform to the Basel II Framework, the methodology for measuring credit, market and operational risks
was amended to allow both standardized and internal model-based methods. All Peruvian financial institutions were
to have implemented the standardized approach methodology by June 2009. Financial institutions will have the
opportunity to request the validation and approval to implement the internal rating-based (IRB) methodology.
Only those financial institutions that apply to use the IRB methodology will follow the second phase of
implementation of the Basel II Framework.
The second phase consists of a validation process of the IRB methodology by the SBS and its subsequent
approval. Once the IRB methodology has been validated and approved by the SBS, the pertinent financial institution
will use regulatory capital floors to calculate its capital requirements. The amount of required capital cannot be less
than the percentage of capital requirements obtained under the methodology.
First Year
95%
Second Year
90%
Third Year
80%
90%
90%
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As of the date of this offering circular, the Bank is in compliance with the additional capital requirement
applicable to the period from July 2014 through July 2015.
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Legal Reserve
Pursuant to Article 67 of the Peruvian Banking Law, all banks must create a legal reserve. Each year a bank
must allocate no less than 10% of its net income to its legal reserve until its legal reserve is equal to no less
than 35% of its paid-in capital. Any subsequent increases in paid-in capital will imply a corresponding increase in
the required level of the legal reserve to be funded as described above.
Lending Limits
Under Article 206 of the Peruvian Banking Law, the total amount of direct and indirect credits and
financings granted in favor of a person shall not exceed 10% of the banks regulatory capital. A person is defined for
the purposes therein as a person or group of persons or entities representing a common or single risk. The SBS has
issued special regulations establishing the guidelines that must be followed by banks when determining legal
reserves for legal proceedings for past due loans and foreclosures. For purposes of Peruvian Banking Law, a single
borrower includes an individual or an economic group. An economic group constituting a single or a common risk
includes a person, such persons close relatives and companies where such persons or their close relatives have
significant share ownership or decision-making capability. According to current regulations, shareholders who own
or control directly or indirectly at least one-tenth of a companys shares are considered significant shareholders.
Significant decision-making capability is deemed to be present when, among other things, a person or group can
exercise material and continuous influence upon the decisions of a company, when a person or company holds seats
on the board of directors or has principal officers in another company, or when it can be assumed that one company
or person is the beneficial recipient of credit facilities granted to another company.
The 10% limit indicated above may be raised to 15%, 20% and 30%, depending on the type of collateral
securing the excess over each limit. Accordingly, the limit can be raised to 15% when the excess is secured by a
mortgage, it may be raised to 20% when the excess is collateralized with securities listed in the Selective Index of
the Lima Stock Exchange (ISBVL) and it may be raised to 30% when the excess is secured with deposits that are
maintained and pledged with the bank.
Other special lending limits must also be taken into account, such as lending to related parties or affiliates
(30% of regulatory capital), to local banks (30%) and to foreign banks (from 5% for non-regulated banks to 30% for
first category international banks, which may also be raised to 50% when backed by letters of credit). There are
other limits that require banks to diversify their portfolio in different types of assets, benefiting liquid and low risk
assets.
Lending to Related Parties
The Peruvian Banking Law regulates and limits transactions with related parties and affiliates of financial
institutions. The SBS and SMV have enacted regulations containing definitions of indirect ownership, related parties
and economic groups, which serve as the basis for determining limits on transactions with related parties and
affiliates. These regulations also provide the basis for the subsequent development of specific standards for the
supervision of financial and mixed conglomerates formed by financial institutions.
Additionally, under Article 202 of the Peruvian Banking Law, the aggregate amount of loans to related
party borrowers shall not exceed 30% of a banks regulatory capital. For purposes of this test, related party
borrowers include any person or an affiliate of that person, holding, directly or indirectly, 4% or more of a banks
capital stock, directors, certain banks principal executive officers or other persons in more junior positions affiliated
with the banks management. All loans to related parties must be made on an arms length basis with terms no more
favorable than the best terms that the bank offers to the public.
In addition, under Article 201 of the Peruvian Banking Law, the total amount of loans to directors, officers,
employees or close relatives of any such persons may not exceed 7% of the regulatory capital. All loans made to any
single such related party borrower may not exceed 0.35% of a banks regulatory capital (i.e., 5% of the overall 7%
limit) per each person, including her spouse and relatives. In addition, the Peruvian Banking Law generally provides
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that banks may not extend credit to or guarantee the obligations of employees or members of the board of directors,
except for home mortgage loans to employees and directors.
Lending to the Peruvian Government
Circular No. B-2148-2005, enacted in July 2005, as amended, regulates and limits the transactions with
agencies, institutions and companies belonging directly or indirectly to the Peruvian government. Under such
regulations, financings granted to regional or local governments as well as to other agencies, institutions and
companies belonging directly or indirectly to the Peruvian State, are subject to the limits referred to in Articles 206
to 209 of the Peruvian Banking Law whereas credits and loans granted to state-owned financial institutions (i.e.,
COFIDE, Agrobanco, Banco de la Nacin, Fondo Mivivienda, etc.) may not exceed 30% of a banks regulatory
capital.
Loan Loss Reserves
Procedures relating to loan loss reserves and loan portfolio classification are set out in regulations issued by
the SBS. Pursuant to SBS Resolution No. 11356-2008, as amended, banks loan portfolios are to be classified in
eight different categories of loans: corporate loans, large-sized company loans, medium-sized company loans, smallsized company loans, micro-enterprise loans, revolving consumer loans, non-revolving consumer loans and
residential mortgage loans.
Corporate loans are, among others, those granted to companies with annual sales of more than S/.
200 million during the last two years pursuant to their latest audited financial statements. Large-sized company loans
are those granted to companies: (a) with annual sales of more than S/. 20 million but less than S/. 200 million
during the last two years pursuant to their latest financial statements; or (b) having outstanding debt instruments in
the capital markets during the last year. Medium-sized company loans are those extended to companies that have
outstanding loans due to local financial institutions, during the last six months, in an amount exceeding S/. 300,000,
but do not meet the requirements to be classified as corporate or large-sized company. Small-sized company
loans are those extended to finance the production and sale of goods and services of companies or individuals which,
during the last six months, had outstanding loans due to local financial institutions (other than residential mortgage
loans) of more than S/. 20,000 but less than S/. 300,000. Micro-enterprise loans are those extended to finance the
production and sale of goods and services of companies or individuals which, during the last six months, had
outstanding loans due to local financial institutions (other than residential mortgage loans) of less than S/. 20,000.
Revolving consumer loans are revolving credits extended to individuals to pay for goods, services or expenses, not
related to business activities. Non-revolving consumer loans are non-revolving credits extended to individuals to pay
for goods, services or expenses, not related to business activities. Residential mortgage loans are loans extended to
individuals for the purchase, construction, remodeling, subdivision or improvement of the individuals own home, in
each case secured by a mortgage. The classification of a loan determines the amount of allowance that should be
recorded in the event that the borrower defaults in its payments.
In addition, banks are required to classify such debtors in any of the following categories:
I.
Normal (Normal): Debtors of commercial loans or credits that fall into this category have complied in a
timely manner with their obligations and at the time the credit is evaluated there is no reason to doubt that
interest and principal on the loan will be paid in a timely fashion or that the status will change before the
next evaluation. To place a loan or credit in the Normal (Normal) category, a clear understanding of the use
of proceeds and the origin of the cash flows to be used by the debtor to repay the loan or credit is required.
Included in this category are: (i) small-sized company, micro-enterprise loans, revolving consumer loans
and non-revolving consumer loans with payment delays of up to 8 days; and (ii) residential mortgage loans
with payment delays of up to 30 days. Corporate loans, large-sized loans and residential mortgage loans in
this category require a reserve of 0.7%, while medium-sized company and small-sized company loans,
micro-enterprise loans, revolving consumer loans and non-revolving consumer loans in this category
require a reserve of 1%.
II.
Potential Problem (Con Problemas Potenciales): Commercial loans or credits included in this category are
those that at the time of evaluation demonstrate certain deficiencies, which, if not corrected in a timely
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manner, imply risks with respect to the recovery of the loan. Certain common characteristics of loans or
credits in this category include: frequent delays in payments that are promptly cured, lack of information
required to analyze the debtor, outdated financial information, temporary economic or financial imbalances
on the part of the debtor that could affect its ability to repay the loan, market conditions that could affect
the economic sector in which the debtor operates, material overdue debts or pending judicial collection
actions initiated by other financial institutions, noncompliance with the original contractual terms and
conditions, conflicts of interest within the debtor company, labor problems, unfavorable credit history,
debtors noncompliance with its internal policies, excessive reliance on one source of raw materials or one
buyer of debtors products and low inventory turnover ratios or large inventories that are subject to
competitive challenges or technological obsolescence. Included in this category are: (i) corporate loans,
large-sized and medium-sized company loans with payment delays of up to 60 days, (ii) small-sized
company loans, micro-enterprise loans, revolving consumer loans and non-revolving consumer loans with
payment delays of 9 to 30 days; and (iii) residential mortgage loans with payment delays of 31 to 60 days.
A 5% reserve on total loans outstanding under this category is required to cover risks of losses that have not
been specifically identified. Except for consumer loans (revolving and non-revolving), when the loan, or a
portion thereof, is secured with preferred collateral, the required reserve is 2.5%, and when secured with
readily liquidated preferred guarantees, the required reserve is 1.25%.
III.
Substandard (Deficiente): Debtors of commercial loans or credits placed in this category demonstrate
serious financial weakness, often with operating profits or available income insufficient to cover financial
obligations on agreed upon terms, with no reasonable short-term prospects for a strengthening of debtors
financial capacity. Loans or credits demonstrating the same deficiencies as Potential Problem (Con
Problemas Potenciales) are considered Substandard (Deficiente) if such deficiencies are not corrected in
the near term, or if they could impede the recovery of principal and interest on the loan on the originally
agreed terms. Included in this category are: (i) corporate loans, large-sized company loans and mediumsized company loans with payment delays of 61 to 120 days; (ii) small-sized company loans, microenterprise loans, revolving consumer loans and non-revolving consumer loans with payment delays of 31
to 60 days; and (iii) residential mortgage loan debtors with payment delays of 61 to 120 days. Loans or
credits included in this category require a reserve equal to 25% of the outstanding principal amount of the
loan that is not secured by collateral. A 25% reserve on total loans outstanding in this category is required
to cover risks of losses that have not been specifically identified. Except for consumer loans (revolving and
non-revolving), when the loan, or a portion thereof, is secured with preferred collateral, the required
reserve is 12.5%, and when secured with readily liquidated preferred guarantees, the required reserve
is 6.25%.
IV.
Doubtful (Dudoso): Debtors of commercial loans or credits included in this category present characteristics
of actual credit risk that make the recovery of the loan doubtful. Although the loan recovery is doubtful, if
there is a reasonable likelihood that in the near future the creditworthiness of the debtor might improve, a
Doubtful (Dudoso) categorization is appropriate. These credits are distinguished from Loss (Prdida)
because in this category the debtor continues to operate its business, generates cash flow, and makes
payments on the loan, albeit at a rate less than that specified in its contractual obligations. Included in this
category are: (i) corporate loans, large-sized company loans and medium-sized company loans with delays
of 121 to 365 days; (ii) small-sized company loans, micro-enterprise loans, revolving consumer loans and
non-revolving consumer loans with payment delays of 61 to 120 days; and (iii) residential mortgage loan
debtors with payment delays of 121 to 365 days. A 60% reserve on total loans outstanding in this category
is required to cover risks of losses that have not been specifically identified. Except for consumer loans
(revolving and non-revolving), when the loan, or a portion thereof, is secured with preferred collateral,
the required reserve is 30%, and when secured with highly liquid preferred guarantees, the required
reserve is 15%.
V.
Loss (Prdida): Commercial loans or credits that are considered unrecoverable or that for any other reason
should not appear on the Banks books as an asset based on the originally contractual terms fall into this
category. Included in this category are: (i) corporate loans, large-sized and medium-sized company loans
with occasional and reduced payment delays of more than 365 days; (ii) small-sized company loans, microenterprise loans, revolving consumer loans and non-revolving consumer loans with payment delays of more
than 120 days; and (iii) residential mortgage loan debtors with payment delays of more than 365 days.
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A 100% reserve on total loans outstanding in this category is required to cover risks of losses that have not
been specifically identified. Except for consumer loans (revolving and non-revolving), when the loan, or a
portion thereof, is secured with preferred collateral, the required reserve is 60%, and when secured with
readily liquidated preferred guarantees, the required reserve is 30%.
SBS regulations require Peruvian banks to maintain two types of loan loss reserves: (a) generic loan loss
reserves (provisiones genricas) on their total direct and indirect loan portfolio that is classified as category I at a
provision rate of (i) 0.7% for corporate loans, large-sized company loans and residential mortgage loans, and (ii)
1.0% for medium-sized company loans, small-sized company loans, micro-enterprise loans, revolving consumer
loans and non-revolving consumer loans, and (b) special reserves (provisiones especficas) on their total direct and
indirect loan portfolio classified under categories II through V described above at a provision rate of 5%, 25%, 60%,
and 100%. These percentages may be reduced if the loans are secured with certain types of collateral and for certain
special types of loans, provided that certain requirements set forth under SBS Resolution No. 11356-2008, as
amended, are satisfied.
As of December 31, 2008, banks were required to make dynamic loan loss reserves (provisiones
procclicas) based on the behavior of Perus annualized average GDP over the last 30 months as determined and
published by the Central Bank. On September 10, 2009, the SBS, through Circular No. B-2181-2009, announced the
suspension of the pro-cyclical requirements. The suspension will be lifted when the annualized average change in
GDP over the last thirty (30) months is equal to or higher than 5% and at least 18 months have passed since the
suspension was announced. The suspension was lifted in September 2010, through Circular No. B-2193-2010.
Risk of Over-Indebtedness by Consumer Banking Customers
According to SBS Resolution No. 6941-2008, as amended, banks and other financial entities must adopt a
system to manage the risk of over-indebtedness that: (a) allows the mitigation of such risk before and after making
the loan, (b) permits the performance of a permanent monitoring of the portfolio to identify over-indebted borrowers
and (c) includes the periodic evaluation of the control mechanisms being used and of the corrective actions or
required improvements, as the case may be. The board of directors of such banks and other financial entities are
responsible for: (i) establishing and reviewing the policies and proceedings for the identification, measuring,
treatment, control, reporting and monitoring of the risk from the level of indebtedness of its consumer banking
customers and (ii) causing the management to adopt the necessary measures to monitor and control such risks. In
addition, the board of directors must cause the bank and/or financial entity to have an organizational structure that
guarantees total independence between the risk and the commercial divisions and that the incentive schemes for
employees performance does not cause a conflict of interest with risk management policies.
Banks and financial entities that are not able to monitor, control and identify the risk of over-indebtedness
are obliged to maintain a special loan loss provision. Banks and financial entities that comply with the requirements
described above are not required to maintain any such specific provision.
Country Risk Reserve Requirements
SBS Resolution No. 505-2002, enacted in June 2002, as amended, requires the funding of reserves to cover
exposure to country risk, which is defined to include sovereign risk, transfer risk and expropriation or
nationalization risk, all of which may affect operations with companies or individuals in foreign countries. The SBS
has also established guidelines indicating the procedures and responsibilities that are necessary for dealing with
country risk.
Integral Risk Management
SBS Resolution No. 37-2008, enacted in January 2008, as amended, contains guidelines for integral risk
management of financial institutions. Integral risk management is a process intended to identify potential events that
can affect banks and to manage those events according to its nature and risk level. This new regulation covers all
kinds of risks that could affect a banking operation, such as operational, market, credit, strategic, liquidity, legal and
reputational risks.
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Credit Risk
According to the Peruvian Banking Law, as of July 1, 2009, financial institutions would have been allowed
to use the IRB methodology instead of the standardized methodology for calculating their regulatory capital
requirement for credit risk, after receiving prior approval from the SBS. However, regulations required for the full
implementation of both standardized and IRB methodologies by Peruvian financial institutions were not enacted
until November 4, 2009, with SBS Resolution No. 14354-2009.
Under SBS Resolution No. 14354-2009, as amended, financial institutions are allowed to use the
standardized methodology and, with the prior approval of the SBS, IRB methodologies for calculating their
regulatory capital requirement for credit risk.
In addition, according to SBS Resolution No. 3780-2011, financial institutions are required to implement
an organizational structure and certain procedures, in connection with control on interest management and strategic
needs procedures to adequately manage credit risk.
Market Risk
Regulations for the supervision of market risks, enacted in May 1998, require banks to establish internal
policies and procedures to monitor these risks, as well as market risk exposure limits. Regulations define market
risks as the probability of loss derived from exposure to various classes of commodities, securities, foreign
exchange, derivative operations or commercial assets that banks may hold in their portfolio, which could or could
not be registered in their balance sheets.
In June 2009, the SBS enacted SBS Resolution No. 6328-2009, as amended, which defines the
methodology to be applied, and the requirements to be satisfied, in calculating the regulatory capital requirement for
market risks under the standard methodology and the IRB methodology.
Since July 1, 2009, financial institutions have been allowed to use IRB methodology (subject to prior
approval by the SBS) in substitution of the standardized methodology.
Operational Risk
SBS Resolution No. 2116-2009, enacted in April 2009, approved guidelines for the management of
operational risk. SBS Resolution No. 2116-2009 defines operational risks as those dealing with the possibility of
suffering losses due to deficiencies in internal procedures, information technology or personnel, or the occurrence of
adverse external events. SBS Resolution No. 2116-2009 establishes mandatory policies and procedures to measure
and control operational risks (including, among other things, the creation of a database detailing the different types
of operational losses, new duties for boards of directors and management of the bank). Banks are required to
adequately manage risks involved in their operations and services to minimize possible financial losses due to
inadequate or non-existent policies or procedures.
In April 2009, the SBS enacted SBS Resolution No. 2115-2009, as amended, which defines the
methodology to be applied, and the requirements to be satisfied, in calculating the regulatory capital requirements
for operational risk under the IRB method, the alternative standard method and the advanced methods. The IRB
method uses the banks gross operational margin as exposure indicator, is expressly regulated by SBS Resolution
No. 2115-2009 and its application does not require the prior approval by the SBS. Application of the alternative
standard method or the advanced methods requires the compliance with certain provisions of SBS Resolution No.
2115-2009 and the prior approval by the SBS.
Investments in Financial Instruments
Investment in financial instruments by Peruvian banks is restricted to those financial instruments listed in
the Peruvian Banking Law, such as equity instruments traded on a stock exchange, debt instruments (to the extent
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that certain requirements are satisfied), sovereign debt instruments and quotas in mutual and investment funds,
among others.
Pursuant to SBS Resolution No. 7033-2012, effective as of January 1, 2013, investments in financial
instruments by Peruvian banks shall be classified into any of the following categories: (a) investments at fair value
with changes in results (short-term), (b) investments available for sale, (c) investments held to maturity (long-term)
and (d) investments in subsidiaries, associates and participations in joint ventures.
Financial instruments are valued at their market value, provided that there is an active market for them. If
there is no active market for a financial instrument, then such financial instrument will be valued pursuant to
methodologies and models developed by banks that allow the determination of the fair value of such financial
instruments or, as approved by the SBS, pursuant to the valuations made by valuation entities or other sources of
information that publish or sell market prices. Banks will evaluate, at each balance sheet date, if there is evidence
that a financial instrument in which it has invested has reduced in value and will make the corresponding provisions
(if required by the SBS). For such purposes, a bank will reduce the value of a financial instrument if there is
objective evidence of a deterioration of such financial instruments as a consequence of an event occurring after its
initial registration on the banks balance sheet and to the extent that such event has a negative impact (that can be
measured with confidence) on the future cash flows of the financial instrument.
Reserve Requirements Required by the Central Bank
Under the Peruvian Banking Law, all financial institutions regulated by the SBS (except for small-business
development non-bank institutions) are required to maintain a reserve requirement (encaje) for certain obligations.
The Central Bank may require additional and marginal reserves. The exact level and method of calculation of the
reserve requirements is set by the Central Bank, which regulates the reserve requirements (encaje) applicable to
foreign and local currency-denominated obligations of banks through different sets of regulations. Among others,
the following liabilities are subject to the reserve requirement (encaje): demand and time deposits, savings accounts,
certain bonds and funds administered by the bank and amounts due to foreign banks and other foreign financial
companies (in certain circumstances).
As of August 2014, the minimum reserve requirement (encaje) for local and foreign currency deposits is
9%. Notwithstanding the above, the base rate of the reserve requirement (encaje) applicable to foreign currency
obligations will be increased in case the average daily aggregate amount of mortgage loans and vehicle loans in
foreign currency or the total loans in foreign currency granted by the bank exceed the greater of (i) certain times the
balance of those obligations as of the specific date established by the Central Bank or (ii) certain percentage of the
minimum regulatory capital of the bank as of December 31, 2012, established by the Central Bank.
Local currency deposits collected from the general public are subject to a general rate of 11%. Borrowings
or bonds in local currency with an average maturity of two or less than two years and deposits, among other
obligations with foreign financial institutions, are subject to a 11% rate, up to an amount equivalent to the greater of
(i) the average of all such obligations as of June 2013 plus S/. 100 million or (ii) 1% of the minimum capital
requirement applicable as of December 2012. Any excess thereof is subject to a 120% rate.
In addition, borrowings in local currency from a foreign organization such as multilaterals, governmental
financial entities and central banks, and borrowings or bonds in foreign currency issued by foreign financial
institutions, multilaterals, governmental financial entities and central banks, in both cases with an average maturity
of two or less than two years, are subject to (i) a 50% special rate applicable to those obligations incurred from
August 1, 2013 on and (ii) a 60% special rate applicable to those obligations incurred until July 31, 2013.
Local and foreign currency borrowings and bonds from certain foreign sources such as foreign financial
institutions, multilaterals, governmental financial entities and central banks, with an average maturity of more than
two years, are subject to a 20% special rate applicable to the portion in excess of an amount equivalent to the greater
of (i) 2.2x the minimum regulatory capital as of December 31, 2012 and S/. 400 million, (ii) 3.0x the minimum
regulatory capital applicable as of December 31, 2012 and S/. 400 million, if the amount of the foreign currency
obligations of the bank does not exceed the equivalent of 2.0x the minimum regulatory capital applicable as of
December 31, 2012; and, (iii) 3.5x the minimum regulatory capital as of December 31, 2012 and S/. 400 million, if
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the amount of the total liabilities of the bank as of December 31, 2012 does not exceed the equivalent of 4.0x the
minimum regulatory capital applicable as of December 31, 2012.
Foreign currency borrowings from foreign sources to finance exporting and importing operations, with an
average maturity of two or less than two years, are not subject to any reserve requirements (encaje) up to an amount
equivalent to 35% of the minimum regulatory capital. Any excess thereof is subject to a 50% rate.
Financial institutions may satisfy the minimum reserve requirements (encaje) with funds in local or
foraging currency, as corresponds, that they hold in vaults or that they have deposited in their accounts at the Central
Bank.
According to Peruvian banking regulations, financial institutions must also keep at least 3.0% of their total
obligations subject to the reserve requirements (encaje) in both local and foreign currency, deposited as a reserve at
the Central Bank. The Central Bank oversees compliance with the reserve requirements (encaje).
The Central Bank also establishes the interest rate payable on reserves that exceed the minimum reserve
requirement (encaje) applicable to both local and foreign currency obligations. The current applicable interest rate
for (a) local currency reserves, different from those described below, is the overnight deposits interest rate, minus
195 basis points; and (b) foreign currency reserves, is a 25% one-month LIBOR interest rate. Currently, no interest
rate is payable in respect of local currency obligations from certain foreign sources, such as financial institutions,
hedge funds, brokerage firms, pension funds, mutual funds, investment banks and others with a foreign parent
company, except for those authorized by the SBS to collect deposits from the general public in Peru. The applicable
interest rate is expected to be periodically revised by the Central Bank in accordance with monetary policy
objectives.
In the past few months, the Central Bank has on numerous occasions changed the reserve requirements
(encaje) applicable to Peruvian commercial banks and both the rate of interest paid on reserves and the amount of
reserves on which no interest is payable by the Central Bank.
Deposit Insurance Fund
Bank deposits are protected by the Fondo de Seguros de Depsito (Deposit Insurance Fund), against bank
failure. Specifically, all types of deposit accounts maintained by natural persons and non-profit legal entities and
demand deposit accounts maintained by other legal entities are covered in full up to an amount that is revised
quarterly by the SBS. For the period between June 1, 2014 and August 31, 2014, the maximum coverage amount is
S/. 93,316.00 per person per bank
The Deposit Insurance Fund was established in 1991 and was organized as a private corporation in 1996.
The Deposit Insurance Funds governing body is led by a representative of the SBS. The additional members are
appointed by the Central Bank (one member), the Ministry of Economy and Finance (one member) and by the banks
(three members). SBS provides the necessary administrative members and operational resources for the Deposit
Insurance Fund.
The financial resources available to the Deposit Insurance Fund pursuant to the Peruvian Banking Law
include, among others, the original contribution from the Central Bank, insurance premiums paid by banks,
unclaimed bank deposits (after ten years) and fines imposed by the SBS for violations of the Peruvian Banking Law.
In addition, the Deposit Insurance Fund may, in extraordinary situations, borrow funds with authorization
from the Peruvian treasury, or it may borrow long-term government securities from the Peruvian treasury.
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premium, the Banks voluntary and legal reserves, then by common and preferred shares, then by accrued and
unpaid interests and principal, in that order, of junior subordinated debt composed by hybrid instruments
(instrumentos hbridos) that qualify as tier 1 and tier 2 regulatory capital, and finally by accrued and unpaid interest
and principal, in that order, of redeemable subordinated debt that qualifies as tier 2 (such as the Notes) and tier 3
regulatory capital, in that order.
The only portion of redeemable subordinated debt that is eligible to be included in tier 2 regulatory capital
in its entirety is the aggregate outstanding amount of subordinated debt that has a term to maturity equal to or greater
than five years. The percentage of redeemable subordinated debt eligible to be included in tier 2 regulatory capital
decreases at a 20% discount rate per annum during the five-year period prior to maturity, as follows:
Maturity
More than four years but less than five years
More than three years but less than four years
More than two years but less than three years
More than one year but less than two years
Less than or equal to one year
Discount Rate
20%
40%
60%
80%
100%
As a result, from 2024, the outstanding aggregate principal amount of the Notes, if not previously
redeemed, will no longer qualify as tier 2 regulatory capital in its entirety and from 2028, the outstanding aggregate
principal amount of the Notes, if not previously redeemed, will no longer qualify as tier 2 regulatory capital at all.
Intervention by the SBS and Liquidation
Pursuant to the Peruvian Banking Law, the SBS has the power to interrupt the operations of a bank to
prevent it from, or to control and reduce the effects of, a bank failure. Accordingly, the SBS may intervene in a
banks business by adopting a definitive intervention regime (Rgimen de Intervencin) (Intervention), upon the
occurrence of certain events, including (a) suspension of payments; (b) failure to comply with the commitments
assumed or the instructions from the SBS during a surveillance regime (Rgimen de Vigilancia); or (c) deficit of
regulatory capital (to the extent that it is in excess of 50%). It shall be understood that the adoption by the SBS of a
surveillance regime (Rgimen de Vigilancia) of BBVA Continental, in accordance with Articles 95 to 102 of the
Peruvian Banking Law, is not included in the term Intervention).
An Intervention may halt a banks operations up to 45 days, which may be extended for a second period of
up to 45 additional days, during which time the SBS may institute measures such as (a) canceling losses by reducing
reserves, capital and subordinated debt; and (b) segregating certain assets and liabilities for transfer to another
financial institution. After an Intervention, the SBS will proceed to dissolve and liquidate the bank. In limited
circumstances during a dissolution and liquidation proceeding, with the consent of the SBS, the creditors of the bank
representing at least 30% of its total liabilities may propose a rehabilitation plan which contemplates the conversion
into equity of the aggregate principal amount of the Notes that remains outstanding after they have been used by the
SBS to absorb losses that the bank incurs. Any such rehabilitation plan could be enforceable if, after acceptance by
the SBS, it was approved by the majority of the creditors of the bank.
Beginning on the date on which a resolution of the SBS subjecting a bank to an Intervention regime is
issued, and continuing until such Intervention is concluded (which period ends when the liquidation process begins),
the Peruvian Banking Law prevents any creditor of the bank from: (a) initiating any judicial or administrative
procedure for the collection of any amount owed by the bank, (b) enforcing any judicial decision rendered against
the bank to secure payment of any of its obligations, (c) constituting a lien or attachment over any of the assets of
the bank to secure payment of any of its obligations or (d) making any payment, advance or netting payment
obligations or assuming any obligation on behalf of the bank, with the funds or assets that may belong to it and are
held by third parties, except for: (i) the netting of payment obligations that are made between regulated entities of
the Peruvian financial system and insurance systems and (ii) under certain circumstances, the netting of payment
obligations arising from derivatives transactions and repurchase and certain other agreements entered into with local
or foreign financial and insurance institutions or with the Peruvian Ministry of Economy and Finance or with the
Peruvian Central Bank.
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140
Employee remunerations.
2nd.
Social benefits, contributions to the private and public pension system and other labor claims
against the bank accrued until the date when the dissolution is declared, retirement pensions or the capital
required to redeem those pensions or to secure them by purchasing annuities.
Second order:
Claims for bank deposits and other types of saving instruments provided under the Peruvian Banking Law,
in the portion not covered by the Deposit Insurance Fund, as well as any claims of the Deposit Insurance
fund with respect to its contributions.
Third order - Taxes:
1st.
Claims by the Peruvian social security administration (EsSalud) related to health care benefits for
which the bank is responsible as employer.
2nd.
Taxes.
The legal interests on the banks obligations that may accrue during the liquidation.
3rd.
Subordinated debt.
Except for unsecured and non-privileged claims (unless otherwise agreed in such instances amongst
creditors), all claims within an order will be ranked pari passu among themselves. Each category of creditors will
collect in the order indicated above, whereby distributions in one order will be subject to completing full distribution
in the prior order.
Any security interest created before the issuance of the resolution declaring the banks dissolution and the
initiation of the liquidation process shall survive to guarantee the obligations it secures. The secured creditors shall
retain the right to collect from the proceeds of the sale of the collateral, on a preferred basis (except with respect to
the claims of the first and second order, which are privileged claims), subject to certain rules established under
Article 119 of the Peruvian Banking Law.
Peruvian banks are not subject to the regime of insolvency and bankruptcy otherwise applicable to Peruvian
corporations in general.
Information Transparency
Information transparency is mainly regulated by SBS Resolution No. 8181-2012, effective as of January 1,
2013, which sets the most important rules and limitations on consumer banking protection. Among other
dispositions, banks may freely set interest rates, fees and expenses for their deposit-taking and lending activities;
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however, such information needs to be fully revealed to the market on a permanent basis. In addition, important
credit clauses in bank agreements are subject to the SBSs prior approval. Recent modifications also regulate
customer service, which may improve compliance with the consumer protection regulation. In this regard, banks
must consult with a customer attention office experienced in legal and compliance matters as well as specialized
personnel in customer service that may be able to help solve inquires and complaints. Finally, banks are required to
send periodic information to the SBS to be published on its website, so that bank clients can access it in a timely and
complete fashion.
Consumer Protection Code
The Consumer Protection Code, enacted on September 2, 2010 by means of Law No. 29571, adopted a
wide range of rules intended to protect consumers in all sectors of the economy. With regards to customer protection
in the banking industry, the Consumer Protection Code applies concurrently with the Consumer Financial Protection
Act (Law No. 28587) and its implementing regulations approved by SBS Resolution No. 8181-2012. Specific
regulation of banking products and services, however, is governed exclusively by the Peruvian Banking Law. The
Consumer Protection Code entered into force on October 2, 2010.
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DESCRIPTION OF NOTES
The Notes will be issued pursuant to an indenture, dated as of , 2014 (the Indenture), among BBVA
Continental, The Bank of New York Mellon, as Trustee, paying agent and security registrar, and The Bank of New
York Mellon (Luxembourg) S.A., as Luxembourg transfer agent and paying agent.
This summary describes the general terms and provisions of the Indenture and the Notes. The description of
certain provisions of the Notes does not purport to be complete and is subject to, and is qualified in its entirety by
reference to, all of the provisions of the Indenture and the Notes, including the definitions therein of certain terms.
BBVA Continental urges you to read each of the Indenture and the form of the Notes because they, and not this
description, define your rights as a holder of Notes. In case of any conflict regarding the rights and obligations of the
holders of the Notes under the Indenture, the Notes, and this offering circular, the terms of the Indenture will prevail.
Capitalized terms not otherwise defined in this Description of the Notes have the meanings ascribed to them in the
Indenture. You may obtain a copy of the Indenture and the form of the Notes by contacting the Trustee at the
address indicated in this offering memorandum and, for so long as the Notes are admitted to listing on the Official
List of the Luxembourg Stock Exchange (the LSE) and to trading on the Euro MTF Market, the alternative market
of the LSE, at the office of the paying agent in Luxembourg.
The Indenture provides for the issuance of the Notes but does not limit the aggregate principal amount of
Notes that may be issued under the Indenture, and provides that, subject to certain conditions, additional Notes may
be issued under the Indenture from time to time without consent of the holders of the Notes (or of beneficial
interests in the Notes). The Indenture does not limit the amount of additional indebtedness or other obligations that
BBVA Continental may incur. At the option of BBVA Continental, this additional indebtedness may consist of
additional Notes (Additional Notes) issued by it in one or more transactions, which shall have identical terms
(other than issue date, issue price and date from which interest shall accrue) as the Notes issued hereby; provided,
however, if the Additional Notes are not fungible with the original Notes for U.S. federal income tax purposes, the
Additional Notes will have separate CUSIP numbers. Holders of Additional Notes would have the right to vote
together with holders of the Notes as one class.
General
The Notes:
will be BBVA Continentals direct, unsecured subordinated obligations, junior in right of payment to
all existing and future Senior Obligations of BBVA Continental in accordance with the subordination
provisions of the Indenture;
will be pari passu in right of payment with all of BBVA Continentals existing and future Parity
Obligations; and
will be senior in right of payment to all of BBVA Continentals existing and future Junior Obligations.
Acceleration of any payments due under the Notes will occur only upon the occurrence and continuation of
an Acceleration Event. There is no right of acceleration in the case of a default in any payment on the Notes
(whether when due, upon redemption or otherwise) or the performance of any of BBVA Continentals other
obligations under the Indenture or the Notes. For more information, see Loss Absorption and Acceleration
Event.
As of June 30, 2014, BBVA Continental had:
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(i)
to the extent that such Taxes are imposed or levied by reason of such holder (or the beneficial
owner) having some connection with the Taxing Jurisdiction other than the mere holding (or beneficial ownership)
of such Note, receiving principal or interest payments on the Notes, or enforcing rights thereunder (including but not
limited to citizenship, nationality, residence, domicile or existence of a business, permanent establishment, a
dependent agent, a place of business or a place of management present or deemed present in the Taxing
Jurisdiction);
(ii)
to the extent that any Taxes are imposed other than by deduction or withholding from payments of
principal, premium, if any, or interest on or in respect of the Notes;
(iii)
in the event that the holder (or beneficial owner) fails to comply with any certification,
identification or other reporting requirement concerning nationality, residence, identity or connection with the
Taxing Jurisdiction if (1) compliance is required by applicable law, regulation, administrative practice or treaty as a
precondition to exemption from all or part of the Taxes, (2) if the certification, identification or other reporting
requirement does not concern nationality, residence or identity with the Taxing Jurisdiction, the holder (or beneficial
owner) is able to comply with these requirements without undue hardship and (3) BBVA Continental has given the
holders (or beneficial owners) at least 30 calendar days prior notice, that they will be required to comply with such
requirement;
(iv)
in the event that the holder fails to surrender (where surrender is required) its Note for payment
within 30 days after BBVA Continental has made available a payment of principal or interest, provided that BBVA
Continental will pay Additional Amounts to which a holder would have been entitled had the Note been surrendered
on the last day of such 30-day period;
(v)
to the extent that such Taxes are imposed by reason of an estate, inheritance, gift, personal
property, value added, use or sales tax or any similar taxes, assessments or other governmental charges;
(vi)
where such withholding or deduction of Taxes is imposed on a payment to an individual and is
required to be made pursuant to European Council Directive 2003/48/EC or any other directive on the taxation of
savings implementing the conclusions of the European Council of Economic and Finance Ministers (ECOFIN)
meeting of June 3, 2003 or any law implementing or complying with, or introduced in order to conform to, such
directive;
(vii)
where such Taxes could have been avoided by presenting the relevant Note to another available
paying agent in a member state of the European Union;
(viii)
to the extent any Tax required to be withheld or deducted under section 1471 through 1474 of the
Internal Revenue Code of 1986, as amended (FATCA), any treaty, law, regulation or other official guidance
enacted by any foreign government implementing FATCA, or any agreement between BBVA Continental and the
United States or any authority thereof implementing FATCA;
(ix)
by or on behalf of a holder that is a fiduciary, a partnership, a limited liability company or a person
other than the sole beneficial owner of any payment, to the extent that a beneficiary or settlor with respect to such
fiduciary, a member of such partnership, an interest holder in such limited liability company or the beneficial owner
of the payment would not have been entitled to the Additional Amounts had the beneficiary, settlor, member,
interest holder or beneficial owner been the holder of the Note; or
(x)
Any reference to payments on the Notes shall be deemed also to include any Additional Amounts. The
foregoing obligations shall survive any termination of the Indenture or the Notes. However, no holder shall be
entitled to receive any Additional Amounts greater than the amounts necessary in order that the net amounts
receivable by such holder after such withholding or deduction equal the respective amounts which would have been
receivable by such holder in the absence of such withholding or deduction, subject to the exceptions above.
Taxes means, with respect to payments on any Note, all taxes, withholdings, duties, assessments or
governmental charges of whatever nature imposed or levied by or on behalf of Peru, or in any jurisdictions of any
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paying agents, or the jurisdiction of any successor corporation (each, a Taxing Jurisdiction), or any political
subdivision thereof or any authority or agency therein or thereof having power to tax.
For a discussion of Peruvian withholding taxes applicable to payments under or with respect to the Notes,
see Taxation Peruvian Tax Considerations.
Unclaimed Payments, Prescription
All money paid by us to the Trustee that remains unclaimed at the end of two years after the amount is due
to a holder will be repaid to us. After that two-year period, the holder may look only to us for payment and not to the
Trustee or anyone else. The right to receive each payment of principal of and interest on the Notes will become void
at the end of six years after the due date thereof.
Redemption Prior to Maturity
Optional Redemption
On the Reset Date, subject to the prior approval of the SBS or any other then-applicable Peruvian
Governmental Authority, if required, BBVA Continental may at its option redeem the Notes in whole or in part,
upon giving not less than 30 nor more than 60 days notice to the holders of the Notes, at a redemption price equal to
100% of the principal amount of the Notes being redeemed plus any accrued and unpaid interest on the principal
amount of the Notes being redeemed up to, but excluding, the date of such redemption, plus Additional Amounts, if
any (subject to the right of holders of record on the relevant record date to receive interest due on the relevant
Interest Payment Date).
Redemption Upon a Tax Event or Regulatory Event
At any time with the prior approval of the SBS, or any other then-applicable Peruvian Governmental
Authority, if required, BBVA Continental may redeem the Notes in whole, but not in part, upon giving not less than
30 nor more than 60 days notice to the holders of the Notes, following the occurrence of a Tax Event or Regulatory
Event. In the case of redemption following a Tax Event, BBVA Continental will redeem the Notes at a redemption
price equal to 100% of the aggregate principal amount of the Notes being redeemed, plus any accrued and unpaid
interest on the principal amount of such Notes, up to, but excluding, the date of such redemption, plus Additional
Amounts, if any. In the case of a redemption following a Regulatory Event, BBVA Continental will redeem the
Notes at a redemption price equal to the Make-Whole Amount, plus any accrued and unpaid interest on the principal
amount of the Notes, up to, but not including, the date of redemption, plus Additional Amounts, if any.
In the case of a Tax Event, before giving notice of redemption, BBVA Continental shall deliver to the
Trustee an Officers Certificate stating that BBVA Continental is entitled to effect such redemption in accordance
with the terms set forth in the Indenture, setting forth in reasonable detail a statement of the facts relating thereto and
stating that such obligation cannot be avoided by taking reasonable measures available to BBVA Continental (such
measures not involving any material cost to BBVA Continental or the incurring of any material tax or penalty),
provided that for this purpose reasonable measures shall not include any change in BBVA Continentals jurisdiction
of organization or location of its principal executive office. The statement will be accompanied by an Opinion of
Counsel to the effect, among other things, that as a result of a Tax Event, BBVA Continental has become obligated
to pay or will be liable for (a) Additional Amounts payable in respect of the Notes in excess of the gross amount of
Additional Amounts payable in respect of such Notes prior to such Tax Event, or (b) paying any Peruvian value
added taxes imposed in respect of payments of interest on the Notes (to the extent that such Peruvian value added
taxes cannot be offset against any other tax liabilities that may arise out of BBVA Continentals ordinary course of
business.
In the case of a Tax Event or a Regulatory Event, BBVA Continental is required, prior to exercising the
right of redemption, to deliver to the Trustee an Officers Certificate together with a written legal opinion of
Peruvian counsel of recognized standing, selected by BBVA Continental, in a form satisfactory to the Trustee
confirming that such right of redemption has been authorized by the SBS or any other then-applicable Peruvian
Governmental Authority if then required, or confirming that such authorization is not required.
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Tax Event means (a) any change in or amendment (including any announced prospective change) to the
laws, treaties or regulations of Peru or any political subdivision or governmental authority thereof or (b) any judicial
decision, official administrative announcement or regulatory procedure, of Peru (each an Administrative Action),
or (c) any amendment to or change in the official position or the official interpretation of such Administrative
Action that provides for a position with respect to such Administrative Action that differs from the theretofore
generally accepted position, in each case, by any legislative body, court, governmental authority or regulatory body
having appropriate jurisdiction, irrespective of the manner in which such amendment or change is made known,
which amendment or change is effective or such pronouncement or decision is announced on or after the date of
issuance of the Notes, that results in BBVA Continental becoming obligated to pay or liable for (a) Additional
Amounts payable in respect of the Notes in excess of the gross amount of Additional Amounts payable in respect of
the Notes prior to such amendment, change or Administrative Action or (b) paying any Peruvian value added taxes
imposed in respect of payments of interest on the Notes to the extent that such Peruvian value added taxes cannot be
offset against any other tax liabilities that may arise out of BBVA Continentals ordinary course of business;
provided that such obligation cannot be avoided by taking reasonable measures available to BBVA Continental
(such measures not involving any material cost to BBVA Continental or the incurring of any material tax or
penalty).
Regulatory Event means that, as a result of (i) any change in, or amendment to, the laws (or any regulations
or rulings issued thereunder) of Peru or any political subdivision thereof or any regulatory authority therein or (ii) any
change in the application, administration or official interpretation of such laws, regulations or rulings, including,
without limitation, the holding of a court of competent jurisdiction, which change or amendment becomes effective on
or after the issuance date of the Notes, BBVA Continental will no longer be entitled to treat the full, or the applicable
portion of, principal amount of the Notes as Tier II Regulatory Capital pursuant to Peruvian Banking Law.
Open Market Purchases
With the prior approval of the SBS or any other then-applicable Peruvian Governmental Authority, if then
required, BBVA Continental may at any time purchase any Notes in the open market or otherwise in any manner
and at any price, which Notes may be delivered to the Trustee to be promptly cancelled by it; provided that, in the
event that BBVA Continental does not purchase the entire aggregate principal amount of the Notes outstanding,
following any such purchase at least U.S. $100 million in aggregate principal amount of the Notes must remain
outstanding. Upon cancellation, the cancelled Notes will no longer be considered part of BBVA Continentals
Regulatory Capital. Any such Note not delivered to the Trustee to be cancelled may be resold in compliance with all
relevant laws, regulations and directives.
Ranking and Outstanding Indebtedness
The Notes will be BBVA Continentals direct, unsecured subordinated obligations and will rank pari passu
without preference among themselves. In the event of BBVA Continentals dissolution and liquidation or equivalent
proceedings under Peruvian Banking Law and regulations thereunder, the Notes will rank (i) junior in right of
payment to all of BBVA Continentals existing and future Senior Obligations; (ii) pari passu in right of payment
with all of BBVA Continentals existing and future Parity Obligations; and (iii) senior in right of payment to all of
BBVA Continentals existing and future Junior Obligations.
As of June 30, 2014, BBVA Continental had:
The Indenture provides that, in the event of BBVA Continentals dissolution and liquidation or equivalent
proceedings under Peruvian Banking Law and the regulations thereunder, unless all creditors of its Senior
Obligations have been paid in full, no payment or other distribution may be made in respect of the Notes. If the
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Trustee or any holders of the Notes receive any payment or distribution that is prohibited under these provisions,
then the Trustee or the holders will have to repay that money to, or hold that money in trust for the benefit of,
creditors of BBVA Continentals Senior Obligations. See Loss Absorption and Risk FactorsRisk Relating to
the NotesThe Notes will be unsecured, subordinated obligations and will rank junior in right of payment to all of
our existing and future Senior Obligations.
Loss Absorption
Pursuant to the Peruvian Banking Law, as amended, and regulations promulgated thereunder, the SBS
shall, when applicable, in the case of an Intervention (as defined below) by the SBS or the dissolution and
liquidation of BBVA Continental, use accrued and unpaid interest and principal amounts of the Notes, in that order,
to absorb losses of BBVA Continental. If the SBS were to do so, any losses of BBVA Continental would be
absorbed first by current and retained earnings, donations, equity premiums and legal and voluntary reserves, then
by common and preferred shares, followed by accrued and unpaid interest and principal, in that order, of junior
subordinated debt constituting instrumentos hbridos (hybrid instruments) under the Peruvian Reglamento de Deuda
Subordinada which qualify as Tier I and Tier II Regulatory Capital (as applicable). See Risk FactorsRisks
Relating to the NotesThe Notes may be used to absorb losses that the Bank incurs and, in certain limited
instances, may be converted to equity.
Peruvian Bankruptcy Considerations
Pursuant to the Peruvian Banking Law, the SBS has the power to interrupt the operations of a bank in order
to prevent it from, or to control and reduce the effects of, a bank failure. Accordingly, the SBS may intervene in a
banks business by adopting a definitive intervention regime (Intervention), upon the occurrence of certain events,
including (a) suspension of payments; (b) failure to comply with the commitments assumed or the instructions from
the SBS during a surveillance regime (Regimen de Vigilancia); (c) deficit of regulatory capital (to the extent that it
is in excess of 50%). It shall be understood that the adoption by the SBS of a surveillance regime (Rgimen de
Vigilancia) of BBVA Continental, in accordance with Articles 95 to 102 of the Peruvian Banking Law, is not
included in the term Intervention.
An Intervention may halt a banks operations up to 45 days, which may be extended for a second period of
up to 45 additional days, during which time the SBS may institute measures such as (a) canceling losses by reducing
reserves, capital and subordinated debt; and (b) segregating certain assets and liabilities for transfer to another
financial institution. After an Intervention, the SBS will proceed to dissolve and liquidate the bank. In limited
circumstances, during a dissolution and liquidation proceeding, with the consent of the SBS, the creditors of the
bank representing at least 30% of its total liabilities may propose a rehabilitation plan which contemplates the
conversion into equity of the aggregate principal amount of the notes that remains outstanding after they have been
used by the SBS to absorb losses that the bank incurs. Any such rehabilitation plan could enforceable if, after
acceptance by the SBS, it was approved by a majority of the creditors of the bank.
Beginning on the date on which a resolution of the SBS subjecting a bank to an Intervention regime is
issued, and continuing until such Intervention is concluded (which period ends when the liquidation process begins),
the Peruvian Banking Law prevents any creditor of the bank from: (a) initiating any judicial or administrative
procedure for the collection of any amount owed by the bank, (b) enforcing any judicial decision rendered against
the bank to secure payment of any of its obligations, (c) constituting a lien or attachment over any of the assets of
the bank to secure payment of any of its obligations, or (d) making any payment, advance or netting payment
obligations or assuming any obligation on behalf of the bank, with the funds or assets that may belong to it and are
held by third parties, except for: (i) the netting of payment obligations that are made between regulated entities of
the Peruvian financial system and insurance systems and (ii) under certain circumstances, the netting of payment
obligations arising from derivative transactions and repurchase and certain other agreements entered into with local
or foreign financial and insurance institutions or with the Peruvian Ministry of Economy and Finance or with the
Peruvian Central Bank.
During liquidation, claims of bank creditors rank as follows:
First order - Labor claims:
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1st.
Employee remunerations.
2nd.
Social benefits, contributions to the private and public pension system and other labor claims
against the bank accrued until the date when the dissolution is declared, retirement pensions or the capital
required to redeem those pensions or to secure them by purchasing annuities.
Second order:
Claims for bank deposits and other types of saving instruments provided under the Peruvian Banking Law,
in the portion not covered by the Deposit Insurance Fund.
Third order - Taxes:
1st.
Claims by the Peruvian social security administration (EsSalud) related to health care benefits for
which the bank is responsible as employer.
2nd.
Taxes.
The legal interests on the banks obligations that may accrue during the liquidation.
3rd.
Subordinated debt.
Except for unsecured and non-privileged credits (unless otherwise agreed in such instances amongst
creditors), all claims within an order will be ranked pari passu among themselves. Each category of creditors will
collect in the order indicated above, whereby distributions in one order will be subject to completing full distribution
in the prior order.
Any security interest created before the issuance of the resolution declaring the banks dissolution and the
initiation of the liquidation process shall survive in order to guarantee the obligations it secures. The secured
creditors shall retain the right to collect from the proceeds of the sale of the collateral, on a preferred basis (except
with respect to claims of the first and second order, which are privileged claims), subject to certain rules established
under Article 119 of the Peruvian Banking Law.
Creditors representing at least 30% of total amount of credits may submit a restructuring plan for
consideration and approval of the SBS. Such restructuring plan may establish that losses will be absorbed by holders
of subordinated debt. Peruvian banks are not subject to the regime of insolvency and bankruptcy otherwise
applicable to Peruvian corporations in general.
No Limitation on Indebtedness, Liens, Dividends, Investments, Transactions with Affiliates and Reserves
The Indenture does not limit the ability of BBVA Continental to incur additional indebtedness (including
Additional Notes), to grant liens on its assets and properties, to make payments of dividends, to make investments or
enter into transactions with its affiliates or require it to create or maintain any reserves.
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Limited Covenants
Consolidation, Merger, Sale or Conveyance
BBVA Continental may not consolidate with or merge into any other corporation or convey or transfer its
properties and assets substantially as an entirety to any person, unless:
(i)
the successor corporation (if not BBVA Continental) shall be a corporation organized and existing
under the laws of (1) Peru, (2) the United States of America or any State thereof, (3) Brazil or (4) any
country member of the Organization for Economic Co-operation and Development and any state thereof (to
the extent applicable), and shall expressly assume, by a supplemental indenture to the Indenture, delivered
to and in a form satisfactory to the Trustee, the due and punctual payment of all amounts payable pursuant
to the Indenture and the principal of, and premium, if any, and interest on all the outstanding Notes and the
performance of every covenant in the Indenture on the part of BBVA Continental to be performed or
observed;
(ii)
immediately after giving effect to such transaction, no Acceleration Event under the Indenture or
the Notes, and no event which, after notice or lapse of time, or both, would become an Acceleration Event
under the Indenture or the Notes, shall have happened and be continuing; and
(iii)
it shall have delivered to the Trustee an Officers Certificate and an opinion of counsel, each
stating that such consolidation, merger, conveyance or transfer and such supplemental indenture (if
applicable) comply with the foregoing provisions relating to such transaction and all conditions precedent
in the Indenture relating to such transaction and the execution of such supplemental indenture (if
applicable) have been complied with.
In case of any such consolidation, merger, conveyance or transfer, such successor corporation will succeed
to and be substituted for BBVA Continental as obligor on the Notes with the same effect as if it had issued the
Notes. Upon the assumption of the obligations of BBVA Continental by any such successor corporation in such
circumstances subject to applicable laws, BBVA Continental will be discharged from all obligations under the Notes
and the Indenture.
Periodic Reports
So long as any Notes are outstanding, BBVA Continental will furnish to the Trustee:
(i)
within 135 days following the end of each fiscal year, an English version (or accompanied by an
English translation thereof) of its consolidated audited income statements, balance sheets, statements of shareholders
equity and cash flow statements and the related notes thereto for the two most recent fiscal years in accordance with
Peruvian GAAP or in accordance with such accounting standards as may from time to time be required for Peruvian
banks, together with an audit report thereon by its independent auditors, accompanied by an officers certificate
stating that no Acceleration Event has occurred during such period; and
(ii)
within 75 days following the end of the first three fiscal quarters in each fiscal year, an English
version (or accompanied by an English translation thereof) of its quarterly reports containing unaudited consolidated
balance sheets, income statements, statements of shareholders equity and cash flow statements and the related notes
thereto, in each case for the quarterly period then ended and the corresponding quarterly period in the prior fiscal
year and prepared in accordance with Peruvian GAAP or in accordance with such accounting standards as may from
time to time be required for Peruvian banks, accompanied by an Officers Certificate stating that no Acceleration
Event has occurred during such period.
In addition, BBVA Continental shall furnish to the holders of the Notes, upon the requests of such holders,
any information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act so long as such Notes
are not freely transferable under the Exchange Act by persons who are not affiliates under the Securities Act.
In addition, if and so long as the Notes are admitted to listing on the Official List of the LSE and to trading
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on the Euro MTF Market and the rules of the LSE so require, copies of such reports and information furnished to the
Trustee will also be made available at the specified office of the paying agent in Luxembourg.
Listing
In the event that the Notes are admitted to listing on the Official List of the LSE and to trading on the Euro
MTF Market, BBVA Continental will use its reasonable best efforts to maintain such listing, provided that if, as a
result of the European Union regulated market amended Directive 2001/34/EC (the Transparency Directive) or
any legislation implementing the Transparency Directive BBVA Continental could be required to publish financial
information either more regularly than we otherwise would be required to or according to accounting principles
which are materially different from the accounting principles which it would otherwise use to prepare its published
financial information, or BBVA Continental determines that it is unduly burdensome to maintain a listing on the
LSE, it may delist the Notes from the Euro MTF Market in accordance with the rules of the LSE and seek an
alternative admission to listing, trading and/or quotation for the Notes on a different section of the LSE or by such
other listing authority, stock exchange and/or quotation system inside or outside the European Union as it may
decide. Although BBVA Continental cannot assure you as to the liquidity that may result from a listing on the LSE,
delisting the Notes from the LSE may have a material effect on the ability of holders of the Notes to resell the Notes
in the secondary market.
Acceleration Event
If BBVA Continental fails to make payment of principal or interest or Additional Amounts, if any, on the
Notes (and, in the case of payment of interest or Additional Amounts, such failure to pay continues for thirty (30)
days), each holder of the Notes has the right to demand and collect under the Indenture, and BBVA Continental will
pay such holders of the Notes, the applicable amount of such due and payable principal, accrued interest and
Additional Amounts, if any, on the Notes. There is no right of acceleration in the case of a default in any payment
on the Notes (whether when due, upon redemption or otherwise) or the performance of any of BBVA Continentals
other obligations under the Indenture or the Notes.
Acceleration of any payments due under the Notes will occur only upon the occurrence and continuation of
an Acceleration Event and following delivery of a notice by the Trustee to BBVA Continental that the Notes are
immediately due and payable. If an Acceleration Event occurs and is continuing and notice has been provided by the
Trustee to BBVA Continental, the Notes shall become immediately due and payable, and the rate at which interest
will accrue on the Notes (to the extent the Notes have not been used to absorb any losses incurred by BBVA
Continental) during the dissolution and liquidation or similar proceedings under Peruvian law will be limited to the
legal interest rate for dollar denominated indebtedness determined by the Peruvian Central Bank from time to time
and notified to the Trustee in writing. We shall deliver to the Trustee, as promptly as practicable and in any event
within five(5) Business Days, upon becoming aware of any Acceleration Event, a written notice setting forth the
nature of such Acceleration Event. Pursuant to the Peruvian Banking Law, upon Intervention by the SBS, the
operations of BBVA Continental will be interrupted in order to prevent, or to control and reduce the effects of,
BBVA Continental failure. Upon Intervention by the SBS or the liquidation of BBVA Continental, the Notes may be
used to absorb losses. See Loss Absorption.
Acceleration Event means that the SBS has entered a decree or order for Intervention of BBVA
Continental or for the appointment of a custodian, conservator, receiver, liquidator, assignee, trustee, sequestrator or
other similar official in any dissolution and liquidation or similar proceeding with respect to BBVA Continental or
all or substantially all of its property, in each case pursuant to the Peruvian Banking Law; and such decree or order
has been communicated by the SBS to BBVA Continental.
Modification of the Indenture
Subject to Peruvian Banking Law, with the prior approval of the SBS, or any other then applicable
Peruvian Governmental Authority, if then required, BBVA Continental and the Trustee may, without the consent of
the holders of the Notes, amend, waive or supplement the Indenture or the Notes for certain specified purposes,
including, among other things, curing ambiguities, defects, omissions or inconsistencies; to conform the text of the
Indenture or the Notes to any provision in this Description of the Notes; to evidence the succession of another
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corporation to BBVA Continental, and the assumption by any such successor of the obligations of BBVA
Continental contained in the Indenture and in the Notes; to add to the covenants of BBVA Continental, or to
surrender any right or power conferred by the Indenture upon BBVA Continental, for the benefit of the holders of
the Notes; to provide for the issuance of Additional Notes and to set forth the terms thereof, and/or to add to the
rights of the holders of the Notes; to evidence and provide for the acceptance of appointment by another corporation
as a successor trustee; to add such provisions as may be expressly permitted by the Trust Indenture Act of 1939, as
amended, excluding the provisions in Section 316(a)(2); to establish any form of security as provided for in the
Indenture and the issuance of and terms thereof; to provide for the issuance of Notes in bearer form with coupons as
well as fully registered form; or to make any other change as will not adversely affect the interests of any holder of
the Notes in any material respect.
In addition, with certain exceptions and subject to Peruvian Banking Law, with the prior approval of the
SBS, or any other then applicable Peruvian Governmental Authority ,if then required, BBVA Continental and the
Trustee may amend, waive or supplement the Indenture or the Notes with the consent of the holders of at least a
majority in aggregate principal amount of the Notes then outstanding, but no such modification may be made
without the consent of the holder of each outstanding Note affected thereby which would:
(i)
change the maturity of any payment of principal of or any installment of interest on any Note, or
reduce the principal amount thereof or the interest or premium payable thereon, or change the method of
computing the amount of principal thereof or interest or premium, if any, payable thereon on any date or change
any place of payment where, or the coin or currency in which, any principal or interest or premium thereon are
payable, or impair the right of holders to institute suit for the enforcement of any such payment on or after the
date when due; or
(ii)
reduce the percentage in aggregate principal amount of the outstanding Notes, the consent of
whose holders is required for any such amendment, supplement or waiver or the consent of whose holders is
required for any waiver of compliance with certain provisions of the Indenture or certain defaults thereunder
and their consequences provided for in the Indenture; or
(iii)
modify any of the provisions of certain sections of the Indenture with respect to the Notes,
including the provisions summarized in this paragraph, except to increase any such percentage or to provide that
certain other provisions of the Indenture cannot be modified or waived without the consent of the holder of each
outstanding Note affected thereby.
Any amendment to, or waiver of, the subordination provisions of the Indenture that adversely affects the
rights of the holders of the Notes will require the consent of the holders of at least 75% in aggregate principal
amount of Notes then outstanding.
The Indenture provides that the Notes owned by BBVA Continental or any of its affiliates shall be deemed
not to be outstanding for, among other purposes, consenting to any such modification.
Registrar, Transfer Agent and Paying Agents
The Bank of New York Mellon will act as BBVA Continentals agent as security registrar for the Notes.
The Bank of New York Mellon will also act as paying agent for the Notes. BBVA Continental has the right at any
time to vary or terminate the appointment of any paying agents and to appoint additional or successor paying agents
in respect of the Notes. Registration of transfers of the Notes will be effected without charge, but upon payment
(with the giving of such indemnity as BBVA Continental may require) in respect of any tax or other governmental
charges that may be imposed in relation to it. BBVA Continental will not be required to register or cause to be
registered the transfer of the Notes after the Notes have been called for redemption. Application is expected to be
made to admit the Notes for listing on the Official List of the LSE and to trading on the Euro MTF Market. As long
as the Notes are listed on this market, BBVA Continental will also maintain a paying agent and a transfer agent in
Luxembourg.
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The Trustee
The Bank of New York Mellon is the trustee under the Indenture. The Indenture provides that during the
existence of an Acceleration Event under the Notes or the Indenture, the Trustee will exercise the rights and powers
vested in it by the Indenture, using the same degree of care and skill as a prudent person would exercise or use under
the circumstances in the conduct of his own affairs. In the absence of the occurrence of an Acceleration Event under
the Notes or the Indenture, the Trustee need only perform the duties specifically set forth in the Indenture. The
Indenture does not contain limitations on the rights of the Trustee under the Indenture, should it become BBVA
Continentals creditor, to obtain payment of claims. The Trustee is not precluded from engaging in other
transactions and, if it acquires any conflicting interest, it is not required to eliminate such conflict or resign. The
address of the Trustee is The Bank of New York Mellon, 101 Barclay Street, Floor 7E, New York, NY 10286.
Notices
From and after the date the Notes are listed on the Euro MTF Market and so long as a listing on the Euro
MTF Market is maintained or is required by the rules of the LSE, all notices to holders of Notes will be published in
English on the website of the Luxembourg Stock Exchange (http://www.bourse.lu). Notices shall be deemed to have
been given on the date of publication as aforesaid or, if published on different dates, on the date of the first such
publication.
For so long as Notes in global form are outstanding, notices to be given to holders of a Global Note will be
given only to DTC in accordance with its applicable policies as in effect from time to time. Notices to be given to
holders of Notes not in global form will be sent by mail to the respective addresses of the holders as they appear in
the security register maintained by the registrar, and will be deemed given when mailed. Neither the failure to give
notice to a particular holder, nor the defect in a notice given to a particular holder, will affect the sufficiency of any
notice given to another holder.
Governing Law; Submission to Jurisdiction
The Notes are being issued as redeemable subordinated debt under Article 233 of the Peruvian Banking
Law. The Indenture and the Notes will be governed by, and will be construed in accordance with, the law of the
State of New York, without giving effect to the applicable principles of conflict of laws. For the avoidance of doubt,
in the case of an Intervention by the SBS or dissolution and liquidation of BBVA Continental, the Peruvian Banking
Law and the regulations promulgated thereunder shall govern any such Intervention or dissolution and liquidation.
BBVA Continental will consent to the non-exclusive jurisdiction of the U.S. federal and New York state
courts in the Borough of Manhattan, The City of New York, and will agree that all disputes under the Indenture or
the Notes may be submitted to the jurisdiction of such courts. BBVA Continental will irrevocably consent to and
waive to the fullest extent permitted by law any objection that it may have to the laying of venue of any suit, forum,
action or proceeding against it or its properties, assets and revenues with respect to the Indenture, the Notes or any
such suit, action or proceeding in any such court and any right to which it may be entitled on account of place of
residence or domicile.
To the extent that BBVA Continental or any of its revenues, assets or properties shall be entitled to any
immunity from suit, from the jurisdiction of any such court, from attachment prior to judgment, from attachment in
aid of execution of judgment, from execution of a judgment or from any other legal or judicial process remedy, it
will irrevocably agree not to claim and will irrevocably waive such immunity to the fullest extent permitted by the
laws of such jurisdiction.
BBVA Continental will agree that service of all writs, claims, process and summons in any suit, action or
proceeding against it or its properties, assets or revenues with respect to the Indenture and the Notes or any suit,
action or proceeding to enforce or execute any judgment brought against it in the State of New York may be made
upon CT Corporation Systems at 111 Avenue of the Americas, New York, New York 10011 and it will irrevocably
appoint CT Corporation Systems as its agent to accept such service of any and all such writs, claims, process and
summonses.
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Certain Definitions:
Benchmark Reset Rate means (i) the rate per annum corresponding to the semi-annual equivalent yield to
maturity, under the heading that represents the average for the week immediately prior to the Reset Date, appearing
in the most recently published statistical release designated H.15(519) or any successor publication that is
published weekly by the U.S. Federal Reserve and that establishes yields on actively traded United States Treasury
securities adjusted to constant maturity under the caption Treasury Constant Maturities, for the 5-Year U.S.
Treasury Bond or (ii) if such release (or any successor release) is not published during the week preceding the Reset
Date or does not contain such yields, the rate per annum equal to the semi-annual equivalent yield to maturity of the
5-Year U.S. Treasury Bond, calculated by the Independent Investment Banker using a price for the 5-Year U.S.
Treasury Bond (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for the
Reset Date. The Benchmark Reset Rate will be determined by the Independent Investment Banker at 3:30pm on the
Reset Date and notified to the calculation agent in writing within one Business Day.
Business Day means a day that is a day other than Saturday, Sunday or a day on which banking
institutions in New York City, United States or Lima, Peru, generally are authorized or required by law, regulation
or executive order to remain closed.
Comparable Treasury Issue means the United States Treasury security or securities selected by an
Independent Investment Banker as having an actual or interpolated maturity of , that would be utilized, at the time
of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities
of a comparable maturity to the remaining term of such Notes.
Comparable Treasury Price means, with respect to any redemption date (1) the average of the Reference
Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference
Treasury Dealer Quotation or (2) if the Independent Investment Banker obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such quotations.
Independent Investment Banker means one of the Reference Treasury Dealers appointed by BBVA
Continental.
Junior Obligations means (i) all instrumentos hbridos (hybrid instruments) of BBVA Continental under
the Peruvian Reglamento de Deuda Subordinada, or successor regulation, of the Bank which qualify as Tier I and
Tier II Regulatory Capital, as applicable, (ii) all classes of BBVA Continentals share capital, and (iii) any other
securities or obligations or instruments of BBVA Continental which, by operation of law or otherwise, rank or are
expressed to rank, pari passu with any class of BBVA Continentals share capital with respect to the payment of
dividends and distributions of assets upon dissolution and liquidation or equivalent proceedings under Peruvian
Banking Law.
Make-Whole Amount means, with respect to a redemption in case of a Regulatory Event, an amount
equal to the greater of (1) 100% of the outstanding principal amount of Notes being redeemed at the date of
redemption and (2) (i) in the case of a redemption occurring on or prior to the Reset Date, the sum of the present
value of each remaining scheduled payment of principal and interest on such Notes to the Reset Date (exclusive of
interest accrued to the date of redemption) discounted to the redemption date on a semi-annual basis (assuming a
360-day year consisting of twelve 30-day months) at the Treasury Rate plus
basis points, or (ii) in the case of a
redemption occurring after the Reset Date, the sum of the present value of each remaining scheduled payment of
principal and interest on such Notes to the Maturity Date (exclusive of interest accrued to the date of redemption)
discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day
months) at the Treasury Rate plus basis points.
Parity Obligations means (i) all securities or other subordinated obligations of BBVA Continental, which
qualify as Tier II Regulatory Capital of BBVA Continental other than those that constitute Junior Obligations and
(ii) any other securities or obligations of BBVA Continental which rank (pursuant to mandatory provisions of law or
otherwise), or are expressed to rank, pari passu with BBVA Continentals obligations under the Notes.
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Tier II Regulatory Capital means the tier 2 regulatory capital (patrimonio efectivo de nivel 2) of BBVA
Continental calculated in accordance with article 184(B) of the Peruvian Banking Law, as amended, restated,
supplemented or replaced from time to time and other applicable Peruvian regulations.
Treasury Rate means, with respect to any redemption date, the rate per annum as determined by the
Independent Investment Banker equal to the semi-annual equivalent yield to maturity or interpolated maturity (on a
day count basis) of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date.
Book-entry System; Delivery and Form
The Notes are being offered and sold in connection with the initial offering thereof solely to qualified
institutional buyers, as that term is defined in Rule 144A under the Securities Act, pursuant to Rule 144A, and in
offshore transactions to persons other than U.S. persons, as defined in Regulation S under the Securities Act, in
reliance on Regulation S. Following the initial offering of the Notes, the Notes may be resold to qualified
institutional buyers pursuant to Rule 144A, non-U.S. persons in offshore transactions in reliance on Regulation S,
and pursuant to Rule 144 under the Securities Act, as described under Transfer Restrictions.
The Global Notes
Rule 144A Global Note
Notes offered and sold to qualified institutional buyers pursuant to Rule 144A will be issued in the form of
one or more fully registered restricted global note (the Rule 144A Global Note). The Rule 144A Global Note will
be deposited upon issuance with, or on behalf of, The Depository Trust Company, or DTC and registered in the
name of Cede & Co., as nominee of DTC for credit to the respective accounts of the purchasers, or to such other
accounts as they may direct, and will remain in the custody of The Bank of New York Mellon, as custodian pursuant
to the FAST Balance Certificate Agreement between DTC and The Bank of New York Mellon, as custodian.
Interests in the Rule 144A Global Note will be available for purchase only by qualified institutional buyers.
Regulation S Global Note
Notes offered and sold in offshore transactions to non-U.S. persons in reliance on Regulation S under the
Securities Act will initially be issued in the form of one or more fully registered Regulation S global note (the
Regulation S Global Note). The Regulation S Global Note will be deposited upon issuance with, or on behalf of,
a custodian for DTC in the manner described in the preceding paragraph for credit to the respective accounts of the
purchasers, or to such other accounts as they may direct, at Euroclear Bank S.A./N.V., as operator of the Euroclear
System (Euroclear) or Clearstream Banking, socit anonyme (Clearstream) as participants through depositaries
in DTC.
Investors may hold their interests in the Regulation S Global Note directly through Euroclear or
Clearstream or DTC, if they are participants in such systems, or indirectly through organizations which are
participants in such systems. After the expiration of the Restricted Period (defined below under Exchanges
Among the Global Notes), investors may also hold such interests through organizations other than Euroclear or
Clearstream that are participants in the DTC system. Euroclear and Clearstream will hold such interests in the
Regulation S Global Note on behalf of their participants through customers securities accounts in their respective
names on the books of their respective depositaries. Such depositaries, in turn, will hold such interests in the
Regulation S Global Note in customers securities accounts in the depositaries names on the books of DTC.
Except as set forth below, the Global Notes may be transferred, in whole and not in part, solely to another
nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in respect of the Global Notes may
not be exchanged for Notes in physical, certificated form (referred to as certificated Notes) except in the limited
circumstances described below.
The Notes will be subject to certain restrictions on transfer and will bear a restrictive legend as set forth
under Transfer Restrictions.
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All interests in the Global Notes, including those held through Euroclear or Clearstream, may be subject to
the procedures and requirements of DTC. Those interests held through Euroclear or Clearstream may also be subject
to the procedures and requirements of such systems.
Exchanges Among the Global Notes
Prior to the 40th day after the later of the commencement of the offering of the Notes and the date of the
closing of the sale of the Notes (through and including the 40th day, the Restricted Period), transfers by an owner
of a beneficial interest in respect of the Regulation S Global Note to a transferee who takes delivery of this interest
through the Rule 144A Global Note will be made only in accordance with applicable procedures and upon receipt by
the Trustee of a written certification from the transferor of the beneficial interest in the form provided in the
Indenture to the effect that such transfer is being made to a person whom the transferor reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A in a transaction meeting the requirements of Rule
144A. Such written certification will no longer be required after the expiration of the Restricted Period.
Transfers by an owner of a beneficial interest in respect of the Rule 144A Global Note to a transferee who
takes delivery of such interest through the Regulation S Global Note, whether before or after the expiration of the
Restricted Period, will be made only upon receipt by the Trustee of a certification from the transferor in the form
provided in the Indenture to the effect that such transfer is being made in accordance with Regulation S or (if
available) Rule 144 under the Securities Act and that, if such transfer is being made prior to the expiration of the
Restricted Period, the interest transferred will be held immediately thereafter through Euroclear or Clearstream.
Any beneficial interest in respect of one of the Global Notes that is transferred to a person who takes
delivery in the form of an interest in another Global Note will, upon transfer, cease to be an interest in such Global
Note and become an interest in the other Global Note and, accordingly, will thereafter be subject to all transfer
restrictions, if any, and other procedures applicable to beneficial interests in such other Global Note for as long as it
remains such an interest.
Certain Book-Entry Procedures for the Global Notes
The descriptions of the operations and procedures of DTC, Euroclear and Clearstream set forth below are
provided solely as a matter of convenience. These operations and procedures are solely within the control of the
respective settlement systems and are subject to change by them from time to time. Neither BBVA Continental, the
Trustee nor the initial purchasers take any responsibility for these operations or procedures, and investors are urged
to contact the relevant system or its participants directly to discuss these matters.
DTC has advised BBVA Continental that it is (i) a limited purpose trust company organized under the laws
of the State of New York, (ii) a banking organization within the meaning of the New York Banking Law, (iii) a
member of the Federal Reserve System, (iv) a clearing corporation within the meaning of the Uniform
Commercial Code, as amended, and (v) a clearing agency registered pursuant to Section 17A of the Exchange
Act. DTC was created to hold securities for its participants and facilitates the clearance and settlement of securities
transactions between participants through electronic book-entry changes to the accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTCs participants include securities brokers
and dealers (including the initial purchasers), banks and trust companies, clearing corporations and certain other
organizations. Indirect access to DTCs system is also available to other entities such as banks, brokers, dealers and
trust companies, or indirect participants that clear through or maintain a custodial relationship with a participant,
either directly or indirectly. Investors who are not participants may beneficially own securities held by or on behalf
of DTC only through participants or indirect participants.
BBVA Continental expects that pursuant to procedures established by DTC (i) upon deposit of each Global
Note, DTC will credit the accounts of participants designated by the initial purchasers with an interest in the Global
Note and (ii) ownership of the Notes will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC (with respect to the interests of participants) and the records of participants and
the indirect participants (with respect to the interests of persons other than participants).
The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of
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such securities in definitive form. Accordingly, the ability to transfer interests in the Notes represented by a Global
Note to such persons may be limited. In addition, because DTC can act only on behalf of its participants, who in turn
act on behalf of persons who hold interests through participants, the ability of a person having an interest in Notes
represented by a Global Note to pledge or transfer such interest to persons or entities that do not participate in
DTCs system, or to otherwise take actions in respect of such interest, may be affected by the lack of a physical
definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a Global Note, DTC or such nominee, as the case
may be, will be considered the sole owner or holder of the Notes represented by the Global Note for all purposes
under the Indenture. Except as provided below, owners of beneficial interests in respect of a Global Note will not be
entitled to have Notes represented by such Global Note registered in their names, will not receive or be entitled to
receive physical delivery of certificated Notes, and will not be considered the owners or holders thereof under the
Indenture for any purpose, including with respect to the giving of any direction, instruction or approval to the
Trustee thereunder. Accordingly, each holder owning a beneficial interest in respect of a Global Note must rely on
the procedures of DTC and, if such holder is not a participant or an indirect participant, on the procedures of the
participant through which such holder owns its interest, to exercise any rights of a holder of Notes under the
Indenture or such Global Note. BBVA Continental understands that under existing industry practice, in the event
that it requests any action of holders of Notes, or a holder that is an owner of a beneficial interest in respect of a
Global Note desires to take any action that DTC, as the holder of such Global Note, is entitled to take, DTC would
authorize the participants to take such action and the participants would authorize holders owning through such
participants to take such action or would otherwise act upon the instruction of such holders. Neither BBVA
Continental nor the Trustee or any paying agent, security registrar or transfer agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account of Notes by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to such Notes.
Payments with respect to the principal of, premium, if any, liquidated damages, if any, and interest on any
Notes represented by a Global Note registered in the name of DTC or its nominee on the applicable record date will
be payable by the Trustee to or at the direction of DTC or its nominee in its capacity as the registered holder of the
Global Note representing such Notes under the Indenture. Under the terms of the Indenture, BBVA Continental and
the Trustee, the paying agents, the security registrar and the transfer agents may treat the persons in whose names
the Notes, including the Global Notes, are registered as the owners thereof for the purpose of receiving payment
thereon and for any and all other purposes whatsoever. Accordingly, neither BBVA Continental nor the Trustee,
any paying agent, security registrar or transfer agent has or will have any responsibility or liability for the payment
of such amounts to owners of beneficial interests in respect of a Global Note (including principal, premium, if any,
liquidated damages, if any, and interest). Payments by the participants and the indirect participants to the owners of
beneficial interests in respect of a Global Note will be governed by standing instructions and customary industry
practice and will be the responsibility of the participants or the indirect participants and DTC.
Transfers between participants in DTC will be effected in accordance with DTCs procedures, and will be
settled in same-day funds. Transfers between participants in Euroclear or Clearstream will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the Notes, cross-market transfers between
the participants in DTC, on the one hand, and Euroclear or Clearstream participants, on the other hand, will be
effected through DTC in accordance with DTCs rules on behalf of Euroclear or Clearstream, as the case may be, by
its respective depositary. However, such cross-market transactions will require delivery of instructions to Euroclear
or Clearstream, as the case may be, by the counterparty in such system in accordance with the rules and procedures
and within the established deadlines (Brussels time) of such system. Euroclear or Clearstream, as the case may be,
will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take
action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Notes in
DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement
applicable to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to the
depositaries for Euroclear or Clearstream.
Because of time zone differences, the securities account of a Euroclear or Clearstream participant
purchasing an interest in a Global Note from a participant in DTC will be credited, and any such crediting will be
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reported to the relevant Euroclear or Clearstream participant, during the securities settlement processing day (which
must be a Business Day for Euroclear and Clearstream) immediately following the settlement date of DTC. Cash
received in Euroclear or Clearstream as a result of sales of interest in a Global Note by or through a Euroclear or
Clearstream participant to a participant in DTC will be received with value on the settlement date of DTC but will
be available in the relevant Euroclear or Clearstream cash account only as of the Business Day for Euroclear or
Clearstream following DTCs settlement date.
Although DTC, Euroclear and Clearstream have agreed to the foregoing procedures to facilitate transfers of
interests in the Global Notes among participants in DTC, Euroclear and Clearstream, they are under no obligation to
perform or to continue to perform such procedures, and such procedures may be discontinued at any time. Neither
BBVA Continental nor the Trustee or any paying agent, security registrar or transfer agent will have any
responsibility for the performance by DTC, Euroclear or Clearstream or their respective participants or indirect
participants of their respective obligations under the rules and procedures governing their operations.
Certificated Notes
If (i) BBVA Continental notifies the Trustee in writing that DTC is no longer willing or able to act as a
depositary or DTC ceases to be registered as a clearing agency under the Exchange Act and a successor depositary is
not appointed within 90 days of such notice or cessation, (ii) BBVA Continental, at its option, notifies the Trustee in
writing that it elects to cause the issuance of certificated Notes under the Indenture, or (iii) upon the occurrence of
certain other events, including an Acceleration Event, and the Trustee has been advised by counsel that in
connection with the Acceleration Event, it is necessary or appropriate for BBVA Continental to issue certificated
Notes, as provided in the Indenture, then, upon surrender by DTC of the Global Notes, certificated Notes will be
issued to each person that DTC identifies as the beneficial owner of the Notes represented by the Global Notes.
Upon any such issuance, the security registrar is required to register such certificated Notes in the name of such
person or persons (or the nominee of any thereof) and cause the same to be delivered thereto.
Neither BBVA Continental nor the Trustee, any paying agent, security registrar or transfer agent shall be
liable for any delay by DTC or any participant or indirect participant in identifying the beneficial owners of the
related Notes and each such person may conclusively rely on, and shall be protected in relying on, instructions from
DTC for all purposes (including with respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued).
Replacement of Notes
In case of mutilated, destroyed, lost or stolen Notes, application for replacement thereof may be made to
the Trustee or BBVA Continental. Any such Note shall be replaced by the Trustee in compliance with such
procedures, on such terms as to evidence and indemnification as the Trustee and BBVA Continental may require
and subject to any applicable law or regulation. All such costs as may be incurred in connection with the
replacement of any Notes shall be borne by the applicant. Mutilated Notes must be surrendered before new ones will
be issued.
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TAXATION
Certain Material U.S. Federal Income Tax Considerations
The following is a description of certain material U.S. federal income tax consequences that may be
relevant to the acquisition, ownership and disposition of the Notes by U.S. Holders, as defined below. This
description addresses only the U.S. federal income tax considerations applicable to U.S. Holders that purchase Notes
pursuant to this offering at their issue price (generally, the first price at which a substantial amount of the Notes is
sold to the public, other than sales to underwriters, placement agents, wholesalers, or similar persons) and that will
hold the Notes as capital assets (within the meaning of the U.S. Internal Revenue Code of 1986, as amended (the
Code). This description does not address tax considerations applicable to holders that may be subject to special tax
rules, including:
insurance companies;
tax-exempt entities;
persons that will hold the Notes as part of a hedging or conversion transaction or as a position in a
straddle for U.S. federal income tax purposes;
persons that have a functional currency other than the U.S. dollar;
partnerships or other entities classified as partnerships for U.S. federal income tax purposes.
This description is based on the Code, existing, proposed and temporary U.S. Treasury Regulations and
judicial and administrative interpretations thereof, in each case as currently in effect. U.S. tax laws and the
interpretation thereof are subject to change, which change could apply retroactively and could affect the tax
consequences described below.
This description does not address any U.S. federal tax consequences other than U.S. federal income tax
consequences, such as the estate and gift tax. It also does not address any U.S. state, local or non-U.S. tax
consequences. Investors should consult their own tax advisors with respect to the U.S. federal, state, local and
foreign tax consequences of acquiring, owning or disposing of the Notes, in their particular circumstances.
For purposes of this description, a U.S. Holder is a beneficial owner of the Notes for U.S. federal income
tax purposes that is:
a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or
organized in or under the laws of the United States or any state thereof, including the District of
Columbia;
an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
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a trust, if either a court within the United States is able to exercise primary jurisdiction over the
administration of the trust and one or more U.S. persons have the authority to control all substantial
decisions of the trust or such trust has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person.
The U.S. federal income tax treatment of a partner in a partnership (including any entity classified as a
partnership for U.S. federal income tax purposes) that holds Notes will depend on the status of the partner and the
activities of the partnership. Prospective purchasers that are partnerships and partners in such partnerships should
consult their tax advisors concerning the U.S. federal income tax consequences to them of the acquisition, ownership
and disposition of the Notes by the partnership.
Characterization of the Notes
Although the matter is not free from doubt, the Bank believes that the Notes should be treated as debt for
U.S. federal income tax purposes. It is possible, however, that the IRS would take the position that the Notes should
be treated as equity for these purposes because of the limited acceleration rights and loss absorption features of the
Notes. If the Notes are treated as equity for U.S. federal income tax purposes, investors may be subject to materially
adverse U.S. federal income tax consequences, including being subject to greater amounts of U.S. tax and to
additional U.S. tax form filing requirements, if the Bank is classified as a passive foreign investment company, or
PFIC, at any time that you hold the Notes. In general, a non-U.S. corporation will be classified as a PFIC for any
taxable year if at least (i) 75% of its gross income is classified as passive income or (ii) 50% of the average
quarterly value of its assets produce or are held for the production of passive income. The application of the PFIC
rules to banks is not entirely clear under present U.S. federal income tax law. No determination has been made as to
whether the Bank is currently, or may become, a PFIC in the future. U.S. Holders should consult their tax advisors
regarding the potential re-characterization of the Notes as equity and the application of the PFIC rules. The balance
of the discussion assumes that the Banks position that the Notes are debt will be respected.
Contingent Payment Debt Obligations
Based on applicable U.S. Treasury regulations relating to the accrual of interest and original issue discount
on debt instruments that provide for alternative payment schedules (such as debt instruments that provide the
issuer with an optional right to redeem the debt instruments), the Bank intends to treat the Notes, for U.S. federal
income tax purposes, as maturing on , 2024. Under this treatment, interest paid on a Note (including any
Additional Amounts) will be taxable to a U.S. Holder as ordinary interest income at the time it accrues or is received
in accordance with the U.S. Holders method of accounting for U.S. federal income tax purposes.
The Banks determination that the Notes will mature on , 2024 is binding on investors unless they
disclose their contrary position to the IRS in the manner that is required by applicable U.S. Treasury regulations.
The Banks determination is not, however, binding on the IRS. It is possible that the IRS might take a different
position from that described above, in which case the timing, character and amount of taxable income in respect of
the Notes may differ adversely from that described herein. The balance of the discussion assumes that the Banks
position that the Notes will mature on , 2024 will be respected.
Payments of Stated Interest
Interest paid on a Note (including any Additional Amounts) will be taxable to a U.S. Holder as ordinary
interest income at the time it accrues or is received in accordance with the U.S. Holders regular method of
accounting for U.S. federal income tax purposes.
Interest on the Notes will generally constitute foreign source income, which may be relevant to a
U.S. Holder in calculating its foreign tax credit for U.S. federal income tax purposes. Subject to limitations under
the Code (including holding period requirements), any Peruvian tax withheld from payments on the Notes may be
treated as a foreign income tax eligible for credit against a U.S. Holders income tax liability (or, at a U.S. Holders
election, may be deducted in computing taxable income if the U.S. Holder has elected to deduct all foreign income
taxes paid or accrued for the relevant year). The limitation on foreign taxes eligible for credit is calculated separately
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with respect to specific classes of income. The rules governing foreign tax credits (and deductions) are complex, and
U.S. Holders should consult their own tax advisor regarding the availability of foreign tax credits (or deductions),
including credits (or deductions) in respect of taxes imposed by Peru on payments on the Notes, in their particular
circumstances.
Sale, Exchange or Other Taxable Disposition of the Notes
A U.S. Holder generally will recognize taxable gain or loss on the sale, exchange or other taxable
disposition of the Notes equal to the difference between the amount realized on the sale, exchange or other taxable
disposition (other than amounts attributable to accrued but unpaid interest, which will be taxable as ordinary interest
income) and the U.S. Holders adjusted tax basis in the Notes. This gain or loss will be capital gain or loss, and will
be long-term capital gain or loss if the Notes were held for more than one year. Long-term capital gains of a noncorporate U.S. Holder may be subject to tax at a preferential rate. The deductibility of capital losses is subject to
limitations. Gain or loss, if any, recognized by a U.S. Holder generally will be treated as U.S. source income or loss
for U.S. foreign tax credit purposes.
If any foreign income tax is withheld on the sale, exchange or other taxable disposition of a Note, the
amount realized by a U.S. Holder will include the gross amount of the proceeds of that sale, exchange or other
taxable disposition before deduction of such tax. Capital gain or loss, if any, realized by a U.S. Holder on the sale,
exchange or other taxable disposition of a Note generally will be treated as U.S. source gain or loss for U.S. foreign
tax credit purposes. Consequently, in the case of a gain from the sale, exchange or other taxable disposition of a
Note that is subject to foreign income tax, the U.S. Holder may not be able to benefit from the foreign tax credit for
the tax unless the U.S. Holder can apply the credit against U.S. federal income tax payable on other income from
foreign sources. Alternatively, the U.S. Holder may take a deduction for the foreign income tax if the U.S. Holder
elects to deduct (rather than credit) all foreign income taxes paid or accrued during the taxable year. The rules
governing foreign tax credits are complex and, therefore, U.S. Holders should consult their tax advisors regarding
the availability of foreign tax credits in their particular circumstances.
Foreign Financial Asset Reporting
Individuals and, to the extent provided by the U.S. Secretary of Treasury in regulations or other guidance,
certain domestic entities that hold an interest in a specified foreign financial asset are required to attach certain
information regarding such assets to their income tax return for any year in which the aggregate value of all such
assets exceeds the relevant threshold. A specified foreign financial asset includes any debt or equity of a non-U.S.
entity, to the extent not held in an account at a financial institution, though accounts at non-U.S. financial
institutions may themselves be specified foreign financial assets. Penalties may be imposed for the failure to
disclose such information regarding specified foreign financial assets. U.S. Holders are advised to consult their tax
advisors regarding the potential reporting requirements that may be imposed on them by this legislation with respect
to their ownership of the Notes.
Medicare Contribution Tax on Unearned Income
Certain U.S. Holders who are individuals, estates or trusts are required to pay an additional 3.8% tax on,
among other things, interest on the Notes and capital gain from the sale or other taxable disposition of the Notes.
U.S. Holders should consult their tax advisors regarding the effect, if any, of this legislation on their ownership and
disposition of the Notes.
Backup Withholding and Information Reporting
Payment of interest and proceeds from the sale or disposition of the Notes that are made within the United
States or through certain U.S.-related financial intermediaries generally are subject to information reporting and to
backup withholding unless (i) the holder is not a U.S. Holder or is an exempt recipient and under certain
circumstances complies with any applicable certification requirements or (ii) in the case of backup withholding, the
U.S. Holder provides a correct taxpayer identification number and certifies that the U.S. Holder is not subject to
backup withholding. Backup withholding is not an additional tax. Any amounts withheld under the backup
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withholding rules will be allowed as a refund or a credit against the U.S. Holders U.S. federal income tax liability,
provided the required information is timely furnished to the IRS.
Individual U.S. Holders may be required to report information to the IRS with respect to their investment in
the Notes unless certain requirements are met. Investors who are individuals and fail to report any such required
information could become subject to substantial penalties. Prospective investors are encouraged to consult with
their own tax advisors regarding the possible information reporting obligations they may have with respect to their
investment in the Notes.
Foreign Account Tax Compliance
Sections 1471 through 1474 of the U.S. Internal Revenue Code of 1986, as amended (commonly referred to
as FATCA) impose a reporting and 30% withholding tax regime with respect to certain payments including
certain non-U.S. source payments (foreign passthru payments) made by non-U.S. financial institutions acting in
the capacity of withholding agents pursuant to procedures established under FATCA. Withholding on foreign
passthru payments does not apply to payments on Notes that are issued prior to the date that is six months after the
date on which U.S. final regulations that define foreign passthru payments are published. At the time of this
offering no such regulations have been published.
Peru and the United States have reached an agreement in substance to enter into an intergovernmental
agreement (an IGA) to help implement FATCA. If the IGA is entered into as agreed, the Issuer will be required to
comply with the provisions of FATCA as enacted by the Peruvian legislation implementing the IGA (the Peruvian
IGA Legislation), rather than directly complying with the U.S. provisions implementing FATCA. Because the
Issuer intends to comply with the requirements of the Peruvian IGA Legislation it will be treated as compliant with
FATCA and, as a result, it will not be subject to withholding tax under FATCA on payments it receives. Although
U.S. provisions implementing FATCA impose a 30% U.S. withholding tax on all or a portion of payments of
principal and interest on the Notes that are treated as foreign passthru payments, under the terms of the IGA,
Peruvian resident financial institutions should not be required to withhold under FATCA on payments they make of
principal and interest on the Notes that are treated as foreign passthru payments. The Issuer expects that it will be
considered to be a Peruvian financial institution as defined under the IGA and the Issuer will be required to obtain
and report certain information regarding certain holders of Notes (including any direct or, in certain cases, indirect
U.S. persons and certain financial institutions that are not FATCA compliant) to the government of Peru, which
information may ultimately be reported to the U.S. Internal Revenue Service.
The scope and application of FATCA withholding and information reporting pursuant to the terms of
FATCA and the IGA is subject to review by the United States Peru, and the rules may change. Investors should
contact their own tax advisors regarding the application of FATCA to their particular circumstances.
Certain Peruvian Tax Considerations
The following summary of certain Peruvian tax matters as in force on the date of this offering circular
describes the principal tax consequences of an investment in the offered Notes by a person who is not a resident of
Peru and does not hold the offered Notes or a beneficial interest therein in connection with the conduct of a trade or
business through a permanent establishment in Peru (non-Peruvian holder). This summary is not intended to be a
comprehensive description of all of the tax considerations that may be relevant to a decision to make an investment
in the offered Notes. In addition, it does not describe any tax consequences: (a) arising under the laws of any taxing
jurisdiction other than Peru or (b) applicable to a resident of Peru or to a person with a permanent establishment in
Peru.
For Peruvian tax purposes, a legal entity is deemed to be domiciled in Peru if it has been incorporated in
Peru, it is an agent in Peru of a foreign entity or it is a permanent establishment in Peru of a foreign entity. All
entities incorporated in Peru are subject to Peruvian income tax on their worldwide income, whereas agencies and
permanent establishments of non-domiciled legal entities and all non-domiciled legal entities are only liable for the
Peruvian income tax in relation to income earned from a Peruvian source. On the other hand, as a general rule, a
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non-Peruvian individual is deemed domiciled in Peru for tax purposes if such individual has resided or has stayed in
Peru for more than 183 calendar days during any 12-month period.
Income Tax
Payment of Interest derived from the Notes held by Non-Peruvian Holders
Peruvian source income from foreign financial transactions, such as issuance of bonds, granted by a nondomiciled individual or entity, is subject to a withholding tax of 4.99%, unless the issuer and the holder are related
parties, in which case the withholding tax rate is 30%. In addition, if the holder is a non-domiciled individual, a
withholding tax rate of 30% will apply if the transaction originates from or passes through a tax haven. A financing
transaction is deemed to be originated from or passed through a tax haven if the financing comes from or is made
through a tax haven.
The Bank is required to act as withholding agent for income tax, if any, due with respect to interest paid on
the Notes. The Bank has agreed, subject to specific exceptions and limitations, to pay additional amounts to the
holders of the Notes in respect of the Peruvian withholding tax mentioned above. See Description of the Notes
Additional Amounts.
Sale of the Notes
Proceeds received by a non-Peruvian holder on a sale, exchange or disposition of a beneficial interest in the
global notes held through a clearing system will not be subject to any Peruvian withholding or capital gains tax. In
the event that the beneficial interests in the global notes are exchanged for definitive notes, any capital gain arising
from the sale, exchange or other disposition of these notes by non-Peruvian holders would be subject to Peruvian
income tax with a 5% rate, only if the following two requirements are satisfied: (i) the Notes are registered in the
Securities Public Registry of the SMV and (ii) the Notes are negotiated in a Peruvian Centralized Stock Market.
Otherwise, capital gains will be taxable at a 30% rate.
Capital gains are defined as the positive difference between the price at which the Notes are sold and the
holders tax basis in the Notes (i.e., the acquisition value). The acquisition value has to be certified by the Peruvian
Tax Administration through a form presented by the seller. This certification is not needed in case the sale is made
through the Peruvian Centralized Stock Market and in case of early redemptions made by the issuer.
Value Added Tax (VAT)
Interest paid on the Notes is not subject to VAT.
Financial Transaction Tax
Additionally, it is important to mention that in Peru there is a Financial Transactions Tax FTT) which is a
tax at a 0.005% rate on debits and credits in Peruvian bank accounts or other financial institutions accounts, either in
national or foreign currency. In the same way, if the issue price paid for the Notes is deposited in a Peruvian bank
account, such credit will also be levied at the corresponding FTT tax rate. The taxpayer of the FTT is the holder of
the Peruvian bank account.
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PLAN OF DISTRIBUTION
Under the terms and subject to the conditions contained in a purchase agreement dated
, 2014, the Bank
has agreed to sell to each of the initial purchasers, and each of the initial purchasers has severally and not jointly
agreed to purchase, the principal amount of Notes opposite its name on the table below.
Initial Purchasers of Notes
BBVA Securities Inc. ..........................................................................
Goldman, Sachs & Co..................................................................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....
Total ................................................................................................................................
Principal Amount
US$
US$
US$
US$
The purchase agreement provides that the initial purchasers are obligated to purchase all of the Notes if any
are purchased. The initial purchasers propose to offer the Notes initially at the offering price on the cover page of
this offering circular. After the initial offering, the offering price may be changed. The offering of the Notes by the
initial purchasers is subject to receipt and acceptance and subject to the initial purchasers right to reject any order in
whole or in part.
The Notes have not been and will not be registered under the Securities Act or under the securities laws of
any other jurisdiction. The Notes are being offered and sold only to investors that are either (1) QIBs in reliance on
Rule 144A under the Securities Act or (2) non-U.S. Persons (within the meaning of Regulation S of the Securities
Act) outside of the United States. Prospective purchasers are hereby notified that the sellers of the Notes may be
relying on the exemptions from the provisions of Section 5 of the Securities Act provided by Rule 144A.
Each of the initial purchasers has agreed that except as permitted by the purchase agreement they will not
offer, sell or deliver the Notes (1) as part of its distribution at any time, or (2) otherwise until 40 days after the later
of the commencement of this offering and the closing date, within the United States or to, or for the account or
benefit of, U.S. persons, and it will have sent to each broker/dealer to which it sells the Notes in reliance on
Regulation S during such 40-day period, a confirmation or other notice detailing the restrictions on offers and sales
of such Notes within the United States, or to, or for the account or benefit of, U.S. persons. Terms used in this
paragraph have the meanings given to them by Regulation S under the Securities Act. Resales of the Notes are
restricted as described under Notice to Investors.
In addition, until 40 days after the commencement of this offering, an offer or sale of the Notes within the
United States by a broker/dealer (whether or not it is participating in the offering), may violate the registration
requirements of the Securities Act if such offer or sale is made otherwise than pursuant to Rule 144A.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus
Directive, (each, a Relevant Member State), each initial purchaser has represented and agreed that with effect from
and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the
Relevant Implementation Date) it has not made and will not make an offer of any Notes which are the subject of
the offering contemplated by this offering circular to the public in that Relevant Member State other than:
(a)
to any legal entity which is a qualified investor as defined in the Prospectus Directive;
(b)
to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the
2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as
defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to
obtaining the prior consent of the relevant Dealer or Dealers nominated by the issuer for any such
offer; or
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(c)
in any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided that no such offer of Notes shall require the Bank or any initial purchaser to publish a prospectus pursuant
to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an offer to the public in relation to any Notes in any
Relevant Member State means the communication in any form and by any means of sufficient information on the
terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe the Notes,
as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that
Member State, the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto,
including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes
any relevant implementing measure in the Relevant Member State and the expression 2010 PD Amending
Directive means Directive 2010/73/EU.
United Kingdom
In connection with any sale of the Notes in the United Kingdom each Initial Purchaser:
(a)
(b)
it is required to comply only with all applicable provisions of the FSMA with respect to anything
done by it in relation to the Notes in, from or otherwise involving the United Kingdom.
Hong Kong
The Notes may not be offered or sold in Hong Kong by means of any document other than (i) to
professional investors as defined in the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any
rules made thereunder, or (ii) in other circumstances which do not result in the document being a prospectus within
the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) or which do not constitute an offer to the
public within the meaning of that Ordinance; and no advertisement, invitation or document relating to the Notes may
be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or
elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong
Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Notes which
are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors as
defined in the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Singapore
This offering circular has not been registered as a prospectus with the Monetary Authority of Singapore.
Accordingly, this offering circular and any other document or material in connection with the offer or sale, or
invitation for subscription or purchase, of the Notes may not be circulated or distributed, nor may the Notes be
offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to
persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act,
Chapter 289 of Singapore (the SFA), (ii) to a relevant person pursuant to Section 275(l), or any person pursuant to
Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise
pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the Notes are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
(a) a corporation (which is not an accredited investor ) the sole business of which is to hold investments and the
entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a
trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary
166
of the trust is an individual who is an accredited investor, shares, debentures and units of shares and debentures of
that corporation or the beneficiaries' rights and interest in that trust shall not be transferable for 6 months after that
corporation or that trust has acquired the Notes under Section 275 of the SFA except: (1) to an institutional investor
under Section 274 of the SFA or to a relevant person, or to any person pursuant to Section 275(1A) of the SFA, and
in accordance with the conditions specified in Section 275 of the SFA; (2) where no consideration is given for the
transfer; or (3) where the transfer is by operation of law.
Japan
The Notes offered in this offering circular have not been and will not be registered under the Financial
Instruments and Exchange Law of Japan. The Notes have not been offered or sold and will not be offered or sold,
directly or indirectly, in Japan or to or for the account of any resident of Japan (including any corporation or other
entity organized under the laws of Japan), except (i) pursuant to an exemption from the registration requirements of
the Financial Instruments and Exchange Law and (ii) in compliance with any other applicable requirements of
Japanese law.
Peru
Neither the Notes nor the offering circular have been and will be registered with or approved by the
Peruvian Superintendency of the Securities Markets (Superintendencia del Mercado de Valores or SMV) or the
Lima Stock Exchange (Bolsa de Valores de Lima or BVL). Accordingly, the Notes cannot be offered or sold in
Peru except in compliances with the applicable Peruvian securities regulations.
Application has been made with all the Peruvian private pension funds currently existing, in order for them
to analyze and qualify the Notes as eligible investment according to the applicable regulations.
General
Each of the initial purchasers has represented and agreed that it has not offered, sold or delivered and will
not offer, sell or deliver any Notes directly or indirectly, or distribute this offering circular or any other offering
material relating to the Notes in or from any jurisdiction, except under circumstances that will result in compliance
with the applicable laws and regulations thereof and that will not impose any obligations on the Bank except as set
forth in the purchase agreement.
Purchasers of Notes sold outside the United States may be required to pay stamp taxes and other charges in
compliance with the laws and practices of the country of purchase in addition to the price to investors on the cover
page of this offering circular.
The initial purchasers and their respective affiliates are full service financial institutions engaged in various
activities, which may include sales and trading, commercial and investment banking, advisory, investment
management, investment research, principal investment, hedging, market making, brokerage and other financial and
non-financial activities and services. Certain of the initial purchasers and their respective affiliates have provided,
and may in the future provide, a variety of these services to the issuer and to persons and entities with relationships
with the issuer, for which they received or will receive customary fees and expenses. BBVA, one of the initial
purchasers, is an affiliate of BBVA Continental.
In the ordinary course of their various business activities, the initial purchasers and their respective
affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively
traded securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for
their own account and for the accounts of their customers, and such investment and trading activities may involve or
relate to assets, securities and/or instruments of the issuer (directly, as collateral securing other obligations or
otherwise) and/or persons and entities with relationships with the issuer. Certain of the initial purchasers or their
affiliates that have a lending relationship with the Bank routinely hedge their credit exposure to the Bank consistent
with their customary risk management policies. Typically, such initial purchasers and their affiliates would hedge
such exposure by entering into transactions which consist of either the purchase of credit default swaps or the
creation of short positions in the Banks securities, including potentially the Notes offered hereby. Any such short
167
positions could adversely affect future trading prices of the notes offered hereby. The initial purchasers and their
respective affiliates may also communicate independent investment recommendations, market color or trading ideas
and/or publish or express independent research views in respect of such assets, securities or instruments and may at
any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities
and instruments.
The Bank has agreed to indemnify the several initial purchasers against liabilities, including liabilities under
the Securities Act, and to contribute to payments that the initial purchasers may be required to make in respect of
these liabilities.
The Bank expects to apply to have the Notes admitted for listing on the Official List of the Luxembourg
Stock Exchange and to trading on the Euro MTF market. The initial purchasers have advised the Bank that they
intend to make a market in the Notes as permitted by applicable law. They are not obligated, however, to make a
market in the Notes and any market-making may be discontinued at any time at their sole discretion. Accordingly,
no assurance can be given as to the development or liquidity of any market for the Notes.
The initial purchasers may engage in over-allotment, stabilizing transactions, covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
Over-allotment involves sales in excess of the offering size, which creates a short position for the initial
purchaser.
Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids
do not exceed a specified maximum.
Covering transactions involve purchases of the Notes in the open market after the distribution has been
completed to cover short positions.
Penalty bids permit the initial purchaser to reclaim a selling concession from a broker/dealer when the
Notes originally sold by such broker/dealer are purchased in a stabilizing or covering transaction to
cover short positions.
These stabilizing transactions, covering transactions and penalty bids may cause the price of the Notes to be
higher than it would otherwise be in the absence of these transactions. These transactions, if commenced, may be
discontinued at any time.
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NOTICE TO INVESTORS
Because of the following restrictions, purchasers are advised to consult legal counsel prior to making any offer,
resale, pledge or other transfer of the Notes offered hereby.
The Notes have not been registered under the Securities Act, any U.S. state securities laws or the laws of
any other jurisdiction (other than Peru), and may not be offered, sold or otherwise transferred within the United
States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act)
except to (a) QIBs (as defined in Rule 144A under the Securities Act) in reliance on the exemption from the
registration requirements of the Securities Act provided by Rule 144A or (b) non-U.S. persons (as defined under
Regulation S) and persons in offshore transactions in reliance on Regulation S.
Each purchaser of the Notes offered hereby will be deemed to have represented and agreed as follows
(terms used herein that are defined in Rule 144A (Rule 144A) and Regulation S (Regulation S) under the
Securities Act and the rules and regulations thereunder are used herein as defined therein):
(1)
Investors (A)(i) are a QIB, (ii) are aware that the sale of the Notes to you is being made in reliance
on Rule 144A and (iii) are acquiring such Notes for investors own account or for the account of a
QIB or (B)(i) are a non-U.S. Person and (ii) are acquiring the Notes in an offshore transaction
pursuant to Regulation S.
(2)
Investors understand that the Notes have not been and will not be registered under the Securities
Act, and that (A) if in the future they decide to offer, resell, pledge or otherwise transfer any of the
Notes, such Notes may be offered, resold, pledged or otherwise transferred only (i) in the United
States to a person whom the seller reasonably believes is a QIB in a transaction meeting the
requirements of Rule 144A, and (ii) outside the United States in a transaction complying with the
provisions of Rule 903 or 904 under the Securities Act, in each case in accordance with any
applicable securities laws of any State of the United States, and that (B) investors will, and each
subsequent holder is required to, notify any subsequent purchaser of the Notes from you of the
resale restrictions referred to in (A) above, and (C) the Notes may not be reoffered, resold, pledged
or otherwise transferred except in accordance with the legend on such Notes described below.
(3)
The Notes will bear a legend to the following effect, unless the Bank determines otherwise in
compliance with applicable law:
THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933 (THE SECURITIES ACT) OR ANY STATE
SECURITIES LAWS OR THE LAWS OF ANY OTHER JURISDICTION (OTHER THAN
PERU). NEITHER THIS NOTE NOR ANY BENEFICIAL INTERESTS IN THE NOTE MAY
BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (QUALIFIED INSTITUTIONAL BUYER) WITHIN THE
MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A OF THE SECURITIES
ACT, OR (B) TO PERSONS IN OFFSHORE TRANSACTIONS IN RELIANCE ON
REGULATION S. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE
SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER.
THE HOLDER HEREOF BY ACCEPTING THIS NOTE, REPRESENTS, WARRANTS,
ACKNOWLEDGES AND AGREES, AND EACH BENEFICIAL OWNER, BY PURCHASING
OR ACQUIRING SUCH INTEREST, IS DEEMED TO REPRESENT, WARRANT,
ACKNOWLEDGE AND AGREE, FOR THE BENEFIT OF THE ISSUER AND FOR ANY
AGENT OR SELLER WITH RESPECT TO THE NOTES, THAT (A)( I) IT AND EACH
169
Investors are not purchasing the Notes with a view to the resale, distribution or other disposition
thereof in violation of the Securities Act. They understand that an investment in the Notes involves
certain risks, including the risk of loss of all or a substantial part of its investment under certain
circumstances. They have had access to such financial and other information concerning the Bank
and the Notes as they deemed necessary or appropriate to make an informed investment decision
with respect to its purchase of the Notes. They had such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of its investment in the Notes,
and they and any accounts for which they are acting are each willing and able to bear the economic
and other risk of its investment.
(5)
Investors are aware that in connection with the purchase of the Notes: (i) no initial purchaser is
acting as a fiduciary or financial or investment advisor for them; (ii) they are not relying (for
purposes of making any investment decision or otherwise) upon any advice, counsel or
representations (whether written or oral); (iii) no initial purchaser has given to them (directly or
indirectly through any other person) any assurance, guarantee, or representation whatsoever as to
the expected or projected success, profitability, return, performance, result, effect, consequence, or
benefit (including legal, regulatory, tax, financial, accounting or otherwise) of their purchase; and
(iv) they have consulted with their own legal, regulatory, tax, business, investment, financial,
accounting and other advisors to the extent they have deemed necessary, and they made their own
investment decisions based upon their own judgment and upon any advice from such advisors as
they deemed necessary and not upon any view expressed by any initial purchaser.
(6)
Investors, and each person for which you they acting, understand that any sale or transfer of the
Notes (or beneficial interests therein) to a person that does not comply with the requirements set
forth in paragraphs (1) through (8) hereof will be null and void ab initio and not honored by the
Company.
(7)
Investors, and each person for which they are acting, will provide notice of these transfer
restrictions to any subsequent transferees and agree not to reoffer, resell, pledge or otherwise
transfer the Notes or any beneficial interest therein, to any person except to a person that (x) meets
all of the requirements in paragraphs (1) through paragraph (8) hereof and (y) agrees not to
subsequently transfer the Notes or any beneficial interest therein except in accordance with these
transfer restrictions.
(8)
Investors are aware that the initial purchasers and their affiliates, and others will rely upon the
truth and accuracy of the foregoing acknowledgements, representations and agreements. If
they are acquiring any Notes for the account of one or more persons each of whom is also a
U.S. person who is a QIB, they represent that they have sole investment discretion with
respect to each such account and that they have full power to make the foregoing
acknowledgements, representations and agreements on behalf of each such account.
170
Lima Stock Exchange (Bolsa de Valores de Lima or BVL). Accordingly, the Notes cannot be offered or sold in
Peru except in compliance with applicable Peruvian securities regulations.
171
GENERAL INFORMATION
Clearing Systems
The Notes have been accepted for trading in book-entry form by DTC. The CUSIP and ISIN numbers for
the Notes are as follows:
144A Note
CUSIP
144A Note
ISIN
Regulation S Note
CUSIP
Regulation S Note
ISIN
Listing
Application is expected to be made to admit the Notes to listing on the Official List of the Luxembourg
Stock Exchange and to trading on the Euro MTF market of the Luxembourg Stock Exchange. Copies of the Banks
bylaws, the indenture, as may be amended or supplemented from time to time, the Banks published annual audited
consolidated financial statements and any published quarterly unaudited consolidated financial statements will be
available at the Banks principal executive offices, as well as at the offices of the Indenture Trustee, registrar, paying
agent and transfer agent, and at the offices of the Luxembourg listing agent, paying agent and transfer agent, as such
addresses are set forth in this offering circular. The Bank will maintain a paying and transfer agent in Luxembourg
for so long as any of the Notes are listed on the Official List of the Luxembourg Stock Exchange.
Authorization
The Bank has obtained all necessary consents, approvals and authorizations in connection with the issuance
and performance of the Notes.
Responsibility and No Material Adverse Change
The Bank accepts responsibility for the information contained in this offering circular and, to the best of the
knowledge and belief of the Bank, such information is in accordance with the facts and does not omit anything likely
to have a material effect on such information. Except as disclosed in this offering circular, there has not been any
significant change in the financial or trading position of the Bank since the date of the Banks last published interim
financial statements and there has not been any material adverse change in the business prospects of the Bank since
the date of the Banks last published Financial Statements included in this offering circular.
No Litigation
Except as disclosed herein, the Bank is not involved in any governmental litigation or arbitration
proceedings relating to claims or amounts which are material in the context of the issue of the Notes nor is the Bank
aware of any such governmental litigation or arbitration proceedings pending or threatened.
Notices
All notices to the registered holders of Notes will be mailed or delivered to such holders at their addresses
indicated in records maintained by the Registrar and, as long as the Notes are listed on the Luxembourg Stock
Exchange, and the rules of the Luxembourg Stock Exchange so require, notices will be published in a leading
newspaper having general circulation in Luxembourg (which is expected to be the Luxembourg Wort) or on the
Luxembourg Stock Exchange website. Any such notice shall be deemed to have been given on the date of such
delivery or publication, as the case may be, or in the case of mailing, on the second business day after such mailing.
172
LEGAL MATTERS
Certain matters relating to the validity of the Notes will be passed upon for the Bank by Paul Hastings LLP,
New York, New York and Miranda & Amado Abogados, Lima, Peru. Certain legal matters will be passed upon for
the initial purchasers by Cleary Gottlieb Steen & Hamilton LLP, New York, New York and Rodrigo, Elas &
Medrano Abogados, Lima, Peru.
INDEPENDENT AUDITORS
The consolidated financial statements of BBVA Continental and its subsidiaries as of December 31, 2013
and 2012 and December 31, 2012 and 2011 and for the years ended December 31, 2013 and 2012 and December 31,
2012 and 2011, included in this offering circular, have been audited by Beltrn, Gris y Asociados S. Civil de R.L.,
independent auditors, a Peruvian entity that is a member firm of Deloitte Touche Tohmatsu Limited.
173
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IFRS significant influence is generally presumed if an investor holds directly or indirectly 20% or more of
the voting power of the investee. The other investments not considered associates should
Goodwill Amortization
Under Peruvian GAAP and IFRS, 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 the income statement.
Under Peruvian GAAP, assets with indefinite useful life, such as goodwill, registered before January
1, 2010, are amortized following regulations in effect on the date of initial recognition over a period of no
more than 5 years. Assets with indefinite useful life recognized after January 1, 2010 are recognized at cost
less any accumulated impairment
Under Peruvian GAAP (for goodwill registered after January 1, 2010) and IFRS goodwill must be
reviewed at least annually for impairment and more frequently if impairment indicators are present.
Under Peruvian GAAP and IFRS, the method of determining impairment of goodwill requires that an
impairment test be done at the cash generating unit (CGU) level by comparing the CGUs carrying amount,
including goodwill, with its recoverable amount. Impairment loss on the CGU (amount by which the CGUs
carrying amount, including goodwill, exceeds its recoverable amount) is allocated first to reduce goodwill to
zero, then, subject to certain limitations, the carrying amounts of other assets in the CGU are reduced pro
rata, based upon the carrying amounts of each asset.
Property, Furniture and Equipment
Under IFRS (IAS 16), a company has the alternative to account for certain fixed assets at cost model
or revaluation model. Under Peruvian GAAP, fixed asset revaluations may be allowed by the SBS for one
time under certain circumstances.
Intangible Assets
The definition of intangible assets as nonmonetary assets without physical substance is similar under
PeruvianGAAP and IFRS. The recognition criteria for both accounting models generally require that there be
probable future economic benefits and costs that can be reliably measured.
Under Peruvian GAAP and IFRS, development costs are capitalized when technical and economic
feasibility of a project can be demonstrated in accordance with specific criteria. Some of the stated criteria
include demonstrating technical feasibility, intent to complete the asset and ability to sell the asset in the
future.
Amortization of intangible assets over their estimated useful lives is required under IFRS.
If there is no foreseeable limit to the period over which an intangible asset is expected to generate net cash
inflows to the entity, the useful life is considered to be indefinite and the asset is not amortized. Intangible
assets with indefinite useful lives are tested for impairment annually, either individually or at the cashgenerating unit level. The assessment of indefinite life is reviewed annually to determine whether the
indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on
a prospective basis.
Impairment
Peruvian GAAP and IFRS (IAS 36) require that specific and clearly detailed tests be carried out to
adjust the carrying value of certain assets (long-live assets) when indicators of potential impairment exist (or
annually for goodwill and intangible assets with an indefinite life).
Impairments under Peruvian GAAP and IFRS are based on discounted cash flows. There is no
undiscounted test under IFRS.
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Under Peruvian GAAP and IFRS, goodwill is allocated to cash generating units, which are the
smallest group of identifiable assets that include the goodwill under review for impairment and generate cash
inflows from continuing use that are largely independent of the cash inflows from other assets.
For the goodwill impairment test under IFRS, the recoverable amount of a CGU (higher of (1) fair
value less costs to sell and (2) value in use) is compared with the carrying amount. The impairment loss is
allocated by (1) reducing any goodwill of the CGU and then (2) reducing the carrying value of other assets of
the CGU on a pro rata basis, subject to certain constraints.
Under Peruvian GAAP and IFRS impairment losses are reversed when there has been a change in
economic conditions or in the expected use of the asset, except for goodwill.
Debt and Equity Securities
According to SBS Resolution No. 7033-2012 investments at fair value through profit or loss are
initially recognized at cost (excluding transaction costs, which are recorded as expenses) and subsequently remeasured at fair value. Available-for-sale investments and held-to-maturity investments are initially
recognized at fair value including transaction costs and subsequently re- measured at fair value, while held-tomaturity investments are valued at amortized cost using the effective interest rate method. Additionally,
Resolution No. 7033-2012 established an additional category: Investments in Subsidiaries, Associates and
Participations in Joint Ventures for equity instruments and/or participations acquired with the purpose of
having: (i) an equity participation, (ii) control, as defined by SBS Resolution No. 445-2000, (iii) joint control,
as defined by IAS 31 Participations in Joint Ventures, and/or (iv) significant influence, as defined by IAS
28. SBS initial recognition is at fair value, and thereafter, is recorded following the equity method.
IFRS 9 Financial Instruments was issued in November 2009. An entity must adopt IFRS 9 for
annual periods beginning on or after January 1, 2013; early adoption is permitted. Prior to adoption of IFRS 9,
under IFRS (IAS 32 and 39), all investments in securities are initially recognized at cost including all related
acquisition costs as part of the initial cost, being the fair value of the consideration given and including
acquisition costs associated with the investment. Subsequent measurement of investments is based upon the
valuation principles of the portfolios they are classified in at the time of purchase, as described below:
x
Trading securities, in all cases, are re-measured at fair value and all related realized and
unrealized gains or losses are recognized in income.
Held-to-maturity securities are carried at amortized cost using the effective yield method less
any impairment in value. Gains or losses are recognized in income when the investments are
derecognized or impaired, as well as through the amortization of premiums and accretion of
discounts. Sale or reclassification of held-to-maturity securities to other categories triggers
reclassification of such securities outside the held-to-maturity portfolio.
Available-for-sale securities (AFS) under IFRS are carried at fair value. Gains or losses on remeasurement to fair value are recognized as a separate component of equity, or other
comprehensive income, net of income taxes, until investment is sold, collected or otherwise
disposed of or until the investment is determined to be impaired, at which time the cumulative
gain or loss previously reported in equity is included in income.
Under Peruvian GAAP and IFRS, foreign exchange gains and losses on the amortized cost of all
financial instruments are recognized in the income statement.
Under IFRS, the effective interest method is used to recognize interest income on investments in debt
instruments on the basis of the estimated cash flows over the expected life of the instrument.
IFRS 13 Fair Value Measurement, applies to annual periods beginning on 1 January 2013,
requires or permits fair value measurements or disclosures and provides a single IFRS framework for
measuring fair value and requires disclosures about fair value measurement. The Standard defines fair value
on the basis of an exit price notion and uses a fair value hierarchy, which results in a market-based,
rather than entity-specific, measurement. IFRS 13 is not applicable under Peruvian GAAP.
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Under IFRS, the assets seized are recorded at the lower of cost or estimated market value. Changes in
market value are recorded in the income statement.
IFRS, as Adopted by the IASB, with Mandatory Adoption Dates beginning on or after January 1, 2013
The following IFRS are not required for Peruvian financial entities:
IFRS 9
IFRS 9 Financial Instruments was issued by the IASB in November 2009. In October 2010 the
IASB issued an expanded and amended version. IFRS 9 (2010) is required to be applied for annual periods
beginning on or after January 1, 2015, with earlier application permitted. IFRS 9 (2010) supersedes the
version of IFRS 9 issued in 2009. However, for annual periods beginning before January 1, 2015, an entity
may elect to apply IFRS 9 (2009) instead of applying IFRS 9 (2010).
IFRS 9 introduces new requirements for the classification and measurement of financial assets and
liabilities. Under IFRS 9, all recognized financial assets and liabilities that are currently in the scope of IAS
39 will be measured at either amortized cost or fair value. A debt instrument that (1) is held within a business
model whose objective is to collect the contractual cash flows and (2) has contractual cash flows that are
solely payments of principal and interest on the principal on other debt instruments must be measured at Fair
Value through Profit and Loss (FVTPL). A fair value option is available (provided that certain specified
conditions are met) as an alternative to amortized cost measurement. The concept of bifurcating embedded
derivatives from a financial liability host contract remains unchanged. Financial liabilities held for trading
would continue to be measured at FVTPL, and all other financial liabilities would be measured at amortized
cost unless an entity applies the fair value option under the existing criteria in IAS 39. In addition, all equity
investments within the scope of IFRS 9 are to be measured on the statement of financial position at fair value
with the default recognition of gains and losses in profit or loss. Only if the equity investment is not held for
trading can an irrevocable election be made at initial recognition to measure it at Fair Value through Other
Comprehensive Income (FVTOCI), with only dividend income recognized in profit or loss.
Despite the fair value requirement for all equity investments, IFRS 9 contains guidance on when cost
may be the best estimate of fair value and also when it might not be representative of fair value. All
derivatives within the scope of IFRS 9 are required to be measured at fair value. This includes derivatives that
are settled by the delivery of unquoted equity instruments; however, in limited circumstances, cost may be an
appropriate estimate of fair value.
In October 2010, the requirements for classifying and measuring financial liabilities were added to
IFRS 9. Most of the added requirements were carried forward unchanged from IAS 39. However, the
requirements related to the fair value option for financial liabilities were changed to address the issue of own
credit risk. The changes are in response to consistent feedback from users of financial statements and others
that the effects of changes in a liabilitys credit risk should not affect profit or loss unless the liability is held
for trading. In December 2011, the IASB issued amendments to IFRS 9 that defer the mandatory effective
date from annual periods beginning on or after January 1, 2013, to be effective for annual periods beginning
on or after January 1, 2015.
IFRS 10
IFRS 10 Consolidated Financial Statements was issued in May 2011. An entity must adopt IFRS
10 for annual periods beginning on or after January 1, 2013; early adoption is permitted. IFRS 10 replaces the
parts of IAS 27 Consolidated and Separate Financial Statements that deal with consolidated financial
statements. SIC-12 Consolidation Special Purpose Entities has been withdrawn upon the issuance of IFRS
10. Under IFRS 10, there is only one basis for consolidation, which is control. In addition, IFRS 10 includes a
new definition of control that contains three elements: (a) power over an investee, (b) exposure, or rights, to
variable returns from its involvement with the investee, and (c) the ability to use its power over the investee to
affect the amount of the investor's returns.
An investor must possess all three elements to conclude that it controls an investee. The assessment
of control is based on all facts and circumstances, and the conclusion is reassessed if there are changes to at
least one of the three elements. IFRS 10 requires an investor to consider potential voting rights held either by
itself or by other parties. IFRS 10.B50 indicates that potential voting rights are considered only when they are
substantive and alone, or in combination with other rights, can give an investor the current ability to direct
A-6
the relevant activities. IFRS 10 also provides guidance on when an investor may have a relationship with
another party in which the investor directs the other party to act on the investors behalf (referred to as a de
facto agent). IFRS 10.B75 lists the examples of de facto agents.
IFRS 11
IFRS 11 Joint Arrangements was issued in May 2011. An entity must adopt IFRS 11 for annual
periods beginning on or after January 1, 2013; early adoption is permitted. IFRS 11 replaces IAS 31 Interests
in Joint Ventures. IFRS 11 deals with how a joint arrangement of which two or more parties have joint
control should be classified. SIC-13 Jointly Controlled Entities Non-monetary Contributions by Venturers
has been withdrawn upon the issuance of IFRS 11. Under IFRS 11, joint arrangements are classified as joint
operations or joint ventures, depending on the rights and obligations of the parties to the arrangements. In a
joint operation, the parties to the joint arrangement (referred to as joint operators) have rights to the assets
and obligations for the liabilities of the arrangement. By contrast, in a joint venture, the parties to the
arrangement (referred to as joint venturers) have rights to the net assets of the arrangement. IFRS 11
requires that a joint operator recognize its share of the assets, liabilities, revenues, and expenses in accordance
with applicable IFRSs; however, a joint venturer would account for its interest by using the equity method of
accounting under IAS 28 (2011). The option of proportional consolidation in IAS 31 has not been retained.
In contrast, under IAS 31, there are three types of joint arrangements: jointly controlled entities,
jointly controlled assets and jointly controlled operations. In addition, joint ventures under IFRS 11 are
required to be accounted for using the equity method of accounting, whereas jointly controlled entities under
IAS 31 can be accounted for using the equity method of accounting or proportionate accounting. It is possible
that an investment that previously met the definition of a JCE under IAS 31 would be a joint operation under
IFRS 11. In addition, upon adopting IFRS 11, an investor that previously accounted for an interest in a joint
operation under IFRS 9 (or IAS 39, as applicable) because it did not have joint control would have to
recognize directly its share of assets, liabilities, revenues, and expenses associated with the joint operation.
IFRS 12
IFRS 12 Disclosure of Interests in Other Entities was issued in May 2011. An entity must adopt
IFRS 12 for annual periods beginning on or after January 1, 2013; early adoption is permitted. IFRS 12 is a
disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements,
associates and/or unconsolidated structured entities. The objective of IFRS 12 is to require the disclosure of
information that enables users of financial statements to evaluate (i) the nature of, and risks associated with,
its interests in other entities and (ii) the effects of those interests on its financial position, financial
performance and cash flows.
Where the disclosures required by IFRS 12, together with the disclosures required by other IFRSs,
do not meet the above objective, an entity is required to disclose whatever additional information is necessary
to meet the objective.
IFRS 13
IFRS 13 Fair Value Measurement was issued in May 2011. An entity must adopt IFRS 13 for
annual periods beginning on or after January 1, 2013; early adoption is permitted and should be applied
prospectively. IFRS 13 establishes a single source of guidance for fair value measurements and disclosures
about fair value measurements. The standard defines fair value, establishes a framework for measuring fair
value, and requires disclosures about fair value measurements. The scope of IFRS 13 is broad; it applies to
both financial instrument items and non-financial instrument items for which other IFRSs require or permit
fair value measurements and disclosures about fair value measurements, except in specified circumstances.
IFRS 13 applies when other IFRSs require or permit fair value measurements and addresses fair value
measurement only it does not introduce any new requirements to measure an asset or a liability at fair
value, change what is measured at fair value in IFRSs, or address how to present changes in fair value. IFRS
13 establishes a single framework for measuring fair value and defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date (i.e. an exit price). A fair value measurement assumes that the transaction to sell the
asset or transfer the liability takes place either (a) in the principal market for the asset or liability; or (b) in the
absence of a principal market, in the most advantageous market for the asset or liability.
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In general, the disclosure requirements in IFRS 13 are more extensive than those required in the current
standards. For example, quantitative and qualitative disclosures based on the three-level fair value hierarchy
currently required for financial instruments only under IFRS 7 Financial Instruments: Disclosures will be
extended by IFRS 13 to cover all assets and liabilities within its scope.
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Pages
INDEPENDENT AUDITORS REPORT
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We have audited the accompanying consolidated financial statements of BBVA Banco Continental
(a subsidiary of Holding Continental S.A.) and Subsidiaries (hereinafter Grupo Continental),
which comprise the consolidated statements of financial position as at December 31, 2013 and
2012, and the consolidated statements of income, other comprehensive income, changes in equity
and cash flows for the years then ended, and a summary of significant accounting policies and other
explanatory notes.
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with Generally Accepted Accounting Principles in Peru applicable to
financial entities and for such internal control as Management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatements, whether
due to fraud or error.
Auditors Responsibility
3.
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with International Auditing Standards, approved for
their application in Peruvian Board of Deans of the Institutes of Certified Public Accountants
(Consejo Directivo de la Junta de Decanos de Colegios de Contadores Pblicos del Peru). Those
standards require that we comply with ethical requirements and plan and perform the audit in order
to obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatements.
4.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on the
auditors judgment, including the assessment of the risks of material misstatements of the
consolidated financial statements, whether due to fraud or error. In making those risk assessments,
the auditor considers the internal control relevant to Grupo Continental in its preparation and fair
presentation of the consolidated financial statements in order to design audit procedures that are
appropriate for the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of Grupo Continentals internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
5.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
Deloitte se refiere a una o ms de las firmas miembros de Deloitte Touche Tohmatsu Limited, una compaa
privada del Reino Unido limitada por garanta, y su red de firmas miembros, cada una como una entidad nica e
independiente y legalmente separada. Una descripcin detallada de la estructura legal de Deloitte Touche Tohmatsu
Limited y sus firmas miembros puede verse en el sitio web www.deloitte.com/about.
" Deloitte Touche Tohmatsu Limited es una compaa privada limitada por garanta constituida en Inglaterra & Gales
bajo el nmero 07271800, y su domicilio registrado: Hill House, 1 Little New Street, London, EC4A 3TR, Reino
Unido
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Opinion
6.
In our opinion, the consolidated financial statements referred to above, present fairly, in all material
respects, the consolidated financial position of BBVA Banco Continental and Subsidiaries as of
December 31, 2013 and 2012, its consolidated financial performance and its consolidated cash
flows for the years then ended, in accordance with Generally Accepted Accounting Principles in
Peru applicable to financial entities.
Other matter
7.
As described in Note 2(a) to the accompanying consolidated financial statements, during the year
ended December 31, 2013, Grupo Continental has adopted the amendments to the Accounting
Manual for the Financial System Companies (hereinafter, Accounting Manual) issued by the
Superintendency of Banking, Insurances and Private Pension Fund Administrators, in compliance
with Resolution SBS N 7036-2012, effective January 2013. The effects of adopting such
Accounting Manual are also indicated in the aforementioned Note. As a result of the adoption of the
Accounting Manual, the consolidated financial statements for the year ended December 31, 2012
have been restructured for comparative purposes with those of 2013.
8.
The translation of this report has been made solely for the convenience of English-speaking readers.
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14
7
18
19
8
4
10
5
5
5
6
15
15
Notes
The accompanying notes are an integral part of these consolidated financial statements
TOTAL ASSETS
ASSETS
19,224,994
56,538,437
11,824,204
25,156
556,746
3,083,921
443,993
38,245,327
577,252
26,789
18,433
46,763
2,774
818,010
385,471
394,011
89,587
2013
16,920,489
49,690,775
12,641,028
32,408
160,810
2,289,134
436,829
31,770,125
490,434
158,878
8,248
15,958
2,462
685,044
480,254
380,062
139,101
2012
TOTAL EQUITY
Capital stock
Legal reserve
Adjustments to equity
Retained earnings
NET EQUITY
TOTAL LIABILITIES
14
12 (a)
12 (b)
12 (d)
12 (c)
19
8
18
11
15
15
9
10
Notes
19,224,994
56,538,437
4,890,811
2,724,770
846,838
14,649
1,304,554
51,647,626
36,479,904
617,134
939,620
12,082,512
561,001
51,918
414,820
3,214
435,426
3,653
58,424
2013
16,920,489
49,690,775
4,228,337
2,226,473
722,352
33,743
1,245,769
45,462,438
31,956,803
234,964
764,991
10,956,815
375,293
556,349
463,336
5,464
148,423
2012
INTEREST EXPENSES
Obligations to the public
Inter-bank funds
Deposits from financial system companies and international financial organizations
Due to banks and other financial obligations
Other financial expenses
2013
2012
92,594
1,814
5,610
112,931
28,041
3,353,302
32,499
5,964
76,878
1,400
2,843
145,066
25,871
3,025,837
35,952
5,912
3,632,755
3,319,759
(545,647)
(7,689)
(18,765)
(542,874)
(1,883)
(521,846)
(10,103)
(20,546)
(431,872)
(10,036)
(1,116,858)
(994,403)
2,515,897
2,325,356
(521,128)
(485,792)
1,994,769
1,839,564
797,813
(132,820)
752,932
(119,154)
2,659,762
2,473,342
2,969
25,475
74,482
35,667
1,154
(1,239)
63,474
(43,173)
97,356
909
338,739
16,917
297,602
22,035
495,403
436,964
3,155,165
2,910,306
16
OPERATING MARGIN
Administrative expenses
(1,262,527)
(1,129,379)
17
1,892,638
1,780,927
(102,375)
(73,713)
OPERATING REVENUE
1,790,263
1,707,214
(7,204)
(21,928)
1,783,059
1,685,286
(478,757)
(439,741)
1,304,302
1,245,545
18(c)
20
2,724,770
2,724,770
20
0.48
0.46
The accompanying notes are an integral part of these consolidated financial statements.
F-7
2013
2012
1,304,302
1,245,545
Available-for-sale investments
Cash flow hedging
Income tax on items of other comprehensive income
(27,532)
4,442
3,996
13,033
(1,569)
(19,094)
11,464
1,285,208
1,257,009
The accompanying notes are an integral part of these consolidated financial statements.
F-8
F-9
The accompanying notes are an integral part of these consolidated financial statements.
124,552
124,552
846,813
498,297
2,724,770
498,297
Comprehensive income:
-
722,261
2,226,473
Changes in Equity:
722,261
112,896
282,241
2,226,473
112,896
282,241
609,365
1,944,232
Capital stock
Note 12 (a)
Mandatory
reserves
Note 12 (b)
Reserves
Comprehensive income:
Changes in equity:
In thousands of S/.
91
91
91
91
25
(66)
25
(91)
Voluntary
reserves
1,304,554
58,785
(124,552)
(498,206)
(622,759)
1,304,302
1,304,302
1,245,769
1,245,769
116,582
(112,896)
(282,241)
(733,826)
1,245,545
1,245,545
1,129,187
Retained
earnings
Note 12 (c)
3,110
3,110
3,110
3,110
Cash flow
hedging
Note 12 (d)
11,539
(22,204)
(22,204)
(22,204)
33,743
33,743
11,464
11,464
11,464
22,279
Adjustments to equity
Available-forsale
investments
Note 12 (d)
14,649
(19,094)
(19,094)
(19,094)
33,743
33,743
11,464
11,464
11,464
22,279
Total
adjustments to
equity
Note 12 (d)
4,890,811
662,474
25
(622,759)
1,285,208
(19,094)
1,304,302
4,228,337
4,228,337
523,274
91
(733,826)
1,257,009
11,464
1,245,545
3,705,063
Total net
equity
2013
2012
1,304,302
1,071,147
80,378
566,957
423,812
(3,629,031)
(7,465,219)
(5,441,197)
(395,936)
(1,889,653)
261,567
3,836,188
3,915,226
(79,038)
1,245,545
1,043,273
73,234
529,639
440,400
3,936,838
(4,247,699)
(4,226,124)
(76,212)
699,613
(644,976)
8,184,537
7,781,428
403,109
(1,253,582)
6,225,656
(630,729)
(170,091)
(1,884,311)
6,055,565
INVESTING ACTIVITIES:
Purchases of intangibles and property, furniture and equipment
Other proceeds relating to investing activities
(226,407)
27,074
(183,192)
30,680
(199,333)
(152,512)
FINANCING ACTIVITIES:
Issuance of subordinated financial liabilities
Dividends paid
122,980
(623,099)
(733,506)
(500,119)
(733,506)
(2,583,763)
5,169,547
682,492
(368,701)
(1,901,271)
4,800,846
13,969,868
9,169,022
12,068,597
13,969,868
The accompanying notes are an integral part of these consolidated financial statements.
F-10
1.
BBVA Banco Continental (hereinafter the Bank) is a subsidiary of Holding Continental S.A. which
owns 92.24% of the capital stock of the Bank. Banco Bilbao Vizcaya Argentaria and Inversiones
Breca S.A. own 50% respectively of the capital stock of Holding Continental S.A. The Bank is a
public company incorporated in 1951, authorized to operate by the Superintendencia de Banca,
Seguros y Administradoras Privadas de Fondos de Pensiones (Superintendency of Banking,
Insurances and Private Pension Fund Administrators of Peru, hereinafter the SBS for its Spanish
acronym) and domiciled in Peru. The Banks main office legal address is Av. Repblica de Panam
No. 3055, San Isidro, Lima.
The Banks operations primarily include financial intermediation corresponding to multiple banks;
activities regulated by the SBS in accordance with Ley General del Sistema Financiero y del
Sistema de Seguros y Orgnica de la SBS (General Law of the Financial and Insurance Systems and
Organic Law of the SBS), Law No. 26702 and its amendments (hereinafter the General Law). The
General Law establishes certain requirements, rights, obligations, guarantees, restrictions and other
conditions that private right legal entities operating in the financial and insurance system are subject
to.
As of December 31, 2013 and 2012, the Bank performed its activities through a network of 312 and
303 offices, respectively. The total number of employees of the Bank and its subsidiaries as of
December 31, 2013 and 2012, was 5,327 and 5,059, respectively.
As of December 31, 2013 and 2012, the Bank held 100% of the shares and voting rights of its
subsidiaries Continental Bolsa Sociedad Agente de Bolsa S.A., BBVA Asset Management
Continental S.A. Sociedad Administradora de Fondos, Continental Sociedad Titulizadora S.A. and
Inmuebles y Recuperaciones Continental S.A. Although the Bank has no interest in the capital or
voting rights in Continental DPR Finance Company (DPR), given the characteristics of the
corporate purpose and its relationship with the Bank, accounting standards call for the DPR
financial statements to be included, on a consolidated basis, with those of the Bank. All the above
companies together with the Bank are referred hereinafter as Grupo Continental.
(b)
The consolidated financial statements for the year ended December 31, 2013 were approved for
issuance by the Management of Grupo Continental. These financial statements will be submitted to
the Board of Directors and Annual Mandatory Shareholders Meeting to be held within the terms
established by the Law, for their approval. The consolidated financial statements for the year ended
December 31, 2012 were approved at the Annual Mandatory Shareholders Meeting on March 27,
2013.
F-11
(c)
Additional explanation for translation into English of the financial statements originally
issued in Spanish
The accompanying financial statements have been translated into English for convenience of the
English-speaking readers. In the event of a discrepancy, the Spanish language version prevails.
2.
Through SBS Resolution No. 7036-2012, dated September 19, 2012, the SBS modified the
Accounting Manual for Financial Entities, in order to make a partial adoption of their accounting
principles to IFRS, setting forth the following main amendments, effective as from 2013, onwards:
(a.1) Accounting policies
-
Reclassification of liabilities arising from clients collections from obligations to the public to
accounts payable.
The provision for country risk is presented net of its respective assets.
Separate disclosure of caption Current taxes in the consolidated statement of financial
position. Its presentation is the net balance of tax assets and liabilities both for Value-added
Tax (IGV) and for Income Taxes.
Item Securities and Bonds, which includes debt issuances, is included in the caption Due to
bank and other financial obligations.
Statement of Income
-
F-12
Financial intermediation operations are included as operating activities. Cash and cash
equivalents are defined, and the effect of the exchange rate variation on cash flows is
requested.
In accordance with Resolution SBS N 7036-2012, adjustments derived from new accounting
policies that might be generated will be included in retained earnings as of January 1, 2013. The
Management of Grupo Continental considers that the application of changes in the Accounting
Manual only affects the presentation of the Financial Statements with no impact on the profit or loss
nor the equity of Grupo Continental.
(a.3) Disclosure of information
Additional information is established on financial instruments and risks-related matters that shall be
disclosed in the notes to the consolidated financial statements.
Resolution SBS N 7036-2012 establishes that for annual financial information at the end of period
2013, the disclosure in notes shall be comparative versus prior years information, to the extent
practicable.
(a.4) Reclassifications
The application of the amendments to the Accounting Manual has generated reclassifications in
2012 comparative amounts. A detail of the most representative balances follows:
In thousands of S/.
Ending balance
2012
Reclassifications
Restructured
balance 2012
12,641,377
1,295,971
-
(349)
(1,156,870)
490,434
158,878
15,958
480,254
8,248
12,641,028
139,101
490,434
158,878
15,958
480,254
8,248
ASSETS
Cash and due from banks
Other assets
Trading derivatives
Hedging derivatives
Asset seized and recovered through legal actions, net
Current taxes
Receivables
F-13
Ending
balance
2012
LIABILITIES
Obligations to the public
Due to banks and other financial obligations
Securities, bonds and other obligations
Other liabilities
Trading derivatives
Payables
Provisions
32,054,519
7,156,782
3,800,033
1,449,576
-
Reclassifications
(97,716)
3,800,033
(3,800,033)
(1,301,153)
375,293
556,349
463,336
Restructured
balance 2012
31,956,803
10,956,815
148,423
375,293
556,349
463,336
In thousands of S/.
Ending
balance 2012
Reclassifications
Restructured
balance 2012
3,744,174
(1,043,844)
(424,415)
49,441
3,319,759
(994,403)
2,700,330
(374,974)
2,325,356
(445,294)
(40,498)
(485,792)
677,144
(43,366)
633,778
2,932,180
(1,246,894)
(458,838)
436,964
21,874
2,473,342
436,964
(1,225,020)
1,685,286
1,685,286
Income tax
(439,741)
(439,741)
1,245,545
1,245,545
The consolidated statement of income and other comprehensive income is a new financial statement
effective from 2013, and for comparative purposes, the 2012 information has been included.
The consolidated statement of cash flows has been modified, and the main changes are those
mentioned in Note 2(a.2); for comparative purposes, the information corresponding to 2012 has
been generated under new guidelines effective from 2013.
(b)
The consolidated financial statements have been prepared and presented in accordance with legal
regulations and Generally Accepted Accounting Principles in Peru (Peruvian GAAP) for financial
entities, which comprise accounting standards and practices authorized by the SBS by virtue of the
authority conferred to it by the General Law. Those standards are contained in the Accounting
Manual for the Financial System Companies (hereinafter the Accounting Manual) approved through
SBS Resolution No. 895-98 dated September 1, 1998, effective January 1, 2001 and supplemental
standards and amendments.
F-14
The SBS has established that for situations not addressed by such standards, the regulations set forth
in the International Financial Reporting standards issued by the International Accounting Standards
Board (IASB) and made official by the Accounting Standards Board (Consejo Normativo de
Contabilidad) shall be applied.
Peruvian GAAP are composed of: the standards and interpretations issued or adopted by the
International Accounting Standards Board (hereinafter the IASB) which include International
Financial Reporting Standards (hereinafter IFRS), International Accounting Standards (hereinafter
IAS), and the Interpretations issued by the International Financial Reporting Interpretations
Committee (hereinafter IFRIC) or by the former Standing Interpretation Committee (hereinafter
SIC) adopted by the IASB, made official by Consejo Normativo de Contabilidad (Peruvian
Accounting Board, hereinafter the CNC for its Spanish acronym) for their application in Peru.
New IFRS and interpretations applicable in 2013 and 2012 that did not significantly affect reported
amounts and their disclosures are as follows:
-
IFRS 11 Joint Agreements. Effective for annual periods beginning on or after January 1,
2013.
IFRS 12 Disclosure of Interests in Other Entities. Effective for annual periods beginning on
or after January 1, 2013.
IAS 27 (reviewed in 2011) Separate Financial Statements. Effective for annual periods
beginning on or after January 1, 2013.
IAS 28 (reviewed in 2011) Investments in Associates and Joint Ventures. Effective for
annual periods beginning on or after January 1, 2013.
IFRS 13 Fair Value Measurement. Effective for annual periods beginning on or after January
1, 2013.
IAS 19 (reviewed 2011) Employee benefits. Effective for annual periods beginning on or after
January 1, 2013.
Amendments to IFRS Annual improvements to IFRS 2009-2011 cycle. Effective for annual
periods beginning on or after January 1, 2013. Amendments include amendments to IAS 16
Property, Plant and Equipment and IAS 32 Financial Instruments: Presentation.
F-15
Finally, new IFRS and interpretations issued applicable after the date of submission of financial
statements are as follows:
-
IFRS 9 Financial Instruments. Effective for annual periods beginning on or after January 1,
2017.
Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities. Effective for annual
periods beginning on or after January 12, 2014.
Amendments to IAS 32 Offsetting of financial assets and financial liabilities. Effective for
annual periods beginning on or after January 1, 2014 and 2013, regarding disclosures.
Management of Grupo Continental estimates that the application of these amendments will not have
a significant impact in amounts and disclosures in the consolidated financial statements.
(c)
Consolidation basis
Grupo Continental is comprised by controlled companies and by a special purpose entity (SPE).
Subsidiaries and SPE (Special Purpose Entities)
Subsidiaries are all entities for which the Bank has the power to control the financial and operating
policies generally owning more than half of its voting shares. The consolidated financial statements
include accounts such as assets, liabilities, net equity and income and expenses of Grupo
Continental. Transactions, balances and unrealized gains between the Bank and its subsidiaries have
been eliminated. Subsidiaries are consolidated as from the acquisition date, which is the date when
control is transferred to the Bank. Subsidiaries consolidation ends on the date when the Bank no
longer exercises control over them.
The Bank uses the acquisition method to record the acquisition of subsidiaries. The acquisition cost
is determined as the fair value of the assets acquired, issued equity instruments and liabilities
incurred or assumed as of the exchange date, plus costs directly attributable to the acquisition.
Continental DPR Finance Company is a SPE created with the objective specified in Note 11(d)
(securitization of foreign remittances).
Below are the main balances of the Bank, its Subsidiaries and SPE as of December 31:
2013
Equity
2013
2012
56,548
49,710
51,658
45,482
4,890
4,228
66
71
37
38
29
33
59
2
27
1,378
51
2
20
1,490
9
18
1,378
7
5
1,490
50
2
9
-
44
2
15
-
Assets
Entity
BBVA Banco Continental
Continental Bolsa - Sociedad Agente de
Bolsa S.A.
BBVA Asset Management Continental S.A.
Sociedad Administradora de Fondos
Continental Sociedad Titulizadora S.A.
Inmuebles y Recuperaciones Continental S.A.
Continental DPR Finance Company
F-16
(d)
The Management of Grupo Continental is responsible for the information contained in these
consolidated financial statements. Certain estimates to quantify some assets, liabilities, revenue,
expenses and commitments recorded therein have been made based on experience and other
relevant factors. Final results could differ from those estimates.
The estimates are reviewed on an ongoing basis. Changes in accounting estimates are prospectively
recognized, by recording the effects of changes in the corresponding accounts of the statement of
income for the year in which the corresponding reviews are conducted.
The most important estimates and sources of uncertainty related with the preparation of Grupo
Continental's consolidated financial statements refer to:
(e)
Investments at fair value through profit and loss, available for sale investments and associates.
Allowance for loan losses.
Other assets and contingent credits (indirect credits).
Provision for accounts receivable.
Provision for Assets seized and recovered through legal actions
Useful life assigned to property, furniture and equipment.
Record of contingent liabilities.
Deferred income tax.
Financial derivative instruments.
Functional and presentation currency
Grupo Continental prepares and presents its consolidated financial statements in Nuevos Soles (S/.),
which is its functional currency. The functional currency is the currency of the main economic
environment in which an entity operates, which influences transactions performed and services
rendered, among other factors.
(f)
Foreign currency transactions are initially measured at the exchange rate of the functional currency
(Nuevos Soles) at the transaction date, as set by the SBS. Monetary assets and liabilities
denominated in foreign currency are adjusted at the exchange rate in Nuevos Soles effective at the
reporting date, as set by the SBS. Gains or losses resulting from restating assets and liabilities in
foreign currency at the exchange rates effective at the date of the consolidated statement of financial
position are recorded in the consolidated statement of income (Note 3).
(g)
Financial instruments
Financial instruments are classified as either financial assets, financial liabilities or as equity in
accordance with the substance of the contractual arrangements originating them. Interests,
dividends, gains and losses generated by a financial instrument classified either as financial asset or
liability are recorded as income or expense in the consolidated statement of income.
Financial instruments are offset when Grupo Continental has a legally enforceable right to set off
and Management intends to settle them on a net basis, or realize the asset and pay the liability
simultaneously.
F-17
(ii)
F-18
classified by at least two local or foreign risk credit rating agencies and they must be within
the parameters set by the SBS, excluding from this requirement those instruments of Central
Banks of countries the sovereign debt of which are included, as a minimum, within the same
classification corresponding to Perus sovereign debt.
These securities are initially recorded at the fair value, including any transaction costs which
will be directly attributable to the acquisition of such investments.
Thereafter, the measurement of these investments is performed on the basis of the amortized
cost, using the effective interest rate. Any impairment losses of value are recognized in the
consolidated statements of income.
Financial liabilities
(i)
(ii)
Other liabilities
Other liabilities comprise accounts payable to suppliers, sundry payables, accounts payable for
dividends, remunerations and obligations with the deposit insurance fund and obligations with
tax collection institutions, among others. These items are recognized and valued at cost, i.e., at
the amount of products received in exchange for incurring the obligation or, in some
circumstances, for the cash or cash equivalent amounts expected to be paid to satisfy the
corresponding liability during the normal course of operations.
F-19
(h)
Investments in associates
The allowance for loan losses is determined in accordance with the criteria and percentages
established by SBS Resolution No. 11356-2008 Regulations for the Evaluation and Classification
of a Debtor and the Required Provision.
The SBS has established quantitative criteria (sales and borrowing levels in the financial system)
and qualitative criteria to classify direct and indirect loan portfolio per type and category, as
follows:
(i)
Corporate
This category also includes the following:
(a) Multilateral Development Banks
(b) Sovereign
(c) Public sector entities
(d) Stock brokers
(e) Financial System Companies
(ii) Large businesses
(iii) Medium businesses
(iv) Small businesses
(v) Micro-businesses
(vi) Revolving consumer loans
(vii) Non-revolving consumer loans
(viii) Mortgage loans
Provisions for indirect loans are calculated after adjusting balances through the application of the
following credit conversion factors:
Conversion
factor
Indirect loans
(a) Confirmed irrevocable letters of credit of up to one year, when the issuing
bank is a first-class foreign financial system company.
20%
50%
(c) Issuance of guarantees, import letters of credit and stand-by letters not
included in paragraph "b)", and confirmations of letters of credit not
included in paragraph "a)" and bank acceptances.
100%
0%
100%
Debtors are classified and are provisioned for loan losses within the following categories: normal,
with potential problems, substandard, doubtful and loss.
F-20
The allowance for loan losses includes the general and specific portions. The specific portion for
commercial loans is calculated based on percentages set by the SBS, which vary depending on the
customers classification and the type of collateral received.
General allowances include those preventively constituted for debtors classified as normal in
accordance with the requirements of the SBS, as well as general voluntary provisions.
Mandatory general allowances are determined based on percentage rates that include a fixed
component and a variable component (pro-cyclical) and vary depending on the type of loan. The
rule for determining the pro-cyclical component is activated or deactivated upon communication of
the SBS, which depends upon a periodical measurement of annual percentage variations (in moving
averages) in the actual Gross Domestic Product of Peru (GDP) published by Banco Central de
Reserva del Peru (BCRP).
Voluntary general allowances have been determined by the Bank based on the economic situation of
customers within the refinanced and restructured loan portfolio, prior experience and other factors
that, in Managements opinion, may result in possible losses in the loan portfolio. The amount of the
voluntary general allowance is reported to SBS.
The Management of Grupo Continental reviews and analyzes the non-retail loan portfolio
(corporate, large businesses and medium businesses) classifying and provisioning debtors according
to their cash flows, global indebtedness with creditor third parties and level of compliance with the
payment of such debts. Retail loan portfolio (small business, micro-business, revolving consumer,
non-revolving consumer and mortgage loans) is classified and provisioned in accordance with the
delay in loan payments and takes into account the classification of the debtors by other financial
entities. Additionally, pursuant to SBS Resolution No. 041-2005, the Bank assesses the exposure to
credit exchange risk for loans in foreign currency.
The minimum percentages required for constituting loan portfolio provisions are as follows:
Normal category
Types of Loans
Corporate loans
Corporate loans with customer deposit guarantees
Large business loans
Large business loans with customer deposit guarantees
Medium business loans
Small business loans
Micro business loans
Revolving consumer loans
Non-revolving consumer loans
Revolving consumer loans under eligible agreements
Mortgage loans
Mortgage loans with customer deposit guarantees
Fixed
Component
Procyclical
Component
0.70%
0.70%
0.70%
0.70%
1.00%
1.00%
1.00%
1.00%
1.00%
1.00%
0.70%
0.70%
0.40%
0.30%
0.45%
0.30%
0.30%
0.50%
0.50%
1.50%
1.00%
0.25%
0.40%
0.30%
As of December 31, 2013 and 2012, the pro-cyclical component for the placement provisions was
activate (Multiple Official Letter No. B-2193-2010-SBS).
F-21
Risk category
With potential problems
Substandard
Doubtful
Loss
(j)
No collateral
5.00%
25.00%
60.00%
100.00%
Preferred
collateral
2.50%
12.50%
30.00%
60.00%
Readily liquid
preferred
collateral
1.25%
6.25%
15.00%
30.00%
Financial lease operations are recorded as loans in accordance with effective SBS rules and IAS 17
Leases. The initial recording of transactions is made based on the disbursement value of the
transaction (net lease investment).
(k)
In accordance with SBS Resolution No. 1737-2006 Regulation for Trading and Accounting of
Derivative Products in Financial System Companies and its amendments, all derivative financial
instruments are initially recorded on the trade date.
Trading
Financial derivatives are initially recognized at cost in Grupo Continentals consolidated statement
of financial position; and subsequently maintained at their fair value. On a monthly basis, trading
financial derivatives are measured at their fair value. Foreign currency forwards, interest rate swaps,
currency swaps and currency options are booked at their estimated market value, recognizing assets
or liabilities, as the case may, in the consolidated statement of financial position; and the gain or
loss of the valuation or settlement is booked in the periods results. The financial instruments face
value is recorded in their respective currency as committed or agreed upon, in the contingent or
memoranda accounts (Note 15).
For hedging
A derivative financial instrument that seeks to ensure financial hedging of a given risk is recorded
as being for hedging purposes if, in its trading, it is expected that changes in the fair value or cash
flows will be highly effective in offsetting changes in fair value or cash flows of the hedged item
directly attributable to the hedged risk as from the beginning, which should be documented in the
trading of the derivative, and during the period of hedging. A hedge is considered highly effective if
it is expected that changes in fair value or cash flows of the hedged item and hedge financial
instrument are within a range of 80% to 125%.
If the SBS considers that the documentation is unsatisfactory or finds weaknesses in the
methodologies used, it may require the dissolution of the hedge and the recording of the derivative
financial product as trading.
(k.1) Fair value hedging
For fair value hedges that qualify as such, the change in fair value of the hedging derivative is
recognized in the statements of income.
F-22
Changes in the fair value of the hedged item attributable to the hedged risk are recorded as
part of the balance of the hedged item and recorded in the consolidated statements of income.
(k.2) Cash flow hedging
For cash flow hedging, the hedging derivative is measured and recognized at fair value, and
may affect both equity accounts and profit or loss accounts. The effective portion of changes
in the fair value of derivatives is recognized in the equity account, while the ineffective
portion shall be recognized in the Consolidated statement of income.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or
exercised, or when it no longer qualifies for hedge accounting. Amounts previously recognized in
the consolidated statement of financial position and in the consolidated statement of income and
other comprehensive income, as applicable, are transferred to the consolidated statement of income
over the effective term of the hedged item.
(l)
The transfer of financial assets is treated as derecognition of assets on trading date as Grupo
Continental transfers the risks and rewards of such financial assets. The difference between the
carrying amount of financial assets transferred and the consideration received is recognized in the
consolidated statements of income for the period.
The gains arising on derecognition of financial assets from loan refinancing or gains from loans
granted for financing the sale of assets seized or recovered through legal actions shall be deferred
over the term of the new loan in accordance with the standards of the SBS.
(m) Property, furniture and equipment
Property, furniture and equipment are recorded at cost, which includes acquisition-related
disbursements and are presented net of accumulated depreciation and accumulated impairment loss,
if any. Annual depreciation is expensed, and determined on a cost basis using the straight-line
method based on the estimated useful life of assets, as follows:
Years
Property
Facilities
Leasehold improvements
Furniture and equipment
Vehicles
33
33 - 10
10
10 - 4
5
The disbursements subsequently incurred which are related to assets the cost of which can be
reliably measured and from which it is likely that future economic benefits will be obtained from
such asset, are capitalized or recognized as property, furniture and equipment. Disbursements for
maintenance and repairs are expensed during the period as incurred. When a fixed asset is sold or
disposed of, the corresponding cost and accumulated depreciation are eliminated in the accounts and
the resulting gain or loss is recognized in the consolidated statements of income.
Banks are prohibited from using fixed assets as collateral except for assets acquired under financial
leasing transactions.
F-23
(n)
Asset seized and recovered through legal actions are measured at judicial or extrajudicial awarding
value or at the value agreed in the payment in kind contract. Assets recovered by resolution of
contract are initially recorded at the lower of the outstanding debt or the net realizable value. If the
outstanding debt value is greater, the difference is recognized as a loss, if there is no probability of
recovery.
In addition, the Bank records the following provisions on seized assets:
-
20% value as of the award or recovery date for all goods received.
For property, in a maximum 42-year term, an even monthly provision must be constituted
upon net value obtained in the twelfth (12) or eighteenth (18) month from its awarding
or recovery, depending on the SBS extension and until completing 100% of the
carrying amount of the asset. On an annual basis, carrying amount of property is
compared to realizable value determined by an independent appraiser and, in the event
that this value is lower, an impairment provision is constituted.
-
For assets other than property, the remaining balance is provisioned within a term no longer
than 18 or 12 months, provided that an extension is granted by the SBS.
(o)
Intangible assets
Intangible assets with finite useful lives are recorded at acquisition cost less accumulated
amortization and accumulated impairment losses. Amortization is recognized as an expense and is
determined under the straight-line method based on the estimated useful life of the assets. The
useful life of these assets has been estimated between to be 1 and 5 years.
Costs related with developing or maintaining computer software are recognized as expenses when
incurred. Costs directly related to unique and identifiable software products controlled by Grupo
Continental which are likely to generate economic benefits for more than a year are recognized as
intangible assets.
The costs incurred in developing computer programs recognized as assets are amortized over their
estimated useful lives.
(p)
Non-current assets held for sale are measured at the lower of their previous carrying amount and fair
value less costs to sell. Non-current assets are classified as held for sale only when the asset is
available for sale and its sale is highly probable. Management must be committed to the sale, which
should be expected to qualify for recognition as a completed sale within one year from the date of
classification.
(q)
When there are events or economic changes indicating that the value of an asset might not be
recoverable, Management reviews the carrying amount of these assets at each statement of financial
position date. If, after this analysis, the carrying amount of the asset exceeds its recoverable amount,
F-24
Employee benefits
Provisions are recognized only when the Bank has a present obligation (legal or implicit) as a result
of a past event, it is probable that resources will be required to settle the obligation, and the amount
of the obligation can be reliably estimated. Provisions are reviewed periodically, and adjusted to
reflect the best estimate as of the consolidated statement of financial position date. When the effect
of the time value of money is material, the amount recorded as a provision is equal to the present
value of future payments required to settle the obligation.
F-25
Contingent liabilities are not recognized in the consolidated financial statements but are disclosed in
a note to the financial statements, except when the likelihood of an outflow of resources to cover a
contingent liability is remote. Contingent assets are not recognized in the consolidated financial
statements but are disclosed in the notes to the consolidated financial statements when it is probable
that there will be an inflow of resources.
Items previously treated as contingent liabilities are recognized in the consolidated financial
statements in the period in which the change in probabilities occurs; that is when it is determined to
be likely, or virtually certain, that an outflow of resources will take place. Items treated as
contingent assets are recognized in the financial statements in the period in which it is determined
that it is virtually certain to produce an inflow of resources.
(t)
Interest income and expenses and commissions from services are recognized in the consolidated
statements of income on an accrual basis in the period related to the relevant transaction.
Interest on past-due loans, refinanced loans, restructured loans, and under legal collection loans, as
well as interests on loans classified as doubtful or loss, are recognized in the consolidated
statements of income when collected.
When the debtors financial condition is determined to have improved, thus eliminating the
uncertainty as to the recoverability of principal, the interest is again recorded on an accrual basis.
Other income and expenses are recorded during the period in which they are earned.
(v)
Fiduciary activity
Assets derived from fiduciary activities where there is a commitment to return those assets to the
customers and where Grupo Continental acts as a holder, trustee or agent, have been excluded from
the consolidated financial statements. Such assets are controlled in separate financial statements and
presented in off-balance sheets accounts.
(w) Consolidated statement of income and other comprehensive income, and consolidated
statement of changes in equity
The consolidated statement of income and other comprehensive income includes the unrealized gain
or loss arising on the mark to market of available-for-sale investments as well as the mark to market
of the derivatives instruments designated as cash flow hedge. Deferred tax on these items is treated
as indicated in the corresponding note.
The consolidated statement of changes in net equity shows the consolidated comprehensive income
for the period, the cumulative effect of changes in accounting policies or correction of errors, if any,
transactions of shareholders such as payment of dividends and capital contributions, and
reconciliation between beginning and ending balances disclosing each movement or change.
F-26
(x)
Cash and cash equivalents shown in the consolidated statement of cash flows include cash and due
from banks, inter-bank funds, as well as cash equivalents corresponding to short-term highly liquid
financial investments readily convertible into a specific cash amount, subject to an insignificant risk
of changes in value, with maturity dates not exceeding 90 days from acquisition date. As established
by the SBS, Grupo Continental prepares and presents this statement by applying the indirect
method.
In the consolidated statement of financial position, bank overdrafts are reclassified to liabilities.
(y)
Income Tax
Current and deferred income tax, are recognized in profit or loss included in the consolidated
statement of income, except when they related to items recognized in equity accounts, in which
case, the current income and deferred tax is also recognized in equity accounts.
Current income tax is calculated using tax rates that have been enacted by current tax laws to net
taxable income for the year. Current tax income is recognized as an expense for the period.
Deferred income taxes liabilities are recognized for all taxable temporary differences arising from
comparing the carrying amounts of assets and liabilities to their tax basis, regardless of when such
temporary differences are expected to be reserved. Deferred income taxes assets are recognized for
deductible temporary differences, arising from comparing the carrying amounts of assets and
liabilities to their tax basis, to the extent that it is probable that Grupo Continental will have future
taxable income against which the deductible temporary differences can be applied, within the
established time-limit, in accordance with law. Assets and liabilities are measured using the income
tax rate enacted or substantially in effect at the related consolidated statement of financial position
date expected to be applied to the taxable income in the year in which the liabilities are settled or the
assets are recovered.
(z)
Pursuant to Resolution SBS N 505-2002, the provision for country risk is calculated for the
difference between maximum provisions according to the nature of the asset transaction and those
determined by the aforementioned resolution.
The SBS has determined a table of provisions that depends on factors relating to the country with
which exposure is maintained; one of those factors is the internal risk classification assigned by the
entity to the country, and another factor is the exposure level over regulatory capital that the entity
maintains for the country.
(aa) Dividends distribution
Dividends distribution is recognized as a liability in the consolidated financial statements in the year
when the dividends are approved by Grupo Continentals shareholders.
(bb) Earnings per share
Basic earnings per share were computed by dividing the consolidated net income by the weightedaverage number of ordinary shares outstanding during each year. Since Grupo Continental does not
have financial instruments with diluting effects, basic and diluted earnings per share are the same.
F-27
Publication
Date
Effective
Date
29/05/2013
May 2013
15/05/2013
May 2013
15/02/2013
June 2013
Description of Standard
F-28
3.
2013
2012
US dollar
Other currencies
3,477,170
65,818
9,000
Total
US dollar
Other currencies
Total
3,542,988
2,528,511
34,143
2,562,654
9,000
10,002
10,002
84,235
84,235
25,557
25,557
6,577,253
736
6,577,989
6,439,975
12,304
6,452,279
59,444
181
59,625
87,388
14,547
101,935
10,207,102
66,735
10,273,837
9,091,433
60,994
9,152,427
5,488,144
494,448
5,982,592
4,669,385
592,571
5,261,956
78,016
78,016
164,653
164,653
95,227
95,234
3,751,966
4,185
3,756,151
3,636,977
20,173
3,657,150
Payables
40,927
139
41,066
44,406
338
44,744
Provisions
18,786
559
19,345
17,428
536
17,964
8,344
29
8,373
123,638
24
123,662
9,472,820
499,360
9,972,180
8,665,077
613,649
9,278,726
734,282
(432,625)
301,657
426,356
(552,655)
(126,299)
Asset derivatives
3,075,577
618,938
3,694,515
2,110,714
704,871
2,815,585
Liability derivatives
3,758,536
186,464
3,945,000
2,623,430
146,717
2,770,147
51,323
(151)
51,172
(86,360)
5,499
(80,861)
Monetary assets
Cash and due from banks
Interbank funds
Trading and held-to-maturity investments
Loan portfolio
Other assets
Total monetary assets
Monetary liabilities
Obligations to the public
Inter-bank funds
Deposits of financial system companies
Due to bank and other financial obligations
Other liabilities
Total monetary liabilities
Asset (liability) position, net
Most of the assets and liabilities in foreign currency are denominated in U.S. dollars. As of
December 31, 2013, the exchange rate established by the SBS for these amounts in Nuevos Soles
(S/.) was S/.2.795 per US$1.00 (S/.2.55 as of December 31, 2012).
In 2013, Grupo Continental recorded foreign exchange gains amounting to S/.339 million (S/.298
million in 2012), which are presented in the Foreign Exchange difference from various
transactions, net item in the consolidated statement of income.
The revaluation percentages of the Peruvian Nuevo Sol as compared to the U.S. Dollar, calculated
were 9.61% and -5.42% for 2013 and 2012, respectively; the inflation percentages, in accordance
with the Domestic Wholesale Price Index (IPM for its Spanish acronym), were inflation of 1.55%
and deflation of 0.59% for 2013 and 2012, respectively.
F-29
4.
2013
8,917,842
1,984,613
673,808
128,888
58,982
60,071
10,336,588
1,670,898
321,008
197,876
109,378
5,280
11,824,204
12,641,028
Total
2012
As of December 31, 2013, cash and due from banks includes approximately US$ 2,714 million and
S/.1,526 million (US$ 2,429 million and S/.2,496 million as of December 31, 2012) which represent
the legal reserve that Peruvian entities must maintain as a guarantee of third party deposits. These
funds are deposited in Banks vaults and in BCRP.
As of December 31, 2013, cash and due from banks subject to reserve in local and foreign currency
are affected by an implicit rate in local currency of 15.00% and in foreign currency of 45.00% over
total obligations subject to reserve (TOSE) in local and foreign currency as required by BCRP (as of
December 31, 2012, the applicable implicit rates in local and in foreign currency are 17.7839% and
43.3972%, respectively).
Special reserve funds, representing the legal minimum, which is 9%, do not bear interest. Special
reserve funds corresponding to the additional reserve required in foreign currency and domestic
currency, bear interest at an annual nominal rate set by the BCRP. As of December 31, 2013,
interest income was S/.31 million (S/.33 million in 2012), included in the category Interest from
deposits in financial institutions of the consolidated statement of income. Pursuant to legal
provisions in force, special reserves cannot be seized.
As of December 31, 2013 and 2012, cash and due from banks included restricted funds for S/.3
million and S/.1 million, respectively, required in connection with legal proceedings against the
Bank to guarantee any potential liabilities generated by these lawsuits.
F-30
5.
2012
Available-for-sale investments
Certificates of deposits (a)
Peruvian Treasury Bonds (b)
Shares in local companies (c)
Shares in foreign companies
Peruvian Global Treasury Bonds
Other investments
2,874,246
156,266
52,772
637
-
1,971,223
225,871
47,763
17,993
26,277
7
Total
3,083,921
2,289,134
322,024
179,628
54,619
475
-
115,632
39,223
369
5,586
Total
556,746
160,810
Held-to-maturity investments
Peruvian Treasury Bonds (b)
443,993
436,829
In thousands of S/.
(a)
BCRP certificates of deposits are freely tradable securities in domestic currency, with
maturities up to April 2015, which were acquired in public auctions or secondary markets. As
of December 31, 2013, the annual interest rate of these certificates ranged between 3.6% and
4.2% (between 3.79% and 4.20% as of December 31, 2012), in foreign currency, this rate
ranged between 0.10% and 0.15%.
(b)
Treasury bonds are issued by the Peruvian Government. As of December 31, 2013 those
bonds accrued annual interest at rates between 1.00% and 7.28% (1.00% and 5.11% at
December 2012) in local currency and 6.57% in foreign currency for both periods and due
until August 2046 (February 2042 as of December 31, 2012).
(c)
As of December 31, 2013 and 2012, mainly included stocks listed in the Lima Stock
Exchange (BVL) for a total value of S/.38 million and S/. 36 million, respectively.
(d)
As of December 31, 2013 and 2012, the investment in mutual funds corresponds to investment
installments maintained by Grupo Continental in Mutual Funds managed by BBVA Asset
Management Continental S.A. Sociedad Administradora de Fondos.
F-31
6.
LOAN PORTFOLIO
(a)
In thousands of S/.
2012
%
Direct loans
Loans
Mortgages
Leasing
Foreign trade
Consumer
Discounted notes
Other
14,851,955
8,433,344
4,202,111
3,899,483
3,285,220
1,293,059
2,545,083
39
22
11
10
9
3
6
11,761,407
7,148,709
4,066,925
2,656,836
3,274,544
1,048,364
2,222,180
37
23
13
8
10
3
7
38,510,255
100
32,178,965
101
593,079
442,495
690,928
399,277
39,794,262
104
33,020,737
104
270,988
245,070
40,065,250
105
33,265,807
105
(31,316)
(30,596)
(1,788,607)
(5)
(1,465,086)
(5)
Total
38,245,327
100
31,770,125
100
12,298,340
10,250,869
F-32
As of December 31, 2013 and 2012, the annual average rates for the main products were as
follows:
2013
Placements in
S/.
US$
%
%
2012
Placements in
S/.
US$
%
%
8.26
9.35
22.10
9.40
9.59
23.01
6.99
8.59
15.93
7.62
8.66
15.29
Of the loan portfolio as of December 31, 2013 and 2012, under the segmentation established
by SBS Resolution No. 11356- 2008 is a follows:
2013
In thousands of S/.
2012
%
Medium business
Mortgage
Large business
Corporate
Consumer
Small business
Public sector entities
Stock brokers
Financial system companies
Micro business
Multilateral development banks
10,044,532
8,551,796
8,042,304
6,626,562
3,457,612
1,579,785
661,358
378,301
305,217
86,295
60,500
25
21
20
17
9
4
2
1
1
-
9,076,737
7,235,433
6,481,488
4,313,342
3,397,306
1,552,787
174,677
306,839
231,191
230,101
20,836
27
22
19
13
10
5
1
1
1
1
-
Total
39,794,262
100
33,020,737
100
F-33
F-34
(c)
Total
Deferred income
from loan transactions
Normal
With potential
problems
Substandard
Doubtful
Loss
In thousands of S/.
12,298,340
12,298,340
39,794,262
100
39,762,946
102,544
34,422
12,751
5,004
2
1
1
1
850,238
519,002
480,760
495,999
12,143,619
100
1
-
99
2013
Indirect loans
%
31,316
95
37,416,947
Direct loans
52,092,603
31,316
52,061,287
952,782
553,424
493,511
501,004
49,560,566
Total
100
2
1
1
1
95
33,020,737
30,596
32,990,141
810,700
420,600
384,170
314,553
31,060,118
Direct loans
100
2
1
1
1
95
10,250,869
10,250,869
131,613
20,958
6,540
8,298
10,083,460
2012
Indirect loans
The credit risk classification of the Banks loan portfolio in accordance with the SBS standards is summarized as follows:
100
1
1
-
98
43,217,534
30,596
43,240,938
942,313
441,558
390,710
322,851
41,143,506
Total
100
2
1
1
1
95
Grupo Continental, in compliance with current regulations has identified borrowers exposed to
exchange rate risk and it considers that it does not need to make an additional provision for
this concept.
During 2013, Grupo Continental wrote off non-accrual interest of S/.28 million (S/.16 million
in 2012) relating to capital loans, interests and commissions.
(d)
The movement in the allowance for loan losses as of December 31, 2013 and 2012 is as
follows:
In thousands of S/.
2013
2012
Balances as of January 1
Provisions
Recoveries and reversals
Write-offs
Sale of portfolio
Foreign exchange difference and other adjustments
1,465,086
1,099,461
(577,576)
(239,561)
41,197
1,249,934
944,540
(458,043)
(1,098)
(251,987)
(18,260)
Balances as of December 31
1,788,607
1,465,086
Management considers that level of the provision for loan losses is adequate to cover potential
losses in the portfolio as of the consolidated statement of financial position date. All
provisions of the current standard have been complied with. As of December 31, 2013, the
general provision of loan portfolio of S/.1,040 million (S/.927 million at December 2012)
includes pro-cyclical provisions of S/.169 million (S/.143 million at December 2012). Grupo
Continental also maintains voluntary provisions of S/.570 million and S/.529 million as of
December 31, 2013 and 2012, respectively.
During 2013, Grupo Continental sold loan portfolio in legal collection for S/.221 million
(S/.213 million as of December 31, 2012). The selling price amounted to S/.15 million (S/.20
million as of December 31, 2012) and is recorded in Other income and expenses in the
consolidated statement of income. As of December 31, 2013, Grupo Continental sold writtenoff loan portfolio for S/.7 million (in 2012, Grupo Continental did not sold written-off loan
portfolio).
F-35
F-36
7.
Additions
Disposals
Transfers and others
123,982
103,694
Net cost:
123,982
22,558
(2,270)
Additions
Disposals
Transfers and others
Additions
Disposals
Transfers and others
103,694
Accumulated depreciation:
Balance as of January 1, 2012
100,293
3,401
-
Land
Cost:
Balance as of January 1, 2012
Additions
Disposals
Transfers and others
In thousands of S/.
271,100
291,126
357,358
30,247
(1,237)
328,348
27,747
(805)
301,406
648,484
8,030
41,006
599,448
498,831
20,733
79,884
Property and
facilities
170,954
204,271
193,298
33,278
(9)
(4,508)
164,537
32,938
(14)
3,736
127,877
397,569
64,453
(13)
(2,362)
335,491
284,755
56,275
(14)
(5,525)
Furniture
and
equipment
1,119
1,869
4,634
737
-
3,897
674
-
3,223
6,503
1,487
-
5,016
4,384
632
-
Vehicles
104,813
134,382
53,021
16,065
(99)
37,055
11,319
(516)
26,252
187,403
4,263
41,272
141,868
101,194
11,383
29,291
Facilities
and
leasehold
improvements
26,734
60,452
60,452
120,555
(86,837)
26,734
65,170
73,752
(112,188)
Work in
progress
6,630
1,928
1,928
5,058
(9,760)
6,630
7,731
9,954
(11,055)
Receivable
and
substituting
units
685,044
818,010
608,311
80,327
(9)
(5,844)
533,837
72,678
(14)
2,415
458,758
1,426,321
226,404
(13)
(18,951)
1,218,881
1,062,358
176,130
(14)
(19,593)
Total
8.
Other assets as of December 31, 2013 mainly include S/.74 million for deferred charges (S/.77
million as of December 31, 2012) and S/.13 million for transactions in process (S/.59 million
as of December 31, 2012).
(b)
Payables as of December 31, 2013 mainly include pending payments to suppliers for S/.215
million (S/.281 million as of December 31, 2012), sundry payables for S/.44 million (S/.47
million as of December 31, 2012), premiums to Fondo de Seguro de Depsitos (Deposit
insurance fund), contributions and obligations with tax collection institutions for S/.132
million (S/.108 million as of December 31, 2012) and dividends, employees sharing profit
and remunerations payable for S/.85 million (S/.89 million as of December 31, 2012).
(c)
Other liabilities as of December 31, 2013 mainly include S/.41 million of transactions in
process (S/.132 million at December 2012).
(d)
Provisions include provisions for indirect loans, litigation, claims, and provisions for staff,
among others, that as of December 31, 2013 and 2012 amount to S/.435 million and S/.463
million, respectively.
The change in the provision for indirect loans is as follows:
In thousands of S/.
2013
Balance as of January 1
Provision
Recoveries and reversals
Foreign exchange difference and other adjustments
Balance as of December 31
2012
70,328
53,975
(44,513)
2,941
60,686
51,122
(40,722)
(758)
82,731
70,328
As of December 31, 2013, the general provision for indirect loan portfolio for S/.76 million
(S/.63 million as of December 31, 2012) includes procyclical provisions for S/.25 million
(S/.21 million as of December 31, 2012).
Grupo Continental had several pending law suits litigation and other processes that are related
to the activities carried out, which in the opinion of management and legal counsel, no
additional provisions are needed. Therefore, as of December 31, 2013 and 2012, Management
considered it necessary to make a provision higher than what is recorded for these
contingencies and processes, which amounted to S/.194 million and S/.209 million,
respectively.
F-37
2013
2012
Balances as of January 1
Provisions for administration and other expenses
Disbursements
Recoveries
Other
389,034
459,352
(459,015)
(1,227)
(38,034)
395,030
402,623
(398,908)
(1,175)
(8,536)
350,110
389,034
Balances as of December 31
9.
In thousands of S/.
2012
Time deposits
Demand deposits
Savings deposits
Other obligations
14,890,868
12,219,603
9,323,333
46,100
14,652,278
9,237,771
8,005,309
61,445
Total
36,479,904
31,956,803
Obligations to the public include restricted deposits received as collateral from debtor customers
forming part of Grupo Continentals loan portfolio for S/.524 million in domestic currency, and
US$108 million in foreign currency (S/.547 and US$114 million, respectively, as of December 31,
2012).
Interest rates for borrowing transactions are determined by Grupo Continental considering current
market interest rates. A detail of current interest rates for main products follows:
2013
2012
Accounts in
Checking accounts
Saving deposits
Time deposits and CBME
Superdeposits
Deposits for accrual for
severance or seniority indemnities
Accounts in
S/.
%
US$
%
S/.
%
US$
%
0.00-0.75
0.00-0.30
0.00-1.20
0.00-0.60
0.15-2.00
0.125-1.00
0.20-2.00
0.125-1.00
0.80-1.35
0.10-1.15
0.501.35
0.10-1.15
1.00-1.35
0.40-1.15
1.00-1.35
0.45-1.00
1.50-3.75
0.60-2.50
2.75-4.00
0.50-3.50
F-38
10.
INTER-BANK FUNDS
As of December 31, 2013, inter-bank funds assets had current maturities, accrued interest at an
average annual interest rate of 0.15% in local currency (4.25% in local currency and 1.80% in
foreign currency as of December 31, 2012) and were unsecured.
As of December 31, 2013, inter-bank funds liabilities had current maturities, accrued interest at an
average annual interest rate of 4.00% in local currency, (4.22% and 1.61% in foreign currency as of
December 31, 2012, and were unsecured.
11.
2013
2012
4,063,862
856,464
4,876,093
1,278,644
519,985
445,894
363,350
28,730
66,203
433,500
57,417
65,234
5,898,594
7,156,782
Corporate bonds
Notes (Debt Instruments)
Subordinated bonds
Financial lease bonds
Accrued interest payable
4,439,062
936,325
603,400
139,875
65,256
2,185,719
980,196
457,857
133,750
42,511
6,183,918
3,800,033
12,082,512
10,956,815
Total
Some of the loan agreements include standard covenants regarding attainment of financial ratios,
the use of funds and other administrative matters. In Managements opinion, as of December 31,
2013 and 2012, these covenants are being adequately abided by in all regards and they do not
represent any sort of restriction to Grupo Continentals operations.
F-39
(a)
2013
US$
2012
S/.
US$
Due date
S/.
505,308
347,366
200,000
62,000
50,000
50,000
43,000
40,000
40,000
1,412,336
970,888
559,000
173,290
139,750
139,750
120,185
111,800
111,800
491,446
369,425
200,000
122,197
70,000
55,000
50,000
70,000
164,955
1,253,187
942,034
510,000
311,602
178,500
140,250
127,500
178,500
420,634
Bank of Montreal
25,000
69,875
25,000
63,750
Mercantil Commercebank NA
25,000
69,875
25,000
63,750
May 2014
9,000
25,155
24,000
61,200
April 2014
25,000
63,750
January 2013
39,000
99,450
January 2013
57,301
160,158
19,831
11,000
15,263
80,000
55,000
77
50,569
28,050
38,921
204,000
140,250
196
1,453,975
4,063,862
1,912,194
4,876,093
BBVA Madrid
Fifth Third Bank
HSBC Bank PLC
JP Morgan Bank
Sumitomo Bank
Other
Total
January 2017
November 2020
October 2040
May 2014/ May 2016
May 2016
October 2017/June 2018
December 2016
May 2016
May 2016
March 2014
(i)
In January 2012, the Group entered into a loan for a nominal amount of US$ 500
million, agreed upon at a fixed rate of 5.75% with the principal maturing in January
2017 ("bullet"), which is carried at fair value and hedged through an interest rate swap,
with the same due date of the debt. The Group recorded a loss in 2013 amounting to
S/.15 million for changes in the fair value of the loan (Note 24), included in Gain from
hedging operations in the consolidated statement of income (gains for S/.22 million
were recorded in 2012).
(ii)
Loan for a nominal amount of US$350 million, at a fixed rate of 5.5% and due in
November 2020, which is recorded at fair value. This loan is hedged by an Interest Rate
Swap (IRS) (Note 15), which was terminated in April 25, 2013. As of April 2013, Grupo
Continental had recorded gains for S/.18 million corresponding to the change in the
loans fair value (Note 24), which is included in the "Gain from Hedging Operations,
net" entry of the consolidated statement of income (as of December 31, 2012, it recorded
a loss of S/.9 million).
F-40
(v)
(b)
This includes four loans for US$ 40 million each, due in May 2016, with cash flow
hedging through the contracting of an interest rate swap (Note 15).
2013
US$
(i)
(c)
2012
S/.
US$
Due date
S/.
160,000
117,857
28,570
-
447,200
329,410
79,854
-
170,000
126,429
40,000
100,000
65,000
433,500
322,393
102,001
255,000
165,750
306,427
856,464
501,429
1,278,644
This includes two subordinated loans for an amount of US$50 million, approved by the
SBS and it is considered as part of TIER 2 Regulatory Capital, in accordance with legal
provisions in force.
(d)
The operative documents for this financing include covenants requiring compliance by the
Bank with certain financial ratios and other specific conditions related to transferred flows.
The Management of Grupo Continental believes it was in compliance with such conditions as
of December 31, 2013.
F-41
F-42
(e)
Fifth
Total
First
Second
First
Second
Third
First
Second
Third
First
Second
Third
Fourth
Fifth
Sixth
First
First
First
First
Fourth
Seventh
First
Second
Third
First
Second
Fifth
Sixth
First
First
Third
Issuance
Leasing bonds
First
Notes
USD 55 million
Third
Second
Fourth
Subordinated Bonds
First
Authorized amount
Third
Corporate bonds
Second
Program
2008-A
2012-A,
2012-B,
2012-C and
2012-D
A
A
A
A
A
A
A
A
A
Single
Single
A
Single
B
C
D
A
Single
Single
A
A
A
A
Single
A
Single
Single
Single
Series
250,000
235,000
USD
25,000
30,000
40,000
40,000
20,000
55,000
20,000
50,000
20,000
45,000
50,000
30,000
45,000
23,000
30,000
17,000
8,533
60,000
40,000
80,000
100,000
50,000
150,000
200,000
54,000
500,000
300,000
500,000
Nominal issuance
value
USD
USD
PEN
PEN
PEN
USD
PEN
USD
PEN
USD
PEN
PEN
PEN
USD
PEN
PEN
PEN
USD
PEN
PEN
PEN
PEN
PEN
PEN
PEN
USD
USD
USD
USD
Currency
597,696
980,196
42,511
3,800,033
656,825
936,325
65,256
6,183,918
382,500
133,750
139,875
279,500
63,750
30,000
40,000
457,857
603,400
69,875
30,000
40,000
39,721
50,681
66,169
51,000
58,912
51,000
51,166
56,118
33,090
-
2,185,719
4,439,062
39,744
55,900
68,124
55,577
60,652
55,900
52,679
57,776
34,068
122,980
23,000
30,000
17,000
21,759
60,000
40,000
80,000
100,000
50,000
150,000
215,065
137,700
1,261,195
-
2012
23,850
60,000
40,000
80,000
100,000
50,000
150,000
186,851
150,930
1,397,500
837,157
1,362,774
2013
December 2015
April 2016
September 2014
November 2014
May 2022
May 2027
June 2032
September 2017
November 2032
February 2028
July 2023
September 2023
December 2033
October 2028
March 2013
April 2013
May 2013
September 2014
May 2018
August 2020
August 2020
August 2018
December 2016
December 2026
April 2019
July 2016
August 2022
July 2016
April 2018
Maturity date
Corporate bonds are unsecured and bear annual interest at rates between 5.8% and 7.5% as of
December 31, 2013 for local currency (between 5.8% and 7.9% for local currency as of December
31, 2012), and between 2.3% and 6.4% for foreign currency as of December 31, 2013 (between
4.7% and 6.4% as of December 31, 2012).
Corporate bonds for S/.200 million are hedged by a cross currency swap, by means of which the
Bank changes this issuance from local currency (Peruvian nuevos soles) to foreign currency (U.S.
dollars) and the fixed rate to variable rate (Note 15). In 2013, the Group recorded gains for S/.34
million (losses for S/.15 million in 2012), corresponding to variation in the fair value of the bonds
(Note 24), which are included in Gain from hedging operations in the consolidated statement of
income.
The notes issuances of June 2012 for US$ 235 million includes US$ 70 million recorded at fair
value due to the interest rate swap entered into (Note 15), which was ended on June 5, 2013. As of
December 31, 2013, Grupo Continental has recorded gains for S/. 5 million corresponding to the
variation of the issuances fair value, included in Gain from hedging operations in the
consolidated statement of income (As of December 31, 2012, gains were recorded for S/.2 million,
included in Gain from hedging operations).
In August 2012, the Bank carried out an international issuance for a nominal amount of US$500
million, at a fixed interest rate of 5%, maturing in August 2022. Principal will be fully paid off upon
maturity. Likewise, such issuance was hedged through an interest rate swap (Note 15) that was
terminated on May 30, 2013. As of December 31, 2013, Grupo Continental has recorded gains for
S/.73 million (14 million as of December 31, 2012) corresponding to the variation in the issuances
fair value (Note 24), included in Gain from hedging operations in the consolidated statement of
income.
In April 2013, the Bank carried out an international issuance for a nominal amount of US$500
million, at a fixed interest rate of 3.25%, maturing in April 2018. Principal will be fully paid off
upon maturity. Likewise, such issuance is recorded in books at fair value, and the variation in fair
value is hedged through an interest rate swap (Note 15). As of December 31, 2013, the Bank has
recorded gains for S/. 30 million corresponding to the variation in the issuances fair value, included
in Gain from hedging operations in the consolidated statement of income.
Subordinated bonds were issued according to General Law requirements and with annual interest
rates between 5.9% and VAC plus a spread for local currency and between Libor plus a spread and
6.5% for foreign currency.
Leasing bonds bear interest at a nominal annual rate of 6.3% for local currency and 7.2% for foreign
currency and they are backed by credit operations in the form of leasing contracts and they have
been financed by the aforementioned bonds.
12.
NET EQUITY
(a)
Capital Stock
As of December 31, 2013, the authorized, issued and fully paid capital stock of the Bank consisted
of 2,724,770 thousands of outstanding ordinary shares with a face value of S/.1 each, (2,226,473
shares as of December 31, 2012).
F-43
The General Shareholders Annual Meetings held on March 27, 2013 and March 29, 2012,
authorized an increase of the capital stock of S/.498 and S/.282 million, respectively, by means of
the capitalization of retained earnings.
The Banks ordinary stock is listed in the Lima Stock Exchange (hereinafter, BVL for its Spanish
acronym). As of December 31, 2013 and 2012, the stock market quotation value of the Banks stock
was S/.5.30 and S/.6.66 per share, respectively, with a negotiation frequency of 95.24% as of
December 31, 2013, and 100% as of December 31, 2012.
The number of shareholders and the ownership structure of the Bank were as follows:
Percentage of individual
interest
Number of
shareholders
Total
interest
Up to 1
From 80.01 to 100
8,496
1
7.76%
92.24%
Total
8,497
100.00%
(b)
Reserves
Pursuant to applicable law, all Peruvian banks must create and maintain a legal reserve. Each year a
Peruvian bank must allocate 10% of its net income to its legal reserve until the legal reserve is equal
to 35% of its paid-in capital stock.
Legal reserve for the Banks net income for 2013, which will amount to S/.130 million, will be
recognized upon the approval of the individual financial statements at the next General
Shareholders Meeting to be held in 2014.
The General Shareholders Annual Meetings held on March 27, 2013 and March 29, 2012 approved
an allocation to the legal reserve for the equivalent of 10% of the net income for years 2012 and
2011 for S/.125 and S/.113 million, respectively.
(c)
Retained earnings
General Shareholders Annual Meetings held on March 27, 2013 and March 29, 2012, agreed to
distribute cash dividends for S/.623 and S/.734 million, respectively.
Dividends distributed to shareholders other than domiciled legal entities, are subject to the rate of
income tax rate of 4.1% which should be withheld by the Bank.
The General Shareholders Annual Meetings held on March 27, 2013 and March 29, 2012 approved
the capitalization of retained earnings for S/.498 and S/.282 million, respectively.
(d)
Adjustments to equity
Adjustments to equity include unrealized gains for S/.9 million corresponding to the available-forsale investment portfolio (S/.31 million as of December 31, 2012), S/.3 million corresponding to
unrealized gains for held-to-maturity investments (S/. 3 million as of December 31, 2012) and S/.3
million for the valuation of cash flow hedge derivatives.
F-44
(e)
On June 26, 2013 and September 26, 2013, the Board of Directors, in the exercise of the delegation
conferred upon it by the Annual General Shareholders Meeting held on March 27, 2013, and
pursuant to the provisions of article 184, Item A), Point 2 of the General Law, unanimously
resolved to commit the profit for period 2013 for S/.400 and S/.150 million, respectively. This
undertaking will be submitted for consideration to the next Annual Obligation Shareholders
Meeting.
13.
F-45
14.
In thousands of S/.
Contingent transactions:
Indirect loans:
Guarantees and letters of guarantee
Letters of credit and bank acceptances
2012
11,341,379
956,961
9,487,925
762,944
12,298,340
10,250,869
6,926,654
6,669,620
19,224,994
16,920,489
15.
F-46
Options are agreements whereby the holder has the option - rather than the obligation - to purchase
or sell an underlying by prices defined at the day of closing, for which the holder pays a premium to
the seller of the options, calculated in accordance with market conditions.
The risk arises from the possibility that counterparties do not comply (Risk of Counterparty) with
agreed terms and the fluctuations of the risk factors involved in this transaction (exchange rate and
interest rate risks).
Derivative financial instruments are valued according to the financial theories recognized by the
market. The inputs (exchange rates, interest rate curves, implied volatility, swap points, etc.) are
captured from public sources of information if the data is quotable, or built, in the case of no
quotations available.
The notional amount equivalent in Nuevos Soles and the fair value of derivative financial
instruments were as follows:
In thousands of S/.
2013
Underlying
Nominal
Asset
Liabilities
Trading derivatives
Currency forward
Commodities options and other
Interest rate options
Currency Swap
Interest Rate Swap
Provision for country risk
11,889,467
1,566,665
287,857
6,503,755
3,528,356
-
138,392
17,452
796
385,882
37,446
(2,716)
204,097
17,452
796
254,652
84,004
-
23,776,100
577,252
561,001
3,216,726
210,863
1,397,500
1,608,363
559,000
559,000
22,519
19,891
2,628
4,270
4,270
51,918
26,050
25,868
-
3,775,726
26,789
51,918
27,551,826
604,041
612,919
Hedging derivatives
At fair value
Currency Swap
Interest Rate Swap
Interest Rate Swap
Cash flows
Interest rate swap
Bond issuance
Due to banks
Bond issuance
Due to banks
F-47
In thousands of S/.
2012
Underlying
Trading derivatives
Currency forward
Commodities options and other
Interest rate options
Currency Swap
Interest Rate Swap
Provision for country risk
Total trading derivatives
Hedging derivatives
At fair value
Currency swap
Interest rate swap
Interest rate swap
Bond issuance
Due to banks
Bond issuance
Nominal
Assets
Liabilities
7,216,383
1,793,352
114,164
4,305,678
3,275,797
-
89,991
27,847
279
347,015
28,400
(3,098)
62,481
27,847
279
168,224
116,462
-
16,705,374
490,434
375,293
3,813,380
192,380
2,346,000
1,275,000
158,878
17,010
128,163
13,705
3,813,380
158,878
20,518,754
649,312
375,293
As of December 31, 2013, Grupo Continental has entered into a cross currency swap to hedge
the fair value of bonds issued for a nominal value equivalent to S/.211 million, due in April
2019. Through this cross currency swap, Grupo Continental changes its issuance from a
variable-rate US dollar issuance into a fixed-rate domestic currency issuance. As of December
31, 2013, the fair value of the cross currency swap amounts to S/.33 million (loss), included in
"Gain from hedging operations" in the consolidated statement of income (as of December 31,
2012, the fair value amounted to a gain of S/.16 million).
As of December 31, 2013, Grupo Continental has entered into interest rate swap contracts for
a nominal amount equivalent to S/. 3,006 million to hedge interest rates for debts received due
in January 2017, and bonds issued due in April 2018 and April 2019. Through these interest
rate swaps, for up to an amount equivalent to S/.2,795 million, Grupo Continental gets a fixed
interest rate in US dollars and pays for a variable interest rate in the same currency, and for the
remaining amount, Grupo Continental gets variable rates and pays at fixed rates. As of
December 31, 2013, the total variation in the fair value of interest rate swaps amounts to S/.76
million (loss), which is included in Gain from hedging operations in the consolidated
statement of income, and that includes S/.74 million (loss) for valuation of interest rate swaps
terminated during 2013 (as of December 31, 2012, the variation in the fair value amounted to
a gain of S/. 68 million).
As of December 31, 2013, Grupo Continental has entered into interest rate swap contracts for
a nominal value equivalent to S/.559 million to hedge interest rates of debts received, due in
May 2016 and June 2022. Through interest rate swaps, Grupo Continental gets a variable
interest rate in US dollars and pays for a fixed interest rate in the same currency. As of
December 31, 2013, the variation in the fair value of interest rate swaps amounts to S/.3
million and is recorded in equity accounts.
F-48
16.
17.
ADMINISTRATION EXPENSES
Administration expenses for 2013 and 2012 mainly comprised expenses for employees and board
of directors, taxes, contributions, technology services fees, transport of money, lease advertising,
general services expenses, security and surveillance, among others.
18.
TAX SITUATION
(a)
Income tax
Pursuant to current legislation, consolidated determination of taxes is not permitted. The Bank
and its subsidiaries have individually made this determination.
Management is of the opinion that it has determined the taxable matter under the general
income tax regime in accordance with current tax legislation in force, which requires adding to
and subtracting from the result appearing in the financial statements, any entries which the
mentioned legislation acknowledges as either taxable or non-taxable, respectively. The income
tax rate for 2013 and 2012 is 30%.
(ii)
The income tax rate for domiciled legal entities was 30%.
Legal entities are subject to an additional rate of 4.1% on any amount that may be considered
indirect income, including, among others, amounts charged to expenses and unreported
income, expenses which may have benefited the shareholders or workers, among others,
outside business expenses or shareholders participation, which are assumed by the legal entity.
Legal entities not domiciled in Peru and individuals, will pay a 4.1% tax on distributed
dividends.
(iii) Transfer pricing
For the purposes of income tax calculation and Value Added Tax in Peru, legal entities
engaged in transactions with related companies or with companies resident in territories with
low or no taxation, shall: (a) file an annual affidavit for transfer pricing information when the
amount of their transactions with related parties being greater than S/.200,000 (b) have a
Transfer Pricing Technical Study, including the supporting documentation for this study. This
formal obligation arises when the amount of accrued income exceeds S/.6,000,000 and the
entity has conducted transactions with related companies for an amount over S/.1,000,000.
Both formal obligations will also be required in the event that at least one transaction to, from
or through countries with low or no taxation had been made.
F-49
Based on the analysis of Grupo Continental's operations, management and internal legal
advisors believe that the implementation of these standards will not generate contingencies
relevant to Grupo Continental as of December 31, 2013.
(b)
Cost basis. It is established that the cost basis should be supported with the
corresponding receipt validly issued. In the case of real estate acquired by financial
leasing or lease-back, cost basis will increase with subsequent costs incorporated to the
asset, according to accounting standards.
Depreciation. The depreciation percentage must be applied to the result from the
addition of subsequent costs incurred, to the value of acquisition, production and
construction. These are defined as any costs incurred with respect to an asset which has
been affected to the generation of taxable income, which, pursuant to accounting rules,
must be recognized as cost.
The deductible amount or maximum deductible will be the amount referred to in the
previous paragraph, unless the last deductible period is greater than the value of the asset
to be depreciated, in which case, the latter will be deducted.
Non-deductible expenses. Expenses constituted by the difference between the par value
of a credit originated between related parties and its transfer value to third parties that
assume the debtors credit risk are not deductible.
In the event that these credit transfers generate accounts receivable in favor of the
transferor, any provisions and/or write-offs for noncolletion of these accounts do not
constitute a deductible expense.
Staff training expenses. The limit to the deduction of staff training expenses is
eliminated.
Vehicle expenses. Limit for deduction of expenses incurred in vehicles of some truck
categories is included.
F-50
Technical Assistance. With respect to the application of the 15% rate, the requirement to
have a sworn declaration from the company providing the service its eliminated. The
requirement to have a report issued by an auditing firm, certifying the provision of
technical assistance services, has been set forth only for services, which total
consideration exceeds 140 UIT (tax units) in effect on the date when the agreement was
entered into.
Monthly payments on account. There has been a reduction from 2% to 1.5% with respect
to the aliquot applicable under the percentage system, and the system used in the
calculation of payments on account has been modified. The modification involves
making a monthly advance payment in the amount which is greater between the
comparison of the amount resulting from the application the factor system with the
amount resulting from the application of the 1.5% percentage. The possibility of
changing the percentage based on the May monthly advance payment has been
incorporated, and on the basis of the results shown by the statement of income as of
April 30, applying the factor resulting from the said financial statement. Specific
provisions have been issued for the case of advance payments between August and
December 2012, since this modification came into force as from the August 2012
payment on account.
Reorganization of societies. New presumptions have been established for fixed assets
voluntary reevaluation with no taxable effect, this does not admit proof to the contrary
and intends to tax the profit that would be distributed. Regarding simple demergers and
reorganizations in which it is agreed not to reevaluate assets integrating the transferred
equity block, presumptions have been established. These intend to tax the potential
equity that would arise from the difference between market value and computable cost
of transferred assets. In the case of voluntary reevaluations with taxable effect, taxable
income as a result of reorganizations shall not be offset with tax losses from entities
taking part of the reorganization.
Finally, by means of Law No. 30050 - Ley de Promocin del Mercado de Valores (Law for
the Promotion of the Securities Market) and Law No. 30056 - Ley que facilita el impulso y el
desarrollo productivo y crecimiento empresarial (Law Enabling the Promotion and Productive
Development and Business Growth), certain sections of the Ley del Impuesto a las Ganancias
(Income Tax Law) have been amended in order to enable transactions in the stock exchange
market, or in relation to expenses in projects of scientific and technologic investigation, as
well as technological innovation, credit for training expenses, among others, which shall be
effective mainly in 2014.
(c)
2013
2012
Current tax
Deferred tax
Income Tax (recovery provision)
500,391
(11,764)
(9,870)
484,727
(58,591)
13,605
478,757
439,741
F-51
(d)
Tax Situation
The income tax returns of the Bank and subsidiaries pending review by the tax administration
are as follows:
Years subject to
tax inspections
Companies
BBVA Banco Continental
Continental Bolsa Sociedad Agente de Bolsa S.A.
BBVA Asset Management Continental Sociedad Administradora
de Fondos
Continental Sociedad Titulizadora S.A.
Inmuebles y Recuperaciones Continental
2009 to 2013
2009 / 2011 to
2013
2012 to 2013
2009 to 2013
2009 / 2011 to
2013
The Tax Administration (SUNAT, for its Spanish acronym) is authorized to perform reviews
within four years following the year of submittal of the corresponding income tax. At present,
the SUNAT is auditing the statement of the period 2008 of BBVA Banco Continental, and it
will start inspection of the 2009 fiscal period. In addition, the inspection of fiscal period 2010
of Continental Bolsa - Sociedad Agente de Bolsa S.A. and Inmuebles y Recuperaciones
Continental 2010, and period 2011 of BBVA Asset Management Continental Sociedad
Administradora de Fondos has been completed. Management considers that no significant
liabilities will arise from the pending reviews.
Due to possible interpretations that tax authorities may make on legal regulations in force, it is
not possible to determine whether liabilities for Grupo Continental will result from future
reviews, so that any eventual higher tax or charge that might result from fiscal reviews will be
charged to the net income (loss) for the year in which they are determined. However,
Management considers that no potential additional settlement of taxes would be significant for
the consolidated financial statements as of December 31, 2013.
F-52
19.
2013
Beginning
balance
Assets
General allowance for loans losses
General allowance for indirect loans losses
Allowance for assets seized and recovered though
legal actions
Specific allowance for indirect loans
Allowance for sundry expenses and others
Provision for benefit employees
Base differences, depreciation rates and others
Non-accrual interest
Additions / Recoveries
Profit for
the period
Equity
Ending
balance
278,019
19,913
34,020
2,794
312,039
22,707
4,828
2,894
7,722
2,345
56,430
37,487
656
5,809
646
9,898
(771)
1,275
1,333
2,991
66,328
36,716
1,931
7,143
405,487
52,089
457,576
Liabilities
Cash flow hedge
Available-for-sale investments
Other
Leveling of assets and liabilities
3,681
16,287
5,457
1,333
(3,437)
-
39,563
681
1,333
244
55,850
6,138
Total liabilities
25,425
(2,104)
40,244
63,565
380,062
2,104
11,845
394,011
Total assets
Beginning
balance
S/.000
Additions / Recoveries
Profit for
Equity
the period
S/.000
S/.000
Ending
balance
S/.000
Assets
Allowance for sundry expenses and others
Provision for benefit employees
268
37
(88)
7
180
44
Total assets
305
(81)
224
Liabilities
Available-for-sale investments
5,769
(1,892)
3,877
Total liabilities
5,769
(1,892)
3,877
5,464
(1,892)
81
3,653
F-53
In thousands of S/.
2012
Additions / Recoveries
Beginning
balance
Assets
General allowance for loans losses
General allowance for indirect loans losses
Allowance for assets seized and recovered through
legal actions
Specific allowance for indirect loans
Allowance for sundry expenses and others
Provision for benefit employees
Base difference, depreciation rates and others
Non-accrual interest
Profit for
the period
Equity
Ending
balance
244,527
16,143
33,492
3,770
278,019
19,913
6,948
(2,120)
4,828
2,141
29,438
24,134
565
5,809
204
26,993
13,353
91
-
2,345
56,430
37,487
656
5,809
329,705
75,782
405,487
Liabilities
Available-for-sale investments
Other
Leveling of assets and liabilities
2,123
4,668
1,558
-
16,287
789
3,681
16,287
5,457
Total liabilities
6,791
1,558
17,076
25,425
322,914
(1,558)
58,706
380,062
Total assets
Additions / Recoveries
Beginning
balance
Equity
Profit for
the period
Ending
balance
S/.000
S/.000
S/.000
S/.000
Assets
Allowance for sundry expenses and others
Provision for benefit employees
386
34
(118)
3
268
37
Total assets
420
(115)
305
Liabilities
Available-for-sale investments
5,758
11
5,769
Total liabilities
5,758
11
5,769
5,338
11
115
5,464
F-54
2013
380,062
2,104
11,845
322,914
(1,558)
58,706
394,011
380,062
2013
In thousands of S/.
Deferred tax recognized:
Deferred tax at the beginning of the year
(Credit) charge to equity
(Credit) charge to profit for the year
Deferred tax liabilities at the end of the year
20.
2012
2012
5,464
(1,892)
81
5,338
11
115
3,653
5,464
2,226,473
498,297
1,944,232
780,538
2,724,770
2,724,770
1,304,302
1,245,545
0.48
0.46
F-55
21.
In thousands of S/.
2012
Assets:
Cash and due from banks
Loan portfolio
Other assets
22,406
43,271
102,708
34,551
3
241,929
Liabilities:
Deposits and obligations
Debts
Other liabilities
251,699
414,276
540,075
50,569
128,010
7,790,585
5,625,232
Contingent accounts
Transactions of Grupo Continental with related companies have been carried out during the normal
course of operations and subject to the same conditions that would have been applied for third
parties.
Transactions with related companies, included in the consolidated statement of income for the
periods ended December 31, 2013 and December 31, 2012, are comprised as follows:
2013
In thousands of S/.
Finance income
Finance expenses
Other income (expenses), net
10
(6,444)
(73,120)
2012
21
(10,437)
(52,380)
Personnel Loans
As of December 31, 2013 and 2012, directors, executives and employees of Grupo Continental
maintain permitted operations with the Bank in accordance with the General Law, which regulates
and establishes certain limits on transactions with directors, executives and employees of banks in
Peru. As of December 31, 2013 and 2012, direct loans to employees, directors, executives and key
personnel amounted to S/.379 and S/.314 million, respectively.
In addition, as of December 31, 2013, key staff salaries and director salaries amounted to S/.11
million (S/.10 million as of December 31, 2012).
F-56
F-57
22.
ASSETS
Total
In thousands of S/.
1,133,998
556,746
50,268
506,478
577,252
-
50,201,845
11,824,204
25,156
38,245,327
18,433
88,725
Loans and
receivables
3,355
3,355
3,355
-
At amortized
cost (*)
3,080,566
3,080,566
50,054
3,030,512
-
At fair value
Available-for-sale
443,993
443,993
443,993
-
Held-tomaturity
26,789
26,789
-
Hedging
derivatives
F-58
651,244
Total
Trading
160,810
39,592
121,218
490,434
-
ASSETS
Initially
designated as at
FVTPL
In thousands of S/.
44,590,431
12,641,028
32,408
31,770,125
8,248
138,622
Loans and
receivables
2,757
2,757
2,757
-
At amortized
cost (*)
2,286,377
2,286,377
62,999
2,223,378
-
At fair value
Available-for-sale
436,829
436,829
436,829
-
Held-tomaturity
158,878
158,878
-
Hedging
derivatives
F-59
375,293
375,293
Total
43,913,573
764,991
10,956,815
-
31,956,803
234,964
At amortized
cost
556,349
556,349
Other liabilities
414,820
414,820
Other liabilities
Hedging
derivatives
51,918
51,918
-
Hedging
derivatives
(*) As of December 31, 2013, due to banks and other financial obligations include S/.2,969 million with changes in fair value, which are hedged with hedging derivatives at fair value.
Initially designated
as at FVTPL
-
Trading
50,119,170
939,620
12,082,512
-
36,479,904
617,134
At amortized
cost
LIABILITIES
561,001
Total
561,001
-
Initially designated
as at FVTPL
-
Trading
-
LIABILITIES
In thousands of S/.
23.
Credit Risk
The risk management system applied by Grupo Continental is based on a corporate governance
scheme where Grupo BBVA determines the policies for management and control of retail and
wholesale credit risks, which are adapted to local regulations and reality.
The risks areas organizational structure for credit risk management is as follows:
(i)
The Strategy and Risk Planning unit manages credit risks through the definition of strategies,
preparation of metrics and calculation of parameters for the establishment of policies
throughout the business cycle, from admission to follow-up and recovery, where applicable, in
order to maintain the portfolios creditworthiness duly controlled thus assuring a sustained
profitability consistent with capital consumption.
(ii)
The Technology and Methodology units function is to provide solutions and support on this
matter to guarantee an ongoing evaluation and qualification that will allow maintaining the
creditworthiness of Grupo Continentals portfolio.
(iii) In Retail Risks the admission of loans is qualified through tools that assess each clients
profile, payment capacity as well as their credit behavior both in the Bank and in the Financial
System. For follow-up management purposes, statistical information is used in order to detect
high-risk samples for which proactive actions are proposed to regularize the clients payment
behavior and avoid future noncompliance.
(iv)
F-60
The wholesale portfolio is analyzed in the origination phase. During the Admission phase, the loan
granting scheme is strengthened on the basis of three Pillars: Risk Quality, Service Quality and
Quickness regarding Attention through the strengthening of internal codes of behavior. The Followup Phase is aimed at identifying alerts for potential loan impairment at an early and current stage.
Finally, the Recovery management is aimed at arranging payment agreements with the client, from
refinancing through payment in kind or execution of guarantees.
General principles that govern the credit risk management of Grupo BBVA and that have been
adopted by Grupo Continental are as follows:
(a)
Risks assumed shall be adjusted to the General Risk Policy set forth by the Management of
Grupo Continental, within the framework of corporate and local regulations.
(b)
Risks assumed shall be proportional to the level of regulatory capital and to the generation of
recurrent results of Grupo Continental, prioritizing the diversification of risks and avoiding
relevant concentrations.
(c)
Risks assumed shall be identified, measured and valued, and procedures and strong
mechanisms shall be in place for follow-up and management, control and mitigation of those
risks.
(d)
Risks shall be managed in a prudent and integrated manner during their life cycle by applying
different treatments depending on their typology.
(e)
The borrowers payment capacity to honor all of its financial obligations assumed both in
terms of time and in terms of form, is the main criterion considered in assigning credit risks.
(f)
Retail risk management shall be based on tools integrating management policies and strategies
and that will allow automating decision-making processes.
On the basis of principles referred-to above, Grupo Continental has prepared a risk management
policy based on the classification of risks and clients; a framework of limits, delegation standards,
specific work prior to the admission of risks, and an ongoing follow-up and control process.
The Risks area is responsible for defining the action framework for the establishment of target
quality of portfolios. Therefore, focal points that are to be limited include: per type of product,
channel (means for attracting new clients either through the network of offices or massive
campaigns), geographical area, economic sector, as well as groups with historical higher risks
(profiles); to that end, risk concentration limits are set both individually and per sectors, in
accordance with the regulatory capital of the Bank and/or Consolidating Group.
The individual risk concentration follows local regulation guidelines considering the application of
legal limits to financing set forth in the General Law and in specific regulations on the matter issued
by the SBS. Such limits are controlled based on regulatory capital percentages and the type of
guarantees, and on the risk criteria to control financing per economic groups according to regulatory
guidelines.
The Risks area defines minimum information requirements for adequate follow-up and control of
portfolios, Asset Allocation, concentration reports, excess reports, among others.
F-61
In thousands of S/.
2012
ASSETS
Cash and due from banks
Inter-bank funds
Investments at fair value through profit or loss
Available-for-sale investments
Held-to-maturity investments
Loan portfolio
Trading derivatives
Hedging derivatives
Receivables
Other assets
11,824,204
25,156
556,746
3,083,921
443,993
38,245,327
577,252
26,789
18,433
88,725
12,641,028
32,408
160,810
2,289,134
436,829
31,770,125
490,434
158,878
8,248
138,622
Total
54,890,546
48,126,516
Collateral received
Collateral requested may be a necessary instrument; however, collateral are not sufficient for risk
concession purposes and their acceptance is supplemental to the credit process that demands and
considers above all prior verification of the debtors payment capacity or ability to generate
sufficient resources that will allow for the amortization of risks contracted in compliance with
conditions agreed.
Collateral management and valuation procedures are contained in Internal Manuals on Credit Risk
Management Policies and Procedures (retail and non-retail portfolios), which provide for basic
principles for credit risk management purposes and also include the management of guarantees
received in transactions with clients that are aimed at assuring the adequate documentation and
registration of guarantees with the corresponding registry, as well as the existence of the respective
insurance policies.
The valuation of collateral is governed by prudent valuation criteria that imply the use of appraisals
in real estate collateral, market prices in stock market values, quotation value of investments in
investment funds, etc. Under these valuation criteria are established the guidelines to updating the
market value of guarantees and it could be even more restrictive than the local standard that are
taking into account.
F-62
As of December 31, 2013 and 2012, the distribution of loans per type of collateral is as follows:
In thousands of S/.
2013
2012
%
Mortgages
Other guarantees
Financial lease
Stand by letter of credit received
Self-liquidating preferred assets (customer deposits receive as
collateral)
Pledges (vehicles, industrial, agricultural mortgages, among
others)
Warrants of products and goods
13,662,536
12,765,998
4,335,166
418,654
34
32
11
1
11,100,551
10,020,757
4,165,190
433,071
34
30
13
1
337,883
307,512
315,638
28,404
1
-
218,731
19,523
1
-
Secured loans
31,864,279
80
26,265,335
80
7,929,983
20
6,755,402
20
39,794,262
100
33,020,737
100
Unsecured loans
Total loans
F-63
F-64
(1,089,779)
25,028,998
Total net
Loss
236,233
253,082
Doubtful
26,118,777
305,672
Substandard
Gross portfolio
131,801
13,985
CPP
940,773
Loss
Normal
Doubtful
Impaired
11,260
CPP
Substandard
8,834
Normal
20,094
Doubtful
Loss
405,226
24,752,684
25,157,910
Non-retail
loans
Substandard
CPP
Normal
In thousands of S/.
1,539,629
(126,450)
1,666,079
85,369
58,861
43,936
188
188,354
20
20
57,971
1,419,734
1,477,705
Small and
micro
business loans
3,056,670
(400,940)
3,457,610
113,227
114,591
67,018
294,836
96,368
3,066,404
3,162,772
8,380,358
(171,438)
8,551,796
55,023
78,772
110,299
272
244,366
497
497
150,362
8,156,571
8,306,933
38,005,655
(1,788,607)
39,794,262
506,701
488,457
526,925
131,801
14,445
1,668,329
11,758
8,855
20,613
709,927
37,395,393
38,105,320
Total
100
(5)
105
98
100
19,730,260
(874,853)
20,605,113
168,229
161,841
213,315
88,628
10,481
642,494
5,198
2,663
7,861
328,711
19,626,047
19,954,758
Non-retail
loans
1,692,870
(90,017)
1,782,887
47,878
42,207
34,889
32
10
125,016
90,097
1,567,774
1,657,871
Small and
micro
business loans
The loan portfolio is segmented into Non past-due or impaired, Past-due but not impaired and Impaired; a detail follows:
3,038,587
(358,718)
3,397,305
68,482
114,742
82,912
266,138
125,871
3,005,292
3,131,163
7,093,934
(141,498)
7,235,432
38,923
71,202
92,956
203,081
378
378
174,200
6,857,773
7,031,973
31,555,651
(1,465,086)
33,020,737
323,512
389,992
424,072
88,662
10,491
1,236,729
5,577
2,666
8,243
718,879
31,056,886
31,775,765
Total
100
(5)
105
98
101
Impairment criteria
Debtor with payment delay over 90 days.
Debtor classified as: substandard, doubtful or loss.
Debtor classified as: substandard, doubtful or loss
Situation of refinanced or restructured loans.
Specific provisions related to transactions that as of December 31, 2013 have been typified as pastdue but not impaired loans , and impaired loans amount to S/.582 million.
During 2013 and 2012, transactions of clients classified as past-due but not impaired loans, and as
impaired loans, have generated finance income amounting to
S/.100 and S/.85 million, respectively.
As of December 31, 2013 and 2012, guarantees of past-due and not impaired loans, and impaired
loans, amount to S/.924 and S/.635 million, respectively, out of which S/.764 and S/. 528 million
correspond to mortgages.
Past-due loans not impaired as of December 31, 2013 and 2012 amount to S/.21 and S/.8 million,
respectively. Below is a breakdown of loans referred-to above per days of delay:
In thousands of S/.
Days of delay
16- 30
Total
16- 30
Total
Type of credit
Corporate
Large-sized companies
Medium-sized companies
Subtotal
Small companies
Consumer loans
Mortgage loans
Subtotal
Total
33
11,534
667
7,077
25
758
725
19,369
24
2,753
63
92
4,703
49
177
136
92
7,633
11,567
7,744
783
20,094
2,777
4,858
226
7,861
20
2
497
20
2
497
3
378
1
-
4
378
519
519
381
382
11,567
8,263
783
20,613
2,777
5,239
227
8,243
F-65
Loans written-off
The change in the written-off loan portfolio is as follows:
2013
In thousands of S/.
2012
Beginning balance
Write-offs
Decreases:
Cash recoveries
Waived loans
Sale of portfolio
Other
22,478
-
22,618
1,098
(372)
(512)
(6,834)
457
(708)
(307)
(223)
Ending balance
15,217
22,478
Risk concentrations
The loan portfolio is distributed per economic sector as follows:
2013
In thousands of S/.
2012
%
12,009,407
7,327,627
7,219,306
2,812,902
2,436,053
1,224,867
1,204,586
1,084,405
904,683
580,000
2,990,426
30
18
18
7
6
3
3
3
2
2
8
10,632,738
5,877,536
5,529,589
2,540,325
2,105,357
598,128
1,049,974
1,041,856
764,371
365,790
2,515,073
32
18
17
8
6
2
3
3
2
1
8
Total
39,794,262
100
33,020,737
100
F-66
F-67
Total
Total
Peru
Rest of South America
Europe
Rest of the world
Mexico
United States
In thousands of S/.
1,133,998
(2,716)
-
1,136,714
998,541
11,059
98,562
7,166
21,386
38,263,760
(1,859,447)
270,988
(31,316)
39,883,535
39,600,382
144,807
37,082
179,981
3,368
20,915
Loans and
receivables
3,083,921
3,083,921
3,083,284
607
30
-
Available-forsale
443,993
443,993
443,993
-
Held-to-maturity
26,789
26,789
2,603
24,186
Hedging
derivatives
44,574,952
44,574,952
44,023,200
145,414
50,774
278,543
10,534
66,487
Total
F-68
335,561
12,679
220,055
14,309
71,738
654,342
(3,098)
651,244
Total
Total
Peru
Rest of South America
Europe
Rest of the world
Mexico
United States
In thousands of S/.
31,778,373
(1,539,102)
245,070
(30,596)
33,103,001
32,786,194
113,481
36,868
117,862
28,272
20,324
Loans and
receivables
2,289,134
2,289,134
2,245,214
607
30
43,283
Available-forsale
436,829
436,829
436,829
-
Held-to-maturity
158,878
158,878
158,878
Hedging
derivatives
36,642,184
36,642,184
35,803,798
114,088
49,577
337,917
42,581
294,223
Total
Market Risks
(a)
Market risk
Market risk arises as a result of market activities through financial instruments which value may be
affected by changes in market conditions, reflected in changes in the different financial risk assets
and factors. The risk may be mitigated and even eliminated through hedges with other products
(assets/liabilities or derivatives), or by undoing the open transaction/position.
There are three major risk factors that affect market prices: interest rates, exchange rates and
variable interest.
x
Interest rate risk: This risk arises as a result of variations in the time structure of market
interest rates for different foreign currencies.
Exchange risk: This risk arises as a result of variations in the exchange rate between different
currencies.
Price risk: This risk arises as a result of changes in market prices either due to factors specific
to the instrument itself or to factors affecting all of instruments traded in the market.
Additionally, and for specific positions, it is necessary to consider other risks as well: credit spread
risk, base risk, and volatility or correlation risk.
VaR (Value at Risk) is the basic variable to measure and control the Banks market risk. This risk
measurement estimates the maximum loss with a specific reliance level that may be produced in the
market positions of a portfolio for any given period of time. The Bank calculates the VaR under the
parametric method with a reliance level of 99% and a one-day timeline; the data period taken is one
year.
The market risk limit structure determines a scheme of limits for VaR (Value at Risk) and
Economic Capital per market risk, as well as specific ad-hoc sub-limits per type of risks, among
others.
Likewise, validity tests are conducted for risk measurement models used that estimate the maximum
loss that may arise in positions with a particular likelihood level (back testing), as well as impact
measurements of extreme market movements in risk positions maintained (stress testing). Currently,
the stress analysis is conducted over historical crisis scenarios.
The Banks market risk for 2013 has increased versus 2012. This increase is due to the higher
position in certificates of deposits with Banco Central de Reserva Del Peru and sovereign bonds.
F-69
In thousands of S/.
9,755
9,480
2,739
8,537
10,640
6,552
2012
6,552
6,345
587
6,324
7,672
4,901
The stress analysis is conducted on the basis of historical crisis scenarios that take as reference:
x
x
Per type of market risk assumed by the trading portfolio, at the end of 2013, the main risk was the
interest rate risk, and the exchange rate risk to a lesser extent.
The parametric VaR market risk model is periodically validated through back testing. In 2013, the
Banks portfolio losses did not exceed the daily VaR at all. This number of exceptions is within the
bands set in Basel model use tests. Therefore, no significant changes have been made either in
measurement methodologies or in the parameterization of current measurement model.
(b)
The banking books interest rate risk management is aimed at maintaining BBVA Continentals
exposure before variations in market interest rates at levels consistent with its risk profile and
strategy. To that end, the Assets and Liabilities Committee (hereinafter referred-to as ALCO)
performs an active management of the banking book through operations aimed at optimizing the
risk level assumed, in relation to expected results, that allow meeting maximum tolerable risk levels.
ALCOs activities are based on interest rate risk measurements made by the Risks area that, acting
as an independent unit, periodically quantifies the impact of the variation in interest rates on the
Banks margin of interests and the economic value.
In addition to the sensitivity measurements made for 100- basis point variations in market interest
rates, the Bank prepares probabilistic calculations that determine the economic capital (maximum
loss in the economic value) and the margin at risk (maximum loss in the interest margin) per
structural interest rate risk of the banks banking activity excluding treasury activities, on the basis
of interest-rate curve simulation models. Stress tests are periodically conducted to complete the
evaluation of the Banks interest rate risk profile.
All these risk measurements are subject to analysis and subsequent follow-up, transferring risk
levels assumed ant the level of compliance with authorized limits to the Banks different
management and administration bodies.
F-70
F-71
10%
8.10%
33.20%
12.10%
nov-13
42.30%
nov-13
10.50%
34.10%
9.90%
oct-13
45.30%
oct-13
9.20%
33.60%
11.50%
sep-13
40.40%
sep-13
9.40%
31.80%
8.40%
ago-13
41.30%
ago-13
11.40%
31.20%
3.90%
jul-13
43.80%
jul-13
10.70%
31.20%
6.30%
jun-13
42.20%
jun-13
11.10%
32.40%
6.30%
may-13
45.60%
may-13
12.60%
25.80%
31.20%
apr-13
40.20%
apr-13
53.20%
30.90%
44.40%
march-13
38.20%
march-13
51.70%
31.5%
46.00%
feb-13
44.30%
feb-13
43.40%
35.00%
49.00%
jan-13
47.80%
jan-13
In the measurement process, the Bank has set hypotheses on the evolution and the behavior of certain items, such as those relating to products without explicit or contractual maturity. These
hypotheses are supported by studies that determine the approximate relation between interest rates of these products and market interest rates and allow for the disaggregation of specific
balances into trend balances, with long-term maturity, and seasonal or volatile balances, with short-term residual maturity.
10%
25%
2013
5%
2013
Consumption of alerts
Consumption of limits
Below is a detail of the Banks structural interest rate risk levels during 2013 (information available until November 2013):
(c)
Liquidity risk
Liquidity risk control, follow-up and management activities are aimed at, in the short-term, assuring
the compliance with the entitys payment commitments on a timely basis and as agreed, without
having to resort to borrowing funds under burdensome terms or impair the entitys image and
reputation. In the medium-term, the purpose of these activities is to guarantee the adequacy of the
financial structure and its evolution within the context of economic situation, markets and
regulatory changes.
The Banks liquidity risk management and structural financing are based on the principle of
financial autonomy with regard to Grupo BBVA. This management approach contributes to the
prevention and limitation of liquidity risks by reducing the Banks vulnerability in high risk periods.
The management and monitoring of liquidity risk is carried out comprehensively using a double
(short- and long-term) approach. The short-term liquidity approach, with timelines of up to 365
days, is focused on the management of payments and collections of market activities, and includes
the own operations of the treasury area and the potential liquidity needs of the entity as a whole. The
second approach (medium-term or financing) is focused on the financial management of assets and
liabilities, with a timeline of one year or more.
The integral management of liquidity risks is the responsibility of the Assets and Liabilities
Committee (ALCO), and the Finance Management unit, within the Finance area, analyses the
implications of the entitys different projects, in terms of financing and liquidity, and their
compatibility with the target financing structure and the situation of financial markets. Accordingly,
Finance Management, in accordance with budgets approved, carries out the proposals agreed by
ALCO and manages the liquidity risk based on a wide scheme of limits, sub-limits and alerts, duly
approved, as to which the Risks Area carries out independent measurement and control-related tasks
thus providing the manager with supporting tools and metrics for decision-making purposes.
Periodical measurements of risks incurred and the follow-up of consumption of limits are carried
out from the structural, liquidity and market risk unit, which reports the liquidity risk levels to
ALCO on a monthly basis, and, more often, to management units itself. The periodicity of
communication and the amount of information are decided by the Liquidity Committee at the
proposal of the Technical Liquidity Group (TLG) which, in the event of any signal of alert or
possible crisis, conducts the first analysis of the entitys short-term or long-term liquidity situation.
The TLG is made up of technical staff from the Short-Term Cash Desk of the Treasury, Financial
Management and Structural and Liquidity Risk areas. If the alert signals established make clear that
a situation of tension has arisen, the TLG informs the Liquidity Committee (made up of Assistant
General Managers of the corresponding areas and the Director General Manager).
Further, on regulatory matters, the Basel Bank Supervision Committee has proposed a new liquidity
regulation scheme based on two ratios: Liquidity Coverage Ratio (LCR) that will be effective from
2015 and Net Stable Funding Ratio (NSFR) that will be implemented effective 2018. Both the Bank
and Grupo BBVA as a whole participated in the corresponding quantitative impact study (QIS) and
have gathered the new regulatory challenges in their general action framework on Liquidity and
Financing matters. At the local level, the SBS has also implemented the follow-up of the LCR
(Liquidity Coverage Ratio) by following the general guidelines of the Basel Committee adapted to
Peruvian reality. The measurement of this LCR indicator began effective December 2013 and it is
calculated on a daily basis.
F-72
F-73
502,127
15,018,588
Total
LIABILITIES
Total
2,991,657
5,083,327
24,560
-
6,391,761
25,156
Available-for-sale investments
Held-to-maturity investments
Loan portfolio
Trading derivatives
Hedging derivatives
Up to 1
month
ASSETS
In thousands of S/.
375,274
135,626
-
464,881
182,774
31,423
414,820
58,322
5,066,679
187,751
9,263,966
1,186,585
923,326
7,107,955
46,100
617,134
11,033,320
4,368,028
868,058
675,514
2,824,456
-
Up to 1 month
4,609,997
549
2,049
4,396,550
30,489
-
180,360
-
Over 3 months
and under 6
months
Over 1 month
and under 3
months
7,001,126
5,599
5,950,382
82,175
-
962,970
-
Over 1 month
and under 3
months
1,664,604
348,259
64,068
-
19,845
1,232,432
1,232,432
-
Over 3 months
and under 6
months
3,769,976
3,508,194
30,741
-
231,041
-
Over 6
months and
under 1
year
1,721,956
471,426
25,894
-
2,986
1,221,650
1,221,650
-
690,928
690,928
-
Past-due and
in litigation
26,861,835
6,048,619
180,306
25,868
-
264,157
20,342,885
10,164,960
7,724,493
2,453,432
-
8,571,496
51,598
436,345
7,857,452
220,870
5,231
Over 5
years
Over 6 months
and under 1
year
16,889,297
40,117
12,578,417
191,133
21,558
4,058,072
-
Over 1 year
and under 5
years
4,856,939
4,656,160
123,684
26,050
102
50,943
50,943
-
Over 5 years
54,619
54,619
No
contractual
maturity
established
51,205,333
12,082,512
561,001
51,918
414,820
58,424
939,620
36,479,904
12,219,603
9,323,333
14,890,868
46,100
617,134
Total
56,606,027
3,083,921
443,993
40,065,250
579,968
26,789
556,746
11,824,204
25,156
Total
As new liquidity reports became effective from December 31, 2013, the SBS established new guidelines in the distribution of assets and liabilities per residual terms, which include items with
contractual maturity and those items that have been distributed through the establishment of assumptions. The distribution of assets and liabilities per maturity as of December 31, 2013 is as
follows, including for loan portfolio and deposits their respective accrued interest:
Operational risk
Grupo Continental has designed an operational risk management model for all business and
supporting areas, by using methodologies and procedures for the identification, evaluation and
follow-up of these types of risks according to the related risk appetite and tolerance, thus reducing
their impact on the organization.
Such management is carried out through operational risk management committees in each area/unit,
made up of staff responsible for the management of processes and with the ability to make decisions
to change those processes. Each area/unit counts on an Operational Risk Manager/Expert (ORM)
who coordinates all the tasks.
On the basis of information available in the different tools implemented in each unit, the
Operational Risk Management Committee holds periodical meetings at the request of the ORM, and
makes timely mitigation decisions taking into account the cost of such decisions. The Operational
Risk Management unit is responsible for the coordination of committees referred-to above, the
follow-up of mitigation plans and the implementation of corporate management tools.
In 2013, Grupo Continental calculated the regulatory capital per operational risk by using the
alternative standard method, upon authorization of the SBS, as renewed for an indefinite period of
time in 2013.
The gradualness of the 80% effective until June 30, 2014 allows requiring capital for S/.233 million,
as of December 31, 2013. In comparison to the basic method, savings of 42% are obtained by
applying the alternative standard method for capital calculation.
As to tools is concerned, tools cover both qualitative and quantitative aspects. STORM (Support
Tool for Operational Risk Management), a tool that allows identifying and valuing operational risk
factors per macro-processes and processes, is annually updated. Additionally, through SIRO, a
database of operational risk events, the occurrence of events is identified in a detailed manner per
business line and per type of risk, determining the corresponding causes, which allows establishing
timely mitigation measures thus keeping a systematic record.
24.
F-74
In cases where a quoted value is not available, fair value is estimated based on a quoted value of a
financial instrument with similar characteristics, the present value of expected cash flows or other
valuation techniques, which are significantly affected by different assumptions. Even though
management uses its best criteria to estimate fair value of its financial instruments, there are
weaknesses inherent to any technical valuation. As a consequence, fair value might not be an
approximate estimation of net realizable value or value of liquidation.
Considerations as to the methodology and assumptions used in estimating the fair value of financial
instruments of Grupo Continental include:
(a)
(b)
(c)
F-75
Carrying value and the fair value of financial assets and liabilities
Taking into account fair value considerations above and Multiple Official Letter N 1575-2014SBS, whereby the SBS determined that the fair value for loans and deposits is equivalent to carrying
value, as of December 31, 2013, the carrying and fair values of financial assets and liabilities are as
follows:
2013
In thousands of S/.
Carrying
value
Fair value
11,824,204
25,156
556,746
55,094
501,652
3,083,921
53,409
3,030,512
443,993
38,245,327
577,252
26,789
18,433
88,725
11,824,204
25,156
556,746
55,094
501,652
3,083,921
53,409
3,030,512
489,654
38,245,327
577,252
26,789
18,433
88,725
Total
54,890,546
54,936,207
36,479,904
617,134
36,479,904
617,134
939,620
939,620
12,082,512
561,001
51,918
414,820
12,336,620
561,001
51,918
414,820
51,146,909
51,401,017
Liabilities
Obligations to the public
Inter-bank funds
Deposits with financial system companies and international
financial organizations
Due to banks and other financial obligations
Trading derivatives
Hedging derivatives
Payables
Total
F-76
Financial instruments at fair value, and information about the fair value hierarchy
Assets and liabilities recorded at fair value according to their fair value hierarchy level are as
follows:
In thousands of S/.
2013
Fair value
Level 1
Level 2
Level 3
ASSETS
Investments at fair value through profit or loss
Capital instruments
Debt instruments
Available-for-sale investments
Representative capital instruments
Representative debt instruments
Trading derivatives
Hedging derivatives
556,746
55,094
501,652
3,080,566
50,054
3,030,512
577,252
26,789
556,746
55,094
501,652
3,080,566
50,054
3,030,512
-
577,252
26,789
Total
4,241,353
3,637,312
604,041
LIABILITIES
Due to banks and other financial obligations
Trading derivatives
Hedging derivatives
2,968,951
561,001
51,918
2,968,951
561,001
51,918
Total
3,581,870
3,581,870
F-77
F-78
Derivatives
Options
Level 2
Forwards Points
Fixed vs. variable quotes
Closing exchange rates.
25.
SUBSEQUENT EVENTS
We are not aware of any subsequent events, having occurred from the financial statements closing
date to date of this report that could significantly affect the financial statements.
_____________________________________________________________________________________
F-79
F-80
Pages
F-82
F-81
F-84
F-85
F-86
F-87
F-88
Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with accounting principles generally accepted in Peru for
financial entities and for such internal control as management determines is necessary to
enable the preparation of consolidated financial statements that are free from material
misstatements, whether due to fraud or error.
Auditors Responsibility
3.
4.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on the
auditors judgment, including the assessment of the risks of material misstatements of the
consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers the internal control relevant to Grupo Continental in its
preparation and fair presentation of the consolidated financial statements in order to design
audit procedures that are appropriate for the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of Grupo Continentals internal control. An audit
also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements.
Deloitte se refiere a una o ms de las firmas miembros de Deloitte Touche Tohmatsu Limited, una compaa
privada del Reino Unido limitada por garanta, y su red de firmas miembros, cada una como una entidad nica e
independiente y legalmente separada. Una descripcin detallada de la estructura legal de Deloitte Touche Tohmatsu
Limited y sus firmas miembros puede verse en el sitio web www.deloitte.com/about.
" Deloitte Touche Tohmatsu Limited es una compaa privada limitada por garanta constituida en Inglaterra & Gales
bajo el nmero 07271800, y su domicilio registrado: Hill House, 1 Little New Street, London, EC4A 3TR, Reino
Unido
F-82
5.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our audit opinion.
Opinion
6.
In our opinion, the consolidated financial statements referred to above, present fairly, in all
material respects, the consolidated financial position of BBVA Banco Continental and
Subsidiaries as of December 31, 2012 and 2011, its consolidated financial performance and
its consolidated cash flows for the years then ended, in accordance with accounting
principles generally accepted in Peru for financial entities.
Other matter
7.
The translation of this report into English has been made solely for the convenience of the
English-speaking readers.
F-83
F-84
15
The accompanying notes are an integral part of these consolidated financial statements.
TOTAL ASSETS
2,886,773
31,770,570
2,461
685,044
374,598
1,295,971
5
6
7
21
8
32,408
26,994,897
111,537,752
6,405,142
144,937,791
163,890,393
42,242,407
30,428,282
125,534,651
7,927,460
49,689,202
2,587,154
28,922,025
2,231
603,600
317,577
1,033,508
241,459
8,534,853
12,641,377
10
7,963,377
462,668
102,100
4,556
2,152
2011
S/.000
12,003,050
519,231
109,378
5,280
4,438
INTER-BANK FUNDS
INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND
LOSS AND HELD TO MATURITY INVESTMENTS
LOANS PORTFOLIO, NET
INVESTMENTS IN ASSOCIATED COMPANIES
PROPERTY, FURNITURE AND EQUIPMENT, NET
DEFERRED INCOME TAXES
OTHER ASSETS
2012
S/.000
Notes
ASSETS
163,890,393
30,428,282
125,534,651
7,927,460
49,689,202
144,937,791
26,994,897
111,537,752
6,405,142
42,242,407
3,705,063
4,228,337
38,537,344
45,460,865
1,944,232
609,365
22,279
1,129,187
125,515
4,770,203
1,985,859
1,163,296
307,034
30,185,437
8,888,960
7,115,244
13,999,076
145,065
37,092
2011
S/.000
234,964
7,156,782
3,800,033
1,449,576
764,991
32,054,519
9,237,771
8,005,259
14,535,134
159,161
117,194
2012
S/.000
2,226,473
722,352
33,743
1,245,769
13
10
11
12
8
Notes
SHAREHOLDERS EQUITY
Capital Stock
Legal Reserve
Unrealized results
Retained Earnings
TOTAL LIABILITIES
INTER-BANK FUNDS
DUE TO BANKS AND CORRESPONDENTS
SECURITIES, BONDS AND OUTSTANDING OBLIGATIONS
OTHER LIABILITIES
FINANCIAL INCOME
Interest and fees from loans
Income from changes in fair value, revenue, interests and gain
on sales of investment
Interest from deposits in financial institutions
Foreign exchange difference from various transactions, net
Share profit from associates investments
Adjustment for indexation
Interest and commissions from inter-bank funds
Gain from hedging transactions, net
Other
Notes
2012
S/.000
2011
S/.000
6 (a)
3,025,837
2,549,276
226,178
76,878
297,804
909
12,460
1,400
97,356
5,352
130,530
64,610
296,298
744
20,418
2,094
9,527
24,173
3,744,174
3,097,670
(542,392)
(259,624)
(38,391)
(136,295)
(43,174)
(10,103)
(10,036)
(202)
(3,627)
(432,210)
(175,601)
(33,068)
(85,809)
(81,323)
(8,044)
(14,665)
(4,505)
(1,043,844)
(835,225)
2,700,330
2,262,445
(944,023)
498,729
(763,613)
486,949
(445,294)
(276,664)
2,255,036
1,985,781
169,968
507,176
151,160
480,839
677,144
631,999
2,932,180
2,617,780
5
4
3
FINANCIAL EXPENSES
Interest on deposits
Interest on obligations with financial institutions and international financial organizations
Premium paid to "Fondo de Seguro de Depsito" (Deposit Insurance Fund)
Interest on securities, bonds and outstanding obligations
Results from trading financial derivatives, net
Interest and commissions for inter-bank funds
Adjustment for indexation
Foreign exchange difference from financial derivatives
Other
9
11
12
15 (b)
10
6 (d)
6 (d)
16
Operating Margin
OTHER EXPENSES AND INCOME
Employees and Board of Directors expenses
Administrative expenses
Provisions for accounts receivable
Provisions for foreclosed and recovered assets
Provisions for contingent operations
Other provisions
Depreciation and amortization
Income from recovery from previously written-off portfolio
Other expenses and income, net
17
18
15(a)
7
19
20 (c)
(553,934)
(553,932)
(29,050)
7,090
(51,094)
(7,762)
(73,234)
13,191
1,831
(507,131)
(471,824)
(37,543)
(10)
(44,323)
(2,601)
(65,705)
20,582
(67)
(1,246,894)
(1,108,622)
1,685,286
1,509,158
(439,741)
(380,170)
1,245,545
1,128,988
2,226,473
2,226,473
0.56
0.51
22
The accompanying notes are an integral part of these consolidated financial statements.
F-85
F-86
The accompanying notes are an integral part of these consolidated financial statements.
91
722,352
2,226,473
609,365
1,944,232
112,896
-
282,241
-
100,725
-
508,640
Reserves
S/.000
(Note 13)
100,805
-
1,843,427
Capital
Stock
S/.000
(Note 13)
33,743
11,464
-
22,279
(2,242)
-
24,521
Unrealized
Results
S/.000
(Note 13)
1,245,769
1,245,545
(282,241)
(112,896)
(733,826)
1,129,187
1,128,988
(100,805)
(100,725)
(805,797)
1,007,526
Retained
Earnings
S/.000
(Note 13)
4,228,337
11,464
91
1,245,545
(733,826)
3,705,063
(2,242)
1,128,988
(805,797)
3,384,114
Total
S/.000
2011
S/.000
1,245,545
1,128,988
445,294
73,234
(7,090)
29,050
51,094
7,762
(58,285)
(6,395)
276,664
65,705
10
37,543
44,323
2,601
(50,047)
(15,758)
(3,431)
(1,816)
(297,408)
241,537
(360,009)
(9,198)
1,720,907
1,119,006
(176,130)
(7,063)
30,589
(233,196)
(7,875)
22,019
(152,604)
(219,052)
2,436,488
2,386,579
1,814,174
(3,293,839)
(280,726)
(733,506)
4,220,741
(242,995)
115,530
(5,194,540)
(312,497)
(805,662)
2,329,170
(2,219,423)
3,897,473
(1,319,469)
8,776,312
10,095,781
12,673,785
8,776,312
The accompanying notes are an integral part of these consolidated financial statements.
F-87
F-88
(c) Explanation added for translation into the English language of the original
consolidated financial statements issued in Spanish
The accompanying financial statements have been translated into English for convenience
of English-speaking readers. In the event of a discrepancy, the Spanish language version
prevails.
2.
Segregation of financial income and expenses in the income statements, from other
income or expenses originating from treasury operations.
Record and presentation of financial lease loans for the disbursed amount.
The additional disclosures required by the new Accounting Manual will be applicable as
from December 31, 2013, and their comparative information will be disclosed as may be
applicable.
All accounting adjustments that result from the application of the changes to the
Accounting Manual will be charged to retained earnings as of January 1, 2013.
Management is of the opinion that the la application of the changes to the Accounting
Manual will not have a material impact upon its consolidated financial statements from
2013 onwards.
(a.3) Standards and interpretations approved by the CNC for adoption in Peru
By means of Resolution No. 047-2011-EF/30, issued on June 17, 2011, the CNC approved
to formalize for application in Peru, as from January 1, 2012, the 2010 version of IAS,
IFRS, IFRIC and SIC, adopted by the IASB at the international level.
CNC, through Resolution No. 048-2011-EF/30 dated January 6, 2012, approved the
formalization for application in Peru, as from the day following publication, the 2011
version of IFRS, IAS, IFRIC and SIC issued internationally by the IASB.
CNC, through Resolution No. 051-2011-EF/30 dated August 29, 2012, approved the
formalization, the 20121 version of IFRS, IAS, IFRIC and SIC which will substitute the
standards relating to the 2011 version, approved by the CNC, in accordance with the
respective effective date contained in each of the standards formalized via this resolution.
(a.4) New Accounting Pronouncements approved internationally
The following standards and interpretations have been issued internationally as of
December 31, 2012 and 2011:
-
The management of Grupo Continental considers that the application of the changes to the
Accounting Manual, will not have a material impact on its Consolidated Financial
Statements.
(b) Consolidation Basis
Grupo Continental is comprised by companies controlled and by a special purpose entity
(SPE).
F-91
49,714
42,254
45,486
38,549
4,228
3,705
65
44
32
14
33
30
51
2
48
2
7
-
9
-
44
2
39
2
20
1,490
25
1,129
5
1,490
8
1,129
15
-
17
-
F-92
The most important estimates and sources of uncertainty related with the preparation of
Grupo Continental's consolidated financial statements refer to:
- Investments at fair value through profit and loss, available for sale investments and
investments in associates.
- Provision for loan losses.
- Other assets and contingent claims.
- Provision for sundry accounts receivable.
- Provision for foreclosed assets.
- Useful life assigned to property, furniture and equipment.
- Register of contingent liabilities.
- Deferred income taxes.
- Financial derivatives.
(d) Preparation and presentation currency
Grupo Continental prepares and presents its consolidated financial statements in Nuevos
Soles (S/.), which is the currency of the main economic environment in which the entity
operates.
(e) Allowance for loan losses
The allowance for loan losses is determined in accordance with the criteria and percentages
established by SBS Resolution No. 11356-2008 Regulations for the Evaluation and
Classification of a Debtor and the Required Provision.
The SBS has established quantitative criteria (sales and borrowing levels in the financial
system) and qualitative criteria for the classification of the direct and indirect loan portfolio
according, as follows:
(i)
Corporate
This category will additionally consider the following:
(a) Multilateral Development Banks
(b) Sovereign
(c) Public sector entities
(d) Stock brokers
(e) Financial System Companies
(ii) Large businesses
(iii) Medium businesses
(iv) Small businesses
(v) Micro-enterprises
(vi) Revolving consumer loans
(vii) Non-revolving consumer loans
(viii) Mortgage loans
F-93
Provisions for indirect loans are calculated after adjusting balances through the application of
the following credit conversion factors:
Conversion
Factor
Indirect loans
(a) Confirmed irrevocable letters of credit of up to one year, when the issuing
bank is a first class financial system company.
20%
50%
(c) Issuance of guarantees, import letters of credit and stand-by letters not
included in paragraph "b)", and confirmations of letters of credit not
included in paragraph "a)" and bank acceptances.
100%
0%
100%
Debtors are classified and are provisioned for loan losses within the following categories:
normal, with potential problems, substandard, doubtful and loss.
The provision for loan losses includes the general and specific portions. The specific
portion estimated for commercial loans is calculated based on percentages set by the SBS,
which vary depending on the customers classification and the type of guarantee received.
General provisions include those with respect to debtors classified as normal in accordance
with the requirements of the SBS, as well as general voluntary provisions.
Mandatory general provisions are determined based on percentage rates that include a fixed
component and a variable component (pro-cyclical) and vary depending on the type of loan.
The rule for determining the pro-cyclical component is activated or deactivated upon
communication of the SBS, which depends upon a periodical measurement of annual
percentage variations (in moving averages) in the actual Gross Domestic Product of Peru
(GDP) published by Banco Central de Reserva del Peru (BCRP).
Voluntary general provisions have been determined by the Bank based on the economic
situation of customers within the refinanced and restructured loan portfolio, prior
experience and other factors that, in Managements opinion, may result in possible losses in
the loan portfolio. The amount of the voluntary general provision is reported to SBS.
The Management of Grupo Continental reviews and analyzes the non-retail loan portfolio
classifying debtors according to the assessment of their cash flows, global indebtedness
with third parties and level of compliance with the payment of such debts. Retail loan
portfolio (small business, micro-business, revolving consumer, non-revolving consumer
and mortgage loans) is classified and provisioned in accordance with the delay in loan
payments and takes into account the classification of the debtors by other financial entities.
F-94
Additionally, pursuant to SBS Resolution No. 041-2005, the Bank assesses the exposure to
credit exchange risks for loans in foreign currency.
The minimum percentages required for loan provisions are as follows:
Normal Category
Types of Loans
Corporate loans
Corporate loans with customer deposit guarantees
Large business loans
Large business loans with customer deposit
guarantees
Medium business loans
Small business loans
Micro business loans
Revolving consumer loans
Non-revolving consumer loans
Revolving consumer loans under eligible agreements
Mortgage loans
Mortgage loans with customer deposit guarantees
Fixed
Component
Procyclical
Component
0.70%
0.70%
0.70%
0.40%
0.30%
0.45%
0.70%
1.00%
1.00%
1.00%
1.00%
1.00%
1.00%
0.70%
0.70%
0.30%
0.30%
0.50%
0.50%
1.50%
1.00%
0.25%
0.40%
0.30%
As of December 31, 2012 and 2011, the pro-cyclical component for the provision for loan
losses was in place (Multiple Official Letter No. B-2193-2010-SBS).
Other risk categories and per type of guarantee are as follows:
Risk Category
No
Guarantee
5.00%
25.00%
60.00%
100.00%
Preferred
Guarantee
2.50%
12.50%
30.00%
60.00%
Readily liquid
preferred
guarantees
1.25%
6.25%
15.00%
30.00%
Financial lease operations are recorded as loans in accordance with SBS rules and IAS 17.
The initial recording of transactions is made based on the gross value of the loan, composed
of principal, interest, commission and other financing concepts as agreed with the customer,
the difference between the gross amount of the loan and value of the goods, is recognized
as unearned interest and commission, presented net of loans and recognized as income on
an accrual basis.
F-95
F-96
(h) Investments at fair value through profit and loss and held to maturity
investments
The investment portfolio is classified and valued in accordance with SBS Resolution No.
10639-2008 which approved the Regulations for Classification and Valuation of
Investment of Financial System Companies and amendments.
(h.1) Investments at fair value through profit or loss
Investments maintained for sale in the short-term, having a pattern of making short-term
gains or having been designated by the Bank in this category since its initial recording are
valued at fair value. The gain or loss on the valuation or sale of these investments is
recorded in the consolidated statements of income.
(h.2) Available-for-sale investments
This category includes all investments instruments that are not classified as investments at
fair value through profit or loss, held to maturity investments or investments in associates.
These securities are initially recorded at the fair value, including any transaction costs
which will be directly attributable to the acquisition of such investments. Any subsequent
measurement of such investments will be made at fair value and the gainor loss from the
fluctuation of the fair value of the investment instrument classified in this category, will be
directly recognized in equity, until such time as the instrument is sold or realized, when,
any profit or loss previously recognized in equity, is transferred and recorded in the
consolidated statements of income, except for the impairment losses that are recorded in
the consolidated statements of income (Note 2(m)).
(h.3) Held-to-maturity investments
This category includes the investment instrument that meet the following requirements: (i)
were acquired or reclassified with the intention of being held them until maturity and for
which the Bank has the financial capacity to maintain them until maturity, and (ii) are
classified by at least two local or foreign risk credit rating agencies and they must be within
the parameters set by the SBS.
These securities are initially recorded at the fair value, including any transaction costs
which will be directly attributable to the acquisition of such investments. Thereafter, the
measurement of these investments is performed on the basis of the amortized cost, using the
effective interest rate. Any impairment losses of value are recognized in the consolidated
statements of income (Note 2(m)).
(i)
Investments in associates
It comprises the capital values acquired by the Bank for the purpose of having equity
participation. These investments are initially recorded at acquisition cost and subsequently
valued using the equity method.
F-97
(j)
Property, plant and equipment are recorded at cost, which includes acquisition-related
disbursements and are presented net of accumulated depreciation. Annual depreciation is
expensed, and determined on a cost basis using the straight-line method based on the
estimated useful life of assets, as follows:
Years
Buildings
Facilities
Leasehold improvements
Furniture and equipment
Vehicles
33
33 - 10
10
10 - 4
5
The disbursements subsequently incurred wich are related to assets the cost of which can be
reliably measured and from which it is likely that future economic benefits will be obtained
from such asset, are capitalized or recognized as property, furniture and equipment.
Disbursements for maintenance and repairs are expensed during the period as incurred.
When a fixed asset is sold or disposed of, the corresponding cost and accumulated
depreciation are eliminated in the accounts and the resulting gain or loss is recognized in
the consolidated statements of income.
Banks are prohibited from using fixed assets as collateral except for assets acquired under
financial leasing transactions.
(k) Realizable assets and assets recovered through legal actions
Seized assets are included in Other assets.
Seized assets are initially recorded at the lower of the market value or the unpaid value of
the debt based on the value assigned through legal proceedings or out of court settlements.
Assets recovered by resolution of contract are initially recorded at the lower of the
outstanding debt or the net realizable value. If the outstanding debt value is greater, the
difference is recognized as a loss, if there is no probability of recovery.
In addition, the Bank records the following provisions on seized assets:
-
For buildings, a monthly impairment allowance is recorded effective from the 12th
month following the acquisition or recovery, which shall be constituted over a term of
42 months or less, based on the net value obtained during the 12th month. Likewise, the
net carrying amount of real estate is annually compared to the realization value
determined by an independent appraiser, and if this value is lower, an impairment
provision is constituted.
F-98
(l)
For assets other than buildings, the remaining balance is provisioned within a term no
longer than 12 months.
Intangible assets
Intangible assets with finite useful lives are recorded at acquisition cost less accumulated
amortization and accumulated impairment losses. Amortization is recognized as an expense
and is determined under the straight-line method based on the estimated useful life of the
assets, represented by equivalent depreciation rates. The useful life of these assets has been
estimated between to be 1 and 5 years.
Costs related with developing or maintaining computer software are recognized as expenses
when incurred. Costs directly related to unique and identifiable software products
controlled by Grupo Continental which are likely to generate economic benefits for more
than a year are recognized as intangible assets.
The costs incurred in developing computer programs recognized as assets are amortized
over their estimated useful lives.
(m) Impairment loss
When there are events or economic changes indicating that the value of an asset might not
be recoverable, management reviews the book value of these assets at each balance sheet
date. If, after this analysis, the book value of the asset exceeds its recoverable amount, an
impairment loss is recognized in the statement of income. Recoverable amounts are
estimated for each asset.
(n) Due to banks and correspondents Securities, bonds and outstanding obligations
Due to banks and correspondents and securities issuances (corporate, subordinate and
leasing bonds) are recorded at their nominal value or at their fair value with changes in
results. Interest earned is recognized in the consolidated statement of income. Any
discounts granted on the premiums generated during their placement are deferred and
amortized during the effective term of the related liabilities.
(o) Provisions
Provisions are recognized only when the Bank has a present obligation (legal or implicit) as
a result of a past event, it is probable that resources will be required to settle the obligation,
and the amount of the obligation can be reliably estimated. Provisions are reviewed
periodically, and adjusted to reflect the best estimate as of the balance sheet date. When the
effect of the time value of money is material, the amount recorded as a provision is equal to
the present value of future payments required to settle the obligation.
(p) Contingent liabilities and assets
Contingent liabilities are not recognized in the consolidated financial statements but are
disclosed in a note to the financial statements, except when the likelihood of an outflow of
F-99
resources to cover a contingent liability is remote. Contingent assets are not recognized in
the consolidated financial statements but are disclosed in the notes to the consolidated
financial statements when it is probable that there will be an inflow of resources.
Items previously treated as contingent liabilities are recognized in the consolidated financial
statements in the period in which the change in probabilities occurs; that is when it is
determined to be likely, or virtually certain, that an outflow of resources will take place.
The amounts treated as contingent assets are recognized in the financial statements in the
period in which it is determined that it is virtually certain to produce an inflow of resources.
(q) Employees benefits
(q.1) Employees profit sharing
The Bank recognizes a liability and an expense for employees profit sharing on the basis of
5% of the tax base determined in accordance with current tax legislation.
In the case of the subsidiaries, according to legal regulations, there will be no determination
of employee profit sharing, since the number of employees of each subsidiary does not
exceed 20.
(q.2) Employees vacations and other employees benefits
Employees annual vacations paid absences and other employees benefits are recognized
on the accrual basis. Provisions for annual vacations, paid absences and other benefits to
employees resulting from services rendered by employees are recognized at the
consolidated balance sheet date.
(q.3) Accrual for seniority indemnities
The accrual for seniority indemnities comprises all the liabilities related to employees
vested rights according to the current legislation. Payments are deposited mainly at the
Bank, which is the financial institution elected by the employees.
(r) Income and expense recognition
Interest income and expenses and commissions from services are recognized in the
consolidated statements of income on an accrual basis in the period related to the relevant
transaction.
Interest on past-due loans, refinanced loans, restructured loans, and under legal collection
loans, as well as interests on loans classified as doubtful or loss, are recognized in the
consolidated statements of income when collected.
When the debtors financial condition is determined to have improved, thus eliminating the
uncertainty as to the recoverability of principal, the interest is again recorded on an accrual
basis.
F-100
Foreign currency transactions are translated at the closing exchange rate established by the
SBS at the transaction date.
Exchange gains and losses from the settlement of monetary items denominated in foreign
currency, or from the adjustment of assets and liabilities for exchange rate variations after
initial recording, are recognized as an income or an expense in the consolidated statement
of income for the period during which such gains or losses arise.
(t)
Income Tax
Current and deferred income tax, are recognized in profit or loss included in the
consolidated statement of income, except when they related to items recognized in equity
accounts, in which case, the current income and deferred tax is also recognized in equity
accounts.
Current income tax is calculated using tax rates that have been enacted by current tax laws
to net taxable income for the year. Current tax income is recognized as an expense for the
period.
Deferred income taxes liabilities are recognized for all taxable temporary differences
arising from comparing the book values of assets and liabilities to their tax basis, regardless
of when such temporary differences are expected to be reserved. Deferred income taxes
assets are recognized for deductible temporary differences, arising from comparing the
book values of assets and liabilities to their tax basis, to the extent that it is probable that
Grupo Continental will have future taxable income against which the deductible temporary
differences can be applied, within the established time-limit, in accordance with law. Assets
and liabilities are measured using the income tax rate enacted or substantially in effect at
the related consolidated balance sheet date expected to be applied to the taxable income in
the year in which the liabilities are settled or the assets are recovered.
(u) Dividend distributions
Dividend distributions are recognized as a liability in the consolidated financial statements
in the year when the dividends are approved by Grupo Continentals shareholders.
(v) Basic and diluted earnings per share
Basic earnings per share were computed by dividing the consolidated net income by the
weighted-average number of ordinary shares outstanding during each year. Since Grupo
Continental does not have financial instruments with diluting effects, basic and diluted
earnings per share are the same.
F-101
Description of Standard
Publication
Date
Effective Date
Resolution 9605-2012
29/12/2012
January 2013
Circular B-2205-2012
29/12/2012
January 2013
Circular B-2206-2012
29/12/2012
January 2013
Resolution 9076-2012
05/12/2012
December 2012
Resolution 9075-2012
05/12/2012
December 2012
Resolution 8548-2012
09/11/2012
January 2013
F-102
Resolution 8181-2012
25/10/2012
January 2013
Resolution 7197-2012
20/09/2012
November 2012
Resolution 7036-2012
19/09/2012
January 2013
Resolution 7033-2012
19/09/2012
January 2013
Resolution 7068-2012
19/09/2012
September 2012
Resolution 3127-2012
31/05/2012
June 2012
F-103
3.
2011
US$000
2,601,244
2,470,364
25,557
23,882
6,335,369
73,347
5,492,616
50,447
Total
Liabilities:
Obligations to the public and deposits from financial
institutions
Inter-bank funds, due to banks and correspondents
Securities, bonds and outstanding obligations
Other liabilities
9,035,517
8,037,309
5,354,582
2,696,646
1,038,520
69,455
5,652,696
1,645,567
335,590
68,893
Total
9,159,203
7,702,746
(123,686)
334,563
45,438
(279,084)
(78,248)
55,479
Most of the assets and liabilities in foreign currency are denominated in U.S. dollars. As of
December 31, 2012, the exchange rate established by the SBS for these amounts in Nuevos
Soles (S/.) was S/.2.55 per US$1.00 (S/.2.696 as of December 31, 2011).
In 2012, Grupo Continental recorded foreign exchange gains amounting to S/.297.6 million
(S/.296.3 million in 2011), which are presented in the Foreign Exchange difference from
various transactions, net item in the consolidated statement of income.
The revaluation percentages of the Peruvian Nuevo Sol as compared to the U.S. Dollar,
calculated were 5.42% and 4.02% for 2012 and 2011, respectively; the inflation
percentages, in accordance with the Indice de Precios al Por Mayor, Domestic Wholesale
Price Index (IPM for its Spanish acronym), were -0.59% and 6.26% for 2012 and 2011,
respectively.
F-104
4.
2011
S/.000
Cash
Peruvian Central Bank - BCRP
Banks and other local financial entities
Foreign Banks and other foreign financial entities
Clearing accounts
Other deposits
Accrued interest on cash and due from banks
1,670,898
10,332,152
197,876
321,355
109,378
5,280
4,438
1,392,647
6,570,730
120,521
342,147
102,100
4,556
2,152
Total
12,641,377
8,534,853
As of December 31, 2012, cash and due from banks includes approximately US$2,429
million and S/.2,496 million (US$2,214 million and S/.1,833 million as of December 31,
2011) which represent the legal reserve that Peruvian entities must maintain as a guarantee
of third party deposits. These funds are deposited in Banks vaults and in BCRP.
Special reserve funds, representing the legal minimum, which is 9%, do not bear interest.
Special reserve funds corresponding to the additional reserve required in foreign currency
and domestic currency, bear interest at an annual nominal rate set by the BCRP. As of
December 31, 2012, interest income was S/.33.5 (S/.20.8 million as of December 31, 2011),
included in the category Interest from deposits in financial institutions of the consolidated
statement of income. Pursuant to legal provisions in force, special reserves cannot be
seized.
As of December 31, 2012 and 2011, cash and due from banks included restricted funds for
S/.1.2 million required in connection with legal proceedings against the Bank to guarantee
any potential liabilities generated by these lawsuits.
5.
2011
S/.000
2,289,134
436,829
160,810
2,071,277
431,279
84,598
Total
2,886,773
2,587,154
F-105
2011
S/.000
1,971,223
225,871
47,763
26,277
17,993
7
1,421,368
580,946
31,192
24,736
12,979
56
2,289,134
2,071,277
436,829
431,279
115,632
24,694
39,223
5,586
369
-
43,461
5,540
10,903
160,810
84,598
Held-to-maturity investments
Peruvian Treasury Bonds (b)
Investments at fair value through profit and loss
(a) BCRP certificates of deposits are freely tradable securities in domestic currency, with
maturities due up to May 2014, which were acquired in public auctions or secondary
markets. As of December 31, 2012, the annual interest rate of these certificates ranged
between 3.79% and 4.20% (between 3.95% and 4.24% as of December 31, 2011).
(b) Treasury bonds are issued by the Peruvian Government. As of December 31, 2012
those bonds accrued annual interest at rates between 1.00% and 5.11% (1.00% and
6.55% at December 2011) in local currency and 6.57% in foreign currency (5.14%
and 6.57% as of December 31, 2011), and terms of up to February for both periods.
(c) As of December 31, 2012, mainly included stocks listed in the Lima Stock Exchange
(BVL) for a total value of S/.36.4 million (S/.19.8 million at December 2011).
(d) Peruvian Treasury Global bonds are in foreign currency. They accrued annual interest
at the rate of 3.69% (4.88% at December 2011) and a term of up to March 2037 (term
up to November 2033 at December 2011).
F-106
(e) As of December 31, 2012 and 2011, investments in Mutual Funds relate to the
participation units maintained by Grupo Continental in the various mutual funds
managed by BBVA Asset Management Continental S.A. Sociedad Administradora de
Fondos.
The investment portfolio has the following schedule of maturities:
2012
S/.000
2011
%
S/.000
Up to 1 month
More than 1 month and up to 3 months
More than 3 months and up to 6 months
More than 6 months and up to 1 year
More than 1 year and up to 5 years
More than 5 years
No contractual maturity
101,595
1,207,626
94,203
286,048
414,423
677,530
105,348
4
42
3
10
14
23
4
367,944
460,088
241,113
352,223
224,019
848,595
93,172
14
18
9
13
9
33
4
Total
2,886,773
100
2,587,154
100
F-107
6.
2011
S/.000
11,761,407
7,148,709
4,585,583
3,274,544
2,656,836
1,048,364
3,063,952
37
23
15
10
8
3
10
11,023,578
5,842,095
4,601,173
2,766,925
2,375,187
968,416
2,939,218
38
20
16
10
8
3
10
33,539,395
106
30,516,592
105
245,070
226,464
33,784,465
107
30,743,056
106
(518,658)
-2
(544,133)
-2
33,265,807
(30,668)
(1,464,569)
105
-5
30,198,923
(26,964)
(1,249,934)
104
-4
31,770,570
100
28,922,025
100
10,250,869
8,687,388
F-108
2012
Placements in
S/.
US$
%
%
2011
Placements in
S/.
US$
%
%
9.40
9.59
23.01
9.34
9.85
23.40
7.62
8.66
15.29
7.35
8.98
16.20
(b) The loan portfolio under the segmentation established by SBS Resolution No. 113562008 is as follows:
2012
S/.000
Medium business
Mortgage
Large business
Corporate
Consumer
Small business
Stock brokers
Micro business
Financial system companies
Public sector entities
Other
Total
2011
S/.000
9,335,339
7,235,433
6,618,530
4,382,493
3,397,306
1,595,010
307,077
241,248
231,196
174,927
20,836
28
21
20
13
10
4
1
1
1
1
-
8,207,285
5,913,334
6,425,048
4,537,883
2,873,116
1,403,849
393,293
230,918
190,555
293,693
47,618
27
19
21
15
9
5
1
1
1
1
-
33,539,395
100
30,516,592
100
(c) The credit risk classification of the Banks loan portfolio in accordance to the SBS
standards is summarized as follows:
Direct loans
S/.000
%
Normal
With potential problems
Substandard
Doubtful
Loss
2012
Indirect loans
S/.000
%
Total
S/.000
Direct loans
S/.000
%
2011
Indirect loans
S/.000
%
Total
S/.000
31,060,046
810,700
420,600
384,170
314,553
95
2
1
1
1
10,083,460
131,613
20,958
6,540
8,298
98
1
1
-
41,143,506
942,313
441,558
390,710
322,851
95
2
1
1
1
28,488,684
580,981
321,139
293,888
260,803
95
2
1
1
1
8,575,045
66,037
31,769
10,005
4,532
99
1
-
37,063,729
647,018
352,908
303,893
265,335
96
2
1
1
-
32,990,069
100
10,250,869
100
43,240,938
100
29,945,495
100
8,687,388
100
38,632,883
100
518,658
518,658
544,133
544,133
30,668
30,668
26,964
26,964
33,539,395
10,250,869
43,790,264
30,516,592
8,687,388
39,203,980
F-109
2011
S/.000
10,632,738
5,953,832
5,648,424
2,605,520
2,226,933
1,061,542
1,051,168
778,987
705,837
618,088
2,256,326
32
18
17
8
6
3
3
2
2
2
7
8,786,449
5,190,967
5,577,385
2,363,157
2,115,384
857,404
860,912
966,620
627,120
883,776
2,287,418
29
17
18
8
7
3
3
3
2
3
7
Total
33,539,395
100
30,516,592
100
(d) As of December 31, 2012 and 2011, the change in the allowance for loan losses was:
2012
S/.000
2011
S/.000
Balances as of January 1
Provisions
Recoveries and reversals
Write-offs
Sale of portfolio
Foreign exchange differences and other adjustments
1,249,934
944,023
(458,043)
(1,098)
(251,987)
(18,260)
1,049,352
763,613
(443,836)
(2,051)
(102,942)
(14,202)
Balances as of December 31
1,464,569
1,249,934
Management considers that level of the provision for loan losses is adequate to cover
potential losses in the portfolio as of the consolidated balance sheet date. All
provisions of the current norm have been complied with. As of December 31, 2012,
the general provision of loan portfolio of S/.926.7 million (S/.815.1 million at
December 2011) includes pro-cyclical provisions of S/.142.8 million (S/.129.7 million
at December 2011). Grupo Continental also maintains voluntary provisions of S/.529
million and S/.453 million as of December 31, 2012 and 2011, respectively.
During 2012, Grupo Continental sold a fully provisioned portfolio for approximately
S/.212.7 million (S/.301.4 million during 2011). The selling price was S/.20.1 million
(S/.23.7 million as of December 31, 2011), recorded in the Other Income, net in the
consolidated statement of income.
F-110
2011
S/.000
Up to 1 month
More than 1 month and up to 3 months
More than 3 months and up to 6 months
More than 6 months and up to 1 year
More than 1 year and up to 5 years
More than 5 years
Past due and in legal collection loans
4,055,321
4,839,106
3,160,508
3,806,832
10,869,748
6,408,603
399,277
12
15
10
11
32
19
1
3,340,867
4,481,635
3,361,886
3,982,563
10,105,495
4,964,436
279,710
11
15
11
13
33
16
1
Total
33,539,395
100
30,516,592
100
F-111
F-112
7.
103,694
100,293
Additions
Disposal
Adjustments or other
Additions
Disposal
Adjustments or other
Net Cost:
Balance as of December 31, 2012
103,694
3,401
-
Accumulated depreciation :
Balance as of January 1, 2011
Additions
Disposal
Adjustments or other
100,293
6,788
1,858
Additions
Disposal
Adjustments or other
91,647
Cost:
Balance as of January 1, 2011
Land
S/.000
197,425
271,100
328,348
27,747
(805)
301,406
22,883
467
278,056
599,448
20,733
79,884
498,831
36,633
16,395
445,803
Buildings and
Facilities
S/.000
156,878
170,954
164,537
32,938
(14)
3,736
127,877
33,523
(4)
(2,164)
96,522
335,491
56,275
(14)
(5,525)
284,755
86,813
(4)
(1,013)
198,959
Furniture
and
Equipment
S/.000
1,161
1,119
3,897
674
-
3,223
789
(170)
2,604
5,016
632
-
4,384
(178)
4,562
Vehicles
S/.000
74,942
104,813
37,055
11,319
(516)
26,252
8,510
(539)
18,281
141,868
11,383
29,291
101,194
14,214
7,302
79,678
Facilities and
Leasehold
Improvements
S/.000
65,170
26,734
26,734
73,752
(112,188)
65,170
72,574
(29,149)
21,745
Work in
Progress
S/.000
7,731
6,630
6,630
9,954
(11,055)
7,731
16,174
(8,598)
155
Receivable
and
substituting
units
S/.000
603,600
685,044
533,837
72,678
(14)
2,415
458,758
65,705
(4)
(2,406)
395,463
1,218,881
176,130
(14)
(19,593)
1,062,358
233,196
(4)
(13,383)
842,549
Total
S/.000
Grupo Continental maintains current insurance coverage for its main assets, according to
policies established by Management.
8.
2011
S/.000
652,410
320,518
237,886
59,434
446,160
353,410
159,486
39,578
16,132
8,248
1,343
15,773
17,758
1,343
Total
Other liabilities:
Other provisions (e)
Accounts payable for derivatives (Note 15(b))
Suppliers
Transactions in process (c)
Dividends and employees' profit sharing payable
Other accounts payable
Provision for indirect loans (Note 15 (a))
Deferred income
Other
1,295,971
1,033,508
397,180
375,293
280,640
132,236
88,596
79,489
70,119
15,646
10,377
398,492
326,129
195,340
21,834
77,949
59,530
60,457
14,653
8,912
Total
1,449,576
1,163,296
(a) Corresponds mainly to the tax credit on the acquisition of assets for financial leasing,
which is recovered via invoicing of installments to the customers.
(b) As of December 31, 2012, the balance is mainly comprised of deferred charges by S/.76.8
million (S/.64.3 million as of December 31, 2011), S/.159.7 million (S/.86.8 million as of
December 31, 2011) of prepaid income tax.
(c) Transactions in process primarily refer to transactions carried out during the last days of
the month, which are reclassified in the next month to their specific accounts in the
balance sheet. These transactions do not affect the net income of Grupo Continental.
(d) As of December 31, 2012 and 2011, other accounts receivable were net of
accumulated provisions of S/.81.1 million and S/.81.9 million, respectively.
F-113
(e) Other provisions mainly include among others, provisions for litigation, claims, and
provisions for staff. As of December 31, 2012 and 2011, Grupo Continental had
several pending lawsuits litigation and other processes that are related to the activities
carried out, which in the opinion of Management and legal counsel, no additional
provisions are needed. Therefore, as of December 31, 2012 and 2011, Management
had not considered it necessary to make a provision higher than what is recorded for
these contingencies and processes in Other Liabilities on the consolidated balance
sheet, which amounted to S/.209.1 million and S/.207.5 million, respectively.
Below is the change of the Other Provisions account:
2012
S/.000
9.
2011
S/.000
Balance as of January 1
Provisions
Recoveries
Other
398,492
6,531
(786)
(7,057)
405,788
2,485
(385)
(9,396)
Balance as of December 31
397,180
398,492
2011
S/.000
32,054,519
764,991
30,185,437
307,034
Total
32,819,510
30,492,471
Obligations to the public include restricted deposits received as collateral from debtor
customers forming part of Grupo Continentals loan portfolio for S/.546.7 million in
domestic currency, and US$114 million in foreign currency (S/.540.2 million and US$111
million, respectively, as of December 31, 2011).
F-114
Obligations to the public and deposits from financial institutions have the following
maturities:
2012
S/.000
Up to 1 month
More than 1 month and up to 3 months
More than 3 months and up to 6 months
More than 6 months and up to 1 year
From 1 to 5 years
More than 5 years
Total
2011
S/.000
9,692,069
5,429,558
3,351,128
4,388,732
9,587,466
370,557
30
17
10
13
29
1
9,765,343
5,859,745
2,171,311
2,034,700
8,848,155
1,813,217
32
19
7
7
29
6
32,819,510
100
30,492,471
100
Interest rates on deposits and other obligations accounts are established by Grupo
Continental, based on current market interest rates. The prevailing annual interest rates
were as follows:
2012
Accounts in
S/.
US$
%
%
2011
Accounts in
S/.
US$
%
%
Checking Accounts
Savings Deposits
Time Deposits and CBME
Superdeposits
0.00-1.20
0.20-2.00
0.501.35
1.00-1.35
0.00-0.60
0.125-1.00
0.10-1.15
0.45-1.00
0.00-1.20
0.25-2.00
0.50-1.35
1.00-1.35
0.00-0.60
0.125-1.00
0.10-1.15
0.45-1.00
Severance deposits
2.75-4.00
0.50-3.50
2.75-4.00
0.50-3.50
F-115
2011
S/.000
4,876,093
1,278,644
2,545,968
1,287,790
445,894
433,500
57,417
65,234
336,126
539,200
30,000
31,119
Total
7,156,782
4,770,203
Some of the loan agreements include standard covenants regarding attainment of financial
ratios, the use of funds and other administrative matters. In Managements opinion, as of
December 31, 2012 and 2011, these covenants are being adequately abided by in all regards
and they do not represent any sort of restriction to Grupo Continentals operations.
F-116
Balances as of
December 31, 2012
US$000
S/.000
Balances as of
December 31, 2011
US$000
S/.000
Due Dates
491,446
369,425
1,253,187
942,034
366,077
986,944
200,000
510,000
200,000
539,200
164,955
420,634
110,000
296,560
Standard Chartered
122,197
311,602
58,000
156,368
80,000
70,000
70,000
55,000
204,000
178,500
178,500
140,250
60,000
161,760
Sumitomo Bank
China Development
Bank
Bank of Nova Scotia
Bank of Montreal
55,000
50,000
140,250
127,500
50,000
134,800
39,000
25,000
99,450
63,750
Commercebank NA
Bank of New York
Toronto Dominion
Bank
BBVA Madrid
25,000
25,000
24,000
63,750
63,750
61,200
19,831
50,569
15,263
11,000
77
-
38,921
28,050
196
-
273
100,000
736
269,600
1,912,194
4,876,093
944,350
2,545,968
(i)
January 2017
November
2020
October 2040
January
2013/October
2013
January
2013/October
2013/May
2014
January 2013
April 2013
January 2013
October
2017/June
2018
January 2013
December
2016
January 2013
March 2014
May 2014
January 2013
January 2013
and April 2014
January
2013/February
2013
January 2013
January 2013
January 2013
October 2012
In January 2012, the Bank took on a loan in the nominal amount of US$ 500
million, agreed upon at a fixed rate of 5.75% with the principal maturing
("bullet") in January 2017. Furthermore, on the same date, there was an Interest
Rate Swap (Note 15(b)) whereby the Group booked as of December 31, 2012, a
S/.22 million gain from the variation of the loans fair value (Note 25), which is
included in the Gain from Hedging Operations, net, of the consolidated
statement of income.
F-117
(ii) Loan for a nominal amount of US$350 million, at a fixed rate of 5.5% and
maturity in November 2020, which is recorded at fair value. This loan is hedged
by an Interest Rate Swap (IRS) (Note 15 (b)). As of December 31, 2012, the
Bank had recorded losses of S/.8.7 million corresponding to the change in the
loans fair value (Note 25), which is included in the "Gain from Hedging
Operations, net" entry, of the consolidated statement of income (as of December
31, 2011, it recorded a gain of S/.109.1 million).
(iii) It corresponds to a subordinated loan approved by the SBS and it is considered as
part of TIER 1 Regulatory Capital to the limit permitted by the General Law.
(iv) It corresponds to a subordinated loan for an amount of US$30 million approved
by the SBS. It is considered part of TIER 2 Regulatory Capital.
(v) Syndicated loan for US$100 million with Standard Chartered Bank, Wells Fargo
Bank, Banco de Chile, Bank of Taiwan, Banca Monte Dei Paschi di Siena S.p.A
and Mizuho Corporate Bank Ltd, paid off in October 2012. The agreed rate was
Libor plus spread.
(b) International Financial Organizations
Debts to international financial organizations accrued interest at international market
rates between 1.2% and 6.4% as of December 31, 2012 (1.5% and 6.4% as of
December 31, 2011), and are unsecured.
Name of Creditor
Balances as of
December 31, 2012
US$000
S/.000
Balances as of
December 31, 2011
US$000
S/.000
170,000
433,500
275,000
741,400
126,429
100,000
40,000
65,000
322,393
255,000
102,001
165,750
112,667
50,000
40,000
-
303,750
134,800
107,840
-
Total
501,429
1,278,644
477,667
1,287,790
(i)
Due Dates
February 2014/ 2017/ 2019/
August 2015
December 2018/June 2022
March 2013/May 2013
June 2013/August 2014
January 2013
This includes two subordinated loans for an amount of US$50 million, approved
by the SBS and it is considered as part of TIER 2 Regulatory Capital, in
accordance with legal provisions in force.
F-118
2011
S/.000
Up to 1 month
More than 1 month and up to 3 months
More than 3 months and up to 6 months
More than 6 months and up to 1 year
From 1 to 5 years
More than 5 years
1,419,525
165,747
348,019
315,953
2,738,875
2,168,663
20
2
5
4
39
30
164,656
285,274
32,981
555,642
934,741
2,796,909
3
6
1
12
20
58
Total
7,156,782
100
4,770,203
100
2011
S/.000
Corporate Bonds
Notes (debt instruments) - Note 15(e)
Subordinated Bonds
Leasing bonds
Accrued expenses payable
2,185,719
980,196
457,857
133,750
42,511
830,761
539,200
459,866
137,400
18,632
Total
3,800,033
1,985,859
2011
S/.000
Up to 1 month
More than 1 month and up to 3 months
More than 3 months and up to 6 months
More than 6 months and up to 1 year
From 1 to 5 years
More than 5 years
3,895
54,155
53,528
1,096,393
2,592,062
2
1
29
68
717
50,641
7,273
217,756
819,605
889,867
3
11
41
45
Total
3,800,033
100
1,985,859
100
F-119
F-120
US$100 million
US$250 million
US$500 million
US$100 million
US$200 million
Fourth
Fifth
Subordinated Bonds
First
Second
Leasing bonds
First
US$250 million
US$235 million
Third
Notes
Authorized Amount
Corporate Bonds
Second
Program
First
Second
First
Second
Third
First
Second
Third
Fourth
Fifth
Sixth
First
Second
Third
First
First
Second
Fifth
Sixth
First
Second
Third
First
Second
Third
Fourth
Sixth
Seventh
First
First
First
First
Issuance
2008-A
2012-A,
2012-B,
2012-C and
2012-D
A
A
A
A
A
A
Only
Only
A
A
A
A
Only
A
A
Only
A
Only
A
A
A
A
A
A
A
Only
A
B
C
D
Series
US$
US$
US$
PEN
PEN
US$
PEN
US$
PEN
PEN
PEN
PEN
US$
PEN
US$
PEN
PEN
PEN
US$
PEN
PEN
PEN
PEN
PEN
US$
US$
US$
PEN
PEN
PEN
PEN
PEN
Currency
250,000
235,000
25,000
30,000
40,000
20,000
50,000
20,000
45,000
50,000
30,000
40,000
20,000
55,000
500,000
50,000
150,000
200,000
54,000
40,000
80,000
100,000
40,000
40,000
9,969
8,533
30,000
60,000
70,000
23,000
30,000
17,000
Amount of
Disbursed
Currency
539,200
-
539,200
1,967,227
980,196
3,757,522
137,400
133,750
382,500
597,696
67,400
30,000
40,000
459,866
457,857
63,750
30,000
40,000
53,920
57,384
53,920
49,840
54,663
32,232
39,793
53,661
64,453
51,000
58,912
51,000
51,166
56,118
33,090
39,721
50,681
66,169
830,761
1,261,195
50,000
150,000
-
40,000
80,000
100,000
40,000
40,000
26,876
23,005
80,880
60,000
70,000
23,000
30,000
17,000
Balances as of
December 31,
2011
S/.000
2,185,719
50,000
150,000
215,065
137,700
40,000
80,000
100,000
21,759
60,000
23,000
30,000
17,000
Balances as of
December 31,
2012
S/.000
December 2015
June 2017 and June
2022
April 2016
September 2014
November 2014
September 2017
November 2032
February 2028
July 2023
September 2023
December 2033
May 2022
May 2027
June 2032
August 2022
December 2016
December 2026
October 2019
July 2016
August 2020
August 2020
August 2018
December 2012
March 2012
September 2012
September 2014
October 2012
May 2018
October 2012
March 2013
April 2013
May 2013
Maturity Date
Corporate bonds are unsecured and accrue annual interest at rates between 5.8% and 7.9%
for local currency as of December 31, 2012 and 2011 and between 4.7% and 6.4% for
foreign currency as of December 31, 2012, (between 6.2% and 6.4% December 2011).
Corporate bonds for S/.200 million is hedged by a Currency Swap (Note 15(b)). As of
December 31, 2012, the Bank booked losses of S/.15 million relating to the variation of the
issuances fair value (Note 25) and it is included in the Gain from Hedging Operations,
net category, of the consolidated statement of income.
In August 2012, the Bank conducted an international issuance for a nominal amount of
US$500 million, at a fixed rate of 5%, maturing in August 2022. The principal will be fully
paid off upon maturity. This financial instrument is carried in the books at fair value and the
variation of its fair value is hedged by an Interest Rate Swap (Note 15(b)). As of December
31, 2012, the Bank has booked losses for S/.13.7 million corresponding to the variation of
the Issuances fair value (Note 25), which is included in the Gain from Hedging
Operations, net category of the consolidated statement of income.
Subordinated bonds were issued according to General Law requirements and with annual
interest rates between 5.9% and VAC plus a spread for local currency and between Libor
plus a spread and 6.5% for foreign currency.
Leasing bonds accrue interest at a nominal annual rate of 6.3% for local currency and 7.2%
for foreign currency and they are backed by credit operations in the form of leasing
contracts. They have been financed by the said bonds.
F-121
The number of shareholders and the ownership structure of the Bank were as follows:
Percentage of individual
interest
Up to 1
From 80.01 to 100
Total
Number of
shareholders
8,262
1
8,263
Total interest
7.76%
92.24%
100.00%
(b) Reserves
Pursuant to applicable law, all Peruvian banks must create and maintain a legal reserve.
Each year a Peruvian bank must allocate 10% of its net income to its legal reserve until the
legal reserve is equal to 35% of its paid-in capital stock.
Legal reserve for the Banks net income for 2012 will be recognized upon the approval of
the financial statements at the next General Shareholders Meeting to be held in 2013.
The General Shareholders Annual Meetings held on March 29, 2012 and March 31, 2011
approved an allocation to the legal reserve for the equivalent of 10% of the net income for
year 2011 (S/.112.9 million) and year 2010 (S/.100.7 million) respectively.
(c) Retained Earnings
General Shareholders Annual Meetings held on March 29, 2012 and March 31, 2011,
agreed to distribute dividends for approximately S/.733.8 and S/.805.8 million, respectively.
Dividends distributed to shareholders other than domiciled legal entities, are subject to the
rate of income tax rate of 4.1% which should be withheld by the Bank.
The General Shareholders Annual Meeting held on March 29, 2012 and March 31, 2011,
approved the capitalization of retained earnings by S/.282.2 million and S/.100.8 million,
respectively.
On June 28, 2012, the Banks Board of Directors, in the exercise of the delegation
conferred upon it by the Annual General Shareholders Meeting held on March 29, 2012,
and pursuant to the provisions of Article 184 Regulatory Capital, Item A), Point 2 of the
General Law, unanimously resolved to commit to the capitalization of the 2012 profits for
S/.400 million. The formalization of this commitment will become effective during the
General Shareholders Meeting to be held in March 2013.
F-122
F-123
Contingent Transactions:
Indirect loans: (a)
Guarantees and Letters of Guarantee
Letters of credit and bank acceptances
2012
S/.000
2011
S/.000
9,487,925
762,944
8,037,821
649,567
10,250,869
8,687,388
13,507,793
6,669,620
12,165,881
6,141,628
30,428,282
Off-Balance Sheet Accounts:
Collateral for loans granted (c)
Securities and assets received in custody
Forward interest rate trades (b)
Securities under custody by CAVALI (d)
Own securities and assets in custody
Securities received as collection
Loan return and income in escrow
Advised letters of credit
Securities and assets pledged as collateral
Loans written-off
Consignments received
Other credit accounts (e)
Other debit accounts
26,994,897
64,970,181
20,976,667
7,010,961
6,117,928
3,137,250
1,968,634
669,973
274,385
137,280
51,060
309
10,363,179
9,856,844
53,635,462
23,822,059
5,033,665
5,727,039
3,219,133
1,919,660
319,042
321,570
173,487
61,914
338
8,788,067
8,516,316
125,534,651
111,537,752
7,927,460
6,405,142
163,890,393
144,937,791
contingent loans expire without being called and the total amounts of contingent loans
do not represent necessarily future cash disbursements for Grupo Continental.
Grupo Continentals Management does not expect significant losses for contingent
operations in force as of December 31, 2012.
The change of allowance for contingent operations (indirect loans) included in Other
Liabilities on the consolidated balance sheet was as follows:
2012
S/.000
2011
S/.000
Balance as of January 1
Provision
Recoveries and reversals
Exchange rate differences and other adjustments
60,457
51,094
(40,674)
(758)
55,322
44,323
(38,582)
(606)
Balance as of December 31
70,119
60,457
As of December 31, 2012, the general provision of indirect loan portfolio of S/.63.1
million (S/.53.8 million as of December 31, 2011) includes pro-cyclical provisions of
S/.20.6 million (S/.17.3 million as of December 31, 2011).
(b) Financial Derivatives
Grupo Continental has commitments to enter into forward agreements for the purchase
and sale of foreign currency (Forwards), interest rates swaps (IRS), cross currency
swaps (CCS), and purchase and sale of options on several underlying instruments
(exchange rate, index, commodities, etc.).
Forward contracts for buying and selling foreign currency are agreements to deliver a
currency at a future date at a pre-established price.
IRS operations are agreements in which the exchange of periodic cash flows are
calculated on the basis of the application of either a variable or fixed interest rate
according to the terms and conditions based on the definitions and regulations
developed by the International Swaps and Derivatives Association, Inc. (ISDA) for
foreign customers, and a Frame Contract for local customers. The cross currency
swaps are agreements in which the exchange amount is agreed in one currency for
amounts in another currency, setting the exchange rate at the end of the operation.
Options are agreements whereby the holder has the option - rather than the obligation to purchase or sell an underlying by prices defined at the day of closing, for which
pays a premium to the seller of the options, calculated in accordance with market
conditions.
F-125
The risk arises from the possibility that counterparties do not comply (Risk of
Counterparty) with agreed terms and the fluctuations of the risk factors involved in
this transaction (exchange rate and interest rate risks).
Derivative financial instruments are valued according to the financial theories
recognized by the market. The inputs (exchange rates, interest rate curves, implied
volatility, swap points, etc.) are captured from public sources of information if the data
is quotable, or built, in the case of no quotations available.
As of December 31, 2012 and 2011, the notional amount equivalent in Nuevos Soles
and the fair value of derivative financial instruments were as follows:
2012
Nominal
Value
S/.000
Trading Derivatives
Currency forward
Commodities options and other
Interest Rate Options
Currency Swap
Interest Rate Swap
Hedging Derivatives
Currency Swap (i)
Interest Rate Swap (ii)
Total
Asset
S/.000
Liability
S/.000
7,216,383
1,793,352
114,164
4,305,678
3,275,797
89,991
27,847
279
347,015
28,400
62,481
27,847
279
168,224
116,462
192,380
3,621,000
17,010
141,868
20,518,754
652,410
375,293
2011
Nominal
value
S/.000
Trading Derivatives
Currency Forward
Commodities options and other
Currency Swap
Interest Rate Swap
Hedging Derivatives
Interest Rate Swap (ii)
Total
(i)
Asset
S/.000
Liability
S/.000
5,721,589
2,420,116
4,024,176
4,090,065
55,937
65,796
218,756
32,974
54,083
65,796
69,250
137,000
943,600
72,697
17,199,546
446,160
326,129
As of December 31, 2012, the Bank has entered into a Currency Swap to hedge
the fair value of the bonds issued, in the nominal amount of S/.192 million.
Through this Currency Swap, the Bank converts its fixed-rate domestic currency
issuance into a variable-rate US Dollar issuance. As of December 31, 2012, the
fair value of the Currency Swap amounted to S/.15.9 million (profit), and this is
included in the Gain from Hedging Operations, net entry of the consolidated
statement of income.
F-126
(ii) As of December 31, 2012, the Bank had entered into Interest Rate Swap for a
nominal amount of S/.3,621 million to hedge interest rates for debts received.
Through these Interest Rate Swaps, the Bank gets a fixed interest rate in US
Dollars and pays for a variable interest rate in the same currency. As of
December 31, 2012, the total variation of the fair value of interest rate swaps
amounted to S/.67.9 million (gain), which is included in the Gain from Hedging
Operations, net entry of the consolidated statement of income (as of December
31, 2011, the fair value generated a S/.118.7 million gain).
(c) Guarantees received for loans granted
The amount of the Guarantees Received entry is reflected at the agreed value on the
date of the loan contract. This amount does not necessarily represent the market value
of collateral held by Grupo Continental.
(d) Securities in custody of CAVALI
This relates to the nominal value of investments traded by customers of Continental
Bolsa - Sociedad Agente de Bolsa S.A., which are under the custody of Cavali S.A.
ICLV.
(e) Other Creditors
In December 2008, Continental DPR Finance Company, a special purpose entity
incorporated in the Cayman Islands, issued notes through a private placement of debt
instruments for US$ 150 million. The maturity date of the notes is December 15, 2015
and they have quarterly coupons with a 2-year grace period. The debt instruments bear
interest at Libor rate plus a spread (Note 11).
In April 2010, Continental DPR Finance Company, entered into a debt agreement
through a private contract totaling US$ 170 million (Series 2010-A) as of December 31,
2012 . This series expire on March 15, 2017 with quarterly coupons with a 2-year grace
period. The aforementioned debt accrues interest at Libor plus a spread (Note 12).
In June of 2012, Continental DPR Finance Company conducted an issuance via a
private notes offering (debt instruments) for US$ 235 million, of which, US$ 70
million are recorded at fair value because of the taking of an Interest Rate Swap (Note
15(b)). As of December 31, 2012, Grupo Continental recorded gains for S/.1.5 million,
corresponding to the variation in the fair value of the hedged portion (Note 25), which
is included in the Gain from Hedging Operations, net entry of the consolidated
statement of income. The issuance of these notes feature two maturities: (i) US$125
million maturing on June 15, 2017 and (ii) US$ 110 million maturing on June 15,
2022. All notes have quarterly coupons, take two-year and three-year grace periods
into account respectively, and accrue interest at a rate of Libor plus a Spread, except
for part of the 10-year issuance for US$ 70 million, which was issued at a fixed rate
(Note 12).
F-127
The liabilities issued by Continental DPR Finance Company are secured by the Banks
selling to Continental DPR Finance Company the present and future flows generated by
electronic payment orders of customers (Diversified Payments Rights - DPR) sent to the
Bank using the SWIFT (Society for Worldwide Interbank Financial Telecommunications
Network) system. The mentioned sale, conducted just once, took place on December
31, 2008.
The operative documents for the issuance of the notes include covenants requiring
compliance by the Bank with certain financial ratios and other specific conditions related to
transferred flows. The Banks Management believes it was in compliance with such
conditions as of December 31, 2012.
(f)
2011
S/.000
Salaries
Bonuses
Social contributions and other
Accrual for seniority indemnities
Vacation
Other
202,002
239,804
51,160
27,200
17,533
16,235
182,873
223,774
44,336
25,549
15,032
15,567
Total
553,934
507,131
F-128
2011
S/.000
2,137
(1,059)
(3,163)
3,916
1,198
(2,342)
(3,476)
4,553
1,831
(67)
Income Tax
F-129
Cost basis. It is hereby established that the cost basis must be supported by the
corresponding validly issued receipt of payment.
Transfer Prices. All transactions with related entities, whether local or foreign, as
well as those conducted with offshore haven residents will be subject to a transfer
prices analysis. There will only be price adjustments whenever a lower tax is
F-130
Depreciation. The depreciation percentage must be applied to the result from the
addition of subsequent costs incurred, to the value of acquisition, production and
construction. These are defined as any costs incurred with respect to an asset
which has been affected to the generation of taxable income, which, pursuant to
accounting rules, must be recognized as cost.
The deductible amount or maximum deductible will be the amount referred to in
the previous paragraph, unless the last deductible period is greater than the value
of the asset to be depreciated, in which case, the latter will be deducted.
Donations. For the deduction of expenses due to donations, it is set forth that the
grading of the entity earning the deductible donation will be performed by the
SUNAT no longer by the Ministry of the Economy and Finance (MEF). This
change is effective as from June 30, 2012.
Staff training expenses. The limit to the deduction of staff training expenses is
eliminated.
F-131
Technical Assistance. With respect to the application of the 15% rate, the
requirement to have a sworn declaration from the company providing the service
its eliminated. The requirement to have a report issued by an auditing firm,
certifying the provision of technical assistance services, has been set forth only
for services, which total consideration exceeds 140 UIT (tax units) in effect on
the date when the agreement was entered into. This norm will be in force as from
August 1, 2012.
Monthly payments on account. There has been a reduction from 2% to 1.5% with
respect to the aliquot applicable under the percentage system, and the system
used in the calculation of payments on account has been modified. The
modification involves making a monthly advance payment in the amount which
is greater between the comparison of the amount resulting from the application
the factor system with the amount resulting from the application of the 1.5%
percentage. The possibility of changing the percentage based on the May
monthly advance payment has been incorporated, and on the basis of the results
shown by the statement of income as of April 30, applying the factor resulting
from the said financial statement. Specific provisions have been issued for the
case of advance payments between August and December 2012, since this
modification came into force as from the August 2012 payment on account.
F-132
2012
S/.000
2011
S/.000
484,727
(58,590)
13,604
466,654
(50,047)
(36,437)
439,741
380,170
Companies
BBVA Banco Continental
Continental Bolsa Sociedad Agente de Bolsa S.A.
Continental Bolsa Sociedad Agente de Bolsa S.A.
BBVA Asset Management Continental Sociedad Administradora
de Fondos
Continental Sociedad Titulizadora S.A.
Inmuebles y Recuperaciones Continental
Years Subject to
Fiscalization
2007 to 2012
2008 to 2009
2011 to 2012
2008 to 2012
2008 to 2012
2008 to 2012
The Tax Administration (SUNAT, for its Spanish acronym) is authorized to perform
reviews within four years following the year of submittal of the corresponding income
tax. At present, the SUNAT is auditing the statement of the period 2007 of BBVA
Banco Continental, and it will start inspection of the 2008 fiscal period. In addition,
the inspection of the Continental Bolsa - Sociedad Agente de Bolsa S.A. 2010 fiscal
period return has been completed. Management considers that no significant liabilities
will arise from the pending reviews.
Due to possible interpretations that tax authorities may make on legal regulations in
force, it is not possible to determine whether liabilities for Grupo Continental will
result from future reviews, so that any eventual higher tax or charge that might result
from fiscal reviews will be charged to the net income (loss) for the year in which they
are determined. However, Management considers that no potential additional
settlement of taxes would be significant for the consolidated financial statements as of
December 31, 2012.
F-133
Additions / Recoveries
Net
Income
Equity
S/.000
S/.000
Ending
Balances
S/.000
244,527
33,492
278,019
16,143
6,948
3,770
(2,120)
19,913
4,828
2,141
29,824
24,169
565
5,809
204
26,873
13,355
91
-
2,345
56,697
37,524
656
5,809
330,126
75,665
405,791
7,881
-
1,569
-
16,287
9,450
16,287
4,668
788
5,456
12,549
1,569
17,075
31,193
317,577
(1,569)
58,590
374,598
F-134
2011
Beginning
Balances
S/.000
Assets:
General allowance for loans
Allowance for contingent
loans - general
Allowance for seized assets
Allowance for contingent
credits - specific
Allowance for suppliers
Labor allowance
Advancement of depreciation
Non-accrual interest
Total Assets
Ending
Balances
S/.000
198,734
45,793
244,527
14,774
6,938
1,369
10
16,143
6,948
1,838
33,318
24,558
810
1,129
303
(3,494)
(389)
(245)
4,680
2,141
29,824
24,169
565
5,809
282,099
48,027
330,126
7,059
4,848
822
-
(4,848)
7,881
-
1,840
2,828
4,668
13,747
822
(2,020)
12,549
268,352
(822)
50,047
317,577
Liabilities
Investments available for sale
Other
Leveling of assets and
liabilities
Total Liabilities
Additions / Recoveries
Net
Equity
Income
S/.000
S/.000
2011
S/.000
317,577
(1,569)
58,590
268,352
(822)
50,047
374,598
317,577
F-135
1,944
282
1,843
101
282
2,226
2,226
1,245,545
1,128,988
0.56
0.51
2011
S/.000
34,551
79
241,929
47,727
4,174
122,082
596,162
50,569
128,010
106,657
140,327
5,743,597
1,755,288
4,029,834
1,826,948
Liabilities:
Deposits and obligations
Debts
Other liabilities
Off-balance sheet accounts:
Contingent
Off-balance sheet accounts
F-136
The balances with related companies shown above have had the following effect on Grupo
Continentals consolidated statement of income:
2012
S/.000
Financial Income
Financial Expenses
Other Income (expenses), net
21
(11,129)
(51,855)
2011
S/.000
52
(9,686)
(57,388)
Personnel Loans
As of December 31, 2012 and 2011, directors, executives and employees of Grupo
Continental maintain permitted operations with the Bank in accordance with the General
Law, which regulates and establishes certain limits on transactions with directors,
executives and employees of banks in Peru. As of December 31, 2012 and 2011, direct
loans to employees, directors, executives and key personnel were S/.314.5 million and
S/.265.7 million, respectively.
In addition, as of December 31, 2012, key staff salaries and director salaries amounted to
S/.9.9 million (S/.9 million as of December 31, 2011).
In addition, the Bank has Stress Testing scenarios, which have been established based on
the historical series to establish the Stress Testing scenarios, which are monitored on a daily
basis.
Liquidity Risk
Liquidity risk closely related to banking business. Liquidity risk management is the
possibility that an entity may not meet its payment commitments or that, in order to meet
them; it may have to obtain funds under unfavorable conditions.
The liquidity risk management is based on a series of principles and policies described
below: the self-financing of investment activity by business segments themselves, longterm management through adequate financial policy that seeks to anticipate possible
tensions on procurement of funds markets, an adequate segregation of duties which allows
to assign clear responsibilities and objectives and the establishment of an adequate system
of transfer pricing.
Through a system of limits and alerts is constantly monitored that the liquidity Management
is according with the policies of the entity. In this scheme, the Bank has limits on the
funding structure which are measured as a minimum percentage of stable customers to
finance loans, limit liquidity management that seeks to measure the ability to react to
markets tensions. This capacity is understood as the existence of explicit sufficient assets
to use in case of failure to renew deposits collected by Global Markets payments or dealing
with wholesale counterparties. The Bank also has alerts for qualitative indicators of
liquidity; these reflect early warnings of future worsening liquidity conditions and general
market's own entity.
In addition to measuring liquidity risks, the Bank has a Contingency Plan of Liquidity,
which considers scenarios of very low liquidity and the role that would correspond to each
area of the Bank.
Interest Rate Risk
Structural Interest Risk refers to the impact that variations in interest rates may have over
the finance margin and the economic value of an entity. The starting point of this
methodology is the analysis of temporary gaps of repricing of assets and liabilities of the
balance (Bank book) as per currency and length of the term.
Exposure to interest rate risk is measured under a triple perspective: effect in net income,
economical value and economical capital. From the effect in net income perspective, the
analysis is limited to a 12-month time horizon, where incidence of variations in the interest
rates over the annual finance margin is evaluated. Under the perspective of the economic
value, the horizon analysis goes over the whole balance through the evaluation of the effect
of movements in the market curves in the value of assets and liabilities. According to the
criteria of the economical capital, 105 rate scenarios are built, which are used to calculate
the same number of economical values and, with a given level of reliability, to determine
maximum expected loss.
F-138
There is also active and permanent follow-up of limits and alerts for these indicators, which
allows active management of the balance sheet by the Bank.
Exchange Rate Risk
Exchange rate risk is the risk that the value of positions on the balance sheet could be
negatively affected by the fluctuations of exchange rates. Value of positions issued in
foreign currency could decrease due to movements of exchange rates. This risk depends on
the position of the currency and the volatility of exchange rates.
An important part of the assets and liabilities are denominated in US dollars. The Bank
minimizes the exchange rate risk by matching assets and liabilities.
Credit Risk
Credit risk consists of the probability of incurring losses due to non-compliance with credit
obligations by counterparty.
Management of credit risk of the Bank is based on an integral approach at all stages of the
process: analysis, admission, follow-up and recovery, which strengthen tools designed for
risk management.
Regarding the follow-up stage, a permanent activity is the monitoring of portfolio quality at
the Bank level, segments of businesses and their geographic distribution, evaluating their
behavior according to different indicators which include ratios of delayed and weighted
portfolio, as well as entries and exits of delay in payment, evaluating in the former ones,
profiles of delay per product and to which group they correspond, the activity that has the
objective of providing guidelines of admission of credit risk, establishing corrective
measures.
Also, credit risk is monitored through evaluation and analysis of individual transactions
such as credit concentration of economic groups, individual limits to grant credits,
evaluation of economic sectors, expected portfolio losses, preferred guarantees and
requirement of working capital.
Financial assets that potentially present credit risk mainly consist of cash and cash
equivalents, deposits in banks accruing interests, investments in securities, loans and other
assets. Cash and cash equivalents, as well as time deposits are placed in prestigious
financial institutions.
Information related to interest rates applicable to credits, maturities and levels of loan
concentrations are presented in Note 6.
Operational risk
Operational risk is defined as the risk of having losses as a consequence of failures in
processes, systems, human errors or due to external circumstances. The general policy of
the Bank regarding the operating risk is based on the good governance concept. The Bank
F-139
understands that good management of operating risk needs to establish methodologies and
procedures allowing identification, evaluation and follow-up of this type of risks in order to
establish measures to mitigate according to appetite and tolerance of it, reducing their
impact on the organization.
Cash and due from the Bank and inter-bank funds represent cash or short-term deposits
which do not represent significant credit risks.
(ii) Fair value of investments at fair value through profit and loss and available for sale has
been determined based on quotations of the market or quotations of underlying
(sovereign risk rate) to the date of financial statements. Held to maturity investments
correspond to debt instruments investments accrue interest substantially at market rates.
F-140
(iii) The loan portfolio is net of its corresponding provisions for non-collection of loans,
allowing Management to consider it as the estimated amount of recovery as of the date
of the financial statements. The current loan portfolio accrues interest at market rates,
while the non-current portfolio is pegged to a fixed interest rate; thus, it is subject to
market volatility.
(iv) Market value of obligations to the public and deposits from financial entities and interbank funds corresponds to its respective book value mainly due to its current nature and
to the fact that rates of interest are comparable to those of other similar liabilities.
(v) Debts and financial obligations and outstanding securities, bonds and obligations
generate interest at fixed and variable rates and have short and long-term maturities.
Securities with variable rates represent their market value and those with fixed rates are
subject to variations of the markets interest rates. Grupo Continental has designated, at
fair value, the following financial liabilities:
2012
Fair Value / Book
Value
Nominal Value
US$000
S/.000
US$000
S/.000
DEBTS AND FINANCIAL
OBLIGATIONS (Note 11)
Goldman Sachs Bank
Deutsche Bank
Nominal Value
US$000
S/.000
491,446 1,253,187
369,425
942,034
500,000 1,275,000
350,000
892,500
366,077
986,944
350,000
943,600
860,871 2,195,221
850,000 2,167,500
366,077
986,944
350,000
943,600
494,586 1,261,195
500,000 1,275,000
200,000
178,500
570,000 1,653,500
366,077
986,944
350,000
943,600
69,390
215,065
176,946
563,976 1,653,206
Total
2011
Fair Value / Book
Value
US$000
S/.000
70,000
(vi) As described in Note 15 (a), Grupo Continental has granted guarantees, letters of
guarantee and letters of credit and it has received guarantees backing-up the credits
granted. Based on the level of commissions currently charged for granting those
contingent loans and considering due dates and interest rates, together with current
solvency of counterparts, the difference between book value and fair value is not
considered significant by Management.
(vii) Foreign currency and interest rate financial derivatives are recorded at their estimated
market value. The Bank values derivatives operations discounting respective flows at
present value using the market curves, which are calculated on a daily basis to this effect.
These curves are built using inputs that can be found with price vendors or trading
systems (Datatec, Bloomberg, Reuters, etc.).
F-141
F-142
F-143
40,437,813
450,145
19,925,572
The accompany notes are an integral part of these consolidated financial statements
56,924,649
257,981
Other assets
TOTAL ASSETS
408,258
Deferred tax
7
259,212
830,447
Current tax
2,261
63,706
Investments in associates
44,447
Receivables
Held-to-maturity investments
2,474,057
23,808
Available-for-sale investments
586,430
Hedging derivatives
13,032
489,046
Inter-bank funds
10,584,006
2014
S/.000
Trading derivatives
Notes
ASSETS
19,224,994
56,538,437
89,587
394,011
385,471
818,010
2,774
46,763
18,433
26,789
577,252
38,245,327
443,993
3,083,921
556,746
25,156
11,824,204
2013
S/.000
11
11
Adjustments to equity
Retained earnings
TOTAL EQUITY
11
11
10
Notes
Legal reserve
Capital stock
NET EQUITY
TOTAL LIABILITIES
Other liabilities
Deferred tax
Provisions
Current tax
Payables
Hedging derivatives
Trading derivatives
Inter-bank funds
19,925,572
56,924,649
4,865,271
622,824
18,566
977,350
3,246,531
52,059,378
107,325
4,100
465,738
1,244
324,451
38,295
342,035
11,733,126
1,594,208
348,038
37,100,818
2014
S/.000
19,224,994
56,538,437
4,890,811
1,304,554
14,649
846,838
2,724,770
51,647,626
58,424
3,653
435,426
3,214
414,820
51,918
561,001
12,082,512
939,620
617,134
36,479,904
2013
S/.000
2014
S/.000
1,836,036
(507,477)
2013
S/.000
1,776,181
(562,046)
1,328,559
1,214,135
(288,592)
(269,067)
1,039,967
945,068
422,443
(72,203)
371,127
(57,371)
1,390,207
1,258,824
199,224
237,760
1,589,431
1,496,584
(666,806)
(619,366)
922,625
877,218
(61,381)
(39,480)
OPERATING REVENUE
861,244
837,738
(7,008)
(9,852)
854,236
827,886
(231,628)
(224,290)
622,608
603,596
0.192
0.186
Interest income
Interest expenses
16
17
19
19
18
The accompany notes are an integral part of these consolidated financial statements
F-144
F-145
2014
S/.000
622,608
2013
S/.000
603,596
6,181
(2,475)
211
(10,254)
6,106
(1,881)
3,917
(6,029)
626,525
597,567
From January
1, 2013 to
June 30, 2013
622,608
603,596
43,911
244,219
289,391
7,848
(26,425)
38,831
225,858
267,297
86
(16,537)
11,992
91,187
(204,624)
16,039
(175,150)
73,112
(322,556)
16,561
151,222
208,650
17,204
(11,883)
(114,233)
(164,078)
811,101
1,083,025
8,421
5,824
(57,978)
(17,715)
(98,128)
-
(67,272)
(92,304)
1,233,527
(577,856)
2,110,697
(1,755,898)
(2,481,631)
(652,121)
327,104
(1,721,997)
(623,000)
(2,610,220)
(2,150,977)
(4,600,418)
(1,407,148)
(3,609,697)
Notes
(54,446)
644,990
(1,461,594)
(2,964,707)
12,068,597
13,969,868
10,607,003
11,005,161
F-146
F-147
in
521,761
521,761
-
2,724,770
Changes in equity:
Comprehensive income:
Net income
2,724,770
-
498,297
498,297
the
the
977,350
130,537
130,537
846,813
846,813
-
846,813
124,552
124,552
2,724,770
in
722,261
722,261
Legal
Reserves
2,226,473
2,226,473
Capital
Stock
(25)
(25)
-
25
25
-
(91)
(91)
91
91
Voluntary
Reserves
Reserves
622,824
(652,168)
(521,736)
(130,434)
681,730
622,608
622,608
1,304,554
1,304,554
-
603,848
(622,759)
8498,206)
(124,552)
(641,921)
603,596
603,596
1,245,769
1,245,769
Retained
earnings
1,377
(1,733)
(1,733)
(1,733)
3,110
3,110
-
6,106
6,106
6106
6106
Cash
flow
hedging
17,189
5,650
5,650
5,650
11,539
11,539
-
21,608
(12,135)
(12,135)
(12,135)
33,743
33,743
Available for
sale
investments
(25,192)
18,566
3,917
3,917
3,917
14,649
14,649
-
4,865,271
(25,540)
(652,168)
103
626,525
3,917
622,608
4,890,811
4,890,811
-
4,203,145
(6,029)
27,714
(622,759)
-
603,596
(6,029)
597,567
4,228,337
4,228,337
Equity attributable
to BBVA Banco
Continental equity
holders
(6,029)
(6,029)
33,743
33,743
Total adjustments
to equity
Unrealized Results
Noncontrolling
interest
4,865,271
(652,168)
103
(25,540)
626,525
3,917
622,608
4,890,811
4,890,811
-
4,203,145
(25,192)
(622,759)
-
603,596
(6,029)
597,567
4,228,337
4,228,337
Total
shareholders
equity net
F-148
1.
F-149
Entity
Assets
December
2014
31, 2013
2.
Liabilities
December
2014
31, 2013
Equity
December
2014
31, 2013
56,954
56,548
52,089
51,658
4,865
4,890
49
66
21
37
28
29
62
59
13
49
50
30
27
24
18
1,280
1,378
1,280
1,378
3.
F-150
4.
2014
S/. 000
2,474,057
586,430
450,145
2013
S/. 000
3,083,921
556,746
443,993
3,510,632
4,084,660
Available-for-sale investments
BCRP Certificates of Deposits (a)
Peruvian Treasury Bonds (b)
Shares in local companies (c)
Shares in foreign companies
2014
S/. 000
1,743,689
675,127
54,604
637
2013
S/. 000
2,874,246
156,266
52,772
637
2,474,057
3,083,921
318,029
215,468
51,617
1,316
322,024
179,628
54,619
475
586,430
556,746
450,145
443,993
(a)
BCRP certificates of deposits are freely tradable securities with maturities up to December
2015, which were acquired in public auctions or secondary markets, at the rates offered by
financial institutions. As of June 30, 2014, the annual interest rate of these certificates ranged
between 3.6% and 4% in local currency (between 3.6% and 4.2% as of December 31, 2013),
and 0.15% in foreign currency, (0.10% and 0.15% as of December 31, 2013).
(b)
Treasury bonds are issued by the Peruvian Government. As of June 30, 2014, these bonds
accrued annual interest at rates between 1.7% and 6.7% (1.00% and 7.28% as of December
31, 2013) in local currency; and 6.57% in foreign currency (6.57% as of December 31, 2013).
These bonds mature through August 2046 (August 2046 as of December 31, 2013).
(c)
As of June 30, 2014 and December 31, 2013, this mainly included stocks listed on the Lima
Stock Exchange (BVL) for a total value of S/. 38 million for both periods.
(d)
As of June 30, 2014 and December 31, 2013, investment in mutual funds corresponded to
investments held by Grupo Continental in Mutual Funds managed by BBVA Asset
Management Continental S.A. Sociedad Administradora de Fondos.
F-151
5.
a)
June 30,
2014
S/. 000
December
31, 2013
%
S/. 000
Direct loans
Loans
15,788,137
39%
14,851,955
39%
Mortgages
8,993,867
22%
8,433,344
22%
Foreign trade
4,342,440
11%
3,899,483
10%
Leasing
4,256,105
10%
4,202,111
11%
Consumer
3,354,995
8%
3,285,220
9%
Discounted notes
1,176,280
3%
1,293,059
3%
Other
2,757,276
7%
2,545,083
6%
40,669,100
100%
38,510,255
100%
611,332
2%
593,079
826,692
2%
690,928
42,107,124
Plus: Accrued Interest
282,869
42,389,993
(32,019)
104%
39,794,262
1%
270,988
105%
40,065,250
(31,316)
2%
2%
104%
1%
105%
-
(1,920,161)
(5%)
(1,788,607)
(5%)
TOTAL
40,437,813
100%
38,245,327
100%
Indirect Loans
13,553,816
12,298,340
Loans in
Loans in
S/.
US$
S/.
US$
8.21
F-152
6.72
8.26
6.99
b)
Mortgage loans
9.28
8.50
9.35
8.59
Consumer loans
22.12
16.79
22.10
15.93
Below are the reporting balances as of June 30, 2014 and December 31, 2013, under the
loan segment established by SBS Resolution No. 11356-2008:
June 30, 2014
S/. 000
Medium businesses
S/. 000
10,998,133
26%
10,044,532
25%
9,779,883
23%
8,042,304
20%
Mortgages
9,133,000
22%
8,551,796
21%
Corporate
5,526,103
13%
6,626,562
17%
Consumer
3,532,811
8%
3,457,612
9%
Small businesses
1,544,156
4%
1,579,785
4%
650,878
2%
661,358
2%
504,148
1%
305,217
1%
Stock brokers
239,477
1%
378,301
1%
Micro businesses
106,530
86,295
92,003
60,500
Sovereign
42,107,124
100%
39,794,262
100%
As of June 30, 2014 and December 31, 2013, the loan portfolio was distributed in the
following economic sectors:
June 30, 2014
S/. 000
Mortgage and consumer loans
S/. 000
12,665,810
30%
12,009,407
Manufacturing industry
7,762,487
18%
7,219,306
18%
Trade
7,747,530
18%
7,327,627
18%
2,774,588
7%
2,812,902
7%
2,764,612
7%
2,436,053
6%
Mining
1,293,755
3%
1,224,867
3%
30%
1,145,180
3%
1,084,405
3%
1,107,081
3%
1,204,586
3%
934,637
2%
904,683
2%
2%
Construction
Financial intermediation
Other
d)
Large businesses
c)
820,836
2%
580,000
3,090,608
7%
2,990,426
8%
42,107,124
100%
39,794,262
100%
For the six months ended June 30, 2014 and the year ended December 31, 2013, the
movement in the allowance for direct loan losses was:
January 1,
2014 to June
F-153
January 1,
2013 to
30, 2014
Balance as of January 1
Provisions
Recoveries and reversals
Sale of portfolio
Foreign exchange difference and other adjustments
S/. 000
1,788,607
811,462
(522,561)
(158,969)
1,622
December
31, 2013
S/. 000
1,465,086
1,099,461
(577,576)
(239,561)
41,197
1,920,161
1,788,607
Management considers that level of the provision for loan losses is adequate to cover
potential losses in the direct loan portfolio as of the date of consolidated statement of
financial position. All provisions of the current standard have been complied with.
As of June 30, 2014, the general provision of the loans portfolio was S/. 1,074 million (S/.
1,040 million as of December 31, 2013) including pro-cyclical provisions of S/. 174 million (S/.
169 million as of December 31, 2013).
During 2014, Grupo Continental sold a loan portfolios for S/.126 million (S/.221 million as of
December 31, 2013). The selling price amounted to S/.15 million (S/.15 million as of
December 31, 2013) and is recorded in Results from financial operations in the
consolidated statement of income. For the six months ended June 30, 2014, Grupo
Continental did not sell any written-off loans (For the year ended December 31, 2013, Grupo
Continental sold written-off loans for a purchase price of S/.7 million).
F-154
F-155
123,982
Additions
Disposals
Transfers and others
Additions
Disposals
Transfers and others
123,982
123,982
Net cost:
123,982
Accumulated depreciation:
Balance as of January 1, 2013
22,558
(2,270)
Additions
Disposals
Transfers and others
Additions
Disposals
Transfers and others
103,694
Land
S/. 000
291,126
313,867
373,387
16,026
3
357,358
30,247
(1,237)
328,348
687,254
3,463
35,307
648,484
8,030
41,006
599,448
Property and
facilities
S/. 000
204,271
210,556
210,584
18,192
(9)
(897)
193,298
33,278
(9)
(4,508)
164,537
421,140
20,118
(9)
3,462
397,569
64,453
(13)
(2,362)
335,491
Furniture
and
equipment
S/. 000
1,869
1,451
4,978
344
-
4,634
737
-
3,897
6,429
(74)
6,503
1,487
-
5,016
Vehicles
S/. 000
The property, furniture and equipment, net accounts movement was as follows:
Cost:
Balance as of January 1, 2013
6.
134,382
132,068
62,338
9,323
(6)
53,021
16,065
(99)
37,055
194,406
3,911
3,092
187,403
4,263
41,272
141,868
leasehold
improvements
S/. 000
Facilities and
60,452
46,709
46,709
29,154
(42,897)
60,452
120,555
(86,837)
26,734
Work in
progress
S/. 000
1,928
1,814
1,814
1,332
(1,446)
1,928
5,058
(9,760)
6,630
to be
received
S/. 000
Units
818,010
830,447
651,287
43,885
(9)
(900)
608,311
80,327
(9)
(5,844)
533,837
1,481,734
57,978
(9)
(2,556)
1,426,321
226,404
(13)
(18,951)
1,218,881
Total
S/. 000
7.
8.
(a)
Other assets as of June 30, 2014, mainly include S/. 63 million for deferred charges (S/. 74
million as of December 31, 2013) and S/. 175 million for transactions in process (S/. 13 million
as of December 31, 2013).
(b)
Payables as of June 30, 2014 mainly include pending payments to suppliers for S/. 165 million
(S/. 139 million as of December 31, 2013), and sundry payables for S/. 37 million (S/. 44
million as of December 31, 2013).
(c)
Other liabilities as of June 30, 2014 mainly include S/. 88 million of transactions in process (S/.
41 million as of December 31, 2013).
(d)
Provisions include, among others, provisions for indirect loans, litigations, claims, and
provisions for staff, which, as of June 30, 2014 and December 31, 2013, amounted to S/. 466
million and S/. 435 million, respectively. As of June 30, 2014, Grupo Continental had several
pending lawsuits and other processes that are related to its activities, and in the opinion of
Management and legal counsel, no additional provisions are needed. Therefore, as of June
30, 2014 and December 31, 2013, Management has not created a higher provision than the
amount recorded for these contingencies and processes on the statement of financial position,
which amounted to S/.180 and S/.194 million, respectively.
Time deposits
Demand deposits
Savings deposits
Other Obligations
Total obligations to the public
December
31, 2013
S/. 000
14,890,868
12,219,603
9,323,333
46,100
36,479,904
Interest rates for borrowing transactions are determined by Grupo Continental at current market
interest rates.
9.
INTER-BANK FUNDS
As of June 30, 2014, inter-bank funds assets had current maturities, and accrued interest at a rate
of 5.18% in local currency, (0.15% in foreign currency as of December 31, 2013) and were
unsecured.
As of June 30, 2014, inter-bank funds liabilities had current maturities, accrued interest at a rate of
4.00% in local currency, (4.00% in local currency as of December 31, 2013) and were unsecured.
10.
F-156
June 30,
2014
S/. 000
Due to banks and financial obligations
Foreign financial institutions (a)
Foreign financial organizations (b)
Programa Mi Vivienda - Mi Hogar (My Housing- My
Home Program) (c)
Central Reserve Bank (Note 4-a)
Private debt agreement (d)
Corporacin Financiera de Desarrollo COFIDE
Accrued expenses payable
December
31, 2013
S/. 000
3,637,781
566,832
4,063,862
856,464
547,140
250,000
307,560
28,730
56,500
5,394,543
519,985
363,350
28,730
66,203
5,898,594
4,452,815
866,760
612,443
339,900
66,665
6,338,583
4,439,062
936,325
603,400
139,875
65,256
6,183,918
11,733,126
12,082,512
Corporate bonds
Notes (debt instruments - e)
Subordinated Bonds
Leasing bonds
Accrued expenses payable
The loan agreements entered into with some foreign financial institutions and international financial
institutions include certain financial ratio performance clauses and other specific conditions, which,
as of June 30, 2014 and December 31, 2013, Grupo Continental Management believes to comply
with.
(a) Foreign financial institutions
These balances accrued interest based on market rates, ranging between 1.5% and 7.4% as of
June 30, 2014 (1.4% and 7.4% as of December 31, 2013). The breakdown of these
transactions is as follows:
Name of Creditor
Balance as of December
31. 2013
US$ 000
US$ 000
S/. 000
Due Dates
S/. 000
505,861
1,414,388
505,308
1,412,336
347,556
971,767
347,366
970,888
November 2020
January 2017
October 2040
200,000
559,200
200,000
559,000
47,500
132,810
50,000
139,750
Standard Chartered
40,000
111,840
62,000
173,290
Bank of America
40,000
111,840
50,000
139,750
May 2016
40,000
111,840
40,000
111,800
May 2016
Citibank NA
40,000
111,840
40,000
111,800
May 2016
F-157
36,000
100,656
43,000
120,185
25,000
69,875
May 2014
April 2014
Mercantil Commercebank NA
Toronto Dominion Bank
9,000
25,155
4,148
11,600
57,301
160,158
25,000
69,875
1,301,065
3,637,781
1,453,975
4,063,861
(i)
December 2016
July 2014
March 2014
In January 2012, Grupo Continental entered into a loan for US$ 500 million nominal
amount, at a fixed rate of 5.75% with the principal maturing in January 2017 ("bullet"). In
addition, on the same date, Grupo Continental entered into an interest rate swap
agreement (Note 15-a) whereby Grupo Continental recorded a S/. 2 million loss from the
variation of the loans fair value, which is included in Results from financial operations in
the consolidated statement of income (Gains for S/. 34 million were recorded on June 30,
2014).
(ii) Loan for a nominal amount of US$ 350 million, at a fixed rate of 5.5% due in November
2020, which is recorded at fair value. This loan was hedged by an interest rate swap
which was terminated in April 25, 2013. As of June 30, 2013, Grupo Continental had
recorded gains for S/. 18 million corresponding to the change in the loans fair value,
which is included in the "Results from financial operations, in the consolidated statement
of income.
(iii) Corresponding to a subordinated loan approved by the SBS, which meets the conditions
to be considered Tier 1 Regulatory Capital up to the limit allowed by the General Law.
(iv) It mainly includes a subordinated loan for US$ 30 million approved by the SBS, which is
considered Tier 2 Regulatory Capital, in accordance with current standards.
(b) International Financial Organizations
Loans from international financial organizations accrued interest at international market rates
between 1.7% and 6.4% as of June 30, 2014 (1.7% and 6.4% as of December 31, 2013), and
are unsecured.
Name of Creditor
International Finance Corporation IFC
Inter-American Development Bank IDB (i)
Inter-American Investment
Corporation -IIC
Balance as of 30.06.14
Balance as of 31.12.13
US$ 000
US$ 000
S/. 000
109,159
305,209
117,857
329,410
65,000
181,740
160,000
447,200
28,570
79,883
28,570
79,854
202,729
566,832
306,427
856,464
Due Dates
S/. 000
983
2,747
3,270
9,138
203,712
569,579
309,697
865,602
(i) This includes two subordinated loans for an amount of US$50 million, approved by the
SBS, which are deemed to be Tier 2 Regulatory Capital, in accordance with legal
provisions in force.
(c) Programa Mi Vivienda Mi Hogar
These loans mainly include the loans obtained for the social housing program Mi Vivienda in
local currency for S/. 525 million and in foreign currency for US$ 8 million (S/. 478 million in local
currency and US$ 9 million in foreign currency as of December 31, 2013, respectively). These
loans have different maturities, up to December 2033 and bear interest at an effective annual
rate of 7.75% on the foreign currency portion and 6.25% plus the Constant Adjustment Index
(hereinafter VAC for its Spanish acronym), on the local currency portion.
F-158
The obligation to the Fondo Mi Vivienda Mi Hogar of S/. 547 million (S/. 520 million as of
December 31, 2013) was secured by a portion of the mortgage loan portfolio up to that amount
(Note 5). Loans include specific covenants about how these funds must be used, financial
conditions that the borrower must meet, as well as administrative terms.
(d) Private Debt Agreement
This item includes financing received for US$110 million due in March 2017 (US$ 130 million as
of December 31, 2013), guaranteed by present and future cash flows generated by electronic
payment orders of clients (Diversified Payments Rights - DPRs). These orders are sent to the
Bank through system SWIFT (Society for Worldwide Interbank Financial Telecommunications
Network).
The operative documents for the financing from these banks include covenants requiring
compliance by the Bank with certain financial ratios and other specific conditions related to
transferred flows. The Management of Grupo Continental believes it was in compliance with such
conditions as of June 30, 2014.
As of June 30, 2014 and December 31, 2013, the details of the issued bonds were as follows:
F-159
Program
Authorized
Amount
Balance
as of
June 30,
2014
S/. 000
Balance
as of
December
31, 2013
S/. 000
8,533
60,000
23,858
60,000
23,850
60,000
PEN
PEN
PEN
40,000
80,000
100,000
40,000
80,000
100,000
40,000
80,000
100,000
August 2020
August 2020
August 2018
A
A
Single
A
PEN
PEN
PEN
USD
50,000
150,000
200,000
54,000
50,000
150,000
186,144
150,984
50,000
150,000
186,851
150,930
December 2016
December 2026
April 2019
July 2016
First
Single
USD
500,000
1,398,000
1,397,500
First
Single
USD
300,000
837,710
837,157
July 2016
Third
Single
USD
500,000
1,376,119
1,362,774
April 2018
4,452,815
4,439,062
Issuance
Series
Currency
Fourth
Seventh
A
Single
USD
PEN
First
Second
Third
Single
A
A
First
Second
Fifth
Sixth
Nominal
Issuance
Value
Maturity Date
Corporate Bonds
Third
USD 100
million or
S/. 315
million
Fourth
USD 100
million
Fifth
USD 250
million
First
International
Issuance
USD 500
million
Second
International
Issuance
USD 300
million
Third
International
Issuance
USD 500
million
Subordinated Bonds
USD 50
First
million or
S/. 158.30
million
Second
Third
Leasing Bonds
First
USD 100
million
USD 55
million
USD 200
million
September 2014
May 2018
August 2022
First
Second
A
A
PEN
USD
40,000
20,000
39,756
55,920
39,744
55,900
May 2022
May 2027
Third
PEN
55,000
69,650
68,124
June 2032
First
Second
Third
Fourth
Fifth
Sixth
A
A
A
Single
Single
A
USD
PEN
USD
PEN
PEN
PEN
20,000
50,000
20,000
45,000
50,000
30,000
55,605
62,012
55,920
53,859
59,070
34,831
55,577
60,652
55,900
52,679
57,776
34,068
September 2017
November 2032
February 2028
July 2023
September 2023
December 2033
First
Single
USD
45,000
125,820
122,980
612,443
603,400
October 2028
First
Second
Third
Third
A
A
A
A
USD
PEN
PEN
PEN
25,000
30,000
40,000
200,000
69,900
30,000
40,000
200,000
339,900
69,875
30,000
40,000
139,875
April 2016
September 2014
November 2014
May 2017
First
Second
2008-A
2012-A,
2012-B,
2012-C
y 2012D
USD
USD
250,000
235,000
209,700
657,060
279,500
656,825
December 2015
June 2017 y June
2022
866,760
936,325
66,665
65,256
6,338,583
6,183,918
Notes
USD 250
million
USD 235
million
F-160
Corporate bonds are unsecured and bear annual interest at annual rates between 5.8% and 7.5%
as of June 30, 2014 for local currency (between 5.8% and 7.5% as of December 2013) and 2.3%
and 6.4% as of June 30, 2014 for foreign currency (2.3% and 6.4% as of December 31, 2013).
Corporate bonds for S/. 200 million are hedged by a cross currency swap CCS (Note 15-a). For
the six months ended June 30, 2014, the Bank recorded S/. 1 million worth of gains, corresponding
to the variation in the fair value of the bonds, which are included in Results from financial
operations in the consolidated statement of income (S/. 33 million gain for the six months ended
June 30, 2013).
The notes issuances of June 2012 for US$ 235 million included US$ 70 million, hedged by an
interest rate swap, which ended on June 5, 2013. For the six months ended June 30, 2013, the
Bank has recorded gains of S/. 5 million, corresponding to the variation of the financing fair value,
included in Results from financial operations in the consolidated statement of income.
In August 2012, the Bank carried out an international issuance for a nominal amount of US$ 500
million, at a fixed interest rate of 5%, maturing in August 2022. Principal will be fully paid off upon
maturity. The issuance was hedged through an interest rate swap (Note 15-a) that ended on May
30, 2013. For the six months ended June 30, 2013, Grupo Continental had recorded gains for S/.
73 million corresponding to the variation in the issuances fair value, included in Results from
financial operations in the consolidated statement of income.
In April 2013, the Bank carried out an international issuance for a nominal amount of US$ 500
million, at a fixed interest rate of 3.25%, maturing in April 2018. Principal will be fully paid off upon
maturity. The issuance is recorded in the books at fair value, and the variation in fair value is
hedged through an interest rate swap (Note 15-a). For the six months ended June 30, 2014, Grupo
Continental has recorded losses for S/. 12 million corresponding to the variation in the issuances
fair value, included in Results from financial operations in the consolidated statement of income.
As of June 30, 2013 the Bank has recorded gains for S/. 35 million corresponding to the variation in
the issuances fair value included in Results from financial operations in the consolidated
statement of income.
Subordinated bonds were issued in accordance with the General Law requirements and with
annual interest rates between VAC plus a spread and 5.9%, in local currency, and between Libor
plus a spread and 6.5% in foreign currency.
Leasing bonds accrued interest at an annual rate of 6.3% for local currency and 7.2% for foreign
currency, are secured by leasing transactions which are included in loan portfolio and were funded
by these bonds.
11.
NET EQUITY
(a) Capital Stock
As of June 30, 2014 and December 31, 2013, the authorized, issued and fully paid capital stock of
the Bank, consisted of 2,724,770,230 outstanding ordinary shares with a face value of S/. 1 each.
Currently pending registration are 521,735,165 and 25,447 common shares relating to
capitalization of retained earnings and special reserves, respectively.
The General Annual Shareholders Meetings held on March 31, 2014 and March 27, 2013,
authorized an increase of the capital stock of S/. 522 and S/. 498 million, respectively, by means of
the capitalization of retained earnings and special reserves.
F-161
On July 20, 2011, SBS Resolution No. 8425-2011 (Regulations governing Additional Regulatory
Capital Requirements) was published, directing companies to apply the requirements by economic
cycle, credit concentration risk (individual and by sector), market concentration risk, interest rate risk
in the banking books and other risks.
This Additional Regulatory Capital Requirement must be achieved in five years, with the first
tranche being 40% of the total requirement as from July 2012. The increase is annual, at 15% per
F-162
year, reaching 100% on July 31, 2016. These regulations are enabled and disabled on the basis of
pro-cycle provisions rule applicable to credits.
On an individual basis, as of June 30, 2014, the Banks Regulatory Capital, determined, in
accordance with current legal standards, totaled S/. 6,392 million as of June 30, 2014 (S/. 5,866
million as of December 31, 2013). This amount is used to calculate certain limits and restrictions
applicable to all financial entities in Peru. In the opinion of the Banks management, such limits and
restrictions have been fully met.
Credit, market and operational risk weighted average assets and indirect loans, in accordance with
current legal standards, amount to S/. 48,322 million as of June 30, 2014 (S/. 47,207 million as of
December 31, 2013).
As of June 30, 2014, the Banks capital adequacy ratio by credit, market and operational risk was
13.23% (12.42% as of December 31, 2013).
13.
2,724.8
521.7
3,246.5
2,226.5
1,020.0
3,246.5
622,608
603,596
0.192
0.186
soles)
14.
2014
S/. 000
Assets Cash and due from banks
Loan portfolio
36,559
81,862
F-163
2013
S/. 000
22,406
43,271
Other assets
109,313
102,708
251,584
9,195
255,997
251,699
414,276
8,309,505
1,718,401
7,790,585
1,628,374
Grupo Continentals transactions with related companies have been carried out during the normal
course of operations and subject to the same conditions which would have applied to third parties.
The transactions with related companies included in the consolidated statement of income for the
periods ended June 30, 2014 and June 30, 2013, are comprised as follows:
2014
S/. 000
Interest income
Interest expenses
Other income (expenses), net
2013
S/. 000
(5,885)
(38,584)
10
(8,963)
(28,291)
Personnel Loans
As of June 30, 2014 and December 31, 2013, Grupo Continental extended credit to certain
directors, executives and employees in accordance with applicable law, which regulates and
establishes certain limits on transactions with directors, executives and employees of banks in
Peru. As of June 30, 2014 and December 31, 2013, direct loans to employees, directors,
executives and key staff amounted to S/. 384 million and S/. 379 million, respectively.
In addition, as of June 30, 2014, key staff salaries and directors fees amounted to S/. 5 million (S/.
5 million as of June 30, 2013).
15.
Nominal
Assets
Liabilities
S/. 000
S/. 000
S/. 000
Trading Derivatives
Currency forwards
9,611,726
50,024
32,754
1,742,853
18,126
18,126
287,960
525
525
Currency swap
7,045,339
391,698
227,133
4,407,062
31,552
63,497
(2,879)
23,094,940
489,046
342,035
F-164
Hedging Derivatives
At Fair Value (i)
Currency swap
Bond issued
3,006,939
210,939
22,008
-
Due to Banks
1,398,000
22,008
Bond issued
1,398,000
14,338
559,200
1,800
559,200
1,800
3,566,139
23,808
38,295
26,661,079
512,854
380,330
Due to Banks
TOTAL
38,295
23,957
Nominal
Assets
Liabilities
S/. 000
S/. 000
S/. 000
Trading Derivatives
Currency forwards
11,889,467
138,392
204,097
1,566,665
17,452
17,452
287,857
796
796
Currency swap
6,503,755
385,882
254,652
3,528,356
37,446
84,004
(2,716)
23,776,100
577,252
561,001
Hedging Derivatives
At Fair Value (i)
Currency swap
Interest rate swap
Bond issued
3,216,726
210,863
22,519
-
51,918
26,050
Due to Banks
1,397,500
19,891
Bond issued
1,608,363
2,628
25,868
559,000
4,270
559,000
4,270
3,775,726
26,789
51,918
27,551,826
604,041
612,919
Due to Banks
TOTAL
As of June 30, 2014, Grupo Continental has entered into a Cross Currency Swap
(CCS) to hedge the fair value of the bonds issued, in the nominal amount of S/. 211
million. Through this Cross Currency Swap, the Bank converts its fixed-rate local
currency issuance into a variable-rate US Dollar issuance. As of June 30, 2014, the fair
value of the CCS amounted to S/. 1 million (loss), and is included in the Results from
financial operations of the consolidated statement of income (as of June 30, 2013 the
fair value amounted to a loss of S/. 34 million).
As of June 30, 2014, Grupo Continental had contracted an Interest Rate Swap (IRS) for
a nominal amount of S/. 2,796 million, with the purpose of changing the USD fix interest
rate debt into variable. Through these Interest Rate Swaps, the Bank gets a fixed
interest rate in US Dollars and pays for a variable interest rate in the same currency. As
of June 30, 2014, the total variation of the fair value of interest rate swaps amounted to
F-165
S/. 14 million (gain) and is included in the Results from financial operations of the
consolidated statement of income (as of June 30, 2013 the variations of the fair value
amounted to a loss of S/. 129 million).
Cash flow hedging derivative
(ii)
16.
As of June 30, 2014, Grupo Continental had entered into Interest Rate Swaps for a
nominal amount of S/. 559 million to hedge interest rates on fixed rate debt. Through
these Interest Rate Swaps, the Bank gets a variable interest rate in US Dollars and
pays for a fixed interest rate in the same currency. As of June 30, 2014, the total
variation of the fair value of interest rate swaps amounted to S/. 1 million, and is
recorded in equity accounts.
INTEREST INCOME
th
Interest income for the six month ended June 30 2014 - compared to 2013 - increased by 3%,
mainly due to the net effect of increased income on loans and decrease in income cash and due
from banks and available-for-sale investments.
17.
INTEREST EXPENSES
th
Interest expenses for the six month ended June 30 , 2014 - compared to 2013 - decreased by
10%, mainly due to the net effect of decreasing interest on obligations with the public and higher
interest paid on securities, titles and outstanding obligations.
18.
ADMINISTRATIVE EXPENSES
th
During the six month ended June 30 , 2014 - compared to 2013 - administrative expenses
increased by 8%. This category includes personnel expenses (salaries, additional benefits,
bonuses, social contributions, length of service compensation, vacation and other staff-related
expenses) and overheads (expenses such as computer services, transportation, rentals,
advertising, overhead expenses, security, surveillance and others).
19.
20.
SUBSEQUENT EVENTS
We are not aware of any significant events having occurred between the financial statements
closing date and the date of this report (September 5, 2014).
F-166
ISSUER
BBVA Banco Continental
Av. Repblica de Panam 3055
San Isidro, Lima 27
Peru
LEGAL ADVISORS
To the Issuer
As to U.S. Federal and New York Law:
Paul Hastings LLP
75 East 55th Street
New York, New York 10022
U.S.A.
As to Peruvian Law:
Miranda & Amado Abogados
Av. Larco 1301, Piso 20, Torre Parque Mar
Miraflores, Lima 18
Peru
As to Peruvian Law:
Rodrigo, Elas & Medrano Abogados
Av. San Felipe 758
Lima 11
Peru
INDEPENDENT AUDITORS
Beltrn, Gris y Asociados S.C.R.L.
Member of Deloitte Touche Tohmatsu Limited
Las Begonias 441, Piso 6
San Isidro, Lima 27
Peru
INDENTURE TRUSTEE, PAYING AGENT, TRANSFER AGENT AND REGISTRAR
The Bank of New York Mellon
101 Barclay Street, 4E New
York, New York 10286
U.S.A.
LUXEMBOURG LISTING AGENT, TRANSFER AGENT AND PAYING AGENT
The Bank of New York Mellon (Luxembourg), S.A.
Corporate Trust Services
Vertigo Building - Polaris
2-4 rue Eugne Ruppert
L-2453
Grand Duchy of Luxembourg
BBVAContinental