UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON,D.C. 20549

 

**FORM20-F**

 

 ̈ REGISTRATIONSTATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE

SECURITIESEXCHANGE ACT OF 1934

OR

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

EXCHANGEACT OF 1934

Forthe fiscal year ended December 31, 2014

OR

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

EXCHANGEACT OF 1934

OR

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

EXCHANGEACT OF 1934

Dateof event requiring this shell company report ______________

Forthe transition period from to

Commissionfile number 1-14014

 

 

 

 

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

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**Indicatethe number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the periodcovered by the annual report.               **CommonShares, par value $5.00 per share                            94,382,317

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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**Ifthis is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct).**

 

 

 

 

CONTENT

 

 

 

 

 

ABBREVIATIONS

 

 

 

 

 

 

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PRESENTATION OFFINANCIAL INFORMATION

 

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

 

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

 

Our five principaloperating subsidiaries are: (i) Banco de Crédito del Perú (which, together with its consolidated subsidiaries, isreferred to as BCP and includes wholesale and retail banking); (ii) Atlantic Security Bank, which we hold through Atlantic SecurityHolding Corporation (which, are referred to as ASB and ASHC, respectively); (iii) El Pacífico-Peruano Suiza Compañíade Seguros y Reaseguros (which together with its consolidated subsidiaries, is referred to as Grupo Pacífico); (iv) PrimaAFP; and (v) Credicorp Capital (which consolidates the companies of our investment banking platform). As of and for the year endedDecember 31, 2014, BCP accounted for 86.0% of our total assets, 80.9% of our net income and 70.2% of our net equity. Unless otherwisespecified, the individual financial information for BCP, ASB, Grupo Pacífico, Prima AFP and Credicorp Capital includedin this Annual Report has been derived from the audited consolidated financial statements of each such entity. See “Item3. Key Information – 3.A Selected Financial Data” and “Item 4. Information on the Company - 4.A History andDevelopment of the Company.” We refer to BCP, ASB, Grupo Pacífico, Prima AFP and Credicorp Capital as our main operatingsubsidiaries, and we refer to Grupo Crédito and ASHC as our two main holding subsidiaries.

 

“Item 3. KeyInformation - 3.A Selected Financial Data” contains key information related to our performance. This information was obtainedmainly from our consolidated financial statements as of December 31, 2010, 2011, 2012 2013 and 2014.

 

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

 

 

In light of changesin the Peruvian economy and Credicorp’s operations in Peru, the Board of Directors of Credicorp Ltd. determined, in itssession held on January 22, 2014, that from and after January 1, 2014 the Peruvian Nuevo Sol would be the functional currencyand the currency in which Credicorp’s financial statements would be presented. This decision was made in accordance withthe International Financial Reporting Standards (IFRS), and specifically IAS 21, based on an analysis performed by Credicorp’smanagement, which revealed that the Nuevo Sol Peruano has become since 2014 the most relevant currency for Credicorp’s subsidiariesin Peru, and specifically for Credicorp’s main subsidiary, Banco de Credito del Peru. This decision does not change thecurrency (U.S. Dollar) in which Credicorp’s equity and the nominal value of its shares are nominated. In accordance withCredicorp’s Bye-lwas, these values remain in U.S. Dollars, the currency in which Credicorp’s stock is listed on theNew York Stock Exchange (NYSE) and on the Lima Stock Exchange (BVL). For this Annual Report, we have restated in Nuevos Solesthe financial information presented for years prior to 2014. The methodology used for the restatement is in accordance with theIFRS and specifically IAS #21 "The Effects of Changes in Foreign Exchange Rates". The methodology applied is explainedin “Item 4. Information on the company - 4.B Business overview - (13) Selected Statistical Information”.

 

Some of our subsidiariesmaintain their operations and balances in U.S. Dollars and other currencies. As a result, this Annual Report contains certainU.S. Dollars amounts translated into Nuevos Soles solely for the convenience of the reader. You should not construe any of thesetranslations as representations that the U.S. Dollar amounts actually represent such equivalent Nuevo Sol amounts or could beconverted into Nuevos Soles at the rate indicated as of the dates mentioned herein, or at all. Unless otherwise indicated, theseNuevo Sol amounts have been translated from U.S. Dollar at an exchange rate of S/.2.986 = US$1.00, which is the December 31, 2014exchange rate set by the Peruvian Superintendency of Banks, Insurance and Pension Funds (SBS by its Spanish initials). Translatingamounts expressed in U.S. Dollars on a specified date (at the prevailing exchange rate on that date) may result in the presentationof Nuevo Sol amounts that are different from the Nuevo Sol amounts that would have been obtained by translating U.S. Dollars onanother specified date (at the prevailing exchange rate on that different specified date). See also “Item 3. Key Information– 3.A Selected Financial Data - Exchange Rates” for information regarding the average rates of exchange between theNuevo Sol and the U.S. Dollar for the periods specified therein. The Federal Reserve Bank of New York does not publish a noonbuying rate for Nuevos Soles. Our Bolivian subsidiary operates in Bolivianos, a currency that has been maintained stable overrecent years. Our Bolivian subsidiary’s financial statements are also presented in Nuevos Soles for consolidation purposes.Our Colombian and Chilean subsidiaries, Credicorp Capital Colombia S.A. Sociedad Comisionista de Bolsa in Colombia (formerly Correval)and Inversiones IMT S.A. Corredores de Bolsa in Chile (formerly IM Trust), operate in Colombian Pesos and Chilean Pesos, respectively,and their financial statements are converted into Nuevos Soles for consolidation purposes.

 

Our management’scriteria for translating foreign currency, for the purpose of preparing the Credicorp Consolidated Financial Statements, are describedin “Item 5. Operating and Financial Review and Prospects- 5.A Operating Results—(1) Critical Accounting Policies –1.2 Foreign Currency Translation.”

 

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CAUTIONARY STATEMENTWITH RESPECT TO FORWARD-LOOKING STATEMENTS

 

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

 

 

 

 

 

 

 

 

 

 

 

 

See “Item3. Key Information - 3.D Risk Factors” and “Item 5. Operating and Financial Review and Prospects”.

 

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

 

 

PART I

 

ITEM 1. IDENTITYOF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

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Not applicable

 

ITEM 2. OFFER STATISTICSAND EXPECTED TIMETABLE

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Not applicable.

 

ITEM 3. KEY INFORMATION

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3.A          Selected Financial Data

 

The following tablepresents a summary of our consolidated financial information at the dates and for the periods indicated. This selected financialdata is presented in Nuevos Soles. You should read this information in conjunction with, and qualify this information in its entiretyby reference to, the Consolidated Financial Statements, which are also presented in Nuevos Soles.

 

The summary of ourconsolidated financial data as of, and for the years ended, December 31, 2010, 2011, 2012, 2013 and 2014 is derived from the ConsolidatedFinancial Statements audited by Paredes, Zaldívar, Burga & Asociados S.C.R.L, member of EY Global, independent registeredpublic accountants.

 

The report of Paredes,Zaldívar, Burga & Asociados S.C.R.L on the Consolidated Financial Statements as of December 31, 2013 and 2014 and forthe years ended December 31, 2012, 2013 and 2014 appears elsewhere in this Annual Report.

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**SELECTED FINANCIALDATA**

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*Exchange Rates*

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

 

Source: Bloomberg

 

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

 

Source:Bloomberg

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

 

The average of thebid and offered free market exchange rates published by the SBS for April 21, 2015 was S/.3.131 per US$1.00.

 

 

Not applicable.

 

 

Not applicable.

 

 

 

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

 

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

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Most operationsof BCP, Grupo Pacífico, Prima AFP, and a significant part of Credicorp Capital’s operations are located in Peru.In addition, while ASB is based outside of Peru, most of its customers are located in Peru. Therefore, our results are affectedby economic activity in Peru. Changes in economic conditions, both international and domestic, or government policies can alterthe financial health and normal development of our business. The changes may include, but are not limited to, high inflation,currency devaluation, confiscation of private property and financial regulation. Similarly, terrorist activity, political andsocial unrest as well as possible natural disasters (i.e. earthquakes, flooding, etc.) can adversely impact our operations.

 

Peru has a longhistory of political instability that includes military coups and a succession of regimes with that featured heavy governmentintervention in the economy. In 1990, Alberto Fujimori took office as president in the middle of hyperinflation (7,649.726% in1990) and insecurity due to terrorist activities. Market-based reforms and the gradual success of the authorities in capturingterrorist leaders allowed the country to stabilize, and by 1995 Fujimori was re-elected. The administration was accused of authoritarian,especially after closing Congress in 1992 and crafting a new constitution. The administration also faced several corruption charges.Shortly after starting a controversial third term, Fujimori resigned the presidency and a transitional government led by ValentinPaniagua called for elections to be held in April 2001. After spending several years in Japan, Fujimori was brought back to Peruand was sentenced in 2009 to 25 years in prison for human rights violations. The governments that have been elected since 2001are those of Alejandro Toledo; from 2001 to 2006, Alan García, from 2006 to 2011; and Ollanta Humala, whose current termbegan in 2011 and ends in 2016. These administrations, despite different policy priorities, have been characterized by politicalfractioning (more than ten different political organizations have nominated candidates for president in each of the three electionssince 2001), low popularity (usually around 20% - 30% approval ratings) and mostly cordial relationships with neighboring countries.

 

During the last10 years, Peru has experienced a period of relative economic and political stability, especially compared to the period between1980 and 2000. This stability has benn reflected in Peru’s compounded annual growth rate of 5.3% (2005 – 2014); threeconsecutive democratic transitions; a relatively consistent free-market approach to economic policy; and GDP per capita, whichreached a historical high of US$6,625 (equivalent to S/.19,782 at an exchange rate of S/.2.986) in 2014, according to the IMF.Nevertheless, political risk is still present and it is possible that a radical candidate with more interventionist economic policiescould prevail in a presidential election. Current president Ollanta Humala was elected in 2011 on a far-left policy platform,which was cast aside after he assumed office, and there is a sizeable portion of the electorate still demanding an economy thatis more reliant on public spending. Therefore, the risk of political and economic change should be carefully considered.

 

 

Peru also has ahistory of domestic terrorism. Between the late 1970s and the early 1990s, both Shining Path (Sendero Luminoso) and MRTA (by itsSpanish initials, Movimiento Revolucionario Túpac Amaru) conducted a series of terrorist attacks that caused thousandsof casualties and affected normal political, economic and social activities in many parts of the country, including Lima, thecapital. In 1992, the leader of Shining Path, Abimael Guzmán, was captured and later sentenced to life in prison (a newtrial affirmed the sentence in 2006). Most other members of Shining Path, as well as MRTA, were also captured and sentenced toprison terms by the end of the 1990s. However, in late 1996 a group of MRTA members stormed the residence of Japan’s Ambassadorto Peru and held a group of politicians, diplomats and public figures hostage for approximately four months. In April 1997, amilitary operation put an end to the hostage situation: all 14 terrorists died in the confrontation while all but one hostagesurvived. Since then, and for the following 18 years, terrorist activity in Peru has been mostly confined to small-scale operationsin the Huallaga Valley and the VRAE (Valleys of Rivers Apurimac and Ene) areas, both in the Eastern part of the country. In 2012,the Peruvian government captured Florindo Flores, one of the last remaining leaders of Shining Path and thus gravely weakenedthe organization’s activities in the Huallaga Valley.

 

Despite these efforts,terrorist activity and the illegal drug trade, it has come to protect, continue to be key challenges for Peruvian authorities.The Huallaga Valley and VRAE constitute the largest areas of coca cultivation in the country and thus serve as a hub for the illegaldrug trade. Any violence derived from the drug trade or a resumption of large-scale terrorist activities could hurt our operations.

 

Another source ofrisk is related to political and social unrest in areas where mining, oil and gas operations take place. In recent years, Peruhas experienced protests against mining projects in several regions around the country. Mining is an important part of the Peruvianeconomy, representing approximately 51% of the country’s exports, while oil and gas represent 12% according to the BancoCentral de Reserva del Peru (BCRP by its Spanish initials) or the Peruvian Central Bank. In several occasions, local communitieshave opposed these operations and accused them of polluting the environment and hurting agricultural and other traditional economicactivities. In late 2011 and throughout 2012, social and political tension peaked around Conga, a gold project in the northernregion of Cajamarca. The launch of Conga, which involved investments of approximately US$4.5 billion, failed to launch as a resultof the protests. The government commissioned an Environmental Impact Study developed by international experts which introducedrecommendations for the project.

 

Mining and oil andgas sectors represent approximately 10% and 2% of Peru’s GDP, respectively; and they attract significant foreign and localprivate investment. Therefore, further delays or cancellations of mining projects could reduce economic growth and business confidence,thereby hurting the financial system both directly (many mining projects are at least partially financed by local financial institutions)and indirectly (overall economic activity could decelerate).

 

 

***(2)Foreign exchange fluctuations and exchange controls may adversely affect our financial condition and results of operations.***

 

Since January 1,2014, the functional currency of our financial statements has been the Nuevo Sol; however, Credicorp’s subsidiaries generaterevenues in Nuevos Soles, U.S. Dollars, Bolivian Pesos, Colombian Pesos, and Chilean Pesos. BCP, BCP Bolivia, ASB, Credicorp CapitalColombia and IM Trust are particularly exposed to foreign exchange fluctuations. As a result, the fluctuation of our functionalcurrency against other currencies could have an adverse impact on our results. In addition, any exchange controls implementedin the countries in which we operate may adversely affect our financial condition and results of operations.

 

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

 

Peru’s foreignreserves currently compare favorably with those of many other Latin American countries. However, a reduction in the level of foreignreserves will impact the country’s ability to meet its foreign currency-denominated obligations. A decline in Peruvian foreignreserves to inadequate levels, among other economic circumstances, could lead to currency devaluation or a volatility of short-termcapital inflows.

 

In our banking business,mainly the business we conducted through BCP, we also face foreign exchange risk on credit that we extend. To address this risk,BCP’s Foreign Exchange Credit Risk Management identifies borrowers that may not meet their debt obligations due to currencymismatches by applying sensitivity analyses of the credit rating of companies and the debt-service capacity of individuals. Then,we classify borrowers according to their level of foreign exchange credit risk exposure. We closely monitor these clients and,on an ongoing basis, we revise our risk policies to underwrite loans as well as to manage our portfolio of foreign currency denominatedloans; however, these policies may not sufficiently address our foreign exchange risk, resulting in adverse effects on our financialcondition and results of operation.

 

We have taken stepsto manage the gap between our foreign currency-denominated assets and liabilities in several ways, including closely matchingtheir volumes and maturities. Nevertheless, a sudden and significant devaluation of the Nuevo Sol could have a material adverseeffect on our financial condition and results of operations. See “Item 11. Quantitative and Qualitative Disclosures aboutMarket Risk - (9) Foreign Exchange Risk.”

 

For informationon the macroeconomic scenarios in Bolivia, Colombia and Chile, in which we operate, see “Item 3. Key Information –3D. Risk factor – (7) Our banking and capital market operations in neighboring countries expose us to risk related to politicaland economic conditions”.

 

 

***(3)  It may be difficult to serve process on or enforce judgments against us or our principals residing outside of theUnited States.***

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

 

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

 

***(4)  Our ability to pay dividends to shareholders and to pay corporate expenses may be adversely affected by the abilityof our subsidiaries to pay dividends to us.***

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

 

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

 

 

***(5) Regulatory changes to sectors in which we operate could impact our earnings and adversely affect our operating performance.***

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*Banking*

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

 

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

 

The SBS and thePeruvian Central Bank supervise and regulate BCP’s operations. Peru’s constitution and the SBS’s statutory chartergrant the SBS the authority to oversee and control banks and other financial institutions, including pension funds and insurancecompanies. The SBS and the Peruvian Central Bank have general administrative responsibilities over BCP, including defining capitaland reserve requirements. In past years, the Peruvian Central Bank has, on numerous occasions, changed the deposit reserve requirementsapplicable to Peruvian commercial banks as well as the rate of interest paid on deposit reserves and the amount of deposit reserveson which no interest is payable by the Peruvian Central Bank. Such changes in the supervision and regulation of BCP may adverselyaffect our results of operations and financial condition. See “Item 4. Information on the Company — 4.B Business Overview— (12) Supervision and Regulation — 12.2 BCP”. Furthermore, changes in regulation related to consumer protectionmay also affect our business.

 

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

 

In Colombia, weare subject to supervision and regulation through the Superintendencia Financiera de Colombia and the Autorregulador del Mercadode Valores de Colombia. In Chile, we are subject to supervision and regulation through the Superintendencia de Valores y Seguros.See “Item 4. Information on the Company — 4.B Business Overview — (12) Supervision and Regulation — 12.5Credicorp Capital”.

 

Changes in U.S.laws or regulations applicable to our business, or the adoption of new regulations, such as under the Foreign Account Tax ComplianceAct (FATCA) or the Dodd-Frank Wall Street Reform and Consumer Protection Act, may have an adverse effect on our financial performanceand operations.

 

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

 

 

Similarly, we areregulated by other governmental entities in other jurisdictions. In the Cayman Islands, we are subject to the supervision andregulation of the Cayman Islands Monetary Authority (CIMA). In Bolivia, we are subject to the supervision of the Financial SystemSupervisory Authority (ASFI by its Spanish initials) that has assumed all regulatory functions held previously by the Superintendencyof Banks and Financial Entities and the Superintendency of Pensions, Securities and Insurance.

 

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

 

On February 15,2011, the Peruvian government enacted Law No. 29663. On July 21, 2011, Law No. 29663 was amended by Law No. 29757. This law partiallymodifies the country’s income tax regime by subjecting to taxation in Peru capital gains derived from an indirect transferof shares and expanding the type of income that will qualify as Peruvian-source income. Under the 2011 law, any transfer of sharesissued by a non-resident entity will be subject to taxation in Peru (30% or 5%) if at any point during the 12 prior months tosuch transfer:

 

 

 

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

 

 

 

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

 

 

 

 

 

 

 

 

*Insurance*

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Our insurance businessis carried out by Pacífico Seguros Generales and Pacífico Vida which together with Pacífico Salud are partof Grupo Pacífico. The insurance business is subject to regulation by the SBS. New legislation or regulations may adverselyaffect Grupo Pacífico’s ability to underwrite and price risks accurately, which in turn would affect underwritingresults and business profitability. Grupo Pacífico is unable to predict whether and to what extent new laws and regulationsthat would affect its business will be adopted in the future. Grupo Pacífico is also unable to predict the timing of anysuch adoption and the effects any new laws or regulations would have on its operations, profitability and financial condition.However, in years to come we expect Peru to adopt new legislation, similar to the measure enacted by the European Union throughSolvency II, which sought to further reduce the insolvency risk faced by insurance companies through improving the regulation regardingthe amount of capital that insurance companies in the European Union must hold.

 

Credicorp also assumesreinsurance risk in the normal course of business for non-life and life insurance contracts when applicable. Premiums and claimson assumed reinsurance are recognized as revenue or expenses in the same manner as they would be if the reinsurance were considereddirect business, taking into account the product classification of the reinsured business.

 

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

 

To price premiumrates accurately, Grupo Pacífico must:

 

 

 

 

  

 

 

If Grupo Pacíficofails to assess accurately the risks that it assumes or does not accurately estimate its retention, it may fail to establish adequatepremium rates. Failure to establish adequate premium rates could reduce income and have a materially adverse effect on its operatingresults or financial condition. Moreover, there is inherent uncertainty in the process of establishing life insurance reservesand property and casualty loss reserves. Reserves are estimates based on actuarial and statistical projections at a given pointin time of what Grupo Pacífico ultimately expects to pay out on claims and the related costs of adjusting those claims,based on the facts and circumstances then known. Factors affecting these projections include, among others, in the case of lifeinsurance reserves: changes in mortality/longevity rates, interest rates, persistency rates and regulation; and in the case ofproperty and casualty loss reserves: changes in medical costs, repair costs and regulation. Any negative effect on Grupo Pacíficocould have a material adverse effect on our results of operations and financial condition.

 

*Pension fund*

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Even though private pensionfund managers have always been closely regulated by the SBS, in 2012, the Peruvian Government adopted the Law to Reform the PrivatePension System (SPP by its Spanish initials). The reform aimed to achieve increased competition and efficiency and to reduce administrationcosts. The law sets forth a new process by which individuals, which are called affiliates, may become beneficiaries affiliatedwith the SPP. The relevant changes that are contemplated in this Law are:

 

 

 

 

 

 

  

In December 2012, thefirst tender process was held to determine who would manage the accounts of new affiliates for a two year period. A new participantin the SPP won, and started operations on June 1, 2013. In December 2014, the second tender process was held. Given the requirementsto participate in the process, Prima AFP decided not to bid, and instead decided to focus on maintaining customer service levelsand the value proposition that the company offers its affiliates.

 

According to Law No.29903 and Law No. 30082, as of August 01, 2014, independent workers born after August 1973 are required to make obligatory contributionsto one of the two pension systems currently in place (SPP or ONP by its Spanish initials). Nevertheless, on September 18, 2014,Law No. 30237 went into effect and repealed the aforementioned law. This new legislation stipulates that independent workers canvoluntarily, rather than obligatorily, choose to affiliate with the SPP or ONP. The obligatory contributions that were collectedto comply with the law that was eventually repealed must be returned or included in a pension calculation recognition scheme chosenby the independent worker.

 

The Law to Reform thePrivate Pension System will be implemented in phases. See “Item 4. Information on the Company — 4.B Business Overview— (12) Supervision and Regulation— 12.7 Prima AFP”.

 

***(6) A deteriorationin the quality of our loan portfolio may adversely affect our results of operations.***

*** ***

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

 

In addition, loan concentrationin commercial sectors is particularly salient in Peru and significant deterioration in such sectors may have a material adverseeffect on our business, financial condition and results of operations. Our current strategy includes increasing our exposure tomarket segments with heightened credit risk, including middle-market and consumer segments, such as unsecured small companies andconsumer loans and consumer mortgages, which have higher risk profiles as compared to loans to large corporate customers. Giventhe changing composition of our loan portfolio and possible adverse changes in the environment in which we operate, our futureresults may differ significantly from our past results.

 

  

***(7) Ourbanking and capital market operations in neighboring countries expose us to risk related to political and economic conditions.***

*** ***

Banco de Créditode Bolivia, Credicorp Capital Colombia and IM Trust expose us to risk related to Bolivian, Colombian and Chilean political andeconomic conditions, respectively. Most economies in Latin America and the Caribbean experienced low economic growth in 2014, dueto: (i) weak global demand, (ii) a fall in export prices of some countries, and (iii) sluggish investment. Significant changesto Bolivian, Colombian and Chilean political and economic conditions could have adverse effect on our business, financial conditionand results of operations.

 

*Bolivia*

* *

Most of the operationsand customers of Banco de Crédito de Bolivia, BCP’s commercial bank in Bolivia, are located in that country. Accordingly,our results of operations and financial condition depend on Bolivia’s economic activity and political environment.

 

In October 2014, EvoMorales was reelected as president of Bolivia for a period of six years. During this third term, the government is expected tocontinue the economic policies and reforms of the first two presidential terms of Mr. Morales, which concentrated on redistributionprograms through different bonus schemes, on deepening the industrialization of strategic economic sectors and on closing Bolivia’sinfrastructure gap. Given the government’s high dependence on income from exports of natural gas to Brazil and Argentina,declines in the price of the gas exported (which is linked to the price of oil) could strain government finances and reduce itsability to continue the high levels of public spending of the last several years.

 

During 2014, Bolivia’smacroeconomic indicators continued the positive trend observed over the last several years. This trend is reflected in: (i) a GDPgrowth of 5.5%, one of the highest growth rates in South America, (ii) increasing international reserves (up 4.8% when comparedto 2013), and (iii) a stable annual inflation rate of 5.2%. A new financial services law (Ley de Servicios Financieros N° 393)was effective throughout 2014, and all pending regulations related to lending quotas and caps on interest rates were published.These new regulations that look to redirect lending towards productive sectors of the economy and to social housing at controlledrates, could negatively impact interest margins on banks and reduce their ability to generate enough capital to maintain the growthrates in their lending portfolios observed during the last several years.

 

  

*Colombia*

* *

Colombia’s principalmacroeconomic indicators have been generally positive over the last several years. In 2014, Colombia posted an economic growthof 4.8% led by domestic demand, mainly due to a strong pace of public investment and private consumption. Also, the expansion ofColombia’s economic activity was a result of high oil prices in previous years, and reforms carried out in recent years,including: (i) the expansionary fiscal policy that became effective in 2012, (ii) the 2012 tax reform that entailed a reductionof hiring costs for firms, and (iii) the royalty reform that redistributed the resources from oil-mining activity across the country.However, since mid-2014 the sharp reduction in oil prices started to impact the confidence of investors in the local markets, particularlyconsidering the high contribution of the oil sector to fiscal revenues (around 30%). Indeed, the government presented a tax reformto Congress, which was approved in December 2014, in order to increase tax collection by 12.5 trillion Colombian Pesos (1.7% ofGDP). The main aspect of the new tax bill is that the corporate income tax will be increased from 34% in 2014 to 43% in 2018, whichhas negatively affected the performance of the Colombian stock market.

 

*Chile*

* *

In Chile, tax reformwas enacted along with a greater group of proposed reforms (educational, health, labor, political, etc.) in 2014 which gave riseto uncertainty and negatively affected private investment. This hampered the rest of the economy, lowering the pace of expansionof household consumption, despite the fact that unemployment just worsened marginally. Profits of exchange listed companies alsodeclined, except for the banking system (helped by a higher inflation), and consequently the performance of the Selective PriceIndex Shares (IPSA by its Spanish initials) was weak. This, together with a stronger dollar, led institutional investors (mainlyPension Funds) to invest abroad, leading to a smaller trading volume locally in Chile. At the end of 2014, lower oil prices andweaker activity from Europe, Japan and China, drove copper prices down, a trend that has continued during the first month of 2015.Although, there is a broad consensus that the copper market has better fundamentals than other commodities, the price of copperhas not recovered from its recent lows, and has kept propelling depreciation of the peso. This has resulted in a cycle where thealready fragile local economic mood in Chile is worsened by the potential for sustained low copper prices. While lower oil priceshelp boost consumption and growth, copper has a greater negative impact on Chile’s economy.

 

**(8) Our tradingactivities expose us to volatility in market prices, declines in market liquidity or fluctuations in foreign currency exchangerates, which may result in losses that could have a material adverse effect on our business, financial condition and results ofoperations.**

 

The securities and derivativefinancial instruments in our trading portfolio may cause us to record gains or losses, when sold or marked to market, and may fluctuateconsiderably from period to period due to numerous factors that are beyond our control, including foreign currency exchange rates,interest rate levels, the credit risk of our counterparties and general market volatility. These losses from trading activitiescould have a material adverse effect on our business, financial condition and results of operations. In this sense, risk is inherentin the Group’s trading activities but it is managed through a process of ongoing identification, measurement and monitoring,subject to risk limits and other controls. This process of risk management is critical to the Group’s continuing profitability.

 

  

**(9) Naturaldisasters in Peru could disrupt our businesses and affect our results of operations and financial conditions**

** **

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

 

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

 

Our subsidiary GrupoPacífico is further exposed to risks associated with natural disasters in Peru as an insurance business. To protect GrupoPacífico’s solvency and liquidity, our insurance business historically has obtained reinsurance for a substantialportion of its earthquake-related risks through automatic quota share and excess loss treaties; however, there can be no assurancethat a major catastrophe would not have a material adverse impact on our results of operations or financial condition or that ourreinsurance policies will be an effective hedge against our exposure to risks resulting from natural disasters. Our current maximumcatastrophic exposure, net of reinsurance is S/.5.9 million.

 

***(10) Weoperate in a competitive banking environment that may limit our potential to grow, particularly in the medium term as more foreignbanks establish or expand operations in Peru.***

*** ***

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

 

 

 

 

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

 

  

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

 

As a result of Peru’sstrong economic growth, which has outpaced growth by nearby countries, several banks have sought and obtained authorization toopen representative offices in Peru. Itaú Unibanco, Banco Latinoamericano de Comercio Exterior (Bladex), Morgan StanleyBank and Bank of Tokyo Mitsubishi UFJ (BTMU) are among those banks receiving authorization. With the increased competition, moreindividuals will have access to credit, and the percentage of the population using baking services will likely climb. This willeventually put downward pressure on interest rates. Any negative impact on BCP as a result of increased competition could havea materially adverse effect on our results of operations and financial condition.

 

***(11) Economicand market conditions in other countries may affect the Peruvian economy and the market price of Peruvian securities.***

*** ***

Economic conditions inother countries and developments in international financial markets can affect Peru’s economic growth. The country’sexports are highly concentrated in the mining industry, with corporate income taxes levied on the sector representing approximately7% of the Peruvian government’s total revenues. In addition, gold and copper exports represent 42.2% of all shipments. Therefore,Peruvian trade respond significantly to fluctuations in metal prices, especially gold and copper. In 2013 and 2014, reductionsin gold and copper prices (28.3% and 7.0% in 2013, 1.4% and 16.8% in 2014, respectively) led to lower trade, which fell 4.7% and5.7%, respectively.

 

In addition to changesin prices, Peru is also vulnerable to fluctuations in foreign demand, especially from the United States and China. A more pronouncedeconomic slowdown in China over the next years poses a risk to Peruvian growth as it may hurt exports and foreign direct investment.Lower growth in Latin America can also hurt the Peruvian economy and our business, especially in the cases of Chile, Colombia andPanama, where we have operations, as well as Brazil and Mexico, which have a broad impact throughout the region because of theirsize.

 

Finally, financial conditionsin global markets also affect the economy, affecting interest rates for local corporate bonds and influencing the exchange rate.Monetary tightening in developed economies, particularly on the part of the Federal Reserve System in the United States, couldaffect economic activity in Peru to the degree that it strengthens the dollar and increases interest rates, thereby reducing accessto funding for some local businesses. Also, since the Peruvian economy is highly dollarized (38% of loans and 41% of deposits),potential balance-sheet effects should also be contemplated since a higher exchange rate could increase debt burdens for individualsand businesses that have taken loans in dollars but have earned their income in local currency.

 

  

However, the BCRP hasrecently taken steps to foster de-dollarization and thus reduce this vulnerability by:

 

 

 

 

 

The aforementioned calculationswill not include lending to exporters and importers or long-term financing for projects.

 

***(12) Afailure in, or breach of, our operational or security systems could temporarily interrupt our businesses, increasing our costsand causing losses.***

*** ***

We have defined and implementedgovernance with specific roles for risk and control assessment, monitor and awareness programs, security initiatives, businessobjectives, corporative alignment and regulatory compliance with banking, credit card, insurance and pension fund industry requirementsin Peru, Bolivia, Chile, Colombia, Panama, Cayman Island and the United States of America.

 

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

 

Credicorp has not experiencedany material losses related to cyber-attacks or operational stability. Credicorp is continuously working and investing resourcesin maintaining and updating control processes in order to prepare and adapt to new technologies. However our use of the internetand telecommunications technologies to conduct financial transactions, as well as the increased sophistication and activities oforganized criminals, hackers and other external parties can impact the confidentiality, integrity and availability of criticalinformation.

 

  

***(13) Acquisitionsand strategic partnerships may not perform as expected, which could have an adverse effect on our business, financial conditionand results of operation.***

*** ***

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

 

ITEM 4.  INFORMATION ON THE COMPANY

* *

 

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

 

As of December 31, 2014,our total assets were S/.134.8 billion and our net equity was S/.14.6 billion. Our net income attributable to our equity holdersin 2012, 2013 and 2014 was S/.2,079.6 million, S/.1,538.3 million and S/.2,387.9 million, respectively. See “Item 3. KeyInformation — 3.A Selected Financial Data” and “Item 5. Operating and Financial Review and Prospects”.

 

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

 

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

 

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

 

  

In October 2009, BCPacquired from the Cooperative for Assistance and Relief Everywhere Inc. (CARE) – Perú, all the shares that this entityowned of Empresa Financiera Edyficar S.A. (Edyficar), representing 77.12% of Edyficar’s capital stock. In accordance withPeruvian legal requirements in effect at the time, BCP made a public offering to Edyficar’s non-controlling shareholdersto acquire the remaining 22.67% of the company’s stock. The total purchase price for the acquisition was US$96.1 million(equivalent to S/.274 million), including related direct acquisition costs. As of December 31, 2014 BCP owned 99.90% of Edyficar.

 

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

 

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

 

In the second half of2011, Pacífico Salud invested approximately S/.225.1 million to create its own private medical services network in Peruby acquiring majority shares to directly manage: (i) the El Golf, San Borja and Oncocare clinics in Lima, (ii) the Galeno clinicin Arequipa, (iii) Laboratorios ML, a clinical laboratory, and (iv) Doctor+, which is a house call/ambulance service. In 2012,Pacífico Salud invested S/.102.7 million to increase its integrated insurance and health providing services by acquiring:(i) Clínica Belén S.A., (ii) Centro Odontológico Americano, (iii) Prosemedic S.A., (iv) Clínica SánchezFerrer S.A. and Inversiones Marsfe S.R.L., and (v) Bio Pap Service S.A.C. We believe that these acquisitions enable PacíficoSalud to directly benefit from this sector’s growth and to strategically defend against potential changes in the healthcareservice supply chain, where vertical integration in the insurance business is becoming more frequent.

 

  

During 2012, Credicorp,as part of our strategic plan, initiated the creation of a regional investment banking platform. On April 27, 2012, Credicorp,through its subsidiary BCP, acquired a 51% stake in Credicorp Capital Colombia (formerly Correval S.A. Sociedad Comisionista deBolsa), a brokerage entity established in Bogota, Colombia, for approximately US$72.3 million (equivalent to S/.190.9 million).In June 2013, BCP transferred its shares to Credicorp Capital Ltd., without affecting Credicorp’s consolidated financialstatements and without recording any gain or loss. On July 31, 2012, Credicorp, through its subsidiary BCP, acquired 60.6% of IMTrust S.A. (IM Trust, Corredores de Bolsa), an investment banking entity established in Santiago, Chile, for approximately US$131.5million (equivalent to S/.351.2 million), of which US$110.9 million was paid in cash consideration at the acquisitions date andUS$20.6 million was paid in cash in July 2013. In November 2012, BCP transferred its shares to Credicorp Capital Ltd., withoutaffecting Credicorp’s consolidated financial statements and without recording any gain or loss. For our investment bankingoperations in Peru, we created Credicorp Capital Perú S.A.A. (formerly BCP Capital), a company incorporated in Peru thatwas established in April 2012 through the split of an equity block of BCP. This split resulted in a reduction of BCP’s assets,liabilities and net equity in an amount of S/.184.7 million, S/.46.7 million and S/.138.0 million, respectively. Assets transferredincluded Credicorp Capital Bolsa, Credicorp Capital Titulizadora, Credicorp Capital Fondos and BCP’s investment banking activities.The equity block split had no effect in Credicorp’s consolidated financial statements; no gains or losses arose from it.

 

In 2012, we establishedCredicorp Capital Ltd. in Bermuda to hold the Group’s investment banking activities in Chile, Colombia and Peru. As of December31, 2014, Credicorp Capital held directly and indirectly 60.6% of IM Trust and 51.0% of Credicorp Capital Colombia.

 

 

At Credicorp Capital’sshareholder meeting held on September 11, 2013, the Company agreed to increase Credicorp Capital Ltd.’s share capital inthe Company by US$3.9 million (equivalent to S/.10.9 million) in exchange for 100% of the share value of Credicorp Capital SecuritiesInc., which Credicorp Ltd. controls. Credicorp Capital Securities Inc. is incorporated in the United States of America and providessecurities brokerage services, mainly to retail customers in Latin America.

 

  

At Grupo Crédito’sshareholder meeting held on February 3, 2015 approved the draft terms of split of equity block of Grupo Crédito in favourof Credicorp Capital Holding Perú S.A., a company incorporated on September 3, 2014 and a subsidiary of Credicorp CapitalLtd., with the aim of implementing a reorganization of Credicorp’s investments. The equity block is composed of the investmentthat Grupo Crédito held in Credicorp Capital Peru, whose net equity is approximately S/.511.3 million as of December 31,2014. As a result, Grupo Crédito will reduce its share capital in approximately S/.491.7 million and its "unrealizedresults" in approximately S/.19.6 million. Credicorp Capital Holding Peru also will increase its share capital in about S/.491.7million and its "unrealized results" in approximately S/.19.6 million. In this regard, it will issue 491,686,830 newshares with a nominal value of S/.1.00 each shareholder in favour of Credicorp Ltd (shareholder of Grupo Crédito)

 

On March 20, 2014, Credicorp,through its subsidiary Empresa Financiera Edyficar S.A., acquired 60.68% stake of Mibanco, Banco de la Microempresa S.A. (Mibanco),a local bank that specialized in the micro and small entities sector, for approximately S/.504.8 million or US$179.5 million, incash. On April 8, 2014, Grupo Crédito S.A. and Empresa Financiera Edyficar S.A., subsidiaries of Credicorp Ltd., acquiredfrom the International Finance Corporation (IFC) an additional 6.5% of stake in Mibanco (5% through Grupo Crédito S.A. and1.5% through Empresa Financiera Edyficar S.A.) for an equivalent of S/.54.1 million. In addition, Credicorp’s subsidiariesmade a Public Tender Offer (Oferta Pública de Adquisición or OPA by its Spanish initials) to non-controlling shareholdersof Mibanco pursuant to the Capital Markets Law. Credicorp acquired in July 2014, an additional 18.56% of Mibanco’s capitalstock for approximately S/.153.6 million; and in September 2014, we acquired an additional 1.19% forapproximately S/.10 million. As of December 31, 2014, Credicorp held 86.93% of Mibanco’s capital stock and paid an aggregateof approximately S/.722.5 million. As of December 31, 2014, Mibanco’s assets, liabilities, equity and net loss (unauditedfigures prepared in accordance with IFRS accounting rules) amounted to S/.5,575.1 million; S/.5,140.8 million; S/.434.3 million;and S/.56.2 million, respectively. On March 2, 2015, the merger between Edyficar and Mibanco closed. The transaction involved aspin-off of the majority of the assets and liabilities of Edyficar and its subsequent merger into Mibanco.

 

 

**(1) Credicorp Operating Segments**

** **

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

 

The terms “Peruviancommercial bank,” “Peruvian insurance company” and other similar terms used in this Annual Report do not includethe assets, results or operations of any foreign parent company or foreign subsidiary of such Peruvian company.

 

  

**1.1****Banking**

** **

Our banking businessis principally focused on commercial and consumer loans, credit facilities, deposits, current accounts and credit cards. We conductour banking business primarily through BCP, the largest (in terms of total assets, loans, deposits, net equity and net income)full-service Peruvian commercial bank, and our ASB private banking and asset management firm.

 

The majority of our bankingbusiness is carried out through BCP which, together with Edyficar and Mibanco, held 33.7% of the Peruvian market share in loansand 33.9% market share in deposits, as of December 31, 2014. A portion of our banking business is also carried out by ASB, whichprincipally serves Peruvian private banking customers through offices in Panama. We conduct banking activities in Bolivia throughBCP Bolivia, a full service commercial bank which maintained a 10.5% market share of current loans and a 10.2% market share oftotal deposits in Bolivia as of December 2014. BCP Bolivia is fourth with respect to loan market share and fifth with respect todeposit market share in the Bolivian banking system.

 

Our banking business,in terms of lending and investment, is organized into (i) wholesale banking activities, including our corporate and middle-marketbanking business segments, which are carried out by BCP’s Wholesale Banking Group (WBG); (ii) retail banking activities,including our SME-Business, SME-Pyme, mortgage, consumer financing, credit card and wealth management, which are carried out byBCP’s Retail Banking & Wealth Management Group (RB&WM); (iii) treasury activities, including money market trades,foreign exchange trading, derivatives and proprietary trading; (iv) microlending, which is conducted through Edyficar and Mibanco;(v) wholesale and retail banking activities in Bolivia; and (vi) private banking, asset management and proprietary investment activities,which we perform through Atlantic Security Bank (ASB), which is a Cayman Islands licensed bank.

 

We apply uniform creditpolicies and approval and review procedures, which are based on conservative criteria adopted by BCP, to all of BCP’s subsidiaries.Our Chief Operating Officer (COO) is in charge of setting the general credit policies for our different business areas. These policiesare set within the guidelines established by Peruvian financial sector laws and SBS regulations (see “Item 4. Informationon the company – 4.B Business Overview - (12) Supervision and Regulation — 12.2 BCP”) and the guidelines setforth by our Board of Directors.

 

Our deposit-taking operationsare principally managed by BCP’s RB&WM group and ASB’s private banking group. See “Item 4. Information onthe company – 4.B Business Overview - (13) Selected Statistical Information — 13.3 Deposits.”

 

**1.2 Insurance**

** **

We conduct our insurancebusiness exclusively through Grupo Pacífico, which is the second largest Peruvian insurance company in terms of premiums,fees and net income. Our subsidiary provides a broad range of insurance products. Grupo Pacífico focuses on three businessareas: property and casualty insurance through Pacífico Seguros Generales, life and pension insurance through PacíficoVida, and health care insurance through Pacífico EPS, which also conducts private hospital operations. Grupo Pacífico,like other major Peruvian insurance companies, sells its products both directly and through independent brokers, agents, bankingchannels and sponsors.

 

  

**1.3 Pension funds**

** **

Credicorp conducts allof its pension fund activities through its private pension fund administrator Prima AFP. During 2014, Credicorp through its subsidiaryPrima AFP was able to strengthen its position in the market by adjusting its processes and organization to provide high-qualityservice and timely and transparent information to its clients.

 

The year 2014 was markedby a series of events linked to the implementation of reforms to the SPP. New local and foreign investment regulations gave riseto increased flexibility in SPP’s registration process for new investment securities. Under the new regulations, AFPs canmake non-complex investments through vehicles such as bonds, shares and mutual funds without authorization from the SBS. Additionally,AFPs can use financial derivatives without authorization from the SBS subject to certain restrictions, such as specific limitsregarding each type of fund. These changes are expected to improve the management and risk-return profile of our portfolios whileproviding flexibility and additional opportunities to execute these kinds of transactions. See “Item 4. Information on theCompany - 4.B Business Overview - (12) Supervision and Regulation - 12.7 Prima AFP”.

 

**1.4 Investment Banking**

** **

The integration of LatinAmerican markets is a strategic focus for Credicorp. The creation of the MILA (by its Spanish initials), a Latin American integratedmarket shared among Chile, Colombia and Peru, has opened up opportunities to further integrate asset management, brokerage andcorporate finance cross-border operations. This can offer benefits for companies that have a significant presence in these markets.Since the formation of the MILA, Credicorp’s investment banking business units grouped under Credicorp Capital have beenvery active. Credicorp Capital carries out its operations in the region through Credicorp Capital Perú, Credicorp CapitalColombia (formerly, Correval) and IM Trust, holding considerable market shares in the Peruvian, Colombian and Chilean markets,respectively. Through these entities we perform operations in three business lines: asset management, sales & trading and corporatefinance.

 

*Asset Management*

* *

Through the regionalplatform provided by the MILA, we offer a wide array of products, including mutual, investment and alternative funds, as well asstructured, cross-border and offshore initiatives to a broad base of clients, including clients in our retail, private and highnet worth, corporate and institutional segments.

 

  

*Sales & Trading*

* *

Through its sell-sideresearch engine, our regional investment banking platform has an active role in secondary markets, particularly equity and fixedincome products, as well as exchange rate products and derivatives. Participation in the issuance and placement of equity and debtinstruments, vis-à-vis our corporate finance team, is becoming equally relevant.

 

*Corporate Finance*

* *

Corporate finance providesadvisory services to structure mid- and long-term financing and structure and place equity and fixed income instruments in capitalmarkets. Also offer a wide range of financial advisory services and advisory services for mergers and acquisitions.

 

**(2) Strategy**

** **

Credicorp was establishedto create a financial group that would benefit from synergies among the group’s companies and would become a leader withineach business market in which the companies operate to maximize our shareholders’ return on equity. Our long-term strategyconsists of four strategic pillars: efficient growth; outstanding risk management; focus on client satisfaction; and motivatedemployees. We seek to achieve an optimal balance of market share, profitability and operating efficiency.

 

*Efficient growth*

* *

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

 

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

 

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

 

  

*Adequate risk management*

* *

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

 

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

 

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

 

*Client satisfaction*

* *

We are highly dedicatedto providing products and services that offer strong value propositions for the clients we serve through each of our businesses.We will continue to educate our customers by helping them understand the different financial products and services they can accessthrough our distribution channels network and sales force.

 

We have improved ourcommunication with clients to keep them well informed of the products and services we launch and the product enhancement we implement.We continuously upgrade our platform in response to questions, complains and requests from customers.

 

  

*Motivated employees*

* *

In human resources managementwe continue to focus on maximizing the efficiency of our talent management, developing an adequate structure for incentives andbenefits to otivate employees, and improving our selection and training processes.

 

*Specific strategies*

* *

In the banking business,we will continue to implement our strategy to enter different segments of retail banking, with particular emphasis on the SMEsegment. We will use risk and collections models that are calibrated and aligned with pricing models designed to achieve the profitabilitywe seek. In the microlending business we will work on our microfinance business model to consolidate the integration of Edyficarand Mibanco, primarily to ensure that Edyficar’s culture is well acclimated as we take advantage of the strengths of Mibanco,in addition to optimizing the branch network and the risk and collections model.

 

In terms of our insurancebusiness we aim to recover profitability levels in the car line by implementing adequate pricing schemes and improving risk assessment.In property and casualty insurance, we are defining a long-term strategy to ensure that it adds value to the organization at acceptablerisk retention levels. At the same time, we are strengthening the “bancassurance” business. We will also focus onthe consolidation of the health care and health insurance businesses.

 

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

 

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

 

**  **

**(3) Review of 2014**

** **

**3.1 Credicorp**

 

The following table providescertain financial information about our principal business segments as of and for the year ended December 31, 2014 (see Note 30to the Consolidated Financial Statements):

 

 

*3.1.1 ConsolidatedContributions*

 

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