RAYMUNDO MORALES DASSO - GM Banco Crédito del Perú

Raimundo Morales General Director BCP

Press Tribune: With real GDP growth of almost 8% in 2006, Peru´s economy is
showing signs of promise. As one of the financial sector's leading
figures, what is your outlook for Peru´s economy in the coming years?

Mr. Morales: We are very optimistic about the future of Peru, actually we have seen that there are very large investments that have been developed and that will probably continue generating substantial growth in the future. The largest projects that we have already identified account for 22 million dollars. I think they will become a reality within next 3 or 5 years and in addition to that we have seen a lot of reinvestment, private investments, that represented the GDP, will be for the next few years somewhere about 22, 23 % of GDP in terms of investment. We think that probably investments is going to pick up to reach around 4 or 5% of GDP, we have seen GDP growth rates in excess of 6 or 7% sustain by new investment.

Press Tribune: Today 85% of the deposits are distributed into three banks.
Are there any more room for some new players to come in Peru?

Mr Morales: Within the context of the Peruvian economy the banking system is still relatively small, in the past we have had period of hyperinflation and the holding of financial assets was not considered a good investment. But today the financial system is growing and the level of the financial intermediation with respect of GDP is somewhere of 22%. In countries like Chile, that level is over 60%. So there is plenty of room of growth and even though there is presumably a lot of concentration of assets in the banking system, there is a lot of competition within the different market issues and we think there is plenty of room for new competitors because the banking system is going to grow and the economy is going to grow and most of people that will be bancarized or incorporated to the banking system is to increase dramatically.

Many foreign banks are coming in and I proudly say that we will be able to maintain our shares and our profit ability. We are seeing now 2 or 3 new banks coming into Peru. One of them is HSBC that is already here. Santander has already received the approval to reopen the branch in Peru. These new players plus a lot of foreign banks that are directing to Peru makes the Peruvian economy firmly attractive to financing new or existing projects. Today Peruvian rates are competitive on the worldwide bases.

Press Tribune: A challenge for the sector is bringing the informal capitals to the system, what measures are you taking towards this end?

Mr. Morales: About a year and a half ago we created a new distribution, in order to reach these people that were not banked we needed special channels, cheap channels, cheap products, that are adequate for their needs. And what we did was to design a new model, we opened what we call agents in different areas of the country, we signed agreements with the merchants to provide them with small machine equipment like the terminals for credit cards, debit cards, and those merchants actually operate like a small branch of the bank. They can receive deposits, they can withdraw cash, and they can make money transfers, pay services like water bill. They operated as small branches in different neighbors and some out town areas of Peru. They operate with their own cash, we don't have any personnel, we do not have to move currency to the agents or from the agent and we are able to access a lot of people that are not normally accessible for our normal agencies. Since august 2006 until now, we have opened about a 1000 of those agents. This year we have to increase our systems to be able to open more of them and what we do is moving this in an additional step. What we are doing is trying to move to the next step and have a point of sale for the bank products, opening accounts, etc., we will even provide credits cards at some point, it is a really cheap model to get our products to remote areas, without the construction costs for new branches.

Most of the transactions that are done in these agents are free of commission; the agents are handling right now 3 or 4 % of the total cash transactions of the bank. The number of transactions is close to 600000 transactions per month.

Press Tribune: Over the years, what are the changes that the management implemented that converted BCP in the first bank in the market and what are you doing to keep it that way?

Mr. Morales: The bank has been the leader of the banking sector for almost 18 years. I became CEO for the bank 17 years ago and this was after, the whole financial system was really in diapers. What we did was to form a good management team, fortunately we had time, in the sense that in the early 90´s our competition, 3 banks, Continental, Popular and Interbank were owned by the government, so that gave us a margin to rebuild the structure of the bank. And then when the foreign investors starting investing in the baking sector around 1995, we were prepared to compete, we were able to respond to the new challenges of the market. Continuing what we have done for many years, which is transmitting that we are solid bank, people actually believe very much in Banco de Credito. We have been very solid trough the very difficult times in Peru, we are the only institution that did not stop paying their debts, I think people remember that. We also hired some consultants to help us in the transition to the new challenges, and once you have really talented people working for you, you almost don't have to work I think the most important thing is to find the right people.

Press Tribune: BCP is part of Credicorp, the largest financial group of Peru. What is the main concept behind the creation of this holding?

Mr. Morales: Basically our idea of one holding company, that owns the Peruvian bank of BCP, owns the offshore Atlantic security bank, owns the 100% and 75% of our insurance company is to be able to provide our customers with all the financial service that they are going to need trough all of their lives. Starting with a saving account until the time they require a life annuity and having all this financial products together basically allows to really be the financial group that provides all the services to the customers and that is the idea. We will use a lot of infrastructure on the base that we will be able to sell insurances to our customers that BCP have, to be able to serve them with all of our other products. All the financial products credit card, debit card, banking account, insurance car will help our customer to have an easier life and help them to solve all their financial problems.

Press Tribune: Only two Peruvian companies are listed in the NY stock exchange. Do you think more Peruvian companies will follow the path of Credicorp?

Mr. Morales: I think that more and more the marketing is becoming globalized and the world is becoming smaller, so I think we will be seeing more Peruvian companies, I don't know whether on the NY stock exchange or in the London stock exchange and there are other markets for Latin-American companies. We just saw that companies in the IPO placed 270 million dollars outside Peru and eventually these international investors are going to like to see that their shares have been traded not only in the Peruvian stock exchange but in some foreign stock exchange.

Press Tribune: You are leader in almost all the aspect of the business. What are the factors that could explain such domination in all aspects of the banking business?

Mr. Morales: Management. We have a very professional management team; we have been building this team for the last 20 years. Actually, most of the senior managers have experiences outside Peru and this happened because in 1997 there was an intention of expropriation of the Peruvian Banking system. During those years a lot of Peruvian professionals went outside of Peru to look for other opportunities, but in 1991-1992 things started to change in the economy. I came back because I left for about 3 years and then we started rebuilding the management team for the bank. And since then we have been very successful. Not only because of the people we brought back but also because we hired people graduated from college and then if they get accepted in of the top 20 business school in States or top 10 business school in Europe or top 5 in business school in Latin America we provide a 100% financing for that. And then they are not obliged to come back to work with us.

Press Tribune: How is BCP contributing to reduce the informal system in Peru?

Mr. Morales: 12 years ago we set up a finance company in association whit some Chilean investors and started working with people that have permanent jobs, formal jobs, and that market grew up fast, and then we started moving to work with people that didn't have former job, independent people. The results came in and the results for people that did not have a former job were better than those from people that have a formal job and we were very surprised. People that received a salary every 15 days should be able to pay, they have ways of generating their income and they are very much concern about the quality of their credit. These are people that have micro business, that work also in informal financing sector at really high rates, like 1% a day and now they have been incorporated into the formal banking business. They are getting much better rates, we are also formalizing the industry here in Peru, you know that this is a huge issue in Peru, once these people are in the banking system, every day they are in the system, their rates are going down. Normally they would be paying like 360% rates a year now they are paying 25% rates, which is still high, but the rates are going down.

Press Tribune: How does BCP position itself in the construction sector, which is today the fastest growing sector of the Peruvian economy?

Mr. Morales: Until 1993 there was not one mortgage loan in Peru, the way the economy had been run, in the sense that hyperinflation was so high, it was impossible to do any type of mortgage loan. I remember in 1999, we started an experiment on mortgage financing, 10 million dollars for the whole bank, so we went into that very risky business. Today the bank is lending about a million dollars in mortgage financing, we have 38% of the market share in mortgage financing, but still the number of mortgages in the whole banking system is very small. So we think there is a huge room for growing provided the economy keeps growing and continues generating more employment, but still most of the real state in Peru is not mortgage, if you compare that with the most developed economies, most of the real state economy is mortgage. There is huge amount of wealth there that has not been used yet. Construction business is growing not only because of housing but also because of the development of highways and other projects: power stations, and other constructions. There is a lot things that are being done, this is a double-digit growing industry.

Press Tribune: Can you elaborate on your strategy of expansion?

Mr. Morales: Because of the market share we have, which is about 32%, it will be very difficult to acquire more banks; we prefer to grow with the system. We think the system is going to grow at rates that are going to be above the GDP; actually, we think it is going to grow at 1.5 or 2 times the rate of the GDP. We think the growth of the financial sector in the next years should be somewhere between 10 and 15 %, and I think we are going to be able to grow at those rates.

Press Tribune: What about your international strategy of expansion?

Mr. Morales: In New York we don't have any branches, we have a branch in Miami, we have a branch in Panama, those are basically offshore branches, we have a partner bank that is called Atlantic Security Bank that is incorporated in Caiman and also operates in Panama. Then we have a bank in Bolivia, which is the third largest bank in Bolivia, sixty branches, in Bolivia it is very important. We had a bank in the Nassau that we sold, we had a bank in Colombia that we sold and at this point, we are going to concentrate in Peru and Bolivia domestic banking business. In terms of offshore branches we basically have these units in Miami and Panama to serve our customer in Peru and Bolivia, we had a branch in New York but the costs are very high and we could do basically the same things off in Miami.

Press Tribune: How does your investment grade enhance BCP's position on the international capital market?

Mr. Morales: I think we were the first company to be rated investment grade in Peru, and that allow us to have access to international capital markets and better conditions. We have been in the international markets for several years, we raised 380 million dollars in one transaction and right now, we raise 500 million dollars in ten years transaction in the international capital markets

Press Tribune: How do you see the future of Peruvian economy in regards to the FTA?

Mr. Morales: Very positive, not only because of the access to the US market, but also because this agreement comes along with other regulations and business standards that are set in the international level, and those provides the investors with a lot of more confidence in terms of what they can expect. But in the past we have had many changes that generated some degree of volatility and instability, now we reduce the risk of investments in Peru, which will allow more projects to become viable, much more investors and require less profitability because of the lower risks, a side from having access to a huge market. We have the investment in the US FTA, we have the investment in provide to Peru. Peru will be a power of the global economy; will be a very stable country with a lot of growth potential

This treaty with the US will internationalize our economy, eventually what has happened will be very difficult to change all this in the future. It is going to be very difficult to isolate the country or reduce the country competitiveness, because such a large portion of the economy depends on the international market. I think the only challenge that we have is to be more efficient, more competitive in order to be able to compete. We have the ability to compete, provided the government does not change the regulations. I am concerned about some of the labor legislations that are being passed. Not only in the mining business but in general. We are seeing employment growth, not only in the minning, also the agro business is growing, and that generates a lot of employment, but still the income is not very substantial, but it is a formal employment, where you get your salary at the end of each month.

Press Tribune: What are your hopes and expectations for the future of your country?

Mr. Morales: The country has been doing very well, and not only for the last 3 or 4 years, but also for the last 10 or 12 years. We have become a much more competitive player. We have our natural competitive advantages, the opportunities for generating good returns, profitable investments are here, we missed a lot of opportunities in the past, but there are so many more that can be exploited.