BAP Credicorp Ltd

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM 6-K

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 under the

Securities Exchange Act of 1934

 

For the month of March 2024

 

Commission File Number: 001-14014

 

CREDICORP LTD.

(Translation of registrant’s name into English)

 

Of our subsidiary

Banco de Credito del Peru:

Calle Centenario 156

La Molina 15026

Lima, Peru

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F ☒  Form 40-F ☐

 

 Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____

 

 Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____

 

March 04, 2024

 

Securities and Exchange Commission - SEC

 

Re.: MATERIAL EVENT

 

Dear Sirs:

 

Please find attached a copy of the audited consolidated financial statements of Credicorp Ltd. (the Company”) and its subsidiaries, for the fiscal year ended on December 31, 2023, including the report of the external auditors Tanaka, Valdivia y Asociados Sociedad Civil de Responsabilidad Limitada, members of EY in Peru, approved by the Company’s Board of Directors in its session held on February 29, 2024, and which will be presented to the Annual General Meeting of Shareholders on March 27, 2024.

 

The information in this Form 6-K (including any exhibit hereto) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the ‘Exchange Act’) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act.

 

Sincerely,

 

/s/ Guillermo Morales 

Authorized Representative

Credicorp Ltd.

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: March 04, 2024 

 

	CREDICORP LTD.  (Registrant)
	By:	/s/ Guillermo Morales
		Guillermo Morales
		Authorized Representative

Exhibit 99.1

 

	CREDICORP LTD. AND SUBSIDIARIES
	CONSOLIDATED FINANCIAL STATEMENTS
	AS OF DECEMBER 31, 2023 AND 2022 (RESTATED)

 

CREDICORP LTD. AND SUBSIDIARIES

 

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2023 AND 2022 (RESTATED)

 

CONTENTS	Pages
Independent auditor’s report
Consolidated statement of financial position	11
Consolidated statement of income	12 - 13
Consolidated statement of comprehensive income	14
Consolidated statement of changes in equity	15 - 16
Consolidated statement of cash flows	17 - 20
Notes to the consolidated financial statements	21 – 190

 

US$	= United States dollar
S/	= Sol
Bs	= Boliviano
$	= Colombian peso
¥	= Yen

Tanaka, Valdivia & Asociados Sociedad Civil de R. L

 

Report of the Independent Auditors

 

To the Shareholders and Directors of Credicorp Ltd. and Subsidiaries

 

Opinion

 

We have audited the consolidated financial statements of Credicorp Ltd. and Subsidiaries (hereinafter “the Group”), which comprise the consolidated statement of financial position as of December 31, 2023, and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended; as well as the explanatory notes to the consolidated financial statements, which include a summary of material accounting policies.

 

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2023, as well as its consolidated financial performance and cash flows for the year then ended, in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board.

 

Basis for opinion

 

We conduct our audit in accordance with the International Standards on Auditing (ISAs) approved for application in Peru by the Board of Deans of Associations of Public Accountants of Peru. Our responsibilities under these standards are described in more detail in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the Code of Ethics for Accounting Professionals of the International Ethical Standards Council for Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in Peru, and we have complied with our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained provides a sufficient and adequate basis for our opinion.

 

Key Audit Matters

 

Key audit matters are those matters that, in our professional judgment, were of the greatest importance in the audit of the financial statements for the current period. These matters were addressed in the context of the audit of the financial statements as a whole, and in forming our opinion thereon; so we do not provide a separate opinion on these matters. Based on the above, below is how each key issue was addressed during our audit.

 

Lima	Lima II	Arequipa	Trujillo
Av. Víctor Andrés	Av. Jorge Basadre 330	Av. Bolognesi 407	Av. El Golf 591 Urb. Del Golf III
Belaunde 171	San Isidro	Yanahuara	Victor Larco Herrera 13009,
San Isidro	Tel: +51 (1) 411 4444	Tel: +51 (54) 484 470	Sede Miguel Ángel Ouijano Doig
Tel: +51 (1) 411 4444			La Libertad
			Tel: +51 (44) 608 830

 

Inscrita en la partida 11396556 del Registro de Personas Juridicas de Lima y Callao
Miembro de Ernst & Young Global

 

Report of the Independent Auditors (continue)

 

We have complied with the responsibilities described in Auditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to the risks of material misstatement assessed in the consolidated financial statements. The results of the audit procedures, including the procedures undertaken to address the matters mentioned below, form the basis for the audit opinion on the accompanying consolidated financial statements.

 

Key Audit Matters		Audit Response
Information Technology (IT) Environment
The Group’s information technology (IT) environment consists of an infrastructure of a large number of key systems for the processing of its operations, accounting records and preparation of its consolidated financial statements. In addition, the Group’s Management has designed a series of automatic controls, interfaces between the systems and executed calculations of the applications; with the aim of ensuring the completeness and accuracy of accounting records and accurate financial reports, and thus mitigating the potential risk of fraud or error.   In light of the above, we consider the information technology environment to be a key issue, as the Group depends on the efficient and continuous operation of IT applications as well as their automatic controls, so there is a risk that breaches in the IT control environment may result in accounting records being materially misstated.		With the support of our Information Technology (IT) specialists, our audit efforts focused on the key systems related to the processing of its operations, accounting records and preparation of the Group’s consolidated financial statements; performing the following procedures:   -     Evaluation of the Group’s IT governance framework. -     Understanding of the control environment and identification of risks of IT processes. -     Testing key controls over application and data access management, program changes and application development, and IT operations. -     Testing of the design and operational effectiveness of the key automatic controls identified in the various relevant processes of the Group. -     Testing of the design and operational effectiveness of applicable compensation controls.

 

Report of the Independent Auditors (continue)

 

Key Audit Matters		Audit Response
Provision for credit losses on loan portfolio
As described in notes 3(j), 7 and 30.1 of the Group’s consolidated financial statements, the measurement of expected credit loss is based primarily on the product of the probability of default (PD), the loss given the default (LGD), and the exposure at the time of default (EAD), discounted at the reporting date and considering the expected macroeconomic effects. The expected credit loss impairment model reflects the present value of all cash deficit events related to the default events, either (i) over the next twelve months or (ii) over the expected life of the loan depending on its impairment from inception.   Significant assumptions and judgments considered by the Group, with respect to the estimation of the expected loss, include: (i) the probability of default, based on the debtor’s payment behavior and credit risk management based primarily on the Group’s internal rating and scoring models; (ii) the loss assigned for default, which is considered to determine the fair value of the guarantees and recoveries; (iii) the determination of the exposure balance at a future default date, which takes into account expected changes in exposure after the reporting date, including principal and interest repayments; (iv) forward-looking forecasts for multiple economic scenarios and the probability weighting of those scenarios; (v) the determination of when a loan has experienced a significant increase in credit risk; (vi) the individual analysis of corporate clients classified in phase 3, mainly considering the situation of the recoverability of the guarantees, analysis of financial statements and sector in which the debtor operates; (vii) the calculation of credit losses for 12 months and over the expected life of the credit agreement; and (viii) the application of the judgment specifically for the current situation of the El Niño phenomenon affecting our country.		We gained an understanding, evaluated the design and tested the operational effectiveness of the controls of the expected loss provision estimation process for the Group’s loan portfolio, which included the following procedures:  -     Evaluation of the methodology and criteria established for the calculation according to IFRS9. -     Evaluation of the methodology and criteria related to the estimate made by the Group corresponding to the current situation of the El Niño phenomenon. -     Evaluation of the significant models and assumptions established by the Group in the calculation, such as: PD, LGD, EAD, scores, rating and forward-looking information forecasts for multiple economic scenarios and the probability weighting of those scenarios. -     Completeness and accuracy of the database in the Group’s systems. -     Identification of impairment indicators and determination of significant changes in credit risk. -     Individual analysis of corporate clients classified in phase 3. -     Calculation of the expected loss estimate for the loan portfolio. -     Review of disclosures included in the notes to the consolidated financial statements.   In addition, with the support of our specialists, we carried out detailed substantive procedures, which included:  -     Assessment that the methodology, assumptions and judgments used in the expected loss estimation models are consistent with the requirements of IFRS9 and the Group’s accounting policies. -     Testing the completeness and accuracy of the data used in the calculation of the provision and, selectively, checking the main data against the source systems.

 

Report of the Independent Auditors (continue)

 

Key Audit Matters		Audit Response
In view of the above, we consider that the estimate of expected loss for the loan portfolio is a key audit matter, given that any change in assumptions and/or judgments could have material effects on the calculation of the provision. In addition, the determination of accounting figures requires the participation of specialists due to the inherent complexity of the models, assumptions, judgments, prospective nature of the key assumptions, and the interrelationship of critical variables in the measurement.		-     Comparison of the Group’s macroeconomic projections (forward-looking information) with publicly available information from independent sources. -     Assessment of significant changes in credit risk triggers. -     Evaluation of the estimate made by the Group related to the current situation of the El Niño phenomenon. -     Evaluation of corporate clients classified in phase 3 that the Group analyzes individually. -     Independently testing the calculation of the estimate of the provision of credits. -     Assessment of adequate disclosure in the notes to the consolidated financial statements.
Estimation of liabilities for life insurance contracts under the general valuation model
As described in notes 3(f), 8 and 30.9 of the Group’s consolidated financial statements, the estimation of insurance contract liabilities is based primarily on: (i) review and identification of insurance contracts; (ii) grouping of insurance contracts; (iii) determination of the valuation models by product (general model or block construction - BBA, variable rate - VFA and the simplified model - PPA); (iv) definition of the discount rate; (v) calculation of the risk adjustment and (vi) calculation of the contractual service margin (CSM). The projections of cash inflows and outflows related to each portfolio of insurance contracts consider their probability of occurrence, and all cash flows that are within the contract limit are included.		We gained an understanding, evaluated the design, and tested the operational effectiveness of the controls of the valuation process of life insurance contracts under the overall model, which included the following procedures: -     Review of the methodology and criteria established for calculation according to actuarial methods that are accepted under IFRS 17. -     Evaluation of the actuarial models, assumptions and assumptions of general acceptance, established by the Group. -     Review of the completeness and accuracy of the database used in the Group’s information systems to manage, calculate and raise awareness of these liabilities.

 

Report of the Independent Auditors (continue)

 

Key Audit Matters		Audit Response
To determine the assumptions and estimates, the Group relies on parameters derived from the experience of managing its portfolio. However, existing circumstances and assumptions about future developments could change due to changes in the market or circumstances beyond the Group’s control. The parameters are kept up to date to reflect such changes in assumptions where necessary. In addition, the Group re-evaluates the CSM each period considering the experience that the Group has had. The parameters used to estimate estimated future cash flows is a comparison between actual rates and estimated rates and the following assumptions are evaluated: mortality, longevity, disability, expenses, and falls.   Considering the above, we consider insurance liabilities to be a key audit matter, as any changes in assumptions and data could have material effects on the valuation of liabilities; In addition, the determination of accounting figures is complex and requires the involvement of specialists due to actuarial models.		-     Review of the correct allocation of discount rates for the calculation of liabilities for life insurance contracts. -     Review of the calculation of the liability valuation estimate. -     Review of disclosures included in the notes to the consolidated financial statements.   In addition, with the support of our actuarial specialists, we carried out detailed substantive procedures, which included: -     Assessment that the methodology defined by the Group on actuarial models and assumptions is consistent with the application of IFRS 17. -     Independent evaluation of the actuarial model and assumptions used in the calculation. -     Proof of the completeness and accuracy of the policy data used, as well as the variables used in the calculation. -     Evaluation of the proper determination of the discount rate used in the calculations. -     Reconciliation of the discount rates charged to the application, where the calculations are determined, comparing them with those defined by the risk area. -     Proof, independently, of the calculation made by the Group. -     Evaluation of the appropriate movement of liabilities considering changes in actuarial assumptions at the end of the year. -     Evaluation of the sensitivity of changes in certain variables in the determination of these liabilities. -     Assessment of the adequacy of disclosures in the notes to the consolidated financial statements.

 

Report of the Independent Auditors (continue)

 

Other Matter

 

As described in Note 3(b) to the consolidated financial statements as of and for the year ended December 31, 2022, which are presented for comparative purposes, they have been restated due to the initial implementation of IFRS 17, Insurance Contracts. These restated consolidated financial statements, including their opening balance as of January 1, 2022, as well as the respective adjustments related to the retroactive effect of the implementation of IFRS 17 on those financial statements, were audited by other independent auditors, who expressed an unchanged opinion.

 

Other information included in the Group’s 2023 Annual Report

 

Other information consists of the information included in the Annual Report, other than the consolidated financial statements and our audit report thereon. Management is responsible for the other information.

 

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

 

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge gained in the audit or whether it otherwise appears to be materially misstated. If, based on the work we have done, we conclude that there is a material error in this other information, we are obliged to report that fact. We have nothing to report in this regard.

 

Responsibilities of the Group’s management and those charged with corporate governance for the consolidated financial statements

 

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as Management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the consolidated financial statements, Management is responsible for assessing the Group’s ability to continue as a going concern, disclosing as appropriate matters relating to the going concern and using the going concern’s accounting basis, unless Management intends to liquidate the Group or cease operations, or have no realistic alternative to doing so.

 

Report of the Independent Auditors (continue)

 

Those responsible for the Group’s corporate governance are responsible for overseeing the Group’s financial reporting process.

 

Auditor’s responsibilities for the audit of the consolidated financial statements

 

Our objectives are to obtain reasonable assurance as to whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a report that includes our opinion. Reasonable assurance is a high level of assurance, but it does not guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements may arise due to fraud or error and are considered material if, individually or cumulatively, you could reasonably expect them to influence the economic decisions that users make based on the consolidated financial statements.

 

As part of an audit in accordance with the International Standards on Auditing (ISAs) approved for application in Peru by the Board of Deans of Associations of Public Accountants of Peru, we exercise professional judgment and maintain professional skepticism throughout the audit. Also:

 

-

We identify and evaluate the risks of material misstatement in the consolidated financial statements, whether due to fraud or error, design and execute audit procedures that respond to those risks, and obtain audit evidence that is sufficient and appropriate to provide us with a basis for our opinion. The risk of not detecting a material misstatement due to fraud is greater than that resulting from an error, as fraud may involve collusion, falsification, intentional omissions, misrepresentations, or overstepping the internal control system.

-	We obtained an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

-	We evaluate the adequacy of the accounting policies used, the reasonableness of the accounting estimates and the respective disclosures made by management.

-

We conclude on the adequacy of Management’s use of the going concern accounting basis and, based on the audit evidence obtained, whether there is material uncertainty related to events or conditions that may raise significant doubts about the Group’s ability to continue as a going concern. If we conclude that there is a material uncertainty, we are required to draw attention in our audit report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. The findings are based on the audit evidence obtained to date from our audit report. However, future events or conditions may cause the Group to cease to continue as a going concern.

-	We evaluate the overall presentation, structure, content of the consolidated financial statements, including disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves a fair presentation.

 

Report of the Independent Auditors (continue)

 

-

We obtained sufficient and adequate audit evidence in relation to the financial information of the entities or business activities that are part of the Group, in order to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and execution of the Group’s audit and therefore for our audit opinion.

 

We communicate to those charged for the Group’s corporate governance, among other matters, the planned scope and timing of the audit, the significant findings of the audit, as well as any significant internal control deficiencies identified in the course of the audit.

 

We also provide those charged for the Group’s corporate governance with a statement that we have complied with relevant ethical requirements in relation to independence and have communicated to them about all relationships and other matters that could reasonably affect our independence and, as appropriate, including the respective safeguards.

 

Among the matters that have been the subject of communication with those responsible for the Group’s corporate governance, we have identified those that have been of the greatest significance in the audit of the consolidated financial statements for the current period and, therefore, are the key audit matters. We have described such matters in our audit report unless legal or regulatory provisions prohibit public disclosure of the matter or, in extremely rare circumstances, we determine that a matter should not be disclosed in our report because it would reasonably be expected that the adverse consequences of doing so would outweigh the public interest benefits of the report.

 

Lima, Peru

February 29, 2024

 

Endorsed by:

 

Victor Tanaka

Partner-in-Charge

C.P.C.C. Registration No. 25613

CREDICORP LTD. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS OF DECEMBER 31, 2023, 2022 (RESTATED) AND JANUARY 01, 2022 (RESTATED)

 

 

(*) See note 3(b). 

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

CREDICORP LTD. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 (RESTATED) AND 2021

 

									2022
		Note			2023				(Restated)				2021
					S/(000)				S/(000)				S/(000)
Interest and similar income		19			18,798,495				15,011,282				11,850,406
Interest and similar expenses		19			(5,860,523	)			(3,919,664	)			(2,490,802	)
Net interest, similar income and expenses					12,937,972				11,091,618				9,359,604
Provision for gross credit losses on loan portfolio		7(c)			(3,957,143	)			(2,158,555	)			(1,558,951	)
Recoveries of written-off loans					334,798				347,017				346,728
Provision for credit losses on loan portfolio, net of recoveries					(3,622,345	)			(1,811,538	)			(1,212,223	)
Net interest, similar income and expenses, after provision for credit losses on loan portfolio					9,315,627				9,280,080				8,147,381
Other income
Commissions and fees		20			3,804,459				3,642,857				3,493,734
Net gain on foreign exchange transactions					886,126				1,084,151				922,917
Net gain on securities		21			425,144				5,468				28,650
Net gain on derivatives held for trading					53,665				65,187				221,064
Exchange difference result					45,778				387				(3,215	)
Others		25			440,653				268,046				266,567
Total other income					5,655,825				5,066,096				4,929,717
Technical result of insurance
Insurance service result		22 (a)			1,602,421				1,302,347				–
Underwriting result		22 (a)			(391,321	)			(460,899	)			–
Net premiums earned		22 (g)			–				–				2,671,530
Net claims incurred for life, general and health insurance contracts		22 (h)			–				–				(2,341,917	)
Acquisition cost					–				–				(333,334	)
Total technical result of insurance					1,211,100				841,448				(3,721	)
Other expenses
Salaries and employee benefits		23			(4,265,453	)			(3,902,161	)			(3,668,476	)
Administrative expenses		24			(3,803,203	)			(3,414,065	)			(2,953,717	)
Depreciation and amortization		9 and 10(a)			(511,174	)			(485,207	)			(521,967	)
Impairment loss on goodwill		10(b)			(71,959	)			–				–
Depreciation for right-of-use assets		11(a)			(147,833	)			(151,282	)			(161,287	)
Others		25			(534,601	)			(364,298	)			(435,114	)
Total other expenses					(9,334,223	)			(8,317,013	)			(7,740,561	)

 

CONSOLIDATED STATEMENT OF INCOME (continued)

 

											2022
			Note				2023				(Restated)				2021
							S/(000)				S/(000)				S/(000)
Net result before income tax							6,848,329				6,870,611				5,332,816
Income tax			17(b)				(1,888,451	)			(2,110,501	)			(1,660,987	)
Net result after income tax							4,959,878				4,760,110				3,671,829
Attributable to:
Credicorp’s equity holders							4,865,540				4,647,818				3,584,582
Non-controlling interest							94,338				112,292				87,247
							4,959,878				4,760,110				3,671,829
Net basic and dilutive earnings per share attributable to Credicorp’s equity holders (in soles):
Basic			26				61.22				58.44				45.09
Diluted			26				61.08				58.32				44.99

 

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

 

 

CREDICORP LTD. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 (RESTATED) AND 2021

 

							2023				2022				2021
											(Restated)
							S/(000)				S/(000)				S/(000)
Net profit for the year							4,959,878				4,760,110				3,671,829
Other comprehensive income:
To be reclassified to profit or loss in subsequent periods:
Net Gain (loss) on investments at fair value through other comprehensive income			16(d)				1,334,943				(1,614,053	)			(2,491,907	)
Income tax			16(d)				(58,489	)			82,459				52,086
							1,276,454				(1,531,594	)			(2,439,821	)
Net movement of cash flow hedge reserves			16(d)				(17,443	)			1,246				58,586
Income tax			16(d)				5,104				(158	)			(16,834	)
							(12,339	)			1,088				41,752
Other reserves			16(d)				(762,811	)			1,144,140				769,291
Income tax			16(d)				-				-				(26,846	)
							(762,811	)			1,144,140				742,445
Exchange differences on translation of foreign operations			16(d)				73,464				(302,083	)			161,168
Net movement in hedges of net investments in foreign businesses			16(d)				18,950				39,587				(57,319	)
							92,414				(262,496	)			103,849
Total							593,718				(648,862	)			(1,551,775	)
Not to be reclassified to profit or loss in subsequent periods:
Net loss on equity instruments designated at fair value through other comprehensive income			16(d)				(8,329	)			(38,563	)			(113,686	)
Income tax			16(d)				(3,791	)			2,109				5,402
Total							(12,120	)			(36,454	)			(108,284	)
Total other comprehensive income			16(d)				581,598				(685,316	)			(1,660,059	)
Total comprehensive income for the year, net of income tax							5,541,476				4,074,794				2,011,770
Attributable to:
Credicorp’s equity holders							5,437,495				3,967,497				1,954,586
Non-controlling interest							103,981				107,297				57,184
							5,541,476				4,074,794				2,011,770

 

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

 

CREDICORP LTD. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 (RESTATED) AND 2021

 

		Attributable to Credicorp’s equity holders.
												Other reserves
				Treasury stock								Instruments that will not be reclassified to income		Instruments that will be reclassified to the consolidated statement of income
		Capital stock		Shares of the Group		Share-based payment		Capital surplus		Reserves and others		Investments in equity instruments		Investments in debt instruments		Cash flow hedge reserve		Insurance reserves		Foreign currency translation reserve		Retained earnings		Total		Non-controlling interest		Total equity
		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)
Balances as of January 1, 2021		1,318,993		(204,326)		(4,107)		192,625		21,429,635		315,202		2,256,531		(41,102)		(892,598)		227,865		347,152		24,945,870		499,777		25,445,647
Changes in equity in 2021 -
Net profit for the year		-		-		-		-		-		-		-		-		-		-		3,584,582		3,584,582		87,247		3,671,829
Other comprehensive income, Note 16(d)		-		-		-		-		-		(108,317)		(2,399,931)		40,829		733,932		103,491		-		(1,629,996)		(30,063)		(1,660,059)
Total comprehensive income		-		-		-		-		-		(108,317)		(2,399,931)		40,829		733,932		103,491		3,584,582		1,954,586		57,184		2,011,770
Transfer of retained earnings to reserves, Note 16(c)		-		-		-		-		346,994		-		-		-		-		-		(346,994)		-		-		-
Dividend distribution, Note 16(e)		-		-		-		-		(398,808)		-		-		-		-		-		-		(398,808)		-		(398,808)
Dividends paid to interest non-controlling   of subsidiaries		-		-		-		-		-		-		-		-		-		-		-		-		(4,156)		(4,156)
Additional dividends		-		-		-		-		-		-		-		-		-		-		-		-		(7,822)		(7,822)
Purchase of treasury stock, Note 16(b)		-		-		(1,369)		(57,538)		-		-		-		-		-		-		-		(58,907)		-		(58,907)
Sale of treasury stocks		-		-		84		3,668		-		-		-		-		-		-		-		3,752		-		3,752
Share-based payment transactions		-		-		2,184		90,098		(13,549)		-		-		-		-		-		-		78,733		-		78,733
Others		-		-		-		-		-		-		-		-		-		-		(28,459)		(28,459)		(4,311)		(32,770)
Balances as of December 31, 2021		1,318,993		(204,326)		(3,208)		228,853		21,364,272		206,885		(143,400)		(273)		(158,666)		331,356		3,556,281		26,496,767		540,672		27,037,439
Impact of initial application of IRFS 17, Note 3(b)		-		-		-		-		-		-		-		-		158,666		-		(369,494)		(210,828)		-		(210,828)
Others		-		-		-		-		-		-		3,900		-		-		5,681		(3,668)		5,913		-		5,913
Balances as of January 1, 2022 (restated)		1,318,993		(204,326)		(3,208)		228,853		21,364,272		206,885		(139,500)		(273)		-		337,037		3,183,119		26,291,852		540,672		26,832,524
Changes in equity in 2022 -
Net profit for the year		-		-		-		-		-		-		-		-		-		-		4,647,818		4,647,818		112,292		4,760,110
Other comprehensive income, Note 16(d)		-		-		-		-		-		(36,477)		(1,516,059)		1,061		1,133,536		(262,382)		-		(680,321)		(4,995)		(685,316)
Total comprehensive income		-		-		-		-		-		(36,477)		(1,516,059)		1,061		1,133,536		(262,382)		4,647,818		3,967,497		107,297		4,074,794
Transfer of retained earnings to   reserves, Note 16(c)		-		-		-		-		2,354,859		-		-		-		-		-		(2,354,859)		-		-		-
Dividend distribution, Note 16(e)		-		-		-		-		-		-		-		-		-		-		(1,196,422)		(1,196,422)		-		(1,196,422)
Dividends paid to interest non-controlling   of subsidiaries		-		-		-		-		-		-		-		-		-		-		-		-		(48,577)		(48,577)
Non-controlling interest stock put option, Note 3(k)		-		-		-		-		(42,964)		-		-		-		-		-		-		(42,964)		-		(42,964)
Minority purchase		-		-		-		-		-		-		-		-		-		-		-		-		(5,877)		(5,877)
Purchase of treasury stock, Note 16(b)		-		-		(1,923)		(81,682)		-		-		-		-		-		-		-		(83,605)		-		(83,605)
Sale of treasury stocks		-		-		231		9,718		-		-		-		-		-		-		-		9,949		-		9,949
Share-based payment transactions		-		-		1,708		74,667		(16,541)		-		-		-		-		-		-		59,834		-		59,834
Others		-		-		-		-		-		-		-		-		-		-		(2,497)		(2,497)		(1,946)		(4,443)
Balances as of December 31, 2022 (restated)		1,318,993		(204,326)		(3,192)		231,556		23,659,626		170,408		(1,655,559)		788		1,133,536		74,655		4,277,159		29,003,644		591,569		29,595,213

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)

 

		Attributable to Credicorp’s equity holders.
												Other reserves
				Treasury stock								Instruments that will not be reclassified to income		Instruments that will be reclassified to the consolidated statement of income
		Capital stock		Shares of the Group		Share-based payment		Capital surplus		Reserves and others		Investments in equity instruments		Investments in debt instruments		Cash flow hedge reserve		Insurance reserves		Foreign currency translation reserve		Retained earnings		Total		Non-controlling interest		Total equity
		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)
Balances as of December 31, 2022 - Restated		1,318,993		(204,326)		(3,192)		231,556		23,659,626		170,408		(1,655,559)		788		1,133,536		74,655		4,277,159		29,003,644		591,569		29,595,213
Changes in equity in 2023 -
Net profit for the year		-		-		-		-		-		-		-		-		-		-		4,865,540		4,865,540		94,338		4,959,878
Other comprehensive income, Note 16(d)		-		-		-		-		-		(12,247)		1,258,137		(12,191)		(754,192)		92,448		-		571,955		9,643		581,598
Total comprehensive income		-		-		-		-		-		(12,247)		1,258,137		(12,191)		(754,192)		92,448		4,865,540		5,437,495		103,981		5,541,476
Transfer of retained earnings to   reserves, Note 16(c)		-		-		-		-		2,593,598		-		-		-		-		-		(2,593,598)		-		-		-
Dividend distribution, Note 16(e)		-		-		-		-		-		-		-		-		-		-		(1,994,037)		(1,994,037)		-		(1,994,037)
Dividends paid to interest non-controlling   of subsidiaries		-		-		-		-		-		-		-		-		-		-		-		-		(62,051)		(62,051)
Subsidiary acquisition		-		-		-		-		-		-		-		-		-		-		-		-		14,192		14,192
Minority purchase		-		-		-		-		-		-		-		-		-		-		-		-		(1,773)		(1,773)
Purchase of treasury stock, Note 16(b)		-		-		(2,279)		(83,296)		-		-		-		-		-		-		-		(85,575)		-		(85,575)
Sale of treasury stocks		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Share-based payment transactions		-		-		1,764		79,979		(12,225)		-		-		-		-		-		-		69,518		-		69,518
Dividends not collected		-		-		-		-		11,579		-		-		-		-		-		-		11,579		-		11,579
Result from exchange of strategic shares		-		-		-		-		-		-		-		-		-		-		14,425		14,425		-		14,425
Others		-		-		-		-		-		-		-		-		-		-		2,955		2,955		1,143		4,098
Balances as of December 31, 2023		1,318,993		(204,326)		(3,707)		228,239		26,252,578		158,161		(397,422)		(11,403)		379,344		167,103		4,572,444		32,460,004		647,061		33,107,065

 

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

 

CREDICORP LTD. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 (RESTATED) AND 2021

 

			Note				2023				2022 (Restated)				2021
							S/000				S/000				S/000
CASH AND CASH EQUIVALENTS FROM OPERATING ACTIVITIES
Net profit for the year							4,959,878				4,760,110				3,671,829
Adjustment to reconcile net profit to net cash arising from operating activities:
Provision for credit losses on loan portfolio			7(c)				3,957,143				2,158,555				1,558,951
Depreciation and amortization			9 and 10(a)				511,174				485,207				521,967
Depreciation of right-of-use assets			11(a)				147,833				151,282				161,287
Depreciation of investment properties			12(h)				8,115				7,107				7,302
Provision for sundry risks			12(j)				95,873				43,846				70,824
Deferred (income) tax expense			17(b)				(76,088	)			113,063				547,393
Adjustment of technical reserves							-				-				914,852
Net gain on securities			21				(425,144	)			(5,468	)			(28,650	)
Impairment loss on goodwill			10(b)				71,959				-				-
Net Gain on financial assets designated at fair value through profit and loss							-				-				(54,663	)
Net gain of trading derivatives							(53,665	)			(65,187	)			(221,064	)
Net Income from sale of property, furniture and equipment			25				(1,654	)			(14,979	)			(16,083	)
Net Loss (net gain) from sale of seized and recovered assets							1,867				(11,355	)			(10,684	)
Expense for share-based payment transactions			23				83,328				81,679				73,997
Net gain from sale of written-off portfolio			25				(83,515	)			(18,712	)			(15,700	)
Intangible losses due to withdrawals and dismissed projects			25				96,978				25,140				17,630
Others							3,005				28,840				(5,538	)
Net changes in assets and liabilities
Net (increase) decrease in assets:
Loans							(1,105,306	)			(5,385,064	)			(9,636,648	)
Investments at fair value through profit or loss							(456,626	)			1,575,498				745,156
Investments at fair value through other comprehensive income							(5,164,701	)			(460,914	)			7,508,131
Cash collateral, reverse repurchase agreements and securities borrowings							(330,448	)			622,589				783,010
Sale of written off portfolio							239,599				24,543				24,477
Other assets							520,331				413,307				(294,130	)

 

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

 

			Note				2023				2022 (Restated)				2021
							S/000				S/000				S/000
Net increase (decrease) in liabilities
Deposits and obligations							2,271,524				(46,199	)			2,485,794
Due to Banks and correspondents							3,455,502				1,804,784				1,103,063
Payables from repurchase agreements and securities  lending							(2,790,671	)			(9,034,940	)			(5,935,578	)
Bonds and notes issued							(2,213,122	)			(298,572	)			(90,217	)
Short-term and low-value lease payments							(108,357	)			(106,356	)			(86,417	)
Other liabilities							2,604,047				3,107,346				1,303,118
Income tax paid							(2,139,140	)			(1,106,572	)			(1,130,415	)
Net cash flow from operating activities							4,079,719				(1,151,422	)			3,972,994
NET CASH FLOWS FROM INVESTING ACTIVITIES
Revenue from sale of property, furniture and equipment							53,152				5,373				11,457
Loss from sale of investment property							-				(359	)			-
Revenue from sales and reimbursement of investment to amortized cost							1,245,434				1,006,325				590,605
Purchase of property, furniture and equipment			9				(322,371	)			(192,700	)			(107,790	)
Purchase of investment property			12(h)				(37,667	)			(87,132	)			(12,068	)
Purchase of intangible assets			10(a)				(828,803	)			(703,670	)			(532,244	)
Purchase of investment at amortized cost							(1,359,245	)			(1,122,802	)			(3,677,671	)
Acquisition of subsidiaries, net of cash received							(5,564	)			-				-
Net cash flows from investing activities							(1,255,064	)			(1,094,965	)			(3,727,711	)
NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid			16(e)				(1,994,037	)			(1,196,422	)			(398,808	)
Dividends paid to non-controlling interest of subsidiaries							(62,051	)			(48,577	)			(4,156	)
Principal payments of leasing contracts							(157,386	)			(156,529	)			(155,141	)
Interest payments of leasing contracts							(25,574	)			(25,054	)			(27,374	)
Purchase of treasury stock			16(b)				(85,575	)			(83,605	)			(58,907	)
Sale of treasury stock							-				9,949				3,752
Acquisition of non-controlling interest							(1,773	)			(5,877	)			(7,822	)
Subordinated bonds							62,044				(94,700	)			183,160
Net cash flows from financing activities							(2,264,352	)			(1,600,815	)			(465,296	)

 

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

 

			Note				2023				2022 (Restated)				2021
							S/000				S/000				S/000
Net increase (decrease) of cash and cash equivalents before effect of changes in exchange rate							560,303				(3,847,202	)			(220,013	)
Effect of changes in exchange rate of cash and cash equivalents							(760,651	)			(1,325,381	)			2,779,791
Cash and cash equivalents at the beginning of the period							34,120,962				39,293,545				36,733,767
Cash and cash equivalents at the end of the period							33,920,614				34,120,962				39,293,545
Additional information from cash flows
Interest received							18,658,791				14,717,523				11,615,448
Interest paid							(5,080,522	)			(2,847,538	)			(2,230,990	)
Transactions that do not represent cash flow
Recognition of lease operations							103,715				108,751				(116,511	)
Reclassification from investments at amortized cost to fair value with changes in equity							-				2,232,663				-
Sale option of minor shares of MiBanco Colombia							-				(42,964	)			-

CONSOLIDATED STATEMENT OF CASH FLOWS (continued)

 

Reconciliation of liabilities arising from financing activities:

 

				Changes that generate cash flows				Changes that do not generate cash flows
2023		As of January 1, 2023		Received		Paid		Exchange  difference		Others		As of December  31, 2023
		S/000		S/000		S/000		S/000		S/000		S/000
Subordinated bonds		5,738,414		284,944		(222,900)		(150,568)		30,230		5,680,120
Lease liabilities		578,074		-		(182,960)		(8,627)		126,092		512,579
		6,316,488		284,944		(405,860)		(159,195)		156,322		6,192,699

 

				Changes that generate cash flows				Changes that do not generate cash flows
2022		As of January 1, 2022		Received		Paid		Exchange  difference		Others		As of December  31, 2022
		S/000		S/000		S/000		S/000		S/000		S/000
Subordinated bonds		6,061,301		-		(94,700)		(253,293)		25,106		5,738,414
Lease liabilities		655,294		-		(181,583)		(14,782)		119,145		578,074
		6,716,595		-		(276,283)		(268,075)		144,251		6,316,488

 

				Changes that generate cash flows				Changes that do not generate cash flows
2021		As of January 1, 2021		Received		Paid		Exchange  difference		Others		As of December  31, 2021
		S/000		S/000		S/000		S/000		S/000		S/000
Subordinated bonds		5,381,323		2,018,216		(1,835,056)		475,132		21,686		6,061,301
Lease liabilities		750,578		-		(182,515)		36,866		50,365		655,294
		6,131,901		2,018,216		(2,017,571)		511,998		72,051		6,716,595

 

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

 

CREDICORP LTD. AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

AS OF DECEMBER 31, 2023 AND 2022 (RESTATED)

 

1

OPERATIONS

 

Credicorp Ltd. (hereinafter “Credicorp”) is a limited liability company incorporated in Bermuda in 1995 to act as a holding company and according to Bermuda’s economic substance regulation, Credicorp Ltd. as an independent legal entity, is considered a “Pure Equity Holding Entity” (PEHE). Credicorp’s activity is to maintain equity interests and receive passive income such as dividends, capital gains and other income from investments in securities.

 

In order to keep Credicorp’s structure and organization fully aligned with the new legislation on economic substance approved by the Government of Bermuda on January 11, 2019, as of October 29, 2020, the decisions of the Credicorp Board of Directors will be limited to issues related to Credicorp’s strategy, objectives and goals, main action plans and policies, risk control and management, annual budgets, business plans and control of their implementation, supervision of the main expenses, investments, acquisitions and disposals, among other “passive” decisions related to Credicorp. The authority to make decisions applicable to Credicorp’s subsidiaries, such as the adoption of relevant strategic or management decisions, the assumption of expenses for the benefit of its affiliates, the coordination of group activities, and the granting of credit facilities in favor of its affiliates, it has been transferred to Grupo Crédito SA, a subsidiary of Credicorp.

 

Credicorp, through its banking and non-banking subsidiaries and its associate Pacífico S.A. Entidad Prestadora de Salud (hereinafter Pacífico EPS), offers a wide range of financial, insurance and health services and products, mainly throughout Peru and in other countries (see Note 3 (c)). Its main subsidiary is Banco de Crédito del Perú (hereinafter “BCP” or the “Bank”), a multiple bank incorporated in Peru.

 

Credicorp’s legal address is Clarendon House 2 Church Street Hamilton, Bermuda; likewise, the main offices from where Credicorp’s businesses are managed are located at Calle Centenario N ° 156, La Molina, Lima, Perú.

 

The consolidated financial statements presented correspond to the financial statement of Credicorp and subsidiaries (hereinafter “the Group”). The consolidated financial statements as of December 31, 2022, and for the year then ended were approved by the Board of Directors on February 23, 2023, and presented to the Annual General Meeting of Shareholders on March 27, 2023. The consolidated financial statements as of December 31, 2023, and for the year ended on that date were approved and authorized for issuance by the Board of Directors and Management on February 29, 2024 and will be presented for final approval in the Annual General Meeting of Shareholders, which will be held within the deadlines established by law; in Management’s opinion, these will be approved without modifications.

 

Due to the adoption of IFRS 17 Insurance Contracts, the Group has restated its consolidated financial statements as of December 31, 2022 and for the year ended on that date, which have been approved on February 29, 2024.

 

Credicorp is listed on the Lima and New York Stock Exchanges. 

 

 

2

SIGNIFICANT TRANSACTIONS

 

a)

Main acquisitions, incorporations and mergers –

 

In 2023 and 2022, the Group has not carried out significant transaction of acquisitions, incorporations, or mergers of companies.

 

b)

Current situation –

 

Between the months of December 2022 and December 2023, Peru was affected by political and social events, as well as natural events that affected different regions, as indicated below:

 

In December 2022, in response to various political events that occurred in Peru, a series of riots and social protests occurred in different regions of the country, which resulted in a decrease in commercial activity in said regions and, therefore, the liquidity restriction in certain people and companies.

 

On June 8, 2023, the Government declared a State of Emergency for 60 days in certain areas, due to intense rainfall and possible El Niño Phenomenon, a measure that has been extended to date.

 

As of December 31, 2023, the Bank maintains a balance of rescheduled loans for a total of S/692.6 million of retail loans (S/116.9 million as of December 31, 2022). In the opinion of Management, this situation has not affected the Group’s operations, nor has it generated any significant impact on the financial statements presented as of December 31, 2023 and 2022. 

 

 

3

SIGNIFICANT ACCOUNTING POLICIES

 

The significant accounting policies applied in the preparation of Credicorp’s consolidated financial statements are set out below:

 

a)

Basis of presentation, use of estimates and changes in accounting policies -

 

The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

 

The consolidated financial statements as of December 31, 2023, and 2022, have been prepared following the historical cost criteria, except for investments at fair value through profit or loss, investments at fair value through other comprehensive income, financial assets designated at fair value through profit or loss, derivative financial instruments, and financial liabilities at fair value through profit or loss, which have been measured at fair value.

 

The consolidated financial statements are presented in Soles (S/), which is the functional currency of Group, see paragraph (c) below, and values are rounded to thousands of soles, except when otherwise indicated.

 

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

 

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the current circumstances. The final results could differ from said estimates; however, the Management expects that the variations, if any, will not have a material impact on the consolidated financial statements.

 

The most significant estimates included in the accompanying consolidated financial statements are related to the calculation of the allowance of the expected credit loss on loan portfolio and the estimation of the liability for life insurance contracts under the general valuation model.

Furthermore, other estimates exist, such as: valuation of investments, technical reserves for claims, intangible, impairment of goodwill, credit loss for investments at fair value through other comprehensive income and investments at amortized cost, the valuation of derivative financial instruments and deferred income tax. The accounting criteria used for these estimates are described below.

 

The Group has adopted the following standards and modifications for first time for its annual period that starts on January 1, 2023, as described below:

 

(i)

IFRS 17 “Insurance contracts” – See note 3(b).

 

(ii)

Definition of Accounting Estimates – Modifications to IAS 8-

 

The amendments to IAS 8 clarify the distinction between changes in accounting estimates, changes in accounting policies and the correction of errors. They will also clarify how entities use measurement techniques and inputs to develop accounting estimates.

 

The modifications had no impact on the Group’s consolidated financial statements.

 

 

(iii)

Disclosure of accounting policies – Amendments to IAS 1 and Statement of Practice IFRS 2-

 

They provide guidance and examples to help entities apply materiality judgments to accounting policy disclosures. The amendments are intended to help entities provide more useful disclosures of accounting policies by replacing the requirement that entities disclose their “material” accounting policies with a requirement to disclose their “material” accounting policies and adding guidance on how entities apply the concept of materiality. in making decisions on accounting policy disclosures.

 

The amendments have had an impact on the disclosures of the Group’s accounting policies, but not on the measurement, recognition, or presentation of any item in the Group’s financial statements.

 

(iv)

Deferred Taxes related to Assets and Liabilities – Modifications to IAS 12-

 

These modifications establish that deferred taxes arising from a single transaction that, upon initial recognition, give rise to taxable and deductible temporary differences of the same value must be recognized. This will generally apply to transactions such as leases (for lessees) and decommissioning or remediation obligations, where recognition of deferred tax assets and liabilities will be required. These modifications must apply to transactions that occur on or after the beginning of the first comparative period presented. Additionally, deferred tax assets (to the extent it is probable that they can be utilized) and deferred tax liabilities should be recognized at the beginning of the first comparative period for all deductible or taxable temporary differences associated with:

 

- Right-of-use assets and lease liabilities, and 

- Liabilities for dismantling, restoration and similar, and the corresponding amounts recognized as part of the cost of the related assets.

 

The cumulative effect of these adjustments is recognized in retained earnings or another component of equity, as appropriate.

 

Previously, IAS 12 did not establish any particular accounting treatment for the tax effects of leases that are recognized on the balance sheet and for similar transactions, so different approaches were considered acceptable. Entities that are already recognizing deferred taxes from these transactions will have no impact on their financial statements.

 

The modifications will be effective for the annual reporting periods beginning on or after January 1, 2023, with early adoption permitted.

 

The modifications had no impact on the Group’s consolidated financial statements.

 

In 2022, the Group adopted the following modifications:

 

(i)

Modifications to IFRS 3 - Reference to the Conceptual Framework –

 

Minor amendments were made to IFRS 3 Business Combinations to update references to the Conceptual Framework for Financial Reporting and add an exception to recognize liabilities and contingent liabilities within the scope of IAS 37 Provisions, Contingent Liabilities and IFRIC Interpretation 21 Liens.

 

The amendments also confirm that contingent assets should not be recognized on the acquisition date. The modification became effective for annual reporting periods beginning on January 1, 2022.

 

 

The modification of the standard did not have an impact on the consolidated financial statements.

 

(ii)

Onerous Contracts - Cost of fulfilling a contract - Modifications to IAS 37 –

 

In May 2020, the International Accounting Standards Board issued amendments to IAS 37 to specify what cost an entity should include when assessing whether a contract is onerous or loss-making. The amendment to IAS 37 clarifies that the direct costs of fulfilling a contract include both the incremental costs of fulfilling the contract and the allocation of other costs directly required to fulfill the contracts. Before recognizing a separate provision for the onerous contract, the entity shall recognize any impairment loss that has occurred in relation to the assets used to fulfill the contract.

 

The Amendment is effective for annual reporting periods beginning on or after January 1, 2022.

 

The modification had no impact on its consolidated financial statements.

 

(iii)

Annual improvements to IFRS Cycle 2018 - 2020 –

 

As part of its 2018-2020 annual improvements to the IFRS standard process, in May 2020, the International Accounting Standards Board issued the following amendments:

 

-

IFRS 9 Financial Instruments – clarification that commissions must be included in the 10.0 percent test for the derecognition of financial liabilities.

 

-

IFRS 1 First-time adoption of international financial reporting standards – allows entities that have measured their assets and liabilities at the book value recorded in the books of their parent company to also measure any accumulated translation differences using the amounts reported by the headquarters.

 

This modification will also apply to associates and joint ventures that have assumed the same expectation with IFRS 1.

 

The amendment is effective for annual reporting periods beginning on or after January 1, 2022.

 

The modification had no impact on its consolidated financial statements.

 

b)

Change in accounting policies, adoption of new IFRS and disclosures-

 

IFRS 17 replaces IFRS 4 Insurance Contracts for annual periods beginning on or after January 1, 2023. The Group has restated the 2022 information applying the transitional provisions of IFRS 17.

 

The nature of the changes in accounting policies is summarized as follows:

 

Changes in classification and measurement:

 

IFRS 17 establishes specific principles for the recognition and measurement of insurance contracts issued and reinsurance contracts maintained by the Group.

 

The key principles of IFRS 17 applied are:

 

-

The Group identifies insurance contracts as those under which it accepts a significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specific uncertain future event (the insured event) adversely affects to the policyholder.

 

 

-

The Group evaluates the products and separates the implicit derivatives, the different investment components and the different goods or services of the insurance contract services and accounts for them in accordance with the standards that apply to them.

 

-

The Group divides insurance and reinsurance contracts into groups that it will recognize and measure.

 

-

The Group determines the Unit of Account (UoA) requested by the new regulation, for long-term businesses, taking into consideration the product portfolio, currency, cost and year of issue.

 

-

For general insurance and short-term life insurance contracts, the measurement principles of the premium allocation approach (PAA) do not differ significantly from the considerations used by the Group under IFRS 4:

 

-

The Liability for Remaining Coverage reflects accrued premiums less insurance acquisition cash flows plus deferred premiums.

-

The Group determines the level of onerousness of each group of contracts by calculating the combined ratio of each Unit of Account. If the Unit of Account is onerous, the liability for remaining coverage involves explicit recognition of the loss component.

-

The measurement of the liability for incurred claims is determined based on the discounted value considering the expected payment flows and includes an explicit risk adjustment for non-financial risk.

   

-

For long-term life insurance contracts, the Group recognizes and measures groups of insurance contracts in:

 

-

A present value of expected future cash flows that incorporates all available information on fulfillment cash flows and considers market interest rates. A risk adjustment for non-financial risk is included.

-

An amount that represents the future technical profit (the contractual service margin or CSM) in the group of contracts.

-

Recognizes the gain from a group of insurance contracts during each period in which the Group provides insurance contract services, as the Group frees itself from risk. If a group of contracts is expected to be onerous (i.e. loss-making) during the remaining coverage period, the Group recognizes the loss immediately.

 

Changes in presentation and disclosure –

 

For presentation in the consolidated statement of financial position, the Group groups together the insurance and reinsurance contracts and presents them separately:

 

-

Reinsurance Contract Assets.

-

Insurance Contract Liability.

 

The portfolios mentioned above are those established on initial recognition in accordance with the requirements of IFRS 17. 

 

 

The descriptions of items in the income statement and other comprehensive income have changed compared to last year. Previously, the Group reported the following items:

 

-

Net Claims.

-

Incurred for life general and health insurance contracts.

-

Acquisition costs.

 

Instead, IFRS 17 requires the separate presentation of:

 

-

Insurance Service result of the insurance service (which includes income and expenses of the insurance service).

-

Underwriting result (which includes income and expenses from reinsurance contracts).

-

The net financial expenses of the insurance activity, which are presented in the headings of interest and similar expenses, see note 19.

 

The Group provides disaggregated qualitative and quantitative information in the notes to the financial statements on:

 

-

Amounts recognized in their financial statements for insurance contracts.

-

Significant judgments, and changes in those judgments, when applying the standard.

 

Transition settings. -

 

On the transition date, January 1, 2022, the Group:

 

-

Has identified, recognized, and measured each group of insurance contracts as if IFRS 17 had always been applied.

-

Existing balances that would not exist if IFRS 17 had always been applied were derecognized.

-

Recognized any resulting net difference in equity.

 

The Group decided to apply the fair value transition methodology as obtaining reasonable and supportable information to apply the full retrospective approach was impracticable without disproportionate cost or effort. The fair value method consists of obtaining the amount for which a portfolio of liabilities could be transferred to a third party. This amount was compared with the balance of the estimate of technical provisions (Best Estimation of Liabilities – “BEL”) and Risk Adjustment existing on the transition date, and the result was the CSM on said date. Likewise, the future benefit provided by the insurance contracts (Contractual Service Margin – “CSM”) was determined and will be released in the income statement to the extent that the Group provides its services to the insured. In determining the fair value, the Group has applied the requirements of IFRS 13 Fair Value Measurement.

 

To apply the fair value approach, the Group has used reasonable and sustainable information available at the transition date in order to:

 

-

Identify groups of insurance contracts.

-

Determine if any contract is a direct participation insurance contract.

-

Identify any discretionary cash flows for insurance contracts without direct participation features.

 

The discount rate for the group of contracts applying the fair value approach was determined on the transition date. Therefore, to measure compliance cash flows at the transition date, the discount rate (locked-in rate) was determined using the bottom-up approach at inception. 

 

 

The Group has chosen to disaggregate insurance financial income or expenses between the amounts included in results and the amounts included in other comprehensive income and readjust to zero the accumulated amount of insurance financial income or expenses recognized in other comprehensive income on the date of Transition. The Group used the fair value approach for those contracts with initial recognition prior to January 1, 2022, and the full retrospective approach for contracts recognized on this date or later.

 

As a result of the initial application of IFRS 17, the Group has restated its consolidated financial statements as of January 1, 2022, mainly recognizing a decrease in equity of S/210.8 million and as of December 31, 2022, an increase in equity of S/15.5 million and net income of S/14.7 million. Additionally, IFRS 17 requires that the net balances of insurance and reinsurance contract portfolios be presented as assets or liabilities, as appropriate, in the consolidated statement of financial position. In this sense, the amounts related to these accounts differ from what was previously presented under IFRS 4 as of December 31, 2022, and January 1, 2022 (transition date).

 

c)

Basis of consolidation –

 

Investment in subsidiaries -

 

The consolidated financial statements comprise the financial statements of Credicorp and its Subsidiaries for all the years presented.

 

Under IFRS 10 all entities over which the Group has control are subsidiaries. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has:

 

-

Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee).

-

Exposure, or rights, to variable returns from its involvement with the investee, and

-

The ability to use its power over the investee to affect its returns.

 

Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

 

-

The contractual arrangement with the other vote holders of the investee.

-

Rights arising from other contractual arrangements.

-

The Group’s voting rights and potential voting rights.

 

The Group assesses whether or not it controls an investee if the facts and circumstances indicate that there are changes in any of the elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. The consolidated financial statements include assets, liabilities, income and expenses of Credicorp and its subsidiaries.

 

Profit or loss for the period and each component of the other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interest, even if this results in the non-controlling interest with a negative balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

 

 

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

 

Transactions with non-controlling interest -

 

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction and any resulting difference between the price paid and the price for which non-controlling interests are adjusted is recognized directly in the consolidated statement of changes in equity.

 

The Group does not record any additional goodwill after the purchase of the non-controlling interest, nor does it recognize a gain or loss from the sale of the non-controlling interest.

 

Loss of control -

 

If the Group loses control over a subsidiary, it derecognizes the carrying amount of the related assets (including goodwill) and liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognized in profit or loss. Any residual investment retained is recognized at fair value.

 

Investments in associates -

 

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the entity, but without exercising control over said policies.

 

The Group’s investments in its associates are recognized initially at cost and are subsequently accounted for using the equity method. They are included in “Other assets” in the consolidated statement of financial position; the returns resulting from the use of the equity method of accounting are included in “Net gain on securities” of the consolidated statement of income.

 

 

As of December 31, 2023, and 2022, the following entities comprise the Group (the individual or consolidated figures of their financial statements are presented in accordance with IFRS and before eliminations for consolidation purposes, except for the elimination of Credicorp’s treasury shares and its related dividends):

 

Entity		Activity and country of incorporation		Percentage of interest (direct and indirect)						Assets						Liabilities						Equity						Net profit (loss)
				2023			2022			2023			2022			2023			2022			2023			2022			2023			2022
				%			%			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)
Grupo Crédito S.A. and Subsidiaries (i)		Holding, Peru		100.00			100.00			213,520,111			211,585,283			181,336,108			181,786,223			32,184,003			29,799,060			4,562,831			4,598,002
Pacífico Compañía de Seguros y Reaseguros S.A and Subsidiaries (ii)		Insurance, Peru		98.86			98.86			16,549,171			15,895,361			13,443,688			13,486,189			3,105,483			2,409,172			803,384			460,326
Atlantic Security Holding Corporation and Subsidiaries (iii)		Capital Markets, Cayman Islands		100.00			100.00			6,870,781			9,536,197			5,729,744			7,643,879			1,141,037			1,892,318			474,780			228,474
Credicorp Capital Ltd. and Subsidiaries (iv)		Capital Markets and asset management, Bermuda		100.00			100.00			5,817,259			4,504,629			4,655,097			3,559,262			1,162,162			945,367			(135,495	)		31,089
CCR Inc.(v)		Special purpose Entity, Bahamas		100.00			100.00			347			388			69			4			278			384			(106	)		(646	)

 

(i)

Grupo Crédito is a company whose main activities are to carry out management and administration activities of the Credicorp Group’s subsidiaries and invest in shares listed on the Peruvian Stock Exchange and unlisted shares of Peruvian companies. we present the individual or consolidated figures of their financial statements are presented in accordance with IFRS and before eliminations for consolidation purposes:

 

Entity		Activity and country of incorporation		Percentage of interest (direct and indirect)						Assets						Liabilities						Equity						Net profit (loss)
				2023			2022			2023			2022			2023			2022			2023			2022			2023			2022
				%			%			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)
Banco de Crédito del Perú and Subsidiaries (a)		Banking, Peru		97.74			97.74			193,804,856			193,278,232			168,645,448			170,005,995			25,159,408			23,272,237			4,583,662			4,683,775
Inversiones Credicorp Bolivia S.A. and Subsidiaries (b)		Banking, Bolivia		99.92			99.92			13,558,260			12,740,036			12,740,067			11,826,789			818,193			913,247			84,898			80,377
Prima AFP (c)		Private pension fund administrator, Peru		100.00			100.00			740,728			734,966			240,656			238,177			500,072			496,789			149,549			109,511
Tenpo SpA and Subsidiaries (d)		Holding, Chile		100.00			100.00			387,355			242,754			185,502			90,186			201,853			152,568			(111,692	)		(124,748	)

 

a)

BCP was established in 1889 and its activities are regulated by the Superintendency of Banks, Insurance and Pension Funds -Perú (the authority that regulates banking, insurance and pension funds activities in Perú, hereinafter “the SBS”).

 

Its main Subsidiary is Mibanco, Banco de la Microempresa S.A. (hereinafter “MiBanco”), a banking entity in Perú oriented towards the micro and small business sector. As of December 31, 2023, the assets, liabilities, equity and net result of Mibanco amount to approximately S/16,897.8 million, S/13,902.2 million, S/2,995.6 million and S/203.8 million, respectively (S/17,225.4 million, S/14,444.8 million, S/2,780.6 million, and S/424.9 million, respectively December 31, 2022).

 

 

b)

Inversiones Credicorp Bolivia S.A. (hereinafter “ICBSA”) was established in February 2013 and its objective is to make capital investments for its own account or for the account of third parties in companies and other entities providing financial services, exercising or determining the management, administration, control and representation thereof, both nationally and abroad, for which it can invest in capital markets, insurance, asset management, pension funds and other related financial and/or stock exchange products.

 

Its principal Subsidiary is Banco de Crédito de Bolivia (hereinafter “BCB”), a commercial bank which operates in Bolivia. As of December 31, 2023, the assets, liabilities, equity and net result of BCB were approximately S/13,500.9 million, S/12,612.3 million, S/888.6 million and S/83.1 million, respectively (S/12,697.8 million, S/11,838.0 million, S/859.8 million and S/68.0 million, respectively as of December 31, 2022).

 

c)

Prima AFP is a private pension fund and its activities are regulated by the SBS.

 

d)

Tenpo SpA (hereinafter “Tenpo”, before “Krealo SpA”) was established in Chile in January 2019; and is oriented to make capital investments outside the country. On July 1, 2019, Tenpo (Krealo SpA) acquired Tenpo Technologies SpA (before “Tenpo SpA”) and Tenpo Prepago S.A. (before “Multicaja Prepago S.A.”).

 

(ii)

Pacífico Seguros is an entity regulated by the SBS and its activities comprise the contracting and management of all types of general risk and life insurance, reinsurance and property investment and financial operations. Its Subsidiaries are Crediseguro Seguros Personales, Crediseguro Seguros Generales and Pacifico Asiste and it has Pacífico EPS as an associate, which are dynamic participants in the business of multiple and health insurance, respectively.

 

(iii)

Its most important subsidiary is ASB Bank Corp. (merged with Atlantic Security Bank on August 2021, was established in September 9, 2020 in the Republic of Panama; its main activities are private and institutional banking services and trustee administration, mainly for BCP’s Peruvian customers.

 

(iv)

Credicorp Capital Ltd. was formed in 2012, and its main subsidiaries are Credicorp Capital Holding Peru (owner of Credicorp Capital Perú S.A.A.), Credicorp Holding Colombia (owner of Credicorp Capital Colombia and Mibanco – Banco de la Microempresa de Colombia S.A.), and Credicorp Capital Holding Chile (owner of Credicorp Capital Chile), which carry out their activities in Peru, Colombia and Chile, respectively. We present below the consolidated financial statements in accordance with IFRS and before eliminations for consolidation purposes:

 

Entity		Percentage of interest (direct and indirect)						Assets						Liabilities						Equity						Net profit (loss)
		2023			2022			2023			2022			2023			2022			2023			2022			2023			2022
		%			%			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)
Credicorp Holding Colombia S.A.S. and Subsidiaries (a)		100.00			100.00			4,803,072			2,889,479			3,997,781			2,322,263			805,291			567,216			(163,342)			16,198
Credicorp Capital Holding Chile and Subsidiaries (b)		100.00			100.00			681,338			1,194,663			502,248			1,000,676			179,090			193,987			(10,716)			12,658
Credicorp Capital Holding Perú S.A. and Subsidiaries (c)		100.00			100.00			296,083			374,768			149,459			230,261			146,624			144,507			4,318			5,268

 

a)

Credicorp Holding Colombia was incorporated in Colombia on March 5, 2012, and its main purpose is the administration, management and increase of its equity through the promotion of industrial and commercial activity, through investment in other companies or legal persons.

 

 

Its main subsidiaries are Credicorp Capital Colombia S.A, which was acquired in Colombia in 2012 and merged with Ultraserfinco S.A. In June 2020, this subsidiary is oriented to the activities of commission agents and securities brokers. Likewise, Mibanco Colombia (before Banco Compartir S.A.) was acquired in 2019 and merged with Edyficar S.A.S. in October 2020, this subsidiary is oriented to grant credits to the micro and small business sector. As of December 31, 2023, Credicorp Holding Colombia has recognized an impairment of the goodwill of Mibanco Colombia for S/64.1 million (Credicorp’s equity holders), see note 10(b). As of December 31, 2023, and 2022, the direct and indirect interest held by Credicorp and the assets, liabilities, equity and net income were:

 

Entity		Percentage of interest (direct and indirect)						Assets						Liabilities						Equity						Net profit (loss)
		2023			2022			2023			2022			2023			2022			2023			2022			2023			2022
		%			%			S/000			S/000			S/000			S/000			S/000			S/000			S/000			S/000
Credicorp Capital Colombia S.A.		100.00			100.00			2,328,169			1,050,130			2,123,915			898,518			204,254			151,612			37,120			33,045
MiBanco – Banco de la Microempresa de Colombia S.A.		85.58			85.58			2,113,333			1,530,270			1,848,607			1,289,569			264,726			240,701			(72,608	)		13,513

 

b)

Credicorp Holding Chile was incorporated in Chile on July 18, 2012, and aims to invest for long-term profitable purposes, in corporeal goods (movable and immovable property) and incorporeal, located in Chile or abroad. Its main subsidiary is Credicorp Capital Chile S.A.

 

c)

Credicorp Capital Holding Perú S.A. was incorporated in Peru on October 30, 2014, and aims to be the Peruvian holding of investment banking. Its main subsidiary Credicorp Capital Perú S.A.A.; which has as its main activity the function of holding shares, participations and transferable securities in general, providing advisory services in corporate and financial matters, and investment in real estate.

 

(v)

CCR Inc. was incorporated in the year 2000. Its main activity is to manage funding granted to BCP by foreign financial entities or investors. These loans matured in the course of 2022 and were guaranteed by transactions carried out by BCP.

 

The information presented is based on the legal structure of the Group. The information grouped according to the business lines is revealed in note 27 Operating segments.

 

 

d)

Functional, presentation and foreign currency transactions –

 

(i)

Functional and presentation currency -

 

Credicorp and its Subsidiaries which operate in Peru consider the sol as their functional and presentation currency since it reflects the nature of the economic events and relevant circumstances for most of the Group´s entities, given the fact their major transactions and/operations, such as: loans granted, financing obtained, sale of insurance premiums, interests and similar income, interest and similar expenses, as well as a significant percentage of their purchases; they are agreed and settled in soles.

 

(ii)

Transactions and balances in foreign currency -

 

Foreign currency transactions are those entered into in currencies other than the functional currency. These transactions are initially recorded by Group entities at the exchange rates of their functional currencies at the transaction dates. Monetary assets and liabilities denominated in foreign currency are adjusted at the exchange rate of the functional currency prevailing at the date of the consolidated statement of financial position.

 

The differences arising from the exchange rate prevailing at the date of each consolidated statement of financial position presented and the exchange rate initially used in recording transactions are recognized in the consolidated statement of income in the period in which they occur, in “Exchange differences result”, except for those that correspond to monetary items that are part of a hedging strategy for a net investment abroad, said accumulated difference is recognized in the caption “Exchange differences on translation of foreign operations” in the consolidated statement of comprehensive income. Non-monetary assets and liabilities acquired in foreign currency are recorded at the exchange rate prevailing at the initial transaction date and are not subsequently adjusted.

 

(iii)

Group entities with functional currency other than the presentation currency -

 

Given that the Group’s entities in Colombia, Chile, Cayman Islands, Panama and Bolivia, Mexico, United States of America and Spain have a functional currency different from the sol, the balances were translated into Soles for consolidation purposes in accordance with IAS 21, “The Effects of Changes in Foreign Exchange Rates” as follows:

 

-

Assets and liabilities, at the closing rate prevailing at the date of each consolidated statement of financial position.

-

Income and expense, at the average exchange rate for each month of the year.

 

All resulting exchange differences were recognized within “Exchange differences on translation of foreign operations”, including the differences in financial instruments designated as accounting hedges of said investments, in the consolidated statement of comprehensive income.

 

e)

Recognition of income and expenses from banking activities -

 

Effective interest rate method:

 

Interest income is recorded using the effective interest rate (EIR) method for all financial instruments measured at amortized cost and at fair value through other comprehensive income. Interest expenses corresponding to liabilities measured at amortized cost are also recorded using the EIR.

 

The EIR is the rate that exactly discounts future cash flows that are estimated to be paid or received during the life of the instrument or a shorter period, if appropriate, to the gross carrying amount of the financial asset or financial liability. The EIR (and, therefore, the amortized cost of the financial asset or liability) is calculated taking into account any discount, premium and transaction costs that are an integral part of the effective interest rate of the financial instrument, but the expected credit loss are not included.

 

 

Interest income and expenses:

 

The Group calculates interest income by applying the EIR to the gross carrying amount of those financial assets that are not impaired.

 

When a financial asset becomes impaired and, therefore, is considered in Stage 3 (as set out in Note 3(j) impairment of financial assets), the Group calculates interest income by applying the interest rate effective at the carrying amount of the asset, net of its provision for credit loss. If the evidence that the criteria for the recognition of the financial asset in Stage 3 are no longer met, the Group recalculates interest income in gross terms.

 

Interest income and expenses accrued from all financial instruments that generate interest, including those related to financial instruments carried at fair value through profit or loss, are recorded under the heading “Interest and similar income” and “Interest and similar expenses” of the consolidated statement of income.

 

Dividends:

 

Dividends are recorded as income when they are declared.

 

Commissions and fees:

 

Income from commissions (which are not an integral part of the TIE) and fees are recognized as they are earned. Commissions and fees include, among others, the commission charged for the banking service in general such as account maintenance, shipping, transfers, loan syndication fees and fees for contingent credits.

 

Income from commissions and fees is recognized at an amount that reflects the consideration to which the Group expects to be entitled in exchange for providing the services. Performance obligations, as well as the timing of their satisfaction, are identified and determined at the time of contract. The Group’s revenue contracts do not include multiple performance obligations.

 

When the Group provides a service to its clients, the consideration is invoiced and generally collected immediately after the provision of a service at a given time or at the end of the contract period for a service provided over time.

 

The Group has generally concluded that it is the principal in its revenue arrangements because it normally controls the services before transferring them to the client.

 

Other income and expenses:

 

All other income and expenses are recorded in the period in which the performance obligation is satisfied.

 

f)

Insurance activities –

 

Below is the accounting policy for the insurance activity applying IFRS 17 for the periods 2023 and 2022:

 

Classification of insurance and reinsurance contracts:

 

Insurance contracts are those contracts when the Group (the insurer) has accepted a significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. This definition also includes reinsurance contracts that the Group holds.

 

 

Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expire. Life insurance contracts offered by the Group include retirement, disability and survival insurance, annuities and individual life which includes Investment Link insurance contracts. The non-life insurance contracts issued by the Group mainly include automobile, fire and allied lines, technical branches and healthcare.

 

Accounting treatment of insurance and reinsurance contracts:

 

Separation of the components of insurance and reinsurance contracts-

 

The Group evaluates its insurance and reinsurance products to determine if they contain components that must be accounted for under another IFRS instead of IFRS 17.

 

After separating the various components, an entity must apply IFRS 17 to all remaining components of the (host) insurance contract.

 

Currently, the Group’s products do not include differentiated components that require separation.

 

Investment components are the amounts that an insurance contract requires an insurer to reimburse a policyholder, even if an insured event does not occur.

 

Investment components that are highly interrelated with the insurance contract of which they are a part are considered non-distinct and are not accounted for separately. However, the receipts and payments of the investment components are excluded from the income and expenses of the insurance activity.

 

Some reinsurance contracts issued contain profit commission arrangements. Under these agreements, there is a guaranteed minimum amount that the policyholder will always receive, whether in the form of profit commission, claims, or other contractual payment, regardless of whether the insured event occurs.

 

The components of the profit commission are assessed to be highly interrelated with the insurance component of reinsurance contracts so that they are considered non-distinct investment components so that separate accounting is not required.

 

Aggregation level and classification -

 

The grouping of contracts into units of account is carried out based on the types of products, currency, cost and year of subscription; because they have similar risks, they are managed jointly and no contract portfolio can contain contracts issued more than one year apart.

 

The Group classifies a portfolio of insurance contracts into two categories based on the expected profitability at the policy or contract level at the time of its recognition based on reasonable and sustainable information in:

 

-

Onerous contracts: A contract will be classified as onerous on the initial recognition date as long as the present value of the expected outflows is greater than the inflows.

 

-

Non-onerous contracts: Will contain contracts for which, upon initial recognition, the present value of the expected outflows is less than the present value of the inflows.

 

It should be noted that a contract for accounting purposes may differ from what is considered a contract for other purposes (i.e. legal or management).

 

 

The expected return of these portfolios at inception is determined based on existing actuarial valuation models that take into account new and existing businesses.

 

Recognition of insurance and reinsurance contracts -

 

The Group recognizes the groups of insurance contracts it issues starting from the first of the following:

 

-

The beginning of the coverage period of the group of contracts.

-

The due date of the first payment of an insured group, or when the first payment is received if there is no due date.

-

For a group of onerous contracts, as soon as the facts and circumstances indicate that the group is onerous.

 

The Group recognizes a group of reinsurance contracts that it has entered into as follows:

 

-

Whether the reinsurance contracts held provide proportional coverage at the beginning of the coverage period of the group of reinsurance contracts held or at the initial recognition of any underlying contract, whichever is later.

-

In all other cases from the beginning of the coverage period of the group of reinsurance contracts maintained.

 

Contract limit -

 

The Group includes in the measurement of a group of insurance contracts all future cash flows within the limit of each contract in the group. Cash flows are within the limits of an insurance contract if they arise from substantive rights and obligations that exist during the reporting period in which the Group has a substantive obligation to provide the policyholder with insurance services. insurance contract.

 

The substantive obligation to provide the services of the insurance contract ends when:

 

-

The Group has the practical ability to reassess the risks of the particular policyholder and, as a result, can establish a price or level of benefits that fully reflects those risks.

-

The following two criteria are met:

 

-

The Group has the practical ability to reassess the risks of the portfolio of insurance contracts contained in the contract and, as a result, can establish a price or profit level that fully reflects the risk of that portfolio.

 

-

The price of the premium until the date of re-evaluation of the risks does not take into account the risks that relate to periods after the date of re-evaluation.

 

A liability or asset related to expected premiums or claims outside the limit of the insurance contract is not recognized. These amounts refer to future insurance contracts.

 

For life contracts with renewal periods, the Group assesses whether the premiums and related cash flows arising from the renewed contract are within the limits of the contract.

 

Renewal prices are established by the Group considering all risks covered for the insured that would be considered when signing equivalent contracts on the renewal dates of the remaining service.

 

The Group re-evaluates each group’s contract limit at the end of each reporting period.

 

 

Measurement at initial recognition -

 

General model – Insurance contracts

 

The general model measures a group of insurance contracts as the total of:

 

-

Fulfillment cash flows.

-

A risk adjustment for non-financial risk

-

The contractual service margin (CSM) which represents the unearned technical profit that the Group will recognize as it provides services in the future.

 

Compliance cash flows comprise:

 

-

Estimates of future cash flows considering their probability of occurrence.

-

An adjustment to reflect the time value of money and the financial risks related to future cash flows.

 

The cash flows for each scenario are weighted according to the probability of their occurrence based on the experience of the Group’s portfolio and are discounted using current interest rate assumptions (risk-free curve + Matching Adjustment).

 

When estimating future cash flows, the Group includes all cash flows that are within the contract limit, including:

 

-

Premiums and related cash flows.

-

Expected future claims and benefits:

 

-

Payments to beneficiaries for the occurrence of insured events.

-

Payments to policyholders resulting from the incorporated surrender and maturity options.

-

Acquisition expenses attributable to the portfolio to which the contract belongs.

-

Claim settlement expenses.

-

Attributable policy maintenance expenses, including recurring commissions expected to be paid to intermediaries.

-

An allocation of fixed and variable overhead expenses directly attributable to compliance with insurance contracts.

 

If at the time of initially estimating the fulfillment flows of a group of contracts a net outflow is obtained, these contracts become onerous contracts and a liability will be recognized at that initial time in the statement of financial position. This amount is what we call the “loss component”.

 

A group of contracts that were not onerous on initial recognition may subsequently become onerous if assumptions change, even though the classification of their grouping or Unit of Account remains unchanged.

 

Simplified Model – initial recognition

 

The simplified model of the general method is the Premium Allocation Approach (PAA), which is applied by the Group for contracts with a duration equal to or less than one year or for which the amount of the provision does not differ significantly. of the general model.

 

If significant variability in cash flows from compliance is initially expected that would affect the measurement of the remaining coverage liability, the simplified method cannot be applied.

 

Under the premium allocation approach, the Group will assume that no contract is onerous unless the facts and circumstances indicate otherwise, which is why initially all contracts are grouped based on risk and how they are managed. To evaluate this possibility, a premium sufficiency test will be used that will evaluate the need to provide an additional provision and classify the Group of contracts as onerous (Onerousness Test).

 

 

For insurance contracts that apply the PAA approach, the Group initially recognizes written premiums net of commissions and deferred premiums as provision of remaining coverage (Liability for Remaining Coverage, LRC).

 

Post measurement – ​​insurance contracts

 

The book value of a group of insurance contracts after initial recognition will consist of:

 

(a) Liability for Remaining Coverage (LRC) comprising compliance cash flows, risk adjustment for non-financial risk and CSM of the Contract Group at the end of the reporting period.

 

(b) Incurred claims liability, which comprises compliance cash flows relating to the payment of reported and pending claims, incurred but not reported claims (IBNR) and claim settlement expenses. A risk adjustment for non-financial risk is also included.

 

The Group will recognize income or expenses for the variation in the book value of the Liability for Remaining Coverage and the liability for claims incurred:

 

(a) Income from insurance activity: the reduction of the liability for the service provided in the period.

 

The CSM at the end of the reporting period represents the gain in the Insurance Contract Group that has not yet been recognized in profit or loss, because it relates to the future service to be provided.

 

For a group of insurance contracts without direct participation components, the carrying value of the CSM at the end of the reporting period is equal to the carrying value at the beginning of the reporting period adjusted as follows:

 

-

The effect of new contracts added to the group. interest accrued on the carrying amount of the CSM during the reporting period, measured at the discount rates at initial recognition.

 

-

Changes in compliance cash flows related to future service such as:

 

○

Adjustment for experience: it must be disaggregated to reflect the different factors that cause such adjustments in the expected future benefits of the Group:

 

●

Adjustment in compliance flows due to claims experience is the variation in actual claims compared to expected claims. Likewise, this variation in the accident rate may lead to changes in the expected compliance flows. This variation will be recorded in a change in the CSM amount.

 

●

Adjustment for variation in operating assumptions - A variation in the projection operating assumptions (mortality, expenses, rescues, etc.) will be recorded against the CSM for the period. This change will be cumulative with the adjustments made previously.

 

●

Adjustment for premiums collected: Insurance premiums that relate to future service that have been received in the period require an adjustment to the contractual service margin. Likewise, an additional analysis must be carried out on the extraordinary contributions that the policyholder may make. Whether these new contributions made by the insured, different from regular premiums, should be considered new contracts or part of existing contracts. Therefore, it must be evaluated whether the new contributions are valued using the same conditions as at the beginning of the contract or if they are modified (mortality table, administration expenses, guaranteed rates, etc.).

 

 

-

In the event that the conditions of the contract are not modified in the extraordinary contribution, that is, it has the same conditions as the original contribution, it is considered that the cash flows are within the limits of the contract, and therefore Both the variation in expected cash flows will be considered as a variation in experience.

-

Changes in estimates of the present value of future cash inflows in the remaining coverage liability measured at discount rates.

-

Differences between the investment components that are expected to become payable in the period and the actual investment component that becomes payable in the period, measured at discount rates.

-

Changes in risk adjustment for non-financial risk that relates to future service.

-

The effect of currency exchange differences on the CSM.

 

-

The amount recognized as insurance income due to the transfer of insurance contract services in the period, determined by the allocation of the remaining CSM at the end of the reporting period (before any allocation) during the current coverage period and remaining.

 

For a group of insurance contracts with direct participation components, the amount of CSM to be reported in the books will be obtained by applying a series of adjustments to the value of the CSM of the previous period:

 

-

The effect of the new contracts added to the group.

-

The entity’s participation in the change in the fair value of the underlying elements.

-

Changes in compliance cash flows, such as a change in the entity’s loss experience and future expenses compared to those expected in the previous period.

-

The effect of currency exchange differences on the CSM.

-

The amount recognized as revenue from ordinary insurance activities due to the transfer of services in the period, determined by allocating the remaining contractual service margin at the end of the reporting period (before any allocation) over the current coverage period.

 

(b) Insurance activity expenses: for losses in onerous contract groups and reversals of these losses.

 

The Group will recognize a loss in the period’s results for the net outflow for the Group of onerous contracts, causing the Group’s liability book amount to equal the cash flows from compliance, with the Group’s contractual service margin being zero.

 

The loss component is released based on a systematic allocation of subsequent changes related to future service in compliance cash flows to:

 

(i)

The loss component; and

 

(ii) the remaining coverage liability excluding the loss component. The loss component is also updated for subsequent changes related to future service in estimates of compliance cash flows and risk adjustment for non-financial risk.

 

Systematic allocation of subsequent changes to the loss component results in total amounts allocated to the loss component being zero at the end of the coverage period of a contract group.

 

 

(c) Financial expenses and income from insurance: for the time value of money and financial risk effect.

 

The Group disaggregates financial income or expenses for insurance contracts issued for its immediate annuity and term life portfolios between profit or loss and OCI.

 

The impact of changes in market interest rates on the value of life insurance and related reinsurance assets and liabilities is reflected in OCI to minimize accounting mismatches between the accounting for financial assets and insurance assets and liabilities. The Group financial assets supporting the insurance portfolios issued are predominantly measured at amortized cost or fair value with changes in other comprehensive income. Financial income or expenses from reinsurance contracts issued by the Group are not disaggregated because the related financial assets are managed on a fair value basis and are measured at fair value with changes in income.

 

For presentation in the consolidated statement of financial position, the Group aggregates insurance and reinsurance contract portfolios that are assets or liabilities and presents them separately in the following items:

 

-

Reinsurance Contract Assets.

-

Insurance Contract Libility.

 

The presentation in the statement of comprehensive income is as follows:

 

-

Insurance service result (including insurance service income and expenses).

-

Underwriting (including income and expenses from reinsurance contracts).

-

Net financial expenses from insurance activity, presented in interest and similar expenses. See note 19.

 

The Company terminates insurance contracts when:

-

The rights and obligations relating to the contract are extinguished (i.e. released, canceled or expire).

 

Significant judgments and estimates.

 

The Group bases its assumptions and estimates on parameters derived from portfolio experience and these are used to prepare the financial statements. However, existing circumstances and assumptions about future developments could change due to changes in the market or circumstances beyond the Group’s control. Parameters are updated to reflect such changes in assumptions as necessary.

 

The Group reassesses the CSM in each period with the adjustment for the entity’s experience. Parameters used for estimating future cash flows are a comparison between current and estimated rates, and the following hypotheses are evaluated: mortality, longevity, disability, expenses, and lapses.

 

For the measurement of the present value of future cash flows, it is necessary to define discount rates that consistently reflect the time value of money.

 

For the general method, it should be noted that in each valuation, it will be necessary to have two types of differentiated interest rates for discounting cash flows:

 

-

Market rate or current valuation rate: the interest rate obtained from current market data and assumptions. The discount rate as of the valuation date will be equal to the risk-free rate of the corresponding currency plus the Matching Adjustment described later.

 

 

-

Established initial rate or Locked-In Rate (LiR): an interest rate defined at the time of initial recognition of the insurance contract and will remain fixed until the termination of it, and will be used to:

 

-

Measuring cash flows from fulfillment at initial valuation;

-

Determining the amount of financial expenses or income from insurance included in the income statement for the period;

-

Determining accrued interest on the CSM;

-

Determining the portion of the financial effect on Cashflows that will be imputed to interest on liabilities;

-

Measuring changes in the contractual service margin.

 

For the determination of the discount curve of the established initial rate on the initial recognition date of the contract, the Matching Adjustment methodology (calibration adjustment) will be used. This methodology starts from the assets that cover the Group’s liabilities. Conceptually, the Matching Adjustment is a spread added to the risk-free curve (RFR) for calculating the present value of the Group obligations. This differential will be calculated as the IRR of “de-risked” assets minus the IRR of liabilities, minus the average “Cost of Downgrade” of the portfolio, and an adjustment for sub-”Investment Grade” investments in the portfolio. The determination of the Matching Adjustment is made by product type and currency.

 

As of December 31, 2023, and December 31, 2022, the Group classified financial liabilities upon initial recognition as measured at amortized cost, except for financial liabilities at fair value through profit or loss. These liabilities include derivatives measured at fair value. Incurred interest is accrued in the “Interest and similar income” item in the consolidated statement of comprehensive income.

 

Likewise, at the time of initial recognition, Management may irrevocably designate financial liabilities as measured at fair value through profit or loss when one of the following criteria is met:

 

-

An inconsistency in measurement that would otherwise arise using different criteria for measuring assets or liabilities is eliminated or significantly reduced;

-

They are part of a group of financial liabilities that are managed and their performance is evaluated on a fair value basis, according to a documented investment or risk management strategy; or

-

The financial liability contains one or more embedded derivatives that significantly modify the cash flows otherwise required.

 

(i)

Reclassification of financial assets and liabilities –

 

The reclassification of financial assets will take place whenever the business model managing the financial assets changes. It is expected that this change will be very infrequent. These changes are determined by approval of the Group’s management as a result of external or internal changes, which must be significant to the Group’s operations and demonstrable to third parties. Financial liabilities are never reclassified.

 

When the Group changes its business model for managing financial assets, it will prospectively reclassify all affected financial assets from the date of reclassification. The Group will not restate previously recognized gains, losses, or interest (including gains or losses on impairment) recognized.

 

 

If the Group reclassifies: 

-

A financial asset from the amortized cost measurement category to the fair value through profit or loss category: its fair value will be measured at the reclassification date. Any gain or loss arising from differences between the previous amortized cost of the financial asset and the fair value will be recognized in profit or loss for the period.

-

A financial asset from the fair value through profit or loss measurement category to the amortized cost category: its fair value at the reclassification date becomes its new gross carrying amount.

-

A financial asset from the amortized cost measurement category to the fair value through other comprehensive income category: its fair value will be measured at the reclassification date. Any gain or loss arising from differences between the previous amortized cost of the financial asset and the fair value will be recognized in other comprehensive income. The effective interest rate and the measurement of expected credit losses will not be adjusted as a result of reclassification.

-

A financial asset from the fair value through other comprehensive income measurement category to the amortized cost category, the financial asset will be reclassified at its fair value at the reclassification date. However, previously recognized accumulated gains or losses in other comprehensive income will be removed from equity and adjusted against the fair value of the financial asset at the reclassification date. As a result, the financial asset will be measured at the reclassification date as if it had always been measured at amortized cost. This adjustment affects other comprehensive income but not profit or loss for the period.

-

A financial asset from the fair value through profit or loss measurement category to the fair value through other comprehensive income category, the financial asset will continue to be measured at fair value.

-

A financial asset from the fair value through other comprehensive income measurement category to the fair value through profit or loss category, the financial asset will continue to be measured at fair value. The previously recognized accumulated gain or loss in other comprehensive income will be reclassified from equity to profit or loss for the period.

 

g)

De-recognition of financial assets and liabilities -

 

Financial assets:

 

A financial instrument is any agreement that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

 

The Group determined the classification of its financial instruments at the time of initial recognition.

 

All financial instruments are initially recognized at their fair value plus the incremental costs related to the transaction that are directly attributable to the purchase or issuance of the instrument, except in the case of financial assets or liabilities carried at fair value through profit or loss.

 

Purchases or sales of financial assets that require delivery of the assets within a period established in accordance with regulations or conventions in the market (regular market deadlines) are recognized at the negotiation date, that is, the date on which the Group undertakes to buy or sell the asset.

 

 

As of December 31, 2023 and 2022, the Group classified financial assets into one of the categories defined by IFRS 9: financial assets at fair value through profit or loss, at fair value through other comprehensive income and at amortized cost based on:

 

-

The business model to manage financial assets and

-

The characteristics of the contractual cash flows of the financial asset

 

Business model -

 

It represents how financial assets are managed to generate cash flows and is not dependent on Management’s intention with respect to an individual instrument. Financial assets can be managed for the purpose of: i) obtaining contractual cash flows; ii) obtaining contractual cash flows and sale; or iii) others. To evaluate business models, the Group considers:

 

-

The risks that affect the performance of the business model and, in particular, the way in which these risks are managed.

-

How the performance of the business model and the financial assets held within this business model are evaluated and reported to key Group management personnel.

 

If cash flows after initial recognition are realized differently from the Group’s expectations, the classification of the remaining financial assets held in this business model is not modified.

 

When the financial asset is maintained in business models i) and ii) the application of the only principal and interest payments test is required - “SPPI”.

 

SPPI Test (Principal and Interest Payment Only) –

 

Evaluation of the cash flows generated by a financial instrument in order to verify whether the contractual conditions of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest. To conform to this concept, cash flows should include only consideration of the time value of money and credit risk. If the contractual terms introduce exposure to cash flow risk or volatility, such as exposure to changes in equity instrument prices or commodity prices, the financial asset is classified at fair value with changes in results. Hybrid contracts should be evaluated as a whole, including all built-in features. The accounting of a hybrid contract that contains an embedded derivative is carried out jointly, that is, the entire instrument is measured at fair value through profit or loss.

 

(i)

Financial assets at amortized cost –

 

A financial asset is classified at amortized cost if the following conditions are met:

 

-

It remains within a business model whose objective is to maintain the financial asset to obtain contractual cash flows, and

-

The contractual conditions give rise, on specified dates, to cash flows that are solely payments of principal and interest.

 

After initial recognition, financial assets in this category are valued at amortized cost, using the effective interest rate method, less any credit loss provision. The amortized cost is calculated taking into account any discount or premium incurred in the acquisition and fees that constitute an integral part of the effective interest rate. Interest income is included in the “Interest and similar income” item in the consolidated statement of income.

 

Financial assets at amortized cost include direct credits that are recorded when the funds are disbursed to clients, and indirect credits (contingent) that are recorded when the documents that support said credit facilities are issued. Likewise, the Group considers as refinanced or restructured those loans that change their payment schedule due to difficulties in payment by the debtor.

 

 

The impairment loss is calculated using the expected loss approach and is recognized in the consolidated statement of income in the item “Net gain on securities” for investments and in the item “Credit loss provision for loan portfolio” for credits.

 

The balance of financial assets, measured at amortized cost, is presented net of the provision for credit losses in the consolidated statement of financial position.

 

(ii)

Financial assets at fair value with changes in other comprehensive income –

 

The financial assets that the Group maintains in this category are: a) investments in debt instruments, and b) investments in equity instruments, for non-trading purposes, irrevocably designated in the initial recognition.

 

Investments in debt instruments -

 

A financial asset is classified and measured at fair value through other comprehensive income when the following conditions are met:

 

-

The financial asset is maintained within a business model whose objective is achieved by obtaining contractual cash flows and selling financial assets, and

-

The contractual conditions give rise, on specified dates, to cash flows that are solely payments of principal and interest.

 

After initial recognition, investments in debt instruments are measured at fair value, recording unrealized gains and losses in the consolidated statement of comprehensive income, net of the corresponding income tax and non-controlling interest, until the investment is sold; in which the accumulated gain or loss is recognized in the “Net gain on securities” item of the consolidated statement of income.

 

Interest is recognized in the consolidated statement of income in the item “Interest and similar returns” and is reported as interest income using the effective interest rate method.

 

When a debt instrument is designated in a fair value hedging relationship, any change in fair value due to changes in the hedged risk is recognized in “Interest and similar income” in the consolidated statement of income.

 

Foreign exchange gains or losses related to the amortized cost of the debt instrument are recognized in the consolidated statement of income, and those related to differences between the amortized cost and the fair value are recognized as part of the unrealized gain or loss. in the consolidated statement of comprehensive income.

 

The estimated fair value of investments in debt instruments is determined primarily on the basis of quotes or, in the absence of these, on the basis of discounted cash flows using market rates consistent with the credit quality and maturity of the debt instruments. the investment.

 

The loss due to impairment of investments in debt instruments is calculated using the expected loss approach and is recognized in the consolidated statement of comprehensive income with a charge to the item “Net gain on securities” of the consolidated statement of income; In this sense, it does not reduce the carrying amount of the financial asset in the consolidated statement of financial position, which is maintained at its fair value. The impairment loss recognized in the consolidated statement of comprehensive income is recycled in the consolidated statement of income upon derecognition of the debt instrument.

 

 

Investments in equity instruments, for non-trading purposes, irrevocably designated at the initial moment (equity instruments designated at the initial moment) -

 

At the time of initial recognition, the Group may make an irrevocable election to present equity instruments, which are not held for trading but for strategic purposes, in the category of “At fair value through other comprehensive income”.

 

After initial recognition, equity investments are measured at fair value, recording unrealized gains and losses in the consolidated statement of comprehensive income, net of the corresponding income tax and non-controlling interest, until the investment is sold, in which the accumulated gain or loss is transferred to the “Retained earnings” item of the consolidated statement of changes in equity; That is, they are never subsequently reclassified to the consolidated statement of income.

 

Consequently, capital instruments classified in this category do not require an impairment loss assessment.

 

Dividends are recognized when the right to collection has been established and are recorded in the “Interest and similar income” item in the consolidated statement of income.

 

(iii)

Financial assets at fair value through profit or loss –

 

Financial assets must be classified and measured at fair value through profit or loss unless they are classified and measured at “Amortized cost” or “At fair value through other comprehensive income”.

 

The financial assets that the Group maintains in this category are: a) Investments in debt instruments, b) investments in equity instruments for trading purposes, c) financial assets designated at fair value with changes in results from the moment of their recognition. initial, and d) derivative financial instruments for trading purposes.

 

Debt instruments -

 

Such instruments are classified in this category because: a) they are held for trading purposes, or b) their cash flows are not solely payments of principal and interest.

 

After initial recognition, they are measured at fair value, recording the changes in the “Net gain on securities” item in the consolidated statement of income. The accrued interest is calculated using the contractual interest rate and is recorded in the “Interest and similar income” item in the consolidated statement of income.

 

Capital instruments -

 

Equity instruments are classified and measured at fair value through profit or loss, unless an irrevocable election is made, at the time of initial recognition, to designate them at fair value through other comprehensive income.

 

After initial recognition, they are measured at fair value, recording the changes in the “Net gain on securities” item in the consolidated statement of income. Dividend income is recorded in the “Interest and similar income” item in the consolidated statement of income when the right to payment has been recognized.

 

Financial assets designated at fair value through profit or loss from the moment of initial recognition -

 

At the time of initial recognition, Management may irrevocably designate financial assets as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from the measurement of the assets or liabilities. or the recognition of their profits and losses on different bases.

 

 

After their initial recognition, they are measured at fair value, recording the changes in the consolidated statement of income.

 

As of December 31, 2023 and 2022, the Group classified financial liabilities in their initial recognition as measured at amortized cost, except in the case of financial liabilities at fair value through profit or loss. These liabilities include derivatives that are measured at fair value.

 

The interest incurred is accrued in the “Interest and similar income” item in the consolidated statement of income.

 

Likewise, at the time of initial recognition, Management may irrevocably designate financial liabilities as measured at fair value through profit or loss when one of the following criteria is met:

 

-

A measurement inconsistency that would otherwise arise when using different criteria to measure assets or liabilities is eliminated or significantly reduced; either

-

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

-

The financial liability contains one or more embedded derivatives that significantly modify the otherwise required cash flows.

 

(iv)

Reclassification of financial assets and liabilities –

 

The reclassification of financial assets will take place as long as the business model that manages financial assets changes. This change is expected to be very infrequent. These changes are determined by approval of the Group’s management as a result of external or internal changes, which must be significant for the Group’s operations and demonstrable to third parties. Financial liabilities are never reclassified.

 

When the Group changes its business model for the management of financial assets, it will reclassify all affected financial assets prospectively from the reclassification date. The Group will not restate previously recognized gains, losses or interest (including impairment gains or losses).

 

If the Group reclassifies:

 

-

A financial asset from the amortized cost measurement category to that of fair value through profit or loss: its fair value will be measured on the reclassification date. Any gain or loss that arises due to differences between the previous amortized cost of the financial asset and the fair value will be recognized in the profit or loss of the period.

 

-

A financial asset from the fair value through profit or loss measurement category to the amortized cost category: its fair value on the reclassification date becomes its new gross carrying amount.

 

-

A financial asset from the amortized cost measurement category to that of fair value with changes in other comprehensive income: its fair value will be measured on the reclassification date. Any gain or loss that arises due to differences between the previous amortized cost of the financial asset and the fair value will be recognized in other comprehensive income. The effective interest rate and the measure of expected credit losses will not be adjusted as a result of the reclassification.

 

 

-

A financial asset from the measurement category of fair value with changes in other comprehensive income to that of amortized cost, the financial asset will be reclassified at its fair value on the reclassification date. However, accumulated gains or losses previously recognized in other comprehensive income will be eliminated from equity and adjusted against the fair value of the financial asset on the reclassification date. As a result, the financial asset will be measured on the reclassification date as if it had always been measured at amortized cost. This adjustment affects the other comprehensive income but not the result for the period.

 

-

A financial asset from the measurement category of fair value through profit or loss to fair value through other comprehensive income, the financial asset continues to be measured at fair value.

 

-

A financial asset from the measurement category of fair value through other comprehensive income to that of fair value through profit or loss, the financial asset continues to be measured at fair value.

 

-

The accumulated gain or loss previously recognized in other comprehensive income will be reclassified from equity to profit or loss for the period.

 

h)

Disposal of financial assets and liabilities –

 

Financial assets:

 

A financial asset (or, where applicable, a portion of a financial asset or a portion of a group of similar financial assets) is derecognized when: (i) the rights to receive cash flows from the asset have expired; or (ii) the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full immediately to a third party under a pass-through arrangement; and the Group has also transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset but has transferred control of the asset.

 

When contractual rights to receive cash flows from the financial asset have been transferred, or a transfer agreement has been entered into, the Group assesses whether it has retained, and to what extent, the risks and benefits inherent in ownership of the asset. When the Group has neither transferred nor retained substantially all risks and benefits inherent in ownership of the asset, nor transferred control of the asset, the Group continues to recognize the transferred asset to the extent of its continued involvement with the asset.

 

In that case, the Group also recognizes the related liability. The transferred asset and related liability are measured in such a way as to reflect the rights and obligations that the Group has retained.

 

Continued involvement in the form of a guarantee over the transferred asset is measured as the lower of (i) the carrying amount of the asset, and (ii) the maximum consideration received that the Group would be required to repay.

 

Financial liabilities:

 

A financial liability is derecognized when the obligation to pay is discharged, cancelled, or expires. When an existing financial liability is exchanged for another from the same borrower under significantly different terms (fails the 10% test established in IFRS 9), or the terms are substantially modified, such exchange or modification is treated as a derecognition of the original liability and a new liability is recognized, with the difference between the carrying amount of the initial financial liability and the consideration paid recognized in the consolidated statement of comprehensive income.

 

 

i)

Offsetting financial instruments -

 

Financial assets and liabilities are offset and the net amount is presented in the consolidated statement of financial position when there is a legally enforceable right to offset them and the Management intends to settle them on a net basis or to realize the asset and settle the liability simultaneously.

 

j)

Impairment of financial assets -

 

As of December 31, 2023, and December 31, 2022, the Group applies a three-stage approach to measure the provision for credit losses, using an expected credit loss impairment model as set out in IFRS 9, for the following categories:

 

-

Financial assets at amortized cost.

-

Debt instruments classified as investments at fair value through other comprehensive income.

-

Indirect loans presented in contingent accounts.

 

Financial assets classified or designated at fair value through profit or loss and equity instruments designated at fair value through other comprehensive income are not subject to impairment assessment.

 

Financial assets migrate through three stages based on changes in credit risk from initial recognition.

 

Expected credit loss impairment model –

 

Calculations of credit losses result from models with a series of underlying assumptions regarding the choice of variable inputs and their interdependencies. The expected credit loss impairment model reflects the present value of all cash shortfall events related to default events, either (i) over the following twelve months or (ii) over the expected life of a financial instrument depending on credit impairment from inception. Expected credit loss reflects a probability-weighted outcome considering a range of multiple outcomes based on reasonable and supported forecasts.

 

Provisions for credit losses will be measured at each reporting date following a three-stage expected credit loss model based on the degree of credit deterioration from inception:

 

-

Phase 1: Financial assets whose credit risk has not increased significantly since initial recognition will recognize a reserve for losses equivalent to the credit losses expected to occur from defaults in the next 12 months. For instruments with a maturity of less than 12 months, a default probability corresponding to the remaining term to maturity is used.

-

Phase 2: Financial assets that have experienced a significant increase in credit risk compared to initial recognition but are not considered impaired will recognize a loss reserve equivalent to the expected credit losses that are expected to occur during the remaining life of the asset.

-

Phase 3: Financial assets with credit impairment at the reporting date will recognize a loss reserve equivalent to the expected credit losses over the entire life of the asset. Interest income will be recognized based on the carrying amount of the asset, net of the credit loss provision.

 

Measurement of expected loss –

 

The measurement of expected credit loss is primarily based on the product of the probability of default (PD), the loss given default (LGD), and the exposure at default (EAD), discounted to the reporting date and considering expected macroeconomic effects and all in accordance with the new regulations.

 

 

The details of these statistical parameters are as follows:

 

-

PD: It is an estimate of the probability of default over a specified time horizon. Default can only occur at a given point in time during the estimated remaining life, provided the financial asset has not been derecognized previously and still remains in the portfolio.

 

-

LGD: It is an estimate of the loss that occurs in the event of default at a given point in time. It is based on the difference between contractual cash flows owed and those the lender would expect to receive, including from the realization of any collateral. It is typically expressed as a percentage of the EAD.

 

-

EAD: It is an estimate of exposure at a future default date, taking into account expected changes in exposure after the reporting date, including principal and interest repayments, either scheduled by contract or otherwise, and interest accrued for overdue payments.

 

The fundamental difference between credit loss considered in Phase 1 and Phase 2 is the PD horizon. Phase 1 estimates use a 12-month horizon, while those in Phase 2 use an expected loss calculated with the remaining term of the asset and consider the effect of significant risk increase. Finally, in Phase 3, the expected loss will be estimated based on the best estimate (“ELBE”), given the status of the collection process for each asset.

 

Changes from one phase to another –

 

The classification of an instrument as phase 1 or phase 2 depends on the concept of “significant increase in credit risk” on the reporting date compared to the origination date; in this sense, the definition used considers the following criteria:

 

-

If it is more than 30 days late.

 

-

If the probability of default (“PD”) at the reporting date exceeds the PD at the origination date by 50% (absolute thresholds) in all portfolios.

 

-

If the PD at the reporting date exceeds the PD at the origination date at an individualized level for each risk level and by portfolio (relative thresholds).

 

-

The follow-up, alert and monitoring systems for risk portfolios that depend on the current risk policy in Wholesale and Retail Banking are integrated.

 

Additionally, all accounts classified as defaults at the reporting date are considered Phase 3. Assessments of significant risk increase from initial recognition and credit impairment are independently conducted at each reporting date. Assets can move in both directions from one phase to another. Reference added: See further detail in note 30.1(c).

 

Prospective Information –

 

The measurement of expected credit losses for each phase and the assessment of significant increases in credit risk must consider information about past events and current conditions, as well as projections of future events and economic conditions. For estimating risk parameters (PD, LGD, EAD) used in calculating the provision in Phases 1 and 2, macroeconomic variables that differ between portfolios were included. These projections have a three-year period and, additionally, a long-term projection.

 

The estimation of expected loss for Phases 1, 2, and 3 will be a weighted estimate considering three future macroeconomic scenarios. Base, optimistic, and pessimistic scenarios are based on macroeconomic projections provided by the internal economic studies team and approved by Senior Management. This same team also provides the probability of occurrence of each scenario. It should be noted that the scenario design is adjusted at least once a year, possibly more frequently if environmental conditions require.

 

 

Macroeconomic Factors –

 

In its models, the Group relies on a wide range of prospective information as economic inputs, such as gross domestic product (GDP) growth, unemployment rates, central bank base rates, among others. The inputs and models used to calculate expected credit losses may not always capture all market characteristics at the date of the financial statements. To reflect this, qualitative adjustments or overlays may be made using expert judgment.

 

Expected Lifetime –

 

For instruments in Phase 2 or 3, loss reserves will cover expected credit losses during the instrument’s lifetime. For most instruments, the expected lifetime is limited to the remaining term of the product, adjusted for expected prepayments. For revolving products, an analysis was conducted to determine the expected lifetime period.

 

Presentation of Credit Loss Provision in the Statement of Financial Position –

 

-

Financial assets measured at amortized cost: as a deduction from the gross carrying amount of financial assets;

-

Debt instruments measured at fair value through other comprehensive income: no provision is recognized in the statement of financial position because the carrying amount of these assets is their fair value; however, the expected credit loss is presented in accumulated other comprehensive income;

-

Indirect credits: the provision for credit loss is presented under “Other liabilities” in the statement of financial position.

 

Renegotiated Credits –

 

When a credit is modified, it is not considered past due but maintains its previous classification as impaired or unimpaired. If the borrower complies with the new agreement for the next six months, and the analysis of their repayment capacity supports a new risk rating improvement, the credit is classified as unimpaired. If after the credit is modified, the borrower defaults on the new agreement, it is considered impaired and past due. See further detail in note 30.1(c).

 

k)

Business Combinations –

 

Business combinations are accounted for using the acquisition method as set out in IFRS 3 “Business Combinations”, regardless of whether they are equity instruments or other acquired assets.

 

The cost of an acquisition is measured as the sum of the consideration transferred, measured at fair value at the acquisition date, and the amount of any non-controlling interest in the acquired entity. For each business combination, the Group decides whether the non-controlling interest in the acquired entity should be measured at fair value or at the proportionate share of the identifiable net assets of the acquired entity. Acquisition-related costs are recognized as expenses and included in the “Administrative expenses” line item in the consolidated statement of profit or loss.

 

When the Group acquires a business, it assesses the financial assets and liabilities assumed for proper classification and naming in accordance with contractual terms, economic circumstances, and conditions relevant at the acquisition date. This includes the separation of implicit derivatives in contracts entered into by the acquiree.

 

 

Any contingency transferred by the acquirer must be recognized at its fair value at the acquisition date. The contingency classified as a financial instrument and within the scope of IFRS 9: “Financial Instruments” is measured at fair value through profit or loss or other comprehensive income in the consolidated statement of profit or loss or in the consolidated statement of comprehensive income. If the contingency is classified as equity, it should not be remeasured, and its subsequent settlement is accounted for within equity.

 

The acquisition of the non-controlling interest is recognized directly in equity; the difference between the amount paid and the net assets acquired is recognized as an equity transaction. Therefore, the Group does not recognize any additional goodwill after acquiring the non-controlling interest, nor does it recognize a gain or loss on the sale of the non-controlling interest.

 

If there is a contractual obligation to acquire the shares of the non-controlling interest through a put option, the Group will initially recognize a liability at fair value through profit or loss equivalent to the market value of the non-controlling interest against the “Reserves and others” account in equity. After initial recognition, the liability is measured at fair value, recording changes in the statement of profit or loss until the option is exercised. If the option expires without being exercised, the liability is derecognized, adjusting equity.

 

The equity attributable to the non-controlling interest is presented separately in the consolidated statement of financial position. Profit attributable to the non-controlling interest is presented separately in the consolidated statement of profit or loss and in the consolidated statement of comprehensive income.

 

If the business combination is achieved in stages, the acquisition date and previous interest in the acquiree are remeasured at fair value at the acquisition date. Gains or losses arising from such remeasurement are recognized in profit for the period. Likewise, in accordance with IFRS 3, from the acquisition date of a company not under common control, the acquirer has a 12-month period to make adjustments to the initial recognition of goodwill.

 

Combinations of Entities under Common Control

 

A business combination between entities or businesses under common control is outside the scope of IFRS 3, as it represents a business combination in which all entities or businesses being combined are ultimately controlled by the same party or parties, both before and after the business combination. In these transactions, the Group recognizes acquired assets under the pooling of interest method, whereby the assets and liabilities of the combined companies are reflected at their carrying values and no goodwill is recognized as a result of the combination.

 

The consolidated financial statements of the Group have been presented considering the aforementioned.

 

l)

Intangibles –

 

They mainly comprise internal developments and acquisitions of software licenses used by the Group. Such intangibles are initially recognized at cost and are amortized using the straight-line method over their estimated useful life (between 3 and 5 years).

 

 

Intangible assets identified as a result of the acquisition of subsidiaries are recognized in the consolidated statement of financial position at their estimated market value determined on the acquisition date and are amortized using the straight-line method over their estimated useful life, as follows:

 

		Estimated useful life in years
Client relationship - Prima AFP (AFP Unión Vida)		20.0
Client relationship – Credicorp Capital Holding Chile (Inversiones IMT)		22.0
Client relationship - Edyficar Peru		10.0
Client relationship - Ultraserfinco		9.2
Client relationship – Mibanco		7.0
Brand - Mibanco		25.0
Brand – Joinnus		20.0
Brand - Culqi		5.0
Fund manager contract - Credicorp Capital Colombia		20.0 and 28.0
Fund manager contract - Credicorp Capital Holding Chile (Inversiones IMT)		11.0 and 24.0
Fund manager contract - Ultraserfinco		23.0
Core deposits - Mibanco		6.0
Others		Between 2.0 and 7.5

 

The period and method of amortization of intangible assets are reviewed at the end of each period. If they differ from the expected useful life of previous estimates, the amortization period should be changed to reflect the change. If there is any change in the expected pattern of future economic benefits embodied in the asset, the amortization method should reflect these changes.

 

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

 

m)

Goodwill –

 

Goodwill is the excess of the sum of the consideration transferred and the fair value recognized for the acquisition of the net assets acquired and liabilities assumed. If the fair value of the net assets acquired exceeds the consideration transferred, the gain will be recognized in the consolidated statement of income.

 

After initial recognition, goodwill is measured at cost less accumulated impairment losses. For impairment testing purposes, goodwill acquired in a business combination is, from the acquisition date, allocated to each cash-generating unit (CGU) of the Group that is expected to benefit from the business combination, regardless of whether other assets or liabilities of the acquired entity have been allocated to these units.

 

If goodwill has been allocated to a cash-generating unit and part of the assets with which that unit operates is disposed of, the goodwill and the disposed assets are included in the transaction’s carrying amount when determining the loss or disposal. Under these circumstances, disposed goodwill is measured based on the relative value of the disposed assets and the portion of the retained cash-generating unit.

 

 

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

 

n)

Impairment of Non-Financial Assets –

 

The Group assesses, at each reporting date, whether there is any indication that an asset may be impaired in value. If there is any indication or when an annual impairment test of an asset is required, the Group estimates the recoverable amount of the asset. The recoverable amount of an asset is the higher of the asset or CGU’s fair value less costs of disposal and its value in use and is determined for each asset individually, unless the asset generates cash flows that are largely independent of those of other assets or group of assets.

 

When the carrying amount of an asset or its CGU exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is reduced to its recoverable amount. When assessing the value in use, future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the specific risks of the asset. For the determination of fair value less costs of disposal, recent market transactions, if any, are taken into account. If such transactions cannot be identified, a valuation model that is appropriate is used. These calculations are verified against valuation multiples, stock quotes for subsidiaries listed on the stock exchange, and other available indicators of fair value.

 

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

 

The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined net of depreciation, as if no impairment had been recognized in previous years. Such reversal is recorded in the consolidated statement of income.

 

o)

Bank Acceptances –

 

Customer debt for acceptances corresponds to accounts payable by customers for import and export transactions, the obligations of which have been accepted by the Group. Obligations to be assumed by the Group are recorded as liabilities.

 

p)

Financial Guarantees -

 

In the ordinary course of business, the Group provides financial guarantees, such as letters of credit, guarantees, and bank acceptances. Financial guarantees are initially measured at fair value, which is equivalent to the initial consideration received; likewise, letters of credit and guarantees are recorded in the “Other Liabilities” line item of the consolidated statement of financial position and bank acceptances are presented in the consolidated statement of financial position. Subsequent to initial recognition, the Group’s liability for each guarantee is measured at the higher of the amount recognized initially, less the accumulated amortization recognized in the consolidated statement of income, and the best estimate of the expense required to settle any obligation arising from the financial guarantee.

 

 

Any increase in the liability related to a financial guarantee is included in the consolidated statement of income. The consideration received is recognized in the “Commissions and Fees” line item of the consolidated statement of income, based on its straight-line amortization over the term of the granted financial guarantee.

 

q)

Provisions –

 

Provisions are recognized when the Group has a present obligation (legal or implicit) as a result of a past event, and it is probable that resources will be required to settle that obligation, and the amount can be determined in a reliable manner.

 

The expense related to any provision is presented in the consolidated statement of income net of any reimbursement. If the effect of the time value of money is material, the provision is discounted using a current pre-tax rate that reflects, where appropriate, the specific risks of the liability. When discounting is used, the increase in the provision over time is recognized as a financial cost.

 

r)

Contingencies –

 

Contingent liabilities are not recognized in the consolidated financial statements. These are disclosed in notes unless the possibility of a payout is remote. Contingent assets are not recorded in the financial statements; these are disclosed if it is probable that an inflow of economic benefits will occur.

 

s)

Income Tax –

 

Income tax is calculated based on the individual financial statements of each Group entity.

 

Deferred income tax reflects the effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and those determined for tax purposes. Deferred assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which these differences are expected to be recovered or settled. The measurement of deferred assets and liabilities reflects the tax consequences derived from how Credicorp and its Subsidiaries expect to recover or settle the value of their assets and liabilities at the date of the consolidated statement of financial position.

 

The carrying amount of deferred tax assets and liabilities may change, even when the amount of temporary differences has not changed, due to a change in the income tax rate. The effect of the change in deferred tax, corresponding to the rate change, will be recognized in the consolidated statement of income for the period, except for items previously recognized outside the consolidated statement of income (either in other comprehensive income or directly in equity).

 

Deferred tax assets and liabilities are recognized regardless of the time it is estimated that temporary differences are offset. Deferred assets are recognized when it is probable that there will be sufficient future tax benefits for the temporary difference to be applied. At the date of the consolidated statement of financial position, Credicorp and its Subsidiaries assess unrecognized deferred assets and the balance of recognized ones.

 

Credicorp and its Subsidiaries determine their deferred tax based on the tax rate applicable to their undistributed profits, recognizing any additional tax for dividend distribution on the date the liability is recognized.

 

Deferred tax assets and liabilities are offset if there is a legal right to offset them and the deferred taxes are related to the same taxable entity and the same tax authority.

 

 

t)

Earnings for Share –

 

Basic earnings per share are calculated by dividing the net income for the year attributable to Credicorp shareholders by the weighted average number of common shares outstanding during the period, excluding common shares purchased and held as treasury shares.

 

Diluted earnings per share are calculated by dividing the net income for the year attributable to Credicorp shareholders by the weighted average of common shares outstanding during the period, excluding common shares purchased and held as treasury shares, plus the weighted average of common shares that would have been issued if all potential dilutive common shares had been converted into common shares.

 

u)

Derivative Financial Instruments and Accounting Hedging –

 

Negotiable –

 

The Group trades derivative financial instruments to meet the needs of its clients. The Group may also take positions with the expectation of to benefit from favorable movements in prices, rates, or indices.

 

Part of the derivative transactions that provide effective economic hedges under the Group’s risk management positions do not qualify as hedges under the specific rules of IFRS 9 and are therefore treated as derivatives for trading purposes.

 

Derivative financial instruments are initially recognized in the consolidated statement of financial position at fair value and subsequently measured at fair value. Fair values ​​are obtained based on market exchange rates and interest rates. All derivatives are considered assets when fair value is positive and liabilities when fair value is negative. Gains and losses from changes in fair value are recorded in the consolidated statement of income.

 

Hedging -

 

The Group uses derivative instruments to manage its exposure to interest rates and foreign currency. In order to manage specific risks, the Group applies hedge accounting for transactions that meet the specific criteria for it.

 

According to IFRS 9, to qualify as hedging transactions, all the following conditions must be met:

 

-

The hedging relationship consists only of hedging instruments and eligible hedged items.

 

-

At the beginning of the hedging relationship, there is a formal designation and documentation of the hedging relationship and the entity’s risk management objective and strategy to undertake the hedge. This documentation will include the identification of the hedging instrument, the hedged item, the nature of the risk being hedged, and how the entity will assess whether the hedging relationship meets the hedge effectiveness requirements.

 

The hedging relationship meets all of the following hedge effectiveness requirements:

 

-

There is an economic relationship between the hedged item and the hedging instrument.

 

 

-

The effect of credit risk does not dominate the value changes that come from this economic relationship.

-

The hedge ratio of the hedging relationship is the same as that arising from the amount of the hedged item that the entity actually hedges and the amount of the hedging instrument that the entity actually uses to hedge that amount of the hedged item.

 

The accounting treatment is established according to the nature of the hedged item and the fulfillment of the hedging criteria.

 

(i) Cash flow hedges -

 

The effective portion of the cumulative gain or loss on the hedging instrument is recognized directly in other comprehensive income in the “Cash flow hedge reserve” line of the consolidated statement of changes in equity, and is reclassified to the consolidated statement of income in the same period or periods in which the hedged transaction affects results; that is, when the income or financial expenses related to the hedge are recorded, or when an anticipated transaction occurs.

 

The part of the gain or loss on derivatives that represents the ineffective portion is recognized immediately in the consolidated statement of income.

 

Amounts originally recorded in other comprehensive income and subsequently reclassified to the consolidated statement of income are recorded in the corresponding expense or income lines in which the hedged item is reported.

 

If the anticipated transaction or firm commitment is no longer expected to occur, the cumulative gain or loss in the cash flow hedge reserve is transferred to the consolidated statement of income. If the derivative expires or is sold, settled, or exercised without replacement or renewal, or if its designation as a hedge has been revoked, any unrealized gain or loss accumulated in the cash flow hedge reserve remains in that reserve until the anticipated transaction or firm commitment affects results. At the same time, the derivative is recognized as a tradable derivative financial instrument.

 

(ii) Fair value hedges -

 

The change in the fair value of a fair value hedge and the change in the fair value of the hedged item attributable to the hedged risk are recorded by affecting the book value of the hedged item and are recognized in the consolidated statement of income.

 

For fair value hedges related to items recorded at amortized cost, any adjustment to the book value of such items as a result of hedge discontinuation will be amortized through the consolidated statement of income over the remaining term of the hedge. Amortization at the effective interest rate may begin as soon as an adjustment occurs, but no later than when the hedged item is no longer adjusted for changes in its fair value attributable to the hedged risk.

 

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

 

If a hedging instrument expires, is sold, settled, or exercised, or if its designation as a hedge no longer meets the criteria to be recorded as such, the hedging relationship is terminated. For fair value hedges related to items recorded at amortized cost, the difference between the fair value and the book value of the hedged item at the end and the face value is amortized over the remaining term of the initial hedge, using the effective interest rate. If the hedged item is derecognized, the unamortized fair value is immediately recognized in the consolidated statement of income. At the same time, the derivative is recognized as a tradable derivative financial instrument.

 

 

(iii) Foreign currency net investment hedges -

 

Foreign currency net investment hedges are accounted for similarly to cash flow hedges.

 

Any gain or loss on the hedging instrument related to the effective portion of the hedge is recognized in other comprehensive income and accumulated in the “Translation of operations abroad” line of the consolidated statement of changes in equity. The gain or loss related to the ineffective portion is recognized immediately in the consolidated statement of income within “Other income” or “Other expenses”.

 

Accumulated gains and losses in the consolidated statement of changes in equity are reclassified to the consolidated statement of income when the net investment abroad is disposed of or partially sold.

 

(iv) Implicit derivatives -

 

Implicit derivatives in a principal (or host) contract are treated as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the principal contract and such principal contract is not held for trading or measured at fair value with effect on income.

 

The Group has investments indexed to certain liabilities from life insurance contracts, called “Investment Link”. These instruments have been classified by the Group since their initial recognition as “Financial instruments at fair value with changes in income”.

 

v)

Fair value measurement -

 

Fair value is the price that would be received for selling an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement is based on the assumption that the transaction to sell the asset or transfer the liability takes place, either:

 

-

In the principal market for the asset or liability, or

-

In the absence of a principal market, in the most advantageous market for the asset or liability.

 

The principal or most advantageous market must be accessible to the Group. Also, the fair value of a liability reflects its default risk.

 

When available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is considered active if transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on a continuous basis.

 

If there is no quoted price in an active market, the Group uses valuation techniques that maximize the use of relevant observable data and minimize the use of unobservable data.

 

 

The valuation technique chosen incorporates all factors that market participants would consider when setting the price of a transaction.

 

All assets and liabilities for which fair values are determined or disclosed in the consolidated financial statements are classified within the fair value hierarchy, described below, based on the lowest level of data used that is significant to the fair value measurement as a whole:

 

-

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

-

Level 2: Valuation techniques by which the lowest level of information that is significant to the fair value measurement is directly or indirectly observable.

-

Level 3: Valuation techniques by which the lowest level of information that is significant to the fair value measurement is not observable.

 

The Group determines for assets and liabilities that are recognized at fair value in the consolidated financial statements on a recurring basis, whether transfers occurred between different levels within the hierarchy by reviewing the categorization at the end of each reporting period.

 

For fair value disclosure purposes, the Group has determined the classes of assets and liabilities based on the nature, characteristics, and risks of the asset or liability and the level of the fair value hierarchy as explained above.

 

Also, the fair value of financial instruments measured at amortized cost is disclosed in note 30.11(b).

 

w)

Segment information -

 

The Group reports financial and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specific criteria.

 

Operating segments are a component of an entity for which separate financial information is available and is evaluated periodically by the chief operating decision-maker (“CODM”) related to the allocation of resources and performance evaluation. The Group discloses the same financial information that is used internally to assess the performance of operating segments and decide how to allocate resources to segments, note 27.

 

x)

Fiduciary activities, fund management, and pension funds -

 

The Group provides custody, administration, investment management, and advisory services to third parties that result in holding or lending assets on their behalf. These assets and the results on them are excluded from the consolidated financial statements, as they are not Group assets, note 30.12.

 

Commissions generated by this activity are included in the “Commissions and fees” line of the consolidated statement of income.

 

y)

Cash and cash equivalents -

 

For the purposes of the consolidated statement of cash flows, cash and cash equivalents correspond to cash balances, funds deposited with central banks, “overnight” deposits, interbank funds, and deposits with maturities of three months or less from the acquisition date, excluding restricted funds, see note 4(a).

 

 

Guarantee funds committed as part of a repurchase agreement are presented in the “Guarantee funds, repurchase agreements, and financing with securities” line of the consolidated statement of financial position, see note 5(a).

 

Guarantee funds committed in trading of derivative financial instruments are presented in the “Other assets” line of the consolidated statement of financial position, see note 12(c).

 

Unrealised gains and losses arising from changes in foreign currency exchange rates are not cash flows. However, the effect of exchange rate changes on cash and cash equivalents held or due in a foreign currency is reported in the statement of cash flows in order to reconcile cash and cash equivalents at the beginning and the end of the period. This amount is presented separately from cash flows from operating, investing and financing activities and includes the differences, if any, had those cash flows been reported at end of period exchange rates.

 

z)

Repurchase and resale agreements and loans and financing with securities -

 

Securities sold under agreements to repurchase on a specific future date are not derecognized from the consolidated statement of financial position because the Group retains substantially all risks and benefits inherent in ownership. The cash received is recorded as an asset in the “Available funds” line, and the corresponding obligation to return it, including accrued interest, is recorded as a liability in the “Accounts payable for repurchase agreements and securities loans” line, reflecting the economic substance of the operation as a loan received by the Group. The difference between the selling price and the repurchase price is accrued during the contract term using the effective interest rate method and is recorded in the “Interest and similar expenses” line of the consolidated statement of income.

 

As part of this transaction, the Group delivers assets as collateral. When the counterparty receives securities and has the right to sell them or re-deliver them as collateral, the Group reclassifies these securities to the “Investments at fair value with changes in other comprehensive income under collateral” or “Investments at amortized cost under collateral” lines, as appropriate, in the consolidated statement of financial position. When the counterparty receives guarantee funds that will be restricted until the contract maturity, the Group reclassifies such cash to the “Guarantee funds, repurchase agreements, and financing with securities” line of the consolidated statement of financial position. When the counterparty receives credit portfolios as collateral, the Group maintains these credits in the “Credit portfolio, net” line in the statement of financial position, the control of which is kept in off-balance sheet accounts.

 

On the other hand, securities purchased under agreements to resell on a specific future date are not recognized in the consolidated statement of financial position. The cash granted is recorded as an outflow of an asset from the “Available funds” line, and the corresponding right to collect it, including accrued interest, is recorded in the “Guarantee funds, repurchase agreements, and financing with securities” line, reflecting the economic substance of the operation as a loan granted by the Group. The difference between the purchase price and the resale price is accrued during the contract term using the effective interest rate method and is recorded in the “Interest and similar income” line of the consolidated statement of income.

 

If securities purchased under a resale agreement are subsequently sold to third parties, the obligation to return the securities is recorded as a short sale in the “Financial liabilities at fair value with changes in income” line of the consolidated statement of financial position, and is measured at fair value, recording gains or losses in the “Net gain on securities” line of the consolidated statement of income.

 

 

Loans and financing are usually secured by securities. The transfer of securities to counterparties is only reflected in the consolidated statement of financial position if the risks and benefits inherent in ownership are also transferred.

 

aa)

International Financial Reporting Standards issued, but