The Peruvian mortgage market The BCP case

1. The Peruvian mortgage market The BCP case March, 2006

2. Agenda Overview of the Peruvian mortgage market Page 03 The mortgage loan in Peru Page 08 The funding of the mortgage loan portfolio Page 11 BCP as a major player in the market Page 15 Conclusions Page 19

3. Evolution of the mortgage market • Since 2001, the average annual growth rate of the mortgage portfolio has been 22%. • This growth was led by a continuous increase in per capita GDP coupled with wider availability of mortgage facilities provided by the financial system and the Government. • Per capita GDP grew approximately 8% p.a. in the last four years, from US$ 2,036 in 2001 to 2,806 in 2005, with a growth rate of near 13% for 2005. Main drivers of the mortgage market development Expansion

4. Evolution of the mortgage market Basic types of mortgage loans in the market • Traditional mortgages are funded by the banks. • Mivivienda is the government sponsored housing program implemented in 1999 and funded by the Government. • Since mid 2006, Mivivienda program will not necessarily provide funding. • As of Dec 05, Mivienda loans represented 1/3 of the total loans. • At this same growth rate, in less than 3 years the mortgage portfolio will exceed US$ 3 billion. 1,887 1,563 1,322 1,150 1,090 1,082 1,038

5. Growth potential But still lags behind when compared to neighbor countries The mortgage portfolio as a percentage of GDP and total loans has been steadily growing…. • The mortgage business is gaining importance in the product mix of the Peruvian banking system. • When comparing ratios of Peru’s mortgage market with those of Chile and Colombia, it is evident that there is an important room for expansion in the Peruvian mortgage market.

6. Trends of the Peruvian mortgage market Highly dollarized portfolio Competitive environment puts pressure on interest rates • Demand for Soles denominated mortgages is just beginning given the reduction in local currency rates and the recent existence of a local currency yield curve.

7. Agenda Overview of the Peruvian mortgage market Page 03 The mortgage loan in Peru Page 08 The funding of the mortgage loan portfolio Page 11 BCP as a major player in the market Page 15 Conclusions Page 19

8. More players in the Mivivienda segment Traditional mortgages Mivivienda mortgages Mortgage loan terms in the Peruvian market

9. Agenda Overview of the Peruvian mortgage market Page 03 The mortgage loan in Peru Page 08 Funding & risks Page 11 BCP as a major player in the market Page 15 Conclusions Page 19

10. Funding Sources Funding structure of the Peruvian Mortgage Portfolio • Mivivenda loans are perfectly matched by the Mivienda funds. • Traditional loans are basically funded by CTS deposits (Severance Indemnity Deposits) • CTS are deposits made by employers, amounting to one month’s salary per year. • 50% of the deposits may be withdrawn and the remaining portion only upon termination of employment or upon transfer to another bank, subject to certain criteria. • Recent changes to the CTS regulation may jeopardize the stability of this type of funds. (Allowance of withdrawals of up to 80% for property purchase). • The current funding structure has an average duration of 1.8 y, which does not allow banks to offer fixed-rate mortgages. • The Peruvian financial system has to look for other long-term funding sources. Mortgages Funding Duration of funding Mivivenda Loans US$ 533 MM Dur: 6 y Mivivienda Program US$ 533 Dur: 6 y 6 y Traditional Mortgages US$ 1,354 MM Dur: adjustable rate CTS US$ 1,043 Dur: 0.5 y 1.8 y Bonds & other LT funds US$ 311 MM Dur: 6 y

11. Risks of the mortgage market Tenor mismatch Customer’s currency mismatch • In spite of changes in legislation, CTS has been a very stable funding source. • However, potential exposure to liquidity risk, interest rate risk and the growth of the mortgage portfolio are forcing banks to look for alternative funding sources. • Exposure to the exchange rate fluctuation (Soles/Dollars) derives from the mismatch the customer faces when earning his salary in Soles and paying his mortgage in Dollars. • The only way to mitigate this risk is by offering fixed Soles mortgages. Traditional Mortgage Portfolio funded by CTS (*) (*) Shows a spike in the exchange rate by the end of 2005. Last 12 months devaluation was 1.5%.

12. A snapshot of the Peruvian Capital Markets Major players in the market • The Peruvian Capital Markets have been available to banks since last 90’s as an alternative source to raise long-term dollar funds. Since two years ago, it is also possible to raise long term fixed rate soles. • However, and given the stability of the CTS deposits, the possibility to offer adjustable-rate mortgages and the relative small portion of mortgage loans; in the banks portfolios very few banks have issued long term securities. • During 2005, contributions to pension funds amounted to near US$ 800 MM. Supply of securities increased by US$ 320 MM, deriving in excess funds of near US$ 480MM in only one year. • The Peruvian Capital Markets present significant room to absorb different kinds of securities (mortgage bonds, securitization notes, subordinated bonds, etc.) and is able to provide funds to sustain the future growth of the mortgage market.

13. Agenda Overview of the Peruvian mortgage market Page 03 The mortgage loan in Peru Page 08 The funding of the mortgage loan portfolio Page 11 BCP as a major player in the market Page 15 Conclusions Page 19

14. BCP’s mortgage portfolio shows a pattern of consistent growth • BCP’s mortgages account for 17% of its total loan portfolio, higher than the average of the market (14.8%). • However, BCP’s mortgage portfolio growth rate is so strong that if this trend continuous, BCP’s mortgages will exceed US$ 1 billion by the end of 2008. • Additionally, by the end of 2008, BCP’s mortgages will represent more than 20% of the total BCP loan portfolio. BCP’s mortgage portfolio is still below 20% of total loans

15. BCP’s mortgage portfolio shows a pattern of consistent growth • BCP’s Mivivenda loans are growing at an average rate of 95% per annum. • BCP’s mortgage porfolio is still highly dollarized (99%); however, the trend since mid 2005 shows a notorious increase in soles denominated mortgage loans. • In the last three months, the average monthly growth rate of Soles denominated mortgages is 75%. Where is the growth coming from?

16. BCP’s funding structure Funding structure of BCP’s Mortgage Portfolio • Since 2005 Mivivienda Program will allow banks to fund themselves their Mivivienda loans. BCP is planning to do so. • BCP has always maintained a very strong position in the CTS market, with an increasing market share. • However, in order to mitigate potential liquidity risk and to be able to offer fixed rates, BCP has entered into securitization programs which allowed BCP to raise, on a net basis, US$ 300 MM. There is space to raise near to US$ 600 MM of additional debt under this program. Mortgages Funds Mivivenda Loans US$ 149 MM Dur: 6 y Mivivienda Program US$ 149 Dur: 6 y Traditional Mortgages US$ 595 MM Dur: adjustable rate CTS US$ 655 Dur: 0.5 y Available as of today for growth and cushion: US$ 470 MM Securitization & Mortgage bonds US$ 410 MM Dur: 6 y

17. BCP’s securitization program The structure of the transaction • This structure is rated as BBB (two notches higher than BB BCP rating - sovereign ceiling). • Under this structure, BCP raised US$ 280 MM by the end of 2005, with A/L of 5.5 y. • US$ 230 MM were wrapped by AMBAC (AAA) and US$ 50 MM were unwrapped. • BCP is currently issuing an additional series for US$ 100 MM with A/L of 7.5 y. • This structure has the capacity to issue up to US$ 500 MM of additional debt. Remittances Importers of Peruvian minerals, oil, textile, fishmeal, etc. Peruvians living abroad. Send US$ to Peru by SWIFT MT-100 messages Depositary Banks’ accounts (BCP’s major correspondent banks) Deposit collections into the Trust Notes issuance (US$) (US$) MT-100 Master Trust (owner of the payment rights and of the accounts) CCR Investors Debt service payment (US$) BCP

18. Conclusions LIQUIDITY • CTS has been a very stable funding source, though not allowing to offer fixed rate mortgages. Banks matched this funding with adjustable-rate mortgages. • BCP has entered into a securitization program which allows enough cushion to face any liquidity shock. • Local capital markets are available to banks to raise long-term funds in Dollars and Soles. CAPITAL BASE • The Peruvian Banking System presents a capital ratio of 12.3% and have been adequately capitalized in the last years (legal limit of 9%). • BCP has a 11.5% capital ratio with subordinated bonds amounting to only 4% of the regulatory capital base. • Mortgages are a very efficient type of loans in terms of capital consumption, since they require half the amount allocated to other type of loans (weight of 50%). ASSET CLASS • Currently, mortgages are still below 20% of total loans. However, given the growth rate showed in the recent years, BCP and the system as a whole may surpass this benchmark rapidly. • Given the currency mismatch from the customer point of view, a higher percentage of mortgages adds important risk to BCP and the Peruvian Banking System. Creation of a subsidiary through a joint venture with IFC and Titulizadora Colombiana