PROFESSIONAL SCHOOL OF ACCOUNTING SCIENCES

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ACTIVE AND PASSIVE OPERATIONS

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I. INTRODUCTION

The different products and main operations that banking entities offer their clients
respond to the terminology used in accounting practice. Thus, passive operations
refer to the deposit contract, allocating them to the liabilities of the balance sheet as
obligations for the financial entity, while active operations are based on the loan
contract and their corresponding location in the bank balance sheet is in the assets as
goods and rights.

A bank deposit of money is one made by a natural or legal person in a credit

institution, which undertakes to safeguard and return, when the depositor demands it
or upon maturity if a repayment period has been agreed, the money resulting from the
deposit made plus the interest set in the contract for the free disposal and use that the
institution has of it, since the money given to the bank becomes its property, in order
to be able to carry out asset operations and, therefore, banking activity. The client
acquires a credit right against the entity, so not only does he not pay for the custody
itself, which would constitute the commercial deposit, but it is the bank that pays
interest precisely for the availability of the deposited item.

II. THEORETICAL FRAMEWORK

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ACTIVE AND PASSIVE FINANCIAL OPERATIONS

CHAPTER I: FINANCIAL SYSTEM

1.1. DEFINITION AND PURPOSE.

The financial system is the set of public and private organizations through which the
financial resources negotiated between the various economic agents of the country
are captured, managed and regulated.
The financial system receives the savings or surplus produced by people, companies
and institutions and enables them to be transferred to other companies and people
who require these funds, as well as to the State itself, also for investment projects or
financing of short-term expenses and consumption plans.

1.2. THE INTERMEDIATION PROCESS AND ECONOMIC GROWTH.

The process of financial intermediation is that through which an entity transfers

resources from savers (people with excess money, surplus or surplus) directly to
companies or people who require financing (people who need money or have a
deficit).
Companies in the financial system (financial intermediaries) are responsible for
safeguarding depositors' money and generating interest on their deposits. They are
also responsible for evaluating the debtor (the person to whom the money is lent) and
ensuring that they meet their payment obligations.
These systems contribute to a more efficient allocation of resources in the economy
and promote productivity growth, generating a positive impact on long-term
economic growth.
According to the International Monetary Fund, “A healthy financial system encourages
the accumulation of wealth by individuals, businesses and governments, a basic
requirement for a society to develop and grow, and to cope with adverse events.”

1.3. PARTICIPANTS IN THE FINANCIAL INTERMEDIATION PROCESS.

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The main function of financial intermediaries is to receive surplus funds from natural
persons and/or legal entities (income that they are not going to use at the moment)
through a so-called passive operation (collection of savings deposits, term deposits,
CTS deposits, etc.) and to channel (place or lend) these resources, through active
operations, to those natural persons and/or legal entities that need money to finance
their needs and activities (example: mortgage loans, personal loans, loans to micro-
enterprises, etc.)

In short, the financial system is made up of financial intermediaries that are

companies authorized to collect funds from the public, under different modalities, and
place them in the form of loans or investments for private consumption, business
investment and public spending.

1.4. FORMAL AND INFORMAL FINANCIAL SYSTEM

The formal financial system is made up of all those companies that, in order to
operate, must have an operating license, appropriate physical infrastructure and be
governed by a specific legal framework. The Law has entrusted the Superintendency
of Banking, Insurance and AFP (SBS) with the regulation and supervision of said

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system, thus guaranteeing the protection of the saver's money and the solidity and
stability of the system (Banks, Municipal Savings Banks, Rural Savings Banks,
Financial Institutions, etc.).
There is a so-called "parallel and/or informal banking", which operates outside the
current legal system and does not guarantee the operations that people can carry out
through it, since there is no legal framework that regulates it and consequently, it is
not subject to the supervision of any regulatory entity, so the operations carried out
through it imply greater risks (informal lenders).

2. BANKING
Banking is the process by which the level of use of financial services by the
general population is increased, establishing a long-term relationship.
There is a greater degree of banking penetration when the volume of transactions
carried out by economic agents through the financial system increases. It should
be noted that as of June 30, 2011, the banking penetration rate was 26.22%.

Why is it important to increase the level of banking penetration in an economy?

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Despite the changes that occurred in the financial system in the 1990s (mergers,
acquisitions, creation of new and better instruments, greater technical development
and better credit evaluation), there is still a need to generate greater access to
financial markets and services for the population in Latin American countries and
specifically in Peru. This can be seen in the following graph, which reflects the level of
banking penetration achieved by Latin American countries:

Banking in Latin America - June 2011 - (in percentages)

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According to the table above, it can be seen that the degree of access to financial
services in Peru is below the levels of other nearby economies in countries such as
Bolivia, Venezuela, Ecuador and Colombia, which shows us that there is much to
improve in order to achieve greater banking penetration in our country.

CHAPTER II: FINANCIAL SERVICES

It is a “financial tool” through which banks and financial institutions seek to satisfy the
different needs of their current and prospective Clients. Banking products or services
are created and developed to meet the requirements of the different Target Market
NICHES.

2.1. THE INTEREST RATE: PASSIVE RATE AND ACTIVE RATE.

The interest rate is the cost that must be paid for the use of money and is measured in
a percentage rate expressed at a given term (monthly, annual, etc.) that is applied to a
sum of money based on the period.
There are two types: passive rates, which are the rates that the financial institution
offers to savers for their deposits; and active rates, which are the rates that the
institution charges for the loans it grants.

2.2. FINANCIAL TRANSACTION TAX (ITF).

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According to the portal of the National Superintendence of Tax Administration

(Sunat), we can define the ITF as the tax that taxes banking operations; this is a tool to
obtain information regarding economic operations carried out by taxpayers.
Currently the rate is 0.05% on banking operations.

2.3. SPREAD.
Also known as “operating margin,” it considers the relationship that should exist
between cost and profitability. It is the difference between the interest rates charged
by banks for active operations (loans or placements) and those paid for passive
operations (deposits).
Generally, the active interest rate (placement) is higher than the passive interest rate
(savings). The difference between the two rates is called the “spread” and is what
determines profitability in the banking business.

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2.4. WARRANTIES.

A guarantee is a backup that serves the creditor to ensure that he will be able to
recover his credit, even if the debtor does not comply with the payment of the
obligation.
These are classified into two types: personal guarantees, where a guarantor or surety
agrees to assume the same obligations as the debtor; and real guarantees, where the
credit is guaranteed by a movable asset (personal guarantee) or immovable asset
(mortgage). In the event of non-compliance, the creditor proceeds to collect from the
guarantor or to execute the property given as collateral.

2.5. COMMISSIONS AND EXPENSES.

The commission is the amount that an entity of the financial system charges the
client or user for providing a service. Depending on the operations a client carries out,
one or more commissions will be applied, for example:

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Expenses are those costs incurred by the company with third parties on behalf of the
client to comply with requirements related to operations that, according to what has
been agreed, will be borne by the client. For example: notary fees; registry fees;
appraisal fees; premiums for insurance offered by the company associated with active
operations, among others.
According to current regulations, companies in the financial system may not apply
commissions and fees or charge insurance premiums to the client or user for concepts
that have not been requested, agreed upon or previously authorized by the latter.
Likewise, they may not apply charges whose nature does not correspond to that of
commissions or expenses.

2.7. OTHER PRODUCTS AND SERVICES

Financial institutions, in addition to issuing loans (active operations) and collecting

deposits (passive operations), offer a series of services to their clients, including:
• Currency exchange
• Transfers
• Transfer of funds (to other accounts in the country or abroad)
• Safe deposit boxes
• Collection services
• Issuance of cover letters
• Issuance of cashier's checks
• Issuance of letters of guarantee
• Issuance of letters of credit to facilitate foreign trade operations

CHAPTER III: ACTIVE OPERATIONS

3.1. Active operations

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These are operations through which financial institutions lend resources to their
clients, agreeing with them a remuneration that they will pay in the form of interest,
or they may be investments with the intention of obtaining a return. The types of
credit can be classified into 8 categories, according to what is established by SBS
Resolution No. 11356-2008, in summary they are the following:

a) Corporate credits
These are loans granted to legal entities that have recorded an annual sales level
greater than S/. 200 million in the last two (2) years, according to the debtor's most
recent audited annual financial statements.
b) Credits to large companies
These are loans granted to legal entities that have at least one of the following
characteristics:
a) Annual sales greater than S/. 20 million but not more than S/. 200 million in the
last two (2) years, according to the debtor's most recent financial statements.
b) The debtor has maintained outstanding issues of debt instruments in the capital
market during the last year.

c) Credits to medium-sized companies

These are loans granted to legal entities that have a total debt in the financial system
exceeding S/. 300,000 in the last six (6) months and do not meet the characteristics to
be classified as corporate loans or to large companies.

d) Small business loans

These are loans intended to finance production, marketing or service provision
activities, granted to natural or legal persons, whose total debt in the financial system
(not including mortgage loans for housing) is greater than S/. 20,000 but not more
than S/. 300,000 in the last six (6) months.

e) Credits to microenterprises

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These are loans intended to finance production, marketing or service provision

activities, granted to natural or legal persons, whose total debt in the financial system
(not including mortgage loans for housing) is not greater than S/. 20,000 in the last six
(6) months.

f) Revolving consumer credits

These are revolving credits granted to natural persons, with the purpose of covering
the payment of goods, services or expenses not related to the business activity
(generally the use of a credit card within an approved line; once a partial payment is
made, the available line is increased by said amount).
g) Non-revolving consumer credits
These are non-revolving loans granted to natural persons, with the purpose of
covering the payment of goods, services or expenses not related to business activity
(payments are made through partial installments that follow a payment schedule).

h) Mortgage loans for housing

These are loans granted to natural persons for the acquisition, construction, repair,
remodeling, expansion, improvement and subdivision of their own homes, provided
that such loans are granted under mortgages duly registered in public registries;
whether these loans are granted through the conventional mortgage loan system,
mortgage notes or any other system with similar characteristics.
This category also includes loans for the acquisition or construction of one's own
home which, at the date of the transaction, because they are future assets, assets in
the process of becoming independent or assets in the process of registration of
ownership, it is not possible to establish an individual mortgage on them to guarantee
the credit granted.

CHAPTER IV: PASSIVE OPERATIONS

B. Passive Operations 22

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These are all operations carried out by financial institutions in order to obtain
economic resources from surplus economic agents, whether they are natural persons
or legal entities (companies). In return, the entity offers them a payment (passive
interest rate) that varies according to the entity.
Let's see what the most common operations are:
a) Savings account: It is a deposit made in a formal financial institution for an
indefinite period. Deposited funds may be increased by partial contributions and may
be partially withdrawn by the client without prior notice. They are usually associated
with a debit card, through which withdrawals can be made through ATMs or goods or
services can be purchased by charging the funds in that account directly. It is
generally used to carry out transactions in commercial establishments that have a
bank card reader terminal called POS (Point of Sale).
b) Fixed-term deposits: These are deposits made in a financial institution for an
agreed amount, term and interest rate. These are accounts that pay higher interest to
savers in exchange for the money deposited remaining for a certain period of time
without being withdrawn. The withdrawal of part of the deposited funds before the
expiration of the term results in non-compliance with the agreed term, which is why
an interest rate lower than that agreed upon is generally paid or even no interest is
paid. These conditions must be clearly known to the general public before signing the
contract.
c) Current account: A deposit in a current account is one made in a bank, in the name
of a natural person(s) or legal entity(ies), which allows the account holders to write
checks against the funds deposited in the account and make partial contributions to
said account. The bank is obliged to cash checks, according to their form of issue, upon
presentation of the same, unless the account does not have sufficient funds. The
current account may have, like a savings account, an associated debit card that allows
the funds deposited in it to be transferred using the card.
d) CTS deposit

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Semi-annual deposits in foreign or national currency, made by employers in favor of

workers in a mandatory manner according to Law, for the concept of Compensation
for Service Times
Characteristics
_ High yield due to preferential interest rate
_ Free life and unemployment insurance
_ Guarantee

CHAPTER V: FINANCIAL SYSTEM IN PERU

5.1. BANKING AND NON-BANKING SYSTEM

The sustained economic growth in recent years in the country has contributed to the
growth of the banking system, which has been driven by the growth of commercial
and consumer loans. Despite this, the structure of loans is being reshaped towards a
more retail orientation, with consumer and mortgage loans growing at higher rates
than commercial loans (consumer and mortgage loans have gone from representing
16% in 2002 to 26% in 2008). For this year, growth is expected to be driven by higher
commercial loans, given the current conditions of international financial markets and
the greater perception of risk associated with consumer loans. In the last five years,
the intermediation margin has shown a negative trend (67.3% in 2003 to 58.8% in
2008) as a result of the greater competition between financial institutions, as well as
the use of alternative funding sources to public obligations to finance the greater
growth of placements. This decrease was accentuated during 2008 as a consequence
of the higher reserve requirements and the increase in reference rates by the BCRP,
monetary policy measures that increased the effective cost of funding. On the other
hand, there is a sustained growth in commissions for banking services (19.9% in the
last year) as a consequence of the larger customer base, mainly in the retail segment.
Despite the growth, the share of such income in the system's operating profit has

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decreased due to the greater growth derived from the loan portfolio and investment
income. Net investment income has increased substantially during the last year
(39.6%) despite the volatility shown in the last quarter of the year, which led some
banks to realize losses. While such revenues have helped generate profits in recent
years, banks should be more conservative considering the current level of volatility in
financial markets.

Industry Characteristics
The Peruvian banking system is made up of 16 banking entities, with strategic
approaches ranging from highly diversified to highly specialized in consumer and
microenterprise loans. The industry is highly concentrated; the four main banks
accounted for 83.3% of direct placements, 85.5% of deposits and 80% of the system's
assets.
In the banking sector, the existence of foreign banks predominates (14), among which
Banco Continental (BBVA Group) and Scotiabank stand out for their importance and
the support of their parent companies.

REGULATION

Central Reserve Bank of Peru (BCR), Superintendency of Banking and Insurance (SBS),
Law of the Financial System and the Insurance System Law No. 26702 and
amendments. National Commission for the Supervision of Companies and Securities
(CONASEV), Capital Market Law

COMPANIES IN THE BANKING SYSTEM: MULTIPLE BANKING

A banking company is one whose main business consists of receiving money from the
public on deposit or under any other contractual modality, and in using that money,
its own capital and that obtained from other sources of financing, to grant credits in
various modalities.

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MULTIPLE BANKING:

It is also known as private, commercial or first-floor banking, it is a credit institution

that has various instruments for raising and channeling resources.

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STATE COMPANIES THAT ARE MEMBERS OF THE FINANCIAL SYSTEM

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NON-BANKING FINANCIAL SYSTEM COMPANIES, RURAL SAVINGS AND CREDIT

BANKS, MUNICIPAL CREDIT AND SAVINGS BANKS AND OTHERS
A set of financial institutions not classified as banks that participate in the collection
and channeling of resources.

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5.2. BANK OF THE NATION

PROFILE
Banco de la Nación is a public company that is part of the Ministry of Economy and
Finance (MEF) and was created in 1966. Initially, its purpose was to provide,
exclusively, banking services to the Central Government for the administration of
public funds, thus becoming the sole financial agent of the State. However, since 1994,
it has been established that it should perform these functions on a non-exclusive basis,
and its objectives include fulfilling a subsidiary role, promoting banking and social
inclusion. In this way, the Bank offers services to public sector employees and
pensioners, who are mostly people who would have difficulty accessing private
banking. Among the products offered by the BN are: consumer loans (Multired loans),
mortgage loans, money orders and transfers, savings services, ATM services,
correspondent ATMs and Internet banking. Furthermore, the Bank offers
correspondent services to private banks using its network of branches, and has
agreements with financial institutions (IFIs) specializing in microfinance for the use of
windows and channeling of funds for the MYPE sector. In addition, the Bank offers the
general public tax and fee collection services, salary and pension payments, direct and
indirect credits, savings services and trust management services to public institutions
and companies, local governments and regional governments.
As of June 2012, the BN had 547 offices (536 as of Dec. 2011), which are fully
interconnected, with 84.1% located outside the city of Lima and 60.1% in areas where
the BN is the only banking offering (UOB). It also had 747 ATMs (728 at the end of
2011), of which 62.9% were located outside Lima.

The Bank is governed by its Bylaws, by the State Business Activity Law and,
additionally, by the Banking Law. According to its Statute, the Bank's liabilities are not
explicitly guaranteed by the State, and it must therefore ensure its financial self-
sustainability to safeguard its solvency.
PERFORMANCE
As a result of the continued growth of the Peruvian economy and, therefore, of the
increased State revenues, between 2005 and 2008, total revenues (financial revenues

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+ revenues from financial services) increased by an average of 20% annually, reaching

S/. 1,626.7 million. Between 2009 and 2010, the financial crisis caused an economic
slowdown and, as a consequence, the implementation of certain fiscal and monetary
policies. Thus, the reference rate went from 5.9% on average in 2008 to 2.1% in 2010.
Given that a significant portion of BN's income comes from the performance of its
available funds and investments, total income decreased by an average of 7% per year
during this period. During this period, Banco de la Nación maintained its growth
policy, increasing its loans, mainly for consumption. Furthermore, the strengthening
of its treasury management through investment and currency exchange operations, as
well as through increased financial services, allowed it to largely offset the reduction
in income from cash.
On the other hand, in 2011 total income amounted to S/. 1,646.8 million, 17.2%
higher than at the end of 2010, mainly due to higher income from disposable income
(due to the increase in the reference rate), credit portfolio, and financial services.

Credit Risk: The main function of credit risk management is to identify, measure,
monitor and analyze the risks inherent to the Bank's credit operations.

Credits directed to public entities are granted to those institutions that can cover their
obligations by direct debit from their accounts with the Bank; however, this does not
guarantee payment, which depends on the balance in the account. In the case of local
and regional governments, the term of the loans granted is usually less than the
remaining period of the mandate of the authorities in power. Additionally, in most
cases, guarantees are requested. In the particular case of municipal governments,
loans are charged directly from FONCOMUN deposit accounts.

Operational Risks: The Bank manages, monitors and controls operational risk through
the risk department. Currently, the methodology used by the BN to measure exposure
to operational risk includes the use of Operational Risk Self-Assessment Forms (FAR),
which are prepared by the Bank's departments. A quantitative process is carried out
to measure the degree of probability of occurrence and the impact of operational risk

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events, classifying them on a scale divided into three levels (high, medium and low),
which results in the existing level of risk. The methodology also considers the
effectiveness of the controls and corrective measures implemented, which are
reflected in the measurement of residual risk. The Bank also plans to implement the
Operational Risk Center in order to have details of the operations carried out and to
create a new credit registry center.

Market Risks: Market risk management is responsible for identifying, quantifying and
monitoring risks associated with interest rates, exchange rates and liquidity. The
Bank manages interest rate risks through monthly measurements to determine the
profit and equity exposure at risk.

SOURCES OF FUNDS AND CAPITAL

The Bank's main source of funding comes from obligations to the public, which
represented 89.1% of total assets, slightly higher than at the end of 2011. As of June
2012, these obligations amounted to S/. 20,154 million. Within the obligations with
the public, the most important source was the obligations at sight, mainly with
national and subnational government entities and collections. As of June 2012, these
funds amounted to S/. 12,436 million, increasing 5.6% compared to December 2011,
as a result of higher deposits from collections, deposits in local and regional
government accounts that offset lower deposits from ministries and public
institutions.

Likewise, savings deposits rose to S/. 3,471 million, 10.1% lower than in December
2011. These represented 15.3% of the assets. Furthermore, within the obligations
with the public, one of the most important sources of funding was the retirement
reserve fund (9.5% of assets). This fund is equivalent to the present value of future
pension and retirement payments for Bank workers and former workers covered by
Decree Law 20530.

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Capital:
It should be noted that, as established in the Statute, 50% of the net profits were
allocated to cover the authorized capital of the Bank, while the remaining 50% was
distributed to the Public Treasury. However, the authorized capital of S/. 1,000
million has already been paid 100% with the profits of 2007, so the entire profits
generated since 2008 have been delivered to the Public Treasury, net of the
amortization of the bond from the exchange (DS Bond). No.002-2007-EF). At the end
of June 2012, the Bank's net worth was S/. 1,784.1 million, 3.1% less than that
recorded at the end of 2011 as a result of the distribution of profits in favor of the
public treasury net of the corresponding amortization of the aforementioned bond.
In order to maintain a comfortable capital base taking into account its growth plans,
the BN has requested the MEF to increase the share capital to reach the amount of S/.
2,000 million via capitalization of profits. This approval is currently awaited.
At the close of the first half of 2012, the Bank's effective equity amounted to S/.
1,385.7 million (S/. 1,389.7 million as of Dec. 2011). Likewise, as of June 2012, the
BN's global capital ratio was 22.7%, lower than the 23.1% recorded in December
2011. However, this indicator is still considered loose. However, given the current
policy of distributing 100% of profits, if the growth of the Bank's loans is not
accompanied by an increase in its effective equity, this indicator will continue to
gradually decrease.

5.3. EDYFICAR FINANCIAL

DESCRIPTION OF THE INSTITUTION

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Financiera Edyficar SA is a private company in the financial system with legal status,
established in 1997 as Edpyme. It began operations in 1998. Later, in March 2008,
through SBS Resolution No. 676-2008, Edyficar was granted authorization to operate
as a financial institution, expanding the number of authorized operations. Thus,
Edyficar obtained the possibility of incorporating savings into its service offering. At
the end of 2008, the Financial Institution began raising funds by participating in
auctions of public entity funds. Likewise, in December 2008, the SBS authorized
Edyficar to carry out derivative transactions for hedging purposes (currency
forwards, currency swaps and interest rate swaps). Subsequently, at the end of the
first half of 2009, Financiera Edyficar began collecting term deposits. On the other
hand, in September 2009, Care Perú, a non-profit Non-Governmental Organization
(NGO) (former main shareholder of Edyficar), signed a share purchase and sale
contract with BCP. The above allowed the latter entity to obtain 99.8% of the shares of
Edyficar. It is important to mention that BCP is the first financial institution in the
country, with a balance as of June 2012 of approximately S/. 75.2 billion in assets and
a net worth of S/. 6.5 billion. In addition, it has a national long-term rating of AAA(pe)
granted by Apoyo & Asociados Internacionales and an international rating of BBB+
granted by FitchRatings. Regarding its network of agencies, as of June 2012 Edyficar
had 34 agencies, 72 special offices and 31 shared offices under an agreement with
Banco de la Nación. In this way, it was present in Lima, Ancash, Apurimac, Arequipa,
Ayacucho, Cajamarca, Cusco, Huánuco, Ica, Junín, La Libertad, Lambayeque,
Moquegua, Piura, Puno, San Martín and Tacna. This is an advantage, given that it has a
presence in various regions of the country.
During 2010, the Financial Institution gained access to the BCP correspondent ATM
network, which, as of June 2012, amounted to some 5,400 establishments (4,700 as of
December 2011), which, among other things, significantly expands the payment
points for Edyficar clients.

Corporate Governance: Edyficar's corporate governance structure is based on its

internal policies. The Board of Directors is made up of eight members, most of whom
are linked to the Credicorp group. It should be noted that in October 2010, the

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Financial Institution successfully passed its first audit to comply with the Sarbanes-
Oxley Act, an international standard that measures Good Corporate Governance
practices. On the other hand, the company in charge of the external audit is Ernst &
Young - Medina, Zaldivar, Paredes & Asociados SRL.

PERFORMANCE - Edyficar Financial:

As of June 2012, Edyficar generated financial income of S/. 238.1 million, 36.5%
higher than that recorded in June 2011, mainly explained by higher interest and
commission income from the loan portfolio, which represented 95.2% of total income.
The gross financial margin amounted to S/. 190.1 million, 29.5% higher than the
margin recorded in the first half of 2011. In relative terms, the gross margin was
79.8%, lower than that achieved in June 2011 (84.2%). This reduction is mainly
explained by the lower active rates recorded in the market and the higher financial
expenses for obligations to the public and, to a lesser extent, by the higher interest on
deposits in the financial system and securities in circulation. It is important to
mention that in recent years Edyficar has achieved a reduction in its financial costs
due to debts by having the support of BCP. This has allowed the financial institution to
efficiently face an increasingly competitive environment and the downward
adjustment that has been taking place in active interest rates in the Peruvian
microfinance market.

RISK MANAGEMENT
The Risk Management Department was made up of nine areas: Credit Risk; Market
and Liquidity Risk; Operational Risk; Information Security; Collections; Risk
Supervision; Prevention and Money Laundering; Regulatory Compliance (recently
created area); and, Statistics and Risk Information.
One of the main risks faced by the Financial Institution is of a credit nature, which is
managed by the Risk Management, which is responsible for evaluating clients and
maintaining appropriate risk levels. In addition, there are credit policies and
procedures that establish credit authorization limits, credit approval policy, and
executive responsibilities, among other things, to ensure sound decision-making.

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5.4. SCOTIABANK PERU SAA

DESCRIPTION OF THE INSTITUTION

Scotiabank Perú SAA, a 97.7% subsidiary of Bank of Nova Scotia (BNS), arises from
the merger of Banco Sudamericano (BS) and Banco WieseSudameris (BWS) in May 06.
The BNS entered Peru in 1997 after acquiring 35% of the capital of BS, and in 2006 it
acquired the remaining 65% and 78% of BWS. As of June 12, SBP occupies the third
position in the credit and deposit market. In addition, it is positioned as the second
largest bank in terms of assets. After Mexico and Chile, SBP is one of the Group's
largest investments internationally. BNS (AA- by FitchRatings) is the third largest
financial group in Canada with a presence in Latin America and the Caribbean, and
one of the most solid in the world. As of Oct. 11, BNS achieved a profit of US$5.3
billion, and had assets of US$575.3 billion (8.0x the total of local banking). Geographic
and commercial diversification is the essence of its strategy and underpins its growth
potential in each of its four areas of activity: Canadian Banking, International Banking,
Scotia Capital and Global Wealth Management. In line with the Group's strategy to
make SBP a leader in the Peruvian financial system, during 2008 the Group made a
series of investments: i) increased its stake in the bank by acquiring the 19.9% held by
Intesa; ii) acquired Banco del Trabajo (BT), specialized in consumer/microenterprise
banking and its subsidiary Recaudadora, a company dedicated to the purchase and
recovery of overdue loans; and, iii) acquired 47.5% of Profuturo, a pension fund
management company. The BNS Group's main investment in Peru is the Bank, which
in turn owns the following subsidiaries: CrediScotia Financiera (formerly BT); Scotia
Fondos Sociedad Administrator of Funds S.A.; Scotia Sociedad Agente de Bolsa S.A.;
ScotiaTitulizadora S.A.; Servicios, Cobranzas e Inversiones S.A.C.; Depósitos S.A.-
DEPSA; and, Promoción de Proyectos Inmobiliarios y Comerciales S.A. At a
consolidated level, the Bank contributes 92% and 100% of total assets and net
income, respectively. Profuturo, for its part, has assets of US$78.7 million and
manages a pension fund of US$5.0 billion, 15.0% of the country's total private pension
system.

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Corporate Governance
The Board of Directors may be composed of between seven and 15 Directors.
Currently, it is made up of eight Directors, five independent and three appointed by
BNS. There are two Board Committees: the Audit Committee and the Risk Control
Committee. The Board of Directors meets once a month.
Strategy: SBP maintains a strategic focus on small and micro businesses. As of Dec.11,
42% of the portfolio is concentrated in retail banking (49% considering CrediScotia).
It should be noted that, in the opinion of Apoyo & Asociados, the investments made
(2008) will contribute positively to the development of the Group. In this regard, its
focus is on strengthening segmentation in retail banking to serve the premium
segment through the Bank and, through CrediScotia, customers who are not yet
banked. SBP also expects to take advantage of synergies with Profuturo. In 2012, after
three years of organic and inorganic growth, Scotiabank redefined its expansion plan
to focus on strengthening its internal capacity, with an emphasis on the provinces.
Thus, this year it plans to open 16 agencies (9 located in the province).

RISK MANAGEMENT
The main risks to which the Bank is exposed are: a) credit risk, arising from credit
operations and the investment portfolio held on its balance sheet; b) market risk,
including currency risk in an economy with still significant levels of dollarization and
interest rate risk; and c) operational risk. SBP's risk management is integrated into
BNS's policies and procedures and is based on the following instances:
 Board: Approves and reviews key risk management strategies, policies,
standards and limits.
 Senior Management Committees: Risk Control Committee, Assets and
Liabilities Committee and Audit Committee.
 Risk Management Units: The credit and compliance and control units are
responsible for the design and implementation of the risk management
framework. They are also independent of the business units, which is favorable
from the Rating Agency's point of view.

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5.5. CREDIT BANK OF PERU

DESCRIPTION OF THE INSTITUTION

BCP began banking activities in 1889. Its businesses are structured in four areas: (i)
Corporate Banking, which contributes 11% of the net financial margin as of Dec. 11
and operates in international business, foreign trade, investment banking and
financing; (ii) Business Banking, which represents 13% of the net financial margin and
serves the SME segments (sales In Nov. 10, Credicorp transferred 84.87% of BCP
shares to its Peruvian subsidiary Grupo Crédito (GC); thus, a large part of the
dividends from the subsidiaries in Peru will be managed by the GC. This transfer seeks
to align Credicorp's corporate structure with its strategy of streamlining and
optimizing the reinvestment of surplus capital in the country and does not imply
changes in the Bank's control or financial support. Credicorp Ltd. (1995), holding
company of companies comprised of BCP (Jun.12: 80.5% of the holding company's
profits); Pacifico-Peruano Suiza Cia. Insurance and Reinsurance; Atlantic Security
Holding Corporation and Prima AFP, is the largest integrated financial services
provider in Peru; its shares are listed on the Lima and New York stock exchanges
(NYSE: BAP). The Bank has two branches (Miami and Panama) and a subsidiary in
Bolivia. In addition, in order to consolidate its position in the microfinance sector, it
acquired (September 2009) Financiera Edyficar, which has a portfolio of US$586
million.
On Dec. 11, BCP announced the acquisition of 51% of Correval SA Sociedad
Comisionista de Bolsa, positioning itself as the third largest in the Colombian stock
market. The transaction amounted to US$76 MM. In addition, with the aim of
completing its internationalization process, GC acquired 60.6% of the Chilean
brokerage IMTrust in April 2012. Thus BCP aims to create a regional investment bank.

Strategy: BCP maintains a strategic focus on corporate banking. However, in recent

years it has focused its efforts on retail banking, which went from representing 15%

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of loans in 2002 to 44% as of June 12. BCP expects the latter to account for around
50% of its total portfolio.
The strategic pillars include: growth, efficiency and risk management. BCP has also
been optimizing the use of remote channels (ATMs, BCP agents, Internet) and
implementing the redesign of agencies into commercial platforms for products and
services. Thus, low-cost alternative channels (BCP agents and ATMs) increased,
totaling a network of 7,066 contact points (1H11:5,407). Additionally, there was an
increase in transactions through electronic means to 86% (2006: 68%), with
expansion in mobile banking being noteworthy, but its penetration is still incipient.
Corporate Governance: The board of directors may be composed of 5 to 30 directors
(elected by shareholders' meeting). It has an Executive Committee, a Remuneration
Committee, an Audit Committee and a Risk Committee. The members of the external
audit team rotate every five years.

CHAPTER VI: INTERNATIONALIZATION OF FINANCE AND THE INTERNATIONAL

FINANCIAL SYSTEM
Today we live within the process of globalization of the economy, which is the result
of technological advances and has led the world to:
• The integration of the economy through free trade agreements and other economic
commercial agreements.
• The movement of people and capital around the world, which allows for investment
and development of economies.
The financial system has not been immune to the changes of the 21st century. Large
financial conglomerates have arrived in Peru, which has allowed for greater
competition in the financial system, a situation that benefits clients.
On the other hand, the process of consolidation of the Peruvian economy, after the
structural adjustments that were made since the beginning of the 90s, has allowed
large projects to be financed by international banks; cases such as the Camisea gas
project, the Olmos Project by the Andean Development Corporation-CAF, are just a
sample of the fact that the international financial system has set its sights on our

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country, and whose result is evident in the sustained development of Peruvian

finances and economy.

4.1. INTERNATIONAL BANKING. REPRESENTATIVE INSTITUTIONS:

4.1.1. THE INTERNATIONAL MONETARY FUND (IMF).
The IMF is an international organization made up of 186 countries and Peru is one of
its members.
It works to promote global monetary cooperation, exchange rate stability, high
employment and sustainable economic growth; it also facilitates international trade
and seeks to reduce poverty.
IMF's main activity: macroeconomic and financial sector policy
The IMF's main purpose is to ensure the stability of the international monetary
system; that is, the system of international payments and exchange rates that allow
countries (and their citizens) to buy and sell goods and services among themselves.
This is essential for sustainable economic growth, as it improves living standards and
alleviates poverty. To achieve these objectives, the IMF carries out the following
activities:
• Surveillance of economies: To maintain stability and prevent crises in the
international monetary system, the IMF reviews the national, regional and global
economic and financial situation through a formal surveillance system.
• Financial assistance: through the granting of loans so that countries can correct
balance of payments problems (the balance of payments reflects all transactions
between residents and non-residents of the country).
• Technical assistance: The IMF provides technical assistance and training to help
member countries strengthen their capacities to design and implement effective
policies that seek high employment, low inflation, and sustainable economic growth.
In our country, the measures adopted since the 1990s to restore the economy and
reintegrate into the international financial system have been important.

4.1.2. THE WORLD BANK.

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The World Bank is a vital source of financial and technical assistance to developing
countries around the world. It allows countries like ours to finance development
projects, such as infrastructure, education, poverty eradication, among others.
This organization has 186 member countries and is made up of two unique
development institutions: the International Bank for Reconstruction and Development
(IBRD) and the International Association of
Development (AIF). Each institution plays a different role, but works together to
achieve the vision of inclusive and sustainable globalization.
IBRD focuses its activities on middle-income and credit-capable poor countries, while
IDA assists the world's poorest countries. In our case, it is the IBRD that develops
projects together with the Peruvian Government to improve the quality of life of its
inhabitants.
Remember that this financial aid is a loan that the State must honour, that is, pay back
in the medium term.
Together, IBRD and IDA provide developing countries with low-interest loans,
interest-free credit, and in some cases grants for a wide variety of purposes, including
investments in education, health, public administration, infrastructure, financial and
private sector development, agriculture, and environmental and natural resource
management.
Peru is a member of the World Bank Group, which is why the IBRD can finance
development projects in our country.

4.1.3. THE INTER-AMERICAN DEVELOPMENT BANK (IDB)

The IDB, founded in 1959 to support the process of economic and social development
in Latin America and the Caribbean, is the main source of multilateral financing in the
region. The IDB Group offers solutions to address development challenges through
partnerships with governments, companies and civil society organizations to serve its
clients, which range from central governments to municipalities and businesses.
The IDB provides financial resources and grants. With triple-A ratings, the bank
borrows in international markets at highly profitable rates, allowing it to structure

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loans with competitive interest rates for its clients in its 26 borrowing member
countries.
In addition, it shares its research and offers advice and technical assistance to support
key areas such as education, poverty reduction and agricultural activity. The bank also
seeks to take a leading role in cross-border issues such as international trade,
infrastructure and energy.

III. BIBLIOGRAPHIC REVIEW

Superintendency of Banking, Insurance and AFP (SBS)

http://www.sbs.gob.pe
SBS Virtual Classroom
http://www.sbs.gob.pe/0/modulos/JER/JER_Interna.aspx?
ARE=0&PFL=1&JER=443
Superintendency of Securities Markets (SMV)
http://www.smv.gob.pe
Central Reserve Bank of Peru (BCRP)
http://www.bcrp.gob.pe

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IV. EXHIBIT

Home > Economy > Note

Schydlowsky said that the good moment is reflected in the entry of new financial
institutions. (USI)
“THE PERUVIAN FINANCIAL SYSTEM IS
“PREPARED FOR THE EXTERNAL CRISIS”
Wednesday, January 25, 2012 | 02:35
The president of the Superintendency of Banking, Insurance and AFP,
Daniel Schydlowsky, explained that provisions and capital surpluses
serve as shock absorbers against possible shocks to the economy.

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The Superintendency of Banking, Insurance and AFP (SBS) assured

today that the Peruvian financial system is prepared to face the blows
produced by the external crisis.
According to its president, Daniel Schydlowsky, he explained that
provisions and capital surpluses act as shock absorbers. “In this way, the
financial system can take a hit from the crisis and absorb it.
“That is solidity,” he said.
"The Peruvian economy remains strong and highly regarded, and this is
reflected in the financial aspect in the willingness of new financial
institutions to come to Peru and work," added Schydlowsky, when
presenting the SBS's 2011 financial report.
He said the system would become even more robust this year.
“This means better services and lower prices. We are always concerned
that our citizens have good services with competitive and attractive
prices,” he said.
He added that the goal is to lower interest rates on loans for the
population, but that can be achieved with more entities offering loans.
Source: http://peru21.pe/2012/01/25/economia/sistema-financiero-
esta-preparado-crisis-externa-2009010.

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Source: SBS - 1/Data as of December 31, 2011

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Source: SBS - 1/Data as of December 31, 2011

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