Sin ttulo de diapositiva

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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
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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
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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
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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 Perus mortgage market
  with those of Chile and Colombia, it is evident
  that there is an important room for expansion in
  the Peruvian mortgage market.

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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.

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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
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 months 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
CTS US 1,043 Dur 0.5 y
1.8 y
Traditional Mortgages US 1,354 MM Dur
adjustable rate
Bonds other LT funds US 311 MM Dur 6 y
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Risks of the mortgage market
Tenor mismatch
Customers currency mismatch

• 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.

• 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.

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.
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A snapshot of the Peruvian Capital Markets

• The Peruvian Capital Markets have been available
  to banks since last 90s 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.

Major players in the market
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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
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BCPs mortgage portfolio shows a pattern of
consistent growth

• BCPs mortgages account for 17 of its total loan
  portfolio, higher than the average of the market
  (14.8).
• However, BCPs mortgage portfolio growth rate is
  so strong that if this trend continuous, BCPs
  mortgages will exceed US 1 billion by the end of
  2008.
• Additionally, by the end of 2008, BCPs
  mortgages will represent more than 20 of the
  total BCP loan portfolio.

BCPs mortgage portfolio is still below 20 of
total loans
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BCPs mortgage portfolio shows a pattern of
consistent growth

• BCPs Mivivenda loans are growing at an average
  rate of 95 per annum.
• BCPs 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?
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BCPs funding structure

• 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.

Funding structure of BCPs Mortgage Portfolio
Mortgages
Funds
Mivivenda Loans US 149 MM Dur 6 y
Mivivienda Program US 149 Dur 6 y
CTS US 655 Dur 0.5 y
Traditional Mortgages US 595 MM Dur adjustable
rate
Available as of today for growth and cushion
US 470 MM
Securitization Mortgage bonds US 410 MM Dur
6 y
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BCPs 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 (BCPs 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)
Investors
CCR
Debt service payment
(US)
BCP
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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