CORPORACION FINANCIERA DE DESARROLLO S.A. - COFIDE NOTES TO THE FINANCIAL STATEMENTS. As of June 30, 2012 and December 31, 2011

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1 CORPORACION FINANCIERA DE DESARROLLO S.A. - COFIDE NOTES TO THE FINANCIAL STATEMENTS As of June 30, 2012 and December 31, OPERATIONS a) Background - Corporación Financiera de Desarrollo S.A. (hereinafter COFIDE or the Corporation) is a mixed-economy company whose shareholders include the State (represented by the National Fund for Financing State Business Activities FONAFE, part of the Ministry of Finance - MEF) and the Andean Development Corporation CAF, who hold 98.95% and 1.05%, respectively. COFIDE was created on the 18th of March 1971 by Decree law Nº and enjoys administrative, economic and financial autonomy. b) Economic activity - The purpose of COFIDE is to contribution to the integral development of the country, by attracting funds and providing finance through intermediate financial institutions (IFIs), to promote and finance productive investments and public and private infrastructure throughout Peru. In addition, COFIDE manages funds and securities received principally from the State and financial institutions in its capacity as trustee, for which it charges a commission. COFIDE maintains a portfolio of loans assigned to it by certain IFIs, in payment for monies owed to the Corporation (note 6-g), arising from liquidation processes started between 1997 and COFIDE's activities are regulated by a number of legal provisions included in its bylaws, specifically included to define its framework for action. In addition, these activities are governed by the Finance, Insurance and Banking, Insurance and Pension Fund Regulator (hereinafter the SBS) Framework Act - Law Nº (hereinafter the Act), and modifications contained in Legislative Decree No dated the 21st of June The registered office of the Corporation is Augusto Tamayo N 160, San Isidro, Lima and its personnel (managers, officers and employees) as at the 30st of June 2012 and the 31st of December 2011 numbered 197 and 197, respectively. c) Approval of the financial statements The financial statements for the period ending on the 30st of June 2012 have been authorised for issue by the Corporation's management and will be submitted to the board of directors for approval. The financial statements for the year ending on the

2 31st of December 2011 were approved by the obligatory annual general meeting of shareholders held on the 22nd of March PRINCIPAL ACCOUNTING POLICIES AND PRACTICES The principal accounting policies used in preparing the financial statements are given below: These policies were applied uniformly to every year unless otherwise indicated: a) Base for preparation - The company's financial statements have been prepared in accordance with applicable legislation and accounting principles generally accepted in Peru for finance companies. Accounting principles consist substantially of regulations issued by the SBS and, in addition, the International Financial Reporting Standards (IFRS) approved by the Public Accounts Bureau through rulings issued by the Accounting Standards Board. Nevertheless, because these standards only apply in addition to the accounting standards contained in the SBS Accounting Manual, the management considers that they have no significant effect on the preparation of the Corporación's financial statements, unless they are adopted in the future through modifications to the SBS Accounting Manual. Preparing the financial statements in accordance with accounting principles requires the use of certain critical estimates. It also requires the management to use its judgement in applying the Corporation's accounting policies. The financial statements as at the 30st of June 2012 and 31st of December 2011 have been prepared in accordance with the historic cost principle modified by financial derivatives and investments available for sale, which are measured at reasonable value, and by the register of investments in the Andean Development Corporation (CAF), the value of which is adjusted to recognise sharing in the results of that entity with the changes recorded in the accumulated results. b) Foreign currency exchange - Operating currency and currency of presentation - The items included in the Corporation's financial statements are expressed in the currency of the primary economic environment in which it operates (operating currency). The Corporation's operating currency and currency of presentation is the Peruvian nuevo sol. Transactions and balances - Foreign currency transactions are converted into the operating currency using the exchange rate in force on the dates of these transactions. Earnings or losses arising from exchange rate differences in these transactions and conversion of monetary assets and liabilities denominated in foreign currency 2

3 in to the exchange rates at the close of the fiscal year, are recognised in the profit and loss account. c) Cash and cash equivalents - Cash and cash equivalents includes available cash and sight deposits in banks. d) Financial instruments - Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual agreement from which they originate. The interest, dividends, earnings and losses generated by a financial instrument classified as a liability, are recorded as expenditure or income in the profit and loss account. Financial instruments are offset when the Corporation has the legal right to do so and the management intends to pay them on a net basis or to realise the asset and pay the liability simultaneously. Financial assets and liabilities shown in the balance sheet correspond to available funds, investments available for sale, loans, accounts receivable and liabilities in general. Furthermore, all derivatives are considered to be financial instruments. Accounting policies on the acceptance and evaluation of these items are given in the respective accounting policies described in these notes. e) Financial derivatives - These are financial instruments that meet the following conditions: (a) Their reasonable value fluctuates in response to changes in the level or price of an underlying asset, (b) they do not require an initial net investment or only require an investment lower than that which would be required in contracts that respond in a similar manner to changes in market variables and (c) they are to be liquidated at a future date. COFIDE classifies and records financial derivatives in accordance with the provisions of SBS ruling Nº and modifications thereto; the last one being SBS Ruling Nº , which COFIDE has applied since it took effect in The accounting treatment envisaged by the SBS includes essential aspects established by IAS 39 - "Financial Instruments: Acknowledgement and Measurement. At the time of initial recording in the accounts, financial derivatives should be classified in one of the following two categories: (a) Financial derivatives for negotiation or (b) financial derivatives for hedging purposes. Financial derivatives for negotiation are initially recorded at their reasonable value; all subsequent changes in the reasonable value of the derivative will affect the results of the fiscal year. Financial derivatives used for hedging purposes should meet certain requirements established by the SBS concerning procedures, techniques applicable and adequate, opportune documentation to support the hedging strategy. 3

4 Swaps and forwards classified as financial derivatives for hedging purposes are entered in the accounts initially at their reasonable value. Hedges of future cash flow are recorded as assets or liabilities in the balance sheet at their reasonable value. Insofar as these hedging operations effectively offset exchange rate and/or interest rate risk, changes in reasonable value are recorded directly in the equity account. These amounts are transferred to the results of the fiscal year in which the financial liability is liquidated and are shown under the heading profit or loss from financial derivatives. These instruments must be evaluated periodically and should be considered highly effective over a range of % at reducing the risk associated with the exposure being hedged. If at any time the hedge ceases to be effective, changes in the reasonable value from then on will be reflected in the results of the fiscal year. Derivatives classified as for negotiation are initially recorded at their reasonable value on the date of negotiation. The reasonable values are obtained from market exchange rates and interest rates. Earnings and losses from changes in reasonable value are recorded in the profit and loss account. The nominal value of financial derivatives is recorded in its agreed currency in contingencies and memorandum accounts (Note 15-b). f) ) Loans and provision for non-performing loans - Loans are recorded when the funds are disbursed to the clients. Those loans whose payment schedules and/or capital owed are changed because of difficulties with payment by the debtor are considered to be refinanced or restructured. Financial leasing operations deriving from portfolio assignment agreements are recorded in the accounts in accordance with SBS regulations and IAS 17, as loans. The initial recording in the accounts of such operations uses the gross value of the loan, consisting of capital, interest, commissions and other financial concepts agreed with the clients, and the difference between the gross value of the loan and the value of the asset is recorded as interest and commissions not accrued, net of loans and recognised as income as it accrues. From the 1st of July 2010, the Corporation applied the criteria established in SBS ruling Nº "Regulations for Evaluation and Classification of Debtors and Provision Requirement to the recording of its loans and provision for uncollectables. Type of loans - In accordance with SBS ruling Nº loans are classified as: i) Corporate loans, ii) loans to large companies, (iii) loans to medium-sized companies, iv) loans to small companies, v) loans to micro-enterprises (MES), vi) revolving consumer loans, vii) non-revolving consumer loans and viii) housing mortgage loans. This 4

5 classification takes into consideration the nature of the client (corporate, government or individual), the purpose of the loans and the size of the business measured by earnings, indebtedness and other criteria. Classification categories - The classification categories established by the SBS are as follows: Normal, potentially problematical, deficient, doubtful and lost; in the case of the non-retail loan portfolio (corporate clients, large and medium-sized companies) classification is determined principally by the debtor's ability to pay, its cash flow, the degree of compliance with its obligations, classifications assigned by other financial entities, the debtor's financial position and the quality of its management; whilst loans to small companies, MES and consumer loans (revolving and non-revolving) and mortgages are classified as a function of the number of days in arrears in repayment and classification by other financial entities. Provision requirement - In accordance with current regulations, the Corporation makes two classes of provisions for its loan portfolio: Generic provisions and specific. Generic provisions include those preventive provisions covering debtors in the SBS's normal category and, in addition, a procyclic component when the required by the SBS; as well as voluntary generic provisions. In accordance with internal policies permitted by the SBS, the Corporation makes voluntary generic provisions for the loan portfolio, the level of which depends on an evaluation carried out by the management on the country's macroeconomic variables and their impact on IFIs and debtors in general (Note 6-d). Furthermore, voluntary generic provisions are created as a preventive measure for certain debtors with greater exposure to risk. In this regard, agreements by the board of directors N and Nº , dated the 15th of September and 11th of January 2007 respectively, approved the redistribution and creation of voluntary generic provisions. The value of the voluntary generic provisions is reported to the SBS. Specific provisions are those created to cover direct loans and credit risk exposure arising from indirect loans included in a higher risk category than normal. Provision requirements are determined using the debtor's risk classification, whether or not there is any collateral guarantee and as a function of the type of guarantees provided. Furthermore, in compliance with SBS Ruling N , the Corporation evaluates the exposure to exchange rate risk by loans denominated in foreign currency and makes provisions as required by the SBS. The Corporation uses the above criteria to set aside a specific provision for accounts receivable in the assigned loan portfolio, included under the heading Other Assets (Note 9-b). 5

6 As at the 30th June 2012 and 31st December 2011, provisions were determined in accordance with instructions from the SBS in ruling Nº , which took effect in July The percentages used are shown below: Con garantías Sin Con garantías preferiodas de muy Con garantías Categoría de Riesgo garantias preferidas rápida realización autoliquidable % % % - Normal Créditos corporativos Créditos a grandes empresas Créditos a medianas empresas Créditos de pequeñas empresas Créditos a microempresas Créditos de consumo revolventes Créditos de consumo no revolventes Créditos Hipotecarios para vivienda Problemas potenciales Deficiente Dudoso Pérdida Procyclic component A procyclic provision is required for the normal risks portfolio. This represents an additional component to the generic provision mentioned above and depends on the "procyclic rule" being activated. The procyclic component of provisions for direct and indirect loans and financial leasing operations by debtors in the normal category, used by the Corporación since July 2010 is as follows: Tipo de Crédito Tasa de Provisión Créditos corporativos 0.40% Créditos a grandes empresas 0.45% Créditos a medianas empresas 0.30% Créditos de pequeñas empresas 0.50% Créditos a microempresas 0.50% Créditos de consumo revolventes 1.50% Créditos de consumo no revolventes 1.00% Créditos Hipotecarios para vivienda 0.40% For corporate loans, loans to large companies and mortgages with self-liquidating preferred guarantees, the procyclic component shall be 0.3% for the portion covered by such guarantees. For other loans with self-liquidating preferred guarantees the procyclic component shall be 0% for the part covered by the guarantees. For consumer loans repaid by payroll discounts the procyclic component shall be 0.25%, provided that they meet the requirements of the ruling. The SBS is empowered to activate or deactivate the procyclic component depending on whether the change in average annual gross domestic product (GDP) is above or below 5%. The SBS has established that when the procyclic component is deactivated financial institutions cannot under any circumstances generate earnings by reversion of these provisions, which should be used only to record specific obligatory provisions. 6

7 SBS Circular Nº B permits activation of the procyclic component from September 2010 and such provisions should be created using the information from October When the portfolio is considered uncollectable, it is written off against the respective provision for overdue placements. Later recoveries of sums that have been written off are recorded on the entries side of the profit and loss account. The provision for overdue accounts is kept at a level that, in the opinion of the company's management, is sufficient to cover potential losses in the loan portfolio as at the date of the balance sheet. g) Investments - These investments can be classified as: Investments at reasonable value with changes in the results, investments available for negotiation and investments held to maturity. The Corporation keeps the following investments: Investments available for negotiation - Consists of those securities that the management intends to sell for gain before maturity. This category includes all investment instruments that are not classified as investments at reasonable value or investments held to maturity. They are valued at their reasonable value and gains or losses arising from changes in this reasonable value are recorded in the equity account until the instrument is sold or realised, at which time they are transferred to the results of the fiscal year except for losses due to impairment of their value, which are recorded in the results. Gains or losses caused by exchange rate differences in instruments representing capital are recorded in equity accounts while debt instruments are recorded in the results of the fiscal year. The performance of these investments is recognised when it accrues and dividends when they are declared. Furthermore, as these are debt instruments, COFIDE updates their book value to their reasonable value on a monthly basis. Provisions for impairment in the value of investments are based on internal evaluations carried out by COFIDE and depend on the credit risk and exchange rate risk to which the issuer of the investment is exposed. Investment in Corporación Andina de Fomento - Since 2007, with the corresponding permission from the SBS, the value of investment in the Corporación Andina de Fomento - CAF has been increased or reduced in order to reflect the Corporation's share in the results of that entity; these variations are recorded under net equity. 7

8 h) Real estate, fixtures and fittings - Real estate, fixtures and fittings are shown at their cost of acquisition minus accumulated depreciation. The historic cost includes disbursements directly attributable to the acquisition of these items. Subsequent costs are included in the book value of the asset or are recognised as a separate asset, as appropriate, only when it is likely that there will be future economic benefits to the Corporación associated with these assets and their cost can be reasonably measured. The cost of maintenance and repairs is charged to the profit and loss account in the period in which such costs are incurred. When a fixed asset is sold or withdrawn from service, its cost and accumulated depreciation are eliminated and the resulting earnings or loss are recognised as income or expenditure. Depreciation is calculated using the straight line method during the estimated useful life as follows: Years Buildings 33 years Installations, fixtures and fittings 10 years Vehicles 5 years Equipment - various 4 and 10 years i) Realisable assets, assets received in payment and adjudicated - Property adjudicated and received in lieu of payment is recorded at the adjudication value or value agreed in the payment contract, or the net value realised, whichever is lower. Assets recovered after termination of a contract, if any, are initially recorded at the unpaid value of the debt or the net value realised, whichever is lower. If the unpaid value of the debt is greater than that of the recovered asset, the difference is recorded as a loss, provided that there is no likelihood of recovery. The Corporation creates the following provisions as required by the SBS: 20% of the value on the date of adjudication or recovery of all property received, unless the provision determined by the valuation is higher. For assets other than real estate, a provision is made to cover the remaining balance in a period of not more than 18 months. In addition, a monthly provision for devaluation of real estate from the 18th month after adjudication or recovery should be made within a maximum period of 42 months, based on the net value obtained in the 18th month. j) Intangibles Computer program licences are recorded at historic cost. These assets are amortised using the straight line method during the estimated useful life. Useful life is estimated at between 3 and 5 years. 8

9 Costs linked to the development or maintenance of computer programs are recorded as costs when they are incurred. k) Losses through impairment - When events or economic changes occur that indicate that the value of an asset with a long life cannot be recovered, the management reviews the book value of these assets as at the date of each balance sheet. If this analysis shows that the book value exceeds the recoverable value, a loss is recorded in the profit and loss account. Borrowings and financial obligations and securities, bonds and obligations in circulation - Liabilities under the heading borrowings and financial obligations and arising from the issue of securities (corporate bonds) are recorded at their nominal value with accrued interest recorded in the results of the fiscal year at their effective rate. Discounts granted in bond placements are deferred and are amortised during their lives. m) Income tax - Current income tax is determined in accordance with current tax legislation. A provision is made for all deferred income tax, using the liability method based on temporary differences between the tax bases of assets and liabilities and their respective values shown in the financial statements. Deferred income tax is calculated using tax rates (and legislation) in force as at the date of the balance sheet and expected to be applicable when deferred income tax assets are realised or income tax liabilities are paid. Deferred income tax are only recognised when it is likely that future tax benefits will be produced, against which temporary differences can be offset. Deferred income tax is recognised as an expense or income for the fiscal year, or is charged or paid directly to equity when related to items that are charged or paid directly to equity. n) Employee benefits - Holidays and other employee benefits - The provision for the estimated cost of annual holidays and other paid absence arising from services provided by the employees is recognised as at the date of the balance sheet. 9

10 Severance pay - Provision for employee severance pay consists of the whole amount due in accordance with current legislation. Payments are deposited in banks chosen by the employees. Profit sharing - The company recognises as a liability and a cost employee profit sharing of 5% of the tax base determined in accordance with current tax legislation. o) Provisions - Provisions are recorded when COFIDE has a present legal or implicit obligation as a result of a past event, it is likely that funds will be required to liquidate the obligation and the value of the obligation can be estimated accurately. Provisions are revised every fiscal year and adjusted to reflect the best estimate available as at the date of the balance sheet. When the effect of the value of money over time is important, the provision is the present value of the cost it is expected to incur in paying it. p) Capital - Ordinary shares are classified as equity. q) Distribution of dividends Distribution of dividends is recorded as a liability in the financial statements in the year in which dividends are approved by the Corporation's shareholders. a) Contingent liabilities - Contingent liabilities are possible obligations arising from past events, the existence of which will be confirmed only by the occurrence or not of one or more future events of an uncertain nature that are not completely under the control of COFIDE; or they are present obligations that have arisen from past events but are not recognised because it is unlikely that settlement will require the use of funds or because the value of these obligation cannot be measured reliably. Contingencies are recognised if they are likely and quantifiable. s) Recognition of income and expenditure - interest earnings and payments are recorded in the results of the period in which they accrue, as a function of the validity of the operations generating them and the interest rates agreed with clients; except interest generated by overdue, refinanced and restructured loans and those subject to legal action; as well as loans classified in the doubtful and lost categories, interest on which is recognised as earned as and when it is collected. When the management decides that the financial condition of the debtor has improved and the loan is reclassified as current and/or in the normal, potentially 10

11 problematical or deficient, the interest is once again recognised as and when accrued. Commissions for services are recognised as income when received. Other income and expenditure is recorded in the period in which it accrues. t) Trustee activity - Assets maintained by the Corporation in its capacity as trustee on behalf of clients or state entities, are not included in the balance sheet. These assets are kept in separate financial accounts and are included in the Corporation's memorandum accounts. u) New accounting rules - International Financial Reporting Standards - International Financial Reporting Standards IFRS in force internationally but not recognised by the SBS IFRS 4 Insurance contracts:, IFRS 7 Financial instruments and IFRS 8 Information by segment were made official in Peru by the Accounting Standards Board for application on the 1st of January 2009; nevertheless, the SBS issued ruling No on the 30th of December 2009 postponing the application of these IFRS until it issues the corresponding regulations within the process of harmonisation of its standards with the International Financial Reporting Standards. International Financial Reporting Standards IFRS applicable internationally but not obligatory in Peru - The Stock Market Regulatory Authority (hereinafter SMV ) issued ruling No EF/ making official the use of International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board ( IASB ) and in force internationally by all corporations regulated by it. In addition, the Accounting Standards Board issued ruling Nº EF/30 on the 7th of January 2012 approving the application for 2012 of those IFRS that were revised in 2011 and modifications issued by the IASB, and IFRS 10, 11, 12 and 13, which will apply in Peru on the date on which they take effect internationally; from the 1st of January The above-mentioned standards and interpretations will be applied to the Corporation as ordered by the SBS, or when situations arise that are not envisaged in the Accounting Manual, or through the IFRS harmonisation process being implemented by the SBS. 11

12 3 ESTIMATES AND CRITICAL ACCOUNTING CRITERIA The preparation of the consolidated financial statements required the management of the company and its subsidiary to make estimates and assumptions in order to determine the balances of assets, liabilities and values for income and expenditure, as well as the contingent assets and liabilities as at the date of the financial statements. If any of the estimates or assumptions changes in the future as a result of changes in the circumstances on which they were based, the effect of such changes will be included in the calculation of profits or loss for the fiscal year in which the change occurs, or future fiscal years if applicable. Significant estimates relating to the financial statements include a determination of the reasonable value of negotiable instruments available for sale and investments in the CAF; the provision for nonperforming loans, accounts receivable and contingent credits; the useful life assigned to real estate, fixtures and fittings; recording of contingent liabilities; calculation of current and deferred income tax and valuation of financial derivatives. The estimates and criteria used are continually reviewed and are based on historic experience and other factors, including the expectation of future events considered reasonable in the circumstances. Provision for non-performing loans - In accordance with internal policies permitted by the SBS, the Corporation makes voluntary generic provisions for the loan portfolio, the level of which depends on an evaluation carried out by the management on the country's macroeconomic variables and their impact on IFIs, depending on the type of entity and their exposure to risk. These provisions are determined in accordance with policies approved by the board of directors. Reasonable value of financial derivatives - Forwards are valued using the present value of discounted cash flows. Thus the reasonable value of the swap is determined by finding the difference between the present value of the cash flows from each side of the swap on the date of the valuation. It should be mentioned that in order to find the present value of the cash flow we apply different discount rates for each period, using the market's coupon curves or synthetic zero coupon curves. Income tax - The calculation of tax obligations and payments requires an interpretation of the applicable tax legislation. The Corporation seeks professional advice in tax matters before taking any tax-related decision. Even when the management considers that its estimates are prudent and appropriate, differences of interpretation may arise with the tax authority, which may affect future tax payable. 12

13 4 AVAILABLE FUNDS This item includes: S/.000 S/.000 Caja Banco Central de Reserva del Perú 41,202 61,541 Cuentas corrientes 594, ,492 Disponible restringido 10,684 11,377 Rendimientos devengados del disponible 3, Total 649, ,541 As at the 30th June 2012, available funds included (in thousands) US$ 682 and S/.20,380 (in thousands, US$6,248 and S/.11,696 as at the 31st December 2011) of statutory reserve that financial institutions in Peru must maintain to cover deposits and obligations to third parties. These funds are kept in the companies' own vaults or are deposited with the CRBP. Funds representing the minimum statutory reserve do not generate interest. The additional statutory reserves accrue interest at a rate established by the CRBP. In accordance with current legislation, statutory reserve funds cannot be seized. Furthermore, as at the 30th June 2012, available funds included (in thousands) S/.19,000 in overnight deposits (in thousands, S/.33,000 as at the 31st December 2011) held by the CRBP, which accrue interest at an effective annual rate of 3.45% in Peruvian currency (3.45% as at the 31st December 2011). These overnight operations accrued interest of (in thousands) S/. 418 (in thousands, S/.613 as at 31st December 2011), which were included under the heading interest on available funds in the profit and loss account. As at the 30th June 2012, available funds included deposits in guarantee amounting to (US$ 4,000 in favour of J. Aron & Company (Goldman Sachs) as a Margill Call agreed during the creation of interest rate and currency derivatives kept by the Corporation at that institution (US$ 4,220,000 as at the 31st of December 2011). 5 NEGOTIABLE INSTRUMENTS AVAILABLE FOR SALE, NET This item includes: S/.000 S/.000 Bonos Estructurados 447, ,237 Bonos Corporativos 141, ,424 Bonos Soberanos 58,917 41,138 Fondos de Inversión 22,754 24,787 Fondos Mutuos 16,594 39,023 Bonos Subordinados 10,058 9,788 Bonos de Titulización 7,107 7,817 Otros 1,631 1,231 Bonos de Arrendamiento Financiero Bonos Soberanos / Pactos de recompra 0 18, , ,397 Rendimiento devengado 7,897 3, , ,887 Provisión por deterioro (5,590) (3,500) Total 709, ,387 Interest income from these investments is recorded under income from investments available for sale in the profit and loss account. 13

14 As at the 31st December 2011 repurchase agreements cover Peruvian government bonds issued to guarantee short-term financing, received from trusts administered by COFIDE that were paid back in February 2012 (Note 10). Details of these investments are as follows: Tipo de Instrumento Vencimientos Tasa de Interés (Cupón) Valor de Mercado Provisión para deterioro Resultados no Realizados Al 30 de Junio Al 31 de Diciembre Al 30 de Junio Al 31 de Diciembre Al 30 de Junio Al 31 de Diciembre Al 30 de Junio Al 31 de Diciembre % % S/. 000 S/. 000 S/. 000 S/. 000 S/. 000 S/. 000 Moneda Nacional Bonos Estructurados Entre enero 2033 y junio 2037 Entre , , ,776 28,431 Bonos Corporativos Entre octubre 2012 y setiembre 2025 Entre Entre ,234 36, ,868 6,007 Fondos de Inversión ,091 15, ,444 1,989 Bonos Soberanos Agosto % 7.84% 6,236 5, (69) Bonos Subordinados Octubre ,597 2, (3) (182) Bonos de Titulización Febrero , , ,292 36,185 Moneda extranjera Bonos Estructurados Abril % - 69, (23,298) 0 Bonos Corporativos Entre diciembre 2012 y setiembre 2020 Entre L6m Entre L6m ,066 64,446 (3,783) (1,437) 1,511 1,030 Bonos Soberanos Entre octubre 2014 y diciembre 2015 Entre Entre ,790 54,467 (1,203) (1,247) 5,262 4,085 Fondos Mutuos ,594 39, Fondos de Inversión ,663 9, (7,365) (5,232) Bonos de Titulización Diciembre 2020 L3m L3m ,605 7,022 (354) (584) (376) (386) Bonos Subordinados Setiembre 2017 L6m L6m ,546 7,455 (208) (210) (585) (732) Acciones ,631 1, Bonos de Arrendamiento Financiero Enero Entre (42) (22) , ,659 (5,590) (3,500) (23,689) (511) Total 714, ,887 (5,590) (3,500) 81,603 35,674 6 LOAN PORTFOLIO a) This item consists of: S/.000 S/.000 Créditos directos: Créditos a instituciones financieras intermediarias 3,256,393 2,853,135 Préstamos 14,234 14,088 Créditos reestructurados 12,214 13,385 Créditos refinanciados 12,115 16,468 Créditos vencidos, por liquidar y en cobranza judicial 7,259 14,711 Sub Total 3,302,215 2,911,787 Más: Rendimientos devengados de créditos 91,186 63,107 Menos: Provisión para incobrabilidad de créditos (586,023) (610,726) Intereses diferidos (8,949) (11,078) (594,972) (621,804) Total 2,798,429 2,353,090 Créditos contingentes - Avales y cartas fianzas (Nota 16) 438, ,668 The balance of the loan portfolio, consisting of direct and contingent loans, mainly in foreign currency, to intermediate financial institutions (IFIs) for their first tier portfolio. b) The loan portfolio (direct loans net of deferred interest plus contingent loans) classified by risk category by the management of COFIDE in accordance with current SBS regulations can be summarised as follows: 14

15 Cantidad de créditos Total Cartera S/.000 S/.000 Normal ,327,251 2,748,181 Con problemas potenciales , ,763 Deficiente ,674 83,104 Dudoso ,659 19,487 Pérdida ,134 14,842 Total ,732,018 3,209,377 The loan portfolio broken down by type of IFI is classified as follows: S/.000 % S/.000 % Cartera de segundo piso: Bancos 1,989, ,587, Financieras 695, , Cajas municipales 333, , Edpymes 130, , Cajas rurales 64, , Arrendamiento financiero 21, , Factoring 1, Cooperativas 22, , ,258, ,853, Cartera de primer piso: Arrendamiento financiero y pagarés 32, , Otros créditos 10, , , , Total cartera 3,302, ,911, Rendimiento devengado de créditos 91,186 63,107 Total general 3,393,401 2,974,894 c) Rates of interest and guarantees: COFIDE is free to establish the interest rates applicable to its lending operations as a function of the cost of funds, type of client, market and currency in which the loan is denominated. The effective annual average rates for the main products were as follows: Colocaciones en Colocaciones en S/. US$ S/. US$ % % % % Capital de trabajo corto plazo COFIDE recursos propios Capital de trabajo mediano plazo Probid II 8.70 Libor Libor Productos financieros estructurados Loans to banks are guaranteed through clauses in the global contracts for channelling resources entered into with each debtor, which enable COFIDE to: i) automatically collect debt instalments by charging the debtor's current account at the Central Reserve Bank of Peru (CRBP) and/or the nominated operating bank and ii) through an assignment of rights to the portfolio of loans financed by COFIDE funds up to the value of the debt including interest, commissions, penal interest and other costs; this assignment to take effect if the bank fails to pay an instalment or when, in the judgement of COFIDE, special circumstances exist that make collection of the funds granted difficult. For other IFIs the cover is similar, except that an operating bank is designated in place of the CRBP. Financial leasing loans received from certain IFIs as first tier portfolio, are guaranteed by the assets that are the object of the contracts, in addition to preferred guarantees. The rest of the contracts making up the first tier portfolio have additional guarantees required at the time by the IFIs, including preferred guarantees. 15

16 d) Changes in the provision for non-performing direct and contingent loans were as follows: Directas Contingentes Total S/.000 S/.000 S/.000 Saldos al 31 de diciembre del ,296 37, ,035 Provisión del ejercicio 125,143 4, ,497 Recuperos (109,507) (1,011) (110,518) Diferencia de cambio (7,206) (1,326) (8,532) Saldos al 31 de diciembre del ,726 39, ,482 Provisión del ejercicio 37,656 3,509 41,165 Recuperos (52,074) (1,236) (53,310) Diferencia de cambio (10,285) (218) (10,503) Saldos al 30 de junio del ,023 41, ,834 The balance of provisions for non-performing direct and contingent loans is made up as follows: Directas Contingentes Total Directas Contingentes Total S/.000 S/.000 S/.000 S/.000 S/.000 S/.000 Específica 96,232 11, , ,843 11, ,178 Genérica por clientes normales 60,074 4,799 64,873 56,013 3,200 59,213 Genérica voluntaria 429,717 25, , ,870 25, ,091 Total 586,023 41, , ,726 39, ,482 As at the 30th June 2012 and the 31st December 2011, the Corporation had recorded the total obligatory value required by the SBS for generic provisions. As at the 30th June 2012 and 31st December 2011, the procyclic provision amounted to S/.13,298 and S/.11, 004 respectively. Furthermore, in the same period voluntary generic provisions were created amounting to S/.25,375 and S/.65,534 respectively. The management considers that the level of provision for non-performing loans is sufficient to cover future losses in this portfolio as at the date of the balance sheet. e) The loan portfolio is distributed among the following sectors: Sector Económico S/. % S/. % Créditos comerciales y microempresas: Intermediación financiera 3,256, ,853, Hoteles y restaurantes 27, , Créditos hipotecarios para vivienda 7, , Actividades inmobiliarias, empresariales y de alquiler 3, , Industria manufacturera 2, , Otras actividades de servicios comunitarios 1, Agricultura, ganadería, caza y silvicultura 1, , Comercio , Créditos de consumo Construcción Pesca - - 5, Transporte, almacenamiento y comunicaciones Total 3,302, ,911,

17 f) The loan portfolio (direct loans) has the following maturities: S/.000 % S/.000 % Hasta un año 1,563, ,457, Más de 1 año y menos de 2 años 332, , Más de 2 años y menos de 3 años 264, , Más de 3 años y menos de 4 años 124, , Más de 4 años y menos de 5 años 104, , Mas de 5 años 913, , Total cartera de créditos 3,302, ,911, g) First tier portfolio (assigned) In applying the global funding contracts with the IFIs, from 1998 to 2002 the Corporation has signed complementary agreements with certain IFIs, some of which have been liquidated or subject to intervention by the SBS. By means of assignment of rights agreements, these IFIs assigned to COFIDE their contractual position in a number of loan and financial leasing contracts selected by COFIDE, in payment of obligations to the Corporation, as detailed below. Annual changes in this portfolio over the last two years are as follows: Latino Banco NBK Bank Banco Operaciones Leasing Nuevo Mundo Banex consolidadas Total US$ US$ US$ US$ US$ US$ Saldos al , , ,691 14,313 Creditos recibidos y/o refinanciados - 6,872-1,160-8,032 Recuperaciones y otros (1,214) (465) (2,057) (46) (726) (4,508) Ingresos no devengados (368) - - (1) - (369) Saldos al ,249 7, ,259 1,965 17,468 Equivalente en soles al ,847 19,117 2,437 3,394 5,298 47,093 Recuperaciones y otros (425) (4,046) (238) (16) (262) (4,987) Ingresos no devengados (161) (161) Saldos al ,663 3, ,243 1,703 12,320 Equivalente en soles al ,126 8,133 1,779 3,320 4,549 32,907 7 INVESTMENTS IN CORPORACION ANDINA DE FOMENTO The CAF is a public entity promoting sustainable development and regional integration in Latin America by financing projects in the public and private sectors and providing technical aid and other specialised services. From 1989 to 2000, the Peruvian Government gave COFIDE class "B" shares in Corporación Andina de Fomento (CAF). These class "B" shares have a nominal value of US$5.000 each, and enable their holder to appoint a representative tot he Management Board. Class "B" shares can be held by private entities without exceeding a limit of 49% of all the shares. Class "B" shares can only be transferred to individuals or corporations within Peru. Since 2001, increases in the CAF shares correspond solely to the capitalisation of profits. 17

18 These shares do not pay cash dividends and there is no public market for them. The Peruvian Government is responsible for relations with the CAF as a member country. As at the 30th June 2012, COFIDE held 97,951 class "B" shares, which represented % of the capital of CAF (90,955 shares in 2011 representing % of the capital). As at the 30th June 2012 and 31st December 2011, the value of the investment calculated in accordance with SBS guidelines and based on financial information provided by the CAF as at the 31st December 2012 and 30th September 2011 respectively, amounted to (in thousands) US$888,166 and US$885,965 respectively. As at the 30th June 2012, COFIDE recorded a loss on its share of the results of the CAF amounting to (in thousands) S/.16,270, which is shown under accumulated results in the equity account, net of corresponding deferred income tax of (in thousands) S/.4,881 (loss of S/.10,866,000 net of deferred income tax of S/.3,260,000 as at the 31st December 2011). 8 REAL ESTATE, FIXTURES AND FITTINGS, NET Changes in the cost and accumulated depreciation of real estate, fixtures and fittings as at the second quarter of 2012 were as follows: Saldo Saldo Tasas de Inicial Adiciones Retiros Final Depreciación S/.000 S/.000 S/.000 S/.000 % Costo: Terrenos Edificios e instalaciones 20,826 1,671-22,497 Muebles y enseres 2, ,556 Unidades de transporte Equipos diversos 11, ,705 Total 35,657 1,778-37,435 Depreciación Acumulada: Edificios e instalaciones 14, ,767 3 y 10 Muebles y enseres 2, , Unidades de transporte Equipos diversos 8, , y 25 Total 24,961 1,028-25,989 Neto 10,696 11,446 The management periodically reviews forecasts of the results expected for the remaining years of useful life of fixed assets. In the opinion of the management, the recoverable values of real estate, fixtures and fittings as at the 30th June 2012 and the 31st December 2011 are higher than their book values, therefore it was not considered necessary to make any provision for losses due to impairment of these assets. The company insures its principal assets in accordance with management policy. As at the 30th June 2012, fully depreciated furniture and fittings still in use amounted to S/.15,257,000 (S/.13,040,000 as at the 31st December 2011). 18

19 9 OTHER ASSETS This item consists of: S/.000 S/.000 Intrumentos financieros derivados (a) Diferencia de cambio de instrumentos derivados Swap de moneda de cobertura 47,903 68,894 Intereses devengados por Swap de monedas de cobertura 2,435 2,575 Intereses devengados por Swap de tasas de interés ,750 71,798 Otros activos - Pago a cuenta impuesto a la renta 10,105 32,702 Intereses y comisiones pagados por anticipado 7,667 10,611 Comisiones por cobrar 2,175 4,363 Intanagibles(Neto ) 3,650 3,769 Operaciones en trámite 992 1,082 Bienes adjudicados, neto de provisión Diferido - Venta bajo la par / Valores en circulación 16,040 - Diversos 4,314 5,055 45,026 57,665 Cuentas por cobrar por cartera de crédito cedida: NBK Bank 1,885 1,902 Banco República Latino Leasing - 23 Banco Banex - 6 Hotelera El Pinar ,946 2,370 Provisión para cuentas por cobrar y otros (b ) (4,960) (8,542) a) Financial derivatives - 92, ,291 The Corporation engages in currency and interest rate swaps. The risk arises from the possibility of the counterparty failing to comply with the agreed terms, and fluctuations in interest rates. Accounts receivable and payable for operations involving financial derivatives contained in the balance sheet, principally consisting of amounts accrued from fluctuations in the exchange rates and interest rates applicable to financial derivatives. These operations were carried out in order to hedge against risk derived from the Corporation's borrowings in yen (from American Family Life Assurance of Columbus, Japan Branch - AFLAC and Japan Bank For International Cooperation JBIC) as well as certain debts denominated in United States dollars. As at the 30th June 2012, the net balance receivable from exchange rate differences in currency swap hedges amounted to S/.47,903,000 (S/.68,894,000 in hedging swaps and negotiation as at the 31st December 2011), which offset the increase in liabilities caused by the strengthening of the yen against the United States dollar. As at the 30th June 2012 and the 31st December 2011, the reasonable value of these financial derivatives for hedging was (in thousands) S/.-5,991 and S/.26,255 respectively, therefore COFIDE has recorded in the equity account an unrealised loss of (in thousands) S/.47,305 and S/.35,424 respectively. Financial derivatives for hedging purposes and negotiation correspond to: 19

20 INSTRUMENTOS FINANCIEROS DERIVADOS al ( en miles de nuevos soles) DESCRIPCION N Posición Intereses Devengados Valor Ganancia / (Pérdida) Oper. ACTIVA PASIVA NETA ACTIVOS PASIVO Razonable No realizada Realizada SWAPs DE MONEDAS - COBERTURA YEN/US$ , ,847 69,571 2,037 4,932 30,898 (35,778) 0 SWAPs DE MONEDAS - COBERTURA US$/S/ , ,528 (21,668) 398 3,132 (27,440) (3,038) - SWAPs DE MONEDAS - COBERTURA , ,375 47,903 2,435 8,064 (2) 3,458 (38,816) 0 SWAPs DE MONEDAS - COBERTURA US$/S/ (2) 0 0 (2) SWAPs DE MONEDAS - NEGOCIACION TOTAL - SWAPs DE MONEDAS ,278 (1) 715,375 47,903 2,435 8,064 3,458 (38,816) 0 SWAPs DE TASA DE INTERES - COBERTURA 5 515,503 (1) 515, ,372 (2) (9,449) (8,489) (2) 0 INSTRUMENTOS FINANCIEROS DERIVADOS al ( en miles de nuevos soles) 47,903 2,847 9,436 (5,991) (47,305) - DESCRIPCION N Posición Intereses Devengado Valor Ganancia / (Pérdida) Oper. ACTIVA PASIVA NETA ACTIVOS PASIVO Razonable No realizada Realizada SWAPs DE MONEDAS - COBERTURA YEN/US$ , ,783 90,592 2,288 5,176 62,969 (24,735) 0 SWAPs DE MONEDAS - COBERTURA US$/S/ , ,145 (21,698) 287 3,455 (25,037) (171) - SWAPs DE MONEDAS - COBERTURA , ,928 68,894 2,575 8,631 (2) 37,932 (24,906) 0 SWAPs DE MONEDAS - COBERTURA US$/S/ (2) 0 0 (2) SWAPs DE MONEDAS - NEGOCIACION TOTAL - SWAPs DE MONEDAS ,822 (1) 749,928 68,894 2,575 8,631 37,932 (24,906) 0 SWAPs DE TASA DE INTERES - COBERTURA 5 525,720 (1) 525, ,488 (2) (11,677) (10,518) (2) 0 (1) Ver Nota 15 (2) Ver Nota 13 68,894 2,904 10,119 26,255 (35,424) - b) The balance of provisions covering accounts receivable and others consists of: S/.000 S/.000 Específica 2,072 2,574 Genérica voluntaria 2,888 5,968 4,960 8,542 Changes in the provision for accounts receivable and others, were as follows: S/.000 S/.000 Saldos iniciales 8,542 33,597 Provisión del ejercicio 1,588 5,063 Recuperos (4,822) (28,741) Diferencia en cambio (348) (1,377) Saldos finales 4,960 8,542 20

21 10 OBLIGATIONS TO THE PUBLIC AND DEPOSITS BY FINANCE COMPANIES a) This item includes: S/.000 S/.000 Depósitos a plazo 61, ,000 Depósitos en garantía 18,998 17,489 Operaciones de reporte - 19,052 79, ,541 Intereses devengados 1, , ,057 As at the 30th June 2012 and 31st December 2011, term deposits consisted principally of Peruvian currency funds held by the Banco de Credit and accrue annual interest at market rates that fluctuate between 5.80% and 5.91% (5.60% and 5.91% as at the 31st December 2011) maturing between September and October Deposits under guarantee accrue annual interest at market rates of 3.45% (Peruvian currency) and 1.894% (foreign currency) and mature in July As at the 31st of December 2011, report operations consisted of funds in Peruvian currency obtained from a number of trusts administered by COFIDE, which accrued interest at an annual rate of 4.45% and are guaranteed with Peruvian government bonds (Note 5). Deposits in guarantee include withholdings from pledges to COFIDE in order to guarantee lending operations valued at S/,18,544,000 and US$170,000 ( S/.16,911,000 and US$215,000 as at 31st December 2011). b) The balances of this account, not including interest, mature as follows: S/ S/.000 Hasta un mes - 17,489 Más de 1 mes y hasta 3 meses 25,000 74,052 Más de 3 meses y hasta 6 meses 54,998 40,000 Más de 6 meses y hasta 12 meses - 61,000 Total 79, ,541 21