Interbank. We know you best

Transcription

1 Interbank We know you best Annual report 2005

2 Contents Statement of Responsibility A Brief Company Profile Letter from the Chairman and the General Manager Main Financial Figures - Fiscal Year We know that you seek financial strength and reliability A Bank Focused on Persons Generating Financial Strength and Reliability Leading Personal Banking We know that you seek more advantages Credit Card: More Benefits for Customers More and Improved Services for Corporate Customers We know that you want your bank ever closer Developing the Best Financial Service Distribution Network Using State-of-the-Art Technology / Improving Infrastructure We know that you want your dreams come true Making Home Ownership Accessible to Peruvian Families We know that you need more advantages Supplying Mutual Funds and the Best Securitization Services We know that we can exceed your expectations Recognitions that Encourage and Commit Us Committed to Active Social Responsibility Financial Presentation - Fiscal Year 2005 The Peruvian Economy The Financial System Management Presentation of Results Audit Report Report from Independent Auditor Consolidated Financial Statements Notes to Consolidated Financial Statements

3 Interbank A brief summary of the Company Statement of Responsibility The information in this document truthfully and comprehensively reflects the development of Interbank's business in the year Exempting the issuer of this document all liability for the contents of this document, the undersigned accept all responsibility for its contents in accordance with the applicable Peruvian legal provisions. With its headquarters in Lima, Perú, Interbank is one of the top Peruvian commercial banks with over US$ million in assets and a domestic network of 105 branch offices and 500 ATMs nationwide. The Bank provides banking services to more than 950,000 customers and is Perú's second banking institution making loans through credit cards, with over 368,000 accounts, and offering the 3 worldwide leading credit cards: American Express, MasterCard, and Visa, and the private brand card VEA. The activity developed by the Bank in personal banking ranks it as Perú's most important bank in consumer credits, with a 20% market share in effective loans within this segment. Committed to constant Innovation, Interbank offers Quality Service as a way to provide added value to its customers. Interbank also operates in the Mutual Funds market through Interfondos, and in the Asset-Backed Securities market through Intertítulos. The Bank's stock trades in the Lima Stock Exchange under the symbol INTERBC1. Carlos Rodríguez - Pastor P. Chairman Ismael Benavides F. General Manager This disclaimer is issued in compliance with the provisions of the regulations governing the preparation of Annual and Quarterly Reports approved by CONASEV (Peruvian Supervisory Commission of Securities and Companies) General Management Resolution N EF/94.11

4 Interbank We know you best Annual report 2005

5 2 3 Letter from the Chairman and the General Manager

6 In 2005 our income reached US$33.0 million -our highest historical level so far. To our Customers, Team Members, Shareholders and Friends: We are pleased to report that 2005 was a great year for Interbank: We attracted 180,000 new customers and for the fifth consecutive year we generated significant improvements in financial results, with our income reaching US$33.0 million -our highest historical level so far- which rose 64% above our income for the previous year. Our average return on equity was 21.4%. The asset quality continued to improve, the non-performing loan ratio decreased from 4.9% to 2.9% and the loan-loss provision coverage increased from 151.7% to 175.8%. The financial solidity of our equity, the continuous improvement in our portfolio quality, the higher level of coverage of the non-performing portfolio, the diversification of the Bank's funding, an increase in public deposits, and our focusing in profitable businesses, all allowed Interbank to continue rating as category A, one of the highest classifications available in the Peruvian financial system. Interbank's strategic orientation to retail banking, defined over the last five years, is reflected both by the placement portfolio structure, in which the retail banking share has gone from 23% to 47%, and by the income it generated, which increased from 44% to 73% of the Bank's total income for that term. Also, the funding from natural persons represented more than 56% of total deposits. In line with the decision to continue strengthening our retail banking, we maintain our commitment to providing our clients with leading products such as cards, mortgage loans, personal loans and a number of alternative types of deposits, with a personalized quality service. During fiscal year 2005 Interbank retained its leadership in the retail banking sector with a market share of 20% for personal loans. And in an unprecedented effort, we opened 36 new Financial Service Shops in Lima and provinces, thus increasing our national network to 105 spots. We also continued developing our project of Convenience Stores located in areas of dense traffic, where service is available at special times, with additional attractions implemented for customers to have a better time while carrying out their banking operations. The strategic investment made by Grupo Interbank in Supermercados Peruanos, continued to generate important synergies in developing Personal and Entrepreneurial banking: as of December 2005 there were 150,000 VEA credit cards and the number of financial service suppliers increased significantly to more than 700. In addition, there are 19 Money Markets located in Hipermercados Plaza Vea and Supermercados Vivanda, to provide banking services to our customers and contribute to attracting new customers. We keep committed with our vision of making Interbank the best bank with the best people, focused on generating competitive advantages addressed at providing our customers with exceptional value and convenience. We are therefore glad to mention that for the fourth year running we were selected as one of Perú's Top 10 Best Places to Work by The Great Place to Work Institute, and were the highest ranked bank.

7 4 5 Letter from the Chairman and the General Manager Additionally, in 2005 we were granted the Entrepreneurial Creativity Award for the fourth consecutive time in the category of banking services with our product called Coin Dispenser. Thus, ever since this award was created, Interbank is the bank that has received the largest number of awards in this category. Our personnel and staff including more than 2,479 members remains as our primary strategic advantage and once again we would like to thank them all for their effort and desire to excel. The Peruvian financial system has shown a positive evolution over 2005, and this has led an increasing number of Peruvians to a more intensive economic interaction with banks, thus gaining access to loans, both addressed at consumption and housing and micro-businesses as well. Heavy portfolio reductions and the good net financial income obtained by the institutions that make up the system have allowed us to show outstanding international level indicators. The regulatory framework remained stable, facilitating this favorable evolution and controlling various initiatives that would have otherwise affected such ambit, hindering the future development of the financial system. to cover the country's both household and industrial energy requirements at competitive costs. The entering of a Free Trade Agreement with the United States will mean a substantial contribution to economic growth. In addition, we expect that the level of liquidity maintained by financial institutions will help keep stable interest and exchange rates, especially during the second half of the year. Our financial goals for 2006 include a net income growth of at least 40%, and a return on equity of over 25%. In line with the modernization of out distribution model, we expect that 75% of our total transactions will take place through electronic channels such as the Internet, telephone, selfservice kiosks, and ATMs. The significant results obtained over this exceptional year were possible because of the support and trust of our customers, our correspondent banks, and our investors, and especially because of the commitment and professionalism of our members, with whom we share our purpose of being recognized as the best financial institution in Perú. For 2006 we envision a promising economic scenario, despite this being an elections year. The evolution of global economy will allow to maintain for favorable prices for Perú's primary exports and tourism will continue its expansion by virtue of the modernization of its transport and service infrastructure. Natural gas from Camisea will continue to be developed during the year, allowing Carlos Rodríguez - Pastor P. Chairman Ismael Benavides F. General Manager

8 Main Financial Figures Fiscal Year 2005 For the fourth year running we were selected as one of Perú's Top 10 Best Places to Work. In US$ millions Profit and Loss Statement Financial Income Financial Expenses Net Financial Income Non Financial Income Operation Expenses Operating Income (before provisions and taxes) Net Income End of Term Balance Sheet Gross Loans 1, , Loan Loss Provisions Total Assets 1, , , ,466.0 Deposits 1, , , ,058.0 Other Liabilities Outstanding Bonds Shareholders Equity Operation Ratios Return on Average Assets 1.8% 1.2% 1.0% 0.7% Return on Average Equity 21.4% 15.1% 12.0% 9.6% Leverage Delinquent / Overdue Portfolio 2.9% 4.9% 6.5% 7.9% Provisions on Past Due Loans 175.8% 151.7% 151.9% 184.3% Efficiency Ratio 60.1% 59.6% 65.5% 54.8% N.B.: The financial data contained in this document result from converting Peruvian soles into U.S. dollars, using the annual closing exchange rate for the figures in the End of Term Balance, and the monthly average exchange rates for the figures in the Profit and Loss Statement.

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10 We know that you seek strength and reliability We keep growing because we provide more effective solutions to each of your needs. We know all our customers - corporations, small and medium enterprises, and persons. Our baseline is to generate the highest profitability for your money and offer you more and improved products. That's why we view every day as a new chance to grow. Miguel Uccelli General Manager - Interfondos

11 8 9 A bank focused on persons We are aware of what you need. Interbank aims to become the best peopleoriented bank, based on best staff. The growth of the retail business will allow us to upgrade our current base by permanently innovating products and distribution channels and, above all, by reinforcing our service quality for the benefit of our more than 950 thousand customers. In 2005 Interbank consolidated its focus on Persons, with more than 47% of its current loans made to consumers, a segment that generated approximately 73% of financial income. Interbank kept its leadership in consumer loans, a segment that includes personal and car loans, with a market share of over 20%. Once again it was the second largest issuer of credit cards in the banking system, with a 23% market share, showing the highest growth rate among all banks Milagros Mosca Iraola Winner of the Team Work Award.

12 Interbank maintains the leadership in retail banking in the Peruvian financial system over the last four years. In mortgage loans, it reached a 7.5% market share, showing a higher growth rate than the system as a whole for the last fiscal year. supported by their commitment to enhance the well-being of Peruvian households, continues making a difference and keeps Interbank at the top of multi-bank service measurements. The Bank continues to base its development on the concept of Convenience for our customers. Our product development aims at creatively meeting their needs and our distribution network is therefore designed for the purpose of becoming part of our customers' everyday routine, through convenience and ease of access, through a network of 105 physical branches located in high transit areas, and the latest generation electronic media. A key element in the implementation of this strategy is Interbank's team of 2,479 associates whose ability to provide good service nationwide,

13 10 11 Generating financial strength and reliability In 2005 Interbank maintained an A rating, one of the highest in the Peruvian financial system, a recognition of its strong equity base, the continuous improvement of its portfolio quality, the coverage of its past due loan portfolio and the diversification of its funding sources. As of December 31, 2005 the Bank's shareholders' equity was US$164.0 million, 10% greater than the previous year, reflecting its good performance in the current fiscal year, supported by the shareholders' policy of capitalizing 50% of the Bank's earnings. The leverage ratio of 8.3x (12%) was well within the legal limit of 11. The liquidity ratio, calculated as the percentage of available funds over total assets, reached 24% of

14 Our funding source structure continued improving: our deposits reached US$1,342 million, 56% of which come from natural persons. assets, similar to The diversification of the Bank's funding structure, based on a consistent policy of attracting retail funds from both persons and companies, reached US$1,342 million, minimizing the relative importance of corporate investors. It should be noted that 56% of these deposits come from individuals and 27% from companies, while loans from foreign banks fell by US$17.1 million. The loan portfolio closed at US$1,211 million, 9.23% higher than the 2004 year-end figure. The continual application of the Recoveries Monitoring System (SER) allowed us to improve collateral and restructure debts, thus decreasing the problem loan portfolio in US$49.1 million. Conservative provisioning and charge-off policies continued being applied to the personal banking portfolio. The Bank's profitability showed significant growth in 2005: Net earnings reached US$33.0 million, higher by 64% than the previous fiscal year; and operating earnings before provisions and taxes were US$78.7 million. This allowed for US$36.0 million in provisions for doubtful loans. Interbank thus continued as the third most profitable bank in the Peruvian financial system.

15 12 13 Leading retail banking Our personal banking business recorded an outstanding performance during fiscal year 2005: n Personal Deposits increased by more than 18%, exceeding US$750 million, n n n Consumer Credits amounted to US$365 million, higher by 19% than the balance recorded for the previous fiscal year, The Bancaassurance business sold more than 119,400 policies during the fiscal year, and More than 250,000 family remittances were processed. Interbank maintained its leadership in retail banking, with a 20% market share in the segment of personal loans The increase in Deposits from individuals occurred mainly in the Savings segment, in which the Cuenta Millonaria accounted for the highest growth, allowing Interbank to reach a market share of more than 14% in this segment. Significant increase recorded in Time Deposits and Retirement Funds (CTS) will allow us to continue introducing product improvements. During 2005 Interbank maintained its leadership in retail banking, with a 20% share in the Consumer Credit segment. These loans were boosted by the deployment of the Consumer Card, which allows customers to perform transactions through more than 500 Global Net ATMs nationwide, as well as well as through financial kiosks and the Internet. Another innovation in Consumer Loans was the

16 implementation of disbursements through Internet, a feature exclusive to Interbank that provides customers who live in distant locations witho convenient mechanisms to access their accounts. Interbank Consumer Credits US$ million The Bancassurance business has evolved favorably and more than 119,400 new policies were sold during fiscal 2005, thus setting a new base for developing this new market niche in the short term. 85% of sales were made throughout the branch network and 15% through telemarketing In 2005 agreements were made with 30 remittance companies based in 12 countries, in order to channel family remittances to Perú. Contact was made with Peruvian workers and professionals who work abroad for the purpose of offering them remittance services through Interbank in a quick and safe way, at competitive costs, and by using our nationwide Store network. The evolution of this business line has been very favorable, processing more than 250 thousand remittances for US$75 million, representing an increase of 65% as compared to the previous year. As of December 2005, more than 34,000 Peruvians based abroad trusted their monthly remittances to Interbank, 60% of which were addressed to Lima beneficiaries and 40% to beneficiaries in the rest of the country Interbank Personal Deposits US$ million

17 We know that you seek more advantages We have simplified our processes by implementing a system for issuing cards in less than 20 minutes, an initiative that has been recognized as one of the most important innovations in Latin America. We launched the Vea card, a platform that became in only 3 months the main means of payment, following cash. And our card issue increased by 63% as compared to the previous year. Fernando Durán Vea and Megaplaza Credit Card

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19 16 17 Credit cards clients with more benefits The evolution of the credit card business during 2005 was remarkable: total existing cards reached a number of 368,000 accounts, representing a 47% increase as compared to the previous year; outstanding balances increased by 27%, exceeding US$159 million, and the Banmat Visa Electron debit card was launched in association with the Banco de Materiales. We work focused in serving our customers. The increase in loans was accompanied by rigorous loan admission procedures and risk follow-up, thus keeping the same portfolio quality levels. Year-end delinquency rates were within the system average. Service quality is key in the development of the card business, and this was enhanced through the installation of the Contact Center - CRM system. Its application significantly increased staff productivity in telephone banking, requests and claims service, and telephone collections, providing more customers with personalized, timely service. The VEA Credit Card, launched October 2004, in alliance with Supermercados Peruanos and targeted at the customers of Hipermercados Plaza VEA, showed an outstanding performance, reaching more than 150,000 units at the end of the year. The special benefits provided by this card to its users have allowed it to become the preferred means of payment in these modern hypermarkets. Christian Peraldo Salas, Winner of the Sense of Humor Award.

20 The Vea Credit Card, launched along with supermercados peruanos, expanded to 150,000 units as of december 2005 The Megaplaza Interbank Visa card kept growing, exceeding 49,000 units, 42% higher than the level recorded the previous year. Applications continued being processed at the module located in the same Shopping Mall. Credit Card placements US$ million 160 In November 2005 the Banmat Visa Electron credit card was launched under an agreement with Banco de Materiales. This card allows Banco de Materiales customers to purchase construction materials for building their own houses directly from any Visa affiliated establishments, as well as to make cash withdrawals for up to 30% of their credit lines through the Global Net ATM network. Apart from providing their customers with a modern and safe means of payment, Banco de Materiales also benefits from the elimination of transactional costs related to the issue of checks and the optimization of its administrative procedures Number of Credit Card Accounts US$ million

21 18 19 More and improved services for corporate clients Companies need simple, fast and safe solutions to meet their financial needs. By keeping these ideas in mind, Interbank has developed a number of products and services that it continually upgrades in order to supply the best solutions to its regular customers. The Payroll Payment service, principally through Internet Banking, grew by 39% in 2005, balances in the Payroll Account increased by 30%, and the number of companies using this service increased at a similar pace. Payments to Suppliers through Interbank increased 37%. This product allows the bank's corporate clients are able to make payments to other clients directly through deposits in their accounts or alternatively through cashier's checks to non clients. These results have encouraged Interbank to implement a new Electronic Factoring product and to continue offering better alternative options to its corporate clients. In Foreign Trade, the bank continued upgrading the services and products addressed at the customers in this market segment in order to serve them with the speed and efficiency they need. The volume of import and export letters of credit, collection services, the transfers and the loans extended to customers engaged in foreign trade were 34% higher than the year before.

22 Services to corporate clients continue growing at rates higher than 30% On the other hand, Interleasing completed its third year sustained growth: current loans exceeded US$103 million with a higher financial margin and an average past-due rate of less than 1%. Active management of the client relationships and quality of service resulted in 25% of the deals closed this year being with recurrent customers, who decided to trust Interleasing to cover their financing needs again. and payments to Private Pension Funds (AFPs). These services provide convenience to corporate clients and are a source of non-financial revenue for the bank, while allowing for significant operational float. Despite efforts from the competition during 2005, Interbank confirmed its position as the leading private bank in Collection of Taxes for SUNAT (National Superintendence of Tax Administration),

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24 We know that you want us closer We have increased our accessibility by enhancing our distribution network, implementing Financial Shops throughout the country and developing a direct sales force. We have upgraded our network though new Convenience Stores located in areas of dense traffic, where service is available at special times, with additional attractions implemented for customers to have a good time while carrying out banking operations. Gabriela Prado Recovery Risk Manager

25 22 23 Developing the best financial service distribution network Interbank firmly aims at becoming a part of our customers' daily routine. To this end it seeks to be present in the most convenient locations, providing safety and offering quality services and products. National Branch Network In an unprecedented effort in the local banking business, during 2005 Interbank opened 36 new branches nationwide, 19 of them in Plaza VEA hyper-markets and VIVANDA super markets, both owned by Supermercados Peruanos, a company that joined Grupo Interbank in the year The main innovation in the branch network, begun in the previous fiscal, was the launching of new Convenience Stores located in areas of dense traffic, where service is available on an extended schedule every day of the week. Their functional design allows for space to serve customers comfortably and offer them a higher added value through education, health, and entertainment campaigns, sponsored by renowned companies. The average number of enquiries made by clients in each campaign was higher than 20,000, thus reflecting the warm reception of the public to this original innovation. Our strategic alliance with Lima Airport Partners allowed Interbank to be the only financial institution at Jorge Chávez International Airport. To meet the needs of both customers and the general public, it has a financial store, two exchange rate modules and a network of 14 ATMs located in the higher traffic zones. During the year 2005 implementation of the Transactor front-end system in the 105 branch stores of Interbank located throughout the country was completed. This tool simplifies processes, facilitates the operational tasks of our employees, and allows for better and faster service to customers. Electronic Banking: Growth with Innovation At Interbank, electronic transactions continue to register significant growth: As of December 2005, almost 70% of the total transactions were done through electronic means, based on the expansion of the Global Net ATM network, the modern Web Site of Interbank, the good impact had by Coin Dispensers, and the Saldos y Toque feature (web-enabled kiosks). Global Net is the broadest coverage ATM network in Perú and the only one that takes cards from all banks, department stores, and municipal loans and savings institutions. It encompasses 500 ATMs nationwide, and during 2005 it incorporated four new partners: Banco Financiero, Caja Municipal de Trujillo, Caja Municipal de Piura, and Ingenicard. The everyday need to have coins at hand for commercial transactions is common in all socio-

26 In an unprecedented effort in the local banking business, during 2005 interbank opened 36 new branch offices in lima and provinces economic levels in Perú. With this in mind, Interbank implemented the Coin Dispensers, the first electronic device in South America that allows customers to have coins in an easy, comfortable, and safe way. This product was the result of more than 4 years of joint work among Interbank as project leader, IBM del Perú as technological partner, and XAC Automation Corporation of Taiwan as manufacturer. Currently, Interbank has 50 Dispensers operating in its branches throughout the country, serving more than 100,000 monthly transactions. This product received the 2005 Entrepreneurial Creativity Award in the category of Financial Services. Interbank's Internet banking web site, is currently accessed by an increasingly higher number of users. One of every five transactions carried out during fiscal year 2005 was made through this channel in an efficient and particularly safe way, within the framework of one of the friendliest and quickestaccess Web sites in the financial system. Number of Interbank ATMs Electronic Cards 44% 55% 62% 69%

27 24 25 Improving infrastructure and operational and technological support In accordance with our goal of being the leading financial institution in retail banking in Perú, several projects addressed at improving our service to customers and providing them with even higher quality and added value were implemented in The main projects include: We provide simple solutions n n n n Centralization of operational support that will free the branches from certain back-office tasks, thus allowing them to focus their efforts on serving customers. This trend began with Money Markets and Convenience Stores and will expand to the rest of the network over the year 2006, The deployment of Transactor, the new frontend system installed in every branch throughout the country, that provides improved functionality, ease of use, and natural connectivity with data exploitation applications, currently undergoing development, The implementation of a new software for serving enquiries and claims which allows decentralized follow up, thus improving customer service, and The roll-out of a new system for the detection of suspicious transactions and the prevention of asset and money laundering. The robustness of Interbank's processes and systems was evidenced by our quick reaction to Alex Rubio Silva, Winner of the Accountability Award

28 Operative processes continued recording improvements in line with our objective of having the bank's main processes iso 9001 certified. the appearance in the country of super dollars, highly sophisticated forged notes very similar to the originals and therefore extremely difficult to recognize. As soon as this fact was known, Interbank set up detection mechanisms in the branch network, and took the necessary steps to withdraw all such notes from circulation. Thus we protected not only our depositors but the entire financial system, while at the same time taking steps to serve any customers who might have been affected by this situation. Operative processes continued to show improvements in line with our objective of having the main processes of our bank ISO 9001 certified. The level of rigor of this certification implies detailed reviews to ensure process functionality and simplicity and, therefore, an efficient management. During fiscal year 2005 the processes being granted such certification included Payroll-Loan Cards, servicing of enquiries and claims, and normalization processes.. Additionally, we maintained the certification of the processes that had been certified in 2004, while introducing substantial improvements in their performance. The quality of the information generated by the Financial Controllership allowed all the bank areas to make decisions in an opportune and safe manner, and the Strategic Planning Process, involved the participation of all the bank's areas and management, concluding with the implementation of the Balanced Scorecard for the entire organization.