REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR
	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 2002 OR
	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_____ to _____

Commission file number: 1-14014

       Securities registered or to be registered pursuant to Section 12(b) of the Act:

TABLE OF CONTENTS

PART I

PRESENTATION OF FINANCIAL INFORMATION

Unless otherwise specified or the context otherwise requires, references in this Form 20-F (the “Annual Report”) to “$,”“US$,” “Dollars” and “U.S. Dollars” are to United States dollars and references to “S/.,” “Nuevo Sol” or “Nuevos Soles” are to Peruvian Nuevos Soles. Each Nuevo Sol is divided into 100 céntimos (cents).

Credicorp Ltd., a Bermuda limited liability company (together with its consolidated subsidiaries, “Credicorp”), maintains its financial books and records in U.S. Dollars and presents its financial statements in accordance with International Accounting Standards (“IAS”). IAS vary in certain significant respects from United States generally accepted accounting principles (“U.S. GAAP”). For a discussion of significant differences between IAS and U.S. GAAP, together with a reconciliation of net income and shareholders’ equity to U.S. GAAP for Credicorp, see Note 22 to Credicorp’s consolidated financial statements for the years ended December 31, 2000, 2001 and 2002 (the “Credicorp Consolidated Financial Statements”) included elsewhere herein.

Credicorp operates primarily through its four principal subsidiaries, Banco de Crédito del Perú (together with its consolidated subsidiaries, “BCP”), Atlantic Security Holding Corporation (together with its consolidated subsidiaries, “ASHC”), El Pacífico-Peruano Suiza Compañía de Seguros y Reaseguros (together with its consolidated subsidiaries, “PPS”), and Banco Tequendama. BCP’s activities include commercial banking, investment banking activities, and retail banking. As of and for the year ended December 31, 2002, BCP accounted for 86.6% of Credicorp’s total revenues, 82.7% of total assets, 141.2% of net income and 62.8% of shareholders’ equity. Unless otherwise specified, the individual financial information for BCP, ASHC and PPS included herein has been derived from the audited consolidated financial statements of each such entity. See “Item 3. Key Information–(A) Selected Financial Data” and “Item 4. Information on the Company– (A) History and Development of the Company.”

In addition to the Nuevo Sol amounts translated into U.S. Dollars for the purpose of preparing the Credicorp Consolidated Financial Statements (see Note 3 to the Credicorp Consolidated Financial Statements and “Item 3. Key Information–(A) Selected Financial Data”), this Annual Report contains certain Nuevo Sol amounts translated into U.S. Dollars at specified rates solely for the convenience of the reader. None of these translations should be construed as representations that the Nuevo Sol amounts actually represent such equivalent U.S. Dollar amounts or could be converted into U.S. Dollars at the rate indicated as of the dates mentioned herein or at all. Unless otherwise indicated (see Note 3 to the Credicorp Consolidated Financial Statements and “Item 3. Key Information–(A) Selected Financial Data”), such U.S. Dollar amounts have been translated from Nuevos Soles at an exchange rate of S/.3.514 = US$1.00, the December 31, 2002 exchange rate set by the Peruvian Superintendencia de Banca y Seguros (the Superintendency of Banks and Insurance, or “SBS”). The average of the bid and offered free market exchange rates published by SBS for June 9, 2003 was S/.3.483 per US$1.00. The translation of amounts expressed in nominal or constant Nuevos Soles with purchasing power as of a specified date by the then prevailing exchange rate may result in presentation of U.S. Dollar amounts that differ from the U.S. Dollar amounts that would have been obtained by translating nominal or constant Nuevos Soles with purchasing power as of another specified date by the prevailing exchange rate on that specified date. The translation procedure may also differ from the amounts included in the Credicorp Consolidated Financial Statements (see Note 2(b) to the Credicorp Consolidated Financial Statements). See “Item 3. Key Information–(A) Selected Financial Data–Exchange Rates” for information regarding the average rates of exchange between the Nuevo Sol (or predecessor currencies) and the U.S. Dollar for the periods specified therein. The Federal Reserve Bank of New York does not publish a noon buying rate for Nuevos Soles.

CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS

Certain of the statements contained in this Annual Report that are not historical facts, including, without limitation, certain statements made in the sections hereof entitled “Item 3. Key Information,” “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk” are forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934 (the “Exchange Act”). These forward-looking statements are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation:

See “Item 3. Key Information–(D) Risk Factors,” and “Item 5. Operating and Financial Review and Prospects.”

Credicorp is not under any obligation to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

The following table presents summary consolidated financial information for Credicorp at the dates and for the periods indicated. This selected financial data is presented in U.S. Dollars. This information should be read in conjunction with, and is qualified in its entirety by reference to, the Credicorp Consolidated Financial Statements, also presented in U.S. Dollars. The summary consolidated financial data as of, and for the years ended, December 31, 1998, 1999, 2000, 2001 and 2002 are derived from the Credicorp Consolidated Financial Statements audited by Dongo-Soria Gaveglio y Asociados, a member firm of PricewaterhouseCoopers, independent accountants. The report of Dongo-Soria Gaveglio y Asociados on the Credicorp Consolidated Financial Statements as of December 31, 2001 and 2002 and for the years ended December 31, 2000, 2001 and 2002, appears elsewhere in this Annual Report. The summary consolidated financial information presented below and the Credicorp Consolidated Financial Statements are prepared and presented in accordance with IAS, which differ in certain significant respects from U.S. GAAP. See Note 22 to the Credicorp Consolidated Financial Statements, which provides a description of the significant differences between IAS and U.S. GAAP, as they relate to Credicorp, and a reconciliation to U.S. GAAP of Credicorp’s net income and shareholders’ equity.

SELECTED FINANCIAL DATA

Exchange Rates

The following table sets forth the high and low month-end rates and the average and the end-of-period rates for the sale of Nuevos Soles for Dollars for the periods indicated.

The following table sets forth the high and low rates for the sale of Nuevos Soles for Dollars for the indicated months.

The average of the bid and offered free market exchange rates published by the SBS for June 9, 2003 was S/.3.483 per US$1.00.

(B) Capitalization and Indebtedness

Not applicable.

(C) Reasons for the Offer and Use of Proceeds

Not applicable.

(D) Risk Factors

Credicorp’s businesses are affected by a number of external and other factors in the markets in which they operate. Different risk factors can impact Credicorp’s businesses and their ability to operate their respective businesses and business strategies effectively. The following risk factors should be considered carefully and read in conjunction with all of the information in this Annual Report.

Peruvian Country Risk

Substantially all of BCP’s and PPS’s operations and customers are located in Perú. In addition, although ASHC is based outside of Perú, substantially all of its customers are located in Perú. Accordingly, the results of operations and the financial condition of Credicorp will be dependent on the level of economic activity in Perú. Credicorp’s results of operations and financial condition could also be affected by changes in economic or other policies of the Peruvian government (which has exercised and continues to exercise a substantial influence over many aspects of the private sector) or other political or economic developments in Perú, including government-induced effects on inflation, devaluation and economic growth.

During the past several decades, Perú has had a history of political instability that has included military coups and a succession of regimes with differing policies and programs. Past governments have frequently played an interventionist role in the nation’s economy and social structure. Among other actions, past governments have imposed controls on prices, exchange rates, local and foreign investment and international trade; restricted the ability of companies to dismiss employees; expropriated private sector assets; and prohibited the remittance of profits to foreign investors.

In July 1990, Alberto Fujimori was elected president, and his administration implemented a broad-based reform of Perú’s political system and economic and social conditions aimed at and with a focus on stabilizing the economy, restructuring the national government (by reducing bureaucracy), privatizing state-owned companies, promoting private investment, developing and strengthening free markets, institutionalizing democratic representation and enacting programs for the strengthening of basic services related to education, health and infrastructure. After taking office for his third term in July 2000, under extreme protest, President Fujimori was forced to call for general elections due to the outbreak of corruption scandals, and later resigned in favor of a transitory government headed by the president of Congress, Valentín Paniagua.

Mr. Paniagua took office in November 2000 and in July 2001 handed over the presidency to Alejandro Toledo, the winner of the elections decided in the second round held on June 3, 2001, ending two years of political turmoil. Since his election, President Toledo has retained, for the most part, the economic policies of the previous government, focusing on promoting private investment, eliminating exemptions to tributary obligations, reducing underemployment and unemployment and privatizing state-owned companies in various sectors. President Toledo also implemented fiscal austerity programs, among other proposals, in order to stimulate the economy. Despite Perú’s achieving moderate economic growth, the Toledo administration has at times faced public unrest spurred by the high rates of unemployment, underemployment and poverty. In July 2002, in an effort to maintain his political alliances and quell public unrest, President Toledo restructured his cabinet. On June 23, 2003, President Toledo again announced plans to restructure his cabinet amid further unrest. See “Item 4. Information on the Company–(B) Business Overview –9. Peruvian Government and Economy–(i) Peruvian Government.”

Given that the Toledo administration continues to face a fragmented congress and ongoing public unrest, there can be no assurance that the government will continue its current economic policies or that Peru’s recent economic growth can be sustained.

Exchange Controls and Devaluation of the Nuevo Sol

Even though Credicorp’s financial statements are presented in U.S. Dollars, and its dividends are paid in U.S. Dollars, BCP and PPS will continue to prepare, for local statutory purposes, their financial statements and pay dividends in Nuevos Soles. While the Peruvian government currently imposes no restrictions on a company’s ability to transfer U.S. Dollars from Perú to other countries, to convert Peruvian currency into Dollars or to remit dividends abroad, Perú has had restrictive exchange controls in the past and there can be no assurance that the Peruvian government will continue to permit such transfers, remittances or conversion without restriction. See “Item 10. Additional Information–(D) Exchange Controls.” In addition, a devaluation would decrease the Dollar value of any dividends BCP and PPS pay to Credicorp, which would have a negative impact on Credicorp’s ability to pay dividends to shareholders.

Although the current level of Perú’s foreign reserves compares favorably with those of other Latin American countries, there can be no assurance that Perú will be able to maintain adequate foreign reserves to meet its foreign currency-denominated obligations, or that Perú will not impose exchange controls should its foreign reserves decline. A decline in Peruvian foreign reserves to inadequate levels, among other economic circumstances, could lead to a devaluation. While Credicorp seeks to manage the gap between its foreign currency-denominated assets and liabilities, for instance by matching the volumes and maturities of its Dollar-denominated loans against its Dollar-denominated deposits, a sudden and significant devaluation could have a material adverse effect on Credicorp’s financial condition and results of operations. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk–Exchange Rate Sensitivity.” Also, BCP’s borrowers and PPS’s insureds typically generate Nuevo Sol revenues from their own clients. Devaluation of the Nuevo Sol against the Dollar could have a negative impact on the ability of BCP’s and PPS’s clients to repay loans or make premium payments. Despite any devaluation, and absent any change in foreign exchange regulations, BCP and PPS would be expected to continue to repay Dollar-denominated deposits and Dollar-denominated insurance benefits in Dollars. Therefore, any significant devaluation of the Nuevo Sol against the Dollar could have a material adverse effect on Credicorp’s results of operations and financial condition.

Corporate Disclosure and Accounting Standards

Credicorp prepares its financial statements in accordance with IAS, which differ in certain significant respects from U.S. GAAP. Accordingly, the presentation of financial statements and reported earnings of Credicorp may not be comparable to those companies whose financial statements are prepared in accordance with U.S. GAAP. See Note 22 to the Credicorp Consolidated Financial Statements for a description of the significant differences between IAS and U.S. GAAP, as such differences relate to Credicorp, together with a reconciliation to U.S. GAAP of Credicorp’s net income and shareholders' equity for the periods included therein.

Enforceability of Civil Liabilities

A significant majority of Credicorp's directors and officers reside outside the United States (principally in Perú). All or a substantial portion of the assets of Credicorp or of such persons are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons or upon Credicorp or to enforce against them in federal or state courts in the United States judgments predicated upon the civil liability provisions of the federal securities laws of the United States. Credicorp has been advised by its Peruvian counsel that there is uncertainty as to the enforceability, in original actions in Peruvian courts, of liabilities predicated solely under the United States federal securities laws and as to the enforceability in Peruvian courts of judgments of United States courts obtained in actions predicated upon the civil liability provisions of the United States federal securities laws.

Status of Credicorp as a Holding Company

As a holding company, Credicorp's ability to make dividend payments, if any, and to pay corporate expenses will be dependent primarily upon the receipt of dividends and other distributions from its operating subsidiaries. Credicorp's principal subsidiaries are BCP, PPS, ASHC and Banco Tequendama. There are various regulatory restrictions on the ability of Credicorp's subsidiaries to pay dividends or make other payments to Credicorp. To the extent Credicorp’s subsidiaries do not have funds available or are otherwise restricted from paying dividends to Credicorp, Credicorp’s ability to pay dividends to its shareholders will be adversely affected. Currently, there are no restrictions on the ability of BCP, ASHC, PPS or Banco Tequendama to remit dividends abroad. In addition, the right of Credicorp to participate in any distribution of assets of any subsidiary, including BCP, PPS, ASHC and Banco Tequendama, upon any such subsidiary's liquidation or reorganization or otherwise (and thus the ability of holders of Credicorp securities to benefit indirectly from such distribution), will be subject to the prior claims of creditors of that subsidiary, except to the extent that any claims of Credicorp as a creditor of such subsidiary may be recognized as such. Accordingly, Credicorp’s securities will effectively be subordinated to all existing and future liabilities of Credicorp's subsidiaries, and holders of Credicorp’s securities should look only to the assets of Credicorp for payments.

Loan Portfolio Quality and Composition

Given that approximately 80% of Credicorp’s revenues are related to banking activities, a deterioration of loan quality may have an adverse impact on the financial condition and results of operations of Credicorp. While loan portfolio risk associated with lending to certain economic sectors or clients in certain market segments can be mitigated through adequate diversification policies, Credicorp’s pursuit of opportunities in which it can charge higher interest rates, thereby increasing revenues, may reduce diversification of the loan portfolio and expose Credicorp to greater credit risk. Credicorp believes that significant opportunities exist in middle market and consumer lending in Perú and that Credicorp can, on average, charge higher interest rates on such loans as compared with interest charged on loans in its core corporate banking business, made primarily to clients that operate in industrial and commercial economic sectors. Accordingly, Credicorp’s strategy includes a greater emphasis on middle market and consumer loans, as well as continued growth of its loan portfolio in general. An increase in the portfolio’s exposure to these areas could be accompanied by greater credit risk, not only due to the speed and magnitude of the increase, but also to the shift to lending to the middle market and consumer sectors, where Credicorp lacks the experience that it has in its more traditional lending activities, particularly corporate lending. Given the changing composition of its loan portfolio, historical loss experience may not be indicative of future loan loss experience.

Bank Regulatory Matters

Credicorp is subject to extensive supervision and regulation in Perú through the SBS’s consolidated supervision regulations. BCP’s operations are supervised and regulated by the SBS and the Banco Central de Reserva (“Central Bank”). Perú’s Constitution and the SBS’s statutory charter grant the SBS the authority to oversee and control banks and other financial institutions. The SBS and the Central Bank have general administrative responsibilities over BCP, including designation of capitalization and reserve requirements. In past years, the Central Bank has, on numerous occasions, changed the deposit reserve requirements applicable to Peruvian commercial banks and both the rate of interest paid on deposit reserves and the amount of deposit reserves on which no interest is payable by the Central Bank. Such changes in the supervision and regulation of BCP, if made in the future, may adversely affect the results of operations and financial condition of Credicorp. See “Item 4. Information on the Company–(B) Business Overview–11. Supervision and Regulation–(ii) BCP.”

Insurance Business and Regulation

Credicorp’s insurance business, carried out by its subsidiary PPS, is subject to regulation by the SBS. Insurance regulation in Perú is an area of constant change. New legislation or regulations may adversely affect PPS's ability to underwrite and price risks accurately, which in turn would affect underwriting results and business profitability. PPS is unable to predict whether and to what extent new laws and regulations that would affect its business will be adopted in the future, the timing of any such adoption and what effects any new laws or regulations would have on its operations, profitability and financial condition.

Credicorp's operating performance and financial condition depend on PPS's ability to underwrite and set premium rates accurately for a full spectrum of risks. PPS must generate sufficient premiums to offset losses, loss adjustment expenses and underwriting expenses so it may earn a profit. In order to price premium rates accurately, PPS must collect and analyze a substantial volume of data; develop, test and apply appropriate rating formulae; closely monitor changes in trends in a timely fashion; and project both severity and frequency with reasonable accuracy. If PPS fails to assess accurately the risks that it assumes or does not accurately estimate its retention, it may fail to establish adequate premium rates, which could reduce income and have a material adverse effect on its operating results or financial condition. Moreover, there is inherent uncertainty in the process of establishing property and casualty loss reserves. Reserves are estimates based on actuarial and statistical projections at a given point in time of what PPS ultimately expects to pay out on claims and the cost of adjusting those claims, based on the facts and circumstances then known. Factors affecting these projections include, among others, changes in medical costs, repair costs and regulation. Any negative effect on PPS could have a material adverse effect on Credicorp’s results of operations and financial condition.

Increased Competition

Despite a recent decrease in interest from major international banks in the Latin American region, BCP has experienced increased competition, including increased pressure on margins, primarily as a result of the presence of highly liquid commercial banks in the market; local and foreign investment banks with substantial capital, technology and marketing resources; and, recently, from local pension funds that lend to BCP’s corporate customers through participation in such customers’ securities issues. Larger Peruvian companies have gained access to new sources of capital, through local and international capital markets, and BCP’s existing and new competitors have increasingly made inroads into the higher-margin middle market and retail banking sectors. Such increased competition, with entrants who may have greater access to capital at lower costs, have affected BCP’s loan growth as well as reduced the average interest rates that BCP can charge its customers. Competitors may also appropriate greater resources and be more successful in the development of technologically advanced products and services that may compete directly with BCP’s products and services, adversely affecting the acceptance of BCP’s products and/or leading to adverse changes in spending and saving habits of BCP’s customer base. If these entities are successful in developing products and services that are more effective or less costly than the products and services developed by BCP, BCP's products and services may be unable to compete successfully. Even if BCP's products and services prove to be more effective than those developed by other entities, such other entities may be more successful in marketing their products and services than BCP because of their greater financial resources, higher sales and marketing capacity, and other factors. BCP may not be able to maintain its market share if it is not able to match its competitors’ loan pricing or keep pace with their development of new products and services. Any negative impact on BCP could have a material adverse effect on Credicorp’s results of operations and financial condition.

Fluctuation and Volatility of Capital Markets and Interest Rates

Credicorp may suffer losses related to the investments by BCP, PPS and other subsidiaries in fixed income and equity securities, and to their respective positions in currency markets, because of changes in market prices, defaults, fluctuations in market interest rates, exchange rates or other reasons. A downturn in the capital markets may lead Credicorp to register net losses due to the decline in the value of these positions, in addition to negative net revenues from trading positions caused by volatility in prices in the financial markets, even in the absence of a general downturn.

Fluctuations in market interest rates, or changes in the relative structure between short-term interest rates and long-term interest rates, could cause a decrease in interest rates charged on interest-earning assets, relative to interest rates paid on interest-bearing liabilities. Such an occurrence could adversely affect Credicorp’s financial condition by causing a decrease in net interest income.

ITEM 4. INFORMATION ON THE COMPANY

(A) History and Development of the Company

Credicorp is a limited liability company incorporated in Bermuda in 1995 to act as a holding company, coordinate the policy and administration of its subsidiaries and engage in investing activities. Credicorp’s principal activity is to coordinate and manage the business plans of its subsidiaries in an effort to implement universal banking services and develop its insurance business, focusing in Perú and Bolivia while limiting investments in other countries of the region. It conducts its financial services business exclusively through its subsidiaries. Credicorp’s address is Calle Centenario 156, La Molina, Lima 12, Perú, and its phone number is 51-1-313-2000.

Credicorp is the largest financial services holding company in Perú and is closely identified with its principal subsidiary, BCP, the country’s largest bank and the leading supplier of integrated financial services in Perú. Credicorp is engaged principally in commercial banking (including trade finance, corporate finance and leasing services), insurance (including commercial property, transportation and marine hull, automobile, life, health and pension fund underwriting insurance) and investment banking (including brokerage services, asset management, and trust, custody and securitization services and proprietary trading and investment). As of December 31, 2002, Credicorp’s total assets were US$8.6 billion and shareholders’ equity was US$823.8 million. Its net income in 2001 and 2002 was US$54.5 million and US$42.4 million, respectively. See “Item 3. Key Information–(A) Selected Financial Data” and “Item 5. Operating and Financial Review and Prospects.” The following table presents certain financial information for Credicorp by principal business segment as of and for the year ended December 31, 2002 (see Note 19 to the Credicorp Consolidated Financial Statements):

Credicorp conducts its commercial banking and investment banking activities primarily through BCP, the largest (in terms of total assets loans, deposits, shareholders’ equity and net income) full service Peruvian commercial bank (“Peruvian commercial bank,”“Peruvian insurance company” and similar terms when used in this Annual Report do not include the assets, results or operations of any foreign parent company of such Peruvian entity or the foreign subsidiaries thereof), and ASHC, a diversified financial services company. Credicorp’s insurance activities are conducted through PPS, the largest Peruvian insurance company in terms of premiums written and net income.

Credicorp was formed in 1995 for the purpose of acquiring, through an exchange offer (the “Exchange Offer”), the common shares of BCP, ASHC and PPS. Pursuant to the Exchange Offer, in October 1995, Credicorp acquired 90.1% of BCP; 98.2% of ASHC; and 75.8% of PPS. Credicorp acquired the remaining 1.8% outstanding shares of ASHC in March 1996, pursuant to a further exchange offer.

In December 1995, Credicorp purchased 99.99% of Inversiones Crédito, a non-financial entity with assets of US$50.0 million, with principal investments currently in shares of Peruvian electric utilities.

In January 1997, Credicorp purchased 99.99% of a Colombian banking concern, Banco Tequendama, which has US$270.7 million in assets. Banco Tequendama operated branches in Venezuela until December 2002 when such branches were sold. This sale is reflected in Credicorp’s financial statements for the year ended December 31, 2002, although regulatory requirements were not satisfied until February 2003.

In December 1997, Credicorp purchased 97.0% of Banco Capital, a Salvadoran bank, and 100% of Casa de Bolsa Capital, a Salvadoran brokerage firm, for US$5.9 million and US$800,000, respectively. Credicorp later increased its stake in Banco Capital to 99.5%, which was subsequently entirely sold to another Salvadoran bank in November 2001 for US$32.3 million, resulting in a US$6.3 million profit. Casa de Bolsa Capital was subsequently liquidated during 2002.

In August 1997, Credicorp acquired 39.5% of Banco de Crédito de Bolivia (“BCB”) from BCP for US$9.2 million. In July 1998, Credicorp acquired 97% of Banco de La Paz, a Bolivian bank with US$52.1 million in assets, which was subsequently merged with BCB in January 1999, at which time Credicorp also increased its beneficial ownership of BCB to 55.79%, with BCP owning, directly or indirectly, 44.21%. In November 2001, BCP bought back a 53.1% stake from Credicorp for US$30.0 million.

On December, 2002, BCP acquired, for US$50.0 million, Banco Santander Central Hispano-Perú (“BSCH-Perú”), which is included in BCP’s consolidated financial statements since such date. At December 31, 2002, BSCH-Perú had total assets of US$975.2 million, total loans of US$719.4 million and deposits of US$659.0 million. BSCH-Perú was merged into BCP on February 28, 2003.

The following tables show the organization of Credicorp and its principal subsidiaries as of December 31, 2002 and their relative percentage contribution to Credicorp’s total assets, total revenues, net income and shareholders’ equity at the same date (see “–(C) Organizational Structure”):

The following tables show the organization of BCP and its principal subsidiaries as of December 31, 2002:

In March 2002, Credicorp made a tender offer for outstanding BCP shares for S/.1.80 per share, approximately equal to the book value of such shares, disbursing directly and through its subsidiary PPS an amount of approximately US$35.3 million. As a result of the tender offer, Credicorp’s equity stake in BCP increased from 90.6% to 97.0%.

In March 2003, BCP, adding to its 55% stake, acquired for US$17.0 million the remaining 45% of the equity shares of Solución Financiera de Crédito del Perú S.A. (“Solución”) from Banco de Crédito e Inversiones de Chile (“BCI”) and other foreign shareholders. Solución, which resumes its position as a BCP wholly-owned subsidiary, had as of March 31, 2003 a loan portfolio of US$82.8 million, with a 2% past-due ratio, and had net income of US$1.9 million in the first quarter of 2003. Solución’s net income for the full year 2002 was US$7.3 million.

(B) Business Overview

1. Introduction – Review of 2002

The performance of Credicorp in 2002 was positive, principally because of the results of its financial and insurance operations in Perú, which outweighed the adverse climate affecting its subsidiaries abroad. Even though profitability did not reach desired levels, gains were made in the areas of quality of assets, coverage of bad loans, customer service standards and consolidation of businesses in Perú. Additionally, in 2002, Credicorp made allowances for expenses in non-recurring projects, the benefits of which will be realized in subsequent years.

Loan quality improved steadily during 2002, due in part to the continued application of credit risk analysis procedures that were completely revised in 1999. Maintaining these procedures is a key component of Credicorp’s conservative risk management strategy. Improvement in loan quality and a decrease in past due loans made it possible to reduce further the loan loss provision expense in 2002. Credicorp’s ratio of past due loans to total loans fell slightly to 8.4% from 8.6% for the previous year. The limited nature of this reduction was partly due to higher credit risk in Bolivia and Colombia, which had an adverse affect on Credicorp’s subsidiaries in those countries. However, the ratio of coverage of overdue loans by loan loss provisions has improved significantly, increasing from 88% in 1998 to 98.2% in 2001 and to 104.4% in 2002.

Credicorp continued its focus on excellence in customer service and continued development in the area of human resources in 2002. In order to improve quality of products and services as well as to assess quality and make such assessments available to the highest levels of management, Credicorp adopted the Malcolm Baldrige model for quality control. The Malcolm Baldrige quality management system consists of seven areas for assessing quality: leadership, strategic planning, customer and market focus, information and analysis, human resource focus, process management, and business results.

Credicorp also made significant progress during 2002 in efficiency and service quality indicators for its various distribution channels. Approximately 1.5 million clients in Perú carried out 14.5 million transactions per month, 57% of which were performed through electronic distribution channels, which included 34% in automatic teller and transaction statements machines (“ATMs”), 10% through the “call center,” 7% on the Internet and 5% through remote banking. To increase efficiency through the continued use of these electronic distribution channels, Credicorp has developed a policy of encouraging their use by applying more attractive rates to electronic transactions than those charged at branch offices.

The consolidation of Credicorp’s businesses in Perú is highlighted by BCP’s continued growth in market share of deposits and loans in Perú’s banking system, which grew to 38.7% and 36.3%, respectively, as of year-end 2002. These figures include the shares of both loans and deposits contributed by BSCH-Perú. This acquisition was the most important event in 2002 with regard to business consolidation. Credicorp expects that the acquisition will strengthen the leadership of BCP in the Peruvian financial sector and will increase profitability.

Another important development for Credicorp was the introduction of a new corporate identity for BCP. The change was approved after more than 30 years of the “Por Más” brand at BCP. The new brand, “Vía BCP”, and new visual identity retain traditional features while incorporating other more modern ones that represent BCP’s aspirations for the future. BCP’s customers have accepted the new corporate identity enthusiastically. The change in corporate identity capitalized on a series of advances achieved by BCP in terms of quality of service, the simplification of products, processes and prices, and BCP’s ever closer relationship with its customers and the community. This change is not merely a formal one, and reflects Credicorp’s commitment to making BCP even more accessible, efficient and dedicated to its customers. In addition to the new corporate identity, significant investments have been budgeted in infrastructure, technology and especially in personnel training.

2. Strategy

Credicorp’s business goals for 2003 include achieving higher growth, increasing efficiency and improving profitability. Credicorp has identified target market segments with low banking penetration and has increased the sale of transactional products, which contribute to improvement in business productivity. Credicorp places the greatest emphasis on expanding operations with small businesses and consumer banking, where margins are higher and potential for generating income greater.

In past years, Credicorp did not pursue aggressively its overall strategy of expanding new retail lines to offset tightening financial margins in traditional wholesale lines because of the high credit risk and market risk environment. Instead, Credicorp chose to focus on lower risk business opportunities, expanding its corporate loan portfolio and developing methods for generating fee-based income. Going forward, however, management continues to believe that certain competitive advantages exist in serving the retail segment and that the current strategy of expanding services into under-banked segments will eventually lead to increased loan volumes in the retail market segment.

Strategies that will extend beyond 2003 will focus on the following goals: strengthening the balance sheet; reducing net income volatility; improving efficiency through reductions in operating costs and more aggressive use of electronic channels; reducing the rate of claims in the insurance business; limiting international expansion; and continuing to expand business areas involving small companies and individuals and other areas that are currently under-banked.

With regard to strengthening the balance sheet and reducing income volatility, aggressive risk management of the investment portfolio is necessary. To this end, since 2002, ASHC has been altering the composition of its portfolio, increasing the weight of low-risk instruments. Although this new strategy means that return on investments will be lower, this should be offset by the increase in fees from management of third-party funds. These funds have been growing at a high rate and should be a priority for ASHC’s management. At the same time, ASHC is working to effect changes in the composition of its assets and liabilities in order to reduce liquidity and interest rate risks. As for credit risk, it will continue to pursue prudent policies in the granting of loans and will maintain a conservative approach in establishing reserves for impaired assets.

One area which Credicorp is focusing on improving is its low efficiency ratio, which represents a high level of operating expenses in relation to total income. Credicorp will continue its policy of attempting to contain costs and will tighten its operating structure, achieve improvements in efficiency through reductions in operating costs, and generally revise procedures to make them more simple and efficient. Credicorp will also continue to develop new cost reduction programs and other streamlining procedures as part of the strategy to enhance operating efficiencies. The wholly-owned status of BCP’s subsidiaries has allowed aggressive cost savings through the integration of support units. This is particularly true with regard to Solución. Although the efficiency ratio has improved in recent years and is above the average of the Peruvian banking sector it has yet to meet international standards. Credicorp has set a goal for the next three years of reducing BCP’s efficiency ratio from 56% in 2002 to 50% and Credicorp’s efficiency ratio from 52% to 45%.

Credicorp has also undertaken to increase offerings of its non-financial products and services in an effort to offset declining interest income. In offering such services, Credicorp hopes to strengthen ties with clients and assure their loyalty to Credicorp while reducing costs by employing electronic channels. During the year, various lines of new and improved services offered by Credicorp have shown growth of more than 30%. In 2002, BCP continued its efforts to gain access to the best practices in the transactional business in other countries by using the services of an international consultancy and visiting some of the main banks of the region, seeking information about products, services and commercial planning.

Credicorp expects its insurance business, carried out by its subsidiary PPS, to grow in line with economic activity in 2003 even though margins may continue to fall because of greater competition and higher costs of reinsurance. PPS intends to take advantage of new government regulations providing for early retirement, which provide an opportunity for growth in PPS’s life annuities line. PPS will also take steps to reduce further the rate of claims.

Credicorp intends to streamline its international operations in the future and adopt a conservative strategy for expansion into other Latin American countries. Ten years ago BCP started to expand its banking operations to other Latin American markets as a strategy for growth and diversification of businesses. Credicorp has changed this strategy to focus business efforts almost exclusively in Perú and Bolivia. Consequently, in 2001, Banco Capital in El Salvador was sold and, in December 2002, Banco Tequendama’s Venezuelan operations were divested. In Colombia, Credicorp is searching for alternatives to increase Banco Tequendama’s operating volumes in order to reach profitability without making additional investments. Credicorp is also considering other strategic options regarding its interest in Banco Tequendama. Banco Tequendama will continue to focus its strategy upon increasing its volume of operations while keeping low risk requirements. This will require some support from Credicorp, but the support provided will be less than in 2002. Additionally, management is cautiously entering the market in Ecuador through credit facilities directed to corporations.

In 2003, ASHC will continue to focus on balancing its investment portfolio to reduce exposure to market volatility while sustaining growth in the management of third-party funds. In Bolivia, the economic and political situation is precarious and is having a serious effect on business. BCB will require additional support from Credicorp in 2003, but to a lesser degree than in the previous year. In the second half of 2003, Credicorp expects BCB to return to profitability. In 2003, BCB will focus on consolidating changes carried out in 2002 to improve credit management and portfolio quality, increase profitability through an increase in service fee income and improve quality of service.

3. Commercial Banking

The majority of Credicorp’s commercial banking business is carried out through BCP, Credicorp’s largest subsidiary and the largest and oldest bank in Perú. As of December 31, 2002, BCP ranked first among Peruvian banks with S/.25.5 billion (US$7.3 billion) in total assets, S/.15.7 billion (US$4.5 billion) in loans, S/.20.6 billion (US$5.9 billion) in deposits and S/.1,995 million (US$568 million) of shareholders’ equity. BCP’s net income for 2001 and 2002 was S./182.9 million (US$52.1 million) and S./228.1 million (US$64.9 million), respectively. As of December 31, 2002, BCP’s loans in the Peruvian banking system represented approximately 29.7% of the system’s total, and BCP’s deposits represented approximately 33.9% of total deposits in the Peruvian banking system, increasing from 27.2% and 30.8%, respectively, as of December 31, 2001. At December 31, 2002, BCP had the largest branch network of any commercial bank in Perú with 204 branches, including 109 in Lima and the adjoining city of Callao. BCP also operates an agency in Miami, a foreign branch in Panama and has representative offices in Bogotá, Colombia, and Santiago, Chile. In addition, BCP operates a Bahamian banking subsidiary, Banco de Crédito Overseas Limited (“BCOL”).

A portion of Credicorp’s commercial banking business is also carried out by ASHC, which principally serves Peruvian private banking customers through offices in Panama. At December 31, 2002, ASHC had total assets of US$666.5 million and shareholders’equity of US$110.3 million (compared with US$705.9 million and US$128.7 million, respectively, as of December 31, 2001). ASHC’s net income was US$5.8 million in 2002, and US$5.6 million in 2001, which in turn decreased from US$11.3 million in 2000. The decrease in income from 2000 to 2001 was principally the result of higher reserves to cover the deterioration of the investment portfolio. Loans outstanding, net of provisions, in ASHC’s portfolio totaled US$225.0 million, US$176.1 million and US$160.5 million at December 31, 2000, 2001 and 2002, respectively, representing a decrease of 21.6% between 2000 and 2001 and of 8.9% between 2001 and 2002. Deposits decreased 2.0% to US$544.3 million at December 31, 2002 from US$555.7 million at December 31, 2001, and had decreased 2.4% from US$569.2 million at December 31, 2000. Third party assets under management increased 29.2% in 2002, from US$422.0 million to US$545.3 million, principally due to decreasing interest rates paid on deposits and to the introduction of new products, notably mutual funds. ASHC’s past due loans as a percentage of total loans continued at 0.0% from 1996 through 2002, while reserves for possible loan losses increased from US$688,000 in 2001 to US$1.9 million in 2002.

Credicorp conducts commercial banking activities in Bolivia through BCB, a full service commercial bank with, as of December 31, 2002, US$346.7 million in deposits, US$474.6 million in assets and US$273.5 million in net loans. As of December 31, 2002, BCB was the fourth largest Bolivian bank in terms of loans, with a 11.7% market share, and fifth largest in terms of deposits, with a 12.4% market share. As of December 31, 2002, BCB operated 44 branches located throughout Bolivia. BCB’s results have been consolidated in the BCP financial statements since the date of its acquisition in November 1993.

Credicorp also carries out commercial banking operations in Colombia through Banco Tequendama, which as of December 31, 2002 had US$154.1 million in deposits, US$270.7 million in assets and US$211.7 million in loans. In December 2002, Banco Tequendama sold its branches in Venezuela. In the past years, Credicorp has supported Banco Tequendama’s operations with capital contributions of US$5 million in 1998 and US$6 million in 1999 and the purchase of US$28 million of distressed loans and assets received in lieu of loan repayment. See “–(C) Organizational Structure.”

Credicorp’s commercial banking business is organized into wholesale banking activities, which are carried out by BCP’s Wholesale Banking division (which includes the Corporate Banking operations of ASHC) and retail banking activities, which are carried out by BCP’s Personal Banking and Service Banking divisions. Wholesale Banking is responsible for (i) corporate banking, (ii) middle market banking, (iii) international trade finance, (iv) corporate finance, (v) business finance, and (vi) business services. Retail banking activities include (i) exclusive banking, (ii) small business lending, (iii) mortgage lending, (iv) credit cards, (v) consumer finance and (vi) institutional banking. Although attracting deposits is a function of all of the banking areas, Credicorp’s deposit-taking activities are concentrated primarily in the Consumer and Personal retail banking areas of BCP and the Private Banking division of ASHC.

Credicorp’s total loan portfolio experienced an increase of 11.6% in 1998, but decreased by 7.2% in 1999, 6.0% in 2000 and 8.7% in 2001. In 2002, Credicorp’s total loan portfolio increased by 18.5%. These changes, together with changes in its client mix, could be accompanied by increased risk, not only due to the speed and magnitude of the increases, but also to the shift to middle market, small business and consumer lending sectors, areas in which Credicorp lacks the experience that it has in its more traditional lending activities, particularly corporate lending. Given the changing composition of Credicorp’s loan portfolio, Credicorp’s historical loan loss experience may not be indicative of future loan losses.

(i) Wholesale Banking

Credicorp conducts wholesale banking primarily through BCP’s Wholesale Banking division, ASHC’s Corporate Banking division and, since January 1997, through Banco Tequendama. Given the modernization and internationalization of Peruvian financial markets, BCP’s Wholesale Banking division not only competes with local banks but also with international banks offering very competitive rates. BCP’s traditional relationships continue, however, to provide the Wholesale Banking division with a competitive advantage.

BCP’s Wholesale Banking division has traditionally generated the majority of BCP’s loans. BCP estimates that approximately 69.7% of its loans and 95.6% of its other extensions of credit (primarily guarantees and letters of credit) at December 31, 2002 were to customers in its Wholesale Banking division. BCP has the largest capital base of any Peruvian bank, which provides it with more resources than any other Peruvian bank to meet the financing needs of its corporate clients. See “–8. Competition.” Because Peruvian companies were not able to access international sources of credit until the mid-1990’s, BCP has established longstanding client relationships with virtually all of the major industrial and commercial groups in Perú. BCP’s Wholesale Banking division provides its customers with short and medium term, local and foreign currency loans; foreign trade-related financing; and lease financing. BCP’s Wholesale Banking division is divided into:

Although state-controlled corporations are served by BCP’s Wholesale Banking division, mostly in connection with international trade finance, BCP has not extended any substantial loans directly to the Peruvian government or to regional or municipal governments.

Corporate Banking

Credicorp conducts its corporate banking activities primarily through BCP and to a lesser extent ASHC. BCP’s Corporate Banking area has been the traditional strength of BCP’s lending business, providing banking services to virtually all of the major industrial and commercial enterprises in Perú. BCP believes that it has an advantage in servicing the larger corporations in Perúbecause of its strong capital base and relative size compared to other Peruvian banks. BCP’s Corporate Banking area primarily provides its customers with local and foreign currency loans and has primary responsibility for maintaining client relationships with BCP’s largest banking clients. In addition, BCP’s Corporate Banking area provides services such as letters of credit and standby letters of credit, domestic collections and nationwide fund transfers, payments through BCP’s Miami agency and foreign exchange facilities. Loan contribution for this area represented 43% of total BCP loans in 2002. The composition of these loans was approximately 90% foreign currency-denominated (primarily U.S. dollar-denominated) and 10% Nuevo Sol-denominated.

ASHC’s Corporate Banking division makes working capital and bridge loans. As of December 31, 2002, approximately 58.4% of ASHC’s loans were to Peruvian companies, 13.6% were to companies in Bolivia, an additional 1.8% were to companies in the United States and the remainder were to borrowers in Latin American countries other than Perú.

Middle Market Banking

BCP’s Middle Market Banking division generally serves the same industries and offers the same products as the Corporate Banking area. Its focus, however, is on providing its customers with working capital loans, primarily secured by accounts receivable. This is accomplished by arranging financing for medium and long-term investment programs, including leasing services offered through Crédito Leasing (“Credileasing”), a subsidiary of BCP.

Credicorp conducts middle market lending primarily through BCP and Banco Tequendama, and, to a much lesser extent, through ASHC. The loan portfolio of the Middle Market Banking division of BCP, after growing significantly in earlier years, contracted from US$1.3 billion in 1999 to US$1.0 billion in 2001, but grew to US$1.2 billion in 2002. Stringent credit quality requirements continued to be enforced since 1998 due to adverse economic conditions related to the economic impact of “El Niño” and adverse capital flows brought by the international financial crisis. Credicorp expects this sector to grow and increase in relative importance as the Peruvian economy grows.

Despite decreased loan quality in the sector, Credicorp sees significant opportunities in lending to middle market businesses, particularly in Perú’s agriculture, fishing and construction industries, where special emphasis has been placed and specific task units have been created to attend to the needs of these economic groups.

BCP’s medium-term financing products, which include structured loans, project financing and syndicated transactions, are designed to accommodate specific clients’ needs. Through these products, BCP has been an active lender and financial advisor to Perú’s mining, technology and energy sectors. In addition to its regular sources of funds, BCP is an intermediary in several medium-term credit lines for project financings in certain sectors for Corporación Financiera de Desarrollo (Development Finance Corporation or “COFIDE”) and such international financial institutions as Corporación Andina de Fomento (Andean Development Corporation or “CAF”), the International Finance Corporation (“IFC”) and the Inter-American Development Bank.

Credicorp performs its leasing operations either directly through BCP or through Credileasing. At December 31, 2002, Credicorp’s leasing operations totaled US$405.2 million, 52.8% of which were recorded on the books of Credileasing. BCP’s lease finance business is currently estimated to be the largest in Perú, with a market share of approximately 42.6% at December 31, 2002. The principal means of financing for Credileasing is through the issuance of specific leasing bonds, of which a total of S/.562.2 million (US$160.0 million) were outstanding as of December 31, 2002. Management estimates that Credileasing’s market share among specialized leasing companies was 38.8% at December 2002. Leasing customers are primarily companies engaged in manufacturing, communications, commerce and fishing concerns that lease such items as machinery, equipment and vehicles.

The agricultural loan portfolio, with a balance of approximately US$159.0 million, has a professional team of specialists that provide technical and financial assistance to other business units in assessing companies with operations in this sector. The unit collects and maintains an up-to-date database of valuable information that permits an accurate understanding of markets as well as forecasting. It also carries out feasibility studies and comparative analysis to which clients have access. Working in conjunction with organizations that represent the sector, management also offers training and specialist consultancy services to companies in the agricultural sector.

At the end of 2002, US$110.0 million of agricultural loans were structured under the Peruvian government-sponsored program of Programa de Rescate Financiero Agropecuario (Agricultural Financial Relief or “RFA”), which represented an opportunity to improve the solvency of Credicorp’s clients and the quality of the portfolio.

Financial margins in the middle market continue to be attractive. Because of their size, middle market companies in Perúgenerally do not have access to the local or international capital markets or to credit from foreign banks. In addition, Credicorp believes that middle market companies have benefited significantly from the overall economic improvements in Perú over the past few years. Loan quality problems have been addressed through procedures and organizational changes that have focused on improving the loan approval and credit-risk assessment processes. See “–(iii) Credit Policy and Review.”

International Trade Finance

BCP’s international trade finance operations are focused primarily on providing short-term credit for international trade, funded with internal resources or with credit lines from foreign banks and institutions. Medium-term lines of credit funded by international commercial banks and other countries’ governmental institutions are also provided. In addition, BCP’s International Trade Finance area earns fees by providing customers with letters of credit or international collections and providing foreign exchange services to clients. The International Trade Finance area also promotes international trade activities by structuring Peruvian overseas commercial missions and introducing Peruvian businesses to potential foreign clients and vice versa.

In 2002, Peruvian exports increased 8.2% from US$7.1 billion to US$7.7 billion, principally due to increased exports of mining products. During the same year, BCP’s export facilities volume increased 11.1% to US$2.9 billion, amounting to 38.1% of total Peruvian exports (37.6% in 2001). Total Peruvian imports were US$7.4 billion in 2002, increasing 3.2% from US$7.2 billion in 2001, principally due to higher demand for consumer goods and raw materials. BCP’s import facilities volume in 2002 was US$1.5 billion, representing a 14.5% increase from 2001 and 19.5% of total imports (17.3% in 2001).

BCP has a large network of foreign correspondent banks and a direct presence abroad through an agency in Miami, a branch in Panama and representative offices in Colombia and Chile, offering several internationally competitive products to its customers. ASHC’s trade finance activities are conducted by its Corporate Banking division. ASHC has concentrated its extensions of credit on short-term trade transactions with Latin American countries other than Perú.

BCP carries out business with more than 1,000 correspondent banks, development organizations, multilateral financial bodies, and foreign government export promotion agencies. BCP has available credit lines of more than US$1.6 billion for foreign trade operations, financing of working capital and medium and long-term investment projects. During 2002, BCP had a significant surplus of liquidity which caused a very low use of foreign lines of credit.

Corporate Finance

BCP’s Corporate Finance area provides a wide range of underwriting and financial advisory services to corporate clients and middle market businesses and has a leading position in the local market. The Corporate Finance area was incorporated into BCP’s Wholesale Banking division in the first quarter of 1996 in order to enhance its effectiveness as the demands of Perú’s larger corporations move away from loan-based operations toward capital markets-based operations. This area focuses its transactions in the capital markets, primarily debt and equity issues, project financing, corporate financing, financial restructurings and mergers and acquisitions.

In 2002, BCP’s share of the market for structuring fixed-income instruments rose to 44% from 35% the previous year, despite the market-wide decrease of 26% in these transactions. In 2002, the Corporate Finance area placed corporate bonds, securitized bonds, financial leasing and short-term instruments for a total transaction volume of US$364 million. Among the most important placements of instruments of long-term debt was the Second Issue of the First Bond Program of Southern Perú Copper Corporation for US$26 million in February 2002; the Second Issue of Investment Bonds of Centenario for US$18 million in October 2002 and the placement of the Second Issue of Yura Bonds for US$10 million in December 2002.

BCP made significant strides in the market for short-term instruments during 2002. Issues in this area totaled US$182 million, representing a 45% market share in such issues. Among debt paper issued was commercial debt for Alicorp, Ferreyros, Palmas del Espino, Quimpac and Ransa and certificates of deposit for Solucíon. The Program of Short-Term Instruments for Palmas del Espino for US$5 million represents the first program of debt issues registered in the Peruvian market for an agro-industrial company.

In operations related to project financing and structured loans, BCP’s Corporate Finance area structured transactions worth a total of US$357 million and participated in an additional US$264 million of projects. Significant syndicated loan structuring projects included the financing of the Mega Plaza Shopping Center for US$15 million and the financing of the Bolivian Empresa de Generacíon Eléctrica Guarachi for US$17 million and the co-structuring of the financings for electricity generation and transmission companies such as the Red de Energia de Perú for US$70 million and Enersur for US$100 million, as well as funding important Peruvian companies in different sectors such as mining, food and oil. The Corporate Finance area also structured transactions for companies from other countries such as Quilmes for US$30 million and Trafigura Beheer BV for US$36 million. In 2002, the Corporate Finance area also started structuring combined short and medium-term transactions such as the Inversiones Centenario project worth US$33 million, of which US$18 million corresponded to the short-term tranche and US$15 million to the medium-term tranche.

Additionally, BCP’s Corporate Finance area offered financial consultancy services focused on restructuring debt, appraisals and evaluations of payment capacity for companies from several sectors, such as paper, manufacturing, sugar, food, real estate and construction.

Business Finance

The Business Finance area specializes in funding investment projects, focusing its efforts on developing the financial leasing business. Thus, its principal activity is to structure, negotiate and disburse funds for leasing operations. It also carries out medium-term operations, principally for small and medium-sized companies.

2002 was a difficult year for the development of investments due to the complicated national and international scenario, which halted or delayed many projects, generating a significant contraction in the market during the year. Additionally, BCP was affected by the co-existence of two tax systems applicable to leasing operations, owing to the fact that certain banks were turning over the advantages of their tax stability contracts to their customers, which allowed for the management of tax expense flows, while BCP did not have that benefit. Changes in legislation dictate that starting in 2003, the tax treatment would be uniformly applied.

During 2002, consolidated loan disbursements were US$85 million, with a balance at the end of the year of US$336 million. Income from fees reached US$1.6 million, doubling the results of the previous year. Credicorp maintained leadership in the financial leasing market, with a market share of 26% as of November 2002.

Business Services

This unit is responsible for both the development and marketing of transactional, or “cash management,” services for BCP’s corporate and institutional clients. Services offered are aimed at strengthening ties with clients, assuring their loyalty and reciprocity in the business carried out with BCP, as well as reducing costs using electronic channels and increasing fee income.

In 2002, the number of companies using the Electronic Factoring system increased by 80%, which led to growth of 272% in the volume transacted using this service. The services of Collection of Trade Bills and Transfers of Funds increased their fee income by 16% and 21%, respectively. Likewise, the number of customers affiliated with the electronic banking service “Telecrédito” rose by 26%, which represented an increase in the volume of payments to suppliers and payment of salaries via Telecrédito of 49% and 30%, respectively. More than 1,800 companies transferred their Compensación por Tiempo de Servicio (“CTS”) pension payments (deposits that employers must make by law on behalf of their employees as severance contributions) to electronic media, and fee income through the Collections Service rose by 35%.

During the year Telecrédito added to its many functions advising, subscribing to and recovering investments. Additionally, BCP installed the service of payment to third parties through a direct link between companies’ central computer systems and BCP’s system. The Collection Service Management Information System was created and made available on Internet. This service provides information about historic behavior and consolidated recovery information to facilitate better decision making.

In 2002, BCP continued its efforts to gain access to the best practices in the transactional business in other countries by using an international consultancy and carrying out visits to 15 of the principal banks in Chile, Colombia and Brazil, seeking information about products, services and commercial planning.

(ii) Retail Banking

Credicorp’s retail banking activities are conducted by BCP and, to a much lesser extent, by BCB in Bolivia, and, since January 1997, by Banco Tequendama in Colombia. After several years of significant growth, lending by BCP’s retail units decreased during 1999, 2000 and again in 2001, but grew in 2002 particularly in loans to small businesses and home mortgages. Retail banking-related loans accounted for approximately 30.3% of BCP’s total loans at the end of 2002 versus 27.4% and 28.0% at the end of 2000 and 2001, respectively. With the segmentation of its retail client base, BCP is able to focus on the cross-selling of products and improving per-client profitability. Credicorp expects the Retail Banking businesses to be one of the principal growth areas for BCP’s lending activities.

At BCP, Retail banking operations are divided into two divisions, Service Banking and Personal Banking, the latter of which is further subdivided into Exclusive Banking, Business Banking, Consumer Banking and Institutional Banking. The Service Banking division carries out personal loan authorization and collection and has invested substantially during the past few years to improve delivery channels in order to provide better quality and more efficient service. It is also responsible for the development and sales of third-party processing services that generate fee income from transactions and mass processing to meet the needs of our clients. The Exclusive Banking area principally serves a select number of high-income customers with the most profitable personal accounts and specializes in offering personalized service. Consumer Banking is in charge of servicing BCP’s traditional retail client base, and is also in charge of mortgage lending and credit cards. Business Banking manages small business banking, which targets companies with annual revenue of less than US$750,000, and personal banking, which targets middle and upper-income individuals. Small business banking provides primarily sales and inventory financing and working capital loans, complemented by cash credits through overdrafts. Institutional Banking focuses principally on serving non-profit organizations, state-owned companies and other major institutions.

Each of the units offer clients diverse credit alternatives, transactional services and deposits. Products include Visa and American Express credit cards, mortgage loans, car loans, consumer credits, credits for small and medium-sized companies and payroll payment services, in addition to different types of deposits. The sale of processing services is offered through “Servicorp”, which is the brand name of Soluciones en Procesamiento S.A., a 99.98%–owned subsidiary of Inversiones Crédito. Servicorp’s lines of business include the sale of processing solutions to third parties to increase the use of available capacity in distribution channels.

In 2002, the Bank held a market share in Visa card billings of 36.7% of Perú’s total as a result of a strategy to penetrate segments of mass consumption. Additionally, the loyalty program ‘Travel’ was maintained for the high end segment of credit cards. Campaigns were carried out for clients of Consumer Banking and Exclusive Banking encouraging the use of the debit card Credimás as a means of payment. Annual Credimás billing reached US$141 million in 2002, which represented a rise of 13% with regards to the previous year.

Exclusive Banking

Exclusive Banking is BCP’s private banking area, and manages a select number of individual customers who are key to BCP because of the high volume of loan and deposit business they generate, and their attractive profitability.

In 2002, this unit continued to retain and increase ties with its customers, as well as to add new ones, for which sophisticated commercial plans were developed. This segment has 48,000 customers, with total deposits of US$936 million and US$317 million in loans. Belonging to this segment gives customers the advantage of preferential interest rates for loans and deposits and personalized service through an assigned official.

During the year, as a savings alternative for retail banking customers, BCP encouraged investment in mutual funds. At the end of the year, BCP was managing US$426 million in mutual funds on behalf of these customers, up from US$229 million at the end of 2001.

Small Business Lending

Small business lending is the largest segment within BCP’s Personal Banking operations and is carried out by the Business Banking area. This area, which serves 32,000 corporate and individual customers whose annual sales are each less than US$1 million, encountered increased loan quality problems during 1998 and 1999. During 2000 and 2001, loans to this segment contracted because of decreased demand for small business products and services due to the poor development of the Peruvian economy. In particular, lower consumer demand negatively affected this segment’s loan quality and loan growth. After several years of continuous growth, loans decreased 19.4% in 1999, again 17.7% in 2000, and a further 11.9% in 2001, but grew 38.4% in 2002 reaching US$493 million at year end.

Business Banking has divided its clients into different areas: Small Businesses, with annual sales of less than US$300,000; and Consolidated Businesses, which have sales between US$300,000 and US$1 million in a year. These businesses benefit from products specially designed for their needs, such as the Cash Credit for Businesses, a revolving credit line repaid in quotas, as well as the usual credit products: discounted notes, letters of credit, guarantees and stand-by credits.

One of the most significant achievements of the Business Banking area in 2002 was the granting of US$66 million of loans through the Effective Business Credit product, representing a 77% increase in the balance of these types of loans.

Mortgage Lending

BCP was the largest mortgage lender in Perú with a market share of 24% of total mortgage loans in the Peruvian banking system as of December 31, 2002. This was to a large extent the result of campaigns aimed at clients with the highest demand for these types of loans and improvements in the quality of procedures followed in extending credit and establishing guarantees.

Credicorp expects BCP’s mortgage lending business to continue to grow given the low levels of penetration in the financial market, the increasing demand for housing, the availability of funds for the Peruvian government’s MiVivienda low-income housing program, and the current economic outlook for controlled inflation and renewed gross domestic product (“GDP”) growth in Perú. BCP had US$519.4 million of outstanding mortgage loans at December 31, 2002 compared to US$362.6 million at the end of 2001, an increase due in part to the inclusion of BSCH-Perú mortgage loans.

Mortgage financing is available only to customers with minimum monthly income in excess of US$900 and of US$400 in the case of the MiVivienda program. The MiVivienda program, however, limits the value of the house to be purchased to US$30,000. BCP will finance up to 75% of the appraised value of a property where monthly mortgage payments do not exceed 30% of the client’s stable net income. The maximum maturity of the mortgage loans BCP offers is 25 years. Within the mortgage lending business, BCP offers variable and fixed interest rates on home mortgage loans denominated in both U.S. Dollars and Nuevos Soles; however, BCP’s mortgage portfolio is almost exclusively variable rate and U.S. Dollar-denominated.

Credit Cards

The market for credit cards in Perú has grown significantly as improving economic conditions have led to increased consumer spending, with credit cards increasingly being seen as a convenient way to make payments. BCP expects strong demand for credit cards to continue. In addition to interest income, BCP derives fee income from customer application and maintenance fees, retailer transaction fees, merchant processing fees and finance and penalty charges on credit cards.

The number of active credit cards issued by BCP increased from 28,840 as of December 31, 1990 to 136,000 in 2000, 158,000 in 2001, and to 186,000 at year-end 2002. In 1998, Solución purchased a credit card loan portfolio allowing it to launch this line of business which included approximately 14,000 cards in 2002. BCB issues credit cards in Bolivia with approximately 20,000 outstanding. BSCH-Perú had approximately 30,000 outstanding credit cards prior to its merger.

BCP’s credit cards are primarily and have been historically issued through Visa, but in May 2000 BCP began offering American Express cards. BCP estimates that its credit cards account for almost 45% of the credit cards issued by the banking system in Perúas of December 31, 2002. The estimated total number of credit cards issued in Perú as of December 31, 2002 was approximately 1.5 million, of which approximately 62% were issued by non-banking entities or department stores.

In 1997, VISANET was established to process transactions involving credit and debit card transactions and to widen their acceptance, with the participation of major local banks and Visa International. BCP is the largest shareholder of VISANET, holding approximately 36% of total shares. In 1997, the number of electronic payment terminals was approximately 1,500, increasing to 8,415 as of December 2001, and further to 11,645 at December 2002. At the end of 2002 the number of Visa cards issued in Perú, including credit and debit cards, stood at approximately 2.7 million, while the number of transactions processed during the year grew 13.3% to 23.2 million, and purchases grew 10.2% to US$742 million.

BCP’s total credit card billings during 2002 were S/.1,107.7 million (US$315.2 million), and the credit balance as of December 31, 2002 was S/.528.7 million (US$150.5 million), representing 3.4% of total loans. In 2002, BCP’s market share of total purchases made with Visa credit cards was 36.7%, compared to 39.4% in 2001. These numbers reflect BCP’s strategy of seeking more widespread use of the cards at the lower end of the consumer market. As part of this strategy, financing with fixed installment payments using the Visa credit card has been offered since the last quarter of 2001. As of December 31, 2002, BCP’s credit card portfolio had balances past due of approximately 4.4%. BCP is taking steps to improve its card approval and collection process. These measures include issuing cards only to persons with stable net monthly incomes above US$400 and developing better methods for verifying applicants’ information and credit history. Additionally, BCP has developed a mathematical scoring system to better assess the risk-reward variables associated with consumer lending. In the segment of clients who do not regularly have access to credit cards, campaigns were launched to increase the use of the Credimás debit card as a form of payment. This resulted in a year-on-year increase of 13% in the use of this card, with total billings of US$141 million. See “-- (iii) Credit Policy and Review.”

Consumer Finance

Credicorp operates Solución, a mass consumer finance entity 100%-owned by BCP since its purchase in March 2003 of the 45% equity stake held by BCI. Financiera de Crédito del Perú, formerly a 99.99% owned subsidiary of BCP, was used as a vehicle to establish Solución in 1996, with BCP holding a 55% share and BCI a 45% share.

Solución offers lending products through direct sales calls and through its own branches, as well as through BCP’s branch network. During 2002, due to measures aimed at raising loan volumes while pursuing a prudent credit risk policy, it maintained a growth trend in its portfolio. It increased its total loan portfolio from S/.242.6 million (US$69.0 million) on December 31, 2001 to S/.284.5 million (US$81.0 million) a year later. The consumer credit portfolio totaled S/.65.6 million (US$18.7 million) in 2001 and S/.57.2 million (US$16.3 million) in 2002, while that of micro-businesses went from S/.163.6 million (US$46.6million) to S/.213.1 million (US$60.7 million), respectively.

These increases were driven by measures such as the strengthening of sales channels with an increase in the number of sales staff which drove the headcount from 1,497 to 1,543 in 2002, as well as training and incentive programs. Likewise the network of branches went from 31 to 33, while customer coverage and service improved.

Institutional Banking

The Institutional Banking area, which serves non-profit organizations, whether public or private, deals with 1,830 institutions, including state entities, international bodies and non-governmental organizations.

This area is strategically important because of the business potential that these clients represent, with their demand for diverse products and services, and the opportunities they present for generating income from fees and cross-selling of services. These clients are principally users of transactional products and require consultancy for investment management. Their deposits reached US$614 million at the end of 2002, while managed funds reached US$92 million.

(iii) Credit Policy and Review

Credicorp applies uniform credit policies and approval and review procedures, which are based on conservative criteria adopted by BCP, to all of its subsidiaries. Credicorp’s General Manager is in charge of setting the general credit policies for the different business areas of Credicorp. These policies are set within the guidelines established by Peruvian financial sector laws and SBS regulations (see “--11. Supervision and Regulation–(ii) BCP”), and the guidelines set forth by Credicorp’s Board of Directors.

The credit approval process is based primarily on an evaluation of the borrower’s repayment capacity and on commercial and banking references. A corporate borrower’s repayment capacity is determined by analyzing the historical and projected financial condition of the company and of the industry in which it operates. An analysis of the company’s current management, banking references and past experiences in similar transactions as well as the collateral to be provided, are other important factors in the credit approval process. For BCP’s individual borrowers, the information that is presented by the prospective borrower is evaluated by a credit officer and the application is passed through a scoring program for approval by a centralized credit unit.

During 1997, BCP initiated a series of changes in the credit approval, risk control and recovery procedures of the middle market and small business units. Credit risk analysis responsibilities were transferred from the business units to a central credit risk division. Final implementation of these changes took place through mid-1998.

Success in the small business and personal lending areas depends largely on BCP’s ability to obtain reliable credit information about prospective borrowers. In this regard, BCP, together with several partners, formed a credit research company called Infocorp in November 1995. In addition, the SBS has expanded its credit exposure database service to cover all businesses or individuals with any amount borrowed from a Peruvian financial institution, including information on the loan risk category in which the borrowers are classified. Formerly the coverage began when the credit risk exposure exceeded S/.13,558 (US$3,900).

Credicorp has a strictly enforced policy with respect to the lending authority of its loan officers and has in place procedures to ensure that these limits have been adhered to before a loan is disbursed. Under BCP’s new credit approval process, the lending authority for middle market and small business loans has been centralized into a specialized credit risk analysis unit, whose officers have been granted lending limits, thus allowing middle market and small business loan officers to concentrate on their client relations. To ensure that loan officers and credit analysis officers are complying with their lending authority, the credit department and BCP’s internal auditors consistently examine credit approvals.

The following table briefly summarizes BCP’s policy on lending limits for loan officers and credit risk analysis officers. Requests for credit facilities in excess of the limits set forth below are reviewed by Credicorp’s General Manager, Executive Committee or, if the amount of the proposed facility is sufficiently large, the Board of Directors.

Credicorp believes that an important factor for maintaining the quality of its loan portfolio is the selection and training of its loan officers. Credicorp requires loan officers to have degrees in economics, accounting or business administration from competitive local or foreign universities. In addition, the training program consists of a six-month rotation through all of the business-related areas of Credicorp and the credit risk analysis area. After the training period is over, trainees are assigned as assistants to loan officers for a period of at least one year before they can be promoted to loan officers. Loan officers also receive additional training throughout their careers at Credicorp. Laterally hired officers are generally required to have held previous positions as loan officers.

In general, Credicorp is a secured lender. As of December 31, 2002, approximately US$2.2 billion of the loan portfolio and contingent credits were secured by “preferred” collateral. See “–12. Selected Statistical Information–(iii) Loan Portfolio–Classification of the Loan Portfolio.” Liquid collateral is a small portion of the total collateral. In general, if Credicorp requires collateral for the extension of credit, it requires collateral valued at between 10% and 50% above the facilities granted. The appraisal of illiquid collateral, in particular real estate assets, machinery and equipment, is performed by independent experts when required for specific reasons. BCP’s policy generally is to require that the appraised value of illiquid collateral exceed the loan amount by at least 20%. In cases where a borrower encounters difficulties, Credicorp seeks to obtain additional collateral.

The existence of collateral does not affect the loan classification process according to regulations in effect as of December 1998. Pursuant to the Ley General del Sistema Financiero y del Sistema de Seguros y Orgánica de la Superintendencia de Banca y Seguros (the General Law of the Financial System, the Insurance System and Organic Law of the Superintendency of Banking and Insurance, or “Law 26702”), secured loans, or the portion thereof covered by collateral, classified in Class “B,” “C,” or “D” risk categories have a lower loan loss provision requirement. If a borrower is classified as substandard or below, then Credicorp’s entire credit exposure to that borrower is so classified. See “–12. Selected Statistical Information– (iii) Loan Portfolio–Classification of the Loan Portfolio.”

Credicorp conducts unannounced internal audits as well as an annual audit by external auditors, consistent with bank regulatory practice in the respective jurisdictions in which it operates.

ASHC’s policy is to provide funding to customers on the basis of approved lines of credit. ASHC’s Credit Committee meets weekly to discuss the entire credit risk inherent in the risk portfolio, composed by loans and trading securities, and to review facilities approved by the committee charged with overseeing extensions of credit by ASHC’s Panama branch. ASHC’s loan officers operate within established credit limits ranging from US$50,000 to US$500,000. Regardless of whether an approved facility exists for a client, any transaction in excess of US$500,000 requires the approval of senior management. In addition, all credit extensions are monitored by ASHC’s General Manager and reviewed and approved quarterly in their entirety by the Credit Committee of the Board of Directors of ASHC.

(iv) Deposits

Credicorp’s deposit-taking operations are managed by BCP’s Consumer Banking and Personal Banking divisions and ASHC’s Private Banking division. See “--12. Selected Statistical Information–(iv) Deposits.”

The main objective of BCP’s retail banking operations has historically been to develop a diversified and stable deposit base in order to provide a low cost source of funding. This deposit base has traditionally been one of BCP’s greatest strengths. At December 31, 2002, BCP’s deposits amounted to S/.20.6 billion (US$5.9 billion), 19.1% over the December 2001 balance. BCP has historically relied on the more traditional, low cost deposit sources such as demand deposits, savings and CTS deposits. At December 31, 2002, these core deposits represented 61.3% of BCP’s total deposits. BCP’s extensive network of offices facilitates access to this type of stable and low cost source of funding. At the same time, market conditions led to continued excess liquid funds. Additionally, BCP’s corporate clients are an important source of funding for BCP. As of December 31, 2002, BCP’s Wholesale Banking division accounted for approximately 19.8% of total deposits, of which 43.4% were demand deposits, 52.3% time deposits, and 5.9% savings. Of all deposits from BCP’s Wholesale Banking division, most (62.8%) were foreign currency-denominated (almost entirely U.S. Dollars) and the balance (37.2%) were Nuevo Sol-denominated.

ASHC’s Private Banking division’s clients have traditionally provided a stable funding source for ASHC, as many are long-time clients who maintain their deposits with ASHC. As of December 31, 2002, ASHC had approximately 3,000 customers. Currently, about 95% of ASHC’s private banking clients are Peruvian. In the future, the Private Banking division intends to diversify its customer base geographically. During 2002, ASHC’s core deposit base decreased US$11.3 million to US$544.3 million as of December 31, 2002.

All Credicorp subsidiaries have programs in place to comply with the “know your customer” regulations in place in the countries in which they operate. Perú has long-standing laws criminalizing money laundering activities, and such laws were further strengthened in 1996 with the adoption of Law 26702, which incorporated the guidelines of the Organization of American States (“OAS”) directly into Peruvian law. Under Law 26702, the SBS has the authority to request detailed reports with respect to the movement of funds and the identity of depositors. According to recently enacted regulations, financial institutions must adopt internal mechanisms, special personnel training programs and procedures to detect and report unusual or suspicious transactions as defined therein. In addition to the provisions under Peruvian law, BCP established an internal “know your customer” policy in 1995. As an additional precaution, ASHC will open accounts only for individuals or entities that are recommended by senior officers of ASHC or BCP. See “–(iii) Credit Policy and Review.”

4. Investment Banking

Credicorp’s investment banking businesses include:

BCP has the largest capital markets/brokerage distribution system in Perú, offering such services through 14 of its branches, all of which are interconnected with its brokerage subsidiary and have access to current market information. Trading and brokerage services are relatively new in Perú; however, management estimates that, with the expected growth and restructuring of the Peruvian business sector, the market for these services will increase significantly. The majority of Credicorp’s trading and brokerage activities are conducted through BCP, ASHC and, since January 2003, through Credicorp Securities Inc. (“Credicorp Securities”), a wholly-owned subsidiary of Credicorp. Credicorp Securities is a U.S. registered broker-dealer with its offices in Miami. In 2002, ASHC closed its agency in Miami, and BCP opened its own agency in Miami.

(i) Trading and Brokerage Services

The majority of Credicorp’s trading and brokerage activities are conducted primarily through BCP and, to a lesser extent, through ASHC and Credicorp Securities.

BCP’s subsidiary, Credibolsa Sociedad Agente de Bolsa S.A. (“Credibolsa”), is the leading brokerage house on the Lima Stock Exchange. During 2002, Credibolsa had a total trading volume of US$1.4 billion, decreasing from US$1.8 billion in 2001. Credibolsa had 18% of the total trading volume in variable return instruments and 31% of the volume in trading of fixed income instruments on the Lima Stock Exchange in 2002. Credibolsa’s trading volume was generated by domestic customers, both retail and institutional, and by foreign institutional clients as well as by Credicorp’s proprietary trading. In an environment of low profitability and high competition, over the past few years Credibolsa has been able to increase its profitability by expanding its sources of revenue. In addition to providing basic brokerage services, Credibolsa serves as a local market advisor for specialized stock market transactions and is one of the principal agents in the equity offerings of recently privatized companies in Perú. Credibolsa was second in the Commodities Market with a traded volume of US$27.3 million in 2002. See “–3. Commercial Banking--(i) Wholesale Banking--Corporate Finance.”

(ii) Treasury, Foreign Exchange and Proprietary Trading

BCP’s treasury and foreign exchange groups are active participants in money market and foreign exchange trading. These groups manage BCP’s foreign exchange positions and reserves and are also involved in analyzing liquidity and other asset/liability matters. The trading desk plays an important role in short-term money markets in Nuevos Soles and in foreign currencies and has been active in the auctions of certificates of deposit by Perú’s Central Bank and in financings through certificates of deposit, interbank transactions and guaranteed negotiable notes, among other instruments. Its foreign exchange transaction volume was US$14.9 billion in 2002, increasing from US$13.3 billion in 2001, while its foreign exchange trading services market share was approximately 24% (20% in 2001).

BCP’s proprietary trading consists of trading and short-term investments in securities, which are primarily Peruvian instruments. These short-term investments are primarily made to facilitate its corporate finance efforts. This has become an increasingly important part of BCP’s business, as BCP seeks returns on excess liquidity pending improved lending conditions.

ASHC trades on its own account primarily by making medium-term investments in fixed income securities, equity securities and sovereign debt. The portfolio includes investment grade and non-investment grade debt securities of U.S. public companies and, to a much lesser extent, private U.S. debt and equity issues. Such securities are subject to substantial volatility and there can be no assurance as to their future performance. As of December 31, 2002, ASHC had approximately US$299.6 million invested in these types of securities. ASHC generally utilizes its own funds for these activities rather than borrowings or deposits. ASHC also holds an equity investment in Credicorp and an affiliate with a fair value of approximately US$97.7 million at December 31, 2002 (US$90.9 million at December 31, 2001). ASHC’s investment portfolio, as well as future purchases, sales, overall investment strategy and the general profile of the trading portfolio are reviewed on a monthly basis by an investment committee comprised of members of Senior Management. Quarterly, the Board of Directors of ASHC review and approve exposure limits for countries with transfer risk. The credit risk by counterparty is evaluated on a consolidated basis, including direct and indirect risk, such as interbank placements, loans, commitments, guarantees received, and trading securities purchased in the secondary market.

(iii) Asset Management

Credicorp’s asset management business is carried out by BCP in Perú and to a lesser extent in Bolivia, and by ASHC.

In June 1994, BCP created Credifondo S.A., Sociedad Administradora de Fondos Mutuos de Inversión en Valores (“Credifondo”) to establish, provide advice to and operate mutual funds in Perú. In 2002 it continued to be the largest mutual fund manager in Perúwith 38.4% of the market at year-end, increasing from 33.0% in 2001. BCP also managed an additional 13.2% market share from BSCH-Perú’s fund administrator. At December 2002, total Peruvian funds in the mutual funds system amounted to US$1.5 billion, increasing 27% from US$1.2 billion in 2001. During 2001 and 2002, volumes grew in part due to decreased interest paid on banking deposits.

As of December 31, 2002, Credifondo managed twelve separate funds, with a total of 28,154 participants, of which seven were transferred from BSCH-Perú’s fund administrator. Among the securities in which the different funds specialize are: equities, U.S. Dollar-denominated bonds, Nuevo Sol-denominated bonds, U.S. Dollar-denominated short-term securities and U.S. Dollar-denominated real estate securities. As of December 31, 2002, the total amount of funds managed by Credifondo was equal to US$787.1 million, increasing from US$403.0 million at December 31, 2001.

As of December 31, 2002, the Bolivian fund administrator managed a total of US$20.6 million of third-party funds.

ASHC’s Asset Management group, created in 1989, conducts ASHC’s management of third-party funds which, including the aggregate of third-party assets, had total assets under management of US$545.3 million as of December 31, 2002, compared to US$422.0 million as of December 31, 2001. This increase was principally due to the decline of interest rates paid on banking deposits, which led clients to transfer their funds from deposits to investment products, and the introduction of new products, including outsourced mutual funds managed by specialized fund administrators. Investment decisions for funds, except for outsourced funds, are made by senior officers within ASHC, in accordance with guidelines of the Investment Committee.

(iv) Trust, Custody and Securitization Services

BCP’s Trust and Custody unit holds US$4.4 billion in securities for over 95,000 domestic and foreign clients. Custody services provided by BCP include the physical keeping of securities and the payment of dividends and interest. In addition, BCP acts as paying agent for securities of which it does not keep custody. BCP is one of the few banks in Perú qualified to serve as a foreign custodian for U.S. mutual funds. Trust services include escrow, administration and representation services, supervision of transactions done for its clients and transfer settlement and payment services for local securities issues, allowing clients to be adequately represented in their activities in the local and international securities markets. During 2000 BCP formed La Fiduciaria S.A. (“Fiduciaria”), the first specialized trust services company in Perú, in which Credicorp holds a 45% interest. In its second year of existence, Fiduciaria was hired to manage trusts for a majority of institutions in the national financial system, putting itself at the forefront of fiduciary services in the country. Operations encompassed sectors including energy, communications, mining, tourism, fishing, education and construction. Fiduciaria ended the year with 43 outstanding operations and a book value of managed equity of more than US$230 million.

(v) Investments by PPS

PPS’s investments are made primarily to meet its solvency equity ratio and to provide reserves for claims. PPS manages its investments under two distinct portfolios. The first portfolio is designed to match the liabilities of property, automobile and health lines, and the second portfolio is designed to match the liabilities of life and annuities lines. Each portfolio is managed under the authority of its own committee, which reviews portfolio strategy on a monthly basis. Starting in 2002, PPS has invested in foreign markets, emphasizing investments in U.S. and European sovereign debt. PPS has adopted strict policies related to investment decisions. PPS’s investment strategies and portfolio generally are reviewed and approved monthly by its Board of Directors. Senior management does have investment authority, however, with respect to temporary investments using cash surpluses. For a discussion of PPS’s investment activities, see “–5. Insurance–(iii) Investment Portfolio.”

5. Insurance

Credicorp conducts its insurance operations exclusively through PPS, which provides a broad range of insurance products. In 2002, the six most significant lines together constituted 78.0% of the total premiums written by PPS. These are commercial property damage (including fire, earthquake and related coverage but not personal injury, tort or other liability risk), automobile, health, life and pension fund underwriting and life annuities. PPS is the leading Peruvian insurance company, with a market share of 31.8% based on gross insurance premiums and 32.8% based on net premiums written in 2002.

PPS’s consolidated net income for 2002 was S/.35.5 million (US$10.1 million), down from S/.214.1 million (US$60.9 million) in 2001. Net profits decreased mainly because 2001 included non-recurring gains from the sale of a long-term equity position in Peruvian brewer Backus & Johnston (“Backus”) shares. Operating expenses during 2002 were 18.2% of net premiums written, lower than 18.4% in 2001 and 19.6% in 2000.

PPS’s net underwriting results increased 97.7% to S/.72.3 million (US$20.6 million) in 2002. The ratio of net underwriting results to net premiums increased from 5.0% during 2001 to 8.4% in 2002, mainly because of increased net premiums. Total premiums increased 16.7% to S/.859.1 million (US$244.5 million) during 2002 from S/.736.4 million (US$209.6 million) in 2000. Premiums written, net of reinsured premiums and of technical reserves (as defined below in “–(ii) Claims and Reserves”), were S/.515.9 million (US$146.8 million) in 2002, increasing 13.0% over 2001.

PPS’s business is highly concentrated: its client base consists of over 16,000 companies and over 87,000 individuals, not including those affiliated with group health insurance programs through the companies by which they are employed. PPS’s property lines are distributed through agents and brokers, while life insurance is sold by PPS’s own sales force. Revenues from policies written for the three largest and twenty largest customers represented 15.0% and 30.7% of total premiums, respectively, as of December 31, 2002, and 6.1% and 17.9%, respectively, as of December 31, 2001. The ten largest brokers accounted for approximately 25.2% of total premiums as of December 31, 2002. This concentration is attributable primarily to the relatively low premium levels of its personal insurance products compared to that of the commercial property line (where PPS traditionally has ceded to reinsurers substantially all premiums written). Accordingly, although PPS cedes to reinsurers a substantial portion of its commercial property-casualty premiums, significant losses by one or more major customers could result in significant claims for PPS.

El Pacífico Vida (“Pacífico Vida”), PPS’s life insurance subsidiary, is 38%-owned by a subsidiary of American International Group (“AIG”). Pacífico Vida had total premiums of S/.236.3 million (US$67.3 million) in 2002, 7.5% over premiums in 2001, which in turn increased 17.3% over 2000. PPS expects to increase its life insurance sales in Perú in the next few years and believes that AIG’s participation in Pacífico Vida will provide the company with an advantage in competing for market share, which stood at 30.9% of the individual life and at 26.5% of the legal life segments in 2002. The individual life insurance and the life annuities markets are expected to have the highest growth rates. Credicorp, through BCP’s branch network, during 2002 sold 26,000 term life insurance policies covering accident and natural causes.

In 1999, PPS formed a new subsidiary called Pacífico S.A. Entidad Prestadora de Salud (“Pacífico Salud”), a private health service provider that offers an alternative to public social security. Pacífico Salud had total revenue of US$24.8 million in 2002 and US$22.8 million in 2001, with net income of US$1.4 million in 2002 and a net loss of US$2.5 million in 2001.

(i) Underwriting, Clients and Reinsurance

Underwriting decisions for substantially all of PPS’s insurance risks are made through its central underwriting office, although certain smaller local risks are underwritten at PPS’s two regional offices. PPS’s own underwriting staff inspects all larger commercial properties prior to the underwriting of commercial property or other risks related thereto with agents and brokers inspecting properties for smaller risks.

PPS utilizes reinsurance to limit its maximum aggregate losses and minimize exposure on large risks. Reinsurance is placed with reinsurance companies based on evaluation of the financial security of the reinsurer, terms of coverage and price. PPS’s principal reinsurers in 2002 were Lloyd’s, New Hampshire (an AIG company), Munchener Ruck, Zurich, Swiss Re, Gerling-Konzern, Kolnische Ruck, QBE Re, Hannover AG, and SCOR. Premiums ceded to reinsurers represented 23.8%, 24.8% and 26.2% of premiums written in 2000, 2001 and 2002, respectively. PPS acts as a reinsurer on a very limited basis, providing its excess reinsurance capacity to other Peruvian insurers who are unable to satisfy their reinsurance requirements. As of December 31, 2002, premiums for reinsurance written by PPS totaled S/.16.1 million (US$4.6 million).

Although PPS historically has obtained reinsurance for a substantial portion of its earthquake-related risks and maintains catastrophe reserves, there can be no assurance that a major catastrophe would not have a material adverse impact on its results of operations or financial condition.

(ii) Claims and Reserves

Net claims paid as a percent of net premiums written (i.e., the net loss ratio) decreased to 58.6% in 2002 from 63.9% in 2001 and 66.2% in 2000. The net loss ratio from the health and medical assistance insurance line, which represented 21.8% of total premiums in 2002, decreased to 85.2% from 86.2% in 2001. Automobile risks, 7.1% of PPS’s premiums in 2002, decreased to 59.5% in 2002 from 59.9% in 2001. The property casualty line, 22.6% of total premiums in 2002, decreased to 15.9% from 77.9% in 2001 when losses were suffered due to the earthquake in the south of Perú. Marine hull insurance claims, 4.1% of premiums, increased to 60.3% from 43.7% in 2001. The net loss ratio from private pension fund insurance, 9.2% of total premiums in 2002, increased from 91.4% in 2001 to 110.4% in 2002.

PPS is required by law to establish claims reserves in respect of pending claims in its property-casualty business, reserves for future catastrophic events affecting certain of its lines of business, reserves for future benefit obligations under its in-force life and accident insurance policies, and unearned premium reserves in respect of that portion of premiums written that is allocable to the unexpired portion of the related policy periods (collectively, “Technical Reserves”).

PPS establishes claims reserves with respect to claims that have been reported and for which loss amounts have been estimated. Pursuant to SBS regulations, such reserves are reflected as liabilities in PPS’s financial statements, net of any related reinsurance recoverables. Peruvian law requires the establishment of reserves for incurred but not reported (“IBNR”) claims, and recently adopted SBS regulations that require gradual additional reserves through December 31, 2002. As of December 31, 2002, PPS had provisioned the required additional IBNR reserves amounting to US$4.1 million in its statutory consolidated financial statements (US$3.6 million at December 31, 2001). Pursuant to internal policies, however, PPS sets aside approximately 35% of its monthly health insurance premiums as IBNR reserves. Peruvian law does not require reserves for estimated claims expenses.

Pursuant to SBS regulations, PPS establishes pre-event reserves for catastrophic risks with respect to earthquake coverage in the commercial property, business interruption, and engineering lines. As of December 31, 2002, established reserves of US$7.2 million were 100% of the amount required by the regulations, compared to US$4.8 million and 80% compliance at December 2001. During 2001, US$1.4 million of catastrophe reserves were applied to claims related to the earthquake in the south of Perú. As allowed by the SBS, PPS replenished these reserves during 2002. PPS records as liabilities in its financial statements actuarially determined reserves calculated to meet its obligations under its life and accident policies and its pension fund underwriting business. These reserves are determined using mortality tables, morbidity assumptions, interest rates and methods of calculation prescribed by law. PPS also establishes unearned premium reserves to cover the risks of policy lapse or termination prior to the end of the policy period in accordance with percentages established by the SBS.

There can be no assurance that ultimate claims will not exceed PPS’s reserves.

(iii) Investment Portfolio

PPS’s net investment income and realized capital gains on invested assets together accounted for 13.6% and 40.3% of PPS’s revenues for the years ending December 31, 2002 and 2001, respectively. The decrease was due to the gains from the sale in November 2001 of the long-term equity position in Backus, which generated a net gain of US$30.7 million (US$23.3 million net of minority interest).

As of December 31, 2002, the book value of PPS’s investment portfolio, after the sale of Backus and including Credicorp as discussed below, was S/.854.3 million (US$243.1 million), which included:

As of December 31, 2002, the market value of the listed equity securities portfolio was S/.130.7 million (US$37.2 million), which includes Credicorp Ltd. shares for S/.87.4 million (US$24.9 million), compared to S/.99.9 million (US$28.4 million) in December 2001, which included the S/.74.6 million (US$21.2 million) investment in Credicorp. See “–12. Selected Statistical Information–(iii) Loan Portfolio–Concentrations of Loan Portfolio and Lending Limits.”

PPS’s investment portfolio, before the sale of Backus, was highly concentrated in equity securities which, combined with limited investments in fixed income securities, made both the value and the income of the investment portfolio vulnerable to extreme volatility. With part of the proceeds from the Backus sale, additional investments have been primarily made in fixed income securities. Because the investments in specific securities are large, there can be no assurance that PPS could readily dispose of significant portions of its securities portfolio at market values. Accordingly, there are risks associated with the potential illiquidity of PPS’s securities holdings in the event that significant claims give rise to the need to liquidate rapidly a portion of such holdings.

Part of PPS’s strategy is to maintain an adequate foreign exchange position in U.S. Dollars, since a significant portion of its premiums are denominated, and much of its operations are conducted, in U.S. Dollars. In 2002, 74.1% of the gross premiums received by PPS were denominated in U.S. Dollars. As of December 31, 2002, PPS had US$56.4 million in short and medium-term U.S. Dollar-denominated deposits and U.S. Dollar-denominated bonds (primarily issued by Peruvian companies) (US$97.0 million as of December 2001).

6. Distribution Network

(i) Commercial Banking

As of December 31, 2002, BCP’s branch network consisted of 109 branches in Greater Lima and 95 branches in the provinces of Perú, the largest number of branches, with the most extensive country coverage, of any privately held bank in Perú. Credicorp believes that BCP’s branch network has been largely responsible for BCP’s success in attracting stable, relatively low-cost deposits. BCP has installed the most extensive network of ATMs in Perú, currently consisting of 397 ATMs, in addition to other electronic channels, including the Internet, that provide clients with a wider array of services and reduce congestion in the branches. During 2002, BCP began operations of an agency in Miami and a branch in Panama, and closed its branches in Nassau and New York. BCP also operates representative offices in Bogotá, Colombia, and Santiago, Chile, and owns a banking subsidiary in the Bahamas, BCOL.

ASHC keeps an office in Panama and a representative office in Lima. Tequendama operates 17 branches in Colombia, after the sale of its branches in Venezuela. BCB has 44 branches located throughout Bolivia. Solución has 12 offices in Lima and 11 in other Peruvian cities.

(ii) Investment Banking

Credicorp offers investment banking products and services through BCP and ASHC. BCP offers clients a wide range of such products and services, such as brokerage, mutual fund and custody services through its branch network in Lima and, on a more limited basis, throughout the rest of Perú. In addition, Credicorp also distributes such products through ASHC.

(iii) Insurance

PPS, like other major Peruvian insurance companies, sells its products both directly and through independent brokers and agents. Directly written policies tend to be for large commercial clients, as well as for life and health insurance lines.

Credicorp is attempting to expand PPS’s sales network by selling certain insurance products through BCP’s branch network. PPS offers, in collaboration with BCP, a life and health insurance product called Segurimax as well as a personal life insurance product that combines accidental death coverage with renewable term life insurance.

7. Operations Support

Credicorp’s operations are primarily conducted by BCP’s support departments. Commercial Banking operations are supported by BCP’s Credit division, which evaluates and helps administer credit relationships, establishes credit policies and monitors credit risk. See “–3. Commercial Banking–(iii) Credit Policy and Review.” BCP’s Planning and Finance division is responsible for planning, accounting and investor relations functions. Planning and Finance is also responsible for analyzing the economic, business and competitive environment in order to provide the necessary feedback for senior management’s decision-making. BCP’s Administration division has responsibility for systems, institutional and public relations, human resources, the legal department, security, maintenance and supplies.

The Banking Services division is in charge of managing distribution channels, as well as procedures aimed at satisfying requirements of retail banking, while the Systems and Organization division is responsible for processes and information regarding technological and organizational matters. The Distribution Channels unit operates BCP’s branch network. In order to improve operating efficiency, BCP is continually evaluating its branch network to monitor branch profitability.

During 2002, the Banking Services division’s goals included increasing income, reducing expenses and increasing the number of customers not currently served by BCP. As to income, the Banking Services division contributed 40% of products sold by Personal Banking. To reach the goal of expanding into new areas, 11 branches were opened on the outskirts of Lima where population is dense and there are many small and micro businesses. The number of transactions nationally grew 2.5% in 2002.

In 2002, BCP continued to introduce important technological developments, expanding its service to customers who engage in a high number of transactions as well as making improvements in quality and lowering costs. BCP has 1.5 million customers who carry out 14.5 million transactions per month and have access to the largest and most varied distribution network in Perú. Towards the end of 2002, 57% of customer transactions were carried out via self-service, having increased from only 25% in 1996, of which 34% were in ATMs, 10% by the “call center,” 7% on the Internet and 5% through remote banking.

This level of self-service activity reflects an increase in Credicorp’s use of new technologies to improve its services to its customers. These technologies include a network of 397 ATMs available to 800,000 bank card holders, the phone banking service Comunica-T, which has increased the capacity of its automated “Call Center,” receiving up to 600,000 calls per month, Saldomatic terminals, which are specialized devices placed in the branches for self-service consultation of account balances and transactions, and Internet banking. To improve the efficiency of these processes, BCP maintained the policy of encouraging the use of electronic distribution channels by applying more attractive rates than those charged at its branch offices.

The Central Processes area successfully consolidated the units that process the operations of the Capitals Market, International Operations and Loan Operations units, allowing a significant reduction in costs.

During 2002, investment in technology, information systems, equipment and programs reached US$15 million. At the same time, work was begun on improving the efficiency of these technologies. Management models applied to assign resources and execute tasks are being developed with the help of external consultants. New software tests are segmented depending on how critical each one is, creating a pool in order to employ lower cost labor resources. With the application of a new methodology to assign the budget according to strategic priorities, the management of information systems requirements was improved significantly, aligning the goals of each business unit with the budget available for technology.

The decentralized work model was implemented using the Dedicated Development Center in the city of Arequipa, Perú. This model generates significant savings in the production of computing programs and helps to make more flexible the allocation of installed capacity. This facility will be further expanded in 2003.

With the “umbrella” T-3 project of technological transformation, several projects were begun at the same time, such as implementing modern versions of several critical systems, adopting a new systems architecture that uses “middleware” and installing a set of components that allow services to assure their uninterrupted availability. Also, a project of corporate security is being developed with the assistance of international consultants whose purpose is to define a safe architecture that will minimize exposure to attacks on Credicorp’s systems.

ASHC and PPS have independent operations support departments. Credicorp’s current strategy is to integrate the operations support departments of its subsidiaries.

In 2002, the technological modernization of Banco Tequendama was completed, with the full implementation of the COBIS system. This system improved customer service by offering new products and services, improving the performance of business staff with the installation of the credit module, and making management of bonds and interbank transfers automatic. The new system is based on a single database of clients and automatically generates accounting, management, control and operating information. This information allows for the measure of profitability per customer. During 2002, Credicorp undertook to modernize the technology of BCP-Miami and BCP-Panama, as well as ASHC’s Panama and Grand Cayman offices. Credicorp also took steps to establish systems to operate its new broker-dealer in the United States, Credicorp Securities.

In 2003, the Systems division faces the specific challenge of completing the technological aspects of the merger between BCP and BSCH-Perú according to an established timeline. This year, as part of the T-3 project, Credicorp will complete the installation of modern versions of software, adding new components to increase the availability of services and the application of “middleware.”Credicorp also requires the migration of several applications to include additional functions available in modern versions of the renovated base systems.

8. Competition

(i) Banking

The Peruvian banking sector is currently comprised of 14 banking institutions, down from 15 as of December 31, 2001. As of December 31, 2002, BCP, including BSCH-Perú’s operations, ranked first among all Peruvian banks in terms of assets, deposits and loans, representing approximately 37.0%, 38.6% and 36.3%, respectively, of the total of all Peruvian banks, and compared to market shares of 27.3%, 30.8% and 27.2%, respectively, at December 31, 2001. As of December 31, 2002, the next four largest banks in terms of deposits (Banco Continental, Banco Wiese Sudameris, Interbank and Sudamericano) had deposits representing 21.9%, 15.3%, 8.0% and 3.6%, respectively, and loans representing 16.5%, 17.4%, 8.4%, and 4.6%, respectively, of the total of all Peruvian banks.

The Peruvian banking industry experienced consolidation and increased foreign entry following the passage of Legislative Decree 637 in 1991 and Legislative Decree 770 in 1993, which liberalized the banking industry and removed all restrictions on foreign ownership of Peruvian financial institutions. See “–10. The Peruvian Financial System–(i) General.” Banks new to Perú in the last several years include BNP-Andes, Banco del Trabajo, Solventa and Serbanco. Some of these banks initially focused on satisfying demand for consumer loans but sold part of their loan portfolio in 1998 to Solución and now serve other sectors or have merged into other banks. Banks that have undergone privatization include: Banco Continental, the country’s third largest bank, which was acquired by Banco Bilbao Vizcaya of Spain, which is associated with Perú’s Grupo Brescia; and Interbank, purchased in July 1994 by IFH Perú S.A., which is associated with Banco Osorno y La Union of Chile. Acquisitions of Peruvian banks by non-Peruvian companies include: (i) Banco Interandino and Banco Mercantil, purchased by Banco Santander of Spain, (ii) Banco de Lima, acquired by Banco Sudameris of France, (iii) Banco del Sur, acquired in early 1996 by a group composed of the Luksic group of Chile, Banco Central Hispano of Spain and HSBC Holdings of the UK, and (iv) Extebandes, acquired in January 1998 by Standard Chartered Bank of the UK.

During 1999, Banco de Lima merged with Wiese, Banco Sur merged with BSCH-Perú, Banco del País merged with Nuevo Mundo and Progreso merged with Norbank, while Banex was liquidated and Solventa was turned into a finance company. During 2000, Orion and Serbanco were liquidated. In 2001, Interbank and Latino agreed to merge, NBK Bank merged with Banco Financiero and Nuevo Mundo was liquidated. In December 2002, BCP acquired BSCH-Perú.

Credicorp believes that the Peruvian banking industry will continue to face an increasingly competitive environment within a generalized excess liquidity situation. Such increased competition may in the future affect Credicorp’s loan growth and reduce the average interest rates that it may charge its customers, as well as reduce fee income. Certain foreign banks have either reduced or liquidated their Peruvian operations in recent years, reducing competition to some extent from such competitors.

In the Wholesale Banking division, BCP’s Corporate Banking area has experienced increased competition and pressure on margins over the last few years. This is primarily the result of new entrants into the market, including foreign and recently privatized commercial banks as well as local and foreign investment banks and non-bank credit providers, such as pension fund administrators (AFPs). Since 1999, excess liquidity at major Peruvian banks has put pressure on margins. In addition, Peruvian companies have gained access to new sources of capital through the local and international capital markets. Credicorp does not intend to pursue corporate lending opportunities that are unprofitable solely in order to maintain market share. As a result, Credicorp does not expect Corporate Banking to grow at levels experienced in the past However, Credicorp will seek to maintain its close relationships with corporate customers, focusing on providing prompt responses to their requirements and setting competitive prices. To this end, Credicorp is currently updating its information systems to improve customer service and to allow management to obtain information on customer and business profitability more efficiently. Credicorp also intends to expand the range of BCP’s investment banking and cash management products.

In retail banking, Credicorp has found that small businesses are able to borrow from banks at better rates than those provided by suppliers and that the rates offered by BCP are competitive with those of other banks. Credicorp believes that BCP’s reputation as a sound institution, together with its nationwide branch network coverage, provides it with an advantage over its principal competitors. BCP also faces strong competition in its credit card operations from credit cards issued by retail stores.

In its core corporate lending and trade finance businesses, ASHC principally competes with larger institutions such as Citibank. ASHC attributes its ability to compete effectively with larger lending institutions to its aggressive marketing efforts, its ability as a smaller, more flexible institution, to make decisions quickly and respond rapidly to customer needs, its association with BCP, and its superior knowledge of the region, particularly the Peruvian market.

(ii) Insurance

Peruvian insurance companies compete principally on the basis of price and also on the basis of name recognition, customer service and product features. PPS believes that its competitive pricing, solid image, and quality of customer service are significant aspects of its overall competitiveness. In addition, PPS believes that its long relationship with AIG provides PPS with competitive advantages through access to AIG’s expertise in underwriting, claims management and other business areas. While increased foreign entry into the Peruvian insurance market may put additional pressure on premium rates, particularly for commercial coverage, PPS believes that in the long term foreign competition will increase the quality and strength of the industry. PPS believes that its size and its extensive experience in the Peruvian insurance market provide it with a competitive advantage over foreign competitors.

However, competition in the Peruvian insurance industry has increased substantially since the industry was deregulated in 1991, with particularly strong competition in the area of large commercial policies, for which rates and coverages typically are negotiated individually. The loss by PPS to competitors of even a small number of major customers or brokers could have a material impact on PPS’s premium levels and market share.

9. Peruvian Government and Economy

While Credicorp is incorporated in Bermuda, substantially all of BCP’s and PPS’s operations and customers are located in Perú. Although ASHC is based outside of Perú, a substantial number of its customers are also located in Perú. Accordingly, the results of operations and financial condition of Credicorp could be affected by changes in economic or other policies of the Peruvian government (which has exercised and continues to exercise a substantial influence over many aspects of the private sector) or other political or economic developments in Perú, including a devaluation of the Peruvian Nuevo Sol relative to the U.S. Dollar or the imposition of exchange controls by the Peruvian government. See “Item 10. Additional Information–D) Exchange Controls.” Credicorp’s results of operations and financial condition are dependent on the level of economic activity in Perú.

(i) Peruvian Government

During the past several decades, Perú has had a history of political instability that has included military coups d’état and different governmental regimes. Past governments have frequently played an interventionist role in the nation’s economy and social structure. Among other things, past governments have imposed controls on prices, exchange rates, local and foreign investment, and international trade; have restricted the ability of companies to dismiss employees; and have expropriated private sector assets. In 1987, the administration of President Alan García attempted to nationalize the banking system. Facing an attempt by the state to control BCP, the majority shareholders of BCP at that time sold a controlling interest in BCP to its employees, which prevented the government from gaining control of BCP. See “–(C) Organizational Structure.”

In the past, Perú experienced significant levels of terrorist activity, with Sendero Luminoso (the “Shining Path”) and the Movimiento Revolucionario Tupac Amaru (the “MRTA”) having escalated their acts of violence against the government and the private sector in the late 1980s and early 1990s. Upon being elected to office in 1990, President Alberto Fujimori’s government made substantial progress in suppressing Shining Path and MRTA terrorist activity, including the arrest of the leader and the principal second level of leadership in each terrorist group and approximately 2,000 others. In addition, approximately 3,000 additional persons surrendered to and aided the government under an amnesty law. Despite the success achieved, some isolated incidents of terrorist activity continue to occur, such as the seizure in December 1996 by the MRTA of the Japanese ambassador’s residence in Lima.

Over the course of his government, President Fujimori implemented a broad-based reform of Perú’s political system, economy and social conditions, aimed at stabilizing the economy, reducing bureaucracy, eradicating corruption and bribery in the judicial system, promoting private investment, developing and strengthening free markets, strengthening education, health, housing and infrastructure and suppressing terrorism. In 2000, President Fujimori won a third five-year term in a controversial two round election. In the April 2000 presidential election, Fujimori’s 49.9% victory was short of gaining a first round majority vote, forcing a second round election in May which was boycotted by the opposition candidate. After taking office for his third term in July 2000, under extreme protest, President Fujimori was forced to call for general elections due to the outbreak of corruption scandals, and later resigned in favor of a transitory government headed by the president of Congress, Valentín Paniagua.

Mr. Paniagua took office in November 2000 and in July 2001 handed over the presidency to Alejandro Toledo, the winner of the elections decided in the second round held on June 3, 2001, ending two years of political turmoil. However, return of investor and consumer confidence has been slow after the prolonged recession and lingering doubts about whether the government of President Toledo will be able to achieve the consensus needed to govern and promote sustained growth.

Toledo assumed the presidency against a backdrop of high unemployment and underemployment, economic recession and social need. Despite the economic strides achieved between 1990 and 2000, poverty remains a persistent problem in Perú, with more than half of the population living below the poverty line, which the World Bank defines as monthly income of less than US$60 per capita, adjusted to reflect differences in purchasing power. A significant number of Peruvians live on an income of less than US$30 per capita per month.

President Toledo has retained, for the most part, the economic policies of the previous government, focusing on promoting private investment, eliminating certain tax exemptions, reducing underemployment and unemployment and privatizing state-owned companies in various sectors. President Toledo also implemented fiscal austerity programs, among other proposals, in order to stimulate the economy. Perú has experienced moderate economic growth during the Toledo administration. Nevertheless, the Toledo administration faces public unrest spurred by disappointment that its policies have not immediately led to a significant reduction in the high rates of unemployment, underemployment and poverty. In July 2002, in an effort to maintain his political alliances and quell public unrest, President Toledo restructured his cabinet. On June 23, 2003, President Toledo again announced plans to restructure his cabinet amid further unrest.

(ii) Peruvian Economy

Early in his presidency, President Fujimori liberalized price and wage controls in the private sector, eliminated all restrictions on capital flows, instituted emergency taxes to reduce the fiscal deficit, and liberalized interest rates. Furthermore, his government established an agenda to institute a wide-ranging privatization plan and re-establish relations with the international financial community. President Toledo has offered to continue these market-oriented policies but faces opposition from a fragmented Congress and social pressures for more interventionist action.

In the late 1980s and early 1990s, the Peruvian economy was volatile, with the country’s GDP contracting by 11.7% in 1989, contracting by 5.2% in 1990, growing by 2.2% in 1991 and contracting by 0.4% in 1992. In recent years, however, the results of President Fujimori’s stabilization plan have resulted in GDP increasing 4.8% in 1993, 12.8% in 1994, 8.6% in 1995, 2.5% in 1996, 6.7% in 1997, -0.5% in 1998, 0.9% in 1999, 3.1% in 2000 and 0.2% in 2001. It should be noted that GDP growth figures for these years were revised downwards by the national statistical institute, the INEI, in 2000, which recalculated Perú’s GDP in 1999 at around $52 billion using a 1994 base year, some 10% below the previous estimate based on 1979 figures.

In 2002, the Peruvian economy grew by 5.2%. The economy benefited from the increase of domestic demand, as well as growth in the construction and manufacturing sectors. The continued growth in GDP since the second half of 2001 evidences the strength of Perú’s economy in the face of adverse external factors. Unlike other Latin American countries, Perú has managed to resist the effects of the Argentine crisis as well as the climate of uncertainty that surrounded the presidential elections in Brazil. It also maintained momentum in spite of the slower growth of the U.S. economy and a greater reluctance among investors to take on risks in Latin America.

One of the principal factors that contributed to the improvement of economic expectations was the recovery of domestic demand, which grew 4.3% in 2002, compared to a fall of 0.7% registered the previous year. This bolstered consumption, which in turn boosted the manufacturing sector, which rose 4.2% during the year. However, production was uneven and sectors such as mining (particularly mining of precious metals), non-primary manufacturing and agriculture registered gains, while fishing and raw material-based manufacturing remained stagnant or registered only minimal growth.

The decision of the United States in August 2002 to renew and expand tax benefits through the Andean Trade Promotion and Drug Eradication Act for certain Latin American exports was very beneficial to the manufacturing sector because of its inclusion of Peruvian textiles. These incentives are expected to stimulate exports over the next four years. The mining sector also performed well, aided by production of the Antamina copper mine, which contributed nearly 1.3% to the rise in GDP in 2002.

The government-backed initiative to encourage mortgage loans and the construction of low-cost housing through the MiVivienda program finally began to stimulate significant volumes of construction in 2002, aiding expansion of mortgages. As part of the MiVivienda program, US$374 million in loans were granted in 2002, significantly more than the US$122 million granted the previous year.

Perú has achieved a high economic growth rate despite difficulties in the domestic political arena. The privatization program, which had been expected to raise US$700 million during 2002, encountered problems in June 2002 with public protests against the sale of two electricity generating companies in the south of Perú. This caused the virtual suspension of the program, which obtained income of only US$355 million in 2002. The outlook for the sale of other assets remains uncertain, but the government is preparing to relaunch its concessions program in 2003, with income expected to reach US$400 million.

Perú’s trade deficit increased from US$1.7 billion in 1997, as a result of trade liberalization and a strong local currency which triggered imports, to US$2.5 billion in 1998, due in part to decreases in agricultural produce exports and fishmeal production induced by “El Niño.” However, Perú’s trade deficit decreased to US$0.6 billion in 1999, US$0.3 billion in 2000, and US$90,000 in 2001. Perú registered a US$261,000 surplus in 2002 principally due to continued exports growth. Exports climbed to US$7.7 billion in 2002, 8.0% higher than the US$7.1 billion registered in 2001, driven by the greater volume of traditional exports, in particular minerals. Imports rose US$235 million to US$7.4 billion, with an increase of 11.2% in consumer goods, while capital goods imports fell 3.5%.

Perú registered a current account deficit of US$3.6 billion in 1998 due to the trade deficit and expenditures in financial services, which decreased to US$1.8 billion in 1999, to US$1.6 billion in 2000, and further to US$1.1 billion in 2001, remaining almost unchanged in 2002. Perú’s financial account had a surplus of US$1.1 billion in 1999 and 2000, declined to US$1.0 billion in 2001, and grew to US$1.8 billion in 2002 as a result of increased public sector capital inflows. The flow of direct foreign investment into Perú was US$433 million in 2000, US$796 million in 2001, and US$2.2 billion in 2002.

The inflation rate in Perú, as measured by the Lima consumer price index, has fallen from 7,650.0% in 1990 to 139.2% in 1991, 56.7% in 1992, 39.5% in 1993, 15.4% in 1994, 10.2% in 1995, 11.8% in 1996, 6.5% in 1997, 6.0% in 1998, and 3.7% both in 1999 and 2000, turning into deflation of 0.1% in 2001, and inflation of 1.5% in 2002.

The Nuevo Sol had an irregular year, rising from S/.3.44 to S/.3.64 per US dollar at one point, but ending the year at S/.3.51, with an overall devaluation of 2.0%. This behavior was notable given that this period was marked by other Latin American currencies suffering drastic devaluations.

Interest rates have behaved erratically since 1995 but fell gradually over this period until September 1998, at which point the trend reversed due to liquidity constraints brought on by the international financial crisis. The nominal monthly interest rate on loans in Nuevos Soles declined from 72% in December 1993 to 30.4% in December 1997, but increased to 37.1% in December 1998, resuming in 1999 its declining trend by decreasing to 32.0% in December 1999, to 26.5% in December 2000, to 23.0% in December 2001, and further to 20.7% in December 2002, partly in response to the general decline in interest rates in international markets.

Perú’s recent economic reforms have also caused an increase in the fiscal deficit. A deficit of 0.8% of GDP resulted in 1998, which increased to 3.1% in 1999 and 3.2% in 2000, but declined to 2.5% in 2001, principally due to lower public investment. The fiscal deficit in 2002 was the equivalent of 2.3% of GDP, in line with the goal agreed upon with the International Monetary Fund (the “IMF”), which eased its requirements from an initial goal of 1.9% of GDP. In addition, efforts to increase tax revenues have been successful, with tax collections increasing from 6.7% of GDP in 1989 to 12.3% of GDP in 2001 and 12.0% in 2002. In the second half of 2002 tax income increased, offsetting lowered tax revenues during the first half of the year, which were the result of a partial tax amnesty. In order to meet fiscal needs, Perú accessed the international capitals markets by closing two bond offerings of US$500 million each. The February 2003 offering was the first such issue of sovereign bonds in more than six decades.

In October 1995, Perú reached a preliminary Brady agreement with the Bank Advisory Committee representing commercial creditors holding Perú’s past due short, medium and long-term debt. In June 1996, Perú published the Term Sheet for the 1996 Financing Plan pursuant to which creditors were offered various repayment options. The Peruvian government finalized the Brady agreement in March 1997, achieving a reduction of Perú’s external debt (approximately US$4.9 billion) and a restructuring of future maturities. Additionally, in July 1996 Perú reached an agreement with the Paris Club countries, resulting in the rescheduling of 1996-1998 maturities.

In 1999, Perú signed a three-year extended fund facility accord with the IMF, the third consecutive IMF program it has followed, giving the country a stable framework for macroeconomic planning. However, the fall in tax revenue and increased spending in 1999 caused Perú to fail to fulfill the fiscal goal agreed upon with the IMF of a primary fiscal surplus of 0.5%, which is the public sector’s result before capital costs or gains, debt servicing and privatization income. In fact, Perú reported a primary sector deficit of 0.1% in 1999 and of 0.2% in 2000. Perú renegotiated economic targets of its 2000 three-year program, and the IMF approved a new one-year program in March 2001, a second agreement in February 2002 and a follow-up accord in March 2003 which calls for a 1.9% fiscal deficit in 2003.

There can be no assurance that economic growth will be sustained in the future or that inflation (whether as a result of an “overheating” of the Peruvian economy, whose foreign trade deficit continues to increase, or otherwise) in Perú will not increase. Such events may have an adverse effect on the business, financial condition, results of operations and prospects of Credicorp and adversely affect the market price of Credicorp’s Common Shares. In addition, deposits in the Peruvian financial system are currently much higher than in the late 1980’s when hyperinflation caused a lack of confidence in the financial system. A return to high levels of inflation could cause a lack of confidence in the financial system, resulting in widespread withdrawal of deposits.

Although BCP and PPS both earn much of their revenue in U.S. Dollars, if the rate of inflation exceeds the rate of devaluation of the Nuevo Sol relative to the U.S. Dollar, profitability will be negatively impacted because revenues, expressed in Nuevos Soles, generally will not increase in line with Nuevo Sol-denominated expenses. The results of both BCP and PPS were negatively impacted by this effect in 1994 and 1995.

10. The Peruvian Financial System

As Credicorp’s activities are conducted primarily through banking and insurance subsidiaries operating in Perú, a summary of the Peruvian financial system is set forth below.

(i) General

At December 31, 2002, the Peruvian financial system consisted of the following principal participants: the Central Bank, the SBS, 14 banking institutions (not including BSCH-Perú or Banco de la Nación), five finance companies, and six leasing companies. In addition, Perú has various mutual mortgage associations, municipal and rural savings and credit associations, municipal public credit associations, and savings and credit cooperatives.

The present text of Law 26702 was passed in December 1996. Law 26702 regulates Peruvian financial and insurance companies. In general, it provides for tighter loan loss reserve standards, brings asset risk weighting in line with Basel Committee on Banking Regulations and Supervisory Practices of International Settlements (the “Basel Accord”) guidelines, broadens supervision of financial institutions by the SBS to include holding companies, and includes specific treatment of a series of recently developed products in the capital markets and derivatives areas. The primary law governing the Peruvian financial system before the enactment of Law 26702 was Legislative Decree 637, passed in 1991 and amended by Legislative Decree 770, which substantially reformed the Peruvian financial system, modifying regulations initially issued in 1930.

(ii) Central Bank

The Central Bank was created in 1931. Pursuant to the Peruvian Constitution, its primary role is to ensure the stability of the Peruvian monetary system. The Central Bank regulates Perú’s money supply, administers international reserves, issues currency, determines Perú’s balance of payments and other monetary accounts, and furnishes information regarding the country’s financial situation. It also represents the government of Perú before the IMF and the Latin American Reserve Fund.

The highest decision-making authority within the Central Bank is the seven member Board of Directors. Each Director serves a five-year term. Of the seven Directors, four are selected by the executive branch and three are selected by the Congress. The Chairman is one of the executive branch nominees, but must be approved by the Congress.

The Board of Directors develops and oversees monetary policy, establishes reserve requirements for entities within the financial system, and approves guidelines for the management of international reserves. All entities within the financial system are required to comply with the decisions of the Central Bank.

(iii) SBS

The SBS, whose authority and activities are discussed in “–11. Supervision and Regulation,” is the regulatory authority charged with implementation and enforcement of the norms contained in Law 26702 and, more generally, with the supervision and regulation of all financial institutions in Perú.

(iv) Financial System Institutions

Under Peruvian law, financial system institutions are classified as banks, financing companies, other non-banking institutions, specialized companies, and investment banks. BCP is classified as a bank.

Banks

A bank is defined by Law 26702 as an enterprise whose principal business consists of the receipt of monies from the public, whether in deposits or under any other contractual form, and the use of such monies (together with its own capital and funds obtained from other sources) to grant loans or discount documents, or in operations subject to market risks.

Banks are permitted to carry out various types of financial operations, including the following: (i) receiving demand deposits, time deposits, savings deposits and deposits in trust; (ii) granting direct loans; (iii) discounting or advancing funds against bills of exchange, promissory notes, and other credit instruments; (iv) granting mortgage loans and accepting bills of exchange in connection therewith; (v) granting conditional and unconditional guaranties; (vi) issuing, confirming, receiving and discounting letters of credit; (vii) acquiring and discounting certificates of deposit, warehouse receipts, bills of exchange and invoices of commercial transactions; (viii) performing credit operations with local and foreign banks, as well as making deposits in such institutions; (ix) issuing and placing local currency and foreign currency bonds, as well as promissory notes and negotiable certificates of deposits; (x) issuing certificates in foreign currency and entering into foreign exchange transactions; (xi) purchasing banks and non-Peruvian institutions which conduct financial intermediation or securities exchange transactions, in order to maintain an international presence; (xii) purchasing, holding and selling gold and silver as well as stocks and bonds listed on one of the Peruvian stock exchanges and issued by companies incorporated in Perú; (xiii) acting as financial agent for investments in Perú for external parties; (xiv) purchasing, holding and selling instruments evidencing public debt, whether internal or external, as well as obligations of the Central Bank; (xv) making collections, payments and transfers of funds; (xvi) receiving securities and other assets in trust and leasing safety deposit boxes; and (xvii) issuing and administering credit cards and accepting and performing trust functions.

In addition, banks may carry out financial leasing operations by forming separate departments or subsidiaries and may also promote and direct operations in foreign commerce, underwrite initial public offerings, and provide financial advisory services apart from the administration of their clients’ investment portfolios. By forming a separate department within the bank, universal banks may also act as trustees in trust agreements.

Law 26702 authorizes banks to operate, through their subsidiaries, warehouse companies, securities brokerage companies and leasing companies, and to establish and administer mutual funds.

Branches of foreign banks enjoy the same rights and are subject to the same obligations as branches of Peruvian banks. Multinational banks, with operations in various countries, may engage in the same activities as Peruvian banks, although their foreign activities are not subject to Peruvian regulations. To carry out banking operations in the local market, such banks must maintain a certain portion of their capital in Perú, in an amount not less than the minimum amount required of Peruvian banks.

Finance Companies

Under Law 26702, finance companies are authorized to carry out the same operations as banks, with the exception of (i) issuing loans as overdrafts in checking accounts, (ii) engaging in certain derivative operations, (iii) originating securitization operations, (iv) and establishing subsidiaries in certain specialized fields, such as bonded warehouses, currency transportation and custody, among others.

Other Financial Institutions

The Peruvian financial system has a number of less significant entities which may provide credit, accept deposits or otherwise act as financial intermediaries on a limited basis. Leasing companies specialize in financial leasing operations by which goods are leased over the term of the contract with the option of purchasing such goods at a predetermined price. Savings and loans associations or cooperatives may accept certain types of savings deposits and provide other similar financial services.

Perú also has numerous mutual housing associations, municipal savings and credit associations, savings and credit cooperatives and municipal credit bureaus. The impact of these institutions on the financial system in Perú has not been significant.

Insurance Companies

Since the deregulation of the Peruvian insurance industry in 1991, insurance companies are authorized to conduct all types of operations and to enter into all forms of agreements necessary to offer risk coverage to customers. Insurance companies may also invest assets, subject to the regulations on investment limits and reserves established in Law 26702 and the regulations issued by the SBS.

Law 26702 is the principal law governing insurance companies in Perú. The SBS is charged with the supervision and regulation of all insurance companies, and the formation of a corporation as an insurance company requires prior authorization of the SBS.

Prior to 1991, all reinsurance activities were conducted through Reaseguradora Peruana S.A., an entity controlled by the Peruvian government, which is currently in liquidation. Today, Peruvian insurance companies are permitted to seek reinsurance from other sources.

The insurance industry has experienced consolidation in recent years with the number of companies decreasing from 19 in 1991 to 12 in 1996, but increasing to 16 as of December 31, 2002, as new insurance companies specializing in life insurance are created.

11. Supervision and Regulation

(i) Credicorp

There are no applicable regulatory controls under the laws of Bermuda that would be likely to have a material impact upon Credicorp’s future operations. Under Bermuda law, there is no regulation applicable to Credicorp, as a holding company, that would require Credicorp to separate the operations of its subsidiaries incorporated and existing outside Bermuda. Since Credicorp’s activities will be conducted primarily through subsidiaries in Perú, the Cayman Islands, Colombia and Bolivia, a summary of Peruvian banking and insurance regulations and Cayman Islands banking regulations is set forth below.

Certain requirements set forth in Law 26702 and certain SBS regulations, including SBS Resolution No.446-2000, dated June 2000, which approved the “Regulation of the Consolidated Supervision of Financial and Mixed Conglomerates,” are applicable to Credicorp and BCP. These regulations affect Credicorp and BCP primarily in the areas of reporting and risk control guidelines, limitations, ratios, and capital requirements.

Since Credicorp’s Common Shares are listed on the Lima Stock Exchange in addition to the New York Stock Exchange, Credicorp is subject to certain reporting requirements of the Comision Nacional Supervisora de Empresas y Valores (“CONASEV”), the securities market regulator, and the Lima Stock Exchange. See “Item 9. The Offer and Listings–(C) Markets–The Lima Stock Exchange–(ii) Market Regulation.”

(ii) BCP

Overview

The operations of BCP are regulated by Peruvian law. The regulatory framework for the operations of the Peruvian financial sector is set forth in Law 26702. Implementation and enforcement of Law 26702 are effected by periodic resolutions issued by the SBS. See “–10. The Peruvian Financial System.” The SBS, under the direction of the Superintendent of Banks and Insurance Companies, supervises and regulates those entities that Law 26702 classifies as financial institutions, including commercial banks, finance companies, small business finance companies, savings and loan corporations, financial services companies such as trust companies and investment banks, and insurance companies. Financial institutions must seek the authorization of the SBS before initiating new operations.

BCP’s operations are supervised and regulated by the SBS and the Central Bank. Violators of specified provisions of Law 26702 and its underlying regulations are subject to administrative sanctions and criminal penalties. Additionally, the SBS and the Central Bank have the authority to fine financial institutions and their directors and officers if they violate Peruvian laws, regulations or their own institutions’ bye-laws.

CONASEV is the Peruvian government institution charged with promoting the securities markets, ensuring fair competition in the markets, supervising the proper management of businesses that trade in the markets and regulating their activities and accounting practices. BCP must inform CONASEV of significant events affecting its business and is required to provide financial statements to the Lima Stock Exchange on a quarterly basis. BCP is regulated by CONASEV through Credibolsa, BCP’s wholly-owned brokerage house, and Credifondo, BCP’s wholly-owned mutual fund administration company. CONASEV examines Credibolsa and Credifondo on a regular basis.

Under Peruvian law, banks are permitted to conduct brokerage operations and administer mutual funds, but must conduct such operations through subsidiaries. Bank employees, however, may market the financial products of the bank’s brokerage and mutual fund subsidiaries. Banks are prohibited from issuing insurance policies, but are not prohibited from distributing insurance policies issued by insurance companies.

Authority of the SBS

Perú’s Constitution and Law 26702 (which contains the statutory charter of the SBS) grant the SBS the authority to oversee and control banks and financial institutions (with the exception of brokerage firms), insurance and reinsurance companies, companies that receive deposits from the general public and other similar entities as defined by the law. In addition, the SBS supervises the Central Bank to ensure that it abides by its statutory charter and bye-laws.

The SBS is granted administrative, financial and operating autonomy. Its objectives include protecting the public interest, ensuring the financial stability of the institutions over which it has authority, and punishing violators of its regulations. Its responsibilities include: (i) reviewing and approving, with the assistance of the Central Bank, the establishment and organization of subsidiaries of the institutions it regulates; (ii) overseeing mergers, dissolution, and reorganization of banks, financial institutions, and insurance companies; (iii) supervising financial, insurance and related companies from which information on an individual or consolidated basis is required, through changes in ownership and management control (this supervision also applies to non-bank holding companies, such as Credicorp); (iv) reviewing the bye-laws and amendments thereto of these companies; (v) setting forth criteria governing the transfer of bank shares, when permitted by law, for valuation of assets and liabilities and for minimum capital requirements; and (vi) controlling the Central de Riesgos (Bank Risk Assessment Center), to which all banks are legally required to provide information regarding all businesses and individuals with whom they deal without regard to the amount of credit risk (the information provided is made available to all banks to allow them to monitor individual borrowers’ overall exposure to Perú’s banks). In addition to supervising BCP, the SBS supervises Credicorp on the basis that it is a financial conglomerate conducting the majority of its operations in Perú.

Management of Operational Risk

SBS Resolution No. 006, enacted in January 2002, approved guidelines for the management of operational risk, which includes a broad range of risks. The Resolution defines operational risks as those dealing with the possibility of suffering financial losses due to deficiencies in internal procedures, information technology or personnel, or the occurrence of adverse external events. It also establishes responsibilities for developing policies and procedures to identify, measure, control and report such risks. Banks are required to adequately manage risks involved in the performance of their operations and services in order to minimize possible financial losses due to inadequate or non-existent policies or procedures. Banks must be in compliance with the new requirements by June 2003.

Credicorp, following these SBS guidelines as well as guidelines issued by the Basel Committee on Banking Supervision and the advice of international consultants, has set up at BCP a specialized unit in charge of introducing advanced risk control procedures. In forming this unit, Credicorp intends to be guided by the risk control standards of international financial institutions noted for their leadership in this field. The unit’s overall objective is the implementation of an efficient and permanent monitoring system for the control of operational risks. There are ongoing initiatives for the establishment of operational risk management procedures at other Credicorp subsidiaries. Additionally, procedures that will allow Credicorp to comply specifically with internal controls requirements under Section 404 of the U.S. Sarbanes-Oxley Act of 2002 are being developed as part of a company-wide effort.

In March 2003, BCP’s Board of Directors approved the creation of a new Operational Risk Committee for BCP. The Committee is chaired by Credicorp’s Chief Financial and Accounting Officer and its members include managers from the Legal, Human Resources, Systems, Internal Audit, Banking Services and Risks divisions of BCP.

Capital Adequacy Requirements

Since the approval of Legislative Decree 637 in 1991, the SBS has issued capital adequacy requirements for credit institutions, adopting a framework structurally similar to that proposed by the Basel Accord. Weights assigned to various classes of assets and the contents of the classifications were initially more stringent under Legislative Decrees 637 and 770 than under the Basel Accord. Law 26702 has adopted criteria similar to the Basel Accord and provides for five categories of assets, with different risk weights assigned to each category. The categories range from Risk-free Assets, to which a weighting of 0% is assigned, to Assets, which require a weighing of 100%. Banks are required to prepare and submit to the SBS, within the first 15 days of each month, a report analyzing the bank’s assets for the previous month and totaling the bank’s regulatory capital. Foreign currency-denominated assets are valued in Nuevos Soles at the SBS average exchange rate in effect as of the date of each such report.

According to Article 184 of Law 26702, regulatory capital consists of the sum of (i) paid-in capital, legal reserves, discretionary reserves (if any), generic reserves for losses in the loan portfolio or other indirect credit exposure (up to 1% of the total value of both) and a percentage of certain subordinated bonds issued by the bank, less (ii) equity investments in all consolidated subsidiaries. The resulting amount is adjusted to reflect profits or losses from previous years and for the current year, as well as to reflect adjustments for exposure to inflation and for the deficit in the reserves, less the balance, if any, of the reserve for asset revaluation. According to Article 184, regulatory capital can be segmented and applied to cover credit risks and market risks. Beginning in March 1999, the SBS issued regulations requiring the segregation of regulatory capital to cover foreign exchange risk exposure, and, starting in June 30, 2000, to cover risk related to investments in equity shares.

Law 26702 requires that the total amount of risk-weighted assets not exceed 11 times the regulatory capital of the bank, meaning that BCP must maintain regulatory capital at a level of at least 9.09% of its total risk-weighted assets. The limit of 11 times risk-weighted assets to regulatory capital was phased in, becoming effective in December 1999. Any bank that is not in compliance with the capital adequacy requirements of Law 26702 is required to post a special deposit with the Central Bank, which is frozen until such bank is within the capital adequacy requirements. Regulatory capital in excess of credit risk requirements may be applied to cover market risks. In general, foreign exchange risk positions require a coverage of 9.09% of regulatory capital. As of December 31, 2002, BCP’s unconsolidated amount of risk-weighted assets was 9.6 times regulatory capital, or regulatory capital was 10.4% of risk-weighted assets which included US$198.3 million of market risk assets.

Regulations for the supervision of market risks, enacted in May 1998, require banks to establish internal policies and procedures to monitor these risks, as well as market risk exposure limits. Regulations define market risks as the probable loss derived from exposure to various classes of commodities, securities, foreign exchange, derivative operations or commercial assets that banks may hold, that could be registered or not in their balance sheets.

Legal Reserve Requirements

Pursuant to Article 67 of Law 26702, all banks must create a legal reserve. Each year a bank must allocate 10% of its net income to its legal reserve until its legal reserve is equal to 35% of its paid-in capital stock. Any subsequent increases in paid-in capital will imply a corresponding increase in the required level of the legal reserves to be funded as described above. As of December 31, 2002, BCP’s unconsolidated legal reserve was S/.510.8 million (US$145.4 million), equivalent to 46.7% of BCP’s paid-in capital as of such date.

Provisions for Loan Losses

Guidelines for the establishment of provisions for loan losses by Peruvian credit institutions, including commercial banks, are set by the SBS. Law 26702 grants authority to the SBS to establish generic loan reserves of up to 1% on loans classified in the Normal (A) risk category. See “–12. Selected Statistical Information–(iii) Loan Portfolio–Classification of the Loan Portfolio.”Additionally, Law 26702 does not allow for the inclusion of collateral in determining the net amount of outstanding credit risk subject to provision.

Provisions for Country Risk

SBS Resolution No. 505, enacted in June 2002, requires the establishment of provisions for exposure to country risk, which is defined as including sovereign risk, transfer risk and expropriation or nationalization risk, that may affect operations with companies or individuals in foreign countries. Additionally, the SBS established guidelines for the procedures and responsibilities for the management of country risk, to be applied no later than October 31, 2002. Operations subject to country risk were to have required provisions registered by January 31, 2003. Procedures already followed by Credicorp for the control of its exposure in different countries are similar to the guidelines of this Resolution, except for the required provisions. As of March 2003, Credicorp complied with the required provision level of US$1.8 million, which was charged against BCP’s results.

Central Bank Reserve Requirements

Under Law 26702, banks and finance companies are required to maintain an encaje (legal reserve) for certain obligations. The Central Bank may require additional and marginal reserves. The exact level and method of calculation of the reserve requirement is set by the Central Bank. For purposes of calculating the required legal reserve, the following, pursuant to regulations issued by the SBS, are obligations: demand and time deposits, savings accounts, securities, certain bonds and funds administered by the bank.

Since August 2000 the rate of the legal reserve has been 6% (formerly 7%) of the obligations described above. The reserve may be kept in cash by the corresponding bank or finance company, with a minimum of 1% held in deposits in current accounts in the Central Bank. As of December 31, 2000, additional reserves for obligations in foreign currency are determined in two steps. First, foreign currency obligations exceeding the base amount, set as the average daily balance during July 2000, are subject to a 20% reserve requirement (45% during 1997). In the second step, the obligations equal to or less than the base amount average balance are subject to a reserve requirement “average rate” of approximately 34% since August 2000. This average rate was approximately 43% during 1997, decreasing 4.5 percentage points in the last months of 1998, and again by 3 percentage points in August 2000. The legal reserve (6%) and the additional reserve must be calculated in Nuevos Soles for obligations in local currency and in U.S. Dollars for obligations in foreign currency. The Central Bank also establishes the interest rate payable from time to time on the reserves that exceed the legal 6% requirement. The Central Bank oversees compliance with the reserve requirements.

In the past few years, the Central Bank has on numerous occasions changed the deposit reserve requirements applicable to Peruvian commercial banks and both the rate of interest paid on deposit reserves and the amount of deposit reserves on which no interest is payable by the Central Bank. Changes in the supervision and regulation of BCP, such as changes in deposit reserve requirements or in the amount of interest payable on deposit reserve requirements, may adversely affect the business, financial condition and results of operations of Credicorp.

Lending Activities

Law 26702 sets maximum amounts of credit that each financial institution may extend to a single borrower. For purposes of Law 26702, a single borrower includes an individual or an economic group. An economic group constituting a single or common risk, according to Law 26702, includes a person, such person’s close relatives and companies in which such person or close relatives have significant share ownership or decision-making capability. According to current regulations, shareholders who own or control directly or indirectly at least one-tenth of a company’s shares are considered significant shareholders. Significant decision-making capability is deemed to be present when, among other factors, a person or group can exercise material and continuous influence upon the decisions of a company, when a person or company holds seats on the Board of Directors or has principal officers in another company, or when it can be assumed that one company or person is the beneficial recipient of credit facilities granted to another company.

The limits for credit extended to one borrower vary according to the type of borrower and the collateral received. The limit applicable to credit for any Peruvian borrower is 10% of the bank’s regulatory capital, applied to both unconsolidated and consolidated records, which may be increased to up to 30% if the loan is collateralized in a manner acceptable under Law 26702. As of December 31, 2002, the 10.0% credit limit per borrower of BCP, unconsolidated, was S/.140.9 million (US$40.1 million) for unsecured loans, and the 30.0% limit amounted to S/.422.6 million (US$120.3 million) for secured loans. If a financial institution exceeds these limits, the SBS may impose a fine on the institution.

In certain limited circumstances, the Central Bank has the authority to establish maximum limits on the interest rates that commercial banks and other financial institutions may charge on loans pursuant to Article 52 of the organic law of the Central Bank. No such limits are currently in place. However, there can be no assurance that in the future the Central Bank will not establish maximum limits on the interest rates that commercial banks or other financial institutions may charge.

Related Party Transactions

Law 26702 regulates and limits transactions with related parties and affiliates of financial institutions. In 1997, the SBS and CONASEV enacted regulations with precise definitions of indirect ownership, related parties and economic groups, which serve as the basis for determining limits on transactions with related parties and affiliates. These regulations also provide the basis for the subsequent development of specific standards for the supervision of financial and mixed conglomerates formed by financial institutions.

The total amount of loans to directors, employees or close relatives of any such persons may not exceed 7% of a bank’s paid-in capital in the aggregate. All loans made to any single related party borrower may not exceed 0.35% of paid-in capital (i.e., 5% of the overall 7% limit).

In addition, under Law 26702, as amended by Law 27102, the aggregate amount of loans to related party borrowers considered to be an economic group may not exceed 30% (previously 75%) of a bank’s regulatory capital. For purposes of this test, related party borrowers include any corporation holding, directly or indirectly, 4% or more of a bank’s shares, directors, certain of a bank’s principal executive officers or persons affiliated with the administrators of the bank. See “—Lending Activities” above for the meaning of “economic group” under Law 26702. Loans to individual related party borrowers are also subject to the limits on lending to a single borrower described under “—Lending Activities” above. All loans to related parties must be made on terms no more favorable than the best terms that the bank offers to the public.

Ownership Restrictions

Law 26702 establishes certain restrictions on the ownership of a bank’s shares. Banks must have at least two unrelated shareholders at all times. Restrictions are placed on the ownership of shares of any bank by persons that have committed certain crimes, as well as by public officials who have supervisory powers over banks or who are majority shareholders of an enterprise of a similar nature. All transfers of shares in a bank must be reported after the fact to the SBS by the bank. Transfers involving the acquisition by any individual or corporation, whether directly or indirectly, of more than 10% of a bank’s capital stock must receive prior authorization from the SBS. The SBS may deny authorization to such transfer of shares if the purchasers (or their shareholders in the case of juridical persons) are legally disabled, have engaged in illegal activity in the areas of banking, finance, insurance or reinsurance, or if objections are raised on the basis of the purchaser’s moral fitness or economic solvency. The decision of the SBS on this matter is final, and cannot be overturned in the courts. If a transfer is effected without obtaining the prior approval of the SBS, the purchaser may be fined an amount equivalent to the value of the securities transferred. In addition, the purchaser will be required to sell the securities within thirty days, or the fine will double, and the purchaser is disqualified from exercising its voting rights at shareholders’ meetings. Foreign investors receive the same treatment as Peruvian nationals and are subject to the limitations described above.

Risk Rating

Law 26702 and SBS Resolution No. 672, enacted in October 1997, require that all financial companies be rated by at least two risk rating companies on a semi-annual basis (updated in March and September), in addition to the SBS’s own assessment. Criteria to be considered in the rating include risk management and control procedures, loan quality, financial strength, profitability, liquidity and financial efficiency. Five risk categories are assigned, from “A”, lowest risk, to “E”, highest risk, allowing for sub-categories within each letter. As of September 2002, BCP was assigned the “A” risk category by its two rating agencies.

Deposit Fund

Law 26702 provides for mandatory deposit insurance to protect all types of deposits of financial institutions by establishing the Fondo de Seguro de Depósitos (Deposit Insurance Fund, or the “Fund”) for individuals, associations, not-for-profit companies, and demand deposits of non-financial companies. Financial institutions must pay an annual premium calculated on the basis of the type of deposits accepted by the entity and the risk classification of such entity, made by the SBS and at least two independent risk-rating agencies. The annual premiums begin at 0.45% of total funds on deposit under the coverage of the Fund, if the bank is classified in the lowest risk category, and increase to 1.45% applicable to banks in the highest risk category. The maximum amount that a customer is entitled to recover from the Fund is S/.68,067 from June through August 2003.

Intervention by the SBS

Pursuant to Law 26702, as amended by Law 27102, the SBS has the power to seize the operations and assets of a bank. These laws provide for three levels of intervention by the SBS: a supervisory regime, an intervention regime and the liquidation of the bank. Any of these actions may be taken upon the occurrence of certain events, including if such bank: (i) interrupts payments on its liabilities, (ii) repeatedly fails to comply with the instructions of the SBS or the Central Bank, (iii) repeatedly violates the law or the provisions of the bank’s bye-laws, (iv) repeatedly manages its operations in an unauthorized or unsound manner; or (v) its regulatory capital falls or is reduced by more than 50%. Rather than seizing the operations and assets of a bank, the SBS may adopt other measures, including (i) placing additional requirements on a commercial bank, (ii) ordering it to increase its capital stock or divest certain or all of its assets, or (iii) imposing a special supervision regime during which the bank must adhere to a financial restructuring plan.

The SBS intervention regime, halts a bank’s operations and may last for a maximum of 45 days, which may be extended for a second period of up to 45 additional days, during which time the SBS may institute measures such as: (i) canceling losses by reducing reserves, capital and subordinated debt, (ii) segregating certain assets and liabilities for transfer to another financial institution, and (iii) merging the intervened bank with another acquiring institution according to the program established by Urgent Decree No. 108-2000, of November 2000. After the intervention, the SBS will proceed to liquidate the bank except if the preceding option (iii) was applied.

(iii) ASHC

General

Atlantic Security Bank (“ASB”), a subsidiary of ASHC, is a Cayman Islands bank with a branch in Panama. ASB is regulated by the regulatory authorities of the Cayman Islands and the Panama branch is regulated by the banking authorities of Panama. The supervision of ASB by Cayman Islands and Panamanian regulatory authorities is less extensive than the supervision and regulation of U.S. banks by U.S. banking authorities. In particular, ASB does not have a lender of last resort and its deposits are not guaranteed by any government agency.

ASB is registered as an exempted company and licensed in the Cayman Islands pursuant to the Banks and Trust Companies Law (2003 Revision) (the “Cayman Banking Law”). ASB holds an unrestricted Category B Banking License and a Trust License. As a holder of a Category B License, ASB may not take deposits from any person resident in the Cayman Islands other than another licensee or an exempted or an ordinary non-resident company which is not carrying on business in the Cayman Islands.

ASB also may not invest in any asset which represents a claim on any person resident in the Cayman Islands except a claim resulting from: (i) a loan to an exempted or an ordinary non-resident company not carrying on business in the Cayman Islands; (ii) a loan by way of mortgage to a member of its staff or to a person possessing or being deemed to possess Caymanian status under the Immigration Law, for the purchase or construction of a residence in the Cayman Islands to be owner-occupied; (iii) a transaction with another licensee; or (iv) the purchase of bonds or other securities issued by the government of the Cayman Islands, a body incorporated by statute, or a company in which the government is the sole or majority beneficial owner. In addition, ASB may not, without the written approval of the Cayman Islands Monetary Authority (the “Authority”), carry on any business in the Cayman Islands other than for which the “B” license has been obtained.

There are no specified ratio or liquidity requirements under the Cayman Banking Law, but the Authority expects observance of prudent banking practices. As a matter of general practice, the ratio of liabilities to capital and surplus should not exceed 40-to-1 and the ratio of risk-weighted assets to capital and surplus should not exceed 8.33-to-1 (12%). There is a statutory minimum net worth requirement of US$480,000, but, in the normal course of events, the Authority will require a bank or trust company to maintain a higher paid-in capital appropriate to its business. It is the practice of the Authority to require compliance with the guidelines promulgated by the Basel Accord on Banking Regulations and Supervisory Practices although, in special circumstances, different gearing and/or capital risk asset ratios may be negotiated. Monitoring of compliance with the Cayman Banking Law is the responsibility of the Authority.

Continuing Requirements

Under the law of the Cayman Islands, ASB is subject to the following continuing requirements: (i) to ensure good standing under the Cayman Islands Companies Law, including the filing of annual and other returns and the payment of annual fees, (ii) to file with the Registrar of Companies particulars of any change in the information or documents required to be supplied to him and to pay annual fees, (iii) to file quarterly with the Authority certain prescribed forms, (iv) to file with the Authority audited accounts within three months of each financial year; in the case of a locally incorporated bank which is not part of a substantial international banking group, current practice is also to request a senior officer or board member to discuss these accounts each year personally at a meeting with the Authority, and (v) to file an annual questionnaire.

ASB is required by the Cayman Banking Law to have at least two directors. Additionally, ASB must receive prior approval from the Authority (i) for any proposed change in the directors or senior officers, though in exceptional cases a waiver can be obtained enabling changes to be reported after the event or even annually in the case of a branch of a substantial international bank, (ii) for the issue, transfer or other disposal of shares (it is rare for a waiver to be granted in respect of shares except in the case of a branch of a substantial international bank and where the shares are widely held and publicly traded), (iii) for any significant change in the “business plan” filed on the filing of the original License application, or (iv) to open a subsidiary, branch, agency or representative office outside the Cayman Islands. Finally, ASB must obtain the prior approval of the Authority to change its name and must also notify the Authority of any change in the principal office and authorized agents in the Cayman Islands.

(iv) Banco Tequendama

The Colombian financial system operates within the framework of Law 45, which has been modified repeatedly since 1990 in order to make Colombian banks more competitive and to comport with the Basel Accord guidelines, including the requirement to report consolidated financial statements. Banking regulations are issued by the Banco de la República (the “Colombian Central Bank”) and by the Superintendencia Bancaria (the “Banking Superintendency”). The Colombian Central Bank is in charge of monetary and exchange rate policies, setting legal reserves and possible interest rate controls. It also acts as banker to Colombia’s financial institutions and as the lender of last resort. The Banking Superintendency supervises financial activities to ensure compliance with Colombia’s law of financial institutions, with the exception of brokerage houses, which fall under the jurisdiction of the Superintendencia de Valores (the Securities Superintendency).

(v) BCB

The Bolivian banking system operates under the Ley de Bancos y Entidades Financieras (the Law of Banks and Financial Entities) No. 1488, enacted on April 14, 1993, which grants supervisory powers to the Superintendency of Banks and Financial Entities. Additionally, Banco Central de Bolivia (the Central Bank of Bolivia) regulates financial intermediation and deposit gathering activities, determines monetary and foreign exchange policies, and establishes reserve requirements on deposits and capital adequacy guidelines that banks and financial companies must follow. The Superintendencia de Valores (the Securities Superintendency) supervises brokerage activities, as conducted through Credibolsa S.A., BCB’s subsidiary, which operates under the Ley del Mercado de Valores (the Securities Markets Law) No. 1834, enacted on March 31, 1998.

(vi) PPS

Overview

The operations of PPS are regulated by Law 26702 and the SBS. Peruvian insurance companies must regularly submit reports to the SBS regarding their operations. In addition, the SBS conducts on-sight examinations of insurance companies at least on an annual basis, primarily to review compliance with the solvency margin and reserve requirements, investment requirements and the rules governing the recognition of premium income. If the SBS determines that a company is unable to meet the solvency margin or technical reserve requirements, or is unable to pay claims as they come due, it may either liquidate the company or permit it to merge with another insurance company.

Under Peruvian law, insurance companies may engage in certain credit risk operations, such as guarantees, bonds and trusteeships, but are prohibited from offering other banking services, operating mutual funds or offering portfolio management services. In addition, insurance companies may not conduct brokerage operations for third parties.

Peruvian insurance companies are prohibited from having an ownership interest in other insurance or reinsurance companies or in private pension funds.

Establishment of an Insurance Company

Insurance companies must seek the authorization of the SBS before commencing operations. Peruvian law establishes certain minimum capital requirements for insurance and reinsurance companies. These requirements must be met through cash investments in the company. The statutory amounts are expressed in constant value and are adjusted quarterly based on the Indice de Precios al Por Mayor (the Wholesale Price Index).

Solvency Requirements

Pursuant to Law 26702, the SBS regulates the solvency margin of Peruvian insurance companies. The solvency margin is based upon calculations that take into account the amount of premiums written and losses incurred during a specified period prior to date on which the calculation is made.

Insurance companies must also maintain “solvency equity,” which must at least be equal to the highest of (a) the solvency margin, or (b) the minimum capital requirement, as established by law, or (c) the company’s overall indebtedness, calculated in accordance with the provisions of Law 26702. The required amount of solvency equity is recalculated at least quarterly and is adjusted for inflation. If the insurance company has outstanding credit risk operations, part of the solvency equity should be segregated for their coverage.

Legal Reserve Requirements

Peruvian law also requires that all insurance companies establish a legal guarantee reserve for policyholders, by setting aside 10% of adjusted income before taxes, until the reserve reaches at least 35% of paid-in capital. For PPS, the minimum capital required as of June 30, 2003 is S/.11.9 million (US$3.4 million).

Reserve Requirements

Pursuant to Law 26702 and regulations issued by the SBS, Peruvian insurance companies must establish Technical Reserves. See “—5. Insurance—(ii) Claims and Reserves.” Law 26702 also requires insurance companies to create a reserve for IBNR claims, but SBS regulations implementing this law permit gradual additional reserves through December 31, 2002. Estimated IBNR claims are reflected as a liability, net of recoveries and reinsurance, in the Credicorp Consolidated Financial Statements, and estimated by taking into consideration the arithmetic progression of the percentages of reserves incurred but not reported, computed over the actual figures for the years 1994 through 2001, inclusive. See Note 2(e) to the Credicorp Consolidated Financial Statements. Finally, PPS is required by the SBS to establish pre-event reserves for risk of catastrophes. See “—5. Insurance—(ii) Claims and Reserves.”

Investment Requirements

Pursuant to Law 26702, the total amount of an insurance company’s “solvency equity” and Technical Reserves must be permanently supported by diversified assets, which may not be pledged or otherwise encumbered. The investment regulations further specify that deposits in and bonds of one financial institution together cannot exceed 10% of the total of an insurer’s “solvency equity” and Technical Reserves combined. In general, no more than 20% of an insurance company’s “solvency equity” and Technical Reserves combined may be invested in instruments (including stocks and bonds) issued by a company or group of companies. In addition, in order for an insurance company to invest in non-Peruvian securities, such securities must be rated by an internationally recognized credit rating company. Securities owned by insurance companies must be registered in the Public Registry of Securities of Perú or the analogous registry of their respective country.

Related Party Transactions

Law 26702 generally provides that insurance companies may not extend credit to or guarantee the obligations of employees or members of the Board of Directors, except for home mortgage loans to employees.

Ownership Restrictions

Law 26702 establishes the same types of restrictions with respect to the ownership and transfer of insurance company shares as it does with respect to the ownership and transfer of shares in banks. See “—11. Supervision and Regulation—(ii) BCP—Overview.”

12. Selected Statistical Information

The following tables present certain selected statistical information and ratios for Credicorp for the periods indicated. The selected statistical information should be read in conjunction with the information included in “Item 5. Operating and Financial Review and Prospects—(A) Operating Results” and the Credicorp Consolidated Financial Statements and the notes thereto. The statistical information and discussion and analysis presented below for 2002, 2001 and 2000 reflect the consolidated financial position of Credicorp and its subsidiaries, including BCP, ASHC, PPS and Banco Tequendama, as of December 31, 2002, 2001 and 2000 and the results of operations for 2002, 2001 and 2000.

(i) Average Balance Sheets and Income from Interest-Earning Assets

The tables below set forth selected statistical information based on Credicorp’s average balance sheets prepared on a consolidated basis. Except as otherwise indicated, average balances, when used, have been classified by currency (Nuevos Soles or foreign currency (primarily U.S. Dollars)), rather than by the domestic or international nature of the balance. In addition, except where noted, such average balances are based on the quarterly ending balances in each year, with any such quarter-end balance denominated in Nuevos Soles having been converted into U.S. Dollars using the applicable SBS exchange rate as of the date of such balance. Nominal average interest rates have, in certain cases, been restated as real average interest rates using the formula described below. Management believes that adjusting average balances and average interest rates for inflation in this manner provides more meaningful information for investors than unadjusted average balances and rates and does not believe that the quarterly averages present trends materially different from those that would be presented by daily averages.

Real Average Interest Rates

The real average interest rates set forth in the tables below have been calculated by adjusting the nominal average interest rates on Nuevo Sol-denominated and foreign currency-denominated assets and liabilities using the following respective formulas:

Where:

R(s) = real average interest rate on Nuevo Sol-denominated assets and liabilities for the period.
R(d) = real average interest rate on foreign currency-denominated assets and liabilities for the period.
N(s) = nominal average interest rate on Nuevo Sol-denominated assets and liabilities for the period.
N(d)= nominal average interest rate on foreign currency-denominated assets and liabilities for the period.
D = devaluation rate of the Nuevo Sol relative to the U.S. Dollar for the period.
I = inflation rate in Perú for the period (based on the Peruvian wholesale inflation rate).

Under these adjustment formulas, assuming positive nominal average interest rates, the real average interest rate on a portfolio of Nuevo Sol-denominated assets or liabilities would be equal to the nominal average interest rate on that portfolio if the inflation rate were zero. The real average interest rate would be less than the nominal average interest rate if the inflation rate were positive, and the real average interest rate would be greater than the nominal average interest rate if the inflation rate were negative (i.e., becomes a deflation rate). In addition, the real average interest rate would be negative if the inflation rate were greater than the average nominal interest rate.

Similarly, assuming positive nominal average interest rates, the real average interest rate on a portfolio of foreign currency-denominated assets or liabilities would be equal to the nominal average interest rate on that portfolio if the difference between the inflation rate and the devaluation rate were zero. The real average interest rate would be less than the nominal average interest rate if the inflation rate were greater than the devaluation rate, and the real average interest rate would be greater than the nominal average interest rate if the inflation rate were less than the devaluation rate. In addition, the real average interest rate would be negative if the inflation rate were greater than the sum of (i) the average nominal interest rate, (ii) the devaluation rate, and (iii) the product of (A) the average nominal interest rate and (B) the devaluation rate.

The formula for the real average rate for foreign currency-denominated assets and liabilities (R(d)) reflects a gain or loss in purchasing power caused by the difference between the devaluation rate of the Nuevo Sol and the inflation rate in Perú during the relevant period.

The following example illustrates the calculation of the real average interest rate for a foreign currency-denominated asset during a particular period bearing a nominal average interest rate of 20% per year (N(d) = 0.20) during the period, assuming a 15% annual devaluation rate (D = 0.15) and a 25% annual inflation rate (I = 0.25) during the period:

The real average interest rate is less than the nominal average interest rate in this example because the inflation rate is greater than the devaluation rate. If the inflation rate had been less than the devaluation rate (e.g., 25% and 40%, respectively), the real average interest rate would have been greater than the nominal average interest rate. If the inflation rate had been equal to the devaluation rate (e.g., 25% and 25%, respectively), the real average interest rate would have been equal to the nominal average interest rate. At any annual inflation rate above 38% in the original example (which is equal to the sum of N(d), D, and the product of N(d) and D in that example), the real average interest rate would be negative.

The following tables show quarterly average balances for all of Credicorp’s assets and liabilities, interest earned and paid amounts, and nominal rates and real rates for Credicorp’s interest-earning assets and interest-bearing liabilities, all for the years ended December 31, 2000, 2001 and 2002. Loan fees, which are not material, are included in the tables as interest earned.

Average Balance Sheets
Assets, Interest Earned and Average Interest Rates

Average Balance Sheets
Liabilities, Interest Paid and Average Interest Rates

Changes in Net Interest Income and Expense: Volume and Rate Analysis

Interest-Earning Assets, Net Interest Margin and Yield Spread

The following table shows for each of the periods indicated, by currency, the levels of average interest-earning assets, net interest income, gross yield, net interest margin and yield spread, all on a nominal basis.

Interest-Earning Deposits With Other Banks

The following table shows the short-term funds deposited with other banks broken down by currency as of the dates indicated. Deposits held in countries other than Perú are denominated in several currencies; however, the substantial majority of such deposits are denominated in U.S. Dollars. These currencies were converted to U.S. Dollars using the applicable SBS exchange rate as of the date of relevant balance.

(ii) Investment Portfolio

The following table shows the net book value of Credicorp’s investment securities by type at the dates indicated. Figures shown in this table include marketable securities as investments. See Notes 5 and 7 to the Credicorp Consolidated Financial Statements.

The weighted-average yield on Credicorp’s Nuevo Sol-denominated, interest and dividend-earning investment portfolio was 7.6% in 2000, 6.6% in 2001, and 3.4% in 2002. The weighted-average yield on Credicorp’s foreign currency-denominated portfolio was 9.2% in 2000, 8.1% in 2001, and 7.5% in 2002. The total weighted-average yield of Credicorp’s portfolio was 8.7% in 2000, 7.7% in 2001, and 6.4% in 2002.

The following table shows the maturities of Credicorp’s investment securities by type at December 31, 2002: