IFS 0001564590-20-024704 6-K as filed: May 12, 2020


Exhibit 99.1

Intercorp Financial Services Inc.

First Quarter 2020 Earnings

Lima, Peru, May 12, 2020. Intercorp Financial Services Inc. (Lima Stock Exchange/NYSE: IFS) announced today its unaudited results for the first quarter 2020. These results are reported on a consolidated basis under IFRS in nominal Peruvian soles.

Intercorp Financial Services: Profits reached S/ 145 million in 1Q20 and ROAE at 6.6% affected by higher provisions at Interbank and impacts on investments at Interseguro and Inteligo

•

Relevant net income of S/ 218 million in 1Q20

•

Early and fast response to an unprecedented situation has guaranteed continuity of our operations

•

Reinforced liquidity and capital position to face uncertain times to come

•

Clear opportunity to accelerate digital in the new normal, supported by ready-to-scale digital platform

Interbank: Net profit decreased 17.1% YoY mainly due to higher provisions, ROAE at 13.8%

•

Initial impacts of COVID-19 already reflected in 1Q20 key banking indicators

•

Continued growth in retail deposits and market share up to 13.7% after lockdown

•

Deceleration of loan growth and activity after lockdown, especially in retail (12.3% YoY growth)

•

First impact on provisions from COVID-19, NPL coverage at 136%

•

CET1 improved 180 bps YoY to 12.0%, enhanced by higher capitalization

Interseguro: Quarterly results affected by negative impacts on investment portfolio due to the COVID-19 outbreak

•

Net premiums grew 10.8% QoQ and 1.0% YoY mainly driven by retail insurance business

•

Market leader in annuities with a 27.9% share

•

ROIP of 4.2% in 1Q20, or 6.1% excluding COVID-19 one-offs, compared to 5.8% in 4Q19 and 1Q19

Inteligo: Quarterly results affected by negative impacts on investment portfolio due to the COVID-19 outbreak

•

Fee income/average AUM remained stable QoQ and grew 10 bps YoY, to 1.0% in 1Q20

•

AUM decreased QoQ due to mark-to-market, despite growth in net new money

Intercorp Financial Services

SUMMARY

Intercorp Financial Services’ Statement of financial position

S/ million	03.31.19			12.31.19			03.31.20			%chg 03.31.20/ 12.31.19			%chg 03.31.20/ 03.31.19
Assets
Cash and due from banks and inter-bank funds		9,730.6			11,213.9			11,733.3			4.6	%		20.6	%
Financial investments		17,852.8			19,072.7			18,634.9			(2.3	)%		4.4	%
Loans, net of unearned interest		35,019.0			38,531.6			38,556.6			0.1	%		10.1	%
Impairment allowance for loans		(1,396.2	)		(1,394.8	)		(1,494.5	)		7.2	%		7.0	%
Property, furniture and equipment, net		948.5			950.9			935.6			(1.6	)%		(1.4	)%
Other assets		3,601.6			3,187.9			3,445.7			8.1	%		(4.3	)%
Total assets		65,756.2			71,562.3			71,811.6			0.3	%		9.2	%
Liabilities and equity
Deposits and obligations		34,790.0			38,093.2			37,568.9			(1.4	)%		8.0	%
Due to banks and correspondents and inter-bank funds		3,832.6			4,148.8			5,446.1			31.3	%		42.1	%
Bonds, notes and other obligations		6,663.2			6,890.3			6,973.4			1.2	%		4.7	%
Insurance contract liabilities		10,407.2			11,338.8			11,064.3			(2.4	)%		6.3	%
Other liabilities		2,336.4			2,187.7			2,212.6			1.1	%		(5.3	)%
Total liabilities		58,029.4			62,658.8			63,265.3			1.0	%		9.0	%
Equity, net
Equity attributable to IFS' shareholders		7,686.8			8,856.9			8,499.6			(4.0	)%		10.6	%
Non-controlling interest		40.0			46.6			46.7			0.3	%		16.9	%
Total equity, net		7,726.8			8,903.4			8,546.3			(4.0	)%		10.6	%
Total liabilities and equity net		65,756.2			71,562.3			71,811.6			0.3	%		9.2	%

Intercorp Financial Services’ net profit was S/ 144.9 million in 1Q20, a decrease of S/ 267.9 million QoQ, or 64.9%, and S/ 207.8 million YoY, or 58.9%. IFS annualized ROAE was 6.6% in 1Q20, below the 19.0% reported in both 4Q19 and 1Q19.

It is worth mentioning that IFS’s results were affected by (i) the reversion of loan loss provisions for S/ 73.4 million after taxes in 4Q19 due to fine-tuning of IFRS9 models reflecting improved risk profile on customers; (ii) the one-off impact of a liability management transaction on financial expense for S/ 29.0 million after taxes in 4Q19; and (iii) the COVID-19 outbreak in 1Q20, which negatively impacted Interbank’s revenue sources and asset quality, as well as Interseguro’s and Inteligo’s results from investments.

Intercorp Financial Services’ P&L statement

S/ million	1Q19			4Q19			1Q20			%chg QoQ			%chg YoY
Interest and similar income		1,166.7			1,249.9			1,248.2			(0.1	)%		7.0	%
Interest and similar expenses		(342.5	)		(391.4	)		(339.5	)		(13.3	)%		(0.9	)%
Net interest and similar income		824.2			858.5			908.7			5.9	%		10.3	%
Impairment loss on loans, net of recoveries		(186.4	)		(147.9	)		(312.6	)	n.m.				67.7	%
Recovery (loss) due to impairment of financial investments		1.9			(8.3	)		(40.5	)	n.m.			n.m.
Net interest and similar income after impairment loss		639.7			702.3			555.6			(20.9	)%		(13.1	)%
Fee income from financial services, net		223.0			250.3			220.3			(12.0	)%		(1.2	)%
Other income		138.9			181.9			39.3			(78.4	)%		(71.7	)%
Total premiums earned minus claims and benefits		(67.4	)		(73.0	)		(59.4	)		(18.6	)%		(11.8	)%
Net Premiums		171.2			156.1			172.9			10.8	%		1.0	%
Adjustment of technical reserves		(73.3	)		(50.1	)		(48.4	)		(3.3	)%		(33.9	)%
Net claims and benefits incurred		(165.3	)		(179.0	)		(183.9	)		2.7	%		11.2	%
Other expenses		(481.7	)		(513.9	)		(511.2	)		(0.5	)%		6.1	%
Income before translation result and income tax		452.5			547.6			244.6			(55.3	)%		(45.9	)%
Translation result		10.1			12.5			(23.9	)	n.m.			n.m.
Income tax		(109.9	)		(147.3	)		(75.8	)		(48.5	)%		(31.0	)%
Profit for the period		352.7			412.8			144.9			(64.9	)%		(58.9	)%
Adjusted profit for the period⁽¹⁾		352.7			441.8			144.9			(67.2	)%		(58.9	)%
Attributable to IFS' shareholders		350.6			410.3			143.4			(65.1	)%		(59.1	)%
EPS		3.17			3.55			1.24
ROAE		19.0	%		19.0	%		6.6	%
ROAA		2.2	%		2.3	%		0.8	%
Efficiency ratio⁽¹⁾		33.9	%		33.3	%		36.4	%

(1)	Excluding the one-off impact of a liability management transaction in our banking segment for S/ 42.3 million, or S/ 29.0 million after taxes, in 4Q19.

Quarter-on-quarter performance

Profits decreased 64.9% QoQ mainly due to higher impairment loss on loans at Interbank, in addition to reductions in other income at Inteligo and Interseguro, and in net fee income from financial services at Interbank. Furthermore, a loss due to impairment of financial investments at Interseguro and negative performances in translation result at all three subsidiaries also contributed to the quarterly reduction in earnings. These effects were partially compensated by higher net interest and similar income across all subsidiaries, in addition to higher net premiums earned at Interseguro and lower other expenses, also at Interseguro.

Net interest and similar income increased 5.9% QoQ, mainly due to a base effect related to a one-off expense from a liability management transaction in 4Q19; partially offset by lower interest on loans and on due from banks and inter-bank funds, all at Interbank.

Impairment loss on loans grew more than two-fold QoQ, mainly explained by higher requirements in credit cards and other consumer loans, as well as in exposures to medium-sized companies and small-sized companies, all related to the impacts of the COVID-19 outbreak on the bank’s expected loss models. It is worth noting that the QoQ growth was also explained by the reversion of loan loss provisions for S/ 104.1 million due to fine-tuning of IFRS9 models reflecting improved risk profile on Interbank’s customers in 4Q19. Excluding this effect, impairment loss on loans, net of recoveries would have increased 24.1% when compared to such quarter.

Net fee income from financial services decreased 12.0% QoQ, mainly explained by reductions in commissions from credit card services, fees from maintenance and mailing of accounts, transfer fees and commissions on debit card services, and commissions from banking services, all at Interbank. Additionally, a base effect at Inteligo due to above-average returns in various asset classes during 4Q19, as well as increased recurring income due to higher mark-to-market on AUM in such quarter, also contributed to the quarterly reduction in net fee income from financial services.

Other income decreased 78.4% QoQ mainly due to negative mark-to-market valuations and realized losses at both Inteligo and Interseguro, mostly attributed to the COVID-19 outbreak. This effect was partially offset by higher net gain on sale of financial investments at Interbank.

Total premiums earned minus claims and benefits at Interseguro showed a quarterly growth of S/ 13.6 million, explained by a S/ 16.8 million increase in net premiums and a S/ 1.7 million decrease in adjustment of technical reserves, partially offset by a S/ 4.9 million increase in net claims and benefits incurred.

Other expenses remained relatively stable QoQ as lower administrative expenses at Interseguro, mainly related to efficiencies implemented on IT services, were offset by higher incentive fees for annual performance at Inteligo.

IFS effective tax rate increased, from 26.3% in 4Q19 to 34.4% in 1Q20, mainly due to the negative contribution of Inteligo and Interseguro, in addition to the effect of a negative translation result.

Year-on-year performance

Profits decreased 58.9% YoY mostly due to higher impairment loss on loans at Interbank and other expenses at all three subsidiaries, in addition to reductions in other income mainly at Inteligo and Interseguro. Furthermore, a loss due to impairment of financial investments at Interseguro and negative performances in translation result at all three subsidiaries also contributed to the annual reduction in earnings. These effects were partially compensated by higher net interest and similar income at Interbank and Interseguro, as well as higher net premiums earned at Interseguro.

Net interest and similar income increased 10.3% YoY, mainly driven by higher interest on loans at Interbank and income from dividends at Interseguro.

Impairment loss on loans grew 67.7% mainly as a result of the impacts of the COVID-19 outbreak on the bank’s expected loss models.

Net fee income from financial services slightly decreased 1.2% YoY mainly due to higher eliminations upon consolidation, as well as to lower commissions from credit card services and higher variable expenses related to credit cards, both at Interbank. These effects were partially offset by higher brokerage fees due to increased trading volumes at Inteligo, triggered by higher price volatility and client appetite for investing or rebalancing portfolios.

Other income decreased 71.7% YoY mainly explained by negative mark-to-market valuations and realized losses at both Inteligo and Interseguro, mostly attributed to the COVID-19 outbreak.

Total premiums earned minus claims and benefits at Interseguro grew S/ 8.0 million explained by a S/ 24.9 million reduction in adjustment of technical reserves and a S/ 1.7 million increase in net premiums, partially offset by an S/ 18.6 million growth in net claims and benefits incurred.

Other expenses grew across all subsidiaries, in particular due to higher administrative expenses at Interbank, as well as to higher incentive fees for annual performance at Inteligo.

IFS effective tax rate increased, from 23.8% in 1Q19 to 34.4% in 1Q20, mainly attributed to the negative results at both Inteligo and Interseguro, in addition to the effect of a negative translation result.

CONTRIBUTION BY SEGMENTS

The following table shows the contribution of Interbank, Interseguro and Inteligo to Intercorp Financial Services’ net profit. The performance of each of the three segments is discussed in detail in the following sections.

Intercorp Financial Services’ Profit by segment

S/ million	1Q19			4Q19			1Q20			%chg QoQ			%chg YoY
Interbank		299.7			337.5			221.5			(34.4	)%		(26.1	)%
Interseguro		28.9			34.7			(21.6	)	n.m.			n.m.
Inteligo		78.3			69.6			(54.7	)	n.m.			n.m.
Corporate and eliminations		(54.2	)		(29.0	)		(0.4	)	n.m.			n.m.
IFS profit for the period		352.7			412.8			144.9			(64.9	)%		(58.9	)%

Interbank

SUMMARY

Interbank’s profits reached S/ 221.5 million in 1Q20, a decrease of S/ 116.0 million QoQ and S/ 78.2 million YoY. The quarterly result was mainly attributed to a S/ 164.7 million increase in impairment loss on loans and a S/ 29.3 million reduction in net fee income from financial services. These effects were partially offset by a S/ 35.8 million increase in net interest and similar income.

The annual result was mainly due to increases of S/ 126.3 million in impairment loss on loans and S/ 25.0 million in other expenses, in addition to a S/ 23.4 million decrease in other income. These effects were partially offset by a S/ 76.7 million increase in net interest and similar income.

It is worth mentioning that Interbank’s results were affected by (i) the gain on sale of Interfondos, Interbank’s former mutual funds subsidiary, to Inteligo for S/ 32.4 million after taxes in 1Q19; (ii) the reversion of loan loss provisions for S/ 73.4 million after taxes in 4Q19 due to fine-tuning of IFRS9 models reflecting improved risk profile on customers; (iii) the one-off impact of a liability management transaction on financial expense for S/ 29.0 million after taxes in 4Q19; and (iv) the COVID-19 outbreak, which negatively impacted the bank’s revenue sources and asset quality in 1Q20.

Interbank’s ROAE was 13.8% in 1Q20, below the 21.8% registered in 4Q19 and the 22.1% reported in 1Q19. However, excluding the one-off impact of the liability management transaction in 4Q19 and the gain on sale of Interfondos in 1Q19, ROAE for such periods would have resulted in 23.6% and 19.8%, respectively.

Banking Segment’s P&L Statement

S/ million	1Q19			4Q19			1Q20			%chg QoQ			%chg YoY
Interest and similar income		965.0			1,051.7			1,037.1			(1.4	)%		7.5	%
Interest and similar expense		(307.4	)		(353.2	)		(302.8	)		(14.3	)%		(1.5	)%
Net interest and similar income		657.6			698.5			734.3			5.1	%		11.7	%
Impairment loss on loans, net of recoveries		(186.3	)		(147.9	)		(312.6	)	n.m.				67.8	%
Recovery (loss) due to impairment of financial investments		(0.0	)		0.0			(0.2	)	n.m.			n.m.
Net interest and similar income after impairment loss		471.2			550.6			421.5			(23.5	)%		(10.6	)%
Fee income from financial services, net		193.4			219.7			190.4			(13.4	)%		(1.6	)%
Other income		133.1			107.3			109.7			2.3	%		(17.5	)%
Other expenses		(390.8	)		(413.1	)		(415.8	)		0.6	%		6.4	%
Income before translation result and income tax		406.9			464.5			305.8			(34.2	)%		(24.8	)%
Translation result		0.2			(3.3	)		(2.9	)	n.m.			n.m.
Income tax		(107.4	)		(123.7	)		(81.4	)		(34.2	)%		(24.2	)%
Profit for the period		299.7			337.5			221.5			(34.4	)%		(26.1	)%
ROAE^(1,2)		19.8	%		23.6	%		13.8	%
Efficiency ratio^(1,2)		40.3	%		37.7	%		38.8	%
NIM⁽¹⁾		5.5	%		5.8	%		5.6	%
NIM on loans		8.6	%		8.5	%		8.6	%

(1)	Excluding the gain on sale of Interfondos for S/ 52.6 million, or S/ 32.4 million after taxes, in 1Q19. Including this effect, ROAE and Efficiency ratio in such quarter were 22.1% and 38.2%, respectively.

(2) Excluding the one-off impact of a liability management transaction for S/ 42.3 million, or S/ 29.0 million after taxes in 4Q19. Including this effect, ROAE, Efficiency ratio and NIM were 21.8%, 39.2% and 5.4% in such quarter.

INTEREST-EARNING ASSETS

Interbank’s interest-earning assets reached S/ 51,799.2 million as of March 31, 2020, an increase of 1.7% QoQ and 10.5% YoY.

The quarterly growth in interest-earning assets was attributed to increases of 8.6% in financial investments and 4.3% in cash and due from banks and inter-bank funds, while loan balances remained relatively stable QoQ. Growth in financial investments was mainly a result of higher balances of sovereign bonds, global bonds and corporate bonds from financial institutions, partially compensated by a reduction in Central Bank Certificates of Deposits (CDBCR). On the other hand, the increase in cash and due from banks and inter-bank funds was due to higher deposits and restricted funds at the Central Bank, and inter-bank funds.

The YoY increase in interest-earning assets was attributed to growth of 11.7% in cash and due from banks and inter-bank funds, 10.2% in loans and 9.8% in financial investments. The increase in cash and due from banks and inter-bank funds was mainly due to higher restricted funds and deposits at the Central Bank, while growth in financial investments, to higher volumes of sovereign bonds.

Interest-earning assets

S/ million	03.31.19		12.31.19		03.31.20		%chg 03.31.20/ 12.31.19			%chg 03.31.20/ 03.31.19
Cash and due from banks and inter-bank funds		9,217.9		9,870.9		10,295.8		4.3	%		11.7	%
Financial investments		5,511.4		5,574.5		6,052.4		8.6	%		9.8	%
Loans		32,159.2		35,512.5		35,451.0		(0.2	)%		10.2	%
Total interest-earning assets		46,888.5		50,957.9		51,799.2		1.7	%		10.5	%

Loan portfolio

S/ million	03.31.19			12.31.19			03.31.20			%chg 03.31.20/ 12.31.19			%chg 03.31.20/ 03.31.19
Performing loans
Retail		17,205.6			19,161.2			19,313.4			0.8	%		12.3	%
Commercial		14,994.8			16,304.5			16,106.0			(1.2	)%		7.4	%
Total performing loans		32,200.5			32,200.5			32,200.5			(0.1	)%		10.0	%
Restructured and refinanced loans		213.7			251.2			258.8			3.0	%		21.1	%
Past due loans		867.2			943.2			1,004.2			6.5	%		15.8	%
Total gross loans		33,281.4			33,281.4			33,281.4			0.1	%		10.2	%
Add (less)
Accrued and deferred interest		273.8			247.1			263.1			6.5	%		(3.9	)%
Impairment allowance for loans		(1,396.1	)		(1,394.7	)		(1,494.4	)		7.2	%		7.0	%
Total direct loans, net		32,159.2			35,512.5			35,451.0			(0.2	)%		10.2	%

Performing loans remained relatively stable QoQ as a 1.2% reduction in commercial loans was offset by a 0.8% growth in retail loans.

The quarterly decrease in commercial loans was mainly explained by lower leasing operations for medium-sized companies and trade finance loans in the corporate segment, partially offset by higher short and medium-term loans, mostly in the corporate segment.

The QoQ increase in retail loans was due to growth of 1.9% in other consumer loans and 1.5% in mortgages, partially compensated by a 1.2% reduction in credit cards. Growth in other consumer loans was mainly explained by higher cash loans and payroll deduction loans, while the increase in mortgages was due to a higher demand in both traditional and MiVivienda products.

Performing loans grew 10.0% YoY explained by increases of 12.3% in retail loans and 7.4% in commercial loans.

The annual growth in retail loans was mainly due to increases of 13.2% in credit cards, 12.4% in other consumer loans and 11.3% in mortgages. Other consumer loans grew as a result of higher cash loans, payroll deduction loans and car loans; while mortgages increased due to a higher demand in both traditional and MiVivienda products.

The YoY increase in commercial loans was mainly explained by higher trade finance loans for corporate and medium-sized companies, and short and medium-term lending for medium-sized companies.

Breakdown of retail loans

S/ million	03.31.19		12.31.19		03.31.20		%chg 03.31.20/ 12.31.19			%chg 03.31.20/ 03.31.19
Consumer loans:
Credit cards		5,125.0		5,870.0		5,800.4		(1.2	)%		13.2	%
Other consumer		5,769.5		6,365.2		6,486.1		1.9	%		12.4	%
Total consumer loans		10,894.6		12,235.1		12,286.5		0.4	%		12.8	%
Mortgages		6,311.1		6,926.0		7,027.0		1.5	%		11.3	%
Total retail loans		17,205.6		19,161.2		19,313.4		0.8	%		12.3	%

FUNDING STRUCTURE

Funding structure

S/ million	03.31.19			12.31.19			03.31.20			%chg 03.31.20/ 12.31.19			%chg 03.31.20/ 03.31.19
Deposits and obligations		32,561.7			32,561.7			32,561.7			(1.4	)%		7.7	%
Due to banks and correspondents and inter-bank funds		3,512.6			3,512.6			3,512.6			32.8	%		44.8	%
Bonds, notes and other obligations		5,610.9			5,610.9			5,610.9			0.5	%		3.9	%
Total		41,685.3			41,685.3			41,685.3			1.7	%		10.3	%
% of funding
Deposits and obligations		78.1	%		78.7	%		76.2	%
Due to banks and correspondents and inter-bank funds		8.4	%		8.5	%		11.1	%
Bonds, notes and other obligations		13.5	%		12.8	%		12.7	%

Interbank’s total funding base increased 1.7% QoQ, in line with the performance of interest-earning assets. This was mainly explained by a 32.8% growth in due to banks and correspondents and inter-bank funds, partially compensated by a 1.4% reduction in deposits and obligations. Bonds, notes and other obligations remained relatively stable QoQ.

The quarterly increase in due to banks and correspondents and inter-bank funds was the result of higher short-term funding from correspondent banks abroad, as well as higher medium-term funding from the Central Bank, both associated with the bank’s strategy to increase liquidity as part of the measures implemented to deal with the COVID-19 outbreak.

The QoQ reduction in deposits and obligations was mainly due to a 23.7% reduction in institutional deposits, partially compensated by increases of 5.2% in retail deposits and 2.8% in commercial deposits.

The bank’s total funding base increased 10.3% YoY, slightly below the annual growth in interest-earning assets, and was mainly explained by growth of 44.8% in due to banks and correspondents and inter-bank funds, 7.7% in deposits and obligations, and 3.9% in bonds, notes and other obligations.

The YoY increase in due to banks and correspondents and inter-bank funds was the result of higher medium-term funding from the Central Bank and COFIDE, as well as higher short-term funding from correspondent banks abroad.

The annual growth in deposits and obligations was mainly explained by increases of 15.0% in retail deposits, 2.5% in institutional deposits and 2.2% in commercial deposits.

The YoY increase in bonds, notes and other obligations was mainly attributable to two bond placements in the international market in September 2019, for S/ 312 million and US$ 400 million, both due in October 2026. This growth was partially compensated by the execution of an optional redemption of the prevailing “5.75% Senior Notes due 2020” corporate bonds between October and November of 2019, in addition to the execution of a call option in July 2019 for a US$ 30 million subordinated bond in the local market.

As of March 31, 2020, the proportion of deposits and obligations to total funding was 76.2%, lower than the 78.1% reported as of March 31, 2019. Likewise, the proportion of institutional deposits to total deposits decreased from 15.6% as of March 31, 2019 to 14.8% as of March 31, 2020.

Breakdown of deposits

S/ million	03.31.19		12.31.19		03.31.20		%chg 03.31.20/ 12.31.19			%chg 03.31.20/ 03.31.19
By customer service:
Retail		14,626.0		15,981.9		16,816.6		5.2	%		15.0	%
Commercial		12,440.9		12,366.7		12,710.5		2.8	%		2.2	%
Institutional		5,069.2		6,806.4		5,193.8		(23.7	)%		2.5	%
Other		425.6		422.7		341.2		(19.3	)%		(19.8	)%
Total		32,561.7		35,577.8		35,062.1		(1.4	)%		7.7	%
By type:
Demand		10,779.4		10,979.6		10,874.2		(1.0	)%		0.9	%
Savings		10,680.3		11,384.9		12,580.6		10.5	%		17.8	%
Time		11,087.6		13,207.0		11,592.6		(12.2	)%		4.6	%
Other		14.4		6.2		14.8	n.m.				2.8	%
Total		32,561.7		35,577.8		35,062.1		(1.4	)%		7.7	%

NET INTEREST AND SIMILAR INCOME

Net interest and similar income

S/ million	1Q19			4Q19			1Q20			%chg QoQ			%chg YoY
Interest and similar income		965.0			1,051.7			1,037.1			(1.4	)%		7.5	%
Interest and similar expense		(307.4	)		(353.2	)		(302.8	)		(14.3	)%		(1.5	)%
Net interest and similar income		657.6			698.5			734.3			5.1	%		11.7	%
NIM⁽¹⁾		5.5	%		5.8	%		5.6	%		-20	bps		10	bps

(1)	Excluding the one-off impact of a liability management transaction for S/ 42.3 million in 4Q19. Including this effect, NIM was 5.4% in such period.

Interest and similar income

S/ million	1Q19			4Q19			1Q20			%chg QoQ			%chg YoY
Interest and similar income
Due from banks and inter-bank funds		25.2			24.0			15.9			(33.5	)%		(36.8	)%
Financial investments		51.8			49.7			51.7			4.1	%		(0.1	)%
Loans		888.0			978.1			969.4			(0.9	)%		9.2	%
Total Interest and similar income		965.0			1,051.7			1,037.1			(1.4	)%		7.5	%
Average interest-earning assets		47,530.3			51,372.6			52,823.1			2.8	%		11.1	%
Average yield on assets (annualized)		8.1	%		8.2	%		7.9	%		-30	bps		-20	bps

Interest and similar expense

S/ million	1Q19			4Q19			1Q20			%chg QoQ			%chg YoY
Interest and similar expense
Deposits and obligations		(179.1	)		(178.3	)		(174.8	)		(1.9	)%		(2.4	)%
Due to banks and correspondents and inter-bank funds		(39.0	)		(39.5	)		(38.1	)		(3.5	)%		(2.3	)%
Bonds, notes and other obligations		(89.3	)		(135.4	)		(89.9	)		(33.6	)%		0.6	%
Total Interest and similar expense		(307.4	)		(353.2	)		(302.8	)		(14.3	)%		(1.5	)%
Average interest-bearing liabilities		41,166.4			45,154.5			45,598.4			1.0	%		10.8	%
Average cost of funding (annualized)⁽¹⁾		3.0	%		2.8	%		2.7	%		-10	bps		-30	bps

(1)	Excluding the one-off impact of a liability management transaction for S/ 42.3 million in 4Q19. Including this effect, the annualized average cost of funding was 3.1% in such period.

QoQ Performance

Net interest and similar income increased 5.1% QoQ due to a 14.3% decrease in interest and similar expense, partially offset by a 1.4% reduction in interest and similar income.

The lower interest and similar expense was due to reductions of 33.6% in interest on bonds, notes and other obligations, 3.5% in interest on due to banks and correspondents, and 1.9% in interest on deposits and obligations.

The reduction in interest on bonds, notes and other obligations was mainly due to a base effect related to the execution of an optional redemption of the prevailing “5.75% Senior Notes due 2020” corporate bonds in 4Q19, which implied a non-recurring financial expense of S/ 42.3 million in such quarter, as these bonds were being negotiated above its face value (above par). Excluding this effect, the financial expense on bonds would have decreased 3.5% QoQ.

Interest on due to banks and correspondents decreased S/ 1.4 million, or 3.5% QoQ, due to a reduction of 60 basis points in the average cost, partially offset by a 12.1% growth in the average volume. The lower average cost was due to reductions in rates paid on funding provided by correspondent banks abroad, inter-bank funds and funding provided by COFIDE. On the other hand, the increase in the average volume was attributed to growth in all components, mainly in funding provided by correspondent banks abroad and the Central Bank.

The quarterly decrease in interest on deposits and obligations was due to a 10 basis point reduction in the average cost, partially compensated by a 1.9% growth in the average volume. The decrease in the average cost was due to lower rates paid to commercial deposits, while rates on both retail and institutional deposits remained stable. The higher average volume was explained by growth in retail and institutional deposits, partially offset by lower commercial deposits. By currency, average balances of soles-denominated deposits grew 2.7% while average dollar-denominated deposits remained relatively stable.

The average cost of funding decreased 40 basis points QoQ, from 3.1% in 4Q19 to 2.7% in 1Q20, in line with the lower implicit cost on all components of interest-bearing liabilities. Excluding the expense of the optional redemption of corporate bonds in 4Q19, the average cost of funding would have decreased 10 basis points QoQ.

The 1.4% decrease in interest and similar income was due to reductions of 33.5% in interest on due from banks and inter-bank funds, and 0.9% in interest on loans, partially compensated by a 4.1% increase in interest on financial investments.

Interest on due from banks and inter-bank funds decreased S/ 8.1 million, or 33.5% QoQ, explained by a 40 basis points reduction in the nominal average rate, partially offset by 1.4% growth in the average volume. The decrease in the nominal average rate was due to lower returns on deposits at the Central Bank and inter-bank funds. On the other hand, the increase in the average volume was due to higher deposits at the Central Bank and inter-bank funds, partially compensated by lower reserve funds at the Central Bank.

The lower interest on loans was due to a 30 basis point reduction in the average yield, partially compensated by 2.3% growth in the average loan portfolio.

The lower average rate on loans, from 10.8% in 4Q19 to 10.5% in 1Q20, was explained by yield reductions of 50 basis points in commercial loans and 20 basis points in retail loans. The decrease in commercial loans was due to lower average rates on short and

medium-term loans, trade finance loans and leasing operations. In the retail portfolio, rates decreased as the result of lower yields on mortgages and consumer loans. It is worth mentioning that, as a result of the loan rescheduling carried out as part of the measures implemented to deal with the COVID-19 outbreak, a portion of the interest on loans from March 2020 was rescheduled, affecting the average yield on loans in 1Q20.

The higher average volume of loans was attributed to increases of 2.5% in commercial loans and 2.1% in retail loans. In the commercial portfolio, the higher average volume was mainly due to growth of 2.0% in short and medium-term loans, and 1.9% in trade finance loans, partially compensated by a 5.2% reduction in leasing operations. In the retail portfolio, average volumes increased 2.3% in mortgages and 1.3% in both payroll deduction loans and credit cards.

Interest on financial investments increased S/ 2.0 million, or 4.1% QoQ, due to a 9.4% growth in the average volume, partially compensated by a 10 basis point reduction in the average yield. The increase in the average volume was a consequence of higher investments in sovereign bonds, corporate bonds from financial institutions and global bonds, partially offset by lower balances of CDBCR and corporate bonds from non-financial institutions. The lower average yield was due to decreases in returns on global bonds, corporate bonds from financial institutions and CDBCR.

The nominal average yield on interest-earning assets decreased 30 basis points QoQ, from 8.2% in 4Q19 to 7.9% in 1Q20, as a consequence of the lower returns on all of the interest-earning assets.

As a result of the above, net interest margin increased 20 basis points, from 5.4% in 4Q19 to 5.6% in 1Q20. However, excluding the expense of the optional redemption of corporate bonds in 4Q19, net interest margin would have decreased 20 basis points QoQ.

YoY Performance

Net interest and similar income grew 11.7% YoY due to a 7.5% increase in interest and similar income, and a 1.5% reduction in interest and similar expense.

Growth in interest and similar income was mainly due to a 9.2% increase in interest on loans, partially offset by a 36.8% decrease in interest on due to banks and inter-bank funds. Interest on financial investments remained relatively stable.

The increase in interest on loans was due to an 11.4% growth in the average volume of loans, partially compensated by a 20 basis point reduction in the average yield.

The higher average volume of loans was attributed to increases of 14.1% in retail loans and 8.2% in commercial loans. In the retail portfolio, volumes grew 17.0% in credit cards, 12.0% in mortgages and 8.8% in payroll deduction loans. In the commercial portfolio, the higher average volume was mainly due to growth of 19.8% in trade finance loans and 2.5% in short and medium-term loans, partially offset by an 11.7% reduction in leasing operations.

The annual decrease in the average rate on loans, from 10.7% in 1Q19 to 10.5% in 1Q20, was due to an 80 basis point reduction in commercial loans, partially compensated by a 10 basis point growth in retail loans. The decrease in commercial loans was due to lower yields on all types of loans, while the increase in retail loans, to higher yields on credit cards. It is worth mentioning that the lower rates on commercial loans were partially explained by the loan rescheduling carried out as part of the measures implemented to deal with the COVID-19 outbreak.

Interest on due from banks and inter-bank funds decreased S/ 9.3 million, or 36.8% YoY, explained by a 60 basis point reduction in the average yield, partially compensated by a 15.7% growth in the average volume. The decrease in the nominal average rate was mainly related to lower returns on deposits and reserve funds at the Central Bank, partially offset by higher yields on inter-bank funds. On the other hand, the increase in the average volume was explained by higher reserve funds and deposits at the Central Bank, partially compensated by a lower average balance of inter-bank funds.

Interest on financial investments remained stable as a 10 basis point reduction in the average yield, from 3.7% in 1Q19 to 3.6% in 1Q20, was offset by a 2.7% increase in the average volume. The decrease in the average rate was due to lower yields on global bonds,

sovereign bonds, CDBCR and corporate bonds from non-financial institutions. On the other hand, the increase in the average volume was the result of higher average balances of sovereign bonds.

The nominal average yield on interest-earning assets decreased 20 basis points YoY, from 8.1% in 1Q19 to 7.9% in 1Q20, in line with the lower returns on all of the interest-earning assets.

The lower interest and similar expense was due to reductions of 2.4% in interest on deposits and obligations, and 2.3% in interest on due to banks and correspondents. Interest on bonds remained relatively stable YoY.

Interest on deposits and obligations decreased S/ 4.3 million, or 2.4% YoY, explained by a 20 basis point reduction in the average cost, from 2.2% in 1Q19 to 2.0% in 1Q20, partially offset by a 10.6% growth in the average volume. The lower average cost was due to reductions in rates paid to institutional and commercial deposits, partially compensated by a higher rate on retail deposits. The higher average volume was explained by growth in institutional, retail and commercial deposits. By currency, average balances of soles-denominated deposits grew 19.4% while average dollar-denominated deposits decreased 3.5%.

The S/ 0.9 million, or 2.3% YoY, decrease in interest on due to banks and correspondents was the result of an 80 basis point reduction in the average cost, from 4.2% in 1Q19 to 3.4% in 1Q20, partially compensated by a 19.2% growth in the average volume. The decrease in the average cost was due to lower rates paid to inter-bank funds and funding from correspondent banks abroad, the Central Bank and COFIDE. On the other hand, the higher average volume was explained by growth in funding from the Central Bank, correspondent banks abroad and COFIDE, as well as by higher inter-bank funds.

The average cost of funding decreased 30 basis points YoY, from 3.0% in 1Q19 to 2.7% in 1Q20, in line with the lower cost on deposits and obligations, and on due to banks and correspondents.

As a result of the above, net interest margin was 5.6% in 1Q20, 10 basis points higher than the 5.5% reported in 1Q19.

IMPAIRMENT LOSS ON LOANS, NET OF RECOVERIES

Impairment loss on loans, net of recoveries increased more than two-fold QoQ and 67.8% YoY. The quarterly and annual performances were mainly explained by higher requirements in credit cards and other consumer loans, as well as in exposures to medium-sized companies and small-sized companies, all related to the impacts of the COVID-19 outbreak on the bank’s expected loss models. It is worth noting that the QoQ growth was also explained by the reversion of loan loss provisions for S/ 104.1 million due to fine-tuning of IFRS9 models reflecting improved risk profile on customers in 4Q19. Excluding this effect, impairment loss on loans, net of recoveries would have increased 24.0% when compared to such quarter.

As a result of the above, the annualized ratio of impairment loss on loans to average loans was 3.4% in 1Q20, higher than the 1.7% reported in 4Q19 and the 2.3% registered in 1Q19. However, excluding the previously mentioned reversion of provisions in 4Q19, the annualized ratio of impairment loss on loans to average loans would have increased 60 basis points QoQ.

Impairment loss on loans, net of recoveries

S/ million	1Q19			4Q19			1Q20			%chg QoQ			%chg YoY
Impairment loss on loans, net of recoveries⁽¹⁾		(186.3	)		(147.9	)		(312.6	)		111.4	%		67.8	%
Impairment loss on loans/average gross loans⁽¹⁾		2.3	%		2.8	%		3.4	%		60	bps		110	bps
NPL ratio (at end of period)		2.9	%		2.9	%		2.7	%		-20	bps		-20	bps
NPL coverage ratio (at end of period)		131.4	%		117.7	%		136.1	%	n.m.				470	bps
Impairment allowance for loans		1,396.1			1,394.7			1,494.4			7.2	%		7.0	%

(1)	Excluding reversion of loan loss provisions for S/ 104.1 million in 4Q19 due to fine-tuning of IFRS9 models reflecting improved risk profile on customers. Including this effect, cost of risk was 1.7% in such period.

The NPL ratio decreased 20 basis points QoQ and YoY. The quarterly and annual reductions were related to improvements in the retail portfolio, as the NPL ratio in the commercial portfolio remained stable. The improvement in retail loans was associated with

reductions in stage 3 and refinanced exposures in both consumer loans and mortgages. It is worth mentioning that the rescheduling of loans related to COVID-19 has not accounted for higher stage 3 nor refinanced exposures as of March 31, 2020.

Furthermore, the NPL coverage ratio was 136.1% as of March 31, 2020, higher than the 117.7% reported as of December 31, 2019, and the 131.4% registered as of March 31, 2019. NPL coverage ratio in credit cards was 221.4% as of March 31, 2020.

FEE INCOME FROM FINANCIAL SERVICES, NET

Net fee income from financial services decreased S/ 29.3 million QoQ, or 13.4%, mainly explained by reductions of S/ 13.3 million in commissions from credit card services, S/ 8.5 million in fees from maintenance and mailing of accounts, transfer fees and commissions on debit card services, and S/ 5.3 million in commissions from banking services.

Net fee income from financial services decreased S/ 3.0 million YoY, or 1.6%, mainly due to a S/ 6.4 million reduction in commissions from credit card services, as well as to higher variable expenses related to credit cards. These effects were partially offset by S/ 9.6 million higher commissions from banking services.

Fee income from financial services, net

S/ million	1Q19			4Q19			1Q20			%chg QoQ			%chg YoY
Income
Commissions from credit card services		97.5			104.4			91.1			(12.8	)%		(6.6	)%
Commissions from banking services		76.5			91.4			86.1			(5.9	)%		12.5	%
Maintenance and mailing of accounts, transfer fees and commissions on debit card services		57.1			64.6			56.1			(13.2	)%		(1.7	)%
Fees from indirect loans		13.8			13.4			12.9			(3.4	)%		(6.4	)%
Collection services		9.9			10.6			10.0			(6.0	)%		0.9	%
Other		8.3			11.5			8.4			(27.0	)%		0.7	%
Total income		263.0			295.9			264.5			(10.6	)%		0.6	%
Expenses
Insurance		(27.1	)		(24.6	)		(25.4	)		3.3	%		(6.1	)%
Fees paid to foreign banks		(3.7	)		(4.4	)		(3.2	)		(26.9	)%		(11.9	)%
Other		(38.9	)		(47.1	)		(45.5	)		(3.6	)%		16.8	%
Total expenses		(69.7	)		(76.2	)		(74.1	)		(2.7	)%		6.4	%
Fee income from financial services, net		193.4			219.7			190.4			(13.4	)%		(1.6	)%

OTHER INCOME

Other income increased S/ 2.4 million QoQ, explained by higher net gain on sale of financial investments, partially offset by lower net gain on foreign exchange transactions and on financial assets at fair value through profit or loss, in addition to a negative base effect related to the gain on sale of written-off loans registered in 4Q19.

Other income decreased S/ 23.4 million YoY mainly due to a base effect, explained by the S/ 52.6 million gain on sale of Interfondos to Inteligo in 1Q19.

Other income

S/ million	1Q19		4Q19		1Q20			%chg QoQ			%chg YoY
Net gain on foreign exchange transactions and on financial assets at fair value through profit or loss		49.3		77.9		59.9	⁽¹⁾		(23.1	)%		21.4	%
Net gain on sale of financial investments		11.5		2.1		37.5		n.m.			n.m.
Other		72.2		27.4		12.4			(54.7	)%		(82.8	)%
Total other income		133.1		107.3		109.7			2.3	%		(17.5	)%

(1)	Includes S/ 131.3 million of net gain on foreign exchange transactions and S/ -71.5 million of net gain (loss) on financial assets at fair value though profit or loss (derivatives).

OTHER EXPENSES

Other expenses remained relatively stable QoQ and grew S/ 25.0 million YoY, or 6.4%.

The annual growth in other expenses was explained by increases in salaries and employee benefits, IT services and amortization expenses.

The efficiency ratio was 38.8% in 1Q20, below the 39.2% reported in 4Q19, but above the 38.2% registered in 1Q19. However, excluding the one-off impacts from the liability management transaction in 4Q19 and the gain on sale of Interfondos in 1Q19, efficiency ratio for such periods was 37.7% and 40.3%, respectively.

Other expenses

S/ million	1Q19			4Q19			1Q20			%chg QoQ			%chg YoY
Salaries and employee benefits		(162.3	)		(164.2	)		(168.6	)		2.7	%		3.9	%
Administrative expenses		(157.9	)		(180.0	)		(175.4	)		(2.6	)%		11.1	%
Depreciation and amortization		(55.4	)		(58.3	)		(57.4	)		(1.5	)%		3.7	%
Other		(15.3	)		(10.6	)		(14.3	)		34.5	%		(6.6	)%
Total other expenses		(390.8	)		(413.1	)		(415.8	)		0.6	%		6.4	%
Efficiency ratio⁽¹⁾		40.3	%		37.7	%		38.8	%		110	bps		-150	bps

(1)	Excluding the gain on sale of Interfondos for S/ 52.6 million in 1Q19 and the one-off impact of a liability management transaction for S/ 42.3 million in 4Q19. Including these effects, efficiency ratio was 38.2% in 1Q19 and 39.2% in 4Q19.

REGULATORY CAPITAL

The ratio of regulatory capital to risk-weighted assets (RWA) was 16.1% as of March 31, 2020, higher than the 15.2% registered as of December 31, 2019, but lower than the 16.4% reported as of March 31, 2019.

In 1Q20, regulatory capital increased 7.6% QoQ, while RWA grew 1.2% mainly due to higher capital requirements for credit risk, which includes the effect of growth in loans and financial investments.

The annual reduction in the capital ratio was due to a 12.8% growth in RWA, partially offset by a 10.7% increase in regulatory capital. The YoY increase in RWA was mostly attributed to loan growth and the higher risk weights applied to intangible assets by disposition of the SBS, with impact on the bank’s increasing digital investments. The annual increase in regulatory capital was mainly a result of the addition of S/ 731.1 million in capital, reserves and earnings with capitalization agreement during the last twelve months, as well as the lower deduction in regulatory capital due to the sale of IFS’ shares in July 2019 as part of IFS’ IPO in NYSE, partially compensated by the elimination of a US$ 30 million subordinated bond, which was called for early redemption in July 2019.

It is worth mentioning that in 2017 the SBS initiated the implementation of an additional set of Basel III measures. Among these, it stands out that there will be an annual 10% phase out of all Tier I instruments issued prior to the publication by the SBS of the new subordinated debt regulation. Additionally, the amount not computable as primary capital could be eligible as secondary capital. As of March 31, 2020, 40% of the US$ 200 million junior subordinated bond issued in April 2010 no longer count as primary capital, higher than the percentage registered as of December 31, 2019. This resulted in a US$ 20 million YoY reduction in primary capital, equivalent to the amount now registered as secondary capital.

As of March 31, 2020, Interbank’s capital ratio of 16.1% was significantly higher than its risk-adjusted minimum capital ratio requirement, established at 11.4%. The minimum regulatory capital ratio requirement was 10.0%, while the additional capital requirement for Interbank was 1.4% as of March 31, 2020. Furthermore, Core Equity Tier 1 (CET1) as of March 31, 2020 increased 180 basis points YoY, to 12.0%, mainly as a result of the strengthened capitalization and the lower deduction in regulatory capital due to the sale of IFS’ shares in July 2019 as part of IFS’ IPO in NYSE, and despite the 12.8% growth in RWA in the comparable period.

Regulatory capital

S/ million	03.31.19			12.31.19			03.31.20			%chg 03.31.20/ 12.31.19			%chg 03.31.20/ 03.31.19
Tier I capital		5,452.8			5,721.7			6,218.8			8.7	%		14.0	%
Tier II capital		2,014.1			1,957.6			2,045.2			4.5	%		1.5	%
Total regulatory capital		7,466.9			7,679.3			8,264.0			7.6	%		10.7	%
Risk-weighted assets		45,446.8			50,673.8			51,265.3			1.2	%		12.8	%
BIS ratio		16.4	%		15.2	%		16.1	%		90	bps		-30	bps
Tier I capital / risk-weighted assets		12.0	%		11.3	%		12.1	%		80	bps		10	bps
CET1		10.2	%		11.6	%		12.0	%		40	bps		180	bps

Interseguro

SUMMARY

Interseguro’s results reached S/ -21.6 million in 1Q20, compared to profits of S/ 34.7 million in 4Q19 and S/ 28.9 million in 1Q19.

The quarterly reduction was mainly explained by a S/ 33.3 million decrease in other income, a deterioration of S/ 31.8 million in loss due to impairment of financial investments, and a negative performance in translation result of S/ 24.3 million. These factors were partially offset by increases of S/ 13.6 million in total premiums earned minus claims and benefits, and S/ 13.4 million in net interest and similar income, as well as by a S/ 6.5 million reduction in other expenses.

The annual reduction was mainly a result of a loss due to impairment of financial investments for S/ 42.5 million, a negative performance in translation result of S/ 17.0 million, and a S/ 7.5 million decrease in other income, partially offset by increases of S/ 10.2 million in net interest and similar income and S/ 8.0 million in total premiums earned minus claims and benefits.

Insurance Segment’s P&L Statement

S/ million	1Q19			4Q19			1Q20			%chg QoQ			%chg YoY
Interest and similar income		156.8			155.6			167.9			7.9	%		7.1	%
Interest and similar expenses		(20.3	)		(22.3	)		(21.2	)		(4.7	)%		4.2	%
Net Interest and similar income		136.5			133.3			146.7			10.0	%		7.5	%
Recovery (loss) due to impairment of financial investments		2.4			(8.3	)		(40.1	)	n.m.			n.m.
Net Interest and similar income after impairment loss		138.8			125.0			106.6			(14.7	)%		(23.2	)%
Fee income from financial services, net		(1.0	)		(0.8	)		(1.0	)		23.5	%		2.8	%
Other income		24.8			50.6			17.3			(65.9	)%		(30.5	)%
Total premiums earned minus claims and benefits		(67.4	)		(73.0	)		(59.4	)		(18.6	)%		(11.8	)%
Net premiums		171.2			156.1			172.9			10.8	%		1.0	%
Adjustment of technical reserves		(73.3	)		(50.1	)		(48.4	)		(3.3	)%		(33.9	)%
Net claims and benefits incurred		(165.3	)		(179.0	)		(183.9	)		2.7	%		11.2	%
Other expenses		(70.7	)		(78.9	)		(72.4	)		(8.2	)%		2.4	%
Income before translation result and income tax		24.6			22.9			(9.0	)	n.m.			n.m.
Translation result		4.4			11.7			(12.6	)	n.m.			n.m.
Income tax		—			—			—		n.m.			n.m.
Profit for the period		28.9			34.7			(21.6	)	n.m.			n.m.
ROAE		12.8	%		14.7	%	n.m.
Efficiency ratio		13.2	%		14.2	%		12.0	%

RESULTS FROM INVESTMENTS

Results from Investments ⁽¹⁾

S/ million	1Q19			4Q19			1Q20			%chg QoQ			%chg YoY
Interest and similar income		156.8			155.6			167.9			7.9	%		7.1	%
Interest and similar expenses		(9.5	)		(11.9	)		(10.0	)		(15.8	)%		5.5	%
Net interest and similar income		147.3			143.7			157.9			9.9	%		7.2	%
Recovery (loss) due to impairment of financial investments		2.4			(8.3	)		(40.1	)	n.m.			n.m.
Net Interest and similar income after impairment loss		149.7			135.4			117.8			(13.0	)%		(21.3	)%
Net gain (loss) on sale of financial investments		(6.2	)		13.5			23.9			77.7	%	n.m.
Net gain (loss) on financial assets at fair value through profit or loss		15.5			12.3			(31.6	)	n.m.			n.m.
Rental income		9.0			11.3			9.1			(19.5	)%		0.6	%
Gain on sale of investment property		—			(1.2	)		—		n.m.			n.m.
Valuation gain (loss) from investment property		1.3			9.8			11.5			16.7	%	n.m.
Other		(3.2	)		(3.2	)		(3.4	)		5.1	%		5.3	%
Other income		16.5			42.4			9.5			(77.6	)%		(42.4	)%
Results from investments		166.1			177.8			127.3			(28.4	)%		(23.4	)%

(1)	Only includes transactions related to investments.

NET INTEREST AND SIMILAR INCOME

Net interest and similar income related to investments was S/ 157.9 million in 1Q20, an increase of S/ 14.2 million, or 9.9%, QoQ and S/ 10.6 million, or 7.2%, YoY.

The quarterly growth was mainly explained by a S/ 12.3 million increase in interest and similar income, mostly attributed to a higher inflation rate that had a positive impact on returns of the fixed income portfolio.

The annual increase was largely explained by an S/ 11.9 million growth in interest and similar income, due to improved returns on the equity portfolio attributable to higher income from dividends received in 1Q20 which did not exist in 1Q19. Additionally, a higher organic growth of the fixed income portfolio also contributed to the YoY growth in net interest and similar income.

RECOVERY (LOSS) DUE TO IMPAIRMENT OF FINANCIAL INVESTMENTS

Loss due to impairment of financial investments was S/ 40.1 million in 1Q20, compared to a loss of S/ 8.3 million in 4Q19 and a recovery of S/ 2.4 million in 1Q19.

The quarterly and annual performances were mainly due to an additional provision for impairment on a fixed income investment that had been downgraded in relation to the COVID-19 outbreak.

OTHER INCOME

Other income related to investments was S/ 9.5 million in 1Q20, a decrease of S/ 32.9 million QoQ and S/ 7.0 million YoY.

The quarterly and annual results were mainly explained by lower net gain (loss) on financial assets at fair value, mostly related to negative mark-to-market valuations as a result of the COVID-19 outbreak. The quarterly reduction was partially offset by an increase in net gain on sale of financial investments, while the annual decrease, by growth in net gain on sale of financial investments and in valuation gain from investment property.

TOTAL PREMIUMS EARNED MINUS CLAIMS AND BENEFITS

Total Premiums Earned Minus Claims And Benefits

S/ million	1Q19			4Q19			1Q20			%chg QoQ			%chg YoY
Net premiums		171.2			156.1			172.9			10.8	%		1.0	%
Adjustment of technical reserves		(73.3	)		(50.1	)		(48.4	)		(3.3	)%		(33.9	)%
Net claims and benefits incurred		(165.3	)		(179.0	)		(183.9	)		2.7	%		11.2	%
Total premiums earned minus claims and benefits		(67.4	)		(73.0	)		(59.4	)		(18.6	)%		(11.8	)%

Total premiums earned minus claims and benefits were S/ -59.4 million in 1Q20, an increase of S/ 13.6 million QoQ and S/ 8.0 million YoY.

The quarterly growth was the result of a S/ 16.8 million increase in net premiums and a S/ 1.7 million decrease in adjustment of technical reserves, partially offset by a S/ 4.9 million increase in net claims and benefits incurred.

The annual performance was explained by a S/ 24.9 million reduction in adjustment of technical reserves and a S/ 1.7 million increase in net premiums, partially offset by an S/ 18.6 million growth in net claims and benefits incurred.

NET PREMIUMS

Net Premiums by Business Line

S/ million	1Q19		4Q19		1Q20		%chg QoQ			%chg YoY
Annuities		80.9		62.6		72.8		16.3	%		(10.1	)%
D&S		0.7		0.0		0.1	n.m.				(82.9	)%
Individual Life		32.1		34.3		32.6		(4.9	)%		1.4	%
Retail Insurance		57.5		59.2		67.4		13.8	%		17.2	%
Net Premiums		171.2		156.1		172.9		10.8	%		1.0	%

Net premiums were S/ 172.9 million in 1Q20, an increase of S/ 16.8 million, or 10.8%, QoQ and S/ 1.7 million, or 1.0%, YoY.

The quarterly result was due to growth of S/ 10.2 million in annuities and S/ 8.2 million in retail insurance. The increase in annuities was explained by a higher commercial deployment in the first two months of the quarter, while growth in retail insurance, to increases in premiums for card protection insurance and credit life insurance. These factors were partially compensated by a reduction of S/ 1.7 million in individual life premiums.

The annual performance in net premiums was mainly due to an increase of S/ 9.9 million in retail insurance, explained by higher premiums for credit life insurance and card protection insurance, partially offset by a reduction of S/ 8.1 million in annuities.

ADJUSTMENT OF TECHNICAL RESERVES

Adjustment of Technical Reserves by Business Line

S/ million	1Q19			4Q19			1Q20			%chg QoQ			%chg YoY
Annuities		(49.7	)		(27.0	)		(44.0	)		63.0	%		(11.4	)%
Individual Life		(21.9	)		(23.5	)		7.2		n.m.			n.m.
Retail Insurance		(1.7	)		0.4			(11.6	)	n.m.			n.m.
Adjustment of technical reserves		(73.3	)		(50.1	)		(48.4	)		(3.3	)%		(33.9	)%

Adjustment of technical reserves was S/ 48.4 million in 1Q20, a decrease of S/ 1.7 million QoQ and S/ 24.9 million YoY.

The quarterly and annual reductions were mainly related to a release of technical reserves for individual life, in turn associated with a lower profitability of flex life products, which are linked to equity investments on behalf of clients.

Furthermore, the quarterly decrease was partially offset by increases of S/ 17.0 million in adjustment of technical reserves for annuities and S/ 12.0 million for retail insurance. The former was mostly related to higher technical reserves for inflation-indexed annuities due to growth in inflation rate and sales, while the latter, to a one-time provision expense in card protection insurance to assess the potential increase of unemployment in the following months as a consequence of the COVID-19 outbreak.

On the other hand, the annual reduction in adjustment of technical reserves was also explained by a S/ 5.7 million decrease in annuities, partially offset by an increase of S/ 9.9 million in retail insurance.

NET CLAIMS AND BENEFITS INCURRED

Net Claims and Benefits Incurred by Business Line

S/ million	1Q19			4Q19			1Q20			%chg QoQ			%chg YoY
Annuities		(150.0	)		(162.3	)		(161.4	)		(0.6	)%		7.6	%
D&S		0.6			(1.2	)		(0.4	)		(70.4	)%	n.m.
Individual Life		0.8			(1.4	)		(1.5	)		3.6	%	n.m.
Retail Insurance		(16.6	)		(14.0	)		(20.6	)		47.1	%		23.6	%
Net claims and benefits incurred		(165.3	)		(179.0	)		(183.9	)		2.7	%		11.2	%

Net claims and benefits incurred reached S/ 183.9 million in 1Q20, an increase of S/ 4.9 million QoQ and S/ 18.6 million YoY.

The quarterly growth was mainly the result of a S/ 6.6 million increase in retail insurance claims, mostly related to credit life insurance.

The annual increase in net claims and benefits incurred was explained by increases of S/ 11.4 million in annuity benefits, S/ 4.0 million in retail insurance claims, S/ 2.3 million in individual life claims and S/ 1.0 million in disability and survivorship claims.

OTHER EXPENSES

Other Expenses

S/ million	1Q19			4Q19			1Q20			%chg QoQ			%chg YoY
Salaries and employee benefits		(18.0	)		(19.7	)		(18.9	)		(3.9	)%		5.2	%
Administrative expenses		(11.1	)		(15.7	)		(9.2	)		(41.5	)%		(16.9	)%
Depreciation and amortization		(5.0	)		(5.7	)		(6.4	)		11.5	%		26.8	%
Expenses related to rental income		(1.5	)		(1.1	)		(1.4	)		26.7	%		(9.1	)%
Other		(35.1	)		(36.7	)		(36.5	)		(0.4	)%		4.2	%
Other expenses		(70.7	)		(78.9	)		(72.4	)		(8.2	)%		2.4	%

Other expenses decreased S/ 6.5 million QoQ, or 8.2%, and grew S/ 1.7 million YoY, or 2.4%.

The quarterly reduction was mainly due to decreases of S/ 6.5 million in administrative expenses, explained by efficiencies implemented on IT services, and S/ 0.8 million in salaries and employee benefits, partially offset by increases of S/ 0.7 million in depreciation and amortization charges, and S/ 0.3 million in expenses related to rental income.

The annual result in other expenses was mainly due to growth of S/ 1.4 million in both other expenses such as third-party commissions, and depreciation and amortization charges, in addition to a S/ 0.9 million increase in salaries and employee benefits, partially offset by a reduction of S/ 1.9 million in administrative expenses.

Inteligo

SUMMARY

Inteligo’s bottom-line result was S/ -54.7 million in 1Q20, compared to profits of S/ 69.6 million in 4Q19 and S/ 78.3 million in 1Q19.

The main driver behind the QoQ and YoY performance was the higher volatility of global financial markets during the second half of the quarter, mainly attributable to the COVID-19 outbreak. This generated negative mark-to-market valuations on the proprietary portfolio during the period, as well as realized losses under certain investment strategies. It is worth mentioning that interest and similar income remained relatively stable QoQ, despite an environment of low rates on funds available and short-term spread compression in loans to clients.

From a business development perspective, albeit impacted by the limited mobility due to the implementation of lockdown measures, Inteligo’s prospection process showed positive results in terms of new account openings and the generation of net new money.

Wealth Management Segment’s P&L Statement

S/ million	1Q19			4Q19			1Q20			%chg QoQ			%chg YoY
Interest and similar income		45.6			41.0			41.1			0.3	%		(9.9	)%
Interest and similar expense		(14.9	)		(16.3	)		(15.5	)		(4.4	)%		4.6	%
Net interest and similar income		30.7			24.7			25.5			3.4	%		(16.9	)%
Impairment loss on loans, net of recoveries		(0.1	)		0.0			(0.0	)	n.m.			n.m.
Recovery (loss) due to impairment of financial investments		(0.5	)		(0.0	)		(0.2	)	n.m.			n.m.
Net interest and similar income after impairment loss		30.2			24.7			25.3			2.5	%		(16.0	)%
Fee income from financial services, net		38.9			47.0			43.0			(8.5	)%		10.5	%
Other income		36.8			30.0			(85.8	)	n.m.			n.m.
Other expenses		(26.9	)		(33.2	)		(34.9	)		5.2	%		29.7	%
Income before translation result and income tax		79.0			68.6			(52.3	)	n.m.			n.m.
Translation result		0.7			2.3			(3.0	)	n.m.			n.m.
Income tax		(1.4	)		(1.3	)		0.7		n.m.			n.m.
Profit for the period		78.3			69.6			(54.7	)	n.m.			n.m.
ROAE		38.1	%		33.6	%	n.m.
Efficiency ratio		25.2	%		32.4	%	n.m.

ASSETS UNDER MANAGEMENT & DEPOSITS

AUM reached S/ 18,005.9 million in 1Q20, a S/ 287.1 million or 1.6% decrease QoQ and a S/ 236.8 million or 1.3% growth YoY.

The quarterly reduction in AUM was mostly related to negative mark-to-market valuations as a result of the COVID-19 outbreak, despite growth in net new money for the period. On the other hand, the annual increase was mainly explained by new account openings, which generated an influx of funds after strengthened prospection and client conversion strategies at Inteligo.

Client deposits reached S/ 2,886.8 million in 1Q20, remaining relatively stable QoQ and growing S/ 338.4 million, or 13.3% YoY, mainly due to new account openings.

NET INTEREST AND SIMILAR INCOME

Net interest and similar income

S/ million	1Q19			4Q19			1Q20			%chg QoQ			%chg YoY
Interest and similar income
Due from banks and inter-bank funds		2.1			4.0			2.7			(32.4	)%		29.6	%
Financial Investments		25.3			18.8			21.2			12.5	%		(16.4	)%
Loans		18.2			18.2			17.2			(5.2	)%		(5.3	)%
Total interest and similar income		45.6			41.0			41.1			0.3	%		(9.9	)%
Interest and similar expense
Deposits and obligations		(11.5	)		(14.3	)		(13.7	)		(3.6	)%		19.6	%
Due to banks and correspondents		(3.4	)		(2.0	)		(1.8	)		(10.1	)%		(46.6	)%
Total interest and similar expense		(14.9	)		(16.3	)		(15.5	)		(4.4	)%		4.6	%
Net interest and similar income		30.7			24.7			25.5			3.4	%		(16.9	)%

Inteligo’ s net interest and similar income was S/ 25.5 million in 1Q20, a S/ 0.8 million or 3.4% increase when compared with 4Q19. This was mainly explained by an increase in interest income driven by a higher average balance of fixed income investments, in addition to a reduction in interest expense related to lower funding costs of both client deposits and external lines of credit.

Net interest and similar income decreased S/ 5.2 million or 16.9% YoY. This was mainly attributed to lower average returns on financial investments and higher costs of client deposits.

FEE INCOME FROM FINANCIAL SERVICES

Fee income from financial services, net

S/ million	1Q19			4Q19			1Q20			%chg QoQ			%chg YoY
Income
Brokerage and custody services		3.9			3.4			5.7			70.2	%		46.9	%
Funds management		35.4			44.0			37.7			(14.5	)%		6.4	%
Total income		39.3			47.4			43.4			(8.5	)%		10.4	%
Expenses
Brokerage and custody services		(0.2	)		(0.3	)		(0.1	)		(48.6	)%		(44.6	)%
Others		(0.1	)		(0.1	)		(0.2	)		69.2	%		63.4	%
Total expenses		(0.4	)		(0.4	)		(0.4	)		(8.6	)%		(5.3	)%
Fee income from financial services, net		38.9			47.0			43.0			(8.5	)%		10.5	%

Net fee income from financial services was S/ 43.0 million in 1Q20, a decrease of S/ 4.0 million, or 8.5% when compared to the previous quarter. The reduction in fee income for the quarter was mainly explained by a base effect due to above-average returns in various asset classes during 4Q19, as well as increased recurring income due to higher mark-to-market on AUM in such quarter.

On a YoY basis, net fee income from financial services increased S/ 4.1 million, or 10.5%, mainly explained by higher brokerage fees due to increased trading volumes, triggered by higher price volatility and client appetite for investing or rebalancing portfolios.

OTHER INCOME

Other income

S/ million	1Q19			4Q19			1Q20			%chg QoQ			%chg YoY
Net gain on sale of financial investments		24.5			(0.2	)		(33.1	)	n.m.			n.m.
Net trading gain (loss)		14.8			32.5			(51.2	)	n.m.			n.m.
Other		(2.5	)		(2.4	)		(1.4	)		(38.5	)%		(42.2	)%
Total other income		36.8			30.0			(85.8	)	n.m.			n.m.

Inteligo’s other income (loss) reached S/ -85.8 million in 1Q20, a decrease of S/ 115.8 million QoQ and S/ 122.6 million YoY, attributable to negative mark-to-market valuations and realized losses on Inteligo’s proprietary portfolio during the second half of the quarter, mainly as a result of the COVID-19 outbreak.

OTHER EXPENSES

Other expenses

S/ million	1Q19			4Q19			1Q20			%chg QoQ			%chg YoY
Salaries and employee benefits		(15.1	)		(17.8	)		(20.9	)		17.2	%		38.1	%
Administrative expenses		(9.2	)		(10.6	)		(10.0	)		(5.2	)%		8.2	%
Depreciation and amortization		(2.5	)		(4.6	)		(4.0	)		(13.4	)%		61.1	%
Other		(0.1	)		(0.2	)		(0.0	)	n.m.			n.m.
Total other expenses		(26.9	)		(33.2	)		(34.9	)		5.2	%		29.7	%
Efficiency ratio		25.2	%		32.4	%	n.m.

Other expenses reached S/ 34.9 million in 1Q20, an increase of S/ 1.7 million, or 5.2% QoQ, and S/ 8.0 million, or 29.7% YoY. The result was mainly related to incentive fees for annual performance.

Intercorp Financial Services Inc. and Subsidiaries

Interim condensed consolidated financial statements as of March 31, 2020, December 31, 2019 and for the three-month periods ended March 31, 2020 and 2019

Content

Interim condensed consolidated financial statements



Interim condensed consolidated statement of financial position	3

Interim condensed consolidated statement of income	4

Interim condensed consolidated statement of other comprehensive income	5

Interim condensed consolidated statement of changes in equity	6

Interim condensed consolidated statement of cash flows	7

Notes to the interim condensed consolidated financial statements	9

Consolidated statement of financial position

As of March 31, 2020 (unaudited) and December 31, 2019 (audited)

	Note		31.03.2020			31.12.2019
			S/(000)			S/(000)
Assets
Cash and due from banks	3(a)
Non-interest bearing				2,618,690			2,704,758
Interest bearing				7,452,376			7,153,180
Restricted funds				1,512,205			1,270,937
				11,583,271			11,128,875
Inter-bank funds	3(e)			150,005			85,006
Financial investments		4		18,634,933			19,072,718
Loans, net:		5
Loans, net of unearned interest				38,556,585			38,531,632
Impairment allowance for loans				(1,494,533	)		(1,394,779	)
				37,062,052			37,136,853
Investment property		6		985,362			972,096
Property, furniture and equipment, net				935,592			950,943
Due from customers on acceptances				32,068			139,685
Intangibles and goodwill, net				1,011,226			979,262
Other accounts receivable and other assets, net		7		1,331,934			1,051,872
Deferred Income Tax asset, net				85,130			44,983
Total assets				71,811,573			71,562,293
Liabilities and equity
Deposits and obligations		8
Non-interest bearing				5,652,991			5,644,238
Interest bearing				31,915,904			32,448,986
				37,568,895			38,093,224
Inter-bank funds	3(e)			111,504			169,138
Due to banks and correspondents		9		5,334,597			3,979,637
Bonds, notes and other obligations		10		6,973,377			6,890,290
Due from customers on acceptances				32,068			139,685
Insurance contract liabilities		11		11,064,345			11,338,810
Other accounts payable, provisions and other liabilities		7		2,179,638			2,048,048
Deferred Income Tax liability, net				882			13
Total liabilities				63,265,306			62,658,845
Equity, net		12
Equity attributable to IFS’s shareholders:
Capital stock				1,038,017			1,038,017
Treasury stock				(293	)		(196	)
Capital surplus				532,771			530,456
Reserves				4,700,000			4,700,000
Unrealized results, net				(19,867	)		442,905
Retained earnings				2,248,927			2,145,688
				8,499,555			8,856,870
Non-controlling interest				46,712			46,578
Total equity, net				8,546,267			8,903,448
Total liabilities and equity, net				71,811,573			71,562,293

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated statement of income

For the three-month periods ended March 31, 2020 and 2019

	Note		31.03.2020			31.03.2019
			S/(000)			S/(000)
Interest and similar income		14		1,248,210			1,166,740
Interest and similar expenses		14		(339,470	)		(342,493	)
Net interest and similar income				908,740			824,247
Impairment loss on loans, net of recoveries	5(d)			(312,618	)		(186,414	)
(Loss) recovery due to impairment on financial investments	4(c)			(40,522	)		1,887
Net interest and similar income after impairment loss				555,600			639,720
Fee income from financial services, net		15		220,308			222,998
Net gain on foreign exchange transactions				131,339			41,306
Net gain on sale of financial investments				28,288			27,445
Gain from derecognition of financial assets at amortized cost	4(e)			—			2,472
Net (loss) gain on financial assets at fair value through profit or loss				(154,174	)		37,061
Net gain on investment property	6(b)			21,943			11,874
Other income		16		11,917			18,730
				259,621			361,886
Insurance premiums and claims
Net premiums earned		17		124,439			97,926
Net claims and benefits incurred for life insurance contracts and others				(183,852	)		(165,292	)
				(59,413	)		(67,366	)
Other expenses
Salaries and employee benefits				(209,874	)		(195,375	)
Administrative expenses				(193,886	)		(176,719	)
Depreciation and amortization				(66,363	)		(62,904	)
Other expenses		16		(41,083	)		(46,718	)
				(511,206	)		(481,716	)
Income before translation result and Income Tax				244,602			452,524
Translation result				(23,856	)		10,091
Income Tax	13(e)			(75,841	)		(109,890	)
Net profit for the period				144,905			352,725
Attributable to:
IFS’s shareholders				143,375			350,568
Non-controlling interest				1,530			2,157
				144,905			352,725
Earnings per share attributable to IFS’s shareholders basic and diluted (stated in Soles)		18		1.242			3.167
Weighted average number of outstanding shares (in thousands)		18		115,446			110,692

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated statement of other comprehensive income

For the three-month periods ended March 31, 2020 and 2019

	31.03.2020			31.03.2019
	S/(000)			S/(000)
Net profit for the period		144,905			352,725
Other comprehensive income that will not be reclassified to the consolidated statement of income in subsequent periods:
(Losses) gains on equity instruments at fair value through other comprehensive income		(171,013	)		68,991
Income Tax		—			(2	)
Total unrealized gain that will not be reclassified to the consolidated statement of income		(171,013	)		68,989
Other comprehensive income to be reclassified to the consolidated statement of income in subsequent periods:
Net variation of debt instruments at fair value through other comprehensive income		(1,115,662	)		387,600
Income Tax		10,309			(4,508	)
		(1,105,353	)		383,092
Insurance premiums reserve		749,618			(148,100	)
Net variation of cash flow hedges		39,853			(9,139	)
Income Tax		(5,762	)		3,632
		34,091			(5,507	)
Translation of foreign operations		28,877			(12,254	)
Total unrealized (loss) gain to be reclassified to the consolidated statement of income in subsequent periods		(292,767	)		217,231
Total other comprehensive income for the period, net of Income Tax		(318,875	)		638,945
Attributable to:
IFS’s shareholders		(319,397	)		636,126
Non-controlling interest		522			2,819
		(318,875	)		638,945

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated statement of changes in equity

For the three-month periods ended March 31, 2020 and 2019

													Attributable to IFS’s shareholders
																		Unrealized results, net
	Number of shares (in thousands)														Instruments that will not be reclassified to the consolidated statement of income			Instruments that will be reclassified to the consolidated statement of income
	Issued		In treasury			Capital stock		Treasury stock			Capital surplus		Reserves		Equity instruments at fair value			Debt instruments at fair value			Insurance premiums reserves			Cash flow hedges reserve			Foreign currency translation reserve			Retained earnings			Total			Non-controlling interest			Total equity, net
						S/(000)		S/(000)			S/(000)		S/(000)		S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)
Balances as of January 1, 2019		113,110		(2,418	)		963,446		(208,178	)		268,077		4,700,000		147,554			(232,337	)		75,575			27,911			102,983			1,203,043			7,048,074			40,402			7,088,476
Net profit for the period		—		—			—		—			—		—		—			—			—			—			—			350,568			350,568			2,157			352,725
Other comprehensive income		—		—			—		—			—		—		68,876			382,240			(147,857	)		(5,447	)		(12,254	)		—			285,558			662			286,220
Total other comprehensive income		—		—			—		—			—		—		68,876			382,240			(147,857	)		(5,447	)		(12,254	)		350,568			636,126			2,819			638,945
Dividends paid to non-controlling interest of Subsidiaries		—		—			—		—			—		—		—			—			—			—			—			—			—			(3,228	)		(3,228	)
Others		—		—			—		—			—		—		—			—			—			—			—			2,587			2,587			(20	)		2,567
Balance as of March 31, 2019		113,110		(2,418	)		963,446		(208,178	)		268,077		4,700,000		216,430			149,903			(72,282	)		22,464			90,729			1,556,198			7,686,787			39,973			7,726,760
Balances as of January 1, 2020		115,447		(1	)		1,038,017		(196	)		530,456		4,700,000		264,883			1,036,159			(923,855	)		(22,758	)		88,476			2,145,688			8,856,870			46,578			8,903,448
Net profit for the period		—		—			—		—			—		—		—			—			—			—			—			143,375			143,375			1,530			144,905
Other comprehensive income		—		—			—		—			—		—		(170,782	)		(1,103,250	)		748,388			33,995			28,877			—			(462,772	)		(1,008	)		(463,780	)
Total other comprehensive income		—		—			—		—			—		—		(170,782	)		(1,103,250	)		748,388			33,995			28,877			143,375			(319,397	)		522			(318,875	)
Initial Public Offering, Note 1(b)		—		—			—		—			2,315		—		—			—			—			—			—			(2,315	)		—			—			—
Purchase of treasury stock, Note 12(b)		—		(2	)		—		(97	)		—		—		—			—			—			—			—			—			(97	)		—			(97	)
Others		—		—			—		—			—		—		—			—			—			—			—			(37,821	)		(37,821	)		(388	)		(38,209	)
Balance as of March 31, 2020		115,447		(3	)		1,038,017		(293	)		532,771		4,700,000		94,101			(67,091	)		(175,467	)		11,237			117,353			2,248,927			8,499,555			46,712			8,546,267

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated statement of cash flows

For the three-month periods ended March 31, 2020 and 2019

	31.03.2020			31.03.2019
	S/(000)			S/(000)
Cash flows from operating activities
Net profit for the period		144,905			352,725
Plus (minus) adjustments to net profit
Impairment loss on loans, net of recoveries		312,618			186,414
Loss (recovery) due to impairment of financial investments		40,522			(1,887	)
Depreciation and amortization		66,363			62,904
Provision for sundry risks		2,382			3,190
Deferred Income Tax		(36,629	)		(5,579	)
Net gain on sale of financial investments		(28,288	)		(27,445	)
Gain from derecognition of financial assets at amortized cost		—			(2,472	)
Net (loss) gain of financial assets at fair value through profit or loss		154,174			(37,061	)
Net gain for valuation of investment property		(11,481	)		(1,322	)
Translation result		23,856			(10,091	)
Decrease in accrued interest receivable		28,985			38,990
Increase in accrued interest payable		22,432			35,194
Net changes in assets and liabilities
Net increase in loans		(227,157	)		(826,104	)
Increase in other accounts receivable and other assets		(153,285	)		(123,960	)
Net (increase) decrease in restricted funds		(238,444	)		442,710
(Decrease) increase in deposits and obligations		(538,802	)		1,077,096
Increase (decrease) in due to banks and correspondents		1,360,326			(570,671	)
Increase in other accounts payable, provisions and other liabilities		373,544			259,055
Income Tax paid		(117,595	)		(118,604	)
Decrease of investments at fair value through profit or loss		36,187			35,061
Net cash provided by operating activities		1,214,613			768,143

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated statements of cash flows (continued)

	31.03.2020			31.03.2019
	S/(000)			S/(000)
Cash flows from investing activities
Net (purchase) sale of financial investments		(1,066,350	)		216,678
Purchase of property, furniture and equipment		(19,341	)		(14,435	)
Purchase of intangible assets		(67,065	)		(20,992	)
Purchase of investment property		(1,785	)		(1,735	)
Net cash (used in) provided by investing activities		(1,154,541	)		179,516
Cash flows from financing activities
Net increase of bonds, notes and other obligations		312,000			244,157
Net (increase) decrease in receivable inter-bank funds		(64,999	)		425,020
Net (decrease) increase in payable inter-bank funds		(57,634	)		106,524
Purchase of treasury stock, net		(97	)		—
Dividend payments to non-controlling interest		—			(3,228	)
Lease payments		(24,251	)		(26,854	)
Net cash provided by financing activities		165,019			745,619
Net increase in cash and cash equivalents		225,091			1,693,278
Translation (loss) gain on cash and cash equivalents		(10,586	)		23,947
Cash and cash equivalents at the beginning of the period		9,851,729			7,087,062
Cash and cash equivalents at the end of the period		10,066,234			8,804,287

The accompanying notes are an integral part of these consolidated financial statements.

Notes to the consolidated financial statements

As of March 31, 2020 (unaudited) and December 31, 2019 (audited)

1.	Business activity and other relevant events

(a)

Business activity -

Intercorp Financial Services Inc. and Subsidiaries (henceforth "IFS", “the Company” or “the Group”), is a limited liability holding company incorporated in the Republic of Panama on September 19, 2006, and is a Subsidiary of Intercorp Perú Ltd. (henceforth “Intercorp Perú”), a holding Company incorporated in 1997 in the Commonwealth of the Bahamas. As of March 31, 2020, Intercorp Perú holds directly and indirectly 70.63 percent of the issuead capital stock of IFS, equivalent to 70.62 percent of the outstanding capital stock of IFS (70.62 percent of the issuead and outstanding capital stock of IFS, as of December 31, 2019).

IFS’s legal domicile is located at Av. Carlos Villarán 140 Urb. Santa Catalina, La Victoria, Lima, Peru.

As of March 31, 2020 and December 31, 2019, IFS holds 99.30 percent of the capital stock of Banco Internacional del Perú S.A.A. – Interbank (henceforth “Interbank”), 99.84 percent of the capital stock of Interseguro Compañía de Seguros S.A. (henceforth “Interseguro”) and 100 percent of the capital stock of Inteligo Group Corp. (henceforth “Inteligo”).

The operations of Interbank and Interseguro are concentrated in Peru, while the operations of Inteligo and its Subsidiaries (Interfondos S.A. Sociedad Administradora de Fondos, Inteligo Sociedad Agente de Bolsa S.A. and Inteligo Bank Ltd.) are mainly concentrated in Peru and Panama. Hipotecaria Sura was extinguished in October 2019.

The interim condensed consolidated financial statements as of March 31, 2020, have been approved by Board of Directors held on May 12, 2020. The audited consolidated financial statement of IFS and Subsidiaries as of December 31, 2019, issued on March 13, 2020, were approved by the General Shareholders’ Meeting held on April 7, 2020.

(b)

COVID-19 global pandemic -

In relation to the recent COVID-19 coronavirus pandemic, since early March 2020 IFS has put into effect a business continuity program, with actions involving different levels of the organization. Supporting these actions, the Peruvian Government and several authorities at the economic front – such as the BCRP, the SBS, the MEF and the Securities Market regulatory body – have all reacted promptly to tackle the crisis.

IFS is closely monitoring the situation in all its different business lines, and management is focused on guaranteeing the operation and strengthening the Subsidiaries’ liquidity and solvency position, while adopting a series of measures to help clients affected by this crisis. With respect to liquidity, Interbank has remained active in the Central Bank’s day-to-day operations and has drawn lines of credit available from correspondent banks abroad, while its retail deposit base has continued to grow. Moreover, at the Shareholders' Meeting held on April 3, 2020, Interbank approved a reduction in its earnings’ payout ratio, from the previous 45 percent to 25 percent compared to the previous year, in order to strengthen its total capital and core capital ratios to face the volatile environment. First quarter of 2020 earnings have also been agreed to be capitalized at the bank level.

People and clients’ well-being are top priorities for IFS. On one hand, employees are subject to specific protocols – including social distancing, hygiene habits, health surveillance, home office implementation and strong communications. On the other hand, clients can request the rescheduling of their debts and may postpone their payment obligations under various arrangements. Non-contact service channels (telephone banking and internet) play an important role in enabling the quick implementation of these arrangements.

The impact of the COVID-19 outbreak on IFS’s results cannot be reasonably estimated at this time given the magnitude, duration and global reach of the situation.

(c)

Initial Public Offering -

On July 3, 2019, the Board of IFS approved the filing with the Securities and Exchange Commission of the United States of America (henceforth “SEC”), of a Registration Statement under Form F-1 of the Securities Exchange Act of 1933 of the United States of America, in relation with a proposal of an Initial Public Offering (henceforth “Offering”) of IFS’s common shares.

On July 18, 2019, IFS announced the placement of the Offering for approximately 9,000,000 common shares at a price of US$46.00 per common share. The sale was performed by (i) IFS, (ii) Interbank, (iii) Intercorp Perú; and (iv) a non-related shareholder. Additionally, IFS granted the Offering placers a 30-day call option for up to 1,350,000 new common shares, as an additional initial issuance.

As result of said Offering, IFS sold 2,418,754 common shares held as treasury stock (including shares sold by Interbank), as well as approximately 1,150,000 new common shares to be issued. Intercorp Perú sold 2,531,246 shares, and the non-related shareholder sold 3,000,000 shares. Additionally, the placers exercised the call option regarding 1,186,841 new common shares.

In this sense, IFS and Subsidiaries combined, sold, 4,755,595 shares at US$46.00 per share. The sale value amounted to approximately US$218,757,000 (before issuance expenses).

The total impact of the Offering on the Company’s net equity, after discounting the issuance expenses, amounted to S/684,125,000 (approximately US$208,384,000), mainly explained by:

(i)

Issuance of 2,336,841 shares, for an amount of S/336,950,000, out of which S/74,571,000 correspond to capital stock and S/262,379,000 to capital surplus (net of issuance expenses for S/15,957,000), see Note 12(a).

(ii)

Sale of 2,418,754 share held as treasury stock, including shares sold by Interbank, for a total amount of S/347,175,000, which were recorded in captions “Treasury stock” and “Retained earnings”, see Note 12(b).

(d)

Subsidiaries Activities –

IFS’s Subsidiaries are the following:

(a)Banco Internacional del Perú S.A.A. - Interbank and Subsidiaries -

Interbank is incorporated in Peru and is authorized by the Superintendence of Banking, Insurance and Private Pension Funds (henceforth “SBS”, by its Spanish acronym) to operate as a universal bank in accordance with Peruvian legislation. The Bank's operations are governed by the General Act of the Banking and Insurance System and Organic Act of the SBS – Act No. 26702 (henceforth “the Banking and Insurance Act”), that establishes the requirements, rights, obligations, restrictions and other operating conditions that financial and insurance entities must comply with in Peru.

As of March 31, 2020 and December 31, 2019, Interbank had 253 and 255 offices, respectively, and a branch established in the Republic of Panama. Regarding said branch, on April 23, 2019, Interbank’s Board approved its voluntary closing. As of the date of this report, there is no specific date for the completion of said process.

Additionally, it holds approximately 100 percent of the shares of the following Subsidiaries:


Entity	Activity


Internacional de Títulos Sociedad Titulizadora S.A. - Intertítulos S.T.	Manages securitization funds.
Compañía de Servicios Conexos Expressnet S.A.C.	Services related to credit card transactions or products related to the brand “American Express”.

Inversiones Huancavelica S.A.	Real estate activities. As of December 31, 2019, the entity was absorbed by Banco Internacional del Perú S.A.A. through a process of merging by absorption, which was authorized by the SBS in September 2019.

Contacto Servicios Integrales de Créditos y Cobranzas S.A.	Collection services. As of December 31, 2019, the entity was absorbed by Banco Internacional del Perú S.A.A. through a process of merging by absorption, which was authorized by the SBS in September 2019.

(b)Interseguro Compañía de Seguros S.A. and Subsidiaries -

Interseguro is incorporated in Peru and its operations are governed by the Banking and Insurance Act. It is authorized by the SBS to issue life and general risk insurance contracts. As of March 31, 2020 and December 31, 2019, Interseguro participates in:

Patrimonio Fideicometido D.S.093-2002-EF, Interproperties Perú -

Interseguro holds participations in Patrimonio Fideicometido D.S.093-2002-EF, Interproperties Perú (henceforth “Patrimonio Fideicometido – Interproperties Perú”), a structured entity, incorporated in April 2008, in which several investors (related parties to the Group) contributed investment properties. Each investor or investors have ownership of and specific control over the contributed investment property. The fair values of the properties contributed by Interseguro, which were included in this structured entity as of March 31, 2020 and December 31, 2019, amounted to S/115,627,000 and S/114,058,000, respectively. For accounting purposes and under IFRS 10 “Consolidated Financial Statements” the assets included in said structure are considered “silos”, because they are ring-fenced parts of the wider structured entity (the Patrimonio Fideicometido - Interproperties Perú). IFS has ownership and decision-making power over these properties and IFS has the exposure or rights to their returns; therefore, IFS consolidates the silos containing the investment properties that it controls.

In June and September 2019, Interseguro sold the entirety of its 15 percent participation in the land lot located in Miraflores (Lima) called “Cuartel San Martín” to Urbi Propiedades S.A.C., a related entity, for an amount of S/63,132,000. Through the sale, Interseguro transferred its ownership over said property.

Additionally, in November 2019, Interseguro and Interproperties Perú transferred an investment property (Lilingstone lot, located in San Isidro) to Interseguro, and annulled the corresponding certificates of participation. The amount of the transferred property amounted to S/253,557,000.

(c)Inteligo Group Corp. and Subsidiaries -

Inteligo is an entity incorporated in the Republic of Panama. As of March 31, 2020 and December 31, 2019, it holds 100 percent of the shares of the following Subsidiaries:


Entity	Activity

Inteligo Bank Ltd.	It is incorporated in The Commonwealth of the Bahamas and has a branch established in the Republic of Panama that operates under an international license issued by the Superintendence of Banks of the Republic of Panama. Its main activity is to provide private and institutional banking services, mainly to Peruvian citizens.
Inteligo Sociedad Agente de Bolsa S.A.	Brokerage firm incorporated in Peru.
Inteligo Perú Holding S.A.C.	Financial holding company incorporated in Peru in December 2018. As of March 31, 2020 and December 31, 2019, it holds 99.99 percent interest in Interfondos S.A. Sociedad Administradora de Fondos. Interfondos S.A. Sociedad Administradora de Fondos Manages mutual funds and investment funds.
Inteligo USA, Inc.	Incorporated in the United States of America in January 2019. It provides investment consultancy and related services.

(d)Negocios e Inmuebles S.A. and Holding Retail Perú S.A. -

These entities were acquired by IFS as part of the purchase of Seguros Sura and Hipotecaria Sura, in 2017. As of March 31, 2020 and December 31, 2019, as a result of the merger between Interseguro and Seguros Sura, both companies hold 8.50 percent of Interseguro’s capital stock.

(e)San Borja Global Opportunities S.A.C. -

Its corporate purpose is the marketing of products and services through Internet, telephony or related.

(f)Hipotecaria Sura Empresa Administradora Hipotecaria S.A. -

As of December 31, 2019, this company has been extinguished. It was incorporated in Peru and regulated by the SBS. Its main activity was the granting of mortgage loans. It disbursed its last loans in 2015.

2.	Main accounting principles and practices

2.1Basis of presentation and use of estimates –

The interim condensed consolidated financial statements as of March 31, 2020 and December 31, 2019, have been prepared in accordance with IAS 34 “Interim Financial Reporting”.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements and should be read in conjunction with the Group’s consolidated audited financial statements as of December 31, 2019 and 2018 (henceforth “Annual Consolidated Financial Statements”).

The accompanying interim condensed consolidated financial statements have been prepared on a historical cost basis, except for investment property, derivative financial instruments, financial investments at fair value through profit or loss and through other comprehensive income, which have been measured at fair value. The interim condensed consolidated financial statements are presented in Soles, which is the functional currency of the Group, and all values are rounded to the nearest thousand (S/(000)), except when otherwise indicated.

The preparation of the interim condensed consolidated financial statements, in conformity with the International Financial Reporting Standards (henceforth “IFRS”) as issued by the International Accounting Standards Board (IASB), requires Management to make estimations and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of significant events in the notes to the interim condensed consolidated financial statements.

In that sense, the estimates and criteria are continually assessed and are based on historical experience, as well as other factors, including expectations of future events that are believed to be reasonable under the current circumstances. Existing circumstances and assumptions about future developments, however, may change due to markets’ behavior or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur. Actual results could differ from those estimates. The most significant estimates comprised in the accompanying interim condensed consolidated financial statements are related to the calculation of the impairment of the portfolio of loan and financial investments, the measurement of the fair value of the financial investments and investment property, the assessment of the impairment of goodwill, the liabilities for insurance contracts and measurement of the fair value of derivative financial instruments; also, there are other estimates such as the estimated useful life of intangible assets, property, furniture and equipment, and the estimation of deferred Income Tax.

2.2Basis of consolidation –

The interim condensed consolidated financial statements of IFS comprise the financial statements of Intercorp Financial Services Inc. and Subsidiaries. The method adopted by IFS to consolidate its Subsidiaries is described in Note 3.3 to the Annual Consolidated Financial Statements. There were no changes in the composition of IFS in the reported period.

3.	Cash and due from banks and inter-bank funds

(a)

The detail of cash and due from banks is as follows:

	31.03.2020		31.12.2019
	S/(000)		S/(000)
Cash and clearing (b)		1,943,222		1,877,843
Deposits in the Central Reserve Bank of Peru – BCRP (b)		6,098,673		5,861,570
Deposits in banks (c)		2,024,339		2,112,316
Accrued interest		4,832		6,209
		10,071,066		9,857,938
Restricted funds (d)		1,512,205		1,270,937
Total		11,583,271		11,128,875

(b)

In accordance with rules in force, Interbank is required to maintain a legal reserve in order to honor its obligations with the public. This reserve is comprised of funds kept in Interbank and in the BCRP.

The legal reserve funds maintained in the BCRP are non-interest bearing, except for the part that exceeds the minimum reserve required that accrued interest at an annual rate established by the BCRP. As of March 31, 2020, the excess in foreign currency accrued interest in US Dollars at an annual average rate of 0.43 percent (1.25 percent as of December 31, 2019). During 2020 and 2019, Interbank did not maintain excess reserves in national currency.

In Management’s opinion, Interbank has complied with the requirements established by the rules in force related to the computation of the legal reserve.

(c)

Deposits in domestic banks and abroad are mainly in Soles and US Dollars, they are freely available and accrue interest at market rates.

(d)

The Group maintains restricted funds related to:

	31.03.2020		31.12.2019
	S/(000)		S/(000)
Repurchase agreements with BCRP (*)		1,411,183		1,208,506
Derivative financial instruments		96,064		57,816
Others		4,958		4,615
Total		1,512,205		1,270,937

(*)

As of March 31, 2020, correspond to deposits maintained in the BCRP which guarantee agreements amounting to S/1,392,700,000 (guaranteed agreements amounting to S/1,205,200,000 as of December 31, 2019); see Note 9(b).

Cash and cash equivalents presented in the consolidated statement of cash flows do not include the restricted funds and accrued interest.

(e)

Inter-bank funds

Corresponds to loans made among financial institutions with maturity, in general, being less than 30 days. As of March 31, 2020, Inter-bank funds assets accrue interest at an annual rate of 1.25 percent in national currency and Inter-bank funds liabilities accrue interest at an annual rate of 1.14 percent in national currency (Inter-bank funds assets accrue interest at an annual rate of 2.26 percent in national currency and Inter-bank funds liabilities accrue interest at an annual rate of 2.25 percent in national currency and 1.75 percent in foreign currency, as of December 31, 2019) and do not have specific guarantees.

4.	Financial investments

(a)

This caption is made up as follows:

	31.03.2020		31.12.2019
	S/(000)		S/(000)
Financial investments
Debt instruments measured at fair value through other comprehensive income (b)		13,803,208		14,010,029
Investments at amortized cost (e)		2,260,631		2,160,775
Investments at fair value through profit or loss (d)		1,393,938		1,551,537
Equity instruments measured at fair value through other comprehensive income (f)		998,702		1,125,722
Total financial investments		18,456,479		18,848,063
Accrued income
Debt instruments measured at fair value through other comprehensive income (b)		163,196		178,444
Investments at amortized cost (e)		15,258		46,211
Total		18,634,933		19,072,718

(b)

Following is the detail of debt instruments measured at fair value through other comprehensive income:

			Unrealized gross amount								Annual effective interest rates
	Amortized							Estimated			S/				US$
	cost		Gains		Losses (c)			fair value		Maturity	Min		Max		Min		Max
	S/(000)		S/(000)		S/(000)			S/(000)			%		%		%		%
As of March 31, 2020
Corporate, leasing and subordinated bonds (*)		7,974,436		279,494		(554,230	)		7,699,700	Apr-20 / Jan-114		0.87		25.80		3.40		31.73
Peruvian Sovereign Bonds		3,986,231		143,979		(43,451	)		4,086,759	Aug-24 / Feb-55		2.04		5.88		—		—
Negotiable Certificates of Deposit issued by BCRP		1,128,781		4,025		(1,525	)		1,131,281	Apr-20 / Mar-23		2.14		3.04		—		—
Bonds guaranteed by the Peruvian Government		628,052		28,979		(1,688	)		655,343	Oct-24 / Jul -34		2.49		4.46		2.89		5.05
Global Bonds of the Republic of Peru		79,672		2,040		—			81,712	Jul-25		—		—		2.06		2.06
Global Bonds of the Republic of Colombia		153,102		—		(4,689	)		148,413	Jul-21 / Feb-24		—		—		3.62		3.87
Total		13,950,274		458,517		(605,583	)		13,803,208
Accrued interest									163,196
Total									13,966,404

			Unrealized gross amount								Annual effective interest rates
	Amortized							Estimated			S/				US$
	cost		Gains		Losses (c)			fair value		Maturity	Min		Max		Min		Max
	S/(000)		S/(000)		S/(000)			S/(000)			%		%		%		%
As of December 31, 2019
Corporate, leasing and subordinated bonds (*)		7,562,985		648,601		(12,300	)		8,199,286	Jan-20 / Jan-114		0.71		21.76		2.26		10.73
Peruvian Sovereign Bonds		3,213,581		330,856		(242	)		3,544,195	Aug-24 / Feb-55		1.59		5.31		—		—
Negotiable Certificates of Deposit issued by BCRP		1,481,962		1,533		(2	)		1,483,493	Jan-20 / Jun-21		2.15		3.04		—		—
Bonds guaranteed by the Peruvian Government		626,087		42,153		(167	)		668,073	Oct-24 / Jul -34		2.24		4.14		3.61		5.14
Global Bonds of the Republic of Colombia		114,431		551		—			114,982	Jul-21 / Mar-23		—		—		2.24		2.46
Total		12,999,046		1,023,694		(12,711	)		14,010,029
Accrued interest									178,444
Total									14,188,473

(*)	As of March 31, 2020 and December 31, 2019, Inteligo holds corporate bonds from different entities for approximately S/246,511,000 and S/440,409,000, respectively, which guarantee loans with Credit Suisse First Boston and Bank J. Safra Sarasin; see Note 9(a).

(c)

The Group has determined that the unrealized losses on debt instruments as of March 31, 2020 and December 31, 2019, not related to credit risk, are of temporary nature.

As of March 31, 2020 and December 31, 2019, the detail of the unrealized losses of the debt instruments classified as at fair value through other comprehensive income is as follows:

	31.03.2020							31.12.2019
Issuer	Amortized Cost		Unrealized gross gain		Unrealized gross loss			Amortized Cost		Unrealized gross gain		Unrealized gross loss			Maturity as of March 31, 2020	Risk rating as of March 31, 2020 (***)
	S/(000)		S/(000)		S/(000)			S/(000)		S/(000)		S/(000)
Peruvian Sovereign Bonds		3,986,231		143,979		(43,451	)		3,213,581		330,856		(242	)	2024-2055	A- (*)
BBVA Banco Continental		312,077		9,099		(12,498	)		302,668		14,611		(3,301	)	2020-2033	BBB+ (*)
Corporación Financiera de Desarrollo S.A.		297,595		13,012		(7,541	)		374,631		30,197		(1,438	)	2029-2046	AA (**)
Rutas de Lima		293,538		—		(108,140	)		285,047		46,465		—		2036-2039	Less than B- (*)
Suzano Austria GMBH		236,396		—		(29,700	)		228,102		16,892		—		2047	BBB- (*)
G y M Ferroviarias		226,172		—		(50,920	)		226,306		36,832		—		2039	AA+ (**)
Fermaca Enterprises S.R.L.		223,333		—		(10,382	)		218,733		6,906		—		2038	BBB (*)
GTL Trade Finance INC		204,763		—		(15,680	)		163,233		18,965		—		2044	BBB- (*)
Bienes Raíces Uno Trust		186,521		—		(25,825	)		180,067		11,417		—		2044	BBB (*)
Mexichem SAB de CV		181,435		—		(24,599	)		175,102		9,874		—		2042-2044	BBB- (*)
Línea Amarilla S.A.C.		174,470		—		(12,980	)		174,049		14,284		—		2037	AA (**)
Cometa Energía		171,427		—		(10,890	)		165,275		16,009		—		2035	BBB- (*)
PA Pacifico Trust		171,178		—		(19,608	)		161,799		4,144		—		2035	BBB- (*)
Celulosa Arauco y Constitución S.A.		166,577		—		(35,588	)		160,864		2,783		—		2047	BBB- (*)
Global Bonds of the Republic of Colombia		153,102		—		(4,689	)		114,431		551		—		2021-2024	BBB- (*)
Votorantim		142,038		—		(25,034	)		98,907		2,330		—		2041	BBB- (*)
Orazul Energy Egenor SCA		117,562		—		(13,655	)		22,069		68		—		2027	BB (*)
Cementos Pacasmayo		117,450		—		(5,690	)		117,337		11,643		(13	)	2023-2034	AAA (**)
Luz del Sur		103,470		2,517		(4,850	)		164,603		8,464		(2,732	)	2029-2034	AAA (**)
Instruments with individual losses minor than S/4 million		1,964,857		12,296		(143,863	)		1,177,293		47,683		(4,985	)	-	-
Total		9,430,192		180,903		(605,583	)		7,724,097		630,974		(12,711	)

(*)	Instrument rated abroad.

(**)	Instrument rated in Peru.

(***)

For those issuers with different instruments, the classification presented corresponds to the instrument with the largest unrealized loss.

On the other hand, the movement of the allowance for expected credit losses for debt instruments measured at fair value through other comprehensive income is presented below:

	31.03.2020			31.12.2019			31.03.2019
	S/(000)			S/(000)			S/(000)
Expected credit loss at the beginning of the period		34,743			28,050			28,050
Impairment of financial investments
New assets originated or purchased		287			1,588			588
Assets derecognized or matured (excluding write-offs)		(85	)		(1,290	)		(177	)
Others (*)		40,320			6,492			(2,298	)
Loss (recovery) to impairment on financial investments		40,522			6,790			(1,887	)
Foreign exchange effect		3,955			(97	)		(28	)
Expected credit loss at the end of the period		79,220			34,743			26,135

(*)

Corresponds mainly to the variation in the inputs used for calculating the expected credit losses different to changes in the stage during the year.

As a result of the assessment of the impairment of debt instruments at fair value through other comprehensive income, the Group recorded expenses by S/40,522,000 during the year 2020 and a reversal of the impairment of S/1,887,000 during the year 2019, which were presented in the caption "(Loss) recovery to impairment of financial investments" in the consolidated statement of income.

(d)

The composition of financial instruments at fair value through profit or loss is as follows:

	31.03.2020		31.12.2019
	S/(000)		S/(000)
Equity instruments
Local and foreign mutual funds and investment funds participations		904,759		1,083,079
Royalty Pharma		127,903		117,682
BioPharma Credit PLC		119,447		132,054
Others		126,523		153,468
Debt instruments
Corporate, leasing and subordinated bonds		115,306		65,254
Total		1,393,938		1,551,537

(e)

As of March 31, 2020 and December 31, 2019, investments at amortized cost are entirely comprised of Sovereign Bonds of the Republic of Peru issued in Soles, for an amount of S/2,275,889,000 and S/2,206,986,000, respectively, including accrued interest.

As of March 31, 2020 and December 31, 2019, these investments have maturity dates that range from September 2023 to August 2037, have accrued interests at effective annual rates ranging from 4.29 percent and 6.26 percent, and estimated fair value amounting to approximately S/2,375,348,000 and S/2,328,303,000, as of March 31, 2020 and December 31, 2019, respectively.

During the year 2019, the Government of the Republic of Peru performed public offerings to buyback certain sovereign bonds, with the purpose of renewing its debt and funding its fiscal deficit. Considering the purpose of this offering, following such offering, there would be no outstanding sovereign bonds of the repurchased issuances. In the event that some bonds remained outstanding, they would become illiquid on the market. In that sense, Interbank took part of these public offerings and sold to the Government of the Republic of Peru sovereign bonds classified as investments at amortized cost for approximately S/187,813,000, generating a gain amounting to S/2,472,000, which was recorded within the caption “Gain from derecognition of financial investments at amortized cost” of the consolidated statement of income. Notwithstanding the aforementioned, with the purpose of maintaining its asset management strategy, the Bank purchased simultaneously other sovereign bonds of the Republic of Peru for approximately S/187,744,000, and classified them as investments at amortized cost. In Management’s opinion and pursuant to IFRS 9, said transaction is congruent with the Group’s business model because although said sales were significant, they were infrequent and were

performed with the sole purpose of facilitating the debt renewal and the funding of the fiscal deficit of the Republic of Peru.

As of March 31, 2020 and December 31, 2019, Interbank keeps loans with the BCRP that are guaranteed with these sovereign bonds of the Republic of Peru, classified as restricted, for approximately S/1,317,325,000 and S/762,347,000, respectively; see Note 9(a).

(f)The composition of equity instruments measured at fair value through other comprehensive income is presented below:

	31.03.2020		31.12.2019
	S/(000)		S/(000)
BioPharma Credit PLC		304,363		336,338
InRetail Perú Corp		256,583		285,962
Ishares		83,732		140,198
Luz del Sur S.A.A.		78,587		87,983
Engie-Energía Perú S.A.		76,810		90,670
Credicorp		58,065		18,030
Ferreycorp S.A.A.		53,431		83,013
Cementos Pacasmayo S.A.A.		30,794		13,602
Others minor than S/17 million		56,337		69,926
Total		998,702		1,125,722

(g)

Below are the debt instruments measured at fair value through other comprehensive income and at amortized cost, classified by stages, in accordance with IFRS 9 as of March 31, 2020 and December 31, 2019:

	31.03.2020								31.12.2019
Debt instruments measured at fair value through other comprehensive income and at amortized cost	Stage 1		Stage 2		Stage 3		Total		Stage 1		Stage 2		Stage 3		Total
	S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)
Corporate, leasing and subordinated bonds		7,482,651		217,049		—		7,699,700		7,866,111		333,175		—		8,199,286
Peruvian Sovereign Bonds		6,347,390		—		—		6,347,390		5,704,970		—		—		5,704,970
Negotiable Certificates of Deposit issued by BCRP		1,131,281		—		—		1,131,281		1,483,493		—		—		1,483,493
Bonds guaranteed by the Peruvian Government		655,343		—		—		655,343		668,073		—		—		668,073
Global Bonds of the Republic of Colombia		148,413		—		—		148,413		114,982		—		—		114,982
Global Bonds of the Republic of Peru		81,712		—		—		81,712		—		—		—		—
Total		15,846,790		217,049		—		16,063,839		15,837,629		333,175		—		16,170,804

The Group rates its financial assets into Stage 1, Stage 2 and Stage 3, as described below:

Stage 1: When the financial assets are first recognized, the Group recognizes an allowance based on 12 months ECLs. Stage 1 also includes financial assets whose credit risk has improved and the loan has been reclassified from Stage 2.

Stage 2: When a financial asset has shown a significant increase in credit risk since origination, the Group records an allowance for the lifetime ECLs. Stage 2 also includes financial assets whose credit risk has improved and the financial asset has been reclassified from Stage 3.

Stage 3: Financial assets considered credit -impaired. The Group records an allowance for the lifetime financial asset.

For more information, see Note 30.1 of the Annual Consolidated Financial Statements.

5.	Loans, net

(a)

This caption is made up as follows:

	31.03.2020			31.12.2019
	S/(000)			S/(000)
Direct loans
Loans		28,758,757			28,504,689
Credit cards		5,805,833			5,876,983
Leasing		1,384,055			1,533,395
Discounted notes		557,110			686,164
Factoring		355,291			374,192
Advances and overdrafts		139,487			87,373
Refinanced loans		258,769			251,180
Past due and under legal collection loans		1,004,165			943,168
		38,263,467			38,257,144
Plus (minus)
Accrued interest from performing loans		334,764			316,171
Unearned interest and interest collected in advance		(41,646	)		(41,683	)
Impairment allowance for loans (d)		(1,494,533	)		(1,394,779	)
Total direct loans, net		37,062,052			37,136,853
Indirect loans		3,992,977			4,101,977

(b)

The classification of the direct loan portfolio is as follows:

	31.03.2020		31.12.2019
	S/(000)		S/(000)
Commercial loans (c.1) (*)		17,302,879		17,479,006
Consumer loans (c.1)		12,905,382		12,821,567
Mortgage loans (c.1)		7,337,875		7,206,445
Small and micro-business loans (c.1)		717,331		750,126
Total		38,263,467		38,257,144

(*)

In 2019, Interbank acquired a commercial loan from Sumitomo Mitsui Banking Corporation for an amount of S/164,950,000.

(c)

The following table shows the credit quality and maximum exposure to credit risk of direct loans based on the Group's internal credit rating as of March 31, 2020 and December 31, 2019. The amounts presented do not consider impairment:

	31.03.2020								31.12.2019
Direct loans, (c.1)	Stage 1		Stage 2		Stage 3		Total		Stage 1		Stage 2		Stage 3		Total
	S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)
Not impaired
High grade		19,492,176		427,845		—		19,920,021		28,314,167		271,610		—		28,585,777
Standard grade		3,681,179		582,047		—		4,263,226		4,675,010		528,372		—		5,203,382
Sub-standard grade		9,572,998		927,550		—		10,500,548		358,527		969,387		—		1,327,914
Past due but not impaired		1,721,909		1,079,890		—		2,801,799		1,474,310		770,876		—		2,245,186
Impaired
Individually impaired		—		—		8,533		8,533		—		—		8,444		8,444
Collectively impaired		—		—		769,340		769,340		—		—		886,441		886,441
Total direct loans		34,468,262		3,017,332		777,873		38,263,467		34,822,014		2,540,245		894,885		38,257,144

	31.03.2020								31.12.2019
Contingent Credits: Guarantees and stand by letters, import and export letters of credit (substantially, all indirect loans correspond to commercial loans)	Stage 1 S/(000)		Stage 2 S/(000)		Stage 3 S/(000)		Total S/(000)		Stage 1 S/(000)		Stage 2 S/(000)		Stage 3 S/(000)		Total S/(000)
Not impaired
High grade		806,314		18,197		—		824,511		3,733,040		62,860		—		3,795,900
Standard grade		80,655		16,429		—		97,084		108,515		118,463		—		226,978
Sub-standard grade		2,955,073		86,016		—		3,041,089		7,597		41,095		—		48,692
Past due but not impaired		—		—		—		—		—		—		—		—
Impaired
Individually impaired		—		—		22,607		22,607		—		—		22,607		22,607
Collectively impaired		—		—		7,686		7,686		—		—		7,800		7,800
Total indirect loans		3,842,042		120,642		30,293		3,992,977		3,849,152		222,418		30,407		4,101,977

(c.1)The following tables show the credit quality and maximum exposure to credit risk for each classification of the direct loan portfolio:

	31.03.2020								31.12.2019
	Stage 1		Stage 2		Stage 3		Total		Stage 1		Stage 2		Stage 3		Total
Commercial loans	S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)
Not impaired
High grade		4,426,930		110,504		—		4,537,434		12,786,786		53,449		—		12,840,235
Standard grade		1,760,068		177,175		—		1,937,243		2,605,473		127,347		—		2,732,820
Sub-standard grade		9,225,041		388,912		—		9,613,953		132,707		401,991		—		534,698
Past due but not impaired		703,950		308,308		—		1,012,258		1,069,813		102,267		—		1,172,080
Impaired
Individually impaired		—		—		8,533		8,533		—		—		8,444		8,444
Collectively impaired		—		—		193,458		193,458		—		—		190,729		190,729
Total commercial loans		16,115,989		984,899		201,991		17,302,879		16,594,779		685,054		199,173		17,479,006

	31.03.2020								31.12.2019
	Stage 1		Stage 2		Stage 3		Total		Stage 1		Stage 2		Stage 3		Total
Consumer loans	S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)
Not impaired
High grade		9,205,477		243,959		—		9,449,436		9,319,421		176,764		—		9,496,185
Standard grade		1,348,502		368,633		—		1,717,135		1,443,966		311,673		—		1,755,639
Sub-standard grade		204,099		407,839		—		611,938		196,126		362,228		—		558,354
Past due but not impaired		264,961		552,593		—		817,554		167,295		443,693		—		610,988
Impaired
Individually impaired		—		—		—		—		—		—		—		—
Collectively impaired		—		—		309,319		309,319		—		—		400,401		400,401
Total consumer loans		11,023,039		1,573,024		309,319		12,905,382		11,126,808		1,294,358		400,401		12,821,567

	31.03.2020								31.12.2019
	Stage 1		Stage 2		Stage 3		Total		Stage 1		Stage 2		Stage 3		Total
Mortgage loans	S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)
Not impaired
High grade		5,373,425		2,488		—		5,375,913		5,676,737		21,775		—		5,698,512
Standard grade		544,930		23,303		—		568,233		550,656		65,662		—		616,318
Sub-standard grade		141,607		93,067		—		234,674		25,855		190,605		—		216,460
Past due but not impaired		735,111		200,354		—		935,465		225,687		201,506		—		427,193
Impaired
Individually impaired		—		—		—		—		—		—		—		—
Collectively impaired		—		—		223,590		223,590		—		—		247,962		247,962
Total mortgage loans		6,795,073		319,212		223,590		7,337,875		6,478,935		479,548		247,962		7,206,445

	31.03.2020								31.12.2019
	Stage 1		Stage 2		Stage 3		Total		Stage 1		Stage 2		Stage 3		Total
Small and micro-business loans	S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)
Not impaired
High grade		486,344		70,894		—		557,238		531,223		19,622		—		550,845
Standard grade		27,679		12,936		—		40,615		74,915		23,690		—		98,605
Sub-standard grade		2,251		37,732		—		39,983		3,839		14,563		—		18,402
Past due but not impaired		17,887		18,635		—		36,522		11,515		23,410		—		34,925
Impaired
Individually impaired		—		—		—		—		—		—		—		—
Collectively impaired		—		—		42,973		42,973		—		—		47,349		47,349
Total small and micro-business loans		534,161		140,197		42,973		717,331		621,492		81,285		47,349		750,126

(d)

Following is the movement of the allowance for expected credit loss for direct and indirect loans:

(d.1)

Direct loans

	31.03.2020												31.03.2019												31.12.2019
Direct loans	Stage 1			Stage 2			Stage 3			Total			Stage 1			Stage 2			Stage 3			Total			Total
	S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)
Expected credit loss at the beginning of period balances		461,892			394,773			538,114			1,394,779			394,801			462,749			507,254			1,364,804			1,364,804
Impact of the expected credit loss in the consolidated statement of income -
New originated or purchased assets		68,032			—			—			68,032			93,533			—			—			93,533			317,473
Assets derecognized or repaid (excluding write offs)		(29,357	)		(10,723	)		(8,878	)		(48,958	)		(33,186	)		(22,042	)		(9,612	)		(64,840	)		(223,510	)
Transfers to Stage 1		62,925			(60,072	)		(2,853	)		—			78,148			(77,386	)		(762	)		—			—
Transfers to Stage 2		(66,197	)		84,126			(17,929	)		—			(60,936	)		74,221			(13,285	)		—			—
Transfers to Stage 3		(400	)		(71,341	)		71,741			—			(3,152	)		(73,550	)		76,702			—			—
Impact on the expected credit loss for credits that change stage in the period		(29,800	)		165,829			153,202			289,231			(55,334	)		122,047			116,857			183,570			707,008
Others (*)		46,739			36,703			(75,114	)		8,328			(6,160	)		(5,770	)		(2,673	)		(14,603	)		(28,228	)
Total		51,942			144,522			120,169			316,633			12,913			17,520			167,227			197,660			772,743
Write offs (**)		—			—			(255,967	)		(255,967	)		—			—			(193,042	)		(193,042	)		(874,068	)
Recoveries		—			—			27,754			27,754			—			—			31,312			31,312			136,468
Foreign exchange effect (***)		903			2,830			7,601			11,334			(362	)		(1,156	)		(2,973	)		(4,491	)		(5,168	)
Expected credit loss at the end of period balances		514,737			542,125			437,671			1,494,533			407,352			479,113			509,778			1,396,243			1,394,779

(d.1.1)

The following tables show the movement of the allowance for expected credit losses for each classification of the direct loan portfolio:

	31.03.2020												31.03.2019												31.12.2019
Direct loans – Commercial	Stage 1			Stage 2			Stage 3			Total			Stage 1			Stage 2			Stage 3			Total			Total
	S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)
Expected credit loss at the beginning of period balances		54,693			24,399			67,158			146,250			68,705			27,397			98,111			194,213			194,213
Impact of the expected credit loss in the consolidated statement of income -
New originated or purchased assets		11,537			—			—			11,537			22,939			—			—			22,939			42,558
Assets derecognized or repaid (excluding write offs)		(11,586	)		(1,885	)		(455	)		(13,926	)		(16,696	)		(4,757	)		(749	)		(22,202	)		(54,346	)
Transfers to Stage 1		3,188			(3,156	)		(32	)		—			1,892			(1,892	)		—			—			—
Transfers to Stage 2		(4,920	)		4,977			(57	)		—			(5,453	)		5,765			(312	)		—			—
Transfers to Stage 3		(100	)		(877	)		977			—			(613	)		(2,435	)		3,048			—			—
Impact on the expected credit loss for credits that change stage in the period		3,170			9,142			11,650			23,962			(1,186	)		4,372			4,717			7,903			29,078
Others (*)		(7,054	)		9,767			(5,856	)		(3,143	)		(4,502	)		(1,551	)		(417	)		(6,470	)		(35,128	)
Total		(5,765	)		17,968			6,227			18,430			(3,619	)		(498	)		6,287			2,170			(17,838	)
Write offs (**)		—			—			(2,336	)		(2,336	)		—			—			(1,124	)		(1,124	)		(29,800	)
Recoveries		—			—			355			355			—			—			213			213			968
Foreign exchange effect (***)		722			326			630			1,678			(275	)		(164	)		(579	)		(1,018	)		(1,293	)
Expected credit loss at the end of period balances		49,650			42,693			72,034			164,377			64,811			26,735			102,908			194,454			146,250

	31.03.2020												31.03.2019												31.12.2019
Direct loans – Consumer	Stage 1			Stage 2			Stage 3			Total			Stage 1			Stage 2			Stage 3			Total			Total
	S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)
Expected credit loss at the beginning of period balances		384,989			332,697			340,914			1,058,600			303,953			398,353			284,645			986,951			986,951
Impact of the expected credit loss in the consolidated statement of income -
New originated or purchased assets		51,154			—			—			51,154			64,494			—			—			64,494			257,150
Assets derecognized or repaid (excluding write offs)		(15,692	)		(8,254	)		(4,478	)		(28,424	)		(14,707	)		(16,532	)		(5,814	)		(37,053	)		(144,325	)
Transfers to Stage 1		48,282			(45,461	)		(2,821	)		—			70,421			(69,659	)		(762	)		—			—
Transfers to Stage 2		(57,194	)		64,409			(7,215	)		—			(53,224	)		58,372			(5,148	)		—			—
Transfers to Stage 3		(149	)		(66,844	)		66,993			—			(2,371	)		(65,351	)		67,722			—			—
Impact on the expected credit loss for credits that change stage in the period		(32,827	)		140,654			85,953			193,780			(49,057	)		113,558			97,081			161,582			607,998
Others (*)		59,024			17,013			(17,916	)		58,121			960			(4,256	)		(1,561	)		(4,857	)		9,467
Total		52,598			101,517			120,516			274,631			16,516			16,132			151,518			184,166			730,290
Write offs (**)		—			—			(239,170	)		(239,170	)		—			—			(179,361	)		(179,361	)		(785,863	)
Recoveries		—			—			26,162			26,162			—			—			30,086			30,086			130,184
Foreign exchange effect (***)		125			2,354			5,687			8,166			(58	)		(917	)		(1,761	)		(2,736	)		(2,962	)
Expected credit loss at the end of period balances		437,712			436,568			254,109			1,128,389			320,411			413,568			285,127			1,019,106			1,058,600

	31.03.2020												31.03.2019												31.12.2019
Direct loans – Mortgage	Stage 1			Stage 2			Stage 3			Total			Stage 1			Stage 2			Stage 3			Total			Total
	S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)
Expected credit loss at the beginning of period balances		9,418			22,788			89,476			121,682			8,428			20,142			86,040			114,610			114,610
Impact of the expected credit loss in the consolidated statement of income -
New originated or purchased assets		431			—			—			431			544			—			—			544			2,153
Assets derecognized or repaid (excluding write offs)		(373	)		(283	)		(3,369	)		(4,025	)		(160	)		(290	)		(2,768	)		(3,218	)		(15,205	)
Transfers to Stage 1		10,232			(10,232	)		—			—			4,207			(4,207	)		—			—			—
Transfers to Stage 2		(457	)		11,043			(10,586	)		—			(732	)		8,416			(7,684	)		—			—
Transfers to Stage 3		(8	)		(885	)		893			—			(24	)		(1,774	)		1,798			—			—
Impact on the expected credit loss for credits that change stage in the period		450			11,186			50,537			62,173			(3,776	)		12			8,927			5,163			28,120
Others (*)		(4,897	)		(2,297	)		(50,491	)		(57,685	)		221			(278	)		(788	)		(845	)		(1,845	)
Total		5,378			8,532			(13,016	)		894			280			1,879			(515	)		1,644			13,223
Write offs (**)		—			—			(999	)		(999	)		—			—			—			—			(5,427	)
Recoveries		—			—			—			—			—			—			—			—			—
Foreign exchange effect (***)		43			148			1,170			1,361			(22	)		(72	)		(581	)		(675	)		(724	)
Expected credit loss at the end of period balances		14,839			31,468			76,631			122,938			8,686			21,949			84,944			115,579			121,682

	31.03.2020												31.03.2019												31.12.2019
Direct loans – Small and micro-business	Stage 1			Stage 2			Stage 3			Total			Stage 1			Stage 2			Stage 3			Total			Total
	S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)
Expected credit loss at the beginning of period balances		12,792			14,889			40,566			68,247			13,715			16,857			38,458			69,030			69,030
Impact of the expected credit loss in the consolidated statement of income -
New originated or purchased assets		4,910			—			—			4,910			5,556			—			—			5,556			15,612
Assets derecognized or repaid (excluding write offs)		(1,706	)		(301	)		(576	)		(2,583	)		(1,623	)		(463	)		(281	)		(2,367	)		(9,634	)
Transfers to Stage 1		1,223			(1,223	)		—			—			1,628			(1,628	)		—			—			—
Transfers to Stage 2		(3,626	)		3,697			(71	)		—			(1,527	)		1,668			(141	)		—			—
Transfers to Stage 3		(143	)		(2,735	)		2,878			—			(144	)		(3,990	)		4,134			—			—
Impact on the expected credit loss for credits that change stage in the period		(593	)		4,847			5,062			9,316			(1,315	)		4,105			6,132			8,922			41,812
Others (*)		(334	)		12,220			(851	)		11,035			(2,839	)		315			93			(2,431	)		(722	)
Total		(269	)		16,505			6,442			22,678			(264	)		7			9,937			9,680			47,068
Write offs (**)		—			—			(13,462	)		(13,462	)		—			—			(12,557	)		(12,557	)		(52,978	)
Recoveries		—			—			1,237			1,237			—			—			1,013			1,013			5,316
Foreign exchange effect (***)		13			2			114			129			(7	)		(3	)		(52	)		(62	)		(189	)
Expected credit loss at the end of period balances		12,536			31,396			34,897			78,829			13,444			16,861			36,799			67,104			68,247

(d.2)

Indirect loans (substantially, all indirect loans correspond to commercial loans)

	31.03.2020												31.03.2019												31.12.2019
Contingent credits, guarantees and stand-by letters, import and export letters of credit	Stage 1			Stage 2			Stage 3			Total			Stage 1			Stage 2			Stage 3			Total			Total
	S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)
Expected credit loss at the beginning of period balances		16,367			4,720			18,607			39,694			19,829			19,753			22,469			62,051			62,051
Impact of the expected credit loss in the consolidated statement of income -
New originated or purchased assets		1,118			—			—			1,118			2,201			—			—			2,201			6,937
Assets derecognized or repaid (excluding write offs)		(887	)		(395	)		(43	)		(1,325	)		(6,200	)		(5,046	)		(12	)		(11,258	)		(19,800	)
Transfers to Stage 1		1,659			(1,659	)		—			—			572			(572	)		—			—			—
Transfers to Stage 2		(127	)		127			—			—			(586	)		612			(26	)		—			—
Transfers to Stage 3		—			(1	)		1			—			(2	)		(1	)		3			—			—
Impact on the expected credit loss for credits that change stage in the period		(1,407	)		350			1			(1,056	)		(344	)		31			97			(216	)		(4,329	)
Others (*)		(1,942	)		(251	)		(559	)		(2,752	)		(314	)		654			(2,313	)		(1,973	)		(4,740	)
Total		(1,586	)		(1,829	)		(600	)		(4,015	)		(4,673	)		(4,322	)		(2,251	)		(11,246	)		(21,932	)
Write offs (**)		—			—			1			1			—			—			—			—			—
Recoveries		—			—			—			—			—			—			—			—			—
Foreign exchange effect (***)		285			127			18			430			(156	)		(227	)		(8	)		(391	)		(425	)
Expected credit loss at the end of period balances		15,066			3,018			18,026			36,110			15,000			15,204			20,210			50,414			39,694

(*)

Corresponds mainly to: (i) the variation between the amortized cost of the loan at the beginning of the year and its amortized cost at the end of the year (partial amortizations that did not represent a reduction or collection of the loan), and (ii) the execution of contingent loans (conversion of indirect debt into direct debt).

(**)

Corresponds mainly to: (i) the variation between the amortized cost of the loan at the beginning of the year and its amortized cost at the end of the year (variation in the provision recorded for partial amortizations that did not represent a reduction or collection of the loan), (ii) variations in credit risk that did not generate transfers to other stages; and (iii) the execution of contingent loans (conversion of indirect debt into direct debt).

(***)

Corresponds mainly to the effect of the exchange rate and the variation of the time value of money.

6.	Investment property

(a)

This caption is made up as follows:

	31.03.2020		31.12.2019		Acquisition or construction year		Valuation methodology as of March 31, 2020 and December 31, 2019
	S/(000)		S/(000)
Land
San Isidro – Lima		249,591		239,152		2009	Appraisal
San Martín de Porres – Lima		74,685		72,013		2015	Appraisal
Piura		52,266		50,396		2008	Appraisal
Sullana		17,154		16,540		2012	Appraisal
Santa Clara – Lima		13,442		12,961		2017	Appraisal
Lurin		4,031		4,032		2008	Appraisal
Others		4,870		4,695	-		DCF/Appraisal
		416,039		399,789
Completed investment property - “Real Plaza” Shopping Malls
Talara		35,900		37,772		2015	DCF
		35,900		37,772
Buildings
Orquídeas - San Isidro - Lima		164,382		168,787		2017	DCF
Ate Vitarte – Lima		86,758		82,925		2006	DCF
Chorrillos – Lima		71,988		71,680		2017	DCF
Chimbote		45,513		49,898		2015	DCF
Maestro-Huancayo		34,340		34,569		2017	DCF
Cusco		30,855		30,774		2017	DCF
Pardo y Aliaga – Lima		22,236		19,963		2008	DCF
Panorama – Lima		21,861		21,819		2016	DCF
Trujillo		17,646		17,600		2016	DCF
Cercado de Lima – Lima		14,062		13,545		2017	DCF
Others		23,782		22,975		2017	DCF
		533,423		534,535

Total		985,362		972,096

DCF: Discounted cash flow

(i)

As of March 31, 2020 and December 31, 2019, there are no liens on investment property.

(b)

The net gain on investment properties consists of the following:

	31.03.2020		31.03.2019
	S/(000)		S/(000)
Gain on valuation of investment property		11,481		1,322
Income from rental of investment property		10,462		10,552
Total		21,943		11,874

(c)

The movement of investment property is as follows:

	31.03.2020		31.03.2019
	S/(000)		S/(000)
Beginning of period balances		972,096		986,538
Additions		1,785		1,735
Valuation gain		11,481		1,322
Balance as of March 31		985,362		989,595
Balance as of December 31, 2019				972,096

(d)

The valuation techniques to estimate the fair value and the main assumptions used are described in Note 7 “Investment property” of the Annual Consolidated Financial Statements.

7.	Other accounts receivable and other assets, net, and other accounts payable, provisions and other liabilities

(a)

These captions are comprised of the following:

	31.03.2020		31.12.2019
	S/(000)		S/(000)
Accounts receivable and other assets
Financial instruments
Accounts receivable related to derivative financial instruments (b)		441,692		220,776
Other accounts receivable, net		388,551		393,254
Accounts receivable from sale of investments		141,033		74,373
Assets for technical reserves for claims and premiums by reinsurers		69,879		77,430
Operations in process		36,527		45,613
Accounts receivable from reinsurers and coinsurers		14,652		19,061
Insurance operations receivables, net		12,590		7,499
Credit card commissions receivable		9,994		13,200
		1,114,918		851,206
Non-financial instruments
Investments in associates		80,758		72,301
Deferred charges		72,423		63,377
Prepaid Income Tax		25,467		25,270
Realizable assets, received as payment and seized through legal actions		22,450		22,446
Public works tax deduction		7,553		7,178
Prepaid rights to related entity		6,874		6,628
Value Added Tax credit		753		2,732
Others		738		734
		217,016		200,666
Total		1,331,934		1,051,872
Accounts payable, provisions and other liabilities
Financial instruments
Contract with investment component		502,403		465,542
Accounts payable related to derivative financial instruments (b)		403,377		222,305
Other accounts payable		402,564		436,331
Lease liabilities		328,528		341,836
Operations in process		110,263		132,982
Accounts payable for acquisitions of investments		97,078		75,820
Workers’ profit sharing and salaries payable		82,796		134,710
Allowance for indirect loan losses		36,110		39,694
Accounts payable to reinsurers and coinsurers		5,784		7,328
		1,968,903		1,856,548
Non-financial instruments
Taxes payable		108,311		76,423
Deferred income		50,362		55,348
Provision for other contingencies		46,850		50,931
Others		5,212		8,798
		210,735		191,500
Total		2,179,638		2,048,048

(b)

The fair value of derivative financial instruments recorded as assets or liabilities, including their notional amounts as of March 31, 2020 and December 31, 2019 is presented below:

As of March 31, 2020	Assets		Liabilities		Notional amount		Effective part recognized in other comprehensive income during the year			Maturity	Hedged instruments		Caption of the interim condensed consolidated statement of financial position where the hedged item has been recognized
	S/(000)		S/(000)		S/(000)		S/(000)
Derivatives held for trading
Forward exchange contracts		63,459		72,892		10,271,371		—		Between April 2020 and September 2021		—		—
Interest rate swaps		213,803		221,691		4,860,358		—		Between November 2020 and June 2036		—		—
Currency swaps		47,963		40,957		2,031,411		—		Between April 2020 and February 2027		—		—
Cross currency swaps		—		61,365		202,295		—		January 2023		—		—
Options		27		1,270		78,285		—		Between April 2020 and March 2021		—		—
		325,252		398,175		17,443,720		—
Derivatives held as hedges Cash flow hedges:
Cross currency swaps (CCS)		85,349		—		1,515,717		14,303		January 2023	Corporate bonds		Bonds, notes and other obligations
Cross currency swaps (CCS)		31,091		—		515,550		20,320		October 2027	Senior bonds		Bonds, notes and other obligations
Interest rate swaps (IRS)		—		2,274		137,480		(143	)	November 2020	Due to banks		Due to banks and correspondents
Interest rate swaps (IRS)		—		1,463		85,925		(242	)	December 2020	Due to banks		Due to banks and correspondents
Interest rate swaps (IRS)		—		1,465		85,925		(242	)	December 2020	Due to banks		Due to banks and correspondents
		116,440		5,202		2,340,597		33,996
		441,692		403,377		19,784,317		33,996

As of December 31, 2019	Assets		Liabilities		Notional amount		Effective part recognized in other comprehensive income during the year			Maturity	Hedged instruments		Caption of the interim condensed consolidated statement of financial position where the hedged item has been recognized
	S/(000)		S/(000)		S/(000)		S/(000)
Derivatives held for trading
Forward exchange contracts		95,961		45,276		9,289,914		—		Between January 2020 and January 2021		—		—
Interest rate swaps		81,517		75,071		4,238,143		—		Between November 2020 and December 2029		—		—
Currency swaps		30,438		36,428		1,727,922		—		Between January 2020 and September 2026		—		—
Cross currency swaps		—		50,523		195,056		—		January 2023		—		—
Options		33		126		22,154		—		Between January 2020 and December 2020		—		—
		207,949		207,424		15,473,189		—
Derivatives held as hedges Cash flow hedges:
Cross currency swaps (CCS)		12,827		8,225		1,461,474		(31,211	)	January 2023	Corporate bonds		Bonds, notes and other obligations
Cross currency swaps (CCS)		—		2,821		497,100		(19,694	)	October 2027	Senior bonds		Bonds, notes and other obligations
Interest rate swaps (IRS)		—		1,670		132,560		(285	)	November 2020	Due to banks		Due to banks and correspondents
Interest rate swaps (IRS)		—		1,080		82,850		(289	)	December 2020	Due to banks		Due to banks and correspondents
Interest rate swaps (IRS)		—		1,085		82,850		(287	)	December 2020	Due to banks		Due to banks and correspondents
Cross currency swaps (CCS) (ii)		—		—		—		1,097		-	-		-
		12,827		14,881		2,256,834		(50,669	)
		220,776		222,305		17,730,023		(50,669	)

(i)

As of March 31, 2020 and December 31, 2019, certain derivative financial instruments required the establishment of collateral deposits; see Note 3(d).

(ii)

For the designated hedging derivatives mentioned in the table above, changes in fair values of hedging instruments completely offset the changes in fair values of hedged items; therefore, there has been no hedge ineffectiveness in 2020 and 2019. During the year 2019, two hedges were discontinued for a total nominal value of US$20,000,000 because of the early redemption of the senior bonds denominated “5.750% Senior Notes due 2020”.

(iii)

Derivatives held for trading are traded mainly to satisfy clients’ needs. The Group may also take positions with the expectation of profiting from favorable movements in prices or rates. Also, this caption includes any derivatives which do not comply with IFRS 9 hedging accounting requirements.

8.	Deposits and obligations

(a)

This caption is made up as follows:

	31.03.2020		31.12.2019
	S/(000)		S/(000)
Saving deposits		12,580,551		11,384,876
Time deposits		11,608,727		13,053,033
Demand deposits		11,587,125		11,716,035
Compensation for service time		1,777,722		1,933,052
Other obligations		14,770		6,228
Total		37,568,895		38,093,224

(b)

Interest rates applied to deposits and obligations are determined based on the market interest rates.

(c)

As of March 31, 2020 and December 31, 2019, approximately S/10,934,868,000 and S/10,725,904,000, respectively, of deposits and obligations are covered by the Peruvian Deposit Insurance Fund.

9.	Due to banks and correspondents

(a)

This caption is comprised of the following:

	31.03.2020		31.12.2019
	S/(000)		S/(000)
By type
Banco Central de Reserva del Perú - BCRP		2,565,469		1,897,568
Promotional credit lines		1,441,100		1,422,067
Loans received from foreign entities		1,188,515		613,090
Loans received from Peruvian entities		90,164		2,049
		5,285,248		3,934,774
Interest and commissions payable		49,349		44,863
		5,334,597		3,979,637
By term
Short term		3,514,272		2,666,530
Long term		1,820,325		1,313,107
Total		5,334,597		3,979,637

(b)

As of March 31, 2020 and December 31, 2019, some of the Bank loans agreements include standard covenants regarding capital ratios, financial ratios, disposal of assets and transactions among companies under certain conditions, the use of funds and other issues.

In the opinion of Management and its legal advisors, all covenants have been met by the Group as of March 31, 2020 and December 31, 2019.

10.	Bonds, notes and other obligations

(a)This caption is comprised of the following:

Issuance	Issuer	Annual interest rate	Interest payment	Maturity		Amount issued	31.03.2020		31.12.2019
						(000)	S/(000)		S/(000)
Local issuances
Subordinated bonds – first program
Third (A series)	Interbank	3.5% + VAC (*)	Semi-annually		2023	S/ 110,000		91,000		91,000
Eighth (A series)	Interbank	6.91%	Semi-annually	2022		S/ 137,900		137,110		136,908
								228,110		227,908
Subordinated bonds – second program
Second (A series)	Interbank	5.81%	Semi-annually	2023		S/ 150,000		149,840		149,827
Third (A series)	Interbank	7.50%	Semi-annually	2023		US$50,000		171,581		165,426
								321,421		315,253
Subordinated bonds – third program
Fifth (single series)	Interseguro	6.00%	Semi-annually		2029	US$20,000		68,740		66,280
Fifth (single series)	Interseguro	4.34%	Semi-annually		2029	US$20,000		68,740		66,280
								137,480		132,560
Corporate bonds – second program
Fifth (A series)	Interbank	3.41% + VAC (*)	Semi-annually		2029	S/ 150,000		150,000		150,000
Negotiable certificates of deposits – first program
First (A series)	Interbank	4.28%	Annually		2020	S/ 150,000		—		148,603
Total local issuances								837,011		974,324
International issuances
Subordinated bonds	Interbank	6.63%	Semi-annually	2029		US$300,000		1,027,192		990,216
Junior subordinated notes	Interbank	8.50%	Semi-annually	2070		US$200,000		686,014		660,992
Senior bonds	IFS	4.13%	Semi-annually	2027		US$300,000		1,009,382		969,794
Corporate bonds	Interbank	3.38%	Semi-annually	2023		US$484,895		1,612,654		1,549,877
Corporate bonds	Interbank	5.00%	Semi-annually	2026		S/ 312,000		311,213		311,185
Corporate bonds	Interbank	3.25%	Semi-annually	2026		US$400,000		1,362,400		1,313,259
Total international issuances								6,008,855		5,795,323
Total local and international issuances								6,845,866		6,769,647
Interest payable								127,511		120,643
Total								6,973,377		6,890,290

(*)	The Spanish term “Valor de actualización constante” is referred to amounts in Soles indexed by inflation.

(b)

The international issuances are listed at the Luxembourg Stock Exchange. On the other hand, the local and international issuances include standard clauses of compliance with financial ratios, the use of funds and other administrative matters.

As of March 31, 2020 and December 31, 2019, the international issuances maintain mainly standard clauses for periodic reporting of financial information. In the opinion of Management and its legal advisors, these clauses have been met by the Group as of March 31, 2020 and December 31, 2019.

11.	Insurance contract liabilities

(a)

This caption is comprised of the following:

	31.03.2020		31.12.2019
	S/(000)		S/(000)
Technical reserves for insurance premiums (b)		10,867,081		11,135,635
Technical reserves for claims		197,264		203,175
		11,064,345		11,338,810
By term
Short term		965,482		948,316
Long term		10,098,863		10,390,494
Total		11,064,345		11,338,810

(b)

The movement of technical reserves for insurance premiums (disclosed by type of insurance) for the three-month periods ended March 31, 2020 and 2019, is as follows:

	2020															2019
	Annuities			Retirement, disability and survival annuities			Life insurance			General insurance			Total			Annuities			Retirement, disability and survival annuities			Life insurance			General insurance			Total
	S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)
Beginning of period balances		9,653,420			779,455			661,687			41,073			11,135,635			8,665,894			715,217			586,166			39,683			10,006,960
Insurance subscriptions		73,447			—			505			34,697			108,649			78,343			—			548			28,792			107,683
Acquisition of Mapfre (*)		—			—			292,499			—			292,499			—			—			—			—			—
Interest rate effect		(686,632	)		(51,096	)		(11,890	)		—			(749,618	)		136,166			11,934			—			—			148,100
Time passage adjustments		(29,620	)		531			5,384			(24,425	)		(48,130	)		(27,041	)		(1,646	)		29,533			(27,459	)		(26,613	)
Maturities and recoveries		—			—			(12,274	)		—			(12,274	)		—			—			(8,037	)		—			(8,037	)
Exchange differences		118,599			—			21,614			107			140,320			(68,531	)		—			(8,718	)		(9	)		(77,258	)
Balance as of March 31		9,129,214			728,890			957,525			51,452			10,867,081			8,784,831			725,505			599,492			41,007			10,150,835
Balances as of December 31																	9,653,420			779,455			661,687			41,073			11,135,635

(*)

In December 2019, the SBS authorized the transfer of a net equity block from Mapfre Peru Vida, which was made effective on January 2, 2020. At said date, Interseguro received cash equivalent to S/59,479,000, financial instruments by S/196,970,000, and recognized the corresponding liabilities for technical reserves. The final value of the portfolio transferred is currently under review by Management of Interseguro and Mapfre.

(c)

In Management’s opinion, these balances reflect the exposure of life and general insurance contracts as of March 31, 2020 and December 31, 2019, in accordance with IFRS 4.

(d)

The main assumptions used in the estimation of retirement, disability and survival annuities and individual life reserves as of March 31, 2020 and December 31, 2019, are the following:

		Interest rates
Type	Mortality table	31.03.2020	31.12.2019
Annuities	SPP-S-2017, SPP-I-2017	5.69% in US$	4.54% in US$
	with improvement factor for mortality	2.41% in S/ VAC 5.49% in adjusted S/	1.89% in S/ VAC 5.10% in adjusted S/
Retirement, disability and survival	SPP-S-2017, SPP-I-2017 with improvement factor for mortality	2.41% in S/ VAC	1.89% in S/ VAC
Individual life insurance contracts (included linked insurance contracts)	CSO 80 adjusted	4.00 - 5.00%	4.00 - 5.00%

The sensitivity of the estimates used by the Group to measure its insurance risks is represented primarily by life insurance risks; the main variables as of March 31, 2020 and December 31, 2019 are the interest rates and the mortality tables. The Group has assessed the changes of the reserves related to its most significant life insurance contracts included in the reserves of annuities, retirement, disability and survival of +/- 100 basis points (bps) in the interest rates and of +/- 500 basis points (bps) of the mortality factors, being the results as follows:

	31.03.2020								31.12.2019
			Variation of the reserve								Variation of the reserve
	Reserve		Amount			Percentage			Reserve		Amount			Percentage
Variables	S/(000)		S/(000)			%			S/(000)		S/(000)			%
Annuities
Portfolio in S/ and US Dollars - Basis amount
Changes in interest rate: + 100 bps		8,226,559		(902,655	)		(9.89	)		8,646,725		(1,006,695	)		(10.43	)
Changes in interest rate: - 100 bps		10,229,001		1,099,787			12.05			10,890,170		1,236,750			12.81
Changes in mortality table at 105%		9,041,837		(87,377	)		(0.96	)		9,554,268		(99,152	)		(1.03	)
Changes in mortality table at 95%		9,220,762		91,548			1.00			9,757,493		104,073			1.08
Retirements, disability and survival
Portfolio in S/ – Basis amount
Changes in interest rate: + 100 bps		646,914		(81,976	)		(11.25	)		687,451		(92,004	)		(11.80	)
Changes in interest rate: - 100 bps		830,633		101,743			13.96			894,614		115,159			14.77
Changes in mortality table at 105%		719,570		(9,320	)		(1.28	)		769,044		(10,411	)		(1.34	)
Changes in mortality table at 95%		738,677		9,787			1.34			790,403		10,948			1.40

12.	Net equity

(a)

Capital stock and distribution of dividends -

IFS’s shares are listed on the Lima Stock Exchange and, since July 2019, they are listed on the New York Stock Exchange. IFS’s shares have no nominal value and their issuance value was US$9.72 per share. As of March 31, 2020 and December 31, 2019, IFS’s capital stock is represented by 115,447,705 subscribed and paid-in common shares.

The General Shareholders’ Meeting of IFS held on April 1, 2019, agreed to distribute dividends for the year 2018 for approximately US$197,187,000 (equivalent to approximately S/654,464,000), US$1.75 per share, which were paid on May 3, 2019.

(b)Treasury stock -

As of March 31, 2020 and December 31, 2019, Interfondos, an indirect Subsidiary of IFS through Inteligo Group Corp., holds 2,600 and 1,400 shares issued by IFS, respectively, with an acquisition cost equivalent to S/293,000 and S/196,000, respectively.

Sale of treasury stock (2019)

As indicated in Note 1(b), in July 2019, Interbank and IFS sold a combined 2,418,754 shares. Said sale was recorded by decreasing the caption “Treasury stock” for an amount of S/208,178,000, and the highest value collected due to said sale amounted to S/138,997,000 and was recorded in the caption “Retained earnings”.

Corresponds to the difference between the nominal value of the shares issued and their public offerings price, which were performed in 2007 and 2019; see Note 1(c). Capital surplus is presented net of the expenses incurred and related to the issuance of such shares.

(d)

Shareholders’ equity for legal purposes (regulatory capital) -

IFS is not required to establish a regulatory capital for statutory purposes. As of March 31, 2020 and December 31, 2019, the regulatory capital required for Interbank, Interseguro and Inteligo Bank (a Subsidiary of Inteligo Group Corp.), is calculated based on the separate financial statements of each Subsidiary prepared following the accounting principles and practices stated by their regulators (the SBS or Central Bank of the Bahamas).

13.	Tax situation

(a)

IFS and its Subsidiaries incorporated and domiciled in the Republic of Panama and the Commonwealth of the Bahamas, are not subject to Income Tax, or any other taxes on capital gains, equity or property; nevertheless, IFS is subject to an additional tax on dividends received from its Subsidiaries incorporated and domiciled in Peru; see paragraph (b). The Subsidiaries incorporated and domiciled in Peru are subject to the Peruvian Tax legislation; see paragraph (c).

(b)

Legal entities or individuals not domiciled in Peru are subject to an additional tax (equivalent to 5 percent) on dividends received from entities domiciled in Peru. The corresponding tax is withheld by the entity that distributes the dividends. In this regard, since IFS controls the entities that distribute the dividends, it recognizes the amount of the additional Income Tax as expense of the financial year of the dividends.

(c)

IFS’s Subsidiaries incorporated in Peru are subject to the payment of Peruvian taxes; hence, they must calculate their tax expenses on the basis of their separate financial statements. The Income Tax rate as of March 31, 2020 and December 31, 2019, was 29.5 percent, over the taxable income.

(d)

The Tax Authority (henceforth “SUNAT”, by its Spanish acronym) is legally entitled to perform tax audit procedures for up to four years subsequent to the date at which the tax return regarding a taxable period must be filed. The Income

Tax and the Value-Added-Tax returns subject to inspection by the Tax Authority in each of the Subsidiaries, are the following:

- Interbank: Income Tax returns for the years 2014 to 2019, and Value-Added-Tax returns for the years 2015 to 2019.

Interseguro: Income Tax returns for the years 2014, 2015, 2017, 2018 and 2019, and Value-Added-Tax returns for the years 2014 to 2019.

Hipotecaria Sura and Seguros Sura: Income Tax returns for the years 2014 to 2019, and Value-Added-Tax returns for the years 2014 to 2019.

Given the possible interpretations that SUNAT may give to the legislation in effect, up to date it is not possible to determine whether or not any review to be conducted would result in liabilities for the Subsidiaries; any increased tax or surcharge that could arise from possible tax audits would be applied to the results of the period in which such tax increase or surcharge may be determined.

Following is the detail of the ongoing tax procedures for the Subsidiaries:

Interbank:

In April 2004, June 2006, February 2007, June 2007, November 2007, October 2008 and December 2010, Interbank received a number of Tax Determination and Tax Penalty notices corresponding mainly to the Income Tax determination for the fiscal years 2000 to 2006. As a result, claims and appeals were filed and subsequent contentious administrative proceedings were started, with the exception of Income Tax 2006, which is still pending in the Tax Court.

Regarding the tax litigations followed by Interbank related to the annual Income Tax returns for the years 2000 to 2006, the most relevant matter subject to discrepancy with SUNAT corresponds to whether the “interest in suspense” are subject to Income Tax or not. In this sense, the Bank considers that the interest in suspense do not constitute accrued income, in accordance with the SBS’s regulations, which is also supported by a ruling by the Permanent Constitutional and Social Law Chamber of the Supreme Court issued in August 2009.

Notwithstanding the foregoing, in February 2018, the Third Transitory Chamber of Constitutional and Social Law of the Supreme Court issued a ruling regarding a third bank that impacted the original estimation regarding the degree of contingency for this discrepancy. Subsequently, in June 2019, the Permanent Chamber of Constitutional and Social Law of the Supreme Court, in a case followed with another financial entity, ruled in favor of the tax treatment over the interest in suspense followed by said entity; which is consistent with the tax treatment followed by Interbank. Lastly, on March 12, 2020, the Permanent Chamber of Constitutional and Social Law of the Supreme Court published on the website of the Judiciary its ruling regarding Interbank’s Income Tax for the year 2003, declaring groundless the cassation appeals filed by SUNAT and the Ministry of Economy and Finance (“MEF”, by its Spanish acronym), thus reaffirming the position held by the Bank regarding that interest in suspense does not constitute taxable income.

From the tax and legal analysis performed, reinforced by the aforementioned recent ruling by the Permanent Chamber of Constitutional and Social Law of the Supreme Court, Interbank’s Management and its external legal advisors consider that it exists sufficient technical support for the prevalence of Interbank’s position, in relation with the tax periods under resolution process; thus, it has not been recorded any provision for this contingency as of March 31, 2020 and December 31, 2019.

The tax liability requested for this concept and other minor contingencies as of March 31, 2020, without considering the effects of the ruling by the Permanent Chamber of Constitutional and Social Law of the Supreme Court published on March 12, 2020, amounted to approximately S/307,000,000, out of which S/34,000,000 corresponded to taxes and the difference to fines and interest arrears (as of December 31, 2019 amounted to approximately S/303,000,000, out of which S/34,000,000 corresponded to taxes and the difference to fines and interest arrears); however, it is estimated that once SUNAT performs the resettlements of the Income Tax, including the effects of said ruling, the requested amount will diminish significantly.

On the other hand, on February 3, 2017, SUNAT closed the audit process corresponding to the Income Tax for the year 2010. The Bank paid the debt under protest and filed a claim procedure. Subsequently, on November 6, 2018, SUNAT closed again the audit process corresponding to the Income Tax 2010, which had been reopened due to invalidity;

Interbank filed a claim procedure and afterwards a tax appeal. Currently, the appeal is pending resolution by the Tax Court.

On February 14, 2018, SUNAT notified Interbank of the beginning of the partial audit process for the third category Income Tax corresponding to the year 2014. Subsequently, on September 7, 2018, SUNAT closed said partial audit process and did not determine any additional settlement of said tax.

On January 14, 2019, Interbank was notified of the Determination and Penalty Resolutions corresponding to the audit of the Income Tax for the fiscal year 2013. As of March 31, 2020 and December 31, 2019, the tax debt requested by SUNAT amounts to approximately S/51,000,000 and S/50,000,000, respectively (including taxes, penalties and moratorium interest). The main concept observed was the deduction of loan write-offs without proof by the SBS.

To date, Interbank’s Management has submitted the respective complaints to the resolutions indicated above. In the opinion of Management and its legal advisors, any eventual additional tax would not be significant for the financial statements as of March 31, 2020 and December 31, 2019.

On April 26, 2019, SUNAT notified Interbank about the commencement of the definitive audit process on Income Tax withholdings of non-domiciled entities corresponding to the year 2018. To date, said audit is under process.

On September 11, 2019, SUNAT notified Interbank about the commencement of the definitive audit process on the Income Tax corresponding to the year 2014. To date, said audit is under process.

On December 12, 2019, SUNAT notified Interbank about the commencement of the definitive audit process on the Income Tax corresponding to the year 2015. To date, said audit is under process.

Lastly, to date, SUNAT is auditing Interbank’s 2012 taxable period. In the opinion of Management and its legal advisors, any eventual additional tax settlement would not be significant for the financial statements as of March 31, 2020 and December 31, 2019.

Interseguro:

On January 4, 2019, Interseguro was notified through a Tax Determination notice about the partial audit of the Income Tax for non-domiciled entities for Sura corresponding to January 2015. The tax debt requested by SUNAT amounts to approximately S/19,000,000. On January 30, 2019, the Company filed an appeal against the Resolution of Determination claimed by SUNAT. Considering that this debt corresponds to a period prior to the acquisition of Seguros Sura by the Group and according to the conditions of the purchase and sale agreement of this entity, this debt, if confirmed after the legal actions that Management is to file, would be assumed by the sellers.

In the opinion of Management and its legal advisors, any eventual additional tax settlement would not be significant for the financial statements as of March 31, 2020 and December 31, 2019.

(e)

IFS’s Subsidiaries calculate the period’s Income Tax expense using the best estimate of the weighted average tax rate. The table below presents the amounts reported in the interim condensed consolidated statements of income:

	For the three-month periods ended March 31,
	2020			2019
	S/(000)			S/(000)
Current – Expense		112,470			115,469
Deferred – Expense		(36,629	)		(5,579	)
		75,841			109,890

14.	Interest income and expenses, and similar accounts

(a)

This caption is comprised of the following:

	For the three-month periods ended March 31,
	2020			2019
	S/(000)			S/(000)
Interest and similar income
Interest on loan portfolio		986,668			905,215
Interest on investments at fair value through other comprehensive income		193,427			194,159
Interest on investments at amortized cost		26,226			21,961
Dividends on financial instruments		20,832			17,113
Interest on due from banks and inter-bank funds		19,903			27,289
Other interest and similar income		1,154			1,003
Total		1,248,210			1,166,740
Interest and similar expenses
Interest and fees on deposits and obligations		(173,753	)		(178,154	)
Interest on bonds, notes and other obligations		(97,827	)		(99,639	)
Interest and fees on obligations with financial institutions		(41,304	)		(42,373	)
Deposit insurance fund fees		(12,213	)		(10,900	)
Interest on lease payments		(4,640	)		(765	)
Result from hedging transactions		(2,304	)		(2,502	)
Other interest and similar expenses		(7,429	)		(8,160	)
Total		(339,470	)		(342,493	)

15.	Fee income from financial services, net

(a)

This caption is comprised of the following:

	For the three-month periods ended March 31,
	2020			2019
	S/(000)			S/(000)
Income
Accounts maintenance, carriage, transfers, and debit and credit card fees		147,659			155,391
Banking services fees		63,311			51,951
Funds management		37,405			35,116
Contingent loans fees		12,932			13,797
Collection services		9,908			9,786
Brokerage and custody services		2,394			2,092
Others		11,051			8,944
Total		284,660			277,077
Expenses
Credit cards		(30,828	)		(24,385	)
Debtor’s life insurance premiums		(14,494	)		(10,533	)
Foreign banks fees		(3,234	)		(3,671	)
Brokerage and custody services		(159	)		(172	)
Others		(15,637	)		(15,318	)
Total		(64,352	)		(54,079	)
Net		220,308			222,998

16.	Other income and (expenses)

(a)

This caption is comprised of the following:

	For the three-month periods ended March 31,
	2020			2019
	S/(000)			S/(000)
Other income
Income from investments in associates		5,142			5,736
Other technical income from insurance operations		1,902			3,129
Income from ATM rentals		1,089			1,419
Services rendered to third parties		640			995
Other income		3,144			7,451
Total other income		11,917			18,730
Other expenses
Commissions from insurance activities		(16,972	)		(13,412	)
Sundry technical insurance expenses		(4,999	)		(10,359	)
Provision for sundry risk		(2,382	)		(3,190	)
Expenses related to rental income		(1,404	)		(1,544	)
Donations		(1,076	)		(1,291	)
Other expenses		(14,250	)		(16,922	)
Total other expenses		(41,083	)		(46,718	)

17.	Net premiums earned

This caption is comprised of the following:

	Premiums assumed				Adjustment of technical reserves						Gross premiums earned (*)						Premiums ceded to reinsurers						Net premiums earned (incurred)
	31.03.2020		31.03.2019		31.03.2020			31.03.2019			31.03.2020			31.03.2019			31.03.2020			31.03.2019			31.03.2020			31.03.2019
	S/(000)		S/(000)		S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)
Life insurance
Annuities		71,061		78,324		(43,833	)		(56,590	)		27,228			21,734			—			—			27,228			21,734
Group life		37,980		33,083		225			(85	)		38,205			32,998			(1,151	)		(1,275	)		37,054			31,723
Individual life		33,682		33,297		7,161			(21,939	)		40,843			11,358			(1,096	)		(1,155	)		39,747			10,203
Retirement, disability and survival		1,974		4,980		(531	)		6,934			1,443			11,914			(121	)		(1,700	)		1,322			10,214
Others		1		—		(1,008	)		(68	)		(1,007	)		(68	)		—			—			(1,007	)		(68	)
Total life insurance		144,698		149,684		(37,986	)		(71,748	)		106,712			77,936			(2,368	)		(4,130	)		104,344			73,806
Total general insurance		30,610		25,776		(10,431	)		(1,548	)		20,179			24,228			(84	)		(108	)		20,095			24,120
Total general		175,308		175,460		(48,417	)		(73,296	)		126,891			102,164			(2,452	)		(4,238	)		124,439			97,926

(*)	It includes the annual variation of technical reserves and unearned premiums.

18.	Earnings per share

The following table presents the calculation of the weighted average number of shares and the basic and diluted earnings per share, determined and calculated based on the earnings attributable to the Group:

	Outstanding shares			Shares considered in computation			Effective days in the period		Weighted average number of shares
	(in thousands)			(in thousands)					(in thousands)
Period 2019
Balance as of January 1, 2019		110,692			110,692			90		110,692
Balance as of March 31, 2019		110,692			110,692					110,692
Net earnings attributable to IFS S/(000)										350,568
Earnings per share attributable to IFS’s shareholders (Soles)										3.167
Period 2020
Balance as of January 1, 2020		115,446			115,446			90		115,446
Sale of treasury stock		1			1			53		0
Purchase of treasury stock		(3	)		(3	)		18		(0	)
Balance as of March 31, 2020		115,444			115,444					115,446
Net earnings attributable to IFS S/(000)										143,375
Earnings per share attributable to IFS’s shareholders (Soles)										1.242

19.	Transactions with shareholders, related parties and affiliated entities

(a)

The table below presents the main transactions with shareholders, related parties and affiliated companies as of March 31, 2020 and December 31, 2019:

	31.03.2020			31.12.2019
	S/(000)			S/(000)
Assets
Investments at fair value through profit or loss
Participations - Royalty Pharma		127,903			117,682
Others		244			270
Negotiable certificates of deposit – Financiera Oh! S.A.		—			9,372
		128,147			127,324
Investments at fair value through other comprehensive income
Shares - InRetail Perú Corp.		256,583			285,962
Corporate bonds - InRetail Shopping Malls S.A.		41,688			49,728
Corporate bonds - Colegios Peruanos S.A.		25,022			30,977
		323,293			366,667
Loans, net (b)		1,208,100			1,114,211
Accounts receivable (h)		77,824			77,824
Long-term accounts receivable (g)		39,141			39,141
Accounts receivable related to derivative financial instruments		2,723			817
Other assets (f)		11,130			11,928
Liabilities
Deposits and obligations		672,499			944,561
Other liabilities		203			56
Accounts payable related to derivative financial instruments		—			344
Off-balance sheet accounts
Indirect loans (b)		100,957			134,658

	For the three-month periods ended March 31,
	2020			2019
	S/(000)			S/(000)
Income (expenses)
Interest and similar income		17,883			21,947
Interest and similar expenses		(4,846	)		(4,599	)
Valuation of financial derivative instruments		2,250			7
Rental income		1,240			1,198
Administrative expenses		(14,844	)		(17,205	)
Others, net		12,941			10,424

(b)

As of March 31, 2020 and December 31, 2019, the detail of loans is the following:

	31.03.2020						31.12.2019
	Direct		Indirect		Total		Direct		Indirect		Total
	S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)
Controlling		15		—		15		17		—		17
Affiliated		939,263		51,507		990,770		847,993		59,267		907,260
Associates		268,822		49,450		318,272		266,201		75,391		341,592
		1,208,100		100,957		1,309,057		1,114,211		134,658		1,248,869

(c)

As of March 31, 2020 and December 31, 2019, the directors, executives and employees of the Group have been involved, directly and indirectly, in credit transactions with certain subsidiaries of the Group, as permitted by Peruvian law, which regulates and limits on certain transactions with employees, directors and officers of financial entities. As of March 31, 2020 and December 31, 2019, direct loans to employees, directors and officers amounted to S/212,215,000 and S/231,546,000, respectively; said loans are repaid monthly and bear interest at market rates.

There are no loans to the Group’s directors and key personnel guaranteed with shares of any Subsidiary.

(d)

The Group’s key personnel basic remuneration for the three-month periods ended March 31, 2020 and 2019, are presented below:

	For the three-month periods ended March 31,
	2020		2019
	S/(000)		S/(000)
Salaries		9,794		8,056
Board of Directors’ compensations		957		367
Total		10,751		8,423

(e)

As of March 31, 2020 and December 31, 2019, the Group holds participations in different mutual funds managed by Interfondos that are classified as investment at fair value through profit or loss and amount to S/4,333,000 and S/701,000, respectively.

(f)

It corresponds mainly to prepaid expenses for spaces ceded to Interbank in the stores of Supermercados Peruanos S.A. for the operation of financial agencies until the year 2030, and for an amount of approximately S/6,874,000 and S/6,628,000 as of March 31, 2020 and December 31, 2019, respectively (see Note 7(a)). Interbank may renew the term of the agreement for an additional term of 15 years.

(g)

It corresponds to a loan with maturity in 2046 and bears interests at market rates.

(h)

As of March 31, 2020 and December 31, 2019, corresponds to a financial lease for the construction of educational facilities in San Juan de Lurigancho and Ate Vitarte districts.

(i)

In Management’s opinion, transactions with related companies have been performed under market conditions and within the limits permitted by the SBS. Taxes generated by these transactions and the taxable base used for computing them are those customarily used in the industry and they are determined according to the tax rules in force.

20.	Business segments

The Chief Operating Decision Maker (“CODM”) of IFS is the Chief Executive Officer (“CEO”). The Group presents three operating segments based on products and services, as follows:

Banking

Mainly loans, credit facilities, deposits and current accounts.

Insurance

It provides annuities and conventional life insurance products, as well as other retail insurance products.

Wealth management

It provides brokerage and investment management services. Inteligo serves mainly Peruvian citizens.

The operating segments monitor the operating results of their business units separately for the purpose of making decisions on the distribution of resources and performance assessment. Segment performance is evaluated based on operating profit or loss and it is measured consistently with operating profit or loss in the consolidated financial statements.

Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.

No revenue from transactions with a single external customer or counterparty exceeded 10 percent of the Group’s total revenues for the periods as of March 31, 2020 and 2019.

The following table presents the Group’s financial information by business segments for the quarters ended March 31, 2020 and 2019:

	2020															2019
	Banking			Insurance			Wealth management			Holding and consolidation adjustments			Total consolidated			Banking			Insurance			Wealth management			Holding and consolidation adjustments			Total consolidated
	S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)			S/(000)
Total income (*)
Third party		1,337,229			308,625			(1,702	)		(11,882	)		1,632,270			1,291,408			278,556			121,325			(64,737	)		1,626,552
Inter-segment		(14,286	)		—			4,036			10,250			—			(10,557	)		—			(227	)		10,784			—
Total income		1,322,943			308,625			2,334			(1,632	)		1,632,270			1,280,851			278,556			121,098			(53,953	)		1,626,552
Consolidated income statement data
Interest and similar income		1,037,127			167,949			41,091			2,043			1,248,210			964,986			156,801			45,586			(633	)		1,166,740
Interest and similar expenses		(302,831	)		(21,210	)		(15,544	)		115			(339,470	)		(307,418	)		(20,348	)		(14,860	)		133			(342,493	)
Net interest and similar income		734,296			146,739			25,547			2,158			908,740			657,568			136,453			30,726			(500	)		824,247
Impairment loss on loans, net of recoveries		(312,611	)		—			(7	)		—			(312,618	)		(186,342	)		—			(72	)		—			(186,414	)
(Loss) recovery due to impairment on financial investments		(196	)		(40,135	)		(191	)		—			(40,522	)		(2	)		2,361			(472	)		—			1,887
Net interest and similar income after impairment loss		421,489			106,604			25,349			2,158			555,600			471,224			138,814			30,182			(500	)		639,720
Fee income from financial services, net		190,361			(1,027	)		43,013			(12,039	)		220,308			193,361			(999	)		38,914			(8,278	)		222,998
Net gain on sale of financial investments		37,467			23,937			(33,116	)		—			28,288			9,071			(6,169	)		24,543			—			27,445
Gain from derecognition of financial assets at amortized cost		—			—			—			—			—			2,472			—			—			—			2,472
Other income (**)		72,274			(6,673	)		(52,690	)		(1,886	)		11,025			121,518			30,997			12,282			(55,826	)		108,971
Total net premiums earned minus claims and benefits		—			(59,413	)		—			—			(59,413	)		—			(67,366	)		—			—			(67,366	)
Depreciation and amortization		(57,445	)		(6,378	)		(3,986	)		1,446			(66,363	)		(55,399	)		(5,031	)		(2,474	)		—			(62,904	)
Other expenses		(358,308	)		(66,041	)		(30,885	)		10,391			(444,843	)		(335,392	)		(65,657	)		(24,420	)		6,657			(418,812	)
Income before translation result and Income Tax		305,838			(8,991	)		(52,315	)		70			244,602			406,855			24,589			79,027			(57,947	)		452,524
Translation result		(2,904	)		(12,583	)		(3,008	)		(5,361	)		(23,856	)		233			4,353			683			4,822			10,091
Income Tax		(81,434	)		—			666			4,927			(75,841	)		(107,386	)		—			(1,408	)		(1,096	)		(109,890	)
Net profit for the period		221,500			(21,574	)		(54,657	)		(364	)		144,905			299,702			28,942			78,302			(54,221	)		352,725
Attributable to:
IFS’s shareholders		221,500			(21,574	)		(54,657	)		(1,894	)		143,375			299,702			28,942			78,302			(56,378	)		350,568
Non-controlling interest		—			—			—			1,530			1,530			—			—			—			2,157			2,157
		221,500			(21,574	)		(54,657	)		(364	)		144,905			299,702			28,942			78,302			(54,221	)		352,725

(*)	Corresponds to interest and similar income, other income and net premiums earned.

(**)

For the Banking Segment, the caption “Other income” for the three-month period ended March 31, 2019, includes approximately S/52,580,000, before taxes, as gain on the sale of Interfondos to Inteligo Perú Holding S.A.C., which is eliminated in the accounting consolidation process, see Note 2.2. The net profit (after taxes) amounted to approximately S/32,422,000.

	31.03.2020
	Banking		Insurance		Wealth management		Holding and consolidation adjustments			Total consolidated
	S/(000)		S/(000)		S/(000)		S/(000)			S/(000)
Capital expenditures (*)		37,078		48,183		2,930		—			88,191
Total assets		53,933,585		13,396,359		3,970,425		511,204			71,811,573
Total liabilities		47,433,498		13,052,208		3,210,757		(431,157	)		63,265,306

	31.12.2019
	Banking		Insurance		Wealth management		Holding and consolidation adjustments			Total consolidated
	S/(000)		S/(000)		S/(000)		S/(000)			S/(000)
Capital expenditures (*)		195,177		69,643		6,769		—			271,589
Total assets		53,019,361		13,917,641		4,098,057		527,234			71,562,293
Total liabilities		46,676,473		12,943,718		3,244,210		(205,556	)		62,658,845

(*)	It includes the purchase of property, furniture and equipment, intangible assets and investment properties.

(i)

The distribution of the Group’s total income based on the location of the customer and its assets, for the quarters ended March 31, 2020, is S/1,644,332,000 in Peru and S/12,062,000 in Panama (for the three-month period ended March 31, 2019, is S/1,519,064,000 in Peru and S/107,488,000 in Panama). The distribution of the Group’s total assets based on the location of the customer and its assets, as of March 31, 2020 is S/68,012,179,000 in Peru and S/3,799,394,000 in Panama (for the year ended December 31, 2019, it is S/67,623,222,000 in Peru and S/3,939,071,000 in Panama).

21.	Financial instruments classification

The financial assets and liabilities of the consolidated statement of financial position as of March 31, 2020 and December 31, 2019, are presented below:

	As of March 31, 2020										As of December 31, 2019
	At fair value through profit or loss		Debt instruments measured at fair value through other comprehensive income		Equity instruments measured at fair value through other comprehensive income		Amortized cost		Total		At fair value through profit or loss		Debt instruments measured at fair value through other comprehensive income		Equity instruments measured at fair value through other comprehensive income		Amortized cost		Total
	S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)
Financial assets
Cash and due from banks		—		—		—		11,583,271		11,583,271		—		—		—		11,128,875		11,128,875
Inter-bank funds		—		—		—		150,005		150,005		—		—		—		85,006		85,006
Financial investments		1,393,938		13,966,404		998,702		2,275,889		18,634,933		1,551,537		14,188,473		1,125,722		2,206,986		19,072,718
Loans, net		—		—		—		37,062,052		37,062,052		—		—		—		37,136,853		37,136,853
Due from customers on acceptances		—		—		—		32,068		32,068		—		—		—		139,685		139,685
Others accounts receivable and other assets, net		441,692		—		—		673,226		1,114,918		220,776		—		—		630,430		851,206
		1,835,630		13,966,404		998,702		51,776,511		68,577,247		1,772,313		14,188,473		1,125,722		51,327,835		68,414,343
Financial liabilities
Deposits and obligations		—		—		—		37,568,895		37,568,895		—		—		—		38,093,224		38,093,224
Inter-bank funds		—		—		—		111,504		111,504		—		—		—		169,138		169,138
Due to banks and correspondents		—		—		—		5,334,597		5,334,597		—		—		—		3,979,637		3,979,637
Bonds, notes and other obligations		—		—		—		6,973,377		6,973,377		—		—		—		6,890,290		6,890,290
Due from customers on acceptances		—		—		—		32,068		32,068		—		—		—		139,685		139,685
Insurance contract liabilities		—		—		—		11,064,345		11,064,345		—		—		—		11,338,810		11,338,810
Others accounts payable, provisions and other liabilities		403,377		—		—		1,565,526		1,968,903		222,305		—		—		1,634,243		1,856,548
		403,377		—		—		62,650,312		63,053,689		222,305		—		—		62,245,027		62,467,332

22.	Financial risk management

It comprises the management of the main risks, that due to the nature of their operations, IFS and its Subsidiaries are exposed to; and correspond to: credit risk, market risk, liquidity risk, insurance risk and real estate risk.

In order to manage this risk, every Subsidiary of the Group has a specialized structure and organization in their management, measurement systems, mitigation and coverage processes that considers the specific needs and regulatory requirements to develop its business. The Group and its Subsidiaries, mainly Interbank, Interseguro and Inteligo Bank, operate independently but in coordination with the general provisions issued by the Board of Directors and the Management of IFS.

A full description of the Group’s financial risk management is presented in Note 30 “Financial risk management” of the Annual Consolidated Financial Statements; following is presented the financial information related to credit risk management for the loan portfolio, offsetting of financial assets and liabilities, and foreign exchange risk.

(a)

Credit risk management for loans

Interbank’s loan portfolio is segmented into homogeneous groups that shared similar credit risk characteristics. These groups are: (i) Retail Banking (credit card, mortgage, payroll loan, consumer loan and vehicular loan), (ii) Small Business Banking (segments S1, S2 and S3), and (iii) Commercial Banking (corporate, institutional, companies and real estate). In addition, at Inteligo Bank, the internal model developed (scorecard) assigns 5 levels of credit risk classified as follows: low risk, medium low risk, medium risk, medium high risk, and high risk. These categories are described in Note 30.1(d) of the Annual Consolidated Financial Statements.

The information that shows the credit quality and maximum exposure to credit risk of direct loans based on the Group's internal credit rating as of March 31, 2020 and December 31, 2019, are presented in Note 5.

(b)

Offsetting of financial assets and liabilities

The information contained in the tables below includes financial assets and liabilities that.

-Are offset in the statement of financial position of the Group; or

Are subject to an enforceable master netting arrangement or similar agreement that covers similar financial instruments, regardless of whether they are offset in the consolidated statement of financial position or not.

Similar arrangements of the Group include derivatives clearing agreements. Financial instruments such as loans and deposits are not disclosed in the following tables since they are not offset in the consolidated statement of financial position.

The offsetting framework agreement issued by the International Swaps and Derivatives Association Inc. (“ISDA”) and similar master netting arrangements do not meet the criteria for offsetting in the statement of financial position, because of such agreements were created in order for both parties to have an enforceable offsetting right in cases of default, insolvency or bankruptcy of the Group or the counterparties or following other predetermined events. In addition, the Group and its counterparties do not intend to settle such instruments on a net basis or to realize the assets and settle the liabilities simultaneously.

The Group receives and delivers guarantees in the form of cash with respect to transactions with derivatives; see Note 3.

(b.1)

Financial assets and liabilities subject to offsetting, enforceable master netting arrangements and similar agreements as of March 31, 2020 and December 31, 2019, is presented below:

							Related amounts not offset in the interim condensed consolidated statement of financial position
	Gross amounts of recognized financial assets		Gross amounts of recognized financial liabilities and offset in the interim condensed consolidated statement of financial position		Net amounts of financial assets presented in the interim condensed consolidated statement of financial position		Financial instruments (including non-cash collateral)			Cash collateral received (pledged), Note 3(d)			Net amount
Assets	S/(000)		S/(000)		S/(000)		S/(000)			S/(000)			S/(000)
As of March 31, 2020
Derivatives, Note 7(b)		441,692		—		441,692		(290,541	)		(32,755	)		118,396
Total assets		441,692		—		441,692		(290,541	)		(32,755	)		118,396
As of December 31, 2019
Derivatives, Note 7(b)		220,776		—		220,776		(134,103	)		(42,351	)		44,322
Total assets		220,776		—		220,776		(134,103	)		(42,351	)		44,322
Liabilities
As of March 31, 2020
Derivatives, Note 7(b)		403,377		—		403,377		(290,541	)		(96,064	)		16,772
Total liabilities		403,377		—		403,377		(290,541	)		(96,064	)		16,772
As of December 31, 2019
Derivatives, Note 7(b)		222,305		—		222,305		(134,103	)		(57,816	)		30,386
Total liabilities		222,305		—		222,305		(134,103	)		(57,816	)		30,386

(c)

Foreign exchange risk

The Group is exposed to fluctuations in the exchange rates of the foreign currency prevailing in its financial position and cash flows. Management sets limits on the levels of exposure by currency and total daily and overnight positions, which are monitored daily. Most of the assets and liabilities in foreign currency are stated in US Dollars. Transactions in foreign currency are made at the exchange rates of free market.

As of March 31, 2020, the weighted average exchange rate of free market published by the SBS for transactions in US Dollars was S/3.433 per US$1 bid and S/3.442 per US$1 ask (S/3.311 and S/3.317 as of December 31, 2019, respectively). As of March 31, 2020, the exchange rate for the accounting of asset and liability accounts in foreign currency set by the SBS was S/3.437 per US$1 (S/3.314 as of December 31, 2019).

The table below presents the detail of the Group’s position:

	As of March 31, 2020											As of December 31, 2019
	US Dollars			Soles			Other currencies			Total		US Dollars			Soles			Other currencies			Total
	S/(000)			S/(000)			S/(000)			S/(000)		S/(000)			S/(000)			S/(000)			S/(000)
Assets
Cash and due from banks		10,122,439			1,011,648			449,184			11,583,271		9,386,504			1,311,291			431,080			11,128,875
Inter-bank funds		—			150,005			—			150,005		—			85,006			—			85,006
Financial investments		6,761,281			11,841,465			32,187			18,634,933		6,948,954			12,111,165			12,599			19,072,718
Loans, net		10,881,169			26,180,883			—			37,062,052		10,919,233			26,217,620			—			37,136,853
Due from customers on acceptances		21,485			—			10,583			32,068		128,397			—			11,288			139,685
Other accounts receivable and other assets, net		422,199			691,474			1,245			1,114,918		245,402			604,456			1,348			851,206
		28,208,573			39,875,475			493,199			68,577,247		27,628,490			40,329,538			456,315			68,414,343
Liabilities
Deposits and obligations		14,164,431			23,051,184			353,280			37,568,895		13,840,447			23,888,049			364,728			38,093,224
Inter-bank funds		—			111,504			—			111,504		149,137			20,001			—			169,138
Due to banks and correspondents		1,411,509			3,923,088			—			5,334,597		830,122			3,149,515			—			3,979,637
Bonds, notes and other obligations		6,092,408			880,969			—			6,973,377		5,857,206			1,033,084			—			6,890,290
Due from customers on acceptances		21,485			—			10,583			32,068		128,397			—			11,288			139,685
Insurance contract liabilities		4,099,616			6,964,729			—			11,064,345		4,234,217			7,104,593			—			11,338,810
Other accounts payable, provisions and other liabilities		388,264			1,579,404			1,235			1,968,903		414,604			1,441,612			332			1,856,548
		26,177,713			36,510,878			365,098			63,053,689		25,454,130			36,636,854			376,348			62,467,332
Forwards position, net		(2,578,677	)		2,670,904			(92,227	)		—		(2,718,082	)		2,776,866			(58,784	)		—
Currency swaps position, net		134,882			(135,157	)		275			—		138,676			(138,676	)		—			—
Cross currency swaps position, net		1,828,972			(1,828,972	)		—			—		1,763,518			(1,763,518	)		—			—
Options position, net		(433	)		433			—			—		(37	)		37			—			—
Monetary position, net		1,415,604			4,071,805			36,149			5,523,558		1,358,435			4,567,393			21,183			5,947,011

As of March 31, 2020, the Group granted indirect loans (contingent operations) in foreign currency for approximately US$640,732,000, equivalent to S/2,202,196,000 (US$683,214,000, equivalent to S/2,264,171,000 as of December 31, 2019).

23.	Fair value

(a)

Financial instruments measured at their fair value and fair value hierarchy

The following table presents an analysis of the financial instruments that are measured at their fair value, including the level of hierarchy of fair value. The amounts are based on the balances presented in the consolidated statement of financial position:

	As of March 31, 2020								As of December 31, 2019
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)
Financial assets
Financial investments
At fair value through profit or loss (*)		503,118		350,960		539,860		1,393,938		682,341		381,844		487,352		1,551,537
Debt instruments measured at fair value through other comprehensive income		11,293,919		2,509,289		—		13,803,208		10,779,395		3,230,634		—		14,010,029
Equity instruments measured at fair value through other comprehensive income		990,551		8,151		—		998,702		1,119,620		6,102		—		1,125,722
Derivatives receivable		—		441,692		—		441,692		—		220,776		—		220,776
		12,787,588		3,310,092		539,860		16,637,540		12,581,356		3,839,356		487,352		16,908,064
Accrued interest								163,196								178,444
Total financial assets								16,800,736								17,086,508
Financial liabilities
Derivatives payable		—		403,377		—		403,377		—		222,305		—		222,305

(*)	As of March 31, 2020 and December 31, 2019, correspond mainly to participations in mutual funds and investment funds.

Financial assets included in Level 1 are those measured on the basis of information that is available on the market, to the extent that their quoted prices reflect an active and liquid market and that are available in some centralized trading mechanism, trading agent, price supplier or regulatory entity.

Financial instruments included in Level 2 are valued based on the market prices of other instruments with similar characteristics or with financial valuation models based on information of variables observable in the market (interest rate curves, price vectors, etc.).

Financial assets included in Level 3 are valued by using assumptions and data that do not correspond to prices of operations traded on the market. Fair value is estimated using a discounted cash flow (DCF) model. The valuation requires Management to make certain assumptions about the model variables and data, including the forecast of cash flow, discount rate, credit risk and volatility.

The table below presents a description of significant unobservable data used in valuation

	Valuation technique	Significant unobservable inputs	Valuation	Sensitivity of inputs to fair value
Royalty Pharma	DCF Method	Sales forecast	Average sector analysis, estimates	10 percent increase (decrease) in the sales forecast would result in increase (decrease) in fair value by S/10,689,000.
				500 basis points increase in the WACC would result in decrease in fair value by S/17,202,000.
		WACC	8.00%	500 basis points decrease in the WACC would result in increase in fair value by S/24,032,000.
Mutual funds and investment funds participations	DCF Method	Discount rate	Depends on the credit risk	500 basis points increase in the discount rate would result in decrease in fair value by S/3,279,000.
				500 basis points decrease in the discount rate would result in increase in fair value by S/4,255,000.
		WACC	9.00%	500 basis points increase in the WACC would result in decrease in fair value by S/711,000.
				500 basis points decrease in the WACC would result in increase in fair value by S/842,000.
	Comparable multiples	Price-to-sales ratio	Depends on industry’s entity	10 percent increase (decrease) in the price-to-sales ratio would result in increase (decrease) in fair value by S/3,743,000.
	Equity value		Depends on the credit risk	500 basis points increase (decrease) in the equity value would result in increase (decrease) in fair value by S/3,000.

The table below includes a reconciliation of fair value measurement of financial instruments classified by the Group within Level 3 of the valuation hierarchy:

	31.03.2020			31.12.2019
	S/(000)			S/(000)
Balance as of January 1		487,352			407,957
Purchases		22,588			222,098
Sales		(18,811	)		(150,575	)
Total gain recognized on the interim condensed consolidated statement of income		48,731			7,872
Ending balance		539,860			487,352

During the three-month period ended March 31, 2020 and 2019, there were neither transfers of financial instruments from Level 3 to Level 1 or Level 2, nor from Level 1 to Level 2.

(b)

Financial instruments not measured at their fair value -

The table below presents the disclosure of the comparison between the carrying amounts and fair values of the Group’s financial instruments that are not measured at their fair value, presented by level of fair value hierarchy:

	As of March 31, 2020										As of December 31, 2019
	Level 1		Level 2		Level 3		Fair value		Book value		Level 1		Level 2		Level 3		Fair value		Book value
	S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)		S/(000)
Assets
Cash and due from banks		—		11,583,271		—		11,583,271		11,583,271		—		11,128,875		—		11,128,875		11,128,875
Inter-bank funds		—		150,005		—		150,005		150,005		—		85,006		—		85,006		85,006
Investments at amortized cost		1,840,538		534,810		—		2,375,348		2,275,889		929,333		1,398,970		—		2,328,303		2,206,986
Loans, net		—		37,571,473		—		37,571,473		37,062,052		—		38,115,562		—		38,115,562		37,136,853
Due from customers on acceptances		—		32,068		—		32,068		32,068		—		139,685		—		139,685		139,685
Other accounts receivables and other assets, net		—		673,226		—		673,226		673,226		—		630,430		—		630,430		630,430
Total		1,840,538		50,544,853		—		52,385,391		51,776,511		929,333		51,498,528		—		52,427,861		51,327,835
Liabilities
Deposits and obligations		—		37,632,836		—		37,632,836		37,568,895		—		38,099,641		—		38,099,641		38,093,224
Inter-bank funds		—		111,504		—		111,504		111,504		—		169,138		—		169,138		169,138
Due to banks and correspondents		—		5,351,302		—		5,351,302		5,334,597		—		3,982,373		—		3,982,373		3,979,637
Bonds, notes and other obligations		4,783,537		1,905,546		—		6,689,083		6,973,377		5,073,917		2,044,630		—		7,118,547		6,890,290
Due from customers on acceptances		—		32,068		—		32,068		32,068		—		139,685		—		139,685		139,685
Insurance contract liabilities		—		11,064,345		—		11,064,345		11,064,345		—		11,338,810		—		11,338,810		11,338,810
Other accounts payable and other liabilities		—		1,565,526		—		1,565,526		1,565,526		—		1,634,243		—		1,634,243		1,634,243
Total		4,783,537		57,663,127		—		62,446,664		62,650,312		5,073,917		57,408,520		—		62,482,437		62,245,027

The methodologies and assumptions used to determine fair values depend on the terms and risk characteristics of each financial instrument and they include the following:

(i)

Long-term fixed-rate and variable-rate loans are assessed by the Group based on parameters such as interest rates, specific country risk factors, individual creditworthiness of the customer and the risk characteristics of the financed project. Based on this evaluation, allowances are taken into account for the estimated losses of these loans. As of March 31, 2020 and December 31, 2019, the book value of loans, net of allowances, was not significantly different from the calculated fair values.

(ii)

Instruments whose fair value approximates their book value: For financial assets and financial liabilities that are liquid or have short-term maturity (less than 3 months) it is assumed that the carrying amounts approximate to their fair values. This assumption is also applied to demand deposits, savings accounts without a specific maturity and variable-rate financial instruments.

(iii)

Fixed-rate financial instruments: The fair value of fixed-rate financial assets and financial liabilities at amortized cost is determined by comparing market interest rates when they were first recognized with current market rates related to similar financial instruments for their remaining term to maturity. The fair value of fixed interest rate deposits is based on discounted cash flows using market interest rates for financial instruments with similar credit risk and maturity. For quoted debt issued, the fair value is determined based on quoted market prices. When quotations are not available, a discounted cash flow model is used based on the yield curve of the appropriate interest rate for the remaining term to maturity.

24.	Fiduciary activities and management of funds

The Group provides custody, trustee, investment management and advisory services to third parties; therefore, the Group makes purchase and sale decisions in relation to a wide range of financial instruments. Assets that are held in trust are not included in the consolidated financial statements. These services give rise to the risk that the Group could eventually be held responsible of yield of the assets under its management.

As of March 31, 2020 and December 31, 2019, the value of the managed off-balance sheet financial assets is as follows:

	31.03.2020		31.12.2019
	S/(000)		S/(000)
Investment funds		13,029,913		13,243,888
Mutual funds		4,975,941		5,049,034
Total		18,005,854		18,292,922

25.	Subsequent events

The Annual General Shareholders’ Meeting held on April 7, 2020, approved the distribution of dividends for approximately S/698,228,000, at a rate of US$1.75 per share, payable on May 6, 2020.

On the other hand, in April 2020 Interbank performed the Optional Redemption over the entirety of the outstanding Subordinated Bonds Level 1, denominated “8.500% Non-Cumulative Fixed/Floating Rate Step-Up Junior Subordinated Notes due 2070”, issued by Interbank through its Panama Branch for US$200,000,000, in accordance with the Issuance Indenture signed on April 23, 2010, between Interbank and The Bank of New York Mellon, which acted as Trustee.

	INTERCORP FINANCIAL SERVICES INC.

Date: May 12, 2020	By:	/s/ Michela Casassa Ramat
	Name:	Michela Casassa Ramat
	Title:	Chief Financial Officer

Exhibit		Description
99.1		Intercorp Financial Services Inc. First Quarter 2020 Earnings