October, 2001 This research report covers the four private financial groups that have equity listings in the Costa Rican Securities Exchange (BNV): Alberto Camacho 502 339-3171 Alex Diaz 502 339-3171

Corporación Interfin, Corporación Banex, Corporación B.C.T., and Grupo Financiero Improsa.
To provide an idea of the context in which these financial groups operate, this report is comprised of the following sections: SECTION I: SECTION II: The Costa Rican Banking System Bank Regionalization

SECTION III: The Costa Rican Financial & Regulatory Framework SECTION IV: SECTION V: SECTION VI: Costa Rican Economic Indicators & Capital Flows The Costa Rican Securities Exchange Valuation

SECTION VII: The Publicly Traded Financial Groups

The Costa Rican banking system is mainly comprised of 3 government banks that represent 53% of the total assets of the banking sector, and 20 privately owned financial groups that account for the remainder of the system’s assets. The three Costa Rican government banks have competitive commercial banking activities, unlike other countries in which the government banks’ operations are mainly of a developmental nature. The government banks’ growth is constrained by limitations of access to capital, while private financial groups do not face this limitation and have been experiencing relatively high levels of growth. The private financial groups’ market participation is highly concentrated, with the six largest groups accounting for 78% of aggregate total assets of the private groups. Further concentration among the private financial groups is expected, as under current market conditions the main drivers are size, efficiencies, innovation, and return on equity. The consolidation of the Costa Rican financial system could significantly alter the playing field, since the final determination as to who will be the

October, 2001

leaders is yet to be resolved. Moreover, the increasing regionalization of the banking system should further transform the competitive landscape. The BNV is the most active securities exchange in Central America. Its influence is growing at a regional level during a period in which access to capital is critical for the financial sector. There is a strong demand for new equity issues. Investors seem to prefer to hold on to their investments indicating that they consider these new equity issues to be adequately priced to enable them to achieve expected returns. We base our valuation approach on a price-to-book-value and price-toearnings. The pricing of the four financial groups reflects investors’ relatively high-growth expectations. We have set price targets for YE ’01 and YE ’02 for these financial groups.


October, 2001

Section I: The Costa Rican Banking System ..................................................................4 Overview ........................................................................................................................4 Public Sector Commercial Banks ...................................................................................4 Background ................................................................................................................4 The Government Banks ..............................................................................................5 Privatization-Not seen as a factor in the near term .....................................................6 High Temporary Investment Portfolio Levels ............................................................6 Fee Income .................................................................................................................7 The Private Financial Groups .........................................................................................7 Background ................................................................................................................7 The Financial Groups .................................................................................................8 Section II: Bank Regionalization...................................................................................11 Overview ......................................................................................................................11 Financial Groups with Regional Presence ....................................................................11 Regional Development .................................................................................................12 Section III: The Costa Rican Financial and Regulatory Framework ........................13 Overview ......................................................................................................................13 Supervisory Guidelines.................................................................................................15 Section IV: Costa Rican Economic Indicators & Capital Flows.................................18 Costa Rican Economic Indicators.................................................................................18 Costa Rican Capital Flows ...........................................................................................18 Section V: The Costa Rican Securities Exchange ........................................................20 Market Capitalization ...................................................................................................21 BNV Index ...................................................................................................................21 Market Demand Overview ...........................................................................................22 Financial Groups ..........................................................................................................23 Corporación Interfin .................................................................................................24 Corporación B.C.T. ..................................................................................................25 Grupo Financiero Improsa........................................................................................26 Section VI: Valuation .....................................................................................................28 Price-to-Book Value.....................................................................................................28 Price-to-Earnings..........................................................................................................29 Corporación Interfin .................................................................................................30 Grupo Financiero Improsa........................................................................................30 Corporación B.C.T. ..................................................................................................30 Corporación Banex ...................................................................................................30 High Demand for Stock in a Market with Low Liquidity.............................................31

Section VII: The Publicly Traded Financial Groups.....................................32
Corporación Interfin .....................................................................................................32 Recommendation......................................................................................................32 Background ..............................................................................................................32 Investment Highlights...............................................................................................33 Business Outlook......................................................................................................35 Corporación Banex.......................................................................................................38 Recommendation......................................................................................................38 Background ..............................................................................................................38 Investment Highlights...............................................................................................39 Business Outlook......................................................................................................42 Corporación B.C.T. ......................................................................................................45 Recommendation......................................................................................................45 Background ..............................................................................................................45 Investment Highlights...............................................................................................46 Business Outlook......................................................................................................49 Grupo Financiero Improsa............................................................................................52 Recommendation......................................................................................................52 Overview ..................................................................................................................52 Investment Highlights...............................................................................................53 Business Outlook......................................................................................................56


October, 2001


The Costa Rican Banking System

Government banks control over 50% of total banking sector assets.

The Costa Rican banking system is principally comprised of three government banks that represent 53% of the total assets of the banking sector, and twenty privately owned financial groups that account for the remaining 47%. Unlike several other countries in which the publicly owned banks are dedicated largely to fulfilling specifically determined financing roles, commonly of a developmental nature, these three government owned banks have a firm broad based competitive position in the market. During the past quarter-century, through the progressive liberalization of the banking laws, the private financial entities have been increasingly gaining market penetration, making inroads through the identification of business opportunities, service and efficiencies. Given the strong market position developed throughout the years, the publicly owned banks can be expected to continue to maintain a leadership position. However, in view of the expected capital, operating efficiencies and new product development that will be required going forward, we can expect private banks to continue to gain market share.

Private sector participation is highly concentrated, and consolidation is expected to continue.

The private sector participation has been undergoing a progressive concentration, to the extent that six of the twenty entities control 78% of total private financial group assets. This concentration is expected to continue as size, efficiencies and innovation are among the principal market drivers. As a consequence, it is expected that certain well-managed and well-capitalized financial groups will increasingly gain market share, and in the not too distant future should be expected to challenge the government banks in terms of size, though they should continue to lag in terms of geographical and demographical coverage. Four private financial groups have equity listings in the Costa Rican Securities Exchange (Bolsa Nacional de Valores), positioning themselves to utilize an increasingly active capital market. The Costa Rican Securities Exchange is the most active in Central America, and its influence is growing at a regional level. Going forward, acceptable returns on equity and access to capital will be critical to both public and private banks in an environment in which size and efficiencies are key factors in determining the market leaders.

Regionalization of the financial sector will further influence the competitive landscape.

Another factor that is transforming the competitive landscape is that the Central American financial sector is undergoing the initial phases of a regionalization process. Financial institutions are increasingly penetrating the markets outside their countries, in an effort to expand and diversify their operations. The local financial markets have been developing to the extent that a leadership market position will be determined by its increased participation, and success, in the regionalization process.

Public Sector Commercial Banks
The market significance of the government owned banks in Costa Rica has its origins in the nationalization of the country’s banks in 1949, enabling the banks


October, 2001

to operate and develop throughout several decades with limited competition. Throughout this period the government banks were able to establish firm roots and develop a strong market presence that cultivated their existing market leadership position. Although the banking regulations began a gradual liberalization as of the 1960s, it was not until the 1980s that certain structural adjustments and further law modifications were made, and a meaningful private bank presence began to develop. The government banks continue to benefit from certain advantages over their private counterparts. One of the main benefits is that these public banks have the guarantee of the government, providing a significant advantage over the private banks. This should continue to be a factor in the market. However, historically the government has not been dedicated to injecting capital to support the growth of the public banks. Growth has been largely of an organic nature, which under a protected legal structure did not put at risk their relative competitive market position. This has now changed and the public banks will continue to be exposed to competition, particularly to large banks with access to capital to support growth and innovation.

The Government Banks
Banco Nacional de Costa Rica
Banco Nacional de Costa Rica (Banco Nacional) is by a significant amount the largest bank in the country. It represents 58% of the total government bank assets, and 31% of the banking system’s total assets. Its size makes it one of the largest banks in the five Central American countries. With 115 branches and 220 ATMs Banco Nacional provides a wider exposure than any other bank in the country, and has, by far, a larger market coverage than the private banks. The bank has developed into a universal bank offering a wide array of services including banking, brokerage services, as well as investment and pension funds. Throughout the years it has been an integral part of the economic and financial framework of the country. However, the bank is expected to continue to face the capital constraints mentioned above, during a period in which growth is a critical factor. A private bank of this size would likely be focused in becoming a regional force, but this alternative can be practically discarded by it being publicly owned.

Banco de Costa Rica
As of December 2000, the second largest public bank is Banco de Costa Rica (BCR), representing 32% of total government bank assets, while its capital accounts for 56% of total public banks’ capital. In terms of total assets BCR is 107% larger than those of the largest private financial group, Banex. BCR with 77 branches has a much larger network than any of the private banks, and is more efficient than its government counterparts. Moreover, BCR accounted for 86% of the aggregate profits of the public sector banks, and 36% of combined public and private sector bank profits. Its ROE of 23% in YE 2000 is only matched by Banex. The size of BCR, and its relatively high returns should enable it to sustain a significant growth level, and remain a strong competitor in the existing market environment. However, as with the other government banks, it would also face capital constraints. BCR and Banco Nacional account for 48% of the total assets of the banking system, and the combined banks account for 59% of total ATMs in the system,


797 % 12% 86% 2% 100% 58% 32. while the investments of Banco Nacional almost match total loans. and to an increasingly higher level of competition. and the banks are no exception. Banco Crédito Agricola de Cartago Banco Crédito Agricola de Cartago (Crédito Agricola) is substantially smaller than its two public counterparts. as private banks are not yet in position to match them.339 100% 91.776 10% 7. Table 1: Government Banks (amounts in millions of colones) Government Bank Banco Nacional de Costa Rica Banco de Costa Rica Banco Crédito Agrícola de Cartago Total Assets 829. 2001 which illustrates their significance in terms of size and geographical coverage.896 294 13. Instituto Nacional de Seguros (INS). Banco Nacional and BCR should continue to maintain their market predominance. Moreover. Asociación Bancaria Costarricense. the globalization of the financial systems should continue to propel the Costa Rican system towards commonly accepted international standards and practices. contrary to the ICE and INS. However.430.933 32% 50. Going forward. However.553 139. The relative levels of temporary investments (comprised mainly of secure and rather liquid government securities) of the three government banks are uncharacteristically high by conventional industry norms. and the country’s sole insurer.607 11. These banks will continue to be impelled by market forces not yet experienced by most non-financial governmental entities. and network coverage should also continue to be a key factor. there does not exist the required political. the government banks do operate in an increasingly competitive environment. Temporary investments represent a high level relative to the size of their respective loan portfolios. but there are indications that it may also be attributable to capital limitations. This may be partially caused by common governmental bank practice of financing the public sector. and it is of a size equivalent to the fifth private financial group in terms of total assets. 6 . which could be matched in a foreseeable future by the larger private banks.326 1. social and economic consensus at this time to undertake and execute any concrete plans that could lead to the privatization of the state owned banks in the foreseeable future. the investment amounts of BCR and Crédito Agricola are larger than their loan portfolios. Privatization – Not seen as a factor in the near-term In Costa Rica there is continuous conjecture on the possible privatization of certain public entities.906 461.048 Source: SUGEF. As shown in Table 2 below. The bank also has a smaller network of 27 branches. But they will continue to be tested in terms of efficiency and capacity to generate capital to support growth. High Temporary Investment Portfolio Levels Government banks have relatively high temporary investment levels…. as with the cases of the electrical power and telecommunications monopoly. Instituto Costarricense de Electricidad (ICE).785 % Capital % 36% 56% 8% 100% Profit 1.October.

606 377. is a limitation in a market that is increasingly driven by asset size.3%. legal and regulatory liberalization initiated the formal participation of the private sector in the Costa Rican financial system principally by permitting the creation of finance companies. However.597 469. ….743 109. combined with the limitation to grow its asset base.651 Source: SUGEF. prompting management to shift funds to investments. 2001 Table 2: Government Banks – Investments and Loans (in millions of colones) Temporary Investments Banco Nacional de Costa Rica Banco de Costa Rica Banco Crédito Agrícola de Cartago Total 253.899 1. Fee Income In June 2001 Banco Nacional announced that it would be charging customers for certain services that heretofore had been. due to constrained capitalization levels.784 % Loans 49% 56% 66% % 265. Asociación Bancaria Costarricense. as well as capital and cost structures. it was in the 1980’s when more significant structural 7 .which points towards growth limitations due to restricted access to capital….248 % 100% 100% 100% 100% 53% 537. a market largely driven by asset size. that a gradual. BCR had a higher ratio of 11%.837 37. though progressive. Charging fees for services is an internationally accepted business practice that eventually makes its way into most banking systems. and that of Crédito Agricola was 5.699 166. provided for free by the entire banking sector. After the nationalization of the banks in 1949 it was not until the 1960s. The relatively high temporary investment level could be expected to an extent.October. The historic lack of capital injections to these banks.. The relative benefit to the banks in the sector will result largely from comparative volumes. …. The Private Financial Groups Background The existing Costa Rican private financial group structure is essentially the result of the legal and market developments that have occurred during the past three decades. low capitalization figures by conventional measures. In YE ’00 Banco Nacional had a capital-to-total-assets ratio of 4%. in general. with such ratios these banks should have asset growth limitations. and mostly the 1970s. 519. benefiting those with size. Loan portfolio growth is limited. it seems that this may be also caused by capital limitations.007. and products/services diversification.906 72. enabling the institution to comply with regulatory requirements. We can expect this to become an accepted business practice and the rest of the banking sector to follow by charging their own fees in an attempt to boost the bottom line. as traditionally Latin American publicly owned banks have been active lenders to their governments. but investments almost equal loans. But in this case the revealing issue is that the initiative was taken by an entity that is a government owned bank that is by far the market leader. which require less capital. although it would seem that its capital could sustain a considerably higher degree of growth than its government owned counterparts. Loans customarily require a higher regulatory asset risk-adjusted weight allocation than traditional bank temporary investments. volumes.907 210. But.115 51% 44% 34% 47% Total Loans & Temp Inv.

92% 6.382 3.68% 1.96% 2.82% 1.749 4.099 16. permitting the formation of financial groups with financial subsidiaries (see Table 3 for a description of the financial groups and subsidiaries).33% 20.00% 1.46% 1.63% 50 0.62% 317 1.41% 3. The six largest financial groups represent 78% of the aggregate total assets of the twenty private groups.85% 2.80% 2.15% 2.481 25.875 9.68% 1. In general.719 22.217 111.730 21.69% 2.269 100% Source: SUGEF.34% 149 0.82% 1. Clearly.368 10.01% 290 1.133 3.01% 7. It takes the combined total assets of the five largest financial groups to match the size of Banco Nacional.355 3.15% 2.84% 193 1.015 100% 8 .78% 8. and the greater majority of the total assets of the private groups are represented by a few entities.24% 2.70% 11.26% 160 0.05% 1.23% 5.281 147.511 3.90% 0.249.285 27.135 3.302 10. Asociación Bancaria Costarricense. Further reforms to the legal framework governing the financial sector made in the 1990s resulted in the present-day legislature. and achieved their present day structure as of the late 1990s.84% 268 1. which evolved into commercial banks in the 1980s. The financial group participation is highly concentrated on a handful of entities. Several of the present-day financial groups trace back their origins to finance companies originated in the 1970s. and regulatory structure of the financial system.47% 14. Table 3: Private Financial Groups (in ¢ millions of colones as of Dec-00) Financial Groups Grupo Financiero Interfin Grupo Financiero Banex Grupo Financiero BICSA Grupo Financiero BCT Grupo Financiero San José Grupo Financiero Cuscatlan Grupo Financiero Citibank Grupo Financiero Metropolitano Grupo Financiero BNS Grupo Financiero Bantec Grupo Financiero Promerica Grupo Financiero Improsa Grupo Financiero Finadesa Grupo Financiero Elca Grupo Financiero Cathay Grupo Financiero Lafise Grupo Financiero Bancrecen Grupo Financiero Coocique Grupo Financiero Pacífico Grupo Financiero Acobo ASSETS 222.291 11.668 13.63% 2.370 3.33% 1.563 2.24% Total: 1.34% 1.01% 65 0.32% 0.66% 128 0.088 1.67% 383 2.588 1. Financial Groups – High level of concentration Private sector consolidation is expected to continue.63% 11.483 7.08% 15.089 100% 157.414 195.734 11.972 34.073 3.October.52% 351 1.040 18.38% 1.85% 0.77% 2.550 14.693 16.068 642 % 14.32% 1. as leadership position should be largely determined by size.412 84.32% 1.657 8.82% 1.620 22.493 32.00% 2.18% 0.266 16.24% 6.756 3.556 % 17. the configuration of the groups follows a universal bank model.40% 121 0. 2001 adjustments were effected that a meaningful private bank presence began to develop.170 2.81% 17.20% 2. 19.78% 46 0.640 2.39% 1.45% 2.780 22.12% NET INCOME % CAPITAL 22. there are too many private groups in relation to the assets they represent.14% 2.584 30.77% 501 2.509 17.585 27.464 213. The Financial Groups There are twenty private financial groups in Costa Rica that collectively represent only 87% of aggregate total assets of the three government owned banks as of December 2000.98% 1.

and the small entities that remain should be largely limited successful niche players. there are certain groups not in the top six.yet to be determined. 2001 This concentration is expected to continue as the largest groups should keep separating themselves from their smaller competitors. but also throughout the region. innovation. efficiencies. Promerica and Bank of Nova Scotia. for some players the final determination as to whether they fall among the big or small is yet to be determined. we can expect the larger institutions to try to make the most of their competitive positions to further distance themselves from the weaker competitors. under current market conditions. For instance. However. and we can expect the groups to continue positioning themselves to maximize their options. As a consequence. 9 . The competitive landscape could be readily altered given the existing composition of the financial group’s participation. A local merger or acquisition could significantly alter the playing field. Market leaders…. not only in Costa Rica. size. such as Improsa. The consolidation is not only taking place in Costa Rica. and the increasing consolidation of the Central American banking market is surely going to bring about transformations. but also throughout Central America. that are among the viable competitors with access to capital and funding to carve out a firm market position. Success in the consolidation and regionalization processes will determine the market leaders. and strive to be in the most solid position during this period of market reconfiguration. and sustain growth. strengthen their market positions. and return on equity are the main market drivers. In general. the smaller groups will find it increasingly difficult to contend with both the stronger private and public banks. Moreover.October.

La Vivienda.L.L.L. COOPECAR R. COOTILARAN R. COOPEJUDICIAL R. COOPAVEGRA R.L. BICSA Panamá: BICSA Miami Off Shore Banks BNCR BCR Safi BCR ISN-Bancrédito Valores INS-Bancrédito SAFI Off Shore Banks Banco Popular Banco Popular SAFI Brokerage Investment Funds Pension Funds BCR BN Fondos BN Vital Brokerage Investment Funds Pension Funds BICSA Valores BICSA SFI Arrendadora Comercial AT Leasing Servimás Máxima Insurance Mas x Menos Finance Other San José Valores San José Valores SFI San José Pensiones Arrendamientos Financieros San José Uno SFI Arrendamientos Metropolitanos Uno Lafise Valores Metropolitanos SFI Interfin Interfin-Banex Interfin Financorp Corp. COOPE SAN MARCOS R. COOPEOROTINA R.L. COOPEALIANZA R.Table 4: Costa Rican Financial Institutions FINANCIAL INSTITUTIONS Banks Agentes Corredores de Bolsa Vista SFI Bancrecen Banex SFI Bantec BCT SFI Bantec BCT banex OPC Banex Corp. Financorp Interfin Valores Lafise West Caribbean Bank Metro Valores Uno Saint Georges Bank & Trust BSJ International Bank Gibraltar Holdings Inc. COOPESPARTA R. COOPEASERRI. Financiera Desyfin Financiera Multivalores Financiera Trisan La Unión Financiera Aduanera Compañía Financiera de Londres Compañía Financiera Miravalles COOCIQUE R. COOPETACARES R.L. L. Mutual de Ahorro y Préstamo Divisas Fadesa El Camino Resources Grupo Bursátil Aldesa October. Financiera CF Bancrecen Caribean Bank of Exports Bantec International BCT Bank International/Commerce Overseas Bank BCT Valores Cuscatlan International Bank Valores Cuscatlán Scotiavalores Cathay Valores Citivalores Coocique Elca U.L.L. COOPEMEP R.L.P. COOPEFYL R.L.L. SERVICOOP R.L. COOPESERVIDORES R.L. National Housing System Financial Entities Mutual Cartago Kineret Servicios de Factores Internacionales Mutual Alajuela Factoring Companies Transacciones M&M del Este Transmosa Leasing Companies Kineret Grupo Mercado Valores Arrendadadora Comercial Brokerage Firms Grupo Consolidado Sama Grupo Serfin Grupo Interbolsa Valores Comerciales de CR SFC Factoreo Factores Bantec Banco Interfin Mutual Heredia COOPEMEX R. COOPESANRAMON R. COOPMANI R. 2001 Source: Provident Group . COOPENAE R. CREDECOOP R.L. RL COOPECAJA R.L COOPECORRALES R.L.L.L. Bank & Trust Ltd. COOPEGRECIA R.L.L.L. COOPEACOSTA R.L.L. Privada de Inversiones Transamerica bank & Trust Financorp Financorp Elca Comercializadora de Seguros Elca Cathay SAFI Fondo Cuscatlán OPC Cuscatlán Cuscatlán Scotiabank Cathay Internationa Bank Citigroup Banex Valores Bancrecen Valores Banex Off Shore Banks Brokerage Investment Funds Leasing Insurance Finance Companies Other Pension Funds Private Financial Groups Grupo Financiero Acobo Grupo Financiero Bancrecen Bancrecen Grupo Financiero Banex Grupo Financiero Bantec Grupo Financiero BCT Bantec BCT Grupo Financiero Cuscatlan Cuscatlan Grupo Financiero BNS Scotiabank Grupo Financiero Cathay Cathay Grupo Financiero Citibank Citibank Grupo Financiero Coocique Grupo Financiero Elca Grupo Financiero Finadesa Finadesa Grupo Financiero Interfin Interfin Grupo Financiero Lafise Bancentro Grupo Financiero Metropolitano Uno Metropolitano Grupo Financiero Pacífico Grupo Financiero Promérica Promérica Grupo Financiero San José BICSA Banks BNCR BCR San José Grupo Financiero Improsa Improsa Grupo Financiero BICSA Grupo Financiero Servivalores Government Banks 10 Banks Banco Nacional de Costa Rica Banco de Costa Rica Banco Agrícola de Cartago Bancrédito Development Banks Leasing Insurance Finance Other Banco Popular y Desarrollo Comunal Banco Popular Baco Hipotecario de la Vivienda BANHVI OTHER FINANCIAL INSTITUTIONS Finance Companies Financiera Belén Financiera Brunca Financiera Cafsa Financiera Comeca Cooperative Savings & Loans COOPE-ANDE R.

in Guatemala. in Honduras. Increasingly financial institutions are expanding to other countries in the region in search for size and risk diversification. BAC has a presence in every country of the region and is mainly focused on credit card and private banking operations. The banks that comprise the group are: 1) BAC Florida Bank. Red Financiera BAC (BAC) is a financial group with one of the most extensive operations throughout Central American. principally based on size and risk diversification.October. 5) Banco de América Central. in Grand Cayman. in El Salvador. which has a majority equity participation in Banco de la Producción in Honduras and Banco Caley Dagnall in Nicaragua. A market leadership position will be determined to a significant extent by increased participation and success in the regionalization process. 4) Banco Credomatic. Given the significance of this factor we describe below the main financial institutions that have initiated the development of a presence throughout the Central American region: Table 5: Financial Groups with significant regional presence Financial Group Banco Agrícola Red Financiera BAC Banco Cuscatlán Primer Banco del Istmo Costa Rica Nicaragua Caley Dagnall San José Cuscatlán Banex América Central Honduras Producción Credomatic El Salvador Agrícola Credomatic Cuscatlán Guatemala Panamá América Central Cuscatlán BAC International Primer Banco del Istmo Source: Estrategia y Negocios. 11 . 7) BAC International Bank. in Miami. Financial Groups with Regional Presence Banco Agrícola Banco Agrícola (Agrícola) was founded in 1955 in San Salvador. 2001 SECTION II: Bank Regionalization Overview The competitive landscape is being transformed by the regionalization of the financial sector. in Costa Rica. Red Financiera BAC Founded as Banco de América in 1952 in Nicaragua. and we can expect further regional expansion. in Panama. 6) BAC International Bank. We would expect that the institutions that successfully establish themselves throughout the region will command higher valuations. In the year2000 it became the largest bank in Central America with the absorption of Banco de Desarrollo in El Salvador. but has taken steps to have a presence in Honduras and Nicaragua. We should expect Agrícola to strive to be an active player in the regional market to maintain its leadership position. 5) Banco Credomatic. 3) Banco de América Central. The entities that comprise the financial group are Banco Agrícola in El Salvador. 2) Banco de San José. Agrícola has been focused in the Salvadorian market. in Nicaragua.

October. which enabled it to become the largest bank in Panama under the name of Primer Banco del Istmo. We believe that a solid competitive position will be mainly determined by developing a strong regional presence. Primer Banco del Istmo is registered in both the Panamanian and Costa Rican securities exchanges. Currently it is the second largest bank in El Salvador. behind Banco Agrícola. The principal entities that comprise the financial group are Banco Cuscatlán & Subsidiaries-El Salvador. S. and in Guatemala Centrica. the main private financial groups are relatively small in size in comparison to financial institutions operating in other countries in the region. it expanded by acquiring Banex. The principal entities of the financial group are as follows: 1) Primer Banco del Istmo (Panama). a finance company that subsequently converted to a bank. Istmo has an aggressive approach to penetrate into other markets in the region. of which proceeds will be partially utilized to support its regional expansion plans. as a measure to unify its franchise name throughout the region. Grupo Financiero Cuscatlán-Costa Rica. and Grupo Cuscatlán Guatemala. Primer Banco del Istmo Primer Banco del Istmo (Istmo) had its origin in 1984 in Panama as Banco del Istmo. Their relatively small size puts them in a disadvantageous position with respect to the larger banks throughout the region that might see potential in Costa Rica. but Cuscatlán seems to have been more proactive in undertaking its regional expansion. Pribanco is a Panamanian bank. After establishing a presence in Costa Rica as Banco del Istmo (Costa Rica). Its expansion into Costa Rica and Guatemala was principally done through acquisitions. 12 . Unlike Costa Rica. In Costa Rica it acquired Grupo Financiero BFA.A. owner of Pribanco. The Costa Rican banks have been consolidating in an effort to grow. This could result in being an obstacle in the Costa Rican financial institutions achieving the required growth. Regional Development As mentioned earlier. Moreover.. 2) Corporación Banex. Banco del Istmo absorbed Primer Grupo Nacional. Istmo has made clear its intention of becoming a major regional player. 2001 Grupo Financiero Cuscatlán Founded as Banco Cuscatlán in 1972 in El Salvador. However. Grupo Financiero Cuscatlán has developed into one of the largest financial groups in the Central American region. and that ultimately four to six large financial institutions would be able to develop into the regional leaders. in Costa Rica. The “Cuscatlán” name has been adopted by all its entities in the three countries. The leading financial institutions outside of Costs Rica are now being challenged with having to establish a presence in other countries to achieve required growth levels. Although its presence outside of Panama is currently limited to Costa Rica. which is the largest bank in Central America. the ultimate composition of the Costa Rican competitive environment is yet to be determined as relatively small banks are vying to position themselves to maximize their options. the competitive position has been largely determined within the other countries of the region. a major bank in Costa Rica. In August 2001 it carried out a US$50 million preferred stock issuance.

96x 2. However.40x 3. Banorte’s growth potential is being challenged in a competitive environment that has been altered by the penetration of large international financial institutions. Another strong Mexican financial group is Grupo Financiero Banorte.T..97x 1. Provident Group.2. Moreover.80x . Banorte is the only financial institution in the country that is fully Mexican owned. As a result of the acquisition carried out by Citigroup of the Mexican financial group. we observe that the high valuation multiples in Costa Rica compare favorably to other financial institutions in and outside the region.30x 15.C.80x. 13 . and significant growth should be more difficult to achieve.A. Citigroup’s shares trade at a price-to-book-value of 2.October. limited to their countries. In Table 6 below. Consequently. Banamex.98x 11.48x 2.52x 0.40x N/A Corporación Interfin Corporación Banex Corporación B.60x 2. reflecting high growth expectations including the potential of utilizing the Banamex brand to expand within the Mexican community in the United States.53x 15. The acquisition was carried out at a P/BV of 2.56x 27. Grupo Financiero Banacci. Table 6: Comparable Multiples for Financial Groups P/BV Costa Rica P/E 18. Anecdotal Evidence Source: Bolsa Nacional de Valores de Costa Rica S.50x.79x 1. Bancomer is the largest retail bank with the most extensive branch network in Mexico. Grupo Financiero Improsa Mexico 2.97x. we have to rely on anecdotal evidence because they do not trade in a stock exchange. the growth that these financial institutions can achieve in Costa Rica is surpassed by the potential growth of a financial group with a regional focus. in P/BV multiples between 1. 2001 The four Costa Rican private financial groups that are listed in the local securities exchange have relatively high valuations that revolve around 3x book value.79x.60x 14. Such high valuations seem to be driven by expected growth. in general. Citigroup’s shares now trade in the Mexican stock exchange. we would expect that the large regional players should have higher valuations than their non-regional counterparts.52x. To compare the Costa Rican valuation with those of other banks in the region. The anecdotal evidence we have been able to compile indicates that valuations range. which trades at a P/BV of 0.80x – 2.94x 2.50x Citigroup GF BBVA-Bancomer GF Banorte Central America Avg. seem to have less growth potential than the Costa Rican banks as well as those developing into a regional franchise. and also reflect confidence in investors achieving expected returns (see Valuation). Mexican competitor Grupo Financiero BBVA-Bancomer trades at a P/BV of 1. In general terms. banks outside of Costa Rica.

has among its various functions the duty to supervise the system’s participant’s adherence to the financial laws and regulations. Pensions Superintendency Pensiones). General Securities Superintendency (SUGEVAL . The Central Bank of Costa Rica.Superintendencia General de Valores). Banco Central de Costa Rica (BCCR). legal and regulatory parameters throughout the system. The CONASSIF. (SUPEN – Superintendencia de The CONASSIF and these three Superintendencies have the aim of jointly assuring the consistency and quality of the supervision of the country’s financial system. The enactment of the Organic Law of the BCCR (Ley 7558-Ley Orgánica del Banco Central de Costa Rica) in 1995 provides the framework for the current structure of the Costa Rican financial legal and regulatory structure. The National Supervisory Council of the Financial System (CONASSIF Consejo Nacional de Supervision del Sistema Financiero). in turn. Figure 1: Structure CONASSIF CONASSIF BCCR BCCR SUGEF SUGEF SUGEVAL SUPEN SUPEN Source: Banco Central de Costa Rica. The three Superintendencies are: • • • General Superintendency of Financial Institutions (SUGEF Superintendencia General de Entidades Financieras). relies on the three Superintendencies it supervises to carry out the implementation of the legal initiatives. CONASSIF The CONASSIF was created upon the enactment of Law 7732 – Securities Market Regulation Law (Ley Reguladora del Mercado de Valores) in 1998. 2001 SECTION III: The Costa Rican Financial and Regulatory Framework Overview The Costa Rican financial system is regulated by a series of laws enacted by the Legislative Assembly (Asamblea Legislativa) that govern all financial activities. is the main entity that oversees the financial.October. Provident Group. 14 .

Asset 15 . and SUGEF) for a five-year period. soundness and strength of the financial entities that comprise the system. which are substantially in agreement with those set by the Basel Accord: .Auditoria General de Bancos). SUPEN The SUPEN was created in 1995 upon the enactment of Law 7523 – Complementary Pension Private System Law (Ley del Regimen Privado de Pensiones Complementarias). as well as to assure compliance with laws and regulations. The following main supervisory guidelines through which the SUGEF carries out the regulatory supervision are based on the CAMELS guidelines. which reported to the Central Bank and was responsible for the supervision of the financial system – banks and related entities. the protection of the investors’ interests. with the aim of providing this institution with autonomy and transparency. and is responsible for their supervision.October. and of which basic make-up has also been incorporated in other Latin American financial systems.Capital . Moreover. the Minister of Finance. The main guidelines through which it carries out its preventive regulatory supervision of the banking sector are based on CAMELS guidelines. Supervisory Guidelines The SUGEF is responsible for the ongoing supervision of the Costa Rican financial system with the goal of assuring the transparency. The following sets forth a brief description of the three Superintendencies: SUGEVAL The SUGEVAL was also created by Law 7732. It is also responsible for the transparency of the securities market. and it is responsible for the supervision of the Costa Rican securities market. it is also responsible for evaluating and authorizing the regulatory initiatives presented by the Superintendencies. and to assure compliance with all rules and regulations that govern the securities markets. The main objective of the SUGEF is to supervise the Costa Rican financial entities by means of a preventive supervisory system to guarantee its soundness and transparency. replacing the General Bank Auditor (AGB . It is also responsible for fostering the development of the Costa Rican financial system. This entity designates the three Superintendents (SUGEVAL. Such guidelines are substantially in conformity with the general criteria set by the Basel Accord. SUGEF The SUGEF was created by Law 7558 in 1995. These guidelines have been undergoing progressive changes in order to further strengthen the financial system in Costa Rica. and initiated operations in 1996. 2001 The CONASSIF is comprised by the President of the Central Bank. Its primary objective is to regulate and supervise the Costa Rican private pension system. SUPEN. and five representatives of the private sector.

Capital The banking system’s capitalization requirement is substantially in accordance with the commonly accepted guidelines set by the Basel Accord. and was increased to 9% in 1998. Loan Portfolio Classification The Loan portfolio classification requirements are undergoing a progressive change aimed at achieving stricter required benchmarks by May 2002. 2001 - Management Efficiency Liquidity Sensitivity Under these guidelines the SUGEF undertakes a preventive monthly assessment of the soundness of each entity in the system. going forward the authorities are in position to evolve in accordance to the requirements that may result from the dynamics of the financial system.October. the authorities are demanding that the financial institutions abide to a progressively stricter nonresidential loan classification and loan provisioning requirements. to finally enable instituting the current 10% minimum requirement in 1999. 16 . As the Table indicates. In 1997 the risk-weighted capital requirement was set at 8%. Figure 2: Risk-Weighted Capital Requirements Risk-Weighted Capital Requirements 12% 10% 8% 6% 4% 2% 0% 1997 1998 1999 Source: Consejo Nacional de Supervisión del Sistema Financiero. The timetable established by the SUGEF for the banks to comply with the modified loan classification and corresponding loan loss provisioning requirements are set forth in Table 7 below. And. The primary regulatory developments directed towards the safeguarding of the financial system (and of major interest to investors) correspond to the capitalization and loan portfolio classification of the financial institutions. It is clear that the regulatory authorities have been successful in implementing and assuring compliance with respect to these increases in capitalization requirements. a capitalization level that was achieved by means of a progressive increase in this requirement. The current risk-weighted capital ratio minimum requirement is 10%. This soundness is classified in accordance with a predetermined scale that permits its categorization with regard to each guideline item under CAMELS.

5% 1. The burden should ease as the Banks incorporate new credit policies and procedures to adapt to these new guidelines. 17 .360 Over 360 0 . The timetable that SUGEF has established provides the financial institutions with some flexibility and time to prudentially adapt to the new requirements. 2001 Table 7: Loan Classification / Provisioning Requirements Timetable Risk Category A B1 B2 C D E Applicable May 1.0% 5.75 76 .0% 30. 2001 (days) Applicable Nov.0% 10.0% 50.5% 1.0% 20. With regard to residential loans the authorities have set different loan loss provisioning requirements.180 Over 180 Provision 0. Notwithstanding such flexibility.30 31 .120 121 . this could have an adverse impact on the banks profit levels and growth capacities as the loan loss provisioning requirements are significantly more onerous.0% 10.0% Source: Consejo Nacional de Supervisión del Sistema Financiero. Table 8: Residential loan classification requirements Risk Category A B1 B2 C D E Provision 0.150 151 .0% Source: Consejo Nacional de Supervisión del Sistema Financiero.90 91 .60 61 .October. which reflect a lower risk profile than the nonresidential loans.30 31 .90 91 . The stricter loan classification requirements clearly indicate a desire of the authorities to raise the bar with regard to asset quality throughout the banking system.0% 60.90 N/A 91 ..270 Over 270 0 .30 31 .180 181 . 2002 (days) 0 . However. 2001 (days) Applicable May. this adverse impact will be felt during the initial stage of implementation.0% 100.

8 19. Provident Group 2001 2002 15. average growth.5 1.796 6. Figure 3: Foreign Direct Investment in Costa Rica (in US$ millions) 750 611.8 1.7 178.275 4.2 16.7 339.895 1.390 4.9 406.501 0.8 56.4 17. to the detriment of longer-term productive investments.3 58.October.8% of GDP.316 4.727 5. compared to the 4.1% of GDP and the current account coverage of 0.6 14.9% it represented during the 1990 – 1999 period. 2001 SECTION IV: Costa Rican Economic Indicators & Capital Flows Costa Rican Economic Indicators Table 9 presents the main economic indicators registered for YE ’00 and expected for YE ’01 and YE ’02.262 3. and contributed to finance 0. reaching its maximum level of US$619.6 11.4 Capital Inflows – Increasingly Short-term in Nature The make-up of the investment portfolios originating from capital flows to Costa Rica has been undergoing changes in recent months.9 420.9 226.69 12.2 363.5 600 450 300 162. 18 .9 150 0 1990 1992 1994 1996 1998 2000 Source: Banco Central de Costa Rica. in year 2000 FDI fell significantly to slightly above US$400 million (see Figure 3).5 58.267 5. The lower FDI figure for 2000 represented only 2.0 318.64 13.6% of the current account deficit.158 5.a.8 17.404 5.1 1.4 426.5 million in 1999.7 619. as they have become increasingly short-term in nature.30 19.883 4.0 297.6 11. During 1990 – 1999 foreign direct investment (FDI) recorded a 21% p. Table 9: Main economic indicators for Costa Rica 2000 Nominal GDP (US$MM) Nominal GDP (¢Bn) Real GDP (% change) Inflation (%) Exchange rate (¢:US$) M1 (% change) M2 (% change) Services/GDP (%) International reserves (US$MM) GDP per head (US$) Unemployment (%) Sources: BCCR.6 246. However.3 10.4 336.

which accounts for more than a quarter of the total FDI during the period. Nonetheless. This multinational invested an aggregate amount of US$420 million during 1997 – 2000. 2001 In recent years. and represents 3. These short-term investments are motivated by an attractive expected return. Ja n -1 0 0 -1 5 0 -2 0 0 19 S Ja ep n (0 1) (9 5) M M M M M M -5 0 ay ay ay ay ay ay . While Volatility Increases Despite the short-term nature of the capital inflows there has been an increase in the foreign reserves level. Figure 4 describes the variations of the foreign reserve level during the January 1995 – June 2001 period. its volatility has increased commensurately. and their corresponding volatility levels. The preference for deposits over currency has prompted an increase in the bank lending multiplier.396 million in June 2001 is among the highest recorded in recent years. and commonly under such intent the capital is repatriated once the return is achieved. The increased volatility can be largely attributable to the shorter time horizon of foreign investments directed to Costa Rica.8%.7 months of imports. As a consequence. In 2000 M1 rose 19. loans to the private sector grew 30% in 2000. Figure 4: Monthly variation in International Reserves (in US$ millions) 300 250 200 150 100 50 0 S Ja ep n (9 6) S Ja ep n (9 7) S Ja ep n (9 8) S Ja ep n (9 9) S Ja ep n (0 0) Source: Banco Central de Costa Rica. we can expect governmental authorities to continue to implement policies aimed at achieving the required macroeconomic stability to maintain an adequate foreign reserves level and overall stability of the system. the largest foreign direct investor has been INTEL. to stabilize their direct investment levels. recent global competitive market developments have compelled INTEL. and illustrates that the peaks and troughs of the reserve levels have been progressively larger and more abrupt. However. resulting in an increase in loans extended by the Costa Rican banking system. Given that no meaningful shift in the course of the economy is anticipated throughout the near term we can expect continued reliance on the short-term nature of the capital inflows. While the foreign reserve level has been increasing. The foreign reserve level of US$1. as well as other multinationals. Impact on Liquidity The short-term capital inflows have had an impact on the liquidity of the system.4% while local and foreign currency savings/time deposits (M2-M1) grew 20.October. Foreign Reserve Level Rise.

00 8.A.000.20 1.A.000. 7.251. Atlas Eléctrica S.000 29.849 2. is the most active and liquid securities exchange in Central America. Bolsa Nacional de Valores de Costa Rica.868 09/23/99 72. The increasing participation of Costa Rican commercial.A.88 12.032.A.A. 14. The BNV attracts a growing number of issuers at the local and regional level.56 27. Banco del Istmo S.414.00 1.39 N/A 2.18 17. 2.392.98 N/A N/A N/A 20 PROVIDENT GROUP . and the BNV should progressively transform into a regional securities market. Dosel S. 18. 09/05/01 08/09/01 09/04/01 09/10/01 08/23/01 09/12/01 09/12/01 09/11/01 08/08/01 09/12/01 06/05/00 09/04/01 33. Inmobiliaria Enur S. 20. Inmobiliaria Comercial del Oeste S. The foregoing issues will progressively lead to an increase in liquidity and depth in these markets.48 2. Grupo Financiero Improsa S. (Panamá) * Sources: Bolsa Nacional de Valores S.00 16.193 NACIO 3.39 N/A 33. Banco Improsa S. 2001 SECTION V: The Costa Rican Securities Exchange The Costa Rican Securities Exchange.09 N/A 1.75 12.000.00 7.646.086.A.000 12.000 160.673. Additionally. Corporación Banex S.53 18. * 13.381 100.218.60 N/A N/A N/A 11.841.204 14. Bolsa Nacional de Valores S.11 3. We anticipate that as the BNV continues to develop its potential more companies throughout the Central American region will increasingly participate in this stock market.96 2. 10.010. 9. SFI Corporation S.A.560 INC 7. S. Compañía Costarricense del Café S.996.000. in relative terms it is becoming increasingly significant.. Industria Nacional de Cemento S. Notwithstanding that the securities exchange is small.746.20 337.A.A. 17.A.900 19. 3.39 33.000 Financial Services Sector BNV CBANE CBCT CINTE GIMPC GIMPP SFICO 62. This is the case of the Panamanian companies. 19. Corporación Interfin S. * 21.A.21 42.530 30.332 5.A.A.727. (Panamá) * 4. Capitales * Issues traded in US$ MRICA NRROJ Banking Sector IST$F 17. and financial companies in the BNV has also attracted certain regional companies to list in this securities exchange.65 4.318 47.A.175.139.000 118.70 221.000 1.A.047.000 Trading as GIMPC Trading as GIMPP 5.A.A (BNV).A.50 260. Corporación BCT S.A.350.107.65 1.00 15.35 N/A N/A BIMPR 1.00 2.000.00 375.500. 6.A.58 16. La Nación S.941. As of May 2001 the following are the companies with equity listings in the BNV: Table 10: Equity Listed Companies EQUITY LISTED COMPANIES NAME OF COMPANY ISSUES TICKER SYMBOL SHARES OUTSTANDING LAST PRICE (in colones) P/BV P/E Agribusiness Sector 1.A.841.A.61 1.727.000.64 6.535 14.90 2. and has developed into the most significant capital market in the region.292 Real-Estate Sector ENUR IPERI POGLA Services Sector CIMP 2. Cervecería Nacional and Primer Banco del Istmo.A.046. Florida Ice and Farm S.00 33.59 4.12 2.000 200. industrial.25 3.65 9. which have listed their shares in the BNV.332 PBIMP Industrial Sector ACOMU APCOM CAFES DURMC DURMA 479. Propiedades OGL S.October.07 28. 16. Durman Esquivel S. Common Stock Common Stock Common Stock Common Stock Preferred Stock Common Stock Preferred Stock Common Stock Common Stock Preferred Stock 8.000. Naranjales Río Rojo S.06 5. 11.08 N/A 9. 12.873. there is an effort by the General Assembly of The Iberoamerican Federation of Stock Exchanges (Federación Iberoamericana de Bolsas de Valores – FIABV) to increasingly unite the iberoamerican stock exchanges.25 275.000 Not Traded 09/14/01 09/14/01 09/14/01 09/12/01 08/10/01 01/14/97 Not Traded 3.62 Common Stock Common Stock Common Stock Common Stock Preferred Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Preferred Stock Common Stock Preferred Stock FIFCO 193.000 Not Traded DOSEL 3.000 2.66 1.13 21. Manga Rica S.289.65 N/A N/A Not Traded 04/17/01 3. 15. Corporación Improsa S.

2001 Market Capitalization Market capitalization driven by new equity issues.100 2.500 2. with sharp fluctuations occurring in the months in which significant new stock issues took place.963 million. The market capitalization of the BNV grew 26% over the twelve-month period ending May ‘01. The Ibnv rose 23. as well as March 2001.300 2. from US$2.350 million to US$2.0 ug -0 -0 1 -0 -0 -0 1 pr -0 A M ct -0 -0 ov ay ec nSe p Ju Ja Fe Ju ay ar -0 1 O N M D Source: Bolsa Nacional de Valores de Costa Rica S. BNV Index Ibnv Index reflects impact of new equity issues. The BNV index.700 2.42% year-over-year from 3. Going forward we expect that the BNV will continue to attract new listings of companies from Costa Rica. As indicated in Figure 6 the transaction volumes during most of the twelvemonth period has been quite stable. is a weightedindex that takes into consideration any variation in the stock price and assigns a relative weight based on the frequency of trading and the proportion that each particular stock issuer represents in relation to all stocks that actively trade. with a peak level for the period of US$3.227 in May ’01. Figure 5: BNV Market Capitalization (in US$ MM) 3. This rise is largely due to the relatively active participation of Costa Rican companies that undertook new stock listings during the period. New issues are the main reason for the large rise in volumes observed in the months of October and December 2000.A. 21 M A .100 0 01 0 0 0 0 n00 0 b01 0 l.October.900 2.062 million in January ’01. Índice de la Bolsa Nacional de Valores (Ibnv). which should also continue to encourage companies from throughout the region to view the BNV as a regional source of capital. The increase in market capitalization is largely due to new company listings in the BNV.425 to 4.

There seems to be a strong demand for new issues as indicated by the sharp rise in volumes in the months in which new stock issues took place.000 1. The limited buying opportunities would also seem to motivate investors to retain investments. which.which investors opt to retain…. Moreover.000 5.0 N 0 ov .000 2. would suggest that investors are satisfied with expected returns.000 3. Moreover. S. 22 . …. we can observe trading volumes to be fairly stable during the MaySeptember 2000 period. 0 Ju 0 l. M 01 ar . There is a strong demand for new market relatively multiples….500 1. and seems to indicate that investors have a preference for holding on to their investments. indicating that investors seem to prefer to hold on to their investment. O 00 ct . The low trading volumes observed in the BNV are indicative of it being a market with relatively low liquidity. M 01 ay . Going forward we expect that the volumes levels and liquidity should gradually rise.500 Volume Ibnv 4. Market Demand Overview Strong demand for new stock issues…. Subsequent to the new stock issues we observe that trading volumes drop to lower and stable levels. 2001 Figure 6: IBNV Index (volume in ¢ MM) 7.000 6.0 A 1 pr . as the BNV continues with its development and attracts increased participation from companies throughout the region. Except for the months in which new issues took place. in October ’00 there is a 47% increase in volume relative to September ’00 attributed mainly to a new issue related to the ….000 3.0 1 4. The performance of the Ibnv has been significantly influenced by the impact that new stock issues has had on the market capitalization levels. In figure 7. there is high demand for new stock issues that investors are willing to retain. Thus.500 3. in turn.October. 0 Fe 1 b.000 1.000 500 - Source: Bolsa Nacional de Valores de Costa Rica. Ja 00 n. we see relatively low and stable trading volumes. A 00 ug . which investors opt to retain. Ju 00 n. Se 0 0 pt . which seems to indicate that investors consider stocks to be adequately priced to enable them to achieve expected returns.500 2. further influencing the low level of liquidity in the market. with a rather small number of issuers.reflecting confidence in growth and expected returns.000 M ay . the relatively stable low volume level arises mainly from it being a thin market. high ….000 2.A. However. reflecting confidence in expected returns. in this market investors do not seem to have many meaningful buying opportunities other than during the periods in which these new stock issues take place. D 00 ec .000 4.

92% of total trading volume for the month.000 1.000 800. Another example of the impact that new issues have on the BNV trading volumes is the Corporacion Interfin stock issuance that took place in December ’00.000 5.000. Going forward we expect that further development of the BNV will continue to be mainly driven by an increase in the number of issuers as well as a broader investment base.000. Primer Banco del Istmo. and it represented 75.000.000 - May.000. May.17% equity stake in Banco Improsa. S. Figure 7: Market Demand Overview Colones 7.000 1.600. holds the majority of the shares. and the BNV should play a significant role in contributing to the regionalization process that is currently underway. This transaction represented 38.000. Aug.000.000 200.400. Apr. 00 00 00 00 00 00 00 00 01 01 01 01 01 Source: Bolsa Nacional de Valores de Costa Rica. We expect increasing participation by companies outside of Costa Rica. 2001 sale of a 20. Financial Groups The following are the financial groups that trade in the BNV: • • • • Corporación Interfin Corporación Banex Corporación B. we are unable to provide a description of this stock’s trading pattern. Mar.000.88% of the BNV volume for the entire month. 23 . 6.October.000 1.C. This development should continue to be benefited by an improved perception on the part of issuers of the advantages of listing their shares in the BNV. This stock issue accounted for an increase of 403% in total trading volume relative to the previous month.000 Feb.T. Consequently. Jul.000 4.000.000. Oct.000 2.000.A.000 600.000 Stocks 1.000 400. as it seems that its holding company.000. Sept. Dec. Jan. Nov.000.000 Colones Volume Stock Volume 1. Jun. Grupo Financiero Improsa/Banco Improsa The shares of Corporación Banex have not traded since July 2000.

Mar.200 million shares.000 3 Price 2 Ibnv 2.Apr. 2001 We set forth below a general description of the trading observations of the stocks of Corporación Interfin..Jun.500 3.May00 00 00 00 00 00 00 01 01 01 01 01 10 0 0 0 0 0 0 Volum e 10 0 0 0 0 0 10 0 0 0 0 10 0 0 0 M ay00 J un00 J ul00 A ug 00 Sep00 Oc t 00 No v00 De c00 J a n01 Fe b 01 M a r01 A p r01 M ay01 Source: Bolsa Nacional de Valores de Costa Rica.Jul-00 Aug.5 3 2. 24 . The total colon amount related with this volume was ¢4.Feb.500 4.Dec.C. with an upward trend. and a high of ¢4. reflecting the relative significance that this stock has in the BNV.000 4 3.Oct.500 2. During the six-month period. S. Corporación B. As shown in Figure 8 the pattern of the stock has been similar to the Ibvn.A. The price of the Interfin shares has been fairly stable.5 2 1.5 1 0.T.Sep. Corporación Interfin Figure 8: Corporación Interfin (price in colones) Price 5 Ibnv 4. as of December 2000.000 May.19.A.860 million. Additionally.October.Nov.50.5 0 Dec-00 Jan-01 Feb-01 Mar-01 Apr-01 May-01 P/E P /BV P /E 20 19 18 17 16 15 14 13 12 11 10 Source: Bolsa Nacional de Valores de Costa Rica. and Banco/Grupo Financiero Improsa.Jan. the share had a low price of ¢3. Figure 9: Multiples for Corporación Interfin P/B V 3. The shares of Corporación Interfin started trading in the BNV in December 2000 with the issuance of 1. S. in the same month an additional 346 million shares owned by FMO were also traded in the BNV.

This is consistent with the observation that investors place relatively high valuations for the Costa Rican financial groups (see Valuation).49 per share.39. which was accompanied by a corresponding increase in total assets due to the acquisition. notwithstanding that it decreased in nominal terms. 0 0 0 10 0 .23. Figure 10: Corporación B.0 0 0 15 0 . 2001 The P/BV multiple of the stock has fluctuated between 2.00 23. the share price reached its lowest level of ¢20. one share with a previous value of ¢30 was split into 1.00 19.C.39x and 3.Sep00 00 Oct00 Nov. resulting in a net real increase of ¢13.0 0 0 3 0 0 .0 0 0 3 50 .0 0 0 2 0 0 .0 0 0 2 50 .00 17.Dec00 00 Jan.04x in February 2001.0 0 0 - M Source: Bolsa Nacional de Valores de Costa Rica.50 to ¢. (price in colones) Price 33. month in which its share price rose 4%.71x in May 2001. and was 2. 0 0 0 50 .October.T. In August 2000 there was a stock split that corresponded to the stock conversion ratio related with the acquisition of Bancomer.21.57 shares with a value of ¢23. In October 2000. was being incorporated into the financial group.00 27.C.50.C.00 25.50.Apr. This split increased the number of shares by 57%. and Tarjetas B. price which remained relatively stable through July 2000.T. traded at ¢ 30. In May 2000 the shares of B. -0 Ju 0 n00 Ju l-0 A 0 ug -0 Se 0 p0 O 0 ct -0 N 0 ov -0 D 0 ec -0 Ja 0 n0 Fe 1 b0 M 1 ar -0 1 A pr -0 M 1 ay -0 1 Volume May. which still reflects a high valuation given the stock split.00 Stock Split StockDividend 4 0 0 . Following the split the stock price appreciated in real terms.00. The number of shares outstanding increased by 57% while the stock price only decreased 22% to ¢ 23.00 21. S. To date the share price has been relatively stable trading within a range of ¢.00 29.A.C. while the Ibvn fell 2%.May01 01 01 ay 25 . That is.49.T.T. period in which the acquisition of Corporación Bancomer was being realized. It reached the high of 3.00 31.04x as of its issuance in the BNV.Jun00 00 Jul00 Aug.Feb01 01 Mar. Corporación B.

Subsequently. During the twelve-month period ended May 2001 the low and high share prices were ¢ 2. and FMO).Jul. Figure 11 describes the P/E and P/BV multiples during the twelve-month period ending in May 2001. the market for this stock is thin. As mentioned later on.49 to our projected 12-month trailing earnings as of September ’02. and rising when there is a new issue. The P/E ratio is commonly calculated using 12-month trailing earnings. Reflecting the BNV. (a fund whose capital is owned by Banco Centroamericano de Integración Economica.Oct. respectively. without incorporating any effect of the Bancomer acquisition.32x and 3. The P/BV multiple was affected for similar reasons.0x respectively.Mar. Grupo Financiero Improsa The shares of Banco Improsa started trading in the BVN in 1997.T.Nov. the P/E ratio reflects a more normalized P/E figure of 16.Jun. the financial group was formed and trades as Grupo Financiero Improsa as of April 2001. and we should expect these multiples to return to pre-acquisition levels once the Bancomer operation is fully absorbed. which was purchased by Probanco L. which do not account for the effect of the Bancomer acquisition. S.C. For instance. the Costa Rican financial groups trade at multiples that are in the higher part of the valuation range conventionally applied to financial institutions. which in May 2001 had a P/E and P/BV multiples of 31. For example. the sharp increase in volume in October 2000 is largely due to the placement in the BNV of 20.38. And this is the case for B.C. the split brought about a 22% decrease in the price while maintaining the 12-month earnings exclusively of B.Aug.70x.T. which will not fully reflect the effect of the acquisition.C. are largely attributable to the commonly utilized method of calculation for the P/E and P/BV multiples. The high multiples recorded in August through November 2000.1% of the bank’s capital.15 and ¢3. 2001 Figure 11: Multiples for Corporación B. and the shares traded under this name up to January 2000. That is.October.A. if we apply the stock price of ¢23.Sep.May00 00 00 00 00 00 00 00 01 01 01 01 01 15 10 P/BV P/E 30 P/E 35 Source: Bolsa Nacional de Valores de Costa Rica. P/BV 6 5 4 25 3 20 2 1 0 May.Feb. This effect will be progressively eliminated as the combined entities 12-month trailing earnings are accumulated.Jan.Apr.T.P. 26 .De c.

J u n 00 00 J u l00 A ug .000 2.000 500 - Volume M a y. 0 0 0 1.500 3.80 May.000 1.00 2.40 3.Apr.500 4. Figure 13: Multiples for Grupo Financiero Improsa P/BV 4 P/BV 3 2 1 0 May.A.Aug.J a n.60 2. the share traded in January 2001. 2001 Figure 12: Grupo Financiero Improsa (price in colones) Price 3. at a P/BV of 2. S.Apr.500 2.M a y01 01 01 Source: Bolsa Nacional de Valores de Costa Rica.00 1.Oct. 0 0 0 10 0 10 Ibnv 4.Jan.82x recorded in June 2000.500 Price Ibnv 1.Jul.May00 00 00 00 00 00 00 00 01 01 01 01 01 P/E 19 17 15 13 11 9 7 5 P/E Source: Bolsa Nacional de Valores de Costa Rica.Sep.Oct.Mar. while the low was 1.40 2.A p r. 0 0 0 .Nov.Jul.000 3.F e b00 00 00 01 01 M a r.Aug.May00 00 00 00 00 00 00 00 01 01 01 01 01 1.Feb.N o v . During the twelve-month period up to May 2001.Sep.Jun. 0 0 0 10 0 .94. which is the 52-week high.Nov.October. 27 .Mar.Feb. Given the firm market position that Improsa has.Jan.S e p00 00 Oc t. 0 0 0 10 .20 3.20 2.Dec. we would expect the share to continue trading at the relatively high multiple levels recorded in early 2001.D e c . S.80 2.A.Jun.Dec.

T.C. B.39x to 3.94x May ’01 2. spans from 3.04x 2. Banex is treated separately because it last traded in July 2000. respectively. and investors’ demand and desire to retain their investments seem to support such expectations. Bolsa Nacional de Valores de Costa Rica.05 per share which represented a P/BV multiple of 7.18x.04x. it is evident that there is investor demand for new equity issues. Moreover. with P/BV multiples tending to revolve. Interfin Corp. However.14x 3. in general. consistent.39x 2.4x.C.26x 3.03x. Valuations can be influenced positively or negatively by the low liquidity of the market.94x. The last trade of the shares of Corporación Banex took place in July ’00 at a price of ¢9. Utilizing this last trading price the P/BV for December ’00 and March ’01 are 7. Price-to-Book Value Table 11 below describes the price-to-book value multiples for three of the four financial groups that trade in the Costa Rican Securities Exchange.58x 3.94x 3. S. These multiples seem to reflect high growth expectations. and. consequently is not directly comparable with the other financial groups.71x 3. Interfin’s price-to-book multiple ranges from 2.00x Source: Bolsa Nacional de Valores de Costa Rica.October. The price-to-book value multiples correspond to the months from December 2000 through May 2001 in which trades were recorded. A review of the table indicates that the financial groups.T. and the general lack of depth in the BNV. reflected in the price-to-earnings multiple levels.72x Month With Reported Trades Jan. ’01 Feb. Furthermore. Valuation The price-to-book-value multiples indicate a consistency among the financial groups. ’01 3. We consider that the valuations are. and seem to reflect valuation consistency on the part of investors. (BNV).A. Table 11: Price to Book Value Name Corp. in general.72x to 2.40x 2.00x to 3. ’00 2.37x 3. such relatively high valuations are consistent among the groups. are also. trade at multiples that are in the higher part of the valuation range. while that of B.53x and 7. in general. Improsa Dec. and we do not include a P/BV multiple for the months in which trades did not take place. during the period the multiples remain within a fairly stable range. and the range for Improsa is from 2. around 3. These multiples seem to reflect a continuation of relatively high growth expectations with regard to the financial groups. ’01 Mar.00x. and investors tend to hold on to their investment reflecting a high degree of confidence with regard to the expected returns on these investments. Grupo Fin. Moreover. conventionally applied to financial institutions. ’01 Apr. 2001 SECTION VI: Valuation multiples seem to reflect high growth expectations.A. S.11x 2. All groups evidence high valuations that tend to revolve around the 3x price-to-book value level. which. in general. these multiples are not comparable with the other 28 . The relatively low variability should be largely influenced by technical factors principally derived from the lack of liquidity of the stocks.

and 4) Corporación Banex 98%.T. ’02 E 16. ’00 A* Mar. These levels can be expected to remain relatively high.74x 32. and given their ownership we can expect them to continue to be very thinly traded.39x 8. Banex continues to be listed in the BNV. our projections indicate that expected profits for ’01 and ’02 can generate a significant organic growth level. The December ’00 and March ’01 price-to-earnings multiples of Interfin and Improsa indicate a certain level of consistency. as these should be mainly supported by expected growth. as a consequence. and once these purchases are fully absorbed we should expect them to continue with aggressive expansion programs. we would continue to expect P/BV multiples to remain at current levels. Grupo Fin.30x 13. 3) Grupo Financiero Improsa 46%. 4) Corporación Banex 26%. The 2001 projected profit increases for the groups are the following: 1) Corporación Interfin 27%.22x Source: Bolsa Nacional de Valores de Costa Rica. 2) Corporación B. 3) Grupo Financiero Improsa 54%.00x.86x 10. 69%. Certain groups achieved such growth levels largely through acquisitions. particularly given the existing consolidation. which is a key factor that will determine market leadership position. That is.65x 16. 98%. and our expected multiples for December ’01 and ’02 utilizing the May ’01 price.A.C. the corresponding multiples of B. and is not directly comparable with the other financial groups.70x to 3.T. ’01 E Dec. Expected Growth The financial groups have been growing at a significant pace.T. Improsa Dec. Notwithstanding the concentration of ownership by the Panamanian bank. As a consequence. The price-to earnings multiples correspond to the actual P/E figures for December ’00 and March ’01.C.57x 15.T. are practically twice that of the other two financial groups. Moreover. ’01 A* Dec. seem to be related to the acquisition of Corporación Bancomer. revolving around 16x. Table 12: Price to Earnings Name Corp.78x 15.C. 2001 three financial groups considering that Banex has traded very thinly since its shares are predominantly owned by Primer Banco del Istmo.39x in December ’02 reflects the anticipated advances with regard to the 29 .C. The continuation of the consolidation of the Costa Rican financial sector combined with the regionalization process currently underway should continue to propel relatively high levels of growth. 2) Corporación B. Interfin Corp. and.T. However.07x 16. and are mainly driven by expected growth. The year-overyear 2000 growth in total assets for the four financial groups were as follows: 1) Corporación Interfin 38%. Price-to-Earnings Table 12 describes the price-to-earnings multiples for the three financial groups. The higher multiples of B.62x 19.91x 9. The P/BV multiples at which these financial groups have been trading range between 2. we should not fully discard a future participation in the equities market.October.94x 32. Banex is treated separately because it last traded in July 2000. these multiples were likely not determined by a broad-base market. S. B.C. and the expected progressive reduction to 15.

The stock price of Improsa as of August was 3. B..6% above the ¢2. Based on these multiples we would expect a stock price appreciation of 38. reported a price-to-earnings multiple of 32. the P/E multiples of Interfin and Improsa are relatively consistent at around 16x.14. There have been two stock splits since the acquisition of Banex by Primer 30 .62x is 19. We have estimated P/E multiples of 19. while permitting them to fully recover control over its multiples.20.6% during the period from ¢3. the stock price should slowly rise to Dec.02. 2001 absorption of the acquisition. a Panamanian based financial group.75 in August ’01.89 for year-end ’02. and it fell slightly to ¢21.T. ’02 of 9.6% lower than the December ’00 multiple.86x and 8. ’01 and Dec. Further improvement would be subject to the speed and success of the absorption of Bancomer and any price targets for ’02 would be reviewed by year-end ’01.T. ’01. Corporación Interfin Based on December ’00 stock prices. respectively. investors set a P/E ratio of 16. respectively.55 to ¢4. and should be expected to settle at historical market levels. ’00 level of ¢23. ’01. The Interfin stock price in August ’01 was 4.90 year-end figure. Thus.07x in December ’00. The B. seem to have been affected by the acquisition of Corporación Bancomer (see Section V.C.78x in March ’01. The expected Dec.05 at which P/E multiples would be of 32.C. ’01 P/E figure of 13. respectively. The December ’01 and ’02 estimated P/E multiples are based on the corresponding stock prices recorded in December ‘00 and twelve month trailing expected earnings.22x. Corporación B.C. stock price in December ’00 was of ¢23. and we have estimated multiples for Dec.T.62x and 10. ’01 and Dec.94x for Interfin and 16. The expected year-end ’02 stock price is ¢4. In December ’00.October. correspondingly impacting its multiples until the acquisition is fully absorbed. ’02.10x in Dec.36x in Mar. Corporación Banex As previously mentioned. as of Dec.C. the stock price would be expected to increase 19. We are estimating that as the P/E multiple decreases to historical levels and the earnings per share progressively improve. establishing the valuation at these respective multiple levels. thus.91x and 15.T.07x for Improsa.65x in December ’00 and 32. Banex is predominantly owned by its holding company.T. ’02 P/E figures for Interfin are 13. ’01 and Dec. During the period under this analysis Banex’s stock last traded in July ’00 at a price of 9. or ¢4. the expected Dec.57x. Utilizing the same criteria we have a target price for Corporacion Interfin of ¢4. The P/E multiples of Corporación B.39x for Dec. The successful absorption of the acquisition can allow a financial group to revert these effects and return to historical operating levels. page 25). As mentioned. Primer Banco del Istmo. which is 10% above the year-end ’00. These high multiples should be expected to decrease progressively as the acquisition is fully absorbed. ’00 and 29.26. Grupo Financiero Improsa Improsa has recorded a P/E ratio of 16.C. The bank consolidation process that is taking place in Costa Rica can have a sudden impact on the financial group’s fundamentals. Corporación B.32.

Stock prices tend to show a relative stability. High Demand for Stock in a Market with Low Liquidity Investor demonstrated consistency in assigning relatively high price-to-book valuations seem to point toward high growth expectations. in general. but since the majority of the shares are held by its holding company there is no market to reflect any pricing effect due to the stock splits of the Banex’s shares. The low volumes and general price stability tend to indicate a desire to retain investments. and Banex 51%. B. However. The four financial groups had high growth levels in 2000. and size. The price at which these options are being and will be exercised do not represent a market determined price. we could not say that there is a market that is determining these multiples as shares are held by Istmo.C. This has also been the case with the shares of the financial groups. as investors tend to prefer to hold on to the majority of their stock investments. Banex continues to maintain its listing in the BNV which could indicate a possibility of future stock issuance which would be assessed when it occurs. These high growth levels are expected to continue. we estimate that these financial groups will continue to have relatively high ROEs. 2001 Banco del Istmo.T. In the current Costa Rican private group environment such expected increase in returns should be mainly driven by growth. market capitalizations have shown a gradual increase. Improsa 46%. subsequently. as volume traded is significantly higher when there are new equity placements. Moreover. as the consolidation process advances. as volume of the entire BNV rises above day-to-day levels during the placement of these new issues. Due to a lack of both liquidity and depth. which should support high price-to-book valuation multiples. Investors have a window of opportunity to make meaningful investments during these new equity placements at the multiples determined by the high demand for the stock. The acquisitions at such multiples reflect higher expected returns that could only be achieved when the window of opportunity exists. and. and then the trading level of the shares gets thinner as investors tend to retain their investments. independently of the fundamentals of the stock issues of the financial groups. the low liquidity of the stock market largely limits the capacity of investors to having meaningful buying opportunities largely upon the occurrence of new stock issues. Investors should keep in mind that the expected valuation multiples can be influenced positively or negatively by the low liquidity of the Costa Rican stock market. which began being exercised since September ’01 at a price of ¢3. and. It should be noted that under the public stock offering dated August ’99. at multiples determined by the high demand for the stock. Additionally.13 per share. 31 .30x book value. grew 98%. It is evident that the demand for new equity issues is high. reflecting a degree of confidence with regard to expected returns. efficiencies and return on equity are the market drivers. trading volumes drop to rather illiquid levels as investors opt to hold on to these shares. Demand for the new issues has been high. trading in the secondary market is thin. with Interfin growing 38% in terms of total assets.October. a differed put option was made available to certain shareholders at a price of 2.

combined with the expected ROE. Moreover..89 2. which places it in a strong competitive position in a market that is driven by size and diversification.6% higher than year-end ’00 stock price. and good levels of capitalization should enable it to continue to generate an attractive ROE. The growth as a finance company combined with the evolvement of the financial/legal framework prompted its conversion to Banco Interfin in 1982.39 10. A large deposit base and wide access to funding from private and multilateral institutions enable it to obtain a relative cheaper source of funding.39 0. Interfin Valores (brokerage 32 .S.60 0. '01 Dec.October. a finance company dedicated to provide financial services to commercial and industrial companies. '00 4. '01 3.4.2% of the assets of the financial group.21 16.8% of the group’s assets. Commercial Paper issuance. and the offshore banking unit.14 Mar. '02 0. one of the largest leasing companies in Central America.464 millions.89. 2001 SECTION VII: The Publicly Traded Financial Groups Corporación Interfin Recommendation: BUY CINTE EPS P/E P/B Shares Outstanding: Last Price: Dec. accounts for 10. Background Interfin initiated operations in 1979 with the creation of Corporación Internacional de Finanzas.43 IBNV: 0. and it should continue to improve supporting a strong interest revenue generation. permitting the company to continue to generate a high net interest income (NII) to support loan loss provisioning requirements and still maintain high ROE levels.57 14. We have set a target price for year-end ’02 of ¢4. Arrendadora Interfin (leasing). improving asset quality. Transamerica Bank & Trust represent 74.19 Dec.26.02 0. Corporación Interfin.26 13. should enable Interfin to sustain a strong capitalization level and support growth to maintain it in a market leadership position. The increase in Capital by 54% in 2000.23 15.21 17.62 4297. The high NII generating capacity.000. We have set a year-end ’01 stock price target of ¢4. S.21 16. loan growth should compensate this decrease. the financial group plans a U.50 . Banco Interfin.746. Interfin has a high net interest income generating capacity.99 2. In 1999 it adopted its current structure as a financial group. Although the NIM is expected to decrease because of competitive factors.94 0. '01 Sept.000 Corporación Interfin is the largest Costa Rican private financial group with total assets of ¢222.A. The commercial bank. that has been driven by high net interest margin (NIM) and high loan volumes. which is 19.'01 52-week range: Jun. Asset quality has improved significantly during the first five months of 2001. which should further enhance its funding capacity.

6% of the assets of the group. It should be noted that the NII does not include the interest margin related to leases. ‘01 242.October. NII rose 36% in 2000 to ¢6. NIM is understated. the combined assets of Interfin with Banex.1% Arrendadora Interfin 10. Going forward. Going forward.9% Banco Interfin 40. 2001 house) has 1. illustrating the high level of concentration of the system.6% Source: SUGEF The Largest Private Financial Group Corporación Interfin is the largest private financial group with total assets of ¢222. As figure 15 indicates. while the corresponding interest expense (lease funding interest expense) is reflected in the interest margin. but the overall profit level of the financial group is not affected. and a continued high growth should be expected going forward. the second largest group. ‘00 222. Figure 14: Corporación Interfin Corporación Interfin 10. Dec. through a merger. The diversification of a financial group provides for the capacity of having a higher NIM than if it were limited exclusively to traditional commercial banking activities.1% Transamerica Bank & Trust 34. In January 2001. which account for 18% of aggregate total assets of the private financial groups. making it a viable competitor in merger and acquisition plays. we can expect Interfin to maintain a leadership market position.465 Mar.168 million. and the March ’01 figure is in line to meet our estimate of having a NII growth level of 40% in 2001. As a consequence. Arrendadora Interfin absorbed Arrendadora Comercial A.725 High Revenue Generating Capacity Interfin has demonstrated a high net interest income (NII) generating capacity. Moreover.5% of total assets.5% Other Entities 2.8% Interfin Valores 1. ‘99 161. generating satisfactory returns to attract capital and to sustain required growth levels. as the regulatory authorities require that lease related revenue be reported as other operating income.464 million as of December 2000. enabling Interfin to be one of the largest leasing operations in Central America. the NIM of Interfin increased during the December 1999 – March – 2001 period. which has been driven by a higher net interest margin (NIM) and loan volumes.251 Dec. Interfin’s total assets grew 38%. we expect the NIM to decrease 33 . In the year-2000. represent 35% of the combined total assets of the financial groups. Table 13: Interfin Total Asset Growth (in millions of ¢) Total Assets Source: Corporación Interfin.T. and 6 other small entities account for 2.

Loan growth and improving asset quality should support a sound interest revenue generation.50% 1. loan growth.50% 0. Figure 15: Net Interest Margin 5. Past due coverage rose to 50% in May ’01.32% in ’00 but dropped markedly to 3.October. ’00 to 1.50% 2. Past due loans to gross loans rose from 5.00% 4. allowing it to focus on managing its existing loan portfolio to the benefit of asset quality.50% 3. the coverage ratio rose to 130. albeit lower than in the past. 34 . but management expects lower loan growth in 2001 as a result of the slowdown of the Costa Rican economy. which should continue to benefit overall credit quality.50% 4. if we consider only loans past due in excess to 90 days. This should enable Interfin to be more selective in granting loans.6% in Dec. enabling it to cover loan loss provisioning requirements without significantly affecting ROE.6% in May ’01.00% 0. Net past due loans to net loans also improved going from 5. and the group should continue having a strong NII generation. reflecting a very good loan portfolio management and conservative loan provisioning that protects Interfin’s capital base.6% in ’99 to 7. Asset quality improved significantly during the first five months of 2001.6% as of May ’01.00% 3.9% in May ’01. Figure 16: Loan Portfolio Composition Loan Portfolio Breakdown by Business Division Personal 17% Tourism 4% Other 2% Agriculture 8% Industrial 23% Services 18% Commercial 28% Source: Corporación Interfin. Moreover.00% 1999 Source: Corporación Interfin. 2001 due to the market competition and the slowdown of the economy. should compensate for the drop in the NIM. However. However.00% 2. the well-diversified loan portfolio will further benefit asset quality. 2000 2001* Loan Portfolio Total loans grew 32% in 2000. We believe that management has taken a proactive approach to managing its loan portfolio.00% 1.

89% Average Capital/Average Assets Source: Corporación Interfin Business Outlook We estimate that Interfin will continue generating a high level of net interest income that should provide for an increase in loan loss provisioning levels and still generate an attractive ROE.16% Dec. We estimate the net interest margin to average 3.16% in YE ’99.October. commercial paper issuance towards the end of 2001. Corporación Interfin increased its capital by 54%. The historically stable Costa Rican environment allows for lower deposit to loans ratios than in other more volatile countries throughout Central America. which.075 million. 35 . 2001 Funding Corporación Interfin has a large deposit base that grew 30% year-over-year in 2000. making it one of the few Central American entities to access this market. its strong fundamentals will allow it to access new sources of funding such as the loan securitization program expected in the second semester of 2001. The capitalization level has increased slightly with average-capital-to-average-total-assets being 9. further supporting the capital base. in turn. Interfin’s market leadership position and expected stable ROE levels should continue to be the main drivers in securing the required capital to sustain growth.S. This combined with a moderate increase in assets should be the basis for increased net interest income generation. Capital Interfin has a sound capital base mainly as a result of strong fundamentals and satisfactory returns. Moreover. This continues to provide Interfin with a competitive advantage in a market environment that is driven by size and ROE. 9. allows for lower precautionary reserves levels. Interfin has also benefited from its increasing participation in the capital markets.31% Mar. We can expect Interfin to be successful with its planned funding issues and utilize this as a base for further penetration in the international capital markets to support expected growth. ’01 9. Asset quality has improved significantly as shown by the figures of May ’01 and we would expect this trend to continue. Interfin’s leadership market position has enabled it to access funding from private and multilateral institutions on attractive terms. Past due loan coverage should also improve.31% in YE ’00 and 9. further supporting margins. Total assets are estimated to grow 21% in ’01 and 28% in ’02 as Interfin continues to achieve high levels of organic growth in an effort to maintain its leadership position in the market. Going forward.95% from June ’01 throughout ’02. ’99 9. Interfin’s continued participation in the capital markets should allow it to achieve a cheaper and broader source of funding. providing it with a relatively cheaper and stable source of funding. Table 14: Capital Dec. ’00 9. Total deposits cover 91% of total net loans. In the year-2000. and should be undertaking a U.89% in 1Q ’01. which included a capital injection of ¢4.

Capital Avg.October.31% 14.82% 32.25% Source: Corporación Interfin.63% 47.02% 130.54% 1.62% 3.31% 4.306 42.513 109.57% 3.97% 70.779 144.72% 1.08% 6.9 9. Assets / Avg.7 9. 2001 Table 15: Corporación Interfin – Financial Highlights Dec '99 Dec '00 (in ¢ MM) Mar '01 (in ¢ MM) May '01 (in ¢ MM) May '01 (in US$ MM) Balance Sheet Cash & Equivalents Total Gross Loans Assets Total Deposits Equity (in ¢ MM) 22.566 145.95% 91.32% 5.1 9.41% 23.184 23.85% 50. Assets Avg.257 134.99% 90.97% 7.69% 10.43% 71.13% 1.80% Leverage Avg.81% 84.98% 1.63% 66.08% 13.65% Asset Quality Past Due Loans/ Gross Loans Net Past Due Loans/ Net Loans Loan Loss Reserve/ Past Due Loans Loan Loss Reserve/ Past Due Loans ( > 90 days ) 5.16% 13.842 14.69% 3.98% 63.11% 31.77% 47. Capital / Avg.896 242.3 9.786 242.18% 16.62% 24.16% 10.90% 33. Capital / Avg.085 161.875 23.72% Liquidity Deposits/ Net Loans Net Loans/ Total Assets Cash & Equivalents/ Deposits 87.52% 5.764 34.76% 58.989 131 462 742 413 73 Profitability Return on Equity Return on Assets Net Interest Margin Operating Expenses / Net Revenue 18.890 150.448 222.63% 1.74% 3.465 129.97% 91.41% 15.251 93.76% 26.02% 66.725 131.10% 61.69% 69.89% 16.716 44.79% 10.053 22.75% 16. Net Loans 10. Provident Group 36 .36% 4.39% 31.

420 4.904 4.612 100 6.029 45 3.279 10.289 420 9.541 6.051 1.896 4.748 4.116 2.223 579 2.695 640 2.974 4.167 3.802 158 305 2.372 289 15.495 2.145 267 377 2.990 838 7.859 3.455 6.336 6.580 60 3.937 8.270 11.379 2.286 960 3.519 170 1.454 3.948 2.181 13.510 182 1.585 2.335 17.412 3.966 849 675 1.472 1.511 8.964 3.001 140 2.692 2.537 3.471 6.788 5.844 4.622 222 3.127 521 735 4.295 40 2.061 100 5.142 20 1.223 100 14.148 100 8.504 5.Table 16: Financial Model – Corporación Interfin * Corporación Interfin. 2001 * The financial model has been prepared by Provident Group in an independent manner based on our own assumptions and criteria.173 4.899 161 228 1.864 1.640 80 4.702 6.108 521 8.064 2.207 4.405 2.001 235 4.634 9.793 2.871 383 540 3.222 494 6.503 10.156 3.A.032 4.552 119 210 2.055 1.235 100 11.002 330 6.165 4.099 3.887 245 346 2.012 1.927 1.552 338 2.243 914 68 134 712 78 789 2.058 1.268 320 1.337 468 4.027 1.132 5.280 4.350 3.965 2.826 211 4.840 8.092 1.606 1.64 / US$1 Financial Income: 13.110 3.246 4.726 2.688 3.723 2.557 387 547 3.634 7.546 8.108 7.508 646 307 2.876 2.584 913 1.601 2.358 3.578 3.162 4.316 1.507 11.547 1.302 377 3.209 5. S.498 2.160 2. .959 7.583 1.335 1.621 1.781 319 3.078 132 20.596 1.261 12.951 From Loans From Investments Other financial income Total Financial Income Financial Expenses: On Loans On Borrowings Total Financial Expenses Net Interest Income 37 Loan Loss Provision Banking services commissions-net Brokerage commissions-net Leasing Other income (net) Total Non-Interest Income Personal General and administrative Depreciation and Ammortization General & Administrative Expense Operating Income Income & Assets Tax Profit Sharing Income before currency translation adjustment Currency translation adjustment Net Income October.646 2.042 459 3.917 100 10.436 122 172 1.618 159 148 1.165 2.894 1.908 10. and Subsidiaries Consolidated Income Statement (in ¢ millions) Dec-99A Dec-00A Mar-01A May-01A Jun-01E Sep-01E Dec-01E Mar-02E Jun-02E Sep-02E Dec-02E F/X rate (05/31/01): ¢326.306 100 3.755 2.583 5.168 2.837 16.500 202 2.676 6.341 14.311 162 1.366 28 4.204 2.

39 23. Corporación Banex is a financial group principally engaged in commercial banking operations.032.46 19. and Banex 1 The only other date in which Banex’s stock traded was September the 14th at a price of ¢3. Then in 2001 Banex acquired Banco Metropolitano increasing significantly its total assets. '01 Dec.64 IBNV: 0. Background The regional development of Primer Banco del Istmo (Panama) led them to establish a presence in Costa Rica as Banco del Istmo (Costa Rica). the company has strong fundamentals that will be evaluated once we can assess them within the context of a market.28 32. Banex has the management and access to capital to further undertake acquisitions. which represents 2. but regionally.4% of the assets of the financial group. Banex’s shares are predominantly held by its parent company Primer Banco del Istmo (Panama).32 28.42 0. '00 9.October. However. and within the period under analysis its stock last traded in July ’00 1. Caribbean Bank of Exports account for 86. as size has become a determining factor for achieving success not only in the country.996. '02 0. For this reason. 2001 Corporación Banex Recommendation: N/A CBANE EPS P/E P/B Shares Outstanding: Last Price: Dec.35 25.34 26. We have neither made a recommendation nor set a target price. at the subsidiary bank level the union was undertaken by Banco Banex absorbing Banco del Istmo (Costa Rica).36 N/A 0. As a step towards achieving growth through acquisitions. Banco Banex and the offshore banking unit.02 0. This aggressive strategy will allow Corporación Banex to take advantage of acquisition opportunities in the Costa Rican market. but this occurred outside the period under analysis and was a result of the exercise of a differed put option and does not represent a market determined price. And. '01 9. '01 Sept. while maintaining good control over the fundamentals. Banex has effectively managed its acquisitions. and is expected to continue to generate ROE in the mid-20% level.52 4297.05 1 Dec.849 Corporación Banex has a strong parent company in Primer Banco del Istmo (Panama) that has made clear its intention of becoming a major player throughout the Central American region. The commercial bank. Banex was the most profitable bank in the year-2000. demonstrating a good control over asset quality. Banex is experienced in successfully undertaking acquisitions.'01 52-week range: Jun.13. Banex is a strong competitor of Interfin in becoming the largest private financial group in terms of assets. any valuation of Banex is not being determined by a market. Primer Banco del Istmo acquired the shares of Corporación Banex. and improving operational efficiencies.10 N/A 0.05 Mar. The other units of the group are Banex Valores Puesto de Bolsa (brokerage house). with the merged entity adopting the name of Banco Banex.31 29.9% of the group’s assets. 38 .

reflecting the high significance of the Banex franchise in Costa Rica. ’01 219.46% Banco Banex 52. and has the capital base and management know-how. 2001 Operadora de Pensiones Complementarias (BOPC) 2 with 0. Four other small units account for 0. We can expect them to continue to grow in the Costa Rican market and Corporación Banex should be its leading vehicle to assure the maintenance of a leadership position in the country.304 Dec.7% Banex Valores Puesto de Bolsa 2. Banex acquired Banco Continental. as it remains an attractive vehicle to raise capital. who in turn was the owner of the shares of 2 In June ’01. illustrating the significance the BNV is taking on a regional level.October. the second largest bank in the country. Table 17: Banex Total Assets (in millions of ¢) Total Assets Dec.414 million which is almost one-half the size of Banco de Costa Rica. ’99 141. Ltd. Subsequently.74% Source: SUGEF Investment Highlights Banex – Part of a Growing Regional Player Primer Banco del Istmo has made clear its intention of becoming a major regional player. As of December ’00 the financial group had total assets of ¢ 213. the subsidiary Banco Banex absorbed Banco del Istmo (Costa Rica). Experience in Undertaking Acquisitions Prior to being acquired by Banco del Istmo (Costa Rica) in 1998. In the year 2001. Given the recent growth rates Corporación Banex should start closing the gap in terms of size and increasingly become a stronger competitor with the government banks.7% Caribbean Bank of Exports 33.9% Banex Operadora Pensiones Complementarias 0. Corporación Banex acquired the assets of American International Holdings. Corporación Banex is a close competitor to Interfin in becoming the largest private financial group.74% of the assets of the Group. which further enhanced its position as one of the largest private banks of the system. Figure 17: Corporación Banex Corporación Banex 9. ’00 213. We would expect Banex to also maintain its registration in the BNV.936 Mar. with an equity participation on a 50%/50% basis. 39 .692 Source: Corporación Banex. Then in 1999 Primer Banco del Istmo acquired the shares of Corporación Banex. combined with a broad spectrum of products and services to continue developing its regional presence.5% Other Entities 0. Primer Banco del Istmo (Panama) has also registered its equity in the Costa Rican stock market.5% of total assets. BOPC merged with Interfin OPC resulting in the creation of Interfin Banex OPC. and the combined entity adopted the Banex name. Banex represents 17% of total private group assets.. while Corporación Interfin accounts for 18%.

This local competitive advantage is further enhanced by the regional significance that its parent Primer Banco del Istmo.81% 3.099 million reported by Interfin.8%. Banex has developed an experience in undertaking acquisitions. and ROA. Also. as loan growth and good asset quality should be the main drivers to enable it to continue generating a ROE in the mid-20% level. 25. 3%. This experience provides Banex with a competitive advantage in growth and diversification through acquisitions in comparison to the majority of its competitors. we believe that loan growth will enable the company to continue to generate a strong net interest income. which is similar in size to Banex in terms of total assets and capital.366 million. Moreover. brings to the table in a market that is undergoing a consolidation. maintaining an adequate control of asset quality. ’00 25. good asset quality and rising NIM drove net interest income generation. recording a net income figure of ¢5. Table 18: Profitability (in millions of ¢) Return on Average Equity Return on Average Assets Source: Corporación Banex Dec. which provides higher margins. among the private financial groups. the sound net interest income enabled the group to undertake the required loan loss provisions to maintain good asset quality and still record the high level of profitability.959 million from ¢4. 2001 Corporación Metropolitano. the rising NIM reflects the success they had in undertaking and absorbing the two acquisitions. and contributing to the generation of a high ROE.07% Dec.October. Banex originally had a corporate banking focus that was expanded to a meaningful middle market presence through the acquisitions of Continental and Metropolitano. the financial group that in turn is the holding company of Banco Metropolitano. the acquisitions have provided an expansion in terms of assets. rising to ¢8. Moreover. Going forward Banex should continue to produce a sound net interest income.36% 2. Moreover.99% The net interest margin has been increasing in recent years as shown in Figure 18 below. High Profit Level Corporación Banex had the highest level of profitability among the private financial groups in YE 2000. absorbing their operations while managing day-to-day business. which represents 28% of the combined profits of the twenty private groups. ’99 15.921 million in 1999. The acquisitions have allowed Banex to further penetrate the medium size company sector. 40 . as well as a broader more diversified client base.63% 2. the net income figure is significantly ahead from the second highest profit figure of ¢3. Although the NIM is expected to decrease because of market conditions. Banex also had the highest ROE.02% Mar. The larger loan portfolio. ’01 27. Net interest income grew a strong 82% in 2000.

00% 3.00% 2. ’99 63. and avoided incurring a burdensome cost structure during a period of acquisitions. Past due loans to total loans rose to 6.3% and net past due loans to net loans were 4. Banex should continue to manage well its loan portfolio. this merger also supported the net interest margin. net past due loans to net loans were 4. these figures should be considered within the context of the three acquisitions it has undertaken in recent years. Going forward.92% Admin. Moreover.00% 6. ’00 47.00% 1.00% 1999 2000 2001* Source: Corporación Banex. Provident Group Capital Banex has maintained a high level of capitalization notwithstanding the acquisitions.October.34%. Provident Group Asset Quality Gross loans grew 67% in 2000 and Corporación Banex continued to demonstrate a capacity to control asset quality levels.00% 4.00% 0. ’01 44. Going forward. 2001 Figure 18: Net Interest Margin 7. 41 . and its high revenue generation capacity should enable it to meet loan loss provisioning requirements to support capitalization. Expense/Net Revenue Source: Corporación Banex.22% Dec. Average capital to total assets has been high during recent years. However. particularly considering its aggressive expansion and increased penetration into the riskier middle market. this experience in absorbing acquisitions should prove beneficial to the bottom line. while maintaining high ROE levels. Table 19: Efficiency Ratio Dec. while. Efficient Operations As of YE ’00 there is a marked improvement in the efficiency ratio falling from 63.92% in March ’01. The merger with Banco del Istmo (Costa Rica) provided the synergies that established new operational efficiency benchmarks. past due loans represented 5.22% in December ’99 to 47. and are indicative that management can control asset quality during the absorption process. we should expect a progressive improvement in asset quality. in March ‘01.00% 5.6% of gross loans. As of December ’00.70% Mar.05%.70% in YE ’00 and 44.

2001 reporting a 13.a. Banex is expected to continue to generate ROE levels in the mid-20% range. The investor should be aware that the regional strategy pursued by Primer Banco del Istmo could bring about further growth through acquisitions in the Costa Rican market. and operational efficiencies.28% throughout 2002. These capitalization levels provide a margin for further growth. Provident Group Business Outlook Going forward.23% figure in YE ’99.71% Mar. Total Loans are estimated to grow 18% in 2001 and 20% in 2002. Corporación Banex should continue generating an ROE in the mid-20% p. We expect continued high ROE targets under any such acquisition process. ’01 10.93% Average Capital/Average Assets Source: Corporación Banex. 42 . However.93% in March ’01.23% Dec.October. We are estimating an average net interest margin of 5. and 10. but such growth in provisioning requirements is lowered to 11% in 2002. 11.8% in 2002. The financial group should continue to generate the revenue to meet provisioning requirements while maintaining high returns.25% in 2001 and 4. Table 20: Capital Dec.71% in YE ’00. ’00 11. this decrease in the NIM is expected to be compensated by the growth in interest earning assets. The foregoing combined with the expected good operational efficiency levels should allow Banex to remain among the leaders in generating high ROE levels. Loan loss provisions are estimated to increase 56% in 2001 reflecting the provisioning required as a result of recent acquisitions and increased penetration in the riskier middle market. providing an attractive expected return based on a higher absolute asset and capital base. Moreover. Having a strong parent company in Primer Banco del Istmo (Panama) further supports the capacity for Banex to access capital. Non-interest income is estimated to represent about a third of net banking income. reflecting a slight progressive decrease from 5. ’99 13. principally driven by its relatively good portfolio management.

73% Source: Corporación Banex. 43 .5 11.813 92.05% 28. Assets / Avg.76% 6. Provident Group.30% 4.066 219. Capital Avg.985 22.71% 17.54% 68.76% 63.697 48.907 213. '01 (in US$ MM) 38.29% 51.81% 82. '01 (in ¢ MM) Mar.34% 32.23% 20.887 53. Capital / Avg.86% 1.36% 2.873 MM .70% 27.174 141.06% 64. * In June 30.113 153. 2001 the absorption of Metropolitano was completed increasing Banex’s Total Assets to ¢248.1 MM.58% 8. Net Loans 7.63% 2.38% 5.762 153.45% Leverage Avg. '00 (in ¢ MM) Mar.99% 5.24% 43. 2001 Table 21: Corporación Banex – Financial Highlights* Dec. equivalent to US$ 760.514 166 473 679 383 76 Profitability Return on Equity Return on Assets Net Interest Margin Operating Expenses / Net Revenue 15.38% 47.02% 5.78% 38.746 24.936 123.2 10.76% 44.93% 15.22% 25.16% 9. '99 Balance Sheet Cash & Equivalents Total Gross Loans Assets Total Deposits Equity (in ¢ MM) Dec.60% 4.454 18.07% 3.October.304 75. Assets Avg.692 123. Capital / Avg.44% 50.81% 3.54% Liquidity Deposits/ Net Loans Net Loans/ Total Assets Cash & Equivalents/ Deposits 83.44% 81.88% 70.6 13.92% Asset Quality Past Due Loans/ Gross Loans Net Past Due Loans/ Net Loans Loan Loss Reserve/ Past Due Loans 2.

768 4.769 1.485 80 227 5.640 722 5.777 344 3. and Subsidiaries Consolidated Income Statement (in ¢ millions) Dec-99A Dec-01E Dec-00A Mar-01A Jun-01E Sep-01E Mar-02E Jun-02E Sep-02E Dec-02E F/X rate (03/31/01): ¢323. .891 5.908 6.262 1.390 5.760 64 411 3.628 119 1.Table 22: Financial Model – Corporación Banex * Corporación Banex.524 2.141 6.672 117 4.717 6.337 147 440 2.679 28 76 1.585 2.202 102 2.922 5.988 70 279 7.313 23 173 3.943 577 5.523 268 5.750 1.413 73 1.045 7.769 294 4.060 172 2.667 2.171 85 227 5.483 110 329 12.666 9.979 160 479 44 2.621 3.366 1.006 1.755 3.509 70 211 236 3.812 2.653 291 6.062 47 226 5.959 1.335 107 320 4.940 72 9. 2001 * The financial model has been prepared by Provident Group in an independent manner based on our own assumptions and criteria.930 57 152 3.177 8.747 33 92 1.A.613 10.621 4 23.45 / US$1 3.660 1.792 67 360 1.921 530 14.377 515 4.754 - - 11.048 7.563 113 303 7.934 660 180 1.798 1.182 8.261 146 2.436 6.786 5.640 2.362 185 3.341 October.476 3.783 36 107 6.657 2.957 218 4.042 18 1.667 6.521 374 3.083 237 13.516 18.887 5.320 361 2.980 541 3.711 5.933 8.307 7.075 106 14.026 5. S.012 4.138 63 188 9.235 67 246 3.220 1.726 2.228 Financial Income: From investments From loans Other financial income Total Financial Income Financial Expenses: On loans and borrowings Other Total Financial Expenses Net Interest Income Loan Loss Provision Exchange rates differences-net Banking services commissions-net Other income (net) Total Non-Interest Income General & Administrative Expense Operating Income Non-recurring Income-net Currency translation adjustment Income before taxes and profit sharing Income Tax Profit Sharing Net Income 4.

92 3. and Banco B. which include B.70 Mar. For the remaining part of 2001. Background Corporación B.5%.T.6% (leasing).C. we estimate that the price will gradually increase to the year-end 2000 level of ¢23. (credit card) representing 1. in turn.39 2. Arrendadora 0. formed part of the consolidation process of the Costa Rican financial system and positioned itself among the largest Costa Rican financial groups. had its origin in 1981 with the creation of B. which represents 12% of the aggregate total assets of all the private financial groups.C.C. 84.'01 52-week range: Jun. Banco B.T.704 million in total assets. should be in position to sustain further growth. a finance company.75. and eight other entities whose combined assets account for 2.T.64 0.68 33. In the past. B.02 1.-Panama.C. Of total assets. '01 Sept. B. and with the enactment of the corresponding laws it formalized its structure as a financial group in 1998.T. '01 20. B.T. de facto was structured and operated as it is today since 1994.T. has already brought about improvement in profitability.C.T. with Tarjetas B. Valores (brokerage house) 0.0 Dec. (offshore bank obtained in the acquisition of Bancomer with an original name of Commerce Overseas Bank. which represents 12% of the aggregate total assets of all 45 . de Finanzas.C. ’01 fell slightly to ¢21.T. as it would be significantly dependent on the development of the absorption of the acquisition and will be reviewed in year-end 2001. had a stock price of ¢23 in Dec. in 1984. (Costa Rica banking operation) for 18.49 15.99 23.4%. B.October. which it expects to have successfully integrated by mid-2002. is being tested in absorbing the Bancomer loan portfolio.C.5 . and is an entity with a Central American regional business orientation) for 26.4% of the group’s assets.T. Corporación B. The other units are small in comparison.414.T. Corporación B.C.C. B. B. 2001 Corporación B.83 27.2% of total assets. acquired Corporación Bancomer practically doubling its size in the year-2000.C.. Once this is achieved. We are not issuing a target price for year-end 2002.T. which.2%. '00 21. Banco B. ’00.C.T. B.C.C.T.C.40 0. is the fourth largest private financial group in terms of assets.T.8% are related to banking units. and its price in Aug.90 3.78 28.’s original offshore banking operation) which accounts for 40.T.31.T.C. is the fourth largest private financial group with ¢147. Recommendation: HOLD CBCT EPS P/E P/B Shares Outstanding: Last Price: Dec. Through this acquisition B. based on continued progress in the absorption of Bancomer.T.A.C.C.T.046.T.14 0.535 Corporación B.C.C. which developed into the commercial bank. '02 0. '01 Dec.16 19.C. S. has been very successful in maintaining an efficient operation.33 IBNV: 1. Bank International (B.5% of total assets.T.91 4297. Improving operational efficiencies have been a key issue during the initial phase of the acquisition.

C. 46 . reported a net interest income figure of ¢1. 1. and a 62% rise from that of 1999. Arrendadora 0. Valores 0.T.2% Banco B.C.T.C.C. ’01 149. and to the under-performance of the acquired loan portfolio. ’99 74. 10. In 2000. Management states to be having success in incorporating and administering the purchased loan portfolio.150 million of nonrecurrent expenses related to this acquisition.5% B. Dec. and the quality of the portfolio is progressively upgraded.4% Source: SUGEF Absorption of Corporación Bancomer The absorption of Corporación Bancomer is an example of the growth through acquisitions that the Costa Rican financial system has been undergoing in recent years. which would represent a 36% increase year-over-year. Improvements arising from managing the absorption of Bancomer are already evident in the first-quarter 2001. which has also allowed B. Net interest income rose only 19% during the period. The drop in profits is mainly due to one-time expenses related with the absorption of Bancomer.546 Dec. a rate substantially below the increase in assets.C.T.965 million.T. Its position as one of the largest groups in the country was substantiated by the acquisition of Corporación Bancomer. B.T.C. Corporación B. Table 23: B. to increase meaningfully its lending activities in the middle market.C.C. 18.6% Other Entities 2. an increase that was mainly attributable to this acquisition.T. is still experiencing the commonly observed challenge of successfully integrating an acquired operation and loan portfolio that practically doubled its size.T.2% Banco B. B.T. and plans on having it fully integrated by 2002. Figure 19: Corporación B. Total Asset Growth (in millions of ¢) Total Assets Source: Corporación B.704 Mar.5% B.4% Tarjetas B.078 Despite the increase in total assets net income fell 23% for the same period.T. which is in pace to meet our YE 2001 projection of ¢4. Bank International 40. incurred a total of ¢1.T Panama 26. relative to 1999.C.C. Operating results are expected to improve as the acquisition is fully absorbed.120 million.T.T. Total assets grew 98% in 2000.C.T.2% B. 2001 the private financial groups. operational efficiencies are entirely incorporated.C.C.T. ’00 147. B.C.October.

Efficiency Ratio Dec.T will strengthen its capability to manage a substantially larger asset base.50% 4. we expect the efficiency ratio to be a strong point.63% in YE ’99.. a 10% reduction over the previous year. B.00% 1.C. compared with the 11.C. Although there have been improvements as evidenced by the results of March ’01. The 1Q’01 annualized ROE is 17.T. ’99 29.935 million. has been successful in maintaining a high level of efficiency.59% Admin. reaching 59. 2001 Figure 20: Net Interest Margin 5.C. and as of March ’01 the efficiency ratio improved significantly to 41. and is in line with our YE 2001 administration expense projection of ¢2. Provident Group B.47% in YE ’00 to 2. rising from 1.50% 1.0% in March ’01. management has focused on reducing expenses and fine-tuning the merger of the two units. Table 24: B. Provident Group 47 . The implementation of operational efficiencies is one of the main accomplishments after the purchase of Bancomer. B.46% Mar.00% 3. Significant Improvement in Efficiency Traditionally B.00% 4. providing the means to remain as one of the main institutions in the Costa Rican financial system.50% 2. However.00% 0. has been very successful in managing the operating expenses notwithstanding the acquisition.01%. Moreover.46% Dec. Expense/Net Revenue Source: Corporación B.00% 1999 2000 2001* Source: Corporación B.T will continue to be tested by the integration of the acquired loan portfolio. ’00 59.C.October. In 1999 it recorded a very good efficiency ratio of 29.C.T.46% in YE’00. ’01 41.T. which deteriorated upon the purchase of Bancomer. The administration expense was ¢675 million in 1Q’01.T. Going forward. Net income results for the first quarter 2001 also indicate that management is having success in incorporating a bank that practically doubled its size.92% in YE’00.C.50% 0. the ROA also reflects an improvement.59%.00% 2. and pre-acquisition figure of 20.T..C.46%. As this is successfully achieved.50% 3.

to diversify into the higher margin middle market sector. was mainly focused in lending to the corporate sector.C. reported a 126% YOY increase in total deposits. A gradual improvement on net interest income levels should be mainly forthcoming from improvements in the net interest margin.T.T.T. improved significantly to 10.C. The slight improvement in net interest income as of March ’01 seems to indicate progressive improvement in the loan portfolio area. Improved Deposit Base In YE ’00 B.T. and 10. Figure 21: Loan Portfolio Loan Portfolio Breakdown by Business Division Personal 7% Tourism 6% Other 5% Agriculture 7% Industrial 32% Services 24% Com m ercial 19% Source: Corporación B.C. Approximately 90% of deposits correspond to corporate clients and high net worth individuals. the absorption of the loan portfolio has posed a challenge.C.01% in March ’01. it will take time and effort to restore business operations to pre-acquisition levels. which enabled B. to further enhance this deposit base.October. B. and we would expect this composition to remain. 2001 Loan Portfolio Prior to the acquisition. However.T. Management estimates that the loan portfolio will be fully assimilated and its status normalized by mid-2002. While this occurs we should expect the loan portfolio growth to remain modest. Past due loans to gross loans are at high levels representing 16.23% in June ’01.75% in YE ’00. Although we can expect that this improvement will continue. this deposit base should be among the main factors behind a progressively higher net interest margin.C. The acquisition resulted in an increase in gross loans of 120% in YE ’00. We can expect B. 48 . and as the loan portfolio absorption is normalized.

’00.C. We should expect a progressive restoration of the net interest margin. viewed within the context of the situation of the loan portfolio. as the acquired portfolio is successfully integrated and B. which combined with the existing operational efficiency level.T. Although.T.468 90. Non-interest income is estimated to increase an average of 31%. to generate an ROE at an acceptable level relative to the Costa Rican private banking sector and its historical level. The difficulties associated with the Bancomer acquisition are further illustrated in the drop in the ROE from 20. 2001 Table 25: B. particularly with regard to 2002. ’01 16. This level will be reduced in the second-half of 2002.C. management estimates that its loan portfolio situation should be normalized by mid-2002.63% Dec. We expect a higher loan loss provisioning level will be required. ’99 to 11.20% range as B.C.C. ’00 18. improves overall loan portfolio performance. will continue to be tested in managing its loan portfolio and restoring the net interest margin to historical levels.424 Dec.C. and estimate a 58% increase for 2001.63% in Dec. ’01 11. the past due loan levels pose a challenge.74% 17.T. and its recovery to 17. In 2002 we estimate gross loans to grow in the 18% . We expect loan portfolio growth to be restored in 2002.629 47. restores organic growth levels. should enable B. We estimate gross loans to grow 8% in colones in 2001.T.T. Dec. Gross loans are estimated to remain fairly stable in 2001 as the company absorbs the loans it acquired.923 Capital In absolute terms. ’99 6. which should provide for the devaluation of the dollar loan portfolio.36% 11.01% indicates that appropriate steps are being taken to successfully absorb the acquisition. Provident Group Business Outlook We estimate the net interest margin to remain flat at a 3. this may be conservative. and consequently. ’00 12. We expect that good administrative expense management will remain a strong point and is estimated to fall 10% in 2001.218 Mar. 49 .795 40.T.C.C.92% in Dec.. the capital ratios shown in Table 26 would indicate a good capitalization level.01% Average Capital/Average Assets Return on Equity Source: Corporación B. However.92% Mar. B.78% 20. As indicated before. and grow below 10% in 2002. we should expect a progressive improvement.270 107. Table 26: Capital Dec.455 106. a figure that could be higher given the recent introduction of new bank service fees. ’99 13.4% average throughout 2001 and 2002. Deposits (in millions of ¢) Demand Deposits Time Deposits Total Deposits Source: Corporación B.948 88.T.October.

2001 Table 27: Corporación B.745 147. Assets Avg.52% Asset Quality Past Due Loans/ Gross Loans Net Past Due Loans/ Net Loans Loan Loss Reserve/ Past Due Loans 16. '01 (in ¢ MM) Jun.74% 14.49% 91.47% 1.C.61% 14.23% Liquidity Deposits/ Net Loans Net Loans/ Total Assets Cash & Equivalents/ Deposits 87.T. – Financial Highlights Dec.61% 25.47% 75.78% 19.308 18.78% 51.68% 2. '99 Balance Sheet Cash & Equivalents Total Gross Loans Assets Total Deposits Equity (in ¢ MM) Dec.218 17.493 110.84% 4.193 18.22% 41.October.636 28.01% 2.45% 34.81% 72. Capital / Avg. '01 (in US$ MM) 16.78% Leverage Avg.5 11.794 74.846 149.074 159.93% Source: Corporación B. Assets / Avg. Net Loans 7.751 120. Capital Avg..75% 15. Capital / Avg.270 16.36% 15. Provident Group 50 .02% 8. '00 (in ¢ MM) Mar.01% 10.546 47.30% 29.92% 1.47% 3.191 88 381 493 341 56 Profitability Return on Equity Return on Assets Net Interest Margin Operating Expenses / Net Revenue 20.63% 2. '01 (in ¢ MM) Jun.1 12.59% 14.92% 8.424 10.6 11.62% 89.46% 11.51% 80.64% 8.14% 11.51% 80.46% 17.389 54.078 106.00% 3.3 13.T.49% 59.435 123.C.704 107.56% 90.12% 17.700 121.923 17.32% 10.20% 15.

202 12 1 70 2. 2001 * The financial model has been prepared by Provident Group in an independent manner based on our own assumptions and criteria.846 43 2 2..894 12.221 44 22 89 2.253 13.868 33 (5) 248 225 502 68 51 496 302 917 1.338 638 2.255 3.521 3.Table 28: Financial Model – Corporación B.428 1.821 57 2 3.45 / US$1 51 790 1.363 103 106 743 379 1. and Subsidiaries Consolidated Income Statement (in ¢ millions) Dec-99A Dec-00A Mar-01A Jun-01E Sep-01E Dec-01E Mar-02E Jun-02E Sep-02E Dec-02E F/X rate (03/31/01): ¢323.999 60 30 120 2.747 2.T.688 5.890 58 29 116 2.640 526 438 3.119 1.C.621 4.643 1. S.181 2.A.* Corporación B. .707 43 1.065 Financial Income: From Investments From loans From past due loans Other financial income Total Financial Income Financial Expenses: On loans and borrowings Other financial expenses Total Financial Expenses Net Interest Income Loan loss provisions 7.658 629 4.750 25 10 78 1.266 4.948 49 2 2.465 2.743 35 17 70 1.584 234 4.120 229 2.320 3.062 514 138 161 991 456 1.880 78 39 155 3.275 675 718 22 741 741 127 646 780 314 1.825 297 518 15.018 1.935 2.965 829 1.C.757 734 173 171 1.374 429 3.466 29 15 59 1.342 204 52 43 334 159 589 822 905 14 1 920 18 9 37 856 2.608 Brokerage commissions-net Exchange rate differences-net Banking services commissions-net Other income-net Total Non-interest Income General and administrative expenses Operating Income Non-recurring income-net Currency translation adjustment Income before taxes and profit sharing Income tax Assets tax Profit sharing Net Income October.204 3.332 2.434 31 1 1.202 2.713 29 1 1.637 3.117 18 3.T.135 1.179 40 1 2.664 2.246 8 12.254 3.135 2.218 571 121 128 937 478 1.747 408 78 86 535 319 1.789 1.

As the financial laws were liberalized it transformed itself into Banco Improsa during the 1994-1995 period.08 IBNV: 0. In the year-2000 Probanco invested US$ 2.'01 52-week range: Jun.22 14.36 8.19 14. Notwithstanding that Improsa is the twelfth largest financial group. particularly given its reliance in the medium/small size companies. and finally become a financial group in 2000. Their success prompted the creation of an independent structure exclusively dedicated to the development of its financing activities enabling Improsa to delve into the financial sector.32.3. As of December 2000. asset quality should continue being a strength particularly since 69% of the portfolio is backed by guarantees/collateral. The business activities of these companies provided the initial opportunity to participate in financing activities. Improving asset quality and high NIM should be the main factors behind sound profit generation.72 0. their warehousing activities permitted it to penetrate into the financial services sector particularly asset backed lending.20 Mar. 2001 Grupo Financiero Improsa Recommendation: BUY GIMPC EPS P/E P/B Shares Outstanding: Last Price: Dec. Improsa is the twelfth largest financial group in terms of assets. '01 2.A.05 0. that developed into the set of companies of what is now known as Corporación Improsa. Its relatively small size does not reflect its significance and potential. 52 . its management. '00 3. with 108 employees and three branches. '02 0. '01 Sept. Probanco is a fund sponsored by Neatherlands Development Finance Company and the Central American Bank for Economic Integration.30 10. high-income generation and its potential for growth make it an attractive investment.20 15.02 0.5 million to acquire a 20% equity participation. Overview The origin of the operations of the financial group arose from the diverse business activities provided by related entities.38 Dec. In subsequent years the Bank acquired market share through the extension of financial services. The capital base rose 70% in the year 2000 reflecting its ability to attract capital. In 2000 total assets grew by 46%. We have set a year-end ’01 stock price target of ¢4.96 2.October. which included real estate and bonded warehousing among others. The high level of capitalization combined with expected ROE provides the base to support future growth.02 and for year-end ’02 of ¢4.24 13.79 1.54 4297.727. and capital rose 70%.15 . Going forward. '01 Dec. We are projecting a further 41% growth in total assets in 2001. The success of these operations enabled it to list its shares in the Costa Rican Securities Exchange in 1997. Improsa initiated operations in 1986 as a finance company (Financiera Improsa S.30 0.).332 Improsa has the capacity to generate high net interest margins (NIM).841. For instance.

80% 5.6% in 2000.00% 1999 2000 2001* Source: Grupo Financiero Improsa.4% in YE 1999 to 5.20% 5.5% Banco Improsa 88. Its expected capacity to generate an attractive level of profitability.2% in 1Q01. Figure 22: Grupo Financierto Improsa Grupo Financiero Improsa 11.20% 6. Provident Group 53 . combined with its access to capital should enable them to continue to grow and maintain a firm competitive position.2% Source: SUGEF Investment Highlights High Net Interest Margin Improsa has been able to generate a high net interest margin (NIM).40% 5.3% Gibraltar Holdings 0. which we estimate to increase by 41% in 2001. which should support high ROE levels. Improsa has access to a source of capital that is not available to the majority of its competitors.60% 5. Going forward. and further increased to 6. The growth and relative good quality of the loan portfolio should enable Improsa to continue to generate high net interest income (NII). which rose from 5. a fund sponsored by the Netherlands Development Finance Company (FMO) and the Central American Bank for Economic Integration (CABEI) acquired a 20% equity participation in the group. we would expect the NIM to decrease. The capacity to lend to the medium/small business sector. 2001 As one of four financial groups listed in the BNV. in 2000 Probanco. but the decrease should be compensated by asset growth.October.40% 6. Moreover. Figure 23: Net Interest Margin 6. while maintaining good asset quality has allowed it to benefit from these higher margins.00% 5.

and 26% in the five month period ended May ’01. Loans to medium size companies represent 44% of the portfolio.3% 0.6% in YE ’99 and YE ’00.6% 0.6% 0.6% 11.9% over the same period. Going forward we can expect Improsa to maintain a good asset quality level to continue generating the required earning levels to sustain future growth.7% 0.020 % 90. that the group has been able to attain a high growth level in total assets it has improved its operating efficiency levels. The remaining uncovered portion of the loan portfolio can be considered of a high credit quality given that 69% of total loans have guarantees/collateral. Improsa has been successful in lending to the medium/small size company sector where it benefits from higher spreads. while maintaining good asset quality.349 1.0% 1. while dropping to 1.008 % 85.2% 100. while the efficiency level ratios improved from 66.848 2. Moreover.21% in 2000.0% 2. Notwithstanding.0% Mar.October. '00 18.4% 2.724 975 227 88 6 14. '01 18.9% to 54.7% and 2.0% Source: Grupo Financiero Improsa Improved Operational Efficiencies Improsa has demonstrated a sound management of its administrative expenses.413 597 76 73 22.7% 0. the quality of the interest earning assets has enabled Improsa to generate past due loan coverage of 50.0% Dec. 2001 Good Loan Portfolio Management Improsa has been successful in managing the asset quality of its loan portfolio. Past due to total loans were 3.810 % 88.2% in May ’01. Clearly Improsa has been able to manage operating 54 . Figure 24: Loan Portfolio Composition Loan Portfolio Breakdown by Business Division Other 15% Agriculture 5% Industrial 15% Personal 4% Services 12% Commercial 49% Source: Grupo Financiero Improsa Table 29: Loan Portfolio Classification Loan Classification A B C D E Total Loans Dec. '99 12.2% 8.8% 7.5% 0. while those of corporations account for 37% of the portfolio. respectively. loans to small companies 19%.744 560 112 45 20. Total assets grew 46% year-over-year as of December ’00.0% 100.3% 100.18% in 1999 and 69.

99% 55 . Its capital-to-total-assets ratio of 12.5 million investment made by Probanco.688 12. These shares were swapped for shares of the financial group (Grupo Financiero Improsa) in March 2001.00% in Mar. ‘99 1. is high for the industry and supports further growth. ’01. the majority of Improsa’s funding is provided by financial institutions. and corporations account for the remaining 12%. which accounts for 69% of loans plus total deposits.October. ‘00 1.214 3. in the year 2000 it obtained a US$6 million long-term loan from the Interamerican Investment Corporation (IIC). 2001 expenses which can be expected to continue contributing to the profitability of this institution. it has the potential to attract the interest of important regional investors. Capital rose 70% in year 2000. combined with the capacity to operate efficiently. it has been able to obtain term funding from multilateral institutions.896 Dec.99% Mar. high levels of capitalization and expected ROE levels should enable Improsa to sustain further growth. For instance. which is dedicated to invest in significant minority positions in Central American financial institutions. This further indicates that the smaller financial groups can have access to required levels of capital to maintain them as viable competitors in the existing financial environment. are Improsa’s key strengths. which includes the US$ 2.424 8.210 4. ’00 12.856 6. The sound loan portfolio. mainly as a result of an injection of capital. Table 30: Deposits (in millions of ¢) Demand Deposits Time Deposits Total Deposits Loans Dec. 27% by medium sized companies. With regard to total deposits 61% are provided by small companies. and yet manage to generate a high net interest margin. Probanco Acquires Equity Stake In the year 2000. Table 31: Capital to Assets Ratio Average Capital/Average Assets Source: Grupo Financiero Improsa Dec.76% Dec.832 4. Probanco is a fund sponsored by Netherlands Development Finance Company (FMO) and the Central American Bank for Economic Integration (CABEI). Improsa should be able to continue to obtain the required funding with the current financing structure to support the expected growth levels. Funding As shown in Table 30 below. ’01 12. This investment illustrates that notwithstanding that Improsa is not ranked among the largest private financial groups.394 Source: Grupo Financiero Improsa Capital Improsa has a strong capital base. Probanco invested US$ 2. Additionally. Going forward.5 million to acquire an equity participation in Banco Improsa of slightly over 20%. because Improsa is largely focused on lending to small/medium size companies. Improsa has been successful in establishing relationships with financial institutions to obtain funding. ’99 11.

92% 8.591 3.6 14.October. Noninterest income is expected to be bolstered by the introduction of new banking service fees in the second semester of 2001.06% throughout 2002.23% 57.42% 54.83% 69.89% 35.605 6.80% 2.42% 8. The quality of the loan portfolio and good operational efficiencies should continue to be the main profit drivers. and 18% in 2002. we would expect Improsa to sustain an adequate interest revenue generation level as increased interest earning asset levels should more than compensate expected decreases in the net interest margin.66% Leverage Avg. Provident Group 56 .623 28.79% Liquidity Deposits/ Net Loans Net Loans/ Total Assets Cash & Equivalents/ Deposits 35. '00 (in ¢ MM) Mar. Table 32: Grupo Financiero Improsa – Financial Highlights Dec.25% 120.32% 2.574 4.77% 18.13% 1. 2001 Business Outlook Going forward. Moreover.687 3.5 14.00% 1. with relatively stable loan loss provisioning requirements.230 24.64% 0.322 12.45% Asset Quality Past Due Loans/ Gross Loans Net Past Due Loans/ Net Loans Loan Loss Reserve/ Past Due Loans Net Past Due Loans/ Capital 3.801 22.88% 82.21% 4. We estimate 41% growth in loans for 2001.31% -1.53% 55.71% 1.38% 80.83% 5.25% 5.074 2.49% Source: Grupo Financiero Improsa.78% 49.56% 80.18% 12.97% 7.741 15.56% 79.7 15.986 22.7 15.42% 1.26% 30. and average 5. Capital Avg.31% 1. Net Loans 8. Improsa should also be expected to continue to maintain a good asset quality level.730 6. which combined with operational efficiencies should further support the profitability level that we are estimating. We are estimating that the net interest margin should remain basically flat through the year-end.133 2. '99 Balance Sheet Cash & Equivalents Total Gross Loans Assets Total Deposits Equity (in ¢ MM) Dec. '01 (in ¢ MM) May '01 (in ¢ MM) May '01 (in US$ MM) 1.559 18.114 12 69 86 20 10 Profitability Return on Equity Return on Assets Net Interest Margin Operating Expenses/ Net Revenue 14.60% 16.00% 38.72% 7.29% 29. Assets/ Avg.15% 6.63% 57.23% 57.27% 58.21% -0.93% 3.88% 50. Capital/ Avg.34% 29. This earnings generation capacity combined with high capitalization levels should support further growth.72% 14.996 20.424 1. lending to the medium/small business sector should also enable it to support a relatively higher NIM.57% 2.841 2.998 3.138 6.69% 5.

244 1.A.714 1.140 1. S. 2001 * The financial model has been prepared by Provident Group in an independent manner based on our own assumptions and criteria.292 142 267 260 9 270 902 634 3 637 96 189 28 50 8 58 235 188 1 424 64 184 16 200 528 421 3 24 291 821 620 5 625 94 1.336 214 3.003 111 13 2.936 15 1.350 2. Consolidated Income Statement ( in ¢ millions ) Dec-99A Dec-00A Mar-01A May-01A Jun-01E Sept-01E Dec-01E Mar-02E Jun-02E Sept-02E Dec-02E F/X rate (05/31/01): ¢326.244 553 66 675 83 1.049 128 77 153 229 543 308 2 310 46 5 127 413 62 408 705 218 126 1 238 51 170 221 27 2 29 120 (8) 112 369 230 9 298 45 155 (3) 152 445 299 (1) 462 69 207 3 210 674 459 3 From Investments From loans From past due loans Other financial income Total Financial Income Financial Expenses: On loans and borrowings Other financial expenses Total Financial Expenses 1.614 - 57 791 349 34 1.353 120 1.64 / US$1 Financial Income: 195 2. .Table 33: Financial Model – Grupo Financiero Improsa * Banco Improsa.797 210 2.808 183 1.222 132 165 2.173 759 6 764 115 Net Interest Income Loan loss provisions 1.439 173 411 47 843 95 Banking services commissions-net Other income-net Total Non-Interest Income General and administrative expenses Operating Income Non-recurring income-net Currency translation adjustment Income before taxes and profit sharing Income tax and profit sharing Net Income 263 351 127 238 254 393 542 161 360 531 650 October.755 189 334 32 366 1.951 763 141 1.

com GUATEMALA Rafael Minondo. Investors may get back less than they invested. if you have any doubts you should consult your investment advisor.October. Past performance is not indicative of future results. 58 . Managing Director (305) 913-2312 COSTA RICA Allan Rodriguez. The investments discussed may fluctuate in price or value. 2001 For more information on this research report or other Provident Group services please contact: NEW YORK Steve Carlson. advisor or lender to such issuer. placement agent. Fluctuations in exchange rates may have an adverse effect on the value of investments. Opinions and estimates presented herein constitute our judgment and may be subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Managing Director +(502) 339-3171 MIAMI Joel Cohen. Managing Director +(506) 256-1213 Information presented in this research report is believed to be reliable but Provident Group does not warrant its completeness and/or accuracy. Provident Group and/or its affiliates and employees do not hold a position or act as market maker in the financial instruments of any issuer discussed herein or act as underwriter. CEO (212) 742-1871 scarlson@provident-group. The investments and strategies discussed herein may not be suitable for all investors.

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