REPORT 2017...Profile COMPANY REPORT 2017 8 the ˜nancial, environmental and social stability of our...

2017COMPANYREPORT

Table of Contents

COMPANY REPORT 2017

Banco de Costa Rica Pro�le .....................................4

History ..............................................................5

Message ...........................................................8

Banco de Costa Rica Organization .........................10

Organization of the Board of Directors ................11

Corporate Government ......................................12

Board of Directors .............................................14

Administration and Management ........................17

Support Committees ..........................................17

Policies for the selection, appointment and destitution of the committee members ............19

Internal policies on turnover of Board of Directors and Committee members ..................20

Policies on con�icts of interest .............................21

Policies on the obligation to abstain from voting or participating in the committee meetings ...............21

Environmental commitment .................................22

Internal Auditors ...............................................22

External Audit ..................................................23

Economic and �nancial environment .......................24

International economy .......................................25

National economy ............................................26

Financial environment 2017 ...............................32

Balance sheet ...................................................32

Credit portfolio .................................................34

Sources of funds ...............................................35

Capital ............................................................36

Income statement ..............................................36

Financial intermediation results ...........................37

Income from services .........................................37

Overhead ........................................................38

Contributions and taxes .....................................39

Financial indicators ..............................................39

Table of Contents

COMPANY REPORT 2017

2017 Results per business area ..........................39

Product and service development ........................43

Subsidiary enterprises .......................................45

Integral Risk Management .....................................51

Risk management diagnosis ...............................55

Financial statements ..............................................58

Annexes ..............................................................65

Awards ...........................................................66

Per�l del banco de Costa Rica

Banco de Costa Rica profile

Profile

COMPANY REPORT 2017

5The �rst 100 years of BCR were characterized by the promotion of the economic and social development of the country through the �nancing of power plants, pipelines, roads, schools, hospitals and railroad infrastructure. In addition, the Bank granted loans to small and medium entrepreneurs and, in solidarity, supported cultural, educational, sports and health projects aimed towards improving the quality of life of the citizens.

In 1948, the Founding Board of the Second Republic decreed the nationalization of Banking, and BCR was part of it, and has defended it until this date as an autonomous �nancial institution pursuant to Article 189 of the Political Constitution of the Republic of Costa Rica from 1949.

In 1956, BCR started the decentralization of services by inaugurating of�ces (formerly called branches) in different strategic points of the national territory. In 1965, it created the Industrial Credit Section and �nanced the sugar production in the country and the agro-industrial expansion by granting important credits for agriculture, livestock and industry.

Later on, by the late 20th Century, BCR was the pioneer in technological innovation in the �nancial sector of the country installing the �rst Automatic Teller Machine, issuing the �rst debit card and creating the �rst drive-through Bank.

History

Banco de Costa Rica (BCR) has been a key player in the development of Costa Rica since its foundation, on April 20th, 1877, when it emerged under the name of Banco de la Unión. Its impact on the political, economic and �nancial institutions of the country has been unarguable, as well as its contribution to national development through its offer of products and services for the Government, farmers, industrials, businesses and families.

The �rst loan to the Government was granted in 1878, and the �rst railroad was �nanced in 1879, thus starting a far-reaching relationship between the public and the private sector.

While leading the social and economic events of the country, in 1883 the Bank welcomed its �rst female partner, and by 1886, there were �ve female partners that became a historical Banking benchmark, not common at the world of that time.

In 1884, only seven years after its creation, it became the �nancial institution authorized for monetary emission and for the control of the State income ruled by the Soto-Ortuño contract that was set with the Government of the time.

Profile

COMPANY REPORT 2017

6In this project, BCR is responsible for planning, designing, �nancing, constituting, operating and maintaining the San José – San Ramón road and its feeder routes, all of which entails all the necessary components and stages for the expansion, rehabilitation, operation and maintenance of the road network.

This accomplishment is part of a tough negotiation process of several years, together with an excellent job by the Bank in trust-fund management; for example: Congress, Universidad de Costa Rica, Judicial Branch, Administrative Registration Court, Water and Sewage Institute, Costa Rican Power Institute (for the construction and operation of hydropower plants Torito 2 and Toro 3), the Red Abierta Nueva Generación (Range) and the thermal power plant in Garabito, and the Social Security Institution.

In 2017, the Bank celebrated its 140th Anniversary highlighting its solidity and expertise supporting the development of the country. However, the story is not over, and the Bank continues reinventing and transforming itself meeting the needs of an increasingly competitive and demanding market. Almost a century and a half after its foundation, BCR is characterized by its robust identity, congruent with the idiosyncrasy of a democratic and inclusive country which, through national banking, encourages savings, provides democratic �nancial services through the banking system, and encourages entrepreneurship and the construction of big works.

Additionally, it got actively involved in the National Basic Grain Program, founded BICSA Bank, created the �rst Corporate Banking Division and has strengthened, year after year, a series of strategic alliances with the Government, like that with the Judicial Branch and that with the National Registry, making its technological platform and its network of of�ces all over the national territory available for service access, such as emission and renewal of passports, driver licenses and residence identi�cation cards, among others.

During the last decade, BCR has strengthened the use of trust-funds for public works as an agile contracting and �nancing mechanism, which has enough evidence to become the most suitable scheme to �nance and construct public works that are urgently needed.

The commercial strategy focus in the last years has been in service channels like Tucán: a program of Financial Correspondents with technological tools with which the partner enterprises can offer �nancial services in a quick and easy way, like alimony payments and utility payments; and public work trust-fund management is becoming increasingly successful.

During 2017, the Bank continued reinforcing the trust-funds and engaging in the modality of road infrastructure with the adjudication, by the Contraloría General de la República, of the Trust-fund for the expansion of the Road San José – San Ramón.

Profile

COMPANY REPORT 2017

7action the reiterate our search for substantial improvements in the pro�tability of our capital and the consolidation of a highly decentralized business model to strengthen the levels of involvement in the banking system and reaf�rms the Bank’s position in the administration and implementation of large public work projects.

We pleasantly state that the Bank is the re�ection of excellence, solidity and sustainability, three key elements that explain more than one century of experience and support each of the years in the history of this entity, a pillar for national development. A journey that has had, as any other, a great diversity of special moments and complex challenges, all of which have left lessons learned that have responsibly become actions and improvements. Let us take this moment to renew and support the promise of consolidating a corporate government that implements and undertakes important changes, continuously improving the self-regulation and control mechanisms, the compliance with our legal framework, and the regulation and standards applicable to each of the Bank’s activities and businesses; all this within a framework of the current and future vision to continue adding experience as the basis to generate a favorable impact on the national development.

Today, with particular excitement, we submit this document as evidence of the robustness of the Bank, a strength that enables it to undertake challenges and greater commitments towards

Message

Since its foundation, 140 years ago, Banco de Costa Rica has a vital space in the heart of Costa Ricans, being a strategic partner that provides technical and �nancial assistance for the development of public and private initiatives throughout the national territory.

With the same philosophy and dedication that we have supported generations of Costa Ricans, in 2017 we made decisions to maintain our leadership and the trust of our customers. The �nancial management results for this period evidence the healthy balance between the risk and the businesses of the entity, our support to creativity and the leadership of our collaborators, as well as the implementation of a corporate government dedicated to the continuous improvement of its self-regulation and accountability mechanisms; these aspects allow for a successful operation through more human engagement schemes, approaching the markets in more creative and intelligent ways. This is particularly relevant due to the challenging economic environment in which we operate.

The implementation of the new strategic plan demonstrates our commitment with the country’s productivity, competitiveness and sustainable development, and de�nes parameters of

Profile

COMPANY REPORT 2017

8the �nancial, environmental and social stability of our nation. This robustness not only evidences, accounts for and ensures transparent actions, but also gives a reason of being to an entity that is permanently committed with innovation, to face the advances, progress and improvements the country needs.

We invite you to learn about the initiatives and the accomplishments of 2017 in this Report.

Thank-you for your preference.

General Board of Directors BCRGeneral Management BCR

Organización Banco de Costa Rica

Banco de Costa Rica organization

Organization 10

COMPANY REPORT 2017

Risk and standardControl

• BICSA• BCR Valores• BCR SAFI

• BCR Pensiones• BCR SegurosExecutive committee

General SecretariatBoard of Directors

Compliance

General CorporateAudit

Legal

General management

General board of Directors

WholesaleBanking

RetailBanking

Administrationand Finance

BrandDevelopment

CreditManagement

HumanCapital ITOperations

Organization 11

COMPANY REPORT 2017

SUGEF: Superintendencia General de Entidades Financieras (Financial Superintendence), which operates in the banking and �nancial system;

SUGEVAL: Superintendencia General de Valores (Securities Superintendence), which domain is that of the activities related to the securities market;

SUPEN: Superintendencia General de Pensiones (Pensions Superintendence), which is the entity that operates in the pension market; and

SUGESE: Superintendencia General de Seguros (Insurance Superintendence), which is the entity that regulates the insurance market.

Additionally, the subsidiary Banco Internacional de Costa Rica (BICSA) is under the supervision of the Superintendencia de Bancos de Panamá (Panamanian Banking Superintendence) and the agency located in the state of Florida, United States of America, is supervised by the corresponding state and federal regulatory authorities in that country.

BCR promotes the continuous improvement of its internal self-regulation and control mechanisms in order to guarantee the

Corporate governance

BCR is an autonomous public right entity, with its own legal and independent status in terms of administration, which fully belongs to the Costa Rican State.

The institutional activity is regulated by a legal framework provided in the Political Constitution of Costa Rica, the Organic Law of the National Banking System (LOSBN), the Organic Law of the Central Bank of Costa Rica (LOBCCR), the General Law for Public Administration and other laws for speci�c areas, as well as by the regulations and standards issued by the National Supervision Council for the Costa Rican Financial System (CONASSIF) and by other regulatory and control authorities, like the Contraloría General de la República.

It has several subsidiaries; therefore, it is organized under the �gure of �nancial conglomerate due to the different activities and businesses it develops.

The Financial Conglomerate BCR is subject to supervision and monitor by CONASSIF, which is in turn made up by different superintendencies:

Organization 12

COMPANY REPORT 2017

BCR Corredora de Seguros, S.A.: The focus of this entity is pension brokerage and its capital stock is 100% Banco de Costa Rica.

Banco Internacional de Costa Rica, S.A. (BICSA): this is an enterprise devoted to commercial banking activities, it is based in Panama City, Panama, and 51% of its capital stock belongs to BCR.

Board of directors

The Superior Direction corresponds to the General Board of Directors, made up by seven members, who are designated by the Government Council for an eight-year period. Once appointed and into functions, the Government Council cannot revoke any member, except otherwise stated by Law. Every year, the General Board of Directors elects, by majority of votes, a president and a vice-president, who can be re-elected.

This entity, as the Supreme Government Organization, is in charge of appointing the General Manager, Deputy Managers, General Auditor and Deputy Auditor of the Bank. The shareholder assembly is the one that designates the members of the boards of directors of each of the subsidiary enterprises.

compliance with the laws, regulations and standards applicable to each of its activities and businesses. It ensures the permanent adhesion to its Code for Corporate Governance, its Code of Ethics and the values that guide the �nancial, commercial and service decision-making processes in all its enterprises.

The Conglomerado Financiero BCR is made up by the following enterprises:

Banco de Costa Rica (BCR): this is the institution that develops the universal banking activities. It is the enterprise that controls the conglomerate and 100% of its capital belongs to the Costa Rican State.

BCR Valores, S.A.: This is the entity devoted to securities brokerage; its capital stock belongs 100% to Banco de Costa Rica.

BCR Sociedad Administradora de Fondos de Inversión, S.A.: This subsidiary manages the investment funds and belongs 100% to Banco de Costa Rica.

BCR Pensión Operadora de Planes de Pensiones Complementarios, S.A.: This entity focuses in pension plan management. It is also a subsidiary in 100% of the capital stock of Banco de Costa Rica.

Organization 13

COMPANY REPORT 2017

Such boards of directors have the attributions provided by the law in force and by the constitutional by-laws, as well as those determined by the policies, regulations or agreements issued by the corporate entities.

In the case of BICSA, it is ruled by the Panamanian law and by the social by-laws of the company, its modi�cations and the Code of Corporate Government and its annexes.

The boards of directors have functions like de�ning the general policies of the bank and the subsidiaries; approving the

strategic plan and the commercial plans of the institution, its policies and internal regulations, annual budgets and �nancial statements; making decision in their areas of competence, exercise the superior supervision of all the businesses and activities of the conglomerate and making the corresponding appointments provided by the Law or the by-laws.

The General Board of Directors meets once a week in regular meetings and, when needed, extraordinary sessions are called.

The Board of Directors is made up as follows:

Name Position Last appointment date

Abel Francisco Salas Mora President October 23, 2017

Shirley Yijanni González Mora Vice-president October 23, 2017

Adriana María Céspedes Camacho Director October 23, 2017

Mary Ileana Méndez Jiménez aka: Maryleana Director October 23, 2017

Carlos Alberto Hernández Rodríguez Director October 23, 2017

William Calvo Villegas Director October 23, 2017

Luis Diego Vargas Chinchilla Director October 10, 2017

Organization 14

COMPANY REPORT 2017

Board of directors Number of members

Banco de Costa Rica

BCR Valores S.A.

BCR Sociedad Administradora de Fondos de Inversión S.A.

BCR Pensión Operadora de Planes de Pensiones Complementarias S.A.

BCR Corredora de Seguros S.A.

Banco Internacional de Costa Rica S.A.

7

5 + Attorney General




7

In addition to this collegiate entity of the bank, the subsidiary enterprises also have their own Board of Directors, integrated mainly by representatives of the General Board of Directors and by independent members, as provided by the standards applicable to each of the partnerships. These are integrated as follows:

Organization 15

COMPANY REPORT 2017

Support committees

As part of the Corporate Government structure, both the General Board of Directors and the administration get the support from committees that perform speci�c functions. Each committee meets regularly to cover issues of its competence; some of them are made up by members of the General Board of Directors and the Administration, and others are only made up by representatives of the Bank Administration. They committees are:

Corporate Audit Committee: this entity covers the issues related to the activities of the General Auditor and the internal auditors of the partnerships, hiring and performance of the external auditors and the audit and internal control reports from all the entities of the Conglomerado Financiero BCR.

Corporate Risk Committee: this entity monitors and advises the General Board of Directors regarding the adequate operation, evaluation and optimization of the integral risk management systems of the Conglomerado Financiero BCR pursuant to the responsibilities and duties set for the risk management and risk undertaking areas.

Administration and management

The superior administration is under the responsibility of a General Manager, appointed by the General Board of Directors for a six-year period. Additionally, such entity also designates three deputy managers to support the General Manager in the administration of the institution, which remain in the position for also six years.

The appointment of the general managers of the subsidiaries is ruled by the provisions of the corresponding by-laws. In the case of BICSA, the appointment is made pursuant to the regulations of the �nancial position where the entity operates.

Organization 16

COMPANY REPORT 2017

entity with the General Board of Directors and the other Committees of the Conglomerate.

Additionally, it solves and follows up the different commercial policies, plans, procedures and strategies of the entities of the Conglomerado Financiero BCR.

Corporate Asset and Liability Committee: this entity assesses the results developed by the asset and liability management of the Conglomerado Financiero BCR and their impact in the accomplishment of the pro�tability, growth and capital suf�ciency objectives.

Credit Committee: this is the entity in charge of monitoring and following up the policies, procedures and controls established for credit granting, as well as the credit regulations in force.

Additionally, as collegiate entity, its attributions include the approval of credit operations pursuant to the limits established by the General Board of Directors.

Business Continuity Committee: its objective is to maintain the operations of the Bank and guarantee the continuity of the services identi�ed as critical in the Conglomerado Financiero BCR.

Corporate Compliance Committee: this entity is responsible for monitoring and supporting risk management in items in relation to the provisions of the law and the regulations pertaining to money laundering, suspicious activities and all activities that enable the protection of enterprises in the Conglomerado Financiero BCR against these situations.

Corporate Technology Committee: this committee de�nes criteria and methodologies for the evaluation and quali�cation of information technology management.

Corporate Nominations Committee: this body supports the Directive Organization in the identi�cation and nomination of candidates to the different entities.

Corporate Compensations Committee: it supervises the design and operation of the incentive system.

There are other committees that are made up only by representatives of the Superior Administration of the Conglomerado Financiero BCR, they are the following:

Corporate Executive Committee: this committee is in charge of strategic issues and decisions, as well as of more relevant issues for the adequate operation of the Conglomerado Financiero BCR. This is the coordination and communication

Organization 17

COMPANY REPORT 2017

Policies for the selection, appointment and destitution of the members of the committees

The Conglomerado Financiero BCR, in its Code of Corporate Government, incorporates policies that rule the appointment of the members of the collegiate entities, like the committees, and they are designated in relation to a managerial or administrative position that is directly or indirectly related to the issues that the particular committee should cover.

Regarding external members, they have to go through the administrative contracting process for professional services, following the best procurement practices. This actions are attributions of the corresponding Board of Directors.

The destitution of committee members is subject to the failures in compliance or breaches to the laws and internal regulations established, or to changes in the positions which lead to not having the right to be part of any of the entities.

The appointment and destitution of external members of the subsidiaries is done pursuant to the provisions of the corresponding by-laws.

Additionally, there are other committees in the subsidiary entities in charge of covering speci�c aspects pertaining to regulations; they include the committees that invest in BCR Valores, S.A., BCR Sociedad Administradora de Fondos de Inversión, S.A. and BCR Pensión Operadora de Planes de Pensiones Complementarias, S.A., and the speci�c risk committee for BCR Pensión Operadora de Planes de Pensiones Complementarias, S.A., as well as other collegiate entities of a lower level that cover operational aspects.

In the case of the subsidiary Banco Internacional de Costa Rica (BICSA), there are �ve committees that support the Board of Directors and Management: Asset and Liability Committees, Audit Committee, Compliance Supervision Committee, Risk Committee and the Information Technology Committee. In support of the administrative management, there are also several lower level committees that support the decision making processes at the operational level.

Organization 18

COMPANY REPORT 2017

member can be removed by the collegiate entity that appointed him/her. In addition, BICSA keeps, within the Regulations of the Board of Directors, the guidelines that rule the rotation of the committee members.

Policies on con�icts of interest

The Conglomerado Financiero BCR, as part of its Corporate Government structure, has established a series of policies on con�icts of interest that could eventually emerge between the members of its boards of directors, the members of the managerial body and the entities of the Conglomerado, as well as between the members of the managerial body, the customers and the suppliers.

These policies are aimed towards the management of the con�icts of interest that could emerge within the Conglomerado or, in the future, between its directors and employees, in the relations with the customers, the regulatory entities and other related entities and subjects with which the Bank regularly interacts in the commercial activities of the business.

In the case of BICSA, its Code of Corporate Government, article 10, related to the Rights and Duties of the Board of Directors, paragraphs b and d, regulates the constitution, appointment and destitution of the members of the committees that make up the Corporate Government system.

Internal policies on the rotation of the members of the general board of directors and the committees

Regarding the policies for the rotation of the members of the General Board of Directors, the Conglomerado Financiero BCR is ruled by the provisions of the Organic Law of the National Banking System and by the by-laws of the subsidiaries.

In terms of the rotation of the members of the different committees, the Code of Corporate Government, in article 30, provides: “… the rotation of the internal and external members of the Support Committees, in general, shall be linked to the succession plans and to the occupation of the corresponding positions, since the integration of such positions will be based on the activities performed”. In case of the external members, their designation shall be annual and can be extended. This

Organization 19

COMPANY REPORT 2017

Commitment with the environment

BCR supports the development and promotion of environmentally respectful technologies, products and services. With the implementation of its Institutional Environmental Management Program (PGAI, in Spanish), it makes important improvements in its administrative and commercial of�ces for the reduction of power and water consumption.

The “PGAI Implementation Traf�c Light” was established by the Ministry of Environment and Energy (MINAE, in Spanish) to categorize the level of implementation of the PGAI, which, as management instrument, is intended for the institutions to use resources rationally (water, paper, electricity, fuel and others) and to adequately manage their waste and emissions in order to minimize the environmental impacts generated.

In addition to this, the Bank has incorporated environmental criteria in all the remodeling and construction processes, through the application of pro-environmental parameters in the procurement RFPs, the planting of trees in different communities to offset its environmental print and the offer of pro-environmental credit services, such as Eco-Crédito for MSMEs to �nance sustainable and environmentally friendly projects;

Policies about the obligation of abstaining to vote or to participate in the meetings of the committees

The situations in which a member of a committee abstains from voting or attending one or several sessions could be related to con�icts of interest, including those emerging according to what is provided in the General Law for Public Administration whenever there is an abstention duty.

The Code of Ethics that rules for the Conglomerado Financiero BCR provide the guidelines related to the management of potential con�icts of interest. In addition, this speci�c topic is also covered in Chapter Three, speci�cally in article 23 of the Code of Corporate Government.

Organization 20

COMPANY REPORT 2017

External audit

During 2017, the external audit of the entities of the Conglomerado Financiero BCR, except for the case of BICSA, was performed by Crowe Horwath CR, S.A., which issued a clean opinion about the individual and the consolidated �nancial statements of Banco de Costa Rica and its subsidiaries. BICSA is audited by the specialized external �rm Price Waterhouse Coopers.

and Eco-Crédito for individuals to purchase environmentally friendly accessories or systems.

Internal auditors

Each entity of Conglomerado Financiero BCR has an Internal Audit section that could be made up by an of�cer, committee or area that is in charge of objectively reviewing and analyzing the implementation of the operations of the organization.

The designation of the position of internal auditor and deputy auditor is the competence of each of the boards of directors that integrate the Conglomerado; and the term of the appointment is inde�nite. In the case of BICSA, its internal audit is ruled by the provisions of Agreement 005-2011, which updates the provisions about Corporate Government.

Entorno Económico y Financiero

Economic and financial environment

Environment 22

COMPANY REPORT 2017

the research on global indicators observed in manufacturing, commerce and service, the growth worldwide for 2017 would be 3.6% to 3.7%, and it is expected to remain constant for the new year that is beginning. Being a little optimistic with the information, it can be projected as constant also for 2019.

After a long 10-year period, it can be stated that the word economy has found a relatively stable basis. In�ation is noted but it does not represent signi�cant risks, and the central banks have been able to eliminate the support policies.

In general, it can be stated that the world recovery is settled. Regarding raw materials and in�ation, both climate conditions and the growth worldwide have favored the production, in spite of certain price increases, like in petroleum, which could

International economy

The world economic activity, with respect to 2016, has been strengthened, and it represents 3.7% of the GDP in 2017, with a growth of 0.5% compared to the previous year. This increase was mainly generated in advanced economies by continents like Europe and Asia, together with the progress of the United States, which is revealed in the change of the tax policy approved, and responds to the investment of tax rates applied to the enterprises (which are getting prepared to a boom in growth in 2020). In the case of Europe and Asia, it has been announced that the purchase of assets will be extended until approximately the third quarter of 2018, and interests will remain unchanged.

The block of emerging markets or developed economies, there has also been progress in countries like China, Latin America and the Caribbean, and Brazil. In sum, international commerce powerfully increased. In Latin America and the Caribbean, developed economies highlighted the activity of internal demand, supported by the monetary conditions and the demands for public employment. In turn, emerging economies favored the international �nancial conditions and the increase in the prices of commodities (metals). According to

Actual GDP growth

Projections

World productAdvanced economies United States Euro Zone Germany France JapanDeveloping emerging market economies China Latin America and the Caribbean Brazil Costa Rica

20163,21,71,51,81,91,20,94,46,7

-0.,7-3,54,2

20173,72,32,32,42,51,81,84,76,81,31,13,2

20183,92,32,72,22,31,91,24,96,61,91,93,6

20193,92,22,52,02,01,90,95,06,42,12,13,9

Environment 23

COMPANY REPORT 2017

Additionally, the climate phenomena, like Hurricane Otto and Tropical Storm Nate caused drops in tourism and agricultural production. Another variable that has affected the economy was the proximity of the elections for the new government and its economic policies, which keep investors expectant with regards to the present and future investment decisions, mainly due to the processes they will have to undertake with regards to the �scal de�cit.

BCCR, as it did in previous years, keeps in its strategy the slow reduction of in�ation through the assessment of the different economic variables and the promotion of the Programa Monetario 2018-2019 (Monetary Program). By the end of 2017, the inter-annual in�ation rate reached 2.6% and the

affect the in�ation level in advanced economies. In aspects related to exchange rates and capital �ows, it can be said that there were currencies that remained at a stable value through time (dollar), while others were depreciated (Japanese yen, Mexican peso, Turkish lira) and others were overvalued (British pound, Renminbi, South African rand) with respect to previous periods.

National economy

The Consumer Price Indexes indicates that Costa Rican in�ation ended, by December 2017, with a monthly variation of 0.47%, and an inter-annual and accrued variation of 2.57%, which meets the expectation of Banco Central de Costa Rica for the last quarter of the year under analysis, remaining between 2% and 4%. This corresponds to price recoveries in raw materials (petroleum), depreciation of the colón and evolution of its macro-economic variables.

However, the monthly index for economic activity, which is the indicator over the gross value of production according to the different GDP industries, determines that the year has also had negative trends, with the construction sector showing the least activity, below 20% inter-annual during the year.

General in�ation and expectations - Inter-annual variation in percentage -

Source: Own elaboration with data from Banco Central de Costa Rica

ago-

11de

c-11

apr-1

2ag

o-12

dec-

12ap

r-13

ago-

13de

c-13

apr-1

4ag

o-14

dec1

4ap

r-15

ago-

15de

c15

apr-1

6ag

o-16

dec1

6ap

r-17

ago-

17de

c17

876543210-1-2

Consumer Price IndexExpected In�ation at 12 months

Environment 24

COMPANY REPORT 2017

of November, of 37.0%, 22.0% and 13.5%, respectively. Other areas like education remain seasonal, both at the basic and higher levels, since it presents a great resistance to incorporating the de�ation process of the national economy.

The range of the last months in 2017 presents, for goods and services, a positive effect, mainly in entrepreneurial activities, food, hospitality and �nancial services, as well as in the manufacturing industry in the processing of agricultural products such as produce, legumes, tubers; and in professional and administrative activities, hotels and restaurants.

Regarding construction, there is a drop in the elaboration of private works, which effect is offset by the construction of public works (education, potable water and sewage systems).

colón was depreciated with respect to the monetary market, which is consistent with the greater currency demand that affect the monetary policies, the exchange rate and the in�ation since the population moved signi�cantly towards savings in foreign currency. However, the Credit Portfolio is reinforced with “colonization”.

Due to the action taken, the TPM (Tasa de la Política Monetaria – Monetary Policy Rate) increases by 275 points, consistent to the yield of its debt instruments, the exchange intervention of the reserved assets, the generation of Certi�cates of Deposit in colones, the openness of collections in dollars from �nancial intermediaries, and credit management at the Fondo Latinoamericano de Reservas.

Banco Central de Costa Rica estimates that the economic activity of the country, measured by the Gross Domestic Product (GDP), shows a reduction of 80 points in internal demand, 190 points in exports and 180 points in imports; evidencing a drop of 1.0%, and the GDP for this 2017 is 3.2% in actual terms with respect to the inter-annual 4.2%.

In the last months of 2017, there was an impact in the Consumer Price Index (IPC, in Spanish) due to the increase of prices in food, non-alcoholic beverages, fuels, rentals and housing services, with a contribution to the inter-annual variation, as

Contribution to GDP growth by expenditure components


- Percentage contribution of the variation rate in percentage points -

2016

2,8

3,5

3,4 2,6

1,61,0

ImportsInternal demand

ExportsGross domestic products

2017

Environment 25

COMPANY REPORT 2017

This implies the trends of product debt and the national effort towards the stability of the local rates to optimize the collection of most taxes (especially income and pro�t tax, customs tax, sales tax, and selective consumption tax), as well as remunerations (5.2%), current transfers (8.8%) and the service of income and primary expenses (3.1%).

Additionally, the rest of the non-�nancial public sector presents less performance and surplus; however, public debt has been increasing, accounting, for 2017, 65.1% of the GDP, an increase of about 2.6 percentage points with respect to 2016; therefore, it can be stated that public debt is notorious and introduces risks for the macro-economic stability of the country.

Regarding interest rates and prices, 2017 presented an exchange stability consistent with the trend that has been maintained since 2015, with an oscillation of less than 2% over the monthly exchange rate during the year.

In terms of labor, the Instituto Nacional de Estadística y Censos (INEC – Statistics and Census Institute) has run a survey to determine the number of economically active individuals, a statistical instrument that determined an increase in employment for people between 35 and 44 years old, mainly males and with educational levels of high school or less, especially in urban areas.

Together with this, in terms of the exchange rate, by the end of December 2017 the exchange rate has been increasing, both the inter-annual rate and the accrued rate, settling in 3.05% (¢548.18 vs. ¢531.94), while the monthly rate reached 0.45%, which works with the exchange �exibility regime that presents movements upwards and downwards, and takes into consideration the existence of exchange risk and the seasonality patters of supply and demand of currencies and capital �ows.

At the internal level, the reduction in the �nancial de�cit of the Public Sector (5.6% of the GDP) had an impact, and this is explained by the increase in the �nancial gap of the Central Government that represents about 80 points below the inter-annual average, the expansion of public expenses, the payment of interests and the transfers made to the Consejo Nacional de Vialidad (Road Network Council).

Financial results of the reduced global public sector

Figures increased to December, as percentage of GDP

Global public sectorBanco Central de Costa RicaNon-�nancial public sector Central Government Primary Result Results of the non-�nancial public sector

2016-4,8-0,6-4,2-5,3-2,41,1

2017-5,6-0,4-5,2-6,2-3,11,0

Variation-0,8-0,2-1,0-0,9-0,7-0,1

Source: Banco Central de Costa Rica with information from the Ministry of Finance

Environment 26

COMPANY REPORT 2017

combination with the exchange market, which allowed for the re-establishment of the balance of operations reserved with the non-banking public sector (SBNB, in Spanish) to positive levels, a requirement that, at the end of December 2017 reached 1.183,7 million (inter-annual 1.183,0 million).

The evolution of the economic activity with regards to the monetary and credit aggregates shows performance with af�nity. This re�ects that, in this area, the �nancial impositions were not increased, and in a way, they exceeded the in�ation goal. Nonetheless, in spite of the fact that dollar transactions increased in the second quarter, for the later months of 2017 savings and �nancial credits were encouraged again in national currency in order to re-align the yields. However, by the end of the last two months, this peak is limited and this allows the State reorganizing the markets.

The national economy depends a lot on the prime rate and the domestic liable rate for the area of loans. Regarding the prime rate, in the 2017 period, there were changes in March, in June, and once again in December, to close with a result of 4.50%. This is the rate proposed by the international markets; therefore, it can be said that, in general, loans in dollars were �uctuating during that year as a consequence of the variation of the rate each quarter, increasing approximately 0.75% since the end of the previous year.

For the Integrated Liquidity Market (ILM), with the activation of the exchange mediation of the foreign currency market (Monex), there is a parallel bouncing effect over the exchange rate for the second quarter of the year with a descending effect equal to the operations of the exchange markets of the products offered at the window. The Monetary Policy Rate (MPR), after several increases, is located in 4.5% after 26 months of being in 1.75%.

In foreign currencies, the dollar shows an increase in the national economy. However, this is insuf�cient to offset the requirements of the private sector, since the non-banking public sector kept its daily requirement of currency stable and there is a greater number of borrowers that preferred to translate their credits in colones to dollars, and savers that changed their savings from colones to dollars, causing a legitimate insuf�ciency of dollar capacity in the currency market.

Therefore, fund-raising was enabled in the platform of Central Directo, the calculation method for the reference exchange rate was changed and the Presidency of Banco Central was authorized to request a support credit for the payment balance with Fondo Latinoamericano de Reservas.

Contrary to the previous period, this year, BCCR had a relevant engagement through the operations of stabilization and in

Environment 27

COMPANY REPORT 2017

an adjustment term, which produced a considerable increase of 5.95% if we take into consideration that during the year, the average at sight is 5.33%, promoted by the changes that occurred every month, except for the consecutive months of July-August and October-November, which remained constant.

In general, the rate remained between 4.45% and 5.95%. On the contrary, in the inter-annual, the rate increased the 150 points it had decreased in 2016, therefore, this year, the effect with debtors is re�ected in an increase in the payment of their quotas for loans to the corresponding �nancial intermediaries. However, the economy remains active in the economic domain, which generates a favorable panorama for the country.

Certainly, since prime rate is the main rate recognized for loans in dollars, it is also important to consider that the �nancial entities apply other rates, such as Libor at one, three, six and twelve months, which closed with 1.56%, 1.69%, 1.84% and 2.11%, respectively, and they are applied based on what each entity provides. Therefore, it is important to highlight that there is an ascending trend, just as the prime rate and as all the rates applicable for dollars, which means a slight but signi�cant increase for the population.

Likewise, for the placements of the �nancial entities in colones, the reference used is the liable rate (LR) that re�ected an increase of 150 base points going from 4.45% to 5.95% due to the changes in the market. This is mainly due to a change in the calculation methodology that was slowly implemented through

Prime rate and libor - at the closing of each month -


Jan

10

Apr

10

Jul 1

0

Oct

10

Jan

1

Apr

11

Jul 1

1

Oct

11

Jan

12

Apr

12

Jul 1

2

Oct

12

Jan

13

Apr

13

Jul 1

3

Oct

13

Jan

14

Apr

14

Jul 1

4

Oct

14

Jan

15

Apr

15

Jul 1

5

Oct

15

Jan

16

Apr

16

Jul 1

6

Oct

16

Jan

17

Apr

17

Jul 1

7

Oct

17

5

5

4

4

3

3

2

2

1

1

Prime rate Libor 1 m Libor 3 m Libor 6 m Libor 12 m

Liable rate - at the closing of each month -

Source: Own elaboration with data from Banco Central de Costa RicaJa

n 13

Mar

13

May

13

Jul 1

3Se

p 13

Nov

13

Jan

14M

ar 1

4M

ay 1

4Ju

l 14

Sep

14N

ov 1

4Ja

n 15

Mar

15

May

15

Jul 1

5Se

p 15

Nov

15

Jan

16M

ar 1

6M

ay 1

6Ju

l 16

Sep

16N

ov 1

6Ja

n 17

Mar

17

May

17

Jul 1

7Se

p 17

Nov

17

9,00

8,00

7,00

6,00

5,00

4,00

3,00

2,00

1,00

0,00

5,95

Environment 28

COMPANY REPORT 2017

¢5.946.403 million. The productive asset shows an increase of 8% in investment and placements, and remains almost constant with respect to the previous years, due to factors related to supply and demand that were constant in credit applications.

In this context, the credit portfolio had an expansion of 5% and reached a total volume of ¢3.674.088 million, a �gure that translated into a share in the total credit portfolio of the National Banking System of 21%, which keeps BCR among the leaders in the Costa Rican �nancial industry, in the second place of the bank ranking. BCR has projected a sustainable growth by promoting social and economic development, national competitiveness and sustainability, and focusing in offering the customers an innovative service that is safe for the country.

It is important to highlight the annual growth of 11% in the deposits received from the public, a line item that reached ¢3.970.376 million, reaching the second place in the market ranking, with a share of 24% in the �nancial banking system.

Regarding the capital, it had an actual growth of 7%, adding value to our only shareholder – the Costa Rican State. This places BCR third in the ranking and represents 18% of share in the �nancial banking system.

Consequently, both the national currency and the foreign currencies, at the end of the year, increased their collection rates. This is due to the fact that there were situations in 2017 that affected, like the depreciation of the colón in 2.5%, the pressure of increases in the exchange rate and the sale of foreign currency to stabilize the exchange increase, involving BCCR in the supply and demand of exchange market �ows.

Financial environment 2017

Financial management BCR 2017

In an environment of moderate performance of the economic activity in the country, the results presented by Banco de Costa Rica and each of its subsidiaries, both individually and consolidated, were positive.

General balance

BCR strengthened its �nancial position in its general balance with an increase of 8% at the level of total assets, reaching

Environment 29

COMPANY REPORT 2017

Those important shares in the �nancial banking system place the Bank with the �rst places and are consistent with the initiative of ensuring that it is a promoter of social development, competitiveness and sustainability of the national economy, and of offering its customers products and services that promote national development in quality of innovation, price and ef�ciency.

Credit portfolio

The balance of the portfolio presented an increase at the closing of the year of ¢189.919 million, characterized by a preference for credits in foreign currency, a trend that was similar to the behavior of the previous year. In line with the commercial strategy, credit was promoted with the segment of people in their different classi�cations, and to the segment of small enterprises and to a greater diversi�cation by economic activity.

The dynamic of growth took place in each of the credit modalities, so much that the commercial placements, in spite of having a contribution percentage in the portfolio of 5%, represent an inter-annual increase of 38%, while the service placements represent 38% of share and 13% of inter-annual increase.

23%Assets

24%Public

deposits

18%Capital

21%Credit

portfolio

BCR Share in the National Banking

System

Consolidated balance sheet

Millions of colones

Total assetsAvailabilityInvestments in securitiesCredit portfolio, netReal Estate, equipment and furnitureOther assets

Total liability plus capitalTotal liabilityObligations with the publicObligations with entitiesOther liabilities

CapitalPrimary capitalSecondary capitalMinority stockholdings

20165.481.831

710.5501.097.3993.484.169

102.78686.927

5.481.8314.942.2513.577.7181.089.436

275.298

539.380356.807125.432

57.141

20175.946.403

787.9501.287.2463.674.088

101.38595.733

5.946.4035.370.4393.970.3761.243.920

156.142

575.964386.175128.056

61.732

Variation %8%

11%17%

5%-1%

10%

8%9%

11%14%-43%

7%8%2%8%

Environment 30

COMPANY REPORT 2017

Sources of funds

Strengthened by the support the Costa Rican State offers to the saving customers of BCR, the entity has shown to be solid in terms of funding, highlighting its capacity to increase the reception of deposits from the public, which has allowed maintaining a market share of 24% in the national banking system.

Demand deposits, through current accounts and savings accounts, represented 55% of the total collection in 2017, which positions the entity as one of the most reliable and safe banks of the country. Regarding certi�cates of deposit, these account for the remaining 45% of the deposits from the public, which represent a growth in this line of 6% (45%-39%) inter-annual.

The participation of the Bank in the housing, construction and commerce segment was consolidated and signi�cantly promoted the growth in the service sector (13% in 2017 with respect to the inter-annual), as well as in the other activities that make up the credit portfolio. Regarding its credit risk, the Bank maintains suf�cient accounting estimates (pursuant to the regulatory standards).

Distribution of the portfolio by economic activity 2017

Consumption 9%

Housing andconstruction 24%

Industry 13%

Commerce 5%

Agriculture 6%

Tourism 3%

Electricity 1%

Transportation 3%

Servicies 38%

Credit portfolio by currency

2016

46%

54%

48%

52%

2017

Colones

Dollars

Public deposits structure

2016

41%

39%

19%

37%

45%

18%

2017

Savings accounts

Current accounts

Certi�catesof Deposit

Environment 31

COMPANY REPORT 2017

Income statement

The entity concluded 2017 with favorable results, and it is important to highlight that there was suf�cient capacity to generate those results within a complex economic, �nancial and environmental climate. This demonstrates the capacity of this organization to anticipate and adapt to the conditions and trends of the market.

Thus, and with the application of reasonable commercial decisions, the Bank was able to reach the third place in the ranking on Net Pro�t of the groups that belong to the �nancial banking system, and reached the amount of ¢37.354 million.

Fund-raising through certi�cates of deposit in the conglomerate represented a market share of 11%, which places BCR in the second position of the ranking of the banking system.

Additionally, the rates in local currency (colones) show increases in the fund-raising segment between 4 and 24 months, accompanied by the stability in the exchange rate of local currency and the increase of rates in colones. This encouraged savers to partially revert the dollarization of national savings and caused a change in the composition of the �nancial wealth in the country, further “colonizing” national savings.

Capital

At the capital level, BCR registered an increase of 7% with respect to the previous year, and reached ¢575.964 million (US$1.107 million) satisfactorily meeting the capital requirements provided by the local regulatory authorities.

Public deposits by currency

2016

31%

69%

29%

71%

2017

Foreign currency

National currency

Consolidated income statement

Millions of colones

Income for �nancial intermediationExpenses for �nancial intermediationResults of �nancial intermediationIncome for services and other incomeOther operational expensesGross operational resultOverheadNet operational resultTaxes and share of pro�tPeriod result from minority interestsFinal result

2016343.882137.256192.990134.820

63.782264.028171.170

92.85837.677

1.66153.520

2017365.740176.155158.404151.760

80.191229.974176.942

53.03113.064

2.61337.354

Variation %6%

28%-18%13%26%-13%

3%-43%-65%57%-30%

Environment 32

COMPANY REPORT 2017

Income from traditional banking services keeps growing at a good pace. During 2017, it reached ¢95.377 million, which constituted an inter-annual increase of 8%, supplemented with stock services by ¢3.028 million that account for a 16% inter-annual increase. This �gure is backed-up by the continuous support to the debit and credit card business, which in 2017 represented 44% of the income from banking services; this is combined with the currency purchase-sale business that represented 24% of this income.

In the services related to current accounts and savings accounts, there was a 7/ increase in income. However. Customers have continued rationalizing the use of the services

This result is mainly the re�ection of a growth in the commercial revenues of ¢21.858 million (6% more than in 2016), which means that the sum of the total income is greater than the sum of the total expenses.

Results of the �nancial intermediation

The �nancial intermediation margin presents an 18% decrease with respect to 2016, supported by the increase of its productive asset that grows by 8.3% in the year. This is consistent with an important line in income from �nancial intermediation, which increased 6% inter-annually and accounts for ¢365.740 million.

Income from services

Income from services and other operational income accounted for ¢151.760 million, which meant a 29% contribution to the total income of Conglomerado BCR.

It is important to highlight that, at the industry level, it is the third one in the ranking in income generation from services, with a market share of 18% in 2017.

Income from services by business line

Millions of colones

Banking servicesStock servicesInvestment fundsPension fundsInsurance placementInvestment banking and trust-fundsOther incomeTotal

201688.412

2.6127.2146.2374.2433.433

22.669134.820

201795.377

3.0287.7105.3215.1393.768

31.406151.750

Variation %8%

16%7%

-15%21%10%39%13%

Income distribution by banking services 2017

Other services 12%

Cards 44%

Public services 4%

Stamps and taxes 5%

Foreign trade 4%

Demand accounts 7%

Currency 24%

Environment 33

COMPANY REPORT 2017

Overhead

In turn, overhead increased by 3%; in terms of personnel expenses, there was a reduction of ¢1.658 million with respect to 2016. What is more important is the increase in outsourced services and other general expenses that correspond to rental payments and depreciations, among others.

Contributions and taxes

Banco de Costa Rica, as well as the other banks that belong to the Costa Rican State, is subject to a quasi-�scal contributions regime, created by Law to support certain institutions that work in speci�c purposes. Additionally, in spite of its nature of

associated to their accounts, which has meant a positive displacement of manual transactions to electronic channels and services that are more attractive and economic. The bank processed 82% of its transactions this year through electronic means (over 182 million transactions), compared to 18% of the manual transactions (40 million).

Income coming from foreign trade activities showed a minor decrease of 4% during 2017; in turn, both income from stamps as well as income from public services and other income showed increases for 5%, 4% and 12%, respectively.

In terms of non-banking services, the subsidiary devoted to meeting the needs of customers with respect to stock markets registered an increase in income of 12%; BCR Seguros is in charge of insurance placement, and it showed a positive increase in income of 21%; in addition, BCR SAFI, in charge of investment funds management, presented a growth of 31% in its 2017 income. This all together contributed with 17% of the income for non-banking services of BCR.

Income distribution by non-banking services 2017

Investment bankingand trust-funds 15%

Investment funds 31%Insuranceplacement 21%

Pension funds 21%

Stock services 12%

Overhead

Millions of colones

Personnel expensesOutsourced servicesDepreciations and amortizationsSeverance contributionOther general expensesTotal

2016104.750

20.0538.3902.396

35.581171.170

2017103.092

20.5029.2712.332

41.745176.942

Variation %-2%2%

11%-3%

17%3%

Environment 34

COMPANY REPORT 2017

2017 management by business area

In order to continue with the business strategy and be more customer focused, the Bank grouped customers by banking types: retail banking for customers with daily and continuous banking operations, and wholesale banking for more complex and greater volume operations.

Autonomous State entity, the Bank has to contribute with the income tax, as well as any other legal entity of the country.

In 2017, under the line of contributions and taxes, BCR made a contribution of ¢13.064 million, equivalent to 25% of its revenue before taxes and contributions.

Financial indicators

A series of indicators derive from the �nancial statements. In order to create the statements, we used the most relevant variables based on their effects over the important balance accounts like assets, liabilities and capital, accounts from the income statement based on the revenues, expenses and pro�t, and on indicators related to average Return on Assets (ROA), average Return on Equity (ROE) and operational ef�ciency, which allow for a better understanding of the banking panorama of the institution for 2017.

Main indicators

Income indicators Financial income / total income Income from services / total income Financial expenses / total expenses Financial expenses / �nancial income Overhead / total expense Financial margin / overhead Operational pro�t / total income Net pro�t / total incomeBalance indicators Productive asset / total asset Credit portfolio / total asset Credit portfolio / productive asset Credit portfolio / public deposits Portfolio + 90 days / credit portfolio Total liability / total asset Liability / Equity (number of times)Management indicators Average Return on Assets (ROA) Average Return on Equity (ROE) Operational ef�ciency (1)

2016

71,8%19,0%33,5%39,9%41,8%

112,7%19,4%11,2%

83,6%63,6%76,0%97,4%

2,9%90,2%

9,2

1,00%10,36%35,76%

2017

70,7%19,0%39,5%48,2%39,6%89,5%10,3%

7,2%

83,4%61,8%74,1%92,5%

3,8%90,3%

9,3

0,65%6,62%

34,19%

(1)The indicator of Operational Efficiency is the ration between Overhead and total income of the period

Environment 35

COMPANY REPORT 2017

of currency and international services, transfers, payment of public, private and municipal services, tax collection, �duciary services and automatic charges, among many others. In addition, the bank offers access to the services twenty-four hours a day through the electronic channels.

BCR continuous deepening the use of banking services and providing greater development possibilities to small entrepreneurs, businessmen and innovators with �nancing according to their needs. The value of this offer includes different funding alternatives, support in import and export operations, collection, payment and fund-raising services, factoring, current accounts, transfers and payments from and to overseas, investment management, insurance assistance and sales, currency purchase-sale, �duciary services, stock market, investment funds and credits with resources from the Development Financing Fund (FOFIDE, in Spanish), as well as credits with the approval of the national Trust-fund for development (FINADE, in Spanish).

Retail Banking

The Deputy Management of Retail Banking is in charge of meeting the needs of personal customers and the segment of small and medium enterprises (SMEs). The strategy revolves around the customer and focuses in providing an excellent service with agile processes and timely responses, as well as with advanced technology and a renewed and highly competitive offer of products and services to increase the depth of the line with the customers and intensify usage through all the network of service channels (bank of�ces, ATMs, telephone banking, mobile banking and Internet banking, Tucán services, trust-fund services, and others).

The general offer considers, among other services, current accounts, credit cards, housing and consumption credits, life and general insurance, savings instruments, investment funds, pension funds, security intermediation, purchase-sale

Income from services by commercial segment

Subsidiary Co’s 14%

Retail banking 47%

Wholesale banking 40% Public deposit structure in retail banking

2016

37%

40%

23%

38%

40%

22%

2017

Current accounts

Certi�cates of deposit

Savings accounts

Environment 36

COMPANY REPORT 2017

personalized attention, the Bank provides excellent services and customized solutions, supported by agile processes and timely responses.

The offer of services requires the active and continuous engagement of several areas of the Bank, which are integrated as a single team to provide excellence in the services the customer expects to receive. Areas such as the Credit Direction, Treasury Management, Foreign Trade Management, Legal Direction and Investment Banking Management, together with the account executives and the wholesale zone managers, are key for the success reached in the attention of this very important segment of customers.

The value added this segment offers to the businesses and income of the Bank is relevant, and it is obtained not only through �nancial intermediation, but also through all the services used, and through the cross sale generated towards other divisions and subsidiaries of Conglomerado BCR.

As a result, retail banking reached public deposits for ¢1.608.533 million, a �gure that represents an annual growth of 6%. In 2017, the public deposit portfolio in national currency showed a 5% growth, and 8% growth in foreign currency, and it kept the structure by-product that has been used in the last years.

Wholesale banking

The entity has worked hard in 2017 to keep its position within the large and medium enterprises, deepening its leadership by showing that its work is still for the bene�t of its customers and that it is a strategic partner that adapts its products to the development and growth capacity of the enterprises of the country by presenting a set of integrated and customized banking solutions.

The Deputy Management of Wholesale banking attends the needs of this customer segment by using a strategy where the customer the most important component. Through highly

Public deposits retail banking

Millions of colones

ColonesDollars (colonized values)Total retail banking

20161.011.720

500.0201.511.740

20171.066.080

542.4531.608.533

% Variación5%8%6%

Credit portfolio by currency

2016

46%

54%

48%

52%

2017

Colones

Dollars

Environment 37

COMPANY REPORT 2017

Product and service development

Esfera

Esfera is the brand that specialized in Trust-funds for Public Works for Costa Rica, in charge of expanding the presence in several market niches.

This service entails the development of a trust-fund contract in virtue of which the Public Administration agrees with a trustee in order to implementation of a concrete project on design, construction, development of public work through �duciary and operational leasing.

Some projects applicable to this type of brand are aimed towards health or sanitation (hospitals, aqueducts, and treatment plants), power project (hydro-power plants, geo-thermal plants or wind-power plants), ports and airports,

Leading the market requires the Deputy Management of Wholesale Banking to permanently update the value offers and to have a permanent communication with the customers, highly appreciated also by the competitors.

Regarding public deposit collection in the wholesale segment, there is interest by the customers to maintain a signi�cant percentage in savings accounts, followed by certi�cates of deposit, which serve for liquidity management and for the treasury of the customers.

Credit portfolio wholesale banking

Millions of colones

Service sectorIndustry and manufacturingAgricultureCommerceElectricity and telecommunicationsOther economic sectorsTotal wholesale banking

20161.234.778

469.693190.866145.341

44.639176.608

2.261.924

20171.392.478

486.846185.479199.898

44.590152.260

2.461.551

Public deposit structure in retail banking

2016

37%

40%

23%

38%

40%

22%

2017

Current accounts

Certi�cates of deposit

Savings accounts

Public deposits

Millions of colones

ColonesDollars (colonized values)Total wholesale banking

20161.152.868

487.4031.640.272

20171.453.716

511.8681.965.584

Environment 38

COMPANY REPORT 2017

Additionally, this year, the Project Management Unit was hired for the Trust-fund for the San José-San Ramón road; the second stage of the Range 2 Trust-fund was signed, and it means more than 275 thousand Optic Fiber Internet solutions for the country.

Tucán

This is a specialized service of non-banking correspondents to democratize banking services in the country by bringing �nancial services to over 3.200 points throughout the country. This product is moving towards becoming one of the most accessible channels to �nancial services for all the people requiring them, as well as to bring banking services to complete communities. Tucán points become the banker of the neighborhood and contribute with simpli�ed accounts and with the national �nancial inclusion strategy.

The system is developed based on location, cash management and customer knowledge in most of the businesses of the country. Through a platform, they perform �nancial processes like opening an account, payment of alimony or withdrawal of pension from the disability, age and death regime (IVM, in Spanish). In addition to that, public and private utility bills can be paid. All this generates a commission to the businesses,

construction (buildings, schools, and high-schools), road works (roads, bridges and ports), technology (optical �ber network).

The advantages of Esfera include the fact that the trust-fund can be aimed towards achieving different purposes; that an ef�cient, quick and �exible organization is agile and responds to the needs of the customer, and that the organization is ruled by private laws but with the principles of the Administrative Contract Law. In summary, all the accounting and administrative efforts are aimed only towards the project, since it is a brand that specializes speci�cally in its development.

In 2017, Esfera accomplished the delivery of two trust-fund projects from Universidad de Costa Rica (UCR), the Integral Park and the Dentistry School, which supplemented the plan that included the School of Laws and other works of this trust-fund like the School of Engineering, the School of Computer Sciences and Informatics (ECCI, in Spanish), classrooms and laboratories, and the Autonomy Square, thus concluding the pre-operational stage of this trust-fund and starting the leasing.

In addition to this there is the legalization of the trust-fund from Caja Costarricense del Seguro Social (CCSS), which includes the construction of 30 health centers and 22 of�ces which are expected to begin with other contracts in 2018.

Environment 39

COMPANY REPORT 2017

deposit, bonds, re-purchases, repos and shares, among others), both in the local market and in the international market, and in the currency required by the customer. Likewise, it manages individual portfolios, provides custody services, �duciary services and other support services for the customers. It also offers advisory services to the customers for the structure, titling, placement and/or distribution of stock securities under the modality of “�rm subscription” or “best effort subscription”.

The growth of public debt and the deterioration of �nances in the Central Government put pressure in the interest rates in colones and dollars. The main increase was evident in colones, with a displacement of over 100 base points in the sovereign curve. The timely positioning of the portfolio of BCR Valores in this scenario and the objective assistance to its customers allowed BCR Valores to conclude 2017 leading different metrics of the stock industry.

attracts new customers and, with the implementation of card scanners, ensures an increase in transactions. Regarding the correspondents, there has been a monthly growth of about 200 Tucán points, where 18% of the amount of the transactions is �nancial and 82% corresponds to the payment of public and private services.

This service from BCR also allows for the reorganization of the typical facilities into actual �nancial establishments, where people can make businesses and not only use as points for payments and collections. Moreover, now �nancial services have been incorporated to this platform in order for the customers to have a broader range and save time when making transactions.

Subsidiary enterprises

BCR Valores Puesto de Bolsa S.A.

This is the subsidiary of Banco de Costa Rica in charge of attending the needs of customers regarding stock markets. It offer of services includes assistance in stock market topics, purchase-sale of securities (commercial papers, certi�cates of

BCR Valores puesto de bolsa

Millions of colones

Return on equityOperational ef�ciency indexNet pro�tManaged portfolios

201617%42%

2.935325.762

201717%48%

2.780102.033

Environment 40

COMPANY REPORT 2017

seeks for the best balance between risk and stability of the yield offered to its investors.

BCR SAFI is the leader of the Costa Rican industry for investment funds, and it has kept that privileged position in the last 14 consecutive years.

At the closing of 2017, BCR SAFI reached a market share of 22.2%, thus consolidating its leadership condition. In addition, its managed balances showed an inter-annual increase of 16%. In the particular needs of real estate investment funds, BCR SAFI reaf�rms its position and leadership with a market share of 36.2%, which places it as the most active entity and the one that evidenced the greatest growth in the real estate business.

BCR SAFI maintains a total asset of ¢10.220 million, equity for ¢8.783 million and pro�tability for 29.07%, which turns it into one of the most pro�table fund management entities in the market and the one that generated the most pro�t in the period.

The total volume negotiated increased by 8.8% amidst a contraction of 4% in the total market. Market share reached 17.7%, compared to 15.6% from the previous year. Return over Equity (ROE) reached 17%, which is higher than the average of the industry (13.5%), while the net pro�t margin was the highest with 34%.

Ef�cient management of its investment portfolio placed BCR Valores as the stock broker with more net capital gains (¢570 million), reaching the �rst place in yield with 13.5%. Thanks to the trust of the customers, the stock commission income increased by 10%, placing BCR Valores as the industry leader. As a result, net pro�t accrued through 2017 reached ¢2.780 million, the highest amount of the 16 stock exchanges registered with the General Security Superintendence (SUGEVAL, in Spanish).

BCR Sociedad Administradora de Fondos de Inversión S.A.

This is a subsidiary in charge of the management of Investment Funds (mutual funds) with over 17 years of experience in the management of �nancial and real estate funds. Its offer is made up by investment funds from the currency and real estate market, and it is supported by an inter-disciplinary team of experts in the different areas of asset management, which

BCR Sociedad Administradora de Fondos de Inversión

Millions of colones

Return on EquityOperational Ef�ciency IndexNet pro�tInvestment funds managed

201627%44%

2.211481.969

201729%39%

2.557539.964

Environment 41

COMPANY REPORT 2017

which, when compared with the industry, shows indicators of excellence.

During the period under analysis, the following conditions were present:

• The decrease in the annual commission rate of the Mandatory Pension Regime (ROP, in Spanish), going from 0.70% to 0.50%. Such change was approved through the agreement CONASSIF 386-10.

• The reduction in the managed asset from the Employee Fund (FEJBCR, in Spanish) as a result of the application of the III Transitory of the IV Collective Convention.

• In 2017, the entity was in charge of a series of projects, including the development of communication channels and the improvement of its processes. Below is a detail of each one of them:

Total income in 2017 increased 7% with respect to the previous year, while net pro�t reached ¢2.557 million, accounting for an inter-annual increase of 16%.

BCR SAFI has 10 active investment funds that operate in the market; out of those, 6 are �nancial asset investments and 4 are real estate asset investments.

BCR Operadora de Planes de Pensiones Complementarias S.A.

BCR Pensiones is in charge of the administration of pension funds and labor capitalization, either mandatory or voluntary, created and allowed by the Law for Worker Protection.

Since its emergence early in 2001, the provisional industry has faced different commercial and regulatory events, which has meant a reduction in the number of pension operators. As of December 2017, the market has 6 participants.

Regarding the �nancial results, BCR Pensiones closed the year with ¢7.443 million in assets and equity for ¢6.011 million; operational income increased by ¢5.673 million; in turn, net pro�t accrued at the closing of 2017 reached ¢712.3 million.

With respect to the �nancial indicators, the entity had a return on equity of 34.2%, and an operational ef�ciency of 57.2%,

BCR Operadora de Planes de Pensión Complementarios

Millions of colones

Return on EquityOperational Ef�ciency IndexNet pro�tPension funds managed

201650%50%

1.310841.400

201734%57%712

919.602

Environment 42

COMPANY REPORT 2017

• Development and implementation of the new accounting module, which allows BCR Pensiones to have a more modern platform and to optimize its processes.

BCR Corredora de Seguros S.A.

This entity belongs 100% to BCR, and it objective is insurance intermediation, under the �gure of insurance broker. Its creation was possible in virtue of the opening of the insurance monopoly in Costa Rica at the end of 2008, with the creation of Law 8356 for the Insurance Market. BCR Seguros started operations in June 2009, and it was the �rst insurance broker registered and authorized by the General Insurance Superintendence. It started operations in June 2009.

During those years of operation, the subsidiary has focused on consolidating and developing an insurance culture in the Costa Rican market. In order to do this, it has insurance

• BCR Pensiones implemented new improvements within the interface of the intranet in the commercial area in order to speed up the processes and to provide a better service to the user.

• Different options were added to the digital platform “Bancobcr.com”, which generate new services like applications for the withdrawal of the quinquennium funds and severance, contributions to volunteer funds, consultation of account statements, pre-af�liations and information updates.

• Development of new functionalities in the mobile application, like information updates, contributions and requests to withdraw severance funds.

• Incorporation of stages 2, 3 and 4 of the treasury module, which correspond to the automation of the contributions and withdrawals from the customers, investment management and cash �ow; such changes integrate and strengthen the current operational processes in the area.

• Opening of the WhatsApp, which the af�liates can use to make consultations and get assistance about pension processes.

BCR Corredora de Seguros

Millions of colones

Return on EquityOperational Ef�ciency IndexNet pro�tInvestment funds managed

201637%45%

1.9344.243

201739%40%

2.4585.139

Environment 43

COMPANY REPORT 2017

El Salvador. In addition, it has a banking of�ce in the city of Miami, United States, which has been in operation since 1983 under the license of international banking agency, and it has representation of�ces in several Central American countries. The equity of BICSA belongs to Banco de Costa Rica in 51% and to another Costa Rican state bank in 49%.

BICSA has two consolidated subsidiaries; namely Arrendadora Internacional, S.A. (providing funding through �nancial leasing and factoring) and BICSA Capital, S.A. (performs activities of a stock exchange and market).

At the closing of 2017, the volume of assets of BICSA increased to $1.798 million; the loan portfolio as of December 2017 was $1.511 million, re�ecting a 7% increase with respect to 2016, and being the most important asset accounting for 84% of the total asset. Additionally, the pro�ts of BICSA in 2017 reached $9 million.

brokers assigned to the main zones of the country, and now products were added to the portfolio. This has generated opportunities for growth and has deepened the relationships with the customers, thus consolidating the new business model of Conglomerado BCR.

In 2017, BCR Corredora de Seguros was consolidated in the �rst position of all insurance intermediaries in terms of asset volume, equity amount and pro�t generation; this latter exceeds ¢2.458 million; income from insurance commissions showed a 21% growth with respect to the previous year.

Additionally, this subsidiary exceeded the strategic objectives planned for this period, and presents assets for ¢8.433 million. It also consolidated its equity in ¢6.705 million, with an inter-annual growth of 15%. Likewise, its total income exceeded the ¢6.154 million, which represented a pro�tability over the equity of 39.2% and an operational ef�ciency index of 40.4%.

Banco Internacional de Costa Rica (BICSA)

This subsidiary has been in operation since 1976. It is based in the Republic of Panama, and its banking activities are developed with a general license granted by the Superintendence of Banks in Panama. It can also do banking businesses overseas. Its of�ces are located in Costa Rica, Guatemala, Nicaragua and

Banco Internacional de Costa Rica (BICSA)

Millions of USD

Total assetCredit portfolioPublic depositsEquityNet pro�tPro�tability over equityOperational ef�ciency index

20161.722.9211.411.888

859.600212.728

6.4113,04%

60,23%

20171.797.9511.511.214

864.641222.421

9.4842,36%

60,94%

Variation %4%7%1%5%

48%

Gestión Integral de Riesgos

Integral riskmanagement

Risk management 45

COMPANY REPORT 2017

Main advancements in risk management

The integral risk management framework of BCR was strengthened with the new binding requirements of the General Superintendence for Financial Institutions (SUFEG, in Spanish), according to the internal environment of the institution and to the international practices that rule this subject. Consequently, the regulations and corporate provisions related to risk and the other internal standards related to this management (other provisions, procedures and manuals) were updated pursuant to the annual plan established. Thus, the General Board of Directors approved: methodologies to collect payments from physical individuals, methodologies to assess the risk levels for economic activities, credit limits for economic activities and the process to elaborate the report of the economic situation of Conglomerado Financiero BCR.

In culture management, there were efforts in the different levels of the organization; among them, the training provided to the members of the Corporate Risk Committee about current topics and new trends in risk management. There were publications in the Intranet of the Bank on risk topics and the risk newsletters continued on speci�c issues related to the daily activities of the risk-taking areas, including the management of business continuity.

Banco de Costa Rica has an Integral Risk Management System, consistent with its intention of reaching an adequate balance between the bene�ts expected from the commercial strategy and the acceptance of a determinate level of risk, through ef�cient risk-based management.

The objective of the system is to generate information to support decision-making processes and to place Conglomerado Financiero BCR at a level of risk consistent with its pro�le and risk appetite, as well as with its business approach, complexity, volume of operations and economic environment in order to promote the accomplishment of its institutional objectives and goals.

The General Board of Directors approved the update of the “Risk pro�le and appetite statement of Banco de Costa Rica”. Based on this, the Bank set the risk acceptance and appetite parameters through tolerance limits by type of risk, which are periodically monitored and controlled through indicators that consider credit, �nancial, market, and operational aspects, among others.

Risk management 46

COMPANY REPORT 2017

regulations, codes, external standards, policies, procedures and other standards, principles and norms applicable to the entity and to its subsidiaries.

Integral risk management is performed by using instruments, tools or systems created with the objective of setting parameters that indicate the compliance and integrity of the external and the internal regulatory frameworks; it likewise includes a follow up to the timelines for the commitments of the entity with the regulatory, supervisory and monitoring bodies. Additionally, there is a periodical �ow of information and advice to the General Board of Directors regarding the progress and compliance with the regulatory framework.

There were important advancements in terms of:

a. Credit risk management.

b Market risk management.

c. Liquidity risk management.

d. Operational risk management.

e. Legal risk management.

f. Information technology risk management.

The integrality of management becomes more robust, with better controls and a close coordination with the managing areas and the risk-taking areas of Conglomerado Financiero BCR.

There was a self-assessment of the binding standards in this subject in order to determine the level of compliance; this focused speci�cally in Agreement 18-16 from Sugef (Regulations for operational risk management) and a diagnosis was made stating the level of maturity of the integral risk management system, which results were positive.

The Integral risk report from BCR was strengthened with a more quantitative approach, using a visualization and improvement tool for the opportunity and accessibility of data for the bene�t of the users at the different hierarchical levels, including the Corporate Risk Committee and the General Board of Directors. This report includes the results of the functionality of the Integral risk management system of BCR, presented in a consolidated report about the exposure to the main risks of the entity and the relevant aspects of management. In addition, the Bank worked in the co-relation of risks in order to generate a more holistic approach.

Additionally, in compliance with the guidelines of Agreement 16-16 from Sugef (Regulations on Corporate Government management), regulatory control functions were established in relation to the identi�cation and assessment of laws,

Risk management 47

COMPANY REPORT 2017

continues with its internal control role for risk management, supplemented with the assessment by the independent �rms in charge of the external risk assessment (Agreement 02-10 from Sugef), thus contributing to the optimization of the System.

BCR maintains, to date, risk quali�cations both at the national level and at the international level. The objective of this is to have independent opinions from specialized agencies regarding its quality for our customers, investors and creditors both in Costa Rica and at the international level.

At the national level, it is quali�ed by the �rm Fitch Ratings Costa Rica, where the Bank has the following risk quali�cations:

Long Term Local Scale Quali�cation: AA+ (cri)

Short Term Local Scale Quali�cation: F1 + (cri)

According to this �rm, these are the foundations for the quali�cation:

State support: the national coalitions of BCR and their issues are based on the capacity and likeliness for support from the State of Costa Rica to the Bank, with a sovereign “BB” quali�cation in the international scale, granted by Fitch Ratings. The likeliness for support considers the explicit guarantee

g. Strategic risk management.

h. Reputational risk management.

i. Conglomerate risk management.

j. Money laundering and terrorism sponsorship risk

management.

k. Trust-fund risk management.

l. Business continuity risk management.

In order to obtain further details about the processes mentioned above, the Annual Report for Integral Risk Management 2017 can be accessed in the website of Banco de Costa Rica (www.bancobcr.com).

Risk management diagnosis

Self-diagnostic exercises were performed in order to assess the effectiveness, opportunity and suitability of the system, and the results were positive. In turn, the General Corporate Audit

Risk management 48

COMPANY REPORT 2017

Delinquency slightly over the average: The Bank keeps a very good portfolio quality, favored by its diversi�cation according to the economic sectors. Delinquency levels in its portfolio are slightly over the average of the industry as a re�ection of its policy to punish and restructure modest loans.

Adequate capitalization: All capital indicators at BCR remain good, and they are bene�ted by the low growth in credits. Fitch is expecting that the portfolio growth increases in the coming years and the level of internal capital generation also increases, although the base Capital indicator, according to Fitch, would remain over 12%.

Modest pro�tability: The pro�tability of BCR is modest due to its corporate and entrepreneurial focus. However, it has improved thanks to the efforts undertaken to reduce and control its operational expenses. The Bank is well positioned in a scenario of increases in the local interest rates, which would favor its net income if it timely transferred eventual increases in the cost of funds to its portfolio.

In turn, at the international scale, the Bank has the following quali�cations granted by the �rms Fitch Ratings, Moody’s Investor Services and Standard & Poor’s.

granted by the Costa Rican State, stated in the Organic Law of the National Banking System, which provides that state banks have the full guarantee and collaboration from the State.

Operational environment: As well as for its competitors, the operational environment has a strong in�uence in the �nancial performance of the Bank. The economic dynamism, the behavior of the interest rates and the exchange rates, as well as the changes in the regulatory framework, in�uence the growth, pro�tability and quality of the loan portfolio.

Moderate risk appetite: the standards of BCR’s placements are similar to most of its competitors, but with a lower credit growth. The Bank’s exposure to operations in American Dollars is important, but it is consistent with the high level of dollarization of the Costa Rican economy and of the banking system.

Solid franchise: BCR is one of the most important banks of the country due to its state nature, its size in comparison to that of its peers in the Costa Rican system, its experience developed through the many years and its strong franchise. It has a broad deposit basis, favored by the explicit guarantee from the State, and a network of of�ces covering almost the whole country.

Risk management 49

COMPANY REPORT 2017

Moody´s Investor Services:

Long Term Foreign Currency Deposits: Ba3

Long Term Local Currency Deposits: Ba2

Senior Debt: Ba2

Intrinsic Strength : b1

Fitch Ratings:

Long Term Issuer Rating: BB

Short Term Issuer Rating: B

Senior Debt: BB

Standard & Poor´s:

Long Term Foreign Currency Issuer Rating: BB-

Short Term Foreign Currency Issuer Rating: B

Long Term Local Currency Issuer Rating: BB-

Short Term Local Currency Issuer Rating: B

Viability: bb-

Estados Financieros

Financial statements

Financial statements 51

COMPANY REPORT 2017

……. Continued

(signature) (signature) (signature)

Douglas Soto L. Tatiana Cárdenas C. José Manuel Rodríguez G.

General Manager a.i. Accountant General Auditor

Cha rt A 2 of 2

BANCO DE COSTA RICA AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET

As of December 31, 2017 (With figures that correspond to December 31, 2016)

(In colones with no cents)

Note December 2017

December 2016

LIABILIEIS AND EQUITY

LIABILITIES

Obligations with the public On demand Term-based Other obligations with the public Financial charges payable

11 12 13

₡ 3.970.376.375.064 2.021.904.984.640 1.888.216.420.606

40.828.783.966 19.426.185.852

3.577.717.729.951 1.965.859.554.420 1.588.142.948.675

40.461.575.305 13.253.651.551

Obligations with Banco Central de Costa Rica On demand Term-based Financial charges payable

14 473.353.490 473.353.490

0 0

97.022.229.167 0

97.000.000.000 22.229.167

Obligations with entities On demand Term-based Financial charges payable

14 12 12

1.243.920.483.414 209.369.499.267

1.023.459.741.625 11.091.242.522

1.089.435.502.079 176.474.637.516 903.968.772.461

8.992.092.102

Accounts payable and provisions Accounts payable for stock services Deferred income tax Provisions Other various accounts payable Financial charges payable

15 16 17

97.848.531.385 33.319.379

5.908.988.163 24.678.042.984 67.216.500.891

11.679.968

123.631.290.292 39.398.255

7.095.524.507 27.482.879.901 89.001.583.063

11.904.566

Other liabilities Deferred income Contingent loan impairment estimate Other liabilities

35.095.001.891 17.532.784.081

179.458.888 17.382.758.922

32.655.006.971 15.154.339.960

282.283.219 17.218.383.792

1422.725.537.344

22.656.800.000 68.737.344

21.989.232.415 21.927.200.000

62.032.415

TOTAL LIABILITIES ₡ 5.370.439.282.588 4.942.450.990.875

EQUITY

Social Capital Paid capital

18.a ₡ 152.513.191.949 152.513.191.949

152.513.191.949 152.513.191.949

Equity adjustments Surplus on property, plant & equipment revaluation Adjustment for revaluation of investments available for sale Adjustment for restricted financial instruments Adjustment for financial statement conversion

18.b 18.c 18.c 18.d

39.232.443.882 38.050.329.461

(12.891.366.714) (1.167.898)

14.074.649.033

44.688.867.795 38.140.771.543 (5.917.738.104)

516.214.678 11.949.619.678

Equity reserves 233.662.151.966 204.293.990.482

Accrued results from previous exercises 29.368.399.683 9.839.732.123

Results from the period 37.354.453.465 53.520.371.208

Equity of the Development Financing Fund 22.100.921.217 17.382.838.706

Minority Interests 8 61.732.075.555 57.140.578.360

TOTAL EQUITY 575.963.637.717 539.379.570.623

TOTAL LIABILITY AND EQUITY ₡ 5.946.402.920.305 5.481.830.561.498

Continues …..

Chart A 1 of 2

BANCO DE COSTA RICA AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET



Note December 2017

December 2016

ASSETS

Availability Cash Banco Central de Costa Rica Financial entities of the country Financial entities overseas Other availabilities

4 ₡ 787.949.657.811 101.414.943.133 596.689.641.770

572.990.900 84.971.238.839 4.300.843.169

710.549.540.317 79.344.102.711

518.303.588.927 6.573.284.940

102.900.181.075 3.428.382.664

Investments in financial instruments Maintained to negotiate Available for sale Maintained at maturity Products receivable

5 1.287.246.141.661 67.811.010.161

1.189.691.724.952 18.562.619.678 11.180.786.870

1.097.398.927.747 240.819.870

1.059.812.247.692 27.181.347.758 10.164.512.427

Credit portfolios Performing loans Expired loans Loans in legal collection Products receivable Credit impairment estimate

6 6.b

6.d 6.e 6.f

3.674.088.420.356 3.357.165.339.597

314.151.078.821 43.310.487.247 22.680.933.012

(63.219.418.321)

3.484.169.216.451 3.193.681.207.533

285.346.440.874 36.332.978.878 21.411.905.758

(52.603.316.592)

Accounts and commissions receivable Commissions receivable Accounts receivable from stock operations Accounts receivable from related-party operations Deferred income tax and income tax receivable Other accounts receivable Impairment estimate

15

11.207.000.105 2.630.767.299

3.225.875 156.178.387

4.376.295.398 9.371.310.529

(5.330.777.383)

8.048.088.504 2.432.643.243

0 78.011.147

2.682.990.416 7.211.347.237

)4.356.903.539)

Realizable property Properties and values acquired in credit recovery Other realizable properties (Estimation of impairment and legal disposition)

7 17.650.886.714 63.725.218.278

682.983.599 (46.757.315.163)

15.727.102.475 61.885.132.224

386.268.718 (46.544.298.467)

Capital share from other enterprises, net 8 75.417.188 39.057.201

Property, plant and equipment, net 9 101.385.470.470 102.786.099.715

Other assets Deferred charges Intangible assets, net Other assets

10

66.799.926.000 6.123.580.048

13.381.838.895 47.294.507.057

63.112.529.088 5.158.710.388

15.705.848.129 42.247.970.571

TOTAL ASSETS ₡ 5.946.402.920.305 5.481.830.561.498





COMPANY REPORT 2017

Chart B BANCO DE COSTA RICA AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME As of December 31, 2017

(With figures that correspond to December 31, 2016) (In colones with no cents)

Note December 2017

December 2016

Financial income By availability By investments in financial instruments By credit portfolio By financial leasing By gains from exchange rates and UD By gains in financial instruments kept for negotiation By gains in financial instruments available for sale By other financial income

25 26 26

1.D.II

₡ 205.288.620 61.059.222.907

292.848.046.171 3.854.434.122

584.071.427 909.648.835

1.753.068.741 4.553.398.599

105.333.665 47.779.896.637

284.376.522.338 3.535.120.782

0 671.619.076

3.019.792.482 4.457.239.084

Total financial income 365.767.179.422 343.945.524.064

Financial Expenses By obligations with the public By obligations with Banco Central de Costa Rica By obligations with financial entities By Subordinate, Convertible and Preferred obligations By losses due to exchange rates and UD By losses due to financial instruments kept for negotiation By losses due to financial instruments available for sale By other financial expenses

27

1.D.II

131.751.623.301 678.219.700

42.263.301.859 1.420.542.624

0 845.824

27.182.122 40.666.001

99.799.018.955 232.180.335

34.628.520.760 1.253.073.334 1.307.106.481

0 63.526.227 35.749.770

Total financial expenses By estimation of asset impairment By recovery of assets and reduction of estimations

28 29

176.182.381.431 47.561.462.492 16.381.080.124

137.319.175.862 32.385.343.529 18.748.684.762

FINANCIAL INCOME 158.404.415.623 192.989.689.435

Other operational income By service commissions By realizable property By gains in market share from other enterprises By currency exchange and arbitration By other operational income

30

31

98.251.328.767 17.823.746.529

7.563.715 22.102.693.259 13.574.784.198

91.092.534.096 15.273.543.961

16.313.452 21.058.902.786

7.378.822.522

Total other operational income 151.760.116.468 134.820.116.817

Other operational expenses By service commissions By realizable property By provisions By currency exchange and arbitration By other expenses with related parties By other operational expenses

17.445.043.586 26.869.496.105

7.016.495.481 1.292.967.990

3.236.519 27.563.750.327

13.870.172.629 22.152.424.601

3.268.635.026 773.124.478

0 23.717.620.564

Total other operational expenses 80.190.990.008 63.781.977.298

GROSS OPERATING INCOME 229.9730.542.083 264.027.828.954

Overhead By personnel expenses By other administrative expenses

105.424.665.818 71.517.694.232

107.145.727.011 64.024.127.569

Total overhead 32 176.942.360.050 171.169.854.580

NET OPERATING INCOME BEFORE TAXES & PROFIT SHARE Income tax Deferred income tax Reduction of income tax Share on profits Reduction of share on profits

15 15 15 33 33

53.031.182.033 5.394.414.857

513.913.812 2.299.659.033

11.646.596.462 2.191.185.028

92.857.974.374 17.720.784.325

991.030.317 210.083.870

19.175.101.927 0

INCOME FROM PERIOD 39.967.100.963 55.181.141.675

Income from period attributable to minority interests 8 2.612.647.498 1.660.770.467

INCOME FROM PERIOD ATTRIBUTABLE TO THE CONGLOMERADO FINANDCIERO

37.354.453.465 53.520.371.208

The notes attached are an integral part of the consolidated financial statements




OTHER COMPREHENSIVE INCOME, TAX NET Surplus on property, plant and equipment revaluation Adjustment for valuation of investments available for sale, net income tax Reclassification of unrealized gains in income statement Adjustment for valuation of restricted financial instruments, net income tax Other

4.098.265 )4.968.340.994) )1.208.120.633) (1.377.397.484) 4.166.726.977

8.196.532 (851.686.610)

(2.069.386.379) 518.587.583

3.792.095.100

OTHER COMPREHENSIVE INCOME OF THE PERIOD, TAX NET 34 (3.383.033.869) 1.397.806.226

TOTAL COMPREHENSIVE INCOME OF THE PERIOD Comprehensive income attributable to minority interests

36.584.067.094 4.591.497.195

56.578.947.901 3.632.122.593

COMPREHENSIVE INCOME ATTRIBUTABLE TO THE CONGLOMERADO FINANCIERO

₡ 31.992.569.899 52.946.825.308





COMPANY REPORT 2017

The notes attached are integral part of the consolidated financial statements

(signature) (signature) Douglas Soto L. Tatiana Cárdenas C. General Manager a.i. Accountant

BANCO DE COSTA RICA AND SUBSIDIARIES CONSOLIDATED NET EQUITY CHANGE STATEMENTS

As of December 31, 2017 (With figures as of December 31, 2016)

(In colones without cents)

Equity Adjustments

Note

Social Capital Surplus for property, plant and

equipment revaluation

Adjustment for appraisal of

investments available for sales and

restricted financial instruments

Adjustment for financial

statement conversion

Total equity adjustments

Equity reserves Accrued results from previous

exercises

Development Financing Fund

Equity

Minority interests

Total Equity

Balance as of January 1, 2016 ₡ 144.950.948.838 38.410.388.251 (2.885.811.311) 10.015.649.995 45.540.236.935 189.527.978.318 34.866.664.203 14.406.348.662 53.508.455.767 482.800.622.723

Transfer of withheld profits Transfer of surplus for revaluation of realized assets Allocation of legal reserve Allocation of Development Financing Fund Balance as of December 31, 2016

18.a 18.a

7.284.429.871 277.813.240

0 0

152.513.191.949

0 (277.813.240)

0 0

38.132.575.011

0 0 0 0

(2.885.811.311)

0 0 0 0

10.015.649.995

0 (277.813.240)

0 0

45.262.413.695

0 0

14.766.012.164 0

204.293.990.482

(7.284.429.871) 0

(14.766.012.164) (2.976.490.045)

9.839.732.123

0 0 0

2.976.490.044 17.382.838.706

0 0 0 0

53.508.455.767

0 0 0

(1) 482.800.622.722

Other comprehensive income Total other comprehensive income 0 8.196.532 (2.515.712.115) 1.933.969.683 (573.545.900) 0 53.520.371.208 0 3.632.122.593 56.578.947.901

Balance as of December 31, 2016 Attributed to minority interests Attributed to the Conglomerado Financiero

₡

152.513.191.949 0

152.513.191.949

38.140.771.543 0

38.140.771.543

(5.401.523.426) 0

(5.401.523.426)

11.949.619.678 0

11.949.619.678

44.688.867.795 0

44.688.867.795

204.293.990.482 0

204.293.990.482

63.360.103.331 0

63.360.103.331

17.382.838.706 0

17.382.838.706

57.140.578.360 57.140.578.360

0

539.379.570.623 57.140.578.360

482.238.992.263

Balance as of January 1, 2017 ₡ 152.513.191.949 38.140.771.543 (5.401.523.426) 11.949.619.678 44.688.867.795 204.293.990.482 63.360.103.331 17.382.838.706 57.140.578.360 539.379.570.623

Transfer of surplus for revaluation of realized assets Allocation of legal reserve Allocation of Development Financing Fund Balance as of December 31, 2017

18.a 0 0 0

152.513.191.949

(94.540.347) 0 0

38.046.231.196

0 0 0

(5.401.523.426)

0 0 0

11.949.619.678

(94.540.347) 0 0

44.594.327.448

0 29.368.161.484

0 233.662.151.966

94.540.347 (29.368.161.484)

(4.718.082.511) 29.368.399.683

0 0

4.718.082.511 22.100.921.217

0 0 0

57.140.578.360

0 0 0

539.379.570.623

Other comprehensive income

Total other comprehensive income

0 4.098.265 (7.491.011.186) 2.125.029.355 (5.361.883.566) 0 37.354.453.465 0 4.591.497.195 36.584.067.094

Balance as of December 31, 2017 Attributed to minority interests Attributed to the Conglomerado Financiero

₡

152.513.191.949 0

152.513.191.949

38.050.329.461 0

38.050.329.461

(12.892.534.612) 0

(12.892.534.612)

14.074.649.033 0

14.074.649.033

39.232.443.882 0

39.232.443.882

233.662.151.966 0

233.662.151.966

66.722.853.148 0

66.722.853.148

22.100.921.217 0

22.100.921.217

61.732.075.555 61.732.075.555

0

575.963.637.717 61.732.075.555

514.231.562.162

(signature) (signature) Douglas Soto L. Tatiana Cárdenas C. General Manager a.i. Accountant


COMPANY REPORT 2017




Chart D

BANCO DE COSTA RICA AND SUBSIDIARIES CONSOLIDATED CASH-FLOW STATEMENT



Note December 2017

December 2016

37.354.453.465 53.520.371.208

(96.092.956.187) (119.704.432.672)

7.192.011.296 17.608.446.020 (2.860.102.892) 45.198.519.250 2.362.943.242

(1.438.911.621) (346.833.600)

5.766.050.753 (34.110.605.679) 21.191.205.327

(7.563.715) 176.113.687.484

5.394.414.857 (354.112.557.698)

1.763.252.502 9.455.411.434 2.612.647.498 2.125.029.355

5.287.700.626 14.809.717.242 (1.225.541.068) 30.455.780.761 1.929.562.768

780.946.447 0

2.354.703.702 (35.732.887.682) 15.901.667.382

(16.313.452) 135.912.793.384 17.720.784.325

(332.261.752.640) 1.608.563.456

19.175.101.927 1.660.770.467 1.933.969.683

(144.569.714.319) )48.546.970.305)

(176.360.401.531) 10.104.236.094 30.249.327.753 (8.562.876.635)

(84.066.326.979) 11.931.256.000 25.978.418.179 (2.390.317.505)

303.577.618.766 264.423.839.778

243.042.967.346 (36.354.678.881) (22.341.909.801)

1.741.971.432 117.489.268.670

411.011.231.967 (22.668.553.082) (21.751.983.179)

2.101.798.191 (104.268.654.119)

(145.115.841.798) 7.563.715

321.577.928.248 (17.569.504.769)

(113.570.883.583) 16.313.452

301.918.852.556 (9.143.086.152)

258.769.547.121 328.914.004.282

(5.133.608.618.990) 4.953.577.894.082

(8.479.104.754) 651.965.622 (36.359.987)

(7.920.428.888.493) 7.775.491.960.450

(9.288.419.241) 208.365.367

0

(187.894.224.027) (154.016.981.917)

70.875.323.094 174.897.022.365

Cash flow from operational activities Income for the period

Adjustments to conciliate the income from the period with the cash from operating activities

Losses for sale of assets received as payment and of property, plant and equipment Losses for estimation of impairment of goods received as payment Gains from exchange rates and UD, net Losses for estimation of credit portfolio impairment Losses for other estimations Deferred income tax Reduction of income tax from former periods Expenses in provisions for social benefits Income from reversion of estimations and provisions Depreciation and amortization Share in net profit in other entities Interest expenses Income tax expenses Interest income Other provisions Shares on profit Minority share in net profit of subsidiaries Adjustment for the conversion of the financial statements of the entity overseas

Net variation in assets (increase) or reduction

Credits and cash advances Realizable property Products receivable Other assets

Net variation in liabilities increase or (reduction)

Obligations on demand and term-based Other accounts payable and provisions Products payable Other liabilities Other financial obligations

Interests paid Dividends received Interests charged Income tax paid

Net cash flows provided by the operating activities

Cash flow from investment activities

Increases in financial instruments (except for those kept to negotiate) Reduction in financial instruments (except for those kept to negotiate) Acquisition of property, plant and equipment Reductions due to withdrawals and transfers of property, plant and equipment Shares in the capital of other enterprises

Cash flows (used) by investment activities

Net (Reduction) or increase in cash and cash equivalents

Cash and cash equivalents at the beginning of the year Effect of exchange rate variations over the cash maintained Cash and cash equivalents at the end of the year


4

940.140.594.547 9.661.156.695

1.020.677.074.336

757.443.548.668 7.800.023.514

940.140.594.547




Chart D

BANCO DE COSTA RICA AND SUBSIDIARIES CONSOLIDATED CASH-FLOW STATEMENT



Note December 2017

December 2016

37.354.453.465 53.520.371.208

(96.092.956.187) (119.704.432.672)

7.192.011.296 17.608.446.020 (2.860.102.892) 45.198.519.250 2.362.943.242

(1.438.911.621) (346.833.600)

5.766.050.753 (34.110.605.679) 21.191.205.327

(7.563.715) 176.113.687.484

5.394.414.857 (354.112.557.698)

1.763.252.502 9.455.411.434 2.612.647.498 2.125.029.355

5.287.700.626 14.809.717.242 (1.225.541.068) 30.455.780.761 1.929.562.768

780.946.447 0

2.354.703.702 (35.732.887.682) 15.901.667.382

(16.313.452) 135.912.793.384 17.720.784.325

(332.261.752.640) 1.608.563.456

19.175.101.927 1.660.770.467 1.933.969.683

(144.569.714.319) )48.546.970.305)

(176.360.401.531) 10.104.236.094 30.249.327.753 (8.562.876.635)

(84.066.326.979) 11.931.256.000 25.978.418.179 (2.390.317.505)

303.577.618.766 264.423.839.778

243.042.967.346 (36.354.678.881) (22.341.909.801)

1.741.971.432 117.489.268.670

411.011.231.967 (22.668.553.082) (21.751.983.179)

2.101.798.191 (104.268.654.119)

(145.115.841.798) 7.563.715

321.577.928.248 (17.569.504.769)

(113.570.883.583) 16.313.452

301.918.852.556 (9.143.086.152)

258.769.547.121 328.914.004.282

(5.133.608.618.990) 4.953.577.894.082

(8.479.104.754) 651.965.622 (36.359.987)

(7.920.428.888.493) 7.775.491.960.450

(9.288.419.241) 208.365.367

0

(187.894.224.027) (154.016.981.917)

70.875.323.094 174.897.022.365

Cash flow from operational activities Income for the period

Adjustments to conciliate the income from the period with the cash from operating activities

Losses for sale of assets received as payment and of property, plant and equipment Losses for estimation of impairment of goods received as payment Gains from exchange rates and UD, net Losses for estimation of credit portfolio impairment Losses for other estimations Deferred income tax Reduction of income tax from former periods Expenses in provisions for social benefits Income from reversion of estimations and provisions Depreciation and amortization Share in net profit in other entities Interest expenses Income tax expenses Interest income Other provisions Shares on profit Minority share in net profit of subsidiaries Adjustment for the conversion of the financial statements of the entity overseas

Net variation in assets (increase) or reduction

Credits and cash advances Realizable property Products receivable Other assets

Net variation in liabilities increase or (reduction)

Obligations on demand and term-based Other accounts payable and provisions Products payable Other liabilities Other financial obligations

Interests paid Dividends received Interests charged Income tax paid

Net cash flows provided by the operating activities

Cash flow from investment activities

Increases in financial instruments (except for those kept to negotiate) Reduction in financial instruments (except for those kept to negotiate) Acquisition of property, plant and equipment Reductions due to withdrawals and transfers of property, plant and equipment Shares in the capital of other enterprises

Cash flows (used) by investment activities

Net (Reduction) or increase in cash and cash equivalents

Cash and cash equivalents at the beginning of the year Effect of exchange rate variations over the cash maintained Cash and cash equivalents at the end of the year


4

940.140.594.547 9.661.156.695

1.020.677.074.336

757.443.548.668 7.800.023.514

940.140.594.547


Douglas Soto L. Tatiana Cárdenas C. Tatiana Cárdenas C. T José Manuel Rodríguez G.



COMPANY REPORT 2017

Crowe Horwath CR, S.A. Member Crowe Horwath International

2442 Avenida 2 PO Box 7108-1000 San Jose, Costa Rica

Tel. (506) 2221-4657 Fax. (606) 2233-8072 www.crowehorwath.cr

[email protected]

Audit report issued by the independent public accountant

To the Board of Directors ofBanco de Costa Rica and subsidiariesand to the Superintendencia General de Entidades Financieras

Opinion

We have audited the consolidated financial statements of Banco de Costa Rica and subsidiaries (the Conglomerado), including the consolidated balance sheet as December 31, 2017 and the consolidated comprehensive income statements, net equity change statements and cash flow statements for the exercise ended in such date, as well as the explanatory notes of the consolidated financial statements that include a summary of the significant accounting policies.

In our opinion, the consolidated financial statements attached present reasonably, in all important aspects, the consolidated financial situation of the Conglomerado Banco de Costa Rica and subsidiaries as of December 31, 2017, as well as its consolidated income and cash flows for the exercise ended in such date, pursuant to the regulations issued by the Consejo Nacional de Supervisión del Sistema Financiero (CONASSIF) and the Superintendencia General de Entidades Financieras (SUGEF).

Rationale for the opinion

We have performed our audit pursuant to the International Audit Standards (IAS). Our responsibilities pursuant to such standards are later described in our report, in the section of Responsibilities of the auditor with respect to the audit of the consolidated financial statements. We are independent from the Conglomerado pursuant to the Professional Ethics Code of the Public Accountant Association of Costa Rica, applicable to our audit of the consolidated financial statements, and we have complied with the other ethical responsibilities in accordance to those requirements. We consider that the audit evidence we have obtained provided a sufficient and adequate base for our opinion.

Emphasis Paragraph – Accounting Base

We call to observe Note 1 of the consolidated financial statements, which describes the basis for accounting. The consolidated financial statements are prepared in compliance with the requirements of the consejo Nacional de Supervisión del Sistema Financiero (CONASSIF) and the Superintendencia General de Entidades Financieras (SUGEF). Consequently, the consolidated financial statements might not be adequate for other purposes.

Key audit issues

The key audit issues are those aspects that, according to our professional judgment, have been of greater significance in our audit of the consolidated financial statements for the current period. These issues have been dealt in the context of our audit of the consolidated financial statements all together, and in the elaboration of our opinion about such statements, and we express no separate opinion about those issues.

Crowe Horwath CR, S.A.

a) Credit portfolio

Key audit issue Audit response

The main asset of the Conglomerado is the credit portfolio, which represents 61.79% of the total assets and concentrates the main credit risk management factors regarding: the recovery of the balance owed, balance concentrations, diversification of products, among others; such factors affect the value of asset recovery.

The Conglomerado estimates that the credit portfolio, based on Agreement SUGEF-1-05 “Regulations for the Qualification of Debtors”, and Agreement SUGEF-19-16 “Regulations for the determination and registration of countercyclical estimations”. As of December 31, 2017 the amount of these estimation reached ₡63.398.877.209, representing 1.07% of the total assets.

Our audit procedures included the selection of a sample of credit operations to which we applied a process of balance confirmation. We also performed an evaluation of the estimation for uncollectibility of the portfolio through the verification of compliance of the functional areas that maintain operational controls and processes, which objective is to meet the requirements provided in Agreement SUGEF-1-05.

We selected a sample of credit operation files in order to verify the internal control procedures established by the Conglomerado, as well as the compliance with the regulations for files provided by the regulator. We verified and reviewed the auxiliary records of the credit portfolio and their estimations.

We have discussed with the management of the Conglomerado their consideration with respect to the fact that the estimation of uncollectable credits is adequate to offset the eventual losses that could be incurred in the recovery of the portfolio. The regulator reviews it periodically as an integral part of his evaluations, and modifications might be required based on the evaluation of the information available.

Notes 1.i, 1.j, 6 and 38 include the disclosures related to the corresponding treatment of estimations due to uncollectibility of the credit portfolio.


COMPANY REPORT 2017


b) Portfolio of Investments

Key audit issue Audit Response

The reasonable value estimations are made at a particular date based on market information and information from the financial instruments, and they are made by an authorized price supplier. The reasonable value does not reflect the discounts that might result from the offer to sell financial instruments related to a particular date.

The appraisals are the best possible market estimation, because, due to their nature, they involve uncertainties and significant judgment elements. Any change in the assumptions might affect the appraisal.

Among other procedures, we run a balance confirmation process over the total of the portfolio of investments; likewise, we made re-calculations of the market appraisal over the investments using the values obtained from a price supplier, as well as the values of premium amortization and discounts.

We verified the consistency of the source of prices used to assess the investment portfolio.

Notes 1.h, 5 and 38 include the disclosures related to the accounting treatment and other aspects related to the portfolio of investments.

c) Transfer of charges – Income Tax


Income tax declarations of the current period and former periods are subject to revision by the fiscal authorities; as a consequence, this could imply the exposure of the Bank (Headquarters) to face fiscal contingencies emerging from the non-acceptance of aspects related to the methodology used to determine the amount of the income tax for such periods.

On January 8, 2015, and on August 30, 2016, the Bank (Headquarters) received the notice from the Dirección General de Tributación, Dirección de Grandes Contribuyentes Nacionales, for the transfer of charges from the periods 2010, 2011, 2012, 2013 and 2014; indicating that the total of the tax debt of the Bank (Headquarters) reaches ₡17.195.497.040. The Conglomerado has disclosed this issue in note 43 of the separate financial statements as a contingent liability.

Our audit procedures with respect to this issue were the following:

- Review of documentation related to the transfer of charges received

- Evaluation of the need to account for provisions based on the existence of a current obligation

- Consultation with the attorneys of the Conglomerado to validate their technical and legal criteria

d) Obligations with the public


Other Issues

The financial statements of the subsidiary Banco Internacional de Costa Rica as of December 31, 2017 were audited by another Independent Public Accountant, who expresses an opinion without exceptions dated march 6, 2018.

Responsibilities of the management and of the individuals responsible for the corporate government of the Conglomerado with regards to the consolidated financial statements

The management is responsible for the preparation and faithful presentation of the consolidated financial statements hereby attached pursuant to the norms issued by the Consejo Nacional de Supervisión del Sistema Financiero and the Superintendencia General de Entidades Financieras, and of the internal control the management deems necessary to allow for the preparation of consolidated financial statements free from material errors due to fraud or error.

In the preparation of the consolidated financial statements, the administration is responsible for the assessment of the Conglomerate’s capacity to continue as an entity in operations, disclosing, as needed, the issues related and using the accounting principle of the entity in operations except when those responsible for the corporate government have the intention of liquidating the Conglomerado or ceasing its operations, or if there was no other realistic alternative.

Those responsible for the corporate government of the Conglomerado are responsible for supervising the financial information process.

Responsibilities of the auditor with regards to the audit of the consolidated financial statements

Our objectives are to gain reasonable certainty that the consolidated financial statements, all together, are free of material errors, due to fraud or error, and to issue an audit report containing our opinion. Reasonable certainty is a high degree of certainty; it does not guarantee that an audit performed pursuant to the International Audit Standards when an existing material error is detected. Errors can be due to fraud or error, and they are material if, either individually or in aggregation, it can be reasonably foreseen that they will influence the economic decisions made by the users based on the consolidated financial statement.


The obligations with the public constitute obligations on demand and term-based agreed upon with the customers depending on the specific conditions regarding use, term and interest rates.

As of December 31, 2017, the obligations with the public represent 73.93% of the total liability.

Among other procedures, we performed a balance confirmation process and analytical procedures to verify the cycles and the interest rates.

Notes 11, 12 and 38 include the disclosures about the accounting treatment and other aspects related to the obligations with the public.


COMPANY REPORT 2017


As part of an audit pursuant to the International Audit Standards, we apply our professional judgment and an attitude of professional skepticism during all the audit process. In addition:

• e identi y and assess t e ris s or ateria errors in t e conso idated financia state ents d e to ra d or error design and a y a dit roced res to res ond to s c ris s and obtain s ficient and ade ate a dit e idence to set a basis for our opinion. The risk of not detecting a material error due to fraud is higher than the case of material errors d e to errors since ra d can i y co sion a sification de iberate o issions intentiona y erroneo s e ressions or a oidance o interna contro s

• e get no edge abo t t e interna contro s t at is re e ant or t e a dit rocess in order to design ade ate a dit roced res according to t e circ stances and not in order to e ress an o inion regarding t e e ficiency o

internal controls in the Conglomerado.

• e e a ate t e s itabi ity o t e acco nting ractices a ied and t e reasonabi ity o t e acco nting esti ations and t e corres onding in or ation re ea ed by t e ad inistration

• We conclude about the suitability of the use, by the administration, of the accounting principle for the entity under o eration and based on t e a dit e idence obtained e conc de et er or not t ere is a ateria ncertainty re ated to acts or to conditions t at can generate significant do bts abo t t e ca acity o t e Cong o erado to continue as an entity in operations. If we conclude that there is a material uncertainty, it is necessary for us to show it in o r a dit re ort abo t t e in or ation resented in t e conso idated financia state ents or i s c disc os res are not ade ate e s o d e ress a odified o inion r conc sions are based on t e a dit e idence obtained to t is date ro o r a dit re ort o e er t re acts or conc sions co d ca se t at t e Cong o erado sto s being an entity in operation.

• e e a ate t at t e g oba resentation t e str ct re and t e content o t e conso idated financia state ents represent the transactions and underlying facts in a way that they lead to the reasonable presentation.

• e obtain s ficient and ade ate e idence re ated to t e financia in or ation o t e entities or t e entre rene ria acti ities o t e Cong o erado in order to e ress an o inion abo t t e conso idated financia state ents e are res onsib e o t e ad inistration s er ision and i e entation o t e a dit o t e Cong o erado e are t e only ones responsible for our audit opinion.

e co nicate it t e indi id a s res onsib e or t e cor orate go ern ent o t e Cong o erado it regards to a ong ot er t e sco e and t e o ent to i e ent t e a dit t at e anned as e as it res ect to t e significant findings o t e a dit rocess and to any significant deficiency in t e interna contro identified d ring t e a dit

e a so ro ide t e cor orate go ern ent o t e Cong o erado it a dec aration t at e a e co ied it t e et ica re ire ents a icab e it res ect to t e inde endence and t e co nication it t e abo t a t e re ations and ot er issues that can be reasonably expected to affect our independence and, if needed, the corresponding safeguards.

ong t e iss es t at a e been co nicated to t e indi id a s res onsib e or t e cor orate go ern ent o t e Cong o erado e deter ined t at t ey a e been t e ost significant ones in t e a dit o t e conso idated financia state ents o t e c rrent eriod and t ey conse ent y re resent ey a dit iss es e describe s c iss es in o r a dit re ort e ce t t e ega or reg atory ro isions state t at t e iss e cannot be b ic y disc osed or in e tre e y rare circumstances, we determine that an issue should not be communicated in our report because it is reasonable to expect that t e ad erse conse ences o doing it i e ceed t e benefits on b ic interests


The partner in charge of the audit originating this audit report issued by an independent auditor is Juan Carlos Lara Povedano.

San Jose, Costa RicaMarch 15, 2018Certification signed by:Juan Carlos Lara P. No. 2052Policy 0116 FIG 7, expires Sep. 30, 18Legal Stamp 6663 ₡1.000Glued to the original

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