Sustainability Report

Transcription

1 Sustainability Report 2016

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3 ABOUT THE REPORT In 2016, Banco Nacional de Costa Rica announced its sustainability model, defined on the basis of three essential pillars: economic growth, proper use of environmental resources, and enhancement of social well-being. Using this formula, the Bank worked towards achieving a threefold gain, based on the performance indicators tracking the bank s management. In turn, this model was conceived with effective, efficient financial management, and its implementation has created an awareness of the impacts generated by the group s business. Our planning has been grounded in a concept of sustainability mainstreamed into each BN area. This has strengthened the group s operation, resulting in a sound balance sheet, economic solvency, strengthened environmental actions, enhanced business, SME investment, community investment, healthy finances, more socially valuable transactions, stronger Costa Rican socioeconomic development, and transparent and responsible management. This Sustainability Report draws upon the measurement and monitoring of the model s indicators, turning this instrument into an informative document that Banco Nacional and its subsidiaries can use to report their environmental, social and economic performance for the period running from January 1 to December 31,

4 KEY IMPACTS SOCIAL MANAGEMENT: Contribution to the Country s Development New Jobs ACHIEVEMENT: 21,509 Support for Women Entrepreneurs ACHIEVEMENT: 1,211,641,000,000 in deposits Support for SME Customers ACHIEVEMENT: 300,000 customers Community Undertakings ACHIEVEMENT: 86,901 people affected Housing Investment Financial Inclusion Financial Inclusion Business Offices ACHIEVEMENT: 184,678,593, ,324 families ACHIEVEMENT: 2,743 Active BN Servicios ACHIEVEMENT: 450 ATM s ACHIEVEMENT: 170 Business offices throughout the country Livestock, Hunting and Fishing ACHIEVEMENT: 17,421,918, ,360 families Simplified Account (CES) B A D G E ACHIEVEMENT: 35,852 accounts applied for BN SINPE Móvil LOGRO: 79,352 Móvil affiliations BN Móvil / IB ACHIEVEMENT: 201,103 BN Móvil / IB affiliations Social Investment Teletón Tourism Industry Commerce ACHIEVEMENT: 500,000, 000 ACHIEVEMENT: 2,226,348,751, families ACHIEVEMENT: 2,606,235, families ACHIEVEMENT: 31,334,079, ,126 families Support for Agriculture and Forestry ACHIEVEMENT: 21,459,584, families Investment in Energy ACHIEVEMENT: 15,941,076,252 $48, Construction ACHIEVEMENT: 179,299, families Transportation, Communications and Sourcing ACHIEVEMENT: 4,216,721, families Financial Services Consumption Services ACHIEVEMENT: 98,884,417,581 $131,208,321 ACHIEVEMENT: 149,041,225, ,560 families ACHIEVEMENT: 37,143,366, ,680 families 4

5 ECONOMIC MANAGEMENT: Financial Indicators: Banco Nacional Income Statement See financial statements on page 52 ENVIRONMENTAL MANAGEMENT: Commitment to Sustainable Development Energy Consumption (KwH) ACHIEVEMENT: 27,812, KwH Water Consumption (m³) ACHIEVEMENT: 138,890 m³ Fuel Consumption ACHIEVEMENT: 43, liters for 561, kilometers Reduced Paper Consumption (sheets) ACHIEVEMENT: 5,125,000 sheets not used Reduced Ink Consumption ACHIEVEMENT: 2,852 cartridges not needed Procurement with Sustainability Criteria (RFPs) ACHIEVEMENT: 289 RFPs published Blue Flag Branch Offices ACHIEVEMENT: 8 offices awarded SOCIAL RESPONSIBILITY MANAGEMENT: Compliance with the Model Compliance with the Model ACHIEVEMENT: 100% Volunteer Hours ACHIEVEMENT: 24,507 hours Financial Education Students ACHIEVEMENT: 14,000 students Group Employees ACHIEVEMENT: 5,452 5

6 CORPORATE PROFILE Banco Nacional de Costa Rica (BNCR) is an autonomous, administratively independent financial institution governed by public law. Founded by executive decree No. 16 on October 9, 1914 as Banco Internacional de Costa Rica, it was the country s first State-owned bank. Its creation gave rise to Costa Rica s mixed banking system, since at that time only private banks existed. In 1936 its name was changed by legal decree to Banco Nacional de Costa Rica. From its inception, BNCR has had the basic principles of sustainability, such as financial access and inclusion of the most vulnerable sectors of Costa Rican society, in its DNA. An example of this is its Rural Credit Board project, with which it sought to provide a response to the agricultural sector s difficulties in accessing credit. Since then, Banco Nacional has been providing financial services steadily for 102 years and continues to be a major contributor to the country s growth. Banco Nacional plays a leading role in the Costa Rican financial sector, earning recognition for such qualities as its soundness, transparency, profitability, and contribution to the country s development. As the forerunning financial institution in an ample array of products and services, it offers a variety of housing, car, business, personal, SME, education, and health loans, among other lines of credit. Its robust electronic platform provides swift, safe Internet transaction services such as Internet Banking, BN Móvil and SINPE Móvil. It boasts an extensive network of automatic tellers and commercial offices and has more than 3,000 affiliated BN Servicios establishments that act as extensions of BNCR throughout the country. BNCR offers stock brokerage, pension fund and investment fund services as well as insurance brokerage through its subsidiaries: BN Valores, BN Vital, BN Fondos de Inversión, and BN Corredora de Seguros. Banco Nacional s most important asset is the trust deposited by its 1,995,428 customers in more than 5,000 employees making up the Banco Nacional family - a trust that has been earned from generation to generation over the years, thanks to a sound record and transparent management aimed primarily at benefitting each and every one of our target publics. 6

7 MISSION AND VISION, VALUES AND STRATEGIC GUIDELINES MISSION Improve the quality of life for as many people as possible by providing premium financial services to drive sustainable wealth creation. VISION To be Costa Rica s leading bank in customer service. VALUES Integrity, Creativity, Perseverance, Teamwork, Quality Service STRATEGIC OBJECTIVES Change the business mix in customer segments and products. Foster productivity and efficiency. Enhance the digital experience of customers through digital leadership. Operate as an integrated group. Increase the impact on development and social responsibility. Organizational Health 7

8 ORGANIZATIONAL CHART 2016 BOARD OF DIRECTORS BOARD OF DIRECTORS 1 Ana Isabel Solano Brenes Chair 2 Víctor Hugo Carranza Salazar Vice Chairman 3 Luis Pal-Hegedüs Secretary 4 Jeannette Ruíz Delgado Director 5 Xinia Herrera Durán Director 6 Víctor Ramírez Zamora Director 7 Jorge Méndez Zamora Director Office of the Secretary General Office of the General Manager Office of the Auditor General Human Development and Organizational Health Finance Social Responsibility Institutional Relations Legal Strategic Planning Advertising Office of the Deputy General Manager for Development and Retail Banking Office of the Deputy General Manager for Corporate and Institutional Banking Office of the Deputy General Manager for Credit and Risk Office of the Deputy General Manager for Operations Approved by the Board of Directors in Meeting , Article 3, on November 3,

9 GEOGRAPHICAL DISTRIBUTION Liberia Business Zone Offices: 19 Ciudad Quesada Business Zone Offices: 15 Alajuela Business Zone Offices: 12 Heredia Business Zone Offices: 14 Limon Business Zone Offices: 12 Cartago Business Zone Offices: 20 Perez Zeledon Business Zone Offices: 15 Puntarenas Business Zone Offices: 13 East Business Zone Offices: 27 Central Business Zone Offices: 1 West Business Zone Offices:

10 SUSTAINABILITY INDICATORS ENVIRONMENTAL DIMENSION 1 CONSUMPTION Certified Eco-efficient Offices Teleworking Fuel Energy Ink Paper Water 2 GREEN PRODUCTS A) BNCR BN PYMES Verdes (green SMEs) Green Credit Cards Green Debit Cards Eco-Marchamo (voluntary vehicle eco-decal) Eco-Technological BN Solutions BN Vivienda Sostenible (sustainable housing) B) BN Seguros BN Seguros Verdes Automóviles (green auto insurance) BN Seguros Verdes Incendio Comercial (green commercial fire insurance) BN Seguros Incendios Casa de Habitación (home fire insurance) BN Seguros Verdes de Vida (green life insurance) 3 SUSTAINABLE PURCHASING Number of purchases made with sustainability criteria Number of offices with eco-efficient equipment replacement 1 ECONOMIC DIMENSION Financial Soundness Economic Value of Sustainability Percentage Achievement of Sustainability Budget PEOPLE AFFECTED A) New Jobs External Jobs Total new jobs Jobs for women living in poverty New jobs for people with disabilities New jobs for youths Organizational health B) Positive Impacts Health and well-being Food Bank volunteering Zero Hunger Quality education Clean water and sanitation Access to energy Infrastructure Housing Persons who have received financial education Segments that have received financial education Women who have received financial education Women living in poverty who have received financial education People with disabilities who have received financial education Youths who have received financial education Persons of indigenous origin who have received financial education SOCIAL DIMENSION C) Number of undertakings Total community undertakings seed capital Total productive undertakings community undertakings Total business undertakings Undertakings by women Undertakings by women living in poverty Undertakings by people with disabilities Undertakings by youths Undertakings for indigenous populations D) Linkages E) Products for persons living in extremepoverty 2 QUALITY SERVICE A) Claims Handled Complaints due to poor operational practices (failure to follow operational procedures) Complaints due to discrimination of any kind Complaints due to poor business practices Complaints due to poor environmental practices Complaints due to poor reputational practices Complaints due to poor practices of suppliers Other complaints Number of complaints requiring payment of an economic cost 10 B) Financial Inclusion Physical Channel Availability POS BN Services ATMs Business Offices Accessibility Number of persons who have been financially included by segments Other segments that have been financially included Women living in poverty that have been financially included Youths who have been financially included Persons of indigenous origin who have been financially included Number of persons who have been affiliated by channel Simplified file accounts (CESs) BN SINPE MÓVIL Use of channels BN SINPE Móvil 3 VOLUNTEER PLAN Percentage achievement of plan

11 THE GROUP S AWARDS AND RECOGNITIONS Fondos 2016 was a great year of achievements for BN Fondos such as its ISO certification. But the most important achievement was its consolidation, maintaining a business model capable of absorbing the coming growth with a solid, efficient structure to the benefit of both customers and the Banco Nacional group, resulting in financial benefits for the Costa Rican public. Valores INSTITUTIONAL ENVIRONMENTAL MANAGEMENT PROGRAM: BN Valores classified institutionally in the green on the Institutional Environmental Management Program s implementation stoplight, a classification given by the Ministry of the Environment, Energy, and Telecommunications for scores of over 85 in environmental management (excellent management). COUNTRY BRAND: BN Valores obtained a license for corporate use of the essential COSTA RICA country brand, which was granted by PROCOMER (the Costa Rican export promotion agency) after a rigorous evaluation process where BN Valores demonstrated its compliance with the five country brand values: excellence, sustainability, innovation, social progress, and Costa Rican origin. GREAT PLACE TO WORK: On March 10, 2016, BN Valores was certified by Great Place to Work Central America and Caribbean as a great place to work, receiving the prestigious GREAT PLACE TO WORK 2016 award in the following categories: Best workplaces with fewer than 100 employees Best workplaces of Central American origin Best workplaces in Costa Rica This award is the result of the culture of shared employee values, leadership and excellence that has fortified us as a company, as well as our efficient processes that make for orderly business management. 11

12 Vital GREAT PLACE TO WORK: The pension fund operator has been working on this model since 2013 and in was certified as one of the best companies to work for in Central America and the Caribbean. It should be noted that BN VITAL raised its Trust Index score by 8 points from 2015 to 2016 as a result of reinforcing its comprehensive culture plan to include such topics as the essence of BN VITAL, its four pillars, its ethics plan, corporate governance, and business continuity. It also went one step further in its high performance leadership program by providing training on coaching, which was reflected in the results of the climate survey. INTE/ISO 9001:2008 RECERTIFICATION: Recertification in ISO 9001:2008 was achieved with the support of senior management and the commitment of all company employees; this standard ensures that strategic management, support and assistance, and value chain processes are all carried out satisfactorily according to a quality management model. QUALITY RECOGNITION AWARD: In 2016, Banco Nacional was given the Quality Recognition Award by JP Morgan Chase Bank, which ranks first in North America and seventh worldwide. The award, which recognizes the quality of the bank s Swift messaging, focused specifically on the international transfers shared by both banks. CARBON NEUTRAL: In 2016, the Ciudad Quesada branch office of Banco Nacional and BN Fondos were winners of this important award. The branch office was piloted as a precursor before starting efforts to make all BNCR carbon-neutral. BLUE FLAG: The four subsidiaries, BN Vital, BN Valores, BN Fondos and BN Corredora de Seguros, achieved the award through the program. DATA AWARD: At the Global Banking Alliance (GBA) Annual Summit, Banco Nacional was honored with the Data Award for having participated in the GBA-led program. 12

13 MESSAGE FROM THE CHAIR OF THE BOARD OF DIRECTORS We are committed to contributing to our country s development Ana Isabel Solano Brenes CHAIR OF THE BOARD OF DIRECTORS In 2016 the Board of Directors of the Banco Nacional set about creating a sustainability model under the highest quality standards with the firm resolve to develop all of the Bank s activities according to a sustainable management guideline, boosting the Bank s competitiveness, safeguarding the environment, and taking into account the needs of the Bank s target populations. This sustainability model was designed in such a way as to become one of the pillars supporting the Strategic Plan, Together We Are Progress, which seeks to strengthen Banco Nacional in its role as driver of the country s environmental and socioeconomic development. It is our conviction that a sustainability model of this nature is the ideal mechanism for consolidating initiatives that are durable over time and beneficial to both the Bank and all our interest groups. Banco Nacional s mission is to improve quality of life for the greatest possible number of people. This is achieved with the daily labor of all our employees and superior financial services, making it possible for entrepreneurs to turn productive ideas into businesses, Costa Rican families to buy houses for making into their homes, retirees to enjoy the fruits of a lifetime of efforts, young people to realize their study goals, workers to invest in their dreams, and the country to invest in environmental resources. This translates into sustainable creation of wealth and prosperity for Costa Rica. As a responsible institution, we strive for full attainment of our goals, solidifying a human-centered approach and reinforcing our commitment to the environment, all for the firm purpose of achieving a positive impact on the country s well-being and development and, in particular, of benefitting all those who have deposited their trust in Banco Nacional. In an awareness of our role in contributing to this country s progress, we strive to provide a profitable Bank that fosters sustainable wealth creation. Our business model goes beyond actions and declares a serious commitment to the country s development, where our work is the best proof of our goal to positively transform Costa Rican society. 13

14 MESSAGE FROM THE GENERAL MANAGER We re a bank with ethics at the heart of our business. Juan Carlos Corrales Salas GENERAL MANAGER With this simple phrase we can describe Banco Nacional and its employees, because we work towards such values and principles as honesty, equality, legality, integrity, transparency, and accountability. This is Banco Nacional, a model in Costa Rica of an ethical, sustainable Bank that invests in social development, economic growth, and biodiversity protection as incentives for actions to enhance the quality of life of Costa Ricans. The year 2016 brought us great satisfaction. After implementing a speedier, customer-centric business model, we were able to improve our response to our customers credit needs for both individuals as well as micro, small, medium and large enterprises. We achieved sustained economic growth as a group, reinforced our branch network to provide closer, more efficient and decisive customer service, and energetically worked on empowering our staff, building their capacity for innovation, teamwork, and decision-making also gave us the opportunity to reveal the Banco Nacional group s sustainability model, which has as its premise to create social and economic value in the markets where we operate, managing social and environmental risks as well as financial ones. This means we have started out on a path to measure our impacts beyond what is strictly financial, integrating social and environmental aspects to achieve a threefold gain. Our sustainability model was designed as part of the group s commitment to foster development of a fair and egalitarian economy as well as the democratization and mainstreaming of our services. We strive to encourage best practices to help us maintain an optimum balance of resources and environment. For this mission, the model proposes a strategy that prioritizes trust and transparency in the relationships between the Banco Nacional group which includes its subsidiaries and its interest groups. The model has become a declaration of our commitment to safeguard, based on our values, the economic, social and cultural rights of our different publics: customers, suppliers, employees, and the community in general. The results obtained in 2016 are an indication of good management in terms of efficiency and productivity. They also attest to the financial soundness of the bank and its subsidiaries, which boasted of the strongest earnings in their entire history ( 53,019 million, net). Earnings had grown by 16,217 million from December 2015 (44%), surpassing the initial target of 51,803 million by more than 2%. In a stable international and national economic setting despite the country s economic difficulties, marked by a worrying fiscal deficit and slowing credit growth lending has been on the rise and the quality of the loan portfolio continues to be notably healthy, with a 90+ day delinquency rate of 2.2% and a legal default rate of 4.68%, to the benefit of the country s development. As a result of reducing our administrative costs and aligning our efforts to a dynamic, renovated business model, we were able to bolster Banco Nacional s financial indicators for Our outstanding results were complemented with actions deriving from the sustainability model. As a group, we know this is an inevitable step that all financial institutions will have to take if they wish to work towards the country s integrated development. 14

15 SUSTAINABILITY MODEL The model s methodology is based on the Costa Rican government s National Development Plan, the Indicarse Model and the Sustainable Development Goals as the primary building blocks. BNCR MISSION, VISION AND VALUES Reference Framework a. ODS b. National Development Plan c. State of the Nation Report d. INDICARSE e. Board of Director Policies Sustainable development context and challenges BNCR management models Assessment of environmental, social, and economic impact Relationship management with interested parties BNCR Goals, Objectives and Actions Accountability / Reporting Benchmarking Sustainability Communication a. Internal b. External Mainstream sustainability into the BN group s strategic plan in line with the National Development Plan and Sustainable Development Goals, contributing to the country s social and economic growth and development, according to the strategic focus established by the Board of Directors and General Manager. GOALS OF THE SUSTAINABILITY MODEL Enhance the economic value of the BN brand by implementing responsible practices in the value chain and socially and environmentally responsible practices with interest groups. FOCUSES SEGMENTS Financial Education Undertakings Women Living in Poverty Indigenous Population Financial Inclusion Environmental Management Youths People with Disabilities Financial Deepening Linkages 15

16 SCOPE What do we understand? Assessment of the current context Bank s current stance on sustainability Definition of the initiative DIAGNOSTIC Where are we? Preliminary diagnostics Inventory of existing practices COMMUNICATION How do we communicate it? Sustainability report Communication with the parties involved CONTINUOUS IMPROVEMENT WORK PLAN What are we going to do? Work plan for the sustainability model Work plan for sustainability initiatives MONITORING OF THE PLAN What have we achieved? Accountability Progress on action plans IMPLEMENTATION OF INITIATIVES How do we make progress? Critical factors for the model s success TARGET PUBLICS The Sustainability Model adopted the definition of interested parties proposed by the United Nations (UNEP-FI), which says they are groups that either affect or are affected by the company s activities. As this was the first attempt at mapping publics, a roadmap was designed for a structured method of guiding the institution in identifying its publics. MONITORING OF IMPACTS Monitoring of indicators and assessment of impacts IDENTIFICATION OF INTERESTED PARTIES Identify the interested parties and their sub-segments Identify the expectations of the interested parties DEFINITION OF INDICATORS The one in line with the interested party s expectations will be integrated into the sustainability balances DEFINITION AND IMPLEMENTATION OF ACTIONS In response to the interested party s expectations and the importance to the institution STEPS FOR INTERACTING WITH INTERESTED PARTIES DEFINITION OF THE TYPE OF RELATIONSHIP For managing the expectations of the interested parties SELECTION OF THE INSTRUMENT According to the type of relationship desired and the type of interested party FREQUENCY OF IMPLEMENTATION According to the type of instrument SELECTION OF THE SPOKESPERSON According to the type of instrument; ideally this should be a person who interacts routinely with the interested party 16

17 PRESS Written press Radio Television FUND PROVIDERS Development Banking (FINADE) IMAS (FIDEIMAS) IDB PARTNERS Public companies Private companies NGOs CUSTOMERS Corporations and institutions Large, medium and small enterprises Preferential customers (individuals) Mass customers EMPLOYEES Employee associations and syndicate Occasional personnel Regular personnel COMMUNITIES Immediate community Surrounding population Public opinion REGULATORY BODIES SUGEF SUGESE SUGEVAL SUPEN Central Bank COMPETITION State banks Private banks Cooperatives SUPPLIERS Strategic suppliers Critical suppliers Basic suppliers Replaceable suppliers GOVERNMENT Central government Legislative Assembly Ministries PROGRAMS AND MAINSTREAMING The Sustainability Model was implemented in two directions, one aimed at carrying out a particular series of projects and the other at mainstreaming sustainability within the institution. Programs: Drawing on its many years of experience and the expertise of its employees, the Bank designed some of the programs for the purpose of impacting segments defined as priorities for the model. Mainstreaming: The programs were developed in connection with the Bank s different strategic areas. The relationship between the focuses and segments is summarized in the following table. MAINSTREAMING How have we progressed? Objectives assigned to the group Progress on work plans INDICATORS What has the impact been? Environmental indicators -Social indicators PROGRAM RESULTS What have we achieved? Environmental Management Program Financial Inclusion Program Financial Education Program Undertakings Program Production Linkages Program Corporate Volunteering Program 17

18 RISK MANAGEMENT Risk management is an essential component of Banco Nacional s identity and rigorous risk control has provided the conditions for the steady growth of BNCR s profits. 1. MARKET RISK The focus in 2016 was on implementing more frequent monitoring of a broader scope of risks, including investment rate, liquidity, exchange rate, and derivative risks for both the Bank and its subsidiaries. In addition, emphasis was given to generating added value by preparing a strategic capital framework for the Bank and drafting new balance sheet and capital indicators, following the best international practices of Basel III and CCAR notably comprehensive capital analysis according to CCAR, the net stable funding ratio (NSFR), and the Basel leverage ratio (LR) as well as implementing a benchmark return for BN Vital funds. 2. OPERATING RISK Three major groups of initiatives started in 2016 had a positive impact on outside interested parties. First, the foundations were laid for fraud prevention and cybersecurity systems which will not only generate greater confidence in but also provide support for and enhance the quality of electronic services. Secondly, a supplier risk assessment method was defined that takes into account social responsibility and sustainability, the idea being to not only safeguard the institution s interests with regard to outsourcing but also foster this culture and raise awareness of its importance. Finally, a portfolio of social responsibility and sustainability risks was modeled and mainstreamed in the assessments, especially for value chain processes, with the expectation that the result will project a positive image on our customers. 3. MATHEMATICAL MODELS Several key tasks were carried out in Marketwise, a software tool was developed to enable BN Vital to run securities buying and selling simulations for its investment portfolios in order to measure the impact of these transactions on the different return and risk indicators. Additionally, the base rate projection model was refined for assessing base rate movement scenarios in investment portfolios and setting floor and ceiling interest rates by business activity (see the results of the simulation scenarios). Finally, quantitative support was given to the determining of benchmark portfolios for managing the investments of each of BN Vital s funds. 18

19 Credit-wise, indicators were generated for tracking the effectiveness of loan readjustments based on observed delinquency. The collection score was recalibrated to give more priority to administrative collections. A method was also defined for calculating expected loss by term, enabling the Finance Division to determine more competitive interest rates for each loan term and business activity. Finally, a review of the FGJ (guarantees and pension fund) actuarial study provided insights to the fund s managers for deciding on rule changes to ensure the FGJ s actuarial solvency. 4. CREDIT RISK The following actions were taken to boost credit card sales by giving us greater access to borrowers, in line with the strategic objective of changing our product mix: 1. The risk appetite for this product was modified, setting new acceptance thresholds; and calculation of interest rates to achieve improved returns and maintain a high quality portfolio; 2. The rules were adjusted so that when a card application is processed together with a housing or car loan, the resulting score is not binding for card approval; 3. The DTI (debt to income) threshold was increased by 300 base points for the credit card product, exclusively; and 4. An option was programmed in the payment capacity module for when application is made for a consumer or housing loan the limit is automatically calculated for the card to be granted together with the loan. The risk appetite was modified for consumer loans, setting new acceptance thresholds, and the rules were changed in order to boost lending and borrower access, especially with regard to the salaried customer profile. The development banking score was adjusted. With regard to the Bank s capital funds, a model was created to set concentration limits for economic interest groups and individual customers according to their credit rating. A model was created to set lending limits by economic activity in line with allocation of capital. 5.RISK CONTROL AND MANAGEMENT As part of its job of managing risk integration, in 2016 the Risk Control and Management Division aligned the risk manuals of BN Vital, BN Fondos and FGJ to that of the Banco Nacional de Costa Rica, thus helping to mainstream a risk culture throughout the institution. Joint work was also undertaken on strategic credit risk initiatives, particularly those concerning modification of risk appetite and product mix. 6. CREDIT DIVISION In September 2016 the Credit Unit for Sale of Assets received in Lieu of Payment was set up. An estimated 1,709.8 million was recovered from 74 loans totaling 2,694.6 million, and account number 151 (Temporary Assets) was reversed by 4,199, 2 million. Ninety percent of shared credit service procedures and records in all lending cycles were reviewed and updated. Implementation of the centralized appraisal payment process was finalized, with 8,385 cases for a transacted amount of more than 3,425 million, improving efficiency. Approximately 250 merchant contracts were reconstructed and replaced for a balance of more than 1,000 million in collateral. Automatic supplier payments were implemented, increasing processed case volume efficiency and preventing errors from manual charges. Loan portfolio repurchases were made from BICSA and Global Bank for a total of $30.5 million. A new model was set up for updating vehicle inspections using Riteve, INS, and agency maintenance shops, where 216 guarantees were updated, averaging 72 per month, for an estimated average savings of 1,000 million. By not having to pay outside appraisers, the institution saved some 9.5 million in administrative costs. A valuation matrix based on market variables was piloted. Disbursements increased by 96%. Daily processing of disbursements went up from 11 in January to 220 in November, with the same staff. A support unit was set up to handle all loan applications entering electronically on different platforms (BN Crédito Virtual). All actors in the process for estimating the loan loss provision were mapped, generating a work scheme that significantly reduced the impact of the provision. 93% OF THE CORPORATE CREDIT DIVISION S WORK PLAN WAS COMPLETED. 19

20 The balance of Banco Nacional s loan portfolio at the close of 2016 was 4,116 billion, representing a relative growth of 11.21% or an absolute growth of billion from December Portfolio Balances Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year ,69 3,70 3,72 3,75 3,80 3,87 3,94 3,94 3,96 3,99 4,04 4,11 Source: Credit Cubes Loan Portfolio Behavior Absolute and Relative Values January December , % 80, , % 60, , % % 30, , % 10, % (10,000.00) (20,000.00) -0.50% jan-15 feb-15 mar-15 apr-15 may-15 jun-15 jul-15 aug-15 sep-15 oct-15 nov-15 dec-15 jan-16 feb-16 Source: Credit Cubes mar-16 apr-16 may-16 jun-16 jul-16 aug-16 sep-16 oct-16 nov-16 dec-16 Our legal delinquency (loans past due by 1 or more days) and 90-day delinquency (loans past due by 91 or more days) rates were 4.68% and 2.20%, respectively. Loan Status Legal Default and 90+ Day Delinquency % 6.46% 6.05% 6.22% 6.08% 5.30% 5.49% 6.01% 5.45% 5.63% 5.51% 5.66% 4.68% 2.38% 2.55% 2.48% 2.49% 2.22% 2.37% 2.33% 2.33% 2.27% 2.29% 2.23% 2.18% 2.20% Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Legal default 90+ day delinquency 20

21 7. COMPLIANCE DIVISION AND ANTI-MONEY LAUNDERING EFFORTS Banco Nacional is aware of the country s money-laundering risk and of the efforts needed for strengthening prevention and detection of potential financing of terrorist acts, even though the region lacks concrete systems for doing so. Throughout its history, the Bank has shown its commitment by working jointly with the competent authorities to manage these risks as best as possible, and has reinforced a culture of compliance in all of its branch offices and related parties. The maintaining and strengthening of its relationships with foreign correspondent banks has played a key role in this, as these banks are becoming increasingly more demanding with regard to management of risks, specifically those of money laundering and terrorism financing. For customers, correspondent banks, suppliers and other related parties, Banco Nacional s efforts to improve, within its scope of action, the quality of life of all those who surround it cannot and should not go unnoticed. As Costa Rica s leading financial institution, the Bank shoulders the responsibility of supporting all actions that help impede the tentacles of organized crime from invading the country. Thus Banco Nacional has kept its distance from potential money-laundering cases, reinforcing its prevention and detection systems on a daily basis to the benefit of the country, the organization itself, and its own customers, who seek and require a sound, responsible bank in which to deposit their savings a bank with superior quality standards that protect not only the money but also the reputation of each and every one of our customers. 21

22 8. INTERNAL CONTROL DIVISION The internal control system should be dynamic and adaptable to the demands of the environment and the strategic goals defined by upper management in order to provide reasonable security in the meeting of those goals and their sustainability over time, under the principles of efficiency, regulatory compliance, accountability, and asset protection. In 2016, Banco Nacional reinforced internal controls by allocating exclusive resources to assurance in business zone and central processes, a decision that has enabled the Bank to improve its corporate governance by aligning business goals with internal control responsibilities. The Bank maintains a Normal rating in its qualitative assessment, in accordance with the rating criteria in the SUGEF-2400 regulation, and has defined a specific action plan for monitoring and strengthening this rating. As a result of structural changes and adjustments needed for the new strategic plan, Banco Nacional s maturity level has gone from skilled to competent on its internal control system diagnostic, which requires updating risk assessment exercises, adapting control activities, and taking other specific actions that are defined in a detailed improvement plan for implementation in The fostering of a culture of control in Banco Nacional is an ongoing effort that reached more than 4,600 employees in 2016 through the Certifícate initiative, together with a specialized course for 400 heads of department and faceto-face talks for close to 1,000 head office employees and another 1,000 business zone employees. Definition and alignment of internal control system goals strategically and tactically with the Strategic Plan Ongoing monitoring of the recommendations and directives of regulators and auditors to ensure their implementation Reinforcement of the Bank s governance model through analysis of the support committees and accountability Design and formalization of a common internal control framework for the Group, incorporating COSO principles Updating and restructuring of the internal control system s diagnostic tool based on the maturity model of the Office of the Comptroller General of the Republic 75% of the country s business offices were visited in 2016 and 238 specific recommendations were issued to strengthen the internal control function 22

23 OUR SUBSIDIARIES Fondos At year end, BN Fondos still led the financial investment fund industry in net managed assets and number of customer accounts, with a managed asset market share of 26.12%, thanks to due planning and business strategies that paved the way for the great results obtained in These strategies were developed together with quality service and environmental impact mitigation policies and helped us trim expenses and raise productivity. In reducing greenhouse gas emissions, we also optimized our energy capacity and cut unnecessary expenses all of which has helped us achieve our goal of being a socially committed company, working every day according to policy. 1. BUSINESS RESULTS 700 Finantial investment funds Net managed assets as of 31 de december de 2016 In millions of dollars BN Fondos ended the year with a managed funds balance of US $653 million, ranking it first in managed balances, as seen in the following graph. Millions $ One of BN Fondos s primary goals has been to bring investment funds to the Costa Rican public and continue its financial literacy policy; thus at year end it had 54,914 customer accounts, the largest market share, with 66.72% of the total financial funds industry, reinforcing still more our mission to bring small and medium investors into the stock market. The following graph shows the number of customer accounts by fund management company at the 2016 close. Customer Accounts 60,000 50,000 40,000 30,000 20,000 Finantial investment funds Number of costumer accounts as of 31 de december de ,

24 2. FINANCIAL RESULTS Net earnings as of the 2016 close were US $2.9 million, and the net return on investment (ROI) was 26.34%, making BN Fondos an extremely profitable subsidiary for the Banco Nacional group. The following graph shows, for the purpose of comparison, net annual profits for the last five years: 3.5 BN Fondos profits In millions of dollars Millions$ PERFORMANCE OF BN FONDOS ENVIRONMENTAL PROGRAMS Electricity Management Electricity consumption was reduced by 20% in 2016 to kwh/m2. Waste Management Annual generation of non-reusable waste ( garbage ) per person was reduced in 2016 to kilos/person, while recovery was maintained of reusable waste (0.3 kilos reusable / 1 kilo non-reusable). Paper Management The annual number of reams consumed was reduced by 55.17%. Printouts and photocopies were reduced by 35.87%. Greenhouse Gas Effect BN Fondos continues to be carbon-neutral certified, emitting tons of carbon dioxide. Volunteer Hours % of the target was achieved, with 394 hours volunteered by 100% of the personnel. Financial Literacy BN Fondos has a presence in the 169 Banco Nacional branches throughout the country, with more than 2,250 certified executives offering this product. Our goal of bringing financial literacy to more Costa Ricans was also reinforced, with more than 50 activities carried out around the country. 24

25 Valores 1. ECONOMIC ACHIEVEMENTS Earnings: BN Valores s net earnings for FY2016 were US $4,492,486 (four million four hundred ninety-two thousand four hundred eighty-six dollars), at an average exchange rate of to the dollar. Annual Return: As a result of its net profit in FY2016, BN Valores boasted a 15.2% return, calculated on its initial capital assets minus dividend distribution. Operating Income: In the 2016 period, BN Valores obtained an operating income of US $7,297,358 (seven million two hundred ninety-seven thousand three hundred fifty-eight dollars), at an average exchange rate of to the dollar, from stock market commissions and brokerage fees. Financial Results: From management of its own funds, BN Valores s earnings in FY2016 were US $5,236,231 (five million two hundred thirtysix thousand two hundred thirty-one dollars) at an average exchange rate of to the dollar. Assets and Equity: At the FY2016 close, BN Valores held US $101,530,965 (one hundred one million five hundred thirty thousand nine hundred sixty-five dollars) in total assets and US $32,034,405 (thirtytwo million thirty-four thousand four hundred five dollars) in equity, at an average exchange rate of to the dollar. 2. SOCIAL AND ENVIRONMENTAL ACHIEVEMENTS Social Achievements Volunteer Program: BN Valores participated in the corporate volunteer program in coordination with Banco Nacional. All staff participated, volunteering a total of 260 hours to working with INAMU s target segment and to planting trees and cleaning up the La Libertad park. Training Programs: BN Valores coordinated training for customers on economic subjects, impacting a total of 804 customers with these programs. 25

26 Environmental Achievements Table 1 Comparison of Environmental Variables Monthly Averages for 2015 and 2016 Environmental Variable Water (m 3 ) Electricity (kw) Fuel (liters) Paper (reams) Años , , Water Consumption: Compared to 2015, average monthly water consumption was reduced in 2016 by 29%, equivalent to a monthly average of 38m 3 for a total savings of 37,986 liters per month on average for the year. Electricity Consumption: Electricity consumption fell by 4.41% from 2015 to 2016, with average monthly savings of 1, kw. Fuel Consumption: Average monthly consumption was reduced by 11.1% in Paper Consumption: Compared to 2015, average monthly paper consumption was reduced in 2016 by 21%, equivalent to an average of 7 reams per month for the year. Vital 1. ACHIEVEMENTS: Building Competencies in Our Human Talent In 2016, the competencies of each of the pension operator s jobs were updated and improved by 100%. The cardinal competencies were broadened to include a customer service culture, which was measured for all employees. A gap-closing training workshop was conducted for employees who needed it in order to firm up BN Vital s vision of always exceeding the expectations of our members. Technical training needs were diagnosed for all employees to determine the key training courses those essential for optimum performance of their duties which employees should take in 2016 and The competencies of the members of the Board of Directors were measured and their technical training needs were diagnosed as a basis for designing the training they will receive in Volunteer Program Some 1,000 employees participated in the different focuses set by the group, such as financial education and environmental management. Return on Equity BN Vital s return on equity was the best in the Costa Rican pension fund industry at close to 35%, after eliminating the effect of the annual transfer of 50% of earnings to members of the mandatory pension fund. Best Efficiency Index in its Entire History In 2016, BN Vital obtained the best efficiency index in its entire history. The following table shows the behavior over the last six years: BN Vital Pension Fund Operator (PFO) Efficiency Index Percentages Period OPC Dec -11 Dec -12 Dec -13 Dec -14 Dec -15 Dec -16 BN Vital % 79.4% 91% 75.5% 69.8% Index = (personal expenses + general expenses)/total income 26

27 International Market Investments Seeking to diversify its mandatory pension fund portfolio by market and instrument type and to improve its risk-adjusted return, BN Vital successfully concluded its investments in the international market. Budget A score of 95.6% was obtained on the Comptroller General of the Republic s audit of the budget process, surpassing the Costa Rican supplementary pension fund industry average by more than 10%. Investment Portfolio Management With the help of the Bank s Risk Division, BN Vital was able to implement the benchmark as a new tool for managing its administered portfolios as well as its own portfolio. System Improvements The new technological infrastructure was definitively implemented, making it possible to reduce times in practically all processes, and all computer solutions required for batch delivery of funds in the labor capitalization fund were developed all of which has led to the successful accreditation of its members money in a timely and appropriate manner. Implementation of WhatsApp as a Communication Channel With WhatsApp, our members have a novel and alternative way to make inquiries and arrangements quickly using mobile media. Video Launch Geared to helping members plan for retirement and longterm savings, these videos target millennials and baby boomers, explaining in a simple manner how Costa Rican pension schemes work and providing guidance on preparing adequately for retirement. Improved Functional Service for Members We have improved member service flows by adjusting the systems using simple, speedy and controlled processes, substantially improving response times and overall service experience. Talks on Facebook Live A series of talks on planning for adequate financial health through proper retirement preparation were streamed in real time using the Facebook Live technological platform. Increased Savings in Voluntary Pension Plans MONTHLY INDICATOR Funds Monthly Deposits November 2016 Achievement of Monthly Target Accumulated Deposits 2016 Achievement of Annual Target Colon Fund A 445,208, % 4,559,951, % Dollar Fund A* 54, % 674, % Colon Fund B 169,50, % 1,664,313, % Dollar Fund B* 65, % 676, % Average % % 27

28 More Incoming Accumulated Balances from New Members New accumulated balances coming into the mandatory funds (pension and labor capitalization) rose by 19.5% from 2015, implying an increase of 4,739 million over the year. Increased Contributions to Voluntary Plans through Agreements with Companies As a result of company agreements, monthly collection of contributions by companies increased by 120%, signifying an additional 68.9 million per month. 2. OPERATIONS AND ADMINISTRATION: The members of the funds managed by BN Vital receive the benefits stipulated in the Worker Protection Law. In accordance with this law, 136,103 requests by our members were processed in 2016, representing an accumulated amount of 112,377.1 million. In addition, 266 requests were processed in the dollar-denominated funds for an accumulated amount of US $4.7 million. Of special note in this process of benefit payout is the withdrawal of accumulated savings from the labor capitalization fund, due to completion of the fund s third five-year period, for those members who have worked five continuous years for the same employer. This withdrawal occurs every five years, and this time it was made on April 1, 2016, when 26,616 members withdrew savings of 39,413.4 million. This benefit payout, under each fund s appropriate regulatory conditions, constitutes our pension operator s greatest contribution to the country s social well-being. Furthermore, in the individual capitalization pension plans such as the supplementary pension fund managed by BN Vital, benefits cannot be paid out to members until after a period of fund accumulation. In this period the funds managed in domestic currency received 193,502.5 million in new contributions, while the funds managed in US dollars received $6.2 million. 3. RISK-ADJUSTED RETURN RORAC (return on risk-adjusted capital), a tool for analyzing financial return, gives the minimum return limit (income expenses, last 12 months) needed to cover the economic capital (comprised by market risk, credit risk, legal risk, and operating risk). In BN Vital, net income covered risks by times at the December close, meaning that the pension operator is creating value over its control of the risks associated with its operations. It should be noted that the Bank set a minimum target of 1.3 times for this. 4. ENROLLMENT AND PARTICIPATION IN THE ECOLOGICAL BLUE FLAG PROGRAM As set out in the environmental management plan for the Ecological Blue Flag Program, the first recycling campaign was held with the participation of all pension operator employees. A total of 210 kilograms of plastics, aluminum, and Tetra Brik packaging was collected. Also, in 2016 we reduced electricity consumption by 8.54%, paper ream consumption by 9.44%, and diesel consumption by 33.91% compared to

29 VCORREDORA DE SEGUROS 1. ECONOMIC ACHIEVEMENTS: SUMMARY OF FINANCIAL RESULTS 2016 was an excellent year for BN Corredora de Seguros in terms of income from fees Total Income 2,934,211, ,166,441,629 Growth 42.00% Gross Profit 1, ,495 2,034,404, % Net Profit 763,959,084 1,376,131, % 2. NEW PROJECTS AND SERVICES New projects were developed in 2016 to extend our added values such as INS group motorcycle insurance to our customers. At the same time, several types of insurance were negotiated to take effect in 2017: Sagicor loan unemployment insurance Oceanica auto loan car insurance ASSA credit card protection insurance PALIC credit life insurance and credit involuntary unemployment insurance for credit cards Sagicor Asebanacio Sagicare insurance 3. BN CORREDORA DE SEGUROS FIFTH ANNIVERSARY CAMPAIGN Two campaigns were conducted for different Banco Nacional customer segments, resulting in excellent insurance sales. Incentive Plan self-issue insurance sales Let s Insure Campaign to insure the external agent portfolio 4. SOCIAL ACHIEVEMENTS: 2016 VOLUNTEERING A characteristic feature of BN Corredora de Seguros is that it is supportive and ready to help the community and society as much as it can. Everyone, from the general manager on down to all the employees has demonstrated their spirit of support, involvement and dedication, helping the company meet its goal by November ENVIRONMENTAL ACHIEVEMENTS For the second year in a row, we have been awarded the Ecological Blue Flagan annual recognition that rewards the volunteer work and effort invested in conservation and development in line with natural resource protection. 6. CAMPAIGNS Raising Awareness of Energy Efficiency, talk given by CNFL Post-consumer Waste Management, talk given by FIFCO Efficient Use of Water, talk given by Acueductos & Alcantarillados Efficient Use of Fuel in Vehicles, talk given by Recope representatives 29

30 OUR COMMITMENT TO THE ENVIRONMENT 2016 was the baseline year for data on the sustainability model and its indicators. Taking this into consideration, we simultaneously worked on making improvements, notably to prices, infrastructure, work schemes, asset management and eco-friendly waste disposal, as well as setting procurement requirements that contribute integrally to improving both institution and country impact. 1. INFRASTRUCTURE AND PROCUREMENT Waste collection and management Implement eco-efficiency criteria in selecting bidders Replacement with eco-friendly equipment Impact the eco-efficiency indicator by reducing energy, water, paper, and toner consumption Capture data on institutional resource consumption from the source Protocol for construction of eco-efficient buildings The goals shown in the figure below were impacted; their monitoring was done using a tool developed for the agencies, branches and administrative offices to enter costs and consumption of items such as water, electricity, fuel, paper and ink, in order to create the 2016 baseline information. 1.1 CONSUMPTION We encouraged responsible use of the institutional resources used by the Bank in its operations. We optimized resource use, measuring consumption throughout the year and taking actions to reduce that consumption. Electricity and Water To obtain monthly water and electricity costs and consumption, a record was prepared by agency, branch, and administrative office, giving a total of 172 reports accounting for an expenditure of 3, million. Our consumption of water was 138,890 m 3 for a bill of million, while we consumed 27,812,839.2 kwh of electricity for a bill of 3, million. To improve eco-efficiency and reduce water consumption, we remodeled the restrooms in the Bank s main offices. When the restrooms were put into use there were a total of 21 sets of restrooms, with reduced water consumption as of April The behavior for the study period shows reduced consumption (liters) and cost of supply ( /m 3 ), according to the following data: 30

31 From December 2015 to April 2016, water consumption averaged 2,091,000 liters, while from May to November 2016 it averaged 1,664,250 liters, implying average savings of 426,750 liters from the moment the first restrooms were readied. It should be noted that there were two scenarios: The first scenario runs from December 2015 to April The second scenario runs from May 2016 to December In the first scenario, water consumption averaged 2,128,000 liters for a bill of 3.19 million, while in the second scenario consumption dropped by 35% (1,389,000 liters) for a cost of 2.08 million, thus generating average monthly savings of 1.11 million. Fossil Fuels An analysis was made of the consumption of fuels used in leased cars in terms of mileage, liters needed, and costs. The mileage for diesel fuel was 226,011.1 kilometers, for which 19, liters were used at a cost of 8.48 million. Diesel Consumption , , , , , , , Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Distance Fuel L 3, , , , , The mileage for gasoline was 335,166.7 kilometers, consuming 23, liters at a cost of million. Gasoline Consumption , , , , , , , , Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Distance Fuel L 3, , , ,100,00 1, , The mileage for 2016, then, totaled 561, kilometers, consuming 43,081.4 liters of fuel at a cost of million. 60, , , , , , , , , Fossil Fuels 2016 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 5, , , , , , , Distance Fuel L 31

32 Paper and Ink Consumption The information recorded in 2015 was used to obtain data on these resources. A record was created of the consumption of white paper (reams) and ink, generating an expense of million. In both cases consumption fell by 18%, equivalent to 5,125,000 sheets and 2,852 ink cartridges that were not used. The total expense for reams of paper in 2015 was ; this amount fell in the next year by 44%, giving savings of million was spent on ink in 2015; in 2016 this dropped by 46%, or Waste Collection and Management The baseline was all incoming assets in disuse in the first quarter of 2016; chairs (164) were the biggest contributors and had the greatest impact on storage costs. In second place were filing cabinets (254), with furniture in third place (164). Electronic assets have the greatest impact on costs due to the final disposal that is needed. They are sent for treatment to the Tecnológico de Costa Rica (TEC) at a cost to the Bank. Moreover, the amount of unused assets sent is significant: 292 CPUs, 268 keyboards, 142 printers, and 106 monitors. The economic impact represented by management of unused assets was measured, taking into account storage, responsible waste management, and expertise, giving an average unit cost of Added to this is responsible waste treatment, for which the average unit cost is for furniture and other equipment and 2, for electronic equipment (CPUs, monitors, and UPSs). 1.2 INTEGRATION OF SUSTAINABILITY INDICATORS IN BIDDER SELECTION CRITERIA An analysis was made of the proposed environmental criteria for security, cleaning, courier, technology, marketing/ advertising, timely deliveries, construction and maintenance, with regard to eco-efficiency and social responsibility clauses, for a total of 289 RFPs with social responsibility and sustainability indicator clauses. 1.3 REPLACEMENT OF CURRENT EQUIPMENT WITH MORE ECO-EFFICIENT EQUIPMENT The 2016 plans for replacing due to obsolescence or new needs air conditioners, UPSs, portable and desk computers, office servers, and multi-function printers included a schedule for migrating from the current to new, eco-efficient equipment (such as low-consumption processors with Energy Star certification, variable volume and centralized control, etc.) in the medium term. 300 Replacement with Eco-Efficient Equipment Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Projected monthly replacement Actual monthly replacement Some 1,600 items were delivered, successfully meeting the projected goal and surpassing it with 107% compliance. 32

33 1.4 PROTOCOL FOR CONSTRUCTION OF ECO-EFFICIENT BUILDINGS A protocol was proposed for building eco-efficient buildings that incorporate elements for lighting, air conditioning, and water management, are viable for solar panel installation, and, in general, have an environmentally-friendly design. The scope of the market analysis was defined for identifying best practices and the best eco-friendly accessories and equipment. Under the criteria of rational and efficient resource use, Banco Nacional started several years back to define standards for guiding the basic lines of action in terms of uniformity, eco-efficient maintenance, and spatial relationship for the use, benefit, and conservation of its facilities. The principle it adopted for this was that of total integration, referring to the distribution that integrates and coordinates customers, employees, equipment, ecosystem, documents, materials and other elements so that the offices perform as complete units. In view of this, the feasibility was considered of using different electrical devices to help adapt to climate change and mitigate energy consumption in Banco Nacional branches and offices, thereby reducing operating costs and carbon emissions. Additionally, the Bank is required to comply with MINAE s Directive 11, in which the government urges the main state-owned companies with high levels of energy consumption to generate environmental management systems and adopt responsible procurement practices using efficiency-enhancing equipment. Within the scope of its social responsibility policies, the Bank has defined a set of factors that have a positive impact on the environment and imply a joint effort by both individuals and the BN group. 33

34 ENVIRONMENTAL MANAGEMENT PLAN: In order to have an orderly, systematic environmental program in place for the period from May to December 2016, the Bank devised a strategy focusing on five strategic areas: The environmental management program was developed in a differentiated manner to order permeate the entire institution. Environmental Awareness Recycling Environmental Management Plan Institutional Outreach Carbon Neutral Blue Flag 1.1 Recycling Strategy: Training is an important component of a recycling strategy, so a survey was made of offices that needed training in proper waste management. The poll showed that 80% of the Bank needed training in waste management. Offices were also surveyed to make sure that each had an environmental manager in order to properly monitor waste management. A total of 100 out of 170 Bank offices were enrolled in During the survey, we made sure all the offices had adequate containers for recycling. 1.2 Institutional Outreach: The program was primarily based on two main events sponsored by Banco Nacional: Planet Hour Sponsorship: This event involved social networks as well as the physical participation of 2,000 people; savings equivalent to the electricity consumption of 5,000 households were recorded when energy was reduced by 30WM during the blackout. Information provided by the Costa Rican Electricity Institute (ICE). Environment Fair Sponsorship: The fair, held at the old customs building in San Jose, Costa Rica, attracted 25,000 people over five days. Banco Nacional was both sponsor and coordinator/host of the event, in partnership with the Ministry of the Environment. 1.3 Carbon Neutrality: Two strategies were crafted for applying carbon neutrality in the Bank, in accordance with ISO 14064:2011 and :2013. The carbon neutral certification process was initiated in BN Vital and BN Valores, and, finally, the Ciudad Quesada branch office developed a pilot plan for certifying in carbon neutrality. 1.4 Environmental Awareness: A communication campaign was conducted in all of the country s offices and agencies to present a character called Mundito BN ( Little BN World ). Aimed at all BN employees, the campaign addressed the issue of awareness in managing institutional resources. 1.5 Blue Flag Training was conducted in the 36 enrolled offices on the parameters of each of the measurable items in the Blue Flag Climate Change Category manual. The final result was the submission of 27 Blue Flag reports. 34

35 SUPPORT FOR WOMEN ENTREPRENEURS 1. FINANCIAL RESULTS As shown in the table, 1,211,641 million were deposited, surpassing the annual goal of 1,206, million a product of the results for micro, small, and medium enterprises and affluents. 88.5% of the goal was met for the mass segment. Business Data by Segment December Seg Mass Product Base Balance Monthly Balance Monthly Goal Annual Goal Note Medium Enterprise 74, , , , Small Enterprise 113, , , , Women Deposits Loans Micro Enterprise 237, ,063,97 258, , Affluents 191, , , , Mass 482, , , , ! Total 1,099, ,211, ,206, ,206, Medium Enterprise 98, , , , Small Enterprise 158, , , , ! Micro Enterprise 210, , , , Affluents 46, , , , Mass 310, , , , Total 825,878,53 913, , , ! Balances OFSA 86.7% of the lending goal was achieved, with satisfactory results in all segments except that of medium enterprises, where lending fell off. With the IDB/MIF program we expect to identify the needs of some of these enterprises and address them with a suitable value proposition in order to reverse this trend. As of December 2016 the loan portfolio had a legal default rate (1 to 90 days) of 6.31% and a 90+ day delinquency rate of 2.67%. 2. NON-FINANCIAL SERVICES 83 activities were carried out with the attendance of 2,382 women. The activities, which provided business support for women entrepreneurs, were geared to growing their businesses and included training for the affluent and mass segment to improve financial literacy and build ties with the Bank through savings and loans, primarily. 35

36 Carolina Hernández, businesswoman 3. OTHER RESULTS a. IDB-MIF-AED-BNCR Program The interinstitutional agreement signed with IDB/MIF, known as the business case for support of women-led enterprises, entered the implementation phase in the second half of 2016, starting with a few components such as training. The project s implementing unit, Asociación Empresarial para el Desarrollo (AED), contracted the Instituto Tecnológico de Costa Rica to kick off the Women Leaders 360 Program with a total of 24 businesswomen, who built management and business capacities during the 6-month program that started in November b. Big Data In close coordination with IT and the Innovation and Marketing Department, requirements were defined for developing an information extraction program to help us identify specific needs, preferences and tastes in order to provide a better value proposition for the Bank s women customers and attract new ones. Due to the complexity of the issue, this took longer than initially expected and planned, but it will serve as a pilot for other areas of the Bank. 36

37 VOLUNTEER FORCE RESULTS: At the end of 2016 the original goal had been surpassed. Under this new modality, actual volunteer hours totaled 24,507, surpassing the goal of 16,576 hours for 148% compliance with the program. Issues Addressed Impact by Segment 18% Youths Women living in poverty 58% 2% 1% 7% 14% People with disabilities Indigenous population Business segments Other (mixed) Youths 22,860 Women living in poverty 16,768 People with disabilities 1,944 Indigenous population 1,540 Business segments 8,575 Other (mixed) 72,088 TOTAL 123,775 37

38 INVESTMENT FOR DEVELOPMENT Marvin Montero Varela, Director of Caminos del Sol In 2016, Banco Nacional contributed to Costa Rica s economic and social development through initiatives promoting financial education, infrastructure, job creation, and other necessities for the country s socioeconomic and environmental growth. 1. INVESTMENT IN INFRASTRUCTURE: Banco Nacional has consolidated its role as a driver of development in Costa Rica and Central America. Its financing of public and private infrastructure has led to investments in such initiatives as private real estate development, construction of public institution buildings, construction of aqueducts and telecommunications networks, and clean energy generation (wind farms and hydroelectric plants, for example) this last having become the means for mitigating the effects of fossil fuel-fired power generation. All this in response to Banco Nacional s vision of being the driving bank for the country s development and supporter of environmentally friendly initiatives. The Bank has also become an ally of the rest of Costa Rica s financial sector through the injection of working capital into target segments and businesses where BNCR has not ventured, such as leasing and invoice discounting, bringing business options to sectors unattended by second-tier banks. 38

39 Activity Drafted in Colones % Colones Drafted in Dollars % Dollars Energy 15,941,076, % $48,164, % Industry 25,374,500, % $76, % Public Works 1,901,469, % $32,125, % Financial Services 98,884,417, % $131,208, % Overall Total 142,101,463, % $211,574, % 55.20% 44.80% Total Amount Drafted 2016 Translated Into Colones 257,568,299,184 The following table shows loan amounts for 2016 aimed at investments in the aforementioned areas; these amounts drove more than 11% of the loan portfolio for the 2016 fiscal year close. BNCR resumed management of the Instituto Costarricense de Puertos del Pacífico (INCOP) trust and will soon kick off a new project, Plaza Esparza. Furthermore, the managing trust for the National Stadium has continued its plausible selfmaintenance management, even to the point of generating a profit at year end. 2. JOB CREATION: In terms of social responsibility, the DGBCE took actions to improve the quality of life of Costa Ricans and its business partners, in general. As shown in Table 1, 100 new loans were closed for a total of 268,884.4 million, leading to the creation of 10,007 direct jobs and 11,502 indirect jobs. Table 1 Number of Loan Closings FY 2016 N O. of Loans Amount TOTAL Colones Dollars Total loans Colones Dollars Translated into colones DGBE ,552.6 $ ,884.4 CC ,551.6 $ ,244.9 DGBCE % Share 64.3% 94.3% 87.0% 17.5% 82.4% 59.1% 3. INTERNATIONAL SERVICES For its international services, Banco Nacional has a network of direct and indirect correspondent banks through which our customers can transact their business efficiently, reliably, and safely. Our highly trained officers are happy to advise customers on any questions they may have about international transactions. Correspondent bank City Currency Toronto Dominion Bank Toronto CAD Ubs Ag Zurich CHF Jp Morgan Chase Bank Londres EUR Commerzbank Ag Frankfurt EUR Deutsche Bank Ag Frankfurt EUR Bbva Madrid EUR Rabobank Utrecht US$ Commerzbank Ag Frankfurt US$ Bank Of Tokio-Mitsubishi Tokyo US$ Toronto Dominion Bank Toronto US$ Bank Of America Miami US$ Deutsche Bank Trust Company America New York US$ Bank Of New York New York US$ Jp Morgan Chase Bank New York US$ Citibank New York US$ Wells Fargo Bank New York US$ Bicsa Panama Panama US$ Banco Bancentro-Lafise Nicaragua US$ 39

40 4. COMMUNICATIONS A trust was set up with SUTEL for kicking off the second Connected Households program, where the trust subsidizes at-risk populations by installing free Internet access. At year end, more than 12,000 people had benefitted from this program. At the same time, headway was made on Program Three for equipping different public institutions, helping institutions with training and with addressing all their equipment needs, with an average investment of US $9 million. 5. EDUCATION A trust was set up with the Ministry of Public Education (MEP), and the first two trust-funded schools were built while progress was made on land purchases and more than 40 preliminary designs. 6. GREEN TRUSTS The green trusts have been moving forward and growing. Key projects in this area have been achieved with FONAFIFO and the Fondo de Biodiversidad Sostenible-Fundación Banco Ambiental trust, such as payment of environmental services, thereby obtaining more funding for additional projects. By means of these trusts BNCR issues its green card and the eco-marchamo (optional carbon-offsetting vehicle decal), with which it was able to contribute $280,000 at year end for growing the fund. A trust was also set up with MINAE for administering an expected income of more than 3 billion from Manuel Antonio National Park. The trust that built the Peñas Blancas hydroelectric plant came to a successful completion, paying off all its securities issues and turning the rights to the plant over to the Instituto Costarricense de Electricidad (ICE) at mid-year. The trust that built and continues to manage the Cariblanco hydroelectric plant is still up and running. Some of this trust s securities, which are very popular, continue to circulate in the securities market. 7. HOUSING / MORTGAGES By destination economic activity, the largest share of BNCR s portfolio balance is for housing (29.98%), followed by services (21.54%) and consumer credit (10.82%). At year end the Bank had 134.9% compliance with its annual goal, achieving its target percentage for housing. This investment takes on significance in that it gives more families access to housing. Institutional mortgage center (IMC) loan report IMC Annual Business zone 2016 Target IMC Contribution Accumulated 2016 Achievement East 17,290,480,542 6,916,192,217 16,157,434, % Heredia 14,976,580,509 5,990,632,203 11,548,613, % West 9,940,690,631 3,976,276,252 6,057,958, % Alajuela 10,156,133,076 4,062,453,230 5,806,202, % Cartago 13,055,894,179 5,222,357,672 5,361,916, % Central 13,216,377,533 5,286,551,013 4,530,887, % Limon 2,576,966,799 1,030,786, ,669, % Puntarenas 4,425,016,938 1,770,006, ,368, % Ciudad Quesada 2,471,953, ,781, ,202, % Perez Zeledon 2,611,355,494 1,044,542, ,430, % Liberia 4,018,743,007 1,607,897,203 84,344, % Total 94,741,191,728 37,896,476,691 51,113,027, % Source: DGCF 40

41 8. MEDIUM-SIZED ENTERPRISES A liabilities payment campaign was conducted that helped strengthen demand for business sector loans by 75,394 million among 206 customers with excellent credit ratings. In some business zones, the campaign made it possible to meet the growth goal for medium-sized enterprise customers. It also turned out to be a key tool for drawing large customers away from the competition. A noteworthy achievement is the improved rating of customers in this segment, now at 66.3 versus 59.3 in 2015, a reflection of the efforts made by Bank offices to provide better service to these customers. Although key improvement measures still need to be taken, the improved results are meaningful, since in previous years there were no significant changes, and in some cases there was also deterioration. 9. MICRO AND SMALL ENTERPRISES Gerald James Mory Mora, owner of Gráfica Litho Offset Business Data by Segment 2016-December Seg Mass Product Base Balance Monthly Balance Monthly Goal Annual Goal Note Small Enterprise Small Enterprise Loans Deposits Loans Deposits Savings 38, , , , TCD 66, , , , ! Current Account 250, , , , Total 356, , , , Consumer 8, , , , Development 274, , , , Business 115, , , , Mortgage 145, , , , Credit Card 7, , , , Car 7, , , , Total 559, , , , Business Data by Segment 2016-December Seg Mass Product Base Balance Monthly Balance Monthly Goal Annual Goal Note Savings 333, , , , TCD 171, , , , Current Account 222, , , , Total 727, , , , Consumer 38, , , , Development 295, , , , Business 7, , , , Mortgage 245, , , , Credit Card 43, , , , Car 39, , , , Total 670, , , ,

42 Development Banking (SBD) Loans In 2016, the Bank closed loans for 42,088.1 million in development banking funds, reaching a year-end balance of 69,379 million in 8,652 loans and meeting its expected lending goal of 20,000 million for the year. This translates into a stronger boost for the country s micro and small enterprises and potential new jobs, enhancing the quality of life of BNCR customers. Focus on Working with Segments By revising the segmenting of micro and small enterprise customers, Banco Nacional was able to increase the number of customers enrolled in the BN Development program (for customers meeting the micro and small enterprise profile) from 70,000 to more than 300,000, expanding the potential internal market for this segment. Sales Force Training In the last quarter of the year, eleven regional workshops on how to sell to SMEs were conducted by Argentine consultant Martín Quirós, an expert on the subject. Aimed at more than 300 micro and small enterprise executives, the workshops were also attended by several branch office managers and loan officers. With this training the Bank is seeking to raise its customer service standards. A seminar for business executives was also held in the last quarter, led by Chilean expert Jaime Pizarro, former general manager of Banco Estado de Chile and promoter of the successful BEME (Banco Estado Micro Empresa) program. Special Programs Customers affected by weather, health or market emergencies received 4,277.3 million, in coordination with the SBD. This had a positive impact, primarily on palm oil producers in Costa Rica s southern zone, but also on others such as chayote producers, pig farmers, and cattle and dairy producers, etc., culminating towards the end of the year with the first cases of customers affected by Hurricane Otto. The Standards Committee designed and approved a scheme for providing service to undertakings and structured a process for serving and financing livestock producers, to be implemented in Business Support Processes Two open training events were held in 2016 for entrepreneurs and businesspeople under the BN Capacita concept, the first in Liberia and the second in San José. More than 1,000 people participated in the training, which included a session for presentations of new projects for financing. As part of its emphasis on promoting savings, BNCR sponsored a seminar on The Financial Revolution, which focused mainly on customer participation and was led by CNN Dinero presenter Xavier Serbiá. The first customer activity with a charge for participation, the event was attended by some 600 people and achieved international notice and promotion. BN Municipalidades Financing for municipal governments grew by 28.7% in 2016, and the first municipal works trust was set up, with the construction framework to be delivered in the first half of BN VEHICULOS At year end we had 141% compliance with the annual goal, meeting the target for BN Vehículos; notably, the achievement of more than 100% was spread over ten zones. Business zone Growth Target Loan Closings (Jan 16-Dec 16) Actual Growth at December Percentage Achievement at December Puntarenas 835,571,877 3,902,473,539 1,954,600, % Cartago 2,245,032,996 8,794,631,633 4,853,829, % Perez Zeledon 1,479,826,066 6,530,666,535 2,965,279, % Alajuela 1,865,205,292 6,310,055,169 2,964,347, % Heredia 2,481,309,491 5,708,149,949 3,771,489, % Ciudad Quesada 1,468,152,297 5,473,652,150 2,167,050, % Liberia 2,170,735,086 8,106,630,883 3,077,484, % Limon 1,095,270,584 4,074,011,308 1,520,323, % San Pedro 5,947,014,015 18,199,961,652 8,048,300, % Santa Ana 3,417,186,784 10,153,328,624 4,002,492, % Central 5,515,013,491 22,955,194,189 4,849,320,259 89% TOTAL 28,520,317, ,208,755,631 40,174,520, % Source: DGCF 42

43 11. BN SERVICES: At December 31, the Bank had 3,045 BN Services affiliates offering BN services; 2,743 of these were active while 302 were inactive. This represents 90.08% of active merchants, thus meeting the goal of 90%. With its BN Services affiliates Banco Nacional can offer a wide array of its products and services anywhere in the country and create a larger number of financial service users, making this a means of expanding financial inclusion in Costa Rica. Results at December 2016 Business Zone Affiliations Achievement Active BNS Inactive BNS Ratio Inv N Ciudad Quesada zone % % 14 West zone % % 21 Cartago zone % % 19 Liberia zone % % 31 Perez Zeledon zone 37 82% % 11 Alajuela zone 38 84% % 10 East zone 36 80% % 88 Heredia zone 29 46% % 22 Puntarenas zone 27 60% % 18 Central zone 27 60% % 12 Limon zone 27 60% % 14 Total % VIP PLATFORMS AND/OR AFFLUENT CUSTOMERS These platforms have been designed to offer differentiated attention in a discreet space, where a particular class of customers is provided special attention that includes having the help of an executive experienced in setting up portfolios and luxury details such as water, soft drinks, coffee, cookies, and other light snacks. The idea is to ensure preferential treatment for most of these customers. 13. BANK OFFICES Productivity Efficiency Indicator (DSF) Banco Nacional set about creating a dynamic sales force (DSF) for the firm purpose of facilitating points of sale according to the needs of geographical areas and customer demand. As support for its sales force, it considered making available trained sales representatives to close the gaps and achieve the business mix needed to generate greater returns and income for the Bank, taking into account the particular situations of each office and zone and high demand days for teller service, based on the strategic objective of changing the business mix. Coverage Efficiency Indicator The purpose of the coverage efficiency indicator (IEC) is to contribute to the strategic pillar of fomenting productivity and efficiency, outfitting various offices where due to location, physical structure, number of portfolio customers, district potential, competition, and other variables a change in the approach used with customers is considered necessary. That is, the goal is to make customer management more efficient in offices that have a physical and human structure, to change the way these customers are attended. DSF SUMMARY BY ZONE Business Zone DSF 2017 Alajuela 16 Cartago 10 Central 45 Ciudad Quesada 11 East 22 Heredia 16 Liberia 21 Limon 5 West 13 Perez Zeledon 4 Puntarenas 10 Overall Total

44 14. CHANGING THE CUSTOMER APPROACH IN BANK OFFICES (BANKING ADVISORS) In order to take advantage of changes in the physical structure of some offices, a programmed merger of teller and platform positions was recommended, turning them into banking advisors trained to provide better customer service. 15. RURAL CREDIT COMMITTEE MODEL Some of the main activities in Costa Rica are agriculture and livestock farming. For more than 15 years, BNCR has been the leader in initiatives for these activities with its Development Banking program. It decided, therefore, to go one step further in 2016 and take advantage of government initiatives such as the Development Banking System (SBD), in which BNCR is the principal distributor or lender of funds with special prices and requirements. To do so, and to magnify its development and social responsibility impact, it has classified 50 offices with a development profile, in order to strengthen micro and small businesses where there is active participation of third parties with experience in putting together small loans. The offices are distributed around the zones, with the participation of eleven Ciudad Quesada offices, ten Liberia offices, nine Pérez Zeledón offices, six Cartago offices, six Limón offices, six Puntarenas offices, one Alajuela office and one San Pedro office. 16. SIMPLIFIED FILE ACCOUNT (CES) Internal Campaign Before launching the product, virtual training was implemented using the Campus BN tool. A total of more than 4,000 employees certified in the product. The Webex tool was used to reach the most number of bank offices throughout the country, especially those located outside the greater metropolitan area, achieving a broader scope and more efficient use of institutional resources. Close to 20 video conference training sessions were held for the Bank s different business zones. External Campaign For launching the Simplified File Account, BNCR developed an advertising campaign for promoting the product. The campaign consisted of a media mix (including press, radio and TV) that varied greatly according to the target segment. Its importance lay in the need to inform Costa Ricans of this product, since it is an accessible alternative for opening accounts without setbacks. CES by Status: CES by Currency: CES by Type: CES by Customer Type: Active: 30,070 Colones: 32,945 Type 1: 3,258 Citizen / Resident: 31,314 Inactive: 5,651 Dollar: 2,907 Type2: 29,262 Foreigner: 4,538 Closed: 131 Type 3: 3, COMMUNITY UNDERTAKINGS The Community Undertakings program works directly with the integral development associations (ADIs) created by Law Some six years ago, Banco Nacional signed an agreement with DINADECO (the national office for community development) to convert the development associations into micro enterprises. Taking advantage of its years of development banking experience, Banco Nacional provided technical guidance to the ADIs to transform productive ideas into productive projects that would mean business for the community. New sources of employment and production linkages benefitting family and local economies are sought through this program. In 2016, Banco Nacional carried out 10 productive community projects in different communities around the country, benefitting slightly more than 1,000 families and 100,000 people. The Asociación de Desarrollo Integral de San Luis de Monteverde provides support to different entrepreneurs in the area to boost their business. 44

45 Asociación de Desarrollo Integral de San Luis Monteverde Asociación de Desarrollo Integral de San Rafael de Abangares Asociación de Desarrollo Integral de Nuevo Arenal Asociación de Desarrollo Específica para la Producción Apícola de Sabalito Asociación de Desarrollo de Santa Eulalia de Atenas Asociación de Desarrollo Integral de Corcovado de Carate de Puerto Jiménez 7 Asociación de Desarrollo de Muelle de San Carlos 8 Asociación de Desarrollo Integral de Ostional 9 Asociación de Desarrollo Integral de Pozas 10 Asociación de Desarrollo Integral de Cartagena (San Lorenzo) Building the community s business capacities for developing a rural community tourism program in San Luis Remodeling and expanding the infrastructure of the El Cafetal, San Rafael de Abangares eco-tourism project starting with the project s restaurant Construction of a bus terminal and commercial locales for rent Construction of the first laboratory in Costa Rica for breeding genetically manipulated queen bees to increase and improve the country s honey production Adapting and equipping a restaurant offering typical Costa Rican food Equipping the Sirena Post in the Corcovado National Park so that the community can offer the non-essential services needed by the national park Construction of commercial locales for rent, taking advantage of the expanding business boom in the dock area Donation of a refrigerated truck for marketing the ADI s registered products Purchase of a marketing collection center for the area s small producers of milk Equipping a restaurant for a rural community eco-tourism project 18. FINANCIAL EDUCATION Banco Nacional participated as a sponsor in several national initiatives to promote financial education in Costa Rica. Its main sponsored events were educational fairs, the Labor@ Program, and the UPE Educational Platform. The impact, in partnership with the Omar Dengo Foundation, was as follows: Labor@: Awareness was raised for 10,000 students and 1,462 teachers from 218 technical high schools. The program helped them learn how to develop a micro enterprise and use all the financial processes involved. To do so, students used a center of operations that recreated Banco Nacional s Internet banking platform in a controlled scenario. 18,251 transactions were handled on this platform. Expo Joven and Expo Ingeniería: The Bank s presence was exclusive during the four days of the fair. Business proposals submitted by participating youths were analyzed, and the winning projects or ideas were linked to BN Development Banking. UPE: This is an e-learning platform ( administered by the Omar Dengo Foundation with the support of the Ministry of Public Education (MEP), consisting of userfriendly courses with innovative elements that provide the opportunity to learn by doing and be in contact with a virtual learning community. Courses are given in accounting for non-accountants, business plans, marketing and sales, social responsibility, and results-oriented management, etc. Participation in the Robotics Fair: Some 4,000 people were impacted during the fair. The Bank took advantage of the occasion to send Mr. BN, a robot built with LEGO technology. 19. PREPAID PRODUCTS Prepaid products are mostly used by bank customers engaged in agriculture who, due to the nature of the business, use foreign labor for harvesting their produce. The Bank s fees generated by this product come from the charge for card issuance, which is $3.00 per card, and the fee charged to the business owners for batch uploading of their employees wages, which is 1.55% of the total upload amount. The prepaid product comprises both prepaid IMAS cards and prepaid FONABE cards. 45

46 20. ALTERNATE CHANNELS A. Key Achievements in Improving Customer Service and Fostering Financial Inclusiveness among BNCR Customers New Functionalities o New functionalities were developed in the Internet banking system to speed up services for customers, improving enrollment, credit line inquiries, credit line disbursements, and voucher modification, etc. o New functionalities were developed for BN Móvil for enrollment, updating and disenrollment in BN SINPE Móvil, adding and eliminating of favorite accounts, and, finally, improved updating of passwords using Forgot your password. o Mobile apps were developed in BN Más Cerca de Usted with a new access to the BN Venta de Bienes app and creation of a Mi Banco app. New ATM Installations To facilitate access of BNCR customers to ATMs, fourteen new ATMs were installed around the country. A business communication system was created with current electronic channel customers to facilitate communication of new functionalities and encourage the use of these channels. Implementation of Megasúper 46

47 21. DEBIT CARDS Over the years Banco Nacional has reinforced its debit card leadership and now has more than two million debit cards (2,093,895 at the October 2016 cutoff). Number of Cards 2,150,000 2,100,000 2,050,000 2,000,000 1,950,000 1,900,000 1,850,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Year ,945,000 1,954,000 1,962,000 1,974,000 1,987,000 1,989,000 1,993,000 2,006,000 1,019,000 2,033,000 Year ,048,000 2,059,000 2,063,000 2,075,000 2,087,000 2,073,000 2,077,000 2,079,000 2,078,000 2,093,000 47

48 Significant growth was seen in customer portfolio purchase amounts (average growth for October 2016 was 10%). The common factor for the year was growth, as seen in the following table: 100,000,000 Debit Card Purchases (Millions of ) 90,000,000 80,000,000 70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 0 Year 2015 Year 2016 Jan Feb Mar Apr May Jun Jul Aug Sep Oct 86,195,000 75,018,000 82,635,000 73,730,000 76,730,000 77,896,000 82,549,000 78,809,000 78,322, ,827,000 86,428,000 87,428,000 82,354,000 90,722,000 81,517,000 88,252,000 93,891,000 84,940, Debit card interchange fees in 2016 grew by 10% in the ten months that were studied, as shown in the following graph: 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000, , , , ,000 0 Year 2015 Year 2016 Debit Card Interchange Fees (Millions of ) Jan Feb Mar Apr May Jun Jul Aug Sep Oct 1,634,000 1,546,000 1,641,000 1,406,000 1,441,000 1,562,000 1,541,000 1,547,000 1,474,000 1,475,000 1,741,000 1,761,000 1,644,000 1,614,000 1,763,000 1,557, 000 1,566,000 1,792,000 1,558,000 1,658,000 48

49 In addition, monthly fees showed steady growth throughout the year (averaging 10%), but in comparison with the previous year the interannual growth was less. Strategies were lacking for the debit card product due to an inability to contract the 5-Step scheme under the administrative procurement mechanism determined by the Legal Division. By January 2017 we expect to be initiating this comprehensive strategy. A Note on Profits: It should be kept in mind that strategies have been contemplated for activating debit cards, but we are looking to do more than just increase the number of cards; what we really want is for customers to maximize their use so that the average debit bill grows along with profits. According to MEIC data, Banco Nacional has a 36.97% market share, taking first place among public and private banks, cooperatives, and finance institutions. Monthly Earnings (Millions of ) 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000, , , , ,000 0 Year 2015 Year 2016 Jan Feb Mar Apr May Jun Jul Aug Sep Oct 1,786,000 1,519,000 1,706,000 1, 527,000 1,512,000 1,586,000 1,708,000 1,590,000 1,496,000 1,642,000 1,757,000 1,792,000 1,702,000 1,753,000 1,762,000 1,562,000 1,663,000 1,806,000 1,430,000 1,625,000 Market Share of Deposits 38% BN 62% Market 49

50 22. PHYSICAL CHANNELS DGCF Results Data by Product-Mass 2016-December Mass Product Base Balance Monthly Balance Monthly Goal Annual Gap Annual Goal Note Deposits Savings 1,162, ,319, ,307, , ,307, TCD 674, , , , , Current Account 837, , , , , Total 2,674, ,904, ,909, , ,909, Consumer 122, , , , , ! Development 629, , , , , ! Loans Business 508, , , , , Mortgage 1,108, ,192, ,204, , ,204, ! Credit Card 105, , , , , Car 131, , , , , Total 2,604, ,866, ,915, , ,915, ! The above table shows that the DGCF deposit balance began at 2,674,613 million as of December 2015 and ended at 2,909,142 million as of December 2016, achieving an absolute growth of 234,529 million. Deposit targets were met for each product except TCD (term certificate of deposit), which remained at 6.49% of its goal. In addition, the loan balance started at 2,604,545 million as of December 2015 and ended at 2,914,999 million as of December 2016, with an absolute growth of 310,454 million. Our car loan results were excellent, but with the other products we will need to redouble our efforts to meet our 2017 target. Legal Default and 90+ Day Delinquency Total Delinquency 10.00% 9.00% 8.00% 7,00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 8.97% 8.38% 8.63% 8.69% 8.66% 7.59% 7.95% 7.84% 8.06% 7.87% 8.11% 6.74% 3.42% 3.31% 3.34% 3.17% 3.40% 3.38% 3.35% 3.26% 3.28% 3.19% 3.12% 3.16% 2016-January 2016-February 2016-March 2016-April 2016-May 2016-June 2016-July 2016-August 2016-September 2016-October 2016-November 2016-December For DGCF s purposes, the targets were 7.21% for legal default and 2.9% for 90+ day delinquency; at the year s close 100% of our legal default target was achieved, but this was not the case for the 90+ day delinquency target. 50

51 Default Results by Business Zone Business Zone Legal Default Legal Default Dec Day Delinquency 90+ Day Delinquency Dec-2016 Alajuela 6.38% 7.53% 2.73% 3.15% Cartago 6.63% 5.67% 2.28% 2.72% Central 5.35% 5.31% 2.28% 2.30% Ciudad Quesada 6.75% 4.99% 2.04% 1.68% East San Pedro 6.73% 6.25% 2.64% 2.91% Heredia 5.51% 4.20% 1.98% 1.78% Liberia 11.52% 13.54% 5.58% 6.52% Limon 8.94% 8.32% 3.39% 4.94% West Santa Ana 7.14% 7.07% 2.93% 3.06% Perez Zeledon 8.20% 6.78% 2.83% 2.79% Puntarenas 9.45% 9.14% 5.38% 5.88% Source: SGDP Control and Planning Division Only the Alajuela and Liberia zones failed to achieve the legal default target by the 2016 close. The remaining business zones had 100% achievement of the target. However, with respect to 90+ day delinquency only the Ciudad Quesada, Heredia, and Pérez Zeledón zones had 100% achievement; the remaining eight zones failed to achieve the target. DGCF s Share of the Institutional Balance Deposits In 2016, Banco Nacional s deposit balance was 4,103,187 million, of which the branch offices contributed 2,909,142 million, or 71% of the total. 71% Total BNCR Deposits at Dec % DGCF SGBC Source: SGDP Control and Planning Division Lending Banco Nacional s lending balance was 4,208,656 million, of which the branch offices contributed 2,914,999 million, or 69% of the institution s balance. Total BNCR Loans at Dec % DGCF 69% SGBC Source: SGDP Control and Planning Division 51

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