Annual Report

2019 Annual Report

2019 Memoria Dominican Republic Anual

Nicaragua Cayman Islands Panama

Guatemala El Salvador Honduras Costa Rica

Ecuador

2019 Annual Report Message from the Chairman of the Board Grupo Promerica

After more than a quarter of a renew our Vision, Mission and Values, Promerica, in which the nine system was installed in a school for century promoting the progress of aware that a great brand is built from banks that make up the Group students in order to learn to recycle communities and contributing to the within, just as how values in a family simultaneously carried out and cultivate a school garden. In success of individuals and businesses are transmitted. Employees were the various activities with social and Honduras, food and clothing were considering their capacities and first to ascertain our brand manifesto environmental ends. In Ecuador, collected that were delivered to possibilities, we are pleased to by means of a series of activities employees carried out reforestation retirement homes managed by the share that we have two million four related to the new strategy, which efforts at the Yanacocha Reserve San Felipe Hospital (Tegucigalpa) and hundred thousand customers and motivates us to continue improving located about an hour and a half in San Vicente de Paúl (San Pedro over 13 thousand employees in the our lives and to become promoters of from Quito; in Ayampe - Puerto Sula), and a day of entertainment nine countries where we operate. progress, both inside and outside the López from the cities of Manta and was held for them. In Nicaragua, organization. Guayaquil, as well as in Cuenca at the support was provided to children and Throughout the year 2019, the Yunguilla Reserve. In Guatemala, a adolescents with special needs of the consolidation at the internal level of The second event was the reforestation day in San Cristóbal El Hogar Pajarito Azul. In Costa Rica, Grupo Promerica continued through institutionalization of the Alto (Sacatepéquez) was conducted. we conducted a solidarity drive at two important events. The first was to International Volunteer Day at In El Salvador, a biogas generation the Hogar Siembra, an organization

Memoria Anual 2019 Annual Report 2019 3 attached to the Patronato Nacional proposal establishes a road map to Salvador, Symbiotics has allowed us products: SMEs, Green Credits and de la Infancia (National Children’s integrate sustainability into all areas to contribute toward development Agribusiness. Norfund invested in Trust—PANI), which is dedicated to of business, and defines the role and and competitiveness through a facility subordinated bonds and in addition the rescue of young women and girls responsibility of the Banking Sector granted by the Bond Investment Fund implemented technical assistance under social risk. In Grand Cayman, in the achievement of the Sustainable for Micro, Small and Medium-sized on behalf of IDB Invest, Proparco, we carried out a cleanup at the Development Goals of the United Enterprises; Norfund—Corporation and FMO to measure impact, carry Siete Millas public beach. In light of Nations and of the 2015 Paris Accord for the Development of Norway— out a communications campaign, breast cancer awareness month, the on Climate Change. We reaffirm gave us subordinated debt to leverage strengthen SME strategies, and raise Dominican Republic gave talks on our commitment with the goals of plans and growth opportunities in the standards of the Management the importance of preventing disease Sustainable Development to leave a SMEs; Proparco also provided us with Program for Environmental and Social through self-examination, and in better world for future generations. resources for the SME portfolio; IDB Risk (SARAS). In Panama, we received addition, we carried out reforestation Invest and CABEI—Central American significant support from IDB invest efforts at Arenoso and Villa Altagracia, We continue working ties with the Bank for Economic Integration, for the financing of SMEs, and Bladex as did employees in Panama, at the institutions of the international increased their support for granted resources for foreign trade Metropolitan Park of the Republic of financial community that have destinations geared to international and working capital; we renewed Panama. provided access to lines of credit trade, green lines, and gender the credit line with CABEI slated to in various countries. In Ecuador, equality. In Nicaragua, in order to support SMEs, productive sectors, and Reiterating our commitment to we received support from various support the various economic sectors working capital; similarly, we received sustainable development, we agencies such as: IFC—International of the country, and especially the technical assistance from IDB Invest conducted two significant activities: Finance Corporation—, responsAbility, agro-export sector, we signed a for the development of the Policy for the launch, in alliance with the DW Markets, Actiam Financial financing program with Credit Suisse, Sustainability and Green Products. FMO—Development Bank of The Inclusion Fund, FMO and OeEB— which also involved institutions Netherlands—, of the Spanish Development Bank of Austria—, such as IDB Invest, the China Co- We will continue to strengthen and version of the book Banca Para un entities that have granted long-term financing Fund for Latin America expand our institutions, building up, Mundo Mejor (Banking for a Better funds for Small and Medium-sized and the Caribbean, responsAbility, even more, our banking relationships World), which was presented in Enterprises (SMEs), Sustainable among others, and in addition, with individuals and companies so Ecuador and Costa Rica, countries Finance, and Gender Equality; as well obtained a significant increase in they may all be able to take advantage that consolidated strong leadership as the CAF—Corporación Andina de the global line of credit signed with of the opportunities for growth and in strengthening the policies of Fomento, IDB Invest, Bladex–Foreign the CABEI—Central American Bank advancement presented to them in Sustainable Banking. This book invites Trade Bank of Latin America, Bicsa for Economic Integration. In the order to reach their goals. us to be agents of change. and Banco Aliado, which have given Dominican Republic, we held our first short-term resources for foreign bond issue for subordinated debt, I would like to conclude by thanking The second important activity was trade. In Guatemala, we signed an which will allow us to strengthen our customers, shareholders, and the signing by Banco Pichincha agreement with the DEG—German the growth strategy in that country; partners, who make it possible for Ecuador, Banpro Nicaragua, and Development Corporation, and on its part, Bladex awarded funds us to transmit to them our goals and Banco Promerica Costa Rica, of Proparco—French Development for the development of foreign values thus supporting the growth the financial initiative Principios de Bank, which provides funds for the trade. Costa Rica received financing of our organization; thanks to them, Banca Responsable (Principles of financing of SMEs and in this way from IDB Invest, SDR, Finance in we provide well-being and a means Responsible Banking) promoted by contribute to the development of Motion, responsAbility, Symbiotics, for progress to the communities we the UN Environment Programme new businesses thus strengthening Blue Orchard, and CABEI to serve. and the global financial sector. This the economy of that country. In El strengthen the family of sustainable

Ramiro Ortiz Mayorga Chairman of the Board Promerica Financial Corporation

Memoria Anual 2019 Annual Report 2019 4 Vision At Grupo Promerica, we believe that all persons and companies in our communities should overcome their limits in order to achieve the success they deserve.

Mission To promote a banking relationship that develops relationships and offers products and services to our communities helping them to overcome their limits, whether cultural, economic, personal, or geographic.

Values • Ongoing Empathy • Natural Entrepreneurs • Shared Trust • Common Culture

Strategic Guidelines Grupo Promerica

Memoria Anual 2019 Annual Report 2019 5 Message from the Chief Executive Officer Produbanco I have the pleasure to present to you the employees. The digital transformation In Ecuador, we are members of the Global Much of what we have accomplished during financial statements of Produbanco and its strategy we are intent on is directed toward Pact and we foster the Sustainable Finance this year we owe it to the conviction and subsidiaries corresponding to the 2019 digital leadership in order to provide added Protocol in conjunction with Asobanca— support of those who believe in our work, as fiscal year. value to our customers. Association of Banks of Ecuador— and they have been our motivation to continue other banks in the country. In September, in the quest for opportunities and paths in We are committed to each day This is how through the Center for Produbanco, Banco Promerica Costa Rica, efficiency within an environment of constant accompanying persons and enterprises Innovation, and by virtue of being and Banpro Nicaragua, representatives challenges. to overcome their limits, share best focused on our customers, day in and of Grupo Promerica, joined as founding experiences, and strengthen long- day out we drive the development of new signatories of the Principles of Responsible Sincerely, term relationships through a proactive ideas through agile methodologies and Banking of the United Nations. The challenge management style that will lead us to be the multidisciplinary teams in order to offer is, from our role as a bank, to involve the best of the best in order to transcend the financial solutions adapted to the needs of community and everyone in this path of lives of people. the various business segments. sustainability. By virtue of being leaders in sustainable finance, we encourage all of Our strategic vision toward 2023 is geared, In addition, the orientation toward our stakeholders to also become agents of mainly, around one of our pillars: cultural sustainability forms an integral part of our change through sustainable practices. transformation that ensures success of digital strategic plan by being a pillar that goes transformation. beyond a simple statement, since we seek to Based on the trust that customers, incorporate it seamlessly in the management shareholders and associates place on us, we Ricardo Cuesta Delgado We have built a solid technological of all areas as a part of our business model reiterate our commitment to contribute to Chief Executive Officer infrastructure aligned with our institutional by using a crosscutting strategy in any of the the advancement of society. Produbanco - Promerica values that have been internalized by our actions we execute.

Memoria Anual 2019 Annual Report 2019 6 Vision To be the best of the best to better the lives of people. Mission Everyday to accompany people and companies to overcome their limits, share best experiences, and strengthen long-term relationships. Strategic Pillars • Cultural transformation that ensures success of digital transformation

• Data-driven organization.

• Strategic segmentation-based customer behavior to offer memorable experiences.

• Decentralized growth in all segments and geographies.

• Responsible management of assets and risks.

• Commitment to sustainability and corporate social responsibility. Corporate Values • Our essence is the customer Strategic Guidelines • We make the difference Produbanco 2019 - 2023 • Our ideas build • We are a single team • We comply with our commitment

Memoria Anual 2019 Annual Report 2019 7 Board of Directors Produbanco

Oscar Soto Brenes Karla Icaza Meneses Principal Director Deputy Director

Francisco Martínez Henares Francisco Rodríguez Vásconez Chairman Deputy Director

Luis Rivas Anduray Mauricio Argüello Godoy Principal Director Deputy Director

Héctor Neira Calderón Diego Mosquera Pesantes Vice Chairman Deputy Director

Gustavo Vásconez Espinosa Jaime Dávalos Fernández-Salvador Principal Director Deputy Director

Memoria Anual 2019 Annual Report 2019 8 Senior Executives Produbanco

Ricardo Cuesta Delgado Juan Manuel Borrero Viver Martha Cecilia Paredes Díaz Chief Executive Officer Executive Vice President Executive Vice President Management Oversight Management Support

Rubén Eguiguren Arias José Ricaurte Vela Vice President Vice President Corporate Banking Retail Banking

Memoria Anual 2019 Annual Report 2019 9 Senior Executives Produbanco

Sebastián Quevedo Holguín José Antonio Costa Viver Vice President Vice President Payment Channels Guayaquil Branch

Carolina Andrade Gallegos María Isabel Román Albornoz Vice President Vice President Institutional Segment Highlands Distribution

Memoria Anual 2019 Annual Report 2019 10 Senior Executives Produbanco

Jorge Alvarado Carrera Fabián Garzón Abad Fredy Sandoval Cerda Vice President Vice President Internal Auditor Legal Affairs Planning and Development

Gustavo Orbe Montenegro Aníbal Salazar Buenaño Vice President Alternate Compliance Officer Risk Management

Memoria Anual 2019 Annual Report 2019 11 Senior Executives Produbanco

Esteban Vásconez Riofrío Rafael Roca Moreno Vice President Vice President Financial Oversight Operational Services

Eduardo Lafebre Quirola Javier Hidalgo Estévez Vice President Vice President People and Culture Technological Services

Memoria Anual 2019 Annual Report 2019 12 Report of the Board of Directors

Dear Shareholders: supports the Administration in Produbanco’s score to AAA with a We will constantly transform in order the development of the Strategic stable perspective, and BankWatch to offer to our more than one million Through this report, we present the and Tactical Plan, as well as in the Ratings and Fitch Ratings (at an customers the best digital experience main actions carried out by the Bank attainment of its goals and objectives international scale) ratified their with easily accessible and usable during the 2019 fiscal year and the in order to reach the institutional AAA- and B- ratings, respectively, products and services, in any device, various achievements attained for the strategic vision towards 2023. who confirm the solidity, profitability, with ease and speed. We incorporated benefit of our stakeholders. Produbanco will consolidate its reputation, and access to institutional new functionalities in the Mobile App growth and diversification through financing sources. among which we can highlight: quick In this regard, we have the firm cultural transformation, which will access with face recognition and conviction that communication allow it to become the digital leader The excellent figures and results digital fingerprint, push alerts, and QR and transparency are the essential in offering memorable experiences were recognized for the tenth time Code payments. foundation of good Corporate to its Clients under the framework of by the magazine The Banker, which Governance, therefore, throughout comprehensive risk management and recognized Produbanco as Bank of the We continue to increase our national 2019 we conducted quarterly commitment with sustainability and Year - 2019 for Ecuador. Furthermore, coverage in order to be closer to our Sharehlolder Breakfasts, which social responsibility. the Bank was the recipient of other Clients and to provide them with comprised events to share first- important distinctions by specialized specialized financial advice, as well as hand the most relevant aspects of As a result of five years of execution publications that recognize transactional services through face- our administration within a space of of a clear growth strategy and categories such as Quality and to-face channels, through a network proximity with all our Shareholders. improvement of market participation Customer Satisfaction, Innovation of 117 branches and bank agencies, during which the financial and Digital Transformation, Corporate 379 ATMs, 66 Servipagos agencies, The Board of Directors, through its indicators have been maintained Governance and other, which are and 7,238 Pagoágil points nationwide, active participation and involvement and strengthened, the PCR—Pacific specified in our Annual Report and are from our subsidiary Externalización de in the various Regulatory Committees, Credit Rating risk agency increased available for your perusal. Servicios S.A.—Exsersa.

Memoria Anual 2019 Annual Report 2019 13 We opened two flagship agencies inflation of -0.07%. its economic outlook by focusing of the State, and average production in the cities of Milagro (Guayas) and on the fiscal issue, and by December was fixed at 543 thousand barrels per Portoviejo (Manabí), besides modern With the goal of resolving fiscal and signed the Organic Law on Fiscal day. Ecuador announced that starting bank branches in Pasaje, Tulcán, and structural problems in Ecuador, Simplification and Progressiveness January 1, 2020, it would abandon Cayambe. We participated in the during the month of March, the (Ley Orgánica de Simplificación y the Organization of Oil Exporting Shopping Portal project in Quito with Government signed an agreement Progresividad Tributaria), which with Countries (OPEC) with the purpose of a Produbanco agency, one digital and with the International Monetary Fund a view on tax collections, established increasing its production capacity. another Servipagos. (IMF), which gave it the possibility among others, the following reforms: of receiving a facility greater than In this panorama of economic With the commitment of providing ten billion US dollars during three downturn, the foreign financing memorable experiences, leveraging years, disbursed by the IMF and other Elimination of mandatory advances on achieved with the help of the IMF businesses and generating relations, multilateral credit agencies. The Income Tax. comprised the key factor in insuring during the last quarter we crystallized Extended Financing Facility program the level of liquidity for the Ecuadorian two disruptive initiatives in the established the country’s commitment Elimination of payment exemptions on economy. Private Banks, in association Ecuadorian market: we opened the to spearheading reforms in the labor Income Tax regarding distribution of with public financial institutions and doors to the first Produbanco Business arena with a view to an increase in dividends to foreign corporations. the popular and solidarity-focused Center in Quito, a collaborative competitiveness and employment economy, also played an essential space dedicated to co-working creation, implementing changes Payment of a single and temporary role in the invigoration and bolstering combined with great coffee, and we in fiscal regulations in order to contribution for FYs 2020, 2021, of internal demand through the implemented the first Mobile Office strengthen fiscal sustainability while and 2022 on behalf of corporations placement of productive, real estate, which will travel to various points, improving the level of reserves, thus performing economic activities that commercial, and retail loans. The loan mainly to the city of Guayaquil, in insuring independence by the Central have generated taxable revenues equal portfolio of the Private Banking System order to bring our services and advice Bank of Ecuador, and approving to or greater than one million reached USD 30.033 billion, i.e. an to companies, fairs, public events, reforms to the Monetary and Financial US dollars during FY 2018. increase higher than USD 2.7 billion, educational institutions, among Organic Code. equivalent to the annual 9.90%. others. Digital services will now be subject to Executive Order No. 883 was VAT. A sluggish economy compels We advanced in the process of published on October 2, 2019, which consumers to analyze and delay their transformation and opening of sought to eliminate fuel subsidies and Given the difficulties experienced by purchasing or investment decisions new Digital Agencies located at the liberate its prices. This created popular the Executive Branch in approving and fosters the preference by Supermaxi / Megamaxi supermarket outcry causing a convulsion that the reforms committed to and that depositors for fixed-term CDs, which chain, by installing in them state-of- paralyzed the country for eleven days are necessary for the country, the IMF have become the highest growth the-art technology for self-service by with riots that forced the Government directors showed flexibility in their product in the past few years. Term our Clients, and complementing them to recant and return to subsidized fuel technical appraisals and approved deposits reached USD 14.06 billion, with personalized financial advice. prices for Extra and Ecopaís gasoline disbursements totaling USD 903 with an annual variation rate of 17.61% and diesel. million in 2019. that contrasts with the 7.75% growth In the economic section of our Annual rate of total public deposits. Report, we provide the main figures The public state of affairs influenced In another sphere, labor market by sector, as well as the events that the response capacity brandished numbers published by the INEC influenced the economic performance by the Administration of President showed the deterioration at the level In this environment, the natural of Ecuador during 2019; nonetheless, Moreno by motivating the National of this activity, with a fully-employed consequence is strong pressure in the in order to adequately frame this, it is Assembly to repeal the Law Project for rate nationwide of barely 38.85%, i.e. intermediation margins of financial necessary to highlight that the lesser Economic Growth (Proyecto de Ley de 1.79 percentage points less than the institutions due to the increase in rhythm of economic activity, coupled Crecimiento Económico) promoted by previous year. passive rates and the lack of flexibility with the contraction of internal the Executive Branch with an urgent in the increase of active rates, due in demand, present final figures that economic standing. With regard to Ecuadorian oil, this turn to a reduction in credit demand, show a decrease in Gross Domestic was sold at a yearly average of and to the regulatory framework of Product (GDP) in a range of -0.1% and In the wake of the political upheaval USD 55.5 per barrel, which comprised fixed rates in force since 2007. The -0.5%, further accompanied by a price and with time pressing upon it, the a price of USD 5.45 higher than that previous graph shows the evolution of stagnation with a negative annual Moreno Administration fine-tuned established in the National Budget referential rates of the BCE—Central

Memoria Anual 2019 Annual Report 2019 14 them into the reader or of swiping the solvency index equal to 13.56% and magnetic strip. a total accounting equity of USD 462 oto of eferet tes million. Produbanco pledged to the Principles ti rnti ssi rnti Spr of Responsible Banking fostered by the We invest in technology in a Financial Initiative of United Nations responsible manner thus sustaining Program for the Environment, which digital transformation, taking care of 3.26% 2.61% are both based on the Sustainable efficiency indicators of operational spread 2.98% 2.88% spread Development Goals (SDGs) and on the expenses, as well as in regard to spread spread Paris Accord on Climate Change. In productive assets over total assets. addition, the Bank signed the Protocol of Sustainable Finance of ASOBANCA. With regard to the Bank’s financial results, the financial intermediation Produbanco maintained its support to margin increased by USD 33 million the international financial community mainly due to sustained growth in with close to fifteen diverse lenders, productive loans and to a greater among which are multilateral participation of consumer products. agencies, banks and other important This allowed sustaining long-term e e e e financial entities, which made it deposits and foreign financial possible to close 2019 with a balance obligations, which represented the of USD 372 million in direct loans and main source of balance funding during USD 119 million in subordinated debt. 2019.

Bank of Ecuador (Banco Central del On its side, Produbanco’s balance Our main focus was on obtaining Sixty-six million US dollars were Ecuador) during the past four years. grew in 2019 with USD 5.172 billion long-term funds that were channeled incorporated as expenses for risk in managed assets, a growth of 8.46% through products technically designed asset provisions based on specialized The trust expressed by international allowing us to maintain the 11.6% so that our Clients would attain diverse models of portfolio scoring, and on lending agencies concerning the participation attained the previous objectives. An example of this are the compliance with regulations in force. quality and solvency of the main year. Public deposits increased by USD Green Lines (Líneas Verdes), which banking institutions of the country, 335 million until reaching USD 4.023 seek to impact the efficient use of During 2019, we registered USD further supported by the signing of the billion, 11.94% of Banking System technology in the production chain or 10,893,903.94 in the non-deductible agreement between the Government deposits, and USD 3.42 billion of gross in loans slated for SMEs and Women’s expense account, corresponding to and the IMF, allowed for financial portfolio loans (before discounting SMEs. payments to the Internal Revenue obligations and the subordinated debt provisions), which represented 11.38% Service (Servicio de Rentas Internas— as a whole, would increase to USD 642 of market share. We continue to Our fifth Strategic Pillar is the SRI) through the determination of million until reaching a total balance harvest the results of the strategy Responsible Administration of Assets differences in the filing and payment of USD 3.279 billion toward the end of and the work developed in the credit and Risks, hence our administration is of Taxes on Foreign-held Assets (IAE) 2019. The Financial System was also card business, which registered a 34% geared toward maintaining the best during FY 2013. The Constitutional favored by an international scenario of growth along with a portfolio balance and most profitable balance structure Court of Ecuador repealed the low interest rates due to the reduction of USD 605 million at year’s end. Our through a quality loan portfolio extraordinary protective action of the reference rate of the US Federal 188 thousand active cardholders reflected in the 156% coverage of presented by Produbanco in case Reserve. invoiced USD 1.24 billion during 2019 provisions and in the 2.31% arrears No. 2808-18-EP within the litigation with revolving or deferred finance index, a result of the excellent work in and appeal process of the fiscal levy Profits in the Banking System grew options and facilities. Thanks to the collections technically and efficiently concerning the IAE declaration of by 11.19% for a net total of USD 616 incorporation of the contactless performed by our Protrámites Trámites FY 2013, despite the Bank having million after the corresponding technology (contactless payments) for Profesionales S.A. subsidiary. a favorable court decision in the reserves to pay legal obligations in all credit and debit cards, Customers judicial case corresponding to the Income Tax and employee profit can now perform transactions quickly We maintain our excellent liquidity determination of this same tax, with an sharing. and securely by just nearing them to indicators and we strengthen the objective and subjective identity, for the POS without the need of inserting growth capacity with an equity FY 2014.

Memoria Anual 2019 Annual Report 2019 15 The aforementioned explains the between Central America and Ecuador, reasonably protect the assets of the by Control Agencies. Likewise, they important variation of USD 22 million plus in the United States through Bank; and that there are controls in maintain the necessary controls to in operational costs, notwithstanding Terrabank. place to verify that the transactions prevent laundering of assets and which the efficiency index, which are being adequately authorized and financing of crimes as based on measures total operational expenses In 2019, PFC—Promerica Financial registered. The Auditing Committee best international practices and the in regard to the average asset, was Corporation acquired an additional has continuously followed up the stipulations of the Superintendency placed at 4.57%, a number below 5.28% of the stock package of Banco reports and observations of the of Banks and the Economic and the 5.25% of the Banking System’s de la Producción S.A., with which its Internal and External Auditors and Financial Analysis Unit (Unidad de average. stock participation rose to 62.21% of of the Superintendency of Banks, as Análisis Financiero Económico—UAFE). Produbanco’s total capital. well as the action plans established by In this sense, the Board of Directors Operational revenues were increased Senior Management. After analyzing approved the annual work plan for by USD 12 million in light of the Separate and consolidated financial the environment of internal control, 2020 of the Compliance Unit (Unidad increase in the number of clients who statements, along with the opinion of the Board of Directors acknowledged, de Cumplimiento) concerning asset generated a greater use of financial the External Auditing firm KPMG del approved, and is in accord with the laundering, along with the report of services, especially those linked to Ecuador, are available for viewing by following opinion by the Auditing this Unit corresponding to FY 2019, payment means such as credit and the Shareholders and form an integral Committee for their corresponding which is put at the behest of the debit cards and digital transactional part of our 2019 Annual Report. presentation to the Board of General Board of Shareholders. channels. Shareholders: In this sense, the Board of Directors Based on the above reports, the Board The recovery of assets written off integrally acknowledged and approved «The Auditing Committee, based on of Directors is pronouncing itself complied with the goals proposed the opinions and reports issued both the reports presented and on the favorably under its responsibility, with annual revenues of USD 11 by the Internal Auditor, as well as by various aspects analyzed in meetings concerning the soundness of the million, which is a reflection of the the External Auditing firm KPMG del held during 2019, as well as in the financial statements of Banco de la important administration performed by Ecuador in reference to the financial annual evaluation report regarding Producción S.A. Produbanco and of Protrámites Trámites Profesionales S.A. statements as of December 31, 2019, the internal control system issued by its Subsidiaries, and concerning the which accompany this Report. The Internal Auditing corresponding to the sufficiency of internal control systems Period results were based on the gross external audit was drafted pursuant above year, informs that the structure to prevent illegal activities including financial margin reaching USD 251 to the International Auditing Norms of risk management is adequate to asset laundering and the funding of million (USD 26 million more than the (IANs) and to current regulatory the size and complexity of the Bank’s crimes such as terrorism. previous year), a result of increased norms. The opinion ratifies that the operations, and has an appropriate revenues achieved due to the general balance, the statement of internal control structure; there is no The Board also met and approved the significant expansion of credit and to results, of changes in equity, and of evidence of circumstances that could Annual Report of the Committee on controls set on funding costs based on cash flows, reasonably present the comprise important weaknesses in Comprehensive Risk Management a policy of competitive passive rates financial situation of Banco de la the Bank’s internal control system. (Comité de Administración Integral in keeping with the size and quality of Producción S.A. Produbanco and its Furthermore, in keeping with the de Riesgos—CAIR), which details the the balance. Subsidiaries, and have been drafted requirements of banking resolutions, exposure and risk indicators for credit, in keeping with accounting norms the Committee hereby affirms that it market, liquidity, and operations With net profits of USD 61.1 million, and practices established by the has followed up on the observations incurred by the Bank within the profitability indicators measured over Superintendency of Banks of Ecuador, and reports of the Internal and External scope of an Comprehensive Risk equity (ROE) and over assets (ROA) the Financial and Monetary Regulation Auditors and of the Superintendency management, as well as the limits and were placed at 15.26% and 1.18%, and Policy Board (Junta de Política y of Banks, and also indicates that there control actions recommended for respectively, pursuant to the bulletin Regulación Monetaria y Financiera), is neither evidence nor knowledge of each position, together with the array published by the Superintendency of and the policies and procedures suspicious and irregular behaviors, or of institutional risk, which forms part Banks. approved by the Board of Directors. of conflicts of interest in the terms of of this report. the above norm». At closing of 2019, the consolidated The Internal Auditor informs that In 2019, we concluded the assets managed by Grupo Promerica, Produbanco complies with the Produbanco and its Subsidiaries development of the reputational risk rose to over USD 15 billion, of which regulations established; that it has comply with current legislation management framework wherein Produbanco represented 35%. The an adequate level of internal control including regulations on intellectual we generated risk matrices and Group has a presence in nine countries whose structure and procedures property and the guidelines foreseen interest counterparts, communication

Memoria Anual 2019 Annual Report 2019 16 protocols, and actions in diverse event Atención al Usuario Financiero) in Governance Practices and the Code of and the difference be recorded in scenarios. which, in addition to the various Ethics, which forms an integral part of reserves for future capitalizations, in quality programs, compliance is our Annual Report. accordance with the provision of the We must also highlight that the reported concerning time standards, Superintendency of Banks. Superintendency of Banks of Ecuador swift attention to, and solution of, Finally, this Board of Directors issued its technical criterion favorable requirements, service claims, and acknowledged Official Letter SB-DS- It further recommends that of the to the updating of the origination others generated by Clients from all 2020-0034-O dated January 23, 2020, reserves for future capitalizations, USD and follow-up models of the non- business units nationwide from our through which the Superintendent 38,650,000.00 (USD 38,520,729.25 commercial portfolio. specialized area. of Banks authorized Banco de la of this year and the difference from Producción S.A. Produbanco to previous years) be allocated to capital During the year, several tests Likewise, the Board of Directors distribute up to 30% of the profits increases, with which the capital were carried out to guarantee the approved the Financial Education corresponding to FY 2019, for which subscribed and paid by Banco de la comprehensive and successful Program (Programa de Educación it must first observe the provisions of Producción S.A. Produbanco would activation of the alternate data center, Financiera), as part of the Institutional articles 168 and 405 of the Organic reach USD 380,120,000.00. which supports critical processes and Strategic Plan. Monetary and Financial Code (Código guarantees an adequate contingency Orgánico Monetario y Financiero), In the Annual Report, which is scheme. We published our twelfth Corporate and further provides that with the available to Shareholders, Clients Social Responsibility Report under the difference, it shall establish a special and the general public, the aspects The Remuneration Committee, made guidelines of the Standards version of reserve for future capitalizations. mentioned in this report are expanded up of delegates from the General the Global Reporting Initiative—GRI. in detail. Shareholders Board and other members, By virtue of this, the Board of reports that the remuneration policy The Bank maintains the best Corporate Directors recommends to the General Once again, we express our gratitude approved for all employees, senior Governance practices aimed at Shareholders Board that, out of to the Shareholders, the members executives, and members of the Board strengthening the organization, the net profits for fiscal year 2019 of the Board of Directors, the of Directors satisfactorily complies with control, efficiency, independence, (i.e. USD 61,144,014.68), 10% of the Administration and all Employees current regulations, with no exceptions and transparency of its administrative legal reserve be constituted in the for their support, commitment, and to report. structure and the operation of the Board amount of USD 6,114,401.47; that of contribution to the quality of these and of the various Bank committees. the balance of USD 55,029,613.21 results. The Board of Directors acknowledged The Governing Body acknowledged and available to the Shareholders, 30% the report of the Financial User approved the Report on Accountability of the cash dividend equivalent to Service Unit (Unidad de Servicio de and Compliance with Good Corporate USD 16,508,883.96 be distributed,

Francisco Martínez Henares Ricardo Cuesta Delgado Chairman of the Board Chief Executive Officer

Memoria Anual 2019 Annual Report 2019 17 Photography: Imprenta Mariscal

Balance of the Economy - 2019

Real Sector its decreasing trend observed since the supply side some representative mainly due to a lower participation 2018, and in 2019 it was already at industries showed more dynamism of the public sector in infrastructure In 2019, Ecuador began an negative rates. These factors had an than others. However, the upheaval projects. Until the third quarter of economic reform plan with the help impact on the growth forecasts for in October had a negative effect 2019, these industries registered of multilateral organizations. In 2019. During the first quarter of the on the level of sales of companies. negative growth rates. The 12 days of particular, the Ecuadorian Government year, the Central Bank of Ecuador When comparing the accumulated the national strike last October led to decided to adjust the pace and (BCE) forecast a growth in Gross production figures up to the a monthly drop of -2.43% in sales² for quality of public spending, which had Domestic Product (GDP) equal to third quarter of 2019¹ with those companies nationwide. In the same implications in the dynamism of the 1.43% in inter-annual terms. After corresponding to the same period month of 2017 and 2018, sales grew country’s aggregate demand. The evaluating the damages and losses of 2018, the economic activities by 3.73% and 4.69%, respectively. The Internal Demand of the economy derived from the riots in October, that showed the best results most representative example was (household charges, government, the BCE recently revised its growth were: Professional, Technical and Petroleum, an industry that registered and investment) slowed down during forecast to -0.08%. For its part, the Administrative Activities, Petroleum a contraction in production of around the year, going from growing at an IMF has ratified its estimate of -0.50% and Mines, Education and Social 11.71% during that month. The BCE, inter-annual rate of 0.68% in the first advertised in March 2019. Services, Health, Manufacturing, working jointly with the World Bank quarter, to a decrease of 1.08% in the and Transportation. In contrast to (WB), have calculated the impact of third quarter of the year. For its part, Although from the aggregate demand this reality, Construction, Public the strike at around USD 822 million, the country’s total investment (public side, a slowdown in the growth of Administration, Commerce, and which is explained by USD 120 million and private) did not manage to change the economy was observed, from Agriculture, slowed down during 2019, in vandalism damage and USD 702 million in economic losses.

1. Latest bulletin available from National Accounts. 2. 0% and 12% rate according to the Internal Revenue Service (SRI).

Memoria Anual 2019 Annual Report 2019 18 roth b oom ttes3 rition ru trou tir urtr o r rtiiption o Evolution of Annual Inﬂation in Ecuador

16.0% Annual Inﬂation Annual Average Inﬂation

12.0% 8.0% 4.0% 0.0% -4.0% -8.0% Professional, Petroleum Other Education, Manufacturing Transportation Agriculture Trade Public Construction technical, and and mines Services Social (except oil administration, u u u u

administrative Services, reﬁning) defense, pr pr pr an pr e ep t an un an e an e e ar ep ep ep t t t un un un u e ar ar ar o u u u e e a e o o o a a activities and Health mandatory a social security plans Source: INEC Otros Servicios: Real Estate Activities and Entertainment, Recreation, and Other Service Activities Source: BCE

In 2019, the economy registered to its cost of December 2018, and that prioritizes a balance between In this context, Ecuador would have stagnation in prices. Low and even reached USD 715 per month. the non-precariousness of working assured disbursements of around negative inflation during certain conditions and the improvement USD 10,279 million until 2021, from months of the year was associated The consolidation of adequate of the country’s productivity and which USD 4,209 million come from with a slower pace of economic employment is the pending task for competitiveness. the IMF (subject to meeting quarterly activity. Although the annual inflation 2020. The adequate employment rate, targets) and USD 6,070 million from for December was slightly negative i.e. the number of people formally the other multilaterals (some of them (-0.07%), the average annual inflation employed as a proportion of the Fiscal Sector tied to projects and social spending). was 0.27%. This result was higher than total number of economically active that observed in 2018 (-0.22%). The people, registered a drop of 1.79 Public finances were determined by Debt management freed resources by most dynamic consumer divisions percentage points when comparing the arrival of external financing from 2020; this was possible through the during 2019 (on average) were: the quarterly result of December multilateral organizations. In March, replacement of amortizations with Education (2.56%), Transportation of 2019 (38.85%) with that of 2018 the International Monetary Fund (IMF), short-term maturities for longer-term (2.27%), Alcoholic Beverages (1.53%), (40.64%). In addition, unemployment the World Bank (WB), the Development issues. In June 2019, the Government and Health (1.47%). Among the most closed at 3.84% in December 2019, Bank of Latin America (CAF), the Inter- carried out a liability management relevant of the year, the highest a rate 0.15 point higher than that of American Development Bank (IDB), the operation through which it issued monthly inflation (0.52%) was December 2018 (approximately 15,036 European Investment Bank (EIB), the sovereign bonds in the amount of recorded in October, as a result of the additional people). The Government Latin American Reserve Fund (FLAR), USD 1,125 million, maturing in 2029. temporary increase in the price of fuel postponed sending a labor reform bill and the French Development Agency With this issue, the country paid in and of protests against the elimination to the National Assembly for 2020, (AFD) decided to support the so-called advance about 78.00% of the capital of subsidies for extra and eco-país in which new contracting modalities Prosperity Plan of the Ecuadorian of the sovereign bonds that matured gasoline and diesel that derived from would be evaluated. The productive Government (Plan de Prosperidad in 2020. In addition, at the beginning this measure, and which caused a sector is awaiting this reform, which, del Gobierno Ecuatoriano). Thanks of December, the Government issued scenario of speculation and product although it is not a goal that conditions to the IMF’s technical support in the USD 1,936 million of internal debt, shortages. As a result of the described the agreement with the IMF, both the agreement, the country became part which was used to carry out a roll-over behavior, the basic family staple basket productive sector and the workers have of an Extended Fund Facility (Facilidad operation of the debt that matured in remained constant when compared the expectation of reaching consensus Extendida de Financiamieto) program. 2020 with the Bank of the Ecuadorian

3. Only those industries with a share greater than 6% of GDP are included; in total, the 10 industries considered represent 80% of GDP.

Memoria Anual 2019 Annual Report 2019 19 Social Security Institute (Banco del fiscal deficit, the approval of the Tax oto of otr s or Instituto Ecuatoriano de Seguridad Simplification and Progressivity Law Social—BIESS), for around USD 1,400 (Ley de Simplificación y Progresividad million. The rest of the amount issued Tributaria) was highlighted last was used to strengthen Ecuador’s December, which is expected to investment plan. deliver an additional collection of around USD 600 million in 2020 Although the Government’s objective and 2021. is to reduce public debt in the medium term, in September 2019, the country During the year, the country issued bonds in international markets was evaluated for its economic for USD 2 billion⁴. On September performance and its ability to 24, a new international bond issue carry out the reforms proposed in was made by taking advantage of a the Letter of Intent under the IMF favorable country risk rating (around financing program. In a divergent 663 points), debt placement that social environment, the country was e an e ar pr a un u u ep t o e occurred before the decision to unable to reach political consensus eliminate subsidies for extra, eco-país to carry out structural reforms in Source: Bloomberg gasoline, and diesel. economic matters. For this reason, the IMF decided to review the fulfillment to confirming a change of course, the was shelved, which is why on November The government’s effort to reduce the of the program’s goals for the end agreement with the IMF implies the 21 the country risk rose considerably to fiscal deficit focused on decreasing of 2019, 2020, and 2021 and thus consolidation of structural reforms that 1,418 points. Finally, the Government capital spending and wages. In annual support the process carried out by the Ecuador must achieve in the economic decided to send a new reform with an terms, public spending in 2019 Government in a complex political and and institutional sphere. emphasis on tax collection. Since its increased by 2.34%. Although non- social environment. approval last December, the country risk permanent expenses and the Annual Despite the government’s attempts showed a downward trend and closed Investment Plan (taken together) to carry out each and every one of the year at 824 points. decreased by 18.33% in annual Country Risk the adjustment plans to which it terms, current spending increased was committed, and to which future by 9.01%⁵. The main reasons why One of the variables of greatest disbursements are subject, the political Monetary and current spending increased were: monitoring and importance for the cost and social resistance prevented a) the Government’s decision to Ecuadorian economy in 2019 was the crystallization of fundamental Financial Sector pay (albeit partially) the subsidy to the country risk - EMBI (Emerging changes such as the elimination of fuel the pension fund of the Ecuadorian Market Bond Index). In annual terms, subsidies. The international community The amount of International Reserves Social Security Institute (IESS); b) this variable closed at 824 points, reacted negatively to the government’s (IR) remained at sustainable levels in the increased spending on health, just two points less than the value announcement to repeal Decree 883, 2019. The balance of international education, and security that by observed a year ago. At the beginning which provided for the elimination of reserves closed at USD 3,397 million, law the Government must execute of the year, when Ecuador signed the subsidies for extra and eco-país gasoline, an amount higher by USD 721 million year-by-year, and c) the payment of Letter of Intent with the IMF and the and diesel. Faced with the 12-day- than that observed on December 31, interest for external and internal debt financing agreement with multilateral long social upheaval, on October 18, 2018 (USD 2,677 million). This increase (annual increase of approximately organizations, the international the Government sent the so-called was largely supported by the issuance 10.36%). In terms of wages and community perceived this decision as Economic Reactivation Law (Ley de of government bonds in international salaries, this item decreased by a positive message (reduction of 45 Reactivación Económica) to the National markets, by the disbursement of 1.62% in inter-annual terms⁶. Among points in country risk, from 598 to 553, Assembly, a project that proposed funds from the financing agreement other additional measures that the just two months after signing). The main reforms to various regulatory bodies. On with multilaterals, and by the external country has adopted to alleviate the reason for this result was that in addition November 17, after a month of debate, it debt acquired by the Ecuadorian

4. Ten-year term for USD 1,400 at 9.50% and a five-year term for USD 600 at 7.88%. 5. Corresponds to accrued figures for 2018 and 2019 from the Ministry of Economy and Finance. 6. Expenditure on wages and salaries accrued - group 51, eSigef.

Memoria Anual 2019 Annual Report 2019 20 e oto of terto eseres degree affected by the stoppages that the country. In 2019, Ecuador exported the country experienced in October a total of USD 22,329 million, an amount ntrntion srs rit nin srs rit is 2019 because of the social unrest in 3.24% higher than that registered a year ago. Of this total, crude oil represented an attempt to lift subsidies for extra 34.62%, shrimp 17.42%, and bananas and eco-país gasoline and diesel), the Ecuadorian economy was able to 14.76%. accumulate USD 820 million as a surplus The inter-annual growth rates of these in its trade balance. One of the factors three products for the period under that also influenced this result was the analysis were -1.56%, 21.97%, and slowdown in household charges and its 2.46%, respectively. The growth rate of consequent lower demand for imported products. When comparing the shrimp exports allowed it to remain as the second most exported product in accumulated figures of 2018 with those of 2019, imports decreased by 2.70%, Ecuador, a position it already reached in 2018, while bananas were relegated while the tax collection of VAT and ICE to third place in the ranking. In addition, u u pr pr an e an e ep ep t t un un ar ar u e e uo o o a a for imports also decreased in annual Ecuador exported gold concentrate for terms by 7.54% and 4.34%, respectively, Source: BCE the first time in its history, with which according to figures from the Internal mining began its consolidation as a new Revenue Service (SRI) for 2018 and 2019. private sector. For this reason, when 4.47 percentage points above the extractive activity of economic relevance comparing the balance of reserves with regulatory requirement of 9.00%. In thus generating foreign exchange for the In terms of exports, the behavior of country. that of deposits of the Private Banking addition, this percentage was slightly shrimp stood out, the same that gained Sector at the Central Bank, these were higher than 13.40% in December 2018. participation in the exportable supply of covered on average by 131.62%. In this sense, the technical assets of private banks in Ecuador totaled In 2019, greater dynamism was USD 5,009 million, an amount 12.52% evident in the placement of credit higher than the value of 2018. On the re e oto and in the capture of deposits in the other hand, defaults closed at 2.73% trou onptrou rtiiption banking sector. Financial indicators (slightly higher than 2.62% in 2018). In demonstrate the soundness of the terms of coverage, the provisions of the Banking System represented 2.26 System. The balance of the gross loan portfolio of the country’s private times the non-performing portfolio banks grew 9.90% inter-annually. of the System. Lastly, it should be noted that the banking sector made Similarly, the deposits of the Banking System closed the year with a growth significant efforts to diversify its of 7.75%. The behavior of fixed-term funding, which is why the entities Lorem deposits stood out, the balance of obtained resources abroad for around ipsum which registered an inter-annual USD 732 million⁷, which were used to dolor place credit in the country. increase of 19.12%. In terms of performance, profits amounted to USD 616 million for the total of the 24 private banking institutions; In External Sector ane ane ane addition, the ROE was 13.90%, the

ROA 1.38% (both indices higher than In 2019, the trade balance was in Source: BCE a year ago, when they were at 13.65% surplus. Despite facing a scenario of and 1.35%, respectively). In terms lower demand from trading partners, of risk management, bank solvency appreciation of the real exchange rate, reached 13.47%, an indicator that was lower income from oil exports (to some

7. Includes financial obligations abroad plus long-term subordinated debt (accounts: 2603 + 2605 + 2607 + 2803.)

Memoria Anual 2019 Annual Report 2019 21 Report on Corporate Governance

The Corporate Governance Report administrative bodies with its various development of its sessions and those gender equality, will come into force was presented to the Shareholders stakeholders, with the creation of of the attached committees, as well as starting this year. Board of Banco de la Producción long-term value and the strengthening the follow-up to the Strategic Plan and S.A. Produbanco, in accordance with of institutionality through effective the non-inclusion in supervening facts The internal control self-assessment the guidelines established in banking governance, transparency, and or that cause conflicts of interest with tool implemented by the Bank in regulations, for which the respective information management. In this their role as directors. Likewise, the the area of Corporate Governance, Annex is attached, with all the required sense, the quarterly breakfasts Board positively and effectively rated Planning, Policies and Procedures, information, including those related held with our Shareholders has the management of the Executive Personnel Administration, Control to the reports of the Remuneration been successfully consolidated President and the fulfillment of its Systems, and Management and Ethics and Corporate Social as an additional mechanism for objectives. Information Systems, has been Responsibility Committees, together accountability and timely follow-up, a developing normally and with with the results of the Financial forum in which the presentation and Along these lines, through the General important results. Education Program and the Financial analysis of quarterly results, financial Secretariat, the performance of the User Service Unit, which are included information, and other relevant Board of Directors and the suitability One of the pillars of Produbanco’s in an expanded version in the aspects, are carried out. of its members have been validated Strategic Plan is its commitment respective Annual Report. in terms of experience, reputation, to sustainability and corporate The Board of Directors, based on the conflict of interest, and independent social responsibility, which is cross- The Bank has a Corporate Governance approved methodology to measure criteria, dedication of time, and cutting in everything the Bank does, system based on standards and and analyze its management, preparation. Finally, the reforms to generate value for each of its principles that guide the structure satisfactorily evaluated the observance approved by the Governing Body to stakeholders such as Employees, and operation of corporate and of its responsibilities, functions and the its operating regulations regarding Clients, Shareholders, Suppliers, and

Memoria Anual 2019 Annual Report 2019 22 Community along with being a true with the Code of Ethics of Produbanco The administration of claims handling By virtue of the foregoing, the agent of change. Thus, a series of and Subsidiaries, and that after the is carried out through the Financial presentation of this report is activities and projects related to a respective analysis, corresponding User Service Unit, which addresses authorized, together with the attached sustainable culture and customers, actions were taken. customer claims in an agile and information and indicators, related to green products, social management, efficient manner; it implements control the set of relationships, mechanisms, volunteer activities, development with The Remuneration Committee and follow-up of the same, which and activities that are part of the good the community, and care for nature submitted to the Shareholders allow it to comply with the established corporate governance system carried and the Planet, are carried out; the Board for its consideration, the standards of care as well as generate out by the Organization in compliance latter, through the emblematic project alignment of the Bank’s general statistics to identify problems in a of its institutional objectives. for the conservation of water sources: salary administration policy, with timely manner. The report contains the “The Moorlands of Ecuador” (Los current regulations on the matter, statistics of claims and consultations Páramos del Ecuador), in alliance with and the application of the variable and management indicators, with Quito, DM, March 17, 2020 Conservation International. remuneration model for the entire the respective detail of resolutions strategic population of the Bank and adopted, value affected, and In addition to the Organization’s salary increases for 2019 in keeping recommendations. For this purpose, open door policy, the whistleblowing with the situation of the country and there are clearly established policies channel “Ethics Line”, which is fully the industry. for handling complaints and self- consolidated, efficiently handled 90 evaluation mechanisms, always based cases during the year. Additionally, Regarding the results of the Bank’s on the quality of service, as well as a the Ethics and Corporate Social Financial Education Program, it is Committee that looks at Requirements Responsibility Committee, during mentioned that it is part of the Bank’s and Customer Experience. Likewise, the year learned about the generic Strategic Plan and that last year, the Produbanco Customer reports of this Ethics Line channel as 7,300 people were trained through Ombudsman has been carrying out his well as 12 cases of non-compliance various tools. duties normally and independently.

Dr. Jorge Iván Alvarado Carrera Secretary General - Legal Procurator

Memoria Anual 2019 Annual Report 2019 23 Report of the Integral Risk Management Committee (CAIR) Introduction Unit focused on updating its growth in the consumer portfolio. riots that the country experienced in traditional financial risk assessment October. One of Produbanco’s strategic pillars methodologies by taking as a In addition, work was conducted on is the responsible management reference the best international a new methodology for measuring At the end of the year, we completed of assets and their risks. The Bank practices applicable to the local operational risk based on statistical the design of the reputational risk has a robust corporate governance environment. The management models applied to the Bank’s event management framework. Risk matrices model, a strong risk management reporting scheme for liquidity risks database to then generate new and stakeholder counterparts were culture, clearly identified lines of was strengthened, as well as the internal limits. The non-critical constructed as well as communication defense, responsibilities defined and market risk contingency plans, process risk survey continued with and action protocols against various assigned to risk managers, a risk proposing new strategies for the support of our co-managers and risk scenarios. In 2019, the scheme appetite and tolerance supported by managing balance sheet positions. the owners of each process. The for monitoring comments on social limits and consolidated quantitative schedules for technological tests, networks was consolidated, which methodologies, a mature internal We support the development of operational contingency, and business is managed by prioritizing each control system, mitigation strategies, new non-commercial portfolio continuity were complied with, the identified case for timely attention. and an advance view of the various origination models, incorporating in results of which were evidenced in conjunctural scenarios. All this has the analysis behavioral parameters the uninterrupted operation of our The continuous improvement of our been translated into solid indicators of of our clients and socioeconomic services at the level of Produbanco follow-up and monitoring scheme, capital adequacy, liquidity, arrearage, variables, which had the respective and our subsidiaries Externalización de through the use of automated and profitability that Produbanco has validation of the regulatory body. With Servicios S.A. Exsersa and Protrámites processes, allowed an adequate maintained over time. this, Produbanco has managed to be Trámites Profesionales S.A., including control of the internal policies and at the forefront of healthy portfolio during periods of social unrest such as regulatory limits, as well as those of During 2019, the Risk Management generation along with balanced the one that occurred as a result of the Promerica Financial Corporation.

Memoria Anual 2019 Annual Report 2019 24 In the following lines, you will find an measurement, control and mitigation, Within this context, Produbanco Indicators of overview of the actions taken to face maintained its prudent liquidity monitoring and communication of Liquidity risk each type of risk and their results. exposure levels, as well as in mitigation position as one of its greatest mechanisms of the positions assumed strengths in relation to the Private Regulatory by the Bank, and in the observance of Bank System. The Bank’s liquidity Compliance Indicator Liquidity and policies, procedures, limits, and levels ratio (Available Funds / Short-Term regarding limits of authorization provided. Deposits) amounted to 30.64%, a Minimum Market Risk result that exceeded the indicator of Liquidity Reserves During the year 2019, there was 25.98% of the System, according to Liquidity and market risk management a higher level of dynamism in the the figures published by the regulatory Coefficient of is carried out based on the risk granting of credit operations directed body at the end of December 2019. Domestic Liquidity profile defined by the Bank’s Board to the various sectors of the economy, of Directors, the Comprehensive Risk First Line mainly thanks to the growth in deposits Regarding the liquidity management Management Committee and the Structural Liquidity registered throughout the Financial of the investment portfolio, the established business model. Financial Second Line System and, in addition, to the increase investment strategy of the resources sustainability is guaranteed in the Structural Liquidity in sources of external financing. managed by the Treasury, was to carry long term through the application of out operations on high-quality assets Minimum prudent measures based on qualitative Regarding market interest rates, the with a short-term periodic maturity Liquidity Indicator and quantitative analyses, which benchmark lending rate increased scheme. Produbanco can quickly optimize the combination of liquidity, Group slightly—from 8.69% in December make effective its assets to face any soundness, and profitability, to mitigate Compliance 2018 to 8.78% in December 2019— liquidity requirement from its clients. Indicator the risk inherent in banking activities. with limits At the end of the year, 84.75% of the while the benchmark liability rate went assets managed by the Treasury were PFC days The treatment of this class of risks is from 5.43% in December 2018 to 6.17% convertible to liquid assets in less than Coverage supported by: information systems in December 2019; this growth was 30 days. and automated methods, which mainly due to a change in customer give the possibility of complying preferences, which favored term In its constant practice of complying participants, policies, indicators, alert with the process of identification, deposits instead of demand deposits. with all regulatory requirements, levels, action plan, and communication Produbanco updated the assumptions plan to be deployed in order to cope used in the reports established by the with any eventual contingency against oto of eferet tes regulatory body, thereby adjusting the adverse market changes that may arise modeling procedures for measuring as a consequence of instabilities in the ssi rnti ti rnti Spr liquidity gaps. In this manner, by national or international context. Said consolidating international regulations plan was built with a solid quantitative and best practices, the liquidity base of financial indicators of control and monitoring system was institutional and environmental behavior, strengthened. which make preventive monitoring and control possible in the event of the Concerning regulatory, internal, and materialization of market risk. Promerica Financial Corporation requirements, Produbanco presented On the other hand, within the a wide coverage with respect to management of this type of risk, predetermined limits along with an stress analysis and backtesting of the adequate liquidity position. exposure of the financial margin and the equity value, were carried out The Market Risk Contingency Plan was in the event of possible variations in e e e e prepared as part of the consolidation of interest rates. The results showed that the administration concerning this type the indicators remained within the of risk. This document establishes the limits determined by the Bank’s Board

Memoria Anual 2019 Annual Report 2019 25 of Directors. Produbanco’s balance Credit On the other hand, from the Business Corporation to respect and support the sheet structure maintained the same Risk Credit Department, credit methodologies best environmental and social practices. conservative trend in terms of asset from various industries were developed and liability duration, and allowed that, combined with the understanding In the first months of 2019, the Indicators of of their respective dynamics, made it potential interest rate fluctuations to Superintendency of Banks of Ecuador Credit risk possible to meet the credit requirements have a reduced impact on financial issued its technical criterion favorable to of customers from the various productive Regulatory margin and equity value; the sensitivity updating the origination and monitoring sectors and thus become an active to a variation of 100 basis points in models of the non-commercial portfolio. Compliance participant for its financing as well as Indicator interest rates was 0.92% with respect Three types of models were created with limits to contribute sustainably in its growth. to technical equity, which is well seeking to better understand possible Regulatory Regarding credit for the SME Segment, below the established internal limits. customer behavior based on socio- Credit Limits the challenge of making it more inclusive demographic and technical information. continued, with greater geographic and Group

Indicators of sector diversification with conditions Responsible promotion of products Compliance Market risk tailored to the needs of clients and aimed Indicator such as credit cards to meet customer with limits at the development of their businesses. Regulatory needs is an effective mechanism for Index of

financial inclusion. Along these lines, a Concentration of Compliance Finally, as part of our commitment to Indicator new institutional milestone was achieved 25 top debtors with limits sustainability, environmental and social in 2019 by reaching a USD 590 million risk analysis was integrated into credit Internal Sensitivity People Segment credit card portfolio, decisions. In 2019, our entire commercial to which was characterized by being sound Compliance credit portfolio was analyzed with the Indicator Equity and well diversified. The result obtained with limits Environmental and Social Risk Analysis is aligned with the institutional strategy of Internal Sensitivity System (Sistema de Análisis de Riesgos responsibly managing assets and risks. Concentration to Financial Ambientales y Sociales—SARAS), Limits Margins without there being any relevant social For its part, technological innovation and environmental impacts to report. Group continued to be an important aspect In this way, not only was the credit Toward the end of the year, for financial inclusion. The project for Compliance quality of our commercial portfolio Produbanco maintained its general Indicator point approval for both credit cards and with limits guaranteed, but also its alignment with arrearage rate below the average of other products that make up the People the commitment of Promerica Financial the System’s aggregate indicator. Interest rate risk Segment portfolio was reinforced. in the investment portfolio This year marked the beginning of the eer rrere project to update the specialized tool Risk rate in the collection process of the People Sst rouno interest in Segment portfolio, which uses state-of- bank ledger the-art technology and applies the best Internal practices in the industry with actions aimed at the client. The purpose of this Compliance Indicator initiative is to comprehensively automate with limits the collection process at all stages: Exposure by preventive arrears, early arrears, medium counterpart of arrears, and advanced arrears. Another the investment objective is to achieve greater efficiency portfolio in the management of the default team Exposure by by integrating the automatic dialer and type of online monitoring of counsel approach instrument during the judicial process. e e e e

Memoria Anual 2019 Annual Report 2019 26 Operational The Comprehensive Risk department best international practices in this executors in a clear and timely manner. Risk kept constant monitoring of the area, especially those of ISO 22301, evolution of the levels of operational in addition to what is stipulated in Security of risk in key processes; for this, it relied Ecuadorian legislation. Its foundations Based on the current legal regulations on a series of early warning indicators have been incorporated into all Information and with the support of the KRI—Key Risk Indicators—set by the related methodologies, policies, and Administration, Produbanco maintains a operational risk managers in each procedures. The most relevant milestone of the model of operational risk management process. In addition, there are indicators year in this area was the start of the duly disseminated and documented in all that show the evolution of the losses As technology is the basis of all the project to update the Information interested areas. This is applied following database and others that warn about the Bank’s operations, it becomes a tool Security Management System the Deming Circle in order to ensure level of risk in the analyzed processes. that has special attention within the (Sistema de Gestión de Seguridad de continuous improvement that leverages The indicators are regularly reported administration of business continuity. la Información—SGSI). This project the achievement of the Bank’s strategic to the Business Continuity Committee, The technological systems that support will allow Produbanco to advance objectives. the Comprehensive Risk Management critical processes have contingency with the continuous strengthening Committee, and the Bank’s Board of and / or continuity schemes that are of methodologies and policies for This year we expanded the scope of Directors, which facilitate the timely regularly tested to ensure that they mitigating technological risks. managing this type of risk to processes detection and correction of deviations in are ready and operational should their that are not necessarily critical but controls to minimize possible impacts. activation be necessary. During 2019, This update will complement, from the are required for the normal operation tests were scheduled and executed that security governance standpoint, the of the Bank. An operational risk Understanding that, in order to achieve culminated in the comprehensive and controls of the ten security domains identification schedule was defined efficient and committed operational successful activation of the alternate defined by Promerica Financial and complied with based on internally risk management, a key element is data center in December. Corporation: human resources, defined prioritization. The analysis of internal culture, the co-managers of the domain configuration, Internet the processes was complemented with various processes are constantly trained, The recovery of critical processes is browsing, email, physical access the assessment of their risk level and the reinforcing their assimilation with the to devices, hardware and software definition of mitigation measures for guaranteed by means of contingency circulation of brief informative reports plans designed to give continuity to inventory, updates, logs, network, and those processes with medium and high on issues of operational risk and business databases. In 2019, work continued on risk levels. The proposed mitigants are events that expose them to possible continuity, which is spread through the stoppage. A part of the recovery planning its implementation. closely monitored until they are fulfilled, institutional channel, called On Track (Al thus ensuring that the identified risk is strategy is tested from the operational Día). The personnel who join the Bank In parallel, the Information Security properly managed. contingency center, which is always have to pass a compulsory e-learning team led additional assurance or kept in optimal conditions to respond course on operational risk management monitoring projects such as the The Bank has historical information on to a scenario of denial of access to the and business continuity. normal operations site. periodic Ethical Hacking process, the operational risk since 2004, making it design of the implementation scheme possible to implement an internal model Indicators of The events resulting from the national of a Security Operations Center (SOC), to update the criteria for the level of and reinforcing current monitoring probability and impact; this has allowed Operational risk strike that took place in the month of October 2019, were efficiently through the implementation of us to be much more effective and Compliance Indicator managed, a situation in which the a vulnerability scanning tool that objective when measuring the level of regarding limits will contribute to the generation risk in internal processes. correct functioning of the Crisis Value at Risk VaR of proactive responses before they Committee and the plans that it (99%) for become incidents. One part of the efforts by management activated could be verified. The main Operatinal Risk asset protected in these circumstances is to control that the level of Likewise, Ethical Hacking was carried materialized risks does not exceed was human resources; the Business Continuity Committee issued clear out on the critical infrastructure the limit established by the Value at that the Bank has. This process was Risk methodology—VaR—(99%) for guidelines to guarantee their safety carried out with the accompaniment operational risk, which ensures that the Business during the transfer to the work sites of a strategic partner, with a scope of impact ranges do not exceed established Continuity and back to their homes. All actions black and gray boxes (corresponding tolerance. The effective loss did not were handled with a highly organized to total access restrictions and partial exceed the limit established in any Produbanco’s business continuity communication system, thanks to access restrictions, respectively), month of 2019. management system includes the which the instructions reached the

Memoria Anual 2019 Annual Report 2019 27 through adequate coordination with the life cycle of an employee from the Technological Services Unit. The his/her entry into the Bank, until his/ Institutional Risk Matrix results of the review resulted in an her definitive separation. In addition, action plan with the aim of continuing the implementation of a process that Type of Risk Residual Risk Score Trend to apply best practices in our allows monitoring the activities of processes and controls. infrastructure or service administrators started in real time (privileged Liquidity Low risk Stable The Cybersecurity sub-department identities). deepened the vulnerability analysis of Produbanco and its Subsidiaries. The Information Security Committee Detailed analyzes were carried out held its periodic meetings throughout on the application of security policies the year. Through these, the Market Low risk Stable in agencies, security feedback, and Bank ratified the priority that the permanent scans of weaknesses in administration has defined for the Bank services. protection of its information assets and that of its clients. Likewise, one of the main focuses Credit Low risk Rise of the Cybersecurity team was monitoring varying security Reputational incidents worldwide in order to Risk Operational, Business execute proactive processes in our Continuity and Low risk Stable infrastructure to avoid the Bank’s Information Security exposure to these risks. Produbanco has included the formal treatment of Reputational Risk as an The Information Security department important priority in Comprehensive continued to promote the Risk Management under the precept Business Low risk N/A construction of a solid security culture that corporate reputation is the most within the institution and among precious asset of a financial institution. the various interest groups. Various Based on this, in 2019, with the support internal and external campaigns of a leading consultancy in this field, the Reputational Low risk N/A were carried out sharing tips and policies and procedures for managing best practices so that our officials this risk class were improved, along with and clients could better protect their the methodology and mapping of risk sensitive information. matrices and interest groups along with reputational risk maps. In this work, the Residual Risk Profile Low risk Rise Along this line, keynote talks were Bank’s current exposure was determined also held by strategic partners to and the alert and communication strengthen security awareness at all mechanisms were officially defined, as levels. New forms of communication well as the guidelines to face a possible were used in coordination with the reputational crisis. Planning and Development Unit such as trivia to encourage the participation Finally, we worked on updating the and culturalization of internal clients communication protocols for possible along with videos of the application of reputational risk events, in force since security policies. 2018.

Finally, as part of the new philosophy Oscar Soto Brenes Chairman of the Integral Risk of Information Security, the Management Committee implementation of an Identity and Access Management (IAM) solution began to manage more efficiently

Memoria Anual 2019 Annual Report 2019 28 Report on Activities on the Prevention of Asset Laundering and the Financing of Crimes such as Terrorism, as of December 31, 2019

In compliance with the provisions of Know Your Client and Laundering and Terrorism Financing/ literal e of article 42, Section VII, Chapter Market Policy - Monitoring Prevención de Lavado de Activos y III, Title X of Book I of the Codification Financiamiento del Terrorismo). of the Standards of the Superintendency During 2019, customer monitoring of Banks (Codificación de las Normas It is worth mentioning that the analysis 5,120 cases processes were carried out through closed de la Superintendencia de Bancos), is carried out based on the customer’s the specialized technological tool this report discloses the main actions comprehensive relationship, i.e. by (Monitor Plus). This platform allows that were carried out throughout 2019 consolidating all the active products the generation of alerts through the 478 cases so that Banco de la Producción S.A. and services that it maintains at the pending - establishment of risk factors and Produbanco is not used as a means date of the review, which generates Business Units specific control conditions with for money laundering and financing of alerts that are prioritized according to special emphasis on the significant crimes such as terrorism. their relevance and impact. variations between the transactionality 336 cases carried out and the transactional pending – As part of the execution of the Compliance Unit and/or behavioral profile declared processes described above, and in by the client, which makes possible compliance with the Know Your the identification of possible types Customer Policy, between January ae ent of money laundering and/or terrorist and December 2019, 5,934 cases financing in application of the PLAFT were opened that required additional risk methodology (Prevention of Money analyses by the Business Units.

Memoria Anual 2019 Annual Report 2019 29 In the previous graph it is evident that, On the other hand, 21,708 records Creating or as a result of the management carried were entered in the internal control updating clients: terto rsfers out by Account Executives, 86.28% of lists, and the international reserved eee et the investigation cases were adequately lists were constantly updated, such Approval flows generated to the supported as of December 2019, while as: Office of Foreign Assets Control Compliance Unit due to coincidences 8.06% were in the process of being (OFAC), Interpol, Federal Bureau of with lists, which must be undermined managed by the Business Units within Investigation (FBI), United Nations or rejected. 17,366 cases were analyzed the deadline established for its closure, (UN), and European Union (EU), under this concept, of which the start and 5.66% were pending review by the among the main ones. This process of a commercial relationship with 6,067 Compliance Unit. was carried out through the interfaces clients was authorized following the connected to the banking core. analysis carried out. In addition, the Bank’s main technological system (banking core) Alerts for allows maintaining online preventive Alerts by international transfers controls, among which are: Coincidences received and sent: Reeie ent Reeie ent It consists of raising alerts when there Alerts automatically generated by Alerts by are coincidences between the names matches (coincidences) related to the Risk Activities of people who are on internal control payer, beneficiary and high-risk country lists and/or international reserved lists, lists that appear in the text of the SWIFT Before registering, creating, and and Politically Exposed Persons (PEPs), message. During the year, 70,926 cases accepting the commercial relationship Know your among others; therefore, they require were reviewed, corresponding to 19,942 Correspondent Policy with a client, there are controls that compliance with a due diligence flows for transfers received and 50,984 identify and alert on market segments process. In 2019, 88,292 cases were flows for transfers sent. and/or activities considered as presented under these conditions, In 2019, we received the visit of high risk according to international compared to 14,487 in 2018. standards on the prevention of Compliance Officers of certain money laundering. As a result of the correspondent banks; we addressed 141 application of this control, 2,134 cases requirements of Extended Due Diligence, were reviewed during 2019, versus ot mber of ses roe Certifications of the US Patriot Act, and 1,503 in 2018. eee temm eete ets Know Your Client forms, all received from banks and institutions locally and from erts esere sts abroad. The exchange of SWIFT codes b oees ot mber of ses for the sending or receiving of funds was eee temm carried out and responses were made from erts to specific inquiries from correspondent banks regarding customer information b s tt related to fund transfers to or from abroad. Likewise, the Know Your Client form developed for national financial institutions with which the Bank maintains business relationships was updated in order to ensure that they have policies and procedures for the prevention of money laundering, The control processes applied are: Approed Reeted terrorist financing, and other crimes.

Memoria Anual 2019 Annual Report 2019 30 Know Your Market policy, during the year, several Reports to of the processes that are under its Employee Policy revisions were made to the controls Organizations and responsibility, and that they are in established for the start of the business accordance with the provisions of Competent Authorities In conjunction with the Department relationship (product opening) and the legislation and current regional of People and Culture, the annual for the course of the same (forms of provisions. origin of funds and analysis of clients During the year, the Monthly Reports update of information on Bank staff of Operations that Exceed the and its Subsidiaries was carried out, by activity, banks, geographic location, Automatic control is maintained for and industry sectors). Threshold (Reportes Mensuales de cash deposits that equal or exceed which is verified by the official’s direct Operaciones que Superan el Umbral— leadership office. Monitoring of the USD 5,000 or that their monthly RESU) were sent to the Financial and accruals equal or exceed USD 10,000. variations in assets was carried out Economic Analysis Unit (Unidad de Creation of This allows keeping the description based on the statements made by Análisis Financiero y Económico— New products of the source of income registered in each of the employees, which led UAFE) within the time established the system, which in turn facilitates to the request for support from 343 for this purpose. Before sending officials to justify the variation. The The Compliance Unit participated the analysis and review of clients this information, general validation analysis and review process is still in the process of implementing new when significant variations in their controls are carried out. pending completion. products in order to maintain control transactional and behavioral profile standards for the prevention of are identified. Furthermore, information related In addition, in May, the monitoring of money laundering. to the following structures is sent employee transactions was automated Specific controls were carried out monthly to the Superintendency of with the Monitor Plus tool, using a on 360 clients, which due to the Banks of Ecuador: methodology based on risk factors New Controls for characteristics of their business or and in accordance with institutional industry, move a high volume of cash. the Prevention of • E04 - Statistical report based on policies. As a result of the analysis carried out, the information provided to the Asset Laundering said clients signed an Annual Form UAFE. Finally, control procedures were of Lawfulness of Funds (Formulario applied to the information and The Compliance Officer implemented • E21 - Clients registered as assets in Anual de Licitud de Fondos), which documentation established in the the following controls in 2019: the Institution. allows them to streamline their daily process of linking and unlinking operating process. personnel. • Validation of checklists using the Bridger Insight application in the The Compliance Officer reported We actively participated in meetings cloud. This important change 72 cases considered as unusual with the Financial and Economic allows to significantly increase or unjustified transactions to the Training Analysis Unit, as well as with the the information sources of Financial and Economic Analysis Unit; Committee of Compliance Officers international control lists, as well and in the same way, 1,971 offices The Compliance Unit, in coordination of Asobanca—Association of Banks of as to strengthen control both for of control agencies (SB, UAFE, and with the Department of People and Ecuador, in which recommendations the process of creating clients, as District Attorney’s Office, among Culture, provided induction training to and proposals for improvement of well as for generating alerts and others) were answered regarding 498 new employees and re-induction regulations, instructions, and training flows in transactions. investigative processes. training to 3,097 employees through were discussed, among others. the e-learning tool. • The Sanctions Screening tool, which allows double validation Internal procedures with national and international of the Compliance Unit Controls Validation checklists prior to sending and for Asset Laundering receiving transfers from abroad. The Compliance Unit carried Prevention out the survey and update of the procedures conducted in the area In compliance with current regulations with the purpose of establishing related to the Know Your Customer and clear guidelines in the execution

Memoria Anual 2019 Annual Report 2019 31 Internal, External Audits, or Economic Transactions; Know Currently, PLAFT regulations and In the course of the year, Regulators and Others Your Employee Policy - Extra Role policies are in the process of improvements were established in Transaction Monitoring; Structure, evaluation and compliance. the processes of control of money Obligations, and Functions of the The Compliance Unit was reviewed laundering prevention and financing Board of Directors, Compliance by various control entities, both of crimes such as terrorism, which Committee, Unit and Compliance by international firms as well as by reinforced the internal control Officer; Compliance with the Conclusions internal and corporate audits, as structure of Banco de la Producción Foreign Accounts Tax Compliance detailed below: S.A. Produbanco. Act (FATCA), and advancement of The activities carried out by the the Compliance Officer’s annual Compliance Unit were carried out in • Corporate Audit Promerica work plan. accordance with the annual work plan Financial Corporation: July 2019. that was disclosed to the Compliance • Internal Audit regarding: Know • External Audit: the firm KPMG Committee and the Board of Your Client Policy - Client will present during the year 2020, Directors. All of this was conducted Transactional Monitoring; Report of the results of its review with a through monthly reports presented by Unusual and Unjustified Operations cut-off as of December 31, 2019. the Compliance Officer.

Diego Mosquera Pesantes Aníbal Salazar Buenaño Chairman Compliance Committee Alternate Compliance Officer

Memoria Anual 2019 Annual Report 2019 32 Report of the Unit of Customer Care for Financial Users

Service 2019 Indicators Quality Program The results of the service quality indicators show a positive growth behavior. Providing memorable experiences to allow us to align with business results. clients is one of the main objectives of Produbanco: in 2019, the Organization Within the measurement programs, Welcome Survey aimed its efforts at designing client- the Internal Client Voice Management focused strategies, which allow was incorporated. Its purpose is to strengthening the relationship in order identify the level of service provided et tsfto e et eommeto e to generate enhanced loyalty. by all areas and how each one of them contributes to the management of the The strengthening of customer end client. We want our employees voice measurement models has to have positive experiences, to allowed us to know their opinion at create an emotional bond with the different times in the relationship. Institution, and to be the main brand This continuous communication has ambassadors. made it easier for us to know their experiences, to manage them, and to improve upon them. A priority for us is to develop transformation plans based on real-time feedback in order to

Memoria Anual 2019 Annual Report 2019 33 Net Recommendation Index NPS

Net Recommendation Index Employee Net NPS Recommendation Index ENPS

Employee Net Recommendation Index Net Satisfaction Index ENPS INS

Loyalty Survey

E ort Index etet tsfto tsfto e e etet eommeto eommeto e e Net Satisfaction Index or Level of Diculty INS of Internal Client CES

erhse e eto e eome E ort Index Net Recommendation Index Ekos IESCor Level Customer of Diculty Satisfaction Index NPS of Internal Client CES With the results of this measurement The positive behavior of the quality program, and thanks to the indicators presented is the result of the commitment of our clients, implementation of permanent actions Produbanco received for the third that impact on customer satisfaction consecutive year, the Gold EKOS first and experience. place in Service Quality award, Large Banks category. IESC Produbanco 88.10% IESC Sector 77.70% Indicators Corresponding to the Internal Client Sector Indicators Produbanco Average Net Recommendation Index Employee Net Overall satisfaction 91.30% 82.20% NPS Recommendation Index ENPS Perception of value (satisfaction/price ratio) 86.30% 73.90% Intention of recommending 85.70% 70.50% Buyback intention 87.30% 74.50%

Loyalty 56.70% 39.90%

Trouble Rate (% Trouble Free) 90.00% 87.60%

Reporting rate of problems (%) 86.70% 81.10%

Troubleshooting rate (%) 57.70% 59.50%

Employee Net Net Satisfaction Index Memoria Anual 2019 Recommendation Index INS ENPS Annual Report 2019 34

E ort Index Net Satisfaction Index or Level of Diculty INS of Internal Client CES

E ort Index or Level of Diculty of Internal Client CES

Requirements and Claims Of the total number of cases (317,954), 98.44% were resolved within the at the end of the year, 314,261 (98.84%) maximum time established by legal In 2019, 65,765 claims (20.68%) and cases. In relation to 2018, in which cases had been addressed, of which regulations. 252,189 requests (79.32%) were 346,718 cases were admitted, there registered, out of a total of 317,954 was a decrease of 8.30%. of the cases were not resolved in the time allotted 57,706 65,765 by regulations claims claims 57,706 65,765 claims claims of the cases were resolved in the time allotted by regulations

289,012 252,189 requirements requirements Operability 289,012 252,189 requirements requirements The cases that are received and The 314,261 cases solved were entered in the Requirements and addressed as follows: Claims tool go through the following level of processing: ses resoe N1 Number of Requirements b ee of ssste and Claims – 2019 Cases resolved directly by the managers of the Customer Service uirnts is 169,250 Center (CAC) area, that is, during the 71,175 same phone call.

Cases that are handled by the Financial User Service area.

Cases that require the intervention of specialized personnel, generally from 73,836 an e ar pr a un u u ep t o e the Operational departments and the Technology area. ae reoe

Memoria Anual 2019 Annual Report 2019 35 Claims with Economic Impact - 2019 Breakdown of Unprocessed Produbanco Online Transactions Transaction Cases % Participation Non-recognized charges with credit cards Error when making payments 922 14.17% Charges not processed with Visa Debit Local/foreign debit andClaims non-payment with Economic Impact - 2019 Error when making transfers 826 12.69%

Non-recognized charges with creditVisa Debit cards Notifications not sent 784 12.05% ChargesCost reversals not processed with Visa Debit Failed to enroll 642 9.86% Claims with Economic Impact - 2019 Local/foreignNon-registered debit deposits and non-payment with errors Erroneous notifications sent to the client 538 8.27% Non-recognized charges with Visacredit Debit cards Mobile application 521 8.01% CostCharges reversals not processedClaims with without Visa Debit Economic Impact – 2019 Access to produbanco.com 444 6.82% Non-registeredLocal/foreign debit deposits and non-payment with errors Produbanco online non-processed transactions Error displaying movements 316 4.86% Non-recognized charges with Visa Debit Duplicated and non-processed payments – credit card Error creating payee 247 3.80% Cost reversals Claims without Economic Impact – 2019 Debit Visa not accepted at establishments Your transaction could not be processed 208 3.20% Non-registered deposits with errors Non-conformity with information provided Produbanco online non-processed transactions Account status not available 138 2.12% Duplicated and non-processed payments – credit card Claims without Economic Impact – 2019 Pre-cancel / refinance web error 136 2.09% Debit Visa not acceptedGreater at establishments Impact Requirements – 2019 Token via SMS not received 134 2.06% Non-conformityProdubanco online with non-processed information provided transactions Credit card password request Failed receipt of income 114 1.75% Duplicated and non-processed payments – credit card Foreign travel notification Scheduled payments not processed 93 1.43% Debit Visa not accepted at establishments Insurance Greater Impact Requirements – 2019 Non-conformity with information provided Error generating bank certificates 81 1.24% Credit card blocking Credit card password request Error parameterizing quotas 81 1.24% ForeignCredit card travel activation notification Greater Impact Requirements – 2019 Error updating data 75 1.15% InsuranceCredit and debit note receipts Miles redemption error 61 0.94% CreditDebit Visa card replacement, blockingpassword request delivery, activation Error entering additional user 50 0.77% CreditForeignBe debit card travelcard activation replacement, notification delivery, activation Failed making advances 40 0.61% CreditInsuranceProdubanco and debit be personal note receipts data updating DebitCreditCertification Visa card replacement, blocking of payments delivery, performed activation Failed to generate images 26 0.40% BeCredit debit card card activation replacement, delivery, activation Image does not belong to user 16 0.25% ProdubancoCreditBreakdown and debit be personal note receiptsof data Unprocessed updating Produbanco Online Transactions Failed to log in Online Banking 14 0.22% CertificationDebit Visa replacement, of payments delivery, performed activation Debit note 1 0.02% Be debit card replacement, delivery, activation ProdubancoBreakdown be personal of data Unprocessed updating Produbanco Online Transactions Certification of payments performed

Breakdown of Unprocessed Produbanco Online Transactions María Dolores Prócel Unit for Assistance Service to Financial Users

Memoria Anual 2019 Annual Report 2019 36 Photography: Carmen Ulloa Ulloa / Conservation International

Report of the Ethics Committee and Corporate Social Responsibility

Aware of the challenge of promoting and Corporate Social Responsibility each of our stakeholders such as Sustainable well-being in a world facing the Committee, in which we detail Employees, Clients, Shareholders, Culture impacts of climate change and human our sustainability strategy with its Suppliers, and the Community and in actions on natural ecosystems, at projects, objectives and actions, with this way, become agents of change We are an Entity with adequate internal Produbanco we are committed to which we make the commitments for sustainable development. practices in favor of building a more contributing to a more prosperous assumed in the social, economic, and responsible and friendly association and inclusive society that uses the environmental fields a reality. with the planet. This starts from an resources of nature responsibly. Agent of appropriate management of Corporate

Change Governance, a culture of responsible Sustainability is a commitment and as Sustainability Strategy / such, it forms an integral part of our banking, implementing the best Strategic Plan, being a pillar that goes Our Purpose At Produbanco, our sustainability plan practices with our Employees, as beyond a statement, as we seek to places us today as an agent of change well as with the application of eco- With the formal incorporation of the ensure that it is incorporated into the in our value chain. As the leading bank efficiency measures and environment- “commitment to sustainability and operations of all areas as part of our in sustainable finance in Ecuador, we friendly infrastructure, with the aim business model with a cross-cutting corporate social responsibility” among encourage our Vendors and other of mitigating CO2 emissions that are strategy in everything we do. the pillars of the Strategic Plan for Stakeholders to carry out sustainable generated from our activities. 2019-2023, we have established our charges, practices, and options. Along these lines, we present the 2019 goal of maintaining sustainability This pillar of sustainability will be As part of our impact management, annual activity report to the Ethics in our DNA, in generating value for promoted in greater depth this year. we maintain the carbon footprint

Memoria Anual 2019 Annual Report 2019 37 measurement, reduction, and mitigation resources have verifiable impacts and provide innovative safe alternatives and Produbanco website. process for our administrative buildings that they are effectively contributing to new experiences for the needs of the in Quito, Guayaquil, and Cuenca. improving the environment. Among all different segments of the population In September 2019, Produbanco joined sustainability categories, the impacts and thus generate memorable moments as one of the founding signatories of achieved with the Green Credit, in for our Clients. This is closely linked to a the “Principles for Responsible Banking”, Sustainable terms of savings, are summarized fundamental value for Produbanco such a coalition of 130 banks representing below: 605 thousand m³ of water as our ethical and responsible behavior, a third of the global banking sector, Clients saved, 2.6 million kW/h saved, and accompanied by a robust financial ratifying its strategic commitment 4.2 thousand tons of waste avoided. education program. and aligning its sustainable business We accompany our Clients on approach with the Sustainable their path to sustainability. We In September, thanks to the In compliance with Regulation SB-2015- Development Goals and the Paris have deepened the self-imposed management and results achieved in 665 and our ongoing commitment to Climate Accord. Together with Banco responsibility of being an agent of this program, we received recognition generate financial capacities in people Promerica Costa Rica and Banpro change and promoting it in our value in Mexico during the III International in order to include them in the system, Nicaragua, we committed ourselves chain; therefore, we manage the social Forum of Socially Responsible SMEs Produbanco’s Financial Learning to assume a crucial role in achieving a and environmental risks that may in the category Care and Preservation Program continues to grow, and we sustainable future. have an impact on our Clients, the of the Environment, with the program registered more than 7,300 program Community, and the Produbanco “Green Lines.” beneficiaries during 2019 among The official launch of the Principles for loan portfolio. children, youths, adults, and senior Responsible Banking, which kicked off Focused on the green community and adults in both urban and rural areas of the United Nations General Assembly During the last year, we consolidated its commitment to the environment, Ecuador, who were taught in face-to- in New York, marked a milestone with our Environmental and Social Risk we have proposed to close the face workshops and through e-learning the most important partnership to date Management System (SARAS) by virtuous circle in the intermediation courses in 68 cities nationwide, through between the global banking sector and incorporating a team of analysts to of resources through the creation the modalities of Learn Employees, the United Nations. create the Environmental and Social of the Green Account with the Learn Clients, and Learn Community. Risk team within the Loan Unit. This aim of channeling local resources, In conjunction with the Principles for has allowed us to support our Clients exclusively to finance projects focused Responsible Banking, Produbanco and as a result of the analysis, provide on environmental care and thereby Relevant Facts joined a collective commitment of them with recommendations for best contribute to a more sustainable 33 banks worldwide, which seek to practices and more efficiency. society. In this first year, the Green on Sustainability establish clear goals in order to achieve Account has been very well received, the tenets of the Paris Accord. To do We launched in Quito the first edition in both by Produbanco Clients and new this, in order to meet the commitments Spanish of the book “Banking for a Better Green users, who have been interested in made, Produbanco is part of the World” (Banca Para Un Mundo Mejor), its value proposition, reaching 8,200 Partnership for Carbon Accounting Products before prominent actors from academia, accounts and a balance of more than 3 Financial, a program that has developed private and public banks, private methodologies for measuring the We generate an offer of financial million dollars. companies, multilateral organizations, carbon footprint for different types of products and services through the Non-Governmental Organizations Assets in Financial Institutions (IFIs). Green Lines program. Three years after (NGOs), and the media. This initiative the program started, the Produbanco Social Management was possible thanks to the support of In line with Produbanco’s commitment Green Credit reached cumulative and Financial User Grupo Promerica and the FMO, in order to sustainability, during 2019 various disbursements of USD 181 million in to serve as a guide for Spanish-speaking events and talks on the subject were more than 245 projects distributed To generate an impact on various users countries, whose approach raises the held, in which Produbanco participated among the Ecuadorian Amazon, and segments of the population, we crucial role and responsibilities that prominently, with the aim of promoting Highlands, and Coast. agilely promote access to the financial development banks and the private a more sustainable environment in the system through our channels. This financial system must play as catalysts country and imbuing this commitment Produbanco accompanies the Client is reflected in the various products for sustainable development. In addition, in different actors of society. The main to achieve the best sustainability and services that Produbanco has the option for the digital download event of the year was “Sustainable standards since it is essential that these incorporated during the last year to of the book was presented on the Ecuador” (Ecuador Sostenible), an event

Memoria Anual 2019 Annual Report 2019 38 organized by the United Nations and the sustainability of the planet. We are part Volunteer Day” was held, in which We have also concentrated efforts Global Compact of Red Ecuador, which of an initiative that contributes to the simultaneously in 8 Grupo Promerica on the approval of the lease to was presented with the sponsorship defense of nature in return for everything banks, various activities were carried out the Foundation once the land use of Produbanco as part of its strategic it provides us daily, mainly clean air and with a social and environmental purpose. loan made to Fundeporte, which commitment to sustainability, where the water, which are essential elements in in turn allowed for the operation main stakeholders in the country signed the preservation of life. To this end, we On this occasion, Produbanco of Su Cambio por el Cambio, was their commitment to the United Nations have signed a collaboration agreement employees and their families reversed by the Municipality of 2030 Agenda. This unprecedented with Conservation International Ecuador participated from three cities in the Quito. We currently have a land use event in the region received more than to work towards a common goal: the country in favor of reforestation in the authorization from the Metropolitan 800 attendees and business leaders protection and sustainable use of the Yanacocha Reserve located an hour Company for Mobility and Public from the country, and included various moorlands (wetlands) through the and a half from Quito, also in Ayampe - Works (Empresa Metropolitana de experiential and recreational activities program “Conserve our water sources: Puerto López from the cities of Manta Movilidad y Obras Públicas). that aimed to raise awareness of the the moorlands of Ecuador”. This Andean and Guayaquil, as well as also in Cuenca most important challenges of our era: ecosystem is essential for the protection at the Yunguilla Reserve, in collaboration Likewise, and once the termination climate change and extreme poverty. and regulation of water resources, with the Jocotoco Foundation. The of the lease has been verified, since the soil of the moorlands acts as a chosen sites are protected reserves we contribute to successfully sponge that absorbs, stores, and releases where actions are carried out to recover culminating the liquidation of Corporate Social water from rain or glaciers. In this the habitat of species that are in danger Fundeporte, supporting payments to the workers there in terms of all Responsibility manner, the moorland supplies water of extinction, or through reinsertion for human consumption, irrigation, and actions after their recovery in of their salaries and employment generation of electrical energy. reception centers. benefits. In line with our commitment to contribute to the sustainable progress In the Guaranda project, located The initiative “Conserve our water of society, our approach to Corporate in the San Simón parish in the sources: The moorlands of Ecuador” Fundación Su Cambio Social Responsibility is focused province of Bolívar, we promote aims to: on two components: “Community Por el Cambio (Your Change the development of sustainable Development”, for which we maintain for Change Foundation) production in favor of the progress financial and volunteer support • Expand the number of hectares of the town and its inhabitants, who for the ‘Your Change for Change of moorlands under conservation We maintain our commitment to number 400 families. The program Foundation’ (Fundación Su Cambio agreements. financial support and direct support includes educational plans, food, por el Cambio); while in the second to the Foundation, establishing production, self-management, and component “Caring for our Planet”, • Increase the number of beneficiaries ourselves as a fundamental pillar for community action. The production we focus on the project “Conserve our who receive economic incentives the development and continuity of its produced there is sold weekly at the water sources: Moorlands of Ecuador” for the conservation and responsible projects in Quito and Guaranda. Echandía Market in Guaranda and to (Conservar nuestras fuentes de agua: management of this ecosystem. our employees in the city of Quito. Los Páramos de Ecuador), in alliance The Educational Project Su Cambio with Conservation International • Promote the conservation of por el Cambio in Quito, helps For the fifth consecutive year, we Ecuador: in this sense, various emblematic species of the approximately 176 children and carried out the “Foster” (Apadrina) volunteer activities were carried out. moorlands. adolescents between the ages of 6 Christmas campaign, in which our . and 18 who come from dysfunctional officials voluntarily collaborated • Ensure the conservation of environments where poverty, by delivering presents to 198 Conserving our water moorlands that supply water for the migration, or violence affect their children and 65 grandparents sources: The Moorlands population of Ecuador. behavior and development. The from Quito and Guaranda. On this of Ecuador objective of the Foundation is to occasion, Produbanco sponsored provide comprehensive care to this the organization of entertainment We undertook a new challenge that Volunteering group (includes family) in order events in the two cities and with will strengthen our environmental and to improve their quality of life and presents for 74 teenagers and 68 social commitment to contribute to the In October, the “International Promerica insertion into society. project employees; its success could

Memoria Anual 2019 Annual Report 2019 39 be corroborated in the smiles of to sports and recreation, 11.08% to Global Reporting Initiative—GRI, Ethics all attendees. the Financial Education Program, and following the Standards version under 9.76% to other projects and sectors. the ‘Comprehensive’ option. Through Among the important events of 2019 We continue to deliver recycled this report, we communicate to our are the following: at the end of April material to authorized recyclers as a stakeholders and the community in and as a good practice, the process of result of the internal waste separation Transparency and general about 2018’s management implementation and communication campaign. The economic value in the social, economic, and of the Ethics Line was shared with generated by this activity is delivered Communication environmental fields. We also have Promerica Nicaragua. In May, the first to the Foundation so that it can be the seal Materiality Disclosures of year of managing the confidential and In 2019, we published the twelfth managed according to their needs. the GRI, which certifies the correct anonymous channel was held, focused Corporate Social Responsibility Report arrangement in the report of all on the employee with the campaign developed with the guidance of the relevant aspects of the organization. “You are not alone in this situation; Other when you report, we walk together”, Contributions and on the pillars of confidentiality Social 464,844 43.62% and reliability. In June, the first annual report was published as an accounting In the social sphere, our contribution Fundación Su Cambio por el Cambio 357,608 allows other organizations to of the management carried out in the Telethon 26,000 reception and resolution of cases. In manage various causes; this is how Fudrine (cerebral palsy) 24,000 through Fudrine we collaborate so July, the first satisfaction survey on the Atucucho (medical dispensary) 14,400 that children with physical or motor Ethics Line was launched; among the disabilities can prepare themselves so San José Foundation (gerontological care) 4,400 results, it is highlighted that 92.37% that their development and inclusion Operation Smile (surgical campaign) 5,000 of the employees know about this in society is as seamless as possible. In San Juan de Dios Hostel 3,356 channel and that they also relate it the Atucucho community, through the Ecuador Teaches 25,850 to other means of communication medical dispensary that we sponsor, Sponsorships 4,231 such as email with lineaetica@ it is possible to continue providing produbanco.com, the open door general medicine services to the Sports and Recreation 378,838 35.55% policy, approach with the leadership and team of People and Culture; it was population of children, adolescents, Fundeporte 369,774 also known that 9.26% of employees and adults in this sector. We deliver Collaborative sports sponsorships 6,503 used this channel due to the need for a supply of groceries produced Racing and sporting events 2,562 by the Your Change for Change confidentiality and/or anonymity. Foundation to the San Juan de Dios Financial Education Program - Learn 118,079 11.08% Shelter on a monthly basis, and in As an improvement action, it was the gerontological field, we also Social Responsibility Report 34,605 3.25% proposed to promote communication provide financial support to the San campaigns to reinforce the use of José Foundation. In December, we Environment and Sustainability 50,393 4.73% the anonymous site; thus, at the end contributed to the Guayaquil and of October, a change was made on Manta Telethon. Carbon Neutral 11,863 the intranet so that the employee Alliances (Global Compact, UNEP FI, CERES) 11,380 registered the necessary information Events and others 17,873 for the resolution of the case, Investment Volunteering 5,270 therefore maintaining confidentiality Women’s workshop 4,008 and anonymity.

Below, we detail the figures of the Arts and Culture 19,000 1.78% This year, 90 cases were handled, investments made: which were resolved, in the “El Apuntador” Foundation 18,000 first instance, in 23 Ethics Line During the year 2019, we invested Sponsorships 1,000 Commissions, in an average time of USD 1,065,760, of which 43.62% went Total Investment for 2019 1,065,760 100.00% 9.7 days. Among the relevant actions to the social and health sector, 35.55%

Memoria Anual 2019 Annual Report 2019 40 for the resolution of cases, the and procedures as well as service cases, and as a result of the application It is important to emphasize that following are mentioned: raising protocols; work climate surveys, of the respective regulations, the Produbanco and its subsidiaries awareness among department and improvement plans; workshops employee separated him/herself from maintain other means of heads concerning the importance for the development of personal the Institution. It is also reported that communication through which of leadership and maintaining and group skills, visits to branches during 2019, 12 cases were exposed employees express themselves an adequate work environment, and development plans per each to the Ethics and Corporate Social directly and openly. application of personnel policies employee. On the other hand, in some Responsibility Committee.

Diego Mosquera Pesantes President Committee on Ethics and Corporate Social Responsibility

Memoria Anual 2019 Annual Report 2019 41 Report of the Remunerations Committee

The Remuneration Committee remuneration of the position This process includes the most The Committee addressed this analyzed three relevant issues: with the lowest salary level in the important variables regarding point taking into account both the organization (cashier). contribution to the results in government guidelines regarding an organization, among them, minimum and sectoral wages, as well • That the first line cannot earn more organizational contribution, that of as the application of the methodology 1. Regulations than twice the level of the second of salary increases according to on Salary Cap line. the position, and that of the employee (performance evaluation). performance, which includes tools It is the responsibility of this such as Nine Box and the performance calibration process. Committee to ensure compliance 2. Variable Remuneration with current regulations regarding Model 3. Salary Increases - 2019 salary limits for the financial sector, a process that is carried out annually. In Every year we safeguard the planning the course of 2019, we validated the As presented in the March 2018 and review of salary increases ensuring execution of each of its provisions: committee, the new variable consistency with the country’s remuneration model for strategic level situation and with the main indicators • That the first line can earn positions (A and B) was applied. In related to this variable (inflation, SMV, Jaime Dávalos Fernández-Salvador a maximum of 40 times the this way, the objectivity of the results sectoral, D&T, and PwC projections). President Remunerations Committee remuneration of the lowest salary obtained as an organization was position in the organization (cashier). guaranteed, as well as the equality and We try to maintain a competitive • That the second line can earn salary competitiveness of employees salary policy that guarantees equality a maximum of 30 times the at these levels. in the Institution.

Memoria Anual 2019 Annual Report 2019 42 Subsidiaries

Externalización de During the year, the Subsidiary The behavior of transactions in Servipagos agencies and Pagoágil points is presented in continued with its growth strategy the following charts: Servicios S.A. Exsersa based on the implementation of the transactional switch, thanks to which corporate and business clients can Moth oto of rstos eros ees offerServipagos products directly to thouan of tranation

their clients. This initiative contributed to the strengthening of strategic alliances and the notable increase by 83.10% of Pagoágil service points, which went from 3,953 at the end of 2018, to 7,238 in 2019. The Portal agency was inaugurated in the Servipagos network in Quito, and the Chillogallo agency was also remodeled. As for the operation of Servipagos brand ATMs connected to Outsourcing of Servicios S.A. Exsersa Banred, it continued to consolidate closed 2019 with 66 agencies its purpose of decongesting lines in an e ar pr a un u u ep t o e nationwide and 7,238 Pagoágil points. the agencies.

Memoria Anual 2019 Annual Report 2019 43 The profitability of Externalización de Servicios S.A. Exsersa was reflected in the increase in its service points and in the return achieved for its shareholders. Moth oto of rstos t o ots thouan of tranation

Moth oto of o ots numer of point

an e ar pr a un u u ep t o e

an e ar pr a un u u ep t o e Reducing dependence on agency revenues by promoting other channels was again one of the strategic approaches of the subsidiary Externalización de Servicios S.A. Exsersa.

Evolution Proﬁts Over Equity Externalización de Servicios S.A. Exsersa Channels Evolution in Income Share ROE Proﬁt

% Participación % Participación Channel 2018 2019

Agencies 40.70% 44.08%

Pagoágil Points 32.41% 36.75% System of 20.28% 13.28% Transfers and Payments

ATMs 4.63% 4.63%

Others 1.99% 1.26%

Memoria Anual 2019 Annual Report 2019 44 Protrámites Trámites Another objective that required Average Arrears The progress of the purging of the Profesionales S.A. intense efforts was the creation portfolio under legal action was of processes and the complete The focus on average arrears was very satisfactory, since this process streamlining of information for directed to the management and concluded with the certainty of the implementation of the Credit control of the credit card product, information in 95% of cases that were Force Collection Project, which without neglecting the activity on handed over to external lawyers for will go into production in the first other products, to the strengthening their management. This led to sound half of 2020, and through which of the work team, and to the decisions and contribution to certain collection management due to the strengthening of the continuous Bank processes, such as portfolio systematization of processes and improvement process. sales. the use of specialized, cutting-edge technology, will be optimized. As of December 2019, USD 88 million were managed corresponding to With regard to the past-due portfolio, 11 thousand clients (concentrated the Collection Intelligence team Protrámites Trámites Profesionales S.A. mainly in credit cards), compared provided support in the application contributes with Produbanco in two to USD 57 million from 6 thousand of strategies for early and medium essential aspects: the management of clients in 2018. arrears, thanks to which a rate of 4.93% past due loans in the People Segment, was reached at the end of December. and the recovery of written-off loans In order to obtain this compliance In the same way, it gave support in the in all segments. and implement strategic planning, elaboration of different analyses that changes were applied, among which allowed both decision-making based The net profit with which the it is worth highlighting the orientation on technical aspects (historical data, Subsidiary contributed to the Bank in of the organizational structure market data, trends, among others), 2019 amounted to USD 736 thousand, towards human resources, which and the construction of dashboards in contrast to the USD 518 thousand resulted in a considerable increase in for the generation of the management in 2018, which represents a growth managers focused on the credit card strategy and its monitoring. of 42.08%. Revenue exceeded its product, and the modification in the projection by 104.33%, as a result collection strategy for said product of the consolidation of the Legal with the use of a specialized collection Procedures area in the agencies of Early Arrears prioritization model (grouping by Quito, Guayaquil, Manta, Portoviejo, buckets) that resulted in better control and Machala for the Individual and The 100% growth in the workforce of write-offs and provision expense. SME Segments. allowed us to manage the new portfolio volumes assigned by An important front the Subsidiary Produbanco. The change in the Advanced Arrears emphasized this year was the adequate structure of the organization and treatment of human resources, which the creation of a team focused on 2019 was a challenge for recovery given the type of activity it carries out, operational processes gave rise to goals, both for the write-off portfolio requires actions to stay motivated. the formation of a competitive group and our own portfolio. With the To address this constant challenge that was able to increase the level of leverage of a committed and of all lines of supervision, in 2019, recovery effectiveness exceeding 94%, professionally developed human team Protrámites Trámites Profesionales S.A. 2% more than the previous year. that knew how to successfully manage brought together all employees at the the difficulties of the market and the national level in a day whose primary At the end of 2019, 25 thousand country’s situation, compliance with goal was to strengthen teamwork, operations were registered for an the advanced default budget stood at a fundamental pillar of the work amount of USD 138 million, compared 103.50% in what corresponds to the performed. This action paid off in all to 14 thousand operations amounting written-off portfolio, and 102.10% in the results of the company. to USD 83 million in 2018. our own portfolio (purchased).

Memoria Anual 2019 Annual Report 2019 45 Management of the Business Units

Corporate contracted. Within this context, the Sector. Despite this, more than 450 portfolio, an amount 10.68% higher Banking Segment portfolio represented 36.78% operations were carried out during than the previous year, and which of the Bank’s total portfolio. the year, with which the Segment represented 9.64% of Produbanco’s contributed to the development of total placements. Certain strategic Corporate Segment One of the focuses of 2019 was to the country’s importers and exporters. locations contributed to this result, serve the productive chain of corporate such as Cuenca, where growth was Obligations with the public of the clients with the financing scheme for 46.28%, and Manta, where growth Corporate Segment amounted to its vendors and clients, which at the Business Segment amounted to 35.58%. In 2019, the USD 768 million, 13.59% more than in end of the year reached the sum of Business Segment was consolidated The obligations with the public of this 2018. This amount represented 19.18% USD 154 million. USD 14 million were as an ally of projects with a positive Segment, which at the end of 2019 of the Bank’s total fund receipts. placed in credits directed to its vendors. environmental and social impact In addition, for those corporate clients reached USD 215 million, showed an through the financing of USD 27 The portfolio as of December 2019 with a sustainability strategy, financing increase of 6.03% compared to the million in sustainable initiatives. (USD 1.258 million) increased by 1.56% solutions amounting to USD 44 million final balance of 2018. In relation to the compared to the previous year as a were proposed. total deposits of the Bank, this item During the year, we worked to result of support for the renewable had a participation of 5.37%. strengthen the proximity strategy with energy and retail sectors, which were Lastly, with respect to contingents, clients through tools with managerial the most economically dynamic, and these decreased compared to 2018 For its part, the Segment closed information that were made available which compensated other sectors that due to less contracting by the Public 2019 with a USD 330 million to business executives, and through

Memoria Anual 2019 Annual Report 2019 46 talks related to corporate governance Finance Corporation (IFC) of the and profitable wealth over time. In An important segment of our clients and succession plans, which took World Bank group, the Inter-American addition, the professionals in the is made up of those who receive place in all cities where the Business Development Bank (IDB), the Equity Segment provide their clients payment of their payroll through our Segment has a presence. Netherlands Development Bank (FMO), with updated and relevant information Cash Management service. In order to the Development Bank of Austria on local and international financial improve their experience, during 2019, (OeEB), the Development Bank of Latin markets as an instrument for decision- various steps were taken; one of them Institutional Segment America (CAF), and responsAbility, making. was the launch of Online Credit whose among others. value offer is that the client does not This Segment has a portfolio of Our tailor-made portfolio of products need to approach an agency or sign any innovative products and solutions Specifically, the Bank obtained and services along with the premium documentation. More than 350 clients designed to meet the strategic needs USD 200 million, of which USD 30 service we offer, have earned us the benefited from this new service with of our more than 310 institutional million came from IFC, USD 32 million trust of customers and led us to build which USD 1.8 million were disbursed. clients, including: banks, segment from FMO with co-financing from long-lasting relationships. 1 cooperatives, public institutions, OeEB, USD 20 million from various Another initiative was to hold brokerage houses, fund managers and responsAbility funds, USD 60 million talks with the Human Resources trusts, international and non-profit from a syndicated structure led by Retail departments from more than 49 IDB Invest, which included global and organizations, insurance companies, banking companies in Quito and Guayaquil, and religious congregations, with regional banks, and USD 39 million who maintain the payroll service for whom we have developed strong and from commercial banks, among employees with Produbanco. This long-term relationships. others. People Segment scheme was intended to provide them with tools that contribute to their daily Our value proposition seeks to resolve Quantitatively, these resources The People Segment, committed to work, which helped in turn to build different requirements in terms of supported the growth of green building long-term relationships of loyalty and strengthen the commercial liability management, transactional businesses, which implement trust, ended the year with one million relationship with these companies and solutions, and collections. In addition, environmentally friendly practices; clients. At the end of the year, savings their employees. the Institutional Segment manages they contributed to the development deposits amounted to USD 834 a credit portfolio focused mainly on of small and medium-sized million, a result that contributed to The sum of these actions led the insurance companies and financial companies, supported businesses the Bank achieving a 5.47% growth in segment to end the year with 159,000 institutions. led by women, and strengthened this type of deposit taking, compared clients who receive payment of our clients’ foreign trade businesses. to 3.02% registered by the Financial their salaries through Produbanco, Qualitatively, the benefit was System. and grow by 13.99% in companies Correspondents translated into consultancies related that execute payroll through Cash and Multilaterals to various sustainability issues, which In relation to time deposits, the Management. have been shared with clients. figures were very satisfactory; at the The team of professionals in this end of 2019, they reached USD 770 As part of the Bank’s strategic plan, the Segment is in permanent contact with million, which placed Produbanco in transformation of traditional agencies each of our clients, whose nature Equity Segment third place in the Ecuadorian Banking into digital agencies continued, in and size of their positions in the System. which the service model is focused Bank require constant monitoring of The Equity Segment served 1,961 on migrating transactions to digital deposit cycles, rate levels, generation clients in the cities of Quito, Regarding portfolio, the year ended channels. These agencies also have of opportunities, and the participation Guayaquil, Cuenca, and Ambato in with an amount of USD 1,308 million. the advice of a host who supports the of Produbanco as compared to other 2019, through its work team. The Bank’s total credit card portfolio client in this process of migration to financial institutions. reached USD 605 million, of which the use of virtual channels: this year, The mission of this Segment is to USD 590 million came from the five were transformed. During this year, Produbanco provide personalized, professional People Segment. These volumes received facilities from important advice under the highest standards placed Produbanco with an 11.44% Likewise, 119 customer digital service foreign entities with which we have a of confidentiality, so that our client participation within the national kiosks were installed in 67 agencies relationship, such as the International and his/her family group hold secure Financial System. nationwide. These devices make

Memoria Anual 2019 Annual Report 2019 47 it possible to create contact, via and Pasaje were incorporated to the One point that we must highlight is Lastly, we are pleased to share that videoconference, between the client locations that serve this segment, with the strengthening and consolidation for the first time, a welcome survey and the executives of the Customer which Produbanco closed 2019 with of the relationship with General was applied to Produbanco’s be Service Center to solve requirements 117 agencies throughout the country. Motors as a result of the signing of customers, in which we obtained and claims. The teams also facilitate an agreement that reinforced the link a Net Satisfaction Index (INS in access to online banking for the With the first anniversary of launching between wholesale and retail; this Spanish) of 90.60% along with a Net creation of web users, transfers, the Green Account, we reached 7,700 made Produbanco the main strategic Recommendation Index (NPS) of balance inquiries, etc. accounts, with a total balance of more ally in financing the brand as well as 94.40%. than three million dollars that were becoming the leader in automotive Likewise, the number of machines used to finance Green Line loans; this credit. in the ATM network was expanded has allowed Produbanco to continue Virtual Segment to 379, including state-of-the- promoting the responsible banking art (multifunction) dispensers and strategy. be by Produbanco Considering the globalization of recyclers. For the first time, an information and the rise of omni- analysis of the location of ATMs was In 2019, we adopted new transactional In December 2016, we introduced channels, which is one of our implemented by means of surveying campaign mechanisms to promote to the market be Produbanco, the institutional strategic guidelines, points of interest, based on a model digitization. As a result, 56.69% of first 100% digital account in the Virtual Banking was created in 2014 supported by business geo-analysis. the clients who started their first country, to manage money from a to offer a non-face-to-face service relationship with the Bank created smartphone without having to visit a model. One of the main achievements of the their user to operate in our Online physical agency, a product developed year was the opening of the Business Banking; the previous year the understanding the needs of the The mission of this segment is to Center Agency, which constitutes a percentage was 44.49%. On the other millennial generation. Three years offer quality products, services, and different banking model. It is the first hand, the payment of public utilities after its launch, we have reached specialized attention in a virtual space in Ecuador that brings together through digital channels registered 125,455 clients, of whom 68,000 manner to clients with a preference for co-working, great coffee, and financial an increase, and cash withdrawals maintain their active accounts with digital channels, which has led us to advice that seeks to promote and without debit cards at ATMs grew by an average balance of USD 86. 37.25% the forefront of the Financial System in generate business. This new concept 61.40%. of the accounts are concentrated in the context of this digital era. was conceived so that clients and Quito, 2.74% in Ambato, and 24.35% in non-clients can work with the security In October, Produbanco became part Guayaquil. The Virtual Segment closed 2019 with and support of Produbanco. The of the 16 banks that have BIMO (My 400 thousand clients. The strategy Business Center Agency has become Mobile Wallet), a platform that allows The communication approach is maintained with a telephone an icon and a recognized competitive payment and collection transactions used for the users of this product service instrumented by a team of 19 advantage for the client. to be made via a smartphone, with all is completely digital, and for this executives in charge of attracting new people in the Financial System who reason, all our publications are made business. Thinking about providing better have this service. on social networks. Produbanco’s be customer service, Produbanco customer has a clearly digital behavior implemented its first Mobile Office, In another area, the automotive characterized by a notable use of SME Segment an innovative bank office that began market sold a total of 132,018 units, digital channels, less use of cash, and its operation in the city of Guayaquil, compared to 137,615 in 2018, a drop of online shopping for 70% of its charges. The SME Segment expanded its moving to different points to provide 4.07%. Despite this, 2019 was a good presence to the cities of Portoviejo, bank transactions with comfort and year for the Bank, as 5,071 automotive Something very novel that was Milagro, Cayambe, and Pasaje, thanks security. This alternative seeks to bring loans were placed, 13.12% more than carried out this year was the offer to which we are present in 18 cities in financial services closer to citizens and the 4,483 in 2018. of ambulatory medical coverage the country. The business team’s focus offer personalized financial advice and plans, with the functionality of is to meet the needs of entrepreneurs digital attention channels. The year 2019 was very dynamic in accessing online consultations via (whether individuals or corporations) the creation and promotion of new teleconference. This campaign, which that have sales of up to USD 5 million Regarding coverage, the cities of products tailored to customer needs, lasted around two months, benefited per year, and provide them with Tulcán, Milagro, Cayambe, Portoviejo, which spurred growth in origination. 1,131 clients. support in their growth.

Memoria Anual 2019 Annual Report 2019 48 As of December, obligations to the Bank agencies to sign documents. In energy and natural resources that for the first IFC-certified EDGE public corresponding to 26,317 active 2019, 108 operations were carried out promote cleaner and more sustainable building in the city of Guayaquil. This clients in the segment amounted to under this modality, totaling USD 6.44 environmental management while shows Produbanco’s commitment USD 460 million, 4.76% more than in million. This is equivalent to 1.70% of being socially responsible. Since then, to sustainability and its intention to 2018. In this growth, a decisive factor the total loan origination for the year it has generated 245 credit operations continue developing areas where the was the increase of USD 13 million in of the SME Segment, and there are for an amount of USD 181 million. efficient use of natural resources is sight deposits at a national level. clear growth prospects for 2020. At the end of 2019, its balance in ensured. the portfolio was USD 85 million, On the other hand, at the end of 2019, which represents 2.49% of the total Produbanco, through its Green Produbanco portfolio. Lines program, was recognized the SME Segment portfolio reached Visa Pyme Card USD 427 million, a 12.49% share with internationally by the Mexican respect to the total Produbanco Since the beginning of the program, Center for Philanthropy (CEMEFI) for portfolio. The Visa Pyme (SME) card reached USD 84 million have been granted innovation and the impact generated a nominal value of USD 15 million, to clients with agricultural activities, in society. For this reason, the Bank During the year, 4,820 loan operations a growth of 35.65% in 2019. This USD 61 million to clients with has participated in various forums to were originated for portfolio clients, product, aimed exclusively at the manufacturing activities, USD 17 present its success story, including the of which 1,957 (40.60%) were segment, focuses on providing a million to construction, and the rest World Water Forum organized by the granted in cities other than Quito and fast and dynamic credit solution to is divided among commercial, real IDB. This places Produbanco as a local Guayaquil. Of this group, 1,662 had cardholders, either through its use in estate, and water and electricity supply leader in this type of financing and amounts of less than USD 100,000. direct charges or via cash advances on activities. The use of these funds helps approach. This denotes the vision of geographic available balance. Nearly two thirds of them improve operating conditions de-concentration and risk the Visa Pyme cards have been issued thus generating significant savings diversification of the Segment. to clients with annual sales of less than in the charges of water, energy, USD 1 million. and adequate waste disposal. This As part of the objective of achieving approach favored the incorporation sustained growth in our portfolio, there The work team that makes up the of four new cities to the Green Lines SME Segment is focused on building were disbursements throughout the portfolio: Manta, Cuenca, Quevedo, relationships of trust with a long-term country for USD 73 million in operations and Riobamba. vision, while accompanying clients in with a term equal to, or greater than, the various stages of the lifecycle of five years. With these resources, clients As part of a technical assistance their businesses. With this purpose, generated investments in capital goods, program that will culminate in 2020, we have maintained the annual SME infrastructure, and global improvements Produbanco, together with IDB Invest, Talks program for several years, made in their productive capacity. started a specialized consultancy for up of trainings and workshops that 27 client projects in Machala, Santo provide high added value for the This year the SME Segment launched Domingo, and Ambato. It seeks to development of small and medium- the Click Signature (Firma Click) identify spaces in which, by investing sized companies. In 2019, more than product, an innovative solution in efficient technology, savings in 400 clients were reached throughout whose main characteristic is the water and energy use are enhanced. the country with a specialized disbursement of credit through theme in the digitization of business promissory notes and digital In partnership with IFC (part and in the way in which the main signatures. Initially, it has only been of the World Bank Group), two global industries are advancing implemented in the cities of Quito and training workshops on sustainable technologically. Guayaquil. This product, which has construction (EDGE Certification been very well received, is a window - Excellence in Design for Greater The Líneas Verdes (Green Lines) for the digitization of the segment. Efficiencies) were held for program was launched in 2016 to Its nature makes it ideal for recurring construction clients and their supply finance businesses whose processes clients in credit transactions, since it chain. As a result, the financing of generate efficiencies in the use of eliminates the need to go in person to USD 15 million has been finalized

Memoria Anual 2019 Annual Report 2019 49 Payment Methods Number of Credit Cards Placed by Card Type Another relevant fact of 2019, and which was widely accepted, was 2018 2019 the implementation of the charges Credit Card Type % Part. % Part. Cards Cards payment transaction in establishments with QR codes. In 2019, we set a new record with Gold and Platinum 29,571 60.75% 38,182 63.60% the incorporation of 60 thousand Black Signature and Infinite 10,075 20.70% 11,436 19.05% accounts, 23.32% more than the 49 Classic 7,926 16.28% 9,400 15.66% Debit cards thousand in 2018. The credit card Corporate 1,107 2.27% 1,012 1.69% placement strategy maintained its The Bank closed 2019 with 772 focus on the medium and high-value Total 48,679 100.00% 60,030 100.00% thousand debit cards, 22.22% more segments. We ended the year with than in 2018. 216 thousand cards (120 thousand Mastercard and 96 thousand Visa), of Evolution of the Number of Credit Cards by Card Type Produbanco Debit Visa clients made which 83.98% registered balances for purchases for USD 377 million their charges. 2018 2019 Type % Part. % Part. (16.09% more than the previous Cards Cards year) and made more than 14 The implementation of multiple Gold and Platinum 96,955 55.60% 123,977 57.40% million transactions (28.79% growth initiatives contributed to the growth of compared to 2018). billing in USD 266 million, additional Black Signature and Infinite 33,151 19.01% 44,153 20.44% to the USD 975 million in 2018, which Classic 40,330 23.13% 43,185 19.99% led us to surpass the billion dollars in Corporate 3,934 2.26% 4,690 2.17% Cash management accumulated billing during 2019. Total 174,370 100.00% 216,005 100.00% It is a digital tool with specialized and This year, the Means of Payment area low-cost solutions for the efficient coordinated more than 110 campaigns management of the main Treasury focused on offering memorable Billing Evolution by Card Type (millions of dollars) experiences to cardholders. Among operations of a company. It uses the 2018 2019 highest technology to directly reach the main ones are: concerts and Type % Part. % Part. shows such as Melendi, Les Luthiers, Billing Billing vendors, employees, shareholders, and customers with different transactions. Pandora, Yuri, Manzanero, Mocedades, Gold and Platinum 435 44.68% 561 45.21% and Chayanne, among others; Jueves Black Signature and Infinite 368 37.80% 500 40.32% a Tu Gusto (Thursday to Your Taste) During 2019, we concluded the in selected restaurants; 2x1 Mondays Classic 105 10.72% 103 8.30% migration process of all our clients to the Cash Management 2.0 platform. in fast food restaurants, and lodging Corporate 66 6.80% 77 6.17% This version includes improvements packages, and events in the main Total 975 100.00% 1,240 100.00% hotels in the country. in design and functionality, a friendlier way of use and new security features such as sending OTP (One Time In accordance with the new digital Evolution of the Portfolio Balance by Card Type trends, long-term alliances were Password) temporary codes to customer contact users and self- developed with benefits for our clients 2018 2019 Type % Part. % Part. management in transactions such as in the main delivery platforms that Cards Cards operate in the market, among which unlocking or resetting passwords. are Uber, Rappi, Tipti, and Glovo. Gold and Platinum 206 45.71% 274 45.26% Black Signature and Infinite 185 41.02% 265 43.86% Cash Management now has the Cash Management Produbanco mobile The credit card portfolio reached a Classic 41 9.05% 43 7.05% balance of USD 605 million in 2019, application, which allows customers Corporate 19 4.22% 23 3.83% which represents a 34% growth to carry out their transactions from compared to 2018. Total 452 100.00% 605 100.00% anywhere, using their smartphone.

Memoria Anual 2019 Annual Report 2019 50 Evolution of Transactions in Evolution of Clients, Transactions Technological Channels of Produbanco Online and Cash Management Revenue Mobile App

2018 2019 Variation % Increase Channel 2018 2019 % Variation

Number 3,873 4,418 Increase 14.07% of customers 3,769,790 25,270,127 570.33% Number of 15,432,850 16,707,096 1,274,246 8.26% Transactions Mobile App

produbanco.com Revenue USD 8,746,376 9,253,058 506,682 5.79%

68,755,991 93,434,218 32.00% The App is available on the Apple Store Digital Channels produbanco.com and Google Play. Produbanco Online

1700 123 123 The main Cash Management figures The number of transactions carried in 2019 and their comparison with the out through the Bank’s transactional previous year are summarized below: channels grew by 50.45% in relation to that registered in 2018. 3,429,732 4,310,149 25.67%

The maintenance and improvements 1700 123 123 implemented in the various channels ensured customer service and its Produbanco and Servipagos ATMs quality of service.

The increase in the volume of transactions of the Mobile App is due 14,739,655 16,935,691 14.90% to the fact that in 2019, new services ATMs were incorporated into the application that were not available in 2018. Self-service Queries

896,282 529,454 -40.93%

Self-service Queries

Total Online Produbanco Channels

91,591,450 137,801,006 50.45%

Memoria Anual 2019 Annual Report 2019 51 Recognitions

Bank of the Year 2019 Bank of the Year 2019 Customer Service Provider Best Innovation in Best Consumer Digital Bank 2019 of the Year 2019 Retail Banking 2018 Awarded by: South America The Banker Magazine Awarded by: Awarded by: Global Finance Magazine Awarded by: International Banker Magazine Other years: International Banker Magazine 2017, 2009 to 2015, 2007, and 2002 Other years: Other years: 2018 and 2017 2017

Memoria Anual 2019 Annual Report 2019 52 Global Banking & Finance Awards 2019 AAA roduano uador AAA Rating

Innovative Digital Retail Bank Awarded by: of the Year 2019 PCR Pacific Credit Rating Awarded by: Local Rating Best Bank Governance 2019 The European since December 2018 Awarded by: First Place in the Category Most Capital Finance International (cfi.co) Respected Financial Institution of Other years: Ecuador 2018 2018, 2017 Awarded by: Global Banking & Finance Ecuadorian Business Committee, Awards 2019 Price Waterhouse Coopers (PwC), AAA- and Ecuavisa roduano uador AAA- Rating

Awarded by: Bank of the Year 2019 BankWatch Ratings Awarded by: Local Rating The European since December 2010 Other years: 2018, 2017

2019 Ekos de Oro Award for First Bank of the Year 2017 Place in Service Quality B- Awarded by: Awarded by: Latin Finance Magazine Ekos Customer Satisfaction Index B- Rating Other years: Other years: 2003 Awarded by: 2018 and 2017 Fitch Ratings Long-Term (IDR) Best Corporate Governance 2018 since 2013 Awarded by: The European

Memoria Anual 2019 Annual Report 2019 53 Financial Statements 2019

Memoria Anual 2019 Annual Report 2019 54 General Consolidated Balance Profit and Loss Statement Banco de la Producción S.A. and Subsidiaries Banco de la Producción S.A. and Subsidiaries

Thousands of USD dollars Thousands of USD dollars

% % 2018 2019 Growth 2018 2019 Growth

Asset Income Available funds and investments 1,497,131 1,537,409 2.69% Interest and discounts earned 294,103 354,714 20.61% Loan portfolio 2,992,169 3,296,575 10.17% Commissions earned 20,594 22,311 8.34% Debtors by acceptances Financial profits 13,032 17,502 34.30% Accounts receivable 36,488 44,991 23.30% Service income 80,757 90,110 11.58% Realizable property, awarded Other operating income 7,082 9,289 31.17% 11,699 15,094 29.02% by payment Other Income 28,520 29,728 4.23% Property and equipment 59,116 73,614 24.52% Total Income 444,089 523,654 17.92% Other assets 172,466 210,621 22.12% Total Assets 4,769,070 5,178,305 8.58% Expenses Interest accrued 84,452 119,800 41.86% Liabilities Commissions accrued 2,501 2,227 -10.99% Obligations to the public 3,686,123 4,020,869 9.08% Financial losses 2,779 1,841 -33.73% Interbank operations Provisions 43,112 65,555 52.06% Immediate obligations 49,377 21,581 -56.29% Operating costs 208,575 231,184 10.84% Outstanding acceptances Other operating losses 2,190 2,345 7.08% Accounts payable 149,303 164,099 9.91% Other expenses and losses 290 282 -3.04% Financial obligations 335,345 372,429 11.06% Total Expenses 343,899 423,233 23.07% Subordinated debt 114,000 118,500 3.95% Other liabilities 14,899 19,429 30.41% Earnings before provision Total Liabilities 4,349,048 4,716,907 8.46% for personnel profit sharing 100,189 100,421 0.23% and income tax Total Equity 420,022 461,398 9.85% Provision for personnel 15,167 15,325 1.04% profit sharing Total Liabilities and Equity 4,769,070 5,178,305 8.58%

Profit before provision 85,022 85,096 0.09% Contingents 1,109,928 1,162,621 4.75% for income tax

Provision for 25,241 24,381 -3.41% Income tax

Net profit 59,781 60,715 1.56%

Memoria Anual 2019 Annual Report 2019 55 Taxes, Payments and Contributions Paid Total Assets and Net Loan Portfolio Banco de la Producción S.A. and Subsidiaries Banco de la Producción S.A. and Subsidiaries

Thousands of USD dollars Millions of USD dollars

Total Assets

Dec 2018 Dec 2019 Variation

Income Tax 25,241 24,381 -860 COSEDE contributions 21,527 22,660 1,133 Contributions Superintendency 5,085 5,600 515 of Banks Municipal Taxes 2,021 1,851 -170 Other Taxes and Contributions 2,641 2,617 -24 VAT on purchases 11,685 14,681 2,996 Total Direct Taxes 68,200 71,790 3,590

Payment of Income Tax Employees 1,950 2,536 586 Net Loan Portfolio

Payment of IESS employee contributions 8,320 9,165 845 Total Indirect 10,269 11,701 1,432 Taxes and Contributions Direct Tax Burden / Group Profit 114.08% 118.24% 4.16* Direct and indirect tax burden and 131.26% 137.51% 6.25* group contributions / profits Net profit 59,781 60,715 934

(*) The increase or decrease is expressed in percentage points.

Memoria Anual 2019 Annual Report 2019 56 Obligations with the Public and Commercial Paper, Equity, and Net Profit Main Financial Accounts and Indicators Banco de la Producción S.A. and Subsidiaries Banco de la Producción S.A. and Subsidiaries

Millions of USD dollars Thousands of USD dollars

Obligations with the Public and Commercial Paper % 2018 2019 Growth

Accounts er epoit onetar ain Total assets 4,769,070 5,178,305 8.58% oerial aper Available funds and investments 1,497,131 1,537,409 2.69%

Credit portfolio 2,992,169 3,296,575 10.17% Obligations to the public 3,686,123 4,020,869 9.08% Equity 420,022 461,398 9.85% Net profit 59,781 60,715 1.56% Contingents 1,109,928 1,162,621 4.75% Assets + contingents 5,878,998 6,340,926 7.86%

Indicators

Solvency Technical constituted equity / Equity and Net Profit risk-weighted assets and 13.59% 13.61% 0.02* contingent

Asset Quality Total gross arrears 1.74% 2.31% 0.57* Equity Net Proﬁt Administrative Management Productive assets / 150.58% 146.64% -3.94* liabilities with cost Cost effectiveness Yield / equity - ROE 16.59% 15.15% -1.44* Liquidity Funds available / 31.08% 30.72% -0.36* total short-term deposits

(*) The increase or decrease is expressed in percentage points

Memoria Anual 2019 Annual Report 2019 57 General Consolidated Balance Profit and Loss Statement Banco de la Producción S.A. Banco de la Producción S.A.

Thousands of USD dollars Thousands of USD dollars

% % 2018 2019 Growth 2018 2019 Growth

Asset Income Available funds and investments 1,494,777 1,536,014 2.76% Interest and discounts earned 293,946 354,550 20.62% Loan portfolio 2,992,169 3,296,575 10.17% Commissions earned 20,594 22,311 8.34% Debtors by acceptances Financial profit 13,032 17,380 33.36% Accounts receivable 35,901 44,174 23.04% Service Income 67,612 78,299 15.81% Realizable assets, awarded Other operating income 8,598 10,355 20.44% 11,699 15,094 29.02% by payment Other income 28,021 30,386 8.44% Property and equipment 57,881 66,306 14.55% Total income 431,803 513,281 18.87% Other assets 175,843 213,764 21.57% Total Assets 4,768,270 5,171,927 8.47% Expenses Interest caused 84,455 119,190 41.13% Liability Commissions caused 2,501 2,227 -10.99% Obligations to the public 3,688,404 4,023,489 9.08% Financial losses 2,779 1,841 -33.73% Interbank operations Provisions 43,112 65,555 52.06% Immediate obligations 49,377 21,581 -56.29% Operating costs 197,654 221,917 12.28% Outstanding acceptances Other operating losses 2,190 2,345 7.08% Accounts payable 146,328 154,754 5.76% Other expenses and losses 290 282 -3.03% Financial obligations 335,345 372,429 11.06% Total expenses 332,981 413,356 24.14% Subordinated debt 114,000 118,500 3.95%

Other liabilities 14,894 19,234 29.14% Earnings before provision Total Liabilities 4,348,348 4,709,986 8.32% for employee profit sharing 98,822 99,925 1.12% and income tax Equity Provision for employee Paid-in capital 303,850 341,470 12.38% 14,749 14,982 1.58% profit sharing Share placement premium 1,105 1,105 0.00% Legal reserve 44,020 49,971 13.52% Earnings before provision 84,073 84,943 1.04% Valuation surplus 11,299 8,115 -28.19% for income tax Accrued profit 131 136 4.43% Profit for the year 59,517 61,144 2.73% Provision for 24,556 23,799 -3.08% Total Equity 419,921 461,941 10.01% Income tax

Total Liabilities and Equity 4,768,270 5,171,927 8.47% Net profit 59,517 61,144 2.73% Contingents 1,109,928 1,162,621 4.75%

Memoria Anual 2019 Annual Report 2019 58 Equity Movement Relationship between Total Technical Equity and Risk-Weighted Assets Banco de la Producción S.A. January to December 2019 and Contingents Banco de la Producción S.A. December 2018-2019

Units of USD dollars Units of USD dollars

Premium or discount on Surplus Legal Special placement by Accrued Profit Capital Reserve Reserve of shares valuation Profit For Year Total Dec 2018 Dec 2019 Balances as of 303,850,000 44,019,516 1,104,774 11,299,277 130,693 59,517,011 419,921,271 Dec 31, 2018 Total primary technical equity 339,041,585 384,344,222

Valuation of 410,623 shares and 410,623 Total secondary technical equity 192,701,566 194,469,671 participations

Valuation of Total Technical Equity 531,743,150 578,813,893 investments in -3,465,268 -3,465,268 financial instruments

Capital, legal reserve, reserve Deductions to total 0 6,281,269 6,649,262 for equity technical equity appreciation

Contributions future 37,495,717 -37,495,717 0 Constituted Technical Equity 525,461,881 572,164,632 capitalizations

Dividend -16,069,593 -16,069,593 payment Total risk-weighted 3,890,730,332 4,219,830,530 assets and contingents

Transfer to accrued 59,517,011 -59,517,011 0 earnings Required Technical Equity (9%) 350,165,730 379,784,748

Legal reserve -5,951,701 5,951,701 0 appropriation Surplus or deficit of 175,296,151 192,379,884 Depreciation required technical equity year 2019 -130,066 130,066 0 valued portion of assets Total and contingent assets x 4% 235,127,916 253,381,920

Asset 0 valuation Solvency Index (technical equity / risk-weighted 13.51% 13.56% assets and contingents) Increase 37,620,000 -37,495,717 -124,283 0 in capital

Profit for 61,144,015 61,144,015 the year

Balances as of 341,470,000 49,971,217 0 1,104,774 8,114,566 136,475 61,144,015 461,941,047 Dec 31, 2019

Memoria Anual 2019 Annual Report 2019 59 Summary of the Credit and Contingent Rating Portfolio and Provisions Constitution Banco de la Producción S.A. as of December 31, 2019

Units of USD dollars

231 A.1 Priority Commercial Credit

Difference Credits between Provisions covered with Balance % required mitigated by Provisions self-liquidating subject Partici- % Provisions Constituted and mortgage excess Total guarantees to rating pation Provision required Provisions constituted guarantees or deficient

A1 172,837,012 18,248,685 154,588,327 10.01% 0.71% 1,685,693 1,235,317 450,376 450,376 0 Normal A2 317,173,043 3,457,375 313,715,667 18.36% 1.42% 6,343,461 4,496,204 1,847,257 1,847,257 0 Risk

A3 961,312,368 28,105,948 933,206,420 55.66% 2.58% 39,302,730 24,778,388 14,524,342 14,524,342 0

B1 51,724,609 65,999 51,658,610 2.99% 3.40% 3,187,236 1,757,889 1,429,346 1,429,346 0 Potential Risk B2 7,888,708 0 7,888,708 0.46% 7.12% 989,758 561,352 428,406 428,406 0

C1 4,322,308 11,200 4,311,108 0.25% 12.33% 1,020,586 532,826 487,759 487,759 0 Deficient C2 1,686,272 0 1,686,272 0.10% 43.53% 734,015 734,015 0 0 0

Doubtful D 3,517,600 0 3,517,600 0.20% 74.37% 2,615,920 2,615,920 0 0 0 collection

E Loss 7,341,513 0 7,341,513 0.43% 100.00% 7,341,513 7,341,513 0 0 0

100% AL self-liquidating 199,415,623 199,415,623 0 11.55% 0.00% 0 0 0 0 0 guarantee

Total 1,727,219,055 249,304,830 1,477,914,225 100.00% 2.55% 63,220,911 44,053,423 19,167,487 19,167,487 0

Memoria Anual 2019 Annual Report 2019 60 Summary of the Credit and Contingent Rating Portfolio and Provisions Constitution Banco de la Producción S.A. as of December 31, 2019

Units of USD dollars

231 A.1 Ordinary Commercial Credit

A1 3,497,600 0 3,497,600 2.89% 0.98% 34,976 34,148 828 828 0 Normal A2 92,345,456 33,815 92,311,641 76.29% 1.50% 1,846,909 1,380,623 466,286 466,286 0 Risk

A3 24,814,809 11,047 24,803,762 20.50% 2.66% 1,016,342 659,887 356,455 356,455 0

B1 273,723 0 273,723 0.23% 4.79% 16,740 13,112 3,628 3,628 0 Potential Risk B2 86,644 4,052 82,592 0.07% 9.30% 8,976 8,061 915 915 0

C1 0 0 0 0.00% 0.00% 0 0 0 0 0 Deficient C2 0 0 0 0.00% 0.00% 0 0 0 0 0

0 9,398 0.01% 97.09% 9,125 9,125 0 0 0 Doubtful D 9,398 collection

E Loss 25 0 25 0.00% 100.00% 25 25 0 0 0

100% AL self-liquidating 10,756 10,756 0 0.01% 0.00% 0 0 0 0 0 guarantee

Total 121,038,411 59,670 120,978,742 100.00% 1.74% 2,933,092 2,104,980 828,112 828,112 0

Memoria Anual 2019 Annual Report 2019 61 Summary of the Credit and Contingent Rating Portfolio and Provisions Constitution Banco de la Producción S.A. as of December 31, 2019

Units of USD dollars

231 A.5 Productive Credit

A1 55,695,686 54,981 55,640,706 12.03% 0.91% 556,957 509,073 47,884 47,884 0 Normal A2 84,389,680 1,037,116 83,352,564 18.23% 1.37% 1,687,794 1,155,176 532,617 532,617 0 Risk

A3 310,191,543 2,192,740 307,998,803 67.01% 2.18% 12,438,660 6,761,728 5,676,931 5,676,931 0

B1 12,258,031 13,411 12,244,621 2.65% 3.05% 736,772 374,262 362,510 362,510 0 Potential Risk B2 191,153 0 191,153 0.04% 8.20% 22,912 15,682 7,230 7,230 0

C1 0 0 0 0.00% 0.00% 0 0 0 0 0 Deficient C2 0 0 0 0.00% 0.00% 0 0 0 0 0

0 896 0.00% 60.00% 538 538 0 0 0 Doubtful D 896 collection

E Loss 143,572 0 143,572 0.03% 100.00% 143,572 143,572 0 0 0

100% AL self-liquidating 0 0 0 0.00% 0.00% 0 0 0 0 0 guarantee

Total 462,870,562 3,298,248 459,572,314 100.00% 1.94% 15,587,203 8,960,031 6,627,172 6,627,172 0

Memoria Anual 2019 Annual Report 2019 62 Summary of the Credit and Contingent Rating Portfolio and Provisions Constitution Banco de la Producción S.A. as of December 31, 2019

Units of USD dollars

231 A.2 Ordinary Consumer Credit

Loans covered with Balance % Provisions self-liquidating subject to Partici- % Provisions Provisions excess Total guarantees rating pation Provision required constituted or deficient

A1 116,534,700 6,244,261 110,290,439 85.06% 0.95% 1,165,347 1,102,905 -62,443 Normal A2 1,010,172 29,797 980,375 0.74% 1.94% 20,203 19,607 -596 Risk

A3 10,273,528 366,678 9,906,850 7.50% 2.93% 312,126 301,069 -11,057

B1 2,546,408 40,844 2,505,564 1.86% 6.00% 155,333 152,882 -2,451 Potential Risk B2 1,335,023 5,238 1,329,785 0.97% 10.26% 137,554 137,030 -524

C1 1,593,161 25,331 1,567,830 1.16% 20.21% 327,644 321,907 -5,737 Deficient C2 1,337,087 3,366 1,333,721 0.98% 40.89% 548,420 546,737 -1,683

891 923,385 0.67% 61.70% 570,796 570,261 -535 Doubtful D 924,276 collection

E Loss 1,443,587 0 1,443,587 1.05% 100.00% 1,443,587 1,443,587 0

100% AL self-liquidating 6,696 6,696 0 0.00% 0.00% 0 0 0 guarantee

Total 137,004,638 6,723,101 130,281,537 100.00% 3.35% 4,681,010 4,595,986 -85,024

Memoria Anual 2019 Annual Report 2019 63 Summary of the Credit and Contingent Rating Portfolio and Provisions Constitution Banco de la Producción S.A. as of December 31, 2019

Units of USD dollars

231 A.2 Priority Consumer Credit

Credits covered with Balance % Provisions self-liquidating subject to Partici- % Provisions Provisions excess Total guarantees rating pation Provision required constituted or deficient

A1 814,915,476 1,343,916 813,571,559 87.73% 1.00% 8,149,167 8,135,728 -13,439 Normal A2 3,651,075 1,975 3,649,100 0.39% 2.00% 73,022 72,982 -40 Risk

A3 28,866,956 36,890 28,830,066 3.11% 4.14% 1,197,027 1,195,561 -1,466

B1 11,263,044 1,210 11,261,833 1.21% 7.47% 840,965 840,893 -73 Potential Risk B2 6,809,503 2,214 6,807,289 0.73% 13.92% 948,387 948,055 -332

C1 10,205,329 0 10,205,329 1.10% 27.65% 2,821,833 2,821,833 0 Deficient C2 10,287,802 1,187 10,286,615 1.11% 48.22% 4,961,702 4,961,109 -594

0 9,728,062 1.05% 75.91% 7,384,614 7,384,614 0 Doubtful D 9,728,062 collection

E Loss 13,836,687 0 13,836,687 1.49% 100.00% 13,836,687 13,836,687 0

100% AL self-liquidating 19,275,014 19,275,014 0 2.08% 0.00% 0 0 0 guarantee

Total 928,838,947 20,662,407 908,176,540 100.00% 4.33% 40,213,404 40,197,461 -15,943

Memoria Anual 2019 Annual Report 2019 64 Summary of the Credit and Contingent Rating Portfolio and Provisions Constitution Banco de la Producción S.A. as of December 31, 2019

Units of USD dollars

231 A.3 Real Estate Credit

Loans covered with Balance % Provisions self-liquidating subject to Partici- % Provisions Provisions excess Total guarantees rating pation Provision required constituted or deficient

A1 210,567,032 45,285 210,521,748 80.06% 1.00% 2,105,670 2,105,218 -453 Normal A2 23,451,051 0 23,451,051 8.92% 2.00% 469,021 469,021 0 Risk

A3 16,147,447 0 16,147,447 6.14% 3.06% 494,171 494,171 0

B1 4,323,007 0 4,323,007 1.64% 7.07% 305,750 305,750 0 Potential Risk B2 650,589 0 650,589 0.25% 14.35% 93,364 93,364 0

C1 525,714 0 525,714 0.20% 25.79% 135,573 135,573 0 Deficient C2 816,446 0 816,446 0.31% 48.11% 392,786 392,786 0

0 2,452,432 0.93% 71.22% 1,746,575 1,746,575 0 Doubtful D 2,452,432 collection

E Loss 4,065,958 0 4,065,958 1.55% 100.00% 4,065,958 4,065,958 0

100% AL self-liquidating 12,527 12,527 0 0.00% 0.00% 0 0 0 guarantee

Total 263,012,201 57,812 262,954,389 100.00% 3.73% 9,808,867 9,808,414 -453

Memoria Anual 2019 Annual Report 2019 65 Summary of the Credit and Contingent Rating Portfolio and Provisions Constitution Banco de la Producción S.A. as of December 31, 2019

Units of USD dollars

231 A.4 Microcredit

Loans covered with Balance % Provisions self-liquidating subject to Partici- % Provisions Provisions excess Total guarantees rating pation Provision required constituted or deficient

A1 20,252,343 105,627 20,146,716 83.66% 0.99% 202,524 201,467 -1,056 Normal A2 313,860 0 313,860 1.30% 2.00% 6,277 6,277 0 Risk

A3 552,216 0 552,216 2.28% 3.00% 16,566 16,566 0

B1 347,017 0 347,017 1.43% 6.00% 20,821 20,821 0 Potential Risk B2 343,628 0 343,628 1.42% 10.52% 36,166 36,166 0

C1 342,786 0 342,786 1.42% 21.11% 72,348 72,348 0 Deficient C2 184,234 0 184,234 0.76% 43.07% 79,348 79,348 0

0 435,759 1.80% 67.53% 294,277 294,277 0 Doubtful D 435,759 collection

E Loss 393,586 0 393,586 1.63% 100.00% 393,586 393,586 0

100% AL self-liquidating 1,043,336 1,043,336 0 4.31% 0.00% 0 0 0 guarantee

Total 24,208,764 1,148,963 23,059,801 100.00% 4.63% 1,121,913 1,120,857 -1,056

Grand 3,664,192,579 281,255,031 3,382,937,549 100.00% 3.02% 137,566,401 110,841,153 -102,476 Total

Memoria Anual 2019 Annual Report 2019 66 Summary of the Investment and Other Assets Rating and Provisions Constitution Banco de la Producción S.A. as of December 31

Units of USD dollars

231 B.1 General provisions Nominal Market Specific for Code Investments values values provisions investments

1301 At fair value with changes in the income statement of private sector entities 0.00 0.00 0.00 0.00

1302 At fair value with changes in the income statement of public sector entities 0.00 0.00 0.00 0.00

1303 Available for sale by private sector entities 170,609,233.63 169,917,165.44 0.00 0.00

1304 Available for State sale or public sector entities 147,593,132.84 144,634,911.05 0.00 0.00

Total 318,202,366.47 314,552,076.49 0.00 0.00

General provisions Book Market Specific for Code Investments Value Value Provisions investments

1202 Repo transactions with financial institutions 0.00 0.00 0.00 0.00

1305 Held to maturity private sector 2,701,046.24 2,701,046.24 58,801.02 0.00

1306 Held to maturity state or public sector entities 246,187,488.33 246,187,488.33 88,000.00 0.00

1307 Restricted availability 14,075,768.08 14,075,768.08 0.00 0.00

190205 Fiduciary rights - investments 0.00 0.00 0.00 0.00

Total 262,964,302.65 262,964,302.65 146,801.02 0.00

Memoria Anual 2019 Annual Report 2019 67 Summary of the Investment and Other Assets Rating and Provisions Constitution Banco de la Producción S.A. as of December 31

Units of USD dollars

231 B.2 Provisions excess % Provisions Provisions or Others assets Total Risk required constituted deficient A1 37,003,055.06 83.49% 316,695.00 335,935.97 19,240.97 A2 Normal risk 659,119.81 1.49% 13,182.40 13,182.40 0.00 A3 246,145.90 0.56% 9,845.84 9,845.84 0.00 B1 461,924.69 1.04% 34,644.39 34,644.39 0.00 Potential risk B2 291,417.31 0.66% 42,255.56 42,255.56 0.00 C1 212,053.02 0.48% 62,555.70 62,555.70 0.00 Deficient C2 334,233.78 0.75% 165,445.76 165,445.76 0.00 D Doubtful collection 547,017.92 1.23% 434,879.29 434,879.29 0.00 E Loss 4,567,927.11 10.31% 4,567,927.11 4,567,927.11 0.00 Assessed 44,322,894.60 100.00% 0.00 0.00 0.00 Not rated 0.00 0.00 0.00 0.00 0.00 Total 44,322,894.60 100.00 5,647,431.05 5,666,672.02 19,240.97

% of other assets evaluated [(evaluated / total) 100] = 100.00%

% De riesgo otros activos evaluado [(prov. requerida / evaluado) 100 ] = 12.74%

231 B.3

Provisions Provisions Total excess Goods Provisions required by provisions Provisions or in dation Total required (a) appraisal (b) required constituted deficient Risks 9,436,375.39 4,968,200.71 15,906.00 4,984,106.71 4,986,498.49 2,391.78

Total 9,436,375.39 4,968,200.71 15,906.00 4,984,106.71 4,986,498.49 2,391.78

(a) Required Provisions: Art. 195 of the Organic Monetary and Financial Code.

(b) Provisions Required by Appraisal: Second subsection, numeral 3, article 5, section II, chapter II, title IX, book 1 of the Codification of Resolutions of the Superintendency of Banks and Insurance of the Banking Board.

Memoria Anual 2019 Annual Report 2019 68 General Consolidated Balance Profit and Loss Statement Externalización de Servicios S.A. Exsersa Externalización de Servicios S.A. Exsersa

Thousands of USD dollars Thousands of USD dollars

% % 2018 2019 Growth 2018 2019 Growth

Asset Income Funds available 3,273 2,793 -14.67% Interest and discounts earned 15 10 -31.38% Interbank operations and investments Commissions earned Loan portfolio Financial profit Debtors by acceptances Service income 18,200 16,897 -7.16% Accounts receivable 1,436 1,288 -10.32% Other operating income Realizable assets, awarded Other income 318 160 -49.57% by payment Total Income 18,533 17,068 -7.91% Property and equipment* 1,043 7,301 600.13% Other assets 1,258 1,854 47.43% Expenses Total Assets 7,009 13,236 88.84% Interest accrued 642 Commissions accrued Liability Financial losses Obligations to the public Provisions Interbank operations Operating costs 16,519 15,116 -8.49% Immediate obligations Other operating losses Outstanding acceptances Other expenses and losses Accounts payable* 2,415 8,822 265.32% Taxes and employee profit sharing Financial obligations Total Expenses 16,519 15,758 -4.61% Outstanding securities Contributions for future capitalizations Earnings before provision Other liabilities for employee profit sharing 2,014 1,310 -34.99% Total Liabilities 2,415 8,822 265.32% and income tax

Provision for employee 4,594 4,414 -3.92% 291 177 -39.13% Total Equity profit sharing

7,009 13,236 88.84% Earnings before provision Total Liabilities and Equity 1,723 1,132 -34.29% for income tax

Provision for Income tax 461 354 -23.19%

Net Profit 1,262 778 -38.35% (*) In 2019, IFRS 16 regarding Leases came into force. In application thereof, these items include the registration of Assets for Right of Use and Liabilities for Leasing.

Memoria Anual 2019 Annual Report 2019 69 General Consolidated Balance Profit and Loss Statement Protrámites Trámites Profesionales S.A. Protrámites Trámites Profesionales S.A.

Thousands of USD dollars Thousands of USD dollars

% % 2018 2019 Growth 2018 2019 Growth

Assets Income Funds available 1,379 1,028 -25.45% Interest and discounts earned 145 157 8.28% Interbank operations Commissions earned and investments Financial profit Available-for-sale assets - purchased 518 1,167 125.29% Service income 2,241 3,143 40.25% portfolio Other operating income 510 530 3.92% Debtors by acceptances Other income 26 32 23.08% Accounts receivable 2 3 50.00% Total Income 2,922 3,862 32.17% Realizable assets, awarded by payment Property and equipment* 192 332 72.92% Expenses Other assets 111 335 201.80% Interest accrued 20 Total Assets 2,202 2,865 30.11% Commissions accrued Financial losses Liability Provisions Obligations to the public Operating costs 2,049 2,673 30.45% Interbank operations Other operating losses Immediate obligations Other expenses and losses 4 38 850.00% Outstanding acceptances Taxes and employee profit sharing Accounts payable* 1,125 1,336 18.76% Total Expenses 2,053 2,731 33.02% Financial obligations Contributions for future capitalizations 285 -100.00% Earnings before provision for employee profit sharing 869 1,131 30.15% Other liabilities 5 2 -60.00% and income tax Total Liabilities 1,415 1,338 -5.44% Provision for employee 127 167 31.50% Total Equity 787 1,527 94.03% profit sharing Earnings before provision 742 964 29.92% Total Liabilities and Equity 2,202 2,865 30.11% for income tax

Provision for 224 228 1.79% Income tax

Net Profit 518 736 42.08%

(*) In 2019, IFRS 16 regarding Leases came into force. In application thereof, these items include the registration of Assets for Right of Use and Liabilities for Leasing.

Memoria Anual 2019 Annual Report 2019 70 Report of Independent Auditors Banco de la Producción S.A. and Subsidiaries

Emphasis of Matter

Accounting Basis KPMG del Ecuador Cia. Ltda. Telefonos: (593-2) 2450 356 Av. República de El Salvador N35-40 y (593-2) 2444 225 Portugal, Edif. Athos, Piso 3 (593-2) 2444 228 We inform that, as mentioned in Note 2, the consolidated financial statements referred to in the first Quito - Ecuador paragraph have been prepared in accordance with accounting rules and practices established by the Superintendency of Banks of Ecuador and the Monetary and Financial Policy and Regulation Board. These preparation bases were adopted to comply with provisions issued by Superintendency of Banks of Ecuador and the Monetary and Financial Policy and Regulation Board; consequently, these consolidatedKey Audit Matters financial statements may not be suitable for any other purpose.

FREE ENGLISH-LANGUAGE TRANSLATION OF SPANISH-LANGUAGE ORIGINAL AUDITORS' Key audit matters are those matters that, in our professional judgment, were of most significance in REPORT our audit of the consolidated financial statements of the current period. These matters were Independent Auditors' Report addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Valuation ofKey AuditLoan Matter Portfolio and How the key matter was addressed in the audit Contingencies of Commercial and Productive Segments over US$40,000 and To the Board of Stockholders and Board of Directors of: Establishment of Provisions Our audit procedures to cover the aforementioned OpinionBanco de la Producción S. A. Produbanco and Subsidiaries. matter included the following:

- Tests of design and implementation and The provision of loan portfolio and operational effectiveness of the relevant controls contingencies of commercial and productive related to the establishment of the specific We have audited the accompanying consolidated financial statements of Banco de la Producción S. segments over US$40,000 is considered one of provision, determination of default days and the A. Produbanco and Subsidiaries ("the Group"), which comprise the consolidated balance sheet at the most significant issues due to the internal risk ratings assigned to the debtors December 31, 2019, and the consolidated statements of income, changes in equity and cash flows representativeness. Likewise, the rating according to the model used. for the year then ended, and notes, comprising a summary of significant accounting policies and process of the loan portfolio and contingencies other explanatory information. The consolidated financial statements have been prepared by determines the most important estimate of the - Obtaining database of the Bank's rating of loan Management based on accounting rules and practices established by the Superintendency of Banks Bank's financial statements, as this involves, portfolio and contingencies and validating the among other aspects, the analysis of different of Ecuador and the Monetary and Financial Policy and Regulation Board. accuracy and completeness of data relevant for economic and financial parameters established the calculation of the required provisions. in the applicable regulation, including the In our opinion, the accompanying consolidated financial statements present fairly, in all material application of certain estimates by - For a sample of commercial loans with risk over respects, the consolidated financial position of Banco de la Producción S. A. Produbanco and Management. US$40,000 and with specific provisions, as well Subsidiaries as at December 31, 2019, of its consolidated operating performance, and its as clients who presented changes in risk rating consolidated cash flows for the year then ended in accordance with accounting rules and practices The Bank performs quarterly the rating process with respect to the previous period, we established by the Superintendency of Banks of Ecuador and the Monetary and Financial Policy and of risk assets and contingencies based on examined their credit files and reprocessed the BasisRegulation for Opinion Board. provisions of the Monetary and Financial Policy rating assigned according to the rating criteria and Regulation Board. contained in the rulings in effect, as well as the review of guarantees based on appraisals made by external valuers. We conducted our audit in accordance with International Standards on Auditing (ISA). Our responsibilities under those standards are further described in the "Auditors' Responsibilities for the - Recalculation of the provision for loan portfolio Audit of the Consolidated Financial Statements" section of our report. We are independent of the and contingencies of commercial and productive Group in accordance with the Ethic Code for Accountant professionals of the International Ethics segments over US$40,000 in accordance with Standards Board for Accountants (I ESBA Ethic Code) together with the ethical requirements the parameters established by the Regulators. applicable to our audit of the consolidated financial statements in Ecuador, and we have fulfilled our other ethical responsibilities in accordance with said Code. We believe that the audit evidence we No material differences were identified as a have obtained is sufficient and appropriate to provide a basis for our opinion. result of the procedures performed.

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Memoria Anual 2019 Annual Report 2019 71 Report of Independent Auditors Banco de la Producción S.A. and Subsidiaries

Other Information Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. Management is responsible for preparing the other information presented together with the consolidated financial statements, which comprises the "Board's Report" and the "Annual Report" Conclude on the appropriateness of Management's use of the going concern basis of and does not include the consolidated financial statements and our auditors' report thereon. accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity's ability to continue Our opinion on the Group's consolidated financial statements does not cover the other information as a going concern. If we conclude that a material uncertainty exists, we are required to draw and we do not express any form of assurance conclusion thereon. attention in our auditors' report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are In connection with our audit of the consolidated financial statements, our responsibility is to read the based on the audit evidence obtained up to the date of our auditors' report. However, future other information and, in doing so, consider whether the other information is materially inconsistent events or conditions may cause the Group to cease to continue as a going concern. between this information and the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We have nothing to report in this regard. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the Responsibilities of Management and Board of Directors for the Consolidated Financial underlying transactions and events in a manner that achieves fair presentation. Statements Obtain sufficient appropriate audit evidence regarding the financial information of the entities or Management is responsible for the preparation and fair presentation of these consolidated financial business activities within the group to express an opinion on the consolidated financial statements in accordance with the accounting rules and policies established by the Superintendency statements. We are responsible for the direction, supervision and performance of the group of Banks of Ecuador and the Monetary and Financial Policy and Regulation Board and for such audit. We remain solely responsible for our audit opinion. internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. We communicate with the Bank's Management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal In preparing the consolidated financial statements, Management is responsible for assessing the control that we identify during our audit. Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless Management either intends to We also provided to the Group's Management a statement that we have complied with relevant liquidate the Group or to cease operations, or has no realistic alternative but to do so. ethical requirements regarding independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related Management is responsible for overseeing the Group's financial reporting process. safeguards.

Auditors' Responsibilities for the Audit of the Consolidated Financial Statements From the matters communicated to the Group's Management, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period Our objective is to obtain reasonable assurance about whether the consolidated financial statements and are therefore the key audit matters. We describe these matters in our auditors' report unless as a whole are free from material misstatement, whether due to fraud or error, and to issue an law or regulation precludes public disclosure about the matter or when, in extremely rare auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is circumstances, we determine that a matter should not be communicated in our report because the not a guarantee that an audit conducted in accordance with International Standards on Auditing (ISAs) adverse consequences of doing so would reasonably be expected to outweigh the public interest will always detect a material misstatement when it exists. Misstatements can arise from fraud or benefits of such communication. error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of our audit in accordance with International Standards on Auditing (ISAs), we exercise professional judgment and maintain professional skepticism throughout the audit. We also: AE-7808 March 6 , 2020 Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.

(Continued)

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Memoria Anual 2019 Annual Report 2019 72 Report of Independent Auditors Banco de la Producción S.A.

Consolidated Financial Statements

As mentioned in Note 1, the Bank's financial statements must be filed individual and consolidated KPMG del Ecuador Cia. Ltda. Telefonos: (593-2) 2450 356 with its subsidiaries; therefore, the consolidated financial statements are presented separately. The Av. República de El Salvador N35-40 (593-2) 2444 225 accompanying individual financial statements are to be read together with the consolidated financial y Portugal, Edif. Athos, Piso 3 (593-2) 2444 228 statements.Key Audit Matters Quito - Ecuador

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the individual financial statements of the current period. These matters were addressed in the context of our audit of the individual financial statements as a whole, and in forming our opinion FREE ENGLISH-LANGUAGE TRANSLATION OF SPANISH-LANGUAGE ORIGINAL AUDITORS' thereon, and we do not provide a separate opinion on these matters. REPORT INDEPENDENT AUDITORS' REPORT Valuation ofKey AuditLoan Matter Portfolio and How the key matter was addressed in the audit Contingencies of Commercial and Productive Segments over US$40,000 and To the Board of Stockholders and Board of Directors of: Establishment of Provisions Our audit procedures to cover the Banco de la Producción S. A. Produbanco. aforementioned matter included the following: Opinion - Tests of design and implementation and The provision of loan portfolio and operational effectiveness of the relevant contingencies of commercial and productive controls related to the establishment of the We have audited the accompanying individual financial statements of Banco de la Producción S. A. segments over US$40,000 is considered one of specific provision, determination of default Produbanco ("the Bank"), which comprise the balance sheet as at December 31, 2019, and the the most significant issues due to the days and the internal risk ratings assigned to statements of income, changes in equity and cash flows for the year then ended, and notes, representativeness. Likewise, the rating the debtors according to the model used. comprising a summary of significant accounting policies and other explanatory information. The process of the loan portfolio and contingencies individual financial statements have been prepared by Management based on accounting rules and determines the most important estimate of the - Obtaining database of the Bank's rating of loan practices established by the Superintendency of Banks of Ecuador and the Monetary and Financial Bank's financial statements, as this involves, portfolio and contingencies and validating the Policy and Regulation Board. among other aspects, the analysis of different accuracy and completeness of data relevant for economic and financial parameters established the calculation of the required provisions. In our opinion, the accompanying individual financial statements present fairly, in all material respects, in the applicable regulation, including the the individual financial position of Banco de la Producción S. A. Produbanco as at December 31, 2019, application of certain estimates by - For a sample of commercial loans with risk of its individual operating performance, and its individual cash flows for the year then ended in Management. over US$40,000 and with specific provisions, accordance with accounting rules and practices established by the Superintendency of Banks of as well as clients who presented changes in BasisEcuador for and Opinion the Monetary and Financial Policy and Regulation Board. The Bank performs quarterly the rating process risk rating with respect to the previous period, of risk assets and contingencies based on we examined their credit files and reprocessed provisions of the Monetary and Financial Policy the rating assigned according to the rating We conducted our audit in accordance with International Standards on Auditing (ISA). Our and Regulation Board. criteria contained in the rulings in effect, as responsibilities under those standards are further described in the "Auditors' Responsibilities for the well as the review of guarantees based on Audit of the Individual Financial Statements" section of our report. We are independent of the Bank appraisals made by external valuers. in accordance with the Ethic Code for Accountant professionals of the International Ethics Standards Board for Accountants (I ESBA Ethic Code) together with independence requirements of the - Recalculation of the provision for loan portfolio Superintendency of Banks of Ecuador, and we have fulfilled our other ethical responsibilities in and contingencies of commercial and accordance with said Code. We believe that the audit evidence we have obtained is sufficient and productive segments over US$40,000 in appropriateEmphasis ofto Matterprovide a basis for our opinion. accordance with the parameters established by the Regulators. Accounting Basis No material differences were identified as a result of the procedures performed. We inform that, as mentioned in Note 2, the individual financial statements referred to in the first paragraph have been prepared in accordance with accounting rules and practices established by the Superintendency of Banks of Ecuador and the Monetary and Financial Policy and Regulation Board. These preparation bases were adopted to comply with provisions issued by Superintendency of Banks of Ecuador and the Monetary and Financial Policy and Regulation Board; consequently, these financial statements may not be suitable for any other purpose.

(Continued) (Continued) - 2 -

- 1 -

Tipografía Tahoma Tipografía Tahoma Memoria Anual 2019 Annual Report 2019 73 Report of Independent Auditors Banco de la Producción S.A.

Management is responsible for the preparation and fair presentation of these individual financial Obtain sufficient appropriate audit evidence regarding the financial information of the entities or statements in accordance with the accounting rules and policies established by the Superintendency business activities within the group to express an opinion on the individual financial statements. of Banks of Ecuador and the Monetary and Financial Policy and Regulation Board and for such internal We are responsible for the direction, supervision and performance of the group audit. We control as management determines is necessary to enable the preparation of individual financial remain solely responsible for our audit opinion. statements that are free from material misstatement, whether due to fraud or error. We communicate with the Bank's Management regarding, among other matters, the planned scope In preparing the individual financial statements, Management is responsible for assessing the Bank's and timing of the audit and significant audit findings, including any significant deficiencies in internal ability to continue as a going concern, disclosing, as applicable, matters related to going concern and control that we identify during our audit. using the going concern basis of accounting unless Management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so. We also provided to the Bank's Management a statement that we have complied with relevant ethical requirements regarding independence and communicate with them all relationships and other matters Management is responsible for overseeing the Bank's financial reporting process. that may reasonably be thought to bear on our independence, and where applicable, related safeguards. Auditors' Responsibilities for the Audit of the Individual Financial Statements From the matters communicated to the Bank's Management, we determine those matters that were Our objective is to obtain reasonable assurance about whether the individual financial statements as a of most significance in the audit of the individual financial statements of the current period and are whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' therefore the key audit matters. We describe these matters in our auditors' report unless law or report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we guarantee that an audit conducted in accordance with International Standards on Auditing (ISAs) will determine that a matter should not be communicated in our report because the adverse always detect a material misstatement when it exists. Misstatements can arise from fraud or error consequences of doing so would reasonably be expected to outweigh the public interest benefits of and are considered material if, individually or in the aggregate, they could reasonably be expected to such communication. influence the economic decisions of users taken on the basis of these individual financial statements.

As part of our audit in accordance with International Standards on Auditing (ISAs), we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the individual financial statements, AE-7808 whether due to fraud or error, design and perform audit procedures responsive to those risks, March 6, 2020 and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

(Continued)

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Memoria Anual 2019 Annual Report 2019 74 Internal Audit Report Banco de la Producción S.A. and Subsidiaries

Produbanco ,!(" Grupo Promerica INTERNAL AUDIT REPORT

Quito, February 28, 2020

Messieurs and Mesdames SHAREHOLDERS BANCO DE LA PRODUCCIÓN S.A. PRODUBANCO OPINION OF THE AUDIT COMMITTEE ON THE Quito - Ecuador SUFFICIENCY OF INTERNAL CONTROL SYSTEMS IN FORCE AND THE APPROPRIATE APPLICATION OF Dear Shareholders: RISK MANAGEMENT - YEAR 2019 In my capacity as Internal Auditor, appointed by the General Shareholders Board of the Bank, and in compliance with the provisions in force, I hereby issue the following report:

This report contains the opinion on the financial statements as of December 31, 2019, the degree of "The Auditing Committee, based on the reports presented and on the various aspects compliance with the legal, statutory, internal regulations, and the regulations established by the analyzed in meetings held during 2019, as well as in the annual evaluation report Control Agencies, as well as on the quality of the internal control system. regarding the internal control system issued by Internal Auditing corresponding to the above year, informs that the structure of risk management is adequate to the size and My opinion is supported by the reviews, proofs, and control evaluations carried out during 2019. The complexity of the Bank's operations, and has an appropriate internal control structure; reviews were carried out in accordance with auditing standards, which mandate that relevant ethical there is no evidence of circumstances that could comprise important weaknesses in the requirements are met, an audit is planned and performed to obtain reasonable certainty that the financial statements do not contain significant errors. An audit also includes, based on evidence, Bank's internal control system. Furthermore, in keeping with the requirements of examining the evidence supporting the figures in the financial statements and evaluating the internal banking resolutions, the Committee hereby affirms that it has followed up on the control system, as well as evaluating the accounting practices applied, the principles used, and the observations and reports of the Internal and External Auditors and of the significant estimates made by the Administration. I consider that the tests carried out, which were Superintendencia de Bancos (Superintendency of Banks), and also indicates that there is executed according to the annual work plan approved by the Audit Committee and the Board of neither evidence nor knowledge of suspicious and irregular behaviors or of conflicts of Directors of the Bank, and that was communicated to the Superintendency of Banks, provide a interest in the terms of the above norm". reasonable basis for expressing the following opinion:

1. In relation to the financial statements: a. In the portfolio, it was verified that the credit operations have been granted in compliance with the legal provisions and current regulations while applying the policies approved by the Board of Directors.

The provisions established herein satisfy the requirements established by the regulations Chairman of the Audit Committee determined by the Superintendency of Banks.

During this period, no operations granted to related parties have been identified /

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6'www.produbanco.com D l::J

Ecuador • Costa Rica • El Salvador • Guatemala • Honduras • Islas Caimán • Nicaragua • Panamá • República Dominicana

Memoria Anual 2019 Annual Report 2019 75 Internal Audit Report Banco de la Producción S.A. and Subsidiaries

cordance with norms and accounting practices established by the Superintendency of Banks and other regulatory and control agencies.

In addition, I can report that Produbanco and its Subsidiaries have an adequate leve) of interna) control; they comply with current legal provisions; their transactions respond to banking techniques; and they comply with policies and procedures approved by the Board, as well as by legal regulations in force.

Sincerely,

INTERNAL AUDITOR

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Ecuador • Costa Rica • El Salvador • Guatemala • Honduras • Islas Caimán • Nicaragua • Panamá • República Dominicana

Memoria Anual 2019 Annual Report 2019 76 Credits Coordination Planning and development

Graphic line Grupo Promerica

Editing and Layout Solange Luna

Translation Rodrigo Sandoval

Photography Produbanco Carmen Ulloa Ulloa / Conservation International

March 2020

Memoria Anual 2019 Annual Report 2019 77 prouanoom