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OFFERING CIRCULAR

US$30,000,000

Banco Industrial, S.A.


9.00% Non-cumulative Fixed/Floating Rate Step-up Tier 1 Capital Notes due 2068
Banco Industrial, S.A., a commercial bank organized and existing as a corporation (sociedad annima) under the laws
of Guatemala, or the Bank or the Issuer, is issuing an aggregate principal amount of US$30,000,000 Non-cumulative
Fixed/Floating Rate Step-up Tier 1 Capital Notes due 2068 with interest rate step-up in 2018, or the Notes.
The Notes will be issued under an Indenture to be dated April 30, 2008, between the Bank and The Bank of New York,
as trustee for the holders of the Notes from time to time, or the Trustee.
The Notes are denominated in U.S. dollars and, subject to the Option to Cancel Interest Payments and Mandatory
Cancellation of Interest Payments as described in Description of the NotesLimitation on Interest, will bear interest at a fixed
rate of 9.00% per year, payable quarterly in arrears on January 30, April 30, July 30 and October 30 of each year, commencing
on July 30, 2008, until and including April 30, 2018, and thereafter bear interest at a floating rate equal to three-month U.S.
dollar LIBOR plus 6.00% payable quarterly in arrears on January 30, April 30, July 30 and October 30 of each year
commencing on July 30, 2018. The Notes mature on the interest payment date falling on April 30, 2068, or the Stated Maturity.
The Notes constitute direct, unsecured and junior obligations of the Bank and will not be insured or benefit from any
contractual support agreement. In the event of the Banks bankruptcy, insolvency, liquidation, dissolution, winding up or
equivalent proceeding under Guatemalan law, all claims under the Notes will rank junior to all the Banks present and future
Senior Debt, pari passu with all the Banks Parity Securities and senior to all the Banks Junior Securities as described in
Description of the NotesRanking.
The Notes are intended to qualify as Tier 1 capital under applicable Guatemalan laws and regulations. Such laws and
regulations, as currently in force, place certain prohibitions on the payment of interest on instruments qualifying as Tier 1
capital. See Description of the NotesLimitation on Interest.
Subject to the exceptions described herein, payments in respect of the Notes will be made without any deduction or
withholding for or on account of taxes of Guatemala. The Notes may not be voluntarily redeemed prior to the Stated Maturity
except in accordance with the terms of the Indenture as described in this offering circular under Description of Notes. The
Notes will be subject to redemption by the Bank in cash, at its option, in whole but not in part, at any time on or after April 30,
2018, subject to the prior approval of the Guatemalan Superintendency of Banks, if then so required. Prior to that date, the Bank
may redeem the Notes for cash, in whole but not in part, only upon the occurrence of an Equity Credit Event, a Regulatory
Event, a Tax Event or a Withholding Tax Event and the satisfaction of certain conditions, as described in Description of the
NotesRedemption, subject to prior regulatory and corporate approvals.
Application has been made to list the Notes on the Official List of the Luxembourg Stock Exchange, or LSE, and to
trade on the Euro MTF market. This offering circular constitutes a prospectus for the purpose of the Luxembourg law dated July
10, 2005.
Investing in the Notes involves risks. See Risk Factors beginning on page 22.
Issue Price: 100%
plus accrued interest, if any, from and including April 30, 2008

Delivery of the Notes is expected to be made on April 30, 2008.


The Notes have not been and will not be registered under the United States Securities Act of 1933, as amended
(the Securities Act) or under the securities laws of any other jurisdiction. The Notes will initially be offered and sold
only outside the United States to or for the account or benefit of non-U.S. persons in offshore transactions in reliance on
Regulation S.
Sole Bookrunner

Credit Suisse
The date of this offering circular is April 25, 2008.

TABLE OF CONTENTS

WHERE YOU CAN FIND MORE INFORMATION ...................iii

RISK MANAGEMENT ........................................................96

ENFORCEMENT OF JUDGMENTS .........................................iii

MANAGEMENT ..............................................................100

FORWARD-LOOKING STATEMENTS ................................... iv

SHARE OWNERSHIP........................................................105

PRESENTATION OF CERTAIN FINANCIAL AND OTHER


INFORMATION .............................................................. v

RELATED PARTY TRANSACTIONS ...................................106


THE GUATEMALAN FINANCIAL SYSTEM .........................107

OFFERING CIRCULAR SUMMARY ....................................... 1

SUPERVISION AND REGULATION ....................................110

SUMMARY OF THE OFFERING .......................................... 10

DESCRIPTION OF THE NOTES ..........................................117

SUMMARY OF SELECTED CONSOLIDATED FINANCIAL


INFORMATION ............................................................ 18

TAXATION .....................................................................131

RISK FACTORS ................................................................ 22

PLAN OF DISTRIBUTION .................................................132

USE OF PROCEEDS ........................................................... 32

NOTICE TO INVESTORS ...................................................134

EXCHANGE RATES AND CURRENCY ................................. 33

GENERAL INFORMATION ................................................136

DIVIDENDS...................................................................... 34

INDEPENDENT AUDITORS ...............................................137

CAPITALIZATION ............................................................. 35

ANNEX A - SUMMARY OF SIGNIFICANT DIFFERENCES


BETWEEN GUATEMALAN BANKING GAAP AND U.S.
GAAP .....................................................................A-1

SELECTED CONSOLIDATED FINANCIAL INFORMATION ...... 36


MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ................. 40

ANNEX B - DESCRIPTION OF GUATEMALA .....................B-1

SELECTED STATISTICAL INFORMATION ............................ 57

INDEX TO FINANCIAL STATEMENTS ............................F-1

THE BANK ...................................................................... 81

You should rely only on the information contained in this offering circular or to which we have referred
you. We have not, and the initial purchaser has not, authorized anyone to provide you with information that is
different. This document may only be used where it is legal to sell these securities. The information in this
document may only be accurate on the date of this document.
We are relying upon Regulation S under the Securities Act for offers and sales of securities outside the
United States. By purchasing the Notes, you will be deemed to have made the acknowledgements, representations
and agreements described under Notice to Investors in this offering circular. We are not, and the initial purchaser
is not, making an offer to sell the Notes in any jurisdiction except where such an offer or sale is permitted. You
should understand that you will be required to bear the financial risks of your investment for an indefinite period of
time.
Neither the U.S. Securities and Exchange Commission, or the SEC, nor any state or foreign securities
commission has approved or disapproved of the Notes or determined if this offering circular is truthful or complete.
Any representation to the contrary is a criminal offense.
The distribution of this offering circular, or any part thereof, and the offering, sale and delivery of the Notes
in certain jurisdictions may be restricted by law. This offering circular may only be used for the purposes for which
it has been published. We and the initial purchaser require persons into whose possession this offering circular
comes to become familiar with and to observe such restrictions. This offering circular does not constitute an offer to
sell or a solicitation of an offer to buy any Notes in any jurisdiction to any person to whom it is unlawful to make the
offer or solicitation nor does this offering circular constitute an invitation to subscribe for or purchase any Notes.
For a description of restrictions on offers, sales and deliveries of the Notes and on the distribution of this offering
circular, see Notice to Investors and Plan of Distribution.
This offering circular does not constitute an offer of, or an invitation by or on behalf of, us or the initial
purchaser or any of our or its respective directors, officers and affiliates to subscribe for or purchase any securities in
any jurisdiction to any person to whom it is unlawful to make such an offer in such jurisdiction. Each purchaser of
the Notes must comply with all applicable laws and regulations in force in each jurisdiction in which it purchases,
offers or sells such Notes or possesses or distributes this offering circular and must obtain any consent, approval or
permission required by it for the purchase, offer or sale by it of such Notes under the laws and regulations in force in
any jurisdiction to which it is subject or in which it makes such purchases, offers or sales.
The Notes are not deposits with us and are not insured by the United States Federal Deposit Insurance
Corporation or any other United States governmental agency or any Guatemalan governmental agency, including,
without limitation, the Guatemalan Fund for the Protection of Savings (Fondo para Proteccin del Ahorro, or
FOPA).
In making an investment decision, you must rely on your own examination of our business and the terms of
this offering, including the merits and risks involved. These Notes have not been recommended by any federal or
state securities commission or regulatory authority. Furthermore, these authorities have not confirmed the accuracy
or determined the adequacy of this offering circular. Any representation to the contrary is a criminal offense. You
should not construe the contents of this offering circular as legal, business or tax advice. You should consult your
own attorney, business advisor or tax advisor.

ii

WHERE YOU CAN FIND MORE INFORMATION


We will make available to the holders of the Notes, at the corporate trust office of the Trustee at no cost,
copies of the indenture as well as this offering circular, and annual audited consolidated financial statements
prepared in conformity with Guatemalan Banking GAAP. Information is also available at the office of the
Luxembourg listing agent, so long as the Notes are listed on the Luxembourg Stock Exchange and the rules thereof
so require.
Application has been made to admit the Notes to listing on the Official List of the Luxembourg Stock
Exchange and to trade on the Euro MTF market in accordance with its rules. This offering circular forms, in all
material respects, the listing circular for admission to the Luxembourg Stock Exchange. We will be required to
comply with any undertakings given by us from time to time to the Luxembourg Stock Exchange in connection with
the Notes, and to furnish to it all such information as the rules of the Luxembourg Stock Exchange may require in
connection with the listing of the Notes, so long as the notes are listed on the Luxembourg Stock Exchange and the
rules thereof so require.
ENFORCEMENT OF JUDGMENTS
We are a sociedad annima organized under the laws of Guatemala. All of our directors and officers
named herein reside in Guatemala and all or a significant portion of the assets of such persons may be, and
substantially all of the assets of the Bank are, located in Guatemala. As a result, it may not be possible for investors
to effect service of process outside Guatemala upon these persons or to enforce against them or against us in nonGuatemalan courts judgments predicated upon the civil liability provisions of non-Guatemalan securities laws.
Judgments of non-Guatemalan courts for civil liabilities predicated upon non-Guatemalan securities laws
may be enforced in Guatemala, subject to certain requirements described below. A judgment against us or the
persons described above obtained outside Guatemala would be enforceable in Guatemala against us or such persons
without reconsideration of the merits by a Guatemalan court, subject to the conditions enumerated in the next
sentence. Enforcement generally will occur if the foreign judgment: (a) fulfills all formalities required for its
enforceability under the laws of the country where the foreign judgment is granted, whose courts would enforce,
reciprocally, judgments by Guatemalan courts, (b) is issued by a competent court after proper service of process and
was not rendered in default of defendant, (c) is not subject to appeal or any further proceedings, (d) is authenticated
by a Guatemalan consular office in the country where the foreign judgment is issued and is translated into Spanish
by a licensed translator in Guatemala and (e) refers to a civil or commercial action in personam, to obligations that
are legal in Guatemala, and is not contrary to Guatemalan overriding public policy (as set forth in Guatemalan law).
Notwithstanding the foregoing, no assurance can be given that enforcement will be obtained, that the process
described above can be conducted in a timely manner or that a Guatemalan court would enforce a monetary
judgment for violation of non-Guatemalan securities laws with respect to the Notes. We have been advised by our
Guatemalan counsel, Mayora & Mayora, S.C., that (a) original actions predicated upon non-Guatemalan securities
laws may be brought in Guatemalan courts and that, subject to Guatemalan rules of international private law, public
policy, public morality and national sovereignty, Guatemalan courts may enforce civil liabilities in such actions
against us, our directors, certain of our officers and the advisors named herein, (b) a default judgment rendered
against us in a foreign jurisdiction would likely not be enforceable in Guatemala, and (c) the ability of a judgment
creditor or other persons named above to satisfy a judgment by attaching certain of our assets is limited by certain
provisions of Guatemalan law, such as Article 43 of the Organic Law of the Guatemalan Central Bank (Ley
Orgnica del Banco de Guatemala), which provides that compulsory deposits maintained by financial institutions
(including us) with the Guatemalan Central Bank (Banco de Guatemala) are immune from attachment.

iii

FORWARD-LOOKING STATEMENTS
This offering circular contains forward-looking statements. Examples of such forward-looking statements
include, but are not limited to, the following: (1) statements regarding our future results of operations and financial
condition, (2) statements of plans, objectives or goals, including those related to our operations, and (3) statements
of assumptions underlying such statements. Words such as believe, anticipate, should, estimate, forecast,
expect, may, intend and plan and similar expressions are intended to identify forward-looking statements
but are not the exclusive means of identifying such statements.
Forward-looking statements involve inherent risks and uncertainties, both general and specific, and there
are risks that the predictions, forecasts, projections and other forward-looking statements will not be achieved. We
caution investors that a number of important factors could cause actual results to differ materially from the plans,
objectives, expectations, estimates and intentions expressed or implied in such forward-looking statements. These
factors include the following:

our plans to increase our retail banking operations, including recently adopted programs and planned
initiatives to attract new customers and statements regarding new products;

the effect of the implementation of any aspect of our business strategy, including our relationships and
agreements with foreign institutions and domestic customers, changing trade relationships and
agreements with trading partners in Guatemala;

competition;

profitability of our businesses;

acquisitions and divestitures;

limitations on our access to sources of financing on competitive terms;

restrictions on foreign currency convertibility and remittance outside Guatemala;

failure to meet capital or other requirements;

changes in reserve requirements;

changes in requirements to make contributions to or for the receipt of support from programs
organized by the Guatemalan government;

changes in overall economic conditions in Guatemala, including exchange rates, interest rates or the
rate of inflation, and changes in political and business conditions in Guatemala;

managements belief that pending legal and administrative proceedings will not have a materially
adverse effect on our financial condition or results of operations; and

the effect of changes in accounting principles, new legislation, intervention by regulatory authorities,
government directives or monetary or fiscal policy in Guatemala.

Should one or more of these factors or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, believed, estimated, expected or intended, as
described in this offering circular. We do not have any intention to update these forward-looking statements.
Moreover, no assurances can be given that any of the historical information, data, trends or practices
mentioned and described in this offering circular are indicative of future results or events.

iv

PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION


Accounting Principles
This offering circular includes our audited consolidated financial statements as of December 31, 2007 and
2006 and for the years ended December 31, 2007, 2006 and 2005 in quetzales, together with the notes thereto (the
Financial Statements).
Our financial statements include the assets, liabilities, shareholders equity and results of operations of the
Bank and our consolidated subsidiaries Financiera Industrial, S.A. (Financiera Industrial), Westrust Bank
(International) Limited (Westrust Bank) and Contcnica, S.A. (Contecnica). Our financial statements and the
other financial information herein has been prepared in accordance with the accounting practices for banking
operations contained in the Financial Institutions Accounting Standards Manual issued by the Superintendency of
Banks of Guatemala (Superintendencia de Bancos de Guatemala) and the Banks and Financial Groups Law (Ley de
Bancos y Grupos Financieros) (collectively, Guatemalan Banking GAAP).
Guatemalan Banking GAAP differs from generally accepted accounting principles in the United States of
America, or U.S. GAAP, and SEC guidelines applicable to banking institutions in the United States. See Annex
ASummary of Significant Differences Between Guatemalan Banking GAAP and U.S. GAAP. No reconciliation
of any of our financial statements to U.S. GAAP has been prepared for purposes of this offering circular. Any such
reconciliation would result in material differences.
Currencies
In this offering circular, references to Quetzal, Quetzales, quetzal, quetzals, or Q are to
Guatemalan quetzales, and references to U.S. dollars or US$ are to United States dollars.
This offering circular contains translations of various quetzal amounts into U.S. dollars at specified rates
solely for your convenience. You should not construe these translations as representations by us that the quetzal
amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated.
Unless otherwise indicated, we have translated quetzal amounts into U.S. dollars at an exchange rate of Q7.6310 per
US$1.00, which was the rate reported by the Guatemalan Central Bank on December 31, 2007. See Exchange
Rates and Currency for information regarding rates of exchange between the quetzal and U.S. dollar for the periods
specified therein.
Terms Relating to our Loan Portfolio
As used in this offering circular, the following terms relating to our loan portfolio and other credit assets
have the meanings set forth below, unless otherwise indicated.
Total performing loans and total performing loan portfolio refer to the total principal amount of loans
outstanding as of the date presented.
The terms total performing loans and total performing loan portfolio, as used in this offering circular
do not include total non-performing loans, as defined below. The term net total performing loans refers to total
performing loans less allowance for loan losses on these loans.
The terms total non-performing loans and total non-performing loan portfolio include past-due
principal and past-due interest. For a description of our policies regarding the classification of loans as nonperforming, see Selected Statistical InformationNon-Performing Loan Portfolio. The term net non-performing
loans refers to total non-performing loans less allowance for loan losses on these loans.
References in this offering circular to provisions are to additions to the loan loss allowance or reserves
recorded in a particular period and charged to expense, except in the case of certain provisions associated with

foreclosed assets and other loan losses that must be recorded directly against shareholders equity when they exceed
the maximum amount allowed by law as deductible expense for tax purposes.
References in this offering circular to allowance are to the aggregate loan loss allowance or reserves
shown as of a particular date as a balance sheet item.
The terms total loans and total loan portfolio include total performing loans plus total non-performing
loans, each as defined above. The terms net loans and net loan portfolio refer to net total performing loans plus
net non-performing loans.
Terms Relating to our Capital Adequacy
As used in this offering circular, the following terms relating to our capital adequacy have the meanings set
forth below, unless otherwise indicated:

Total capital as defined under the Banks and Financial Groups Law, refers to Tier 1 capital plus
Tier 2 capital;

Total net capital (patrimonio computable) as defined under the Banks and Financial Groups Law,
refers to Tier 1 capital minus investments in subsidiaries plus Tier 2 capital less 50% of surplus
derived from the reevaluation of assets;

Tier 1 capital (capital primario) as defined under the Banks and Financial Groups Law, includes
paid-in capital, other permanent contributions, legal reserves and other permanent reserves resulting
from retained profits and certain junior debt such as the Notes (equity investments in subsidiaries are
included under long-term investments);

Tier 2 capital as defined under the Banks and Financial Groups Law, includes earnings obtained
from previous fiscal years, surplus derived from the revaluation of assets, other capital reserves, debt
exchangeable into capital stock and subordinated debt with a minimum term of five years;

Capital Ratio refers to the ratio of the Total Net Capital (patrimonio computable) to risk-weighted
assets. Total net capital and risk-weighted assets are calculated in accordance with the guidelines
established by the Monetary Board; and

Relevant Capitalization Rules refers to the rules established under articles 16, 64, 65, 66 and 67 of
the Banks and Financial Groups Law and any related laws and regulations.

Other Definitions
The following definitions are used in this offering circular:

Banco Industrial, the Bank or the Issuer shall mean Banco Industrial, S.A.;

The Banks and Financial Groups Law shall mean the Ley de Bancos y Grupos Financieros de
Guatemala;

Bicapital shall mean Bicapital Corporation, our parent company, which is a corporation organized
and existing under the laws of the Republic of Panama;

Central America shall mean Guatemala, Honduras, El Salvador, Nicaragua, Costa Rica and Belize
(excluding Panama);

Contecnica shall mean our subsidiary, Contcnica, S.A.;

Financiera Industrial shall mean our subsidiary, Financiera Industrial, S.A.;

Guatemala shall mean the Republic of Guatemala;

Guatemalan Central Bank shall mean Banco de Guatemala;

vi

Monetary Board shall mean the Junta Monetaria de Guatemala;

Superintendency of Banks shall mean the Superintendencia de Bancos de Guatemala; and

The Bahamas shall mean the Commonwealth of the Bahamas;

Westrust Bank shall mean our subsidiary Westrust Bank (International) Limited; and

We, us and our are references to Banco Industrial, S.A. and, unless the context otherwise
requires, its consolidated subsidiaries.

Rounding Adjustments
We have made rounding adjustments to certain numbers included in the offering circular. As a result,
numerical figures presented as totals may not always be the arithmetic aggregations of their components, as
presented.
Market Share and Ranking Information
This offering circular contains statements about our competitive position and market share in, and the
market size of, the Guatemalan banking industry and market for financial services. We have made these statements
on the basis of statistics and other information from third-party sources that we believe are reliable. We derived this
information principally from publicly available reports published by the Superintendency of Banks. Although we
have no reason to believe that any of the above-described information or reports is inaccurate in any material
respect, neither we, nor the initial purchaser have independently verified the competitive position, market share,
market size or market growth data contained in such reports.
Unless otherwise indicated, the market share and ranking information included in this offering circular (i) is
derived from statistics of the Superintendency of Banks as of February 29, 2008, (ii) includes the information of the
Bank only, on an unconsolidated basis excluding our subsidiaries, and (iii) includes the information of Banco del
Quetzal, S.A. (BanQuetzal), excluding its subsidiaries. We have included BanQuetzal in market share and
ranking information because we acquired BanQuetzal and two of its three subsidiaries in February 2008.

vii

OFFERING CIRCULAR SUMMARY


The following summary is qualified in its entirety by the detailed information appearing elsewhere in this
offering circular. For a more complete understanding of us and the offering made herein, you should read the
entire offering circular, including the risk factors and the financial statements appearing elsewhere in this offering
circular.
The Bank
We are the largest bank in Guatemala and, after giving effect to our acquisition of BanQuetzal, we believe
that we are the largest privately owned bank in Central America (excluding Panama), based on total assets as of
December 31, 2007. We are a full-service commercial bank providing a wide range of financial services to over one
million customers. Our main business lines include corporate, retail and international banking, as well as private
banking and credit cards.
In Guatemala, we have a dominant presence with a market share of 29.0%, 24.9% and 27.4% in total
assets, total loans and total deposits, respectively, as of February 29, 2008. Our closest competitor had a market
share of 19.2%, 19.4% and 18.5% in total assets, total loans and total deposits, respectively, as of February 29, 2008.
Guatemalas economy is the largest in Central America and has been characterized in recent years by
consistent rates of growth and stable rates of inflation. According to the Guatemalan National Institute of Statistics
(Instituto Nacional de Estadstica), the population of Guatemala was estimated at approximately 13.3 million in
2007. We believe that as much as 75% of the population currently does not have access to financial services, which
presents a significant growth opportunity for us.
Our total assets, loan portfolio and net income have grown in recent years due to our client base and branch
expansion, market diversification and product innovation as well as consolidation within the Guatemalan financial
system. We have actively participated in Guatemalas banking consolidation process through the acquisition of
Banco de Occidente, S.A. (Banco de Occidente) in March 2006, the sixth largest bank in Guatemala in terms of
assets as of March 31, 2006, and the transfer of certain assets and liabilities of Banco de Comercio, S.A. (Banco de
Comercio) in January 2007. In addition, on February 15, 2008, we acquired BanQuetzal, the twelfth largest bank
in Guatemala in terms of assets as of June 30, 2007, and two of its three subsidiaries.
Primarily as a result of our recent acquisitions, particularly that of Banco de Occidente in 2006, we have
experienced high rates of growth. Our total assets, loans and deposits grew 20.1%, 34.2% and 17.5%, respectively,
in 2007 as compared to 41.9%, 45.6% and 41.0%, respectively, in 2006. From 2001 to 2007, we experienced
compounded annual growth rates of 21.0%, 24.5% and 20.0% in terms of assets, loans and deposits. Our net income
grew 46.8% in 2007 compared to 8.7% in 2006 and 41.4% in 2005. From 2001 to 2007, our net income grew at a
compounded annual rate of 23.3%.
As of December 31, 2007, we had total assets of Q38,353.6 million (US$5.0 billion), total net loans of
Q19,842.5 million (US$2.6 billion) and total deposits of Q26,350.5 million (US$3.5 billion). For the period ended
December 31, 2007, we had net income of Q473.9 million (US$62.1 million) and at December 31, 2007, we had
shareholders equity of Q3,071.7 million (US$402.5 million), excluding subordinated debt of Q419.7 million
(US$55.0 million).
Our Capital Ratio (defined as end of period Total Net Capital as a percentage of risk-weighted assets) on an
unconsolidated basis was 14.1% and 14.5% as of December 31, 2007 and December 31, 2006, respectively, which
was, in each instance, above the regulatory requirement of 10.0% set forth in Guatemalan capitalization
requirements as being necessary to avoid the imposition of corrective measures. Such measures may include,
among other things, deferral or cancellation of interest payments or deferral of principal payments on subordinated
debt that qualifies to be computed as part of our total net capital, such as the Notes.

The following table shows, as of the periods presented, certain financial indicators of our growth.

(1)

Return on average total assets .............................................


Return on average shareholders equity(2) ..............................
Net interest margin(3) .............................................................
Efficiency ratio(4) ..................................................................
Total non-performing loans as a percentage of total loans ....
(1)
(2)

(3)

(4)

2007

As of December 31,
2006
2005

1.3%
16.5%
3.8%
56.8%
0.6%

1.2%
15.1%
3.2%
63.0%
1.0%

1.4%
19.3%
3.8%
60.3%
0.8%

2004

1.1%
15.7%
3.6%
61.6%
0.7%

Net income for the period divided by the average of the beginning of period and end of prior period total assets.
Net income for the period divided by the average of the beginning of period and end of prior period total shareholders
equity.
Represents financial margin divided by average interest-earning assets. Average interest-earning assets are determined on
an annualized basis, based on beginning and end-of- monthly balances.
Refers to other administrative expenses (less loan loss provisions) divided by total operating income for the period.

Our Corporate Structure


Our principal subsidiaries include:

Westrust Bank, which is an offshore bank incorporated in The Bahamas. Westrust Bank is the largest
offshore bank authorized to do business in Guatemala and focuses on private and corporate banking in
Guatemala and Central America;

Financiera Industrial, which provides financial support to corporate and individual customers in
Guatemala. Services offered by Financiera Industrial include mortgage loans, credit lines in local and
foreign currency, pension fund and trust services; and

Contecnica, which issues credit and debit cards under the VISA International trademark. VISA is one
of the main card issuers in the Guatemalan market, with an estimated market share of 20.4% in credit
and 60% in debit cards as of December 31, 2007. Contecnica is one of the main VISA card issuers in
Guatemala with a customer base of more than 240,000 persons.

Our parent company is Bicapital, a holding company that is incorporated under the laws of Panama.
Bicapital owned 87.8% of our capital stock as of December 31, 2007. Bicapital pursues a universal banking
strategy, providing a full range of banking products and financial services, including retail and wholesale banking,
deposits, trade finance, trust services, leasing, foreign exchange brokerage, credit card, consumer lending,
investment banking, fund management, insurance and pension fund management. We believe we enjoy significant
benefits and synergies as a subsidiary of Bicapital.

The following chart presents our corporate structure and that of Bicapital, indicating subsidiaries and
respective ownership interests as of the date of this offering circular.

Bicapital pledged 25% of the shares of the Bank to secure a US$165.0 million syndicated bank credit
facility it entered into to finance its December 18, 2007 acquisition of an 89.3% stake in Banco del Pas, S.A.
(Banpais). Banpais is a banking corporation organized under the laws of Honduras, which conducts banking and
insurance operations. Bicapital also pledged all of the shares of Banpais it acquired, directly and indirectly, in
connection with the Banpais acquisition. If Bicapital defaults under its credit facility, 25% of our shares may be
transferred to the lenders thereunder.
Our History
Founded in 1967, we are a commercial bank organized and existing under the laws of Guatemala as a
sociedad annima. Since our incorporation, we have been a 100% privately-held institution.
During our first 20 years of operation, we focused primarily on serving the corporate sector of the
Guatemalan economy, which consists of medium and large size domestic corporations and multinational
corporations with a presence in Guatemala. Since the 1990s, we have expanded our distribution network, mainly in
the rural areas of the country, to increase our client base as well as to further penetrate the consumer banking, small
business lending and private banking business sectors where we believe there is significant growth potential. This
strategy has made us a leader in both the corporate and retail banking segments. We currently market a wide variety
of financial products and services to our corporate and individual clients.
In September 2005, we became the first Guatemalan bank to access the international capital markets
through a future flows securitization transaction of diversified payment rights, or DPRs, in a principal amount of
US$200.0 million. In 2007, we accessed the international capital markets again through two additional DPR
securitization transactions, once in April 2007 in an aggregate principal amount of US$150.0 million and then again
in October 2007 in an aggregate principal amount of US$150.0 million. The proceeds of the second and third
transactions were used in part to repay the outstanding US$200.0 million of the first transaction. These transactions
have provided us with long-term funding at competitive costs to support growth of our loan portfolio.
Between March and November 2006, we completed our acquisition of Banco de Occidente, Guatemalas
oldest bank. As of March 31, 2006, Banco de Occidente was the sixth largest in the Guatemalan banking system in

terms of assets and had total assets of Q4,372.2 million, total deposits of Q3,169.8 million and shareholders equity
of Q456.0 million.
On January 16, 2007, certain assets and liabilities of Banco de Comercio were transferred to us at the
request of the Superintendency of Banks when Banco de Comercios operations were suspended by the Monetary
Board on January 12, 2007 due to the banks inability to service its liabilities. Pursuant to Guatemalan regulation,
the Superintendency of Banks transferred to us all of Banco de Comercios deposits in the amount of Q954.5 million
and certain other liabilities in the amount of Q14.0 million. At the same time, the Superintendency of Banks
(i) approved the transfer of all assets of Banco de Comercio to a trust (which we refer to as the Banco de Comercio
trust), including loans in an aggregate principal amount of Q795.9 million and government funds backing the
deposits from Fondo para la Proteccin del Ahorro (FOPA) in cash in the amount of Q360.0 million, and (ii) issued
to us an investment certificate representing a beneficial interest in the Banco de Comercio trust in a principal amount
equivalent to the deposits and other liabilities transferred to us (Q968.4 million). The trustee under the Banco de
Comercio trust is our subsidiary, Financiera Industrial. As of November 30, 2006, Banco de Comercio had total
assets of Q1,173.9 million, total deposits of Q985.1 million and shareholders equity of Q126.1 million.
On February 15, 2008, we acquired BanQuetzal and two of its three subsidiaries. We now hold
substantially all of the shares of BanQuetzal and BanQuetzals shareholders received approximately 4.6% of the
capital stock of the Bank. BanQuetzal was established in 1984 and offers a wide array of financial services to both
corporate and retail customers. BanQuetzal historically has been strong in home financing and consumer loans and
is an established competitor in foreign trade and currency exchange. As of February 15, 2008, BanQuetzal and the
two subsidiaries we acquired had total assets of Q1,457.6 million, total deposits of Q1,189.6 million and
shareholders equity of Q171.9 million.
Our Competitive Strengths
We benefit from the opportunities presented by our favorable position in the Guatemalan banking market.
Our competitive strengths include the following:
Strong franchise and leading position in the Guatemalan banking sector
We believe our strong brand recognition and solid reputation have contributed to our leading position in
Guatemala. We have been one of the principal financial institutions in the Guatemalan financial system for the last
38 years and have grown considerably in the last few years, principally as a result of our recent acquisitions and
strong performance. In 2001, we were the leader with a 16.2% market share in terms of total assets, while our
closest competitor had 14.0%. As of February 29, 2008, we had a 29.0% market share in terms of total assets, while
our closest competitor had 19.2%.
The table below sets forth the market share of the Bank in the Guatemalan financial system in terms of total
assets, total loans and total deposits on an unconsolidated basis for the periods indicated.
As of February 29,
2008(1)
Market
share
Rank
Total assets ...................
Total loans ....................
Total deposits ...............
(1)

29.0%
24.9%
27.4%

1
1
1

2006
Market
share
Rank
26.0%
23.4%
23.7%

1
1
1

2005
Market
share
Rank
20.2%
17.8%
18.4%

1
1
1

As of December 31,
2004
Market
share
Rank
19.9%
17.8%
19.0%

1
1
1

2003
Market
share
Rank
19.9%
18.2%
19.5%

1
1
1

2002
Market
share
Rank
18.4%
15.6%
18.6%

1
1
1

Includes BanQuetzals operations, which were acquired in February 2008.

We have more than one million retail customers and more than 25,000 corporate clients as of June 30,
2007. Our clients used on average 2.7 of our products as of June 30, 2007, as compared to 1.8 of our products as of
December 31, 2002. Over 54% of our credit card customers also had a debit account with us as of June 30, 2007.
We have the largest distribution network in Guatemala, with more than 1,850 points of service, which
includes branches, minibranches, Q booths, kiosks and access to more than 1,370 ATMs, as of December 31, 2007.
4

During 2006, we processed 35.1 million transactions through our branches and 17.0 million transactions through
ATMs. We had a monthly average of 5.1 million electronic transactions during 2006, which included ATM,
Internet and telephone transactions.
Key role in Guatemalan financial system
We are a key player in Guatemalas financial market and economy due to our role as one of the leading
check-clearing institutions in the Guatemalan financial system (with a 24.2% market share), one of the principal tax
collectors for the government (with a 34.3% market share), and we believe we are the second largest recipient
processor of family remittances (with a 24.0% market share). We are also responsible for settling all the payments
made in Guatemalas electric energy market as the processor of payments for companies in the business of
electricity transmission, distribution and generation and large final consumers. In addition, we process trading
transactions and are the exclusive custodian for bonds traded on the Guatemalan Stock Exchange (Bolsa de Valores
Nacional, S.A.), Guatemalas only stock and fixed income securities exchange.
We have been recognized with some of the most distinguished awards in the region such as Best Bank in
Guatemala by Euromoney in 2004, 2005 and 2006, Bank of the Year in Guatemala by Latin Finance in 2007 for
the third consecutive year and Bank of the Year in Guatemala by The Banker in 2007 for the second consecutive
year.
Sound credit risk policies
We have historically experienced low default rates (calculated as the ratio of non-performing loans to total
loans). As of June 30, 2007, our default rate was 0.7%, which was significantly lower than the Guatemalan banking
industrys average default rate of 2.1% as of June 30, 2007. We attribute this to our efficient and standardized credit
origination and monitoring process. We have an experienced risk management team focused on monitoring and
managing risks across all business areas, including operational, market, liquidity and credit risks. To date, our
growth has not led to a deterioration in our loan and investment portfolio quality.
Product innovation
We have developed policies and procedures to identify the needs of our customers and develop products
and services, including technological solutions, to address such needs, develop new business ideas, seek out new
business opportunities and help expand our complementary activities.
As part of our effort, we launched Los Chapines Estamos Unidos in 2005, a family remittances program,
which offers a checking or savings account into which remittances from the United States may be deposited directly,
as well as a complementary pre-paid debit card and a credit card at an attractive interest rate. The number of
transactions in this program increased from 646,538 in the first six months of 2005 to 1,277,359 in the first six
months of 2007.
Other innovative products we have launched include:

Credi-Remesa, a loan granted to a receiver of a family remittance who has developed a transaction
history with us.

Prefiero, a customer rewards program that rewards clients for their loyalty and business on the basis
of both credit card and other general banking services usage. Prefiero is the only multi-company
loyalty program in Guatemala.

We offer a wide set of options to finance consumer purchases, such as home and vehicle financing. To
complement those financing options, we launched Crdito BI Fcil, a revolving credit line for retail customers.
This credit line is authorized automatically by our credit scoring system. We also launched Crdito Llvatelo Ya,
a credit line designed to finance consumer goods in 250 authorized establishments.

In November 2005, we launched a campaign to promote our MasterCard credit card and subsequently
increased our market share in Guatemala from approximately 7% as of December 31, 2005 to approximately 15% as
of December 31, 2006. We are also the issuer of MasterCard Banco Industrial, a credit card balance transfer
program offered at a low interest rate, the first of its kind in Guatemala. The number of clients using this product
increased from 10,788 at June 30, 2006 to 28,222 at June 30, 2007.
Cross-selling capabilities
In addition to selling our products to our customers, we are able to offer our customers additional products
and financial services through our Bicapital affiliates, increasing our attractiveness as a convenient lender of choice.
Our mortgage loans are packaged with life insurance and property and casualty insurance policies, while our auto
loans are packaged with auto insurance policies, all of which are provided by Bicapitals insurance subsidiary,
Seguros El Roble. The pension plans offered by our subsidiary, Financiera Industrial, also are packaged with life
insurance policies from Seguros El Roble.
Leader in technology in the Guatemalan banking sector
We focus on providing high quality services to all customers as well as increasing market share in the retail
sector and rural areas by relying on advanced technology to offer our services in an efficient manner. In 2006,
approximately 51% of our banking transactions were conducted electronically.
We believe our Client Relationship Management system (CRM) provides us with a competitive advantage
by allowing us to segment our customers based on, among other factors, profitability, income level, consumption
preferences and location. This tool permits our sales force to target client needs more effectively. In addition, we
have our own telecommunications infrastructure consisting of a microwave network that interconnects all our points
of service, facilitating efficient communication and improving customer service. We use excess capacity on our
network to provide telecommunication services to other banks and companies.
Proven capabilities to consolidate acquisitions effectively and efficiently
We have demonstrated an ability to identify, execute and integrate acquisitions of other banks and
capitalize on related synergies. Our most recent acquisitions include the following:

In November 2006, we completed the acquisition of Banco de Occidente. We realized larger


economies of scale than expected from this acquisition and completed the consolidation and merger
processes in record-setting time in Guatemala (90 days).

In January 2007, at the request of the Superintendency of Banks certain assets and liabilities of Banco
de Comercio were transferred to us which resulted in certain economies of scale.

In February 2008, we acquired BanQuetzal. BanQuetzal historically has been strong in home
financing and consumer loans, as well as an established competitor in foreign trade and currency
exchange. We believe these businesses will be complementary to our core businesses.

Strong shareholder support


Historically, our shareholders have contributed capital on various occasions to support our growth. Our
shareholders contributed Q125.0 million, Q125.0 million (excluding Banco de Occidente), and Q160.8 million in
2004, 2006 and 2007, respectively. As a result of our corporate reorganization, our former shareholders now hold
their interest in us through Bicapital. We believe that in the future, Bicapital will continue to support our growth
and initiatives.
Experienced management team
Our management team has significant experience in the banking industry and the know-how to identify
and offer products and services that meet our customers needs, while maintaining effective risk management
and strong margin levels. We have had only two board chairmen and two chief executive officers since our
6

incorporation in 1967. Diego Pulido, our current chief executive officer, has worked for our organization for
more than 34 years. The years of experience of our senior management range between 6 and 35 years and most
of our senior managers have graduate degrees in their relevant fields of specialization.
Knowledgeable and independent board of directors
Our board of directors is made up of leading business persons in Guatemala representing the countrys
principal industries. Our directors experience in the banking industry ranges between 10 and 40 years. Our
board of directors generally meets twice per week to discuss the management of our operations and approve
loans in excess of US$500,000 and other significant transactions. Other than Bicapital, which itself has no
controlling shareholder, no shareholder holds more than one vote on our board of directors; therefore, we have
no indirect controlling shareholders.
Our Strategy
Our objective is to maintain our leading position in the Guatemalan financial system and become the most
profitable bank in Guatemala. We believe that the Guatemalan financial system offers significant potential for
growth also, as the economy continues to grow and a portion of the population that historically did not use
banking services, particularly in rural areas, demands and gains greater access to financial services. Our strategy
includes:
Expanding our retail customer base
We believe retail banking in Guatemala has significant growth potential. As of December 31, 2005,
according to the World Bank, the ratio of domestic credit extended to the private sector to GDP in Guatemala was
only 25.2%, 91.7% in Panama and 194.8% in the United States. In addition, according to the Superintendency of
Banks and the National Institute of Statistics the ratio of total consumer loans to GDP was only 5.1% and the ratio of
mortgage loans to GDP was only 3.8% as of December 31, 2006.
We believe this low penetration rate, in combination with the expected growth of the Guatemalan economy,
will support the expansion of our retail banking business. We have significantly increased our exposure to the retail
segment in recent years and we intend to continue increasing our offering of retail products and services. We
believe that expanding into the retail segment may increase our profitability because we can charge higher margins
and higher commissions to retail clients as compared to those charged to institutional clients.
As part of our effort to reach the unbanked Guatemalan population, we are involved in a new project called
Gente BI, which we believe offers significant growth potential. We plan to create points of service in a large
number of local establishments and stores and provide basic financial services. We plan to use the latest technology
in POS to perform varied financial transactions such as check payments, prepaid card issuance, family remittance
payments and deposits. We launched this project in December 2007 with 350 Gente BI points of service and
expect to have 1,000 points of service by the second quarter of 2008.
Increasing our non-interest income
Our non-interest income is comprised primarily of foreign exchange commissions, fees from account
administration, third-party collections, fiduciary services, third-party use of our telecommunications network and
credit card fees. Increasing fee income is a central component of our business strategy. We seek to increase our fee
income by: (i) continuously reviewing our fee structure in order to find new opportunities and to adjust to market
conditions and practices; (ii) increasing our cross-selling efforts with Bicapital; (iii) promoting the use of
technological and electronic payment methods, as well as telephone and Internet banking; (iv) establishing new
points of service where we anticipate high volumes; and (v) promoting our debit card services.

Improving operating efficiencies


Following the acquisition of Banco de Occidente in 2006, the transfer of certain assets and liabilities of
Banco de Comercio in 2007 and in preparation for the acquisition of BanQuetzal, we have implemented cost
reductions in an effort to improve our efficiency in integrating these new companies. We expect to close at least
50% of the branches managed by each of those institutions in order to reduce our total number of employees and
streamline senior management. To date, the benefits from this integration include: (i) a net reduction in salary and
wage expenses to Q157.9 million for the first six months of 2007 from Q171.6 million for the first six months of
2006; (ii) technological efficiencies; (iii) revenue synergies from cross-selling products; (iv) the ability to offer a
greater variety of services to our customers; and (v) wider regional coverage.
Enhancing customer product use
We seek to strengthen and improve services offered by our Corporate Banking and Retail Banking
Divisions to increase market penetration and profitability per customer. In the Corporate Banking Division, we
intend to offer additional products such as cash management, treasury products, foreign exchange and electronic
banking to our traditional credit customers. We also intend to increase the amount of banking products per customer
to at least four products by the end of 2009 by offering our existing customers additional products selected from
each customers personal profile developed by our CRM System. Additional products may include auto loans,
home, auto and personal insurance, and credit and debit cards.
We are focused on remaining at the forefront of financial product innovation in Guatemala and continue to
develop new ways to reach customers. We seek to continue to improve the variety of consumer and corporate
products to differentiate ourselves from our competitors.
Promoting synergies with Bicapital and through acquisitions
We intend to increase our market share and profitability by continuing to cross-sell services and products to
our clients and clients of Bicapital. We have introduced processes that facilitate our ability to offer additional
financial services to our clients and those of the other companies of Bicapital, with an emphasis on service and
innovation. We cross-sell consumer loan products, credit cards and mortgages to our checking and savings account
customers and to Bicapitals insurance and pension fund customers. In addition, Bicapital recently acquired a
Honduran bank, Banpais, and plans to expand its operations in Central America and Mexico. We intend to seek
opportunities to better serve our Guatemalan clients by expanding into Mexico and Central America through our
relation with Bicapital and its expansion. The Mexican market, in particular the southeast of Mexico, offers
attractive opportunities for Bicapital and us because of the increasing presence of Guatemalan companies, coupled
with the minimal presence of Mexican or other banks.
Recent Developments
The Bank is required to submit monthly unconsolidated balance sheets and income statements to the
Superintendency of Banks. The Bank has submitted such unconsolidated financial information to the
Superintendency of Banks as of and for the two months ending February 29, 2008. This unconsolidated financial
information does not include the assets, liabilities, shareholders equity and results of operations of the Banks
subsidiaries Financiera Industrial, Westrust Bank and Contecnica. Comparable consolidated financial information
for the Bank and its consolidated subsidiaries as of or for such period is not required to be submitted to the
Superintendency of Banks. The Banks unconsolidated financial information submitted to the Superintendency of
Banks is prepared in accordance with accounting principles that differ from the accounting principles applicable to
the Financial Statements contained elsewhere in this offering circular. Therefore, for this reason and because the
financial information reported to the Superintendency of Banks is prepared on an unconsolidated basis, it is not
comparable with the Financial Statements included in this offering circular which have been prepared on a
consolidated basis in accordance with Guatemalan Banking GAAP. We reported to the Superintendency of Banks
that for the two months ending February 29, 2008, our unconsolidated net income was Q131.9 million compared to
unconsolidated net income of Q79.3 million for the two months ending February 28, 2007 and that at February 29,
2008 our loan portfolio, net was Q17,427.8 million compared to Q12,501.5 million at February 28, 2007, our total
8

assets were Q34,406.1 at February 29, 2008 compared to Q28,598.0 million at February 28, 2007 and our deposits
were Q23,726.8 million at February 29, 2008 compared to Q20,100.7 million at February 28, 2007.

SUMMARY OF THE OFFERING


The following is a brief summary of certain terms of the offering. For a more complete description of the terms
of the Notes, see Description of the Notes in this Offering Circular. Capitalized terms used but not defined herein
have the meanings assigned to such terms therein.
Issuer ....................................................... Banco Industrial, S.A.
The Offering ............................................ US$30,000,000 aggregate principal amount of 9.00% Non-cumulative
Fixed/Floating Rate Step-Up Tier 1 Capital Notes due 2068 (the Notes).
Trustee, Principal Paying Agent,
Transfer Agent and Registrar................ The Bank of New York.
Issue Price................................................ 100% of the principal amount.
Issue Date ................................................ April 30, 2008.
Use of Proceeds ....................................... The Issuer will use the net proceeds to repay long-term debt. See Use of
Proceeds.
Indenture.................................................. The Notes will be issued under an indenture to be dated as of April 30,
2008, among the Issuer and the Trustee.
Interest Under the Notes;
Fixed/Floating Rates ............................. Subject to Option to Cancel Interest Payments and Mandatory
Cancellation of Interest Payments, the Issuer will pay interest on the
principal amount of the Notes quarterly in arrears. From and including
April 30, 2008 (the Issue Date) to but excluding April 30, 2018 (the
First Optional Redemption Date) the Notes will accrue interest at a fixed
rate per annum equal to 9.00%, payable, subject as aforesaid, on each
Fixed Interest Payment Date. Thereafter, the Notes will bear interest at a
rate equal to the Three-Month LIBOR Rate determined as of the second
Business Day prior to the commencement of each Floating Interest Period
plus 600 basis points per annum (the Applicable Margin) payable,
subject as aforesaid, on each Floating Interest Payment Date.
Interest in respect of a full Fixed Interest Period shall be US$22.50 per
US$1,000 principal amount of Notes. Interest on the Notes to be
calculated in respect of any period which is less than a full Fixed Interest
Period, will be calculated on the basis of a 360-day year consisting of
twelve 30-day months. Interest on the Notes to be calculated in respect of
each Floating Interest Period will be calculated on the basis of the days
actually elapsed in such Floating Interest Period divided by 360.
Fixed Interest Payment Dates .................. January 30, April 30, July 30 and October 30 of each year, commencing
on July 30, 2008.
Floating Interest Payment Dates .............. January 30, April 30, July 30 and October 30 of each year, commencing
on July 30, 2018.

10

Option to Cancel Interest Payments......... The Issuer may, in the sole and absolute discretion of its board of
directors, cancel the payment of interest on the Notes on any Interest
Payment Date and such interest will not accrue or be due and payable (an
Optional Cancellation of Interest), in whole or in part, provided no
payment or distribution, or acquisition, redemption or repurchase was
made in respect of any Parity Securities or Junior Securities (as defined
below) during the period commencing on (but excluding) the immediately
preceding Interest Payment Date and ending on (and including) the
relevant Interest Payment Date. Notice of such cancellation shall be given
to the Trustee no later than five Business Days prior to the relevant
Regular Record Date (as defined in the Indenture) to enable the Trustee to
notify the holders of the Notes. Interest on the Notes so cancelled will be
non-cumulative and holders shall have no claim therefor.
Mandatory Cancellation of Interest
Payments............................................... In addition to the Issuers option to cancel interest payments as described
in Option to Cancel Interest Payments, the Issuer will not be permitted
to pay interest on the Notes on an Interest Payment Date and such interest
will be cancelled and will not accrue or be due and payable at any time (a
Mandatory Cancellation of Interest) to the extent that the Issuer is
prohibited from making such payment due to:
(i)

the Issuers Total Capital Ratio being less than the


Minimum Capital Ratio as at such Interest Payment Date;

(ii)

the Issuers legal reserves deposited with the Guatemalan


Central Bank having fallen below the levels required by
applicable Guatemalan banking laws and regulations at
any time during the two months immediately preceding
such Interest Payment Date or at any time during three
separate months in the twelve months immediately
preceding such Interest Payment Date; or

(iii)

the payment of such interest, together with any other


payments or distributions (other than payments in respect
of redemptions or repurchases) on or in respect of any
Parity Securities (including the Notes) previously made
during the fiscal year in which such Interest Payment
Date falls or scheduled to be made on such Interest
Payment Date, exceeds the Banks Distributable Amounts
(as described below) as at the Interest Payment
Determination Date.

Interest on the Notes so cancelled will be non-cumulative and holders shall


have no claim therefor.
As used herein:
Distributable Amounts means, at any time:
(i)

the aggregate amount of any accumulated retained


earnings and any other reserves and surpluses of the
Issuer available for distribution under the Commercial
Code of Guatemala and generally accepted accounting
principles in, Guatemala (but before deduction of the
11

amount of any dividend or other distribution on the


Issuers Junior Securities) as set out in the financial
statements of the Issuer for the fiscal year ending
immediately preceding the relevant Interest Payment Date
and any profit or other amounts available for distribution
which have accrued or accumulated since the end of the
immediately preceding fiscal year up to the relevant
Interest Payment Determination Date as determined by
the board of directors of the Issuer and certified by the
corporate secretary of the Issuer;
(ii)

less any loss which has accrued or accumulated since the


end of the immediately preceding fiscal year up to the
relevant Interest Payment Determination Date as
determined by the board of directors of the Issuer and
certified by the corporate secretary of the Issuer.

Commercial Code of Guatemala means the Cdigo de Comercio


(Decreto del Congreso de la Repblica de Guatemala 2-70), as amended,
or any successor legislation as in effect from time to time in Guatemala.
Interest Payment Determination Date means, in relation to an Interest
Payment Date, the date which is 20 Guatemalan Business Days
immediately preceding such Interest Payment Date.
Minimum Capital Ratio means, the minimum total capital ratio
required to be maintained by the Issuer from time to time under the
Relevant Capitalization Rules (currently 10%).
Relevant Capitalization Rules means Articles 16, 64, 65, 66 and 67 of
the Banks and Financial Groups Law and the related laws, rules and
regulations, from time to time, of the Monetary Board relating to the
minimum capital requirements of banks in Guatemala, in each case, as the
same may be amended, restated, supplemented or replaced from time to
time.
Total Capital Ratio means, the total capital ratio of the Issuer (both on
an individual and consolidated basis) as calculated in accordance with the
Relevant Capitalization Rules.
Optional Redemption of the Notes on
or after April 30, 2018 .......................... The Issuer has the option to redeem the Notes for cash, in whole but not in
part, on the First Optional Redemption Date or on any Floating Interest
Payment Date occurring thereafter, at the Base Redemption Amount.
Such option may only be exercised, and redemption shall only be made, if
the Issuer is in compliance with applicable Guatemalan laws and
regulations in effect on the applicable redemption date and, to the extent
required, if the Issuer shall have previously obtained the authorization
from the Superintendency of Banks to effect such redemption.
Early Redemption of the Notes................ The Issuer also has the option to redeem the Notes for cash, in whole but
not in part, at any time prior to the First Optional Redemption Date (the
Special Event Redemption), at the applicable Special Event Redemption
Amount, upon the occurrence of an Equity Credit Event, a Regulatory
Event, a Tax Event or a Withholding Tax Event and the satisfaction of
12

certain conditions, as described in Description of the NotesEarly


RedemptionSpecial Event Redemption Prior to April 30, 2018. Such
option may only be exercised, and redemption shall only be made, if the
Issuer is in compliance with applicable Guatemalan laws and regulations
in effect on the applicable redemption date and if the Issuer shall have
previously obtained any required approvals, including but not limited to
the authorization from the Superintendency of Banks, the Monetary Board
and internal corporate approvals, to effect such redemption.
As used herein:
Base Redemption Amount means the aggregate principal amount of
the Notes plus accrued and unpaid interest to but excluding the redemption
date and any Additional Amounts thereon.
Equity Credit Event means at any time on or after the Issue Date of the
Notes, the Issuer receives confirmation from any Rating Agency from
whom the Issuer is assigned sponsored ratings that the Notes will no
longer be eligible for the same or higher category of equity credit (as
defined by the relevant Rating Agency) attributed to the Notes on the Issue
Date of the Notes.
Make-Whole Amount means the sum of the present values of each
remaining scheduled payment of principal and interest on the Notes to the
First Optional Redemption Date (exclusive of interest for the current fixed
Interest Period accrued to the redemption date) discounted to the
redemption date on a quarterly basis (assuming a 360-day year consisting
of twelve 30-day months) at the Treasury Rate plus 0.50%, plus accrued
and unpaid interest for the current Interest Period to but excluding the
redemption date and any Additional Amounts thereon.
Comparable Treasury Issue means the United States Treasury
security or securities selected by an Independent Investment Banker
as having an actual or interpolated maturity comparable to the
remaining term of the Notes to the First Optional Redemption Date.
Comparable Treasury Price means, with respect to any
redemption date (i) the average, as determined by an Independent
Investment Banker, of the Reference Treasury Dealer Quotations for
such redemption date after excluding the highest and lowest of such
Reference Treasury Dealer Quotations, or (ii) if fewer than four such
Reference Treasury Dealer Quotations are obtained, the average, as
determined by such Independent Investment Banker, of all such
quotations.
Independent Investment Banker means one of the Reference
Treasury Dealers appointed by the Issuer.
Reference Treasury Dealer means Credit Suisse Securities
(USA) LLC or its affiliates which is a primary United States
government securities dealers and two other primary United States
government securities dealers in New York City reasonably
designated by the Issuer; provided that, if any of the foregoing shall
cease to be a primary United States government securities dealer in
13

New York City (a Primary Treasury Dealer), the Issuer will


substitute therefor another Primary Treasury Dealer.
Reference Treasury Dealer Quotation means, with respect to
each Reference Treasury Dealer and any redemption date, the
average, as determined by an Independent Investment Banker, of the
bid and asked prices for the Comparable Treasury Issue (expressed in
each case as a percentage of its principal amount) quoted in writing
to such Independent Investment Banker by such Reference Treasury
Dealer at 3:30 pm New York City time on the third Business Day
preceding such redemption date.
Treasury Rate means, with respect to any redemption date, the
rate per annum equal to the quarterly equivalent yield to maturity or
interpolated maturity (on a day count basis) of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such redemption date.
Rating Agencies means Moodys Investors Service Limited, Standard
& Poors Rating Services, a division of The McGraw-Hill Companies Inc.,
or Fitch Ratings Limited and, in each case, any successor entity.
Regulatory Event means that, as a result of (i) any change in,
amendment to or replacement of, the laws (or any regulations or rulings
issued thereunder) of Guatemala or any political subdivision thereof or any
regulatory authority therein, or (ii) any change in the application,
administration or official interpretation of such laws, regulations or
rulings, including, without limitation, the holding of a court of competent
jurisdiction, which change or amendment becomes effective on or after the
Issue Date of the Notes, the Issuer will no longer be entitled to treat the
Notes as Tier 1 capital (capital primario) pursuant to the Relevant
Capitalization Rules (ignoring for this purpose any limitation placed on the
amount of such capital).
Special Event Redemption Amount means (i) in respect of a
Withholding Tax Event, an amount equal to the Base Redemption
Amount, and (ii) in respect of an Equity Credit Event, Regulatory Event or
Tax Event, an amount equal to the higher of (a) the Base Redemption
Amount and (b) the Make-Whole Amount as calculated by an Independent
Investment Banker and notified to the Trustee in writing.
Tax Event means that, as a result of (i) any enactment of new laws or
any change in, or amendment to, the laws (or any regulations or rulings
issued thereunder) of Guatemala or any political subdivision thereof or any
taxing authority therein, or (ii) any change in the application,
administration or official interpretation of such laws, regulations or
rulings, including, without limitation, the holding of a court of competent
jurisdiction, which change or amendment becomes effective on or after the
Issue Date of the Notes, interest payments under the Notes cease to be
allowable deductions for the purposes of income tax laws applicable to the
Issuer in Guatemala.
Withholding Tax Event means that, as a result of (i) any enactment of
14

new laws or any change in, or amendment to, the laws (or any regulations
or rulings issued thereunder) of Guatemala or any political subdivision
thereof or any taxing authority therein, as applicable (ii) any change in the
application, administration or official interpretation of such laws,
regulations or rulings, including, without limitation, the holding of a court
of competent jurisdiction, Issuer has or will become obligated to pay
Additional Amounts in excess of those payable as of the Issue Date on or
in respect of the Notes, which change or amendment becomes effective on
or after the Issue Date of the Notes, and which obligation the Issuer
determines in good faith cannot be avoided by it taking reasonable
measures available to it.
Replacement of the Notes........................ The Issuer intends that, if it redeems or defeases, or if it or its subsidiaries
purchase, any Notes and the Notes provide the Issuer with equity credit
from any rating agency at the time of such redemption, defeasance or
purchase, the Issuer will do so only to the extent that the equity credit
attributed by any rating agency to securities that the Issuer or its
subsidiaries have issued, during the 180 days prior to the date of such
redemption, defeasance or purchase, to third party purchasers, other than a
subsidiary, is equal to or greater than the equity credit the Issuer then
receives from any rating agency for the aggregate principal amount of the
Notes to be redeemed, defeased or purchased. The Issuer may, after the
Issue Date, enter into a replacement capital covenant for the benefit of one
or more designated series of the Issuers debt securities, to this effect.
Ranking of the Notes ............................... The Notes constitute direct, unsecured and junior obligations of the Issuer
and will not be insured or benefit from any contractual support agreement.
In the event of the Issuers bankruptcy, insolvency, liquidation,
dissolution, winding up or equivalent proceeding under Guatemalan law,
all claims under the Notes will rank:

junior in right of payment to the payment of all of the Issuers


Senior Debt;

pari passu in right of payment with the Issuers Parity Securities;


and

senior in right of payment to the payment of the Issuers Junior


Securities.

As used herein:
Senior Debt means (a) all claims of the Issuers depositors and other
unsubordinated creditors and other claims and obligations preferred under
mandatory provisions of Guatemalan Law; and (b) all claims of all of the
Issuers other creditors, except those whose claims rank, or are expressed
to rank, pari passu with, or junior to, the claims of holders of Parity
Securities.
Parity Securities means (i) all securities or other obligations of the
Issuer which qualify as Tier 1 Capital (capital primario) of the Issuer
(ignoring for this purpose any limitation placed on the amount of such
capital) other than Junior Securities and (ii) any other securities or
obligations of the Issuer which rank or are expressed to rank, pari passu
with the Issuers obligations under the Notes.
15

Junior Securities means (i) all classes of the Issuers capital stock and
(ii) any other securities or obligations of the Issuer which rank pari passu
with any class of the Issuers capital stock as regards entitlement to a
return of assets upon liquidation or the payment of dividends or any other
payments thereon.
Payment of Additional Amounts ............. All payments under the Notes will be made free and clear of all taxes,
duties, assessments or governmental charges of Guatemala except as may
be required by law. If any taxes, duties, assessments or governmental
charges are payable in either or both of the above jurisdictions, the sum
payable by the Issuer will include such additional amounts necessary to
ensure that the holders of the Notes receive the same amount as they
would have received without such withholding or deduction, subject to
certain exceptions.
Events of Default ..................................... The Trustee may give notice to the Issuer that the Notes are, and they shall
accordingly become, immediately due and repayable (subject to the prior
written approval of the Superintendency of Banks, unless such prior
approval is no longer required on the relevant date) at the Base
Redemption Amount, if any of the following events (each an Event of
Default) shall have occurred and be continuing:
(i)

the Issuer applies for or consents to the appointment of, or


the taking of possession by, a receiver, custodian,
interventor, administrator, trustee, examiner or liquidator
of itself or of all or a substantial part of its property;

(ii)

the Issuer makes a general assignment for the benefit of


its creditors;

(iii)

the Issuer files a petition seeking to take advantage of any


other law relating to bankruptcy, insolvency,
reorganization, suspension of payments, liquidation,
dissolution, spin-off, arrangement or winding-up, or
composition or readjustment of debts; or

(iv)

the Issuer takes any action in furtherance of, or indicating


its consent to, approval of, or acquiescence in, any of the
acts described above.

The payment of principal under the Notes may be accelerated only upon
the occurrence of an Event of Default. There is no right of acceleration of
the payment of principal and accrued interest on the Notes due to the
Issuers failure to comply with any covenant with respect to the Notes,
including failure to pay any principal, premium or interest (or Additional
Amounts, if any) on the Notes when it becomes due and payable. See
Risk FactorsRisks Relating to the NotesIf we do not satisfy our
obligations under the Notes, your remedies will be limited.
Listing...................................................... The Issuer has applied to admit the Notes to listing on the Official List of
the Luxembourg Stock Exchange and to trade on the Euro MTF market.

16

Rating ...................................................... It is expected that the Notes will be rated Ba3 by Moodys Investors
Service, Inc., or Moodys and B+ by Fitch, Inc., or Fitch. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning rating
agency without notice.
Additional Notes...................................... Subject to the prior approval of the Monetary Board and upon satisfaction
of the conditions set forth in the Indenture, the Issuer may issue Additional
Notes, which notes will be treated as the same class as the Notes for all
purposes under the Indenture.
Transfer Restrictions................................ The Notes have not been registered under the Securities Act and, unless so
registered, may not be offered or sold except in an offshore transaction
complying with Rule 903 or Rule 904 of Regulation S under the Securities
Act. See Notice to Investors.
Governing Law ........................................ The Indenture, the Notes and related documents will be governed by the
law of New York.
Form and Denomination .......................... The Notes will be issued in minimum denominations of US$2,000 and in
integral multiples of US$1,000 in excess thereof. The Notes will be
evidenced by a Regulation S Global Note deposited with the Trustee, as
custodian for and registered in the name of a nominee of The Depository
Trust Company, or DTC. Beneficial interests in such Global Notes will be
shown on, and transfers will be made through, records maintained by
DTC.

17

SUMMARY OF SELECTED CONSOLIDATED FINANCIAL INFORMATION


The summary consolidated financial information presented below should be read in conjunction with
Presentation of Certain Financial and Other Information, Managements Discussion and Analysis of Financial
Condition and Results of Operations and our Financial Statements included elsewhere in this offering circular.
In accordance with Guatemalan Banking GAAP, our Financial Statements and other financial information
contained in this offering circular as of December 31, 2007 and 2006 and for the years ended December 31, 2007,
2006 and 2005 are consolidated with the results of our subsidiaries.
In March 2006, we acquired 72.0% of the shares of Banco de Occidente and in November 2006, we merged
Banco de Occidente into Banco Industrial. We began consolidating Banco de Occidentes results of operations in
our financial statements in March 2006. The consolidation of Banco de Occidente affects the comparability of our
2006 results to our 2005 results.
Consolidated Income Statements
For the year ended December 31,
2007
2006
(Q millions)
(Q millions)

2007(1)
(US$ millions)

2005
(Q millions)

Income Statement Data:


Interest income(2) ...................................................................
Local currency transactions ...........................................
Foreign currency transactions........................................

US$ 324.3
196.0
128.3

Q 2,474.7
1,495.7
979.1

Q 1,770.2
1,017.3
752.8

Q 1,498.2
877.1
621.1

Interest expense.....................................................................
Local currency transactions ...........................................
Foreign currency transactions........................................

177.2
92.5
84.6

1,351.9
706.1
645.8

1,026.3
528.5
497.8

822.1
470.7
351.4

Net interest income ..................................................

147.1

1,122.8

743.9

676.1

Income from services, net ....................................................


Total operating income ............................................

55.8
202.9

425.9
1,548.7

300.5
1,044.4

210.1
886.2

Administrative expenses:
Loan loss provisions.......................................................
Other administrative expenses.......................................
Total administrative expenses................................

16.2
115.2
131.4

123.4
879.0
1,002.4

39.6
657.6
697.2

48.8
534.7
583.6

Net operating income...............................................

71.6

546.3

347.1

302.7

Extraordinary income, net................................................


Prior periods income and expenses, net .............................
Income before tax.....................................................

0.8
0.8
73.2

6.1
6.1
558.5

21.0
2.8
370.9

25.9
2.3
330.9

Income tax
Income before minority interest participation........
Minority interest....................................................................

11.1
62.1

84.5
473.9

48.1
322.8

34.0
296.9

Net income...........................................................................

US$

62.1

473.9

322.8

296.9

_______________________________
(1)

(2)

Data expressed in U.S. dollars has been translated at the rate of Q7.6310 per US$1.00, based on the Guatemalan Central
Bank on December 31, 2007. See Risk Factors and Exchange Rates and Currency.
Under Guatemalan Banking GAAP, revenue from interest income, subject to certain exceptions, is not recorded in our
income statement until it is effectively collected. Interest that has been collected but not accrued is recorded under liabilities
as deferred income.

18

Consolidated Balance Sheets


2007(1)
(US$ millions)
Balance Sheet Data:
Cash ...................................................................................
Temporary investments.....................................................
Loan portfolio, net.............................................................
Accounts Receivable from financial products..................
Accounts receivable, net ...................................................
Prepaid expenses ...............................................................
Foreclosed assets...............................................................
Long term investments......................................................
Other investments..............................................................
Property and equipment ....................................................
Deferred charges, net ........................................................
Total assets .............................................................
Deposits.............................................................................
Liabilities with other financial institutions .......................
Financial obligations .........................................................
Financial expenses payable...............................................
Accounts payable ..............................................................
Accruals.............................................................................
Deferred income................................................................
Other credit balances.........................................................
Minority interest................................................................
Total liabilities and other credit balances ..........
Total shareholders equity ...................................
Total liabilities and shareholders equity ...........

US$

665.8
212.5
2,600.2
36.4
46.9
6.1
2.4
1,220.8
19.2
129.8
85.8
5,026.0
3,453.1
814.3
251.3
19.1
74.0
1.7
3.8
6.3

4,623.5
402.5
US$ 5,026.0

As of December 31,
2007
2006
(Q millions)
(Q millions)
Q

5,080.6
1,621.9
19,842.5
277.6
358.1
46.4
18.1
9,316.2
146.6
990.9
654.6
38,353.6
26,350.5
6,213.8
1,917.5
145.6
564.9
12.7
29.0
47.9

35,281.9
3,071.7
38,353.6

4,161.0
2,035.4
14,787.0
243.8
275.6
35.3
26.7
8,742.9
68.0
869.9
696.2
31,941.9
22,431.3
4,187.6
1,748.1
118.4
711.8
9.8
17.0
48.2

29,272.1
2,669.8
Q 31,941.9

2005
(Q millions)
Q

2,769.1
1,965.7
10,153.3
222.4
171.3
25.0
6.0
6,388.8
54.5
734.8
11.8
22,502.7
15,910.5
3,225.6
1,357.0
84.6
248.9
7.5
10.9
46.8

20,891.8
1,611.0
Q 22,502.7

_____________________________
(1)

Data expressed in U.S. dollars has been translated at the rate of Q7.6310 per US$1.00, reported by the Guatemalan Central
Bank on December 31, 2007. See Risk Factors and Exchange Rates and Currency.

19

Other Financial Data and Ratios


The selected financial data and ratios presented below have been derived from and should be read in
conjunction with our Financial Statements and the other financial information contained in this offering circular.
As of December 31,
2007
2006

2007(1)
(US$ millions, except
percentages)

2005

(Q millions, except percentages)

Profitability and efficiency:


Return on average total
assets(2) ....................................................................................

1.3%

1.3%

1.2%

1.4%

Return on average shareholders equity (3) .................................

16.5%

16.5%

15.1%

19.3%

Net interest margin(4) ..................................................................

3.8%

3.8%

3.2%

3.8%

Efficiency ratio(5) ........................................................................

56.8%

56.8%

63.0%

60.3%

Capitalization:
Shareholders equity as a percentage of total assets(6) ...............

8.0%

8.0%

8.4%

7.2%

Tier 1 capital as a percentage of risk-weighted assets(7) ............

6.8%

6.8%

7.9%

6.9%

Capital ratio(8) .............................................................................

13.1%

13.1%

14.8%

12.7%

Credit quality data:


Total performing loans...............................................................

US$ 2,609.1

Q 19,909.9

Q 14,798.4

Total non-performing loans .......................................................

14.9

113.5

146.3

86.6

Total loans ..................................................................................

2,623.9

20,023.3

14,944.8

10,263.5

Loans graded C, D and E(9)..............................................


Allowance for loan losses ..........................................................

26.9
US$

23.7

205.4
Q

180.8

Q 10,176.9

220.4
Q

157.7

133.0
Q

110.2

_____________________
(1)

(2)
(3)
(4)

(5)

(6)
(7)
(8)

(9)

Data expressed in U.S. dollars has been translated at the rate of Q7.6310 per US$1.00, reported by the Guatemalan Central
Bank on December 31, 2007. See Risk Factors and Exchange Rates and Currency.
Net income for the period divided by the average of the end of period and end of prior period total assets.
Net income for the period divided by the average of the end of period and end of prior period total shareholders equity.
Represents financial margin divided by average interest-earning assets. Average interest-earning assets are determined on
an annualized basis, based on beginning and end-of- monthly balances.
Refers to the periods total administrative expenses (less loan loss provisions) divided by the periods total operating
income.
Refers to the end of period shareholders equity divided by the end of period total assets.
Refers to the end of period Tier 1 capital divided by the end of period risk-weighted assets.
Refers to the end of period net capital as a percentage of risk-weighted assets. Our Capital Ratio on an unconsolidated basis
as of December 31, 2007, 2006 and 2005 was 14.1%, 14.5%, and 11.9%, respectively, which was, in each instance, above
the regulatory requirement of 10.0%.
Refers to our loan portfolio classified pursuant to the regulations of the Superintendency of Banks, which provides that
100% of any loan portfolio must be graded on a scale ranging from A (highest quality) through E (lowest quality) and
must be reserved in accordance with the specific reserve requirements. See Selected Statistical InformationGrading of
Loan Portfolio.

20

Credit Quality Ratios


As of December 31,
2007
2006
2005
0.9%
Allowance for loan losses as a percentage of total loans(1) .........................................
Allowance for loan losses as a percentage of total non-performing loans(2)............... 159.3%
Allowance for loan losses as a percentage of loans graded C, D and E(3)........ 88.0%
0.6%
Total non-performing loans as a percentage of total loans(4).......................................

1.1%
107.8%
71.6%
1.0%

________________
(1)
Refers to the end of period allowance for loan losses divided by the end of period total loans.
(2)
Refers to the end of period allowance for loan losses divided by the end of period non-performing loans.
(3)
Refers to the end of period allowance for loan losses divided by the end of period loans graded C, D and E.
(4)
Refers to the end of period total non-performing loans divided by the end of period total loans.

21

1.1%
127.2%
82.8%
0.8%

RISK FACTORS
You should carefully consider the following discussion of risks, as well as all the other information
presented in this offering circular, before buying the Notes. These risks are not the only risks that affect our
business. Additional risks and uncertainties that we do not know about or that we currently think are immaterial
may also affect our operations and business. Any of the following risks, if they actually occur, could materially and
adversely affect our business, results of operations, financial condition and prospects. In that event, the market
price of the Notes could decline, and you could lose all or part of your investment.
Risks Relating to our Business
Our financial results are constantly exposed to market risk. We are subject to fluctuations in interest rates and
other market risks, which may materially and adversely affect our financial position and results of operations.
Market risk refers to the probability of variations in our financial margin, or in the market value of our
assets and liabilities, due to interest rate volatility. Changes in interest rates affect the following areas, among
others, of our business:

financial margin;

volume of loans originated;

market value of our financial assets; and

gains from sales of loans and securities.

Increases in short-term interest rates could reduce financial margin, which comprises the majority of our
revenue. A significant portion of our assets, including our loans, are long-term assets. In contrast, most of our
borrowings are short-term. When interest rates rise, we must pay higher interest on our borrowings while interest
earned on our assets does not rise as quickly, which causes profits to decrease. Interest rate increases could result in
adverse changes in our financial margin, reducing its growth rate or even resulting in losses against previous
periods.
Increases in interest rates may reduce the volume of loans we originate. Sustained high interest rates have
historically discouraged customers from borrowing and have resulted in increased delinquencies in outstanding
loans and deterioration in the quality of assets.
Increases in interest rates may reduce the value of our financial assets. We hold a substantial portfolio of
loans and debt securities that have both fixed and adjustable interest rates. The market value of a security with a
fixed interest rate generally decreases when prevailing interest rates rise, which may have an adverse effect on our
earnings and financial position. In addition, we may incur costs (which, in turn, will impact our results) as we
implement strategies to reduce future interest rate exposure. The market value of an obligation with an adjustable
interest rate can be adversely affected when interest rates increase, due to a lag in the implementation of repricing
terms.
Intensifying competition may adversely affect our results of operations.
We face significant competition from other Guatemalan banks in providing financial services to the
Guatemalan retail and corporate banking sectors and from international financial institutions. Our principal
competitors are Banco G&T Continental, Banco de Desarrollo Rural, Banco Agromercantil de Guatemala and
Citibank after its recent acquisitions.
Evolving Guatemalan banking regulations may adversely affect our results of operations and financial condition,
and the value of our assets may be impaired due to regulatory initiatives and procedures.
We are subject to extensive banking and other regulations (in particular those of the Monetary Board and
the Superintendency of Banks) designed to maintain the safety and reliability of banks, ensure their compliance with
22

economic and other obligations and limit their exposure to risk. These regulations may increase our cost of doing
business or limit our activities. In addition, a breach of regulatory guidelines could expose us to potential liabilities
or sanctions. Laws or regulations may be amended, adopted, enforced or interpreted in a manner that could have an
adverse effect on our business, financial condition, cash flows and results of operations. Any failure to adopt
adequate responses to such changes in the regulatory framework may have an adverse effect on our business,
financial condition, cash flows and results of operations.
Liquidity risks may adversely affect our business.
Our banking assets have grown rapidly over the past several years, driven in part by the expansion our
business. Historically, one of our principal sources of funds has been customer deposits. Since we rely heavily on
deposits and other short-term liabilities for our funding, there can be no assurance that in the event of a sudden or
unexpected shortage of funds in the banking system or otherwise we will be able to maintain our levels of funding
without adversely affecting our liquidity or increasing our cost of funding.
Currency risks may adversely affect our loan and investment portfolios.
We are exposed to currency risk any time we hold an open position in a currency other than quetzales.
Volatility in quetzal exchange rates and interest rates in Guatemala could result in higher risks associated with such
positions. Although we follow various risk management procedures in connection with our investment and treasury
activities, we cannot assure you that we will not experience losses with respect to these positions in the future, any
of which could have an adverse effect on our financial condition and results of operations.
Failure to successfully implement and continue to improve our credit risk management system could materially
and adversely affect our business operations and prospects.
As a commercial bank, one of the principal types of risks inherent in our business is credit risk. We may
not be able to improve our credit risk management system so that it can function effectively. For example, an
important part of our credit risk management system is to employ an internal credit rating system to assess the
particular risk profile of a client. As this process involves detailed analyses of the client or credit risk, taking into
account both quantitative and qualitative factors, it is subject to human error. In exercising their judgment, our
employees may not always be able to assign an accurate credit rating to a client or credit risk, which may result in
our exposure to higher credit risks than indicated by our risk rating system. As a result, failure to effectively
implement, consistently follow or continuously refine our credit risk management system may result in a higher risk
exposure for us, which could materially and adversely affect us.
If we are unable to effectively control the level of non-performing or poor credit quality loans in our loan
portfolio, or if our loan loss reserves are insufficient to cover actual loan losses, our financial condition and
results of operations may be materially and adversely affected.
Non-performing or low credit quality loans can negatively impact our financial condition and results of
operations. We cannot assure you that we will be able to effectively control and reduce the level of the impaired
loans in our loan portfolio. In particular, the amount of our reported non-performing loans may increase in the
future as a result of growth in our loan portfolio or factors beyond our control, such as the impact of macroeconomic
trends and political events affecting Guatemala or events affecting given industries. In addition, while we believe
our current loan loss reserve is adequate to cover all loan losses in our loan portfolio, our current loan loss reserves
may not be adequate to cover an increase in the amount of non-performing loans or any future deterioration in the
overall credit quality of our loan portfolio. As a result, if the credit quality of our loan portfolio deteriorates we may
be required to increase our loan loss reserves, which may adversely affect us. Moreover, there is no precise method
for predicting loan and credit losses, and we cannot assure you that our loan loss reserves are or will be sufficient to
cover actual losses. If we are unable to control or reduce the level of our non-performing or poor credit quality
loans, our financial condition and results of operations could be materially and adversely affected.

23

We may need additional capital in the future, and may not be able to obtain such capital on acceptable terms, or
at all.
In order for us to grow, remain competitive, enter into new businesses and meet regulatory capital
adequacy requirements, we may require new capital in the future. Moreover, we may need to raise additional capital
in the event of large losses in connection with any of our activities that result in a reduction of our shareholders
equity. Our ability to obtain additional capital in the future is subject to a variety of uncertainties, including:

our future financial condition, results of operations and cash flows;

any necessary government regulatory approvals;

general market conditions for capital-raising activities by commercial banks and other financial
institutions; and

economic, political and other conditions in Guatemala and elsewhere.

We may not be able to obtain additional capital in a timely manner or on acceptable terms or at all. If we are unable
to obtain additional capital, our business operations, financial condition and results of operations could be materially
and adversely affected.
Reductions in our credit ratings could increase our cost of borrowing funds and make our ability to raise new
funds, attract deposits and renew maturing debt more difficult.
Our credit ratings are an important component of our liquidity profile. Among other factors, our credit
ratings are based on the financial strength, credit quality and concentrations in our loan portfolio, the level and
volatility of our earnings, our capital adequacy, the quality of management, the liquidity of our balance sheet, the
availability of a significant base of core retail and commercial deposits and our ability to access a broad array of
funding sources. Our lenders may be sensitive to the risk of a ratings downgrade. A downgrade in our credit ratings
could increase the cost of refinancing our existing obligations, raising funds in the capital markets and borrowing
funds from private lenders.
Our increasing focus on consumer banking and small businesses could result in loan losses.
As part of our business strategy, we seek to increase lending and other services to individuals and to small
and medium-sized companies. As a result, our loan portfolio may become increasingly vulnerable to
macroeconomic events that could negatively impact the income of these customers and result in increased loan
losses. Furthermore, because the penetration of bank lending products in the Guatemalan retail sector historically
has been low, there is no basis on which to evaluate how the retail sector will perform in the event of an economic
crisis, such as a recession or a significant devaluation, and our historical loan loss experience may not be indicative
of the performance of our loan portfolio in the future. Consequently, in the future we may experience higher levels
of non-performing loans, which could result in higher provisions and higher loan losses.
We rely heavily on data collection, processing and storage systems, the failure of which could materially and
adversely affect the effectiveness of our risk management and internal control systems as well as our financial
condition and results of operations.
All of our principal businesses are highly dependent on the ability to timely collect and process a large
amount of financial and other information across numerous and diverse markets and products at our various
branches, at a time when transaction processes have become increasingly complex, with increasing volume. The
proper functioning of financial control, accounting or other data collection and processing systems is critical to our
businesses and to our ability to compete effectively. A partial or complete failure of any of these primary systems
could materially and adversely affect our decision-making process and internal control systems, as well as our
timely response to changing market conditions. If we cannot maintain an effective data collection and management
system, our business operations, financial condition and results of operations could be materially and adversely
affected.

24

Furthermore, we are dependent on information systems to process transactions and respond to customer
inquiries on a timely basis and maintain cost-efficient operations. We may experience operational problems with
our information systems as a result of system failures, viruses, computer hackers or other causes. Any material
disruption or slowdown of our systems could cause information, including data related to customer requests, to be
lost or to be delivered to our clients with delays or errors, which could reduce demand for our services and products
and could materially and adversely affect our financial condition and results of operations.
Any failure to effectively improve or upgrade our information technology infrastructure and management
information systems in a timely manner could adversely affect our competitiveness, financial condition and
results of operations.
Our ability to remain competitive will depend in part on our ability to upgrade our information technology
on a timely and cost-effective basis. We must continually make significant investments and improvements in our
information technology infrastructure in order to remain competitive. In addition, we may experience difficulties in
upgrading, developing and expanding our information technology systems quickly enough to accommodate our
growing customer base. Any failure to effectively improve or upgrade our information technology infrastructure
and management information systems in a timely manner could materially and adversely affect our competitiveness,
financial condition and results of operations.
Our corporate disclosure may be different or less substantial than that of issuers in other countries and our
financial statements have been prepared and are presented in accordance with Guatemalan Banking GAAP,
which is significantly different from U.S. GAAP.
Issuers of securities in Guatemala are required to make public disclosures that are different and that may be
less substantial than disclosures required in countries with highly developed capital markets. In addition, accounting
and other reporting principles and standards for credit and other financial institutions in Guatemala and the financial
results reported using such principles and standards may differ substantially from those results that would have been
obtained using other principles and standards, such as U.S. GAAP.
Our financial statements have been prepared and are presented in accordance with Guatemalan Banking
GAAP. Significant differences exist between Guatemalan Banking GAAP and U.S. GAAP, which are material to
the financial statements and other financial information included in this offering circular. We have made no attempt
to identify or quantify the impact of those differences in this offering circular.
We engage in transactions with our parent, Bicapital, and its subsidiaries and affiliates that may not be on an
arms-length basis.
We engage in transactions with companies owned or controlled by our parent, Bicapital, and the principal
shareholders of Bicapital, which may cause conflicts of interest between those shareholders and us. The transactions
with our affiliates include insurance policies and a storage services agreement. We cannot assure you that
transactions between us and Bicapital or any of its subsidiaries or affiliates have been or will be conducted on a
basis as favorable to us as could be obtained by us from unaffiliated parties. We are likely to continue to engage in
transactions with our parent and its subsidiaries and affiliates, and we cannot assure you that we will do so on an
arms-length basis. In addition, future conflicts of interest between us and Bicapital or any of its subsidiaries or
affiliates may arise, which conflicts are not required to be and may not be resolved in our favor.
Resources may be devoted, or our business or business opportunities could be diverted, to other entities within the
financial group controlled by Bicapital, or operations of other subsidiaries of Bicapital may be transferred to us.
We are part of a financial group controlled by Bicapital. Bicapital could, at any time, devote more
resources or divert our business opportunities to other subsidiaries of Bicapital, including those that directly or
indirectly compete with us, as well as transfer certain operations of other subsidiaries of Bicapital to us, on grounds
of capital efficiency, regulatory constraints, or other criteria. Should more of our resources be devoted, or our
business opportunities diverted, to other subsidiaries of Bicapital or if unprofitable operations of other subsidiaries

25

of Bicapital are transferred to us, our business, results of operations and financial condition could be adversely
affected.
Guidelines for loan classification and provisions in Guatemala may be less stringent than those in other
countries.
Guatemalan banking regulations require us to classify each loan or type of loan according to a risk
assessment that is based on specified criteria, to establish corresponding reserves and, in the case of some nonperforming assets, to charge-off the loans. The criteria to establish reserves include both qualitative and quantitative
factors. Guatemalan regulations relating to loan classification and determination of loan loss reserves are generally
different or less stringent than those applicable to banks in the United States and certain other countries. Under U.S.
rules, our level of loan loss reserves may be different than our current reserve levels. We may be required or deem it
necessary to increase our loan loss reserves in the future. Increasing loan loss reserves could materially and
adversely affect our business, results of operations and financial condition.
We may not be able to detect money laundering and other illegal or improper activities fully or on a timely basis,
which could expose us to additional liability and harm our business.
We are required to comply with applicable anti-money laundering, anti-terrorism laws and other
regulations in Guatemala. These laws and regulations require us, among other things, to adopt and enforce know
your customer policies and procedures and to report suspicious and large transactions to the applicable regulatory
authorities. While we have adopted policies and procedures aimed at detecting and preventing the use of our
banking network for money laundering activities and by terrorists and terrorist-related organizations and individuals
generally, such policies and procedures have in some cases only been recently adopted and may not completely
eliminate instances where our operations may be used by other parties to engage in money laundering and other
illegal or improper activities. To the extent we may fail to fully comply with applicable laws and regulations, the
relevant government agencies to which we report have the power and authority to impose fines and other penalties
on us. In addition, our business and reputation could suffer if customers use us for money laundering or illegal or
improper purposes.
We are subject to Guatemalan capitalization requirements that limit our capital flexibility.
Pursuant to the Guatemalan capitalization requirements, we are required to maintain specified levels of net
capital on an unconsolidated basis as a percentage of risk-weighted assets and market risks, or Capital Ratio, of 10%
or above. As of December 31, 2007, we had a Capital Ratio of 14.1% on an unconsolidated basis. Our ability to
comply with this requirement may be affected by changes in economic or business conditions (including a
devaluation), results of operations or other events beyond our control. If we fail to comply with Guatemalan
capitalization requirements, we would be required to defer or cancel interest payments or defer principal payments,
including payments on the Notes.
We are subject to Guatemalan regulatory inspections, examinations, inquiries and audits, and future sanctions,
fines and other penalties resulting from such inspections and audits could materially and adversely affect our
business, results of operations and financial condition or our reputation.
We are subject to comprehensive regulation and supervision by Guatemalan banking authorities. These
regulatory authorities have broad powers to adopt regulations and other requirements affecting or restricting
virtually all aspects of our capitalization, organization and operations, including the imposition of anti-money
laundering measures and the authority to regulate the terms and conditions of credit that can be applied by
Guatemalan banks. Moreover, Guatemalan financial regulatory authorities possess significant powers to enforce
applicable regulatory requirements in the event of our non-compliance, including the imposition of fines, sanctions
or the revocation of licenses or permits to operate our business. In the event we encounter significant financial
problems or became insolvent or in danger of becoming insolvent, Guatemalan banking authorities would have the
power to take over our management and operations.

26

Guatemalan banking and financial services laws and regulations are subject to continuing review and
changes. Any such changes may have an adverse impact on, among other things, our ability to make and collect
loans and extend credit on terms and conditions, including interest rates, that are adequately profitable, which could
materially and adversely affect our results of operations and financial position.
Risks Relating to Guatemala and Other Markets
Our business, results of operations and financial condition may be adversely affected by the economic, political,
social or legal developments in Guatemala.
We are a Guatemalan bank and substantially all of our operations and assets are located in Guatemala. As
a result, our business, financial condition and results of operations may be affected by the general condition of the
Guatemalan economy.
Guatemala is an emerging market country and, in general, operations of businesses in such countries may
be subject to different stresses than operations of businesses in countries such as the United States. These include
conditions influenced by political events such as wars, civil unrest and significant changes in national economic
policies or laws, all of which may be more likely to occur in an emerging market country. Guatemala is affected by
political, social, security and other problems and conditions, including, among others, trafficking in drugs, alien
smuggling, organized crime, high crime rates, human rights concerns and a need to implement political, economic
and social reforms.
The Guatemalan government has exercised, and continues to exercise, significant influence over the
Guatemalan economy. Guatemalan governmental actions concerning the economy and state-owned enterprises
could have a significant effect on the Guatemalan private sector entities in general, and us in particular, and on
market conditions, prices and returns on Guatemalan securities, including the Notes.
Presidential and congressional elections were held in September 2007. Neither of the presidential
candidates obtained the majority of the votes as required by law and a run off election was held on November 4,
2007. In the run-off elections, Alvaro Colom, a social democrat, defeated the conservative Otto Perez by 52.8% to
47.2% and was elected President. Colom took over the presidency from conservative incumbent Oscar Berger on
January 14, 2008 for a term ending in January 2012. The new administration may not continue to support previous
government policies, which have contributed to economic growth in the country. Any change in such policies
could, have a significant effect on Guatemalan financial institutions, including us, as well as on market conditions
and the prices of and returns on Guatemalan securities.
We cannot provide any assurance that future economic, political, social or legal developments in
Guatemala, over which we have no control, will not have an unfavorable impact on our financial condition or results
of operations or impair our ability to make payments under the Notes.
Currency fluctuations and exchange controls may adversely affect our ability to engage in foreign exchange
activities, which will hurt our business, results of operations or financial condition.
Since 1994, the Monetary Board has allowed the exchange rate for the quetzal to be determined
predominantly by market forces. The Guatemalan Central Bank has intervened in the foreign exchange market by
buying or selling U.S. dollars in order to counter temporary imbalances of supply and demand or drastic fluctuations
in the exchange rate caused by speculative, cyclical or seasonal factors affecting the balance of payments.
There can be no assurance that the Guatemalan government will not institute restrictive exchange rate
policies in the future. Any such restrictive exchange control policy would adversely affect our ability to engage in
foreign exchange activities and could also have a material adverse effect on our business, financial condition, results
of operations or prospects.

27

Developments in other countries may adversely affect us and the prices of our debt securities.
Economic and market conditions in other countries may, to varying degrees, affect the market value of
securities of issued by Guatemalan institutions. Although economic conditions in other countries may differ
significantly from economic conditions in Guatemala, investors reactions to developments in other countries may
have an adverse effect on the market value of securities of Guatemalan companies. A recession or economic
slowdown in the United States may adversely affect the Guatemalan economy and remittance levels.
Developments or conditions in emerging market countries have from time to time affected significantly the
availability of credit in the Guatemalan economy and resulted in considerable outflows of funds and declines in the
amount of foreign currency invested in Guatemala. In addition, developments in the debt markets in the United
States or other highly developed economies, including the current credit and subprime crisis, may affect securities
issued in emerging markets. For example, the concern over the effects of the collapse and subprime crisis of Long
Term Capital Management in the United States in 1998 (occurring at approximately the same time as the Russian
debt crisis), harmed the market for non-investment grade fixed income securities of all types, including most
securities issued by emerging market companies in the fourth quarter of 1998. Increases in interest rates by the
Federal Reserve Board in the United States often have been associated with subsequent adverse economic effects in
emerging markets of the type described above.
Recently, market prices for emerging market debt securities have continued to be subject to volatility shifts.
It is uncertain whether this trend will continue and, if it does, the extent of the adverse secondary effects it may have
on the Guatemalan economy, on our ability to obtain financing in the international and domestic capital markets, on
the cost of such financing, on the market value of the Notes or on our customers.
Risks Relating to the Notes
The Notes will be unsecured and junior in right of payment and in liquidation to all of our present or future
senior and subordinated indebtedness and to certain obligations preferred by statute.
The Notes constitute our direct, unsecured and junior obligations, and will not be insured or benefit from
any contractual support agreement. The Notes will rank junior in right of payment and in liquidation to all of our
Senior Debt (as defined in Description of the NotesRanking), which effectively includes all claims of our
depositors and other unsubordinated creditors, claims preferred by law and claims of other creditors other than those
that rank pari passu or junior to us. The Notes will also rank effectively junior to all of our subsidiaries
indebtedness and other liabilities.
By reason of the ranking of the Notes, in the case of certain events involving bankruptcy, liquidation or
dissolution, although the Notes would become immediately due and payable at their principal amount together with
accrued interest thereon, our assets would be available to pay such amounts only after all of our Senior Debt has
been paid in full. As of December 31, 2007, we had on a consolidated basis an aggregate of total deposits and total
debt of Q35,281.9 million. The indenture does not limit our ability to incur additional Senior Debt or Parity
Securities. See Description of the NotesRanking.
We have the option to cancel interest payments on the Notes at any time, for any period of time, and those
payments will not accumulate and will not be subsequently paid to you.
We may, in the sole and absolute discretion of our board of directors, provided no payment has been made
on our Junior Securities or Parity Securities, cancel the payment of interest on the Notes on any interest payment
date for any period of time. Interest payments are non-cumulative such that if we cancel an interest payment (in
whole or in part) as a result of the exercise of our option to do so, the unpaid interest will not accrue or be due and
payable at any time and, accordingly, holders of the Notes will not have any claim therefor, whether or not interest is
paid in respect of any other period.

28

We are required not to pay interest on the Notes in certain cases and those payments will not accumulate and will
not be subsequently paid to you.
In addition to our option to cancel interest payments, we will not be permitted to pay interest on the Notes
on an interest payment date in case of:
(i)

a failure to comply with certain Guatemalan law requirements relating to our minimum capital
ratio;

(ii)

our legal reserves deposited with the Guatemalan Central Bank of Guatemala having fallen below
certain levels; or

(iii)

insufficient levels of Distributable Amounts (as defined herein and in the Indenture).

Interest payments are non-cumulative such that if an interest payment is cancelled (in whole or in part) as a
result of the limitation described above, the unpaid interest will not accrue or be due and payable at any time and,
accordingly, holders of the Notes will not have any claim therefore, whether or not interest is paid in respect of any
other period.
If we do not satisfy our obligations under the Notes, your remedies will be limited.
Payment of principal on the Notes may be accelerated only in specified instances involving our bankruptcy,
liquidation or dissolution. There is no right of acceleration in the case of a default in the performance of any of our
covenants, including a default in the payment of principal or interest. See Description of the NotesEvents of
Default.
Even if the payment of principal on the Notes is accelerated due to our bankruptcy, liquidation or
dissolution, our assets will be available to pay those amounts only after:

all of our Senior Debt has been paid in full, and

we are actually declared bankrupt or are dissolved or put into liquidation for purposes of Guatemalan
law.

As a result, recoveries on the Notes may be substantially limited.


We will have the right to redeem the Notes upon the occurrence of an Equity Credit Event, a Regulatory Event, a
Tax Event or a Withholding Tax Event, or at our option on or after the tenth anniversary.
We will have the right, upon the occurrence of an Equity Credit Event, a Regulatory Event, a Tax Event or
a Withholding Tax Event (each as defined in the Indenture), or at our option on or after the tenth anniversary of the
issue date to redeem the Notes, in each case subject to obtaining any necessary regulatory and corporate approvals.
We cannot assure that you will be able to reinvest the amounts received upon redemption at a rate that will provide
the same return as your investment in the Notes.
Investors will be deemed to have waived all rights of set off.
Subject to applicable law, you may not exercise or claim any right of set-off in respect of any amount we
owe you arising under or in connection with the Notes and you will be deemed to have waived all such rights of set
off.
The rating of the Notes may be lowered or withdrawn depending on various factors, including the rating
agencies assessments of our financial strength and Guatemalan sovereign risk.
The rating of the Notes addresses the likelihood of payment of principal at their maturity. The rating also
addresses the timely payment of interest on each scheduled payment date. The rating of the Notes is not a
29

recommendation to purchase, hold or sell the Notes, and the rating does not comment on market price or suitability
for a particular investor. We cannot assure you that the rating of the Notes will remain for any given period of time
or that the rating will not be lowered or withdrawn. A downgrade in or withdrawal of the rating of the Notes will be
an event of default under the indenture. An assigned rating may be raised or lowered depending, among other
things, on the respective rating agencys assessment of our financial strength, as well as its assessment of
Guatemalan sovereign risk generally.
The non-payment of funds by any of our subsidiaries could have a material and adverse effect on our business,
financial condition, results of operations and ability to service our debt, including the Notes.
Our cash flow and our ability to service debt depend in part on the cash flow and earnings of our
subsidiaries and the payment of funds by those subsidiaries to us in the form of loans, interest, dividends or
otherwise. The subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise,
to pay any amounts due under the terms of the Notes or to make any funds available for such purpose. Furthermore,
claims of creditors of such subsidiaries, including trade creditors of such subsidiaries, will have priority over our
creditors, including the holders of the Notes, with respect to the assets and cash flow of such subsidiaries. Any right
we may have to receive assets of any of our subsidiaries upon their liquidation or reorganization (and the consequent
right to the holders of the Notes to participate in those assets) will be effectively subordinated to the claims of that
subsidiarys creditors.
There is no existing market for the Notes and one may not develop in the future; thus it may be difficult to resell
your Notes.
We have submitted an application to admit the Notes to listing on the Official List of the Luxembourg
Stock Exchange and to trading on the Euro MTF market, although no assurance can be given that such listing will be
accomplished. The Notes constitute a new issue of securities with no established trading market. In addition, in the
event there are changes in the listing requirements, we may conclude that continued listing on the Luxembourg
Stock Exchange is unduly burdensome. See General Information. No assurance can be given as to (1) the
liquidity of any markets that may develop for the Notes, (2) whether an active public market for the Notes will
develop, (3) your ability to sell your Notes (or beneficial interests therein) or (4) the price at which you will be able
to sell your Notes. In addition, the Notes have not been registered under the Securities Act and will be subject to
transfer restrictions. See Notice to Investors.
We do not intend to provide registration rights to holders of Notes and do not intend to file any registration
statement with the SEC in respect of the Notes. The Notes have not and will not be registered with the Guatemalan
Commodities and Securities Market Registry (Registro de Valores y Mercancas) nor with the Guatemalan Stock
Exchange and therefore the Notes may not be publicly offered or sold nor be the subject of intermediation in
Guatemala. Future trading prices of the Notes will depend on many factors including, among other things,
prevailing interest rates, our operating results, and the market for similar securities. The initial purchaser has
informed us that they may make a market in the Notes. However, the initial purchaser is not obligated to do so and
any such market-making activity may be terminated at any time without notice to you. In addition, such marketmaking activity will be subject to the limits of the Securities Act. If an active public trading market for the Notes
does not develop, the market price and liquidity of the Notes may be adversely affected. See Plan of Distribution.
In addition, trading or resale of the Notes (or beneficial interests therein) may be negatively affected by other factors
described in this offering circular arising from this transaction or the market for securities of Guatemalan issuers
generally.
Holders of Notes may find it difficult to enforce civil liabilities against us or our directors, officers and
controlling persons.
We are organized under the laws of Guatemala. Most of our directors, officers and controlling persons
reside in Guatemala. In addition, a substantial portion of our assets and their assets are located in Guatemala. As a
result, it may be difficult for holders of Notes to effect service of process outside Guatemala on such persons or to
enforce judgments against them, including in any action based on civil liabilities under non-Guatemalan securities
laws. Based on the opinion of our Guatemalan counsel, there is doubt as to the enforceability against such persons
30

in Guatemala, whether in original actions or in actions to enforce judgments of non-Guatemalan courts, of liabilities
based solely on non-Guatemalan securities laws.

31

USE OF PROCEEDS
Our net proceeds from the issuance of the Notes are estimated to be approximately US$27.2 million. We
intend to use the net proceeds of the issuance of the Notes to repay long-term debt. We believe that this use of
proceeds will effectively increase our base capital and support the growth of our loan portfolio. The long-term debt
in the amount of approximately US$27.2 million that we plan to repay bears interest at an average annual rate of
8.00% and matures in various periods, including the fourth quarter of 2010, the third quarter of 2011 and the first
quarter of 2016.

32

EXCHANGE RATES AND CURRENCY


Since 1994, the Monetary Board has allowed the exchange rate for the quetzal to be determined
predominantly by market forces. The Guatemalan Central Bank intervenes in the foreign exchange market by
buying or selling U.S. dollars to counter drastic fluctuations in the exchange rate caused by speculative, cyclical or
seasonal factors that affect the balance of payments.
Since 1996, the Guatemalan Central Bank has intervened in the foreign exchange market through the
Sistema Electrnico de Negociacin de Divisas, an electronic system for buying and selling foreign exchange.
Currently, there are no restrictions on the conversion of quetzales into other currencies. On May 1, 2001, the Law of
Free Transfer of Foreign Currency came into effect, permitting both domestic and foreign banks in Guatemala to
freely enter into foreign-currency-denominated contracts and accept monetary deposits and offer bank accounts in
foreign currency.
The following table sets forth certain information concerning the quetzal-to-dollar interbank exchange rate
for the dates and periods indicated.
Period-end(2)
Period

2002 ..............................................
2003 ..............................................
2004 ..............................................
2005 ..............................................
2006(2) ...........................................
2007...............................................
October....................................
November................................
December ................................
2008
January ....................................
February ..................................
March ......................................

Low

High

Average(1)

Bid

Ask

7.56003
7.71052
7.73293
7.57141
7.56444
7.59615
7.6865
7.60634
7.59981

8.09021
8.15595
8.15151
7.81336
7.66406
7.74237
7.75285
7.6948
7.6861

7.81910
7.93718
7.94808
7.63518
7.60244
7.67519
7.72689
7.64474
7.63263

7.72559
8.01048
7.74135
7.58724
7.59615

7.75737
8.02973
7.75966
7.60712
7.59615

7.63101
7.70326
7.60045

7.78129
7.78252
7.70987

7.69529
7.73378
7.64553

7.71527
7.69480
7.68610
7.63101
7.78129
7.70987
7.61489

____________
Source: Guatemalan Central Bank.
(1)
(2)

Average of daily rates.


Prior to October 2006, the Guatemalan Central Bank published separate bid and ask rates. Beginning in October 2006, the Guatemalan
Central Bank published a single interbank rate reflecting a weighted average of the bid and ask rates.

The exchange rate for the purchase of U.S. dollars by Guatemalan banks reported by the Guatemalan Central
Bank on April 25, 2008 was Q7.49233 per US$1.00.

33

DIVIDENDS
We paid dividends in the amounts of Q285.6 million, Q227.3 million, Q180.0 million, Q150.0 million and
Q112.5 million in February 2008, January 2007, 2006, 2005 and 2004, respectively, with respect to distributable
income of the prior year. Each payment of dividends was approved at the annual shareholders meeting at the
recommendation of our board of directors.
Pursuant to Article 70 of the Banks and Financial Groups Law, we cannot pay dividends if our Capital
Ratio is below certain required minimum levels. In such event, we would enter into an equity regulation plan under
the supervision of the banking authorities. To date, we have complied with requirements of applicable law relating
to the payment of dividends and plan to continue paying dividends on an annual basis.
Guatemalan law establishes a mandatory withholding of retained earnings equal to at least 5.0% of net
income to form and fund a legal reserve. The amounts in the legal reserve fund cannot be distributed to
shareholders. Nevertheless, the legal reserve fund can be utilized for the payment of dividends when it exceeds
15.0% of the equity at year-end. As of June 30, 2007, the amount of our legal reserves was Q92.5 million of 3.2%
our shareholders equity at that date.

34

CAPITALIZATION
The following table sets forth, as of December 31, 2007, our actual capitalization and our capitalization as
adjusted to reflect the issuance of the Notes. This table should be read in conjunction with the information
contained in the sections Selected Consolidated Financial Information and Managements Discussion and
Analysis of Financial Condition and Results of Operations.

Actual
(Q millions)

Short-term debt:
Short-term debt(4)........................................................
Long-term debt:
Bank and other loans(4) ...............................................
Notes offered hereby(2) ...............................................
Subordinated debt(3) ...................................................

As of December 31, 2007(1)


As Adjusted for this offering(2)
(Q millions)
(US$ millions)

Q3,636.3

Q3,636.3

US$476.5

5,295.1
419.7

5,087.5
228.9
419.7

666.7
30.0
55.0

Total long-term debt..............................................


Shareholders equity:
Paid-in capital.............................................................
Other capital(3) ............................................................

5,714.8

5,736.1

751.7

1,600.4
1,051.5

1,600.4
1,051.5

209.7
137.8

Total shareholders equity..........................................

2,651.9

2,651.9

347.5

Total capitalization .............................................


____________________________

Q12,003.1

Q12,024.4

US$1,575.7

(1)
(2)
(3)

(4)

Except as disclosed in this offering circular, there has been no material change in our total capitalization since December 31, 2007.
The as adjusted for this offering columns include the US$30 million of Notes offered hereby.
Under Guatemalan Banking GAAP, other capital includes subordinated debt. However, for presentation purposes only, we have included
subordinated debt in the amount of Q419.7 million (US$55.0 million) under long-term debt and reduced other capital accordingly.
The sum of short-term debt and bank and other loans is Q8,931.4 million. This sum is comprised of liabilities with other financial
institutions (Q6,213.8 million), financial obligations (Q1,917.5 million), financial expenses payable (Q145.6 million), accounts payable
(Q564.9 million), accruals (Q12.7 million), deferred income (Q29.0 million) and other credit balances (Q47.9 million).

35

SELECTED CONSOLIDATED FINANCIAL INFORMATION


The selected consolidated financial information presented below should be read in conjunction with
Presentation of Certain Financial and Other Information, Managements Discussion and Analysis of Financial
Condition and Results of Operations and our Financial Statements included elsewhere in this offering circular.
In accordance with Guatemalan Banking GAAP, our Financial Statements and other financial information
contained in this offering circular as of December 31, 2007 and 2006 and for the years ended December 31, 2007,
2006 and 2005 are consolidated with the results of our subsidiaries.
In March 2006, we acquired 72.0% of the shares of Banco de Occidente and in November 2006, we merged
Banco de Occidente into Banco Industrial. We began consolidating Banco de Occidentes results of operations in
our financial statements in March 2006. The consolidation of Banco de Occidente affects the comparability of our
2006 results to our 2005 results.
Consolidated Income Statements
For the year ended December 31,
2007
2006
(Q millions)
(Q millions)

2007(1)
(US$ millions)

2005
(Q millions)

Income Statement Data:


Interest income(2) ...................................................................
Local currency transactions ...........................................
Foreign currency transactions........................................

US$ 324.3
196.0
128.3

Q 2,474.7
1,495.7
979.1

Q 1,770.2
1,017.3
752.8

Q 1,498.2
877.1
621.1

Interest expense.....................................................................
Local currency transactions ...........................................
Foreign currency transactions........................................

177.2
92.5
84.6

1,351.9
706.1
645.8

1,026.3
528.5
497.8

822.1
470.7
351.4

Net interest income ..................................................

147.1

1,122.8

743.9

676.1

Income from services, net ....................................................


Total operating income ............................................

55.8
202.9

425.9
1,548.7

300.5
1,044.4

210.1
886.2

Administrative expenses:
Loan loss provisions.......................................................
Other administrative expenses.......................................
Total administrative expenses................................

16.2
115.2
131.4

123.4
879.0
1,002.4

39.6
657.6
697.2

48.8
534.7
583.6

Net operating income...............................................

71.6

546.3

347.1

302.7

Extraordinary income, net................................................


Prior periods income and expenses, net .............................
Income before tax.....................................................

0.8
0.8
73.2

6.1
6.1
558.5

21.0
2.8
370.9

25.9
2.3
330.9

Income tax
Income before minority interest participation........
Minority interest....................................................................

11.1
62.1

84.5
473.9

48.1
322.8
-

34.0
296.9
-

Net income...........................................................................

US$

62.1

473.9

322.8

296.9

_______________________________
(1)

(2)

Data expressed in U.S. dollars has been translated at the rate of Q7.6310 per US$1.00, based on the Guatemalan Central
Bank on December 31, 2007. See Risk Factors and Exchange Rates and Currency.
Under Guatemalan Banking GAAP, revenue from interest income, subject to certain exceptions, is not recorded in our
income statement until it is effectively collected. Interest that has been collected but not accrued is recorded under liabilities
as deferred income.

36

Consolidated Balance Sheets


2007(1)
(US$ millions)
Balance Sheet Data:
Cash ...................................................................................
Temporary investments.....................................................
Loan portfolio, net.............................................................
Accounts Receivable from financial products..................
Accounts receivable, net ...................................................
Prepaid expenses ...............................................................
Foreclosed assets...............................................................
Long term investments......................................................
Other investments..............................................................
Property and equipment ....................................................
Deferred charges, net ........................................................
Total assets .............................................................
Deposits.............................................................................
Liabilities with other financial institutions .......................
Financial obligations .........................................................
Financial expenses payable...............................................
Accounts payable ..............................................................
Accruals.............................................................................
Deferred income................................................................
Other credit balances.........................................................
Minority interest................................................................
Total liabilities and other credit balances ..........
Total shareholders equity ...................................
Total liabilities and shareholders equity ...........

US$

665.8
212.5
2,600.2
36.4
46.9
6.1
2.4
1,220.8
19.2
129.8
85.8
5,026.0
3,453.1
814.3
251.3
19.1
74.0
1.7
3.8
6.3

4,623.5
402.5
US$ 5,026.0

As of December 31,
2007
2006
(Q millions)
(Q millions)
Q

5,080.6
1,621.9
19,842.5
277.6
358.1
46.4
18.1
9,316.2
146.6
990.9
654.6
38,353.6
26,350.5
6,213.8
1,917.5
145.6
564.9
12.7
29.0
47.9

35,281.9
3,071.7
38,353.6

4,161.0
2,035.4
14,787.0
243.8
275.6
35.3
26.7
8,742.9
68.0
869.9
696.2
31,941.9
22,431.3
4,187.6
1,748.1
118.4
711.8
9.8
17.0
48.2

29,272.1
2,669.8
Q 31,941.9

2005
(Q millions)
Q

2,769.1
1,965.7
10,153.3
222.4
171.3
25.0
6.0
6,388.8
54.5
734.8
11.8
22,502.7
15,910.5
3,225.6
1,357.0
84.6
248.9
7.5
10.9
46.8

20,891.8
1,611.0
Q 22,502.7

_____________________________
(1)

Data expressed in U.S. dollars has been translated at the rate of Q7.6310 per US$1.00, reported by the Guatemalan Central
Bank on December 31, 2007. See Risk Factors and Exchange Rates and Currency.

37

Other Financial Data and Ratios


The selected financial data and ratios presented below have been derived from and should be read in
conjunction with our Financial Statements and the other financial information contained in this offering circular.
As of December 31,
2007
2006

2007(1)
(US$ millions, except
percentages)

2005

(Q millions, except percentages)

Profitability and efficiency:


Return on average total
assets(2) ....................................................................................

1.3%

1.3%

1.2%

1.4%

Return on average shareholders equity (3) .................................

16.5%

16.5%

15.1%

19.3%

Net interest margin(4) ..................................................................

3.8%

3.8%

3.2%

3.8%

Efficiency ratio(5) ........................................................................

56.8%

56.8%

63.0%

60.3%

Capitalization:
Shareholders equity as a percentage of total assets(6) ...............

8.0%

8.0%

8.4%

7.2%

Tier 1 capital as a percentage of risk-weighted assets(7) ............

6.8%

6.8%

7.9%

6.9%

Capital ratio(8) .............................................................................

13.1%

13.1%

14.8%

12.7%

Credit quality data:


Total performing loans...............................................................

US$ 2,609.1

Q 19,909.9

Q 14,798.4

Total non-performing loans .......................................................

14.9

113.5

146.3

86.6

Total loans ..................................................................................

2,623.9

20,023.3

14,944.8

10,263.5

Loans graded C, D and E(9)..............................................


Allowance for loan losses ..........................................................

26.9
US$

23.7

205.4
Q

180.8

Q 10,176.9

220.4
Q

157.7

133.0
Q

110.2

_____________________
(1)

(2)
(3)
(4)

(5)

(6)
(7)
(8)

(9)

Data expressed in U.S. dollars has been translated at the rate of Q7.6310 per US$1.00, reported by the Guatemalan Central
Bank on December 31, 2007. See Risk Factors and Exchange Rates and Currency.
Net income for the period divided by the average of the end of period and end of prior period total assets.
Net income for the period divided by the average of the end of period and end of prior period total shareholders equity.
Represents financial margin divided by average interest-earning assets. Average interest-earning assets are determined on
an annualized basis, based on beginning and end-of- monthly balances.
Refers to the periods total administrative expenses (less loan loss provisions) divided by the periods total operating
income.
Refers to the end of period shareholders equity divided by the end of period total assets.
Refers to the end of period Tier 1 capital divided by the end of period risk-weighted assets.
Refers to the end of period net capital as a percentage of risk-weighted assets. Our Capital Ratio on an unconsolidated basis
as of December 31, 2007, 2006 and 2005 was 14.1%, 14.5%, and 11.9%, respectively, which was, in each instance, above
the regulatory requirement of 10.0%.
Refers to our loan portfolio classified pursuant to the regulations of the Superintendency of Banks, which provides that
100% of any loan portfolio must be graded on a scale ranging from A (highest quality) through E (lowest quality) and
must be reserved in accordance with the specific reserve requirements. See Selected Statistical InformationGrading of
Loan Portfolio.

38

Credit Quality Ratios


As of December 31,
2007
2006
2005
Allowance for loan losses as a percentage of total loans(1) .........................................
Allowance for loan losses as a percentage of total non-performing loans(2)...............
Allowance for loan losses as a percentage of loans graded C, D and E(3)........
Total non-performing loans as a percentage of total loans(4).......................................

0.9%
159.3%
88.0%
0.6%

1.1%
107.8%
71.6%
1.0%

________________
(1)
Refers to the end of period allowance for loan losses divided by the end of period total loans.
(2)
Refers to the end of period allowance for loan losses divided by the end of period non-performing loans.
(3)
Refers to the end of period allowance for loan losses divided by the end of period loans graded C, D and E.
(4)
Refers to the end of period total non-performing loans divided by the end of period total loans.

39

1.1%
127.2%
82.8%
0.8%

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF


OPERATIONS
The financial information presented in this section as of and for the years ended December 31, 2007, 2006,
and 2005 should be read in conjunction with our Financial Statements. Our Financial Statements have been
prepared in accordance with Guatemalan Banking GAAP, which differ from U.S. GAAP and SEC guidelines
applicable to banking institutions in the United States. No reconciliation of any of our Financial Statements to U.S.
GAAP has been prepared for this offering circular. Any such reconciliation would result in material differences.
See Presentation of Certain Financial and Other Information and Annex ASummary of Significant Differences
Between Guatemalan Banking GAAP and U.S. GAAP for a description of the principal differences between
Guatemalan Banking GAAP and U.S. GAAP.
Overview
We are the largest bank in Guatemala and, after giving effect to our acquisition of BanQuetzal, we believe
that we are the largest privately owned bank in Central America (excluding Panama), based on our total assets of
Q38,353.6 million as of December 31, 2007. As of December 31, 2007, we operated through a nationwide network
of more than 1,850 points of service, which includes branches, minibranches, booths, kiosks and access to more than
1,370 ATMs.
Economic Environment
During 2007, the increase of investments and consumption, underpinned by the implementation of the Free
Trade Agreement of Central American countries and the Dominican Republic with the United States (CAFTADR) and double-digit remittance and tourism growth, led to an acceleration of GDP growth. The Guatemalan
government estimates that GDP grew 5.5% for the year 2007. Guatemalas international net reserves were
approximately US$4.3 billion by December 2007. Although, in Guatemala, election years such as 2007 historically
have experienced a decline in investments and commercial activity, during 2007 the Guatemalan economy
maintained investment and consumption momentum and sound macroeconomic indicators through the November
2007 elections. Inflation for 2007 was 8.7% (compared to 5.8% in 2006 but below the 9% in 2005), while current
fiscal deficit was 1.5% of GDP.
On July 1, 2006, CAFTA-DR came into effect for Guatemala. The other countries party to CAFTA-DR are
the United States, Costa Rica, El Salvador, Honduras, Nicaragua and the Dominican Republic. During 2006, the
Guatemalan economy grew across all sectors and GDP grew 5.0%. Growth was led by more robust domestic
demand, as private consumption expanded and gross fixed capital investments grew. Private sector consumption
was strong, backed by large remittance inflows, favorable domestic credit conditions and declining inflation.
Inflation for 2006 was 5.8% (compared to 9.0% in 2005) and the fiscal deficit was 1.6% of GDP (compared to 1.5%
in 2005). The increase in the fiscal deficit was due to the damages caused by Hurricane Stan, which brought an
increase in unbudgeted government spending. As a result of Guatemalas positive macroeconomic indicators and
political stability in 2006, Standard & Poors raised its long-term foreign currency sovereign credit rating on
Guatemala to BB from BB- and its long-term local currency rating to BB+ from BB and Fitch Ratings revised
upwards the sovereign credit rating for Guatemala from BB- to BB+.
During 2005, the Guatemalan economy recorded a 3.5% growth in GDP, the highest increase since 2001.
Private consumption increased by 4.3% due to favorable export prices and an increase in family remittances. The
foregoing, paired with increased capital inflows, triggered an appreciation of the local currency. Inflation in 2005
was 9.0% and the fiscal deficit reached 1.5% due to the governments efforts to increase public investment.
Effects of Changes in Interest Rates
Interest rate fluctuations in Guatemala have an effect on our interest income and interest expense. Changes
in market interest rates may lead to temporary repricing gaps between our interest-earning assets and our interestbearing liabilities. Almost all our interest-earning assets and interest-bearing liabilities as of December 31, 2007,
carry floating interest rates or are subject to frequent repricing. Upward or downward adjustments of the interest
40

rates on our assets and deposit liabilities generally occur approximately every 90 days. The repricing generally
limits the effects of net exposures that regularly occur upon movements in interest rates.
The table below presents the weighted average interest rates on local currency assets and local currency
liabilities of the Guatemalan banking industry and the Bank, for the periods indicated. The table also presents the
weighted average of the seven-day deposit rate published by the Guatemalan Central Bank.
Interest RatesLocal Currency
16.00%

14.00%

12.00%
Assets of the Guatemalan Banking
Industry

10.00%

Liabilities of the Guatemalan Banking


Industry
8.00%

Assets of the Bank

6.00%

Liabilities of the Bank

4.00%

Guatemalan Central Bank (7 days


deposits)

2.00%

0.00%
2005

2006

2007

The Guatemalan banking industry generally does not establish its interest rates by reference to a benchmark
rate. However, the weighted average interest rates on local currency of the Guatemalan banking industry are
somewhat influenced by the rate for seven-day deposits published by the Guatemalan Central Bank. The weighted
average of this seven-day deposit rate has shown an upward trend to 6.50% for 2007, from 5.00% for 2006 and
4.25% for 2005.
The Guatemalan banking industrys weighted average interest rate paid on local currency assets generally
has shown a downward trend prior to 2007, with rates decreasing to 12.76% for 2006 from 13.03% for 2005. In
2007, the rate increased slightly to 12.83%. Our weighted average interest rate on local currency assets was 8.90%
for 2007, 7.96% for 2006 and 9.42% for 2005. In both local and foreign currency, our weighted average interest rate
on assets is lower than the average interest rate of the Guatemalan banking industry due to our significant corporate
focus. Our corporate sector loan portfolio was 81.3%, 80.0% and 80.9% of our total loan portfolio as of December
31, 2007, 2006 and 2005, respectively.
The Guatemalan banking industrys weighted average interest rate on local currency liabilities has shown
an upward trend to 4.91% for 2007, from 4.72% for 2006 and 4.59% for 2005. Our weighted average interest rate
on local currency liabilities decreased to 3.48% for 2007, from 3.52% for 2006 and 4.35% for 2005. This decrease
is due to our acquisition of Banco de Occidentes operations and the deposits of Banco de Comercio, banks which
had diversified sources of low-cost deposits, our increased presence in the retail sector and our strong franchise and
brand recognition.
Interest RatesForeign Currency
The table below presents the weighted average rates on foreign currency assets and foreign currency
liabilities of the Guatemalan banking industry as a whole and the Bank for the periods indicated.
41

9.00%

8.00%

7.00%
Assets of the Guatemalan Banking
Industry
6.00%

Liabilities of the Guatemalan Banking


Industry
Assets of the Bank

5.00%

Liabilities of the Bank


4.00%

3.00%

2.00%

1.00%

0.00%
2005

2006

2007

The Guatemalan banking industrys weighted average interest rate on foreign currency assets has shown an
upward trend to 7.65% for 2007 from 7.53% for 2006 and 7.14% for 2005. Our weighted average interest rate on
foreign currency assets was 7.30% for 2007, 6.64% for 2006 and 6.83% for 2005.
The Guatemalan banking industrys weighted average interest rates on foreign currency liabilities has
generally shown an upward trend to 3.82% for 2007 from 3.70% for 2006 and 3.27% for 2005. Our weighted
average interest rate on foreign currency liabilities has also increased to 4.91% for 2007 from 4.48% for 2006 and
3.79% for 2005, reflecting an increase of the international interest rates.
Effect of Family Remittances
Total family remittances to Guatemala from abroad amounted to US$4,128.4 million for 2007, US$3,575.3
million in 2006 and US$2,959.5 million in 2005. Our business strategy is focused on continuing to capitalize on a
large part of these flows by offering specialized products to the recipients of remittances. The revenue we earn from
family remittances consists of commissions on foreign exchange transactions, fees for money orders and other
related fees. We processed US$981.7 million in family remittances during 2007 (23.8% of the market), US$739.0
million during 2006 (20.6% share of the market) and US$590.7 million during 2005 (19.7% share of the market).
Management estimates that in recent periods the number of customers using our family remittance services has
increased by approximately 80,000 customers during 2007, by 75,000 in 2006 and by 50,000 in 2005.
Effect of Acquisitions
Recent acquisitions have affected our results of operations and the comparability of our financial
statements. Our recent acquisitions as described below:

42

Banco de Occidente
In March 2006, we acquired 72.0% of the shares of Banco de Occidente and in November 2006, we merged
Banco de Occidente into Banco Industrial and began consolidating its results of operation in our financial
statements. As of March 31, 2006, Banco de Occidente, the oldest and sixth largest Guatemalan bank, had total
assets of Q4,372.2 million, total deposits of Q3,169.8 million and shareholders equity of Q456.0 million. At the
time of its acquisition, Banco de Occidente had 27 branches, particularly located in western Guatemala, a diversified
deposit base and a strong presence in the corporate lending and family remittance market. Subsequently, we closed
five of the 27 branches.
Banco de Comercio
On January 16, 2007, certain assets and liabilities of Banco de Comercio were transferred to us at the
request of the Superintendency of Banks when Banco de Comercios operations were suspended by the Monetary
Board on January 12, 2007 due to the banks inability to service its liabilities. Pursuant to Guatemalan regulation,
the Superintendency of Banks transferred to us all of Banco de Comercios deposits in the amount of Q954.5 million
and certain other liabilities in the amount of Q14.0 million. At the same time, the Superintendency of Banks (i)
approved the transfer of all assets of Banco de Comercio to a trust, including loans in an aggregate principal amount
of Q795.9 million and government funds backing the deposits from Fondo para la Proteccin del Ahorro (FOPA) in
cash in the amount of Q360.0 million, and (ii) issued to us an investment certificate representing a beneficial interest
in the Banco de Comercio trust in a principal amount equivalent to the deposits and other liabilities transferred to us
(Q968.4 million). The trustee under the Banco de Comercio trust is our subsidiary, Financiera Industrial.
We account for our interest in the Banco de Comercio trust as a long-term investment, which amounted to
Q291.9 million as of December 31, 2007. Under Guatemalan Banking GAAP, we are not required to mark to
market our investment in the trust. In the event the fair market value of the trusts assets declines, the fair market
value of our investment in the trust may also decline. Under the terms of the trust, the return on our investment in
the Banco de Comercio trust varies from time to time based on the amount of assets in the trust and their average
rate of return. From January 16, 2007 to June 30, 2007, our return on the Banco de Comercio trust was an annual
fixed rate of 7% and, since that date, the return has been an annual fixed rate of 6%. Our investment in the Banco de
Comercio trust may be amortized through the distribution from the trust of cash, loans and other assets to us. As
assets are distributed out of the trust through such amortizations, the face value of our investment certificate is
reduced by a proportional amount. As of June 30, 2007, assets from the trust in the amount of Q453.2 million had
been transferred to us and, accordingly, our certificate of investment was reduced to Q515.2 million. As of
December 31, 2007, additional assets from the trust in the amount of Q223.3 million were transferred to us and,
accordingly, our certificate of investment was further reduced to Q291.9 million. Other than the loans of Banco de
Comercio that have been expressly transferred to us, we do not include loans from the Banco de Comercio trust in
our loan portfolio and, therefore, we do not take into account any such loans in calculating our allowances for loan
losses.
Prior to the suspension of its operations, Banco de Comercio had total assets of Q1,173.9 million, total
deposits of Q985.1 million and shareholders equity of Q126.1 million, as of November 30, 2006. Based on total
assets as of December 31, 2006, Banco de Comercio held a market share of 1.1% of the Guatemalan banking sector
and, at such date, it had 35 branches and a diversified client base consisting of small and medium sized companies
and individuals. We took over the operations of Banco de Comercios branches and subsequently closed just under
half of the 35 branches due to their proximity to our branches.
Effect of Changes in the Guatemalan Banking System
In recent years, the Guatemalan banking system has been subject to consolidation, driven by domestic
acquisitions and bankruptcies as well by acquisitions by multinational and regional banks. In 2000, Guatemala had
32 banks, two of which were subsidiaries of multinational banks. By December 2007, the Guatemalan banking
system had 21 banks, seven of which were subsidiaries of multinational banks. With respect to bankruptcies, seven
troubled banks have ceased operations and been subject to liquidation or absorption by other banks since 1998. In
recent years, the Superintendency of Banks has improved regulation and oversight. It has also conducted orderly
liquidations and averted bank runs in recent interventions of Banco de Comercio on January 12, 2007 and Banco del
43

Caf in October 2006. With respect to acquisitions by foreign banks, multinational banks have generally focused on
establishing a Central American presence and have paid premiums for regional acquisitions when compared to local
operations. We believe that there will be further consolidation due, in part, to the continued operation of several
banks with persistently low levels of activity.
Critical Accounting Policies
Our financial statements have been prepared in accordance with Guatemalan Banking GAAP. On a nonconsolidated basis, our subsidiaries use different accounting principles. Accounting principles accepted in
Guatemala are stated more generally than under U.S. GAAP. In addition, the Superintendency of Banks has issued
the Financial Institutions Accounting Instructions Manual to all financial institutions operating in Guatemala, which
sets forth accounting guidelines for, among others, allowances for credit losses, loans, interest, investments in
affiliates, and securities under repurchase agreements, and defines the format of the financial statements and
disclosures to be made in the related notes.
We and Financiera Industrial comply with the Guatemalan Banking GAAP. Westrust Bank adheres to the
International Financial Reporting Standards (IFRS) promulgated by the International Standard Board. Contecnica
complies with generally accepted accounting principles in Guatemala. In addition, because Contecnica is an entity
that is part of a Guatemalan financial group, it is subject to the Financial Institutions Accounting Standards Manual
issued by the Superintendency of Banks as well as applicable regulations of the Superintendency of Banks. See note
4 in our Financial Statements.
The following is a description of certain key accounting policies on which our financial condition and
results of operations are dependent. These key accounting policies generally involve quantitative analyses or are
based on subjective judgments or decisions. In the opinion of our management, the most critical accounting policies
under Guatemalan Banking GAAP are those related to the establishment of allowances for loan losses and interest
income recognition. For a full description of our accounting policies, see note 4 to our Financial Statements
included elsewhere in this offering circular.
Allowance for Loan Losses Related to Loan Portfolio
The rules for classification and rating of loan portfolios of Guatemalan banks and the creation of related
reserves are set forth in the Regulation for Credit Exposure Management, Resolution No. JM-93-2005, dated May
23, 2005, issued by the Monetary Board. These rules take into account the delay in the payment of principal and a
risk assessment on a client-by-client basis. In the event that we record allowances in excess of the maximum
amount permitted as deductible expenses under Guatemalan Banking GAAP, we must record the excess against
shareholders equity.
Since 2006, Contecnica records loan allowances in accordance with the Regulation for Credit Exposure
Management. Prior to 2006, Contecnica recorded allowances directly against shareholders equity determined on
the basis of the risk of recovery of its loan portfolio.
The determination of the allowance for loan losses requires managements judgment. The loan loss reserve
calculation that results from using estimated loss percentages and mandatory loss percentages may not be indicative
of future losses. Differences between the estimate of the loan loss reserve and the actual loss will be reflected in our
financial statements at the time of charge-off. See Selected Statistical InformationGrading of Loan Portfolio
and Allowance for Loan Losses.
Interest Income Recognition
Under Guatemalan Banking GAAP, which is applied by the Bank and Financiera Industrial, revenue from
interest income, subject to certain exceptions, is not recorded in the income statement until it is effectively collected
even though it has been accrued. Interest that has been collected but has not accrued is recorded under liabilities as
deferred income. The exceptions are interest on debt securities issued by the Guatemalan Central Bank and by

44

certain other issuers approved by the Monetary Board, which have amortization funds controlled by the Guatemalan
Central Bank, in which case the interest is recorded as revenue when accrued, even though not collected.
Westrust Bank and Contecnica record interest income based on the accrual method.
Results of Operations
Results of Operations for the Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006
The following table shows the principal components of our net income for the years ended December 31,
2007 and 2006.

For the year ended December 31,


2007
2006
(Q millions)
Interest income .........................................
Interest expense ........................................
Net interest income...................................

2,474.7
1,351.9
1,122.8

Percentage Change
(%)

1,770.2
1,026.3
743.9

39.8%
31.7
50.9

Income from services, net.........................


Total operating income.............................

425.9
1,548.7

300.5
1,044.4

41.7
48.3

Administrative expenses:
Loan loss provisions .............................
Other administrative expenses..............
Total administrative expenses...........

123.4
879.0
1,002.4

39.6
657.6
697.2

211.6
33.7
43.8

Net operating income ...............................

546.3

347.1

57.4

Extraordinary income, net ........................


Prior period income and expenses, net .....

6.1
6.1

21.0
2.8

-71.0
117.9

Income before income tax ........................


Income tax ................................................
Net income...............................................

558.5
84.5
473.9

370.9
48.1
322.80

50.6
75.7
46.8%

An analysis of the components set forth in the foregoing table follows.


Interest Income
Interest income increased 39.8% to Q2,474.7 million for 2007 from Q1,770.2 million for 2006. Interest
income includes interest from loans that we make, interest from investments in securities and interest from deposits
in other banks as well as interest recorded in connection with premiums paid on securities that we have purchased.
The increase in interest income was principally due to the increase in our trade-related loan portfolio after the
implementation of the CAFTA-DR, our investment in the Banco de Comercio trust and the increase of interest rates
on local and foreign currency assets. The principal components of interest income in terms of local and foreign
currency are discussed below.

45

Local currency transactions


Interest income from local currency denominated assets increased 47.0% to Q1,495.7 million for 2007 from
Q1,017.3 million for 2006. This increase resulted principally from the 39.3% increase in the average balance of our
local currency investment portfolio to Q9,379.9 million from Q6,731.2 million and, to a lesser extent, the 22.4%
increase in the average balance of our local currency loan portfolio to Q7,356.9 million from Q6,009.6 million. Our
investment portfolio grew principally due to the beneficial interest we acquired in January 2007 in the amount of
Q968.4 million in the Banco de Comercio trust. Our weighted average interest rate on local currency assets
increased to 8.90% for 2007 from 7.96% for 2006, reflecting increases of the Guatemalan seven-day deposit rate
during 2007.
Foreign currency transactions
Interest income from foreign currency denominated assets increased 30.1% to Q979.1 million for 2007
from Q752.8 million for 2006. This increase resulted principally from the 36.6% increase in the average balance of
our foreign currency loan portfolio to Q9,913.8 million for 2007, from Q7,258.5 million for the same period in
2006, which was partially offset by a 26.6% decrease in the average balance of our foreign currency investment
portfolio to Q2,230.4 million for 2007, from Q3,038.2 million for 2006. The increase in our foreign currency loan
portfolio for 2007 was principally due to the increase in trade-related loans to Q6,213.8 million from Q4,187.6
million, as of December 2007 and 2006, respectively, following the implementation of the CAFTA-DR, as well as
an increase in loans to the corporate sector in Mexico and Central America to Q2,238.8 million from Q1,319.8
million. Our weighted average interest rate on foreign currency assets increased to 7.30% for 2007 from 6.64% for
2006, reflecting increases in international interest rates and inflationary pressure. In addition, we began offering
international factoring services beginning on the third quarter of 2007.
Interest Expense
Interest expense increased 31.7% to Q1,351.9 million for 2007 from Q1,026.3 million for 2006. Interest
expense includes interest paid on:

demand, time and savings deposits;

loans from other financial institutions (which consist of interbank loans, including securitized loans
and trade and working capital lines of credit in foreign currency); and

financial obligations (which consist of our local and foreign currency bond issuances).

The increase in interest expense in 2007 was principally due to the growth of our deposit base and the increase of
our weighted average interest rate on foreign currency liabilities. The principal components of our interest expense
in terms of local and foreign currency are discussed below.
Local currency transactions
Interest expense on local currency denominated liabilities increased 33.6% to Q706.1 million for 2007 from
Q528.5 million for 2006. This increase resulted principally from a 33.4% increase in the average balance of our
local currency deposit base to Q17,813.7 million for 2007 from Q13,356.4 million for 2006, which reflects the
migration of customers to us from Banco del Caf (following its closure in October 2006) and the transfer to us of
deposits from Banco de Comercio (following its closure in January 2007). Our weighted average interest rate on
local currency liabilities to 3.48% for 2007 from 3.52% for 2006, reflecting the lower cost of deposits acquired from
Banco de Occidente and Banco de Comercio, both of which had a wide and diversified deposit bases.
Foreign currency transactions
Interest expense on foreign currency denominated liabilities increased 29.7% to Q645.8 million for 2007
from Q497.8 million for 2006. This increase resulted mainly from an increase of 31.6% in the average balance of
our foreign currency denominated liabilities with other financial institutions (consisting primarily of trade-related
46

loans) to Q4,799.0 million for 2007 from Q3,648.0 for 2006. Our weighted average interest rate on foreign currency
liabilities increased to 4.91% for 2007 from 4.48% for 2006, reflecting increases in international interest rates.
Income from Services, Net
Income from services, net increased 41.7% to Q425.9 million for 2007 from Q300.5 million for 2006.
Income from services, net consists of foreign exchange commissions and fees from account administration, thirdparty collections, fiduciary services, third-party use of our telecommunications network, credit cards, fees for money
orders and loan syndication fees. The increase in net income from services reflects our strategy to become more
effective in the charging and collection of fees as well as the increase in our customer base. The largest components
of the increase in income from services, net are described below.
Our foreign exchange commissions and related fees were Q76.2 million (or 17.9% of income from
services, net) for 2007 compared with Q58.9 million (or 19.6% of income from services, net) for 2006, an increase
of 29.4%. This increase was primarily the result of higher volumes of foreign exchange transactions, mainly in the
retail sector. We processed more than US$981.7 million in family remittances in 2007 compared to approximately
US$739.0 million in 2006.
Letters of credit fees and collections were Q34.1 million (or 8.0%of income from services, net) for 2007,
compared to Q19.7 million (or 6.5% of income from services, net) for 2006, an increase of 73.1%. This increase
was due to an increase in trade-related activities following the implementation of the CAFTA-DR.
Fees from returned checks were Q36.1 million (or 8.5% of income from services, net) for 2007, compared
to Q22.2 million (or 7.4% of income from services, net) for 2006, an increase of 62.6%. This increase reflects our
new policy for the collection of fees on returned checks.
Fees from structuring of syndicated loans and fiduciary services were Q56.4 million (or 13.3% of income
from services, net) for 2007 compared to Q43.1 million (or 14.3% of income from services, net) for 2006, an
increase of 30.9%, due to an increase in corporate loans and fiduciary services.
Administrative Expenses
Administrative expenses increased 43.8% to Q1,002.4 million for 2007 from Q697.2 million for 2006.
Administrative expenses include, among other expenses, salaries and wages, depreciation and amortization, loan
loss provisions (which are recorded above operating income under U.S. GAAP) and marketing expenses. The
increase in administrative expenses was primarily the result of increased loan loss provisions and higher expenses
related to the expansion of our operations and branch network.

Salaries and wages, the largest component of administrative expenses, increased 41.2% to Q367.7
million for 2007 from Q260.5 million for 2006 due to the transfer of employees from Banco de
Occidente in late 2006 and from Banco de Comercio in 2007.

Loan loss provisions increased 211.6% to Q123.4 million for 2007 from Q39.6 million for 2006. Loan
loss provisions consist of funds set aside by us to cover losses derived from non-performing loans.
This increase reflected the application of provisioning policies in connection with our entry into new
market segments, such as the retail segment, and our acquisition of the loan portfolio of Banco de
Occidente.

Depreciation and amortization expenses increased 20.0% to Q116.2 million for 2007, compared to
Q96.8 million for 2006. This increase was primarily the result of the increase in buildings and other
fixed assets in connection with our branch network expansion.

Extraordinary Income, Net


Extraordinary income, net decreased 71.0% to Q6.1 million for 2007 from Q21.0 million for 2006.
Extraordinary income includes gains or losses on the recovery of non-performing loans and on sales of foreclosed
assets and fixed assets, net of related expenses, including discounts and expenses incurred in the adjudication of
47

foreclosed assets. The decrease in extraordinary income, net was principally due to losses in the amount of Q20.7
million in 2007 from the sale of foreclosed assets, consisting mainly of real estate related to a loan acquired from
Banco de Occidente.
Income Taxes
Income before taxes increased 50.6% to Q558.5 million for 2007 from Q370.9 million for 2006. Our
income tax expense increased 75.7% to Q84.5 million for 2007 from Q48.1 million for 2006 due to the increase in
operating income.
The statutory rate of Guatemalan corporate income tax, which applies to the Bank, is 31.0%. The income
tax rate applicable to our subsidiaries Financiera Industrial and Contecnica is 5%. Our Bahamian subsidiary,
Westrust Bank, is not subject to Guatemalan or other income tax. See note 21 of our Financial Statements.
Generally, our effective rate is lower than our statutory tax rate because we invest in certain non-taxable securities
that generate non-taxable income and our subsidiaries are subject to lower tax rates than the Bank. See Selected
Statistical InformationAverage Assets and Interest Rates.
Our effective tax rate increased to 15.1% for 2007, compared to 13.0% for 2006. The effective tax rate was
higher for 2007 due to a lower portion of non-taxable investment securities among our total assets. Investments in
tax-free bonds represented 84.8% of our total investments as of December 31, 2007 compared to 96.4% as of 2006.
Net Income
Our net income increased 46.8% to Q473.9 million for 2007 from Q322.8 million for 2006. The increase
in our net income was principally attributable, on the income side, to higher interest income derived from the growth
of our loans and investments and, on the cost side, to a reduction of our funding costs due to lower interest rates,
which was partially offset by the growth in deposits. Furthermore, we continued our penetration into retail lending,
a sector characterized by a wider interest spread than corporate loans and higher loan loss provisions.

48

Results of Operations for the Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005
The following table shows the principal components of our net income for the years ended December 31,
2006 and 2005.
For the year ended December 31,
2005
2006
(Q millions)
Interest income ...............................................
Interest expense ..............................................
Net interest income.........................................

Percentage Change
(%)

18.2%
24.8
10.0

1,770.2
1,026.3
743.9

Q 1,498.2
822.1
676.1

Income from services, net .............................


Total operating income...................................

300.5
1,044.4

210.1
886.2

43.0
17.9

Administrative expenses:
Loan loss provisions..................................
Other administrative expenses...................
Total administrative expenses...............

39.6
657.6
697.2

48.8
534.7
583.6

(18.9)
23.0
19.5

Net operating income .....................................

347.1

302.7

14.7

Extraordinary income, net ..............................


Prior period income and expenses, net ...........

21.0
2.8

25.9
2.3

(18.9)
21.7

Income before income tax ..............................


Income tax ......................................................
Net income.....................................................

370.9
48.1
322.8

330.9
34.0
296.9

12.1
41.5
8.7%

An analysis of the components set forth in the foregoing table follows.


Interest Income
Interest income increased 18.2% to Q1,770.2 million for 2006 from Q1,498.2 million for 2005. The
increase was mainly due to the increase of our loan portfolio as a result of our penetration into new market segments
and the acquisition of Banco de Occidente.
Local currency transactions
Interest income on local currency denominated assets increased 16.0% to Q1,017.3 million for 2006 from
Q877.1 million for 2005. This increase resulted principally from the 43.9% increase in the average balance of our
local currency loan portfolio to Q6,009.6 million in 2006 from Q4,175.1 million in 2005 and the 34.3% increase in
the average balance of our local currency investment portfolio to Q6,731.2 million in 2006 from Q5,013.5 million in
2005. The growth in our loan portfolio was due to our acquisition of Banco de Occidente in March 2006 and the
migration of customers to us following the closure of Banco del Caf in October 2006. Our weighted average
interest rate on local currency assets decreased to 7.96% in 2006 from 9.42% in 2005, reflecting Guatemalas stable
inflation environment in 2006.
Foreign currency transactions
Interest income on foreign currency denominated assets increased 21.2% to Q752.8 million for 2006 from
Q621.1 million for 2005. This increase resulted principally from the 39.9% increase in the average balance of our
49

foreign currency denominated loan portfolio to Q7,258.5 million for 2006 from Q5,189.2 million for 2005,
reflecting an increase of trade-related loans following the implementation of the CAFTA-DR in July 2006 as well as
our acquisition of Banco de Occidente in March 2006. Our weighted average interest rate on foreign currency assets
decreased to 6.64% in 2006 from 6.83% in 2005, reflecting a more competitive lending environment in which
corporate clients favored local currency financing in response to lower local currency interest rates.
Interest Expense
Interest expense increased 24.8% to Q1,026.3 million for 2006 from Q822.1 million for 2005. This
increase was principally due to the growth of our deposit base following the acquisition of Banco de Occidente and
the increase of our foreign currency subordinated debt and long-term debt.
Local currency transactions
Interest expense on local currency denominated liabilities increased 12.3% to Q528.5 million for 2006 from
Q470.7 million for 2005. This increase resulted principally from the 41.8% growth of the average balance of local
currency deposits to Q13,356.4 million in 2006 from Q9,417.7 million in 2005, especially time deposits, and the
35.2% growth of our debt obligations, principally bonds. Deposits grew as a result of our acquisition of Banco de
Occidente. Our debt grew principally due to our issuance of new bonds, which resulted in a 28.7% increase in the
principal amount of outstanding bonds to Q1,643.4 million in 2006 compared to Q1,276.7 million in 2005. Our
weighted average interest rate on local currency liabilities decreased to 3.52% in 2006 from 4.35% in 2005,
reflecting a stable inflation environment.
Foreign currency transactions
Interest expense on foreign currency denominated liabilities increased 41.7% to Q497.8 million for 2006
from Q351.4 million for 2005. This increase was principally due to (i) a 37.2% growth in the average balance of
foreign currency liabilities with other financial institutions to Q3,648.0 million for 2006 from Q2,658 million for
2005 and (ii) a 16.0% increase in the average balance of foreign currency deposits increased to Q6,548.5 million for
2006 from Q5,650.4 million for 2005. Interest expense related to liabilities with other financial institutions grew in
2006 as we began servicing our US$200.0 million securitized diversified payment rights (DPR) facility. In addition,
in March 2006, we entered into two subordinated loans, one with the Central American Bank For Economic
Integration (CABEI) for Q305.2 million (US$40.0 million) and the other with the International Finance
Corporation (IFC) for Q114.5 million (US$15.0 million). Our weighted average interest rate on foreign currency
liabilities increased to 4.48% in 2006 from 3.79% in 2005, reflecting an increase in international interest rates.
Income from Services, Net
Income from services, net increased 43.0% to Q300.5 million for 2006 from Q210.1 million for 2005. The
largest components of the increase in income from services, net are described below.
Credit card fees were Q47.6 million (or 15.8% of income from services, net) for 2006, compared to Q37.2
million (or 17.7% of income from services, net) for 2005, an increase of 28.0%. The higher level of credit card fees
charged during 2006 was the result of higher usage levels by our customers. The increase in credit cards was
principally due to our November 2005 campaign to promote the MasterCard credit card. By year end 2006, we had
gained a 15% share of the MasterCard market in Guatemala, as compared to a market share of 7% at year end 2005.
Our foreign exchange commissions and related fees were Q58.9 million (or 19.6% of income from
services, net) for 2006 compared with Q51.1 million (or 24.3% of income from services, net) for 2005, an increase
of 15.3%. This increase was primarily the result of higher volumes of foreign exchange transactions, mainly family
remittances. In 2006, we expanded the number of our remittance collectors from ten to 21 and now work with
MoneyGram and Bancomer Transfer Services, among others.

50

Fees from structuring of syndicated loans and fiduciary services were Q43.1 million for 2006, compared to
Q39.2 million for 2005, an increase of 10.0%, due to an increase in corporate loan transactions and fiduciary
services.
Administrative Expenses
Administrative expenses increased 19.5% to Q697.2 million for 2006 from Q583.6 million for 2005. This
increase was primarily due to the following factors:

Salary and wage expenses increased 25.1% to Q260.5 million for 2006 from Q208.3 million for 2005
as a result of a 21.0% increase in the number of employees to 3,202 as of year-end 2006 from 2,368 as
of year-end 2005. The growth in personnel was due principally to the addition of personnel from
Banco de Occidente. Our efficiency ratio was 63.0% in 2006 compared to 60.3% in 2005.

Depreciation and amortization expenses increased 87.2% to Q96.8 million for 2006 compared to Q51.7
million for 2005. This increase was the result of an increase in fixed assets in connection with our own
branch network expansion as well as the acquisition of Banco de Occidente.

Other service expenses increased by 25.0% to Q141.3 million for 2006 from Q113.0 million for 2005.
This increase was primarily the result of higher expenses related to the growth in branches and higher
operating volume.

Extraordinary Income, Net


Extraordinary income, net decreased 19.1% to Q21.0 million in 2006 from Q25.9 million in 2005. This
decrease was principally due to the decrease in revenues from recoveries of written-off loans during 2006.
Income Taxes
Income before taxes increased 12.1% to Q370.9 million for 2006 from Q330.9 million for 2005. Our
income tax expense increased 41.8% to Q48.2 million for 2006 from Q34.0 million for 2005 due to the increase in
operating income. Our effective tax rate increased to 13.0% for 2006, compared to 10.3% for 2005. The effective
tax rate was higher for 2006 due to an increase in taxable income. See Selected Statistical InformationAverage
Assets and Interest Rates.
Net Income
Our net income increased 8.7% to Q322.8 million for 2006 from Q296.9 million for 2005. This increase
was principally due to the asset growth resulting from the expansion of our loan portfolio and the increase in net
income from services. In addition to asset growth resulting from our acquisition of Banco de Occidente, we
experienced organic growth in assets due to positive economic conditions.
Financial Position
Total Assets
As of December 31, 2007, we had total assets of Q38,353.6 million, compared to Q31,941.9 million as of
December 31, 2006, representing an increase of 20.1%. This increase was primarily attributable to (i) a 34.2%
increase in our net loan portfolio to Q19,842.5 million as of December 31, 2007 from Q14,787.0 million as of
December 31, 2006, related to an increase in trade-related loans associated with the implementation of the CAFTADR and the transfer to us of certain Banco de Comercio loans, and (ii) a 6.6% increase in our long term investments
to Q9,316.2 million as of December 31, 2007 from Q8,742.9 million as of December 31, 2006, due to our
investment in the Banco de Comercio trust.
As of December 31, 2006, we had total assets of Q31,941.9 million, compared to Q22,502.8 million as of
December 31, 2005, representing an increase of 41.9%. This increase was primarily attributable to (i) a 45.6%
51

increase in our net loan portfolio to Q14,787.0 million as of December 31, 2006 from Q10,153.3 million as of
December 31, 2005 related to the acquisition of Banco de Occidente and an increase in trade-related loans following
the implementation of the CAFTA-DR, and (ii) a 36.8% increase in our long term investments to Q8,742.9 million
as of December 31, 2006, from Q6,388.8 million as of December 31, 2005, related to our increased investment in
sovereign securities.
Net Loan Portfolio
We had a net loan portfolio of Q19,842.5 million as of December 31, 2007, compared to Q14,787.0 million
as of December 31, 2006, representing an increase of 34.2%. This increase was primarily the result of 41.4%
increase in our foreign currency net loan portfolio to Q11,721.7 million as of December 31, 2007 from Q8,290.8
million as of December 31, 2006, as a result increased trade financing and increased lending activity in Mexico and
Central America.
We had a net loan portfolio of Q14,787.0 million as of December 31, 2006, compared to Q10,153.3 million as
of December 31, 2005, representing an increase of 45.6%. This increase was primarily the result of a 46.3% increase in
our foreign currency net loan portfolio to Q8,290.8 million as of December 31, 2006, from Q5,666.6 million as of
December 31, 2005, which resulted from the acquisition of Banco de Occidente and increased trade financing.
Total Investments
Total investments consist of temporary investments, which are investments in securities acquired for the
purpose of holding them in our portfolio for less than a year, and long-term investments, which are investments in
securities acquired for the purpose of holding them until their maturity or for more than one year.
We had total investments of Q11,084.7 million as of December 31, 2007, compared to Q10,846.3 million
as of December 31, 2006, representing an increase of 2.2%. This increase was primarily the result of a 6.6%
increase of our long term investments to Q9,316.2 million as of December 31, 2007 from Q8,742.9 million as of
December 31, 2006. This increase was mainly due to our investment in the Banco de Comercio trust.
We had total investments of Q10,846.3 million as of December 31, 2006, compared to Q8,408.9 million as
of December 31, 2005, representing an increase of 29.0%. This increase was primarily the result of a 56.5%
increase in our local currency investments to Q8,129.0 million as of December 31, 2006 from Q5,195.7 million as of
December 31, 2005, due to new investments in bonds issued by Guatemalan and Central American governments.

52

Liabilities
The following table sets forth our liabilities as well as the percentages each item represents of total
liabilities as of December 31, 2007, 2006 and 2005.
As of
December 31, 2007
Balance
% of total
Demand deposits ........................
Time deposits .............................
Savings deposits.........................
Other deposits ............................
Total deposits............................
Liabilities with other financial
institutions(1) ............................
Financial obligations ..................
Financial expenses .....................
Accounts payable .......................
Provisions...................................
Deferred credits..........................
Other credit balances..................
Total liabilities ..........................
______________
(1) Interbank loans.

As of
December 31, 2006
Balance
% of total
(Q millions, except percentages)

As of
December 31, 2005
Balance
% of total

Q11,469.9
10,159.4
4,564.3
156.9
26,350.5

32.5%
28.8%
12.9%
0.4%
74.7%

Q 9,614.2
8,868.8
3,851.0
97.3
22,431.3

32.8%
30.3%
13.2%
0.3%
76.6%

Q 6,648.4
7,261.7
1,956.6
43.7
15,910.5

31.8%
34.8%
9.4%
0.2%
76.2%

6,213.8
1,917.5
145.6
564.9
12.7
29.0
47.9
Q35,281.9

17.6%
5.4%
0.4%
1.6%
0.0%
0.1%
0.1%
100.0%

4,187.6
1,748.1
118.4
711.8
9.8
17.0
48.2
Q 29,272.1

14.3%
6.0%
0.4%
2.4%
0.0%
0.1%
0.2%
100.0%

3,225.6
1,357.0
84.6
248.9
7.5
10.9
46.8
Q 20,891.8

15.4%
6.5%
0.4%
1.2%
0.0%
0.1%
0.2%
100.0%

Total Liabilities
We had total liabilities of Q35,281.9 million as of December 31, 2007, compared to Q29,272.1 million as
of December 31, 2006, representing an increase of 20.5%. This increase was primarily attributable to a 17.5%
increase in our total deposits and a 48.4% increase in our liabilities with other financial institutions (interbank
loans).
We had total liabilities of Q29,272.1 million as of December 31, 2006 compared to Q20,891.8 million as of
December 31, 2005, representing an increase of 40.1%. This increase was primarily attributable to a 41.0% increase
of our total deposits and a 29.8% increase in our liabilities with other financial institutions.
Deposits
As of December 31, 2007, we had total deposits of Q26,350.5 million compared to Q22,431.3 million as of
December 31, 2006, an increase of 17.5%. This increase was primarily the result of a 19.3% increase in our demand
deposits and a 14.6% increase in our time deposits, which resulted from the transfer of Banco de Comercios
deposits in the amount of Q954.5 million and the development of new savings products in the remittances and lower
income segments.
As of December 31, 2006, we had total deposits of Q22,431.3 million compared to Q15,910.5 million as of
December 31, 2005, an increase of 41.0%. This increase was primarily the result of an increase of a 44.6% increase
in our demand deposits and a 96.8% increase in our savings deposits, which resulted from the acquisition of Banco
de Occidente and stable economic conditions.
Liabilities with Other Financial Institutions
We had liabilities with other financial institutions (interbank loans) of Q6,213.8 million as of December 31,
2007, compared to Q4,187.6 million as of December 31, 2006, an increase of 48.4%. This increase was primarily
the result of a 48.4% increase in our liabilities with other financial institutions in foreign currency to Q6,213.8
million from Q4,187.6 million in foreign currency for the same period, primarily related to the net increase in April

53

and October 2007 of US$100.0 million outstanding under our securitized diversified payment rights (DPR) facilities
and increased trade lending.
We had interbank loans of Q4,187.6 million as of December 31, 2006, compared to Q3,225.6 million as of
December 31, 2005, an increase of 29.8%. This increase was primarily the result of an increase of 30.3% increase in
our liabilities with other financial institutions in foreign currency to Q4,130.3 million from Q3,168.9 million for the
same period, related to increased trade lending and sound economic conditions.
Financial Obligations
Financial obligations consist of promissory notes, banking bonds and mortgage bonds. As December 31,
2007, we had financial obligations of Q1,917.5 million compared to Q1,748.1 million as of December 31, 2006, an
increase of 9.7%. This increase was primarily the result of a 11.0% increase in our local currency financial
obligations to Q1,780.9 million in 2007 from Q1,604.1 million in 2006, due to an increase in the number of
promissory notes issued in connection with our customers pension funds.
As of December 31, 2006, we had financial obligations of Q1,748.1 million, compared to Q1,357.0 million
represented as of December 31, 2005, an increase of 28.8%. This increase was primarily the result of a 25.6%
increase in our local currency financial obligations to Q1,604.1 million from Q1,276.7 million for the same period,
related to our new issuances of bonds and promissory notes.
Shareholders Equity
As of December 31, 2007, our shareholders equity was Q3,071.7 million, compared to Q2,669.8 million as
of December 31, 2006, a 15.1% increase. This increase was principally a result of capital contributions of Q160.9
million made by our shareholders during 2007.
As of December 31, 2006, our shareholders equity was Q2,669.8 million, compared to Q1,611.0 million as
of December 31, 2005, an increase of 65.7%. This increase was a result of capital contributions of Q125.0 million
from our shareholders in February and August 2006, an increase in equity of Q198.6 million through the acquisition
of Banco de Occidente, and the incurrence of subordinated debt consisting of a subordinated loan with CABEI for
Q305.2 million (US$40.0 million) and a subordinated loan with IFC for Q114.5 million (US$15.0 million). Under
Guatemalan Banking GAAP, subordinated debt is considered Tier 2 capital.
Liquidity and Funding
Our asset and liability management policy seeks to ensure that sufficient liquidity is available to honor
withdrawals of deposits, repay other liabilities at maturity, extend loans or other forms of credit to customers and
meet working capital needs. The minimum amount of liquidity is determined by the reserve requirements
established by the Guatemalan Central Bank. We meet these requirements by maintaining a proper balance between
maturity distribution and diversity of sources of funds.
Our Assets and Liabilities Management Committee is responsible for managing our funding and liquidity
positions and achieving our investment objectives. The Assets and Liabilities Management Committee covers any
shortfall by taking in additional deposits and by borrowing interbank loans. The Committee seeks to maximize the
efficient use of our deposit base by investing any surplus in liquid investments in the interbank market.
Our most important source of funds is our deposit base, particularly time deposits. In accordance with our
policy to match our assets and liabilities, we have historically maintained the percentage of total funding comprised
of deposits at above 75%. Our deposits amounted to Q26,350.5 million (or 76.4% of total funding) as of December
31, 2007, Q22,431.3 million (or 79.1% of total funding) as of December 31, 2006, and Q15,910.5 million (or 77.6%
of total funding) as of December 31, 2005. Total funding from deposits, as a percentage of funding, decreased in
2007 due to diversification of our funding base through interbank loans and local debt issuances. Deposits provide
us with an inexpensive source of funds and present a more stable funding source than other alternatives, especially
funding from banks and the international capital markets, during volatile market conditions.
54

In addition to deposits, we fund our operations with loans from multilateral banks, loans from foreign
banks and through local and foreign currency denominated bond issuances. Our current funding strategy is to
continue using all sources of funding in accordance with their cost and availability. Our principal loan obligations
with foreign banks include the following:

In March 2006, we entered into a 10-year loan with CABEI for Q305.2 million (US$40.0 million),
which bears interest at the annual rate of LIBOR plus 3.25%.

In March 2006, we entered into a 10-year loan with IFC for Q114.5 million (US$15.0 million), which
bears interest at the annual rate of LIBOR plus 4%. The IFC loan contains certain financial and
operating covenants.

In April 2007, we entered into a securitized diversified payment rights (DPR) facility in a principal
amount of US$150.0 million. The proceeds of this facility were used to repay US$75.0 million of the
US$200.0 million outstanding of an initial DPR transaction that we entered into in September 2005.
The April 2007 facility bears interest at the annual rate of LIBOR plus 1% and matures in April 2015.

In October 2007, we entered into a securitized diversified payment rights (DPR) facility in an
aggregate principal amount of US$150.0 million, which we used to repay the remaining balance
(US$125.0 million) of the initial DPR transaction that we entered into in September 2005 as well as
other indebtedness. The October 2007 facility bears interest at the annual rate of LIBOR plus 1% and
matures in April 2015.

As of December 31, 2007, 60.0% of our funding was denominated in quetzales and 40.0% was
denominated in U.S. dollars, compared to 61.0% and 39.0%, respectively, as of December 31, 2006, and 56.0% and
44.0%, respectively, as of December 31, 2005. Our foreign currency denominated assets, substantially all of which
are dollar denominated, are funded from a number of sources. These sources include deposits, primarily deposits of
private banking customers, medium and large Guatemalan companies, primarily in the export sector, as well as
interbank deposits, loans from foreign banks and the placement of securities in the international capital markets.
We expect that deposits, interbank loans and capital market securities will be sufficient to meet our
liquidity requirements over the next 12 months.
Capital Expenditures
In 2007, our capital expenditures primarily consisted of the renovation and acquisition of infrastructure,
such as points of service and ATMs. Our capital expenditures in 2007 were approximately Q84,021.9 million and
we expect our capital expenditures in 2008 to be of a similar amount. During 2006, we made capital expenditures of
approximately Q250.0 million, which primarily consisted of the upgrade of our mainframe computer, new ATMs,
new point-of-sale terminals and the opening of new branches. Our expenditures in 2007 and 2006 were funded with
cash generated from our operations. We intend to fund our 2008 capital expenditures with our own resources.
Risk-Based Capital
Under Guatemalan financial law, we are required to comply with the risk-based capital framework
developed by the Basel Committee on Banking Regulations and Supervisory Practices in July 1988 (the Basel
Accord), with some adjustments made by the Guatemalan Central Bank. See Description of the Guatemalan
Financial SystemFinancial System SupervisionCapital Requirements in Annex B. The Basel Accord sets forth
capital adequacy requirements for banks based on a test of equity capital to risk-adjusted balance sheet equivalents
for off-balance sheet items. Adjustments made by the Guatemalan Central Bank require banks to have a ratio of net
worth to assets and certain off-balance sheet items determined on a risk-weighted basis. The following table sets
forth our actual capital as compared to the minimum capital requirements as of the dates indicated. In accordance
with Guatemalan Central Bank rules, minimum capital requirements must also be computed based on a partially
consolidated basis that takes into account financial subsidiaries only. The requirements computed based on a fully
consolidated basis are also shown below:

55

As of December 31,
2006
2005
2007
(Q millions, except percentages)
Shareholders equity as a percentage of total assets ..........
8.0%
Tier 1 capital(1) ................................................................... 1,600.4
Total risk-weighted assets.................................................. 23,409.1
Minimum regulatory capital required(2) ............................. 2,340.9
Tier 1 capital as a percentage of risk-weighted assets .......
6.8%
Total capital as a percentage of risk-weighted assets ........
13.1%
Excess of capital over minimum regulatory capital
required .........................................................................
730.8
(1)

(2)

8.4%
1,421.6
18,053.2
1,805.3
7.9%
14.8%

7.2%
874.2
12,698.3
1,269.8
6.9%
12.7%

864.5

341.2

Based on the Guatemalan Central Bank requirements. See note 31 to our Financial Statements.
The minimum requirement in Guatemala was 10% of equity to risk-weighted average assets as of December 31, 2007, 2006 and 2005.

Off-Balance Sheet Arrangements


In the normal course of business, we are a party to a number of off-balance sheet activities that have credit,
market and operational risk and are not reflected in our financial statements. These activities include commitments
to extend credit not otherwise accounted for as contingent loans, such as overdrafts and credit card lines of credit,
and long-term contractual obligations under operating leases or service contracts. We record our off-balance sheet
arrangements under memorandum accounts, as described in note 22 to our Financial Statements.
We provide our customers with services related to the issuance and confirmation of commercial and standby letters of credit and to the issuance of guarantees (bonds). Our letters of credit operations totaled Q556.7 million
as of December 31, 2007, Q979.4 million as of December 31, 2006 and Q270.2 million as of December 31, 2005.
The credit risk of both on- and off-balance sheet financial instruments varies based on many factors,
including the value of collateral held and other security arrangements. To mitigate credit risk, we generally
determine the need for specific covenant, guarantee and collateral requirements on a case-by-case basis, depending
on the nature of the financial instrument and the customers creditworthiness. We may also require comfort letters
and oral assurances. The amount and type of collateral held to reduce credit risk varies, but may include real estate,
machinery, equipment, inventory and accounts receivable, as well as cash on deposit, stocks, bonds and other
marketable securities that are generally held in our possession or at another appropriate custodian or depository.
This collateral is valued and inspected on a regular basis to ensure both its existence and adequacy. Additional
collateral is required when appropriate.

56

SELECTED STATISTICAL INFORMATION


Unaudited Interim Selected Consolidated Financial Information as of and for June 30, 2007
The selected consolidated financial information provided below as of June 30, 2007 is derived from our
unaudited interim financial statements.
As of June 30, 2007

(Q millions)
Balance sheet data:
Cash............................................................................................
Temporary investments .............................................................
Loan portfolio, net .....................................................................
Accounts Receivable from financial products ..........................
Accounts receivable, net............................................................
Prepaid expenses........................................................................
Foreclosed assets........................................................................
Long term investments ..............................................................
Other investments ......................................................................
Property and equipment.............................................................
Deferred charges, net .................................................................
Total assets ...........................................................................
Deposits......................................................................................
Liabilities with other financial institutions................................
Financial obligations..................................................................
Financial expenses payable........................................................
Accounts payable.......................................................................
Accruals .....................................................................................
Deferred income ........................................................................
Other credit balances .................................................................
Minority interest.........................................................................
Total liabilities and other credit balances.........................
Total shareholders equity..................................................
Total liabilities and shareholders equity .........................

4,938.7
1,716.7
16,314.3
268.1
304.5
49.5
15.1
9,730.6
104.2
896.3
675.0
35,012.9
25,237.0
4,467.8
1,657.9
142.6
553.2
12.6
18.5
43.6
32,133.2
2,879.8
35,012.9

_____________________________

The following selected statistical information is provided with respect to the Bank and its consolidated
subsidiaries only. Certain other information in this offering circular, including certain information derived from
statistics of the Superintendency of Banks is presented on an unconsolidated basis. This information should be read
in conjunction with Presentation of Certain Financial and Other Information, Managements Discussion and
Analysis of Financial Condition and Results of Operations and our Financial Statements, included elsewhere in this
offering circular. The selected statistical information included in this offering circular is as of and for the six months
ended June 30, 2007 and as of and for the years ended December 31, 2006 and 2005.
Presentation of Selected Statistical Information
Presentation of the financial and statistical information included in this Selected Statistical Information
may differ from the manner of presentation required by Guatemalan Banking GAAP for the presentation of our
financial statements. The following information is presented solely for the convenience of the reader for analytical
purposes and, for certain items, differs from the presentation in our financial statements which are prepared in
conformity with Guatemalan Banking GAAP.

57

Assets and liabilities have been classified by currency of denomination (Quetzales or foreign currency),
rather than by domicile of customer or other criteria, because substantially all our transactions are effected in
Guatemala or on behalf of Guatemalan residents in Quetzales or foreign currency. The U.S. dollar is the main
foreign currency used in our transactions; however, Euros are also used. For purposes of this section, all foreign
currency assets and liabilities have been converted into U.S. dollars and then converted into Quetzales using the
interbank exchange rate at the relevant dates published by the Guatemalan Central Bank, as required by Guatemalan
Banking GAAP.
Certain amounts and percentages included in this offering circular have been subject to rounding
adjustments; accordingly, figures shown for the same category presented in different tables may vary slightly and
totals may not sum due to rounding.
Average Balance Sheet and Interest Rate Data
The tables below present the average balances for all of our assets and liabilities together with the related
interest income and expense amounts for interest-earning assets and interest-bearing liabilities, resulting in the
presentation of the average real yields and rates for each period. If the average balances had been calculated on a
daily basis, the resulting average rate may have been different.
Quetzal-Denominated Average Balances and Interest
Average balances for Quetzal-denominated assets and liabilities have been calculated using the average
month-end balances during each such period. Interest income (expense) for the six months and for each year is the
total income (expense) for such period. If the average balances had been calculated on a daily basis, the resulting
average rate may have been different.
Foreign Currency-Denominated Average Balances and Interest
Average balances and interest income (expense) for foreign currency-denominated assets and liabilities
have been translated into Quetzales using the applicable period-end exchange rate published in the Guatemalan
Central Bank. The average balances for foreign currency-denominated assets and liabilities have been calculated
using the average month-end balances during each such period. Interest income (expense) for the six months and for
each year is the total income (expense) for such period. If the average balances had been calculated on a daily basis,
the resulting average rate may have been different.
Average Rates
The average annual rates earned on interest-earning assets and the average annual rates paid on interestbearing liabilities are nominal rates.

58

Average Assets and Interest Rates


The following table presents the average balance of assets, interest income and average annual rates for the periods specified.
For the six months ended
June 30, 2007
Average
Balance
Total interest-earning
assets............................
Quetzales ......................
Foreign currency ..........
Interest-bearing
deposits in other
banks(2) ....................
Quetzales..................
Foreign currency......
Temporary and long
term investments(3)(4)
.................................
Quetzales..................
Foreign currency......
Loan portfolio(5)(6) .......
Quetzales..................
Foreign currency......
Total non-interest-earning
assets ............................
Cash and due from
banks:
Quetzales..................
Foreign currency......
Central bank deposits:
Quetzales..................
Foreign currency......
Allowance for loan
losses:
Quetzales..................
Foreign currency......
Property and
equipment:
Quetzales..................
Foreign currency......
Intangibles:
Quetzales..................
Foreign currency
Financial products
receivable:
Quetzales..................
Foreign currency......
Foreclosed assets:
Quetzales..................
Foreign currency......

Interest
Income

Q 28,223.9
16,166.1
12,057.8

Q 1,146.7
705.7
441.0

734.0
7.7
726.3

10.8
0.1
10.7

11,630.4
9,267.7
2,362.7
15,859.5
6,890.7
8,968.8

469.0
371.0
98.0
666.9
334.6
332.3

Average
rate (1)(%)
8.1%
8.7
7.3
3.0
3.9
2.9
8.1
8.0
8.3
8.4
9.7
7.4%

For the year ended


For the year ended
December 31, 2006
December 31, 2005
(Q millions, except percentages)
Average
Interest
Average
Average
Interest
Average
Balance
Income
rate (%)
Balance
Income
rate (%)
Q 23,567.1
12,752.9
10,814.2

Q 1,732.9
1,014.8
718.1

529.7
12.2
517.5

20.2
0.6
19.6

9,769.3
6,731.2
3,038.1
13,268.1
6,009.6
7,258.5

728.0
508.5
219.6
984.7
505.8
478.9

7.4%
8.0
6.6
3.8
5.2
3.8
7.5
7.6
7.2
7.4
8.4
6.6%

Q 17,794.0
9,197.6
8,596.4

Q 1,453.7
866.5
587.2

358.4
9.0
349.4

7.4
0.5
6.9

8,071.3
5,013.5
3,057.8
9,364.3
4,175.1
5,189.2

684.9
462.9
220.0
761.4
403.1
358.3

8.2%
9.4
6.8
2.1
6.0
2.0
8.5
9.2
7.3
8.1
9.7
6.9%

For the year ended


December 31, 2004
Average
Balance

Interest
Income

Q 15,326.6
7,774.0
7,552.7

1,191.1
712.3
478.9

445.7
5.3
440.4

4.9
0.4
4.4

6,600.2
4,206.5
2,393.8
8,280.7
3,562.2
4,718.6

535.0
378.0
157.0
651.2
333.8
317.4

5,784.2

4,825.2

3,205.5

3,104.4

807.8
137.9

736.2
133.4

583.7
46.9

516.6
57.0

2,356.8
415.8

1,696.8
343.9

1,201.9
321.9

1,013.6
301.9

(107.9)
(28.5)

(112.2)
(25.2)

(84.3)
(17.1)

(56.7)
(16.8)

884.6
3.4

840.8
2.9

693.8
2.6

640.8
3.1

681.8
1.2

598.2
1.3

10.5
1.6

9.2
3.1

182.0
74.2

138.2
72.2

130.9
58.9

112.0
47.2

16.1
3.1

24.1
2.8

3.5
8.0

3.9
28.4

59

Average
rate (%)
7.8%
9.2
6.3
1.1
8.2
1.0
8.1
9.0
6.6
7.9
9.4
6.7%

For the six months ended


June 30, 2007
Average
Balance
Accounts receivable:
Quetzales..................
Foreign currency......
Prepaid expenses:
Quetzales..................
Foreign currency......
Total assets......................

Interest
Income

Average
rate (1)(%)

For the year ended


For the year ended
December 31, 2006
December 31, 2005
(Q millions, except percentages)
Average
Interest
Average
Average
Interest
Average
Balance
Income
rate (%)
Balance
Income
rate (%)

For the year ended


December 31, 2004
Average
Balance

243.7
54.5

274.1
42.6

179.8
15.7

285.7
69.1

40.8
17.0
Q 34,081.1

39.3
16.2
Q 28,392.3

41.5
5.9
Q 20,999.4

50.3
35.9
Q 18,431.0

Interest
Income

Average
rate (%)

_______________________
(1)

For the six months ended June 30, 2007, average rates have been annualized.

(2)

Interest income from interest-bearing deposits in other banks includes tax-free interest income from deposits in foreign banks in the amounts of Q10.7 million, Q19.5 million, Q6.1 million and Q3.8 million as of June 30,
2007, December 31, 2006, 2005 and 2004, respectively.

(3)

Pursuant to Guatemalan Banking GAAP, premiums paid for the purchase of securities are deferred and amortized over the term of the investment and are treated as interest expense. For purposes of this table, we have
included such premiums under interest income rather than income expense. These premiums amounted to Q21.3 million at June 30, 2007, Q37.3 million at December 31, 2006, Q44.5 million at December 31, 2005 and
Q36.1 million at December 31, 2004. The presentation in this table differs from our financial statements.

(4)

Interest income from temporary and long term investments includes tax-free interest income from investments in Eurobonds, Certibonos and Cdulas Hipotecarias secured by FHA (Instituto de Fomento de Hipotecas
Aseguradas), which are non-taxable securities, in the amounts of Q142.9 million, Q283.6 million, Q280.2 million and Q183.2 million as of June 30, 2007 and December 31, 2006, 2005 and 2004, respectively.

(5)

We do not earn fee income on our loan portfolio.

(6)

Interest income from our loan portfolio includes tax-free interest income from guaranteed loans and loans granted by Westrust Bank, which are tax-exempt, in the amounts of Q116.6 million, Q209.5 million, Q171.2 million
and Q155.9 million as of June 30, 2007 and December 31, 2006, 2005 and 2004, respectively.

60

Average Liabilities, Shareholders Equity and Interest Rates


The following table presents the average balance of liabilities and shareholders equity, interest expense and average annual rates for the periods specified.
For the six months ended June 30, 2007
Average
Balance
Total interest-bearing liabilities(2) ..
Quetzales.........................................
Foreign currency.............................

Q 30,450.8
18,938.6
11,512.2

Deposits..........................................
Demand deposits ...........................
Quetzales......................................
Foreign currency..........................
Savings deposits ............................
Quetzales......................................
Foreign currency..........................

Interest
Expense

For the year ended December 31, 2006


For the year ended December 31, 2005
(Q millions, except percentages)
Interest
Average rate
Average
Interest
Average rate
Expense
(%)
Balance
Expense
(%)

For the year ended December 31, 2004

Average
Balance

3.9%
3.4
4.8

24,291.6
10,743.0
8,225.1
2,517.9
4,206.2
3,511.7
694.5

372.9
56.3
40.1
16.2
27.3
23.3
4.0

3.1
1.0
1.0
1.3
1.3
1.3
1.2

Time deposits.................................
Quetzales......................................
Foreign currency..........................

9,342.4
5,606.0
3,736.4

289.3
195.1
94.2

Acceptance and securities


issuance .......................................
Quetzales......................................
Foreign currency..........................

1,663.0
1,539.8
123.2

65.0
58.2
6.8

Liabilities with other financial


institutions ..................................
Quetzales......................................
Foreign currency..........................

4,496.2
56.1
4,440.1

Total non-interest-earning
liabilities.........................................

826.6

847.1

575.8

735.0

Other deposits ...............................


Quetzales......................................
Foreign currency..........................

127.7
43.6

52.8
30.4

36.8
25.6

37.1
9.0

Financial expenses payable


Quetzales......................................
Foreign currency

39.2
98.3

32.2
79.7

22.3
59.6

17.1
48.7

Accounts payable
Quetzales......................................
Foreign currency..........................

319.1
113.3

385.6
100.6

275.1
78.8

450.3
99.7

Provisions
Quetzales......................................
Foreign currency..........................

14.4
2.7

10.6
2.2

9.6
1.9

9.2
1.6

Deferred credits
Quetzales......................................
Foreign currency..........................

5.7
11.9

4.1
7.7

2.5
6.9

2.4
1.7

Other credit accounts


Quetzales......................................
Foreign currency..........................

38.9
11.9

36.6
15.0

22.1
34.6

23.8
34.4

0.0
0.0
2,730.7

89.6
0.0
2,282.4

0.0
0.0
1,471.7

0.0
0.0
1,376.0

Q 34,008.1

Q 28,392.3

Q 20,999.4

(1)
(2)

169.8
2.0
157.8

989.0
525.9
463.1

3.9%
3.5
4.5

19,904.9
8,415.3
6,267.7
2,147.6
3,198.4
2,618.9
579.5

622.7
104.5
70.5
34.0
35.4
29.7
5.7

3.1
1.2
1.1
1.6
1.1
1.1
1.0

6.2
7.0
5.0

8,291.2
4,469.7
3,821.5

482.8
305.7
177.1

7.8
7.6
11.1

1,654.4
1,510.1
144.3

7.1
7.3
7.1%

Q 25,262.9
14,922.0
10,340.9

3,703.6
55.6
3,648.0

Q 18,952.0
10,576.0
8,376.0

Average
Balance

697.7
318.7
279.0

Minority interest
Quetzales......................................
Foreign currency..........................
Shareholders equity........................
Total liabilities and
shareholders equity.....................

Average
rate(1) (%)

16,320.0
8,943.8
7,376.2

637.3
404.2
233.1

3.9%
4.5
3.2

4.1%
4.4
3.8

15,068.1
6,191.2
4,305.9
1,885.3
1,868.3
1,458.3
410.0

559.9
92.1
58.9
33.2
47.2
42.4
4.8

3.7
1.6
1.4
1.8
2.5
2.9
1.2

13,769.3
5,286.9
3,552.3
1,734.7
1,670.4
1,270.8
399.6

507.0
77.0
52.4
24.7
42.8
38.3
4.6

3.7
1.5
1.5
1.4
2.6
3.0
1.1

6.8
6.8
4.6

7,008.6
3,653.5
3,355.1

420.6
267.3
153.3

6.0
7.3
4.6

6,801.9
3,315.3
3,486.6

387.1
239.6
147.5

6.7
7.2
4.2

126.2
115.0
101

7.6
7.6
7.0

1,157.1
1,090.0
67.1

86.3
82.3
3.0

7.4
7.5
4.5

755.7
712.9
42.8

65.5
63.6
1.9

8.7
8.9
4.5

241.1
5.1
236.0

6.5
9.1
6.5%

2,726.8
68.2
2,658.6

132.5
9.3
123.2

4.9
13.6
4.6%

64.8
10.4
54.5

3.6
11.2
3.2%

1,806.1
92.5
1,712.6

Average rate
(%)

777.6
460.1
317.5

Interest
Expense

18,431.0

For the six months ended June 30, 2007, the average rates have been annualized.
Pursuant to Guatemalan Banking GAAP, premiums paid for the purchase of securities are deferred and amortized over the term of the investment and are treated as interest expense. For purposes of this table, we have
included such premiums under interest income rather than income expense. These premiums amounted to Q21.3 million at June 30, 2007, Q37.3 million at December 31, 2006, Q44.5 million at December 31, 2005 and
Q36.1 million at December 31, 2004. The presentation in this table differs from our financial statements.

61

Changes in Interest Income and ExpenseVolume and Rate Analysis


The following table sets forth the allocation of the changes in our interest income and expense between
changes in volume and changes in rates in Quetzales for the six months ended June 30, 2007 compared to the six
months ended June 30, 2006 and for the year ended December 31, 2006 compared to the year ended December 31,
2005 and for the year ended December 31, 2005 compared to the year ended December 31, 2004. Volume and rate
variances have been calculated based on changes in the average balances over the period and changes in interest
rates on average interest-earning assets and average interest-bearing liabilities. The variances caused by changes in
both volume and rate have been allocated to volume.

Total interest-earning assets ....

June 30, 2007/2006

December 31, 2006/2005

December 31, 2005/2004

Increase (decrease) due to


change in:
(Q millions)

Increase (decrease) due to


change in:
(Q millions)

Increase (decrease) due to


change in:
(Q millions)

Volume

Rate

Net
change

Volume

Rate

Net
change

Volume

Rate

Net
change

Q 223.3

Q (47.6)

Q 175.7

Q 425.8

Q(146.6)

Q279.2

Q212.8

Q 48.8

Q261.7

Interest-bearing deposits in
other banks............................

3.3

(1.2)

2.1

6.5

6.3

12.8

(1.6)

4.1

2.6

Quetzales.................................

(0.1)

(0.0)

(0.1)

0.1

(0.0)

0.1

0.2

(0.1)

0.1

Foreign currency .....................

2.2

6.4

6.3

12.7

(1.8)

4.2

2.5

3.4

(1.2)

Temporary and long-term


investments ............................

83.1

(19.3)

63.8

128.3

(85.2)

43.1

122.7

27.1

149.8

Quetzales.................................

121.5

(5.8)

115.6

129.7

(84.2)

45.5

74.5

10.3

84.8

Foreign currency .....................

(38.4)

(13.5)

(51.8)

(1.4)

(1.0)

(2.4)

48.2

16.8

65.0

Loan portfolio ...........................

136.9

(27.1)

109.8

290.9

(67.7)

223.3

91.7

17.6

109.3

Quetzales.................................

61.6

(14:3)

47.3

154.4

(51.7)

102.7

59.2

9.7

68.8

Foreign currency.....................

75.3

(12.8)

62.5

136.5

(16.0)

120.6

32.5

7.9

40.5

Total interest-bearing
liabilities.................................

98.1

(13.4)

84.8

218.8

(7.4)

211.4

107.3

32.7

140.1

Demand deposits........................

15.0

(9.8)

5.2

26.2

(13.8)

12.5

13.0

2.1

15.1

Quetzales.................................

11.8

(5.1)

6.7

22.1

(10.5)

11.6

10.3

(3.8)

6.6

Foreign currency .....................

3.2

(4.7)

(1.5)

4.1

(3.3)

0.9

2.7

5.9

8.5

Saving deposits...........................

8.5

(3.6)

4.9

14.8

(26.6)

(11.8)

5.6

(1.2)

4.3

Quetzales.................................

7.7

(3.5)

4.2

13.2

(25.8)

(12.6)

5.5

(1.4)

4.0

Foreign currency .....................

0.8

(0.1)

0.7

1.6

(0.8)

0.8

0.1

0.2

0.3

Time deposits .............................

48.5

(4.3)

44.2

77.4

(15.3)

62.2

18.7

14.6

33.3

Quetzales.................................

50.1

(4.5)

45.6

55.8

(17.5)

38.3

24.7

2.9

27.6

Foreign currency .....................

(1.6)

0.2

(1.4)

21.6

2.2

23.9

(6.0)

11.7

5.7

Acceptances and securities


issuance ..................................

5.1

2.9

7.9

37.4

2.5

39.9

29.6

(9.8)

19.7

Quetzales.................................

3.0

0.1

3.1

32.0

0.8

32.7

28.5

(9.8)

18.7

Foreign currency .....................

2.1

2.8

4.8

5.4

1.7

7.2

1.1

(0.0)

1.0

Bank loans ..................................

21.0

1.4

22.5

62.9

45.8

108.7

40.5

27.1

67.6

Quetzales.................................

0.0

(2.1)

(2.0)

(1.1)

(3.0)

(3.3)

2.2

(1.1)

Foreign currency.....................

Q 21.0

Q 3.5

24.5

62

64.0

Q 48.8

(4.2)
Q112.9

Q 43.8

Q 24.9

Q 68.7

Interest-Earning AssetsYield and Yield Spread


The following table sets forth, by currency of denomination, the levels of our average interest-earning
assets and net interest income, and gross and net yield and yield spread obtained, for each of the periods indicated.
As of or for the six
months ended
June 30, 2007(4)
Total average interest-earning
assets:
Quetzales......................................
Foreign currency ..........................
Total ............................................
Total interest-bearing liabilities:
Quetzales......................................
Foreign currency ..........................
Total ............................................
Interest income:
Quetzales......................................
Foreign currency ..........................
Total ............................................
Interest expense:
Quetzales......................................
Foreign currency ..........................
Total ............................................
Net interest income:
Quetzales......................................
Foreign currency ..........................
Total ............................................
Gross yield(1):
Quetzales......................................
Foreign currency ..........................
Total ............................................
Net yield(2):
Quetzales......................................
Foreign currency ..........................
Total ............................................
Yield spread(3):
Quetzales......................................
Foreign currency ..........................
Total ............................................

16,166.1
12,057.8
28,223.9

As of or for the years ended December 31,


2006
2005
(Q millions, except percentages)

12,752.9
10,814.2
23,567.1

9,197.6
8,596.4
17,794.0

2004

7,774.0
7,552.7
15,326.6

18,938.6
11,512.2
30,450.8

14,922.0
10,340.9
25,262.9

10,575.9
8,376.0
18,952.0

8,943.8
7,376.2
16,320.0

705.7
441.0
1,146.7

1,014.8
718.1
1,732.9

866.5
587.2
1,453.7

712.3
478.9
1,191.1

318.7
279.0
597.7

525.9
463.1
989.0

460.1
317.5
777.6

404.2
233.1
637.3

387.0
162.0
549.0

488.8
255.0
743.9

406.4
269.7
676.1

308.1
245.7
553.8

8.7%
7.3%
8.1%

8.0%
6.6%
7.4%

9.4%
6.8%
8.2%

9.2%
6.3%
7.8%

4.8%
2.7%
3.9%

3.8%
2.4%
3.2%

4.4%
3.1%
3.8%

4.0%
3.3%
3.6%

5.4%
2.5%
4.2%

4.4%
2.2%
3.4%

5.1%
3.0%
4.1%

4.6%
3.2%
3.9%

(1)

Gross yield is interest income divided by average interest-earning assets.

(2)

Net yield represents the total of net interest income divided by average interest-earning assets.

(3)

Yield spread represents the difference between gross yield on average interest-earning assets and average rate of interest-bearing liabilities.

(4)

For the six months ended June 30, 2007, the average yields have been annualized.

63

Return on Equity and Assets


The following table shows selected financial data and selected financial ratios for the periods indicated.

Net income ...........................................


Average total assets(1) ...........................
Average shareholders equity(1) ............
Net income as a percentage of average
total assets(2) .....................................
Net income as a percentage of average
shareholders equity(2) ......................
Average shareholders equity as a
percentage of average total assets ....
Dividend payout ratio(3)(4) .....................

As of or for the six-month


As of or for the years ended
periods ended
December 31
June 30,
2006
2006
2005
2004
2007
(Q millions, except percentages)
Q 290.2
Q
183.4
Q 322.8
Q
296.9
Q
210.0
34,008.1
26,950.5
28,392.3
20,999.4
18,431.0
Q 2,730.7
Q 2,036.3
Q 2,282.4
Q 1,471.7
Q 1,376.0
1.7%
1.4%
1.1%
1.4%
1.1%
21.3%

18.0%

14.1%

20.2%

15.3%

8.0%

7.6%

8.0%

7.0%

7.5%

70.4%

60.6%

71.4%

(1)

Average month-end balances during each such period.

(2)

Figures for the six months ended June 30, 2006 and 2007 have been annualized.

(3)

Dividends divided by net income.

(4)

Regular dividends are paid on a yearly basis.

Interest Rate Sensitivity of Assets and Liabilities


Interest rates
The regulations of the Guatemalan Central Bank do not mandate, and market practice in Guatemala is such
that, Guatemalan banks do not base their local currency or foreign currency interest rates on loans and deposits on a
fixed rate or a single reference rate published regularly by an official source. Rather, interest rates in Guatemala are
determined individually by lenders based on market conditions. The agreements for loans and demand and savings
deposits specify the initial interest rate and state that the applicable interest rate may change depending on market
conditions. We evaluate and reset interest rates every 90 days on our assets and liabilities.
A key component of our asset and liability policy is the management of interest rate sensitivity. Interest
rate sensitivity is the relationship between market interest rates and net interest income due to the repricing
characteristics of assets and liabilities. For any given period, the pricing structure is matched when an equal amount
of assets and liabilities reprice. Any excess of assets or liabilities over these matched items results in a repricing gap
or net exposure. A positive repricing gap normally means that an increase in interest rates would result in an
increase in net income, while a decrease in interest rates would result in a decrease in net income.
Our interest rate sensitivity strategy takes into account, among other things, the rates of return and the
underlying degree of risk, liquidity requirements, including minimum regulatory cash reserves, capital ratios,
withdrawal and maturity deposits, capital costs and additional demands for funds. Our rate and maturity mismatches
and positions are monitored by us.

64

The following table sets forth our interest-earning assets and interest-bearing liabilities as of June 30, 2007.
Fixed rate instruments are classified according to their date of maturity and other instruments according to their
repricing date.
As of June 30, 2007

31 - 90
days

0 - 30 days

Assets:
Commercial and corporate
loans......................................
Retail loans ...............................
Total performing loan
portfolio..........
Deposits in other banks.............
Securities...................................
Total interest-earning assets
Cash, property and other noninterest earning assets...........
Non-performing loans...............
Less: Allowance for loan losses
Total assets ............................
Liabilities and shareholders
equity:
Demand and savings deposits...
Time deposits............................
Total deposits ........................
Short-term debt..............................
Long-term debt ..............................
Subordinated debt(1) .......................
Other non-interest bearing
liabilities ...................................
Total liabilities ......................
Shareholders equity(1) ................
Total liabilities and
shareholders equity ...............
Interest rate maturity gap ..........
Cumulative interest rate
maturity gap............................
Cumulative gap as percentage of
total interest-earning assets...

465.3
25.9

Q 12,572.4
3,252.9

491.2
3,759.5
1,139.3

15,825.3

5,390.0

16,234.6

409.4

91 -180
181 - 365
days
days
(Q millions, except percentages)

Non-rate
sensitive
or- over
one year

Total

Q 13,037.7
3,278.8

.
441.3

441.3

286.6

Q 9,274.9

16,316.4
3,759.5
11,551.5

286.6

9,274.9

31,627.4

3,387.7
120.1
(122.2)

3,387.7
120.1
(122.2)

5,390.0

16,234.6

441.3

286.6

12,660.4

35,012.9

15,466.9
90.9

1,243.0

2,151.5

5,318.8

833.2

15,466.9
9,637.4

15,557.8
0.8
494.7

1,243.0
0.4
3,410.3
308.6

2,151.5
811.7
115.7

5,318.8
88.5
440.3

833.2
533.7
1,115.7

132.7

132.7

16,053.3

4,962.4

3,078.9

5,847.6

2,615.4
2,455.4

32,557.5
2,455.4

16,053.3
(10,663.3)

4,962.4
11,272.3

3,078.9
(2,637.6)

5,847.6
(5,561.0)

5,070.8
Q 7,589.6

Q 35,012.9

609.0

Q (2,028.6)

Q (7,589.6)

1.9%

(6.4)%

(24.0)%

Q(10,663.3)
(33.7)%

25,104.3
623.5
6,272.7
424.3

____________
(1)

Under Guatemalan Banking GAAP, shareholders equity includes subordinated debt. However, for purposes of this table only, we
have included subordinated debt in the amount of Q424.3 million (US$55.0 million) under liabilities and reduced shareholders
equity accordingly.

As of June 30, 2007, interest-earning assets totaled Q31,627.4 million. Of these assets, 68.4% repriced in
90 days or less. Of the assets that repriced in 90 days or less, 75.5% were performing loans, 17.4% were deposits in
other banks and 7.2% were investments in securities. All of our loans bear interest at floating rates.
Of our liabilities as of June 30, 2007, 77.1% consisted of deposits, totaling Q25,104.3 million, of which
66.9% repriced in 90 days or less. The remaining 22.9% of our liabilities amounting to Q7,453.3 million consisted
of Q623.5 million of short-term debt, Q6,272.7 million of long-term debt, Q424.3 million of subordinated debt and
Q132.7 million of other liabilities. Of such Q7,453.3 million of non-deposit liabilities, 56.6% repriced in 90 days or
less.

65

Deposit Balances and Interest Rates


The following table shows average balances of interest-bearing deposits we held and the average interest
rates thereon for the periods indicated.
For the six months
ended June 30, 2007
Average
Average
Rate (%)
Balance
Interest-bearing deposits(1) :
Demand deposits(2) ..................
Savings deposits(2) ...................
Time deposits ..........................
Total...............................

Q10,743.0
4,206.2
9,342.4
Q24,291.6

1.0%
1.3
6.2
3.1%

For the year ended


For the year ended
December 31, 2006
December 31, 2005
Average
Average
Average
Average
Balance
Rate (%)
Balance
Rate (%)
(Q millions, except percentages)
Q8,415.3
3,198.4
8,291.2
Q19,904.9

1.2%
1.1
5.8
3.1%

Q 6,191.2
1,868.3
7,008.6
Q15,068.1

1.5%
2.5
6.0
3.7%

For the year ended


December 31, 2004
Average
Average
Balance
Rate (%)

Q 5,286.9
1,670.4
6,801.9
Q13,759.3

1.5%
2.6
5.7
3.7%

(1)

Other deposits, which consist of deposits that are judicially restricted, are not included in this table because these deposits do not bear interest.

(2)

The average rates on demand and savings deposits decreased during 2007 and 2006 due in part to (i) the lower cost of the deposits we acquired from Banco de
Occidente and Banco de Comercio, banks which had diversified deposit bases, and (ii) relatively stable rates of inflation.

Our total deposits are comprised of demand deposits, savings deposits, time deposits and other deposits, in
both the local and foreign currencies. Demand deposits are checking accounts and bear the lowest interest rates.
Savings deposits are savings accounts on which checks cannot be issued and bear higher interest rates than demand
deposits.
As a result of our reputation and name recognition in Guatemala, we have access to large amounts of lowcost domestic consumer deposits. Our deposit base is primarily composed of Guatemalan-based customers. We do
not believe that the amount of deposits originating from outside of Guatemala is significant at this time.
A significant source of our consumer deposits is Westrust Bank, which maintains accounts for
approximately 7,000 high net-worth clients. Westrusts Banks 25 largest institutional depositors represent less than
12% of its consolidated demand, savings and time deposits.
As of June 30, 2007, we had total deposits of Q25,237.0 million compared to Q22,431.3 million as of
December 31, 2006, an increase of 12.5%. This increase was attributable to a 15.2% increase in demand deposits to
Q11,079.4 million as of June 30, 2007 from Q9,614.2 million as of December 31, 2006, and the transfer of Banco de
Comercios deposits, which added Q954.5 million in deposits on January 16, 2007.
As of December 31, 2006, we had total deposits of Q22,431.3 million compared to Q15,910.5 million as of
December 31, 2005, an increase of 40.9%. This increase was primarily the result of a 44.6% increase in demand
deposits to Q9,614.1 million on December 31, 2006 from Q6,648.4 million on December 31, 2005, primarily related
to the acquisition of Banco de Occidente and favorable economic conditions.
As of December 31, 2005, we had total deposits of Q15,910.5 million compared to Q14,189.0 million as of
December 31, 2004, an increase of 12.1%. This increase was primarily the result of a 17.0% increase in demand
deposits to Q6,648.4 million on December 31, 2005 from Q5,685.9 million on December 31, 2004, primarily
attributable to our branch expansion and penetration in the retail and family remittances markets.
Deposits in Excess of the Quetzal Equivalent of US$100,000
Our deposits in excess of the Quetzal equivalent of US$100,000, including demand and time deposits, are
set forth in the following table according to the maturities indicated:

66

As of June 30,
2007
Maturity within three months ...............................................
Maturity after three months but within six months...............
Maturity after six months but within twelve months ............
Maturity after twelve months ...............................................
Total deposits in excess of the Quetzal equivalent of
US$100,000(1) ....................................................................
(1)

As of December 31,
2005
(Q millions)
5,875.6
Q
4,702.9
Q
1,240.3
1,188.5
3,899.3
3,065.0
507.0
648.0
2006

7,136.7
1,723.6
4,001.3
662.8

13,524.4

11,522.2

9,604.4

2004
5,824.1
1,203.6
1,064.0
296.7
8,388.4

The percentage of deposits in excess of the Quetzal equivalent of US$100,000 relative to our total deposits as of June 30, 2007 and December 31, 2006, 2005
and 2004 was 53.6%, 51.4.0%, 60.4% and 59.1%, respectively.

Although our deposits in excess of the Quetzal equivalent of US$100,000 represent a significant portion of
our total deposits, we believe these deposits are spread over a broad client base and that we do not face any
significant liquidity risk as a result. The total number of accounts that had deposits in excess of the Quetzal
equivalent of US$100,000 was 4,205 as of June 30, 2007, 3,488 as of December 31, 2006, 2,825 as of December 31,
2005 and 2,454 as of December 31, 2004 compared to the total number of all accounts of 1,008,850 as of June 30,
2007, 721,654 as of December 31, 2006, 586,871 as of December 31, 2005 and 524,646 as of December 31, 2004.
The total balance of our ten largest depositors was Q1,887.2 million, Q1,868.4 million, Q1,473.2 million and
Q1,336.0 million as of June 30, 2007 and December 31, 2006, 2005 and 2004, respectively compared to our total
deposits of Q25,237.0 million, Q22,431.3 million, Q15,910.5 million and Q14,189.0 million of such dates,
respectively.
Guatemalan Central Bank Compulsory Deposits
Financial institutions comply with reserve requirements by depositing cash with the Guatemalan Central
Bank. Cash deposited with the Guatemalan Central Bank in satisfaction of reserve requirements does not earn
significant interest. Liquidity available to us to make loans and other investments is reduced by such amounts.
Reserve requirements have been used by the Guatemalan Central Bank to control liquidity as part of monetary
policy in the past and the Guatemalan Central Bank has varied those requirements from time to time. The following
sets forth the amounts of Central Bank deposits for the indicated periods.
As of June 30,
2007
Deposits in the Central Bank:
Quetzales.........................................................................
Foreign currency ...........................................................
Total ..............................................................................

2,417.6
577.6
2,995.2

As of December 31,
2005
(Q millions)
2,269.6
Q
1,274.1
Q
324.4
329.6
2,594.0
Q
1,603.7
Q

2006
Q
Q

2004
1,238.1
289.4
1,527.5

Short-term Borrowings
The principal categories of borrowings are our issuance of securities, lines of credit from our relationship
banks for trade finance and working capital and repurchase agreements.
The following table presents a summary of the uncommitted lines of credit from our relationship banks as
of the dates indicated. All lines of credit are uncommitted and are denominated in foreign currency, primarily U.S.
dollars.
As of June 30,
2007
Total authorized uncommitted lines of credit(1) ...............
Utilized amount(1) ...........................................................
Amount outstanding(1) ......................................................
(1)

Q
Q

10,612.5
4,467.7
6,144.8

As of December 31,
2005
(Q millions)
13,128.6
Q
6,153.6
Q
4,187.6
3,225.6
8,941.0
Q
2,928.0
Q
2006

Q
Q

2004
3,830.1
2,232.1
1,598.0

Figures are shown in Quetzales using exchange rates in effect as of such dates, which were US$1.00 equal to Q7.71527 as of June 30, 2007, Q7.59615 as of
December 31, 2006, Q7.58724 as of December 31, 2005 and Q7.74135 as of December 31, 2004. See note 14 to the Financial Statements.

67

The following table presents a summary of our outstanding repurchase agreements as of the dates and for
the periods indicated.
As of or for the
six months
ended June 30,
2007

Securities sold under repurchase agreements(1)

Amount outstanding .......................................................


Maximum amount outstanding during the period ............
(1)

10.0
10.0

Q
Q

As of or for the year ended December 31,


2006
2005
2004
(Q millions)
200.0
Q
105.0
Q
70.0
250.0
Q
443.0
Q
356.5

Q
Q

Balances include the effects of exchange rate fluctuations.

Securities Portfolio
We believe we manage our investment portfolio conservatively. We only invest in senior unsecured fixed
income securities, predominantly sovereign debt of Central American countries, which we believe is highly liquid.
As of June 30, 2007, approximately 90% of our investment portfolio was invested in securities issued by the
Republic of Guatemala in the international capital markets and the domestic market. Our Treasury Department
manages our investment portfolio under the supervision of the Investment Committee.
The chart below sets forth our investment portfolio as of June 30, 2007 and December 31, 2006, 2005 and
2004:
Investment Portfolio
As of June 30,
2007
(Q millions)
(%)
Government and Central Bank
securities............................................
Banco de Comercios trust .....................
Securities of private issuers....................
Interest paid in purchase of securities ....
Fees paid in purchase of securities.........
Amortization funds(1) ..............................
Total .......................................................
(1)

Q 10,468.0
515.2
438.2
1.3
85.9
42.8
Q 11,551.5

90.6%
4.5
3.8
0.0
0.7
0.4
100.0%

2006
(Q millions)
Q 10,355.7

381.7
2.1
92.1
14.8
Q 10,846.3

(%)
95.5%

3.5
0.0
0.8
0.1
100.0%

As of December 31,
2005
(Q millions)
(%)
Q

7,803.6

497.1
3.7
87.9
16.8
8,408.9

92.8%

5.9
0.0
1.0
0.2
100.0%

2004
(Q millions)
Q

7,123.4

235.3
14.1
50.1
9.3
7,432.2

(%)
95.8%

3.2
0.2
0.7
0.1
100.0%

Amortization funds consist of short term investments that we make for purposes of meeting obligations for the payment of our debt. See note 10 to the
Financial Statements.

The following table presents our securities portfolio by currency as of June 30, 2007 and as of December
31, 2006, 2005 and 2004.
As of June 30,
2007
(Q millions)
(%)
Denominated in Guatemalan currency............... Q 9,249.6
Denominated in Foreign currency......................
2,301.9
Total......................................................... Q 11,551.4

80.1%
19.9
100.0%

2006
(Q millions)
Q

8,129.0
2,717.3
Q 10,846.3

68

(%)
74.9%
25.1
100.0%

As of December 31,
2005
(Q millions)
(%)

2004
(Q millions)

Q 5,195.7
3,213.1
Q 8,408.9

Q 4,492.8
2,939.4
Q 7,432.2

61.8%
38.2
100.0%

(%)
60.5%
39.5
100.0%

Maturity Distribution and Average Yield


The following table presents the maturity distribution and weighted average yields as of June 30, 2007 for our securities portfolio.

0.0%

Q 2,024.2

6.5%

Due after 1 year to 5


Due after 5 years to
years
10 years
Average
Average
Yield
Yield
Volume
Volume
(Q millions, except percentages)
Q 2,120.0
8.3%
Q 4,787.4
9.2%

0.0
0.0
0.0
0.0
0.0%

207.4
0.0
2.2
42.8
Q 2,276.6

6.4
0.0
0.0
0.0
6.4%

75.1
0.4
23.7
0.0
Q 2,219.2

No Stated Maturity
Average
Volum
Yield
e
Government and Central Bank securities
Banco de Comercio trust ........................
Securities of private issuers....................
Interest paid in purchase of securities.....
Premiums paid in purchase of securities
Amortization funds(1) .............................
Total ..................................................

0.3
515.2
7.1
0.0
0.0
0.0
Q 522.6

Due in 1 year or less


Average
Yield
Volume

7.0
0.0
0.0
0.0
8.1%

148.7
0.3
32.5
0.0
Q 4,969.0

6.5
0.0
0.0
0.0
9.03%

Due after 10 years


Average
Yield
Volume
Q 1,536.1

9.3% Q 10,468.0

8.5%

0.0
0.6
27.5
0.0
Q 1,564.2

0.0
953.4
0.0
1.3
0.0
85.9
0.0
42.8
9.1% Q 11,551.5

3.0
0.0
0.0
0.0
7.9%

_________________________
(1)

Amortization funds relates to short term investments that we make for purposes of meeting obligations for the payment of our debt. See note 10 to our Financial Statements.

69

Total
Average
Yield
Volume

Loan Portfolio
The balance of our loan portfolio was Q16,436.5 million as of June 30, 2007, compared to Q14,944.8
million as of December 31, 2006, Q10,263.5 million as of December 31, 2005 and Q8,904.2 million as of December
31, 2004. This growth reflects higher lending in corporate and consumer markets as well as greater participation in
syndicated lending and increased lending activity in Mexico and Central America. As of June 30, 2007,
approximately 79.6% of our loan portfolio was comprised of corporate loans and 20.4% of retail loans. Our loan
portfolio was 22.7% larger on June 30, 2007 than it was on June 30, 2006. As of December 31, 2006, approximately
80.0% of our loan portfolio was comprised of corporate loans and 20.0% of retail loans. Our loan portfolio was
45.6% larger as of December 31, 2006 than it was as of December 31, 2005. As of December 31, 2005,
approximately 80.9% of our loan portfolio was comprised of corporate loans and 19.1% of retail loans. Our loan
portfolio was 15.3% larger as of December 31, 2005 than it was as of December 31, 2004. As of December 31,
2004, approximately 80.3% of our loan portfolio was comprised of corporate loans and 19.7% of retail loans.
The average yield on our loan portfolio in the first six months of 2007 was 8.4%, up from 7.4% for 2006.
This yield increase was driven mainly by the growth of our consumer lending, which is characterized by higher
margins.
The average yield on our loan portfolio in 2006 was 7.4%, down from 8.1% in 2005. This decrease in the
average yield on the loan portfolio resulted from a relatively low interest rate environment in Guatemala, which
affected our local currency portfolio and was largely attributable to favorable macroeconomic indicators and a more
competitive environment in the Central American financial system. The yield on our foreign currency loan portfolio
remained constant, while the yield on Quetzal denominated loans decreased 0.13% from 9.7% to 8.4%.
The average yield on our loan portfolio in 2005 was 8.1%, up from 7.9% in 2004. This increase in the
average yield on the loan portfolio resulted mainly from an increase in foreign currency lending yields. During this
period the average yields on both local and foreign currency, remained fairly constant with slight increases.
Our net loan portfolio value grew to Q16,314.3 million as of June 30, 2007, which represented an increase
of 10.3% over the net loan portfolio value reported as of December 31, 2006. Our loan loss reserve decreased to
Q122.2 million as of June 30, 2007 from Q157.7 million as of December 31, 2006, which represented a decrease of
22.5%. This decrease reflects an improvement in the quality of our loan portfolio with non-performing loans
decreasing to Q120.1 million as of June 30, 2007 from Q146.3 million as of December 31, 2006. We believe we
have maintained an adequate coverage ratio due to our conservative risk management policies, which resulted in an
allowance for loan losses over non-performing loans of 101.8% as of June 30, 2007 and 107.8% as of December 31,
2006.
Our net loan portfolio value grew by 45.6% to Q14,787.0 million as of December 31, 2006, from
Q10,153.3 million as of December 31, 2005. Our loan loss reserve increased to Q157.7 million as of December 31,
2006 from Q110.2 million as of December 31, 2005, which represented an increase of 43.2%, reflecting an increase
in loans from the acquisition of Banco de Occidente. Our loan loss reserve coverage over past due loans was
107.7% as of December 31, 2006 and 127.2% as of December 31, 2005. We believe we have maintained adequate
levels of coverage due to our conservative risk management policies.
Since 2004, non-performing loans as a percentage of total loans have been below 1.0%, loans grades C, D
and E as a percentage of total loans has been below 1.5%, and the allowance for loan losses as a percentage of nonperforming loans has been above 100%. We believe these results reflect our stringent risk management and
improved the management and analysis of the loans of customers under financial stress as well as managements
commitment to conform to international banking standards to better withstand sudden changes in economic
conditions.

70

Loans by Type of Borrower


The following table summarizes our loan portfolio by client type as of June 30, 2007 and December 31,
2006, 2005 and 2004:
As of December 31,
2006
2005
(Q millions, except percentages)

As of June 30
2007
Type of loan:
Commercial and
corporate(1) ..............
Mortgage loans............
Vehicles ......................
Credit cards .................
Consumer....................
Total loans ...................
Allowance for loan
losses.......................
Loans, net.....................
(1)

Q 13,082.8
1,097.4
640.3
898.4
717.7
16,436.5

79.6%
6.7
3.9
5.5
4.4
100.0%

122.2
Q 16,314.3

Q 11,954.8
888.0
584.0
834.0
684.0
14,944.8

80.0%
5.9
3.9
5.6
4.6
100.0%

157.8
Q 14,787.0

8,301.5
594.0
385.0
584.0
399.0
10,263.5

2004

80.9%
5.8
3.8
5.7
3.9
100.0%

110.0
Q 10,153.5

Q 7,148.7
489.2
352.4
497.7
416.4
8,904.3

80.3%
5.5
4.0
5.6
4.7
100.0%

107.4
Q 8,796.9

Commercial and corporate loans include cross-border loans totaling Q2,376.3 million, Q2,605.5 million, Q2,101.7 million and Q1,943.1 million as of June 30,
2007 and December 31, 2006, 2005 and 2004. Of these cross-border loans, the following amounts were outstanding to borrowers located in the following
countries: El Salvador: Q354.9 million as of June 30, 2007, Q372.2 million as of December 31, 2006 and Q265.6 million as of December 31, 2005; and
Honduras: Q231.5 million as of June 30, 2007, Q395.0 million as of December 31, 2006 and Q235.2 million as of December 31, 2005.

Historically, we have not extended credit to clients in certain sectors that we consider volatile, including the
coffee sector and government institutions, although we may do so in the future.
Loans and Leases by Type of Borrower and by Maturity
The following tables illustrate the distribution of our loan portfolio by maturity for each client type for the
periods indicated. All of our loans are to entities or persons in the private sector. We do not lend to governments or
governmental entities, although we may do so in the future.
As of June 30, 2007
30 90
days

< 30
days
Private sector:
Commercial and
corporate .............
Mortgage loans........
Vehicles...................
Credit cards .............
Consumer ................
Allowance for loan
losses...................
Total ..........................

90 days 1 year

12
2- 5
years
years
< 1 year
(Q millions, except percentages)

>5
years

Total

As a % of
Total
Loans

465.3
2.9
0.8
7.6
14.6

1,073.9
0.8
1.4
39.2
12.2

Q 3,123.0
10.1
22.3
184.9
92.7

Q 4,662.1
13.8
24.5
231.6
119.5

824.1
10.8
65.7
354.9
136.6

Q 3,403.3
36.8
549.4
311.7
408.6

Q 4,193.3
1,036.0
0.7
0.0
53.0

Q 13,082.8
1,097.4
640.3
898.3
717.7

80.2%
6.7
3.9
5.5
4.4

491.1

1,127.5

Q 3,433.0

Q 5,051.5

Q 1,392.1

Q 4,709.8

Q 5,283.0

(122.2)
Q 16,314.3

(0.7)
100%

71

As of December 31, 2006


30 90
days

< 30
days
Private sector:
Commercial and
corporate .............
Mortgage loans........
Vehicles...................
Credit cards .............
Consumer ................
Allowance for loan
losses...................
Total ..........................

90 days -1
year

12
years

2- 5
years
< 1 year
(Q millions, except percentages)

>5
years

Total

As a %
of Total
Loans

474.0
3.0
1.0
7.0
17.0

861.0
0.0
3.0
18.0
21.0

Q 2,640.0
3.0
19.0
221.0
89.0

Q 3,975.1
6.0
23.0
246.0
127.0

687.8
11.0
54.0
265.0
103.0

Q 3,477.0
53.0
506.0
323.0
326.0

Q 37,815.1
818.0
1.0
0.0
128.0

Q 11,954.8
888.0
584.0
834.0
684.0

80.8%
6.0
3.9
5.6
4.6

502.0

903.0

Q 2,972.0

Q 4,377.0

Q 1,120.8

Q 4,685.0

(158.0)
Q 14,786.8

(1.1)
100%

4,762.0

As of December 31, 2005


30 - 90
days

90 days 1 year

Q 281.0

Q 706.0

Q 1,555.0

0.0
0.5
19.0
11.0

0.0
1.0
32.0
13.0

6.0
15.0
110.0
58.0

6.0
16.5
161.0
82.0

Q 311.5

Q 752.0

Q 1,744.0

Q 2,807.5

< 30
days
Private sector:
Commercial and
corporate ...............
Mortgage loans .......
Vehicles ..................
Credit cards .............
Consumer ................
Allowance for loan
losses.....................
Total ............................

1-2
2- 5
years
years
< 1 year
(Q millions, except percentages)
Q 2,542.0
Q 570.5 Q 2,266.0

>5
years
Q 2,923.0

Total
Q

8,301.5

As a %
of Total
Loans
81.8%

6.0
47.0
220.0
51.0

55.0
320.5
203.0
174.0

522.0
1.0
0.0
92.0

589.0
385.0
584.0
399.0
(110.0)

5.8
3.8
5.8
3.9
(1.1)

894.5

Q 3,018.5

Q 3,538.0

Q 10,148.5

100.0%

Total

As a %
of Total
Loans

As of December 31, 2004


< 30
days
Private sector:
Commercial and
corporate ..................
Mortgage loans...........
Vehicles......................
Credit cards ................
Consumer ...................
Allowance for loan
losses ........................
Total .............................

375.9

30 90
days

90 days -1
year

957.6

Q 1,480.0

0.1
0.7
25.4
14.0

3.3
12.2
23.7
98.2

4.2
13.1
74.8
128.6

997.8

Q 1,617.4

Q 3,034.3

0.7
0.2
25.7
16.5

Q 419.0

1-2
2- 5
years
years
< 1 year
(Q millions, except percentages)
Q 2,813.5 Q
316.4 Q 2,017.2

>5
years
Q 2,001.7

Q 7,148.7
489.2
352.4
497.6
416.4
(107.4)

4.4
46.9
185.1
134.1

58.2
292.4
237.6
122.2

422.4
0.0
0.1
31.5

686.9

Q 2,727.6

Q 2,455.6

Q 8,796.9

Loans by Economic Activity


We believe our loan portfolio is diversified in terms of economic sectors in Guatemala, with borrowers
distributed among the agroindustry, commerce, industry, retail and services sectors. The following table sets forth
our loan portfolio by the indicated categories as of June 30, 2007 and December 31, 2006, 2005 and 2004:
As of June 30,
2007
(Q millions)
(%)
Current loans................... Q 16,316.4
746.5
Agroindustry ......................
2,219.4
Commerce..........................
4,985.5
Industry ..............................
3,181.9
Retail..................................
5,183.1
Services..............................

99.3%
4.5
13.5
30.3
19.4
31.5

2006
(Q millions)
Q 14,798.3
689.1
3,682.9
3,619.8
2,835.9
3,970.6

72

(%)
99.0%
4.6
24.6
24.2
19.0
26.6

As of December 31,
2005
(Q millions)
(%)
Q 10,176.9
536.2
2,583.2
2,237.9
1,860.8
2,958.8

99.2%
5.2
25.2
21.8
18.1
28.8

2004
(Q millions)
Q

8,840.5
424.8
2,067.1
1,803.9
1,708.0
2,836.6

(%)
99.3%
4.8
23.2
20.3
19.2
31.9

81.3%
5.6
4.0
5.7
4.7
(1.2)
100.0%

As of June 30,
2007
(Q millions)
(%)
In process of
extension(1) ......................
Agroindustry ......................
Commerce..........................
Industry ..............................
Retail..................................
Services..............................

12.0
0.2
3.1
1.3
1.8
5.6

0.1
0.0
0.0
0.0
0.0
0.0

Past due loans ...................


108.1
3.1
Agroindustry ......................
16.6
Commerce..........................
9.3
Industry ..............................
Retail..................................
71.2
7.9
Services..............................
Gross loans........................
16,436.5
Allowance for loan
122.2
losses..............................
Net loan portfolio
value .............................. Q 16,314.3
(1)

2006
(Q millions)

As of December 31,
2005
(Q millions)
(%)

(%)

13.6
0.0
6.7
0.2
3.3
3.5

0.1
0.0
0.0
0.0
0.0
0.0

24.8
17.9
2.6
0.5
3.7
0.1

2004
(Q millions)

0.2
0.2
0.0
0.0
0.0
0.0

(%)

10.4
3.6
2.6
0.4
2.1
1.7

0.1
0.0
0.0
0.0
0.0
0.0

0.7
0.0
0.1
0.1
0.4
0.0
100.0%

132.8
0.3
9.7
45.4
70.9
6.5
14,944.8

0.9
0.0
0.1
0.3
0.5
0.0
100.0%

61.8
0.2
5.2
8.0
45.9
2.5
10,263.5

0.6
0.0
0.1
0.1
0.4
0.0
100.0%

53.3
0.6
1.3
5.3
45.6
0.5
8,904.2

0.6
0.0
0.0
0.1
0.5
0.0
100.0%

0.7%

157.8

1.1%

110.2

1.1%

107.4

1.2%

Q 14,787.0

Q 10,153.3

8,796.8

Loans in process of extension refers to non-performing loans that have matured and are subject to the Banks administrative process for renewal.

Loans by Geographic Concentration


Our loan portfolio is primarily concentrated in Guatemala. The percentage of the total loan portfolio
located in Guatemala as of June 30, 2007, December 31, 2006, 2005 and 2004 was 97.7%, 96.6%, 96.8% and
98.0%, respectively. Our non-Guatemalan borrowers at such dates were primarily foreign borrowers in Central
America, Mexico, Panama, the Dominican Republic and the West Indies.
Non-Performing Loan Portfolio
In assessing the performance of our loan portfolio and calculating our allowance for loan losses, we review
both the outstanding amount of our non-performing loan portfolio as well as applicable Guatemalan regulations.
The non-performing loan portfolio may include credits in process of extension and credits that our management
views as involving different levels of risk and that are accordingly graded for regulatory purposes in any of
categories A to E. See Grading of Loan Portfolio.
The following table sets forth an analysis of non-performing loans distributed by economic activity of the
borrowers at the dates indicated.
As of June 30,
2007
(Q millions)
(%)
Non-performing loans(1) ....................
Agroindustry........................................
Commerce ...........................................
Industry................................................
Retail....................................................
Services................................................
Total non-performing loans ........
Allowance for loan losses ...................
Total non-performing portfolio net
of allowance for loan losses ....
(1)

120.1
3.3
19.7
10.6
73.1
13.5
120.1
122.2
(2.1)

100.0%
2.7
16.4
8.8
60.8
11.2
100.0%

2006
(Q millions)
Q

146.3
0.3
16.3
45.6
74.2
9.9
146.3
157.7

(11.4)

(%)
100.0%
0.2
11.2
31.2
50.7
6.8
100.0%

As of December 31,
2005
(Q millions)
(%)
Q

86.6
18.1
7.8
8.5
49.6
2.5
86.6
110.2

(23.6)

100.0%
20.9
9.1
9.8
57.3
2.9
100.0%

2004
(Q millions)
Q

63.7
4.2
3.9
5.7
47.7
2.2
63.7
107.4

(43.7)

(%)
100.0%
6.6
6.1
9.0
74.8
3.5
100.0%

The secured portion of total non-performing loans as of June 30, 2007, December 31, 2006, 2005 and 2004 was 50.1%, 41.2%, 35.0% and 11.95%, respectively.

The 69.1% increase in total non-performing loans as of December 31, 2006 as compared to the same period
in 2005 was the result in part of loans that we acquired from Banco de Occidente in 2006 and then classified as non73

performing loans. During 2007, many of these loans were written-off and total non-performing loans decreased by
18.0% as of June 30, 2007 from year end 2006. See Allowance for Loan LossesAllowances by Type of Loan
for a description of changes in allowances for loan losses during these periods.
Grading of Loan Portfolio
The classification system we utilize to grade our loan portfolio is based on regulations issued by the
Monetary Board and is monitored by the Superintendency of Banks on a quarterly basis. The regulations take into
account the delinquency of the loans and the type of borrower as well as the borrowers payment capacity. We
evaluate our loan portfolio at least on a quarterly basis pursuant to the Monetary Boards resolution JM 93-2005.
Each loan in our loan portfolio must be classified under one of the following five categories, from lowest to highest
risk. The five categories and the resulting loan loss reserve requirement is set forth in the following table:

Category
A
B
C
D
E

Risk
Normal risk
Above normal risk
Expected losses
Significative expected losses
High risk of being non-performing

Loan loss
reserve requirement (%)
0
5
20
50
100

Grading Criteria
As described below, grading criteria applies to large commercial and corporate loans (based on numerous
criteria) as well as small corporate loans and consumer loans (based principally on the length of time payments are
overdue).
Large Commercial and Corporate Loans
In accordance with the applicable Monetary Board regulations, Guatemalan banks must classify loans that
exceed Q5.0 million as large commercial and corporate loans. With respect to these loans, the grading criteria is
based on our evaluation of the borrowers creditworthiness, taking into account various factors, including, but not
limited to, the borrowers financial profile, its payment history, its projected payment ability, the nature of the its
business and its liquidity level. We classify the loan in one of five categories (A being the lowest risk level, E, the
highest). Please find below further details on the requirements used for the classification of large commercial and
corporate loans in each of the five categories A through E.
Grade A
To receive a Grade A classification, a large commercial or corporate loan must comply with the following
six requirements:

The first requirement is a determination that the company has sufficient cash flow to meet payment
obligations and appropriate levels of liquidity, indebtedness and profitability (given the nature of the
borrowers business). For most companies this analysis is based on the two fiscal years immediately
preceding the date of evaluation, or the time the company has been in operation if less than two years.
Another criteria is that the company have current audited financial statements. In instances where a
new company is being evaluated, the analysis is based on projections and the nature of the companys
business.

The second requirement is that payments of principal, interest and other amounts due may be not be
made using additional financing obtained from us.

The third requirement is that the company have current, audited financial statements for the periods
covered in the first requirement.

74

The fourth requirement is that an analysis of the principal economic sector in which the borrower
operates does not reveal any significant factors that could impede the borrowers payment capacity in
both the short and medium-term. In performing this analysis, we review industry reports and trade
publications from official or authoritative sources.

Fifth, we, as the lender, must have no actual knowledge of any other factors that could impede the
borrowers ability to generate sufficient cash flows or affect its liquidity, indebtedness and profitability
levels.

Sixth, the borrowers payment of principal, interest and other amounts due must at all times be up to
date or no more than one month overdue.

Grade B
To receive a Grade B classification, a large commercial or corporate loan must meet the first two
requirements for a Grade A classification (described above), and have one or more of the following characteristics:

The financial information has not been audited, but includes financial statements and notes, uses
applicable accounting principle and is signed by the borrowers accountant and legal representative.

Our analysis of the principal economic sector in which the borrower operates reveals problems that
could indicate a deterioration of the borrowers financial situation.

We have knowledge of other factors that could negatively impact the cash flow or financial ratios of
the borrower.

The borrowers payment of principal, interest and other amounts due is more than one month but less
than three months overdue.

Grade C
To receive a Grade C classification, a large commercial or corporate loan must meet one or more (but not
all) characteristics of the Grade A or B classification, the borrower must have updated financial information and the
loan must have one or more of the following characteristics:

The financial information is up to date, but incomplete (i.e., it does not include all the information
required in the Grade B classification).

Our analysis of the financial information reveals that current cash flows are not sufficient to fulfill the
borrowers contractual payment obligations.

The borrower shows deficiencies in its financial situation in terms of liquidity, indebtedness and
profitability.

The borrowers payment of principal, interest and other amounts due is more than three months but
less than six months overdue or the borrower has received additional financing from us to cover the
overdue payments.

Grade D
To receive a Grade D classification, a large commercial or corporate loan must meet one or more (but not
all) of the characteristics of the higher grade loans and have one or more of the following characteristics:

A substantial deterioration of the borrowers financial situation is reflected in at least two of the
following ways: (i) current liabilities exceed current assets; (ii) accumulated losses or period losses
represent more than 30% but less than 60% of paid-in-capital and reserves; (iii) indebtedness is
excessive in relation to shareholders equity (taking into consideration the nature of the business); and
(iv) accounts receivable and inventories are significantly higher than historic levels.

The financial information is not current.


75

The borrowers payment of principal, interest and other amounts due is more than six months but less
than twelve months overdue or the borrower has received additional financing from us to cover the
overdue payments.

Grade E
To receive a Grade E classification, a large commercial or corporate loan must have one or more (but not
all) of the characteristics of the higher grade loans and have one or more of the following characteristics:

Our analysis of the financial information shows that the borrower is not able to cover its operational or
financial costs.

No financial information is available to evaluate the borrowers payment capacity or available


information is not reliable.

The external auditors have given a negative opinion or abstained from giving an opinion with respect
to the borrowers financial statements.

In our judgment, the borrower is incapable of continuing the economic activity it performs.

The borrowers payment of principal, interest and other amounts due is more than twelve months
overdue or the borrower has received additional financing from us to cover the overdue payments.

The borrower has lost more than 60% of its paid-in capital.

A collection process has been initiated against the borrower.

The lack of an executory right to demand payment of the loan.

We have initiated a judicial process against the borrower with regard to any of the borrowers
obligations.

Small Commercial and Corporate Loans and Mortgage Loans


Small commercial and corporate loans consist of loans under Q5.0 million. We classify these loans in one
of five categories (A being the lowest risk level, E, the highest) depending on the length of time payments are
overdue, as shown in the following table:
Category

Payment Period

Current - 1 month overdue

1-3 months overdue

3-6 months overdue

6-12 months overdue

More than 12 months overdue

Consumer Loans and Microcredits


We classify consumer and microcredit loans in one of five categories (A being the lowest risk level, E, the
highest) depending on the length of time payments are overdue, as shown in the following table:
Category

Payment Period

Current - 1 month overdue

1-2 months overdue

2-4 months overdue

4-6 months overdue

More than 6 months overdue

76

Grading and Regulation


If the Superintendency of Banks determines that the classification of the loan portfolio or the amount for
allowances for loan losses does not comply with applicable law, it can require the reclassification of the loan
portfolio and require a bank to increase its loan loss allowances.
The allowance for loan losses is based on the outstanding amount due under the loan on the date of
valuation, unless the loan is backed by collateral, in which case, the value of the collateral will be subtracted from
amount due under the loan.
Loan Portfolio Risk Classification for Loan Losses
The following table sets forth our loan portfolio by risk category as of June 30, 2007 and as of
December 31, 2006, 2005 and 2004.
As of June 30,
2007
(Q millions)
(%)

Risk Category
A ..........................................................
B ..........................................................
C ..........................................................
D ..........................................................
E...........................................................
Total ....................................................

Q 16,026.1
206.7
124.8
41.6
37.3
Q 16,436.5

2006
(Q millions)

97.5%
1.3
0.8
0.3
0.2
100.0%

Q 14,502.0
222.4
144.4
29.0
47.0
Q 14,944.8

(%)
97.0%
1.5
1.0
0.2
0.3
100.0%

As of December 31
2005
(Q millions)
(%)
Q 10,022.5
108.0
66.0
41.0
26.0
Q 10,263.5

97.7%
1.1
0.6
0.4
0.3
100.0%

2004
(Q millions)
Q

8,671.6
112.3
70.6
25.8
24.0
8,904.2

(%)
97.4%
1.3
0.8
0.3
0.3
100.0%

Classification of Loan Portfolio


As of June 30, 2007, our allowance for loan losses was Q122.2 million, representing 0.7% of total loans
outstanding. The following table shows by risk level our total loans as June 30, 2007 and as of December 31, 2006,
2005 and 2004 and the portions of the allowance for loan losses attributable to such loans (with A being the highest
quality of rating and E the lowest). The other portions of the allowance for loan losses are for general reserves.
As of June 30,
2007

Rating
A ............
B ............
C ............
D ............
E.............
Total ......
(1)

Loans
Q

16,026.1
206.7
124.8
41.6
37.3
16,436.5

% of
Total

As of December 31,
2005
Allowance
Allowance
% of
% of
for loan
for loan
Total
Total
losses
losses
Loans
(Q millions, except percentages)
97.0% Q
0.0
Q 10,022.5
97.7% Q
0.0
1.5
1.0
108.0
1.1
2.7
1.0
4.0
66.0
0.6
4.1
0.2
10.0
41.0
0.4
7.9
0.3
15.0
26.0
0.3
7.4
100.0% Q 30.0
Q 10,263.5 100.0% Q 22.1
2006

Allowance
for loan
losses

97.5% Q
1.3
0.8
0.3
0.2
100.0% Q

0.0
3.1
2.9
5.6
6.2
17.8

Loans
Q 14,502.0
222.4
144.4
29.0
47.0
Q 14,944.8

2004

Loans
Q 8,671.6
112.3
70.6
25.8
24.0
Q 8,904.2

% of
Total

Allowance
for loan
losses

97.4% Q
1.3
0.8
0.3
0.3
100.0% Q

0.0
2.1
3.1
6.4
7.5
19.0

Allowances for loan losses are allocated on a monthly basis after the classification of the loan portfolio. The total allowance for loan losses as of July 31, 2007,
January 31, 2006, 2005 and 2004 was Q32.8 million, Q46.4 million, Q27.9 million and Q24.3 million, respectively.

As of June 30, 2007, approximately 98.8% of our corporate loan portfolio was classified in risk category A
or B. We believe we have been able to maintain strong asset quality in consumer and corporate loans by
implementing very strict credit approval policies as well as a centralized process of credit authorization. Our board
of directors must authorize loans in excess of Q4.0 million. In addition, we constantly monitor our corporate and
individual clients financial condition by updating their financial information on a quarterly, and sometimes
monthly, basis. The Risk Management Area is responsible for keeping current financial information (updated on a
quarterly basis) on all commercial and corporate borrowers to identify in a timely manner any problems that may
arise due to the deterioration of the borrowers payment ability.

77

Allowance for Loan Losses


The following table sets forth the composition of the allowance for loan losses, charge-offs and recoveries
for the six months ended as of June 30, 2007 and for the years ended as of December 31, 2006, 2005 and 2004:
As of June 30,
2007

Opening balance .......................


Addition....................................
Loan write-offs .........................
Recoveries ................................
Ending balance .......................

157.9
67.5
(84.2)
(19.0)
122.2

As of December 31,
2005
2004
(Q millions, except percentages)

2006

110.2
87.2
(16.6)
(22.9)
157.9

107.4
51.1
(20.8)
(27.5)
110.2

55.9
97.5
(26.1)
(19.9)
107.4

Percentage Change
2006/2005
2005/2004

2.6%
70.6%
(20.2)%
(16.7)%
43.3%

92.2%
(47.6)%
(20.3)%
38.2%
2.4%

Developments in Reserves and Write-offs


As a result of the acquisition of Banco de Occidente, S.A., in March 2006 our loan portfolio increased. At
the same time, our loan loss reserves increased, reflecting our evaluation of Banco de Occidente loan portfolio. The
increase in write-offs for the six-month period ended June 30, 2007 resulted from the inclusion of commercial and
corporate loans from Banco de Occidente, some of which were assessed to be uncollectible by our risk management
department due to the fact that the collateral did not meet our quantitative and qualitative requirements.
Relevant Regulatory Changes
In May 2004, the Regulations for Credit Risk Management (Reglamento para la Admnistracin de Riesgo
de Crdito), Resolution JM 141-2003 came into effect. The principal effects of regulations with respect to the
allowance for loan losses was to divide the loan portfolio in categories, assigning assessment criteria to each
category according to the risk as discussed under Grading Criteria and to change the frequency of the
assessment from bi-annually to quarterly. The regulations were amended in 2005 by Resolution JM-93-2005. The
main change was the modification of the amount to classify a loan a large corporate (empresarial mayor) loan from
Q3.0 million to Q5.0 million.
Allowances by Type of Loan
The following table sets forth the composition of the allowance for loan losses for the six months ended
June 30, 2007 and for the years ended December 31, 2006, 2005 and 2004. The allocated amount of the allowance
by type of loan is shown in millions of Quetzales and as a percentage of the related loan amounts as well as the
corresponding percentage of the loan category type to total loans:
As of June 30, 2007
As of December 31, 2006
As of December 31, 2005
As of December 31, 2004
Allocated
Loan
Allocated
Loan
Allocated
Loan
Allocated
Loan
allowance category
allowance category
allowance category
allowance category
Allocated as a % of as a % of Allocated as a % of as a % of Allocated as a % of as a % of Allocated as a % of as a % of
allowance total loans total loans allowance total loans total loans allowance total loans total loans allowance total loans total loans
(Q millions, except percentages)
Commercial and
corporate .......
Mortgage loans
Vehicles...........
Credit cards .....
Consumer ........
General
allowance.......
Total ...............

7.3
0.0
0.3
3.6
6.5

0.04%
0.00
0.00
0.02
0.04

79.60% Q
6.68
3.90
5.47
4.37

12.0
0.5
2.8
10.1
4.6

0.08%
0.00
0.02
0.07
0.03

104.6
122.3

0.64
0.74%

100.00% Q

127.7
157.7

0.85
1.06%

79.99%
5.94
3.91
5.58
4.58

11.0
0.3
1.0
7.5
2.2

0.11%
0.00
0.01
0.07
0.02

80.88% Q
5.79
3.75
5.69
3.89

8.3
0.2
1.0
5.8
3.7

0.09%
0.00
0.01
0.07
0.04

80.28%
5.49
3.96
5.59
4.68

100.00% Q

88.1
110.1

0.86
1.07%

100.00% Q

88.3
107.3

0.99
1.21%

100.00%

Our allowance for loan losses as a percentage of total non-performing loans was 101.8%, 107.8%, 127.2%
and 168.5% as of June 30, 2007, December 31, 2006, 2005 and 2004, respectively. The decrease in this percentage
over the periods indicated reflects the fact that we have improved our provisioning policies over time and the
allowance for loan losses now covers the Banco de Occidente loans acquired in March 2006, in particular those
loans that did not have adequate collateral. In the case of the percentage as of June 30, 2007, the decrease
78

additionally was due to the fact that we generally increase our general allowance for loan losses to the maximum
amount permitted for purposes of tax deductions in December of each year rather than during the course of the year.
Methodology for the creation of general loan losses reserve

Our policy requires that the coverage of loan loss reserves to be at least 100% of our non-performing
loans.

Loan loss reserves are created pursuant to Methodology IRV (Internal Rating Based) of Basel 2, in
which a five-year period of information on delinquency of the segments of the portfolio is taken into
account to estimate an expected loss during the year. We calculate the estimated loss annually, although,
it is monitored on a monthly basis and adjusted as necessary.

Our internal policies for the creation of loan loss reserves cover regulatory reserves. We first create the
general loan losses reserve and then allocate these amounts to the specific classifications as required by
the regulation.

Additional risk factors are taken into account in the creation of the general loan loss reserves, such as the
fact that loans from Banco de Occidente did not have adequate collateral.
The table below shows information related to our loan portfolio as of the dates indicated:
As of and for the
six months ended
June 30,
2007

Total gross loans...................................................................


Allowance for loan losses ....................................................
Total non-performing loans..................................................
As a percentage of total loans ..............................................
Total write-off ......................................................................
Recoveries ............................................................................

As of and for the year ended December 31,


2006
2005
2004
(Q millions, except percentages)

16,436.5
122.2
120.1
0.7%
84.2
19.1

14,944.8
157.7
146.3
1.1%
16.6
22.9

10,263.5
110.2
86.6
1.1%
20.8
27.5

8,904.2
107.4
63.7
1.2%
26.1
19.9

Based on information available regarding our borrowers, we believe that our aggregate allowance for loan
losses is sufficient to cover known expected losses and known losses inherent in our loan portfolio.
The increase in the loan loss reserve during the past three years is a reflection of managements
commitment to adapt to international banking standards and prepare for any sudden changes in Guatemalas
economic environment. As may be seen in the chart above, we have carried out significant write-offs of our loan
portfolio since January 1, 2004 to improve asset quality and remove problematic loans from our portfolio.
Our Twenty Largest Borrowers by Outstanding Balances
The following table sets forth the economic sector and outstanding balance of our 20 largest borrowers.
As of June 30, 2007
Outstanding
Balance
(Q millions)

Economic Sector of the Borrower

1
2
3
4
5
6
7
8

Industry .............................
Industry .............................
Services .............................
Industry .............................
Industry .............................
Services .............................
Services .............................
Industry .............................
79

342.4
259.7
246.9
239.9
198.5
192.9
181.5
169.3

% of Total Loan
Portfolio
(%)

2.1%
1.6
1.5
1.5
1.2
1.2
1.1
1.0

9
10
11
12
13
14
15
16
17
18
19
20

Services .............................
Industry .............................
Industry .............................
Services .............................
Commerce .........................
Services .............................
Industry .............................
Industry .............................
Industry .............................
Industry .............................
Commerce .........................
Industry .............................
Total top 20......................
Others................................
Total loans........................

152.6
139.6
137.5
120.0
120.0
117.7
115.7
115.6
104.4
104.0
102.6
101.7
3,262.4
13,051.9
Q 16,314.3

0.9
0.9
0.8
0.7
0.7
0.7
0.7
0.7
0.6
0.6
0.6
0.6
20.0
80.0
100.0%

To mitigate concentration of risks of our principal creditors, we perform an individual analysis, which takes
into consideration the following factors: financial position, market, management of the company, collateral and the
ability to service the debt based on a cash flow analysis.
Even though the classification of the client and its qualitative factors do not require a specific reserve, we
take into consideration the analysis mentioned in the preceding paragraph with respect to these clients when
calculating the general loan losses reserve pursuant to the Methodology IRV.

80

THE BANK
The Bank
We are the largest bank in Guatemala and, after giving effect to our acquisition of BanQuetzal, we believe
that we are the largest privately owned bank in Central America (excluding Panama), based on total assets as of
December 31, 2007. We are a full-service commercial bank providing a wide range of financial services to over one
million customers. Our main business lines include corporate, retail and international banking, as well as private
banking and credit cards.
In Guatemala, we have a dominant presence with a market share of 29.0%, 24.9% and 27.4% in total
assets, total loans and total deposits, respectively, as of February 29, 2008. Our closest competitor had a market
share of 19.2%, 19.4% and 18.5% in total assets, total loans and total deposits, respectively, as of February 29, 2008.
Guatemalas economy is the largest in Central America and has been characterized in recent years by
consistent rates of growth and stable rates of inflation. According to the Guatemalan National Institute of Statistics
(Instituto Nacional de Estadstica), the population of Guatemala was estimated at approximately 13.3 million in
2007. We believe that as much as 75% of the population currently does not have access to financial services, which
presents a significant growth opportunity for us.
Our total assets, loan portfolio and net income have grown in recent years due to our client base and branch
expansion, market diversification and product innovation as well as consolidation within the Guatemalan financial
system. We have actively participated in Guatemalas banking consolidation process through the acquisition of
Banco de Occidente in March 2006, the sixth largest bank in Guatemala in terms of assets as of March 31, 2006, and
the transfer of certain assets and liabilities of Banco de Comercio in January 2007. In addition, on February 15,
2008, we acquired BanQuetzal, the twelfth largest bank in Guatemala in terms of assets as of June 30, 2007, and two
of its three subsidiaries.
Primarily as a result of our recent acquisitions, particularly that of Banco de Occidente in 2006, we have
experienced high rates of growth. Our total assets, loans and deposits grew 20.1%, 34.2% and 17.5%, respectively,
in 2007 as compared to 41.9%, 45.6% and 41.0%, respectively, in 2006. From 2001 to 2007, we experienced
compounded annual growth rates of 21.0%, 24.5% and 20.0% in terms of assets, loans and deposits. Our net income
grew 46.8% in 2007 compared to 8.7% in 2006 and 41.4% in 2005. From 2001 to 2007, our net income grew at a
compounded annual rate of 23.3%.
As of December 31, 2007, we had total assets of Q38,353.6 million (US$5.0 billion), total net loans of
Q19,842.5 million (US$2.6 billion) and total deposits of Q26,350.5 million (US$3.5 billion). For the period ended
December 31, 2007, we had net income of Q473.9 million (US$62.1 million) and at December 31, 2007, we had
shareholders equity of Q3,071.7 million (US$402.5 million), excluding subordinated debt of Q419.7 million
(US$55.0 million).
Our Capital Ratio (defined as end of period Total Net Capital as a percentage of risk-weighted assets) on an
unconsolidated basis was 14.1% and 14.5% as of December 31, 2007 and December 31, 2006, respectively, which
was, in each instance, above the regulatory requirement of 10.0% set forth in Guatemalan capitalization
requirements as being necessary to avoid the imposition of corrective measures. Such measures may include,
among other things, deferral or cancellation of interest payments or deferral of principal payments on subordinated
debt that qualifies to be computed as part of our total net capital, such as the Notes.

81

The following table shows, as of the periods presented, certain financial indicators of our growth.

(1)

Return on average total assets .............................................


Return on average shareholders equity(2) ..............................
Net interest margin(3) .............................................................
Efficiency ratio(4) ..................................................................
Total non-performing loans as a percentage of total loans ....
(1)
(2)

(3)

(4)

2007

As of December 31,
2006
2005

1.3%
16.5%
3.8%
56.8%
0.6%

1.2%
15.1%
3.2%
63.0%
1.0%

1.4%
19.3%
3.8%
60.3%
0.8%

2004

1.1%
15.7%
3.6%
61.6%
0.7%

Net income for the period divided by the average of the beginning of period and end of prior period total assets.
Net income for the period divided by the average of the beginning of period and end of prior period total shareholders
equity.
Represents financial margin divided by average interest-earning assets. Average interest-earning assets are determined on
an annualized basis, based on beginning and end-of- monthly balances.
Refers to other administrative expenses (less loan loss provisions) divided by total operating income for the period.

Our Corporate Structure


Our principal subsidiaries include:

Westrust Bank, which is an offshore bank incorporated in The Bahamas. It has its registered office at
Office Number 1, Building 10, Caves Village, West Bay Street, P.O. Box N-1419 Nassau N.P., The
Bahamas. Westrust Bank is the largest offshore bank authorized to do business in Guatemala and
focuses on private and corporate banking in Guatemala and Central America. Westrust has 330,000
shares of issued and fully paid capital stock, all of which are owned by the Bank. As of December 31,
2007, Westrusts capital reserves amounted to Q24,278.4. For the year ended December 31, 2007,
Westrusts profits arising out ordinary activities, after taxes, amounted to Q97,783.9 million and the
amount of dividends paid to the Bank was Q72,300.3 million.

Financiera Industrial, which provides financial support to corporate and retail customers in Guatemala.
It has its registered office at 7 Avenida 5-10 Zona 4, Centro Financiero Torre 1, Guatemala,
Guatemala 01004. Services offered by Financiera Industrial include mortgage loans, credit lines in
local and foreign currency and pension fund and trust services. Financiera Industrial has 3,500,000
shares of issued and fully paid capital stock, 97.5% of which are owned by the Bank. As of December
31, 2007, Financiera Industrials capital reserves amounted to Q6,273.3 million. For the year ended
December 31, 2007, Financiera Industrials profits arising out ordinary activities, after taxes, amounted
to Q23,532.0 million and the amount of dividends paid in respect of its shares was Q9,759.8 million.

Contecnica, which issues credit and debit cards under the VISA International trademark. It has its
registered office at 7 Avenida 5-10 Zona 4, Centro Financiero Torre 1, Guatemala, Guatemala 01004.
VISA is one of the main card issuers in the Guatemalan market, with an estimated market share of
20.4% in credit and 60% in debit cards as of June 30, 2007. Contecnica is currently one of the
principal VISA card issuers in Guatemala with a customer base of more than 240,000 persons.
Contecnica has 510,000 shares of issued capital, 98.0% of which are owned by the Bank. The amount
still to be paid on the shares held by the Bank is Q48,020 million. As of December 31, 2007,
Contecnicas capital reserves amounted to Q9,594.0 million. For the year ended December 31, 2007,
Contecnicas profits arising out ordinary activities, after taxes, amounted to Q89,888.1 million and the
amount of dividends paid in respect of the shares was Q59,875 million. Contecnica has a loan from
the Bank for Q168,023,3 million.

Our parent company is Bicapital, a holding company that is incorporated under the laws of Panama.
Bicapital owned 87.8% of our capital stock as of December 31, 2007. Bicapital pursues a universal banking
strategy, providing a full range of banking products and financial services, including retail and wholesale banking,
deposits, trade finance, trust services, leasing, foreign exchange brokerage, credit card, consumer lending,

82

investment banking, fund management, insurance and pension fund management. We believe we enjoy significant
benefits and synergies as a subsidiary of Bicapital.
The following chart presents our corporate structure and that of Bicapital, indicating subsidiaries and
respective ownership interests as of the date of this offering circular.

Bicapital pledged 25% of the shares of the Bank to secure a US$165.0 million syndicated bank credit
facility it entered into to finance its December 18, 2007 acquisition of an 89.3% stake in Banpais. Banpais is a
banking corporation organized under the laws of Honduras, which conducts banking and insurance operations.
Bicapital also pledged all of the shares of Banpais it acquired, directly and indirectly, in connection with the Banpais
acquisition. If Bicapital defaults under its credit facility, 25% of our shares may be transferred to the lenders
thereunder.
Our History
Founded in 1967, we are a commercial bank organized and existing under the laws of Guatemala as a
sociedad annima. Since our incorporation, we have been a 100% privately-held institution.
During our first 20 years of operation, we focused primarily on serving the corporate sector of the
Guatemalan economy, which consists of medium and large size domestic corporations and multinational
corporations with a presence in Guatemala. Since the 1990s, we have expanded our distribution network, mainly in
the rural areas of the country, to increase our client base as well as to further penetrate the consumer banking, small
business lending and private banking business sectors where we believe there is significant growth potential. This
strategy has made us a leader in both the corporate and retail banking segments. We currently market a wide variety
of financial products and services to our corporate and individual clients.
In September 2005, we became the first Guatemalan bank to access the international capital markets
through a future flows securitization transaction of diversified payment rights, or DPRs, in a principal amount of
US$200.0 million. In 2007, we accessed the international capital markets again through two additional DPR
securitization transactions, once in April 2007 in an aggregate principal amount of US$150.0 million and then again
in October 2007 in an aggregate principal amount of US$150.0 million. The proceeds of the second and third
transactions were used in part to repay the outstanding US$200.0 million of the first transaction. These transactions
have provided us with long-term funding at competitive costs to support growth of our loan portfolio.
Between March and November 2006, we completed our acquisition of Banco de Occidente, Guatemalas
oldest bank. As of March 31, 2006, Banco de Occidente was the sixth largest in the Guatemalan banking system in
83

terms of assets and had total assets of Q4,372.2 million, total deposits of Q3,169.8 million and shareholders equity
of Q456.0 million.
On January 16, 2007, certain assets and liabilities of Banco de Comercio were transferred to us at the
request of the Superintendency of Banks when Banco de Comercios operations were suspended by the Monetary
Board on January 12, 2007 due to the banks inability to service its liabilities. Pursuant to Guatemalan regulation,
the Superintendency of Banks transferred to us all of Banco de Comercios deposits in the amount of Q954.5 million
and certain other liabilities in the amount of Q14.0 million. At the same time, the Superintendency of Banks
(i) approved the transfer of all assets of the Banco de Comercio trust, including loans in an aggregate principal
amount of Q795.9 million and government funds backing the deposits from Fondo para la Proteccin del Ahorro
(FOPA) in cash in the amount of Q360.0 million, and (ii) issued to us an investment certificate representing a
beneficial interest in the Banco de Comercio trust in a principal amount equivalent to the deposits and other
liabilities transferred to us (Q968.4 million). The trustee under the Banco de Comercio trust is our subsidiary,
Financiera Industrial. As of November 30, 2006, Banco de Comercio had total assets of Q1,173.9 million, total
deposits of Q985.1 million and shareholders equity of Q126.1 million.
On February 15, 2008, we acquired BanQuetzal and two of its three subsidiaries. We now hold
substantially all of the shares of BanQuetzal and BanQuetzals shareholders received approximately 4.6% of the
capital stock of the Bank. BanQuetzal was established in 1984 and offers a wide array of financial services to both
corporate and retail customers. BanQuetzal historically has been strong in home financing and consumer loans and
is an established competitor in foreign trade and currency exchange. As of February 15, 2008, BanQuetzal and the
two subsidiaries we acquired had total assets of Q1,457.6 million, total deposits of Q1,189.6 million and
shareholders equity of Q171.9 million.
Our Competitive Strengths
We benefit from the opportunities presented by our favorable position in the Guatemalan banking market.
Our competitive strengths include the following:
Strong franchise and leading position in the Guatemalan banking sector
We believe our strong brand recognition and solid reputation have contributed to our leading position in
Guatemala. We have been one of the principal financial institutions in the Guatemalan financial system for the last
38 years and have grown considerably in the last few years, principally as a result of our recent acquisitions and
strong performance. In 2001, we were the leader with a 16.2% market share in terms of total assets, while our
closest competitor had 14.0%. As of February 29, 2008, we had a 29.0% market share in terms of total assets, while
our closest competitor had 19.2%.
The table below sets forth the market share of the Bank in the Guatemalan financial system in terms of total
assets, total loans and total deposits on an unconsolidated basis for the periods indicated.
As of February 29,
2008(1)
Market
share
Rank
Total assets ...................
Total loans ....................
Total deposits ...............
(1)

29.0%
24.9%
27.4%

1
1
1

2006
Market
share
Rank
26.0%
23.4%
23.7%

1
1
1

2005
Market
share
Rank
20.2%
17.8%
18.4%

1
1
1

As of December 31,
2004
Market
share
Rank
19.9%
17.8%
19.0%

1
1
1

2003
Market
share
Rank
19.9%
18.2%
19.5%

1
1
1

2002
Market
share
Rank
18.4%
15.6%
18.6%

1
1
1

Includes BanQuetzals operations, which were acquired in February 2008.

We have more than one million retail customers and more than 25,000 corporate clients as of June 30,
2007. Our clients used on average 2.7 of our products as of June 30, 2007, as compared to 1.8 of our products as of
December 31, 2002. Over 54% of our credit card customers also had a debit account with us as of June 30, 2007.

84

We have the largest distribution network in Guatemala, with more than 1,850 points of service, which
includes branches, minibranches, Q booths, kiosks and access to more than 1,370 ATMs, as of December 31, 2007.
During 2006, we processed 35.1 million transactions through our branches and 17.0 million transactions through
ATMs. We had a monthly average of 5.1 million electronic transactions during 2006, which included ATM,
Internet and telephone transactions.
Key role in Guatemalan financial system
We are a key player in Guatemalas financial market and economy due to our role as one of the leading
check-clearing institutions in the Guatemalan financial system (with a 24.2% market share), one of the principal tax
collectors for the government (with a 34.3% market share), and we believe we are the second largest recipient
processor of family remittances (with a 24.0% market share). We are also responsible for settling all the payments
made in Guatemalas electric energy market as the processor of payments for companies in the business of
electricity transmission, distribution and generation and large final consumers. In addition, we process trading
transactions and are the exclusive custodian for bonds traded on the Guatemalan Stock Exchange, Guatemalas only
stock and fixed income securities exchange.
We have been recognized with some of the most distinguished awards in the region such as Best Bank in
Guatemala by Euromoney in 2004, 2005 and 2006, Bank of the Year in Guatemala by Latin Finance in 2007 for
the third consecutive year and Bank of the Year in Guatemala by The Banker in 2007 for the second consecutive
year.
Sound credit risk policies
We have historically experienced low default rates (calculated as the ratio of non-performing loans to total
loans). As of June 30, 2007, our default rate was 0.7%, which was significantly lower than the Guatemalan banking
industrys average default rate of 2.1% as of June 30, 2007. We attribute this to our efficient and standardized credit
origination and monitoring process. We have an experienced risk management team focused on monitoring and
managing risks across all business areas, including operational, market, liquidity and credit risks. To date, our
growth has not led to a deterioration in our loan and investment portfolio quality.
Product innovation
We have developed policies and procedures to identify the needs of our customers and develop products
and services, including technological solutions, to address such needs, develop new business ideas, seek out new
business opportunities and help expand our complementary activities.
As part of our effort, we launched Los Chapines Estamos Unidos in 2005, a family remittances program,
which offers a checking or savings account into which remittances from the United States may be deposited directly,
as well as a complementary pre-paid debit card and a credit card at an attractive interest rate. The number of
transactions in this program increased from 646,538 in the first six months of 2005 to 1,277,359 in the first six
months of 2007.
Other innovative products we have launched include:

Credi-Remesa, a loan granted to a receiver of a family remittance who has developed a transaction
history with us.

Prefiero, a customer rewards program that rewards clients for their loyalty and business on the basis
of both credit card and other general banking services usage. Prefiero is the only multi-company
loyalty program in Guatemala.

We offer a wide set of options to finance consumer purchases, such as home and vehicle financing. To
complement those financing options, we launched Crdito BI Fcil, a revolving credit line for retail customers.
This credit line is authorized automatically by our credit scoring system. We also launched Crdito Llvatelo Ya,
a credit line designed to finance consumer goods in 250 authorized establishments.
85

In November 2005, we launched a campaign to promote our MasterCard credit card and subsequently
increased our market share in Guatemala from approximately 7% as of December 31, 2005 to approximately 15% as
of December 31, 2006. We are also the issuer of MasterCard Banco Industrial, a credit card balance transfer
program offered at a low interest rate, the first of its kind in Guatemala. The number of clients using this product
increased from 10,788 at June 30, 2006 to 28,222 at June 30, 2007.
Cross-selling capabilities
In addition to selling our products to our customers, we are able to offer our customers additional products
and financial services through our Bicapital affiliates, increasing our attractiveness as a convenient lender of choice.
Our mortgage loans are packaged with life insurance and property and casualty insurance policies, while our auto
loans are packaged with auto insurance policies, all of which are provided by Bicapitals insurance subsidiary,
Seguros El Roble. The pension plans offered by our subsidiary, Financiera Industrial, also are packaged with life
insurance policies from Seguros El Roble.
Leader in technology in the Guatemalan banking sector
We focus on providing high quality services to all customers as well as increasing market share in the retail
sector and rural areas by relying on advanced technology to offer our services in an efficient manner. In 2006,
approximately 51% of our banking transactions were conducted electronically.
We believe our Client Relationship Management system (CRM) provides us with a competitive advantage
by allowing us to segment our customers based on, among other factors, profitability, income level, consumption
preferences and location. This tool permits our sales force to target client needs more effectively. In addition, we
have our own telecommunications infrastructure consisting of a microwave network that interconnects all our points
of service, facilitating efficient communication and improving customer service. We use excess capacity on our
network to provide telecommunication services to other banks and companies.
Proven capabilities to consolidate acquisitions effectively and efficiently
We have demonstrated an ability to identify, execute and integrate acquisitions of other banks and
capitalize on related synergies. Our most recent acquisitions include the following:

In November 2006, we completed the acquisition of Banco de Occidente. We realized larger


economies of scale than expected from this acquisition and completed the consolidation and merger
processes in record-setting time in Guatemala (90 days).

In January 2007, at the request of the Superintendency of Banks certain assets and liabilities of Banco
de Comercio were transferred to us which resulted in certain economies of scale.

In February 2008, we acquired BanQuetzal. BanQuetzal historically has been strong in home
financing and consumer loans, as well as an established competitor in foreign trade and currency
exchange. We believe these businesses will be complementary to our core businesses.

Strong shareholder support


Historically, our shareholders have contributed capital on various occasions to support our growth. Our
shareholders contributed Q125.0 million, Q125.0 million (excluding Banco de Occidente), and Q160.8 million in
2004, 2006 and 2007, respectively. As a result of our corporate reorganization, our former shareholders now hold
their interest in us through Bicapital. We believe that in the future, Bicapital will continue to support our growth
and initiatives.
Experienced management team
Our management team has significant experience in the banking industry and the know-how to identify
and offer products and services that meet our customers needs, while maintaining effective risk management
and strong margin levels. We have had only two board chairmen and two chief executive officers since our
86

incorporation in 1967. Diego Pulido, our current chief executive officer, has worked for our organization for
more than 34 years. The years of experience of our senior management range between 6 and 35 years and most
of our senior managers have graduate degrees in their relevant fields of specialization.
Knowledgeable and independent board of directors
Our board of directors is made up of leading business persons in Guatemala representing the countrys
principal industries. Our directors experience in the banking industry ranges between 10 and 40 years. Our
board of directors generally meets twice per week to discuss the management of our operations and approve
loans in excess of US$500,000 and other significant transactions. Other than Bicapital, which itself has no
controlling shareholder, no shareholder holds more than one vote on our board of directors; therefore, we have
no indirect controlling shareholders.
Our Strategy
Our objective is to maintain our leading position in the Guatemalan financial system and become the most
profitable bank in Guatemala. We believe that the Guatemalan financial system offers significant potential for
growth also, as the economy continues to grow and a portion of the population that historically did not use
banking services, particularly in rural areas, demands and gains greater access to financial services. Our strategy
includes:
Expanding our retail customer base
We believe retail banking in Guatemala has significant growth potential. As of December 31, 2005,
according to the World Bank, the ratio of domestic credit extended to the private sector to GDP in Guatemala was
only 25.2%, 91.7% in Panama and 194.8% in the United States. In addition, according to the Superintendency of
Banks and the National Institute of Statistics the ratio of total consumer loans to GDP was only 5.1% and the ratio of
mortgage loans to GDP was only 3.8% as of December 31, 2006.
We believe this low penetration rate, in combination with the expected growth of the Guatemalan economy,
will support the expansion of our retail banking business. We have significantly increased our exposure to the retail
segment in recent years and we intend to continue increasing our offering of retail products and services. We
believe that expanding into the retail segment may increase our profitability because we can charge higher margins
and higher commissions to retail clients as compared to those charged to institutional clients.
As part of our effort to reach the unbanked Guatemalan population, we are involved in a new project called
Gente BI, which we believe offers significant growth potential. We plan to create points of service in a large
number of local establishments and stores and provide basic financial services. We plan to use the latest technology
in POS to perform varied financial transactions such as check payments, prepaid card issuance, family remittance
payments and deposits. We launched this project in December 2007 with 350 Gente BI points of service and
expect to have 1,000 points of service by the second quarter of 2008.
Increasing our non-interest income
Our non-interest income is comprised primarily of foreign exchange commissions, fees from account
administration, third-party collections, fiduciary services, third-party use of our telecommunications network and
credit card fees. Increasing fee income is a central component of our business strategy. We seek to increase our fee
income by: (i) continuously reviewing our fee structure in order to find new opportunities and to adjust to market
conditions and practices; (ii) increasing our cross-selling efforts with Bicapital; (iii) promoting the use of
technological and electronic payment methods, as well as telephone and Internet banking; (iv) establishing new
points of service where we anticipate high volumes; and (v) promoting our debit card services.

87

Improving operating efficiencies


Following the acquisition of Banco de Occidente in 2006, the transfer of certain assets and liabilities of
Banco de Comercio in 2007 and in preparation for the acquisition of BanQuetzal, we have implemented cost
reductions in an effort to improve our efficiency in integrating these new companies. We expect to close at least
50% of the branches managed by each of those institutions in order to reduce our total number of employees and
streamline senior management. To date, the benefits from this integration include: (i) a net reduction in salary and
wage expenses to Q157.9 million for the first six months of 2007 from Q171.6 million for the first six months of
2006; (ii) technological efficiencies; (iii) revenue synergies from cross-selling products; (iv) the ability to offer a
greater variety of services to our customers; and (v) wider regional coverage.
Enhancing customer product use
We seek to strengthen and improve services offered by our Corporate Banking and Retail Banking
Divisions to increase market penetration and profitability per customer. In the Corporate Banking Division, we
intend to offer additional products such as cash management, treasury products, foreign exchange and electronic
banking to our traditional credit customers. We also intend to increase the amount of banking products per customer
to at least four products by the end of 2009 by offering our existing customers additional products selected from
each customers personal profile developed by our CRM System. Additional products may include auto loans,
home, auto and personal insurance, and credit and debit cards.
We are focused on remaining at the forefront of financial product innovation in Guatemala and continue to
develop new ways to reach customers. We seek to continue to improve the variety of consumer and corporate
products to differentiate ourselves from our competitors.
Promoting synergies with Bicapital and through acquisitions
We intend to increase our market share and profitability by continuing to cross-sell services and products to
our clients and clients of Bicapital. We have introduced processes that facilitate our ability to offer additional
financial services to our clients and those of the other companies of Bicapital, with an emphasis on service and
innovation. We cross-sell consumer loan products, credit cards and mortgages to our checking and savings account
customers and to Bicapitals insurance and pension fund customers. In addition, Bicapital recently acquired a
Honduran bank, Banpais, and plans to expand its operations in Central America and Mexico. We intend to seek
opportunities to better serve our Guatemalan clients by expanding into Mexico and Central America through our
relation with Bicapital and its expansion. The Mexican market, in particular the southeast of Mexico, offers
attractive opportunities for Bicapital and us because of the increasing presence of Guatemalan companies, coupled
with the minimal presence of Mexican or other banks.
Lines of Business
We serve over one million clients and market a full range of banking services through our nationwide
branch network. Our subsidiaries include an offshore bank, Westrust Bank, a credit card issuer, Contecnica, and a
finance company, Financiera Industrial. In addition to traditional banking products and services, our affiliates
(which consist of subsidiaries of our parent company Bicapital) offer financial leasing, securities brokerage services,
insurance and surety bond issuance, warehouse services, asset management and pension fund services.
We have maintained a strong presence in the Guatemalan corporate sector and have developed a rapidly
growing retail business. Our growth strategy, which management views as critical for our success, is focused on the
Guatemalan market and is supported by a strong technological platform.

88

Banking Activities
General
We are a full-service commercial bank providing a wide range of financial services to over one million
retail, commercial and corporate clients.
Our organizational structure promotes the development of products and services that meet the specialized
needs of our clients. The following chart illustrates our organizational structure, highlighting our three most
important business divisions:

Corporate Banking Division;

Retail Banking Division; and

International Banking Division.


Corporate
Director & CEO
Human
Resources

Risk
Management

Compliance

Corporate
Banking Divsion

Retail Banking
Division

International
Banking Division

Technological
Division

Internal Control
Division

Operations
Division

Corporate Banking Division


Our Corporate Banking Division focuses on providing a full range of commercial banking products and
services and financial advice to clients in target industries. Our Corporate Banking Division serves more than
25,000 companies throughout Guatemala and is organized into two groups, Banca Corporativa (Corporate Group)
and Banca Comercial (Small and Medium Sized Business Group). As of June 30, 2007, our corporate sector loan
portfolio was 79.6% of our total loan portfolio and corporate deposits represented 50.0% of our total deposits.
To meet our corporate clients needs, we have developed a wide variety of products and services, ranging
from traditional financial services to more specialized operations in international banking, trade, syndicated loans
and cash management systems. We provide international services such as foreign exchange, incoming and outgoing
foreign currency payments, foreign currency loans and deposits, letters of credit, bank guarantees and specialized
trade services. We believe that in Guatemala we have a dominant share of the international banking services
market. See International Banking Division to follow. We also provide a full range of financing options, such
as working capital, capital investments, export and import financing and import of capital goods and services (long
and medium term) and factoring with importers in the United States, Canada and Central America, to provide
Guatemalan exporters access to short-term financing.
Within the Corporate Banking Division, the Corporate Group serves Guatemalan corporate customers with
annual sales over Q40.0 million in the industrial, agro-industrial, service and commercial sectors. We offer these
clients a full range of products and services, including traditional financial products, trade finance, bank guarantees,
financial advice on loan structuring, foreign exchange and treasury services. As of December 31, 2006, the
Corporate Groups loans totaled Q7,265.0 million, representing 62.0% of the Corporate Banking Divisions
portfolio.
89

Within the Corporate Banking Division, the Small and Medium Sized Business Group serves customers
with annual sales from Q1.0 million to Q40.0 million and focuses on the industrial, commercial and service sectors.
We offer these clients savings and checking accounts, short-term loans, trade finance, vendor and payroll services
and electronic banking. As of June 30, 2007, the Small and Medium Sized Business Groups loans totaled Q4,453.0
million, representing 38% of the Corporate Banking Divisions total loan portfolio.
An important component of our strategy is to provide our corporate clients with a package of services that
we call Servicio Total (Total Service). We provide our corporate clients with (i) services of a dedicated account
manager specialized in fulfilling the specific needs of each client, (ii) high quality highly competitive financial
services and (iii) technological services allowing corporate clients to connect to us online.
We have also developed products for employees, suppliers and clients of our largest corporate clients, such
as specific loan programs and electronic direct payment mechanisms via our Internet banking services, as well as
preauthorized credit lines for our clients suppliers. In addition, we have established branches and ATMs on our
corporate clients premises and developed information and technological systems specifically designed to provide a
direct online link between a client companys computer mainframe and our mainframe.
Our attention to the banking and financial needs of the Guatemalan corporate sector is one of our main
competitive strengths. We believe that we have a significant competitive advantage over other financial institutions
in Guatemala.
Retail Banking Division
The Retail Banking Division focuses on providing a full range of banking products and services to over one
million retail customers as of June 30, 2007. Our retail clients consist of individuals as well as companies with
annual sales below Q1.0 million. Our retail products and services are divided into three categories: deposit
products, credit products and other products and services.

Deposit products include demand deposits, savings accounts, time deposits and certificates of deposit.

Credit products include personal loans, automobile loans, mortgages and credit cards.

Other products and services of the Retail Banking Division are designed to complement our deposit
and credit products and to meet the specific needs of our retail client base. These products include
debit cards (Bi-Cheque), safety deposit boxes, ATM outlets, foreign currency services, trust services
and online banking. Bi-Cheque is our debit card, which may be used to withdraw quetzales or U.S.
dollars from VISA Plus ATMs in Guatemala and abroad. This card may also be used directly in
affiliated businesses in Guatemala and internationally for purchases of products and services.

In addition to these retail services, we have developed a call center and a data warehouse. The data
warehouse is our most important tool for the cross-selling of financial products. The data warehouse consists of a
relational database that allows us to analyze our client base in different ways. By inputting different parameters, we
obtain feedback about our clients based on income level, consumption preferences, products they use, and most
importantly, which of our products the client does not yet have so that we can target our sales efforts. We believe
cross-selling will be a likely driver of a substantial portion of growth in retail services in the coming years.
As of June 30, 2007, our individual clients used approximately 2.4 million products or services offered by
us, and we estimate that the aggregate balance of deposit accounts maintained by the Retail Banking Division
represented approximately 55% of our overall deposit base. As of June 30, 2007, approximately 29% of our total
loans were made through our Retail Banking Division.
In the past two years, we have sought to expand our consumer banking business through our Prefiero
program. The program combines our services and products (financial services) with those of Paiz (supermarkets
chain), Shell (gasoline service stations) and Pollo Campero (fast food restaurants). In addition, Comcel
(telecommunications), Meykos (drug store chain), Distelsa (electronic appliances) and Viajes Tvoli (travel
agencies) participate as sponsors. Through the Prefiero program, our clients accumulate points, which they then
may exchange for a number of other products and services. Not only does this program provides us with the tools to
90

improve client relationships, but it also allows us to gather market information and analyze the behavior of our client
base, provides access to the client databases of other corporations, and provides us with the ability to coordinate and
manage marketing campaigns with other program participants.
International Banking Division
We serve both retail and corporate international clients, including small, medium and large-sized exporters.
We offer a variety of services to facilitate our clients international activities, including fund transfers, money
orders, import and export letters of credit, loans and international foreign currency transactions.
During our 39-year history, international banking has been an important part of our business, particularly
given our strong focus on corporate clients. We have traditionally serviced the countrys largest importers and
exporters, a relevant factor in the development of a substantial trade services platform. Our International Banking
Division is responsible for all of our international business operations and strategies, specializing in developing
products and services that meet the international banking needs of our clients. The International Banking Division
oversees all of our operations relating to foreign currency trading, relationships with correspondent financial
institutions, strategies for growth outside Guatemala, our remittance business and the offshore operations of
Westrust Bank, our banking subsidiary in The Bahamas, which operates as an offshore financial institution in the
Guatemalan market.
We enjoy longstanding correspondent banking relationships with more than 100 global financial
institutions, including Wachovia, Bank of America and The Bank of New York Mellon. As of June 30, 2007, we
had over US$977.4 million uncommitted credit lines and working capital financing available from our foreign
correspondent banks.
We maintain a department that specializes in international trade services and provides trade finance, letters
of credit, bank guarantees and collections. As of June 30, 2007, we had a trade loan portfolio of over US$579.1
million. As of December 31, 2006, our annual volume of import and export letters of credit exceeded US$142.0
million.
We are the Guatemalan leader in processing corporate remittances. A diverse range of exporting
manufacturers, commodity producers and service providers receive payments for goods and services in U.S. dollars
and we process these incoming flows for our corporate customers. We provide long- and short-term trade financing
to these customers, who in turn continue to generate incoming payment orders for related exports. During the first
six months of 2007, our foreign exchange transaction volume was US$3 billion, which, according to Guatemalan
Central Bank statistics, was more than double the size of the foreign currency trading level of our nearest
competitor.
In 1999, we were the first non-government owned bank in Guatemala to connect to SWIFT, the
international funds clearing house service. Our corporate clients can also carry out several types of international
transactions, such as applying for letters of credit and trading foreign currencies, through our Internet-based system.
With the support of The Bank of New York, we also offer our clients an Internet-based international collections
system that enables corporate clients to verify the status of the collections they effect through us.
Through our Bahamian subsidiary, Westrust Bank, we maintain a working capital and investment loan
portfolio with the largest corporate clients in Central America as well as a strong private banking business in
Guatemala. Westrust Bank offers specialized financial services and products to high-net-worth individuals.
Products offered by Westrust Bank include preferred checking accounts, savings accounts, fund transfer services
and credit card offerings. Additionally, Westrust Bank offers its customers the opportunity to invest in mutual funds
managed by Fidelity Investments and Legg Mason. As of June 30, 2007, the total assets of Westrust Bank were
over Q4687.0 million.
In the international retail banking sector, we offer a wide range of international products and services
denominated in foreign currency, including deposits, savings accounts and pension funds. We are able to send and
receive foreign currency funds via wire transfer or bank documents.
91

In recent years, family remittances have become an important source of foreign currency in Guatemala and
fee income for us. We anticipated this market opportunity and developed several products and services, such as the
program Los Chapines Estamos Unidos, to service this market segment. During 2006, we received more than
US$738.2 million in family remittances sent by Guatemalans living in the United States, which gave us a leading
position in processing family remittances.
Distribution Channels
We intend to continue to expand our distribution network, mainly outside of Guatemala City, and to
increase the use of electronic banking and transaction processing. To achieve these goals, we have remodeled and
opened new points of service and developed electronic channels, computer systems and business intelligence in the
recent years. We are planning to invest further in remodeling and developing.
Points of Service
We serve our retail client base through more than 1,850 domestic points of service, which is the largest
number of points of service of any bank in Guatemala. As of June 30, 2007, we had more than 1,645 points of
service, including branches, minibranches, Q booths and kiosks and access to more than 1,220 ATMs. Branches
have four tellers or more and minibranches have three or less. Administrative services, such as opening of new
accounts, time deposits or similar services, are offered at branches and minibranches. Q booths are similar to
branches except that they are typically staffed with one or two persons and they offer only transactional banking
services such as payment of checks, receipt of deposits and withdrawals. ATMs are usually placed in high traffic
areas including gasoline stations, office buildings, supermarkets, commercial centers and malls.
The following table shows the growth in the number of the Banks branches on an unconsolidated basis in
Guatemala City and Guatemalas provinces.
As of June 30,
2007(1)
Branches
%
Guatemala City.........
Provinces..................
Total ........................

167
120
287

58
42
100

2006
Branches

As of December 31,
2005
Branches
%

130
76
206

63
37
100

113
52
165

68
32
100

2004
Branches

97
51
148

66
34
100

______________
(1)

Includes BanQuetzals 48 branches.

From December 2005 to June 2007, we added 122 new branches, bringing our total number of points of
service in Guatemala to 422. Through our branch network, we carried out over 35 million transactions during 2006,
a 24.5% increase over 2005, and more than 191,900 new accounts were opened in 2006. In addition, as part of our
cross-selling strategy, over 110,000 retail products were sold, 38% of which were insurance policies (from a
Bicapital affiliate), 32% of which were retirement funds and 30% of which were credit cards.
As part of efforts to reach the unbanked Guatemalan population, we are involved in a new project called
Gente BI, which we believe offers significant growth potential. This project attempts to reach all the population
in Guatemala that currently does not use banking services. We plan to create points of service in a large number of
local establishments and stores and provide basic financial services. We plan to use the latest technology in POS to
perform varied financial transactions such as check payments, prepaid card issuance, family remittance payments
and deposits. We expect to launch this project in December 2008 with 1,000 Gente BI points of service.
We installed 50 new ATMs in the first six months of 2007, bringing the total amount of proprietary ATMs
as of June 30, 2007 to 350. In Guatemala, there are six independent ATM networks: ours, 5B, Bancared, Pronto,
Credomatic and Cajeros A. Through strategic alliances with these ATM networks, we can provide our clients access
to over 1,220 ATMs throughout Guatemala.

92

The following table reflects the number of ATMs throughout Guatemala, the number of our electronic
transactions and the percentage of total transactions handled electronically.
As of June 30,
2007
Number of our ATMs ..................................
Number of third party ATMs(1) ....................
Monthly electronic transactions
(in millions)...............................................
Percentage of transactions handled
electronically by us ...................................

350
1,223

2006
300
1,120

As of December 31,
2005
261
1,010

2004

225
814

6.6

5.1

4.1

3.5

55%

51%

51%

50%

______________
(1)

Includes our ATMs and ATMs networks from 5B, Bancared, Pronto, Credomatic and Cajeros A.

BI-Consulta
We offer our customers telephone banking services 24 hours a day, seven days a week. Through telephone
banking, our customers can obtain balance information, make credit card payments, transfer money between
accounts, pay their utility and other bills, pay school and college tuition and add credit to their cell phone accounts.
Telephone banking also allows our customers to receive faxes or text messages on their cell phones
whenever transactions are posted to their accounts. We have a state-of-the-art call center. In the event that a debit
or credit card is lost or stolen, our customers can block the use of their lost or stolen cards through this service.
Bi-B@nking
We offer our corporate customers an integral solution to carry out remote banking operations in a quick and
secure manner from their offices. Bi-B@nking is a user-friendly system that uses access codes and pre-determined
levels of authorization. Among the services provided through this tool, are: online account balances, credit card
balances, pending loans and lines of credit balances, wire transfers, payment of credit card bills and other loans,
electronic payroll, electronic payment to suppliers, taxes, payroll cash advance and foreign exchange transactions.
BI en lnea
We offer online banking to our retail clients through our website www.bi.com.gt. This Internet portal gives
customers access to a broad range of information and services, including up-to-date information on account balances
and credit card minimum payments and balances. The portal also allows customers to pay credit card bills online
and transfer and receive funds from within Guatemala and from abroad.
Security is an important factor in our on-line banking. We continue to enhance security features and expect
to introduce security tokens that will provide added security for on-line banking.
Competition
Over the past nine years, the Guatemalan government has enacted a number of banking regulations,
increased equity and reserve requirements and adopted stronger risk assessment processes. See The Guatemalan
Financial System and Supervision and Regulation. These regulations have forced marginal participants in the
Guatemalan financial system to either be acquired by, or to merge with, larger banks, lowering the total number of
banks in Guatemala from 34 to 22 from 2000 to 2007. This number is expected to decrease after the completion of
several announced mergers. As a result of this consolidation, we have increased our market share in both Guatemala
and Central America.
Local banks play a significant role in the Guatemalan financial system compared to foreign banks that have
only recently entered the market in a significant manner. As of June 30, 2007, Citibank (including its recent
acquisition of Banco Uno and its pending acquisition of Banco Cuscatlan) and Banco de America Central (50%

93

owned by GE Consumer Finance), accounted for a combined 11.9% of total loans and 10.5% of total deposits.
Some foreign banks have shown interest in entering or increasing their exposure to the Guatemalan market.
The banking market in Guatemala is competitive. The Guatemalan banking system experienced a
compound annual growth rate in terms of loans outstanding and deposits of 13.4% and 14.7%, respectively, from
December 31, 2001 to December 31, 2006. The low level of banking penetration has attracted new participants in
the market.
As of November 30, 2007, we had a market share within the Guatemalan financial system of 29.3% of
assets, 25.2% of loans and 27.2% of deposits. We estimate that we have a market share of approximately 23% of
Guatemalan family remittance flows and approximately 30% of Guatemalan diversified payment rights (DPR)
flows. We have increased our market share measured by assets in the Guatemalan banking sector through organic
growth and strategic acquisitions.
The table below presents selected data for banks in Guatemala on an unconsolidated basis.

Balance

Banco Industrial(1) ..................


Banco G&T Continental ........
Banco de Desarrollo Rural.....
Citibank(2) ...............................
Banco Agromercantil(3) ..........
Banco Reformador .................
Banco de America Central.....
Banco Internacional ...............
Banco de los Trabajadores.....
Crdito Hipotecario................
Others .....................................
Total..................................

Assets
Market
Share

(Q millions)

(%)

Q 34,406.1
22,777.6
19,885.5
9,207.8
8,667.9
8,041.9
3,357.2
3,006.4
2,990.5
2,036.8
4,450.7
Q 118,828.4

29.0%
19.2
16.7
7.7
7.3
6.8
2.8
2.5
2.5
1.7
3.7
100.0%

Rank

As of November 30, 2007


Total Loans
Market
Balance
Share
Rank

(Q millions)
1
2
3
4
5
6
7
8
9
10

Q 17,427.8
12,182.1
13,609.0
5,668.2
5,940.1
4,874.2
2,543.5
1,920.5
2,363.4
691.3
2,754.0
Q 69,974.1

(%)
24.9%
17.4
19.4
8.1
8.5
7.0
3.6
2.7
3.4
1.0
3.9
100.0%

1
3
2
5
4
6
7
9
8
10

Balance

Deposits
Market
Share

(Q millions)

(%)

Q 23,726.8
15,969.5
16,065.7
6,969.8
6,289.6
5,527.4
2,608.6
2,397.5
2,193.2
1,609.4
3,334.1
Q 86,691.6

27.4%
18.4
18.5
8.0
7.3
6.4
3.0
2.8
2.5
1.9
3.8
100.0%

Rank

1
3
2
4
5
6
7
8
9
10

_____________
(1)
(2)
(3)

Includes Banco Industrial and BanQuetzal.


Includes Citibank, Banco Uno (recently acquired) and Banco Cuscatlan (acquisition pending).
Includes Agromercantil de Guatemala and Banco Corporativo.

Employees
As of June 30, 2007, we had 4,049 employees, almost all of which were located in Guatemala. None of our
employees belong to a union. We offer our employees benefits beyond those required by Guatemalan law, such as
additional severance payment benefits, life and disability insurance, health insurance and dental insurance. We also
offer training programs at all levels of our organization and have a strong culture of internal promotion.
Properties
We are domiciled in Guatemala and own our headquarters located at 7 Avenida 5-10 Zona 4, Centro
Financiero Torre 1, Guatemala, Guatemala 01004. As of June 30, 2007, we owned approximately 61 of the
properties on which 21% of our branches are located. We lease the remainder of our branches from unaffiliated
third parties. We believe that our facilities are adequate for their intended purposes.
Licenses and Permits
The Bank is authorized by the Monetary Board to conduct banking activities as described in Supervision
and RegulationRegulatory Framework of the Financial System. Westrust Bank is licensed by the Central Bank

94

of The Bahamas to conduct financial activities as described in Supervision and RegulationThe Bahamas Banking
and Supervision Regulation.
Legal Proceedings
We are subject to several administrative proceedings relating to tax audits. In each such proceeding, the
claimants are the Superintendency of Tax Administration and the Superintendency of Banks. The total amount
involved in these proceedings was approximately Q10.3 million plus interest and penalties, as of June 30, 2007. We
believe that none of these proceedings will have a material adverse effect on our financial condition or results of
operations.
Additionally, we are subject to a number of other legal and administrative proceedings involving
individual, smaller sums arising in the ordinary course of its business, none of which we believe will have a material
adverse effect on our financial condition or results of operations.

95

RISK MANAGEMENT
Policies and Procedures
The primary objective of our asset and liability management strategy is to manage our balance sheet in light
of interest rates, liquidity and foreign exchange risks, as well as the current domestic demand for credit, existing
asset and liability positions and general market conditions. We monitor and control the maturity mismatches and the
size and degree of our interest rate and exchange rate exposure to minimize the effect of these risks on profitability,
while ensuring sufficient liquidity and capital adequacy.
The Asset and Liability Management Committee (ALCO) is responsible for providing guidelines for the
management of assets and liabilities and for monitoring our compliance. This committee meets on a weekly basis
and is comprised of the Executive Director, the Corporate Banking Division Manager, the International Division
Manager, the Control Division Manager, the Credit Risk Manager, the Operations Assistant Manager and the
Treasury Assistant Manager. In managing our assets and liabilities, we consider interest rates and yields, the size of
the loan and investment portfolios, the maturities of loans, time deposits and investments, the net short position,
exchange rates, inflation rates and other macroeconomic factors. The ALCO sets overall interest-rate levels and
terms for both assets and liabilities and makes decisions regarding maturities and pricing of assets and liabilities
based in part on recommendations from the Bank Policies and Procedures Credit and Investment Department.
Liquidity Risk
Our liquidity management policy seeks to ensure that, even under adverse conditions, we have sufficient
funds available to meet our operational needs and to ensure compliance with capital adequacy and other applicable
guidelines established by regulatory authorities. Liquidity risks arise in the general funding of our financing, trading
and investment activities and in the management of such positions. It includes the risk of being unable to liquidate a
position in a timely manner at a reasonable price. Our Treasury Department has overall responsibility for
determining the funding and investment structure and for monitoring the development of and changes in the balance
sheet structure and the potential impact on financial performance. Our Treasury Department is also responsible for
maintaining an adequate liquidity surplus and for planning liquidity risk management. In addition to liquid assets,
we maintain lines of credit with international financial institutions that ensure adequate levels of liquidity. Our
Treasury Department manages our liquidity on a daily basis. We have a policy of high liquidity levels, with policies
that requires that liquid assets must represent at least 20% of total assets and at least 25% of total deposits.
In addition, like all banks in the Guatemalan financial system, we are required to maintain liquidity
reserves at the Guatemalan Central Bank in the amount of 14.6% of deposits. The Superintendency of Banks is
responsible for verifying each banks daily compliance with the reserve requirements and establishing the interest
rate paid on such reserve deposits at the Guatemalan Central Bank.
Interest Rate Risk
A key component of our asset and liability management policy is the management of interest-rate risk. The
principal objective of our interest rate risk management activities, which are overseen by ALCO, is to enhance
profitability by limiting the effect of adverse interest rate movements and increasing interest rate income by
managing interest-rate exposure. We have minimal interest rate exposure because all of our loans carry variable
rates of interest.
Most of our funding comes from client deposits. Demand deposits and savings deposits are offered at
variable rates, whereas time deposits, which are short-term in nature (less than one year), are offered at fixed rates.
Funding from financial institutions is negotiated at variable rates.
Foreign Currency Risk
We are subject to exchange rate risk due to adverse movements in exchange rates in the currencies in which
we maintain assets or liabilities. We maintain some foreign currency transactions that are carried out in U.S. dollars,
96

most notably foreign exchange trading operations. We minimize our foreign currency risk exposure by maintaining
a minimal foreign currency long or short position. A majority of our assets and liabilities are matched, meaning that
any U.S. Dollar funding that we obtain is invested in U.S. Dollar-denominated instruments (investments or loans).
Our only foreign currency risk exposure is due to the fact that we maintain U.S. dollars to carry out a certain amount
of trading in U.S. Dollar-denominated instruments.
In addition, the Superintendency of Banks requires banks to maintain an absolute difference between assets
and liabilities denominated in foreign currencies of no more than 20% of total equity. As an internal policy, we
have maintained a difference of no more than 5% of total equity. Our International Division and our Treasury
Department are responsible for monitoring our foreign exchange position and changes in market conditions that
might impact the net short or long position.
Bank Policies and Procedures
Credit Approval and Risk Policy
In accordance to article 56 of the Banks and Financial Groups Law, all banks and entities that are part of
financial groups have to have updated written policies related to lending, investment, assets quality assessment, and
in general, policies for the adequate administration of risk. These policies are elaborated by the Risk Management
Committee and approved by the board of directors. Once approved, the policies have to be sent to the
Superintendency of Banks.
The maintenance of prudent credit policies is a key goal of our senior management. Our board of directors
and our Risk Management Committee have responsibility for approving and periodically reviewing general business
strategies, reviewing and developing new organizational policies, analyzing our organizational structure of the Bank
and defining the procedures and policies for risk management. Additionally, our activities are supervised by internal
and external auditors as well as the Superintendency of Banks.
Our lending policies are dictated by our credit rules and guidelines that are periodically reviewed by our
board of directors, Executive Committee and Risk Management Committee. We have traditionally adhered to
conservative lending policies and our management plans to continue to do so. Our Risk Management Committee
monitors risk situations by reviewing our loan portfolio strategy and establishing concentration limits for different
credit risk categories. Credit concentration limits are determined on the basis of the business sector and sub-sector
of the borrower, geographic location of the borrower and size and currency of loans, taking into consideration the
economic risk of the business sector and prior performance of the sector in general.
The objective of the risk management is the identification and evaluation of risks affecting our equity and
the implementation of a business strategy to manage those risks. Our Risk Management Committee is also
responsible for ensuring that systems, policies and processes for adequate risk management and evaluation are kept
in place and are fully functional at all times.
For the analysis of loan applications as well as the analysis of all of the financial information provided by
the prospective borrowers, we use Equifax software for individual loan applications and Moodys Financial Analyst
for corporate loan or significant amount applications.

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Loan Loss Reserves


The Superintendency of Banks has established minimum loan-loss reserve requirements based on a system
of risk classification. The Superintendency of Banks stipulates that 100% of any loan portfolio be graded on a scale
ranging from A (highest quality) through E (lowest quality) and be reserved in accordance with the reserve
requirements set forth in the table below. See Selected Statistical InformationGrading of Loan Portfolio for the
definitions of such classifications.
Reserve Requirements on Loans

Loan Category

Minimum Loan Loss Reserve


Requirement

Category A

0%

Category B

5%

Category C

20%

Category D

50%

Category E
_____________

100%

Source: Superintendency of Banks.

We have maintained compliance with the Superintendency of Banks reserve requirements with a loan loss
reserve to non-performing loan ratio of approximately 101.8% as of June 30, 2007 and 107.8% as of December 31,
2006.
Policy for the Recovery of Past Due Credits Arranged by the Corporate Banking Division
Our Corporate Banking Division manages the recovery of past due credits through administrative processes
and judicial proceedings.
Administrative Collection
For collection purposes, past due credits that remain unpaid 90 days after the payment was due are
considered defaulted credits. Defaulted credits of customers classified as small businesses are subject to an
administrative collection process. The executive that manages the customers credit attempts to negotiate new terms
with the customer, whether by refinancing the credits and obtaining additional collateral or by arranging for other
methods of payment. If no solution is agreed upon within three months of initiating the administrative collection
process, the relevant defaulted credit is transferred to the Judicial Collection Department. In addition to the
procedure mentioned above, corporate borrowers have a designated account manager that keeps track of any past
due credits.
Judicial Collection Department
The credits that are transferred to this department are those for which recovery by administrative processes
has failed. The Judicial Collection Department is responsible for initiating legal proceedings against debtors for
collection of defaulted credits and for supervising the progress of ongoing legal claims. Notwithstanding the
foregoing, the Judicial Collection Department may continue to attempt administrative collection and to negotiate
alternative methods of payment.

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Policy for the Recovery of Past Due Credits Arranged by the Retail Banking Division
Our Retail Banking division manages the recovery of past due credits through both administrative and
judicial processes. In general, a credit is considered past due one day after the payment is due and from that point is
subject to the administrative collection process. The Retail Banking Division may employ different procedures for
each product it offers (such products principally consisting of personal loans and mortgage loans). Arrangements
for recovery of past due credits may also vary depending on the period of time during which the credits have been
past due. If recovery of past due credits through administrative means is unsuccessful, the relevant credits are
transferred to the Judicial Collection Department.
Administrative Collection
Several different alternatives are offered to debtors that wish to reactivate their lines of credit that, in our
view, will assist such debtors to generate future cash flows to pay off their debts. Our Portfolio Administration
Department assists debtors in selecting among such alternatives as: (i) restructured payment conditions;
(ii) extension of the maturity of the credit; (iii) decreased interest rates; (iv) consolidation of debts; (v) grace period;
(vi) refinancing; and/or (vii) payment with non-cash assets. Debtors with no collateral may be offered a waiver of
up to 50% of the interest charged on the past due credit, provided that the total principal amount of the debt is paid
off and such credit is classified as E by our Risk Management Committee. If none of the above alternatives is
agreed upon, credits that are 90 days past due may be transferred to the Judicial Collection Department.
Judicial Collection Department
The Judicial Collection Department is responsible for obtaining the legal documents necessary to file legal
collection proceedings and for supervising the progress of ongoing legal claims. Notwithstanding the foregoing, the
department may continue to attempt administrative collection and to negotiate alternative methods of payment.
Collection procedures vary depending upon whether the credit relates to a personal loan, credit card, mortgage loan
or another banking product. With respect to credit cards, for instance, only past due credits in excess of US$3,000
are subject to judicial collection; credits under US$3,000 are usually referred for collection to a third-party
collection agency.

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MANAGEMENT
Board of Directors
Our board of directors is currently comprised of nine directors and nine alternate directors, all of whom
have between 8 to 40 years of banking experience. The first chairman of the board of directors of the Bank, who
served until 1991, was one of the founders of the Bank, Mr. Ramiro Castillo Love. Since 1991, the chairman of the
board of directors has been Mr. Juan Miguel Torrebiarte. Members of the board of directors are elected for one-year
terms at our annual general shareholders meeting.
Guatemalan law prohibits a person from serving on the board of directors of a financial services company if
such person holds similar positions in other financial groups. The prohibition is designed to ensure that a banks
board of directors is objective and free of conflicts of interests. In compliance with such law, none of our directors
are members of the boards of directors of other financial groups. Our board of directors meets twice a week and
each director has one vote.
The following table sets forth the composition of the board of directors as of the date of this offering
circular:
Name of Director
Juan Miguel Torrebiarte Lantzendorffer....................
Jos Antonio Arz Irigoyen.......................................
Rodolfo Kng Vielman .............................................
Ramiro Castillo Arvalo............................................
Jos Luis Gabriel Abularach......................................
Rafael Felipe Solares Rilele.....................................
Mario Rey Rosa Quiroz .............................................
Toms Rodriguez Schlesinger ...................................
Carlos E. Springmhl Silva .......................................

Age
66
69
76
44
86
78
81
43
80

Position
Chairman
Vice-chairman
Director
Director
Director
Director
Director
Director
Director

Name of Alternate Director


Juan Luis Bosch Gutirrez.........................................
Luis Estuardo Godoy del Valle..................................
Pablo Capuano Ars ...................................................
Andres Castillo Arenales ...........................................
Jos Roberto Bouscayrol Lemus ...............................
Eduardo Herrera Alvarado.........................................
Ernesto Jos Viteri Arriola ........................................
Victor David Benchoam Perera .................................

Age
55
50
71
43
66
64
77
78

Position
Alternate Director
Alternate Director
Alternate Director
Alternate Director
Alternate Director
Alternate Director
Alternate Director
Alternate Director

An alternate director replaces a director in the absence of such director. The required quorum for board of
directors meetings and board resolutions is a simple majority, which means that at least five directors or their
alternates must be present.
Juan Miguel Torrebiarte Lantzendorffer has been a director of the Bank since 1971. Mr. Torrebiarte is an
entrepreneur and a former president of the Industrial Chamber. He currently serves on the boards of Calzado Cobn
and Cementos Progreso. He holds a Bachelors degree in Economics from the Universidad de San Carlos de
Guatemala.
Jos Antonio Arz Irigoyen has been a director of the Bank since 1976. Mr. Arz is an entrepreneur and is
currently a director and manager of several real estate, airline and hotel companies. He holds a degree in
aeronautical engineering from the University of Saint Louis, Missouri.
Rodolfo Kng Vielman has been a director of the Bank since 1967. Mr. Kong is an industrialist and is
currently the director and manager of several corporations in the edible oils, fat and soap industries. He holds a
Bachelors degree in Business Administration from Claremont Mens College.
100

Julio Ramiro Castillo Arvalo has been a director of the Bank since 1990. Mr. Castillo is an entrepreneur
and is currently a director of Fahonda, an exclusive authorized Honda dealer in Guatemala. He is also active in the
real estate business. Mr. Castillo holds a Bachelors degree in Business Administration from Universidad Mariano
Galvez.
Jos Luis Gabriel Abularach has been a director of the Bank since 1979. Mr. Gabriel is an industrialist and
he is currently the president of the Corporation Aceros de Guatemala, S.A., a Guatemalan steel producer
Rafael Felipe Solares Rilele has been a director of the Bank since 1968. Mr. Solares is an industrialist and
has been the president of Laboratorios Qumicos Farmacuticos Lancasco since 1965. He is also a former member
of the Industrial Chamber of Guatemala.
Mario Rey Rosa Quiroz has been a director of the Bank since 1968. Mr. Rey Rosa is an industrialist and is
currently a shareholder and president of Distribuidora Novatex, S.A. a Guatemalan textile company. He holds a
degree in textile engineering from Tcnolgico Textil de Biella, Italy.
Toms Rodriguez Schlesinger has been a director of the Bank since 1992. Mr. Rodriguez is an
entrepreneur and is currently the general manager of Distribuidora Electrnica, S.A., the exclusive distributor of
Sony in Guatemala. He holds Master in Business Administration from Georgetown University.
Carlos E. Springmhl Silva has been a director of the Bank since 1968. Mr. Springmuhl is an entrepreneur
and is currently the advisor to several commercial and industrial groups in Guatemala such as Cementos Progreso
and Grupo Tecn. He holds a degree in chemical engineering from Louisiana State University.
Juan Luis Bosch Gutirrez has been a director of the Bank since 1978. Mr. Bosch is an industrialist and a
former president of the Industrial Chamber of Guatemala. Currently, he serves as Board Member in various
companies of Grupo Multinversiones. Mr. Gutierrez holds a degree in mechanical engineering from Universidad
Rafael Landivar.
Luis Estuardo Godoy del Valle has been a director of the Bank since 1989. Mr. Godoy is an industrialist
and a former director of the Industrial Chamber of Guatemala. Currently, he is a director in several industrial and
real estate groups such as Grupo Tabacal, El Frutal and El Volcn-Fuller. Mr. del Valle holds a Bachelors degree
in Economics and a Masters in Finance and Marketing from Rollins College.
Pablo Capuano Ars has been a director of the Bank since 1975. Mr. Capuano is an industrialist and the
current president of Textiles Capuano, S.A. He holds a degree in chemical engineering from Universidad de San
Carlos de Guatemala.
Andrs Castillo Arenales has been a director of the Bank since 1999. Mr. Castillo is an industrialist and a
former director of the Industrial Chamber of Guatemala. Currently, he is a director of Industrias Ancla, a
corporation in the Guatemalan food industry. He holds a law degree from Universidad Francisco Marroqun.
Jos Roberto Bouscayrol Lemus has been a director of the Bank since 1975. Mr. Bouscayrol is an
industrialist and is currently the general manager and president of Laboratorios Laprin, S.A. He holds a Bachelors
degree in Business Administration from the Menlo School of Business, California.
Eduardo Herrera Alvarado has been a director of the Bank since 1995. Mr. Herrera is in the construction
industry and is currently a director in several companies including Ingenieros Constructores and Mezcladora, S.A.
He holds a degree in engineering from Universidad de San Carlos de Guatemala.
Ernesto Jos Viteri Arriola has been a director of the Bank since 1995. Mr. Viteri is a founding partner of
the law firm of Viteri & Viteri. Mr. Viteri holds a law degree from Universidad Francisco Marroqun and a Masters
in Comparative Jurisprudence from New York University.

101

Victor David Benchoam Perera has been a director of the Bank since 1967. Mr. Benchoam is an
industrialist and is currently the director of Fbrica de Tejidos Iris.
Management Committees
In accordance with article 43(g) of our by-laws, the board of directors has the authority to create the
committees it deems necessary. Our board of directors has appointed members to the committees described below:
Risk Management Committee
Our risk management committee reports to the board of directors. The committees main responsibilities
include:

establishing methods to identify, monitor and control risks to which the Bank is exposed;

approving models, guidelines and scenarios for quantifying and controlling such risks;

periodically reviewing and proposing administrative policies to monitor and control risk to be followed
by the Banks personnel;

approving new product offerings after evaluating associated risks; and

observing our compliance with regulation in risk detection, risk monitoring and risk control areas.

Our risk management committee members are Diego Pulido Aragn, Luis Rolando Lara Grojec, Luis
Fernando Prado Ortz, Ricardo Fernndez Ericastilla, Edgar Chavarra Soria, Juan Carlos Martnez Noack, Edgar
Girn Monzn and Anabella Samayoa de Bolaos. This committee meets once per month.
Credit Committee
Our credit committee reports to the board of directors. The committees main responsibilities include:

monitoring and proposing necessary controls for credit risk management;

developing and monitoring policy guidelines for managing the assets and liabilities structure;

regularly proposing and reviewing our lending policies; and

approving loans from US$350,000 to US$500,000 in accordance with the board of directors approved
guidelines.

Our credit committee members are Juan Miguel Torrebiarte Lantzendorffer (who is also the chairman of our
board of directors), Diego Pulido Aragn, Luis Rolando Lara Grojec and Anabella Samayoa de Bolaos. This
committee meets twice per week.

102

Executive Officers
The following table sets forth the information concerning the principal officers of the Bank:
Name
Diego Pulido Aragn
Luis Fernando Prado Ortz
Luis Rolando Lara Grojec
Edgar Ren Chavarra Soria
Juan Carlos Martnez Noack
Edgar Abel Girn Monzn
Ricardo Elas Fernndez Ericastilla
Anabella Samayoa Porres de Bolaos
Juan Pablo Aguilar Lpez
Luis Pedro Fuxet Ciani

Age
62
37
42
43
42
48
35
52
49
37

Position
President and Chief Executive Officer
International Division Manager
Corporate Banking Division Manager
Retail Banking Division Manager
Technological Division Manager
Internal Control Division Manager
Operations Division Manager
Risk Management Manager
Human Resources Manager
Compliance Officer

The members of the senior management team of the Bank each have between 6 to 35 years of experience in
the banking industry.
Diego Pulido Aragn has worked for the Bank for 34 years, during which he has held several management
positions within the Bank. Since May 1998, Mr. Aragn has served as President and Chief Executive Officer of the
Bank, and as a director of Seguros El Roble, Visanet, Prefiero, Almacenadora Integrada, Westrust Bank and
Financiera Industrial. Mr. Aragn has served as Chief Executive Officer of Bicapital since its incorporation. Mr.
Pulido holds a Master in Business Administration degree from Instituto Centroamericano de Administracin de
Empresas, or INCAE.
Luis Fernando Prado Ortz has worked for the Bank for 13 years, during which he has held such positions
as Manager of Serminsa, Retail Banking Manager and Manager of the International Department and General
Manager of Westrust Bank. He currently serves as International Division Manager. Mr. Prado holds a Master in
Business Administration degree from Instituto Centroamericano de Administracin de Empresa, or INCAE.
Luis Rolando Lara Grojec has worked for the Bank for 15 years, during which he has held such positions
as Project Manager, brokerage firm Manager, Assistant to the General Manager and Banking Division Manager. He
currently serves as Corporate Banking Division Manager. Mr. Lara holds a Master in Business Administration
degree from INCAE.
Edgar Ren Chavarra Soria has worked for the Bank for 16 years, during which he has held positions as
Manager of Almacenadora Integrada, brokerage firm Manager, Mercado de Transacciones, Customer Relations
Manager, Assistant to the General Manager and Financial Division Manager. He currently serves as Retail Banking
Division Manager. Mr. Chavarra holds a Master in Business Administration degree from INCAE.
Juan Carlos Martnez Noack has worked for the Bank for 13 years, during which he has held several
management positions within the bank including Manager of Contecnica and Assistant to the General Manager. He
currently serves as Technological Division Manager. Mr. Martnez holds a Master in Business Administration
degree from INCAE.
Edgar Abel Girn Monzn has worked for the Bank for 22 years, during which he has held several
management positions including General Coordinator of External Auditing, Assistant to the Corporate Operations
Management Area, Financial Manager of Contecnica and Assistant to the General Manager. He currently serves as
Internal Control Division Manager. Mr. Girn holds a Master in Business Administration degree from Escuela
Superior de Economa y Administracin de Empresa (ESEADE), Universidad Francisco Marroqun.
Ricardo Elas Fernndez Ericastilla has worked for the Bank for eight years, during which he has held
such positions as Manager of the Mortgage Loans Department, Manager of Almacenadora Integrada and Manager of

103

Contecnica. He currently serves as Operations Division Manager. Mr. Fernandez holds a Master in Business
Administration degree from INCAE.
Anabella Samayoa Porres de Bolaos has worked for the Bank for over 32 years, during which she has
held several management positions including Manager of the Financial Department and Manager of the Corporate
Business Area. She currently serves as Risk Management Area Manager. Mrs. Samayoa holds an MBA from
Universidad Mariano Galvez.
Juan Pablo Aguilar Lpez has worked for the Bank for six years, during which he served as Assistant to the
General Manager in various areas. He currently serves as Human Resources Area Manager. Mr. Aguilar holds a
Master in Business Administration degree from ESEADE, Universidad Francisco Marroqun.
Luis Pedro Fuxet Ciani has worked for the Bank for 10 years during which he served as legal advisor for
Westrust Bank and as Corporate Counsel for International Affairs. He currently serves as Manager of Corporate
Compliance. Mr. Fuxet holds an LL.M. in comparative law from the University of Miami.
Compensation of Directors and Senior Management
Our shareholders determine the compensation received by the members of our board of directors.
Members of the board receive director fees for each meeting attended as a director. Directors fees totaled Q23.0
million for 2006.
Our board of directors is responsible for determining the compensation of the chairman and CEO and each
of the Division Managers. Compensation is based on performance and is determined in accordance with corporate
policy. The chairman and CEO is responsible for deciding the compensation received by each of the Human
Resources Manager, the Compliance Officer and the Risk Management Manager. As of the date of the offering
circular, none of our executive officers beneficially own any of our capital stock.
Statutory Auditor
Pursuant to Guatemalan law and our bylaws, an independent statutory auditor is appointed by shareholders
at the general shareholders meeting for a period of one year. The statutory auditor reports the shareholders.
The main responsibilities of the statutory auditor are the following:

oversee managements activities and review the Banks general balance and other accounting
statements in order to ensure their veracity and reasonable precision;

verify that the accounting practices used by the Bank comply with local legislation; and

cause management to provide reports regarding our business and operations.

The shareholders general meeting appointed Aldana Gonzlez, representative of KPMG in Guatemala, as
the statutory auditor for the year 2007.
Furthermore, the Banks and Financial Groups Law requires that banks and companies that are part of
financial groups, must have adequate internal controls with a clear assignment of duties and responsibilities.
Our current internal auditor is Fredy Estuardo Navichoque Oliveros, who reports to the Internal Control
Division Manager.

104

SHARE OWNERSHIP
Our capital stock consists of registered shares of common stock. The shares confer equal rights and
obligations to the shareholders, each share entitling the respective shareholder to one vote at all shareholder
meetings. Under the Banks and Financial Groups Law, banks cannot issue bearer shares.
Since our incorporation, we have been a 100% privately held company. In May 2007, with the
incorporation of Bicapital, all our shareholders were offered an option to exchange their shares in the Bank for
shares of Bicapital. This exchange offer will remain open with the purpose of having a maximum amount of our
capital stock held by Bicapital. As of December 31, 2007, 87.8% (41.7 million shares) of our total capital stock was
held by Bicapital Corporation and the remainder is owned by approximately 2,091 shareholders of record, none of
which individually owns more than 5% of our total shareholders equity.
Bicapital pledged 25% of the shares of the Bank to secure a US$165.0 million syndicated bank credit
facility it entered into to finance its December 18, 2007 acquisition of an 89.3% stake in Banpais. Bicapital also
pledged all of the shares of Banpais it acquired, directly and indirectly, in connection with the Banpais acquisition.
If Bicapital defaults under its credit facility, 25% of our shares may be transferred to the lenders thereunder.
No individual or corporation can, either directly or indirectly, through a third-party intermediary, own
shares in excess of 5% of our capital stock without previous authorization from the Superintendency of Banks. On
April 9, 2007, the Superintendency of Banks granted Bicapital an authorization to own more than 5% of our shares.
Currently, there are no shareholder voting agreements in place. Each director represents an independent
group of shareholders and no group may have more than one representative on the board of directors.

105

RELATED PARTY TRANSACTIONS


Limitations on Transactions with Bank Insiders
Pursuant to Banks and Financial Groups Law, corporations belonging to a financial group are not permitted
to carry out financial operations or provide service to each other subject to terms, interest rates, amounts, guarantees
or fees different from those used for similar transactions with third parties. The Monetary Board in Resolution JM
180-2002 provides the specific requirements for these operations.
From time to time, we enter into arrangements, including service agreements, with our affiliates. The
agreements currently in place with our affiliates, all of which are subsidiaries of our parent company Bicapital,
include: (i) a life and medical insurance policy covering our employees provided by Seguros el Roble; (ii) an
insurance policy covering our banking operations provided by Seguros el Roble; (iii) a fire, equipment, vehicle and
civil liability insurance policy provided by Seguros el Roble; and (iv) a storage services agreement with
Almancenadora Integrada, S.A. As required under Guatemalan banking regulations, the amounts paid by us under
these affiliate agreements are similar to amounts that would be paid to third parties for comparable services. For
2007, 2006 and 2005, we made payments in the aggregate amount of Q4,347.0 million, Q2,480.2 million and
Q2,197.7 million, respectively, under these agreements.
Limits on Extending Credits to Related Parties
The Banks and Financial Groups Law prohibits banks and their subsidiaries from extending loans, credits
or guarantees to legal entities or individuals with direct control over the Banks assets or direct control over the
Banks administration, and from acquiring securities issued by such entities in an amount greater than thirty percent
(30%) of the Banks shareholders equity.
As of October 31, 2007, our loans to related parties totaled Q1,029.3 million in aggregate principal amount,
5.4% of our total loan portfolio at such date. Of the Q1,029.3 million, approximately Q72.0 million were loans
made to members of our board of directors, Q548.2 million were loans made to companies controlled by members
of our board of directors and Q47.8 million were loans made to our employees. Our loans to related parties are
made on terms and conditions comparable to other loans of like quality and risk. Of all the related party loans
outstanding as of June 30, 2007, approximately 97.5% were graded A, 1.3% were graded B, 0.8% were graded
C, 0.3% were graded D and 0.2% were graded E, under the regulations of the Superintendency of Banks. The
majority of such loans are used for commercial and industrial activities.

106

THE GUATEMALAN FINANCIAL SYSTEM


Structure of the Financial System
The financial system of Guatemala comprises the Guatemalan Central Bank, commercial banks, insurance
companies, finance firms, auxiliary credit institutions, foreign currency exchange firms, development banks and
brokerage firms. The financial system is supervised and administered by the Monetary Board (Junta Monetaria),
the Guatemalan Central Bank (Banco de Guatemala) and the Superintendency of Banks (Superintendencia de
Bancos).
The Monetary Board
The Constitution empowers the Monetary Board to determine the monetary, foreign exchange and credit
policies of the country as the governing body of the Bank of Guatemala. The Monetary Board acts through the
Guatemalan Central Bank to execute its policies.
The Monetary Board also oversees the liquidity and solvency of the national banking system, seeking to
ensure the stability and strength of national saving, regulates legal deposit requirements and determines and
evaluates the monetary, foreign exchange and credit policies of the country. The Monetary Board is also responsible
for authorizing the establishment and consolidation of banking entities in Guatemala and approving and issuing all
rules and regulations to be complied with by the Guatemalan Central Bank and financial institutions pursuant to the
Banks and Financial Groups Law.
The Guatemalan Central Bank
The Banco de Guatemala was created as Guatemalas Central Bank to design, evaluate and administer
monetary, foreign exchange and audit policies conducive to economic development in Guatemala. Under the
direction and supervision of the Monetary Board, the Guatemalan Central Bank operates as an autonomous financial
institution. Its decisions are not subject to approval by any other governmental entity. The Guatemalan Central
Bank also promotes liquidity, solvency and efficient functioning of the national banking system.
The Guatemalan Central Bank is in charge of intervening in the foreign exchange market to counter
speculation and stabilize the currency, to administer the nations international monetary reserves and the system of
payments, and to protect the balance of payments.
As a result of the 1994 constitutional reforms, the Guatemalan Central Bank is prohibited from directly or
indirectly financing the government or public or private entities other than financial institutions, and cannot acquire
securities issued or sold in the primary market by the public sector. The Constitution permits the Guatemalan
Central Bank to finance public sector entities only in case of national emergency, and then only upon the request of
the President of the Republic and with the approval of a two-thirds majority of Congress.
The Guatemalan Central Bank new organic law, which became effective on June 1, 2002, establishes that
its fundamental objective is to create and maintain the most favorable conditions for the orderly development of the
Guatemalan economy. For that purpose, the Guatemalan Central Bank will use monetary, exchange and credit
policies to promote stability in the general level of prices.
The Superintendency of Banks
The Superintendency of Banks is in charge of supervising the Guatemalan Central Bank and financial
institutions within the Guatemalan financial system. In particular, the Superintendency of Banks is responsible for
carrying out on- and off-site inspections of financial institutions and verifying compliance with applicable laws and
regulations. If a bank is found not to be in compliance, Guatemalan law entitles the Superintendency of Banks to
assess fines, suspend banking licenses or intervene in the financial institution.

107

The Banks and Financial Groups Law defines a financial group as the group of two or more legal entities
that carry out financial activities, one of such having to be a bank, and among which exists common control by
virtue of ownership, management or common corporate image use, or the existence of common control due to an
agreement among all the group entities.
All financial groups must be organized under the common control of either a controlling entity
specifically incorporated in Guatemala for such purpose, or a responsible entity which must be a bank. The Bank
is the responsible entity of the financial group, which consists of the Bank and its consolidated subsidiaries. As
such, we are charged with the obligation of ensuring that all entities within this financial group are in compliance
with the Banks and Financial Groups Law.
In order to be approved as a financial group, financial institutions must submit an application to the
Superintendency of Banks and be issued a favorable opinion. On the basis of this opinion, the Monetary Board
decides whether or not to approve the formation of the group.
For more information regarding the Superintendency of Banks, see Supervision and Regulation
Financial System Supervision.
Financial Institutions
As of June 30, 2007, there were 125 financial institutions operating in Guatemala under the control and
supervision of the Superintendency of Banks. These institutions included, among others, 24 banks (including one
branch of a foreign financial institution), 17 financial corporations, 17 insurance companies, 11 bond companies, 15
general and bonded warehouse companies, 10 offshore banks and two foreign currency exchange firms.
Guatemalas Banking System
Over the past nine years, the Guatemalan government has enacted a number of banking regulations,
increased equity and reserve requirements and adopted stronger risk assessment processes. These regulations
resulted in marginal participants in the Guatemalan financial system to be acquired by or to merge with larger banks,
lowering the total number of banks in Guatemala from 34 to 22 during the last seven years. This number is expected
to decrease after the consummation of several announced mergers.
As of June 30, 2007, the Guatemalan banking system consisted of 24 banks with total assets of
approximately Q110.6 billion. Almost 90% of the total assets were held by the seven largest banks, measured as a
percentage of total assets: Banco Industrial (28.5%), Banco G&T Continental (19.8%), Banco de Desarrollo Rural
(16.5%), Banco Agromercantil (7.7%), Citibank (7.6%), Banco Reformador (6.9%) and BAC Guatemala (2.6%).
As of December 2001, the seven largest Guatemalan banks had 56% of the total assets of the banking system.
Offshore Banks
In order to operate in Guatemala, offshore banks must comply with the requirements specified in Article
113 of the Banks and Financial Groups Law. Offshore banks are defined as entities dedicated primarily to financial
intermediation, organized or registered under the laws of one country that perform activities mainly outside of that
country. Article 113 requires offshore banks to be part of a financial group, to subject themselves to consolidated
supervision, to meet the information requirements of the Superintendency of Banks and the Guatemalan Central
Bank and to be authorized in home countries applying prudential standards at least as strict as those in Guatemala.
Offshore banks must also obtain a favorable opinion from the Superintendency of Banks and authorization from the
Monetary Board.
In addition to meeting with the above statutory requirements, offshore banks must comply with Ruling of
Monetary Board number 285-2002, Regulation for the Authorization of Operation of Offshore Entities, which has
been in effect since November 19, 2002. This regulation specifies the requirements and procedures that must be
followed by an offshore bank applying to do business in Guatemala, including the kind of documentation and
information that must be presented and the grounds and procedures for denying or withdrawing an application. It
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also regulates the currency in which offshore banks are allowed to operate, provides for control of equity
requirements in accordance with applicable law and details the mechanisms for withdrawal of authorization.
As of June 30, 2007, there were 10 offshore banks authorized to operate within Guatemala. These
institutions include Westrust Bank, Occidente International Corporation, Investment & Commerce Bank Limited,
Mercom Bank Limited, Cuscatln Bank & Trust Limited, Banex International Bank Corporation, BAC Bank Inc.,
GTC Bank Inc., Transcom Bank (Barbados) Limited and The Oxxy Bank Limited.
Foreign Banks
Article 6 of the Banks and Financial Groups Law authorizes foreign banks to establish branches in
Guatemala, and register representative offices solely for the promotion of business and the granting of financing in
the territory of Guatemala.

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SUPERVISION AND REGULATION


Regulatory Framework of the Financial System
The Guatemalan financial system is regulated by the Banks and Financial Groups Law (Ley de Bancos y
Grupos Financieros), the Law of Financial Supervision (Ley de Supervision Financiera), the Organic Law of the
Guatemalan Central Bank (Ley Orgnica del Banco de Guatemala) and the Monetary Law (Ley Monetaria)
(together, the Financial Laws).
In accordance with the Banks and Financial Groups Law, the Monetary Board issues regulations covering
the specific operations of banking institutions and financial companies and determines how consolidated supervision
is to be carried out in accordance with these regulations.
In addition, certain entities in the financial system are governed by specific financial laws. Finance
companies (Sociedades Financieras) are subject to the Private Financial Companies Law (Ley de Sociedades
Financieras Privadas), insurance companies are governed by the Insurance Law (Ley sobre Seguros), and bonded
warehouses are regulated by the Bonded Warehouses Law (Ley de Almacenes Generales de Depsito).
Authorization of the Guatemalan government is required to conduct banking activities. The Monetary
Board, after receiving the approval of the Superintendency of Banks, has the power to authorize the establishment of
new banks, subject to the terms of applicable regulation.
Other Laws
The Law of Free Trading of Foreign Currency (Ley de Libre Negociacin de Divisas) allows for
possession, purchase, sale or collection and payment of foreign currency. This law enables financial institutions to
carry out operations in any foreign currency (for example, the receipt of deposits, grant credits, etc.).
The Anti-Money Laundering Law (Ley Contra el Lavado de Dinero u Otros Activos) was enacted to
prevent and control money laundering in connection with criminal activities. Regulations issued by the
Superintendency of Banks in accordance with this law went into effect on April 26, 2002. Among other things, the
law and regulations created the Financial Intelligence Unit within the Superintendency of Banks under the name of
Special Verification Intendency. The Special Verification Intendency has been developing a national network for
the prevention, control and surveillance of money-laundering activities. Penalties for non-compliance with antimoney laundering laws and regulations, which are set forth in the Superintendency of Banks Resolution 43-2002,
include fines or jail time for bank directors or employees and the suspension or cancellation of a financial
institutions license.
The Banks and Financial Groups Law, the Organic Law of the Guatemalan Central Bank, the Law of
Financial Supervision and the Monetary Law were approved by the Guatemalan Congress as part of a package of
laws aimed at the modernization of the Guatemalan financial system. These laws were enacted as a result of
recommendations in the Report of the Financial System Evaluation Program, developed jointly by the World Bank,
the Inter-American Development Bank, the International Monetary Fund and the Monetary Board.
In August 2005, Guatemalas Congress approved Decree 58-2005 which contains the Law to Prevent and
Repress Terrorism Financing. This law is based on the requirements and recommendations of the United Nations
International Convention for the suppression of Terrorism Financing, the UNs 1373 Resolution from the Security
Council and the FATF 9 Special Recommendations. Approval of the Law to Prevent and Repress Terrorism
Financing places Guatemala as the first country in Central America and second in Latin America to have specific
legislation concerning terrorist financing. The law provides such penalties as seizure of assets, imprisonment or
imposition of fines to any director, officer, shareholder or owner of financial entities found guilty of violating it.
In the case of our financial group, the Bank is the responsible company, and as such, it must comply with
Article 32 of the Banks and Financial Groups Law, which provides, among other things, that (i) a responsible
company within a financial group may not carry out operations that should be carried out by other corporations of
110

the group, (ii) it may not have an equity participation in corporations that carry out activities different from the
activities of the corporations that are members of the financial group and (iii) it must ensure that the corporations
belonging to the financial group comply with current applicable regulation.
All Guatemalan banks must observe standards specified in the Commerce Code of Guatemala governing
mercantile companies, debentures and commercial agreements. In addition, all banks must comply with Guatemalan
tax law, including the Tax Code, which regulates all matters related to the payment of taxes, the Income Tax Law,
the Value Added Tax Law, which currently imposes a 12% tax on all commercial transactions, and the Financial
Products Tax Law, which provides that banks and other financial institutions must withhold a 10% tax on interest
payments of any nature paid by such banks and financial institutions to persons or entities domiciled in Guatemala
who are not subject to supervision by the Superintendency of Banks.
The Tier 1 notes regulation, contained in the Monetary Boards Resolution JM-172-2007, came into effect
in November 2007. The Tier 1 notes regulation establishes the rules and requirements that Guatemalan commercial
banks must fulfill in order to issue tier 1 notes and obtain the Monetary Boards approval for that purpose. In
summary, the issuance must be (i) approved by the shareholders meeting (or its equivalent) of the company and
(ii) for a term not shorter than twenty years (although a repurchase option for the issuer after five years is permitted).
Tier 1 notes must be fully paid upon placement, and payment of principal and interest on the notes is subject, among
others, to the issuers compliance with minimum capital requirements, minimum reserves requirements,
accumulation of losses from previous fiscal years, or current year losses in excess of accumulated profits from
previous years. At maturity, the notes must be substituted for capital contributions or a new issuance of notes with
similar characteristics. The Bank has issued and approved certain internal rules establishing general terms and
conditions of the Notes and their issuance (Reglamento para la emisin, negociacin, amortizacin y servicio de
los bonos admisibles para el clculo de patrimonio computable de Banco Industrial, S.A. expresados en dlares),
in compliance with the Monetary Boards Resolution JM-172-2007.
Financial System Supervision
The Financial Laws incorporate important criteria from the Basel Committee on the strengthening of
effective supervision of financial institutions. These criteria call for the supervising entity to have functional
independence, the ability to exercise supervision on a consolidated basis and powers to intervene and settle
distressed entities in a timely manner. They also call for the inclusion of offshore banking entities in financial
regulations; and the establishment of an adequate sanction standard and for review of financial information by
independent external auditors.
Superintendency of Banks
Article 132 of the Constitution empowers the Superintendency of Banks to supervise financial institutions
in Guatemala. The Superintendency of Banks is responsible for overseeing the Guatemalan Central Bank and acts
under the direction of the Monetary Board. In addition, the Superintendency of Banks supervises all financial
groups authorized by the Monetary Board, including domestic and offshore banks, insurance companies, securities
firms, entities whose business includes, but is not limited to, financial leases and factoring and other entities as
stated in the law.
Duties of Superintendency of Banks
The duties of the Superintendency of Banks are described in the Law of Financial Supervision and are
based on the international supervision standards set forth by the Basel Committee. Its main duties include:

inspecting and investigating financial institutions and ensuring their compliance with financial laws,
regulations and rules;

ensuring that financial institutions maintain adequate liquidity and solvency such that they can carry
out their activities in a timely and complete manner;

monitoring all sources of information within the supervised entities;


111

evaluating the policies, procedures, regulations and systems of regulated entities and ensuring that they
have integral risk administration procedures;

carrying out recommendations in a manner such that the regulated institutions identify, limit and
manage the risks they take;

ensuring that financial institutions have sufficient reserves for loan losses to cover the non-recovery
risk of loans;

ensuring that the regulated entities provide sufficient and true information about their activities and
financial positions;

issuing minimum standards for external auditors;

exchanging information with other national or international supervising entities;

issuing instructions to correct inadequacies or irregularities identified in its reviews;

imposing appropriate sanctions for non-compliance with Guatemalan financial laws and regulations;
and

identifying activities that may be criminal in character and bringing them to the attention of the
relevant authorities.

Oversight Activities Carried Out by Superintendency of Banks


The Superintendency of Banks appoints auditors and experts in financial supervision to carry out off-site
(extra situ) audits of the information submitted to it by financial institutions. In addition, the Superintendency of
Banks, taking into consideration risk parameters previously determined by the audit office, carries out on-site (in
situ) audits of financial institutions.
The following are the some of the main considerations taken into account by the Superintendency of Banks
in determining compliance with specific programs.
Minimum Reserve Requirements
Banking institutions are subject to a minimum reserve requirement of 14.6% over the deposits received by
the institution, which must be kept in the form of immediately available deposits with the Guatemalan Central Bank.
To verify compliance with the regulation, banking institutions must provide the Superintendency of Banks with a
daily report detailing the minimum reserve requirement.
Loan Loss Reserves
In accordance with limitations specified by the Banks and Financial Groups Law and regulations issued by
the Monetary Board, banking institutions, financial service entities, offshore entities and other financial institutions
must carry out quarterly delinquency assessments of their credit and record reserves based on estimates of nonrecoverability. Banking institutions and financial corporations must provide to the Superintendency of Banks
monthly reports concerning outstanding credits in effect and movements and appraisals of credit portfolios in
accordance with criteria specified by the Monetary Board. Additionally, the Superintendency of Banks carries out
on-site reviews in which it evaluates payment ability and payment fulfillment of debtors and requests the institutions
to record that necessary reserves be based on the non-payment risk.
Capital Requirements
As specified in regulations issued by the Monetary Board, banking institutions in Guatemala must have a
minimum capital adequacy ratio (risk weighted assets to equity) of 10%. Banks must submit a weekly report to the
Superintendency of Banks for monitoring compliance with this requirement.

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Transactions with Affiliated Companies


In its on-site reviews the Superintendency of Banks verifies that financial institutions are in compliance
with Monetary Board regulations limiting transactions between affiliated companies. Affiliated companies may
transact business with one another provided they do so in accordance with their normal standards of business.
In particular, affiliated companies must comply with the following:

The interest rate charged in financial transactions with an affiliated company may not be lower than the
weighted average charged with respect to the largest ten loans granted to non-affiliated companies;

For deposits, the interest rate paid to an affiliated company may not be higher than the weighted
average paid with respect to the deposits of the ten largest non-affiliated depositors;

The amount and terms of financing granted to an affiliated company must be in accordance with the
companys payment capacity and under the same conditions as those granted to non-affiliated parties;

Any financing guarantees provided to an affiliated company must be sufficient to provide support for
payment and must be similar to requirements granted to non-affiliated parties; and

Any fees and charges imposed on affiliated companies must be similar to those charged to nonaffiliated parties.

See Transactions With Related Parties.


Reports of Financial Institutions
Banking institutions must submit to the Superintendency of Banks the following on a weekly basis: a
statement of accounting, a report setting forth values of investments, a report of asset and liability interest rates, a
report concerning financial obligations of the institution and a report of foreign exchange transactions. The
Superintendency of Banks reviews such reports as they are received.
Additionally, copies of all shareholders meetings minutes and board of directors minutes have to be sent
to the Superintendency of Banks.
Granted Loans
Banking institutions forward on a weekly basis a written record detailing authorized credit transactions to
the Superintendency of Banks for review.
Publication of Financial Information and of Operations
In order to keep the general public informed, financial institutions in Guatemala and the Superintendency
of Banks must publish the following information in local newspapers.

On a monthly basis, banks and financial corporations are required to publish consolidated balance
sheets and information regarding asset and liability interest rates. On a quarterly basis they must
publish a summary of the valuation of credit assets. Audited Financial Statements must be published
annually;

Insurance and bonding companies are required to publish quarterly financial statements; and

On a monthly basis, the Superintendency of Banks is required to publish the consolidated financial
statements (general balance and statement of results) of banking institutions, financial corporations and
insurance companies; the asset position of banking institutions and financial corporations; the solvency
margin of the insurance companies; fines imposed on financial institutions due to lack of compliance
with current regulations; and important accounting adjustments and reclassifications required of
financial institutions in audits.
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Money Laundering Prevention


There are several institutions in Guatemala whose objective is to prevent and detect money laundering
within the Guatemalan financial system.
Intendencia de Verificacin Especial (IVE)
The IVE is a unit of the Superintendency of Banks, and its purpose is to monitor compliance with the AntiMoney Laundering and its regulations. The IVE exchanges information with other countries on cases related to
money laundering; analyzes new and existing markets in order to establish patterns in money laundering; requests
and receives information related to suspicious transactions and analyzes the information obtained to confirm the
existence of suspicious transactions, prepares and maintains any necessary records and statistics, imposes monetary
fines for non-compliance with money laundering laws and regulations and files a claim before the appropriate
authorities when there is any indication of criminal activity.
Prosecutors Office Against Money Laundering
The Prosecutors Office Against Money Laundering is an office within the Ministerio Pblico of
Guatemala whose purpose is to investigate money laundering related crimes and to oversee money laundering cases
filed in the Guatemalan court system.
Compliance Officers in the Financial Institutions
Pursuant to Article 19 of the Anti-Money Laundering Law, financial institutions must appoint management
officers to monitor compliance with anti-money laundering laws and regulations. These officers are responsible for:

proposing any programs, regulations, procedures and internal controls that must be adopted and carried
out in order to prevent the unlawful use of services and products in money laundering activities;

informing employees about legal and regulatory requirements as well as any existing internal
procedures for the prevention and detection of money laundering;

coordinating the implementation of programs, regulations and internal controls with other areas of the
financial institution covered by the Anti-Money Laundering Law;

ensuring that all information, particularly any reports of suspicious transactions, are properly
documented and forwarded to the IVE;

keeping technical and legal documentation concerning the prevention and detection of money
laundering; and

establishing communication channels with compliance officers and organizing prevention of money
laundering training for personnel.

Review of Financial Institutions by External Auditors


Pursuant to Article 11 of the Regulation of the Anti-Money Laundering Law, which regulates certain
services provided by external auditors, a financial institution must require in the servicing agreement that the
external auditors issue an opinion with regards to the compliance and effectiveness of the institutions anti-money
laundering programs, regulations and procedures.
Reports of Suspicious Transactions to the IVE
Financial Institutions must report financial transactions determined to be unusual or suspicious to the IVE.
Transactions are generally determined to be suspicious or unusual when they do not present an evident or legal
economic basis.

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Taxation
In general, banks in Guatemala are subject to the same taxes that apply to business firms. There are,
however, a few exceptions. First, the Value Added Tax (VAT) is not applicable to financial transactions where one
of the parties is a bank. From an income tax perspective, while interest on financial transactions paid to non-bank
creditors requires a 10% withholding tax (Impuesto Sobre Productos Financieros), interest paid to banks is not
subject to such withholding but rather it is considered as part of its ordinary income and subject to general income
tax at corporate level. Furthermore, Income Tax Law establishes a 10% capital gains tax. Second, documents used
in the course of a banks administrative operations (such as receipts or deposit slips) are not subject to stamp tax.
Lastly, although technically not a tax, banks pay a contribution to the Superintendency of Banks in the amount of
0.10% of their assets.
The Bahamas Banking and Supervision Regulation
In order to carry out banking business from The Bahamas, all banks must be licensed by the Central Bank
of The Bahamas pursuant to The Bahamas Banks and Trust Companies Regulation Act (as amended) and the
Central Bank of The Bahamas Act (Bahamas Banking Law). Westrust Bank operates pursuant to a public
banking and trust license under The Bahamas Banking Law, which permits it to conduct banking and trust business
anywhere in the world but restricts activities in The Bahamas to banking and trust activities only in furtherance of
the licensees offshore activities.
The Central Bank of The Bahamas was established in 1974 with responsibility for, among other things,
supervising the banking and trust industry in The Bahamas.
Westrust Bank is required to provide a copy of our audited annual accounts to the Central Bank of The
Bahamas and to publish the same in a local newspaper in The Bahamas within four months of the end of our fiscal
year end. The Central Bank has a duty to maintain a general review of banking and trust practice in The Bahamas,
to carry on investigations and physical inspections to determine that each licensee is in a sound financial position, to
investigate any offense against the laws of The Bahamas which it has reasonable grounds to believe has, or may
have been, committed by a licensee or any of its directors or officers in their capacity as such, and to examine
accounts and audited accounts forwarded to it. Violations of certain provisions of The Bahamas Banking Law are
subject to administrative sanctions (including cancellation of licenses), fines and criminal penalties.
The BahamasConfidentiality
Westrust Bank is subject to two confidentiality regimes applicable in The Bahamas: English common law,
pursuant to which a bank is under a duty to keep its customers affairs confidential, and statute, whereby the Banks
and Trust Companies Regulation Act (The Bahamas Companies Act) makes it a criminal offense, among others,
to divulge certain information. Unless an exemption under The Bahamas Companies Act applies, any person in
possession confidential information who divulges it is guilty of an offense and liable on conviction to a fine or a
term of imprisonment.
Subject to certain exceptions, The Bahamas Companies Act is deemed to apply to all information with
respect to the identity, assets, liabilities, transactions or accounts of a customer of a licensee and to any director,
officer, employee, or agent of any licensee or former licensee; attorneys, consultants or auditors of the Central Bank
of The Bahamas or employees or agents of any of the above; attorneys, consultants, auditors, receivers or liquidators
or employees or agents of any of the above of any licensee or former licensee; auditor of any customer of any
licensee or former licensee or employee or agent of such auditor; the Inspector of the Central Bank of The Bahamas;
any Supervisory Authority (which would include a foreign entity charged with the responsibility of conducting
consolidated supervisions of banking and trust business by organizations licensed in its home country), or employee,
director, officer or agent of such Supervisory Authority.
The confidentiality provisions of The Bahamas Companies Act have no application to the seeking,
divulging, or obtaining of confidential information in the following circumstances: (1) in compliance with the
direction of a court of competent jurisdiction in The Bahamas; (2) for the purpose of the performance of a persons
115

duties or the exercise of his functions under the Act; for the purpose of the performance of his duties within the
scope of his employment (3) for the purpose of enabling or assisting the governor of the Central Bank to exercise his
functions under the Act ; or (4) to a person with a view to the institution of, or for the purpose of (a) criminal
proceedings (b) disciplinary proceedings whether within or outside The Bahamas, relating to the exercise by an
attorney, auditor, accountant, appraiser or actuary of his professional duties; or (c) disciplinary proceedings relating
to the discharge by a public officer or a member or employee of the Central Bank of The Bahamas of his duties
Under Section 9 of The Bahamas Companies Act, the Inspector of the Central Bank of The Bahamas is
entitled, in the performance of his functions under the Act (which include a duty of general supervision of banking
and trust practices in The Bahamas and the assisting in the investigation of any offense against the laws of The
Bahamas which it has reasonable grounds to believe has or may have been committed by a bank or by any of its
directors or officers in such capacity), at all reasonable times, to have access to such books, records, vouchers,
documents, cash and securities of any bank; (b) to request any information or explanation from the manager of any
licensee; and (c) to call upon the auditors for any licensee for its reports, working papers information or explanation
and to require the auditor to report to the Inspector or to require the auditor to make a particular examination relating
to the adequacy of the procedures adopted by a licensee.
The BahamasPrevention of Money Laundering
As part of our responsibility for the prevention of money laundering, Westrust Bank requires a detailed
verification of the investors identity and the source of payment. Depending on the circumstances of each
application, a detailed verification might not be required where:
(a)

the investor is a foreign financial institution which is regulated by a recognized authority and
carries on business in a country listed in the First Schedule of the Financial Transactions
Reporting Act of The Bahamas (as amended) (First Schedule);

(b)

the application is made through a recognized intermediary which is regulated by a recognized


regulatory authority and carries on business in a First Schedule Country. In this situation we may
rely on a written assurance from the intermediary that the requisite identification procedures on the
investor for business have been carried out, (subject to the Guidelines of the Central Banks); or

(c)

the subscription payment is remitted from an account (or joint account) held in the investors name
at a bank in The Bahamas or a bank regulated in a First Schedule Country. In this situation we
may require evidence identifying the branch or office of the bank from which the monies have
been transferred, verify that the account is in the name of the investor and retain a written record
of such details.

Westrust Bank reserves the right to request such information as is necessary to verify the identity of an
investor. In the event of delay or failure by the investor to produce any information required for verification
purposes, we may refuse to accept the application and the subscription monies relating thereto.
If any financial institution in The Bahamas has a suspicion that a payment to the Fund (by way of
subscription otherwise) contains the proceeds of criminal conduct that person is required to report such suspicion
pursuant to The Proceeds of Crime Act.
By subscribing, investors consent to the disclosure by us of any information about them to regulators and
others upon request in connection with money laundering and similar matters both in The Bahamas and in other
jurisdictions.

116

DESCRIPTION OF THE NOTES


General
Banco Industrial, S.A. (the Issuer) will issue the Notes under an indenture to be entered into, on or about
April 30, 2008, by and among the Issuer and The Bank of New York, as Trustee (the Indenture). Capitalized
terms not otherwise defined herein will have the meanings given to them in the Indenture. This description of the
terms and conditions of the Notes and the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all of the provisions of the Notes and the Indenture. Investors are urged to
read the Indenture because it, and not this description, defines the rights of a holder of Notes. Investors may obtain
a copy of the Indenture by contacting the Trustee and, for so long as the Notes are listed on the Luxembourg Stock
Exchange and admitted for trading on the Euro MTF, at the office of the Luxembourg Paying Agent. Capitalized
terms used but not defined herein have the meanings assigned to such terms in the Indenture. References in this
Description of Notes to the Issuer are to Banco Industrial, S.A. excluding its subsidiaries.
The Notes will initially be issued in an aggregate principal amount of US$30,000,000 and will mature on
April 30, 2068, subject to adjustment if such date is not a Business Day (as defined below) (the Stated Maturity),
unless earlier redeemed. If so permitted by Guatemalan banking laws and regulations and provided the eligibility of
the Notes to be computed as part of the Issuers Tier 1 capital status (capital primario) is not affected thereby, the
Issuer may from time to time, without the consent of the existing holders, create and issue additional notes having
the same terms and conditions as the Notes in all respects, except for the Issue Date, issue price and, if applicable,
the date from which interest will accrue or first be scheduled for payment. Such additional notes will be
consolidated with and will form a single series with the Notes.
The Notes will initially be issued in the form of one or more fully registered Restricted Global Notes and
Regulation S Global Notes. The Notes will be issued only in minimum denominations of US$2,000 and integral
multiples of US$1,000 in excess thereof.
Payment of principal and interest on the Notes will be made as described in Payment of Principal and
Interest subject to the limitation on interest described in Limitation on Interest.
Interest
Fixed Rate Period
The Notes will accrue interest from and including April 30, 2008 (the Issue Date) to but excluding April
30, 2018 (the First Optional Redemption Date), which is referred to as the Fixed Rate Period, at a fixed annual
rate of 9.00%. During the Fixed Rate Period, interest will be payable, subject to the limitations on interest described
in Limitation on Interest, quarterly in arrears on January 30, April 30, July 30 and October 30 of each year
(each a Fixed Interest Payment Date), commencing July 30, 2008. The period from and including the Issue Date
to but excluding the first Fixed Interest Payment Date and each period thereafter from and including a Fixed Interest
Payment Date to but excluding the next Fixed Interest Payment Date is referred to as a Fixed Interest Period.
Floating Rate Period
The Notes will accrue interest from and including April 30, 2018 to but excluding the Stated Maturity (the
Floating Rate Period) at a rate equal to the Three Month LIBOR Rate determined as of the second Business Day
prior to the commencement of each Floating Interest Period plus 600 basis points per annum (the Applicable
Margin) payable subject to the limitations on interest described in Limitation on Interest, on each Floating
Interest Payment Date. During the Floating Rate Period, interest will be payable, subject as aforesaid, quarterly in
arrears on January 30, April 30, July 30 and October 30 of each year (each a Floating Interest Payment Date, and
together with the Fixed Interest Payment Dates, the Interest Payment Dates), commencing July 30, 2018. The
period from and including the First Optional Redemption Date to but excluding the first Floating Interest Payment
Date and each period thereafter from and including a Floating Interest Payment Date to but excluding the next
Floating Interest Payment Date is referred to as a Floating Interest Period.
117

General
The amount of interest payable in respect of each full Fixed Interest Period shall be US$22.50 per
US$1,000 principal amount of Notes. The amount of interest payable in respect of a period which is less than a full
Fixed Interest Period will be computed on the basis of a 360-day year consisting of twelve 30-day months. In the
event that any Fixed Interest Payment Date is not a Business Day, then payment of the interest payable on such date
will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect
of any such delay), with the same force and effect as if made on the date such payment was originally payable.
The amount of interest payable in respect of each Floating Interest Period will be computed on the basis of
the number of days actually elapsed in such Floating Interest Period divided by 360. In the event that any Floating
Interest Payment Date is not a Business Day, then such Floating Interest Payment Date will be postponed until the
next succeeding day that is a Business Day, unless it would thereby fall in the next succeeding calendar month, in
which case such Floating Interest Payment Date will be brought forward to the immediately preceding Business
Day, and the amount of interest will be adjusted accordingly.
The Regular Record Date for each Interest Payment Date will be the date which is 15 calendar days prior to
such Interest Payment Date, whether or not such date will be a Business Day.
Business Day means any Guatemalan Business Day, other than a Saturday or Sunday, that is neither a
legal holiday nor a day on which commercial banks are authorized or required by law, regulation or executive order
to close in New York City.
Guatemalan Business Day means any day, other than a Saturday or Sunday, that is neither a official
holiday nor a day on which commercial banks are authorized or required by law, regulation or executive order to
close in Guatemala City.
Determining the Floating Rate
The Calculation Agent will calculate the interest rate with respect to each Floating Interest Period and the
amount of interest payable on the related Floating Interest Payment Date and will so notify the Luxembourg Stock
Exchange, so long as the Notes are listed thereon and the Luxembourg Stock Exchange so requires. The interest rate
determined by the Calculation Agent, absent manifest error, will be binding and conclusive. The Bank of New York
will initially act as Calculation Agent.
The Three Month LIBOR Rate means, for each Floating Interest Period, the interest rate per annum
shown on the Designated LIBOR Page at or about 11:00 a.m., London time, on the second London Banking Day
(the Interest Determination Date) preceding the first day of the Floating Interest Period (the Interest Reset Date)
for deposits in U.S. dollars with a maturity of three months and commencing on the Interest Reset Date. If such rate
does not appear on the Designated LIBOR Page, the Three Month LIBOR Rate will be determined on the basis of
the rates, at approximately 11:00 a.m., London time, on the Interest Determination Date, at which U.S. dollar
deposits with a maturity of three months in an amount determined by the Calculation Agent as representative of a
single transaction in the relevant market and at the relevant time are offered by four major banks in the London
interbank market selected by the Calculation Agent (Reference Banks) to prime banks in the London interbank
market for a three month period commencing on the Interest Reset Date. The Calculation Agent will request the
principal London office of each of the Reference Banks to provide a quotation of its rate. If at least two quotations
are provided as requested, the Three Month LIBOR Rate will be the arithmetic mean of the quotations. If fewer
than two quotations are provided as requested, the Three Month LIBOR Rate will be the interest rate per annum
equal to the average of the rates per annum quoted by three major banks in New York City selected by the
Calculation Agent, at or about 11:00 a.m., New York City time, on the Interest Determination Date, for loans in U.S.
dollars to leading European banks in amounts that are representative of a single transaction in the relevant market
and at the relevant time with a maturity of one year commencing on the Interest Reset Date. If fewer than three New
York City banks selected by the Calculation Agent are quoting rates, the Three Month LIBOR Rate for the
applicable Floating Interest Period will be the same as for the immediately preceding Floating Interest Period,
provided that, if there is no previous Floating Interest Period for which the Three Month LIBOR Rate has been
determined, the interest rate with respect to the relevant Floating Interest Period will be 9.00% per annum.
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London Banking Day means any day on which dealings in deposits in U.S. dollars are transacted in the
London interbank market.
Designated LIBOR Page means the display designated on Reuters LIBOR 01 (or on any successor or
substitute page of such service, or any successor to or substitute for such service, providing rate quotations
comparable to those currently provided on such page).
Additional Amounts
All payments of principal, premium or interest by the Issuer in respect of the Notes will be made without
deduction or withholding for or on account of any present or future taxes, penalties, fines, duties, assessments or
other governmental charges of whatever nature imposed or levied by or on behalf of Guatemala, or any political
subdivision thereof or any authority therein having power to tax (Guatemalan Taxes), unless the Issuer is
compelled by law to deduct or withhold such Guatemalan Taxes.
In any such event, the Issuer will pay such additional amounts (Additional Amounts) in respect of
Guatemalan Taxes as may be necessary to ensure that the amounts received by holders of the Notes after such
withholding or deduction will equal the respective amounts that would have been receivable in respect of such Notes
in the absence of such withholding or deduction, except that no such Additional Amounts will be payable:
(i)

to or on behalf of a holder or beneficial owner of a Note that is liable for Guatemalan Taxes in
respect of such Note by reason of having a present or former connection with Guatemala other
than merely the holding or owning of such Note or the enforcement of rights with respect to such
Note or the receipt of income or any payments in respect thereof;

(ii)

to or on behalf of a holder or beneficial owner of a Note in respect of Guatemalan Taxes that


would not have been imposed but for the failure of the holder or beneficial owner of such Note to
comply with any certification, identification, information, documentation or other reporting
requirement (within 30 calendar days following a written request from the Issuer to the holder for
compliance) if such compliance is required by applicable law, regulation, administrative practice
or an applicable treaty as a precondition to exemption from, or reduction in the rate of deduction
or withholding of, Guatemalan Taxes;

(iii)

to or on behalf of a holder or beneficial owner of a Note in respect of any estate, inheritance, gift,
sales, transfer, personal assets or similar tax, assessment or other governmental charge;

(iv)

to or on behalf of a holder or beneficial owner of a Note in respect of Guatemalan Taxes payable


otherwise than by withholding from payment of principal of, premium, if any, or interest on the
Notes;

(v)

to or on behalf of a holder or beneficial owner of a Note in respect of Guatemalan Taxes that


would not have been imposed but for the fact that the holder presented such Note for payment
(where presentation is required) more than 30 days after the later of (x) the date on which such
payment became due and (y) if the full amount payable has not been received by the Trustee on or
prior to such due date, the date on which, the full amount having been so received, notice to that
effect has been given to the holders by the Trustee; or

(vi)

any combination of items (i) to (v) above;

nor will Additional Amounts be paid with respect to any payment of the principal of, or any premium or interest on,
the Notes to any holder or beneficial owner of a Note who is a fiduciary or partnership or limited liability company
or other than the sole beneficial owner of such payment to the extent such payment would be required by the laws of
Guatemala to be included in the income for tax purposes of a beneficiary or settlor with respect to such fiduciary or
a member of such partnership, limited liability company or beneficial owner who would not have been entitled to
such Additional Amounts had it been the holder of such Note.
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All references herein to principal, premium or interest payable hereunder will be deemed to include
references to any Additional Amounts payable with respect to such principal, premium or interest. The Issuer will
provide the Trustee with documentation reasonably satisfactory to the Trustee evidencing the payment of any
amounts deducted or withheld promptly upon the Issuers payment thereof, and copies of such documentation will
be made available by the Trustee to holders upon written request to the Trustee.
The Issuer will pay promptly when due any present or future stamp, court or documentary taxes or any
excise or property taxes, charges or similar levies that arise in any jurisdiction from the execution, delivery or
registration of the Notes or any other document or instrument referred to in the Indenture or the Notes, excluding
any such taxes, charges or similar levies imposed by any jurisdiction outside Guatemala except those resulting from,
or required to be paid in connection with, the enforcement of the Notes after the occurrence and during the
continuance of any Event of Default (as defined below).
Limitation on Interest
Option to Cancel Interest Payments
The Issuer may, in the sole and absolute discretion of its board of directors, cancel the payment of interest
on the Notes on any Interest Payment Date (an Optional Cancellation of Interest), in whole or in part, provided no
payment or distribution, or acquisition, redemption or repurchase was made in respect of any Parity Securities or
Junior Securities (as defined below) during the period commencing on (but excluding) the immediately preceding
Interest Payment Date and ending on (and including) the relevant Interest Payment Date.
In the event that the Issuer has determined that it will not pay interest on the Notes in full on the next
Interest Payment Date in exercise of its discretion described above, it will, promptly thereafter and in any case no
later than five Business Days prior to the relevant Regular Record Date, notify the Trustee by delivering an Officers
Certificate (as defined in the Indenture) to that effect to enable the Trustee to notify the holders of the Notes.
Interest payments are non-cumulative such that if an interest payment is cancelled (in whole or in part) as a
result of the exercise of the Issuers discretion described above, the unpaid interest will not accrue or be due and
payable at any time and, accordingly, holders of the Notes will not have any claim therefor, whether or not interest is
paid in respect of any other period.
Mandatory Cancellation of Interest Payments
In addition to the Issuers option to cancel interest payments as described above in Limitation on
InterestOption to Cancel Interest Payments, the Issuer will not be permitted to pay interest on the Notes on an
Interest Payment Date (a Mandatory Cancellation of Interest) to the extent that the Issuer is prohibited from
making such payment due to:
(i)

the Issuers Total Capital Ratio being less than the Minimum Capital Ratio as at such Interest
Payment Date;

(ii)

the Issuers legal reserves deposited with the Guatemalan Central Bank having fallen below the
levels required by applicable Guatemalan banking laws and regulations at any time during the two
months immediately preceding such Interest Payment Date or at any time during three separate
months in the twelve months immediately preceding such Interest Payment Date; or

(iii)

the payment of such interest, together with any other payments or distributions (other than
payments in respect of redemptions or repurchases) on or in respect of any Parity Securities
(including the Notes) previously made during the fiscal year in which such Interest Payment Date
falls or scheduled to be made on such Interest Payment Date, exceeding the Banks Distributable
Amounts (as described below) as at the Interest Payment Determination Date.

Distributable Amounts means, at any time:


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(i)

the aggregate amount of any accumulated retained earnings and any other reserves and surpluses
of the Issuer available for distribution under the Commercial Code of Guatemala and generally
accepted accounting principles in Guatemala (but before deduction of the amount of any dividend
or other distribution on the Issuers Junior Securities) as set out in the financial statements of the
Issuer for the fiscal year ending immediately preceding the relevant Interest Payment Date and any
profit or other amounts available for distribution which have accrued or accumulated since the end
of the immediately preceding fiscal year up to the relevant Interest Payment Determination Date as
determined by the board of directors of the Issuer and certified by the Corporate Secretary (as
defined in the indenture) of the Issuer;

(ii)

less any loss which has accrued or accumulated since the end of the immediately preceding fiscal
year up to the relevant Interest Payment Determination Date as determined by the board of
directors of the Issuer and certified by the Corporate Secretary of the Issuer.

Commercial Code of Guatemala means the Cdigo de Comercio (Decreto del Congreso de la Repblica
de Guatemala 2-70), as amended, or any successor legislation as in effect from time to time in Guatemala.
Interest Payment Determination Date means, in relation to an Interest Payment Date, the date which is 20
Guatemalan Business Days immediately preceding such Interest Payment Date.
Minimum Capital Ratio means the minimum total capital ratio required to be maintained by the Issuer
from time to time under the Relevant Capitalization Rules (currently 10%).
Relevant Capitalization Rules means Articles 16, 64, 65, 66 and 67 of the Banks and Financial Groups
Law and the related laws, rules and regulations, from time to time, of the Monetary Board relating to the minimum
capital requirements of banks in Guatemala, in each case, as the same may be amended, restated, supplemented or
replaced from time to time.
Total Capital Ratio means, the total capital ratio of the Issuer (both on an individual and consolidated
basis) as calculated in accordance with the Relevant Capitalization Rules.
In the event that the Issuer has determined that it will not pay interest on the Notes in full on the next
Interest Payment Date as a result of the limitation described above, the Issuer will, promptly thereafter and in any
case no later than five Business Days prior to the relevant Interest Payment Date, notify the Trustee by delivering an
Officers Certificate to that effect to enable the Trustee to notify the holders of the Notes.
Interest payments are non-cumulative such that if an interest payment is cancelled (in whole or in part) as a
result of the limitation described above, the unpaid interest will not accrue or be due and payable at any time and,
accordingly, holders of the Notes will not have any claim therefore, whether or not interest is paid in respect of any
other period.
Ranking
The Notes will constitute the Issuers direct, unsecured and junior obligations and will not be insured or
benefit from any contractual support agreement. In the event of the Issuers bankruptcy, insolvency, liquidation,
dissolution, winding up or equivalent proceeding under Guatemalan law, all claims under the Notes will rank:

junior in right of payment to the payment of all of the Issuers Senior Debt;

pari passu in right of payment with the Issuers Parity Securities; and

senior in right of payment to the payment of the Issuers Junior Securities.

Senior Debt means (a) all claims of the Issuers depositors and other unsubordinated creditors and other
claims and obligations preferred under mandatory provisions of Guatemalan law; and (b) all claims of all of the

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Issuers other creditors, except those whose claims rank, or are expressed to rank, pari passu with, or junior to, the
claims of holders of Parity Securities.
Parity Securities means (i) all securities or other obligations of the Issuer which qualify as Tier 1 Capital
(capital primario) of the Issuer (ignoring for this purpose any limitation placed on the amount of such capital) other
than Junior Securities and (ii) any other securities or obligations of the Issuer which rank or are expressed to rank,
pari passu with the Issuers obligations under the Notes.
Junior Securities means (i) all classes of the Issuers capital stock and (ii) any other securities or
obligations of the Issuer which rank pari passu with any class of the Issuers capital stock as regards entitlement to a
return of assets upon liquidation or the payment of dividends or any other payments thereon.
The Indenture provides that, in the event of the Issuers bankruptcy, unless all holders of its Senior Debt
have been paid in full, no payment or other distribution may be made in respect of the Notes. If the Trustee under
the Indenture or any holders of the Notes receive any payment or distribution that is prohibited under these
provisions, then the Trustee or the holders will have to repay that money to, or hold that money in trust for the
benefit of, holders of the Issuers Senior Debt.
Final Redemption
On the Stated Maturity, the Issuer will redeem for cash the Notes that have not been previously redeemed
or repurchased and canceled at a redemption price equal to 100% of the aggregate principal amount thereof plus
accrued and unpaid interest to but excluding the Stated Maturity and any Additional Amounts thereon.
Early Redemption
Optional Redemption On or After April 30, 2018
The Issuer may at its option redeem the Notes for cash in whole, but not in part, on the First Optional
Redemption Date or on any Floating Interest Payment Date occurring thereafter (the Optional Redemption), at the
Base Redemption Amount (as defined below). Such option may only be exercised, and redemption shall only be
made, if the Issuer is in compliance with applicable Guatemalan laws and regulations in effect on the applicable
redemption date and, to the extent required, if the Issuer shall have previously obtained the authorization from the
Superintendency of Banks to effect such redemption.
Special Event Redemption Prior to April 30, 2018
The Issuer may at its option redeem the Notes for cash, in whole, but not in part, at any time prior to the
First Optional Redemption Date (the Special Event Redemption), at the applicable Special Event Redemption
Amount, upon the occurrence of an Equity Credit Event, a Regulatory Event, a Tax Event or a Withholding Tax
Event (each, a Special Event) and the satisfaction of certain conditions, as described herein. Such option may
only be exercised, and redemption shall only be made, if the Issuer is in compliance with applicable Guatemalan
laws and regulations in effect on the applicable redemption date and if the Issuer shall have previously obtained any
required approvals, including but not limited to the authorization from the Superintendency of Banks, the Monetary
Board and internal corporate approvals, to effect such redemption.
The Issuer will be required, prior to exercising its redemption option upon the occurrence of a Special
Event, to deliver to the Trustee an Officers Certificate together, in case of a Regulatory Event, Tax Event or
Withholding Tax Event, with a written legal opinion of a recognized Guatemalan counsel experienced in such
matters, in a form satisfactory to the Trustee, confirming that it is entitled to exercise such right of redemption.
Base Redemption Amount means the aggregate principal amount of the Notes plus accrued and unpaid
interest to but excluding the redemption date and any Additional Amounts thereon.

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Equity Credit Event means at any time on or after the Issue Date of the Notes, the Issuer receives
confirmation from any Rating Agency from whom the Issuer is assigned sponsored ratings that the Notes will no
longer be eligible for the same or higher category of equity credit (as defined by the relevant Rating Agency)
attributed to the Notes on the Issue Date of the Notes.
Make-Whole Amount means the sum of the present values of each remaining scheduled payment of
principal and interest on the Notes to the First Optional Redemption Date (exclusive of interest for the current Fixed
Interest Period accrued to the redemption date) discounted to the redemption date on a quarterly basis (assuming a
360-day year consisting of twelve 30-day months) at the Treasury Rate plus 0.50%, plus accrued and unpaid interest
to but excluding the redemption date and any Additional Amounts thereon.
Comparable Treasury Issue means the United States Treasury security or securities selected by an
Independent Investment Banker as having an actual or interpolated maturity comparable to the remaining
term of the Notes to the First Optional Redemption Date.
Comparable Treasury Price means, with respect to any redemption date (i) the average, as determined by
an Independent Investment Banker, of the Reference Treasury Dealer Quotations for such redemption date
after excluding the highest and lowest of such Reference Treasury Dealer Quotations or (ii) if fewer than
four such Reference Treasury Dealer Quotations are obtained, the average, as determined by such
Independent Investment Banker, of all such quotations.
Independent Investment Banker means one of the Reference Treasury Dealers appointed by the Issuer.
Reference Treasury Dealer means Credit Suisse Securities (USA) LLC or any of its affiliates which is a
primary United States government securities dealers and two other primary United States government
securities dealers in New York City designated by the Issuer; provided that, if any of the foregoing shall
cease to be a primary United States government securities dealer in New York City (a Primary Treasury
Dealer), the Issuer will substitute therefor another Primary Treasury Dealer.
Reference Treasury Dealer Quotation means, with respect to each Reference Treasury Dealer and any
redemption date, the average, as determined by an Independent Investment Banker, of the bid and asked
prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount)
quoted in writing to such Independent Investment Banker by such Reference Treasury Dealer at 3:30 pm
New York City time on the third Business Day preceding such redemption date.
Treasury Rate means, with respect to any redemption date, the rate per annum equal to the quarterly
equivalent yield to maturity or interpolated maturity (on a day count basis) of the Comparable Treasury
Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal
amount) equal to the Comparable Treasury Price for such redemption date.
Rating Agencies means Moodys Investors Service Limited, Standard & Poors Rating Services, a
division of The McGraw-Hill Companies Inc., or Fitch Ratings Limited and, in each case, any successor entity.
Regulatory Event means that, as a result of (i) any change in, amendment to, or replacement of, the laws
(or any regulations or rulings issued thereunder) of Guatemala or any political subdivision thereof or any regulatory
authority therein or (ii) any change in the application, administration or official interpretation of such laws,
regulations or rulings, including, without limitation, the holding of a court of competent jurisdiction, which change
or amendment becomes effective on or after the Issue Date of the Notes, the Issuer will no longer be entitled to treat
the Notes as Tier 1 capital (capital primario) pursuant to the Relevant Capitalization Rules (ignoring for this
purpose any limitation placed on the amount of such capital).
Special Event Redemption Amount means (i) in respect of a Withholding Tax Event, an amount equal to
the Base Redemption Amount and (ii) in respect of an Equity Credit Event, Regulatory Event or Tax Event, an
amount equal to the higher of (a) the Base Redemption Amount and (b) the Make-Whole Amount as calculated by
an Independent Investment Banker and notified to the Trustee in writing.
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Tax Event means that, as a result of (i) any enactment of new laws or any change in, or amendment to,
the laws (or any regulations or rulings issued thereunder) of Guatemala or any political subdivision thereof or any
taxing authority therein or (ii) any change in the application, administration or official interpretation of such laws,
regulations or rulings, including, without limitation, the holding of a court of competent jurisdiction, which change
or amendment becomes effective on or after the Issue Date of the Notes, interest payments under the Notes cease to
be allowable deductions for the purposes of income tax laws applicable to the Issuer in Guatemala.
Withholding Tax Event means that, as a result of (i) any enactment of new laws or any change in, or
amendment to, the laws (or any regulations or rulings issued thereunder) of Guatemala or any political subdivision
thereof or any taxing authority therein, as applicable (ii) any change in the application, administration or official
interpretation of such laws, regulations or rulings, including, without limitation, the holding of a court of competent
jurisdiction, Issuer has or will become obligated to pay Additional Amounts in excess of those payable as of the
Issue Date on or in respect of the Notes, which change or amendment becomes effective on or after the Issue Date of
the Notes, and which obligation the Issuer determines in good faith cannot be avoided by it taking reasonable
measures available to it.
Notice of Redemption
If the Issuer gives a notice of an Optional Redemption or a Special Event Redemption in respect of the
Notes as described above, then, by 11:00 a.m., New York City time, on the applicable redemption date, to the extent
funds are legally available, with respect to the Notes being redeemed and held by DTC or its nominee, the Trustee or
the Paying Agent will pay the applicable redemption amount to DTC. See Form, Denomination and Registration
of Notes. With respect to the Notes being redeemed and held in certificated form, the Trustee, to the extent funds
are legally available, will pay the applicable redemption amount to the holders of the Notes upon surrender of
Certificated Notes. Interest payable on or prior to the redemption date, if any, shall be payable to the holders of the
Notes on the Regular Record Date. If notice of an Optional Redemption or Special Event Redemption shall have
been given and funds deposited with the Trustee to pay the applicable redemption amount for the Notes, then upon
the date of such deposit, all rights of the holders of the Notes will cease, except the right of the holders of the Notes
to receive the applicable redemption amount, but without interest on such redemption amount, and the Notes will
cease to be outstanding. In the event that any redemption date of the Notes is not a Business Day, then the
applicable redemption amount payable on such date will be paid on the next succeeding day that is a Business Day
(without any interest or other payment in respect of any such delay), in each case with the same force and effect as if
made on such date. In the event that payment of the applicable redemption amount is improperly withheld or
refused and not paid by the Issuer (1) interest due on the Notes being redeemed will continue to accrue at the then
applicable rate, from the redemption date originally established by the Issuer to the date such applicable redemption
amount is actually paid, and (2) the actual payment date will be the redemption date for purposes of calculating the
applicable redemption amount.
Notice of any Optional Redemption or Special Event Redemption will be mailed at least 30 days but not
more than 60 days prior to a redemption date to each holder of the Notes in accordance with the procedures
described in the Indenture and notice will be otherwise given as set forth under Notices. Unless the Issuer
defaults in payment of the applicable amounts due on, or in the repayment of, the Notes, on and after a redemption
date, interest due will cease to accrue on the Notes.
Replacement
The Issuer intends that, if it redeems or defeases, or if it or its subsidiaries purchase, any Notes and the
Notes provide the Issuer with equity credit from any rating agency at the time of such redemption, defeasance or
purchase, the Issuer will do so only to the extent that the equity credit attributed by any rating agency to securities
that the Issuer or its subsidiaries have issued, during the 180 days prior to the date of such redemption, defeasance
or purchase, to third party purchasers, other than a subsidiary, is equal to or greater than the equity credit the
Issuer then receives from any rating agency for the aggregate principal amount of the Notes to be redeemed,
defeased or purchased. The Issuer may, after the Issue Date, enter into a replacement capital covenant for the
benefit of one or more designated series of the Issuers debt securities, to this effect.

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Mergers, Consolidations, Sales, Leases


The Issuer may not, without the consent of holders of at least a majority in aggregate principal amount of
the outstanding (as defined in the Indenture) Notes, consolidate with or merge into, or convey or transfer, in one
transaction or a series of transactions, all or substantially all of its properties and assets to any person, unless:
(i)

the resulting entity, if other than the Issuer, is organized and existing under the law of Guatemala
and assumes all of the Issuers obligations to:
(a) pay the principal of, and premium and interest on, the Notes; and
(b) perform and observe all of the Issuers other obligations under the Indenture;

(ii)

the Issuer, or any successor entity is, as the case may be, not, immediately after any such
transaction, in default under the Indenture; and

(iii)

certain opinions and certificates of counsel (as described in the Indenture) are delivered to the
Trustee.

Events of Default
The Indenture provides that the Trustee may give the Issuer notice that the Notes are, and they shall
accordingly become, immediately due and repayable (subject to the prior written approval of the Superintendency of
Banks, unless such prior approval is no longer required on the relevant date) at the Base Redemption Amount, if any
of the following events (each an Event of Default) shall have occurred and be continuing:
(i)

the Issuer applies for or consents to the appointment of, or the taking of possession by, a receiver,
custodian, interventor, administrator, trustee, examiner or liquidator of the Issuer or of all or a
substantial part of its property;

(ii)

the Issuer makes a general assignment for the benefit of its creditors;

(iii)

the Issuer files a petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, suspension of payments, liquidation, dissolution, spin-off, arrangement
or winding-up, or composition or readjustment of debts; or

(iv)

the Issuer takes any action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts described above.

There is no right of acceleration of the payment of principal and accrued interest on the Notes due to the
Issuers failure to comply with any covenant with respect to the Notes, including failure to pay any principal,
premium or interest (or Additional Amounts, if any) on the Notes when it becomes due and payable.
Notwithstanding the foregoing or any other provision in the Notes and the Indenture (subject to the limitation on
interest described in Limitation on Interest above), the right of any holder to institute suit for the enforcement of
any failure to pay principal, premium or interest (or Additional Amounts, if any) on a Note on or after the applicable
date it becomes due and payable, shall not be impaired or affected without the consent of such holder.
Meetings, Modification and Waiver
The Issuer and the Trustee may, without the vote or consent of any holders of Notes, modify or amend the
Indenture or the Notes in certain circumstances, including, among other things, to cure any ambiguity, omission,
defect or inconsistency, to conform the text of the Indenture or the Notes to any provision in this Description of
Notes and to make any change that does not adversely affect the rights of any relevant holder in any material
respect.

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Subject to the prior written approval of the Superintendency of Banks, if then required, the Issuer and the
Trustee may, without the vote or consent of any holder of Notes, modify or amend the Indenture or the Notes for the
purpose of:

adding such further covenants, restrictions, conditions or provisions as are for the benefit of the holders
of the Notes;

surrendering any right or power conferred upon the Issuer;

evidencing the succession of another person to the Issuer and the assumption by any such successor of
the covenants and obligations in the Notes and in the Indenture pursuant to any merger, consolidation
or sale of assets in accordance with the terms thereof; and

making any other modification, or granting any waiver or authorization of any breach or proposed
breach, of any of the terms and conditions of the Notes or any other provisions of the Indenture in any
manner which does not adversely affect the interest of the holders of the Notes in any material respect.

Modifications to and amendments of the Indenture and the Notes may be made, and future compliance or
past default by the Issuer may be waived, by the Issuer and the Trustee, but no such modification or amendment and
no such waiver may, without the consent of the holder of each Note adversely affected thereby and the prior written
approval of the Superintendency of Banks, if then required:
(i)

extend the due date for the payment of principal of, premium or any installment of interest on, any
such Note;

(ii)

reduce the principal amount of, the portion of such principal amount which is payable upon
acceleration of the maturity of, the rate of interest on or the premium payable upon redemption of
any such Note;

(iii)

reduce the Issuers obligation to pay Additional Amounts on any Note;

(iv)

shorten the period during which the Issuer is not permitted to redeem any such Note, or permit the
Issuer to redeem any such Note if, prior to such action, the Issuer is not permitted to do so;

(v)

amend the circumstances under which the Notes may be redeemed;

(vi)

change the currency in which or the required places at which the principal of any Note or the
premium or interest thereon is payable;

(vii)

modify the ranking provisions relating to any Note in a manner adverse to the holders thereof; or

(viii)

reduce the percentage of the aggregate principal amount of Notes necessary to modify, amend or
supplement the Indenture or Notes, or for waiver of compliance with certain provisions thereof or
for waiver of certain defaults.

Notices
All notices to the registered holders of Notes will be mailed or delivered to such holders at their addresses
indicated in records maintained by the Registrar and, as long as the Notes are listed on the Luxembourg Stock
Exchange, and the rules of the Luxembourg Stock Exchange so require, notices will be published in a leading
newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or on the
Luxembourg Stock Exchange website (www.bourse.lu). Any such notice shall be deemed to have been given on the
date of such delivery or publication, as the case may be, or in the case of mailing, on the second business day after
such mailing.

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Prescription
Claims for payment in respect of principal and interest will become void unless the relevant Notes are
presented for payment within ten years, in the case of principal, and four years, in the case of interest, of maturity.
Form, Denomination and Registration of Notes
Book-Entry System
The Notes will be represented by one or more Global Notes. The Global Notes will be deposited with, or
on behalf of DTC. DTC will act as depositary. The Notes will be registered in the name of DTC or its nominee.
The Notes are being offered and sold in this initial offering in offshore transactions to persons other than
U.S. persons, as defined in Regulation S under the Securities Act, in reliance on Regulation S. The Notes would not
and cannot be sold to entities or persons restricted under Section 11, Article 3 of resolution JM-172-2007 of the
Guatemalan Monetary Board. Following this offering, the Notes may be sold:

to non-U.S. persons outside the United States in reliance on Regulation S; and

under other exemptions from, or in transactions not subject to, the registration requirements of the
Securities Act, as described under Notice to Investors.

Regulation S Global Notes


The Notes offered and sold in offshore transactions to persons which are non-U.S. persons in reliance on
Regulation S will initially be represented by one or more registered notes in global form, without interest coupons
(each a Regulation S Global Note) and will be deposited on the date of the closing of the sale of the Notes with, or
on behalf of, a custodian for, and registered in the name of a nominee of DTC.
Prior to the 40th day after the date of issuance of the Notes, any resale or transfer of beneficial interests in
the Regulation S Global Notes to U.S. persons shall not be permitted unless such resale or transfer is made pursuant
to Regulation S or under other exemptions from, or in transactions not subject to, the registration requirement of the
Securities Act.
Investors may hold their interest in a Regulation S Global Note through organizations that are participants
in the DTC system.
Book-Entry Procedures for the Global Notes
Ownership of beneficial interests in a Global Note will be limited to DTC and to persons that may hold
interests through institutions that have accounts with DTC, referred to as the participants including Euroclear Bank,
S.A./N.V., as operator of the Euroclear System and Clearstream Banking socite anonyme, as participants in DTC.
Beneficial interests in a Global Note will be shown on, and transfers of those ownership interests will be effected
only through, records maintained by DTC and its participants for that Global Note. The conveyance of notices and
other communications by DTC to its participants and by its participants to owners of beneficial interests in the Notes
will be governed by arrangements among them, subject to any statutory or regulatory requirements in effect.
DTC holds the securities of its participants and facilitates the clearance and settlement of securities
transactions among its participants through electronic book-entry changes in accounts.
Principal and interest payments on the Notes represented by a Global Note will be made to DTC or its
nominee, as the case may be, as the sole registered owner and the sole holder of the Notes of such series represented
by the Global Note for all purposes under the corresponding indenture. Accordingly, the Issuer, the Trustee and any
Paying Agent will have no responsibility or liability for:

127

any aspect of DTCs records relating to, or payments made on account of, beneficial ownership
interests in a Note represented by a Global Note;

any other aspect of the relationship between DTC and its participants or the relationship between those
participants and the owners of beneficial interests in a Global Note held through those participants; or

the maintenance, supervision or review of any of DTCs records relating to those beneficial ownership
interests.

DTC has advised the Issuer that upon receipt of any payment of principal of or interest on a Global Note,
DTC will immediately credit, on its book-entry registration and transfer system, the accounts of participants with
payments in amounts proportionate to their respective beneficial interests in the principal amount of that Global
Note as shown on DTCs records. The initial purchasers of the Notes will initially designate the accounts to be
credited. Payments by participants to owners of beneficial interests in a Global Note will be governed by standing
instructions and customary practices, as is the case with securities held for customer accounts registered in street
names, and will be the sole responsibility of those participants.
Notes represented by a Global Note can be exchanged for registered notes in certificated form
(Certificated Notes) of the same series in registered form only if:

DTC notifies the Issuer that it is unwilling or unable to continue as depositary for that Global Note or
at any time DTC ceases to be a clearing agency registered under the Exchange Act, and a successor
depositary is not appointed by the Issuer within 90 calendar days;

the Issuer, in its sole discretion, determines that the Global Note will be exchangeable for Certificated
Notes in registered form and notifies the Trustee of its decision; or

an Event of Default with respect to the Notes has occurred and is continuing.

A beneficial interest in a Global Note representing Notes that can be exchanged under the preceding
sentence will be exchanged for Certificated Notes that are issued in authorized denominations in registered form for
the same aggregate amount. Those Certificated Notes will be registered in the names of the owners of the beneficial
interests in the Global Note as directed by DTC and may bear the legend as set forth under Notice to Investors.
Except as provided above, owners of beneficial interests in a Global Note will not be entitled to receive
physical delivery of Notes in definitive form and will not be considered the holders of the Notes for any purpose
under the Indenture and no Notes represented by a Global Note will be exchangeable. Accordingly, each person
owning a beneficial interest in a Global Note must rely on the procedures of DTC (and if that person is not a
participant, on the procedures of the participant through which that person owns it interest) to exercise any rights of
a holder under the Indenture or that Global Note.
Registrar, Transfer Agent and Paying Agents
The Trustee will act as Registrar for the Notes. The Trustee will also act as Transfer Agent and Paying
Agent for the Notes. The Issuer has the right at any time to vary or terminate the appointment of any Paying Agents
and to appoint additional or successor paying agents in respect of the Notes. Registration of transfers of the Notes
will be effected without charge, but upon payment (with the giving of such indemnity as the Issuer may require) in
respect of any tax or other governmental charges that may be imposed in relation to it. The Issuer will not be
required to register or cause to be registered the transfer of Notes after the Notes have been called for redemption.
For so long as the Notes are listed on the Luxembourg Stock Exchange and admitted for trading on the
Euro MTF, the Issuer will maintain a Paying Agent and Transfer Agent in Luxembourg. The Issuer has initially
appointed The Bank of New York (Luxembourg) S.A., a Luxembourg socite anonyme, as Luxembourg Paying
Agent and Transfer Agent.

128

The Trustee
The Bank of New York will act as Trustee under the Indenture. Notices to the Trustee should be directed
to the Trustee at its Corporate Trust Office, located at 101 Barclay Street, Floor 4 East, New York, New York 10286
Attn: Corporate Trust Administration-Global Finance Americas. The Trustee also will initially act as agent for
service of demands and notices (other than for service of process) in connection with the Notes and the Indenture.
The Trustee may resign or be removed under circumstances described in the indenture and the Issuer may appoint a
successor Trustee to act in connection with the Notes. Any action described in this offering circular to be taken by
the Trustee may then be taken by the successor Trustee.
The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may
otherwise deal with the Issuer or its affiliates with the same rights it would have if it were not Trustee. Any Paying
Agent, Registrar or Co-Registrar may do the same with like rights.
The Indenture contains some limitations on the right of the Trustee, should it become a creditor of the
Issuer, to obtain payment of claims in some cases or to realize on some property received regarding any such claim,
as security or otherwise. The Trustee will be permitted to engage in transactions with the Issuer. The occurrence of
an Event of Default under the Indenture could create a conflicting interest for the Trustee. In this case, if the Event
of Default has not been cured or waived within 90 days after the Trustee has or acquires a conflicting interest, the
Trustee generally is required to eliminate the conflicting interest or resign as Trustee for the Notes. In the event of
the Trustees resignation, the Issuer will promptly appoint a successor Trustee for the Notes.
The Trustee may be removed by the holders of a majority of the outstanding Notes if an Event of Default
under the Indenture has occurred and is continuing. No resignation or removal of the Trustee and no appointment of
a successor Trustee shall be effective until the acceptance of appointment by the successor Trustee in accordance
with the provisions of the Indenture.
Governing Law, Consent to Jurisdiction
The Indenture and the Notes will be governed by, and will be construed in accordance with, the law of the
State of New York.
The Issuer will consent to the non-exclusive jurisdiction of the Federal and State courts in the Borough of
Manhattan in the City of New York, State of New York, United States of America, and will agree that all disputes
under the Indenture or the Notes may be submitted to the jurisdiction of such courts. The Issuer will irrevocably
consent to and waive to the fullest extent permitted by law any objection that the Issuer may have to the laying of
venue of any suit, forum, action or proceeding against the Issuer or its properties, assets and revenues with respect to
the Indenture or any such suit, action or proceeding in any such court and any right to which the Issuer may be
entitled on account of place of residence or domicile.
To the extent that the Issuer or any of its revenues, assets or properties shall be entitled to any immunity
from suit, from the jurisdiction of any such court, from attachment prior to judgment, from attachment in aid of
execution of judgment, from execution of a judgment or from any other legal or judicial process remedy, the Issuer
will irrevocably agree not to claim and will irrevocably waive such immunity to the fullest extent permitted by the
laws of such jurisdiction.
The Issuer will agree that service of all writs, claims, process and summons in any suit, action or
proceeding against the Issuer or its properties, assets or revenues with respect to the Indenture, the Notes or any suit,
action or proceeding to enforce or execute any judgment brought against it in the State of New York may be made
upon CT Corporation System, 111 Eighth Avenue, New York, New York 10011, and the Issuer will irrevocably
appoints CT Corporation System as its agent to accept such service of any and all such writs, claims, process and
summonses.

129

Reports to Holders
So long as any Notes are outstanding, the Issuer will furnish to the Trustee:
(a)

Within 120 days following the end of each of the Issuers fiscal years, (i) its consolidated audited
income statements, balance sheets and cash flow statements and the related notes thereto for the
two most recent fiscal years in accordance with Guatemalan Banking GAAP, which need not,
however, contain any reconciliation to U.S. GAAP or otherwise comply with Regulation S-X as
promulgated by the U.S. Securities and Exchange Commission, together with an audit report
thereon by the Issuers independent auditors, (ii) an English version of the Issuers annual
financial statements and (iii) an English language summary management discussion of the results
of operations of the Issuer and its Subsidiaries for the periods presented; and

(b)

Within 60 days following the end of the fiscal quarter ended March 31, 2008, and of the first three
fiscal quarters in each of the Issuers fiscal years thereafter, quarterly reports containing unaudited
condensed balance sheet and statements of income and the related condensed notes thereto for the
Issuer and its subsidiaries on a consolidated basis, in each case for the quarterly period then ended
and the corresponding quarterly period in the prior fiscal year and prepared in accordance with
Guatemalan Banking GAAP, which need not, however, contain any reconciliation to U.S. GAAP
or otherwise comply with Regulation S-X as promulgated by the U.S. Securities and Exchange
Commission.

In addition:
(a)

If and so long as the Notes are admitted to listing on the Official List of the Luxembourg Stock
Exchange and to trading on the Euro MTF market and the rules of the Luxembourg Stock
Exchange so require, copies of such reports and information furnished to the Trustee will also be
made available at the specified office of the Paying Agent in Luxembourg; and

(b)

If and so long as the Issuer delivers annual or quarterly reports to any securities commission or
stock exchange, the Issuer shall furnish English language translations of such reports to the
Trustee as promptly as practicable after filing with such authority.

130

TAXATION
Persons considering the purchase, ownership or disposition of Notes should consult their own tax
advisors concerning the tax consequences in light of their particular situations as well as any consequences
arising under the laws of any other taxing jurisdiction.
Certain Guatemalan Income Tax Consequences
The following summary contains a description of the principal Guatemalan tax consequences of the
purchase, ownership and disposition of the Notes by a Non-Guatemalan holder (as defined below). It does not
purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to
purchase the Notes. In addition, it does not describe any tax consequences: (1) arising under the laws of any taxing
jurisdiction other than Guatemala; or (2) that are applicable to a resident of Guatemala for tax purposes.
A Non-Guatemalan Holder is a holder who is not domiciled in Guatemala for tax purposes, as defined by
the Guatemalan Tax Code (Cdigo Tributario) and the Income Tax Act (Ley del Impuesto Sobre la Renta), inter
alia. In general, tax payers (contribuyentes o responsables) with domicile outside Guatemala must determine a
domicile in Guatemala for tax purposes if they have a permanent establishment in the country. Otherwise, their
domicile would be reputed to be either that of their legal representative in Guatemala, or in the absence thereof the
place where (1) their transactions are executed; (2) their activities are performed; or (3) the goods subject to taxation
are located. Pursuant to the provisions contained in the Executive Rules of the Income Tax Act (Reglamento de la
Ley del Impuesto Sobre la Renta), the notion of a permanent establishment of a non domiciled person or entity is
associated, inter alia, with having offices, manufactures, real estate, plantations, operations for the exploitation of
natural resources, warehouses or stores, facilities for the provision of services or the use of technology. Any such
activity triggers the obligation to determine and report a domicile for tax purposes in Guatemala.
This summary is based upon the Tax Code and the Income Tax Act and its executive rules in effect as of
the date of this offering circular, which are subject to change. Prospective purchasers of the Notes should consult
their own tax advisers as to the Guatemalan or other tax consequences of the purchase, ownership and acquisition of
the Notes, including, in particular, the effect of any foreign state. The acquisition of the Notes by an investor who is
a resident of Guatemala will be made under its own responsibility.
Under the Guatemalan Income Tax Act, and the regulations thereunder, principal on the Notes paid by us,
will not be subject to Guatemalan withholding or other similar taxes, however, interest payments on the Notes will
be subject to a 10% income withholding tax. Capital gains related from the sale or other disposition of the Notes by
a Non-Guatemalan Holder, outside Guatemala, will not be subject to any Guatemalan income or other taxes.
A Non-Guatemalan Holder will not be liable for Guatemalan estate, gift, inheritance or similar taxes with
respect to the acquisition, ownership, of disposition of the Notes, nor will it be liable for any Guatemalan stamp,
issue, registration or similar taxes, to the extent that the relevant transactions, the assets, or the beneficiaries are not
situated within the jurisdiction of Guatemala.

131

PLAN OF DISTRIBUTION
Under the terms and subject to the conditions contained in a purchase agreement dated April 25, 2008 we
have agreed to sell to the initial purchaser, the following principal amount of Notes.
Initial Purchaser of Notes
Credit Suisse Securities (USA) LLC .....................................................................................
Total ........................................................................................................................

Principal Amount
30,000,000
US$30,000,000

The purchase agreement provides that the initial purchaser is obligated to purchase all of the Notes if any
are purchased. The initial purchaser proposes to offer the Notes initially at the offering price on the cover page of
this offering circular and may also offer the Notes to selling group members at the offering price less a selling
concession. After the initial offering, the offering price may be changed.
The Notes have not been and will not be registered under the Securities Act and may not be offered or sold
within the United States or to, or for the account or benefit of, U.S. persons except to non-U.S. persons in offshore
transactions in reliance on Regulation S under the Securities Act. The initial purchaser has agreed that it will not
offer, sell or deliver the Notes (1) as part of its distribution at any time, or (2) otherwise until 40 days after the later
of the commencement of this offering and the closing date, within the United States or to, or for the account or
benefit of, U.S. persons, and it will have sent to each broker/dealer to which it sells the Notes in reliance on
Regulation S during such 40-day period, a confirmation or other notice detailing the restrictions on offers and sales
of such Notes within the United States, or to, or for the account or benefit of, U.S. persons. Terms used in this
paragraph have the meanings given to them by Regulation S under the Securities Act. Resales of the Notes are
restricted as described under Notice to Investors.
In addition, until 40 days after the commencement of this offering, an offer or sale of the Notes within the
United States by a broker/dealer (whether or not it is participating in the offering), may violate the registration
requirements of the Securities Act. The Bank is not a U.S. registered broker-dealer and, therefore, to the extent that
it intends to effect any sales of the securities in the United States, it will do so through one or more U.S. registered
broker-dealers.
European Economic Area
The initial purchaser represents and agrees that, in relation to each member state of the European Economic
Area, or EEA, which has implemented the Prospectus Directive (each, a Relevant Member State), the initial
purchaser has represented and agreed that with effect from and including the date on which the Prospectus Directive
is implemented in that Relevant Member State (the Relevant Implementation Date) it has not made and will not
make an offer of the Notes to the public in that Relevant Member State other than:

to legal entities which are authorized or regulated to operate in the financial markets or, if not so
authorized or regulated, whose corporate purpose is solely to invest in securities;

to any legal entity which has two or more of: (1) an average of at least 250 employees during the last
financial year; (2) a total balance sheet of more than 43,000,000; and (3) an annual net turnover of
more than 50,000,000, as shown in its last annual or consolidated accounts;

to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus
Directive) subject to obtaining the prior consent of the initial purchaser; or

in any other circumstances which do not require the publication by us of a prospectus pursuant to
Article 3 of the Prospectus Directive;

provided that no such offer of notes shall require us to publish a prospectus pursuant to Article 3 of the Prospectus
Directive.

132

For the purposes of this provision, the expression an offer of notes to the public in relation to any notes in
any Relevant Member State means the communication in any form and by any means of sufficient information on
the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe the
Notes, as the same may be varied in that member state by any measure implementing the Prospectus Directive in
that member state. The EEA selling restriction is in addition to any other selling restrictions set out below.
United Kingdom
The initial purchaser represents and agrees that:

it has only communicated or caused to be communicated and will only communicate or cause to be
communicated any invitation or inducement to engage in investment activity (within the meaning of
section 21 of the Financial Services and Markets Act 2000 (the FSMA)) received by it in connection
with the issue or sale of any Notes in circumstances in which Section 21(1) of the FSMA does not
apply to us; and

it has complied and will comply with all applicable provisions of the FSMA with respect to anything
done by it in relation to the Notes in, from or otherwise involving the United Kingdom.

General
Purchasers of Notes sold outside the United States may be required to pay stamp taxes and other charges in
compliance with the laws and practices of the country of purchase in addition to the price to investors on the cover
page of this offering circular.
The initial purchaser or its affiliates have in the past engaged, and may in the future engage, in transactions
with and perform services, including commercial banking, financial advisory and investment banking services, for
us and our affiliates in the ordinary course of business. Certain of our affiliates may purchase Notes in the offering
for the account of their clients.
We have agreed to indemnify the initial purchaser against liabilities or to contribute to payments which it
may be required to make in that respect.
We have applied to have the Notes admitted for listing on the Official List of the Luxembourg Stock
Exchange and to trading on the Euro MTF market. The initial purchaser has advised us that they intend to make a
market in the Notes as permitted by applicable law. They are not obligated, however, to make a market in the Notes
and any market-making may be discontinued at any time at their sole discretion. Accordingly, no assurance can be
given as to the development or liquidity of any market for the Notes.
The initial purchaser may engage in over-allotment, stabilizing transactions, covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.

Over-allotment involves sales in excess of the offering size, which creates a short position for the
initial purchaser.

Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids
do not exceed a specified maximum.

Covering transactions involve purchases of the Notes in the open market after the distribution has been
completed in order to cover short positions.

Penalty bids permit the initial purchaser to reclaim a selling concession from a broker/dealer when the
Notes originally sold by such broker/dealer are purchased in a stabilizing or covering transaction to
cover short positions.

These stabilizing transactions, covering transactions and penalty bids may cause the price of the Notes to be
higher than it would otherwise be in the absence of these transactions. These transactions, if commenced, may be
discontinued at any time.
133

NOTICE TO INVESTORS
The Notes have not been and will not be registered under the Securities Act and may not be offered or sold
within the United States or to, or for the account or benefit of U.S. persons. Accordingly, the Notes are being
offered hereby only in offers and sales that occur outside the United States to persons other than U.S. persons (nonU.S. purchasers, which term shall include dealers or other professional fiduciaries in the United States acting on a
discretionary basis for non-U.S. beneficial owners (other than an estate or trust)), in offshore transactions meeting
the requirements of Rule 903 of Regulation S. As used herein, the terms offshore transactions, United States
and U.S. person have the respective meanings given to them in Regulation S.
Each purchaser of Notes will be deemed to have represented and agreed with us and the initial purchaser as
follows:
(1)

It is purchasing the Notes for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a non-U.S. purchaser that is outside the
United States (or a non-U.S. purchaser that is a dealer or other fiduciary as referred to above);

(2)

It understands that the Notes are being offered in a transaction not involving any public offering in
the United States within the meaning of the Securities Act, that the Notes have not been and will
not be registered under the Securities Act, and that the Notes may not be offered or sold within the
United States or to, or for the account or benefit of, U.S. persons except as set forth below;

(3)

It shall not resell or otherwise transfer any of such Notes except:

to the Bank or any of its subsidiaries;

pursuant to a registration statement which has been declared effective under the Securities
Act;

outside the United States to non-U.S. purchasers in offshore transactions meeting the
requirements of Rule 904 of Regulation S under the Securities Act; or

pursuant to available exemption from the registration requirements of the Securities Act;

(4)

It agrees that it will give notice of any restrictions on transfer of such Notes to each person to
whom it transfers the Notes;

(5)

If it is a non-U.S. purchaser acquiring a beneficial interest in a Regulation S Global Note offered


pursuant to this offering circular, it acknowledges and agrees that, until the expiration of the 40day distribution compliance period within the meaning of Regulation S, any offer, sale, pledge
or other transfer shall not be made by it in the United States or to, or for the account or benefit of,
a U.S. person, and that each Regulation S Global Note will contain a legend to substantially the
following effect:
PRIOR TO EXPIRATION OF THE 40-DAY DISTRIBUTION COMPLIANCE PERIOD (AS
DEFINED IN REGULATION S (REGULATION S) UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE SECURITIES ACT)), THIS SECURITY MAY NOT BE
REOFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED
STATES (AS DEFINED IN REGULATION S) OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, A U.S. PERSON (AS DEFINED IN REGULATION S);

(6)

It acknowledges that the foregoing restrictions apply to holders of beneficial interests in the Notes,
as well as holders of the Notes;

134

(7)

It acknowledges that no transfer of any Note acquired by it, shall be made except upon
presentation of evidence satisfactory to the Issuer that the restrictions set forth herein have been
complied with; and

(8)

It acknowledges that the Issuer, the initial purchaser and others will rely upon the truth and
accuracy of the foregoing acknowledgments, representations and agreements and agrees that if any
of the acknowledgments, representations or agreements deemed to have been made by its purchase
of the Notes are no longer accurate, it shall promptly notify the Issuer and the initial purchaser. If
it is acquiring the Notes as a fiduciary or agent for one or more investor accounts, it represents that
it has sole investment discretion with respect to each such account and it has full power to make
the foregoing acknowledgments, representations and agreements on behalf of each such account.

135

GENERAL INFORMATION
Clearing Systems
The Notes have been accepted for trading in book-entry form by DTC. The ISIN number is
USP13458AA50 and the CUSIP number is P13458 AA5. The common code is 036195070.
Listing
Application has been made to admit the Notes to listing on the Official List of the Luxembourg Stock
Exchange and to trading on the Euro MTF market. Copies of our bylaws, the indenture, as may be amended or
supplemented from time to time, our published annual audited consolidated financial statements, any published
quarterly unaudited consolidated financial statements and any published unconsolidated financial information will
be available at our principal executive offices, as well as at the offices of the Trustee, registrar, paying agent and
transfer agent, and at the offices of the Luxembourg listing agent, paying agent and transfer agent, as such addresses
are set forth in this offering circular. We will maintain a paying and transfer agent in Luxembourg for so long as
any of the Notes are listed on the Official List of the Luxembourg Stock Exchange.
The Notes have not been and will not be registered with the Guatemalan Registro del Mercado de Valores y
Mercancias (Commodities and Securities Market Registry) or with the Guatemalan Stock Exchange, and may not be
offered or sold publicly, or otherwise be subject of brokerage activities in Guatemala.
Authorization
We have obtained all necessary consents, approvals and authorizations in connection with the issuance and
performance of the Notes, including (i) Resolution JM-172-2007 of the Monetary Board for the issuance and
regulation of Notes in effect as of October 27, 2007, (ii) Resolution JM-14-2008 of the Monetary Board of
Guatemala for the issuance of the Notes by the Bank granted on January 23, 2008, (iii) the authorization by the
general shareholders meeting of the Bank granted on December 28, 2007 and (iv) the authorization of the board of
directors of the Bank granted on December 28, 2007.
Responsibility and No Material Adverse Change
We accept responsibility for the information contained in this offering circular and, to the best of our
knowledge and belief, such information is in accordance with the facts and does not omit anything likely to have a
material effect on such information. Except as disclosed in this offering circular, there has not been any significant
change in our financial or trading position since the date of our last published interim financial statements and there
has not been any material adverse change in our business prospects since the date of our last published Financial
Statements included in this offering circular.
No Litigation
Except as disclosed herein, we are not involved in any governmental litigation or arbitration proceedings
relating to claims or amounts which are material in the context of the issue of the Notes nor so far as we are aware is
any such governmental litigation or arbitration proceedings pending or threatened.
Notices
All notices to the registered holders of Notes will be mailed or delivered to such holders at their addresses
indicated in records maintained by the Registrar and, as long as the Notes are listed on the Luxembourg Stock
Exchange, and the rules of the Luxembourg Stock Exchange so require, notices will be published in a leading
newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or on the
Luxembourg Stock Exchange website (www.bourse.lu). Any such notice shall be deemed to have been given on the
date of such delivery or publication, as the case may be, or in the case of mailing, on the second business day after
such mailing.
136

INDEPENDENT AUDITORS
The Financial Statements as of December 31, 2007 and 2006 and for the years ended December 31, 2007,
2006 and 2005, included in this offering circular have been audited by Aldana Gonzalez Gmez y Asociados, S.C.,
independent auditors and a Guatemalan entity and a member firm of the KPMG network of independent member
firms affiliated with KPMG International a Swiss cooperative, as stated in their report appearing elsewhere therein.

137

ANNEX A - SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN GUATEMALAN BANKING


GAAP AND U.S. GAAP
This Annex A and the information provided herein should not be construed or seen as a comprehensive
comparison of accounting principles generally accepted in Guatemala (Guatemalan Banking GAAP) that are
prescribed or accepted by the Superintendency of Banks and accounting principles generally accepted in the United
States of America (U.S. GAAP). Readers should not rely solely on this Annex A for the interpretation of financial
statements of the Bank or otherwise rely on it for any other purpose without seeking professional advice. Potential
investors should consult their own professional advisors for an understanding of the differences between
Guatemalan Banking GAAP and U.S. GAAP and how these differences might affect the financial information
contained herein.
The consolidated financial statements of the Bank are prepared and presented in accordance with standards
established by the Superintendency of Banks of Guatemala. Those standards vary in certain significant respects
from U.S. GAAP. We have not prepared a reconciliation of our financial statements and related footnote disclosures
that appear in the offering circular from Guatemalan Banking GAAP to U.S. GAAP. Certain differences between
Guatemalan Banking GAAP and U.S. GAAP are summarized below.
Guatemalan Accounting Methodologies
Accounting principles generally accepted in Guatemala are stated more generally than under U.S. GAAP.
In addition, the Superintendency of Banks has issued the Financial Institutions Accounting Standards Manual to all
financial institutions operating in Guatemala and enforces its provisions, which set forth accounting guidelines for,
among others, allowances for credit losses, loans, interest, investments in affiliates, and securities under repurchase
agreements, and defines the format of the financial statements and disclosures to be made in the related notes.
Whenever any issue arises that relates to topics not contemplated in the regulations in force, the common practice is
to use the method prescribed under International Financial Reporting Standards.
Income Recognition
Under Guatemalan Banking GAAP, which is applied by the Bank and Financiera Industrial, revenue from
interest income, subject to certain exceptions, is not recorded in the income statement until it is effectively collected
even though it has been accrued. Interest that has accrued but has not been collected is recorded under liabilities as
deferred income. The exceptions are interest on debt securities issued by the Guatemalan Central Bank and by
certain other issuers approved by the Monetary Board, which have amortization funds controlled by the Guatemalan
Central Bank, in which case the interest is recorded as revenue when accrued, even though not collected. The effect
of adjusting for the income accrued, but not collected from Westrust Bank for the prior period is carried in retained
earnings. Although this policy differs from the generally accepted accounting principles, there is no regulation
prohibiting recording this adjustment as described.
Under U.S. GAAP, SEC Staff Accounting Bulletin 104 Revenue Recognition, revenue is realized or
realizable and earned, when all of the following criteria are met: (i) persuasive evidence of an agreement exists,
(ii) delivery has occurred or services have been rendered, (iii) the sellers price to the buyer is fixed or determinable
and (iv) collectivity is reasonably assured. In general, revenue is recognized on an accrual basis.
Allowance for Credit Loss
In Guatemala, the allowance for credit losses is established in accordance with specific guidelines issued by
the Superintendency of Banks, which determines the adequacy of the allowance upon review of the risks of
individual credits based on the maturity and type of guarantee. These guidelines include requirements for
classifying and provisioning loans in five categories, labeled A through E. See Managements Discussion and
Analysis of Financial Condition and Results of OperationsClassification of Loan Portfolio and Selected
Statistical InformationGrading of Loan Portfolio.

A-1

The Bank must provide for a minimum percentage of loan loss allowance for each loan depending on the
category and type of guarantee or collateral received by the Bank for the loan. In addition to the provision
calculated under these rules, banks may record additional voluntary or general reserves. These voluntary reserves
can be made solely at the discretion of management. The release of reserves accrued in prior years is recognized as
a credit to other income rather than operating income.
Under U.S. GAAP, management uses its judgment, historical experience and an analysis of the specific
terms and conditions of individual loans and guarantees to determine the allowance for loan losses. U.S. GAAP
requires that the allowance for loans losses be established at a level that is deemed adequate to provide for all known
and inherent or probable losses that exist as of the balance sheet date. Loans are written off when they are deemed
improbable of collection. Pursuant to SFAS No. 114, Accounting by Creditors for Impairment of a Loan, an
amendment of FASB Statements No. 5 and 15, as amended (SFAS No. 114), a loan is deemed impaired when it is
probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan
agreement. An impaired loan should be valued at the present value of expected future cash flows discounted at the
loans effective interest rate or, as a practical alternative, at the loans observable market value or the fair value of
the loans collateral if the loan is collateral-dependent.
Investment Securities
Under Guatemalan banking laws, temporary and long-term investments are carried at cost; consequently,
earnings or losses obtained in the negotiation of such investments are not recorded until realized. Temporary
investments include the value of securities, in either local or foreign currency, acquired for the purpose of holding
them in the portfolio for less than a year. Long-term investments include securities acquired for the purpose of
holding them until their maturity or for more than one year.
Investments in government securities are carried at cost, and investments in private entity securities are
subject to the valuation established in the credit risk regulation for businesses that have incurred large amounts of
debt.
Under U.S. GAAP (FAS No. 115, Accounting for certain investments in debt and equity securities),
investment securities, which include debt and certain equity securities, are accounted for as follows:

Debt securities for which a bank has the intent and ability to hold to maturity are classified as held-tomaturity securities and are reported at the securities amortized cost;

Debt and equity securities that are bought and held principally for the purpose of selling them in the
near term are classified as trading securities and are reported at fair market value, with unrealized gains
and losses included in earnings;

Debt and equity securities not classified as either held to maturity or trading securities are classified as
available for sale securities and reported at fair market value, with unrealized gains and losses
excluded from net earnings and reported in a separate component of comprehensive income.

Fair Value of Financial Instruments


Guatemalan Banking GAAP does not require a separate note to the financial statements setting forth the
fair market value of financial instruments as required under U.S. GAAP.
Revaluation of Fixed Assets
The revaluation of fixed assets on the basis of independent appraisals is an acceptable practice under
Guatemalan Banking GAAP. The increase in fixed asset revaluation, which is depreciated through a charge to
income, is credited to a revaluation surplus account, which is an equity account. Upon realization or disposal of the
related assets, this account is charged against retained earnings.

A-2

Under U.S. GAAP, property, plant and equipment are reported at their historical cost less accumulated
depreciation. Revaluations are not permitted.
Income Tax
Inter-period tax allocation that results from tax deferrals is not a common practice among Guatemalan
financial institutions. Under Guatemalan Banking GAAP, income taxes usually are expensed without considering
the effect of such differences, and the expense represents the estimated amount for such period.
Under U.S. GAAP, the asset and liability method is used to calculate the income tax provision, as specified
in SFAS No. 109, Accounting for Income Taxes. Under the asset and liability method, deferred tax assets or
liabilities are recognized with a corresponding charge to income for differences between the financial and tax basis
of assets and liabilities at each year/period end. Deferred taxes are computed based on the applicable income tax
rate. Net operating loss carry-forwards arising from tax losses are recognized as assets. A valuation allowance is
recognized for a deferred tax asset if, on the weight of available evidence, it is more likely than not that some
portion or all of the deferred tax asset will not be realized.
Financial Statements Presentation
In general, Guatemalan Banking GAAP requires less disclosure in financial statement footnotes than U.S.
GAAP. Financial statement disclosures required under U.S. GAAP but not found in Guatemalan Banking GAAP
include, but are not limited to, the following:

Loans and deposits disclosure of the concentration of credit risks, details of loans, deposits and
maturity information, interest losses on non-performing assets, complicated debt restructurings and
other items;

Borrowings disclosure of long-term debt repayments over the forthcoming five-year period;

Investments in debt and equity securities details of such investments. Guatemalan Banking GAAP
generally requires only the disclosure of the cost and average interest rate for such investments;

Leases disclosure of future minimum rental payments required under operating leases; and

Off-balance sheet risks, commitments and contingent liabilities details of such items. Related
Guatemalan Banking GAAP requirements include, but are not limited to, disclosure of contingencies
for past-due loans and pending litigation.

Accounting for Foreign Currency Translation


Under Guatemalan banking laws, assets, liabilities, shareholders equity and statements of earnings of a
foreign subsidiary that are included in the consolidated statements are translated to quetzales using the current
exchange rates at the balance sheet date.
U.S. GAAP, SFAS No. 52 Foreign Currency Translation requires the translation of foreign currency
financial statements using the current exchange rate for assets and liabilities and the period-average rate for income
statement accounts, except for enterprises operating in highly inflationary environments (as evidenced by a
cumulative inflation rate of approximately 100% or more over a three-year period); in this case, the functional
currency is considered to be the reporting currency and the financial statements translation is made using the current
exchange rate for monetary assets and liabilities, historical rates for non-monetary assets and liabilities and periodaverage rates for income statement accounts. Currency translation gains and losses are reported as a separate
component of shareholders equity for enterprises that operate in a country with a currency different than the
currency in which the statement is reported. For those companies that have the same functional and reporting
currency, gains and losses appear on the income statement. Similarly, businesses that operate in highly inflationary
environments report currency translation gains and losses in the manner described above.

A-3

Accounting for Consolidation


Under Guatemalan banking laws, financial statements are presented on a consolidated basis. The
consolidated financial statements of the Bank and its subsidiaries include the effect of the adjustment for the income
accrued, but not received from Westrust Bank (International) Limited for the prior period, which is carried in
retained earnings. Although this policy differs from the generally accepted accounting principles, there is no
regulation prohibiting recording this adjustment as detailed above.
Guatemalan Banking GAAP does not require conformed, consolidated adjustments for differences between
IFRS and Guatemalan banking laws.
Equity holdings of minority shareholders can be considered part of shareholders equity in the consolidated
balance sheets when it is less than or equal to 5%. Equity holdings of minority shareholders refers to the percentage
of ownership held by other shareholders in capital stock and retained earnings that are separate from the investor
entity.
Under U.S. GAAP, primary financial statements are prepared on a consolidated basis. Financial statements
of subsidiaries are consolidated into the entity that owns more than 50% of the voting interest. In December 2003,
the U.S. Financial Accounting Standards Board (FASB) issued FASB Interpretation (FIN) 46R (revised
December 2003), Consolidation of Variable Interest Entities, an interpretation of ARB No. 51 (the
Interpretation). FIN No. 46R requires that existing unconsolidated variable interest entities, as defined in the
Interpretation, be consolidated by their primary beneficiaries if the entities do not disperse risks effectively among
parties involved. The primary beneficiary is the party that absorbs a majority of expected losses and/or receives a
majority of expected residual returns in an entity. Variable interest entities that effectively disperse risk will not be
consolidated unless a single party holds an interest or combination of interests that effectively combine risks
previously dispersed.
Accounting for Securitizations and Other Transfers of Financial Assets and Liabilities
Under Guatemalan banking laws, the Bank records a transfer of financial assets and liabilities as a sale or
purchase when it surrenders control over those financial assets and liabilities and receives or is paid the total
equivalent value in exchange.
Under U.S. GAAP, transfer of financial assets (on all or a portion of a financial asset) in which the
transferor surrenders control over the assets shall be accounted for as a sale to the extent that consideration other
than beneficial interests in the transferred assets is received in exchange. The transferor has surrendered control, if
and only if, all of the following conditions are met:

Transferred assets have been isolated from the transferor presumptively beyond the reach of the
transferor and its creditors, even in the event of bankruptcy or other receivership;

Each transferee (or, if the transferee is a qualifying special-purpose entity, each holder of its beneficial
interests) has the right to pledge or exchange the assets (or beneficial interests) it received so long as
no condition constrains the transferee (or holder) from taking advantage of its right to pledge or
exchange its assets and provides more than a trivial benefit to the transferor; and

The transferor does not maintain effective control over the transferred assets through either (1) an
agreement that both entitles and obligates the transferor to repurchase or redeem them before their
maturity or (2) the ability to unilaterally cause the holder to return specific assets, other than through a
cleanup call.

In addition, there are strict requirements that often result in the consolidation of the financial statements of
the transferee special purpose entity. Upon completion of a transfer of assets in satisfaction of the conditions to be
accounted for as a sale, the transferor is required to recognize all assets obtained and liabilities incurred in the
transaction, including assets or liabilities related to servicing.

A-4

Lease Accounting
Under Guatemalan Banking GAAP, leases normally are treated for accounting purposes as operating leases
and the expense is recognized at the time that each lease installment falls due. Disclosure regarding leases is more
limited than under U.S. GAAP.
Under U.S. GAAP, there are specific methods for recording financial leases for leaseholders and lessors.
Furthermore, under U.S. GAAP, a lease meeting any one of four specified criteria is accounted for as a
capital lease by the lessee and as sales, direct financing or leveraged lease by the lessor. If a lease does not meet any
of these four criteria, it is accounted for as an operating lease.
Equity Method Accounting for Affiliates
Under Guatemalan banking laws, the Bank records an original investment in the equity of another entity at
cost. In the case of investments expressed in U.S. dollars, the Bank periodically adjusts the exchange difference in
the statement of income (gains or losses). Dividend payments received after the date of original investment are
recorded in the statement of income when received.
Under U.S. GAAP, the equity method of accounting is applicable only to those investments in which the
parent company has the ability to exercise significant influence, which is presumed to be a participation through
common voting shares greater than 20%, but less than 50%, of the share capital of the subsidiary or affiliate and
where the parent company does not have control.
Accounting for Guarantees
Under Guatemalan banking laws, guarantees granted to third parties are recorded in memorandum
accounts.
U.S. GAAP, FIN No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FAS No. 5,57 and FAS No. 107 and recission of
Fin. No. 34 governs guarantees issued or modified after December 31, 2002. FIN No. 45 requires a guarantor to
recognize at the inception of a guarantee a liability for the fair value of the obligation undertaken when issuing the
guarantee. Specific disclosures of guarantees granted are also required under FIN No. 45.
Accounting for Other Comprehensive Income
Comprehensive income and its components must be presented in a full set of financial statements under
U.S. GAAP. Components of comprehensive income must be reported in a financial statement that is displayed with
the same prominence as other financial statements. Comprehensive income consists of net income and non-owner
transactions affecting shareholders equity, including unrealized holding gains and losses on available-for-sale
securities, foreign currency translation adjustments, excess of minimum pension liability over unrecognized prior
service costs, gains and losses from qualifying cash flow hedges, and gains and losses on foreign currency hedges
designated and effective as hedges of a net investment in a foreign entity.
Related Parties
Under banking laws in Guatemala, related parties are generally defined in a more limited manner and
require fewer disclosures than under U.S. standards. As a result, many of the disclosures required in the United
States are not required under Guatemalan Banking GAAP.

A-5

Accounting for Pensions


Under Guatemalan labor laws, employers are liable to employees if they are dismissed without just cause
for severance payment equivalent to one month of salary for each year of continuous work or, in the case of death, to
their beneficiaries, in accordance with Section 85(a) of the Guatemalan labor code.
The Banks policy is in accordance with the Guatemalan labor code, although the Bank is contingently
liable for severance payments. Under normal circumstances, pension payments are not accrued for and are charged
against expenses when paid.
Under U.S. GAAP, employee pension costs are recognized in accordance with SFAS No.87, Employers
Accounting for Pensions and SFAS No.88, Employers Accounting for Settlement and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits. SFAS No.87 requires the use of an actuarial method for
determining defined benefit pension costs and provides for the deferral of actuarial gains and losses (in excess of a
specific corridor) that result from changes in assumptions or actual experience differing from that assumed. SFAS
No.87 also provides for the prospective amortization of costs related to changes in the benefit plan, as well as the
obligation resulting from transition, and requires disclosure of the components of periodic pension costs and the
funded status of pension plans. SFAS No.132R, Employers Disclosures About Pensions and Other PostRetirement Benefits an amendment of SFAS No. 87, 88 and 106 which became effective for all entities for fiscal
years ending after December 15, 2003 (and after), modified the disclosure requirements under SFAS No. 87.
SFAS No.158, Employers Accounting for Defined Benefit Pension and other Postretirement Plans, an
amendment of SFAS No. 87, 88, 106 and 132(R), requires companies to: (i) fully recognize, as an asset or liability,
the over funded or under funded status or defined pension and other postretirement benefit plans; (ii) recognize
changes in the funded status through other comprehensive income in the year in which the changes occur; and (iii)
provide enhanced disclosures. There is no impact on results of operations or cash flows. Retrospective application
of this standard is not permitted.
Share-Based Compensation
Share-based compensation is not defined under banking laws in Guatemala.
U.S. GAAP, SFAS No. 123, Accounting for Share-based Compensation, encourages, but does not
require, companies to recognize compensation costs for grants of shares, share options and other equity instruments
on the fair value-based method of accounting. Companies not choosing this method may continue to measure
compensation cost for those plans using the intrinsic value based method of accounting prescribed by APB No. 25
Accounting for Stock Issued to Employees. If they elect to apply the provisions of APB No. 25, companies are
required to provide pro forma disclosures of the compensation expense that would have been recognized under the
fair value-based method of accounting.
In December 2004, the FASB issued SFAS No. 123R, Share Based Payment. SFAS No. 123R is
effective for fiscal years beginning after December 15, 2005 for non-public companies and for fiscal years beginning
after June 15, 2005 for public companies. SFAS No. 123R requires that share-based payments be recognized as
compensation cost in financial statements and eliminates the option of APB No. 25s intrinsic value method of
accounting that was provided in SFAS No. 123 as issued originally.
Extraordinary Items
Under banking laws in Guatemala, there are specific accounts and transactions that are classified as
extraordinary, such loan recoveries, increases in extraordinary asset value, sales of fixed assets and prior period
adjustments.
Under U.S. GAAP, extraordinary items are limited to events and transactions that are both unusual and
infrequent. A very limited number of specific events and transactions qualify for extraordinary treatment.
Therefore, extraordinary items tend to be more frequent under Guatemalan Banking GAAP than under U.S. GAAP.
A-6

Pursuant to U.S. GAAP, extraordinary items are presented separately from ordinary results and listed on a net-of-tax
basis.
Loan Fees and Origination Costs
Under Guatemalan banking laws, loan fees and origination costs are not required to be deferred.
Under U.S. GAAP, loan origination fees are deferred and recognized over the life of the loan as additional
interest income. Direct loan origination costs are deferred and recognized over the life of the loan as a reduction of
interest income. Loan origination fees and related direct loan origination costs are offset, and only the net amount
shall be deferred and amortized. Loan commitment fees are deferred and, if the commitment is exercised,
recognized over the life of the loan as additional interest income. If the loan commitment expires unexercised, the
commitment fee is recognized as income upon the expiration of the commitment.

A-7

ANNEX B - DESCRIPTION OF GUATEMALA


The information included in this Annex B has been extracted from public sources. Neither the Bank nor the initial
purchaser has independently verified the information set forth herein.
Overview of Guatemala
Guatemala is a Central American republic located immediately south of Mexico and covers a territory of 42,042
square miles (108,889 square kilometers). Guatemala is divided into 22 departments. Guatemala is mountainous, except for
the south coastal area and the northern vast lowlands of Petn department. Two mountain chains enter Guatemala from west
to east, dividing the country into three major regions: the highlands, where the mountains are located; the Pacific coast, south
of the mountains; and the Petn region, north of the mountains. All major cities are located in the highlands and Pacific coast
regions; by comparison, Petn is sparsely populated. These three regions vary in climate, elevation, and landscape, providing
dramatic contrasts between hot and humid tropical lowlands and colder and drier highland peaks.
Guatemalas population is approximately 13 million people (2006 estimate, National Institute of Statistics).
Approximately 59.7% of whom live in rural areas, and the rest in urban areas (2006 estimate, National Institute of Statistics).
The Department of Guatemala has approximately 2.5 million inhabitants and the capital, Guatemala City, has approximately
one million inhabitants. Other large cities include Quetzaltenango, Escuintla and Cobn. In the last decade, the population
of Guatemala has grown at an average annual rate of 2.43%. The countrys main ports are Puerto Barrios and Puerto Santo
Toms de Castilla on the Atlantic Ocean, and Puerto Quetzal on the Pacific Ocean.
A majority of Guatemalas population is of Mayan descent and lives mainly in the highlands of the western and
northern regions of the country; a large portion of this population speaks any of 23 Mayan languages. Most of the remainder
of the population is ladino, a group that consists mostly of people with mixed indigenous and European backgrounds.
Ladinos represent a majority of the population in Guatemala City. Spanish is the official language of Guatemala, but
approximately 40% of the population speaks Mayan languages (CIA World Factbook).

B-1

According to the World Bank, Guatemalas economy is the largest in Central America, comprising roughly onethird of the regions GDP. Guatemala is classified as a lower middle income developing country. The following table sets
forth certain comparative information for Guatemala relative to selected countries.
Selected Comparative Statistics

Guatemala

GDP (US$, billions)(1)


(2)

35.25

Nicaragua

Honduras

Jamaica

4.87

8.48

9.23

El
Salvador

Panama

15.16

16.47

Dominican
Republic

Colombia

20.55

106.80

Costa Rica

Mexico

United
States

21.39

743.50

13,210

12.72

5.67

7.48

2.78

6.95

3.24

9.37

44.38

4.13

108.70

301.14

GNI per Capita(3)

2,640

1,000

1,200

3,480

2,540

4,890

2,850

2,740

4,980

7,870

44,970

GDP per Capita


(PPP)(4)

5,000

3,100

3,100

4,600

4,900

8,200

8,400

8,600

12,500

10,700

44,000

Life Expectancy at
Birth(5)

69.69

70.92

69.35

73.12

71.78

75.19

73.07

72.27

77.21

75.63

78

118

112

117

104

101

58

94

70

48

53

Infant Mortality (per


1000 live births)(7)

29.77

27.14

15.73

22.88

15.96

20.13

9.45

19.63

6.37

Literacy Rate(8)

69.1%

67.5%

80.0%

87.9%

80.2%

91.9%

87.0%

92.8%

96.0%

91.0%

99.0%

Population below the


poverty line(9)

56.2%

48.0%

53.0%

14.8.%

35.2%

37.0%

25.0%

49.2%

18.0%

40.0%

12.0%

Population (millions)

Human Development
Index(6)

25.21

27.94

___________
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)

(9)

CIA World Factbook, 2006 data.


CIA World Factbook, July 2007 estimate.
World Bank Development Indicators, Atlas Method, current US$, 2006 data.
CIA World Factbook, GDP on a Purchasing Power Parity basis in US$, 2006 data.
CIA World Factbook, 2007 estimate.
United Nations 2006 Human Development Report, ranking out of 177 countries.
CIA World Factbook, 2007 estimate.
CIA World Factbook, Guatemala data from 2002; Nicaragua, 2003; Honduras, 2002; Jamaica, 2004; El Salvador, 2003; Panama, 2000; Dominican Republic, 2002; Colombia,
2004; Costa Rica, 2003; Mexico, 2004; United States 2003.
CIA World Factbook, National estimates of the percentage of the population falling below the poverty line. Definitions of poverty vary considerably among nations. Guatemala
data from 2004; Nicaragua, 2005; Honduras, 1993; Jamaica, 2003; El Salvador, 2005; Panama, 1999; Dominican Republic, not specified; Colombia, 2005; Costa Rica, 2004;
Mexico, 2003; United States 2004.

Government
Guatemala is a constitutional democratic republic under civilian government. Guatemalas current Constitution was
adopted by a constituent assembly in 1985, after the 1965 constitution had been suspended in 1982 following a military coup.
In 1993, President Jorge Serrano suspended the constitution but was reinstated after 11 days following the ouster of the
president. The Constitution was amended through a referendum in January 1994, among other things, reduced the legislative
and presidential terms of office from five to four years and set a presidential term limit of one term. Guatemala follows the
civil law system.
The Government is divided into three branches: Executive, Legislative and Judicial. A separate Supreme Electoral
Tribunal has independent authority to call and administer elections. There is also a separate Human Rights Ombudsman. As
of December 31, 2006, the Government had approximately 170,700 employees.
Executive
The President and Vice President are elected directly through universal suffrage and each of these executive officials
is limited to a single four-year term without the possibility of reelection in consecutive terms. The President proposes
legislation to Congress and appoints all 13 cabinet ministers. The President also is the commander-in-chief of the armed
forces and has the power to veto legislation approved by the Legislative branch.
The Legislative branch can override any Presidential veto and enact the legislation by affirmative vote of two-thirds
of Congress.

B-2

Presidential and congressional elections were held in September 2007. Neither of the presidential candidates
obtained the majority of the votes as required by law and a run off election was held on November 4, 2007. In the run-off
elections, Alvaro Colom, a social democrat, defeated the conservative Otto Perez by 52.8% to 47.2% and was elected
President. Colom took over the presidency from conservative incumbent Oscar Berger on January 14, 2008 for a term ending
in January 2012. The new administration may not continue to support previous government policies. Any change in such
policies could have a significant effect on Guatemalan financial institutions, including us, as well as on market conditions and
the prices of and returns on Guatemalan securities.
Territorially, Guatemala is divided into 22 departments, which in turn are subdivided into provinces. There are
currently 333 provinces, which are governed by popularly elected mayors and councils who serve 4 year terms. The
Executive branch is represented locally in each department by a governor appointed by the President.
Legislative
The Legislative branch consists of a unicameral Congress of 158 congressmen and congresswomen, each of whom
has a four-year term. Congressional sessions run each year from January 14 through May 15 and from August 1 through
November 30. Either the permanent commission of the Congress or the Executive branch can call extraordinary sessions.
Members of Congress can propose bills to the Congress and acts of Congress are passed by an affirmative vote of an absolute
majority of members, except in certain specified cases. Congress also decides, by two-thirds majority vote, whether to bring
charges against Cabinet-level officials.
Congress has the exclusive power to levy taxes. In order for any Government entity to borrow money, it must
follow certain legal procedures and receive prior approval from the Congress.
The following table shows the composition of Congress as of September 2007 by political party or affiliation:
Congress
%
Seats
Unidad Nacional de la Esperanza (UNE)................................................
Gran Alianza Nacional (GANA).............................................................
Partido Patriota (PP) ...............................................................................
Frente Republicano Guatemalteco (FRG)...............................................
Partido Unionista (PU)............................................................................
Centro de Accin Social (CASA) ...........................................................
Encuentro por Guatemala (EG)...............................................................
Partido de Avanzada Nacional (PAN) ....................................................
Union del Cambio Nacionalista (UCN) ..................................................
Others......................................................................................................
Total .......................................................................................................
_______________

51
37
29
14
7
5
4
3
5
3
158

33%
23%
18%
9%
4%
3%
3%
2%
3%
2%
100.0%

Source: Tribunal Supremo Electoral.

Judiciary
The Constitutional Court is Guatemalas highest court for constitutional and related matters. Five justices are
elected for concurrent five-year terms. The Supreme Court of Justice has 13 justices that hold office for five-year terms and
elect a president of the Court each year from among their number; the president of the Supreme Court of Justice also
supervises trial judges around the country, who are also named to five-year terms. There are also 24 appellate courts and 175
courts of first instance. In addition, there are small claims courts.
Supreme Court justices are appointed by Congress from a list of 26 candidates submitted by a commission
consisting of representatives from the General Assembly of the Guatemalan Bar Association, law school deans, university
rectors and appellate judges. Appellate court judges also are appointed by Congress. Judges of first instance courts are
appointed by the Supreme Court.
B-3

The Public Ministry, an auxiliary institution of public administration and the courts, has as its principal function
ensuring and monitoring compliance with the laws of the country. The Solicitor General of the Republic heads the Public
Ministry and serves as chief prosecutor. The Solicitor General is named by the President for a term of four years, and can be
removed by the President for cause.
The Attorney General represents the Republic in legal matters and provides legal advice to the various State entities.
The Constitutional Court hears cases regarding the Constitution and is responsible for the enforcement of human
rights laws. Five justices and five alternates appointed for five-year terms comprise the Constitutional Court. Each of the
following institutions designates one regular and one alternate justices: the Supreme Court; the Congress; the President; the
Superior Board of the University of San Carlos; and the General Assembly of the Guatemalan Bar Association.
Recent Political History
In 1996, the Government reached a peace agreement (the Peace Accord) with the countrys internal revolutionary
movement after 36 years of armed conflict. The Governments obligations under the Peace Accord form the foundation of
the Programa de Paz (the Peace Program), which requires significant investments in human, economic and infrastructure
development and significantly higher levels of public expenditures. In 1997, 25 countries and 22 international financial
institutions, including, among others, the World Bank, the Inter-American Development Bank (IDB) and the International
Monetary Fund (IMF), commonly referred to as the Guatemala Consulting Group, met in Brussels and in Guatemala to
discuss financial assistance to Guatemala. The participants pledged an aggregate of US$2,300.0 million in direct aid and
loans. Peace Program expenditures from 1998 through June 2004 of US$7,029.2 million have been financed by foreign aid
and loans from the Guatemala Consulting Group of US$2,427.4 million and from tax revenues of US$4,601.8 million. On
May 31, 2004, US$791.4 million of foreign loans and approximately US$459.0 million of foreign aid from the Guatemala
Consulting Group was available to be used to fund programs in accordance with the Peace Program. Although the
Government completed a majority of the projects required by the Peace Program, the Government plans to further its
commitment by incorporating the Peace Programs strategic objectives into its domestic policy, including strengthening the
rule of law and promoting a stable social and political framework for peace and rural development.
The Peace Program contemplates significant investment in human, economic and infrastructure development. The
initial period for the Peace Program was from 1997 through 2000. This period was extended to provide for additional
investments through 2006.
Pursuant to Governmental Accord No. 86-2004, an independent commission, the Comisin Nacional de los
Acuerdos de Paz (National Commission for the Peace Accords), was created to promote knowledge, social responsibility and
accountability in all social sectors as well as to promote, develop, analyze and propose legal reforms, policies, programs and
derivative projects that contribute to the goals of the Peace Program.
Prior to the presidential, congressional and municipal elections of 2003 violent protests and riots plagued parts of
Guatemala City due to political and constitutional challenges to the presidential candidacy of General Efran Ros Montt who
had previously assumed the position of president of Guatemala in a 1982 military coup. The 1986 Guatemalan Constitution
provides that any person formerly elected president or that assumes the presidency through a military coup is not eligible to
run again for such office. However, on July 14, 2003 the Constitutional Court, the highest court in Guatemala ruling on
constitutional matters, held that the 1986 amendment to the Constitution could not be applied retroactively to events before
that date, based on a constitutional provision that bars retroactive application of laws.
In 2003, Oscar Berger was elected President of Guatemala with 54% of the vote against Alvaro Colon who one of
the two candidates for the second run off election in November, 2007 against Otto Perez. Oscar Berger, the member of the
Gran Alianza Nacional Party (GANA). In the recent elections, GANA failed to secure a second term, GANA however did
maintain an important position of congressional seats with 23% of the seats accounting to 37 seats only below to Unin
Nacional de Esperanza (UNE) which secured 51 seats (33%) and above Partido Patriota with 29 seats (18%). Six other
parties control the remaining 43 with none controlling more than 15 seats. One of the upcoming governments political
challenges will be to successfully implement policies despite its lack of a majority in Congress. Berger presidencys
concludes on January 14, 2008.

B-4

Important goals of the Berger administration included:

continued liberalization of the economy and the trade regime;

strengthening and modernizing the financial services sector;

implementing tax reform;

maintaining the public deficit at relatively low levels;

maintaining a relatively stable rate of inflation;

increasing fiscal transparency;

continuing to implement the Peace Accord;

reducing the size and spending of the military through retirement of active members;

continuing negotiations for resolution of the territorial dispute with Belize;

addressing ongoing problems associated with poverty through the creation of employment opportunities, the
provision of social services and the improvement of infrastructure in the poorest rural areas; and

increasing investment in infrastructure, particularly in the communications sector.

Presidential and congressional elections were held in September 2007. Neither of the presidential candidates
obtained the majority of the votes as required by law and a run off election was held on November 4, 2007. In the run-off
elections, Alvaro Colom, a social democrat, defeated the conservative Otto Perez by 52.8% to 47.2% and was elected
President. Colom took over the presidency from conservative incumbent Oscar Berger on January 14, 2008 for a term ending
in January 2012. The new administration may not continue to support previous government policies, which have contributed
to economic growth in the country. Any change in such policies could, have a significant effect on Guatemalan financial
institutions, including us, as well as on market conditions and the prices of and returns on Guatemalan securities.
Recent Prosecutorial Actions
The Guatemalan government has been actively pursuing the prosecution of several public officials accused of
corruption, embezzlement and fraud. In May 2004, a Guatemalan judge ordered the house arrest of former de-facto president
and presidential candidate General Efran Ros Montt. General Ros Montt was accused of organizing and participating in
the political protests and violence that surrounded his bid for the presidency. In January 2006, a court ruled in favor of Ros
Montt. Spain is seeking Ros Montts extradition, he is accused of the burning of the Spanish Embassy in 1980, genocide,
terrorism and torture. In the elections held this past September, 2007 Ros Montt secured political immunity for another four
year term as he will again hold a seat in Congress.
Former President Alfonso Portillo and former Vice President Juan Francisco Reyes Lopez have also been charged
with corruption and embezzlement of funds during their term in office. In July 2005, a court issued an international arrest
warrant for Mr. Portillo, who fled to Mexico in February 2004. To this day, Guatemala has not been successful in extraditing
President Portillo. Former Finance Minister Jose Eduardo Weymann has been convicted for providing the legal means to
deviate funds from the Tax Superintendency. In addition, approximately 30 other public officers of the Portillo
administration have been charged with corruption.
Economic Overview
Guatemala is the largest economy in Central America, with an estimated GDP of US$35.25 billion in 2006. The
economy has expanded steadily in recent years, growing at a real rate of 3.61% in 2000, 2.33% in 2001, 2.25% in 2002,
2.13% in 2003, 2.75% in 2004, 3.16% in 2005, 4.57% in 2006. The rate of growth of the economy declined after 1999 as a
result of lower economic growth in the United States and the rest of Central America (Guatemalas main trading partners) as
well as lower worldwide coffee prices.

B-5

The Guatemalan economy historically has relied heavily upon agriculture, which, predominantly is comprised of the
export of coffee, sugar, bananas and cardamom. As Central American countries took strides towards regional economic
integration in the 1960s and 1970s, Guatemala became an important regional source for manufactured consumer products as
well as processed foods, and it has made some progress in promoting the export of non-traditional products.
Over the last five years, Guatemalas economy has been characterized by continued growth, low inflation, a stable
foreign exchange rate, increasing levels of remittances, and low external and internal public sector debt levels. Starting in
1999, the Government began to confront and address weaknesses in its financial sector, which resulted in the Governments
intervention in the case of three banks and two financial institutions and subsequent efforts to strengthen the legal framework
for supervision of the banking system.
Guatemalas economy is affected by external events. Moderate worldwide economic growth, political instability in
Iraq, terrorist threats, and other events have caused uncertainty and volatility in the United States and international economies
and financial markets. While the United States and other countries to which Guatemala exports its products continue to
experience moderate economic growth, it is unclear whether the same rates of growth will continue.
Impediments to economic growth during the period from 1999 to 2006 have included high rates of crime, low levels
of education and an underdeveloped local capital market. In addition, Guatemala requires significant infrastructure
development, particularly in the transportation, telecommunications and electricity sectors.
A new tax reform measure approved by Congress in June 2004 introduced the Extraordinary and Temporary Tax in
Support of the Peace Accord, or IETAAP, to replace the Tax on Mercantile and Agricultural Enterprises, or IEMA, which
was declared unconstitutional in January 2004. The IETAAP contemplates a fixed gross income tax rate of 2.5% for 2004
(with a possible reduction to 1.25%), a tax rate of 1.25% for 2005, and a tax rate of 1.00% for 2006 and 2007. In addition,
the new tax reform measure establishes a tax on distilled alcoholic beverages, beer and other fermented beverages and the
establishment of a flat income tax on business and individuals engaged in commercial enterprises of 5% per month of gross
revenues.
The inflation rate has remained relatively stable during the last five years, decreasing from 6.33% in 2002 to 5.85%
in 2003 but increasing to 9.23% in 2004. Inflation for 2005 was similar at 8.57% with a decrease in 2006 to 5.79%. The
Monetary Boards target annual inflation is between 4.0% and 6.0%.
In 1999 and 2001, Guatemala experienced an increase in foreign direct investment as a result of the receipt of
proceeds from privatizations in those years. Foreign direct investment decreased in 2000 compared to 1999, primarily as a
result of lower levels of public investment. The year 2002 saw a significant decrease in foreign direct investment to US$110
million from US$456 million in the previous year primarily due to a decrease in privatizations. From 2002 to 2005, the most
recent available data, foreign direct investment has steadily increased with a total foreign direct investment in 2005 of over
US$184 million. In the last five years Guatemala has averaged annual gross capital formation above 18.0%.
In 2004, the Government implemented the Economic and Social Reactivation Plan 2004-2005 (Plan de Reactivacin
Econmica y Social 2004-2005) established by the Government to: (i) increase security; (ii) strengthen and modernize public
institutions, focusing particularly on administration, criminal prosecution and property registration; and (iii) provide a stable
economy that promotes confidence and encourages long-term investments by individuals and businesses.
On March 10, 2005, Guatemala ratified the U.S.-Dominican Republic - Central America Free Trade Agreement. On
July 1, 2006, the CAFTA-DR entered in to force between the United States and Guatemala. CAFTA-DR eliminates customs
tariffs on as many categories of goods as possible; opens services sectors; and creates clear and readily enforceable rules in
areas such as investment, government procurement, intellectual property protection, customs procedures, electronic
commerce, the use of sanitary and phyto-sanitary measures to protect public health, and dispute resolution.
CAFTA-DR may result in a short-term fiscal down-turn due to reduced tariffs that is expected to be offset in the
medium-term by increased investment and competition between companies, which will increase the availability of
Guatemalan products in Central America. In addition, it is expected that CAFTA-DR s international free trade policy will
facilitate Guatemalas entrance into U.S. markets.

B-6

Fiscal and Monetary Policy


The Government had relatively low fiscal deficits from 1999 to 2006, averaging a fiscal deficit of 1.74% of GDP. In
2006, the Government recorded an estimated deficit of 1.5% of GDP compared to a deficit of 1.49% of GDP in 2005 and a
deficit of 0.96% in 2004.
In May 2000, 130 organizations and the executive, legislative and judicial branches of government entered into the
Pacto Fiscal (the Fiscal Pact). The Fiscal Pact requires that the Government strive to achieve certain financial targets,
including increasing tax revenues to 12% of GDP and decreasing the average annual fiscal deficit. Some of the Fiscal Pact
targets have not been achieved. Tax revenues within the last five years averaged 10.09% of GDP with 2006 having 10.14%.
Public internal debt as of December 31, 2004 was Q12,840 million. For the last three years Guatemalas interest
payments on public debt, both internal and external, accounted to 1.2% for 2005, 1.2% for 2006, 1.4% for 2007 of GDP.
The Bank of Guatemala gradually reduced its external public debt from US$1.3 billion in 1985 until it was
eliminated in 2006. By year end 2006, Guatemalas public sector external debt (which excludes the debt of the Bank of
Guatemala) was 115.6% of total exports. Its public sector external and internal debt was equivalent to 18.8% of GDP. This
decline is derived from payment of total debt to foreign governments, bilateral organizations and private banks. The Bank of
Guatemala has not incurred any additional external indebtedness since 1992. Guatemalan law prohibits the Bank of
Guatemala from incurring external indebtedness. The Bank of Guatemala and the Republic manage their debt separately and
independently and follow distinct policies in this regard.
Although Guatemala has from time to time restructured multilateral and bilateral debt with supranational and foreign
government lenders, it has never defaulted on any debt owed to any private sector creditors, including foreign commercial
banks and other external creditors.
The Disability, Old Age and Life Insurance program of the Guatemalan Social Security Institute or IGSS (Instituto
Guatemalteco de Seguridad Social) is expected to face a shortfall. To date, the amount of this shortfall has not been
determined.
The Constitution provides for the Monetary Board, which was established in 1946, to determine the monetary,
foreign exchange and credit policies of the Republic. The Monetary Board also oversees the liquidity and solvency of the
national banking system, seeking to assure the stability and strength of national savings and pursuing monetary stability
through the Bank of Guatemala. The Guatemalan Central Bank operates as an autonomous financial institution governed by
the Monetary Board. The Constitution prohibits the Guatemalan Central Bank from directly or indirectly financing the
Government or public or private entities other than regulated financial institutions.
The Government is working to strengthen Guatemalas financial institutions. On October 19, 2006, the Monetary
Board intervened in the operations of Banco del Caf (Bancafe). One year before Banco del Caf was the fourth largest bank
in the system in terms of assets, holding Q7,642 million, equivalent to over 9% of the banking systems assets. On January
12, 2007 the Monetary Board intervened another bank, Banco de Comercio. Both banks were intervened due to liquidity
problems arising out of administrative irregularities, loans to affiliated entities and regulatory non-compliance. The failure of
the two banks, in particular the case of Bancafe, which was affected by financial problems in its offshore affiliate following
the failure of Refco in 2005, threatened to disrupt broadly positive macroeconomic trends. However, both banks
interventions were completed quickly and onshore depositors were protected. During the first days of December there was a
shortage of paper money. ATMs and banks could not supply enough paper money to meet the public demand. The reason of
said shortage was Central Bank had not properly anticipated the year end demand on paper bills. While this caused
discontent in the general public, it was widely known that the problem derived from poor planning and not from a financial
crisis.
Developments with the IMF
Guatemala joined the IMF on December 28, 1945. Guatemala and the IMF entered into two stand-by arrangements
in 2002 and 2003. Guatemala met all of the 2002 and a significant number of the 2003 fiscal and macroeconomic targets
required by the stand-by arrangements. In 2003, the Republic met IMF targets for deficits, tax revenue, inflation and
B-7

reserves, among others, and also implemented economic liberalization measures. In 2003, the Republics inflation rate of
5.85% complied with the target of between 4% and 6%. However, during the following two years inflation was over 6%.
The increase in its international reserves of US$271.0 million surpassed the target of US$250.0 million. In addition, the
Republic met the consolidated public sector deficit target of 1.7% of GDP and the social spending target of 5.3% of GDP.
However, in 2003, the Republics tax revenues of 10.3% of GDP did not meet the target tax ratio of 12% of GDP established
in the stand-by arrangement.
The IMF opened a permanent office in Guatemala City in 2003. On December 2004 Guatemala begun participating
in the International Monetary Funds General Data Dissemination System (GDDS), marking a major step forward in the
development of the countrys statistical system. The Republic and the IMF met on February 2005, and following a two week
visit, decided on an economic monitoring program and technical assistance rather than renewing the stand-by agreement,
which was considered unnecessary given the strength of Guatemalas international reserves.
On February 14, 2007, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV
Annual Consultation with Guatemala. The Directors commended the Guatemalan authorities for the sound fiscal framework,
improvements in tax administration, increase in transparency of fiscal and monetary policies, and structural reforms to
promote growth and regional economic integration. Key priorities pointed out are to strengthen the financial system, address
social needs by raising tax revenue, consolidate the decline in inflation, and gradually allow for more flexibility in the
exchange rate. Downside risks to the outlook arise from tensions in the financial system and slowing growth in trading
partner countries.
Privatization and Role of the State in the Economy
The Governments economic policy seeks to adhere to free market principles, and the Government traditionally has
refrained from intervening in the economy. Prior to 1996, the Government was involved primarily in the electricity and
telecommunications sectors. In 1996, the Government created a Presidential Commission for the Modernization of the
Executive Branch and Privatization (now called the Presidential Commission for the Reform of the State, Decentralization
and Citizen Participation, or the Modernization Commission).
Since 1999, the Modernization Commission shifted its focus from privatizing state-owned agencies to decentralizing
and modernizing governmental agencies, social services and pensions, deregulation, increased efficiency of governmental
action and the privatization of certain state-owned entities. As an initial step towards privatization the Government enacted
the General Telecommunications Law (Ley General de Telecomunicaciones), and the General Electricity Law (Ley General
de Electricidad ), in 1996. These laws established a new legal and regulatory framework for these industries and aimed to
increase competition in a de-monopolized, liberalized environment. The government currently is preparing a revival of its
economic program with the business sector, which focuses on the following three goals: promotion of exports and the
improvement of business environment and competition, development of public investment projects, tourism, housing and
private sector alliances, and investments in poverty elimination programs in 112 municipalities.
Exchange Rate Policy and Foreign Exchange Rates
Since 1994, the Monetary Board has allowed the exchange rate for the Quetzal to be determined predominantly by
market forces. The Bank of Guatemala has seldomly intervened in the foreign exchange market by buying or selling U.S.
dollars in order to counter temporary imbalances of supply and demand or drastic fluctuations in the exchange rate caused by
speculative, cyclical or seasonal factors that affect the balance of payments.
Since 1996, the Bank of Guatemala has intervened in the foreign exchange market through the Sistema Electrnico
de Negociacin de Divisas, an electronic system for buying and selling foreign exchange which improves the Bank of
Guatemalas ability to gain information about the exchange market. No current restrictions exist on the conversion of
quetzales into other currencies.
On May 1, 2001, the Law of Free Negotiation of Foreign Currency came into effect permitting both domestic and
foreign banks in Guatemala to freely enter into foreign currency denominated contracts and accept monetary deposits and
offer bank accounts in foreign currency.

B-8

BANCO INDUSTRIAL, S.A. AND SUBSIDIARIES

Page
Independent Auditors Report.....................................................................................................................................

F-4

Consolidated Balance Sheets as of December 31, 2007 and 2006 ...........................................................................

F-6

Consolidated Statements of Income for the Years Ended December 31, 2007, 2006 and 2005...............................

F-7

Consolidated Statements of Changes in Shareholders Equity for the Years Ended December 31, 2007, 2006
and 2005 ...................................................................................................................................................................

F-8

Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005........................

F-11

Notes to the Consolidated Financial Statements ........................................................................................................

F-14

F-1

Banco Industrial, S.A. and Subsidiaries

Consolidated Financial Statements


December 31, 2007, 2006 and 2005
(With Independent Auditors Report Thereon)

F-2

Contents

Independent Auditors Report


Consolidated Balance Sheets as of December 31, 2007 and 2006
Consolidated Statements of Income for the years ended December 31, 2007, 2006 and
2005
Consolidated Statements of Shareholders Equity for the years ended December 31, 2007,
2006 and 2005
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006
and 2005
Notes to Consolidated Financial Statements for the years ended December 31, 2007,
2006 and 2005

F-3

Independent Auditors Report

To the Shareholders of
Banco Industrial, S.A.:
We have audited the accompanying consolidated balance sheets of Banco Industrial, S.A.
and subsidiaries (the Group) as of December 31, 2007 and 2006, and the related
consolidated statements of income, shareholders equity and cash flows for each of the
years ended December 31, 2007, 2006 and 2005. These consolidated financial statements
have been prepared following the accounting standards established by the
Superintendency of Banks of Guatemala and are the responsibility of the Groups
management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in
Guatemala. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the financial position of Banco Industrial, S.A. and subsidiaries at
December 31, 2007 and 2006, and the consolidated results of their operations,
shareholders equity and cash flows for each of the years ended December 31, 2007,
2006 and 2005, in conformity with the accounting standards established by the
Superintendency of Banks of Guatemala which are described in note 4 to the
consolidated financial statements.
The consolidated financial statements of the Group have been prepared in order to
comply with the requirements established by the Superintendency of Banks of Guatemala
in regards to the consolidation of financial statements.

F-4

Banco Industrial, S.A. and Subsidiaries

Our audits also comprehended the translation of the Guatemalan quetzal amounts into
U.S. dollar amounts and, in our opinion, such translation has been made in conformity
with the basis stated in note 2 to the consolidated financial statements. The translation of
the financial statements amounts into U.S. dollars and the translation of the financial
statements into English have been made solely for the convenience of readers outside of
Guatemala.

/S/ Geraldo Gonzlez Valleau


Geraldo Gonzlez Valleau
Partner

February 28, 2008

F-5

Banco Industrial, S.A. and Subsidiaries

Consolidated Balance Sheets


December 31, 2007 and 2006
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
2007
(U.S. dollars)

Assets
Cash and due from banks (note 5)
Temporary investments (note 6)
Loan portfolio, net (note 7)
Accounts receivable for financial products
(note 4h and 4i)
Accounts receivable, net (note 8)
Prepaid expenses
Foreclosed assets
Long-term investments (note 9)
Other investments (note 10)
Property and equipment, net (note 11)
Deferred charges, net (note 12)
Total assets
Liabilities and Shareholders' Equity
Deposits (note 13)
Liabilities with other financial institutions
(note 14)
Financial obligations (note 15)
Financial expenses payable
Accounts payable (note 16)
Accruals
Deferred income (note 17)
Total liabilities
Other credit balances
Total liabilities and other
credit balances
Shareholders equity:
Primary capital (notes 18 and 20)
Complementary capital (note 31)
Total shareholders equity
Total
liabilities
and
shareholders equity

2007
Q

2006
Q

665,789
212,541
2,600,247

5,080,646
1,621,907
19,842,514

4,160,959
2,035,399
14,787,037

36,383
46,931
6,078
2,372
1,220,831
19,217
129,847
85,779
5,026,015

277,636
358,133
46,380
18,102
9,316,172
146,643
990,862
654,579
38,353,574

243,820
275,567
35,285
26,698
8,742,945
67,985
869,940
696,241
31,941,876

3,453,083

26,350,515

22,431,337

814,289
251,273
19,076
74,032
1,663
3,799
4,617,215

6,213,845
1,917,467
145,568
564,944
12,689
28,993
35,234,021

4,187,566
1,748,115
118,375
711,754
9,771
17,001
29,223,919

6,277

47,899

48,199

4,623,492

35,281,920

29,272,118

209,726
192,797
402,523

1,600,422
1,471,232
3,071,654

1,421,589
1,248,169
2,669,758

5,026,015

38,353,574

31,941,876

7,031,611

53,658,298

47,722,038

3,831

29,232

7,927

Commitments and contingencies (note 27)


Memorandum accounts (note 22)
Register accounts (note 4d)

See the accompanying notes to the consolidated financial statements.

F-6

Banco Industrial, S.A. and Subsidiaries

Consolidated Statements of Income


Years ended December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
2007
(U.S. dollars)

2007
Q

2006
Q

2005
Q

Interest income (notes 19 and 26)

324,299

2,474,726

1,770,152

1,498,184

Interest expense (notes 19 and 26)

177,161

1,351,913

1,026,272

822,092

147,138

1,122,813

743,880

676,092

55,811

425,896

300,474

210,145

202,949

1,548,709

1,044,354

886,237

Net interest income


Income from services, net
Total operating income
Administrative expenses:
Loan loss provisions (note 24)
Other administrative expenses (notes
23 and 24)
Total administrative expenses

16,166

123,361

39,617

48,840

115,192
131,358

879,033
1,002,394

657,624
697,241

534,715
583,555

Net operating income

71,591

546,315

347,113

302,682

800

6,103

20,996

25,941

794

6,057

2,815

2,311

73,185

558,475

370,924

330,934

(11,078)

(84,535)

(48,148)

(34,038)

62,107

473,940

322,776

296,896

Extraordinary income and expenses,


net (note 4 k)
Prior periods income and expenses,
net (note 4 l)
Income before income tax
Income tax (note 21)
Net income

See the accompanying notes to the consolidated financial statements.

F-7

Banco Industrial, S.A. and Subsidiaries

Consolidated Statements of Shareholders Equity


Years ended December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
2007
(U.S. dollars)

Primary capital:
Shareholders equity (note 18):
Balance at beginning of year
Increase of capital
Translation effect of the capital
of
Westrust
Bank
(International) Limited
Balance at end of year
Legal reserve (note 20):
Balance at beginning of year
Transfer from retained earnings
Balance at end of year
Shareholders contributions (nota
32):
Balance at beginning of year
Cash contributions from
shareholders
Contributions capitalized
Balance at end of year
Other contributions (nota 32):
Balance at beginning of year
Premium on shares
Balance at end of year
Total primary capital
Complementary capital:
Other capital reserves:
Balance at beginning of year
Transfer from retained earnings
Less:
Dividends paid
Compensation to members of
the board of directors
Transfer to allowance for loan
losses
Translation effect of the other
capital
reserves
of
Westrust
Bank
(International) Limited
Balance at end of year

2007
Q

2006
Q

146,553
6,658

1,118,345
50,809

794,606
323,640

51
153,262

389
1,169,543

99
1,118,345

9,813
2,314
12,127

74,883
17,661
92,544

59,657
15,226
74,883

29,893

228,114

19,964

6,644
(6,658)
29,879

50,697
(50,809)
228,002

333,150
(125,000)
228,114

796,326
(1,720)
794,606
48,385
11,272
59,657

19,964
19,964

32
14,427
14,459
209,726

247
110,086
110,333
1,600,422

247
247
1,421,589

874,227

19,663
34,207

150,048
261,033

115,280
234,517

117,304
167,566

(29,782)

(227,265)

(180,000)

(150,000)

(2,881)

(21,982)

(19,749)

21,207

161,834

2005
Q

150,048

(9,399)

(10,191)
115,280

(Continue)

F-8

Banco Industrial, S.A. and Subsidiaries

Consolidated Statements of Shareholders Equity


Years ended December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
2007
(U.S. dollars)

Subordinated obligations (note 31):


Balance at beginning of year
New obligations contracted
during the year
Exchange differential
Balance at end of year

54,749
251
55,000

Revaluation of assets:
Balance at beginning of year
Depreciation of the period
Balance at end of year

7,784
(35)
7,749

Valuation of doubtful recovery


assets (note 4a):
Balance at beginning of year
Net increase of the period
Charged to capital
Balance at end of year

Earnings applicable to previous


periods:
Balance at beginning of year
Transfer from retained earnings
Translation effect of the
earnings applicable to
previous periods of Westrust
Bank (International) Limited
and interests accrued, not
received by subsidiaries
Less:
Dividends paid
Balance at end of year
Valuation of foreclosed assets:
Balance at beginning of year
Increase of the period
Decreases for sales
Balance at end of year

2007
Q
417,788
1,917
419,705
59,398
(268)
59,130

2006
Q

2005
Q

418,296
(508)
417,788

59,667
(268)
59,399

59,935
(268)
59,667

(4,291)
7,791
(3,500)
-

(18,601)
14,310
(4,291)

44,086
5,777

336,420
44,081

269,180
47,154

251,097
8,277

161
50,024

1,226
381,727

20,964
337,298

10,406
269,780

(190)
49,834

(1,448)
380,279

(878)
336,420

(600)
269,180

(5,014)
(65)
1,979
(3,100)

(38,261)
(496)
15,100
(23,657)

(38,261)
(38,261)

(Continue)

F-9

Banco Industrial, S.A. and Subsidiaries

Consolidated Statements of Shareholders Equity


Years ended December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
2007

2007
Q

2006
Q

42,298

322,775

296,896

209,953

62,107
104,405

473,940
796,715

322,776
619,672

(7,429)
296,896
499,420

(2,314)

(17,661)

(15,226)

(11,272)

(5,777)

(44,081)

(47,154)

(8,277)

(34,207)

(261,033)

(234,517)

(167,566)

(42,298)
62,107

(322,775)
473,941

(296,897)
322,775

(15,409)
(202,524)
296,896

(U.S. dollars)

Retained earnings:
Balance at beginning of year
Translation effect of the retained
earnings of Westrust Bank
(International) Limited and
interests
accrued
not
received by subsidiaries
Net income
Less:
Transfer to legal reserve
Transfer to earnings
applicable to previous
periods
Transfers to other capital
reserves
Compensation to members
of the board of directors
Balance at end of year
Total
complementary
capital
Total shareholders equity

192,797
402,523

1,471,232
3,071,654

1,248,169
2,669,758

See the accompanying notes to the consolidated financial statements.

F-10

2005
Q

736,732
1,610,959

Banco Industrial, S.A. and Subsidiaries

Consolidated Statements of Cash Flows


Years ended December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
2007

2007
Q

2006
Q

2005
Q

62,107

473,940

322,776

296,896

15,228
16,166
2,709
(40)
-

116,205
123,361
20,674
(308)
-

(U.S. dollars)

Cash flows from operating activities:


Net income
Reconciliation between net income
and net cash provided by (used
in) operating activities:
Depreciations and amortizations
Loan loss provisions
Loss on sale of foreclosed assets
Gain on sale of foreclosed assets
Foreclosed assets expenses
Exchange differential from
subordinated obligations
Gain on investments
Loss on sale of property and
equipment
Changes in assets and liabilities:
Cash flows provided by decrease of
assets and increase of liabilities:
Accounts receivable, net
Prepaid expenses
Financial expenses payable
Accounts payable
Accruals
Deferred income
Cash flows used in increase in assets
and decrease in liabilities:
Financial products receivable
Accounts receivable, net
Prepaid expenses
Accounts payable
Other credit balances
Net cash provided by
operating activities

96,774
39,617
3,135
(932)
552

251

1,917
-

79
96,500

601
736,390

460,935

397,431

3,563
382
1,572
5,517

27,193
2,918
11,993
42,104

23,589
412,192
2,275
5,961
444,017

3,772
15,682
6,704
908
6,022
33,088

(3,196)
(11,064)
(1,454)
(19,239)
(933)
(35,886)

(24,386)
(84,428)
(11,095)
(146,811)
(7,120)
(273,840)

(10,511)
(55,572)
(9,005)
(3,414)
(78,502)

(72,853)
(146,833)
(7,263)
(226,949)

66,131

504,654

826,450

203,570

(508)
(479)

51,695
48,840
-

(Continue)

F-11

Banco Industrial, S.A. and Subsidiaries

Consolidated Statements of Cash Flows


Years ended December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
2007

2007
Q

2006
Q

2005
Q

(678,266)
(31,240)
(25,154)

(5,175,855)
(238,394)
(191,953)

(2,668,353)
(1,966,877)
(68,709)

(1,405,331)
(976,741)
(117,194)

(1,547)

(11,807)

(2,856)

17,375

(835)

(6,370)

(724,627)

65

12,526
1,989

11,473
142

(U.S. dollars)

Cash flows from investing activities:


Net increase in loan portfolio
Net increase in investments
Purchase of fixed assets
(Increase) decrease in foreclosed
assets
(Increase) decrease in deferred
charges
Received from sale of foreclosed
assets
Received from sale of fixed assets
Net cash used in
investing activities
Cash flows from financing activities:
Increase in deposits
Increase in liabilities from other
financial institutions
Increase in financial obligations
Cash contributions from
shareholders
Subordinated obligations
Dividends paid
Compensation to boards members
Net cash provided by
financing activities
Net increase in cash
Increase in cash and due from banks
derived from the merger
Cash and due from banks at beginning
of year
Cash and due from banks at end of year

1,641
261

(735,140)

(5,609,864)

(5,419,807)

(2,481,826)

513,586

3,919,178

4,060,753

1,721,510

265,532
22,192

2,026,279
169,352

559,108
391,128

730,857
417,893

333,397
418,296
(180,878)
(19,749)

19,964
(150,600)
(15,409)

21,071
(29,972)
(2,881)

160,783
(228,713)
(21,982)

789,528

6,024,897

5,562,055

2,724,215

120,519

919,687

968,698

445,959

545,270
665,789

423,137

4,160,959
5,080,646

2,769,124
4,160,959

2,323,165
2,769,124

Non-monetary transactions
As a result of the merger with Banco de Occidente, S.A. (note 18), the Bank recorded
on November 11, 2006:
Thousand of
U.S. dollars
Q
451,401
3,428,912
387,857
2,946,225
63,544
482,687

Assets, net
Liabilities
Shareholders equity

(Continue)

F-12

Banco Industrial, S.A. and Subsidiaries

Consolidated Statements of Cash Flows


Years ended December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)

During the years ended December 31, 2007, 2006 and 2005, the Group recorded
cardholders balances and sundry debtors as uncollectible accounts amounting to
Q18,263, Q10,270 and Q18,647, respectively.

During the years ended December 31, 2007, 2006 and 2005, the Group wrote off fully
depreciated fixed assets in the amounts of Q10,427, Q17,224 and Q8,461,
respectively.

See the accompanying notes to the consolidated financial statements.

F-13

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements


December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)

Operations
The consolidated financial statements include the assets, liabilities, shareholders
equity, results of operations and cash flows of Banco Industrial, S.A. (the Bank)
and its subsidiaries Financiera Industrial, S.A. (the Financing Entity), Westrust
Bank (International) Limited (the Off-shore Bank) and Contcnica, S.A. (the
Credit Card Company) (together, referred to as the Group), in which the
Bank holds an equity interest of 97.5%, 100% and 98.0%, respectively.
The Bank was created through Decree Law No. 429 dated February 18, 1966,
incorporated as a corporation through Public Deed No. 495 dated June 15, 1967,
which was amended when the Bank incorporated the social agreements of the
present Commercial Code in Public Deed No. 227 dated May 25, 1983. Its
operations constitute commercial and mortgage banking activities and are
governed by the Banks and Financial Groups Law, and if applicable, by the
Organic Law of the Guatemalan Central Bank, Monetary Law and the Financial
Supervision Law.
The Financing Entity was incorporated through Public Deed No. 407 of
November 20, 1980 as a private financing entity, entitled to perform all
operations of private financing corporations allowed by law, also known as
investing banks.
The Off-shore Bank was incorporated under the laws of the Commonwealth of
Bahamas on October 21, 1991, and is authorized and licensed to perform
businesses related to banking activities.
The Credit Card Company was incorporated under the laws of the Republic of
Guatemala on March 16, 1981. Its main activity consists of granting financing to
third parties through credit cards that can be used worldwide.

Convenience Translation
The accompanying consolidated financial statements have been translated into
English from the original statements prepared in Spanish for the use outside of
Guatemala.
The financial statements are stated in thousands of Guatemalan quetzales, the
currency of the country in which the Group is incorporated and operates. The
translation of Guatemalan quetzal amounts into U.S. dollar amounts are included
solely for the convenience of readers and have been made at the rate of Q7.63101
per one U.S. dollar, such rate has been published by Banco de Guatemala (the
Guatemalan Central Bank) on December 31, 2007. Such translation should not be
construed as representations that the Guatemalan quetzal amounts have been,
could have been, or could in the future, be converted into U.S. dollars at this or
any other exchange rate.

F-14

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements


December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
The legal currency in Guatemala is the Quetzal, identified with the symbol Q in
the consolidated financial statements and the accompanying notes. As of May 1,
2001 Decree 94-2000 of the Congress of the Republic, "Free Foreign Currency
Negotiation Law", came into effect allowing operations in any currency; however,
the Quetzal remains as the country's official currency.
At December 31, 2007, 2006 and 2005 the reference exchange rate of the Bank of
Guatemala was Q7.63 = US$1.00, Q7.60 = US$1.00 and Q7.59 = US$1.00,
respectively.

Principles of Consolidation and Translation


All major balances and transactions among the Group have been eliminated in the
preparation of these consolidated financial statements. Rules issued by the
Monetary Board (Junta Monetaria) provide, among other matters, that minority
interest is not recognized when it represents less than 5% of the subsidiarys
outstanding capital; thus, no minority interest has been accounted for. In
addition, following the accounting standards established by the Superintendency
of Banks of Guatemala (Superintendencia de Bancos de Guatemala), for
conversion purposes, the financial statements of the Off-shore Bank prepared in
U.S. dollars have been translated into Guatemalan quetzales using the exchange
rate in effect at the closing date (see note 2).

Summary of Significant Accounting Policies


The accounting policies and the reports submitted by the Bank and the Financing
Entity have been prepared in accordance with the accounting practices for
banking operations contained in the Banks and Financial Institutions Accounting
Instructions Manual issued by the Superintendency of Banks of Guatemala
(Guatemalan Banking GAAP).
The Off-shore Bank adheres to the accounting policies established by
International Financial Reporting Standards; however, in year 2005 for
consolidation purposes, its financial statements herein included, were adjusted to
Guatemalan Banking GAAP. For 2007 and 2006, such adjustment was not
included for consolidation purposes, as recommended by the Superintendency of
Banks of Guatemala (see note 4 h).
In addition, the Bank and the Financing Entity are subject to certain regulations
issued under the Banks and Financial Groups Law and the Organic Law of the
Guatemalan Central Bank.
The Credit Card Company is subject to the accounting standards established by
the Superintendency of Banks of Guatemala.

F-15

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements


December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
Although at this date there are no specific accounting standards for activities
related to credit cards, the Credit Card Company generally follows the accounting
rules and requirements contained in the Accounting Instructions Manual issued by
the Superintendency of Banks of Guatemala.
A description of the most significant accounting policies follows:
a

Allowance for Loan Losses Related to Loan Portfolio and Accounts


Receivable
The Bank, the Financing Entity and the Credit Card Company record
against the results of the period an allowance determined on the basis of
the valuation of loans granted in accordance with the Regulation for Credit
Exposure Management, Resolution JM-93-2005 dated May 23, 2005,
which takes into account the delay in the payment of principal and interest,
as well as a risk assessment per client. In the event that this allowance
exceeds the maximum allowed by law as a deductible expense for tax
purposes, it must be recorded directly against shareholders equity.
The Off-shore Bank records allowances determined on the basis of the risk
of recovery of its loan portfolio.

Investments
Temporary investments (except for those owned by the Off-shore Bank
which are valued at their fair value) and long-term investments are carried
at cost. Temporary investments include securities in either local or
foreign currency acquired for the purpose of holding them in the portfolio
for less than a year. Long-term investments include securities acquired
with the purpose of holding them until their maturity or over a year.

Property and Equipment


Property and equipment are recorded at their acquisition cost, except for
revalued fixed assets as mentioned in note 11. Major replacements and
improvements are capitalized, whereas minor disbursements for repairs
and maintenance are charged against income as incurred. The Group,
when considered appropriate, may adjust the carrying value of their fixed
assets based on independent appraisals. At December 31, 1998 and 1997
the Bank had its land and buildings appraised. Consequently, the Group
recognized an increase in the carrying value of such assets and recognized
a credit in the complementary capital account called Revaluation of
Assets. This accounting treatment is accepted by the tax authorities in
Guatemala and by the Superintendency of Banks of Guatemala.

F-16

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005


(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
d

Depreciation
Fixed assets (except land) are depreciated by the straight-line method
based on the required statutory rates. Depreciation on revalued buildings
is booked in the revaluation of assets account included in the
complementary capital.
The percentages used are as follows:
%
Buildings
Furniture and equipment
Computer equipment
Tools
Vehicles
Others

2
5
10
25
20
10

Fully depreciated assets are written off from the respective accounts of
cost and accumulated depreciation and are controlled in register accounts
allocating them a token value of Q1.
e

Amortization
Goodwill is deferred and amortized by the straight-line method at an
annual rate of 6.67% in accordance with the Superintendency of Banks of
Guatemalas recommendation.
Organizational expenses and leasehold improvements are deferred and
amortized by the straight-line method at an annual rate of 5%.

Foreclosed Assets
This item represents assets received in foreclosure of loans granted by the
Bank; they are recorded at principal amount outstanding plus interest and
expenses incurred in their adjudication.
According to article 54 of the Banks and Financial Groups Law the
foreclosed assets adjudicated by the Bank have to be sold in a two-year
term.

Severance Payments
Under Guatemalan labor laws, employers are required to pay employees
dismissed without just cause severance payments equivalent to one-month
salary for each year of continuous work or to their beneficiaries in case of
death, in accordance with Section 85 (a) of the Labor Code.

F-17

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005


(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
The Groups severance payments policy complies with the Labor Code.
There is no requirement to accrue a provision for an estimate of future
severance charges and therefore, severance payments are charged to
operating expenses when paid.
h

Revenue Recognition
Interest Income
Under the banking laws in Guatemala, revenue obtained from banking
operations is not recorded in the statement of income until effectively
collected even though it has been accrued, except for interest on debt
securities issued by the Guatemalan Central Bank and debt securities
of other issuers approved by the Monetary Board, whose amortization
funds are controlled by the Guatemalan Central Bank and may also be
recorded as revenue when accrued, even though those have not been
collected. The interest described above is recorded as a liability under
the caption other credit balances.

The Off-shore Bank and the Credit Card Company record interest
income based on the accrual method. The Credit Card Company
ceases to accrue interest if it is more than 120 days overdue.
For 2005, the consolidated financial statements included the net effect
of the adjustment related to the recognition of income effectively
collected by the Off-shore Bank during the period. For 2007 and
2006, such adjustment was not included for consolidation purposes, as
recommended by the Superintendency of Banks of Guatemala.

Services Other than Banking Operations


Revenue from services that relates to activities other than those related
to banking operations, such as commissions received from third parties
for whom we act as collection agents and management of trusts and
commissions received for services, including returned checks, account
handling and the issuance of, cashiers checks, among others and
which issuance, etc., is recognized when earned and collected.

Interest on Securities
Interest on securities is recorded as revenue in the statement of income
when accrued.

Service Charges
Service charges to cardholders are recorded on the accrual basis on the
date they are charged to the client. For cardholders with payments
overdue more than 120 days, service charges are no longer accrued.

F-18

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005


(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)

Charges for Payments Overdue


The Credit Card Company collects charges for payments overdue over
the amount of the outstanding minimum payments, recorded as from the
following day of the payment maturity date and accrued until four
months overdue. From the fifth month, such charges are no longer
accrued if the cardholder has not settled its outstanding balance.

Commissions Collected from Establishments Affiliated with VISA


The Credit Card Company collects from establishments affiliated with
VISA a commission on charges made by customers, based on the
operating guidelines of VISA International, which range from 1% to
4%.
Such commissions are recognized as revenue when the reimbursement
of outstanding balances is received for the domestic exchange of local
transactions.

Accounts Receivable Cardholders


For collection purposes, balances of accounts receivable of credit cards
are divided in 20 cycles, with cut-off dates ranging from the 6th to the
25th of each month; for corporate cards, the cut-off date is the last day of
each month. For monthly accounting closing purposes, balances are
accrued until the last day of the month.

Accounts Receivable Derived from Overdrafts


The Credit Card Company records consumer financing overdrafts and
interest as extra-financing receivable. When extra-financing payments
are overdue, they are transferred to the accounts receivable for the related
credit card and interest is recorded as revenue.
Interest on overdraft balances is recognized on an accrual basis.

Extraordinary Income and Expenses


Gains or loses recorded from the recovery of past due loans which had
been previously written-off or as a result of the sale of foreclosed assets,
are included in extraordinary income or expense net of related expenses,
and are recognized in the period in which such income or expense is
realized.

Prior Periods Income and Expenses, net


Income and expenses recorded in prior periods which are not recovered or
incurred as expected, are reversed in the period during which it is
determined that such amounts will not be recovered or incurred.

F-19

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005


(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)

Assets and Liabilities in Foreign Currency


Assets and liabilities in foreign currency are shown at their equivalent in
quetzales using the exchange rate applicable under the provisions
established by the Guatemalan Central Bank (see note 2).

Transactions in Foreign Currency


Transactions in foreign currency are recorded at their equivalent in
quetzales using the exchange rate in effect when the operation is carried
out. The exchange rate differential, if any, resulting from the moment in
which the operation is recorded and the date of its completion, or
accounting closing date, is recorded against the results of the period (see
note 2).

Presentation of Certain Income Statement Accounts


Income and expenses generated from commissions and the exchange rate
gains and losses were reclassified in the accompanying consolidated
statements of income and differ from those presented for regulatory
purposes. However, this reclassification did not affect the accompanying
operating income or net income presented for regulatory purposes.

Cash and due from Banks


As of December 31, 2007 and 2006, cash and due from banks consisted of the
following:
December 31
2007
2006
Q
Q
In local currency:
Cash
153,431
567,489
Central Bank
2,307,231
2,269,605
Local banks
8,442
15,790
Checks from other local banks
660,627
751,806
3,634,968
3,099,453
In foreign currency:
Cash
88,439
80,787
Central Bank
433,603
324,361
Foreign banks
505,136
586,965
Local banks
340,571
26,105
Checks from other local banks
77,929
43,288
1,445,678
1,061,506
5,080,646
4,160,959

F-20

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005


(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
According to the Guatemalan Central Banks Regulation on the Minimum
Reserve Requirement, Resolution No. JM-177-2002, the percentage of minimum
reserve requirement in local and foreign currency is 14.6%, and is recorded under
the accounts Central Bank Legal Deposits and Central Bank Special Deposits;
therefore, these funds are restricted.
The Central Bank Special Deposits account includes amounts corresponding to
obligations subject to minimum reserve requirements (0.6%) and minimum
reserve over financial obligations (14.6%) in local and foreign currencies.
At December 31, 2007 and 2006, cash and due from banks in foreign currency
amounted to US$189,448 and US$139,743, respectively, translated at the closing
Bank of Guatemala rate (see note 2), equal to 28% and 25% of total cash and due
from banks, respectively. The remainder of such amounts was denominated in
quetzales.

Temporary Investments
As of December 31, 2007 and 2006, temporary investments were as follows:
December 31

In local currency:
Debt securities of local issuers
Interest paid on purchase of debt
securities
In foreign currency:
Debt securities of local issuers
Debt securities of foreign issuers
Interest paid on purchase of debt
securities

2007
Q

2006
Q

1,333,737

1,603,335

326
1,334,063

1,603,335

82,224
205,574

337,112
94,952

46
287,844
1,621,907

432,064
2,035,399

At December 31, 2007 and 2006, temporary investments in foreign currency were
US$37,720 and US$56,879, respectively, translated at the closing Bank of
Guatemala rate (see note 2), equal to 18% and 21%, respectively, of total
temporary investments. The remainder of such amounts was denominated in
quetzales.

F-21

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005


(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
Interest paid on purchase of debt securities represents an amount paid to a seller
of debt securities that is equivalent to interest that has accrued but has not been
paid on such securities at the time of purchase.

Loan Portfolio, net


As of December 31, 2007 and 2006, this account comprised as follows:
December 31

In local currency:
Current
Overdue
Non-performing:
In process of extension
Non-judicial collection
Judicial collection
Less: allowance for loan losses
In foreign currency:
Current
Overdue
Non-performing:
In process of extension
Non-judicial collection
Judicial collection
Less: allowance for loan losses

2007
Q

2006
Q

7,927,987
260,465

6,259,956
278,744

3,165
26,254
51,228
8,269,099
(148,262)
8,120,837

6,238
41,163
41,115
6,627,216
(130,938)
6,496,278

11,666,626
54,782

8,154,367
105,358

5,642
3,755
23,409
11,754,214
(32,537)
11,721,677
19,842,514

7,334
4,412
46,086
8,317,557
(26,798)
8,290,759
14,787,037

At December 31, 2007 and 2006, the loan portfolio in foreign currency amounted
to US$1,540,322 and US$1,094,970, respectively, translated at the closing Bank
of Guatemala rate (see note 2), equal to 59% and 56%, respectively, of total loan
portfolio. The remainder of such amounts was denominated in quetzales.
During the year ended December 31, 2007 and 2006, the Group sold foreclosed
assets (consisting principally of real estate) in the aggregate amount of Q35,519
and Q14,608, generating a loss of Q20,674 and Q3,135, respectively.

F-22

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements


December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)

Accounts Receivable, net


As of December 31, 2007 and 2006, this account comprised as follows:
December 31
2007
2006
Q
Q
Local currency:
Checking account overdrafts
55,605
65,021
Insurance premium
60,537
49,431
Service rights
1,782
2,295
Accounts pending liquidation
24,367
9,308
Others
106,548
102,748
228,803
248,839
Foreign currency:
Deposit accounts overdrafts
62,366
39,100
Insurance premiums
1,602
722
Others
50,302
8,442
114,270
48,264
363,109
277,067
Less: allowance for losses
(4,976)
(1,500)
275,567
358,133
At December 31, 2007 and 2006, accounts receivable in foreign currency
amounted to US$14,974, and US$6,354, respectively, translated at the closing
Bank of Guatemala rate (see note 2), equal to 28% and 30%, respectively, of total
accounts receivable. The remainder of such amounts was denominated in
quetzales.

Long-Term Investments
As of December 31, 2007 and 2006, long-term debt and equity investments were
as follows:
December 31
2007
2006
Q
Q
In local currency:
6,464,931
Securities of local issuers
7,768,242
Interest paid on purchase of securities
1,690
826
7,769,932
6,465,757
In foreign currency:
Securities of local issuers
1,116,277
1,922,607
353,322
Securities of foreign issuers
426,902
Interest paid on purchase of securities
3,061
1,259
1,546,240
2,277,188
9,316,172
8,742,945

F-23

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements


December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
Interest paid on purchase of debt securities represents an amount paid to a seller
of debt securities that is equivalent to interest that has accrued but has not been
paid on such securities at the time of purchase.
At December 31, 2007 and 2006, long-term investments in foreign currency
amounted to US$202,625 and US$299,782, respectively, translated at the closing
Bank of Guatemala rate (see note 2), equal to 26% and 37%, respectively, of total
long-term investments. The remainder of such amounts was denominated in
quetzales.

10

Other Investments
Represents cash invested in short term investments intended to be used to repay
early maturities of the Banks obligations under its bonds, and 10% of the
principal amount of the Financing Entitys obligations under its notes. See note
15 for a description of these obligations.

11

Property and Equipment


Property and equipment as of December 31, 2007 and 2006 were as follows:
December 31
2007
2006
Q
Q
Land
96,698
99,424
Buildings
342,802
332,212
Furniture and equipment
641,669
585,241
Vehicles
5,976
5,726
Others
7,007
5,996
Advances for acquisition of assets
40,400
153,648
Revaluation surplus:
Land and buildings
64,714
64,714
1,312,514
1,133,713
Less: Accumulated depreciation
(321,652)
(263,773)
990,862
869,940
The Bank appraised its land and buildings in 1997 and 1998 for Q48,690 and
Q16,024, respectively.
During the year ended December 31, 2007, the Group sold fixed assets (mainly
land and buildings) in the aggregate amount of Q2,490, generating a loss of Q601.

F-24

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements


December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)

12

Deferred Charges
Deferred charges as of December 31, 2007 and 2006 consisted of the following:
December 31
2007
2006
Q
Q
Goodwill
721,282
721,282
Leasehold improvements
25,708
19,447
Other
281
172
747,271
740,901
Less: Accumulated amortization
(92,692)
(44,660)
696,241
654,579
The goodwill stems from the difference between the purchase price and the
carrying value of the net assets of Banco de Occidente, S.A.

13

Deposits

As of December 31, 2007 and 2006, deposits were as follows:


December 31
2007
2006
Q
Q
In local currency:
Demand deposits
Savings deposits
Time deposit
Other deposits
In foreign currency:
Demand deposits
Savings deposits
Time deposit
Other deposits

8,684,826
3,788,556
6,328,399
81,365
18,883,146

7,340,245
3,210,076
5,043,515
58,070
15,651,906

2,785,106
775,745
3,830,963
75,555
7,467,369
26,350,515

2,273,959
640,972
3,825,291
39,209
6,779,431
22,431,337

As of December 31, 2007 and 2006, the Banks and the Off-shore Banks deposits
in foreign currency amounted to US$978,556 and US$892,482, respectively,
translated at the closing Bank of Guatemala rate (see note 2), equal to 28% and
30%, respectively, of total deposits. The remainder of such amounts was
denominated in quetzales.

F-25

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements


December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
As of June 1, 2002 the Banks and Financial Groups Law, Decree No. 19-2002,
came into effect. It provided for the creation of the Savings Protection Fund,
which covers all deposits made at the Bank by individuals and corporate entities
up to Q20,000 or its equivalent in foreign currency. During the years ended
December 31, 2007 and 2006 the Bank made contributions to the Savings
Protection Fund of Q25,875 and US$606, and Q11,698 and US$304, respectively,
recording them against the results of the periods. The Banks obligation to carry
out contributions to the Savings Protection Fund will cease when the amount of
contributions reaches five percent (5%) of the Banks total of the deposit
obligations. At December 31, 2007 and 2006, contributions equaled 0.37% and
0.41% and 0.29% and 0.33%, respectively, of the Banks local and foreign
currency total deposits, respectively.
In addition, on April 20, 2007, the Bank entered into an Agreement for the
Strengthening of the Savings Protection Fund with the Bank of Guatemala. The
purpose of this agreement is to require that all banks that are part of the national
banking system provide additional funds to the Savings Protection Fund in order
for the Fund to meet its obligations. Pursuant to this agreement, the Bank lent to
the Bank of Guatemala an aggregate principal amount of Q131,450, bearing an
annual interest rate of 5%. Amounts due by the Bank of Guatemala are repaid
through the set-off of future mandatory Bank contributions due to the Savings
Protection Fund (as indicated in the following paragraph).
During 2007, the Bank of Guatemala repaid through set-offs an aggregate amount
of Q23,855 (composed of Q20,214 and US$478 equivalent to Q3,641), which
represented a portion of the Banks total mandatory contributions for 2007. The
Bank recorded the outstanding balance due from the Bank of Guatemala,
amounting to Q107,595 as of December 31, 2007, in its loan portfolio (see note
7). The obligations of the Bank of Guatemala under this agreement will terminate
upon set-off of the total amount due.
The Resolution of the Monetary Board JM-178-2002 provides that certain
banking deposits by government entities be transferred gradually to the Bank of
Guatemala. At December 31, 2007 and 2006, the Bank had deposit accounts of
governmental entities in the amount of Q14,589 and Q20,501, respectively.
As of December 31, 2007 and 2006, deposits in local currency amounting to
Q56,024 and Q59,361, respectively, were blocked by judicial order.

14

Liabilities with Other Financial Institutions


Liabilities with other financial institutions consist of inter-bank loans. The Bank
has uncommitted lines of credit with foreign banks to finance advances for preexport activities, letters of credit, and loans to the small and medium-sized
businesses.

F-26

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements


December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
As of December 31, 2007 and 2006, the Bank had drawn on lines of credit in U.S.
dollars in the amount of US$814,289 (Q6,213,845) and US$551,275
(Q4,187,566), respectively (see note 2).
As of December 31, 2007 and 2006, the Bank had authorized uncommitted lines
of credit pending use in the amount of US$254,285 and US$1,177,046,
respectively.
In April and October of 2007, the Bank obtained financing in the international
capital markets through two facilities amounting to US$300,000, each in the
amount of US$150,000, which are guaranteed by the flow of payments rights that
the Bank processes in connection with remittances in foreign currency. These
facilities bear interest at an annual rate of LIBOR plus 1% and mature in April
2015. The proceeds from these transactions were used in part to repay prior DPR
securitization transactions amounting to US$200,000, which were obtained during
2005.
As of December 31, 2007 and 2006, liabilities with other financial institutions
bore interest at annual interest rates fluctuating between 4.9% and 7.39% and
5.52% and 6.82%, respectively.

15

Financial Obligations
As of December 31, 2007 and 2006, financial obligations consisted of the
following:
December 31
2007
2006
Q
Q
Banco Industrial, S.A. - bonds:
487,488
Mortgage bonds
431,494
Banking bonds
584,828
534,485
Total bonds
1,016,322
1,021,973
Financiera Industrial, S.A. - financial
notes:
In local currency
In foreign currency
Total Financiera Industrial, S.A. financial notes
Contcnica, S.A. - financial notes

F-27

624,005
128,331

472,476
104,678

752,336

577,154

148,809
1,917,467

148,988
1,748,115

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements


December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
Banco Industrial, S.A. - bonds:
The authorization to issue the above mentioned bonds is contained in the
corresponding resolutions of the Monetary Board. The total amounts authorized
are up to Q500 million for mortgage bonds, up to Q1,500 million for banking
bonds denominated in quetzales and up to US$200 million for banking bonds
denominated in U.S. dollars. Proceeds will be used to finance operations
authorized by the Banking and Financial Groups Law.
Mortgage bonds have a term of up to 25 years. The mortgage bonds accrued
interest at a variable rate between 2% and 9.5% in 2007 and 2006.
Banking bonds have a term of up to 25 years. Bonds issued in quetzales bear
interest at a variable annual interest rate fluctuating between 2% and 9.5% for
2007 and 2006; bonds issued in dollars bear interest at fixed rates with an annual
interest rate between 3.5% and 5.55% for 2007 (5% and 6.67% for 2006).
Bonds are amortized through annual payments as established for each series.
Financiera Industrial, S.A. - financial notes:
The authorization for the issuance by the Financing Entity of promissory notes is
contained in the corresponding Monetary Board resolutions. The total issuance in
local and foreign currency is an authorized amount of up to Q1,323 million and
US$20 million, respectively. Proceeds obtained will be used to finance active
operations authorized by the Banks and Financial Groups Law.
Financial notes series VIII were used to fund certain individual pension fund
products and have characteristics similar to those of an investment account.
The Financing Entitys notes bear interest at variable annual rates ranging from
0.5% to 8.64% for 2007 and 2006, with maturity dates from 2007 to 2016.
Contcnica, S.A. - financial notes:
In conformity with the listing contract described in deed No. 38, dated January
28, 2000, the Credit Card Company is authorized to issue and list promissory
notes called Pagars BI-Credit I in Bolsa de Valores Nacional, S.A. for a 10 year
term. The promissory notes are issued by series in alphabetical order with a
nominal value of Q1 thousand or integral multiples thereof, and bear interest at a
rate of 7.25% annually 2007 (between 6.75% and 8.9% in 2006).

F-28

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements


December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)

16

Accounts Payable
Accounts payable as of December 31, 2007 and 2006 were as follows:
December 31
2007
2006
Q
Q
Cashiers checks issued
246,908
429,439
Management of trusts
49,166
112,828
Other accounts payable
268,870
169,487
564,944
711,754
As of December 31, 2007 and 2006, accounts payable in foreign currency
amounted to US$26,925 and US$13,512, respectively, translated at the closing
Bank of Guatemala rate (see note 2), equal to 36% and 14%, respectively, of total
accounts payable. The remainder of such amounts was denominated in quetzales.

17

Deferred Income
The balance of this account is comprised by revenues that the Bank and the
Financing Entity collected, but not accrued.

18

Shareholders Equity
During the years ended December 31, 2007 and 2006, the change to the
subscribed and paid capital of the Bank was as follows:
Number of
common
registered
shares
2007
2006
Balance at
beginning of year
Shareholders
contributions
Increase from
merger of Banco
de Occidente, S.A.
Balance at end of
year

Capital
stock
(thousands of
quetzales)
2007
2006
Q
Q

Nominal value of
the shares
(in quetzales)
2007
Q

2006
Q

45,453

7,500

1,073,640

750,000

23.62

100.00

2,151

1,250

50,809

125,000

23.62

100.00

2,151

36,703
37,953

50,809

198,640
323,640

47,604

45,453

1,124,449 1,073,640

23.62

5.41
23.62

On April 17, 2006 the Group acquired 71.64106% of the outstanding shares of
Banco de Occidente, S.A. (note 12). On November 11, 2006 management decided
to merge Banco de Occidente, S.A. into Banco Industrial, S.A. As a result, on the
date of the merger, the minority shareholders of Banco de Occidente, S.A.
became shareholders of Banco Industrial, S.A. Consequently, Banco Industrial,
S.A. recognized an increase of capital.

F-29

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements


December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
On November 11, 2006, the par value of shares was modified from Q100.00 to
Q23.62 per share due to the incorporation of the capital of Banco de Occidente,
S.A. to the capital of the Bank. As of November 15, 2006, the process was
initiated for the exchange of the shares of both entities for new registered shares
with a nominal value of Q23.62. At December 31, 2007, the exchange of the
shares was still in progress and 87.04% of the outstanding shares of Banco de
Occidente, S.A. have been exchanged.
Shareholders contributions:
During 2007 and 2006, shareholders contributions were received in order to
strengthen the financial position of the Bank. These contributions will be
capitalized in the following years.

19

Interest Income and Expense


Interest income and interest expense for the years ended December 31, 2007,
2006 and 2005 were as follows:
2007
(Thousand
of U.S.
dollars)

Interest income:
Local currency transactions
Foreign currency transactions
Interest expense:
Local currency transactions
Foreign currency transactions

20

Years ended
December 31
2007
2006
Q
Q

2005
Q

195,999
128,300
324,299

1,495,670
979,056
2,474,726

1,017,342
752,810
1,770,152

877,082
621,102
1,498,184

92,529
84,632
177,161

706,087
645,826
1,351,913

528,498
497,774
1,026,272

470,703
351,389
822,092

Legal Reserve
In accordance with sections 36 and 37 of the Commerce Code of Guatemala,
every entity must contribute on an annual basis five percent (5%) of its net
earnings to form the legal reserve, which cannot be distributed until the company
is liquidated. However, when this reserve exceeds 15% of the shareholders
equity of the company at the previous year-end, the reserve can be capitalized,
and the annual contribution of 5% must continue as stated above.

F-30

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements


December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)

21

Income Tax
Filed income tax returns pending review by the Tax Authorities are as follows:
the Bank for the years ended December 31, 2007, 2006 and 2005; the Financing
Entity for the years ended December 31, 2004 to 2007; and the Credit Card
Company for the years ended December 31, 2004 to 2007. The statute of
limitations runs for four years, unless Tax Authorities have already initiated a
review of a tax return.
The income tax return of the Bank corresponding to the fiscal year ended
December 31, 2004 is currently in the review process. The income tax return for
the fiscal years ended December 31, 2003 and 2002 were already reviewed, and
the Tax Authorities already issued the corresponding resolutions. As discussed in
note 27, the Bank and the Tax Authorities are currently engaged in administrative
proceedings relating to such resolutions.
In conformity with Decree No. 18-04 of the Congress of the Republic dated June
21, 2004, effective as of July 1, 2004, a 5% rate over gross income was
established as the General Regime for determining the income tax. The Financing
Entity and the Credit Card Company adopted this regime as of 2005.
Total income tax expense of the Group for the years ended December 31, 2007,
2006 and 2005 amounted to Q84,535, Q48,148 and Q34,038, respectively, which
constitutes an effective rate of 15.1%, 12.98% and 10.29%. Total income tax
expense for the year is detailed as follows:

The Bank pays income taxes at a statutory rate of 31% of adjusted income
before taxes.
Adjusted income before taxes derives from income before taxes excluding
non-taxable income and non-deductible expenses. All differences are
permanent in nature, and therefore no deferred income taxes are recognized.
Income tax expense of the Bank for the years ended December 31, 2007, 2006
and 2005 amounted to Q69,833, Q36,794 and Q24,862, respectively, which
constitutes an effective rate of 14.72%, 11.81% and 9% over income before
income tax of the Bank for an amount of Q474,493, Q311,566 and Q271,722.

Income tax expense of the Financing Entity for the years ended December 31,
2007, 2006 and 2005 amounted to Q3,275, Q2,312 and Q2,050, respectively,
which constitutes an effective rate of 5% for each of the three years over gross
income for an amount of Q65,500, Q46,244 and Q41,008.

F-31

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements


December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)

22

Income tax expense of the Credit Card Company for the years ended
December 31, 2007, 2006 and 2005 amounted to Q11,427, Q9,042 and
Q7,126, respectively, which constitutes an effective rate of 5% for each of the
three years over gross income for an amount of Q228,540, Q180,843 and
Q142,523.

The Off-shore Bank is not subject to Guatemalan income tax or that of the
Commonwealth of the Bahamas.

Memorandum Accounts

As of December 31, 2007 and 2006, the memorandum accounts were as follows:
December 31
2007
2006
Q
Q
Commitments
4,127,726
4,373,978
Collateral on loans granted
12,050,572
12,304,524
Investments and loans granted
18,483,229
13,889,242
Committed lines of credit
2,017,760
4,963,530
Management of trusts and other assets on
3,568,557
5,092,045
behalf of third parties
Issuance of bonds and promissory notes
10,859,658
7,876,313
Other memorandum accounts
1,027,308
745,894
53,658,298
47,722,038
These accounts are used as follows:
Commitments
This account relates to authorized loans issued by the Bank pending
disbursement. At December 31, 2007 and 2006, they amounted to Q826,773
and US$306,142, and Q933,514 and US$413,511, respectively.

Collateral on loans granted


This account relates to collateral on loans granted, received in the form of
securities at nominal value, mortgages at appraisal value, and other pledged
assets as valued. At December 31, 2007 and 2006, the collateral amounted to
Q5,006,934 and US$923,028, and Q4,774,163 and US$991,339, respectively.

Investments and loans granted


This account relates to loans granted in local and foreign currency, classified
in categories A to E in accordance with provisions of the applicable
regulation.

F-32

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements


December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)

Committed lines of credits


This account relates to un-drawn portions of the committed loans granted by
financial institutions including the authorized loan amount or line of credit.

Management of trusts and other assets on behalf of third parties


This account is mainly used to individually record the amount of capital of
each of the third parties trusts managed by the Bank and Financing Entity and
certain other assets such as securities placed in custody, which are recorded
based on their nominal value.

Issuance of bonds and promissory notes


This account relates to the total amount of bonds and promissory notes
authorized by the Monetary Board and the total amount for issuance and
issued.

23

Leasing Contracts

24

Administrative Expenses

The Bank leases some commercial premises where its agencies are located and
made lease payments of Q23,644 in 2007 and Q15,306 in 2006. Likewise, the
Bank entered into operating lease contracts for furniture, equipment, and other
assets and made lease payments of Q830 in 2007, and Q854 in 2006.
Administrative expenses for the years ended December 31, 2007, 2006 and 2005
were as follows:
2007
(Thousand of
U.S. dollars)

Salaries and wages


Depreciation and amortization
Loan loss provisions
Marketing
Taxes, duties, and contributions
Professional fees
Leasehold (note 23)
Stationery and office supplies
Repairs and maintenance
Security and surveillance
Compensation to members of
board of directors
Insurance premiums and bonds
Other

Years ended
December 31
2007
2006
Q
Q

2005
Q

48,180
15,228
16,166
4,920
5,054
2,938
3,207
2,748
3,023
2,719

367,662
116,205
123,361
37,543
38,566
22,419
24,474
20,969
23,068
20,748

260,530
96,774
39,617
34,756
29,741
19,060
16,160
15,426
13,821
12,188

208,344
51,695
48,840
32,723
23,541
36,050
12,896
11,957
18,255
9,658

233
687
26,255
131,358

1,781
5,242
200,356
1,002,394

12,081
5,780
141,307
697,241

10,205
6,356
113,035
583,555

F-33

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements


December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)

25

Concentration of Investments and Contingencies


On June 1, 2002 the Banks and Financial Groups Law, Decree 19-2002, came
into effect. Under those regulations, banks and financial institutions may not
carry out direct or indirect financing operations or accept guarantees or
endorsements that in the aggregate exceed the following percentages:

26

15% of their stockholder equity for financing operations with individuals,


juridical private sector entities or governmental entities.

30% of their stockholder equity for financing operations with two or more
wholly related or controlled parties forming part of a risk unit.

Establishment of Financial Groups and Related Party


Transactions
Section 27 of the Banks and Financial Groups Law, Decree 19-2002, provides for
the establishment of a financial group, which should be organized under the
common control of a controlling entity organized in Guatemala for that specific
purpose, or otherwise, of an entity responsible for the financial group, which in
the case of Grupo Financiero Corporacin BI is the Bank.
On September 27, 2004, the Superintendency of Banks of Guatemala issued
Resolution No. 818-2004, which authorizes the establishment of Grupo
Financiero Corporacin BI, the financial group for which the Bank is responsible.
The companies that constitute the Banks Financial Group are as follows:

Banco Industrial, S.A. (Holding Company)


Financiera Industrial, S.A. (consolidated subsidiary)
Contcnica, S.A. (consolidated subsidiary)
Westrust Bank (International) Limited (consolidated subsidiary)
Servicios Mltiples de Inversin, S.A.
Mercado de Transacciones, S.A.
Almacenadora Integrada, S.A.
Almacenes Generales, S.A.
Seguros El Roble, S.A.
Fianzas El Roble, S.A.

F-34

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements


December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
Related Party Transactions
Transactions performed with related parties which are not consolidated
subsidiaries for statement of income purposes, are as follows:
Years ended
December 31
2007
2006
2005
Q
Q
Q
Income:
Interest
5,783
3,414
2,686
Commissions
871
48
48
6,654
3,462
2,734
Expenses:
Interest
8,914
6,328
3,025
Services
7,108
5,561
5,637
16,022
11,889
8,662
Interest income and commissions arise from balances of loans granted and repos
to unconsolidated related parties earning interest rates comparable to those in
arms length transactions.
Interest and service expenses arise from deposits from unconsolidated related
parties, which bear interest at rates comparable to those in arms length
transactions.
Balances with unconsolidated related parties are as follows:
December 31
2007
2006
Q
Q
Assets:
Loans receivable
105,462
65,297
Repos receivable
20,000
Liabilities:
Deposits
111,645
78,265
Financial obligations
64,000
64,000
Accounts payable
2,197
5,205
Balances receivable and payable to unconsolidated related parties are classified in
accounts receivable, deposits and financial obligations in the consolidated balance
sheets.
Additionally, there are other immaterial balances and transactions with related
parties (officers, employees and directors) which have been duly recorded and
approved by the Board of Directors.

F-35

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements


December 31, 2007, 2006 and 2005
(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)

27

Commitments and Contingencies


Letters of Credit
At December 31, 2007 and 2006, the Bank had commitments derived from letters
of credit issued in the amount of US$72,955 and US$128,936, respectively, equal
to Q556,722 and Q979,419, respectively.
Trusts
At December 31, 2007, the Bank managed as trustee 62 trust contracts (59 in
2006) and the Financing Entity managed as trustee 88 trust contracts (58 in 2006).
Under the law, the trustee is responsible to third parties for compliance with the
obligations contained in the trust agreements, including compliance with the
fiscal obligations of the trusts. Said trusts, except Fideicomiso de Administracin
y Realizacin de Activos Excluidos de Banco de Comercio, S.A., are not audited
by KPMG and only five are audited by the National General Comptrollership
since they have government budget items assigned (note 22).
According to the Bank and its legal advisors confirmations, there is no known or
potential litigation derived from the performance of the Bank or the Financing
Entity as a trustee.
Pending Litigation
The Bank:
At December 31, 2007 and 2006, there were legal proceedings pending resolution
derived from reviews carried out by the Superintendency of Banks of Guatemala
and by the Tax Administration of the Banks income tax returns for 1994 through
2000 in the amount of Q10,188 and Q10,325, respectively, plus fines and interest.
These legal proceedings are currently in the administrative phase.
During 2006, some of the adjustments included in the resolutions corresponding
to the review of the income tax returns for the 2001 and 2003 accounting periods
were partially dismissed; these resolutions claimed additional taxes in the
amounts of Q20,278 and Q17,268 plus fines and interest.
At December 31, 2007, the Tax Administration confirmed that adjustments
corresponding to the 2001 and 2003 periods amount to Q5,508 and Q3,181,
respectively (Q5,508 and Q8,420 in 2006). The adjustment for the 2001 period is
currently in the administrative phase. The Bank filed a request for reversal for the
adjustment of the 2003 period whose resolution is pending by the tax
administration.
According to the Bank and its tax and legal advisors, they have no reason to
believe that there will be an unfavorable outcome.
As a result of the merger of Banco de Occidente, S.A., the Bank assumed the
responsibility for certain tax contingencies which both management and the legal
advisors of the Bank consider immaterial and remote.

F-36

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005


(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
The Financing Entity:
At December 31, 2007, there are legal proceedings pending resolution derived
from reviews carried out by the Superintendency of Banks and by the Tax
Administration in the amounts of Q750 for the 1998 period, Q1,637 for the 1999
period and Q146 for the 2000 period, plus 100% fines and interests resulting from
adjustments to the income tax related to non-deductible expenses (Q2,483 plus
100% fines and interests in 2005 from adjustments related to tax on financial
products for the period ended December 31, 1998 and income tax for the periods
ended December 31, 1999 and 2001, of which Q2,337 were dismissed during
2006). These legal proceedings are currently in the administrative phase.
According to the Financing Entity and its legal advisors, they have no reason to
believe that there will be an unfavorable outcome.
Pension Funds
As of December 31, 2007, the Financing Entity has pension fund obligations in
the amount of Q312,770 (Q450,705 in 2006), supported by the issuance of
Financial Notes Series VIII (see note 15).

28

Obligations with Cardholders


Obligations with cardholders correspond to balances due to them for advance
payments for future consumption, which can be compensated immediately.

29

Presentation of Financial Statements


In accordance with principles established by the Monetary Board, banks and
financial institutions that have 50% or more of the equity of other banking
institutions are required, for presentation purposes, to prepare consolidated
financial statements. Besides presenting these consolidated financial statements,
the Bank, the Financing Entity, the Off-shore Bank, and the Credit Card Company
must present their separate financial statements.

30

Management of Risks
Credit Exposure:
It relates to the loss that would be recognized at the date of the report if the
counterpart were not complying with its obligation as previously established. To
mitigate credit exposure, the Group carries out credit evaluations on the financial
position of its clients, in some cases, requiring collateral guarantees. The Group
invests its cash on hand in securities issued by the Guatemalan Central Bank and
by several financial institutions. Although the Group is exposed to losses related
to credits in the event that the counterpart does not use the financial instruments,
it is not expected that the counterpart fail to comply with its obligations due to its
credit rating.

F-37

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005


(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
Counterpart Risk:
It relates to the risk associated with the noncompliance of a counterpart with the
settlement of transactions for purchase or sale of securities or other instruments
from other participants in the securities market.
Risk management policies are aimed at determining the maximum amount of net
exposure to transactions pending settlement that the Group may have with a
counterpart. The Assets and Liabilities Committee is responsible for identifying
acceptable counterparts, taking into account the background of each of them with
regard to the compliance with its obligations, as well as the indicators of their
credit solvency and their willingness to fully comply in the future.
Market Exposure:
It relates to the risk involved when the value of the Groups financial assets are
reduced due to changes in interest rates, exchange rates, stock prices, and other
financial variables, as well as the reaction of participants in the securities market
to political and economic events.
Risk management policies set compliance with financial instruments limits; these
limits are related to the maximum loss amount for the closing of the positions and
capital protection through interest rate risk management through the Assets and
Liabilities Committee and capital protection mechanisms in light of the exchange
risk.
Risk of Liquidity and Financing:
It relates to the risk involved when the Group fails to comply with all of its
obligations because of, among others, an unexpected withdrawal of funds by
creditors or customers (deposits, lines of credit, etc.), impairment of the quality of
the credit portfolio, reduction in the value of investments, excessive concentration
of liabilities in a particular source, unmatched assets and liabilities, lack of
liquidity of assets, or financing of long-term assets with short-term liabilities.
In addition to the statutory minimum reserve requirement, risk management
policies establish a liquidity limit determining the portion of the Groups assets
that must be maintained in high-liquidity instruments, financing composition
limits, gearing limits, and term limits.
Risk of Asset Laundering and Terrorism Financing:
Risk of asset laundering and terrorism financing consists of the risk involved
when the Groups services and products are used to cover up financial assets so
that they may be used without detecting the illegal activity producing them. These
actions may result in legal fines or administrative actions against the Group, as
well as damage to its reputation.

F-38

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005


(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
The Group minimizes this risk through the functions performed by the
Compliance Officer, who verifies the adequate application of the policies called
Know your customer and your employee, which comprise the establishment of
procedures, policies and controls for the detection of suspicious or illegal acts,
using software acquired for that purpose to provide an effective support.
Interest Rate Exposure:
The interest rate exposure is related to the risk that the value of a financial
instrument may significantly fluctuate as a result of changes in the interest rates
prevailing at the market. To reduce the interest rate risk exposure, the Group
contracts transactions of assets and liabilities under similar conditions and with
margins providing adequate returns.

31

Subordinated Obligations
On March 7, 2006, the Bank entered into two subordinated loan agreements
recognized as part of the complementary capital, described as follows:
December 31
2007
2006
Q
Q
Loan from Banco Centroamericano de Integracin
Econmica (BCIE) for US$40,000 obtained in April 27,
2006 with a LIBOR interest rate plus a percentage as of
the first quarter of 225 basis points, increasing quarterly
by 25 basis points up until the fifth quarter as of which it
will be 325 basis points. The term of the loan is 10 years
with amortization commencing in year six.
Amortizations will occur through five annual consecutive
and equal payments of US$8,000.
305,240

303,846

Loan from International Finance Corporation (IFC) for


up to US$30,000 obtained in April 27, 2006, of which
US$15,000 have been used with a LIBOR interest rate
plus 4% and a 10 year term with amortization
commencing in year six. Amortizations will occur
through ten consecutive and equal semi-annual payments
of US$1,500 (June 15 and December 15 of each year).
114,465
419,705

113,942
417,788

F-39

Banco Industrial, S.A. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2007, 2006 and 2005


(Expressed in thousands of quetzales or thousands of U.S. dollars, as applicable)
The amortization of those loans is as follows:
2011
2012
2013
2014
2015
2016

Q
22,893
83,941
83,941
83,941
83,941
61,048
419,705

As part of the agreements with IFC and BCIE, several restrictions are imposed on
the Bank, unless authorized by IFC and BCIE. The most significant restrictions,
among others, are summarized as follows:
a) Maintain at all times the required financial ratios within the parameters
established in the agreements.
b) Provide financial information or access to any of the facilities upon request.
c) Provide an annual compliance report prepared and signed by the Compliance
Officer regarding the prevention of money and other assets laundering and
the financing of terrorism.
d) Maintain insurance with regard to the Banks assets and business against all
insurable losses.
e) Refrain from declaring or paying any dividend or distribution of earnings
unless the proposed payment or distribution corresponds to retained earnings.
At December 31, 2007 and 2006, the Bank has complied with all the restrictions
contained in the agreements.

32

Regulatory Capital
As of December 31, 2007 and 2006, our total regulatory capital was 16.6% and
14.8%, respectively, of our risk weighted assets at such dates computed in
accordance with applicable Guatemalan bank regulations.

32

Subsequent Events

Contributions Capitalization
On January 4, 2008, the Bank capitalized contributions received from its
shareholders and other shareholders contributions for a total of Q228,000 in
exchange for the issuance of 2,923,076 new shares of common stock.

Bicapital Corporation
At the end of 2007, the Group became subsidiary of Bicapital Corporation
which is incorporated in the Republic of Panama.

F-40

ISSUER
Banco Industrial, S.A.
7 Avenida 5-10 Zona 4
Centro Financiero Torre 1
Guatemala, Guatemala 01004
LEGAL ADVISORS
To the Issuer
As to Guatemalan Law:
Mayora & Mayora, S.C.
15 Calle 1-04, Zona 10
Edificio Cntrca Plaza
Guatemala, Guatemala 01010

As to U.S. Federal and New York Law:


Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New York, New York 10006-1470
U.S.A.

To the Initial Purchaser


As to U.S. Federal and New York Law:
Milbank, Tweed, Hadley & McCloy LLP
One Chase Manhattan Plaza
New York, New York 10005-1413
U.S.A.

As to Guatemalan Law:
Rodriguez, Archila, Castellanos, Solera & Aguilar, S.C.
Diagonal 6, 10-01 Zona 10, Torre II, Of. 1101
Centro Gerencial Las Margaritas
Guatemala, Guatemala 01010

INDEPENDENT AUDITORS OF THE ISSUER


Aldana Gnzalez Gmez y Asociados, S.C.
Member Firm of KPMG International
7 Avenida, Zona 4
Centro Financiero Torre 1, Nivel 16
Guatemala, Guatemala 01020

TRUSTEE, REGISTRAR, PAYING AGENT


AND TRANSFER AGENT

LUXEMBOURG PAYING AGENT


AND TRANSFER AGENT

The Bank of New York


101 Barclay Street, Floor 4 East
New York, New York 10286
U.S.A.

The Bank of New York (Luxembourg) S.A.


Aerogolf Center
1A Hoehenhof
L-1736 SenningerbergLuxembourg

LUXEMBOURG LISTING AGENT


The Bank of New York (Luxembourg) S.A.
Aerogolf Center
1A Hoehenhof
L-1736 SenningerbergLuxembourg