News Column

Moody's: Peru's banking outlook stable on strong fundamentals amid slower growth

July 29, 2014



Moody's stable outlook for the Peruvian banking system reflects continued healthy earnings that are supported by strong

loan demand, stable core funding and effective cost controls, says

Moody's Investors Service in its latest report "Banking System Outlook:

Peru." Implementation of stricter capital and liquidity requirements in

line with Basel III recommendations will also fortify the banking system.

Moody's banking system outlooks express the rating agency's expectations

of how bank creditworthiness will evolve in the system over the next 12

to 18 months.

"The stable outlook also reflects the view that Peru's strengthened

financial position, as noted in our recent upgrade of the sovereign to

A3, fosters a supportive operating environment for banks" said Jeanne Del

Casino, a Moody's Vice President and author of the report. "While lower

global prices for Peru's mineral exports and a reduction in mining

investments have lowered Peru's economic growth in 2013 and first half of

2014, resilient private consumption and a large pipeline of

infrastructure projects underpin our expectation that growth will rebound

in the second half of 2014 and in 2015 and continue to support bank

performance."

Rising credit delinquencies that result from rapid loan growth in the

more vulnerable consumer and small and medium-sized enterprise customer

segments remain a concern, says Moody's. Tougher origination standards

and a reorientation of the loan mix towards higher quality loans will

help stabilize delinquencies at still relatively low levels overall and

help protect profitability.

Despite significant financial dollarization€”currently just below 50% of

loans and deposits€” credit risks that arise from currency mismatches are

receding, says Moody's. Regulations designed to reduce the role of the

dollar in the financial system have led to sharp declines in foreign

currency lending and loan-to-deposit ratios that will help curb the

banks' exposure to devaluation and refinancing risks, added the rating

agency.

Moody's notes that notwithstanding the trend toward de-dollarization, the

Peruvian central bank's ability to act as a lender of last resort remains

limited. Moody's incorporates the probability of systemic support in the

ratings of only systemically important banks.


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Source: EMBIN (Emerging Markets Business Information News)


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