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Various Rating Actions Taken On Peruvian Banks On BICRA Revision

    • We revised our Banking Industry Risk Assessment (BICRA) on Peru to group '5' from group '4'. We also revised the anchor for banks operating only in Peru to 'bbb-' from 'bbb' due to a higher economic risk in the country.
    • We revised our economic risk score to '6' from '5'. We consider that economic resilience has weakened amid lower growth prospects.
    • Trend on economic risk remains negative because we're still concerned that rapid credit growth could increase economic imbalances risk.
    • As a result, we're lowering our ratings on five Peruvian banks. Also, we're affirming ratings on three banks.
    • We're placing our rating on Banco Agropecuario on CreditWatch with negative implications until we evaluate the bank's potential mitigating factors to the mentioned negative developments.
    SAO PAULO (Standard & Poor's) Sept. 8, 2015--Standard & Poor's Ratings 
    Services lowered its ratings on the following Peruvian banks:
    • Banco de Credito del Peru;
    • Banco Interamericano de Finanzas S.A.;
    • BBVA Banco Continental;
    • MiBanco, Banco de La Microempresa S.A.; and
    • Banco Internacional del Peru-Interbank.
    At the same time, we affirmed our ratings on the following banks with a stable 
    • Scotiabank Peru S.A.A.;
    • Corporacion Financiera de Desarrollo S.A.; and
    • Fondo Mivivienda S.A.
    Finally, we placed our ratings on Banco Agropecuario S.A on CreditWatch 
    negative (see ratings list).
    The downgrade reflects our view of rising economic risk for banks operating in 
    Peru. The greater economic risk reflects our reassessment of Peru's growth 
    prospects.  We believe that Peru's growth trajectory will no longer be 
    consistently well above that of its peers with a similar stage of economic 
    Also, our trend on economic risk remains negative, reflecting the persistent 
    rapid growth in credit and private-sector leverage in the past few years, 
    which has been weakening the Peruvian banks' credit quality in the past three 
    In our view, domestic banks now face tougher operating conditions, which we 
    believe weakened their financial profiles, notably in terms of asset quality 
    and capital and earnings. These combined effects have led to the downgrade of 
    five banks.
    These higher risks have lowered the starting point (anchor) when assigning a 
    rating to a bank that operates in Peru. Therefore, we revised our anchor to 
    'bbb-' from 'bbb'. In addition, the higher economic risk score, which 
    calibrates the risk weights for our risk-adjusted capital (RAC) framework, has 
    led to higher risk charges, and therefore, lower RAC ratios for banks 
    operating in Peru. 
    The outlook on Banco de Credito del Peru; BBVA Banco Continental; MiBanco, 
    Banco de La Microempresa; and Banco Internacional del Peru – Interbank is now 
    stable. The negative outlook on Banco Interamericano de Finanzas reflects the 
    negative trend on the economic risk and its impact on our assessment of the 
    bank's capital. We could lower the ratings on the bank further if we again 
    revise the economic risk of Peru because our view of the bank's capital and 
    earnings could shift to "moderate" from "adequate." 
    The ratings affirmation on three banks reflects their group or sovereign 
    support, which offsets the impact of the higher economic and industry risks in 
    Peru's GDP growth has slowed more than expected in 2014, to 2.4%, from more 
    than 5% in previous years as a result of a slower activity among the main 
    economic sectors. Slower growth is mostly associated with less favorable 
    international conditions, which weakened Peru's exports and private-sector 
    confidence and investment. On top of the external shocks, Peruvian economy 
    stumbled from supply shocks--mostly in mining, agriculture, and fishing 
    sectors--and from weaker public-sector investments given regional governments' 
    budget execution problems. We expect a still sluggish growth, of 2.7%, in 2015 
    due to weaker terms of trade. We have revised our assessment on Peru's growth 
    prospects; we expect growth to average 3.7% annually between 2015 and 2018 and 
    to average 2.8% in per capita terms, which will protract Peru's catch-up with 
    more developed peers.
    We now expect Peru's economic growth to be slower absent more successful 
    concerted efforts to advance structural reforms to keep up productivity 
    improvements and continue to increase social inclusion, such as improving 
    labor market flexibility, infrastructure, reducing bureaucracy and 
    informality, and improving education quality.
    Credit to the private sector growth has cooled down significantly in 2014 to 
    13.5% from 18.4% in 2013 and an average of 16.7% for the past four years.  
    Nevertheless, credit to GDP continued to grow on average above two percentage 
    points (pps) per year. Average annual change domestic credit in percentage 
    points of GDP between 2011 and 2014 was 2.5%, and we forecast credit growth 
    will add about 2.5 pps to leverage as well in 2015. However, amid a slight 
    economic recovery in 2016, the ratio could fall closer to 2 pps, gradually 
    moderating the increase in leverage. If credit growth doesn't continue to 
    moderate in 2016 and instead continues to add well above of 2 pps to leverage, 
    ushering in a more risky economic environment for Peruvian banks than that of 
    regional BICRA peers, we could revise our economic imbalances score. 
    Private-sector leverage--measured as credit as a percentage of GDP--remains 
    low, but it has risen to slightly above 39% as of December 2014 from 29% five 
    years earlier, given the persistently sharp credit growth. In our view, the 
    rapidly increasing leverage in the Peruvian private sector could weaken banks' 
    asset quality, profitability, and capitalization if the private-sector debt 
    burden becomes excessive if economic conditions worsen further.
    While small and micro lending and mortgages were driving credit growth 
    previously, credit cards and lending to corporates and medium enterprises have 
    bolstered growth since 2014. We have observed a sharp slowing in lending to 
    medium enterprises in the first half of 2015, while corporate lending has been 
    robust mostly due to working capital loans and foreign trade loans. In 
    addition, credit cards continued gathering speed as two major banks have 
    increased competition in this segment.
    As of June 2015, domestic currency denominated loans had grown about 26% while 
    loans in foreign currency had contracted by more than 15%. We expect foreign 
    currency lending to continue doing so for the entire year, but local currency 
    loans should offset this effect and overall credit to the private sector to 
    grow 12%-13%. The two latter factors are possible because of the Central 
    Bank's recent measures to shrink dollarization in the domestic financial 
    system and boost local currency credit growth. 
    Amid Peruvian sol's depreciation, private sector is shifting its savings to 
    dollars, reducing liquidity and funding availability in domestic currency.  In 
    response, the central bank has significantly reduced reserve requirement on 
    sol-denominated deposits to 6.5% as of June 2015 from 30% in 2013. Also since 
    mid-2014, it has been offering cheap repos to banks to provide them with 
    liquidity in local currency. Since December 2014, the central bank has also 
    added the so-called conversion and expansion repos to the regular repos to 
    encourage banks to foster conversion of loans from dollars to soles and higher 
    domestic currency lending.
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