The Standard & Poors ratings agency has downgraded five of Peru’s top banks, citing increased credit in Peru combined with a lower economic growth forecast.
The ratings agency issued a statement yesterday announcing the downgrade from BBB to BBB- of Banco de Credito del Peru (BCP), Banco Internacional del Peru (Interbank), BBVA Banco Continental, Banco de La Microempresa (MiBanco) and Banco Interamericano de Finanzas (BanBif).
“The downgrade reflects our view of rising economic risk for banks operating in Peru,” reads the S&P press release. “We believe that Peru’s growth trajectory will no longer be consistently well above that of its peers with a similar stage of economic development.”
The statement highlighted risk to the banks’ asset quality and profitability given the sharp growth of credit in Peru’s private sector in the last five years and the dismal growth outlook.
S&P expects a 2.7% increase in Peru’s GDP for 2016 and an average of 3.7% annually through 2018, compared with levels above 5% for most of the last decade.
“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.”
BBB- is the agency’s lowest rating while still maintaining investment-grade status. Lower credit ratings increase a bank’s cost of financing via bonds and direct loans.
Meanwhile, the S&P left the Canadian-owned Scotiabank, Corporacion Financiera de Desarrollo (COFIDE) and the government-managed Fondo Mivivienda unchanged on the strength of their underlying financiers.
Peru’s GDP grew 2.4% in 2014, the slowest pace since the 2009 financial crisis. Finance minister Alonso Segura recently shifted his 2015 forecast down to 3% on lower commodity prices and harsh El Niño weather phenomenon which is expected to cause worse economic damage next year. Peru’s nuevo sol has fallen 13% in the last 12 months.
Sources
Various Rating Actions Taken On Peruvian Banks On BICRA Revision (Standard & Poors)