Despite solid economic growth and macroeconomic stability, the size and scope of Peru’s capital markets remain limited. As the IMF highlighted in July 2018, domestic capital markets remain shallow and illiquid, and the stock market’s capitalisation as a share of GDP has increased only marginally. High market concentration is partly to blame, and Peru needs to encourage broader participation in its capital markets if it is to advance. Commercial banks carry out around 90% of financial intermediation, and more than 83% of that is by the four largest players: Banco de Crédito del Perú (BCP), BBVA Continental, Scotiabank and Interbank. The main shareholders of these four banks are owners of four of the five largest mutual funds: Credifondo, BBVA Asset Management, Scotia Fondos and Interfondos. Credicorp, BCP’s holding company, is also the owner of Prima, one of the country’s four pension funds, and counts the Pacífico Seguros group – which is one of the most important insurance companies – among its subsidiaries. Intercorp, the holding company of Interbank, owns the Interseguro insurance firm and also bought Grupo Sura’s Peruvian insurance arm, Seguros Sura, in 2018. Canadian group Scotiabank, meanwhile, is the owner of the Profuturo pension fund. For some, this represents a clear conflict of interest. “The market is concentrated in very few hands, and far more than 90% of their business is commercial banking,” Alberto Arispe, CEO of Kallpa Securities, told OBG. “There is thus little interest among the main players in growing their business in capital markets, especially as this would compete in many ways with their commercial banking operations.” Credicorp and BBVA Continental are also among the largest shareholders of the Lima Stock Exchange, at 5.28% and 5.02% respectively.
The Stock Exchange Superintendence (Superintendencia del Mercado de Valores, SMV), the securities regulator, appears to have recognised this. In December 2018 the SMV proposed new rules clarifying the definition of independent directors of Peruvian companies. Among other measures, the proposals dictate that an independent director cannot have been an employee or director of a company in the same economic group within the last five years. Then in February 2019 the SMV proposed corporate governance standards which mandated that a company with up to five people on its board should have at least one independent director, while at least one-third of the board of a company that has more than five directors should be independent. Arispe told OBG that the regulators could also help develop the market by reducing regulation and lowering taxes on investment income. “Regulation is too onerous for a small market such as Peru’s,” he said. “The superintendence has a lot of requirements in areas such as compliance and risk management for brokers that have very small operations.” He also highlighted that Peruvians saving money in a bank pay zero taxes on interest earned, but pay 5% tax on interest earned from Peruvian corporate bonds.
Part of the task of increasing market depth is promoting the concept of investing in securities to a population that does not have a tradition of doing so. New players might be able to help in this regard. “There is little promotion of the benefits to Peruvian investors of saving money by buying equities and bonds,” said Arispe. “Very few Peruvians know about the benefits of the capital markets, and they tend to save in bank deposits and/or buy land or real estate, a traditional way of saving for higher-income individuals.” Part of the issue may indeed be a symptom of broader social models and perceptions. “The yield on some stocks is really very high, and I think it is an issue of a generalised lack of knowledge when it comes to the stock market,” says Jorge Ramos, CEO of BBVA Continental Bolsa, the bank’s stockbroker business. “A large part of the Peruvian economy is informal, and that limits the possible portfolio of investor clients. That said, the banking system is gradually becoming more digital, which could potentially help more people to invest.”
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