Interview: Gianfranco Ferrari
Why has the banking sector become more solarised?
GIANFRANCO FERRARI: Peruvians have been accustomed to making purchases with US dollars for decades. However, many citizens now trust their national currency, after twenty years of prudent macroeconomic policies, and US dollars have become a safe haven rather than an everyday transactional currency. Both the Central Reserve Bank and the banking superintendence have helped foster the increased solarisation of the banking system over the last five years, namely by putting limits on US dollar-based mortgage portfolios in banks. Similarly, the increased capital requirements for US dollar-denominated loans have made Peruvian sol-based loans more appealing to customers. Car loan portfolios are heavily solarised for example, with over 90% of loans being Peruvian sol-denominated, which works well for the national currency, as all vehicles in Peru are imported and paid for by car dealerships in US dollars.
How can banking penetration rates be increased?
FERRARI: Although banking penetration rates are still low, they have doubled over the past 10 years. The efforts of the banking sector should now be focused on opening new channels and offering new products that can help attract potential unbanked customers. Such customers should be introduced to the formal banking sector through newer and cheaper distribution channels that possess highly-specific risk models and are adapted to individuals who may have rather volatile income levels. Banking usage and formalisation go hand-in-hand, as more individuals are formalised, the more appealing the formal banking sector becomes to them. Although banks do not necessarily play a role in the formalisation process, they, along with savings banks and microfinance institutions, lend to customers in the informal economy. Increased banking penetration also increases overall wealth rates, and moving forward, a progressively cashless system would by extension help decrease the logistics costs of transporting money.
In what ways are modern technologies helping increase banking penetration levels?
FERRARI: Digital solutions can help offer better banking products to a wider array of customers, both on the deposit and the loan sides. The overall cost of distribution channels is also decreasing, because bank branches are no longer indispensable to clients. Thanks to digital banking, customers can access all services themselves via their smartphones. New technologies also provide more and better data, allowing banks to better model and calculate risks for customers with volatile and intermittent sources of income. Digital banking and the progressive liberalisation of the system have allowed us to access customer and income segments we were unable to service some years ago. While banks in Peru were not allowed to lend less than PEN5000 that mature over at least two years, now lenders can offer consumer loans of as little as PEN500 over three to four months. And, from a consumer standpoint, while there is a correlation between formality and income, as higher incomes are more likely to be more recurrent in the formal banking sector, behavioural differences when using digital banking are defined more by age than income or educational attainment.
How is the process of solarisation replicated specifically within mortgage portfolios?
FERRARI: To a lesser extent than other loan portfolios, mortgages are also progressively Peruvian sol-denominated. As a cultural idiosyncrasy, Peruvian customers often pay off their long-term loans early. Thus, most 15- and 25-year mortgage loans tend to mature much earlier, which further exemplifies the increased solarisation of this portfolio. As most Peruvian sol-based longterm loans mature in 15 years at a fixed rate, 25-year mortgage loans in Peruvian soles are available to the public in higher numbers. Given the country’s immense housing deficit, this business segment represents an excellent market opportunity for the banking sector.
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