Solid financials and operations position Peruvian banks for expansion


The banking crises of the 1980s and 1990s have left Peru with a highly concentrated, conservative banking system that is on one of the region’s most solid foundations, boasting strong capital and liquidity.

The sector has retained a positive outlook from global credit ratings agency Moody’s since November 2017, which last reaffirmed this view in October 2018, predicting a recovery in loan growth, stable asset risk and solid profits to bolster capital buffers.

However, though domestic lending to the private sector has increased, provision of credit remains comparatively low, at 41.1% of GDP, meaning there is room to grow. Furthermore, despite significant progress to increase banking penetration, financial inclusion metrics remain below the Latin American average. Both the digital banking and financial technology (fintech) segments are still in relatively early development and could play a part in improving these indicators.

A Solid Concentration

When Scotiabank Perú acquired 51% of Banco Cencosud’s Peruvian banking operations in March 2019, the already concentrated banking sector became more tightly held.

Though 54 entities comprise Peru’s financial system, some 83.5% of the PEN471.64bn ($142.8bn) of the system’s assets as of March 2019 were held by universal banks, according to the Superintendency of Banking, Insurance and Pension Funds ( Superintendencia de Banca, Seguros y Administradoras de Fondos de Pensiones, SBS), the banking regulator.

As Banco Cencosud changed ownership, it converted from a universal bank into a rural savings and loan bank, and the number of fully fledged banks operating in the country fell to 15. Banking sector growth is outpacing GDP and expanding in a way that is helping the central bank (Banco Central de Reserva del Perú, BCRP) tackle one of the economy’s vulnerabilities: a relatively high level of dollarisation.

Indeed, US dollar deposits within the system have fallen significantly, from 47% of total deposits in September 2015. According to the SBS, sol deposits increased by 11.34% during 2018, to 66% of the total deposits at the end of the year. Foreign currency deposits shrank by 6.04% over the same period, with combined deposits growing by 6.37% at current foreign exchange (forex) rates.

As Moody’s highlighted in October 2018, this helps in “reducing funding mismatches”, given the still high local currency loan-to-deposit ratios in the system. “This drop [in dollar deposits] was due in part to policymakers’ efforts to discourage dollarisation in the banking system, coupled with the relatively attractive rates that banks offer on sol-denominated deposits and the stabilisation of the forex rate after several years of steady deprecation,” said the ratings agency.

According to the SBS, the percentage of outstanding loans that are denominated in dollars has fallen consistently from over 70% in 2005 to just 27.3% as of February 2019. The rate of deposit dollarisation is still relatively high, however, reducing the central bank’s capacity to serve as a lender of last resort.

The Big Four

Banking sector growth can be mostly attributed to four institutions that hold nearly 80% of deposits. Banco de Crédito del Perú (BCP), owned by local group Credicorp, is the market leader in terms of size, with 35% of total assets and 33% of loans and customer deposits. Affirming the bank’s credit rating, Fitch said in April 2019 that BCP “enjoys leadership in all major segments and products including wholesale banking, small and medium-sized enterprises (SMEs), microfinance, consumer, credit cards, mortgages, demand deposits, savings and time deposits”. In the five years to March 2019 local currency deposits at BCP have grown by 48% to PEN39.35bn ($11.9bn), the latest available data from the BCRP shows.

BBVA Continental – with plans in the second half of 2019 to be renamed as simply BBVA – is a subsidiary of the Spain-headquartered BBVA and is the second largest bank in Peru. It has a market share of 19.9% in loans and 20.8% in deposits, though sol-denominated deposits have grown at a faster rate than BCP’s over the last five years – by 64% to PEN28.2bn ($8.5bn).

Scotiabank, which first entered the Peruvian market in 1997, has seen its Peruvian subsidiary’s local currency deposits more than double, from PEN9.32bn ($2.8bn) to PEN19.91bn ($6bn), in the five years leading up to March 2019. Such expansion has allowed Scotiabank to overtake the retail-focused Interbank, where local currency deposits have also grown significantly over the same period, from a comparative figure of PEN9.69bn ($2.9bn) to PEN16.41bn ($5bn). In the three months leading up to January 31, 2019, which marks the first quarter of Scotiabank’s financial year, Peru accounted for 37% of Canada-headquartered Scotiabank’s net income in the Pacific Alliance countries – which include Peru, Mexico, Colombia and Chile – despite accounting for only 26% of revenue.

Deposit growth has allowed banks to develop a diversified funding base with low reliance on external debt markets. Added to solid metrics and capital ratios, combined with a stable operating environment, strong ownership and high expectations of government support, Peru’s major banks boast credit ratings either in line with or one notch below those of the government, rated “A3”, “BBB+” and “BBB+”.

Scotiabank Perú holds the best credit ratings from international agencies, having earned an “A3” grade from Moody’s, “BBB+” from Standard & Poor’s and Afrom Fitch. Scotiabank’s higher ratings are based on the expected support it would receive from its parent company, Bank of Nova Scotia, in case of distress.

The trio of ratings agencies put BCP at “Baa1”, “BBB+” and “BBB+”, while BBVA does not have a rating from Moody’s but is in the same “BBB+” and “BBB+” category with Standard & Poor’s and Fitch. Interbank, the smallest of the quartet of Peruvian banks, has the weakest credit quality, at “Baa2”, “BBB” and ”BBB”. Fitch had downgraded Interbank one notch in April 2019, citing deterioration in both the bank’s capital adequacy and financing metrics.

Such concentration leaves little room for new entrants, though Chinese institutions have notably begun to work with corporate clients. ICBC, China’s largest commercial bank, began operations in Peru in February 2014, while SBS granted a banking licence to Bank of China in January 2019, paving the way for the state-owned lender to open.

“Given the size of the four largest players, it is very hard for new banks to compete,” Marco Contreras, head of research at Kallpa Securities in Lima, told OBG. “Those that do arrive tend to do so to accompany clients that they already have in Peru.”


The high degree of concentration in the market allows the four largest players an important degree of pricing power, and profitability indicators below only Argentina in Latin America.

The Latin American Federation of Banks (Federación Latinoamericana de Bancos, FELABAN) calculated that Peru’s banks had an average return on assets of 2.13% as of the end of December 2018, versus an average in Latin America of 1.5%. Aside from Argentina, where returns were 3.37%, no other nation has a ratio above 2%. SBS data puts this profitability ratio up to 2.21% using data from February 2019.

Fitch measures profitability using a ratio of operating profit to risk-weighted assets. This makes the largest player, BCP, the most profitable, of the four largest institutions thanks to sustained margins and decreased impairment charges. “BCP’s cost control continue to be one of the bank’s strategies, and Fitch expects that the digital transformation will result in better efficiency ratios over the medium term,” the ratings agency noted in late April 2019.

BBVA and Interbank both posted ratios of 3.1% in 2018, according to Fitch, thanks to high efficiency, solid credit risk management and low funding costs in BBVA’s case. Interbank has a long history of strong operating performance given the high interest margins in the retail business. Scotiabank’s operating profit to risk-weighted assets fell from 3.13% in 2017 to 2.88% in 2018, as provision expenses increased.

Capitalising on Growth

Strong earnings leave Peru’s banks well placed to withstand any downturn in metrics caused by loan books that are once again growing at a rapid pace after a weak 2017. Overall loan growth reached 8.77% in 2018, driven by a 13.9% increase in consumer loans – the fastest growth since 2015 and ahead of average portfolio growth of 4.7% in Latin America, according to FELABAN.

“Strong earnings will keep capital steady despite rising growth,” an October 2018 report by Moody’s stated, predicting that banks will maintain an adequate tangible common equity ratio of 12.9% by end-2019, enabling them to withstand the challenges associated with potential loan losses.

However, April 2019 reports from Fitch indicate that such growth could slightly pressure capital ratios at certain banks and could negatively affect asset quality. Nonetheless, there is ample capacity for expansion. Although Peru has not yet implemented Basel III capital regulations, the SBS imposes relatively high capital requirements on banks, and Peruvian banks have significantly higher capital ratios that lenders in Chile, Colombia and Brazil (see analysis). Moreover, the largest four banks all easily exceed the Basel III liquidity coverage ratio threshold already.

Financial Inclusion

Despite strong growth over at least two and a half decades – domestic credit to the private sector as a percentage of GDP increased from 9.2% to 42.3% between 1991 and 2017, according to the World Bank – Peru still lags behind the rest of the region in terms of its banking sector’s reach. The average private sector credit-to-GDP ratio in Latin America is 50%, and in OECD nations it is 145%.

In terms of bank accounts, there is a similar growth narrative; however, indicators remain behind those of its peers. According to the World Bank’s latest Findex database, which measures financial inclusion across the globe every three years, 43% of Peruvian adults had a bank account in 2017. This is a sharp increase from 21% in the 2011 survey and 29% in the 2014 survey. However, only Mexico (37%), Nicaragua (31%) and El Salvador (30%) reported lower account ownership in Latin America. Colombia is not too far ahead, with 46%, while at 74% Chile is the leader in Latin America. The regional average is 54% compared to 69% globally. As of the third quarter of 2018 some 39.81% of the adult population was formally saving in the financial system, though that percentage grew to 52.23% when also including those who save outside the formal banking system.

Although Peru’s geography makes reaching more remote parts of the population a challenge for financial institutions, it is hardly unique in that respect within the Latin American continent. BBVA Research highlighted in December 2018 that Peru has effectively increased access to the financial system for those living in more isolated areas, with banks opening correspondent services. These correspondent networks, usually found in pharmacies or local shops, offer basic services such as deposits and withdrawals to people who would have otherwise remained outside of the formal banking system. The number of banking correspondents grew from zero in 2005 to 28,796 at the end of December 2014 before undergoing swifter growth for the next three years: there were 72,577 by end-2017 and 79,375 as of March 2019. According to the SBS, by June 2018 some 82% of Peru’s districts had access to the financial system, translating into around 98% of the adult population being in proximity to a financial services establishment.

Financial education is often considered one of the major barriers to greater inclusion in the system. Indeed, the Ministry of Economy and Finance’s competitiveness and productivity plan found that some informal businesses end up paying effective annual interest rates of up to 400% when they fall into the hands of black-market moneylenders. However, education remains as not the only barrier. Mariela Zaldívar, head of market conduct and financial education at the SBS, highlighted in a May 2019 statement that the system had to provide products that suit demand, while better understanding people’s needs, expectations and barriers to access.

Increasing the penetration of the banking system is not just a challenge for retail banks. Although the number of registered companies in Peru with outstanding loans in the formal financial system increased from 25% in 2014 to 40% in 2018, according to the Peruvian Banking Association (Asociación de Bancos del Perú, ASBANC), being able to fully serve businesses in a country dominated by SMEs remains a challenge. Smaller companies are often not as advanced technologically, can have low productivity and often also operate somewhat informally, making lending to this segment a somewhat risky endeavour.

“Generating financial products that meet the requirements of small businesses is a clear challenge for Peruvian banking,” ASBANC stated in a weekly report from March 2019. “Banks have the task of expanding their services to support the growth of companies that cannot yet access the benefits of the formal financial system.”

Digital Transformation

As the number of ATMs in the world fell for the first time in 2018, according to a May 2019 report from consulting firm RBR, Peruvian banks have recently slowed investment in physical points of customer interaction. ASBANC data showed that the number of ATMs in Peru continued to grow until end-2016, with 7650 across the country – 621 more than three years earlier. As of March 2019 there were 7465. Bank offices reached a peak in 2015, with 2185 at the end of the year. However, closures are still in the early stages; there were 2060 as of March 2019. “I think the number of new bank offices has stagnated in recent years because of the time and money banks are investing in digital channels and changing their customers’ mentality,” Contreras told OBG.

A report by IMF economist Yen Nian Mooi recommended that the digitalisation of payments both to and from the government, such as social programme disbursements and salary payments, or tax collection and licence fee payments, could help increase economic transactions. In this context, an important takeaway from the 2017 Findex survey is the fact that around 25% of bank account owners in Peru opened their first accounts in order to receive a private sector wage, government payments or remuneration for agricultural goods. The World Bank has deemed this as an opportunity to expand account ownership among the unbanked, and this could be the path forward in Peru.

“Though there has been some progress in financial inclusion, reaching 60% of the adult population with a bank account by 2021, as the government had previously targeted, will be difficult,” Alberto Morisaki, head of economic research at ASBANC, told OBG. “We must increase the pace of digitalisation. Though the banks are embracing new technologies, we really need the government to take a leading role in this process.”

The private sector is already well aware of the potential of digital banking. Spanish lender BBVA was encouraged by its results in implementing a so-called digital engagement process in Peru, and its global CEO, Onur Genç, highlighted the work of its Peruvian subsidiary during the group’s first quarter 2019 financial results conference call. Using BBVA’s digital engagement tools as a demonstration of the tangible metrics that are surrounding value creation, Genç noted the number of clients in Peru with more than one product grew two-and-a-half-fold within three months of the tools being put in place.


Part of the digital transformation, and one potential avenue to increase financial inclusion, is the effective utilisation of fintech, either via start-ups or existing institutions. ASBANC has launched one of the best known fintech firms in Peru, the Mobile Wallet (Billetera Móvil, Bim), which offers several free services including money transfers, topping up phone credit, digital payments and settling bills.

Although Mooi argued that Bim’s uptake has not yet lived up to expectations, usage is increasing. In the 12 months ending April 2019 there were 5.9m transactions on Bim with a value of PEN492m ($148.9m), across 640,000 registered users. “Bim has been growing as its ecosystem – including the number of users [and] businesses that accept it as payment – grows,” ASBANC said in a weekly report from May 2019. “The future prospects are very encouraging.”

The Inter-American Development Bank identified 57 fintech firms in Peru in 2018. While lower than the 84 in Chile and 148 in Colombia, the number of entities in Peru grew by 256% that year, a rate faster than in any other Latin American country except Panama.

Some large, established banks in Peru are looking to capitalise on innovation in the segment. Krealo, the venture capital arm of BCP’s holding company Credicorp, announced a significant investment in mobile payment start-up Culqi in December 2018 and was actively looking to invest in more start-ups.

The advent of financial start-ups has triggered legislation and regulation worldwide, including in Latin America, where Mexico has a fintech law and Colombia has a decree that regulates crowdfunding enterprises. Legal clarity on the issue could therefore assist the development of the industry in Peru.

“The main issue is that it is not necessarily clear under Peruvian law what constitutes financial intermediation,” Jose Miguel Porto, senior partner at Porto Legal, a law firm focused on digital and technological affairs, told OBG. “Is it financial intermediation when you raise money from an angel investor that starts offering loans? Maybe not, but what about when you have two, three, four or five angel investors? The rules are not clear, so a fintech law would be advisable.”

Market participants have also highlighted the need for new companies to be supervised. “Fintech regulation needs to represent a trade-off between ensuring stability in the system and encouraging innovation,” Morisaki told OBG. Technology has a lot of potential for inclusion, the SBS’ Zaldívar said in May 2019, but its “speed and efficiency must come hand in hand with security, which is why the regulator has an important role [to play] in the development of these services”.

On January 30 the central bank said it had drafted regulations covering some of the firms involved in fintech, most immediately affecting crowdfunding firms, subjecting them to minimum capital requirements and making the Superintendency of Securities Markets responsible for supervision.

Moody’s initial reaction suggests the regulations might make it difficult for fintech firms to operate, claiming the regulation could increase operational costs and reduce their competitiveness relative to traditional brick-and-mortar banks.


Peru’s stable macroeconomic policy facilitates banking operations, and as the economy continues to grow, so should its loan books. If Peru’s financial system truly embraces the digital era, financial inclusion indicators should improve, representing a chance for banks to vastly grow their customer base. If they fail to do so, smaller, more adept and agile technology will undoubtedly spot the opportunity.

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The Report: Peru 2019

Banking chapter from The Report: Peru 2019

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