Latin Finance - November 2008 - 48

of the 2008 Scotia is now the third bank in terms of loans and deposits in the system, behind leader Banco de Crédito and BBVA Banco Continental. It has also followed them into the pension fund business, announcing in June that it would take a controlling share in private pension fund ProFuturo, which has around $3 billion under management. The bank’s consolidation this year coincides with rapid expansion of the sector, with five new banks moving into Peru in the past 12 months. Three of these new players, Falabella, Ripley and Azteca, actually morphed into banks from their prior roles as lending institutions for leading retail stores. Falabella and Ripley, both Chilean, were the lending arms of department stores by the same name, while Mexico’s Banco Azteca first entered Peru though its appliance chain Electra. While those three are focused on consumer lending, the other two are geared mainly towards corporate and investment banking, with the prospect of a jumbo M&A transaction looming as a major incentive. Santander got approval to operate in Peru in October 2007, while Deutsche Bank was granted the final go-ahead in June. Rubio says the international crisis will likely prevent additional banks from entering Peru in the near future, but he does not rule out new entrants as soon as the situation to settles. In the meantime, he expects institutions already operating to continue with their plans. “The fundamentals here are very good today. The value of property will continue to go up as the economy grows. We have a prudent way of analyzing risk . . . mortgages here are real loans, they are on the books and the banks know the clients. This is old-fashioned banking, so we are not feeling uneasy,” says Rubio. Rubio adds that the sector is also confident the regulator will keep close tabs on the situation, paying special attention to retail loans. “I am not taking about excessive control, but simply enforcing the right rules to make sure that no banks overextend credit,” he adds. The municipal savings and loans, which hold the lion’s share of the deposits and loans – $1.4 billion and $1.6 billion, respectively in June – have become increasingly Participation in Peru’s Banking System aggressive in the past two years, moving BCP leads the way out of their local markets to cities around Peru. They are also going after money Bank* Deposits Loans (%) (%) that normally flows into traditional 1 Banco de Crédito 38.10 30.68 banks, such as the mandatory 2 Banco Continental 23.15 25.50 unemployment insurance, known locally 3 Scotiabank 15.66 16.33 as CTS, deposited monthly by employers 4 Interbank 10.40 10.40 for payroll workers. 5 Interamericano de Finanzas 2.94 3.35 “[Savings and loans] are bringing into 6 Citibank 1.84 2.59 the financial system people who were 7 Financiero 1.67 2.32 also cautious about putting their money 8 Mibanco 1.53 2.29 into the system. They have opened new 9 Trabajo** 1.22 1.53 frontiers for the financial system,” says 10 Comercio 0.89 1.43 11 Falabella Peru 0.71 1.25 Sillau. “Some banks and economic groups 12 Ripley 0.63 0.98 are starting to acquire savings and loans, 13 HSBC Bank Peru 0.63 0.93 because they see an enormous growth 14 Santander Peru 0.48 0.33 opportunity,” he adds. 15 Azteca Peru 0.14 0.09 Peru’s deputy production minister * Does not include Deutsche Bank Carlos Ferraro says savings and loans fill **Acquired by Scotiabank in May 2008 an important niche market, since small Source: SBS, July 2008 businesses and microenterprises make up the bulk of companies in Peru and are the principal source of employment. “Even with the new entries, the “Traditional banks need to begin looking Peruvian banking system is still small at the country differently. There are millions compared to the economy. If you look at of Peruvians who are not in the banking the tables for banking penetration, there is system simply because they have never been clearly room to grow,” says Alfredo Sillau, offered the right products,” says the minister. general manager at Compass Group in Sector leaders see the system diversifying Lima, the asset manager controlling over as the economy grows and different services $5 billion. International economic crisis will likely are required. All of the banks in Peru’s system were universal banks until the stall a push to increase banking entrance of Falabella, Ripley and Azteca, penetration. The Peruvian Association of Banks had forecast a major leap by the end which are geared to consumer credit. This trend toward specialization is expected to of this decade – to close to 40% continue. penetration – but the numbers will likely Limited Penetration “It is foreseeable that there will be niches have to be revised lower if the downturn The prudence with which the system is created as the economy continues to expand. managed should help Peru get through the continues and the developed world’s crisis This will spark the interest of specialized crisis, but it is also considered a chief factor of confidence in banking spreads. banks to look at possibilities in Peru,” says One thing that could help counteract contributing to low banking penetration González-Taboada. LF stunted penetration is growth in rural and and limited lending portfolios. Banking penetration in Peru is around 25% of GDP, one of the lowest in the region, according to the SBS. In Chile, which Peruvians tend to set as their benchmark, penetration in 2007 was 76%. Even neighboring Bolivia, with a GDP that is one-tenth of Peru’s, has slightly higher penetration. The number of mortgages is double what it was a few years ago, but it is still short of the 100,000 mark nationwide. The change is important, but it is still far from regional levels. In Chile, the capital alone has close to 900,000 mortgages, according to the Chilean banking association. municipal savings and loans, which have been spreading nationwide. There are 13 municipal and 11 rural savings and loans organizations managing $1.6 billion in deposits and $1.9 million in loans at the end of July, according to the regulator The thrifts cater to small businesses and microenterprises that have difficulty getting credit from the traditional banking sector. While not included in the total, state-run MiBanco also fits into this category. Filling a Niche 48 LATINFINANCE November 2008

Latin Finance - November 2008

Table of Contents for the Digital Edition of Latin Finance - November 2008