While the largest five Peruvian banks' capital indicators remain relatively low for their rating category globally, their capital indicators generally improved in 2017, Fitch Ratings has affirmed.
According to Fitch, lower asset growth was a major factor in improved capitalization. Combined with stable earnings and moderate dividend payments, capital indicators benefitted from asset growth in the single digits at all five peer banks in 2017.
The firm went on to add regulation in Peru has greatly advanced toward Basel III standards. Minimum capital requirements have been raised and, in 2016, the authorities tightened quality requirements for regulatory capital, including more restrictive treatment of subordinated debt, intangible assets, and deferred tax assets.
"Banks will have to meet a 100% liquidity coverage ratio (LCR) requirement by January 2019, and regulators are preparing a consultation paper on a net stable funding ratio (NSFR) requirement," it noted.
Despite lower leverage, a declining interest rate environment in local currency and lackluster loan growth, the
banks under review reported stable or modestly softer earnings in 2017, supported by lower provisions, controlled administrative expenses and healthy contributions from noninterest income.
Net interest margins were pressured across the banking system, reflecting lower benchmark rates and increased competition in the corporate segment, which disproportionately affected Banbif.
Like the banking system as a whole, all banks under review reported a modest deterioration in loan quality during 2017, continuing a long-term trend. Deterioration in impairment ratios was influenced by the
Odebrecht scandal, the impact of the 2017 Coastal El Nino floods and relatively-low loan growth.
Notwithstanding higher impairments, loan loss provisions in 2017 were largely flat or lower, resulting in decreased reserve coverage at all banks, except
Scotiabank Peru S.A.A. (SBP), ranging between 146.1% and 187.3%.
Reliance on deposit funding recovered at all banks under review in 2017, representing more than 70% of total funding, excluding derivatives. Deposit dollarization has declined and increasingly converged with loan dollarization.
As a consequence, the banks significantly paid down "currency repos" or local-currency liquidity facilities provided by the Central Reserve Bank.
Depositor concentration remains relatively high at Banbif, where the top 20 depositors accounted for 30% of total deposits compared with 17%-24% at its peers.
(END) NDP/MVB