are core deposit funded, with only a modest reliance on market funds. Importantly, banks have enhanced their funding mix as they have gathered a large share of local currency deposits and lowered their dependence on central bank repos to finance their growing consumer lending business in Peruvian Soles,
"Corporate and retail core deposits reached 67% of total funding as of March 2019, up from 62% in 2015 - 36% of the bank's deposits are sourced from corporations, while individuals accounted for another 31%, limiting the bank's exposure to less reliable and more cost-sensitive institutional deposits; those account for just 6% of total funding," it said.
According to the credit rating agency,
Peruvian banks have the lowest reliance on market funding of any major Latin American banking system, which limits banks' refinancing and pricing risks while lowering their vulnerability to external shocks.
Banks' market funds —including senior and subordinated debt and interbank borrowings— have fallen significantly to just 13.4% of tangible assets in March 2019 from a peak of 26% in mid-2015 following several liability management strategies during the last years, and below the Latin American median of around 28%.
In addition, just 41% of deposits were dollar denominated as of March 2019, below the 54% in mid 2015, leaving the system less dependent on
central bank currency swaps. However, the rate of deposit dollarization remains relatively high, which reduces the central bank's ability to serve as a lender of last resort.
"Banks' loan-to-deposit (LTD) ratio increased mildly to 104% in March 2019 from 101% in 2017 following the recovery in bank lending in 2018, and we expect it will continue rising mildly over the outlook horizon,"
Moody's said.
While the LTD ratio in soles remained relatively flat during 2018, the LTD in US dollar grew to 82% from 80% the prior year given the de-dollarization trend experience among depositors. This drop was due in part to policymakers' efforts to discourage dollarization in the
banking system, coupled with the relatively attractive rates that banks offered on sol-denominated deposits.
These developments have led to an increase in sol deposits in recent years. In 1Q 2019, deposit in soles rose 13%, while in US dollars they just grew 3.4%, year over year.
The broader deposit base in soles has helped banks to reduce their funding mismatches, which in the past forced them to rely on US dollar funding and central bank repos to finance lending in soles. Banks reliance on central bank repos were limited at 8% of total funding in 2018, down from the peak of 13% in 2016.
Editor's note: Based on information provided by Moody's.
(END) NDP/DTK/MVB