Bond market investors recognize that Peru's fiscal strength supports their favorable view of the credit, Moody's Investors Service affirmed.
According to the credit rating agency, global bond yields for Peru are the second lowest in Latin America (Chile being the lowest), with CDS and conventional spreads trading relatively tight to A1-rated Chile and lower than A3-rated peer Mexico. This also reflects low rollover risk, underpinned by the sovereign's lengthy government debt maturity profile.
Said profile is one of the longest among rated sovereigns, with an average maturity of approximately 12.8 years and a diversified pool of funding, underpinned by well-developed foreign-currency and local-currency yield curves reflecting ample market access.
"Readily available contingent credit lines from multilateral institutions and the sovereign's fiscal reserves also underpin the low rollover risk," the agency expressed.
Banking sector risk: Low
In line with Moody's 'stable' banking system outlook, risks to the sovereign from the financial system remain limited.
Peruvian banks continue to present healthy earnings supported by
strengthening loan demand, stable low-cost core funding, and effective control of asset quality and operating costs. Liquidity and capital buffers are among the strongest in Latin America.
Nonperforming loans (NPLs) under the national definition remain low at 3.14% of total banking system loans as of the end of May 2018, virtually unchanged from 3.15% as of one year ago.
Furthermore, NPLs under an internationally comparable standard (more than 90 days of non-payment) came to 2.69% of gross loans.
NPLs rose in the first half of 2017 as a result of
Coastal El Niño shock and the economic slowdown. The rate of increase in NPLs has slowed significantly and they have remained virtually flat since the second half of 2017.
"We expect a very small uptick over the next few months, and they will stabilize by the third quarter of 2018 as there is a lagged pass-through from the
economic recovery to credit performance," it added.
Beginning in the fourth quarter of 2018, NPLs should begin to decrease slowly, benefiting from improving credit conditions due to the recovery in domestic demand, as well as renewed and more robust lending growth.
Based on information provided by Moody's.
(END) NDP/DTK/MVB