Peruvian Financial System: Liquidity & Solvency to sustain growth

Javier Poggi

Chief Economist,

Superintendence of Banks, Insurance Companies and Pension Funds Administrators (SBS)

Agenda

1. Very positive financial stability outlook within a strict regulatory framework

2. Good prospects for growth and business opportunities

1. Very positive financial stability outlook within a strict regulatory framework

Banking institutions represent almost 90% of total assets of the Financial System

(US$ 85 billion in assets)

Assets as of 29 February 2012

Number of

institutions

Assets

(US$ Million)

Size

(%)

Banking Institutions 15 75 447 89,0

Finance Companies 10 3 149 3,7

Microfinance Institutions 34 6 205 7,3

Municipal Non-Banking Institutions 13 4 711 5,6

Rural Non-Banking Institutions 11 1 024 1,2

Micro & Small Enterprise Development Entities 10 470 0,6

FINANCIAL SYSTEM 59 84 801 100

Financial System Regulatory Environment

Same regulatory framework for all supervised institutions

Balance between qualitative risk management requirements and basic rules (provisions, capital, liquidity ratios, etc)

Financial System Regulatory Environment

Basel II fully implemented and adapted to local conditions:

Parameters recalibrated to reflect local risk environment (i.e. stricter)

Addressed relevant local risks:

Foreign exchange induced credit risk

Over indebtedness

Financial System Regulatory Environment

Significant implementation of Basel III framework:

Countercyclical capital requirements (also countercyclical provisioning)

Capital surcharges for systemic institutions

Additional buffer (Peruvian version of conservation buffer: Interest rate risk for banking book and individual, sectoral and geographic credit risk concentration)

Liquidity standards Under public consultation

Some Banking System Indicators

Banking System: Liquid assets / short - term liabilities

(% )

0

8

16

24

32

40

48

56

64

Feb

-09

Apr

-09

Jun-

09

Aug

-09

Oct

-09

Dec

-09

Feb

-10

Apr

-10

Jun-

10

Aug

-10

Oct

-10

Dec

-10

Feb

-11

Apr

-11

Jun-

11

Aug

-11

Oct

-11

Dec

-11

Feb

-12

Domestic Currency Foreign Currency

Minimum Ratio (Foreign currency )

Minimum Ratio (Domestic currency )

Liquidity of the Banking System largely exceeds the minimum requirement

43,1

47,8

Banking System shows good quality of assets: 1.6% of non performing loans

Banking System: Loan quality indicators

(as a percentage of total loans)

0,0

0,5

1,0

1,5

2,0

2,5

Feb

-09

Apr

-09

Jun-

09

Aug

-09

Oct

-09

Dec

-09

Feb

-10

Apr

-10

Jun-

10

Aug

-10

Oct

-10

Dec

-10

Feb

-11

Apr

-11

Jun-

11

Aug

-11

Oct

-11

Dec

-11

Feb

-12

Past - due loans Refinanced and restructured loans

Banking System holds a 36% buffer on top of required loan provisions

Banking System: Coverage Indicators

(% )

100

130

160

190

220

250

280

Feb

-09

Apr

-09

Jun-

09

Aug

-09

Oct

-09

Dec

-09

Feb

-10

Apr

-10

Jun-

10

Aug

-10

Oct

-10

Dec

-10

Feb

-11

Apr

-11

Jun-

11

Aug

-11

Oct

-11

Dec

-11

Feb

-12

Provisions / Past-due loans

Provisions / Past-due, refinanced and restructured loans

Banking System: Provisions

(US$ Million)

9011 123

1 349 1 409

266

128

184

239247

183

202

264

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2 000

Aug-2009 Dec-2010 Dec-2011 Feb-2012

Required provisions Cyclical provisions Voluntary provisions

Banking System: Capital ratio

(% )

7

8

9

10

11

12

13

14

15

16

Feb

-09

Apr

-09

Jun-

09

Aug

-09

Oct

-09

Dec

-09

Feb

-10

Apr

-10

Jun-

10

Aug

-10

Oct

-10

Dec

-10

Feb

-11

Apr

-11

Jun-

11

Aug

-11

Oct

-11

Dec

-11

Feb

-12

Banking

Law

International Standard

Banking System holds 33% of capital buffer

13,52

10,0

8,0

Banking System: Capital

(US$ Million)

3 4274 254

5 476 5 521

1 432

1 662

1 849 1 942

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

Dec-2009 Dec-2010 Dec-2011 Feb-2012

Regulatory capital Capital buffer

Tier 1 Capital: 78% of regulatory capital

Large buffers of loan provisions and capital would allow banks to remain solvent under a

stressed adverse scenario

Variables

Stress

scenario

GDP Peru (YoY %) 0,50

Inflation (%) 4,52

Unemployment (%) 11,50

Copper price (US$/lb) 125,00

Fishmeal Price (US$/MT) 800,00

Exchange rate (PEN/US$) 2,72

EMBIG Latin America (bps) 650,00

GDP China (YoY %) 5,50

GDP US (YoY %) -1,00

Banking System

Minimum regulatory capital

requirement

0

2

4

6

8

10

12

14

Banking System

13,5%

11,7%

Current capital ratio

Capital ratio after stress

Profitability of the Banking System remains high

Banking System: Annualized ROE and ROA

(% )

24,29

2,35 2,34

24,59

0

5

10

15

20

25

30

35

ROE ROA

Feb-2011

Feb-2012

2. Good outlook for growth and business opportunities

Retail banking will continue to grow, creating business opportunities

During the last decade, retail loans have increased, on average, 20% annually

Mortgage loans represent less than 4% of GDP

3 1503 508

4 023 4 2444 598

5 015

18,3

20,1

22,723,6

25,127,0

Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11

N° debtors (in thousands) N° debtors / Adults (%)

Peru is the world leader in Microfinance, being regarded as the best microfinance business

environment according to The Economist

It is estimated that only 40% of micro entrepreneurs are funded by the Financial System 394

459 508 610

745

898

1 093 1 190

1 355

1 510

Dec

-02

Dec

-03

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Financial System: Number of Micro Enterprise Debtors

(In thousands)

Large infrastructure deficit in the country opens interesting opportunities for both investment and

provision of financial services

Main sectors

Transport (roads, railroads, airports, ports)

Energy

Telecom

Water

Agriculture

Tourism

We expect the Financial System will continue growing around 15% per year

-10,0

-5,0

-

5,0

10,0

15,0

20,0

25,0

30,0

35,0

40,0

Feb

-02

Aug

-02

Feb

-03

Aug

-03

Feb

-04

Aug

-04

Feb

-05

Aug

-05

Feb

-06

Aug

-06

Feb

-07

Aug

-07

Feb

-08

Aug

-08

Feb

-09

Aug

-09

Feb

-10

Aug

-10

Feb

-11

Aug

-11

Feb

-12

Loans of Financial System

(Annual Growth %)

Thanks

For detailed information about the Peruvian Financial System

Visit

WWW.SBS.GOB.PE