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Peruvian Banking System: Overview and Assessment

The Peruvian banking system has a unique structure and relies heavily on domestic funding sources. In this article, we will provide an overview of the key aspects of the Peruvian banking system, including funding, debt capital markets, government support, and peer BICRA scores.

Funding

Domestic Funding Sources

The Peruvian banking system relies heavily on domestic core customer deposits to fund its operations. As of 2020, domestic core customer deposits accounted for 84.2% of system-wide domestic loans. This high dependence on domestic funding sources is a key characteristic of the Peruvian banking system.

  • External funding represents only 9.2% of total domestic loans, indicating a limited reliance on foreign funding sources.
  • The dominance of domestic funding sources reduces the risk associated with external shocks and currency fluctuations.

Debt Capital Markets

Peru’s debt capital market is considered narrow and shallow, with private-sector issuances representing only 13.5% of GDP in December 2020. This limited depth of the debt capital market restricts access to long-term funding for corporates and households, which can impede economic growth.

  • The narrowness of the debt capital market highlights the need for increased investment in this sector.
  • This limitation may also lead to higher borrowing costs for corporates and households.

Government Support

The Peruvian government has a strong track record of providing liquidity to the system during times of need, including past crises. We expect this behavior to continue, indicating a stable and supportive environment for the banking sector.

  • The government’s willingness to provide support reduces the risk associated with economic downturns.
  • This stability can attract foreign investors and promote economic growth.

Peer BICRA Scores

Peru is one of the weakest among its peers in terms of GDP per capita, but it has lower economic imbalances compared to most peers. However, it faces challenges related to credit risk due to high dollarization and weak payment culture and rule of law.

  • The country’s low GDP per capita indicates a need for economic growth and development.
  • The relatively low level of economic imbalances suggests that the country has some room for improvement in terms of fiscal policy and financial stability.

In conclusion, the Peruvian banking system is characterized by its reliance on domestic funding sources, limited depth of debt capital markets, government support, and weak peer BICRA scores. Understanding these aspects is crucial for investors, policymakers, and other stakeholders to make informed decisions about the country’s economic future.