Peru: Financial System Stability Assessment

IMF Staff Country Reports, July 25, 2018

Source details

Peru’s financial system has developed and become more resilient since the previous FSAP in 2011, but some challenges remain.
Main external vulnerabilities:
- Reliance on commodity exports makes Peru vulnerable to growth in trading partners.
- Exchange rate depreciation risk is amplified by significant dollarization.
- These external vulnerabilities were confirmed by the Growth-at-Risk (GaR) analysis.
Main domestic vulnerability:
- Uncertainty and spillovers from the ongoing Lava Jato investigation.

The banking sector remains highly concentrated:
- The four largest banks account for 83 percent of total private banking sector assets.
- These top four banks are all classified as domestic-systemically important banks (D-SIBs) and hence are subject to elevated supervision.

The mission’s stress-test analysis showed the banking system is largely resilient to adverse shocks, largely because of banks’ initial strong capital buffers and profitability.
Adverse scenario outcomes:
- All large banks experience credit losses.
- Initial high capital and profitability help the large banks remain above the minimum regulatory capital adequacy ratio (CAR) threshold of 10 percent.
- For a few small banks, the CARs fall below the regulatory threshold.
- The overall banking system’s profits decline substantially in the adverse scenario, with some banks facing losses.
- The aggregate capital shortfall for banks that fall below the regulatory threshold is modest.

The interconnectedness/contagion analysis showed that the joint probability of distress across all banks has fallen since the post-global financial crisis peak level it reached in 2010.
However, because credit exposures are strongly correlated among large banks and the system is concentrated, shocks that affect credit exposures have the potential to become systemic events.

Peru: Financial System Stability Assessment — IMF Staff Country Report, July 25, 2018.