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Peru Commercial Banking Report Q3 2012 - New Market Research Report

Fast Market Research recommends "Peru Commercial Banking Report Q3 2012" from Business Monitor International, now available


Boston, MA -- (SBWIRE) -- 10/23/2012 -- After a rapid recovery in 2010, Peru's commercial banking sector appears to have shifted onto a more stable growth trajectory as of late 2011, as we argued would be the case in our Q411 update. Asset growth came in at 7.5% last year, slightly above our own 7.0% estimate, but well off the 24.6% rate recorded in 2010, and loan growth slowed to 17.0%, from 19.1% the previous year (only one percentage point higher than our own estimate). Looking ahead, our forecast for asset and loan growth of 10.0% and 16.0% in 2012, with similar projections for 2013, reflect our view that overall the sector remains a regional favourite from a growth and profitability perspective, although the gains will not be shared evenly across the sector. Solid Growth On Solid Foundations Across most metrics Peru's commercial banking sector remains very stable. All 15 banks in the sector comfortably met their capital requirements in 2011, according to the country's financial supervisory body, and the loan-to-deposit ratio remains under 100%, implying loans are adequately covered by domestic deposits. Moreover, despite strong asset and loan growth, leverage (assets/equity) across the sector has also been declining steadily since early 2011, as strong profits have seen retained earnings outpace asset growth. This resilient outlook is reinforced when comparing growth of the sector to macroeconomic performance. While asset growth has outpaced economic growth in recent years, the rate of penetration has been steady. For instance, assets as a percentage of GDP have increased from a nadir of 38% following the 2008/09 global financial crisis to just 43% by February 2012, in sharp contrast to neighbouring Brazil, which has seen assets-to-GDP expand from under 110% to 140% over the same period. This not only suggests growth of Peru's banking sector has been stable, but it also points to plenty of potential growth ahead, in contrast to Brazil's commercial banking sector which we believe is looking pretty saturated at present. In short, the sector looks well placed to continue expanding at a stable, albeit unspectacular, clip over the next few years. But Profits Not Evenly Split Yet Peru's banking sector is not without problems, the main one being the industry's very concentrated nature. The country's four largest banks still control in excess of 80% of total assets within the sector, which means that while aggregated profit margins looked pretty healthy in 2011 - aggregated return-onequity (ROE) rose to 24.5% by December 2011, from 24.2% the previous year - gains were not evenly shared. As the accompanying chart shows, those firms with the smallest percentage share of assets generally had a lower ROE, whereas larger firms tended to outperform. Although the correlation of size to profitability is not one-for-one, in general larger firms did outperform their smaller competitors - the top four firms ranked fourth, first, seventh and second respectively in terms of ROE. We view this as a sym

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