Standard & Poor's downgraded credit ratings to five banks in Peru

BCP, MiBanco, Scotiabank, BBVA, Interbank, Corporación Financiera de Desarrollo (Cofide) and the Mivivienda Fund are the banks and financial institutions that have suffered a reduction in rating by Standard & Poor's (S&P).

The S&P agency lowered Peru's credit rating by one step to “BBB” on Friday, stating that the country's political stagnation is undermining efforts to maintain investor confidence and limiting growth prospects.

S&P said political stalemate will likely continue to erode business confidence.

“Peru's rating cut reflects the erosion of the institutional evaluation of sovereign rating after a long period of political instability, due to continued tensions between the executive and legislative branches,” said the S&P agency.

Likewise, this downgrade is also due to withdrawals from pension funds and increased dependence on external financing in 2020 and 2021, considering that both factors “affected the composition of Peru's debt”, leading to a “currently more vulnerable debt profile”.

Following this announcement, S&P proceeded to change the rating of financial institutions due to the influence of sovereign credit quality on the ratings of these banks.

“Our ratings for Peru limit those of national financial institutions, because we do not consider that banks can withstand a scenario of sovereign default, given their great exposure to the country in the form of loans and securities,” says S&P.

They add that “the impairment of the sovereign's credit reduces his ability to provide extraordinary government support to the financial system and government-related financial institutions if necessary,” they added.

PETROPERU

S&P also lowered PetroPeru's credit rating, amid the controversy in which the state-owned company finds itself. The company moved from a long-term rating of BBB- to BB+, a seat in which it is already considered a junk bond, according to Bloomberg.

Currently, the S&P BB+ note is used to classify those companies with the greatest risk of defaulting their debts.

But S&P not only cut Petroperú's rating, it also changed the outlook from stable to negative.

In this rating agency Petroperú went from a BBB grade to BBB-, which would be the lowest of the investment grade

In this case, Bloomberg indicated that this reduction in rating implies that the state oil company is on the verge of being cut as a junk bond, or notes considered speculative.

IT WILL AFFECT PERUVIANS

This poor rating of Standard & Poor's will affect Peruvians, who will pay higher debt costs.

Juan José Marthans, former head of the Superintendency of Banking, Insurance and APF (SBS), argues that this is a warning voice, since it is not a further degradation, it will begin to affect capital flows and financing costs more strongly. “The current government is clearly the one that must take responsibility for the coup to the country and the economic cost of Peruvians,” he added.

“If this situation continues and the continued deterioration of political stability, confidence and growth prospects, they could bring further degradation. This would already be disastrous,” said Marthans.

KEEP READING