Bank credit keeps setting records ahead of new regulatory, monetary measures - Peru

By Peter Krupa / Business News Americas

Ahead of moves by regulators to slow things down, Peruvian bank credit has continued to make records, rising to the highest level in history through the end of September.

The banking sector's credit portfolio rose 20.7% year-on-year through the end of the third quarter to the equivalent of US$37.0bn, according to numbers released by local banking association Asbanc.

The strong 12-month growth in bank lending was made up of steady month-to-month growth that has accelerated into the year. Credit growth from end-August to end-September came in at 1.92%, similar to monthly growth levels seen since roughly October 2009.

"The strong performance of lending is based on the high levels of growth seen in the country's economy," Asbanc said in a press release on the numbers.

POLICY TO PRESSURE LENDING GROWTH?

The strong lending growth in August took place in the context of a series of counter-cyclical and monetary measures by regulators that may yet affect the speed of bank lending growth.

Peruvian central bank BCRP has moved several times this year to raise the minimum reserve requirement, but the most recent move to hike it by 50 basis points to 9% took place toward the beginning of this month.

Likewise, banking regulator SBS announced just this month that steady GDP growth above 5% had triggered counter-cyclical reserve provision requirements, which would force banks to put aside more funds to cover the future risks of that heated growth.

Authorities say neither measure is directly intended to put pressure on lending growth, with the first measure looking to ease the sol's appreciation and the second measure being simply a rainy day policy that regulators say will not have a significant effect on balance sheets.

Adding to that, the BCRP surprised the market by deciding last week to leave its target rate at 3%. Market observers see that dovishness continuing through the end of the year, leaving open the possibility of a continued high rate of credit growth pressured from the demand side into 2011.