Banco BBVA Perú S A : Informes De Clasificación De Riesgo.

Banco BBVA Peru

Primary Credit Analyst:

Ivana L Recalde, Buenos Aires + 54 11 4891 2127;[e-mail]

Secondary Contact:

Sergio A Garibian, Sao Paulo + 55 11 3039 9749;[e-mail]

Table Of Contents

Credit Highlights Outlook

Key Metrics

Anchor:'bbb-' for commercial banks operating in Peru

Business Position: Peru's Second-Largest Bank With Sound Market Presence And Business Stability

Capital And Earnings: The Negative Economic Risk Trend Could Pressure The RAC Ratio, But Not Ratings

Risk Position: The Bank And Industry's Asset Quality To Monitor

Funding And Liquidity: Customer Deposits Represent The Bulk Of Funding Support: BBVA's Strategically Important Subsidiary

Environmental, Social, And Governance (ESG)

Key Statistics

Related Criteria

Table Of Contents (cont.)

Related Research

Banco BBVA Peru

Credit Highlights

Key strengths

Key risks

Sound business position given Banco BBVA Peru's diversified business portfolio and its status as the second-largest bank in Peru;

Low per capita GDP weakens Peru's economic resilience and limits debt capacity; and

Solid operating performance and track record; and

Political volatility denting short- to medium-term economic growth in the country with impact on the banking industry and Banco BBVA Peru.

A strategically important subsidiary of Banco Bilbao Vizcaya Argentaria S.A. (BBVA).

Banco BBVA Peru's well-recognized franchise, wide and stable client base, and diversified business lines to remain a rating strength. The bank operates in a wide range of business lines including wholesale, retail, and investment banking products and services (through its various subsidiaries). However, as a commercial bank, its core business is lending.

We believe credit losses will remain contained due to a reduction in deferred loans and to high provisions to protect balance sheet and cover losses from the pandemic. The bank's asset quality will deteriorate in 2022 due to Peru's large informal economy and low-income levels, and as deferred loans granted under the government borrower relief programs start to mature starting in mid-2022. However, nonperforming loans (NPLs) should remain manageable as the bank writes off bad loans. Also, Banco BBVA Peru benefits from high guarantees under government programs and robust levels of provisions.

Capitalization to remain a credit strength. This is thanks to the improvement in financial results since 2021, given a normalization in provisions, a moderate increase in lending and ability to reduce dividends if needed. However, Banco BBVA Peru's risk-adjusted capital (RAC; calculated according to S&P Global Ratings' methodology) ratios could be under pressure in a scenario of rising economic risk for Peru's banking industry. This would prompt us to revise downward the bank's stand-alone credit profile (SACP), but not the final ratings, which Peru's credit quality currently limits.

The ratings incorporate the bank's diversified and stable funding profile, and sound liquidity coverage. Banco BBVA Peru has a sticky deposit base. It also has wide access to domestic and international capital markets, and to central bank funding linked to government programs.

Our ratings on Peru limit those on domestic financial institutions including on Banco BBVA Peru. This is because we don't consider that the entities could withstand a sovereign default scenario, given their large exposure to the country in the form of loans and securities

Outlook

The stable outlook on Banco BBVA Peru reflects the outlook on Peru, and our expectation that the ratings on the bank will move in tandem with those on the sovereign in the next 12-24 months because of its high exposure to the domestic market. We consider the bank to be a strategically important subsidiary of Banco Bilbao Vizcaya Argentaria S.A. (BBVA), but we don't expect the entity would receive extraordinary support from its parent in case of sovereign distress.

Downside scenario

We could take a negative rating action on Banco BBVA Peru if we were to take a similar action on the sovereign.

Upside scenario

We could take a positive rating action on Banco BBVA Peru if we were to take a similar action on the sovereign and all credit fundamentals remain unchanged. But this scenario seems unlikely at this point.

Key Metrics

Key Metrics

Banco BBVA Peru Key Ratios And Forecasts* --Fiscal year ended Dec. 31--

Growth in operating revenue (%)	8.8	-5.1	10.2
Growth in customer loans (%)	8.5	19.7	5.7
Growth in total assets (%)	9.1	31.3	-5.4
Net interest income/average earning assets (NIM) (%)	5.0	4.0	4.1
Cost to income ratio (%)	39.4	43.8	41.9
Return on equity (%)	18.4	7.0	16.0
Return on assets (%)	2.1	0.7	1.5
New loan loss provisions/average customer loans (%)	1.3	2.7	1.0
Gross nonperforming assets/customer loans (%)	3.0	3.2	3.7
Net charge-offs/average customer loans (%)	0.7	0.3	0.5
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

2019a 2020a 2021a	2022f	2023f
5-6	4-5
2-3	4-5
3-4	4-6
4.0-4.3	4.2-4.4
42-44	42-44
14-15	15-16
1.4-1.6	1.5-1.7
1.0-1.3	1.0-1.1
4.0-4.5	3.8-4.2
0.6-1.0	0.6-1.0

Key Metrics (cont.)

Banco BBVA Peru Key Ratios And Forecasts* --Fiscal year ended Dec. 31--2019a 2020a 2021a

2022f

2023f

Risk-adjusted capital ratio (%)

10.1

10.3

10.4 9.8-10.3 9.8-10

*All figures adjusted by S&P Global Ratings. a--Actual. e--Estimate. f--Forecast.

Anchor:'bbb-' for commercial banks operating in Peru

Our bank criteria use our Banking Industry Country Assessment's (BICRA's) economic risk and industry risk scores to determine a bank's anchor, the starting point in assigning an issuer credit rating. Our anchor for a commercial bank operating only in Peru (where Banco BBVA Peru mostly operates) is 'bbb-'. Peru's economic risk reflects its low per capita GDP (about $6,000) and the banking industry's high exposure to cyclical sectors such as small- to mid-size enterprises (SMEs) and microlending. We forecast GDP growth of about 2.5% in 2022, following a rebound of 13.3% in 2021 from a sharp decline due to the pandemic in 2020. Due to political instability, investors will likely remain more cautious, resulting in meager GDP growth in the next two years. Asset quality of the industry is likely to weaken in the second half of 2022, and for it to start recovering in 2023.

The industry risk for banks operating in Peru reflects a solid regulatory framework, with ample supervisory coverage and periodic risk-based supervision. The central bank and Superintendencia de Banca y Seguros--which regulates banks and insurers--are very active. Moreover, Peru has implemented Basel III standards tailored for the domestic financial system. Despite Peruvian banks' strong profitability, it has weakened during the pandemic, but we expect a consistent recovery. We also believe the financial system has healthy capital metrics and a diversified funding mix with a significant share of deposits from loyal customers, as well as the government's ability to provide liquidity if necessary. The law on loan interest-rate caps didn't significantly affect banks' profitability, but additional similar measures could weaken the system's competitive dynamics.

Business Position: Peru's Second-Largest Bank With Sound Market Presence And Business Stability

As the second-largest lender in Peru with a market share in terms of loans of 21.4% as of December 2021 (see chart 1), Banco BBVA Peru continues to expand its digital services, underscoring its goal to become a modern, agile, and omni-channel bank. As a universal bank, Banco BBVA Peru operates in a wide range of business lines including wholesale, retail, and investment banking products and services (through its various subsidiaries). Nevertheless, given that it's a commercial bank, its core business is lending (see chart 2). At the end of 2021, government-guaranteed loans under the Reactiva programs accounted for 15.5% of the bank's total loans, down from 21% at the end of 2020. The government funds these loans through repurchase agreements and provides guarantees. But given the low risk, these loans offer very low margins for the banks. For 2022, we expect an overall moderate growth in Banco BBVA Peru's loans with a declining share of Reactiva loans, but higher growth in other business segments, especially of retail customers.