Peru’s largest bank says recession extends to non-performing loans

2023-11-04 04:42:24

Peru’s largest lender, Credicorp Ltdis bracing for non-performing loans to skyrocket, a sign that the country’s recession initially sparked by unrest and bad weather is spreading to the broader economy.

“Peru’s economic performance is significantly weaker than expected,” the company said in a statement alongside quarterly results, pointing to bad weather caused by El Niño as a key risk that will extend into early 2024. The bank said the new estimates “reflect significant additional provisions for expected needs.”

Credicorp said provisions (the amount of loans the bank does not expect to pay) had increased 85% compared to a year ago. and they were at historic highs if it weren’t for the pandemic. The company said it was seeing customers default on loans “due to a recessionary environment impacted by high inflation, low domestic demand and high interest rates” and “climate and social anomalies.”

Credicorp shares fell more than 5% in early morning trading after publishing results.

The negative outlook for Peru’s economy is significant coming from Credicorp, which is the largest publicly traded company in the country. It represents just the latest sign that Peru is no longer the best economic performer in Latin America as it used to be, after boasting some of the region’s fastest growth rates this century.. But years of political instability have eroded its potential, and civil unrest and flooding finally pushed the economy into recession this year.

The government led by President Dina Boluarte recently acknowledged the recession, but has struggled to revive the economy as private investment declines. The government is increasing public spending but has so far failed to boost business confidence or attract significant new investment to its important mining industry.

Others Financial institutions are also sounding the alarm on the risk of El Niño next year.

Scotiabank said it was unlikely that The central bank will reduce inflation to its target range of between 1% and 3% next year due to bad weather. Inflation currently stands at 4.34%.