Bloomberg News

Peru Bank Regulator Says Cap ‘Last Resort’ for Lowering Rates

January 04, 2012

Dec. 22 (Bloomberg) -- Peru’s chief banking regulator is working with lenders to bring down annual interest rates on loans that run as high as 120 percent by promoting competition and best practices, saying a cap on rates is “a last resort.”

The regulator aims to help banks assess the risk of lending to clients, enabling them to charge less for loans, the Superintendent of Banks, Insurance and Private Pension Funds, Daniel Schydlowsky, said in a Dec. 20 interview in Lima.

“Ceilings are a last resort,” said Schydlowsky, a former Harvard University professor who was appointed Superintendent in August. “We want to bring rates down in an efficient and effective way, and we’re getting cooperation from the financial system.”

Ollanta Humala’s June 5 election as president led to calls from his party to impose a ceiling on interest rates. Humala’s campaign platform said high rates were preventing smaller businesses from obtaining credit. Chilean President Sebastian Pinera is seeking congressional approval to lower the maximum interest rate on loans to consumers and smaller businesses from above 50 percent.

If the regulator doesn’t succeed in cajoling Peru’s banks into reducing interest rates in the next two to four years, Congress may seek to impose a cap, Schydlowsky said.

Interest rates on consumer loans average 39 percent in Peru, while loans to the smallest companies carry an average 33 percent rate, according to the Superintendency’s website. Some lenders charge high-risk clients who don’t have a steady income as much as 120 percent for 90-day loans, which is “very high” Schydlowsky said. The central bank has kept its reference rate at a two-year high of 4.25 percent since June.

Best Solution

Lenders that lack the technology or expertise to calculate lending risks effectively charge their clients more, which encourages competing lenders with superior risk assessment to offer similar rates, Schydlowsky said.

“The bank that’s better at calculating the customer’s risk is pricing at the second- or third-best bank’s prices,” he said. “Not all banks are created equal. You don’t solve that by a ceiling. You solve it by getting the laggard bank to be swifter.”

Schydlowsky, a former Peruvian central bank director, has taught economics at Boston University and The American University in Washington and published four books. He was an economic adviser to former President Alejandro Toledo during his 2001 to 2006 term and has been a consultant to the World Bank and the United Nations.

Competition, Technology

As many as five foreign banks are likely to establish or expand operations in Peru next year, which will increase competition and eventually put downward pressure on interest rates, he said. Four lenders currently provide 84 percent of all loans, according to the country’s banking association.

Chile’s Cencosud SA will probably open a consumer finance unit in Peru next year, while Industrial & Commercial Bank of China, Bank of China Ltd, Japan’s Bank of Tokyo-Mitsubishi UFJ Ltd. and Brazil’s Itau Unibanco Participacoes SA may open offices, lured by Peru’s region-beating economic growth and the local industry’s “good” profits, he said.

Chile’s Ripley Corp SA and Colombia’s BanColombia SA may expand existing financial operations in the country, he said.

The introduction of mobile-phone banking to Peru next year will help lenders lower costs and charge less for loans, Schydlowsky said.

‘Much Safer’

Peru’s outstanding bank loans rose 16 percent in November from a year earlier to 125 billion soles ($46.3 billion), according to the Andean country’s banking association. The non- performing loan ratio fell seven basis points to 1.52 percent.

Peruvian banks passed stress tests conducted by the regulator and are well-prepared in case a worsening debt crisis leads European banks to sever foreign credit lines, Schydlowsky said.

Banks have begun increasing their capital requirements to an average 13.7 percent, from 10 percent previously, and they have “ludicrously high” liquidity ratios equivalent to 37 percent of short-term liabilities in local currency and 49 percent in foreign currency, he said.

Around 10 percent of local banks financing comes from overseas, compared with 25 percent at the time of the 2008 collapse of Lehman Brothers Holdings Inc.

“We’re much safer than last time around,” he said. “We’re covered against everything we can think of.”

The Andean nation may pioneer a credit risk system designed to increase the cost of lending to investors, such as mining companies, who haven’t taken steps to mitigate the effects of their activities on the local community or the environment, Schydlowsky said.

The regulator will consult the banking industry on its proposals and aims to introduce the legislation by 2013, he said.

--Editors: Philip Sanders, Robert Jameson

To contact the reporter on this story: John Quigley in Lima at

To contact the editor responsible for this story: David Papadopoulos at

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