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

Ratings Score Snapshot

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 Risk-Adjusted Capital (RAC) Ratio, But Not Ratings

Risk Position: Asset Quality Somewhat Weaker Than Industry Average Given Reactiva Loans And Loan Mix Change

Funding And Liquidity: Customer Deposits Represent The Bulk Of Funding

Support: BBVA's Strategically Important Subsidiary

Environmental, Social, And Governance (ESG)

Firmado Digitalmente por:

WILLIAM SCHELLO SANDOVAL CUBA

Fecha: 16/10/2023 11:31:55 a.m.

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Table Of Contents (cont.)

Key Statistics

Related Criteria

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Banco BBVA Peru

Ratings Score Snapshot

Issuer Credit Rating

BBB/Negative/A-2

Credit Highlights

Key strengths	Key risks
Sound business position given Banco BBVA Peru's diversified business	Low per capita GDP weakens Peru's economic resilience and limits
portfolio and its status as the second-largest bank in Peru.	debt capacity.
Solid operating performance and track record.	Political volatility denting short- to medium-term economic growth in
	the country, affecting the banking industry and the bank.
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.

Increasing margins, guarantees for loans under government programs, and adequate provisions partly compensate for

weaker asset quality. The bank's asset quality continued to erode, given the increased share of retail and small to midsize enterprise (SME) loans, social unrest, and adverse climate events in Peru. Also, metrics are taking a hit as loans granted under government programs mature. The mitigating factors are higher margins related to the change in the portfolio mix, loan guarantees under government programs, and adequate provisions and profitability.

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Banco BBVA Peru

Capitalization to remain a credit strength. Capitalization metrics remain sound, given the consistent recovery in

results after the pandemic, despite the still relatively high provisioning requirements because of the higher exposure to

retail loans, which have somewhat lower credit quality but generate higher profitability. Also, the bank can adjust

dividend distributions, if needed.

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 a wide access to domestic and international capital markets, and to central

bank funding (e.g., when actions were taken to reduce dollarization in the banking system, and more recently, to

mitigate the impact of the pandemic).

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 negative outlook on Banco BBVA Peru reflects the outlook on Peru. We could lower the sovereign ratings if prolonged political impasse or further adverse developments reduce the predictability of policymaking or worsen institutional stability, auguring badly for economic policy outcomes. On the other hand, a downward revision of the bank's stand-alone credit profile (SACP; for instance, because of lower capitalization and/or higher credit risks) wouldn't result in a downgrade, given that Banco BBVA Peru is a strategically important subsidiary that could receive group support, which could result in up to three notches of uplift to the rating above the bank's SACP.

Downside scenario

We expect that the ratings on the bank will move in tandem with those on the sovereign in the next 12-24 months because of Banco BBVA Peru's high exposure to the domestic market. We rarely rate financial institutions higher than the sovereign where they operate, because we consider it unlikely that these institutions would remain unaffected by developments in domestic economies.

Upside scenario

We could revise the outlook on Banco BBVA Peru to stable if we were to take a similar action on the sovereign.

Key Metrics

Banco BBVA Peru--Key ratios and forecasts*

		--Fiscal year ended Dec-31--
(%)	2020a	2021a	2022a	2023f	2024f
Growth in customer loans	19.7	5.7	-1.7	0,0-0,5	5,5-6,5
Growth in total assets	31.3	-5.4	-3.4	0,5-1,0	5,0-6,0
Net interest income/average earning assets (NIM)	4.0	4.1	5.2	5,2-5,5	5,0-5,5

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Banco BBVA Peru

Banco BBVA Peru--Key ratios and forecasts* (cont.)

		--Fiscal year ended Dec-31--
(%)	2020a	2021a	2022a	2023f	2024f
Return on average common equity	7.0	16.0	17.9	16,5-17,5	15,0-16,0
Return on assets	0.7	1.5	1.9	1,7-2,0	1,7-2,0
Gross nonperforming assets/customer loans	3.2	3.7	4.3	4,5-5,0	4,3-4,7
Net charge-offs/average customer loans	0.3	0.5	0.6	0,6-0,9	0,5-0,8
Risk-adjusted capital ratio	10.3	10.4	10.6	10,6-10,9	11,0-11,3
a--Actual.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 SMEs and microlending. Due to political instability, we believe investors will likely remain more cautious, resulting in meager GDP growth in the next two years. In this context, moderate economic growth, and higher inflation and interest rates will continue to drag down the industry's asset quality, although mitigated by higher provisions and conservative underwriting practices.

The industry risk for banks operating in Peru reflects a solid regulatory framework, with ample supervisory coverage and periodic risk-based supervision. Profitability has recovered from the pandemic, which together with adequate provisioning levels, should allow banks to weather the deterioration in assets quality, stemming from political instability, adverse climate conditions in Peru, and the maturities of loans guaranteed by the government granted during the pandemic. We believe the financial system has healthy capital metrics and a diversified funding mix with a significant share of deposits from loyal customers. We also consider that the government has the ability to provide liquidity, if necessary. The law on loan interest-rate caps and elimination charges for late payments didn't erode banks' profitability, but 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 20.5% as of June 2023 (see chart 1), Banco BBVA Peru continues to expand its digital services, underscoring its goal to become a modern, agile, and omni-channel bank. About 55% of transactions in the first half of 2023 were performed through mobile banking, and about 40% through the service platform for enterprises. The bank has a wide geographic coverage through its network of branches (301), ATMs (1,773), and express agents (17,885). 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).

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