Scotiabank Perú A : 22. INFORMES DE CLASIFICACIÓN DE RIESGO. OTROS HECHOS DE IMPORTANCIA

Ratings On Nine Peruvian Financial Institutions

Affirmed Under Revised Criteria, Outlook Remains

Negative

December 15, 2021

• On Dec. 9, 2021, S&P Global Ratings published its revised criteria for financial institutions.
• We have reviewed our ratings on nine financial institutions in Peru under our revised criteria.
• We have affirmed the ratings on these banks, and the outlooks are unchanged.

SAO PAULO (S&P Global Ratings) Dec. 15, 2021--S&P Global Ratings affirmed its issuer credit and issue-level ratings on the following financial institutions. The affirmations follow a revision to our criteria for rating banks and nonbank financial institutions and for determining a Banking Industry Country Risk Assessment (BICRA) (see "Financial Institutions Ratings Methodology," and "Banking Industry Country Risk Assessment Methodology And Assumptions," both published Dec. 9, 2021). The rating affirmations occurred on the following entities:

• Banco de Credito del Peru (BCP; BBB+/Negative/A-2);
• MiBanco, Banco de La Microempresa S.A.(MiBanco; BBB+/Negative/A-2);
• Credicorp Ltd. (BBB/Negative/--);
• Banco BBVA Peru (BBB+/Negative/A-2);
• Scotiabank Peru S.A.A. (BBB+/Negative/A-2);
• Intercorp Financial Services Inc. (IFS; BBB-/Negative/A-3);
• Banco Internacional del Peru S.A.A - Interbank (Interbank; BBB/Negative/--);
• Corporacion Financiera de Desarrollo S.A. (COFIDE; BBB/Negative/A-2); and
• Fondo Mivivienda S.A. (FMV; BBB+/Negative/--)

Our outlooks on the nine financial institutions remain unchanged.

Our assessments of economic risk and industry risk in Peru also remain unchanged at '6' and '3', respectively. These scores determine the BICRA and the anchor, or starting point, for our ratings on financial institutions that operate primarily in that country. In our view, the trends for economic and industry risks remain negative and stable, respectively.

PRIMARY CREDIT ANALYST

Sergio A Garibian

SECONDARY CONTACT

Ivana L Recalde

BCP

We affirmed our ratings on BCP. We base our ratings on BCP on its leading position in Peru in almost all the business lines in which it operates, large scale and diversified business with participation in retail and wholesale banking, asset management, private banking, and treasury activities. These factors confer significant business stability. The bank's capitalization metrics weakened in 2020 because of the significant increase of provisions due to the pandemic-induced economic shock, reduced revenues from fees, and lower margins of guaranteed loans. The relief of the guarantees on capital risk weights mitigates the weaker metrics. We expect capital metrics to gradually recover amid the projected economic rebound, lower provision requirements, and prudent dividend distributions. Like those of domestic peers, BCP's asset quality metrics took a hit from the large informal economy and low-income levels in Peru, tempered by loan moratoriums and borrower support packages in 2020, effects of which will diminish over time. We expect margins to rebound as the share of government-guaranteed loans with thin margins decreases, fee income picks up, and provisioning charges moderate. But bottom-line profits won't return to pre-pandemic levels until 2022.

Outlook

The negative outlook on BCP 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 BCP's high exposure to the domestic market. Also, the outlook reflects the potential impact of a negative trend in the economic risk in our BICRA of Peru, and already tight capitalization metrics. This would prompt us to revise downward our capital assessment and the stand-alone credit profile (SACP) on BCP, and consequently, lower our ratings on it.

Upside scenario We could revise the outlook on the bank to stable if we were to revise the outlook on the sovereign and the trend for economic risk to stable, while all of the bank's other fundamentals remain unchanged.

Ratings Score Snapshot

Issuer credit rating: BBB+/Negative/A-2

• SACP: bbb+
• Anchor: bbb-
• Business position: Strong (+1)
• Capital and earnings: Strong (+1)
• Risk position: Adequate (0)
• Funding and liquidity: Adequate and adequate (0)
• Comparable rating analysis: 0
• Support: 0
• ALAC support: 0
• GRE support: 0

• Group support: 0
• Sovereign support: 0
• Additional factors: 0

MiBanco

We affirmed our issuer credit ratings on MiBanco We consider MiBanco as a core subsidiary of BCP, because the former plays an important role in the group's business diversification strategy. The subsidiary has been very profitable in recent years, and we believe BCP has a strong and long#term commitment to support MiBanco. Moreover, MiBanco continues to take advantage of its parent's expertise in key areas such as credit scoring development, compliance, risk management, capital management, and funding. Given its core subsidiary status, we equalize our ratings on MiBanco with BCP's group credit profile. On the other hand, high concentration in the microfinance segment and lower asset quality than the banking industry partly limit MiBanco's SACP.

Outlook

The negative outlook on MiBanco reflects the one on its owner, BCP.

Upside scenario We could revise the outlook on the bank to stable if we were to revise the outlook on BCP.

Ratings Score Snapshot

Issuer credit rating: BBB+/Negative/A-2

• SACP: bb+
• Anchor: bbb-
• Business position: Adequate (0)
• Capital and earnings: Adequate (0)
• Risk position: Moderate (-1)
• Funding and liquidity: Adequate and adequate (0)
• Comparable rating analysis: 0
• Support: 0
• ALAC support: 0
• GRE support: 0
• Group support: +3
• Sovereign support: 0
• Additional factors: 0

Credicorp

We affirmed the ratings on Credicorp, a nonoperating holding company based in Bermuda that has investments in multiple players in Peru's financial industry and presence in several other Latin American countries. The ratings on the entity incorporate its overall creditworthiness (group credit profile [GCP]) of 'bbb', reflecting the group's leading position in Peru's financial industry, and diversification in other business units. The GCP doesn't include potential extraordinary government support because we don't expect that such support would be extended to Credicorp.

The dependence on dividend streams that mainly come from highly regulated entities is mitigated by Credicorp's substantial liquid assets. Given its status as a nonoperating holding company, the ratings on Credicorp factor in its dependence on the subsidiaries' upstream dividends to service its debt, particularly dividends from BCP. Such dependence is mitigated by Credicorp's holding of significant unencumbered liquid assets in the form of cash and nonstrategic investments, enabling it to cover potential contingencies or capital needs at the subsidiaries' level and comfortable debt service coverage metrics at the holding level. Our base-case scenario doesn't assume the use of cash holdings for significant investments or for extraordinary dividend payments.

Outlook

The negative outlook on Credicorp reflects the potential effects that a deterioration in Peru's credit fundamentals and its financial system could have on the company's asset portfolio, fundamentals, and dividend stream. Despite some regional diversification, a substantial portion of the dividends Credicorp receives stem from its Peruvian operations across various financial business segments. However, we believe this is tempered by Credicorp's substantial liquid assets at the holding that ensures debt service coverage, even in a scenario of low dividend revenues.

Upside scenario We could revise the outlook on Credicorp to stable if we were to revise the outlook on Peru to stable, and if the entity's all credit fundamentals remain unchanged.

Banco BBVA Peru

We affirmed our ratings on Banco BBVA Peru. We base our ratings on Banco BBVA Peru on its well-recognized franchise and significant market share in Peru because of its wide and stable client base and diversified business lines. 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. Banco BBVA Peru's capitalization metrics have benefited from sound internal capital generation. We believe Banco BBVA Peru's credit losses will remain contained thanks to the high levels of provisions raised last year to protect its balance sheet because of the pandemic. Asset quality will deteriorate in 2021 due to the large informal economy and low-income levels, once loan moratoriums and borrower support packages are withdrawn. However, nonperforming loans should remain contained, as the bank writes off or sells the provisioned portfolio. Profitability should start recovering in 2021. We expect margins to rebound as the share of government-guaranteed loans with thin margins decreases, fee income picks up, and provisioning charges moderate. But bottom-line profits won't return to pre-pandemic levels until 2022.

Outlook

The negative 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., but we don't expect the entity would receive extraordinary support from its parent in case of sovereign distress.

Upside scenario We could revise the outlook on the bank to stable if we were to revise the outlook on the sovereign to stable.

Ratings Score Snapshot

Issuer credit rating: BBB+/Negative/A-2

• SACP: bbb+
• Anchor: bbb-
• Business position: Strong (+1)
• Capital and earnings: Strong (+1)
• Risk position: Adequate (0)
• Funding and liquidity: Adequate and adequate (0)
• Comparable rating analysis: 0
• Support: 0
• ALAC support: 0
• GRE support: 0
• Group support: 0
• Sovereign support: 0
• Additional factors: 0

Scotiabank Peru

We affirmed our ratings on Scotiabank Peru. We consider it to have a solid business profile, stemming from its position as the third-largest bank in Peru and its business diversification. Earnings, the flexible dividend policy, and moderated credit growth have strengthened capitalization metrics despite the pandemic's harsh hit to economy. These factors helped temper the deterioration in the bank's asset quality metrics in late 2020, due to the pandemic and the exposure to lower-income borrowers. In the first nine months of 2021, Scotiabank Peru's metrics improved, given actions taken by the entity, and we expect further progress. We will monitor these factors and a potential impact on the bank's intrinsic credit fundamentals (business position and/or risk position). However, ratings won't be affected, given the buffer of potential support from the group.

We continue to view Scotiabank Peru as a strategically important subsidiary of The Bank of Nova Scotia (BNS; A+/Stable/A-1), which owns 98% of the former. Scotiabank Peru operates in the