At the top: Microfinance is high on the agenda for the nation’s biggest banks

Given impressive growth figures and high profit margins, a number of international banks have expressed their interest in entering the domestic market. For the moment, however, the country’s banking sector is a consolidated one. While there are 15 banks, a significant majority of the sector’s assets are held by the “big four”, which together account for 80% of assets. BANCO DE CRÉDITO DEL PERÚ: Banco de Crédito del Perú (BCP) is the largest bank in the country. With $25bn in assets, BCP holds a 35% share of the market. A subsidiary of Peruvian financial holding company Credicorp, BCP is a full-service bank with retail and corporate operations and a microfinance arm. As of December 2011, the bank reported a 15.2% annual increase in fourth-quarter profits and return on equity (ROE) of 24.27%. While BCP has traditionally concentrated on corporate banking, which accounted for 10% of its net financial margins as of June 2011, lately the bank has been turning its attention to other segments. This shift is focused primarily on retail banking. The bank increased its retail credit offering from 15% of total loan portfolio in 2002 to 47% in June 2011. According to Peruvian risk rating company Apoyo y Asociados, the bank would like to see retail operations account for 50% of the total loan portfolio in the long term.

“Our growth target is focused on what we call minority lending – consumer and microenterprise loans. Goals in this area are more aggressive than for our work with large companies. Our efforts are geared towards consumers at present,” Alonso Segura, the head of strategy and chief economist at BCP, told OBG. To this end, in September 2009 BCP acquired Financiera Edyficar, a well-established microfinance institution with 12 years of experience in the country. Since joining BCP, Edyficar has grown into the fifth-largest microfinance institution in Peru by gross loan portfolio. BCP’s purchase of Edyficar follows a trend among the country’s big banks, three out of four of which have acquired entities with an expertise in microfinance. “We are aware that conventional lending technology doesn’t work when trying to reach out to lower-income segments and microenterprises. So we bought someone who knows how to do the job,” said Segura.

Another integral component of BCP’s efforts to tap into new, unbanked segments of the population is the bank’s extensive physical network. BCP operates 330 offices and 1300 ATMs. The bank is also actively involved in training banking agents to conduct simple operations (withdrawals, bill pay and transfers) out of small, local businesses such as bodegas (convenience stores) and pharmacies. The bank has a total of 4000 of these agents, known as cajeros corresponsales. The bank’s infrastructure will be expanding even more through an aggressive branch-building effort over the next several years, with BCP hoping to increase its number of branches by more than 30%. Effective risk management is another important element of BCP’s overall growth strategy. “The risk department in the bank is growing very quickly as we continue to develop and test new models on a regular basis,” Segura told OBG.

BBVA CONTINENTAL: As the second-largest bank in the country, BBVA Continental holds $15bn in assets, or 22% of the industry total. The Peruvian bank is a subsidiary of Holding Continental, of which Spanish bank BBVA owns 50% and Grupo Brescia, a family-owned Peruvian business conglomerate, the other 50%. It is a full-service bank with corporate, retail and microfinance operations. According to BBVA Continental’s third-quarter 2011 report, the bank’s total loan portfolio grew by 17.5% from December 2010 to September 2011. Additionally, ROE was reported at 33.35%.

In 2011 the bank began to participate in BBVA’s global expansion plan known as BBVA x3. With the goal of tripling the size of BBVA’s global operations in the next five years, BBVA x3 focuses on three areas: prioritising client benefits; developing a new distribution model that will attract new clients and win their loyalty; and improving efficiency through “lean” processes. The latter two objectives seem to be the bank’s primary motivation behind its heavy investments in new technology, which it is hoping will bring about paperless processes for its loan services. Hugo Perea, the chief economist at BBVA Continental, told OBG of the bank’s recent work on remodelling its Lima headquarters and constructing modern branches. According to Perea, “In the short run, these investments in technology do represent a significant cost for us, but in the long run we believe that this will pay off. We want to be the sort of bank where you go to apply for a loan and throughout the entire process you never see a piece of paper.”

In terms of the bank’s network, as of August 2011 BBVA Continental had a total of 268 offices. Of these, 76 were in the provinces outside of Lima and 192 in Lima. The bank also has an extensive network of some 3000 cajeros corresponsales. According to Perea, the cajeros corresponsales represent lower operating costs when opening a branch in more remote areas.

Similar to BCP, BBVA Continental is also active in the microfinance sector. In 2007 BBVA established the BBVA Foundation for microfinance in Peru and Colombia. In the same year, BBVA Continental acquired microfinance institutions (MFIs) Caja Nor Perú and Caja Sur. In 2008 the bank purchased an additional microfinance institution, Crear Tacna, combining all three of these MFIs to form Caja Rural Nuestra Gente, which is currently the 10th-largest MFI in Peru in terms of gross loan portfolio. BBVA Continental made an additional bid at becoming a leader in the microfinance sector with the purchase of Financiera Confianza in March 2011. The bank’s efforts to develop its microfinance arm seem to align with the global BBVA x3 goal of finding new ways to reach clients, a particularly important aim in Peru where bank penetration levels remain low.

SCOTIABANK: Scotiabank is the third-largest player in the sector. With $11bn in assets, it accounts for 15% of the industry total. A subsidiary of the Canadian Bank of Nova Scotia, Scotiabank was formed in 2006 out of a merger of Banco Sudamericano and Banco Wiese Sudameris. It is a full-service bank, and ROE currently stands at 20.49%. Scotiabank focuses on retail banking, specialising in small and medium-sized business loans. As of June 2011, retail banking accounted for 42% of the bank’s total loan portfolio, rising to 49% when its microfinance arm – CrediScotia – is included.

Guillermo Arbe, the chief economist at Scotiabank, told OBG that, similarly to all of the country’s big banks, Scotiabank is targeting a segment he identified as “emerging retail”, a reference to Peru’s growing middle class. As part of this effort Arbe said the bank is expanding its infrastructure with more ATMs and branches both within and outside of Lima. The bank was scheduled to open 22 new offices in 2011.

In 2009 Scotiabank acquired microfinance bank, Banco del Trabajo, renaming it CrediScotia. CrediScotia currently divides its business between personal and small business loans. It is currently the second-largest microfinance bank in the country in terms of gross loan portfolio. Finally, Scotiabank has recently become active in the pension fund market. Having acquired a 47.5% share in Profuturo AFP in 2008, the bank subsequently increased its stake to 99.5% in 2010.

INTERBANK: As the fourth-largest bank in the country, Interbank holds $7.4bn in assets, or approximately 10% of the industry total. Originally known as Interbanc, the bank was purchased from the government in 1994 by Peruvian businessman Carlos Rodríguez Pastor and several North American business partners. Today Interbank is a subsidiary of Intergroup Financial Services (IFS). While the bank provides both commercial and retail services, personal banking is the thrust of the business and accounts for 50.1% of its portfolio. Interbank owns the largest ATM network in the country (1680 in total). The bank also has 239 offices. Apoyo y Asociados reports that the bank plans to expand its network at a moderate pace in the future. While the three largest banks work to increase their share of Peru’s thriving retail market, Interbank has played a dominant role in this segment for more than a decade. As the big four reach towards Peru’s middle classes one might expect competition to reach new heights as banks such as the Chilean Cencosud and the Industrial and Commercial Bank of China prepare to enter the market in 2012.