May 6, 2020 / 9:34 PM / a month ago

UPDATE 1-Peru Central Bank to offer short-term loans, buy dollars from pension funds

(Adds pension fund comment, context)

By Marco Aquino

LIMA, May 6 (Reuters) - The Central Bank of Peru said on Wednesday it would offer short-term loans to the country´s private pension fund managers to help ease the pain of complying with a new law that allows citizens to partially withdraw their savings amid the coronavirus outbreak.

Julio Velarde, president of the bank, said the three-month loans would allow the fund managers to hang on to investments, preventing a fire sale of cheap assets at a time when the funds are already reeling from the impacts of the coronavirus spread.

Velarde said the bank would also buy dollars from the funds as necessary for a limited time.

“That will reduce the volatility of the exchange rate ... and limit the impact on the pension funds. Otherwise the dollar accounts would be liquidated for fewer soles,” Velarde said in a speech before a Congressional workgroup that was broadcast online.

Peru’s Congress late in April enacted a law allowing individual withdrawals of up to 25% of their holdings in private pension funds to mitigate the impact of the coronavirus pandemic.

The law put pressure on the four private pension fund companies that operate in Peru. Together, they manage an equivalent of $46 billion, according to data at the end of March.

Investment banks BTG Pactual and UBS have both nonetheless reaffirmed their “buy” recommendation for shares of holding company Credicorp, which controls AFP Prima, one of Peru’s pension funds.

AFP Prima investment manager Jose Larrabure said the funds would turn over sovereign bonds to back the central bank loans.

“The central bank will give us liquidity in order to make our payments without having to sell sovereign bonds under pressure,” Larrabure said.

Peru has been particularly hard hit by the global coronavirus pandemic. The number of new cases confirmed on Tuesday soared above 50,000 its despite being one of the region’s first to implement a shutdown when the coronavirus landed.

Peru ranks behind only Brazil for contagions in the region. (Reporting by Marco Aquino; additional reporting by Marcelo Rochabrun and Ana Maria Cervantes, Writing by Dave Sherwood; Editing by Leslie Adler)

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