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TEXT-S&P affirms Scotiabank Peru 'BBB/A-2' issuer credit ratings
December 19, 2012 / 10:10 PM / 5 years ago

TEXT-S&P affirms Scotiabank Peru 'BBB/A-2' issuer credit ratings

     -- Peru-based bank Scotiabank Peru has maintained its strong
market position in the Peruvian financial system, healthy asset quality, and
good profitability and capitalization.
     -- We are affirming our 'BBB/A-2' issuer credit ratings on the bank. 
     -- The positive outlook reflects our view that we will raise the ratings 
on Scotiabank Peru following an upgrade of the sovereign. 

Rating Action
On Dec. 19, 2012, Standard & Poor's Ratings Services affirmed its 'BBB/A-2' 
issuer credit ratings on Scotiabank Peru S.A.A. The outlook on the long-term 
rating remains positive. The stand-alone credit profile (SACP) of the bank is 

Standard & Poor's bases its ratings on Scotiabank Peru on its "strong" 
business position, "adequate" capital and earnings, "adequate" risk position, 
"average" funding, and "adequate" liquidity (as our criteria define the terms).

Our bank criteria use our Banking Industry Country Risk Assessment (BICRA) 
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 is 'bbb'. Our economic risk score for 
Peru is '5', reflecting our opinion that economic improvements and the 
government's commitment to maintaining cautious fiscal policies and economic 
stability have strengthened its ability to withstand significant external 
shocks. In addition, the Peruvian economy is expanding, although this is not 
creating economic imbalances, in our opinion. However, the financial system's 
still-high, albeit decreasing, foreign currency exposure poses some risk. In 
this sense, if our view on macroeconomic stability deteriorates, our credit 
risk in the economy assessment could deteriorate. Our industry risk score for 
Peru is '4', reflecting sound regulations, regulators' strong track record, 
and the banking system's stable share of core deposits. We view the banking 
industry as stable and there is few market distortions. Although the private 
pension system has helped deepen the domestic capital market, we believe the 
market remains narrow.

Scotiabank Peru has a diversified business profile, with active participation 
in both retail and wholesale banking. We view business position as the bank's 
major credit strength in our assessment of its SACP. With total assets of 
about $36.1 billion as of Sept. 30, 2012, the banks is Peru's third-largest 
financial institution with a market share of about 15% in terms of total loans 
and 13% in terms of deposits. In addition, the bank's loan portfolio is well 
diversified: commercial loans account for 59%, mortgages 16%, small business 
and microcredit 10%, personal loans 8%, and credit cards 5%. We believe 
Scotiabank Peru will continue taking advantage of its relatively high 
economies of scale, operating expertise through its parent, and good prospects 
for the Peruvian economy to maintain its sound profitability. We also expect 
that it will maintain its good operating efficiency, by expanding business 
volumes, and healthy asset quality, which should result in a good return on 
average assets (ROAA) ratio of about 2.6% despite a potential further decrease 
in spreads amid high competition in the Peruvian financial system.

We view Scotiabank Peru's capital and earnings as "adequate," based on our 
projected risk-adjusted capital (RAC) ratio before diversification of about 
8.8% for the next 12-18 months. Our forecast is based on our base-case 
scenario of loan growth of about 15% for 2012 and 2013, relatively stable net 
interest margins and return on assets, and a dividend payout of 30%. We 
consider Scotiabank Peru's quality of capital and earnings as strong, given 
its capital is 100% composed of Tier 1 capital and its profitability has 
remained sound over time. We assess the bank's earnings capacity as adequate 
because we expect its earnings buffer to be around 2.2%.

Our risk position assessment for Scotiabank Peru is also "adequate." We 
consider that the bank's loan portfolio is well diversified by customer base 
and economic sectors and that it will likely remain healthy because of the 
solid Peruvian economy. In addition, the bank is not significantly exposed to 
single-name concentration: the bank's top 20 exposures represented about 14% 
of its total portfolio as of September 2012. Scotiabank Peru's good 
underwriting capabilities supported by the oversight of its parent result in 
low nonperforming loans (NPLs), which were only 1.6% of total loans as of 
Sept. 30, 2012. Also, net charge-offs represented only 1.1% of average 
customer loans, and loan loss reserves were a good 2.1x of NPLs as of Sept. 
30, 2012.

We view Scotiabank Peru's funding profile to be in line with the industry, 
with deposits representing about 74% of its funding base. We consider that the 
bank benefits from a relatively large retail deposit base and the growing 
Peruvian economy. In addition, the bank has fluid access to the domestic and 
global capital markets. Our assessment of its liquidity as "adequate" reflects 
its liquid assets (cash and money market instruments, securities available for 
sale and trading securities) that account for about 23% of total assets and 
29% of total deposits as of Sept. 30, 2012. 

The issuer credit rating is one notch lower than the 'bbb+' SACP, because we 
consider that Scotiabank Peru doesn't meet the requirements to be rated above 
the sovereign foreign currency credit rating. However, we consider Scotiabank 
Peru to be a strategic subsidiary of The Bank of Nova Scotia (BNS; 
A+/Stable/A-1), which owns 97.7% of the bank. 

The positive outlook reflects our view that we would raise the ratings on 
Scotiabank Peru following an upgrade of the sovereign. Since we consider 
Scotiabank Peru a strategic subsidiary of BNS, a deterioration in the bank's 
SACP of up to two notches wouldn't harm its ICR, because we incorporate 
notches of uplift of parent support. We expect the bank will maintain its 
strong market position in the Peruvian financial system, healthy asset 
quality, and good profitability, capitalization, and liquidity during the next 
two years.

Ratings Score Snapshot

Issuer Credit Rating         BBB/Positive/A-2
SACP                         bbb+
Anchor                       bbb
Business Position            Strong (+1)
Capital and Earnings         Adequate (0)
Risk Position                Adequate (0)
Funding and Liquidity        Average and adequate (0)
Support                      +3
GRE Support                  0
Group Support                +3
Sovereign Support            0
Additional Factors           -4

Related Criteria And Research

     -- Banking Industry Country Risk Assessment Methodology And Assumptions, 
Nov. 9, 2011
     -- Banks: Rating Methodology And Assumption, Nov. 9, 2011
     -- Group Rating Methodology And Assumptions, Nov. 9, 2011
     -- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011

Ratings List
Ratings Affirmed

Scotiabank Peru S.A.A.
 Counterparty Credit Rating             BBB/Positive/A-2   

Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at Use the Ratings search box located in the left 

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