Tuesday, December 16, 2008

Banking - Peru - IMF calls for close monitoring of bank foreign operations, higher NPLs

The continued close monitoring of foreign operations of Peruvian banks more exposed to the global financial crisis is important, the IMF said in a statement after concluding Article IV consultations with Peru.


To address this risk and others related to large exposure to riskier operations such as consumer and retail activities, consideration should be given to requiring financial institutions to increase their capital base, preferably with tier one contributions as needed, the IMF said.

The Washington-based institution also said it will be important to continue monitoring the growth in non-performing loans, particularly those to consumers and microenterprises, given the expected tightening of lending standards and the slowdown in economic activity.

Priority should be given in 2009 to enacting the increase in minimum capital requirements for microfinance institutions to protect their strong capitalization, including for new entrants, according to the IMF.

At the same time, the IMF welcomed Peruvian authorities' decision to tighten prudential regulations on consumer loans and the implementation of new procyclical provisioning rules, given the risks stemming from still buoyant credit growth.

Reforms to improve bank surveillance and intervention regimes and to implement better capitalization requirements in line with Basel II were also welcomed by the IMF.

The multilateral institution also said financial soundness indicators are strong and recent stress tests by Peru's financial sector watchdog confirm the financial system's overall resilience to a global slowdown, lower terms of trade and market risks.



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