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Peru’s Largest Bank Signals Recession is Spreading to Delinquent Loans

Peru’s largest lender, Credicorp Ltd, is bracing for delinquent loans to soar, a signal that the the country’s recession initially triggered by unrest and bad weather is spreading to the broader economy.

“Peru’s economic performance is significantly weaker than expected,” the company said in a statement alongside quarterly results, flagging bad weather brought by El Niño as a key risk extending through early 2024. The bank said that new estimates “reflect significant additional provisions for expected losses.”

Credicorp said provisions — the amount in loans the bank doesn’t expect to be repaid — had increased 85% compared to a year ago and was at historical highs if not for the pandemic. The company said it was seeing clients not repaying loans “due to a recessive environment impacted by high inflation, low internal demand and high interest rates” and “climate and social anomalies.”

In early after-hours trading, shares of Credicorp were down 4.7%.

The negative outlook for Peru’s economy is significant coming from Credicorp, which is the country’s largest publicly-traded company. It represents just the latest sign that Peru is no longer the economic outperformer in Latin America that it used to be, after boasting some of the fastest growth rates in the region this century. But years of political instability have eroded its potential, and social unrest and flooding ultimately tipped the economy into a recession this year.

The government led by President Dina Boluarte recently acknowledged the recession, but has struggled to jump start the economy as private investment dwindles. The government is upping public spending but has so far been unable to boost business confidence or attract significant new investments to its key mining industry.

Other financial institutions are also sounding alarms over the risk of El Niño next year.

Scotiabank said the central bank was unlikely to bring inflation down to its target range of between 1% and 3% next year due to the bad weather. Inflation is currently at 4.34%.

Source: BNN Bloomberg