This local-currency operation—the IIC’s second—involves issuing bonds on the local financial market to obtain local-currency funding for lending to local financial institutions in Peru. One of them is Banco de Crédito del Perú, S. A. (BCP), which anticipates that microenterprises and small and medium-size companies will account for most of its loan portfolio within four or five years.
At present, only 29 percent of Peru’s more than three million micro- and small enterprises work with the formal banking sector. One of BCP’s principal goals is to bring them into the banking system. To be able to do so, it will need to dedollarize its portfolio to reduce its foreign exchange risk, because most smaller businesses do not generate foreign currency. Peru’s banking system is heavily dollarized because sources of local-currency funding are limited.
The local-currency loan from the Corporation will contribute to the dedollarization of BCP’s portfolio as the Corporation itself seeks to replicate the success of its first local currency operation (carried out in Colombia in 2005). The operation will introduce new financial instruments in Peru and enable BCP to enhance its support for Peruvian microenterprises and small and medium-size companies with special products and services.
The operation will have a positive impact on the Peruvian capital market, which currently has very high liquidity levels and few issuers. It will provide investors with a new, highly rated, nongovernment instrument for their investment portfolios.
This will be the first operation in Peru in which an international financial institution obtains local-currency funding in the local capital market with the intention of granting a subordinated local-currency loan. In the past, the proceeds from local-currency bonds issued by multilateral institutions in Peru have been swapped for dollars.
This operation could be replicated in other countries in the region, either by other multilaterals or by international financial institutions operating in Peru.
Basic Information Project Name: Banco de Credito Perú Project Number: PE3824A-01 Country: Peru Sector: Financial Services Approval Date: 11/28/2006 Financial Information Type of Financing: Loan Total Project Cost: $ 30,000,000 Financing Currency: United States Dollar IIC Financing Amount: $ 30,000,000