RIPE FOR GROWTH

Peru 2015 | FINANCE | VIP INTERVIEW

TBY talks to Carlos González-Taboada, CEO of Scotiabank Peru, on its Citibank acquisition, measures to include more Peruvians in the private pension system, and currency pressures.

In what ways will Scotiabank's acquisition of Citibank's retail and commercial banking operations in Peru impact local operations?

Scotiabank's first stage of activity in Peru was as a shareholder of a small bank. However, as the bank grew it developed a new strategy of maintaining a balance between the sustainable growth of our business operations, and the acquisition of complementary lines of business that can benefit the company. In fact, Scotiabank in Peru was born out of the merger of two banking institutions, and we subsequently acquired a third company, which we transformed into a financial institution focused on credit lines to small companies and low- and middle-income consumers. Later we expanded operations into wealth management by purchasing a private pension fund administrator. Lately, we have incorporated the consumer portfolio of Citibank, because we believed it complemented our existing portfolio and put us in a strong position to develop a platform of premium banking in Peru. In our long-term vision, it provides us a solid growth expectation in the country, which has had a stable growth rate for the past decade, and invested regularly in the country. We see plenty of opportunities in the lending segment, as well as in savings. One of our key goals is to convert companies in these two segments into long-term clients.

What market segments offer the greatest expansion potential for your institution?

Scotiabank has had a strong focus on developing activities in Latin America and Asia since the late 1990s. In this region, the company aimed at increasing market share and operations in the key countries of the region; the first large investment was in Mexico, followed by Central America and the Caribbean region, and also South America. Peru, Chile, and Colombia were the main focus markets, and the company now has a focus on growing alongside the Pacific Alliance. We see huge potential in Peru, a country with an impressive growth rate over the past decade. The performance of the country has exceeded the regional average, and the market offers many competitive advantages. There is, for example, the potential for 15 million saving accounts.

“Market formality is a key element in this particular segment of the market."

What measures are needed to include more Peruvians in the private pension system?

The private pension market in Peru is a rather small one. Recent reforms have ensured that the system will be able to offer better returns in terms of capitalization of savings, as well as better services. The size of the private fund administrators is now reasonable as compared to the market, which helps to offer better services to a more mature market. The system offers a very good option to secure workers once they have ended their working life. Peru has true potential in the capital markets that, supported by the internal savings market, could contribute to the development of key projects. At the moment, the country is engaged in around $20 billion worth of infrastructure projects. Looking to the future, there is the potential for some $60 billion thanks to the equilibrium that growth, capitalization, and savings bring to the country.

Could you further explain your strategy in the micro finance market?

Market formality is a key element in this particular segment of the market, especially in the commercial and industrial sectors. It is difficult to measure informality. However, we should tackle informality in the labor market first, as this is one of the key issues in all economies. Micro credits offer future opportunities to micro businesses, and we believe that as long as we support them in the first stages, we will have developed a highly loyal client for the institution. Therefore, we prioritize accompanying these micro businesses as they undertake a variety of first steps and services. I think that the more clients we incorporate into the formal credit market, the more we will contribute to reducing informality.

Do you foresee currency pressures jeopardizing Scotiabank's earnings for 2015? How could these pressures affect your activity?

The Central Bank of Peru has taken positive steps over the past few years, anticipating key situations and effects from international markets. These decisions have reduced volatility and kept inflation at the lowest levels for the past century. We have also achieved high levels of stability in the finance market. The dollarization of the country has strongly decreased as the growth of Peru is more solid and stable, and this is well recognized by Peruvians. For example, between 2003 and 2005, 70% of the credit of the finance sector was in dollars. Today, the figure is just 40%. Around 3% to 5% of that figure comes from foreign exchange, which is denominated in dollars, and a large percentage of that 40% derives from automotive credits. Therefore, the direct impact on people is very low. We are rapidly advancing toward being an economy based only in soles. The foreign exchange impact on Peruvian businesses is rather low; therefore, so too, is its impact on our activities. Peru and the sol have all the qualities to become one of the lowest devaluation currencies in the entire region, and well below the average. On top of that, the measures of the Central Bank help to control volatility, while the positive economic trends in key sectors such as mining, agriculture and fishery give rise to positive sentiment.

© The Business Year - April 2015