Contents

Overview

The Peruvian financial services industry is making a strong comeback this year despite major corruption scandals that led to the resignation of the country's president and the ousting of the justice minister.

There was an unexpected spike in political risk in March when market-friendly Pedro Pablo Kuczynski (PPK) was forced to resign from the presidency over links to the Odebrecht scandal and influence peddling. His VP, Martín Vizcarra, took over and will complete PPK's five-year term through July 2021.

Only a few months after taking the reins of the country, Vizcarra faced a scandal that rocked the judicial system, leading to the ouster of the head of the supreme court along with the justice minister over accusations that judges were selling lighter sentences for a price. 

These scandals have not been able to derail a significant recovery in demand for banking and insurance products that is driven by stronger domestic demand as Peru appears to be leaving behind a period of sluggish economic growth that began in 2014, with growth expanding faster than 4% in 1H18.

The recovery is stronger in the banking sector, where the pace of lending could enter double digit territory this year, while the insurance sector has also seen a clear improvement from 2016-17, when growth in premiums was hit hard by the weak economy and a highly controversial pension reform.

Despite slower growth in 2014-17, Peru has continued to boast a macroeconomic stability that gives it an aura of being bulletproof to domestic and international shocks.

"Macroeconomic factors are still strong in the country and despite political turmoil, Peru remains an attractive place for investors," says Elí Sánchez, senior financial analyst with insurance-focused rating agency A.M. Best.

Nevertheless, the country's steady growth and strong government finances are challenged by corruption, political infighting, a weak judicial system, low levels of education and inefficient bureaucracy. 

"The authorities are making headway in addressing some of these issues, but progress will remain very slow, particularly as corruption scandals frequently emerge," said Jaime Reusche, a Moody's Investors Service VP, in the ratings agency's annual credit analysis (A3 Stable).

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