- Consumer lender restricting areas most exposed to bad weather
- Bank cutting loans to younger clients as economy suffers
Banco Ripley Peru SA is cutting back loans to people in the north of the country because they are most at risk to flooding and landslides from the El Nino weather pattern.
The strongest El Nino in almost two decades threatens to cut harvests and unleash deluges on farmland on Peru’s Pacific coast, particularly in the north, according to a government committee set up to monitor the weather phenomenon. When the phenomenon struck Peru in 1997 to 1998, the country suffered $3.5 billion in damage, equal to 6.2 percent of gross domestic product at the time. There is a 55 percent chance this year’s El Nino will be strong to extraordinary in intensity, the Peruvian weather agency says.
The lender, controlled by Chilean retailer Ripley Corp SA, is restricting credit to people younger than 30, who are viewed as higher risk, and favoring older clients viewed as more reliable, Chief Executive Officer Rene Jaime said in an e-mailed response to questions. The bank expects the economy to slow as the weak sol makes imports more expensive and the central bank reacts by raising interest rates, he said.
Consumer spending "is exposed to further deceleration from worsening terms of trade, which may result in higher interest rates in local currency and further depreciation of the sol," Jaime said. “In the north we have been more extreme with our preventive measures because of the El Nino effect.”
The sol has already depreciated 11 percent in the past 12 months, and economists surveyed by Bloomberg expected it to weaken another 2.6 percent by the end of March, because of a decline in prices for Peru’s commodity exports. The central bank in September unexpectedly raised interest rates for the first time in four years as the slump in the currency pushed up inflation expectations.
The local retail industry grew 4 percent in the 12 months to August, down from a peak of 13 percent in the 12 months through February 2011, according to data compiled by Bloomberg. Banco Ripley is Peru’s sixth-largest consumer lender, with $1.25 billion soles ($394 million) of total loans outstanding at the end of the second quarter, up from about 1.1 billion soles a year earlier.
The depreciation of the sol is also making it harder to issue bonds in soles in the local market as investors are asking for higher interest rates to counter expectations of a weaker currency, Jaime said. The yield on Peru’s government bonds due 2020 reached 6.69 percent in September, the highest since 2011.