BBVA Says First Repo Between Banks to Spur Peru Money Markets

  • Banco de Credito and BBVA’s local unit made first repo trade
  • Repos will spur start of rate swaps trading: BBVA official

Banco de Credito del Peru and BBVA Banco Continental completed Peru’s first repurchase agreement, or repo, between private banks on Monday as part of a push to expand the Andean nation’s money markets.

The overnight repo contract between Peru’s two biggest lenders was for 5 million soles ($1.5 million) at 4.25 percent. It marks the start of a market that may grow to hundreds of millions of soles a day as more banks use the contracts to lend to each other, Frank Babarczy, BBVA Banco Continental’s head of global markets, said by phone from Lima.

Until recent regulatory changes, lenders requiring short-term lines of credit had to rely on the central bank, which acted as a conduit for managing local liquidity by issuing repos and certificates of deposit. Increased repo trading between banks is a step to creating a market for overnight interest-rate swaps and short-term debt contracts and will give a better indication of the cost of short-term lending, Babarczy said. Lenders will then be able to sell new products to clients, such as variable-rate loans and deposits, he said.

“It’s taken years to make this a reality,” Babarczy said. “Repos are much more efficient in terms of liquidity management. They allow liquidity to flow between banks, generating more liquidity and depth, giving you a more representative interest rate without the cost overruns.”

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