December 14, 2018

IMF published its report on the detailed assessment of observance on the Basel Core Principles for Effective Banking Supervision (BCPs) in Peru, under the Financial Sector Assessment Program (FSAP). The report reveals that the overall quality of the country's supervisory approach and regulation of the banking sector is strong.

The report highlights that SBS, the Superintendence of Banks, Insurers and Private Pension Funds, has followed up on most of the recommendations made in 2011 BCP assessment. Significant progress has been made on the implementation of the Basel regulatory reform agenda. While the implemented methodology for the capital conservation buffer, countercyclical buffer, and the buffer and framework for domestic-systemically important banks (D-SIBs) is different than that of the Basel framework, the developed approach, tailored to the local characteristics of the financial system, aims to achieve the same objectives. A remaining substantive difference is the use of the Basel II capital definition, which is embedded in the General Financial System Law (LGSF). SBS has implemented the liquidity coverage ratio (LCR), is in process of implementing (tailored to the local characteristics) the net stable funding ratio (NSFR), and has incorporated, in its regulatory framework, the Basel guidelines for corporate governance.

Out of the 29 BCPs, Peru was assessed as compliant with 15 principles, largely compliant with 13 principles, and materially non-compliant with one principle. In the context of noncompliance, a material shortcoming was identified in the Peruvian legal framework. The supervisory powers are limited regarding direct access to parents and affiliates, including their subsidiaries all being outside of the direct supervisory perimeter. Such legal limitation is of particular concern since two Peruvian (in terms of main shareholders, activities, and management) conglomerates with foreign holding companies, for which the SBS is operating de facto as the home supervisor, are systemic. Finally, while ownership and group structures are transparent and SBS has a sound supervisory approach toward related party and intra-group lending, the supervisory approach used to assess financial group’s governance, capital, and overall risk management and liquidity risk management needs enhancement.

 

Related Link: Report on Assessment of BCPs

Keywords: Americas, Peru, Banking, BCP, DAO, FSAP, Basel Framework, Systemic Risk, IMF

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