Banco de Crédito del Perú (BCP)

Past, present, and recommendations for the future

Hult International Business School

March 2020
Introduction
Banco de Crédito de Perú (“BCP”) is the largest financial institution in Perú in terms of loans and
deposits: 31% of total credits with 102 bn PEN, and 30% of total deposits with 96 bn PEN (BCP,
2019). It has nearly 131 years in the banking system and is the second most valuable brand with 1.2
bn USD (Kantar, 2019). Moreover, it is the biggest subsidiary of Credicorp Ltd, the biggest financial
holding in Peru (Credicorp, 2020). It offers a wide range of products, short- and long-term loans,
leasing, financial advisory, mortgages, credit cards, as well as personal loans. Currently, the
wholesale banking leads the market share with 35%, and in the retail banking, leads the mortgage
segment with 33% as well as the SME segment with 31% (BCP, 2019).

Evolution of the industry in the past three decades

During the last 30 years, the Peruvian financial industry has experienced several changes. At the end
of the 80’s decade Peru had an inflation rate of 7649% (Peruvian Central Bank, 2001), because of
inadequate fiscal expenditure, strikes, and regional debt crisis, worsened by terrorism (Llosa and
Panizza, 2015).

Overcoming the gloom: 1990 to 2000

The first years of the 1990 decade brought critical changes, the most dangerous terrorist group was
defeated in 1992, and the new government of Alberto Fujimori applied several measures to counter
the hyperinflation, the national currency was devaluated 227%, strong amounts of taxes were
established, and the price of fuel rose 3000%, causing the general level of prices to five-fold
(Dancourt, 1997). These measures had a strong positive effect on the inflation, decreasing from
7,649% in 1990 to 139% in 1991, and to 15.4% by 1994. As we can see in Figure 1, this tendency
continued during the decade, reaching 3.7% in 2000 (Peruvian Central Bank, 2001).

Figure 1. Peruvian Inflation Rate (%) from 1981 to 2000. Data by Peruvian Central Bank (2001).

Subsequently, public income started to expand because a continuous privatization of public

companies, fuel price reduced progressively, and the inlet of external capitals increased pushing
down the exchange rate, allowing the financial system to leverage these resources. Moreover,
Monetary objectives were changed to Exchange Rate objectives, getting closer to a fixed exchange
rate policy, closing the inflationary cycle that began in the middle ’70s (Dancourt, 1997).
The notable economic reactivation and the reauthorization of private banking to attract deposits and
grand credits in USD, allowed a steady growth in both the financial system and GDP in the following
years (Dancourt, 1997), until the late 1990s when the economy was severely impacted by the “El
niño" phenomena, causing 549,000 affected people, 366 deaths, and 108,000 houses destroyed, and
73,000 hectares of crops devastated, with economic losses about 3.6 bn USD. Moreover, 59 bridges
and 884 kilometers of roads were destroyed, along with 511 health establishments affected,
accounting for an additional 2.9 bn USD in infrastructure damages (Perú21, 2017). Additionally, a
political crisis started to rose, since the president started to be considered as dictatorial and corrupt,
winning fraudulently his second re-election in 2000, to finally resign by fax from Japan the same year
(CNN, 2017).

All these effects are shown in Figure 2, where we can see the rise of the Financial System from
almost cero in 1990 to 335 bn PEN by 2000, with growth rates far superior from the GDP. On the
other hand, despite the economic crisis in the late 1990s the GDP managed to grow 35% over the
decade, closing it with a BB- S&P rating.

Pressing the Throttle: 2000 to 2010

After a year of political transition, in 2001 Alejandro Toledo started his government with a scenario
of economic stagnation, continuous falling of private investment, fiscal deficit around 3% of GDP,
and a poverty level of 54%. This recessive context was intensified by the low global economic
dynamism, and the capital restriction to emergent economies that started in 1998 (Ministerio de
Economía y Finanzas, 2006).

However, in order to recover the economic dynamism, the government applied a prudent
combination of fiscal and monetary-expansive policies, maintaining low inflation rates to improve
the Peruvians’ quality of life. These actions allowed to recover the investors’ confidence but
maintaining fiscal discipline, aiming to preserve fiscal equilibrium or surplus in the long term.
Moreover, the positive international context (USA recuperation and China expansion), and high
commodities price, were key factors to achieve high growth levels of exports.

Therefore, the actions and context mentioned before, enabled a significant improvement in GDP
over debt ratio (less debt service), allowing an upgrade in the country’s risk level to BB in 2004. This
meant lower interest rates, lower debt service, and lower capital cost for business, which allowed
greater private investment and growth rates (Ministerio de Economía y Finanzas, 2006).
Furthermore, similar policies were maintained by the next government (2006-2011), achieving two
upgrades in country risk rating, BB+ in 2006 and BBB- in 2008.

As we can see in Figure 3, these effects were critical, from 2004 there was a strong growing tendency
in both Financial System and GDP YoY (%), reaching from 41 bn PEN in 2000 to 104 bn PEN of loans
in 2008, and 9.1% of GDP growth by 2008. This effect was stopped abruptly with the financial crisis,
but it recovered the previous tendency in 2010.

Variable, but continuous growth: 2010 to present

During the last decade, despite the long period of uninterrupted economic expansion driven by solid
fiscal and monetary policies, the GDP growth perceived a deceleration from 8.5% in 2010 to 2.2% in
2019, mainly caused by external factors after the subprime crisis in 2008, the volatility of metal
prices as copper (America Economía, 2020), and the political instability, especially after 2017
because of Odebretch’s bribe scandals, where almost all the most noticeable politicians since the
2000s were implied in corruption acts (La República, 2020).

Additionally, the current government (2016 to date) was involved in a constant political clash with a
Congress ruled by opposition parties, who used their majority to remove the elected president in
2018. Finally, that Congress was dissolved by the vice president in September 2019, after continuous
obstructions to anti-corruption reforms proposed by the Executive (BBC, 2019), generating an
uncertainty climate to private investment, resulting in a modest GDP growth in 2019.
Nevertheless, as we see in Figure 4 and Figure 5, despite the modest GDP growth in the last five
years, the Financial System has been growing steadily, even more since the country’s credit risk was
upgraded to BBB+ (investment grade) in 2013. The loans increased from 129 bn PEN in 2010 to 335
bn PEN in 2019, emphasizing the growth in retail banking of 390% from 2009 (34 bn PEN) to 2019
(86 bn PEN), which is explained by the middle-class expansion, the increase in households income
and formal jobs, as well as greater consumer confidence. Moreover, these economic drivers, in
addition to changes in the urban lifestyle, connectivity, and the need for new purchasing formats,
will represent key opportunities for the industry in the coming years (BBVA, 2019).

As we could review, the constant monetary and fiscal policies have granted a continuous growth of
the Peruvian economy in the past decades, allowing the increase of households’ purchase power
and significant rating upgrades to finally reach investment grade in 2013. This favorable context
enabled the Financial system to leverage cheaper capital, achieving a growth of 311% on loans and
258% on deposits from 2009 to 2019, and BCP has taken an important role with 29% of market share
on average along the last decade.

However, despite its leading in Wholesale and Retail banking, in SME has a participation of 12%
because a subsidiary named Mibanco manages that portfolio, and in Mortgages has only 18%, being
an opportunity of major growth as we can see in Figure 6.
Market composition and Future Trends
Market Share
As we can see in Figure 7, the market composition is like an Oligopoly, mainly ruled by the four
biggest banks in the Financial System, BCP, BBVA, Scotiabank (SKB), and Interbank (IBK). These banks
have similar distributions between their portfolios since they offer similar products, in contrast to
Interbank who has a larger proportion of retail banking, offering a dependable home banking
expressed in its Google App Rating of 4.4 stars, followed by BCP 3.9, BBVA 3.8, and far behind
Scotiabank with 3.2 stars. On the other hand, the SME segment is mainly ruled by MiBanco (MB)
which is a subsidiary of BCP.

Market Players’ performance

If we perform an analysis on some key financial ratios of the Top 5 Peruvian banks, we can notice
that each one has its own strengths and leads one or more categories as we can see in Figure 8.
However, the combination of Portfolio Health (% of credits non-payed after 90 days), Gross Profit
over Operation Expenses, Financial Turnover over Productive Assets, ROE and ROA, in addition to
size of the portfolio, can help us to find out who may be performing the best and address BCP’s
strengths, weakness, opportunities, or threats.
Applying a score from 1 to 5 to each of the mentioned variables, and a weight of 1x to each criterion
(Efficiency, Profitability, Portfolio Health, and size). As shown in Figure 9, we can observe that BCP
performs the best among Top 5 banks, followed by Interbank, and far behind BBVA, Scotiabank, and
MiBanco.

Future Challenges
According to Deloitte (2018), the last years of the decade will be key for banks to accelerate their
shift to strategically focused institutions, become technology-driven and operatively efficient. Those
changes will be difficult in a context of complex regulation, inherited old systems, new competitors,
new business models and disruptive technologies (FinTechs), as well as clients with greater
expectations.

Therefore, in order to restructure their foundations in the long-term and achieve growth in the short
term, they should focus on six key points that converge in Client Centricity as the most important, as
we can see in Figure 7.
Strategies for Future Challenges
Since the Peruvian economy has potential to grow as is considered by the IMF as a “rising star”
(CNN, 2020), and 72.6% of the active economic population is still informal (Gestion, 2019), the
Financial System is able to grow at bigger rates than the GDP does as happened in previous years.
Additionally, only 43% of the population has a bank account, and a government program aims to
raise it to 75% during the next decade (El Comercio, 2019).

Therefore, this paper proposes a penetration strategy through the improvement of Customer
Experience, focusing on Wholesale, SME, and Retail portfolios, with technology and cyber risks
management as key aspects to considerate

Wholesale / Corporate Banking

Portfolio Situation

In this segment, BCP has the biggest market share with 37%, followed by BBVA with 23%, Scotiabank
with 19%, and Interbank with 10% (MiBanco has only 0.2% of this segment). Despite Interbank’s
lower market share, its proportion of deteriorated credits is the best among the Top 5 banks with 4%
in comparison to BCP’s 7%, a possible explanation could be as it has a smaller size and is mainly
focus on retail banking, is more prudent in the risk taken when granting large loans.

Recent Progress attained

According to the last available BCP Annual report (BCP, 2019), Wholesale banking has made good
progress in new information tools for its officials: leads, pricing models, benchmarks with the sector
and other clients, and a new CRM. Additionally, it has created a new channel of transactions, using
small shops as collection points. However, the progress made was mainly focused on tools for
wholesale banking officials, but not on how the client could be delighted without meeting the bank
or receiving a phone call.

Next suggested moves: Learn from Retail Banking accessibility

As technology develops, accessibility improves as well, allowing us to have almost all the information
we need in a simple device. Some years ago if we needed to know what was the total debt of a
credit card we had to call to the bank or go to a branch, nowadays with our cell phone, we not only
can check our up to date debt, but also transfer money, acquire loans, even investing in shares.
Similar accessibility and ease to use can be applied to wholesale clients as well, offering them a
whole banking experience without leaving the office and wait in the bank to be attended. Nowadays,
BCP wholesale clients can access a webpage called “Telecredito” where they can check their
balances and movements, loans, as well as make payments, transferences, and factoring (BCP,
2020).

The strategy suggested is to offer an app where wholesale clients could check not only their account
as they can do today, but also their internal rating, overlook, financial ratios and comparative
analytics, pricing simulators, along with the ease to auto disburse guarantee letters and loans in the
structure the client requires, depending on client’s internal rating, amount, and other variables, as is
shown in Figure 12.

Additionally, this type of technology could allow to improve clients’ engagement with the bank, since
they could address which are the key factors behind the internal rating that leads to certain pricing,
so they can enhance their credit profile. This channel will ease the borrowing of new loans,
persuading clients to use their BCP credit lines (notes, ST, or LT).

SME Banking
Portfolio Situation
SME is the riskiest segment in all the Financial System, as is composed by small businesses with high
levels of informality, and poor financial information, which can be seen in the high levels of bad
credits (13% on average). In this segment, MiBanco has the biggest market share with 46%, followed
by BCP with 25%, and Scotiabank with 12% and 21% of bad credits. Furthermore, Mibanco performs
way better, with 8% of bad credits because it is specialized in this segment (86% of its portfolio).

Recent Progress attained

According to the last available BCP Annual report (BCP, 2019), the portfolio grew 8% and the
deposits 14%. The quality of the portfolio was enhanced by improvements in the business model as
well as in the statistical predictors, reducing the percentage of bad credits in the new loans.
Additionally, the satisfaction level rose from 35% to 49%, but despite the improvement, that level
seems to be low.

Next suggested moves: Learn from Retail Banking accessibility and Wholesale Banking Skills
Like Wholesale Banking, the SME officer should be trained to offer financial advisory to the clients,
providing guidance for better use of short or long-term resources and debts, the most suitable
products for the business, interest rates, and so on, since this small businesses usually don’t have
strong financial skills, and present unreliable financial statements (informality in incomes or COGS to
pay less taxes) that cannot be used in credit risk models. Similarly, this additional service can be
leveraged with an App, that instead of showing detailed information, shows how well the business is
going in terms of liquidity and warning when it is running out of cash, as well as containing mini-
courses with examples of healthy management of cash flows, debts, and assets. Additionally, it
should have the accessibility of a retail app, as Figure 14 shows.
Retail Banking
Portfolio Situation

In this segment, BCP has the biggest market share with 25%, followed by Interbank with 23%, and
Scotiabank with 17% (MiBanco has only 1% of this segment). Nevertheless, despite BCP has greater
market share, Interbank’s Retail portfolio represents 35% of its total credits, in contrast to 15% on
average in the other Top 5 banks. Moreover, Interbank is also focused on non-banking retail
business, as pharmacies, movie theatres, fast food, restaurants, supermarkets, and even in its own
school chain (Rankia, 2019). Additionally, Interbank has developed a strong banking App that allows
multiple operations (payments, creation of accounts, new credits, expenses organizer, change
personal data, and check your Miles), asking clients’ fingerprint for every transaction to secure their
accounts, being ranked with 4.4 stars on Google. And as a personal experience, I’m delighted with
the service, without needing to go to the bank or call.

Recent Progress attained

According to the last available BCP Annual report (BCP, 2019, the Retail banking long-term strategy is
based on four pillars, product & channel design, the largest grid of contact points, pricing according
to risk, and stronger business intelligence, which allowed an expansion of 9.6% in non-wholesale
baking along with the reduction of bad credits, because of improved credit risk models and
processes.

Furthermore, it has achieved 20% of growth in credit cards, the leadership in deposits with 41%
market share, leveraging on digital platforms where new accounts were created easier, and
improved the satisfaction in branches from 65% to 75%. Moreover, it increased the number of ATMs
and digital kiosks, as well as the contact center capacity in 45% allowing 105% new sales and the
ability to solve more problems. Additionally, the app transactions represented 33% of the total, the
Facebook fan page answered 17,000 monthly inquiries, and an award-winning chatbot was
developed to solve answers.

Nevertheless, improving the client experience has needed high investments in assets, requiring the
customer in most cases to go to a branch or contact via phone call to create accounts, get new
credits, or solve problems.

Next suggested moves: Adapt to new standards and improve cyber risk mitigation
As we can see in Figure 17, despite BCP has the biggest presence, its App experience is clearly
overtaken by its main competitor. Therefore, to continue leading, BCP should be at least at the same
level the competitor, since Interbank has established a new standard of customer experience when
developing its app. Thus, in order to exceed customer expectations, BCP should focus on the
following strategies:

 Develop an expense organizer,

being the biggest bank has strong amounts
of data to use.
 Allow to make payments to other
banks or services the 24h.
 Allow creation of accounts and
disbursement of credits on demand.
 In addition to show the offers, show
what the client needs to apply for better
conditions.
 Integrate the information about the
benefits of the credit card in the App.
Interbank offers a private site where clients
can buy tickets using their miles.
  Integrate fingerprint validation to access and make the transaction quicker in a safer way.
BCP uses a digital token, and anyone with access to the phone can make fraudulent
transactions.
 Enable buttons to configure the products easily, and allow the ability to modify personal
information as address, phone, e-mail, etc.

Additionally, the cybersecurity risk is a serious issue with BCP, since most of the phishing or
cybernetic attacks are focused on it, developing webpages visually equals than BCP’s and sending
SMS with links in order to access critical information and resell it (Lubeck, 2019). This type of fraud
impacts the bank’s reputation, which could be confirmed in the comments of social media
complaints. Therefore, according to Harán (2019), Google suggests a Double Authentication as the
most effective solution to prevent account kidnapping, which basically sends an SMS to the client
with authentication codes, so the operation can’t be done without customers cell phone, or
fingerprint which would be safer.

Conclusions
As we have reviewed, and is depicted in Figure 19, the Peruvian banking industry is in a favorable
context, with open policies to new investments, and economic strategies that aim to a sustained
growth with low inflation. Moreover, the “bankisation” process is being supported by the
government, the household income is increasing along with the expansion of formal employment
and middle class, enhancing accessibility to credit which can be leveraged by technology. However,
legal aspects are still an obstacle, since the legal process to call mortgages securities can extend
more than five years, increasing the prices for good and bad clients (Chávez and Lladó, 2011).
Consequently, the SWOT analysis displayed in Figure 20 shows that BCP can continue leading the
market by taking advantage of economic expansion, and households’ greater income. This favorable
context could be leveraged by improving its digital channels to achieve larger customer engagement
and market penetration. The proposed digital strategies could allow a higher growth with lesser
transactional costs, and better prices. Additionally, getting a higher level of engagement will prevent
late payments and credit losses (European Central Bank, 2011).
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