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The Peruvian mortgage market
The BCP case
March, 2006
Agenda
Overview of the Peruvian mortgage market
Page 03
The mortgage loan in Peru
Page 08
The funding of the mortgage loan portfolio
Page 11
BCP as a major player in the market
Page 15
Conclusions
Page 19
2
Evolution of the mortgage market
• Since
2001,
the
average annual growth
rate
of
the
Main drivers of the mortgage market development
mortgage
portfolio has been 22%.
• This growth was led by
a continuous increase in
per capita GDP coupled
with wider availability of
mortgage
facilities
provided by the financial
system
and
the
Government.
25%
20%
Expansion
15%
10%
5%
0%
-5%1999
2000
2001
2002
2003
2004
2005
-10%
-15%
• Per capita GDP grew
-20%
approximately 8% p.a. in
-25%
the last four years, from
US$ 2,036 in 2001 to
2,806 in 2005, with a
Mortgage portfolio annual growth (%)
US$ Per capita GDP annual growth (%)
GDP Construction (Var %)
growth rate of near 13%
for 2005.
3
Evolution of the mortgage market
Mivivienda
is
the
government
sponsored
housing
program
implemented in 1999 and
funded
by
the
Government.
Basic types of mortgage loans in the market
US $MM
Traditional
mortgages
are funded by the banks.
Since
mid
2006,
Mivivienda program will
not necessarily provide
funding.
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
1,887
1,563
1,322
1,090 1,082
1,150
1,038
1,354
1999
2000
As of Dec 05, Mivienda
loans represented 1/3 of
the total loans.
At this same growth
rate, in less than 3 years
the mortgage portfolio will
exceed US$ 3 billion.
533
2001
2002
2003
2004
2005
Mivivienda
Traditional Mortgages
Average Annual
Growth Rate (%)
Last 4
years
Last 2
years
Last year
Traditional mortgage
7.7%
10.0%
12.0%
Mivivienda loans
99.9%
62.1%
60.4%
Total
16.1%
19.5%
20.7%
4
Growth potential
The mortgage portfolio as a percentage of
GDP and total loans has been steadily
growing….
But still lags behind when compared to
neighbor countries
 The mortgage business
is gaining
importance in the product mix of the
Peruvian banking system.
 When comparing ratios of Peru’s mortgage
market with those of Chile and Colombia, it
is evident that there is an important room for
expansion in the Peruvian mortgage market.
16%
14.8%
14.2%
12.8%
14%
21.2%
20.0%
20%
12%
10%
25%
10.7%
9.1% 9.2% 9.6%
14.4%
15%
14.8%
8%
10%
6%
4%
2.1% 2.0% 1.9% 2.0% 2.2% 2.3% 2.4%
5%
4.5%
2.4%
2%
0%
0%
1999 2000 2001 2002 2003 2004 2005
Mortgages / GDP
Mortgages / Total Loans
Colombia
Chile
Peru
% de Mortgage Loans vs. GDP
% de Mortgage Loans vs. Total Loans
5
Trends of the Peruvian mortgage market
Highly dollarized portfolio
Competitive environment puts
pressure on interest rates
14%
100%
90%
80%
70%
60%
50% 99% 98% 95% 95% 96% 96% 96%
40%
30%
20%
10%
0%
1999 2000 2001 2002 2003 2004 2005
Dollar mortgages
Soles mortgages
12.7%
12%
11.8%
10.6%
10.4%
10.1%
10%
8%
6%
4%
2%
0%
2001
2002
US$ Mortgage rates
2003
2004
2005
Treasury Bond (10 y)
20%
15.4%
15.2%
15%
14.2%
13.0%
12.6%
10%
 Demand for Soles denominated mortgages
is just beginning given the reduction in local
currency rates and the recent existence of a
local currency yield curve.
5%
0%
Mar-05 Jun-05 Sep-05 Dec-05 Jan-05
S/. Mortgage rates
S/. Sovereign rate (6.5 y)
6
Agenda
Overview of the Peruvian mortgage market
Page 03
The mortgage loan in Peru
Page 08
The funding of the mortgage loan portfolio
Page 11
BCP as a major player in the market
Page 15
Conclusions
Page 19
7
Mortgage loan terms in the Peruvian market
Terms
Rate
Current Conditions
Recent
improvements
More players in the Mivivienda segment
Adjustable rate at
bank’s sole
discretion.
Fixed either in
Dollars or Soles
Traditional mortgages
Not related
index.
Mivivienda:
rate
Currency
to
an
Fixed
Dollars, basically
Soles VAC (adjusted
by inflation)
Tenor
Up to 25 years
(Traditional mortgage
loan)
Variable, related
to LIBOR or
LIMABOR
Mixed:
combination
both
• Down
20%
10%)
payment :
(Mivivienda
• Minimum income:
US$ 800
(Mivivienda US$
400)
BIF
6%
Others
1%
BCP
44%
of
Emphasis
on
local currency
BBVA
30%
Same
Up to 20 years
(Mivivienda)
Minimum
requireme
nt
BWS/Sud
13%
IBK
6%
• Same
• Minimum
income:
US$
600
Mivivienda mortgages
DEL
TRABAJO
10%
Others
14%
IBK
12%
BWS/Sud.
18%
BCP
28%
BBVA
18%
8
Agenda
Overview of the Peruvian mortgage market
Page 03
The mortgage loan in Peru
Page 08
Funding & risks
Page 11
BCP as a major player in the market
Page 15
Conclusions
Page 19
9
Funding Sources
Funding structure of the Peruvian Mortgage
Portfolio
Mortgages
Funding
Mivivenda
Loans
US$ 533 MM
Dur: 6 y
Mivivienda
Program
US$ 533
Dur: 6 y
Traditional
Mortgages
US$ 1,354 MM
Dur: adjustable
rate
Duration
of funding
• Traditional loans are basically
funded by CTS deposits (Severance
Indemnity Deposits)
• CTS are deposits made by
employers,
amounting to one
month’s salary per year.
6y
CTS
US$ 1,043
Dur: 0.5 y
1.8 y
Bonds & other
LT funds
US$ 311 MM
Dur: 6 y
• Mivivenda loans are perfectly
matched by the Mivienda funds.
• 50% of the deposits may be
withdrawn and the remaining portion
only upon termination of employment
or upon transfer to another bank,
subject to certain criteria.
• Recent changes to the CTS
regulation may jeopardize the
stability of this type of funds.
(Allowance of withdrawals of up to
80% for property purchase).
• The current funding structure has
an average duration of 1.8 y, which
does not allow banks to offer fixedrate mortgages.
• The Peruvian financial system has
to look for other long-term funding
sources.
10
Risks of the mortgage market
Tenor mismatch
Customer’s currency mismatch
 In spite of changes in legislation, CTS has
been a very stable funding source.
 Exposure to the exchange rate fluctuation
(Soles/Dollars) derives from the mismatch
the customer faces when earning his salary
in Soles and paying his mortgage in Dollars.
US$ MM
 However, potential exposure to liquidity risk,
interest rate risk and the growth of the
mortgage portfolio are forcing banks to look
for alternative funding sources.
Traditional Mortgage Portfolio
funded by CTS
1,600
1,400
1,200
1,000
800
600
400
200
0
1999
CTS
2001
2003
2005
Traditional mortgages
 The only way to mitigate this risk is by
offering fixed Soles mortgages.
8%
6%
5.8%
4%
2%
(*)
4.5%
3.7%
2.6%
2.0%
1.6%
0%
-2%
2002
-1.5% 2004
2003
2005
-4%
-6%
-6.6%
-8%
Delinquency ratio (%)
Devaluation (%)
(*) Shows a spike in the exchange rate by the end of
2005. Last 12 months devaluation was 1.5%.
11
A snapshot of the Peruvian Capital Markets
• The Peruvian Capital Markets have
been available to banks since last 90’s as
an alternative source to raise long-term
dollar funds. Since two years ago, it is also
possible to raise long term fixed rate soles.
US$ MM
Major players in the market
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
2,725
3,556
4,527
2000
2001
2002
Pension Funds
Pension Funds' Portfolio
Government Securities
BCRP Securities
Time Deposits
Leasing Bonds
Subordinated Bonds
Financial Companies' Bonds
Mortgage Bonds
Shares + ADRs
Corporate Bonds & Securitiz.
Other
Foreign Investments
Total
6,338
2003
Mutual Funds
7,887
2004
9,497
2005
Insurance Co.
US$ MM
1,478
447
702
78
95
103
8
3,461
1,784
378
962
9,497
(%)
15.6%
4.7%
7.4%
0.8%
1.0%
1.1%
0.1%
36.4%
18.8%
4.0%
10.1%
100%
• However, and given the stability of the
CTS deposits, the possibility to offer
adjustable-rate mortgages and the relative
small portion of mortgage loans; in the
banks portfolios very few banks have
issued long term securities.
• During 2005, contributions to pension
funds amounted to near US$ 800 MM.
Supply of securities increased by US$ 320
MM, deriving in excess funds of near US$
480MM in only one year.
• The Peruvian Capital Markets present
significant room to absorb different kinds
of
securities
(mortgage
bonds,
securitization notes, subordinated bonds,
etc.) and is able to provide funds to sustain
the future growth of the mortgage market.
12
Agenda
Overview of the Peruvian mortgage market
Page 03
The mortgage loan in Peru
Page 08
The funding of the mortgage loan portfolio
Page 11
BCP as a major player in the market
Page 15
Conclusions
Page 19
13
BCP’s mortgage portfolio shows a pattern of
consistent growth
BCP’s mortgage portfolio is still below 20% of total loans
800
17.0%
700
15.9%
US$ MM
600
9.6%
200
100
14.8%
14.2%
400
12.8%
10.7%
493
575
744
0
Dic-01
Dic-02
total loan portfolio, higher
than the average of the
market (14.8%).
• However,
BCP’s
mortgage portfolio growth
9%
347
account for 17% of its
13%
11%
8.3%
240
mortgages
15%
500
300
17%
14.0%
11.0%
19%
• BCP’s
Dic-03
Dic-04
rate is so strong that if
7%
this
5%
BCP’s
Dic-05
BCP mortgages
trend
continuous,
mortgages
will
exceed US$ 1 billion by
the end of 2008.
BCP mortgages / BCP total loans
Bank System mortgages / Total Loans
• Additionally, by the end
Average Annual
Growth Rate (%)
Last 4
years
Last 2
years
Last year
BCP mortgages
32.6%
22.9%
29.5%
mortgages will represent
BCP total loans
10.9%
11.3%
20.9%
more than 20% of the
of
2008,
BCP’s
total BCP loan portfolio.
14
BCP’s mortgage portfolio shows a pattern of
consistent growth
• BCP’s Mivivenda loans
Where is the growth coming from?
are
growing
at
an
US$ MM
average rate of 95% per
800
700
600
500
400
300
200
100
0
25%
annum.
20%
15%
Traditional
mortgages
10%
5%
Mivivienda
2003
Average Annual
Growth Rate (US$ MM)
2004
2005
BCP
Mivivienda /
BCP Total
Loans
Last 3
years
Last 2
years
BCP Mivivienda
46
55
63
BCP traditional
mortgages
87
70
107
porfolio is still highly
dollarized
Last year
Total average annual
growth (US$ MM)
132
mid
(99%);
2005
shows
a
notorious
increase
in
soles
denominated
mortgage loans.
• In
the
months,
126
mortgage
however, the trend since
0%
2002
• BCP’s
169
last
the
three
average
monthly growth rate of
Soles
denominated
mortgages is 75%.
15
BCP’s funding structure
Funds
Mivivenda
Loans
US$ 149 MM
Dur: 6 y
Mivivienda
Program
US$ 149
Dur: 6 y
Traditional
Mortgages
US$ 595 MM
Dur: adjustable
rate
• BCP has always maintained a very strong position
in the CTS market, with an increasing market share.
700
70%
600
65%
500
US$ MM
Mortgages
• Since 2005 Mivivienda Program will allow banks
to fund themselves their Mivivienda loans. BCP is
planning to do so.
58%
400
55%
300
50%
50%
200
CTS
US$ 655
Dur: 0.5 y
100
45%
0
40%
99
00
CTS US$
Available as of
today for
growth and
cushion:
US$ 470 MM
Securitization &
Mortgage bonds
US$ 410 MM
Dur: 6 y
60%
01
02
CTS S/.
03
04
Market share (%)
Funding structure of BCP’s Mortgage
Portfolio
05
BCP's market share
• However, in order to mitigate potential liquidity risk
and to be able to offer fixed rates, BCP has entered into
securitization programs which allowed BCP to raise, on
a net basis, US$ 300 MM. There is space to raise near
to US$ 600 MM of additional debt under this program. 16
BCP’s securitization program
• This structure is rated as
The structure of the transaction
BBB (two notches higher
than BB BCP rating Remittances
sovereign ceiling).
Importers of Peruvian
minerals, oil, textile, fishmeal, etc.
Peruvians living abroad.
• Under
this
structure,
BCP raised US$ 280 MM
Send US$ to Peru by
SWIFT MT-100 messages
by the end of 2005, with
A/L of 5.5 y.
Depositary Banks’ accounts
• US$
(BCP’s major correspondent
banks)
Deposit collections
into the Trust
(US$)
CCR
(US$)
MT-100 Master Trust
230
MM
were
wrapped by AMBAC (AAA)
and US$ 50 MM were
Notes issuance
(US$)
(owner of the
payment rights and
of the accounts)
Investors
unwrapped.
• BCP is currently issuing
an additional series for
US$ 100 MM with A/L of
Debt service
payment
7.5 y.
• This structure has the
BCP
capacity to issue up to US$
500 MM of additional debt.17
Conclusions
LIQUIDITY
CAPITAL
BASE
ASSET
CLASS
•
CTS has been a very stable funding source, though not allowing to
offer fixed rate mortgages. Banks matched this funding with adjustablerate mortgages.
•
BCP has entered into a securitization program which allows enough
cushion to face any liquidity shock.
•
Local capital markets are available to banks to raise long-term funds in
Dollars and Soles.
•
The Peruvian Banking System presents a capital ratio of 12.3% and
have been adequately capitalized in the last years (legal limit of 9%).
•
BCP has a 11.5% capital ratio with subordinated bonds amounting to
only 4% of the regulatory capital base.
•
Mortgages are a very efficient type of loans in terms of capital
consumption, since they require half the amount allocated to other type
of loans (weight of 50%).
•
Currently, mortgages are still below 20% of total loans. However, given
the growth rate showed in the recent years, BCP and the system as a
whole may surpass this benchmark rapidly.
•
Given the currency mismatch from the customer point of view, a higher
percentage of mortgages adds important risk to BCP and the Peruvian
Banking System.
Creation of a subsidiary through a joint venture
with IFC and Titulizadora Colombiana
18