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➤ A more active role from Latin American governments is needed to drive green lending as a trend in the region.
On Oct. 26, Peru's toll of 1,031 coronavirus related deaths per million inhabitants was second in the world only to that of San Marino.
The containment of the virus would have been more efficient had the country gone into the pandemic with higher rates of financial inclusion, Silvia Noriega, reputation and corporate responsibility manager at Credicorp Ltd.'s Banco de Crédito del Perú SA, told S&P Global Market Intelligence.
With close to two-thirds of the population unbanked, President Martín Vizcarra recently recognized that it is likely that many of the 888,715 individuals who contracted the virus did so while lining up in front of banks to receive their emergency government aid in cash. These effects of lagging financial inclusion have led to a mea culpa within the banking sector.
All sectors of Peruvian society have now realized just how important progress in this field is in order to overcome the ongoing crisis and that greater financial education efforts will also be required, Noriega noted.
BCP's lending to mining companies, which represents 7% of its total loan portfolio, accounts for 40% of all credit to the sector. "We want to increase that" while also improving the lender's environmental risk screening policies, Noriega said.
Silvia Noriega Banco de Crédito del Perú |
In a recent interview, an official from the ASBANC Peruvian banking association said we are seeing a mea culpa from banks on financial inclusion for not having enough people in the system at the outbreak of the pandemic. What mistakes have there been, and what needs to change within the banking system to improve inclusion?
If before the pandemic progress was being made in terms of the incorporation of issues of sustainability and inclusion in banks' agendas, this process has now accelerated. In Peru, the crisis has shown us the enormous challenges we face as a country and as a society, which all actors must work together to resolve, because one or two alone will not be able to do so. Our most evident weakness has been the low rate of financial inclusion and penetration, which are key to overcome a crisis like this one. At BCP we were one of the main distributors of the government's cash transfers to the population. But if inclusion had been greater, there would have been less exposure to the virus due to the reduced use of cash and fewer costs for everyone. I think not just banks but also the government and all other sectors have taken away the lesson of how critical financial inclusion is. Fortunately, at Credicorp we had already launched a sustainability strategy, with both financial education and inclusion at the forefront.
How is Credicorp working on inclusion and education, specifically in Peru?
Two-thirds of the population in Peru are not clients at any bank, and that's the great challenge we face. A pivotal tool we have is Yape, an application that allows you to send money to another mobile phone number free of charge, securely and instantly. Over the last year it had been gaining traction, with about 4,000 new users daily. But its use accelerated significantly during the pandemic, rising to 12,000 new accounts on average per day. And the volume of average monthly transactions has increased five-fold. The pandemic itself is driving inclusion. But to achieve real financial inclusion, we also created Yape Card, which is a prepaid card and app that specifically targets people who have never been in contact with a bank. Since May, 500,000 people have joined.
What are your expectations in terms of growth?
We expect to double that number by the end of the year, bringing us to a total of 5 million Yape and Yape Card users. Eighty percent of Yape Card users don't withdraw their cash but rather use it electronically, meaning they are leaving behind a cash economy and moving toward a digital economy. But we can't lose sight of financial education to make inclusion healthy. We have some programs that promote that education, such as BCP's "ABC" talks, which have reached 28,000 people so far and will have reached 100,000 people in the next two years. The second program is Mujeres Emprendedoras BCP, in which women leading small businesses are learning about financial and business management in the context of COVID-19. We will be pushing a much more aggressive strategy with these, which foster people's true incorporation into the financial system.
According to ASBANC, fees are one of the most dissuasive factors for individuals opening a bank account. How is Credicorp working on this obstacle?
Yape doesn't charge fees of any type, and that is an excellent way to make things clear and transparent for the individual. Many Peruvians don't understand how to use financial products, how credit cards work, for example. So we will be working strongly to make things as transparent as possible, starting with credit cards. The idea is to revise everything, from how new products are designed to clients' current user experience, so if clients pay some form of fee, that they understand why it is charged.
Is the reduction or removal of fees a growing trend in Peru?
It's a consequence of what we're seeing in the pandemic. All of Peru is now certain that financial inclusion is key. The next step is to look at how existing products work, what problems they have, what pain points there are and how we can resolve them. If there is transparency, there will be greater alignment and understanding.
The bank's 2019 sustainability report states that none of the loans granted that year were associated to a significant environmental risk. Considering that mining is Peru's main economic activity, how does the bank avoid lending to companies that pose an environmental risk?
We have two main environmental policies. One is our socioenvironmental policy, which is aligned with the Equator Principles and sets standards for adequate social and environmental management of projects financed for more than $10 million. We are currently updating that policy because the Equator Principles have been updated to a new standard. We are working on our questionnaires and socioenvironmental screening to bring it up to par, incorporating new criteria on human rights, biodiversity and climate change. The second is our environmental credit policy, which is older and guides loan decisions for sums also greater than $10 million, but which is specifically applied to the mining, oil, gas, electricity and fishing sectors. Out of the 98 companies that went through this filter in 2019, only eight were categorized as medium risk. In the new strategy we are implementing, not only at the BCP level [but] Credicorp-wide, we saw a clear space in which to improve these policies.
What does the new strategy consist of?
The main objectives are to create a more sustainable and inclusive economy, to improve the financial health of citizens and to empower them to prosper. That implies supporting the transition toward an environmentally sustainable economy. It means integrating environmental, social and governance factors into our risk management in a more ambitious and broad manner. At BCP specifically, one of the main initiatives will be called transition finance, through which, by 2023, we aspire to provide financial services to 20% of our corporate clients, which will be specifically designed to improve their sustainability standards.
Green lending has been a rising trend in Europe and the US. How do you see it developing in Peru?
I think it will grow. This is a process that is moving at a slower pace in Latin America, but in Peru there are some efforts that are underway. The government's green protocol is a coordinated effort to improve the financial sector's sustainable practices and to make the ecosystem more mature in that regard. Several companies have also subscribed to the Equator Principles, as is the case with the Principles for Responsible Investing. And many of the banks here have headquarters in Europe or North America, so this is also making green lending pick up speed. In Europe, states found a way to provide incentives and articulate the financial system, so a more active role from the government will be key.