DLA Piper Peru partner Sergio Barboza, expert in finance law, shares his opinion about the role fintechs and banks are playing in the Covid-19 crisis in Peru.
Leaders League: How are fintechs helping during coronavirus in your country?
Sergio Brboza: Regrettably, so far fintechs are not playing a key role in this crisis situation.
At the beginning of this year, the Peruvian Government issued an extremely worthwhile emergency decree, a regulation designed to foster the emergence of a “regulatory sandbox”, a space to promote the development of new fintechs without the need to comply with heavy regulatory burden.
Due to the national state of emergency, it has not yet been possible to take advantage of this “sandbox”. Nevertheless, fintechs may yet emerge as key players in the country’s economic recovery.
In Peru, a significant proportion of the population don't have a bank account. Why has the government not chosen to use fintechs to help distribute the 380PEN bond to the poorest families?
Basically, for two reasons. On one hand, due to low connectivity; currently only 50% of the Peruvian population has access and uses the internet, and, in remote rural areas, where the most vulnerable groups reside, said percentage significantly decrease. In addition, the informal employment rate in Peru of almost 70% prevents “tracking” people with accurate data.
Also, on a practical level, public entities require certain guarantees or collateral (e.g: bonds) from financial entities in order to provide these services, which can hardly be obtained by fintechs.
Due to all of the above, fintechs are prevented from acting as safe active channels to connect Peruvian state with its people.
What do you think about the measures banks are taking concerning credit? Is there anything we can do at bank level to help the country get through this difficult period?
First of all, it is important to differentiate the systemic banks, whose solvency and global market presence give to them the margin to generate large scale measures and to assume a “public service” role, from the rest of banks and financial entities, which basically subsist on their portfolios returns, and, clearly, have greater restrictions.
On one hand, the systemic banks have already been implementing a series of measures in their home countries and some of those actions have been replicated in Peru; for example, reducing digital channels fees and providing credit lines to vulnerable companies and, in order to afront the liquidity crisis, reducing executive compensation to create solidarity funds and donations; among other economic and logistical measures on behalf of the clients. On the other hand, local banks and
microfinance entities, as I previously noted, have greater restrictions and “financial backs” to implement similar measures or actions.
Finally, regarding these measures, the Peruvian regulatory and/or supervisory bodies (such as SBS, SMV, BCR, MEF), have approved several regulations aimed at reducing the prudential burden for the
banks. All these measures are temporary by nature and are “tailor-made for debtors” and not necessarily for the financial entities. Hence, rather, I am sure that the regulatory bodies are further considering medium and long term measures in order to ensure the survival of financial intermediaries and preserve the overall stability of the financial system.
As Bancolombia announces a three-month credit-payments freeze, why have none of the Peruvian banks proposed this measure?
This is a very interesting topic, which is related to an excellent communication strategy.
Bancolombia announced that will “freeze” their loans. Subsequently, some of the largest banks in Peru announced, - with different nuances - that they will “reprogram” their loans.
In substance, they are the same; thereof, for a period of time (one to three months, for example) the banks will not receive interest, but it will charge it at a later date.
No bank and, certainly, no microfinance entity, can massively waive clients’ interest (unless an entity such as the Peruvian Central Bank (BCRP) decides to grant some type of bailout). Undoubtedly, that would affect its solvency.
Sum up in a few sentences what has this crisis has taught you?
This crisis has demonstrated that all companies, regardless of their size, must have a business continuity plan. In the financial system, the Superintendence of Banking, Insurance and Private Pension Funds Managers (SBS) has for many years been calling for the implementation of these types of plans and to date we are able to note that they are providing good results.