The new one political crisis in which Peru is mired is adding uncertainty to the country’s economy and banking system, which could weaken assets and reduce the profitability of institutions beyond expectations, the rating agency said Thursday Fitch Ratings.
The President of Peru, Dina Boluartedecreed on Wednesday a national “state of emergency” that hands over control of the country to the Armed Forces to face the intense protests, while announcing that the general elections could be brought forward by the end of 2023.
Political and social instability intensified in Peru on Thursday while justice analyzed the fate of the former president Pedro Castillowho is detained after his frustrated attempt to close Congress to avoid a request for a vacancy from his position by opposition legislators.
Recent political events reinforce our expectation of a deteriorating operating environment for Peruvian banks in 2023,” Fitch said in a statement.
“Slower economic and credit growth, higher borrowing costs and persistent political uncertainty are expected to continue to pressure the banking sector,” the note added.
Fitch also said the situation raises the potential for downside risk for Peruvian banks.
Most lenders in Peru are already under the impact of the negative outlook for the country’s sovereign note, the statement said.
Fitch revised the outlook for Peru’s sovereign rating to negative in October, leaving it on the brink of losing investment grade, given the mining nation’s growing instability and governance problems.
