Taking on tough times

Published: 8 April 2009

In Peru, opportunities continue despite a challenging year

Modern Peru still evokes images of ancient Inca gold. The country holds a prominent place as one of the world's top producers of silver, copper, zinc and gold. Its economy grew aggressively over the last eight years. When HSBC started its operations in Peru in 2006, the country was enjoying a boom period. That year, Peru posted GDP growth of 7.7 per cent, according to figures from the Central Reserve Bank of Peru (Banco Central de la Reserva de Peru – BCRP) and HSBC.

BCRP data shows that Peru ended 2008 with 9.8 per cent GDP growth, making it one of the best-performing emerging economies during a difficult year.

This growth may give the country a much-needed buffer against the effects of the global financial crisis. Peru has been hit by lower commodity prices and recession in countries like the United States, where demand for Peru's exports is high. But opportunities still exist even during this challenging year.

Luiz Felipe Mauger, Chief Executive Officer of HSBC Bank Peru S.A., shares his thoughts on the opportunities available in Peru, and how he sees HSBC's presence growing.

Given the economic atmosphere, Peru's growth is projected to be significantly slower in 2009 than 2008. Commodity prices are also lower. How has this affected investor sentiment?

HSBC is being much more conservative with its projections than other major institutions, not only International Monetary Fund (IMF) but World Bank. I don't expect growth is going to be as high as [the IMF's projected figure of] 6.5 per cent. But the fiscal stimulus that the central bank is injecting in the market this year is equivalent to 1.8 per cent of GDP.

We expect that, as a result of the financial crisis, 2009 is going to be a challenging year. Peru is not an exception; we're going to be impacted. With the reduction of commodity prices, you're going to need higher return on investment to attract investors. The projects with lower cost of production will be the focus of investors' attention. We will see some slowdown and concerns but in the long run, because of the strong fundamentals of the country, you are going to find investors willing to invest.

Luiz Felipe Mauger, CEO of
HSBC Bank Peru S.A.

What are the products and services you consider attractive to investors?

Peru is a country where you have a lot of things to be done in terms of infrastructure. We also have a lot of opportunities in the mining business, as well as the fishmeal business, and oil and gas. What I expect going forward, after the crisis, is that we're going to continue to attract investments in infrastructure, oil and gas, and mining projects.

What we're seeing so far is that most companies are really evaluating their investments. We have a lot of demand for hedge products and some demand for project financing, which we are working on with most of our customers.

Infrastructure projects normally rely on sourcing funds. How difficult is it to do this right now?

Investors are seeking much more secure projects in which to invest their money. And the situation today around the globe is not as benign as it used to be a year ago. Most of the projects we have in Peru rely on foreign investment. But there is funding available locally for smaller projects through local institutional investors, especially pension funds that can help as well to clinch the amount that investors would need for projects.

Despite the difficult atmosphere, do you think there will still be interest in commodities from China, for example?

In terms of demand from investment, you are going to have fewer investors who are willing to do this. But the flip side of this coin is that there are investors who are thinking long-term and who need minerals and other commodities in the months to come. When the price is down, it's one of the best times to invest because the cost of investment is going to be lower.

Tell us about HSBC Peru. Why did HSBC decide to do business in the country?

HSBC started operations in November 2006. The reason we decided to establish a presence in Peru was, first of all, because of [HSBC's] Latin American expansion. Peru was one of the middle-sized countries in the region where we did not have a presence. The country was experiencing a period of strong growth at least for the last seven to eight years, with single-digit inflation for the last 14 years, with fiscal discipline. It was a very good environment for HSBC to start operations in. It fitted very well with the Latin American franchise of the Group.

We decided to do a greenfield operation based on the profile of the country and what we expected to be the growth of the country. We focused on Global Banking and Markets, and Commercial Banking at the beginning. A year later, in 2007, we launched our Personal Financial Services business and opened our first branch in Lima. In 2008, we opened up the SME portfolio and increased the branch network in Lima.

HSBC Peru was involved in deals – for example, the deal with DP World Callao SA – that originated in other countries. Why did they originate outside Peru?

In order to be a very lean operation, we don't have the whole infrastructure on project finance and M&As in Peru. We are locally involved in most of the large deals and we bring in HSBC expertise. Where the expertise lies depends on the project. If you have a project finance opportunity in Peru, for example, you have my local team bringing in the project finance team from London, from New York – wherever the expertise is – to do the operations. We tie up with many different HSBC areas in the world to provide the customer the best solution, the best team in place. So, sometimes you can do the deal in Peru, sometimes you can do the deal outside Peru. It doesn't matter where the deal is originated. What we have is a very close relationship between Peru and other countries and the expert team to be able to deliver what we promise.

How do you see HSBC Peru continuing to grow?

This year, we're opening branches in provinces outside Lima, in the four biggest cities in the coast of Peru. We expect as well, due to the global crisis, to see an increase in delinquencies on the banking portfolio in the country, even though we believe that the banking sector is very well-prepared for this challenge. So our strength is to continue to work closely with our customers, help them out through this cycle, and be conservative in terms of the kind of customers and business we're bringing in.

How does HSBC Peru position itself to take advantage of the opportunities in the country?

As I mentioned, we expect the majority of the large projects in the country to go around mining, oil and gas, and infrastructure. The government is going to invest heavily on infrastructure this year as one of the anti-crisis measures to ease the impact of the crisis and to put Peru in a strong position to grow when the crisis is over. We at HSBC Peru are very much involved in helping our customers analyse and see what kind of opportunities they have in the market. The tough times are going to be challenging, but the country has a lot of potential. And if you are one of the mining companies, if you are in the infrastructure business, definitely you need to look at possible investments for the future.

Source: It's Not Easy to Ease, Latin America Insight, HSBC Global Research Macroeconomics Q1 2009