Peruvian Banks See Drop in Delinquent Loan Write-Offs

Economic recovery and stricter lending policies contribute to the decline.

Peruvian banks are experiencing a significant decrease in written-off delinquent loans, signaling an improving financial landscape. However, economic uncertainty looms as the country approaches elections in 2026.

Decline in Loan Portfolio Punishment

According to the Banking Superintendence, Insurance and AFP (SBS), as of May, the portfolio punished by banks reached S/ 3,164 million. This amount is 35% lower than the S/ 4,873.2 million registered during the same period last year.

Despite the decline, the current figure exceeds that of 2023 by 16%, doubles the amount seen in 2022, and is 81% higher than pre-pandemic levels.

Factors Contributing to the Reduction

Víctor Blas, Financial and Financial Finance Division Manager, told management that the reduction is partly due to the exceptional punishment of delinquent loans in 2024. These loans had accumulated from previous years.

In 2024, financial institutions faced pressure on their balances, as well as indicators of delinquency and profitability, forcing them to execute more punishments than usual, he said.

Banks’ Response to Delinquent Loans

Banks typically write off credits and remove them from their balance sheets after fully provisioning them, as the likelihood of recovery diminishes significantly due to prolonged payment delays.

“The shock lived in the health crisis of the Covid And the climatic and social events in the subsequent years, added to the high inflation that affected the pocket of the debtors, caused the crops of the disbursements of the second semester of 2023 – recession period – and of the beginning of 2024 are fatal ” he said.

Ronald Casana, representative of the College of Economists of Lima, believes that the economic improvement in early 2025 allowed more clients to meet their financial obligations, reducing the volume of punishments.

Furthermore, banks have implemented improved granting policies and more rigorous collection practices, enabling them to reduce delinquency through rearrangements and write-offs, he noted.

“This, unlike 2023 and 2024 that were very hard periods for the economy and was reflected in mype and consumption customer compliance problems” he added.

Impact of Upcoming Elections

According to Casana, the pre-election period introduces economic caution due to uncertainty, which could lead to payment defaults resulting from personnel cuts or contract non-renewals.

Blas reaffirms that concerns surrounding the change of government could impact the payment capacity of some debtors, potentially leading to increased credit write-offs in the first half of 2026.

“Loans would begin to fall in default in the second semester, but they would spend the 120 days behind next year” he said.

Notably, according to a recent report by the Central Reserve Bank of Peru, consumer confidence has slightly decreased in anticipation of the upcoming elections (BCRP 2024).

Types of Loans Affected

Micro and small business loans, along with revolving and non-revolving consumer credits, are the most frequently written off due to payment issues, according to the Executive.

Casana notes that consumption loans, especially credit card debts, are predominant among unpaid disbursements. Loans with payment schedules receive closer monitoring, while those authorized for businesses often have guarantees or can be more easily tracked.

Larger loans, exceeding S/ 50,000, are more challenging for financial entities to write off, he added.

Write-Offs Impact on Bank Results

Financial entities typically write off between 1% and 3% of delinquent loans to manage delinquency rates, stated Ronald Casana.

Casana estimates that while leading banks may write off around 1%, microfinance institutions, particularly smaller ones, could see figures reaching up to 3% in 2026 if debtor default risks materialize.

“When they punish their high -risk portfolio, refinanced credits or with more than 90 days of mora the provision made by the Bank is executed in the face of non -payment risks. But those resources come out of utility, so the results are harmed ” he explained.