The Quality of the Banking System’s Loan Portfolio and the Economic Cycle: An Econometric Approach for the Peruvian Case

This article examines the relationship between the quality of the banking portfolio and the economic cycle in Peru, focusing on how macroeconomic factors affect the solvency of the banking system. An econometric approach using panel data is employed to analyze quarterly data from 1993 to 1998, considering variables such as Gross Domestic Product (GDP), growth in credit to the private sector, interest rates, and exchange rate volatility. The results show that a 1% increase in GDP can reduce the non-performing loan ratio in domestic currency by between 3 and 7 basis points, while non-performing loans in foreign currency are more severely affected, reaching up to 28 basis points. Additionally, the study finds that credit booms, although associated with higher portfolio quality in domestic currency, create vulnerability in the foreign-currency portfolio due to a lack of information on borrowers during periods of credit expansion. Finally, it concludes that supervisory and regulatory policies must strengthen their criteria in the face of macroeconomic fluctuations to preserve financial stability. (Abstract and audio: Department of Economic Publications)