Scotiabank Perú A : INFORMES DE CLASIFICACIÓN DE RIESGO. OTROS HECHOS DE IMPORTANCIA

Banks

Universal Commercial Banks

Peru

Scotiabank Peru S.A.A.

Update

Ratings

Foreign Currency

Long-Term IDR	BBB+
Short-Term IDR	F1

Key Rating Drivers

Parent Support: Scotiabank Peru S.A.A. (SBP)'s Issuer Default Ratings (IDRs) and Shareholder Support Rating (SSR) are based on expected support from its parent, The Bank of Nova Scotia (BNS; AA-/Stable). Fitch Ratings considers SBP a strategically important subsidiary for BNS, underpinning the bank's SSR of 'bbb+'. SBP's Local Currency (LC) IDR of 'A-' is two notches above Peru's Long-Term (LT) LC IDR of 'BBB' and one notch above Peru's Country Ceiling of 'BBB+', consistent with Fitch's criteria.

Challenging Operating Environment: SBP's Viability Rating (VR) is in line with the implied VR, which is underpinned by its solid business profile and capitalization. In Fitch's view, SBP's core financial metrics have sufficient headroom to maintain its current VR, even if economic conditions are moderately weaker than Fitch's base case due to external shocks or ongoing political and policy uncertainty.

Diversified Business Model: SBP has a diverse and stable business model, and its overall business is weighted toward traditional commercial banking and, increasingly, retail operations. Its reliance on volatile businesses is modest. Likewise, SBP is funded by roughly 50% corporate and 50% retail and, therefore, counts on a stable and diversified deposit base. SBP's business model has benefited from flight to quality under stressed environments.

Local Currency

Long-Term IDR	A-
Short-Term IDR	F1
Viability Rating	bbb
Shareholder Support Rating	bbb+
Sovereign Risk
Long-TermForeign-Currency
IDR	BBB
Long-TermLocal-Currency IDR	BBB
Country Ceiling	BBB+
Outlooks
Long-TermForeign-Currency
IDR	Negative
Long-TermLocal-Currency IDR	Negative
Sovereign Long-Term Foreign-
Currency IDR	Negative
Sovereign Long-Term Local-
Currency IDR	Negative

Stable Asset Quality: Fitch expects asset quality to remain stable over the near term due to the bank's cautious approach and conservative risk preference for secured portfolios, which should reduce the impact of a challenging operating environment (OE) in 2023. Fitch expects SBP's past-due loans to reach around 4% at YE 2023 (June 2023: 3.8%), and these loans are not expected to be a relevant source of risk over the rating horizon, as the bank has shown resilience throughout economic cycles.

Solid Operational Profits: SBP's profitability is underpinned by its risk appetite adjustments, good efficiency levels and solid business generation amid local political uncertainty. Fitch expects the bank's core metric of operating profit/risk-weighted assets (RWAs) at YE2023 to remain around the average of the last 4 years of 2.0%. Pressures on net interest margin (NIM) are expected to continue in 2H23, reflecting limited business growth and higher funding costs. A rise in impairment expenses and inflation will continue to weigh on operating expenses in 2023. SBP's operating profit/RWA ratio at 1H23 of 2.0% was lower than the Peruvian bank average of 3.0% in the same period.

Strong Capital Levels: Fitch views the bank's capital as strong considering its relatively ample loan loss reserves, good asset quality, recurrent earnings generation, adequate risk management and ordinary support. Limited asset growth and profit recovery continue underpinning an improvement in capitalization. Fitch expects SBP's Fitch Core Capital (FCC)/RWA to stabilize at around 14.9% over the next two years (June 2023: 15.7%), maintaining its capitalization score of 'bbb+', commensurate with its planned growth and financial performance. Fitch's capitalization assessment is a rating strength and supports the VR, as the assessment benefits highly from ordinary support from SBP's ultimate parent.

Rating Sensitivities

Applicable Criteria

Bank Rating Criteria (September 2023)

Related Research

The Bank of Nova Scotia (July 2023) Peru (May 2023)

Large Peruvian Banks - Peer Review (June 2023)

Analysts

Ricardo Aguilar

[phone] [e-mail]

Factors that Could, Individually or Collectively, Lead to Negative Rating	Sergio Pena
[phone]
Action/Downgrade
[e-mail]

• A sovereign downgrade would result in similar rating actions on SBP's SSR, VR, and

Foreign Currency (FC) and LC IDRs, as Fitch rarely rates VRs above the sovereign or

Firmado Digitalmente por:

FRANCISCO GUILLERMO

RIVADENEIRA GASTAÑETA

Fecha: 16/10/2023 09:45:08 p.m.
Update │ October 16, 2023	fitchratings.com	1

Banks

Universal Commercial Banks

Peru

SSRs and FC IDRs above the Country Ceiling. Additionally, Fitch would maintain the one- notch difference between SBP's FC and LC IDRs.

• Although not likely over the rating horizon given the parent bank's Stable Outlook, under Fitch's current support assessment and absent a sovereign downgrade, a downgrade of BNS would reduce the notching from the parent toward a minimum of one notch. However, in the unlikely event of a downgrade of BNS's IDRs to the level of the sovereign or below, SBP's ratings would remain at the level determined by its own VR.
• Pressure on SBP's VR could arise from significant asset quality or profitability deterioration that erodes SBP's reserve and capital cushion, specifically operating profit/RWA sustained below its historical average of 2.0% and FCC ratio below 13%.

Factors that Could, Individually or Collectively, Lead to Positive Rating

Action/Upgrade

• A rating upgrade of SBP's IDRs, SSR or VR is unlikely over the rating horizon given the Negative Outlook on the sovereign's LT IDRs. Over the medium term, these ratings could be upgraded if the sovereign's ratings are upgraded.

Significant Changes from Last Review

On April 28, 2023, Fitch affirmed Peru's LT FC IDR at 'BBB' with a Negative Outlook. Downside credit risks to Peru's ratings remain elevated amid weakening of governance, political stability, and growth prospects.

The Negative Outlook on SBP's LT FC and LC IDRs mirrors the Outlook on Peru's LT IDRs.

Scotiabank Peru S.A.A.
Update │ October 16, 2023	fitchratings.com	2

Banks

Universal Commercial Banks

Peru

Ratings Navigator

Banks

Scotiabank Peru S.A.A.

ESG Relevance:

Ratings Navigator

Operating Environment

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Earnings & Profitability

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Funding & Liquidity

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D or RD

The Key Rating Driver (KRD) weightings used to determine the implied Viability Rating (VR) are shown as percentages at the top. In cases where the implied VR is adjusted upward or downward to arrive at the VR, the KRD associated with the adjustment reason is highlighted in red. The shaded areas indicate the benchmark-implied scores for each KRD.

VR -Adjustments to Key Rating Drivers

The OE score has been assigned above the implied score due to the following adjustment reasons: sovereign rating (positive) and macroeconomic stability (positive).

Scotiabank Peru S.A.A.
Update │ October 16, 2023	fitchratings.com	3

Banks

Universal Commercial Banks

Peru

Summary Financials and Key Ratios

	June 30, 2023	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
	6 Months - Interim	6 Months - Interim	Year End	Year End	Year End
	USD mil.	PEN mil.	PEN mil.	PEN mil.	PEN mil.
	Not Disclosed	Not Disclosed	Not Disclosed	Unaudited	Unaudited
Summary Income Statement
Net Interest and Dividend Income	492	1,782.1	3,488.1	3,181.2	4,130.2
Net Fees and Commissions	70	252.3	614.6	617.7	532.5
Other Operating Income	57	205.2	485.2	399.7	425.0
Total Operating Income	618	2,239.6	4,587.9	4,198.6	5,087.7
Operating Costs	265	961.3	1,822.3	1,976.7	2,022.7
Pre-Impairment Operating Profit	353	1,278.3	2,765.6	2,221.9	3,065.0
Loan and Other Impairment Charges	165	597.8	729.1	910.7	2,845.3
Operating Profit	188	680.5	2,036.5	1,311.2	219.7
Other Non-Operating Items (Net)	9	33.2	-49.9	19.2	35.7
Tax	46	167.6	570.7	298.3	3.0
Net Income	151	546.1	1,415.9	1,032.1	252.4
Other Comprehensive Income	67	241.2	-94.1	-416.1	-118.6
Fitch Comprehensive Income	217	787.3	1,321.8	616.0	133.8
Summary Balance Sheet
Assets
Gross Loans	16,308	59,098.6	60,209.3	58,926.5	54,929.4
- of which impaired	623	2,256.6	2,469.3	2,317.9	3,530.8
Loan Loss Allowances	1,056	3,825.4	3,854.6	3,890.5	5,374.7
Net Loan	15,252	55,273.2	56,354.7	55,036.0	49,554.7
Interbank	223	806.9	233.9	661.6	474.5
Derivatives	157	568.3	426.0	412.8	189.6
Other Securities and Earning Assets	1,499	5,433.4	5,093.4	5,256.3	8,875.3
Total Earning Assets	17,131	62,081.8	62,108.0	61,366.7	59,094.1
Cash and Due from Banks	3,049	11,049.4	10,386.1	13,646.8	17,117.3
Other Assets	1,125	4,078.2	3,142.2	3,870.3	3,792.7
Total Assets	21,305	77,209.4	75,636.3	78,883.8	80,004.1
Liabilities
Customer Deposits	12,227	44,311.4	43,710.6	47,237.6	48,575.2
Interbank and Other Short-Term Funding	1,611	5,838.6	4,997.5	6,480.1	16,709.3
Other Long-Term Funding	3,437	12,454.1	14,054.8	12,711.3	3,312.9
Trading Liabilities and Derivatives	292	1,059.0	683.5	398.3	181.6
Total Funding and Derivatives	17,567	63,663.1	63,446.4	66,827.3	68,779.0
Other Liabilities	514	1,863.2	1,295.1	1,250.8	1,203.6
Preference Shares and Hybrid Capital	N.A.	N.A.	N.A.	N.A.	N.A.
Total Equity	3,224	11,683.1	10,894.8	10,805.7	10,021.5
Total Liabilities and Equity	21,305	77,209.4	75,636.3	78,883.8	80,004.1
Exchange Rate		USD1 = PEN3.624	USD1 = PEN3.809	USD1 = PEN3.9849	USD1 = PEN3.62
N.A. - Not applicable
Source: Fitch Ratings, Fitch Solutions, SBP

Scotiabank Peru S.A.A.
Update │ October 16, 2023	fitchratings.com	4

Banks

Universal Commercial Banks

Peru

Summary Financials and Key Ratios

	June 30, 2023	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Ratios (annualized as appropriate)
Profitability
Operating Profit/Risk-Weighted Assets	2.0	2.9	1.8	0.4
Net Interest Income/Average Earning Assets	5.8	5.6	5.1	6.9
Non-Interest Expense/Gross Revenue	43.0	39.9	47.4	39.9
Net Income/Average Equity	9.8	13.6	10.0	2.5
Asset Quality
Impaired Loans Ratio	3.8	4.1	3.9	6.4
Growth in Gross Loans	-1.8	2.2	7.3	2.0
Loan Loss Allowances/Impaired Loans	169.5	156.1	167.9	152.2
Loan Impairment Charges/Average Gross Loans	2.0	1.2	1.6	5.1
Capitalization
Common Equity Tier 1 Ratio	N.A.	N.A.	N.A.	N.A.
Fully Loaded Common Equity Tier 1 Ratio	N.A.	N.A.	N.A.	N.A.
Fitch Core Capital Ratio	N.A.	14.6	13.8	14.8
Tangible Common Equity/Tangible Assets	13.6	13.4	12.7	11.5
Basel Leverage Ratio	N.A.	N.A.	N.A.	N.A.
Net Impaired Loans/Common Equity Tier 1	N.A.	N.A.	N.A.	N.A.
Net Impaired Loans/Fitch Core Capital	N.A.	-13.9	-15.9	-20.3
Funding and Liquidity
Gross Loans/Customer Deposits	133.4	137.8	124.7	113.1
Gross Loans/Customer Deposits + Covered Bonds	N.A.	N.A.	N.A.	N.A.
Liquidity Coverage Ratio	N.A.	N.A.	N.A.	N.A.
Customer Deposits/Total Non-Equity Funding	70.4	69.6	71.1	70.8
Net Stable Funding Ratio	N.A.	N.A.	N.A.	N.A.
N.A. - Not applicable
Source: Fitch Ratings, Fitch Solutions, SBP

Scotiabank Peru S.A.A.
Update │ October 16, 2023	fitchratings.com	5