Term deposits grow by 23.7% due to higher profitability

Due to the free availability of compensation funds for time of service (CTS) until December 31, 2023, authorized by the Congress of the republic, This product is no longer the most promoted by financial institutions because every month people make withdrawals from their accounts.

So, at the end of 2022, CTS deposits throughout the financial system reached S/11,088 million, which is 31.7% less than what was registered before withdrawals were allowed, according to data from the Superintendency of Banking, Insurance and AFP (SBS).

In detail, the largest outflow occurred in the banking system, which went from S/10,590 million in May of last year to S/7,967 million in last December, a reduction of almost 33% (see infographic).

Meanwhile, the CTS deposits in the municipal boxes they went from S/2,815 million to S/2,294 million, which represents a 22.7% decrease in this segment.

Ricardo Ávila, a senior analyst at Scotiabank’s Economic Studies, argues that, given the free disposal of CTS funds, the Bank System he no longer had the incentive to continue promoting these funds, which has translated into a lower increase in the interest rates of this product.

“The free availability of the CTS takes away some of the incentives for the banks to be able to retain these types of funds; that is why the rates have not grown as much. At the end of 2021 it was at 2.30%, and at the end of 2022 it is at 2.63% on average,” Ávila commented.

Rising term deposits

Faced with the lower attractiveness of CTS accounts, the various entities of the financial system began to bet on its time deposit product, which has begun to gain ground in the market, driven by the higher profitability of this product.

According to the SBS, the time deposit accounts of natural and legal persons throughout the financial system reached S/138,692 million at the end of 2022, a growth of 23.7% compared to 2021.

Likewise, Ávila refers that if only the term deposits of people in the banking system are taken into account, an increase of 100% is observed, going from a balance of S/17.800 million to S/35.500 million.

For Arturo García, professor of Finance at ESAN Graduate School of Business, explains that this greater preference for term deposits is precisely due to the more attractive interest rates offered by financial system entities, which can exceed 9% per year in some microfinance institutions.

“The bank promoted its term deposits so that those who withdraw their CTS migrate to term deposits and it is also to attract more deposits,” he points out.

On the other hand, Ávila, from Scotiabank, specifies that the interest rate average in banks went from 1.9% in 2021 to 7.40% at the end of 2022. “We are talking about an increase of almost 550 basis points,” he said.

Wide gap between CTS rates and fixed-term deposits

The average interest rate for CTS deposits in banks stands at 3.12%, while the fixed-term rate is 7.76%.

Meanwhile, financial companies offer an average return of 6.34% for CTS and 8.21% for time deposits. The municipal savings banks, on the other hand, have a rate of 6.49% and 7.49%, respectively.

“Term deposit rates would remain at those high levels, we are talking about until the fourth quarter of this year,” estimates Ricardo Ávila.

For his part, Arturo García specifies that these rates tend to increase when the bonus deposit is close. In addition, a possible withdrawal of AFP would push rates up.