Merger of Sullana and Piura reconfigures the cash register market

The absorption of Caja Sullana by its other competitor in the north will anticipate a reconfiguration of the microfinance market for the 11 remaining savings banks and, probably, a change in the rules of the game that will consolidate their operations in the face of new bankruptcies.

It was not a move that was expected in the market. The winner was expected to emerge between the Arequipa and Cusco savings banks, whose promising expansion plans in the north were not supported by a sufficiently aggressive offer.

The competition organized by SBS had two stages: technical and economic. In the first of these, the solvency, efficiency and liquidity of the bidder, among other details, were evaluated. But in the economic stage, it was necessary to set the highest possible contribution for Sullana, in order to leave the accounts at zero and resume the portfolio.

Finally, Caja Piura won with an offer of S/50 million, money that will be allocated during the liquidation process of the extinct Sullana –with whom it shares the majority of the seats in the north of the country– to partially offset the outstanding obligations on its insufficient asset block.

“Piura is participating because throughout the history of the savings bank system it has always been the ‘guardian’. When a small savings bank had problems, Piura helped them through human resources – such as managers or specialists – and even when there were liquidity problems it granted deposits or loans,” explained a source in the sector.

There are 11 participants left

Following this merger, the Peruvian municipal savings bank system now has 11 participants. Caja Piura, which occupied third place, has reached a privileged position and could even try to reach the top spot in terms of number of clients, but it still needs to be refined. Many users have accounts in more than one savings bank, and there is a significant number of these with less than S/1. But it does become the first in terms of deposits.

According to figures as of the end of May 2024, Caja Sullana had a total of 922,036 clients, including individuals and legal entities of different types. The new parent company in Piura had 1,599,313 customers, so it could potentially exceed 2.5 million as a result of this acquisition.

Huancayo (1 million 801,915), Arequipa (1 million 375,328) and Cusco (1 million 264,908) could be behind, but this does not necessarily mean greater income for Piura in the short term. Various sources in the sector agreed that it is possible that the results of the northern bank will be affected immediately.

“There are millions of customers. That’s why it will take a week. [el plazo para que los depósitos de Sullana se vean reflejados en la plataforma de Piura] updating the database; it is a task of migration, opening new accounts, carding, orientation, among others,” said another source to The Republic.

On the lending side as well. Caja Piura had close to S/6 billion in loans, while Sullana reached S/2 billion. This absorption of the portfolio will strengthen the entity, and it will compete directly with Arequipa (S/9 billion) and Huancayo (S/8 billion). This should be enough to keep most of its clients.

It is worth remembering that Piura is one of the three savings banks with the largest financial products and the best interest ratesso now former Sullana customers will be able to have a credit card.

Opportunities are opening up

Is this a systemic failure? For Juan José Marthans, director of Economics at PADEscuela de Dirección at the University of Piura, it is rather an isolated event. According to the expert, Sullana has been hit by different climatic impacts, in addition to Covid-19, in recent years.

He explains that while the intervention is justified, There are possibilities of seeking a recomposition in the patrimonial dynamics of the municipal banks from now on. But the experience that absorption leaves behind generates multiple opportunities.

“We would be opening up the possibility of a great opportunity to start creating funds that are no longer dependent on a single local government, but on two or three. It is a new perspective for the development of microfinance in Peru, since many are associated with governance and depending on a single municipality creates restrictions,” said the former head of the SBS.

Ronald Casana, general manager of Equilibrium Financiero, believes that the merger “will be a very attractive challenge for Caja Piura” because of the support it has among the top 5 with the best levels of assets, risk, credit default status, etc.

The economist says that after the transfer of Sullana’s active portfolio (loans) and passive portfolio (deposits), the situation should “stabilise in the next 5 years”. But he does not rule out that, in 2025, there will be more mergers, or interventions, in the worst case.

“Sullana was the fifth entity with the most deposits. There will be a large amount of funding –especially current savings– so that Caja Piura can also ‘refuel’ those good clients it has. In itself, it is a strength for the system,” said Casana.

At the end of May, the banks achieved a total positive profit of S/38,085 million56% less than the figure recorded a year ago (S/87,384). It should also be noted that one of the financial health indicators is the capital ratio. In this regard, Caja Piura stands out with 13.92%, far exceeding the minimum of 8% established by the Basel Committee.

“Before investing money in any entity, let us first check that it is covered by the Deposit Insurance Fund. But also the profitability and profit indicators, if it is profitable for its own shareholders or new depositors. Let us trust those who have solvency and liquidity, and let this be a lesson,” he concluded.

Sullana had not reported profits for 7 years

● However, not everyone wins in the equation. The Municipality of Sullana has announced that it will initiate legal action against the board of directors of the institution, after its absorption by Caja Piura was the culmination of seven years in which it did not report profits. They accuse the executives of “poor management and alleged fraudulent acts.”

● Thus, the 11 municipal savings banks that still exist are Piura, Huancayo, Arequipa, Cusco, Ica, Maynas, Paita, Trujillo, Tacna and Santa, the latter two also having problems generating profits in recent years, and, like Sullana, having been included in the Patrimonial Strengthening Program for microfinance institutions.

● The Peruvian Federation of Municipal Savings and Credit Banks (Fepcmac) considered that the merger of the Piura and Sullana savings banks is positive for the market in the north of the country, since it knows the portfolio and has a significant component of agricultural and SME loans.

● Economist Enrique Díaz said that Sullana’s exit from the market is a message to increase “prudence” in the management of financial institutions.

● At this point, he did not rule out that the SBS will be more severe with the management of municipal coffers and aim for a consolidation of these. The risk? That the specialization of credits in certain areas will be lost, but that should not reduce reliability in front of the banks.

Deposits will be seen in a week

By Patricia Rojas, Strategic Innovation Manager at Caja Piura

We are putting together a work plan with SBS so that our current clients are served as soon as possible. We are looking at how the operational transition will be after the liquidation of Sullana. We will have the technological plan ready in a week and we will be ready to collect the bonuses for Fiestas Patrias. We have the previous experience of absorbing a rural savings bank (San Martín) and that will help us in this process efficiently.

We completely rule out a run. Caja Piura is the first in liquidity and we have agents nationwide, so all Sullana users will not need to travel to receive services. In addition, we have a wide network of alternative channels – digital and in person – that will be available to everyone 365 days a year.

We have also invested heavily in security – remember that the system comes from the experience of Germany – and we have a credit card with multiple possibilities that other banks do not yet have. We are ready.

As for interest rates, we will respect the contracts we have with Sullana. When checking the ratios of this bank, the vast majority of high-risk loans, or those that were in arrears, are provisioned. This gives us and our clients a lot of peace of mind.

After this takeover, we became the leading savings bank in terms of number of clients and acquisitions. As for profits, we will also make a plan to recover the levels we need to continue climbing.