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Banking and financing: why credit cards and personal loans are falling

Card credit grows 43% year-on-year, well below inflation of 58% in the same period (Reuters)

Bank credit to the private sector is stagnant in real terms. Although in a context of unleashed inflation, the amount of pesos that are lent in the form of consumption with a credit card, personal loans, mortgage loans and other lines continue to grow only in nominal amounts. Specialists point out that a combination of factors is behind this: the liquidity of the system is increasingly used to finance the Treasury, the regulations on rates make it unattractive to promote the use of plastics and the economy itself does not allow greater demand.

In April, card credit grew 4.5%, a healthy pace at first sight as long as you do not take into account that inflation during that period advanced to 6%, which implies that in real terms the value lent by banks decreased. In year-on-year terms, card credit grew 43.8% nominal, another number below the variation in the general price index, which reached 58% year-on-year. In short, the amount of pesos that Argentines borrow when using their plastics is contracting, beyond official attempts to sustain consumption through Now 12.

The low power of credit with plastics is just one of the cases. But perhaps the most relevant in terms of the difficulties it faces. With regulated rates, the Central Bank imposes a cap on them, and the competition of Now 12 that forces them to lend at a rate well below the market, the banks are running from the center of the scene to their plastics, until recently the stars of their offer for individuals.

The stock of credit in pesos to the private sector shrank by 20% in real terms between January 2019 and April 2022 (Vasconcelos)

A) Yes, points and miles benefits for travel were canceled or eliminated. Advantages such as free medical coverage for travelers were also withdrawn. And the promotions are no longer aimed at people using their cards all the time. As well as the entities became slow to update the financing limits, letting the values ​​shrink against the advance of the general level of prices.

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In this way, thousands of card users deal month after month with the financing limit granted by their issuers. “For customers, the cards have become something transactional or oriented to Now 12. And the Now 12 loan does not compensate the banks while making it impossible to place other credits or installment plans. In the end, what happens is that it is no longer attractive to try to stimulate them”, they said in a local entity.

But not only the stock of credit cards decreases. In general, credit to the private sector is shrinking. Thus, activity and consumption do not have the financial sector on their side to promote it. The recovery occurs without financing.

The stock of credit in pesos to the private sector shrank by 20% in real terms between January 2019 and April 2022; while loans in dollars contracted 81.0% in the same period. In this way, the consolidation of credit to the private sector (pesos plus Argendollars) has fallen by no less than 37% in real terms between the beginning of 2019 and the latest data for 2022″, states a report from the Ieral de la Fundación Mediterránea that has the signature of Jorge Vasconcelos.

Activity and consumption do not have the financial sector on their side to promote it. Recovery occurs without financing

The line of personal loans grew 4.3% monthly in April, another rise that is a contraction when compared to inflation. Mortgage credit lines, including those adjustable for inflation/UVA, during that month grew 2.2% monthly and 37% year-on-year. The best performance is in commercial loans, to companies, which grew 7.1% last month.

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But when looking for where the lost financing is, all eyes turn to the State. “Transfers from the Central Bank to the Treasury, which in 2020 reached 7.4 points of GDP, forced an increase in BCRA liabilities -N. of the R: Leliq, and passes- of 56% in real terms, a variation equivalent to USD 14,000 million at the official exchange rate at that time”, analyzed the Ieral.

“2021 is a transition period, in which the Central Bank’s liabilities increase at a somewhat lower rate than in 2020 (in the equivalent of UISD 10,000 million), but the Treasury’s debt in pesos accelerates, in a figure that, converted to dollars at the official exchange rate, it adds USD 28.8 billion to the stock at the end of 2020“, highlighted the private report.

“In the last twelve months until April, the remunerated liabilities of the BCRA stop growing in real terms, but the debt in pesos of the Treasury becomes a true festival of bonds, with an accumulated increase in twelve months equivalent to USD 33,800 million ”, concluded the Ieral.

Seasonality can also be added to factors such as a still meager level of activity and real incomes that lose against inflation. The bulk of consumer credit is concentrated in the second half of the year. The golden age of cards goes from Mother’s Day, in Octoberto the summer holidays. In that period, the credit cards are concentrated and, with parity already applied to wages, there may be some rebound, private consumption analysts observe.

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