In an economy where high inflation coexists with record interest rates, this happens: lending to banks falls and households’ liabilities also drop sharply. This is recorded above all in the medium and low-end segments and it is the next mile that Minister Sergio Massa intends to travel to reactivate consumption in an election year.
Massa says that to recover the purchasing power of Argentines it is not enough to “lower inflation” or obtain parities that close above rising prices, but it is necessary to improve access to credit for families, especially low-income ones .
“We have millions of Argentines who, when they look at their card balance and when they look at their creditworthiness at the bank, find that I’m on the roof. We have to work on tools that improve people’s access to credit,” the minister said in recent press statements. At the Palacio de Hacienda they anticipated that these measures are being worked on, which could take shape starting next month.
The situation is at least peculiar: credit to the private sector collapsed by 20% last year, due to the surge in inflation and the consequent rise in interest rates. The Credit cards, the main vehicle for financing households, are in sharp decline. However, the debt capacity, and consequently the consumption capacity, of households is “at maximum”. Albeit at lower levels than in 2018.
The latest report on financial inclusion refers to the first half of 2022, but everything indicates that conditions have not changed substantially in the second half of last year. This report shows compelling data:
“Regarding balances, the enlarged financial system (banks and other creditors) reduced the total amount financed in real terms by 6% in the first half and by 9% if June 2022 is compared with December 2020. Thus, while the number of people with credit assistance increases, the financed balance is smaller. In terms of average amounts per debtor, all institutional groups presented a reduction in balances in the first half of the year”.
The BCRA report continues: “Notably, the average balance per obligor of other non-financial lenders recorded a decline in real terms of 21% between December 2021 and June 2022 and 38% compared to December 2020. This group has incorporated a significant number of people with funding with increasingly lower average balances. In all financial institutions, public banks recorded the largest average reduction in the balance in the first six months of 2022 (-eleven%). The decrease in the average balance per debtor for other suppliers and public banks somewhat limits the positive effects of the inclusion of new debtors registered by these institutional groups who tend to serve segments with higher levels of poverty and informality by owning these institutions lower barriers to entry to access financing. Lower loan balances could indicate shorter debt duration in line with the evolution of personal loans.”
The figures are eloquent. The average debt balance per household rose from $110,000 in July 2018 to $70,900 in June 2022, in real terms (that is, discounting inflation).
According to a report by Atacyc, the chamber that brings together the issuers of these plastics, over the past four years almost 4 million cards have been “deactivated”. The business chamber stressed that this reduction primarily affects lower-income sectors. The study shows that 96% of the 3.7 million unique users who have stopped using plastic correspond to vulnerable segments.
The picture is completed with some data recently collected and published by the Central Bank: in the first half of 2022 alone, almost 10 million Argentines, mostly women, took credit outside a regulated financial entityas stated in the Report on Non-Financial Credits released at the beginning of the month.
The data speak for themselves, in December 2021 the number of people who financed themselves outside the banks did not exceed one million. In six months, those “excluded” from the banking system multiplied by 10.
The growth of fintech, such as Naranja X, Mercado Pago or Ualá, just to name a few, serves to partially explain this stage of the phenomenon. However, that’s not enough. In the first six months of last year, and again according to BCRA data, this segment expanded its customer portfolio by 1 million new people to whom it granted loans.
In the universe of Non Financial Credit Providers there are not only fintechs, but also non-bank cards, plastics issued by hypermarket chains, household appliances and shopping centres. Also, to mutuals and credit unions. The conditions of access to financing and the related costs show a strong dispersion.
Economist Martín Kalos, director of EPyCA Consultora, explained: “For a long time in the medium and low lack of regulated financial services. There is much less access to banking services and there is a vulnerable part of the population whose only access to finance is the so-called shadow banking system, schemes which can also turn out to be usurious”.
Inflation, which has doubled in the last year to go from 50.9% in December 2021 to almost 95% at the end of 2022, partly explains the need for these sectors to have more funding to meet their current expenses.
But various elements of the Central Bank’s monetary policy, such as the cap on lending rates for bank cards, the end of “interest-free” installments, the increase in the Leliq rate, just to name a few, makes banks prefer to “cut” funding to these segmentsbecause the plastic business is no longer profitable for them.
“Banks have stopped offering new credit cards and have been doing so since before the pandemic stop updating plastic limits in line with inflation. In this process, the cheapest and easiest access, which is the credit card, has been limited for many households,” Kalos said, adding, “The Now plans have been a great idea to stimulate consumption, but at the same time they discourage banks from granting new credit cards”.
In this sense, said Ignacio Carballo, director of Alternative Finance at the UCA: “Without updating the limits, these families could have to spend up to four plastics to make a joint purchase. This forces them to look for other credit channels, with other types of suppliers and at a higher cost.
In the Government they work to deactivate it. The strategy has not yet been defined: whether to offer low-interest credit for these families, whether to give the possibility of refinancing outstanding balance sheets, which was already allowed in the pandemic, or whether to regulate non-financial credit providers more intensely.
Source: Clarin
