Credits: reasons why Colombians are not paying their debts – Personal Finance – Economy

The slowdown in the economy is revealing more and more major cracks in household finances. Not only is consumption in sharp decline (according to Raddar, household spending in March showed a contraction of 3 percent per year) but also, Colombian families are finding it more difficult to pay their financial obligations and to catch up on delinquent loans.

(Also read: Consumer loans slow down, growth in March is the lowest in 5 years)

This is clear from a recent report by the financial information center TransUnion, which warns that delinquency in credits is accelerating and today there are more credits with arrears of 60 days. “The delinquency rate of 60 days or more at the balance level stood at 4.6 percent in the first quarter of 2023,” an increase of 16 basis points compared to the first quarter of 2022 and 13 basis points compared to the first 2020, before the pandemic, which is very worrying, according to the entity.

Credit cards and free investment loans are the most affected by this circumstance, says TransUnion, specifying that In the so-called plastic money, this increase in delinquency from 30 to 60 days was 66 percent in March 2023, a rebound of 57 percent compared to March 2022.

But that change is higher and faster for the 60-89 day delinquency category (81 percent) in that same period, up from 73 percent in March 2022.

(Also read: The Colombian banks with the best profits in March 2023)

The foregoing coincides with what was reported by the Financial Superintendency itself on Friday of the previous week, in the sense that Non-performing loans show real annual growth up to March of 12 percent, with consumer loans showing the greatest advance with close to 51.1 percent.

The surveillance entity indicates that the indicator of the quality of the portfolio of credit institutions has been on the rise since December 2022, going from levels close to 3.7 to 4.3 percent at the end of last March. For that month, the balance of Colombians’ debts in arrears with banks amounted to 29 trillion pesos.

high cost of money

Delinquency rates on credit cards and free investment loans are probably seeing the biggest deterioration due to the current macroeconomic environment, say TransUnion spokespersons.

The figures from the Financial Superintendence show that until last March the consumer portfolio is the one that registers the highest quality indicator, 6.7 percent, well above the system average of 4.3 percent. It means that for every 100 pesos lent by the entities, 6.7 pesos are in default.

“As the economy and the credit market slow down, entities must be prepared for an increase in the risk of their portfolios, with appropriate maintenance and collection strategies,” Virginia Olivella, senior director of research and consulting at TransUnion , who added that timely identification, monitoring and control measures, balanced with a continued effort to find and finance good consumers, are essential for good risk management and achieve sustained growth.

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Exits to face the crisis

And while this situation, which has thousands of households and families in the country experiencing difficulties in meeting their bank obligations, is increasing, the people themselves are also adopting strategies to prevent this condition from becoming an unmanageable problem as it progresses. the year and the economy slows down even more.

In fact, TransUnion consulted the households about it and 74 percent of households characterized to be facing this situation through lower expenses (In the fourth quarter of 2022 that percentage was 72 percent.)

Another 45 percent of consumers surveyed specifically applied for new credit or refinanced an existing one, but ultimately decided against it. The most cited reason for abandoning their credit application was the high cost of credit (45 percent, up from 42 percent in Q4 2022).

Precisely, due to the current economic situation, fewer people are turning to credit as an alternative to face their difficulties and this is reflected in the slowdown in the placement of new bank loans. According to data from the Superfinanciera, although the growth of the gross portfolio remains in positive territory, it has registered a declining growth for the past year.

Until the end of March, real annual growth was 0.11 percent, with the largest contractions being those of consumption (1.34 percent) and housing (0.9 percent).

For its part, TransUnion points out that of the total originations that fell 21 percent between March 2022 and the same month of 2023, new mortgage loans and new credit cards were the ones with the greatest decrease, with variations of -37 and -29 percent, respectively—in the case of new home loans, largely due to high interest rates and a pause in government subsidies.

“We are seeing a decline in riskier consumer participation in originations, especially credit cards. In the first quarter of 2022, 15 percent of credit card originations were for consumers with a credit score below below prime —this participation fell to 11 percent related to the first of 2023. This could be with stricter credit policies (of the entities), as it reduces their risk appetite in the current challenging macroeconomic environment, “they indicate the spokespersons of the risk center.

They also point out that this decrease in the intention to apply for new credits largely reflects the impact of four main concerns of Colombian consumers, according to their Consumer Pulse survey: inflation, employment, increase in interest rates and the possibility of of a recession. “Concerns about employment and rising interest rates are gaining ground, with a significant percentage of consumers listing these as their top concerns in the first quarter of 2023 (48 and 47 percent, respectively).