Credit Card Interest Rates Experience Significant Decrease: From 40% to 20-25% Range
Credit Card Interest Rates
The Asobancaria convention, the annual gathering of bankers, commenced today in Cartagena. Jonathan Malagón, the president of Asobancaria, addressed the convention and discussed various topics such as the strength of the banking sector, the challenges it faces, and the ongoing rate war.
The convention, scheduled to run until Friday, has brought together all the lenders during a time of credit deceleration. Additionally, the banks experienced a significant reduction of around 38% in profits during March.
In light of these circumstances, Jonathan Malagón highlighted that banks are continuously lowering interest rates. However, he also emphasized that they are prepared for a potential increase in non-performing loans.
President Gustavo Petro has been advocating for further reductions in bank interest rates. The question arises: is there room for these measures?
Since the initial announcement of a decrease in credit card interest rates, 24 financial institutions have joined this initiative.
The objective is to responsibly benefit the low-income population, especially considering the current environment of restrictive monetary policies aimed at combating inflation.
As a result, the interest rates offered by nearly all entities with credit card portfolios have dropped from 40% to a range between 20% and 25%. Some entities have implemented specific reductions for home or basic product purchases, while others have limited credit limits or types of credit cards.
Several entities have even implemented rate reductions without any limitations. Moreover, reductions in interest rates have been implemented for other types of loans, including VIS housing loans, microcredits, and rural credits.
Are the losses progressing at a favorable rate?
These voluntary measures have been implemented in response to elevated risk levels, driven by the significant household indebtedness nearing historical highs and the anticipated economic slowdown.
Additionally, the high cost of funding has posed limitations on rate reductions. However, considering inflationary expectations and the macroeconomic landscape, it is anticipated that the Banco de la República (Central Bank) may reduce its intervention interest rate in the upcoming months.
This scenario suggests the continuation of a general downward trend in interest rates. Since March 2023, we have already witnessed substantial decreases, including 377 basis points (bp) in microcredit, 294 bp in consumer loans, 279 bp in commercial loans, 224 bp in credit cards, and 87 bp in housing loans.
What are the key subjects that will be covered during this year’s convention?
The Banking Convention will delve into a range of topics crucial to the future of banking and the overall economic growth of the country.
These discussions will encompass various areas, including the evolving patterns of consumption and savings, the untapped export potential in Colombia, and the significance of energy transition and the agricultural sector in the nation’s development.
Within the banking sector, specific subjects to be addressed involve the role of credit for the popular economy and the impact of financial innovations on social transformations.
Moreover, there will be cross-cutting discussions on the involvement of regions, justice, Congress, and the Government in fostering economic development.
Do you anticipate challenges with reduced credit placements and higher delinquency rates?
In periods characterized by high inflation, there is typically an upswing in price volatility, which can impact the asset quality and financial stability of banks.
Consequently, individuals may experience a decline in their purchasing power, leading to uncertainty regarding economic prospects.
To navigate such circumstances, banks need to adopt robust risk management strategies to safeguard their loan portfolios and maintain stability within an inflationary environment.
Overall, banks strive to maintain a strong position with capital and liquidity levels that surpass the regulatory minimum requirements.
Furthermore, during periods of elevated inflation, it is customary for interest rates to increase. This can potentially deter both consumer and business demand for credit, and may even pose challenges in sustaining a level of economic activity that aligns with the country’s growth potential.
In such circumstances, banks need to explore methods to keep credit supply enticing, thereby stimulating economic activity and fostering growth, even within an inflationary setting.
Are non-performing portfolio levels still a cause for concern?
While there has been a noticeable increase in the deterioration of certain segments, such as consumption (6.68% compared to 5.44% in December), this can be attributed to the economic slowdown, particularly evident in the household segment, and the persistent high levels of inflation.
These factors have led to a reduction in disposable income, which was expected based on the previous year’s trends.
However, it’s worth noting that the overall maturity level of the total portfolio (4.2%) remains lower than the levels observed prior to the pandemic (4.3%).
The Colombian banking sector has earned a reputation for its robustness and ability to withstand unforeseen shocks. Over the past years, financial institutions in the country have dedicated significant efforts to aligning themselves with the highest international standards and establishing their position as an efficient sector.
Moreover, credit institutions persist in upholding robust standards when it comes to macroprudential risk management.
This commitment is evident through their maintenance of solvency and liquidity levels that surpass the regulatory requirements, as well as provisions exceeding 100% for key loan categories.
These indications demonstrate that these entities have already implemented strategies to prolong the maturity of their portfolios and are well-prepared to navigate the challenges even within the current challenging environment.
To what extent is the bank prepared to enhance interoperability and improve payment systems?
The bank is fully prepared to facilitate immediate, convenient, and seamless transfers across all payment methods and financial institutions for all users of the financial system.
Over the past years, banks have successfully established digital wallets as accessible and user-friendly tools, enabling individuals to effortlessly send and receive money, save, and access digital credit services at no cost.
Undoubtedly, electronic wallets have played a pivotal role in elevating the utilization and accessibility of financial products within the country.
In fact, the recently released Financial Inclusion Report by Banca de las Oportunidades reveals that 92.3% of adults have access to a financial product, with 77.2% utilizing them regularly. Notably, digital wallets have achieved a remarkable coverage of 62.3% among all adults.
This unquestionably demonstrates their significance as a crucial tool in promoting access to financial services and facilitating digital payments.
The solvency levels remain exceptionally strong, contributing to the continued robustness of the banking system, even amidst high interest rates.
Over the years, financial institutions in our country have exerted substantial efforts to align themselves with the highest international standards.
They have successfully established themselves as an efficient sector in resource allocation, facilitating investment and savings decisions, and serving as a formidable pillar for economic growth.
In the present scenario, continuous monitoring, prudent risk management practices, and valuable lessons learned from past experiences have shielded Colombian banks from severe damages during the economic slowdown, as observed in other countries.
This resilience is evident through the maintenance of solvency and liquidity levels well above the regulatory minimums, instilling a sense of security and confidence among all users of the banking system.
This year, notable figures such as the prosecutor and the president of the Supreme Court are present. What is the current role of justice in the financial system?
In the financial sector, ensuring transparency, legality, and security in all transactions conducted by users is a paramount priority.
Safeguarding the rights of various stakeholders within the financial system is crucial, and this is where the role of justice comes into play.
With the involvement of the prosecutor, attention will be given to matters concerning the protection of cybernetic security in the financial domain, as well as the prevention and response to financial crimes in the digital environment.
Moreover, the participation of the president of the Supreme Court will enable an analysis of the Supreme Court’s role in consolidating the democratic process in the country, which is essential for the proper development of the financial sector.
