2024-07-18 11:22:34
Loan arrears have increased in cooperatives. The microcredit default rate reached 12% in May 2024.
The economic slowdown is taking its toll on Ecuadorians who took out loans to support their small businesses, microenterprises and startups. In financial institutions, such as private banks and cooperatives, the credit intended for this segment of the population is known as microcredit.
This is a loan aimed at individuals or legal entities with small and medium-sized businesses with annual sales of up to USD 100,000 per year. Thus, the default rate, which is an indicator that shows delays in loan payments, which has been growing since 2023 for this type of loan, has skyrocketed so far in 2024.
Microcredits granted by cooperatives are those with the highest default rates. The default rate for microcredits granted by cooperatives went from 8.08% in January 2023 to 12% in May 2024.
This is the highest delinquency rate recorded among all types of credit granted by the private sector. Microcredit delinquency is also on the rise in private banking, as the rate rose from 6.1% in January 2023 to 7.7% in May 2024.
Andrés Albuja, professor at SEK International University, explains that there are several factors that explain the complex scenario:
Fewer dollars in the economy from 2023 in the Central Government, which has incurred million-dollar late payments.
Fall in foreign investment.
Deterioration in adequate employment figures.
Lower household consumption.
The delinquency rate, Albuja adds, has not only increased in microcredit, but there is also contagion in other segments that have more weight in the entities, such as consumption.
Less financing for small businesses
Banco Solidario’s risk director, Carlos Bambino, acknowledges that financial institutions are having increasing difficulties collecting microcredits from these small businesses and entrepreneurs.
Bambino gave this explanation during the Credit and Collection Congress organized by the Aval bureau on June 26, 2024. He added that another problem is that clients in this segment have high outstanding credit balances. For Bambino, the high microcredit balance is worrying, as it is a reflection of the fact that clients are over-indebted.
According to Banco Solidario’s risk director, around 75% of clients’ microcredit balances are over USD 5,000. And in cooperatives the situation is more worrying, says Bambino, because 87% of clients’ microcredit balances are amounts of more than USD 5,000.
«It is worrying to see balances of USD 12,000 to USD 17,000, they are average amounts as if we were in Canada.warns Bambino.
As a result of the complicated scenario, a slowdown in this type of credit and an increase in the restructuring and refinancing of these loans are already being seen, Albuja adds.
As a result, financial institutions are seeing fewer and fewer profits, because it is costing them more to collect on these loans and they have had to renegotiate the conditions with their clients, Bambino added.
For example, in private banking, the microcredit portfolio reached its highest peak in April 2022, when it had an annual growth of 34%. But by May 2024, the annual growth rate of microcredit was only 6.1%.
The same is true for cooperatives, with institutions issuing fewer of these types of loans. The microcredit portfolio had its highest annual growth rate in November 2022 in cooperatives, at 29.4%, but in May 2024 the annual growth rate was 3%.
And now the entities are having trouble recovering those loans placed when there was more liquidity in the economy and more dynamism in consumption. In this scenario, banks and cooperatives are betting on placing more consumer credit, which they can recover more easily and which leaves more profits, says Albuja. For example, in May 2024, the default rate on consumer credit in cooperatives was 6.7% and 5.2% in private banks.
By: PRIMICIAS