A new report finds the percentage of payments made at or above the minimum to generate interest on bank credit cards issued in Mexico, moved to 23% in October 2015 from 18% in 2012.
Fitch Ratings says the credit card portfolios in Mexican banks continue to show growth lagged relative to other consumer loan products. The factors that have affected its slower growth, despite being a product with good adjusted returns for banks, are mainly the change in the appetite for placing this product from banking, the increasing availability alternative products with more favorable conditions for the user (ie, with rates lower interest) and to a lesser extent, a change in payment behavior of the user, among others.
The annual growth of these loans in the banking sector was 4.9% in 2015, higher than 2.5% in 2014, but still below the average of 9.7% from 2012-2014.
While credit cards showed a slight recovery from the previous year in 2015, Fitch believes that this recovery has been less than expected, considering that the growth of national domestic consumption (measured with figures ANTAD as sales to total stores) was 11.3% in the year, which was higher than expected.
Other consumer credit have taken more relevance in the commercial banking such as personal unsecured and payroll loans, which grew 18.5% and 19.5% in 2015, respectively (6.3% and 16.9% in 2014 compared 2013). In Fitch’s view, this growth reflects the banks preference on other loans because of their more-controlled delinquency behavior, particularly payroll lending, as well as the advantages of more flexible conditions of these products especially lower rates, the well-known term, fixed payments, among others.
The interest rate charged by credit cards versus other products average 44% higher than other consumer loans that are in a range of between 10% and 40%.
On the other hand, the cardholder’ payment behavior is also contributing to slower growth in credit cards, because the revolving balances has decreased moderate and gradually. According to the regulator (CNBV National Banking and Securities Commission) and considering only the three largest banking franchises in Mexico in terms of credit cards (73% of the total market), the percentage of payments made at or above the minimum to generate interest, moved to 23% in October 2015 from 18% in 2012. This behavior may be reflected in lower credit card balances without necessarily mean less use of them.
To a lesser extent, another factor affecting the lower use of credit cards is the implementation of the fiscal reform in 2014 that brought the procedure known as a tax discrepancy, laid down in Article 91 of the Mexican Income Tax Law (LISR as per Spanish acronym), which allows the tax authorities to access bank records of any person, and if it detects a discrepancy between personal income and expenses, the taxing authority has the right to seek clarification of the origin of the resources that are paid the credit cards, this situation could discourage the use of these, at least among certain population’ segments.
Although credit cards continue with a slower growth compared to other products, these remain the most profitable for Mexican banks and maintain an important participation. The total balance of credit cards in circulation stood at MXN32.971 billion in December 2015 and represented 41% of the total consumer loans in Mexico, or 8.5% of the total portfolio of the bank.
In order to promote the usage of credit cards, banks hold different cross-selling strategies and commercial alliances to reduce their risks and provide more benefits to its users; in addition to being an anchor product for people to have access to other types of loans, because it allows them to create a credit history. The agency believes that the current growth rate can be sustained in the medium term, although this will remain lower than other consumer products, a trend that also depend on the dynamics of national economic activity.
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