Banks Struggle with Credit Crunch and Lower Growth Amid High Inflation and Interest Rates

Environment of high inflation y interest ratesas well as the economic slowdown has created a credit crunchas well as a lower growth in loans, but in addition it has had different effects for the organizations that provide them, especially the banks.

Against this background, the figures show that the user folderwhich in February 2023 was growing at 15%, a year later it showed a drop of 3.6% and in this same line, the lower growth rate of the commercial portfolio, which last February was growing 16% as of February this year, was only at 2.2%.

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Slowing down is important, but a signature exercise Brokerage House find that”The banks with the lowest ROE (Return to Shareholders) are those with a higher percentage of their total portfolio in consumer loans, with the greatest risk of default, and, the more the share in the commercial portfolio, they got a better ROE.“.

He mentions that the environment of high interest rates and “The disallowance of housing subsidies by the government in 2023 affected the moderate growth of the housing portfolio.” which went from a growth of 14.8% in February 2022, 13.3% in the same month of 2023 and 8.6% in February last year.

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That, according to the report prepared by Angie Katherine Rojas, equity analyst II y Ómar Suárez, equity strategy manager at Casa de Bolsathat the 12-month ROE for all banks was 7.6% for January last year, that is, 541 basis points less compared to the same month in 2023.

The report analyzes when looking at the numbers available from last February, All credit modes showed a slowdown in growth compared to a year agoas a reflection of the economic slowdown, because, although in 2022 consumption was the biggest driver of the economy, thanks to low interest rates and the savings achieved during the pandemic, in 2023 and the beginning of 2024 this thing is the biggest decline changed so far +3.6% compared to yesterday.

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In this way, the strong consumption between 2021 and 2022 created a faster increase in household debt, where some banks significantly increased their income through consumer portfolios, But as the portfolio began to decline, the groups took a more conservative stance for 2023causing a decrease in the credit situation and especially in the consumer situation.

Thus, increased restrictions on access to credit and high interest rates hampered the placement of loans, leading to an annual fall of 3.6% in the consumer portfolio of the financial sector.

The report says that there was moderation in the commercial package which went from growing 16% in February 2023 to 2.2% a year later, due to the search to reduce the financial burden of companies and prioritize short-term needs (such as working capital) due to the high cost of debt .

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The problem with subsidies and the high rates interestingAccording to the report, they affected construction activity, which created a lower growth rate in the housing portfolio, which grew from 13.3% in February 2023 to 8.6% in the same month of this year.

The report also confirms that, as it is the consumer portfolio that is most affected, reflected in the decline in the number of consumers GDP trade activity by -2.8% in 2023it can be seen that another indicator that shows a decline in consumption is the decrease in imports, where it fell in 2023 by 19% and this was the highest level of contraction since 2020.

The report says that the total import sector in February last year recorded a 9% fall again, showing signs of a challenging situation.

HOLMAN RODRIGUEZ MARTINEZ
Journalist portfolio