Challenges and Progress in Ecuador’s Financial Policy: Insights from Asobanca’s Credit X-ray Report

Adjusting internal interest rates to avoid a greater credit restriction due to the international context of rising money prices is one of the challenges of the country’s financial policy, agree the specialists from the Association of Private Banks of Ecuador (Asobanca), who presented this November 9, the Credit X-ray report.

The effect of the increase in interest rates abroad is reflected in greater financial exclusion, says Marco Rodríguez, executive president of Asobanca.

“Private banks are making efforts to sustain the pace of credit growth, but there are public policy actions that must be taken urgently. One of them is to review the interest rate methodology that today causes financial exclusion,” he says.

One of the mistakes, he adds, is calculating a number and then thinking about the methodology to make it work. “What must be done is to build the scenario so that all the people who require it can access credit.”

The idea is to generate a financial system that can recognize the risk of each person and incorporate them into the formal financial market with an interest rate that recognizes that individual risk. “There is no credit more expensive than one that does not exist,” says Rodríguez.

The goal would be to prevent them from being exploited by usury, like market traders. Studies indicate that the interest payment on these loans is 1,200% per year.

The proposal from private banking is to think about inclusion bands, which allow people to build a credit history, a payment nature and formalize their activity.

There is absolute control of the cost of money due to the policy of interest rate ceilings, says Andrea Villarreal, economic director of Asobanca. One goal would be: “make the interest rate policy more flexible so that it can be adapted to the international panorama.”

The Asobanca publication is in alliance with Aval Buró and concludes that each month of this year almost six thousand people have joined the formal financial market, mainly women and young people up to 25 years of age.

Of the total number of beneficiaries with formal loans between January and September of this year, there were 49,805 clients who accessed financing for the first time. They received 195 million dollars in credits.

Thus, It can be concluded that each month, on average, 5,534 new clients are included in banking through credit.

Private banks placed $21,646 million in new loans between January and September 2023, through 1,324,453 operations. The money went to a total of 739,975 clients (people and companies) nationwide.

However, it is an annual drop of 5%, while the reduction in the number of operations was 8%.

Between January and September 2023, the bank placed – on average – 80 million in loans every day or the equivalent of 3.3 million dollars every hour, Asobanca reports.

Until September 2023, a total of 721,885 people received 6,982 million dollars in loans from private banks, of which 51% are women and 49% are men.

Of the total operations delivered to natural persons (1,063,924), young people under 25 years of age benefited from 109,007 operations in the first nine months of the year, that is, 10% of the total operations.

“The delivery of credit is slowing down due to temporary factors of uncertainty in the country’s economic situation and the insecurity that impacts the operations of various businesses and industries, factors that are amplified by the regulations of ceilings on interest rates that prevent that the flow of credit adjusts to these challenges,” the report states.

In the midst of this adverse context, 366 thousand women accessed 2,912 million dollars in credit, through 534 thousand operations. “The beneficiaries of these allocated them mainly to microcredit with 34% of the total equivalent to 976 million dollars, through 219 thousand credit operations,” says the report.

Microcredit contributes significantly to the generation of employment in the country. In Ecuador there were 863,681 companies in 2022, of which 93.9% were microenterprises, which generated 56% of employment, according to the National Institute of Statistics and Censuses (INEC).

The Asobanca and Aval Buró publication also analyzed the credit score of Ecuadorians, one of the elements that financial institutions analyze within the credit evaluation process.

The score is a score whose value ranges from 1 to 999. The higher the score, the lower the probability of non-payment and the closer it is to 1, the greater the probability.

Women register an average score of 705 points, which demonstrates better payment behavior than men, who reached 694 points on average between January and September 2023.

18,090 companies accessed financing

Between January and September 2023, private banks provided $14,663 million in new loans to 18,090 companies, through 260,529 operations.

38% was allocated to companies dedicated to wholesale and retail trade, 24% to the manufacturing industry and 10% to agriculture, livestock, forestry and fishing.

The rest of the credit was delivered to companies dedicated to real estate, construction, transportation, among others.

Nine out of every ten dollars granted in new loans to companies come from private banks, indicates Asobanca.

At the business level, the three main activities receiving credit in the first nine months of the year are commerce, manufacturing and agriculture.

In the case of agriculture, livestock and fishing, it is the third activity that received the most bank financing with a total of 1,466 million dollars between January and September 2023 (10% of the total). (YO)