The cost of money reflected in the active interest rate for Corporate Productive and Business Productive credits and that are in force since January 1, 2023 suffered an increase compared to last semester, according to resolution JPRF 2022 059. In the first case, it increased from 8.86% to 9.29% and in the case of business it increased from 9.89% to 10.36%.
The decision of the Financial Board was made on December 27, 2022. In that same resolution it is indicated that the rates for credits of the other segments have no change and remain as in the previous semester.
The decision of the Board has raised alarms among experts, the International Monetary Fund (IMF) and the Association of Private Banks (Asobanca) itself, but not due to the announced increase, but -on the contrary- that there has not been a rise in rates that is related to the world and national reality. This is because it is considered that the Board’s current policy could generate greater financial exclusion in the short term and a consequent return of the chulco, that in general there is a credit restriction.
Thus, contrary to what might have been expected, only two of the 13 possible segments increased. In accordance with the resolution of the Board, this is how the rates remained, comparing July 2022 with January 2023.
Productive Credit:
- Corporate Productive rises from 8.86% to 9.29%
- Business Productive from 9.89% to 10.36%
- Productive SMEs remains at 11.26%
Microcredit:
- Retail Microcredit remains at 28.23%
- Simple Accumulation remains at 24.89%
- Expanded Accumulation remains at 22.05%
Real Estate Credit:
- Real estate credit remains at 10.40%
Housing Credit of Social and Public Interest:
- Social Interest Housing remains at 4.99%
- Public Interest Housing remains at 4.99%
Consumer credit:
- Consumer credit remains at 16.77%
Educative credit:
- Educational remains at 9.50%
- Social Education remains at 7.50%
Public Investment Credit:
- Public Investment Credit: remains at 9.33%
But why were interest rates expected to rise further? Alberto Acosta Burneo, editor of Análisis Semanal, explains that internationally the cost of funding has risen rapidly. It is that to contain inflation, the Federal Reserve (FED) of the United States has raised its referential interest rate. In 2022 this rate rose by 4.25 percentage points, going from 0.25% to 4.5% and it is expected that this year it will continue to increase.
According to Acosta Burneo, funds abroad are now more expensive and scarce and therefore the logical thing would have been that they would also increase in Ecuador. However, due to the absolute control of setting maximum interest rate ceilings, this economic reality is not reflected in the country. For Burneo, the country’s current interest rate policy is a matter of concern. It is that by not allowing the increase in line with what happens in the market, the banks choose to restrict credit for less profitable segments such as production and concentrate on the most profitable, such as consumption.
Burneo also regrets that this reality is not seen or analyzed by the current financial authorities of the Board. He explains that he was surprised by the statements of the president of the Board, María Paulina Vela, who has said in the media that there is no financial exclusion and that he does not see the need for an increase in rates.
According to Acosta, interest rate ceilings prevent financial institutions from granting credit in higher-risk operations. Thus, since 2007, the number of private bank operations fell, while their average amount rose. This means fewer credits, but higher volume. Another way of saying it: “more money in fewer hands”. In the period 2007 – 2019, the number of operations decreased by an annual average of 0.6%, while the average amount increased by 10.1%.
Between January and November 2022, says Acosta, while the amounts placed increased 22% year-on-year, the number of operations grew only 9%, and the number of clients 7%. Other evidence is the behavior of microcredit, whose average amount has almost quadrupled. In 2008, retail credit had an average amount of $300, while today it exceeds $1,000.
About the topic, Marco Rodríguez, executive president of the Association of Private Banks, confirms that in Ecuador the ceilings that have the maximum active rates do not reflect the current conditions of the economy and they are provoking credit crunch in all segments. This phenomenon is taking place, “especially in the productive, business, SME and microcredit credit segments, aggravating the situation of some of those segments that were already affected by financial exclusion since the limits and ceilings on interest rates were established, in 2007″, he says.
Rodríguez explains that since 2021, after the post-pandemic economic recovery and given the war between Russia and Ukraine, inflation has increased and to deal with it, the central banks of developed economies have raised the monetary policy interest rate, with the aim of cool demand and therefore control the rise in prices.
For Ecuador, the effect of these decisions implies that access to international financing is more expensive, both for financial institutions and even for companies in the country, exceeding double digits in several cases.
Secondly, the cost of local funding has also increased. The referential passive interest rate -as of January 2023 of the financial system- reached 6.65%, more than one percentage point above the previous year.
The increase in the cost of this financing makes it difficult for a significant flow of new resources to arrive in the country to fund new credits. External financing has been an important ally for credit growth. Since the start of the pandemic in 2020, the private financial system has brought in more than $1.4 billion in fresh resources from abroad for new loans. An important part of these resources has been to finance sustainable microcredit loans and focused on financial inclusion.
The Monetary Fund has also made a reflection on interest rate policies and it has indicated that credit to the private sector will slow down in 2023 to 7.2%, that is, it will register a decrease of 5.8 percentage points. “It can be foreseen that in 2023 credit will be less available, especially in those segments whose interest rate ceilings limit their offer,” the agency said. The IMF country report indicates that “The tightening of global financial conditions could translate into an increase in interest rates in Ecuador and in the presence of ceilings, credit rationing would occur, harming financial inclusion.” The IMF is in favor of the relaxation of roofs which would allow an adequate assessment of credit risk. (YO)
Source: Eluniverso
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