From July 1, 2023 interest rates of the manufacturing sector -which includes the corporate and business sub-segments- will have new rules, which will allow them to undertake an upward trend and, therefore, Expand your focus to higher-risk prospects. Committee on Financial Policy and Regulation in its resolution JPRF-F-2023-070 approved the new calculation methodology.
Among the main changes, it was determined that for the installation of the ceiling will be taken into account the reference rate of the last twelve months and two standard deviations will be applied. The calculation of the ceiling will no longer be half-yearly, but monthly.
In this way, the Committee for Financial Policy and Regulation will calculate the new corporate and business sub-segment rates for their application from July 1, 2023, which must be published on the website of the Central Bank of Ecuador by that date. , along with other rates in effect for the monthly period.
In accordance with Alberto Acosta Burneo, editor of Análisis Semanal, is convinced that the methodology was changed to try to correct the problem that arose from the lack of productive credit. He explains that the corporate and business productive sub-segments were operating at the lowest margins, in an environment where money was growing. In this sense, financial institutions provided loans with interest rates that were kept up to the upper limit. That resulted credit is limited for the riskiest operations: “The worst-case scenario for a country that needs to be reactivated,” he says.
In January of this year, the Administration made a decision to increase the rates, but the methodology still referred to a review every six months. This meant that changes in the market could not be followed properly. Since the last methodological review, the rate has again stuck to the ceiling: in the case of the corporate segment, the upper limit was 9.3%, and the reference rate was 9%; business at 10.4%, and the rate at 10.1%.
About the topic, Marco RodrÃguez, CEO of the company Asobanca believes that although it is good news that the authorities of the Financial Committee have recognized the problem of the negative influence of the ceiling on interest rates – less lending to the production sectors – and to recognize that the solution is to make them more flexible, but unfortunately the new calculation methodology does not solve the essence of the problem. In this sense, it is predicted that the effect of higher lending will not be what the manufacturing sector truly requires.
The Financial Union reveals figures showing a reduction in credit in Ecuador due to the interest rate cap policy. In the case of the manufacturing sector, this is what the official figures say In the first five months of 2023, private banks approved $12,397 million in new loans, a decrease of -1.5% delivered in the same period in 2022 ($191 million less).
At the same time, business and clients decreased by 1% (9,991 fewer loan transactions and a decrease of 4,141 clients), which shows that loans are decreasing.
Looking at the figures for the production segment (corporate, business and small and medium), the number of operations fell by 1,137 and there was a decrease in access to credit for 239 companies compared to 2022.
In the case of microcredit, the situation is similar with credit deals, which fall by 7% (16,335 fewer deals) and 6% less among new clients (11,952 clients without credit).
Interest rates in the world and in Ecuador
In order to recover the economy, in the scenario of the effects of the pandemic and the effects of the war between Ukraine and Russia, which caused an increase in inflation, the central banks of developed and developing economies strengthened – periodically. – the interest rate of the monetary policy of their countries. This, with the intention of curbing demand (consumption) and, therefore, cooling price growth (inflation), explains RodrÃguez
For example, the Federal Reserve (FED) raised the interest rate from 0.25% in March 2022 to 5.25% in June 2023, a level last seen in 2007, and it is expected that there will be further increases or will remain high for a long time.
The increase in central bank interest rates is making access to international financing more expensive for financial institutions and companies in Ecuador, exceeding, in several cases, double digits. This causes a deterioration in the flow of new resources arriving in the country to be placed in new loans.
The increase in financing costs does not only come from the international side, local financing costs have also increased. The reference passive interest rate, i.e. what banks pay their clients, reached 7.03% in June 2023, almost one percentage point more than the previous year, which is one of the highest passive rates in the region.
Average consumption rates:
In Ecuador, the rate cap policy, according to experts, does not allow them to grow in line with the market. However, the effect is a credit crunch.
Source: Eluniverso
Alia is a professional author and journalist, working at 247 news agency. She writes on various topics from economy news to general interest pieces, providing readers with relevant and informative content. With years of experience, she brings a unique perspective and in-depth analysis to her work.
