Better not to get into debt: banking continues to raise interest rates for mypes and consumption

The weak recovery of the economy, as well as income, generates enormous concern in Peruvian households. To face medium, long and even short-term expenses, an option at hand will always be credit.

However, if a person currently requests a consumer loan for S/10,000 for 12 months, they have to assume a TCEA – which includes all the costs of a loan – of between 30.01% and 125.41%. Monthly installments range from S/957.9 to S/1,269. In a simple exercise, in the case of the highest rate – offered by Alfin Banco – you must pay S/15,228 in one year: a little more than S/5,000 compared to the amount purchased.

In the event that a Peruvian with an income of S/1,500 requests a loan of S/20,000 for 24 months, the monthly installments range between S/1,607 (Alfin Banco), S/1,597 (Cash) and S/1,590 (Banco Falabella ). The TCEA hits a high of 105.22%.

While, in the case of a fixed term in soles, say, of S/20,000 for one year, in the best of cases, Financiera Efectiva gives a TREA – the total return on an annual deposit – of 6.5%: S /21,300 to withdraw. The BCP is the most austere, with just 0.25%: barely S/50.

Eduardo Recoba, chief economist for Latin America and Spain at iFOREX LATAM, explains that this is due to a structural failure, based on the fact that the bulk of the economy is informal. Four-fifths of the country work illegally and any political movement or decision impacts only 25% of the critical labor mass,” he adds. Only 3 out of 10 workers are formal, according to INEI figures.

Leonine spread

The difference between loan and deposit rates is known as the bank spread. Already The World Bank has warned that Peru has one of the highest spreads, to the detriment of its savers and with higher profit margins for banks.. At the end of April, the bank spread in national currency was 12.58% and 8.80% in foreign currency.

“It is explained by high concentration of the (banking) market because 80% of deposits and placements are, therefore, on all fours“Adds Recoba in reference to the small group that makes up commercial banking: BCP, Interbank, BBVA and Scotiabank.

Here, Arturo García, economist, professor of Finance at the ESAN University, recommends not getting into debt for current expenses such as food, housing, transportation, gasoline and entertainment —whether for a loan or with a credit card— and in case you require it , bet on an asset, such as a washing machine or a share of an apartment.

How are the placements going?

So far in 2024, consumer loans do not stop their slowdown; That is, they grow but at a slower rate. In January they advanced by 5.72% and last April they advanced by 1.68%, according to figures from the Superintendence of Banking, Insurance and AFP (SBS). This trend has been observed since November 2023.

Between January and April, the financial and insurance sector — which contributes more than 3% to economic activity — recorded a drop of 4.09%. In April alone, the decrease was 2.76%, explained by the lower financial activity reflected in the lower loans granted by commercial banks at -4.38%. According to segment, corporate loans and those aimed at large, medium, small and microenterprises showed a decrease of -6.98%, with a negative impact of 4.36 percentage points, and consumer loans decreased by -1.72%, which remained 0.35 percentage points to the total.

The role of the BCRP interest rate

He Central Reserve Bank of Peru (BCRP), as in charge of monetary policy, moves the reference interest rate to influence the value of short-term credit operations between banking entities, recalls Hugo Perea, chief economist at BBVA Research. For example, during the pandemic, they lowered it to a historic floor of 0.5% in order to make the credit offered by companies cheaper and promote liquidity in the face of the pandemic, and when inflation began to rise, they raised it to 7.75 % to freeze it.

Since September 2023, they have gradually reduced it. Currently, it is at 5.75%. Recoba adds to The Republic that The BCRP’s still restrictive policy “does not bring a key or critical level of impact” on the home economy, since, on the contrary, it is due to the long-term rates managed by commercial banks – that is, BCP, Interbank, BBVA and Scotiabank. “It would not promote solid growth, but it does not fade or dilute it either,” the specialist noted.

“The reference rate affects the business part more and indirectly the families,” Perea ignored for La República. He anticipated that the BCRP will bet on up to three reductions.

And why are mypes the hardest hit?

Economist Arturo García comments that banking interest rates—always under the influence of the rate set by the BCRP—are a function of credit risk, and since mypes do not prepare financial statements, they represent a greater credit risk.

And, for this reason, the retail portfolio—small business, microbusiness and consumer, García adds—now has the highest annual interest rates in the banking system: 22.60%, 43.96% and 59.02%, respectively ( See table).

“The financial system, paradoxically, has gone against the trend of decreasing the BCRP’s reference interest rate, increasing it for the retail portfolio and thereby affecting the reactivation of mypes and people’s consumption”, he argued for this newspaper.

The teacher adds that the bank raised rates for small businesses and ordinary citizens to partially compensate for the higher delinquencies of these segments, which affected their profits. Said delinquency carried over was the effect of the stagnation and recession of the GDP in 2023—it fell 0.55%, its worst result in more than three decades without counting the pandemic. Quite apart from the fall in private investment and confidence.

Focusing on the blow to the reactivation, the Minister of Economy and Finance, José Aristahas recommended the BCRP take a more “proactive” stance in order to boost the productive recovery—as a response, after Julio Velarde assured that the MEF has lost technical management of the economy—.

Along these lines, Centrum PUCP researcher Kurt Burneo, on more than one occasion argued for this newspaper that the BCRP, by not reducing the reference rate more pronounced, is — in part — to blame for the recession seen in 2023.

“There is an impact on investment consumption and economic activity. I do not describe what the BCRP did as good or bad, but it is clear that the devaluation of the economy has to do with these BCRP policies,” Burneo was able to tell this journalistic house when the specter of recession haunted the country.

What to expect from the BCRP reference rate?

Julio Velarde He recently commented to the media that “they have been lowering the rate after a peak of 7.75, much earlier than developed countries.” Even at the regional level, we have the lowest rate. The banker recalls that in all countries inflation has fallen “sharply” after reaching double digits.

“The rate that increased the least was the mortgage loan because it is longer term. Another interesting thing is that in small companies it rose less and falls less because the cost of funding is less important,” he added in the presentation of the latest BCRP Inflation Report.

It is necessary to specify that the United States Federal Reserve (Fed) sets the compass for the decision that economies like the Peruvian one will make; To date, they have decided to maintain it between 5.25% and 5.50% despite the decline in inflation. Peru is above the Fed threshold. “We believe that the Fed is going to lower it this year. The speed at which it goes down and perhaps how long it takes to reach range is discussed. There is going to be one (reduction) and we will have to put two. “We cannot be Switzerland, but we can be somewhat below the Fed,” the banker pointed out.

Jerome Powell, president of the Fed, assured that the cuts that should have been made this year will be made “next year.”