Credit cards, once a lifeline, are now “useless” due to inflation in Venezuela

The Credit cards they are becoming more and more useless in Venezuela by the elevated inflation and government restrictions, affecting people already struggling to meet their daily needs in the face of low wages, according to banking sources, analysts and consumers.

The Venezuelan government, at a time when the economy was collapsing, tightened regulations on local banks by setting maximum interest rates and then imposing them to lend only up to 27% of the total flow of money they handle, which has led companies to seek financing abroad.

In 2019, President Nicolás Maduro relaxed some controls on the economy, allowing greater transactions in dollars, which oxygenated part of commerce and industry. Local banks were allowed to open foreign currency accounts, but credit restrictions remain.

“They are useless”, said Lina Pereira, an administrator who lives in the central city of Valencia who has two credit cards with low limits. “My parents bought appliances and computers with their credit cards. That is like a memory for Venezuelans”.

As incomes fell and the cost of living became more expensive due to the crisis, the cards were used to cover daily purchases in supermarkets and pharmacies, but credit limits stagnated and some banks even eliminated them completely.

“The banks have no way to lend and we need those credits”said Pereira, whose card limits are around US$2, an amount so low that he can no longer use them to buy food as he did more than a year ago.

The fading of consumer loans is evident. Of the total bank loan portfolio, the participation of credit card financing was barely 2% (about US$ 16 million) at the end of December 2022, according to data from the Superintendency of Banks. In 2012 that share was 12%.

In other countries in the region with smaller economies such as the Dominican Republic or Bolivia, this type of financing has a participation in the total portfolio of banks of more than 5%, according to figures from the supervisory bodies of those nations.

“Hyperinflation and regulations have killed consumer credit”said a bank executive who asked not to be named. “That financing stopped being a business for the banks. The bolivars that can be allocated to credits go to other sectors” like business, he added.

Some credit cards have limits ranging between US$30 and US$100. The cost of the food basket as of December was US$370, according to calculations by the non-governmental Venezuelan Finance Observatory.

“Consumer credit is the one that suffers the most, it is the one that is granted the least”said Luis Arturo Bárcenas, an economist at local firm Ecoanalítica. “Many times these credits were not only for the purchase of equipment, but also for current expenses” or routine, he added.

The Maduro government tried to apply an orthodox policy to curb inflation by cutting public spending and anchoring the exchange rate by injecting dollars in cash into the exchange market.

As part of the effort, the central bank orders local financial institutions to freeze 73% of deposits at the issuer. “If there are not enough resources you cannot give so many credits”said another bank executive.

But the strategy is showing cracks with the biggest price acceleration occurring since November. In 2022 the country closed with an inflation rate of 234%, the government said in January. Venezuela has the highest inflation in Latin America.

In the midst of incipient economic growth, Maduro urged banks in January to extend the granting of financing to companies indexed to the exchange rate, without mentioning other types of loans such as consumer loans.

The Central Bank and the Superintendency of Banks did not respond to requests for comment.

“With the limit of the cards I don’t pay for a lunch”said Gregorio Afonso, a 53-year-old university professor who has two cards from local banks and whose income is around US$20. “Since 2013 we have been in a free fall without credit, without social protection and doing multiple jobs”he added.

(With information from Reuters)