Colombia registers a 23% drop in new loans, while delinquencies soar

Recent data from DANE revealed that Colombia’s Gross Domestic Product (GDP) has seen a modest growth of 0.3% in the second quarter.

However, there’s a diminishing interest in acquiring new loans in the country. The alarming part is the swift rise in overdue loans or those not being repaid on time.

An analysis by Bancolombia highlighted this trend. While the overall credit portfolio showed signs of slowing down, there was a rapid increase in overdue loans.

Specifically, the credit establishments’ overall portfolio had a minor monthly expansion in May, reflecting a minimal 0.2% growth.

This aligns with the lower credit demand observed throughout 2023, likely an effect of the economic slowdown.

Colombia registers a 23% drop in new loans while delinquencies soar

DANE data also highlights a 23% drop in new loans across Colombia, with an overall increase in defaults.

The yearly analysis for the second quarter, with preliminary figures available from May, shows reductions in all loan categories.

The steepest falls were recorded for vehicle loans (33%) and credit cards (29%).

Factors such as soaring interest rates have played a part in these declines, with the rise in vehicle prices particularly impacting the auto market in Colombia.

Other loan categories, like personal loans, housing, and paycheck advances, also faced setbacks, with declines of 25%, 24%, and 22%, respectively.

Microloans were the exception, showing a single-digit reduction of 6%.

In the second quarter of 2023, the percentage of loan balances overdue by 60 days or more touched 5.4%, an increase of 119 basis points compared to the previous year.

Moreover, 11.4% of consumers had delays of 60 days or more on at least one of their credit products during the same period, a spike of 238 basis points from the second quarter of 2022.

Credit cards and personal loans witnessed the most significant year-on-year rises in delinquency rates.

Notably, credit cards reflected the steepest decline, with 9.2% of consumers defaulting for more than 60 days, a 297 basis-point surge from last year.

CONSUMER DEBT

Consumer debt, driven by the higher cost of living and debt servicing costs, has been a persistent concern since 2022.

Elevated interest rates and inflationary pressures have strained Colombians’ disposable income, impacting their payment commitments.

TransUnion’s report emphasizes the importance of lenders utilizing enhanced data for judicious growth and properly managing both good and bad balances.

Identifying resilient and vulnerable consumers is key to promoting responsible financial habits amid economic uncertainty and credit behavior signals.

In conclusion, while there’s a notable decrease in new loans and a rise in delinquencies, financial institutions need to tailor their strategies based on current economic conditions and cater to the evolving needs of consumers.

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