(Bloomberg) -- Colombia’s banks are recovering from a surge in loan defaults triggered by tight monetary policy, according to the nation’s financial watchdog.
The number of past-due loans jumped after the central bank increased its key interest rate more than sevenfold between September 2021 and April 2023 to curb soaring consumer prices.
Now, the outlook for the financial sector is brightening as economic growth accelerates and policymakers trim interest rates, said Cesar Ferrari, who oversees the nation’s banks as head of Superintendencia Financiera de Colombia.
“We are already seeing a recovery,” Ferrari said, in an interview in Bogota. “That’s a clear sign that this quarter’s gross domestic product result is going to be better.”
In May, 6.4% of outstanding consumer loans and mortgages were past due, compared to 4% in the same month in 2022. Ferrari said this figure is now dropping.
The watchdog gets updated figures daily from the financial sector, giving it an early view of developing trends.
The central bank began cutting its key interest rate in December, and is forecast to ease policy for a sixth-straight meeting this month. Ferrari said that the financial system had shown it was able to weather the spike in past-due loans without any risk of instability.
President Gustavo Petro has to name two new members of the central bank’s policy committee by February at the latest. Ferrari, who is close to Petro, ruled himself out due to his triple nationality, having been born in Peru and holding Colombian and Italian passports.
Welcome Competition
Ferrari said he welcomes the arrival in Colombia of digital banks, which he said will increase competition and the number of people with access to financial services.
Some digital banks, including Brazil’s NuBank, Argentina’s Uala, and billionaire Jaime Gilinski’s Lulo Bank, are offering high-yield savings accounts with interest rates of as much as 13%, compared to the weighed-average rate of 0.78% of all lenders.
David Velez, CEO of NU Holdings Ltd which owns NuBank, has said that Colombia’s caps on borrowing costs is curbing the expansion of new lenders in the country. The so-called usury rate is currently set at 29.49%, more than which it is illegal to charge on credit cards.
Ferrari said he agreed, and would eliminate the cap if he could. However, any such change would have to be determined by congress, and the government has other priorities, he added.
--With assistance from Nicolle Yapur.
©2024 Bloomberg L.P.
