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Mexican Credit Card Hole Gets Deeper and Deeper

Frontera Nortesur, News Report, Staff Posted: Aug 08, 2009

Although it evades the sensational headlines of the drug war, another crisis is gripping Ciudad Juarez and other Mexican cities. With each passing day, the consumer credit crisis is sucking more and more Mexicans into a deepening financial hole. In the credit card segment alone, at least 13 percent of the 245,000 credit card users in Ciudad Juarez are now delinquent in their payments, according to a Mexican federal government official.

This is without taking into account the bad debts already sold to private collection agencies and which do not currently enter onto the balance sheets of the banking institutions, said Jorge del Valle Cosio, Ciudad Juarez director for the National Commission for the Protection and Defense of Financial Services Users (Condusef).

The federal agency promotes negotiations and settlements between credit card-issuing banks and card holders.

In Mexico, delinquent debts are defined as accounts with more than three months of non-payments. Nationwide, bad credit card debts make up at least 10.9 percent of the overall portfolio. Steadily inching upwards toward the record 1999 delinquency rate of 12.7 percent, overdue Mexican credit card debts are now at their highest level in nine years.

For comparisons sake, delinquent US credit card debts increased from 5.52 percent of the portfolio during the last trimester of 2008 to 6.6 percent in the first trimester of 2009.

In April and May, nearly $60 million in new overdue debts pushed the overall amount of delinquent credit card debt in Mexico to approximately $1.7 billion.

We are going to see even greater figures of credit card delinquency, predicted Pascual ODogherty, chief analyst for the central Bank of Mexico.

ODogherty said the overall line of credit used by Mexican card holders increased from 39 percent in December 2007 to 49 percent one year later. The high bank official, however, insisted that the Mexican banking system was still sufficiently capitalized.

Despite the recession and deepening consumer crisis, credit card use has been brisk in some regions of Mexico. For instance, a study by the Aguascalientes Research Center for Business Development reported that use of credit cards in the central Mexican city increased by 40 percent during the first three months of this year.

Banks continue promoting credit card spending, some offering 6 or 12-month interest-free purchases at big, trans-national box stores like Wal-Mart and Office Depot.

Credit cards are being touted as a way to reactivate the ailing tourism sector. The summer vacation months of July and August are a tempting time for financially hard-pressed Mexicans to resort to credit cards as the tickets to a long-needed getaway.

Banorte, the only sole remaining large bank in the country owned by Mexicans, pledges it will issue credit cards to applicants with incomes as low as $240 monthly. Boasting it has the lowest Total Annual Cost (CAT) for a credit card in the Mexican market at 25.4 percent, the Monterrey-based Banorte promises the easiest life for all Mexicans.

But Mexican customers have made life pleasurable for Banorte. The banks parent corporation, Grupo Financiero Banorte, reported profits in the $240 million range for the first six months of 2009. Financial margins were up16 percent in comparison with the same time period in 2008, and the rate of return was calculated at 15.2 percent. Although credit card income was down, the companys banking operations were still credited with pulling in up 84 percent of the latest profits.

According to Condusef, the CAT for bank-issued credit cards currently averages 41.78 percent, though some institutions charge as high as 104 percent. Credit card holders getting cash advances from an ATM are assessed fees that range from approximately $3 to $10 for each transaction.

Two big banks, Citigroups Banamex and the Spanish-owned BBVA Bancomer, control 57 percent of the Mexican credit card market, according to the National Banking and Securities Commission.

Like other foreign banks, BBVA Bancomer has discovered its presence in Mexico to be very rewarding. In a project that might be considered the modern equivalent of the erection of the pyramids which once dominated ancient Mexican skylines, BBVA Bancomer plans to build two huge complexes in Mexico City, including a 50-story tower in the heart of the capital city. Scheduled for completion in 2012 at an estimated cost of $900 million, the construction project counts on local tax breaks.

Mexico deserves this type of investment and I am convinced it will be one of the great countries of the 21st Century, said BBVA President Francisco Gomez on a recent visit to Mexico City.

Meanwhile, public anger simmers over the high cost of credit cards and the growing consumer debt crisis. Representing 10 Mexican states, activists connected to the El Barzon debtor advocacy organization gathered in Mexico City this month to plan the launching of a new consumers campaign set for September 23 of this year.

Related Articles:

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