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Overview
Discover the latest market trends and uncover sources of future market growth for the Consumer Lending industry in Colombia with research from Euromonitor's team of in-country analysts.
Find hidden opportunities in the most current research data available, understand competitive threats with our detailed market analysis, and plan your corporate strategy with our expert qualitative analysis and growth projections.
If you're in the Consumer Lending industry in Colombia, our research will save you time and money while empowering you to make informed, profitable decisions.
The Consumer Lending in Colombia market research report includes:
- Analysis of key supply-side and demand trends
- Historic volumes and values
- Five year forecasts of market trends and market growth
- Robust and transparent market research methodology, conducted in-country
Our market research reports answer questions such as:
- What is the market size of Consumer Lending in Colombia?
- What are the major trends set to impact the market in Colombia?
- What capacity for consumer debt still exists in the market?
- What’s the state of credit quality in the market?
- Has the economic downturn reset the lender competitive landscape?
Why buy this report?
- Gain competitive intelligence about market leaders
- Track key industry trends, opportunities and threats
- Inform your marketing, brand, strategy and market development, sales and supply functions
Euromonitor’s industry reports, including Consumer Lending in Colombia, originate from our database within our Consumer Finance market share and market size database, Passport, a platform which analyses Consumer Finance in 46 countries and globally.
Sample Analysis
EXECUTIVE SUMMARY
Auto sales skyrocket
Despite the sooner than expected increase in the interest rates by the Central Bank, the car industry expects to once again break the annual volume sales record obtained in 2010, selling more than 300,000 units in 2011. During the first half of 2011, auto lenders resisted increasing their interest rates in favour of the development of sales volumes. Nonetheless, the usury rate of the Central Bank saw significant increases during Q2 2011. The car industry, taking advantage of the revaluation that made imported cars cheaper, supported by the lending industry which delayed the interest increases or made just slight adjustments, experienced positive market dynamics.
Foreign banks are interested in Colombia
Banks such as Scotia Bank, Itau Bank, BBVA and Banco do Brasil stated their interest in increasing their share in Colombia through acquisitions or organic growth. The most likely candidate for the acquisition process is Multibanca Colpatria, which recently acquired back the 49% share of property from GE Money. The other option is to start from zero and some banks such as Banco do Brasil stated they are planning to open offices in Colombia during 2012. The entrance or expansion of the aforementioned market players promises to agitate the consumer credit market.
Regulation favouring the consumer
The recent regulation is intended to protect the consumer and prevent abusive positions of lenders. The regulation from Superfinanciera clearly stated and forbade contract terms that make the consumer surrender their rights when signing a credit contact. The “small print” and the abusive terms have to be eliminated from the contracts as well as any additional obligation of the client asked by the lender in order to approve the credit. The most common are acquiring additional products (accounts or cards). Another important advance for consumers is related to the impossibility of banks avoiding their responsibility (cooperative responsibility) in case of theft or security breaches with private data of consumers.
Consumer lending has a positive outlook
Overall, consumer lending shows a positive outlook over the forecast period, especially durable lending credit and mortgages. Mortgages have distinctive characteristics that differentiate them from other credit types and it is the current subsidy or official aid to reduce the interest rates. Construction to increase employment and the housing offer is one of the so-called development “locomotives” of the current government to attain its social goals. That is why the subsidy program has been extended two times since its creation with budget additions due its great success. Along with the subsidy program, the government is expected to boost housing for the low-income population called VIS (Vivienda de Interes Social) and VIP (Vivienda de Interes Prioritario) through subsidies via the Family Compensation Fund.
Consumer lending increases its reach
Lenders are using credit fairs to promote their lending products and services. These are events lasting one or two days where banks promote all their lending products to potential customers or other interested people. They take place in high traffic areas, such as large shopping centres or in other larger fairs in Corferias. The banks offer additional benefits to borrowers taking their credit at these events, such as reduced interest rates and prices. The events are organised in an attractive environment with the participation of promoters and sales representatives to adequately serve visitors. Banks not only offer credit but also financial cards to those that are interested.
Current Impact
The credit fairs organised in 2010 and 2011 were very successful according to trade sources in terms of brand awareness creation and effective loans granted. The most used format was mortgage fairs, where banks such as Davivienda took advantage of other companies of the parent group (Grupo Bolivar), in this case Constructora Bolivar, to offer loans to be used for one of its construction projects with the interest rate subsidy currently available launched by the national government in 2009.
According to consumer lending sizes, 2010 and 2011 are two of the most important years of the review period in terms of outstanding balance and gross lending growth (average of 20% for outstanding balance and more than 35% for gross lending for mortgages). It demonstrates that people are borrowing money massively and the trade fairs are a good opportunity to gather in one place complete credit portfolios waiting to meet the needs of the assisting consumer. Credit fairs are organised mainly by brands such as Davivienda and Multibanca Colpatria, but there is one annual event called Expoinversión in Corferias, where consumers can find a wider offer and plenty of options including education and auto lending; categories which are also experiencing strong growth rates in 2011.
Consumers have been very receptive to these events and the business volume has been satisfactory for the lenders so there is space for growth and expansion. However, consumer lending appeared to be quite sensitive to the interest rates rises and the Central Bank’s strongly increased rates in 2011 to avoid a probable overheating of lending meaning consumers are likely to reduce the demand for credit at the end of 2011. During 2011 the increases of the Central Bank were not immediately reflected in effective rates, leaving room for growth; however a deceleration is expected in 2012.
Outlook
According to Euromonitor International, GDP and disposable income growth in Colombia over the forecast period predicts a fertile ground for the expansion of credit, and trade fairs or other massive events, which could be a good opportunity to bring consumers closer to lenders. The interesting outlook of certain credit types, such as microcredit, can also take advantage of massive events to affect positively the gross lending growth indicators. As aforementioned, the local post-crisis consumer had been resilient to the recent news of a likely economic crisis relapse in developed countries, as emerging markets such as Colombia demonstrated an unusual resistance to the global economic downturn shocks. However, regardless the good economic performance, consumer lending is likely to see some affectation through higher interest rates and negative expectations due to uncertainty that could hamper the short honeymoon of credit in Colombia. Gross lending and other credit indicators are likely to see deceleration, but not to the extent of 2009, over the first two or three years of the forecast period.
Categories such as construction, unlike card lending and other categories related with consumption, will certainly be more shielded due to the government policies to develop the category as one of the economy locomotives, as stated by the current government in its National Development Plan. The banked population is another indicator that is experiencing strong growth and the massive events are a way to bring more people to the system. The synergy between the banked population and the ways to approach consumers are likely to continue supporting each other over the forecast period.
Future Impact
The Central Bank is asking lenders to be cautious about offering credit but they still see room for growth. 2010 and 2011 were the years of more launches of new banks, putting increased pressure on the self-regulation of fees and credit costs. The increased competition is likely to present more innovative ways to present the lending products to consumers in the form of fairs or using electronic means such as AV Villas from Grupo Aval, which launched a virtual office to apply for credit online without human interaction.
Online means is a way of gaining massive access to both the banked and unbanked populations; especially younger people with a better attitude towards technology. Both channels can see the significant development of two clearly differentiated consumer groups: Fairs or other massive credit offer events targeted at those who like human interaction, and virtual offices for those who feel comfortable with internet transactions; a group that is currently growing rapidly in Colombia. The most benefitted categories are likely to be those that represent an actual and lasting improvement to the quality of life, such as mortgages, home, education and durable lending. Card lending is likely to be more volatile depending on the ups and downs of the interest rates.
Cooperatives increasing share of consumer lending
According to Central Bank and trade associations, cooperative lending institutions indicators (outstanding balance and gross lending) saw the largest relative growth in 2010, comparable with highest growers such as auto, card lending and mortgages. Cooperative lending is precisely one of the strongest ways to improve the low-income banked population, as cooperatives’ main goal is to improve the quality of life of its associates through the democratisation of property and profits.
Current Impact
The impact of cooperative lending growth was low in consumer lending during the review period, as this category was mainly focused on commercial lending for micro and small entrepreneurs and companies. However, the current impact is changing as cooperatives are rapidly taking advantage of good credit records to offer additional products and services related with other types of lending. Card, auto loans and mortgages are the most common, as according to trade associations, 75% of outstanding balances growth was due to ordinary consumer lending in 2010-2011.
The positive performance of cooperative lending and the good payment behaviour of its clients are also affecting positively and obliquely traditional mainstream banks which through the central risk database (Datacredito), are also targeting consumers who have good financial records. The largest cooperative in Colombia, Coomeva, recently became a bank to address more effectively affiliates’ needs in terms of credit and financial products.
Outlook
The outlook of the trend is positive, purely considering the number of companies. In 2011, there are almost 200 cooperatives authorised and supervised by Superfinanciera to exert financial activity vs. 24 banks. The economic behaviour is expected to be resilient to a probable relapse of the world economy, dragged down by the US and EU recessions; the impact of which is not expected to be dramatic on GDP. The unemployment rate reduction and increasing disposable income will make more people eligible for credit in the short term and that is going to be used by cooperatives, banks and other financial players. However, the rapid and constant increase in the reference interest rates by the Central Bank to slow the growth of credit usage is expected to have the greatest impact in the mid-term.
Future Impact
Factors such as lower interest rates compared with mainstream banks, electronic payment platform development to get closer to banks in terms of services for consumers and increasing saving rates are likely to help spur the “democratisation” of credit through the cooperative model. People tend to feel more comfortable depositing their savings in cooperatives as they feel that as the owners of the entity, something completely different to the feeling towards retailing banks. The savings of the affiliates somehow support the loans as most of the cooperatives lend money according to the amount of contributions to the entity. That model is self-sustainable but also requires strict control from local authorities to preserve the public interests.
Most of the cooperatives have a regional footprint, as they are born from local and constricted entity to serve very specific needs of a community. However, some cooperatives such as Comultrasan have started national expansion programs to expand their customer bases. Another likely step of cooperatives is that the larger ones are the most likely candidates to become banks over the forecast period: A model followed in 2010 by Coomeva which became Bancoomeva. According to trade sources, the cooperatives are likely to keep their social focus no matter their new character, creating a new dimension of social banking in Colombia. Other companies in the industry are expected to emulate that social awareness core focus to get closer to the people; increasing share but leaving a social footprint that makes growth sustainable in the long run.
Central bank is increasing APR before expected
The Central bank decided to increase the APR due to what it considers as a likely “overheating” of consumer lending during the first half of 2011. The inflationary pressure caused principally by price rises of basic goods and food was another factor that influenced the Central Bank decision to significantly increase the reference rate used to calculate most types of credits (including mortgages) and the usury rate, which will surely affect higher risk consumer lending, such as card lending.
The industry was surprised by the rise as consumption was recovering; however the Central Bank put a control on inflation before consumer lending activation, which is not growing uniformly. Mortgages and auto lending are the highest growing categories due to the specific dynamics of those categories related with government aid and strong price reductions due to the significant revaluation of the peso.
Current Impact
The impact on interest rates rises as consequence of the Central Bank’s actions has been reduced due to the competition from new banks launched in 2010-2011. Banco Finandina, Banco Falabella and Banco WWB among others, are slightly softening the effect of the interest rate growth. However, the activities of those new banks are so different that it is hard to measure the overall effect on consumer gross lending. Finandina is a bank specialised in auto lending, Falabella in card lending and WWB in microcredit. Banks are likely to set higher interest rates to reduce them during the negotiations with new and previous clients and based on each particular financial record and importance for the entity.
The usury rate rise has an immediate impact on card lending rates as consumer lending outstanding balances grow by 17% in 2011. This high growth rate represents a major concern for the Central Bank. A rise of more than six percentage points after two years of continuous falls, immediately impacted card lending, meanwhile other dynamic categories, such as auto lending and mortgages present a more gradual and slower incorporation of the new rates. The highest APR is set for Microcredit, which is reaching almost 50% in mid-2011. Its impact on consumer lending may be limited due to the fact that Microcredit is mainly part of the corporate market. However, banks started offering additional personal products for micro lenders or entrepreneurs who demonstrate good payment behaviour with their corporate products. In that case, the rise of microcredit APR will have a small impact on consumer lending.
In this environment, the flourishing business of credit balance transfers from one entity to another that strengthened in a lower rates scenario is also particularly effective for lenders, as customers are looking for lower rates and in some cases, to refinance their debt. Entities such as Davivienda, Multibanca Colpatria, BBVA and AV Villas (the latest application can be done entirely using the internet) are offering rates that are 50% lower than current ones for transferring the card lending balance. Some offer that benefit for current clients (such as Multibanca Colpatria) and others for anyone as a way to reach new clients (Davivienda, AV Villas and others). The APR in most cases is differential (increasing) depending on the time terms. It is becoming an increasingly useful alternative for banks to catch new “good payers” by making less commercial and prospecting effort.
Outlook
Central Bank is concerned about what it considers the excessive and dangerous growth of outstanding balances; especially in terms of consumer lending. That is why its current message and the signals sent to the market are rapid and substantial increases of reference and usury rates. Banks on the contrary have stated, despite the precaution call of the government, that there is still leeway for growth on consumer lending and that they have effective assessment standards in place to prevent non-performing overflow. Current market conditions and those expected are likely to delay the transfer of higher APR to the actual rates on consumer loans. That is especially true with credit with actual collateral, such as mortgages, durable goods and auto lending and not so visible in consumer lending. This behaviour is boosted by increasing competition, and currently there are new market players which are looking to gain share in several consumer lending categories. New players are expected over the forecast period, spurring this lender behaviour and favouring consumers.
Future Impact
APR is still considered attractive for consumers so the outstanding balances are likely to continue showing a good performance in 2012. The short term impact of the APR rises will not be so significant as in the longer term, when the measure of the Central Bank will gradually help to chill the credit growth synergy in order to prevent future problems, such as unmanageable growth of non-performing loans. The future impact in the different categories will also be dissimilar. Entities almost always immediately stick to the usury rate in the very short term (over a week) but it happens gradually and at a slower rate than with other kinds of credit; especially those having actual collateral attached, such as auto lending and mortgages.
According to new banks there is still space for consumer lending to grow in the mid-term. New lenders on the market will pressure the delay on the interest rates in auto lending and durable goods lending, both showing very dynamic growth figures, being the most important categories to the Central Bank. However the impact is expected to be significant on more risky categories, such as card lending and those where the new competition have not yet announced their incursion, such as mortgages. The government asks lenders to be cautious due to the risk of non-performing loans, but according to trade sources, major lenders have not relaxed their prospecting policies.
Public education lending to be revamped
In order to benefit the under privileged population and reduce dropout rates, ICETEX, the official entity which purpose is to promote graduate education through lending, is about to restructure its program to increase its positive impact on Colombian students. The new core drivers to get the desired goal are based on the reduction of the interest rates due to personal academic performance and softer credit standards and differential rates according to the income level of the student or family.
Current Impact
Sisben 1 and 2 level members will have easier access to education lending, reducing exclusion of undeserved population. Furthermore, ICETEX will grant 25% of the tuition fee each semester. Sisben is the “Sistema de Identificación de Potenciales Beneficiarios de Programas Sociales”, a nationwide government program which identifies and collects the data of people in poverty through a survey that gives them access to social welfare, education, healthcare and recreation programs.
During the time of studies, the education loan will have interest rates ranging between four- and three-fold less than current education lending rates and a grace period of one to two years after studies are complete. The reformed scheme dramatically differentiates ICETEX from other education lenders and gets the institution closer to its social awareness goal. The obligation to pay instalments during the education term was eliminated, benefitting the students and their families. Students will also receive a half yearly subsidy for maintenance.
Education lending is expected to be positively impacted due to the aforementioned measures. Private banks and lenders are likely to keep education as the “softer” type of lending in terms of loan conditions and keeping lower interest rates to compete with the official entity. Nevertheless the target of private entities is not usually the low-income population, the measure of the ICETEX are likely to permeate, to a lesser extent, other income level groups making banks and other private lenders revise the current conditions in order to compete effectively.
Outlook
The current dropout rate of graduate programs is higher than 40%, mostly in low-income people levels. The current economic conditions make students prematurely drop out of their studies to start working to support themselves and their families. The outlook of the trend is likely to reduce the dropout rate during the forecast period as the social welfare policies of the current government are clearly targeting to improve the employment conditions in order to achieve better labour conditions for parents to make them keep young people in school. The poverty reduction programs along with better economic prospects, translate into a better quality of life and living conditions for lower income groups, and are also expected to positively affect the trend outlook.
Future Impact
Softer conditions of the official education lending programs are expected to continue reducing the graduate studies dropout rates preserving the quality of the credit in terms or reduced non-performing rates. However, ICETEX needs to increase concomitantly the prospecting and assessment standards to prevent avoidable dropouts now that the conditions are softer so potential borrowers may see dropping out as easier and “less expensive”. Follow-up will be a key factor to be implemented in order to continue enjoying the benefits.
Other lenders, especially private entities, are expected to continue offering education lending with softer standards and conditions compared with other types of lending. The rise of reference and usury rates of the Central Bank is not expected to affect this category the same way as other categories, such as consumer lending. The government is expected to continue creating aid programs through lending in sensitive categories, such as education and lending in order to help people improve their living conditions and quality of life having expanded access to certain products or services through lending.
Through the payment of maintenance subsidies to students, the government is also expecting to help increase the banked population, depositing the loans in a bank account that will be accessed through a debit card. In this way, young students will have access to their first loan and also be banked to start creating a financial history that is built up as their studies progress.
Auto lending unstoppable
The status of auto sales in Colombia is about to once again break the volume sales record stated in 2010. Auto lending is a fundamental part of this behaviour. The successful achievements of auto lending are based on several factors such as low interest rates, lower prices for imported automobiles thanks to a strong revaluation of the Colombian peso and an increased interest of consumers in buying a car, not only for utilitarian purposes but as a symbol of social status. The expected sales in 2011 surpass 300,000 units which will make 2011 the best car selling year in recent history in Colombia.
Current Impact
Auto lending is positively affecting consumer lending as it is part of an overall phenomenon influencing the whole industry. Consumers are turning to applying for credit and in the case of auto lending, institutions have developed customised credit products to meet specific consumer needs. The variables and options are wide, including a wide offer of terms, rates, modality of instalments, and leasing vs. traditional credit, among others. In order to compete in this very crowded category, banks and car companies are even offering 0% interest rates and no initial payment on loans just to provoke a sale. The auto lending arm of main players strengthened during the last year of the review period, and a former commercial financing company has been converted into a bank specialising in auto lending. The competition between car manufacturers and financial institutions to take advantage of this important credit and consumption boom has benefitted consumers.
Car manufacturers had to strengthen or create their own auto lending branches by way of self-financing, such as Chevy Plan (from General Motors-Colmotores) where consumers pay monthly instalments without interest into a fund comprised of 150, 180, 200 others consumers depending on the length of the loan. The members of each group then enter a drawing to determine when owners receive their vehicles. Upon receipt of the vehicle, consumers continue to pay their monthly instalments until agreed upon amounts are reached. Renault also has its own financing company and recently Hyundai Colombia SA, importer of Korean Hyundai and other Chinese brands has started offering that product.
Outlook
Auto lending is likely to be affected by any interest rate increase but the desire of Colombians to have a car could be stronger spurred by low prices or reduced increases due to an expected mid-term weakness of the US$ against the Colombian peso, FTAs and other trade agreements with producers such as México and South Korea. Better economic expectations and increased disposable income predict a relatively prosperous outlook for the category.
Additionally, the mobilisation restrictions imposed by several city governments are likely to spur the sales of a second car, used or new, as well as cheaper alternatives such as motorcycles, the market for which is also booming in Colombia.
Future Impact
So auto lending acceleration is expected to decline gradually over the forecast period, but not to the level of showing a decline or less than 5% growth rate in gross lending terms. The local government is likely to increase the restrictions on the use of cars in order to reduce the impact on mobility and air contamination. Along with the current restrictions, such as “pico y placa”, which does not permit the mobilisation of cars on certain days of the week based on the last digit of the plate, there are other measures that can discourage auto lending over the forecast period. Dynamic urban tolls based on pre-paid cards and RFC technology (with increasing rates based on the traffic) are likely to be installed on concession roads to attract private companies to build and maintain new large avenues. Those, as well as the increase in the cost of gas, which is the most expensive per gallon in Latin America, and taxes are the cards up the sleeve of the authorities to avoid overflow of the phenomenon.
On the side of lenders, the interest rates rise is likely to sooner than later impact the current APR, which will discourage more consumers from getting loans to buy a car.
