Have all credits been reduced? Here we explain

According to the most up-to-date official information, until October the gross loan portfolio (including current, restructured, overdue and judicial collection credits) granted by the banks of Nicaragua has been reduced by 20.7% compared to 2018.

However, during the tenth month of the year there was a slight growth, being the first time since the crisis began. The increase was $ 14 million.

Even so, until that month compared to March 2018, the loan portfolio granted has been reduced by $ 1,487 million. It went from $ 5,076 million to $ 3,589.


Why have credits been reduced in Nicaragua?

credit loan

There are two reasons why this has happened: one of them is that in the midst of an economic recession (times when the economy gets smaller) it is more difficult to find people with payment capacity and subject to credit; and the second reason is that people who would qualify for loan approval may be reluctant to borrow due to “the uncertainty that the country is experiencing and the increases in active interest rates that have occurred in response to that greater uncertainty,” he explains. November 2019 Business Report of the Nicaraguan Foundation for Economic and Social Development (FUNIDES).


Not all credits have behaved the same


Although in general the loan portfolio has been reduced, if the type of credit is analyzed, the magnitude of the fall has been according to the type of credit, the most affected being the vehicle credit, with a reduction of 34% until last September.

The second one that has shrunk the most is personal credit (-29%), followed by commercial loans (-25%) and credit cards (-15%). The type of credit that has fallen the least is the mortgage (-9%).

In the case of loans for the productive sector, the reduction has been stronger: until September, loans for the industrial area fell 34%, while livestock loans contracted 28% and those destined for agriculture fell 23%.


And this will change?

credit problem

Although there are positive aspects such as three consecutive months of increase in deposits – which are the ones that feed the loans granted by banks -, financial institutions still have challenges to address before opening the credit tap further.

The main challenge could be the quality of the current credit portfolio: the FUNIDES report that the portfolio at risk continues to increase. To give you an idea: between January 2017 and April 2018, the portion of loans at risk mounted to 2.7%, a figure that has risen to 11.2%.

The increase has been mainly driven by the restructuring of loans, which is, people who, due to a decrease in their ability to pay, have had to modify the signed contracts to reduce fees and extend terms, so that they can make payments.

As long as this persists, the placement of credits will hardly be reactivated as many sectors expect. The closing figures for 2019 will have to be followed up for clarity.