Credit Deferral Asks Questions of BanksBy Peter Appleby | Thu, 08/20/2020 - 16:18
The credit deferral period that banks offered clients facing economic challenges caused by the pandemic is ending soon and, with a severe contraction expected, banks are now looking at ways to mitigate the expected rise in non-payment of credits and loans. Banxico has weighed in, suggesting that banks reconsider their liquidity and preparedness to face a repayment shortfall, while insurer Sura expects to grow up to 8 percent this year driven, in part, by the pandemic.
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Credit Deferment Soon to End, Banks Looking at Options
Banks are working on a credit restructuring program that should allow them to reassess the debt of clients and work out a manageable solution for non-payment as the six-month credit deferral period expires.
The Banks of Mexico Association (ABM) President Luis Niño de Rivera said during a videoconference that the association was working on a package with regulators. “We are hopeful that we will have a plan for the first week of September,” he said.
The ABM is speaking with the National Banking and Securities Commission (CNBV) to make sure that plans will be compliant with regulation. Niño de Rivera stressed the importance of clients communicating directly with banks as this was the easiest way to come to an agreement on credit repayments.
Banxico Suggests Banks Reassess Reserve Policies
The difficulties that many Mexican citizens will have to pay credits and loans from banks once the six-month credit payment deferral ends should push banks to considering increasing their reserves, said Banxico President Alejandro Díaz de León.
According to de León, the liquidity of banks must be maintained ahead of the potential rise in debtors being unable to pay credit. The Banxico president pointed at owners of small and micro-sized businesses as those hit hardest and therefore those most likely to struggle to repay loans. Banks, then, must ensure their own position. One way to do this would be to increase their reserves against a potential shortfall in repayments.
According to El Financiero, levels of non-payment have risen slightly in Mexico from 2.14 percent in June to 2.34 percent in July. However, as the credit deferral period ends, this may well increase. De León said that economic difficulties could impact debtors’ abilities to repay loans, especially among SMEs that have suffered the worst of the COVID-19 destruction demand.
Sura Expects Strong 2020
Colombian insurer Sura has forecast it will grow by between 7 and 8 percent this year despite the COVID-19 crisis. Sura President Juana Francisca Llano said results were “very positive taking into account the impact that the pandemic has caused.” Sura’s prediction is above the 5.3 percent growth that the Mexican Association of Insurance Institutions had expected.
The crisis offered the company the chance to adapt its policies, including a new corporate insurance that covers laptops and computers being used at home for the millions of workers in home office.