The experts of the banking system always agree that Colombia is one of the countries where consumers are good pay. And the figures support it. According to Carlos Valencia, president of TransUnion in Colombia, only one in 10 consumers with debts is delinquent.
The manager of the credit information center said that loan applications are showing a recovery, given that 42% of people plan to request a new one or refinance an existing one. In addition, he said that credit is a very important tool for reactivation.
The Constitutional Court gave free rein to the Habeas Data Law a few weeks ago, how can this law benefit Colombians?
For people in arrears, the most important benefit is amnesty. From the moment the law is enacted until a year later, those who catch up on their obligations will have the benefit of having their negative reports removed from the credit bureaus. That is, once the debt is paid, the negative report will be eliminated in the next six months at most. Once that year has passed, the times of the negative reports that apply under the current regulation will be maintained: the duration will be twice the time of the default and up to a maximum of four years.
Is a amnesty. People who for whatever reason have not been able to make their payments, but are up to date, either before the enactment of the law or the year after its enactment, they want to give that recognition, since we went through a very transition difficult because of the covid, so you want to make sure that these reports do not transcend in time and do not have any effect on the report of these people. An important condition is the payment of the obligation, catch up.
A second benefit is for all Colombians. Today there are 28 million Colombians with reports from credit bureaus, at least ours, and all of these people will benefit from accessing their credit report for free and unlimited. This tool allows us to better understand our financial life as consumers and to begin to educate ourselves more on how to handle this important dimension, which is the reputational guarantee that we all have as consumers vis-à-vis financial institutions. We are all reported to the centrals. The report is not only negative, there is also positive information, which plays a very important role in bankarization processes.
What is the credit score for and how is it calculated? What to take into account to improve it? And how much does it weigh in the approval of a loan?
Only one in 10 consumers with debt is delinquent. In general, Colombia is one of the countries where consumers are good pay. The credit score is just one of the variables that are taken into account by financial institutions when originating a loan. The score credit It goes very hand in hand, it is built from information from the credit report, but it also takes into account the status of obligations, the amount and type of products, the amounts, the age and the experience that the consumer has shown when driving. those products. We must aim to have a good score and improve it over time. To do this, in addition to the proper management of obligations, we must give messages that we have the ability to pay and try to prepay obligations when possible, it is something that generates a positive vision within those scores.
How has the evolution of the amounts and the number of credits been? How much access are Colombians having to credit?
Banking in Colombia is high compared to other countries in the region. If we consider all the financial products that consumers can have access to, 88% of them have some financial product and are banked. In terms of credit, this banking system generates visibility for consumers, generates more information, and promotes access to credit. The digitization of the supply and abundance of more information means that credit continues to grow. Since last year we are seeing a very important reactivation. During March, April and May of this year, we saw a very important growth in origination and credit reactivation. If we only think about April of this year compared to last year, we almost had double the originations. If we look at May, when there was already a little more activity in 2020, this year’s number is almost 1.5 times higher. The lines that are growing the most are credit cards, free investment loans and microcredits.
How do you expect them to continue behaving?
We have twice as many originations today compared to last year and we are already very close in all products to being at the pre-pandemic levels. From the point of view of a study we do, which is the Consumer Pulse, we see that 42% of people say in the survey that they plan to apply for a new loan or refinance an existing one next year. We are seeing this trend in personal loans, where 23% of people say they want to consider new loans or refinance them and for credit cards, 11% of consumers tell us that they have the same intention.
What population group is requesting more credits?
If we look at it by population, we see a certain tendency to originate more credit from millennials. This young population is interested in getting involved in the financial system, because of the consumption capacity and access to certain goods that they want to finance; 49% of them tell us that they plan to take on additional debt next year, and of the higher-income consumers, 53% tell us that they want to finance themselves.
We have not completely come out of the pothole that the covid made us go through, there is still some uncertainty I was moving forward, but the situation has improved very substantially. We are in a positive moment, the economy has reactivated, unemployment has fallen, these are variables that drive credit to reactivate.
Out of every 10 credits, one is for a millennial. This is a population that is gradually becoming linked to the financial system. Each year between 1.5 million and 2 million additional consumers are entering the financial system.
How many people are hanging on their financial obligations in Colombia? How good pay have Colombians been in the midst of the pandemic?
Colombia has one of the best payment cultures in the region. The vast majority of Colombians are up to date with their obligations. The population that has an obligation in arrears ranges between 12% and 10%. Some deterioration has been seen with the pothole we went through. The Debtor Support Plan was very important so that there would not be a greater deterioration of the portfolio. We saw consumers massively appealing to agree with financial institutions the conditions under which they felt they could cover their obligations. Today, we continue to see that 60% of consumers are still impacted by the pandemic. That number has improved a lot. At the beginning of the pandemic it was 80%. The impact in amount was greater because many people stopped receiving income, but employment has been reactivated and with that wages. But some people’s variable compensation is missing because it’s harder to meet goals or sales are lower. The impact was very widespread. The sectors most affected were entertainment, restaurants, hotels and tourism and an important part of the commerce that did not have large digital channels or did not reach digitization.
In general, what is the type of obligation that people and companies hang the most with?
We recently developed a study on this topic to understand consumer payment priorities. The study confirmed that for consumers, home, vehicle and credit card obligations are particularly important. But there has been a great prioritization of housing loans. Vehicle credits have a similar nature, an important guarantee. Particularly in a pandemic, many people gave priority to keeping credit cards up to date, because there was also a very large restriction on cash as a means of payment, everything was being transacted through digital channels and having that card to transact and have some flexibility and as a buffer for the ability to pay in the face of uncertainty, it was something important for consumers.
What is the profile of Colombians who request more credits? What is the profile of those who go to the ‘drop by drop’?
There is a general demand for credit. Consumers go through different moments of the life cycle, where they will need to finance a specific need, a dream or an asset.
But we see a great differentiation between those who can count on positive information reported in the plants and those who cannot. The positive information gives tools to the institutions to have a base to extend a loan or to give an opportunity of a first loan. As more information becomes available, credit improves. People who do not have that positive information, many times do not achieve that access and have to resort to more informal credit or drop by drop.
What is the importance of credit in the reactivation?
Credit is a very important tool for reactivation. For this reason, the Government has made a very important effort so that credit can continue and continue to be a support for growth. On an individual level, we must all have a lot of awareness and discipline about the additional debts that we are taking on. Not having the resources to be able to pay the credits immediately puts us in a very difficult situation because we can possibly access some line in some way, but we are going to default and that can significantly affect the reputation that we all have, which is the most important asset. important for the financial sector.
My invitation is to make informed decisions and taking into account the ability to pay in the future. We are all experiencing some kind of reactivation and as that unfolds, we must have the peace of mind of using additional sources of payment. For businesses this is a very important consideration, taking into account the need for liquidity.
Is credit in Colombia recovering faster compared to other countries?
We are well ahead considering the rebound in activity. We saw a second quarter with a very strong impact. But by the third quarter, a significant part had already been recovered. In other countries, that has taken longer. We hope to close this year with a much more stable regional vision, 2022 and 2023 will already be net years of growth in the credit industry, referring to 2019 as a starting point.
How can a person check their credit history for free?
Take advantage of the benefits of the law from the point of view of amnesties and access to information. The free report is a very important financial education tool. In www.transunion.co they find a ‘free credit report’ tab and there all consumers can find their financial information associated with the credit report and also subscribe to an alert report that can notify them when a new obligation is incorporated into their credit report.
Carlos Valencia is an administrative engineer from the Antioquia School of Engineering (EIA) and has a master’s degree in business administration (MBA) from the Massachusetts Institute of Technology (MIT). He has more than 18 years of experience in various management positions in organizations in the financial sector, strategic consulting and private equity funds such as: Boston Consulting Group, Southern Cross Group, Crezcamos, Refinancia, Mckinsey & Company, among others. Valencia assumed the presidency of the credit information center, TransUnion Colombia, in August 2019.