Although a new drop in the interest rate was achieved, the important detail is the date from which financing charges begin to be computed.
It was not easy to negotiate between the president of the Central Bank, Miguel Pesce, and the managers of the banks to determine what to do with the unpaid balances of the credit cards that were due next Monday.
After the first measure of postponement of maturities, there was the possibility of a new shift of dates due to the extension of the quarantine. The banks flatly refused: they feared that the proximity of the new maturity with that corresponding to May would generate more chaos in the system.
On the other hand, the Central Bank, which had already determined a drop in the rates of financing of balances from 55% to 49%, was asking for a further drop in the cost to be paid by the indebted.
But there was also resistance there. The bankers understood that a substantial drop in the rates would lead them to take on themselves liabilities that correspond to the card management companies.
The result of the negotiation, for the moment, left everyone in agreement. With the three-month grace period and the refinancing in up to nine installments, the objective of unburdening the millions of Argentines who suddenly saw a decrease in their income is met. And, as Central wanted, there was a further drop in rates, now at the 43% level.
At first glance, this could be interpreted as a slack in the banks’ negotiating stance. However, there is one detail that can make a difference: the fact that there is a three-month grace period does not mean that interest for that period is no longer charged.
Even so, it can be considered a measure of grace, in the sense that there will be no penalties and no one will see your data in the report of bad payers for the fact of not making payments corresponding to the last summary.
But the 43% rate will already run from the date the non-payment is registered, that is, this Monday.
In other words, for banks, interest will be recorded during the entire period in which the card balances are completed.
The data is contained in the resolution issued by the BCRA: it explains that as of 04/13/2020, the maximum nominal annual rate for compensatory interest of 43% that financial entities can receive for the balances financed by credit cards begins. . And it argues that in this way it is guaranteed that the trajectory of said rate is aligned with the monetary policy rate.
Should you refinance?
At this point, perhaps some who can pay the card summary may ask themselves whether, at a rate of 43%, it is also convenient to leave the balance unpaid, thinking that inflation will liquefy the financial cost.
After all, forecasts abound for an inflationary acceleration as a consequence of the monetary injection that is taking place these days.
But the reality is that for that decision to be a good business, you have to think about a very pessimistic scenario, which at the moment is not the majority among economists. In fact, the last Survey of Market Expectations, already with the quarantine started, continued to mark an average of 40% of expected inflation for the year.
But even if someone thought that the situation was going to worsen drastically, it is necessary to be careful in comparing the figures: the 43% rate that banks will charge is nominal, which implies that the total financial cost will be much higher.
It is something that users can check on the bank statements themselves. When some entity proposed refinancing plans in installments of the balances, on the previous rate of 55%, the effective annual rate ended up being 71%, to which then VAT on interest, insurance and other administrative charges had to be added.
In fact, in most cases the total financial cost, with the pre-quarantine rate, ended up standing at 91%.
And now, with the nominal rate of 43%, bankers estimate that the actual final cost could be between 65% and 70%.
Taking these data into account, in principle, refinancing would not seem a favorable option for those who do have the availability to cancel on the due date.
How did Argentines use plastic during the pandemic?
Beyond the lower activity in card consumption, banks have already begun to see a change in habits. As spending on recreational activities falls, purchases at supermarkets, pharmacies, and virtual stores rise. The latter, in many cases, went out to carry out promotions or discounted home deliveries to improve their income while the stores remain closed.
“Clearly, consumption by e-commerce is growing and we hope that this curve will continue to increase,” synthesized iProfessional at BBVA.
In Santander they agreed: “There was a noticeable drop in consumption. Despite this, the two items that are growing are pharmacies and perfumeries and supermarkets.”
“By dividing by items, we see that consumption in food and pharmacy remains stable or grows a little. On the other hand, tourism, entertainment, gastronomy and clothing fell dramatically,” added the credit card area of a third entity.
According to data published by the Central Bank (BCRA), financing with plastics increased in nominal terms during March, thanks to the quarantine. According to the monetary authority, in nominal terms and without seasonality, financing with plastics grew 1.9% during the past month.
However, the brake imposed by the quarantine was felt in the financed balance. Although the average stock increased and closed at $ 566,579 million, the monthly average monthly increase was only $ 1,452 million. It was the smallest nominal increase since April last year, when the balance had directly decreased compared to the previous month.
In real terms, the news was opposite. According to Julia Segoviano, LCG economist, total loans to the private sector fell 0.7% real monthly.
“The only financing that grew monthly was the lines to companies, which gained 4%, mainly driven by current account advances. Consumer loans lost 2.8% in real terms in the month. When disaggregated by item, the financing with credit card (-3%) than personal loans (-2.4%). As for loans with real collateral (mortgage and pledge) they fell 3.9%, “said Segoviano.
In a bank they indicated: “According to the monthly consumption data, we see that in the last week of March, when the quarantine started, it fell between 30% and 35% compared to the previous week and the last week of February. For the first week of April we still do not have data, but it could be even worse because at the end of March people were stocked and in the first days of April the amount of purchases probably fell. “
For his part, from First Capital Group, Guillermo Barbero commented: “Generally, this month (by March) marks the beginning of the annual financial activity of families with the end of the holidays and the ‘back to school’: a series of expenses accumulated during the summer period plus those necessary to face the beginning of the school year at all levels drives the placements. However, this time it has been cut short by the effects of quarantine. “
In another bank they explained: “35% or 40% of customers finance consumption that is made in a payment, so this cap on rates affects us in terms of profitability.” At the same time, they explained: “In the first days of April, most of the people paid for their cards without using the BCRA’s space of days without interest. Obviously the volumes decreased, but not significantly. That has to do with the fact that We have clients with salary accounts, who received their salary and paid the card. In addition, when paying, they are released a limit for future purchases. “
To these measures was added the extension until June 30 of the fixed quota programs Now 12 and Now 18, which incorporated new items, such as food and medicine, and also include online purchases to encourage people to consume without leaving their home. These installment plans, which only apply to products of national origin, have the lowest financing rates in the market, around 18.5% on average, while the total financial cost is below 26%.
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