consumer credit

By Tassos Stassopoulos, AllianceBernstein

Consumer dynamics in emerging markets are often misunderstood. Although the rise of the middle classes is a defining characteristic of a vibrant, developing economy, the working classes will be the real engines of consumer growth in developing countries.

In other words, the middle classes tell you what has happened. But looking ahead, the fastest growth will be driven by the masses of lower income workers as they improve their lot to join the ranks of the middle class. 

Something strange is happening in Kazakhstan. Over 12 per cent of consumer loans are non-performing and yet the banks are dishing out more consumer credit than ever.

Lending increased 37 per cent between July 2011 and November last year. It was over four times greater in November 2013 than at the beginning of 2006. 

Spain’s two leading lenders, Banco Santander and Banco Bilbao Vizcaya Argentaria, have long looked to Latin America for growth – and more recently to repair troubled balance sheets at home.

But while Santander has hitched its fortunes on Brazil — now its biggest market, accounting for 26 per cent of group profits last year — BBVA has focused on building up its operations in Mexico. Just last month it announced plans to funnel $3.5bn into its Mexico business over the next three years, and the country last year accounted for more than one-third of its global profits. 

Brazilian retailEmerging market consumers have been powering global economic growth in recent years – and with it the profits and share prices of companies that have successfully ridden this wave of spending.

But EM consumer spending has slowed this year, held back by a decline in credit growth. Are consumers just taking a short breather? Or are they getting seriously worried about spending so much? 

The turbulent global economy seems not to be harming the prospects of International Personal Finance, a small cash loan company with operations across central Europe and Mexico, which expects double digit revenue growth this year.

Gerard Ryan, the company’s CEO, talked to beyondbrics on Wednesday, on the day the company launched a secondary listing on the Warsaw Stock Exchange, marking Poland’s status as IPF’s largest market, with 820,000 customers. 

Poland’s government is tossing a bit of caution aside in its attempts to breathe some life back into the fading economy – as seen by the recent decision by the Polish Financial Supervision Authority (KNF) to ease up on regulations concerning consumer loans. 

South Korean banks’ outstanding loans to households posted the biggest monthly fall on record in January – seemingly good news for policy makers seeking to rein in the country’s huge household debt.

But the data highlight a dilemma for the authorities, because the falling household loans could also have a depressing effect on the country’s sluggish property market. 

How gloomy can you get? The Brazilian central bank’s latest weekly survey of market economists suggests the sky, or rather the ground, is the limit. The survey’s consensus on GDP growth this year is now 3.2 per cent, down from 3.26 per cent a week earlier, 3.3 per cent the week before that, 3.4 before that, 3.5 before that, and so on back in time to late November, when it began falling from the 4 per cent that had been expected for several months.

But while growth is creeping down, inflation is creeping up. The two make a miserable combination. 

South Korean banks have won a vote of confidence from Moody’s Investors Service, which said they had become more resilient to foreign currency liquidity risks and high levels of household debt default.

It is welcome news for the Korean government as well, as concerns over the vulnerability of Korean banks sharply drove down the won’s value during the 2008-09 financial crisis, stoking a sense of vulnerability in Asia’s fourth-largest economy. 

Volumes of non-cash payments are growing at more than 30 per cent a year in Russia and China, reflecting increasing credit card penetration and innovation.

Non-cash payments include those by credit card, debit card, cheque, mobile device and direct debit. These transactions are important as they reflect spending and risk aversion. For instance, growth in the number of global credit card transactions was especially slow at 1.6 per cent in 2009 (compared with 5.2 per cent growth in 2010), reflecting low consumer spending and banks’ tighter credit limits. But growth has since picked up, led by emerging markets. 

Brazil’s government, retailers and banks are all interested in reviving the jaded Brazilian consumer, the driver of economic growth in recent years.

But interest rates in the country are phenomenally high, with users of credit cards, for example, paying an average of 238.3 per cent a year, according to Anefac, a financial sector association. Worse, the charges aren’t always as clear as they might be to the shoppers at the tills. 

By Ben Aris of business new europe

Russia’s express consumer lending business was launched by the “Vodka Bank” in 2001, and now the country’s credit card business is being championed by what could be called the “Beer Bank.”

Consumer lending in Russia exploded after the small start-up bank Russky Standart – better known for its premium vodka of the same name – introduced the concept of lending cash with no security at the point of sale. At the time the bank was thought to be a flash in the pan, but a decade later most of the incumbent banks in Russia are still struggling to catch up with Russky Standart.

Oleg Tinkoff hopes to pull off the same trick with credit cards. 

South Korea’s most conspicuously worrying statistic – its towering stock of household debt – continues to grow.

According to the latest data, published by the Bank of Korea on Thursday, household credit rose by 1.2 per cent between the end of March and the end of June, taking it to 922 trillion won ($816bn): a year-on-year rise of 5.6 per cent from the previous year. But there are signs that the rate of increase might be slowing. 

There’s been something of a mad rush for new cars and bikes in Indonesia: more than 730 new cars and 3,300 motorbikes are hitting the streets of Jakarta each day, according to analysts.

So vehicle manufacturers were naturally wary of the new rules on downpayments implemented last month – how would it affect customer demand in a market where two-thirds buy their car or motorbike on credit? 

When payroll lending first came to Brazil in 1990, no one paid that much attention. The loans, which are deducted directly from borrowers’ monthly salaries, were only available to public servants at the time.

Even after a new law in 2003 opened up payroll lending to private-sector employees, only the smallest banks were interested in offering the product.

How times have changed…