| 19 May 2024, Sunday |

Venezuelans say credit cards that were once lifeline now ‘useless’

According to sources in the banking sector, analysts, and customers, credit cards are becoming less and less useful in Venezuela due to high inflation and governmental limitations, which hurts those already struggling to meet daily demands on meager wages.

During Venezuela’s economic collapse, the government implemented stringent lending restrictions, allowing banks to lend no more than 27% of their cash flow, forcing local business owners to look for loans abroad.

And though the government of President Nicolas Maduro loosened currency controls in 2019 and let local banks open dollar-denominated accounts, many credit restrictions remain.

“They are useless,” administrator Lina Pereira, from the central city of Valencia, said of her two credit cards, which both have low limits. “My parents bought appliances and computers with their credit cards, but that’s a memory for Venezuelans.”

As incomes have fallen and living costs have grown, credit cards have become vital for many people to make everyday purchases in supermarkets and pharmacies, even as credit limits stagnate and some banks eliminate the cards altogether.

“The banks don’t have a way to lend and we need these credits,” 36-year-old Pereira said, adding the total limit on her cards is now $2 a month, so low she can no longer use them to buy food like she did a year ago.

Cards accounted for just 2% – equivalent to some $16 million – of the credit portfolio of Venezuelan banks at the end of December 2022, according to the country’s banking superintendency.

In 2012 that figure was 12% in Venezuela, while in countries like the Dominican Republic and Bolivia credit cards currently account for 5% of banks’ credit portfolios, according to those country’s regulators.

“Hyperinflation and the regulations have ended consumer credit,” said one Venezuelan banking executive, who asked to remain anonymous for security reasons. “This kind of financing has stopped being a business for banks. The bolivars that they can put toward credit are going to other sectors” like businesses.

Although some local credit cards have higher limits of between $30 and $100 they still fall short – the average monthly cost of feeding a family was some $370 in December, according to the independent Venezuelan Finance Observatory.

“Consumer credit is what gets punished. It’s the least likely to be given out,” said economist Luis Arturo Barcenas, of analyst firm Ecoanalitica. “Often these credits weren’t just for buying appliances, but also for day-to-day expenses.”

Maduro’s government has taken multiple steps to lower inflation by increasing the supply of foreign cash, limiting credit, reducing public spending and raising taxes.

As part of those efforts, the central bank ordered financial institutions to freeze 73% of deposits at the bank.

“If there aren’t sufficient resources you can’t give that much credit,” said another bank executive.

The end of 2022 saw a slight increase in prices despite the measures, bringing yearly inflation to 234%.

For enterprises to “create commodities, riches,” Maduro asked banks to grant them loans that are pegged to the exchange rate in January, but he made no mention of other loans or consumer credit.

Requests for response from the central bank and the banking watchdog went unanswered.

Gregorio Afonso, a 53-year-old university professor with two local credit cards and a monthly income of $20, said, “With the limit on cards you can’t even pay for lunch.” Since 2013, we have been in free fall because we lack credit, social security, and time off from work.

  • Reuters