Polls, non-performing loans and downgrades
Polls on the presidential race are still in an early stage of their Evolution. Apparently, the supply of and demand for votes are not matching quite yet in the political market. From our point of view, voters older than 35 and clientele voters will beat young urban and left-leaning voters. The winner could end up being a center-right candidate: Vargas, Ramirez or Duque. As of today, this is the equilibrium that we believe will obtain. For Fajardo to beat them, the political tectonic plaques would have to undergo a telluric transformation.
Household lending seems to be leaving, or on the edge of leaving, the worst of the credit cycle behind. However, Non-Performing Loans (NPL) continue to rise and lending on the margin has yet to show a clearly improving trend.
Unsecured personal loans and credit card loans, which together account for 43% of total consumer lending, improved during the 2H2016 and 1H2017. NPL of New car loans and payroll deductible loans (which account for 47% of total consumer lending) maintain an up-ward trend and become non-performing faster than before. Finally, new mortgage loans are deteriorating slightly faster on the margin.
A little earlier than anticipated, Standard and Poor’s (S&P) reduced a notch the country’s credit rating in foreign and local currency sovereign credit. They mention that the 2016 tax reform failed to deliver what was expected in terms of additional revenue.
The country still is, and probably will continue to be for quite some time, a commodities-based economy. Therefore, the huge terms of trade shock suffered, accompanied by subsequent oil prices volatility, has been a key factor for rising external debt and for increasing the country’s external and fiscal vulnerability.
On the positive side, S&P is confident that the long tradition of institutional strength and pro-market policies that have characterized Colombia for many decades, will be maintained after the 2018 elections, and will provide stability to future economic policy. The economy may be revitalized, which provides them the base for a “stable outlook”.
S&P does not mention in its report that the downgrade is related to the economic plans presented by candidates for the 2018 presidential elections. However, from our point of view, the downgrade signals the up-coming ministry of finance and president that there is little room of maneuver.
Now read on...
Register to sample a report