Consumer Credit: An International Crisis

Posted by Dave

November 11, 2008

India is facing similar problems with its formerly debt-loving middle class. Livemint.com reports:

[Indian] Bankers said the trend has intensified in recent months and the portfolio may have shrunk by about 10% this fiscal year so far. This is significant, as the industry has seen growth at an average 30% in each of the past four years.

The percentage of non-performing assets, or NPAs, in banks’ credit card portfolios has almost tripled, going up from 5-8% in fiscal 2008 to 15-20% in the current fiscal. NPAs are the portion of the credit card portfolio where a customer has not paid dues for at least 90 days.

It’s getting pretty bad in India and leading Indian banks like ICICI Bank Ltd. (NYSE:IBN) are also going to have lots of problems to deal with. However, it’s not just India, Mexico is also having its own issues with consumer credit.

Wal-Marts (WMT) in Mexico, who extend credit to their customers, are starting to take measures to limit the risks associated with consumer lending. Last week, Mexico’s Wal-Marts upped the interest rate on the credit they extend to customers to 70% per year.

It’s tough to imagine too many consumers willing to pay that kind of interest rate to buy anything other than absolute essentials.

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