Well-regarded financial advisor Alejandro Fernandez Whipple focuses this week on the cost of credit card borrowing. Credit cards are everywhere, and represent one of the most important revenue streams for Dominican banks.
Fernández looks into the cost of credit card financing. He writes that there are around two million credit cards in use, and they are financing about RD$57 billion in consumer purchases a year. This does not take into account the RD$28 billion in deferred payments associated with these cards.
Fernández provides a graph that presents a comparison of the five principal card-issuers (Reservas, Popular, BHD Leon, Progreso and Scotiabank) that shows just how much each entity has reduced the cost of a credit card, and which entity charges the least interest. Between 2006 and 2019 the average cost of credit card interest fell from 79.1% to 56.6%, a reduction of 28% in relative terms.
The financial advisor stresses the fact that starting in 2013, after a historic negotiation between the commercial banks and the Superintendence of Banks (which he calls “the Camilazo”), credit card interest rates were quickly reduced. In spite of concerns about a decline in profitability on behalf of the bankers, the drop in rates resulted in an increase in consumer borrowing. The volume of credit card debt would double over the past five years, going from RD$18.4 billion to RD$33.4 billion in 2019.
Another chart reveals that interest levels have dropped at each credit card level: classic, gold or platinum. For example, a platinum card paid 53.7% interest in 2014 and now there are platinum cards with financing rates of as low as 40% in 2019. Because of the negotiations, the highest interest level on plastic is now an annual 60%.
The big question is now: Which card issuers offer the lowest interest rates? The answer is clear: Scotiabank, APAP and Promerica. These are the three banks that have most reduced their interest rates. Today Scotiabank is said to be the least “onerous” at 48.2%, followed by APAP (Asociacion Popular de Ahorros y Prestamos) and Promerica.
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Diario Libre
3 June 2019