Billionaire Salinas Reduces Risk in Lending to Mexico's Poor

  • More careful selection of borrowers helping curb delinquencies
  • `It's about financial inclusion': Banco Azteca CEO Valenzuela

Billionaire Ricardo Salinas’s bank is working to keep consumer loan delinquencies in check even as it lends to working-class Mexicans, who pay high interest rates for the funds to buy everything from appliances to motorcycles.

Banco Azteca closed 799 branches and cut more than 6 million customers last year after delinquencies climbed. The focus now is on improving the quality of its loans through a more careful selection of borrowers, Chief Executive Officer Alejandro Valenzuela said. Loan officers are mining databases and making home visits to make sure they’re lending to people who can repay their debt.

While Azteca’s loan delinquency rate fell to 5.3 percent in December from 9.4 percent a year earlier, it towers over the 2.6 percent average for the banking industry in Mexico, according to the latest data provided by the financial regulator.

“The bank grew so quickly and it got to the point that such growth had to be organized,” Valenzuela said in an interview last week at a banking convention in Acapulco. “We’re trying to understand the business model while still serving areas of the country where there is no banking.”

Banco Azteca is part of Salinas’s Grupo Elektra SAB retail and banking conglomerate, which also operates across Central and South America. The bank accounted for almost 60 percent of Grupo Elektra’s operations in thefourth quarter of last year. The bank offers lower-income consumers -- including those of his Elektra retail stores-- long-term loans to pay off goods like flat-screen TVs.

2,600 Pesos

Much of Mexico’s population of 122 million doesn’t have access to financial services. Domestic credit to the private sector represented 31 percent of the country’s gross domestic product in 2014, less than countries such as Colombia and Brazil, according to World Bank data. Even among Banco Azteca’s 13.5 million customers, the average has only about 2,600 pesos ($146) in their bank account, Valenzuela said.

Azteca’s payroll loans carry an annualized interest rate of 68 percent to 193 percent depending on the amount and deadline, according to the company’s website.

Besides checking credit bureau records, Azteca’s loan officers interview family members and neighbors and visit homes to calculate the resale value and the capacity of a client to pay back debt, Valenzuela said. The large drop in delinquency rates “was the great and only support” that boosted Elektra’s operating income by 37 percent in the fourth quarter, Vector Casa de Bolsa SA analyst Gaspar Quijano said in a note last week.

Still, volatility in the company’s results has made investors skeptical, Quijano said. Elektra’s shares have dropped 24 percent in the past year.

“We have a huge challenge in identifying who we’re lending money to,” Valenzuela said. “But it’s about financial inclusion, and serving people that would not be able to access financial services in any other way.”

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