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Mexicans discover how easy, and hard, plastic is

August 11, 2007|Marla Dickerson | Times Staff Writer

mexico city -- A few years ago, Valeria Sanchez Marin didn't have a credit card in her wallet. Now, she's wielding plastic like a pro. She has two Visas and two department store cards, and she's making room for more.

"They almost chase you down to give you one," the 32-year-old Mexico City homemaker said of credit card solicitors.

"Carguelo a mi cuenta!," or "Charge it!," is the cry of a consumer revolution rattling store shelves south of the border. Mexican shoppers such as Sanchez are finding it easier than ever to snag a car loan, finance a dinette set or buy movie tickets with plastic.

The number of credit cards in circulation in Mexico has tripled since 2002, to about 22 million. Total consumer credit has doubled in the last two years alone, according to the central bank, reaching a record $39.1 billion in June.

That's chump change compared with the U.S., where shoppers have racked up more than $2.4 trillion in consumer debt. But it's significant in Mexico, whose financial institutions long have catered to elites.

No more. Emboldened by Mexico's economic stability in recent years and seeking fat returns, lenders and retailers are moving aggressively to extend credit to working people.

Electronics retailer Grupo Elektra, which pioneered in-store financing to low-income consumers, now operates a bank to provide them with credit cards, personal loans and car notes. The Mexican unit of Wal-Mart Stores Inc. will soon open its own bank and is granting charge cards to customers who earn as little as $182 a month. Banamex, Mexico's largest bank, recently introduced a card for people who can't prove any income at all.

Despite annual interest rates that can top 75%, some consumers are thrilled at the convenience -- and the perceived prestige -- of carrying plastic.

"I was so excited to get my first card," said Mexico City graphic designer Marcela Gomez. "To have a credit card from a bank gave me more class."

She and others have helped propel the Mexican economy by pumping up sales of cars, clothing and other consumer goods.

But they're also finding that easy credit has a price. Gomez's dad had to bail her out when her credit card debt reached nearly $15,000 last year. Her spending spree included a computer, furnishings for her apartment and a getaway to Cancun.

"At first I felt like . . . I was at a high economic level just because I had a wallet full of credit cards," said Gomez, 30. "It turned into a nightmare because . . . I charged and charged."

She isn't alone. Past-due credit card debt in Mexico has almost doubled over the last year as the nation's economy has slowed. Growth in remittances from the U.S. has stagnated because of a slowdown in housing construction, a field that employs an estimated 1 in 5 Mexican immigrants.

In June, tardy balances accounted for 6.1% of Mexico's total credit card debt. That's the highest percentage in 5 1/2 years. And it tops the U.S. rate of 4.41% tallied by the American Bankers Assn. in the first quarter of 2007.

Analysts say Mexico's late payments are still manageable and a far cry from the 40% delinquency rates on consumer credit that followed the nation's 1994 peso devaluation.

Despite the recent surge in credit, Mexico's economy still runs largely on cash. And it remains one of the most poorly served nations in Latin America with respect to personal and business loans. Domestic credit as a percentage of gross domestic product is just 17% in Mexico, compared with 63% in Chile and 35% in Brazil, according to data compiled last year by Morgan Stanley.

Mexico's economy needs more credit, not less, experts say, to reach its potential.

Still, the recent sharp growth in late payments could be a harbinger of trouble.

Mexico's economy is tied closely to that of the U.S., the destination for 80% of Mexico's exports and millions of its workers. If the U.S. tumbles into recession stemming from its sub-prime mortgage debacle, Mexico could end up with a hangover from its own credit binge.

"If people lose their jobs . . . they can't pay off their credit card debts and we're going to see the problem accelerate," said Alfredo Coutino, senior economist at Moody's "Monetary and financial authorities need to pay attention."

Analysts trace Mexico's credit boom to the recovery of its economy and its banking sector from the mid-'90s financial meltdown, and the gusher of liquidity that has juiced financial markets worldwide the last few years.

Falling rates on mortgages and commercial loans and low returns on government securities led Mexican banks to seek more lucrative business. Many turned to consumer credit, specifically credit cards, from which they could reap big profits.

Mexico's government, plagued by tax evasion, is pushing consumers to use plastic because it's easy to collect tax on electronic sales. It sponsors cash giveaways, raffles -- even a prize-laden game show -- for people who make credit card purchases.

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