Saturday, November 01, 2008

Mexican Consumer Interest Rates

And I thought US credit card rates were unusually high. Have a look at Mexico.

Since December, average bank credit-card rates have risen 10 percentage points, from 31.61 percent to 41.78 percent in September.

Pamphlets advertising Wal-Mart's variable-interest credit cards warn applicants that interest rates could be 65 percentage points higher than Mexico's prime rate, currently at 8.73 percent.

Costco charge cards carry a 52 percent interest rate. Visa cards from Banamex, Citibank's Mexican branch, charge 46.49 percent.

Woolworth charges 61 percent on a store credit card financed by General Electric. And Suburbia, a chain of clothing stores owned by Wal-Mart, is charging 70.6 percent on its variable-rate card.

Part of it is a smaller supply of loanable funds while another part is a lack of competition.

Credit has always been more expensive in Mexico than the United States, said Rafael Amiel, Latin America director at Global Insight, a consulting firm.

Capital is scarcer in Mexico, and thus, banks can charge more for it, Amiel said.

There are fewer banks, meaning less competition. And the banks charge high service fees, allowing them to make profits even though they loan less money.

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