Andean Region: Cautious on credit

May 1, 2013

As the Colombian and Peruvian economies expand rapidly, lending is growing at double-digit rates. Authorities in both countries must proceed carefully to avoid a bubble forming

By Jason Mitchell

In Peru, borrowing is easy. The country's expanding middle class often finds itself the target of eager telesales agents proffering yet more credit cards. Mortgages, meanwhile, are also in ready supply in a country where home lending has been growing by 20% a year. The statistics for Colombia also show sharp increases in lending.

Rapid economic growth is fuelling easy borrowing. As a proportion of Peru's ballooning GDP, credit today stands at around 32%. In 2005, it was 17% of a much smaller national output. In neighboring Colombia, total credit stands at 34.9% of GDP today, up from 25.2% in 2005.

But the surge in credit growth has led to concerns that a bubble could be in the making in the Andes. High household debt and soaring real estate prices in a highly dollarized lending system have raised fears that lending growth could get out...

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