18 November, 2019
Mercado Libre struggles with bad debt in Brazil

Loan losses at Mercado Credito Brazil highlight the difficulties of fine-tuning digital lending businesses

Imagen
By Katie Llanos-Small

 

A sharp rise in non-performing loans in Brazil is testing Mercado Libre’s credit scoring methodology.

The company’s Mercado Credito division reported a rapid uptick in bad debt in the third quarter, primarily as a result of two new lending products in Brazil.

The figures highlight the execution difficulties in digital lending businesses. Mercado Libre is one of Latin America’s most established technology companies. In the third quarter it posted impressive growth in loans originated and payments processed – as well as reaching a record number of listings on its marketplace.

Still, bad loans across Mercado Credito’s portfolio increased by $13.3 million over the course of the third quarter, a rise of 86%, at a time when the overall credit portfolio shrank.

Two newly launched products – consumer credit and mPOS merchant credits in Brazil – account for most of that rise, Pedro Arnt, chief financial officer, said on the company’s third quarter earnings call.

“Given that we are at such an early stage in both of these products, the higher levels of loan losses are within our expectations,” Arnt told investors.

“It’s important to highlight that both in consumer credit and mPos credits in Brazil, we are taking the appropriate measures to improve these loan losses going forward. We have adjusted pricing, taken advantage of incremental information we collect on non-performing payers to strengthen our churn and behavioral credit scoring algorithms, and have refocused on performing payers.”

See also: As big techs gain territory, banks warily seek partnerships

Bad debt ratio

Mercado Libre did not detail its non-performing loan ratio, nor offer market by market details. But iupana calculations suggest the non-performing loan ratio is as high as 16%.

Arnt’s comments indicate the total pool of bad loans is around $28.6 million – given the $13.3 million growth in bad loans in the third quarter equated to an 86% rise. That implies that non-performing loans have risen to 16% of the company’s $176 million credit portfolio.

For reference, Brazilian Central Bank data shows that 4.25% of Brazilian bank loans were between 15 to 90 days over due in September, and 3% were more than 90 days overdue.

Want more intelligent reporting like this? Join the global financial technology leaders who read iupana’s weekly bulletin

Payments push

Despite the growth in bad loans, Mercado Libre’s fintech divisions are increasing their market share rapidly. Some 2 million Argentines now use the company’s QR code system for payments, for example, a figure that doubled in the quarter. And Mercado Pago processed more payments off-platform that it did on its MeLi platform in Brazil, for the first time.

See also: QR code competition intensifies in Argentina

LatAm fintech insights
Get the scoop on how your peers, competitors and clients are using fintech to get ahead. Leave your details to receive iupana's exclusive, in-depth coverage of banking technology in Latin America and the Caribbean in your inbox on Monday mornings. (You can unsubscribe in one-click if you decide it's not for you.)
Español English Português

Exclusive Fintech News

Loading…