Loans receivable, net

9 Months Ended

Sep. 30, 2023

The Company classifies loans receivable as “On-line merchant”, “Consumer”, “In-store merchant” and “Credit cards”. As of September 30, 2023 and December 31, 2022, the components of Loans receivable, net were as follows:


	September 30, 2023
	Loans receivable		Allowance for doubtful accounts		Loans receivable, net
	(In millions)
On-line merchant	$	418	$	(120)	$	298
Consumer	1,827		(573)		1,254
In-store merchant	294		(127)		167
Credit cards	863		(204)		659
Total	$	3,402	$	(1,024)	$	2,378


	December 31, 2022
	Loans receivable		Allowance for doubtful accounts		Loans receivable, net
	(In millions)
On-line merchant	$	394	$	(120)	$	274
Consumer	1,568		(614)		954
In-store merchant	267		(145)		122
Credit cards	611		(225)		386
Total	$	2,840	$	(1,104)	$	1,736

The allowance for doubtful accounts with respect to the Company’s loans receivable amounts to $1,038 million and $1,112 million as of September 30, 2023 and December 31, 2022, respectively, which includes $14 million and $8 million related to unused agreed loan commitment on credit cards portfolio presented in Other liabilities of the unaudited interim condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023, the Company is exposed to off-balance sheet unused agreed loan commitments on its credit cards portfolio, which exposes the Company to credit risks. For the nine and three-month periods ended September 30, 2023, the Company recognized in Provision for doubtful accounts of $5 million and $2 million as expected credit losses, respectively.

The Company closely monitors credit quality for all loans receivable on a recurring basis to assess and manage its exposure to credit risk. To assess merchants and consumers seeking a loan under the Mercado Credito solution, the Company uses, among other indicators, risk models internally developed, as a credit quality indicator to help predict the merchant’s and consumer’s ability to repay the principal balance and interest related to the credit. The risk model uses multiple variables as predictors of the merchant’s and consumer’s ability to repay the credit, including external and internal indicators. Internal indicators consider user behavior related to credit/payment history, and with lower weight in the risk models, the Company uses the number of transactions in the Company’s ecosystem and the merchant’s annual sales volume, among other indicators. In addition, the Company considers external bureau information to enhance the model and the decision making process.

The amortized cost of the loans receivable classified by the Company’s credit quality internal indicator was as follows:


	September 30, 2023		December 31, 2022
	(In millions)
1-30 days past due	$	183	$	118
31-60 days past due	98		88
61-90 days past due	78		86
91-120 days past due	83		103
121-150 days past due	81		110
151-180 days past due	73		112
181-210 days past due	69		100
211-240 days past due	74		93
241-270 days past due	71		89
271-300 days past due	72		73
301-330 days past due	82		85
331-360 days past due	84		75
Total past due	1,048		1,132
To become due	2,354		1,708
Total	$	3,402	$	2,840

The following tables summarize the allowance for doubtful accounts activity during the nine-month periods ended September 30, 2023 and 2022:


	September 30, 2023
	On-line merchant		Consumer		In-store merchant		Credit cards		Total
	(In millions)
Balance at beginning of year	$	120	$	614	$	145	$	225	$	1,104
Net charged to Net Income	81		417		93		140		731
Currency translation adjustments	3		9		—		10		22
Write-offs (*)	(84)		(467)		(111)		(171)		(833)
Balance at end of period	$	120	$	573	$	127	$	204	$	1,024


	September 30, 2022
	On-line merchant		Consumer		In-store merchant		Credit cards		Total
	(In millions)
Balance at beginning of year	$	79	$	232	$	76	$	48	$	435
Net charged to Net Income	83		457		111		191		842
Currency translation adjustments	(2)		(19)		(3)		(9)		(33)
Write-offs (*)	(48)		(133)		(48)		(7)		(236)
Balance at end of period	$	112	$	537	$	136	$	223	$	1,008

(*) The Company writes off loans when customer balance becomes 360 days past due.

The increase in write-offs for the nine-month period ended September 30, 2023, compared to the same period in 2022, is mainly generated by higher originations of loans receivable for the nine-month period ended September 30, 2022, compared to the same period in 2021, generating a higher write-offs effect in the period ended September 30, 2023.