According to the latest data published by the Central Bank, the household default rate with free resources fell from 6.30% to 6.21% between June and July. Boa Vista’s Default Records indicator anticipated this movement, as it had fallen by 0.5% in the monthly comparison and in the long-term analysis the growth slowed even further.

“This was the second drop in the household default rate this year, the first was between February and March, but this time it seems to have been more consistent. The long-term trend of the Boa Vista indicator already indicated that, even disregarding the effect of ‘Desenrola’, the number of registrations and, consequently, the default rate had reached a turning point. Of course, the effect of the programme can’t be ruled out and it’s expected to be even greater in the coming months, but the fact that delinquency didn’t necessarily fall in the more expensive credit lines, such as revolving credit cards, instalments and overdrafts, also drew some attention, although it did fall in non-consigned personal loans. It’s still too early to make a diagnosis of the programme, which only started in the second half of July. It will have the effect of reducing defaults, but the efficiency of the renegotiations that are being made could be put to the test if the most expensive accounts remain open,” says Flávio Calife, an economist at Boa Vista.

The average interest rate charged to families when granting free resources fell in July from 47.44% to 47.07% due to a reduction in the cost of funding and the banking spread, as had happened in June. The granting of these loans rose 8.1% year-on-year, but remained on a path of decelerated growth in the 12-month accumulated variation.

“The start of the cycle of cuts in the Selic rate and the Copom’s signalling that the pace can be maintained in the next few meetings are arguments that favour the fall in the cost of funding, as happened in June and July, but it’s important to note that this has been going on since April, when inflation data was already starting to look better, indicating that the downward cycle was approaching. As defaults went sideways in June and fell in July, the spread has also fallen, but it’s important to emphasise that interest rates are still high and that’s why lending continues to slow down. Boa Vista’s Demand for Credit indicator is anticipating this trend very closely. It had risen by 9.7% compared to July last year, and over 12 months it shows growth of 12.4%, while lending is up 12.5% on the same basis of comparison,” concludes Calife.

Original Story: Monitor Mercantil | News room
Photo: BBVA website
Edition and translation: Prime Yield