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Debt grows 7.2% to 66.8 million in August

The number of defaulters in Brazil rose by 7.17% in August compared to the same month in 2022. Compared to July, the increase was 1.14%. After two months of consecutive falls, the number of consumers with overdue accounts reached 66.80 million – 40.9% of the country’s adult population. The data comes from the CNDL (National Confederation of Shopkeepers) and SPC Brasil.

According to the survey, in August each consumer owed an average of R$4,108.89 when adding up all their debts. There were 31.11% of consumers with bills of up to R$500 and 45.25% with bills of up to R$1,000. Most of the debts are with banks.

In addition to the rise in defaulters, the number of overdue debts also rose by 14.75% compared to August 2022. The percentage exceeded the annual variation measured by the confederation in July 2023. The sectors with the biggest growth in consumers in debt were water and electricity (+31.97%) and banks (+19.79%).

On the other hand, the communication and commerce sectors registered a drop in total defaults in the period. in the period. Consumers in debt fell by 13.71% and 0.97% respectively, respectively.

The confederation attributes the increase in the indicator to the inclusion of defaulters with debts overdue of 1 to 3 years. Despite the increase, the president of the CNDL, José César da Costa, says that “the trend should be downwards for defaulters. should be a downward trend in the number of defaulters in the coming months, since the whole macroeconomic scenario favours this direction”

Original Story: Poder 360|Staff 
Photo: Photo by Bruno Leiva in FreeImages
Edition and translation: Prime Yield

Brazil’s domestic corporate debt market shows progressive recovery

Brazil’s central bank said it continues to observe a slowdown in credit growth in various lines, but stressed the country’s corporate debt market shows a progressive recovery.

After its Financial Stability Committee meeting of August 30th, the bank said in a statement it is important that banks continue to preserve the quality of credit concessions.

Policymakers are tracking international financial conditions, involving in particular greater volatility and higher U.S. longer-term interest rates and greater uncertainty surrounding growth in China, and remain prepared to act, minimizing any disproportionate contamination on local assets prices, they added.

Original Story: Reuters | Marcela Ayres 
Photo: Image by Bruno Neves in FreeImages
Edition: Prime Yield

Bank lending delinquency up again despite lending rate decline

Brazil’s non-earmarked credit default rate rose to 5% in July, reaching its highest level since January 2018 despite a minor decrease in bank lending rates as well as a government-initiated debt renegotiation incentive program.

A broad gauge of default rates, encompassing both individual borrowers and businesses, climbed from 4.9% in June and 3.8% in the same period last year, central bank data showed.

In mid-July, the government launched the first phase of a broad consumer debt renegotiation program called “Desenrola Brasil,” in which banks began providing consumers with the chance to directly renegotiate their debts.

In return, the government granted regulatory incentives to boost the banks’ credit availability.

The rise in the delinquency rate occurred despite the implementation of the program and a marginal dip in the average interest rate for non-earmarked credit, which reached 44.3% annually in July compared with 44.6% in the prior month.

Fernando Rocha, the head of the statistics department at the central bank, said the delinquency increase reflects the effects within a specific credit line that has been affected since April by the high-profile bankruptcy of retailer Americanas in January, which brought to light 20 billion reais in accounting fraud.

Rocha said the Desenrola program encompasses “a considerable number of operations with small individual values” in comparison to the Americanas event. He also added that the program might be helping to reduce delinquency rates in other credit lines.

The central bank kicked off a monetary easing cycle in August, slashing its benchmark rate by 50 basis points to 13.25%, following nearly a year of stable rates aimed at curbing inflation.

Bank lending spreads saw a minor contraction to 33.0 percentage points in July, down from 33.1 percentage points in June.

Reflecting the more challenging credit environment, total outstanding loans in Brazil experienced a 0.2% decline in June from the previous month, amounting to 5.405 trillion reais ($1.11 trillion).

This decline was primarily driven by reduced lending to businesses, the central bank said.

Over the past year, the expansion of loans continued to decelerate, reaching 8.2%, which was down from June’s 9.2% figure.

Original Story: Yahoo Finance | Reuters 
Photo: Photo by Cesar Fermino on FreeImages
Edition: Prime Yield

Lending for vehicles rises, but for property falls

Credit stock falls 0.2% in July to R$5.405 trillion, says Central Bank

The balance of the financial system’s credit operations fell 0.2 per cent in July, to R$5.405 trillion, according to the Central Bank (BC) latest release. In 12 months, there was an increase of 8.2%.

The total balance of free credit fell 0.8% in July to R$3.179 trillion, while directed credit advanced 0.7% to R$2.226 trillion.

The total credit balance for families increased by 0.4% in the month, reaching R$3.314 trillion. For companies, there was a 1.1% drop, to R$2.090 trillion.

The Central Bank’s most recent projections for credit growth in 2023 are: 7.7% for the total; 6.3% for free credit; 9.6% for directed credit; 9.9% for individuals; 4.4% for companies.

Vehicles

The balance of operations for the purchase of vehicles by individuals rose 0.7% in July, to R$270.829 billion.

Loans rose 4.4% in the month, to R$13.259 billion. The average interest rate stood at 26.1% per year, after 26.8% in June.

Real Estate

The total stock of real estate loans to individuals with directed resources rose 0.5% in July compared to June, totalling R$ 972.847 billion. In 12 months, the increase was 10.3%.

Loans in the same category, on the other hand, fell 2.2% to R$11.3 billion in the month, accumulating a 12.7% drop over 12 months.

The annual interest rate, meanwhile, rose from 11.5% to 11.9%.

BNDES

The National Bank for Economic and Social Development’s (BNDES) credit portfolio for companies ended July up 0.1% to R$392.570 billion. The comparison is with the previous month.

Looking at the BNDES’ concessions, there was a fall of 2.4% in the month, to R$5.796 billion.

Default

The average default rate on credit operations remained stable at 3.6% in July, compared to June.

Among companies, the average rate was 2.7%, compared to 2.6% in June. Among households, it was 4.2%, the same percentage as the previous month.

In credit with free resources, delinquency stood at 5.0% (against 4.9% in June).

In directed credit, it was 1.7%, against 1.6% previously.

Original Story: Valor Investe | Alex Ribeiro and Larissa Garcia
Photo: Big Stock Photo
Edition and translation: Prime Yield

Credit card revolving interest rates rise to 445% per year, says BC

A hot topic at the moment, the average total interest rate charged by banks on revolving credit card payments rose 8.7% from June to July.

The Central Bank (BC) also reported that the rate went from 437.0% to 445.7% per year.

The emergency credit modality is at the centre of the country’s economic and political discussions at the moment due to the more expensive rates on the market.

The issue is the subject of a working group formed by the Ministry of Finance, the Central Bank and the banks.

Proposals

Recently, Roberto Campos Neto, the president of the Central Bank, said that the solution was “moving towards” the end of the revolving credit card, with the card debt being automatically transferred to the instalment plan with interest.

Since 2017, banks have been obliged to transfer revolving credit card debt to instalments after one month, at a lower interest rate.

Campos Neto also indicated that there could be a disincentive fee for “long” interest-free instalments, which is in the interest of the banks, while Finance Minister Fernando Haddad is against ending interest-free instalments.

In addition, last August 24th, deputy Alencar Santana (PT-SP) proposed limiting the rate on revolving and interest-free instalments to the principal amount of the debt, in his opinion on the Desenrola project.

The measure would apply if the banks do not propose self-regulation within 90 days of the law coming into force.

In the case of instalments, the interest went from 196.1% to 198.4% per year between June and July.

Considering the total credit card interest rate, which takes into account revolving and instalment operations, the rate went from 104.2% to 102.7%.

Original Story: CNN Brasil | Thais Barcellos and Eduardo Rodrigues
Photo: Banco Central do Brasil
Edition and translation: Prime Yield

Bad debt fell in July and lending slowed down

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

Corporate defaults hits new record in Brazil

In April, defaults reached 6.5 million Brazilian companies. This was the highest number recorded by Serasa Experian’s indicator since 2016, when the historical series began. The value of debts also reached a record amount, totaling R$ 117.5 billion. On average, each CNPJ has about seven negative accounts.

According to the economist of Serasa Experian, Luiz Rabi, the economic framework of the country continues to impose challenges to entrepreneurs. “The analysis remains the same. Factors such as inflation and the Selic rate are affecting consumers’ purchasing power,” he says. “With expensive inputs and high interest rates, companies’ cash flow does not find room to grow, which makes it unfeasible for business owners to pay off debts.”

Last month, businesses in the service segment accounted for 54% of all defaulters. Next came commerce, with 37%, followed by the industrial (7.7%) and primary sectors (0.8%), and the category “others” (0.5%) – which includes financial companies and the Third Sector

The analysis by Federal Unit showed that São Paulo is the state with the highest number of defaulting companies. In second place was Minas Gerais, followed by Rio de Janeiro, Paraná, Rio Grande do Sul and Bahia.

Original Story:  Metropoles | Carlos Rydlewski
Photo: Photo by Svilen Milev in FreeImages
Translation & Edition:

Banks and institutions in Brazil have already put R$22 billion in bad loans up for sale this year

One of the many faces of high interest rates is in the amount of credit portfolios, which have not been paid by individuals and companies, and have been put up for sale. In the first quarter, just the big banks – Santander, Bradesco and Itaú Unibanco – offered R$ 17 billion to the market. If smaller banks and other institutions are considered, the offer exceeds R$ 22 billion.

This is slightly more than the same quarter of 2022. But more than the amounts, the fact that a good part of the defaults are returning to the banks draws attention. Reason: the drop in the prices of these portfolios, due to the little chance of recovering the money. The number of CPFs and CNPJs with debts in more than one bank, card or credit institution is very high.

Itaú, for example, one of the institutions that made the offer, put on the market about R$ 6 billion in overdue credits, and sold something like R$ 2.3 billion to MGC Holding, Blue365 and Hoepers. The remainder returned to the bank. According to sources, this is what happened with most of the R$ 17 billion offered.

Itaú Unibanco and Bradesco said that portfolio transfers are part of the bank’s normal operations and will be carried out when there is an economic benefit. Bradesco also said that such operations consider “the value of the portfolio versus expected recovery and cost of the operation”.

Bradesco said that “only assignments that generate economic benefit are effected.” Santander and MGC Holding declined to comment. Blue365 said that “the acquisition of a portion of Itaú’s portfolio further strengthens the position” of the company in this market.

Original Story: Jornal o Sul
Photo: Bradesco website
Edition & Translation: Prime Yield

Almost a third of Brazilian women are in default

Research released by the CNC also shows that 79.5% of women had some debt in February this year.

In February, 30.3% of the Brazilian women were in default, reveals the the Consumer Indebtedness and Default Survey (PEIC), carried out by the (Confederação Nacional do Comércio de Bens, Serviços e Turismo (National Confederation of Commerce in Goods Services and Tourism (CNC). Men, in the same category, account for 29.1% of defaulters.

The study also shows that 79.5% of women were in debt in February, which represents an increase of 1.1 percentage points compared to January. In the opposite direction, men had a drop of 0.1% in debt, compared to the same period. The survey points out that informal employment is among the factors responsible for women’s higher indebtedness, which causes income vulnerability.

The specialist in institutional, governmental relations and public management at the Fundação da Liberdade Econômica, Eduardo Fayet, explains that other factors within the Brazilian context also contribute to the increase in defaults in this period, such as the rise in inflation and, consequently, the loss of income.

“The second factor that has influenced a lot is the increase in interest rates. When a person goes into debt, with high interest rates, he obviously needs to pay more for the money he needs to take so that he can pay his bills. Another important factor is the employment/income ratio,” says Fayet.

Among the short-term modalities that have concentrated the indebtedness of the female public is the credit card (86.5%). Next is indebtedness in store books (19%) and payroll loans (5.9%). In other modalities, such as overdraft, personal credit, pre-dated checks, home and car financing and other debts, men outnumber the debtors.

Original Story: Diário do Comércio | News 
Photo: Photo by Bruno Neves in FreeImages
Translation & Edition: Prime Yield

Risk of credit crisis may lead to an interest rate drop

A report by the BC’s Financial Stability Committee (Comef) shows that there has been a slowdown in the pace of credit growth.

At its last meeting, the Financial Stability Committee (Comef), a body of the Central Bank, highlighted the issue of interest rates in the country in assessing the economic and financial scenario.

Comef pointed out that there was a slowdown in the pace of credit granting both to companies and individual consumers. More expensive money, with rising interest for the customer, despite the Selic rate being stationary since August last year at 13.75%, also makes institutions more judicious in granting credit, says the Committee.

The Americana’s bailout is one of the reasons that are leading this movement of institutions, since it helped to change the credit market perspectives in the country.

In part, this movement of institutions was motivated by the bankruptcy of Americanas, which helped to change the perspectives for the credit market in the country

Aod Cunha, CNN’s Economy commentator, assesses that the continuation of the current level of interest rates should generate a challenging situation in the credit market.

“The maintenance of a high rate, the extension of that rate, evidently, at some point, would generate a situation of more acute credit restriction. We need to reduce the interest rate. An that must be done correctly, so that a poorly made reduction later does not lead to an additional increase in interest rates and a greater credit restriction, ”he explains.

In a report sent to clients, consultancy Verde Asset pointed out that there are incipient signs of a possible credit crisis hitting the Brazilian economy and that, therefore, “good public policies” will be necessary to manage the situation.

In the practical life of companies, high interest rates indicate the need to have more money to pay debts, often contracted in a scenario where the rate was close to the minimum, as it was in 2021.

It is also worth mentioning that Brazil has the highest real interest rates (which discount inflation) in the world, at 7.4%, second only to Argentina, a relevant challenge for business.

Interest rates are the tool used by the Central Bank (BC) to contain inflation.

Despite the side effects they may have on the economy, making credit more expensive and reducing the pace of activity in general, economists argue that it is a necessary remedy and a forced reduction in rates would have the opposite effect on prices.

In a recent interview with CNN, former Finance Minister Maílson da Nóbrega, founding partner of Tendência Consultoria, explains this unwanted effect. 

“The perception (if the BC reduced interest rates “by force”) would be that the independence of the Central Bank ended”.

Future interest would rise sharply, impacting the cost of the National Treasury and credit in the economy, and this would further slowdown growth. Capital flight would provoke a sharp depreciation of the exchange rate, which would increase the acceleration of inflation. In other words, a complete and perfect disaster,” he says.

Interest rates are moving down

Recently, it has been possible to observe a movement in the interest rate futures market.

Figures show that the contract for January 2024, accounted for on December 14, were at 14.07%. On February 13, the index fell to 13.80%. On March 8, future interest rates were at 13.05%.

The assessment is that this movement is beginning to indicate some drop in interest rates. And economists forecast the possibility of the BC to start cutting interest rates in May or June grows.

This analysis takes place in the context of risk in the credit market, but also in view of the perspective that exists in Brasilia for the new rules that will guide and serve as a reference for public accounts.

Aod Cunha explains that a good proposal presented by the government can help to bring about a drop in the Selic rate.

“The fiscal rule cannot be just a projected target for the debt. It needs to show a clear rule about how public spending growth will be controlled. We know that it will not be a proposal like the spending ceiling was, but it has to be a rule that shows that spending growth will not generate a sharp growth in the public debt. If this is done, interest expectations fall,” he said.

Original Story: CNN Brasil | News 
Photo: Photo by Magda S from FreeImages
Translation & Edition: Prime Yield

Americana’s scandal potential impact will be “insignificant”

Brazil’s central bank stated that the potential impact of the accounting scandal involving retailer Americanas SA on banks would be “insignificant” even in an extreme scenario.

Americanas filed for bankruptcy in January after disclosing “accounting inconsistencies” worth R$ 20 billion, leading banks to increase their provisioning in their most recent earnings release.

The central bank noted that the provisions stem from “a specific event related to a large company” and have already absorbed most of the materialization of the risk.

“The central bank estimated the remaining potential impact, plus a contagion scenario over the entire production and supply chain that depends on the company in a relevant way,” it said.

“In this extreme scenario, the impact on the consolidated financial system is insignificant and there would be no capital default in any financial institution,” it added.

The central bank also stated that “one-off events in large companies” generated a deterioration in asset prices in the private bond market, with increased volatility, spreads and risk aversion, in addition to impact on some lines in the credit market.

Its committee will continue to monitor developments and is ready to act in case of dysfunctionality, it said.

In addition to Lojas Americanas, energy company Light  disclosed earlier this year that it had hired a firm known for acting in bankruptcy protection, raising fears about it, which the company later denied.

The two incidents resulted in a flight of funds from credit funds. This occurred shortly after a new rule from the Brazilian securities industry regulator CVM began to take effect in January, implementing mark-to-market in fixed-income investments, which ended up helping to make the picture worse.

Original Story: Reuters |Marcela Ayres  
Photo: Getty images
Edition: Prime Yield

Bradesco prepares for rising bad loans in 2023

Brazilian lender set aside billions of reais in the fourth quarter, Chief Executive Officer Octavio de Lazari Jr. said.

The bank’s earnings were hit hard in the final quarter of last year by the provisions, including for its lending to failing retailers Americanas SA. The bank said that its net income for the period fell to €1.4 billion reais (R$), from R$3.2 billion a year earlier.

Bradesco has the largest exposure in terms of total lending to Americanas, which was granted protection from creditors in January, at about R$4.8 billion. The bank set aside R$ 14.9 billion in the fourth quarter to cover bad loans, up from R$ 4.3 billion a year earlier. The bank said it had provisioned for 100% of an operation involving a large corporate client.

Americanas is a one-off case and its situation doesn’t apply to other big companies in Bradesco’s credit portfolio, Mr. de Lazari said. Instead, the bank expects its loan delinquency ratio to continue to rise in the first part of this year, from 4.3% at the end of the fourth quarter, mostly because of its low-income individual and small- and micro-business segments, Mr. de Lazari said.

After boosting provisions in the fourth quarter, the bank expects to set aside between R$ 36.5 billion and R$39.5 billion this year for bad loans, leaving the bank with sufficient funds to handle the expected increase in delinquency, according to the CEO.

“We have adequate provisions. It’s not something that worries us,” Mr. de Lazari said.

With the provisions in the fourth quarter, including the money set aside for the large corporate client, the bank’s results in 2023 should be affected more by other clients in its portfolio and not by the retailer, said Renan Manda and Matheus Guimarães, analysts for XP Investimentos, in a research note.

“Its exposure to Americanas is now fully provisioned, thus eliminating potential impacts from this case in 2023,” the XP Investimentos analysts said.

Original Story: Market Watch | Jeffrey T. Lewis
Photo: Bradesco caption site
Edition: Prime Yield

Bank lending down for the first time in a year

Outstanding loans in Brazil decreased by 0.3% in January, according to the latest central bank data, marking the first decline in a year.

The result suggests a slowdown that is likely to gain momentum in a scenario of high borrowing costs following the aggressive monetary tightening implemented by the central bank to curb inflation.

Outstanding loans fell to $R 5.3 trillion in January, with loans to companies decreasing by 2.4%, while credit to families rose by 1.1%.

Bank loans in Latin America’s largest economy have decelerated amid more expensive credit, as the country’s benchmark interest rate stands at 13.75% from a record low of 2% in March 2021.

This has prompted constant criticism from the new leftist President Luiz Inacio Lula da Silva and his political allies, who see the level of interest rates as unjustifiable given slowing inflation, which reached 5.63% in Mid-February.

The central bank has left interest rates unchanged since September, but data from the central bank shows that average interest rates on non-earmarked loans have increased to 43.5% per year from 41.7% in December.´Bank lending spreads also grew from 28.7 points the month before to 30.6 percentage points, while a broad measure of Brazilian consumer and business default ratios increased to 4.5% from 4.2% in December.

Original Story: Reuters | Marcela Ayres 
Photo: Photo by Bruno Neves in FreeImages
Edition: Prime Yield

Itau’s higher profits slightly miss forecasts on bad loan provisions

Itau Unibanco SA  posted a 19% jump in recurring net profit, which nevertheless landed slightly below expectations as it raised provisions for bad loans amid soaring interest rates.

Latin America’s largest bank reported a third-quarter recurring net income of 8.08 billion reais. Analysts polled by Refinitiv had expected profit of 8.11 billion reais.

High interest rates prompted Itau to hike the provisions it set aside for bad loans by 49.8% to 8.27 billion reais, in line with moves by other Brazilian lenders Bradesco SA and Santander Brasil SA .

Unlike its peers, Itau did not hike its 2022 forecast for loan-loss provisions.

Finance chief Alexsandro Broedel said in a statement the quarterly results reflected “the strength and consistency of our performance over time, in the various lines of business”.

Net interest income (NII) from its customers jumped 33% from a year earlier to reach 23.38 billion reais.

NII it earned from the market, however, fell 73.2% to 516 million reais, it said, citing a bigger retail loan portfolio.

Itau reported a 90-day default ratio of 2.8% at the end of September, rising above the previous quarter’s 2.7% albeit at a much slower pace than its peers.

Original story: Reuters | Peter Frontini 
Photo: Itaú website
Edition: Prime Yield

BTG Pactual posts net profit up to 25.5% to quarterly record

Brazil’s Banco BTG Pactual SA reported a record net profit for the third quarter in a row despite what it said was a “pretty volatile year,” driven by interest gains and rising revenues from its main units including sales and trading.

Latin America’s largest investment bank reported a third quarter net profit of 2.19 billion reais, up 25.5% from a year ago and roughly in line with estimates of 2.22 billion reais from analysts polled by Refinitiv.

Total revenue reached a quarterly record at 4.8 billion reais, up 24% on a yearly basis, with BTG’s return on average equity (ROAE) – a gauge of profitability – hitting 22%.

“Our businesses are increasingly diversified and recurring, with higher contribution from customer franchises and rising operating leverage each quarter,” chief executive Roberto Sallouti said in a media release.

BTG’s closely watched sales and trading division reported revenues up 6% on a yearly basis at 1.38 billion reais, boosted by higher client activity, the lender said.

It also highlighted interest revenue almost tripling year-on-year due to higher benchmark rates in Brazil. Revenues from its corporate and SME lending and wealth management units also jumped 46% and 60%, respectively.

Amid the consecutive quarterly net income records, Brazil-traded units in BTG Pactual have soared roughly 40% so far this year.

Analysts at Itau BBA, however, have recently downgraded the investment bank to “market perform,” challenging its valuation multiples by saying the firm had a “fairly balanced risk/reward ratio” right now.

Original story: Yahoo Finance |Gabriel Araújo
Edition: Prime Yield

Bradesco quarterly profit dips, outlook on loan provisions worsens

Brazilian lender Banco Bradesco SA reported a 22.8% drop in third-quarter recurring net profit and raised its forecast for set-aside funds that may be needed to cover bad loans.

Bradesco’s recurring net profit totaled 5.22 billion reais, coming in below a Refinitiv consensus estimate of 6.76 billion reais.

The lender also raised its expectation for the amount of money it will set aside for non-performing loans this year. It now expects to hold provisions in the range of 25.5-27.5 billion reais, as high interest rates have caused a deterioration in asset quality.

During the July to September period, Bradesco set aside 7.27 billion reais, more than double the amount compared to a year earlier.

Brazil’s second-largest private lender said the increase in provisions reflects a higher turnover in more profitable and riskier operations.

In September, Brazil’s central bank paused an aggressive monetary tightening cycle, leaving its key Selic interest rate at 13.75% after 12 consecutive hikes. The central bank’s rate-setting committee also left its benchmark rate unchanged in October.

Bradesco said its 90-day loan default ratio was 3.9% at the end of September, a 1.3 percentage point growth from a year earlier and 0.4 points above the second quarter ratio.

“We observed the delinquency concentrated in individuals, in the lines of mass market loans, and in companies, substantially in micro and small-sized firms,” said the lender.

Its consolidated loan book grew 13.6% to 878.57 billion reais, mainly driven by credit card transactions, personal and payroll-deductible loans.

Original story: Reuters | Peter Frontini
Photo: Bradesco Linked In
Edition: Prime Yield

Brazil’s central bank warns of worsening credit risks in 2022

Brazil’s central bank highlighted its growing concern about the effects of lower economic activity on credit risks in the country, pointing to a “relevant” increase in risks on financing families this year.

Based on data from the first half, the central bank’s Financial Stability Report said that household income is increasingly committed to more expensive debt.

Individuals’ ability to pay has deteriorated even amid better indicators for the economy and the labor market, added policymakers.

“About households, (credit) risk materialization grew in a relevant way in 2022 in non-consigned credit, credit card, and vehicle financing,” said the central bank.

Policymakers also pointed out that despite solid portfolio growth, bad assets in microenterprise credit went up.

Reacting to these factors, banks’ provisions have risen to a level considered “comfortable” for the financial system to support expected credit losses, said the central bank.

Even so, there is “growing concern about the effects of a possible frustration of economic activity on the materialization of credit risks,” it said, adding that financial institutions should continue to preserve concessions quality.

While the government officially forecasts GDP growth of 2.5% next year, private economists estimate that the expansion will be around 0.6%, according to a weekly survey carried out by the central bank.

The credit warning comes amid a sharp acceleration in loans in Latin America’s largest economy despite high borrowing costs as interest rates are held at a cycle-high to tame inflation. In the 12 months through September, credit to individuals rose 20.3%, while credit to companies was up 12.0%.

Although expenses with provisions have increased, the banking system’s return on equity (ROE) stood at 15.1% in the 12 months to June, matching the same level from 2021. According to the central bank, higher treasury margins have offset the reduction of credit margins.

Original story: Nasdaq |Marcela Ayres 
Photo: Banco Central do Brasil
Edition: Prime Yield

Hedge Funds step into Brazil lending as government pulls back

Brazil’s hedge-fund industry is diving deep into credit as higher interest rates attract investors and government-owned banks pull back on cheap, subsidized loans to corporations.

Vinland Capital Management Gestora de Recursos Ltda. and Occam Brasil Gestao de Recursos Ltda. are among hedge funds planning to offer credit products after the nation’s benchmark interest rate jumped to almost 14% from 2% last year, luring investors back to bonds. 

Local fixed-income funds posted net inflows of 106 billion reais this year through August after raising 232 billion reais for all of last year, according to Anbima, the capital-markets association. And this time they’re not buying only Treasury bonds as in the past, but are starting to hold more corporate debt — mostly high-grade, but also high-yield and distressed — and financing infrastructure projects, fintechs, small firms and agribusinesses. 

“This is a great revolution for Brazil’s financial system,” said Daniel Sorrentino, managing partner and country manager for Brazil at Patria Investments Ltd., an alternative-investment firm with $26.3 billion under management in Latin America. “Now I don’t need a big bank to get a loan in Brazil — I have other alternatives. And this direct connection between the investor who will provide the financing and those who need it is being made by fintechs, brokerage firms and independent asset managers.”

The result is that, for the first time ever, investment funds along with individual investors are buying a meaningful amount of corporate bonds — almost as much as the loan book at government-owned development bank BNDES, which used to be one of the main sources of funding for Brazilian firms. As of June, investors held 442 billion reais in those securities, 82% more than two years ago, according to JGP Gestao de Recursos Ltda. BNDES has a loan book of 463 billion reais, 40% below its peak in 2015, according to its financial statements.

“The government reduced subsidies to corporate financing in Brazil, cutting the volume of new lending from its banks and bringing BNDES’s interest rates to market levels,” said Alexandre Muller, a partner and portfolio manager in Rio de Janeiro at JGP, which has 1.3 billion reais of credit funds under management. “The credit markets replaced them and are booming.”

As funds and individuals buy mostly floating-rate credit, more brokerage firms are trading it, and independent financial advisers are bringing more transactions directly from companies to the market, Muller said, adding that secondary markets are also developing. 

It’s not just government-owned banks that have been shrinking financing to big corporations, according to Daniela Gamboa, head of private credit and real state at SulAmerica Investimentos. The nation’s biggest banks face more restrictive capital requirements, and are favoring individuals over big companies because retail clients offer more attractive spreads. 

SulAmerica has about 13 billion reais in fixed-income funds with more than 50% of its holdings in corporate credit, compared with 5 billion reais about two years ago. For the whole industry, those types of credit funds had 17 months of consecutive inflows through July, according to JGP.  

Most clients still seek funds that allow them to withdraw money on the same day or the day after a request, and they typically hold liquid, high-grade corporate bonds, Gamboa said. But longer-term, sophisticated strategies are being brought to the market every day, she said.  

Financial-technology companies are also able to obtain financing by selling credit-card or even car loans directly to credit funds, using structures such as FIDCs, funds that buy credit-backed securities. The amount of FIDCs rose to a record 313.2 billion reais in August, a 10% increase from December, according to Anbima. Those structures are also used by longer term funds that specialize in buying agribusiness credit, distressed credit and legal claims. Other firms offer funds that buy asset-backed bonds that are tax-exempt for individuals. 

Some funds can offer investors yields as high as 19%, but require waiting periods of 60 to 180 days for withdrawals, said Rafael Fritsch, chief investment officer at Root Capital, a Rio de Janeiro-based firm founded in April that specializes in credit, with 1.7 billion reais in committed capital from clients.

Vinci Partners Investments Ltd., SPX Gestao de Recursos Ltda., Legacy Capital Gestora de Recursos Ltda. and Ibiuna Gestao de Recursos Ltda. are among other Brazilian hedge-fund houses that have started credit-fund strategies or purchased specialized firms. Many new credit-focused asset managers are also being formed.

There is a lot of room for the market to grow, as banks still hold by far the majority of corporate credit in Brazil — the opposite of how the market in the US shapes up, according to Jean-Pierre Cote Gil, a credit portfolio manager at Vinland.  

Original Story: BNN Bloomberg | Cristiane Lucchesi 
Photo: Photo by Magda S in FreeImages.com
Edition: Prime Yield

Delinquency increases in the «0 km» segment and Brazilians are renting more cars

The most recent data on financed car purchases point to a slow and consistent process of increasing delinquency. Faced with the limited supply of cars with more affordable prices for most consumers, the auto trade is losing the protagonism that it once had and corporate sales, especially to rental companies, have become the salvation of the automakers to avoid greater idleness in factories – it is a dangerous process of automotive deindustrialization in the country. This is the portrait of the Brazilian market and, for now, there are no signs that anything will change.

The default rate on new car loans, released this week by the Central Bank of Brazil, reached 5.1% in August, 0.2 percentage points above the average recorded in July. It is six consecutive months of high index, which measures the delays superior to ninety days in the financing payments.

In comparison to August 2021, delinquency rose 1.7 percentage points, influenced by the greater indebtedness of families whose income is being eaten by inflation. Since the beginning of the year, the index has advanced 1.1 percentage points, more than in the whole of last year, when the rise was 0.9 pp.

For Anfavea, according to its president Márcio de Lima Leite, credit is getting more expensive and more difficult, but it doesn’t mean there is a demand crisis. Even because the volume of delivery of brand-new cars is growing – and driven, it is true, by rental companies.

This segment is quickly recovering the volumes left behind because of the semiconductor crisis, which greatly limited production in 2021. According to Marco Aurélio Nazaré, president of ABLA, Brazilian Association of Car Rental Companies, delivery times have improved compared to last year, when the rental market waited up to 180 days to receive a brand-new car.

Comparing the pace of the first quarter of this year with the following three months, purchases by rental companies grew 85.4%. Nazaré stated that “our sector bought 223,967,000 new cars in the first half of 2022 and these purchases represented 49.3% [practically half!] of the total purchased in the whole year of 2021.”

Result: the total fleet of the rental segment grew by 6.3% in the first six months of 2022. Thus, if the same pace is confirmed by the end of the year, the rental sector expects the market to be even closer to normality next year. Historically, rental companies are responsible for the pur8chase of approximately 20% of all cars and light commercials sold per year in Brazil.

This business, often classified as direct sales, from the manufacturer to the rental company, has everything to grow, increasing the participation of these companies in the total sales result of the national market. This is because there is a need for 500 to 600 thousand cars to balance the stocks of the rental market next year.

Meanwhile, the individual consumer is running out of options because, even with the tendency to stability, the interest rates for the acquisition of brand-new vehicles remain very high, around 27% on average. And with manufacturers giving priority to corporate customers, versions, colours, equipment and finishes preferred by consumers are often missing in dealerships.

Original Story: Uol | Leandro Alves 
Photo: Photo by Cesar Fermino in FreeImages.com
Edition and translation: Prime Yield

Revolving credit card interest rose in August to 398% per year, the highest in 5 years

Information was released by the Central Bank. Interest rates have been rising along with Selic. Delinquency is the highest since 2020; debt hits record.

The Central Bank of Brazil (BC) revealed that the average interest rate charged by banks in operations with revolving credit card rose from 349.9% per year in July to 398.4% per year in August. This is the highest rate since August 2017 (428% per year).

The revolving credit of the credit card, whose demand in 2021 was the highest in ten years, can be triggered by those who cannot pay the full amount of the invoice on the due date, but do not want to be delinquent.

This is the most expensive line of credit on the market and, according to analysts, should be avoided. The recommendation is that bank customers pay the full amount of the bill monthly.

Selic Increase

Bank interest rates have increased over the last few years, as a consequence of the increase in the Selic, the economy’s basic interest rate, by the Central Bank.

With this measure, the Central Bank tries to contain the rise in inflation. Currently, the Selic is at 13.75% per year, the highest level in six years.

Last month, also according to the Central Bank, average banking interest rates with free resources in operations with individuals and companies reached 40.6% per annum in August.

According to the institution, this is the highest rate since March 2018, when it added 41% per year, that is, in just over four years.

The average bank interest with free resources does not include the housing, rural and National Bank for Economic and Social Development (BNDES) sectors.

According to the Central Bank, the average interest rate charged on operations with companies dropped from 23.4% per annum in July to 22.8% per annum in August.

In operations with individuals, interest rates rose from 53.4% per year in July to 53.9% per year in August, the highest level since April 2018 (56.3% per year).

In the special check of individuals, the rate rose from 127.4% per year in July to 128.6% per year in August. It is the highest rate since June this year (129.2% per year).

Bank Credit

The total volume of bank credit on the market, according to the Central Bank, advanced 1.6% in August to R$ 5.06 trillion.

There was an increase of 0.9% in the corporate loans portfolio and a 2.1% rise in personal loans.

According to the institution, among the types of credit for families in August, the following stood out: total credit cards (+2.4%), non-consigned personal credit tied to debt composition (+6.7%), non-consigned personal credit (+1.3%), consigned credit for civil servants (+0.8%) and consigned credit for retirees and pensioners from the INSS (+1%).

In twelve months, the growth in the total volume of bank credit reached 16.8% in August, against 16.9% in July.

For this entire year, the Central Bank estimates an expansion of 11.9% in bank credit. In 2021, driven by emergency lines of credit to combat the effects of the pandemic, bank credit rose 16.5%.

BC data show that the concessions of new bank loans also advanced in August, when they expanded 1.7% against the previous month.

This was the second month in a row in which the indicator rose. The calculation was made after seasonal adjustment, a kind of “compensation” to compare different periods.

Delinquency and Indebtedness

The average default rate registered by banks on credit operations was stable at 2.8% in August. Even so, it remains at the highest level since June 2020.

In the case of loans to individuals, defaults rose from 3.6% in July to 3.7% in August, the lowest since May 2020 (4%).

Already the default of companies was stable at 1.5% in August, the highest since August 2020 (1.8%).

The Central Bank also released statistics on household debt with banks. In this case, the new figures are for July this year.

According to the Central Bank, indebtedness hit a record in that month, adding up to 53.1% of the accumulated income over the previous twelve months. The BC’s historical series for this indicator begins in January 2005.In February 2020, before the Covid-19 pandemic, household indebtedness was at 41.8%.

Original Story: G1 Globo |Alexandre Martello
Photo: Photo by Lotus Head in FreeImages.com
 Edition and translation: Prime Yield

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