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
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
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
 Edition and translation: Prime Yield

Brazil bank lending grows 1.6% in August

Outstanding loans in Brazil kept growing in August, according to the latest central bank data, with credit showing robustness despite rising costs amid an aggressive monetary tightening.

Outstanding loans were up 1.6% in August from the month before to R$ 5.067 trillion.

In July, outstanding loans rose 0.6%, a figure that had not yet been released by the central bank, which is still normalizing its data after a strike by its employees earlier this year.

Year-to-date growth reached 8.4% and, in 12 months through August, outstanding loans jumped 16.8%, driven mainly by the rise in credit to individuals, the central bank said.

This has occurred despite policymakers’ strong monetary tightening to curb inflation, which has put the benchmark interest at 13.75% from a 2% record low in March 2021.

In a rate-setting meeting in the end of september, the central bank paused its tightening cycle but stressed hikes could be resumed if disinflation does not happen as expected.

In August, bank lending spreads rose to 28.3 percentage points from 27.5 points in July, to the highest level since February 2020.

A broad measure of Brazilian consumer and business default ratios increased to 3.9% from 3.8% the month before.

Original Story: Nasdaq |Marcela Ayres/ Reuters
 Edition: Prime Yield

Rio de Janeiro

Delinquency hits new record and reaches 67.9 million Brazilians, says Serasa

The number of people in arrears in Brazil has again hit a record high. According to data from Serasa Experian, the country recorded 67.9 million defaulters in August, the highest figure since the survey began in 2016.

This represents a rise of 300,000 people compared to the previous month, or 0.5% in percentage terms.

The institution points out, however, that the month recorded a high number of debt negotiations, which reached 2.8 million debts – this is 22% more than in July, which gave a brake on the growth of arrears in the country.

“As Brazilians are on a tight monthly budget, debt negotiation with hire purchases was a solution sought to increase the number of regularization of debts, which in fact occurred,” he continues.

According to Serasa, the month had the second highest volume of renegotiations, second only to March. That month, there was the Feirão Limpa Nome Emergencial, which renegotiated more than 3.7 million contracts.

Banks and credit cards continue to account for the majority of debts, 28.8% of the total. Then come the basic bills such as water, electricity and gas, with 22.1%. In third place is the financial sector, with 13.8% of the total.

In the breakdown by region, São Paulo led the number of defaulters, with 16,072,592. At the other end, Roraima was the state with the fewest defaulters, 214,557.

Original Story: G1 Globo | G1
Photo:Photo by Bruno Leiva in
Edition and translation: Prime Yield 

Investment banks in Brazil focus on debt in the short-term

Investment banks in Brazil are focusing on debt issuance through the third quarter, an area that kept strong activity even with higher interest rates.

Felipe Thut, director at Bradesco BBI, the investment bank controlled by Banco Bradesco, expects total local debt issuance to reach around R$ 430 billion reais this year. Between January and August, issuance rose 30% over the same period last year. “The current volume of debt issued in reais is around double of 2020 levels, even with much higher interest rates than we had at the time”, Thut added.

Local fixed income issues represented 96% of capital markets activity in Brazil in August, according to industry group Anbima, even as benchmark interest rate Selic reached 13.75%, up from a record low of 2% in 2020.

Equity issuance volume is down 53.5% in dollars this year and M&A deals volume is also 31% lower than the same period a year ago, according to Refinitiv data. Uncertainties related to the presidential election are weighing on deals, as well as volatility in global interest rates.

Large local inflows into fixed exchange portfolios are fueling demand for private debt, Thut added. Fixed income funds received net inflows of R$ 309 billion in the 18 months through July.

Another factor is this year’s growth higher than expected, making companies issue debt to finance expansion, Thut said.

Tax-exempt bonds for infrastructure, real estate or agriculture businesses have lower costs and have been the first choice for companies, approaching R$ 20 billion in the first five months of 2022.

The executive believes the volume of equity issues, specially initial public offerings, may rise again once it becomes clear when the Brazilian central bank may begin to reduce interest rates. Brazil posted deflation last month as fuel prices fell.  

So far this year, there were no IPOs in Brazil, but 18 follow-on offerings. Last year there were 78 transactions, including 46 IPOs, according to Refinitiv data. Thut said Bradesco BBI will not make any changes in the team this year, as the bank expects a recovery on equity capital markets on the medium term.

Original Story: Reuters |Tatiana Bautzer 
Photo: Photo by Bruno Neves in
Edition: Prime Yield

After “aggressive” hikes, Brazil Central Bank must stay vigilant, says head

Brazil’s central bank has been “quite aggressive” in raising interest rates, with much of that policy shift still to impact the economy, its head said, cautioning that policymakers could however not afford to “let their guard down.”

Roberto Campos Neto, speaking at event hosted by investment firm 1618 Investimentos, also noted that, while Brazil’s latest inflation figure came in above expectations, markets were not anticipating more rate hikes.

Brazilian consumer prices fell 0.73% in the month to mid-August. Inflation decelerated to 9.6% over 12 months, still far above the central bank’s target of 3.5% plus or minus 1.5 percentage points.  

“We think we cannot let our guard down,” Campos Neto said. “In this last inflation number, food still came much higher than we expected, we have some inflation components that we expected would slow down more quickly.”

The central bank has hiked interest rates to 13.75% from a record low of 2% in March 2021, but given signs that it will stop its tightening at its next rate-setting meeting in September.  

Campos Neto, who recently predicted inflation would be 6.5% this year, said it was important to emphasize that the central bank remained “vigilant.”

He acknowledged that much of the inflationary slowdown for this year comes from government measures after Congress passed tax cuts on key consumables including energy and fuel.

Part of the measures will expire this year, but President Jair Bolsonaro, seeking re-election in October, has already promised their renewal in 2023. Campos Neto said it was necessary to see which measures would continue next year and what the fiscal impact would be.

He added that market expectations for inflation in 2023 and 2024 had begun to settle and would fall “at some point.”

Original Story: Reuters | Marcela Ayres 
Edition: Prime Yield

Santander Brazil to make R$1 billion available in lending to SME’s through a BNDES programme

On Wednesday 24 August, Santander Brazil commenced an emergency facility, the FGI PEAC (Fundo Garantidor para Investimentos do Programa Emergencial de Acesso a Crédito — Emergency Access to Credit Programme Investment Guarantee Fund), intended for individual microentrepreneurs and small- and medium-sized enterprises, via an initiative by BNDES (the Brazilian Development Bank). The resumption of the programme, which aims to stimulate lending through secured guarantees to financial institutions, gives businesses with a yearly turnover of up to R$300 million the green light to apply for a loan with Santander. This time around, the Bank plans to pay out R$1 billion in lending through the Brazilian Federal Government’s programme.

The bank’s corporate customers must apply for this facility exclusively through branches. The sums range from R$1000 to R$10 million, depending on the size of the business, which will be able to use this financial stimulus for rebalancing cash flow, for working capital or for carrying out investments in the business. Payment  terms range up to 60 months (five years) and the average rate could reach up to 1.75% per month.

According to Alexandre Fontenelle, executive superintendent of the Corporate segment at Santander Brazil, the BNDES emergency programme is very alluring for micro-, small- and medium-sized entrepreneurs, and it is also very beneficial to businesses in need of financial respite. The programme serves as a two-way street, since it’s a way for banks with below-average default rates on this facility to increase their appetite for extending credit. 

There is a very precise compromise to be had between product pricing and customer risk analysis, among other requirements guaranteeing the programme’s sustainability“, concludes Fontenelle.

Original Story: Santander BR | PR
Photo: Santander
Edition: Prime Yield

Bradesco results above expected; market monitors NPLs

Bradesco reported a better-than-expected result – and marked by mixed performances in its various business lines. 

The bank posted a R$ 7 billion profit in the second quarter, up 11.4%, with strong growth in the margin with clients, tariffs and insurance.  

These lines more than offset the drop in the margin of treasury operations – which was negative by R$ 587 million, pressured by the Selic rate – and the 10% increase in expenses with PDD, due to the return of default to historical levels and the growth of credit lines of higher return and, therefore, more risk.

The bank’s ROE was 18.1% in the quarter, compared with 18% in 1Q22. 

Service revenues grew 6.7% to R$9 billion, benefiting from the strong performance in cards, which recorded a 46% year-on-year growth in the base. In personal loans, the increase was 20.9%.  

The bank’s growth in riskier lines of credit drew attention. “‘Bradesco’ and ‘aggressiveness’ are rarely in the same sentence,” said one manager. 

The NPL ratio for 15-90 days remained stable at 3.6%; and NPL above 90 days came out from 3.2% to 3.5%.  

At Citi and JP Morgan, analysts highlighted that the 30 basis points rise in NPL over 90 days was ‘helped’ by the sale of a R$2 billion credit portfolio – without this sale, the rise would have been 60 points. 

“We believe the continued deterioration in asset quality is the main concern, and the second quarter brought no relief on this issue,” wrote Citi’s Rafael Frade.  

For BTG, given the market’s low expectations for Bradesco’s results, the poor performance of the stock in the year and the scenario of a possible end to the Selic hike cycle, the stock could react well to the result. 

 “There were things to like and others not so much, but overall, the quarter came in as expected,” wrote analysts Eduardo Rosman, Ricardo Buchpiguel and Thiago Paura. 

Original Story: Brazil Journal | Anna Paula Ragazzi 
Photo: Bradesco Linked IN
Edition & Translation: Prime Yield

Banco do Brasil has already disbursed R$ 1.6 million in credit through WhatsApp

There are more than 23 million attendances in the last 90 days in BB’s virtual assistants

Banco do Brasil (BB) reported that more than R$ 1.6 million in personal credit has already been contracted through WhatsApp, with a hiring journey entirely within the conversation with the virtual assistant of BB.

Banco do Brasil is the first to offer the solution, which was extended to the entire public from June 2nd. With the expansion of products and services on the social network, now Banco do Brasil clients can take out personal loans directly through the messenger.

To simulate, check the conditions – such as maturity date, amount of installments, contracting date – and contract the operation, the customer just needs to start a conversation with the number 61 4004-0001.

The solution is not exclusive to new contracts. Customers who already have a loan contracted can also follow the statement of their operations by WhatsApp. By the end of this year, the offer of personal credit products will be expanded to include consigned credit, income tax refund anticipation credit, 13th salary credit and vehicle credit.

The credit offer meets a demand from customers. According to BB, more than 23 million calls were made in the last 90 days on the bank’s virtual assistants.

Original Story: Correio Braziliense | Fernanda Strickland
Edition & Translation: Prime Yield

Credit card interest rises for fifth month in a row

A survey by the National Association of Finance, Administration and Accounting Executives shows that the annual rate reaches 371.25%.

Credit card interest rates in Brazil rose for the fifth month in a row, standing at 13.79% in May. The 0.8% increase applied to the rate last month is the highest since June 2018. The rate reaches 371.25% per year, according to data from the National Association of Finance, Administration and Accounting Executives (ANEFAC).

The rise also occurred with the overdraft check, which had annual interest of 150.14%, recorded last month. ANEFAC warns of an even more pessimistic scenario in the coming months.

The researchers responsible for the study predict the maintenance of high costs for short-term credit in the face of an economic environment of greater risk, combined with an increase in the number of defaulters and the Selic rate.

For the executive director of Studies and Economic Research of the association, Miguel José Ribeiro de Oliveira, care must be taken not to acquire debt at this time. “High inflation corrupting family income, high interest rates making credit more difficult and expensive, more selective banks and extremely high unemployment.

Original Story: CNN Brasil | Rayane Rocha / Thayana Araújo 
Photo: Photo by Wundelman in FreeImages
Translation & Edition: Prime Yield

Brazil raises key rate by 50 points, signals more to come

Brazil’s central bank raised its key interest rate by half a percentage point and signaled a hike of equal or smaller magnitude for its next meeting, as policy makers juggle above-target inflation expectations and waning economic growth.

The bank’s board lifted the Selic to 13.25% on June 15th as expected by 39 of 41 analysts in a Bloomberg survey. The other two saw a larger boost of 75 basis points. Policy makers have added 11.25 percentage points to rates since March 2021.

“For its next meeting, the Committee foresees a new adjustment, of the same or lower magnitude,” policy makers said in a statement accompanying their decision.  “The Committee stresses that the growing uncertainty of the current scenario, coupled with the advanced stage of the current monetary policy cycle, and its impacts yet to be observed, require additional caution in its actions.” 

The central bank, led by Roberto Campos Neto, is grappling with more expensive food and energy, which have kept annual inflation above 10% since September. While economic growth remains subdued and price increases eased in May, forecasts for the next few years are still above target. Policy makers must also weigh congressional proposals that would lower fuel costs this year but add to inflationary pressures in 2023.

“The overall outlook remains difficult,” Lucas Vilela, an economist at Credit Suisse, said before the decision. Inflation expectations will likely plateau in coming months as policy makers gradually shift their focus to 2024, he said.

Brazil’s rate hike came hours after the Federal Reserve raised its key rate by 75 basis points — the biggest increase since 1994 — and Chair Jerome Powell said officials could move by that much again next month or deliver a smaller half-point boost. In Latin America, Mexico’s central bank is mulling a record rate increase of 75 basis points at its June 23 policy meeting.

Inflation is one of President Jair Bolsonaro’s main headaches as he runs for re-election in October, with Brazilians increasingly blaming him for spikes in the cost of living. In a bid to cushion the blow, his government is asking supermarkets to hold down prices, besides pushing legislation that would reduce fuel taxes. 

Annual inflation stood at 11.73% in May, well above targets of 3.5% for this year and 3.25% for 2023.

Policy makers have expressed concern that higher rates will be a drag on growth. Brazil’s gross domestic product expanded less than expected in the first quarter in what was likely the high-water mark for activity this year.

Outstanding consumer debt remains at record levels with analysts warning about rising default rates. Unemployment is sliding but informality is high and wage increases have failed to make up for lost purchasing power.

Original Story: Bloomberg News | Maria Eloisa Capurro
Photo: Photo by Svilen Milev in FreeImages
Translation & Edition: Prime Yield

UBS: Brazil’s banks may be ahead in credit cycle in Latin America

Latin American peers have recently shown worsening defaults; in Brazil the trend has been going on since 2020

Brazilian banks may be a few steps ahead of their Latin American peers in the credit cycle, assesses UBS BB. According to analysts Thiago Batista and Olavo Arthuzo, institutions in Mexico and the Andean countries have only started to show a worsening in defaults in recent quarters, while in Brazil this trend began in late 2020.

“This trend (of worsening) is clearer when we assess the quarterly data, whose numbers for Brazilian banks seem to potentially indicate that they are ahead of their regional peers in the credit cycle,” they said in a report sent to clients.

UBS calculated the average default rate for the largest banks it covers in Brazil, Mexico and Chile and Colombia. The Andean countries have the highest rate, at 3.1%, but the Brazilians, who come soon after at 2.9%, have been seeing an increase for longer. From the country, Itaú Unibanco, Bradesco and Santander Brasil were included. In Mexican banks, the average default rate is 1.8%.

The institution points out that throughout 2020 the large local banks considerably increased their coverage rates against possible defaults, but the default data fell. “Aside from differences in methodology between the banks we cover, it is remarkable how Brazilian retail banks had an artificial improvement in defaults in 2020″, UBS underlines.

That improvement, the house points out, came with government credit programs, bank-led renegotiations and other initiatives, most of which have now closed.

A worsening in defaults is expected by UBS analysts for Latin America as a whole. The bank predicts a gradual deterioration as a combination of riskier credit portfolios and high inflation erodes purchasing power and income.

According to the bank, Mexican banks have been more conservative in setting aside provisions over the last ten years. Brazilian banks should be the most exposed to risk, given that in the first quarter of this year 41% of their portfolios were loans to individuals, the highest volume in a decade. Colombian and Chilean banks, by this metric, have the least risky portfolios.

Original Story: E.Investidor Estadão | Matheus Piovesana 
Photo by Cesar Fermino in
Translation & Edition: Prime Yield

Banco do Brasil will release over R$ 6 billion in credit for micro and small entrepreneurs

President of BB says there are currently more than R$ 210 billion to lend to these entrepreneurs

The president of Banco do Brasil (BB), Fausto de Andrade Ribeiro, revealed that the financial institution will make another R$ 6 billion in loans available to Brazilian micro and small entrepreneurs.

“We will announce R$ 6 billion in Fampe (Micro and Small Business Guarantee Fund),” he said during a ceremony at the Planalto Palace to announce new measures of the Credit Brazil Entrepreneur program.

Ribeiro said that the BB currently has more than R$210 billion to lend to micro and small businesses.

Original Story:  Valor Globo | Estevão Taiar, Fabio Murakawa 
Photo: Banco do Brasil website
Edition & Translation: Prime Yield