Brazil’s PIX a threat to credit cards, but a boon for banks

The market for credit cards and debit cards is going to get smaller in Brazil, as PIX, the country’s instant payment system, expands its reach and features. 

Launched in November 2020 by the Brazilian Central Bank (BCB) to foster competition in financial services, PIX became so popular that, by the end of last year, 77% of the Brazilian population had used it. 

The central bank is also studying new functionalities such as PIX International and PIX Automatico, with the latter to be launched next year to facilitate recurring payments.

While credit cards are growing alongside electronic payment systems in the country, they are losing ground to PIX. 

The first quarter of this year was the first where the number of PIX transactions surpassed those made with credit and debit cards combined. PIX transactions for the first quarter of 2023 totalled 8.1 billion, versus 4.2 billion credit card and 3.8 billion debit card transactions, according to BCB data. 

Challenges for card networks

PIX Garantido, also known as PIX Credit, another modality in the making, could represent the coup de grâce for credit cards as it will enable payments by instalment without the use of one.

This makes the solution especially attractive for the segments of the population that cannot afford credit cards. 

“Brazil is on the verge of a potential revolution in payments as people will no longer need credit cards to do instalment purchases,” says Carlos Scharfstein, partner at Stocche Forbes Advogados.

“When you use a credit card, you are paying fees to at least three service providers. PIX is a system created by the government that is free and that can do the same thing. It means that credit card companies and related businesses, such as credit card machine readers [so-called ‘POS machines’] may suffer and will have to reinvent their business model. And if you take a look at the stock market, you’ll see how the companies that rely very heavily on the use of credit cards are suffering,” says Mr Scharfstein.

Therefore, “MasterCard and Visa are presenting themselves more and more as technology companies instead of credit card networks”, Mr Scharfstein remarks.

Despite this, it seems card schemes do not realise what is happening, “because they’re increasing fees and coming up with new ones”,  says Ralf Germer, CEO and co-founder of payments platform PagBrasil.

PIX makes banks stronger

Banks have proved to be more resilient to PIX’s success despite initial woes. 

When PIX was launched, Brazil’s banks worried about losing all of their revenues from transfers. “But now, most payments go through banks,” says Mr Germer. 

For instalment purchases, the banks where the PIX key for the transaction is registered will guarantee the payout to the merchant in advance. As a result, lenders charge fees to merchants in exchange, to cover the risk. This means PIX Credit will bring additional revenue streams from payments to banks, says Mr Germer.

The larger revenue stream of banks doesn’t come from the use of credit cards, but rather credit itself, explains Mr Scharfstein.

A lot of challenger banks and neobanks in Brazil — such as BS2, Neon, Original, Next and Nubank — among others, started with the belief that they could build a sustainable business model by only offering credit and debit cards to low-income customers. 

After four or five years, they came to the conclusion that such a proposition was not feasible, Mr Scharfstein adds, and they either changed their business model or broadened their services to rely more heavily on credit and other services not related to payments. 

Meanwhile, some banks have already leveraged the open-source technology of PIX to release their own versions of PIX credit, which are often referred to as PIX Parcelado: literally “PIX in instalments”.

Original Story: The Banker | Barbara Pianese 
Photo:Deposit Photos
Edition: Prime Yield

Caixa’s default rate is the lowest among large banks thanks to Desenrola programme

Caixa’s default rate fell to 2.59% in October, from 2.67% in September. According to the institution, it reached the lowest level among the country’s big banks. The drop was greater, of 0.24 percentage points, compared to August, when the index reached 2.83%.

According to the bank’s vice-president of risk, Henriete Bernabé, one of the factors behind the drop is Desenrola Brasil. She said in a statement that the programme encouraged customers to seek out Caixa to renegotiate debts, regardless of whether they fit the Desenrola criteria or not.

She also says that the bank’s own renegotiation programmes, such as Tudo em Dia, and the evolution of collection processes have also influenced the movement. “Caixa has very attractive conditions for renegotiating defaulted loans in general. Discounts can reach 95 per cent,” he adds.

According to the bank, the total credit portfolio closed October at R$1.1 trillion, with more than R$700 billion in property loans.

According to Caixa, the reduction in the delinquency rate is despite the fact that credit has continued to be granted, which is different to the market trend. The institution said that it “endeavours to offer credit with conditions suited to the client’s profile and with the best market rates. This favours default,” according to Henriete.

Caixa’s expectation is that the default rate will continue to fall. For the vice-president, the trend for 2024 is positive.

“Considering the expectation of a reduction in the Selic rate, added to the control of the inflation index, the reduction in the unemployment rate and also a possible increase in jobs with the direct and indirect generation of jobs, through the Minha Casa Minha Vida and Novo PAC programmes, an improvement in families’ financial conditions is expected,” she said in the note.

Original Story: Valor Investe | Staff
Photo: Caixa building
Edition and translation: Prime Yield

Survey shows that 13% of Brazilian can’t pay basic bills

Research carried out by Serasa and Flexpag on the profile of profile of Brazilian indebtedness in 2023 shows that 13 per cent of people in debt in Brazil are unable to pay basic bills such as bills such as electricity, water or gas. Eight out of ten have reduced their consumption of these services, which appear among the three biggest expenses for another year, accounting for 24 per cent of the household budget, behind supermarkets (34 per cent in recent years and 33 per cent in the last 12 months) and credit cards (with 26 per cent and 29 per cent respectively), respectively).

In the online survey carried out in October, in partnership with the Opinion Box research institute, 11,541 people aged 18 and over were interviewed who are included in Serasa’s database of defaulters throughout Brazil. For 53 per cent of those interviewed, spending on basic bills takes up the biggest chunk of their monthly budget.

In 82% of cases, the value of the bills is up to R$750. Among those interviewed, 83% said they had already delayed other bills in order to prioritise paying for water, electricity or gas. A further 61 per cent have borrowed money from friends and family to pay a bill; 49 per cent have already taken out a loan and 45 per cent have had their supply cut off due to arrears.

Original Story: Canal Energia | Sueli Montenegro 
Photo:Photo by Cesar Fermino on FreeImages
Edition and translation: Prime Yield

Rio de Janeiro

Brazilian credit market slows down but it’s healthier

Confirming An expected scenario, the Central Bank’s financial stability report shows that the risk appetite of financial institutions fell in the first half of the year, as well as the supply of credit to families and companies, as a result of the restrictive monetary policy and the increase in default rates.

Banks also increased their provisions, which, while contributing to the resilience of the Brazilian system, led to a slowdown in their portfolio profitability by 6 percent in the 12 months through June. “The good news is that financial institutions are improving their credit analyses and, consequently, the quality of their portfolios”, said Central Bank’s oversight director, Aílton Aquino.

While the growth of real estate and payroll credit lines remained more or less stable for individuals, the active credit card portfolio has slowed sharply due to the bank’s more conservative approach, from around 30 percent per year in December 2022 to 15 percent in June. As a result, credit card stock also slowed, reaching BRL 505 billion – around 2 percent growth from December last year, compared to a 26 percent increase between the previous half-year periods.

Amid the heated debate over the need for congressionally mandated regulations on revolving credit by January 2024, data from the Central Bank’s report shows how much credit cards have weighed on family budgets, especially in the post-pandemic period. The burden of credit cards on personal income rose from 23.6 percent in 2019 to 30.7 percent last June. “We clearly see that credit cards have taken an important share of families’ income. It is not surprising that the current discussion on article 28 of the law that created Desenrola, the federal government’s debt renegotiation program, says that the market needs to find a solution to revolving credit interest rates,” Mr. Aquino commented.

In the case of companies, there was also a decline in new lending but an improvement in the share of “problem assets” — those overdue more than 90 days — except for micro and small enterprise, segments where problem assets accounted for 16 percent and 12 percent of the total in June, respectively. “This is a warning sign for the system as the high indebtedness of these firms continues to manifest itself in the materialization of credit risk and there is no sign of this changing in the short term,” Mr. Aquino warned. In the report, the Central Bank reiterated that it does not see any risks for the Brazilian financial system related to the increase in Fed interest rates in the U.S., or other external factors. Capitalization levels, liquidity, and provisions — well above the risk of individual and corporate loan portfolios — are adequate, “putting the Brazilian financial system in a comfortable position to face more extreme situations,” Mr. Aquino said. 

For Mr. Aquino, Brazil is prepared for any shock. “Stress tests have shown the robustness of our system.” According to him, because of the Brazilian market’s low exposure to external financing (15 percent), any adverse scenario in which institutions and companies find it more difficult to raise funds abroad would not have a significant impact on the system as a whole.

Original Story: The Brazilian Report | Fabiene Ziolla Menezes
Photo: Photo by Bruno Leiva in
 Edition and translation: Prime Yield

Brazil’s bank lending up 0.8% in September but continues do decelerate over 12 months

Outstanding loans in Brazil rose 0.8% in September from the month before to 5.576 trillion reais, according to central bank data.

The 12-month growth rate of bank credit slowed down to 8%, down from 9% in August, marking a continued trend of deceleration amid elevated borrowing costs.

In the last week of October, central bank reduced interest rates by 50 basis points for the third consecutive time, bringing them to 12.25%. The bank kicked off an easing cycle in August, following nearly a year of maintaining rates unchanged at cycle-high levels in its battle against inflation.

In the minutes of its policy decision, the central bank said that the deceleration in credit extension aligns with the current monetary policy stance, with corporate credit granting experiencing a more pronounced slowdown.

“Household credit, in turn, shows lower deceleration and a recovery favoring low-cost modalities,” it said.

A broad default ratio for both Brazilian consumers and businesses in non-earmarked credit remained stable at 4.9% for the month.

Lending spreads fell to 32.0 percentage points in September from 32.3 percentage in August.

Original Story: Yahoo Finance | Reuter
Photo:Photo by BrunoNeves in FreeImages
Edition: Prime Yield

Debts on basic utility bills hit record high

According to data from Serasa’s Default and Debt Renegotiation Map, Brazilian families are delaying payment of basic bills such as water, electricity, gas and telephone at unprecedented levels.

In August, these expenses accounted for 24.5% of the population’s debts, the highest level for this type of bill since the start of the historical series in 2019.

Also according to the report, basic water, electricity and gas bills represented significant growth among the debt segments, with an increase of 0.53 percentage points (p.p.) in August, and 2.97 p.p. since the beginning of this year.

Original story: Contec |News 
Photo: Photo by Marcel Krings in FreeImages
Edition and translation: Prime Yield

Desenrola: Banco do Brasil reaches unprecedented volume by renegotiating more than R$10 billion in debts

Banco do Brasil (BBAS3) has surpassed the R$10 billion mark in renegotiations for more than 1 million people under Desenrola Brasil, a project aimed at resolving bank debts in default.

The volume is unprecedented in the organisation’s history, considering previous actions, BB president Tarciana Medeiros told Estadão.

The Desenrola programme was launched around two months ago jointly by the federal government and Brazilian banks. The focus of the action is precisely to reintroduce people with credit restrictions into the economy. “Desenrola is a case of joint construction, of how public-private partnerships can work very well,” added BB’s president.

According to the bank, of the more than one million clients who have benefited, 40,000 have been micro and small companies and have already renegotiated approximately R$2.5 billion. The figures are equivalent to the Track 2 public, whose defaulted loans are being negotiated directly with the financial institutions under special conditions to be defined by each bank.

New phase of Desenrola

The banks are now preparing for the new phase of Desenrola, which is aimed at customers with debts of up to R$5,000. These loans will have more attractive conditions for renegotiation to be defined by the Programme’s rules and adopted by all the banks that have joined Desenrola.

In BB’s case, the conglomerate has offered discounts of up to 25% on renegotiation interest rates, up to 96% on debts and payment terms of up to 120 months for the publics selected for the Programme. It also made all its physical and virtual service channels available to customers interested in the initiative.

Original Story: Infomoney | Estadão Conteúdo 
Photo: Banco do Brasil website
Edition and translation: Prime Yield

Rio de Janeiro

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.


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%.


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.


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.


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