Latin Finance - July/August 2012 - 25

Brazilian banking

but these only cover loans originated at about the composition of debt too. The optimistic about the speed of economic a branch by clients earning more than rapid growth of credit among lower recovery in the past. R$7,000 ($3,350) per month so while income consumers, who have least Given the government measures to there has been a 200% increase in this experience with debt servicing, and the stimulate credit, attention is focused on lending, these loans represents less than high cost of credit that can quickly lead to how the two big public banks will react. 1% of total loans, he notes. problem loans. Banco do Brasil has a 15% market share Both banks need to worry how Debts servicing account for 32% of in consumer loans excluding payroll a large increase in loans will affect income among lower income consumers, loans and Caixa Econômica Federal capital ratios as Brazil heads towards JGP found in studies. “Private sector (Caixa) holds a little less than 5% when implementation of Basel III with an 11% banks will not lend more until these rates mortgages are stripped out, says Pierry. have started to come under control,” he He predicts that public sector loan growth total capital ratio required next year and 13% by 2017. Car loans have been badly predicts. affected by high levels of delinquency Maria Gonçalves, an analyst at Fitch and May sales were down nearly 10% Ratings, agrees: “Worsening credit trends year-on-year at 287,590 units, prompting and write-downs are likely to continue, measures to prime the car market. especially if the economic recovery is The technical ability of Caixa to slower than expected or if unemployment grow lending will prove slow as the rises,” she says. bank is less efficient than either Banco Vansetti-Hutchins notes that in some do Brasil or private sector banks. “Caixa asset classes, the picture is even worse. serves a niche population and we don’t Delinquencies in car loans have doubled see a big migration of clients. Brazil and it is difficult to believe that banks has very poor mobility with clients will go back to the same offers on car Celina Vansetti-Hutchins, usually proving loyal to their bank,” says loans as they provided in 2009-2010 even Moody’s Vansetti-Hutchins. without the government stimulus. “Those Despite all the gloom hanging generous terms and conditions are over,” over the banking sector, Brazilian she believes. banks continue to be some of the most Moreover, Brazilian consumers will come in at about 25% and private profitable in the world. They generate continue to pay through the nose for banks loan growth at less than 10%. the kind of returns that US banks dream loans. Even though the average rate on Early data since government stimulus loans has continued to dip, the average measures were enacted show loan growth about, points out Plinio Chapchap, a partner at EagleIN Investimentos in São was still an astronomical 35.3% in April, increases of 1.9% from public sector Paulo. Moreover, reserves continue to be according to the central bank. banks in April compared to 0.7% for high and banks tightly regulated, while Analysts are now turning their private sector banks over March while attention to what measures the Brazilian Caixa’s credit to consumers has increased larger banks are already well diversified with substantial asset management government may resort to next to 40% since the third quarter. businesses and large insurance arms. maintain credit growth. They could Of the two, Banco do Brasil has been That will help protect them in this include lower reserve requirements or the more disciplined, say analysts. Caixa more turbulent atmosphere and many tax benefits for the refinancing of debt. is more aggressive while Banco do Brasil continue, to be significant investors in “That might create a negative loop,” says is behaving rationally, says Pierry. As an Vansetti. “A bunch of over-leveraged example, he says that Banco do Brasil has the sector. Still, the golden age for Brazilian consumers might look to borrow more as been offering lower rates on car loans, banks is drawing to a close. rates become more attractive,” “Banks are seeing conditions she predicts. What goes up... that are negative,” says Hopes are pinned on a big Brazilian banks’ customer interest rates, % y/y Vansetti-Hutchins. “Higher improvement in delinquencies Month Corporate entity Individual delinquencies and lower rates in coming months. Most will reduce the yield on free analysts think that the Working capital Special check Personal credit cash and private banks face economy will start to witness January 25.97 185.91 50.30 very stiff competition from higher GDP growth rates in the February 26.05 182.83 50.60 public banks,” she says. second half which should trim A new normal of delinquency levels. If that’s the March 25.22 185.04 48.75 uncertainty and volatility case, Brazil is at the bottom April 23.04 174.14 44.66 applies to the Brazilian of the cycle, says Pierry. He May 20.47 169.45 41.41 financial sector just as it does believes, however, that he and to the rest of the world. LF other economists have been too Source: Central Bank of Brazil

“Higher delinquencies and lower rates will reduce the yield on free cash”

July/August 2012

LatinFinance 25
Latin Finance - July/August 2012

Table of Contents for the Digital Edition of Latin Finance - July/August 2012
