Brazilian banks increase reserves fearing a consumers’ credit bubble
Brazilian banks have increased their reserves by 21% to the equivalent of 67.3 billion dollars fearing a possible moratorium while consumers are facing growing problems to address payments, according to the Sunday edition of Correio Braziliense
Bank reserves against possible bad debts have increased to a higher level than back in 2008 when the housing crisis in the US caused a world shortage of credit, said the Brasilia based newspaper quoting Central bank figures.
An increase in the reference interest rates during the first eight months of 2011 put pressure on credit users, said Correio quoting economist Roberto Luis Troster from Sao Paulo Delta Consultants.
Following a strong expansion of credit in 2009 and 2010, Brazilian families are spending almost half their income to pay debts, said Correio Braziliense.
The delinquency rate of consumer credit in Brazil is above 7.3% of loans with the highest interest rates among the so called ‘A class’ consumers which are considered of lesser risk, according to the newspaper. In the private sector Brazilian owned banks increased reserves by 25% and foreign banks by 28%
Non government banks have increased their bad debts reserves to 26% in 2011, while government managed banks have done something similar but to 14%.
The Brazilian government is putting pressure on the Bank of Brazil, managed by the government and the Caixa Economica Federal to cut their credit interest rates, a measure which pretends to help expand credit and encourage private banks to follow.
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“Bad loans rates reaches lowest level in São Paulo since 2004, says Fecomercio.” colunistas.ig.com.br/guilhermebarros/2011/11/27/inadimplencia-em-sao-paulo-atinge-menor-nivel-desde-2004-diz-fecomercio/
“In January bad consumer loans drops 0.4%” www.imperiocobrancas.com.br/noticias/no-mes-de-janeiro-inadimplencia-do-consumidor-recua-04/
”Household debt levels drops in January, says CNC (...) The percentage of households with account in arrears or without the means to service debts dropped 1.3% in January, reaching 19.9% against 21.2% in the previous month.”
www.ultimoinstante.com.br/economia/nivel-atividade/62409-Endividamento-das-famlias-cai-janeiro-aponta-CNC.html#ixzz1n0QldTOG
This is counter-intuitive, and does not match the interest rates charged across the 'risk-classes' in the developed world, where higher rates are charged to the most risky prospects.
I think we need interpretative help from Forgetit.
Seems the same story here.
I'd have to read the article Mercopress mentions in order to know whether translation was accurate. Supposing it was, I'd guess that bad loans increased among sectors related to upper- or middle-class consumption, such as the car market. Perhaps those sectors are more volatile and vulnerable to the CB's monetary policy? But I think you're correct; it wasn't much long ago when people were complaining about default rates among the lower-class: traditionally, it's the poor who make the riskiest borrowers.
@GY
Credit card market has been in Brazil since... IDK, since before I was born. And it's main clientele is the A-class consumers Mercopress mentions - a groups that is not unaccostumed to credit cards and knows full well how it works.
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