Brazil Credit Review Second Quarter 2011

Review of Brazilian Credit Markets Second Quarter 2011

Report Summary

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  • April 5th, Fitch upgraded Brazil from BBB- to BBB. Fitch praised newly elected President Rousseff’s efforts to control spending and address inflation concerns.
  • On June 20th, Moody’s upgraded Brazil’s sovereign to Baa2 from Baa3. As reported by Dow Jones, based on an interview with Moody’s Mauro Leos, the agency feels that the country is pledged to fiscal responsibility. Leos also pointed out that the country will face a strong currency for the foreseeable future and the country needs to control spending and contain recent worrisome increases in inflation.
  • Many analysts have expressed concerns with Brazil’s financial situation. They cite the lack of investment and dependence on exports of commodities to finance a voracious appetite for imports.
  • The level of debt to GDP hit 47% and Brazilian consumers spend on average about 25% of their income to finance their debt load: this compares to a debt load of 16% of income per person in the United States.
  • According to Central Bank of Brazil data, issuance of consumer credit grew 15.3% for the year ended June 2011 and outstanding balances grew 22.46% for the same period. Outstanding balances of consumer vehicle loans grew 42.1% over the past year.
  • Payments over ninety days past due climbed to 26.3% of the balance for credit card portfolios and 13.2% of the balances on loans for purchases goods at stores (credit issued by the stores).
  • Serasa/Experian’s measure of late payments on consumer debt issued by non-bank finance companies is growing dramatically.
  • LatAm Structured Finance’s macroeconomic model to predict the level of non-performing loans in bank portfolios is predicting a 50% increase in non-performing consumer debt and a 65% increase in non-performing business debt in the first half of 2012 if economic growth (as measured by industrial production) does not grow over the period.
  • Credit quality on business loans is stable for the time being, but showing some signs of weakness.
  • Brazilian banks have strong balance sheets, but can they hold off contagion from a small piece of the debt market that is likely to experience very high default rates.

For a full report, download here

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