Defaults in São Paulo in April are highest since 2007, says FecomercioSP

We feel that this article provides some important measures of the deteriorating credit conditions in Brazil. We are especially concerned about debt service coverage ratios in the country.  Many analysts try to compare debt owed to income or debt to GDP in Brazil to other countries.  However, we believe that the extraordinarily high interest rates in Brazil render this comparison almost useless. It is more consistent to use debt service coverage, the percent of the income that families spend to make their scheduled debt payments, as an indicator of
indebtedness in Brazil. We wrote about this extensively in our 2011 second and third quarter reviews. The following article was translated directly from Valor Econômico and reviews the
most recent statistics from the Survey of Consumer Debt and Default as published by FecomercioSP, the São Paulo office of this national business federation. It now appears that our concerns about consumer debt growth in 2011 were warranted.

Translated from Valor Econômico
May 4, 2012

SAO PAULO – Sao Paulo
The percentage of families with delinquent accounts reached 21.8% in April, its highest since September 2007, when it registered 23.5%, according to the Survey of Consumer Debt and Default, of the Federation of Trade Goods, Services and Tourism of the State of São Paulo (FecomercioSP).

In the same period last year, 14.3% of households had debt in arrears. In March, this share was 18.5%.

Among consumers with accounts in arrears in April, 46.2% have delayed for more than 90 days, 19.2% have arrears up to 30 days and 33.1% of families are in arrears between 30 and 90 days.

On the positive side, the FecomercioSP research also showed that the number of families who will not be able to afford all or part of its debt fell 4.8% in March to 3.9% in April, which represents 140,800 families.

Moreover, the total number of people indebted (with accounts in arrears and paying on time) fell from 52.2% to 50.6% between March and April, which is equivalent to 1.81 million families. According to the organization, this drop is due largely to the benefits acquired at Christmas (Translator Note: Brazilians that earn a salary get an automatic bonus equal to one month at the end of the year). The vehicle financing makes up 10.2% of household debt. According to the Central Bank (BC), the level of defaults in this segment is 5.52%, the highest since the beginning of the series in 2000.

Debt Profile

In April, 23.1% of São Paulo said they owed debts with payments scheduled for more than one year, 52.9% from three to twelve months and 20.6% for less than three months. The portion of families with monthly debt service between 11% and 50% of their income came in at 56.9%. Another 22.3% committed less than 10% of the family income and 17.2% committed more than 50%. (Translator’s note: 17.2% of families are paying more than 50% of their income to service debt – that is a big number!).

The principal means used to incur debt remains the credit card; 76.2% of São Paulo have some debt due to purchases paid in this form. The percent of debt incurred through payment booklets fell from 28.2% to 15.2%, behind the personal credit, the second most common form of debt, which stood at 19.6%.

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