Defaults Should Brake Credit Growth Even with Lower Interest Rates, says Serasa

We recently wrote a piece, entitled Mantega Magic:  Opportunities for Brazilian ABS, that explored the expected negative consequences of the federal government’s program to use the balance sheets of public banks to reduce credit spreads for loans in Brazil.  Our main concern was that the public banks would not be able to replace the reduction in credit from the private banks.  This article, which we have translated from Valor Econômico, reports that Brazilian credit bureau Serasa now sees evidence that banks are cutting back on debt issuance to the consumer as spreads tighten in the face of raising defaults.


Translated from Valor Econômico
May 4, 2012

SAO PAULO – Defaults should curb consumer credit in the coming months even with the drop in interest rates, according to the prediction of Serasa Experian. The indicator that measures the company’s prediction for lending in the six months ahead declined 0.4% in March, reaching the 100.1 level.

Serasa reiterated that default leads to greater selectivity in lending between financial institutions. Moreover, the rise in household debt decreases the space in the budget for the consumer to take on new debt.

According to Serasa’s analysis, the new lending for consumer credit should evolve throughout 2012, but at a slower pace than in 2011.

“The recent interest rate cuts announced by several financial institutions should not produce a significant acceleration of loans to individuals,” the company said in a statement, which notes that the default level is still high.

In the city of São Paulo, for example, the percentage of families with delinquent accounts reached 21.8% in April, its highest since September 2007, when it marked 23.5%, according to a survey of the Federation of Trade in Goods, Services and Tourism of the State of São Paulo (FecomercioSP), also published today.

With regard to companies, the picture is a little better. The indicator that measures the Serasa credit outlook for this segment increased 0.1% in March 2012, to 98.4.

Since the indicator predicts the movement of lending to six months in advance, its elevation indicates that credit to businesses should react more intensely  to the economic stimulus during the second half of this year (Translators note: government stimulus should kick in full gear for businesses in the second half).

“The expansion of fiscal incentives, the prospects for gradual improvement in the international financial picture, and the further reduction of the Selic rate should boost business demand for credit, especially during the second half of 2012,” says Serasa.

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