Brazilian banks face multiple constraints

Global uncertainty and a slowing domestic economy; a government that is breathing down their neck to reduce spreads; and higher non-performing loans have been laying waste to bank share prices in Brazil.
The Brazilian economy has been trending down for months. According to the Central Bank’s latest poll of leading economists, Brazil’s economy will grow by just 2.01% this year, a figure that was revised down for the ninth consecutive time in the week starting July 9. There could be worse to come before the long-anticipated uptick towards the end of the year as manufacturing continues to be lackluster and consumer more cautious.

That much slower growth rate has the government scrambling to get some vim back in the economy. In addition to reducing rates, the government is pushing banks hard to lower spreads to reduce the overall cost of loans to consumers.
Overall, the rates charged by banks has been coming down fast although from sky-high levels. Rates on special cheques, a short-term means for individual borrowers to tide themselves over for a few months at most, have come down from an average of 186% to 169.5% per annum since the start of the year, according to official data from the Central Bank.
Will drops in spreads be enough to offset wilting consumers appetite for loans? Consumers are facing tougher times: average 90-day non-payment levels across businesses and individuals hit 6% in May, the highest level since the series began in 2000, according to Central Bank data. Individual credit defaults reached 7.98%, the highest level since November 2009 when it reached 8%.

Still, there are some key bright spots. Unemployment remains very low and loan lengths tend to be short. That should support the market and give banks some breathing space later in the year.

About admin

I've been researching and writing on Brazilian financial markets, industry and economy since 2006 for a wide range of specialist media, consultancies and investors. Before that I spent over 10 years in London and New York writing for and editing magazines and journals dedicated to finance, investment and economics in developing markets, mostly for the Euromoney Institutional Investor group and Thomson Financial. Areas of coverage Below are samples of areas that I cover and some of the common themes that I investigate. Capital markets BM&FBovespa markets *capital raising trends: via equities (IPOs and secondary issuance), debt and loans *the asset management industry: legislation and coverage of the key hedge, pension and investment funds * corporate governance: how the regulator is seeking to strengthen best practice and limitations * debt markets: the nascent corporate markets, attempts to boost liquidity and new insturments. * private equity market: why this market has been so successful, who’s involved. *electronic, high frequency trading and alternative trading platforms: what does the future hold? Banking *credit: the growth of consumer and business credit and competition between banks and models *Public versus private: the role and market share of public and private sector banks and the politicization of the industry * internationalization: which Brazilian banks are expanding overseas and where * investment banking: the growth of the domestic market and who’s winning which mandates *regional banks and development banks: what role they play in the industry and how they compete Mining *licensing: the complex process of obtaining environmental, water, land and operating licenses at a state and federal level. * capacity: the feasibility and sustainability of capacity increases * financing: how miners are raising finance in Brazil and abroad *competition: the interplay Vale, MMX and junior miners *logistics: rail, road and port connections Oil and gas: the fund raising issues related to the massive of pre-salt (link) Multilatinas: Who are they and how and where they are expanding Meatpacking: Are debt burdens sustainable, what are the different business models for areas such as branding and distrbution Agriculture: How are farms consolidating, what are environmental risks, how can foreign investors be involved. IT and software: Can Brazil take on India and build a viable long-term IT industry? For more information on clients and work, please see the media and consultancy sections.
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