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.