Brazilian banks are getting sharply more cautious on credit and drawing in their horns. Surprisingly, they seem to have even turned more cautious on the safest segments such as payroll deducted loans, which has been such a driver for specialist and large banks. Loans in this area dropped by 19.2% in January compared to December and many banks are slashing the length of loans too. Other banks are using the exit of their rivals to charge their clients more, leading to higher spreads. Worryingly, consumers seem to be responding by taking much more expensive credit, such as the notorious cheque especial for which rates are typically above 100% per annum, rather than stopping their credit binge. We're not looking at a credit crisis in Brazil but there are clear signs of a cooling down.
Banks say that the new caution is a response to government reserve requirement measures and the drop off in Jaunary is only to be expected as December numbers are clearly distorted by Christmas shopping. It does suggest, however, a new nervousness on their part and uncertainty over the direction of the economy. The govenrment is clearly trying to get control of inflation through higher interest rates and reserve requirements and is contemplating taxes on international capital raising.
This all begs the question: Is Brazil heading for a soft landing where credit merely gently moderates and picks back up again as the year goes on? Or could this spell a more fundamental and longer-term shift by banks. And does that undermine the Brazilian consumer growth story?