Sleepless nights are in store for bankers at Brazil’s leading private banks since the country’s powerful public banks promised to take an axe to lending rates last week. Rates could come down by as much as 88% in some cases, said one public bank.
The announcement grabbed headlines across Brazil at the end of last week. Some popular papers trumpeted the news on the cover, underlining its importance to middle class Brazilians who have been loading up with debt.
Over the last couple of years, high rates have become such a totemic issue in Brazil that the Central Bank regularly publishes comparative data on interest charges and consumer watchdogs, such as Instituto de Defesa do Consumidor (Idec) publish surveys and recommend consumers shop around.
The new government is raring to maintain growth and is not afraid to use all the levers in its power to try to reach the high target of 4% this year. Lula did the same in 2009 but it’s important to note that he was not so aggressive and forced the issue at a more precarious economic time.
The question is just how much the private banks dole out. They have improved service substantially but are still slow and lumbering compared to private banks. It also remains to be seen just how available, cheap and easy these lines will be for small companies and individuals as the government tends to smile on larger companies.
Private Brazilian banks are nevertheless rattled and share prices have been falling in recent days. For years, they have been doing very nicely, thank you very much, with rates that can comfortably exceed 100% for individuals. Now the cosy relationships have been challenged once again.