A stable economy have fuelled a credit boom

Banco do Brasil: today Latin America: tomorrow, the world?

Alamy Just a few years ago, the average Brazilian would never have dreamt of borrowing from a bank. Loan rates were sky-high and what mortgage money there was available was offered to customers on unmanageably short terms of just a few years.

But a prolonged period of interest rate cuts have taken the country’s benchmark Selic lending rate down to 11.25% and sparked a surge in demand for consumer credit. With inflation running at more than 4%, real interest rates in Brazil are still the highest in Latin America. And consumers can only dream of obtaining cash at 11.25%; in reality, banks charge customers anything from 35% a year to 100%-plus on unsecured loans.

Canny consumers have found one way round that, however. One of the biggest growth areas is car loans, which accounted for around a third of personal lending in Brazil last year. Rates on auto loans are far more competitive, at under 20% a year, and manufacturers offer long terms and low down-payments. Thus it is not uncommon for Brazilians to sell their cars to raise cash to fund other purchases and then simply take advantage of a cheap loan to buy a new car. In Brazil’s boom-bust years, banks would simply not risk lending to consumers.
But recent legal changes have been fuelling the demand for credit, and have helped create a new market in loans deducted direct from payrolls. This has opened up the credit market to the poor, with the bulk of payroll loans taken out by low-earners. Other changes have brought in faster bankruptcy proceedings and asset recovery process.

There is a cultural change too, believes Carlos Jeireissati, chief executive of the real estate developer Iguatemi, which specializes in shopping centers. He recalls a meeting with some Spanish businessmen: “All of them had either one or two mortgages. Among the Brazilians present, none of us had credit. This happened six months ago.” Brazilians have historically had an aversion to debt, he says. “We have always looked at debt as something over which we have no control. “Now this is changing. Regardless of the interest rate, because there is more predictability, credit has started to enter the life of Brazilians.”

São Paulo state savings bank Nossa Caixa, one of the largest financial institutions in Brazil, plans to increase loans to individuals by more than a third this year and to up its lending to businesses by 50%. Nossa Caixa is controlled by the government but its shares are now quoted on the stock market, which chief executive Milton Luiz de Melo Santos believes is vital to its continued development. The visibility and accountability brought by the bank’s share float has made it more competitive and also helps it resist political interference from “congressmen, mayors and government officials generally,” he says.

The bank is accountable to its shareholders, which gives it more control: “I have more arguments to say ‘no’,” he says. Despite the recent boom in lending, bank loans in Brazil still equate to little more than a third of the country’s gross domestic product, well behind levels in developed countries. Mortgage lending equates to just 2% of the country’s GDP, leaving plenty of room for growth.

At Banco do Brasil, vice-president Jose Maria Rabelo is keenly aware that the banking sector has a long way to go before it can compete effectively with the rest of the world. The main challenge, he says, is scale: “We are the biggest bank in Brazil and in Latin America, but when compared with the biggest banks, the leaders in the world, we are small.”

Published by The Guardian

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