Bank loans overdue for at least 90 days in Brazil rose in November to their highest in almost three years, the central bank said, as the deepest recession in decades and rising credit costs strained borrowers’ capacity to stay current on their debts.
The so-called 90-day default ratio, a benchmark for delinquencies, rose to the equivalent of 5.2% of outstanding non-earmarked loans in November, the central bank said in its report. November’s number was the highest for the ratio since February 2013, according to central bank data. In October, the default ratio was a revised 5%, Reuters reported.
The default ratio has grown from about a full percentage point over the past year, as rising unemployment and stubbornly high inflation also eroded the ability of companies and households to pay their debt. Latin America’s largest economy shrank by an annual 4.5% in the third quarter, the steepest drop since the current data series began in 1996.
Consumer defaults were stable last month after a costlier refinancing of revolving credit card and payroll loans offset early debt repayments. Corporate defaults climbed, reflecting increased delinquencies in working capital, trade finance and guarantee letter-backed credits.
The data provides a glimpse into loan-book quality as the nation’s largest banks get set to report fourth-quarter results next month. However, early default ratios, or loans in arrears between 15 days and 90 days, fell for both individual and corporate borrowers, indicating that future delinquencies may be on the mend.
The ongoing credit cycle, the period time from trough to peak levels in defaults, has lasted eight months and may extend for at least another 10 months, said Carlos Macedo, Latin America banking analyst with Goldman Sachs Group.
Last month, provisions as a share of capital remained unchanged for a second month, indicating banks are comfortable with efforts to cushion their balance sheets. Private-sector banks kept provisions at their highest levels in over three years.
While banks remain well capitalized, earnings may suffer. The recession has forced banks to tighten loan disbursement standards, propelling average interest rates to 48.1% – the highest in a decade.
Lending rose 7.4% in the 12 months ended in November, the slowest pace since at least 2011 and in line with the central bank’s 7% estimate for the year.
Meanwhile, Brazil’s new Finance Minister Nelson Barbosa sought to calm investors by pledging to continue with austerity measures but markets still fell sharply on worries the leftist economist could undermine his predecessor’s belt-tightening program.
The real currency and Brazilian stocks had tumbled on Friday as news spread that President Dilma Rousseff had picked Barbosa, a close aide, to replace fiscally conservative Joaquim Levy. Levy left the administration after disagreements over the size of next year’s budget cuts.
In a conference call with foreign and local investors on Monday, Barbosa promised he would take all measures needed to bolster government savings and meet fiscal targets next year.
