Loans delinquent for at least 90 days in Brazil began to show signs of stability despite a slight increase in July, a signal that efforts by banks to help corporate clients refinance looming debt maturities are slowly beginning to bear fruit.
The so-called default ratio, a benchmark for delinquencies, rose to the equivalent of 5.7% of outstanding non-earmarked loans last month from 5.6% in June, the central bank said in a report on Thursday. The default ratio has climbed a full percentage point over the past year, Reuters reported.
Still, early default ratios, or loans in arrears between15 days and 90 days, fell for consumers and companies alike, a sign that a strategy to refinance potentially problematic loans earlier than usual is allowing more borrowers to stay current.
The increase in the 90-day default ratio might have been a product of slower lending growth in July, when banks cut loan disbursements by 0.4%, analysts said. Outstanding loans fell for a sixth month in seven in July, totaling 3.115 trillion real ($963 billion), the report showed.
“The worst of the credit crunch and the recessive business cycle is probably behind us,” said Alberto Ramos, chief Latin America economist with Goldman Sachs Group Inc in New York. “Defaults may see an inflection as macroeconomic conditions begin to show more solid signs of recovery.”
An index of banking and financial shares trading in the Sao Paulo Stock Exchange gained 0.5% on Thursday.
In recent weeks, executives at Brazil’s state-controlled banks, where defaults and loan-loss provisions outpaced those of rivals this year, were more confident than their private-sector competitors that Latin America’s largest economy will soon emerge from a severe recession.
Provisions at Banco do Brasil SA, the nation’s largest by assets, might have peaked last quarter as household and corporate budgets show signs of recovery after a two-year crisis. Top mortgage lender Caixa Economica Federal expects defaults to start a gradual decline before the end of the year.
Still, concerned about lingering risks as loan renegotiation and refinancing deals continue to grow amid Brazil’s worst recession in eight decades and record unemployment, banks raised the cost of borrowing to an annual average 52.7% in July, the report showed.
Spreads, or the difference between the interest that banks charge on their loans and their cost of funding, widened to 40.4% last month.
Meanwhile, Brazil’s economy shed a net 94,724 payroll jobs in July, the Labor Ministry said on Thursday, taking total job losses over the past 12 months to 1.7 million as the country continues to reel from a deep recession.
