Brazil Expects Corporate Loans to Shrink

Outstanding loans to Brazilian companies will continue to shrink next year, mostly due to tighter credit from state development bank BNDES, the central bank said.

Even though interest rates are at all-time lows, the bank said it expected corporate loans to show declines of 8% this year and 2% next year, Reuters reported.

That is likely to limit wider loan book growth, which the central bank sees at 3% in 2018 following a 1% contraction in 2017.

Brazil’s credit market has been slow to recover from the deepest recession in decades. Profits from listed banks took a positive turn in the third quarter as lower defaults allowed them to cut provisions, but loan book growth has been uneven.

Total outstanding loans rose 0.4% in November from the previous month to 3.064 trillion reais ($924 billion), as defaults and loan spreads fell.

“According to the Brazil Central Bank’s credit market report for November, bank lending is gathering momentum, in line with the rest of the economy,” Rabobank analysts note.

“The data continue to show asymmetry between fast-rising consumer loans and still-struggling corporate credit. The latter follows a slower lending by federal institutions, amid a (necessary, healthy) removal of quasi-fiscal stimuli. Investment headwinds also play a role.

The incoming data continue to signal a declining trend in NPLs, which pave the way for lower spreads. Credit conditions are also improving on the back of lower interest rate. All in all, considering aspects such as leverage and removal of quasi-fiscal stimuli, we see bank lending more accompanying the gradual pace of economic recovery than proving a big impulse to demand growth in coming years. Yet a lower Selic rate will lend some support.”

Brazil has cut the benchmark interest rate on loans from state development bank BNDES by 25 basis points to 6.75%, maintaining a slight discount to central bank rates as it moves slowly towards a market-based system.