Fears of a credit bubble in Brazil are increasing. A report by the rating agency Experian Latin America says the level of loans overdue by 90 days in the financial system has risen to 6.1% and it expects it to reach 8% by the end of the year.
Credit has reached 45% of GDP. Surveys suggest that the proportion of household income that goes to servicing debt is about 20%. And with interest rates still rising – the central bank’s Selic rate was raised to 12.25% in June – it is little wonder that investors are worried. According to the MSCI Brazil Large Financials Index, concerns about Brazilian credit have led to a 10% fall in the shares of Brazil’s largest banks since April 26, the beginning of the earnings season.
Fear can be a good thing. In mid-May Brazil’s senate approved the formation of a positive credit registry – previously banks could only see records of those that had defaulted. This new database will enable banks to take a more sophisticated approach to extending credit to the estimated 30 million people who have joined the ranks of the country’s middle classes in recent years.