(Bloomberg) — Bankers in Brazil are expecting a reduction in delinquency rates after the central bank kick-started its long awaited easing cycle with an above-estimate cut.
(Bloomberg) — Bankers in Brazil are expecting a reduction in delinquency rates after the central bank kick-started its long awaited easing cycle with an above-estimate cut.
Banks ranging from Banco BTG Pactual SA to Banco Bradesco SA and Itau Unibanco Holding SA, which reported earnings in the last week, see default rates on their portfolios peaking. Policymakers led by Roberto Campos Neto lowered the benchmark Selic rate by a bigger-than-expected half-point to 13.25% last week and signaled more cuts of the same magnitude are on tap.
“When you have a lower interest rate environment, the expectation is in fact that you have a reduction in delinquency rate,” said BTG Pactual CFO Renato Hermann Cohn at a press conference Tuesday. “It will still take some time, but the expectation is that you will have a relief in this increase, producing a slightly more optimistic scenario.”
Delinquency rates for nonearmarked loans that are 90 days past due are at multiyear highs as Brazilians struggle to pay debts amid high interest rates. Non-payment rates peaked in June at 3.1% of the loan portfolio for companies – the highest since 2018 — and reached a seven-year high of 6.3% for individuals, according to the central bank data.
Default rates are likely peaking, and should continue a downward trend, said Bradesco CEO Octavio de Lazari Jr. during a conference call with journalists last week.
Itau, Latin America’s largest bank by market value, sees delinquency ratio at “stable” levels, with a growth of 0.1 percentage points, in line with expectations.
“Obviously we’re coming from a more challenging credit environment, but we’re starting to see positive signs,” CEO Milton Maluhy said in a conference call Tuesday, adding that deceleration in their loan portfolio in the second quarter is “natural.”
Itau’s non-performing credit card loans fell 20 basis points in the second quarter after adjustments in portfolio mix, according to Maluhy. “If it wasn’t for the de-risking of the portfolio, our delinquency ratios would be 180 points above what we have now,” he said.
After last week’s bold cut by Campos Neto and colleague, analysts lowered their interest rate forecasts for this year and next. The Selic is now expected to hit 11.75% by year-end, down from the prior 12% estimate, according to a weekly central bank survey of economists published Monday. For 2024, analysts cut their forecast to 9% from 9.25%.
“Expectations are quite good for credit growth with cuts in the second half. There will be demand for credit due to the cuts and for the expectation of an improvement in GDP,” Bradesco’s Lazari said.
–With assistance from Giovanna Bellotti Azevedo, Felipe Saturnino and Cristiane Lucchesi.
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