Brazil Consumer Default Rate Falls First Time Since March

Brazil’s consumer-loan default rate fell in June for the first time in three months, as the government’s drive to lower borrowing costs provides relief to indebted families.

The consumer default rate declined to 7.8 percent from a revised 7.9 percent in May, the central bank said in a report distributed today in Brasilia. The company loan default rate slid to 4 percent from 4.1 percent over the same period. Lower interest rates, higher income levels and a more conservative selection process by banks have caused default rates to fall, the central bank’s head of economic research, Tulio Maciel, told reporters in Brasilia today.

Since August, Brazil has cut the benchmark Selic rate 450 basis points to the record low 8 percent and pressured banks to lower rates on loans to accelerate a sluggish economic recovery. Easier credit access, a drop in delinquency rates and record-low unemployment will help drive consumption in the world’s second-largest emerging market, central bank President Alexandre Tombini told reporters July 23. Policy makers have also implemented growth measures such as tax breaks on automobiles and consumer goods.

“Private credit is still growing robustly,” John Welch, macro strategist at CIBC World Markets, said in a telephone interview from Toronto. “Brazil is not suffering from a lack of demand.”

Loan Rates

Brazil’s average interest rate on loans rose 0.2 percentage point to 31.3 percent in July 1-16, Maciel said.

Average rates on consumer loans climbed 1.3 percentage points to 37.8 percent, while rates on corporate loans fell 0.4 percentage point to 23.4 percent, Maciel told reporters in Brasilia.

Some of the country’s largest banks said this week that profits have been hit by consumers’ difficulties in paying their debts.

Banco Bradesco SA, Latin America’s second-largest bank by market value, said on July 23 that second-quarter provisions against bad loans rose 40 percent. Itau Unibanco Holding SA said July 24 that the average default rate for payments at least 90 days overdue rose to 5.2 percent in June from 4.5 percent a year earlier, and provisions rose 17 percent from 2011.

Consumer confidence in Brazil fell in July for the third month in a row, according to data released from the Getulio Vargas Foundation yesterday.

Credit Growth

Outstanding credit rose 17.9 percent in June from the same month last year to 2.2 trillion reais ($1.1 billion), the central bank said today. Credit increased 1.5 percent from the previous month.

Swap rates on the contract maturing in January 2014, the most traded in Sao Paulo today, rose one basis point, or 0.01 percentage point, to 7.68 percent at 11:01 a.m. local time. The real strengthened 0.3 percent to 2.0264 per dollar.

Brazil’s gross domestic product expanded at a 0.8 percent annualized rate during the first quarter. The central bank forecasts 2012 growth will reach 2.5 percent, while economists surveyed weekly by the central bank expect an increase of 1.9 percent.

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