- Loan forecast puts firm on pace to catch up to Banco do Brasil
- Rousseff pressuring state-owned banks to use loans as stimulus
Caixa Economica Federal’s forecast for loan growth puts it on pace to catch up to Brazil’s biggest lender, raising concern credit quality will suffer as the government presses state-owned banks to help rescue the economy.
Caixa’s loan book could expand as much as 11 percent in 2016, the Brasilia-based firm said last week, which would push it to about 754 billion reais ($208 billion). Banco do Brasil SA, the nation’s biggest lender, projected loan growth of 3 percent to 6 percent, which would result in a portfolio of about 762 billion reais at the low end of the range.
Brazil President Dilma Rousseff is pressuring state-owned banks to help rescue the nation from what’s predicted to be the worst downturn in a century. The economy contracted 3.8 percent last year and is expected to shrink 3.4 percent in 2016, according to a Bloomberg survey of economists. Inflation projections remain above the central bank’s 6.5 percent upper target over the next five years, based on so-called break-even rates that measure traders’ expectations.
“You are generating assets at a time unemployment is climbing and inflation and interest rates are high,” Ceres Lisboa, an analyst at Moody’s Investors Service, said in a telephone interview Friday from Sao Paulo. “You don’t know what the capacity of these borrowers will be to pay back the credit.”
A Caixa official didn’t immediately respond to an e-mail seeking comment about loan growth. Banco do Brasil declined to comment.
Since Rousseff took power in 2011, Caixa expanded its loan book almost fourfold, while Banco do Brasil, in which the federal government has a stake of about 55 percent, doubled its lending portfolio. Banco do Brasil has about 42 percent of its shares trading on the Sao Paulo stock exchange, while Caixa is 100 percent owned by the government.
Caixa’s credit grew from 2011 to 2014 at an annual average pace of almost 36 percent, before easing to about 12 percent last year, according to the firm’s earnings statements. Even after the slowdown, Caixa’s lending growth last year was twice as fast as Banco do Brasil’s 5.9 percent expansion.
“We have seen the government’s intention of using its public banks as an instrument to stimulate credit, consumption,” Lisboa said. “The difference this time with the previous stimulus cycle is the government’s lack of capacity to give capital to these banks.”
Caixa’s forecast of 7 percent to 11 percent loan growth this year “will continue to far exceed the 1 percent to 6 percent guidance most large Brazilian banks have provided,” Lisboa wrote in a report Monday.
Among the measures Caixa said it would use to boost credit is a plan to extend more mortgages for second homes and reduce down payments on new loans, including some as low as 10 percent.
“If they continue to grow significantly above the market, that’s really going to raise asset-credit concerns,” Arjun Bowry, an analyst at Bloomberg Intelligence, said in a phone interview from London Friday.
Asset quality is already showing signs of strain. The 90-day delinquency rate rose 1 percentage point to 3.6 percent at the end of 2015 from the previous year, the worst performance among all the large banks in Brazil, according to Moody’s.
Caixa expects its delinquency rates to stabilize this quarter, before starting to improve in the second half of 2016, Chief Financial Officer Marcio Percival said March 8.
Caixa’s loan forecast may be difficult to achieve because of the deteriorating economy, which will reduce demand for investments such as second properties, Bowry said.
“Achieving double-digit growth, which is at the top end of their guidance, certainly appears to be a stretch,” he said. “At some point there has to be sufficient demand.”
“Political interference” could mean Brazil’s state-controlled lenders will keep expanding their loan portfolios at a faster pace than non-state-owned banks this year, Pedro Carvalho, an analyst at Fitch Ratings, wrote in a report Monday. The rating firm still expects credit growth in Brazil to be slower this year, ranging from 4 percent to 7 percent, because of the nation’s economic slowdown.