Public Banks Led the Outstanding Loans Expansion in 2013

CEIC Brazil Data Talk - April 2, 2014: Outstanding loans grew to BRL2.72 trillion as of December 2013 from BRL2.37 trillion during December 2012. This represents a relatively high 14.6% year-on-year growth rate, a little lower than the 16.4% growth observed during the previous year. Amid concerns over inflation and over-exuberance credit expansion, administrative measures have been imposed to prioritize access to loans in the economy. The expansion in the total financial system credit operations was mainly driven by the “earmarked operations” forms of financing regulated by the National Monetary Council or linked to the Union Budget resources, focused on medium and long term production and investment in housing, rural and infrastructure sectors. These operations are funded partly by demand deposits and saving accounts, and by public funds and programmes and offer more advantageous rates and longer maturities (hence providing a measure of flexibility to borrowers). While growth in loans outstanding has slowed compared to that of 2005-2012 (when loan growth stood in excess of 16%, indeed exceeding 25% during its peak), these double digit growth rates continued to be highly scrutinized given concerns of an overheating Brazilian economy. These credit expansions occurred despite higher cost of borrowings over this past year, given the upward trend of the Selic Rate and hence the overall financial system lending rate. Average lending rates throughout the financial system stood at 19.7% as of December 2013, 1.70 basis points higher than in December 2012, corresponding to a Selic rate of 10.0% as of December 2013 (Selic rates have since risen to 10.75% as of March 2014). Average lending rates for non-earmarked operations stood at 29.0%, compared to 25.3% during the previous year, although average lending rates for earmarked operations rose only to 7.5%, a relatively small rise in rates compared to 7.0% during the previous year. Compared to December 2013, the growth in earmarked operations credit accelerated to 24.5% as of December 2013 (compared to 20.9% during the previous year) although those for non-earmarked operations were noticeably affected by monetary tightening, resulting in substantially lower growth of 7.8% compared to the 13.6% observed during the previous year. Prompted by the policies of Banco do Brasil (the largest bank in LATAM), Caixa Economica Federal (the second largest government-owned financial institution in Latin America) and BNDES (the Brazilian development bank), the public financial system, played a greater part in credit disbursement, corresponding to 51.2% of total loans outstanding (BRL1.39 trillion) as of December 2013 overtaking private institutions as the dominant creditor; its share of outstanding loans trended up from 47.9% as of December 2012 and under 35% in its trough during mid-to-late 2001. Private institutions continued to see a modest 5.5% to 7.5% loan growth with national private institutions constituting the larger share of outstanding loans (approximately 33.2% of total private loans or 68.2% of total outstanding loans). The higher cost of borrowing resulting from these macro-prudential policies was accompanied by a declining non-performing loans (NPL) rate, amounting to 3.0% as of December 2013 from its recent peak of 3.9% during October 2012. The NPL rate declined across various classification of loans; NPL of non-earmarked operations for individuals, decreased to 6.7% as of December 2013 (from 8.0% in December 2012) while NPL rates for earmarked operations fell to 1.6% (from 1.9% during the previous year). At the enterprise level, the non-performing rate also decreased in the non-earmarked and earmarked operations to 3.1% and 0.4% respectively. The share of the loans outstanding with “Normal Risk” (loans past due not exceeding 60 days), which is composed of clients with historically good credit standing, improved slightly to 93.3% of total loans from 92.5% during the previous year. The scenario of elevated interest rates and reduction of household consumption remains likely for the coming months as the Central Bank of Brazil is focused on bringing the inflation rates to the centre of the target of 4.5%±2%. Reining in credit growth may help align loan growth back within levels necessary to improve credit quality at the aggregate level. However, these actions may come at the cost of a larger retreat in credit supply necessary for supporting growth. By Bruno Vasconcelos Google+ Author Profile - CEIC Analyst Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
2nd April 2014 Public Banks Led the Outstanding Loans Expansion in 2013