Fitch Publishes Brazilian Lending Trends Report
OREANDA-NEWS. Fitch Ratings has published its special report '2016 Brazilian Lending Trends: Bleak Environment for Loan Recovery'.
The Brazilian government's policy to boost economic growth through lending showed signs of wearing out in 2015. Following a decade of 20% annual loan growth, in 2015 there was a marked slowdown in both financial institutions' appetites to originate new loans and in companies and consumers' demand for borrowing. As a result, outstanding loans in the financial system grew by a meager 6.6%, which was well below annual inflation of 10.67%.
The significant slowdown in economic activity, a fall in disposable income, increasing unemployment and inflation, local currency devaluation, as well as the implications of investigations in progress, especially the Lava Jato operation, contributed to the increase in non-performing loans (NPLs: delinquency over 90 days) in 2015. NPLs in the Brazilian financial system rose in a meaningful way in 2015, increasing from 2.7% of total loans in December 2014 to 3.5% in December 2015. In Fitch's opinion, NPLs will continue to increase in 2016.
Given their countercyclical policy roles - in addition to the possibility of political interference - it is expected that public banks will continue to present loan growth above that of the private banks. More conservative in comparison with public banks, large private banks have worked more with distressed loans' recovery and have presented better provisioning standards compared with public banks.
Fitch expects loan growth to remain low, between 4%-7%, due to the challenging economic conditions, modest loan demand, and low risk appetite from banks.
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