Brazil's largest lenders are taking a more cautious approach to credit, shifting towards secured products and higher-income borrowers amid signs of a household debt crisis. Despite a strong labor market and an economy outperforming expectations, banks are positioning for a more challenging phase of the credit cycle.
According to analysts, the banks' defensive stance reflects concerns that Brazil's economy is approaching a slower phase after years of strong household borrowing. Household leverage has historically been followed by deeper consumer spending slowdowns, and the current trend is no exception.
Household finances have deteriorated sharply, with family debt burdens hovering near record levels at around 50% of disposable income. This is despite low unemployment and improving household incomes. The trend is attributed to a combination of structural and cyclical factors, including regulatory changes, fintech expansion, and government policies aimed at boosting consumption and credit.
The banks' reluctance to extend credit to lower-income borrowers is evident in their shift towards secured lending and higher-income clients. Itau CEO Milton Maluhy Filho warned that the volume of credit distributed in the market is far above what the market can absorb, while Bradesco CEO Marcelo Noronha said his bank has become more selective in lending to lower-income clients.
Santander Brasil also reduced its exposure to higher-risk borrowers, particularly customers earning less than 4,000 reais per month. The bank cited concerns over whether strong employment levels and government support for households can be sustained if the economy slows.
The trend is likely to have implications for the broader economy, with economists forecasting GDP growth of 1.5% next year. However, some banks are taking a more cautious approach, with Banco do Brasil CEO Tarciana Medeiros saying that bringing consumer delinquency ratios down next year will happen to the extent that they continue to focus growth on public-sector and private-sector payroll loans.
Household Debt Burdens in Brazil
- 50% of disposable income is allocated to debt payments
- Household leverage has historically been followed by deeper consumer spending slowdowns
- Regulatory changes, fintech expansion, and government policies have broadened access to credit among consumers who previously were not part of the banking system
Banks' Shift Towards Secured Lending
- Itau, Bradesco, and Santander Brasil are favoring secured products and higher-income borrowers
- The banks' defensive stance reflects concerns that Brazil's economy is approaching a slower phase
- Secured lending and higher-income clients are seen as a way to mitigate risk
