In the midst of a narrative dispute with the Central Bank, in which it insists that Brazil’s benchmark interest rates need to be lowered despite persistent inflation and rising government spending, President Luiz Inácio Lula da Silva’s economic team this Thursday launched a set of 13 measures aimed at stimulating access to credit for companies, investors, and individuals.
Many of the measures, however, are regulatory in nature and subject to congressional approval, and will not immediately lead to what would really make a difference to the country’s economy: the resumption of lending. Brazilian banks have become much more conservative in offering new loans, especially to small and medium-sized companies, as non-performing loan rates have deteriorated.
Brazil’s benchmark interest rate has risen from 2 percent to 13.75 percent since March 2021, but the cost of raising funds for companies is much higher.
“No business today gets working capital from banks for less than 2 percent interest per month, which means 24, 25 percent interest per year. If the company resorts to lines [of credit] such as overdrafts, the cost easily goes up to 15 percent a month. It’s totally unsustainable,” Luiz Alberto Paiva, founding partner of Corporate Consulting, told The Brazilian Report last week.
As a result, 289 Brazilian companies filed for bankruptcy protection in the first quarter of 2023, up 37.6 percent from the same period in 2022, according to data from Serasa Experian.
Among the measures announced by the Treasury secretary, Rogério Ceron, and the economic reform secretary, Marcos Pinto, is the request for Congress to urgently approve Bill 4.188/2021, known as the “collateral framework,” which improves rules for fiduciary alienation of real estate, allows for the extrajudicial liquidation of mortgages, and the extrajudicial recovery of financed assets, including cars, among other things.
The announcement was well received by Brazilian banking federation Febraban, which says there is much room for regulatory improvements to reduce intermediation costs. According to the association, about 80 percent of the composition of Brazil’s banking spread is due to intermediation costs, while the financial margin of the institutions accounts for only 20 percent.
In the case of Brazilian families — who face the highest levels of indebtedness (77.9 percent) and default (28.9 percent) since 2010, according to data from the national trade confederation — the primary measure is the definition of a new income commitment limit for loans.
By means of a decree still to be issued, the government will increase the limit of the so-called “existential minimum,” which cannot be committed in debt refinancing operations from BRL 303 (USD 60) to BRL 600.
For small businesses, the government said it is working on a mechanism for them to authorize banks to access data held by the Federal Revenue Service, in the hope that this will improve the credit rating of micro and small businesses and result in more loans.
Search
