Banks restricted credit in 2022 in the face of high interest rates, says BC – 06/06/2023 – Market

The Central Bank said this Tuesday (6) that financial institutions in Brazil presented more restrictive conditions for credit approval throughout 2022, which it saw as consistent with the scenario of rising interest rates.

In its Banking Economy Report for 2022, the municipality noted, however, that the credit portfolio of the National Financial System (SFN) recorded strong growth for the third consecutive year, albeit with a slowdown in credit expansion in the second half.

“The year tells a story of two halves: the first half in which there was an expansion of credit but a change in the mix, moving towards more emergency credit… and a second half with a slowdown in the growth of non-earmarked credit and an increase in earmarked credit “, said BC economic policy director Diogo Guillen at a press conference to comment on the report.

In the report, the Central Bank said that, according to its Quarterly Survey of Credit Conditions, “financial institutions presented more restrictive conditions for credit approval throughout 2022, consistent with the scenario of rising interest rates”.

In the second half of last year, the municipality raised the basic Selic interest rate to 13.75% per year, which represented the highest level since 2016, as it sought to contain inflation. The rate remains at this level until now.

“The increase in the Selic rate was transmitted to the interest charged on credit operations contracted in 2022”, evaluated the Central Bank in the REB. According to the document, the average interest rate on new contracts increased more prominently in the segment of individuals with free resources.

“With regard to defaults, there was an increase in non-earmarked credit, especially in the segment of families”, said the BC.

According to the report, the expansion of credit aimed at individuals in 2022 occurred heterogeneously across geographic regions, with the North showing the highest growth and the Southeast, the lowest.

In the segment aimed at companies, the pace of credit expansion in 2022 was also heterogeneous, with the Southeast region once again showing the smallest advance. The expansion of credit for legal entities in 2022 was driven by micro, small and medium-sized companies, said the Central Bank.

According to the BC, the profitability of the Brazilian banking system remained in an intermediate position when compared to banking systems in other countries throughout 2022. “Most countries, including Brazil, maintained profitability above that obtained in 2020, the year in which there was the shock of the pandemic,” the institution said in the report.

COMPETITION AND CONCENTRATION

Competition in credit markets increased in 2022 for financial institutions in the banking, cooperative and non-banking institutions segments, according to the BC.

In addition, there was a reduction in concentration in the SFN last year, maintaining the downward trend in concentration seen in the period from 2020 to 2022. According to Central Bank indicators, the decrease was observed in all accounting aggregates considered: total assets, total deposits and credit operations.

“The general message is that there is a trend of widespread deconcentration, no matter the measure and no matter the aggregate,” said Renato Gomes, BC’s director of financial system organization and resolution, at the press conference to comment on the report.

He underlined that the lower the concentration of financial platforms, the better the product offered to the end customer tends to be.

The Central Bank also said that, through its strategic agenda, called Agenda BC#, “it seeks to promote improvements in the SFN with a view to financial democratization, better and increasingly inclusive financial services”, the institution said in the report. The BC# Agenda is organized into five thematic dimensions: inclusion, competitiveness, transparency, education and sustainability.

In this sense, Gomes said at the press conference that the municipality wants to develop measures to reduce the fees charged by credit cards, with initiatives that may involve disciplining the issuance of cards and encouraging more rational use of the product by consumers.