Banks x revolving: it is necessary to attack the cause of high interest rates – 12/01/2023 – Market

The president of Febraban (Brazilian Federation of Banks), Isaac Sidney, said this Friday (1st) that there is a lack of sense in the discussion about the revolving card, and stated that the problem is not in this type of credit offered by banks, but rather in high interest rates.

“The problem is in the car’s engine, not in the tires. There is no point in changing the tires of a car that has a damaged engine. The problem is not the rotary, it is the interest on the rotary. We have no hypocrisy in recognizing that these interest rates are high”, he declared, during a Febraban lunch with bankers.

Sidney, however, said that it is necessary to attack the cause, not the symptoms. “The question is not whether they are tall [os juros]but why are they high and how can we make revolving interest rates decrease.”

The president of Febraban said that the proposals that have been raised, such as the limit on revolving interest, are insufficient to solve this problem structurally.

Sidney said that other countries, such as Chile and Colombia, have shown that intervening in price formation can distort supply and demand and, therefore, setting interest rates would not be a good solution.

“The result [nessas economias] it was disastrous, there was banking exclusion instead of banking”, he said. “Therefore, the paths that have been adopted [no Brasil] are not those that will favor a structural fall [dos juros]”.

According to the president of Febraban, it is necessary to attack this issue from the side of competitiveness. He cited fintechs as an example, which even with all the technology to make banking services cheaper, are unable to offer lower interest rates than traditional banks.

Sidney also said that he never defended the end of interest-free installments, stating that it is important for the economy, but mentioned a concern regarding the “stacking of endless installments”. “We are concerned about the sustainability of the country’s main consumer product,” he declared.

In a speech alongside the president of the Central Bank, Roberto Campos Neto, he said he counted on the BC to find a solution.

“We are very confident that we will move forward in dialogue with the Treasury”, he declared. According to Sidney, it is necessary to find a way so that the risk of default is remunerated.

BC directors, in turn, have reiterated the institution’s role as intermediary and facilitator of this discussion. The BC’s director of monetary policy, Gabriel Galípolo, said last Thursday (30) that if those involved in this negotiation do not construct a consensual solution, the Legislature will have to resolve it.

After the event, to journalists, Sidney once again said that the Central Bank should address this problem.

“Today in Brazil we have 75% of receivables that are not remunerated; 15% of the families’ credit portfolio also does not receive any interest remuneration. And 50% of purchases are paid in installments. What is the result of this? We have a default of 50%”, he declared. “So I think we have a prudential issue of financial stability.”

Understand

Since October, the BC has been coordinating meetings with representatives of banks, acquirers, cards and retailers to discuss the Desenrola law rule that limits revolving debt to 100% of the original value, if the sector itself does not come up with another formula to reduce the high rates. Currently, interest rates for this modality exceed 400% per year.

The text of the law makes no mention of purchases in installments and does not require restrictions on interest-free installment purchases on the card. Banks, however, have defended the restriction of this type of credit as a way of lowering the high rates of revolving credit — a type automatically activated when the card bill is not paid in full.

The banks’ argument is that interest-free installments increase defaults and force the charging of high interest rates on the revolving loan. The machinery and commerce sectors, however, refute this argument, and there are no independent public studies that show a cause and effect relationship between interest-free installments and default.