Consumer credit has historic drop; see by state – 07/20/2023 – Market

Consumer demand for credit suffered a sharp retraction of -12.5% ​​in the first half of this year, according to a survey by Serasa Experian, which operates in the monitoring and negotiation of debts.

This is the biggest decrease since the annual comparisons of this indicator began to be produced by the company, in 2008.

Brazilians of all income brackets stopped the search for resources, especially the poorest. The contraction was -14.4% among those earning up to R$500. In the highest bracket, among those earning more than R$10,000, the decrease was -9.5% (see table at the end of the text).

The demand for resources was negatively affected in all states, with 16 of them registering decreases greater than the national average, such as Amapá (-25%), Rio de Janeiro (-22.5%) and Alagoas (-21.5%).

The history of the survey also shows that the double-digit retraction is unparalleled, even in more recent moments of financial fragility.

There was a decrease of -6.8% from January to June 2009, when the strongest effects of the global financial crisis arrived in Brazil, which began with the collapse of the real estate market in the United States in 2008. In the first half of 2014, marking the economic and political crisis that led the country to recession, the decrease was also smaller, of -5.4%

This year’s result is also worse compared to the previous retraction, of -8.1%, recorded in the first half of 2020, the beginning of the Covid-19 pandemic.

The difference that now negatively affects the mood of borrowers is the size and term of the interest rate hike, explains Luiz Rabi, economist at Serasa Experian.

“We are experiencing one of the biggest monetary tightening in recent history, with the Central Bank raising the Selic, basic interest rate, from 2% in March 2021, to 13.75% since August last year, to fight inflation”, he says.

“One of the main channels of this fight against inflation is the credit chain, since the retraction of credit leads to a reduction in consumption and sales, which cools down the economy and promotes the disinflation process.”

Rabi explains that the retraction had been occurring since mid-2022. In the accumulated result for last year, it was -3%. However, I emphasize this at the beginning of 2023, as the increase in interest rates took effect.

When there is a change in the base rate, the effects on economic activity take about nine months —sometimes a little more, or a little less— to be perceived.

“We can say that we are experiencing the peak of monetary restrictions”, says the economist. “People realize, for example, that a payment no longer fits in their pocket and postpone the purchase, whether it is a household appliance, a car or a property.”

The economist adds that virtually all types of credit lines for individuals were affected. Compared to last year, there was a decline in the search for personal loans, vehicle and property financing, and even a drop in payroll.

Because of this domino effect, maintaining the Selic rate at 13.75% has generated criticism from the productive sector and even from politicians against the Central Bank. Since February, members of the government of Luiz Inácio Lula da Silva have publicly demanded that the president of the institution, Roberto Campos Neto, start cutting interest rates.

Another variable that is impacting the credit market is default, says Rabi. Until a year and a half ago, 62 million Brazilians were in arrears with debt payments. Today there are 72 million.

“In 18 months, over 10 million Brazilians lost access to credit”, he says.

“These people end up going for overdraft and credit card revolving, when they still have them, which are the two types of credit that are still rising this year, according to the Central Bank report. There is a third, but that does not count, rural credit, which is a very particular type.”

Rabi recalls that the scenario will only start to change for the better when the country enters the cycle of falling basic interest rates, which, he says he is convinced, will start next month.

“I do not believe that the Central Bank postpones the beginning of the fall in the basic rate”, he says.

“Without a shadow of a doubt, the Central Bank is starting to reduce the Selic now in August because there is nothing on the radar to postpone this movement. Only something very unusual, such as an unexpected banking crisis, could change this scenario.”

Rabi, however, reinforces that, as the reduction will be gradual, the recovery of credit will be equally slow.

Also gradual, he says, will be the effects of Desenrola, the federal government debt renegotiation program that has been in operation since Monday (17). Even if the name is clear, the cost of financing will still restrict the search for credit.

The Serasa Experian Consumer Demand for Credit Indicator takes into account the CPFs consulted monthly in its database in transactions between consumers and financial system institutions or non-financial companies.

---

CONSUMER DEMAND FOR CREDIT

by income brackets, accumulated in the first semester  

• Up to BRL 500 -14.4%
• BRL 500 to BRL 1,000 -13.8%
• BRL 1,000 to BRL 2,000 -11.5%
• BRL 2,000 to BRL 5,000 -10.6%
• BRL 5,000 to BRL 10,000 -10.0%
• More than BRL 10,000-9.5%

Source: Serasa Experian