Corporate credit crisis is a real danger – 04/11/2023 – Vinicius Torres Freire

The talk of the “credit crunch” is a little short of headlines and the most grandiloquent economic commentary. The problem is real, although so far, by the known numbers, it is not as apocalyptic and journalistically sensational as it seemed when the subject became a cliché, in the weeks following the Americanas scandal.

But it’s a problem. It’s there, like a water leak that grows slowly, rotting walls and beams. It is not a “credit crunch”, an acute collapse of loans and financing. But it is a “credit squeeze”, a squeeze that will leave certain companies short of breath and limit productive investment and economic growth.

In the capital market, the drop in March was also ugly, although smaller than in February. As for bank credit, the most recent complete information, from the Central Bank, is from February. It’s not suffocation by far, but the seats have been short of air since November. “In March, issues on the capital market totaled BRL 23.6 billion, an increase of 51.2% compared to the previous month. In the first quarter, the total amount issued was BRL 65.9 billion against BRL 106 .7 billion from the same period of 2022, which corresponds to a drop of 38.2%”.

This is the report by Anbima (Brazilian Association of Financial and Capital Market Entities), which regularly surveys these markets. That is, where money is raised through the sale of fixed income securities (a type of loan), the sale of new shares and “hybrids”. Roughly speaking, “issuances” means raising money from others to finance your company.

Anbima data indicate a deterioration (a recovery, but not enough to offset previous losses) in March compared to February, when the case of Americanas did more damage. This fraudulent mess raised financing prices, scared investors (who buy bonds, such as debentures) and created suspicion even about companies with finances in order (apart from the default, probably 70% for those who bought the company’s bonds). It is expected that many people will be banned from the market and go to jail. Go?

Returning to the credit crunch: the granting of bank credit to companies has cooled since June 2022. Interest rates rose, companies had taken on a lot of credit and the prospect of economic growth became smaller and uncertain.

What was a slowdown turned into a downturn as of November. Total grants (new loans) accrued each quarter began to drop (compared to the previous quarter). In February, it fell more than 4%.

It’s not a meltdown. But a contraction of this size, outside of the worst months of the epidemic, has not happened since the Great Recession or in the months of 2017 when the economy was trying to get out of the deep hole.

In the fixed income market, the monthly average of funding was R$ 25 billion in 2019. In the resumption of 2021, R$ 35.7 billion. In the surprising 2022, of BRL 38 billion per month. On average this year, R$ 18.8 billion (all amounts are nominal).

If it continues like this, mere arithmetic would say that the total amount of money raised in fixed income would decrease by more than R$ 231 billion in 2023. The equivalent of more than 2% of GDP. A brutality.

There may even be companies queuing up, ready to borrow or investors willing to risk their money as soon as the usual level of nonsense and interest rates in the Brazilian economy drops a bit. Who knows, the Selic may drop from June onwards.

Maybe, maybe, maybe. It’s not impossible, but it’s difficult and short of breath. It’s not garrote. But choking is ugly.

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