Ghost of the credit crisis haunts the economy, but it is still invisible – 02/23/2023 – Vinicius Torres Freire

The specter of a “credit crisis” haunts the Brazilian economy. What is a “credit crunch”? The rumor is inaccurate. There are no recent decisive numbers. Listening to larger banks, the perspectives and assessments are mixed.

The noise increased after the Americanas roll. Then came news about renegotiation of debts (some level of default) of half a dozen large companies. Now, there are statistics, private, partial and not very conclusive, of an increase in the demand for debt restructuring services.

But what exactly is a “credit crunch”?

It could be, for example, a sudden stop of bank lending. That is, a large reduction in the amount of new loans for companies overnight.

For what reason? A few large defaults would lead banks to review their loan portfolios to look for risks and to rethink planning for new loans.

The most recent and reliable general credit numbers are from December 2022. It is the Central Bank data that consolidates and details all information on credit, interest rates and default.

According to the Central Bank’s statistics, there has been a kind of “credit crisis” since June 2022. Putting it simply, the pace of quarterly change in credit granted to legal entities (seasonally adjusted) has since dropped (rising less ). In the quarter ended in December (in relation to September), there was a slight decrease. Judging by the series of these data, the decline has not yet been impressive.

The basic interest rate (the Selic, in practice defined by the Central Bank) began to rise in March 2021, when it went from 2% per year to 2.75%. The increase was quick and violent, but until December 2021, when it reached 9.25%, it would be at a level that would not tickle inflation (at least according to better conventional models), given expectations of high prices.

In banks, interest rates began to rise decisively from September 2021. The average “market” real estate financing rate was around 7% per annum from December 2019 to September 2021, for example. As of December 2022, it was at 11.75% per year, the highest since November 2017 (although it was much higher than that in the country’s good growth years, pre-Great Recession).

The general average default, individuals and companies, also started to rise slightly in January 2022. But, in the case of large companies, it has dropped. On average for legal entities, the default rate increased until last January, but it was lower than that recorded in 2011 until the epidemic.

A conversation with some banks is not conclusive. No one is optimistic, not least because the economy will slow down and everyone says that the Americanas case will have an impact on concessions and interest rates, bidu. Furthermore, the perspective varies, from more or less negative, or even neutral, according to the type of clientele of each one.

Febraban publishes a monthly estimate of the movement of credit (the one from the Central Bank comes out on February 27th). In January, total grants would continue to decelerate. An account based on the entity’s data indicates that there would be a quarterly drop in concessions, but nothing scary (there were bigger drops in February and March last year).

The summary of the opera is not reassuring. In addition to data, even recent evidence is missing, especially from February. Furthermore, the effects of the monetary squeeze have been visible for more than a year. It is good that the government, BC and banks talk to avoid major accidents, of course. But for now, we know very little.

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