Government prepares series of measures to unlock credit – 03/21/2023 – Market

The Ministry of Finance is preparing a series of measures to remove obstacles in the credit market in Brazil. For the portfolio, the need for actions is reinforced by the scenario of retraction in concessions amid the judicial recovery of large companies and risks in the international financial system.

Marcos Barbosa Pinto, Secretary of Economic Reforms at the Ministry of Finance, states in his first interview in office that Brazilian banks are solid — but that the moment is not comfortable and needs to be closely monitored.

“It is a situation to be carefully monitored. We had some isolated credit events, but which could have greater repercussions –as is the case with Americanas–, and added to that a world situation that inspires care”, he tells the Sheet. “Crises like these spread quickly and attention is needed,” she adds.

While monitoring the scenario, the secretary has been designing microeconomic reforms focused on credit. Part of them aims to increase capital market security to avoid risks seen in cases such as Americanas – facilitating, for example, the execution of corporate debts.

The measures will largely require amendments through bills that will be sent to Congress, but some initiatives depend only on the Executive.

This is the case of changes to make it easier for customers to share data such as Income Tax with banks, which would give institutions more precision about the conditions of the borrower.

“This is very important for micro companies. What is their big problem? There is no reliable data on billing, on assets. There is no audit. Where are these data? In the Revenue systems”, he says. “We will be able to reduce the transaction cost”, she says.

The portfolio also advocates eliminating the existing interest rate ceiling for loans between individuals – currently restricted to the basic rate (the Selic). For Pinto, the limit hinders the development of the capital market and strengthens traditional banks.

The Treasury also intends to make the requirements for issuing debentures more flexible – eliminating, for example, the requirement for shareholders’ meetings to endorse the securities.

For individuals, the secretary plans to launch Desenrola – which will allow discounts of up to 95% of negative debts, and refinancing with an interest rate limited to 1.99% per month and a term of 60 months. The plan includes the use of R$ 10 billion in resources from the National Treasury, in addition to the release of bank credits in the tax system (estimated at around R$ 100 billion) as capital for renegotiation operations.

What was the mission given by the Minister of Finance? The secretariat’s two axes are to work to improve economic efficiency and to do so with social justice. There are many things in the Brazilian economy that can do much better by reducing transaction costs and distortions.

What kind of distortions are these? Today, for example, there are a number of caps on interest rates outside the banking sector, and all of them are well intentioned. ‘I’m going to create an interest rate cap here [em determinado caso] because I want to protect the consumer’. But the effect on the system is not that. When you have an interest rate cap, you have a whole other system that has no cap – which is the financial system. So you end up forcing all popular savings [a ir] for the financial system.

In what cases will it be possible to revise interest rate limits? In the Brazilian Civil Code itself, which limits interest rates on civil loans, between two individuals, to the Selic rate. If I can lend to the government –which has the lowest risk in the economy– for exactly that rate, why would I give a loan? [limitado a essa taxa] to a person I know? Or why would a shopkeeper give credit if he can only charge what he could charge by lending to the government, which has the lowest interest rate? This kills all credit outside the financial system, including the capital markets.

Do you have another example? We are thinking about several measures with a lot of impact. The first point is that there is a very serious informational asymmetry in the Brazilian market. A borrower who has a good credit score has difficulty proving that he deserves a lower interest rate. It is difficult, even for the debtor who wants to give access to his data, to allow the creditor to access his data at the Federal Revenue – where he has his income and assets. We want to make that easy. Majority [da informação] it’s in public sector databases, and that’s what we want to give access to.

Could the bank even look at the Income Tax? Exactly. This is very important for the micro enterprise. What’s her big problem? There are no reliable data on billing or assets. There is no audit. Where is this data? In Revenue systems. That [acesso] it is already possible, but it is an extremely bureaucratic process. If we manage to do it faster, especially the periodic checks, we will be able to reduce the transaction cost. We can largely solve this with regulations [sem mudanças em leis].

Would these be the main measures? There are others. The process to issue a debenture, which is the main security in the Brazilian debt market, is somewhat bureaucratic. You need to register the deed with the commercial board, for example, and this is a sometimes time-consuming process. We will dispense with this, as well as the need to call meetings for the issuance.

In public banks, there are a series of constraints that do not necessarily provide guarantees and security for credit – but that hinder. Certificates, consultations, even voter registration you have to present. So we want to reduce bureaucracy. [Hoje] you exclude the person from financing with the public sector and they go to the private sector – to obtain more expensive financing.

Is there already an estimate on creating an offer from this? It’s hard to know. These are not transformative measures, but they will have a relevant impact. Brazil has a very good agenda and we want to go further. One way to do this is to improve the guarantee, and there is a project going through that has a lot of value – the guarantee framework, which is in the Senate.

Would you make any adjustments to the project? Creation of the guarantee management institution. We have a lot of doubts about whether this is really effective, because banks like to manage the guarantees themselves. So we run the risk of creating an institution that would serve no purpose. In addition, it will function as a small bank – which creates an additional risk for the system that needs to be assessed. But there are a lot of things in there that are good that we would like to support.

Despite the fact that the project came from the previous government. We have to support good measures regardless of the government. And the last point I want to mention. We made a lot of progress in the bankruptcy and judicial recovery part, but little in the execution process itself. When a company is bankrupt, we recover very little of the debts that are foreclosed and this explains why defaults are so high in Brazil. We would like to speed up this process and make it more effective.

As? There are many measures under discussion in the world, and one of them is to remove from the Judiciary, which is full of things, part of the execution process in action that the creditor wants to recover the values. It could be done by lawyers, specialized companies or notaries. Everything would remain under the supervision of the Judiciary, but the day-to-day execution, the process of going after the assets, evaluating them, the more administrative steps, they would leave the Judiciary to be done outside it. This would undoubtedly need a bill to be well discussed with society.

Is the ultimate goal to facilitate execution? Exactly. And the consequence of this, first, is that you recover more of the amount owed and, therefore, reduce your credit risk. What happens in the credit market is a tragedy. As good and bad payers manage to hide in the face of a flawed execution system, the bank does not know in advance which will be one and which will be the other and sees risk in both. And what happens? Who is a good payer says “with this interest rate, there’s no way, I won’t be able to pay” and only the bad payer is left.

Then there is a horrible adverse selection problem and it becomes a vicious cycle that makes the credit market equilibrium interest rate very high. What do we have to do? Create measures to reduce defaults and make bad debtors identified, and, as far as possible, the debts they have are recovered in order to reduce interest rates for everyone. Then you can create a virtuous cycle, because more people will enter the credit market and average rates will drop.

Do these measures have any influence from recent cases, such as Americanas and Oi? These are structural measures that must be taken by the country in any situation and [o cenário] reinforces their need. This is the function of capital market legislation, to prevent cases like this from happening, not least because they have impacts beyond the concrete case.

Defaults are rising, concessions are decreasing and there is talk of a credit crisis. Does this scenario scare you? It is a situation to be carefully monitored. There were some isolated credit events, but which could have greater repercussions, as is the case with Americanas, and added to this a world situation that inspires care. Crises like these spread fast, attention is needed and authorities need to act quickly and appropriately when necessary. That said, we don’t see anything like this here in Brazil.

Nothing that sounds an alarm? No. The banking system in Brazil is extremely solid. What we see here in Brazil is another slowdown in the granting of credit. We don’t see any problem with the soundness of the system, quite the contrary.

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X-ray | Marcos Barbosa Pinto, 45 years old

Secretary of Economic Reforms of the Ministry of Finance. Graduated in Law from USP, Master in Law from Yale and in Economics and Finance from FGV, in addition to a Doctor of Law from USP. He was a partner at Gávea Investimentos (founded by Arminio Fraga). He was a member of the boards of companies such as Hering, ALL, Unidas, Energisa and BR Malls and was a consultant for the IDB. In public service, he was director of the CVM and chief of staff of the presidency of the BNDES (in 2006).