Package to unlock credit is positive, say analysts – 03/22/2023 – Market

The measures prepared by the government to boost the credit market were well received by market experts.

Economists from brokerage firms and asset managers praised the package, anticipated by Sheetwhich provides for actions such as facilitating sharing with customer databases at the Federal Revenue, ending the ceiling for loans between individuals and making requirements for the issuance of debentures more flexible

They see in the measures potential to stimulate the granting of credit at a time of lower appetite of banks, cautious after the case of Americanas and the external scenario, with the financial difficulties faced by the banking sector in the US and Europe.

The actions discussed by the Ministry of Finance, which also include the Desenrola debt renegotiation program, were listed by the Secretary for Economic Reforms at the Ministry of Finance, Marcos Barbosa Pinto, in an interview with Sheet.

Despite the positive assessment, specialists also say that, more than stimulating credit, the government needs to turn its attention to the discussions around the new fiscal rule, which is what will allow sustainable growth, in fact, of the economy.

Febraban (Brazilian Federation of Banks) evaluates as “quite positive” the measures being studied by the government to unlock the credit market.

“Some of the measures are part of suggestions that Febraban and the banking sector had already suggested to the new government and the entity undertakes to continue working, together with government entities, to reduce the cost of credit and increase its offer for families and companies”, says the federation of banks in a note.

Still according to Febraban, the announced measures, once implemented, will be an important reinforcement for the reduction of interest rates charged in the country.

“In a general sense, the measures under study are positive, and reflect the government’s vision of trying to legally unlock the issues involving debtors and creditors, which have always been an obstacle to the expansion of credit in Brazil”, says Sérgio Vale, economist- head of the consultancy MB Associados.

Chief Economist at Mirae Asset Wealth Management, Julio Hegedus Netto adds that the economic measures have a more microeconomic bias and go in the right direction, by facilitating transit between debtors and creditors.

In the case of giving creditors access to revenue data from defaulting customers, Hegedus Netto says that the measure tends to unlock the offer of credit.

“This should be even stronger in small and medium-sized companies, since the creditor, by having access to the tax and equity data of the debtors, now has more elements for granting credit. This tends to reduce the transaction cost”, says the expert.

Economist André Perfeito adds that greater access by banks to company data is in line with the Cadastro Positivo program, which evaluates consumers’ payment history when calculating interest rates for granting credit.

“These are very welcome questions that are part of a continuous improvement of the conditions for the functioning of the market that have to be adopted from time to time”, says Perfect.

Hegedus Netto, from Mirae Asset, also recalls that defaults remain at very high levels, as well as the commitment of families’ income to paying debts.

“Something will need to be done”, says the chief economist at the Korean brokerage, who points to the Desenrola program for debt renegotiation as an important initiative in this sense, with the possibility of discounts of up to 95% on overdue debts.

“The program can bring temporary relief to some families, but it does not solve the whole situation”, says Rodolfo Margato, economist at XP Investimentos.

Margato also says that the possibility of extinguishing the ceiling for loans between individuals is also well evaluated. He recalls that the government’s recent initiative to try to impose a ceiling on payroll loans for INSS beneficiaries brought negative consequences, with a number of banks suspending the concession of the modality.

“The imposition of an interest ceiling tends to discourage credit supply. Therefore, the non-imposition of a ceiling is well evaluated”, says Margato.

Guilherme Ferreira, a partner at distressed assets manager Jive Investments, says he welcomes the government’s quest for increased efficiency in the execution of guarantees.

“The current collection and enforcement system is flawed, slow and ineffective, and makes it difficult to distinguish between good and bad payers, resulting in an adverse selection problem and higher interest rates for everyone”, says Ferreira.

The Jive partner also claims that the idea of ​​”dejudicializing” the execution has already been successfully tested in several countries around the world, including Brazil.

“Here, the fiduciary alienation of real estate, which removes the process of executing real estate credits from the judiciary and transfers it to notaries, led to a great growth in real estate credit. This suggests that similar measures for other types of credit may have a similar positive effect on the credit market in general, in addition to relieving the Judiciary, allowing it to focus on more complex and urgent cases.”

In addition to credit measures, the new fiscal rule is important to make room for a drop in interest rates, say experts

Despite the positive assessment, the chief economist at Mirae Asset says that, along with the measures to stimulate credit, a new set of fiscal rules is needed to make room for the BC (Central Bank) to start the process of cutting interest rates.

He recalls that, in 2016, when the government of former president Dilma Rousseff started a credit stimulus program, the BC was going in the opposite direction, on a path of rising interest rates, which meant that families ended up opting for not get into debt.

“The two policies, monetary and fiscal, must always be complementary, one depends on the other.”

Perfect says that the presentation of the new fiscal framework is a kind of business plan, and that the BC will need to see the foreseen actions being effectively adopted in order to then start considering a change in the course of monetary policy. “The plan will prove viable over time”, says the economist.

He adds that the study for easing the issuance of debentures may have a limited effect as long as basic interest remains at the current level. “It’s one thing to take a debt with the Selic at 2%. It’s another when it’s at 13.75%.”

Vale, from MB Associados, says that, while in the first month, the government demonstrated its intention to stimulate economic growth in any way, now the focus seems to have changed, with attention more focused on the new fiscal rule, and with the credit issue being evaluated in a more structural way.

“Although the credit measures are positive, at this moment the central focus of the government has to be the fiscal one, which is what will allow the reduction of the cost of credit in an effective way.”

The government indicated this week that the presentation of the new fiscal rule should be delayed to the beginning of April, after President Lula’s trip to China.

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SEE WHAT ARE THE MEASURES TO BE LAUNCHED FOR CREDIT AND INSURANCE

data access

Make it easier for customers to share their data with banks – present in the Federal Revenue and Single Registry systems, for example–, to prove their real financial condition and obtain credit with interest rates appropriate to each situation. It can be done largely by executive branch regulations.

Debentures

Make requirements for issuance more flexible. For example, the need to call a general meeting would be dispensed with (the endorsement could come from the board or the board). As well as the registration of the deed in the board of trade. Requires change in law.

interest ceiling

Government wants to amend the Civil Code to end the existing ceiling for loans between individuals – currently restricted to the basic rate (the Selic). The interpretation is that the limit hinders the development of the capital market and channels resources to traditional banks. Requires change in law.

public banks

Make legal requirements more flexible and waive the presentation of documents, such as proof of being even with electoral obligations. May demand change in law.

debt execution

Bill to accelerate and facilitate the execution of debts by debtors charged in court (in cases outside judicial recovery). Among the solutions under discussion is transferring the administrative part of the execution (such as identification of assets and valuation of values) to lawyers, specialized companies or notaries. Requires change in law.

Framework of guarantees

Government will support the processing of the bill created by the Bolsonaro government and which is in the Senate (it has already passed through the Chamber), but with adjustments (such as reviewing the creation of the guaranteeing institution).

Insurance

Expand the activities of insurance cooperatives, which currently operate on a limited basis, to increase competition in the sector.

unrolls

Program aimed at individuals will allow discounts of up to 95% of negative debts, and refinancing with interest rate limited to 1.99% per month and term of 60 months.