Public bank passes private in granting credit – 05/09/2023 – Market

The growth of public banks’ credit portfolio this year surpassed the pace of private banks for the first time since 2016. For analysts, the strategy of stimulating growth via state institutions may make it difficult for the Central Bank (BC) to start cutting interest rates.

The expansion of the credit portfolio of public banks was 13.78% in the 12 months ended in March, against 10.89% of nationally controlled private banks (that is, without considering institutions of a foreign nature such as Santander), according to data latest from the monetary authority.

The last time state-controlled banks had grown above private ones in the one-year window was in July 2016 — by 2.8% and 2.2%, respectively.

Market analysts point out that, although the result was achieved during the first months of the government of President Luiz Inácio Lula da Silva (PT), most of the period considered in the comparison window corresponds to the management of the previous government, of Jair Bolsonaro ( PL).

“The 12-month interval until March encompasses a good period of the previous government, which was also already in this mood of encouraging the economy, which was skating”, says João Frota Salles, an analyst at Senso Investimentos.

Austin Rating analyst Luis Miguel Santacreu adds that the analyzed period of three months of the PT government is still too short to establish that the expansion of public bank portfolios was due to the adoption of a policy aimed at monetary expansion.

“Due to the short window of action of the new government, I believe that it is still not possible to state that this greater expansion of public banks is due to him”, agrees Christopher Galvão, an analyst at Nord Research.

Galvão claims that the pace of growth of public banks began to increase in mid-2022, as a likely reflection of the rise in the Selic rate, since they have a greater role in earmarked credit, aimed at lines such as agribusiness and housing, which feel less the effect of rising interest rates than free lines of credit.

BC data show that, in the 12 months ended in March, the earmarked credit balance expanded by 14.2%, while free credit grew by 10.5%.

“We clearly see that there has been a greater increase in earmarked credit”, says Santacreu, adding that BB (Banco do Brasil) and Caixa are known in the market for their outstanding performance in lines of credit for agribusiness and the real estate market.

In the case of BB, which publishes data from January to March on the 15th, analysts expect a strong expansion of profit in the period, driven largely by the agro portfolio.

The numbers from the public bank could serve as a first sign of the government’s real intentions to use state-owned financial institutions to stimulate economic growth, says Salles.

He claims that the results of the BB have the potential to fuel the debate on the conduct of monetary policy by the Central Bank, since signs of an expansionist credit policy may make it difficult to start the interest rate cut cycle advocated by the President of the Republic.

“If there is a weakening of expectations [de inflação]a more ‘hawkish’ posture [pró-aperto monetário] of BC, the government going against this strategy only generates mismatch [entre política fiscal e monetária]”, says Julio Hegedus Netto, chief economist at Mirae Asset Wealth Management.

He says he does not rule out a kind of “remake” of the years of former president Dilma Rousseff (PT), when the government opted to artificially stimulate demand. “Public banks may gain market share, but concretely, we don’t see stronger demand.”

Galvão, from Nord, says that recent government signals have already indicated the use of quasi-fiscal policies to stimulate the economy through the offer of subsidized credit by public banks.

Speaking at the beginning of March, Lula stated that he will launch a program for public and development banks to be used to promote investment, generating jobs and contributing to better economic performance.

Public banks “will once again invest money to create jobs, generate development and generate effective income distribution for this country,” the president said at the time.

Depending on the magnitude of this action, it is a situation that can cause distortions in the credit market, says the Nord analyst.

Galvão states that, in the minutes of the Copom (Monetary Policy Committee) released this Tuesday (9), the collegiate highlights that the use of quasi-fiscal policies tends to raise the economy’s neutral interest rate, which is the one that stimulates growth without causing inflation.

“It is important that fiscal and monetary policy act in the same direction to control inflation. [do governo] so far do not support this view very much.”

Sought after, Caixa and BB did not comment as they were in a quiet period before the release of the first quarter results, scheduled for the next 11th and 15th, respectively.

Private banks tighten the brakes in the face of interest rates and defaults

Salles, from Senso, says that, in the case of private individuals, the rise in interest rates, with the Selic rate at 13.75% per year, and the consequent increase in defaults, made them tighten the brakes on granting credit.

Episodes involving large companies, such as Americanas and Light, also raised the alarm among banks, says the expert. “With interest rates remaining high, private banks will continue to be restrained and very cautious.”

The Senso analyst also states that, in the results of the first quarter, it was already possible to identify a drop in the pace of expansion of private banks, with an increase in the levels of provisioning for possible defaults.

When commenting on the results of the first quarter in a conversation with journalists, the president of Bradesco stated that defaults should continue to rise and that the moment still requires a cautious posture from the bank in granting credit.

The president of Itaú stated that the growth of the credit portfolio in the period reflected a more cautious stance on the part of the bank, as well as lower demand from companies.

“We continue to be very cautious, but it is not just a question of the bank’s offer. Quite the contrary. Demand has fallen and we have noticed an important reduction in several segments, especially in companies”, stated Milton Maluhy Filho.