Public banks increase participation in the credit market

After seven years, the participation of public banks in credit increased again, according to the Central Bank. The share of these institutions in the country’s total loans went from 42.3% at the end of 2022 to 42.8% in December 2023. In total, around R$2.5 trillion of the financing portfolio was lent by state banks .

Although discreet, the advance observed in 2023 represents a relevant inflection point. After all, the share of banks controlled by the government had been decreasing year by year since the impeachment of Dilma Rousseff (PT).

Their peak participation, 56.8% of total credit, was reached precisely in the last month of the PT member in office – May 2016. It began to decrease in the following months, under the government of Michel Temer (MDB), and continued in decline in the administration of Jair Bolsonaro (PL).

When looking at data from December of each year, the highest number is from the end of 2015, Dilma’s last full year in office.

Share of public banks in the total credit portfolio (source: Central Bank)

The share of public banks continued to grow in 2024. In February, it reached 43.2%, according to data published this Tuesday (2) by the Central Bank.

According to experts consulted by People’s Gazette, two main factors contributed to the increase in the participation of public banks. They are the expansion of targeted credit, such as rural and real estate credit, in which public banks traditionally have a relevant participation; and the crises in companies such as Americanas and Light, which limited the growth in credit granting by private institutions.

Targeted credit portfolio increased by 11.9% in 2023

The balance of targeted credit – loans granted mainly by public banks to companies and individuals for specific purposes and generally with subsidized interest rates – increased by 11.9% last year, points out the BC. In February, it already corresponded to R$2.4 trillion, or 42% of the total market.

Luís Miguel Santacreu, banking analyst at Austin Rating, attributes this growth to the increase in credit granting to two segments: rural and real estate. “These are segments in which public banks are well positioned: BB is strong in rural credit and Caixa in real estate,” he says.

In 2023, credit concessions directed to the countryside grew 10.8%, reaching R$322.1 billion, highlights the BC. “The good moment in agriculture justifies this situation”, says Santacreu. Agricultural GDP grew 15.1% in the same year, driven by an exceptional harvest of 322.8 million tons.

The real estate sector, which depends heavily on targeted credit from public banks, also had a good moment. The real estate financing portfolio with earmarked resources increased 12.8% in 2023, totaling R$1.1 trillion in January.

According to a survey by the Brazilian Association of Real Estate Developers (Abrainc) and the Fundação Instituto de Pesquisas Econômicas (Fipe), sales of new properties grew 29.2% between January and November 2023, compared to the same period of the previous year. The growth was driven by medium and high-end properties and the Minha Casa, Minha Vida program, which represented 48.5% of the total sales value in the 11 months.

Crisis in companies affects private credit

The credit portfolio of private financial institutions ended 2023 at R$3.3 trillion, 7% more compared to 2022. These numbers could be more robust if it weren’t for the problems in large companies.

Two of the most important were with Americanas, which recorded a loss of R$43 billion, and with Light, an energy concessionaire in Rio de Janeiro. The two companies entered into judicial recovery.

The increase in the number of judicial recoveries in 2023, which grew by almost 70% and reached 1,405 requests, also complicated the granting of credit by private banks. The total number of recovery requests was the highest since 2020 and the fourth highest in the Serasa Experian series, which began in 2005.

“This scenario caused private banks to moderate the granting of credit and become more selective”, says Luciano Costa, chief economist at Monte Bravo Investimentos. Institutions were forced to recognize losses, which required capital that could have been used to grant new loans.

Provisions, which are reserves of resources to cover possible future obligations, were increased. Data from the BC show that, at the beginning of 2022, they corresponded to 6% of the credit portfolio of private financial institutions. When the Americanas crisis broke out, in February last year, they rose to 7.2%. The peak, of 7.3%, was recorded between April and August. In February 2023, provisions were 6.9% of the portfolio, according to the BC.

Dominance of public banks can be avoided, analysts point out

Experts indicate that, at least in the short term, public financial institutions are not expected to regain control of the credit market, as happened in the period from June 2013 to April 2019.

The expectation remains despite the more interventionist approach of President Luiz Inácio Lula da Silva (PT) in the economy and the BNDES’ plan to make approximately R$300 billion available to the industry by 2026. “The PT does not govern alone, it is in a coalition and cannot do everything”, says Santacreu.

The analyst also rules out the possible use of these institutions to force a drop in interest rates, similar to what happened during the Dilma Rousseff government, between 2011 and 2016.

Another reason that makes a stronger expansion of public credit difficult is that the economy is relatively heated. “We are not heading towards a brutal recession”, highlights the Austin Rating analyst.

The midpoint of projections by banks, brokers and consultancies for the growth of the Brazilian economy in 2024 is 1.89%, according to the BC’s most recent Focus bulletin. The number has been rising for seven consecutive weeks.

Analysts emphasize that it is necessary to pay close attention to the signals issued by the government. One of the reasons, according to Nicola Tingas, chief economist at the National Association of Credit, Financing and Investment Institutions (Acrefi), is the Lula government’s more progressive economic agenda.

One of the points to be observed, according to Costa, from Monte Bravo, is in relation to possible capitalizations of public banks, such as BB, Caixa and BNDES, by the National Treasury. This measure was used during the Dilma government to strengthen them.

One strategy that could make it difficult for public financial institutions to dominate the credit portfolio is to invest in mechanisms that strengthen the greater participation of the private sector in this market, points out Beto Saadia, partner at Nomos Capital. This is the case with the development of the legal framework for guarantees, sanctioned in October 2023.

Credit portfolio expected to grow in 2024

The Brazilian Federation of Banks (Febraban) expects an expansion in the credit portfolio this year. The growth rate in 12 months has been accelerating: it was 7.6% in January, and increased to 8.1% in February.

“The result can be attributed to the dissipation of the first effects generated by the crisis of the Americanas/Light events in the same period last year”, says Rubens Sardenberg, director of economics, prudential regulation and risks at Febraban.

Still, this is a segment that continues to inspire caution and should present modest numbers at the beginning of the year. On the other hand, credit to families shows more solid signs of recovery, highlights Sardenberg.

A similar scenario was pointed out by the Central Bank in the latest Quarterly Inflation Report, released on Thursday (28). The monetary authority projects a 9.4% growth in the total credit stock for 2024, driven by individuals.

The increase reflects the beyond-expected evolution of free credit, which included higher concessions, the decline in default rates and the increase in the economy’s growth projection.