Bank loans overdue for at least 90 days in Brazil rose in November to their highest in two-and-a-half years, the central bank said on Tuesday, as the deepest recession in decades and rising credit costs strained borrowers' capacity to stay current on their debts. The so-called 90-day default ratio, a benchmark for delinquencies, rose to the equivalent of 5.2 percent of outstanding non-earmarked loans in November, the central bank said in a report. The ratio was the highest since at least May 2013, when it reached 5.5 percent.
The default ratio grew from 5 percent in October and about a full percentage point over the past year, as rising unemployment and stubbornly high inflation also eroded the ability of companies and households to pay their debt. Latin America's largest economy shrank by an annual 4.5 percent in the third quarter, the steepest drop since the current data series began in 1996. Consumer defaults were stable last month after a costlier refinancing of revolving credit card and payroll loans offset early debt repayments. Corporate defaults climbed, reflecting increased delinquencies in working capital, trade finance and guarantee letter-backed credits.
The data provides a glimpse into loan-book quality as the nation's largest banks get set to report fourth-quarter results next month. However, early default ratios, or loans in arrears between 15 days and 90 days, fell for both individual and corporate borrowers, indicating that future delinquencies may be on the mend. The current credit cycle, the period time from trough to peak levels in defaults, has lasted eight months, and could extend for at least another 10 months, according to Goldman Sachs Group Inc estimates. "We see risks it could be worse," said Carlos Macedo, Goldman's senior Latin America banking analyst.
Last month, provisions as a share of capital remained unchanged for a second consecutive month, indicating some comfort with past efforts to cushion their balance sheets from weaker borrower creditworthiness. Private-sector banks kept provisions at their highest levels in over three years. While banks remain well capitalized, downside risks for profitability have grown. The recession has forced banks to tighten loan disbursement standards, propelling average interest rates to 48.1 percent - the highest in a decade. Lending rose 7.4 percent in the 12 months ended in November, the slowest pace since at least 2011 and in line with the central bank's 7 percent estimate for the year.
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