Brazil credit bubble

It’s one of those questions guaranteed to get everyone from homeowners to government officials hot and bothered: is there a real estate bubble in Brazil?

With memories still fresh of the housing market collapse in the US, among other countries, many have pointed to the sharp rise in Brazilian real estate prices over the past few years as evidence of a bubble. There are even entire websites dedicated to the subject.

However, the debate returned to the headlines this week after Yale University’s Robert Shiller, widely known for predicting the US housing crash, weighed in on the issue during an event in Campos do Jordão. Read more

Earlier this week, Banco do Brasil called a relative of mine to offer her an “opportunity to change her life” – a payroll loan. This is a form of credit whose repayments are cut directly from your pay packet every month.

The only problem was, Banco do Brasil did not do its homework. This would-be borrower is a student and doesn’t earn an income. The anecdote shows the length that banks in Brazil are going to in order to continue the country’s credit-driven economic miracle. Read more

If there is one thing that investors are worried about when it comes to Brazil, it is how far the country’s consumer credit boom of the past decade still has to run.

Not too much further, say critics, who point to a rise in average household expenditure on servicing debt. And indeed, private sector credit has doubled over the past decade.

But Data Popular, a research firm, has come up with a startling finding that could give hope that Brazil’s credit binge can continue – without degenerating into a bubble. Apparently, 55m Brazilians – or 40 per cent of the country’s population – don’t have a bank accountRead more

On the homepage of Banco do Brasil, Brazil’s largest bank, you can take out a loan to buy a car, renovate your house or buy electronics and home appliances. Indeed, never before in Brazil has it been so easy to borrow money from a bank. Record-low interest rates are expected to make things even more attractive for borrowers.

Tipping things even further in favour of borrowers is a push by President Dilma Rousseff to encourage banks, all of them but especially those controlled by the government like Banco do Brasil, to reduce borrowing costs to further fuel lending and get the economy moving. Read more

Brazil’s government, retailers and banks are all interested in reviving the jaded Brazilian consumer, the driver of economic growth in recent years.

But interest rates in the country are phenomenally high, with users of credit cards, for example, paying an average of 238.3 per cent a year, according to Anefac, a financial sector association. Worse, the charges aren’t always as clear as they might be to the shoppers at the tills. Read more

Fears of a credit bubble in Brazil have been receding recently and figures published on Thursday give further reason to breath easy.

Serasa Experian, a credit analysis company, said its consumer credit outlook index fell to 98.6 in June, its third contraction in a row. That, says the company, means the volume of consumer credit in Brazil will continue to rise only slowly during the second half of this year. Read more

Panic set in overnight (okay, yes we are being a bit melodramatic) when Moody’s announced a downgrade of some of the biggest names in Brazilian banking.

Moody’s ratings actions affected the Brazilian subsidiaries of Spain’s Santander, HSBC and ING, as well as the local lenders Bradesco, Banco do Brasil, Itaú-Unibanco, Banco Safra, Votorantim and the exchange operator BM&FBovespa. They were downgraded by one to three notches, mostly to bring them nearer to the sovereign rating as part of a global overhaul of Moody’s view of the financial sector first flagged in February. Read more

In a world obsessed with the European crisis, few might have noticed that today was an historic moment in the history of Brazilian credit.

For the first time, the total stock of Brazilian debt advanced to the equivalent of more than half of gross domestic product, or 50.1 per cent as of end-May, up from 45.7 per cent a year earlier, the central bank said. This is an important moment in a country that was once starved of credit because of its history of runaway inflation. Read more

When Brazil’s PanAmericano bank came close to collapse in late 2010 following accounting “irregularities”, the central bank swore it was a one-off. And as other smaller banks have run in to difficulties since, the central bank has stuck with its “nothing to see here” line.

However, it was hard to ignore the similarities on Monday when the authorities said they were seizing control of Banco Cruzeiro do Sul following a series of irregularities. Read more

A big disappointment from Brazil’s statistics agency on Friday: GDP growth came in far below expectations in the first quarter at 0.8 per cent year on year and just 0.2 per cent over the previous quarter.

The figures will set alarm bells ringing in Brasília, where the government has been doing all it can to kick start the flagging economy. Read more

More interesting data on Brazil’s credit market on Tuesday: the number of consumers looking for loans fell by 11.2 per cent from March to April and demand for credit during the first four months of the year fell by 7.6 per cent compared to the same period last year – the sharpest fall in demand for credit since 2008, according to Serasa Experian, a credit data company.

The figures offer further evidence that Brazil’s credit-fuelled consumer boom is running out of steam. Read more

The latest weekly survey of market economists by Brazil’s central bank, published on Monday, shows that interest rates are expected to keep falling. Whether you think the central bank is acting for purely technical or for political reasons, there is not much doubt that it is acting.

Why? Brazil’s credit-fuelled consumer boom seems to be running out of puff. One very simple chart from Alliance Bernstein shows how hard it might be go get it going again. Read more

Not so long ago, companies would often attribute their growing profits to the strong performance of their Brazilian unit. Now it seems Brazil is to blame for their losses.

Spain’s Santander is due to report its first-quarter earnings before the markets open on Thursday in Madrid, and the results aren’t going to be pretty. According to Bloomberg estimates, net income likely fell about 22 per cent to €1.64bn from €2.11bn a year earlier.

While write-downs on Spanish real estate will have taken their toll, an expected 23 per cent reduction in earnings in the key Brazilian market will also explain the bank’s losses. Read more

Sick of paying high rates on your overdraft? Well just be grateful you don’t live in Brazil. The overdraft interest rate rose to 188 per cent a year in July – the highest since 1999.

But what is more extraordinary, perhaps, is that Brazilians are willing to pay that much. According to local newspaper O Estado de S. Paulo, Brazil’s banks currently make about R$3.5m a day giving out overdrafts to these desperate customers. Read more

Brazil’s central bank has become such an expert at crafting macro-prudential measures and capital controls that these days even some market analysts are struggling to understand them.

When called on Monday about the latest measure – regarding credit card loans – an economist in São Paulo admitted he was a bit stumped by it. Read more

There was quite a debate here on beyondbrics last week about whether or not Brazil has got itself into a credit bubble. On balance, the consensus was that the banking system isn’t heading into a crisis, but consumers are overstretched – and that this is a real threat to growth.

It looks as though investors agree. After the break is a chart showing the performance of Itaú Unibanco’s shares over the past year. Read more

Brazilian retailThere’s been a lot of debate in beyondbrics around whether Brazil’s economy is blowing bubbles. Certainly the signs of a hot economy are everywhere. Mercer just judged São Paulo the 10th most expensive city in the world. Warehouses rentals here are now the fourth most costly in the globe. Prime office space in some parts of Rio de Janeiro cost more than those in New York. Consumer credit defaults are rising.

The FT decided to take the pulse of Brazil’s economy by visiting a poor neighbourhood of Salvador, in the booming northeast, and through interviews with prominent economists. The result? Brazil is doing well but consumers are beginning to look stretched and the country is too exposed to the vagaries of commodity prices. Brazil needs to increase productivity to make its economic miracle more sustainable. For the full story, click here.

Now it’s time for Neil Shearing of Capital Economics to weigh into the debate on the Brazilian credit bubble.

On the bubbleometer scale between Paul Marshall and Amit Rajpal of Marshall Wace (Brazil risks “a fully fledged credit crisis”) and Roberto Attuch and Fabio Zagatti of BarCap (consumers are not overstretched at all), Shearing is closer to Tony Volpon of Nomura Securities (no credit bubble, but consumers are overstretched). But he adds a thumping warning: consumers are so overstretched that Brazil’s economy is about to hit a wall, with growth falling to 2.5 per cent in 2013 from 7.5 per cent last year. Read more

There’s been quite a debate this week on Brazilian credit. First Paul Marshall and Amit Rajpal of Marshall Wace, a hedge fund, said Brazil risked “a fully fledged credit crisis”. Then Tony Volpon of Nomura Securities said it faced no such thing – although he did agree consumers were overstretched and that this was “an under-appreciated downside risk to future economic growth”.

Taking the debate further are Roberto Attuch and Fabio Zagatti of Barclays Capital in São Paulo, who say consumers are not overstretched at all – and certainly not to the extent of threatening future credit expansion. Read more

By Tony Volpon of Nomura Securities

Is Brazil facing a credit bubble? With credit to GDP rapidly rising (from around 25 per cent in 2005 to 47 per cent now) in an environment of rapid demand growth and massive capital inflows, investors are right to worry. But looking both at the data and the unique characteristics of Brazil’s credit market, we see no credit bubble – though we do see an overstretched consumer and under-appreciated downside risks to future economic growth. Read more