Brazil's government wants the nation's top banks to help reignite a listless economy via a major expansion in lending, but concerns about high default rates persist.
An increase in lending is seen as essential if Brazil is to jump-start economic growth. While lending has more than doubled over the past 10 years, the pace of growth fell in 2012 and has been blamed, in part, for disappointing growth in 2012. In 2012, lending by all banks increased 16.2% to a record of nearly 2.4 trillion Brazilian reais ($1.2 trillion).
But that was the lowest expansion in years. By comparison, lending rose 19% in 2011 and 21% in 2010. Brazilian gross domestic product expanded by only 2.7% in 2011 and by an estimated 1.0% last year.
The consensus forecast for 2013 is better at 3.1% but still lags behind developing-country rivals China and India. "Last year, the leading private-sector banks expanded credit portfolios by only 7% to 8%," Finance Minister Guido Mantega told reporters Tuesday after meeting with a group of bank presidents. "That was insufficient."
Mr. Mantega added that during the meeting, he was able to get a pledge of 15% to 17% for credit expansion this year. If so, that might lift some of the burden from public-sector banks, such as sprawling Banco do Brasil (BBAS3.BR) and the huge Caixa Economica Federal mortgage bank.
On orders from Brazilian President Dilma Rousseff, the government banks accelerated lending in 2012. Public-sector banks ended the year with a total share of the lending market equal to 47.6%, up from 43.5% in 2011, according to Brazilian Central Bank data.
Although Brazil's big three private-sector banks, Itau (ITUB, ITUB4.BR), Bradesco (BBD, BBDC4.BR) and Santander Brasil (SANB11.BR), may have delivered a private promise to increase lending, their public statements have been more cautious.
At a news conference Tuesday, Itau President Roberto Setubal said, "In our case, we witnessed a deterioration in loan defaults during some quarters of last year, and we experienced problems in key consumer-credit areas, such as motor-vehicle loans."
Mr. Setubal was touching upon a sensitive area for Brazil's banks, which saw overall loan defaults rise to a record 5.9% at mid-year 2012. As of December, defaults had eased, but only slightly, to 5.8%. Defaults at the end of 2011 were 5.5%.
Nevertheless, Mr. Setubal also sounded a positive note, saying, "In 2013, we're going to see a more-stable economy, with the financial system returning to a more-normal style of functioning." But "normal" may not be quite the same as before.
"This year, with an expected improvement in default rates, maybe lending will increase by around 15%, but we will never again see the pace of expansion that we saw in the past decade," said Carlos Kawall, chief economist at Sao Paulo's Banco J. Safra.
"The great expansion of the past decade occurred because of a low basis of comparison." In his comments Tuesday, Mr. Mantega summarized a hopeful logic: "If lending volume increases, the economy will respond, and that in itself will help pull down loan defaults."
foxbusiness.com
An increase in lending is seen as essential if Brazil is to jump-start economic growth. While lending has more than doubled over the past 10 years, the pace of growth fell in 2012 and has been blamed, in part, for disappointing growth in 2012. In 2012, lending by all banks increased 16.2% to a record of nearly 2.4 trillion Brazilian reais ($1.2 trillion).
But that was the lowest expansion in years. By comparison, lending rose 19% in 2011 and 21% in 2010. Brazilian gross domestic product expanded by only 2.7% in 2011 and by an estimated 1.0% last year.
The consensus forecast for 2013 is better at 3.1% but still lags behind developing-country rivals China and India. "Last year, the leading private-sector banks expanded credit portfolios by only 7% to 8%," Finance Minister Guido Mantega told reporters Tuesday after meeting with a group of bank presidents. "That was insufficient."
Mr. Mantega added that during the meeting, he was able to get a pledge of 15% to 17% for credit expansion this year. If so, that might lift some of the burden from public-sector banks, such as sprawling Banco do Brasil (BBAS3.BR) and the huge Caixa Economica Federal mortgage bank.
On orders from Brazilian President Dilma Rousseff, the government banks accelerated lending in 2012. Public-sector banks ended the year with a total share of the lending market equal to 47.6%, up from 43.5% in 2011, according to Brazilian Central Bank data.
Although Brazil's big three private-sector banks, Itau (ITUB, ITUB4.BR), Bradesco (BBD, BBDC4.BR) and Santander Brasil (SANB11.BR), may have delivered a private promise to increase lending, their public statements have been more cautious.
At a news conference Tuesday, Itau President Roberto Setubal said, "In our case, we witnessed a deterioration in loan defaults during some quarters of last year, and we experienced problems in key consumer-credit areas, such as motor-vehicle loans."
Mr. Setubal was touching upon a sensitive area for Brazil's banks, which saw overall loan defaults rise to a record 5.9% at mid-year 2012. As of December, defaults had eased, but only slightly, to 5.8%. Defaults at the end of 2011 were 5.5%.
Nevertheless, Mr. Setubal also sounded a positive note, saying, "In 2013, we're going to see a more-stable economy, with the financial system returning to a more-normal style of functioning." But "normal" may not be quite the same as before.
"This year, with an expected improvement in default rates, maybe lending will increase by around 15%, but we will never again see the pace of expansion that we saw in the past decade," said Carlos Kawall, chief economist at Sao Paulo's Banco J. Safra.
"The great expansion of the past decade occurred because of a low basis of comparison." In his comments Tuesday, Mr. Mantega summarized a hopeful logic: "If lending volume increases, the economy will respond, and that in itself will help pull down loan defaults."
foxbusiness.com
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