Brazil household credit

Note this page will only be updated quarterly.


30 Nov 2013.

Brazilian consumers have recently discovered credit: credit outstanding to households grew from 18% to 45% of disposable income in under a decade. However the cost of credit in Brazil, at 20-25% in real terms, is very high. Not surprisingly, then, defaults are rising and credit growth may be slowing. The main take-home lesson for investors is that when Brazilian or global companies point to rapid growth in sales to Brazilian households, one should remain a little skeptical – the long-term growth rate is likely to be considerably slower than that seen in the recent boom.


30 Nov 2013. Data through Sep 2013.

Total credit to households, as a percentage of disposable income:

(Data and chart courtesy of BCB.)


Some background points:

  • “Earmarked” credit means credit subject to directed lending requirements (includes at least some housing loans relevant to household sector).
  • Between 2004 and 2009, private consumption varied from 59% to 64% of GDP.
  • The consumption boom is driving a current account deficit of about 3% of GDP.
  • There is no “positive” credit bureau (credit bureau only tracks those who default).
  • Some people are worried about the high debt-service-to-income ratio (however methodology is obscure)


  • The Time Series Management System contains a “Credit indicators” page, which includes a “Household” category, which includes a series 19882, “Household debt”. After selecting this series, click “Search series” and then “View chart”. According to the metadata, this is all household debt with the financial system, except rural credit, given as a percentage of disposable personal income. (Both of the series I previously followed have been discontinued)

See also

Clippings below were used in the construction of this page

Covered through 6 Nov 2011, except 10 Jan 2011.

"Earmarked" and "non-earmarked"

Mar 2008. BCB FAQ.

“Lending Interest Rates and Bank Spreads”

“At end-December, financing and transfers from the Brazilian Development Bank (BNDES) made up 17.2% of total credit, while earmarked credit to the housing and agricultural sectors represented 4.6% and 6.8% of total credit, respectively. Lending with non-earmarked funds (i.e. funds not subject to directed-lending requirements) represented 70.7% of total credit at the end of 2007.”

Consumer credit growing very rapidly

14 Nov 2009. Economist pi16.

“A better today”

Consumer credit has grown by 28% a year in nominal terms over the past three years. The middle class also needs apartments and houses to put its new purchases in. At the moment mortgage finance accounts for only 2% of GDP, a tiny sum even compared with, say, Mexico (9%), let alone America (85%). Brazilian housebuilders believe that as mortgages develop, the housing market will be a profitable place to be. They seem to have convinced foreign investors, who have provided most of the capital for Brazil’s listed housebuilders. The government reckons the country needs 8m more houses, half to allow families to move out of shared living quarters and half to replace squalid homes. But most builders are even keener to provide apartments for Brazilians who are somewhat better off.

Interest rates will have to come down a lot further before the mortgage market really takes off, but already some companies are securitising mortgages with maturities of three or four years and selling them to investors. In addition to the need to house Brazil’s existing middle class, says Wilson Amaral of Gafisa, a large listed housebuilder, Brazil needs to look to the future: it will have 35m new families by 2030, all of whom will need somewhere to live. Brazil’s population is comparatively young and still growing, mainly through natural increase rather than immigration.”

[emphasis added]

Consumption boom driving imports, not internal sales

6 Dec 2010.

“Brazil: on a buying spree”

“Rising incomes mean that a growing band of lower-middle class Brazilians can afford consumer goods. The strong real magnifies their purchasing power. In September, Brazil’s imports leapt 43 per cent year-on-year, the biggest jump in any of the world’s 30 biggest economies. It was top in August too, when imports surged 57 per cent.

There is nothing wrong with that, in principle. But the money flowing in to commodity-driven emerging markets such as Brazil is driven by the assumption that they run current account surpluses. By contrast Brazil runs a deficit, which is expanding towards 2.6 per cent of gross domestic product this year and is likely to hit 3.3 per cent by 2015, according to the International Monetary Fund. This is the country’s Achilles heel.

Yes, China wants Brazil’s soya beans and iron ore, but the bigger hunger is that of Brazilians for consumer goods. Banks’ reserve requirements were hiked last week, to head off an incipient consumer credit bubble. But the neglected issue is the lack of high value Brazilian products to satisfy consumers’ needs. The strong real makes competing with imports even harder. And the tangle of bureaucracy, taxation and poor infrastructure that inhibits innovation and productivity now even has its own name: the Brazil cost. ”

Private consumption about 60% of GDP

10 Dec 2009. Northern Trust Daily Global Commentary.

“Brazil: Taking the Good from the Bad. Richard Thies”

[Chart shows private consumption as a share of GDP, between 2004 and 2009, varying from 59% to 64%.]

Brazil credit

10 Jan 2011. BW p42.

“Brazil's Credit Boom Could End in Tears. Alexander Ragir and Dawn Kopecki ”

“Brazil's economy grew at a 8.4 percent clip in the first nine months of 2010—its fastest pace in more than 15 years—powered in part by a sharp increase in government-subsidized loans and a rapid expansion in consumer credit. That can be a lethal cocktail. The data in Brazil are troubling: Late payments on credit cards and other consumer loans jumped 23 percent in November from a year earlier, prompting government leaders to begin scaling back their easy-credit policies. …

At the same time, Brazil's central bank is moving to curb the growth in consumer loans. The country has witnessed a fivefold expansion in consumer credit over the past eight years, with the total value of outstanding loans reaching $440 billion in October, according to central bank figures. This explosion was triggered in part by a 2001 regulatory change that allowed lenders to package auto, payroll, and other consumer loans into securities called FIDCs. The market for such notes has grown from nearly $290 million in 2003 to more than $35 billion last year.

Big Brazilian banks have stopped buying the credit portfolios since a November government probe into PanAmericano revealed losses stemming from improper accounting of sales of its loans. “PanAmericano was the wake-up call,” says Denise Debiasi, the São Paulo -based managing director for Latin America at FTI Consulting (FCN), a Baltimore firm that advises on compliance, risk, and finance. “There's risks people may be overlooking—like credit quality—as the market booms.” PanAmericano won't comment on the ongoing investigations, according to a spokesman at the bank's public relations firm.

To head off a subprime-style crisis, Brazilian authorities in December upped reserve requirements on time deposits held by banks to 20 percent from 15 percent. Banks must put aside more capital to back consumer loans whose terms exceed 24 months.

The government is also looking to regulate Brazil's credit-card industry. There are now 153.4 million credit cards in circulation in the country, triple the number from 2003. The average debt load of Brazilian consumers amounts to 18 percent of total disposable income, compared with 13 percent in the U.S., says Morgan Stanley (MS). In a Nov. 30 interview, Henrique Meirelles, who at the time was Brazil's central bank chief, indicated that a special task force would be convened to study the industry. “Some supervision could be proper,” he said. “The case of PanAmericano showed how important this is.” ”

Debt service ratio very high; inadequate credit monitoring

21 Feb 2011. Paul Marshall of Marshall Wallace, in the FT.

“Brazil may be heading for a subprime crisis. Paul Marshall ”

“Brazil has been on a credit binge – over the past 5 years credit growth has run at 2.4 times nominal gross domestic product. This compares with 2, 1.6 and 1.2 times for Russia, India and China respectively. …

the problem lies with the burden this debt is imposing on borrowers. In spite of a fall in inflation to a manageable rate of 6 per cent, the banks in Brazil charge an average lending rate of approximately 25 per cent and, in case of consumer lending, the rates are well in excess of 30 per cent. This means the Brazilian borrower base is paying “real” interest of circa 20-25 per cent against a norm of 1-3 per cent in most countries – borrowing in Brazil is punitively expensive.

For consumers specifically, the ramifications are serious as the debt service burden has risen to 24 per cent of disposable income and is set to rise further as rates push higher. We expect the burden to rise to an exorbitant 30 per cent by 2012. To put this into context, the US consumer “blew up” when the debt service burden hit 14 per cent (with a current read of approximately 12 per cent). In other words, the Brazilian consumer has twice the debt load from a cash flow perspective relative to a US consumer who is still widely regarded as being over leveraged. …

Risk management infrastructure has largely been missing in Brazil’s credit build up, with a “positive” credit bureau still not yet approved owing to consumer protection issues (a positive credit bureau shares credit history of all customers whereas negative bureau shares information for customers only in default, typically this information comes too late). This has enabled borrowers to build multiple lines of credit without the lenders’ knowledge, especially as most loans are “unsecured” and there is no collateral involved.”

Fraga questions consumer credit quality

21 Feb 2011.

“Fraga warns on Brazilian credit growth. Joe Leahy”

“The former central banker who laid the foundation for Brazil’s boom by helping to slay inflation has warned that rapid credit growth in the country needs close scrutiny from policymakers.

Arminio Fraga, one of Brazil’s most successful former central bank presidents, said in an interview with the Financial Times that the quality of some new consumer lending was open to question, although Brazil was not approaching a “subprime”-style crisis.

“I am concerned about the fast loan growth and I’m curious to see what will happen with the quality of these loan books,” said Mr Fraga, who was central bank president between 1999 and 2002 and now runs one of the country’s biggest private equity and hedge fund managers, Gavea Investimentos. “If I had my old job, I would send my troops all over the place to check it out.” …

Analysts have countered that it is difficult to estimate the debt service burden in Brazil, which does not keep track of creditors who have not defaulted, but say concerns of a subprime crisis in the country are overblown.

Mr Fraga said Brazil’s banks were good at lending given their history of dealing with volatile economic conditions and the country’s highly respected central bank would also be monitoring the situation closely.

Recent central bank “macro-prudential” measures, such as those requiring higher reserve requirements for loans, had already imposed a check on some of the biggest excesses.

But he said there was anecdotal evidence of continued risky practices in the system, such as people borrowing the deposit for their real estate loans.

“We may have traces of subprime in the system. It’s always there and you have watch it,” said Mr Fraga at the headquarters of Gavea in Rio de Janeiro. “I don’t think it has gone that far, but whatever it is, you might as well deal with it while it is still small.””

Methodology on consumer debt indicators is somewhat primitive

5 Apr 2011. Bradesco research report.

“Increased credit and household indebtedness in Brazil in recent years cannot remotely be regarded as a credit bubble”

“monitoring the household indebtedness (amount of outstanding debt to annual income or debt-to-income ratio, DTI) and the household debt servicing as a percentage of income (monthly payments of interest and principal as a percentage of monthly disposable income or debt service ratio, DSR) is crucial not only to measure the credit risk but also to verify the potential of household consumption and its impact on economic growth. We cannot underestimate the effects on household consumption provided that 60% of the Brazilian GDP comes from this item.

In theory, monitoring this information should be simple as all that would be needed would be to monitor the ratio of financial debt and income. However, it is not easy to obtain this information as no regular official indicators are available. The Brazilian Central Bank made a move to plug this gap in its Inflation Report of September 2008 when it carried out an exercise to estimate the DTI and DSR of the Brazilian households. Since then, it has improved the way of measuring these indicators to such an extent that in the last publication in September 2010, it introduced the concept of disposable income, excluding income tax payments and social security contributions3. The indicators constructed by the Central Bank captured the advance in credit in relation to income in an aggregate form, not in an individual basis inference.

As the Central Bank has not issued these indicators systematically, we are trying to replicate them by carrying out a monthly accompaniment. Using the methodology described in the Central Bank work, we have obtained a series that is very similar to those of the Central Bank, particularly in relation to its trajectory. It is worth recalling that these series are based on aggregate variables and constitute proxies for the concepts of DTI and DSR. At the same time, it is the trend that is more important than the level of indicators and conveys the main message.

[foonote:] To construct these indicators, we used the credit data from the National Financial System and aggregate income obtained from the compilation of a number of sources by the Central Bank; the methodological information is available in the Inflation Reports of September 2008, June 2009, March 2010 and September 2010 on the Central Bank site”

Arguments that credit is sustainable

5 Apr 2011. Bradesco research report.

“Increased credit and household indebtedness in Brazil in recent years cannot remotely be regarded as a credit bubble”

[Chart shows total bank credit as a percent of GDP for many countries. At the top is the US, at 187%. Brazil is near the bottom, at 47%.]

[However non-mortgage consumer credit is at a more typical level:]

“The performance seen in credit for individuals in Brazil is directly related to macroeconomic factors such as: a) stability and economic predictability which increases the average maturity of the loans; b) reduction in the interest rates and banking spreads which result in lower rates to the consumers; c) expansion of the job market with a fall in the unemployment rate, higher income and formalization which helped to raise consumer confidence and boost the ability to pay; and d) social mobility which has substantially increased access to the banking system in recent years.

The first two factors mentioned above act to reduce the minimum required level of income for a person to be eligible for a credit operation. The third item leads to an increase in the “denominator” of the equation by increasing the level of income and, therefore, the ability to pay as well as allowing Brazilian households to become more “leveraged” thanks to a more stable outlook for employment and income. Therefore, the combination of these elements means the number of potential credit takers in the market can be increased.”

[Chart shows rollover debt at 8% of total household debt, home loans at 20%, and consumption at 72%.]

“It is worth pointing out that the trajectory of the DSR indicator showed a very small rise in recent years despite the strong growth of the loan portfolio. This performance, which seems somewhat counterintuitive at first glance, was caused by the reallocation of credit towards less expensive and longer (in terms of average maturity) credit lines. On the other side, the high growth of disposable income also contributed to the good performance of the indicator. Therefore, even if the total credit for households has expanded at high rates, this growth added no great weight to the consumer ́s monthly debt burden. …

Despite the big increase in the average maturity of the loan portfolio of personal loans in Brazil it is still low (in global comparisons) and comes to 559 calendar days. As a result, the stock of credit in the economy does not compromise the future flow of household income to any great extent. It makes all the difference if the consumers in a country have, for example, 10% of their income compromised for the next 10 to 20 years for home loans or have 22% of their income committed to a debt that matures in less than two years. This means that in the event of any shock, the consequences would be reduced, as the future flow of income will be “charged” only for a very short period of time on the burden of the debt service. …

Looking ahead, the expected reduction in real interest rates could more than offset an increase in the bank credit/GDP ratio in terms of the household DSR. In other words, when interest rates fall and households increase their leverage, the DSR will not necessarily increase precisely because of the drop in the principal component of the debt which is the interest rate. The likelihood is that if Brazil is able to get by with real interest rates of 3% to 4% in the coming years, the household DSR will probably fall rather than increase despite the rise in the credit/GDP ratio. As the credit portfolio is mainly prefixed and also short in maturity, the aggregate DSR will probably drop with the decline in interest rates within a short time, as the new flows of credit get to the system.”

Consumer defaults rising

20 Jun 2011.

“Brazil credit bubble fear as defaults rise. Joe Leahy”

“Consumer defaults in Brazil are expected to increase by a third by the end of this year, according to a leading credit rating agency, fuelling concerns over a boom in lending that some economists fear could turn into a credit bubble.

The level of loans overdue by 90 days has risen rapidly in recent months to 6.1 per cent and is expected to reach 8 per cent by the end of December, said Ricardo Loureiro, president of Experian Latin America, the credit rating agency. …

In most countries, defaults are coming off a cyclical low, but credit quality is expected to come under pressure again as central banks increase interest rates to fight rising inflation.

State Bank of India, the country’s largest bank, reported its net profit in the March quarter was nearly wiped out by provisions for bad loans, while the International Monetary Fund has warned of the high levels of bad loans at east European banks.

In Brazil, while consumer defaults remain low by its historical averages of more than 10 per cent and are still considered to be within reasonable levels, they are higher than in most other emerging markets. …

These new[ly middle class] consumers have begun borrowing to buy homes, cars and household appliances, contributing to a near 100 per cent rise in private credit since 2007, according to the International Monetary Fund.

Brazilian banks expect double-digit increases in credit growth this year in spite of charging an average interest rate of 39 per cent.

“In spite of signs of some cooling [in the economy], the expansion of credit is persisting for individuals and companies,” the central bank said in the minutes of its last monetary policy meeting.”

Defaults rising with unemployment steady signals a structural problem

4 Jul 2011.

“Brazil risks tumbling from boom to bust. Paul Marshall and Amit Rajpal”

“We calculate that the debt service burden for the so-called “middle class” in Brazil has now breached 50 per cent of disposable income, as high income earners have little need to borrow at rates which are punitive and most of the consumer credit is therefore being directed to the “middle class” for consumption. …

Meanwhile, delinquencies in Brazil (defaults in excess of 15 days) have begun to move up rapidly, from 7.8 per cent to 9.1 per cent of total loans between December 2010 and May 2011. Delinquencies are now rising at a very hectic rate. They have risen at 23 per cent in the first five months of this year in absolute terms or at an annualised rate of 55 per cent.

This is troubling as credit indicators have deteriorated even as the economy has stayed strong and the unemployment rates are at a record low.

Normally credit indicators cyclically follow (read lag) the economic cycle. When they begin to deteriorate before any economic weakness it usually represents a structural problem relating to underlying cash flow or underwriting weakness in the quality of credit – Brazil has both problems.”

Paul Marshall is chief investment officer at Marshall Wace and co-manager of the Eureka Fund. The piece was co-authored by Amit Rajpal, portfolio manager of MW Global Financials Funds.”

BCB overview

Aug 2011. BCB overview.

(see also

“Brazil: Economic and Financial Sector Overview”

[Note the DSR numbers don't match numbers elsewhere on the BCB site, though the trend is similar. And Bradesco presents the same debt info, but says is it percent of annual income.]

US debt service ratio for comparison

20 Sep 2011. Federal Reserve.

“Household Debt Service and Financial Obligations Ratios”

“The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.”

period  dsr
00q1 	12.03 	17.12 	29.02 	14.70 	8.65 	6.05
00q2 	12.20 	17.26 	29.38 	14.82 	8.70 	6.11
00q3 	12.36 	17.39 	29.73 	14.93 	8.73 	6.20
00q4 	12.59 	17.66 	30.44 	15.13 	8.83 	6.30
01q1 	12.67 	17.73 	30.48 	15.20 	8.84 	6.35
01q2 	12.86 	17.98 	30.89 	15.41 	8.97 	6.44
01q3 	12.73 	17.78 	30.96 	15.19 	8.88 	6.31
01q4 	13.11 	18.26 	31.05 	15.71 	9.14 	6.57
02q1 	12.96 	17.99 	30.36 	15.54 	9.02 	6.53
02q2 	13.01 	18.00 	29.86 	15.65 	9.10 	6.55
02q3 	13.18 	18.16 	29.49 	15.91 	9.28 	6.62
02q4 	13.25 	18.20 	28.93 	16.05 	9.41 	6.65
03q1 	13.27 	18.15 	28.34 	16.12 	9.48 	6.64
03q2 	13.21 	18.02 	27.67 	16.09 	9.47 	6.62
03q3 	13.15 	17.88 	26.90 	16.07 	9.47 	6.60
03q4 	13.21 	17.92 	26.60 	16.19 	9.57 	6.62
04q1 	13.24 	17.93 	26.19 	16.28 	9.66 	6.63
04q2 	13.20 	17.88 	25.76 	16.31 	9.71 	6.60
04q3 	13.36 	18.03 	25.57 	16.53 	9.87 	6.66
04q4 	13.32 	17.94 	25.41 	16.47 	9.92 	6.55
05q1 	13.68 	18.39 	25.48 	16.97 	10.31 	6.66
05q2 	13.80 	18.51 	25.34 	17.14 	10.48 	6.65
05q3 	13.69 	18.38 	25.23 	17.01 	10.42 	6.59
05q4 	13.78 	18.47 	25.19 	17.13 	10.58 	6.55
06q1 	13.73 	18.40 	24.98 	17.09 	10.67 	6.42
06q2 	13.78 	18.48 	25.06 	17.18 	10.84 	6.34
06q3 	13.88 	18.61 	25.19 	17.31 	11.02 	6.29
06q4 	13.87 	18.66 	25.38 	17.34 	11.08 	6.26
07q1 	13.85 	18.67 	25.09 	17.38 	11.16 	6.23
07q2 	13.88 	18.75 	25.35 	17.43 	11.21 	6.22
07q3 	13.96 	18.85 	25.30 	17.55 	11.30 	6.25
07q4 	13.89 	18.75 	25.01 	17.48 	11.25 	6.23
08q1 	13.62 	18.41 	24.81 	17.11 	11.00 	6.12
08q2 	13.22 	17.92 	24.38 	16.62 	10.68 	5.94
08q3 	13.35 	18.16 	25.07 	16.77 	10.76 	6.01
08q4 	13.41 	18.36 	25.57 	16.90 	10.86 	6.04
09q1 	13.42 	18.49 	25.84 	16.97 	10.94 	6.03
09q2 	13.13 	18.22 	25.54 	16.69 	10.80 	5.89
09q3 	12.98 	18.14 	25.67 	16.56 	10.74 	5.82
09q4 	12.71 	17.87 	25.52 	16.27 	10.61 	5.65
10q1 	12.27 	17.36 	25.10 	15.75 	10.31 	5.44
10q2 	11.94 	16.98 	24.75 	15.35 	10.09 	5.27
10q3 	11.73 	16.74 	24.40 	15.14 	9.98 	5.16
10q4 	11.55 	16.55 	24.04 	14.97 	9.88 	5.09
11q1 	11.24 	16.26 	24.01 	14.63 	9.67 	4.96
11q2 	11.09 	16.09 	23.96 	14.44 	9.54 	4.90

Similarities/difference with US

6 Nov 2011.

“Brazil banks outshine global rivals. Joe Leahy”

”… Andre Esteves, chief executive of BTG Pactual, Brazil’s largest independent investment bank. …

A series of reforms in the mid-1990s and early 2000s coupled with lower inflation and interest rates have produced average annual credit growth of 22 per cent in Brazil since 2003. In 2002, total credit to the private sector amounted to 26 per cent of gross domestic product, today it is 47.3 per cent.

Much of the growth in loans to individuals has come from three types of credit that are considered more secure – mortgages, car and payroll credit. Payments on payroll loans are deducted directly from people’s salaries. …

Mr Esteves says Brazil’s asset quality and risk compliance measures are also highly conservative because of the country’s history of financial crises. For instance, the controlling shareholders of a bank in Brazil have unlimited personal liability.

“So if something goes wrong with Pactual, people can get my house,” says Mr Esteves. “This is a very different philosophy than the US and Europe.”

Yet delinquencies have risen this year as inflation has eaten into borrowers’ incomes, prompting the government to increase interest rates. Consumer loan defaults – measured by loans in arrears for more than 90 days – were at a 15-month high in September at 6.8 per cent.”

Evidence the credit boom is running out of steam

5 Jun 2012.

“Brazil car sales hit by loan defaults. Joe Leahy”

“New car sales in Brazil in May fell almost 10 per cent compared with a year earlier, as defaults on car loans and a scarcity of credit weighed on the sector, according to figures from the Fenabrave car dealership association. …

The Brazilian government is keen to kick-start an industry that until last year symbolised the rapid growth of domestic consumption. …

Last month, the government launched a stimulus package worth more than $10bn to revive the car industry. …

As part of the stimulus measures, the government removed its 7 per cent industrial production tax on eligible smaller cars until the end of August and said the levy on larger vehicles would be reduced.

The central bank was also planning to reduce its reserve requirements for car loans, freeing up about R$18bn ($8.9bn) that private and state-run banks could potentially lend to the sector.”