CEIC Data Blog

Brazil Consumer Credit Growth: Too Fast, Too Furious?

 

Brazil’s consumer credit expansion has been crucial in the growth of its private consumption sector, allowing Brazil to not only bring about a domestic demand-led recovery but help to push GDP to BRL 3,675 billion, catapulting it to the 5th largest economy among G-20 countries. Since October 2010, Brazil’s credit expansion has recorded an average annual growth rate of 20.5%. This credit expansion is related to the 24.9% year-on-year growth in personal credit, which contributed 48.9% of total consumer loans and amounted to BRL 426.9 billion in January 2011.

Brazil’s Credit Expansion
Brazil Credit Expansion
Chart provided by: CEIC Data

The persistent double-digit growth in consumer loans excites some while worrying others. Higher consumer credit has been attributed as one of the main drivers for Brazil’s remarkable economic growth during the recent periods. On the other hand, some commentators fear that the growing consumer credit may be indicative of “overheating” in consumer credit loans, or worse, of rising non-performing loans. Of concern, vehicle-related loans have been the fastest growing consumer loan, rising at an alarming 49.0% year-on-year growth in January 2011 and constituting 33.4% of total consumer loans, second only to personal credit. This development raises fears of a potential credit bubble in vehicles-related loans. Despite these fears, commentators can take some solace in improving credit risk throughout the financial system, along with falling loan default rates from 7.5% in January 2010 to 5.7% as of January 2011.

Notwithstanding the improvements in loan repayment, the Central Bank of Brazil has adopted key macro-prudential measures to curb overheating in consumer credit loans. Steps taken include raising the reserve requirement ratio on time deposits and current accounts in December 2010. These macro-prudential measures have slightly slowed the credit expansion, bringing loans-to-GDP ratio down to 46.5% on January 2011 from its peak, 46.7% on December 2010.

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