Credit recovery may still take some time

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The Central Bank's signal that the Selic rate cuts will occur at a slower pace than expected is seen as a bucket of cold water on the credit market, but it would not be the only component hindering the sector's recovery. On the credit supply side, analysts believe that risks embedded in operations and not captured by common default indicators – represented by the strong debt renegotiation movement – ​​have set off warning signs for banks and still have room to impose greater deterioration on the segment before a possible recovery.
A study by MCM Consultores indicates that the default rate recorded by financial institutions would be different from that actually contained in the statistics, since these would not take into account the debt renegotiation movement. Thus, the drop in the Selic rate, even if to a lesser extent than expected, could have a positive effect on one of the components of bank interest, the banks' borrowing rate, but not on the second component, the spread.

“As the real risk of operations is still high, affecting spreads, the drop in the Selic rate will probably not be passed on to loan interest rates to the extent that it could, in a way that would increase the volume of nepal number dataset next year,” says MCM economist Sarah Bretones.

Estimates from the consultancy indicate that a reduction of 100 basis points in the Selic would have almost twice the effect on the average rate for individuals and legal entities – which, according to Sarah, the high risk may prevent, especially among individuals.

According to MCM, in the case of legal entities, the default rate actually observed in recent months would be able to explain the increase in spreads charged by banks. The biggest problem would occur with families, where default would be “camouflaged” by the increase in renegotiations during the period. It is especially in this group that the transfer of the lower Selic rate to loan interest rates would be more compromised by the still high risk of the operations.

The Central Bank does not disclose figures related to debt renegotiation in its monthly credit data. However, the Financial Stability Report released in September shows the trajectory of renegotiations over the last two years. Among companies, renegotiations increased by a little over two percentage points between June 2014 and June 2016, reaching 7.12% of the total credit in the system. Among families, the increase was almost four points in the period, to 11.26% of the total credit.