Brazilian banks increased reserves against potential default by 21% in 2011 to 115 billion reais ($67.3 billion) as Brazilian consumers struggled to manage record debt levels, the Correio Braziliense newspaper said on Sunday on its website. Banks’ provisions against bad debt rose higher than in 2008 when the U.S. banking crisis led to a worldwide credit crunch, Correio reported, citing figures from Brazil’s central bank.
After an expansion of credit in 2009 and 2010, Brazilian families are spending about half of their incomes to service debt, and the default rate on consumer credit in Brazil is now a whopping 7.3% of loans, which is more than double the world’s average. But the surprising fact is that the highest default rates are among the so-called “Class A” consumers, the higher-income individuals who are generally considered to have the lowest risk of default.
Non-government banks raised bad debt provisions 26% in 2011 while state-led and state-owned banks raised their provisions 14%, the paper reported. Brazilian banks raised provisions 25% and foreign banks 28%.
According to Reuters, Brazil’s government has been pressuring state-led Banco do Brasil and state-owned Caixa Economica Federal to cut lending rates, a move aimed at expanding credit and encouraging private sector banks to lower costs for borrowers….
… and keep the “credit bubble” going on for a bit more.