While interest rates on auto loans have been receding since May, the consumer credit default rates don’t stop growing. For the sixth consecutive month, the amount of non-performing loans (NPLs) increased in September and reached 4.4% of the balance financed, according to calculations by the National Association of the Automakers’ Financial Arms (Anef). According to the association’s report, the share of the total defaulted loans grew by almost two percentage points this year. In December 2010, the loan delinquency rates accounted for 2.5% and in September was 4.4%.
For instance, here are the banks’ increase in NPLs presented in their Q3 reports:
– Banco Votorantim (owned by Banco do Brasil): delinquency rates up from 3.2% (Q2) to 4.3% (Q3)

Ita├║ Unibanco: delinquency rates up from 5.8% (Q2) to 6.3% (September)
– Bradesco: delinquency rates up from 5.7% (June) to 6% (September)

The increase in NPLs is being driven mainly by the consumers with household income between R$2,000 and R$3,500, which financed vehicles in 60 months starting in 2009.

According to Anef, rising defaults are explained by the effects of inflation, which undermined the debt payoffs. Another factor that contributed to the increased defaults is the credit card. A survey by the Institute with defaulters showed that the “defaulter” gives priority to the card payment over other types of debts, as it tends to restore some of their credit lines.

For many executives in the financial sector, the default rates will stabilize only by 2Q 2012 and the extra income from wage adjustments (starting in January) will not be sufficient to stem defaults in the short term.

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