By Adriano Lopes (via Itau BBA).

Yesterday, the Brazilian Central Bank released its monetary policy and credit operations report for August. The drop in the volume of new loans for the second consecutive month took the spotlight in the report. Consumer and corporate delinquency rates remained essentially stable. Interest rates and spreads posted small declines.

The daily average for new consumer loans fell by 2.0% seasonally adjusted in August, in real terms, marking a second straight month of contraction (-4.0% in July). The two latest results undid the strong growth in loans seen in June (+6.5%).

The three-month moving average for new consumer loans retreated to a 0.1% growth in August from 0.4% in July. Over the last 12 months, the increase in the real average of new consumer loans is 3.3%, a low rate relative to the performance of recent years.

The weak performance of new loans in this segment was largely influenced by the seasonally-adjusted retraction in real terms in personal loans and bank overdraft facilities portfolios. On the opposite end, small gains were posted by vehicle financing and interest-bearing credit card portfolios.

Credit conditions became less restrictive: consumer interest rates fell to 35.6% in August from 36.2% in July. Meanwhile, the spread narrowed to 27.7% from 28.4% and the average maturity expanded to 614 days from 610.

The seasonally-adjusted delinquency rates for consumer loans 15 to 90 days past due and over 90 days past due were stable at 6.4% and 7.9%, respectively. Given information that delinquency on new credit facilities already show encouraging signs, we expect consumer delinquency rates to present a downward trend soon.

The real daily average for new corporate loans fell by 3.0% seasonally adjusted in August, marking a second consecutive monthly decline (-2.8% in July). Following an accumulated increase of 7.4% between February and June, the level of corporate loans shrank by 5.7% in the last two months. We believe prospective signs (credit demand, business confidence and a rebound in domestic activity) indicate that new loans in this segment should expand again in coming months.

With this result, the three-month moving average for new corporate loans swung to -1.4% in August from a 0.1% growth in July, marking the first drop in this figure since February. Over the last 12 months, the increase in the real average of new corporate loans is 1.1%.

Guaranteed accounts and working capital portfolios posted some of the most significant declines in the segment. A gauge of core corporate loans (working capital, trade bills and guaranteed accounts) retreated by 3.1% in August in seasonally-adjusted real terms, after falling by 5.5% in July.

Credit conditions for companies became less restrictive: corporate interest rates retreated to 23.1% in August from 23.6% in July, while the spread narrowed to 15.7% from 16.0%. The average maturity rose to 408 days from 406.

The seasonally-adjusted delinquency rates for corporate loans 15 to 90 days past due and over 90 days past due were stable at 2.3% and 4.0%, respectively. In historical terms, the delinquency level in the segment remains high.

Total outstanding loans had a 1.2% monthly lift in August, after rising by 0.8% in July (a seasonally-weaker month). The volume of earmarked credit climbed by 1.6% in the period, while the volume of non-earmarked credit went up by 1.0%.

As a share of GDP, total outstanding loans rose by 0.2% to 51%. From a capital control standpoint, state-owned institutions continued to increase their market share. The year-over-year growth rate for total outstanding loans slowed to 17.0% in August from 17.7% in July.

The Central Bank lifted its expectation for growth in total outstanding loans in 2012 to 16% from 15%, due to a greater dynamism shown by state-owned institutions (with the expected growth rate moved up to 24% from 21%). Breaking down by the origin of resources, the increase in the estimate was focused on non-earmarked credit, upped to 14% from 13% (the expectation for growth in earmarked credit stood unchanged at 20%). The Central Bank’s estimate for total new loans as a share of GDP by the end of the year remained at 52%.

Preliminary data for September (through September 14) show a somewhat better trend for the daily volume of new loans. In nominal terms, new consumer loans are up by 4.6% and new corporate loans are up by 3.3% from the month-earlier period. Assuming the same growth rate until the end of the month, in seasonally-adjusted real terms these figures would represent a small lift in new consumer loans and a slight decline in new corporate loans.

Nominal interest rates and spreads (consumer and corporate) are showing stability relative to August, once again sanctioning the view that new declines in rates should be much less intense now.

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