The default rates of Brazilian consumers rose 21.5% in 2011 compared to the previous year, the largest year-on-year increase seen since 2002 (which was 24.7% compared to 2001), said Serasa Experian (via Exame).
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The rise in inflation, which reduced workers’ earnings, and high interest rates affected the capacity of consumers to pay amid a rise in indebtedness in 2011,” said the entity.Serasa added that this (medium and long term) debt has been in place since 2010, when credit conditions and the consumer’s budget were more favorable than in 2011.
Financial Times had a “change of heart” and now says there is no credit bubble in Brazil
They could be right, after all… who knows. According to FT’s Joe Leahy:
The fears of some hedge funds that Brazil was heading for a US-style credit bubble have failed to materialize. Indeed, as many economists have argued on beyondbrics, the direct analogy between Brazil and the US housing credit bubble is a flawed one.
The consumer credit market in Brazil does not follow obvious international norms. The local mortgage market is tiny. And a large number of consumer borrowers in Brazil take out loans with fixed interest rates rather than floating rates, insulating them from fluctuations in inflation and interest rates. And while the rise in defaults was big, the absolute figures for non-performing loans, although not released by Serasa, are within long-term trends.
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always suspect when someone say "Brazil is different"
"This is not surprising – inflation spent a good part of the second half of last year above the central bank’s already generous target range of 4.5 per cent plus or minus 2 percentage points. This forced the central bank to increase interest rates to 12 per cent before it abruptly began slashing rates in August to head off an economic slowdown."
You and the author fail to mention that inflation finished the year at 6.5% – exactly on the upper limit of the target. The CB thinks that the inflation rate will magically fall this year despite all the excess stimulus pouring in from rate cuts and several measures taken by the government. Liquidity in the past several years has come largely from FDI, and foreign investors have poured cash in based on their assumptions that the currency had stabilized and the CB was hawkish enough to control inflation. With the CB's credibility torn to pieces, its not going to be so easy to attract FDI in 2012 and beyond. When the next round of the Europanic comes to fruitation, compounded by the carry trade unwind and slowing global demand for Chinese goods, Brazil will again have to throw their reserves at protecting the Real. If the situation gets too out of hand, they will have to resort to raising key interest rates to attract enough FDI to rebuild those reserves – as they have done in the past.
não tem bolha de credito? NÃO TEM BOLHA DE CREDITO?
então tá, vamos ver isso depois das demissões começarem, pra ver como é que vão fazer pra pagar os 50% da renda COMPROMETIDA no final de 2012, então
nos eua o estouro começou com uns 16% da renda comprometida, só pra lembrar
FT is sugarcoating reality. This 2012 year will necessarily be one of a reality check for Brazil. Just wait until the end of 1QT.
Objectively look at the huge capital outflows from Brazilian securities the last 3-4 months in 2011.
Also, don't neglect factoring in the (ultra)slow progress in developing the ultra-deep pre-sal wells. With 65% Brazilian component for all related industries, mandated by design of policy, taking out the oil in economically viable quantities in a 5-year horizon is really a pipe dream. Check PBR's stock trayectory in 2011. Check the reasons. Accounting practices at PBR have been identified too laxed (dubious) by GAAP and other conservative international accounting standards.
Be wise. Stay on top of your portfolio. Wait and see whether the storm can be adequately weathered.
It does not matter if rates are adjustable or not. What matters is capacity to REPAY.