About two months ago, Serasa Experian’s president Ricardo Loureiro was interviewed by Istoe Dinheiro and said that the huge credit growth in Brazil is sustainable and sees no risk of further increases in defaults. Serasa Experian is Check out the interview’s highlights:
IstoE: The first quarter of 2012 has ended. What are your expectations for this year in terms of credit?
RL: The prospects are good. We expect loan growth at slightly below 20% this year. Last year, we were expecting a 15% growth in loans, but there was an upside surprise with the 19% growth, largely thanks to government measures to contain inflation and stimulate the economy.
IstoE: Is this trend sustainable? Any risk of bubbles?
RL: No. The credit has been growing in a healthy and consistent manner. People are taking loans because they are employed, migrating from informal activities to formal jobs, and receiving higher incomes. In the 12 months ended in December last year, about nine million people took loans for the first time in their lives. Such a breakthrough rate is unprecedented in our country’s recent history.
IstoE: Who are these new borrowers?
RL: Most of these new borrowers are what we like to call the “young from the periphery”. These are pretty much consumers of up to 25 years of age who are entering the labor market. They are buying their first car, bike, tablet, and are migrating from their old cell phone to a smartphone. Another major share of newcomers to the credit market is made by people in the 25-35 years who are enjoying better income conditions.
IstoE: In which sectors these new loans are being granted?
RL: Mostly in small retail chains with 30 or 40 stores in medium-sized cities.
IstoE: Credit growth has also increased risks of defaults. Are these real risks for companies and banks?
RL: No. Default rates are expected to grow slightly in 2012, but there is nothing to worry about. Even with a consistent growth in credit, default is unlikely to be a problem.
RL: First of all, the way financial institutions grant credit is advanced. Banks are using models to reduce risks. Consumers also learned to use credit in a more rational criteria as several awareness campaigns were made to educate them. Another important factor is the recent implementation of a credit history system (“Cadastro Positivo”) to track borrowers who pay their loans on time.
IstoE: The “cadastro positivo” credit tool was praised at its implementation but interest rates are still high. Is it safe to say the system does not work?
RL: It does work but its impact is not immediate. It will probably take some time for its effects to take place and increase competition between banks thus putting downward pressure on interest rates. The credit market as a whole has not yet reached maturity. There is still an unmet demand, particularly in mortgages.