Amit Rajpal, a portfolio manager at Marshall Wace, points to an increase in bad loans in Brazil. The percentage of household loans over 90 days overdue rose to 8% in May from 7.8% in April. Speaking to Bloomberg, Rajpal said, “What we’ll see now is basically a full-blown credit problem.” He believes it will resemble the US subprime crisis.
Here is what Timetric’s response on Rajpal’s statement (followed by a chart to support their argument):
“Rajpal’s prediction appears largely unfounded. Brazil has experienced strong credit growth, but the pace is now easing. Household income devoted to debt service has held relatively stable at around 22%. Finally, the banking system is capable of absorbing bad loans. Its capital adequacy ratio is above that in most other emerging markets at 16.3% at end-2011. Loan quality may deteriorate further and consumer spending may slow, but we see no crisis on the horizon.”
Credit growth is easing with bad loans below 2009 levels