Key facts
- Brazil's largest banks are becoming more cautious about extending credit.
- Lenders are shifting towards secured products and higher-income borrowers.
- Household debt burdens are near record levels, around 50% of disposable income.
- Banks are reducing exposure to lower-income clients and unsecured lending.
- Some banks are focusing growth on payroll loans to reduce delinquency ratios.
- Nubank reported a rise in loans more than 90 days past due.
Brazil's largest banks are adopting a more cautious approach to lending, signaling a shift towards secured products and clients with higher incomes. This strategic pivot comes as household debt levels remain near record highs, around 50% of disposable income, despite a robust labor market and an economy that is outperforming expectations.
Following earnings reports from major lenders like Itau, Bradesco, Santander Brasil, and Banco do Brasil, executives consistently conveyed a message of retreating from riskier borrowers and unsecured lending. This defensive stance suggests banks are preparing for a potentially more challenging phase of the credit cycle, after years where strong household borrowing fueled economic growth.
Analysts note that this caution reflects concerns that Brazil's economy may be entering a slower growth period, following an expansion partly driven by household leverage. Historically, periods of strong credit growth coupled with rising household debt have preceded deeper consumer spending slowdowns. The current situation is unusual because household finances have deteriorated significantly even with low unemployment and improving incomes.
Factors contributing to this trend include broader access to credit due to regulatory changes, fintech expansion, and digital payment adoption. Additionally, government policies aimed at boosting consumption and credit, particularly those championed by President Luiz Inacio Lula da Silva, have increased household leverage, often through higher-cost unsecured loans.
In response, banks are becoming more selective. Banco do Brasil executives indicated a focus on payroll loans to improve delinquency ratios. Itau's CEO warned that the volume of credit in the market exceeds its absorption capacity, leading the bank to favor secured lending. Bradesco's CEO stated a significantly lower appetite for lower-income clients, with a portfolio now more substantially backed by collateral. Santander Brasil is also reducing exposure to borrowers earning less than 4,000 reais per month, prioritizing collateralized transactions for higher-income clients.
Banco do Brasil's CEO highlighted increasing the number of "high-value clients" as a key strategic priority. Meanwhile, Brazil's largest digital lender, Nubank, reported a rise in its non-performing loans, though management remains optimistic about consumer health despite a cautious macroeconomic environment.