Brazil lending market report

Transcription

1 Brazil lending market report Released on March 6th, 217 at Lendit 217 Creditas Consultoria Financeira Ltda.

2 Executive summary 1. With 2 million population and US$5+ billion in outstanding debt, Brazil represents a unique opportunity to disrupt the lending space 2. Average spread of 32% create a revenue pool of US$16 bullion despite average NPLs stand at a relatively low 3.4% 3. Three unsecured products (personal loans, credit cars and overdraft) combine US$56 billion in outstanding debt that is priced at above 2%; these category represents 7%+ of the industry s net interest margin despite it provides less than 15% of all outstanding debt 4. Secured lending is clearly underpenetrated, with mortgages at 12% of GDP and auto financing representing less than US$1k per active car 5. With severe economic crisis, banks have hit the breaks of loan origination and further increase margins, despite NPLs remained stable 217 Creditas Soluções Financeira Ltda. 2

3 Brazil has $55 billion in outstanding household debt with 31.9% spread Outstanding Debt ($ mn) Annual Origination ($ mn) Term (months) APR % Spread % NPL % Market-rates debt Payroll loans Auto loans Personal loans Credit cards Overdraft Renegotiations Purchase loans Others Earmarked debt Mortgages n.a. 1.5 Rural credit n.a. 2.2 BNDES credit n.a. 1 Others n.a. 6.7 Cards (not carried) Total debt Creditas Soluções Financeira Ltda. 3

4 Outstanding household debt has been falling for 2 years in real terms Inflation adjusted outstanding household debt Inflation adjusted credit % increase 3% 25% 2% The last ten years have been characterized by a rapid growth of outstanding household debt. In 26 consumers had borrowed R$33 billion (R$62 billion at current prices) in loans from the financial system; ten years later, the volume stands at R$1.6 trillion (1% inflation-adjusted CAGR). Credit kept 15% growth rates even in the 28-9 turmoil while Brazilian GDP was collapsing by 5% % 1% 5% In the last couple of years though, credit growth has lost its shine, contracting in real terms by 3% annually in 215 and 216 With inflation decelerating in 216 and now expected to be below 5% in 217, we expect credit expansion to recover towards the second half of the year 4 % 2-5% Dec 6 Dec 8 Dec 1-1% 217 Creditas Soluções Financeira Ltda. 4

5 Household debt stands at 24.8% of GDP Outstanding household debt to GDP Earmarked credit / GDP Nonearmarked credit / GDP Today household credit in Brazil represents 24.8% OF GDP (down from 25.6% a year ago) Household debt to GDP has doubled in a decade, from 12.3% in 26 Non-earmarked resources (market-rates debt), those not related to compulsory deposits or government funds, have been dropping since 212 Despite doubling its share as a percentage of GDP, 24.8% is a relatively modest ratio when compared to international standards 1 5 Dec 6 Dec 8 Dec Creditas Soluções Financeira Ltda. 5

6 At 42% debt-to-income, Brazil has low indebtedness level 35 3 Household debt to income ratio In line with the rise of household debt to GDP, debt as a percentage of disposable income has increased to 42.2%, falling from 46% 2 years ago At this level, Brazil is highly underleveraged compared to international markets DNK NLD NOR AUS CHE SWE CAN KOR GBR PRT FIN ESP GRC BEL USA FRA AUT DEU ITA EST CZE SVK POL SVN LVA HUN BRA 217 Creditas Soluções Financeira Ltda. 6

7 Despite low 42.2% debt ratio, debt service still at 21.6% 5 Inflation adjusted outstanding household debt % debt ratio % debt service ratio debt ratio debt service ratio Dec 6 Dec 8 Dec 1 25 High installments of Brazilian families debt, related to both high interest rate and short maturities, are impacting the debt service ratio Debt service peaked at 22.9% and has been increasing and remains high at 22.7% after peaking at 23.9% in 211. High debt service ratio is not related to high indebtedness: at 42.2% of disposable income, Brazilians are less leveraged than other economies. Instead, high interest rates and short loan maturities (both related to the low penetration of secured lending products) are at the root of the problem. On average, Brazilians are paying 42.% annually for their credit and 84.5% annually when we exclude subsidized earmarked products and non-carried balances of credit cards. Although the maturity of new operations has been steadily increasing to months, outstanding debt has a maturity of 64.2 months. Combining high interest rates and low maturities, Brazilians face high installments to be repaid for their loans. 217 Creditas Soluções Financeira Ltda. 7

8 Increasing share of earmarked loans is extending average loan maturity Household debt maturity at origination (months) Share of earmarked loans to total credit 2 6% % 14 4% % 8 6 2% 4 1% 2 Dec 11 Dec 13 Dec 15 % Dec 11 Dec 13 Dec Creditas Soluções Financeira Ltda. 8

9 AUTO VERTICAL Brazilian car fleet stands at 51.3 million, growth decelerating since Evolution of car fleet in Brazil Car fleet YoY % increase 9% 8% 7% 6% According to Denatran, Brazil s Department of Motor Vehicles, we reached 51.3 million registered cars in December 216, compared to approximately 13 million in the U.S. Car fleet growth has been slowing down in the last 1 years, with the exception of 212, when a set of tax rebate measures broke the otherwise constant slowdown in car fleet growth 5% 3 4% 2 3% 2% 1 1% Dec 6 Dec 8 Dec 1 % 217 Creditas Soluções Financeira Ltda. 9

10 AUTO VERTICAL Car purchase transactions remain stable with share of used cars reaching 85% Evolution of car fleet in Brazil Car sales (thousand) per month % of used cars vs. total transactions 1,4 Sales new cars 9% Sales sed cars 1,2 % used cars 8% 7% 1, 6% 8 5% 6 4% 3% 4 2% Although the car fleet growth has been moderating in recent months, the transactional sales market remains strong, mostly due to a liquid used car sales industry. The share of used car transactions has steadily increased and today already represents 84.6% of all monthly transactions With fewer new cars and a growing used car fleet, the age of vehicles in operation is growing rapidly. Today, 47% of vehicles are older than 1 years, 19% are between seven and ten years old, and 25% are between three and six years old. Only 9% of cars are less than two years old. In the U.S., 38% of vehicles are older than 1 years, 22% are between 7 and 1 years old, and 26% fall between three and six years old. Vehicles less than two years of age account for 13% of the American fleet 2 1% Dec 6 Dec 8 Dec 1 % 217 Creditas Soluções Financeira Ltda. 1

11 AUTO VERTICAL Auto financing origination had its weakest year since 28 Monthly loan origination in R$ billion 18 Outstanding auto loans Inflation adj auto loans The auto finance industry peaked in November 21 and has been decreasing in monthly originations despite the fact that the auto sales market peaked in 212 In real terms, the contraction has been tremendous, from the equivalent of today s R$16.7 billion in November 21 to a current level of R$7.3 billion Dec 6 Dec 8 Dec Creditas Soluções Financeira Ltda. 11

12 AUTO VERTICAL Car fleet with lowest leverage levels in a decade Car fleet leveraging (R$ Thousand per fleet or sales) 2 Credit / fleet Origination / sales 18 Inflation-adjusted Credit / fleet Inflation-adjusted Origination / sales Leverage of the car fleet has been decreasing since 212 Current ratio of outstanding debt to car fleet has fallen to R$2.8k per car from R$6.k at the peak when adjusting for inflation Average financing of car sales is now R$6.7k (vs. R$11.9k at the peak or R$18k when adjusting for inflation) Dec 6 Dec 8 Dec Creditas Soluções Financeira Ltda. 12

13 Widening margins despite stable NPLs AUTO VERTICAL Auto loans key economics Car fleet Average spread (%) NPLs (%) 25% 2% 15% 1% The period came with huge spreads for the entire industry. Little competition and a relatively scarcity of funding created the highest net margins of the decade (net margins of 18.5% and NPL at 3.%!!!!) Then, post-crisis, banks poured billions into the auto financing, reaching inflation- adjusted maximums by the end of 21. Full employment in the Brazilian economy (5% unemployment at that time) helped to achieve NPLs of 2.5%. With banks hungry for loans, spreads went down, origination grew and as a result, the period of registered an increase in overall NPLs up to 7.2% in May-212. Net margins suffered the most in 212 and 213, with spreads remaining low for Brazilian standards (around 1% p.a.) and NPLs relatively high (5-7%) 4 2 5% As predicted last year, banks kept an ultraconservative risk attitude, keeping low volumes, increasing margins (now above 14%). However, NPLs remained at 4.6% Dec 6 Dec 8 Dec 1 % 217 Creditas Soluções Financeira Ltda. 13

14 MORTGAGES Mortgages deceleration continued in 216 Inflation adjusted outstanding mortgages Outstanding credit (R$ billions) 6 Inflation adjusted credit YoY % increase 5 4 % YoY increase 5% 4% 3% Real Estate financing has been the most active segment in the local household lending market, growing at a higher pace than the overall credit market Totaling R$534 billion, it accounts for more than one third of overall household debt or 8.5% of GDP. In January 212, it was 4.22% of GDP. The growth has been falling in recent years following stabilization of real estate pricing and lower residential demand. 3 2% 2 1% 1 % Dec 6 Dec 8 Dec 1-1% 217 Creditas Soluções Financeira Ltda. 14

15 MORTGAGES Mortgages origination fell by 25% in Mortgages origination Monthly origination Inflation-adjusted monthly origination In 216 we saw the weakest year of the series with origination volume falling by 25% YoY. Annual origination in 216 was close to R$83 billion. Monthly mortgages originations peaked in July 213 at R$15 billion in real terms. Since April of 215, there has been a significant decline in the value of monthly originations with the latest print at almost half the peak. The trough of the series was reached in January of this year R$5.4 billion, representing a drop of 64% peak to trough Dec 1 Dec 11 Dec 13 Dec Creditas Soluções Financeira Ltda. 15

16 Widening margins despite stable NPLs MORTGAGES Mortgages key economics Mortgage origination Average spread (%) NPLs (%) 5% 4% 3% New loan originations have been slowing down for the last two years due to weaker consumer demand and banks increasing selectivity when it comes to underwriting and depleted sources of funding Banks are increasing lending rates because of the weak labor market punctuated with unemployment at record highs and real income levels falling since February 215. To date mortgages have performed well, especially when compared to other consumer loan categories, with an average NPL of 2% since % Despite recession and higher unemployment rates, Brazilians are managing to pay their mortgages; with NPLs a 1.5% and widening spreads at 3.5%, we expect banks to increase origination during 217 1% 2 Dec 6 Dec 8 Dec 1 % 217 Creditas Soluções Financeira Ltda. 16

17 Contact details Sergio Furio Founder & CEO, Creditas Nicole Simms Funding & Research analyst, Creditas 217 Creditas Soluções Financeira Ltda. 17