Brazil Economic Weekly

Transcription

1 Macroeconomic Research Department Macroeconomic Research Department Brazil Economic Weekly February 07 th, 2014 Credit market performance in 2013: sustainable growth, concentrated on earmarked lines and marked by a decline in default rates Ellen Regina Steter The credit stock of Brazil's financial system in 2013 was 14.6% higher than the previous year and came to R$ trillion. This raised the credit/gdp ratio from 53.9% to 56.5%. Loans for investments, conceded by the National Development Bank (BNDES), and mortgages led the way. At the same time, growth rate were more moderate in line with a better outlook for the credit risk. The credit situation in 2013 was highlighted by growth in lines related to investments, for individual and corporate borrowers and the expansion of the portfolio at a pace that was compatible with the rate of activity and household income. As a result, loans rose at a sustainable rate within the financial system, with no question of any credit risk. The situation should be very similar in 2014, with home loans and BNDES operations leading the way although at a slacker pace. We expect the total loan portfolio to expand by 13.2% and default ratios to remain under control. The reactions of the emerging markets central banks will depend on the size of the currency adjustment these countries experience Fabiana D Atri BRAZIL ECONOMIC WEEKLY The stances adopted by the world's central banks will be decisive factors in establishing asset prices in 2014 following the turbulence on the financial markets at the start of this year and the more structural problems facing economies. We begin with the adjustment the Fed made to its policy when it started lifting its monetary stimulus measures in January. This change, as was seen last year, has been and will continue to be the determining factor for capital flows and the appreciation of global assets. At the same time, the emerging markets are entering a stage marked by a cooling of growth but with pressure from inflation in some countries. On the other hand, the developed economies have shown more sustainable signs of recovery although with extremely low inflation rates. Therefore, this situation will require differentiated responses from the monetary policy this year in terms of speed and intensity. A final comment should be made in relation to the fact that the adjustment via interest rate hikes and currency depreciation will bring challenges to the central banks as this new balance will result in some loss of growth. Moreover, an even bigger adjustment could be required if the choice of monetary policy is not in line with the fiscal policy. This dilemma will, in turn, affect market decisions and could maintain a premium on prices or require more aggressive responses by the central banks in order to anchor expectations. 1

2 Credit market performance in 2013: sustainable growth, concentrated on earmarked lines and marked by a decline in default rates Ellen Regina Steter The credit stock of Brazil's financial system in 2013 was 14.6% higher than the previous year and came to R$ trillion. This raised the credit/gdp ratio from 53.9% to 56.5%. Loans for investments, conceded by the National Development Bank (BNDES), and mortgages led the way. At the same time, growth rate were more moderate in line with a better outlook for the credit risk. Earmarked loans, i.e. credit that must be directed to certain sectors, led the way and jumped by 24.5% over 12 months compared with an increase of 7.8% in non-earmarked loans, i.e. credit that can be freely directed anywhere, which had a share of 44.5% of the national financial system. It is worth noting that earmarked loans have powered ahead since mid-2009 in response to the anti-cyclical stimulus measures adopted at the time of the international financial crisis. However, the expansion of earmarked loans has been driven by different portfolios in recent years, with BNDES lines gaining the lion's share of all credit in the first period between 2008 and However, the BNDES lines remained virtually flat following these initial years and home loans have accounted for most of the expansion of earmarked loans since ,0% 40,0% 32,0% 24,0% Others Rural Home loans BNDES 4,0% 3,1% 7,7% 6,9% 3,0% 6,4% 7,0% 2,7% 5,8% 9,0% 2,3% 2,3% 5,9% 5,7% 10,9% 12,6% 2,9% 6,7% 14,6% Share of earmarked lines of the total credit stock 5,2% 5,6% 16,0% 8,0% 16,4% 16,7% 19,9% 20,8% 20,6% 20,1% 20,3% 0,0% Domestic Outlook The home loan portfolio came to R$395.2 billion in 2013, 86.4% of which was in the form of loans to individual borrowers. An analysis of the total portfolio for individual borrowers shows a difference between non-earmarked loans that were usually related to consumption while earmarked loans were basically used to buy homes. Non-earmarked loans for individuals borrowers expanded by 7.6% over 12 months while earmarked credit jumped by 32.1%. 2

3 40,0% 35,0% 32,6% 30,0% 25,0% 20,0% 16,3% 15,0% 10,0% 5,0% Aug/08 Oct/08 Earmarked Non-earmarked Growth over 12 34,3% 33,9% 33,0% months of the 32,1% individual loans portfolio earmarked 29,2% and non-earmarked 24,0% loans Dec/08 Feb/09 Apr/09 Jun/09 Aug/09 13,4% Oct/09 Dec/09 18,5% Feb/10 Apr/10 Jun/10 Aug/10 Oct/10 20,6% Dec/10 Feb/11 Apr/11 Jun/11 Aug/11 Oct/11 Dec/11 Feb/12 13,2% Apr/12 Jun/12 Aug/12 Oct/12 Dec/12 9,9% Feb/13 Apr/13 Jun/13 7,6% Aug/13 Oct/13 Dec/13 7,6% The greater share of home loans in the individual borrower portfolio combined with the more modest growth in consumption lines was positive from the point of view of the credit risk. There has been a downward trend in terms of household income commitment, even when home loan installments are included, which has resulted in a sustainable expansion of credit. 23,0 22,0 21,0 20,0 Commitment Commitment excl. home loans 19,7 19,9 23,0 22,9 21,5 21,9 21,5 21,0 20,0 19,8 Household income credit commitment within the National Financial System 19,0 18,6 18,2 18,8 19,3 18,0 18,0 17,0 16,8 16,8 16,0 Nov/05 Feb/06 May/06 Aug/06 Nov/06 Feb/07 May/07 Aug/07 17,2 Nov/07 Feb/08 May/08 Aug/08 Nov/08 Feb/09 May/09 Aug/09 Nov/09 Feb/10 May/10 Aug/10 Nov/10 Feb/11 May/11 Aug/11 Nov/11 Feb/12 May/12 Aug/12 Nov/12 Feb/13 May/13 Aug/13 Nov/13 The default or delinquency rate was extremely positive last year, with individual loans outstanding after 90 days falling from 5.6% to 4.4%. The default rate of non-earmarked loans also dipped, from 8.0% to 6.7%. It is worth pointing out that a large part of this decline in delinquency related to car loans. Domestic Outlook 6,2 5,7 5,2 5,0 4,7 4,2 Mar/11 Apr/11 5,2 May/11 Jun/11 Jul/11 Aug/11 Sep/11 5,6 Oct/11 Nov/11 6,0 5,9 5,8 Dec/11 Jan/12 Feb/12 Mar/12 Apr/12 May/12 Jun/12 Jul/12 Aug/12 5,9 Sep/12 Oct/12 Nov/12 5,6 Dec/12 Jan/13 Feb/13 Mar/13 Apr/13 5,3 May/13 Jun/13 Jul/13 4,8 Aug/13 Sep/13 Oct/13 Nov/13 Dec/13 4,4 Default rate of total individual credit (non-earmarked and earmarked) 3

4 Default rate of nonearmarked individual credit (loans outstanding after 90 days) 9,0 8,0 7,0 6,0 Others Overdraft Payroll CP excl. payroll loans Credit card (rotating and installment) Vehicles (CDC + leasing) Default 8,2% 8,2% 7,5% 1,3 1,5 0,3 0,3 0,9 6,7% 1,3 9,0% 8,0% 7,0% 6,0% 5,0 4,0 3,0 2,0 1,2 1,4 1,7 1,7 1,3 1,5 1,0 0,3 0,9 1,1 1,5 5,0% 4,0% 3,0% 2,0% 1,0-2,7 2,7 abr/12 mai/12 jun/12 jul/12 ago/12 set/12 out/12 nov/12 dez/12 2,1 1,7 1,0% 0,0% The corporate portfolio also registered higher earmarked than non-earmarked lines. The stock of earmarked loans for corporate borrowers expanded by 19.6% over 12 months while the non-earmarked loans rose by 8.0% in the same period. Although the BNDES lines accounted for most of the corporate loans (around 73.4%), rural credit, i.e. farm loans, also made a positive contribution to the portfolio and was 37.5% higher than in December Domestic Outlook jan/13 fev/13 mar/13 abr/13 mai/13 jun/13 jul/13 ago/13 set/13 out/13 nov/13 dez/13 50,0% 47,6% 40,0% 37,3% 30,0% 22,4% 24,9% 20,0% 10,0% 39,0% 37,9% 27,4% 24,2% 12,9% 20,1% 14,3% Earmarked loans Non-earmarked loans 23,5% 17,7% 19,6% 13,5% 9,9% 8,0% CP excl. payroll loansdefault Overdraft Credit card (rotating and installment) Payroll Growth in corporate credit over 12 months earmarked and nonearmarked loans 0,0% Apr/08 Jun/08 Aug/08 Oct/08 Dec/08 Feb/09 Apr/09 Jun/09 Aug/09 1,6% Oct/09 Dec/09 Feb/10 Apr/10 Jun/10 Aug/10 Oct/10 Dec/10 Feb/11 Apr/11 Jun/11 Aug/11 Oct/11 Dec/11 Feb/12 Apr/12 Jun/12 Aug/12 Oct/12 Dec/12 Feb/13 Apr/13 Jun/13 Aug/13 Oct/13 Dec/13 From the credit risk viewpoint, corporate loans outstanding after 90 days also performed well. The portfolio's total default rate fell from 2.2% in December 2012 to 1.8% last year. If we only look at the non-earmarked loan portfolio, we see the rate declined from 3.7% to 3.1% in the same period. The figures for bankruptcy and judicial recovery filings indicate that the outstanding loans position will proceed well in the coming months. 4

5 3,9 3,8 3,7 3,6 3,5 3,4 3,4 3,3 3,6 3,5 3,7 3,6 3,8 3,6 3,7 3,7 3,5 3,4 3,3 Corporate default with non-earmarked credit - loans outstanding after 90 days 3,2 3,1 3,1 3,0 Dec/11 Jan/12 Feb/12 Mar/12 Apr/12 Domestic Outlook May/1 2 Jun/12 Jul/12 Aug/1 2 Sep/12 Oct/12 Nov/12 Dec/12 Jan/13 Feb/13 Mar/13 Apr/13 May/1 3 Jun/13 Jul/13 Aug/1 3 Sep/13 Oct/13 Nov/13 Dec/13 The credit situation in 2013 was highlighted by growth in lines related to investments, for individual and corporate borrowers and the expansion of the portfolio at a pace that was compatible with the rate of activity and household income. As a result, loans rose at a sustainable rate within the financial system, with no question of any credit risk. The situation should be very similar in 2014, with home loans and BNDES operations leading the way although at a slacker pace. We expect the total loan portfolio to expand by 13.2% and default ratios to remain under control. 5

6 The reactions of the emerging markets central banks will depend on the size of the currency adjustment these countries experience Fabiana D Atri Global Outlook The stances adopted by the world's central banks will be decisive factors in establishing asset prices in 2014 following the turbulence on the financial markets at the start of this year and the more structural problems facing economies. We begin with the adjustment the Fed made to its policy when it started lifting its monetary stimulus measures in January. This change, as was seen last year, has been and will continue to be the determining factor for capital flows and the appreciation of global assets. At the same time, the emerging markets are entering a stage marked by a cooling of growth but with pressure from inflation in some countries. On the other hand, the developed economies have shown more sustainable signs of recovery although with extremely low inflation rates. Therefore, this situation will require differentiated responses from the monetary policy this year in terms of speed and intensity. The adjustment process the emerging countries have been undergoing since the Fed started indicating that it would remove some of its monetary stimulus measures in May of last year has lasted almost eight months. This group of developing nations has been forced to make two adjustments since then in order to: (1) get in shape to face the new conditions related to the supply of capital from the developed countries (interest rates and volume of capital flows); and (2) sort out the imbalances in their domestic economies that have arisen in recent years, resulting mainly from the stimulus measures they adopted in the postcrisis period of These countries have all been impacted in a similar way (the tighter flow of capital from the developed nations, pointing to a weakening of their currencies and increasing the risk of higher inflation) but each individual country has also felt particular effects that have arisen from the way it has responded. The process has still not ended, in our view. We also believe this realignment will take time and be subject to volatility although there will be some quieter periods, as was the case this week. Prices and flows in the emerging countries have shown some stability in recent days, reflecting the reaction of the economic policy by a number of central banks. Another factor has been the uncertainty related to the speed of global economic activity as the indicators have sometimes pointed to a slowdown in the developed countries' move towards a recovery and at other times suggested there has been no change at all. We would single out last week's figures for the American economy where the industrial PMI index was below expectations (51.3 points compared with the consensus estimate of 56), the better-than-expected performance of the services sector (54 points compared with expectation of 53.7) and the disappointing January job creation figures of 113,000 which were below the consensus estimate of 189,000. Despite the uncertainty and volatility that will remain present in the future monetary policy decisions, we expect the economic policies adopted this year to be a rather lopsided. On one hand, the developed economies should start reversing their monetary easing very gradually as their economies pick up (although this could occur more slowly than expected) and inflation still remains very low. It is worth recalling that: (i) interest rates are unlikely to be hiked until at least 2015, even with the Fed's tapering; and (ii) the European Central Bank could still adopt stimulus measures, as the Bank of Japan is expected to. On the other hand, the process of tightening/normalizing the monetary policy will occur against a backdrop of inflation putting downward pressure on the exchange rate and cooler activity than in previous years. However, it should be stressed that these countries have different starting points as inflation is under firm control and domestic demand is stronger in many of them. In any case, this situation will put the central banks of these countries in a dilemma of countering a sharp depreciation of their currency, controlling the levels of their foreign reserves and preventing any stronger slowdown in domestic demand since a number of them will have elections this year which poses an additional challenge to the fiscal policy. The following table shows how the monetary policy committees of the central banks of selected countries have acted in recent weeks and reinforces our expectation. 6

7 Decisions of the central banks of selected countries Developed countries Current rate Date of last change Last change (in b.p.) Date of next meeting US /12/ /03/2014 Japan /10/ NA UK /03/ /03/2014 Canada /09/ /03/2014 Euro Zone /11/ /03/2014 Norway /03/ /03/2014 Sweden /12/ /02/2014 Switzerland /08/ /03/2014 Australia /08/ /03/2014 New Zealand /03/ /03/2014 Emerging countries Czech Rep /11/ /03/2014 Hungary /01/ /02/2014 Poland /07/ /03/2014 Russia /09/ NA Ukraine /08/ NA China /07/ NA Hong Kong /12/ NA India /01/ /04/2014 Indonesia /11/ NA Malaysia /05/ /03/2014 Philippines /10/ /03/2014 Singapore 0.14 (*) (*) NA S. Korea /05/ /02/2014 Taiwan /06/ /03/2014 Thailand /11/ /03/2014 Israel /09/ /02/2014 S. Africa /01/ /03/2014 Turkey /01/ /02/2014 Argentina (*) (*) NA Brazil /01/ /02/2014 Chile /11/ /02/2014 Colombia /03/ /02/2014 Mexico /10/ /03/2014 Peru /11/ /02/2014 (*) These are the market rates that reflect the monetary policy decision as the central bank does not have a reference rate. NA = not available. Source: Bloomberg Global Outlook To illustrate this movement within the emerging countries, we would highlight the recent decisions by the central banks of India, Turkey, South Africa and Brazil which surprised observers by imposing higherthan-expected increases. Inflation in these economies has been rising sharply and was an important factor behind the speed at which the monetary authorities reacted to the risks of a rapid, strong depreciation of their currencies, particularly in the cases of Turkey and South Africa. At the same time, a number of emerging countries have better fundamentals, with inflation under control. Despite this, the greater pressure on the currencies and the market turbulence should reduce room for any further cuts, force interest rates above desired levels and even lead to macroprudential measures and/or more frequent interventions on the currency markets. The fact is that the initial conditions, based on the fundamentals, will determine the urgency and intensity of the emerging countries' monetary policy adjustments. The following table shows how a large group of countries have confronted the current situation in which inflation has been stoked by the weaker exchange rate in accumulated terms over the last 12 months. 7

8 Global overview of currencies and inflation Developed countries Current inflation (accumulated variation over 12 months) Target Expectation 2014 Currency variation over 12 months in relation to the US$ (**) Australia Norway Canada (+/-1) Japan Sweden New Zealand US Euro Zone 0.7 < Switzerland 0.1 < UK Emerging countries Argentina 10.9 none Indonesia*** (+/-1.0) Turkey*** S. Africa Brazil (+/-2.0) India*** 9.9 none Chile*** (+/-1.0) Russia*** Colombia (+/-1.0) Philippines*** (+/-1.0) Thailand Peru*** (+/-1.0) Malaysia 3.2 none Czech Rep (+/-1.0) Ukraine 0.5 none Mexico*** (+/-1.0) Hungary Taiwan 0.8 none Singapore 1.5 none Hong Kong 4.3 none S. Korea Poland (+/-1) China Israel *** = inflation above or on target (**) = variation accumulated between 07/02/2014 and 07/02/2013 Source: Bloomberg Global Outlook The chances of this trend spreading from the emerging countries to the developed nations are very low, particularly in terms of the monetary policy. The Fed held its first meeting of the year two weeks ago and reduced its securities-purchasing program by US$ 10 billion. This had been expected and should lead the US central bank to wind up the program by the end of this year if this rate is kept up at the coming meetings. The Fed's monetary policy committee also left interest rates on hold at between 0% and 0.25% for an extended period. Therefore, we expect the pace at which the stimulus measures are lifted to be maintained at the upcoming meetings although interest rates will not be hiked until at least Meanwhile, the European Central Bank (ECB) also decided to leave base interest rates unchanged this week at 0.25% p.a. Its chairman, Mario Draghi, said that expectations for inflation remained anchored and no new initiatives were required from the ECB. (This went against the expectation of some sections of the market that had foreseen interest rates being cut as a result of the deflationary risks.) We believe 8

9 the possibility of any rate cuts has been ruled out for the time being, even with the latest slowdown in price increases in Europe. On the other hand, financial conditions have become tighter, particularly with longterm refinancing operation payments (LTRO) by the banks. This could lead the ECB to take some measure that would increase liquidity on the interbank market in the coming months which would go in the opposite direction of the movement in the emerging countries. A final comment should be made in relation to the fact that the adjustment via interest rate hikes and currency depreciation will bring challenges to the central banks as this new balance will result in some loss of growth. Moreover, an even bigger adjustment could be required if the choice of monetary policy is not in line with the fiscal policy. This dilemma will, in turn, affect market decisions and could maintain a premium on prices or require more aggressive responses by the central banks in order to anchor their expectations. 10,0% 8,0% 6,0% 4,0% 2,0% 0,0% 8,44% 3,92% 3,23% 1,60% 6,55% 7,51% 5,40% 4,15% 8,14% 2,90% 5,04% 5,37% 2,49% 0,33% 6,77% 3,42% 0,79% Emerging Developed countries 6,06% 3,12% 0,40% Jul/02 Sep/02 Nov/02 Jan/03 Mar/03 May/03 Jul/03 Sep/03 Nov/03 Jan/04 Mar/04 May/04 Jul/04 Sep/04 Nov/04 Jan/05 Mar/05 May/05 Jul/05 Sep/05 Nov/05 Jan/06 Mar/06 May/06 Jul/06 Sep/06 Nov/06 Jan/07 Mar/07 May/07 Jul/07 Sep/07 Nov/07 Jan/08 Mar/08 May/08 Jul/08 Sep/08 Nov/08 Jan/09 Mar/09 May/09 Jul/09 Sep/09 Nov/09 Jan/10 Mar/10 May/10 Jul/10 Sep/10 Nov/10 Jan/11 Mar/11 May/11 Jul/11 Sep/11 Nov/11 Jan/12 Mar/12 May/12 Jul/12 Sep/12 Nov/12 Jan/13 Mar/13 May/13 Jul/13 Sep/13 Nov/13 Jan/14 6,03% 2,96% 0,31% Nominal interest rates of the central banks % p.a Global Outlook Source: Bloomberg 9

10 Bradesco Macroeconomic Forecast Bradesco Macroeconomic Forescast * 2014* DOMESTIC ACTIVITY, INFLATION AND INTEREST RATES GDP (%) Agriculture (%) Industry (%) Services (%) Private consumption (%) Government consumption (%) Investment (%) Exports of goods and services (%) Imports of goods and services (%) GDP (R$ billion - current prices) GDP (US$ billion) Population (million) Per Capita GDP (US$ - current prices) Industrial Production - IBGE (%) Unemployment Rate - IBGE (%) Retail Sales - (%) CPI - IPCA - IBGE (%) CPI - FIPE (%) WPI - IGP-M - FGV (%) Nominal Interest Rates - Selic target (end of period - %) Nominal Interest Rates - Selic target (12-month - %) Real Interest Rates - Selic (12-month - %) As of February 07 th (*) Forecast. na = not available. EXTERNAL ACCOUNTS AND FX Trade Balance (US$ billion) Exports (US$ billion) Imports (US$ billion) Trade flow (exports + imports) (% of GDP) Deficit of Services and Income (US$ billion) Current Account Deficit (US$ billions) Current Account Deficit (% of GDP) Foreign Direct Investment (US$ billions) FX - end of period (R$ / US$) FX - yearly average (R$ / US$) Nominal FX devaluation (YoY - %) Nominal FX devaluation (average - %) International Reserves (US$ billion) Total Medium and Long term External Debt (US$ billion) FISCAL ACCOUNTS Primary Surplus (R$ billions) Primary Surplus (% of GDP) Public Sector Nominal Balance (% of GDP) Net Public Debt (domestic and external) (R$ billion) Net Public Debt (domestic and external) (% of GDP) Source: Official figures Production and forecasts(*): BRADESCO 10

11 Team Octavio de Barros - Macroeconomic Research Director Marcelo Cirne de Toledo Global economics: Brazil: Brazilian sectors: Fabiana D Atri / Leandro de Oliveira Almeida / Felipe Wajskop França / Thomas Henrique Schreurs Pires Robson Rodrigues Pereira / Andréa Bastos Damico / Igor Velecico / Ellen Regina Steter / Priscila Pereira Deliberalli / Andréa Marcos Angelo Regina Helena Couto Silva / Priscila Pacheco Trigo Proprietary survey: Fernando Freitas / Ana Maria Bonomi Barufi / Leandro Câmara Negrão Internships: Ariana Stephanie Zerbinatti / Guilherme Marinho Lima / Vitor Inocêncio / Mariana Carvalhaes / Gabriela Helena Demarchi / Vanderley Rodrigues Gonçalves Junior Team - BRADESCO does not accept responsibility for any actions/decisions that may be taken based on the information provided in its publications and projections. All the data and opinions contained in these information bulletins is carefully checked and drawn up by fully qualified professionals, but it should not be used, under any hypothesis, as the basis, support, guidance or norm for any document, valuations, judgments or decision taking, whether of a formal or informal nature. Therefore, we emphasize that all the consequences and responsibility for using any data or analysis contained in this publication is assumed exclusively by the user, exempting BRADESCO from all responsibility for any actions resulting from the usage of this material. We all point out that access to this information implies acceptance in full of this term of responsibility and usage. The reproduction of the content in this report (partially or in full) is strictly forbidden except if authorized by BRADESCO or if the sources (the name of the authors, publication and BRADESCO) are strictly mentioned. 11