Barclays remains confident on credit asset quality

Wednesday, July 6, 2011

Barclays Capital dismissed reports from international media regarding the possibility of a credit bubble surging in Brazil, and reaffirmed its previous statement about credit asset quality, analysts Roberto Attuch and Fabio Zagatti wrote in a note to investors.

A Monday (Jul 4) Financial Times article called "Brazil risks tumbling from boom to bust" presented a negative tone, indicating that the country has structural problems related to overburdened consumers and weak credit underwriting, and that consumers face significant a debt service burden given high interest rates on loans, as well as high debt.

The newspaper added that to have a self-sustaining positive credit cycle, Brazil needs to increase collateralized lending and mortgages, create a positive credit bureau - which has been in the works for some time now - and increase the national savings rate.

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Barclays noted that the most recent figures from central bank BCB showed that as of May, early stage delinquency - 15 to 90-day non-performing loans (NPL) - in consumer credit continued to improve for the second consecutive month, to 6.3% of the total from 6.6% in April.

"We think these trends in early stage delinquency (which eventually may be a proxy for actual delinquency) are a positive prospect, if anything, and should be more the focus of discussions going forward," Attuch and Zagatti wrote.

But both analysts noted that the 90-day-plus NPL rate deteriorated in May to 6.4%, from 6.1% in April. "We find this not surprising after several months of early stage delinquency deterioration, but simply a reflection of the past," they wrote.

Barclays agreed that creating a positive credit bureau in Brazil is a welcome initiative that would combines with the country's solid macro fundamentals - historically low unemployment levels, rising incomes - and build the foundations for more credit, lower spreads, longer terms and lower delinquency in coming years.