Brazil's largest lenders are growing more cautious on credit, continuing a shift toward secured products and higher-income borrowers amid signs of a household debt crisis despite a strong labor market and an economy that is outperforming expectations.
Banco do Brasil BBAS3.SA rounded out earnings season on Wednesday, following results from Itau ITUB4.SA, Bradesco BBDC4.SA and Santander Brasil SANB11.SA. Across the country's largest publicly listed lenders, executives delivered a similar message: a retreat from riskier borrowers and unsecured lending.
The stance suggests banks may be positioning for a more challenging phase of the credit cycle after years in which strong household borrowing helped support economic growth in Latin America's largest economy.
"It is really an acknowledgment, and a reminder, that caution in credit underwriting may need to become even more stringent," said Katherine Hennings, an analyst at BRCG.
She said lenders' increasingly defensive stance reflects concerns that Brazil's economy is approaching a slower phase after an expansion partly fueled by household leverage.
Periods of strong credit growth accompanied by rapidly rising household indebtedness have historically been followed by deeper consumer spending slowdowns, Hennings said, pointing to Brazil's experience after the sharp increase in household debt between 2011 and 2015.
What makes the current cycle unusual — and potentially more damaging once growth loses momentum — is that household finances have deteriorated sharply even as unemployment remains low and household incomes improve, with family debt burdens hovering near record levels at around 50% of disposable income.
Hennings attributed that trend to a combination of factors. On the structural side, regulatory changes, fintech expansion and the rapid adoption of digital payments have broadened access to credit among consumers who previously were not part of the banking system.
On the cyclical side, she pointed to government policies aimed at boosting consumption and credit, including more recent initiatives championed by leftist President Luiz Inacio Lula da Silva ahead of his October re-election bid.
Those measures helped increase household leverage, often through higher-cost unsecured borrowing such as credit cards and personal loans, the very types of credit that large banks are now unwilling to extend to lower-income borrowers.
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