Para o Citi, a piora da inadimplência está longe de terminar

Citi warns that Brazil's worsening delinquency problem is far from over, according to a report sent to clients today. The bank's analysis leader Gustavo Schroden explains that the worsening credit conditions are not the usual cause, as credit-to-GDP ratio has increased from 46% in 2019 to 56% this year, and personal consumer lending remains above historical averages.

This indicates that banks are still cautious but have not completely closed the lending spigot. M2, a measure of money supply in the economy, has also risen from 40% of GDP in 2019 to 58% this year, nearing historical highs. While this availability of resources and other macro factors like expanded social benefits and a relatively resilient labor market could stabilize family finances and their ability to pay debts, it is not happening.

Schroden notes that a significant portion of this additional income is being used to maintain consumption and pay existing financial commitments, rather than restructuring accounts. He further observes that the budget of Brazilian families is becoming increasingly strained, and this dynamic is likely to worsen before it improves.

The deterioration of delinquency is widespread, with high non-performing loan (NPL) indicators appearing in personal loans, revolving credit, installment plans, vehicle financing, and private consignment credit. The only exception is consignment loans from INSS, as payment capacity is sustained by the direct discount of installments from benefits.

Historically, when delinquency spreads across different types of loans, it tends to be more persistent and difficult to reverse. For Citi, the high delinquency cycle is expected to continue for a longer period. With families benefiting from "elevated tax transfers, abundant liquidity, and ample credit availability," there are few additional factors that could offset further deterioration of their accounts.

Citi sees the growing lending despite declining performance indicators as a "classic sign" of deteriorating quality among new borrowers. Schroden believes that banks have not fully responded to this scenario. Historically, delinquency continues to rise even after banks begin to tighten their lending criteria, meaning the peak typically occurs after credit conditions start to deteriorate.