Credit, when offered in adequate conditions and used responsibly, is a powerful lever of economic growth, as it allows economic agents to carry out their projects in the present, whether for investment or consumption, generating demand for productive activities.

According to the data collected by the BCB, Brazil's credit conditions remained unfavorable to a boost in economic activity throughout most of 2023. Much of this is due to the monetary policy stance, which, in order to fight inflation, led to interest rate increases, seeking to tighten credit and, consequently, aggregate demand.

At the end of the year, however, there were incipient signs of improvement, which may gain strength with the downward trend in interest rates and with public policy measures, in addition to the positive developments arising from the labor market.

In Jan–Dec'23, new bank loans increased by 4.8%, after discounting inflation, showing a significant slowdown compared to 2022, when the rise had been of 21.1%. With this low dynamism, the country's credit stock did not expand as a proportion of GDP, remaining in Dec'23 at the same level of Dec'22: 53.2%.

This slowdown is linked to the response of loan rates to successive increases in the base interest rate, Selic, by the Central Bank, from the end of 2021 to mid-2022. In nominal terms, the Selic was at its maximum of 13.75% per year from Sep'22 to Aug'23. Other conditioning factors were the greater risk aversion due to the accounting fraud in Americanas and the rise in defaults, especially of corporations.

As a result, average interest rates on loans to companies and households rose in the period, from 14.7% per year to 27.4% per year between Jun'22 and Jun'23, after discounting inflation. A faster deceleration in inflation than the reduction of the base interest rate by the Central Bank gave rise to this increase in real interest rates to final borrowers.

As the main lever of loans in 2023, we highlight the operations with households in the segment in which credit conditions are freely agreed between the parties. They registered an increase of 9.3% in Jan–Dec'23 compared to the previous year. Including earmarked credit operations, total loans to households rose 8.8%.

Freely-negotiated operations, which represent about half of total new bank credit, are usually those in which interest rates and spreads are higher (which is especially true in loans to households) and, therefore, represent a higher return to creditors.

A few comments about this performance. First, riskier types of credit were the ones that decelerated the most, indicating banks' greater risk aversion. Non-payroll-deductible real loans contracted by 3.8% in Jan–Dec'23. Credit card revolving and overdraft, where the return margins are higher, hit the brakes, but remained positive. 

Pre-approved loans and households seeking to roll over late debts may have favored the expansion of these last two types of credit, which are more expensive for the borrower. In addition, it is worth mentioning the strategic role that credit card issuance has been playing in the competitive dynamics, especially for new entrants, such as fintechs. Between 2019 and 2022, the Central Bank estimates that the number of active cards in the country has doubled.

Second, the expansion of credit to households may have been uneven, since most of those with problems with old debts, and therefore with worse risk assessment, are low-income families. According to the UFRJ Financial System Observatory, the rate of default of borrowers who earn up to two minimum wages was about 40% higher than those earning three to five salaries.

Third, the increase in interest rates meant that the path of gradual reduction of household debt, from mid-2022, did not translate into a fall in debt service as a proportion of income, at least until Jun'23. 

Households' aggregate debt decreased from 50% of their twelve-month income to 48.2% between Jul'22 and Nov'23, but there was an increase in the weight of debt service from 27.3% in Jul'22 to 28.4% in Jun'23, then falling to 26.5% in Nov'23. This is a constraint on household consumption decisions.

In Q4'23, total operations with households grew 9.1% against Q4'22, largely due to the expansion of official real estate financing operations, stimulated by the phase of reduction of the Selic rate, but also by the resumption of programs such as Minha Casa Minha Vida.

The second type of credit that grew the most in 2023, in addition to freely-negotiated operations with households, were those directed to companies, whose disbursements rose 17% compared to 2022. 

Despite the expansion, this type of official credit represents very little of the country's new bank credit: about 4% of the total volume and 9% of loans to companies. In any case, it is a strategic source of financing, since it has longer term lines and, in general, lower costs than those of the free market segment. 

Among the types of earmarked credit to companies, rural credit (+25.2%), real estate (+23.4%) and the category "others" (+24.5%), which includes Pronampe, were the ones that grew the most in 2023. Earmarked BNDES funding, in turn, varied only +0.7%, driven by working capital loans.

It should be noted that total disbursements of the BNDES system— that is, its direct and indirect operations —grew 17.3% in 2023, according to the bank's own data, whose calculation methodology differs from that of the Central Bank. The manufacturing industry accounted for 18.9% of the R$114.1 billion disbursed in the period, a reduction in participation of -0.5 percentage point in relation to 2022.

Credit under freely-agreed conditions shrank 1.3% in 2023. In addition to being more sensitive to the base interest rate, these operations also responded more to the negative impact of the risk aversion caused by the crisis in Americanas last year, as well as the multiplication of bankruptcies in the corporate sector.

As free operations represented 91% of total loans to companies, their decline led to the virtual stability of corporate credit in 2023: +0.1% compared to an increase of 22.2% in 2022. Likewise, their reaction at the end of the year was decisive to the 5.8% expansion of total new credit to companies in Q4'23 versus Q4'22.

Faced with this evolution, it is worth noting that, according to data from the Central Bank, the Brazilian capital market continues to expand its importance as a source of funding for companies, especially large enterprises, which have easier access to this credit circuit.

Broad credit to the business sector— which in Central Bank statistics is registered according to its stock and not disbursements— in addition to bank credit, also includes the funds raised in capital markets via debentures, commercial notes, CRI, CRA and FDIC. Its amount, in real terms, rose 6.9% in 2023, driven by the 21.3% increase in debt securities held by residents.

As a result, direct debt securities accounted for 42.8% at the end of 2023 (compared to 39.5% in 2022) of the (broad) credit granted to companies in the domestic market and even represented 29.5% of the total stock of corporate broad credit, an increase of 3.5 p.p. in relation to the previous year.

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