Credit conditions in Brazil improved in the first half of 2024, according to data released by the Central Bank. Bank credit is back on a path of double-digit growth, under the lagged influence of the Selic cuts (from Aug'23 to May'24) on loan rates.

In Jan–Jun'24, new credit operations registered an increase of 14% compared to the same period last year, after adjusting for inflation measured by the IPCA. As a result, the total stock of bank loans rose 8.8% between Jun'23 and Jun'24, raising our credit-to-GDP ratio to 53.9%, a record level in the historical series started in March 2011.

It is also worth mentioning the gain in importance of debt securities as a source of financing for the private sector, whose share doubled in the last decade, from 9.4% to 18.9%. Taking financing to companies only, this participation reached 30% in Jun'24. 

This is a sign that the capital market has become an important financing circuit, but in general only accessible to larger firms. For micro, small and also many medium-sized enterprises, bank credit is still an essential source of resources. 

In this sense, we see lower growth in the stock of this type of credit for the group of smaller companies (+4.2% in Jun'24 versus Jun'23) in relation to the total balance of credit to companies (+6.6%).

Returning to the data on new credit flows, the 14% expansion in the 1st half of 2024, as previously mentioned, was accompanied by an acceleration in disbursements to businesses, which registered a double-digit real growth rate (+13.6%) for the first time since the end of 2022. In 2023, there was stability.

The 2024 advance was driven both by operations with conditions freely agreed between borrowers and creditors (the so called “free” credit) and by earmarked operations: +14.1% and +17.5%, respectively, compared to Jan–Jun'23.

Two types of loans to companies stood out among the earmarked operations with the greatest increases: rural credit, with +45.2%, and BNDES credit operations, with +20.8% against Jan–Jun'23. 

It is important to note that although it has grown more, official credit represents a small fraction of total loans granted to companies, only 7.4% in the 1st half of 2024. The rest is "free" credit, which reflects market conditions.

New loans to households, in turn, increased even more than those to companies: +14.4% in Jan–Jun'24 versus Jan–Jun'23. They also accelerated compared to the figure for the 2nd half of 2023 (+7.5%), but were already coming from a more robust pace of expansion.

Also in this case, earmarked credit came out ahead: +16.8%, due to the real estate segment (+23.1%), compared to +14.1% for "free" credit to households, driven by payroll-deductible loans to INSS beneficiaries (+56.2%) and loans for the acquisition of vehicles (+39.8%).

As for defaults, that is, arrears of more than 90 days, the overall average in Jan–Jun'24 was very close to that of Jan–Jun'23: 3.3% and 3.4% of total loans, respectively. But when comparing Jun'24 (3.2%) to Jun'23 (3.5%) —that is, focusing on end-of-period rates— there was a 0.3 percentage point decline.

In the comparison between the months of June, the reduction in default was due to credit to households (-0.5 p.p.), as there was a slight increase in defaults in the corporate credit portfolio (+0.1 p.p.), due to operations with smaller companies, whose rate reached 4.4% at the end of the first half of the year (+0.5 p.p.). Considering credit to large companies, the default rate fell to 0.4% (-0.6 p.p.).

Default and interest rates feed each other off: high interest rates require a greater financial effort from borrowers and, therefore, facilitate the occurrence of default, while, on the other hand, increases in default lead to rises in bank spreads and, thus, in loan rates.

The timid reduction in delinquency is thus related to a also moderate reduction in borrowing rates. Comparing Jun'24 to Jun'23, the pace of decline in the average interest rate on bank loans was half the pace at which the Central Bank lowered the Selic.

After correcting for inflation, average interest rates fell from 26% p.a. in Jan–Jun'23 to 23% p.a. in Jan–Jun'24, and from 27% p.a. to 22% p.a. if we compare only the end-of-period data, that is, Jun'23 to Jun'24, respectively. This happened despite the fact that earmarked credit, which has lower interest rates, grew ahead of "free" credit.

Considering only “free” credit, in which interest rates are freely agreed between the parties and better reflect market conditions, the change was from 40% p.a. to 34% p.a. between Jun'23 and Jun'24 in average loans to companies and households, although the latter had the greatest influence.

Versão em português deste texto.