The signs of high default rates are beginning to be identified by credit bureaus, after the surprise with these indicators last year. The postponement for up to 180 days of the collection by the banks of defaulting credits, the injection in the economy of almost R $ 300 billion of resources due to the emergency aid and the interest rate on the historic floor helped in the renegotiation of outstanding debts with the financial system in 2020. So much so that consumer default with banks surprised positively throughout the year and remained practically stable until February, according to the latest data from the Central Bank (BC).
The yellow signal of the risk of default, however, began to flash in March, with the worsening of the pandemic, which led to greater restrictions on the functioning of trade and services, affecting the pace of economic activity. In addition, the new emergency aid, which starts to be paid on Tuesday, 6th, will be lower: both the figure (R $ 44 billion) and the number of beneficiaries.
Basic interest rates, which rose again last month and are expected to continue on this path until the end of the year, in order to contain rising inflation, may hinder debt renegotiations. Not to mention unemployment, a key factor for the increase in defaults. In the mobile quarter ended in January, the unemployment rate reached 14.2% of the population of working age, the worst result for the period of the series of the Brazilian Institute of Geography and Statistics (IBGE), which started in 2012.
“Defaults are starting to ‘de-tax’,” warns Serasa Experian economist, Luiz Rabi. The first two months of the year ended with 61.6 million defaulting Brazilians, according to company data. It is a slightly higher number than that of December 2020, when the total number of defaulters stood at 61.4 million, notes the economist.
Another data that points in this direction, according to Rabi, is the advance of the bank default share in the total default in this beginning of the year. When people start having difficulties paying debts, they first delay the accounts of the non-banking sector, he explains. This occurred between September and December, with the reduction in the amount of emergency aid. “If the difficulty of paying debts continues, in about six months bank defaults will start to rise, and that is what is happening now”, he observes. In February, the share of bank default increased almost two percentage points in relation to December.
Another indication that a new cycle of upward defaults is on the way is the increase in the rate of pre-default arrears. They are installments overdue between 15 days and 90 days and which are not considered as non-performing loans according to the BC’s criteria. This indicator, which fell last year, rose again in January and February, points out Flávio Calife, an economist from Boa Vista, who also warns of the risk that this delay will become default, especially in the second half.
Default of default
Clear evidence that Brazilians are finding it more difficult to honor commitments at the beginning of the year was captured by companies specializing in recovering credits from defaulters. “In the first quarter, we recorded a reduction of between 20% and 30% in payments of debts renegotiated with defaulters in relation to the last quarter of last year”, says Edemilson Motoda, president of the Geoc Institute, which brings together 18 large companies in the collection sector.
In addition to the greater difficulty in receiving renegotiated debts, he says that collection companies are currently facing more obstacles to closing new agreements with defaulters. “Everyone is more frightened by the resurgence of the pandemic, high unemployment and the absence of aid at the beginning of the year, and there is a concern that defaults may increase,” says Motoda.
The result of the complicated situation is that the collection companies are having more work to close new renegotiation agreements, since creditors are no longer as flexible.
Between mid-March and December 2020, banks renegotiated R $ 146.7 billion in non-performing debts, more than half with small businesses and consumers, and gave a grace period of between 60 and 180 days, according to a survey by Brazilian Federation of Banks (Febraban).
Rubens Sardenberg, chief economist at Febraban, says he does not currently see banks’ implementation of a debt renegotiation program in the same way as it did last year. “It will not be so widespread, but more focused with specific renegotiations in relation to companies, sectors and families”, he says.
Sardenberg stresses that the delinquency behaved reasonably in January and February. But he recognizes that, in March, due to the increase in the pandemic, the situation worsened. “We are heading towards a more complicated second quarter than we imagined and, due to that, there should be an increase in defaults”, he says. “But I do not believe that it is significant.” This is also the assessment of Rabi, from Serasa Experian, and Calife, Boa Vista. Rabi says that defaults will rise, it is not known how much, but from a relatively lower level. “I am seeing a new cycle of default taking shape, but it will not be catastrophic for the time being,” says Rabi.
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