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.
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.
BANKS TARGET HIGHER-INCOME CLIENTS, SECURED LENDING
While the median forecast from more than 100 economists surveyed weekly by Brazil's central bank points to GDP growth of 1.5% next year, down from about 2% this year, Banco do Brasil executives said on Thursday they only expect growth of around 1% in 2027.
Geovanne Tobias, vice president for finance at Banco do Brasil, said that bringing consumer delinquency ratios down next year would happen "to the extent that we continue to focus growth on public-sector and private-sector payroll loans."
Itau CEO Milton Maluhy Filho gave one of the strongest warnings.
"The volume of credit that has been distributed in the market is far above what the market has the capacity to absorb," he said, arguing that household income commitment levels have become excessively high.
Maluhy said the outlook had deteriorated at the margin, prompting Itau to favor secured lending and pull back from unsecured consumer credit.
Bradesco CEO Marcelo Noronha stressed that his bank has become far more selective.
"Our appetite for lower-income clients today is much lower than it was in the past," he said, adding that Bradesco's portfolio is now more substantially backed by collateral.
Santander Brasil also reduced its exposure to higher-risk borrowers, particularly customers earning less than 4,000 reais ($771.40) per month, or roughly 2.5 times Brazil's minimum wage, citing concerns over whether strong employment levels and government support for households can be sustained if the economy slows.
The bank's pullback targets a broad segment of Brazil's workforce, where roughly 70% of employed workers earn up to twice the minimum wage.
"Below 4,000 reais, we cannot compete with other incumbents right now, and we won't," said Santander Brasil's Chief Financial Officer Carlos Muniz. "Above that income level, we will always seek transactions with some form of collateral."
Banco do Brasil's CEO Tarciana Medeiros said increasing the number of "high-value clients" by 25% by 2030 is among the bank's key strategic priorities.
Brazil's largest digital lender, Nubank (NU.N), whose portfolio is concentrated in credit cards and other unsecured lending, reported on Thursday a rise in loans more than 90 days past due to 6.9% in the second quarter from 6.5% in the previous quarter and the same period last year.
($1 = 5.1854 reais)
