Adalberto Savioli, president of the Brazilian Lenders Association, on the sector's outlook.
BY JOHN FITZPATRICK
The chairman of Brazil´s National Association of Credit, Financing and Investment Institutions (ACREFI), Adalberto Savioli, has praised the way President Luiz Inácio Lula da Silva´s administration has handled the credit crunch which hit Brazil in a big way towards the end of last year when foreign lenders cut off credit lines. Savioli said the quick action to pump credit into the system has put Brazil in a better condition than other countries to emerge from the crisis. At the same time, he admits that a Brazilian bank could go broke and calls for a system of registering “good” payers to reduce Brazil´s high level of default. Savioli is one of Brazil´s best-known financiers and is CEO of Banco Panamericano which belongs to the Silvio Santos Group of the eponymous businessman and television broadcaster.
John Fitzpatrick: How have the Brazilian banks been hit by the credit crunch?
Adalberto Savioli: Some of the smaller ones have faced problems as funding basically dried up towards the end of last year. In December 2008, the five biggest banks had 75 percent of all credit and the smaller and middle-sized banks the remaining 25 percent. However, the government has acted quickly and introduced a number of measures which have injected credit into the financial system, such as reducing the compulsory deposits held at the Central Bank, cutting taxes on some consumer products and construction material, and establishing a fund to guarantee up to R$20 million in deposits. This has helped a lot.
How would you rate the government´s handling of the crisis?
The government has been criticized in some quarters for not being as technical as the Fernando Henrique Cardoso administration was, but I think it has done a good job. Brazil is also now in a much better condition than many other countries to emerge from this crisis. It has the strongest economy in Latin America after Chile. The other big Latin American economy, Mexico, is too closely tied to the United States to escape the full blast of the crisis.
What about GDP growth and inflation in 2009?
GDP grew by around 6 percent last year and, although it may not grow this year, the outlook for next year is still optimistic. We've seen interest rates fall to 11 percent and expect the overnight rate, the Selic, to fall to single digits of 9 percent or 9.5 percent this year. Inflation should come to 2.5 percent this year. Credit amounts to 42 percent of GDP. This compares with 80 percent in some other countries so there is a big gap to fill. This will keep the economy growing.
Is there any danger of a Brazilian bank going broke?
If this happened, it would not be due to default but to a lack of liquidity. This would be serious as the whole system would be hit even if just one bank broke. However, the worst of the crisis is over and fortunately the problem arising from the liquidity in the system has been resolved.
How serious is default?
The default rate for individual borrowers comes to around 8.5 percent. This is a lot higher than most other countries and forces banks to book heavy provisions of around 12 percent. As there is no positive registration system for “good” payers, this also increases interest rates to such an extent that 40 percent of the spread is due to default. However, as interest rates start to fall, so should the rate of default in the coming year.
What are you recommending members of your association Acrefi do?
We are stressing the importance of improving their risk management. The world financial crisis, fall in consumer confidence, lower production and greater volatility will inevitably cause higher unemployment and the level of default will rise. Therefore, banks have to be painstaking in their credit analysis. Not only should they be scrutinizing all the information about the client but reassessing their instruments to restore credit. At a time of crisis we need to revaluate the concepts of the whole credit cycle.
What is the best way of calculating the credit risk to keep business going but without the danger of being overleveraged?
We should create a positive register of “good” payers in Brazil and banks should lose their fear of sharing information in order to ensure the quality of the loan portfolio, the correct areas to direct credit to and achieve the right risk/return balance, increase the automation of decisions and improve productivity. After all, an economy grows on credit and business revolves around it.
Which sectors have been most affected by the credit crunch?
The car sector has been most hit as 45 percent of individual loans are for cars. Sales of new cars were practically paralyzed by the credit crunch and led the government to cut the IPI tax on vehicles. This measure has boosted sales at the start of this year. The other sectors which have been most affected are electro-domestic goods and clothing. The secondary market – used cars and motorbikes – has also been hit due to lower prices and lack of funding
Acrefi is organizing its fourth international seminar to be held in São Paulo in September. Can you tell us what it will cover?
The aim of the seminar is to discuss new alternatives to continue to allow credit to grow in Brazil, redraft scenarios for 2010 and 2011, develop new tools for managing credit and charges to become more efficient, particularly in the area of finance houses. We will also have international executives who will present success cases.
John Fitzpatrick, a Scottish writer and consultant living in Sao Paulo, runs Celtic Comunicações. This article originally appeared on www.brazilpoliticalcomment.com.br. Republished with permission from the author. Fitzpatrick can be contacted at [email protected]
© John Fitzpatrick 2009