Brasilia May 31 2023: Brazil’s credit card interest rates soared to their highest point in six years, adding to central bankers’ concerns about worrisome levels of household debt.
The average rate on revolving loans increased for the fifth consecutive month to nearly 447% in April, the highest since March 2017, according to central bank data published Tuesday. The rate has climbed nearly 84 percentage points from a year ago.
Rates on installment payments average 200%, the highest since the bank began keeping statistics in 2011, although many shops across Brazil now offer interest-free payment plans.
Interest rates on revolving loans have been historically high in Brazil. The average cost of credit card loans has risen further as central bankers hold the country’s benchmark rate steady at 13.75%. New credit concessions fell for both businesses and consumers in the month of April. Overall outstanding credit slid 0.1%, driven mostly by a drop in loans to businesses.
Policymakers led by central bank chief Roberto Campos Neto are trying to cool down the economy to tame estimates that inflation will accelerate above their goal through 2025, as measures stripping out energy and food prices ease at a slower pace than expected. At the same time, central bankers have expressed alarm about families taking out some of the most expensive credit lines, such as revolving credit.
“In the last few months we’ve seen that loans with more guarantees have performed better” than those without, Fernando Rocha, the central bank’s head of statistics, said at a Tuesday news conference.
Finance ministry officials are currently working on a bill to address high levels of credit card interest rates.
As of June 2022, there were nearly 191 million credit cards across Brazil, a number nearly double the size of the country’s economically-active population, according to another central bank report released Monday. The number of Brazilians holding credit card balances rose 31% between June 2019 and June 2022, with the increase driven by the growth of digital banks and other financial institutions that work primarily through non-conventional channels.
The number, “though positive from a financial inclusion perspective, warrants attention given its potential to increase household debt,” central bankers warned in the report.
Household debt is around 49%, with nearly a third of monthly wages dedicated to repayments. Default rates rose slightly to 6.2% among consumers and 2.8% for businesses.
Nearly a quarter of Brazilians hold credit cards with two financial institutions, while 22% own plastics from more than three, according to the report. Average outstanding credit balances increase with the number of credit cards, surpassing 12,800 reais ($2,551.7) for consumers with five cards, compared to less than 3,000 reais for those with just one. Between 17% and 20% of balances aren’t paid fully.
