Latin America Advisor

Financial Services Advisor

A Daily Publication of The Dialogue

Are High Interest Rates Holding Back Brazil’s Economy?

. A Banco do Brasil branch in Amargosa, in Bahia State, is pictured above. // File Photo: Rafael983 via Creative Commons.

At 53 percent, Brazil has the highest bank lending interest rates among 55 developed and underdeveloped countries, according to research firm Trading Economics. As of July, annual consumer credit card interest rates surpassed 270 percent for unpaid balances. Meantime, Brazilian borrowers must pay lending rates that average 38 percent higher than the rates the lenders must pay, a far larger spread than in other locations such as Argentina and Mexico, according to a 2017 World Bank report. Why are lending rates so high in Brazil? How much are the high rates holding back the country’s economy? Should efforts be made to bring the rates down, and how can that be accomplished?

Mario Mesquita, chief economist at Itaú Unibanco: “International comparisons on credit interest rates or spreads are not straightforward, given the inexistence of a standard measure. It is important to note that the most commonly used measure for lending interest rates and spreads in Brazil takes into account new loans only. In this sense, we believe it is more appropriate to focus our analysis on other indicators. Since 2017, the Brazilian central bank has released an index to evaluate the cost of credit, the Cost of Credit Index (ICC). The ICC takes into account the interest rate charged in overall outstanding loans, instead of the new loans only. In July, the average interest rate and spread using the ICC index were 20.9 percent and 14 percent, respectively. According to the central bank, between 2015 and 2017, the delinquency cost represented 37.4 percent of the spread. It was followed by administrative expenses (25 percent) and taxes and the credit guarantee fund (22.8 percent). The financial margin of the banks was responsible for only 14.9 percent. The delinquency cost could be reduced by…”

Read More

Top News



ComparaOnline Buys Colombia’s CompraMejor

ComparaOnline, a Chile-based price comparison site for financial products has acquired Colombia’s CompraMejor. The Chilean company’s founder, Sebastián Valin, said the company is now setting its sights on expanding in other countries in the region.
Read More


Complete editions of the Financial Services Advisor are delivered on a biweekly basis to members of the Dialogue's Corporate Program and other subscribers. Sign up below for a free complimentary preview subscription.

Free Preview


About the Financial Services Advisor

Covering Latin America’s banking and insurance sectors, remittances trends and data, micro lending issues, new technologies in the industry, anti-money laundering regulations, and much more, the Inter-American Dialogue’s biweekly Financial Services Advisor, a sister publication of the Latin America Advisor, gives readers fresh insight and diverse viewpoints from financial sector leaders. To subscribe or for more information, contact Erik Brand, publisher of the Advisor, at ebrand@thedialogue.org.


Subscribers See all


Staff

Erik Brand

Publisher
P. 612.242.1863
E. ebrand@thedialogue.org

Gene Kuleta

Editor
P. 202.463.2920
E. gkuleta@thedialogue.org