Letter IEDI n. 1237—Credit slowdown
The latest data from the Central Bank indicate that, despite the recent reductions in the base interest rate, Selic, the state of credit in the country remains unfavorable to economic dynamism: loan interest rates are still high and new credit operations lost momentum, affecting mainly businesses, especially those in the industrial and services sectors.
In Q3'23, new credit operations totaled R$1.6 trillion (monthly average of R$530.5 billion), representing a real increase of 1.0% compared to the same period of the previous year, when deflated by monthly IPCA. At the turn of the year, credit expansion was much more robust: 12.8% in Oct–Dec'22 and 8.6% in Jan–Mar'23 on the same basis of comparison.
Considering the behavior of corporate loans, overall performance could have been even more unfavorable, since credit to individuals managed to grow 4.4% against Q3'22, more than offsetting the -3.1% decline in new operations for businesses.
It is noteworthy that in 2023 there was practically no expansion in loans to companies, since the best result obtained, in real terms, was in Q1'23 (+0.4%) and yet it was a virtual stagnation. In the following two quarters, year-on-year figures were negative. Consequence: a 2.0% decrease in Jan–Sep'23.
Although there is a two-way relationship between this evolution of new operations and the level of economic activity, a key factor to take into account is the value of interest rates at which they are offered. This is due not only to the level of the base rate, Selic, but also due to the risk aversion stemming from the accounting fraud in the Americans and the increase in bankruptcies.
According to the Central Bank, the average of real interest rates in Q3'23 decreased (-2.6 p.p.) in relation to Q2'23, from 27.6% p.a. to 25.0% p.a. for total operations (households and companies), but remained up compared to last year, given the more intense slowdown in inflation.
The average real interest rate of new credit operations rose +6.1 p.p. against Q3'22, and was even more significant in the year to date: +9.9 p.p. in the average for Jan–Sep compared to the same period of 2022.
So much so that the segment that most reflects the situation of interest rates is precisely the one that pulls down loans to businesses. After discounting inflation, non-earmarked credit to companies shrank 5.0% in Q3'23 versus Q3'22. In the year, there was not a single quarter in which the sign was not negative.
With operations either weak or in the red, the total credit stock of the national financial system, which is a more stable measure because it considers older active loans, also points to lower dynamism.
Total credit stock, which reached R$5.3 trillion, registered a real variation of only 0.1% in Q3'23 compared to the immediately previous quarter. In relation to the same period of the previous year, the increase was of 10.0%, which represents half the pace of expansion that was being registered since the end of 2022.
The greatest deceleration in credit stock was also seen in operations with companies: 14.5% in Q2'23 to 6.5% in Q3'23, against the same period of the previous year. Compared to the immediately preceding quarter, the result was -0.3%.
In addition to the issue of interests, it is important to note that corporate financing has been undergoing a structural change in the country in favor of raising funds through the issuance of securities. However, bank credit and direct market operations are not substitutable, since, in general, smaller companies do not have access to the latter.
The stock of debt securities issued in the domestic market (debentures, commercial notes and real estate and agribusiness receivables) and held by residents grew, in real terms, 27.2% in Q3'23 compared to Q3'22— that is, a pace well above the stock of corporate bank credit.
The stock of debts issued by the non-financial corporate sector is already equivalent to 72% of the credit and financing operations of the financial system, about 10 percentage points more than in Q3'22.
Going back to total loans, Central Bank statistics also allow us to assess their evolution through two perspectives: sectoral and company size.
Among the three main sectors of the economy, there was positive real variation, with the industry posting the most modest result: 10.4% for agriculture, 5.1% for services and 4.3% for the industry in the year-on-year comparison. The slowdown in the pace of expansion was more intense in services (-8.7 p.p.) and the industry (-6.6 p.p.).
It should be noted that half of the industrial branches suffered credit contractions in the period in question, especially those whose markets are hampered by the financing conditions of their customers, such as the automotive industry (-17.9%), other durable consumer goods (-8.3%) and the capital goods sector (-6.0%).
Compared to Q2'23, in turn, the stock of credit to industrial companies decreased 0.8% in real terms in Q3'23, while the balance of operations with service companies fell 0.3%. In contrast, the balance of credit operations with agricultural companies grew 7.6% in this period, reflecting the seasonality of the agricultural harvest, and consequently the financing needs of the sector.
Considering the size of firms, BCB's credit statistics show that in Q3'23 the stock of credit to smaller companies grew 7.8% in real terms, a much higher increase than that recorded by the stock of loans to large companies (+2.4%) in the comparison to the same quarter of 2022. However, the pace of growth of credit to MSMEs decelerated more intensely: -13.5 p.p. in relation to Q2'23, while the stock of credit to large companies registered -6.9 p.p.