Brazilian Credit Expansion Hits A Bump
Brazilian banks aggressively expanded credit to their customers last year, with average loan portfolios at the largest banks growing by a third. But the country's energy crisis is constraining loan growth and earnings, and testing the lending prowess of local banks.
"Too good to be true" was the frequent echo of credit
analysts visiting Brazilian companies and banks during late
2000 and early 2001, the same refrain heard in third quarter
1997 just before the Asian financial crisis. Brazil's recovery
from the currency devaluation of early 1999, steady GDP growth,
declining interest rates and strong optimism were dimmed only
by concern about elections in late 2002. Business and banks
projected unusual growth and prosperity for 2001. Questions
about possible stresses were uniformly returned with confident
assurances. Absolutely no one cited electricity rationing in
conversations. Then, like a bolt from the heavens, rationing
suddenly began occupying everyone's thoughts. Rainfall in
recent years has been unusually sparse but the drought in
central Brazil caught the government and business by surprise
and will cause an unexpected business recession in third
quarter this year and perhaps beyond. Banks will now struggle
to meet loan...
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