Consumer loan delinquencies hit record in August

Late payments rise as costly credit-card debt grows despite recent Selic rate cuts

 

 

 

Roberto Luis Troster
Roberto Luis Troster — Photo: Rogerio Vieira

Consumer delinquencies on bank loans, a major issue in this year’s election campaign, reached a new high in August, Central Bank data show.

Among non-earmarked loans, where interest rates are freely negotiated by lenders, the share of individual borrowers more than 90 days behind on payments rose to 8% in August from 7.8% in July, the previous peak. Overall consumer delinquency climbed to a record 6% from 5.8%.

The data also show that, despite the recent cycle of cuts in the Selic benchmark rate, the economy’s average lending rate snapped a three-month decline and rose 0.2 percentage point in August to 32.3% a year. The increase reflected stronger growth in riskier forms of credit, including revolving credit-card balances and installment plans.

The rise in delinquencies and borrowing costs comes as the federal government, just ahead of the presidential election, launches a third edition of Desenrola, its consumer debt renegotiation program.

Desenrola Brasil 3.0 will cover the purchase and restructuring of debts that have been overdue for between two and four and a half years. Two previous versions have been launched since 2023.

The latest phase will focus on credit-card debt, both installment and revolving balances, as well as unsecured personal loans of up to R$10,000. The government estimates that as many as 15 million people could benefit, with up to R$150 billion in debt eligible for renegotiation.

Costlier credit

The breakdown of the data shows that Brazilians are increasingly turning to more expensive forms of emergency borrowing.

The clearest example is revolving credit-card debt, which is used when cardholders do not pay their full monthly bill. Among non-earmarked loans to individuals, revolving credit-card balances posted the strongest increase in August, rising 4.8% from July.

The average interest rate on this type of credit jumped 8.7 percentage points in the month to 444.9% a year. Delinquencies also rose, reaching a record 66.2% in August from 65.5% in July.

Across all lending categories, the increase in average rates was driven by non-earmarked credit, where rates rose 0.8 percentage point to 48.5% a year, and by loans to individuals, up 0.7 point to 38.2%.

The Central Bank also reported higher borrowing costs on credit-card installment plans, which split outstanding balances into fixed monthly payments. Rates rose to 192.1% a year in August from 189.3% in July, making it the second-most expensive type of credit in the market.

Among non-earmarked loans to individuals, which include revolving and installment credit-card debt, the delinquency rate increased to 8% from 7.1% over the same period.

Payment stress

For payroll-deducted personal loans to private-sector workers, the delinquency rate rose to 10.6% from 10%. The rate on unsecured personal loans increased to 11% from 10.6%, while overdraft delinquencies declined to 15.34% from 16.31%.

Juliana Inhasz, an economist and professor at Insper, said that although the labor market remains strong and inflation continues to ease, household income “is not entirely sufficient to cover expenses.”

“A lot of people are employed, but average incomes are still low,” Inhasz said. “[Expenses for] food, healthcare, housing and household costs have risen sharply in recent years, with a high cost of living for lower-income groups.”

Marcela Kawauti, chief economist at Lifetime Gestora de Recursos, said the delinquency data illustrate how the Selic rate’s prolonged stay at 15% from June 2025 through March 2026, put pressure on household budgets. The benchmark rate now stands at 13.75%.

“This raises a warning about how moderate the economic slowdown will be from here, because high interest rates can cause the wheel [of the economy] to stop turning abruptly, with people having to direct part of their salaries toward interest payments,” Kawauti said.

Broader trend

Roberto Luis Troster, coordinator of the Fipe Center for Studies on Brazilian Corporate Debt, or Cefeb, noted that indebtedness has been rising since 2021, both during periods of “low Selic” and “high Selic,” even as unemployment has remained near record lows and economic activity has expanded.

The Central Bank has also promised measures in the coming months to address household borrowing through costly credit lines such as credit cards and unsecured personal loans.

“Without macroprudential measures, it will be very difficult for these people to escape this cycle,” Central Bank Chair Gabriel Galípolo said in an interview last week. “It is important to create preventive and transparency measures that build awareness when people take out these credit lines, as a matter of consumer protection and financial citizenship.”

Household burden

Household indebtedness, measured as outstanding debt relative to income accumulated over 12 months, rose to 49.9% in July, up 0.2 percentage point from June and 1.1 points over 12 months.

The debt-service ratio — the estimated average amount used to repay debt as a share of average income — was unchanged from June at 28.7% in July. It was up 1.4 percentage points over the previous 12 months.

Outstanding credit in the National Financial System, or SFN, rose 0.5% between July and August to R$7.39 trillion. The increase was led by earmarked lending, which grew 0.8%, and credit to individuals, also up 0.8%.

The Finance Ministry and the Central Bank did not comment.

*By Hamilton Ferrari and Alex Ribeiro, Valor — Brasília and São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Pix transactions fall 10% after ban on betting sites

Part of financial sector applauds measure against online gambling amid concerns over legal uncertainty

 

 

 

 

A person using Pix, the instant payment system of Brazil
A person using Pix, the instant payment system of Brazil — Photo: Hermes de Paula/Agência O Globo

The number of Pix transactions fell about 10% over the past three days, after the government published a presidential decree (MP) late Friday afternoon (25) banning online sports betting (known in Brazil as “bets”). For part of the banking industry, the ban is viewed favorably, since there are in fact many indicators that betting sites were eroding household budgets, especially those of low-income families, and thus affecting delinquency. Still, there is criticism over the legal uncertainty generated by the measure.

On Saturday (26), the number of Pix transactions (not the financial volume) was 229,600, down 11% from the average of the previous four Saturdays, according to Central Bank data. On Sunday, transactions totaled 165,900, down 12.0% on the same basis of comparison. And on Monday (28), they reached 213,000, a decline of 7.4%. Over the three days combined, the drop is 10.0%, also compared with the average for the same period in the previous four weeks.

“Obviously it’s not possible to attribute this drop in Pix only to the ban on bets, but it gives a sense of the size of the problem. It has become a public health issue,” says an industry leader. “I think it was the right decision by the government. I don’t like betting sites in any sense,” adds a banker at a midsize institution.

 

As Valor reported Tuesday (29), analysts also assess that the ban on bets could be positive for banks. Citi notes that more than 40 million Brazilians have already put money into these bets, representing about R$20 billion in gross revenue in the first half of this year. “The measure could leave higher disposable income for households, which would translate into better asset quality for banks, especially in the low-income segment,” says a banking source.

Another source in the sector also acknowledges that the measure could have a slightly positive effect for banks by helping ease households’ disposable income. Still, the source criticizes how the government made the decision, creating legal uncertainty and also affecting the fiscal situation.

“I think betting sites do a lot of harm to the local economy and to commerce, and they shouldn’t have been regulated the way they were, but overturning by MP a law and legal structure that was debated for months in Congress is complicated.”

 

A source in the fintech segment, meanwhile, says that to a certain extent the ban was already expected. “The negative externalities far outweigh the positive ones,” he says, speaking about the effects on society at large. In any case, he notes that some fintechs operate exclusively in this sector and others, though not exclusive, have significant revenue from bets, whether in handling betting flows or in international remittances. “Therefore, an abrupt change will have economic impacts on this subsegment.”

*By Álvaro Campos — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Airlines step up push to mitigate Brazil tax reform impact

International aviation industry seeks changes to new tax rules, warning higher ticket prices could cut international passenger demand by 17.8%

 

 

 

 

Daniel Longo, head of National Civil Aviation Secretariat (SAC) — Foto: Vosmar Rosa/Divulgação
Daniel Longo, head of National Civil Aviation Secretariat (SAC) — Photo: Vosmar Rosa/Divulgação

The international aviation industry has stepped up efforts in recent months to find ways to mitigate the impact of Brazil’s tax reform. The effort has received support from the Ministry of Ports and Airports, which has submitted a draft proposal with recommendations to the Finance Ministry and the Management Committee of the Tax on Goods and Services (CGIBS).

International airfares, which are currently tax-exempt, will be subject to half the standard rate under the new system, estimated at 26%. On domestic flights, the current rate of around 9% will rise to the full rate. The industry has been seeking an alternative for some time, so far without success.

Behind the scenes, sources say there is an expectation that parts of the tax reform could be postponed until after the election. That is because several sectors are facing major disagreements over the new rules. Airlines, meanwhile, have already begun selling tickets for the first months of next year without knowing exactly what tax rate they will have to pay.

According to the International Air Transport Association (IATA), if the reform takes effect as currently drafted, it would increase international airfares by 13.3%. That could reduce demand by 17.8%, equivalent to 5 million fewer passengers a year.

The National Civil Aviation Secretariat (SAC), part of the Ministry of Ports and Airports, prepared the recommendations sent to the Finance Ministry in an effort to find an alternative approach.

One proposal calls for a zero tax rate, based on the principle of reciprocity between countries. “International air transportation is governed by international agreements. And the vast majority of those countries, with a few exceptions, do not impose any type of tax on international air transportation services,” said Daniel Longo, head of the SAC.

The ministry proposed a special tax regime to the Finance Ministry, a model supported by provisions in the supplementary laws governing the tax reform. The proposals were submitted in August, but there has been no response so far. The Ministry of Finance did not respond to a request for comment.

Longo said the prospect of imposing a tax on international aviation is a concern for the ministry, particularly as tourism continues to grow. “Last year, we set a record for the number of tourists visiting Brazil. If we start adding costs, we could be reducing demand,” he said.

Another recommendation to the Finance Ministry, Longo said, involves regulations that would prioritize air operations with little or no environmental impact. Such operations would be exempt from the excise, known as the “sin tax,” which was created to impose higher taxes on activities that have negative effects on society or the environment. The tax also applies to aircraft and vessels, as well as products such as alcoholic and sugary drinks.

Chris Sununu, chairman and CEO of Airlines for America (A4A), expressed support for the SAC’s proposal for a zero VAT rate. “A lower tax burden and greater legal certainty show that Brazil is ready for further growth,” he said in a statement to Valor.

Another issue on the industry’s radar is a change to Brazil’s Electronic Air Transportation Ticket system (BP-eTA), which will begin requiring around 200 fields of passenger information. Today, the system collects only basic information, such as the passenger’s name and identification number.

Peter Cerdá, IATA’s regional vice president for the Americas, said the industry has submitted to the government a list of 15 to 25 fields that could be provided while complying with personal-data protection requirements under Brazil’s General Data Protection Law (LGPD) and international legislation.

According to IATA, the requirements currently proposed for BP-eTA would entail a level of detail significantly greater than that required in markets such as Colombia, Peru, Argentina, Spain, Portugal, and France.

“The impact is significant, both operationally and in terms of implementation,” said Cerdá, who is also president of the Latin American and Caribbean Air Transport Association (ALTA).

Cerdá said the association and executives from global airlines met with government representatives in Brasília in August. “The only people we weren’t able to speak with were officials at the Finance Ministry,” he said.

Cerdá also said the industry has asked for the new ticketing requirements to be postponed. The rules were originally scheduled to take effect in August but were pushed back to December 1. “We have 46 airlines operating in Brazil. What they [the government] are asking for is a solution that simply cannot be delivered,” he said.

Juliano Noman, president of ABEAR, said the industry views higher taxes on international airfares as a move that would hurt tourism. Just look at places like Bonito [in Mato Grosso do Sul state] and Jericoacoara [in Ceará],” he said.

One airline closely watching the changes is Portugal’s TAP, the international carrier serving the largest number of destinations in Brazil. Carlos Antunes, the airline’s head of the Americas, said TAP has put its Brazilian expansion plans on hold. “This change will mean many hundreds of thousands of euros in additional costs,” he said.

The group has no plans to launch new routes in 2027. This year, it added two routes from Curitiba and São Luís to Lisbon. TAP currently serves 15 cities in Brazil. The airline carried 2.2 million passengers in Brazil last year and aims to increase that figure by 5% this year.

CGIBS said it is reviewing thousands of contributions submitted by different sectors of the economy regarding the regulations for the IBS and that its representatives have met with SAC to discuss the aviation industry. “The committee has not yet taken a position on the proposals submitted, which are still undergoing technical review,” it said.

“Regardless of the merits of the proposals received, it is noteworthy that the committee has regulatory authority only over the IBS and cannot introduce new rules or go beyond what has been established in legislation approved by Congress,” the committee said, adding that expanding special tax regimes for certain sectors would tend to increase the burden borne by other parts of the economy.

*By Cristian Favaro — São Paulo

Source: Valor International

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Financial strain adds to Brazil’s economic slowdown

Long-term yields at home and abroad offset support from stocks, currency and other market indicators, reinforcing expectations of weaker growth

 

 

 

Alessandra Ribeiro

Brazil’s financial conditions have remained restrictive since March, driven mainly by fixed income, as the Selic rate declines only gradually from 13.75% and long-term borrowing costs stay under pressure both at home and abroad.

Higher external risk explains much of this year’s tightening. In Brazil, however, market interest rates also reflect worsening fiscal concerns and rising public debt, which have pushed investors to demand higher risk premiums.

The Financial Conditions Index, or FCI, compiled by Tendências Consultoria using the Central Bank’s model as a reference, has remained in contractionary territory since March, when local and global markets deteriorated sharply following the outbreak of the conflict involving the United States, Iran and Israel.

The index reached 1.23 point at the end of March and has since become more volatile, while remaining in restrictive territory.

The indicator combines price components, including commodity indexes, oil prices and the exchange rate, with market variables such as Brazilian and international stock indexes. It also incorporates risk measures including credit default swap (CDS) movements, volatility indexes and domestic and international interest rates, which carry the greatest weight.

A negative reading signals expansionary financial conditions that support economic activity. A reading above zero, as at present, points to tighter conditions and a less favorable environment for growth.

In practice, the sharp rise in long-term global interest rates has offset improvements in domestic factors that could otherwise ease financial conditions.

The surge in U.S. Treasury yields has prevented a stronger decline in Brazil’s long-term rates, even as the Selic falls and the stock market gains on expectations of a close election between Luiz Inácio Lula da Silva of the Workers’ Party (PT) and Flávio Bolsonaro of the Liberal Party (PL).

“Interest rates abroad are the main source of tightening, followed by oil and, to some extent, currency movements, with the dollar gaining a little more traction,” said Alessandra Ribeiro, partner and director of macroeconomics and sector analysis at Tendências. “But overall, interest rates account for much of the index’s movement, which has come under greater pressure again after a very volatile year.”

Ribeiro said the FCI is at its highest levels since April, showing that financial conditions have been tight for much of the year.

“And the level is not low. We are now seeing the effects on economic activity, with models showing that financial conditions begin to affect the economy after one quarter and that the impact lasts for as long as four quarters. In other words, this will affect activity,” she said.

Growth outlook

Tendências says market performance “only reinforces the scenario of a further slowdown in activity in the second half.”

The consultancy expects gross domestic product to grow by an average of just 0.1% in the second half of this year, leaving a carryover of only 0.3% for 2027.

Tendências forecasts GDP growth of 1.8% this year and just 1% in 2027, underscoring its view that the economy will lose momentum as domestic interest rates remain under pressure.

“If we look at local assets, interest rates are pushing financial conditions toward tightening, while other markets have contributed more positively,” Ribeiro said, referring to CDS and capital markets, which have helped limit the overall tightening.

Rafael Cardoso — Foto: Anna Carolina Negri/Valor
Rafael Cardoso — Photo: Anna Carolina Negri/Valor

Diverging signals

Daycoval chief economist, Rafael Cardoso, also sees domestic interest rates as a source of financial tightening, although the bank’s own FCI currently points to expansionary conditions.

One of the main differences from the Central Bank framework involves higher oil prices. Daycoval treats them as a source of financial easing because Brazil is an oil exporter.

“Some components, such as capital markets, the local exchange rate and the performance of emerging-market currencies, end up pushing the index into expansionary territory. But high domestic interest rates and credit delinquency are two factors pointing to very contractionary financial conditions,” Cardoso said.

Although Daycoval’s FCI currently signals expansion, Cardoso said the index is only one input in the bank’s GDP forecasts.

“We know that all indicators have their problems, and the FCI does not capture the duration of monetary tightening,” he said. “It may show a reading close to neutral, or slightly expansionary, but a prolonged period of tight conditions can produce weaker activity than expected.”

Cardoso said that appears to be the case now.

“An FCI close to neutral should point to GDP growth near its potential rate of 2%, but we forecast growth of 1.2% in 2027. Once we move away from the indicator itself, GDP appears likely to perform more weakly than current financial conditions would suggest,” he said.

André Lóes — Foto: Gabriel Reis/Valor
André Lóes — Photo: Gabriel Reis/Valor

Fiscal pressure

Vivest chief economist, André Lóes, takes a similar view, saying financial conditions are severely strained in fixed income, though less so in the foreign-exchange market.

“If public-debt holders receive bad news after the election about fiscal proposals, conditions will deteriorate because the yield curve will not come down and there is also a chance the exchange rate could weaken,” he said.

Lóes said investors naturally focus on the direction of monetary and fiscal policy, but private-sector decisions also create an underlying trend that feeds into financial conditions.

“They end up being extremely important. Ultimately, when we reach a situation in which people are worried, the impact of economic policy itself starts to become limited. In other words, fiscal expansion does not help if people respond by consuming less,” he said.

Financial conditions are therefore becoming increasingly important in assessing what comes next for Brazil, Lóes said.

“And because the major imbalance is fiscal, fiscal adjustment becomes very important. Otherwise, it will not be possible to untie the knot in financial conditions,” he said.

“We do not have a balance-of-payments problem, and we managed to bring inflation down to civilized levels, although the sacrifice ratio was very high precisely because of the other imbalances,” Lóes said.

“We have three problems today: fiscal, fiscal and fiscal. If we start addressing that, we can move beyond the very short-term issues and complete the work we began 30 years ago: stabilizing the Brazilian economy and focusing on productivity growth.”

*By Gabriel Roca and Victor Rezende, Valor — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Brazil betting ban triggers legal battle with industry

Industry groups seek suspension of sweeping measure as government sues 17 operators for at least R$1 billion over alleged social and health costs

 

 

 

 

Luiz Fux — Foto: Luiz Silveira/STF
Luiz Fux — Photo: Luiz Silveira/STF

Brazil’s online betting industry and the federal government opened competing legal fronts Monday over President Lula’s sweeping ban on online gambling, as industry groups asked the Supreme Court to suspend the measure. In contrast, the government sued 17 operators for at least R$1 billion in collective damages.

They are the first legal actions on the issue since President Lula issued the executive order on Friday, another major policy move made days before the first round of the presidential election.

At the Supreme Court, the industry groups are seeking an injunction to suspend the measure until Congress either converts it into law or the court reviews it. No justice has been assigned yet, but the companies want the case assigned to Justice Luiz Fux, who is already handling other industry-related cases.

If the court rejects their main request, the betting companies are asking it to either exempt operators already authorized to do business in Brazil—currently, 85 companies operating 186 brands—or to delay enforcement of the ban for six months.

The National Association of Games and Lotteries, representing 32 authorized companies, filed the petition in cooperation with the Brazilian Institute for Responsible Gaming.

Among its arguments, the association says the executive order violates legal certainty, freedom of enterprise, the principle of proportionality, consumer protection, and Brazil’s federal system. It describes the measure’s timetable as “abusive.”

In a statement, the group argued that the government had overnight eliminated a market that had attracted investment, paid taxes and created jobs, while leaving millions of gamblers exposed to an illegal market with no protections.

The association also argues that no urgency justified the executive order; that such a measure cannot address criminal matters; that the government failed to estimate its budgetary or financial impact; and that it encroaches on the administrative powers of Brazil’s states.

The Attorney General’s Office acted preemptively, asking the judge handling the case to give the president’s office and the institution 72 hours to present their arguments before making a decision.

Government seeks compensation for health costs

On another front, the federal government filed a civil lawsuit in federal court in Pernambuco state because, according to the Attorney General’s Office, Brazil’s Northeast is among the regions most affected by problem and high-risk gambling because of its greater concentration of vulnerable groups.

According to the institution, the 17 companies named in the lawsuit account for about 80% of Brazil’s fixed-odds betting market.

The Attorney General’s Office also reports that 10.9 million of the 28 million Brazilians who currently gamble exhibit patterns of high-risk or problem gambling. According to the institution, between January 2018, when betting was legalized in Brazil, and December 2025, treatment for pathological and excessive gambling through Brazil’s public health system increased by 140%.

The government argues that the compensation betting companies must provide under current legislation does not cover the costs the public health system bears.

According to the Attorney General’s Office, the exact amount the companies would have to reimburse the public health system for material damages, should the government prevail, would be calculated at the end of the proceedings. The institution cites preliminary Health Ministry studies estimating losses of at least R$2.6 billion.

The government is also asking the court to order the companies to repay twice the amounts wagered by people diagnosed with gambling disorder.

Task force targets illegal platforms

Throughout the day, the government released details of actions taken by a task force created to cut off access to unauthorized platforms and prevent new online addresses from offering betting to Brazilians.

The task force identified 506 websites suspected of offering unauthorized betting and seven social media advertisements that began circulating on the day the measure was issued, despite the measure’s ban on new advertising.

The government said it would continue monitoring the platforms to ensure that advertisements are removed and proposed a technical meeting with representatives of major technology companies. A report prepared by the ministries involved recommends immediately removing advertisements first published after the provisional measure took effect.

The government also blocked messaging app channels that promoted online betting. Together, they had 212,000 members.

In an extraordinary edition of the official gazette, President Lula also issued a decree establishing a new interagency committee to police illegal fixed-odds betting and advertising.

The committee’s responsibilities include sharing information on individuals and companies involved in operating, offering, intermediating, or promoting fixed-odds betting; maintaining a unified database of internet domains, applications, and bank or payment accounts; and establishing joint protocols for blocking websites and apps.

The committee will also be able to propose standardized procedures for notifying platforms, service providers, and financial institutions, and for referring evidence of possible administrative, tax, or criminal violations to the appropriate authorities.

*By  Giullia Colombo and Sofia Aguiar— Brasília

(Jéssica Sant’Ana contributed to this report.)

Source: Valor International

https://valorinternational.globo.com/

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Central Bank weighs higher capital requirement for credit cards

Measure is among options discussed to curb household debt as interest costs take a record share of debt-service income

 

 

Lauro Gonzalez — Foto: Divulgação
Lauro Gonzalez — Photo: Divulgação

.Brazil’s Central Bank is at an advanced stage of studying measures to rein in household debt, which remains near record levels. One option under consideration is requiring banks to hold more capital against riskier types of lending, including credit cards, Valor has learned.

Economists, however, question how effective such a move would be in an environment of persistently high interest rates and as expensive forms of credit account for a growing share of household debt.

The Central Bank is expected to meet with banking industry representatives in the coming days, people familiar with the matter said. Financial institutions are still trying to understand what measures may be adopted and their potential impact.

“They [at the Central Bank] are designing the alternatives. We still don’t know what is coming,” one person said.

“We will have discussions with the Central Bank to understand what those measures could be,” another source said.

Central Bank Chair Gabriel Galípolo may address the issue this Thursday (Sept. 24) during the release of the Monetary Policy Report. He has repeatedly voiced concern about household debt, particularly the rapid expansion of credit-card lending.

Capital requirements

Industry sources see an increase in the risk weight applied to credit-card lending as one of the more likely options.

Under such a measure, banks would have to set aside more capital against credit-card exposure. That would raise the opportunity cost of extending this type of credit and could encourage lenders to redirect capital toward other products. The measure would be aimed at discouraging supply rather than curbing demand.

The Central Bank took a similar step 15 years ago, when auto lending was expanding rapidly. The measure helped slow growth in that segment.

Other ideas discussed in recent weeks, including higher reserve requirements or an increase in the tax on financial transactions, known as IOF, appear to have lost some momentum.

“That would only raise the cost of credit and would not discourage riskier lines, which seems to be what the Central Bank wants,” one source said.

Credit-card growth

The regulator has been paying particularly close attention to credit cards. The segment expanded sharply in recent years, driven by greater competition and broader access to banking services, and continues to grow at a fast pace.

While total outstanding credit rose 7% in the 12 months through July, the latest available data, credit-card balances for individuals climbed 14.7%. Within that category, revolving credit jumped 20.8%, installment balances rose 11.5%, and purchases paid in full increased 14.3%.

Central Bank Monetary Policy Director Nilton David said on Wednesday (Sept. 23) that the measures being studied to improve credit supply are intended to increase transparency, map risks, align incentives and reduce the potential for systemic risk.

Without providing details, David said the measures should not be confused with monetary policy.

“Everything is being designed and considered by looking at the experiences and existing legislation in other jurisdictions, in other countries. The objective is the mitigation of systemic risks, alignment of incentives and transparency,” he said at an event organized by Safra bank.

David added that the rules would not differentiate among types of financial institutions.

Financial stability

His remarks reinforce the message from the latest meeting minutes of the Central Bank’s Financial Stability Committee, known as Comef, which highlighted the need to address household indebtedness.

The committee said the Central Bank planned to adopt measures to mitigate risks associated with more expensive forms of credit. Its guidelines call for “the timely recognition of risks, the gradual accumulation of capital and more sustainable conditions for extending credit to borrowers.”

In a recent report, Safra analysts said macroprudential measures are likely to take the form of higher capital requirements for riskier credit products.

They pointed to December 2010, when the Central Bank raised the risk weight on auto loans of up to two years to 150%, at a time when that type of lending was growing at an annual pace of nearly 20%.

“We consider this episode a reference point for the type of calibration the current environment may require, rather than a forecast of the exact action. […] A comparable increase in revolving credit-card balances, unsecured personal loans and overdrafts would be the natural target if the Central Bank opts to act.”

A sell-side analyst said a higher risk weight may have limited effectiveness because some of the financial institutions expanding fastest in unsecured lending in recent years are large fintechs that currently have excess capital.

That means that even if the Central Bank raises capital requirements, those companies may still find it attractive to continue extending this type of credit as they seek to gain market share.

“Another possibility would be to require additional provisioning for certain products for a period of time, which could be more effective,” the analyst said.

Household strain

Household indebtedness has remained near record levels in recent months. It stood at 49.75% in June, just below the historical peak of 49.92% reached in January. The indicator compares the stock of household debt with income accumulated over the previous 12 months.

The household debt-service ratio—the share of disposable income used to service debt—also reached an unprecedented 28.85%.

The composition of that burden is drawing additional attention. Of the total, 17.99 percentage points go toward principal repayments and 10.86 percentage points toward interest alone.

In other words, interest payments account for 37.6% of the income households devote to servicing debt, also a record.

Several factors help explain the growing weight of interest payments, including the Selic, Brazil’s benchmark interest rate, remaining high for an extended period; a shift in the credit mix toward products with wider spreads; and pressures on household budgets, including sports betting.

This has occurred even as incomes remain strong and unemployment sits near historical lows.

“Even the rise of [instant-payment system] Pix has played a role because it led banks to compete in the credit-card segment by offering larger credit limits. With a population lacking financial literacy and high interest rates, that led to a very bad combination,” said a researcher who studies the subject.

Credit supply

Lauro Gonzalez, coordinator of the Center for Studies in Microfinance and Financial Inclusion at Getulio Vargas Foundation (FGV), said debt crises typically stem from factors that can be grouped into three areas.

The first involves macroeconomic conditions, such as the benchmark interest rate. The second relates to microeconomic factors, including financial education. The third concerns credit supply, such as the widespread availability of credit cards.

Gonzalez said the financial industry has changed significantly with the arrival of new players and the inclusion of tens of millions of new users.

“Depending on regulation, the ecosystem that is built may have more or fewer models of predatory credit supply,” he said.

In an article published in April, Gonzalez proposed seven measures to address the issue. One was precisely the higher regulatory capital and provisioning requirements for riskier loans that the Central Bank is now considering.

Another proposal was to create a debt limit for unsecured credit, similar to the 30%-of-income limit used by the industry for mortgage lending.

Debt relief

On the government side, Finance Minister Dario Durigan recently said officials are studying a new version of Desenrola, the federal debt-renegotiation program.

Unlike previous versions, the government would hold a type of auction to buy older consumer debts, between two and five years past due, at a discount, possibly using the structure of federal asset management company Emgea. The debts would then be canceled.

Banks see the potential impact of the program as neutral. These are loans that have already been written off as losses and that financial institutions already sell to asset managers specializing in distressed assets.

Even if the debts are canceled and consumers have their negative credit records cleared, banks consider it unlikely that they would immediately regain a strong enough risk profile to qualify for new loans.

It is also unclear how the program could be implemented while the government is running a primary budget deficit.

The Central Bank declined to comment.

*ByÁlvaro Campos,Lais GodinhoandHamilton Ferrari— São Paulo and Brasília

Source: Valor International

https://valorinternational.globo.com/

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U.S. diesel export ban could hit Brazil hard, experts warn

U.S. supplied about 80% of Brazil’s diesel imports in September as disruptions in Russia and Middle East tighten global market

 

 

 

Felipe Perez: “Diesel prices in the U.S. keep rising and have begun to affect American farmers” — Foto: Leo Pinheiro/Valor
Felipe Perez: “Diesel prices in the U.S. keep rising and have begun to affect American farmers” — Photo: Leo Pinheiro/Valor

Brazil could face a sharp impact if the United States restricts diesel exports, energy-market experts say, as President Donald Trump weighs a measure to contain record domestic fuel prices ahead of the Nov. 3 midterm elections.

Brazil relies on imports for roughly 30% of its diesel market, making it particularly exposed to any U.S. restrictions. About 80% of the diesel Brazil imported in September came from the United States, according to a source familiar with the fuel market. India is also an important supplier, though its share is smaller.

Bloomberg reports that U.S. agricultural state lawmakers are urging the White House to halt diesel exports amid the harvest season, driven by increased demand from diesel trucks. Additionally, states like Alaska have requested restrictions as winter nears, when heating fuel consumption rises.

The oil industry, however, could be hurt by restrictions on overseas sales.

“It is as if the two biggest forces within the Republican Party were in conflict. Agriculture and the oil industry are pulling in opposite directions,” said a source familiar with the discussions.

“If exports are banned and refineries have to sell at domestic prices, we need to see who would absorb the difference compared with what they could earn by selling overseas,” the source said.

 

It remains unclear whether any restriction, if adopted, would be temporary or whether the U.S. government could instead limit overseas sales through export quotas.

Global supplies already under strain

After Russia’s invasion of Ukraine and the ensuing sanctions, discounted Russian diesel became a major source of Brazilian imports, competing with U.S. supplies for the top spot.

However, increased Ukrainian strikes on Russian refineries led Moscow to halt diesel exports in July, exacerbating an already tight market due to supply issues in the Middle East. Additionally, China has focused on its internal needs and limited exports since the U.S.-Iran conflict started on Feb. 28.

Felipe Perez, a director at S&P Global, said that even without an official decision, a potential U.S. export suspension would disrupt global diesel flows because the U.S. is such a major supplier.

“Diesel prices in the United States continue to rise and are beginning to affect American farmers,” Perez said. “If exports are indeed suspended, refineries could reduce production because the domestic market cannot absorb all the volume and storing it is less profitable. That reduction in refinery output could also affect U.S. gasoline production.”

Perez said buyers that currently rely on U.S. diesel would have difficulty finding the same volumes elsewhere. In that case, consumers worldwide would compete for scarcer, more expensive supplies at a time when diesel refining margins have hovered near record levels in recent months.

“Diesel consumers have very little flexibility,” he said. “They cannot simply switch to another fuel. They will have to pay more.”

Reuters reported Tuesday that Trump said he supported banning U.S. diesel exports.

“I’ve already said we shouldn’t export diesel. We produce a lot of diesel. I’ve advocated that. I’ve advocated it with my team,” Trump told reporters before a meeting with Ukrainian President Volodymyr Zelensky.

Treasury Secretary Scott Bessent said the administration is examining whether a ban would be feasible and whether a full or partial restriction could work, Reuters reported. Trump also said he discussed Ukrainian attacks on Russian refineries with Zelensky.

*By Kariny Leal— Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/

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Central Bank flags slowdown, keeps November cut in play

Minutes focus on weaker activity and credit conditions as markets keep odds of another 25-basis-point reduction alive despite election uncertainty

 

 

 

 

Ariane Benedito — Foto: Rogerio Vieira/Valor
Ariane Benedito — Photo: Rogerio Vieira/Valor

Despite few changes from its previous communication, the minutes of last week’s meeting of the Central Bank’s Monetary Policy Committee (Copom) reinforced the market’s view that policymakers are closely watching the slowdown in economic activity and developments in credit.

The document also kept alive expectations that the benchmark Selic rate could be cut at least once more in November, although market pricing stops short of fully factoring in another reduction amid uncertainty surrounding the presidential election.

Compared with the August minutes, Copom made no significant changes to its discussion of how monetary policy should be conducted. Investors, however, saw meaningful shifts in its assessment of the economic outlook and balance of risks.

The Central Bank placed greater emphasis on slowing activity, a view reinforced by second-quarter gross domestic product data, which “confirmed the slowdown” and “revealed that the movement was more intense in economic activities and demand components that are more sensitive to the economic cycle.”

Credit conditions also returned to the minutes after being absent from the previous document. Copom said developments in bank lending have been “consistent with a slowdown in growth,” while longer-term credit categories have declined.

Short-term and emergency credit lines, which tend to be more expensive, “continued to grow, although at a slower pace at the margin,” the minutes said.

Although investors read the document as more dovish, given Copom’s assessment of the economy, interest-rate futures were volatile and ended the Tuesday (Sept. 22) session little changed. The January 2028 DI (Interbank Deposit) futures rate fell to 13.48% from a previous settlement of 13.53%.

In the options market, the implied probability of another 25-basis-point Selic cut in November remained at 67%.

Signs of restraint

PicPay has long expected the Selic rate to fall to 13.5%. The bank’s chief economist, Ariane Benedito, said the minutes reinforced the impression that the Central Bank is “very comfortable” with the rate cut already delivered and consolidated the view that the monetary easing process is “advanced and effective.”

Benedito said Copom also appeared more at ease with signs that the economy is losing momentum.

“In the more cyclical segments, it made clear that the latest indicators point to a slowdown and that GDP confirmed this trend. It also mentions longer-term credit and makes clear that it is already seeing the effects of tight monetary policy in the composition of longer-term lending,” she said.

“Despite that, there is no stronger signal,” Benedito said. She added that the Central Bank appears concerned about the risk premiums demanded by investors, particularly as anxiety builds ahead of the presidential election.

“We expect normal volatility. Of course, the market will move a lot and issues such as confidence and candidates’ proposals will come into play… But given external and liquidity conditions, as long as there is no major disruption in financial markets, investors tend over time to return their focus to the current data.”

Monte Bravo chief economist, Raí Chicoli, said the credit discussion added to the minutes did not point to an extreme scenario as the most likely outcome, but he is increasingly concerned about high household delinquency rates.

Chicoli said the Monetary Policy Report, due Thursday (Sept. 24), should provide more detail on households’ debt-service burden and overall indebtedness.

External risks

As a counterweight to a domestic backdrop that could support further Selic cuts, the minutes described the global environment as uncertain and highlighted risks stemming from higher oil prices and monetary policy in advanced economies.

Chicoli, however, does not see the external backdrop as the main driver of Copom’s next moves unless the war in the Middle East either ends or escalates significantly over the coming months.

He said economic activity and investors’ assessment of fiscal policy after the election are likely to shape the Selic’s near-term path. Chicoli does not rule out a faster pace of easing if the post-election environment becomes significantly more favorable, but for now expects two more 25-basis-point cuts this year.

Election uncertainty

Bank of America economists led by David Beker, head of Brazil economics and Latin America strategy, said the election adds uncertainty to the November meeting.

“By the next Copom meeting, Brazil’s new president will already have been elected. Regardless of the election outcome, we believe there is room for interest-rate cuts to continue. Still, if there is a significant currency depreciation after the election, the cutting cycle could be shallower than we currently expect,” the team said.

J.P. Morgan’s Brazil economists, led by Vinicius Moreira, said the minutes reinforced the Central Bank’s emphasis on a data-dependent approach. Based on the bank’s inflation and activity forecasts, they continue to expect the Selic to remain at 13.75% as their base case.

“Furthermore, consensus inflation expectations are further from the target than when the Central Bank began the calibration cycle and, according to the Central Bank’s own model, inflation does not converge to the target at least until the first quarter of 2028 in a scenario in which the Selic remains unchanged through the end of the year.”

However, the J.P. Morgan economists acknowledged downside risks to their interest-rate forecast.

“Recent activity data have generally come in below expectations, and the medium-term growth outlook has deteriorated, partly because of the high cost of debt service across much of the economy. In addition, although inflation remains persistently above target, it has been surprising to the downside.”

*By  Gabriel Caldeira,Victor Rezende and Hamilton Ferrari— São Paulo and Brasília

Source: Valor International

https://valorinternational.globo.com/

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Tariff refunds lift earnings ahead of next U.S. phase

Embraer and Taurus book hundreds of millions of reais in tariff refunds, while WEG could receive up to R$230m; Suzano seeks reimbursement through U.S. courts

 

 

 

Embraer booked R$358.6 million in tariff refunds in the second quarter — Foto: Divulgação
Embraer booked R$358.6 million in tariff refunds in the second quarter — Photo: Divulgação

Tariff refunds boosted second-quarter results at companies with operations in the United States, but the next phase of the reimbursement process has been delayed by the U.S. Customs and Border Protection (CBP) and is now set to begin in early October. Billions of dollars are at stake.

In Brazil, traditional exporters to the U.S. have largely avoided commenting on the issue, but the sums involved are also significant, reaching hundreds of millions of reais.

Jet maker Embraer booked R$358.6 million in second-quarter results related to the recovery of import duties. Combined with the exemption of aircraft and parts from the latest round of U.S. tariffs, the refunds prompted the company to raise its expected profit margin for the year, XP said in a report to clients. Contacted by Valor, Embraer declined to comment.

Taurus recognized R$91.1 million in refunds during the period, nearly the full amount it had requested.

“From the outset, we believed there could be a Supreme Court victory over the tariff’s unconstitutionality,” said Salesio Nuhs, CEO of the firearms manufacturer. “So we began gathering the documentation so we would have it ready when the time came.”

The process was easier for Taurus because it exports to a U.S. subsidiary, which filed for the refund, Nuhs said. The United States is the company’s main market, accounting for more than 80% of its firearms sales.

Taurus products were not included in the exemptions from the tariff package and were subject to a 50% rate — consisting of the 10% “reciprocal” tariff imposed in April 2025 and an additional 40% surcharge introduced in August — until the U.S. Supreme Court struck down the tariffs in February. The court ruled on Feb. 20 that the International Emergency Economic Powers Act did not authorize the president to impose the tariffs.

J.P. Morgan recently highlighted the potential upside from refunds for another Brazilian company, WEG. The bank estimates the company could receive between R$170 million and R$230 million, equivalent to as much as 9% of its projected third-quarter EBITDA.

The Santa Catarina-based electric motor manufacturer was initially subject to the 10% tariff and later to the additional 40% surcharge. Some products were subsequently exempted, while others remained subject to the maximum rate.

Billion-dollar refunds

In the U.S., tariff reimbursements have generated multibillion-dollar gains for some companies.

Walmart, one of the country’s largest importers, received $2.9 billion in refunds during the quarter, boosting the retailer’s earnings and gross margin. The giant retailer said the amount represented substantially all the refunds it had requested.

Apple did not disclose a figure, but analysts estimated its reimbursement at about $2.2 billion.

Valor obtained a filing submitted in February by pulp and paper producer Suzano and two subsidiaries, just days after the Supreme Court ruling. The companies asked the U.S. Court of International Trade to order CBP to “reliquidate” imports that had been subject to the tariffs and process the corresponding refunds.

Reliquidation process

Reliquidation involves reopening an import entry that has already been finalized, or liquidated, so the duties assessed on it can be recalculated.

The U.S. Court of International Trade ordered CBP to reliquidate imports subject to the tariffs, including entries whose liquidation had already become final. The government appealed that broader order, and the case remains pending before the U.S. Court of Appeals for the Federal Circuit.

The Donald Trump administration argues that CBP lacks the legal authority to reopen a finally liquidated entry on its own and must instead act under a court order, such as the one sought by Suzano.

A CBP representative told the Court of International Trade that the next phase of the refund process will cover imports whose reliquidation has been ordered by a court.

Originally expected to begin in August, the phase was postponed while CBP adapted its refund-processing system. The agency now plans to launch it on Oct. 6 for eligible importers covered by court-ordered reliquidation.

“There are some people in Washington who are apprehensive about the possibility that CBP may be changing its mind about this phase. I don’t think that’s true. I believe CBP is acting in good faith, and I say that because this entire process is being conducted through the courts [the Court of International Trade],” said Matthew McConkey, a partner at U.S. law firm Mayer Brown, which is associated with Brazil’s Tauil & Chequer.

Brazilian claims

Suzano’s filing does not specify an amount. Brazilian pulp exports were subject to the 10% tariff before the product was exempted in September.

Neither Suzano nor WEG has publicly said it filed for reimbursement with U.S. customs authorities. Contacted by Valor, both companies declined to comment.

William Roberto Crestani, a tax partner at law firm Pinheiro Neto Advogados, said that, without naming companies, he has heard of other Brazilian businesses that have already secured refunds and others that are still pursuing reimbursement. He cited the machinery, steel and pulp and paper industries.

In addition to CBP’s postponement of the next phase, Crestani said some refunds have been held up by practical issues such as missing bank information.

Although few companies have publicly discussed the matter, Brazilian machinery industry association Abimaq Chair José Velloso said he believes several of its members are exercising their right to seek reimbursement in the U.S.

Valor contacted companies in those industries, but none commented. The Brazil Steel Institute also declined to comment.

Brazil’s National Confederation of Industry said it did not have enough information to address the issue, while the Brazilian Association of Publicly Held Companies (Abrasca) said it does not compile data on individual overseas transactions by its members. The Ministry of Development, Industry, Trade and Services did not respond.

*By Adriana Peraita— São Paulo

Source: Valaor International

https://valorinternational.globo.com/

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Real stands out as Brazil’s election race stays tight

Prospect of change in government fuels demand for Brazilian stocks and currency, while strategists warn fiscal risks remain under either candidate

 

 

 

Brazil’s real outperformed most major currencies as election uncertainty remained in focus — Foto: Daniel Dan/Unsplash

Brazil’s real outperformed most major currencies as election uncertainty remained in focus — Photo: Daniel Dan/Unsplash

Renewed expectations of a change in government after Brazil’s October presidential election boosted risk appetite in local markets, helping some assets outperform emerging-market peers. The real was among the five strongest currencies tracked by Valor on Monday (21).

In fixed income, expectations of an opposition victory also drove a decline in risk premiums across most of the interest-rate curve, with the exception of the very short end. The local risk-on mood received further support from global markets, as oil prices fell for a fourth straight session and government bond yields declined broadly across developed economies.

The stronger appetite for risk also lifted the benchmark Ibovespa stock index back above 186,000 points. Gains were held back by declines in mining company Vale and oil giant Petrobras shares.

The move came alongside a surge in major U.S. stock indexes, led by the Nasdaq, which closed at a record 27,122.094 points, surpassing its previous closing high of 27,093.901 reached in June.

Fiscal caution

Although the latest polls continue to show President Luiz Inácio Lula da Silva of the Workers’ Party (PT) and Senator Flávio Bolsonaro of the Liberal Party (PL) statistically tied in a potential runoff, Deutsche Bank’s Latin America economics and strategy team sees reason for caution.

The bank’s analysts said either candidate would face difficulty delivering substantial fiscal adjustment early in the next administration because of a “highly fragmented political landscape.”

In a report, the team said only a “modest” political and fiscal risk premium is currently priced into fixed income.

“We see lower rates under most fiscal regimes, but remain cautious given a tight election and fiscal uncertainty.”

The strategists are therefore maintaining only a curve-steepening position, designed to benefit from a wider gap between January 2029 and January 2031 DI (Interbank Deposit) futures rates.

On Monday, the January 2029 rate fell to 13.71% from 13.83%, while the January 2031 rate dropped sharply to 13.91% from 14.03%.

Equity gains

The decline in futures rates helped bolster the Ibovespa, which closed 0.74% higher at 186,596 points. Gains were limited by a 1.12% drop in Vale and a 1.03% decline in Petrobras preferred shares.

Beyond supporting the broader market, expectations of a possible change in government have recently increased demand for somewhat riskier stocks, Bank of America said.

BofA analysts said in a report that local investors have become more constructive on Brazilian equities, while foreign investors remain reluctant to increase risk exposure.

Defensive positioning remains concentrated in names such as electrical equipment maker WEG and infrastructure operator Motiva, while a higher-beta basket led by car rental company Localiza, toll-road operator EcoRodovias and truck and machinery rental company Vamos has attracted more interest, mainly as a tactical adjustment to the macroeconomic outlook.

Real outlook

Some foreign banks are also taking a more cautious view of the real. Deutsche Bank has reduced its position in the currency and now holds a neutral view, warning that “risks remain two-sided and positioning looks stretched” ahead of the election.

“Near-term risks are rising as fiscal and political concerns related to the elections intensify and seasonality turns less favorable in the second half. All of this is happening against an external backdrop that is less supportive for emerging-market currencies,” economists and strategists Francisco Campos, Beatriz Nunes, Christian Rojas and Carlos Muñoz-Carcamo said in a report.

The Deutsche Bank team nevertheless said Brazil’s favorable external accounts and high carry continue to support the real.

The exchange rate per U.S. dollar closed 0.7% lower at R$5.10 in the local market on Monday.

Hawkish comments from Federal Reserve officials during the day may have supported the U.S. currency, even as Treasury yields fell at the intermediate and long end of the curve. Short-term yields edged higher.

Late in the session, the two-year Treasury yield was at 4.75%, up from 4.75% in the previous session, while the 10-year yield fell to 4.97% from 4.99%.

*By Bruna Furlani,Maria Fernanda Salinet,Arthur Cagliari,Luana ReisandGabriel Caldeira— São Paulo

Source: Valor International

https://valorinternational.globo.com/

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