Falling Interest Rates To Boost Asset Quality In Brazil's Banking Sector In H223, 2024

• Fitch Solutions has slightly raised its end-2023 loan growth forecast for Brazil from 5.6% to 7.0%, as the company now expects lower interest rates in the second half of the year.
• The Banco Central do Brasil (BCB) is expected to reduce its policy Selic rate from the current 13.25% to 11.75% by year's end, revised from a previous estimate of 12.50%.
• While interest rates will remain historically high, the slowdown in credit growth will be less severe than earlier projections.
• Credit growth for both households and corporates has been on a steady downtrend since mid-2022, as the BCB’s aggressive rate hiking cycle has sharply increased the cost of borrowing. Average interest on new loans increased sharply, while rising rates also increased the cost of debt repayment to new all-time highs, reducing the willingness of households to take new loans.
• Notwithstanding, lending conditions will improve in 2024 as rates come down, consumers remain in good shape and the state-owned BNDES (Brazilian Development Bank) ramps up subsidised lending. Asset quality in the banking sector will also improve as interest rates moderate in the coming quarters, supporting the stability of the financial sector.

(Source: Fitch Solutions)