RIO DE JANEIRO, BRAZIL – Demand for credit by individuals increases and open banking widens prospects for both borrowers and lenders.
Retail banks, digital banks, fintechs and marketplaces have started the search for Brazilians who have been taking out loans since last year to reinvent their businesses or increase comfort in the home office.
Nothing suggests that this second semester will be any different, and neither will 2022, unless the electoral process undermines consumer confidence. All players – traditional, new or newcomers – together and mixed, are celebrating good results in advance, as confirmed by 6 experts who know a great deal about credit.
In the 12 months through May, the most recent data released by the Central Bank (BC), R$1.5 trillion (US$300 billion) swelled the total credit balance in Brazil, which reached R$4.177 trillion. The balance of individual loans increased some R$320 billion, to R$2.361 trillion, in the same period.
Total loans once again exceeded 50% of Gross Domestic Product (GDP). An expansion did indeed occur, but this robust proportion was also achieved due to the fact that GDP dropped with the crisis triggered by the pandemic. Therefore, total credit compared to all the wealth produced in the country has increased.
However, the mathematical subtlety does not eclipse the positive outlook, particularly for those who need money and for the Central Bank, which is targeting increased competition among all members of this sector in the context of open banking, in order to lower the cost of borrowing.
Consecutive increases in the SELIC rate, which in 3 months has jumped from 2% to 4.25% and in August could reach 5%, have raised lending rates. However, the dispute for clients should contain excesses, the experts point out.
The family income commitment, which for more than a year has stood at around 30%, is not a cause for concern. There is a repressed demand for goods and services that should extend to tourism in the fourth quarter this year.
“We are not yet observing alarming indications of default. From now on the dynamics will largely depend on vaccination. But mobility tends to increase and by the last quarter we should be returning to a better balance between supply and demand. By then, companies will be solving more serious production problems and consumers will be more confident,” says Nicola Tingas, chief economist of the National Association of Credit, Financing and Investment Institutions (ACREFI).
“Government programs, such as emergency aid, implemented during the pandemic helped individuals restructure. An important bridge to get through an unprecedented event. Emergency aid helped families’ cash management,” says Leandro Diniz, director of Bradesco’s Loans and Financing Department.
Marco Túlio Guimarães, vice-president director of Banking Products at Inter, says that although the benefit has injected more money into the economy, the amounts were intended for income replacement, used primarily for daily consumption items. In other words, it would not impact demand for credit. “The 2020 data show that despite a higher emergency aid, credit supply remained extremely heated.”
Positive competition
The month of June was the best in Bradesco’s history in some credit lines, such as real estate credit and agribusiness, both sectors with a large supply chain. “The market is competitive, but competition has never ceased to exist and is very positive when it is symmetrical, when all institutions follow the same regulatory standards,” Diniz says.
Cassio Schmitt, Santander’s Director of Credit Products, assesses that credit supply is being driven by the large private banks and reports that competition from digital banks is beginning to be felt in some of the credit products, such as cards and loans on consignment.
“However, fintechs, with a limited product offer and limited resources still have little space. With the entry of the new phase of open banking throughout this year, credit competition should increase even further. And, the release of access to customer data to credit marketplaces, which was deferred to 2022, should greatly change the market in the future,” he says.
Schmitt says that competition is very positive for banks, for the market, and for customers. “It can only happen through better access and use of the available data, which also creates great opportunities. The quality of a credit portfolio goes far beyond risk assessment and the granting of credit, and large banks have great expertise in this management,” he says.
With respect to open banking, which enables the sharing of customer data, when authorized, Santander’s director considers that the implementation process will need to be gradual. “It is not comparable to PIX, which grew rapidly, occupying the space of payments and transfers.”
Inter’s Guimarães believes, without a doubt, that the sharing of banking data and services, “with great security and mainly customer control at all times,” will enable a much more customized, agile and less risky offer of products and services. “Competition will provide many benefits for people, such as easier payment terms, lower interest rates, among other benefits. At Inter, opportunities are linked to demonstrating the variety of attractive products we already have, as well as new ones we will be launching soon.”
Security and competition
Rodrigo Cury, head of BTG+, BTG’s digital bank, is optimistic about ‘open banking’ because he considers it a safe path to greater competition, guaranteed by the Central Bank, so that client data may be exchanged between banks in a “safe and uniform” way.
“Now, how these data will be used is unknown. The ability of institutions to use these data is unknown. For clients, open banking can be very positive because they will have cheaper, wider and more precise [borrowing] options,” the executive says, while cautioning: “Open banking will not change the system overnight. It will take months for the system to develop. Oiling the machine may take 12 to 18 months, although the benefits will start at the first minute.”
Cury is also optimistic about credit expansion. BTG+ is looking for a partner to provide real estate credit. “We want to be competitively priced. We don’t have a savings account that generates funding for operations. Our negotiations are at an advanced stage. We are also interested in private consignment credit,” the executive says, to whom the increase in credit brings positive results for the economy as a whole, because credit is essentially consumption.
However, he reveals his concern with “pendular trends” – with many institutions acting concurrently in abundant credit supply at a time when everything seems to be going well, only to then stop them due to uncertainties, one of which is the duration of the pandemic.
Rodrigo Cury says that granting credit is easy because default is down the line. “We only know for sure if a loan will do reasonably well in 6 months, 9 months, or a year. Large banks don’t worry because they have been doing this for decades. The problem is when people with less experience do it. The risk is of a credit oversupply for those who can’t afford it all. There could be systemic defaults in the future. I don’t see this scenario, but caution should be exercised.”
With R$240 million invested particularly in data technology and intelligence, Guiabolso is a forerunner of open banking, says Benjamin Gleason, the fintech’s founding partner, who sees the Central Bank project as a great opportunity for people to have control over their data and the best financial opportunities.
“Large banks have a tradition of having customer data, and now the opportunity arises, with sharing, to also seek out those who are not customers. Competition will increase,” Gleason says, pointing to the challenge of implementing open banking, which opens doors to other businesses.
Applied intelligence
“Access will be given to raw customer data. The data will not be presented as in a kind of bank statement. The greatest value of open banking implementation lies in the conversion of these data into intelligence and in the classification of what is income, revenue, spending details. Guiabolso is currently being hired to apply intelligence to raw data,” Gleason says.
Guiabolso was founded by the fintech’s CEO Benjamin Gleason and partner Thiago Alvarez in 2012, when they began studying consumer finance. Two years later, the duo launched a service that would today be known as open banking, aggregating consumers’ banking data with explicit authorization and set up a financial management platform – a marketplace to tailor product offerings to consumers’ profiles.
Currently with 6 million users accounting for 15 million financial accounts, Guiabolso has several partners in the system, such as BV, Digio and Creditas, and has handled R$1 billion in credit. “The marketplace was launched in 2016 basically with personal loans. Currently, it offers most banking products that can be contracted through Guiabolso’s app which also curates the best solutions for users,” Gleason finalizes.
The litmus test of the relevance of credit, particularly for large banks, will come with the second quarter balance figures in the pipeline. However, there is no doubt that this team will apply all its expertise, accumulated over decades, to defend its share.
Source: Exame