Brazilian Banks raise loan interest rates again in January

RIO DE JANEIRO, BRAZIL – Interest rates for loans rose again in January, according to ANEFAC’s (National Association of Finance, Administration and Accounting Executives) interest rate survey.

The overall average interest rate for individuals rose 1.51% in the last 12 months, from 6.39% per month (110.29% per year) in December 2021 to 6.46% per month (111.95% per year) in January 2022. This is the highest interest rate since December 2019.

Considering all basic interest rate hikes by the Central Bank since January 2021, the average interest rate for individuals has risen by 20.91%, from 92.59% per year in January 2021 to 111.95% per year in January 2022.

According to the association’s executive director for studies and research Miguel José Ribeiro de Oliveira, the increases are the result of higher future interest rates, the rise in the SELIC and expectations of a likely rise in default rates.

The likely default may occur because of the “end of grace periods on loans (breaks and grace periods in debt negotiations), high unemployment, end of emergency aid payments, rising inflation and its impact on income and increased selectivity of banks in granting credit.”

Also influencing the rise in interest rates on loans are the announced tax hikes for financial institutions in the Social Contribution on Net Profits (CSLL) in 2021 and the increase in the rates of compulsory deposits by banks from 17% to 20%. The Central Bank’s goal is to reduce liquidity in the financial system to curb inflation.

For the coming months, Oliveira believes that, with the worsening of the economic scenario, higher credit risk and rising default rates, as well as likely new hikes in the basic interest rate to curb inflation, the trend is for interest rates on credit operations to continue rising.