Graphs Show: Credit Crisis Shows First Signs — Why Worry? – Global Happenings

The expression ‘credit crisis’ gained strength in these first months of 2023. It all started after the BRL 20 billion shortfall in the Americans (AMER3). This caused a chain effect, with a direct impact on the banks. With the exception of Bank of Brazil (BBAS3), all banks, such as Itaú Unibanco (ITUB4), Bradesco (BBDC4) It is Santander (SANB11) had significant drops in their profits due to the retailer.

Credit crises, or ‘crunch scenarios’, are when banks become more demanding in granting credit, whether by raising rates or demanding more collateral. Without money circulating, companies paralyze investments, while families postpone consumption, such as buying a new house or changing a car.

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In other words, all that Brazil does not need right now is a credit crisis. However, some graphics, made by Inter Research with data from central bank, show the first signs that the credit crisis is knocking on the door. See below:

O Inter Note that the latest data from the central bank referring to January 2023 show the beginning of a slowdown in credit concessions for legal entities. In addition, he says, defaults are below the historical average, which shows the downward trend for the year.

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“If in the banking market credit entered a restrictive mode, in the capital market we are also seeing a strong deceleration trend in issuances in the last two months, with more restricted demand from investors. With spreads still high and companies’ greater indebtedness, the scenario should continue to be challenging”, he adds.

Reason to be concerned?

In Inter’s view, credit concessions actually proved to be more restrictive, but this sharper deceleration in corporate credit does not necessarily arise with a crunch scenario.

The reasons for the slowdown are two:

• interest rate at high levels;
• companies’ leverage level deteriorating;

For the broker, the case Americans caused some cases of judicial recovery and a lower appetite of banks, mainly for the retail sector and companies linked to the chain.

Is Brazil experiencing a credit crisis?

Big names in the market and the government are already warning about the risk.

Louis Stuhlbergerfrom the Green Assetsaid that there are “signs of an incipient credit crunch (credit crunch) reaching the Brazilian economy”.

In the letter in which he presents the performance of the Green Background in February, the manager states that this crisis can only be faced with “good public policies and not bravado”.

“The financial market was terrified and closed its doors. That is, these companies want to extend their debts and find costs even more expensive, requiring even greater guarantees, which makes it difficult to roll over debt. When you cannot roll over debt, you enter the risk of default. This could become a bankruptcy filing,” says Max Mustrangi, founding partner of Excellance.

He also reveals that the credit market has also dried up. “Whoever was on the edge is forced to kneel down to ask for RJ or go bankrupt. I talk to banks every day and we have a brutal credit crisis and everyone is more restrictive in concessions ”, he observes.

On the other hand, Eduardo Seixas, managing partner of Alvarez & Marsal, clarifies that credit crises are cyclical and, by all indications, we are entering one.

“The last time we had it was in 2016 with the impeachment process of dilmawith the economy quite deteriorated, and now we had a pandemic that moved the stock market a lot. judicial recovery. If the creditors had not made it more flexible, it would certainly have exploded there”, he argues.

Seixas calculates that in 2023 we will have a significant increase compared to recent years, around 900 or 800 requests for judicial recovery. “We understand that this number will increase by more than 50% compared to last year. Not like in 2016, but bigger than the last ones when it was stabilized”, he adds.

Milanese, from Pantalica Partners, says that if the public and private financial system do not come together to diagnose the situation well and act quickly, 2023 could be the year of breakers all over Brazil.

“Acting means: a company with a good and competitive operation needs to be helped by extending debt, converting excess debt into equity (creating ad hoc funds that can do this). The bad companies or companies that have defrauded can be left to their fate”, he ponders.