Brazil plans credit history registry

Brazil’s
Senate has approved the formation of a positive credit registry, an
important decision for the country’s booming consumer lending industry,
which some believe needs closer monitoring to avoid becoming a bubble.

The
registry will enable banks to review the credit history of all
borrowers, not only those who have defaulted – as at present – enabling
them to offer better terms to those with a good repayment record.

Robert
Stoll, analyst with Fitch Ratings in New York, said 30m people had
joined the middle class in Brazil in recent years, swelling the ranks of
the country`s borrowers and posing challenges for banks trying to
assess creditworthiness.

The planned registry was “certainly
positive for the market and for the banks that are relying on these
consumers,” said Mr Stoll.

The measure, which is yet to be
approved by Dilma Rousseff, Brazilian president, came as the central
bank warned it had “more work” ahead to reduce inflation in the country,
which is riding an economic boom partially fuelled by credit.

Brazilian
private sector credit remains low compared with developed countries at
nearly 50 per cent of gross domestic product, but it has grown quickly
in recent years. A survey by LCA, a consultancy, found the proportion of
Brazilian household monthly income that goes toward paying debts rose
to an average of 25.8 per cent in February – high compared with
developed markets.

Availability of credit, coupled with strong
demand by new consumers, high commodity prices and foreign fund inflows,
has pushed up inflation, which last month exceeded central bank’s upper
limit of 6.5 per cent. Alexandre Tombini, central bank president, said
on Thursday policymakers had increased the benchmark Selic lending rate
by 325 basis points since the financial crisis to 12 per cent and had
taken a series of other measures to curb credit excesses.

He said
there were signs inflation was moderating on a month-on-month basis and
credit growth would be less than 15 per cent this year.

Brazilian
banks have access to a database of defaulters, but there are concerns
that the industry has entered uncharted territory with rapid credit
growth among first-time borrowers.

“The country is close to
entering a new era for credit, which will be most beneficial for
consumers,” said credit-checking company Serasa Experian. “The practice
of positive credit registration … promotes access to cheaper credit for the population.”