Reading time: 10 minutes
Almost 65 million Brazilians are delinquent on their payments, according to October data from the National Confederation of Shop Managers (CNDL) and SPC Brasil.
The number of consumers with negative credit records reached a record high in the study conducted by CNDL in partnership with SPC Brasil. This situation — affecting approximately 40% of the adult population — reflects the economic environment, especially the high inflation that erodes workers’ purchasing power and interest rates that increase the cost of debt.
Impact on Consumption and Businesses
Rising delinquency affects the entire consumer market, creating challenges not only for debtors or businesses experiencing cash flow issues due to missed payments but also for the broader goods and services sector, as indebted consumers have reduced purchasing power.
In addition to losing access to credit, around 65 million delinquent individuals are trying to balance paying overdue debts with essential expenses.
“Consumers in default are prevented from spending, and as consumption declines, sales are directly impacted,” notes Merula Borges, a finance specialist at CNDL. This limitation lowers businesses’ financial expectations and their willingness to invest or hire.
In the financial sector, delinquency represents a risk that must inevitably be priced. According to the CNDL/SPC Brasil report, more than 60% of debts are concentrated in the banking sector. Borges explains that credit card debts do not directly affect retail cash flow since the debt stays with the bank.
“The issue arises when banks see a large number of people defaulting, prompting them to raise interest rates to offset higher risk,” she says.
Even with the halt in the central bank’s key rate (Selic), which stabilized at 13.75% per year in August 2022, average credit card interest rates continue to climb. The average personal credit card revolving rate increased from 346% a.a. in January 2022 to 399% a.a. in October 2022, according to the Central Bank of Brazil.
“It’s ideal to have a favorable business environment and consumers up to date on payments,” Borges emphasizes. Solving this problem depends on macroeconomic conditions. While public policies may help delinquent Brazilians, lower interest and inflation rates are essential for consumers and businesses to refinance expensive debts with cheaper options.
A Challenging Scenario
Interest rates are a key driver of delinquency, notes Marcos Camargos, researcher and assistant professor at Ibmec-MG and the Federal University of Minas Gerais (UFMG). High rates not only increase the cost of overdue debts but also restrict access to credit, especially for companies relying on financing to invest.
Camargos points out that the Selic hike did not occur in isolation. Brazil’s economy was already weakened when the Covid-19 pandemic hit. The health crisis worsened an already challenging scenario, heavily impacting both the population and businesses. Government aid and credit programs in recent years, combined with supply shortages and rising international prices, contributed to increased inflation.
The central bank has sought to control inflation through the Selic rate, which started rising in March 2021 (from a historic low of 2% a.a.) and paused only in the last quarter of 2022 at 13.75% a.a. This creates a challenging context for economic policy and a critical situation for both consumers and businesses, who have lost purchasing power. The reduction in inflation and interest rates is expected to be slower than the pace of their increase.
To mitigate delinquency risks, Camargos recommends that companies improve credit analysis models or limit certain operations to credit cards, as financial institutions have systems better suited to manage transaction risks.
Diagnosis and Strategic Analysis
“Interest rates went up like an elevator and will come down like a staircase,” compares Andrew Frank Storfer, director of the National Association of Finance, Administration, and Accounting Executives (Anefac). In 2023, the Selic rate may gradually decrease, but it will remain high. Storfer advises caution in both extending and obtaining credit.
The first step is to control debt levels to avoid liquidity issues. Companies must understand their credit practices, review internal policies, and ensure transparency in decision-making.
“Businesses cannot be affected by high delinquency without understanding the root causes,” Storfer stresses.
Analyzing consumer delinquency data can reveal whether defaults are linked to specific products or services and identify the profiles of delinquent buyers. Insights from this analysis enable more strategic business decisions.
For B2B credit, practices are similar to those used with individual consumers, such as consulting credit bureaus and registering protest actions. The difference lies in analyzing financial statements, cash flow, and formal contract arrangements. Storfer notes that B2B delinquency must also consider client dependence.
“One thing is a company whose largest client accounts for 5% of revenue — monitoring the most important clients is feasible. But it’s a very different situation if a single client represents 80% of revenue. There’s a huge dependence on both delinquency risk and the company’s survival.”
The more diversified a company’s receivables portfolio, the easier it is to manage delinquency risk.
Source: Contas em Revista
