Brazil lending market report -2016 - Creditas

Brazil lending market report - 2016

Released on March 6th, 2017 at Lendit

? 2017 ? Creditas Consultoria Financeira Ltda.

Executive summary

1. With 200 million population and US$500+ billion in outstanding debt, Brazil represents a unique opportunity to disrupt the lending space

2. Average spread of 32% create a revenue pool of US$160 bullion despite average NPLs stand at a relatively low 3.4%

3. Three unsecured products (personal loans, credit cars and overdraft) combine US$56 billion in outstanding debt that is priced at above 200%; these category represents 70%+ of the industry's net interest margin despite it provides less than 15% of all outstanding debt

4. Secured lending is clearly underpenetrated, with mortgages at 12% of GDP and auto financing representing less than US$1k per active car

5. With severe economic crisis, banks have hit the breaks of loan origination and further increase margins, despite NPLs remained stable

? 2017 ? Creditas Solu??es Financeira Ltda.

2

Brazil has $505 billion in outstanding household debt with 31.9% spread

Market-rates debt Payroll loans Auto loans Personal loans Credit cards Overdraft Renegotiations Purchase loans Others

Earmarked debt Mortgages Rural credit BNDES credit Others

Cards (not carried)

Total debt

? 2017 ? Creditas Solu??es Financeira Ltda.

Outstanding Debt ($ mn)

Annual Origination

($ mn)

Term (months)

218

127

40.7

93

37

69.9

46

28

42.4

33

24

36.7

16

9

1.8

8

10

0.0

10

8

35.4

3

2

12.4

9

9

23.6

243

76

267.4

173

38

347.3

53

29

29.8

16

5

96.3

2

4

11.9

44

23

0.0

505

226

112.9

APR %

Spread %

85.2 29.3 25.7 139.4 409.4 328.6 54.2 95.1 34.2

72.9 17

13.4 127.1 397.1 316.3 41.9 82.8 21.9

10.4

3.5

10.8

n.a.

9.1

n.a.

8.55

n.a.

28.7

n.a.

0.0

0.0

41.5

31.9

NPL %

6.0 2.3 4.6 8.8 29.0 17.4 18.3 11.7 6.7

1.7 1.5 2.2

1 6.7

0.0

3.4

3

Outstanding household debt has been falling for 2 years in real terms

Inflation adjusted outstanding household debt

1800 1600

Inflation adjusted credit % increase

30% 25%

1400 20%

1200 15%

1000 10%

800 5%

600

0% 400

200

-5%

0

Dec'06

Dec'08

Dec'10

Dec'12

Dec'14

-10%

Dec'16

? 2017 ? Creditas Solu??es Financeira Ltda.

The last ten years have been characterized by a rapid growth of outstanding household debt. In 2006 consumers had borrowed R$330 billion (R$602 billion at current prices) in loans from the financial system; ten years later, the volume stands at R$1.6 trillion (10% inflation-adjusted CAGR). Credit kept 15% growth rates even in the 2008-09 turmoil while Brazilian GDP was collapsing by 5% In the last couple of years though, credit growth has lost its shine, contracting in real terms by 3% annually in 2015 and 2016 With inflation decelerating in 2016 and now expected to be below 5% in 2017, we expect credit expansion to recover towards the second half of the year

4

Household debt stands at 24.8% of GDP

Outstanding household debt to GDP

30

Earmarked credit / GDP

Nonearmarked credit / GDP

25

20

15

10

5

0

Dec'06

Dec'08

Dec'10

? 2017 ? Creditas Solu??es Financeira Ltda.

Dec'12

Dec'14

Dec'16

Today household credit in Brazil represents 24.8% OF GDP (down from 25.6% a year ago) Household debt to GDP has doubled in a decade, from 12.3% in 2006 Non-earmarked resources (market-rates debt), those not related to compulsory deposits or government funds, have been dropping since 2012 Despite doubling its share as a percentage of GDP, 24.8% is a relatively modest ratio when compared to international standards

5

At 42% debt-to-income, Brazil has low indebtedness level

DNK NLD NOR AUS CHE SWE CAN KOR GBR PRT FIN ESP GRC BEL USA FRA AUT DEU ITA EST CZE SVK POL SVN LVA HUN BRA

Household debt to income ratio

350 300 250 200 150 100

50 0

? 2017 ? Creditas Solu??es Financeira Ltda.

In line with the rise of household debt to GDP, debt as a percentage of disposable income has increased to 42.2%, falling from 46% 2 years ago At this level, Brazil is highly underleveraged compared to international markets

6

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