Brazil's central bank warns of worsening credit risks in 2022


BRASILIA, Nov 3 (Reuters) - Brazil's central bank highlighted its growing concern about the effects of lower economic activity on credit risks in the country, pointing to a "relevant" increase in risks on financing families this year.

Based on data from the first half, the central bank's Financial Stability Report said on Thursday that household income is increasingly committed to more expensive debt.

Individuals' ability to pay has deteriorated even amid better indicators for the economy and the labor market, added policymakers.

"About households, (credit) risk materialization grew in a relevant way in 2022 in non-consigned credit, credit card, and vehicle financing," said the central bank.

Policymakers also pointed out that despite solid portfolio growth, bad assets in microenterprise credit went up.

Reacting to these factors, banks' provisions have risen to a level considered "comfortable" for the financial system to support expected credit losses, said the central bank.

Even so, there is "growing concern about the effects of a possible frustration of economic activity on the materialization of credit risks," it said, adding that financial institutions should continue to preserve concessions quality.

While the government officially forecasts GDP growth of 2.5% next year, private economists estimate that the expansion will be around 0.6%, according to a weekly survey carried out by the central bank.

The credit warning comes amid a sharp acceleration in loans in Latin America's largest economy despite high borrowing costs as interest rates are held at a cycle-high to tame inflation. In the 12 months through September, credit to individuals rose 20.3%, while credit to companies was up 12.0%.

Although expenses with provisions have increased, the banking system's return on equity (ROE) stood at 15.1% in the 12 months to June, matching the same level from 2021. According to the central bank, higher treasury margins have offset the reduction of credit margins.

(Reporting by Marcela Ayres; Editing by Steven Grattan)

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