By Marcela Ayres
BRASILIA, Oct 27 (Reuters) - Lower-income Brazilians are devoting an increasing share of their earnings to interest on credit-card- and other high-cost consumer borrowing, prompting policymakers to consider how to reduce excessive debt.
The new central bank data point to a growing reliance on expensive forms of credit since late 2023, in the first year of President Luiz Inacio Lula da Silva's current term. Lula's administration has long championed greater credit availability as a way
to support economic growth.
But in its latest financial stability report, the central bank again flagged concern over the rising portion of household budgets absorbed by the servicing of high-interest borrowing and reiterated that it was studying macroprudential measures aimed at riskier lending segments.
Among borrowers earning up to twice the minimum wage, or 3,242 reais ($604) in total, the share of income being spent on credit card debt stood at 15% in June, close to historical highs and four times the 3.75% recorded among those earning more than 10 times the minimum wage.
The gap was also evident in unsecured consumer loans. For borrowers earning up to twice the minimum wage, the share of income committed to servicing that debt stood at 9.6% in June, compared to 3.1% among those earning more than 10 times the minimum wage.
The central bank said the rapid digitalization of financial services had significantly increased the availability of credit offers to lower-income consumers, and thus raised debt levels.
"In response, the central bank is considering macroprudential measures targeting higher-risk credit segments to reduce overindebtedness and strengthen credit sustainability and financial system resilience," it said, without providing details.
The report said debt-servicing capacity is strained for both households and companies. Among families, debt burdens have reached their highest level in 21 years, with low-income borrowers bearing the brunt.
The central bank said credit risk has increased and is likely to remain elevated in the near term.
Troubled assets in household lending have risen across most credit segments to their highest levels since 2012, driven primarily by delinquency, while default indicators point to continued pressure through the second half of the year.
($1 = 5.3719 reais)
(Reporting by Marcela Ayres; editing by Gabriel Araujo and Kevin Liffey)
