Top Banks in Brazil Cut Risk as Household Debt Pressures Rise

Brazil’s largest banks are becoming increasingly cautious about lending as rising household debt raises concerns about the ability of consumers to manage additional borrowing. Despite a resilient labor market and economic growth that has exceeded expectations, major lenders are shifting away from riskier customers and unsecured loans.

The latest earnings reports from Banco do Brasil, Itau, Bradesco and Santander Brasil showed a broadly similar approach. Bank executives said they are placing greater emphasis on borrowers with higher incomes and loans supported by collateral, while reducing exposure to customers considered more vulnerable.

Katherine Hennings, an analyst at BRCG, said the shift reflects the need for banks to apply stricter standards when assessing borrowers. She noted that Brazil could be entering a slower stage of its credit cycle after several years in which increased household borrowing helped sustain economic activity.

Historically, periods of rapid credit expansion followed by rising household indebtedness have contributed to weaker consumer spending. Hennings pointed to Brazil’s experience between 2011 and 2015, when a sharp increase in household debt was followed by a significant slowdown in consumption.

The current situation presents a particular concern because household finances have weakened even while unemployment remains low and incomes have improved. Family debt obligations are close to record levels, standing at about 50% of disposable income.

Several factors have contributed to the increase. Regulatory changes, the expansion of fintech companies and the widespread use of digital payments have made borrowing more accessible to consumers who previously had limited access to financial services. Government measures designed to encourage consumption and credit have also contributed to higher household borrowing.

Some of that additional borrowing has come through expensive unsecured products, including credit cards and personal loans. These are precisely the types of lending that major banks are now becoming more reluctant to offer to lower-income customers.

Banco do Brasil expects the economy to grow by about 1% in 2027, below the median forecast of 1.5% from more than 100 economists surveyed weekly by Brazil’s central bank. The economists expect growth of around 2% this year.

Geovanne Tobias, Banco do Brasil’s vice president for finance, said the bank expects consumer delinquency to improve next year as it continues concentrating growth on payroll loans for public- and private-sector employees.

Itau CEO Milton Maluhy Filho offered a particularly cautious assessment, saying the amount of credit distributed in Brazil has surpassed what household incomes can comfortably absorb. He said the bank’s outlook had weakened at the margin and that Itau was responding by increasing its focus on secured loans while reducing unsecured consumer lending.

Bradesco has adopted a similar strategy. CEO Marcelo Noronha said the bank has become significantly more selective, particularly when dealing with lower-income customers. He added that a larger share of the bank’s lending portfolio is now supported by collateral.

Santander Brasil has also reduced its exposure to borrowers it considers higher risk. The bank is paying particular attention to customers earning less than 4,000 reais ($771.40) per month, equivalent to roughly 2.5 times Brazil’s minimum wage.

Carlos Muniz, Santander Brasil’s chief financial officer, said the bank would not currently compete for customers below that income threshold. For borrowers earning more than 4,000 reais, he said Santander would seek lending opportunities backed by some form of collateral. The strategy affects a substantial portion of Brazilian workers, with about 70% of employed people earning no more than twice the minimum wage.

Banco do Brasil CEO Tarciana Medeiros said the bank aims to increase its number of “high-value clients” by 25% by 2030, making the expansion of that customer base a central strategic objective.

Meanwhile, Nubank, Brazil’s largest digital lender and a company heavily exposed to credit cards and other unsecured loans, reported a rise in loans more than 90 days overdue. The figure reached 6.9% in the second quarter, compared with 6.5% in both the previous quarter and the same period a year earlier.

Nubank nevertheless reported stronger-than-expected profit growth, supported by increased revenue and an improved risk-adjusted net interest margin. Its management maintained that there was no broad deterioration among consumers, although it acknowledged a more cautious economic environment.

The banks’ changing lending strategies indicate that Brazil’s financial sector is preparing for greater pressure on household borrowers as economic growth is expected to slow.