Middle-class borrowers owe more than six months of income
Renata Venturini
Divulgação
Middle-class borrowers carry an average of three debts per taxpayer ID, a study by Bravo Brasil, a debt renegotiation and financial education platform, shows.
The study, “Who Carries Debt in Brazil Today,” was shared with Valor and is based on interviews conducted in August with 1,500 Bravo clients. The company is the Brazilian subsidiary of Mexico-based Bravo, which operates in six countries.
Among the clients surveyed, all of whom had completed a debt renegotiation plan proposed by Bravo, median gross monthly individual income stood at R$4,200, a level the company classifies as middle class. Based on the debts reported to Bravo for renegotiation, the company calculated a median debt load of R$24,289.
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That means the typical borrower in the survey owed the equivalent of 6.3 months of median income as of August, said Renata Gonçalves Venturini, Bravo’s commercial manager.
The findings broadly mirror the latest Brazil’s Central Bank data on household debt, although the measures are not directly comparable.
The Central Bank’s latest Monetary and Credit Statistics released Tuesday (Sept. 29) put household indebtedness across all income groups at 49.9% in July, up from 49.7% in June. The indicator measures outstanding household debt with the financial system against income accumulated over the previous 12 months. In other words, it compares the total stock of debt at a given point with a full year of income.
“If we annualize this income, we get approximately R$50,400 a year. On that basis, the average debt represents about 48% of annualized income. That is close to the 49.8% household indebtedness reported by the Central Bank,” Venturini said. “The proximity helps put the size of the liabilities in Bravo’s client base into perspective, but it does not mean the indicators are directly comparable.”
Venturini noted that the Central Bank calculates household indebtedness as the ratio between outstanding debt with the National Financial System and income accumulated over the previous 12 months. Bravo’s study, by contrast, focuses specifically on people who completed the company’s negotiation program and adds together the debts they reported.
“But Bravo’s data show that, within this specific group, median debt amounts to practically half of annual gross income. That underscores the size of the liabilities these people carry and helps put the broader indebtedness picture shown by Central Bank indicators into context,” she said.
All respondents also had total debts above R$15,000 when the survey was conducted, Venturini added. Most therefore fell outside the parameters of the Novo Desenrola federal debt renegotiation program, which caps eligible debt at R$15,000 per financial institution.
Bravo also examined respondents’ education levels. Of the total, 61% had completed university or postgraduate studies. Venturini said this suggested that most had enough education to seek out financial guidance and understand the risks of accumulating multiple debts.
Juan Pablo Zorrilla
Divulgação
Easier credit
Juan Pablo Zorrilla, co-founder and co-CEO of Bravo, said one factor behind the current picture is the middle class’s greater repayment capacity compared with lower-income borrowers. That makes financial institutions more willing to approve multiple loans.
“And there is a tendency to use larger credit lines,” Zorrilla said. “But salaries do not grow at the same pace as these borrowers’ capacity to take on loans.”
João Debom, a partner at Supernova Investimentos, agreed.
“Someone with a slightly higher income is seen by the market as a less risky borrower,” Debom said. “So that person receives more credit offers, from several institutions at the same time — from banks to finance companies and fintechs.”
Debom said the situation becomes particularly concerning when borrowers have so many debts that they lose track of the total amount they owe.
“When debt is spread across several creditors — banks, finance companies, retailers and credit cards — people rarely have a consolidated view,” he said.
That can quickly turn into a snowball effect, Debom warned. “When people are in debt, they tend to focus heavily on the installment, not on the interest rate or the total amount owed.”
Installment focus
That emphasis on the monthly payment rather than the total debt reflects a broader structural problem, said Luís Dornela, CEO of Ludo Group, a company specializing in financial solutions. Brazilian consumers have historically paid little attention to the full cost of borrowing, including interest, after taking out a loan, he said.
“We know that old phrase very well: ‘the installment fits my budget,’” Dornela said. “The calculation is not about how much it costs or how much of your income it will consume. It is simply whether the installment fits your budget.”
Middle-class borrowers also have more room to renegotiate debt, Dornela said. But when interest rates are high, as in Brazil, refinancing often takes place at higher rates than those charged when the original loan was taken out. That can increase the overall debt burden and make repayment harder.
“And that is when delinquency starts to rise, as we are seeing in the numbers now,” he said, referring to the broader increase in both indebtedness and missed payments across income groups.
Delinquency pressure
The Consumer Debt and Delinquency Survey, or Peic, from the National Confederation of Trade in Goods, Services and Tourism (CNC), showed that 82% of consumers were in debt in August, the highest share since the survey began in 2010. The share reporting overdue debts stood at 19.9% last month, the highest since April.
The Central Bank’s latest Monetary and Credit Statistics also showed that the average delinquency rate on bank lending reached 5% in August, the highest since the series began in 2011. The same data put the share of monthly income committed to debt payments at 28.7% in July, also a series high.
The growing number of debts attached to a single taxpayer ID also makes it harder for companies specializing in debt restructuring to find workable solutions, said Renata Belmonte, a partner in the civil litigation practice at law firm Albuquerque Melo Advogados, and Arina do Vale, who leads the firm’s credit recovery and liability management team.
The problem is not borrowers’ willingness to settle their debts, they said, since most want to resolve their outstanding obligations. The obstacle is the math. When one person carries several debts that consume nearly 30% of monthly income, repayment capacity becomes a scarce resource for which all creditors are competing.
Credit expansion
Everton Gonçalves, director of economics, regulation and products at the Brazilian Banking Association (ABBC), said the increase in household debt occurred alongside greater competition in the financial sector, as new firms such as technology-driven financial companies entered the market and extended credit “to people who until then did not have access to it.”
To reduce the number of debts per borrower, Gonçalves said lenders need to be more selective in their credit offers so that loans go to customers with adequate repayment capacity.
On the demand side, he said, consumers need to look at their total debt burden rather than only the size of each monthly payment.
