Lower Cost Consignment Credit Allowed Brazilian Families And Companies To Expand Consumption In Brazil

The current credit expansion in Brazil started in 2003, according to BMG Bank President Ricardo Guimarães. Banks began to expand credit offerings back then in order to increase their market share in the private sector as well as increase profits. Banks initiated these credit offering based on a guarantee by the new government that there would not be a change in economic policy and the favorable fact that foreign money was beginning to flow into Brazil.
Brazilian Banks were expecting a reduction in interest rates, and they began a program of lending money to individuals that had enormous earning potential, according to Guimarães. Giving credit to individuals is easier to evaluate that giving credit to companies that are immersed in activities that banks are unfamiliar with, and the fact that banks can charge a higher interest rates for individual loans.
Brazilian banks took on loans with high interest rates based on future performance of the economy, and the need to purchase goods which would help expand the economy. Bank loans increased in 2003, and it continued until 2007. But the 2008 international financial crisis changed the way Brazilian banks extended loans to individuals. Some banks stopped lending altogether, and other banks like BMG began to grant loans as long as there was collateral to back up the loans. That method of lending is known as consignment credit, and BMG Bank is one of the leaders in that $R130 billion market.

A consigned credit loan offers banks an advantage because the payments are punctual and there is a guarantee payback. Borrowers are happy because they get a lower interest rate and they have money to buy now instead of waiting like they did before Brazil went through its financial transition. More than 60 Brazilian banks participate in the consignment credit market. BMG Bank is the second most profitable bank in that market. BMG has an 18 percent market share, and Ricardo Guimarães said that number will increase in 2016.
BMG has made some changes in strategy in order to increase their market share in the consignment credit market. They have merged with two other lending institutions, and have a partnership with a third bank, according to Guimarães. Guimarães has also started a marketing program that combines Brazilian football with the consignment credit market. Mr. Guimarães said that program has been very successful, and the bank will continue to market itself through that vehicle as well as others.
Mr. Guimarães also said some Brazilians want to expand their collateralized indebtedness as long as banks are willing to extend the terms of the loans and keep interest rates down. BMG Bank is looking at those possibilities even though the economic forecast in Brazil is weak for 2016.

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