New rules on bank representatives and loan portfolio portability issued by Brazil's main policymaking body should support the country's burgeoning payroll-deductible loan market, which now represents more than half of outstanding consumer loans in Latin America's largest economy, analysts at Grupo BTG Pactual said on Monday. The body, known as CMN, imposed a cap on upfront commissions, which will reduce an incentive to rotate portfolios. By Jan. 2015, banks must also implement tracking and quality systems for rep-originated loans.
Payroll loans are a top priority for Brazil's largest banks, which are seeking to grow their market share in less risky, lower spread charging lending segments. These loans are the main credit line where banks use reps, followed by auto loans.
"Since payroll loans are a top priority at most Brazilian banks - stuck in risk-off mode and, thus, targeting safer lines such as payroll - we see the new rules as positive for the market, especially the large players, by making it less attractive for bank reps to pursue loan portfolio portability at any cost, just to book upfront commissions, which was a regrettable common market practice," a team of BTG Pactual analysts led by Eduardo Rosman said in a client note.
Competition should remain tough in the short term, but the measures will play a positive role in the long run, the analysts said. "The current measure should improve the competitive landscape in the medium term, but spread pressure should remain an issue. We also remind investors that since loan portfolio migration will become tougher from 2015 onwards, competition could intensify in 2014 - though we believe regulators will keep an eye on potential excessive aggressiveness," Rosman and his team wrote.