40% of Brazilians at Risk for Debt Defaults

Brazil’s consumers and merchants have found themselves sinking deeper and deeper into debt.

As Bloomberg News reported Sunday (May 28), 4 in 10 adults in Brazil are facing default, while overdue debts rose 18.4% last month from a year earlier.

The country’s household debt has for months hovered near record highs, the report said, citing data from Brazil’s central bank. The government has hiked interest rates around a dozen times, bringing headline inflation down to 4% after last year’s 12% apex.

According to Bloomberg, Brazil’s steep borrowing costs are also putting pressure on businesses that are having trouble financing loans against the backdrop of increased corporate bankruptcies. The situation has led to costlier local debt markets and a massive decline in new issuance among domestic and international capital markets, the report said.

The news comes as businesses in the U.S. are dealing with a stateside credit crunch, with just 25% of small and midsized businesses (SMBs) surveyed by PYMNTS saying they have access to more than 60 days of cash. 

Roughly a third of these business owners are tapping into personal credit cards to stay funded, while just 17% getting financing from banks.

On the consumer front, borrowers in the U.S. from all credit backgrounds are facing their own struggles, according to recent PYMNTS research that analyzes three groups: the credit secure, the credit marginalized (people who had been rejected from at least one credit product in the last 12 months) and the credit avoidant (those who have completely given up on credit).

PYMNTS research found that 16% of credit-secure consumers experienced unexpected life events that caused them to have trouble getting new lines of credit, while 25% missed payments as a result.

“To deal with these life events, consumers may be ignoring these possible pitfalls as charging continues to rise, possibly because there is little other choice,” PYMNTS wrote earlier this month. “This charge-first behavior was reflected in Mastercard’s recent earnings release, noting that in the U.S., dollar volumes gained 9% to reach $673 billion.”

American Express reported similar numbers, with U.S. consumer volumes up 16%, a figure that would seem like good news, if not for a corresponding rise in credit card charge-offs, from an average of 2.46% in February to 2.60% in March.

Meanwhile, the U.S. largest lenders wrote off $3.4 billion in bad loans during the first quarter of this year, a 73% increase year over year. 

Announcing JPMorgan’s earnings recently, Chairman and CEO Jamie Dimon noted, “The storm clouds that we have been monitoring for the past year remain on the horizon, and the banking industry turmoil adds to these risks.”