Brazil's central bank weighs new safeguards as household debt climbs

Brazil's central bank is examining new prudential measures to address a steady rise in household indebtedness, Governor Gabriel Galipolo said on Monday. Speaking at an event hosted by banking lobby Febraban, he described the trend as a growing problem that regulators are determined not to let become entrenched.

Galipolo said the central bank is working on a slow and gradual transition, drawing on international experience, to ensure the issue does not perpetuate itself. He acknowledged that higher borrowing is a natural consequence of efforts to widen access to credit, but stressed that financial inclusion must go hand in hand with responsible use of financial services.

The governor pointed to strong growth in non-mortgage debt as a particular concern. Total household debt excluding mortgages stood at 31.1% of income accumulated over the previous 12 months in May. He also noted that delinquency rates continue to rise despite higher incomes and historically low unemployment.

Among the measures under evaluation, Galipolo said the central bank is looking at ways to improve borrower discipline, ensure consumers better understand the cost of different credit products, and require lenders to provision adequately for the risks they take. "It is very important that each institution be properly provisioned for the risks it is effectively taking when providing that service," he said.

He added that regulators do not want financial institutions to gain market share through excessive risk-taking that could ultimately lead to losses elsewhere in the financial system.