Use of overdraft sets record in August

Brazilians have never been so indebted to overdraft, a type of credit triggered when the current account balance is in the red. In August, R$ 38.5 billion were granted in this modality – the highest amount in the Central Bank’s historical series (started in March 2011).

BC data also show that household indebtedness has risen month by month and reached 53.1% in July – the highest level in the historical series, which began in January 2005. In 12 months, it has reached 5.1 percentage points increase.

Since September 2021, the index has been above 50%. Disregarding real estate financing, indebtedness in August reached 33.64% and was also a record.

The record use of overdrafts takes place in times of high interest rates, with the raising of the basic rate (Selic) to the level of 13.75% per year, and of tightening of the income of the Brazilian population in a scenario of still high inflation.

In the last month, the increase in the volume of concessions in relation to July was 9.9%. In 12 months, the growth was 27.3%.

The interest rate charged in the modality also rose, from 127.4% per year in July to 128.6% in August. Since the beginning of 2020, the interest charged on the overdraft cannot exceed 8% per month (151.8% per year), as determined by the BC.

Despite the ceiling, rates for the modality remain among the highest in the market, only behind credit card interest. In August, the revolving fee – used when the consumer does not pay the full card bill by the due date – reached 398.4% per year; and that of installments, at 185.9% per year.

The overdraft is triggered when the account holder exhausts the balance in his bank account and a pre-approved amount is released by the bank so that the person can continue consuming. The modality works as an “automatic loan”.

Since 2018, banks have started to offer those with overdraft debt a cheaper installment for consumers who use more than 15% of the limit for 30 consecutive days.

Izis Ferreira, economist at CNC (National Confederation of Trade in Goods, Services and Tourism), points out that the fact that consumers do not have to comply with the bureaucratic rite of contracting credit facilitates the unconscious use of overdrafts.

“It’s an expensive type of credit. But, in people’s imagination, it works as a kind of disposable income. Brazilians don’t understand that they’re going to pay to use that resource,” he said.

According to the expert, the current inflationary context still weighs on the budget of middle and low-income families. In August, the country’s official inflation index dropped 0.36%, driven by the cut in fuel prices — but, despite the truce, it reached 8.73% in the 12-month period.

“The average income of salaried families does not grow above inflation. So, it is difficult to pay all the bills and maintain the level of consumption. Families that do not have a reserve for any emergency end up using what is easier, and we have to consider that they are already in debt in other modalities”, he said.

Juliana Inhasz, an economics professor at Insper, adds to the equation the difficulty of people repositioning themselves in the job market and informality.

“As these people do not offer a guarantee of payment for a particular loan, a significant part of the cheaper credit is not available to them, which ends up having to resort to more expensive sources”, he said.

According to the expert, the rise in interest rates also potentially worsens the debt situation of households and contributes to default.

“We start to have a scenario where the economic situation does not improve, a fact that pushes people to a greater condition of economic fragility and makes them take more credit. This credit is expensive, increasing the probability of defaulting or needing more credit yet. This, unfortunately, turns into a snowball,” he said.

After registering a drop during the Covid-19 pandemic, a period marked by the release of emergency resources in financial aid to the population, default rates have been rising in recent months.

Last month, default in the segment of free (non-subsidized) resources as a whole in the country stood at 3.9%, compared to 3.8% in July. In 12 months, the increase was 0.9 percentage point.

In the overdraft modality, the rate rose 0.8 percentage point between July and August, changing from 11.6% to 12.4%. It was the highest rate recorded since December 2020, when delinquency was at 13.4%.

Robson Gonçalves, economist and MBA professor at FGV (Fundação Getulio Vargas), says that it is common in times of resumption of recession and recovery of confidence (as in the post-pandemic crisis) that consumers “spend on their own”.

“In cases where there is a mismatch, in which current income is not in line with this improvement in the perception of future income, it is very natural to have some worsening in terms of indebtedness and it is very common to resort to those sources of credit that are closer to the hand, like the overdraft”, he said.

Indebtedness corresponds to the commitment to future payments that are still on time, whereas default occurs when it was not possible to pay the bills before the due date.