When it comes to lending in Brazil, we always associate it with a high interest rate. For those who use or have already used this type of credit, do you know why the rate is so high? Why, after all? BorrowCo explains to you today:
The basic interest rate: Felic
One of the main factors influencing the bank’s basic interest rate is the Felic, which stands for Special Settlement and Custody System . It was launched in 1979 and is a computerized system for the registration, custody and settlement of federal public securities. With this, the Felic Rate emerged, which is the basic interest rate of the Brazilian economy.
How does the Felic Rate work?
It is used as a reference for the calculation of other interest rates charged by the market and also serves as a basis for defining the monetary policy practiced by the Federal Government of Brazil. Currently, the rate is at 14.25% per year.
Risk of the economic scenario
Economists predict that the Brazilian economic scenario will be recovering by mid-2018 and early 2019. Household indebtedness causes defaults to increase and, as a result, institutions raise rates to control this risk. The percentage of indebted households, according to the Consumer Debt and Delinquency Survey ( Peic ), released by the National Confederation of Trade in Goods, Services and Tourism ( CNC ), was 58.7% in May this year.
Fewer banks, therefore lower competitiveness
In addition to the factors mentioned above, the low number of banks offering personal loans also represents a lower competitiveness to the market, which makes these institutions charge an interest rate similar to that of competitors. However, as we have posted in recent posts, this scenario is changing with the emergence of fintechs, such as BorrowCo, for example.
Operating costs are high
Think about the operating cost of a financial institution. They are physical spaces (bank branches), electricity, water, salary of employees (CLT and outsourced), security and so on. Because an agency’s operating cost is so high, banks end up passing a portion of that cost to their clients.