Brazil's annual credit-growth rate accelerated to as high as 34 percent in September 2008, the fastest since at least 1995, before moderating. The pace has picked up again, exceeding 19 percent for 11 months through June, central bank data show.
Andreia de Matos Esmeraldo, a babysitter and housecleaner in Rio de Janeiro, is one of the reasons. The 43-year-old resident of Rocinha, Rio's biggest slum, carries her HSBC credit-card statement in her purse as a reminder that using the card to purchase clothes and shoes isn't free. The bill shows an annual interest rate of 456 percent on 3,000 reais ($1,936) of debt she ran up that she has agreed to pay off in installments.
'Love to Shop'
"I love to shop, it gives me this personal satisfaction," Esmeraldo, who also sells products for Natura Cosmeticos SA, Brazil's largest cosmetics company, said in an interview. "But two days later I feel sick because I have to pay it back."
Credit is expanding in developing nations after a decade of relative economic stability. Brazil has experienced boom-and- bust cycles of inflation, currency devaluations and interest- rate swings since the end of military government in 1985. Almost half of Chinese bank loans turned sour following the Asian financial crisis, while hundreds of Russian banks were shut when the government defaulted on $40 billion of ruble debt in 1998.
Most governments in the largest emerging markets are now strong enough to prevent an increase in bad debt from hobbling their banking systems, Amer Bisat, a former senior economist at the International Monetary Fund who manages money at hedge fund Traxis Partners LP in New York, said in a phone interview.
'Cushion of Savings'
China has $3.2 trillion of foreign-exchange reserves, the world's largest holdings. Brazil, India and Russia control a combined stash of about $1 trillion. The average debt burden in the four largest emerging economies, known as the BRICs after Goldman Sachs Group Inc. coined the term in 2001, is 40 percent of gross domestic product, compared with 102 percent for developed nations, according to IMF estimates.
"So long as the economy continues to grow at trend, the system can take a significant amount of banking problems," Bisat said. "The cushion of savings through reserves is so big that a lot of problems can be absorbed."
Capital Requirements