A retrenchment may drag down Brazil's economic growth rate to 2.5 percent in 2013, from 7.6 percent last year, according to Shearing. That compares with the 4.5 percent median forecast in a Bloomberg News survey.
'Lower Echelon'
"The people doing the borrowing are the people in the lower echelon in terms of income, and that's worrisome," Simon Nocera, a co-founder of San Francisco-based hedge fund Lumen Advisors LLC and a former economist at the IMF, said in an interview. Nonperforming loans "will be higher than previous credit cycles."
Borrowing costs for Brazil's mid-sized banks are climbing amid speculation that loan losses will increase. Yields on Banco Bonsucesso SA's dollar bonds due in 2020 rose 85 basis points this year to 10.6 percent after Moody's cut its outlook in December for lenders specializing in payroll-deductible loans, which are deducted directly from workers' salaries.
Banco Panamericano SA, which was bailed out with a 2.5 billion-real loan from its controlling shareholder in November after suspected accounting fraud, increased its assets to $8.1 billion as of September from $4.4 billion two years earlier, data compiled by Bloomberg show. Banco Cruzeiro do Sul SA, which focuses on payroll-deductible loans, has seen its assets rise to $7.2 billion from $2.7 billion during the past three years, the data show.
'New Reality'
"Banks will have to face a new reality," Brigitte Posch, emerging-markets portfolio manager at Pacific Investment Management Co., which oversees about $1.3 trillion worldwide, said at the Bloomberg Brazil conference in New York on July 14. "That will affect the relative value of those bonds, and we don't think it's the right moment to invest in the mid-sized banks sector in Brazil."
In India, debt ratings for companies are deteriorating at the fastest pace since 2009 as slower economic growth and 11 interest-rate increases by the central bank since March 2010 heighten the risk of defaults. ICRA Ltd., the local unit of Moody's, lowered rankings for 34 borrowers last quarter, according to data compiled by Bloomberg.
Indian lenders' nonperforming assets may rise 25 percent in the year ending March 31, 2012, to 2.92 percent, the central bank said on June 14 after conducting stress tests. The Indian banking system is under pressure and higher provisioning is "imminent" if regulators want to control asset quality, Diwakar Gupta, Mumbai-based managing director and chief financial officer of State Bank of India, said on July 2.
'Common People'
Bad loans "are going to rise because we will have to pass on the rate increase," the bank's chairman, Pratip Chaudhuri, told reporters in Mumbai after the central bank increased borrowing costs on July 26. "Interest-rate sensitive sectors like real estate and education loans will most definitely be affected," Chaudhuri said.