Banks Cut Credit for Low-Income Earners: What Changes for Consumers

The four largest private and public banks in Brazil issued, almost in unison, the same message to the market during the second quarter earnings season: the tap for easy credit is closing for those who earn less. The accelerated shift towards secured operations and higher-income clients reveals that financial institutions are already pricing in a slowdown that macroeconomic indicators have not yet fully confirmed.

This movement is significant because it affects the backbone of the Brazilian workforce. About 70% of the employed population in the country earns up to two minimum wages, exactly the segment that large banks have started to avoid. Those who rely on credit cards and unsecured personal loans will feel the squeeze first.

Why Are Banks Retreating Now

The backdrop is a statistic that should be more concerning than it is: the income commitment of Brazilian families hovers around 50% of disposable income. This means that for every two reais that enter a worker's pocket, one is already committed to debt payments. This level is historically high and approaches record levels in the series.

What makes this cycle particularly worrying is the context in which it occurs. The financial deterioration of families has advanced even with unemployment at low levels and real income on the rise. In previous cycles, such as the one observed between 2011 and 2015, the increase in indebtedness coincided with more evident weaknesses in the labor market. This time, leverage increased before employment showed clear signs of weakness, as we have analyzed in other coverage of the Brazilian macroeconomic scenario.

Katherine Hennings, an analyst at the consulting firm BRCG, attributes the phenomenon to a combination of factors. On the structural side, the expansion of fintechs, regulatory changes, and the digitalization of payment methods have included millions of previously unbanked consumers into the credit system. On the conjunctural side, public policies aimed at stimulating consumption and credit have raised leverage, often through expensive and unsecured modalities.

What Each Bank Said About the Strategy

Milton Maluhy Filho, president of Itaú, was straightforward: the volume of credit distributed in the market has exceeded the capacity of borrowers to absorb it. According to him, the scenario has worsened at the margin, which led the bank to prioritize secured operations. This is a significant statement coming from the largest private bank in Latin America, which usually calibrates its tone with surgical precision.

Bradesco followed the same direction. Marcelo Noronha, president of the institution, acknowledged that the appetite for lower-income clients is "much smaller than it has been in the past." The bank's portfolio, according to him, is now significantly more backed by guarantees. For those following the recent trajectory of the Brazilian banking sector, Bradesco's change in posture is emblematic: the bank has historically competed aggressively in the mass retail sector.

Santander Brazil was even more specific. CFO Carlos Muñiz drew a clear line at R$ 4,000 in monthly income, equivalent to about 2.5 times the minimum wage. Below this threshold, the bank simply does not intend to compete. Above, only with some type of guarantee. The statement is a true reflection of the moment: banks no longer want to lend to those who need it most.

At Banco do Brasil, the growth strategy has been redirected towards public and private payroll loans, modalities that offer payroll discounts and, therefore, lower default risk. President Tarciana Medeiros set a goal to increase the number of "high-value" clients by 25% by 2030.

The Default Warning at Nubank

Nubank, whose portfolio is concentrated in the very segments that traditional banks are abandoning, offers a window to observe what happens when unsecured credit meets an overburdened consumer. Loans overdue by more than 90 days rose to 6.9% in the second quarter, up from 6.5% in the previous quarter and the same period last year.

The management of the digital bank maintained that it does not see widespread deterioration and reported profits above expectations, driven by higher revenues and improved risk-adjusted margins. However, the upward trend in delinquency is a signal that deserves attention, especially if the economy slows down as projected by executives at Banco do Brasil, who estimate GDP growth of only 1% in 2027, below the median of 1.5% from the Central Bank's Focus bulletin.

What This Means for Consumers and the Market

For low-income consumers, the practical effect is a reduction in the availability of traditional bank credit, precisely when indebtedness is already high. The remaining alternatives tend to be more expensive: smaller fintechs, cooperatives, or the informal market. This can create a vicious cycle where the lack of cheap options exacerbates income commitment.

For the financial market, the banks' caution is, paradoxically, good news in the short term. Less risky credit in the portfolio means more controlled provisions and more predictable results. But there is a macroeconomic side effect: if banks cut consumer credit, the economic slowdown tends to deepen, validating exactly the pessimistic scenario that motivated the caution.

Historically, periods of strong credit expansion followed by tightening in lending have resulted in deeper consumption slowdowns in Brazil. The 2011-2015 cycle is the most recent and painful example. The difference now is that the starting point is worse: income commitment is already at its limit even before the economy actually slows down.

The message from the banks is clear. Those who depend on unsecured credit will find closed doors at the major banks. And those investing in the financial sector need to understand that this caution, while protecting balance sheets in the short term, may anticipate a cycle of weaker consumption than the market currently prices in.