(Adds details throughout)
By Guillermo Parra-Bernal
SAO PAULO, March 8 Itaú Unibanco Holding SA
will cut the interest rate it charges on rollover
credit card loans as Brazil's No. 1 lender seeks to comply with
new rules to reduce the cost of borrowing for cash-strapped
consumers and companies in Latin America's largest economy.
Under terms of the plan, Itaú will implement interest rates
for card rollover loans similar to those applied to secured,
parceled-out credit, said Marcos Magalhães, head of credit card
lending. Rates for rollover credit card loans will decline 4
percentage points on average once changes take effect on April
The move underscores how banks are responding to pressure
from policymakers to ease the burden of domestic borrowers, who
pay the highest rates among the world's top 20 economies. Itaú
was the first to announce new monthly rollover card rates -
between 1.90 percent and 9.90 percent - among peers.
With the new rules, President Michel Temer's government
wants banks to speed up payment terms to businesses and cut the
cost of revolving card loans as Brazil's longest and harshest
recession on record rages. The banking and financial industry
has for decades remained Brazil's most profitable, producing
return on equity readings between 20 percent and 50 percent.
Itaú has already included the estimated impact of the new
policy on this year's operational targets, executives said. They
expect declining card loan-loss provisioning and migration to
parceled-out credit to help offset the revenue losses stemming
from the reduction in the cost of rollover card loans.
The average monthly rate on a credit card revolving loan is
16 percent, as much as three times the level in other Latin
American countries. Banks blame such high rates on persistently
high levels of revolving loan delinquencies that can hover above
35 percent of outstanding credit in the segment.
Goldman Sachs Group Inc analysts estimate that defaults in
revolving credit card loans varies between 4 percent and 7
percent in most countries.
"The system we are proposing is giving clients the option to
choose what risk adapts best to their payment behavior," said
Preferred shares fell 0.8 percent to 39.12 reais, paring
back gains to 36 percent this year.
Itaú has outstanding credit card loans of about 60 billion
reais ($19.08 billion), a little above 10 percent of its
consolidated loan book.
Under new rules that the government announced late last
year, revolving credit overdue by at least 30 days will change
into parceled-out financing lines. According to estimates by
analysts at Banco Bradesco BBI, up to 38 percent of current
banking industry revenues from revolving credit could be
impacted by the new rules.
At some point, banking industry players, regulators and the
government will have to resume the discussion of themes other
than credit cards to help reduce borrowing costs in Brazil,
Currently, the government wants banks to slash the period by
which it reimburses retailers for their card sales to less than
a week from an average 28 days, the use of interest-free
installments on card purchases, and a faster implementation of
positive credit bureaus.
($1 = 3.1454 reais)
(Additional reporting by Bruno Federowski in São Paulo; Editing
by Chizu Nomiyama and Marguerita Choy)