One might say that whenever bad news affects the world globally, in Brazil the negative effects are amplified, stated João Costa Pereira, International Business Advisor, Banco Ourinvest S.A. in the article on factoring development in Brazil, which appeared in most recent edition of World Factoring Yearbook 2021.
With the COVID-19 pandemic, it was no different. Apart from the human tragedy, the Brazilian economy that was already struggling went into deep recession again, the currency was strongly devaluated against the USD, and the number of companies declaring bankruptcy or seeking protection from creditors was at record levels.
The financial system, supported by the Central Bank, proved to be extremely resilient and capable of providing support in the crisis, increasing liquidity and credit lines to support the economy. According to the Brazilian Factoring Association (ANFAC), factoring continued its true role supporting Brazilian SMEs and proved to be a much-needed tool during the crisis, even though total turnover decreased by 43 per cent, from BRL 210bn in 2019 to BRL 120bn in 2020.
Receivables finance in Brazil is distributed in very different forms and vehicles: notably through factors (not supervised by the Central Bank); receivables funds (supervised by the Securities and Exchange Commission – CVM); and banks that offer a large range of receivables finance products with no specific statistics for factoring.
Factoring Industry Environment
The economic impact of the crisis was highly concentrated in the second quarter, GDP went down by 10.9 per cent from April to June, and most market players were putting available credit lines on hold, and renegotiating debt with clients to avoid a massive increase in credit delinquency. Banks were highly supported by the Central Bank, increasing liquidity and reducing the interest rate to a record low of two per cent, which proved extremely effective in avoiding a credit crisis. The economy slowly started to improve in the second half of the year as it recovered from the second quarter drop, so that for the full year, GDP decreased by 4.1 per cent, and the volume of credit extended to companies actually increased when compared to 2019, especially for SMEs.
Factors faced difficult times, with total turnover falling by 43 per cent from BRL 210bn in 2019 to BRL 120bn in 2020. According to the Brazilian Factoring Association (ANFAC), this decrease was also concentrated in the second quarter, with factors adopting a cautious approach to giving credit, and a slow recovery during the second half of the year. Factoring proved again to be a valuable tool because it has a presence all over Brazil and serves remote locations and small corporates that are not eligible for bank credit.
Domestic factoring in Brazil remains exotic in comparison to that of other countries, due to unique methods of payment utilised between corporates in the domestic market.
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