Brazil: credit where credit’s due?

The debate about whether or not Brazil is in the midst of a consumer credit bubble has reached fever pitch over the past few days. Our view is that the current pace of credit growth is unsustainable and that, as such, there is a growing risk of a sharp economic slowdown over the next couple of years. But while bad debts are likely to increase as a result we doubt that this will pose a systemic risk to the banking system.