If you have already taken a loan, financed the house, the car or other good or service, or simply has a boundary account, know that you have done (or) part of what we call it Credit market.
The concept may seem formal and technical for those who are not so close to finance. But the fact is that the credit market has a great influence on the lives of people, companies and the economy in general.
To learn more about what it is, how it works and how important this market is, continue reading below.
What is the credit market?
Credit market is the environment in which loan operations and financing occurs between those who make available and who receive the credit. In this context, are individuals, companies and government that need resources (borrowers), and the financial institutions that enable credit (creditors).
This environment is part of the national financial system, and is regulated and supervised by the National Monetary Council (CMN) and by. It is up to CMN to establish credit market policies and standards to ensure currency stability and, thus, assist in national economic development. In turn, the BC has the mission of regulating and supervising financial institutions to ensure that they all act within the established rules.
What is the credit market for?
The main role of the credit market is to facilitate the flow of resources in the economy. For this, it intermediates those who need to take money and who is able to lend.
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Credit is an important engine of the economy as it can boost development through investments and consumption. When the cost is suitable and lines are accessible, companies can use credit to develop new projects or to expand the activity, for example. The same goes for people, either to cover some unforeseen budget or to plan short, medium or long term financial goals.
What is the difference between credit market and capital market?
The credit market and the capital market are structures that are part of the financial market, but with different roles.
In the credit market, transactions between creditors and debtors are made by financial institutions. By hiring a loan or financing, the client receives the institution’s money and returns it in the future according to what was stipulated in terms of deadlines and payment fees.
In the capital market, there is also the objective of obtaining credit, but exclusively for companies, and the system is different. In this case, when they need resources, companies issue titles and negotiate them directly with investors.
For example, those who purchase stocks help finance the operation of the company that issued the title. In practice, the company’s cash effect is the same as a bank loan, with the difference that it will not have to pay interest on the amount received, but dividends to the investor about their profits.
Another difference between the two environments is that the capital market surveillance is the responsibility of and not the BC, as in the credit market.
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How does the credit market work?
An important point for understanding the functioning of this market is the concept of.
Basically, credit risk is the chance that the money taker does not honor the payment of debt in the future. To release a loan or financing, financial institutions often make a careful assessment of those who request the credit.
In the case of companies, it takes into account aspects such as financial health, sales evolution, corporate framework, market, among others. For individuals, the risk assessment includes income, assets, credit history, restrictive in the CPF, and so on.
The result of this analysis will determine the characteristics of the operation, such as credit amount, interest rate and payment deadline. Depending on the modality or credit approval terms, it may be that the borrower has to present additional warranties to formalize the transaction. All of these conditions must be included in the contract contract.
This is usually the step by step of a credit operation. According to the complexity of the line, the analysis, formalization and release of the operation may be larger or lower.
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What types of credit in the credit market?
Financial institutions offer different types of credit to individuals and legal entities, as we will see below.
Credit for Individuals
Some of the most popular modalities in the market for citizens are as follows:
- Special check: This is the limit that usually comes pre-approved at the time of opening the account, even if the customer does not request it. It can be of great help when there is a small disruption between the maturity of an account and the receipt of the salary, as some banks do not charge interest for a few days of use. However, it is a very expensive credit line to use regularly.
- Credit card: Very popular in Brazil, the credit card allows the consumer to make purchases to pay the following month, fully or in installments. In some cases, it is possible to install the balance of the invoice, but the ideal is to pay its full value to avoid interest, which are among the highest on the market – next to the overdraft.
- Goods financing: There are specific lines of credit to purchase durable goods, such as vehicles, appliances, real estate, and so on. In direct consumer credit (CDC) and real estate and automobile financing, the funded goods serve as a guarantee of credit until the total payment of the operation.
- Consortium: Another way to acquire goods or services is the programmed purchase form. Instead of interest, the modality charges an administration fee with the installments, which makes the operation much cheaper than the financing in general.
- Payroll loans: No, installments are discounted directly from the salary or benefit of the borrower. This facilitates credit approval and contributes to rates lower than the average personal loans.
- Leasing: Leasing (or lease) is a kind of rental contract. Over time, the borrower pays the installments and, at the end of the contract, can renew the operation, return the good or buy it, discounting what has already paid.
Credit for Legal Entity
As with the individual market, credit to companies will meet some specific business need. In this context, the most usual are usually the financing of turnover, investments and operations in the international market.
- Giro capital: Operations such as anticipation of receivables, installment turn, rotary limit are some alternatives for the company to give the cash flow breath and improve its liquidity.
- Investments: Companies can also use leasing to purchase machines, vehicles and other movable goods. For projects involving higher sums, government -subsidized investment lines – such as Pronampe and others – are often more interesting due to different rates and deadlines.
- Exports and imports: There are also specific lines for companies operating in the segment, whether for turning, importing machinery, international warranty, among others.
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What factors influence the credit market?
Everything that moves the economy ends up exerting some influence on the credit market, to a greater or lesser extent. Depending on the scenario, individuals and companies perceive changes in credit availability and the conditions offered by financial institutions for resource.
Here are some of the variables that move more directly in the credit market.
Selic rate
The Selic rate, the basic interest rate in Brazil, influences not only interest on loans and financing, but also the financial market and the entire economy in general.
In times of high Selic, investors can benefit especially from fixed income, whose compensation follows their trajectory. On the other hand, taking credit at this time becomes more difficult, for the highest cost and usually more restrictive conditions. Fearful that default increases due to the increase of operations, many banks reduce their risk exposure, lending less and/or demanding more guarantees from borne.
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Inflation
Selic rate and inflation have a very direct relationship as they usually walk in the same direction.
One of the main instruments of monetary policy to contain inflation is the interest rate. Theoretically, by raising Selic, the government expects prices to retreat, as high interest rates will inhibit consumption and credit. With less money circulating in the economy, consumption also decreases, and the prices of products and services tend to fall.
Financial regulation
Regulatory changes also impact the credit market as they directly influence interest on bank concession.
An example is Central Bank Resolution 4,966 of November 2021, which brought
According to experts, providing a credit contract under new rules can increase up to 13 times. To adapt to the new reality, banks will need to invest in predictive risk analysis models. Together, some are expected to also require additional warranties for operations, which may make access to credit difficult.
