BMG And Other Brazilian Banks Are Concerned About Rising Unemployment

BMG is not like the other banks in Brazil. Banco de Minas Gerais S.A. is a family owned bank, and it has a reputation for being a reputable lending institution that helps companies and individuals with their financial needs. It’s no secret that Brazil is in the middle of a major economic and political storm. The CEO of BMG, Ricardo Guimarães is doing everything in his power to help his clients get through the financial mess that is putting Brazil’s middle class in a difficult situation. Mr. Guimarães is one of the members of the bank’s founding family. He and other bank executives are now concerned than a large number of middle-class workers are losing their jobs and have no way to pay back their outstanding loans.
Unemployment and layoffs weren’t a problem in Brazil until recently. The unemployment figure was 4.3 percent in 2014, but layoffs in the auto, steel and auto supply industries this year has made that percentage skyrocket. The current unemployment figure is more than 7.3 percent, and that number is increasing daily. The government estimates that 20,000 Brazilians are losing their jobs every month, and banks like BMG are holding promissory notes for loans signed by these workers. Mr. Guimarães credits these massive job losses for the growing dissatisfaction with the President Rousseff’s government.
The issue, according to Guimarães, is the government based its economic growth on a credit-based economy where consumer spending increased their GDP output. Now millions of Brazilian can’t pay back the loans they got from banks according to the original terms of those loans. Banks are worried that the unemployment rate will continue to rise due to the eroding consumer demand for Brazilian products. As Mr. Guimarães points out, the crowded shopping malls are empty now because consumers are trying to pay off the debts.
Brazilians haven’t always relied on bank loans to buy what they needed. For years, people would buy when they had the cash. Getting a loan in Brazil before the economic boom started was almost impossible for Brazilian workers. It was strictly a pay-as-you-go society in Brazil. But family debt has more than doubled over the last ten years. Most people owe more than 46 percent of their annual income to banks, and that totals more than 3.1 trillion Reals owed to banks in Brazil. But BMG is not as worried as some banks. The bank has a committee that only lends money to people that they know can pay back the loans.

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