Brazil: New Entities Take On Credit Analysis

With alternative lending on the rise, Brazil seeks to establish new and reliable sources of financial information.

Although traditional lending remains prevalent in Brazil, the share of alternative debt providers is on the rise. At the same time, obtaining information about private companies—especially small and midsize ones—remains a challenge, since loan agreements are usually confidential and borrowers are reluctant to disclose their lending relationships to a new creditor.

The current trading process has a serious issue with “information asymmetry,” where banks “don’t like to show their hand” in what they are selling, says an executive involved in the distressed debt space in Latin America.

In November, the Brazilian antitrust authority, the Administrative Council of Economic Defense, partially approved a joint venture among five of the country’s largest banks to create a credit bureau aimed at cutting the default rate and cost of credit as the country undergoes a historical recession.

A São Paolo–based boutique investment bank is on the quest to create its own borrower database where companies can make their financial statements and loan agreements available to potential lenders, says Rodrigo Mendes, a fintech expert with TCP Latam, the bank in question. The borrower database aims to inject greater transparency into the currently opaque market and benefit both borrowers and lenders.

The database would process the documents, focusing on the most important terms, such as the interest, reconciling it against what is charged by the bank. The borrower could then leverage the information to file a claim or shop for a more competitive loan.

“Here in Brazil we have loan documents in digital format but no analytics; most companies just use Excel,” Mendes explains. Potential lenders would then be able to tap into the tool—which would feature an integrated credit score—to offer new financing or buy the existing loan.

TCP Latam’s database will launch in December. The plan is to spin it off into an independent product. TCP’s vision, says Mendes, is that, in time, robots will perform more tasks now performed by financial service professionals.