Brazil's Comef maintains capital buffer at 0%, flags credit risks

The Central Bank of Brazil's Financial Stability Committee (Comef) maintained the macroprudential capital buffer (ACCPBrasil) at 0 percent following its May 26-27 meeting. The committee assessed domestic and international financial stability, highlighting risks from global markets, credit, and artificial intelligence.

Buffer maintained amid global and domestic shifts

The Central Bank of Brazil's Financial Stability Committee (Comef) assessed the evolution and outlook for financial stability in Brazil and the international economy during its May 26-27 meeting.

The committee decided to maintain the macroprudential capital buffer (ACCPBrasil) at 0 percent, deeming a neutral macroprudential policy appropriate given current conditions and economic expectations.

Globally, the financial system demonstrated resilience despite a new supply shock from the Middle East conflict, which has influenced inflation and fiscal/monetary trajectories.

Long-term interest rates in advanced economies are rising, increasing risk materialization probability.

Domestically, bank credit growth continued to decelerate, particularly for high-risk household loans and small-to-medium enterprises, though large corporate credit reaccelerated.

Capital markets, however, outpaced bank credit growth.

The Comef noted that provisions and capital/liquidity levels in the National Financial System (SFN) remained above prudential requirements, and stress tests confirmed the system's resilience, even under severe scenarios like a fiscal regime confidence breakdown.

Global vulnerabilities and domestic credit concerns

Global financial conditions are relatively less restrictive, yet vulnerabilities persist in major economies, including elevated US credit defaults and decelerating bank credit in China.

Most jurisdictions maintained their countercyclical capital buffers, though the UAE released its buffer due to geopolitical conflict.

Domestically, the Comef urged caution in credit granting, citing the contractionary interest rate environment and high household and corporate indebtedness.

Problematic assets and default probabilities remain elevated for households, with increasing participation of more onerous debt impacting income commitment.

Concerns also arose in capital markets regarding complex multi-layered investment funds that complicate risk assessment, although liquidity stress tests for private credit funds showed resilience.

Emerging risks demand vigilance

The Comef's comprehensive review reveals a complex risk landscape, where geopolitical events and AI advancements pose new challenges to financial stability.

Emphasizing payment arrangement responsibilities and cyber resilience reflects a proactive stance against evolving systemic threats.

While the macroprudential buffer remains neutral, the committee's vigilance highlights the ongoing need for robust policy responses and fiscal predictability.