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Brazil Senate Votes to Cap Interest on Overdraft, Credit Card

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The novel coronavirus outbreak and its financial impact pushed regulators to take some major decisions. In its latest move, Brazil's senate recently approved a bill to limit interest rates charged on credit card debt and overdraft lines. However, the bill will now be presented to Brazil's lower house to vote.

Per a Reuters article, a cap of 30% per year has been placed on debt rolled over on credit cards and overdraft lines for all loans extended by banks from March 2020 until the end of the state of emergency declared by Brazil's government.

Also, the regulator slashed the benchmark interest rate — Selic — by 25 basis points to 2% on Aug 5, marking the ninth consecutive cut. Having lowered the key interest rate to all-time lows, the central bank did not rule all possibilities of additional reductions, as the outlook for inflation remained below target amid the impact of the coronavirus pandemic on the economy.

The moves are expected to impact the already hurting bottom line of Brazilian Banks. The second-quarter results of Brazilian banks have been affected by the pandemic.

Brazil’s largest bank in terms of assets, ItauUnibanco (ITUB - Free Report) , posted a year-over-year decline of 40% in recurring earnings to R$4.2 billion ($0.78 billion) in second-quarter 2020. Results were affected by the surge in provisions and a fall in revenues. Also, Banco Bradesco SA (BBD - Free Report) announced a quarterly profit of R$3.5 billion ($0.66 billion) down 42% compared with the year-ago quarter.

Notably, Fitch Ratings said that it expects Brazilian banks’ revenues and the bottom line to remain under pressure in 2020.

While the Brazilian central bank is taking active steps to support the economy and help companies remain operational, businesses will continue to be affected by the virus outbreak until the invention of a vaccine.

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