Brasília – Brazilian banks are capable of resisting to a sharp drop in the real estate price for residential properties, a simulation published by the Central Bank (BC) this Thursday (20) on the Financial Stability Report seems to indicate. According to the document, the simulation was developed due to the importance of real estate prices for financial stability.
According to the Central Bank director, Anthero Meirelles, the simulation was carried out based on the USA’s real estate bubble, which created an international financial crisis started in 2008. According to the repost, although, in general, the auctioned value of the real estate almost totally covers the clients’ unpaid loans, the money recovered by the financial institution after the reverse auction is only 70% of the residence’s value.
Hence, only real estate price drops exceeding 55% are considered as insolvencies (total loss of the bank’s main asset). And in order there to be non-conformity with the rules on capital requirement, the price should drop by 45%. “Both cases are higher than accumulated loss in a three-year period between the maximum and minimum value of residential properties in the US during the recent subprime crisis [high risk loans linked to real estate properties with insufficient warranties] which was 33%”, according to the report.
*Translated by Rodrigo Mendonça
