Brazil faced a minor bank run over the weekend sparked by false rumors over the country's social security fund, but one analyst told CNBC on Tuesday that the real issue facing the country's banking system is a runaway credit boom.
Neal Shearing, chief emerging markets economist at macro-economic research firm Capital Economics told CNBC that the massive increase in credit in Brazil over the last ten years had increased the risk of a credit crunch for Brazil's financial sector.
"The point is that it's increased very rapidly and experience shows that countries where credit increases rapidly, experience crisis at some point or other," he said.
Rumors over the weekend that Brazil's social security fund called Bolsa Familia was to be cancelled led thousands of people in the north-east of the country to rush to withdraw money from Brazil's Caixa Economica Federal, which pays the subsidy.
(Read More: Even the Carnival Can't Save Brazil From a Slump)
That bank run had little to do with the credit-worthiness of the bank and more to do with poor people worried about not receiving their monthly social security payments. But Shearing warned that longer-term problems were bubbling under the surface.
"Credit cannot continue to be a driver of Brazil's growth. Banks like Caixa bank have been lending massively to the housing sector and there is evidence of a housing bubble. Defaults are on the rise and consumer confidence is declining. What we're seeing is credit-fueled growth starting to reach its limits - it's unsustainable," Shearing said.
"There won't be a systemic banking crisis because the government has the sufficient assets to prevent this, but I wouldn't rule out one or two banks, which have aggressively lent to lower income households, running into difficulties."
Still, not everyone is worried about the risks from Brazil's credit boom. According to James Lockhart-Smith, principal analyst for Latin America at risk analysis firm Maplecroft, Brazil is a "puritan" compared to western nations when it came to credit.
"By Western standards, Brazil is still quite puritan. We're talking about credit to GDP-of-53 percent, which is still ok," Lockhart-Smith told CNBC Europe's "Squawk Box" on Tuesday.
But Shearing of Capital Economics pointed out that if you include corporate bond issuance and lending by Brazil's state development bank, the credit-to-GDP ratio jumped to 80 percent and had doubled over the last 10 years.
Lockhart-Smith said that while credit had grown extremely fast, it wasn't unsustainable.
"I think, the health of the banking sector overall is still pretty good," he added.
(Read More: Global Currency Wars Could Get Nastier, Says Brazil)
"That said, there are a lot of concerns about growth there and what's going to happen to Brazil going forward."
Brazil's economy has slowed dramatically in recent years from 7.5 percent in 2010 to a projected growth rate of just 3.2 percent in 2013.
On Tuesday, 100 economists and analysts surveyed by the central bank lowered their growth forecasts to 2.98 percent in 2013.
"Looking forward it's an increasingly complicated picture," Lockhart-Smith said. "The government's trying to forge ahead with its infrastructure program but things have changed a lot for Brazil. Ten years ago it was a really bright prospect for investors but in the last 12 to 24 months things have changed completely, and I don't think people are going to be looking there for much growth anymore."
More from our partners, CNBC: