Brazil loan spreads seen continuing to widen

SAO PAULO Aug 11 (Reuters) - The spread between loan rates in Brazil and the country's benchmark Selic rate likely will continue to grow as the nation's banks attract more customers, the president of the national banking industry group told the newspaper Valor Economico on Tuesday.

Loan delinquencies will inevitably rise as financial services firms add more clients, Fabio Barbosa, president of Sao Paulo-based Febraban, told Valor in an interview.

Lower spreads, as the government and most Brazilians want, might only happen if credit is restricted or concessions are gauged more strictly, Barbosa said. A recent spike in loan delinquencies led to higher lending spreads, he said.

The government has been beefing up state-controlled commercial lenders and pressing privately-owned banks to reduce spreads to help the economy emerge faster from recession. Bankers allege pressure will only lead to prolonged distortions in the pricing of borrowing costs and the functioning of credit markets.

Barbosa said lending is returning to "normal levels," 10 months after the global credit crisis worsened, Valor said.

Barbosa is also the president of the local unit of Spain's Banco Santander's (SAN.MC), the largest foreign bank in Brazil. (Reporting by Guillermo Parra-Bernal; editing by John Wallace)