UPDATE 2-Cautious banks put brakes on Brazil lending in September

* Lending growth slows to 15.9 pct on annual basis

* Private banks put brakes on Sept. disbursements

* At current pace, lending growth may miss target

By Guillermo Parra-Bernal and Tiago Pariz

SAO PAULO/BRASILIA, Oct 26 (Reuters) - Bank lending in Brazil rose in September at the slowest annual pace in almost three years, as private-sector banks put the brakes on disbursements due to record-high loan delinquencies.

Outstanding loans in Brazil's banking system rose 15.9 percent in September to 2.237 trillion reais ($1.1 trillion) from a year earlier, the central bank said in a report on Friday. The pace of growth was the slowest since December 2009, when credit expanded 15.2 percent on an annual basis.

On a month-on-month basis, lending rose 1.1 percent in September, the central bank said. Should Brazil's banks maintain this pace, lending could miss the central bank's 16 percent estimate for 2012.

The central bank blamed the slow growth on a banking workers' strike and fewer working days in September.

"If we hadn't had those strikes, lending rates and spreads as well as loan disbursements might have had a more positive trajectory," Tulio Maciel, head of the central bank's economic research unit, told reporters at a news conference in Brasilia.

Demand for credit has lagged, with one in six families overleveraged. Banks also turned more rigorous as defaults hit a record and the government pressed for lower borrowing costs. The central bank downplayed these factors, but data indicated private sector and foreign lenders turned more selective.

Private banks saw their loan books rise 0.2 percent in September, down from 0.9 percent growth the prior month - a main factor behind the slowdown in overall lending. State-run banks continued to fuel credit growth in Brazil in September, after ramping up their loan book by 2 percent on a sequential basis.

"Overall credit flows to the economy remain subdued, despite increasing lending activity by public banks," said Alberto Ramos, chief Latin America economist with Goldman Sachs Group in New York.

MORE PRESSURE COMING?

The government has been pressuring private-sector lenders to cut rates and boost access to credit. Since late April, President Dilma Rousseff and other officials have complained Brazilian lenders charge some of the world's highest rates.

Rousseff has ordered state banks to step up lending, cut rates and fees and create new products. The government has used state lenders Banco do Brasil and Caixa Econômica Federal to reduce the cost of credit and boost access for businesses and consumers.

But private-sector banks have drastically restricted loan origination. In July, Itaú Unibanco Holding SA and Banco Bradesco SA trimmed their estimate for loan book growth.

Spreads, or the difference between the rate at which banks lend and raise funds from depositors, narrowed at the slowest pace in seven months, to 22.2 percentage points, while the average consumer lending rate rose for the first month in seven. Maciel said average spreads in the month through Oct. 17 rose to 22.7 points.

The central bank said foreign lenders stepped up disbursements by 0.9 percent in September, compared with 0.3 percent in August.

Government officials told Reuters they were confident the Brazilian economy grew more than 5 percent in annualized terms in the third quarter. That would be a substantial pickup from a 1.6 percent rate in the second quarter.

REBOUND IN LENDING SEEN

Goldman Sachs' Ramos expects bank lending to regain steam before year-end. In fact, lending growth should rebound in October on an annual basis because of a low base of comparison in 2011.

Barclays analyst Fabio Zagatti said in a Thursday report that credit could get a boost in December, when workers receive annual bonuses. Part of that money could go to repay expensive debt such as credit card and overdraft loans, he noted.

Banco Votorantim economists led by Leonardo Sapienza said in a report that private-sector banks might remain cautious as delinquencies are slow to decline.

Loans in arrears for 90 days or more were the equivalent of 5.9 percent of outstanding loans last month, unchanged for a third month, according to the report. The so-called default ratio is currently at an all-time high.

"Even as it remains stable, the elevated default ratio will make private sector lenders wary and stricter with lending," Sapienza and his team wrote in a report.