UPDATE 1-Brazilian banks' liquidity risk to remain low -central bank

Thu Mar 20, 2014 11:49am EDT

(Adds central bank director's comments and financial report details)

BRASILIA, March 20 (Reuters) - Liquidity risks to Brazilian banks should remain stable in the first half of 2014 despite a slight increase in the previous six months, central bank director Anthero Meirelles said on Thursday.

Liquidity risks to the system increased slightly in the second half of last year but remain very low, the central bank said in a semiannual financial report released earlier on Thursday.

Meirelles, who is the central bank's director of financial supervision, said the rise in risk was due to a drop in the value of domestic debt held by banks along with a drop in global liquidity. Prices of Brazil's domestic debt have fallen due to an increase in the central bank's benchmark Selic interest rate.

The payment of billions of dollars in back taxes as part of a government-driven tax settlement program also reduced the capital levels of banks, he said.

Meirelles said stress tests showed Brazilian banks are solid and well funded to face changes in global liquidity conditions stemming from a reduction of monetary stimulus in the United States.

"The system is well prepared to face this change (in liquidity)," Meirelles told reporters in Brasilia. "I don't see anything on the horizon that could mean a structural change in risk levels."

He said the system is well under way to comply with the capital requirements of Basel III global banking rules.

Growth in banking credit has continued to slow in Brazil in the second half of 2013, along with a decrease in loan default rates, as banks focused on less risky operations, the report said. (Reporting by Alonso Soto; Editing by James Dalgleish and W Simon)

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