| SAO PAULO, June 5
SAO PAULO, June 5 A surge in non-performing
loans at Brazil's state-run banks that began in the second half
of 2013 is likely to intensify in coming quarters, reinforcing
the need to set aside more money to cover potential losses,
Moody's Investors Service said on Thursday.
A team of Moody's analysts led by Ceres Lisboa said in a
report that rising NPLs are a result of rapid credit growth at
state lenders, which expanded their loan books at a compound
annual rate of 24 percent over the last decade. Slowing economic
activity, coupled with high household debt, are making matters
even worse for state banks, the report said.
A move by government policymakers to slow the pace of loan
disbursements by state banks to help them protect their capital
base could boost delinquencies, the report said. Loans in
arrears for 90 days or more, the industry's benchmark gauge for
credit delinquencies, remained unchanged for a fourth month at
4.8 percent in April, central bank data showed last week.
"Should this trend persist, they will need to set aside more
provisions to cover losses, which will impair their earnings,"
Lisboa said in the report. Short-term defaults showed a rise in
April, signaling a growing inability by households and companies
to cope with the highest borrowing costs in over two years.
The report underscores the growing gap between
private-sector and state-run lenders, which have stepped up
lending and cut borrowing costs more aggressively than the
former over the past two years. Due to rather selective credit
risk standards, private-sector banks have seen their default
indicators fall steadily since mid-2012 as they moved away from
riskier lending segments to mortgage, payroll and large
Shares of state-run Banco do Brasil SA, the
nation's largest bank, have lagged those of private-sector rival
Itaú Unibanco Holding SA, partly because of that
perception. Banco do Brasil rose 1.8 percent in the past 12
months, compared with Itaú's 12.2 percent jump.
The level of bad loan provisions reflect the diverging trend
in NPLs between state and private banks, according to the
report. Based on NPL levels as of April 2014, public banks would
have to increase their provisions by 23 percent from a year
earlier, while private banks would be able to reduce their
provisions by 11 percent, the report showed.
Since late last year, a correlation between provisions
trends at state and private banks diverged. According to Lisboa
and her team, if such a trend "continue, asset quality
deterioration will put negative pressure on profitability at
government-owned banks, while private lenders will benefit from
decreasing credit costs."
(Editing by Diane Craft)