(Recasts to add annual lending growth rate in paragraph 1,
comments, details throughout)
By Guillermo Parra-Bernal and Luciana Otoni
SAO PAULO/BRASILIA, June 25 Brazilian banks
extended credit at the lowest annual pace in over seven years
while defaults edged higher in May, in a sign that the nation's
flagging economy and rising borrowing costs weighed on the
ability of companies and individuals to borrow.
Outstanding loans in Brazil's banking system
reached 2.803 trillion reais ($1.27 trillion) last month, up 1
percent from April, central bank data showed on Wednesday. On an
annual basis, lending growth slowed to 12.7 percent in May from
13.4 percent in April and 16.1 percent a year earlier.
Banks are scaling back disbursements as economic activity
has lost steam in recent years, consumer debt hit record levels,
and quickening inflation hampered income.
Annual growth in auto, payroll and personal credit fell
sharply in the month while flagging demand for working capital,
receivable discounts, credit card and subsidized credit weighed
down corporate credit, the data showed.
Loan origination fell in May on a year-on-year basis for the
first time since 2012, while loan delinquencies rose
sequentially for the first time since September 2013.
Shares of Brazil's largest banks fell after the report,
signaling investors are growing concerned about earnings trends
for the coming quarters.
Borrowing costs rose for a fifth month in six in the wake of
a year of central bank interest-rate increases aimed at
controlling inflation. Spreads, or the difference between the
rate at which banks lend and their cost of funding, also widened
for a fifth straight month.
As a result, loans in arrears for 90 days or more, the
industry's benchmark gauge of credit delinquencies, rose to 5
percent in May, the highest since October, from 4.8 percent in
April. Loans in arrears between 15 days and 90 days fell.
"Decelerating loan growth and increasing rates were trends
from past months, but weaker asset quality came as a relative
surprise, partially foreshadowed by leading indicators from
prior months," said Carlos Macedo, an analyst with Goldman Sachs
Private-sector banks led the rise in defaults, as their
non-performing loans ratio climbed 0.10 percentage points to 4.2
percent in May from April.
"It may be too early to say this is the beginning of a
worsening credit cycle, especially given the improvement in
early delinquencies, but it is consistent with the view that a
declining cost of risk may not be a strong earnings tailwind
beyond the first half for private-sector banks in Brazil," said
Saúl Martínez, an analyst with JPMorgan Securities.
State-owned banks continue to grow their loan books faster
than private-sector banks, particularly if state development
bank BNDES, is excluded. Private-sector banks' disbursements
rose about 4.9 percent in the 12 months through May, compared
with 19.4 percent at state-run lenders.
BNDES is Brazil's main source for long-term corporate
So-called earmarked loans, or credit aimed at investments
and homebuilding in accordance with government mandates, rose
1.3 percent from April, while non-earmarked loans increased 0.7
($1 = 2.21 Brazilian reais)
(Reporting by Guillermo Parra-Bernal and Luciana Otoni;
Additional reporting by Silvio Cascione; Editing by Chizu
Nomiyama, W Simon and Nick Zieminski)