* Move to curb long-term financing through credit cards
* Brazilians pay highest rates among major economies
* Steps come amid concern of excess household borrowing
By Guillermo Parra-Bernal
SAO PAULO, July 18 Brazil's central bank on
Monday tightened rules on credit card loans backed by wages and
pensions which households are increasingly using as a source of
Commercial banks will have to commit twice the capital they
used to when extending payroll- and pension-deductible credit
card loans for terms beyond 36 months, the central bank said in
The so-called risk weight factor, or the amount of capital
that banks must set aside for such loans, will remain at 75
percent for maturities of up to 36 months.
Payroll-deductible loans have grown faster than other forms
of loans since their creation in 2003 because they offer less
default risks for lenders. But policymakers fear that rapid
growth in that segment may hurt households, which are now
spending a record 24 percent of their disposable income on
"This is simply a prudential measure, of which we would
like to see others being implemented to strengthen the
financial system against gyrations in the credit cycle," Paulo
Leme, Goldman's managing director for emerging markets
research, wrote in a note to clients.
The stock of credit card loans represent about 7 percent of
outstanding household loans and only 1.7 percent of the
financial industry's loan book, according to data compiled by
Goldman Sachs Group.
Still, consumers pay annual rates of up to 200 percent for
normal credit card loans -- the highest borrowing costs for
that segment among the world's major economies.
The rules governing the use of minimum payment on credit
card balances will stay unchanged, the bank said. Policymakers
decided earlier in the year that consumers pay bigger monthly
installments on their credit card bills, in order to decrease
their usage and lower the probability of defaults.
Shares of Cielo (CIEL3.SA), the country's biggest card
payment processor, rose 0.9 percent on Monday -- the first
increase in three sessions. Shares of rival Redecard RDCD3.SA
gained 1.4 percent.
The measure was announced just two days before the central
bank is expected to raise interest rates for the fifth time
this year as it seeks to rein in inflation.
All 21 analysts polled by Reuters see the benchmark Selic
lending rate BRCBMP=ECI rising by 25 basis points to 12.50
percent from 12.25 percent. [ID:nE5E7HT005]
(Editing by Todd Benson and Andrew Hay)