* Credit grows 16.2 percent in 2012, within estimates
* Defaults fall for the first time in six months
* Lending rates, spreads fall to fresh record low
By Guillermo Parra-Bernal and Luciana Otoni
SAO PAULO/BRASILIA, Jan 25 Lending growth and defaults at Brazilian banks showed further signs of recovery in December, central bank data showed on Friday, the strongest sign yet that record-low borrowing costs are helping the finances of companies and consumers.
Loans in arrears for more than 90 days, a benchmark for defaults in Latin America's largest economy, fell in December for the first month in six even as they remained near a record. Banks ramped up the stock of credit by 2.4 percent in December as private-sector lenders stepped up disbursements to recoup some of the market share lost throughout last year.
The average cost of borrowing in the banking system fell for a tenth month in a row in December, hitting an all-time low of 28.1 percent. The spread, or the difference between the rate at which banks lend money and that at which it pays for deposits, slipped to record-low of 21.1 percentage points.
The results underscore the impact of government efforts to bring down bank borrowing costs towards international standards in Brazil, a goal that President Dilma Rousseff set out for a country where, only a year ago, borrowers paid among the world's highest interest rates. Still, the cost of credit remains prohibitive for millions of Brazilians while access to the market is still restrictive.
"These new levels are setting a new floor for the cost of credit in the country," Tulio Maciel, head of the central bank's economic research department, told reporters in Brasilia. "Regarding rates, I'd better wait before venturing on to forecasting any trends."
However, Maciel reiterated an estimate of 14 percent growth in bank lending this year, in what could be a sign that policymakers expect credit conditions to ease at a gradual pace. Credit expanded 16.2 percent in 2012 - the slowest rate of expansion in bank loans in three years.
A still nascent economic recovery is yet to spur credit growth but a recent surge in disbursements by state development bank BNDES could be the prelude for robust demand for loans among companies, economists said.
"We see scope for firmer credit growth during 2013," said Alberto Ramos, chief Latin America economist with Goldman Sachs Group Inc in New York.
The average default ratio for the banking system fell to 5.8 percent in December, compared with a revised 5.9 percent in November. Corporate loans in arrears for 90 days or more fell to the equivalent of 4 percent of the segment's stock of credit, while those for consumer credit rose to the equivalent of 7.9 percent.
Maciel said he expects delinquencies to keep falling in the coming months. Loans in arrears between 15 days and 90 days, a forward-looking gauge for the behavior of defaults, remained stable for corporate credit but fell for consumer loans.
"The forward-looking reading you make here is that delinquencies should fall at the margin," Maciel said.
Loans made by commercial banks in Brazil totaled 2.360 trillion reais ($1.16 trillion) last month, the central bank said. Public banks increased lending by 3.9 percent in the month, twice as fast the rate of expansion of the prior two months.
Private-sector banks ramped up disbursements by 1.1 percent, the fastest pace since March last year. However, that did not prevent their market share from slipping to 35 percent in December from 35.6 percent in November, the central bank data showed.
State lenders' share of total bank lending grew to 47.6 percent of the total at the end of last year, compared with 43.5 percent in December 2011.
Caution among private banks is pitting them against the government, which has used state lenders Banco do Brasil SA and Caixa Econômica Federal to bring down the cost of credit to businesses and consumers and boost access to credit.
Local private-sector banks for months drastically restricted loan origination as deleveraging in risky segments such as auto financing took longer than expected. One in every six households are considered as overleveraged, according to a recent report by Santander Investment Securities analysts.
The data also confirmed the views of several financial industry analysts who argue that the drop in benchmark central bank interest rates to single digits in Brazil is leading to a dramatic compression in revenue and profit margins at the nation's flagship banks.
Fourth-quarter results at the nation's three largest private-sector banks probably came in mixed as fewer loan delinquencies partly offset the impact of slower credit growth and lower interest rates on banking revenue, a Reuters poll showed on Thursday.