* Default ratio drops for first time since March
* Private-sector banks stepping away from riskier loans
* Total stock of credit rises 1.8 percent in June
By Luciana Otoni and Guillermo Parra-Bernal
BRASILIA/SAO PAULO, July 26 Loan delinquencies
in Brazil's banking system fell in June for the first time since
March, in a sign that private-sector lenders' efforts to slow
credit growth were finally bearing fruit.
Loans in arrears for 90 days or more, the industry's
benchmark gauge for credit delinquencies, fell to 5.2 percent of
outstanding loans last month from 5.5 percent in May, where it
had remained since March, the central bank said in a report on
Private sector banks are stepping away from riskier loan
segments, a move that leads to a decline in interest-rate income
but minimizes the risk of defaults, while the loan book of
state-run banks is growing faster than the amount of overdue
credit. Lower delinquencies in June were driven by a 0.3
percentage point decrease in consumer loan defaults, followed by
a 0.1 point decline in corporate loan defaults, the report
"The main highlight in the credit figures for June was the
widespread improvement in credit quality data, led by
private-sector and foreign-controlled banks relative to
public-sector banks," Carlos Firetti, head of equity research
for Bradesco BBI, wrote in a client note.
Brazil's current credit cycle, in which defaults spiked and
credit growth faltered, has lasted 22 months - the longest in
more than a decade. Even as non-performing loans show a
significant recovery this year, efforts by the central bank to
fend off inflation by hiking borrowing costs could reverse this
trend next year, Jorg Friedemann, an analyst with Bank of
America Merrill Lynch, said.
This week, second-quarter results at Banco Bradesco SA
, the nation's No. 2 private-sector lender, showed a
steeper-than-expected drop in defaults in the wake of efforts to
tighten credit risk assessment and move toward less-risky types
The default ratio fell especially in segments where banks
like Itaú Unibanco Holding SA are pulling out.
Forward-looking indicators for delinquencies, such as the
default ratio between 15 days and 90 days, also showed a slight
decline, the report said.
"The still-high level of non-performing loans in the system
means private banks remain somewhat defensive," said Alberto
Ramos, chief Latin America economist with Goldman Sachs Group.
Last year, when defaults hit a record, Itaú and its peers
began to focus on credit that requires borrowers to put aside
more collateral, slowing some fast-growing loan segments. That
happened as those lenders had to grapple with a weak economy,
and government pressure to step up lending and cut rates.
Outstanding loans in Brazil's banking system
rose 1.8 percent from May, hitting a record 2.53 trillion reais
($1.12 trillion), the report said. In the 12 months through
June, credit growth accelerated to 16.4 percent, the slowest
pace since January 2010, according to Thomson Reuters data.
On an annual basis, state-run banks disbursed loans at a
pace almost six times faster than their private-sector rivals,
which have turned more cautious as Brazil's economy enters a
third year of sub-par growth.
President Dilma Rousseff has used state-controlled Banco do
Brasil SA and Caixa Econômica Federal to cut
credit costs in Brazil - which remain among the world's highest
- and to foster competition.
Banco do Brasil, state development bank BNDES and
other state-run lenders increased credit to companies,
individuals and homebuyers by an average 29 percent in the 12
months through June, compared with 5.3 percent at private-sector
lenders, the report showed.
Even so, credit is failing to expand as quickly as the
government wants as Brazil's nascent economic recovery is
failing to gain traction. In addition, weak confidence and
rising inflation rates weighed down demand for working capital,
and auto and overdraft loans.
The central bank is forecasting growth of 15 percent in bank
lending this year. Bank officials said last month that the
projection incorporates expectations that state banks will
spearhead a surge in new credit disbursements through year-end.