(Adds details on 12-month lending growth rate, earmarked credit)
BRASILIA Aug 26 Growth in Brazilian banks' loan books slowed for a sixth straight month in July while delinquencies rose, the central bank said on Tuesday, adding to signs of a possible recession in Latin America's largest economy.
Outstanding loans in Brazil's banking system rose 11.4 percent in the 12 months through July, down from 11.8 percent in the previous month, the central bank said. According to Thomson Reuters calculations, annual growth in lending is running at the slowest pace since at least mid-2004.
Lending rose 0.2 percent in July from the previous month, reaching 2.835 trillion reais ($1.25 trillion), the report said. Loans in arrears for 90 days or more, the industry's benchmark gauge for credit delinquencies, rose to 4.9 percent of outstanding loans from 4.8 percent in June.
Banks are scaling back disbursements after economic activity lost steam in recent years, consumer debt hit record levels, and quickening inflation hampered income. Brazil's economy probably contracted in the second quarter at the sharpest pace in five years and might have slipped into recession, a Reuters poll showed on Monday.
Non-earmarked credit contracted 0.5 percent last month whereas earmarked loans rose 1.0 percent, the central bank said. Earmarked loans now account for 46.5 percent of outstanding loans, up from 43.3 percent a year ago.
The weakness of Brazil's credit market prompted the central bank to increase the capital available for commercial loans by about 70 billion reais ($11.1 billion) since late July. The measures may have helped bank lending recover this month, although some economists said they could be ineffective due to an apparent lack of demand for credit among consumers.
($1 = 2.2737 Brazilian reais) (Reporting by Luciana Otoni; Writing by Silvio Cascione; Editing by Jeffrey Benkoe and Meredith Mazzilli)