* Pace of non-subsidized lending grows at slower pace
* Defaults decline marginally, stay near record highs
* Numbers underscore flagging recovery in loan market
By Guillermo Parra-Bernal and Tiago Pariz
SAO PAULO/BRASILIA, March 26 Bank lending in
Brazil showed only slight growth in February as private-sector
banks pulled back on new credit, while borrowing costs rose as
expectations mounted over a potential central bank move to raise
Outstanding bank loans in Brazil totaled a record 2.384
trillion reais ($1.19 trillion) last month, up 0.7 percent from
the prior month, the central bank said in a report on Tuesday.
Credit growth in Latin America's largest economy accelerated to
16.8 percent from a year earlier, the fastest annual pace for
the indicator since last October.
Disbursements of so-called non-earmarked loans fell in
February, as did the stock of loans for consumers and defaults.
Lending rates for consumers rose for the second straight month
after almost a year of uninterrupted declines, the report added.
The pace at which non-mandatory, non-subsidized lending is
growing annually slipped to 12.8 percent in February, a further
sign that private-sector banks are restricting loan origination
as deleveraging in risky segments such as auto financing is
taking longer than expected and defaults remain high.
The results, however, reflect a hiccup in President Dilma
Rousseff's efforts to broaden access to credit and bring down
the cost of loans toward international levels, analysts said.
Rousseff set that as a goal in a country that only a year ago
had borrowers paying some of the world's highest interest rates.
"In brief, some improvements in the credit market were seen
in February, from which we highlight the decline in the default
ratio ... the bad news was the generalized lack of traction in
credit to individuals," said Denis Blum, an economist with
Lenders including Itaú Unibanco Holding SA, the
country's No. 1 non-government bank, are stepping away from
risky loan segments, focusing on credit that puts aside more
collateral, despite paying lower in interest, to stem the impact
of high defaults.
Last year, Itaú and peers such as Banco Bradesco SA
struggled with steep declines in interest rates,
government pressure to step up lending and a second straight
year of sub-par economic expansion.
SPREADS, MARKET SHARE
Earmarked lending, or loans aimed at encouraging investment
for homebuilding purposes in accordance with government
policies, continued to rise at a faster pace than non-earmarked
lending. State-owned banks remained the engine of growth, as
they did for most of 2012, contributing more than two-thirds to
the month-on-month credit expansion.
In February, state lenders marginally increased their
dominance of Brazil's bank lending after their market share rose
to 57.6 percent of total lending from 57.5 percent the prior
month. Private-sector lenders maintained their share at 35.6
percent from January, but that is down from almost 40 percent a
The average lending rate in the banking system rose in
February for a third month to 26.4 percent. The spread, or the
difference between the rates banks charge for their loans and
the ones they pay for deposits, narrowed to 18.2 percent from
18.4 percent the prior month.
In recent weeks, speculation mounted that the central bank
might have to raise the benchmark Selic overnight rate to head
off inflation now running at the fastest pace in about a year.
The decline in the Selic to a record-low 7.25 percent last year
drove an across-the-board drop in the cost of credit in Brazil.
Likewise, a recent decline in the cost of debt-servicing
among households might not be enough to kick-start demand for
consumer credit, underscoring the limited impact that a
record-low Selic has on new credit, Morgan Stanley & Co analysts
said this week.
The numbers might signal that a nascent economic recovery
will take longer than previously expected to trigger demand for
corporate and consumer lending. One positive outcome of more
robust economic activity is the impact on loan delinquencies,
which are gradually dropping after hitting all-time highs for
most of last year.
"As we have argued the outlook for consumer loans is
challenging," Morgan Stanley banking analyst Jorge Kuri wrote in
a client note on Tuesday. "The debt service ratio is high, and
further improvements need to come from slower credit growth."
Loans in arrears for 90 days or more, an industry benchmark
for loan delinquencies, fell to 5.6 percent of outstanding loans
last month, compared with a revised 5.7 percent in January, the
Defaults between 15 days and 90 days, a forward-looking
gauge for the behavior of defaults, remained stable for
corporate credit, but fell slightly for consumer loans. Bankers
at private-sector lenders have remained at odds in interpreting
the behavior of overdue credit, which seems inconsistent with
robust job and household income indicators.
Rousseff is staking her presidency and a potential second
term on achieving a long lasting decline in borrowing costs. The
cost of credit remains prohibitive for millions of Brazilians
and access is still restrictive.