February 28, 2012 / 6:55 PM / 8 years ago

UPDATE 3-Brazil lending falls in Jan, first drop in 3 years

* Lending growth down in Jan, first drop since Feb 2009

* Defaults slightly up, driven by consumers

* Confirms view that credit market losing steam

By Guillermo Parra-Bernal and Alonso Soto

SÃO PAULO/BRASILIA, Feb 28 (Reuters) - Bank lending in Brazil contracted in January for the first time in almost three years while more consumers and companies fell behind on loan installments, in another sign of the abrupt slowdown afflicting Latin America’s largest economy.

Outstanding loans in Brazil’s banking system fell 0.2 percent in January from December, the first month-on-month drop since the 0.02 percent decline recorded in February 2009, the central bank said on Tuesday. Loan defaults rose for the first time in two months in January, the bank said.

The stock of outstanding loans made by state-controlled, private sector and foreign commercial banks totaled 2.026 trillion reais ($1.191 trillion) last month, the bank said. Loan disbursements grew 18.4 percent in January from a year earlier, slowing from growth of 18.9 percent in December.

Lending will likely expand 15 percent in 2012 and companies and individuals will gradually get current on their debts later in the year, said Tulio Maciel, the central bank’s head of economic research. Aspects typical of January, usually a weak month in credit markets, also weighed on industry performance.

“Seasonal factors make January an abnormal month for loan data,” wrote Carlos Macedo, a senior banking industry analyst with Goldman Sachs Group in São Paulo. “Quality weakens, spreads increase and growth slows, as happened this time.”

Yet credit growth is losing steam as consumers and companies shift into deleveraging mode and the economy, which not so long ago appeared to be overheating, has cooled dramatically.

The numbers also underscore the uneven nature of Brazil’s slowdown. Weak manufacturing and retail numbers contrast with a strong job market and stubbornly high inflation. Economists expect demand for credit to gain momentum in the second half of 2012 thanks to measures such as cuts in interest rates and taxes.

“Credit will tend to show a more moderate behavior this year,” Maciel told reporters, adding that lending probably resumed growth this month. “Likewise, loan delinquencies should reverse their trend and begin accommodating.”

To prevent a sharper slowdown in credit, President Dilma Rousseff’s administration has moved to cut taxes and interest rates to bolster consumption after the economy flat-lined in the third quarter. The government aims for at least 4 percent growth in 2012. Last year the economy likely grew about 2.7 percent.

DEFAULTS TICK HIGHER

Some analysts, such as Credit Suisse Group’s Marcelo Telles, say that Brazil’s economic slowdown may put the brakes on consumer lending and keep delinquencies high. In addition, lower interest rates and an unfavorable repricing of maturing loans should push the industry’s profits lower.

Shares of the largest listed banks in the country fell more than 20 percent last year, reflecting the impact of government measures to curb lending and of Europe’s financial crisis.

Private lenders drove credit origination down, after cutting disbursements by 0.4 percent in January from December, the central bank said. In contrast, state-controlled commercial lenders lent 0.1 percent more in loans in the period.

Loans in arrears for 90 days or more - Brazil’s most widely followed gauge of defaults - edged up slightly to the equivalent of 5.6 percent of outstanding loans in January, compared with 5.5 percent in December.

The default ratio for consumer loans rose to 7.6 percent in January, the highest since at least December 2009, while the ratio for corporate borrowers fell for a second straight month in January to the equivalent of 3.7 percent, the lowest since May of last year.

Leading indicators for non-performing loans, such as the default ratio for past-due loans between 15 days and 90 days, also showed some deterioration. The so-called early-stage default ratio for individuals increased to 6.4 percent, while for companies it rose to 2.3 percent.

BANKS MORE CAUTIOUS

The spread, or the difference between the interest that banks charge for loans and the interest they pay on deposits, widened to 27.8 percentage points in January from 26.9 in December. The spread also widened from 25.6 percentage points a year earlier.

Lenders, which have reported mixed fourth-quarter results over the past month, have warned that bad loans may continue to hamper profits for at least another quarter. Such prospects are making them more cautious when approving or disbursing loans.

Banks usually tend to charge a higher spread on credit and accelerate loan renegotiations during times of economic uncertainty. Maciel said the current scenario is concomitant with actions by commercial lenders.

Daily credit origination, a gauge of future loan growth, fell by 18.6 percent for corporate loans and about 1 percent for consumer loans in January from the prior month.

Consumers had a harder time renegotiating loans in January following the spending spree of the year-end holidays, the central bank data showed. The sum of overdraft and credit cards loans, which sometimes charge rates of up to 170 percent annually, rose to 52.826 billion reais, the first increase in three months.

The slowdown in credit data is linked to “some caution by (banks) considering the high level of defaults” in consumer credit, said Fernanda Consorte, an economist with Santander Global Banking and Markets in São Paulo.

Shares of the country’s biggest banks rose on Tuesday bucking several days of declines. Brazil’s largest private sector lender Itaú Unibanco Holding led gains among financial stocks, with a 2.72 percent jump.

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