April 17, 2009 / 4:28 PM / 10 years ago

RPT-UPDATE 1-Bank credit flows to some sectors -Chile's Velasco

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SANTIAGO, April 17 (Reuters) - Bank credit is starting to flow to real estate and some other sectors of Chile’s economy that are beginning to pick up after being choked by the global crisis, Finance Minister Andres Velasco said on Friday.

Last month, Velasco unveiled measures to help give more access to financing for small and medium-sized businesses after banks tightened lending restrictions.

“We are seeing that some sectors where a lack of credit was an obstacle are becoming reinvigorated, are reactivating ... like property sales, which have started to recover,” Velasco told local radio.

Velasco had earlier called on banks to lend to consumers to help revive Chile’s economy, which is fighting to recover from a dramatic slowdown as the global economic crunch stifled demand at home and abroad.

He said last month the new credit measures, which include increasing resources for the state to support businesses and giving small and medium-sized companies more time to pay taxes, could generate around $3.6 billion in private credit.

Those measures in turn complement a $4 billion fiscal stimulus plan unveiled in January.

Central Bank President Jose De Gregorio said this month he saw signs that banks were passing on to consumers a series of aggressive cuts to its benchmark interest rate this year.

However, a central bank poll published on Friday showed that banks had further restricted credit approval in the first quarter of the year after tightening them in the third and fourth quarters of last year.

The poll showed 60 percent of institutions polled said lending conditions had become more restrictive, while 30 percent of banks said demand for credit from both big companies had fallen and that demand from small and medium-sized firms dropped, too.

Chile’s economy shrank 3.9 percent in February, the biggest decline since May 1999 and the fourth consecutive monthly drop, putting it on the path to recession.

Analysts now forecast Chile’s economy will contract 0.5 percent in 2009 — a far cry from growth of 2 percent to 3 percent the government had been forecasting. (Reporting by Antonio de la Jara and Simon Gardner; Editing by Jan Paschal)

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