Wednesday, August 24, 2011

Brazil defaults hit 17-month high; loan growth slows

BRASILIA/SAO PAULO, Aug 24 (Reuters) - Loan defaults in Brazil rose in July to their highest level in 17 months, a new indication that higher borrowing costs and an economic slowdown is hampering the credit-worthiness of consumers and companies.

Loans in arrears for 90 days or more rose to the equivalent of 5.2 percent of outstanding loans in July from 5.1 percent in June, the central bank said on Wednesday. The level is the highest for the indicator, known as the default rate, since the 5.3 percent reading in February 2010.
A rise in defaults came along with a slower pace of disbursements last month, the report showed. Outstanding loans in Brazil's banking system BRLEND=ECI rose 1.1 percent in July from June, totaling 1.854 trillion reais ($1.16 trillion), the report said.

The numbers back recent evidence that delinquencies for the riskiest pool of loans -- those to small-sized companies and some types of consumer credit -- are poised to rise further this year as Brazil's economic growth loses momentum. Banks are tightening credit risk controls to prevent defaults from climbing further.
"There shouldn't be anything extravagant with defaults this year," Lazaro de Mello Brandao, chairman of Banco Bradesco (BBDC4.SA), Brazil's fourth-largest bank, said at a Tuesday event in Sao Paulo. "They will rise slightly at the margin."

Some investors fear that loans made amid a burst of government lending during the global financial crisis in 2008 could sour as the economy slows this year. Easy credit was the main engine behind Brazil's 7.5 percent expansion last year -- the fastest in a quarter century.
A spike in defaults and polls suggesting borrowers are nearing their limit for new credit have driven banking sector shares down 24 percent so far this year -- mainly on worries that a rapid expansion in lending in past years went too far.

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