By Guillermo Parra-Bernal and Luciana Otoni
SAO PAULO/BRASILIA, Feb 27 (Reuters) - Lending in Brazil stagnated in January, in spite of a sharp increase in loan disbursements by state-controlled banks, after borrowing costs climbed to their highest level in almost two years.
Outstanding loans in Brazil's banking system rose 0.1 percent in January from the prior month, the central bank said in a report on Thursday. On an annual basis, state-banks disbursed loans at a pace almost four times faster than their private-sector peers, which turned more cautious as the economy entered a fourth straight year of slow expansion.
"The slight increase from previous month was driven essentially by public sector banks, particularly the BNDES," said Nilson Teixeira, chief Brazil economist for Credit Suisse Securities. BNDES is the country's development bank and is 100 percent owned by the Brazilian government.
The numbers highlight a strong expansion in so-called earmarked loans, or credit aimed at encouraging investment and homebuilding in accordance with government mandates. President Dilma Rousseff is using state banks to press down credit costs in Brazil - which are among the world's highest for a major economy - while fostering competition with private banks.
Loans made by all banks in Brazil totaled a record 2.717 trillion reais ($1.16 trillion) last month, the report showed. In the 12 months through January, lending growth accelerated to 14.8 percent, the fastest annual pace since September, Thomson Reuters data showed.
The BNDES as well as state-run mortgage lender Caixa Econômica Federal ramped up credit to companies, individuals and homebuyers by an average 26 percent in the past year, compared with 7.5 percent at private sector lenders.
The volume of loan origination declined sharply in January to 290.5 billion in January from 357.6 billion reais in December, the report said. Averaged by the number of business days, disbursements for consumer loans remained roughly stable while those for the corporate sector accelerated to 7 percent in January on an annual basis, compared with 3 percent in December, driven by earmarked loans, in particular from the BNDES.
As a result, loans from state banks represented 51.6 percent of outstanding loans in Brazil in January, compared with 51.2 percent in December and 48.2 percent a year earlier. The share of local private-sector banks slumped to 33.1 percent from about 36 percent a year earlier.
Local private-sector banks have drastically restricted loan origination over the past year as deleveraging in risky segments, such as auto financing, has taken longer than expected.
The average cost of borrowing for non-earmarked loans in the banking system, a gauge of how much Brazilians pay in interest for a loan, rose to 30.7 percent. That is the highest level for borrowing costs since April 2012, according to the report.
The spread - or the difference between the rate at which banks lend money and that at which they pay for deposits, widened to 18.9 percentage points - the widest since July 2012.
While borrowing costs rose as the central bank raised the benchmark overnight Selic lending rate eight times in the past year to head off inflation. Spreads are probably widening less intensely because of competition between private and public sector banks, the impact of inflation and low demand drove down lending rates amid increased funding costs, analysts said.
"After the temporary decline in banks spreads in December, the number of January suggests a continuation in the bank spreads increasing trend seen since June last year, a movement more in connection with the current more restrict monetary conditions," Credit Suisse's Teixeira added.
Loans in arrears for 90 days or more, the industry's benchmark gauge for credit delinquencies, reached 4.8 percent in January, the report said.