UPDATE 1-Brazil bank provisions hit 20-month high as economy sours

miércoles 25 de febrero de 2015 12:32 GYT

(Recasts to detail provisions, defaults data; adds comments, background throughout)

By Guillermo Parra-Bernal and Luciana Otoni

SAO PAULO/BRASILIA Feb 25 (Reuters) - Brazil's private-sector banks boosted loan-loss provisions to their highest level in 20 months in January, central bank data showed on Wednesday, as rising corporate defaults led them to tighten loan disbursement standards.

Last month, domestic private-sector banks set aside the equivalent of 7 percent of their loan books to cover credit losses, the biggest since May 2013, the central bank report found. The banking system's default ratio rose for the first month since May.

The data show the conservative underwriting practices that have shielded Itaú Unibanco Holding SA and other non-government banks from years of economic weakness in Latin America's largest economy. Economists are predicting that Brazil will experience its steepest economic contraction this year since 1992.

Outstanding loans to companies fell 1.1 percent to 1.59 trillion reais ($551 billion) in January. Loan approvals for the segment stand to suffer temporarily due to rising risk aversion and sluggish demand, analysts said. The delinquency ratio for corporate loans rose to 2.2 percent from 2.1 percent in December.

"What we are witnessing is a tightening of credit conditions in light of a rapid deterioration of the economic picture as a whole, especially on the corporate front," said Alberto Ramos, chief Latin America economist with Goldman Sachs Group Inc in New York.

State-run and foreign private-sector lenders may have to follow the prudent stance of private-sector banks if they want to protect capital and remain profitable, Ramos said.

Provisions at government and foreign banks remained unchanged at 3.7 percent and 5.3 percent of their loan books, respectively, the report added. Defaults climbed 0.1 percentage points for state banks, hitting 2.2 percent, the report showed.   Continuación...