UPDATE 1-Brazil loan defaults jump in May, led by corporate borrowers

lunes 27 de junio de 2016 10:23 GYT

(Recasts to add details on report throughout)

By Guillermo Parra-Bernal and Marcela Ayres

SAO PAULO/BRASILIA, June 27 (Reuters) - Loan defaults in Brazil hit a fresh record in May, the latest sign that the harshest recession in eight decades and the impact of a sweeping corruption probe have especially hurt the ability of corporate borrowers to stay current on their debt.

Loans in arrears for at least 90 days rose to the equivalent of 5.9 percent of non-earmarked, outstanding loans in May from 5.7 percent in April, the central bank said in a report. The number is the highest since the central bank began keeping records of the indicator about five years ago.

Early default ratios, or loans in arrears between 15 days and 90 days, rose for consumers and companies alike, a sign banks are increasingly refinancing potentially problematic loans earlier than usual.

The so-called default ratio has climbed 1.3 percentage point over the past year. Concerned about the growing risk for credit as loan renegotiation and refinancing deals climb with the recession, banks raised the cost of borrowing to an annual average 52.3 percent on average in April, the report showed.

The data provides a glimpse into loan-book quality as local banks struggle with the effects of the recession and "Operation Car Wash," a probe into corruption at state firms. Firms in Car Wash, as well as their suppliers, are negotiating with creditors ways to obtaining some debt relief as their revenue falter.

Outstanding loans totaled 3.144 trillion reais ($927 billion) in May, up 0.1 percent from the prior month, the report showed. That was the first increase in lending in five months, even as private-sector lenders kept cutting disbursements.

Defaults have been climbing for about 18 months, and the trend could continue into early 2017, making the current so-called credit cycle the longest in Brazil in two decades, analysts at Goldman Sachs Group Inc have said. ($1 = 3.3928 Brazilian reais) (Editing by Chizu Nomiyama)