UPDATE 2-Brazil loan growth loses momentum, defaults rise in May

miércoles 25 de junio de 2014 14:27 GYT

(Recasts to add annual lending growth rate in paragraph 1, comments, details throughout)

By Guillermo Parra-Bernal and Luciana Otoni

SAO PAULO/BRASILIA, June 25 (Reuters) - Brazilian banks extended credit at the lowest annual pace in over seven years while defaults edged higher in May, in a sign that the nation's flagging economy and rising borrowing costs weighed on the ability of companies and individuals to borrow.

Outstanding loans in Brazil's banking system reached 2.803 trillion reais ($1.27 trillion) last month, up 1 percent from April, central bank data showed on Wednesday. On an annual basis, lending growth slowed to 12.7 percent in May from 13.4 percent in April and 16.1 percent a year earlier.

Banks are scaling back disbursements as economic activity has lost steam in recent years, consumer debt hit record levels, and quickening inflation hampered income.

Annual growth in auto, payroll and personal credit fell sharply in the month while flagging demand for working capital, receivable discounts, credit card and subsidized credit weighed down corporate credit, the data showed.

Loan origination fell in May on a year-on-year basis for the first time since 2012, while loan delinquencies rose sequentially for the first time since September 2013.

Shares of Brazil's largest banks fell after the report, signaling investors are growing concerned about earnings trends for the coming quarters.

Borrowing costs rose for a fifth month in six in the wake of a year of central bank interest-rate increases aimed at controlling inflation. Spreads, or the difference between the rate at which banks lend and their cost of funding, also widened for a fifth straight month.   Continuación...