UPDATE 2-Brazil bank lending in June rose at slowest pace in a decade

martes 29 de julio de 2014 11:40 GYT

(Recasts, adds details throughout)

By Guillermo Parra-Bernal and Luciana Otoni

SAO PAULO/BRASILIA, July 29 (Reuters) - Brazilian banks' loan books grew in June at the slowest annual pace in about a decade, the central bank said on Tuesday, another sign that the impact of flagging economic activity and high borrowing costs has led private-sector lenders to put the brakes on new disbursements.

Outstanding loans in Brazil's banking system rose 11.8 percent in the 12 months through June, the reading's fifth straight month of declines, the central bank said. According to Thomson Reuters calculations, annual growth in lending is running at the slowest pace since at least mid-2004.

The interruption of a year-long period of central bank interest rate increases, which weighed on demand for credit and slowed abrupt drops in defaults, is taking momentum from a further expansion of spreads - the difference between a bank's lending and deposit rates. Defaults fell in June, helping banks weather the impact of weak activity.

Analysts have warned that the two-speed nature of Brazil's credit market may lead private-sector banks to turn even more cautious. Non-earmarked credit, or loans that are not subject to government mandates, is now contracting as a result, they added.

"Freely allocated credit is decelerating at the margin given the heightened perception of economic and unemployment risk that is damping both the supply and the demand for credit," said Alberto Ramos, chief Latin America economist with Goldman Sachs Group Inc. "Against this backdrop, private banks are turning more selective in the origination of new credit."

The central bank expects loan books in Brazil to grow an aggregate 12 percent this year. Last year, credit rose 14.7 percent.

"We see credit allocation moderating annually ... and there's evidence that interest rates have already peaked as the tightening cycle ended," Tulio Maciel, head of the central bank's economic department, said in Brasilia.   Continuación...