(Adds analyst comments, additional data throughout)
By Guillermo Parra-Bernal
SAO PAULO, Nov 26 (Reuters) - Loan defaults in Brazil's banking system are set to further decline in coming months, central bank data suggested, reflecting efforts by companies and consumers to cut debt in the wake of a flagging economy and rising borrowing costs.
Consumer and corporate loans in arrears for at least 90 days, a benchmark gauge for delinquencies, declined for the first month in three in October, with short-term defaults by companies hitting the lowest in a year, central bank data showed on Wednesday.
According to the central bank's monthly credit and banking report, the so-called 90-day default ratio slipped to 4.8 percent of outstanding loans, from 5 percent in September. Defaults between 15 days and 90 days, a forward-looking gauge for trends in delinquencies, fell for companies and stood at a 22-month-low for individuals.
The numbers suggested consumers and companies, chiefly small- and mid-sized firms, are reining in debt as private-sector lenders toughened credit terms and slowed disbursements over the past year. According to JPMorgan Securities, fewer Brazilian borrowers increased their debt or restructured their obligations, a sign their financial situation might be marginally improving.
The data underpinned "our expectations for the banking sector ... that the private-sector banks will take a more conservative approach to limit loan book expansion and improve asset quality," said Flavio Yoshida, an analyst with Votorantim Corretora.
Banks have scaled back disbursements after economic activity lost steam in recent years, consumer debt hit record levels, and quickening inflation hampered income. Brazil's economy shrank in the second quarter, and only a mild recovery might taken place in the third period.
"Deleveraging appears to be occurring, but we don't think it has fully run its course," JPMorgan Securities analysts led by Saúl Martínez wrote in a client note this week.
Outstanding loans in Brazil rose 0.8 percent in the month, the slowest pace of credit expansion in three months, according to the data. On an annual basis, credit in Brazil rose 12.2 percent, near the slowest pace of expansion in more than a decade.
Banks had 2.926 trillion reais ($1.2 trillion) in outstanding loans at the end of October, according to the central bank. About 53.4 percent was credit extended by state-run banks, with 32 percent for domestic private-sector lenders and 14.6 percent for foreign lenders. ($1 = 2.5114 Brazilian reais) (Additional reporting by Luciana Otoni in Brasilia; Editing by W Simon and JS Benkoe)