(Adds details on state of demand for loans, background throughout)
By Rodrigo Viga Gaier
RIO DE JANEIRO, March 20 (Reuters) - Loan consultations and requests at Brazilian state development bank BNDES sank in the first three months of 2015, three sources with direct knowledge of the matter said on Friday, the latest evidence that weak business confidence will further drag down investment in Latin America's largest economy.
Management at the Rio de Janeiro-based lender is monitoring trends for consultations, which are closely correlated with future disbursements, said a first source, who requested anonymity to speak freely about the matter. None of the three sources wanted to detail the size and extent of the drop.
Most of the loan disbursements made this year stemmed from approvals that took place well before the end of 2014, according to a second source. Management, led by Chief Executive Officer Luciano Coutinho, is ware that the reduction in BNDES is "unavoidable," allowing for a drastic decline in disbursements for the months to come.
The sources' remarks indicate that an expected recession may turn out to be much steeper than thought, because of the close link between lending trends at BNDES and capital spending of Brazilian companies. Since its inception in 1952, BNDES has been practically Brazil's sole source of long-term corporate credit.
"This hasn't turn into a real worry yet because the year is just starting, ... but we are monitoring this closely now that the downward trend became recurring," the first source said.
For years, BNDES was a cornerstone of a policy to foster "national champions," helping finance JBS SA's rise as the world's No. 1 meatpacker and the creation of Fibria SA , the world's top pulp producer, through the merger of debt-laden rivals VCP and Aracruz in 2009. Last year, BNDES funded about 26 percent of fixed capital spending in Brazil, compared with 6 percent a decade ago.
Even as Coutinho repeatedly pledged to slow the pace at which BNDES lends to companies, disbursements fell 1 percent last year to 187.8 billion reais ($58 billion). The bank's loan book more than doubled over the past six years, weakening public finances and crowding out other commercial banks from wholesale banking markets.
The third source said BNDES is doing what it can to stay away from negotiating loans with companies involved in a corruption scandal engulfing state-controlled oil producer Petróleo Brasileiro SA and some of the nation's largest engineering and services firms.
The bank suspended the hiring of staff for an undetermined period following the dramatic decline in forward-looking loan indicators, the second source added.
$1 = 3.256 Brazilian reais Reporting by Rodrigo Viga Gaier; Writing by Guillermo Parra-Bernal; Editing by Diane Craft and Leslie Adler