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SAO PAULO, June 29 (Reuters) - The rapid deterioration of Brazil's labor market this year will lead to a rise in non-performing loans for some Brazilian mid-sized retail lenders, a situation that could impact their debt ratings, Moody's Investors Service said in a Monday report.
Among the retail lenders that could be most negatively affected with rising urban unemployment, Moody's listed Banco Pan SA, Banco Votorantim SA and Banco Mercantil do Brasil SA, which have between 60 percent and 75 percent of their lending portfolios linked to household credit.
"These banks already have poor profitability, which has weakened their capacity to generate capital and leaves them more vulnerable to a rise in loan delinquencies," said Thiago Scarelli, the Moody's analyst who signed the report.
According to Scarelli, Brazil's top private-sector banks are prepared to manage an uptick in non-performing loans despite their exposure to the segment. Their three-year strategy to shun market share growth since the economy began to slowly deteriorate in late 2012 also meant they built large capital buffers, the report added.
The nation's unemployment rate rose to 6.7 percent in May from 4.3 percent in December, while inflation-adjusted average wages lost 7.9 percent of their purchasing power since November, statistics agency IBGE said last week. Both trends have sharply accelerated since April.
The souring of Brazil's job market marks an end to a decade of cumulative gains in employment, wages and social security coverage for millions of Brazilians.
Over the same period, credit doubled to about 56 percent of gross domestic product, driven by low-income and middle class families borrowing more on the back of a strong job market.
Signs of a sharp erosion in the quality of loans and other banking assets have appeared in recent months. Corporate defaults including bank delinquencies and unpaid utility bills jumped 10.4 percent in May on an annual basis, credit research company Serasa Experian said on Monday.
Banco Pan, which is rated "Ba2" by Moody's, rose 0.7 percent to 1.50 reais in early Monday trading. Shares of Mercantil, which has a "B2" rating, were unchanged at 4.20 reais.
Votorantim is rated "Baa3," the lowest investment-grade rating under Moody's scale.
The three banks are under a negative outlook, which means their ratings could be slashed within 12 months to 18 months. (Reporting by Guillermo Parra-Bernal Editing by W Simon)