UPDATE 2-Brazil loan defaults seen rising, central bank data suggest

miércoles 24 de febrero de 2016 11:21 GYT

(Adds analysts' comments, details)

By Guillermo Parra-Bernal and Silvio Cascione

SAO PAULO/BRASILIA Feb 24 (Reuters) - Loan defaults in Brazil will likely climb in the coming months, central bank data suggested on Wednesday, as the nation's deepest recession in decades and rising credit costs strain borrowers' capacity to stay current on their debts.

Loans in arrears between 15 days and 90 days, a measure of early defaults, rose in January at the fastest pace in four months, totaling 5.6 percent of outstanding loans, a report showed. For corporate loans, the early default ratio rose to 3.5 percent last month, the fastest monthly gain since last June.

The data raised some warning flags about the eroding quality of bank loan books in Brazil, where the ongoing recession is expected to be the longest and harshest since 1901. A record 59 million Brazilians were behind in payment of utility bills, or defaulted on loans and bounced checks at the end of last year, credit research firm Serasa Experian recently said.

"What the data showed is that defaults will keep rising longer. We need to assess the intensity of that increase," said Eduardo Nishio, an analyst with Banco Brasil Plural.

The so-called 90-day default ratio, a benchmark for delinquencies in Brazil, rose to the equivalent of 5.4 percent of outstanding non-earmarked loans in January, the report said. Last month, the default ratio was the highest since October 2012.

As a result, loan-loss provisions as a share of capital grew among private-sector and foreign lenders, indicating efforts to cushion their balance sheets from the ongoing wave of defaults. Private-sector banks boosted the provision-to-capital ratio to 8.5 percent, the highest level in almost four years.

The São Paulo Stock Exchange's financial index shed 2.8 percent.   Continuación...