April 26, 2017 / 3:23 PM / a year ago

UPDATE 1-Brazil defaults rise in March, first gain in seven months

(Adds details, share performance throughout)

By Guillermo Parra-Bernal and Silvio Cascione

SAO PAULO/BRASILIA, April 26 (Reuters) - Brazilian loan defaults rose in March for the first time in seven months, the central bank said on Wednesday, a sign of caution as corporate borrowers in Latin America’s largest economy struggle with the impact of a three-year recession.

Loans in arrears for 90 days or more, a benchmark for delinquencies, rose to the equivalent of 5.7 percent of outstanding non-earmarked credit last month, from 5.6 percent in February, the central bank said in a report. The increase in the default ratio came despite higher loan disbursements in March.

Delinquencies climbed most at state banks, which account for almost 56 percent of lending. The corporate loan default ratio rose the most in at least 1-1/2 years, climbing to 5.6 percent from 5.2 percent in February, the report said.

Loan-loss provisions averaged the equivalent of 6.76 percent of Brazil’s outstanding bank loans last month, below 6.86 percent in February but above 6 percent in March 2016, the report added.

The situation probably means that recent reductions in Brazil’s benchmark Selic overnight lending rate have yet to reach borrowers, who have been engaged in heavy refinancing efforts with banks over the past year. Spreads, or the difference between bank lending rates and the Selic, eased in March for the first month in three.

“Credit conditions should remain somewhat exigent but start to gradually ease supported by the tentative signs of economic stabilization and the central bank’s front-loaded rate easing cycle,” said Alberto Ramos, chief Latin America economist with Goldman Sachs Group Inc.

Corporate loan disbursements fell 0.3 percent last month, bucking an increase in lending for individuals, the central bank said.

Outstanding bank loans in Brazil totaled 3.076 trillion reais ($966 billion) at the end of March, down 2.7 percent from the same month a year earlier. The central bank estimates 2 percent growth for outstanding bank loans this year.

$1 = 3.1841 reais Editing by Chizu Nomiyama and James Dalgleish

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