State banks boost Brazil lending to help spur growth

SAO PAULO/BRASILIA (Reuters) - Bank lending in Brazil rose in May after state-controlled banks stepped up disbursements to help a struggling government kick-start activity in Latin America's largest economy.

Outstanding loans in Brazil's banking system rose 1.5 percent from April, the central bank said in a report on Tuesday.

President Dilma Rousseff has used state-controlled Banco do Brasil SA <BBAS3.SA> and Caixa Econômica Federal <CEF.UL> to cut credit costs in Brazil - which remain among the world's highest - and to foster competition with private-sector banks.

Banco do Brasil, state development bank BNDES <BNDES.UL> and other state-run lenders boosted credit to companies, individuals and home buyers by an average 28 percent in the 12 months through May, compared with 6 percent at private sector lenders, the report showed.

But credit is failing to expand as quickly as the government wants as the fastest pace of inflation in a year and waning corporate earnings are hampering demand for working capital, auto and revolving credit lines and Brazil's nascent economic recovery takes longer than expected to gain traction.

On an annual basis, state-run banks disbursed loans at a pace five times faster than their private-sector rivals, which have turned more cautious as Brazil's economy enters a third year of sub-par growth.

The central bank upped the forecast for lending growth in Brazil's banking system this year to 15 percent from a prior 14 percent estimate, said Tulio Maciel, who heads the bank's economic research department. The higher estimate reflects increased hopes among policymakers that state banks will spearhead a surge in new credit disbursements through year-end.

Such efforts fueled rapid loan book growth at state-run lenders, which currently control 48 percent of Brazil's outstanding loans but might spark a significant rise in future defaults.

Loans made by commercial banks in Brazil totaled a record 2.49 trillion reais ($1.12 trillion) last month. In the 12 months through May, lending growth slowed to 16.1 percent, the slowest pace since January 2010, according to Thomson Reuters data.

Local private-sector banks have drastically restricted loan origination since the start of the year as deleveraging in risky segments, such as auto financing, has taken longer than expected. As a result, loan delinquencies have held steady for the past three months.

Loans in arrears for 90 days or more, the industry's benchmark gauge for credit delinquencies, were at 5.5 percent of outstanding loans in May, the report added. Loans in arrears between 15 days and 90 days, used to predict future default trends, fell for both corporate and consumer loans last month, the report showed.

(Reporting by Guillermo Parra-Bernal, Luciana Otoni and Alonso Soto; Editing by Gerald E. McCormick and Kenneth Barry)