Aug. 5 (Bloomberg) -- Banco Bradesco SA and Banco Mercantil do Brasil won the rights to handle the most new social-security payments in a Brazilian government auction of contracts to process more than 377,000 new pension benefits a month.

They were among 10 banks that bid in an auction today in Brasilia for the right to disburse social security to recent retirees for a term of 20 years as lenders seek more clients to compensate for a decline in profitability. In June, 384,000 new benefits were paid totaling 275 million reais ($151.6 million), a Social Security Ministry press official said.

“It’s a valuable asset as the banks will have access to a large amount of data,” said Persio Nogueira, an analyst with Planner Corretora de Valores in Sao Paulo. “With interest rates coming down, banks need to gain scale to maintain margins. This is a way to boost the number of clients.”

Profit margins of Brazilian banks are falling after monetary policy makers slashed the benchmark interest rate to a record low of 8.75 percent to pull Latin America’s largest economy out of a recession.

The government auctioned the rights to 17 regions today and will sell contracts for the remaining nine areas tomorrow, the ministry said. Each winner will have the sole rights to pay so- called INSS benefits to new pensioners in a particular region, Roberto Trindade, the auctioneer for the ministry, told reporters in Brasilia.

Bradesco Leads Bidding

Bradesco, the country’s second-largest non-government bank, won the rights for five regions, with an estimated 65,267 new benefits each month. The lender bid 2.06 reais for each of the 22,983 benefits Sao Paulo is expected to pay out a month.

Bradesco will also have access to 10,954 new benefits paid each month in the north after offering 11 centavos each. For the Alagoas and Sergipe region, Bradesco offered to pay 38 centavos per benefit. This region receives 8,723 new benefits every month. In Mato Grosso and Mato Grosso do Sul, Bradesco will process 9,484 new benefits a month, paying 56 centavos to the government. In the countryside of Bahia state, Bradesco won the right for 13,123 new benefits after offering 17 centavos.

Mercantil’s Rights

Banco Mercantil also won rights in five regions, with a total of 107,690 new benefits a month. Mercantil offered to pay 2.41 reais for the Sao Paulo metropolitan area, with 27,354 new benefits per month. The lowest winning offer by Mercantil was 1.62 reais for cities in the eastern part of Sao Paulo state, with an estimated 16,878 new benefits each month.

Itau Unibanco Holding SA, Brazil’s largest bank, won Goias state and the Federal District, with an estimated 13,116 new benefits, for 1.31 reais each. It also was awarded the countryside of Rio de Janeiro state after offering 1.72 reais and Parana state, for 2.70 reais. In total, Itau’s regions have an estimated 53,266 new benefits each month.

The banks have until mid-August to appeal the auction results, Trindade said.

Banco Santander Brasil SA took two regions with a total 24,001 new benefits each month. Banco do Estado do Rio Grande do Sul won two regions in the South with 31,254 new benefits per month.

Other lenders taking part were government-controlled Caixa Economica Federal, Banco Cooperativo Sicred SA, Banco Cooperativo do Brasil SA and Banco da Amazonia SA.

To contact the reporters on this story: Katia Cortes in Brasilia at kcortes@bloomberg.net; Telma Marotto in Sao Paulo at tmarotto1@bloomberg.net

Last Updated: August 5, 2009 18:09 EDT