Brazil Outstanding Loans Grow at Slowest Annual Pace in 10 Years

Brazil’s outstanding loans grew in July at the slowest annual pace since March 2004, as the central bank continues to lower capital requirements to stimulate lending.

Bank lending rose 11.4 percent to 2.8 trillion reais ($1.2 trillion) in the 12 months through July, the central bank said in a report distributed today in Brasilia. Lending increased 0.2 percent from the previous month after climbing 0.9 percent in June.

President Dilma Rousseff’s administration is freeing up billions of dollars in credit as analysts expect the economy to grow at the slowest pace since the 2009 crisis. The central bank last week cut capital requirements for the second time in a month, saying the measure will better distribute liquidity. Policy makers have also indicated they will hold the key rate at the highest level in more than two years as inflation hovers near the top of their target range.

Swap rates on the contract due in January 2017, the most traded in Sao Paulo today, fell three basis points, or 0.03 percentage point, to 11.34 percent at 10:47 a.m. local time. The real strengthened by 0.6 percent to 2.2757 per U.S. dollar.

The central bank on Aug. 20 announced steps to boost lending by as much as 150 billion reais ($66 billion), saying those measures would ease credit restrictions without fueling inflation. Finance Minister Guido Mantega said later that day the government would allow banks to sell tax-exempt covered bonds to stimulate the housing market.

Loan Book

Itau Unibanco Holding SA (ITUB4) is one of the banks that has seen slower-than-expected loan growth. The company’s loan book expanded by 9 percent in the second quarter, slower than its February forecast for 2014 lending growth, which was a range of 10 percent to 13 percent.

Gross domestic product shrank by 0.4 percent in the second quarter in the biggest quarterly contraction since 2009, according to the median estimate from 29 economists surveyed by Bloomberg. Brazil’s statistics agency will publish GDP data for the second quarter on Aug. 29.

Economists surveyed by the central bank expect the world’s second-largest emerging market to expand by 0.7 percent this year. That would be less than a third the pace of last year’s growth.

The consumer default rate rose to 6.6 percent from 6.5 percent in June, the central bank said in today’s report. The average interest charged on loans was 32.3 percent in July, compared with 32 percent in June, while corporate financing costs rose to 23.1 percent from a 22.6 percent in June.

Benchmark Rate

The central bank kept the benchmark interest rate unchanged at 11 percent in its last two meetings after lifting it by 375 basis points in nine straight meetings through April. That was the world’s longest tightening cycle at the time.

Consumer price increases in the year through mid-August reached 6.49 percent, marking the first deceleration in seven months, the national statistics agency said on Aug. 20. Brazil’s central bank targets annual inflation at 4.5 percent, plus or minus two percentage points.

Prices will slow to target if borrowing costs are kept steady, central bank President Alexandre Tombini told a Senate hearing on Aug. 5. Inflation is under control and will end this year within the official target range, he said.

To contact the reporters on this story: Matthew Malinowski in Brasilia at mmalinowski@bloomberg.net; Mario Sergio Lima in Brasilia Newsroom at mlima11@bloomberg.net

To contact the editors responsible for this story: Andre Soliani at asoliani@bloomberg.net Harry Maurer

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