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Brazil Outstanding Loans Rose at Second-Fastest Pace of Year

Brazilian bank lending rose at the second-fastest pace this year in November as banks charged the lowest lending rate in nine months after the central bank cut borrowing costs.

Outstanding credit climbed 1.9 percent last month to 1.98 trillion reais ($1.07 trillion), led by an increase in lending to companies, the central bank said in a report distributed today in Brasilia. The average rate banks charged for loans fell to 38.5 percent, the lowest level since February, spurring demand for credit.

“At the central bank there’s a commitment to the policy of cutting rates and that gets transmitted through a lower cost of credit,” said Luciano Rostagno, chief strategist at Banco WestLB do Brasil SA in Sao Paulo. “Even with the slowdown you have companies with investments that take a while, and they need financing.”

President Dilma Rousseff’s government is trying to reinvigorate Brazil’s economy as Europe’s debt crisis deepens with a mix of tax cuts, interest rate reductions and looser bank lending requirements. The central bank last month unwound most of the credit curbs that it imposed last December on auto loans, personal loans and payroll loans in a bid to revive credit growth as economic growth stalled in the third quarter.

As growth slows, the central bank expects credit expansion of 17.5 percent this year and 15 percent in 2012, said Tulio Maciel, the head of the central bank’s economic research department, told reporters in Brasilia.

Interest Rates

The average interest rate charged on consumer loans was 44.7 percent, down from 47.1 percent in October, the central bank said. The average rate on company loans was unchanged at 29.8 percent, according to the report.

Total loans in November rose 18.2 percent from a year earlier, led by a 46 percent jump in mortgage credit. Consumer bank lending, not including mortgages, grew at half the rate of total lending in November, expanding 0.8 percent to 626 billion reais, according to the report. Consumer credit grew 16 percent in the past 12 months.

Consumer demand for credit is easing as job creation slows and Brazilians spend more money on debt they’ve already taken on. The proportion of family incomes used for debt service rose to a record 22.2 percent, according to the central bank. In the U.S., the ratio of household debt payments to personal income was 16.09 percent, according to the Federal Reserve.

Rate Cuts

Gross domestic product shrank 0.04 percent in the third quarter from the previous three months, the first such contraction since the first quarter of 2009.

Bank loan defaults, measured by payments overdue for more than 90 days, rose to 5.6 percent, its highest level since November 2009, the report shows. Consumer loan defaults jumped to 7.3 percent in November from 7.1 percent in the previous month, while corporate loan defaults stayed at 4 percent.

Central bank President Alexandre Tombini last month cut the key interest rate for a third straight meeting, pushing it to 11 percent, to shore up economic growth even as inflation stayed above the target range. President Rousseff said the country will target growth of 5 percent next year, and is ready to use lower borrowing costs to stimulate growth instead of more government spending.

“Developed nations have interest rates close to zero,” Rousseff told reporters in Brasilia on Dec. 16. “We have a room for maneuver that they don’t.”

Traders are wagering that policy makers will cut the benchmark interest rate to 9.75 percent by May, according to Bloomberg estimates based on interest rate futures contracts.

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