Lending in Brazil shrinks in Oct at peak of crisis

Tue Nov 25, 2008 2:08pm EST
By Isabel Versiani
BRASILIA, Nov 25 (Reuters) - Bank lending in Brazil contracted in October as the global financial crisis wreaked havoc on Latin America's largest economy, but the central bank said on Tuesday the credit market is already rebounding.
In an effort to stave off further impact from a global credit squeeze that had shaken Brazilian stock and currency markets in recent months, the central bank took a series of steps to pump liquidity into the economy.
Finance Minister Guido Mantega said on Monday that credit conditions in Brazil had improved significantly in November following the government's steps to shore up lending.
Measures included a reduction in bank reserve requirements and additional credit lines for auto loans, among others.
Mantega said availability of credit had returned to about 80 percent of what it was before the current financial crisis.
Still, the amount of new bank loans fell by 3 percent in October to 157.3 billion reais ($68.1 billion) from the previous month, the central bank said, as a 2.5-percentage-point rise in average interest rates and shorter maturities kept both consumers and companies away.
This contrasted with a 10 percent increase in lending in September from August.
But the drop in October was milder than some had expected and the central bank was already forecasting a recovery in the availability of credit in November.
"In times of crisis, everyone becomes more conservative," said Altamir Lopes, head of the central bank's economics department, adding that credit conditions were improving.
"We can't say ... we have returned to the pre-crisis status, but we are very close to it," said Lopes, who was speaking at a news conference in Brasilia.
Lopes told reporters partial figures for November showed lending was bouncing back, with new loans up 5.7 percent during the first 12 days of the month compared to the same period in October.
The stock of outstanding loans was still up 2.9 percent over September at 1.19 trillion reais, or 40.2 percent of gross domestic product.
Over the past 12 months the total of outstanding loans has grown by 34.6 percent, helping Brazil's economy grow by more than 5 percent on an annualized basis.
"The overall credit picture for October was not as dire as initially thought, particularly when taking into account the intensification of the global financial crisis in October and the distress generated in the local market by corporate sector losses with derivative financial instruments," said Goldman Sachs in a research note.
"While overall credit to the economy is still recording very high year-on-year rates of expansion, new credit origination has been gradually cooling off."
But Lopes said interest rates on consumer loans during that November period were up by 5 percentage points to 59.8 percent annually. Brazil has some of the highest interest rates of any major economy in the world.
($1=2.31 reais)
(Writing by Ana Nicolaci da Costa; Editing by Diane Craft)