July 29, 2020 / 2:02 PM / 7 days ago

UPDATE 1-Brazil bank lending spreads shrink to lowest since 2014, default ratios fall

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By Jamie McGeever

BRASILIA, July 29 (Reuters) - Bank lending spreads in Brazil shrank to their lowest in over six years and default ratios hit a 2020 low in June, figures showed on Wednesday, a sign that the central bank’s emergency measures to boost the availability of credit are paying off.

The data suggest pressure on household finances from the economic downturn and deteriorating labor market is easing, after appearing to intensify in recent months even as the availability of credit increased and the cost of borrowing fell.

A broad measure of bank lending spreads fell to 23.4 percentage points in June from 24.7 percentage points in May, the central bank said. That was the lowest since January 2014, and sharply lower than 29 percentage points in February just before the onset of the COVID-19 pandemic.

A broad 90-day default ratio covering households and businesses fell to 3.7% in June from 4.0% in May, the central bank said, marking the lowest level this year.

Perhaps significantly for policymakers, measures of household defaults, which had remained stubbornly high or were rising in recent months, also fell in June to their lowest since the crisis erupted.

The 90-day default ratio for personal credit fell to 3.7% from a three-year high of 3.9% in May. Total household loan defaults, including borrowing such as auto loans and overdrafts, fell to 5.25% from 5.55%, the lowest since February.

Some recent employment indicators have been more upbeat than expected, although the underlying health of the labor market remains fragile. Consumer confidence continues to recover from the historic lows of March and April, but worries over personal finances and job prospects still loom large.

The stock of outstanding loans in Brazil rose 0.8% in June to 3.6 trillion reais ($706 billion), mainly due to a rise in corporate loans, including those to small businesses, the central bank said. ($1 = 5.1350 reais) (Reporting by Jamie McGeever and Marcela Ayres Writing by Jamie McGeever Editing by Louise Heavens and Jonathan Oatis)

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