(Adds comments, details on credit market trends throughout)
By Guillermo Parra-Bernal and Marcela Ayres
SAO PAULO/BRASILIA, June 28 (Reuters) - Loan defaults in Brazil hit a fresh record in May, the latest evidence that the country’s harshest recession ever and fallout from a wave of corruption probes have significantly hampered the ability of corporate borrowers to stay current on their debt.
Loans in arrears for at least 90 days rose to the equivalent of 5.9 percent of non-earmarked, outstanding loans in May from 5.7 percent in April, the central bank said in a report. The number hit the highest since October and bucked two months of stable delinquency readings.
Corporate defaults reflect the impact of protracted debt restructurings that have extended for over two years. However, defaults between 15 days and 90 days fell for consumers and companies alike, a sign banks are racing to fix problematic loans earlier than usual.
The numbers suggest that banks may not lower loan-loss provisions as much as expected this year, as a wave of plea deals involving large borrowers looms. Shares of Brazil’s largest lenders fell on Wednesday.
Loan book quality has suffered in the face of Brazil’s recession and “Operation Car Wash,” a probe into corruption at state firms. Firms ensnared in Car Wash have negotiated with creditors to get debt relief as their revenue falter.
In a recent client note, JPMorgan Securities analyst Natalia Corfield had warned that a weak recovery could delay banks’ efforts to bolster loan book quality. Lenders have wrestled with all-time high provisions since Brazil slumped into a deep recession almost three years ago.
Lenders could feel the pinch of hefty fines imposed on some clients seeking Car Wash-related plea bargains and leniency deals, Corfield said.
The latest of them is J&F Investimentos SA, the holding company overseeing the investments of Brazil’s billionaire Batista family - including a 42 percent stake in JBS SA , the world’s largest meatpacker.
The Batistas are in talks with banks over refinancing 30 billion reais of debt at J&F and JBS, people told Reuters this month.
Outstanding loans totaled 3.065 trillion reais ($926 billion) in May, down 0.2 percent from the prior month and 2.6 percent over the past 12 months, the report showed.
A year ago, the default ratio was 5.8 percent. A succession of central bank interest-rate reductions, fueled by slowing inflation, led commercial lenders to cut the cost of borrowing to an annual average 46.8 percent, the report showed.
$1 = 3.3114 reais Reporting by Marcela Ayres and Guillermo Parra-Bernal; Editing by Chizu Nomiyama, Bernard Orr