Analysts: Lending to grow 18-20% this year

Brazil's financial system is likely to see nominal loan growth of between 18% and 20% this year compared to 2003, international and local analysts told BNamericas. Total loans in Brazil's financial system stood at 423bn reais (US$135bn) at the end of April, up 13% on the end of the same month in 2003, the Brazilian central bank said in report at the end of May. Analysts expect loan growth to accelerate during the second half of the year. Loan growth will be driven mainly by consumer lending and loans issued to small and medium-sized enterprises this year, Deutsche Ixe analyst Mario Pierry said. The corporate segment will be a laggard in terms of loan growth because today large companies in Brazil can fund themselves at better rates on the domestic and international capital markets, he pointed out. The recovery this year of the Brazilian economy will have a positive impact on the consumer finance and SME segments, UBS Warburg analyst Bruno Pereira added. UBS Warburg expects the Brazilian economy to grow above 3% this year and Brazilian banking association Febraban estimates annual GDP growth at 3.5%. All of Brazil's three largest private sector banks Bradesco (NYSE: BBD), Itau (NYSE: ITU) and Unibanco (NYSE: UBB) said in their respective first quarter conference calls they would increase their focus on lending to individuals and small businesses this year. Pereira said that that interest rates are falling in Brazil and that will "trigger increased loan demand in a number of segments," Consumer lending and auto financing are set to see the biggest boost from the lower lending rates this year, he said. Last year the average interest rate in Brazil stood at 25% and this year it should fall to around 15% at year-end, Pereira said. According to Febraban, lending will be one of the two main drivers of GDP growth this year together with strong growth in exports. The association's export forecast this year is bullish at 82.2bn reais, compared to the 73.1bn reais registered last year. The increase in exports is also set to have a positive impact on Brazilian banks' loans to local exporters to finance the increasing flow of foreign trade, a Wall Street-based analyst said. The federal government has been very pro-active in seeking to open doors for Brazilian exporters in fast-growing emerging markets like China and India and parts of Brazil's banking sector has moved fast to increase links with those countries to provide better services to local exporters eyeing those markets, the analyst pointed out.