MercoPress. South Atlantic News Agency

Brazil pressing banks to lower loan rates by 30% and increase lending

Brazil's five largest banks on average charge 54.11% per year for personal and corporate loans

Brazilian banks must lower their lending rates by between 30% and 40%, and increase lending, without raising fees, to help spur economic growth, Finance Minister Guido Mantega said in an interview with the Folha de Sao Paulo newspaper.

“In one more month, all of this has to be in due course” Mantega said. “Our intention is to monitor this on a weekly basis. I will demand” he added.

Brazil's government and banks have been involved in a tug-of-war for several months over the reasons behind sky-high bank lending rates in Brazil. While the government argues that banks inflate their costs, as measured by the spread between their borrowing and lending rates, banks argue that high non-payment levels, labour costs and taxes all drive up interest rates.

“If private-sector banks reduce rates 30%, 40% and increase the volume of lending 30%, 40%, they will be providing a service to the economy,” Mantega said.

Central bank data which shows that Brazil's five largest banks on average charge 54.11% per year for personal and corporate loans. A 40% reduction would see that fall to 32.46%, according to the report.

Brazil's central bank has slashed rates by three-and-a-half percentage points since late August 2011, to 9%, and is expected to lower rates again after its next monetary policy meeting on May 29-30.

With regards to bad loans, the government is preparing measures to encourage customers that are late on their payments to catch up, the minister said. Rules currently don't favour repayment of overdue loans, he acknowledged.

Consumers will be able to defer tax payments on debt renegotiated, instead of paying it all in one instalment, Mantega said. The measure will affect defaulted debts of as much as 100,000 Real (50.317 dollars)

Mantega rejected worries that Brazilian families are increasingly indebted, and cannot thus consume as much as they have done in recent years, contributing to the economic woes. He said overall debt levels are among the lowest in the world, with families setting aside around 20% to 22% of monthly income to pay debts, compared to around 80% in the U.S.