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Strategies & Market Trends : Telebras (TBH) & Brazil -- Ignore unavailable to you. Want to Upgrade?

To: Steve Fancy who wrote (15391)	5/19/1999 11:13:00 AM
From: wl9839	Read Replies (1) \| Respond to of 22640

Brazil Banks Beginning to Lend Again as Govt Extends Cuts Sao Paulo, May 19 (Bloomberg) -- Brazil's biggest banks are beginning to pass on to companies and consumers the benefit of a two-month-long string of interest rate cuts that almost halved their benchmark borrowing costs. The trickle of credit as banks step up their own borrowing in international markets could help bolster economic recovery in the second half of the year, investors said. The latest step in the revival is expected later today as central bank policymakers are likely to cut interest rates for the seventh time since March 24. The committee could cut the benchmark overnight rate to 23 percent, from 27 percent, economists said. ''There has been a slight increase in lending,'' said Antonio Bornia, vice-president at Banco Bradesco SA, Latin America's biggest non-government bank. In an economy where most companies still borrow in dollars because of exorbitant local borrowing costs, it may not take much for the interest rate cuts to bolster sales for companies such as Brasmotor SA, the local unit of Whirlpool Corp. that makes most of the country's appliances. Brazil's gross domestic product grew 1 percent in the first quarter of 1999 compared with the previous quarter, according to the Brazilian Geography and Statistics Institute, the IBGE, defying expectations. The economy contracted 1 percent over the year ago period. The rate cuts and surprising rebound in the first quarter prompted Merrill Lynch & Co. to revise its forecast for Brazil, predicting the economy will shrink by 0.6 percent during the year, compared with its earlier estimate of a 3.5 percent contraction. Rates Cuts Banks are nudging the recovery. Bradesco shaved its monthly rate on personal loans to 5.5 percent from 6.5 percent in March. That's in line with rates two years ago, when inflation was close to current levels. Lloyd's Bank Plc's local unit charged 6 percent a month in January 1997. Still, at 90 percent a year, the current lending rate remains more than 80 percentage points above inflation. ''It doesn't make sense to borrow'' at these rates, said Osvaldo Schirmer, chief financial officer at Gerdau SA, Brazil's biggest maker of long-rolled steel which has 600 million reais of dollar debt and posted 22.1 million reais in foreign exchange losses from the devaluation. Many banks have matched Bradesco's rate cut moves in recent days. They include Banco Itau SA, Uniao dos Bancos Brasileiros SA and the state-run Caixa Economica Federal and Banco do Brasil. Central bank president Arminio Fraga and his policymaking committee could cut benchmark rates again, which should lead to further rate cuts at the commercial banks. The move is the bank's attempt to pull the economy out of a nine-month recession and reverse a swelling in the jobless rate. The rate was 45 percent after the devaluation. A rate cut would also ease the financial burden of the government's 470 billion reais domestic debt, two- thirds of which is tied to the overnight rate. Easing Inflation Fraga has the room to cut. Inflation slowed in April to an annualized rate of about 6 percent and capital inflows have steadied the currency at around 1.66 reais to the dollar. What's more, investors are anticipating lower rates as they bid overnight loan contracts for August delivery to below 21 percent. The overnight spot rate fell to 23.1 percent today, from 25.87 percent. ''I don't see anything stopping him from cutting rates,'' said Carl Ross, who heads Latin American research at Bear, Stearns & Co in New York. ''He should cut rates as much as he dares.'' Cutting rates may not be enough to spark a rally in consumer lending, as borrowing costs remain high and credit tight. Brazilian banks have high reserve requirements, giving them less money to lend. Banks are currently required to keep back as much as 75 percent of cash deposited in checking accounts as reserves. There's plenty of pent-up consumer demand for these banks to tap into if they get rates low enough. Amadeu Caetano, an unemployed engineer decided to buy a new refrigerator last month. After eyeing interest rates, he passed on getting financing for it and instead will put down the 1,500 reais ($903) in cash. ''It's a pretty simple choice. I'm going to pay in one go,'' he said. ''Interest rates are still very high.'' Not many Brazilians have that kind of cash though. In a country where the average monthly salary is about $300, most consumers must spread their payments over months to buy big- ticket items such as cars or washing-machines. If Caetano opted to pay over the maximum 15 months, he would be lumbered with an interest rate of more than 200 percent a year. ''These rates are almost insane, they're madness,'' said Paulo Stewart, president of the Brazilian Supermarket Association. ''Cutting rates will certainly help (the retail industry), just so long as they feed through to consumers.'' ------------------------------------------------------------------------ © Copyright 1999, Bloomberg L.P. All Rights Reserved.