Reuters: Regulatory News: Itaú questions Brazil govt push to cut loan costs-report

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Itaú questions Brazil govt push to cut loan costs-report Jun 15th 2012, 12:15 SAO PAULO, June 15 | Fri Jun 15, 2012 8:15am EDT SAO PAULO, June 15 (Reuters) - A senior executive at Brazil's largest private sector bank said government pressure on the industry to cut borrowing costs may be coming at an inopportune time as a spike in loan defaults and slower economic growth risks lead to a deterioration in the quality of loan books, a local newspaper reported on Friday. Alfredo Egydio Setúbal, a senior vice president for investor relations at Itaú Unibanco Holding, said at an event that efforts to lower local interest rates are beneficial for the country, O Estado de S. Paulo reported. The problem, he added, lies in the way the debate is being conducted and the timing of it. "No one has any doubt that the government is right to foster this debate," Estado quoted Setúbal, a member of one of the families that controls Itaú Unibanco, as saying. Since April, Brazilian President Dilma Rousseff has demanded private-sector banks bolster lending and cut rates to help kick-start Latin America's largest economy. The Rousseff administration is using state banks to drive rates lower and spark competition in a sector that has traditionally been Brazil's most profitable. She wants a portion of bank earnings to be redistributed in the form of more access to long-term funding and lower lending rates. The risk of that strategy, according to analysts, is that private banks could be forced to assume a less prudent stance on lending to protect market share just as defaults creep up and Brazil's economy struggles to regain momentum. The executive added that recent discussions between the government and banks on the matter took place in a "less tense fashion," Estado reported. Setúbal also criticized the way the central bank calculates the spread -- what banks charge borrowers in excess of what they pay to depositors -- which is also the main component of their profits, the newspaper said, without elaborating. Link this Share this Digg this Email Reprints

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