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UPDATE 2-Brazil's bank lending delinquency up again despite lending rate decline

(Adds comments from central bank official in paragraphs 6-7)

BRASILIA, Aug 28 (Reuters) - Brazil's non-earmarked credit default rate rose to 5% in July, reaching its highest level since January 2018 despite a minor decrease in bank lending rates as well as a government-initiated debt renegotiation incentive program.

A broad gauge of default rates, encompassing both individual borrowers and businesses, climbed from 4.9% in June and 3.8% in the same period last year, central bank data showed on Monday.

In mid-July, the government launched the first phase of a broad consumer debt renegotiation program called "Desenrola Brasil," in which banks began providing consumers with the chance to directly renegotiate their debts.

In return, the government granted regulatory incentives to boost the banks' credit availability.

The rise in the delinquency rate occurred despite the implementation of the program and a marginal dip in the average interest rate for non-earmarked credit, which reached 44.3% annually in July compared with 44.6% in the prior month.

Fernando Rocha, the head of the statistics department at the central bank, said the delinquency increase reflects the effects within a specific credit line that has been affected since April by the high-profile bankruptcy of retailer Americanas in January, which brought to light 20 billion reais ($4 billion) in accounting fraud.

Rocha said the Desenrola program encompasses "a considerable number of operations with small individual values" in comparison to the Americanas event. He also added that the program might be helping to reduce delinquency rates in other credit lines.

The central bank kicked off a monetary easing cycle in August, slashing its benchmark rate by 50 basis points to 13.25%, following nearly a year of stable rates aimed at curbing inflation.

Bank lending spreads saw a minor contraction to 33.0 percentage points in July, down from 33.1 percentage points in June.

Reflecting the more challenging credit environment, total outstanding loans in Brazil experienced a 0.2% decline in June from the previous month, amounting to 5.405 trillion reais ($1.11 trillion).

This decline was primarily driven by reduced lending to businesses, the central bank said.

Over the past year, the expansion of loans continued to decelerate, reaching 8.2%, which was down from June's 9.2% figure. ($1 = 4.8957 reais) (Reporting by Marcela Ayres; Editing by Alex Richardson and Paul Simao)

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