By Luciana Otoni and Guillermo Parra-Bernal
BRASILIA/SAO PAULO, Sept 27 (Reuters) - Brazil's private-sector banks will keep slowing the pace of new loan disbursements through the end of the year, the central bank said on Friday, a sign that an approach to avoiding risky lending will stretch for a longer period than previously thought.
The central bank cut the estimate for loan book growth among domestic non-government lenders to 6 percent from a prior 10 percent forecast. Likewise, it lowered the same estimate for foreign lenders operating in the country to 7 percent from 8 percent previously.
Disbursements at state-run lenders will rise 24 percent, faster than the prior 22 percent estimate, Tulio Maciel, the central bank's head of economic research, said in Brasilia. President Dilma Rousseff has used state development bank BNDES, Banco do Brasil SA and Caixa Econômica Federal to cut credit costs in Brazil - which remain among the world's highest - and to foster competition with private banks.
Private sector banks, led by Itaú Unibanco Holding SA , have drastically restricted new lending over the past year while reducing exposure to risky segments such as auto financing. On an annual basis, government banks disbursed new loans at a pace five times faster than their private-sector rivals.
"The growth in disbursements is moderate, shows more moderation than in previous years," Maciel said, who kept unchanged a forecast for overall lending growth in Brazil's banking system by an average 15 percent.
Despite the aggressiveness of government banks, credit in Latin America's largest economy is failing to expand as quickly as the government wants as high inflation rates and waning corporate earnings are hampering demand for working capital, auto and revolving credit lines and Brazil's nascent economic recovery takes longer than expected to gain traction.
The newfound caution of private sector lenders is leading to improved operational performance even as demand for credit remained weak. For Banco Bradesco SA and Banco Santander Brasil SA - Itaú's smaller rivals - defaults declined significantly in the second quarter and, more importantly, executives beckoned the new level appears sustainable.
Outstanding loans in Brazil's banking system rose 1.3 percent in August from July, the central bank said in a report released earlier on Friday. Disbursements at private-sector banks rose about 6 percent in the 12 months through August, compared with 28 percent at state-run lenders, the report added.
The annual pace of growth in earmarked loans, or credit aimed at encouraging investment for homebuilding purposes in accordance with government policies, accelerated to 27.2 percent in the 12 months through August, up from 21 percent at the start of the year.
Non earmarked loans, or the portion of freely allocated loans in Brazil's banking system, rose 8.8 percent in the 12 months through August, down from 9.2 percent in July and about 14 percent in December.
Loans in arrears for 90 days or more, the industry's benchmark gauge for credit delinquencies, were at 5.1 percent of outstanding loans in August, down from 5.2 percent in July, the report showed.
In particular, defaults between 15 days and 90 days, a gauge of the future behavior of delinquencies, posted a substantial drop among consumers, "which tends to pave the way for the seasonal personal loans higher expansion by the end of the year," Credit Suisse Securities economists led by Nilson Teixeira wrote in a note.
Rousseff's push has fueled rapid loan growth at state-run lenders, which now hold more than 50 percent of Brazil's outstanding loans, without a significant increase in delinquencies.
Analysts say part of that is because state-run lenders have increased the size of their loan books more rapidly than the rest of the system, diluting the impact of overdue credit on the default ratio.
State-run lenders have the lowest default ratios in Brazil's banking system. The lowest delinquency rate among commercial banks belongs to Banco do Brasil, at 2 percent of outstanding loans.
Defaults fell despite an increase in the cost of borrowing, the report showed. The average lending rate rose 0.2 percentage point to 19.3 percent in August, with rates on loans to individuals up 0.1 point to 25.2 percent. Corporate lending rates rose 0.3 point to an average 14.7 percent.
Spreads, or the difference between the rate at which banks lend money and funding costs, declined by 0.1 percentage point in August to 11.3 percent - basically after funding costs rose in the wake of the central bank's decision to raise the overnight interest rate to head off inflation.