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Brazils government said on Thursday it would increase its support for small- and medium-sized banks in its latest bid to boost lending in local markets squeezed by the global credit crunch. The national monetary council agreed to offer guarantees of up to 5 billion reais ($2.23 billion) on certificates of deposits for the banks.
Central Bank President Henrique Meirelles told a news conference he expects banks will issue around 50 billion reais in certificates of deposit, but if all eligible banks use the guarantees, the program could reach 170 billion reais.
"This program aims to give small and specialised banks the condition to resume competing aggressively in markets, helping to lower lending spreads," Meirelles said. Central bank data on Thursday showed lending spreads, the difference between the rates banks borrow and those they charge customers, fell slightly to 29.7 percentage points in February from 30.5 percentage points in January.
Last year, the government had already launched a series of incentives for large financial firms to buy the credit portfolios of smaller banks that had been hit hard by the liquidity crunch in global credit markets. But there are signs that liquidity is getting tight.
Lending in Brazil fell for a second month in a row in February as default rates rose, prompting the central bank to cut its forecast for loan growth in 2009. Consolidation in Brazils banking sector intensified last year, with Itau, the countrys second-largest private sector bank, taking over smaller rival Unibanco to form the largest firm in Latin America by assets.

Copyright Reuters, 2009

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