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Brazil official urges banks to shift lending focus


* Brazil lending market too focused on consumers* Sources of funding are not a concern-official* Comes as gov't presses for lower borrowing costsBy Guillermo Parra-Bernal and Aluisio PereiraSAO PAULO, May 24 Brazilian banks and market participants have for too long funneled funding to consumption-related activities, and a shift toward investment is needed to foster sustainable economic growth, a senior government finance ministry official said on Thursday.

Banks and investment funds are allocating credit and funding to products like payroll-deductible loans that are fundamental to boosting consumer demand but fail to entice investment in fixed assets like roads and ports, said Dyogo Henrique de Oliveira, a deputy executive secretary at the Finance Ministry. Brazil does not have a dearth of access to funds for investment, he said, noting that the problem is where those funds go. His remarks come at a time when President Dilma Rousseff is pressing banks to lower interest rates and broaden their scope to help fund infrastructure and prop up an ailing economy."Our system is in need of some important changes. The money is there; the problem is that that money is making a very short walk," Oliveira told participants at an investment banking seminar in São Paulo.

More than 2.5 trillion reais ($1.22 trillion) of national savings are parked mainly in government debt or equity investments, with a rather narrow focus on long-term funding of infrastructure projects, Oliveira said. Rousseff's government is using state banks to drive borrowing costs lower and spark competition in an industry that has traditionally been Brazil's most profitable. She wants a portion of banks' earnings to be redistributed in the form of more access to long-term funding and lower rates for borrowers.

State development bank BNDES is Brazil's biggest source of long-term corporate credit. Capital markets should be more active, contributing to an increase in supply of funding for investment project, Oliveira added. Usually, investment in infrastructure is seen as riskier than, for instance, consumer loans or equity investments on consumer companies, because the former tends to be more illiquid and the money stays there for many years. Pedro Bastos, chief executive of HSBC Asset Management for Latin America, said at the same event that Brazil needs more flexible rules for long-term infrastructure investment in order to stay competitive with other countries where legislation is more accommodating. He cited the case of Colombia, where legislation eases long-term risks for such types of investments, which makes that market "interesting."Oliveira said the Finance Ministry is considering additional fine-tuning to investment fund rules on compulsory holdings of long-term securities, so investors have an additional incentive to buy securities linked to infrastructure projects. He declined to elaborate.

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