Brazil eases capital rules to prevent credit squeeze

SAO PAULO, Nov 12 (Reuters): Brazil's central bank Friday allowed banks to set aside less capital for some consumer loans of up to five years, seeking to protect local credit markets from the impact of global financial turmoil. Policy-makers lowered the so-called risk factor by which lenders calculate the capital necessary to originate payroll-deductible, auto and other consumer loans to a range of 75 per cent to 100 per cent from a previous range of 100 per cent to 150 per cent. For similar loans with longer maturities, the factor was raised to 300 per cent, the bank said in a statement. The bank kept unaltered a rule that sets the minimum monthly payment for credit-card purchases at 15 per cent of the total value. The measures come after policy-makers began discussions this week over the partial or full removal of restrictions on bank lending -- which at the time were dubbed as macroprudential measures -- as the situation in Europe deteriorated. Latin America's largest economy, which expanded last year at the fastest pace in a quarter century partly because of a consumer credit boom, is slowing rapidly with demand for credit falling. One source familiar with the situation told the reporter Friday that additional measures, including the elimination of the IOF transactions tax on stock trading, are under study. The source, who declined to be quoted by name because of the issue's sensitivity, said that Friday's measures have an impact similar to that of a reduction in interest rates. The decision marks a reversal in policy and underscores worries by the central bank and the government that the escalation of a sovereign debt crisis in Europe could reduce liquidity and freeze Brazil's credit market. Early this year, the central bank hiked reserve and capital requirements on certain types of consumer credit and hiked taxes on some type of loans to individuals to slow red-hot growth in lending. At the time, the bank said the move could help it fight a jump in consumer prices, which have been rising since April at the fastest pace in six years.