Brazil BNDES sees private bank lending picking up

State development bank BNDES, Brazil’s main source of long-term corporate credit, expects private banks to increase lending this year, taking up some of the slack they left at the height of the worst meltdown in credit markets in decades, its president said on Thursday.

BNDES, which provided two of every five reais of domestic credit during last year’s recession after lending dried up, will this year focus more on boosting productive capacity rather than increasing total loans, Luciano Coutinho told reporters in Rio de Janeiro.

By stepping aside, BNDES is seeking to open space for private capital to help stimulate investment, seen as the key to pave the way for sustainable growth in the long run.

The bank reduced its expected outlays for this year compared to last year on expectations of greater private lending, Coutinho added.

“Our projection is that in 2010 the bank will disburse less than in 2009, and I hope that capital markets and credit markets will help the BNDES support investment,” he told reporters.

He said the bank has not made any changes to its recent estimate that it would lend 126 billion reais ($69.1 billion) this year.

When markets unraveled late in 2008, President Luiz Inacio Lula da Silva instructed BNDES to shore up debt-laden firms and foster mergers among those facing bankruptcy, easing fears of mass layoffs and company defaults in Latin America’s largest economy.

But critics including former central bank president Arminio Fraga say that with the worst of the global financial crisis over, BNDES should scale down lending so that private capital markets have space to grow again.

The Rio de Janeiro-based bank said in a statement that net income rose to 6.7 billion reais in 2009 from 5.3 billion in 2008 due to an increase in loans, an increase in dividends paid to its BNDESPar investment holding company and a decline in provisions for lawsuits.

Yet gross profit tumbled 74 percent to 1.2 billion reais last year after the Brazil state-run development bank failed to divest investments following a slow start of 2009 in domestic equity markets.