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Provision levels for payroll-backed credit card ops raised in Brazil

The new bank risk-provision requirement will be raised to 150 percent from 75 percent. The requirement is similar to rules established for other types of payroll-backed loans in late 2010.

The bank said the move was aimed at discouraging “long-term payroll-backed credit card financing and preserving the prudential objectives of regulation,” according to the Wall Street Journal.

Payroll-deductible loans have developed faster than other forms of loans because they offer less default risk for lenders, according to Reuters.

The bank also raised bank reserve requirements recently and imposed restrictions on long-term credit operations.

Brazil's total lending volume at the end of May reached $1.13 trillion, a 20.4 percent increase over the previous 12 months, according to the Wall Street Journal. Brazilian credit card loans represent about seven percent of outstanding non-government-mandated credit to individual borrowers.

The bank was forced to raise the country’s reference Selic interest rate after the country’s 12 month IPCA consumer price index inflation recently topped the 6.5 upper band of the government’s annual inflation, the Wall Street Journal reports.

In order to slow inflation, Brazil’s reference Selic interest rate was raised by the central bank’s monetary policy committee by 1.5 percentage points since December to 12.25 percent.

The committee will meet again Wednesday to discuss whether or not to raise the rate further. 

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