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Banco do Brasil expects borrowing costs to decline in state-run banks

Banco do Brasil SA CEO Paulo Rogerio Caffarelli said the Brazilian government has not pushed state-run lenders to lower their spread, but borrowing costs will probably decline as the central bank continues to cut its benchmark Selic rate, Reuters reported.

"There is a predisposition in the financial sector to follow the drop in the Selic," the executive told reporters.

Caffarelli said the lender aims to increase its loan spread to compete with private banks, and the target can be achieved by cutting costs while not necessarily raising costs for the final borrower. "There is no pressure to lead the drop in interest rates," Caffarelli noted. "That wasn't correct in the past and we need to look forward and be consistent. We can't improvise anymore."

State-run banks Banco do Brasil, Caixa Econômica Federal and Banco Nacional de Desenvolvimento Econômico e Social have previously been instrumental in supporting the country's economy by cutting rates and increasing loan offers.

The executive noted that banks will lower rates in line with the Selic, which is forecast to drop in 2017.

Caffarelli also mentioned that the lender will boost profitability by expanding its loan book while the economy recovers gradually. The bank does not plan to sell Banco Votorantim SA, the executive noted.