Brazilian banks are intensifying their focus on payroll-backedloans due to lower-default risks by aligning with banking promoters and correspondentsto garner interest, Reuters reported.

Banco do BrasilS.A. and Banco VotorantimSA have recently set in motion a payroll loan product with sales vendorPromotiva, which has granted about 500 million Brazilian reais per month in newloans, the publication noted.

Banco Pan SAhas reportedly accelerated payroll loans through promoters as well and in June reached900 million reais in loans, up from a monthly average of 800 million reais.

Banco do Brasil and BancoBradesco SA are testing a pilot project to provide payroll loans throughthe financial firm Ibi, under the umbrella of Elopar, as the two banks have a sharedcontrol in the latter, the report said.

The banks' strategy has to do with the lower risk for payrollloans compared to other types of credit lines. The delinquency ratio over 90 daysfor this segment was at 2.3% May, while the ratio of total nonperforming loans hit5.9% the same month, a new recordhigh.

Meanwhile, Brazil's lower house approved on July 12 a provisionalmeasure that enables the use of up to 10% of the employee indemnity guarantee fund,known as FGTS, as collateral for payroll-backed loans. The measure aims to reviveBrazil's credit demand and is subject to the Senate's approval.

The banking industry is working on a proposal that will be sentto Banco Central do Brasilthat would enable large-scale use of payroll-backed loans by employees in the privatesector, as 93.5% of the loans are currently granted to public servants and retirees,the report noted.

Banks will reportedly ask for an easement of the capital allocationrequirements for this type of loan, claiming the measure could boost credit offeringsby up to 25%.

As of July 13, US$1 wasequivalent to 3.29 Brazilian reais.