Brazil's payroll-deductible loans surge in March after new government rules

BRASILIA, April 30 (Reuters) - Payroll-deductible loan issuance to private-sector workers in Brazil rose sharply in March after new rules introduced by the government as part of a broader effort to boost President Luiz Inacio Lula da Silva's flagging approval ratings.

According to central bank data released on Wednesday, credit concessions in this category surged 32.8% in March from the previous month to 2.1 billion reais ($370.68 million), already reflecting the effects of the program, which was announced on March 12.

In contrast, overall credit issuance to individuals fell 0.1% in March from February, the central bank said.

Although this type of credit already existed in Brazil, the government's economic team had argued it failed to reach a large portion of formal workers, as it relied on individual agreements between employers and banks to enable automatic payroll deductions.

Under the new rules, any private-sector worker - including domestic and rural employees - can access the program, as banks are now allowed to use government databases to verify employment ties.

Earlier on Wednesday, Labor Minister Luiz Marinho said 8.9 billion reais in loans under the revamped rules had already been granted to nearly 1.6 million Brazilians.

Marinho told state media the initiative is expected to gain further traction in May with the rollout of a portability feature that will allow borrowers to refinance more expensive debt with cheaper loans, spurred by increased competition among banks.

Markets are closely watching the pace of loan growth amid concerns that credit expansion could contribute to overheating the economy, working against the central bank's aggressive monetary policy tightening and efforts to tame inflation.

According to the central bank, the stock of outstanding loans in Brazil rose 0.6% in March from February to 6.5 trillion reais. On a 12-month basis, loan growth slowed to 9.9% from 11.0% in February.

($1 = 5.6653 reais)