Brazil unveils new housing credit model, freeing up $6.7 billion for new loans

BRASILIA (Reuters) -Brazil's government on Friday announced a new real estate funding framework that loosens rules on the mandatory allocation of bank resources to the sector, releasing 36.9 billion reais ($6.72 billion) for them to boost housing loans. The changes are based on easing the use of savings accounts as the main source of housing credit in Latin America's largest economy. Although exempt from income tax, savings accounts offer returns well below the benchmark interest rate, leading to significant outflows in recent years as Brazilians gain financial literacy and easier access to fixed-income alternatives through investment platforms. Under the model presented by President Luiz Inacio Lula da Silva's administration, banks will no longer be required to meet central bank reserve requirements or earmark destinations when using savings account funds, in a phased transition. The central bank estimates this will unlock 111 billion reais in new loans in its first year, 52.4 billion reais more than the current framework. Of that, 36.9 billion reais will be made available for immediate lending, it said in a statement. The overhaul is expected to fuel borrowing ahead of the 2026 general election, even as the central bank maintains high interest rates to cool the economy and curb inflation. Until the end of next year, banks must still allocate 65% of savings deposits to housing loans, while 15% may be freely used. The share held as compulsory central bank deposits will fall to 15% from 20%, freeing up 5% for additional housing loans. From 2027, banks that raise market funding and fully allocate it to housing loans may use an equivalent amount from savings accounts, which are typically cheaper, for free allocation over a set period. The government expects the flexibility to improve banks' profitability and enable lower rates on housing loans funded through other sources. Under the new rules, 80% of housing loans must comply with the Housing Finance System, which caps interest at 12% annually. ($1 = 5.4878 reais) (Reporting by Marcela Ayres; Editing by Paul Simao, Kirsten Donovan)

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