SAN Banco Santander SA

RIO DE JANEIRO—Brazil's five largest banks announced Thursday that they have joined forces to create a credit intelligence bureau aimed at reducing bad loans and boosting credit for good borrowers.

Government-run banks Banco do Brasil SA and Caixa Econô mica Federal and private-sector institutions Banco Bradesco SA, Itaú Unibanco Holding SA and Banco Santander SA have signed a nonbinding agreement to form the new credit registry, which will compile data on individuals and companies.

The new firm will track loan payment information from borrowers who agree to take part in the registry. The aim, banks say, is reduce lenders' risks and lower interest rates for borrowers with solid credit scores.

"It will improve credit conditions, lower default rates and avoid over-indebtedness," said Murilo Portugal, the president of Brazil's Federation of Banks, known as Febraban.

At least two local firms already gather credit information to sell to banks, retailers and other businesses. But the information they provide is focused largely on identifying borrowers who have missed payments and are bad risks.

Creating robust credit profiles of good borrowers is more challenging because Brazilian law requires these consumers to give their consent to be tracked. The five banks contend that their customers will be more likely to sign up for the registry because the institutions have an existing relationship with them.

After several years of economic growth and expanding credit availability, Brazilians are now being squeezed by a stagnant economy, sticky inflation and soaring unemployment.

Default rates for Brazilian consumers jumped to 5.8% last November, and among companies to 4.5%, excluding certain loans that may be controlled or subsidized, according to Miguel José Ribeiro de Oliveira, a research director at Anefac, a Brazilian association of executives in the financial sector. Those rates, he said, are based on payments which are more than 90 days late.

Meanwhile, the average interest rates on loans to firms and consumers have skyrocketed over the last 12 months, reaching 30.2% and 64.8% a year, respectively, last November, Mr. Oliveira said.

The new credit intelligence firm will operate separately from the commercial banks, who will each own a 20% stake. The new entity will provide credit data for its controlling shareholders as well as sell the data to other financial institutions, according Mr. Portugal.

The executives involved in the project will likely spend the next year working on legal and regulatory issues to implement the new credit registry, which should only be fully operational in the next four years or so, Mr. Portugal said.

Write to Luciana Magalhaes at Luciana.Magalhaes@dowjones.com

(END) Dow Jones Newswires

January 21, 2016 18:35 ET (23:35 GMT)

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