UPDATE 1-Brazil's central bank to extend loans to banks

(Adds details on central)

By Marcela Ayres

BRASILIA, March 23 (Reuters) – Brazil’s central bank on Monday said it will extend loans backed by corporate bonds to banks between March 23 and April 30, in a move to add liquidity to the financial system.

It also cut long-term reserve requirements to 17% from 25%, freeing up 68 billion reais currently in compulsory deposits with the central bank to banks.

Brazilian banks will also be able to issue special long-term deposits with up to 2 million reais guarantee by the privately held deposit insurance fund FGC.

The central bank said each bank will be allowed to issue up to 2 billion reais of the special long-term bonds, known as DPGE, limited to an amount equivalent to its shareholders’ equity.

The central bank estimates the new DPGE will allow banks to extend up to 200 billion reais in new loans.

These emergency measures add to raft of steps taken by the Brazilian central bank last week, when it allowed banks to offer firms and households in good financial shape increased loans and better terms over the next six months, besides lowering capital requirements.

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