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By Guillermo Parra-Bernal
SAO PAULO, Nov 4 (Reuters) - Itaú Unibanco Holding SA , Brazil's largest bank by market value, expects consumer and corporate loan defaults to peak late next year, an indication that efforts to grow secured lending in recent years are bearing fruit.
Even as the jump in consumer delinquencies during the third quarter was unusually big, executives said on Wednesday the indicator is set to rise at a less intense pace in coming months. Corporate defaults may climb too, although at a slower pace than those for individuals, they said.
The main source of default increases should come from credit card and unsecured personal loans, Chief Financial Officer Eduardo Vassimon said during a conference call to discuss third-quarter earnings. In contrast to prior credit market downturns, Itaú now has a bigger share of secured lending on its loan book, helping mitigate the impact from rising defaults, he added.
Both Vassimon and Marcelo Kopel, Itaú's head of investor relations, expect loans in arrears for 90 days or more to stay below levels seen during the credit cycle that began in late 2008 and ended a year after. Itaú is ready to use part or all of the 11 billion reais ($2.9 billion) in excess loan-loss build this year to protect the balance sheet against further deterioration in defaults, Vassimon said.
"We feel that we are well cushioned against tail events," Vassimon told investors on the call.
His remarks provide a glimpse into Itaú's expectations about loan book quality after the lender reported stronger-than-expected third-quarter results and loan-loss provision build-up.
Bank loans overdue for at least 90 days in Brazil are at their highest in almost two years, as a deep recession and rising interest rates have borrowers struggling to make payments on debts. Early default ratios are climbing for individual and corporate borrowers.
Provisions may end the year closer to 18 billion reais, the high end of guidance, they said. Itaú will keep building capital organically as risk-weighted assets grow slowly and profitability remains robust, Vassimon said.
There have been four credit cycles for Brazilian banks since 2000, all linked to sharp economic downturns. From trough to peak, loan default ratios increased between 0.8 percentage point and 1.2 percentage points, with peak levels coming on average 18 months after the start of the cycle, a Goldman Sachs report showed.
$1 = 3.7980 Brazilian reais Reporting by Guillermo Parra-Bernal; Editing by David Gregorio