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By Guillermo Parra-Bernal
SAO PAULO, Nov 1 (Reuters) - Itaú Unibanco Holding SA plans to focus on less-risky loan segments even if an economic recovery in Brazil soon gains steam, Chief Financial Officer Eduardo Vassimon said on Tuesday, signaling prudence as banks struggle with the worst credit downturn in two decades.
In a conference call to discuss third-quarter results, executives at Brazil's No. 1 bank by market value said any step to grow in segments outside secured credit lines, like payroll-deductible and mortgage lending, will be carefully analyzed to avoid adding too much risk to the balance sheet.
According to Vassimon, loan-loss provisions have already peaked, suggesting Chief Executive Officer Roberto Setubal's strategy to cut default risk by growing in loans that charge narrower spreads has worked. The unevenness in consumer and corporate loan defaults, however, still makes it hard for Itaú to decide where to grow in coming months, he said.
"Our risk-based model of credit pricing makes a decision to grow in this or that segment more a function of a wide array of variables, not simply on whether a recovery has taken hold," Marcelo Kopel, Itaú's investor relations head, said on the call.
Itaú's prudent tack on loan book growth, as well as efforts to grow interest and fee income in a sustained manner this year, also indicate that demand for credit still shows serious signs of weakness after more than two years of recession, the executives said.
The remarks frustrated investors, helping drive shares of Itaú down for the first session in five on Tuesday. Preferred shares fell 2.6 percent to 37.39 reais, a day after hitting an all-time high after the bank beat profit estimates.
Vassimon and Kopel also said that Itaú is alert to potential investment opportunities in Latin America. In the event opportunities fail to materialize, Itaú could ramp up share buybacks or raise dividend payouts.
Setubal, who retires next year after 22 years at the helm of the banking behemoth, has also steered Itaú through expansion across Latin America, providing an extra profit buffer. Itaú expects operations outside Brazil to contribute 20 percent of annual profit by the end of the decade.
Defaults may begin to decline first in the consumer loan book and then on the corporate side, the executives said, while the central bank's decision to initiate a cycle of interest-rate cuts will take time to translate into cheaper loans.
São Paulo-based Itaú expects loan-loss provision expenses to come in at the low end of its guidance of between 23 billion reais and 26 billion reais ($7.2 billion-$8.1 billion) this year.
$1 = 3.1995 reais Editing by Alan Crosby and Dan Grebler