May 4, 2017 / 4:31 PM / a year ago

UPDATE 1-Itaú's Bracher sees guidance feasible as Brazil risks linger

(Recasts to add details, Bracher’s background, share performance throughout)

By Guillermo Parra-Bernal

SAO PAULO, May 4 (Reuters) - Itaú Unibanco Holding SA will probably meet operational targets for this year even if uncertainty over an economic and credit market recovery in Brazil persists, Chief Executive Officer Candido Bracher said on Thursday.

Bracher, who this week took the helm of Brazil’s No. 1 bank by assets, said in a conference call that loan-loss provisions may end the year around the mid-point of a 14.5 billion reais to 17 billion reais ($4.56 billion to $5.35 billion) goal range first issued in February.

Asked if lingering problems in Itaú’s corporate loan book would demand ramping up provisions beyond this year’s guidance, Bracher said the bank could make use of additional loan reserves for provisioning purposes while reducing coverage ratios in certain lending segments. A bank’s overall coverage ratio measures its ability to absorb potential losses from a surge in defaulted loans.

“There are no signs of significant problematic cases emerging in our large corporate loan book, reinforcing our view that provisions will be at the mid-point of guidance,” he told investors on a call to discuss first-quarter results.

Bracher’s comments - his first as Itaú CEO - suggest that lingering loan quality woes for local banks are taking a backseat after a four-year credit market downturn. Rival lenders have pointed to recovery signs in credit markets enabling them to cut provisions significantly by year-end.

Currently, Itaú’s coverage ratio is at 231 percent, and it could fall to a “rather comfortable” 200 percent should economic and credit market conditions allow, Bracher said.


Bracher reaffirmed Itaú’s pledge to negotiate longer repayment terms with infrastructure and real estate borrowers on a case-to-case basis, after signs of deteriorating credit quality in the segment arose during the first quarter. Itaú has 34 billion reais in outstanding real estate and infrastructure loans.

For borrowers facing a rising debt burden and depleting cash, Itaú could demand they accelerate asset divestitures, executives said at a Wednesday conference call. Credit risk for infrastructure firms rose last quarter, driving Itaú’s 15 day-to-90 day default ratio to a nine-month high.

Bracher also saw growth in interest and fee income, non-interest expenses and lending to come in within targeted ranges for the year.

Preferred shares, Itaú’s most widely traded class of stock, shed 2.2 percent to 38.58 reais in early afternoon trading in São Paulo. The stock is up 9.8 percent this year.

This week, Bracher replaced Roberto Setubal, who steered Itaú through growth across Brazil and Latin America during his 23-year stint.

$1 = 3.1778 reais Reporting by Guillermo Parra-Bernal; Editing by Chizu Nomiyama and Andrew Hay

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