February 5, 2019 / 1:20 PM / 5 months ago

UPDATE 2-Brazil's Itaú Unibanco sets tepid targets, shares drop nearly 4 pct

(Adds analyst comment, CEO strategy, updates share price)

By Carolina Mandl

SAO PAULO, Feb 5 (Reuters) - Itaú Unibanco Holding SA , Brazil’s largest private lender, set weaker-than-expected targets for 2019 on Tuesday, sending preferred shares down nearly 4 percent, even as profitability is expected to improve.

Itaú forecast loan book growth of 8 percent to 11 percent in 2019, better than the 6.1 percent expansion last year, but lower than competitors’ goals, according to analysts.

Last week, Banco Bradesco SA said its loan book would grow up to 13 percent in 2019.

“With the notable exception of margins, all other lines compare poorly to levels guided by peers,” Goldman Sachs analyst Carlos Macedo wrote in a note to clients, saying its forecast was “underwhelming.”

Still, Itaú’s goals were not conservative, Chief Executive Officer Candido Bracher said at a briefing for reporters.

“They imply a return on equity of 24 percent for 2019,” he said. In 2018, the bank’s profitability was 21.9 percent, already the highest among Brazil’s largest banks.

On Monday, Itaú posted fourth-quarter net income of 6.478 billion reais ($1.76 billion), up 3.1 percent year over year and meeting the average analyst estimate, according to Refinitiv data.


Bracher said loan books will grow in lines with higher risk of default this year, mainly for individuals and small companies.

“Asset quality is likely to improve, that is why the bank will grow in credit lines that are not collateralized,” the CEO said, citing credit cards and personal loans as examples.

As the Brazilian economy rebounds, default risk will likely decrease overall, improving asset quality in riskier lines, the CEO said.

Amid the deep recession, Itau turned to safer credit lines, such as payroll loans and mortgages, which pose lower risk of default.

Now, the shift to riskier credit lines and an expansion in loan book should yield growth in net interest income - the difference between what a bank pays to borrow money and what it charges customers for loans - of between 9.5 percent and 12.5 percent in 2019.

Bracher said the bank will continue to hire salesmen to offer credit card and insurance to clients, driving non-interest expenses up in 2019. Shares were down 3.8 percent to 38.23 reais. ($1 = 3.6714 reais) (Reporting by Carolina Mandl; Additional reporting by Paula Laier; Editing by Bernadette Baum and Jeffrey Benkoe)

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