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UPDATE 2-Banco do Brasil seeks streamlining as digital services gain room

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By Guillermo Parra-Bernal

SAO PAULO Nov 21 Banco do Brasil SA plans to save up to 3.05 billion reais ($900 million) by shedding up to 18,000 jobs, aiming to become a stronger digital player, boost returns and catch up with rivals, Chief Executive Office Paulo Rogêrio Caffarelli said on Monday.

The state-controlled lender plans to close 402 branches, downsize another 379 and give early retirement to employees who accept terms proposed during an offer period ending Dec. 9. Expected annual savings, excluding personnel costs, could be as much as 750 million reais.

Caffarelli's steps to cut the size of Brazil's largest bank by assets aim to tackle a structure currently paying three times more in wages than rivals. The early retirement plan, which could help cut Banco do Brasil's payroll by 17 percent, could bolster profitability and ability to generate capital in coming years, Caffarelli said.

The reorganization, Banco do Brasil's most ambitious in two decades, reinforces Caffarelli's commitment to make the best use of capital as new, tougher rules are implemented. Since his appointment in May, Caffarelli has accelerated Banco do Brasil's loan book repricing and the renegotiation of troubling credits - triggering a 63 percent surge in the bank's stock price.

"We are just adapting the bank to a new era, where digital services and a more challenging competition framework force us to become a more agile player," Caffarelli said at an event in Brasilia.

Caffarelli wants a 9.5 percent regulatory capital ratio by next year, compared with about 9.1 percent now.

Brazil's government, the lender's top shareholder, says the bank needs to restructure to cater to clients' increasing dependence on digital channels. Caffarelli said digital and mobile banking transactions surpassed 1 billion last year, representing most of Banco do Brasil's business flow.

Executives at the same event said the impact of the early retirement plan could be bigger than initially expected, since the targeted employees are entitled to higher salaries. Based on Thomson Reuters consensus estimates, the impact of branch and payroll reductions could bolster profit by about 10 percent in coming years.

Caffarelli stressed that the folding of the equivalent of 7.4 percent of Banco do Brasil's branches and the transformation of 7 percent of them into points of service will not weaken the business model of insurance unit BB Seguridade Participações SA , which relies heavily on branches to distribute products.

($1 = 3.3769 reais) (Additional reporting by Paula Arend Laier in São Paulo; Editing by Robin Pomeroy and Ruth Pitchford)

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