UPDATE 1-Brazil's Itau beats estimate on lower provisions, trading gains

(Adds return on equity, loan book)

SAO PAULO, May 3 (Reuters) - Brazil’s biggest lender, Itau Unibanco Holding SA, on Monday reported better-than-expected first-quarter profit, as loan-loss provisions for bad loans fell and trading gains rose.

Recurring net income, which excludes one-off items, came in at 6.398 billion reais ($1.18 billion), more than 11% above an estimate of 5.753 billion reais compiled by Reuters and 63.6% above results of a year earlier.

Provisions fell by 59.2% from last year, when Itau set aside billions of reais to cover potential losses stemming from the coronavirus pandemic.

The decline in provisions indicates that the bank believes the brutal second of wave of pandemic that Brazil is undergoing will not lead to a further deterioration in asset quality in the coming months.

Its 90-day default ratio remained stable at 2.3%, despite a higher loan delinquency with small companies.

The lender’s net interest income also rose by 4.7% from a year earlier, to 18.634 billion reais, driven by trading gains as results with clients dropped.

Return on equity climbed to 18.5% from 12.8% a year ago, and also above the previous quarter.

$1 = 5.4395 reais Reporting by Carolina Mandl/ Editing by Leslie Adler and Sam Holmes