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

UPDATE 1-Brazil's Itaú Unibanco shares drop as bank sets tepid targets

(Adds CEO and analysts comments)

By Carolina Mandl

SAO PAULO, Feb 5 (Reuters) - Brazil's largest private lender Itaú Unibanco Holding SA set weaker-than-expected targets for 2019 on Tuesday, sending preferred shares down 2.9 percent in early trading, even as profitability was expected to improve.

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

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

"The good numbers and guidance delivered by Bradesco last week probably set high expectations for Itaú. Net income is growing at a low pace and lagging consensus" estimates, Morgan Stanley analysts wrote in a note to clients.

Still, Itaú's goals were not conservative, Chief Executive Candido Bracher said at a news briefing.

"They imply a return-on-equity of 24 percent for 2019," he said. In 2018, the bank's profitability was 21.9 percent.

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 analysts' average estimates, according to Refinitiv data. Profit grew mainly because the bank reduced provisions for loan losses, offsetting higher-than-expected non-interest expenses.

Bracher said loan book growth will occur in line with a higher risk of default this year.

"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.

$1 = 3.6714 reais Reporting by Carolina Mandl; Additional reporting by Paula Laier; Editing by Bernadette Baum

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