October 31, 2017 / 4:37 PM / a year ago

UPDATE 1-Brazil's Itaú may cut provisions, boost loan book as economy recovers

(Adds CEO comments)

SAO PAULO, Oct 31 (Reuters) - Itaú Unibanco Holding SA , Brazil's largest private lender, may further cut loan-loss provisions as the economy recovers and revives credit growth, the bank's chief executive officer said on Tuesday.

The bank will no longer curb loans in higher-risk segments, such as vehicle financing and medium and small firms, after doing so in the last five years, Chief Executive Officer Candido Brecher told analysts and journalists in a conference call.

That should help reverse a years-long contraction in the bank's loan book, which shrank by 2.4 percent in the third quarter.

Itaú for years extended fewer loans and focused on lower-risk segments as Brazil's deepest recession in a century cramped clients' ability to pay back debt.

Bracher noted an "inflection point" in the retail segment as lower debt burdens, interest rates and unemployment boost demand for credit among households.

Itaú's corporate loan book, however, should take longer to recover, with uncertainty related to Brazil's presidential elections next year crippling capital spending plans, Brecher said.

His remarks point to a slow recovery in credit markets activity as Itaú sticks to a cautious strategy. Smaller rivals such as Banco Santander Brasil SA are seeking faster expansion of their loan books.

Nevertheless, the economic recovery may allow the bank to further cut loan-loss provisions going forward, partially offsetting the effect of lower interest rates on its loan book, Bracher said.

The bank's' coverage ratio, a gauge of its ability to absorb potential loan losses, rose to the highest level in at least two years in the third quarter.

Itaú this week will close the acquisition of Citigroup Inc's retail operations in Brazil, after the country's central bank approved the deal. Itaú agreed on the $220 million deal a year ago. (Reporting by Bruno Federowski, Aluisio Alves and Tatiana Bautzer; Editing by Chizu Nomiyama)

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