October 26, 2017 / 3:18 PM / a year ago

UPDATE 1-Santander Brasil beats estimates in profitability, loan growth

(Adds CEO comments, analyst report, share price)

SAO PAULO, Oct 26 (Reuters) - Banco Santander Brasil SA beat its profitability target in the third quarter as the nation's economic recovery allowed it to expand loans to retail clients faster than expected.

Return on equity (ROE) at the Brazilian unit of Spain's Banco Santander SA came in at 17.1 percent, far above the 15.8 percent target set for 2018, Chief Financial Officer Angel Santodomingo told analysts on a conference call on Thursday.

Chief Executive Officer Sérgio Rial told reporters at a separate news conference: "We are on our way to reaching profitability similar of large Brazilian private banks".

The bank's ROE handily surpassed the consensus estimate of 14.6 percent compiled by Thomson Reuters, but still lags larger rivals. Brazil's No. 1 lender Itaú Unibanco Holding SA , for example, has posted ROE above 21 percent over the last two quarters.

Santander Brasil will revise its profitability guidance by the end of next year, Rial said.

The bank earned a net 2.58 billion reais ($798 million) in the third quarter when adjusted for one-off items, 11 percent higher than the prior three months and above a consensus estimate of 2.38 billion reais.

A nascent recovery from the deepest recession in a century helped it expand its loan book at faster-than-expected pace, to 262.9 billion reais.

In a report, Itaú BBA analysts called the loan book growth "outstanding" as the bank focused on the more profitable retail segment, which helped lift net interest income. Household loans increased 5 percent over the previous quarter, whereas the corporate loan book shrank 1.4 percent.

Loan-loss provision expenses rose 2.9 percent in the third quarter, mostly because of specific corporate clients, but remained below consensus estimates. Delinquency rates declined slightly.

Units in Santander Brasil, a blend of one preferred and one common share that is its most widely traded class of stock, were down 0.8 percent at 30.60 reais on Thursday morning, reducing this year's gains to 9.7 percent. (Reporting by Tatiana Bautzer, Bruno Federowski and Aluisio Alves; Editing by Chizu Nomiyama and Matthew Lewis)

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