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Itau Earnings Match Estimates as Loan Provisions Decline

Itau Unibanco Holding SA, Latin America’s largest bank by market value, said second-quarter profit rose 1 percent, matching analysts’ estimates as provisions for bad loans declined 20 percent.

Recurring net income, which excludes one-time charges, climbed to 3.62 billion reais ($1.6 billion), or 73 centavos a share, from 3.59 billion reais, or 72 centavos, a year earlier, the Sao Paulo-based bank said today in a regulatory filing. That compared with the average estimate of 3.61 billion reais in a Bloomberg survey of eight analysts.

Itau, led by Chief Executive Officer Roberto Setubal, 58, reduced provisions as stricter lending standards lowered the number of Brazilian borrowers paying their debts late. Loans at least 90 days overdue, a signal of future write-offs, dropped to 3.4 percent nationwide in June, the lowest level since July 2011, the central bank said last week.

“Management has been positioning the bank for a slower-growth environment by reducing the risk profile of the loan book,” Deutsche Bank AG analysts including Mario Pierry wrote in a report to clients today. “Asset quality looks well under control.”

Itau’s provisions dropped to 4.91 billion reais in the second quarter from 6.14 billion reais a year earlier and 4.94 billion reais in the previous three months, according to the filing. The lender expects to post provisions at the lower range of its 2013 estimate of 19 billion reais to 22 billion reais, Rogerio Calderon, an executive vice-president at the bank, told reporters on a conference call today.

Lower Risk

The bank’s credit strategy is to focus on lending “with lower risk and larger volume of guarantees,” the company said in its earnings statement.

Itau’s delinquency rate declined to 4.2 percent in the second quarter from 4.5 percent in the first quarter and 5.2 percent a year earlier. The book of loans expanded 8 percent to 467.5 billion reais from a year earlier. Itau cut its 2013 credit growth estimate to 8 percent to 11 percent from 11 percent to 14 percent.

“Delinquency rates will continue falling in the second half, though the improvement will be at a slower pace,” Calderon said on the call.

Itau rose 0.8 percent to 29.22 reais at 5:10 p.m. in Sao Paulo, compared with a 1.3 percent drop for Brazil’s Ibovespa benchmark index. The shares fell 3.7 percent this year.

‘Radical Change’

The company “implemented the most radical change in credit mix toward more secure lending” among major Brazilian banks, Banco Safra SA analysts including Francisco Kops wrote in a report July 16.

Brazilian non-performing loans have peaked at Banco Santander SA, Spain’s biggest lender, CEO Javier Marin said in a webcast presentation today. Banco Bradesco SA, Latin America’s second-biggest bank by market value, said last week that its second-quarter provisions for bad loans declined 9.2 percent to 3.09 billion reais from a year earlier.

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