UPDATE 1-Brazil's Caixa expects fewer defaults this quarter -CFO

Wed May 21, 2014 12:27pm EDT

(Recasts to add context, earnings data, comments throughout)

By Aluísio Alves and Guillermo Parra-Bernal

SAO PAULO May 21 (Reuters) - Loan defaults at Caixa Econômica Federal SA, Brazil's largest mortgage lender, will decline this quarter after the indicator measuring defaults jumped to a four year-high in the first three months of the year, Chief Financial Officer Marcio Percival said on Wednesday.

In an earnings statement released on Wednesday, Caixa said loans in arrears for 90 days or more rose to the equivalent of 2.6 percent of outstanding loans in the January-through-March quarter from 2.3 percent a year earlier. The so-called default ratio is the industry's most widely followed gauge to measure loan delinquencies.

Percival said the surge was lower than bank management had expected for the quarter, a time of year when household debt generally climbs due to year-end holidays and the start of the school year. Caixa's shift from credit to large firms toward infrastructure also might have also boosted the default ratio, he said.

"We are not especially worried about the spike, which was seasonally-triggered. We don't see an upward trend for short-term default gauges. Loan recoveries are behaving normally," he said.

Analysts expect delinquencies at Caixa to rise in coming quarters as it slows the pace of disbursements to protect capital. Percival noted that Caixa's loan book is expected to grow between 20 percent and 22 percent this year. In March, executives had set guidance of 22 percent to 25 percent for lending growth.

Last year, Caixa's loan book, the third largest among Brazil's banks, rose about 40 percent, Percival said. Outstanding loans at Caixa totaled 519.8 billion reais ($236 billion) at the end of March, up 33 percent on a 12-month basis.

The revised guidance underpins government efforts to slow the pace of disbursements from state-owned banks and, with it, curtail federal financing for them. Standard & Poor's remains skeptical of Brazilian President Dilma Rousseff's willingness to phase out her five-year-long strategy of using state banks to ramp up credit.

Caixa Chief Executive Officer Jorge Hereda is focusing on mortgages, credit for infrastructure projects and payroll-deductible lending, areas where the federal government - Caixa's sole owner - wants more resources being funneled into.

Net income climbed 15.3 percent to 1.5 billion reais in the first quarter on an annual basis. According to Percival, profit was bolstered by a 46 percent surge in interest income and a 13 percent increase in fee income.

Return on equity, a gauge of how well a bank spends shareholder money, ended the quarter at 23.5 percent, below guidance of 26 percent to 28 percent this year.

Percival said net interest margin, or the average interest charged on loan, is unlikely to rise in coming months despite a year-long jump in borrowing costs in Latin America's largest economy. "Pricing of credit will stay where it is - we want to remain competitive," he added.

($1 = 2.20 Brazilian reais) (Reporting by Guillermo Parra-Bernal and Aluísio Alves, Editing by Franklin Paul and David Gregorio)

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