* Recurring profit at $1.3 bln misses estimates in poll * Drastic cut in provisions helped offset lower revenue * Management vows to maintain loan book growth guidance * Recurring ROE dips to lowest level in over four years By Guillermo Parra-Bernal SAO PAULO, May 15 Banco do Brasil SA missed first-quarter profit estimates on Wednesday, as declining revenue at Brazil's largest bank by assets offset the effects of faster loan disbursements and a reduction in provisions for souring credit. Recurring profit, a measure of earnings before one-time items, slumped 15.6 percent from the previous quarter to 2.69 billion reais ($1.3 billion). A Thomson Reuters poll of five analysts had forecast a recurring profit of 2.77 billion reais. The results corroborated a view among investors that the state-run lender is sacrificing profits to gain market share at the behest of the federal government, its main shareholder. Interest income dropped sharply and return on equity slumped to the lowest level in at least four years as the bank's loan book expanded at the fastest annual pace in almost three years. Shares fell 0.4 percent on Wednesday on concerns a drop in delinquencies in the first quarter may be reversed amid aggressive disbursement policies. Provisions were slashed after the loan default ratio slid to the lowest in almost two years. "The results are the clear proof that the profitability seen in the fourth quarter of 2012 was far from sustainable," Credit Suisse Group analysts led by Marcelo Telles said in a client note. "We acknowledge, however, that earnings risk remains high, given an expectation of a pick up in provisions in the coming quarters." Banco do Brasil is betting on a recovery across-the-board in an economy that has grown below potential for the past two years. Brazilian President Dilma Rousseff has used the bank as a tool to kick-start the economy, in a strategy that has been questioned as too risky by some financial industry analysts. Growth in Banco do Brasil's loan book accelerated to 26 percent at the end of March, the fastest annual pace since the second quarter of 2010. Alexandre Abreu, the senior vice president in charge of retail banking, said Banco do Brasil has no plans to revise its 16 percent to 20 percent estimate for credit growth this year. Chief Financial Officer Ivan Monteiro sought to allay concerns that fast credit growth could put the bank at risk in the future, saying a focus on mortgages, payroll-deductible loans, car and secured consumer lending could provide a cushion. Some of those segments are considered safer than small enterprise loans, for instance, because they are secured and charge less in interest. On a quarter-on-quarter basis, credit rose 4.1 percent, totaling 547.3 billion reais - above the poll's estimate of 545.1 billion reais. RETURN ON EQUITY SLUMPS Return on equity, a benchmark gauge for profitability in the banking industry, tumbled to 17.4 percent in the first quarter from 21.2 percent in the prior three months. The average estimate in the Reuters poll for the indicator, known as ROE, was 16.4 percent. In order to buffer ROE from the impact of falling interest income, management will keep reining in expenses, Monteiro said. It "is still too early" to drive down management estimates on expense growth for this year, he added. Net interest income slipped 7.8 percent, in tandem with trends among private-sector rivals, as the bank agreed to government demands to charge less on loans. The indicator was expected to contract by 2 percent, according to the poll. The risk-weighted net interest margin, or the interest earned from loans based on the risk assumed, slid to 3.1 percent from 3.5 percent in the fourth quarter of last year. Borrowing costs in Latin America's largest economy fell last year to a record low. Loans in arrears for 90 days or more, a benchmark for delinquencies in Brazil, fell to 2 percent in the first quarter from 2.2 percent in the prior three months, allowing Banco do Brasil to slash provisions for overdue credit. Expenses related to bad loan provisions tumbled almost 10 percent on a quarter-on-quarter basis to 3.28 billion reais. A 5.8 percent drop in operating expenses from the previous quarter also helped limit the decline in profits. "Results were mixed, with the weak margins offsetting an impressive performance in asset quality and solid expense control," said Carlos Macedo, a banking analyst with Goldman Sachs Group in São Paulo. According to Macedo, going forward "it is likely spreads and margins come under further pressure." It is unclear, he added, how the "aggressive" loan origination undertaken last year will fare in the coming months, "which indicates a more cautious stance." Monteiro said results in coming quarters could be boosted by Banco Votorantim SA's return to profit - something that could happen as early as the third quarter. Banco do Brasil owns a 49.9 percent stake in Votorantim and is currently in talks to increase its stake. Seven quarters of losses at Votorantim, a lender specialized in car loans, have weighed on Banco do Brasil's profit, leading to a 2 billion reais capital injection last year.