WRAPUP 1-Brazil officials scold private banks over lending

* Finance minister says private banks too conservative

* Banco do Brasil CEO says low interest rates sustainable

* Banco do Brasil shares rise 2 pct on strong earnings

By Isabel Versiani and Aluisio Alves

BRASILIA/SAO PAULO, Aug 13 (Reuters) - Brazil's finance minister and the chief executive of state-run Banco do Brasil lashed out at private-sector banks on Thursday, calling on them to increase lending and lower interest rates to help drive the country's economic rebound.

Two days after the CEO of Itau Unibanco bank scoffed at state banks for lending at below-market rates, Finance Minister Guido Mantega accused private banks in Brazil of putting profits before the economy as a whole and said they should lower borrowing costs or risk losing market share to Banco do Brasil SA (BBAS3.SA) and other public lenders. [ID:nSPG002460]

"Private banks need to wake up or they will lose market share," Mantega said at a news conference in Brasilia, using unusually harsh language. "They should follow Banco do Brasil's example or they will bite the dust."

Febraban, the trade group representing Brazilian banks, said it would not comment on Mantega's remarks.

President Luiz Inacio Lula da Silva has urged Banco do Brasil and other public banks such as Caixa Economica Federal and state development bank BNDES to charge lower lending rates to increase competition with private-sector lenders.

Banco do Brasil and Caixa Economica have expanded their loan books faster than private-sector rivals such as Itau Unibanco (ITUB4.SA)(ITUB.N) and Bradesco (BBDC4.SA)(BBD.N), helping to lift Brazil's economy out of recession.

For Banco do Brasil, the lending spree has helped widen its customer base and boost profits. The Brasilia-based bank posted a larger-than-expected second-quarter profit of 2.35 billion reais ($1.28 billion) on Thursday, a 43 percent increase over the same period in 2008. [ID:nN13178194]

Bradesco, by contrast, posted a much smaller increase in quarterly profit, of 15 percent. Itau Unibanco, which has been more selective in extending loans this year, posted an 8.1 percent drop in second-quarter profit this week.

Banco do Brasil's shares jumped 2.4 percent on Thursday, compared with a 0.2 percent gain in the benchmark Bovespa index .BVSP. Itau Unibanco's shares fell 1.95 percent, while Bradesco was down 2.1 percent.

SUSTAINABLE RATES?

Roberto Setubal, Itau Unibanco's chief executive, said on Tuesday that public banks were sacrificing returns by lowering loan rates at such a fast pace.

"The rates that are being charged are not sustainable in many cases, they are too low to give a return on investments," Setubal said.