UPDATE 2-Brazil Unibanco profit up 27.5 pct on loan growth

(Adds details on other banks, mortgage lending, comments)

By Todd Benson

SAO PAULO, May 8 (Reuters) - Brazilian bank Unibanco UBB.NUBBR11.SA said on Thursday its profit jumped 27.5 percent in the first quarter, lifted by strong growth in its loan portfolio.

Net income rose to 741 million reais (438.5 million), compared with 581 million reais a year ago and 827 million reais in the fourth quarter, when its earnings were boosted by the sale of its stakes in the Sao Paulo stock exchange and the BM&F commodities and futures exchange.

Like other banks in Brazil, Unibanco has benefited from increasing demand for consumer credit, which has been expanding at a steady pace as the economy grows at a healthy clip and as domestic interest rates remain near historic lows.

Unibanco's larger domestic rivals, Bradesco (BBDC4.SA) (BBD.N) and Itau (ITAU4.SA)ITU.N, also posted big profits in the last week thanks to the credit boom. Bradesco's first-quarter earnings jumped 23 percent to 2.1 billion reais and Itau's rose 7.5 percent to 2.04 billion reais.

Unibanco's credit portfolio expanded 40.7 percent in the first quarter from a year ago and 7.7 percent from the previous quarter, to 66.15 billion reais. The bank's vehicle loan portfolio led that growth, soaring 94.6 percent from the first quarter of 2007.

All banks in Brazil have been aggressively increasing lending for automobile purchases over the last year as car and truck sales surge to one record high after another, fueled by a fast-growing economy and relatively low interest rates.

For now, Unibanco expects its overall credit portfolio to expand by 25 percent this year. But the better-than-expected growth in the first quarter may prompt the bank to raise its forecast later in the year, said Geraldo Travaglia, the bank's corporate vice president.

Another area that is growing fast is home mortgages, a relatively new business for private-sector banks in Brazil. Unibanco's real estate portfolio expanded 25 percent from a year ago and 13.8 percent from the fourth quarter, reaching 1.9 billion reais.

But as the volume of lending has risen, so have provisions for bad loans. Unibanco provisioned 630 million reais in the quarter, up from 526 million reais in the fourth quarter and 524 million reais in the year-ago period.

Still, default rates have fallen as Unibanco has adopted more cautious lending policies, dropping to 3.6 percent at the end of March from 3.9 percent in December and 5.1 percent a year ago.

"The big standout is credit growing 40 percent with a reduction in default rates," said Aloiso Lemos, a financial sector analyst at Agora brokerage in Rio de Janeiro.

Return on equity, a key gauge of profitability, averaged 27 percent in the first quarter, compared with 31.4 percent in the fourth quarter and 25.1 percent in the year-earlier period.

Unibanco finished the quarter with 156.2 billion reais in total assets, up 35.6 percent from a year ago. ($1=1.69 reais) (Additional reporting by Aluisio Alves and Alberto Alerigi Jr.; Editing by Derek Caney)