March 27, 2018 / 7:40 PM / a year ago

UPDATE 1-Brazil's Caixa holds credit growth to keep capital ratios in check

(Adds CEO, CFO comments)

By Carolina Mandl

SAO PAULO, March 27 (Reuters) - Credit growth at Brazil’s state-owned lender Caixa Economica Federal will remain stable in 2018 as a way of preserving capital, Chief Executive Officer Gilberto Occhi said at a news conference on Tuesday.

At the same time, Occhi forecast recurring net income in 2018 of 8.5 billion reais ($2.55 billion), after booking a record profit last year and raising its capital ratio to 17.7 percent.

Caixa’s CEO said restrictions on capital requirements prevent the lender from increasing its loan book at a time when the Brazilian economy is recovering from its harshest recession in decades.

The Brasília-based bank ended last year with a 706 billion reais ($213.3 billion) loan book, a 0.5 percent reduction. Defaults on loans fell 0.6 percentage points in one year to 2.3 percent, reaching a five-year low at the end of 2017.

Caixa increased its capital ratio by 4.1 percentage to 17.7 percent. By holding its loan book growth this year, Caixa foresees it will close 2019, when Basel III rules will be fully adopted in Brazil, with a core capital ratio of 10.6 percent, nearly one percentage point above minimum requirements.

Core capital is a cushion formed by equity or equivalents, a sign of a bank’s health that is required by regulators.

The bank will pay to controlling shareholder, Brazil’s Treasury, 25 percent of its net income as dividends. Occhi, however, did not rule out the Treasury will reinvest this money in Caixa as a capital increase.

The state-owned lender posted a record net profit of 12.5 billion reais ($3.8 billion) last year, up more than 200 percent over the prior year. Its profit was boosted by a reversal of 5.3 billion reais in provisions previously made to pay for employees’ healthcare.

$1 = 3.3323 reais Reporting by Carolina Mandl and Alexandra Alper; editing by Diane Craft

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