(Adds quote, context on Brazil banking sector, economy)
SAO PAULO, Sept 26 (Reuters) - Itaú Unibanco Holding SA's lending segment will soon turn profitable again as loan-loss provisions decline, Chief Executive Officer Cândido Bracher said on Tuesday, a sign Brazil's No. 1 lender has detached itself from the nation's harshest credit market downturn in decades.
At an annual meeting with investors in São Paulo, Bracher said loan-loss provisions - which hit a record high for Itaú late last year - will begin to fall in the medium term, without specifying a timetable for that. He reaffirmed guidance for this year that Itaú revised a couple of months ago.
Economists expects borrowing costs in Brazil to touch all-time lows this year, and stay there for a long period. Banks could offset the impact of lower lending rates by disbursing more loans or by stifling future loan-related losses.
"The medium-term outlook for lending is positive, which makes us believe that we can resume value creation for the segment," Bracher told investors.
Still, whether lending turns profitable again hinges on how quickly Brazil's economy recovers from a deep recession and large Brazilian borrowers resume borrowing or stop defaulting on their existing credit. Eduardo Vassimon, Itaú's senior vice for wholesale banking, said there are indications corporate defaults are on a declining trend.
Recurring return on equity for Itaú's lending segment hit 14.5 percent in the second quarter, equaling fundraising costs. The indicator, a gauge of segment profitability, had come in at 13.2 percent the prior quarter and 12.9 percent a year earlier.
The highest lending ROE in at least three years reflected the success of a focus by Bracher's predecessor Roberto Setubal on loan segments offering less risk of default.
Preferred shares - Itaú's most widely traded class of stock - rose 0.5 percent to 43.32 reais in Tuesday mid-afternoon trading. (Reporting by Aluísio Alves and Guillermo Parra-Bernal; Editing by James Dalgleish)