(Recasts; adds background, expected appointment of new CEO)
SAO PAULO, Feb 1 (Reuters) - Brazil's Banco Bradesco SA set a cautious tone with its guidance for the year just days before the long-anticipated announcement of its new chief executive officer, who is expected to take the helm next month.
The second-largest private lender in the country disappointed analysts with modest targets for 2018 credit growth and interest income. Its shares fell 2.3 percent to 39.80 reais in mid-afternoon trading, while the benchmark Bovespa index rose 1.2 percent.
Bradesco's CEO will be chosen by board members among its vice presidents over the coming days. Speculation about who will be named to the role has been dominating Brazilian financial circles for months.
The strongest candidates are IT head Maurício Minas, investor relations director Alexandre Gluher, insurance head Octavio Lazari and retail banking head Josué Pancini.
Bradesco set a loan book growth target on Thursday of 3 percent to 7 percent in 2018, after a 4.3 percent contraction last year.
The bank posted recurring net income of 4.8 billion reais in the fourth quarter, in line with analyst estimates.
"Uninspiring fourth-quarter results and 2018 guidance, especially considering current valuations," said BTG Pactual analyst Eduardo Rosman in a note to clients. Analysts had expected more ambitious targets.
Carlos Firetti, Bradesco's IR head, told analysts the bank chose to be conservative considering the recovery in Latin America's largest economy has just begun.
Bradesco estimates interest income may remain stable or decrease by as much as 4 percent this year as interest rates hit all-time lows and competition for loans increases.
Bradesco reduced the target for loan-loss expenses for 2018 compared to last year's results. The bank expects to set aside 16 billion reais to 19 billion reais ($5 billion to $6 billion) to cover credit losses, whereas provisions last year reached 21 billion reais.
The bank's loan book showed signs of recovery in the fourth quarter, growing 1.2 percent from the previous quarter. Consumer and corporate segments grew, in line with the signs of economic recovery in Brazil. It was the first quarterly growth in two years.
The new CEO will also have to deal with increased competition from fintechs and a shift to digital transactions led by clients. Bradesco launched its digital bank in June and closed around 550 brick and mortar branches last year.
After a protracted review by antitrust authorities, Bradesco concluded last year integrating the former Brazilian unit of HSBC Holdings Plc, acquired for $5.2 billion in August 2015.
($1 = 3.1704 reais) (Reporting by Carolina Mandl; Editing by Nick Zieminski and Meredith Mazzilli)