UPDATE 3-Profits for Brazil's Itau Unibanco up 14%, beat expectations

(Adds comments from analysts in paragraphs 3-4)

By Peter Frontini

SAO PAULO, Aug 7 (Reuters) - Brazilian lender Itau Unibanco reported a 14% increase in second-quarter net profit from a year earlier, beating expectations, while also keeping default rates stable, the bank said in a securities filing on Monday.

Latin America's biggest private sector lender posted recurring net profit of 8.74 billion reais ($151 million) during the April-to-June period, while analysts polled by Refinitiv expected 8.63 billion reais.

Citi analysts described the result as strong and without major surprises, crediting Itau's management with continuing to "navigate turbulent waters well," according to a research report published later on Monday.

"We think the combination of asset quality under control with capital boost should allow the bank to re-accelerate credit growth, while competitors have less room for that, or pay higher dividends down the road," they added in the report.

In its filing, Itau attributed the quarterly performance to higher income from interest it earned on customer debt, as net interest income from clients grew 13.4% to reach 24.9 billion reais.

Chief Financial Alexsandro Broedel highlighted the gradual increase in profitability, in addition to "the stabilization of default rates and the continuous improvement of our efficiency ratio," he said in a statement.

Return on equity, a gauge for profitability, grew 0.2 percentage points from the previous quarter to settle at 20.9%.

Delinquency, measured by a 90-day default ratio, came in at 3.0%, essentially flat compared to the first quarter.

Credit costs during the quarter grew 25% from a year earlier to reach 9.44 billion reais, as the lender set aside more money for customers defaulting on loans.

Itau's loan portfolio, meanwhile, fell slightly from the previous three months, but grew 6.2% from the second quarter of last year, totaling 1.15 trillion reais.

Competitors Santander and Bradesco, had previously indicated a trend toward more selective granting of credit.

($1 = 4.8999 reais) (Reporting by Peter Frontini; Additional reporting by Carolina Pulice; Editing by David Alire Garcia, David Gregorio and Kim Coghill)