(Recasts with comments from executives throughout)
By Bruno Federowski and Aluisio Alves
SAO PAULO, Nov 1 (Reuters) - Banco Bradesco SA, Brazil's No. 3 listed bank, expects to increase lending in 2018 as the nation's financial sector emerges from the deepest recession in a century.
Bradesco executives said the bank could see loan book growth in line with the wider market next year, which its economic department forecasts at 5 percent, even as its loan book contracted for a fourth straight quarter in the third quarter.
"We are able to grow in accordance with that benchmark," Carlos Firetti, head of Bradesco's investor relations, said in a conference call to discuss quarterly results.
The economic downturn has crippled demand for credit, while central bank efforts to slash interest rates curbed revenue from interest-bearing products.
Bradesco's loan book contracted by 1.4 percent in the third quarter, and needs to increase in the fourth quarter to meet the bank's 2017 guidance of a 1 percent to 5 percent annual decline.
Interest income fell 6 percent from the prior three months to 14.604 billion reais, also weighed down by substantial impairments on the value of financial assets.
Still, loans to individuals rose 0.7 percent from the year before, hinting at a nascent recovery in the credit market. Lower unemployment, slow inflation and households paying off debts have boosted consumer spending in Brazil, leading the economic pickup.
Preferred shares, Bradesco's most widely-traded class of stock, fell 1.1 percent in early afternoon trading.
Improved credit quality, coupled with an increase in fee income, offset the loan book contraction as the bank's efforts to focus on lower-risk segments and contain defaults bore fruit.
Provision expenses fell to the lowest levels in two years, while loans in arrears for more than 90 days, the industry's standard gauge of delinquencies, slipped 0.1 percentage point to 4.8 percent.
Net income excluding one-off items totaled 4.810 billion reais, up 2.3 percent from the second quarter and above a consensus forecast of 4.544 billion reais compiled by Reuters.
Return on equity (ROE), a gauge of profitability, slipped 0.1 percentage point to 18.1 percent but still outperformed analyst expectations.
When including non-recurring events, net income fell to 2.884 billion reais, mostly due to expenses related to a voluntary employee buyout program.
($1 = 3.2709 reais) (Reporting by Bruno Federowski, editing by Louise Heavens and Susan Thomas)