Collateral put forth by Batista and EBX, a mining, energy and logistics conglomerate, is proving enough to reduce the probability of losses at Itaú Unibanco Holding SA and Banco Bradesco SA, London-based strategist Philip Finch said in a client note.

A 3.5 billion reais ($1.5 billion) wave of takeover activity targeting some of Grupo EBX's main companies is also helping to reduce bank exposure risk to EBX, UBS said.

"We do not expect higher provisions on coming quarters while guarantees could reduce potential losses," Finch wrote in the note, which was released late on Friday. Even after Bancpo Santander Brasil SA's (>> Banco Santander Brasil SA) exposure to Grupo EBX rose by the end of June, "we think earnings risk for these banks is limited."

The banks that financed the rise of Batista, who just 18 months ago was the world's seventh-richest man, led the struggling group's debt refinancing efforts and were able to limit potential losses, as opposed to bondholders who could be left with very little.

Itaú and peers refinanced maturing debt and stretched out debt repayments for some EBX companies with the condition of getting more collateral in the form of assets and additional stock, a source with knowledge of the situation told Reuters in July.

The note comes a few days after OGX Petróleo e Gás Participações SA (>> OGX Petroleo e Gas Participacoes SA), the oil producer that for years was Batista's and Grupo EBX's flagship company, filed for creditor protection in a Brazilian court. The decision fanned concerns among investors over the financial health of Batista-controlled companies, the combined or crossed loan exposure of local listed lenders to companies in Grupo EBX and the risk of additional provisioning.

Calls to media officials at Rio de Janeiro-based Grupo EBX for comment were not immediately answered.

According to estimates by Finch and his team, combined loan exposure by Itaú, Bradesco and Santander Brasil to OGX, Eneva SA (>> Eneva SA), which was formerly known as MPX Energia SA and now has E.ON SE (>> E.ON SE) as its largest shareholder, LLX Logística SA (>> LLX Logistica SA), shipbuilder OSX Brasil SA (>> OSX BRASIL SA) and CCX Carvão da Colômbia SA (>> CCX Carvao da Colombia SA), fell to 1.93 billion reais at the end of June, from 2.27 billion reais in March.

Still, the number may be underestimated due to the difficulty of knowing how much of that exposure is collateralized. Investors have for months balked at Grupo EBX's complex structure, its appetite for debt and, in the case of banks, the existence of guarantees and undrawn, committed credit lines.

The pressure exerted by state and private-sector banks on EBX enabled them to virtually eliminate any significant loss on their exposure to the struggling group. Bradesco is the most exposed bank to companies in the group, the note said.

Outstanding Itaú loans to companies in Grupo EBX fell 21 percent to 802 million reais on a quarter-on-quarter basis in the second quarter, Finch estimated. Bradesco's exposure fell 14 percent to 868 million reais while Santander Brasil's increased 4 percent to 254 million reais.

Itaú (>> Itau Unibanco Holding SA), Bradesco (>> Banco Bradesco SA) and Santander Brasil (>> Banco Santander Brasil SA) are the country's largest private-sector banks, respectively.

DEBT TRIPLED

For years, Batista put shares of some of the companies he controls through EBX as collateral in exchange for loans that he used to build oil platforms, develop wells, build ports and mine for iron ore. In recent months, Batista reversed course and is currently selling assets and repaying debt to reduce requirements on some of that collateral.

At the end of the second quarter, Batista's six publicly traded companies had a combined net debt of about 25 billion reais, according to Thomson Reuters data. UBS estimated that amount at 24.6 billion reais in the same period. That number, which almost tripled since 2010, rose as the companies posted losses exceeding 1 billion reais last year.

The total amount of debt in Batista's EBX by bank is not clear because Brazilian law prevents banks from disclosing their exposure by individual clients due to secrecy.

Most of the loans and financing are backed by guarantees, both cash as well as stocks of EBX companies. "We recognize the recent devaluation of the companies'stock price, but still, banks could be able to execute the cash guarantees," the note said.

According to Finch, "Itaú has better guarantees than does Bradesco." The lenders could use the excess provisions to absorb an eventual loss and limit the impact of a potential credit event at any of Grupo EBX companies on net income. Bradesco has around 4 billion reais in excess bad loan provisions, while Itaú has 5 billion reais and Santander Brasil about 700 million reais.

(Reporting by Guillermo Parra-Bernal; Editing by Vicki Allen)