--Brazil's largest private-sector bank sees big changes in global finance as world banking system recapitalizes

--Banks world-wide will need more capital and must review business models, says Itau CEO

--Brazilian banks have big profits but low profitability, says Itau's Setubal

By Rogerio Jelmayer and Matthew Cowley

SAO PAULO--The global banking system will undergo significant transformation as it recapitalizes, and the Brazilian banking system will also have to adapt, the head of the country's largest private-sector bank said Wednesday.

"This is a very delicate moment, and in my view we will go through transformations in the financial world," Roberto Setubal, chief executive of Itau Unibanco Holding SA (ITUB, ITUB4.BR), said at a conference in Sao Paulo.

Globally, there will be a huge push by banks to raise more capital, particularly in the run-up to the introduction of new capital regulations laid down by the Bank for International Settlements, which take effect in 2019, Mr. Setubal said. The Group of 20 has also asked banks to raise more capital, which adds to the pressures, he said.

The executive said he's particularly gloomy about Europe, where he sees "difficulties" persisting for five to 10 years. European banks need more capital, but it's hard to coordinate that process across various countries, Mr. Setubal said.

U.S. banks are farther ahead in terms of raising capital, but they are now having to review their business models, he said.

Brazilian banks are starting with a higher capital base but will still need to examine their own businesses, as lower interest rates mean spreads will fall, and banks will have to focus on efficiency through the use of technology, he said.

"The only department at Itau Unibanco which is expanding is the department of technology," Mr. Setubal said. "In other departments we're looking for more efficiency."

Low interest rates in Brazil are "here to stay," he said. "I don't see Brazil with double-digit rates any more. I think that the tendency is for rates to be similar to the rest of the world."

Meanwhile, bank lending in Brazil can't keep up its pace of recent years, said Mr. Setubal, who noted that new regulations providing a better view of borrowers' credit history will help improve the quality of lending.

Meanwhile, the executive defended the cost of loans made by Brazilian banks, saying that although profits are large in size, profitability--measured by the return on capital--remains relatively low, at about 16%.

Mr. Setubal said that to lower the cost of loans in Brazil, the industry needs to work on a series of issues, including lower taxes, lower provisions for bad loans and lower reserves.

Write to Rogerio Jelmayer at rogerio.jelmayer@dowjones.com and Matthew Cowley at matthew.cowley@dowjones.com