Bankia profit drops, net interest income stabilises

By Jesús Aguado

MADRID (Reuters) - State-owned lender Bankia <BKIA.MC> on Monday reported a 31.6% fall in second-quarter net profit from a year earlier due to lower trading income although income from loans showed some signs of stability.

Like many other European banks, Spanish lenders are struggling to increase earnings from lending because of ultra-low interest rates and tough competition.

To offset the impact of increasing competition on financial margins, Bankia is shifting its focus from its mostly-mortgage loan book towards a more profitable consumer and enterprise business.

Bankia's net profit for the quarter came in at 195 million euros (£175.4 million), above an average forecast of 185 million euros in a Reuters poll.

Bankia's gross loan book expanded 1.3%.

Net interest income, a measure of earnings on loans minus deposit costs, remained under pressure relative to the same quarter last year, but showed some improvement from the previous quarter, the bank said.

Net interest income was 516 million euros, down 1% from a year earlier but 2.9% higher than the previous quarter. Analysts had forecast a net interest income of 512 million euros.

"NII for once showed a positive trend and was better than expected, although the downturn in euribor is likely to generate additional headwinds over the coming 12 months," broker Keefe, Bruyette&Woods said in a note.

In early trading on Monday, shares in Bankia rose 1.5%, after falling 4.7% on Friday after Caixabank <CABK.MC> and Sabadell <SABE.MC> revised down their income forecasts for 2019.

Although Bankia has stuck so far to its net profit target of 1.3 billion euros for 2020, analysts have been questioning the target as too ambitious given the ultra-low interest rate environment.

Spain has until 2021 to offload the 61% stake it holds in Bankia after pumping 22.4 billion euros ($25 billion) into a rescue package in 2012 at the height of the financial crisis.

But Bankia's shares have fallen close to 28% so far this year, making further divestments by the state more complicated.

At the end of June, Bankia's core Tier-1 capital ratio, the strictest measure of solvency, was 12.91% compared to 12.61% at the end of March.

Bankia reduced its non-performing assets in the quarter by around 500 million euros, while non-performing loans fell to 5.7% of the loan portfolio from 6.2%.

Separately on Monday, smaller regional lender Unicaja <UNI.MC>, which in May called off merger talks with former savings bank Liberbank <LBK.MC>, reported a 2% drop in second-quarter NII from a year earlier to 148 million euros. Analysts had forecast NII to reach 147 million euros.

Unicaja's shares were up 1.4%.

(Reporting By Jesús Aguado; Editing by Andrei Khalip and Jane Merriman)