UPDATE 2-Spain's Bankinter eyes 2014 gains from credit recovery

Wed Jan 22, 2014 8:14am EST

Related Topics

* FY net up 73 pct at 215 mln eur vs f'cast 211.5 mln

* FY net interest income (NII) down 3.7 pct at 636 mln eur

* Q4 NII up 18.3 pct from year-ago levels

* Deposit cost falls, credit growth will help 2014-CFO

* Bankinter shares steady near more than four-year high (Recasts lead to focus on lending, adds CFO quote, shares)

By Sarah White

MADRID, Jan 22 (Reuters) - Spanish lender Bankinter expects net lending income to keep growing in 2014, as credit starts to flow again and a tentative economic recovery starts feeding through to the country's banks.

Spain's seventh-biggest bank has, like many local peers, benefited from lower provisions against losses on property assets in 2013 and from trading gains in bond portfolios, which boosted its full-year profit.

Results from bigger peers such as Santander, BBVA , Caixabank and Sabadell, reporting in coming weeks, are expected to echo these trends.

But investors are looking for signs that Spanish banks' core lending businesses, hurt by low interest rates in the euro zone, are also on the mend, and some banks have been struggling to improve earnings in this area.

Bankinter said on Wednesday lower deposit rates had helped net interest income (NII) - broadly the difference between the bank's funding costs and what it earns from loans - and this trend would continue this year as lending also grew.

The bank reported NII of 174 million euros ($235.7 million)in the fourth quarter, 18.6 percent higher than the last three months of 2012 and the first time in 2013 that it improved on a quarterly basis compared with the previous year.

"We have reached the end of the deposit war (in Spain)," Chief Financial Officer Gloria Ortiz told analysts on a call, adding there was room for deposit costs to fall further after the European Central Bank cut interest rates to 0.25 percent.

"Also, we expect more growth in 2014 in the credit book," Ortiz said, noting this would be particularly noticeable in the corporate client business and also in residential mortgages.

"There are many indicators that the confidence is returning and that the macro environment is improving."

RECOVERING BANKS

Bankinter shares - already up sharply in recent months from a low of 1.324 euros hit in mid 2012 - were down 0.1 percent at 5.540 euros by 1149 GMT, versus a 0.5 percent fall in the broader European banking index. The stock last week hit a more than four-year high of 5.738 euros.

As Spain emerges from a prolonged recession, its banks are recovering from a real estate market crash that wiped out 2012 earnings when they were forced to book writedowns, forcing some into state bailouts.

But like peers across Europe, many are still cleaning up their books ahead of a region-wide health check in 2014, before the European Central Bank takes over as banking supervisor.

Bankinter halved the bonds it has in its fixed income portfolio - mainly public debt - to 4.5 billion euros in the fourth quarter and also speeded up sales of homes repossessed from struggling borrowers, even though this caused higher losses on asset disposals.

Still, lower provisions compared with 2012 helped earnings, while Bankinter's soured loans as a percentage of total debts were flat at 4.98 percent in December, compared with 4.99 percent at the end of September, bucking the sector trend.

The bank said its core capital ratio under Basel III "fully-loaded" criteria, which takes into account changes that need to be made by 2019, was between 11.5 percent and 11.9 percent, above minimum requirements.

Bankinter made a net profit of just over 215 million euros for 2013, up 73 percent on 2012 and beating analyst forecasts averaging 211.5 million.

Trading gains were up 84 percent on 2012 levels, offsetting a 3.7 percent fall for the whole of 2013 in net interest income, which came in at 636 million euros.

"(There is a) positive read-across for trading income and provisions at the other Spanish banks, especially Caixabank and Sabadell," analysts at Citi said in a note. "Santander and BBVA should also see strong non-net interest income gains in their Spanish results."

($1 = 0.7383 euros) (Editing by Mark Potter and David Holmes)

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