MADRID, April 24 Spain's Caixabank and Sabadell on Thursday said bad debts had fallen slightly in the first quarter, signalling the start of a more marked turnaround for the country's banks.
Spain's banks are trying to recover from a real estate market crash that hit earnings when they took hefty charges on soured loans two years ago. Spain's prolonged economic downturn had also taken its toll on bank revenues.
Non-performing loans, or debts left unpaid for over three months, have been a drag on lenders even as revenues improved for some.
Sabadell and Caixabank, both from the northern region Catalonia, said bad loans as a percentage of total credit had dropped at the end of March compared to the end of 2013.
The ratio was 11.36 percent at the end of the first quarter at Caixabank, down from 11.66 percent, while smaller peer Sabadell reported a slight fall from 13.63 percent to 13.57 percent over the same period.
Barcelona-based Caixabank said it was the first drop in its bad debt ratio since the end of 2006.
The two banks have been among the most acquisitive during the financial crisis, snapping up bailed-out peers to increase their market share across Spain. But that also inflated their bad loan exposure.
Spain's economy is forecast to grow 1 percent in 2014, after exiting recession in the second half of last year, and that momentum should start feeding through to banks' earnings.
Mid-sized Bankinter on Wednesday forecast its bad debts were also close to reaching a peak, while its net interest income (NII), or earnings on loans minus deposit costs, grew in the first quarter compared to a year ago.
Falling deposit costs are helping net interest income to grow. Sabadell said this had jumped over 17 percent from the first quarter of 2013 to 530 million euros ($733 million), while at Caixabank it was broadly flat at 993 million euros.
Some lenders are continuing to build up defences against losses, however, before the European Central Bank takes over as the euro zone banking supervisor in November and ahead of Europe-wide health checks in the coming months.
Sabadell said it had made 931 million euros of gains from bond trading in the first quarter and it used most of these towards provisions against soured assets, which more than tripled to 1.1 billion euros compared to a year ago.
Sabadell's first-quarter net profit jumped 59 percent from a year ago to 81.2 million euros. Caixabank's quarterly net income fell by more than half to 152 million euros, due to a an unfavourable comparison to a year ago when it was helped by one-off gains from acquisition.
Caixabank shares were up 1.5 percent at 4.66 euros per share by 0710GMT, while Sabadell's stock was up 1 percent, at 2.39 euros per share.
The country's biggest banks Santander and , which have big operations overseas but were also hit by losses at home, report first quarter results next week.
($1 = 0.7231 euros) (Reporting by Sarah White and Jesus Aguado, Editing by Jane Merriman)