* Bankia Q2 net profit up 94 pct at 245 mln eur
* Net interest income up 26 pct to 730 mln eur
* Beats expectations as bad loans drop
* Bankia shares rise
(Adds analyst comment, details on lending trends, bad loan
portfolio sales, updates shares)
By Sarah White and Jesús Aguado
MADRID, July 28 Bankia nearly doubled
its second-quarter net profit as Spain's economic recovery
helped the bailed-out bank to increase margins and bad debts
fell for a second straight quarter.
Bankia's profit jump provides further evidence that a
sustained upturn is taking root among Spanish banks as the
economy emerges from recession and the rate of defaults on loans
begins to ease.
The bank's strong performance will focus attention on
government efforts to return rescued banks to the private
sector. The state owns about 60 percent of Bankia and turned a
small profit by placing a 7.5 percent stake in the market in
Spain has racked up billions of euros of losses from
shedding other nationalised banks, including Catalunya Banc,
which it agreed to sell to BBVA at a loss to taxpayers
Bankia's margins improved as a result of a drop in deposit
rates paid to customers plus Spanish banks' ability to charge
more on new loans than several years ago. But Bankia's net
lending fell 3.3 percent from December to June as bank credit is
still shrinking in Spain.
Bankia Chief Executive Jose Sevilla said new lending was
increasing in some areas. The bank, which is heavily weighted
towards mortgages, is trying to compete with rivals in
higher-margin business lending.
"Credit flows are increasing," Sevilla told a news
conference on Monday, adding small company loans were starting
Sevilla said Bankia might cut non-performing loans by more
than expected this year as it is also in the process of selling
two portfolios of troubled debts, with a combined nominal value
of over 1 billion euros.
He also said it was up to the government to decide whether
to sell any more of its holding in the bank.
Bankia, the country's fourth biggest bank, has become a
symbol of Spain's turnaround since returning to profit in 2013.
It was cleansed of soured property assets after being forced,
along with rivals, to take big writedowns on troubled loans, and
it took almost half of a 41.3 billion euro ($55.48 billion)
rescue from Europe two years ago.
"As with other Spanish banks this quarter, the improvement
in margin (at Bankia) has come from lower funding costs while
maintaining asset yields stable," Daragh Quinn, banking analyst
at Nomura, said in a note to clients. He has a "Sell" rating on
Rivals Sabadell, Bankinter and Caixabank
have also reported net interest income gains. BBVA
and Santander, which make most of their
profit outside Spain, should reflect similar trends in their
domestic businesses when they report results later this week.
The downward trend in bad debts at Bankia is in sharp
contrast to other euro zone countries such as Italy where banks'
soured debts are expected to keep rising.
Bankia's second-quarter net interest income (NII), or
earnings on loans minus financing costs, rose 26 percent from
the same period a year ago to 730 million euros, beating a
forecast of 717 million euros in a Reuters poll.
Excluding the effect of a subordinated loan that hit last
year's earnings, NII would have still risen 15 percent.
Its net income jumped 94 percent in the April-June period to
245 million euros.
But Bankia still has work to do to rebuild its franchise and
The bank is still cleaning up its balance sheet as are other
banks across the region in preparation for Europe-wide health
checks of their assets this year.
Bankia's bad debts as a percentage of total credit, while
still slightly above a sector average, dipped to 14 percent at
the end of June from 14.3 percent three months earlier,
mirroring improving trends across the industry.
Its coverage ratio, or the level of buffers it has to cover
problem loans, was 58.9 percent in June, up from 56.5 percent in
Bankia, which has cut thousands of jobs and shed stakes in
companies as a condition of its rescue, shrank costs by about 10
percent in the first half of 2014 compared to a year earlier.
Its return on equity (ROE), a measure of profitability, was
7.9 percent in June, up from 5.8 percent in December.
"Bankia has room to beat its 10 percent ROE target (for
2015)," UBS analyst Ignacio Sanz said in a note.
Its shares, which have risen more than 17 percent this year,
were up 1.38 percent at 1.47 euros per share at 1325 GMT.
($1 = 0.7444 Euros)
(Additional reporting by Tomas Cobos Editing by Louise Heavens
and Jane Merriman)