* Q1 net profit 60 mln euros versus 65 mln in Reuters poll
* Q1 net interest income up 27.5 percent at 169 mln euros
* Bad loans ratio up slightly at 5.05 percent at end-March
(Writes through, adds shares, CFO and analyst comments)
By Jesús Aguado and Tomás Cobos
MADRID, April 23 Spain's Bankinter
reported a 19 percent rise in first-quarter net profit and said
bad loans were close to a peak, setting a positive tone for the
rest of the country's banks which are aiming to benefit from an
Bankinter, like bigger rivals such as Santander and
BBVA, is emerging from a deep financial crisis after
the Spanish real estate market collapsed.
Spain came out of recession in the second half of 2013 and
the economy is forecast to grow 1 percent this year. But a
shrinkage in credit availability and high unemployment in the
country, where one in four is out of a job, remain a drag on the
banks, with companies and households struggling to pay debts.
The banks have already taken hefty provisions on bad loans
to cleanse soured real estate assets, which gutted their
earnings in 2012 and left some short of capital.
But Bankinter - Spain's seventh largest bank by market value
and one of the least exposed to the ailing property sector -
said its bad loans were unlikely to grow much further.
"We're close to the peak," Gloria Ortiz, Bankinter chief
financial officer, told analysts on a conference call.
Bankinter's bad loans as a percentage of total credit stood
at 5.05 percent at the end of March, slightly more than the 4.98
percent registered at end-December but well under the 13.4
percent ratio for the industry as a whole in February.
Its net new entries of bad loans, at just over 52 million
euros in the quarter, were less than half what they were in the
first quarter of 2013.
Other Spanish banks that report results over the next two
weeks, including Caixabank and Sabadell on
Thursday, are also expected to show a slowdown in the pace at
which debts turn sour.
But bad debt levels could also be affected by a Europe-wide
banking health check this year that could push banks to
recalculate how they classify some assets.
Spanish banks are trying to adjust their revenue streams
after relying heavily last year on interest from government bond
holdings to boost net interest income. Many are trying to ramp
up lending to small companies in a bid to boost margins. Several
have already launched lending initiatives aimed at small
Falling deposit costs are helping some banks turn around net
interest income, a key measure of earnings on loans minus
funding costs. Bankinter's net interest income was 169 million
euros ($233 million) in the first quarter of 2014, 27.5 percent
higher than a year ago and in line with analysts forecasts in a
Ortiz said net interest income would grow further this year,
as the cost of capturing new deposits was still falling after a
price war among Spanish lenders tailed off last year.
The bank's net interest income fell compared to the last
three months of 2013.
"Net interest income declined 3 percent quarter on quarter,
which we attribute to a lower contribution from the sovereign
bond portfolio," analysts at Espirito Santo Investment Bank said
in a note to clients.
Many banks sold sovereign (government) bonds at the end of
last year to clean up their books ahead of this year's health
checks, being carried out before the European Central Bank takes
over as the euro zone banks' supervisor in November.
Bankinter made a net profit of 60 million euros for the
first quarter, compared to 50.4 million euros in the same period
a year earlier. This fell short of an average forecast for 65
million euros in a Reuters poll of five analysts.
Analysts said the bottom-line miss was mostly due to a
higher than expected tax rate and costs.
Revenues grew from a year ago as net lending income rose.
Its Linea Directa insurance business - spun off from Direct
Line, after it bought the Spanish business from Royal Bank of
Scotland - provided nearly a quarter of revenues.
"The bank continues to invest in private banking and
insurance which should take some of the edge off the miss,"
Stefan Nedialkov, an analyst at Citi, said in a note.
Bankinter's shares, which are up over 15 percent so far this
year, were 0.7 percent higher at 5.81 euros by 1110 GMT.
($1 = 0.7248 Euros)
(Additional reporting by Sarah White and Tracy Rucinski;
Writing by Sarah White; editing by Keiron Henderson and Jane