UPDATE 2-Banesto profit grows but crisis yet to hit
(adds comments from conference call, analyst comments, share price, recasts lead)
By Judy MacInnes
MADRID, Oct 7 (Reuters) - Spanish retail bank Banesto (BTO.MC) posted double-digit growth across all divisions in the first nine months of the year on Tuesday but it warned that bad loans will rise as Spain's economy slows.
Spain's fourth-largest bank, 88-percent owned by the euro zone's number one bank Banco Santander (SAN.MC), was the first major European bank to announce third-quarter results.
With net profit of 653.9 million euros ($888.7 million), up 12 percent from a year earlier, Banesto just beat analysts' forecasts but the period was too early for effects to be apparent from the brutal economic slowdown now biting Spain.
Speaking to analysts, Chief Executive Officer Jose Garcia Cantera said: "The trend in bad loans we have seen in the last quarters will continue over the next few."
Banesto's non-performing ratio increased by nearly 50 percent in the third quarter from three months earlier but was still low at 1.17 percent.
Loan defaults in Spain have risen as a decade-long property boom imploded and a senior banking source warned last week that the rate of bad loans across all Spanish banks could rise to 7-8 percent over the next two years.
While Spanish banks have not invested in instruments linked to the U.S. subprime mortgage crisis, they are exposed to a massive property bubble which is now deflating. Economy Minister Pedro Solbes said this month Spain could still be affected the global turbulence.
Banesto is less exposed to the property developers now struggling to pay off debts across the country than other banks. Only about 1 percent of its non-performing loans are to developers and Garcia Cantera said he expects the level of NPLs to developers to remain stable to year-end.
Banesto's total provisions rose 9.6 percent in the first nine months to 1.446 billion euros from a year earlier.
SOLID EARNINGS GROWTH
It said it posted solid growth across all its business lines despite a difficult operating environment, and said it has already met its full-year targets for return on equity and cost-income ratio.
The bank said net interest income rose 13.9 percent to 1.226 billion euros, also beating forecasts.
Renta 4 analyst Nuria Alvarez said the results were "positive, given that the bank has posted double-digit profit growth across all its business lines, against a worsening economic backdrop compared to the first six months of the year."
LOAN GROWTH SLOWS
Banesto's total lending growth slowed in the first nine months from a year earlier, increasing 2.9 percent to 74.166 billion euros compared with a 10 percent rise in the first six months.
This looked robust in the context of Bank of Spain data last week which showed Spanish banks slashed mortgage lending by 47 percent in August and consumer lending by 35 percent.
Garcia Cantera said the bank was focusing on managing risk and is targeting "high quality, low risk" clients.
Total deposits increased 18.6 percent to 55.167 billion euros.
Operating profit grew 13.3 percent to 1.092 billion euros, with costs up only 3.4 percent at 740 million euros.
The bank's cost-income or efficiency ratio improved to 39.1 percent, in line with Banesto's full-year target of 39.0 percent.
Return on equity reached 18.0 percent in the nine-month period, also in line with the bank's full-year target.
Banesto's core capital ratio, which is an indicator of the bank's solvency, stood at 6.2 percent at the end of September compared with 6.4 percent a year earlier.
But under new Basel II regulations, which will allow the banks to free up capital, this ratio stood at 7.2 percent.
The bank highlighted its solid liquidity position at the end of September, with 5.4 billion euros in available wholesale funding.
A Reuters survey of five analysts had forecast Banesto would make net profit of 644 million euros and net interest income of 1.215 billion. (Editing by Paul Bolding)
