* Q1 net 306 mln euros vs consensus of 250 mln
* Loan loss provisions rise 20 pct
* Bank created special 20 bln euros cash buffer (Adds detail from statement, CEO, trader comment)
MILAN, May 14 (Reuters) - Net profit at Intesa Sanpaolo, Italy’s biggest retail bank, fell by 62 percent in the first quarter but still came in slightly above expectations thanks to strong fees and cost cuts, the lender said on Tuesday.
The bank took a far more cautious approach to its loan book in an economy that is deep in recession, increasing provisions against bad debt by 20 percent to 1.17 billion euros.
That compared to actual growth of non-performing loans of 3.2 percent in the quarter and domestic rival UniCredit’s decision to cut its own provisions by 9 percent year-on-year In the first quarter.
CEO Enrico Cucchiani said in an emailed statement after the results that the bank had taken an “extremely conservative” stance in the first quarter because of the Cyprus crisis and political instability in Italy.
It increased its coverage of non-performing loans to 60.6 percent, compared to an average for the Italian industry of 49 percent.
Its core tier 1 capital ratio, a key measure of financial strength, rose by 10 basis points to 10.7 percent - one of the strongest in Italy and compared to the target under the new Basel III rules for systemically important banks of 9.5 percent.
The bank also said it had set aside a 20-billion euro special cash buffer in the first quarter to deal with potential problems, but now felt risks had subsided and that money could be invested.
“The hurricane now seems to have passed by and we can release the brakes,” Cucchiani said.
In 2012, Intesa - which raises 80 percent of its revenues in Italy - set aside 4.7 billion euros to cover for bad loans.
The bank reported a net profit of 306 million euros ($397.26 million) in the first quarter compared with 804 million euros in the same period of 2012, when the result was helped by a buyback of its own bonds. A consensus of eight analysts compiled by Reuters had forecast a net profit of 250 million euros.
The first-quarter result marks a return to profit for Intesa, which had booked a loss of 83 million euros in the last three months of 2012 due to a shortfall at its Hungarian unit. Profits were helped by an 11.3 percent annual increase in net commissions and a 5 percent decline in operating costs.
Intesa’s shares wobbled after the results, however, turning negative at first but then going back into positive territory. The stock was up 0.9 percent at 1.4 euros by 1235 GMT.
“The net number was a small beat against consensus but it’s low quality because the provisions are still high,” said a Milan trader. ($1 = 0.7703 euros) (Reporting By Silvia Aloisi, additional reporting by Stephen Jewkes; Editing by Lisa Jucca and Patrick Graham)