* Quarterly profit up 152 pct, misses forecast
* Net interest income 698 mln eur, up 36 pct
* Bad debt ratio falls, echoes improvements at rivals
* Shares rise, then slip
(Rewrites through, adds director general and analyst quotes,
By Sarah White and Jesús Aguado
MADRID, April 28 Bailed-out lender Bankia
reported lower bad debts for the first quarter on
Monday adding to optimism across Spain's financial sector.
Bankia, which the state has begun to return to private
hands, showed office closures and job cuts in 2013 were helping
cut costs as its quarterly profit more than doubled year on year
although it still missed forecasts.
The bank's efforts have made it a symbol of a turnaround in
Spain's financial industry and broader economy after a property
market crash and prolonged recession that led bad debt-laden
banks such as Bankia into state rescues.
Soured loans as a percentage of total credit fell to 14.3
percent in March, still above a sector average of 13.4 percent
in February but down from 14.7 percent in December.
That echoed a change flagged by rivals such as Caixabank
and Sabadell, which said last week bad loans
were waning as Spain's economy returns to growth.
"The improvement (in bad debt levels) came from the world of
individual clients as well as from the corporate world," Jose
Sevilla, director general of Bankia, told a news conference.
"As employment data improves we are seeing an evolution in
the new entries of bad debts."
Spain's stubbornly high unemployment rate, at 26 percent,
has been a concern for investors worried it could slow banks'
recovery, even though the government forecasts economic output
will grow 1 percent in 2014.
Bankia needed nearly half of a 41.3-billion-euro ($57
billion) rescue from Europe to help Spain's weakest banks deal
with capital shortfalls, created by their property deals.
The government began selling its majority stake in Bankia in
February, turning a small profit and whittling down its holding
in Spain's fourth-biggest lender to about 61 percent.
Sevilla, Bankia's second-ranking executive, declined to
detail when the state would next place a stake in the market,
but said investment banks were constantly pitching ideas for the
bank's privatisation strategy.
Under terms of the 7.5 percent stake sale in February, the
government has to wait until late May at the earliest.
Since its rescue Bankia has cut over 1,000 offices and more
than four times as many jobs, lowering costs by 10 percent in
the first quarter from a year earlier. Its costs-to-income ratio
was just under 50 percent, down from over 60 percent a year
Bankia's profit at 187 million euros was more than double
year-ago levels although the lender missed forecasts, as well as
analysts' expectations for net interest income, or earnings on
loans minus funding costs.
"The miss was driven by a disappointing quarter of fee
income and a higher-than-expected tax rate ... partially saved
by a strong performance on the cost line," Deutsche Bank analyst
Raoul Leonard said in a note to clients.
Fees on financial transactions fell to 231 million euros,
down 7 percent from the fourth quarter of 2013.
While Spanish banks have left the worst of their property
woes behind, after taking hefty charges on such deals in 2012,
many are still having a tough time bolstering core revenue.
Net interest income (NII) is improving for most versus a
year ago, due to falling deposit costs, and Bankia's NII rose 36
percent to 698 million euros. But its overall lending is still
falling, and its total credit stock fell 1.7 percent.
The bank is also more exposed to lower-yielding mortgages
than many of its peers, at a time when like its rivals it is
trying to win over small companies borrowers, which they can
typically lend to at higher rates.
Bankia shares were down 2.72 percent at 1.43 euros per share
at 1258 GMT, after rising in early trading.
Over time, lower bad debts will allow Bankia to cut charges
against losses, although Sevilla said banks were still building
up these buffers ahead of Europe-wide health checks this year.
He forecast Bankia's bad debts would fall around 500 million
euros each quarter this year, after dropping 842 million euros
from the end of 2013 to 19.2 billion euros at end-March. ($1 =
(editing by Keiron Henderson and Jason Neely)