(Adds Popular results, analyst comments, shares)
By Sarah White
MADRID, July 26 Bad debts rose in the first half
of the year at Spanish lenders Caixabank and Banco
Popular, weighing on their earnings even as income from
lending began to show signs of improvement.
A deep recession in Spain has hampered banks' recovery from
a real estate crash that ate into profits last year and forced
the state to bail out some lenders as more households and
companies fell into arrears.
Regulatory pressure is also taking its toll, as the Bank of
Spain urges lenders to take a stricter stance on how they treat
At Barcelona-based Caixabank, Spain's third-biggest banking
group, losses on deteriorating assets grew by more than 50
percent in the first half of the year despite having made hefty
provisions last year against losses on troubled property assets.
The bank took a further 540 million euro ($715 million) hit
in provisions against possible losses after reclassifying more
of its refinanced loans as non-performing, under instructions
from the Bank of Spain.
That pushed the ratio of bad loans in its credit book to
11.17 percent at the end of June, from 9.4 percent at the end of
While Caixabank benefits from government-funded protection
against losses on some of its assets, after it bought bailed out
lender Banco de Valencia, mid-sized Banco Popular does not.
Banco Popular's bad loans ratio was 10.84 percent at the end
of the first half, up from 9.94 percent at the end of March and
6.98 percent at the end of June 2012.
The bank said that growth in non-performing loans would slow
in the coming quarters, though analysts still flagged this as a
problem area for the bank, which posted net profit down 3
percent from a year ago.
"New non-performing loan entries are still high and there
are still worries there," Norbolsa analyst Nagore Diez said.
Banco Popular said that it does not expect a large hit from
reclassifying its refinanced debts in the coming months.
LENDING INCOME BRIGHTER
Caixabank still managed to more than double net profit to
408 million euros, beating analysts' expectations, though that
was partly thanks to a large jump in trading gains on bonds.
Net interest income, a closely watched measure of income on
loans, rose 10 percent from a year earlier. The lender's
acquisition of Banca Civica and bailed-out Banco de Valencia
last year helped in this regard, but analysts said that
underlying trends, such as falling deposit rates, also looked
"As Caixa digests the acquisition of Banco de Valencia, both
lending and deposit spreads should improve," Citi analysts said
in a note.
At Popular, which managed to ward off the need for state
help last year through a rights issue, net interest income fell
13 percent on the same period last year. But the bank said net
interest income in the second quarter had been up 11 percent on
the first three months of this year.
Shares in Popular were up 2.9 percent at 0854 GMT, with
Caixabank up by 0.54 percent.
Popular's net profit fell 3 percent from a year ago to 170
million euros. It beat analysts' expectations, also partly
because of high trading gains.
Aside from the new rules on refinanced debts, regulatory
pressure has also pushed Caixabank to shift its dividend policy.
The bank revealed late on Wednesday that it would offer
shareholders a payment in shares or cash for its second-quarter
dividend after the Bank of Spain's recent recommendation that
banks restrict cash dividends to no more than 25 percent of
($1 = 0.7555 euros)
(Additional reporting by Jesus Aguado and Tomas Cobos; Editing
by Paul Day and David Goodman)