* Sabadell Q2 net interest income up 32 pct at 546 mln euros
* Analysts had forecast NII of 541 mln euros
* Bankinter NII up 18 percent at 185 million euros
* Sabadell bad loans ratio falls to 13.35 percent
By Sarah White
MADRID, July 24 Mid-sized Spanish lenders Banco
Sabadell and Bankinter showed net income from
lending rising at a higher-than-expected rate in the second
quarter, as a sustained turnaround in the country's banking
sector started to take shape.
Spanish banks were crippled by a property market slump and a
six-year economic downturn, hitting earnings through hefty
writedowns and a drop-off in lending.
Many are still setting aside funds as a precaution against
soured loans - with Sabadell's provisions to cover troubled
assets rising 32 percent in the first half of 2014 compared with
a year ago - and are also bumping up their capital levels ahead
of Europe-wide health checks this year.
But income earned from loans, net of funding costs, has
begun to improve since the end of 2013, as payouts on deposits
come down, helping banks' margins.
Sabadell and Bankinter reported further gains in this area
in the second quarter, setting the tone for the rest of the
sector ahead of earnings next week from larger rivals Santander
Sabadell, Spain's fifth-biggest bank by stock market value,
said on Thursday net interest income (NII) reached 546 million
euros ($734 million) in April to June, up 32 percent from a year
ago and higher than in the first three months of the year.
Analysts polled by Reuters had forecast NII of 541 million
At smaller Bankinter, NII also grew 18 percent from a year
ago, to 185 million euros.
The two banks also said profits had improved in the second
quarter, with Sabadell's rising 20 percent to 87 million euros
and Bankinter's up 43 percent at 74 million euros.
Their bad loans as a percentage of total credit - a
closely-watched measure of how defaults were hurting banks
during the worst of the crisis - fell at the end of June
compared with end-March.
Sabadell's ratio stood at 13.35 percent, just below a sector
average, while Bankinter, which was not as exposed as peers to
the ailing real estate sector, has a much lower level.
($1 = 0.7424 Euros)
(Editing by Julien Toyer and David Holmes)