MADRID Bankinter's (BKT.MC) 2007 net profit fell short of forecasts as funding and operating costs rose, but the Spanish bank said on Thursday it was confident about the year ahead despite problems in the market and economy.
Spain's sixth-largest listed bank made a net profit of 362 million euros ($537 million), up 73.6 percent thanks to gains from the sale of half of its insurance unit but below a forecast of 372 million in a Reuters poll of six analysts.
Net interest income, the gap between interest paid on a bank's borrowing and earned on loans, rose 24 percent to 588 million euros, in line with forecasts.
However, growth slowed sharply to 14.4 percent year-on-year in the fourth quarter as short-term interbank rates jumped. Bankinter borrows on the 3-month interbank market but prices its loans against 12-month rates, which have been less erratic.
Operating profit also suffered in the last quarter of the year, down 12.1 percent year-on-year as it took on more costs having taken full ownership of a consumer finance joint venture it had with credit card company Capital One.
"We've done all the investments we needed to so this year costs will come down," Chief Executive Jaime Echegoyen said.
Echegoyen told reporters mortgage growth would keep slowing as the Spanish property sector hits the brakes and bad loans looked set to rise as the economy slows.
Bankinter lends more to small and mid-sized firms (SMEs), which default more than individual or retail borrowers.
"The rewards are greater with SMEs but the risks are also greater, so it's clear that bad loans will rise. Any future rise is because we're growing in profitable areas," he said.
Last year, Bankinter's non-performing loan rate was 0.36 percent of the total. Lending rose 18.7 percent to 37.6 billion euros, of which mortgages made up 28 billion euros, up 14 percent, while SME lending was 6.8 billion, up 23.4 percent.
Analysts said Bankinter shares were being driven more by takeover speculation than earnings or its often lauded focus on technology and high earners.
Bankinter is the scene of a power play between Credit Agricole (CAGR.PA), which bought an almost 20 percent stake in November, and Jaime Botin who owns 16 percent. Both have asked the Bank of Spain for permission to buy up to 30 percent.
Banesto shares, which had lost about 28 percent since the latest bout of takeover speculation in December, closed up 3.1 percent at 11.10 euros. The DJ Stoxx index of European bank stocks .SX7P was down 0.5 percent.
(Editing by Louise Ireland and David Holmes)