MADRID Spanish lender Bankia (BKIA.MC) said on Wednesday its turnaround was on track as it returned to profit after huge losses and a state bail-out last year, though it warned that the country's troubled economy was still a risk for its business.
Bankia, which came to symbolize Spain's banking crisis after making a record 19.2 billion euro loss in 2012, was purged of soured property assets last year, helping it post a 72-million-euro first-quarter profit as provisioning fell.
That was higher than some analysts' expectations, as lower operating costs also helped boost income.
But lending shrank, pushing down net interest income - the different between earnings on loans and payouts on deposits - compared with the fourth quarter, and generating new business will be one of Bankia's big challenges in the coming months in recession-hit Spain.
"This year, 2013, will mark the return to normality, in an environment that is still not normal," Bankia's director general Jose sevilla said at a news conference late on Wednesday, adding that 2012 had been "the year of the clean-up."
"There are macroeconomic tensions, tensions on interest rates... (it) is a very demanding environment," he added.
Bankia is still the target of public anger in Spain after its woes, stemming from real estate exposures that turned bad after a 2008 property crash, pushed the country to seek a 41-billion-euro European rescue.
The lender has another four years to restructure and return to private hands, and Sevilla said on Wednesday that Bankia still hoped to be able to start paying dividends - most of which would go to the government - by 2015.
Bankia's parent group BFA is fully state-owned, and once a capital hike from EU funds is completed in the coming weeks, BFA will have about 69 percent of Bankia.
The rest is mainly owned by hundreds of thousands of ordinary Spaniards who bought shares in Bankia's 2011 stock market listing, barely a year before its rescue, only to see the value of the stock all but wiped out.
The Bankia-BFA group as a whole reported a net profit for the first three months of the year of 213 million euros, keeping it on target for a full-year profit of 800 million euros.
Group profits were helped by dividends reaped from large stakes held in several Spanish companies, though BFA has to sell those holdings over the coming years as a condition of its EU bail-out.
Net interest income at Bankia, which fell 18 percent quarter on quarter to 601 million euros, was also hurt by the tail-end of a deposit price war in Spain.
Sevilla said those effects would wear off by the third quarter as deposit rates drop, and he added that deposit outflows seen last year had stopped and that the bank saw signs of clients returning.
Bankia's bad debt ratio, meanwhile, a closely watched indicator, was practically unchanged from the end of December.
At 13.1 percent of total loans, it is still far higher than a sector average of 10.39 percent in February, though the bank said it hoped it would not rise further by much this year.
Bankia said it was speeding up its restructuring and hoped to finish closing over 1,000 branches by the first quarter of next year, laying off staff in the process.
It is still fighting battles on many other fronts, however, which are hampering its image at home. Some clients who bought preference shares, including many pensioners, will lose up to 70 percent of their investments as part of the rescue, a move that is still sparking regular protests.
Bankia said a compensation process aimed at preference shareholders who believe they were mis-sold the securities would not affect capital at its underlying business and that parent group BFA should be able to foot the bill.
The lender never published first-quarter results in 2012, when it was on the verge of a bail-out.
(Reporting by Sarah White; Editing by Julien Toyer, Greg Mahlich and Dan Grebler)