* Bankia has limited exposure to Catalonia
* Bad loan ratio falls to 8.8 pct in Q3
* Spanish state owns around 67 pct of bank (includes shares reaction and details on bad loans)
By Jesús Aguado
MADRID, Oct 30 (Reuters) - State-owned lender Bankia , among the Spanish banks least exposed to Catalonia, reported a 10 percent fall in third-quarter net profit on Monday but showed progress in shrinking its bad loan portfolio.
Spanish banks’ reporting season is being partially overshadowed by Catalonia’s independence drive and its potential impact on financial markets. However, Bankia has only around 5 percent of its business in Catalonia.
On Monday, Bankia shares were up 2.4 percent in a bullish market as Spain’s leading index Ibex-35 recovered from sharp losses after a weekend poll showed Catalan secessionists may lose their majority in regional elections scheduled for December..
While an economic recovery and a property rebound has so far allowed most of Spain’s banks to tackle toxic balance sheets faster than peers in Italy, results underlined that pressure on revenue from lending remains.
Like its Spanish competitors, Bankia is struggling to lift earnings from loans in Spain as interest rates hover at historic lows, while increasing competition erodes margins.
Seeking to boost its earnings, Bankia agreed in June to acquire smaller lender BMN to create the country’s fourth-biggest bank following a quick recovery from its 2012 bailout.
Net profit for the third quarter came in at 225 million euros, beating the 197 million euro forecast in a Reuters poll.
Net interest income, a measure of earnings on loans minus deposit costs, was 472 million euros, down 6.9 percent from a year ago and fell 3.9 percent from the previous quarter.
Bankia’s results showed that it managed to reduce its non-performing assets and net foreclosed assets by around 500 million euros.
Its bad loan ratio fell to 8.8 percent at end-September compared to 9.1 percent three months before, while the bank’s fully-loaded capital ratio rose to 14.16 percent, compared to 13.82 percent in the second quarter.
The European Central Bank announced this month new guidelines for lenders to reduce bad loans, although the plans are meeting with a fierce backlash in Italy.
Italian banks have more than 210 billion in non-performing exposure, while Spanish banks have combined non-performing loans of 106 billion euros..
The Spanish government, which owns around 67 percent of Bankia, said last week a partial sale of the lender was possible by the end of 2017 if the crisis prompted by a secession bid by the wealthy region of Catalonia was resolved. (Reporting By Jesús Aguado; Editing by Angus McSwan and Keith Weir)