January 28, 2020 / 9:42 AM / 20 days ago

Spain's Bankia sees further decline in lending income in 2020, shares fall 3%

MADRID (Reuters) - Spain’s state-owned Bankia (BKIA.MC) on Tuesday said it expected lending income to fall further in 2020 from 2019 as rock-bottom interest rates will keep eroding the bank’s margins.

FILE PHOTO: A man uses a cash dispenser at a Bankia branch in Madrid, Spain, April 29, 2016. REUTERS/Andrea Comas/File Photo

Like many other European banks, Spanish lenders are struggling to increase earnings from lending because of persistently low interest rates.

In the fourth quarter, Bankia’s net interest income (NII), a measure of earnings on loans minus deposit costs, fell 0.8% to 503 million euros, whereas analysts had expected 505 million.

Chief Financial Officer Leopoldo Alvear told analysts in a conference call he expected NII to decline further in 2020, particularly during the first half of the year.

Shares in Bankia reversed earlier gains and were down 3.5% at 0903 GMT following Alvear’s comments.

Bank of America said the results were supported by solid growth in fees though it said “shrinking net interest income would weigh on Bankia’s return on equity (ROE)” - a measure of profitability - which fell to 4.2% from 6% in September.

In an attempt to offset the impact of increasing competition on financial margins, Spanish banks are focusing on cutting costs and shifting their focus from a mostly mortgage loan book to more profitable consumer and enterprise lending.

In the fourth quarter, Bankia reported a larger-than-expected fourth-quarter loss of 34 million euros ($37.7 million) on Tuesday as loan loss provisions remained high.

This quarter the bottom line was also negatively affected by a Deposit Guarantee Fund (DGF) levy of 167 million euros, which also drove 2019 net profit 23% down to 541 million euros.

Bankia said it would propose a dividend of 355 million euros or 0.11576 euros per share, keeping the pay-out per share unchanged but raising the pay-out ratio to 65% from around 50%, which enables it to repay the state aid it received in 2012.

Bankia received a 22.4 billion euro rescue package to recover from property loan losses at the height of Spain’s financial crisis. The government aims to sell its 61.8% stake by the end of 2021.

During the call, Chief Executive Jose Sevilla said the lender remained committed to returning 2.5 billion euros of excess capital to shareholders, a key part of its three-year strategy laid out in 2018.

At a later press conference, attention is expected to turn to worries that a coalition government of the Socialists and far-left Podemos could rethink plans to privatize the lender.

Podemos has in the past lobbied for Bankia to offer services based on social, as well as market considerations and had advocated a supplementary tax on banks’ earnings.

Reporting By Jesús Aguado; editing by Jason Neely and David Evans

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