MADRID (Reuters) - Spain’s Bankia (BKIA.MC) on Wednesday forecast a gradual recovery in lending income over the coming quarters after it reported a 54% drop in first-quarter net profit because of higher provisions for the impact of the coronavirus pandemic.
Bankia set aside 125 million euros ($135.49 million) to protect its balance sheet and shelter its customers from the financial impact of COVID-19, the disease caused by the novel coronavirus.
Spain’s fourth-largest bank by assets reported a net profit of 94 million euros ($102 million) in the January to March quarter.
Analysts polled by Reuters estimated earnings of between 50 million euros and 169 million euros, as views varied regarding provisions, especially after regulators temporarily relaxed IFRS 9 accounting rules, which the European Union introduced in response to the 2007-2008 financial crisis.
Shares in Bankia rose more than 2% after it said net interest income - or earnings on loans minus deposit costs - had bottomed out in the first quarter. It forecast gradual recovery for the rest of the year, helped by an increase of the interbank lending rate euribor.
In the first quarter, net interest income, or earnings on loans minus deposit costs, fell 8.7% to 458 million euros, below analysts’ forecasts of 473 million, due to low interest rates.
“We expect this (first) quarter to be the lowest in terms of net interest income of the year and we expect it to grow over the next few quarters,” Bankia’s chief financial officer, Leopoldo Alvear, told analysts in a call.
In anticipation of worsening conditions, Bankia’s cost of risk rose in March to 59 basis points compared to 26 bps at end-December, while its return on equity ratio (ROE) - a measure of profitability - fell to 3% from 4.2% at end-December.
Bankia, in common with rival Santander (SAN.MC) and others, has been taking steps to counter risk as the global economy reels from the coronavirus crisis.
As part of its measures, Bankia already said in March it may not meet its target of returning 2.5 billion euros ($2.7 billion) of excess capital - above the 12% core tier-1 capital threshold - to shareholders by the end of this year.
Dividend distribution has been one of the ways for Bankia to repay the state part of the 22.4 billion euro rescue package it received to recover from property loan losses at the height of Spain’s financial crisis.
The government has until the end of 2021 to offload its 61.8% stake.
At the end of March, Bankia had a core tier-1 capital ratio - the strictest measure of solvency - of 12.95% versus 13.02% at end-December, while its non-performing loan ratio stood at 4.9%, down from 5%.
Reporting by Jesús Aguado; additional reporting by Emma Pinedo; editing by Andrei Khalip and Barbara Lewis