News Article Date: Wednesday 21st of October 2009
MADRID (Dow Jones)--Bankinter SA (BKT.MC) said Friday that third-quarter net profit fell 4.6%, as higher costs and loan-loss obligations offset growth in lending income.
Net profit at Spain's sixth-largest listed bank by market value fell to EUR66.2 million from EUR69 million a year earlier. That was slightly higher than the average forecast of EUR64 million from a Dow Jones Newswires survey of eight analysts.
Results were driven by a 22% rise in net interest income to EUR215 million, also ahead of expectations of EUR208.1 million.
However, Chief Financial Officer Gloria Ortiz said the trend for lending income likely will reverse next year, when the main drivers of growth in recent quarters turn into a drag. Ortiz guided for a "high single digit" decline in lending income next year, adding that the bank's loan book is likely to shrink both this year and the next.
The net interest income, or revenue generated by a bank from its bread-and-butter activity of writing loans and taking deposits, has been the top source of income for Spanish banks' earnings in 2009, allowing them to report robust results despite a weak economy and higher loan losses.
In a report published Friday, Fitch Ratings noted that the Spanish banks are facing "significant pressure on revenue, particularly in 2010," as loans re-price to historically low interest rates and volumes remaining subdued due to a recession in Spain.
Fitch expects Spain's economy to contract by 3.7% this year, and by another 0.6% in 2010.
Fee income, meanwhile, remained anemic, but most banks are now raising fees to boost results. At Bankinter in the third quarter, fees were down 8.9% on the year.
The small Madrid lender continued to benefit in the third quarter from its relatively conservative approach to lending during Spain's construction-fuelled economic boom.
Throughout the downturn, its non-performing loan ratio has remained the lowest in Spain. In the third quarter, it rose to 2.22% of total loans - excluding securitized loans - from 0.91% a year earlier. The sector average in August was 4.9%, according to the latest available data from the Bank of Spain.
To cover the rising loan losses, Bankinter set aside provisions of EUR56.9 million, up 36% from a year earlier.
The bank at the end of the third quarter held EUR981.7 million of bad debt on its books, while it has amassed a total of EUR826.2 million to cover bad loans.
Core capital stood at 6.62% at the end of September, increasing by 10 basis points compared with a year earlier, but remained below the sector average. Banesto Bolsa analyst Ignacio Soto said the relatively weak capital position was the only potential sticking point in Bankinter's results.
"It's true that their risk profile is clearly lower than rivals, though it's also true that this level of core capital is some way below the new unofficial benchmark of 8% in the sector," Soto wrote in a note to clients.
CFO Ortiz said the bank thinks capital levels remain adequate. She said Bankinter would be able to generate enough capital to cover future loan losses by retaining earnings in coming quarters.
At 1140 GMT, Bankinter's shares were down EUR0.10, or 1.1%, at EUR8.8.34, broadly in line with the Spanish market. They are up by around 40% since the beginning of the year. The bank's defensive profile has helped it perform better than the other midsize banks, though it still lags the share-price growth of larger rivals Banco Santander S.A. (STD) and Banco Bilbao Vizcaya Argentaria S.A. (BBV).
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