By Jesús Aguado
MADRID (Reuters) - Spain's state-owned Bankia (MC:BKIA) and smaller savings bank Unicaja (MC:UNI) reported on Monday a fall in lending income in the third quarter, hurt by ultra-low interest rates.
Like other European banks, Spanish lenders are grappling with the consequences of the European Central Bank's September decision to cut its key deposit rate further into negative territory, making it tough for banks to earn money from their traditional lending business.
In July, even before the ECB rate cut, Bankia said that it would be unable to meet its 1.3 billion euro ($1.44 billion) net profit target in 2020.
On Monday it posted a 23% drop in third-quarter net profit from a year earlier to 176 million euros due to higher litigation and loan loss provisions, slightly above an average of 173 million euros forecast by a Reuters poll.
Net interest income (NII), a measure of earnings on loans minus deposit costs, rose 1.4% to 502 million euros, in line with analysts' forecasts. Against the previous quarter, however, NII was down 2.7%.
Unicaja meanwhile reported a more than 3% fall in NII in the quarter against the year-ago period and was down 2.5% against the previous quarter.
Shares in Bankia were down 3.3% at 0926 GMT, while Unicaja stock was up 0.8%.
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"(Bankia) NII was in line with UBSe/consensus, but declined circa 3% quarter-on=quarter and makes management's aim to repeat last year's 2.05 billion euro annual number increasingly ambitious, with a c5% quarter-on=quarter pick up needed in the fourth quarter," UBS said in a note.
In an attempt to offset the impact of increasing competition on margins, Spanish banks are focusing on cutting costs.
Bankia is shifting its focus from a mostly mortgage loan book to a more profitable consumer and enterprise business.
On Monday, Bankia said it was advancing in setting up a joint venture unit called 'Soyou' with Credit Agricole (PA:CAGR) in consumer lending.
In the first nine months, Bankia expanded its net loan book by 0.4%.
At the end of September, Bankia's core Tier-1 capital ratio, the strictest measure of solvency, was 13% compared to 12.91% at the end of June.
Bankia has so far generated 1.28 billion euros in excess capital since it launched its plan in February last year to return 2.5 billion euros ($3.1 billion) to shareholders over three years in an effort to pay back part of public bailout cash.
Bankia got a 22.4 billion-euro rescue package in 2012 to recover from property-loan losses at the height of Spain's financial crisis. The government is now selling off the 61% stake it holds.
($1 = 0.9019 euros)