CAIXY Caixabank (PK)

By Jeannette Neumann 

MADRID-- CaixaBank SA on Thursday reported a 27% decline in first-quarter net profit to EUR273 million ($308.7 million) compared with the same period a year earlier, on weaker lending income and fees as Spanish banks battle negative interest rates and other headwinds to profitability.

Analysts had anticipated CaixaBank, Spain's third-biggest bank by market value, would report net profit of EUR287 million in the first quarter, according to a poll by data provider FactSet.

The bank, led by Executive Chairman Isidro Fainé, said net interest income was EUR1.02 billion, in line with analysts' expectations and a 10.4% decline from the first quarter of 2015. Fees were also down.

Net interest income, a key driver of revenue for retail banks such as Caixabank, is the difference between what lenders pay clients for deposits and charge for loans. Caixabank and other Spanish lenders have removed interest-rate floors on mortgage contracts, which has also chipped away at the profitability of loans.

CaixaBank has set it sights on neighboring Portugal in an expansion bid. Earlier this month, CaixaBank said it was once again going to try to take over Portuguese lender Banco BPI SA. A previous attempt had failed as some shareholders balked at the offering price. CaixaBank already owns 44.1% of BPI and wants full control to be able to guide the bank in boosting profitability.

CaixaBank and other lenders in Spain are facing gale-force headwinds in their bid to boost profitability. Negative interest rates, lackluster demand for home mortgages and muted returns on business loans have sent lenders scrambling to cut costs. CaixaBank recently said it had reached early retirement agreements with up to 484 employees to trim salary expenses.

But executives have said the bank's branch network--he most extensive in Spain--is off limits for any major trims. CaixaBank has charted a dual course--maintaining that many clients still rely on bricks-and-mortar banking--while also investing in digital banking applications to cater to younger clients.

CaixaBank is bucking the trend by staunchly defending its branch network in the tide of shifting customer habits. Banco Santander SA, for instance, has said it plans to close 450 smaller bank branches this year in Spain.

Spain has more branches per person than any other country in the EU except Cyprus, according to European Central Bank data through 2014, the latest figures available. Even after a 26% decline in branches between 2010 and 2014, Spain had around three times as many bank branches as the U.K.

Write to Jeannette Neumann at jeannette.neumann@wsj.com

(END) Dow Jones Newswires

April 28, 2016 03:25 ET (07:25 GMT)

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