Lending income squeezes Bankinter's Q3 profit despite solid fees

* Q3 net profit falls 0.5% compared year-on-year

* Quarterly profits beats forecast but below pre-pandemic levels

* Net interest income up 0.4% year-on-year but falls 3.6% q/q

* Shares fall 4%

By Jesús Aguado

MADRID, Oct 21 (Reuters) - A weaker than-expected performance in Bankinter's BKT.MC lending income was partly responsible for a 0.5% fall in net profit in the third quarter despite a solid increase in fees.

The country's fourth-biggest bank by market value reported a net profit of 110.4 million euros ($128.6 million) in the July through September period, slightly more than the 107 million euros forecast by analysts polled by Reuters.

The lender's quarterly net profit was below the 135 million euros recorded in the third quarter in 2019, before the coronavirus pandemic.

Shares in Bankinter fell 4% as the weaker lending income performance took the shine off fees, brokerage Jefferies said. So far this year, the stock had risen 58%.

Net interest income, earnings on loans minus deposit costs, rose 0.4% from the same quarter last year to 315.7 million euros, but was below the 321 million euros forecast by analysts and 4% lower than in the second quarter.

However, Bankinter's Chief Financial Officer Jacobo Diaz however told analysts it expected the bank to achieve a low-single digit growth in NII in 2021 backed consumer lending growth and positive "seasonality effects in the fourth quarter".

Banks across Europe are under growing pressure from rising bad debts and record-low interest rates, which is driving lenders to look for other areas of growth, such as commissions generated in private banking.

Bankinter managed to book a 55% year on increase in net commissions in the quarter thanks to one-fee of 45 million euros achieved with the sale of a renewable energy fund.

Diaz told analysts it expected a rise of 10% in fees for 2021 from a previously mid to high-single digit growth guidance.

In the quarter, cost of risk, which measures the cost of managing credit risks and potential losses for the bank, rose to 41 basis points from previously 23 points, while the recurrent cost risk fell to 35 basis points.

The banks CFO said it expected the cost of risk to finish 2021 at the lower end of its 40 to 50 basis points guidance.

($1 = 0.8583 euros)
Reporting by Jesús Aguado; additional by Emma Pinedo and Tomas Cobos; Editing by Inti Landauro and David Evans

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