Spains' Banesto says resilient to sharp downturn

Spanish bank Banesto posted a 6.8 percent fall in first-half profit after hiking bad-debt provisions, but said its capital levels were resilient if the Spanish economy deteriorated sharply.

Banco Espanol de Credito SA (Banesto), majority-owned by Banco Santander SA and the first Spanish bank to report first-half results, said it made one-off provisions of 85 million euros in the first half.

Its ratio of bad loans to total loans rose to 3.48 percent from 3.12 percent at end-March, accelerating the growth rate compared with previous quarters, but falling short of Spanish banks' average non-performing loan (NPL) ratio of 5.4 percent.

"We believe second-quarter numbers underpin our view about asset quality deteriorating to a larger extent that initially expected by banks" said JP Morgan analyst Ignacio Cerezo.

Banesto Chairwoman Ana Botin, the oldest daughter of Santander chairman Emilio Botin, said she expected Spanish NPL ratios to peak in 2011.

Spain suffers the highest unemployment rate in the euro zone after a decade-long property and construction boom turned to bust. The country's banking system is a focal point for Europe-wide stress tests on banks amid fears the euro zone's fourth largest economy may suffer a Greek-style debt crisis.

Banesto is the only Spanish bank that will not take part individually in the stress tests due to be published later this month, as it will be tested as part of the Santander group.

Under the bank's own stress test, assuming an additional 3 percentage points drop in Spanish gross domestic product in 2010, the bank would not suffer capital deficits in either 2010 or 2011, Botin said.

First-half profit was above analysts' expectations, as was net interest income, broadly what a bank earns on loans minus what it pays on deposits.

A Reuters survey of seven analysts had forecast Banesto would make a net profit of 376 million euros and net interest income of 855 million euros.

Banesto shares edged to a 2-1/2 month high of 7.60 euros but were unchanged at 7.54 euros in mid-morning trade.