EUR 88.38 For Business Accounts Only

Bankia 2Q17 results: Beats consensus estimates but NII declines

Bankia has reported €210mn (–14.3% yoy and –30.9% qoq) net profit in 2Q17. This figure beats consensus estimates due to higher trading income. All the other lines come out with no major surprises. Net interest income was €491mn (–10.1% yoy), fees €218mn (+5.5% yoy), ordinary revenue €760mn (–8.7% yoy), costs €378mn (–2.2% yoy) and PPP €382mn (–14.3%). Asset quality improved, with NPL ratio down to 9.1% (9.5% in 1Q17) and coverage was stable to 53.9% (53.7% in 1Q17). Cost of risk was 0.25% (0.28% in 1H16). CET 1 fully loaded improved to 13.82% (+45pb from 1Q17). The customer yield spread was also stable at 1.59% (1.60% 1Q17).

BMN’s merger: A new push to ROTE. Buy. This set of results show the weaknesses and strengths of Bankia. On the one hand, core banking revenue generation is under pressure due to negative interest rates. On the other hand, the management is able to offset weak revenues with tight cost control and a declining cost of risk. However, the latter have not an infinite improvement possibility. That’s why we believe that the merger with BMN is key for the new investment case of Bankia: Further cost cutting potential to enhance returns. We maintain our Buy recommendation and our €4.85 target price.