Rescued Spanish lender Bankia reported tentative signs of recovery on Thursday, even as huge writedowns on bad property assets led it to post the country's biggest ever corporate loss of €19.2-billion ($25.2-billion U.S.).
Bankia, the focal point of Spain's banking crisis since it requested a state bailout in mid-2012, said deposits were rising, non-performing loans falling and costs being cut, and kept its forecast to return to profit this year.
However, the bank faces a big challenge in a country gripped by recession and battling to reduce its government deficit.
"The clean-up has been very significant but Bankia's main business, like much of the banking sector, is in Spain and the outlook is complicated," BPI analyst Javier Barrio said.
Undermined by a property market crash, Spain's banks drove the country to seek just over €40-billion from its European partners last year to help clean up its financial sector.
Bankia was at the heart of the crisis, requiring a state rescue less than a year after listing on the stock market and leaving tens of thousands of ordinary Spaniards who had invested in the initial public offering (IPO) out of pocket, and furious.
The bank took nearly €24-billion of provisions on soured property loans and assets last year in a bid to wipe the slate clean. It has dumped those assets in a government-backed 'bad bank' set up as part of Spain's deal with Europe.
"It will be a complex year, a year of challenges," Chief Executive Jose Ignacio Goirigolzarri told a news conference, as he predicted 2013 would be "the year of the restructuring".
Goirigolzarri said Bankia was now stable, pointing to improving deposits at the end of 2012.
The bank was cutting costs "at great speed" and should be in a position to give the government credible options to recover its money by the end of 2014 or 2015, he added.
Bankia reiterated its aim to end 2013 with a profit of €800-million. It is targeting a return on equity of over 10 per cent and a net profit of €1.2-billion by 2015.
Non-performing loans dipped to 13 per cent of the bank's outstanding loan portfolio in December, from 13.3 per cent at the end of September, and Bankia said they could end up falling this year.
But the year-end figure does not include troubled property deals now sitting in the bad bank – those would have pushed its non-performing loan ratio to about 15 per cent.
And Bankia's bad loan ratio – measured as loans in arrears for 90 days or more – is still much higher than the industry average in Spain of 10.4 per cent.
Bankia said the high ratio was down to a very prudent analysis of its loan portfolio.
Executives also warned low interest rates would weigh on Bankia's income. Its net interest income – the difference between what a bank earns on loans and pays out on deposits – rose 16.6 per cent last year to just over €3-billion.
Bankia will be around 70 per cent government-owned once it completes a capital hike from European funds, while 350,000 small shareholders, many of whom participated in its 2011 IPO, will end up with a 1 per cent stake or less.
The bank has yet to convert preference shares and subordinated debt into capital, as it imposes losses on holders of those securities as part of its rescue.
Bankia and its parent group BFA, which holds the firm's stakes in various Spanish companies, requested €18-billion in European aid last year.
Bankia must now shrink its balance sheet by about 60 per cent as a condition of the rescue. Its is cutting about 4,500 jobs and closing offices, as well as selling off assets.
It said the sale of its U.S. business in Florida, City National Bank, could be done by the end of the second or third quarter.
The Bankia-BFA group as a whole posted losses of €21.2-billion in 2012. The group said that figure would drop to €19.4-billion if trading gains from a pending exchange of hybrid securities were taken into account.