Higher provisions mar Caixabank's upbeat outlook for 2023

The logo of Caixabank is seen outside a branch in Madrid

By Jesús Aguado

MADRID (Reuters) -Higher loan loss provisions overshadowed Caixabank's full-year results on Friday, which showed a double-digit increase in lending in 2022 and a 30% growth forecast for financial margins this year.

Shares in Spain's biggest domestic bank by assets fell 4.5% by 1138 GMT, reversing initial gains after the results.

Banks in Europe are starting to benefit from higher interest rates, but some are setting aside more bad debt provisions due to an uncertain economic environment.

Caixabank's cost of risk, or the cost of managing potential losses, rose to 25 basis points at the end of December, from 23 basis points at the end of September. The lender said it expected its cost of risk to rise to approaching 40 basis points this year though it has 1.5 billion euros ($1.64 billion) in unassigned provisions to cope with a harsher scenario.

Loan loss provisions jumped 26% year-on-year in the fourth quarter, which ended on Dec. 31, and rose 17% in 2022.

"How much of that provision is used or not, will depend on how the year goes, but it is our view that we will be using a large part of this unassigned provision during 2023," Chief Executive Gonzalo Gortazar told analysts on a call.

Adding to pressure in a scenario marked by high inflation, the bank also forecast that recurring costs would rise to up to 6.4 billion euros in 2023 from 6 billion euros in 2022.

Net profit in 2022 rose 29.7% on a like-for-like basis to 3.15 billion euros, stripping out accounting gains from the acquisition of former rival Bankia.

Taking into account the 4.3 billion "bad will" gain - a paper profit made when an asset is bought below its book value - from the Bankia takeover in 2021, net profit was down 39.8%.

For the fourth quarter, net profit jumped 62% to 688 million euros, beating forecasts of 620 million euros.

NII, or earnings on loans minus deposit costs, rose 33% year-on-year to 2.07 billion euros in the fourth quarter, beating forecasts of 1.88 billion euros.

In 2022, lending income was 16% higher than in 2021, at 6.92 billion euros, and the bank sees it rising about 30% to 9 billion euros this year, supported by higher loan yields.

Caixabank proposed a gross cash dividend of a 0.2306 euros per share against 2022 earnings, up 58% on 2021, and equivalent to a 55% payout.

It aims to maintain its 2022 dividend cash pay-out policy of 50-60% for 2023 and said it was on track to reach its target to distribute up to 9 billion euros over 2022-2024.

Shares in Caixabank have risen 37% in the past 12 months as banks were buoyed by expectations of rate hikes towards the second half of the year.

($1 = 0.9182 euros)

(Reporting by Jesús Aguado; additional reporting by Emma Pinedo; Editing by Inti Landauro, Mark Potter and Susan Fenton)