Novo Banco profit slips 1% on impairments despite robust interest income

By Sergio Goncalves

LISBON (Reuters) - Portugal's fourth-largest bank, Novo Banco, reported a near 1% drop in first-half net profit on Thursday as higher impairments and provisions countered a robust rise in interest income, while it also strengthened its capital.

The unlisted lender, which is considering an initial public offering, reported a consolidated profit of 370.3 million euros ($401 million).

Impairments and provisions increased by 57% to 87.8 million euros.

Novo Banco, which emerged from the ruins of Banco Espirito Santo in 2014 and is 75%-owned by U.S. private equity fund Lone Star, said its core Tier-1 fully loaded capital ratio rose 176 basis points to 19.9%, well above the minimum requirement of 9.3%.

The bank delivered "a robust business performance and consistent capital accretion", CEO Mark Bourke said in a statement, expanding its business while increasing its efficiency.

Novo Banco, which is focused solely on the Portuguese market, posted a 13.5% rise in net interest income (NII), or earnings on loans minus deposit costs, to 595 million euros.

In contrast, its rival Millennium bcp on Wednesday said NII at its domestic business fell by 4.8% as it began to be squeezed after a period of high euro zone interest rates when it charged more for loans without increasing deposit rates by as much.

Novo Banco's net interest margin rose to 2.83% from 2.50% a year earlier, "benefiting from the balanced management of asset yields and financing costs", it said, while fees and commissions rose 10.9% to 161.2 million euros.

($1 = 0.9237 euros)

(Reporting by Sergio Gonçalves; editing by Andrei Khalip and Jason Neely)