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UPDATE 1-Portugal's BES profit dips as debt crisis bites

Published 01/31/2011, 04:02 AM
Updated 01/31/2011, 04:04 AM

* Net profit 510.5 million eur vs 504 million fcast

* Tier 1 solvency ratio higher, lower dependence on ECB

* Overseas units offset most of profit drop at home

* Shares down 1.5 percent, underperform Lisbon market (Adds details, shares)

LISBON, Jan 31 (Reuters) - Banco Espirito Santo, Portugal's second-largest listed bank, on Monday posted a 2 percent drop in 2010 net profit as the country's debt crisis hit domestic demand, outweighing a strong performance overseas.

The bank said net profit fell to 510.5 million euros ($695.3 million), slightly above the 504 million average forecast of analysts in a Reuters poll.

Portugal's banks have been shut out of interbank funding markets during the euro zone sovereign debt crisis, making them overly dependent on the European Central Bank funds. They also face a gloomy economic outlook with domestic demand set to slump this year due to government austerity plans.

Domestic net profit fell 10.5 percent due to a 29 percent slump in net interest income as competition for deposits increased sharply in a market hit by the sovereign debt crisis.

Still, international operations, which include units in Brazil, Angola and Spain, accounted for nearly half of consolidated net income helping the bank maintain its overall profit little changed.

Total net interest income fell 3 percent from a year earlier to 1.164 billion euros.

BES said credit growth slowed down and its total overdue loans increased by nearly 24 percent. It said the sovereign risk increase had a negative impact on total customer funds, which fell 7.6 percent. Despite the profit drop, BES said its Tier 1 capital ratio rose to 8.8 percent in December from 8.3 percent a year earlier.

"Solvency levels continue to witness the group's solidity," it said.

"International area's contribution to consolidated net income has been crucial ... The international units' net income totalled 203.8 million euros, a 13.6 percent year-on-year increase," BES said.

BES also said it managed to reduce its net borrowing position at the ECB to 3.9 billion euros at the end of December from 6 billion euros at the end of June.

BES shares were down 1.5 percent at 0858 GMT, underperforming a 0.7 percent fall in Lisbon's PIS20 index.

(Reporting by Sergio Goncalves and Andrei Khalip; Editing by Erica Billingham)

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