* Q1 net interest income 379.1 mln euros vs f/cast 356.6 mln
* Chairman sees 5-10 pct net interest income growth in 2011
* Chairman: eyes listed savings banks buys
* Shares rise 0.5 percent following earnings
(Releads with chairman interview, adds analyst comments, shares)
By Judy MacInnes and Jesus Aguado
MADRID, April 28 (Reuters) - Banco Sabadell will take part in reshaping Spain's banking market but is only interested in buying savings banks once they are listed, the retail lender's chairman Josep Oliu told Reuters on Thursday.
Sabadell has been tipped to play an active role in the consolidation of the country's ailing savings banks, which are in the process of restructuring and recapitalising as the country's Socialist government tries to alleviate concerns over the general health of Spain's financial system.
The small unlisted, regionally-controlled banks -- known as "cajas" -- are heavily exposed to Spain's property-fuelled economic crisis and have been forced into mergers to survive. Some are seeking stock market listings, while others are looking for external capital to meet new regulations.
"We are in wait and see mode with the cajas. We are very cautious and want to see how the (government's bank restructuring fund) FROB gets involved in these banks," Oliu told Reuters by telephone following Sabadell's results.
The FROB has already committed to helping some of the savings banks which do not meet new, tougher capital requirements.
Sabadell's own core capital stood at 9.73 percent at the end of March, well above the Spanish government's new, tougher requirement of 8 percent. Sabadell raised its capital by 410 million euros in February to strengthen its capital ratios.
Oliu said the Barcelona-based bank is targeting between 5 and 10 percent growth in net interest income in 2011, which will be boosted by lower deposit costs and asset repricing.
Net interest income -- broadly what a bank earns on loans, less what it pays for deposits -- beat forecasts with a 1.3 percent rise to 379 million euros in the first quarter.
PROFIT DROP IN LINE
Sabadell's net profit dropped 22.3 percent to 84.2 million euros in the first quarter, dragged lower by provisioning against exposure to a sickly property market, but in line with forecasts in a Reuters poll..
Bad loans hit 5.46 percent as a percentage of total lending at the end of the quarter, up from 5.01 percent at end-December.
"This is quite a sharp jump but is a one-off for the first quarter and is related to assets which are in the process of being acquired," Renta 4 bank analyst Nuria Alvarez said.
Oliu said bad loans will peak by the end of 2011.
"The bad loans rate will continue to decline and we should see the peak by year-end," he said, adding that while the ratio will ease as net new bad loans decrease over the year, the need for loan loss provisioning will remain into part of 2012.
Oliu's comments came after Spain's largest bank, Santander SA, flagged a turning point for its struggling domestic business following a 4.8 percent fall in its earnings during the first quarter.
Sabadell said it had earmarked 330 million euros for provisions against bad loans in the first quarter, which included capital gains from a debt repurchase in February.
Its first quarter results were not comparable on a year-on-year basis as the bank fully consolidated smaller peer Banco Guizpuzcoano which it acquired last year. ($1=.6817 Euro) (Reporting by Judy MacInnes and Jesus Aguado; Editing by Alexander Smith)