Rising bad loans at Bankinter and Sabadell point to more pain for Spanish banks as they near the end of a deep clean of rotten property assets that hammered profits last year.
Though Sabadell and Bankinter are among Spain's healthier lenders which did not need rescue funds from Europe, both have been hit by big writedowns on soured real estate assets in the wake of the country's property market crash.
The drive to mark down toxic assets pushed Spain to take around 40 billion euros (33 billion pounds) in aid from Europe in 2012 for banks in need of capital and unable to cope.
Most banks in Spain will take the last hit from property-related writedowns in fourth-quarter 2012 results. But a deep recession is still hurting their loan books.
Mid-sized Bankinter warned on Thursday its bad loans could hit 5 percent of total loans this year, up from 4.28 percent at the end of 2012, given Spain's weak economy and rising unemployment, even though January had been a good month.
French bank Credit Agricole said on Thursday it was cutting its 15.1 percent Bankinter holding to 9.9 percent through a private placement to institutional investors. The bank had received bids for the whole stake late last year but the price was disappointing.
Spain's unemployment rate hit a record high of 26 percent in the fourth quarter, figures showed on Thursday.
"If the employment data continues to be like what we saw (on Thursday), we cannot be optimistic," said Maria Dolores Dancausa, chief executive of Bankinter.
Barcelona-based Sabadell, meanwhile, said its bad loan ratio jumped to 9.33 percent of total loans at the end of December from 8.46 percent in September, largely because of the integration of its 2011 purchase of stricken savings bank CAM.
"It's a level implying a fourth-quarter rise ... far above our expectations," said Nuria Alvarez, analyst at Madrid broker Renta4. She added the bad loan ratio was an area to watch at Sabadell even though the lender has a state-backed scheme in place to protect it against future losses after it bought CAM.
Spanish banks' bad loan rate reached a new high in November of 11.4 percent of the outstanding portfolio, and the country is predicting its economy will only really improve in 2014. Still, banks are now hoping their earnings will get better.
"The writedowns were very harsh last year and it's possible they were not the last, but they were enough to situate us at the beginning of the end of the crisis that began in 2007," said Sabadell chairman Josep Oliu.
PRESSURE FROM DEPOSIT WAR
Sabadell is closing in on the purchase of assets in the northern region of Catalonia and Aragon from Banco Mare Nostrum (BNM) and Oliu said the bank would also study the purchase of Catalunya Banc, which was bailed out by the state and is now being auctioned.
In 2012 Sabadell booked just over 2.5 billion euros of provisions on troubled loans and assets, sending profit down 65 percent to 82 million euros. It made a 8.7-million-euro loss in the fourth quarter and still has pending provisions in 2013.
At 1510 GMT, Sabadell's shares were up 0.5 percent at 2.16 euros. Bankinter's stock was down 1.1 percent at 4.1 euros.
Net interest income - the net amount earned from interest on assets - grew last year at both banks, but came under pressure in the fourth quarter after a battle for deposits.
The Bank of Spain this month recommended that lenders cap deposit rates, which should eventually help funding costs, though the impact will not be dramatic.
"With such a low interest rate environment relative funding costs are likely to remain high," Nomura analyst Daragh Quinn said in a note.
At Bankinter, less exposed to soured property assets but which has a big mortgage book, that pressure could be greater as it does not set floors on mortgage rates like some peers.
The funding outlook has improved enough, however, for both banks to consider repaying long-term loans from the European Central Bank, taken in late 2011 and early 2012.
Sabadell said that in January it would probably pay back 1.5 billion euros of the 24 billion euros it took, while Bankinter is planning to return 15 percent of the 9.5 billion euros it has during 2013, though not necessarily in January.
Bankinter's 2012 profit fell 31 percent to 125 million euros in 2012. Net interest income grew 22 percent to 660.3 million.
($1 = 0.7530 euros)
(Additional reporting by Tomas Cobos; Editing by Tracy Rucinski, Mark Potter and Alden Bentley)