By Jesús Aguado

Jose Sevilla spoke after the lender posted a near 32% fall in second-quarter net profit from a year earlier which it attributed mostly to lower trading income although income from loans showed some signs of stability.

Like many other European banks, Spanish lenders are struggling to increase earnings from lending because of ultra-low interest rates and tough competition.

In a precursor to easing monetary policy, the European Central Bank said on Thursday it saw interest rates at present or lower levels through mid-2020, a subtle change to its previous pledge to keep rates unchanged through next June.

Against this backdrop, Caixabank and Sabadell revised down their income forecasts for 2019 on Friday.

Bankia followed suit on Monday.

"In this context of (low) interest rates we are not going to reach 1.3 billion euros of profit by 2020," Sevilla told reporters. "We will stay below (...) For the market this is no surprise," he said, without elaborating on the projections.

To offset the impact of increasing competition on financial margins, Spanish banks are focusing on cost-cutting measures.

Bankia is shifting focus from its mostly-mortgage loan book to a more profitable consumer and enterprise business. It expanded its gross loan book by 1.3% in the first six months.

POSITIVE TREND

In the second quarter, net interest income (NII), a measure of earnings on loans minus deposit costs, was 516 million euros, down 1% from a year earlier but 2.9% higher than the previous quarter thanks to lower funding costs. Analysts had forecast a net interest income of 512 million euros.

"NII for once showed a positive trend and was better than expected, although the downturn in Euribor is likely to generate additional headwinds over the coming 12 months," broker Keefe, Bruyette&Woods said in a note.

Sevilla said Bankia expected financial margins to remain flat this year.

Shares in Bankia were down 0.4% at 1120 GMT, reversing earlier gains. So far this year, Bankia's shares have fallen close to 28%, making further divestments by the state more complicated.

Spain has until 2021 to offload the 61% stake it holds in Bankia after pumping 22.4 billion euros ($25 billion) into a rescue package in 2012 at the height of the financial crisis.

At the end of June, Bankia's core Tier-1 capital ratio, the strictest measure of solvency, was 12.91% compared to 12.61% at the end of March.

Separately on Monday, smaller regional lender Unicaja, which in May called off merger talks with former savings bank Liberbank, reported a 2% drop in second-quarter NII from a year earlier to 148 million euros. Analysts had forecast NII to reach 147 million euros.

Unicaja's shares were down 1.14%.

(Reporting By Jesús Aguado; Editing by Andrei Khalip/Jane Merriman and Emelia Sithole-Matarise)

By Jesús Aguado