By Jesús Aguado

Bankia said on Tuesday it expects income from lending to rise in the second half thanks to cheap European Central Bank funding after the Spanish bank reported a 76% fall in second-quarter profit because of coronavirus crisis fallout.

The ECB has stepped in to provide cheap funding for banks to help them cope with the crisis.

Chief financial officer Leopoldo Alvear told analysts the ECB's credit lines would boost margins by 60 million euros (54.6 million pounds) for the rest of the year and around 115 million in the next twelve months.

Analysts at Deutsche Bank welcomed Bankia's revenue increase in the second quarter versus the first quarter, supported by a rise in fee and trading income and recovery in financial margins.

Shares in state-owned Bankia rose 2.4% by 0939 GMT.

Net interest income fell 10% to 464 million euros from the same quarter a year ago due low interest rates and a drop in consumer loans which carry higher rates than other loans. Analysts had expected net interest income of 462 million.

But compared to the previous quarter, net interest income rose 1.3% as the bank benefited from the state-guaranteed loan programmes to corporates and a recovery in mortgage lending.

The bank's second quarter net profit of 48 million euros was in line with analysts' forecasts.

Bankia set aside 185 million euros for the quarter to protect its books and support its customers against the fallout of the COVID-19 pandemic after it had already provided 125 million euros for the same reason in the previous quarter.

Bankia's management expects to set aside similar provisions in the second half as for the first half. The new provisions in the first half brought the bank's return on equity - a measure of profitability - down to 2.2% in the second quarter from 3% in the previous quarter.

In anticipation of worsening conditions, its cost of risk rose in June to 73 basis points compared to 59 bps in March, Bankia said.

(Reporting by Jesús Aguado; additional reporting by Emma Pinedo; editing by Inti Landauro and Jane Merriman)