Jan 17 (Reuters) - Citizens Financial Group        
reported a fourth-quarter profit on Wednesday that fell 71%,
hurt by a $225-million charge to replenish a deposit insurance
fund and the bank warned that its net interest income could fall
this year.
    Large-cap banks are required to replenish the Federal
Deposit Insurance Corporation's (FDIC) fund, which insures
customer deposits in the event of a bank failure. The fund was
drained of roughly $16 billion after the collapse of two banks
in early 2023.
    Meanwhile, banks have been grappling with rising deposit
costs as customers chase better returns in rate-sensitive
fixed-income assets. Higher funding costs have led to net
interest margins contracting across the industry as competition
for deposits increases.
    Headwinds from tepid loan growth also added to the pressure
on interest income across the industry in the fourth quarter.
    Citizens Financial's net interest income (NII), or the
difference between what a bank earns on loans and pays out on
deposits, fell 12% to $1.49 billion in the three months ended
Dec. 31.
    The bank warned its NII this year could be 6% to 9% lower
than its 2023 NII of $6.24 billion.
    Larger rivals Wells Fargo         and Bank of America
        also posted a similar drop in their quarterly interest
income last week.
    Citizens Financial also raised its buffer for customers
missing or falling behind on repaying debt on their mortgages or
credit cards amid an uncertain economic backdrop and a
cost-of-living crisis.
    The bank set aside $171 million in provisions for credit
losses in the fourth quarter, compared with $132 million a year
earlier.
    The lender reported a net income of $189 million, or 34
cents per share, in the fourth quarter, compared with $653
million, or $1.25 per share, a year earlier.

 (Reporting by Pritam Biswas in Bengaluru; Editing by Shounak
Dasgupta)