April 19 (Reuters) - Huntington Bancshares posted a drop in first-quarter profit on Friday, as higher deposit costs hurt the lender's interest income.

Regional banks have been offering higher returns on deposits to prevent customers from fleeing to a higher yielding alternatives.

Net interest income, the difference between what banks pay customers on deposits and earn as interest on loans, declined 8.3% to $1.3 billion, in the three months ended March 31, Huntington said.

The high interest-rate environment, however, has squeezed the finances of borrowers, resulting in banks allocating more capital for potential loan defaults.

Provision for credit losses at Huntington Bancshares grew nearly 26% to $107 million.

The lender's quarterly profit came in at $419 million, or 26 cents per share, compared with $602 million, or 39 cents per share, a year ago.

The bank also incurred an expense of $32 million related to the additional special assessment that it had to pay to replenish the Federal Deposit Insurance Corp's deposit insurance fund. (Reporting by Sri Hari N S in Bengaluru; Editing by Maju Samuel)