By Jesús Aguado

At 1039 GMT shares in Bankinter were down 6%, while Spain's blue-chip index fell 1%. Other Spanish lenders, such as Caixabank and Sabadell, fell around 3%.

Spanish banks mainly lend to retail clients and have benefited from passing on the higher costs of loans tied to variable interest rates to customers, while keeping a lid on the rates they pay to savers.

However, central bankers have been warning that deposit costs would gradually pick up and hit margins.

Bankinter is one of the first euro zone banks to report fourth-quarter earnings, and investors are watching closely to see if the boost to lenders from higher rates has peaked.

JPMorgan said the miss on net interest income (NII) - earnings on loans minus deposit costs - and higher than expected costs, which grew 19% quarter on quarter, was "unhelpful read across for the other Spanish banks yet to report".

"In 2024 we do expect NII to keep stable," said Bankinter Chief Financial Officer Jacobo Diaz, adding he was not expecting aggressive rate cuts from the European Central Bank (ECB) in 2024.

He added that he could not say if that would mean NII would just repeat levels seen in 2023, or if that implied small growth or a slight decrease. "It is difficult (to give a forecast) as interest rates are fluctuating daily."

CEO Maria Dolores Dancausa said NII "would be good and growing", without elaborating further.

In 2023, Bankinter's NII rose 44%, at the upper end of its full-year guidance for an increase of 40% to 45%.

Bankinter's customer spreads fell by 2 basis points against the previous quarter to 3.01%, as deposit costs rose 28 bps compared to a rise of 26 bps in loan yields.

In the fourth quarter its NII rose 22% year-on-year to 575 million euros ($626.58 million), below the 584 million euros analysts expected.

NII rose just 1% from the previous quarter as the Euribor 12-month benchmark rate used by most Spanish banks to set the pricing of mortgage loans had already started falling, with the market anticipating rate cuts from the ECB later in 2024.

The measure was also affected by the ECB's cut to the interest rate it pays to banks on their minimum reserves.

Higher lending income overall in the year helped Bankinter offset subdued new mortgage lending, which fell 14% to 5.8 billion euros.

In the quarter, the lender reported a rise of 23% in net profit to 160 million euros, less than the 190 million euros expected by analysts polled by Reuters.

For 2023, it booked a net profit of 845 million euros, a rise of 51% from 2022, below analysts' forecasts of 875 million euros.

($1 = 0.9177 euros)

(Reporting by Jesús Aguado and Emma Pinedo; Editing by Inti Landauro, Sharon Singleton and Jan Harvey)