UPDATE 2-Corporate loans boost Bankia's lending income

* Q4 net profit 50 mln euros vs forecasts of 29 mln

* 2020 net profit down 58% after 505 mln in COVID provisions

* Q4 net interest income up 0.8% from previous quarter

* Bankia shares up 3% vs 0.4% fall in Spain’s Ibex-35 (Recasts story to focus on lending income, gives breakdown)

MADRID, Jan 28 (Reuters) - Spanish state-owned Bankia reported a recovery in its lending income in the last three months of 2020 on Thursday, boosted by an increase in loans, especially to companies.

Like many European banks, Spanish lenders are struggling to increase earnings from lending because of ultra low interest rates but state-backed credit lines have supported loans to companies to cope with the COVID-19 pandemic.

Bankia’s net interest income (NII), or earnings on loans minus deposit costs, fell 2% from the same period in 2019 but rose 0.8% from the previous three months to 493 million euros ($596 million), beating market forecasts of 488 million.

“Despite all the difficulties, with interest rates sliding deeper into negative territory, it has been a very positive year for Bankia in terms of the business, with significant increases in lending to companies, mortgage production and mutual funds,” Bankia Chairman Jose Ignacio Goirigolzarri said in a statement.

In the fourth quarter, Bankia, which is being taken over by rival Caixabank to improve its profitability and to cut costs, reported a net profit of 50 million euros, above forecasts of 29 million euros.

Shares in Bankia rose 3% while Caixabank shares were up 2.7% after brokers such as Banc Sabadell welcomed a very good set of results which were above expectations in all business lines, especial core revenues.

Overall, the bank’s 2020 net profit fell 58% after it set aside 505 million euros throughout the year, including 40 million euros in the last quarter, as provisions against the fallout from the COVID-19 pandemic.

The COVID-19 related charges pushed the bank’s return on equity (ROE), a measure of profitability, down to 1.8% from an already stretched 4.2% in 2019.

Bankia’s cost of risk - which measures the cost of managing credit risks and potential losses and serves as an indication of future provisions - was 77 basis points at the end of 2020, down from 81 in September and in line with its aim for it to be between 70 and 80 basis points.

As part of its three-year strategic plan, Bankia managed to generate more than 2.9 billion euros of excess capital, above 12% of its core Tier 1 ratio, by 2020.

Bankia finished December with a core Tier 1 fully loaded capital ratio, the strictest measure of solvency, of 15.48% compared with 14.79% in September.

$1 = 0.8268 euros Reporting by Jesús Aguado; Additional reporting by Emma Pinedo; Editing by Inti Landauro and David Clarke