Citizens' profit slips on weak interest income, expects loans to pick up H2

(Reuters) -Citizens Financial on Wednesday reported a lower first-quarter profit as it earned less from customer interest payments, but its chief executive predicted that demand for loans could improve in second half of the year.

Banks in the United States have been bracing for a turnaround in gains from interest income, as they paid more to retain customers who are in search of higher-yield securities, while loan growth declines.

Providence, Rhode Island-based Citizens Financial's net interest income (NII) - the difference between what it earns on loans and pays for deposits - tumbled 12% to $1.44 billion in the first quarter compared with the previous year.

Larger rivals Bank of America and Wells Fargo also posted similar declines in NII in recent days.

Citizens had projected a decline of 6% to 9% in NII this year, it said in January.

"We are counting on loan growth picking up in the second half of the year," CEO Bruce Van Saun told Reuters. "The economy is more resilient and holding up better than people had expected."

Van Saun said the loan growth will come from commercial banking as companies and borrow more for capital expenditure. The other area of growth will be private equity firms as they will exit some investments and put money to work on new ones, Van Saun added.

Period-end loans and leases fell 7% to $143 billion in the quarter ended March from a year ago.

The bank set aside $171 million in provisions for credit losses in the first quarter, slightly higher than $168 million a year earlier, as it prepares for more customers to miss or fall behind on their payments.

The lender reported net income of $334 million, or 65 cents per share, for the first quarter, compared with $511 million, or $1 per share, a year earlier.

(Reporting by Mehnaz Yasmin in Bengaluru and Saeed Azhar in New York; Editing by Maju Samuel, Vijay Kishore and Will Dunham)