Spain's Bankia's profit fell 23% in 2016 due to low interest rates and additional charges related to mis-sold mortgages that hit its profitability ratio.
Full-year net profit for the Spanish lender came in at €804m, below the average of analysts' estimates of €850m, according to Thomson Reuters data.
In the fourth quarter the bank made a net profit of €73m.
This was down 71% from the previous quarter after it set aside €65m in additional provisions in the fourth quarter to meet compensation claims related to the industrywide mortgage mis-selling affair.
After the fall in 2016 net profit Bankia's return on equity ratio fell to 6.7% compared with 8.2% in the third quarter.
Spanish banks' results have been hit by a ruling in December from Europe's top court that meant they must repay mortgage customers over €4 billion after terms which were designed to put a floor under the interest rate were found to be invalid if they had not been clearly explained.
Bankia, which is less affected than peers BBVA and Banco Popular, said today it had opened a fast-track proceeding to repay clients who were sold these mortgages after the Spanish government approved a royal decree to give banks three months to reach settlements with customers.
The lender said clients could choose to be compensated in cash or with a reduction in future mortgage payments.
Bankia, which bounced back quickly from losses on property assets transferred to an external "bad bank", said last Friday it wanted to lift its dividend payments for 2016 by 5%, helping the state recover €209m.
The Spanish government, which owns 66% of Bankia, so far has recovered €1.8 billion from the €22 billion it injected in 2012. The government extended last December the deadline to privatise Bankia until the end of 2019 in order to recoup the money.
Among other options to recover the funds, Madrid announced plans in September to potentially merge Bankia with the smaller state-owned Banco Mare Nostrum.
Though Bankia has undergone broad cost-cutting measures as a condition for its bailout and is shifting more of its lending to small businesses and away from mortgages but, similar to its Spanish peers, it is suffering from squeezed margins.
Against the backdrop of low interest rates, net interest income, a measure of earnings on loans minus deposit costs, was €2.15 billion, down about 21.6% from a year ago, broadly in line with analysts' forecasts.
Quarter on quarter the bank's net interest income was 2% up as it benefited from lower funding costs.