Italian bank Monte dei Paschi di Siena, rescued from collapse in a state bailout last year, has swung to a first-quarter net profit of €188m, helped by cost cutting and lower loan losses.
The Tuscan bank is 68% owned by the government after an €8 billion rescue.
It has been viewed as the biggest threat to Italy's financial system for years and its restructuring efforts are being closely watched by financial markets.
The bank had posted a loss of €169m in the first quarter of 2017 and ended the year €3.5 billion in the red.
Dogged by concerns about possible further capital needs, the stock has lost 30% so far this year while the Italian banking sector has gained 13%.
Monte dei Paschi said its revenues fell 6% year-on-year in the three months from January to March.
However compared with the last quarter of 2017, net income from the bank's core lending business rose 1.6%thanks to cheaper funding costs. Fees rose 12%.
Cost cutting, a key plank of the business plan underpinning the bailout, drove operating expenses down 12% quarter-on-quarter with a 9% drop from a year earlier.
Provisions against loan losses more than halved from the start of last year to €137m.
The bank, which yesterday announced the completion of a landmark €24 billion bad loan sale, said it had kicked off a process to offload up to another €4.5 billion in impaired debts this year.
Even after the huge disposal, gross soured loans will still account for nearly one fifth of total loans.
That is roughly four times the European average and compares with the a best-in-class 6% ratio targeted by rival Intesa Sanpaolo.
Monte dei Paschi said it saw potential to improve its soured loan target to 2021 to around 10%. It stands at 13% currently under its restructuring plan.
Direct funding at the bank - which has suffered heavy deposit outflows in the past - was little changed in the quarter with an increase in current accounts offset by bonds maturing.
