Spain's Bankia said its third quarter net profit fell 79% from the same time a year ago after it set aside €155m in extraordinary provisions to cover the potential impact of the COVID-19 pandemic on its books. 

The state-owned lender has agreed a merger with its biggest peer Caixabank to create the country's biggest lender in terms of total assets.

Bankia today reported a net profit of €37m in the July to September period. Analysts polled by Reuters a expected a net profit of €46m. 

European banks are under growing pressure to join forces to deal with rising bad debts and record-low interest rates as they battle the fallout from the Covid-19 pandemic.  

Bankia's net interest income, a measure of earnings on loans minus deposit costs, fell 2.6% from the same quarter a year ago to €489m pressured by the low interest rates environment. Analysts had expected a NII of €483m.  

But compared to the previous quarter, net interest income rose 5.3% as the bank benefited from cheap European Central Bank funding lines and a recovery in banking activity, both in consumer and mortgage lending.