* Interest income down at BBVA and Caixabank from prior quarter
* Mirrors trend set by larger bank Santander
* Lenders face pressure to cut costs, change business model (Adds new details on business trends)
By Angus Berwick and Jesús Aguado
BARCELONA/MADRID, April 28 (Reuters) - Spanish lenders BBVA and Caixabank reported a fall in net interest income in the first three months of the year which overshadowed capital improvements and sent their shares down on Thursday.
BBVA and Caixabank have contrasting business models, with BBVA drawing the majority of its revenue from abroad and Caixabank chiefly focused on Spain. But they face a similar challenge in raising earnings from loans as interest rates remain at historic lows.
Net interest income at BBVA, Spain's second biggest bank, fell 6 percent versus the fourth quarter of last year to 4.15 billion euros. This was, however, up 13.3 percent from a year earlier.
For Barcelona-based Caixabank, the most acquisitive lender during Spain's financial crisis, lending income fell 2.4 percent quarter on quarter and 10.4 percent year on year to 1.02 billion euros.
This mirrored a similar trend at Spain's biggest bank Santander, which on Wednesday reported a 3.3 percent fall in first-quarter net interest income from the three previous months.
Shares at Caixabank were down 5.6 percent at 0920 GMT while BBVA fell by 8.9 percent as the lender was also hit by one-off charges in the United States.
Profitability ratios remained under pressure at both banks. While BBVA posted a slight increase of its return on tangible equity ratio to 7.0 percent from 6.4 percent, this measure dipped to 3.7 percent at Caixabank from 4.3 percent in the previous quarter.
This compared to profitability ratios of around 20 percent before the financial crisis in 2008 and translated into lower profits.
BBVA's first-quarter net profit fell 54 percent from a year earlier to 709 million euros and missed analysts' forecasts. Its year-earlier profit had been bolstered by 583 million euros in one-off capital gains. Analysts polled by Reuters had expected a net profit of 844 million euros.
Caixabank's net profit was 273 million euros, down 27 percent and below the 282 million expected by analysts polled by Reuters.
Both banks are trying to limit the damage and offset other factors such as rising regulatory expenditure and margin erosion coming from increased competition by cutting costs in Spain but they have also undertaken deeper changes.
Like many of its European rivals, BBVA is trying to resolve this equation by embracing a more efficient digital banking model. Caixabank, meanwhile, is trying to raise loan volumes through acquisitions. Last week it launched a full takeover bid for Portugal's Banco BPI.
The pressure on the banking core business overshadowed the higher capital ratios reported in the first quarter, also in line with improvements at Santander.
BBVA's capital ratio under the strictest, "fully-loaded" core tier one criteria at end-March had risen to 10.54 percent from 10.33 percent in December while Caixabank's ratio rose to 11.64 from 11.55 percent.
$1 = 0.8822 euros Editing by Jason Neely and Keith Weir