April 17 (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 ( BAC ) and Wells Fargo ( WFC )

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.