July 19 (Reuters) - Fifth Third Bancorp ( FITB )

reported a fall in second-quarter profit on Friday, as costlier

deposits eroded the regional lender's interest income.

Banks such as Fifth Third have been paying higher interest

rates on deposits to retain customers chasing better returns

elsewhere.

Shares of the bank fell 1.7% in premarket trading.

The surge in deposit costs has cut into the bank's net

interest income, or the difference between what they earn on

loans and pay out on deposits.

Cincinnati, Ohio-based Fifth Third's NII fell 5% to $1.39

billion in the quarter. Net interest margin, a key measure of

lending profitability, contracted to 2.88% from 3.10% a year

earlier.

The bank maintained its outlook on NII, which is expected to

decline between 2% and 4% in 2024 compared with last year's

$5.85 billion. Analysts on average expect it to fall 2.8%,

according to LSEG data.

Higher interest rates have also deterred customers from

taking out loans at a time when borrowing costs are at their

highest since the global financial crisis.

Fifth Third's total average loans and leases fell 5% from a

year earlier to $117.28 billion, hurt by a decrease in its

consumer and commercial portfolios.

The bank now expects average loans and leases to fall 3% in

2024 compared with last year. It had earlier forecast a decline

of 2%.

Fifth Third said it was currently not pursuing new office

commercial real estate loans. The bank has a office CRE

portfolio of $1.20 billion, which represents 1% of its total

loans.

Net income available to common shareholders fell to $561

million, or 81 cents per share, in the three months ended June

30, from $562 million, or 82 cents per share, a year earlier.

Earlier this month, the U.S. Consumer Financial Protection

Bureau fined the bank $20 million in civil fines over charges

that it opened unauthorized accounts and illegally repossessed

their cars.