MILAN, May 7 Reuters UniCredit raised its investor reward guidance for the year after posting much higher than expected quarterly net income on Tuesday and further boosting capital levels.

Italy39;s second biggest bank said net profit for the three months to March 31 was 2.6 billion euros 2.8 billion, against the 2.13 billion euro average of analyst forecasts compiled by the company.

Revenue also topped expectations as UniCredit joined bigger rival Intesa Sanpaolo in highlighting a recovery in net fees, which jumped 16 quarter on quarter, while income from the gap in lending and deposit rates eased by 0.9.

With interest rates peaking, banks are working to replace profit from the lending business with fees earned on the sale of investment products, which UniCredit grew by 36 in the quarter.

For the full year, net income is expected to be above 8.5 billion euros, it said, having previously guided for a 2024 net profit broadly in line with 2023.

After stripping out a boost from tax credits, the bank39;s net income last year was 8.6 billion euros, which it paid out in full to shareholders through share buybacks and dividends.

UniCredit said it would match that distribution this year. Having set a 90 payout goal for 2024, that suggests it expects net income to reach about 9.6 billion euros or it will pay out part of its excess capital reserves.

Core capital, a key measure of a bank39;s financial strength, rose to 16.2 of riskweighted assets RWAs from 15.9 at the end of…