(Reuters) - Dutch bank ABN Amro reported a weaker capital ratio in the first quarter due to an increase in risk-weighted assets, sending its shares more than 5% lower on Wednesday and overshadowing a better than forecast net profit.

ABN Amro's CET1 ratio, a measure of capital strength for European banks that compares core capital against risk-weighted assets, fell to 13.8% as of March 31, from 15.0% a year ago, and was below analysts' estimates of 14.3%.

"The lower CET1 ratio at 13.8% leaves a lot less room for share buybacks to target a CET1 ratio of 13.5% by 2026," said ING analysts in a note.

ABN Amro said it had completed a share buy-back programme of 500 million euros which it had announced in February.

However, the bank beat first-quarter profit expectations, saying it continued to benefit from a high interest rate environment with strong net interest income.

ABN Amro, one of three dominant banks in the Netherlands along with ING and Rabobank, posted a 29% rise in quarterly net profit to 674 million euros ($729.34 million), compared to a year earlier.

That exceeded an average forecast of 521 million euros in a poll of analysts compiled by the bank.

"Demand for credit remains good and both our mortgage and corporate loan books grew," said CEO Robert Swaak.

Banks have been among the main beneficiaries of rising interest rates over the last three years. However, the European Central Bank is expected to soften its monetary policy in June, raising concerns about their profits.

"The Dutch economy continues to show resilience. Uncertainties remain as geopolitical developments continue to pose a risk to the growth and inflation outlook, which may also affect interest rate developments," Swaak added in a statement.

ABN Amro's net interest income (NII), a key measure of earnings on loans minus deposit costs, fell 2% to 1.59 billion euros in the first quarter, compared to a year earlier, but was above analysts estimates of 1.56 billion euros.

ABN Amro said it expects NII of around 6.3 billion euros this year, the same as in 2023, and costs of around 5.3 billion euros due to higher staff expenses.

It also forecast that Dutch house prices, which are almost back to record 2022 levels, to rise further, forcing potential buyers to bid above the asking price, although tight supply will limit the number of transactions.

($1 = 0.9241 euros)

(Reporting by Matteo Allievi and Dimitri Rhodes; Editing by Alexander Smith)

By Matteo Allievi and Dimitri Rhodes