By Jesús Aguado
MADRID (Reuters) -Weak results in BBVA’s top market of Mexico took the shine off a forecast-beating 26% rise in third-quarter group profit at Spain’s second-biggest lender on Thursday.
The beat was driven by a strong performance in Spain, where BBVA is battling to buy smaller rival Sabadell.
However, group lending income came under pressure in the quarter from lower interest rates and the negative effects of hyperinflation accounting in Argentina.
BBVA, like other banks, had benefited from a period of higher interest rates, while growth in Latin America gave it an edge over more European-focused rivals.
The bank shocked Spain in May when it turned hostile in its pursuit of Sabadell with an all-share bid – worth more than 12 billion euros ($12.8 billion) at the time – after Sabadell’s board rejected the offer.
Despite some currency depreciation in South American markets, BBVA booked a net profit of 2.63 billion euros in July-September, above the 2.37 billion euros expected by analysts polled by Reuters.
But that was overshadowed by a 19% rise in loan loss provisions, especially in Mexico, where the cost of risk – or managing potential losses – rose to 343 basis points from 334 in the previous quarter due to higher economic uncertainty.
At 0931 GMT, BBVA shares were down 0.9%. Shares in Sabadell and Caixabank also declined due to pressure from falling interest rates, despite higher quarterly profits.
Bank stocks were also hit by plans from the Socialist-led government to potentially extend Spain’s banking levy for three more years, according to Spanish newspaper Expansion.
The tax will apply on net interest income (NII) and commissions in Spain for both local and foreign lenders, and will range from 1% to 6%, instead of the current 4.8%.
BBVA’s third-quarter NII, or earnings on loans minus deposit costs, fell 9% year-on-year to 5.87 billion euros, below analysts’ average forecast of 6.13 billion.
Lending income was hit in part by a 41% fall in margins at BBVA’s Argentinian unit due to hyperinflation adjustments and the devaluation of the peso.
BBVA relies on Mexico for more than half of its profit and combining with Sabadell would allow it to lift revenues and increase lending to small and medium-sized companies in Spain, just as the boost from higher interest rates begins to fade.
In Spain, BBVA’s net profit rose 23.4% year-on-year in the quarter, while net interest income was up 7.3%. Against the previous quarter, NII rose 0.5%.
Net profit in Mexico fell 2.4% year-on-year due partly to the depreciation of the Mexican peso, while NII was down 3.7%. Against the previous quarter, NII was down 5.9%.
In Turkey, BBVA booked a net profit of 82 million euros, compared to a loss of 159 million euros a year earlier, which was also impacted by hyperinflation adjustments. NII in the quarter, however, fell 47% year-on-year.
($1 = 0.9320 euros)
(Reporting by Jesús Aguado; Editing by Inti Landauro and Mark Potter)
