Spain's BBVA Profit Boosted by Mexico -- 2nd Update

By Jeannette Neumann 

MADRID-- Banco Bilbao Vizcaya Argentaria SA said net profit more than doubled in the first quarter of the year on improved lending income and stronger profit in Mexico, countering weaker returns in South America due to currency turmoil in Venezuela.

BBVA said first-quarter net profit was EUR1.54 billion ($1.67 billion), up from EUR624 million a year earlier and above analysts' expectations.

Spain's No. 2 lender by market value said net interest income was EUR3.66 billion compared with EUR3.4 billion the year before, but still below analysts' expectations.

Net interest income, a key driver of profit for retail banks such as BBVA, is the difference between what lenders pay clients for deposits and charge for loans.

BBVA shares were down 1.8% in late morning trading in Madrid.

Net profit was also boosted by EUR583 million in capital gains from the January sale of part of BBVA's stake in China Citic Bank Corp. BBVA has been selling off assets in China in recent months, seeking to shore up its finances as European regulators toughen postcrisis capital requirements for lenders. It said Wednesday that net profit would have increased even without the sale, but by a more modest 54% to EUR953 million.

In BBVA's Mexico unit, the largest single contributor to the bank's total net profit, lending income was up 14%. Net profit rose 15% to EUR524 million.

The lender's Venezuelan unit saw net profit plummet to EUR15 million in the first quarter compared with EUR57 million in the same period a year ago, amid ongoing currency fluctuations.

The EUR15 million net profit generated this quarter "is pretty much the number that we should expect for the year," BBVA Chief Financial Officer Jaime Sáenz de Tejada told analysts Wednesday. "Quarter-on-quarter contribution will be pretty much negligible."

Last quarter, the bank used an exchange rate of 12 Venezuelan bolivars to the dollar. The exchange rate BBVA has used this quarter, following changes in the government's currency controls, is 195 bolivars to the dollar, a 93% devaluation. "The bank remains strong locally," Mr. Sáenz de Tejada said.

Net profit at BBVA's Spain banking unit declined 9.6% to EUR347 million in the first quarter compared with a year earlier.

BBVA and other Spanish banks are facing weak loan growth in Spain amid historically low interest rates. The country's economy is growing again after emerging from a deep recession in late 2013, but many borrowers are still focused on paying down existing debts, rather than taking out new loans.

BBVA expects total loan volumes in Spain to grow between 1% to 2% in 2015, Mr. Sáenz de Tejada said, while net interest income should remain in the "low single digits."

New loans to businesses have been a bright spot in an otherwise dull lending landscape, but Spanish banks are battling each other for a share of that business, driving down returns. The greatest drag, however, on what BBVA earns from issuing loans in Spain, has been the decline in the euro interbank offered rate, or Euribor, Mr. Sáenz de Tejada said.

In countries such as Spain and Portugal, Euribor is the base interest rate used for many loans, especially mortgages. The rate is based on how much it costs European banks to borrow from each other.

BBVA said its capital ratio under Basel III "fully loaded" criteria was 10.8% at the end of the quarter.

Write to Jeannette Neumann at [e-mail]

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