UPDATE 2-BBVA profit lifted by Mexico and Spain in second quarter

Jesús Aguado

* Q2 net 1.28 bln euros vs forecast of 1.21 bln euros

* Net interest income up 6% to 4.56 bln euros

* Shares in BBVA rise 0.2% (Updates with details throughout)

MADRID, July 31 (Reuters) - Spain's second-largest bank BBVA said on Wednesday its second-quarter net profit rose by 2.6% due to its performance in its home market and Mexico, as well as a better than expected performance in lending income.

BBVA, like its larger domestic rival Santander, makes most of its profit overseas, a model that has helped it withstand two recessions at home in recent years.

Shares in BBVA were up 0.2% at 0729 GMT after it reported a net profit of 1.28 billion euros ($1.4 billion) for the three months through June, above analysts' average forecast of 1.21 billion euros in a Reuters poll.

Net interest income (NII), a measure of earnings on loans minus deposit costs, rose 6% to 4.56 billion euros and was up 3% against the previous quarter. Analysts polled by Reuters had forecast NII of 4.4 billion euros.

Brokers such as JP Morgan and Keefe, Bruyette & Woods welcomed a broadly solid set of results supported by higher financial margins, fees and lower loan loss provisions, with costs in line with expectations.

In Mexico, where BBVA makes more than 40% of its net profit, the profit figure rose by rose 4%. NII rose 16% in the second quarter against the same quarter last year but was just up 2.9% compared to the previous quarter amid signs of some slowdown.

UBS said it expected BBVA to face questions over how significant the risk of Mexican profits slipping was as macroeconomic headwinds appeared to be building.

On Monday, Mexican President Andres Manuel Lopez Obrador said the country was not in recession and that the economy was performing increasingly well, rejecting concerns that it may have contracted for two consecutive quarters.


In Turkey, where BBVA makes around 9% of its profits, political instability and economic recession have dented group profitability. Second-quarter net profit in Turkey fell 18% to 140 million euros, the bank said.

The lira tumbled 30% in 2018 as a currency crisis tipped Turkey's economy into recession. It has fallen 5% this year against the dollar and it was down 4% in the second quarter.

In the United States, which also accounts for 10% of the group's earnings, net profit in the second quarter fell 11%, lower than the decline of 35% suffered in the first quarter when it booked impairments of 162 million euros.

In Spain, where it makes a quarter of its profit, the figure rose almost 14% in the quarter after it booked a positive impact of 130 million euros from the closing of sale of a real estate portfolio. NII was flat year on year, but rose 5% from the previous quarter.

BBVA executives are expected to face questions during a conference call with analysts and at a press conference about a legal probe into an alleged spying case.

BBVA said it finished June with a core Tier 1 capital ratio of 11.52% compared with 11.35% at the end of March. ($1 = 0.8965 euros) (Reporting by Jesús Aguado Editing by Jose Elías Rodríguez/ David Holmes/Susan Fenton/ Alexander Smith)