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UPDATE 3-BBVA profit gets Latin American lift as income improves

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

* Lower cost of risk guidance in Turkey to 250 bps in 2019 (Adds comments from CEO on Turkey, detail on South America)

MADRID, July 31 (Reuters) - Latin America and Spain fuelled a 2.6% rise in BBVA's net profit in the second quarter, along with better than expected income from lending at Spain's second-largest bank.

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

Shares in BBVA were down 0.5% at 0929 GMT on Wednesday 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.

It reported a 26% increase in net profit in South America, its third-biggest area after Mexico and Spain, to 211 million euros due to a positive lending trends in the main countries.

Overall, BBVA's 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.

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.

BBVA maintained its forecast for growing its NII in Mexico at a high-single digit in the near future.

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.

TURKEY AND U.S. FALL

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

The lira has fallen 5% this year against the dollar and was down 4% in the second quarter.

BBVA's cost of risk, which reflects the premium for insuring its loan book, fell to 157 basis points from 182 basis points in the previous quarter thanks to lower provisions.

This prompted the bank to lower its cost of risk guidance in Turkey in 2019 to around 250 basis points from a previous forecast of 300 basis points.

In the United States, which also accounts for 10% of the bank's earnings, net profit in the second quarter fell 11%.

In Spain, where BBVA 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 the sale of a real estate portfolio. NII was flat year on year though it is expected to decline between 1 and 2 percent in 2019.

The bank said it ended June with a core Tier 1 capital ratio of 11.52% compared with 11.35% at the end of March and the bank expects the ratio to hover at around 12% by 2020. ($1 = 0.8965 euros) (Reporting by Jesús Aguado Editing by Jose Elías Rodríguez/ David Holmes/Susan Fenton/ Alexander Smith)