Provisions and Turkey’s loss overshadowed BBVA’s third-quarter profit gain. BBVA, a Spanish banking corporation, announced a 13% increase in net profit for the third quarter on Tuesday, primarily attributable to more significant loan revenue in Mexico and Spain.

A 29% year-over-year increase in provisions and a loss in Turkey somewhat obscured the net profit of 2.08 billion euros ($2.20 billion), slightly higher than the 2 billion euros experts had predicted.

Following a roughly 13% rise over the previous half-year, BBVA shares initially saw a nearly 4% decline following the announcement. By 08:28 GMT, they were down 2.5 percent.

The bank’s cost of risk, which calculates the credit risks and possible losses for the bank in an uncertain climate, increased to 111 basis points (bps) at the end of June from 104 bps, above projections of about 100 bps for the year. Reuters surveyed experts expecting 1.14 billion euros in provisions, but 1.21 billion euros were received.

The lender noted that more significant provisioning needs, specifically in South America and Mexico, offset decreased provision requirements for Turkey in light of rising interest rates.

Renta 4, a brokerage located in Madrid, stated that further pressure would come from a more significant cost of risk than what the bank had been projecting. Although the underlying developments in Mexico and Spain were “robust in our view,” the brokerage firm Jefferies stated that these were “slightly obscured by large hyperinflationary accounting adjustments in Turkey.”

Although BBVA previously depended on Mexico to get it through difficult times in Europe, it is now enjoying, along with bank competitors in Europe, the benefits of rising interest rates back home.

Net interest income (NII), or revenues on loans less deposit expenses, increased 22.5% year over year to 6.4 billion euros for the group at BBVA during the quarter. Analysts anticipated an NII of 6.05 billion euros.

As a measure of profitability, the return on tangible equity ratio (ROTE) for BBVA increased from 16.9% in June to 17% in September, thanks in part to higher earnings. For 2024, it predicted a high-teen ROTE.

TURKEY BOOKS LOSS, STRONG MEXICO AND SPAIN

Due to increased loan activity, even with higher financing costs, the bank’s net profit increased by 21%, and its net interest income increased by 30% in Mexico during the quarter.

Net profit in Spain increased by 75%, while NII increased by 62%.

While rates on deposits increased by just 15 basis points (bps) to 0.68%, yields on loans increased by 37 basis points to 4.01%, which benefited the margins in its home market. This increase was due to larger customer spreads.

The customer spread in Spain increased, going from 312 bps in the second quarter to 333 bps.

Higher tax rates negatively impacted BBVA’s bottom line in Turkey, where the institution recorded a 158 million euro loss in 2022 after switching to hyperinflation accounting. National insurance declined by 25.6%.

BBVA’s core tier-1 fully loaded capital ratio, which is the tightest measure of solvency, was 12.73% at the end of September, down from 12.99% in June due to the impact of the July announcement of a 1 billion euro share repurchase.