October 31, 2019 / 12:10 PM / 19 days ago

BBVA net profit drops, Spanish margins under pressure

MADRID (Reuters) - Spain’s BBVA (BBVA.MC) posted a 31% drop in third-quarter profit, largely due to a one-off capital gain in the year ago period, and expects financial margins in its home market to remain under pressure due to low interest rates.

The underperformance in Spain and drop in profit overshadowed solid earnings growth in the bank’s Latin American business, weighing on its shares.

BBVA, like its larger domestic rival Santander (SAN.MC), makes most of its profit overseas, in particular in Latin America.

The country’s second-biggest bank reported net profit of 1.23 billion euros ($1.37 billion) for the three months through September, above analysts’ average forecast of 1.14 billion euros in a Reuters poll.

In the same quarter last year, BBVA booked net capital gains of 633 million from the sale of a 68% stake in BBVA Chile. Without taking into account this extraordinary one-off, profit rose 6.1% in the quarter.

Overall, BBVA’s net interest income (NII), a measure of earnings on loan minus deposit costs, rose 4.1% to 4.49 billion euros but was down 1.7% against the previous quarter. Analysts polled by Reuters had forecast NII of 4.48 billion euros.

“NII came in slightly below our estimates but this has been mostly offset by a slightly better performance in fees,” JB Capital Markets said in a note to analysts.

In Spain, BBVA’s second biggest market after Mexico, net profit fell 4%, while NII was down around 1% against both the same quarter last year and previous quarters, reflecting pressure from ultra-low interest rates.

BBVA still expects NII in Spain to decline 1%-2% in 2019.

At its Spanish rival Caixabank (CABK.MC), net profit rose 37% in the quarter due to lower one-offs as it managed to stabilize its financial margins.

Shares in BBVA (BBVA.MC) fell 1.9% and Santander (SAN.MC) declined almost 2.5% while Caixabank rose 0.2%.

On Thursday, BBVA said it ended September with a core Tier 1 capital ratio, a key measure of solvency, of 11.56% compared with 11.52% at the end of June, while its main competitor, Santander, reported a lower core-tier 1 capital ratio of 11.3%.

In Mexico, where BBVA makes more than 40% of its net profit, earnings rose 6%. NII also increased 6% year-on-year in the third quarter but was up just 0.8% compared to the previous quarter amid signs of a slowdown.

In South America, its third-largest market behind Mexico and Spain, net profit rose 32%.

Reporting By Jesús Aguado and Clara-Laeila Laudette; Editing by Ingrid Melander and Emelia Sithole-Matarise

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