July 30, 2020 / 8:47 AM / 12 days ago

UPDATE 2-Spain's BBVA net profit falls 50% on COVID-19 charges, weak Mexico unit

* Q2 net profit falls to 636 mln euros but beats forecast

* Net profit in Mexico slides 57%

* Overall NII and revenues fall 9% and 5.7% y/y

* Capital improves by 38 bps in the quarter

* Shares fall 5% (Breaks down the data, adds details and share price)

By Jesús Aguado

MADRID, July 30 (Reuters) - Spain’s BBVA reported on Thursday a 50% slump in second-quarter net profit on one-off charges related to the COVID-19 pandemic and a weak performance in its business in Mexico, the bank’s main market.

The country’s second-largest bank by total assets had been relying on its Mexican business, which accounts for more than half of its earnings, to cope with tough conditions for banks in Europe since the financial crisis, now compounded by COVID-19.

But pressure from lower rates in Mexico and the depreciation of the peso pressured profits and lending income, which fell respectively 57% and 24% against the same quarter a year ago.

BBVA made net profit of 636 million euros ($747.4 million) in the April to June period, beating a 573 million euro forecast from analysts.

It provisioned 644 million euros related to COVID-19 in the quarter. These were 54% lower than in the first quarter when BBVA also made a significant writedown on its U.S. unit . However, overall, impairments increased compared with the same quarter last year.

This frontloading exercise in the previous quarter allowed the lender to improve its fully loaded core tier-1 capital ratio by 38 basis points in the April to June period to 11.22%.

Banks worldwide have been taking measures to offset risk amid the crisis. On Tuesday, BBVA’s competitor Santander swung to a record quarterly loss on COVID-19 impairments.

Shares in BBVA fell 5% compared to a 1.25 decline on Spain’s blue chip index Ibex-35.

Brokerage firm Jefferies highlighted weaker core revenues and trends in lending income as negative aspects of BBVA’s results.

Overall, BBVA’s net interest income (NII), a measure of earnings on loans minus deposit costs, fell in the quarter almost 10% year-on-year, while total revenues fell 5.7%.

On Wednesday, BBVA said its cost of risk, a measure of the cost of insuring its loan book, fell in June to 151 basis points compared to 257 bps at end-March. Chief Financial Officer Jaime Saenz de Tejada also affirmed in an interview with CNBC that the cost of risk would rise to between 150 and 180 bps by end-2020, a BBVA spokesman said.

$1 = 0.8500 euros $1 = 0.8509 euros Reporting by Jesús Aguado; additional reporting by Emma Pinedo; Editing by Inti Landauro,Ingrid Melander and Emelia Sithole-Matarise

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