* Q2 net profit rises 18 pct on strong performance in Mexico
* Shares up 2.6 pct, outstripping broader index
* CEO calls for tighter fiscal and monetary policy in Turkey (Adds comments from conference call)
By Jesús Aguado
MADRID, July 27 (Reuters) - Spain’s BBVA posted solid second-quarter earnings on Friday as an upbeat performance in its main market Mexico offset lean business in Turkey that prompted the chief executive to call for tighter monetary and fiscal policy in the country.
BBVA, Spain’s second-largest bank, increased its net profit by 18 percent to 1.31 billion euros ($1.53 billion) in the April-June period, above an average forecast of 1.18 billion euros returned by a Reuters poll.
BBVA shares climbed 2.6 percent, outstripping a 0.5 percent rise in the Ibex, after analysts broadly welcomed a solid set of results in Mexico and South America.
The bank’s risk management and a portfolio mix with a high proportion of inflation-linked bonds had contained the impact of the Turkish lira depreciation on its capital ratio to a negative 1.9 basis points over the quarter, the company said.
However, the lender’s fully loaded capital ratio, the strictest measure of solvency, dipped to 10.8 percent from 10.9 percent in the previous quarter.
On Friday, CEO Carlos Torres said that after the economy had overheated Turkey “really required tighter fiscal and monetary policy so that the situation can be redirected”.
In Turkey, the lender’s fifth-biggest market in terms of net profit after Mexico, Spain, South America and the United States, BBVA’s net profit dived 19.6 percent after the lira depreciated.
The Turkish currency fell to record lows this year following June’s snap election, where President Tayyip Erdogan - a self-declared enemy of high interest rates - appointed his son-in-law Berat Albayrak to the post of finance minister.
The move exacerbated concerns Erdogan would seek to exercise greater influence over monetary policy.
Turkey had been highly profitable for many foreign banks in recent years, including BBVA, which has been trying to offset a squeeze on lending income at its home market due to ultra-low interest rates.
The CEO said the Spanish bank remained cautious regarding its lending activity in Turkey and was also comfortable with its 49.85 percent stake in Turkey’s Garanti Bank.
In its main market of Mexico, the company’s net profit climbed 15.4 percent to 637 million euros, underpinned by stronger lending activity despite the uncertainty surrounding the North American Free Trade Agreement (NAFTA) negotiations.
Chief financial officer Jaime Saenz de Tejada said he remained optimistic that the lender would achieve a double-digit growth in net profit at end-2018 in Mexico.
Overall, net interest income (NII), a measure of earnings on loans minus deposit costs, was 4.36 billion euros, down 2.8 percent from a year ago due to pressure from low interest rates, but up 1.6 percent against the previous quarter.
Analysts had forecast a NII of 4.28 billion euros.
$1 = 0.8584 euros Reporting By Jesús Aguado; Editing by Paul Day, Sherry Jacob-Phillips and Jan Harvey