BBVA shores up bad loan provisions

BBVA shores up bad loan provisions
By Mark Mulligan in Madrid
Copyright The Financial Times Limited 2009
Published: October 27 2009 09:10 | Last updated: October 27 2009 11:33
http://www.ft.com/cms/s/0/e2126762-c2d5-11de-8eca-00144feab49a.html


BBVA on Tuesday announced a 3.3 per cent year-on-year decline in net profits for the nine months to the end of September, as Spain’s second-largest bank used one-off gains to bolster provisions against rising bad debts.

The bank said profits for the period were €4.2bn ($6.25bn), compared with €4.3bn for the same period last year. After including one-off gains from asset sales last year, the decline was 7.2 per cent, the bank said.

However, the €830m proceeds of the sale and leaseback of BBVA offices and branches, signed last month, went straight into bad loan provisions this time, the bank said, “and had no impact on net attributable profit”. The results were in line with expectations but the shares were down 1.2 per cent at €12.30 in morning trading in Madrid.

The total cost of accounting for impaired assets totals €3.7bn so far this year, compared with €2bn at the same stage in 2008. Even so, the bank noted on Tuesday that it “continued to progressively reduce net additions to non-performing assets”. Total bad loan provisions set aside this year amount to €4.6bn, it said.

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The bank said non-performing loans as a percentage of the total stood at 3.4 per cent at the end of September, exactly double that rate at the same stage last year but still among the lowest in the Spanish financial system.

Although bad loans continued to mount, the results underlined the relative strength of Spain’s largest lenders. Their focus on retail banking and their geographical diversity has saved them from the worst of the US subprime crisis and shielded them against the sharp economic decline in the domestic market.

Revenues for the nine-month period were up 6.6 per cent at €15.4bn as net interest income climbed almost 20 per cent to €10.3bn. Income from fees and commissions slipped 4.5 per cent to €3.4bn.

For the three months to the end of September, net profits were down less than 1 per cent at €1.38bn, on revenues up 4.3 per cent at €5bn. Net interest income for the three months was €3.4bn, compared with €3bn last time.

Operating costs for the nine months were trimmed 2.4 per cent year-on-year, reflecting in part a substantial drop in headcount and branch numbers across the bank’s global network, except for in the US.

Weakness in the bank’s operations in Mexico and the US – which together account for just under a third of profits – were partly offset by strength in South America, where profits surged 28 per cent to €689m. Net profits from Spain and Portugal dropped 2 per cent to €1.8bn.

Core capital as a percentage of risk-weighted assets – a measure of solvency – was 8 per cent at the end of September, compared with 7.1 per cent at the end of June.