Morningstar | BBVA 1Q: Mexico and Turkey Perform Better Than Anticipated
BBVA reported net attributable profit of EUR 1.2 billion for the first quarter of 2019, a 10% decrease compared with the first quarter of 2018 and slightly better than consensus expectations of net profit of EUR 1.1 billion. Pre-provision profits increased 3% year on year, a 24% surge in credit losses however eradicated all the gains. Management attributed the sharp increase in credit costs to a macro overlay provision and weakness in the U.S. consumer loan book. We maintain our narrow-moat rating and our fair value estimate of EUR 5.90 per share.The latest conversation over BBVA has been dominated by its exposure to Turkey and to a lesser extent Mexico, two emerging market economies whose macroeconomic outlook has become murkier. Both businesses performed better than expected.
Garanti, a Turkish bank that is 50% controlled by BBVA, contributed 11% to 2018 group attributable profit. Garanti reported better-than-expected results, despite attributable profit declining by 29% year on year. The collapse of the Turkish lira during the second half of 2018 sparked a spike in credit losses. Guidance from BBVA was for a 3% credit loss ratio during fiscal 2019 for Garanti. We therefore view the much lower 1.8% reported credit loss ratio for the first quarter of 2019 as positive. Given the extent of foreign currency borrowing, the Turkish lira remains the key factor determining future Turkish credit losses. Recent dovish Turkish Central Bank s tatements over the future of monetary policy is unlikely to support the lira.
BBVA Bancomer, BBVA's fully owned Mexican subsidiary, contributed 44% to BBVA's attributable profit in 2018. It reported an 11% year on year increase in attributable profit, driven by revenue growth of 11% and a 0.25% improvement in its credit loss ratio to 2.93% for the first quarter of 2019 compared with the first quarter of 2018. Concerns in Mexico have been about proposals from the socialist government of Mexican president Andrés Manuel López Obrador to restrict banking fees. There was no new information over the proposal to cap fees. Previously BBVA indicated they do not believe the current proposal will have a material affect.
Banco Bilbao Vizcaya Argentaria is an international financial group, engaged primarily on providing banking services and consumer finance to private individuals and businesses in Spain and Portugal; providing real estate activity in Spain; providing services to international companies and investment banking, capital markets and treasury management services to clients; and providing the banking, insurance and pension businesses in Mexico and the U.S., as well as in South America.
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