Morningstar | BBVA 2Q 2018: Decrease in Loan-Loss Provisions Drives Increase in Profits
BBVA reported an 18% year-on-year increase in net attributable profit for the second quarter of 2018. A strong euro had a material impact; on a constant-currency basis, the increase in net attributable profit was 38%. We highlight that a 21% decline in loan-loss provisions (12% decline in constant currency) was virtually the sole driver of the growth in profits. This is confirmed by the 5% decline in preprovision profits (9% increase in constant currency). We maintain our EUR 8.00 fair value estimate and narrow moat rating.The 6% decline in revenue was exacerbated by a 21% drop in volatile trading revenue, while net interest income and income from fees were stable. Cost growth tracked revenue with a stable cost/income ratio.
Management would no doubt be satisfied by the double-digit local-currency revenue growth from all divisions, with the notable exception of Spain. Despite a 5% decline in revenue, the Spanish division (22% of pretax profits) recorded a 20% increase in pretax profits; however, this is all due to lower loan-loss provisions. The all-important Mexican division (40% of pretax profits), had a very good quarter--revenue increased by 9% and pretax profits by 32%. We are concerned about the deterioration of asset quality in Turkey (20% of pretax profits), where loan-loss provisions nearly doubled and nonperforming loans have surged to 4.5% of the loan book, compared with 2.5% in the second quarter of 2017.
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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