BBVA beats Q2 profit on Spain overshadowed by slower growth in Mexico

By Jesús Aguado

MADRID (Reuters) -A slower net profit growth in BBVA's main market in Mexico in the second quarter overshadowed a 38% year-on-year rise in overall profit that topped market expectations thanks to Spain, where it is aiming to buy rival Sabadell.

The fifth-biggest bank in the euro zone by market value booked a net profit of 2.79 billion euros in April-June, above the 2.46 billion euros expected by analysts polled by Reuters.

Results were also overshadowed by a 44% rise in the quarter in loan loss provisions, especially in Mexico, where the cost of risk which manages potential losses, rose to 334 basis points from 327 in the previous quarter on higher economic uncertainty.

At 1151 GMT, shares in BBVA fell 4% after having risen 24% so far this year as the lender will not buy back more shares until the offer for Sabadell finishes.

BBVA relies on Mexico for more than half of its profit, and acquiring Sabadell would increase BBVA's lending to SMEs in Spain.

In Mexico, net profit rose 7% year-on-year in the second quarter. In the first quarter, profit had grown 12.6%.

Net interest income, or earnings on loans minus deposit costs, was up 11% in the April to June period but fell 0.9% against the previous quarter.

SAVINGS IN ADMIN AND IT

BBVA's 12.28 billion euro takeover process was "progressing positively, in full accordance" with the plan, said BBVA CEO Onur Genc, a bid which comes as banks are looking for ways to increase revenue as a boost from high rates begins to fade.

As part of its aimed 850 million euros in cost savings through the acquisition, BBVA said on Wednesday that 450 million euros would be administrative and IT savings, 300 million euros were related to job cuts, 100 million euros in funding savings.

It also it would close 300 branches, out of the 870 offices identified in the combined group with a proximity of less than 500 metres. This represents less than 10% of the network.

The possibility that BBVA could end up with a majority share in Sabadell without an outright merger has prompted questions about whether BBVA can deliver the cost synergies.

In Spain, BBVA's net profit in Spain rose 57% year-on-year, while net interest income was 18% up. Against the previous quarter it rose 0.8%.

As interest rates have remained higher than initially expected, the bank revised up its NII growth guidance in Spain to low teens for 2024 from a previously double-digit outlook.

At a group level, BBVA's NII rose 12% year-on-year to 6.48 billion euros in the quarter, in line with analysts' forecasts.

Higher financial margins helped BBVA lift its return-on-tangible equity ratio (ROTE), a measure of profitability, to 20% in the quarter from 17.7% at the end of March.

Higher growth in its two main markets offset a weaker performance in Turkey, where net profit fell 16.5%.

($1 = 0.9320 euros)

(Reporting by Jesús Aguado; Editing by Inti Landauro, Janane Venkatraman and David Evans)