Spain's BBVA Q1 net profit beats forecasts on Mexico performance

By Jesús Aguado

MADRID (Reuters) -Spanish banking group BBVA reported a 39% rise in first-quarter net profit on Thursday, beating forecasts on the back of a solid performance in Mexico, its main market, and keeping a lid on deposits costs.

BBVA's profit of 1.85 billion euros ($2.04 billion) for the January to March period was above the 1.66 billion euros forecast by analysts polled by Reuters, even though it paid a 225 million euro Spanish banking levy.

In contrast, Spanish competitor Sabadell reported a 4% fall in net profit to 205 million euros although, like other European banks, both lenders benefited from a rise in lending income thanks to higher interest rates and lower deposit remuneration. Banks in Spain offer among the lowest deposit rates in Europe.

At a group level BBVA's net interest income (NII), or earnings on loans minus deposit costs, rose 43% year-on-year to 5.6 billion euros in the quarter, leading BBVA to revise upwards its guidance for growth in lending income for 2023 to 30% in Spain.

At Sabadell, NII rose 28% to 1.1 billion euros. Both figures were in line with forecasts. Sabadell reiterated its lending income guidance for 15-20% growth this year.

Shares in BBVA rose more than 2%, while Sabadell shares were up 1%.

On Friday, BBVA's Chief Executive Onur Genc said he did not "see any competitive market-driven push from any player to go after deposits in a big a way" due to excess liquidity.

BBVA's cost of deposits in Spain rose to 0.37% in March from 0.21% in December, but were still far below the 3.11% yield of loans.

LIQUIDITY, DEPOSITS IN FOCUS

The focus has recently shifted towards cash ratios at lenders after the collapse last month of Silicon Valley Bank in the United States and the shotgun merger between Swiss banks UBS and Credit Suisse, the biggest turmoil to hit global banking sector since 2008.

At BBVA, customer deposits rose 0.4% from the end of 2022, but were down 1.5% at Sabadell.

BBVA finished March with a liquidity coverage ratio (LCR) of 184% compared to 159% at the end of December, while Sabadell's was at 220%, down from 234%.

In Mexico, BBVA's net profit rose 65%, while income from lending increased by 48%. NII rose 38% in Spain.

In Turkey, where BBVA shifted to hyperinflation accounting in 2022, the lender booked a profit of 277 million euros compared to a loss of 76 million euros in the same quarter last year due to improving business and lower taxes.

However, net interest income in Turkey fell 3.7% in the quarter following new regulations that weighed on banks' books.

($1 = 0.9048 euros)

(Reporting by Jesús Aguado; additional reporting by Emma Pinedo; editing by Inti Landauro, Jamie Freed and Susan Fenton)