Spanish banking giant BBVA has exceeded expectations in its first-quarter financial results, showcasing a remarkable 36.4% year-on-year surge in net profit. This robust performance has been attributed to BBVA’s strong presence in emerging markets. In contrast, competitor Caixabank grappled with challenges related to its lending income.
BBVA’s net profit for the January to March period reached 1.65 billion euros ($1.74 billion), surpassing the 1.24 billion euros forecasted by analysts polled by Reuters. In line with its larger Spanish counterpart Santander , BBVA has been strategically expanding its foothold in emerging economies to compensate for slower income growth in more mature markets. However, some analysts have raised concerns about the potential risks associated with BBVA’s exposure to the ongoing macroeconomic uncertainty in Turkey.
Turkey’s inflation rate, which soared to 61.14% in March, has prompted BBVA’s Chief Executive Onur Genc to consider the application of “hyperinflation accounting” as early as the second quarter. While such a measure could have a positive impact on capital, it could simultaneously result in a reduction in earnings. This nuanced approach underscores the bank’s sensitivity to the unique challenges posed by Turkey’s economic landscape.
BBVA’s Chief Financial Officer Rafael Salinas provided insights into the bank’s recent activities, indicating that BBVA currently holds over 60% of Turkish lender Garanti following its takeover offer. The acceptance period for this offer is set to conclude on May 18.
The announcement of BBVA’s impressive first-quarter results fueled a 4.2% increase in its shares. The endorsement from brokers such as RBC, who highlighted strong performance across all geographical areas, further buoyed investor sentiment. BBVA’s optimistic outlook stems from the projection that better-than-expected operating trends will contribute to an enhancement of net interest income in Spain and Mexico throughout 2022.
BBVA attributed its strong performance to increased interest rates in Mexico, Turkey, and South America during 2021 and the first quarter of 2022. This favorable trend has begun to manifest in the bank’s financial results. BBVA strategically identified Mexico and Turkey as key areas in its mid-November strategic plan, and these markets have played a pivotal role in the bank’s overall success.
Notably, BBVA’s net profit in Mexico, accounting for approximately 50% of its earnings, witnessed a remarkable 59% year-on-year increase for the quarter. Similarly, Turkey’s net profit, contributing 15% of BBVA’s earnings, rose by an impressive 30.6% compared to the same period last year. Lending income in both countries experienced substantial growth, with an approximate 30% year-on-year increase for the quarter.
JP Morgan, assessing BBVA’s results, attributed the better-than-expected outcomes to higher revenues, lower costs, and fewer loan losses. The group’s net interest income, a crucial measure encompassing earnings from loans minus deposit costs, exhibited a robust 20.5% rise, amounting to 4.16 billion euros. This figure outperformed the 3.89 billion euros forecasted by analysts.
In contrast to its impressive performance abroad, BBVA faced challenges in Spain, responsible for more than one-third of its earnings. Despite a remarkable 62% year-on-year leap in quarterly net profit, the net interest income in Spain dipped by 0.8%. This decline was primarily attributed to the enduring pressure imposed by low interest rates, a trend that has been impacting various financial institutions.
In a parallel development, Caixabank encountered difficulties in its lending income, which experienced a notable 5.4% decline. This divergence in performance between BBVA and Caixabank underscores the multifaceted challenges and opportunities presented by the current economic landscape.
As of the end of March, BBVA maintained a robust core tier-1 fully loaded ratio of 12.70%, slightly lower than the 12.75% reported at the close of December. This ratio, a stringent measure of solvency, showcases BBVA’s ongoing commitment to maintaining a solid financial foundation as it navigates the dynamic global economic environment.
