July 27, 2017 / 5:54 PM / a year ago

UPDATE 1-BBVA's weak margins in Spain offset by strong Mexican performance

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By Jesús Aguado

MADRID, July 27 (Reuters) - Spanish bank BBVA reported a 1.4 percent fall in quarterly net profit on Thursday as lower lending income in its home market was partially offset by a strong performance in Mexico.

The weak performance in Spain signalled margins were still under pressure from record low interest rates and fierce competition for customers in a sluggish loan market despite a solid economic recovery in the country.

Lending income in BBVA’s domestic market fell 5.4 percent in the second quarter against the same quarter last year and was 0.6 lower than the first quarter of 2017 due to ultra low interest rates and subdued credit growth.

However, BBVA executives said in a conference call that net interest income, a measure of earnings on loans minus deposit costs, had likely bottomed out in Spain in the second quarter and lending revenue would stabilise towards the end of the year.

Profits at the bank’s Mexican unit, which accounts for around 40 percent of group profits, rose 13.7 percent in April to June thanks to a recovering peso and higher revenues.

Across the group, net profit rose 25.9 percent in the first half to 2.3 billion euros ($2.7 bln), above analysts’ forecasts, after the lender booked net capital gains of around 177 million euros from the sale of a 1.7 percent stake in China Citic CNCB bank in February.

Overall net interest income was 4.48 billion euros in the second quarter, up 6.4 percent from a year ago and also slightly outpacing forecasts.

Its fully loaded core capital target ratio, a closely watched measure of a bank’s strength, edged up to 11.1 percent, at end June, compared with 11.01 percent at the end of March. ($1 = 0.8581 euros) ($1 = 0.8567 euros) (Reporting By Jesús Aguado; editing by Sonya Dowsett and Susan Fenton)

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