Spain's Banco Bilbao Vizcaya Argentaria SA is expecting to see slower loan growth at its Mexican operations in 2017 due to weaker economic growth in Mexico but remains optimistic on the long-term outlook for the country despite uncertainties over trade with the U.S. after the election of President Donald Trump.
"We expect Mexico to slow down to 1% growth in 2017, and that would have an impact on our loan growth decelerating to high single digits," BBVA CEO Carlos Torres Vila told analysts after the release of the lender's full-year 2016 results. "There are uncertainties, but there are also bright lights ahead given the size of the economy, the youth of the economy, how vibrant it is and how competitive it is."
BBVA derives about 40% of its profits from Mexico through BBVA Bancomer SA Institución de Banca Múltiple Grupo Financiero BBVA Bancomer, with lending increasing by 13.3% year over year in 2016 to €45.9 billion.
Torres Vila added that BBVA's net interest income in Mexico would grow in line with its loan growth there, with the bottom line also growing at high single digits. Fees and commissions would post mid-single-digit growth, while expenses would increase at a slower rate than revenue as the bank seeks to cut costs across the group.
In 2016, BBVA's net interest income in Mexico grew 11.6% to €5.1 billion, while net profit rose 11% to almost €2 billion. Net fees and commissions increased 10.2% to €1.15 billion.
The Mexican peso has fallen sharply since U.S. President Donald Trump said he would build a wall along the country's border with Mexico, amid growing concerns that trade between the two countries will be hurt if relations between them deteriorate. But the drop in the peso could be a driver for the Mexican economy, Torres Vila said.
"Mexico is even more competitive to export to the U.S. than it was a couple of months ago, and that dynamic is hard to stop, so that acts as a protection for the activity there," he told analysts.
Strong US unit
Meanwhile, BBVA's U.S. subsidiary BBVA Compass contributed 9% of the group's profits in 2016, even though net profit at the unit fell 11.5% to €459 million as lending decreased 1.7% to €62.1 billion, though net interest income rose 7.6% to nearly €2 billion. Torres Vila said he sees "slight" loan growth in the U.S. due to rising interest rates, with net interest income expected to grow in the high single digits.
"We will continue to focus on profitability over capital, so focusing on the more profitable segments," he told analysts, adding that this would entail "changing our mix towards retail and consumer loans and secured loans."
At group level, BBVA's fourth-quarter 2016 net profit fell 28% to €678 million as earnings were hit by a €404 million after-tax provision to cover future claims related to the misselling of caps on mortgages. Most of Spain's banks have had to set aside millions of euros for claims following a December 2016 European Court of Justice ruling that they must repay the totality of customer losses incurred because of the contract clauses. The related claims could cost the Spanish banking sector up to €4 billion. BBVA's gross provision amounted to €577 million, and the bank's CFO Jaime Saenz de Tejada said it was not planning to increase the amount.
"We think we are taking a very conservative approach to accounting for this risk," he told the analyst call. "We feel very confident and comfortable that that is the right provision … and we will not be expecting any further adjustments."
BBVA is also present in Turkey and has a roughly 40% stake in Türkiye Garanti Bankasi AS, and geopolitical factors affecting the country could have an impact on its Turkish operations, executives said.
"We do have an environment which is more uncertain given things that are going on in the country both domestically and in the surrounding region," Torres Vila said.
Loan growth would likely be lower than the 17% growth seen in 2016 when it totaled €56 billion, he added.
BBVA maintained its target for its fully loaded common equity Tier 1 at 11% for 2017. It stood at 10.9% at the end of 2016, compared to 10.3% at the end of 2015.