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BBVA expects to struggle to meet Spanish NII guidance after Q1 earnings miss

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BBVA expects to struggle to meet Spanish NII guidance after Q1 earnings miss

will struggle to meet its guidance for its Spanish net interestincome and loan growth to be flat in 2016, after the bank fell short offirst-quarter profitexpectations under pressure from exchange rate weakness in major markets and afall in trading gains.

"Theguidance on NII is clearly more challenging to achieve, but we will … strive asmuch as we can to reach it," CFO Jaime Sáenz de Tejada told a conferencecall with analysts April 28. Spain's second-largest bank announced a 53.8%year-on-year fall in first-quarter net attributable profit to €709 million.Excluding the sale, a year ago, of part of BBVA's stake in , thedecline in profit was 11.6% in constant exchange rate terms.

Netinterest income rose 13.3% compared to the first quarter of last year to €4.15billion, but fell 3% short of expectations, according to analysts at Citigroup.In its home market, NII was 2% higher in the first quarter than a year earlier,but slid 6% from the final three months of 2015 due to low interest rates andpressure on spreads, BPI analyst Carlos Peixoto said in a research note.

Lendingvolumes in Spain also contracted by 1.3% from the fourth quarter.

"We'renot changing the guidance on volumes but clearly they'll be more challenging toreach — the flat numbers that we are expecting for the year," Sáenz deTejada told the call. "Clearly volumes have not performed well."

BBVAshares fell more than 7% after the results, which Citigroup calculated wouldcut 3% from expectations for its 2016 earnings per share.

Earningsin the U.S. also disappointed due to higher provisions for losses in the oiland gas sector, which has been hit by depressed prices for crude.

Costof risk in the U.S. rose to 63 basis points in the quarter, BBVA's CEO, CarlosTorres Vila, told the call.

Whilethe rise is unlikely to be repeated to coming quarters, he said it meant themetric could rise by 30 basis points over the year, rather than the 20 basispoints guided for.

"Theirperformance in the U.S. is going to be very important over the next fewquarters, if the oil sector keeps causing trouble," Nuria Álvarez fromRenta 4 Banco said, although she added that BBVA's underlying revenue growthremained positive, with gross income expanding by 14.9% at constant exchangerates.

OfBBVA's €7.6 billion in unfunded exposures to oil and gas, €5.2 billion are inthe U.S.

BBVA'sfirst-quarter miss on expectations came after the other big internationalizedSpanish lender, Banco SantanderSA, exceeded analysts' estimates by 8%, thanks largely tolower provisions. CaixaBankSA, the country's third-largest bank, reported a fall in to €273 million, from €375 million a year ago.

Whilecost of risk is rising in the U.S., BBVA's emerging country markets performedbetter than expected on the metric, Sáenz de Tejada said.

Thebank's cost of risk in its South American operations declined about 20 basispoints from the fourth quarter to 120 basis points, outperforming guidance fora rise of up to 20 basis points throughout 2016 compared to the previous year's126.

"Weare not changing the guidance but clearly, as in the rest of the emergingeconomies, cost of risk numbers are coming through clearly below theguidance," Sáenz de Tejada said.

Thebank's fully loaded common equity Tier 1 ratio also did better than analystshad expected, rising 20 basis points in the quarter to 10.5%, and keeping thebank on track to meet its target of 11% by 2017. Despite the strengtheningcapital ratio, the bank sees no reason to change its policy of paying out partof its dividends in scrip, Torres Vila said.