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BBVA expects Mexican unit to grow net interest income

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BBVA expects Mexican unit to grow net interest income

Banco Bilbao Vizcaya Argentaria SA is expecting high-single-digit growth in net interest income in its largest market, Mexico, in 2018, despite a slight slowdown in lending in the country during the fourth quarter of 2017, the bank's CFO said Feb. 1.

"It's true that we've seen a slight slowdown in [the fourth quarter]," Jaime Sáenz de Tejada told analysts during an earnings call. "Year on year, loan growth has been 5.5%, but if we exclude the [foreign exchange] impact, this is around 7%."

Fourth-quarter 2017 retail lending grew at similar levels to the previous quarter, but according to the CFO, there had been a "significant slowdown" in commercial lending.

"We've seen amortizations in certain large clients over $650 million actually — and that is what has reduced loan growth in the system," he said.

Net interest income at the group's Mexican operations grew 9.5% to €5.44 billion in 2017, while net profit rose 12.7% to €2.16 billion. In the fourth quarter of 2017, the unit's net profit was up 6.1% to €571 million.

Reduction in real estate exposure

In Spain, which is BBVA's second-largest market, Sáenz de Tejada expects "slight loan growth" helped by consumer and commercial lending, while also noting that the lender would continue to see the deleveraging of mortgages.

In November 2017, BBVA agreed to sell most of its Spanish real estate business to U.S. fund Cerberus Capital Management LP for about €4 billion; Sáenz de Tejada said the transaction would close in the third quarter, allowing the bank to reduce "almost entirely" its real estate exposure ahead of its initial expectations.

Losses at the bank's noncore real estate unit totaled €501 million at the end of 2017, and Sáenz de Tejada said 2018 losses would be less than €100 million following the sale.

Spanish banks are still dealing with problem real estate loans 10 years after the country's real estate bubble burst, provoking a near-collapse of the sector and a complete restructuring of the banking system. BBVA reduced its net exposure to noncore real estate to €6.4 billion at the end of 2017, down from €10.2 billion a year earlier.

Across the group, BBVA's full-year 2017 profit rose 1.3% to €3.52 billion, but its fourth-quarter results dropped 89.7% to €70 million because of an €1.1 billion exceptional charge related to losses in its investment in Spanish telecommunications firm Telefónica SA. Excluding the charge and provisions for mortgage-clause exposures in Spain, net profit rose 10.2% to €1.19 billion. CEO Carlos Torres Vila told analysts that Telefonica remained part of its "available-for-sale portfolio."

The group's fully loaded common equity Tier 1 ratio stood at 11.1% at 2017-end, compared to 10.9% a year earlier; Torres said the group maintained its target of 11%.

"We are in a good place," he said. "During the year, we feel comfortable with that current level of capital slightly above the target."

On a pro forma basis, he said the ratio was 11.34%, with new IFRS 9 accounting rules, which took effect Jan. 1, shaving off 31 basis points, while the Cerberus deal and the sale of BBVA's Chilean retail bank added 57 basis points.

BBVA agreed to sell Banco Bilbao Vizcaya Argentaria Chile SA to Canada's Bank of Nova Scotia on Dec. 5, 2017.