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BBVA expects double-digit net profit growth in Mexico for 2018

Banco Bilbao Vizcaya Argentaria SA is confident about growth in Mexico as political headwinds dissipate, and the Spanish lender is now expecting double-digit net profit growth at its Mexican operations in 2018, company executives said July 27.

Concerns about the outcome of elections at the beginning of July and ongoing negotiations with the U.S. and Canada over the North American Free Trade Agreement had been weighing on lending at Grupo Financiero BBVA Bancomer SA de CV, but executives said commercial lending had rebounded in the second quarter.

"The lower growth we had seen in the first few months of the year picked up a bit in May and June," CEO Carlos Torres Vila told analysts following publication of the lender's second-quarter results.

"With this clear win by the new president-elect and the policies that are coming out of the new future government of Mexico, confidence is growing in the country, and we are looking quite good," he said. Promises to maintain fiscal discipline and maintain central bank independence by outsider Andrés Manuel López Obrador have appeased markets, which had been concerned by the president-elect's pro-nationalist rhetoric.

Mexico accounted for 28% of the bank's gross income in the first half, as net profit at the unit rose 30.3% to €1.21 billion and net interest income rose by 7.4% to €2.65 billion.

Overall, loans in Mexico grew by 8.6% year over year, boosted by strong growth from corporates and midsized companies, said CFO Jaime Sáenz de Tejada. Commercial lending rose by 14.6%, while consumer loans rose 5.8% and mortgages rose 7.1%.

Executives also forecast the cost of the risk to be below 320 basis points, down from 330 basis points at the end of 2017, as a result of lower provisioning, and Sáenz de Tejada said the bank would post double-digit profit net growth in Mexico in 2018.

In Spain, which accounted for 25% of first-half gross income, first-half profit was up 19.2% to €793 million, while net interest income fell 1.5% to €1.84 billion amid low interest rates and a competitive environment. Torres Vila said he expected net interest income to be around the same level in the second half given uncertainty in corporate and investment banking, despite strong mortgage and consumer lending.

"Loan growth will depend on the evolution mostly of corporate and CIB portfolios which has been muted in the first half," he said on the call.

BBVA also owns 49.85% of Turkish lender Türkiye Garanti Bankasi AS, and there have been concerns about growing nonperforming loans at Turkey's largest banks amid economic uncertainty and currency volatility. Torres Vila predicted that the bank would have to increase provisions and estimated that the cost of risk would rise to more than 150 basis points from between 120 basis points and 123 basis points currently.

BBVA reported impairments on financial assets for Turkey of €315 million, up from €239 million in the first half of 2017, a rise of 32.2%, or 66.3% at constant exchange rates. Net attributable profit from the business was virtually flat at €373 million, though it rose 25.6% at constant exchange rates.

Torres Vila said BBVA had taken several measures to offset economic risks in Turkey, including reducing the weight of its foreign-currency loan portfolio, diversifying its funding sources and lending prudently to corporates. He said the Turkish economy was growing too fast and needed to be contained by tighter fiscal and monetary policy.

"The economy should be redirected to lower growth levels, more the 3%, 3.5% levels. That should tame inflation, that should tame the current account deficit and that should provide a more sustainable growth later on," Torres Vila said.