BBVA earned €1.33 billion in the first half of 2014, 53.9% less than in the year-earlier period, due to the absence of corporate operations. Without including such operations, net income from ongoing operations rose 11.7% to €1.54 billion. For the second quarter in a row, the Group’s NPA ratio fell. Net entries to NPAs from the banking business in Spain were negative in the second quarter.
“The strength of recurring revenue, costs control and lower provisioning have driven operating profit," BBVA President and COO Ángel Cano said.
In the first half of the year, the bank’s revenue generation accelerated, reaching high levels. Without taking FX fluctuations into account, net interest income rose 10.3% to €7.04 billion in the first six months, compared to the same period a year earlier. Between January and June, gross income totaled €10.37 billion, up 6% from the first half of 2013, at constant exchange rates.
2Q14 Quarterly report
The cost-containment effort was evident in the evolution of the operating costs, which dropped 5.4% in the second quarter year-over-year, and 5.3% in the first six months of 2014, at current exchange rates (+3.1% and +3.6%, respectively, at constant exchange rates). BBVA managed expenses according to the region and the needs of the franchises. In developed countries, it kept costs down and in emerging markets it supported expansion plans, especially in Mexico and South America’s Andean region. The fact that earnings grew faster than expenses generated operating income of €5.09 billion in the first half, 8.7% more than at the end of the same period a year earlier, excluding exchange rate fluctuations.
The income statement benefited from the gradual drop in loan-loss and real-estate provisions. The quarterly average charge has been reduced by almost half since 2012, from €2.36 billion to €1.22 billion in Q2-14.
For the second quarter in a row, the BBVA Group’s NPA ratio fell, reaching 6.4% at the end of June, with a coverage of 62%. Excluding the real-estate activity, the BBVA Group’s NPA ratio stood at 4.5%, with a coverage of 63%. In the second quarter, net entries to NPAs fell 75.5% year-over-year.
As for capital adequacy, BBVA’s core capital stood at 11.6% as of June 30th (a 10% ratio according to Basel III fully-loaded criteria), which is well above the minimum requirements.
In terms of business, gross lending to customers (€354.2 billion, -2.9% year-over-year) rose in South America, Mexico, Turkey and the U.S. In Spain, the pace of revenue growth continued to improve, although not enough to offset the overall drop. Customer deposits (€320.8 billion, +2.8% year-over-year) registered a positive trend, especially in current and savings accounts.
Below there is a breakdown by region, for developed markets (Spain and the U.S.) and emerging markets (Eurasia, Mexico and South America).
2014 2Q BBVA Results Presentation
Revenue from the banking activity in Spain picked up thanks to customer activity. Net revenue grew in mortgage loans, financing for small businesses and, particularly, in consumer finance. Furthermore, in the first half, BBVA provided more than €43 billion in financing to businesses and SMEs and added 27,000 new companies as clients. Net interest income plus fee income –the indicator that best shows the banking revenue– posted a good performance totaling €1.32 billion in Q2 (+3.1% compared to Q1 and -1.7% vs. Q2-13). Net entries to NPAs were negative.
The NPA ratio fell to 6.3% from 6.4% at the end of March, with coverage of 44% (41% at the end of March). This area’s net attributable profit totaled €608 million (-19.7% year-over-year). Net income from ongoing operations, excluding the effect of the re-insurance operation of the individual life-risk portfolio in 2013, rose 81.8%.
As for the real-estate activity in Spain, net exposure to this sector (€13.8 billion) accumulated a drop of 11.5% since the end of 2012. BBVA sold 11,402 units between January and June, 15.6% more than a year ago. Non-performing assets continued to drop (-4.2% compared to the end of March). Losses incurred by this area narrowed 24.5% year-over-year, with an attributable result of €-216 million in the second quarter (€-446 million in the first half of 2014).
In the following paragraphs the percentage variations refer to constant exchange rates, to better explain the trend of businesses in regions that do not use the euro.
Lending in the United States jumped 13.1% and customer funds climbed 8.1%. Net interest income plus fee income grew at 5.3% year-over-year in the quarter, totaling €483 million. In the first half this area posted net attributable income of €196 million, up 0.6%. It is worth mentioning that BBVA Compass had the best reputation with customers, according to American Banker magazine’s annual survey in the U.S.
In Eurasia, Turkey showed an improved outlook in terms of lending, revenue, provisions, risk indicators and forex rates. In the first half of 2014, the region posted a profit of €362 million, 15.2% more than during the same period of 2013.
Mexico posted growth in lending (+10.2%) and customer funds (+12.1%). Revenue growth outpaced costs, as it registered a double-digit increase year-over-year between April and June. Net interest income plus fee income grew 11.8%, gross income 10.5%, and operating income 12.2%. The NPA ratio remained unchanged at 3.4%, with coverage of 113%. Net attributable income totaled €900 million in the first half, 12.5% more than the same period a year earlier.
Once again, South America’s activity and results continued to grow at a good clip. Lending increased 24.6% and customer funds rose 23.9%. In the second quarter, net interest income plus fee income rose 36.8%, gross income 24.3% and operating income 22.3%, all year-over-year. The NPA ratio fell to 2.1%, with a coverage ratio of 138%. This region posted a profit of €483 million in the first half, up 17.7%.