BBVA posted an attributable profit of €1.93 billion between January and September, 37.3% less than in the same period a year earlier, when it booked capital gains on the sale of non-strategic assets. Without taking into account such gains, net income from ongoing operations rose 43.2% year-over-year, totaling €2.28 billion.
“This set of earnings reflects the strength of our business model”, asserted BBVA President and COO Ángel Cano. “That same strength and our capital adequacy allow us to stand out among major European banks in the most challenging stress tests performed on the European financial sector to date.”
Net interest income – the best measure of the traditional banking business – between July and September was the Group’s highest since 2012: €3.83 billion (up 7.8% year-over-year) and it increased across all business areas compared to a year ago.
Excluding the forex fluctuations, net interest income plus commissions and fees totaled €4.89 billion (up 15.7% year-over-year). Gross income in the third quarter grew 7.8% vs. the same period a year earlier, up to €5.16 billion. As usual, the bank has continued to apply its costs strategy region by region: it kept costs at bay in developed countries, while it supported expansion in emerging ones. As a result, operating income stood at €2.42 billion in the quarter (up 10.9%).
2014 3Q BBVA Results Report
In the third quarter, BBVA earmarked €1.25 billion for loan-loss and real estate provisions, in line with the previous two quarters and clearly below the levels posted in 2013 (a quarterly average charge of €1.66 billion) and 2012 (a quarterly average charge of €2.36 billion).
The risk indicators continued the positive trend seen in the last few months. For the third straight quarter the NPA ratio improved, coming in at 4.3%, with a coverage ratio of 64%, both figures excluding the real-estate business. Taking into account all portfolios, the Group’s NPA stood at 6.1%, 28 basis points lower than at June 30. Total coverage increased to 63%. Furthermore, the balance of non-performing assets declined 7.9% compared to the end of September 2013, at current exchange rates.
As expected, BBVA passed the ECB comprehensive assessment. According to the exercise, BBVA would have a CET 1 ratio of 9.0% in the adverse scenario in December 2016, well above the minimum requirement (5.5%). This result implies that BBVA surpassed the test by a difference of €13.22 billion. According to the templates published by the European Banking Authority (EBA), BBVA would reach a fully-loaded capital CET 1 ratio of 8.2% in 2016 in the adverse scenario, becoming one of the three big European banks to exceed the 8%.
Likewise, the core capital at the close of September 2014 showed a ratio of 11.7%. Based on fully-loaded criteria, the ratio would be 10.1%.
Gross lending to customers (€361.08 billion, up 1.1% year-over-year) remained at a similar level as a year before. In Spain and in the wholesale businesses in Eurasia, the total balance continued to fall, although at a slower pace. However, lending grew at double-digit rates year-over-year in South America, Mexico, Turkey and the United States. Furthermore, customer deposits (€329.61 billion, up 8.5% year-over-year) continued to grow across all the regions in which BBVA operates.
As for the Group’s digital transformation process, BBVA continued to adapt to customers’ new demands, amid an increased use of mobile devices and the arrival of new competitors. This is a comprehensive process: it covers everything from technological infrastructure to the distribution model, processes and products; it also includes changes in the corporate culture and a push to develop new digital businesses.
2014 3Q BBVA Results Presentation
BBVA also undertook several social responsibility initiatives, such as the partnership with the OECD to add a section on financial literacy to the PISA report; the fourth edition of Momentum Project to support social entrepreneurship in Spain, Mexico and Peru; the creation of 6,600 jobs in Spain through the I Am Employment initiative; and a social policy that guarantees a house for BBVA customers who are having difficulty making their mortgage payments and are at risk of exclusion. Ángel Cano believes that “doing responsible banking is a permanent commitment to strengthening our role in society and restore confidence.”
Below, please find the key figures for each business area.
The banking activity in Spain saw a nascent recovery in loan demand, but it has not managed to turn around the average total balance, which fell 5.6%. Resources grew 11.1%. All margins registered a positive year-over-year performance during the quarter. Net interest income and commissions grew 10.8% to €1.32 billion, driven by the drop in deposit cost. Gross income grew 1.0%, while operating income was 5.9% higher, thanks to the drop in costs, which fell 3.7% (year-over-year) during the quarter and racked up a drop of 6.2% between January and September, compared with the same period a year earlier. The NPA ratio improved to 6.2% in September, with coverage of 44%, thanks to the drop in NPLs. This area earned €836 million (up 70.2%) in the first nine months of 2014.
The real estate business in Spain continued to reduce its net exposure to this sector, accumulating a drop of 8.9% since the end of last year. Between January and September, the bank sold 16,049 units (+10.2% year-over-year). The cumulative data up to September shows losses narrowed by 29.1% year-over-year, with a net result of €-598 million.
To better explain the performance of the business areas with currencies other than the euro, the percentages changes described below refer to constant exchange rates.
United States posted double digit growth in lending and customer resources. The franchise’s risk indicators held steady and it earned €302 million (-2.3%).
Turkey was once again the driver in Eurasia, thanks to its buoyant activity and the earnings growth in the banking business. Between January and September, the area’s attributable profit totaled €471 million, 24.5% more than in the same period in 2013.
In Mexico, robust activity continued to grow over the first nine months of the year. In the third quarter, even though the economic recovery has not had a knock-on effect on the business, earnings increased at a double-digit vs. the same period in 2013. BBVA beat once again its peers in Mexico in terms of efficiency, profitability and risk management. This business area contributed €1.35 billion (up 11.5%) to the BBVA Group’s cumulative results.
South America saw an intense business activity. The area boosted earnings, with rates above 20%, especially net interest income and commissions. The Andean region once again positioned itself as the main business driver. South America’s attributable profit for the first nine months rose 14.5% year-over-year, totaling €755 million.