BBVA's profits slump on property writedowns

BBVA’s NINE-month profits were nearly cut in half after Spain’s second-biggest bank wrote off more than a billion euro of losses on bad property investments.

The writedowns are part of Spain’s efforts to push its banks to recognise billions of euros of bad loans from a housing boom and bust that forced the country to seek outside help for its weakest lenders.

The government is forcing banks to clean up balance sheets in the hope of restoring faith in the banking system and getting credit flowing again to families and businesses. BBVA said yesterday it wrote off €1.6 billion of losses on soured real estate assets in the third quarter, which dwarfed profits of €146 million.

The bank’s nine-month net profit came in at €1.7 billion, down 47 per cent and in line with analyst expectations.

It has made two thirds of the real estate writedowns required under Spanish law. It still has €1.6 billion of losses to absorb in the fourth quarter.

BBVA chief executive Angel Cano told analysts he expected bad loans to rise in both the real estate and business sectors in 2013, although not substantially.

Spain’s banks face tough economic conditions, given that the country fell deeper into recession in the third quarter, while the cost of living has risen sharply because of tax rises linked to budget deficit targets agreed with Europe.

Recession, unemployment and inflation has pushed more households and businesses to default on loans so that bad debts reached record highs in August.

The bank’s bad loans rose to 4.8 per cent of the total loan book, up from 4.1 per cent one year ago. In Spain, they jumped to 6.5 per cent from 5.1 per cent at end-June largely due to the inclusion of smaller lender Unnim for the first time.

BBVA and larger rival Santander have cut exposure to Spain by expanding abroad. But Spain still accounts for 29 per cent of BBVA’s gross income.

Profits from BBVA’s Mexican business rose 4 per cent during the nine months to €1.3 billion. The bank’s Eurasian unit, which includes Turkey, produced a net profit rise of 13 per cent.

Mr Cano said he had no plans to float the Mexican business in the short term. – (Reuters)