Spanish banks beat expectations, signal worst may be over

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Three of Spain’s top banks tentatively signalled on Friday they may be past the worst of the financial fallout from the coronavirus crisis, posting higher than expected profits and saying loan losses could be lower than previously indicated.

BBVA, Sabadell and Caixabank are however still focused on battling the economic fallout from the pandemic and offsetting the impact of ultra-low interest rates.

Sabadell unveiled an efficiency plan including unspecified job cuts in Spain and an-ahead-of-time restructuring plan at its British arm TSB. Caixabank has agreed to buy Bankia in a defensive merger that will also lead to a reduction in excess capacity.

BBVA, Caixabank and Sabadell all pointed towards a lower cost of risks, which measures the cost of managing credit risks and potential losses and serves as an indication of future provisions.

Shares in BBVA were up 2.8%, while Sabadell rose 1.3% and Caixabank was down 0.1%, on the same day data showed Spain’s economy expanded 16.7% in the third quarter, its fastest pace ever, bouncing back from its deepest recession.

A file photograph showing the logo on the headquarters of the Spanish bank BBVA in Madrid, Spain. EPA/MANUEL H DE LEON

BBVA beat market expectations, helped by an improvement in loan repayment rates in its main market Mexico and already lower than expected provisions compared with previous quarters.

Spain’s second-biggest lender reported a 7% decline in net profit to 1.14 billion euros ($1.4 billion) in July through September, beating and average analyst forecast of 769 million.


Its cost of risk fell 169 basis points compared with 204 bps at the end of June following a strong increase in loan loss provisions in the first quarter, signalling it was on track to be below its guidance of between 150 and 160 bps for the year.

BBVA had already forecast in September an improvement in core revenue in the second half of 2020 citing a recovery in new retail loans and a better-than-expected performance in loan deferrals in Mexico.

Banco de Sabadell, S.A. signage at a bank branch in Malaga, Spain. EPA-EFE/MAURITZ ANTIN

On Friday, it said its results in Mexico, its main market, improved significantly in the third quarter compared with the previous quarter thanks to the growth in recurring revenue, containment in operating costs and lower provisions.

Analysts at UBS and Credit Suisse also welcomed an increase of 30 basis points in BBVA’s core tier-1 capital to 11.52% at end-September, compared with 11.57% announced by its competitor Santander on Tuesday.

Signage of CaixaBank in Malaga, Spain. EPA-EFE/MAURITZ ANTIN

Sabadell, which reported a 77% drop in third-quarter earnings to 57 million, also beat market forecasts of a 13 million euros net profit, with its cost of risk declining to 88 bps from 107 bps in the previous quarter.

Caixabank, which also beat market forecasts despite a decline of 19% in third-quarter net profit to 522 million euros, said the cost of insuring its loan book was also lower than expected of its 60-90 basis points guidance for the whole year.

($1 = 0.8461 euros)

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