BBVA's higher provisions and costs overshadow third-quarter beat

By Jesús Aguado

MADRID (Reuters) - Higher loan-loss provisions at Spain's BBVA and a rise in costs in some emerging markets overshadowed higher than expected third-quarter earnings, sending its shares lower on Friday.

Higher lending income and profits in Mexico, its main market, helped the country's second-biggest lender by market value to post a 31% rise in quarterly net profit to 1.84 billion euros ($1.83 billion), above the 1.55 billion forecasts by analysts in a Reuters poll.

Loan-loss provisions rose 51% year-on-year to 940 million euros, at a time when lenders are globally setting aside more cash against a potential deterioration of the macroeconomic environment. The figure was, however, below forecasts of 892 million.

BBVA's cost of risk, which measures the cost of managing credit risks and potential losses for the bank, rose to 86 basis points from 81 at the end of June, but was below the 100 bp guided for the year.

The bank's shares were 2.7% down in morning trade after being the best stock in Spain's blue-chip index Ibex-35 with a rise of 26% in the last three months.

"Declines in shares are more related to doubts the future business evolution and the implications of yesterday's decision by the ECB to cut a key subsidy to banks," Nuria Alvarez, analyst at Madrid-based brokerage Renta 4, said.

The lender followed its main competitor in Spain, Santander, in raising provisions against an economic deterioration and followed other European lenders who also warned of growing risks.

Net interest income (NII), or earnings on loans minus deposit costs, rose 40.2% to 5.26 billion euros, above a forecast 4.83 billion.

Inflation effects, particularly in emerging markets, led to an increase of around 20% year-on-year in costs in constant currencies at a group level.

Like Santander, BBVA has been expanding in emerging economies as it struggled to boost income in more mature markets. Net profit in Mexico, which accounted for slightly more than 60% of earnings in the quarter, jumped 68%, while NII rose 48%.

In Turkey, where BBVA has started to implement hyperinflation accounting, net profit rose 38% and NII was up 32%, supported by positive business trends and limited currency depreciation.

In Spain, NII rose 6.8% while net profit was up 8.4%.

At Spanish competitor Caixabank CABK.MC, which also beat net profit forecasts, lending income rose 6.2% in the third quarter but was down 0.4% in the first nine months of the year. Shares in Caixabank fell around 4.5%.

($1 = 1.0055 euros)

(Reporting by Jesús Aguado; Additional reporting by Emma Pinedo; Editing by Inti Landauro and David Holmes)