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Bad property loans make a dent at BBVA

City A.M. Reporter
BBVA, Spain’s second- largest bank, said bad loans were nearing a peak after a sharp rise in provisions for doubtful debt in Spain, the US and Mexico hit its 2009 net profit.

The bank, which has made significant loans to struggling property developers, said yesterday it has set aside €6.6bn (£5.72bn) in provisions, mostly for potential bad debts which are currently 4.3 per cent of total loans.

This follows similar moves by domestic peers Banesto and Popular as they cope with Spain’s real estate slump.

BBVA executives said during a conference call the year-end bad loans ratio is near the peak of the cycle and in Mexico in particular the worst is over.

The hefty provisions overshadowed solid revenue growth at BBVA, boosted by the contribution from its Latin American and Mexico operations.

“Net interest income was ahead of forecasts, with a good performance from fees and other revenues. It was mainly the amount of extraordinary provisions which hit net profit,” Espirito Santo(ES) analysts said.

“Asset quality was also distorted by the extraordinary results,” they said.

Net profit dropped 16 per cent in 2009 to €4.21bn, in line with forecasts. In the fourth quarter, net profit evaporated to €30m from €1.38bn in the third quarter due to a one-time charge to writedown the goodwill related to BBVA’s US acquisitions.

While expecting a negative market reaction to BBVA’s results, BPI analysts said its investment case for the bank remains unchanged.

ES analysts added: “BBVA is well positioned to benefit from the recovery of the Mexican economy and should continue to post a resilient earnings performance in Spain, while enjoying enviable capital positions.”