By Jesús Aguado

The net profit of 2.08 billion euros ($2.20 billion) was slightly better than 2 billion euros expected by analysts but was somewhat overshadowed by a 29% year-on-year rise in provisions and a loss in Turkey.

Shares in BBVA initially fell nearly 4% on the results, after gaining close to 13% in the last six months. They were down 2.5% by 0828 GMT.

In an uncertain environment, the bank's cost of risk, which measures the credit risks and potential losses for the bank, rose to 111 basis points (bps) from 104 bps at the end of June, compared to expectations of around 100 bps for the year.

Provisions came in at 1.21 billion euros, slightly above the 1.14 billion euros expected by analysts polled by Reuters.

The lender said lower provision requirements for Turkey were offset by higher provisioning needs, mainly in South America and Mexico, in a context of rising interest rates.

Madrid-based brokerage Renta 4 said a higher cost of risk than estimated by the bank's guidance would add some pressure.

Brokerage company Jefferies said that whilst underlying trends in Spain and Mexico "were robust in our view, these were slightly obscured by large hyperinflationary accounting adjustments in Turkey."

BBVA has relied on Mexico in the past to cope with tough conditions in Europe, but is now also benefiting - like European rivals - from higher interest rates on its home continent.

At a group level, BBVA's net interest income (NII), or earnings on loans minus deposit costs, rose 22.5% year-on-year to 6.4 billion euros in the quarter. Analysts expected a NII of 6.05 billion euros.

Higher earnings helped push BBVA's return on tangible equity ratio (ROTE), a measure of profitability, to 17% in September from 16.9% in June. It forecast a high-teens ROTE for 2024.

MEXICO AND SPAIN STRONG, TURKEY BOOKS LOSS

In Mexico, the bank's net profit rose 21% while NII climbed 30% in the quarter supported by higher lending activity despite higher funding costs.

In Spain, net profit jumped 75%, while NII was up 62%.

Margins in its home market were helped by higher customer spreads as yields on loans rose 37 basis points (bps) to 4.01%, while rates on deposits climbed just 15 bps to 0.68%.

This widened the customer spread in Spain to 333 bps compared with 312 bps in the second quarter.

In Turkey, where BBVA shifted to hyperinflation accounting in 2022, the bottom line was affected by a higher tax rate, the lender booked a loss of 158 million euros. NII fell 25.6%.

In terms of solvency, BBVA finished September with a core tier-1 fully loaded capital ratio, the strictest measure of solvency, of 12.73%, down from 12.99% in June following the impact from the 1 billion euros share buyback announced in July.