Higher loan-loss provisions and rising costs in some emerging markets overshadowed higher-than-expected third-quarter earnings at Spain’s BBVA, sending its shares lower.

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

Loan-loss provisions increased 51% year on year to 940 million euros, at a time when lenders around the world are putting more money aside in case the macroeconomic environment deteriorates. The figure was higher than the 892 million predicted.

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

At 0933 GMT, the bank’s shares were down 4.2% after being the best performers in Spain’s blue-chip index Ibex-35 in the previous three months, rising 26%.

“Declines in shares are more related to doubts on 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, referring to cheap funding loans known as TLTROs.

BBVA Chief Executive Onur Genc told analysts that the change in TLTROs, both in July and November, would have a 240 million euro impact on net interest income (NII), or loan earnings minus deposit costs.

Genc, on the other hand, predicted that NII in Spain would grow in the “high teens” in 2023, after rising 6.8% in the third quarter compared to the same period a year ago.

The lender followed its main competitor in Spain, Santander, in increasing provisions for economic deterioration, and other European lenders who also warned of rising risks.

NII increased by 40.2% to 5.26 billion euros, exceeding the forecast of 4.83 billion.

Costs in constant currencies increased by around 20% year on year, owing to inflationary effects, particularly in emerging markets.

BBVA, like Santander, has been expanding in emerging markets as it struggles to increase income in more mature markets. Mexico’s net profit increased 68%, accounting for slightly more than 60% of earnings in the quarter, while NII increased 48%.

In Turkey, where BBVA has begun to use hyperinflation accounting, net profit increased 38% and NII increased 32%, owing to positive business trends and limited currency depreciation.

Caixabank, a Spanish competitor that also exceeded net profit forecasts, saw lending income rise 6.2% in the third quarter but fall 0.4% in the first nine months of the year. Caixabank’s stock dropped by about 5%.

(Adapted from MarketWatch.com)