Banco Bilbao Vizcaya Argentaria SA on Oct. 30 provided an improved outlook for loan loss provisions and said it was seeing a return to normal levels of credit card spending despite the prolonged nature of the coronavirus crisis.

The bank's cost of risk, the main metric for calculating loan loss provisions, fell to 1.69% at the end of the third quarter from 2.04% at the end of the second quarter, leading it to revise its outlook for the year to between 1.5% and 1.6%, from between 1.5% and 1.8% previously. CEO Onur Genç said the bank expected an improvement in its cost of risk in 2021.

After heavy up-front provisioning in the first and second quarters, third-quarter loan loss provisions totaled €1.04 billion, Genç told analysts following the publication of the group's third quarter results.

"The third-quarter figure is very much in line with the pre-COVID-19 level of impairments thanks to a better-than-expected performance of the portfolio in all [our] countries," he said. Headquartered in Spain, BBVA is also present in Mexico — where it owns the country's biggest bank, Grupo Financiero BBVA Bancomer SA de CV — South America, the U.S. and Turkey.

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Asked why BBVA and other banks are guiding toward lower-than-expected cost of risk despite lockdowns coming back in force in several countries and the prolonged nature of the crisis, Genç said economic growth forecasts had improved in some of the bank's major markets such as Mexico where the economic contraction is now expected to be 9.3% in 2020 compared to 10% previously.

Mexico had registered 90,773 COVID-19 deaths as of Oct. 30, making it the world's fourth-worst hit country by overall mortality, according to U.S.-based Johns Hopkins University. Spain had 35,659 deaths and is the eigth most affected country by deaths. Governments had sought to stem the effects of the crisis through stimulus packages and government-backed loans, while banks have put loan holidays in place.

Credit card data

Genç also said he was tracking data on credit card and debit card spending for signals regarding a recovery. In Spain, spending was down 60% in April, but it is now back to normal levels, he said.

"Now it is back to where it should be. If you had asked me back in March or April, would we back in the month of June and stay there, despite the fact that the health numbers are not doing so well, I would have probably said 'probably not.' But we are seeing it in the numbers."

He also said the crisis was different from previous economic downturns.

"The governments are kicking in to help the broader economy and we fully support that because this is a crisis that is affecting even the good companies in a negative way," he said. "In other crises, governments do not kick in because they do not want to save the unproductive companies."

Loan deferrals

The bank said 70% of BBVA loan deferrals had expired, and 79% of borrowers had resumed payments, while 2% are restructured loans and 8% have signed up for new payment conditions. The remaining 11% of borrowers are deferring payment for a second time, 51% of which are "high quality" mortgages, mostly in Spain, Genç said.

In Spain, the cost of risk stood at 0.80% at the end of the quarter, and CFO Jaime Sáenz de Tejada the bank was targeting 0.70% for the year.

In Mexico, third-quarter impairments fell by 40% on the previous quarter on lower provisions related to economic impact of the crisis and good payment performance of expired moratoria, he said.

Third-quarter cost of risk stood at 4.27%, a decline from 4.95% at the end of June and the bank is targeting the "low 400s" for the year end, he said.