By Jesús Aguado

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 globally are setting aside more cash against a potential deterioration of the macroeconomic environment. The figure was above 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 down 4.2% at 0933 GMT, having been the best performers in Spain's blue-chip index Ibex-35 in the last three months with a rise of 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.

HIGH TEENS

BBVA Chief Executive Onur Genc told analysts the change in terms of TLTROs, both in July and in November, would have an impact of around 240 million euros on net interest income (NII), or earnings on loans minus deposit costs.

Genc however said he expected NII to grow at a "high teens" rate in Spain in 2023, after it rose 6.8% in the third quarter against the same period a year ago.

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.

NII 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.

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 5%.

($1 = 1.0055 euros)

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