By Jesús Aguado

MADRID (Reuters) - Spain's BBVA on Tuesday warned of the potential impact of U.S. tariffs on its Mexican unit and said the fallout could curb growth in loan income, although a solid performance in Spain helped the bank beat first-quarter profit expectations.

BBVA and peer Santander have depended on Latin American markets to offset pressure from lower interest rates in the euro zone, but BBVA now wants to reduce its reliance on emerging markets such as Mexico and Turkey and last year made a hostile bid for smaller Spanish rival Sabadell.

In the first quarter, BBVA's net profit rose 23% and beat forecasts thanks to its home market.

The bank's net profit in Spain grew 43.8% while net profit in Mexico, where it makes around half its profit, fell 7.6% partly due to the depreciation of the Mexican peso at a moment when the country braces for a shift in U.S. tariffs policies.

BBVA's CEO Onur Genç said the bank was not revising upwards its high single-digit outlook guidance for loan and lending income growth for 2025 in Mexico due to current uncertainty despite solid business dynamics in this country.

"In a normal environment, we would have upgraded our guidance, but we need to be cautious and we need to see how things turn out in the coming weeks and months before we can certainly say that it will be a higher figure," Genç told analysts.

At 0916 GMT, shares in BBVA had fallen 1.5% down compared to a decline of 0.4% at Spain's blue-chip index Ibex-35.

BBVA, which shocked Spain last May when it turned hostile in its pursuit of Sabadell with a more than 12 billion euros ($12.84 billion) bid at the time, wants to create a bank with over 1 trillion euros in total assets.

Spain's competition watchdog CNMC is set to approve BBVA's proposed acquisition Sabadell as early as this week and Genc said this process was expected to be resolved in the coming days.

BBVA booked a net profit of 2.7 billion euros ($3.08 billion) in the January to March period, above the 2.42 billion euros expected by analysts polled by Reuters, thanks to lower impact from the renewed banking tax in Spain.

Higher earnings and revenues helped BBVA lift its return-on-tangible equity ratio (ROTE), a measure of profitability, to 20.2% in the quarter from 19.7% at end-December and the bank maintained its forecast to achieve profitability levels similar to those of 2024.

Overall net interest income, the difference between earnings on loans minus deposit costs, fell 1.7% year-on-year.

In Turkey, net profit rose 9.7% to 158 million euros but would fall short of expectations of meeting the bank's target of a net profit of 1 billion euros by the end of 2025.

In terms of solvency, BBVA managed to lift its core tier-1 capital ratio to 13.09% at end-March from 12.88% at end-December.

($1 = 0.8784 euros)