Q3 2021 Grupo Financiero Galicia SA Earnings Call

Good day and welcome to the Grupo Financiero Galicia third quarter 2021 earnings release Todays conference is being recorded at this time I would like to turn the conference over to Mr. Pablo for Vita. Please go ahead Sir.

Thank you Nick.

Good morning, and welcome to this conference call.

We will make a short introduction and then we'll take your questions.

Statements made during this conference call will be forward looking statements within the meaning of the safe Harbor provisions of the U S Federal Securities laws.

Subject to risk and uncertainty that could cause actual results to differ materially from those expressed.

According to the monthly indicators for economic activity in my the Argentine economy recorded an 11, 6% year over year expansion during September.

I chose to 10, 9% growth for the first nine months.

It's pretty much a deficit for the first nine months of 'twenty, 'twenty, one, which only <unk> 3% of GDP.

But sports mentioning that without the onetime extraordinary revenue from the wealth tax.

It's the yards from the IMF that figure would have been one 8% of GDP.

The National Consumer price index recorded a nine 3% increase during the course of the third quarter and reached 52.5% annual negotiation in September 2021.

On the monetary phone yards in Central Bank expanded the monetary base by 205 billion pesos in the third quarter recording a 26, 4% increase in the last 12 months.

Meanwhile, the exchange rate average.

98.3 pesos per dollar in September at three 2% increase against the average for June one.

Compared to September 2000, twenty's yards, and saying based upon the wind at 23% devaluation.

In September do you ever get rate on peso denominated private sector time deposits for up to 59 days.

34, 6% similar level to the average recorded in June.

Private sector deposits in pesos amounted to $6 eight trillion pesos in September.

We see 12.8% nominally during the quarter and 49, 3% in the last 12 months.

And deposits in pesos rose, 12% in nominal terms during the quarter of 51, 1% in the year and peso denominated transsexual deposits 14, 1% on 48 volt.

4%, respectively in the same periods.

Okay sector, Golar denominated deposits amounted to $16 $4 billion, increasing chew up one 9% during the quarter and decreasing four 3% in the last 12 months.

As of the end of September peso denominated loans to private sector amounted to $3 three trillion pesos increasingly nuomi long terms pinpoint and 5% in the quarter of 35, 9% when compared to September 2021.

While the private sector or dollar denominated loans amounted to $5 $1 billion recording a six 1% decrease during the quarter and 16, 7% contraction year over year.

Turning now to Grupo Financiero Galicia net income for the quarter amounted to $9 4 billion pesos rose 24% in real terms from the same you Gotta Goldcorp to.

This profit was mainly due to gains from Banco Galicia for $6 9 billion pesos from that on Capex for.

For $2 2 billion pesos from Galicia us with margin management for 437 million pesos.

Let's just see what goes for 248 museum pieces.

Annualized return on average assets was two 6% and our return on average shareholders' equity 14, 2%.

Banco Galicia net income for the quarter increased 14% in real terms from the same year ago quarter.

Mainly due to a 6% net operating income.

On 18% lower personal expenses.

61% decrease of income tax offset by a 48% are you lost from the monetary position.

At 28% increase of other operating expenses.

Net interest income increased 13% in real terms with interest income growing 23% you were either a need to reduce expenses and three 9%.

Average interest, earning assets decreased 6% in the same period, mainly due to decreases of 38% of dollar denominated loans, 26%.

Peso denominated loans, 15% of cool them and Securities Inc basis.

Partially upset by hungry on 69% increase will follow into sending he has it in pesos in.

In the same period, its yield increased 550 basis points.

Primarily due to higher yields on other interest earning assets in pesos, mainly repurchase agreements on sexual squeaky Argentine central Bank.

Interest bearing liabilities decreased 8% from the fourth quarter of 'twenty 'twenty.

Due to a 28% decrease in the average balance of other deposits in pesos.

<unk> 27 per cent decrease dollar denominated time deposits.

12% decrease of dollar denominated saving accounts offset by a 9% increase of peso denominated time deposits.

During this period its cost increased 586 basis points, mainly as a result of a 517 basis point increase in the average interest rate of peso denominated time deposits.

Net fee income increased 4% from September 'twenty, 'twenty, mainly due to higher fees on deposit accounts, 24% and on utility Bill collection of songs is 43%.

Partially offset by lower credit related fees paid per se.

Net income from financial instruments.

This 11% mainly due to a 15% decrease in the result of Argentine Central Bank Securities due.

Due to lower holdings.

Gains from gold and ethics quotation defenses were down 82% from the year ago quarter, reaching 616 million pesos.

Including 261 million pesos profit from foreign currency trading.

Provision for loan losses for 80% lower than in the same quarter of the prior year.

Unfortunately, the expenses decreased 18% from the third quarter of 2020, mainly due to a 7% reduction and stuff.

Amit the expenses increased 5% as compared to a year before.

Because of the of the 33% increase in taxes, partially offset by a 50% decline in fees and compensation for services.

Other operating expenses for the quarter increased 28% mainly.

Mainly due to a 29% higher so no effects on the 37% increase for further provisions compared with the same period of the previous year.

The bank's financing to the private sector reached 512 billion pesos at the end of the quarter.

Down 25% in the last 12 months.

Mainly due to a 19% decrease of loans in pesos on the 41% decrease of dollar denominated loans.

Exposure to public sector increased 36% year over year.

Due to the growth of repurchase I read them in transactions with the Argentine Central Bank.

Excluding these repos on Central Bank instruments net exposure represented 8% of total assets compared to 7% as of the end of the third quarter of 2020.

Deposits reached 935 billion pesos similar level from a year before we thought all deposits are falling 10% on peso deposits growing 2%.

The bank's estimated market share of flows to private sector was 11, 3%.

45 basis points lower than at the end of the year ago quarter.

The market share of deposits from the private sector was 10, 5% 30 basis points higher than in the same quarter of 2020.

As regards asset quality the ratio of nonperforming loans to total financing.

Ended the quarter up four point, 16%.

Recording <unk> hundred 96 basis points deterioration as compared with the 200 to 20.

20%.

Of the third quarter of the prior year.

Mainly due to the end of the ruler waivers for the classification of the loan portfolio starts at least by the.

Central banks during the 'twenty 'twenty lockdown.

At the same time the coverage ratio.

172% down from 302% from a year ago.

As of the end of September 'twenty, 'twenty, one the banks to tell who literally capital.

Asia reached 27%, increasing 386 basis points from the end of the same quarter of 2020.

The banks liquid assets with the Cynthia hungry up 59% of transaction on the bullshit, 68% of total deposits up from 81% and 46% respectively.

From a year ago from the year before.

In summary in a very challenging and volatile macro environment, Grupo Financiero, Alicia, we'll see going to improve profitability and to keep asset quality liquidity and solvency metrics are very healthy levels.

We are now ready to answer the questions that you might have thank you.

Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad.

You're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.

Again press Star one to ask a question and we'll pause for just a moment to allow everyone an opportunity to signal.

Yeah.

And our first question comes from Ernesto <unk> with Bank of America. Please go ahead.

Hi, Good morning, Pablo Thanks for your presentation for the opportunity to ask questions.

I have a couple of questions from my side the first one Nissan.

Political outlook.

After the midterm elections, what do you think are the key challenges are fine.

What are the key dates that you recommend us to follow.

And how do you see wage inflation and FX.

And my second question is on your net interest income.

We saw an important grow during the quarter.

But also we noticed that it benefited from grapples with the Central Bank. So I wanted to understand how sustainable do you think you can maintain these were supposed to be the central bank.

And what would be the strategy for the needs in the next quarters.

Okay.

Our next door.

Well first go into the political and macroeconomic environment as you mention it last November 14th we have we have the midterm elections.

The main opposition party go up roughly 42% of the votes on all of them then.

Three.

So basically what the immediate thing he said that two thirds.

Of all the population all of the voters.

These are both for all of them and this means that the Congress will change.

Do they all women will not stop.

The courtroom.

Also we will have to negotiate to bus the different lots. So I think that's a good news.

And going forward.

P S T D.

Our agreement with.

Yeah, your math, everybody keeps saying that hey, we need to reach an agreement.

Even this week the immediate to pick off economy. He said that he would like to.

To get the agreement between before year end.

Although economists are saying that.

It would.

It would be.

Most likely that will of course sometime before the end of March when Argentina has to pay.

The big install them and if there is no.

So that is the base case scenario, what we need to see is what <unk> or what would be the two year plan that the Christian mentioned that they will help to ease.

Approve on.

And I agree with you I got it.

In our base case scenario.

We are not seeing any.

Significant change in terms of.

Inflation and interest rates inflation for this year, it will be around 50% and our chief economist forecasting similar levels.

The effects are situation is.

We have many different exchange rate.

Do you have at least.

Say that there should be some kind of evaluation.

Official exchange rate.

But we need that should come after.

After the agreement with the IMF.

Well, it's a good news regarding the macro Rockies the rebound you know.

G D P. It last year.

Argentina, GDP contracted nine 9%.

And the last numbers at <unk>.

That this year, the GDP will grow 9.7% so that would be almost.

Yeah.

Before we got what he yeah of course.

About 1% or less to get to.

Oh till the end of 2019 level.

Going to the net interest income.

On margins, we see.

And if it's flat and margins.

The us always many moving parts.

And we have a part of our loans.

The fixed interest rates, even subsidize or determined by the central bank. The same for time deposits the breakdown of our time deposits on the transaction.

Deposits and also the breakdown of loans, it's not changing dramatically.

And you can go in specifically to the repo and situation.

Is it an instrument.

At the bank.

You choose to invest for seven days.

Its liquidity when they pass seats and you grow on loan demand.

Dustin.

It follows the same reason.

The good news is that for the fourth quarter, we are seeing.

Significant and loan demand.

The order of six to seven 8%.

Nominal growth per month in October and so far in November.

So and part of that liquidity.

Investors in the Central Bank.

It should go to the private sector.

Very helpful. Thank you very much from them.

Youre welcome.

Thank you and our next question comes from Rodrigo knee store with a P partners. Please go ahead.

Hi, good morning, and thank you for the opportunity also asking a question. So over the last few quarters that FX became increasingly relevant.

Contribution to the consolidated result, so what should we expect going forward for these business.

It's fair to think that that Iraqi could be 20, 25% of the consolidated net income.

And then a follow up on the same topic. If you could share would have some extra color on the reason that's pro forma and wasting doing much better than the bank. It's just a matter of regulation.

Things that explained it wouldn't metrics. Thank you.

Hi, how are you.

Well.

We are comparing and not on car X numbers with the previous year that was.

I would say extraordinarily low.

Left here.

The goal of the company and that our type well.

Finishing many project.

Mergers and.

Some oh, let's say extraordinary.

Expenses.

Due to the utilization.

And now we are seeing the more I would say you saw that type of a profitability.

The when you look at the numbers you will see a significant growth in and then financial income due to both an expansion in margins.

In loans last year or origination was almost a frozen you too.

I know when the decision of the company, but if you look at the loan evolution and it was like 55%.

September 'twenty, one compared to September 2020.

What he social and the good news is that they would level off and.

Asset quality or Npls, so going forward, we expect to to go on seeing this kind of a 20% level or are we.

And it's likely that they.

They wouldn't it wouldn't.

What percent.

Between let's say 20, and 25% of the reports.

Consolidated net income.

Okay.

Thank you very much that was really helpful.

Yeah.

Thank you of course here.

Thank you and our next question comes from Jason Marlin with Scotiabank. Please go ahead.

Hi, Pablo patents for the opportunity to ask questions. My question is on the digitalization initiatives and you just mentioned.

Just related to that you can talk a little bit more about what she is doing there and then we should be expecting.

Expenses related to that into increased going forward and maybe on that note give us an update on the competitive environment.

Are these digital channels. Thank you.

Okay.

There's some.

Well.

We internally, we tend to say that.

We are no longer speak about a digital transformation.

It was a project like four years ago. Now we are we are we say we are digitally is no longer a transformation.

But of course, they are used to and I'm glad we need investment in different initiatives.

The increase on the Hopper and you really see a when you look at our.

Ups and home banking I know if his banking you can do anything they are and you don't need to go to two branches.

And actually if you look at the number of branches that you will see a reduction in this in the third quarter from 327 to 319.

It's likely that it's likely that by yearend, we wouldn't see the 315 and and now there you see a new regulation from the Central Bank in order to close or merge.

Scientists you need to have the authorization from the Central Bank.

It's likely that we will request some yeah, so essentially they're.

In the previous ones, we announced the merger of those branches before the this new regulation.

When we look at some numbers.

We have to I would say main indicators one it's a digital clients.

Defined as clients with at least one logging during the last 30 days are comparable with the total active clients and that number is 63%.

And another.

Metric will you will see the full digital clients. These are clients that didn't use any feature got a ton of during the last 30 days that number you said around 20%.

And when we look at also a sales of products or opening of new accounts or are they positive checks everything that has to be with it.

The digital channels.

Ooh dramatically for example, E checks and we launched them back I would say one year ago, and now will be representing 24% of the positive checks a grandkids now represent 10%, but one year or older represented 40% so they definitely.

Oh the investment.

Indeed did utilization now.

Now we are seeing.

It's positive fruit so the effect.

When we see also in Manhattan.

Yeah.

Digital is a company that I'm Hyatt.

Yeah.

We will have or in the process of having just one up because in the past we have a new product launch I would tell you two or three years ago and the old company that anchor with its own App now it's everything one and again you can do anything.

With that.

When and all told the banks a lunch Moore's law and model. It will suddenly initiative by these are the main areas.

For the private sector.

He got he shifts and then there'll be the yen and macro.

You know ways to allow a and b to b a transfer of money payment with a QR and do have to choose it great.

<unk> got.

Ill be friend and banks to make payments.

In a way.

<unk> model is competing with a medical or a buy one other much smaller and.

The index that appear in the market when we look at and view our digital ones.

D R.

Two small and you might have.

Opinion the challenge.

For them would be to have enough capital.

Two zero because many times the value proposal is not to charge anything in order to get clients, but that has a limit.

Thanks for the color.

Oh very helpful. I appreciate it.

Thank you.

And our next question comes from Carlos Gomez with HSBC. Please go ahead.

Yes, Hello, Pablo Ultra I wanted to ask about the outlook and that we don't cause were difficult.

But if you could repeat again do you do you think that you will end up growing or not growing the loan portfolio in real time.

These year end and with about a mix yeah.

Second question is that do you have been accumulating as it takes some amount of capital. We know that there has been no limitations on the bulk of the central bank for distributions buybacks.

Do you have it mean vacation that those could come to an end with the end of the year absolutely didn't keep the discussion with the Central Bank. What do you think will happen to them capital distributions for you are putting up that entity.

Thank you.

Hi, Carlos.

In terms of loans to private sector.

So far the yard.

Growing below inflation.

Mentioned that fourth quarter in the fourth quarter, we are seeing a positive.

Significant real growth.

Slightly that for fall 'twenty.

2021 the loan book when you grow.

Inflation less 10%, so if inflation 50, 40, or so or a 50 141 eight for next year.

We are forecasting.

Right now that inflation will be 52% on loans in pesos. When you grow the same percentage so normally.

Equal to inflation, so no real growth that for the system.

We are forecasting some.

Additional percentage points growth for us so that to recover part of the market share in loans.

We lost two D C or part of these lost Walsh.

Something that we manage basically we didn't want to complete a very low interest rates for loans to be corporate some of our competitors were.

Very aggressive and the the reduction in our loan book was basically concentrated in large corporates.

And in terms of our capital.

Yes, that's you said it.

We are not able to pay dividends.

Level.

And we are accumulating capital total capital ratio stands at 27%.

Yes, we have requested the central banks to allow banks to pay dividend.

The higher your net worth the fire and the Mega.

And they've got to be an impact.

Due to inflation.

I really don't know if they.

Central Bank.

When you listen to the bank's request or.

Oh, I'm not but yes, we will put it through the banks Association basically.

Okay. So the lumpiness is seasonal as requested.

For PV Didnt payment.

Do you expect to see the nice kind of in the coming few weeks or is that something for next year or is it part of a negotiation with you on your math.

Any guidance.

Well the timing is really unpredictable and we need I don't know if you remember with the or I guess, the the agreement with the IMF will not include this topic.

Yeah.

But it's more of a central bank.

Nishu.

I guess yeah.

It would be something more of the first quarter. If we wanted to get a first quarter of next year. If we get an answer but did you say I guess.

And one final question good adverse to cancel the dividend, but to the best of my knowledge.

Banks can do buybacks is that also an option that the group has considered as one possibility to utilize that capital.

Well, hey, any at least keep company can do that the thing is that it.

The listed entity E Grupo Financiero, Galicia, holding and.

The clothing needs the liquidity from bank from the bank.

And actually also in order to pay dividends and Grupo they need us we cannot have received dividends from from the bank.

The holding company depends on deviant from that out and call. The insurance companies you have put the management company. So yes, we analyze it about.

The other thing would be that the bank would be the listed entity because he's the one with the liquidity.

So yeah.

For that.

It would be similar to two have authorization to do pay deviants.

So in principle the bank cannot buy.

Yeah, So the holding company.

Exactly we it will need authorization from the central bank, because it would be seen as the payment of dividends and also there are limitations of on a related party transactions that and how much exposure you can have in truck company and so it's it's also.

Well you have a legal.

Yeah.

Implications, but that's.

Definitely makes it easy to do it.

But of course, we analyze all alternatives.

Okay. Thank you so much.

Youre welcome.

Thank you and once again, if you'd like to ask a question. Please press star one.

We'll take our next question from Paul on the Cracker with T. P. C. G. Please go ahead.

Hi, Thank you for taking my question I like them, all which were the main drivers have been crazy.

Their interest.

Yeah. Thank you.

Yes.

Then.

Within other operating assets. The main items are the the repo transactions with the Central Bank and these are the seven day exposure.

Interest rate is.

36, 5%.

And you can see that the stock.

It grew a lot and so that is the explanation for that.

Interest result.

Perfect. Thank you.

Youre welcome.

Thank you and that concludes today's question and answer session. Mr. Feed at this time I'll turn the conference back to you for any additional or closing remarks.

Thank you Nick well. Thank you all for attending this call. If you have any questions. Please do not fit today to contact us.

Good morning, and happy Thanksgiving.

Okay.

And this concludes today's call. Thank you all for your participation you may now disconnect.

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