Grupo Financiero Galicia S.A. Q1 2023 Earnings Call

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Good day and welcome to the first call. It top 2023 earnings release today's call is being recorded your lines will be on listen only how F. All you will have the opportunity to ask questions. At the end. This can be done by pressing star one on your telephone keypad to register your question.

If you require assistance at any point, Please press star zero and Youll be connected to an operator I will now hand, you over to your host Pablo feet of eat ought to begin today's conference. Thank you.

Thank you.

Good morning, and welcome to this conference call.

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

Some of the statements made during this conference call will be forward looking statements within the meaning of the safe Harbor provisions of the U S. Securities laws are not subject to risk and uncertainty that could cause actual results to differ materially from those expressed.

According to the mouth of indicator for economic activity in my.

The Argentine economy recorded a one 3% your where your expansion during March and year to date terms the economic recovery reached one 5% as compared with the first three months of 'twenty to 'twenty two.

During the first quarter the primary deficit reached to your 0.4% of GDP.

This implies an increase as compared to the CEO , 0.2% deficit of the first quarter of 2022.

That was explained by the 78, 3% increase of revenues, where yes primary spending rose 89, 8%.

The National Consumer price Index recorded a 21, 7% increase during the quarter and a 32% rise between January and April .

Inflation reached 808%.

I know what valuation in April 2023, which entailed an acceleration against April 2022, 58% inflation.

Inflation was hitting its highest mark in 30 years.

On the monetary front, the Argentine Central Bank expanded the monetary base by $265 7 billion pesos in the quarter recording a 52, 8% increase in your on your tests.

The exchange rate averaged 203, one peso per dollar in March.

17, 5% increase against the 14, 9% peso devaluation average in December .

When compared to March 2022, the Argentine peso and the ones at 46, 1% devaluation.

In March 2023, do you average rate on peso denominated private sector time deposits for up to 59 days.

To that 71, 5%.

37 percentage points above the March 22, 2022 problems.

Yeah, that's right displayed a similar level to the 70% average recorded last December .

However, the Argentine Central Bank has been increasing interest rates as of mid March and the minimum interest rates for retail term deposits currently stands at 97%.

Private sector deposits in pesos average $17 eight trillion pesos in March increasing $17.

17, 5% during the quarter and 110, 7% in the last 12 months.

And deposits in pesos rose, 20% during the quarter.

121, 1% in the year.

While the peso denominated transactional deposits increased 15, 3% during the first quarter and 801, 7% in euro on your terms.

Private sector.

Now to deposits amounted to $16 $4 billion in March increasing three 9% during the quarter and seven 1% in the last 12 months.

During March.

The loans to private sector average seven six trillion pesos, increasing 13, 2% in the quarter.

73, 6% when compared to March 2022.

While the private sector is dollar denominated loans amounted to $3 7 billion recording a five 8% expansion during the first quarter.

But the four 2% contraction when compared to March 2022.

Turning now to Rupert Financiero Galicia.

Net income for the first quarter amounted to $18 1 billion pesos.

71% higher from the year ago quarter, mainly due to profits from Banco Galicia for 15 billion pesos from.

Alicia asset management.

For $2 2 billion pesos from value shifts at all dose for 697 million pesos I'm from NOLA Capex 607 million pesos.

This profit represented a one 9% annualized return on average assets and a nine 8% return on average shareholders' equity.

Vanguard Etfs net income for the quarter was 55% higher than in the year ago quarter.

The net operating income increased 30%.

With your 266% increase in results from net interest income offset by a 34% lower results from financial instruments.

Adding up both concepts the growth was 26%.

Average interest, earning assets were up 5%, reaching two point 23 trillion pesos, mainly due to a 38% increase in the average volume of government securities in pesos.

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By an 18% decrease in the average volume of peso denominated loans.

In the same period in Seattle increased almost 25 percentage points, reaching 63, 3%.

Interest bearing liabilities increased 2% from the first quarter of 2022 amount.

Amounting to $1 92 trillion pesos.

This growth was mainly due to a 12% increase in the average balance of time deposits in pesos offset by the decrease of the average balance of saving accounts, both in peso selling dollars and buy dollar denominated time deposits.

During this period its cost increased 23, three percentage points to 45, 5%.

Net interest income for the quarter increased to 166% from the same quarter of 2022 with interest income growing 124% and interest expenses were 110% in the same period.

Net fee income increased 14% from March 2022, mainly due to a 47%.

The increase of fish on collection, and a 9% increase of fees from credit cards.

Net income from financial instruments decreased 34%.

Sequence of the change in the valuation model of the instruments issued by the Argentine Central Bank from fair value to amortize cost.

Gains from gold and FX quotation differences.

We're 253% higher from the year ago quarter, including the results from foreign currency trading.

As regards provisions for loan losses, the amount for the quarter was 92% higher than those recorded in the year ago quarter, reaching nine 1 billion pesos.

<unk> expenses were 22% higher than the first quarter of 2022.

Primarily due to salary increase agreements with the union and two a 4% increase of staff, while administrative expenses were 7% lower due.

Due to lower expenses for maintenance and repair them enough goods at them for higher administrative services.

Other operating expenses increased 52% due to higher to lower tax on financial operations as a consequence of the increase in the holdings of leaks.

The income tax charge was 15% higher than in the first quarter of 2022 with an effective tax rate of 28, 6%.

The bank's financing to a private sector reached 126 trillion pesos at the end of the quarter.

9% in the last 12 months, mainly due to a 14% decrease of peso denominated loans.

Exposure to public sector increased 17% year over year.

And excluding the exposure to the Central Bank net exposure represented 12% of total assets.

Compared to 19% as of the end of the first quarter of last year.

Deposits reached to 26 trillion pesos, 2% lower than a year before mainly due to decreases of checking and saving accounts in pesos, partially offset by higher balance of peso denominated time deposits.

The bank's estimated market share of flow to private sector was 11, 69% percent 39 basis points lower than at the end of a year ago quarter and the market share of deposits from the private sector was 975% 44 basis points lower than the same quarter of the two.

Sure.

As regards asset quality the ratio of nonperforming loans to total financing ended the quarter at 250% recording at 61 basis points improvement as compared to 311% of the first quarter of the prior year.

At the same time the coverage with allowances reached a 186%.

580 basis points from the 182% recorded a year ago.

As of the end of March.

The bank's total regulatory capital ratio reached 23, 47%.

62 basis points from the end of the same quarter of the previous year.

The bank's liquid assets represented 14% of transaction deposits of 57% of total deposits.

Up from 94% of 52%, respectively from a year before.

In summary in a very challenging and volatile market environment, Grupo Financiero, Galicia was able to keep asset quality liquidity and solvency metrics at very healthy levels and to improve its profitability in spite of the significant impact of the very high inflation of the quarter.

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

Thank you as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.

Our first question comes from Brian Flores from Citibank. Please go ahead.

Hi team.

Good morning, Thank you for the opportunity to ask questions.

I have two questions. The first one is on the technical side.

Wanted to ask on the certification of the Securities. Just can you elaborate the reason what is the rationale behind this.

What treatment with <unk> securities.

Then the second is just a follow up.

Regarding the question on row, four four trillion increase I think we mentioned somewhere around 9% inflation adjusted to wanted to know.

It's harder perhaps environment, you're right their activities.

Thank you very much.

Hi, Brian .

Well the first question regarding this.

Change in the model.

The accounting of leaks.

But basically that is the instrument issued by the Argentine Central bank that changed from fair value to amortize cost.

And at the beginning of the year.

The accounting Department decided to change that.

Because when <unk> were first issued by the Central Bank.

We thought they were going to be in.

Instruments for trading that could be purchased.

Curtis.

So.

Within the month.

Actually at the yard so.

Sure.

They are issued for 28.

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And the average maturities roughly 14 days.

Added to.

In the.

Account than us amortize calls so.

I would say.

The main output for for your analysis is that in the past the interest coming from the leagues.

Within results from financial instruments, while now the yard within.

In there is interest from.

Public Securities within financial income basically it makes I would say the comparison easier.

And in this way I think we are aligned with most of our peers in terms of accounting the results from the leagues.

The second question regarding ROE there.

The first quarter was nine 8% and we think we can maintain this level for the full year, so around 10% ROE for 2023.

Very clear thank you.

Youre welcome.

Thank you. Our next question comes from Uli Fernandez from J P. Morgan. Please go ahead.

Hello, everybody I have a question regarding cost it was very good but like non interest expenses. This quarter. So my question is.

How should we think about these and all that how much you all have got used to to continue delivering on cost and what should they expect that's the first one.

And just a follow up on the leaks on your moving from trading shoe kind of couch maturity.

There stood firm.

The leak rates are higher now Reits like there was a big increase in April another one now in May.

And looking at amortized cost you should note should not see any mark to market impact, but you should accrue lower interest rates on those secured so just trying to understand like what is the impact of higher <unk>.

Are you like I imagine positives, but would love to hear like your thoughts on how you know.

Higher racing back Trc favorite spook in your margins going forward. Thank you.

Okay.

First on costs.

You could see.

Increasing personnel expenses and a decrease in <unk> expenses.

I'd like to see them together, because part of the increase in personal expenses.

It was due to a 4% increase in staff and basically that is.

Something that the bank has been doing in the last couple of quarters I would say that it's in.

Irene.

People that used to be third party suppliers. So it was in carrier services.

And now they became a part of our our stuff.

So basically when you look at the number of employees you will see a slight increase.

And the main trend I would say is more.

Guidance.

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But you will not see it but the net effect is that there is a reduction in people off I would say all.

<unk> task mainly in the in the branch network, we are seeing some slight reduction.

There.

The objective for us is to keep reducing as a whole.

The the expenses.

I would say one of the main variables we can manage.

I'm not.

Not only in terms of personnel is that in the last couple of years. The total number of employees has been decreasing between four and 5% per year.

But also the rest of <unk> expenses.

So.

The I would say the guidance would be a couple of percentage points.

Though inflation.

And when we think about personal expenses, we have this target of slight reduction in number of people that of course, we are.

In every or many times a year now with the negotiation with the union that typically try to.

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Salary increases inflation, perhaps with some lags in certain quarters or in other quarters.

The salary increase is slightly higher than the inflation.

But for the full year it should be the same.

In terms of leaks.

We invest.

The mining and the liquidity, we are having us deposits are growing much more than the loan demand and the interest rate is.

Determine by by the Central Bank now the leak and stands at 97%.

The higher the interest rate and the higher the stock of Linux. The most significant are the bigger impact on.

Interest income.

The change in valuation really doesn't have any impact in terms of.

Potential shadow or difference between defense between book value and market value because as I said, there are maturities 14 days and we keep them until they mature.

So this is basically a change off and I'll turn it off.

It was a decision trying to reflect really the reality and not what we did at the beginning that we will see an asset trading.

Instrument and now its really.

An instrument that is two to keep liquidity or to invest our liquidity in this instrument.

No Super clear, thank you very much.

Youre welcome.

Thank you Ann as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.

There are no further questions I would like to hand, the call over to your host to conclude today's conference. Thank you.

Okay. Thank you know me.

Thank you all for attending this call. If you have any further questions. Please do not hesitate to contact us.

Have a nice long weekend here in Argentina.

That concludes today's event. Thank you for your participation you may now disconnect. Thank you.

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