Q2 2023 Banco BBVA Argentina SA Earnings Call
Speaker 1: Good morning ladies and gentlemen and thank you for waiting. At this time we would like to welcome everyone to BBVA Argentina's second quarter 2023 fiscal year results conference call. We would like to inform you that this event is being recorded and all participants will be in a listen only mode during the company presentation.
Speaker 1: After company remarks are completed, there will be a question and answer session.
Speaker 1: At that time, further instructions will be given. Should any participant need assistance during this call, please press star zero to reach an operator.
Speaker 1: First of all, let me point out that there are some statements made during this conference.
Speaker 1: Call that may be forward-looking statements within the meaning of the Safe Harbor provisions found in Section 27A of the Securities Act of 1933 under U.S. federal securities law. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements.
Speaker 1: Additional information concerning these factors is contained in BBVA Argentina's annual report on Form 20F for the fiscal year 2022 filed with the U.S. Securities and Exchange Commission.
Today with us we have Ms. Carmen Morales-Arroyo, CFO , Ms. Ines Lanussi, IRO, and Ms. Belen Forkade, Investor Relations. Ms. Forkade, you may begin your conference. Good morning and welcome to VBA Argentina's second quarter 2023 fiscal year result conference call. Today's webinar will be supported by a slide presentation available on our investor relations website on the financial information section.
Speaking during today's call will be Ines Lanouce, our investor relations officer, and Carmen Melissa Orozo, our chief financial officer, who will be available for the Q&A session. Please note that starting January 1, 2020, as per central bank regulation, we have begun reporting results applying hyperinflation accounting pursuant to IFRS rule IAS 29.
For ease of comparability, 2022 and 2023 figures have been restated to reflect the accumulated effect of the inflation adjustment for each period through June 30, 2023. Now let me turn the call over to Ines.
Thank you, Belen, and thank you all for joining us today. As we are all aware, on Sunday, August 13th, Javier Millet, the candidate for La Libertad Avanta, was the most voted in the primary presidential elections, quite above from what surveys were estimated.
This implies a higher uncertainty scenario facing the general elections of October and it is respectable that higher volatility will persist.
due to the impact of the negative weather shock on the production and export of agricultural goods coupled with increasing exchange rate restrictions and political uncertainty. In this context, its impact on the external and fiscal accounts has contributed to accelerate the exchange rate depreciation and inflation, which in annual terms reached 113.4% as of July 2023. Referring to BBVA's Argentina general performance, a better operating income as of June 2023 was a product of an improvement in interest income, boosted especially by government security and liquidity instruments, and better fees.
Now, moving into business dynamics, as you can see on slide 3 of our webcast presentation, our service offering has evolved in such a way that by the end of June 2023, retail digital clients penetration reached 62%, remaining stable from a year back, while that of retail mobile clients reached 56% from 54% as of the same period of last year.
Retail digital sales measured in units have increased from 90.8% in the second quarter of 2022 to 93.9% in the second quarter of 2023, and represent 71.8% of the bank's total sales measured in monetary value versus 57.1% in the second quarter of 2022.
BVV Argentina second quarter 2023 net income was 30.4 billion pesos increasing 63.3% quarter over quarter. This implies a quarterly ROE of 21.3% and a quarterly ROA of 3.9%. The net income in the second quarter of 2023 was 125.3 billion pesos, 28.6% above the 97.5 billion pesos recorded in the first quarter of 2023.
Quarterly operating results are mainly explained by one, better interest income results to public securities and liquidity instruments, two, better fee income, and three, higher net income from write down of assets at fair value through OCI, mainly due to the voluntary bond swap offered in June by the National Treasury. This effect was partially upset by one, an increase in other operating expenses, pushed by greater turnover tax due to a higher limit position, two, an increase in personal expenses, and three, an increase in administrative expenses. Net income for the period was highly impacted by income from net monetary recession as inflation increased from 21.7% in the first quarter of 2023 to 23.8% in the second quarter of 2023. Turning into the P&L lines in slides five and six, net interest income for the second quarter of 2023 was 185 on 5 billion basis, increasing 14.2% quarter over quarter.
In the second quarter of 2023, interest income in monetary terms increased more than interest expenses, mainly due to one, an increase in income from certain over adjustments driven by public securities with this adjustment, and two, a higher precision and yield of public securities, in particular of the link. Additionally, there is a positive effect from income from loans, mainly discounted instruments, from repo operations.
In the second quarter of 2023, interest income total 371.2 billion pesos, increasing 20.3% compared to the first quarter of 2023. In the quarter, monetary policy rate gradually increased from 78% at the beginning of the quarter up to 97% at quarter end. Reposits expenses totaled 185.7 billion pesos, denoting a 27.1% increase quarter over quarter. The increase is described by higher time deposit expenses.
Interest from time deposits, including investment accounts, explains 77.7% of interest expenses versus 82.8% the previous quarter. Net fee income as of the second quarter of 2023 totaled 23.7 billion B.C., increasing 69.3% quarter over quarter in real time.
In the second quarter of 2023, fee income totaled 33.4 billion pesos, growing 22.6% quarter over quarter. The quarterly increase is mainly explained by an increment of fees from credit cards, considering that these lines include the Puntos VE UVA Royalty Program. Regarding fee expenses, these totaled 9.6 billion pesos, falling 27%.
In the second quarter of 2023, loan loss allowances increased only 9.6% due to the good performance of our portfolio.
During the second quarter of 2023, total operating expenses were 92.16 on basis, increasing 8.4% over quarter of which 31% were personal benefit costs.
Personal benefits increase 6.3% quarter over quarter. The quarter increase is mainly explained by the inflation adjustment of vacation stock performed Vimyak Christian.
quarter increases were also affected by a 25.8% collective agreement on wages, which implies a 56% accumulating increase as of the second quarter of 2023.
The quarterly improvement is explained by a higher increase in income than expenses, especially due to a significant increase in interest and CE income. The accumulated efficiency ratio as of the second quarter of 2023 was 56.6%, improving compared to the 62.4% reported in the first quarter of 2023, and versus the 71.3% reported in the second quarter of 2022. In terms of activity on slide 7, private sector loans as of the second quarter of 2023 totaled 1.13 billion pesos, slightly decreasing 0.3%.
quarterly improvement is explained by a higher increase in income than expenses, especially due to a significant increase in interest and fee income. The accumulated efficiency ratio as of the second quarter of 2023 was 56.6%, improving compared to the 62.4% reported in the first quarter of 2023, and versus the 71.3% reported in the second quarter of 2022. In terms of activity on slide seven, private sector loans as of the second quarter of 2023 totes at 1.13% on basis, slightly decreasing 0.3% and 3.5% year over year.
Loans to the private sector denominated in foreign currency increased 12.1%. Quarter increase is mainly explained by a 13.9% growth in financing and pre-financing of exports. Loans to the private sector in foreign currency measured in US dollars increased 13% quarter over quarter. During the quarter, both the retail and commercial portfolio remained practically flat.
As observed in previous quarters, known portfolio were impacted by the effect of inflation during the second quarter of 2023, which reached 23.8%. In nominal terms, EVA Argentina managed to increase the retail, commercial and total loan portfolio by 23.8 and 23.4%, respectively, during the quarter, practically reaching quarterly inflation levels.
B.B. de Argentina's consolidated market share of private sector loans reached 9.01% as of the second quarter of 2023, improving from the 8.35% a year ago. In the second quarter of 2023, asset quality ratio was 1.38% compared to the 1.31% recorded in the first quarter of 2023. The slight increase is mainly explained by an increase in the region non-performing portfolio. On the funding side, as seen on slide eight, private non-financial sector deposits in the second quarter of 2023, total 2 trillion pesos, increasing 3.5% quarter over quarter.
The banks' consolidated market share of private deposits reached 7.03% after the second quarter of 2023. Private non-financial sector deposits in pesos increased 6.7% compared to the first quarter of 2023. The quarterly change is mainly affected by one, a 19.7% increase in saving accounts, which were partially pushed by exporters and agriculture producers' deposits linked to the Solar Soca 3 program.
2, a 14.8% increase in checking accounts, and 3, a falling investment account by 18.9% which upsets the growth in peso funding. Private non-financial sector deposits in foreign currency expressed in peso fell 8.5%.
In terms of capitalization, BBA Argentina continues to show strong solvents indicators in the second quarter of 2023. Capital ratio reached 28.4%.
Exposure to the public sector in the second quarter of 2023, excluding central bank instruments, represent 11% of total assets, above the 9.1% in the first quarter of 2023, and below the 17.3% report by the system as of June 2023.
It is worth mentioning that as of the date of this report, TVE Argentina has distributed three of the six installments scheduled on dividend payments from the 50.4 billion pesos total to be paid.
according to the plan published on June 7, 2023, and based on the terms agreed with the Central Bank.
The banks' total liquidity ratio remained healthy at 84.1% of total deposits as of June 30, 2023.
Please conclude our prepared remarks. We will now take your questions. Operator, please open the line for questions.
We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster.
The first question comes from Carlos Gomez. Please go ahead.
The first question comes from Carlos Gomez. Please go ahead. Thank you.
Hello, good morning. Thank you for organizing the call. A general question about how you contemplate the end of this year and the beginning of next year. How is the bank?
positioning in terms of liquidity, in terms of willingness to expand, to take risk or do the opposite and how you can hedge yourself against unexpected inflation or unexpected foreign currency movements. Thank you. Good must have kickst glass at that point.
Hello, Carlos, nice to hear from you. Okay, it's quite uncertain the projection for Argentina actually in this period of the year is when we prepare our budgets and it's difficult to project. No, our research department is updating, for example, inflation practically on an everyday basis. We are already in levels to the end of the year around 100...
175% to 200 monetary policy rates, although it has already been increased last week to 119, we are still expecting a higher monetary policy rate for the end of the year around 138, but it's still difficult to say when that increase is going to take place and how much it's going to be and at what.
basically to understand if interest rates will remain positive or negative. Also projection for official USD is projected today in 700 pesos per dollar at the year end. But again, macro variables are moving every day. And this is tied also to the political uncertainty. Now as you know, Millet won, this was unexpected. And today we have not only a possibility that Millet can be president, but we have three very strong parties running for the presidential election.
Being that said, as you see the numbers of the bank, the bank has reported very good results, very good ROEs, ROAs, all positive in real terms. Our loan growth this quarter has remained flat, but if you see our market share from one year ago, it's still growing. We are around 9%. And the bank is basically trying to protect the balance sheet from inflation.
This has been a quarter where inflation has increased, and the strategy of the bank is to acquire mainly serb bonds that protect our balance sheet for inflation. That keeps being the main focus of the bank going forward, and we need to see how the macroeconomic environment evolves.
to prepare the bank for the future? So, it's a tough question to answer because the macro variables are not clear enough for us to understand how the bank is going to be prepared. But the bank has good liquidity, both in pesos and dollars, has the protection of the balance sheet, is improving efficiency ratios, fees are improving, the margin obviously is improving. So, we are one of the banks that is in a good position to keep...
reporting results this year and the next. Okay, so again to summarize at this point in time, meaning today, Thursday, your inflation forecast is 175% and your monetary policy is 135%.
For the year-end, it's between $175 and $200, still not defined because the last one was $175, but we know they're working on a higher probably inflation rate for the year-end. Monetary producer rates, again, still not defined, but probably around $138 can be a possibility, but again, it's not a fixed number. Numbers are changing on an everyday basis.
It's difficult to tell you the numbers today. That may change tomorrow. What we know is that we believe there is going to be an extra increase in monetary policy rates. It's not going to be remaining in $118, because we still see the effects increasing, not before the end of the year.
Right, okay. And again, this money that is policy rate, these are the monthly rates which compounded KTR number above 200%.
The inflation rate, yes.
E-R-N 200%.
It has to do with an increase in the monetary policy rate that you had in the second quarter that went from 78 to 97 percent, remember, by the end of the first quarter to the second quarter, and that had a repricing also in loans. And the other factor is deposition in SERA and LELEC. From our public sector exposure to daily LELEC represents 76 percent and increasing. So that is part of the result that all the banks are presenting. Most of the NII of the banks is increasing mainly by public sector exposure, which is high, but in control, no, in the case of us, probably more control than other banks because of our parent company. So mainly the increase in the NII and the good result has to do with that, with the increase of monetary policy rate and deposition in public sector assets. Thank you.
It has to do with an increase in the monetary policy rate that you had in the second quarter that went from 78% to 97%, remember, by the end of the first quarter to the second quarter, and that had a repricing also in loans. So, and the other factor is deposition in SEHRA and LELEQ. Now, from our public sector exposure to daily leaks represent 76% and increasing. So, that is part of the result that all the banks are presenting. Most of the NII of the banks is increasing mainly by public sector exposure, which is high, but controlled, no, in the case of us, probably more controlled than other banks because of our parent company. So, mainly the increase in the NRI and the good result has to do with that, with the increase of monetary policy rates and the position in public sector assets. Thank you so much, Ines. You're welcome.
Next question comes from Ludovic Casros. Please go ahead. Yes, good morning and congratulations for the results. I've got two questions. The first one is about the impact of the evaluation of the ethics official rate on your results and on your book value, your equity. What would be the impact of the evaluation of the ethics official rate? The second question is regarding the consolidation that we have seen on the market with
Would BVU VLD antenna be interested in external growth, buying out a local subsidiary of foreign banks or merging with competitors?
Would you be interested in Excel Algors?
I didn't understand the last part of your question. I understood the part of BMA buying Itau, but the last part was? I don't understand the last part of your question.
The last part was if Bebu, Argentina could be interested in buying a subsidiary of an international bank.
or to merge with another local bank.
Okay, let me start by the last question. Regarding the Ita'i'u and BMA acquisition, I think it's a good position for BMA. It's a bank that offers a good branch network in the area where BMA has less branches, and I think it's a good merger for them. If you see today with the last information of the system is marked, but with those information markets shared and ranking stay quite stable. There's not much change by BMA acquiring Ita'u, but I believe it's a good acquisition for BMA strategy. Thank you very much.
Again, it's a very unstable moment, so it's difficult to say what other M&A is going to take part. BBDA as a bank looks out of every opportunity and is planning to remain in the market. So any opportunity that may rise up, we take a look at it and see if it's an opportunity for us.
Okay, regarding the evaluation, that was the other part of your question. As you know, by recommendation, we have a cut in the position that we can have loan in assets, basically to avoid this high increase in results because of a sudden devaluation. Being that said,
We have some bonds tied to effects that help our results in effects, and basically that's what we can do. There's not much we can do there. It's quite limited what we can do regarding evaluation.
Okay, thanks a lot. You're welcome.
Okay, thanks a lot. You're welcome. This concludes the question and answer section.
At this time, I would like to turn the floor back to Ms. Lanoucet for any closing remarks.
Okay, thank you for your time and let us know you have further questions. Have a nice day. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you for your time and let us know you have further questions. Thank you for your time.