Q3 2023 Grupo Financiero Galicia SA Earnings Call

Speaker 1: Hello and welcome to the third quarter 2023 earnings release for Grupo Financiero Galicia. My name is Melissa and I will be your coordinator for today's event. Please note this conference is being recorded and for the duration of the call, your lines will be in a listen only mode. However, you will have the opportunity to ask questions at the end of the presentation. This can be done by pressing star 1 on your telephone keypad to register your question.

Hello, and welcome to the third quarter 'twenty to 'twenty three earnings release for Grupo Financiero Galicia. My name is Melissa and I will be your coordinator for today's event. Please note. This conference is being recorded and for the duration of the call your lines will be in a listen only mode.

Whether you will have the opportunity to ask questions at the end of the presentation. 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'll now turn the call over to Pablo Sylvia though please go ahead.

Speaker 2: If you require assistance at any point, please press star zero and you will be connected to an operator. I'll now turn the call over to Pablo Fiervita. Please go ahead. Thank you, Melissa.

Thank you Melissa.

Good morning, and welcome to this conference call.

Speaker 3: I will make a concise introduction and then we will take your questions.

It would make it concise introduction and then we will take your questions.

Speaker 3: Some of the statements made during this conference call will be forward-looking statements within the meaning of the safe harbor provisions of the US Federal Securities Laws and are subject to risk and uncertainty that could cause actual results to differ materially from those expressed.

One 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. Federal Securities laws and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed.

Speaker 3: According to the monthly indicator for economic activity,

According to the monthly indicator for economic activity.

Speaker 3: The Argentine economy recorded a 0.3% year-over-year expansion during August .

The Argentine economy recorded its your 0.3% year over year expansion.

Oh gosh.

Speaker 3: near today's terms, the economic downturn to that minus 1.6%.

You have to wait times.

The economic downturn, he got minus one 6%.

Speaker 3: but year 2023 would end with a number closer to minus 2% according to the reality that central banks market expectations are very high.

But yeah 2023, well then we the number closer to minus 2% according to the Argentine Central bank market expectations.

Speaker 3: during the third quarter of 2023, the primary fiscal deficit reached 1.4% of G.

During the third quarter of 2023.

Fiscal deficit reached one 4% of GDP.

Speaker 3: This implies a slight deterioration against the 1.3% deficit accumulated during the same period of 2021.

This implies a slight deterioration against the one 3% deficit accumulated during the same period of 2020.

This outcome was explained by a 100.

Speaker 3: This outcome was explained by a 100.5% revenue increase in year-to-date terms, whereas primary spending rose 104.3%.

5% revenue increase in New York.

Karen where yes, probably maybe spending rose one family and four 3%.

Speaker 3: The National Consumer Price Index accumulated a 103.2% increase during the first nine months of 2020.

The national consumer price index accumulated a $100 three 2% increase during the first nine months of 2023.

Speaker 3: Inflation reached 142.7% annual variation in October 2023, which entails an acceleration against the previous year's inflation, with inflation hitting its highest mark in 30 years.

Inflation reached 42, 7% and even variation in October 23, which is an acceleration.

She got inflation with inflation hitting its highest mark in 30 years.

Speaker 3: On the monetary front, the Argentine Central Bank expanded the monetary base by 942.5 billion pesos in the third quarter, recording a 66.6% increase in year-on-year terms.

On the monetary front, the Argentine Central Bank expanded the monetary base by $942 5 billion pesos in the third quarter recording a 66, 6% increase in year on New York Times.

Speaker 3: After the primary elections held in August , the Argentine Central Bank devalued the Argentine peso by 17.9%.

After the primary elections held in August.

Central Bank devalued, the Argentine peso by 17, 9%.

Speaker 3: which stood at 350 pesos per dollar between August 14th and November 15th.

Which stood at 350 pesos per dollar between August 14th on November 15th.

Speaker 3: Since then, the effects started displaying a daily crawl of around 0.1%.

Since then the effects started displaying a daily call of around 0.1%.

The average exchange rate in September stood at 350 pesos per dollar.

Speaker 3: The average exchange rate in September stood at 350 pesos per dollar, which entailed a 50.6 percent peso devaluation for the first nine months of the year.

Which entail.

T 6% peso devaluation for the first nine months of the year.

Speaker 3: When compared to September 2022, the Argentine peso underwent a 59% devaluation.

When compared to September 2022 yards, and then based upon the wind at 59% devaluation.

Speaker 3: the monetary authority rate interest rates after the primary election with the policy rate at the minimum rate for time deposits under 30 million pesos up to 118 percent.

The monetary authority raised interest rates.

After the election with the policy rate a bit on the minimum wage for time deposits under 30 million pesos up to 118%.

Speaker 3: After the National Institute for Statistics published September inflation in mid-October, the policy rate was raised again and currently stands at 133 percent as well as the minimum rate for time-deposit.

After the National Institute for Statistics published September inflation in mid October.

Policy rate was raised again.

Alan Please stand.

133%.

The minimum wage for time deposits.

Speaker 3: In September 2023, the average rate on peso-denominated private sector term deposits for up to 59 days stood at 114%.

In September 2023, do you I mean its rate on peso denominated private sector seven deposits for up to 59 days stood at 114%.

Speaker 3: 46.9 percentage points above the average of September 20.

$6 nine percentage points above the average for September 2022.

Speaker 3: Private sector deposits in pesos averaged 27.3 trillion pesos in September , increasing by 24.7% during the quarter and 121.7% in the last 12 months.

Private sector deposits in pesos averaged $27 three trillion pesos in September increasing by 74, 7% during the quarter and 121, 7% in the last 12 months.

Speaker 3: Time deposits in pesos rose 22.7% during the quarter and 121.2% year-over-year, while peso-denominated transactional deposits increased 27.4% and 123.4% respectively in the same period.

Some deposits in pesos rose 22, 7% during the quarter.

And 121, 2% year over year, while the peso denominated transactional deposits increased 27, four mm 123, 4% respectively in the same periods.

Private sector dollar denominated deposits amounted to $15 billion in September 2023, decreasing to 9% during the quarter and increasing 1% in the last 12 months.

Speaker 3: Private sector dollar-denominated deposits amounted to $15 billion in September 2023, decreasing 2.9% during the quarter and increasing 1% in the last 12 months.

Speaker 3: Peso denominated loans to the private sector averaged 11.7 trillion pesos in September , increasing 23% in the quarter and 101.4% when compared to September 2022.

Batesville denominated loans to private sector averaged 11, seven trillion pesos in September increasing 23% in the quarter and 101, 4% when compared to September 2022.

Speaker 3: while private sector dollar denominated loans amounted to $3.8 billion, recording a 2% retraction during the quarter and a 5.2% expansion when compared to September 2020.

Private sector dollar denominated loans amounted to $3 $8 billion.

Recording a 2% reduction during the quarter and a $5 two.

Sam expansion when compared to September 2022.

In terms of politics after the primaries Kelly novels, we've had because he doesn't sell elections in October on after these first round last Sunday November 19th there was a run off and have you ever relate well selected questions. He will take office on December 10.

Speaker 3: In terms of politics, after the primaries held in August , we had presidential elections in October , and after this first round, last Sunday, November 19th, there was a runoff, and Javier Millet was elected president. He will take office on December 10th.

Speaker 3: Turning now to Grupo Financiero Galicia, net income for the third quarter amounted to 54.2 billion pesos, 103 percent higher from the year ago quarter, mainly due to profits from Banco Galicia for 51.1 billion pesos, from Galicia Asset Management for 3.3 billion pesos, and from Galicia Seguros for 590 million pesos.

Turning now to Grupo Financiero Galicia net income for the third quarter amounted to $54 2 billion pesos.

103% higher from the year ago quarter.

Mainly due to profit from Banco Galicia for $51 1 billion pesos from Galicia asset management.

$3 3 billion pesos from the list, yes, it was 590 million pesos.

Speaker 3: partially offset by the 2.3 billion pesos loans from Naranja.

Actually offset by the $2 3 billion of loans from <unk>.

Thanks.

Speaker 3: This profit represented a 3.4% annualized return on average assets and a 17% return on average shareholder sector.

This profit represented a three 4% annualized return on average assets and a 17% return on average shareholders' equity.

Speaker 3: Bank of Alicia net income for the quarter was 126% higher than in the year-ago quarter as the net operating income increased 79%.

Banco Galicia net income for the quarter was 126% higher than that in there you got about a quarter of the net operating income increased 79%.

Average interest, earning assets reached 355 trillion pesos.

Speaker 3: Average interest-earning assets reached 3.55 trillion pesos, 6% lower than in the same quarter of 2022, mainly due to a 13% decrease of loans in pesos.

6% lower than in the same quarter of 2022, mainly due to a 13% decrease of loans in pesos.

Speaker 3: In the same period, its yield increased almost 37 percentage points, reaching 92.2%.

In the same period its yield increased almost 37 percentage points, reaching 92, 2%.

Speaker 3: Interest bearing liabilities increased 2% from September 2022, amounting to 3.08 trillion pesos.

Interest bearing liabilities increased 2% from September 2022.

Mountain 2308.

Eight 2 billion pesos.

Speaker 3: This growth was mainly due to a 4% increase in time deposits in base.

This growth was mainly due to a 4% increase in time deposits and basis.

Speaker 3: During this period, its cost increased 30.1 percentage points to 68.3%.

During this period its cost increased 31 percentage points to 68, 3%.

Considering together net interest income and net interest and net income from financial instruments.

Speaker 3: Considering together net interest income and net interest and net income from financial instruments

Speaker 3: They grew 35% from the same quarter of 2020.

They grew 35% from the same quarter of 2022.

Speaker 3: It is worth to remember the change in the valuation model of the deliques acquired from January 1st, 2023.

It's worth to remember that changes in the valuation model of the newly acquired from January 1st.

2023.

Speaker 3: These instruments used to be valued at fair value and the criteria was changed to amortized cost. Thus, its yield is being recorded as interest income instead of within result from financial income.

Instrument used to be valued at fair value and the criteria was changed to amortize cost does it feel is being recorded as interest income instead of within results from financial instruments.

Speaker 3: Net fee income increased 17% from September 2022, mainly due to 19% higher profits from credit card fees.

Net fee income increased 17% from September 'twenty, 'twenty, two mainly due to 19% higher profits from credit card fees.

Speaker 3: 32% increase from other fees and 9% higher fees from bundles of products.

32% increase from other fees are 9% higher fees from bandwidth of products.

Speaker 3: gains from gold and FX quotation differences were 419% higher from the year-ago quarter, including the results from foreign currency trading.

Gains from gold and FX quotation differences were 419.

<unk> from the year ago quarter, including the results from foreign currency trading.

Speaker 3: Other operating income increased 101% in the quarter as a result of a 58% increase in other adjustments and interest on miscellaneous receivables as a consequence of devaluation of financial instruments granted as collateral, and to a 452% increase in other income.

Other operating income increased 101% in the quarter.

Result of the 58% increase in other adjustments and interest and miscellaneous receivables.

Consequence of devaluation of financial instruments, where anti that's collateral.

452% increase in other income.

Speaker 3: As regards provision for loan losses, the amount for the quarter was 20% higher than those recorded in the year-ago quarter, reaching $20 billion.

As regards to provision for loan losses, the amount for the quarter was 20% higher than those recorded in the year ago quarter, reaching 20 billion pesos.

Personnel expenses were 9% higher than in the third quarter of 2022 in line with a 3% increase of stuff.

Speaker 3: Personal expenses were 9% higher than in the third quarter of 2022 in line with a 3% increase of staff and of salary increases above inflation.

And a salary increases above inflation, while admittedly expenses was 5% higher due to a 27% increase of taxes.

Speaker 3: while admittedly expenses were 5% higher due to a 27% increase of tax.

Speaker 3: Other operating expenses increased 49% due to a 55% higher turnover tax due to an increase in the gross income tax from financial operations.

Other operating expenses increased 49%.

Due to a 55% higher turnover tax.

Due to an increase in the gross income tax from financial operations.

Speaker 3: and 51% higher charges for other provisions related to discounts on credit cards and payroll accounts.

1% higher charges for other provisions related to discounts on credit cards and payroll accounts.

Speaker 3: The income tax charge was 15.8 billion pesos, higher than in the third quarter of 2022, with an effective tax rate of 26%.

The income tax charge was $15 8 billion pesos.

That in the third quarter of 2022, we have an effective tax rate of 26%.

Yeah.

Speaker 3: The bank financing to the private sector reached 2 trillion pesos at the end of the quarter, down 6% in the last 12 months, with peso-denominated loans decreasing 7% and dollar-denominated loans 29%.

The banks financing to the private sector reached two trillion pesos at the end of the quarter down 6% in the last 12 months with peso denominated loans decreasing 7% in dollar denominated loans, 29%.

Speaker 3: Net exposure to the public sector increased 1% year-over-year as a result of higher holdings of dual bonds and bottles offset by lower holdings of lilies.

Net exposure to public sector increased 1% year over year.

As a result of higher holdings of dual vaults and bolt is offset by lower holdings of Lady off limits.

Speaker 3: excluding the exposure to the central bank, LELIC, LEDIB, and repurchase agri-interstitial, net exposure represented 16% of total assets, the same level as of the end of the third quarter of last year.

Excluding the exposure to the Central Bank Malik levied on repurchase aggregate transaction.

Net exposure represented 16% of total assets at the same level as of the end of the third quarter of last year.

Speaker 3: Deposits reached 3.75 trillion pesos.

Deposits reached three $3 75 trillion pesos.

Speaker 3: 6% lower than a year before, mainly due to a 14% decrease of time deposits.

6% lower than the year before mainly due to a 14% decrease of time deposits in pesos.

The bank's estimated market share of loans to private sector was 11, 68%.

Speaker 3: The bank's estimated market share of loans to private sector was 11.68%, 16 basis points higher than at the end of a year ago quarter, and the market share of deposits from the private sector was almost 10%, 20 basis points lower than in the same quarter of 2020.

<unk> basis points higher than at the end of a year ago quarter and the market share of deposits from the private sector was.

Almost 10% 20 basis points lower than in the second quarter of 2022.

Speaker 3: The bank's liquid assets represented 110% of transactional deposits and 55% of total deposits up from 109 and 53% respectively from a year before.

The banks liquid assets represented 110% of transactional deposits and 55% of total deposits up from 109 of 53% respectively from a year before.

Speaker 3: As regards asset quality, the ratio of non-performing loans to total financing ending the quarter at 2.46 percent, recording a 41 basic points deterioration as compared to the 2.05 percent of the third quarter of the prior year.

As regards asset quality the ratio of nonperforming loans to total financing ending the quarter at 246%.

Recording a 41 basis points deterioration as compared to the two points you have 5% of the third quarter of the prior year.

Speaker 3: At the same time, the coverage with allowances reached 134%, down 100 percentage points from the 234% recorded a year.

At the same time the coverage with allowances reached 134%.

One 100 percentage points from the 234% recorded a year ago.

As of the end of September 2023, the balance total regulatory capital ratio reached 25% decreasing 78 basis points from the end of the second quarter of 2022 why.

Speaker 3: As of the end of September 2023, the bank's total regulatory capital ratio reached 25%, decreasing 78 basic points from the end of the same quarter of 2022, while tier one ratio was 24.1%, growing 22 basic points during the same period.

Tier one ratio was 24, 1% growing 22 basis points during the same period.

Speaker 3: In summary, in a particularly challenging and volatile political and macro environment, Grupo Financiero Galicia was able to keep asset quality, liquidity and solvency metrics at healthy levels and to sustain a good level of profitability in spite of the significant impact of the high inflation of the quarter.

In summary, in a particularly challenging and volatile political and macro environment. Grupo Financiero, Galicia was able to keep asset quality liquidity and solvency metrics at healthy levels and to sustain a good level of profitability in spite of the significant impact of the <unk>.

Inflation of deepwater.

Speaker 3: We are now ready to answer the questions that you may have. Thanks.

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

Thank you.

Speaker 1: Thank you. As a reminder, if you would like to ask a question, you may press star 1 on your telephone keypad. If you would like to withdraw your question for any reason, you may press star 2. You will be advised when to ask your question.

Thank you as a reminder, if you would like to ask a question you May press star one on your telephone keypad.

If you would like to withdraw your question for any reason you May press star two.

We advise you to ask your question.

Our first question comes from Brian Flores with Global Bank. Please go ahead.

Speaker 1: Our first question comes from Brian Flores of Citibank. Please go ahead.

Speaker 4: Hi Tim. Good morning. Congratulations on your results. I was going to do two questions. The first one is on how are you thinking about your exposure to the public sector in terms of strategy and maturity?

Hi, Jim.

Good morning, Congratulations on your results.

I was going to do two questions. The first one is on how are you thinking about your exposure to the public sector in terms of strategy and maturity.

Speaker 4: I'm also wondering if you have already had any contacts with the transition team directly or via the Banking Association, any insight there on the receptivity, openness, et cetera, would be greatly appreciated. And after, I'll do my second question. Thank you. Okay.

And also wondering is if you have already had any contacts with the transition team.

Directly or via the banking Association.

Any insight there on there was a DVT openness et cetera would be greatly appreciated and after I'll do my second question. Thank you.

Okay.

Brian.

Well the exposure to the public sector is made up by.

Speaker 3: Well, the exposure to the public sector is made up by.

Speaker 3: two parts, the lease and basically a repost with the central bank and a government bond.

Two parts, the leaks and basically repos with the Central Bank.

And government bonds.

The lips.

Speaker 3: The elites are 28.

Our 28.

Speaker 3: 28 days short-term basically paper issues by the central bank and if the allocation we have from the money coming from the deposit

Eight days.

In short term basically paper issued by the Central Bank.

Any the location we have.

From the money coming from deposits.

Speaker 3: that is not demanded by the private sector in the form of loans.

There is not a demanded by the private sector in the form of loans.

Speaker 3: The current central bank sets a minimum interest rate for tank deposits, so we must take these deposits and the only way not to lose money and to invest these deposits is to purchase Lilith.

The current central Bank.

It sets a minimum interest rates for time deposits. So we.

Must take these deposits and the only way.

Not to lose money and to invest this deposit is to purchase millions.

Speaker 3: the leaks or the repos, one day exposure to a central bank.

<unk> or the the repo one day.

The exposure to the Central Bank.

Many of them.

Speaker 3: conversations, rumors, or even politicians, including Millet, they have said that part of the...

Conversations rumors or you then.

Politicians, including <unk>, we have said that park.

Part of the.

Speaker 3: The main considerations when they decide or set the economic plan is to solve the issue of litigation.

The main.

Considerations.

When they decide to offset the economic.

One is to solve it.

The issue of lately.

Speaker 3: And we consider that a.

And we consider that.

Speaker 3: There is no need to make, to take any.

There is no need to make to take any.

Speaker 3: I would say, unfriendly decision of restructuring with the LELICS, actually the elected president Millet said that he wants to respect private property and all the rights. So within...

I would say and friendly and additional restructuring.

And then Nellix actually.

The elective Brexit millet has said that he wants to.

We expect.

Private.

Property and other rights.

So within.

Speaker 3: I would say a consistent economic plan, the reduction of reliefs.

I would tell you consistent economic plan.

And the reduction of the leaks.

Speaker 3: should be similar but in the opposite direction of how they were created. Basically, they were created because the central bank printed money to finance the treasury, the national treasury, and also the central bank.

Should be seemingly are but in the opposite direction as how they were created basically the world created because the central bank.

Printed money to finance the treasury the national Treasury.

And also the central Bank.

Speaker 3: Purchase a government bonds in order to to to have within certain

Purchase.

Government bonds in order to.

Two.

Do you have within certain ranges the effects.

Speaker 3: the financial effects, and therefore they issue LELICS in order to sterilize this money. If the new government...

The financial effects.

And therefore, they issue the leaks in order to sterilize this model.

If the new government.

Speaker 3: cuts public spending or goes to the public super-average and that deficit that is the case today, there will be no pressure and also the monetization of the economy that today is around 2.3% in terms of GDP could go to normal levels of 2.5%. So this is the government.

Cut public spending or Ingalls.

It goes to the bar.

Superalloy and that deficit as is the case today.

No pressure.

And also the monetization of the economy that today is around two 3% in terms of GDP could grow to more normal levels of two 5%. So.

This is the government cut spending.

Speaker 3: they don't have the need to print money. And monetization goes back to normal levels, not high levels, normal levels. LELICs will not be a problem. And also, again, the economic plan is consistent, sustainable, and grants confidence. The stock of LELICs will shift quickly to loans to the private sector.

They don't have the need to print money.

On monetization goes back to normal levels not high levels normal levels.

It would not be a problem.

Problem and also the again.

The economic plan is consistent and sustainable grants confidence the stock of Nellix will shift quickly to launch to the ER.

The private sector.

Speaker 3: This is central bank in terms of a government bonds.

Central Bank in terms of government bonds.

Speaker 3: most of our exposure is to it's in pesos adjusted by CPI and it's the way we find to hedge our network against inflation.

Most of our exposure is too.

It is in pesos adjusted by CPI and it's the way, we find to hedge our network against inflation.

Speaker 3: It's not a perfect hedge because there is a two-month lag between the inflation printed monthly and the one that we receive in the bond, but it's the best way we find to hedge against inflation.

It's not a perfect hedge because there is a two month lag.

Between the.

The inflation printed monthly and the one that we received in the bonds, but it's the best way, we find to hedge against inflation.

Then we want to have.

Speaker 3: The we want to have a

Exposure.

Speaker 3: exposure with government bonds again to cover our network and of course we would prefer to lend to

We'd go on for months again to cover our net worth.

Of course, we would prefer to lend to.

Speaker 3: millions of clients from the private sector. The issue is that with this level of inflation and therefore this level of nominal interest rate, loan demand is actually smaller than inflation and that's why loans to GDP are.

Millions of.

<unk> from the private sector. The issue is that with this level of inflation and therefore this level of nominal interest rate loan demand is actually.

<unk> done that inflation, and that's why loans to GDP or <unk>.

Speaker 3: going down and loans or our loan book in real terms is shrinking.

Going down.

Loans or.

Loan book in real terms.

Is shrinking.

Speaker 3: in terms of contact with the

In terms of.

Contact with the <unk>.

Speaker 3: the elected president or team, we still don't know and it was not announced. Not only the future minister of economy, nor the president of the central bank. There are some names and rumors, but they were not officially announced.

The elective.

<unk>.

We still don't know and it was not announced not only the future minister of economy, nor the bursting of the Central Bank. There are some names on rumors but there were not officially.

Yeah.

Speaker 3: elected or communicated, perhaps this alliance with Macri's party.

Collected or communicated.

Perhaps this alliance with.

Mark Reese Party.

Speaker 3: will need some kind of conversations, agreement, or discussions.

We need some kind of conversations agreement or discussions.

Speaker 3: Through Adewa.

Through a lever.

Speaker 3: we or Adeba, I would say, issued a document a couple of months ago proposing a solution, a virtual solution for Linux. This is available and public, but there were not individual contacts due mainly because we don't have the name of the counterpart.

Or are they about I would say issued a document a couple of months ago proposing.

<unk> solution.

<unk> solution for <unk>.

This is a very level in public but there were not.

<unk> will contact you.

Or mainly because we don't have the name of the of the counterpart.

Probably the answer was too long Brian.

Speaker 4: No, Pablo, this is perfect. Thank you. And my final question is, with nearly one month to go, I'm just wondering if there were going to be any guidance changes for 2023 ROE.

No validated <unk> perfect. Thank you and my final question is with nearly one more to go.

I was just wondering if is there, but we're going to be any to any guidance changes.

For 2023 Roe.

Well.

Speaker 3: Well, the accumulated ROE stands at 17% in the third quarter was 17%.

The accumulated ROE stands at 17%.

Third quarter was 17%.

Speaker 3: So far, well, it's very sensitive to the amount of inflation as you can see in the

So far while it's Barry.

Sensitive to the monthly inflation as you can see in the <unk>.

Speaker 3: In that line in the P&L, the results due to monetized losses due to inflation, but we think it could be between 15 and 17 for the full year. Next year, there are lots of questions.

And that line in the P&L the results due to monetize.

Monotype losses due to inflation.

But we think it could be between 15 and 17 for the full year.

And next year.

There are lots of questions.

Speaker 3: I think we are in a period or in a moment that is a kind of...

And I think we are in a in a period.

In a moment there is a kind of.

Speaker 3: inflection point, there will be a new economic regime, I think lots of regulations will disappear, and I think changes could be, if everything goes in the right direction, loan book recovery could be much faster than expected. For more UN videos visit www.un.org

The inflection point, there will be a new economic regime.

I think lots of regulations when will disappear.

And I think.

Changes could be.

And if everything goes.

In the right direction.

The loan.

Book recovery could be much faster than expected.

Yeah.

Perfect. Thank you very much.

Youre welcome Brian.

Speaker 1: Thank you. Our next question comes from Ernesto Gabilondo from Bank of America. Please go ahead.

Thank you. Our next question comes from Ernesto <unk> from Bank of America. Please go ahead.

Hi, Good morning, Pablo Congrats on your result, thanks for taking my call.

Speaker 5: Hi, good morning, Pablo. Congrats on the results and thanks for taking my call.

Speaker 5: My first question is on the potential economic outlook for Argentina.

My first question is on the potential economic outlook for Argentina.

Speaker 5: Which do you think could be like the key execution risks for the new administration?

Which do you think could be like the key execution risks for the new administration.

Speaker 5: How do you see the possibility to implement structural reform?

How do you see that possibility.

Men are structural reforms.

Speaker 5: considering that there will be like a divided Congress.

Considering.

So there will be like a divided congress as neither the official listen all the right parties.

Speaker 5: neither the official reason or all the right parties will have majority.

We'll have majority.

Speaker 5: So anything on that will be very helpful. And then my second question is a follow-up on the Leleaks exposure. So as you mentioned, if Leleaks are eliminated, the banks will have an important excess of liquidity, but...

So anything on that will be very helpful.

And then my second question is a follow up on the leaks exposure.

So as you mentioned is the leaks thoroughly marinated.

The banks will have an important an excess of liquidity.

But I will not be remunerated as before.

Speaker 5: will not be remunerated as before. And then you will have to allocate that into loans.

You will have to allocate that into loans.

Speaker 5: However, considering the high level of interest rate.

However, considering the high level of interest rates and inflation in Argentina.

Speaker 5: inflation in Argentina. How do you see the appetite for great demand?

How do you see the appetite for credit demand.

Next year.

Speaker 5: especially for those that are more related to individuals.

Especially for those that are more related to <unk>.

Speaker 5: And then my last question is on this potential dollarization of the economy.

And then my last question is on these potential loan origination of the economy.

Speaker 5: So far, we have seen that in the proposals, it could take.

So far we have seen during the proposed sense it could take.

Speaker 5: year-and-a-half, two years for the implementation, so he was considering what could happen to the bank.

And a half two years or the implementation.

So just considering what could happen to the banks.

Speaker 5: they have more than 90 percent in pesos. How are you seeing that polarization process for the bank?

You have more than 90% in pesos.

How are you seeing that the legislation process.

So for the banks is there could be any potential impact.

Speaker 5: there could be any potential impact. For example, if we have a depreciation of the peso, that could also create, at least at the beginning, a lot of inflation.

For example, we have a depreciation of the peso.

That could also create at least at the beginning a lot of inflation also.

Yeah.

Speaker 5: There are a lot of moving parts, so it will be interesting to know your view also on this.

There are a lot of.

Moving parts so.

Will be interesting to know your view also on this Solaris Asian part.

Okay.

Speaker 3: Okay, okay. Hi Ernesto.

Okay.

<unk>.

Speaker 3: Well, perhaps I can begin with the dollarization issue.

Well, perhaps I can begin.

The dollarization issue.

Speaker 3: I think and many people around the financial system or even many economies think that dollarization is not feasible without dollars basically for the, I always say that the private sector of Argentina is very long in dollars but the public sector is very short of dollars. So the public sector, it's hard for the public sector to dollarize.

I think in many.

The people.

Our own their financial system or even many economies.

Yes, I think that the legislation.

It's not feasible without space.

Basically for the year.

The I don't want to say that the private sector of Argentina is very long and knowledge about the public sector is very short of Florida, So the public sector.

Okay.

It's hard for the public sector to Golar.

Speaker 3: to let's say that they get the dollars in order to dollarize, first they should have to make many homeworks to put the numbers of the economy in order and once that is done the why to dollarize, that is what many economists are saying.

To tell you that they get the dollars.

In order to go first.

<unk> had to make many homework too.

Put the numbers of the economy no other and once that is done there.

Why do the law right that is what many economists are saying.

And even military.

Is saying that the.

Speaker 3: the population should choose which currency.

And that's the population should choose.

Which guarantee they use to to pay or tools to collect so I don't think Ebola isolation as in other countries.

Speaker 3: to pay or to collect. So I don't think a dollarization, as in other countries, would take place, even in one or two years, as you mentioned.

Would take place even in one or two years as you mentioned.

Speaker 3: And when I think in the financial system, I think that some...

And when do you think in the in the financial system I think that some.

Speaker 3: prudential regulation that was created 22 years ago or so.

Self regulation that was created 22 years ago or so.

Speaker 3: said that banks can lend in dollars just to exporters.

Yeah.

That banks can lend in dollars.

Just to exporters.

Speaker 3: So if there were to be a dollarization, that would mean a lot of risk in terms of lending in dollars.

So if there were to be the legislation that would mean a lot of risk in terms of lending in dollars.

Speaker 3: to individuals or companies that do not generate dollars. So really, dollarization is not something we are seeing.

Two individuals or companies that do not generate orders. So we need to let the registration is not something we are seeing.

Speaker 3: as feasible. Also, the alliance with Macri and Patricia Bullrich I think are

US a feasible.

So the alliance with Merck.

Mercury and like you said all right.

Our.

Speaker 3: putting this alternative further or they are evaporating, if that is a good word, the possibility of the legislation.

Putting this alternative.

It further or are they are.

Evaporating that is a good.

Well the possibility of the legislature.

Speaker 2: In terms of execution risk, I think that after the elections of

In terms of execution risk.

I think that after them.

The elections.

Last Sunday.

Speaker 3: Millet found a lot of support from the population, he got almost 56% of the votes, 11.5 or so percent more percentage points more than Massa, so he has the mandate and many congressmen

In.

They found a lot of support.

The population.

Almost.

The 6% of the votes 11, five or so percent more percentage points more than the naphtha Sophie castellan the mandate and many.

Congressman.

Speaker 3: receive that piece of information. So I think that within Millet's party, Macris and some other could get a quorum and approval of laws that are necessary to make reforms. Other smaller reforms could be done with the will, I would say, of the executive power.

We see that.

Ease of information, so I think that within.

In part the macro piece and some other could get korlym and approval of sort of lost that are necessary to make reforms other smaller reforms could be done.

We will I would say of the executive power.

Speaker 3: But of course, he's the main risk of Millet, the execution risk, as I would say that his ideas or his trend in economic terms are in the good direction. Reducing fiscal spending.

But.

Of course is the main risk of delay the execution risk.

<unk>.

I would say that he is IDF sarkies trend in economic terms are in the right.

Direction.

Reducing piece of color.

Pending.

Speaker 3: pointing to fiscal super-avid, no more printing of money by the central bank, giving freedom to the private sector, so many good intentions, and as I said, many of these...

Pointing to PS.

El Super IV.

No more printing of money by the Central Bank, giving freedom to the private sector. So many good intentions.

And as I said.

Many of these.

Decisions will be Keith decisions with power other he will need.

Speaker 3: decisions will be his decisions with power, other he will need the Congress.

The Congress.

Speaker 3: For example, when they said at the beginning of the campaign that they will shut the central bank, lately they are saying that what they want to do is to prohibit that the central bank prints money. Of course, the superintendency of banks is needed to supervise banks and to set the regulations and to eliminate many distorted regulations.

For example, when they said at the beginning of the campaign that they will they shut the central bank.

Lately the thing that what they want to do is to prohibit that the central bank of Queensland and of course, the superintendency of bonds if needed to.

Supervised banks and to set the regulations are to eliminate many distorted regulations.

Speaker 2: Instead of going back to the third question.

Instead of going.

Going back to.

To the third question the Linux.

Speaker 2: Well, the VF2 cycle would be the leaks shifting to a private sector launch, but that will take some time.

Well the beauty segment would be the least shifting to private sector loans, but that will take.

For some time.

Speaker 2: perhaps a couple of months, six months, I don't know how much. We don't know what is the...

Perhaps a couple of months six months I don't know how much.

We don't know what is the what is the economic demos melendy thinking when they say a solid individual clinics, but they said that they want to.

Speaker 2: the economic team of Millet thinking when they say, solving the issue of Linux, but they said that they want to respect private property to pay.

We expect.

Private property too.

Hey, there.

Speaker 2: that anything will be done in a friendly way. So, I guess they could offer a menu of alternatives if they want to do something, but at market value. So, it shouldn't create a problem for the banks. And if they...

Is that anything will be done in a friendly way.

No.

I guess, they could offer a menu of alternatives if they want to do something about that.

Market value so and.

It shouldn't create a problem.

The balance.

And if they.

Speaker 2: finish with the obligation for banks to pay a minimum interest rate on time deposits, we can stop taking time deposits and not investing in ELIX. So really at this point, there are many question marks, but we are

Finished with them.

Obligation for banks to pay a minimum interest rates on time deposits.

We can.

Stop taking time deposits and not investing nearly so really at this point there are many with 10 months, but we are.

Speaker 2: confident that anything will be done in a rational way because, as I said, the LELICs are the other side of the coin of a private sector deposit. So anything that they do and affect the asset size, it has a correlation on the liability.

Confident that the anything will be done in a rationale way because as I said.

And the legs or the other side of the coin of private.

Private sector deposits, so anything like that.

They do affect the asset side.

Correlation on the liability side.

Speaker 2: I think I answered everything Ernesto.

I think I answered everything.

Yes, no perfect. Thank you very much from them.

You're welcome.

Thank you. Our next question comes from Nicolas Riva from Bank of America. Please go ahead.

Speaker 6: Thank you. Our next question comes from Nicolas Riva from Bank of America. Please go ahead. Thanks, Pablo, for the chance.

Thanks for the chance to ask questions and I'm going to.

Speaker 7: follow-up circle back on what Brian and Ernesto asked about the LELICS, and I think that your point, if I understood correctly, Pablo, is that...

Follow up circle back on what Bryan and I must have asked about the boiler leaks and I think that to your point, if I understood correctly probably started.

Speaker 7: Going forward, with a reduction in the fiscal deficit, there won't be a need really for the government to continue printing as much pesos to finance the fiscal deficit, and therefore there won't be a need to continue issuing those LELICs. My question is more on the stock of the outstanding LELICs, which right now is between 20 and 25 percent of the total assets of the entire banking sector, and over one times

Going forward, we start with actually in the fiscal deficit there wouldn't be a neat really for the government to continue printing as much vessels to finance the fiscal deficit and therefore, there won't be a need to continue issuing those links a question is more on the stock of the outstanding Lakes, which right now is between 20 and 25%.

The total assets of the entire banking sector and over one times the equity.

What could be I mean for example, if one alternative that has been discussed or not would be an exchange of diesel Alex for for government obligations because again, if they wanted to be let's say a debt exchange, where the banks have to take a relevant haircut.

Speaker 7: What could be, I mean, if, for example, if one alternative that has been discussed or not would be an exchange of these lilies.

Speaker 7: for government obligations. Because again, if there were to be, let's say a debt exchange where the banks have to take a relevant haircut on those LELICs, then there could be a very negative impact on the equity of the banks, given that again, the LELICs are over one times the shareholder's equity.

Although slowly extend there could be a very negative impact on on the equity of the banks given that again, the elixir over one times to shareholders' equity.

Speaker 7: So my question is if there's been any discussion with incoming administration regarding that treatment or a potential debt exchange or the leaks for federal government obligations.

So my question is if there's been any discussion with the incoming administration regarding that treatment or a potential debt exchange of the relics for federal government obligations.

Hi, Nicolas.

Speaker 2: Well, using the government paper they have, they could simply sell the bonds and pay back the deliques. That could be an alternative. There were no discussions in that respect.

Well the.

Using the government paper they have they could simply sell.

The bonds and payback the leaks that could be an alternative there were enough discussions.

In that respect, but if any.

Speaker 2: solution is done or even in voluntary terms or friendly terms or market terms, there should be no impact on the equity of banks.

The solution is done with in or even.

Voluntary terms or a friendly terms our market terms.

Should be no no impact on the equity of bias.

Speaker 2: But, again, we think that the...

But again, we think that the.

Speaker 2: The issue could be solved just, well, again, within a consistent economic plan, not just looking at the list, but if you generate confidence, price of bonds go up, and there is a demand for bonds, you can sell them.

The issue could be sold.

Hey, Jeff.

Well again within a consistent economic plan not just looking at at least that if you generate confidence.

Brian So if volumes go up and there is a demand for bonds you can sell them.

Speaker 2: Also, if they reduce the fiscal expenditure and get to a surplus, there will be no need to print money. Again, they could sell the government bonds they have.

Also the if they reduce their fiscal expenditure on that too.

Superrabbit.

Surplus.

There will be no need to print money again, they could sell their government bonds.

And.

Speaker 2: Not only we can be reducing Linux because they are 28-based instruments, we can also allocate in repos, but the central bank and everybody knows that, as you said, the size of the Linux is significant in terms of the network of the banks. So any solution, and again, is...

Not only we can be reducing leaks because the.

Our 28 days.

<unk>, we can also allocate in repos.

But the central bank and everybody knows that.

You said the size of the analytics is significant in terms of the net worth of the of the banks so any solution.

And again is there any other kind of the deposits that's even more important.

Speaker 2: the other coin of the deposit. That's even more important, not just the health of banks or the financial system, but it's also the money of the depositors. So any solution that we think could be virtuous must consider these two interests, not only the network or the health of the financial system, but also the depositors.

The health does the Gulf of banks or the financial system, but its also the money of the depositors so any solution.

And that we think could be build tools.

We must consider these two <unk>.

Interest not only the net worth or the health of the financial system, but also the depositors.

Thanks, very much Paul.

Youre welcome Nicolas.

Thank you. Our next question comes from Carlos Gomez with HSBC. Please go ahead.

Speaker 1: Thank you. Our next question comes from Carlos Gomez with HSBC. Please go ahead.

Speaker 5: Good morning and thank you for taking the question. I have two. The first one is if you could comment on the acquisition of the Sura asset, the insurance business, and how it is going.

Good morning, and thank you for taking the question.

Just wondering if you could comment on the acquisition of the scooter.

Insurance business.

And how.

Speaker 8: What do you expect to do with it and how that changes your outlook for the coming years?

Yes.

With respect to do with you can cover it changes your outlook for the coming years.

Speaker 8: The second, I noticed that you had a decrease in the credit card balances, so you seem to be a bit more cautious when it comes to credit, and also you had a decrease in the current accounts, 31%. Could you comment on those two lines?

The silicon.

The decrease in credit card balances, so you seem to be a bit more cautious when it comes to two credits.

It also has a decrease in the current accounts 31%.

Can you comment on those two lines.

Speaker 2: Yes, Carlos. First, in Zura, we purchased...

Yes Carlos.

First in Sudan.

We purchased.

Speaker 3: the Argentine operation of this Colombian company and the business is very complementary to Galicia Seguro.

The Argentine operation of the Colombian company.

And the business is very.

Complementary to <unk>.

Speaker 2: business. Galicia Seguros is basically a bank assurance. They book the risk of and sell the book, basically the insurance of the products sold by either Banco Alicia or Naranja X. In the case of Sura, the company is a little bit bigger than Galicia Seguros in terms of primes, personnel and so on.

Business, regardless of who does this basically a bank assurance they book the risk of uncertainty.

But basically the insurance.

The products sold by either <unk> or <unk>.

In the case of Sudan, the company, it's a little bit bigger than what he says the waters in terms of.

Hey, Brian.

The personnel and so on.

But they bring many other lines of business as I said very complementary for.

Speaker 3: but they bring many other lines of business that are, as I said, are complimentary. For example.

Example.

Speaker 2: car insurance. In the past, Banco Alicia sold car insurance, but third-party insurance. In the case of Sura, they have this product. Also, Sura has many products for SMEs and the agricultural sector. And they also have a very good

Car insurance in the past.

Banco Galicia sold car insurance, but third party.

Insurance.

This is true that they are they.

They have these products.

Also true that has many products for Smes in the agricultural sector.

Also and they also have a very good.

Speaker 2: or even big, a network of independent producers. This would be the translation. It's like advisors that have the client, the final client. This is around 4,000 independent advisors. That is another channel to sell insurance. So we are very happy with the transaction. The numbers will be.

Even big.

A network of independent producers this would be.

The translation is like at.

Advisors that have the clients. The final client this is around 4000.

Dependent advisors that it's another channel to sell insurance. So we are very happy with the transaction the numbers will be.

Speaker 2: added to our numbers beginning in October , so, so far you are not seeing any of that. Regarding loan demand and...

Added to our numbers beginning in October.

So far.

We're not seeing any.

Of that.

Regarding a loan demand.

Basically it's not that we are becoming.

Risk averse.

<unk>.

Yeah.

Net demand, let's say from the clients the nominal interest rates for individuals all so far.

For companies.

Speaker 3: are against loan demand and that's why in real terms loans are diminishing.

Against the loan demand and that's why the real terms loans are.

Diminishing.

What was the other question Carlos sorry.

Speaker 8: It was about the checking accounts, but on long demands, I mean, you have lost some markets here. Again, is that a conscious decision or just a reflection of long demands in the sector present with Europe ?

What about picking that contemplate whether or not demand I mean Q2 cash flow.

Market.

So the conscious decision.

The intersection of Columbia Mountain, the 6% could you break.

Speaker 3: Well, in terms of market share, actually it was 11.66 in the last 12 months, I think it was 20 basis points growth. We lost in deposit.

Well in terms of market share the loan.

Italy was 11 66 in the last 12 months I think it was 20 basis points of growth. We lost in deposits from let's say 11 to $10 seven to 10.

Speaker 2: from, let's say, 11 to 10.7 to 10. And in that case, there are many resources. Mainly, I would say, the bank can, let's say,

And in that case and there are many reasons.

Mainly I would say.

In the in the bank.

And let's say.

Adjust the deposits.

Speaker 2: They are deposits not.

The nuts complete 18 high interest rates for big deposits typically.

Speaker 2: convalidating high interest rates for big deposits, typically either mutual funds or big corporates. But that's the problem with the photo we have at the end of, in this case, the quarter. But I wouldn't say it's a trend that we want to lose market share. On the contrary, we want to keep on growing market share.

Mutual funds or big corporate embody the that's the problem with that.

The photo we have at the end of in this case in the quarter, but I would.

I wouldn't say, it's a trend that we want to lose market share in the country, we want to to keep on.

Growing our market share and but again, it's not a variable that we can manage.

Speaker 2: But again, it's not a variable that we can manage easily. It's more a demand problem.

Yeah.

Equally it's more of a demand problem.

Thank you very much.

You're welcome Carlos.

Speaker 1: If you have a question, you may press star one on your telephone keypad.

If you have a question you May press star one on your telephone keypad.

Speaker 1: have a question coming through from Jorge Moro of Fundamenta. Please go ahead.

And we have a question coming through from Jorge Mauro our fundamental please go ahead.

Speaker 9: Hi, Pablo. Thanks for taking my question. This is regarding the leak exposure. We noticed yesterday 60% of the auction was not rolled over. This is roughly $1.7 billion at the parallel exchange rate. I'm curious here, what's the bank doing with all these pesos that you decided not to roll over yesterday?

Hi, Pablo Thanks for taking my question. This is regarding the unique exposure.

We noticed yesterday, 60% of the of the auction was not rolled over.

This is roughly $1 7 billion.

So I'm curious.

Once the bank doing this.

These patients.

Decided not to lower yesterday.

Yes.

Speaker 2: Well, hi. Well, that was a yesterday option. As you said, the lower was around 40%. I don't have the details between private sector banks and public sector banks. What banks could do, the easy answer would be to shift from Lelix to repo transactions with the central bank one day instead of 28 days.

Well that was yesterday option as you said delano was around 40%.

I don't have the details between.

Private sector banks and public sector banks.

And the banks could do the easy answer would be.

To shift from linear to repo transactions with the Central Bank, one day instead of 28 days.

Speaker 2: Or what we can do is a.

What we can do is.

Speaker 2: reject or sign deposits from mutual funds or remunerated accounts from either mutual funds or certain big corporates in order to reduce both asset and liability. I think this will be...

Reject or.

Time deposits from mutual funds or remunerated accounts from.

In either mutual funds or certain big corporates in order to reduce.

Both.

Asset and liability.

I think this will be.

Speaker 2: moving thing, a dynamic issue, because if all the banks don't roll over the leaks and go to repose with the central bank, we will be in a similar situation.

And moving.

Are you seeing.

Dynamic.

The issue negotiation.

All the banks don't rollover, the leaks and go to repos with the Central Bank, we will be in a similar situation.

If we.

Yeah.

Speaker 3: reject all the deposits from big corporates or mutual funds, all the balances will shrink and we have to see who's the winner. But I think we are in the early stages of this situation. I wouldn't extrapolate what happened yesterday with 40% rollover to the next option.

Reject all the deposits from our big corporate or mutual funds.

All the balances will shrink and we have to see who the winner of it.

I think we are in the early stages of this city.

Situation I wouldn't extrapolate.

What happened yesterday with 40% of all they'll work too.

Yeah.

Next options.

Speaker 9: Okay, but just understand you can you have the ability to reject the post.

Okay, but just understand you can you have the ability to reject deposits.

Speaker 2: Not from the retail, where we have to pay a minimum interest rate. We can do it for big corporates at butler rates or what we call the remunerated accounts for mutual funds or other banks.

Not from the retail and while we have to pay a minimum interest rate we can do it.

Yeah.

For the corporate.

But lower rates or.

The what we call the remunerate these accounts for mutual funds or other balance.

Speaker 9: Okay. And if I may just follow up on your net dollar position, it's around 32% of equity. Do you have a maximum position? I presume this is mostly on the dual bonds, right? Can you increase this further? Or is there a cut?

Okay, and if I may just a follow up on your net.

None of our position.

Around 32% equity.

Do you kind of a maximum position I mean, I presume is mostly on the <unk>.

Do I want right.

But can you increase this data or is there a cap.

Yes.

Speaker 2: Well, the thing there, we have a cap, a regulatory cap, actually we must be closed or hedged in the spot position and we can go long with forward contracts up to 5% of the regulatory capital. The thing is that when you look at the balance sheet, it has some, I would say...

Well be seeing there.

We have a hiccup regulatory cap.

Actually we must be close or.

Hedge in the spot position and we can go.

Along with forward contracts up two 5% of the regulatory capital.

The thing is that when you look at the balance sheet. It has some I would say.

Speaker 3: treatment when you look at what we say are assets in dollars, because, for example, the dual bonds and the LEBITs in the accounting are considered dollar assets, but not for the regulatory or the regulation regarding the position in dollars. That's why it looks so high. Actually, if you did that.

Different treatment when we look at what we say our assets in dollars because for example, the 12 bonds and deliveries are.

And the accounting are considered dollar assets, but not for the regulatory.

However, the regulation regarding.

The positioning that's.

That's why it looks so high.

Actually if you deduct.

Speaker 2: The holdings of Dual Bonds and Lviv must be slightly negative at the end of September .

<unk> holdings of dwell bonds Levine.

Must be slightly negative at the end of September.

Okay.

Thank you very much Pablo.

Youre welcome.

Okay.

Speaker 1: Thank you. And as we have no further questions in the queue, I would like to turn it back over to Pablo for Vida for any closing.

Thank you and as we have no further questions in the queue I would like to turn it back over to Patrick for any closing remarks.

Speaker 2: Well, thank you very much, all of you, for attending this call. If you have any further questions, please do not hesitate to contact us. Good morning, and happy Thanksgiving for the U.S. investors and analysts. Bye-bye.

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

Good morning, and happy Thanksgiving for the.

U S investors and analysts.

Right.

Thank you that concludes today's conference you may now disconnect.

Okay.

Sure.

Speaker 10: You know.

<unk>.

Hmm.

Hum.

Speaker 10: here.

[music].

Yeah.

[music].

Hum.

<unk>.

Yes.

[music].

Yes.

[music].

Hum.

Yeah.

Yes.