Q3 2024 Banco BBVA Argentina SA Earnings Call

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Speaker Change: Good morning ladies and gentlemen and thank you for waiting. At this time we would like to welcome everyone to BBVA Argentina's third quarter 2024 results conference call.

Speaker Change: We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the company's presentation. After the company's remarks are completed, there will be a question and answer section. At that time, further instructions will be given.

Speaker Change: Should any participant need assistance during this call, please press star zero to reach the operator.

Speaker Change: First of all, let me point out that some of the statements made during this conference call 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.

Speaker Change: 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 Change: Today with us we have Mrs. Ines Lanusse, IRO, and Ms. Belen Fourcade, Investor Relations. Ms. Fourcade, you may begin your conference.

Speaker Change: Good day to everyone and welcome to BBVA Argentina's third quarter 2024 Results Conference Call. Today's webinar will be supported by a slide presentation available on our Investor Relations website on the financial information section.

Speaker Change: Please note that starting January 1st 2020, as per central bank regulations, we have begun reporting results applying hyperinflation accounting pursuant to IFRS rule IAF 29.

Speaker Change: For reasons of comparability, 2023 and 2024 figures have been restated to reflect the accumulated effects of the inflation adjustment for each period through September 30, 2024. Now let me turn the call over to Ines.

Ines Lanusse: Thank you, Belén, and thank you all for joining us today. In the third quarter of 2024, the significant fiscal consolidation and the relative exchange rate stability have been contributing to a process of moderation of inflation throughout 2024.

Ines Lanusse: Furthermore, after a sharp contraction in the first half of the year, there are insignificant signs of recovery in the economy activity.

Ines Lanusse: mostly in line with UVA research expectation, which continues to forecast a 4% decline in GDP in 2024, followed by an extension of 6% in 2025.

As for inflation, expectations of federal reduction have been improved.

Ines Lanusse: 125% inflation is estimated by year-end versus the 211% on the same period of 2023.

Ines Lanusse: BDA research continues to expect, within its base scenario, gradual easing of FX market restrictions during the fourth quarter of 2024 and in the third quarter of 2025.

Ines Lanusse: combined with a final decline in the Pais tax announced for December. Additionally, some signs of recovery start to appear, such as industrial activity, which has increased 12% between June and September of 2024.

Ines Lanusse: Now, moving into business dynamics, as you can see on slide three of our webcast presentation, our service offering has evolved in such a way that by the end of September 2024, new customers' acquisition through digital channels reached 83% versus 80% a year ago.

Ines Lanusse: Retail digital sales measured in units reached 92.6% in the third quarter of 2024 and represent 73.7% of the PAN's total sales measured in monetary value.

Ines Lanusse: Moving to slide four, I will now comment on the Bank's third quarter 2024 financial results.

Ines Lanusse: BBVA Argentina's inflation-adjusted net income in the third quarter of 2024 was 99.2 billion pesos, decreasing 21.6% quarter over quarter.

Ines Lanusse: This implied a quarterly ROE of 16.9% and quarterly ROA of 2.9%.

Ines Lanusse: The 41.3% fall in the quarterly operating results was explained by a lower operating income mainly due to, one, lower interest income, especially due to lower average market rates as a result of a lower average monetary policy rate.

Ines Lanusse: Two, lower interest from CPI-linked bonds and three, lower FX results mainly due to the dual bond having matured.

Ines Lanusse: This was positively offset by a decrease in operating expenses, mostly driven by less other operating expenses, mainly due to lower turnover tax and less personal benefits.

Ines Lanusse: Net income for the period was highly impacted by income from net monetary position, although with lower impact than the prior quarter.

Ines Lanusse: The income from Net Monetary Position Line recorded a 43.9% lower loss than the previous quarter, having a positive impact in the QOQ Net Income Comparison.

Ines Lanusse: Turning into the P&L lines, in Slide 5, Net Interest Income in the third quarter of 2024 was $460.3 billion, falling 39.5% quarter over quarter.

Ines Lanusse: The former fall was due to a lower income from Red Cross and CPI-linked bonds due to lower inflation, additional to a fall in income from loans.

Ines Lanusse: Expenses are explained by lower expenses on CER, UVA, close adjustments, and interest on investment accounts.

Ines Lanusse: In the third quarter of 2024, interest income totaled $760.2 billion, falling 30.3% compared to the previous quarter.

Ines Lanusse: Quarterly decrease is mainly driven by 1. lower income from repos and 2. lower income from loans, both explained by a decline in the quarterly average monetary policy rate.

Ines Lanusse: Also, the decline in quarterly inflation caused a decrease in income from CPI link loss.

Ines Lanusse: Interest expenses totaled $299.9 billion pesos, denoting a decrease of 9.3% quarter over quarter.

Ines Lanusse: Quarterly decline is described by lower investment account expenses and lower SED-UVA adjustment expenses, the latter due to lower quarterly inflation.

Ines Lanusse: Interest from time deposits explain 71% of interest expenses versus 64.6% the previous quarter.

Ines Lanusse: In the third quarter of 2024, seeing some total 133.2 billion pesos, increasing 1% quarter over quarter.

Ines Lanusse: Improvement in fee income is mostly explained by, one, greater fee income linked to liabilities, two, higher dollar fees, mainly accounts and payments and bundles, and three, fee links to security.

Ines Lanusse: One and two are mainly explained by price updates and more activity.

Ines Lanusse: On the side of fee expenses, these total $62.1 billion pesos, falling 6% quarter over quarter. This is explained by lower expenses on fee and promotions with debit and credit cards, in addition to lower expenses on fraudulent pay transactions.

Ines Lanusse: In the third quarter of 2024, loan loss allowances decreased 11.5% in line with the growth in real terms of the performing loan portfolio.

Ines Lanusse: During the third quarter of 2024, total operating expenses were 316.6 billion pesos, decreasing 17.6% quarter over quarter in real terms.

Ines Lanusse: of which 32% for personal benefits costs in line with past order.

Ines Lanusse: Personal benefits decreased 18.1% quarter over quarter in spite of wages increasing in line with inflation.

Ines Lanusse: As of the third quarter of 2024, administrative expenses fell 6.1% quarter over quarter. This is mainly explained by, one, rent, two, taxes, and three, soft loans.

Ines Lanusse: Rent and software are related to less expenses of software licenses and services contracted with the parent company.

Ines Lanusse: The tax line fell due to a contract with the second quarter of 2024 in which income tax was paid in relation to the bank interest section tax made as a result of dividend distribution.

Ines Lanusse: The quarterly efficiency ratio as of the third quarter of 2024 was 59.2%, above the 55.3% reported in the second quarter of 2024. In spite of expenses decreasing, income considering monetary position results had a greater form, especially due to a decrease in net increase income.

Ines Lanusse: In terms of activity, on slide six, private sector loans as of the third quarter of 2024 totaled up 5.5 trillion pesos, increasing 26.5% quarter over quarter in real time.

Ines Lanusse: Loans to the private sector in pesos increased 23% in the third quarter of 2024.

Ines Lanusse: During the war, growth was especially driven by one 48% increase in discounted instruments

Ines Lanusse: followed by two, a 51% increase in consumer loans, three, a 14.2% increase in credit cards, and four, an increase in other loans, mainly commercial loans and floor plans.

Ines Lanusse: In all cases, the increase is boosted by genuine growth in real-time of the portfolio leveraged on the lower market interest rate and greater commercial efforts.

Ines Lanusse: Loans to the private sector denominated in foreign currency increased 60%. Quarterly increase is mainly explained by a 15.8% growth in financing at pre-financing of exports and a 270.3% growth in discounted instruments.

Ines Lanusse: During the quarter, the commercial portfolio grew 30.2% and the retail portfolio increased 22.6%.

Ines Lanusse: As observed in previous quarters, loan portfolios were impacted by the effects of inflation during the third quarter of 2024, which reached 12.1%.

Ines Lanusse: In nominal terms, BBVA Argentina managed to increase the recent commercial and TELTA loan portfolio by 38.6%, 44.5% and 42.1% respectively during the quarter.

Surpassing quarterly inflation levels in all cases.

Ines Lanusse: As of the third quarter of 2024, the total loans and other financing over deposits ratio was 64.9%, below the 67% recorded in the second quarter of 2024, and above the 53.6% in the third quarter of 2023.

Ines Lanusse: Total loans participation over total assets reached 43% versus 40% in the second quarter of 2024 and 35% in the third quarter of 2023.

Ines Lanusse: evidencing lower exposure to the public sector in line with real loan growth demand.

Ines Lanusse: BBVA's Argentina consolidated market share of private sector loans reached 10.35% as of the third quarter of 2024, improving from 9.35% a year ago and sustaining the two-digit figure.

Ines Lanusse: As of the third quarter of 2024, asset quality ratio hits a very good performance at 1.18% with non-performing loans growing in line with the Tomtel portfolio.

Ines Lanusse: On the funding side, as of the third quarter of 2024, total deposits reached 8.5 trillion pesos, increasing 30.9% quarter of a quarter. The bank's consolidated market share of private deposits reached 8.67% as of the third quarter of 2024.

Ines Lanusse: Private non-financial sector deposits in pesos totaled 5.1 trillion pesos, increasing 12.4% compared to the second quarter of 2024.

Ines Lanusse: The quarterly change is mainly affected by a 34.8% increase in time deposits and a 13.9% increase in checking accounts.

Ines Lanusse: Upset by a 45.2% fall in investment accounts and a 7.3% fall in savings accounts.

Ines Lanusse: Private non-financial sector deposits in foreign currency expressed in pesos increased 84.9% quarter over quarter.

Ines Lanusse: It is mainly explained by an 88.6% increase in saving accounts directly affected by the fiscal amnesty promoted by the government.

Ines Lanusse: BDDA Argentina continues to show strong solstice indicators on the third quarter of 2024. Capital ratio reached 22.2%.

Capital Excess over regulatory requirements reached 172.4%.

Ines Lanusse: It is important to mention that capital ratio was highly impacted in the second quarter of 2024 by dividend distribution, which was pegged in three consecutive installments in cash or in kind for 264.2 billion pesos expressed in December 31st 2023 currency.

Ines Lanusse: and that pursuant the central bank regulation, it has been adjusted by inflation as of the day of each payment.

Ines Lanusse: Furthermore, the fall in the capital ratio in this quarter is particularly explained by the 14.9% increase in risk-weighted assets over the increase in ordinary capital level 1 of 1.1%.

Ines Lanusse: The increase in risk-weighted assets is linked to the real growth in the loan portfolio in line with the increase in market risk requirements.

Ines Lanusse: As of the third quarter of 2024, total public sector exposure, excluding central bank, total 2.6 trillion pesos, decreasing 6.4%.

Ines Lanusse: The quarterly decrease is mainly explained by the maturity of the dual bonds on June 30, 2024.

Ines Lanusse: As of July 2024, the macro-reference rate will be that of the new instrument created by the Treasury, Lefis, which the bank ended the quarter with no position.

Ines Lanusse: As a result of the monetary policy adopted by the Treasury and the Central Bank, Central Bank exposure fell 87.3% mainly due to the removal of RIPOs with the Central Bank from the market.

Ines Lanusse: Exposure to the public sector, excluding central bank exposure, represents 21% of delta assets, below the 26.3% in the second quarter of 2024, and as mentioned before, in line with real long-term growth demand.

Ines Lanusse: In the quarter, liquid assets were 5.73 on pesos, increasing 26.6% quarter over quarter. This was mainly driven by an increase in cash and deposits in banks, especially due to the fiscal amnesty.

Ines Lanusse: As of September 2024, the bank issued corporate bonds for 24.5 billion pesos at face value at MATLAR plus 5% rate and maturity on June 2025 with quarterly interest payments. BBVA Argentina's last corporate bond issuance was in 2019.

Speaker Change: This concludes 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.

Speaker Change: To ask a question, you may press star then 1 on your telephone keypad.

Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys.

To withdraw your question, please press Star then 2.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Speaker Change: Again, if you have a question, please press star then 1.

Speaker Change: Showing no questions, this concludes the question and answer session. At this time, I would like to turn the floor back to Mrs. Lanusse for any closing remarks.

Ines Lanusse: Okay, thank you for your time, and let us know if you have further questions. Have a good day.

Speaker Change: Thank you. This concludes today's presentation. You may disconnect your line at this time and have a nice day.

May 2 Mr嘛Fourcade, Ines Lanusse

Ines Lanusse, Mara Fourcade, BBVA Argentina Ines Lanusse, Mara Fourcade, BBVA Argentina