Banco Bbva Argentina SA (BBAR) 2022 Q2 法說會逐字稿

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 2022 Results Conference Call. We'd like to inform you that this event is being recorded. (Operator Instructions)

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.

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. Additional information concerning these factors is contained in BBVA Argentina's annual report on Form 20-F for the fiscal year 2021 filed with the U.S. Securities and Exchange Commission.

Today with us, we have Mr. Ernesto Gallardo, CFO; Mrs. Ines Lanusse, IRO; and Ms. Belen Fourcade, Investor Relations. Ms. Fourcade, you may begin your conference.

Good morning, everyone, and welcome to BBVA Argentina's second quarter 2022 earnings 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 Lanusse and Ernesto Gallardo, our Chief Financial Officer, who will be available for a Q&A session. Please note that starting January 1, 2020, as per Central Bank regulations, we have begun reporting results applying hyperinflation accounting pursuant to IFRS rule IAS 29. For reason comparability, 2021 and 2022 figures have been restated to reflect the accumulated effect of inflation adjustment for each period through June 30, 2022.

Now let me turn the call over to Ines.

Thank you, Belen, and thank all of you for joining us today. In, alias favorable global context, facing the difficulties of corrective macroeconomic restorations and meeting the established objectives in the loan agreement reached in March 2022 with International Monetary Fund, market volatility has significantly increased, especially in the FX market and local currency debt markets, a high uncertainty persists about the future development of economic policy.

With COVID-19 pandemic situation under control, Argentina has been able to continue with its economic recovery although within the context that persist, great challenges with a sustained high inflation and a capped foreign exchange rate.

BBVA Argentina has a corporate responsibility with society, characteristics of the bank's business model, which encourages inclusion, financial education and support scientific research and culture. The bank works with the highest integrity, long-term vision and best practices and is present through the BBVA Group in the main sustainability indexes.

Moving into business dynamics. As you can see on Slide 3 of the webcast presentation, our service offering has evolved in such a way that by the end of June 2022, digital client's penetration reached 62%, remaining stable compared to a year back, while that of mobile clients reached 54% from 52% in the same period of last year.

The response on the side of the customers has been satisfactory, and we are convinced this is the path to pursue in the aim of sustaining and expanding our competitive position in the financial system. Retail digital sales have increased from 78.6% in the second quarter of 2021 to 82% of units and slightly increasing from 53.1% to 54% measured as a percentage of sales.

New customer acquisitions through digital channels reached 66% in the second quarter of 2022 from 70% in the second quarter of 2021. The bank actively monitors its business, financial conditions and operating results, in the aim of keeping a competitive position to face contextual challenges.

Moving to Slide 4. I will now comment on the bank's second quarter 2022 financial results. BBVA Argentina second quarter 2022 net income was ARS 15.9 billion increasing 235.8% quarter-over-quarter. This implied a quarterly ROE of 28.3% and a quarterly ROA of 4.6%.

Operating income in the second quarter of 2022 were ARS 32 billion, 10.2% above the ARS 29 billion recorded in the first quarter of 2022. Quarterly operating results are mainly explained by, one, greater interest income; two, a better net fee income; three, lower operating expenses. This allows net operating income to increase above operating expenses.

These effects were partially offset by a fall in net income from measurement of financial instrument at fair value through P&L, which include the sale of the remaining participation of the bank in Prima in the first quarter of 2022. Net income for the period was improved by a benefit in the tax line as a result of the effect of this tax deferrals.

Turning into the P&L lines in Slide 5. Net interest income for the second quarter of 2022 was ARS 54.3 billion, increasing 18% quarter-over-quarter and 36.3% year-over-year. Interest income in monetary terms increased more than interest expenses in the second quarter of 2022. In the quarter, interest income increased 23% compared to the first quarter of 2022 mainly driven by: one, higher income from government securities, both from an increase in the nominal rate and the volume in the position of LELIQ; two, an increase in CER/UVA clause adjustment, especially from government securities linked to such indexes, with precision has increased during the quarter.

Income from overdraft and other loans also standout, mainly because of the adjustment of the increasing rate and an increase in the activity. All this was offset by lower income on premium on reverse REPO transactions considering that such instruments were gradually removed from the market by the Central Bank.

Interest expenses increased 29.7% quarter-over-quarter, driven by higher time deposits and checking account expenses, together with higher CER/UVA adjustment expenses. Interests from time deposits, including investment accounts explain 69.3% of interest expenses, versus 73% the previous quarter.

Net fee income as of the second quarter of 2022 totaled ARS 10.3 billion increasing 32.4% quarter-over-quarter and increasing 15.8% year-over-year. In the second quarter of 2022, fee income fell 5.3% mainly explained by a decline in fee linked to liabilities, especially due to the lag of our increase in prices, which last increment took place in the previous quarter.

Regarding fee expenses, this contracted 44.9% quarter-over-quarter, partially explained by the migration of clients from the LATAM benefit program into the Puntos BBVA program and lower expenditure linked to credit and debit cards.

On the second quarter of 2022, loan loss allowances decreased 7.7% quarter-over-quarter, thanks to a good portfolio behavior, especially in the commercial book. During the second quarter of 2022, total operating expenses were ARS 36.9 billion, increasing 12.6% quarter-over-quarter, 68% were personnel benefits and administrative expenses versus 66% in the first quarter of 2022.

Personnel benefits grew 19.5% quarter-over-quarter, partially explained by the collective wage agreement reached by the unions, and its retroactive effect corresponding to the first quarter of 2022 were impacted in April 2022. Also, during the second quarter of 2022, the stock of vacation not taken was revaluated, and variable compensation increased. As of the second quarter of 2022, administrative expenses increased 9.8% quarter-over-quarter.

The quarterly increase is partially explained by: one, an increase in outsourced administrative expenses; two, an increase in rent; and three, an increase in software expense. The negative effect of the aforementioned items were offset by a reduction in the tax line items, explained by a fall in municipal charges, maintenance and reparation expenses and in armored transportation given the efficiency plan applied on the latter.

The accumulated efficiency ratio as of the second quarter of 2022 was 71.3%, improving compared to the 72.2% reported in the first quarter of 2022, and deteriorating versus 70.1% reported in the second quarter of 2021. The quarterly improvement is explained by a higher percentage increase in the denominator and the numerator, especially thanks to better net results from fee and interest income.

In terms of activity on Slide 6, total consolidated financing to the private sector in the second quarter of 2022 totaled ARS 519.3 billion, increasing 7.1% in real terms compared to the first quarter of 2022 and contracting only 1% compared to the second quarter of 2021.

In peso loans increased 4.7% in the second quarter of 2022, especially driven by an increase in credit cards due to the greater retail consumption and increase in overdraft, mainly promoted by corporate banking transaction and increase in other loans, boosted by PIV, especially productive investment lines and an increase in discounted instruments.

Loans in foreign currency expressed in pesos increased 45.8% quarter-over-quarter, mainly explained by an increase in prefinancing and financing of exports followed by an increase in other loans and a growth in credit card. All the aforementioned are explained by greater activity in foreign currency.

During the quarter, the greatest increase was seen in the commercial book. Loan portfolio were highly impacted by the effect of inflation in the second quarter of 2022, which reached 17.3%. In nominal terms, BBVA Argentina managed to increase the retail, commercial and total loan portfolio by 21.3%, 32.7% and 25.6%, respectively, during the quarter, well beyond real-term growth.

BBVA Argentina's consolidated market share of private sector loans reached 8.35% as of the second quarter of 2022 from 8.21% a year ago. In the second quarter of 2022, asset quality ratio was 1.08% compared to the 1.29% recorded in the first quarter of 2022. The decrease is mainly explained by a good loan portfolio behavior, mainly in the commercial side as well as growth in the total portfolio. This positively compares to the 3.36% NPL recorded by the banking system as of May 2022, the latest available information.

The coverage ratio was 219.39% in the second quarter of 2022, remaining stable versus 219.73% recorded in the first quarter of 2022. Cost of risk reached 1.94% as of the second quarter of 2022, below first quarter 2022, 2.11%. This is mainly explained by a higher growth in the average loan portfolio versus quarterly loan loss allowances.

On the funding side, as seen on Slide 7, private non-financial sector deposits in the second quarter of 2022, totaled ARS 959.3 billion, increasing 4.9% quarter-over-quarter, and falling 2.8% year-over-year. Quarterly increase was mainly explained by sight deposits, which grew 4.4%.

The bank's consolidated market share of private deposits reached 7.15% as of the second quarter of 2022. Private non-financial sector deposits in pesos increased 7.3% quarter-over-quarter mainly affected by an increase in sight deposits, especially saving accounts, which grew 18.8%.

Foreign currency, private deposits expressed in pesos fell 3.8% quarter-over-quarter. As of the second quarter of 2022, the bank's transactional deposits considering checking accounts and saving accounts represent 61.2% of total non-financing private deposits, versus 61% in the first quarter of 2022.

In terms of capitalization, BBVA Argentina continues to show strong solvency indicators on the second quarter. Capital ratio reached 22.9% from first quarter 2022, 23.5%, mostly due to the effect of other comprehensive income in the equity.

Exposure to the public sector in the second quarter of 2022, excluding Central Bank instruments, represents 9% of total assets, slightly above the 8.9% in the first quarter of 2022, a way below the 15.3% reported by the system by May 2022, the latest available information.

It is worth mentioning that as of the date of this report, BBVA Argentina had distributed dividends by ARS 8.8 billion installments 1 to 8 according to the established schedule published on June 16, 2022. The bank's total liquid ratio remains healthy at 76.9% of total deposits as of June 30.

This concludes our prepared remarks. We will now take your questions. Operator, please open the line for questions.

(Operator Instructions) And our first question today comes from Carlos Gomez from HSBC.

Two of them. The first 1 is if you can give us some more clarity as to the reason for the extraordinarily positive tax line as you refer to deferred tax assets, some more guidance, midterm or explanation might be welcome. And also, what do you expect your tax rate to be this year and next year apart from this effect?

The second refers to your loan demand, you said that your loan portfolio was actually flat year-over-year, that's another it's been declining. Do you expect positive loan demand for the rest of the year or the beginning of next year? Or we should consider this more like a one-off?

Carlos, nice to talk to you. Okay. Let me start by your second question regarding loan demand.

Firstly, yes, as you mentioned year-over-year, a net 1% real-term growth. But in the quarter, you already saw a 7% growth in real terms, mainly coming from the commercial side. That started to come.

Going forward for 2022, we're seeing loan growth growing large inflation mainly because we are starting to be more activity basically companies started to be (inaudible) a little bit more and on the retail side, the credit card business.

Going to your second question on taxes. Let me say a little bit, how the taxes function in Argentina. As taxes are paid ahead of the difference between the fiscal and accounting valuation of fixed assets. What we did is we had fiscal valuations at that updated by inflation. And this differences between these 2 criteria were reduced, generating a lower deferred tax and a positive result in the income tax line in the P&L that you saw.

Let me give you some background on what quite this happened now and didn't have it in the past. Consensus for this section was gaining momentum among peers since inflation adjusted was implemented in Argentina. And some of other banks have done this already in the past. Actually, there is another peer of us that has implemented this during this quarter as well.

This particular thing that happened applies to fixed assets acquired before 2019, and we believe there was no reason to evaluate these assets differently from those acquired after 2019. So basically, what we did was, have the same criteria for all our fixed assets, and this gave us a positive result in the P&L.

To give you some color on what would have been the effective tax rate, we would had implied this change in criteria, you should think that the effective tax rate would have been between the mid and high-20s. And going forward for the year, because of this particular effect, you're going to have actually a positive effective tax rate for 2022.

So we understand this is a one-off with this adjustment. So the second half of the year should see a normal tax rate in the high-20s?

Yes, yes. But going forward for full year, actually, it's going to be positive because you have this onetime effect, the huge onetime effect in the second quarter, but it should be normalized in the second -- in the third and fourth quarter.

So again, I guess my question is this is a one-off effect affecting only this quarter. So the third and fourth should have a normal taxation?

Yes. The main impact was in the second quarter, and you should have it normalized for a second and the third.

Is there anything else in the tax line that we should consider going forward? I mean in the past, you had litigation that came out to your favor. Now you have this adjustment. Is there anything else we should keep in mind? Or from here on, it should be normal taxation?

Specific values, nothing else, you should consider.

All right. And on the loan growth, okay. So you expect I mean you have seen some recovery into 2022, do you expect that to continue? Do you have an expectation of growing or not growing?

We are seeing loan growth growing above inflation for the end of 2022. There's more activity going on.

Right. And for 2023?

Sorry 2023, it's difficult to say in Argentina, 2023...

It's really far away.

Yes. It's very far away. We're not talking about as of June, and we are now at the end of August, so imagine.

(Operator Instructions) Ladies and gentlemen, at this time, I'm showing no additional questions, we'll conclude today's question-and-answer section. I'd like to turn the floor back over to Ms. Lanusse for any closing remarks.

Okay. Thank you for your time, and let's just know you have further questions. Have a good day.

And thank you. This concludes today's presentation. You may disconnect your lines at this time, and have a nice day.