Grupo Financiero Galicia SA (GGAL) 2016 Q1 法說會逐字稿

Welcome to the Grupo Financiero Galicia First Quarter 2016 Earnings Release Conference Call. This call is being recorded. At this time, I'd like to turn the call over to Pablo Firvida. Please go ahead, sir.

Thank you. Good morning and welcome to this conference call. I will make a short introduction and then we will take your questions. I need to say that some of the statements made during this conference call will be forward-looking statements within the meaning of the Safe Harbor provisions of the U.S. Federal Securities laws. These forward-looking statements are subject to risks and uncertainty that could cause actual results to differ materially from those expressed in the forward-looking statements.

According to prior estimates, the Argentine economy showed a 0.3% annual growth for the first quarter of 2016, which compares with a 2.2% annual growth in the previous quarter. In the first quarter of 2016, the primary deficit reached 0.8% of GDP and after the payment of interest and income from (inaudible) and from the Central Bank. The global deficit represented 0.6% of GDP. Due to the methodological reforms, the Institute of Statistics didn't publish official inflation since the fourth quarter of 2015. For private estimates, consumer prices expanded 10.3% in the first quarter.

On the monetary front, the Argentine Central Bank contracted the monetary rates by ARS50.9 billion in the first quarter, accumulating a 30.1% growth during the last year. The monthly average of the foreign currency exchange rate increased from ARS11.43 to ARS14.96 per $1 in the quarter, representing a 30.9% depreciation.

In March, the average rate on peso-denominated private sector bank deposits for up to 59 days increased to 28.96%, 111 basis points higher than the 27.85% in December 2015. Private sector deposits in pesos at the end of the quarter amounted to ARS933 billion, growing 2.5% during the first quarter of the year and 32.8%. Transactional deposits in pesos decreased 0.8% and peso-denominated time deposits increased 5.4%. At the end of March, loans to private sector in pesos amounted to ARS773 million, recording 0.1% increased from December 2015, and a 31% inter-annual increase.

Turning now to Grupo Financiero Galicia, net income for the quarter amounted to ARS1.3 billion, 41% higher year-over-year, mainly due to profits from Banco Galicia for ARS1.1 billion, is from Sudamericana Holding for ARS166 million and Galicia Administradora de Fondos for ARS30 million.

The Banks's net income increased 30% from a year ago quarter, as a consequence of the 26% year-over-year growth of net operating income. Net financial income grew 30% due both to an increase in the portfolio (inaudible) to private sector and the formal securities offset by a contraction in the spread while net income from services grew 21% mainly due to fees related to national and regional credit cards to deposit accounts and to foreign trade.

Average inter-selling assets grew ARS49 billion year-over-year, and its yield decreased 210 basis points with a significant decrease in the yield on the portfolio of government securities of 11,00 basis points mainly due to higher rates and lower yields of dollar-denominated LEBACs. Interest-bearing liabilities grew by ARS38 billion during the same period and its costs increased to 120 basis points, mainly due to higher average interest rates on bank deposits and on debt securities. Provision for loan losses for the quarter amounted to ARS618 million, 4.6% higher than the ARS591 million recorded in the same quarter of the prior year.

Administrative expenses were 37% higher year-over-year with personnel expenses growing 32%, mainly due to a provision recorded during the quarter on account of future salary increases. The remaining administrative expenses grew 43%, mainly due to increases in taxes, cash transportation, maintenance, electricity and communication expenses.

The bank's credit exposure to the private sector reached ARS120 billion at the end of the quarter, up 43% in the last 12 months and deposits reached ARS108 billion, up 58% in the year. The bank's estimated market share of loans to private sector was 9.64% and the market share of deposits from the private sector was 9.37%, increasing 58 basis points and 66 basis points respectively in the last 12 months.

As regards to asset quality, the consolidated NPL ratio considering the loan book of the bank, the credit card subsidiaries and CFA ended the quarter at 3.3% compared with 3.7% of the first quarter of the prior year. The consolidated coverage of NPLs with allowances reached 108%, slightly above the 107% figure recorded a year ago. As of March 31, 2016, the bank's consolidated computable capital exceeded by ARS2 billion, the ARS12 billion minimum requirement or 16%, and the total capital ratio reached 11.8%. It is worth to mention that these figures decreased due to certain regulatory changes and due to the reduction in the percentage of the balance of the subordinated bond admitted as Tier 2 capital from 42% to 24%. The bank's liquid assets at the end of the quarter represented 92% of the bank's transactional deposits and 42% of its total deposits compared to 77% and 36% ratios from a year before respectively.

As the summary of the banking activity during the first quarter of 2016, the bank have good operating results keeping its asset quality metrics at reasonable levels and has improved its liquidity indicators. At the same time, market shares of private sector loans and deposits also recorded significant increases. Sudamericana Holdings and Galicia Administradora de Fondos continue to show also very good growth rates. We are now ready to answer the questions that you may have. Thank you.

(Operator Instructions) Caterina Araya, JP Morgan.

Hi, good morning. Thanks for taking my question. My question is regarding capital. I just want to understand what has been the different regulations that compressed the Tier 1 and the total capital ratio. Do you expect further Basel III implementation to affect the capital ratio? And then lastly, what would be the minimum capital ratio at which level you would get very concerned and you would look for strategic options to improve it? Thank you.

Hi, Caterina. The regulatory changes were, in particular, that was that we announced in the previous quarter, basically due to the different way and months of calculation of the capital requirements and the moment of -- in which we consider the capital. Also, there were some minor changes in terms of a market risk and some deductions. But the big drop compared from the fourth -- comparing the fourth quarter with this quarter is a smaller percentage of our subordinated bond that can be admitted as Tier 2 capital. We think that without issuing any instrument, being shares or any subordinated bond, we could be improving the current common ratio about around 2 percentage points at the end of the year, of course, we are looking at it. There are many, I would say, small actions that are going improve the capital situation. For example, we need to have a margin on the operations we do with the ROFEX, if we reduce that -- the volume of operations, we need less margin and we have less capital requirements.

Sorry, just to clarify, so without issuing debt or anything this year, you expect that by year-end, the capital ratio will decline by 2 percentage points, so closer to 10%?

Grow 2%.

Grow 2%?

Yes. Sorry, if I said the opposite.

I thought you said burn 2 percentage points. Okay. It will grow.

Yes, it will grow.

Okay, perfect. And then is there any other Basel III or type of regulation being in talks that could pressure more of the capital or all the regulatory changes have been made?

I would say that most have been made. We are going towards Basel III gradually with different buffers, but we don't think there will be any material change.

(Operator Instructions) Frederic de Mariz, UBS.

Good morning, everyone. Thank you for the conference call. Couple of question on my side. The first one is a follow-up on Catalina's, and I wanted to get your latest thoughts on loan growth and when you mentioned this capital optimization, I was curious to see if that's involved a lower loan growth for the bank until year end to get to that 2% that you mentioned. But generally speaking, what you expect for loan growth in the coming quarters, and importantly, do you expect loan growth to be faster than -- to be higher than inflation and then I'll come back with my second question. Thank you.

Okay. Hi Fred. No, basically the different actions to improve the capital ratio do not -- or changing the growth prospect of our loan book is it's not under discussion. Other, I would say more cosmetic measures like deductions, of course, we can allocate capital in different loans and products and some regardless capital, but it's not the way or the intention I mentioned in terms of improving the capital situation or ratio.

Going to the loan growth, we think this year we'll be growing less than inflation. Right now our estimate for inflation for the full year will be around 33%, 35%. Our loan book perhaps will grow to around 30%, 30% plus, little bit -- slightly above. For this year we think loans can row much higher than an inflation, also with much lower inflation, I suspect, perhaps next year inflation could go from 35% to 18%. So loan book could grow at 30% also next year, but real growth are much higher than inflation.

That's great, that's very clear. In this balance between the loan growth and obviously the margins, and all the normalization that you talked about, how do you think about margin? We saw some decline in the first quarter. Can you tell us a bit your latest thoughts about the yield on the asset side for loans and securities and also the funding cost and how you think of margin for this year and maybe next year?

Well, this first quarter, first it's the lowest in terms of seasonality. The main reason because of the compression in margin was the lower yield on government securities, mainly due to the increase in the holdings of LEBACs in dollars that have much lower yield, also the increase in the weight of time deposits, but with these high levels of interest rates and the elimination of certain regulation that affected basically caps and floors on certain interest rates, margins should be recovering in the next quarters. We are close to 11% now, perhaps the full year could be closer to 12%, 12.23% in this levels.

Alejandra Aranda, Itau.

Good morning, Pablo, congratulations on the results. I was curious to see if you could explain a little bit more this strategy on betting LEBACs in dollars and also if you could comment on the spike on public sector deposits that you had which was quite significant both on year-over-year and quarterly basis? And then my third question would be on how you're seeing fees behaving this year and next?

Okay. Hi Alejandra. We saw an important increase in dollar-denominated deposits. The allocation of those dollars is limited to loans to exporters, so another alternative was to purchase short-term LEBACs in dollars. Of course, we prefer the intermediation in pesos, but we have to use those -- this liquidity.

The increase in the public sector deposits was mainly ANZ's. We think now it will be more, I would say, a constant -- this was the January 1, but in the past with the previous administration, we saw the opposite. Now we have the stock and it went down quickly. I don't think there would be sudden changes going forward on that.

In terms of fees, right now, we have all the banks have the ability to increase prices on fees for individuals up to 20%. We have to inform the clients with certain times. So in June, the full prices would be effective, of course, it will not fit for all the products or all the segments, but we will have that ability. And since September, we will have no limit to fixed prices, of course, the competition will play a good role there in terms of pricing. So for this year, we think fee income could be growing slightly above inflation.

Walter Chiarvesio, Santander Bank.

Yes. Hi, good afternoon, Pablo. Thank you for taking the questions. The first one is maybe you already mentioned, but if you can repeat how much of the stocks in LEBACs you have in US dollars? That is the first one.

And second is, what is the bank's expectations about the Central Bank interest rate, the strategy in the next 12 months. And the reference interest rate (inaudible) what do you see there? Thank you.

Okay. You're welcome. As of the end of March, we had roughly ARS10.9 billion in dollar-denominated LEBACs. In terms of interest rates, Frederico Sturzenegger mentioned that he will be reducing the LEBAC interest rate if he sees inflation going down, this is his first objective. We think they are going to make it and we are forecasting a LEBAC rate at around 24% at year-end. These were the three questions, right?

(Operator instructions) Frederic de Mariz, UBS.

Hi Pablo, just two follow up on my side. Wanted to hear your thoughts about the MSCI discussion about re-inclusion on Argentina and whether you've seen anything or you have any thoughts on this? And also about ANZ, we see in the press that the pension funds might be selling in and I was just curious to see what would be the impact for the market for you, anything you've seen on this theme? Thank you.

I didn't get the first part of the question, Fred, Sorry.

Sure. On the MSCI, there are discussions that Argentina could get out of from Tier and get into MSCIEM index and so I'm not sure if this is something you're following, and did you have any thoughts on this?

Well, definitely if that happens, it will be a very good for all the listed chairs and for the new ones to come because there will be more investors, more liquidity and well, it's due to cycle. I've read some months ago that it shouldn't be immediate that perhaps could be towards the end of this year, but I don't have any more recent information than that.

Regarding the 20% of the shares of Grupo Financiero Galicia in the hands of ANZ, if the ANZ wants to sell those shares, they have to pass the law because the previous government put a kind of lock law to avoid selling of those shares. If they are interested, if they pass the law and if they sell the shares, I think they will do it in the best interest for them, basically trying to protect the price and diversifying and fragmenting the sale of shares, but I have no more information than that.

And it appears there are no further questions at this time. So I'd like to turn the conference to Mr. Pablo Firvida for any additional remarks.

Okay. Thank you very much, all of you for attending this call. If you have any questions, please do not hesitate to contact us. Good morning. Bye, bye.

This does conclude today's conference. Thank you for your participation. You may now disconnect.