Grupo Financiero Galicia SA (GGAL) 2019 Q4 法說會逐字稿

Welcome to this Grupo Financiero Galicia Fourth Quarter 2019 Earnings Release Conference Call. This call is being recorded.

At this time, I would 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. 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 and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed.

According to private estimates, the Argentine economy recorded a 0.6% year-over-year contraction during the fourth quarter of 2019. As a consequence, according to private estimates, the economy accumulated a 2% fall during 2019, and a primary deficit with 0.4% of GDP, a 1.9% reduction compared to 2018. The national consumer price index recorded an 11.7% increase during the quarter accumulating a 53.8% inflation in 2019.

On the monetary front, the Argentine Central Bank expanded the monetary base by ARS 585.4 billion in the quarter, recording a 34.5% increase in the last 12 months. Meanwhile, the exchange rate averaged ARS 59.88 per dollar in December, a 6% depreciation against the average for September 2019. When compared to December 2018, the Argentine peso recorded a 58.1% depreciation.

In December, the average rate on peso-denominated private sector time deposits for up to 59 days, was 52%, 18 percentage points below the average recorded last September. Private sector deposits in pesos amounted to ARS 2.8 trillion, increasing 13.1% during the quarter and 35.4% in the last 12 months.

Transactional deposits in pesos rose 20.4% during the quarter and 46% in the year. On the other hand, peso-denominated time deposits increased 6% in the quarter, increasing 24.9% during 2019.

Private sector deposits in dollars amounted to $19.5 billion, decreasing 8.9% during the quarter and 32.8% in the last 12 months.

As of the end of December, peso-denominated loans to private sector amounted to ARS 1.85 trillion, increasing 11.7% in the quarter and 18.6% when compared to December 2018. In turn, U.S. dollar-denominated loans amounted to $10.3 billion, recording a 23.2% decrease during the quarter and a 32.8% decrease in the year.

Turning now to Grupo Financiero Galicia. Net income for 2019 was 188% higher than in the previous year, reaching ARS 41.6 billion, which represented a 6.5% return on average assets and a 56.4% return on average stockholders' equity. The profit was mainly due to profits from Banco Galicia for ARS 35.2 billion; from Tarjetas Regionales for ARS 4.7 billion; from Sudamericana Holding for ARS 1 billion; and from Galicia Administradora de Fondos for ARS 307 million. The profit per share for the fiscal year amounted to ARS 29.13 compared to ARS 10.11 per share for fiscal year 2018.

Moving to the fourth quarter, net income amounted for ARS 9.3 billion, up 111% from the year-ago quarter, mainly due to profits from Banco Galicia for ARS 7.2 billion; from Tarjetas Regionales for ARS 1.7 billion; from Sudamericana Holding for ARS 242 million; and from Galicia Administradora de Fondos for ARS 31 million. This profit represented a 5.6% annualized return on average assets and a 41.4% return on average shareholders' equity.

Banco Galicia net income for the quarter increased 71% from the year-ago quarter as a result of the higher net operating income mainly related to the growth of net interest income and net income from financial instruments, partially offset.

We are expressing a momentary interruption in today's conference. Please continue to hold.

(technical difficulty)

Please go ahead.

Shall I go on now? Okay. I think it got cut when I was saying that Banco Galicia net income for the quarter increased 71% from the year-ago quarter. As a result of the higher net operating income, mainly related to the growth of net interest income and net income from financial instruments, partially offset by higher loan loss provisions. Interest income for the quarter increased 55% as compared to the same period of 2018, primarily as a consequence of higher interest on loans and on repurchase agreement transactions, while interest expenses were up 20%, mainly due to higher interest rates on time deposits. Average interest earning assets grew ARS 90 billion or 31% year-over-year, and its yield increased 302 basis points, mainly due to an increase in the yield on peso-denominated loans. Interest-bearing liabilities grew ARS 23 billion or 8% during the same period, and its cost increased 222 basis points, mainly as a result of increase in the average interest rate on peso-denominated time deposits. Net income from financial instruments increased 26% from the one recorded in the same quarter of 2018, as a consequence of higher profits from government securities due to higher holdings of Argentine Central Bank Paper.

Profits from gold and foreign currency quotation differences amounted to ARS 3.3 billion, including ARS 2.8 billion gain from foreign currency trading, growing 94% when compared to ARS 1.7 billion profit from the same quarter of 2018. Provision for loan losses were 96% higher than in the same quarter of the prior year, mainly due to evolution of arrears in the consumer portfolio and to higher-regulatory provisions on the portfolio in normal situation plus 1 specific commercial client.

Personnel expenses increased 66% as compared to the year before, mainly due to salary increase agreements with the union. And administrative expenses grew 106% mainly due to higher maintenance and higher fees and compensation for services. The bank's financing to private sector reached ARS 369 billion at the end of the quarter, up 28% in the last 12 months, mainly due to the growth of peso-denominated loans, while dollar-denominated financing decreased 1% measured in pesos but 38% measured in dollars.

Net exposure to public sector increased 29% year-over-year and excluding Leliq's, it represented 4% of total assets compared to 3% at the fourth quarter of 2018. Deposits reached ARS 398 billion, up 10% in a year with peso-dominated deposits growing 27%. And U.S. dollar deposit falling 10% measured in pesos and 43% in dollar terms.

The bank's estimated market share of loans to private sector was 11.6%, a 106 basis points higher than at the end of the year-ago quarter, and the market share of deposits from the private sector was 9.9%, decreasing 116 basis points in the same period. As regards to asset quality, the NPL ratio ended the quarter at 4.4%, recording a 155 basis points deterioration as compared with the 2.9% of the fourth quarter of the prior year. And the coverage of NPLs with allowances reached 110%, up from 103.7% from a year ago. As of the end of 2019, the bank's consolidated computable capital exceeded by ARS 43.1 billion or 115%, this has the ARS 37.7 billion minimum capital requirement. And the total regulatory capital ratio reached 17.6%, increasing by 243 basis points from the end of the same quarter of fiscal year 2018.

In summary, during the fourth quarter of 2019, Grupo Financiero Galicia has shown good results in a very challenging and volatile macro environment, keeping liquidity, solvency and profitability metrics at high levels.

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

(Operator Instructions) We'll take your first question from Alonso Garcia of Crédit Suisse.

My first question is regarding your expectations for loan growth and deposit growth compared to your inflation expectations this year, considering that the base, of course, is lower, but also that the macroeconomic conditions in Argentina remain uncertain for this year.

And my second question is on the inflation adjusted accounting that you're reporting this year, what sort of ROE level do you expect for 2020? And what do you think -- I know it's hard, but what do you think could be reasonable sustainable ROE under this inflation accounting?

Alonso, in terms of the loan growth in this environment of lower interest rates, and also forecasting some recovery in GDP towards the second half of the year. And as you said, coming from very low starting levels, we are forecasting loans growing around 10 percentage points above inflation. So with an inflation of 40%, and it's our current number, the loans could end up growing around 50% this year.

Deposits sometimes lower, perhaps inflation plus 5% in that quarter. When we speak about -- that was the first question. When we speak about inflation adjustment, we informed in the press release, in the last page, that the -- what would have been the net worth and the net income of 2019 if the inflation adjustment was applied, that number makes the ROE at around 20% to 21% in real terms. It's important to see that the nominal ROE was around 56%. The inflation was around 53.8%, so we did -- the real ROE has nothing to do with the difference between nominal and inflation.

For next year, depending on inflation and also the monthly inflation, because it's very sensitive on each month, we could be thinking in lower nominal ROE and somewhat lower real ROE. But really, the adjustment is very difficult to forecast, mainly considering this volatility in the monthly readings.

(Operator Instructions) And I move to our next question from Carlos Gomez of HSBC.

I wanted to ask you about the measures to limit credit card interest rates and the offsetting reduction in reserve requirements that you experienced. Do you have a preliminary calculation as to the impact that this might have on your results? And second, I would like to know what you expect to -- your tax rate to be for this year? And whether you can confirm that it should be a tax on the inflation adjusted earnings.

Carlos, the regulation that came the day before yesterday at night, they put a cap for financing with interest for -- with credit cards. The cap is 55%. That can be compared with around 75%. That was the previous number. But I asked the -- it was a formula that took as the base the average cost of personal loans, and that rate was coming down already. Really, the number we should be comparing with is around 71% and now 55%.

Of course, that has a negative impact. But when we take into account the less with some requirement, we have to have a nonremunerated that leaves an equivalent amount in deposits. It's really a percentage of the consumption of a program called AHORA 12. But really, this improvement in reserve requirement or the yields in this reserve requirement is kind of offsetting the reduction in interest rate, perhaps something marginally negative, but really, we can assume it's almost equal. And on income tax...

Okay. That's useful, and actually -- in terms of credit card, what happens to Tarjeta Naranja, the regression of the price would be the personal loans, plus 25% and therefore, it would be 71% up?

This change doesn't apply in nonbank credit cards. So until now, yes, the cap will be the former one 1.20 -- up to 1.25x the weighted average cost of personal loans in the system, with some technicalities at that some public sector banks are not included in that number. But basically, Naranja is not affected by this cap.

In terms of income tax, the effective tax will be -- or the nominal income tax rate will be 30%. It was to be reduced to 25%, but there was a loan that gets it in the same level at 30%, and we calculate the income tax considering inflation adjustment.

(Operator Instructions) We have another question, it comes from Brian Flores of Citi.

We saw some deterioration on your NPLs. And I was wondering if you were guiding for any figure for 2020? And what are the drivers behind your guidance?

Okay, Brian. Well, we saw an increase in NPLs this quarter mainly at the ground level from 4% to 4.4%. The current is at 110%, healthy. We saw an improvement in NPLs in the level of Naranja. This quarter had the particularity of 1 commercial case, WHITE, products retailer, in which we had to provision ARS 1 billion. Without that, NPLs would have been, I would say, similar. And also the cost of risk -- well, the cost of risk, instead of being 5.1%, closer to 3.9%. So going forward, with this forecasted growth in loans, [last] recovery in the economy sequentially in the second quarter, NPLs to be improving. And towards the end of the year, this 4.4% that I was mentioning it should be compared with around 3.8%.

We'll move to our next question. It is coming from Ernesto Gabilondo of Bank of America.

A follow-up in the interest rate cap on credit cards how much is the average interest rate of your credit card portfolio? And what do you think will be the reduction from the one that you are charging to the one that the Central Bank is proposing?

Well, when you look at the stock of loans related to credit cards, in December it was around ARS 95.6 billion, but that includes everything from the float or a lot of financing with no interest, lending with installments, also a rural credit card that we have. So really out of that, the amount is subject to financing with this interest rate that was reduced was something lower than ARS 10 billion, ARS 9-point-something billion. The reduction, as I said, was something between -- or will be, actually, because it will begin in March, from levels of 71% to 55%. And we will be offsetting that with a higher yield on part of the reserve requirement that now we don't have to constitute, or we will not have a 0 yield.

Our next question is from Santiago Petri of Franklin.

The question is related to financial margin. Could you please split, what will be the net interest margin from this consolidated financial margin? And how do you see this net interest margin and financial margin going into 2020 with all the attempts from the Central Bank to reduce rates?

Santiago, when we speak about the NIM, we see some compression going forward. That will be offset with this volume increase. When we speak about NIMs of 20%, the breakdown is something around 28% in pesos and 2% in dollars. So the breakdown between pesos and dollars is important.

Also, this gap between -- or the evolution or the different evolution between Leliq and BADLAR, lately Leliq was going down faster than BADLAR. But putting everything together with a 100 basis point reduction in NIMs. We would need around 5% growth in loans in order to offset that. Really, in a lower interest rate environment. Typically, margins compress but volumes rebound. And it helps your -- really, for the sustainability and the needs of a financial system for the medium term.

(Operator Instructions) It appears we have no further questions, sir.

Okay. Ian, thank you. Thank you all for attending this call. If you have any further questions, please do not hesitate to contact us. Thank you, good morning, and good afternoon for the ones located in Buenos Aires. Bye-bye.

This concludes today's call. Thank you for your participation. You may now disconnect.