Banco BBVA Argentina S.A. (BBAR) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to BBVA Argentina's First Quarter 2024 Results Conference Call. We would 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 2023 filed with the U.S. Securities and Exchange Commission. Today with us, we have Ms. Ines Lanusse, IRO; Ms. Ines, you may begin your conference.

Good morning, and welcome to BBVA Argentina's First 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. Speaking during today's call will be Ines Lanusse, our Investor Relations Officer; and Carmen Morillo Arroyo, our Chief Financial Officer, who will be available for the Q&A session. Please note that starting January 1, 2020, as per Central Bank regulation, we have begun reporting results applying hyperinflation accounting pursuant to IFRS rule IAS 29. For each of comparability, 2023 and 2024 figures have been restated to reflect the accumulated effect of inflation adjustment for each period through March 31, 2024. Now let me turn the call over to Ines.

Thank you, Belen, and thank you all for joining us today. 2024 starts with the new-elected government, substantially modifying the economic policy framework and focusing its efforts on a strong fiscal and monetary adjustment to reduce inflation. The reduction of fiscal deficit in the first month of the year and relative currency stability observed after the significant depreciation of the Argentine peso in December 2023. The accumulation of international reserves and the contraction of economic activity have allowed a recent moderation of the monthly inflation, which, however, still remains high. In spite of the uncertainty related risks according to BBVA Research, it is likely that these factors could set the basis for an inflation slowdown in the following months. These would eventually be completed by additional measures in the context of the release of a more integral stabilization program. BBVA Research estimate annual inflation will end close to 155%, and that GDP will drop around 4% this year. It is important to mention that interest rates have fallen quicker than expected, and it is expected that these should drop further as inflation continues to decline. Now moving into business dynamics. As you can see on Slide 3 of our webcast presentation, our service offering has evolved in such a way that by the end of March 2024, retail digital client penetration reached 62%, while retail mobile clients reached 58%. A response on the side of 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 measured in units reached 93.6% in the first quarter of 2024 and represent 73.6% of the bank's total sales measured in monetary value. New customer's acquisitions to digital channels reached 81% in the first quarter of 2024 from 76% in the first quarter of 2023. The bank actively monitored its business, financial conditions and operating results in the aim of keeping a competitive position to pay contextual challenges. Moving to Slide 4, I will now comment on the bank's first quarter 2024 financial results. BBVA Argentina's inflation adjusted net income in the first quarter of 2024 was ARS 34.2 billion, falling 41% than the net income in the fourth quarter of 2023. This implies a quarterly ROE of 6.6% and a quarterly ROA of 1.6%. Quarterly operating income in the first quarter of 2024 was ARS 631.2 billion, 13% lower than in the fourth quarter of 2023. Quarterly operating results are mainly explained by a lower operating income, mainly due to lower income from foreign exchange and [ dollar rates ], particularly in contrast with the fourth quarter 2023's extraordinary results, which were impacted by the devaluation of the Argentine peso versus the U.S. dollar. This was offset by: one, beta from income from measurement or financial instrument at fair value to P&L also by contrast with the results in the fourth quarter 2023, where a loss was recorded due to the dual bond value valuation; two, better net income from write-down of asset at amortized cost and at fair value through OCI, mainly due to the sale of inflation-linked bonds; and three, no operational benefits and other operating expenses. Net income for the period was highly impacted by income from net monetary position, in spite of inflation being slightly lower in the first quarter of 2024 than in the fourth quarter of 2023. The increase in the monetary position in the first quarter of 2024 versus fourth quarter of 2023, more than proportionately offset the mentioned decrease in inflation. That increment was impacted by a higher value of public securities in the fourth quarter of 2023, especially under the fair value to OCI valuation criteria. Turning into the P&L lines in Slide 5, net interest income for the first quarter of 2024 was ARS 787.8 billion, increasing 4.8% quarter-over-quarter. In the first quarter of 2024, interest income decreased less than interest expenses in monetary terms. The former due to lower income from public securities and the latter due to lower expenses on time deposits and investment accounts. In the first quarter of 2024, quarterly decrease in interest income is mainly driven by: one, lower income from government securities, explained by the termination of the issuance of LELIQ by the Central Bank in December 2023, reducing its volume on year-end; and two, lower income from loans, mainly discounted instruments, credit cards and other loans, the latter affected by the [indiscernible] planning. This was partially offset by: one, a better income from REPO at lower rates than the acute by LELIQ; and two, income from inflation-linked bonds. On the other hand, interest expenses decreased 16% due to lower time deposits and events and account expenses, lower volume and the deregulation of the minimum rate by the end of the quarter. Interests from time deposits, including investment accounts, explained, 47% of interest expenses versus 71.2% of the previous quarter. Net fee income as of the first quarter of 2024 totaled ARS 50.5 [ billion ], falling 6.4% quarter-over-quarter. In the first quarter of 2024, the income totaled ARS 91.1 [ billion ], falling 15.1% quarter-over-quarter. In spite of the general quarterly decline on all lines, the decrease is mainly explained by fees from credit cards, which was 17.3% and fees linked to liabilities, which fell 14.4%. Regarding the former, apart from being impacted by expenses related to Puntos BBVA loyalty program. It was also affected by a decrease in activity and consumption. Regarding fees liability and increasing fees from account maintenance and bundle did not compensate for the falling activity. On the side of the expenses, these [indiscernible] ARS 40.6 billion, falling 23.9% quarter-over-quarter. Lower spend are explained by lower activity have the contracts with high seasonal fees expenses in the fourth quarter 2023. Additionally, there was a decrease in fees linked to payroll marketing campaigns. In the first quarter of 2024, loan-loss allowances decreased 14.3%, explained by the good behavior of the loan portfolio. During the first quarter of 2024, total operating expenses were ARS 209.6 billion, decreasing 3.5% quarter-over-quarter, of which 29% were personnel benefits costs. Personnel benefits decreased 11.2% quarter-over-quarter. The quarterly change is mainly explained by the contrast with the inflation adjustment of vacation stock provisions and variable compensations recorded in the fourth quarter of 2023, plus wage negotiations with the unions that matched inflation during the first quarter of 2024. As of the first quarter of 2024, administrative expenses grew 33.1% quarter-over-quarter. This is mainly explained by an increase in the amount of price of foreign currency services contracted with the parent company. The quarterly efficiency ratio ARS of the first quarter of 2024 was 65.4% above the 46.4% reported in the fourth quarter of 2023. The quarter explained by an increase in expenses contracted with the decrease income, especially due to lower interest income and the impact of inflation on the monetary position. In terms of activity on Slide 6, private sector loans as of the first quarter of 2024 totaled ARS 2.7 trillion, decreasing 12.7%. Loans to the private sector in pesos fell 16.2% in the first quarter of 2024. During the quarter, the decrease was especially driven by a lower generalized seasonality in practically all products. The decrease was partially offset by a 20.9% increase in overdraft, mostly due to their short duration. Loans to the private sector demand in foreign currency increased 18.4% explained by a 26% growth in financing and prefinancing of exports. Loans to the private sector in foreign currency measured in U.S. dollars increased 69.3% quarter-over-quarter. During the quarter, the retail portfolio fell 16.2% and the commercial portfolio decreased 9.4%. As observed in previous quarters, loan portfolio were impacted by the effect of inflation in the first quarter of 2024, which reached 61.6%. In nominal terms, BBVA Argentina managed to increase the retail, commercial and total loan portfolio by 27.1%, 37.4% and 32.1%, respectively, during the quarter. In all cases, surpassing quarterly inflation levels. BBVA Argentina's consolidated market share of private sector loans reached 10.08% as of the first quarter of 2024, improving from 9.33% a year ago and surpassing 2 digits figure. As of the first quarter of 2024, asset quality ratio keeps a very good performance at 1.23%, in line with the good behavior of the commercial portfolio. On the retail portfolio, there is a slight increase in NPL portfolio due to credit cards, but with no significant impact on the NPL ratio. On the funding side, as seen on Slide 7, private nonfinancial sector deposits in the first quarter of 2004, totaled ARS 4.6 trillion, falling 15.6%. And the bank's consolidated market share of rate deposits reached 7.37% as of the first quarter of 2024. Private nonfinancial sector deposits in pesos totaled ARS 3.2 trillion, decreasing 9.3% compared to the fourth quarter of 2023. The quarter change is mainly affected by a 21.2% decline in saving accounts and an 8% fall in checking account, especially noninterest-bearing checking accounts. Private nonfinancial sector deposits in foreign currency expressed in pesos fell 27.3% quarter-over-quarter, mainly explained by seasonal factors in the fourth quarter of 2023. In terms of capitalization, BBVA Argentina continues to show strong solvency syndicators as of the first quarter of 2024. Capital ratio reached 35.6%. Growth in the ratio was mainly driven by a fall in risk or EBITDA. Exposure to the mid sector in the first quarter of 2024, excluding Central Bank instruments, represent 13.9% of total assets. We know that 15.9% in the fourth quarter of 2023, and we know the last ratio reported by the system of 26.5% as of February 2024. The bank's total liquidity ratio remained healthy at 92% of total deposit as of March 31, 2024. Last but not least, as of the date of this report, the bank has announced the payment of dividends in 3 installments in cash or [indiscernible]. The total amount due will be ARS 264.2 billion inflation adjusted as of December 31, 2023, and [ as for ] Central Bank loan, it must be updated to the current currency value of each payment date. This concludes our prepared remarks. We will now take your questions. Operator, please open the line for questions.

[Operator Instructions] Our first question is from Carlos Gomez with HSBC.

I would like to know if you can go through -- slowly as to why the net interest income declined so much in your case compared to your peer banks in Argentina this quarter. I'm afraid, I was not able to follow it closely.

Yes. Basically, 1 of the main factors that affects our net income this quarter is the fact that the model we use -- the different valuation model the banks have to value securities in the P&L. We believe the portfolio strategy should be analyzed based not only in 1 quarter, but in more quarters. Now being that evaluation criteria for securities compared to peers affects more negative our P&L in the first quarter. And this is particularly because of the extraordinary result we gave in the OCI line in the previous quarter. Remember that last year, our equity grew 25% in real terms. Now, why net income is very affected by this fact -- the impact in the past because of that extraordinary result, my equity grew much more than probably the peers, which not recognize this valuation in the equity and that generates a higher loss by inflation adjustment. And that's why we are seeing higher negative effect in the deal. So it's quite different to compare banks with different models. If you would do a proxy, for example, if we would have the model of cost instead of fair value, for example, you'd analyze our figures by discounting from the equity around ARS 260 million plus. To that, you should have applied approximately [ 52 ] inflation that we had in the quarter. And if you do your math, the ROE would be around mid 20s. So basically, the problem is the comparisons between the 2 models. In our case, it's probably a little bit more transparent because we reflect not only what we gain from the securities, but also the valuation of those securities and the effect of inflation in the P&L every quarter. On the model that is on [ cost ], you only -- you don't reflect that valuation. So your equity doesn't grow that much, and you do not record that extra loss affected by inflation. On the trading model -- in the trading model, probably it is comparable, but it's a different way on how you manage portfolio. They are more supposedly trading. It's a short-term criteria. It's another way of managing your securities. While the model we use at the bank, and it's the same model that BBVA as a holding use is to protect the asset. That's why we have this model that shows results on P&L and valuation on the OCI line. So basically, that is a key factor that affected our net income. And as I was mentioning, if you would do the math or a proxy, if we would have the model of -- at cost, our ROE would be around the mid 20s. Then, yes, we had also, despite, expenses decreased quarter-over-quarter. We have administrative expenses that grew and those are mainly tied to FXl, which are mainly costs related to the parent company. So that also affected our results. I don't know if that answers your question.

Well, more or less, let's go 1 by 1. On the valuation at cost. So you had a big gain in the OCI line last year -- last quarter, in particular.

Quarter.