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 Second 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 the 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. Carmen Morillo Arroyo, CFO; Ms. Ines Lanusse, IRO; and Ms. Belen Fourcade, Investor Relations. Ms. Fourcade, you may begin your conference.

Good morning, and welcome to BBVA Argentina's Second 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 ease of comparability, 2023 and 2024 figures have been restated to reflect the accumulated effect of the inflation adjustment for each period through June 30, 2024. Now let me turn the call over to Ines.

Thank you, Belen, and thank you all for joining us today. In the second quarter of 2024, the significant fiscal consolidation, the relative FX rate stability and the sharp contraction in economic activity have led to a gradual moderation of inflation in recent months. Despite the uncertainty and related risks, according to BBVA research, it is likely that these ongoing adjustments eventually complemented by additional measures could set the basis for an inflation slowdown along the year. On the other hand, although the deterioration of economic activity could be reversed by midyear, it is expected that after falling by 1.6% in 2023, GDP will decrease by 4% in 2024, and 135% inflation is expected by 2024 year-end with a downward tendency versus 211% as of December 2023. 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 June 2024, new customers acquisitions through digital channels reached 81% versus 76% a year ago. The 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 93.1% in the second quarter of 2024 and represent 74% of the bank's total sales measured in monetary value. Moving to Slide 4. I will now comment on the bank's second quarter 2024 financial results. BBVA Argentina's second quarter 2024, net income was ARS 112.9 billion, increasing 178.8% quarter-over-quarter. This implied a quarterly ROE of 19.5% and a quarterly ROA of 4.7%. On the other hand, operating income in the second quarter of 2024 was ARS 446.7 billion, 40.3% lower quarter-over-quarter. This fall in the quarterly operating result is explained by a lower operating income, mainly due to: one, lower interest income, basically due to the decline in the monetary policy rate; two, lower results from write-down of assets at amortized cost and at fair value through OCI, in particular, due to the contrast generated by the sale of CPI-linked bonds in the first quarter of 2024 and followed by 3 higher loan-loss allowances, in line with the growth in real terms of the loan portfolio. Net income for the period was highly impacted by income from net monetary position. Inflation on the second quarter of 2024 was 18.6%, much lower than the first quarter 2024, 51.6%. Consequently, the income from net monetary position line recorded a 59.9% lower loss than the previous quarter having a positive impact in the net income comparison. Turning to the P&L lines in Slide 5. Net interest income in the second quarter of 2024 was ARS 678.6 billion, falling 27.4% quarter-over-quarter. In the second quarter of 2024, interest income in monetary terms decreased more than interest expenses. The former fall was due to a lower income from loans, repos and CPI-linked bonds. The latter is explained by lower expenses on checking accounts, time deposits and investment accounts. In the second quarter of 2024, interest income totaled ARS 973.3 billion, falling 35.7% compared to the first quarter of 2024. Quarterly decrease is mainly driven by: one, lower income from loans; and two, lower income from repos, both explained by a decline in the monetary policy rate from 80% at the beginning of April to 40% by mid-May and for the rest of the quarter. Also, the decline in the quarter, the inflation caused a decrease in incomes in CPI-linked bonds. Interest expenses totaled ARS 294.7 billion, denoting a decrease of 49.1% quarter-over-quarter. Quarterly decline is described by lower checking account expenses, in particular, interest-bearing checking accounts followed by time deposits and investment account expenses due to lower rates in line with the deregulation of minimum time deposits rate. Interest from time deposits, including investment accounts, explains 64.6% of interest expenses versus 47% in the previous quarter. Net fee income as of the second quarter of 2024 totaled ARS 58.8 billion, falling 1.8% quarter-over-quarter. The decline is explained by a greater increase in expenses versus the income in monetary terms. In the second quarter of 2024, fee income totaled ARS 117.7 billion, increasing 9% quarter-over-quarter. Improvement in fee income is mainly explained by: one, rate of fee income from credit cards; and two, greater fee income linked to liabilities, mainly account maintenance and bundles. On the side of fee expenses, these totaled ARS 58.9 billion, increasing 22.5% quarter-over-quarter. This is explained by higher expenses due to processing fees and promotion on debit and credit cards. In the second quarter of 2024, loan-loss allowances increased 30.4%, in line with the growth in real terms of the loan portfolio. During the second quarter of 2024, total operating expenses were ARS 342.8 billion, decreasing 6.6% quarter-over-quarter, of which 32% were personnel benefits costs. Personnel benefits increased 3% quarter-over-quarter with wages increasing in line with inflation. As of the second quarter of 2024, administrative expenses fell 4.3% quarter-over-quarter. This is mainly explained by: one, rent; two, other administrative expenses; and three, document distribution. The first 2 are related to an increase in inflation, which was higher than the nominal increase of expenses in software licenses and service contracted with the parent company. Regarding the decrease in document distribution expenses, this is due to the contracts generated by the renovation of card plastics in the first quarter of 2024. The quarterly efficiency ratio as of the second quarter of 2024 was 55.3%, improving versus the 65.4% reported in the first quarter of 2024, and above the 52% reported in the second quarter of 2023. The quarterly decrease is explained by a greater increase in the denominator than the numerator, especially due to lower quarterly inflation. In terms of activity on Slide 6, private sector loans as of the second quarter of 2024 totaled ARS 3.9 trillion, increasing 23.1% in real terms. Loans to the private sector in pesos increased 24.2% in the second quarter of 2024. During the quarter, growth was driven by a 28.6% increase in discounted instrument followed by a 14.3% increase in credit cards, a 37.3% increase in overdraft and an increase in consumer loans. In all cases, the increment is boosted by genuine growth in real terms of the portfolio, levered on the lower market interest rates. Loans to the private sector denominated in foreign currency increased 16% quarter-over-quarter. Quarterly increase is mainly explained by a 14% growth in financing and prefinancing of exports and a 44% growth in credit cards. During the quarter, the retail portfolio grew 19% and the commercial portfolio increased 26.6%. The commercial portfolio represents 54.7% of total portfolio from 44.9% a year ago. As observed in previous quarters, loans portfolio were impacted by the effect of inflation during the second quarter of 2024, which reached 18.6%. In nominal terms, BBVA Argentina managed to increase the retail, commercial and total loan portfolio by 41.1%, 50.1% and 45.8%, respectively, during the quarter, surpassing quarterly inflation levels in all cases. As of the second quarter of 2024, the total loans and other financing over deposit ratio was 67%, above the 55.9% recorded in the first quarter of 2024, and the 58.2% in the second quarter of 2023. Total loan participation of our total assets is 40% versus 32% in the first quarter of '24 and a 34% in the second quarter of '23. BBVA Argentina's consolidated market share of private sector loans reached 10.54% as of the second quarter of 2024, improving from 9.01% a year ago and sustaining the 2-digit figures. As of the second quarter of 2024, asset quality ratio keeps a very good performance at 1.18% in line with the total loan portfolio growth and the good behavior of both the commercial and retail portfolio. On the funding side, as of the second quarter of 2024, total deposits reached ARS 5.8 trillion, increasing 2.6% quarter-over-quarter. The bank's consolidated market share of private deposits reached 7.50% as of the second quarter of 2024. Private nonfinancial sector deposits in pesos totaled ARS 4.1 trillion, increasing 6.7% compared to the first quarter of 2024. The quarterly change is mainly affected by a 36% increase in time deposits, a 21% increase in saving accounts offset by a 19% fall in checking account, especially noninterest-bearing checking accounts. Private nonfinancial sector deposits in foreign currency expressed in pesos fell 5.6% quarter-over-quarter. BBVA Argentina continues to show strong solvency indicators as of the second quarter of 2024. Capital ratio reached 25.3%. Capital access over regulatory requirements reached 210.3%. The fall in the capital ratio quarter-over-quarter, particularly explained by a 16.4% increase in risk-weighted assets and via fall in ordinary capital of 16.3%. The latter is related to: one, dividend distribution, which implied the classification to liabilities and a consequent payment followed by; two, the impact of OCI in the equity. 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. As of the second quarter of 2024, total public sector exposure, excluding Central Bank totaled ARS 2.5 trillion, increasing 87.7% quarter-over-quarter, and representing 26.3% of total assets, above the 13.9% in the first quarter of 2024. The quarterly increase is explained by the monetary policy promoted by the government in the aim of removing all remunerated liabilities of the Central Bank and aiming for that liquidity to migrate to treasury debt. This is the reason for 112.5% higher precision in national treasury debt in pesos composed mainly by LECAPs, which, by quarter end will reflect the monetary policy rate. BBVA Argentina's total security portfolio is mainly LECAPs and to a lower extent, BONCER as of the second quarter of 2024. As of July 2024, the macro reference rate will be that of the new instrument created by the treasury, LeFis, Letra Fiscal de Liquidez. In the quarter, the liquidity ratio reached 69.5%, decreasing versus the first quarter of 2024. The liquidity ratio in local and foreign currency, reached 61.4% and 88.6%, respectively. The decline is explained by lower position in repos as well as a real growth in total deposits of 2.6%. Last but not least, as of the date of this report, the bank has ended its payment schedule of dividends in 3 consecutive installments in cash for hand for ARS 264.2 billion, expressed in December 31, 2023, currency; and the pursuant, the Central Bank regulation, it has been adjusted by inflation as of the day of each payments. This concludes our prepared remarks. We will now take your questions. Operator, please open the line for questions.

[Operator Instructions] At this time, we are showing no questions. I would like to turn the conference over to Ms. Lanusse for any closing remarks.

Okay. Thank you for your time and let us know if you have further questions. Have a good day.

The conference is now concluded. You may now disconnect your lines. Have a great day.