Banco Hipotecario S.A. (BHIP) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Banco Hipotecario's Second Quarter 2025 Earnings Release Call. [Operator Instructions] Today, Mr. Martin Diez, Banco Hipotecario's CFO, will be presenting. I would now like to turn the conference over to Mr. Martin Diez. Please go ahead.

Thank you, Hanna. Hello, everybody. Thanks for joining us today. Well, let's begin. The bank began reporting results applying hyperinflation accounting in accordance to IFRS rule IAS 29, established by the Central Bank as of the first quarter of 2020. Therefore, every result and variation described in this report is expressed in constant currency as of June 30, 2025. Also, the provisioning model of IFRS 9, Section 5.5 was applied, established by the Central Bank. Net income attributable to owners of the parent company for the quarter was ARS 32.8 billion, compared to ARS minus 11.5 billion in the previous quarter and ARS 16.3 billion in the same quarter of last year. The annualized quarterly return on average equity was 24.8% in the second quarter of 2025, minus 8.4% in the first quarter of 2025 and 12.7% in the second quarter of 2024. The accumulated annualized return on average assets was 1.2% in the second quarter of 2025, minus 1.3% in the first quarter of 2025 and 2.3% in the second quarter of 2024. The accumulated annualized return on average equity was 8.1% in the second quarter of 2025, minus 8.4% in the first quarter of 2025 and 15.7% in the second quarter of 2024. The cumulative annualized return on average equity was 8.1% in the second quarter of 2025, minus 8.4% in the first quarter of 2025 and 15.7% in the second quarter of 2024. Net operating income for the quarter was ARS 117.4 billion. This is 50.3% more than the ARS 78.1 billion in the previous quarter and 35.9% lower than the ARS 183.2 billion in the same quarter of last year. Operating income for the quarter was ARS 35.6 billion, compared to ARS 6 billion in the previous quarter and ARS 83.4 billion for the same quarter of last year. Loans to the nonfinancial private sector and foreign residents increased by 17.4% quarter-over-quarter and 144.8% year-over-year. Deposits increased by 13.5% quarter-over-quarter and increased by 8.4% year-over-year, while capital market debt decreased by 4.5% quarter-over-quarter and increased 133.1% year-over-year. The NPL ratio stood at 3.1% in the second quarter of 2025, compared to 2.6% in both first quarter of 2025 and second quarter of 2024, while the coverage ratio was 106.2% for the second quarter of 2025, 124.6% for the first quarter of 2025 and 113.4% for the second quarter of 2024. Total capital ratio as a percentage of risk-weighted assets as of June 30, 2025, was 20% compared to 21.6% in the previous quarter and 32.5% in the same quarter of last year. General level of consumer price index was 6% in the second quarter of 2025, compared to 8.6% in the previous quarter and 18.6% in the same quarter of the previous year. The dividends corresponding to the fiscal year 2024 were authorized by the Central Bank on June 17, 2025. This amounted to ARS 62 billion and has to be distributed in 10 consecutive monthly installments. The first installment of PRS 7 billion was paid on June 30, 2025; the second of PRS 7.1 billion was paid on July 30; and the third installment of PRS 7.3 billion is to be paid on August 28, 2025. On August 22, 2025, the bank issued the notes Class X for $30.7 million, maturing on August 22, 2026. These are the main highlights. Let me add some color on the quarter. Let's go to the financial margin. Financial margin measured as the sum of net interest income, net interest income from financial instrument at fair value through profit and loss, income from asset derecognition measured at amortized cost and gold and foreign currency exchange rate difference was ARS 91.8 billion. Remember that we always mention that this is the way we consider to be more accurate in the financial margin was ARS 91.8 billion, and this compares to ARS 44.6 billion in the previous quarter and ARS 150.9 billion in the same quarter of last year. So we've seen an improvement in the net interest income for the quarter. Considering improvement, as we mentioned in our previous call for the first quarter, the first quarter, we had an impact on this particular line that was considered, but we recovered part of that. Then on the net fee and commission income, this quarter is quite consistent with the same quarter of last year and with the previous quarter. This was a particular item that we've been mentioned in the last couple of years that it was tough for us to maintain to grow in the fee business, let's say. We have been able to maintain this in the last year. So this is something good for us. Then on the net operating income for the quarter was ARS 117 million, and that is 50% above the previous month. And we also had a positive income in this quarter from an income tax where we have been able to pay a credit for the previous exercise that has an impact -- considerable impact in the quarter as well. Then on the quality, let's say, of the quarter and to give some color on the business, it was the best quarter for the macro economy, but our business lines, we are able to continue this fast growing, as I mentioned in the bullets or in the executive summary. We've been able to continue growing our loan portfolio. That's something important for us. Also on the accounts or the type of clients that we consider to be core clients, we had a solid quarter where we've been able to grow almost in all the lines. For example, we've been able to grow on the alliances with construction industry business where we grew 7% during the quarter. We went from 4,400 alliances to 4,700 alliances. That's something that's very important for us because it's allowed us to grow on the SMEs business where we have a good focus. We've been able to maintain the payroll accounts that we had, but we grew on pension accounts 8%, and we grew slightly 3% in professional customers' accounts. So those things are positive. We continue originating mortgage loans. We originated ARS 35 billion during the first half of the year. We raised the rates on mortgage loans as well because of the macro environment. And also since I just said something about the macro environment, I believe you are aware what the Central Bank has been doing in the -- particularly in the third quarter where reserve requirements grew for banks. Depending on the line of business or in the line of deposits, it grew from 45% from signed deposits to 53.5% in other type of deposits. For example, for mutual funds, it grew from 20% to 45%. So the Central Bank has been changing considerably the reserve requirements, and that is something that took the rates -- increased considerably the rates of the economy. Today, for example, the TAMAR rate went from 38% area to 64%. That is the last TAMAR rate that we've seen. And I think that from previous -- from last week, and it was published yesterday from the Central Bank. So it has to be from Friday or Monday. So the macro environment changed considerably and the rates environment grew. So this is a challenging operation, let's say, for the next couple of months that we have to see how it continues. I believe the election both in September and October to change the macro environment because it doesn't seem to be sustainable to have such a high [ real ] rate. But if you want, Hanna, we can open for questions.

[Operator Instructions] We will go to the line of Luis Brian Flores.

My first question is on guidance. If you could provide any updates. I know, obviously, the environment has been very fluid. So I remember you have provided some guidance in the last quarter. So if you have any changes there, it would be great to know them. And then a second question on asset quality because we have been seeing a big pickup, I think not for -- I mean, for every bank, the system is showing a peak in NPLs. So I just wanted to ask if you could share your thoughts on how are you thinking about the curves in NPLs and cost of risk for yourselves in the coming quarters?

Thanks for the question. First of all, going to guidance, we don't consider it wise to provide guidance under the current environment since we don't know what the rates are going to look like maybe within 2 weeks after the [indiscernible]. So it will depend a lot on how this continues going forward, mainly on the macro situation. So today, we are unable to provide guidance of the entirety of the year, mainly due to this factor. I think that we will be able to give some color in the next conference -- in the next conference call for results of the third quarter. And on the asset side, I missed that on the first part. The new -- I will mention something that I should have and it is the loan loss provision was ARS 12 billion. This comes from ARS 8 billion in the previous quarter and from ARS 3 billion almost in the same quarter of last year. We've seen an increase in the loan loss provision, and we've seen a deterioration -- mainly in the consumer portfolio. In the previous quarter, we discussed about these rates that we had seen starting, I believe that April or May, where we've seen a deterioration. This deterioration, we think -- well, it will depend a lot how the environment -- the macro environment continues, as I mentioned, because of the [ real ] rates and the economy slowing down that we are experiencing this particular month, but we decided not to originate any more on the riskier clients of the consumer portfolio. Finally, we didn't see a growth from the previous month maybe. We see something like it's coming to stabilize at least in our particular portfolio. So we don't expect something to grow much more than it did going specifically to the consumer portfolio. Because on the commercial portfolio, we had some particular cases that we discussed here in the previous quarters, and we've been able to recover some of the already known cases such as [indiscernible]. Our recovery there was good, and we don't have any other cases that we foresee. Of course, this will depend a lot on how the rates continue going forward because if you have a 60% of real rate or something like that, that we are experiencing today, well, this might cause some troubles in the future. But it's not something that we are seeing. It's something that we can figure out because of [Technical Difficulty]. So I think that I covered the question.

No, perfect. Understood. If I may, just a final question here. Should we expect some margin compression in the third Q? Because I know the -- as you mentioned, the effects of this volatility on interest rates seems to be pressuring funding costs for banks, plus obviously, as you mentioned, the increase in reserve requirements. So do you think for the third quarter, we should see some, I would say, pressure on margins due to this volatility?

Yes, yes. I expect that that's something that would happen.

We will go to the line of [indiscernible].

I had 2 questions. In the first place, we noticed a significant increase in interest income from securities. It was ARS 33,000 million in last Q and now ARS 90 million. So we wanted to know if this was driven by any specific security. And what are your expectations for this line item in the next quarters? That's the first question. The second one is that about the income tax charge that it was positive again in this quarter. I understand it was influenced by the positive impact related to that building, the Plata building. But we wanted to know what is your outlook for the income tax in the coming quarters?

Sorry, could you repeat the last one because the last part, I didn't hear it. The last part of the second question.

Yes. What do you expect for the income tax charge in the next quarters? We saw that the last was positive. So we want to know about that?

Okay. Let me address that one first. As you mentioned, yes, this is something related to a recovery that we have from the previous year from 2024 on the Edificio del Plata, mainly due to that and it is something that is not going to occur on the third quarter. And the decline will depend on the result of each particular quarter. Then going to the other one to the securities portfolio. The second quarter is not a quarter where we've seen a great result on this particular line. The difference with the first quarter is because the second quarter was a very bad quarter on that particular line. Having said that, we have to be cautious in this particular line for the third quarter and so on, but it will depend a lot because the securities depend on the rate of the economy and with the rates going up, the result of this will be a good result. And if rates go down, the result of this will be [ bad ].

[Operator Instructions]

Very quickly, I have a follow-up here just on the guidance. So I think the notion that we had was you were supposed to be growing somewhere around 50% in terms of the loan book in real terms and deposits around 20% and 30%. I just wanted to make sure that we're kind of removing the guidance? Or should we continue working with those assumptions until you -- as you mentioned, you update again with the electoral results and all of that. Just if we suspend the guidance officially or if we just continue with what we had before?

I'm not providing guidance. I would say that the guidance we provided before, I don't know if it's applicable anymore because we don't know. For example, in the case of the loan growth, it will depend a lot on the reserve requirements. If the Central Bank continues with the reserve requirement that introduced, perhaps that loan growth cannot be achieved. But again, for example, part of the reserve requirements that were raised, I think that we've seen like 3 or 4 reserve requirements. I believe that in the third one -- instead of 4, in the third one, we had a reserve requirement that finishes on November. If you ask me, I don't know if it will finish on November or not because we've seen the Central Bank changing the way it operates almost on a weekly basis. So I would say that under this particular environment, we have no guidance for deposit growth and we should see -- for deposit growth and -- sorry, for the loan growth, and we have to see if this changes for the third quarter.

And allowing a few moments, I'm showing no other questions in queue. Martin, do you want to add something else? Please continue.

No, I think that we are done for today. Thanks, everybody, for joining us. I will be speaking in a couple of month, again.

Ladies and gentlemen, that does conclude your conference call for today. Thank you for your participation in Banco Hipotecario's Second Quarter 2025 Earnings Release Call. You may now disconnect.