Banco Hipotecario S.A. ($BHIP)

Ladies and gentlemen, thank you for standing by. Welcome to Banco Hipotecario's First Quarter 2026 Earnings Release Call. [Operator Instructions] Today, Mr. Martin Diez, Banco Hipotecario's CFO; and Mr. Juan Altuna, Head of Capital Markets and Investor Relations, will be presenting. I would now like to turn the conference over to Mr. Juan Altuna. Please go ahead.

Thank you, Marcos, and thank you all for joining by. The bank began reporting results applying hyperinflation accounting in accordance to rules IFRS IAS 29, as 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 March 31, 2026. Also, the provisioning model of IFRS 9 Section 5.5 was applied as established by the Central Bank. Let's go to the highlights of the first quarter. Net income attributable to the owners of the parent company for the quarter was minus ARS 10.1 billion compared to ARS 22.5 billion in the previous quarter and minus ARS 14.3 billion in the same quarter of last year. ROAE for the first quarter of 2026 was minus 6.5% compared to 13.6% in the fourth quarter of 2025 and minus 8.4% in the same quarter of last year, while ROAA for the same period was minus 1%, 2.2% and minus 1.3%, respectively. Net operating income for the quarter was ARS 144.9 billion, 16% less than the ARS 172.5 billion of the previous quarter and 48.4% higher than the ARS 97.7 billion of the same quarter of last year. Operating income for the quarter was ARS 24.1 billion compared to ARS 59.4 billion in the previous quarter and ARS 7.6 billion of the same quarter of last year. Loans to the non-financial private sector and foreign residents decreased by 6.3% quarter-over-quarter and increased by 15.6% year-over-year. Deposits decreased by 7.4% quarter-over-quarter and by 11.8% year-over-year, while capital market debt increased by 4.5% quarter-over-quarter but increased by 23% year-over-year. NPL ratio increased from 6.5% in the fourth quarter of 2025 to 8.3% in the first quarter of 2026, while the coverage ratio remained stable at 100%. Total capital ratio as a percentage of risk-weighted assets as of the end of March of 2026 was 28.3%, compared to 24.7% in the previous quarter and 24.8% in the same quarter of last year. General level of Consumer Price Index was 9.4% in the first quarter of 2026 compared to 7.9% in the previous quarter and 8.6% in the same quarter of the previous year. Dividends for the fiscal year of 2025 amounting ARS 12 billion were approved at the shareholders' meeting and remain subject to authorization by the Central Bank, which had not been obtained as of the end of the quarter. So before getting into the quarter, let me briefly comment on the macro environment. Compared to last year, markets and rates were much more stable during the quarter. Volatility declined significantly. Part of this came from changes in the monetary framework. In practice, the Central Bank moved away from strict monetary under control. Excess liquidity is now flowing into Central Bank's repos at rates defined by them. So today, the framework looks much more like an interest rate regime. We believe this has stabilized the environment during the quarter. At the same time, the economy is starting to recover. For 2026, we expect a GDP growth of around 3.5%, slightly above of what are seeing most of our peers. We also expect inflation to continue declining during the year, ending 2026 at around 30%. Regarding the bank's performance on the quarter, we believe the quarter results were mainly driven by 2 factors. First, the behavior of the loan portfolio; and second, severance and efficiency-related expenses recorded during the quarter. Starting with the asset quality. NPL ratios were increased during the quarter. This was partly driven by our decision to tighten origination standards, especially in retail lending. As a result, we originated fewer loans during the period, which also contributed to higher NPL ratios. At the same time, we continued strengthening provisions and coverage level during the quarter. Loan loss provisions increased from around ARS 41 billion to ARS 55 billion in the first quarter of 2026. That said, provisions started to decline sequentially during January, February and March. Based on our current trends, we believe that the first quarter of 2026 should represent the peak in loan loss provisions. Finally, during the quarter, we recorded around ARS 17 billion in severance and efficiency-related expenses and to personal restructuring. Excluding these one effects, the bank would have recorded a positive net income for the quarter.

Thank you, Juan. We now open the Q&A session. [Operator Instructions] I see Guido with question. We will go with your line.

I actually have 3 on my side here. The first one is on loans and deposits. I'd like to explore a little bit more what is driving the simultaneous contraction in both loans and deposits and how you guys plan to rebalance funding, particularly between deposit growth and capital markets funding in a still volatile macro environment? The second one is on NPLs. If you could provide a little bit more color on drivers behind the deterioration in asset quality, especially in consumer lending and how you expect NPL formation to evolve if inflation and real wages stabilize? And the final one, it's on capital ratio. We see capital ratio at historically high levels. And how you are thinking about capital deployment priorities between supporting loan growth, absorbing asset quality risks and potential shareholder returns? And do you see some space for dividends or M&A possibility in the future?

Thank you, Guido, for your question. Let me go to the first question first. Regarding our loan portfolio, we are not expecting to grow on our loan portfolio until we see that we can originate loans in the origination standards in which we feel comfortable. That said, we also shrink our loan portfolio also due to macroeconomic conditions and liquidity conditions during the last 2 quarters in which Central Bank maintained the reserve requirement levels at a very high level. So this is why the loan portfolio remained or also shrink a little bit. I don't know if, Martin, you want to add something? No. Okay. So going to the second question that was regarding deposits. The shrinking in the size of our deposits has to do mainly with institutional sector deposits that we take only when it makes sense to allocate them in treasury notes and in liquidity. If not, we have no problem in giving them back. So we use them like as a tactic if we have a P&L there.

And we saw the rates were going down, so we don't want to grow deposits. So that's the main reason for that. Juan, I want to take the other one, the capital ratio and what quality risks, this part. We have -- the bank is very well capitalized, and we expect to grow our business as Juan mentioned, not necessarily in this coming quarter, but in the near future, when we see the quality of -- the asset quality improving, we expect to deploy funds to growing mainly on the SME portfolio and also on the consumer. But on the consumer, as Juan mentioned, we expect to be very careful also in the SME business as well, but we have a higher impact on the consumer portfolio. So we are going to be very careful on that. But our idea is to continue deploying funds into our business and to grow the business.

Regarding NPLs and NPL ratios, they will recover as we start originating loans again. Now we are taking a very cautious stance and with very cautious origination standards. So they are going to recover once we start originating again. When we see demand and whenever we feel comfortable originating loans again, those ratios are going to decrease again. Regarding loan loss provisions, as I said, we expect them to decrease sharply for the next quarter.

If you want to go deeper into the quarter, the first month of the quarter, January, we saw the peak of the cost of risk. It reduced again in February and reduced in March, we expect that trend to continue in the year. So we are viewing that the worst part already.

Allowing a few moments, I'm showing no other questions in queue. If someone wants to ask something, please raise your hand. I see no more questions. Thank you very much. Ladies and gentlemen, that does conclude your conference call for today. Thank you for your participation in Banco Hipotecario's First Quarter 2026 Earnings Release Call. You may now disconnect.