Grupo Financiero Galicia S.A.

Good morning ladies and gentlemen, welcome to Grupo Financiero Galicia second quarter 2025 earnings call. This conference is being recorded and the replay will be available at the company's website at gfgsa.com. We would like to inform that all attendees will only be listening the conference during the presentation and then we will start the question and answer section when further instructions will be provided. Some of the statements made during this conference call will be forward-looking statements within the meaning of the safe harbor provisions of the US Federal Securities Law and are subject to risks and uncertainty that could cause actual results to differ materially from those expressed. Investors should be aware of events related to the macroeconomic scenario, the financial industry and other factors that could cause results to differ materially from those expressed in their respective forward-looking statements. Now, I will turn the conference over to Mr. Pablo Firvida, Head of Investor Relations. You may begin your conference.

Thank you, Sofia. Good morning and welcome to this conference call. I will make a quick speech. I'm here with Gonzalo Fernandez-Cobaro, CFO of Grupo and of the bank. Later, he will make some additional comments, and of course, we will be both available for Q&A. According to the monthly indicator for economic activity, EMAE, the Argentine economy recorded a 6.4% year-over-year increase during June. reaching an expansion of 6.2% during the first half of 2025. During the second quarter, the primary surplus reached 0.4% of GDP and the overall surplus was 0.2% of GDP, explained by primary revenues increasing 37.7% year over year, whereas primary spending rose 42.1%. During the first seven months of 2025, the primary balance stood at 1.1% of GDP, while the financial balance amounted to 0.3% of GDP. The National Consumer Price Index accumulated a 6% increase during the second quarter of 2025 and a 17.3% year-to-date increase as of July. Between May and July, monthly inflation slipped below 2% threshold. In July, monthly inflation stood at 1.9% and accumulating 36.6% in year-over-year terms. The monetary base increased by 6.6 trillion pesos in the quarter, recording an 84.2% increase in year-over-year terms. On April 11th, 2025, the central bank implemented a foreign exchange band system within which the exchange rate may fluctuate freely. These bands were initially set between 1000 pesos per dollar and 1400 pesos per dollar and are adjusted monthly at a rate of minus 1% for the lower bound and plus 1% for the upper bound. The exchange rate averaged 1,181 peso per dollar in June 2025, a 23.5% devaluation in year-over-year terms. During the first half of 2025, the benchmark interest rate was set by the central bank. However, on July 10th, the monetary authority ceased offering LEFI's and the interest rate is currently determined endogenously by the market. in line with the regime focus on monetary aggregates. In June 2025, the average rate on PISO-denominated private sector time deposits for up to 59 days stood at 32.2%, 1.1 percentage points below the June 2024 average. Following the change in monetary policy, in mid-July interest rates increased and ended the month at Private sector deposits in pesos averaged 89.1 trillion pesos in June, increasing by 10.6% during the quarter and 69.1% in the last 12 months. Time deposits in pesos rose by 0.3% during the quarter and 93% in the year, while peso-denominated transactional deposits increased 16.4% during the second quarter and 49.6% in year-over-year times. Private sector dollar denominated deposits amounted to $30.4 billion in June 2025, increasing 2.5% during the quarter and 71.8% in the last 12 months. Peso denominated loans to the private sector averaged 72.3 trillion pesos in June, showing a 19% quarterly increase and a 181.7% year-over-year expansion. Private sector dollar-denominated loans amounted to 15.8 billion dollars, recording a 12.1% quarterly growth and a 147.3% annual increase. Turning now to Grupo Financiero Galicia, I would like to mention that at the end of June, we successfully finished the merger with Galicia Mas, former HSBC in Argentina. We unified the banking unit with Banco Galicia, the mutual fund management with Galicia Asset Management, and the insurance companies with Galicia Seguros. The change for the clients was very smooth with no frictions, and we grew around 2.5% in market share of both loans and deposits. For comparison purposes, figures for the first quarter of 2025 include the balances of the merged companies, while the figures of the second quarter of 2024 are not fully comparable as they do not include any HSBC figures. Going now to the results for the quarter, net income amounted to 73 billion pesos, 70% lower from the year-ago quarter. The result comes from profits from Banco Galicia for 98 billion pesos, from Naranja X for 32 billion pesos, from Galicia Asset Management for 27 billion pesos, and from Galicia Seguros for 13 billion pesos. This profit represented a 1.9% annualized return on average assets and a 9.5% return on average shareholders' equity. The result from Banco Alicia was negatively affected by the increase in the cost of risk associated with the growth of the loan book and the increase in the non-performing loans in the retail segment, particularly in personal loans and credit card financing. The net income for the quarter was 76% lower than in the same quarter of 2024, due to a 67% lower operating result. This was primarily a consequence of a 40% decrease of net operating income. As net interest income decreased 36%, net results from financial instruments were down 37%, and loan loss provisions increased 192%, which were partially offset by a 30% growth of net fee income. average interest in assets reached 17.3 trillion pesos, 38% higher than in the same quarter of 2024, primarily due to 117% increase of the average portfolio of loans in pesos and a 262% higher dollar denominated loan portfolio. Partially offset by a 94% reduction in the average balance of other interest earning assets in pesos. In the same period, its yield decreased 35 percentage points, reaching 37.4%. Interest-bearing liabilities increased 74% from June 2024, amounting to 14.8 trillion pesos. primarily due to the increase of time deposits in pesos and of saving accounts in dollars. During this period, its cost decreased 15 percentage points to 15.6%. Net interest income decreased 36% when compared to the second quarter of 2024. This was the result of a 29% decrease in interest income because of a 62% lower interest on government securities and a 99% lower interest on repo transactions together with a 13% decrease in interest expenses due to a 6% lower interest on time deposits and a 27% lower interest on other deposits. Net fee income increased 30% from June 2024 due to a 51% higher income from credit card fees and a 28% from fees from on-deposits. Net income from financial instruments decreased 37% due to a 53% lower result from government securities. Gains from FX quotation difference were 12% lower from the year-ago quarter, including the results from foreign currency trading. It is worth to mention that during April, many regulations that limited the access to the FX market were removed, mainly for individuals, and thus FX trading increased significantly, growing 153% when compared to the first quarter of this year. Other operating income increased 150% in the quarter, mainly due to the 290% increase in other adjustments and interest on miscellaneous receivables, and of 145% in other operating income. Provision for loan losses increased 192% because of the growth of the financing portfolio and to an increase in delinquency that is circumscribed to the portfolio of personal loans and credit card financing to individuals. Personal expenses were 3% lower than a year before. It is worth to mention that in the first quarter, we began to use the provision for restructuring expenses established in the fourth quarter of last year. Administrative expenses increased 35% due to a 77% increase of expenses for maintenance and repairment of goods and IT, and to a 62% increase of higher administrative services. Other operating expenses increased 13% due to a 12% higher turnover tax related to financial operations. Results from the monetary position decreased 56% year over year following the declining evolution of inflation. The income tax charge was 75% lower than in the year-ago quarter due to lower operating results. The bank's financing to the private sector reached 16.9 trillion pesos at the end of the quarter, up 123% in the last 12 months, with peso financing increasing 106% and dollar denominated financing growing 181%. While by credit line, promissory notes increased 92%, credit card financing 66% and personal loans 201%. Net exposure to the public sector decreased 33% year over year primarily due to the 39% decrease in government securities adjusted by CPI at amortized cost and to the 99% reduction of repo transactions with the central bank. This exposure represented 19% of total assets as of the end of the quarter compared to 42% of the year before. Deposits reached 19.9 trillion pesos 72% higher than a year before, mainly due to a 162% increase in saving accounts in dollars, a 76% increase in time deposits in pesos, and a 47% increase in peso-denominated checking accounts. The bank's estimated market share of loans to the private sector was 14.5%, 260 basic points higher than at the end of a year-ago quarter, and the market share of deposits from the private sector was 16%, 550 basic points higher than in the same quarter of 2024. The bank's liquid assets represented 94.3% of transactional deposits and 65.2% of total deposits compared to 147.7% and 101.5% respectively from a year before. As regards asset quality, the ratio of non-performing loans to total financing ended the quarter at 4.4%, recording a 240 basis points deterioration as compared to the 2% of the second quarter of the prior year. And as I mentioned before, the deterioration is limited to the personal loans and credit card financing portfolios. At the same time, the coverage with allowances reached 117.9% down 42.4 percentage points from the 160.3% recorded a year ago. As of the end of June 2025, the bank's total regulatory capital ratio reached 23.7%, decreasing 510 basic points from the end of the same quarter of 2024, while the tier one ratio was 23.2%, down 460 basic points during the same period. In summary, in a challenging and volatile political and macro environment, Grupo Financiero Galicia was able to keep liquidity, solvency, and profitability metrics at healthy levels, adapted its strategy for credit granting to the new context in order to prioritize lower risk segments and to revert the trend of deterioration in asset quality, and completed a very fast and successful integration with Galicia Más. Lastly, on August 6th, the board of directors of Banco Galicia elected Diego Rivas as CEO of the bank, while Fabián Kohn will remain as the CEO of Grupo Galicia. This will be implemented as of September 1st. Now, I would like to give the word to Gonzalo Fernandez-Cobaro for additional remarks.

Thanks, Pablo. Hi, everyone. Well, regarding how we see the rest of the year, as you know, government has tightened its monetary policy, increasing minimum liquidity requirements, and that has generated a significant increase in short-term interest rates together with high volatility. The market rate has increased from 30% levels to 60% levels in a very short period of time. These changes in interest rates are impacting the local financial system as our funding is very short term, so the price is very fast, but assets are taking more time to reprice as now we have more loans in our asset composition. We are seeing a margin compression in the third quarter that is expected to be temporal and could finish after elections once the political side is clear, but it's something that we cannot define when this will stabilize and change again. Of course, this is something we didn't expect a couple of months ago, and we are still evaluating the impact as the rate is very volatile and changed significantly from one day to the other. And also, we have been having new regulations and changes in minimum liquidity requirements in a short period of time. On the other hand, as we have been explaining in prior calls, the portfolio performance of the consumer Lending in Argentina has deteriorated. It's a market issue as people need to get used to manage credit in low inflation environment, coming from negative interest rates to very positive interest rates. Also, the effect of having lower disposable income as utility prices went up. We are expecting stabilization of the NPLs on the consumer lending by the end of third quarter. We started to see a lower or slower deterioration. and start stabilization end of third quarter, beginning of the fourth quarter. As we also have told in prior calls, we have implemented many changes in our load origination, in collections, in changing grade limits that are being successful, but takes some time to fully impact the portfolios. Consider these effects. We expect our ROE to be in the range of 9% to 11% for 2025. To give also more context, this guidance does not include any additional restructuring cost one time that we may have in the second half. As we have been anticipating in all the calls and presentations, we have implemented the voluntary redundancy program that we implemented to achieve the structure right-sizing after the HSBC acquisition. And it's been very successful, as you can see in our press release. We already made a significant headcount reduction from first quarter to second quarter. If this continues, it could imply additional one-time expenses in the second half of the year, as the provision that we booked last year may not be enough. We expect that the impact could go up to two points of ROE that are not included in the guidance that I just mentioned, if all eligible people sign up for the program. If this happens, of course, it's excellent news for us. Yes, we will achieve our right sizing by year end, much better than what we expected at the beginning of the year, with a one-time P&L impact that will not repeat in the future. So, as we said, for that's something that we don't know if it will happen, but the pace that the program is happening may infer that that could happen. As we said in prior also calls, we consider this year a transition year where we finish the HIVC integration, we right-size the structure, grow and stabilize portfolio performance so we can start 2026 with all our potential and deliver our sustainable ROEs. But that were the remarks I wanted to make. So open for questions if you want.

Yes. Thank you, Gonzalo. We are now ready to answer the questions that you may have.

Thank you. We are going to start the question and answer section for investors and analysts. If you wish to ask a question, please click on raise hand. If your question has already been answered, you can leave the queue by clicking on put hand down. Our first question comes from Brian Flores with Cici.

Hi, good morning, Gonzalo, Pablo. Thank you for the presentation. Gonzalo, a follow-up on the comments you made on the guidance. So 9 to 11, is this representing any adjustments on the previously guided ranges for long growth and deposits? I think that's maybe the first question. If I may, I'll ask the second one after that one. Thank you.

Yeah, I mean, long growth would be, we were talking about 50% before. We are now seeing it more closer to 40%. In part of lack of, with all this volatility, demand is accelerating, plus the measures we took to stabilize consumer lending, also to reduce the mortgage space because of lack of securitization in the market. So we see more large 30s, 40% growing in lending and deposits

around 35%, 30, 35%.

Perfect. Super clear. And then wanted to ask you a bit on capital, right? Because you saw an improvement quarter over quarter. Just wanted to understand, Gonzalo, where does this mostly come from? Because your pace of growth is still very relevant. And then maybe connecting to that question, it seems that for ROE to improve, going forward, you might need to relever your balance sheet. So is at some point the discussion on paying more dividends in the cards going forward?

Sorry, pay more dividends in the cards? I couldn't understand that last sentence.

I know that with the capital that you have, is more dividends at some point... Not to reduce capital, you mean? Yes, yes, exactly. Okay, okay.

I mean, they think... The increase on capital ratio is just the merger of the two banks. I mean, before, as you see, the ratio that we have last quarter was just Banco Galicia. We didn't adjust it. we didn't restate that in the press release because this is a regulatory metric. We didn't want to, you know, combine something that was not presented for regulatory purposes. So when combined the two banks, the new capital ratio is close to 24. I think we also mentioned that in prior course that our estimation for the capital ratio after integration was going to be 24. Galicia Mass, HABC has a stronger, even stronger capital ratio. So after the merger, that's a, that's a new capital region and the reason of the jump is that before in first quarter it was just Banco Galicia, the one that you have there in the press release. Talking about the future, I mean, about, yeah, I mean, pivoting policy is something that we always analyze and assess and we will do that after closer to year end for next year. We believe that there are still a lot of efficiencies that we can make that can benefit our ROE. I mean, even those margins may go down if Argentina stabilizes, but NPL should also stabilize at lower levels. And our expenses, I mean, we still, we are seeing that this year, if everything goes as expected, we may only take from the former HSBC a third of the cost. For next year, I mean, next year, our round rate next year will be using only 30% of what HABC used to have on a yearly basis. So that's another thing that is not counted this year because all the savings are being done on a monthly basis and most of them may be in the second half of the year. So we want to find the best balance between net income growth dividends also considering that we believe Argentina has a lot of potential for lending growth and we want to have the sufficient capital to be able to face that growth. But that is something that of course we will continue looking at and change it if we think that is the best way to proceed.

Thank you, Gonzalo. That was super helpful. If I may just Very quickly, on this HSBC integration, you mentioned two points of ROE would still be pending. So is this, if I understand it correctly, not considered within the guidance, but could be, let's say, an upside?

What I said is, again, it's up to, because we don't know, but if we have all the eligible people sign in to the program, that would generate one-time expense. that could be up to two points of ROE on a negative side because it will be an expense. But again, it's a one-timer, so it's something that I wouldn't consider recurring income. It will be in the reported P&L if it happens again, but it will not be recurring for future years, but we will have all the savings for future years. So if it happens, it's a negative one because it's an additional expense one time.

Super clear. Thank you.

Next question from Yuri Fernandes with JP Morgan.

Thank you, Gonçalo, Pablo, Etienne, everybody. I would like to explore a little bit more the asset quality discussion here because even there is very low leverage, right? Argentina is still a growth story, a penetration on credit GDP. It calls my attention like the pace of the worsening in the retail NPO. I know this is industry. It was clear on the explanation, like on the disposable income, on people getting used to the real rates. But still, I struggle a little bit. So if you can comment a little bit what you saw, like if there is any kind of income classes that are suffering the most. If you are shifting the strategy to maybe ask for more collateral, I know it's credit card and personal loan, so this can be tricky. But my point of concern here is that we have challenges on the funding side, as you mentioned. And on the asset quality side, if you slow down personal loans, everybody will try to move to the commercial side right so you can have like an additional pressure on margins because like commercial is the maybe the only healthy loan so if you can explain a little bit an outlook the products the clients what you can do to improve npls i think that would be important and also comment on coverage uh the coverage ratio are getting below 120 yeah i think it's overall a low number so if you can comment a little bit on How should we think about the NPL coverage ratio going forward? I think it can be important. Thank you, guys.

Okay.

I mean, yeah, talking about NPLs, I mean, the main impact, as you said, is credit cards and personal loans. We have growth, have grew personal loans faster than the market last between March 24 to March 25, faster than the market, and that's of course, is the product with higher NPLs, even though credit cards has deteriorated, but personal loans is worst. After March 25, last March, we started making changes to origination policy that we are still refining. But that generated the pace of deterioration because, of course, in order to grow and capture market share and capture Argentina opportunity, we We went to segments that are a bit riskier than the ones that we were going in the past. That's something that we changed. But the mix of the growth was a bit worse than prior years because, you know, there was lack of demand, et cetera. So this year, this 12 months between March 24 to March 25, we saw a higher composition of the mix of, let's say, lower segments or a bit riskier set. that's something that we already changed and we are focusing more in, we already make changes to scorecard and limits in credit cards, but in personal loans in scorecards and now focusing more in safer segments, which are still providing healthier volume. I mean, even though we are decelerating the volume, but we are finding that with better risks, we still can disburse loans without going to the riskier segments. So that's our strategy now. I mean, of course that we will go to all the segments, but with a different strategy where, you know, start with very, very low disbursements, wait, don't have customers, new customers that just joined the bank if they are higher risks to get a loan. So let's have them as clients for a while. So that does all the strategies that we are putting there. But again, I mean, we still see our retail banking growing with better segments without sacrificing much the volume, let's say. Of course, that commercial side and mainly SMEs is a focus that we are increasing. Of course, we're cautious because depending on how the economy evolves, that would also be another sector that may have problems depending on which sector you are. But it's something that that we started to focus. If Argentina stabilized after the elections and we start see growth, I mean, activity growth, as we have been seeing in the last month, we believe that in the commercial lending and also not corporates, but also coming to medium corporates, there is room for growth and for everyone. I mean, as you said, lending has a very low penetration in Argentina, so we believe that we can grow there without a lot of margin compression, because there are still a lot of demand not satisfied. These couple of months with the race volatility and pre-elections, it's kind of something that we need to put away, but after that, after elections, with markets leaving aside the political We believe that the company will start thinking doing business again and we can benefit, all the financial system can benefit from that and we may have a space to grow also in the commercial segment without sacrificing much margins. We believe that it's key for us to stabilize the consumer MPLs and that's something that we are focusing on. And we are seeing the first signs. Of course, we still have a stock because first was the personal lending. Then we started making personal lending, but then credit cards came after. So that's why we're seeing a bit of the delay of the stabilization. And in credit card was not just the, was not new customers, was the old customers that starts to have problems because of what we mentioned. So the approach was different, was okay, let's, reduce limits to existing customers where we see more risk. Let's increase focus in collections and refinancing programs, etc. And that's what we are doing also. So I would say that's how we see it. And in terms of, I mean, we are expecting to end I mean, of research coverage, the merger with HCBC also makes some, because we needed to do some recalibration between the two, you know, situations for the same customer. Sometimes we have shared customers that one bank was performing well and the other has a problem. So now we need to align that and that has an impact also and impacted also the coverage ratio. We see for ERN around, yeah, I would say a bit about 120, between 120 and 130%. That's what we see for ERN more or less.

No, super clear, Gonçalo. So just making sure I got everything. Worsening, you had like higher appetite, you're growing faster. Yes, personal loans, a little bit of new customers that maybe they were riskier. Credit cards, a little bit of everything. You are reducing your limits, improving collections and coverage 120, 130. Just on the credit, a debate we had in other markets was regarding principality, right? Like, oh, which is the, let's say, the favorite bank of the clients? And I guess in Argentina, people discuss a lot Mercado Pago, Mercado Livre, and, you know, like some fintechs. Do you have any perceptions that principality matters at some degree here or not really? It's really a matter of people having disposable income and maybe higher limits out of the blue and now people are not behaving the way you thought they would behave. Just trying to understand the principality. Principality could be a debate also happening here in Argentina.

I would say that principality, of course, is something that is important. I don't think that that impacts NPLs or not, or performance. I don't know if that was for me, they are not related. It's more on a profitability thing. If you, we all want to have the principality of the customer because they do business, more business with us, regardless the performance. I think that the customer that is not performing, it's not because it's not, has not the principality with you, it's just because they are having problems. In Argentina, again, it's It's something that we all look at, but customers got used to get many banks, you know, with all the promotions in the past after, you know, 2001 and discounts, where customers used to open a lot of credit cards because they have different discounts on Mondays with one bank, on Tuesday with the other. So they got used to get many banks, many accounts or many credit cards. and now Mercado Pago, it's also another competitor there. It's something that is not as easy to achieve for banks, but it's something that for us is very important. That's why we call it the everyday banking. We want to be the everyday bank for our customers. We invest in the app, for example, giving to them all the functionalities, for them to do. For example, now with dollars, we started paying interest in the dollar deposit accounts, so they bank in dollars with us, and we have the best market share in foreign FX buying and selling dollars for people, for consumers, now that the FX restrictions have gone away for people. It's important for us, but mainly considered from a profitability perspective, and we do a lot of things to get it. In Argentina, it's something that, from what I said, sometimes it's not that easy because customers are used to have many banks in the wallet.

No, perfect. That's super clear. Thank you very much, Gonzalo and Pablo. Thank you. Thank you.

Our next question comes from Pedro Leduc with Itaú BBA.

Thanks so much, guys, for the call and taking the question. Very quick follow-up on the NPLs. When you say stabilize, you mean like stabilize, rise less, or be flat, or maybe falling towards the end of 3Q or 4Q. That's just a quick follow-up. And then the real question is on financial margins. We saw it actually increasing a bit Q&Q. And a lot of it is coming from funding cost efficiency that we're seeing. But I also want to look ahead a bit on the NIMS. We're seeing the government issue high rate bonds. We're seeing you probably price up a little bit more. And these funding savings seem sustainable. So I want to maybe get a sense from you if we can expect financial margins now growing in the second half of the year after slightly upticking in 2Q. Thank you.

Yeah, no, thank you.

So talking NPLs, we see a slight increase and stabilize at the end of the third quarter, but still a slight increase in the third quarter with a stabilization by the end of the quarter. Talking about margins, margins, yeah, we have a healthy second quarter, better funding costs, also better government bonds performance, yielding in the in the, in the inflation link bonds that we have because of, of the spike in inflation. I think we have a, it was in March, but we got two months lag in the bond. So that that's affected second quarter for, for the market. I mean, I would say we will have a third quarter, which kind of, uh, something, uh, an outlier on the year. I think is what I tried to explain at the beginning. I mean, all these volatility interest rates and increase in funding costs will be negative for the system, I would say, in the third quarter. So we will have a deterioration in the third quarter of the margins, which due to this, you know, interest rate volatility and interest rate huge increase. I mean, as I said, tomorrow rate was 30%, and now it's 60% in a month. That increase in our short-term funding, which is, as you know, banks in Argentina, our funding is really short-term. Time deposits are 30 days maximum, in general, in average. And assets, now that we are having more lending, takes a bit more to reprice. So for the short-term third quarter, we will see a margin deterioration because of the funding cost increase for this volatility, this new monetary policy of the government, try to tighten and take pesos out of the market, you know, by increasing minimal equity requirements and all the things that you know that are happening. So that will be negative for the third quarter. Then we expect, of course, after elections, once political side gets out of the way, we believe that things should stabilize again and rates go back to what we used to have in the second quarter and we can go back to those margins, the ones that we had in the second quarter. When that will happen is very difficult because, I mean, we are in a middle of volatility, we, you know, political noise. We all expect that and with very, very high real interest rates. I mean, I would say record interest, real interest rates, meaning above inflation. So that's something that at some point should stabilize. We expect that this to be, after the elections, it's very difficult to predict when exactly, but according to the results of the elections, that should stabilize. But third quarter will be worse than, I just explained, then we should come back to second quarter levels, but At some point in the fourth quarter, I would say.

That's very clear. Thanks for being so transparent.

Next question from Alonso Aramburu with BTG.

Yes. Hi. Good morning and thank you for the call. Yeah, I was going to ask also about margins. Maybe if you can provide what is the level of impact you're seeing in 3Q. Is it 100 basis points, 200 basis points? I mean, how much of an impact do you think you're going to have because of this higher funding cost? And related to monetary policy, obviously, I think there's a bit of visibility, but banks have met with the central bank. Do you think the central bank is receptive maybe to some comments from the banks? Is there some leeway to potentially flexibilize some of these monetary policies to provide a little bit more liquidity to the banks in the short term? Thank you.

No, thank you. Talking about impacts is really not that easy to calculate because we are having the one day rate is changing every day with big swings from one day to the other. So we are trying to capture that, but yeah, it could be a couple of hundred basis points. But again, we also don't, doesn't know exactly how long, no? So this is August, but still need to see how it evolved. I mean we always have conversations with central bank and they are always very receptive of our comments and we explain the situation they understand it and I mean we don't know what they are going to do with future regulations this is what we have and we will of course comply with all regulations so they know the situation they understand it but they also have a superior goal which is you know, inflation and economy stabilization. So I can answer what they're going to do. What I can say is that we explained the situation that of course they understand.

Okay, great. And maybe a follow-up on asset quality and on cost of risk. I mean, what do you think would be your level of cost of risk? So 3Q should be similar to 2Q or do you expect some improvement or not yet until the fourth quarter?

No, I would say three Qs a bit higher than second Q, sorry. In total portfolio, I would say a bit higher than second Q and then stabilizing closer, I would say, last four, today's 4.4. So we could say, yeah, what he said. Cost of risk. Ah, cost of risk, sorry. Cost of risk, we are in the range of 8%. Yeah, we believe that of the second half, slightly higher than we are seeing now. Not dramatically higher, slightly higher.

Great. Thank you very much.

Next question from Marina Varadji with Ninefin.

Hi, thanks for taking my question. So I wanted to go back to MPLs. You provided some color on the consumer portfolio, but I was wondering about the corporate segment. Do you see any deterioration there? And also a second question, what do you think will be the level by year end? Thank you.

I mean, in the corporate segment, we are not seeing really deterioration. really big changes. I mean, very, I mean, we are coming, we are at 0.7% today and we see some, somewhere same amount, but again, very slightly up between 0.7 to 1%, but really at very low levels. SMEs also, I mean, with the lending growth, some slight increase, but nothing, nothing, I mean, normal, behavior due to the increase in lending, but not a systemic problem as we are seeing in the consumer group.

And the other question was?

Where do you see the level of MPLs by the end of the year?

The level of MPLs, yeah, closer to total book, closer to 5%.

Okay, thank you. Very clear.

Next question from George Birch with Argentine Advisors.

Hello there, thanks for the question. Very quick one, just again on the MPLs. I think you mentioned that there was a trend in terms of MPL formation from new customers. Can you just confirm that? And also in terms of when the bulk of these MPLs were originated, are these mostly loans that were originated last year when you had that above average loans growth or are we looking at maturities dating back to before then? Roughly, if you could describe the split, that would be very helpful.

Thank you.

I mean, we could hear very well, so I will answer what I heard and then otherwise you can repeat it. I would say that for the personal lending, the The worst bulk came between March 24 to March 25, which is where we grew faster. And then we started taking actions. On the credit card portfolio, which is not new customers, that was existing customers that started to have performance issues, we start seeing that more first quarter of this year and second quarter. But those are more, again, existing customers that start struggling because of less disposable income, et cetera. It's different, the answer, if we talk about personal loans and credit cards. I don't know if there was more question, but I couldn't hear that.

That's great.

Thank you.

Thank you.

Next question from Santiago Petri with Franklin Templeton.

Yes. Hi, guys. Thanks for the presentation. I just want to understand the way of reasoning here because it gives me the impression from your comments that you expect that the volatility in rates is going to diminish once the uncertainty of elections is over. However, I have the impression that the volatility in rates was well before of the political developments and the political events. So I just want to get a clarification if you are allowed to give so on these developments. Thank you.

All right. I mean, this, of course, we are doing futurology, so if that word exists, so it's an opinion. I mean, I would say that, yeah, I understand that this started a bit before, but in an election year, I mean, what we believe is that this kind of positive real interest rates, meaning above inflation, very, very high compared with the inflation we have, cannot stay here from, from much long, because if we start producing, you know, impacts in the, in the economy, so, uh, meaning companies or borrowers, et cetera. So, and, and, and, and we, so our expectation again, talking about our, our research department is more or less after elections. If the elections is what market expects, that could help, uh, stabilizing the, the market and also, you know, reduce it, go back to trust more in the peso, et cetera, because it means that the government will be able to make all the changes that they want. I mean, that's what we expect. But again, this is, I mean, this can change from one to the other and it's something, the base case we have built with our research department, but it's not nothing that we can assure.

Sorry, Gonzalo. Hi, Santiago. I would like to add that once both elections are over, the government, meaning the Ministry of Economy and the central bank, will be more perhaps receptive to change regulations because right now, They want to get to the elections with stability in terms of inflation effects, volatility. So there could be some changes after that.

Okay, thanks. I understand. Thanks.

Thank you. The question and answer section is over. We would like to hand the floor back to Mr. Pablo Firvida for the company's final remarks.

Okay, thank you. Thank you all for attending this call. If you have any further questions, please do not hesitate to contact us. Good morning. Bye-bye. Bye-bye.

Grupo Financiero Galicia Conference is now closed. We thank you for your participation and wish you a nice day.