Grupo Financiero Galicia S.A.

Good morning ladies and gentlemen and welcome to Grupo Financiero Galicia third 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 you that our attendees will only be listening to the conference during the presentation and then we will start the Q&A section when further instructions will be provided. Some of the date statements made during this conference call will be forward-looking statements within the meaning of the safe harbor provision of the U.S. federal securities law and are subject to risks and uncertainties that could cause actual results to differ maturely from those expressed. Investors should be aware of events related to the macroeconomic scenario, the finance, sale, industry, and other factors that could cause results to differ materially from those expressed in the respective forward-looking statements. Now, I'll turn the conference over to Mr. Pablo Fervida, Head of Job-Investor Relations, and Gonzalo Fernandez-Cobarro, CFO. Please, Mr. Fervida, you may begin your conference.

Thank you. Good morning and welcome to this conference call. According to the Monthly Indicator for Economic Activity , the Argentine economy recorded a 5% year-over-year increase during September. In year-to-date terms, the economic expansion reached 5.2%. During the third quarter of 2025, the primary surplus reached 0.5% of GDP and an overall surplus of 0.1% of GDP was recorded. This result was explained by revenues increasing by 32.8% year over year, whereas primary spending rose 30.6%. During the first 10 months of 2025, the primary balance stood at 1.4%, while the financial balance amounted to 0.5% of GDP. The National Consumer Price Index accumulated a 6% increase during the third quarter of 2025, and a 24.8% year-to-date increase as of October. After four consecutive months below the 2% mark, headline inflation was 2.1% in September and 2.3% in October, accumulating 31.3% in the last 12 months, the lowest level since July 2018. The third quarter was marked by high volatility in the months leading up to the midterm elections. The exchange rate came under pressure, at times nearing the upper limit of the floating band, which prompted the central bank to step in with foreign exchange sales. Nonetheless, the exchange rate averaged 1,400 pesos per dollar in September 2025, a 15.6% devaluation compared to June 2025. Meanwhile, peso-denominated interest rates saw sharp swings, reflecting increased uncertainty and liquidity shifts. In fact, the average rate on peso-denominated private sector time deposits for up to 59 days averaged 48.7% in September 2025, up 16.5 percentage points from June 2025 levels. Private sector deposits in pesos averaged 94.1 trillion pesos in September, increasing by 5.6% during the quarter and 53% in the last 12 months. Time deposits in pesos rose 13.1% during the quarter and 76.3% in the year. Peso denominated transactional deposits decreased 2.4% during the third quarter, but increased 31.5% in year-over-year terms. Private sector dollar denominated deposits amounted to $32.6 billion in September 2025, increasing 7.2% during the quarter and rising 38.9% in the last 12 months. Peso denominated loans to a private sector averaged 79.3 trillion pesos in September, showing a 9.7% quarterly increase and a 105.4% year-over-year. Private sector dollar denominated loans amounted to $18.3 billion, recording a 15.8% quarterly growth and a 153.4% annual increase. Turning now to Grupo Financiero Galicia, net loss for the quarter amounted to 87.7 billion pesos due to losses from Banco Galicia for 104 billion pesos, from Naranja X for 6 billion pesos, and from Galicia Seguros for 12 billion pesos, partially offset by the profits from Galicia Asset Management for 25 billion pesos. This loss represented a minus 0.8% annualized return on average assets and a minus 4.7% return on average a whole less equity, while accumulated annualized figures for the fiscal year reached 0.9% and 4.7% respectively. The quarter includes extraordinary restructuring expenses associated with the merger with HSBC for 105.3 billion pesos net of income tax. The quarter ROE without the extraordinary expenses would have been 1%, and the nine-month ROE 6.9%. The results from Banco Valencia included 101.1 billion pesos of extraordinary expenses, and in addition were 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, together with a decrease of financial margin associated to an environment of high interest rates and a regulatory increase of reserve requirements. It is also worth noting that most of the comparisons will be made against the second quarter of this fiscal year, as figures for the third quarter of 2024 do not include information about the acquired business of the former HSBC Argentina. Net operating income decreased 23%, as net interest income decreased 10%, net results from financial instruments were down 89%, and loan loss provisions increased 26%, which were partially offset by a 9% growth of net fee income and a 12% increase profits from gold and FX quotation differences. Average interest in assets reached 22.7 trillion pesos, 8% higher than in the previous quarter, primarily due to the increase of the average portfolio of loans, 5% in pesos and 27% in dollars. In the same period, its yield decreased 259 basic points, reaching 30.1%. Interest bearing liabilities increased 27% from June 2025, amounting to 19.9 trillion pesos, primarily due to the increase of time deposits in pesos and of saving accounts in foreign currency. During this period, its cost increased 88 basic points to 16.5%. Net interest income decreased 10% when compared to the second quarter because of a 35% increase in interest expenses due to a 36% higher interest rate on time deposits, partially offset by a 7% increase of interest income, mainly due to a 12% higher interest on loans and other financings to the private sector. Net fee income increased 9% from the previous quarter due to a 6% higher income from credit card fees and off 19% from fees on deposits. Net income from financial instruments decreased 89% due to an 88% lower result from government securities. Gains from FX quotation differences were 12% higher from the year-ago quarter including the result from foreign currency trading following the lifting of exchange restrictions. Other operating income increased 11% in the quarter, mainly due to the 45% increase in other income, primarily corresponding to credits recovered. Provision for loan losses increased 26% due to the growth of the financing portfolio and to an increase in delinquency that is limited to personal loans and credit card financing to individuals in pesos. Personal expenses were 83% higher than in the second quarter due to the voluntary retirement program recorded in connection with the restructuring plan following the acquisition of HSBC's business in Argentina. Administrative expenses were 11% lower than in the previous quarter due to a 32% decrease of expenses for maintenance and repairment of goods and IT, and to 14% decrease of higher administrative services. Other operating expenses increased 5% due to a 7% higher turnover tax. Results from the net monetary position decreased 9% from the second quarter following the declining evolution of inflation. The income tax charge was positive as the pre-tax net income was a loss. The bank's financing to the private sector reached 20.4 trillion pesos at the end of the quarter, up 14% in the last three months, with peso financing increasing by 5% and dollar-denominated financing growing 35%. Net exposure to the public sector was 3% down comparing with the previous quarter, primarily due to a 38% decrease in government securities in pesos measured at fair value through OCI offset by an increase in government securities in pesos at amortized cost. Deposits reached 22.9 trillion pesos 8% higher than a quarter before, mainly due to a 26% increase in dollar denominated deposits, mainly time deposits that were up 72%. The bank's estimated market share of loans to the private sector was 14.8%, 30 basis points higher than at the end of the previous quarter, and the market share of deposits from the private sector was 16.4%, 40 basic points higher than in the second quarter of 2025. The bank's liquid assets represented 94.5% of transactional deposits and 59.2% of total deposits, compared to 94.3% and 65.2% respectively from a quarter report. As regards asset quality, the ratio of non-performing loans to total financing ended the quarter at 5.8%, recording a 140 basic points deterioration as compared to the 4.4% of the second quarter. 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 105%, down 16.4 percentage points from the 117.9% recorded a quarter ago. As of September 2025, the bank's total regulatory capital ratio reached 22.1%, decreasing 160 basic points from the end of the second quarter, while the Tier 1 ratio was 21.8%, down 140 basic points during the same period. In summary, the third quarter was marked by high political effects and monetary volatility, and negatively affected margins and asset quality. And in addition, the results were affected by a very high one-time expense due to a restructuring of the merged banks. Despite this, Grupo Financiero Galicia was able to keep liquidity and solvency metrics at healthy levels, and we expect an improvement in profitability during the fourth quarter and next year. And now, Gonzalo Fernandez-Cobaro will make some additional remarks.

Hi, everyone. Well, continue with what we see for the future. I mean, regarding how we see the rest of the year, October continue with low margins due to the high interest rate that we saw in the third quarter. But we are already seeing a fast improvement in margins in November. We are already really seeing margins at same level than second quarter or the first half of the year in average in November, and we expect the same for December. Portfolio performance still needs some time to get back on track, so we still see a deterioration in the fourth quarter at a lower trend than before, but still some. So overall, bank will be better, will improve returns mainly due to the margins improvement. But Naranja X will have some headwinds in terms of portfolio performance. So with this mix, we are seeing the ROE for the full year 2025 around 4%, the reported one. And if we exclude the non-recovering integration costs that we mainly booked in the third quarter, we should be around 6%. Talking about 2026, we are expecting an ROE in the low teens range, I would say between 11% and 12%. Of course, a lot of moving targets for next year. We will be updating this guidance in future quarters, but this is our base case scenario to be around 11% to 12%. Margins, we see improving them in the first quarter. the first month of the year together what we are seeing in november december then some kind of slight reduction as a consequence of the rate reduction but not not really high the the reduction so we still see healthy margins next year i would say the levels of the second quarter the mpls we expect a peak on mpls in march of next year but then improving as the good portfolio that we are originating is gaining weight in our mix, and that we will end the year with NPS better than the run weight that we are having now. And regarding costs, we are also seeing a reduction in over-earning costs because of all the restructuring we have done, and you saw the restructuring costs we booked in the third quarter, and that generated a 1,000-hertz reduction in the group quarter over quarter, and that's if we add up all the year, we have a headcount reduction of 2,000 heads for the year. So that is, of course, generating reductions, cost reduction for next year. We are seeing already fourth quarter of next year. Our projections shows a fourth quarter of next year ROE run rate already at 15% level. So that would ask with a solid base to start 27 and deliver ROEs above 15, as is the target ROE that we are aiming for the longer future. So with that, I mean, we are also open for any questions you may have.

Thank you. We are now going to start the Q&A section for investors and analysts. If you wish to ask a question, please press the raise hand button. If your question has not been answered, you can leave the queue by clicking on the same button. Wait while we pull four questions. Our first question comes from Daniel Vaz from Safra. Please, Mr. Vaz, your microphone is open.

Hi. Hi, Gonzalo. Hi, Pablo. First time being here. Thank you for the opportunity. I'm looking at your capital ratio of 21 at the group level, and it was down 120 bps from the second quarter. I'm just wondering if you said that your cohorts, new cohorts of origination aren't getting better, so you expect to pick an NPL in March. But still, your... your ROE is super low compared to your targets, right? So how do you expect that capital would be ranging in this scenario? What's your bottom of capital that you would like to work as a risk-taking level for the group or for the controller? Which is this bottom that you would like to to limit your capital and if you need at some point to reduce your origination and how you're dealing with the new originations compared to your beginning of the year because the beginning of the year, the longer duration I think it hurts your margins, mainly your cost of risk. But when we compare to other players, other fintechs, their duration is faster to adjust. So both these two questions here blend into each other. So first, capital and how is your origination compared to your duration in the beginning of the year going right now? Thank you.

Regarding capital, our capital also was impacted by the, you know, the reserve in OCI, the other comprehensive income with the bonds that are evaluated at hold, to collect and sale, that you have a reserve in equity that moves between the accrued income in the bonds and the market, market to market. That, as you know, in the third quarter, there was a big reduction in bond prices. So we had 160 billion pesos negative reserve in equity due to those bonds that affects, of course, the equity ratio. On October, our tier one ratio in October is already at 24.5% talking about the bank. And that's, of course, because now this OCI reserve is slightly positive. So that's an improvement of 160 billion pesos already. in one month because of, as you know, after the elections, the rally that all the bonds have. So really with these levels of capital, we are comfortable. I would say that our minimum appetite to operate is 13.5%, 13, 13.5%. But we don't expect to get close to that in the near future. We believe that with the projection we have, we have enough capital until the, at least until the end of 2027. So, and without any limitation for growth. So, I would say that's, of course, that's something that we monitor and we will be updating regularly, but with this, now that the reserves of bonds are stabilized, we don't see really the need for capital or any restriction in the growth of our loan book, at least the whole next year and 2027. Regarding the second question, I think I didn't get it very well.

Origination of loans and maturity of the loans.

I mean, we continue to originate both commercial and consumer lending. We have put some slowdown in the consumer lending due to the portfolio quality, as you have seen. First mortgages, we reduced significantly the origination of mortgages. In that case, not because of quality, but because there is no any securitization market. And as you know, we cannot be putting 30-year lending without any securitization market where we can offload those loans. But we continue in the consumer sector, we continue lending personal loans that may have a duration of two years, two years and a half. And now we are also increasing car loans or auto loans, that same duration. Talking about commercial financing, we are still originating very short duration, but Slightly we start to increase duration because the demand was not there. Now, after elections, with Argentina stabilizing and with a lot of growth potential in the country, we are expecting to see more projects for our clients to finance longer term, but that's not yet happening. We are expecting that next year the duration in the commercial lending should be getting longer than what we have today.

Okay, thank you. Thank you for the answers. No problem, thank you.

Our next question comes from Ernesto Gabilondo from Bank of America. Please, Mr. Gabilondo, your microphone's open.

Thank you. Hi, good morning, Gonzalo, Pablo, and Etienne. Thanks for the opportunity to ask questions. My first one is on your long-run expectations. What should we think for next year? If you can give us some color on the expectations per segment. And also, I believe there have been some announcements on private investments in Argentina. Have you quantified an amount or can you give us like some direction or color or in which regions and sectors are you perceiving these new private investments? And how would you be willing to participate through corporate loans, as you mentioned, SME loans? That will be very helpful. Then my second question is on asset quality. I believe, I'm just double-checking, you mentioned NPL ratio could be peaking by March next year. And if that is correct, you can provide any potential range. And if you are seeing the same trend on the cost-to-risk, if you're expecting cost-to-risk also to peak by March next year, and how should we think overall for the cost-to-risk next year? Thank you.

Thank you for the question. I mean, talking about, yeah, the quarter of next year, we see, I mean, growing, you know, lending in 25%, more or less, in real terms. I mean, we want to continue on gaining market share. So, of course, this number will be adjusting according to how the market grows. We see market growing around 20%, 22% in real terms, of course. In terms of sectors, yeah, we... We are growing, I mean, I think that the commercial lending will be, you know, capturing a lot of attention. I mean, as you said, there are a lot of projects and investments in the country that we have a lot of customers already starting to talk about it. We also want to continue growing the consumer lending with, of course, the new origination tools and the models adjusted in order to book, you know, better and better trades. but we will start a bit slower in the first month, continue a bit slower as we are having this month, and then restart the full growth as we see that the quality is improving. Talking about commercial lending, yeah, we are seeing a lot of investment mainly in the oil and gas sector. As you know, Vaca Muerta continues with a lot of attention in the mining sector, copper, lithium, lot of focus there also. We are also very present in the agribusiness and this year the agribusiness is going to have a very good harvest and we are anticipating good investments for next year also in this sector that we will be also joining there. And we are also starting to see, you know, M&A starting to move, local M&A, you know, companies, some privatizations that may come close that we don't have yet the names, but we starting to hear rumors that some may not be huge privatization, but yet smaller companies that can come close. you know, to the market and of course the idea for us is to be close to our customers there. Some of those projects are going to be too big for the local financial market to finance because when we talk about oil and gas, the amounts are huge, but we will always be there to participate with smaller tickets or to be there in transactions that local balance sheets can afford. So again, we were very close to our commercial customers and really we see a sentiment on on appetite for Argentina, on appetite for investing. And that's where we are seeing that our next year we are going to be growing faster on the market. And that will help also, you know, to improve the returns year over year. To get our NPLs, yes, we are expecting a peak on NPLs around March next year. we are seeing that the peak will be around 7%, 6, 7%. And the cost of risk, yes, again, same thing. We are seeing also peaking next year in March for the bank I'm talking, and we'll see more or less cost of risk between 9% and 10% the peak. Then going down those both ratios, to end the year at lower numbers, that is what we respect. I mean, we are already seeing the new harvest of consumer lending at much better behavior than the old ones. We still need the time to digest the older portfolio and see the results that will come after, I would say, second, third, or fourth quarter of next year.

No, thank you very much. Super helpful, Gonzalo. Just another question in terms of this potential growth that you can see for the loan book next year. Another competitor just mentioned the possibility to tap the markets next year. Is this something that you are also exploring?

Bonus or equity?

In bonds.

I mean, financing or equity?

Yes, financing.

I mean, yes, of course, it's something that we have always in our alternatives. We need to see how the windows are starting to open. Really, we are not seeing now the need, but of course, that's something that we are always evaluating, and we need to see, of course, the you know, the equation, the profitability equation of the cost that the market could offer at some point. But, yes, maybe considering larger tickets or this project that they may come, yes, definitely it's an alternative that we consider very seriously.

Perfect. Thank you very much.

Thank you, Ernesto. Our next question comes from Brian Flores from City. Please, Mr. Flores, your microphone is open.

Hi, Pablo. Hi, Gonzalo. Thank you very much for the opportunity. I just wanted the first question to be a clarification on the ROE trend because you mentioned the peaks of MPLs and asset quality, as you mentioned, cost of risk by March, right, of 2026. So you mentioned 11 to 12% in terms of real array for 2026 with reaching the 15% in the fourth quarter. So would that mean we should see a mid to high single digit in the first half? Just thinking about the speed of the recovery, right? Apparently, it seems to be a very gradual recovery. Just wanted to check on that trend, Gonzalo. And then my second question is perhaps a follow-up on Ernesto because I think we're all thinking about external funding, right? But you have perhaps one of the best franchises in Argentina, right? meaning that deposits are very, very relevant. So I just wanted to understand if the visible funding cost advantage that you have demonstrated in previous quarters should continue, or do you think, I would say, the funding cost should, I would say, increase or deepen in 2026?

Thank you. No, thank you. So first question about ROE trend. I mean, yeah, I mean, we see first quarter, it's lower. I mean, I would say that the numbers you mentioned, could be right. I mean, we see a recovery first quarter will still be, I mean, margins we are going to be already in the first quarter at good levels, but we will still have some kind of heavy burden of NPS still, you know, the last months of that, and they're starting to recap in the third quarter. So I would say that, yes, lower ROE in the first quarter, and then recapping the trend until the 15th in the fourth quarter and continue with that in 2027. But, yeah, your assumption is right in terms of ROE evolution. Remember that the group has also Naranja and the bank, and Naranja also needs to, you know, improve that portfolio performance. That's why also we need a couple of months. from next year in order to be able just to to go up two digits in a row um talking about the the funding was the other one no yeah funding i would say that yeah that's why my question was i mean my answer before to ernesto was yes we we are analyzing potential uh debt in the market, but we always look first at our deposit base. We see some possibilities for next year. In deposit, we see that the market liquidity is coming back. With interest rates reduction, the market will be also more liquid. We see that there may be some changes in regulations for mutual funds that you know, put some limitations for the banks to go to the market to place funds in the market so that liquidity should come back to banks. As you know, the money markets are a huge, you know, holders of funds from deposits from customers in Argentina. And they put part of their deposits in banks, but also they go to the market and place those those funds in the market in causiones. And according to next year, they should be able to put more money of those in the bank. And that should also provide more liquidity to banks to lend. That would be another source of liquidity for banks. So we are aiming to increase our deposits, to gain market share in deposits. All our business line has that mandate. because we consider it the more stable funding and the cheaper one, or the more cost-efficient one. But, of course, depending on the speed of the credit growth, we may need to go to the market. If we need to do it, we'll do it. But our first priority is deposit, and we really believe that deposit next year should start to grow better than this year. I wouldn't say it's the same pace than than lending, but better than we share.

Perfect, Gonzalo. Thank you very much. I think the last guidance you mentioned in the second quarter on deposits growth was around 35% in real terms. So, you wanted to check if you are revising this number. And also, I understand, as you mentioned, the deposit growth for 2026 is going to be lower than the portfolio, right?

Yeah, for this year, I mean, we are keeping those guidance for growth. For next year, we are seeing more like 20% in real terms, deposits, 25 lending. But again, that's something, I mean, a lot of moving targets for next year. So we will be updating those guidance because we need to see how the country is changing. You know, one month ago, we had a lot of volatility. Now, stabilizing interest rate reductions. So we need to see how everything comes together, but that's our, so far it's our assumption around 20% for next year.

Thank you, Gonzalo and Pablo.

Thank you. Thank you. Our next question comes from Chito Labarta from Goldman Sachs. Please, Mr. Labarta, your microphone's open.

Hi, good morning, Gonzalo and Pablo. Thank you for the call and taking my question. A couple questions also. I guess just on the Naranja, you mentioned Gonzalo, right, that needs to recover as well. Do you think NPLs peak there also in 1Q, or how do you see the evolution of asset quality in Naranja and then also your ability to resume growth? And then the second question, just on margins, do you think – you know, we saw some pressure this quarter. I mean, just given all the liquidity issues in the quarter, do you think this is the bottom? Should that already begin to recover in 4Q, or will that take a little bit longer until you start to get the loan growth and asset quality down? under control, just to think about the evolution of margin in the short term and, I guess, thinking about 2026 as well.

Thank you. Yeah. I would say that we are seeing the same, more or less, same amount, same timing for the peaking. I mean, March, April, next year, same, and they also doing a lot of things. Their turnaround, I would say that they're They have a shorter duration in lending, so they pure their portfolio faster than the bank. So, yeah, I would say March should be also the peak for them, and we're expecting also an improving for Naranja for the rest of the year. Of course, as they go to a lower segment, you know, they have bigger swings on the bad, but then on the good at the same time. Talking about names, margins, yes. Margin, yes, we saw the bottom was October. I mean, I would say fourth quarter still has October, which is one month with a low margin. So in the quarter, you still, in the next quarter, you still see one-third of the month, I would say, with a bad margin. I would say October was a bad margin because it was the worst month, you know, before the elections, the election month. But then November, really, we are seeing a quick, a fast turnaround and a fast improving in the margin. And December, I would say it would be 100% at the second quarter levels. So, yeah, to your question, the bottom was, I would say, October, third quarter and October. But November, December already recapping. December already at the same level. or three volatility levels, I would say. So for next year, margins will be at good levels. Of course, then after the second half, slightly reduction, because with the continued rate reduction, today what we are seeing is our cost of funding reducing significantly now, and our lending, you know, start to reduce the interest rates at a slower pace, because we have already booked longer-term lending at higher rates. So, we will enjoy those higher margins first half of next year, and then we may see some slight reduction, but nothing significant in next year yet. So, in summary, yeah, the bottom was third quarter in October.

Okay, let's talk about Gonzalo. And just on the reserve requirements, I mean, they've been reducing a little bit. Do you think it's enough now that liquidity is less of an issue? Do you think that they need to reduce the reserve requirements further from here? Or how do you think about that and the impact on your liquidity?

I would say so far it's – I mean, so far, I mean, this month, it's okay. The central bank, as you know, made some changes in liquidity requirements, like last week, and they were better, mainly in the daily calculation, but also they reduced 3.5% the cash in cashments that are zero interest, so that we also give some – improve a bit the margins for banks going forward, starting December. This is starting December the 1st. But they reduced, so that's not significant for injecting liquidity to the market. But I would say that at some point next year, that may be revisited again by central bank because at some point next year, you know, it could be needed. So it's something that I wouldn't say that is needed now or the next three months, the next quarter. But at some point, depending on how the market behaves, there is an opportunity for a revision on that side.

Okay, that's great. Thank you, Gonzalo.

Our next question comes from Camila Azevedo from UBS. Please, Mrs. Azevedo, your microphone is open.

Hi, everyone. Thank you for taking my question. My question is a follow-up on Ernesto's question on asset quality. I would like to get a better view of the asset quality dynamics during this quarter, mainly between segments. And you said we should end the year with better NPLs than current levels. Could you please share more details on that? So it could be in general terms, what should we expect? And with this, with which coverage ratios would be comfortable going forward? Thank you.

Sorry, Camila, there was a noise in the middle of the conversation. We couldn't get the first part. Yes, the part of the coverage, not the other part.

Sorry, sure, so I'll repeat the entire question. Like, I would like to get a better view on the asset quality dynamics during this quarter, and which levels should we expect for the end of the year? You said that we should expect better NPLs, so in general terms, at which levels? And did you get the coverage ratio part? Yes. Okay, perfect. So that's it. Thank you.

I mean, when we talk about MPL better than the end of next year, not this year, right? I mean, this year we still, we said that the peak will be March next year. So what we are seeing, and this is for the end of 2026 MPLs, I would say in a range of 4.3%, give or take, more or less, 4, 4.3, 4.5. I mean, that could be the range of MPLs by the end of 2026. And the coverage? I didn't get that.

And the coverage, the last number is 101.5. Really, it comes from the model of expected losses. Talking with the credit department, they say that the coverage is beginning to grow, and it's likely that at the end of next year, we'll end up at 110%.

But really it's... When you create, you know, we grow your book, you create a lot of upfront reserves, and that increase your coverage. Then you start using those, and that's where we are now. And that when it comes, now we want to stabilize the portfolio, and that should start growing again. But now we are in the process of using the upfront reserves that were booked when the portfolio grew a lot. And now... We have also decelerated the growth, so you don't have a lot of upfront books because of new loans, and you are using what you booked before. It's kind of a mathematical thing, but we are comfortable with the level we have.

Okay. Thank you.

Thank you. Our next question comes from Pedro Oferhenden from Latching Securities. Please, Mr. Oferhenden, your microphone is open.

Hi, Gonzalo. Hi, Pablo. Thank you for the call. I wanted to ask if there are any remaining integration costs from the HSBC acquisition that could impact results in the coming quarters.

No, I mean, I would say the restructuring, nothing big. I mean, we may have some small thing in the fourth quarter, but regarding systems that we are shutting down, but not a restructuring cost, which is the big portion. We booked everything in the third quarter, not just the people that left in the quarter, but also what we plan, the ones that are leaving till the end of the year. So everything is booked there. something very small not related to restructuring may happen in the fourth quarter related to system but really small nothing important okay thank you you're welcome our next question comes from carlos lopez from hsbc plus mr lopez your mac phone's open

Hello, and thank you for taking the questions. First of all, congratulations on how brave you are, because you are giving predictions for the ROE for the middle of the year and for the end of the year, and I hope that those forecasts are actually achieved. More concretely, I realize that we have gone through three conference calls, and I don't think anybody has told us what their economic assumptions are. What do you expect for... inflation, interest rates, and the currency for the end of next year. Maybe you have said it and I missed it. Sorry for that. And second, in terms of liquidity, your LDR in pesos is around the 100% level and more partialities because of Naranja. Is there an absolute level beyond which you would rather not go? And therefore, you might be able to, you might be willing to restrict your loan growth until deposits catch up. Thank you.

Hello, Carlos, how are you? In terms of macroeconomic assumptions, we have, I will tell you the last estimates from our chief economist for this year and next year. GDP growth, 4% for this year, 3.7% for next year. Inflation ending this year, 30%. Next year, inflation, 18%. And FX, 14.10 at the end of this year and 16.10 next year, end of next year.

Thank you.

Thank you, Sergio. Yes. And LDR in pesos, loan-to-deposit ratio.

Yeah, I mean, we... As you know, we're talking of a third LDR. Then we have our LDR, which is the liquidity coverage ratio. We have more than 180%, so very, very liquid there. In loan-to-deposit ratio, we are at 99%, 100%, but we are, you know, assuming that our deposits, peso deposits, will continue to grow. And what happened also in the third quarter and in October is a lot of hydrolyzation happened in the economy, you know, because of what was happening in the election, what was expected in the election. So we saw depositing pesos to turn into dollars. Now we are starting to see some kind of you know, reverse thing that, you know, some of the actors selling their dollars and going back to pesos because they need to operate and they are not expecting a devaluation in the near term at least. So we believe that we have other means to grow deposits or to go to the market. So really we don't see that as a – even though we monitor that and we want to – that's why we are putting a lot of focus in deposit growth. But we expect that that could – the deposit growth could come with us, and that will help us to continue growing the peso lending. We don't see a constraint in the growth because of that so far.

You don't see that as a constraint?

No.

Okay. And in terms of the dollarization, you are completely right. There has been a recession both of loans and deposits. You and the other banks are mentioning demand for dollar loans. Should we expect, therefore, further dollarizations of the banks on the asset side? And have you started to see or not yet a reduction in demand for dollars? Have you seen actual dollar sales back to pesos?

I mean, lending in dollars, yes. I mean, we see in the commercial lending high demand or higher, I would say, demand in dollar lending. So that is continuing. Mainly what we are seeing, these projects that we are talking about, we expect that to continue. So, yes, we have grown a lot our deposits in dollars, starting, you know, the tax amnesty that Millet put. And after that, our share in dollar deposits is higher than our fair share. So, we are taking advantage of that. And, of course, with the limits, internal limits that we have to lend dollars, etc., and we can also go to the market and get dollar debt, which the market is there also. So, yeah, we expect to continue growing dollar lending, of course, at a moderate rate, considering the liquidity, you know, limits that we have internally to our dollar deposits. Dollarization, of course, the demand for dollars, I mean, also from our customer base, talking about purchase of dollars has, after the election, has gone down. But, I mean, it was at very, very high levels before the election. It's just gone down to normal levels. In Argentina, you always have people, you know, have people buying dollars. But that, you know, it's something that can come back again if there is any noise or any political uncertainty. But so far, we state this to be to be quiet in the next months and not really. It's now at, I would say, first month of the year levels and we expect this to continue at this stage.

Can you give us an idea about the levels of your dollar purchases that you are seeing from your customers? I mean, other banks have told us they went from, you know, a million, you know, five or six million to 30 million or so per week. Where are you and where are you relative to, let's say, the second quarter or the first quarter?

Yeah, I mean, we used to have like 50 million per day. We are now at, I would say, 15, something like that. So lower levels. Lower levels, I mean, it's daily levels, but same levels at the beginning of the year, I would say.

So that would be the level at the beginning of the year as well?

Yeah, more or less, yeah.

Thank you. You're welcome.

Our next question comes from Yuri Fernandes from JP Morgan. Please, Mr. Fernandes, you have my phone's open.

Thank you. Hi, Gonzalo. Pablo Etienne. A quick follow-up. Most of my questions have been already asked. But just on asset quality, and there were many, many questions about the peak and how you are seeing. But what makes you confident that first quarter will be the peak? Because we heard before, right? I think second quarter was supposed to be the peak. Then third quarter, now we are talking about the first quarter of 2026. And I know it's hard, but what is the leading indicators you are looking for? Like why you think it should improve? Is asset like lower yields on loans moving lower? Is the economy improving? Is, I don't know, any kind of underwriting lessons that you're learning in this last year? Just trying to understand what drives the confidence for improved asset quality. And just a second one on this topic. How your expected loss model should work on this? Should we start to see lower provisions now because you are calling for improvement ahead, like, or no, you still need to do some kind of incurred losses provisions? Help us to understand the difference between incurred losses and expected losses here for you. Thank you.

I mean, I would say that, of course, when you make an expectation for the future on MPLs, two things at that place. One thing is what you can control and the other thing that you cannot control, which is the market and how the economy is doing for families and for people. Of course, what we always talk is about what we are doing and what we expect that will create a change. Then in the middle, you may have elections, you may have it going up that you couldn't expect before. Many things living in a country, you know, in a developing country that, I mean, one month ago was in the border of hyperinflation if the election were with a different scenario. And now we are all again drafting that. But with a lot of volatility in the middle, you have a lot of interest rate going out and families being affected. That's why It's not that easy to predict what's going to happen. It's our best estimate with considering what we can control. As you know, people do estimates. So what we are doing is, of course, we change the score of the customer we are lending to. Our score now is a better score. It's a higher score. We cut a lot of the lower scores that we used to have. We reduce limits in some of the lending. And we, of course, monitor the roles. And we see the roles by vintage, by harvest. And we are seeing that the origination is behaving before than the old one. Then, of course, you have in the middle credit cards, which is not new origination. Credit cards, I'm talking about personal loans, the first thing. Now we're going to go to credit card. It's all customer that starts to behave, you know, bad. That you didn't do anything, but they just started to behave different because of adjustments they had in the family economy, et cetera. So in that sense, we are also seeing some slight improving in personal loans. I mean, what we are talking about, we see personal loans improving, credit cards still having a heavy lifting, and that's why we still see this going on on the third quarter, on March. If it's February or April or May, I mean, this is again, I think what Carol was saying, well, you're predicting ROE, you're a magician. We are doing what we have today, I mean, with what we have. Of course, we cannot guarantee that the ROE will be 11. It's an estimation with the forecast we have of all banks in the world. this is the same this is where with the tools that we have we made a lot of changes that we expect that they are going to produce changes again going to better scores cutting limits and and monitoring that the roles of the of the new lending is coming better than the old ones then we if there is something in march or february that happens that affects families' incomes again, well, we cannot predict that. But with the assumptions and the economy as is today, we expect this to happen.

No, no, super clear. I know it's hard. No, thank you. Good examples. I was just trying to understand what has changed.

We're talking also about the dynamics. Sorry, I didn't answer that part. The dynamic of the models, I mean, The point is that when the new lending, you are booking new losses or new reserves for the new lending, considering the behavior of the past lending. So, you still won't see a lot of reduction in the, I would say, the cost of risk in the same, in the first month, because even though you are originating, we are originating, better quality, you still need to book reserves considering the past performance of your portfolio. You cannot say, well, these guys are better, so I will book a better performance because you didn't see that in your book. So that's why at the beginning you will take some time seeing how a production in the cost of risk because the new lending is also booked considering the behavior of the past lending. Then when you start proving that those lendings or those customers are behaving better than the old ones, then you start reducing your cost of risk. But that's something that is gradual. It's not that quick. That's why we see third quarter of next year still with higher provision.

No, super clear, Gonzalo. Thank you for the examples and good luck. Thank you very much. Thank you.

Our next question comes from Sunshavu Petri from Franklin Templeton. Please, Mr. Franklin, your microphone is open.

Hi, good afternoon. Thanks for the call. I understand you mentioned you're expecting return on equity by the mid-teens by 2027. I would like to know what loans to GDP assumption you are assuming for this achievement and if this return on equity is the sustainable steady state that you are aiming at or you are aiming at the higher return on equity And what will be the steady state loan-to-GDP penetration in Argentina under this assumption?

What we are seeing is, I mean, loan-to-GDP today is around 10%, 11% more or less. I mean, we are expecting in our projections, if everything goes right, that this can improve 2% per year. Our aim is to be a sustainable ROE between 15% and 20%, I would say. That's the aim. We expect, I mean, with everything going right, we have assumptions to be around 15% by the end of next year. So, starting at 15%, I consider that by 2027, we could be in that range. Still, we don't know what Argentina will find by that time. But if everything continues to improve, you know, long-term GDP continues to grow at least 2% per year, we believe that that could be the range in 2027 and onwards. Maybe 2027 still at mid-teens and 2028 already at higher teams. But our aim for the longer term with a country that is... already stabilized with our changes in our operating model. We are also working in changing our operating model of how to serve our customers to reduce costs and compete with the FinTech, with Mercado Pago, that we know that they have a much lower cost to serve. So with that already everything implemented, our aiming is to be between 15 and 20, I would say. And that should be after 2027.

Thanks a lot. Thanks for the call and the reasoning. Thank you very much.

Okay. I think that was the question, right?

Yeah. Right, Pablo.

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

Bye-bye. Grupo Financiero Galicia conference is now closed. We thank you for your participation and wish you a very good day.