Banco BBVA Argentina S.A. ADS

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to BBVA Argentina's fourth quarter 2020 results conference call. We would like to inform you that this event is being recorded and all participants will be in a listen-only mode during the company's presentation. After company remarks are completed, there will be a question and answer session. At that time, further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. First of all, let me stress that some of the statements made during this conference call may be forward-looking statements within the meaning of the safe harbor provisions found in Section 27A of the Securities Act of 1933 under U.S. federal securities law. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Additional information concerning these factors is contained in the BBVA Argentina's annual report on Form 20F for the fiscal year 2019, filed with the U.S. Securities and Exchange Commission. Today with us we have Mr. Ernesto Gallardo, CFO, Mrs. Ines Lanuce, IRO, and Mr. Javier Kelly, Investor Relations Manager. Mr. Kelly, you may begin your conference.

Hello, everyone, and welcome to the BBVA Argentina Earnings Conference call for a discussion of the quarter and fiscal year ended December 31, 2020. Before we begin our formal remarks, allow me to remind you that certain statements made during the course of the discussion may constitute forward-looking statements which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to materially differ, including factors that may be beyond the company's control. For a description of this risk, please refer to our filing with the SEC and our earnings release, which are available at our investor relations website, ir.pbba.com.ar. Speaking during today's call will be Inés Lanusse. Also joining us today is Ernesto Gallardo, our Chief Financial Officer, who will be available for the Q&A session. Please note that starting January 1, 2020, as per central bank regulations, we have begun reporting results applying hyperinflation accounting in accordance with IFRS Rule IAS 29. For ease of comparability, figures for all quarters of 2019 have been restated applying IAS 29 to reflect the accumulated effect of the inflation adjustment for each period through December 31, 2020. Now, let me turn the call over to Inés.

Thank you, Javier, and thank all of you for joining us on our fourth quarter 2020 and full year earnings conference call. We hope you and your beloved ones are healthy and safe on these challenging times. BBVA Argentina has been able to maintain a solid position within a high uncertainty context throughout 2020. While some signs of recovery have appeared on the economic side, much still remains to be defined facing 2021, such as the development of the global sanitary crisis, the resolution of internal conflicts related to fiscal deficit financing, the agreement with the IMF, and last but not least, the result of 2021 midterm elections. Meanwhile, the bank closely monitors its business, financial conditions, and operating results in the aim of anticipating possible effects of the gradual removal of regulations implemented by the government during the pandemic. and especially over asset quality and profitability ratios. It is important to emphasize that the global sanitary crisis in 2020 confirmed that of which PVVA Argentina was convinced some years ago, the significance of technology in the delivery of financial services. In virtue of our vision of the future, we were able to rapidly adapt to the new normality and continue to offer our services to all our clients during the pandemic. These unexpected circumstances ratify that the path we have taken in terms of digital transformation, internal process adaptation, and personal training is most adequate. Regarding digital transformation, total digital clients reached 1.9 million with a penetration of 72% from 66% a year ago. Total mobile clients reached 1.6 million with a penetration of 60% from 54% in the prior year. Moreover, digital branches have been launched as of October 2020, combining several features between human capital and structure facilities to promote client-served service, aiming to digitalize and migrate clients to remote channels. During December 2020, we launched Modo. Modo is the first payment solution app to be launched in a strategic alliance with other Argentine banks. Modo enables wire transfers and cashless payments through mobile phones and includes all member banks' promotions available at purchase. Modo has already reached 1 million users and keeps growing. In terms of responsible banking, during 2020, BBVA's purpose to bring the Agile opportunity to everyone became even more relevant. In line with our commitment to sustainable development, And assuming a role as a leading financial institution in this area, we launched a new line of eco-personal loans and a line of green loans for corporations. In addition, we were the first bank to deliver sustainable cards made with recyclable materials. BBVA Argentina keeps working towards its sustainability model, supporting responsible business actions regarding inclusion, financial education and environmental protection as part of its compromise with the country. I will now comment on the bank's fourth quarter 2020 and full year financial results. All figures mentioned hereafter are measured in current currency at the end of the reporting period, including the corresponding financial figures for previous periods provided for comparative purposes, unless otherwise noted. It is also important to mention that on February 9, 2021, through communication A7222, the Central Bank informed that it is admitted to retroactive application of modification and exposure of monetary results exposed in communication A7211 for the December 31, 2020 financial statements. They later explained that the monetary result accrued from monetary concept at fair value through other comprehensive income, OCI, should be recorded in the corresponding accounts in the income statement of the period. Thus, retained earnings from previous periods should be adjusted to include monetary results that were accumulated in OCI as the date of application. It is important to mention that this measure was optional for implement as of December 2020, but through communication A-7211, this would be compulsory for all banks as of January 2021. These changes had been applied to the accumulated financial statement as of December 20, pursuant to the regulation, reason for which quarters have not been restated for the income statement in these earnings release, but will be restated during 2021. BBVA's Argentina full-year 2020 net income, including inflation adjustment effects, totaled 12 billion pesos, 38.9% lower than the 19.7 billion pesos posted a year ago. The year-over-year decrease is mainly explained by the impact of the pandemic, by the sharp contraction of the interest rate as a consequence of the monetary policy implemented by the central bank, and by the strong restrictions imposed to the FX market. Another factor that was also impacted in the results of 2020 is a partial collection and exchange of the LILIC, which has been restructured in August 28, 2019. On the expenses side, we were able to generate savings in operating expenses as a consequence of a better efficiency management. It's important to mention that in the fourth quarter 2020, a new provision for 2.1 million pesos was accorded. This decision goes in line with the continuity of the digital transformation process that the bank has decided to launch previously, which aims to generate higher efficiency and agility in decision-making processes. We also experienced savings of the commission side, product of lower expenses in customer acquisitions during 2020. During the year, the bank presented a positive real return on equity of 11.8% and real return on assets of 1.8%, proving the bank's resilience. In the quarter, net interest income totaled 19.5 billion pesos, 5.3% higher than the result posted in the third quarter of 2020, and 17.9% lower than the result posted a year ago. In the quarter, interest income growth does not compensate for the greater increase in interest expenses, explained by the regulation of both active and passive rates and the lower interest income generated by credit card financing, mainly through the national Ahora 12 program. During the fourth quarter of 2020, interest income totaled 32 billion pesos, 10.2% higher quarter over quarter and 12.4% lower year over year. This quarter over quarter performance can be explained by the 266 0.4% increase in the other interest income line due to the higher income from active reapers as a consequence of the increase in reaper rates. Interest income was also benefited by higher income from said Uber adjustments, mainly explained by the acceleration of the inflation during the quarter. Income from government securities fell 3.3% sequentially and 3.5% in the year-over-year comparison. This quarter-over-quarter decrease is explained by both a lower volume invested in the leaks and a lower average rate in these instruments. Interest income from loans and other financing total 15.6 billion pesos, decreasing 5.1% quarter-over-quarter. This is explained by the contraction in overdrafts, a direct consequence of the economic situation, and credit cards affected by the ORADOSE programs. This combined drop was partially offset by the increase in documents thanks to higher seasonal activity towards the end of the year and higher average rate. In the fourth quarter of 2020, interest from time deposit represented 78.9% of the bank's total interest expenses, increasing 8.4% in the quarter. Net fee income amounted to 2.8 billion pesos, 16.3% lower quarter over quarter. This contraction is explained by an increase in fee expenses as a consequence of a more aggressive approach towards client registration, which was not upset by the quarterly increase in fee income led by the increasing activity in the credit card use. Moving on to expenses, During the fourth quarter of 2020, personal and administrative expenses totaled 9.7 billion pesos, decreasing both in the quarter and the yearly comparison 2.6% and 13% respectively. Personal benefits contracted 4.8% in the quarter, reaching 4.9 billion pesos. The savings is partially explained by the smaller structure and the higher quarterly and annual inflation that surpassed the salary increase stipulated with the labor unions during the year. Administrative expenses remained almost unchanged, falling 0.3% in the quarter, product of savings generated in other administrative expenses that offset the seasonal increase in armament transportation services. For 2020, the accumulated efficiency ratio was 56.8%, above the 43.7% reported a year ago. The increase is explained by a higher percentage increase of the income line, which does not offset the savings generated in the expenses line. Excluding the inflation adjustment included in the line, income from the monetary position, the accumulated efficiency ratio as of 2020, which had reached 45.1%. In terms of activity, the bank's financing to the private sector totalled 290.3 billion pesos, increasing 0.8% quarter-over-quarter and 5.9% year-over-year, both in real terms. BBVA Argentina consolidated market share over the private sector loans as of December 2020, 8.49% from 7.71% in the fourth quarter of 2019. Loans to the private sector in pesos increased 1.6% in the quarter and 15.6% in the year. Dollar denominator loans decreased 5.3% quarter over quarter measured in pesos and 14.3% measured in dollars, mainly driven by the contraction in demands of loans in foreign currency. Regarding the retail portfolio, including mortgages, pledge, consumer and credit card loans, these have increased 7.3% quarter over quarter and 6.1% year over year. In the quarter, the greatest increases are reflected in pledge loans and credit card loans, the later boosted by Ahora 12 programs and greater seasonality. Immersion loans, including overdraft, discounted instruments, leasing, foreign trade and other loans, fell 7.3% quarter over quarter and grew 5.5% year over year. The quarterly decrease is mainly explained by a 20.8% decline in overdraft and a 15.5% decline in the loans for pre-financing and financing experts. This was partially offset by a 4.9% increase in discounted instruments as a consequence of higher commercial activity. In the fourth quarter of 2020, gross loans to deposit ratio was 61% compared to 70% a year ago. As of December 2020, asset quality, measured as a total non-performing portfolio over total portfolio, reached 1.42%, 25 basic points higher than the previous quarter. The quarterly increase is mainly explained by an increase in the commercial non-performing portfolio, This ratio is still positively affected by the temporary flexibility in central bank regulations regarding debtor classification during the COVID pandemic, which extended grace periods in 60 days before a loan is classified as non-performing and suspends the mandatory reclassification of clients that have been an irregular performance with other institutions, but a regular performance within the bank. These waivers are in effect until March 31, 2021. The cover-up ratio, allowance over total non-performing portfolio, decreased to 324.43% in the fourth quarter of 2020, from 355.26% in the previous quarter. This is explained by an increase in non-performing loans, which is greater than the increase in allowances as a consequence of the implementation of impairment models and the continuity effect of waivers enforced through central bank regulations regarding debt classification. Cost of REITs, loan loss allowances over average total loans reached 4.85%, higher than the 4.61% recorded in the third quarter 2020. This is mainly explained by an increase in non-performing commercial portfolios. Allowances for the bank in the fourth quarter 2020 reflect expected losses driven by the adoption of the IFRS sign standards as of January 1st, 2020, excluding debt instruments issued by the non-financial government sector, which were locally temporarily excluded from the scope of such standards. In the fourth quarter, excluding central bank instruments, measured as a percentage the total assets reached 5.6% above the 4.3% recorded in the previous quarter. Our total exposure to the public sector, excluding central bank notes, was 38.3 billion pesos above the 28 billion pesos in the previous quarter. On the funding side, private sector deposits, as of the fourth quarter of 2020, totaled 472 billion pesos, growing 7.8% quarter-over-quarter and 19.1% when compared with the fourth quarter of 2019. Private sector deposits in local currency were 337 billion pesos, increasing 8.2% quarter over quarter and 41.2% year over year. This is mainly explained by the growth of investment accounts, checking accounts, and to a lesser extent by the growth in saving accounts. Private sector deposits in foreign currency measured in pesos grew 6.7% in the quarter and contracted 14.3% when measured in dollars. As of December 2020, BBVA's transactional deposits, including checking and saving accounts, represent 66.6% of total deposits from 63.1% a quarter ago. BBVA Argentina consolidated micro-share of private sector deposits as of December 2020 reached 7.13%. In terms of capitalization, BBVA Argentina continues to show strong solvency indicators accounting an excess capital of 57.1 billion pesos entailing a total regulatory capital ratio of 20.2% and a tier 1 ratio of 19.6%. The bank's aim is to make the best use of this excess capital. The bank's liquidity ratio in pesos and dollars remained healthy at 60.6% and 85.1% of total deposits as of December 31st, respectively. This concludes our prepared remarks. We will now take your question. Operator, please open the line for questions.