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 second quarter 2021 results conference call. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the company 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 point out 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 BBVA Argentina's annual report on Form 20F for the fiscal year 2020 filed with the U.S. Securities and Exchange Commission. Today with us we have Mr. Ernesto Gallardo, CFO, Mrs. Ines Lunuce, IRO, and Mrs. Belen Forcade, Investor Relations. Ms. Forcade, you may begin your conference.

Good morning, everyone, and welcome to VV Argentina's second quarter 2021 earnings conference call. Before we begin our formal remarks, let me stress that some of the statements made during the course of this conference call 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 differ materially from those expressed in the forward-looking statements, including factors that may be beyond the company's control. For a description of these risks, Please refer to our SEC filings and earnings release, which are available at our investor relations website ir.bbva.com.ar. Speaking during today's call will be Ines Lanuce and Ernesto Gallardo, our Chief Financial Officer, who will be available for the Q&A session. Please note that starting January 1st, 2020, as per central bank regulation, we have begun reporting results applying hyperinflation accounting pursuant to IFRS rule IAS 29. For ease of comparability, 2020 and 2021 figures have been restated to reflect the accumulated effect of inflation adjustment for each period through June 30th, 2021. Now let me turn the call over to Ines.

Thank you, Belén, and thank all of you for joining us on our second quarter 2021 conference call. The second quarter of 2021 has been impacted by the second wave of COVID-19 in the context of the sanitary crisis which the country has been going through for more than a year. This implied a deceleration of activity with a persistent uncertainty generated by pending midterm elections and unsolved conflicts related to foreign debt with international monetary fund. DBVA Argentina operating results stand out on the second quarter of 2021, growing 14.5% compared to the previous quarter, boosted by an improvement in net fee income with a focus on operating efficiency, denoting an adequate expense management, and by the preservation of margins in a context marked by volatility and rate controls. 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 margins. Regarding digitalization, our service offering has evolved in such a way that by the end of June 2021, digital clients penetration reached 74% from 69% a year back, while that of mobile clients reached 62% from 57% in the same period. trend aims towards stabilization, considering that the pandemic has caused an important shift towards the adoption of digital tenants by clients. Lastly, in terms of responsible banking, in July 2021, BBVA at a global level announced it would double its target of channeling sustainable financing to 200 billion euros, BBVA Argentina being part and collaborating with this target. I will now comment on the bank's second quarter 2021 financial results. BBVA Argentina's second quarter 2021 net income, including inflation adjustment effects, totaled 7.2 billion pesos, growing 119.3% quarter over quarter and 14.3% year over year. Quarterly results are mainly explained by one, a better net operating income due to a larger fee income, and second, the reversal of the provisions recorded in accordance to central bank instructions in connection with the repayment of income tax inflation adjustment for 2017 and 2018 fiscal years for a total of 4.3 billion pesos as a result of an assessment funded on legal and tax advisory opinions in which the bank considers that probability of getting a final instance favor in court ruling are higher for those fiscal years. The accumulated net income for the first six months of 2021 was 10.5 billion pesos, 23.7% above the accumulated net income for the first half of 2020 of 8.5 billion pesos. The accumulated ROE of the second quarter 2021 is 16.5, while the accumulated ROE is 2.5%. In the quarter, net interest income totaled 24.3 billion pesos, 1.7% higher than the results posted in the first quarter of 2021, and 1.9% higher than the results posted a year ago. In second quarter 2021, although in percentage terms, interest expenses increased more than interest income, in monetary terms, growth in interest income compensates the increase in interest costs and reflects a positive net interest income. In second quarter 2021, interest income totaled 43.7 billion pesos, increasing 7.2% compared to the first quarter of 2021 and 30.1% compared to the second quarter of 2020. Quarterly increase is mainly driven by 110.3% surge in premium from repo concessions and 12% improvement in income from CER Uber adjustments, the later related to income from public securities linked to CERT indexes. The whole increase was offset by a fall in credit cards by 21.6% and 21.7% fall in income from overdraft, the latter due to lower demand. Interest expenses totaled 19.4 billion pesos, denoting a 15.1% increase quarter over quarter and a 99.4% increase year over year. Quarterly increase is described by one, an increase in interest expenses from time deposits and investment accounts mainly due to large portfolio, especially the later. B, an increase in checking account expenses and C, greater expenses by UBA set adjustment driven by time deposits linked to set indexes also due to a larger portfolio. Interest from time deposits and investment accounts explained 73.9% of interest expenses versus 79.2% the previous quarter. This expanded 7.5% quarter over quarter and 86.4% year over year. Net fee income as of the second quarter of 2021 totaled 5.4 billion pesos, growing 45.9% quarter over quarter and 16.3% year over year. In the second quarter of 2021, fee income totaled 9.5 billion pesos growing 12% quarter over quarter and 4% year over year. The quarterly increase is mainly explained by the income from credit cards line item, mostly due to an increase in consumption driven by a recovery in the entertainment and recreational sectors in addition to a contrasting effect against the previous quarter as restrictions in fee increments and charges were lifted. Regarding fee expenses, these totaled 4.1 billion pesos, contracting 14.4% quarter over quarter and 8.7% year over year. Lower expenses are partially explained by lower digital sales expenses and a positive effect in the relation of my purchase in 2020 within the LATAM program linked to the foreign exchange rate. During the second quarter of 2021, personal benefits and administrative expenses totaled 12.2 billion pesos, decreasing 1.3% compared to the first quarter of 2021 and increasing 4.5% compared to the second quarter of 2020. Personal benefits contracted 1.9% quarter over quarter and increased 6.8% year over year. The quarterly decrease is partially explained by an 11% increase in inflation in the same period and a lower payroll expenditure. This was offset by silent increases arranged through collective bargaining agreements, which incremented wages in April by 11.5%. As of the second quarter of 2021, administrative expenses fell 0.6% quarter over quarter and increased 2.1% year over year. The quarrel fall is also explained by a greater inflation during quarter than the nominal increases in expenses. The accumulated efficiency ratio as of the second quarter of 2021 was 70.1% below the 72.5% and above the 56% reported in the first quarter 2021 and the second quarter 2020, respectively. The decrease is explained by a higher percentage increase in the denominator than the numerator, which has been positively especially affected by an improvement in net fee income. Excluding inflation adjustment, the second quarter 2020 accumulated efficiency ratio would have been 47.1%, improving compared to the 50.1% of the first quarter of 2021 and the 47.4% of the second quarter of 2020. In terms of activity, private sector loans as of the second quarter of 2021 totaled 319.7 billion pesos decreasing 2.9% quarter-over-quarter and 15% year-over-year. Loans to the private sector in pesos decreased 5% in the second quarter of 2021 and 14.1% year-over-year, especially driven by the decrease in real terms in credit cards, other loans, and overdrafts. Loans to the private sector denominated in foreign currency increased 14.4% quarter over quarter and fell 20.4% year over year. The increase of the later during the quarter is mainly explained by a 39.2% increase in discounted instruments, a 13.2% increase in loans for the refinancing and financing of exports, and a 7.6% increase in other loans. These loans measured in US dollars grew 10% quarter over quarter and fell 41.4% year over year. The depreciation of the Argentine pesos versus the US dollar was 3.9% quarter over quarter and 26.4% year over year. In real terms, retail loans have fallen 2.7% quarter over quarter and grown 4.4% year over year. Commercial loans contracted 3.2% quarter over quarter and 34% year over year, both in real terms. Declining both retail and commercial portfolio and in the total loan portfolio are mainly explained by the effect of the inflation during the second quarter of 2021, which reached 11%. In nominal terms, the retail, commercial and total loan portfolio all increased 8%, 7.4% and 7.8% respectively during the quarter, yet unable to upset the impact of inflation during the same period. BBVA's consolidated market share of private sector loans was 8.21% as of the second quarter of 2021, from 8.54% a year ago. In the second quarter of 2021, gross loans to deposit ratio was 52.9% from 68% a year ago. In the second quarter of 2021, NPL ratio was 2.49% compared to the 1.72% recorded in the first quarter of 2021. The increase is mainly explained by the expiration of grace periods related to deferred credit card payments, which caused an increase in the retail non-performing portfolio, and the normalization of grace periods granted by the temporary flexibility in central bank regulations regarding debt classifications during the COVID-19 pandemic. Regarding the commercial portfolio, this showed a satisfactory credit performance. The coverage ratio was 187.88% in the second quarter of 2021 versus the 275.22% recorded in the first quarter of 2021. The change in the ratio reflects the subtler reduction in allowance, but mainly the increase in MPLs, in particular on the retail non-performing. Cost of risk reached 2.61% as of the second quarter of 2021, higher than the first quarter of 2021's 2.47%. This is mainly explained by the greater reduction in the loan portfolio in contrast to the contraction in loan loss allowances in real terms. In nominal terms, loan loss allowances saw a higher increase than the loan portfolio. In the second quarter of 2021, exposure to the public sector, excluding central bank instruments, reached 6.5%, similar to the 6.4% recorded in the previous quarter. On the funding side, total deposits reached 609.1 billion pesos, increasing 8.1% quarter over quarter and 8.6% year over year. Private non-financial sector deposits in the second quarter of 2021 reached 601.6 billion pesos, increasing 8.2% quarter over quarter and 9% year over year. Private non-financial sector deposits in pesos totaled 442.1 billion pesos, growing 11.8% compared to the first quarter of 2021, and 15.9% compared to the second quarter of 2020. The quarterly increase is mainly affected by the growth in side deposits, especially checking accounts, in particular interest-bearing checking accounts and saving accounts. All deposits in local currency grew in real terms during the quarter. Private non-financial sector deposits in foreign currency expressed in pesos fell 0.6% quarter over quarter and 6.5% year over year. Measured in U.S. dollars, these deposits fell 4.5% quarter over quarter and 31.2% year over year. As of the second quarter of 2021, the bank's transactional deposits represent 65.4% of total non-financial private deposits versus 63.7% in the first quarter of 2021. The bank's consolidated market share of private deposits was 7.41% as of the second quarter of 2021, from 6.52% a year ago. In terms of capitalization, BBVA Argentina continues to show strong solvency indicators in the second quarter of 2021. Capital ratio reached 23.3%, TO1 ratio was 22.6%, and capital excess over regulatory requirements was 78.8 billion pesos, or 184.5%. 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 74.8% and 79.8% of total deposits as of June 30th, respectively. This concludes our prepared remarks. We will now take your questions. Operator, please open the line for questions.