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 and fiscal year 2021 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 the company's 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 the 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 20-F 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 Lanusa, IRO, and Ms. Belén Forcade, Investor Relations. Ms. Forcade, you may begin your conference.

Good morning, everyone, and welcome to VEB Argentina's fourth quarter and fiscal year 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 1, 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 December 31, 2021. Now let me turn the call over to Ines.

Thank you, Belén, and thank you all of you for joining us today. The pandemic situation improved during the second half of 2021, which enabled a recovery of the economic activity. This situation has had a positive impact on the financial system as a whole, which holds strong to cope with a challenge that still persists in the short term. BBVA Argentina has a corporate responsibility with society, inherent to the bank's business model, which bolsters inclusion, financial education, and supports scientific research and culture. The bank works with the highest integrity, long term vision and best practices, and it is present through the BBVA group in the main sustainability indexes. With respect to digitalization, our service offering has evolved in such a way that by December 2021, digital clients penetration reached 74% from 72% a year back, while that of mobile clients reached 64% from 60% in the same period. The response on the side of customers has been satisfactory and we are convinced this is the path to pursue in the aim of sustaining and expanding our competitive position in the financial system. The bank actively monitors its business, financial conditions and operating results in the aim of keeping a competitive position to face the contextual challenges. I will not comment on the bank's fourth quarter 2021 and fiscal year 2021 financial results. PVA Argentina 2021 net income was 21.2 billion pesos, 27.1 higher than the 16.6 billion pesos reported in 2020. This implied An accumulated annualized ROE of 13.5% and an ROA of 2% in 2021 compared to the accumulated annualized ROE of 10.9% and an ROA of 1.7% in 2020. The increment in the bank's operating income is mainly explained by one, an increase in interest on fee income, the later mostly enhanced by the implementation of a new reward program with credit card benefits, which meant savings in fee expenses, Two, lower net loss from write-down of asset at amortized cost and fair value through OCI. And three, lower loan loss allowances, mainly due to a good evolution in the behavioral loan portfolio. It should be noted that in 2020, results were affected by the partial collection of payments and voluntary swap of the National Treasury U.S. dollar-linked notes, LELINK, which had been restructured in August 28, 2019, and that generated a loss in the line net loss from write-down of assets at amortized cost and fair value through OCI. Another factor to be highlighted is the income tax line. Accumulated income tax during 2021 recorded a gain of 80 million pesos. The first and second quarter of 2021 were affected by the reversal of a provision connected to the repayment of income tax inflation adjustments for 2016, 2017 and 2018 fiscal years. Excluding the effect of actions of declaratory judgment during the year, the effective tax rate would have been 30% for 2021 compared to an effective tax rate of 43% in 2020. The accumulated net income for 2021 net of the effect of actions of declaratory judgment on the tax line would have been 15.7 billion pesos, decreasing 5.6% versus the accumulated net income for 2020. This exclusion would have meant an accumulated ROE of 10.2% and an accumulated ROE of 1.5%. Additional to these factors, net income was affected by the income from the monetary position in a context of higher inflation. BBVA Argentina fourth quarter 2021 net income was 4.8 billion pesos, increasing 27.8 quarter over quarter. This implied a quarterly ROE of 11.8% and a quarterly ROA of 1.8%. Quarterly results are mainly explained by one lower loan loss allowances, especially due to a satisfactory behavior of the loan portfolio to a greater fall in interest expenses and three lower administrative expenses. The increase in the result is offset by, one, lower net pay income due to higher activity, two, higher expenses in other operating expenses line items due to the recording of a new provision for organization charges, and three, a higher loss from the net monetary position. Turning into the P&L lines, net interest income for the fourth quarter of 2021 was 33.6 billion pesos, increasing 4.3% quarter over quarter and 13.9% year over year. In the fourth quarter of 2021, interest income decreased less than interest expenses, mainly due to one, higher income from interest from loans and other financing, two, increasing income from SED, UBAC loss adjustment, and three, an improvement in the funding mix. In the fourth quarter of 2021, interest income totaled 55.9 billion pesos, falling 2.5% compared to the third quarter of 2021 and increasing 15.7% compared to the fourth quarter of 2020. Quarterly decrease is mainly driven by lower income from premium or reverse repo transactions, especially due to a lower position in this instrument as a result of higher activity. This fall was partially upset by a 4.7% increase in said UBA close adjustment, mostly on income from government securities linked to SAD indexes, and a 4.5% increase in interest from loans and other finances. Interest expenses total 22.3 billion pesos, denoting an 11.3% decrease quarter-over-quarter and an 18.4% increase year-over-year. Quarterly decrease is described by lower checking account expenses, partially offset by higher expenses by interfinancial loans received by the bank subsidiaries. Interest from time deposits and investment accounts explained 76.6% of interest expenses versus 71.5% the previous quarter. Net fee income as of the fourth quarter 2021 totaled 5.8 billion pesos, falling 14.5% quarter over quarter and increasing 37.9% year over year. In the fourth quarter of 2021, fee income totaled 11.6 billion pesos, growing 1.6% quarter over quarter and 1.8% year over year. The quarterly growth is mainly explained by an increase in income from credit cards due to higher activity and those linked to loans. Regarding fee expenses, these total 5.7 million pesos, growing 25.6% quarter over quarter and falling 19.6% year over year. Higher expenses in the quarter are partially explained by higher expenditures linked to an increase in marketing actions, higher consumption, and a strategy of payroll business acquisitions. During the fourth quarter of 2021, personal benefits and administrative expenses totaled 16.2 billion pesos, falling 8.9% compared to the third quarter of 2021 and growing 11% compared to the fourth quarter of 2020. The accumulated efficiency ratio as of the fourth quarter of 2021 was 69.1%, improving compared to the 69.7% and deteriorating versus the 56.8% reported in the third quarter of 2021 and in the fourth quarter of 2020, respectively. The quarterly improvement is explained by a higher percentage increase in the denominator than the numerator, which has been positively affected by improvement in net fee income and net interest income, including inflation adjustment considered in the income from the monetary position line. item, the fourth quarter 2021 accumulated efficiency ratio would have been 49.4%, marginally improving compared to the 49.7% of the third quarter of 2021, and deteriorating compared to the 45.1% in the fourth quarter of 2020. In terms of activity, private sector loans as of the fourth quarter of 2021 totaled 388.4 billion pesos, increasing 3.7% quarter over quarter and falling 11.1% year over year. Loans to the private sector in pesos increased 6.8% in the fourth quarter of 2021 and decreased 6.5% year over year. During the quarter, growth is especially driven by a 23.6% increase in other loans, a 19.9% increase in discounted instruments, and a 3.2% increase in credit cards, the later primary explained by Ahora 12 programs. Loans to the private sector denominated in foreign currency fell 29.2% quarter of a quarter and 51.8% year over year. Quarterly decrease is mainly explained by a 24.8% fall in pre-financing and financing of exports and a 100% fall in discounted instruments and a 17.7% fall in other loans. All the aforementioned indicates a lack of demand of loans in foreign currency. In real terms, retail loans have increased 2.2% quarter over quarter and fallen 7.9% year over year. During the quarter, the greater increase are seen in consumer lines with a 4.1 increment, followed by a 3.1 growth in credit cards. Commercial loans grew 6.1% quarter over quarter and contracted 16.2% year over year, both in real terms. Growth in commercial loans in the quarter was primarily motivated by marketing campaigns during the fourth quarter of 2021. Loan portfolios are mainly impacted by the effect of inflation in the fourth quarter of 2021, which reached 10.2%. In nominal terms, the return, commercial, and total loan portfolio all increased 12.6%, 17%, and 14.3% respectively during the quarter, well beyond real-time growth. BBVA Argentina consolidated market share of private sector loans reached 8.05% as of the fourth quarter of 2021, from 8.49% a year ago. As of the fourth quarter of 2021, the total loans and other financing over deposit ratio was 55.4% above the 54.5% recorded in the third quarter of 2021 and below the 61.2% in the fourth quarter of 2020. In the fourth quarter of 2021, asset quality ratio was 1.87% compared to the 2.54% recorded in the third quarter of 2021. The decrease is mainly explained by, one, a satisfactory behavior of the loan portfolio, two, the write-off of non-performing loans, mainly retail, and three, an important increase in the total loan portfolio. The coverage ratio was 181.89% in the fourth quarter of 2021 versus the 181.75% recorded in the third quarter of 2021. The change in the ratio reflects a similar variation in allowances mainly due to the update and improvement of the IFRS 9 impairment loss model parameters with most impact on the retail portfolio and the total non-performing low portfolio. Cost of risk reached 0.46% as of the fourth quarter of 2021, lower than the third quarter of 2021, 2.80%. This is mainly explained by the reduction in loan loss allowances as a result of the annual update of IFRS 9 impairment loose model parameters and an improvement in the sovereign rating for the commercial portfolio, upgrading the commercial loans portfolio rating. This was offset by the negative effect of the new default definition implemented in November 2021. Exposure to the public sector, excluding central bank instruments in the fourth quarter of 2021, represented 8% of total assets above the 6.9% in the third quarter of 2021 and the 5.6% in the fourth quarter of 2020. On the funding side, as of the fourth quarter of 2021, total deposits reached 708.3 billion pesos, growing 1.9% quarter over quarter and falling 1.9% year over year. Private non-financial sector deposits in the fourth quarter of 2021 totaled 794.8 billion pesos, increasing 1.6% quarter over quarter and falling 2.4% year over year. Private non-financial sector deposits in pesos totaled 531.9 billion pesos, increasing 6.1% compared to the third quarter of 2021 and 4.7% compared to the fourth quarter of 2020. The quarterly growth is mainly explained by the increase in side deposits, especially checking accounts, non-interest bearing, and saving accounts. This was partially offset by a 7.8% decrease in time deposits. Private non-financial sector deposits in foreign currency, expressed in pesos, fell 10.6% quarter over quarter and 20% year over year. Measured in U.S. dollars, these deposits fell 5.3% quarter over quarter and 1.2% year over year. As of the fourth quarter of 2021, the bank's transactional deposits, checking accounts and saving accounts, represent 65.6% of total non-financial private deposits versus 63% in the third quarter of 2021. The bank's consolidated market share of private deposits reached 6.95% as of the fourth quarter of 2021, from 7.13% a year ago. In terms of capitalization, BBVA Argentina continues to show strong solvency indicators as of the fourth quarter of 2021. Capital ratio reached 20.8%, lower than the third quarter of 2021, 23.5%, mostly due to the announcement of dividends distribution on November 3rd, 2021, for 6.5 billion pesos. Tier 1 ratio was 20.3%, and capital excess over regulatory requirement was 88.5 billion pesos, or 154.5%. It is worth mentioning that since 2020, the bank shareholders meeting have announced dividends for a total of 28 billion pesos, which remain pending of distribution, given that the central bank started a suspension in the distribution of results of financial institutions until December 31st, 2021. Now that the suspension has been lifted, the bank will proceed to work on the authorization request to the regulator once its 2021 results are approved by the shareholders' meeting. The bank's liquidity ratio in pesos and dollars remains healthy at 72% and 92.9% of total deposits as of December 31st, respectively. This concludes our prepared remarks. We will now take your questions. Operator, please open the line for questions.