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 third quarter 2022 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 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 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 2021 filed with the U.S. Securities and Exchange Commission. Today with us we have Mrs. Carmen Murillo-Arroya, CFO, Mrs. Ines Danusa, IRO, and Mrs. Belén Forcade, Investor Relations. Ms. Forcade, you may begin your conference.

Good morning and welcome to BBVA Argentina's 3rd Quarter 2022 Earnings Conference Call. Today's webinar will be supported by a slide presentation available on our Investor Relations website on the Financial Information section. Speaking during today's call will be Ines Lanuce, our investor relations officer, and Carmen Mauricio Arroyo, our new 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 as applying hyperinflation accounting pursuant to IFRS rule IAS 29. For ease of comparability, 2021 and 2022 figures have been restated to reflect the accumulated effect of inflation adjustment for each period through September 30th, 2022. Now, let me turn the call over to Ines.

Thank you, Belen, and thank you all of you for joining us today. As we are all aware, the combination of an unstable global context, the difficulties of our country to correct current macroeconomic distortions and to meet the established objectives in the loan agreement with the IMF, local market volatility, especially in the FX market and local currency debt markets. A high uncertainty persists about the future development of our economic policy. Being this said, Argentina has been able to continue with economic recovery, although within a context that presents great challenges with a sustained high inflation and a capped foreign exchange rate. BBVA Argentina has a corporate responsibility with society, characteristic of the bank's business model, which encourages inclusion, financial education, and supports scientific research and culture. The bank works with the highest integrity, long-term vision, and best practices, and is present through the BBVA Group in the main sustainability indexes. Moving into business dynamics, as you can see on slide three of the webcast presentation, our service offering has evolved in such a way that by the end of September 2022, retail digital clients penetration reached 62%, slightly increasing from a year back, while that of retail mobile clients reached 55% from 52% as of the same period of last year. 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. Retail digital sales have increased from 79.6% in the third quarter of 2021 to 83.4% of units and represent 55.7% of the bank's total sales measured in monetary values versus 52.8% in the third quarter of 2021. New customer acquisitions through digital channels reached 66% in the third quarter of 2022 from 67% in the third quarter of 2021. The bank actively monitors its business, financial conditions, and operating results in the aim of keeping a competitive position to face contextual challenges. Moving to slide four, I will now comment on the bank's third quarter 2022 financial results. BBA Argentina third quarter 2022 net income was 9.7 billion pesos, decreasing 50% quarter over quarter. This implied a quarterly ROE of 13.5% and a quarterly ROE of 2.4%. Operating income in the third quarter of 2022 was 48.4 billion pesos, 24% above the 39 billion pesos recorded in the second quarter of 2022. Quarterly operating results are mainly explained by, one, greater interest income, two, higher income from measurement of financial instrument at fair value to P&L, and three, lower operating expenses, mainly personal expenses. This allowed net operating income to increase above operating expenses. These effects were partially upset by a fall in net fee income, mainly affected by the negative effect of inflation. Net income for the period per 50% quarter-over-quarter due to the contrast generated by the effects of a benefit in the income tax line as a result of the implication of tax deferrals recorded in the second quarter of 2022. In the first nine months of 2022, the accumulated net income was 34.8 billion pesos, 28% above the 27.2 billion pesos recorded in the first nine months of 2021. The nine-month accumulated ROE reached 2.9%, while the nine-month accumulated ROE was 16.8%. Turning into the P&L lines in slide 5, net interest income for the third quarter of 2022 was 76.6 billion pesos, increasing 15.6% quarter over quarter and 43.3% year over year. In third quarter of 2022, interest income in monetary terms increased more than interest expenses, mainly due to, one, higher income from government securities, two, an increase in income from interest from loans, in particular, overdraft and discounted instruments, and three, increase in income from SED or close adjustments. The items mentioned take place in a context of increasing interest rate, product of sequential increases in the monetary policy rate by central bank, as well as an increase in the inflation rate. In the quarter, interest income totaled 144.3 billion pesos, increasing 18.8% compared to the second quarter of 2022. Quarterly increase is mainly driven by, one, higher income from government securities, both from an increase in the nominal rate and the volume in the possession of Lalique, and two, an increase in interest from loans, mainly overdraft and discounted instruments, especially due to the increment in interest rates and higher activities. Interest expenses total 67.7 billion pesos, denoting a 22.5% increase quarter over quarter. Quarterly increase is described by higher time deposit expenses together with higher SED or adjustment expenses. Interest from time deposits, including investment accounts, explained 70.9% of interest expenses versus 69.3% the previous quarter. Net fee income as of the third quarter of 2022 totaled 9.1 billion pesos, decreasing 27.5% quarter over quarter. In third quarter 2022, the income fell 5.9%, mainly explained by a declining fee from credit cards, mostly due to the effect of inflation and an increase in the use of the Puntos BBVA benefit program. This was offset by an increase in fees linked to deposits, giving the average increase in prices of accounts and packages maintenance during the month of September. Regarding fee expenses, it increased 48.4% quarter over quarter. Higher expenses in the quarter are partially explained by expenditures linked to credit and debit cards due to the higher client acquisition costs. In the third quarter of 2022, loan loss allowances increased 37%, mainly due to the periodic update of macroeconomic scenarios in IFRS 9 impairment models. During the third quarter of 2022, total operating expenses were 43.8 billion pesos, decreasing 2.9% quarter over quarter. 32% were personal benefits versus 34% on the second quarter of 2022. This past effect surpassed the collective agreement with unions corresponding to the third quarter of 2022 and the revelation of stock of vacations not taken. As of the third quarter of 2022, administrative expenses also decreased 1.8% quarter over quarter. The quarterly decrease is partially explained by, one, a reduction in rent, two, greater efficiency in armament transportation, and three, an improvement in maintenance, electricity, and advertising costs, among others. The accumulated efficiency ratio as of the third quarter of 2022 was 69%, improving compared to the 71.3% reported in the second quarter of 2022. The quarterly improvement is explained by a decrease in expenses and also an increase in income, both due to a reduction in expenses as well as a significant increase in interest income. In terms of activity on slide six, total consolidated financing to the private sector in the third quarter of 2022 totaled 582.4 billion pesos, falling 8% quarter over quarter and 6.4% year over year. Loans to the private sector in pesos decreased 6.3% in the third quarter of 2022. During the quarter, the decline was especially driven by an 8.6% fall in credit cards, a 13.6% decrease in other loans, followed by a 5.7% fall in consumer loans. Regarding our other loans, the main fall is observed in commercial loans, fees. These decreases were offset by a 6.4% and a 27.5% increase in overdrafts and in receivables from financial leases. Loans to the private sector denominated in foreign currency fell 27.8% quarter over quarter. Quarterly decrease is mainly explained by a 47.9% decrease in other loans, followed by a 22.4% fall in pre-financing and financing of exports, and a 12.5% fall in credit cards. During the quarter, both the retail and commercial portfolio fell in real terms. Loan portfolios were highly impacted by the effect of inflation during the third quarter of 2022, which reached 22%. In nominal terms, BBVA Argentina managed to increase the total loan portfolio by 11.9% during the quarter. TVDA Argentina's consolidated market share of private sector loans reached 8.47% as of the third quarter of 2022, improving from 8.10% a year ago. In the third quarter of 2022, asset quality ratio, or NPL, was 1.07% compared to the 1.08% recorded in the second quarter of 2022. This is mainly explained by a similar percentage reduction of both the non-performing portfolio as well as the total portfolio. The coverage ratio was 236.87% in the third quarter of 2022, above the 219.39% recorded in the second quarter of 2022. The increase in coverage is merely the product of a greater fall in the non-performing portfolio versus a lower percentage fall of allowances. Cost of risk reached 2.65% as of the third quarter of 2022, above second quarter 2022's 1.94%. This is mostly explained by a growth in loan loss allowances in the quarter, mainly due to the periodic objects of macroeconomic scenarios in IFRS 9 model impairments. On the funding side, as seen on slide seven, private non-financial sector deposits in the third quarter of 2022 total 1.1 trillion pesos, falling 9.9% quarter over quarter and 7.2% year over year. Quarterly decrease was mainly explained by site deposits. The bank's consolidated market share of private deposits reached 6.68% as of the third quarter of 2022. Private non-financial sector deposits in pesos decreased 9.8% compared to the second quarter of 2022. The quarterly change is mainly affected by a decrease in side deposits, especially checking accounts by 23.3%, followed by saving accounts by 17.9%. This was partially offset by an increase in investment accounts by 14.7%. Private non-financial sector deposits in foreign currency, expressed in pesos, fell 10.6% quarter over quarter. As of the third quarter of 2022, the banks' transactional deposits, considering checking accounts and saving accounts, represent 55.2% of total non-financing private deposits versus 60.2% in the second quarter of 2022. In terms of capitalization, PVDA Argentina continues to show strong solvency indicators in the third quarter of 2022. Capital ratio reached 26.2%. Exposure to the public sector in the third quarter of 2022, excluding central bank instruments, representing 9.8% of total assets, slightly above the 9% in the second quarter of 2022, and way below the 15.1% reported by the system as of August, 2022. It is worth mentioning that as of the date of this report, BBVA Argentina has distributed dividends by 12.1 billion pesos, installment 1 to 11, according to the established schedule published on June 16, 2022. The 12th and last installment was announced last Friday, November 18th. The bank's total liquidity ratio remained healthy at 79% of total deposits above September 30th. This concludes our prepared remarks. We will now take your questions. Operator, please open the line for questions.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Again, if you have a question, please press star then 1. Once again, if you have a question, please press star then 1 on your telephone keypad. Showing no questions, this concludes the question and answer session. At this time, I would like to turn the floor back to Mrs. Lanusa for any closing remarks.

Okay. Thank you for your time, and please let us know if you have further questions. Bye. Have a good day.

Thank you. This concludes today's presentation. You may disconnect your line at this time, and have a nice day.