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 2023 fiscal year 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 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 an operator. First of all, let me point out that there are some statements made during this conference call that 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 2022, filed with the U.S. Securities and Exchange Commission. Today, With us, we have Ms. Carmen Moralo-Arroyo, CFO, Ms. Ines Lanussi, IRO, and Ms. Belen Forcade, Investor Relations. Ms. Forcade, you may begin your conference.

Good morning and welcome to VBA Argentina's second quarter 2023 fiscal year result 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 Lanusse, our investor relations officer, and Carmen Mauricio Arroyo, 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, 2022 and 2023 figures have been restated to reflect the accumulated effect of the inflation adjustment for each period through June 30, 2023. Now, let me turn the call over to Ines.

Thank you, Belén, and thank you all for joining us today. As we are all aware, on Sunday, August 13, Javier Millet, the candidate for La Libertad Avanza, was the most voted in the primary presidential elections, quite above from what surveys were estimating. This implies a higher uncertainty scenario facing the general elections of October, and it is expected that higher volatility will persist. At the same time, the unfavorable macroeconomic conditions have continued to deteriorate, increasing the risk of economic and financial turbulence ahead of the presidential elections scheduled for the last quarter of the year. GDP is expected to fall by around 3.5% this year, according to BBVA research, due to the impact of the negative weather shock on the production and export of agricultural goods, coupled with increasing exchange rate restrictions and political uncertainty. In this context, its impact on the external and fiscal accounts has contributed to accelerate the exchange rate depreciation and inflation, which in annual terms reached 113.4% as of July 2023. Referring to BBVA's Argentina general performance, a better operating income as of June 2023 was a product of an improvement in interest income, boosted especially by government securities and liquidity instruments, and better fee income. Now, moving into business dynamics, as you can see on slide three of our webcast presentation, our service offering has evolved in such a way that by the end of June 2023, retail digital clients penetration reached 62%, remaining stable from a year back, while that of retail mobile clients reached 56% from 54% 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 measured in units have increased from 90.8% in the second quarter of 2022 to 93.9% in the second quarter of 2023 and represents 71.8% of the bank's total sales measured in monetary value versus 57.1% in the second quarter of 2022. New customer acquisitions through digital channels reached 75% in the second quarter of 2023 from 70% in the second quarter of 2022. 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 second quarter 2023 financial results. BBVA Argentina second quarter 2023 income was 30.4 billion pesos, increasing 63.3% quarter over quarter. This implied a quarterly ROE of 21.3% and a quarterly ROA of 3.9%. Operating income in the second quarter of 2023 was 125.3 billion pesos, 28.6% above the 97.5 billion pesos recorded in the first quarter of 2023. Quarterly operating results are mainly explained by, one, better interest income results through public securities and liquidity instruments, two, better fee income, and three, higher net income from write-down of assets at fair value through OCI, mainly due to the voluntary bond swap offered in June by the National Treasury. This effect was partially upset by one, an increase in other operating expenses pushed by greater turnover tax due to a higher position, two, an increase in personal expenses, and three, an increase in administrative expenses. Net income for the period was highly impacted by income from net monetary recession as inflation increased from 21.7% in the first quarter of 2023 to 23.8% in the second quarter of 2023. Turning into the P&L lines in slide five and six, net interest income for the second quarter of 2023 was 185.5 billion pesos, increasing 14.2% quarter over quarter. In the second quarter of 2023, interest income in monetary terms increased more than interest expenses, mainly due to, one, an increase in income from said over-adjustment driven by public securities with this adjustment, and two, a higher position and yield of public securities, in particular of LELIC. additionally there is a positive effect from income from loans mainly discounted instruments and from repo operations in the second quarter of 2023 interest income total 371.2 million pesos increasing 20.3 percent compared to the first quarter of 2023 In the quarter, monetary policy rate gradually increased from 78% at the beginning of the quarter up to 97% at quarter end. Interest expenses total 185.7 million pesos, denoting a 27.1% increase quarter over quarter. Quarterly increase is described by higher time deposit expenses. Interest from time deposits, including investment accounts, explained 77.7% of interest expenses versus 82.8% the previous quarter. Net fee income as of the second quarter of 2023 totaled 23.7 billion pesos, increasing 69.3% quarter-on-quarter in real terms. In the second quarter of 2023, fee income total 33.4 billion pesos, growing 22.6% quarter over quarter. The quarterly increase is mainly explained by an increment of fees from credit cards, considering that this line includes puntos BBVA royalty programs. Regarding fee expenses, these total 9.6 billion pesos falling 27%. In the quarter of 2023, loan loss allowances increased only 9.6% due to the good performance of our portfolio. During the second quarter of 2023, total operating expenses were 92.6 million pesos, increasing 8.4% quarter-over-quarter, of which 31% were personal benefits costs. Personal benefits increased 6.3% quarter-over-quarter. The quarterly increase is mainly explained by the inflation adjustment of vacation stock provisions. Quarterly increases were also affected by a 25.8% collective agreement on wages, which implies a 56% accumulated increase as of the second quarter of 2023. As of the second quarter of 2023, administrative expenses increased 5% for the quarter. The quarterly increase is mainly explained by 1 outsource administrative expenses, 2 greater rent expenses, and 3 increase in software services, all of them related to services contracted with a parent company. Being this said, the quarterly efficiency ratio as of the second quarter of 2023 was 42.8%, improving compared to the 62.4% reported in the first quarter of 2023. The quarterly improvement is explained by a higher increase in income than expenses, especially due to a significant increase in interest and fee income. The accumulated efficiency ratio as of the second quarter of 2023 was 56.6% improving compared to the 62.4% reported in the first quarter of 2023 and versus the 71.3% reported in the second quarter of 2022. In terms of activity on slide seven, private sector loans as of the second quarter of 2023 totaled 1.1 trillion pesos, slightly decreasing 0.3% and 3.5% year over year. Loans to the private sector in pesos fell 1.1% in the second quarter of 2023. During the quarter, the decrease was especially driven by a 37.5% decline in overdraft, followed by a 6.8% fall in consumer loans. The fall was partially upset by a 17.8% increase in discounted instruments and a 10.4% increase in other loans, the latter pushed by floor planning. Loans to the private sector denominated in foreign currency increased 12.1%. Quarterly increase is mainly explained by a 13.9% growth in financing and pre-financing of exports. Loans to the private sector in foreign currency measured in U.S. dollars increased 13% quarter over quarter. During the quarter, both the retail and commercial portfolio remained practically flat. As observed in previous quarters, loan portfolio were impacted by the effect of inflation during the second quarter of 2023, which reached 23.8%. In nominal terms, BBVA Argentina managed to increase the retail, commercial, and total loan portfolio by 23.8% and 23.4%, respectively, during the quarter, practically reaching quarterly inflation levels. BBVA Argentina's consolidated market share of private sector loans reached 9.01% as of the second quarter of 2023, improving from the 8.35% a year ago. In the second quarter of 2023, asset quality ratio was 1.38% compared to the 1.31% recorded in the first quarter of 2023. The slight increase is mainly explained by an increase in the retail non-performing portfolio. On the funding side, as seen on slide 8, private non-financial sector deposits in the second quarter of 2023 totaled 2 trillion pesos, increasing 3.5% quarter over quarter. The bank's consolidated market share of private deposits reached 7.03% after the second quarter of 2023. Private non-financial sector deposits in pesos increased 6.7% compared to the first quarter of 2023. The quarterly change is mainly affected by one, a 19.7% increase in saving accounts, which were partially pushed by exporters and agriculture producers deposits linked to the program, two, a 14.8% increase in checking accounts, and three, a fall in investment accounts by 18.9%, which upsets the growth in peso funding. Private non-financial sector deposits in foreign currency expressed in pesos fell 8.5%. In terms of capitalization, DBA Argentina continues to show strong solvency indicators in the second quarter of 2023. Capital ratio reached 28.4%. Exposure to the public sector in the second quarter of 2023, excluding central bank instruments, represents 11% of total assets above the 9% in the first quarter of 2023 and below the 17.3% reported by the system as of June 2023. It is worth mentioning that as of the date of this report, PBVA Argentina has distributed three of the six installments scheduled on dividend payments from the 50.4 billion pesos total to be paid, according to the plan published on June 7, 2023, and based on the terms agreed with the central bank. The bank's total liquidity ratio remained healthy at 84.1% of total deposits as of June 30, 2023. This concludes our prepared remarks. We will now take your questions. Operator, please open the line for questions.