Banco BBVA Argentina S.A. ADS

Good morning, everyone, and welcome to BBVA's Argentina 4Q24 and Fiscal Year 2024 Results Conference Call. Today with us are Mrs. Belen Forcade, Investor Relations Manager, and Mrs. Carmen Mauricio Arroyo, CFO, who will be available for the Q&A session. This presentation and the 4Q24 earnings release are available on our Investor Relations website, ir.bbva.com.il. and will also be available for download in the chat. First of all, let me point out that some of the statements made during this conference call may be forward-looking statements within the managing of the safe harbor provision found in Section 27A of the Securities Act of 1933 under the U.S. federal securities law. These forward-looking statements are subject to risks and uncertainties that could cause actual results that differ materially from those expressed in the forward-looking statements. Additional information concerning these factors is contained in the BBVA Argentina Annual Report on Form 20-F for the Fiscal Year of 2023, filled with the U.S. Securities and Exchange Commission. During the company's presentation, all microphones will be disabled. At this time, we're going to open it up for questions and answers. If you have a question, please write it down on the Q&A field or click on Raise Hand for audio questions. You will then receive a request to activate your microphone. Please activate it and pick up your handset to provide optimum sound quality when posing your question. I will now turn the call over to Belen Forcade. Please, go ahead.

Good morning and thank you all for joining us today. The significant fiscal and monetary consolidation together with relative exchange rate stability have contributed to a process of inflation moderation throughout 2024 in Argentina. Likewise, after a sharp contraction in the first half of the year, there are clear signs of economic recovery, which, after an expected average drop of 1.8% by the National Institute of Statistics for 2024, would expand around 5.5% in 2025, according to WEBA research. The prospects for reducing inflation have been improving every month, and the forecast is that it will converge to around 30% or even less in 2025. The collapse of country risk is also remarkable, which went from 1,900 BPs to less than 700 BPs at the end of 2024. On the other hand, one of the main factors of uncertainty is associated with the evolution of exchange rate and the pace of removal of exchange regulations. Since recently, the peso has remained more appreciated than expected. The banking system continues to grow at a high rate, driven by inflation control and the reforms introduced by the new government. Now, moving on to 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 December 2024, new customer acquisition through digital channels reached 88% versus 78% a year ago. The response on the side of customers has been satisfactory, and we are convinced that 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 reached 91% in the fourth quarter of 2024 and represent 73.5% of the bank's total sales measured in monetary value. Moving to slide four and five, I will now comment on the bank's fourth quarter 2024 financial results. VEB Argentina's inflation adjusted net income in the fourth quarter of 2024 was 64.7 billion pesos, decreasing 39.6% quarter over quarter. This implied a quarterly ROE of 9.5% and a quarterly ROA of 1.7%. The 48.1% fall in quarterly operating results was explained by a lower operating income and higher operating expenses. The decline in income was mainly due to one, higher loan loss allowances, mainly driven by sustained growth in activity, two, lower net free income, Three, lower net interest income as a result of a lower average monetary policy rate. And four, lower interest generated by CPI-linked bonds. On the side of expenses, personal expenses and operating expenses are higher, the latter due to the devaluation of investment properties. It should be noted that the income tax line reflects a positive result derived from a change in accounting exposure that implied a reclassification of the income tax calculation from other comprehensive income to the income statement. Net income for the period was highly impacted by income from the net monetary position, although with lower impact than the prior quarter. Inflation on the fourth quarter of 2024 was 8.03%, lower than the 12.1% in the previous quarter. Consequently, the income from net monetary position line recorded a 16.2% lower loss than the previous quarter, having a positive income in the quarter-over-quarter net income comparison. Turning into the P&L lines in slide 6, we are going to comment on the financial results of the year. In 2024, PV Argentina net income was 357.7 billion pesos, 0.4% lower than the 359.2 billion pesos reported in 2023. This implied an accumulated annualized ROE of 12.5% and an ROE of 2.5% in 2024, compared to an ROE of 13% and an ROE of 2.7% in 2023. The 25.8% fall in real terms of a bank's operating income is mainly explained by 1. A fall in net interest income due to lower accrued average rates in loans and due to lower inflation, which has an impact on CPI-linked bonds. And two, lower income from foreign exchange and gold gains, in particular due to the position in dual bonds by the end of 2023, which increased the position in USD-denominated assets by the year-end. Nonetheless, improvements in operating expenses are observed, especially in personal expenses and lower expenses due to turnover tax. These effects were compensated by better income from financial instruments at fair value through P&L and an improvement in income from write-down of assets at amortized cost and fair value through OCI as a result of the sale, exchange, and maturity of bonds, mainly CPI-linked bonds. Regarding net interest income, in 2024, this totaled 2.9 trillion pesos, falling 17.3% year over year. This was a result of one, a falling income from public securities as public debt migrated from central bank instruments onto treasury debt, together with an aggressive decline in the monetary policy rate. And two, lower income from loans also was a consequence of lower market rates. Even so, interest expenses decreased as time deposit rates were deregulated and followed the overall decline in market rates. Interest from time deposits explained 66.4% of interest expenses in the quarter versus 71% the prior quarter. In the year, net free income decreased 6.6% explained by a 0.1% increase in income and an 8.1% increase in expenses. Fees performance is mainly due to one, a lower income from collecting services and transfers within an overall decline of the lines that are part of fees linked to liabilities and two, higher expenses in foreign currency. Net fee income is also justified by the active strategy focused on client acquisition. As of December 2024, BBVA Argentina gained more than 142,000 clients, reaching 3.7 million total active clients, which means a 3% growth year over year. During 2024, total operating expenses were 1.7 trillion pesos, decreasing 3.9% year over year in real terms, of which 31% were personal benefit costs. In the year, personal benefits fell 4.6%. In spite of wages following the pace of inflation, the year increase was lower, with adjustment of stock of vacation days and variable remunerations. Administrative expenses grew 3.9% year over year, mainly due to taxes related to wire transfers produced by dividend payments, followed by document distribution, advertising costs, and armored transportation services, the latter affected by the tax amnesty dynamics. The accumulated efficiency ratio as of the fourth quarter of 2024 was 61.8%, above the 59.7% reported in the third quarter of 2024 and the 58.6% reported in the fourth quarter of 2023. The increase in this ratio is due to a decrease in income, both fee and interest income. In 2024, total NIMH was 35% versus 37.3% in 2023, recording a 234 BPs fall. This happened in a context of an aggressive fall in interest rates starting 2024 with a monetary policy rate of 100% and ending in 32%. However, given that the average maturity of interest-earning assets is longer than that of deposits, price adjustment for expenses is faster than for income, mitigating the fall in the NIM. Additionally, USD-denominated deposits had a high relative growth, diluting the expenses generated by total deposits. Sustained credit growth in real terms since April, 2024 allowed the bank to take a more defensive stance to protect the margin from successive decreases in interest rates during the year with a longer term fixed rate credits. Securities portfolio management is to be noted as the bank has converted part of its floating rate securities into securities of longer maturities at fixed rate in a context of declining rates mitigating effects on the NIM. Private sector loans as of the fourth quarter of 2024 totaled 7.6 trillion pesos, increasing 28.7% or 1.7 trillion pesos quarter over quarter and 75% or 3.3 trillion pesos year over year. Loans to the private sector in pesos increased 26.2% in quarter over quarter and 61.5% year over year. During the quarter, growth was especially driven by one, a 25.5% increase in credit cards, followed by two, a 26.5% increase in discounted instruments, and three, a 29.2% increase in customer loans. This is followed by a 26.1% growth in loans to personnel and 23.7% growth in overdrafts. In all cases, the increment is boosted by a genuine growth in real terms of the portfolio, levered on the lower market interest rates and greater commercial efforts. Loans to the private sector denominated in foreign currency increased 42.9% quarter over quarter and 194.6% year over year. Quarterly increase is mainly explained by an 81% growth in financing and pre-financing of exports. During the quarter, the commercial portfolio grew 30.6% and the retail portfolio increased 26.5%. The commercial portfolio represents 56.7% of the total portfolio from 50.7% a year ago. As observed in previous quarters, loan portfolios were impacted by the effect of inflation during the fourth quarter of 2024, which reached 8%. In nominal terms, BEB Argentina managed to increase the retail, commercial and total loan portfolio by 36.6%, 41% and 39% respectively during the quarter, surpassing quarter inflation levels in all cases. As of the fourth quarter of 2024, the total gross loans and other financing over deposit ratio was 77.5% above the 64.9% recorded in the third quarter and above the 55.5% in the fourth quarter of 2023. Participation of total loans over assets is 51% versus 43% in the third quarter of 2024 and 32% in the fourth quarter of 2023, evidencing a lower exposure to the public sector in line with the real growth of credit demand. BBVA Argentina's consolidated market share of private sector loans reached 11.31% as of the fourth quarter of 2024, improving from 9.35% a year ago and sustaining the two-digit figure. As of the fourth quarter of 2024, asset quality ratios keep a very good performance at 1.13%, with non-performing loans growing below the growth of total loan portfolio. On the funding side, as of the fourth quarter of 2024, total deposits reached 9.9 trillion pesos, increasing 7.8% quarter over quarter. The bank's consolidated market share of private deposits reached 8.72% as of the fourth quarter of 2024. Private non-financial sector deposits in pesos total 6.3 trillion pesos, increasing 13.5% compared to the third quarter of 2024 and 23.5% compared to the fourth quarter of 2023. The quarterly change is mainly affected by a 14.1% increase in time deposits and a 15% increase in savings account. Private non-financial sector deposits in foreign currency expressed in pesos increased 0.8% quarter over quarter and 27.8% year over year. This is mainly explained by a 20.9% increase in time deposits, partially offset by an 0.4% fall in savings accounts. BV Argentina continues to show strong solvency indicators on the fourth quarter of 2024. Capital ratio reached 19.5%. Capital excess over regulatory requirement reached 138.5%. It is important to mention that capital ratio was highly impacted in the second quarter of 2024 by dividend distribution. Furthermore, the fall in the capital ratio in this quarter is partially explained by the 14.9% increase in risk-weighted assets linked to the real growth in the loan portfolio in line with the increase in market risk requirements. As of the fourth quarter of 2024, total public sector exposure, excluding central bank, total 2.6 trillion pesos, decreasing 7.3% quarter over quarter. In the year, exposure to the public sector decreased significantly if central bank instruments were considered, bearing in mind that the government migrated debt from the central bank to treasury securities. Exposure to the public sector, excluding central bank exposure, represents 18% of total assets, below the 21% in the third quarter of 2024, and as mentioned before, in line with real loan growth demand. In the quarter, liquid assets were 5.4 trillion pesos, decreasing 13.3% quarter over quarter. This was mainly driven by a decline in cash and deposits in banks, a 9.9% fall in public securities, and a 98.1% fall in overnight transaction in foreign banks. As of December of 2024, the bank issued corporate bonds class 31, 32, 33 and 34, two of them in pesos with Tamar adjustment and two of them in US dollars, all of them maturing in a year or less. Without considering the issuance of corporate bonds in September, Bibi Argentina's last corporate bond issuance was in 2019. This concludes our prepared remarks. We will now take your questions. Operator, please open the line for questions.

Thank you. We are now going to start the Q&A section for investors and analysts. If you wish to ask a question, please use the raise hand button or type it down on the Q&A field. Wait while we pull for questions. Our first question comes from Carlos Lopez from HSBC. Please, Mr. Lopez, your microphone is open.