Banco BBVA Argentina S.A. ADS

Good morning everyone and welcome to BBVA Argentina's first quarter 2025 results conference call. Today with us are Mr. Diego Cesarini, Head of ALM and Investor Relations, Mrs. Belen Forcade, Investor Relations Manager and Mrs. Carmen Murillo Arroyo, CFO, who will be available for the Q&A session. This presentation and the first quarter 2025 earnings release are available on BBVA's Investor Relations website, ir.bbva.com.ar, 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 meaning of the safe harbor provisions found in Section 27A of the Securities Act of 1933 under U.S. federal security 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 2024, filed with the U.S. Securities and Exchange Commission. During the company's presentation, all microphones will be disabled. At that time, we are going to open it up for questions and answers. If you have a question, please write it down in the Q&A section 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 headset to provide optimum sound quality when posing your question. I will now turn the call over to Mrs. Belen Forquet. Please, go ahead.

Good morning and thank you all for joining us today. The notable fiscal consolidation, monetary stringency and relative exchange rate stability have contributed to a moderation process of inflation throughout 2024, which has continued at the beginning of 2025. Likewise, there are increasing signs of recovery in economic activity, which after falling 1.7% in 2024, would expand by around 5.5% in 2025, according to BBA research. The prospects for inflation reduction have strengthened, and the forecast is that it will converge to around 35% by the end of 2025. Recently, we, in the framework of a new agreement with the International Monetary Fund, the lifting of a large part of the exchange controls and implementation of a floating exchange rate scheme with wide banks were announced, which could contribute to the macroeconomic normalization process. Regarding the external environment, although the direct impact of US tariffs could be relatively limited, the economy could be affected by a less favorable global context. Before moving on to this quarter's business dynamics and results, I would like to comment on the new global strategy of the BBA Group for the 2025-2029 cycle. This has been launched arising from an institutional reflection after the closing of the 2020-2024 strategic plan, which was successful in terms of growth and profitability. This redesign responds to a new global context characterized by macroeconomic stabilization, geopolitical transformation, and population aging, which poses challenges and opportunities in credit and deposit management. In this context, the strategic priorities for 2025-2029 are focused on three main pillars. One, a radical customer-centric perspective. Two, value and capital generation and growth in a changing environment. And three, leveraging accelerators such as artificial intelligence for efficient data processing. These priorities are articulated with an evolution in cultural values towards behaviors with greater empathy and demand and a renewed purpose. Support your desire to go further, which reinforces the active role of the customer as a central character of flow. Now moving on to business dynamics, as you can see on slide four of our webcast presentation, our service offering has evolved in such a way that by the end of March, 2025, new customer acquisition through digital channels reached 86% versus 81% a year ago. Retail digital sales measured in units reached 93% in the first quarter of 2025 and represent 86% of the bank's total sales measured in monetary value. Digitalization, which was previously a competitive advantage, has now become a market standard, while new unregulated players and disruptive technologies such as artificial intelligence demand a redefinition of the differential value of the company's proposition. Moving on to slide five and six, I will now comment on the bank's first quarter 2025 financial results. BV Argentina's inflation adjusted net income in the first quarter of 2025 was 81.6 billion pesos, increasing 16.2% quarter over quarter. This implied a quarterly ROE of 11.5% and a quarterly ROE of 2%. The 56.9% increase in quarterly operating results was explained by higher income and lower operating expenses. Higher income was mainly due to, one, a substantial improvement in income from fees, and two, better net interest income. On the side of expenses, there was an improvement in all expenses lines, in particular benefits to personal and other operating incomes. It should be noted that the income tax line in the first quarter of 2024 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 from the net monetary position was 10.7% lower quarter over quarter, thanks to a lower net monetary position, which offset the increase in quarter inflation, which was 8.57% versus 8.03% in the fourth quarter of 2024. Turning into a P&L lines in slide six, net interest income was 541.3 billion pesos, increasing 3.3% quarter over quarter. In the first quarter of 2025, net interest income decreased less than interest in expenses in monetary terms. The former decreased due to lower income from public securities, especially CPI-linked bonds. Expenses decreased due to lower 10 deposit expenses, mainly due to lower rates and interest bearing checking accounts expenses as the rates of this product have also declined. Interest from time deposits explain 74.4% of interest expenses versus 67.9% the previous quarter. Net income as of the first quarter of 2025 totaled 99.8 billion pesos, increasing 48.3% quarter over quarter. Free income totaled 180.1 billion pesos, increasing 20.7% quarter over quarter. Higher income is mainly explained by credit card fees, considering a revision of provisions linked to the MISA's BBVA loyalty program. It is important to note the increase in fees linked to loans, fees from insurance, and fees linked to loan commitments, the latter related to income from structuring of syndicated loans. On the side of expenses, these total 80.8 billion pesos, decreasing 1.9% quarter over quarter. This is mainly explained by lower expenses on payroll promotion campaigns, followed by lower expenses from foreign trade transactions. In the first quarter of 2025, loan loss allowances increased 4.9%, explained by the real growth of the loan book in the quarter, which implied higher provisioning. During the first quarter of 2025, total operating expenses were 423.8 billion pesos, decreasing 13.8% quarter over quarter, of which 29% were personal benefit costs. Personal benefits decreased 23% quarter over quarter. In spite of wages increasing in line with inflation, the fourth quarter of 2024 was highly impacted by severance expenses and the adjustment of provisions recorded for stock of vacation days and variable remuneration, which were not present in the first quarter of 2025, reducing overall expenses. Administrative expenses decreased 4.3% quarter over quarter. This is mainly explained by one, taxes, two, software, and three, rent. Rent and software are related to expenses of software licenses and services contracted with the parent company. In the case of taxes, the fault is mainly explained by an accounting reclassification of taxes linked to the health and safety which as of this quarter are now recorded in the turnover tax line in other operating expenses pursuant to the nature of expense. The accumulated efficiency ratio as of the first quarter of 2025 was 56.3%, below the 62.2% reported in the fourth quarter of 2024, and the 65.4% reported in the first quarter of 2024. The decrease in this ratio is due to a decrease in expenses and an increase in income, especially fee income and lower result from the net monetary position. Private loans as of the first quarter of 2025 totaled 9.2 trillion pesos, increasing 11.2% quarter over quarter. Loans to the private sector in pesos increased 8.3% in the first quarter of 2025. During the quarter, growth is observed in most lines, but was specially driven by one, a 22.9% increase in consumer loans, followed by two, an 18.4% increase in overdrafts, and three, a 16.2% increase in other loans. A 23.1% growth in mortgages is to be noted considering the continuous progress in this product, which was relaunched by mid-2024. In all cases, the increment is boosted by genuine growth in real terms of the portfolio, levered on relative stability of market interest rates. Loans to the private sector denominated in foreign currency increased 25.4% quarter over quarter. Quarterly increase is mainly explained by a 21.4% growth in financing and pre-financing of exports and a 53.7% growth in other loans. The latter linked to financing of investment projects. During the quarter, the commercial portfolio grew 12.5% and the retail portfolio increased 9.5%. The commercial portfolio represents 57.1% of the total portfolio from 52.5% a year ago. In nominal terms, BBA Argentina managed to increase the retail, commercial and total loan portfolio by 19, 22 and 23% respectively during the quarter, surpassing quarterly inflation levels in all cases. As of the first quarter of 2025, the total gross loans and other financing over deposit ratio was 84.7%, above the 77.5% recorded in the first quarter of 2024, and above the 55.9% in the first quarter of 2024. Participation of total loans over assets is 56% versus 51% in the fourth quarter of 2024 and 32% in the fourth quarter of 2024, evidencing a lower exposure to the public sector in line with the real growth of credit demand. BABA Argentina's consolidated market share of private sector loans reached 11.28% as of the first quarter of 2025, improving from 10.10% a year ago and sustaining the two-digit figure. As of the first quarter of 2025, asset quality ratio keeps a good performance at 1.38%, increasing quarter over quarter, mainly due to seasonal errors in credit cards. Commercial MPLs remain with a very good behavior. On the funding side, as of the first quarter of 2025, total deposits reached 11 trillion pesos, increasing 1.8% quarter over quarter. The bank's consolidated market share of private deposits as of the first quarter of 2025 reached 9.15% compared to 7.37% a year ago. Private non-financial sector deposits in pesos totaled 7.4 trillion pesos, increasing 7.8% compared to the fourth quarter of 2024. The quarterly change is mainly affected by a 163.1% increase in investment accounts and a 2.5% increase in checking accounts, mainly explained by higher funding. Private non-financial sector deposits in foreign currency expressed in pesos increased 0.8% quarter over quarter. This is mainly explained by a 20.9% increase in time deposits, partially offset by an 0.4% fall in saving accounts. BV Argentina continues to show strong solvency indicators on the first quarter of 2025. Capital ratio reached 21.5%. Capital excess over regulatory requirement was 1.5 trillion pesos, or 161.3%. In spite of the genuine growth in the loan book, which generated greater requirements, this effect was largely offset by a central bank regulation, which changed operational risk requirements, now aligned to Basel IV regulations. These requirements fell considerably by 94.4%, improving the capital ratio by 202 basis points. The first quarter and 2025 total public sector exposure, excluding central bank, totaled 2.8 trillion pesos, decreasing 2.9% quarter over quarter. The annual increase is mainly explained by a greater increment of public exposure to the treasury in detriment of central bank risk exposure. Exposure to the public sector, excluding central bank exposure, represents 17.1% of total assets, below the 17.9% in the fourth quarter of 2024, 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 20.1% decline in cash and deposits in banks and a 12.5% fall in public securities. As of the date of this report, the bank has announced the payment of dividends in cash or in kind. The total amount to be paid will be 89.4 billion pesos expressed in homogeneous currency as of December 31st, 2024. And according to central bank regulations, it must be updated by inflation on the payment date. This concludes our prepared remarks. We will now take your questions. Operator, please open the line for questions.

Thank you. We are going to open it up for questions and answers. If you have a question, please click on raise hand for audio questions. You will then receive a request to activate your microphone. Please activate it and pick up your headset to provide optimum sound quality when posing your question. Our first question comes from Brian Flores with City.

Hi, Tim. Good morning. Thank you for the opportunity to ask questions. I have the first one is related to guidance, right? Because it seems that there were some moving pieces, as you mentioned, the implementation of the regulation in March. It seems that real loan growth is actually running well ahead of perhaps very optimistic expectations. So from what we remember that you mentioned in the last quarter, you were expecting to grow between 60-65% in real terms. Deposits growing around 40% in real terms. They seem to be maybe growing a bit less. And I don't know if your expectation of ROE has changed a bit, but just wanted to hear from you, given the obviously very dynamic economic environment, if any of the guidance lines that I just mentioned is also changed. And this is the second question, perhaps an extension of the first. It's on capital, right? Because you have a benefit of 200 BIPs due to the regulation. I just wanted to ask you if thinking about a 15% tier one ratio by the end of the year that already incorporates this, let's say, benefit, one-time benefit due to the regulation. Thank you.

Yes. Hello, Brian. This is Diego Cesarini. I will address your questions. Well, to start with, regarding loans, we have revised a little downwards our provision. We think that we're thinking about growth in real terms of around 45 to 50% for the year. That is in line with our 11% growth in the first quarter. Regarding deposits, we are also revising downwards. We are seeing around 25% in real terms. And we are still keeping our ROE guidance between the mid-teens to bias to low teens. And regarding capital, yes, it's true that we have our projection has been improved a little. We are now forecasting by December a ratio around in between 16 and 16.5%. When we were talking about 15, we had this operational risk improvement in our consideration, but well, The improvement that we are showing right now is regarding the performance of flows, which we are revising down to 45 to 50%.

Thank you, Diego. Very clear. If I can make a follow up. So you're revising two lines in growth, right? Deposits and loans by double digits. So just wanted to, if you could expand a bit on the rationale behind it. Is it more on maybe lower risk appetite? Is it more on perhaps your internal expectations of lower dynamism in the economy? Just wanted to understand a bit more on the nature of the revision. Thank you.

Our risk appetite hasn't changed. What we are seeing is that probably liquidity could be a little concerned this year as the government is keeping a very restrictive monetary policy. It's just that. We expect that policy to continue for some months. We have some excess of liquidity that we can still use. So we are not worried in the short term, probably for one or two quarters. We can keep growing even if deposits grow below loans. But then, of course, we are not certain when this policy will change. So we are being a little more conservative on growth just for that.

Okay, super clear. Thank you. You're welcome.

Our next question comes from Pedro Leduc with Itaú BBA.

Hi, Belen and Diego. Thank you very much for taking the question. Congratulations on the numbers. OK, two quick ones. First on SG&A, we had a nice decline there in real trials year over year, Q&Q. If you can help us see through the remainder of the year, if this is a trend that's likely to continue. And then second, on your NIMS, they've been declining, obviously, but declined a lot less this quarter than they had in the last ones. So if you've already seen the end of the transition in NIMS within your asset base, and maybe when can we expect this to start taking up again? Thank you.

Hi Pedro, this is Diego again. Well, I couldn't listen very well to your first question regarding your, I will ask you to repeat, but regarding your second question, NIMS have fallen around 100 basis points this quarter, comparing with fourth quarter of last year. If you consider those NIMS in both currency, they have fallen even less. We have some changes in the mix. Dollar activity is waiting a little more than the previous quarter. And also, if you consider that monetary policy rates have fallen around 600 basis points in average, we see that NIMS have not fallen so much. As we have said before, NIMS at the beginning of last year were abnormally high. They have normalized. You have to consider that part of these high NIMS have in account that we have inflation, high inflation, rates are high because of inflation mainly. And for the rest of the year, if we consider that inflation should keep going down, we should expect some decrease, some more decrease in NIMS. But the speed of that decrease will not be, of course, the same as last year. We are expecting some soft decrease in those figures.

It's very clear. Thank you. The first question was on SG&A. We should continue to see the real-term declines in overall SG&A this year.

Hi, Pedro. Sorry. Could you repeat? Because we are not getting the first part.

In regards to SG&A, so personnel and other admin expenses, they should continue declining in real terms this year as we saw in the first quarter.

You mean the improvement in expenses, you say administrative expenses?

That's right.

Okay. In benefits to the personnel, you know, the main contrast has to do with severance costs that you had in the fourth quarter of 2024 and in 2024 overall. I mean, you had a rotation of C-level employees, so that had a cost. And you're not going to see that during 2025. That was the main moving line. And in the case of administrative expenses, we had a reclassification in the line of taxes that has to do with taxes related to health and safety. It's a specific tax here in Argentina. And because of the nature of that expense, we decided to reclassify. take it from that line onto other operating expenses in the line of turnover tax. So that was the main what moved the quarter in terms of expenses. Of course, this is a one-shot in the sense that this reclassification will already be set for the next quarters. And then you did have lower costs on the side of rent and software that has to do mainly with payments to the parent company, but that has to do with lower provisions that we made on the FX exchange rate at which we value these costs.

Our next question comes from Carlos Gomez with HSBC.

Hello, thank you for taking my questions. First one refers to, as you mentioned, the mix in the loan portfolio and the fact that you have been lending more in dollars. First, is that because there's more demand for dollars or there's actually more availability of funding for dollars? And what do you expect the dollar portfolio to be this year and next year? Will it continue to grow as a percentage of the total? Second, I don't think you have told us your economic assumptions. Can you remind us what you expect for inflation and for the currency for this year and next year?

Thank you. Hello, Carlos. How are you? Well, regarding our mix of loans, well, as we said, we grew more in dollars. We grew 25% in the quarter in real terms, and we grew just 8% in real terms in the peso activity. We have seen more demand in this currency, in dollars, but for the coming months, what we have to think is that The financial system as a whole and even our bank has some strong and conservative policies regarding this currency. We have faced some runoffs of deposits in the past that were very heavy. At the moment, we cannot expect the same speed of growth in dollar activity that we have seen in the first quarter. It will depend on funding. And we are ready to see what the government is going to announce regarding dollars that could benefit our funding. We don't know. We have heard just rumors and they are just announcing this at this moment. But to make it short, we should not expect the same degree of growth in this currency. And regarding our economic assumptions, our research department right now is expecting a 5.5 GDP growth this year and 35% inflation.

And the exchange rate?

The exchange is a little below 1,400. for this year and for next year i know nobody knows but what do you have probably it will grow in line with inflation it will be a little below 1 700. thank you so much you're welcome

Once again, if you would like to ask a question, please click on raise hand for audio questions. You will then receive a request to activate your microphone. Please activate it and pick up your headset to provide optimum sound quality. Please hold while we poll for questions. Our next question comes from Jorge Mauro with Fundamenta. You can open your microphone.

Hi. Yeah, my question is regarding the growth of credit by product. When you look at credit cards, it barely grew this quarter in real terms. So I just wanted to understand What's your view? I mean, do you think that there is potential for great cars or because this is a product that has been mainstream for a longer period of time historically, there is much less growth than in other products. How are you approaching this?

Hi, Jorge. Well, you know that the financial system has been very small. It is still very small. for many years and very based on transactions in the past. In that context, credit card was the product bank used to make contact with new customers. And people's decisions were also very short-term based. So that's where we mainly grew. credit cards loans weighed around 40 or 45% of our balance sheet or loan base two or three years ago. And that is changing for good. People with stability, people are taking more long-term decisions. So we are seeing more growth in consumer loans, car loans, mortgages. And so we are not... we do not want to stop our growth on credit cards, but other products will grow more, probably in the coming years. So that is mainly our opinion on this subject.

Okay, but do you think that credit cards still have potential or the level we have seen today is the credit penetration of credit cards that Argentina may have? So very limited growth in a way.

No, I think we think that they still have potential. But as I said before, mortgages come from scratch. They weigh nothing in banks' balance sheets. The same happens with other long-term loans. So they should grow more. Credit cards, we think that they will still be growing above inflation, but not as much as the other lines. In the case of our bank, we are strong on credit cards. We have a market share that is above our average market share. So we feel very comfortable with that level and probably we will keep that high market share in the future.

Thank you very much.

Next question from Brian Flores with Citi.

Hi, just a quick follow up on the last question. I think it's a very interesting point. So just wanted to understand, are you seeing on average the duration of your portfolio already increasing or is this something that should happen still? Just wanted to understand how quickly this could be happening or not. Thank you.

Hi, Brian. Yes, yes. We see that our duration is increasing mainly because of consumer loans. We have also grown last year and this year on SMEs loans that have longer terms than we had in the past. The usual product for an SME was a discount of checks, documents, very short time, 60 days, 90 days. And since mid-year of 2024, we have seen more demand on investing lines. So, yes, it's definitely, the duration is growing. On average, we are still short in our... In our presentation, we have some figures, some charts regarding durations, and you can see that most of our loans still are below one year tenor. But in the future, we can expect duration to go longer. We are also growing on mortgages. It doesn't represent an important part of our loan portfolio, but in the future, we can also expect that line to weigh more.

Perfect. I'm sorry for the follow-up here, but on the last point, do you think securitization or the ability to do securitization is, I would say, a requirement for us to see mortgages in your portfolio to really gain relevance or even for the system?

Well, we think that you cannot keep this level of growth in mortgages in the long term if we do not have long-term funding. Securitization is one alternative, but we also could have, as in other countries, some long-term bond market. We have that in Argentina, but it's still a very shallow market with small volume, short terms. For example, you cannot issue a bond of more than year and a half or two years in and volumes would still be very very low uh so yes definitely we need some change in funding to keep this um this trend in mortgages at this moment we we cannot be sure that that will happen But if we think that Argentina is normalizing, our capital markets should also get more complex and some long-term investors should be able to buy mortgages or to provide us with some long-term funding. That is our expectation in the short term and midterm. We can still grow on these lines, but for the long term, we need some changes in our funding.

No, thank you. Thank you very much.

Please hold while we pull for questions. We are showing no further questions at this time. This concludes the question and answer section. I would now like to turn it over to BBVA's team for closing remarks.

Well, thank you all for joining us today.

And if you have any further questions, do not hesitate to reach out. Have a nice day. Have a nice week. Thank you.

This concludes the presentation. You may disconnect now and have a nice day.